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A. CAUSES OF DISSOLUTION (ART. 1830) ......................................................................................................90

B. EFFECTS OF DISSOLUTION .........................................................................................................................91
C. RIGHTS OF PARTNERS UPON DISSOLUTION ..............................................................................................92
D. WHEN BUSINESS OF DISSOLVED PARTNERSHIP IS CONTINUED ...............................................................93
4. LIMITED PARTNERSHIP .....................................................................................................................................93
A. CHARACTERISTICS OF LIMITED PARTNERSHIP ..........................................................................................93
B. GENERAL PARTNERSHIP V. LIMITED PARTNERSHIP ..................................................................................94
C. REQUIREMENTS FOR FORMATION OF LIMITED PARTNERSHIP .................................................................94
D. CONSENT/RATIFICATION OF ALL LIMITED PARTNERS NEEDED ................................................................94
E. SPECIFIC RIGHTS OF LIMITED PARTNERS ...................................................................................................94
F. REQUISITES FOR RETURN OF CONTRIBUTION OF LIMITED PARTNER .......................................................94
G. LIABILITIES OF A LIMITED PARTNER ..........................................................................................................95
H. DISSOLUTION OF LIMITED PARTNERSHIP .................................................................................................95
I. AMENDMENT OF CERTIFICATE OF PARTNERSHIP ......................................................................................95
B. CORPORATION ................................................................................................................................................. 96
1. DEFINITION OF CORPORATION ........................................................................................................................96
2. CLASSES OF CORPORATIONS ............................................................................................................................97
3. NATIONALITY OF CORPORATIONS ..................................................................................................................100
4. CORPORATE JURIDICAL PERSONALITY............................................................................................................102
A. DOCTRINE OF SEPARATE JURIDICAL PERSONALITY .................................................................................103
B. DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION ...................................................................106
5. CAPITAL STRUCTURE ......................................................................................................................................109
A. NUMBER AND QUALIFICATIONS OF INCORPORATORS ...........................................................................109
B. MINIMUM CAPITAL STOCK AND SUBSCRIPTION REQUIREMENTS ..........................................................110
C. CORPORATE TERM (SEC. 11) ...................................................................................................................110
D. CLASSES OF SHARES OF STOCK (SEC. 6) ..................................................................................................111
6. INCORPORATION AND ORGANIZATION .........................................................................................................112
A. PROMOTER..............................................................................................................................................112
B. SUBSCRIPTION CONTRACTS ....................................................................................................................113
C. PRE-INCORPORATION SUBSCRIPTION (SEC. 60) ......................................................................................113
D. CONSIDERATION FOR STOCKS (SEC. 61) .................................................................................................113
E. ARTICLES OF INCORPORATION ................................................................................................................114
F. CORPORATE NAME (SEC. 17) ...................................................................................................................115
G. REGISTRATION, INCORPORATION AND COMMENCEMENT OF CORPORATE EXISTENCE (SEC. 18) ........117
H. ELECTION OF DIRECTORS OR TRUSTEES (SEC. 23) ..................................................................................118
I. ADOPTION OF BY-LAWS ...........................................................................................................................118
J. EFFECTS OF NON-USE OF CORPORATE CHARTER (SEC. 21) .....................................................................120
7. CORPORATE POWERS .....................................................................................................................................121
A. GENERAL POWERS; THEORY OF GENERAL CAPACITY .............................................................................121
B. SPECIFIC POWERS: THEORY OF SPECIFIC CAPACITY ................................................................................121
C. POWER TO EXTEND OR SHORTEN CORPORATE TERM (SEC. 36) .............................................................121
D. POWER TO INCREASE OR DECREASE CAPITAL STOCK OR INCUR, CREATE, INCREASE BONDED
INDEBTEDNESS (SEC. 37) .............................................................................................................................122
E. POWER TO DENY PRE-EMPTIVE RIGHTS (SEC. 38) ...................................................................................122
F. POWER TO SELL OR DISPOSE CORPORATE ASSETS (SEC. 39)...................................................................122
G. POWER TO ACQUIRE OWN SHARES (SEC. 40) .........................................................................................123
H. POWER TO INVEST CORPORATE FUNDS IN ANOTHER CORPORATION OR FOR NON-PRIMARY PURPOSE
(SEC. 41).......................................................................................................................................................123
I. POWER TO DECLARE DIVIDENDS (SEC. 42) ...............................................................................................124
J. POWER TO ENTER INTO MANAGEMENT CONTRACT (SEC. 43) ................................................................124
K. LIMITATIONS ...........................................................................................................................................124
L. DOCTRINE OF INDIVIDUALITY OF SUBSCRIPTION ....................................................................................125
M. DOCTRINE OF EQUALITY OF SHARES ......................................................................................................125

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N. TRUST FUND DOCTRINE ..........................................................................................................................125

