“Business Laws and Regulation”
into the contract;
“PRELIMS"
LESSON 1: “Partnership”
*Notes = -(lowercase)
DEFINITION OF A PARTNERSHIP
•Partnership is a contract whereby two or more
persons bind themselves to contribute money, property,
or industry to a common fund with the intention of
dividing the profits among themselves. Two or more
persons may also form a partnership for the exercise of
a profession. (Art. 1767)
•Elements of a Contract:
❖ Cause – the essential reason which moves the
parties to enter into a contract.
❖ Object – the thing which it is agreed, on the
part of the party receiving the consideration, to
do or not to do.
❖ Consent – giving of one's conformity to the
terms of the contract freely and voluntarily.
• Article 1327 – The following cannot give consent to
a contract:
(1) Unemancipated minors - (Minority age: 18
years) – need ng parental consent. (void ab
initio)
(2) Insane or demented persons, and deaf-
mutes who do not know how to write.
(1263a)
ELEMENTS OF A PARTNERSHIP
▪ Meeting of minds (Agreement);
▪ To Contribute money (capitalist), property, or
industry to a common fund;
- (valid contribution must be a legal tender. A
cheque is not a legal tender.)
- (cross cheque – cannot be out cashed on the
issue date.)
- (contribution amounting to P3,000 above
must be in writing.)
- (real property – immovable object; land,
building, etc.)
- (industry – skill, profession.)
▪ Intent to Divide profits (and losses) among the
contracting parties.
(Jarantilla, Jr. vs. Jarantilla. G.R.
154468,2010)
ESSENTIAL FEATURES OF PARTNERSHIP
➢ There must be a valid contract;
- (hindi required na in writing to be valid.)
▪ The parties must have legal capacity to enter
- (the person is recognized in law as being able
to commit to a contract.)
▪ There must be a mutual contribution of
money, property, or industry to a common fund;
(Art. 1767)
▪ There must be a lawful object; (Art. 1710)
▪ The purpose or primary purpose must be to
obtain profits and divide the same among
the parties. (Art. 1767)
ADDITIONAL REQUIREMENTS FOR
JURIDICAL PERSONALITY
▪ It is also required that the article of
partnership must not be kept secret among
the members; otherwise, the association shall
have no legal personality and shall be governed
by the provisions on Co- ownership; (Art. 1775)
- (Juridical personality – that which pertains to
artificial (as distinct from human) persons.)
▪ “Kept secret among the members” where
secrecy is directed not to third persons but to
some of the parties; (Art. 1775)
▪ This does not mean that there should be no
contractual relations amongst the parties;
there is only no partnership or association
with distinct legal personality.
CHARACTERISTICS OF PARTNERSHIP
▪ Essentially contractual in nature; (Art.
1767; 1784)
- (there must be a contract.)
▪ Separate Juridical Personality (Art. 1768)
- (distinct and separate personality from its
partners.)
▪ Delectus Personae (Art. 1804; 1813)
- (ability to choose who is going to be the
partners.)
▪ Mutual agency (Art. 1803)
- (equal authority between partners.)
▪ Personal liability of partners for
partnership debts (Art. 1816; 1817)
- (utang ng partner hindi utang ng
partnership.)
PARTNERSHIP EXISTENCE
– Rules to Determine Existence:
No.
1. General Rule (GR)
– Persons who are not partners as between themselves
cannot be partners as to third persons (Art. 1769[1])
Exception: Partnership by estoppel (Art. 1825)
1
– A legal, binding partnership that may occur where
previously, no formal partnership agreement was in
place. A person who exhibits such conduct, or says
words which represent, or allow him to be represented,
as a partner in any firm becomes liable to any loans or
credits that are obtained by the firm. It is also known
as the presumption of partnership.
2. Other rules to determine whether a partnership
exists (Art. 1769)
• Co-ownership or co-possession
• Sharing of gross returns, whether or not the persons
sharing them have a joint or common right or interest
in any property from which the returns are derived;
• Receipts by a person of a share of the profits of a
business is prima facie evidence that he or she is a
partner in the business, unless such were received in
payment:
a. debt by installments or otherwise
b. Wages or rent
c. Annuity
d. Interest or loan
e. Consideration for sale of goodwill of
business/other property by installments
•A partner must have a lawful object or purpose, and
must be established for the common benefit or
interest of the partners (Art. 1770)
EFFECTS OF AN UNLAWFUL PARTNERSHIP
▪ Void ab initio such that it never existed in the
eyes of the law (Art. 1409[1])
- (having no legal effect from beginning.)
▪ Profits shall be confiscated in favor of the
government (Art. 1770)
▪ Instruments or tools and proceeds of the crime
shall also be forfeited in favor of the
government (Art 1770)
▪ The contributions of the partners shall not be
confiscated unless they fall under (c) (Arts.
1411 and 1412)
- (Art. 1411 – when the nullity proceeds from
the illegality of the cause or object of the
contract, and the act constitute a criminal
offense, both parties being in pari delicto, they
shall have no action against each other, and
both shall be prosecuted.)
- (Art. 1412 – when the fault, is on the part of
both contracting parties, neither may recover
what he has given by virtue of the contract or
demand the performance of the other’s
undertaking.)
• Judicial decree is not necessary to dissolve an
unlawful partnership
• That there is no legally constituted partnership does
not mean that there are no contractual or legal
relations among the parties.
EFFECTS OF PARTIAL LEGALITY
• Where a part of the business of a partnership is legal
and a part is illegal, an account of that which is legal
may be had.
• Where, without the knowledge or participation of the
partners, the firm’s profits in a lawful business have
been increased by wrongful acts, the innocent partners
are not precluded as against the guilty partners from
recovering their share of the profits.
FORMATION OF PARTNERSHIP
1. General Rule – No special form is required for the
validity of a contract (Art. 1356)
2. Persons acting as partners are presume to have
entered into contract of partnership. The burden of
proof is shifted to party denying its existence.
Extant partnership presume to exist until proven
terminated.
PARTNERSHIP TERM
• Partnership at will
– One in which no fixed term is specified and is not
formed for a particular undertaking or venture which
may be terminated anytime by mutual agreement.
- (exception: if one of the partners has died.)
• Partnership with a fixed term
– The term for which the partnership is to exist is fixed
or agreed or one formed for a particular undertaking.
COMMON TYPES OF PARTNERSHIP
1. Universal vs. Particular Partnership
a. Universal Partnership
i. Universal Partnership of all Present Property
(Art. 1779), Comprises the following:
– Property which belonged to each of the
partners at the same time of the
constitution of the partnership.
– Profits which they may acquire from all
property contributed
ii. Universal Partnership of Profits
– Comprises all that the parties may
acquire by their industry or work
during the existence of the partnership
(Art. 1780)
– But persons who are prohibited from giving
donations or advantage to each other
2
 cannot enter into a universal partnership.
(Art. 1782)
b. Particular Partnership (Art. 1783)
Has for its object:
– Determinate things
– Their use or fruits
– Specific undertaking
– Exercise of profession or vocation
- (if the partnership is formed only to carry out one
business venture or to complete one undertaking such
a partnership is known as a particular partnership.)
2. General vs. Limited Partnership
a. General Partnership
• Consists of general partners who are liable
pro rata (proportionally) and subsidiarily and
sometimes solidarily rata (liable for
everything) with their separate property for
partnership debts.
b. Limited Partnership (Art. 1783)
• One formed by two or more persons having as
members one or more general partners and one
or more limited partners, the latter not being
personally liable for the obligations of the
partnership.
3. Partnership by Estoppel
• Either by words or conduct, a person does any
of the ff:
a. Directly represents himself to anyone as a
partner in an existing partnership or in a non-
existing partnership.
b. Indirectly represents himself by consenting to
another representing him as a partner in an
existing or in a non-existing partnership.
* When a person has been this represented to be a partner in
an existing partnership, or with one or more persons who are
not actually partners, he is an agent of the persons
consenting to such representation in order to bind them to
the same extent and in the same manner as though he were
a partner in fact (Art. 1825)
ELEMENTS TO ESTABLISHED LIABILITY AS A
PARTNER ON A GROUND OF ESTOPPEL
▪ Defendant represented himself as a partner or
represented by others as such
▪ Not denied or refuted by defendant
▪ Plaintiff relied on such representation
▪ Statement of defendant not refuted.
LIABILITIES IN ESTOPPEL
4. Particular Partnership vs. Joint Venture
• The observation that a joint venture is for a single
transaction while a partnership entails a
continuing business is not entirely accurate in
Philippine Law. A partnership may be universal or
particular and a particular partnership has for its
object a specific undertaking (Roque, Jr. v COMELEC, G.R.
No. 188456, 2009)
• Generally understood to mean an organization
formed for some temporary purpose, a joint venture is
likened to a particular partnership or one which “has
for its object determinate things”, their use or fruits, or
a specific undertaking, or the exercise of a profession
or vocation. (Realubit v Jaso, G.R. No. 178782, 2011)
a. Particular Partnership
(has juridical personality)
• In a joint account, the participating merchants
can transact business under their own name, and
can be individually liable therefore, a partnership
generally relates to a continuing business of
various transactions of a certain kind. (Heirs of
Tan Eng Kee v CA, G.R. No. 126881, 2000)
b. Joint Venture
(has no juridical personality)
•An American concept similar to our joint account
which is a sort of informal partnership with no
firm name and no legal personality. Usually,
but not necessarily a joint venture is limited to a
single transaction, although the business of
pursuing to a successful termination may continue
for a number of years. (Heirs of Tan Eng Kee v, CA, G.R.
No. 126881, 2000)
• A joint venture is a form of partnership and thus
to be governed by the laws on partnership
(Marsman Drysdale Land, Inc. v. Philippine
Geoanalytics, G.R. No. 183374, 2010)
• As a rule, corporation are prohibited from
entering into partnership agreements;
consequently, corporations can enter into joint
venture agreements with other companies or
partnerships for certain transactions in order to
form “pseudo partnerships”. A joint venture
agreement between and among corporations may
be seen as similar to partnerships since the
elements of partnerships are present (Narra Nickel
3
 Mining and Dev’t Corp. v. Redmont Consolidated Mines
Corp., G.R. No. 195580, 2014)
• A verbal agreement to form a joint venture
company is valid and binding. The failure to
reduce the agreement to writing does not affect its
validity or enforceability as there is no law or
regulation which provides that an agreement to
incorporate must be in writing. (Fong v. Dueñas, G.R.
No. 185592, 2015)
5. Professional Partnership
Note: Except limited liability partners
- (dissolution of the partnership – take place when one
of the partners associated with the business, ceases to
be a part of the business going forward.)
- (personal assets of partners can be seized.)
• Any stipulation against personal liability of
partners for partnership debts is void, except as
among them. (Art. 1817)

• General Professional Partnership exists when two or ILLUSTRATION:

more persons may also form a partnership for the
exercise of a profession (Art. 1767[2]). “Tan & Tria – 2T Partnership”
- (not liable for taxes, because they are exempted from Utang ni Trinidad (debtor):
the imposition of income tax.) – 1M kay Tan
– 1M sa 2T partnership
6. Other classifications of Partnership
Pera ni Trinidad – 1M, binayad n’ya kay Tan
•As to legality of existence:
Puwede bang kunin ng partnership yung 1M kay Tan?
a. De jure partnership is one which has
complied with all the legal requirements for its “Puwede, 2T partnership has rights to
establishment. obligate Tan to surrender yung 1M sa partnership.”
b. De facto partnership is one which failed to
comply with all the legal requirements for its
establishment. • Partners are liable solidarily with the
partnership for everything chargeable to the
•As to Purpose: partnership when caused by the wrongful act or
omission of any partner acting in the ordinary course
a. Commercial or trading partnership is one
of business of the partnership or with authority from
formed for the transaction of business
the other partners and for partner’s act or
b. Professional or non-trading partnership is
misapplication of properties. (Art. 1824)
one formed for the exercise of a profession.
