Law-Midterm Reviewer
Non-Stock Corporation should be registered by
Corporation
- Corporation is treated as an artificial being
created by operation of law, having the right of
succession and the powers, attributes, and
properties expressly authorized by law or
incident to its existence.
• It is merely a juridical entity that is created
by law therefor is NOT a natural person by an
artificial or juridical being.
• It is formed because there are legal
procedures and requirements that need to
be satisfied strictly otherwise, no
corporation can be given life.
• It has the right of succession because it does
not succumb upon the death of its
stockholders and members. Their heirs
rather step into their shoes and claim their
positions to continue their place in the
corporation. In effect, the corporation
likewise continues its life and legitimate
affairs in the hands of the new breed of
owners.
• It has the powers, attributes and properties
expressly authorized by law or incident to its
existence.
a. The right to sue and be sued in its own
name.
b. The right to own a property and name it
to the corporation.
Key take-aways:
1. Not all juridical beings are created by law,
partnership is an example of a juridical being
created by mere consent.
2. If the heir is a minor, a guardian/administrator is
needed.
3. Corporation or Incorporated (Corp. or Inc.) must
be added to the corporate name. In case of One
Person Corporation, “OPC” shall be put either
below or at the end of its corporate name.
4. In the past, at least 5 is needed to form a
corporation, now, because of the Revised
Corporation Code, you can make a corporation
even if you’re only one person, the corporation
is called One-Person-Corporation (OPC).
5. Unlike Partnership, a corporation’s purpose is
not only for profits.
6.
the non-profit corporations.
7. Schools are always a corporation or cooperative.
They can be either for a non-stock corporation or
stock corporation.
8. A corporation’s good record is subject to
evaluation of SEC.
9. OPC are always a Stock Corporation because its
purpose is always for profit.
10. Stock Corporation – no minimum but maximum
is still 15.
11. Non-Stock Corporation – must at least 5 but not
more than 15.
12. General rule: decisions are made by majority of
the members of the Board of Directors or Board
of Trustees where there is quorum without
regard to controlling interest.
Exceptions:
a. Close Corporation – stockholders manage
the corporation directly, so BOD’s are not
needed.
b. Corporation Sole
c. One Person Corporation.
Controlling Interest – percentage of capital ownership is
essential (51% or 67%)
1. Board of Directors – mere plurality of vote
without regard to controlling interest.
2. Stockholders – controlling interest.
Note: BOD who voted in the BOD level can still vote in
the Stockholders meeting because BOD’s are also a
stockholders.
Status Quo should be observed if the vote in the
stockholders level is tied, it means the property will
remain as is, no selling of property will happen.
In case of tie, the voting will be reset, the voting will
happen depending on the number of BOD and
stockholder present in the meeting.
Complete attendance of the BOD and Stockholder is
IMPORTANT or at least they have a QUORUM.
1. Quorum for BOD – required minimum number of
attendees in to order create a valid proceeding.
The number of attendees is whatever was
declared in the bylaws. If the bylaw is silent, then
the quorum to be observed shall be the plain
 majority of the total number of directors. (Ex: 15
BOD, then the attendees should be at least 8).
2. Quorum in Stockholder – the quorum depends
on the stocks owned by the stockholders, the
quorum should be the controlling interest.
Note: In Partnership, the quorum is the majority, but the
voting is controlling interest.
The first step to valid proceeding is to determine if there
is a quorum.
ATTRIBUTES OF A CORPORATION
1. It is a juridical entity with a separate and distinct
personality.
2. It is created by operation of law.
3. It has the right of succession.
4. It has the powers, attributes, and properties
expressly authorized by law or incident to its
existence.
DOCTRINE OF CORPORATE ENTITY
Section 19 of Corporation Code of the Philippines
provides:
Commencement of corporate existence – a private
corporation formed or organized under this Code
commences to have corporate existence and juridical
personality and is deemed incorporated from the date
the SEC issues a certificate of incorporation under its
official seal.
A corporation comes into existence upon the issuance of
the Certificate of Incorporation. Then and only then will
it acquire a juridical personality to sue and be sued, enter
contracts, hold or convey property or perform any legal
act, in its own name. Corporations cannot come into
existence by mere agreement of the parties as in the case
of business partnerships. They require special authority
or grant from the State. This power is exercised by the
State through the legislature, either by a special
corporation or by means of a general corporation law
under which individuals desiring to be and act as a
corporation may incorporate.
DOCTRINE OF SEPARATE PERSONALITY
A corporation is an artificial being or a juridical person
with a personality separate and distinct from its
individual stockholders or members and from any other
legal entity to which it may be attached or connected.
1. Restricted liability for acts or contracts – the
general rule is that obligations incurred by a
corporation, acting through its authorized agents
are its sole liabilities. Similarly, a corporation
may not generally, be made to answer for acts or
liabilities of its stockholders or members or those
of the legal entities to which it may be connected
and vice versa.
2. It has the power to bring independent actions –
it may bring civil and criminal actions in it own
name in the same manner as natural persons
(Art. 46, NCC).
3. It has the right to acquire and possess property –
property conveyed to or acquired by the
corporation is in law the property of the
corporation itself as a distinct legal entity and
not that of the stockholders or members.
4. Court can acquire jurisdiction over its person –
service of summons may be made on the
president, general manager, corporate
secretary, treasurer or in-house counsel.
5. Stronger identity despite any change in its
composition – changes in individual membership
Corporation remains unchanged and unaffected
in its identity by changes in its individual
membership.
6. Entitlement to constitutional guaranties –
corporations are entitled to constitutional rights,
such as : Due Process, Equal Protection of the
law, Protection against unreasonable searches
and seizures. However, it is not entitled to
certain constitutional rights such as political
rights or purely personal rights not only because
it is an artificial being but also because it is a
mere creature of law.
7. Entitlement to moral damages – a corporation is
not entitled to damages because it has no
feelings, no emotions, no senses. However, it
was held that a juridical person such as a
corporation can validly complain for libel or any
other form of defamation and claim for moral
damages.
8. Liability for damages to third persons – a
corporation is liable for damages to third person
whenever a tortuous act is committed by an
officer or agent under the express direction or
authority of the stockholders or members acting
as a body, or, generally, from the directors as the