O. HOW CORPORATE POWERS ARE EXERCISED ..........................................................................................126
8. STOCKHOLDERS AND MEMBERS ....................................................................................................................127
A. FUNDAMENTAL RIGHTS OF STOCKHOLDERS AND MEMBERS ................................................................127
B. PARTICIPATION IN MANAGEMENT .........................................................................................................127
C. PROPRIETARY RIGHTS ..............................................................................................................................129
D. REMEDIAL RIGHTS ...................................................................................................................................135
E. OBLIGATIONS OF A STOCKHOLDER .........................................................................................................135
F. MEETINGS ................................................................................................................................................135
9. BOARD OF DIRECTORS AND TRUSTEES ...........................................................................................................138
A. REPOSITORY OF CORPORATE POWERS ...................................................................................................138
B. TENURE, QUALIFICATIONS AND DISQUALIFICATIONS OF DIRECTORS ....................................................139
C. REQUIREMENT OF INDEPENDENT DIRECTORS (SEC. 22) .........................................................................140
D. ELECTIONS ...............................................................................................................................................140
E. REMOVAL (SEC. 27) .................................................................................................................................143
F. FILLING OF VACANCIES (SEC. 28) .............................................................................................................143
G. COMPENSATION (SEC. 30) ......................................................................................................................144
H. DISLOYALTY .............................................................................................................................................144
I. BUSINESS JUDGMENT RULE .....................................................................................................................145
J. SOLIDARY LIABILITIES FOR DAMAGES ......................................................................................................145
K. PERSONAL LIABILITIES .............................................................................................................................145
L. RESPONSIBILITY FOR CRIMES ...................................................................................................................146
M. SPECIAL FACT DOCTRINE ........................................................................................................................146
N. INSIDE INFORMATION .............................................................................................................................146
O. CONTRACTS.............................................................................................................................................146
P. EXECUTIVE AND OTHER SPECIAL COMMITTEES ......................................................................................147
Q. MEETINGS ...............................................................................................................................................147
10. CAPITAL AFFAIRS ..........................................................................................................................................150
A. CERTIFICATE OF STOCK ...........................................................................................................................150
B. WATERED STOCK (DILUTED STOCK) ........................................................................................................152
C. PAYMENT OF BALANCE OF SUBSCRIPTION .............................................................................................153
D. SALE OF DELINQUENT SHARES ................................................................................................................154
E. ALIENATION OF SHARES ..........................................................................................................................155
F. CORPORATE BOOKS AND RECORDS.........................................................................................................156
11. DISSOLUTION AND LIQUIDATION .................................................................................................................157
A. MODES OF DISSOLUTION: .......................................................................................................................157
B. METHODS OF LIQUIDATION ....................................................................................................................161
12. OTHER CORPORATIONS................................................................................................................................162
A. CLOSE CORPORATIONS ...........................................................................................................................162
B. NON-STOCK CORPORATIONS .................................................................................................................165
C. EDUCATIONAL CORPORATIONS ..............................................................................................................168
D. RELIGIOUS CORPORATIONS ....................................................................................................................169
E. ONE PERSON CORPORATIONS .................................................................................................................170
F. FOREIGN CORPORATIONS .......................................................................................................................173
13. MERGER AND CONSOLIDATION ...................................................................................................................178
A. DEFINITION AND CONCEPT .....................................................................................................................178
B. CONSTITUENT AND CONSOLIDATED CORPORATIONS ............................................................................179
C. PLAN OF MERGER OR CONSOLIDATION (SEC. 75) ...................................................................................180
D. ARTICLES OF MERGER OR CONSOLIDATION (SEC. 78) ............................................................................180
E. PROCEDURE OF CONSOLIDATION OR MERGER .......................................................................................180
F. EFFECTIVITY OF MERGER OR CONSOLIDATION .......................................................................................181
G. LIMITATIONS OF MERGER AND CONSOLIDATION ..................................................................................181
H. EFFECTS OF MERGER OR CONSOLIDATION .............................................................................................182

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14. INVESTIGATIONS, OFFENSES, AND PENALTIES .............................................................................................182

A. AUTHORITY OF COMMISSIONER .............................................................................................................182
B. SANCTIONS FOR VIOLATIONS ..................................................................................................................183
C. AUTHORITY OF THE SECURITIES AND EXCHANGE COMMISSION (JURISDICTION) ..................................184

V. SECURITIES .................................................................................................................................................... 189

A. STATE POLICY ................................................................................................................................................. 189

B. DEFINTION OFSECURITIES .............................................................................................................................. 189
C. KINDS OF SECURITIES ..................................................................................................................................... 190
1. EXEMPT SECURITIES .......................................................................................................................................191
2. EXEMPT TRANSACTIONS ................................................................................................................................191
3. NON-EXEMPT TRANSACTIONS .......................................................................................................................193
D. POWERS AND FUNCTIONS OF THE SECURITIES AND EXCHANGE COMMISSION ............................................... 193
E. PROCEDURE FOR REGISTRATION OF SECURITIES............................................................................................. 194
F. PROHIBITIONS ON FRAUD, MANIPULATION, AND INSIDER TRADING .............................................................. 199
1. MANIPULATION OF SECURITY PRICES ............................................................................................................199
2. SHORT SALES ..................................................................................................................................................199
3. OPTION TRADING ...........................................................................................................................................200
4. FRAUDULENT TRANSACTIONS ........................................................................................................................200
G. PROTECTION OF INVESTORS .......................................................................................................................... 201
1. TENDER OFFER RULE ......................................................................................................................................201
2. RULES ON PROXY SOLICITATION ....................................................................................................................202
3. DISCLOSURE RULE ..........................................................................................................................................202