- (solidary liability refers to liability of any one debtor
- (partnership is a practice of profession. it cannot be a
among two or more joint debtors to pay the entire debt
corporation. the law prohibits the exercise of profession
if the creditor so chooses.)
to form a corporation.)
- (if ang utang 1M, then dalawa ang partner. solidarily
- (if ang contribution ay Property it should be in writing
liable ang partners 500K each.)
- (Real Property – yung partner na nag-contribute ng
property is liable up to the warranty of the property.)
ILLUSTRATION:
- (warranty – there or therefore available.)
“Tan, Tria & Trinidad – 3T partnertship”
LESSON 2: “Obligations of the Partners”
Umutang si Tan ng 10M kay Colegado (creditor)
*Notes = -(lowercase)
Nareceive ni Tan yung 10M para bumili ng Mercedes
RIGHTS AND OBLIGATION OF PARTNERSHIP Benz para sa partnership, pero ang binili ni Tan ay
Lexus at niregister under sa name n’ya at hindi sa
• All partners, including industrial ones, shall be Partnership.
liable pro rata with all their property and after
all the partnership assets has been exhausted, for Sinisingil ni Colegado si Trinidad sa 10M, pwede ba
the contracts which may be entered into in the name nya singilin si Trinidad?
and for the account of the partnership, under its
Puwede, (article 1824)
signature and by a person authorized to act for the
partnership. However, any partner may enter into a
separate obligation to perform a partnership contract.
(art. 1816)
4
• A newly admitted partner into an existing
partnership is liable for all the obligations of the
partnership arising before his admission but out of
partnership property shares. (Art. 1826)
- (newly admitted partners’ liability is limited to his
share in the partnership property unless there is a
stipulation to the contrary.)
• Partnership creditors are preferred to those of
each of the partners as regards the partnership
property. (Art. 1827)
- (the payments must be paid to creditors, before
division of shares.)
- (order of preference: labor, interest.)
09/10/2022
• Upon dissolution of the partnership, the partners
shall contribute the amounts necessary to satisfy the
partnership liability. (Art. 1839[4], [7])
- (if assets of the partnership have been liquidated. it
will be used to pay the partnership liability.)
• A partner’s obligation for partnership liabilities is
subsidiary in nature – they shall only be liable with
their property after all partnership assets has been
exhausted. Second, the partner’s obligation to third
persons with respect to partnership is pro rata. (Guy v.
Gacott, G.R. No. 206147,2016)
- (if there are personal liabilities still available, it will
be used to pay liabilities.)
RIGHTS AND OBLIGATIONS OF PARTNERS
AMONG THEMSELVES
A. Who Maybe Partners
• General Rule: Any person capacitated to contract
may enter into a contract of partnership.
• Exceptions:
➢ Persons who are prohibited from giving each
other any donation or advantage cannot enter
into a universal partnership (Art. 1782)
- (husband and wife cannot donate to each other.
therefore, cannot enter into a partnership.)
➢ Persons suffering from civil interdiction.
- (ex: persons that are imprisoned.)
➢ Persons who cannot give consent to a contract
(Art. 1327)
– Minor
– Insane persons
– Deaf-mutes who do not know how to
write
- (void ab initio – if a minor enters a contract of
partnership.)
I. Juridical Persons as Partners
• There is no express prohibition for partnerships to be
partners, but this is doubtful and impractical on
account of Art. 1768 – that a partnership has a juridical
personality separate from that of each of the partners-
and of the essential attribute of delectus personae.
- (partnership liability is prioritized over personal
liability and debts of the partners.)
• Corporations may enter into partnership agreements
on the following conditions:
1. Authority to enter a partnership relation is
expressly conferred by the charter or the
Articles of Incorporation (AOI), and the
nature of the business venture to be
undertaken by the partnership is in line with
the business authorized by the charter or AOI.
- (AOI is a public document.)
2. If it is a foreign corporation, it must obtain a
license to transact business in the country in
accordance with the Philippine Corporation
Law.
- (foreign corporations are required to have a
representative.)
II. Tax Treatment on Partnership
• The notion of partnership, no matter how created or
organized, is a pool of insurance companies and is
considered a partnership under applicable tax law.
(Afisco v. CA, G.R. No. 112675, 1999)
• Without prejudice to the formation of a joint venture,
(JM Tuazon v, Bolanos, G.R. No. L-4935)
- (the partners, not the partnership, is liable for taxes.)
B. Kinds of Partners
1. Capitalist – contributes money or property.
2. Industrial – contributes only industry or
personal service.
3. General – liability to 3rd persons extends to
separate property.
4. Limited – liability to 3rd persons limited to
capital contribution.
5. Managing – manages the affairs/business of
the partnership.
6. Liquidating – takes charge of the winding up
of partnership affairs upon dissolution.
5
 7. Partners by estoppel – not really a partner
but liable as a partner for the protection of
innocent 3rd persons.
8. Continuing partner – continues the business
of a partnership after dissolution by reason of
the admission of a new partner, retirement,
death or expulsion of one of the partners.
9. Surviving partner – after a partnership has
been dissolved by death of any partner.
10. Subpartner – not a member of the
partnership who contracts with a partner with
reference to the latter’s share in the business.
11. Ostensible – takes active part and know to the
public as partner in the business.
12. Secret – takes active part in the business but
is known to be a partner by outside parties.
13. Silent – does not take any active part in the
business although he may be known to be a
partner.
14. Dormant – does not take active part in the
business and is not known or held out as a
partner.
C. Promised Contribution
I. What Maybe Contributed
• Contribution must be in equal shares unless
otherwise stipulated. (Art. 1790)
a. Money
• Failure to contribute money makes the
promissory-partner liable for the amount promised
including the interest due and damages arising
from the time the former should have complied
with his or her undertaking. (Art. 1786 [1]).
• If there is fraud or misrepresentation, action
for rescission may be filed and the party entitled to
rescind, without prejudice to any other right has
the right to:
a.1 Lien on, or right of retention over the surplus
of partnership property (unappropriated income)
after satisfying partnership liabilities to third
persons (for any sum paid by the injured partner
for the purchase of an interest in the partnership
and for any capital or advances contributed by the
latter.)
- (Ex: PTTK partnership owns a condo unit.
Decided to lease to a diplomat, 1M per month till
Dec. 2023. Diplomat paid rent from Jan-Dec. 2023.
-(Pina-terminate ng PTTK yung contract. Then the
diplomat will have the right of retention, but not
the ownership of the condo unit).
a.2 Stand in place of creditors of the
partnership for any payments made by the
injured partner in respect of partnership liabilities
after all liabilities to third persons have been
satisfied.
- (Ex: May utang yung partnership sa creditor and
may utang din sa third person. Puwede si creditor
muna ang magbayad ng utang kay third person.)
a.3 Indemnity by the guilty partner against all
partnership debts and liabilities (Art. 1838).
b. Property
• May include tangible or incorporeal (e.g. credit).
(lim Tom Lim v. Phil Fishing Gear, G.R. No. 136448, 1999)
- (shares of stocks is incorporeal property, thus
can be contributed.)
• Liable for fruits from the time property should
have been delivered without need of demand: also
include obligation to preserve the promised
property with the diligence of a good father of a
family pending delivery. (Art. 1786[1] and [2]).
- (Ex: rent [fruit] from condo unit will belong to the
partnership.)
c. Industry
• May concur with any or both of the first two
(money & property) or in the absence of any one or
both of them, manual and/or intellectual in
consideration of share in the profits, hence, as
generally, partners are not entitled to charge each
other.
• Every partner is bound to work to the extent of
his ability for the benefit of the whole, without
regard to the service of his co-partners, and
without comparison of value; for services to the
firm cannot, from their very nature, be estimated
and equalized by compensation of differences.
- (intellectual property cannot be equated.)
• But: A partner who has agreed to render
special service to the partnership, for the
performance of which he or she is qualified, and
which is one of the inducements for the other
members to enter the partnership, was found liable
civilly to account for the value of such service upon
a finding that he wrongfully refused to perform
such service.
• A limited partner is not allowed to contribute
services, only “cash or other property”. (Art.
1845), otherwise, he or she is considered an
industrial and general partner and thus not
exempted from personal liability.
6
 - (capitalist partner can only setup one kind of
professional partnership. Ex: one accounting
partnership and engineering partnership.)
II. When Immovables or Real Rights Contributed
• General Rule: Failure to comply with the
requirements of appearance in public instrument and
SEC Registration will not affect the liability of the
partnership and the members thereof to third
persons. (Art. 1772[2]).
• Exception: When immovable property or real
rights are contributed. Public instrument plus
inventory made and signed by the parties is required
for the benefit of third persons. (Art. 1771 and 1773)
Effect of Absence of Requirements under
Art. 1771 and 1773
No public instrument, No inventory Void
With public instrument, No inventory Void
No public instrument, with inventory Void
With public instrument, with inventory Valid
• Note: Partnership void under Art. 1773, in
relation to Art. 1771 may still be considered either
de facto or estoppel partnership vis-à-vis third
person, may even be treated as an ordinary contract
from which rights and obligations may validly arise,
although not exactly a partnership under the Civil
Code (Torres v. CA, G.R. No. 134559, 1999).
• Failure to prepare an inventory of the
immovable property contributed, in spite of Art.
1773 declaring the partnership void when:
1. No third party involved (Since Art. 1773 was
intended for the protection of 3rd parties);
2. Partners have made a claim on the partnership
agreement.
III. Consequence of Failure to Contribute:
• Each partner has the obligation:
1. To contribute at the beginning of the
partnership or at the stipulated time the
money, property or industry which he or she
may have promised to contribute. (Art. 1786)
2. To answer for eviction in case the partnership
is deprived of the determinate property
contributed. (Art. 1786)
3. To answer to the partnership for the fruits of
the property the contribution of which he or she
delayed, from the date they should have been
contributed up to the time of actual delivery.
(Art. 1786)
4. To preserve said property with the diligence of
a good father of a family pending delivery to
partnership. (Art. 1163)
- (kahit di pa registered sa registry of deeds. need
parin preserve ang pending delivery of property.)
5. To indemnify partnership for any damage
caused to it by the retention of the same or by
the delay in its contribution (Art. 1788, 1170)
• In the Event that there is failure to contribute
property promised:
1. Partners become ipso jure a debtor of the
partnership even in the absence of any demand
(Art. 1169[1])
- (ipso jure – automatic partner of the partnership.
becomes liable for debts of the partnership.)
2. Remedy of the other partner is not rescission
but specific performance with damages from
defaulting partner (Art. 1788)
• In the Event that there is failure to contribute
money promised:
1. To contribute on the date fixed the amount he
has undertaken to contribute to the
partnership.
2. To reimburse any amount he may have taken
from the partnership coffers and converted to
his own use.
3. To pay the agreed or legal interest, if he fails to
pay his contribution on time or in case he takes
any amount from the common fund and
converts it to this own use.
4. To indemnify the partnership for the damages
caused to it by delay in the contribution or
conversion of any sum for his personal benefit.
(Art. 1788)
• A partner who promises to contribute to partnership
becomes a promissory debtor of the partnership,
including liability for interest and damages caused for
failure to pay, and which amounts may be deducted
upon dissolution of the partnership from his share in
the profits and net assets (Rojas v. Maglana, G.R. No.
