Business Laws and Regulations

Corporation

LAW ON CORPORATIONS
(Batas Pambansa Blg. 68, took effect on May 1, 1980)
Corporation defined. A corporation is an artificial being created by operation of law, having the right of succession
and the powers, attributes and properties expressly authorized by law or incident to its existence.

Partnership vs. Corporation

Comparisons Corporations Partnership

Manner of Creation By operation of law Mere agreement of partners

Number of organizers 5 ~ 15 (except in corporation sole) 2 or more

Right of Succession True False

Limitation on Powers Only those expressly authorized by law/ incident No limit provided not contrary to law, morals,
to its existence good customs, public order or public policy.

Management Board of Directors General Partners

Liability for debts Not liable for debts of the corporation Liable with their separate assets for
partnership debts

Commencement for Date of issuance of certificate of incorporation Execution of partnership contract

existence

Transfer of interest True, even without consent of other stockholders True, if only with consent by other partners

Term 50 years Indefinite life

Dissolution False, must have consent by the State True, by stipulation by partners

Classification of Corporations
1. Stock Corporation. Corporations which have capital stock divided into shares and are authorized to distribute to
the holders of shares dividends or allotments of the surplus profits on the basis of the shares.
2. Non Stock Corporation. Corporations where no part of its income is distributable as dividends to its members,
trustees or officers.
3. Domestic Corporation. One incorporated under Philippine laws.
4. Foreign Corporation. One formed, organized and existing under any laws other than those of the Philippines and
whose laws allow Filipino citizens and corporations to do business in the Philippines.
Consideration: At least 60% of Filipinos should comprise the capital structure of the company.
5. Corporation Aggregate. One composed of more than one corporator.
6. Corporation Sole. One composed of only one person. [ex. Roman Catholic Church]
7. Public Corporation. One that is organized for the government of a portion of the State [ex. Caloocan City]
8. Private Corporation. One that is formed for a private purpose. [ex. San Miguel Corporation]
9. Ecclesiastical Corporation. One formed for a religious purpose [ex. Iglesiani Cristo]
10. Lay Corporation. One formed for a purpose other than religious.
11. Eleemosynary Corporation. One formed for charity.
12. Civil Corporation. One formed for business or profit.
13. De Jure Corporation. One that has been created in strict compliance with all the legal requirements of the law.
14. De Facto Corporation. One that is defectively created but there is an exercise of corporate rights and franchise
resulting from an attempt in good faith to incorporate on the part of its partners.
15. Parent Corporation. One who owns shares of another corporation and having power (control) over the latter
including the election of officers thereof.
16. Subsidiary Corporation. One whose shares are owned by another corporation.
17. Close Corporation. One whose shares is limited to a few people and not listed in any stock exchange.
18. Open Corporation. One whose shares are offered to public and is listed to any stock exchange.
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19. Corporation by Prescription. One who has exercised corporate powers for such a length of time without
interference by the State.
20. Corporation by Estoppel. One which is in reality not a corporation but is considered as one with respect to those
who are precluded by their admission from denying its existence

Corporations Created by Special Laws / Charters

Corporations may be also formed by virtue of special laws or charters, and shall be governed primarily by the
provisions applicable to them.
Examples: Social Security System (SSS), a government-owned and controlled corporation is formed by virtue by
Republic Act 1161 (Social Security Law), and as amended by Republic Act 8282 (Social Security Act of 1997), and is
not covered by the Corporation Code of the Philippines

Components of a Corporation
1. Corporators. Those who comprise the corporation, including stockholders, members, incorporators, et cetera.
2. Incorporators. Those stockholders or members mentioned in the articles of incorporation as originally forming and
composing the corporation and who are signatories thereof.
3. Stockholders. Corporators of a stock corporation.
4. Members. Corporators of a non-stock corporation.
5. Promoters. A person (juridical or natural) who usually discovers a prospective business and brings persons
interested to invest in it through formation of a corporation.