governing body.
 9. Liability for crimes – since a corporation is a mere
legal fiction, it cannot be held liable for a crime
committed by its officers since it does not have
the essential element of malice, except if by
express provision of law, the corporation is held
criminally liable; in such case, the responsible
officers would be criminally liable.
ADVANTAGES OF A CORPORATION
1. Stockholders and owners have limited liability –
in a corporation, the owners of the company are
only liable for the amount of money which they
have invested through purchasing shares. This
means that if the company goes bankrupt and
has no money left to pay back the creditors and
lenders, the money invested by its shareholders
into the company will be used to pay back the
creditors and lenders. Hence, the shareholders
will lose the amount invested. Creditors and
lenders, however, have no claim on the personal
DISADVANTAGES OF A CORPORATION
properties and assets of the owners. The
stockholders and owners are limited up to the
extent of the amount invested.
2. Convenient multiplicity of funds through
investing public – it is relatively easy to raise
huge sums of capital through the public. Since
the total money a company wishes to raise is
divided into thousands and lakhs of share, the
price of each share comes out to be very small. A
small price allows a number of people to
purchase the shares of the company. Hence, It
becomes easy to raise a big amount for a
corporation by dividing it into smaller units.
3. Perpetual Life of a corporation – in the past,
corporations can only exist for a period not
exceeding fifty (50) years, but it has now gained
perpetual existence upon the effectivity of the
Revise Corporation Code that took effect in
March 2019. The life of a corporation is
perpetual and has no more limit, unless its
Articles of Incorporation provides for a shorter
term. Likewise, a corporation whose term had
already expired may be revived upon application
to and approval by SEC. This is known as the
LAZARUS PROVISION. Once revived, its term is
likewise perpetual unless a shorter term is
provided in its AOI. Corporations continue to
exist beyond the deaths of the BOD, executives,
and the managers. Its life can come to an end
only when the same is dissolved according to
law.
4. Convenient transfer of ownership – ownership in
a corporation is typically easy to transfer. In the
case of a public company, the shares are freely
transferrable. In the case of a private company
however, it is comparatively difficult to transfer
shares as there are some instructions.
5. Convenient identification of accountability –
since the corporation has a separate personality
of its own, clients are transacting to it as a person
with the power to do business in its own name.
On the part of the clients, it is safe and
convenient to deal with the corporation as they
knew who is liable for every transaction since
every officer or employee are deemed to be
acting only in the name of the corporation.
Accountability therefore begins and ends with
the corporation.
1. The process of formation is demanding and
entails a lot of conditions – setting up a
corporation is a very complex process. It takes
heavy paperwork to set it up. It needs a number
of conditions to satisfy and permission from
different regulatory authorities Likewise, many
norms of different regulatory bodies that a
corporate must fulfill before it can start its
business. For instance, if you are setting up an
educational corporation, you need prior
permission from DEPED, CHED, or TESDA
depending on the kind of school you are going to
operate. A medical corporation requires DOH
intervention and a recruitment agency needs
prior permit from the DOLE.
2. Profits obtained from corporate activities are
taxed twice – income obtained from corporate
transaction faces two modes of taxation. Firstly,
the corporation has to pay a flat Corporate Tax
on its profits. And then the dividends received by
the shareholders are taxed in their hands. This
makes it less attractive for business owners to
set up a corporation.
3. The power to decide is concentrated on a select
group of people – since the corporation is merely
an artificial being, it needs real people to conduct
its affairs. This power resides in the group of
 people called the BOD or BOT who elect officers
among themselves.
4. Restricted claim on the part of prejudiced
creditors - Since the corporation has a separate
juridical personality distinct from its owners, the
prejudiced creditors can only run after the assets
TYPES OF CORPORATION
of the corporation. Save when the corporation is
used for fraud and illegal schemes and piercing
the corporate veil is proper, the creditors can
only collect what is left of a drowning
corporation. With nothing left after all assets are
exhausted, the creditors’ claim become futile in
the end.
DOCTRINE OF PIERCING THE VEIL OF CORPORATE
ENTITY
It is a doctrine that a corporation is a legal entity distinct
from the persons composing is a theory introduced for
purposes of convenience and to serve the ends of justice.
But when the veil of corporate fiction is used as a shield
to defeat public convenience, justify wrong, protect
fraud, or defend a crime, this fiction shall be disregarded
and the individuals composing it will be treated
identically. The piercing of the veil of corporate fiction
can only be done if it has been clearly established that
the separate and distinct personality of the corporation
is used to justify a wrong, protect fraud, or perpetrate a
deception.
NATURE AND OBJECTIVES OF PIERCING DOCTRINE
1. It has only res judicata effect – it prevents a party
from bringing a claim once that particular claim
has been subjected to a final judgment in some
previous lawsuit.
2. Its purpose is to prevent fraud or wrong and not
available for other purposes;
3. The doctrine could not be employed by a
corporation to complete its claims against
another corporation and cannot therefor be
employed by the claimant who does not appear
to be the victim of any wrong or fraud;
4. It is essentially a judicial prerogative only. To
pierce the veil of corporate fiction being a power
belonging to the courts, a sheriff who has
ministerial duty to enforce a final and executory
decision cannot pierce the veil of corporate
fiction by enforcing the decision against the
stockholders who are not parties to the action.
5. It must be shown to be necessary and with
factual basis. To disregard the separate juridical
personality of a corporation, the wrongdoing
must be clearly and convincingly established, it
cannot be presumed.
1. STOCK CORPORATIONS – plainly intended to
engage in business and earn profit. Have capital
stocks divided into shares and are authorized to
distribute to the holders of such shares,
dividends, or allotment of the surplus profits on
the basis of the shares held.
• Originally formed by incorporators who are
stockholders thereof. No required minimum
number of incorporators, but not more than
15.
• After having been formed, all persons who
may have acquired shares of stocks thereat
are called stockholders but only those who
originally formed the corporation in the
beginning are called incorporators.
• Corporators are those who compose the
corporation whether as incorporators or
stockholders in general.
• Governed by the Board of Directors; at least
2 but not more than 15; Except One Person
Corporation, Sole, and Close corp.
2. NON-STOCK CORPORATIONS – are those which