30616, Dec. 10, 1990)
• Partners must contribute equal shares to the capital
of the partnership unless there is stipulation to
contrary. (Art. 1790)
• Capitalist partners must contribute additional
capital in case of imminent loss to the business of
the partnership and there is no stipulation
otherwise, refusal to do so shall create an obligation
on his part to sell his interest to the other partners (Art.
1790)
IV. Obligation with respect to Contribution to
Partnership Capital Requisites:
7
 1. There is an imminent loss of the business of the
partnership.
2. The majority of the capitalist partners are of
the opinion that an additional contribution to
the common fund would save the business.
3. The capitalist partner refuses deliberately to
contribute (not due to financial inability)
4. There is no agreement to the contrary.
“MIDTERMS”
LESSON 1: DISSOLUTION AND WINDING UP
ART. 1828 – The dissolution of a partnership is
the change in the relation of the partners caused
by any partner ceasing to be associated in the
carrying on as distinguished from the winding
up of the business.
▪ The partnership must be liquidated before
dissolution.
▪ If the partnership’s assets have been exhausted
and there is still liability, partners are liable
with their personal property. Debt is divided
among partners pro rata.
▪ All partners, including industrial partners, are
liable pro rata when partnership assets are
exhausted.
ART. 1829 – On dissolution the partnership is not
terminated, but continues until the winding up
of partnership affairs is completed.
Partnership not terminated by dissolution:
▪ The dissolution of a partnership must not be
understood to mean its extinguishment.
▪ The partnership continues until the
winding up is completed.
▪ Dissolution refers to the change in partnership
relation and not the actual cessation of the
partnership business.
▪ Dissolution of a partnership must also be
distinguished from a mere suspension in the
conduct of its business or operations.
ART. 1830 – Dissolution is caused:
(1) Without violation of the agreement:
▪ If specified in the contract, upon the fulfillment
of the agreement or specified undertaking,
partnership is dissolved. (1.a)
▪ Extraordinary diligence – the bank must
secure those money deposited by the depositor.
Because it is public fund and requires public
interest. (1.b)
▪ In good faith – acting without fraud and
misinterpretation. (1.b)
▪ In bad faith – exists when example: Tan is a
lot owner of one acre. Sold it to Curameng and
nagkaroon ng deed of absolute sale. And sold it
again to Sapida. (1.b)
▪ If a term has not been reached, but the
partners has agreed to dissolve the partnership.
(1.c)
▪ Violation in a provision will automatically
expel a partner in a partnership. (1.d)
(2) In contravention of the agreement between
the partners, where the circumstances do not permit
a dissolution under any other provision of this article,
by the express will of any partner at any time.
(3) By any event which makes it unlawful for the
business of the partnership to be carried on or for
the members to carry it on in partnership.
(4) If a specific thing perishes, the obligation also
ceases.
Ex: Toyota Fortuner Gray 2021 model with plate
number AAB 1516.
(5) By death of any partner. (Partnership of four is not
the same as a partnership of three.)
(7) Civil interdiction of any partner.
▪ a convicted person suffering from the accessory
penalty of civil interdiction for cannot validly
give consent at his capacity to act is limited
thereby.
▪ civil interdiction deprives the offender during
the time of his sentence of the right to manage
his property and dispose of such property by
any act.
(8) By decree of court under Art. 1831.
ART. 1831 – On application by or for a partner the
court shall decree a dissolution whenever:
(1) A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind.
(2) A partner becomes in any other way incapable of
performing his part of the partnership contract.
(3) A partner has been guilty of such conduct as
tends to affect prejudicially the carrying on of the
business.
(4) A partner willfully or persistently commits a
breach of the partnership agreement, or
8
otherwise so conducts himself in matters relating
to the partnership business that it is not reasonably
practicable to carry on the business in partnership with
him.
(5) The business of the partnership can only be
carried on at a loss.
(6) Other circumstances render a dissolution equitable.
▪ Receivership – the process of appointment by
a court of a receiver to take custody of the
property, business, rents and profits of a party
to a lawsuit pending a final decision on
disbursement or an agreement that a receiver
control the financial receipts of a person who is
deeply in debt (insolvent) for the benefit of
creditors.
▪ Insanity or unsound mind of a partner must
first be proven, for the issuance of judicial
dissolution of the partnership. (1.a)
▪ If it affects the operations of the business. (1.c)
ART. 1832 – Except so far as may be necessary to
wind up partnership affairs or to complete
transactions begun but not then finished,
dissolution terminates all authority of any
partner to act for the partnership
▪ General rule: Upon the dissolution, the
partnership ceases to be a going concern
(authority is terminated) and the partner’s
power of representation is confined only to acts
incident to winding up. Unless otherwise
stipulated, every partner is considered the
agent of the partnership.
ART. 1833 – Where the dissolution is caused by
the act, death or insolvency of a partner, each
partner is liable to his co-partners for his share
of any liability created by any partner acting for
the partnership as if the partnership had not
been dissolved.
▪ Exemption to the general rule: If partners
have no knowledge or notice of the death of a
co-partner, the remaining partners are still
liable as if the partnership had not been
dissolved.
ART. 1834 – After dissolution, a partner can bind
the partnership, except as provided in the third
paragraph of this article:
(1) By any act appropriate for winding up partnership
affairs or completing transactions unfinished at
dissolution;
(2) By any transaction which would bind the
partnership if dissolution had not taken place,
provided the other party to the transaction:
a. Had extended credit to the partnership prior to
dissolution and had no knowledge or notice of
the dissolution; or
b. Though he had not so extended credit, had
nevertheless known of the partnership prior to
dissolution, and, having no knowledge or notice
of dissolution, the fact of dissolution had not
been advertised in a newspaper of general
circulation in the place (or in each place if more
than one) at which the partnership business
was regularly carried on. (advertised in
newspaper can defeat the presumption of
having no knowledge about prior to
dissolution)
▪ Authority may continue as regards to third
persons, in the absence of indication of the
partnership’s termination. Partners are still
liable to creditors.
ART. 1835 – The dissolution of the partnership
does not of itself discharge the existing liability
of any partner.
▪ General rule: Dissolution does not discharge
existing liability of the partners.
▪ Exemption: A partner is only discharged from
existing liability by an agreement between the
partnership creditor and person continuing the
business.
▪ Property of a deceased partner:
Partnership creditors of the deceased partner
are prioritized over the individual creditors.
ART. 1836 – Unless otherwise agreed, the
partners who have not wrongfully dissolved the
partnership or the legal representative of the
last surviving partner, not insolvent, has the
right to wind up the partnership affairs.
▪ The last surviving partner may proceed to the
winding up process, provided that the court
may issue the decree of winding up.
▪ The court may assign the surviving partner.
ART. 1837 – When dissolution is caused in any
way, except in contravention of the partnership
agreement, each partner, as against his co-
partners and all persons claiming through them
9
in respect of their interests in the partnership,
unless otherwise agreed, may have the
partnership property applied to discharge its
liabilities, and the surplus applied to pay in cash
the net amount owing to the respective partners.
▪ Without violation of partnership
agreement:
(1) partnership property applied to discharge
the liabilities of the partnership.
(2) surplus if any, applied to pay in cash the
net amount owing to respective partners.
▪ Contravention of partnership agreement:
innocent partners have more rights than the
guilty partners. The innocent partners may
continue to use partnership name if they decide
to buy the guilty partners’ interest or damages
to the partnership.
LESSON 2: CONTINUATION OF DISSOLUTION
PARTNERSHIP AFTER DISSOLUTION
• The surviving partner may continue the
partnership after dissolution.
• Continuation of the partnership dissolves the old
partnership, and a new partnership is created.
• Creditor status: Creditors of the dissolved
partnership are also the creditors of the person or
partnership continuing the business. In the following
conditions:
1. When any new partner is admitted into an
existing partnership or when any partner
retires and assign his rights to two or more of
the partners, or to or more of the partners and
one or more third persons if the business is
continued without the liquidation of the
partnership affairs.
2. When all but one partner retires and assign
their rights in partnership property to the
remaining partner, who continue the
business without the liquidation of partnership
affairs, either alone or with others.
(may representative ‘yung umalis na partner)
3. When any partner retires or dies and the
business of the dissolved partnership is
continued as set forth in no. 1 and 2, with the
consent of the retired partners, or the
representative of the deceased partners but
without any assignment of this right in
partnership property.
(‘yung nag retire hindi in-assign yung kanyang
partnership property)
(Debt is inherited by successors but only to the
extent of their inheritance.)
4. When all the partners or their representatives
assign their rights in partnership property
to one or more third persons who promises
to pay the debts and who continue the business
of the dissolved partnership.
5. When any partner wrongfully causes a
dissolution and the remaining partners
continue the business under the provisions of
Art. 1837, second paragraph, no. 2, either alone
or with others, and without the liquidation of
the partnership affairs.
6. When a partner is expelled, and the remaining
partners continue the business either alone or
with others without the liquidation of the
partnership affairs.
WINDING UP AND DISRIBUTION OF ASSETS
A. Winding up is the process of liquidating the
partnership assets and distributing the proceeds to
satisfy claims against the partnership.
B. Priority of distribution of Assets:
• Upon the winding up of a dissolved partnership, the
asset of the partnership is distributed in the
following order:
1. Those owing to creditor other than partners;
2. Those owing to partners other than for capital
and profits;
3. Those owing to partners in respect of capital;
4. Those owing to partners in respect to profits.
C. Insolvent Partner:
• A partner is liable if the partnership properties are
insufficient. Where a partner has become insolvent or
his estate is, insolvent, the claims against his
separate property shall rank in the following
order:
1. Those owing to separate creditors;
2. Those owing to partnership creditors;
3. Those owing to partners by way of contribution
LIMITED PARTNERSHIP
• Limited Partnership is one formed by two or more
persons having members one or more general partners
and one or more limited partners.
1. Limited partners as such shall not be bound
by the obligations of the partnership;
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 2. Only general partners are supposed to be
involved in the management of the
partnership. If the limited partner is involved
in the management, the limited partner is
liable as the general partner.
3. A contributor, unless he is a general partner,
is not a proper party to proceedings by or
against a partnership, except where the
object is to enforce a limited partner's right
against or liability to the partnership.
• General rule: a general partner is the only proper
party to be questioned in any court proceedings.
FORMATION OF LIMITED PARTNERSHIP
• Two or more persons desiring to form a limited
partnership shall substantially comply in good
faith with the following requirements:
1. Sign and swear to a certificate which shall
state the stipulations provided for under Art.
1844
2. File for record the certificate in the office of the
Securities and Exchange Commission (SEC)
• Note: A limited partnership is NOT formed if there
are no substantial requirements with the above stated
requirements.
CONTENTS OF CERTIFICATE OF LIMITED
PARTNERSHIP
• The Certificate is the document that must be filed
with the SEC that two or more persons must execute
and sign to establishes a limited partnership. It must
(substantially) contain the following:
1. The name of the partnership, adding the word
“limited”;
2. The character of the business;
3. The location of the principal place of business;
4. The name and place of residence of each
member, general, and limited partners being
respectively designated;
5. The term for which the partnership is to exists;
6. The amount of cash and a description of and
the agreed value of the other property
contributed by each limited partner;
7. The additional contributions, if any, to be made
by each limited partner and the times at which
or event on the happening of which they shall
may be.
8. The time, if agreed upon, when the
contribution of each limited partnersis to be
returned;
9. The share of the profits or the other; tion by
way of income which each limited partner shall
received by reason of his contribution;
10. The right, if given, of a limited partner to
substitute an assignee as contributor in the
place, and the terms and condition of the
substitution;
11. The right, if given, of the partners to admit
additional limited partners;
12. The right, if given, of one or more of the limited
partners to priority over other limited partners,
as to contribution or as to compensation by way
of income, and the nature of such priority;
13. The right, if given, of the remaining general
continue the business on the death, retirement,
civil interdiction, insanity, or insolvency of a
general partner.