VI. BANKING ...................................................................................................................................................... 205

A. THE NEW CENTRAL BANK ACT ........................................................................................................................ 206

1. STATE POLICIES ..............................................................................................................................................206
2. CREATION OF THE BANGKO SENTRAL NG PILIPINAS (BSP) .............................................................................206
3. RESPONSIBILITY AND PRIMARY OBJECTIVE ....................................................................................................206
4. CORPORATE POWERS .....................................................................................................................................207
5. OPERATIONS OF THE BANGKO SENTRAL NG PILIPINAS ..................................................................................207
A. AUTHORITY TO OBTAIN DATA AND INFORMATION ................................................................................207
B. SUPERVISION AND EXAMINATION ..........................................................................................................207
C. AUTHORITY TO APPROVE TRANSFER OF SHARES ....................................................................................208
D. PROHIBITIONS .........................................................................................................................................208
E. EXAMINATION AND FEES.........................................................................................................................209
6. MONETARY BOARD, POWERS AND FUNCTIONS.............................................................................................209
7. HOW THE BANGKO SENTRAL NG PILIPINAS HANDLES BANKS IN DISTRESS ....................................................211
A. CONSERVATORSHIP .................................................................................................................................211
B. CLOSURE ..................................................................................................................................................212
C. RECEIVERSHIP ..........................................................................................................................................212
D. LIQUIDATION ...........................................................................................................................................213
8. ADMINISTRATIVE SANCTIONS ON SUPERVISED ENTITIES ..............................................................................214
9. SUPERVISION AND REGULATION OF BANK OPERATIONS ...............................................................................215
A. LOANS AND OTHER CREDIT ACCOMMODATIONS ...................................................................................215
B. SELECTIVE REGULATION ..........................................................................................................................216
B. LAWS ON SECRECY OF BANK DEPOSITS ........................................................................................................... 217
1. PURPOSE ........................................................................................................................................................217
2. PROHIBITED ACTS ...........................................................................................................................................217

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Note: The remedy of a general partner who B. CORPORATION

suffers from or faces interference from his
partners is dissolution. (Weil v. Diversified
Properties, 319 F. Supp., 1970)
Liability of a Limited Partner Whose Surname
Appears in the Partnership Name
General Rule: A limited partner whose surname
appears in the partnership name is liable as a
general partner to the partnership creditors who
extended credit without actual knowledge that he
is not a general partner.
Exceptions:
i. If the surname is also the surname of a
general partner; or
ii. If prior to the time the partner became a
limited partner, the business has been
carried under such name.
--------- end of topic ---------
CORPORATION LAW
Republic Act No. 11232 Revised Corporation
Code
GENERAL PRINCIPLES
1. DEFINITION OF CORPORATION
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. (RCC,1 Sec. 2)
Attributes of a Corporation (Sec. 2)
a. Artificial Being
b. Created by operation of law
c. Has right of succession A corporation has
the capacity for continuous existence
despite changes in stockholders/members
d. Has only the powers, attributes, and
properties authorized by law or incident to its
existence.

Corporate Fiction

A corporation has a personality separate and

distinct from the persons composing it. (Civil
Code, Arts. 44-47; PNB v. Andrada Electric &
Engineering Co., G.R. No. 142936, 2002).

Corporation v. Partnership
CORPORATION PARTNERSHIP
Manner of Creation
Commences only By mere agreement
from the issuance of a
Certificate of
Incorporation by the
SEC, or, in proper
cases, passage of a
special law
Number of Organizers
Any person/s but not At least 2
more than fifteen
(15).2
Powers

1 For purposes of this part of the reviewer, unless 2Note- There is no 5 person minimum anymore for the
otherwise specified, all references refer to the Revised number of organizers (i.e., incorporators) of a
Corporation Code, Republic Act no. 11232. Corporation under the RCC. (see discussion at page
(hereinafter RCC) 15, Subheading 5.A)

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Restricted due to Subject to the to a special charter or through a general