are established not for the profits purposes but
for some other noble purposes such as
educational, religious and charitable
organizations. Since they are not intended for
profit, they have no capital stocks, no
shareholders and are not allowed by law to
declare dividends for distribution to its
owners/members.
• Originally formed by incorporators who are
members of thereof. No required minimum
number of incorporators, but not more than
15.
• Any person who desires to become a
member must invest in the form of a
contribution (no shares of stocks) but only
those who originally formed the corporation
shall be called incorporators.
 • Corporators are those who compose the
corporation whether as incorporators of
members in general.
• Governed by the Board of Trustees, at least
2 but may or may not be more than 15.
Key Take-aways
1. If the business is specific type, citizenship is
important.
2. If the issue is already dead on the BOD, the issue
should not be talked about in the stockholders
meeting anymore.
3. Dual Citizenship is not a problem, being a natural
or naturalized Filipino is also not a problem.
4. A corporation can’t be formed in the Philippines
if its principal office is situated abroad. The
principal office should be in the PH.
5. Foreign Corporation – business whose principal
office is in abroad and it wants to do business in
the PH.
6. Domestic corporation – business whose principal
office is in the PH and is doing its business in the
PH.
7. The corporation will begin the moment the
Certificate of Incorporation is issued under the
official seal.
8. There is no more minimum capitalization for a
stock corporation (before it is 5,000). However,
there are special laws set for the minimum paid-
up capital stocks on certain businesses.
9. Minimum total contribution for Non-Stock
corporation is 1M.
10. Non-Stock corporation calls its investment as
contribution.
11. Corporate officers under the Law – President,
Secretary, treasurer. Any other position may be
deemed as corporate officer only if so declared
as such under the bylaws.
12. According to the law, you can occupy two or
more positions, but you can’t be the President
and Secretary or President and Treasurer.
13. President – must be a resident of the PH.
14. Secretary – must be a resident and citizen of the
PH.
15. Registering stock corporation – at least 25% of
the authorized capital stocks must be
subscribed, and then at least 25% of the
subscribed capital stocks must be paid-up. Ex:
ACS – 1,000,000 SCS – 250,000 PCS – 62,500.
Note: this is already removed by the revised
corporation code.
16. You are given 30 days to retrify if your paid up
capital is not enough
17. The corporate officers should also be a
stockholder.
18. According to the law, the president and
secretary should be on the BOD, while the
treasurer may or may not be on the BOD.
19. A corporation who’s not yet registered can open
a bank account but is named as “ABC
Corporation in the Process of Registration”.
20. ACS for Universal Banks – 3.5 Billion
Construction Corporation – 100,000
Life Insurance – 1 Billion
Investment House – 300M
Pawnshop – 100,000
21. Anyone who assumes an obligation to an
ostensible corporation as such cannot resist
performance thereof on ground that there was
in fact no corporation.
22. Trustees in anon-stock corporation may or may
not be more than 15. They shall hold officer for
not more than three years.
23. Division of dividend in corporation is always PRO
RATA.
24. Unpaid creditors can only run for the
corporation, not the stockholders.
25. When the corporation is being used for illegal or
criminal activities, then the doctrine of piercing
the veil of corporate entity will be applied,
unpaid creditors can now run for the
stockholders.
TYPES OF TRADABLE STOCKS AND STOCK WARRANTS
What are stocks and equities?
A share is evidence of a fractional ownership in a
corporation. Buying a share of common stock is in fact
buying a share of a business. An individual who owns
shares in any company has an ownership interest in
therein and is called a stockholder or shareholder. This
ownership is also referred to as having equity in a
company, hence, stocks are also called equities or equity
securities. The percentage or proportion of ownership
depends on how many of the company’s share one owns.
For example, 1,000 shares of common stock in a
corporation that has 100,000 outstanding shares
represents 1,000/100,000 ownership interest. This
means you have one percent ownership interest in the
company’s plant, its building, its inventories, and other
assets.
What are stock certificates?
Ownership of a business is represented by stock
certificates. When an individual becomes a stockholder
of any corporation, he receives a stock certificate – a
written evidence of ownership certified to the
corporation. The certificate indicates the investor’s
name, total number of shares purchased, the certificate
number, the par value, and the name of the issuing
corporation.
When shares are purchased, the stock certificates will be
issued either in street name or in the investor’s name.
The difference is important to know since without notice
form the investors all stock certificates will be issued in
street name, i.e. in the name of the brokerage firm. In
this way, the brokerage firm – and NOT the investor – will
be the holder of the stock certificates. Only when the
investor specifically asks for it will the stock certificates
be issued in the investor’s name.
Stock certificate that are in the street name facilitate the
transactions by brokers. When the investor decides to
sell his shares, the street certificate simply be endorsed
by the stockbroker. If it were in the investor’s name, the
process would be lengthier since it is the investor who
needs to endorse it at the back of the certificate. When
shares are brought and sold frequently, it is advisable to
have them issued in street name since it will facilitate the
quick transfer of ownership.
What type of stocks can you buy or sell?
There are different types of stocks that you can buy or
sell at the Philippine Stock Exchange (PSE): common
stock, preferred stock, cumulative preferred
stock and convertible preferred stock. The difference
depends on the right and privileges which you receive
as a stockholder.
The majority of securities traded in the PSE are
common stocks. Common stocks are usually purchased
for participation in the profits and control of ownership
and the management of the company – they have
voting rights. Common stock holders are entitled to an
equal pro rata division of profits without preference or
advantage over another stockholder. However, they
have the last claim on dividends and are the last to
collect in case of liquidation. Common shares can be
classified into class A and class B shares. Class A shares
are reserved to Filipino investors, while Class B shares
are open to foreign investors as well as Filipinos. Thus,
Filipinos can own both classes while foreigners can only
avail of Class B shares. Both classes have the same
privileges and rights, and receive the same amount of
dividends.
Preferred stocks are another type of securities issued
by corporations. Its name is derived from the
preference given to the holders of this stock over
holders of common stocks. Holders of the preferred
stocks are entitled to receive a fixed minimum amount
of dividends (expressed either in pesos or as percentage
of the stock’s par value), to the extent declared by the