14. The right, if given, of a limited partner to
demand and receive property other than cash
in return for his contribution.
EFFECT OF FALSE STATEMENT
• If the Certificate contains a false statement, one who
suffers loss by reliance on such statement may be held
liable any party to the certificate who knew the
statement to be false:
1. At the time he signed the certificate; or
2. Subsequently, but within a sufficient time
before the statement was relied upon to enable
him to cancel or amend the certificate, or to file
a petition for its cancellation or amendment.
GROUNDS FOR CANCELLATION AND
AMENDMENT
• The certificate shall be cancelled when the
partnership is dissolved, or all limited partners
cease to be such:
• Amendment: A certificate shall be amended when:
1. There is a change in the name of the
partnership or in the amount or character of
the contribution of any limited partner;
2. A person is substituted as a limited partner;
3. An additional limited partner is admitted;
4. A person is admitted as a general partner;
5. A general partner retires, dies, becomes
insolvent or insane, or is sentenced to civil
interdiction and the business is continued
under Art. 1860;
6. There is a change in the character of the
business of the partnership;
11
 7. There is a false or erroneous statement in the
certificate;
8. There is a change in the time as stated in the
certificate for the dissolution of the partnership
or for the return of a contribution;
9. A time is fixed for the dissolution of the
partnership, or the return of contribution, no
time having been specified in the certificate; or
10. The members desire to make a change in any
other statement in the certificate in order that
it shall accurately represent the agreement
among them.
DEFECTIVE FORMATION
• Defective formation occurs when:
1. A certificate of limited partnership is NOT
filed with the SEC;
2. There are defects in a certificate that is filed
which cannot be considered substantial
compliance;
3. Some other statutory requirement for the
creation of a limited partnership is not met.
PARTNERSHIP NAME
• The surname of a limited partner shall NOT
APPEAR in the partnership name unless:
1. It is also the surname of a general partner;
2. Prior to the time when the limited partner
became such, the business has been carried
on under a name in which his surname
appeared.
CONTRIBUTION OF LIMITED PARTNER
• The contribution of a limited partner may be cash or
property, but not services.
• Liability for unpaid contribution:
A limited partner is liable to the partnership:
1. For the difference between his contribution
as actually made and that stated in the
certificate as having been made.
2. For any unpaid contribution which, he agreed
in the certificate to make in the future at
the time and on the conditions stated in the
certificate.
• When return can be demanded:
A limited partner may rightfully demand the
return of his contribution:
1. On the dissolution of a partnership; or
2. When the date specified in the certificate for its
return has arrived;
3. After he has six months’ notice in writing to all
other members, if no time is specified in the
certificate, either for the return of the
contribution or for the dissolution of the
partnership.
• Condition for the Return of Contribution:
A limited partner shall not receive from a
general partner or out of partnership property any
part of his contributions until:
1. All liabilities of the partnership, except
liabilities to general partners and to limited
partners on account of their contributions,
have been paid or there remains property of the
partnership to pay them;
2. The consent of all member is had, unless the
return of the contribution may be rightfully
demanded under the provisions of the second
paragraph; and
3. The certificate is cancelled or so amended as to
set forth the withdrawals or reduction.
LIABILITY OF GENERAL AND LIMITED
PARTNERS
• General Partners: General Partners of a limited
partnership are liable even up to their personal
properties for the debts and obligations of the limited
partnership.
• Limited Partners: Limited Partners of a limited
partnership are liable only for the debts and
obligations of the limited partnership up to their
capital contributions. A limited partner shall not
become liable as a general partner:
Exceptions: Limited Partners are liable as
general partners in the following cases:
1. If in addition to the exercise of his rights and
powers as a limited partner, the limited
partner takes part in the control of the
business;
2. A limited partner whose name appears in a
partnership name contrary is liable as a
general partner to partnership creditors who
extend credit to the partnership without actual
knowledge that he is not a general partner.
RIGHTS OF A GENERAL PARTNER
12
• A General Partners shall have all the rights and
powers and be subject to all the restrictions and
liabilities of a partner in a partnership without limited
partner.
• When Consent or Ratification of Limited
Partners Needed:
A general partner has NO authority to perform
the following WITHOUT the written consent or
ratification of the specific act by all the limited
partners:
1. Do any act in contravention of the certificate;
2. Do any act which would make it impossible to
carry on the ordinary business of the
partnership;
3. Confess a judgment against the partnership;
4. Possess partnership property, or assign their
rights in specific partnership property, for
other than a partnership purpose;
5. Admit a person as a general partner;
6. Admit a person as a limited partner, unless the
right so to do is given in the certificate;
7. Continue the business with partnership
property on the death, retirement, insanity,
civil interdiction, or insolvency of a general
partner, unless the right so to do is given in the
certificate.
RIGHTS OF A LIMITED PARTNER
• A limited partner shall have the same rights as a
general partner to:
1. Have the partnership books kept at the
principal place of business of the partnership,
and at a reasonable hour to inspect and copy
any of them.
2. Have on demand true and full information of
all things affecting the partnership, and a
formal account of partnership affairs whenever
circumstances render it just and reasonable;
3. Have dissolution and winding up by decree of
court; and
4. Have the right to receive a share of the
profits or other compensation by way or
income, and to the return of his contribution as
provided in.
SHARE IN PROFITS AND LOSSES
• A limited partner may receive from the partnership
the share of the profits or the compensation by way of
income stipulated for in the Certificate of Limited
Partnership.
1. Limitation: The share in the profits or income
cannot be paid if after such payment is made
whether from property of the partnership or
that of a general partner, the partnership
assets are not in excess of all liabilities of the
partnership except liabilities to limited
partners on account of their contributions and
to general partners.
(Share in profits must be claimed after the
payment of debts and liabilities, in order to
prevent bankruptcy.)
Compensation of limited partner by way of
income:
1. Excess of partnership assets over
partnership liabilities
▪ Third party creditors have priority over the
limited partner’s rights
▪ Residual interest lang ang makukuha nila
kagaya ng general partner
▪ To get their shares, the partnership’s creditor
must be satisfied first.
2. Preferential rights of partnership
creditors
❖ The liabilities to the limited partners
for their contributions and to general
partners, whether for contributions, or
not, are not included
LESSON 3: CORPORATIONS
Revised Corporation Law (RA 11232)
Background:
• Republic Act 11232 (RA 11232) or the Revised
Corporation Code of the Philippines took effect on
February 23, 2019, following its publication in two (2)
newspaper of general circulation.
(General rule: for a law to take effect it must be
published in two (2) newspaper of general circulation.)
• It repealed the Corporation Code of the
Philippines.
Salient Features:
• Ease of doing business
▪ removed minimum of incorporators/minimum
capitalization/one person corporation [OPC]
▪ remote meetings
▪ perpetual existence, etc.
• Enhance Governance rules on companies
13
 ▪ compliance officer – needed when companies
offer stocks in the market.
▪ reportorial/disclosure rules
▪ independent directors, etc.
DEFINITION, THEORIES AND
CLASSIFICATION
A CORPORATION is an:
• artificial being created by operation of law.
• having the right of succession and the power,
attributes and properties expressly authorized by law
or incident to its existence. (Sec, 2, RCC)
• its juridical personality commences from the date of
issuance of the SEC Certificate of Registration and
thereupon the incorporators, stockholders
• members of their successors shall contribute a body
politic and corporate under name stated in the Articles
of Incorporation.
1. Artificial Being – A corporation is an
artificial being invested by law with a
personality separate and distinct from the
person composing it, and from that of any other
entity to which it may be related.
2. Creature of Law – A corporation has no
power except those expressly conferred by law
and its articles of incorporation, those which
may be incidental to such conferred powers,
those that are implied from its existence, and
those reasonably necessary to accomplish its
purposes, and which powers is exercise through
its Board of Directors and its duly authorized
officers.
3. Right of Succession – heirs inherits the
corporation.
4. Limited Capacity – a company may only
execute powers which are expressly granted to
it or impliedly granted to it.
Theories of Corporate Existence and Powers:
• Theory of Concession – A corporation being a
creature of the State (created by operation of law), all
its powers and capacities are only the extent that the
laws and its charter have granted. (utang ng
corporation ang kanyang existence sa state.)
• Theory of Business Enterprise – The corporation
is not merely an artificial being, but more importantly
as an aggregation of persons doings business through
an underlying economic unit called the business
enterprise, through which several contract and
transactions are pursued, and which it requires the
protection by the State based on the commercial
expectations of the public who deal in good faith
with the apparent corporation.
Private Corporation Cannot Have Special
Charters
• Sec. 16, Art XII of the 1987 Constitution –
provides that, except for GOCCs, a private corporation
cannot be given a special charter, and may incorporate
only pursuant to a general enabling law (The Revised
Corporation Code).
• Special Charters – relating to companies and other
organizations that work with special permission from
the government.
Basic Attributes of the Corporation:
A. Strong Juridical Personality – It is an artificial
being created by law “having the right of succession”, a
corporation has a personality separate and distinct
from its individual stockholders, or members
(cooperatives), and officers.
B. Centralized Management – All corporate powers
and all corporate properties are vested in the Board of
Directors/Trustees; and other than electing directors
and trustees, and specific provisions giving them
reificatory voting rights, the stockholders or
members do not have management powers over the
operations and assets of the corporation.
C. Limited Liability to Stockholders – As a general
rule, stockholders or members’ personal liability for
corporate debts and liabilities are limited to the
extent of what they have invested (paid-up capital)
and promised to invest in the corporation (unpaid
subscription)
D. Free-Transferability of Units of Ownership –
Delectus personam in partnership in not applicable
to corporate setting, the stockholders hold their share
as personal property with rights to dispose, assign or
encumber them as they may desire.
Main Doctrine on Separate Juridical
Personality:
A. Application of Main Doctrine of Strong
Juridical Personality:
1. Shareholders are in no legal sense the
owners of corporate properties, which the
corporation owns as a distinct legal person,
thus:
14
 1.1 Tax exemptions and privileges granted
to and enjoyed by a corporation do not
extend to its corporate stockholders.
1.2 Transfer of corporate assets to
stockholders by way of liquidation is
not a partition among co-owners, for
stockholders do not co-own corporate
assets; such transfer must be treated as a
conveyance from the corporation to the
stockholders.
1.3 Being a stockholder of a corporation
does not by itself make one’s property
also that of the corporation, and vice-
versa; shareholders are in no legal sense
the owners of a corporate property which is
owned by the corporation as a distinct legal
person.
1.4 A corporation has no legal standing to
file a suit for recovery of certain parcels of
land owned by its members in their
individual capacities.
1.5 Shareholders’ interest in corporate
assets is purely inchoate and does not
entitle them to intervene in a litigation
involving corporate property.
1.6 Even when foreclosure on corporation’s
assets was wrongfully done, its
stockholders have no standing to
recover for themselves moral damages
proportionate to their equity
holdings; otherwise, it would amount to
the appropriation by, and the distribution
to, such stockholders of corporate assets
before dissolution.
2. Mere ownership by a single stockholder of all-
or-nearly-all the capital stock of a corporation
is not of itself sufficient ground for
disregarding the separate corporate
personality, for corporate power is not with
the stockholders, but with the Board of
Directors, thus:
2.1 Ownership of most of the capital stock
and that the fact that majority of the
directors of the corporation are the
directors of another corporation do
not create an employer-employee
relationship between the holding
corporation and the employee of the held
corporation, nor do those facts occasion the
piercing of the veil of corporate fiction.