limited powers agreement of partners enabling act such as the Corporation Code.
Authority of Those Who Compose It b. Public corporations - Formed or organized
Stockholders are not Mutual agency for the government of a portion of the state
agents of the between partners (e.g., barangay, municipality, city and
corporation in the province) Created for political purposes
absence of express connected with the public good in the
authority administration of the civil government
Transfers of Interest
Freely transferable Cannot be transferred Public Corporation v. Private Corporation
without the consent of without the consent of
PUBLIC PRIVATE
other stockholders the other partners
CORPORATION CORPORATION
(unless there is a
stipulation to the Government holds Government may
contrary) the controlling hold the controlling
Succession interest interest
Created under the
Existence continues Death of a partner
Corporation Code
even as persons who ends the partnership
compose it change Created by its charter
However, GOCCs
may also be created
Corporations as partners in a partnership
by special charter
Created for a public
Corporations have the power to enter into a
purpose
partnership, joint venture, merger, consolidation,
or any other commercial agreement with natural Exists primarily for
and juridical persons (Sec. 35(h)). the government of a Generally created for
portion of the state profit generation
Can a defective corporation result into a Subject to control and
partnership? (Two Views) supervision by the
State or its agency
No Partnership: When investors intended only to
invest in a corporate venture with no intention of Note:
participating in its corporate affairs, and the Ownership of the government of the majority
corporation was not formed, no partnership of the shares of a corporation does not by
relation is established by the failure to itself constitute such an entity as a public
incorporate, such investors cannot even be held corporation (National Coal Co., v. Collector of
liable for the contracts and transactions sued Internal Revenue, G.R. No. L-22619, 1994).
upon. (Pioneer Insurance v. CA, G.R. No. 84197, When the law vests corporate powers in a
1989) government instrumentality, it does not
necessarily become a corporation; a GOCC
Partnership Exists: However, when there was a must be organized as a stock or non-stock
clear intention to form a partnership venture corporation. (MIAA v. CA, G.R. No. 155650,
through a corporate vehicle (there was intention
2006)
Test to determine whether a corporation is
business), even those who did not directly
participate in the contract or transaction being public or private: If the corporation is
sued upon, but benefitted therefrom may be held
liable as general partners. (Lim Tong Lim v. agency or instrumentality to help it in carrying
Philippine Fishing Gear, G.R. No. 136448, 1999) out its governmental functions, then that
corporation is considered public; otherwise it
2. CLASSES OF CORPORATIONS is private. (Philippine Society for the
Prevention of Cruelty to Animals v. COA,
In Relation To The State G.R. No. 169752, 2007)
a. Private corporations Formed by private
persons alone, by or with the State pursuant