company’s Board and if there are sufficient retained
earnings, before any dividends are paid to the holders
of common stocks.
Cumulative preferred stocks are special preferred
stocks that accumulate unpaid dividends for future
payment. Cumulative preferred stock has prior rights to
dividends over common stock; therefore the omitted
cumulative preferred dividends must be paid before the
common stock dividends can be paid. Convertible
preferred stocks are preferred stocks which are
exchangeable into common stocks at the option of the
holder under specified terms and conditions. The
conversion ratio specifies the number of shares the
holder receives upon surrender while the conversion
price is effective price paid for the common stock when
conversion occurs.
What are warrants?
Warrants are another type of investment which you can
buy or sell in the stock market. By definition, a warrant
is a security which grants the holder the right but not
the obligation to buy (in the case of a call warrant) or
sell (in the case of a put warrant), a stated number of
underlying shares of stock at a specified price during a
specified period of time.
Underlying shares are the shares, unissued or issued as
the case may be, of a corporation which may subscribed
to or purchased by the warrant holder upon the
exercise of the right granted under the warrants. The
number of underlying shares a warrant holder is
entitled to buy or sell for every warrant he holds is
known as the conversion ratio. The exercise
period specifies the life of a warrant while
the expiration date is the date at which the warrant
expires. The exercise price is the stipulated stock price
at which the holder can buy or sell the underlying.
 Warrants can be issued in a number of ways: (a) as part
of an initial public offering; (b) attached to a rights
issue; (c) attached to bonds; or (d) as stand alone. In the
case of debt or equity offerings, warrants are used as
“sweeteners” to enhance marketability of the issuances.
Under the SEC Rules Governing Warrants, Issuers or
warrants may be the issuer of the underlying shares or
an entity other than the company underlying the
warrants and may be in the form of:
1. Subscription Warrant– a warrant which grants
the right to subscribe to the new or unissued
shares of stock of the Issuer;
2. Covered Warrant – a warrant which is issued by
a party other than the Issuer of the underlying
shares and whose performance of obligation is
secured by the deposit of the underlying shares
for the Covered Warrant with an independent
Trustee which is a reputable commercial bank;
3. Non-collateralized Warrant – a warrant issued
by a party other than the Issuer of the
underlying shares and whose performance of
obligation is not secured by a deposit of the
underlying shares. Instead, the Issuer normally
adopts hedging strategies to provide for its
obligations during the life of the Non-
collateralized Warrant.
Even if the trading of warrants is relatively new in the
Philippine stock market, it has gained some popularity.
Currently, there are eight (8) warrants listed at the PSE.
The warrant holder has the chance to have the same
exposure in the market, as with buying the stock itself,
using lesser amounts of money and the advantage of
having more time, i.e. exercise period, in which to raise
money to purchase more shares (the underlying stock).
Also, the investor is protected from the downside risk of
the underlying stock’s price depreciation since the
exposure of their money is limited to only the price of
the warrants.
CLASSES OF SHARES
The classification of shares, their corresponding rights,
privileges, or restrictions, and their stated par value, if
any, must be indicated in the articles of incorporation.
Each share shall be equal in all respects to every other
share, except as otherwise provided in the articles of
incorporation and in the certificate of stock. These are
the relevant provisions in the Revised Corporation Code
(Republic Act No. 11232).
CLASSES/SERIES OF SHARES
The shares in stock corporations may be divided into
classes or series of shares, or both. A corporation may
further classify its shares for the purpose of ensuring
compliance with constitutional or legal requirements.
PAR VALUE
The shares or series of shares may or may not have a
par value. However, the following shall not be
permitted to issue no-par value shares of stocks:
• Banks
• Trust
• Insurance
• pre-need companies
• public utilities
• building and loan associations, and
• other corporations authorized to obtain or
access funds from the public, whether
publicly listed or not
NO-PAR VALUE
No-par value shares must be issued for a consideration
of at least Five pesos (P5) per share. The entire
consideration received by the corporation for its no-par
value shares shall be treated as capital and shall not be
available for distribution as dividends.
Shares of capital stock issued without par value shall be
deemed fully paid and non-assessable and the holder of
such shares shall not be liable to the corporation or to
its creditors in respect thereto.
NONVOTING SHARES
Certain shares may be deprived of voting rights under
the articles of incorporation, provided that there shall
always be a class or series of shares with complete
voting rights. This fact must be reflected in the
certificate of stock. Nonvoting shares may nevertheless
vote in certain instances.
Only shares classified and issued
as “preferred” or “redeemable” shares, unless
otherwise provided in the Revised Corporation Code,
shall have no voting rights.
PREFERRED SHARES
Preferred shares of stock issued by a corporation may
be given preference in the distribution of dividends and
in the distribution of corporate assets in case of
liquidation, or such other preferences.
Preferred shares must always be issued with a
stated par value.
The board of directors, where authorized in the articles
of incorporation, may fix the terms and conditions of
preferred shares of stock or any series thereof. Such
terms and conditions shall be effective upon filing of a
certificate thereof with the Securities and Exchange
Commission.
FOUNDERS’ SHARES
Founders’ shares may be given certain rights and
privileges not enjoyed by the owners of other stocks.
Where the exclusive right to vote and be voted for in
the election of directors is granted, it must be for a
limited period not to exceed five (5) years from the date
of incorporation: Provided, That such exclusive right
shall not be allowed if its exercise will violate
Commonwealth Act No. 108, otherwise known as the
“Anti-Dummy Law”; Republic Act No. 7042, otherwise
known as the “Foreign Investments Act of 1991”; and
other pertinent laws.
REDEEMABLE SHARES
Redeemable shares may be issued by
the corporation when expressly provided in the articles
of incorporation. They are shares which may be
purchased by the corporation from the holders of such
shares upon the expiration of a fixed period, regardless
of the existence of unrestricted retained earnings in the
books of the corporation, and upon such other terms
and conditions stated in the articles of incorporation
and the certificate of stock representing the shares,
subject to rules and regulations issued by the Securities
and Exchange Commission (SEC).
TREASURY SHARES
Treasury shares are shares of stock which have been
issued and fully paid for, but subsequently reacquired
by the issuing corporation through purchase,
redemption, donation, or some other lawful means.