(Piercing the veil – the court looks at the
corporation as a mere collection of individuals
or an aggregation of persons undertaking
business as a group, disregarding the separate
juridical personality of the corporation unifying
the group.)
2.2 A corporation’s authority to act
(which is vested with the Board) and
its liability for its action are separate and
apart from the individuals who own and
control its equity.
2.3 Corporate property is not the
property of its stockholders and may
not be sold by the stockholders without the
express authorization from the
corporation’s Board.
3. General presumption is that a corporation is a
bona fide corporation and should alone be
liable for its corporate acts and liabilities
entered into by its authorized officers.
3.1 General Rule: An officer cannot be held
personally liable for the consequences
of his acts, for as long as these are on behalf
of the corporation, done in good faith and
within the scope of his authority.
3.2 Being President: Does not render one’s
properties those of the corporation; does
not make the President solidarily liable for
mere breach of contract done by the
corporation; does render him solidarily
liable for a judgment obligation
arising from quasi-delict in an
accident caused by company driver.
(Quasi-delict – wrong which occurs
unintentionally, as a result of something like
negligence, whereas a true delict requires
intentional action.)
3.3 Being Treasurer: Although he has official
custody of company’s finances, cannot be
held liable for the judgment rendered
against the corporation.
(If treasurer uses corporate property without
authority from the board, then treasurer is
held liable.)
Classifications of Corporations:
A. Stock Corporation – It is organized for the
profit and has a capital stock divided into shares and
is authorized to distribute to the holders of such shares
dividends and allotments of the surplus. The governing
body is the Board of Directors.
15
(Shares or stocks are real property, therefore can be
inherited by heirs.)
B. Non-Stock Corporation – It is expressly
organized for the eleemosynary purpose, and where no
part of its income is distributable as dividends to its
members, trustees, or officers subject to the provisions
of the Code on dissolution (whereupon surplus may be
distributed). The governing body is the Board of
Trustees.
(If not member, you do get benefits. Therefore, shares
or stocks cannot be inherited.)
(Intestate succession – if there is no will, this will be
followed according to law.)
o Testamentary – in personal writing with date
and sign.
o Notarial – there must be 3 witnesses.
C. Corporation De Jure – A corporation organized in
accordance with the requirements of the law.
D. De Facto Corporation – A corporation where
there exists a serious flaw in its incorporation. Grant
of juridical personality is an exercise of State power
and not a matter of private affair.
E. Corporation by estoppel doctrine – 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.
F. Public Corporation – One formed or organized of
a portion of the State. Its purpose is for the general
good and welfare. The Local Government Unit (LG)
G. Private Corporation – One formed for some
private purpose, benefit, aim, or end. Corporation
organized under the Revised Corporation Code.
LESSON 4: INCORPORATION AND
ORGANIZATION
A. PROMOTER
• Promoters – persons who, acting alone or with
others, take initiative in founding and organizing the
business or enterprise of the issuer and receives
consideration thereof.
• Promoter’s Contract – are those types of contracts
entered into on behalf of a corporation which is in the
process of organization and incorporation, and such is
in the process of organization and incorporation, and
such fact is acknowledged as an essential ingredient in
the process of perfection.
Liability of Promoter:
• General Rule: The promoter binds himself
personally and assumes the responsibility of
looking to the proposed corporation for
reimbursement.
• The promoter binds himself to ensure that the
corporation, once formed, will ratify the contract
entered into in its name.
• Otherwise, he becomes personally liable for such
contract in the event that corporation does not
ratify.
• Exceptions:
1. Express or implied agreement to the contrary.
2. Novation, not merely adoption or ratification of
the contract.
Liability of Corporation for Promoter’s Act:
• General Rule: A corporation is NOT bound by
the contract. A corporation, until organized, has no
life and no legal existence. It could not have had an
agent [the promoter] who could legally bind it.
(A corporation can enter contracts of transactions
upon the issuance of legal certificate of registration
from the SEC.)
B. SUBSCRIPTION CONTRACT
• Is any contract for the acquisition of unissued stock
in an existing corporation, or corporation still to be
formed.
• Notwithstanding the fact that the parties refer to the
contract as a purchase or some other contract, it shall
be deemed a subscription as long as it involves the
acquisition of unissued stock in an existing corporation
or a corporation to be formed.
C. PRE-INCORPORATION SUBSCRIPTION
AGREEMENTS
• Is a type of promoter’s contract for the acquisition of
unissued stock in a corporation still to be formed.
• Subscription for shares of stock of a corporation
still to be formed shall be irrevocable for a period
of at least six (6) months from the date of
subscription, UNLESS:
16
 1. All of the other subscribers’ consent to the
revocation; or
2. The corporation fails to incorporate
within the same period or within a longer
period stipulated in the contract of subscription.
(Ex: Sa contract, 6 months ma-iincorporate na ‘yun
corporation, pero hindi pa din na-incorporate ang
corporation. Puwede nang irrevoke ang
subscription.)
Note: No pre-incorporation subscription may be
revoked after the Articles of Incorporation is
submitted to the Commission
D. CONSIDERATION FOR STOCKS
• Stocks shall NOT be issued for a consideration less
that the par or issued price thereof, Consideration
for the issuance of stock may be:
a. Actual cash paid to the corporation.
b. Property, tangible or intangible, which must
be:
▪ Actually, received by the corporation;
▪ 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.
h. Other generally accepted form of consideration.
(Note: To be considered the owner of the shares of
stocks, it must be first recorded in the books of shares
of stocks of the corporation.)
• Invalid Consideration:
1. Promissory notes
2. Future service
• Valuation of Consideration – Where the
consideration is other than actual cash, or consist of
intangible property, the valuation thereof shall
initially be determined by the stockholders or the board
of directors, subject to the approval of the Commission.
(2/3 of votes must be needed for the approval of the
board.)
E. ARTICLES OF INCORPORATION
• The AOI is a basic contract document, defining the
charter of the corporation, and serves as the basis by
which to judge whether it exists.
• A corporation’s charter constitutes a contract
between the corporation and the State, with both being
contractually bound to its valid provisions.
F. CORPORATE NAME
• Corporation Code expressly prohibits the use of a
corporate name which is identical or deceptively or
confusingly similar to that of any existing corporation
or to any other name already protected by law or is
patently deceptive, confusing or contrary to existing
laws.
G. PURPOSES
• Articles must state expressly what is its primary
purpose, as distinguished from its secondary purpose.
If funds are to be diverted from the primary purpose of
to a secondary purpose, this can be done by a 2/3 voted
of the outstanding shares and cannot be done by mere
resolution of the BOD.
(Function of BDO: manage the affairs of the
corporation.)
H. PRINCIPAL PLACE OF BUSINESS
• All corporations applying for registration should
state in their articles of incorporations:
i. Specific address of their principal office, which
shall include if feasible, the street number,
street name, barangay city or municipality;
ii. Specific residence address of each incorporator,
stockholder, director, trustee or partner.
(Subpoena – summon to court.)
(To determine if Foreign or Domestic corporation:
depends on whose law it was created.)
I. CORPORATE TERM
• A corporation shall exist for a period not exceeding
50-years from the date of incorporation unless sooner
dissolved or unless said period is extended.
• But under the RCC, perpetual existence unless
through BOD that the term be at specific period.
J. INCORPORATORS
• At least 5, but not more than 15, natural persons may
be incorporators, who must own on record at least 1
17
share of stock. (But this was changed by the Revised
Corporation Code, which allows the formation of OPC.)
• The names, nationalities, and residence the
incorporation must be provided for in the AOI.
K. CAPITAL STOCK
• Organization of a stock corporation must have at
least 25% of total Authorized Capital Stock must
be subscribed; then 25% of total Subscribed
Capital Stock must be paid-up.
L. INCORPORATING BOARD OF DIRECTORS
• The names, nationalities and residence of the
directors or trustees until the regular board members
are duly elected shall be stated in the Articles of
Incorporation, which cannot be less than 5 nor more
than 15.
• OPC must elect and appoint corporate officers and
the board of directors. OPC’s president must also sign
an affidavit that the corporation acts in good faith.
(According to the RCC.)
M. POWERS OF CORPORATION
Express Powers of Corporation
1. To sue and be sued;
2. Power of succession by its corporate name for
the term of its existence;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporations
5. To adopt by-laws not contrary to law, morals,
or public policy, and to amend or repeal the
same;
6. In case of stock corporations, to issue or sell
stocks; for non-stock corporations, to admit
members;
7. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and
otherwise deal with all types of properties;
8. To enter into merger or consolidation.
9. To make reasonable donations, provided that
no corporations shall give donations in aid of
any political party or candidate or for purpose
of partisan political activity;
10. To establish pension, retirement, and other
plans for the benefit of its directors, trustees,
officers and employees, and;
(If walang retirement and if 60 yrs. May law
about retirement plant.)
11. To exercise such other powers as may be
essential or necessary to carry out its purpose
or purposes as stated in the Articles.
N. AMENDMENTS OF ARTICLES
i. Majority vote of the board;
ii. Vote (in a meeting) or mere written assent (no
meeting) of 2/3 of outstanding capital stock, or in case
of non-stock corporation, by 2/3 of the members.
• Once the amendment is approved, dissenting
stockholders may exercise their appraisal rights, but
only if it involves diminishing of substantial rights
previously granted or creating new priority rights.
Amendment of AOI will be effective only upon SEC
approval; but should no action be taken by SEC within
6 months from the date of filing, then automatically
amendment is deemed effective, provided that delay be
not attributable to the corporation.
Certificate of authority must accompany for
amendment in the following:
a. insurance companies from the Insurance
Commission;
b. Bank, building and loan associations, finance
companies from the Bangko Sentral ng
Pilipinas (BSP)
c. Educational institutions from DepEd or CHED
d. Public utilities from LTFRB, CAB, NTC, etc.
Grounds for rejection or disapproval of
amendments to the AOI may include:
1. Non-compliance with the form prescribed;
2. Purpose is illegal or immoral;
3. Treasurer’s Affidavit is false; or
4. Non-compliance with percentage requirement
of ownership required by the Constitution.
• Incorporators must be notified of grounds for
rejections/disapproval and given opportunity to make
the appropriate modifications.
BY-LAWS
• By-laws signify the rules 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.
• It is relatively permanent and continuing rules of
action adopted by the corporation for its own
government and that of the individuals composing it
18
and having the directions, management and control of
its affairs and activities. They are self-imposed and,
although adopted pursuant to statutory authority,
have no status as public law.
A. Content of By-Laws
• The place of meeting of stockholders as
provided in Sec. 51 – city or municipality where
the principal office of the corporation is located; but
the place for meeting of directors or trustees may
be provided for in the by-laws; place of meeting of
directors or trustees may be outside the Philippines
if so provided for in the by-laws. Others matters
may be included in the by-laws, provided they
abide by the following rules:
a.1 They are not contrary to law, morals or
public policies;
a.2 They cannot contravene provisions of the
Articles (even when the matter is one that
should be found in the by-laws);
a.3 They must not be discriminatory, or be
unreasonable, because bylaws are meant to
regulate and not restrict rights.
B. Adoption of By-Laws
• Within one month after receipt of official notice
of the issuance of its certificate of incorporation by
SEC, the corporation must adopt a code of by-laws
for its government.
• By-Laws may be adopted as part of the
incorporation process, in which case they shall be
approved and signed by all the incorporators and
submitted to SEC, together with the articles of
incorporation.