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a. Quasi-public corporation
A species of private corporations created by
special law and required to render public
service or supply public wants. (Id.) Usually
covers school districts, water districts and the
like.
b. Government owned and controlled
corporations (GOCCs)
Created under a special law or charter, or any
agency organized as a stock or non-stock
corporation, vested with functions relating to
public needs whether governmental or
proprietary in nature, and owned by the
Government of the Republic of the
Philippines directly or through its
instrumentalities either wholly or, where
applicable as in the case of stock
corporations, to the extent of at least a
majority of its outstanding capital stock (R.A.
No. 10149)
Note: A GOCC when organized under the
Corporation Code is still a private corporation.
But being a GOCC makes it subject to laws and
provisions applicable to the Government or its
entities and subject to the control of the
Government (Cervantes v. Auditor General, G.R.
No. L-4043, 1952).
The GOCC Governance Act (R.A. 10149), which
governs compensation and position classification
systems within the GOCC Sector, does not
distinguish between chartered and non-chartered
GOCCs, and its provisions apply equally to both.
(GSIS Family Bank Employees Union v.
Villanueva, G.R. No. 210773, 2019).
In order to qualify as a GOCC, one must be
organized either as a stock or non-stock
corporation. Section 31 defines a stock
corporation as on
into shares and ... authorized to distribute to the
BCDA has an authorized capital of P100 Billion,
however, it is not divided into shares of stock; it
has no voting shares; and has no provision which
authorizes the distribution of dividends and
stockholders. It cannot qualify also as a non-stock
corporation because its primary purpose do not
fall within the purposes enumerated under
Section 88. (BCDA v. CIR, G.R. No. 205925, 20
June 2018)
COMMERCIAL LAW
However, there is now formal administrative and
instrumentalities with corporate
may not fall within the definition of stock and non-
stock corporations, but are government
instrumentalities that are vested with corporate
powers. (LRTA v. Quezon City, G.R. No. 221626,
2019)
Under the Constitution, the COA has audit
jurisdiction over both GOCCs with original
charters (subject to COA pre-audit) and those
without original charters (those organized under
the Corporation Code subject to post-audit).
(Alejandrino v. COA, G.R. No. 245400, 2019).
As to Place of Incorporation
a. Domestic one incorporated under laws of
the Philippines
b. Foreign one formed, organized or existing
under any laws other than those of the
Philippines, and whose laws allow Filipino
citizens and corporations to do business in its
own country. (Sec. 140)
As To Legal Status
a. De jure corporation
Corporation organized in accordance
with requirements of law;
Every corporation is deemed to be a de
jure until proven otherwise
b. De facto corporation (Sec. 19)
A corporation claiming in good faith to be
a corporation under the Corporation
Code but where there exists a flaw in its
incorporation or it falls short of the
requirements provided by law.
It is the result of an attempt to incorporate
under an existing law coupled with the
exercise of corporate powers.
A de facto corporation will incur the same
obligations; have the same powers and
rights as a de jure corporation.
The due incorporation of any corporation
claiming in good faith to be a corporation
under the Corporation Code, and its right
to exercise corporate powers, shall not
be inquired into collaterally in any private
suit.
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Under the Rules of Court Rule 66, inquiry
must be done by the Solicitor General in
a quo warranto proceeding where the
main issue is the right to exist as a
corporation
Elements of a de facto corporation
a. Valid law under which incorporated;
b. Attempt in good faith to incorporate or
c. Assumption of corporate powers; and
d. Issuance of certificate of incorporation.
(Arnold Hall v. Piccio, G.R. No. L-2598, 1950)
Note: A corporation which has failed to file its by-
laws within the prescribed period does not ipso
facto lose its powers as such (Sawadjaan v. CA,
G.R. No. 141735, 2005).
c. Corporation by estoppel (Sec. 20);
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
When such ostensible corporation is sued on any
transaction entered by it as a corporation or on
any tort committed by it as such, it shall not be
allowed to use its lack of corporate personality as
a defense.
Anyone who assumes an obligation to an
ostensible corporation as such cannot resist
performance thereof on the ground that there was
in fact no corporation.
d. Corporation by prescription
The Roman Catholic Church is a corporation by
prescription, with acknowledged juridical
personality inasmuch as it is an institution which
antedated by almost a thousand years any other
personality in Europe (Barlin v Ramirez, G.R. No.
L-2832, 1906).
As To Existence of Stocks
a. Stock corporation
Stock corporations are those which have
capital stock divided into shares and are
authorized to distribute to the holders of
such shares, dividends, or allotments of
the surplus profits on the basis of the
shares held. (Sec. 3)
COMMERCIAL LAW
b. Nonstock corporation (Secs. 86-87)
A corporation where no part of its income
is distributable as dividends to members,
trustees or officers
Any profit obtained as an incident to its
operations shall, whenever necessary or
proper, be used for the furtherance of the
purpose for which the corporation was
organized.
As To Control
a. Holding company one that controls
another as a subsidiary or affiliate by the
power to elect its management; one which
holds shares in other companies for purposes
of control rather than for mere investment.
(SEC Opinion No. 15-15)
b. Affiliate company one that is subject to
common control of a parent or holding
company and operated as part of a system.
(SEC Opinion No. 15-15)
c. Parent and subsidiary companies when
a corporation has a controlling financial
interest in one or more corporations, the one
having control is know
As To Purpose of Incorporation
a. Municipal corporation
b. Religious corporation
c. Educational corporation
d. Charitable, Scientific or Vocational
corporation
e. Business corporation
As To Number of Members
a. Aggregate - a corporation which consists of
many persons united to form a body politic
and corporate (IEMELIF v. Lazaro, G.R. No.
184088, 2010).
b. Corporation sole Formed by one person
who may be the chief archbishop, bishop,
minister, rabbi, or other presiding elder of any
religious denomination, sect or church. (Sec.
108)
Purpose: created to administer and