Such shares may again be disposed of for a reasonable
price fixed by the board of directors.
RIGHT TO VOTE OF NONVOTING SHARES
Notwithstanding any provision in the articles of
incorporation, holders of nonvoting shares shall
nevertheless be entitled to vote on the following
matters:
a. Amendment of the articles of incorporation;
b. Adoption and amendment of bylaws;
c. Sale, lease, exchange, mortgage, pledge, or
other disposition of all or substantially all of the
corporate property;
d. Incurring, creating, or increasing bonded
indebtedness;
e. Increase or decrease of authorized capital
stock;
f. Merger or consolidation of the corporation with
another corporation or other corporations;
g. Investment of corporate funds in
another corporation or business in accordance
with the Revised Corporation Code; and
h. Dissolution of the corporation.
Except the foregoing instances, the vote required under
the Revised Corporation Code to approve a particular
corporate act shall be deemed to refer only to stocks
with voting rights.
FUNDAMENTAL STEPS IN FORMING A PRIVATE
CORPORATION
1. Have a pre-approved name of the corporation.
2. The SEC company registration system allows you
to follow the step by step guide in registering
online your intended company. The first and
foremost consideration however is for you to
come up with a proposed corporate name that
will be acceptable to the SEC criteria. Allow
verification of name if original or confusingly
similar, if the proposed name is denied, you can
submit a motion for reconsideration.
Case 1: In 2002, Refractories Corp. of the
Philippines was patented. In 2003, Industrial
Refractories Corp. of the Philippines was formed
on the same line of business. Is the latter
confusingly similar with the former?
Answer: Yes, because the word “industrial” is just
a mere description of the nature of the business.
With or without it, it creates a damaging sense of
doubt or confusion to a corporate name that has
already been existing.
Case 2: PHILLIPS INC. has been in the industry of
lights for many years, Phillips Sy came with his
own lighting products and he wants to call it
STANDARD PHILLIPS INC., the latter from his very
own name. PHILLIPS contended that it was
confusingly similar but Phillips Sy argued that he
is entitled to use his very own name. is the latter
confusingly similar with the former?
Answer: Yes, because one could not have an
exclusive use of his name especially so if that
name is so common that it was already long
 existing for business use. Further, the use of the
added word “standard” is obviously resorted to
merely set out a very slim difference yet the
effect of which still confuses the public
consumers.
Case 3: CROCOS is a well-known mark in the
industry as a registered popular brand of
clothing owned by Crocos Fashion Inc. X, a
veteran chef on the other hand applied for
registration of mark “CROCOS” at the
Intellectual Property Office for the burger that
he is planning to sell to the public. He plans to
introduce it as “CROCOS BURGER”. Crocos
Fashion is opposing X’s application. Q: Should
the application for registration of X be allowed?
Answer: NO. because it violates the Confusion
of Business Test. The goods of the contending
parties are actually different although claiming
under the same trademark but the one with
prior registration has the better right and should
prevail. The danger if registration will be
allowed is that the defendant’s product may be
falsely assumed to originate from the plaintiff
who is the owner of the similar trademark. Since
the trademark is well-known and identified to
one person, the buying public may patronize it
under a false belief that it belongs to the same
owner.
3. Approval of your corporate name necessarily
includes your “Undertaking to Change
Corporate Name” in case the same is later on
found to be pre-existing already and is being
claimed ownership by others.
4. Fill-up the online form and provide all the
necessary information required by the online
registration system about your company. The
information you provide online will
automatically translate to your Articles of
Incorporation and By-Laws.
5. When the system accepts your submissions, you
will be required to print your Articles of
Incorporation, By-Laws and Treasurer's
Affidavit. Have them signed by all the
incorporators, Treasurer and have them
notarized. Thereafter, you will need to upload
them to the same SEC website for their perusal.
6. The Treasurer’s Affidavit shows that 25% OF
THE ACS HAVE BEEN SUBSCRIBED AND 25% OF
THE SCS HAVE BEEN PAID-UP.
7. Once accepted by SEC, you will receive an Order
of Payment indicating the amount of
Registration Fees you will need to pay. Print the
same and proceed to Landbank or other
accredited payment centers. Then upload again
to SEC website your proof of payment.
8. Wait for an email directive from SEC. Once your
online submissions are all satisfactory, SEC will
order you to proceed to the SEC Head Office
and submit personally the hard copies of the
same documents you sent them online (AOI, BL,
TA) together with Bank Certificate of Deposit to
show real deposits of minimum 25% paid-up
capital. (The Bank Issues This In the Name of the
Treasurer. Ex. “Ian Cruz, In Trust for ABC Corp. in
the Process of Incorporation)”.
9. Submit Authority To Inspect Bank
Documents. (TO AVOID HASSLE UNDER THE
BANK SECRECY LAW).
10. The SEC will evaluate again your personal
submissions and once approved, you will
receive your CERTIFICATE OF INCORPORATION
which means that your corporation is finally
born beginning on the date indicated therein.
CONTENTS OF THE ARTICLES OF INCORPORATION
1. Corporate Name
2. Primary and Secondary Purpose
3. Principal Office or Location
4. Term
5. Names, nationalities and the residences of
incorporators
6. Number, names, nationalities and residences of
the first directors or trustees
7. Authorize capital stocks and division of share
8. Name and nationality of subscriber, number of
shares subscribed and the amount subscribed
9. Total paid-in of the amount subscribed
10. Name of the treasurer
Note: If it is a non-stock corporation, it must also
state the amount of its capital consisting of
Contributions by the members thereof.
CLOSE CORPORATION
Aside from a family corporation, it is one whose Articles
of Incorporation provides that:
 1. All issued stocks of all classes, exclusive of
treasury shares, shall be held of record by not
exceeding twenty (20) persons.
2. The issued stocks shall be subject to one or more
restrictions on permissible transfer.
3. The corporation shall not list in any stock
exchange or public offering. Despite these
requirements however, a corporation shall not
be deemed as close corporation if at least 2/3 of
its voting stocks are owned or controlled by
another corporation which is not a close
corporation within the meaning of the code.
The following CANNOT incorporate as a Close
Corporation
- Mining or oil companies
- Stock exchange
- Banks
- Insurance companies
- Public utilities
- Educational institutions
- Other corporations vested with public interest
ONE PERSON CORPORATION
- A corporation with a single stockholder:
Provided that only a natural person, trust or an
estate may form a one person corporation.
The following cannot incorporate as a One-Person
Corporation
- Banks and quasi-banks
- Pre-need companies
- Trust companies
- Insurance companies
- Public and publicly-listed companies
- Non-chartered GOCCs
- Professionals for the exercise of profession