C. Effectivity of By-Laws
• Shall be effective only upon issuance by SEC of
certification that they are not inconsistent with the
Code.
• SEC shall not accept for filling by-laws or any
amendment thereto of any bank, banking
institution, building and loan associations, trust
company, insurance company, public utility,
educational institution or other special
corporations, unless accompanied by a certificate of
the appropriate government agency to the effect
that such by-laws or amendments are in
accordance with law.
D. Binding Effect of By-Laws
• By-Laws are corporation’s own private laws
which substantially have same effect as the laws of
the corporation, and are, in effect written into the
charter. In that sense, they become part of
fundamental law of corporation with which
corporation and its directors and officers must
comply.
E. Amendment or Revisions of By-Laws
1. Approval in Meetings Duly Called for the
purpose.
1.1 Majority vote of the members of the Board;
1.2 Majority outstanding capital stock, or
majority of members in case of non-stock
corporation.
2. By the Board of Directors/Trustees Alone
• 2/3 of the outstanding capital stock, or 2/3 of the
members in a non-stock corporation may delegate
to the Board power to amend or repeal any by-laws
or adopt new by-laws.
• Power to adopt the first original by-laws cannot
be delegated to the Board; only power to adopt new
by-laws that will supplant the old bylaws can be
validly delegated.
“FINALS”
LESSON 1: INCORPORATION AND
ORGANIZATION
A. PROMOTER
• Promoters – persons who, acting alone or with
others, take initiative in founding and organizing
the business or enterprise of the issuer and receives
consideration thereof.
• Promoter’s Contract – are those types of contracts
entered into on behalf of a corporation which is in the
process of organization and incorporation, and such is
in the process of organization and incorporation, and
such fact is acknowledged as an essential ingredient
in the process of perfection.
Liability of Promoter:
• General Rule: The promoter binds himself
personally and assumes the responsibility of
looking to the proposed corporation for
reimbursement.
19
 • The promoter binds himself to ensure that the
corporation, once formed, will ratify the contract
entered into in its name.
• Otherwise, he becomes personally liable for
such contract in the event that corporation
does not ratify.
• Exceptions:
3. Express or implied agreement to the
contrary.
4. Novation, not merely adoption or
ratification of the contract.
Liability of Corporation for Promoter’s Act:
• General Rule: A corporation is NOT bound by
the contract. A corporation, until organized,
has no life and no legal existence. It could not
have had an agent [the promoter] who could legally
bind it.
(A corporation can enter contracts of transactions
upon the issuance of legal certificate of registration
from the SEC.)
B. SUBSCRIPTION CONTRACT
• Is any contract for the acquisition of unissued
stock in an existing corporation, or corporation
still to be formed.
• Notwithstanding the fact that the parties refer to the
contract as a purchase or some other contract, it shall
be deemed a subscription as long as it involves the
acquisition of unissued stock in an existing corporation
or a corporation to be formed.
C. PRE-INCORPORATION SUBSCRIPTION
AGREEMENTS
• Is a type of promoter’s contract for the acquisition
of unissued stock in a corporation still to be
formed.
• Subscription for shares of stock of a corporation
still to be formed shall be IRREVOCABLE for a
period of at least six (6) months from the date of
subscription, UNLESS:
3. All of the other subscribers’ consent to the
revocation; or
4. The corporation fails to incorporate
within the same period or within a longer
period stipulated in the contract of subscription.
(Ex: Sa contract, 6 months ma-iincorporate na ‘yun
corporation, pero nakalipas na 6 months hindi pa
din na-incorporate ang corporation. Puwede nang
irrevoke ang subscription.)
Note: No pre-incorporation subscription may be
revoked after the Articles of Incorporation is
submitted to the Commission.
D. CONSIDERATION FOR STOCKS
• Stocks shall NOT be issued for a consideration
less that the par or issued price thereof,
Consideration for the issuance of stock may be:
i. Actual cash paid to the corporation.
j. Property, tangible or intangible, which
must be:
▪ Actually, received by the corporation;
▪ Necessary or convenient for its use and
lawful purposes;
▪ At a fair valuation equal to the par or
issued value of the stock issued.
k. Labor performed for or services actually
rendered to the corporation.
l. Previously incurred indebtedness of the
corporation.
m. Amounts transferred from unrestricted
retained earnings to stated capital.
n. Outstanding shares exchanged for stocks in
the event of reclassification or conversion.
o. Shares of stock in another corporation.
p. Other generally accepted form of
consideration.
(Note: To be considered the owner of the shares of
stocks, it must be first recorded in the books of shares
of stocks of the corporation.)
• Invalid Consideration:
3. Promissory notes
4. Future service
• Valuation of Consideration – Where the
consideration is other than actual cash, or consist of
intangible property, the valuation thereof shall
initially be determined by the stockholders or
the board of directors, subject to the approval of
the Commission.
(2/3 of votes must be needed for the approval of the
board.)
E. ARTICLES OF INCORPORATION
20
• The AOI is a basic contract document, defining
the charter of the corporation, and serves as the
basis by which to judge whether it exists.
• A corporation’s charter constitutes a contract
between the corporation and the State, with both
being contractually bound to its valid provisions.
F. CORPORATE NAME
• Corporation Code expressly PROHIBITS the use of
a corporate name which is identical or
deceptively or confusingly similar to that of any
existing corporation or to any other name already
protected by law or is patently deceptive, confusing or
contrary to existing laws.
G. PURPOSES
• Articles must state expressly what is its primary
purpose, as distinguished from its secondary
purpose. If funds are to be diverted from the primary
purpose of to a secondary purpose, this can be done by
a 2/3 voted of the outstanding shares and cannot be
done by mere resolution of the BOD.
(Function of BDO: manage the affairs of the
corporation.)
H. PRINCIPAL PLACE OF BUSINESS
• All corporations applying for registration should
state in their articles of incorporations:
iii. Specific address of their principal office,
which shall include if feasible, the street
number, street name, barangay city or
municipality;
iv. Specific residence address of each
incorporator, stockholder, director,
trustee or partner.
(Subpoena – summon to court.)
(To determine if Foreign or Domestic corporation:
depends on whose law it was created.)
I. CORPORATE TERM
• A corporation shall exist for a period not
exceeding 50-years from the date of
incorporation unless sooner dissolved or unless said
period is extended.
• But under the RCC, it is perpetual existence unless
through the BOD that the term be at specific period.
J. INCORPORATORS
• At least 5, but not more than 15, natural persons
may be incorporators, who must own on record at
least 1 share of stock. (But this was changed by the
Revised Corporation Code, which allows the formation
of OPC.)
• The names, nationalities, and residence the
incorporation must be provided for in the AOI.
K. CAPITAL STOCK
• Organization of a stock corporation must have at
least 25% of total Authorized Capital Stock must
be subscribed;
• Then 25% of total Subscribed Capital Stock
must be paid-up.
L. INCORPORATING BOARD OF DIRECTORS
• The names, nationalities and residence of the
directors or trustees until the regular board
members are duly elected shall be stated in the
Articles of Incorporation, which cannot be less than 5
nor more than 15.
• OPC must elect and appoint corporate officers and
the board of directors. OPC’s president must also
sign an affidavit that the corporation acts in good
faith. (According to the RCC.)
M. POWERS OF CORPORATION
Express Powers of Corporation:
12. To sue and be sued;
13. Power of succession by its corporate name
for the term of its existence;
14. To adopt and use a corporate seal;
15. To amend its articles of incorporations;
16. To adopt by-laws not contrary to law,
morals, or public policy, and to amend or repeal
the same;
17. In case of stock corporations, to issue or sell
stocks; for non-stock corporations, to admit
members;
18. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and
otherwise deal with all types of properties;
19. To enter into merger or consolidation.
20. To make reasonable donations, provided
that no corporations shall give donations in aid
of any political party or candidate or for
purpose of partisan political activity;
21. To establish pension, retirement, and
other plans for the benefit of its directors,
trustees, officers and employees, and;
21
 (If walang retirement and if 60 yrs. May law
about mandatory retirement plant.)
22. To exercise such other powers as may be
essential or necessary to carry out its purpose
or purposes as stated in the Articles.
N. AMENDMENTS OF ARTICLES
i. Majority vote of the board;
ii. Vote (in a meeting) or mere written assent (no
meeting) of 2/3 of outstanding capital stock, or in case
of non-stock corporation, by 2/3 of the members.
• Once the amendment is approved, dissenting
stockholders may exercise their appraisal rights, but
only if it involves diminishing of substantial rights
previously granted or creating new priority rights.
Amendment of AOI will be effective only upon SEC
approval; but should no action be taken by SEC within
6 months from the date of filing, then automatically
amendment is deemed effective, provided that delay be
not attributable to the corporation.
Certificate of authority must accompany for
amendment in the following:
e. insurance companies from the Insurance
Commission;
f. Bank, building and loan associations, finance
companies from the Bangko Sentral ng
Pilipinas (BSP)
g. Educational institutions from DepEd or CHED
h. Public utilities from LTFRB, CAB, NTC, etc.
Grounds for rejection or disapproval of
amendments to the AOI may include:
5. Non-compliance with the form prescribed;
6. Purpose is illegal or immoral;
7. Treasurer’s Affidavit is false; or
8. Non-compliance with percentage requirement
of ownership required by the Constitution.
• Incorporators must be notified of grounds for
rejections/disapproval and given opportunity to make
the appropriate modifications.
BY-LAWS
• By-laws signify the rules 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.
• It is 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 directions, management and control of
its affairs and activities. They are self-imposed and,
although adopted pursuant to statutory authority,
have no status as public law.
F. Content of By-Laws
• The place of meeting of stockholders as
provided in Sec. 51 – city or municipality where
the principal office of the corporation is located; but
the place for meeting of directors or trustees may
be provided for in the by-laws; place of meeting of
directors or trustees may be outside the Philippines
if so provided for in the by-laws. Others matters
may be included in the by-laws, provided they
abide by the following rules:
a.4 They are not contrary to law, morals or
public policies;
a.5 They cannot contravene provisions of the
Articles (even when the matter is one that
should be found in the by-laws);
a.6 They must not be discriminatory, or be
unreasonable, because bylaws are meant to
regulate and not restrict rights.
G. Adoption of By-Laws
• Within one month after receipt of official notice
of the issuance of its certificate of incorporation by
SEC, the corporation must adopt a code of by-laws
for its government.
• By-Laws may be adopted as part of the
incorporation process, in which case they shall be
approved and signed by all the incorporators and
submitted to SEC, together with the articles of
incorporation.
H. Effectivity of By-Laws
• Shall be effective only upon issuance by SEC of
certification that they are not inconsistent with the
Code.
• SEC shall not accept for filling by-laws or any
amendment thereto of any bank, banking
institution, building and loan associations, trust
company, insurance company, public utility,
educational institution or other special
corporations, unless accompanied by a certificate of
the appropriate government agency to the effect
that such by-laws or amendments are in
accordance with law.
22
 I. Binding Effect of By-Laws
• By-Laws are corporation’s own private laws
which substantially have same effect as the laws of
the corporation, and are, in effect written into the
charter. In that sense, they become part of
fundamental law of corporation with which
corporation and its directors and officers must
comply.
J. Amendment or Revisions of By-Laws
1. Approval in Meetings Duly Called for the
purpose.
1.3 Majority vote of the members of the Board;
1.4 Majority outstanding capital stock, or
majority of members in case of non-stock
corporation.
2. By the Board of Directors/Trustees Alone
• 2/3 of the outstanding capital stock, or 2/3 of the
members in a non-stock corporation may delegate
to the Board power to amend or repeal any by-laws
or adopt new by-laws.