manage the affairs, properties,
temporalities of the church to which the
holder of the office belongs and also to
transmit the same to his successor in
office.
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c. Close Corporation- a corporation where:
a. stockholders of record shall not
exceed twenty (20);
b. all the issued stock shall be
subject to one or more specified
restrictions on transfer permitted
by this Title; and
c. the corporation shall not list in
any stock exchange or make any
public offering of its stocks of any
class.
Notwithstanding, a corporation shall not
be deemed a close corporation when at
least 2/3 of its voting stock is owned or
controlled by another corporation which
is not a close corporation within the
meaning of this Code. (Sec. 95)
d. One Person Corporation- a corporation with
a single stockholder. Only a natural person,
trust, or an estate may form a One Person
Corporation. Banks and quasi-banks, pre-
need, trust, insurance, public and publicly-
listed companies, and non-chartered
government-owned and -controlled
corporations may not incorporate as One
Person Corporations. A natural person who is
licensed to exercise a profession may not
organize as a One Person Corporation for the
purpose of exercising such profession except
as otherwise provided under special laws.
(Sec. 115)
3. NATIONALITY OF CORPORATIONS
Nationality of Corporation
Serves as a legal basis for subjecting the
enterprise or its activities to the laws, the
economic and fiscal powers, and various social
and financial policies of the state to which it is
supposed to belong.
Tests:
1. Place of Incorporation
2. Control Test
3. Grandfather Rule3
4. War-time in times of war, nationality of
corporation is determined by the character or
citizenship of its controlling stockholders
5. Investment Test
6. Place of Principal Business
3 Emphasis on no. 2 & 3 for they are expressly
indicated in the bar syllabus.
COMMERCIAL LAW
In order to determine the nationality of a
corporation, the following steps should apply:
1st Step: The nationality of a corporation is
determined by the country under whose laws it is
incorporated (Place of Incorporation Test).
2nd Step: If the corporation is applying for a (2nd)
franchise for public utility and etc. which requires
a certain percentage of control of stock, the Test
of Controlling Ownership would be applied.
3rd step: If there is doubt as to the domestic
control of the percentage of stock in a corporation
with corporate stockholders, Grandfather test
would be applied (Narra Nickel Mining and
Development Corp. v. Redmont Consolidated
Mines Corp., G.R. No. 195580, 2014)
MAIN TESTS
A. Place of Incorporation Test
A corporation is a national of the country under
whose laws it has been organized and registered
B. Control Test
In cases involving properties, business or
industries reserved for Filipinos, in addition to the
place of incorporation test, the nationality of a
corporation is determined by the nationality of the
Absent any doubt, the Control Test shall be used
in determining the nationality of a corporation
specially in cases where foreign ownership
restrictions apply. (SEC OGC Opinion No. 16-19)
[T]here are two cases in determining the
nationality of the Investee Corporation. The first
as the Control Test in its 30 May 1990 Opinion,
and pertains to the portion in said Paragraph 7 of
belonging to corporations or partnerships at least
60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine
is no need to further trace the ownership of the
60% (or more) Filipino stockholdings of the
Investing Corporation since a corporation which
is at least 60% Filipino-owned is considered as
Filipino. (Narra Nickel Mining and Development
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Corp. v. Redmont Consolidated Mines Corp.,
G.R. No. 195580, 2014).
The required percentage of Filipino
ownership shall be applied to both:
a. The total number of outstanding shares of
stock entitled to vote in the election of
directors, and
b. The total number of outstanding shares of
stock, whether or not entitled to vote in the
election of directors. (SEC Memorandum
Circular No. 8, s. 2013, Sec. 2)
Mere legal title is not enough. Full beneficial
ownership of 60 percent of the outstanding capital
stocks, coupled with 60 percent of the voting
rights, is constitutionally required for the State's
grant of authority to operate a public utility. Thus,
voting rights of stocks which have been assigned
or transferred to aliens cannot be considered held
by Philippine citizens or nationals (cannot give
proxies to vote). (Roy III v. Herbosa, et al., G.R.
No. 207246, 2016)
ownership in the SRC-IRR, which is in
-IRR, is relevant in resolving
only the question of who is the beneficial owner
review. If the Filipino has the voting power of the
direct another to vote for him, or the Filipino has
direct another to vote or dispose it for him, then
the 60% Filipino ownership requirement under
the Constitution. The right to the dividends, jus
fruendi a right emanating from ownership of that
ry accrues to its Filipino
(Roy III v. Herbosa, G.R. No.
207246 (Resolution), 18 April 2017.)
General rule: The Control Test cannot overcome
the Place of Incorporation Test.
Exception: A corporation organized abroad and
registered as doing business in the Philippines
under the Corporation Code, whose capital
outstanding stock and entitled to vote is wholly
owned by Filipinos is a Philippine National. (SEC
COMMERCIAL LAW
Opinion No. 04-14 in reference to the Foreign
Investments Act)
Some instances wherein the control test
applies:
a. Exploitation of natural resources (> 60%)
Sec 2, Art XII, 1987 Constitution policy
of the State is to ensure that the
exploitation of natural resources or the
pursuit of the activities deemed to be of
public or national interest are in the
control of the Filipinos
The State may directly undertake such
activities, or it may enter into co-
production, joint venture, or production
sharing agreements with:
o Filipino citizens; or
o Corporations or associations, at
least 60% owned by such
citizens
b. Public Utilities (> 60%)
Sec 11, Art XII, 1987 Constitution
requires that only domestic corporations
with at least 60% of the capital stock
owned by Filipinos may own and operate
public utilities in the Philippines
The nationality test for public utilities
applies not at the time of the grant of the
primary franchise that makes a
corporation a juridical person, but at the
grant of the secondary franchise that
authorizes the corporation to engage in a
nationalized industry. (People v. Quasha,
G.R. No. L-6055, 1953)
The Constitution requires a franchise for
operating a public utility; however, it does
not require a franchise before one can own