The Articles of Incorporations shall also state the name,
nationality and residence of the NOMINEE and
ALTERNATE NOMINEE and the extent and limitations of
his authority. Nominee is important because in case of
death or incapacity of the single stockholder, the
NOMINEE shall take over as Director and shall manage
the corporate affairs until such time that the Single
Stockholder has recovered in case of temporary
incapacity; or until such time that the heirs have
designated one of them as replacement.
Note: If the nominee dies, the temporary successor
would be the alternate nominee. OPC also have a right
of succession. The purpose of Nominee and Alternate
Nominee is to have a continuity not necessarily to
replace the single stockholder.
Likewise, in case of death of the single stockholder, the
NOMINEE, along with the known legal heirs of the single
stockholder, shall facilitate the election of the new
director and the amendment of the articles of
incorporation. It is the duty of Corporate Secretary to
inform SEC of the death of the single stockholder.
Election of Officers in One Person Corporation
- The single stockholder shall be the Sole Director
and President of the OPC.
- During the process of incorporation, the single
stockholder who is also the self-appointed
Treasurer of the OPC shall give a bond to the SEC
in a sum as may be required. The bond is
renewable every two years. He shall submit also
a written undertaking to faithfully administer its
funds, disburse and invest the same according to
its registration.
- As a rule, the single stockholder may not be
appointed as Corporate Secretary.
- It is important to note though that the New Code
requires the single stockholder to prove that the
OPC is sufficiently financed, and its assets are
independent from his personal property, in
order to claim limited liability. Otherwise, he
shall be jointly and severally liable for the
liabilities of the OPC.
- Within fifteen (15) days from issuance of the
certificate of incorporation, the OPC shall
appoint its Treasurer, Corporate Secretary and
other officers as it may deem necessary, and
shall notify the SEC thereof within five (5) days
from appointment.
Note: the single stockholder passes an inventory of
assets to the SEC so that their property will be
known to the SEC, it they were not able to do it and
experiences loss, they will be liable up to the extent
of their personal assets.
The doctrine of piercing the veil of corporate entity
also applies to OPC.
When OPC acquired all the stocks of an ordinary
stock corporation, the latter may be converted into
 OPC. In the same manner, OPC may be converted
into an ordinary Stock Corporation. In either case,
application to the SEC shall be made and subject to
its approval.
ONE PERSON CORPORATION VS. SOLE
CORPORATION
Sole Corporation – a religious corporation hence a
non-stock corporation.
OPC – always a stock corporation intended for profit.
OPC VS. SOLE PROPRIETORSHIP
Sole Proprietorship – has no juridical personality of
its own that is separate from the proprietor. It
cannot acquire properties, conduct transaction with
other juridical entities or exercise separate rights or
powers in its own name.
OPC – has juridical personality that is separate and
distinct from the single stockholder. It can acquire
properties, conduct transaction with other juridical
entities or exercise separate rights or powers in its
own name.
ADDITIONAL REVISIONS UNDER THE NEW LAW
A. From date of incorporation, a corporation is given
five (5) years to commence operation (Sec. 21; Revised
Corporation Code). Revocation in case of failure.
B. However, if a corporation has commenced its
business but subsequently becomes inoperative for a
period of at least five (5) consecutive years, the SEC
may, after due notice and hearing, place the
corporation under a delinquent status.
C. A delinquent corporation shall have a period of two
(2) years to resume operations and comply with all the
SEC requirements. Upon compliance, the SEC shall issue
an order lifting the delinquent status. Otherwise, failure
to comply and resume operations within 2-years, the
SEC shall cause the revocation of the Certificate of
Incorporation.
D. Shares of stocks may be the subject of pledge or sale
just like any other incorporeal rights which are
evidenced by negotiable instruments. Ownership of
shares of stock is evidenced by Certificate of
Shareholding issued by the duly-elected Corporate
Secretary of the corporation.
E. What are the qualifications of incorporators?
1. May be natural or juridical persons; singly or jointly
with others; (Sec.10, New Code)
2. Any number but not more than fifteen (15)
3. Natural person of legal ages; juridical persons
should be duly-registered;
4. Majority of whom are residents of the Philippines;
5. In the case of a stock corporation, each must own
or subscribe at least one (1) share of the capital
stock thereof.
F. Citizenship is not a strict requirement in forming a
corporation except in cases where the law requires the
minimum Filipino participation. Example: Meralco may
only be run by Filipinos owning at least 60% of the
capital thereof.
G. The life of a corporation is perpetual and has no
more limit, unless its Articles of Incorporation provides
for a shorter term. Likewise, a corporation whose term
had already expired may be revived upon application to
and approval by SEC. This is known as the “Lazarus
provision”. Once revived, its term is likewise perpetual
unless a shorter term is provided in its articles. (Section
11, Revised Corporation Code)
H. A Corporation can’t be formed in the Philippines if its
principal office is situated abroad.
I. Corporate existence commences from the date the
SEC issues a Certificate of Incorporation under the
official seal.
J. As a general rule, there is no more minimum
capitalization for a stock corporation. However, special
laws set minimum paid-up capital stocks on certain
businesses exclusive for specialized corps. such as bank,
HMO etc.
K. In case of a non-stock corporation such as a
Foundation, the minimum total contribution is P1
Million.
L. QUORUM is the presence of required number to
sustain the validity of an act. Quorum depends on what
kind of meeting is conducted whether it be a
Stockholders’ Meeting or Board Meeting. In BM,
quorum is established by declared majority. In SM,
quorum is the presence of controlling interest, not
necessarily majority, to a certain meeting in order to
make the conduct thereof valid and binding. Without
quorum, the meeting is invalid. Consequently, a
decision arrived out of an invalid meeting is also
defective & invalid.
M. Unless otherwise stated in the by-laws, Quorum in
the Board Meeting refers to the majority of number of
Directors in Articles of Incorporation who are present in
the meeting regardless of their shareholdings. Further,
each Director is equal to only one vote.
N. On the other hand, Quorum in the Stockholders’
Meeting is based on the majority of the outstanding
shares of stock represented by the stockholders who
are present at the meeting. Further, issues are decided
by votes based on controlling interests of the
stockholders.
O. The Corporate Officers under the law are the
President; the Secretary; and the Treasurer. Any other
position may be deemed as Corporate Officer only if so
declared as such under the By-Laws.
P. Any 2 or more positions may be held concurrently by
the same person, except that no one shall act as