• Power to adopt the first original by-laws cannot
be delegated to the Board; only power to adopt new
by-laws that will supplant the old bylaws can be
validly delegated.
LESSON 2: ACQUISITIONS, MERGERS AND
CONSOLIDATIONS – NON-STOCK, CLOSE,
SPECIAL AND FOREIGN CORPORATIONS
DISSOLUTION
ACQUISITIONS AND TRANSFERS
A. General Rule on the Obligations of the
Transferee for Business Debts of the Transferor
• A corporation that purchases the assets of another
corporation will NOT be liable for the debts of the
selling corporation, provided, the former acted in
good faith and paid adequate considerations for
such assets;
EXCEPTION:
a. Where purchasing corporation expressly or
impliedly agrees to assume the debts of
selling corporation;
b. Where the transaction amounts (values) to a
consolidation or merger of the two
corporations; (Can be found at corporation’s
balance sheet.)
c. Where purchasing corporation merely
continues the business of the selling
corporation; or (Debts are also continued.)
d. Where transactions are fraudulently
entered into in order to escape liability for
those debts.
MERGERS AND CONSOLIDATION
B. Definition
• Merger – A union whereby one or more existing
corporations are absorbed by another corporation
that survives and continues the combined business.
(One survives.)
• Consolidation – The union of two or more existing
corporations. A new corporation is created, and
consolidating corporations are extinguished. (Both are
terminated.)
• Note: The power to merge or consolidate is NOT
within the inherent powers of the corporation.
Therefore, it must be granted by law.
– Merger or consolidation does not become
effective by mere agreement of the
constituent corporations. Approval of the
SEC is required. (This is because monopoly is
not allowed by the law. Philippine Competitive
Commission)
C. Mere Acquisition/Transfer (3 Levels)
1. Assets-Only Level – Purchase of raw assets of
the enterprise. Transferee is NOT liable for
the debts and liabilities of the transferor
corporation as there is no privity of contract
between transferee and creditors, except
when there is fraud, assumption of liability or
takeover of the assets of a dissolved corporation.
2. Business Enterprise Level – Purchase of
substantially all the assets of the
corporation extending to its “going concern”
(ability to do business and make money,
goodwill, clientele, sock-in-trade, etc.).
3. Equity Level – Purchases takes control of the
business by purchasing the shareholdings.
Purchasing corporation is still protected by
the limited liability feature but the same
can be pierced.
D. Plan of Merger or Consolidation
1. Names of corporations
2. Terms of the merger or consolidation and the
mode of carrying the same into effect.
23
 3. Statement of Changes of Articles of
Incorporation.
4. Approval by affirmative vote of stockholders or
members representing 2/3 of outstanding
capital stock.
Note: Ownership of all or almost all of a corporation’s
shareholdings does NOT mean ownership of the
corporation.
E. Articles of Merger or Consolidation
1. Signed by the President or Vice President and
certified by the Secretary setting forth:
a. Plan of merger or consolidation
b. Number of outstanding shares or members
c. Number of shares or members voting for or
against merger or consolidation
(Dissenting opinion must be registered in the
minutes of minutes. Imposing of appraisal rights.)
F. Procedure of Consolidation or Merger
a. The board of directors or trustees of each corporation,
party to the merger or consolidation, shall approve a
plan of merger or consolidation setting forth the
following:
1. Names of the corporation involved;
2. Terms and mode of the merger or
consolidation;
3. Statement of the changes, if any, in the
articles of incorporation of the surviving
corporation in case or merger, and, with respect
to the consolidated corporation in case of
consolidation; and other provisions.
b. The plan of merger or consolidation shall be
approved by majority vote of each of the boards
of the corporation involved at separate meetings;
c. The same shall be submitted for approval by
the stockholders or members of each such
corporation at separate corporate meetings duly called
for the purpose.
d. At least 2/3 of the outstanding capital stock, if a
stock corporation, or 2/3 of the members of the non-
stock corporation should concur to such plan.
e. Dissenting stockholders may exercise their right of
appraisal.
f. Any amendment to the plan must be approved
by the same votes.
g. Once the required number of stockholders or
members approved of the plan, Articles of merger or
consolidation shall be executed by each constituent
corporations, signed by the President or Vice President
and certified by the Secretary.
APPRAISAL RIGHT
• Definition: The right to withdraw from the
corporation and demand payment of the fair value
of his share after dissenting from certain corporate
acts involving fundamental changes in corporate
structure.
• Instances wherein Appraisal Right may be
Exercised:
1. Extension or shortening of corporate term;
2. In ace any amendment to the articles of
incorporation has the effect of changing or
restricting the rights of any stockholders or
class of shares, or of authorizing preferences in
any respect superior to those outstanding
shares of any class;
3. Investing of corporate funds in another
business or purpose;
4. Sell or dispose all or substantially all
assets of corporation;
5. Merger or consolidation
G. Procedure of Consolidation or Merger
a. Four copies of the Articles of merger or
consolidation shall be submitted to SEC for
approval.
b. If the SEC is satisfied that the merger or
consolidation of the corporation concerned is
legal, it shall issue a certificate of merger or
consolidation at which time the merger or
consolidation shall be effective.
c. If the SEC is NOT satisfied, it shall set a hearing
to give the corporations concerned the opportunity to
be heard. (Art. 3 Sec. 3 of the Constitution)
H. Legal Effect of SEC’s Approval of merger or
consolidation
1. The separate existence of the constituent
corporations shall cease, and which shall
become a single corporation which, in the
case of merger shall be the designated
surviving corporation, and in consolidation
shall be the consolidated corporation
designated in the plan of consolidation.
24
 2. Surviving/consolidated corporation shall
thereupon and thereafter possess all the
rights, privileges, immunities and franchises
of each of the constituent corporations.
3. All properties, all receivable due on
whatever account, including subscriptions to
share and other choses in action, and all and
every other interest of, or belonging to, or due
to each constituent corporation shall be taken
and deemed to be transferred to and
vested in such surviving/consolidation
corporation without further act or deed.
4. Surviving/consolidated corporation shall
be responsible and liable for all liabilities
and obligations of each of the constituent
corporation in the same manner as if such
surviving/consolidated corporation had itself
incurred such liabilities or obligations.
5. Neither the rights of creditors nor any
lien upon the property of any of each
constituent corporations shall be impaired
by such merger or consolidation.
6. Any claim, action or proceeding pending
by or against any of such constituent
corporations may be prosecuted by or
against the surviving/consolidated
corporations, as the case may be.
I. Effects on Employees of Constituent
Corporations
• The surviving/consolidated corporation would
be considered as the successor employer with
respect to the claims of employees of the constituent
corporation, even with respect to CBA deadlock
situations which existed right before the merger.
(CBA – Collective Bargaining Agreement)
SPIN-OFFS
• The purpose of spin-off process is for the corporation
to segregate a line of business or a separate
business enterprise into a new corporate entity,
which then may become its subsidiary.
DISSOLUTION AND LIQUIDATION
I. METHODS OF CORPORATE DISSOLUTION
A. Voluntarily Dissolution – By filing the
proper papers with SEC. No hearing is
required if there are no debts, but hearing
is required where creditors are affected.
a.1 Without Debts: Simply by Administrative
Proceedings.
▪ Majority vote of the Board by
resolution;
▪ Affirmative vote of 2/3 of the
outstanding capital stock, or 2/3 of the
members as the case maybe;
Provided: Notice of such meeting was
published in principal office;
▪ File with the SEC
▪ SEC must issue Certificate of
Dissolution.
a.2 With Debts: Quasi-Judicial Proceedings
▪ Formal petition with SEC – Signed
by majority of the directors/trustee or
officers having management of its
affairs, verified by president or
secretary or one of the trustee;
Set forth all claims and demands
against it;
Set forth that dissolution was resolved
upon affirmative vote of 2/3 of the
members as the case may be.
(Must submit Minutes of Meeting, to
find out if there are any dissenting
opinions of shareholders.)
B. Involuntary Dissolution – Upon verified
complaint filed with SEC on grounds
authorized by law like when there is serious
dissension in the corporation, non-user of
franchise, etc.
A corporation may be dissolved by SEC upon
filing of a verified complaint and after
proper notice and hearing on the grounds
provided by existing laws, rules and
regulations, on any of the following grounds:
1. Fraud or misrepresentation as to the
paid-up capital of the corporation
(25%-25% requirements);
2. Misinterpretation;
3. Ultra vires act: Mala prohibita, but too
numerous infractions, which is persistent
despite SEC warnings. (Mala prohibita –
By default it is already against the law.)
4. Continuous inactivity of the
corporation for at least 5 years
5. Refusal to adopts or approve by-laws.
C. Expiration of the terms of the
Corporation – Every corporation where the
corporate life as stated in its AOI expires,
without a valid extension having been effected,
is ipso jure dissolved without need of further
action on the part of the corporation.
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 D. Shortening of corporate term – By vote of
2/3 of outstanding capital stock, 2/3 of the
members as the case may be, the articles may
be amended to shorten the corporate life.
E. Failure to organize and commence
business within two-years from date of
incorporation.
F. Dissolution pursuant to Financial
Rehabilitation and Insolvency Act (FRIA)
of a distressed corporation no longer
rehabilitate. (FRIA Ex: PAL. Pinapababa ‘yung
utang ng company para maka-survive.)
II. CORPORATE LIQUIDATION
▪ After its dissolution, a corporation, “shall
nevertheless be continued as a body
corporate for 3 years after the time when
it would have been dissolved, for the
purpose of prosecuting and defending suits by
or against it and enabling it to settle and close
its affairs, to dispose of and convey its property
and to distribute its assets, but not for the
purpose of continuing the business for which it
was established.”
▪ A dissolved corporation cannot by
amendment of its AOI extend its
corporate life during the 3-year period of
liquidation for that would constitute “new
business”.
▪ A liquidation proceeding is a proceeding in
rem so that all ither interested persons
whether or not known to the parties may be
bound by such proceedings.
(in rem – recognized by law and the world as a
juridical personality.)
• METHODS OF CORPORATE LIQUIDATION:
1. With the Board of Directors supervising
the liquidation process, but their authority
is good only within a period of 3 years from
corporation dissolution.
2. By transferring all of the assets to a
receiver or a trustee, who handle the
liquidation process even beyond the 3-year
period.
• LIQUIDATION EFFECTED BY THE BOARD OF
DIRECTORS
▪ Even after the lapse of 3-year liquidation
period, the officers and directors of the
defunct corporation are proper parties in
interest insofar as they may be held
personally liable for the unpaid
deficiency tax assessment made against the
defunct corporation.
▪ If a corporation has a pending case which it
filed during the 3-year period, and it is still
pending after the said period, the stockholders
should meet and transfer all the rights of
action to the trustee so that he can continue
the case until its termination.
• LIQUIDATION EFFECTED THROUGH
RECEIVER OR TRUSTEE
▪ At any time during the 3-year period, a
dissolved 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.
▪ Even if no trustee is appointed during the 3-
year period of the liquidation, a suit pending
prior to the expiration of the period may still be
prosecuted with the counsel of record
being considered as the “trustee” required by
law.
(Counsel of record – person who represented
the company in court shall be considered the
trustee. (Ex: attorney, etc.)
• ESCHEAT TO THE GOVERNMENT
▪ Upon winding up of the corporate affairs, any
asset distributable to any creditor or
stockholder or member who is unknown or
cannot be found shall be escheated to the
city or municipality, where such assets are
located.
• REINCORPORATION
▪ The Board of Directors may file a new set
of articles of incorporation to
reincorporate what otherwise would be a
dissolved corporation, provided that they
obtain the reificatory vote of stockholders
owning/representing at least 2/3 of the
outstanding capital stock.