the facilities needed to operate a public
utility so long as it does not operate them to
serve the public.(Tatad v. Garcia, Jr., G.R.
No. 114222, 1995).
c. Mass Media (100%)
Sec 11, Art XVI, 1987 Constitution
ownership of mass media shall be limited
to the citizens of the Philippines, or to
corporations, cooperatives or
associations, wholly-owned and
managed by such citizens (100% Filipino
management of the entity)
Cable Industry -
media which must, therefore, be owned
and managed by Filipino citizens, or
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corporations, cooperatives or
associations, wholly-owned and
managed by Filipino citizens pursuant to
(DOJ
Opinion No. 95, series of 1999).
d. Advertising Industry (> 70%)
Sec 11, Art XVI, 1987 Constitution only
Filipino citizens or corporations or
associations at least 70% of the capital of
which is owned by such citizens shall be
allowed to engage in the advertising
agency
e. NEDA could advise Congress to set limitations
of stock ownership in Corporations vested with
Public Interests (Sec. 176)
C. Grandfather Rule
Where corporate shareholders are present (and
when the Filipino-foreign equity ownership is in
doubt), the percentage of the Filipino equity in
corporations is computed by attributing the
nationality of the second or subsequent tier of
ownership to determine the nationality of the
corporate shareholder
Example: MV Corporation and AC Corporation
have equal interest in XYZ Company. MV
Corporation is 60% owned by Filipinos, while AC
Corporation is 50% owned by Filipinos. By the
grandfather rule, MV Corporation would have a
30% Filipino interest in XYZ Company (60% of
50%), while AC Corporation would have a 25%
Filipino interest in XYZ Company (50% of 50%).
Hence, the total Filipino interest is only 55%.
The Control test is still the prevailing mode of
determining whether or not a corporation is a
Filipino corporation within the ambit of the natural
resources provisions of the Constitution. But
when in the mind of the court there is doubt based
on attendant facts and circumstances, in the 60-
40 Filipino equity ownership in the corporation,
then it may apply the grandfather rule (Narra
Nickel Mining and Development Corp. v.
Redmont Consolidated Mines Corp., G.R. No.
195580, 2014).
does not eschew, but in fact
control test
implements Filipinization provisions of the
Constitution. (Narra Nickel Mining and Development
Corp. v. Redmont Consolidated Mines Corp., G.R.
No. 195580, 2015).
COMMERCIAL LAW
OTHER TESTS
A. War-Time Test
In times of war, nationality of corporation is
determined by the character or citizenship of its
controlling stockholders
B. Investment Test
a. A corporation organized under Philippine
laws of which at least 60% of the outstanding
capital stock entitled to vote is owned and
held by Filipino citizens; and
b. A corporation organized abroad and
Philippines under the Corporation Code of
which 100% of the capital stock entitled to
vote belong to Filipinos (R.A. No. 7042, Sec.
3[a], as amended or Foreign Investment Act
of 1991)
Double 60% Rule
Where a corporation and its non-Filipino
stockholders own stock in a SEC-registered
enterprise, at least 60% of the outstanding capital
stock and entitled to vote of both corporations and
at least 60% of the members of the Board of
Directors of both corporations must be Filipino
citizens (R.A. No. 7042, Sec. 3[a], as amended)
C. Place of Principal Business Test
Residence of a corporation is the place where its
principal office is located, as stated in its Articles
of Incorporation.
The place where the principal office of the
corporation is to be located is one of the required
contents of the articles of incorporation to be filed
with the SEC (Hyatt Elevators v. Goldstar, G.R.
No. 161026, 2005).
Applied to determine whether a state has
jurisdiction over the existence and legal character
of a corporation, its capacity or powers, internal
organization, capital structure, the rights and
liabilities of directors, officers, and shareholders
towards each other and to creditors and third
persons.
4. CORPORATE JURIDICAL PERSONALITY
General Rule: The Corporation has a separate
and distinct juridical personality from its directors,
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officers, trustees and shareholders (Doctrine of
Separate Juridical Personality).
Exception: When the corporation is used as a
cloak for fraud, illegality, or in other certain
circumstances, the courts may disregard the
separate and distinct personality of the
corporation and treat the corporation as a mere
collection of individuals undertaking business as
a group (Doctrine of Piercing the Veil of
Corporate Fiction).
A. Doctrine of Separate Juridical
Personality
A corporation is a juridical entity with a legal
personality separate and distinct from those
acting for and on its behalf, and, in general, from
the people comprising it; the obligations incurred
by the corporation, acting through its directors,
officers and employees are its sole liabilities
(Santos v NLRC, G.R. No. 101699, 1996).
While a share of stock represents a proportionate
or aliquot interest in the property of the
corporation, it does not vest the owner thereof
with any legal right or title to any of the corporate
property, his interest in such property being
equitable or beneficial in nature. Shareholders
are in no legal sense the owners of corporate
property, which is owned by the corporation as a
distinct legal person (Magsaysay-Labrador v CA,
G.R. No. 58168, 1989).
Corporate Liability
i. Liability for Torts and Crimes
a) On Torts
A corporation is civilly liable in the same manner
as natural persons for torts, because the rules
governing the liability of a principal for a tort
committed by an agent are the same whether the
principal be a natural person or a corporation, and
whether the agent be a natural or artificial person.
That a principal is liable for every tort which he
expressly directs or authorizes, is just as true of a
corporation as a natural person (PNB v. CA, G.R.
No. L-27155, 1978).
A corporate officer who caused the tort act to be
committed in the name of the corporation is also
personally liable as a joint-tortfeasor.
COMMERCIAL LAW
The failure of the corporate employer to comply
with a legal duty, such as under the Labor Code
to grant separation pay to employees constitutes
tort and its stockholder who was actively engaged
in the management of the business should be
held personally liable (Naguiat v. NLRC, G.R. No.
116123, 1997).
A corporation can be held liable for the tortious
acts of a corporate officer, in the absence of a
prior express direction from the BOD, if such was
connected to the business of the corporation.
The remedy of the corporation is to recover