President and Secretary or as President and Treasurer at
the same time.
Q. As a rule, in order to approve the incorporation of a
registering stock corporation, at least 25% of the
AUTHORIZED Capital Stocks must be subscribed; and
then at least 25% of the SUBSCRIBED Capital Stocks
must be PAID-UP. Ex: ACS = P1,000,000.00; SCS =
P250,000.00; PCS = P62,500.00.
R. CORPORATION BY ESTOPPEL – All persons who
assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for
all debts and liabilities incurred or arising as a result
thereof. It cannot invoke the veil of corporate fiction as
a defense.
S. Anyone who assumes an obligation to an ostensible
corporation as such cannot resist performance thereof
on ground that there was in fact no corporation.
T. A CORPORATION BY ESTOPPEL can never have assets
because it lacks legitimate personality to exercise that
power. However, the Supreme Court ruled that it may
be sued considering that it possesses the attributes of a
juridical person; otherwise if it cannot be sued, then it
cannot be held liable for damages and injuries to other
persons. (Macasaet vs. Francisco; G.R. No. 156759; June
05, 2013)
Q: How many Trustees are there in a non-stock
corporation?
A: The number of Trustees in a non-stock corporation
shall be fixed in the Articles of Incorporation or By-Laws
which may or may not be more than fifteen (15). They
shall hold office for not more than three (3) years until
their successors are elected and qualified. Trustees
elected to fill vacancies occurring before the expiration
of a particular term shall hold office only for the
unexpired period. (Section 91 of R.A. 11232)
Q: What is the term of office of Directors as compared
to Trustees?
A: Unlike Trustees which shall hold office for not more
than three (3) years, Directors shall hold office for a
period of one (1) year until their successors are elected
and qualified. Directors elected to fill vacancies
occurring before the expiration of a particular term shall
hold office only for the unexpired period. (Title III,
Section 22 of R.A. 11232; The Revised Corporation Code
of the Philippines; signed into law on July 2018 and
became effective on March 10, 2019)
Moreover, the New Code reiterated the requirement to
elect independent directors in corporations vested with
public interest such as: (a) public companies, (b) banks
and quasi-banks, non-stock savings loan associations,
etc., and (c) other corporations as may be determined
by the SEC. The independent directors shall constitute
at least 20% of the entire board membership.
The New Code also allows the creation of an
“emergency board” when the vacancy in the board
prevents the remaining directors from constituting a
quorum and emergency action is required to prevent
grave, substantial, and irreparable loss or damage to the
corporation. During an emergency, the remaining
directors or trustees may fill the vacancy temporarily
from among the officers of the corporation to pass the
necessary emergency action.
Section 24 of the New Code retained the officers and
its qualifications under the Old Code, except for
the treasurer, who is now required to be a resident of
the Philippines. In addition, corporations vested with
public interest are now obliged to appoint a compliance
officer.
REMOTE COMMUNICATION AND “IN ABSENTIA”
VOTING
Following the concept of allowing board meeting by
way of videoconferencing, teleconferencing, or other
alternative modes of remote communication which
have been made explicit under the New Code and SEC
memorandum circular No. 6, S.2020, stockholder or
members are now allowed to exercise their right to vote
through remote communication or in absentia when
authorized under the by-laws. With this amendment, it
appears that they need not be physically present or
represented by proxies in meetings, as required before.
Filipino Percentage Ownership Requirement Regarding
Corporate Capital:
At least 60% of the capital must be owned by Filipino
Citizens:
1. Corporations for exploration, development and
utilization of natural resources;
2. Public service corporations.
3. Educational corporations, other than those
established by religious orders and mission
boards;
4. Banking corporations;
5. Corporations engaged in coastwise shipping.
6. Financing companies; and
7. Corporations engaged in power-generating and
electric distribution.
100% of the capital must be owned by Filipino citizens
1. Corporations engaged in mass media;
2. Corporations engaged in retail trade; except
that foreign retailers and investors can
participate with a minimum paid-up capital of
P25M; and P10M per store in case of foreign
retailers with single-owned proprietorship if it
has more than one (1) physical store, pursuant
to RA 11595 which amended RA 8762;
3. Rural banks; and
4. Corporations engaged in the operation of a
private detective, watchman or security guard
agencies.
5. Those relating to practice of professions, except
if subject to reciprocity in certain special laws;
6. Small-scale mining;
7. Utilization of marine resources in archipelagic
waters as well as of natural resources in rivers,
lakes, bays and lagoons;
8. Ownership and operation of cockpits;
9. Manufacture, repair, stockpiling and/or
distribution of nuclear & biochemical
weapons; &
10. Manufacture of firecrackers and other
pyrotechnic devices.
At least 75% of the capital must be owned by Filipino
Citizens
1. Corporations engaged in the recruitment and
placement of workers, locally or overseas;
2. Corporations subject to Under the Flag Law. ---
In the purchase of articles for the Government,
preference shall be given to materials and
supplies produced, made or manufactured in
the Philippines and to domestic entities or
corporations at least 75% of the capital of which
is owned by Filipino citizens.
Q: Does our law allow 100% foreign equity on business
corporations?
ANSWER: As a general rule, micro and small domestic
market enterprises with paid-in equity capital of less
than the equivalent of US$ 200,000.00 are reserved to
Philippine nationals.
However, RA 11647, which took effect on April 01,
2022, amending Foreign Investments Act of 1991,
provides that in the following instances, a business
corporation with a minimum paid-in capital of
US$100,000.00 shall be fully allowed to foreign
nationals:
(a) If the business involves advanced technology as
determined by the DOST;
(b) Those endorsed as startup or startup enablers by the
lead host agency pursuant to RA 11337 or the
Innovative Startup Act (such as the DOST, DTI, DICT,
among others); or
(c) When majority of their direct employees are
Filipinos, but in no case shall the number of the Filipino
employees be less than fifteen (15).
RA 11647 reiterates that one hundred percent (100%)
foreign capital investment in domestic enterprises is
allowed unless foreign participation is prohibited or
limited by other laws or the Constitution. These foreign-
welcoming domestic enterprises include:
(a) Subways; Railways;
(b) Airports; Airlines;
(c) Tollways; and
(d) Transport Network Vehicle Services (TNVS).
Full foreign ownership under the foregoing entities that
are traditionally considered as “public utilities”, is now
allowed under RA 11647.
Furthermore, under EO 175, effective June 2022, full
foreign participation is allowed to business re:
manufacture and distribution of products requiring Minimum PAID-UP CAPITAL STOCK for Pawnshop
clearance from DND such as guns, ammunitions, Corporations – (P100 Thousand)
military communication gadgets and the likes.