Capital Stock Terms

1. Capital stock. Amount specified in the articles of incorporation paid in for carrying on of the business of the
corporation.
● a. Authorized capital stock. Total amount of shares which a corporation is allowed to issue if shares have
a par value. (MINIMUM : P1,000,000)
● b. Subscribed capital stock. Part of capital stock which is subscribed, whether paid or unpaid
● c. Outstanding capital stock. Total shares of stock issued to subscribers/stockholders, whether or not fully
or partially paid, except treasury shares.
● d. Paid up capital stock. Part of subscribed stock paid to the corporation. (MINIMUM from P5,000 to
P62,500)
● e. Unissued capital stock. Part of capital stock which is not issued nor subscribed.
2. Legal capital. Total par value of all issued par value shares or total cash/consideration received for all issued no
par value shares.

Example Problem:
The articles of incorporation of Siomai Corporation provide for an authorized capital stock of PHP 10,000,000 divided
into 10,000 shares each. At the time of incorporation, 25% of the authorized capital stock was subscribed of which
25% was paid.

Find for:
1. Authorized capital stock –
2. Subscribed capital stock –
3. Outstanding capital stock –
4. Unissued capital stock –
5. Paid up capital stock –
6. Legal capital –

Shares of Stock.One of the units into which the capital stock of the corporation is divided.
Stock Certificate.Written acknowledgement by the corporation of the stockholder’s interest in the corporation.
Par Value Stock. Nominal value of which appears to the stock certificate.
No Par Value Stock. One without any nominal or par value appearing of stock certificates

Classes of Shares of Stock

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1. Common / ordinary stock – entitles the holder to a pro rata division of the dividends, without any preference over
other stockholders.
2. Preferred stock – entitles the holder of certain preferences other other shareholders.
● a. Cumulative preferred stock – entitled the holder for payment not only to current dividends but also those
in arrears, before holders of common shares are paid
● b. Non-cumulative preferred stock – entitled the holder for payment to current dividends but not those in
arrears, before holders of common shares are paid
● c. Participating preferred stock – entitle the holder to participate with the holder of the common shares in
the surplus profits after the amount stipulated has been paid to holders of preferred shares
● d. Non-participating preferred stock – entitle the holder only to the amount stipulated paid to holders of
preferred shares

Redeemable Shares.Those which grant the issuing corporation the power to redeem or purchase them after a
certain period.
Founder’s Shares. Those which grant to the founders certain rights and privileges not enjoyed by other shares.
Treasury Shares. Those which have been issued and fully paid for but subsequently reacquired by the issuing
corporation by purchase, redemption, donation, or through some other lawful means.
Watered Shares. Those issued without compensation or with no adequate consideration.
Voting Shares. Those entitled to vote in the meetings of the corporation.
Non-voting Shares.Those without voting rights, except in certain cases.

Steps in Incorporation
1. Verification with SEC of the name to be used. No corporate name shall be allowed if the proposed name is:
a. Identical or deceptively similar to any existing corporation or any other name protected by law
b. Patently deceptive, confusing or contrary to existing laws.
2. Drafting and execution of articles of incorporation signed by the incorporators.
3. Filing of articles of incorporation with SEC.
4. Payment for the filing, publication and other fees.
5. Issuance of certificate of incorporation by SEC. [Start of the juridical personality of the corporation]

Contents of the Articles of Incorporation

1. Name of corporation.
2. Purpose of the corporation.
3. Place of principal office which must be in the Philippines
4. Term of existence (maximum of 50 years, may be extended)
5. Names, nationalities and residences of incorporators (majority are residents of Philippines, and must be at least a
subscribed of one share of stock)
6. Names, nationalities and residences of board of directors or trustees
7. Amount of authorized capital stock, number of shares divided, and par value of each
8. Names of subscribers, nationalities, shares subscribed, amount subscribed and amount paid in.
9. Other matters
10. Name of temporary treasurer elected, notarial acknowledgement, and affidavit

Amendment of Articles of Incorporation

Votes required for amendment
1. Majority vote of directors
2. Vote or written assent of 2/3 of the outstanding capital stock or members
Effectivity
Upon approval by SEC or from the date of filing with Commission if not acted within 6 months

Amendment of Articles of Incorporation

Non-use of corporate charter for:
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● Two years – shall be deemed dissolved unless the same is due to causes beyond the control of the corporation as
may be determined by SEC.
Continuous non-operation of corporation for:
● Five years – shall be grounds for revocation of its corporate franchise or certificate of incorporation, unless the
same is due to causes beyond the control of the corporation as may be determined by SEC.