NON-STOCK CORPORATIONS
A. Definition
• A non-stock corporation is one where no part of
its income is distributable as dividends to its
members, trustees, or officers, subject to the
provisions of the Corporation Code on dissolution.
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• Any profit which a non-stock corporation may obtain
as an incident to its operations shall, whenever
necessary or proper, be used for the furtherance of
the purpose or purposes for which the
corporation was organized.
particular term shall hold office only for unexpired
period.
• Qualification – No person shall be elected as trustee
unless he is a member of the corporation.

B. Purpose • Election of officers – Unless otherwise provided for

in the articles or the by-laws, members may elect
• A non-stock corporation may be formed or organized officers of a non-stock corporation.
for the following purposes:
F. Place of Meetings
1. Charitable
2. Religious • By-laws may provide that the members may hold
3. Educational their regular or special meetings at any place
4. Professional even outside the place where the principal office of the
corporation is located: PROVIDED:
5. Cultural
6. Recreation (a) Proper notice is sent to all members indicating
7. Fraternal the date, time and place of the meeting;
8. Literary (b) Place of meeting shall be within the
9. Scientific Philippines. E. Treatment of Profits Non-stock
10. Social non-profit corporations may actually earn
11. Civic Service profits incidentally from its operations,
12. Similar purposes, like trade, industry provided that the profits are devoted to their
13. Any combination purpose.
C. Nature of Membership G. Treatment of Profits
• General Rule: If you are a member of a non-stock • Non-stock non-profit corporations may actually earn
corporation, then your rights are personal and non- profits incidentally from its operations, provided
transferrable. that the profits are devoted to their purpose.
• Except: when articles of incorporation CONVERSION BETWEEN STOCK AND NON-
expressly provide that membership can be STOCK CORPORATION
transferred in the articles or the by-laws.
• A non-stock corporation cannot be converted
D. Right to Vote into a stock corporation through mere
amendment of its AOI as this would be in violation
• The right of the members of any class or classes to
vote may be limited, broadened or denied to the of Section 87 which prohibits distribution of income
as dividends to members. However, a non-stock
extent specified in the AOI or the by-laws. Unless
corporation can be converted into a stock
so limited, broadened or denied, each member
corporation only if the members dissolve it first
regardless of class shall be entitled to one vote.
and then organized a stock corporation. The
• Unless otherwise provided by the AOI or the by-laws, result is a new corporation.
a member may vote by proxy.
(Liquidate assets first before conversion.)
E. Election and Term of Trustees
• On the other hand, a stock corporation may be
• Unless otherwise provided in the AOI or by-laws, the converted into a non-stock corporation by mere
Board of Trustees, which may be more than 15 in amendment provided all the requirements are
number, shall classify themselves that the terms of complied with. Its rights and liabilities will remain.
office of 1/3 of their number shall expire every
CLOSE CORPORATIONS
year, and subsequent elections of trustees shall
be held annually with a term of 3 years. A. Definition
• Vacancies – Trustees thereafter elected to fill • One whose articles of incorporation provide that:
vacancies occurring before the expiration of a

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 1. All the corporation’s issued stock of all classes,
exclusive of treasury shares, shall be held
of record by not more than a specified
number of persons, not exceeding twenty
(20)
2. All the issued stock of all classes shall be
subject to one or more specified restrictions
on transfer permitted by the code.
3. The corporation shall not list in any stock
exchange or make any public offering of
any of its stock of any class.
• Note: A corporation is not deemed a close corporation
whenever 2/3 of the voting stocks or voting rights is
owned or controlled by another corporation which is not
a close corporation.
B. Restrictions on Transfers
• Restrictions in the transfer of the stocks must
appear:
1. In the Articles of Incorporation
2. In the By-Laws
3. On the stock certificate
C. Pre-emptive Right in Close Corporation
• It shall extend to all stocks to be issued,
including reissuance of treasury shares, whether
for money or for property of personal services, or
in payment of corporate debts, unless the articles of
incorporation provide otherwise.
D. Management by Stockholders
• Articles of incorporations may provide that the
business of the corporation shall be managed by
the stockholders; in such case, no directors need
be elected; and the stockholders shall be deemed
directors and be subject to the same liabilities as
directors.
E. Amendment of Articles of Incorporations
• Any amendment to the AOI which seeks to:
1. Delete or remove any provisions required by
the Corporation Code to be contained in the
AOI of a close corporation;
2. Reduce a quorum or voting requirement stated
in the said AOI:
Shall not be valid or effective unless approved
by the affirmative vote of at least 2/3 of
outstanding capital stock, whether with or
without voting rights, or of such greater
proportion of shares as may be specially
provided in the articles at a meeting duly
called for the purpose.
F. When Board Meeting is Unnecessary
1. Before or after such action is taken, written
consent thereto is signed by all the
directors;
2. All the stockholders have actual or implied
knowledge of the action and make no
prompt objection thereto in writing;
3. The directors are accustomed to take
informal action with the express or
implied acquiescence of all the
stockholders; or
4. All directors have express or implied
knowledge of the action in question and
none makes prompt objection thereto in
writing.
If meeting is held without proper call or notice,
action taken thereto within corporate powers
is deemed ratified by a director who failed to
attend, unless he promptly files his written
objection with Secretary after having
knowledge thereof.
SPECIAL CORPORATIONS
A. Educational Corporations – Board of Directors
of Trustees
1. When Non-Stock – Not less than 5 nor
more than 15 trustees
– Unless otherwise provided for in the AOI or by-
laws, the board of trustees of incorporated
schools, colleges or other institutions of
learning shall, as soon as organized, so classify
themselves that the term of office of one-fifth
(1/5) of their number shall expire every year.
Trustees thereafter elected to fill vacancies,
occurring before the expiration of a particular
term, shall hold office only for the unexpired
period. Trustees elected thereafter to fill
vacancies caused by expiration of term shall
hold office for five (5) years. A majority of the
trustees shall constitute a quorum for the
transaction of business. The powers and
authority of trustees shall be defined in the by-
laws.
2. When stock – same rules as in ordinary
stock corporation.
B. Religious Corporations
1. Corporation Sole
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– For the purpose of administering and
managing, as trustees, 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. Formation of a corporation sole
is only applicable to a religious group the rules
of which provide that the property of the group
shall be placed in the name of the head of the
group who shall have the power to dispose of
said property.
a. Articles of Incorporation – It must
be verified by the head of the
religious group who is “organizing”
himself into such. Such head shall
then become a trustee for the
religious group. If he wants to sell,
dispose or mortgage the property of
the group, he must obtain the
approval of the RTC in which he
resides.
EXCEPTION: If rules of the religious
group regulate the method of acquiring,
holding, selling, and mortgaging real
estate and personal property, such
rules shall be controlling, and
intervention of the courts shall not
be necessary.
b. Acquisition and Alienation of
Property – Any corporation sole may
purchase and hold real estate and
personal property for its church,
charitable, benevolent for such
purpose.
c. Filling of vacancies – Successors 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 on the filing
with SEC of a copy of their
commission, certificate of election,
or letters of appointment duly
certified by a notary public.
d. Dissolution – May be dissolved and
liquidated by submitting to SEC a
verified declaration of dissolution,
setting forth among others:
i. For dissolution and winding up;
ii. Authorization for the dissolution of
the corporation by the religious
denomination, sect or church.
iii. Names and addresses of the person
who are to supervise the winding
up of corporate affairs.
2. Religious Societies
– Any religious society or religious order, or any
diocese, synod, or district organization of any
religious denomination, sect or church, may
incorporate with the SEC expressly for the
administration of its temporalities or for the
management of its affairs, properties and
estate, by complying with the following:
a. The religious society or religious order or
diocese, synod or district organization is a
religious organization of some religious
denomination, sect, or church;
b. 2/3 of its membership have given their
written consent or have voted to
incorporate at a duly convened meeting of
the body;
c. Incorporation is not forbidden by
competent authority or by the
constitution, rules, regulations or
discipline of the religious denomination,
sect, or church of which it forms a part;
d. Place in the Philippines where the
principal office of the corporation is to be
established and located; and
e. Names, nationalities, and residence of the
trustees, to serve for the first year or such
other period as may be prescribed by the
laws of the religious society or religious
order, or the diocese, synod, or district
organization, the Board of Trustees to be
not less than five nor more than 15.
FOREIGN CORPORATIONS
A. Definition
• A foreign corporation is organized under the laws
of a foreign country, provided said foreign country
allows Filipinos and Philippine corporations to do
business there.
B. License to Do Business in the Philippines
• A foreign corporation shall have the right to transact
business in the Philippines only after it has
obtained a license to do business from the SEC.
C. Consequence When a Foreign Corporation
Does Business Without Requisite License
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• No Foreign corporation transacting business in the
Philippines without a license, shall be permitted to
maintain or intervene in any action, suit or proceedings
in any court or administrative agency of the
Philippines; Nevertheless: It may be sued or
proceeded against before Philippine courts or
administrative tribunal on any valid cause of action
recognized under Philippine laws.
• A foreign corporation is organized under the laws of
a foreign country, provided said foreign country allows
Filipinos and Philippine corporations to do business
there.
• Status of Contracts: Failure to obtain a license by
a foreign corporation doing business in the Philippines
does not affect the validity of contracts it has
entered into, but merely removes such foreign
corporation’s legal standing to sue in local
tribunals, which may even be cured by subsequent
obtaining of the necessary license.
D. Domicile and Residence of Foreign
Corporations
• The domicile of a foreign corporations is in the state
where it was incorporated, and in a strict technical
sense, such domicile as may have been single in its
essence and a corporation can have only one
domicile which is the state of its creation.
E. Laws Applicable to Foreign Corporations
• Any licensed foreign corporation shall be bound by
all laws, rules and regulations applicable to
domestic corporations of the same class.
However: laws of place of incorporation continue to
govern such creation, formation, organization or
dissolution of foreign corporations of such as fix the
relations, liabilities, responsibilities or duties of
stockholders, members or officers to each other or to
the corporation.
F. Amendment of Articles of Incorporation
• When the AOI or by-laws of a licensed foreign
corporation are amended, it shall file with the SEC
within 60 days after such amendment becomes
effective, a duly authenticated copy thereof,
indicating clearly the change(s) made. However, filing
shall not itself enlarge or alter the purpose or purposes
for which such corporation is authorized to transact
business.
G. Merger and Consolidation
• One or more licensed foreign corporations may
merge/consolidate with domestic corporation(s)
if such is permitted under Philippine laws and
the law of incorporation; Provided, Codes
requirements for merger/consolidation are complied
with.
H. Revocation/Suspension of License to Do
Business
• SEC may revoke/suspend the license on the following
grounds:
h.1 Failure to:
▪ File its annual report or pay any required fees;
▪ Appoint and maintain a Philippine resident
agent;
▪ Submit to SEC a change of resident agent or its
address, or authenticated coy of any
amendment to its articles of
merger/consolidation
▪ Pay any and all taxes, impost, assessments or
penalties, if any, lawfully due to Philippine
Government or its agencies.
h.2 Misrepresentation of any material matter in
any application, report, affidavit or other
document submitted.
h.3 Transacting business in the Philippines not
authorized in license;
h.4 Acting as agent for a foreign corporation/entity
not licensed to do business in the Philippines;
h.5 Any ground rendering it unfit to transact
business in the Philippines.
I. Withdrawal
• A foreign corporation desiring to withdraw must:
i.1 File a petition, published once a week for three
consecutive weeks;
i.2 Settle all Philippine-accrued claims;
i.3 Pay all taxed due.
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