On the other hand, all other “public utilities” businesses

such as electricity distribution and transmission,
petroleum products, pipeline systems and distribution,
seaports, and public utility vehicles (PUVs) are subject
to a maximum of 40% foreign equity restriction under
the 1987 Constitution.

STOCKHOLDERS’ VOTE REQUIREMENTS

1.Amendments of the Articles of Incorporation (must be

approved by the stockholders representing at least 2/3
of the outstanding capital stock);

2.Adoption and amendment of by-laws; (majority)

3.Sale, lease, exchange, mortgage, pledge or other

disposition of all or substantially all of the corporate
property; (2/3)

4.Incurring, creating or increasing bonded

indebtedness; (2/3)

5. Increase or decrease of capital stocks; (2/3)

6.Merger or consolidation of the corporation with

another corporation (2/3)

7.Investment of corporate funds in another corporation

or business in accordance with law; (2/3)

8.Dissolution of the corporation. (2/3)

MINIMUM CAPITALIZATION OF CERTAIN BUSINESSES

Latest Samples as of March 2023:

AUTHORIZED CAPITAL STOCK for Universal Banks – (P3.5

Billion)

AUTHORIZED CAPITAL STOCK for Construction

Corporations – (P100 Thousand)

Minimum PAID-UP CAPITAL STOCK for Insurance Broker

Corporation – (P50 Million)

Minimum PAID-UP CAPITAL STOCK for Life Insurance

Corporation - (P1 Billion)

Minimum PAID-UP CAPITAL STOCK for Investment

House – (P300 Million)

Minimum PAID-UP CAPITAL STOCK for Local

Recruitment Business – (P1 Million)