damages against the acting corporate officer
responsible for the tortious act.
b) On Crimes
General rule: Corporations cannot commit
felonies under the RPC for it is incapable of the
requisite intent to commit these crimes.
It also cannot commit crimes that are punishable
under special laws because crimes are personal
in nature requiring personal performance of overt
acts.
A corporation cannot be arrested and imprisoned;
hence, cannot be penalized for a crime
punishable by imprisonment.
Exceptions: If the crime is committed by a
corporation, the directors, officers, employees or
other officers thereof responsible for the offense
shall be charged and penalized for the crime,
precisely because of the nature of the crime and
the penalty therefore. However, the corporation
may be charged and prosecuted for a crime if the
imposable penalty is fine (Ching v. Secretary of
Justice, G.R. No. 164317, 2006).
When a law expressly provides that a corporation
may be proceeded against criminally, the
responsible officer will be held personally liable
for the crimes committed by the corporation.
However, such liability will only attach to the
officer when the corporation is directly required by
law to do an act in a given manner, and the same
law makes the person who fails to perform the act
in the prescribed manner expressly liable
criminally (Sia v. Court of Appeals, G.R. No.
108222, 1997). For example:
1) Under the Anti-Money Laundering Act,
juridical persons are also defined as
offenders.
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2) The RCC provides situations where
corporations are liable for criminal
sanctions:
a) SEC. 161. Violation of Duty to
Maintain Records, to Allow their
Inspection or Reproduction;
b) SEC. 165. Fraudulent Conduct
of Business;
c) SEC. 166. Acting as
Intermediaries for Graft and
Corrupt Practices;
d) SEC. 167. Engaging
Intermediaries for Graft and
Corrupt Practices
ii. Recovery of Moral Damages
General rule: A corporation cannot recover moral
damages as it cannot suffer physical suffering
and mental anguish (Prime White Cement v IAC,
G.R. No. L-68555, 1993).
Exception: A corporation with a good reputation,
if besmirched, is allowed to recover moral
damages upon proof of existence of factual basis
of damage (actual injury) and its causal relation
(Crystal v. BPI, G.R. No. 172428, 2008).
The following Constitutional rights apply to a
corporation:
a. Due process - The due process clause is
universal in its application to all persons
without regard to any differences of race,
color, or nationality. Private corporations,
guaranty insofar as their property is
(Smith Bell & Co. v. Natividad,
G.R. No. 15574, 1919).
b. Equal protection of the law (Smith Bell &
Co. v. Natividad, G.R. No. 15574, 1919)
c. Unreasonable searches and seizures -
(Stonehill v. Diokno, G.R. No. L-19550,
1967).
In organizing itself as a collective body, the
corporation waives no constitutional immunities
applicable to it. Its property cannot be taken
without compensation; can only be proceeded
against by due process of law; and is protected
against unlawful discrimination (Bache & Co.
(Phil.), Inc. v. Ruiz, G.R. No. 32409, 1971, citing
Hale v. Henkel, 201 U.S. 43, 50 L.Ed. 652.).
COMMERCIAL LAW
Note: The right against self-incrimination has no
application to juridical persons. (Bataan Shipyard
v. PCGG, G.R. No. 75885, 1987)
The right against self-incrimination refers
only to testimonial compulsion;
A corporation cannot testify; and
The State can freely open the books of
the corporation to ensure that it does not
exceed its powers
Implications of the Existence of the Corporate
Veil or a Separate and Distinct Juridical
Personality
a) Controlling interest of and/or dealings in
shareholdings
Ownership of a majority of capital stock and the
fact that majority of directors of a corporation are
the directors of another corporation creates no
employer-employee relatio
employees (DBP v. NLRC, G.R. No. 86932,
1990; Francisco, et al. v. Mejia, G.R. No. 141617,
2001).
The mere fact that a stockholder sells his shares
of stock in the corporation during the pendency of
a collection case against the corporation, does
not make such stockholder personally liable for
the corporate debt, since the disposing
stockholder has no personal obligation to the
creditor, and it is the inherent right of the
stockholder to dispose of his shares of stock
anytime he so desires (Remo, Jr. v. IAC, G.R. No.
L-67626, 1989).
Mere substantial identity of the incorporators of
the two corporations does not necessarily imply
fraud, nor warrant the piercing of the veil of
corporate fiction. In the absence of clear and
convincing evidence to show that the corporate
personalities were used to perpetuate fraud, or
circumvent the law, the corporations are to be
treated as distinct and separate from each other
(Laguio v. NLRC, G.R. No. 108936, 1996).
b) Transaction amongst the corporation and
stockholders
The transfer of the corporate assets to the
stockholder is not in the nature of a partition but
is a conveyance from one party to another
(Stockholders of F. Guanzon and Sons, Inc. v.
Register of Deeds of Manila, G.R. No. L-18216,
1962).
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Note: A corporation may not be made to answer
for acts or liabilities of its stockholders or those of
the legal entities which it may be connected and
vice-versa (ARB Constructions Co., Inc. v. Court
of Appeals, G.R. No. 126554, 2000).
c) Pertaining to privileges enjoyed
The tax privileges enjoyed by a corporation do not
extend to its stockholders. A corporation has a
personality distinct from that of its stockholders,
enabling the taxing power to reach the latter when
they receive dividends from the corporation. It
must be considered as settled in this jurisdiction
that dividends of a domestic corporation which
are paid and delivered in cash to foreign
corporations as stockholders are subject to the
payment of the income tax, the exemption clause
to the charter [of the domestic corporation]
notwithstanding. (Manila Gas Corporation. v.
Collector of Internal Revenue, G.R. No.L-42780,
1936).
d) Assumption as a corporate officer
Being an officer or stockholder of a corporation
corporation, and vice-versa, for they are separate
entities, and that shareholders are in no legal
sense the owners of corporate property which is
owned by the corporation as a distinct legal
person (Good Earth Emporium, Inc. v. CA, G.R.
No. 82797, 1991).
The mere fact that one is president of the
corporation does not render the property he owns
or possesses the property of the corporation,
since that president, as an individual, and the
corporation, are separate entities (Cruz v.
Dalisay, A.M. No. R-181-D, 1987).
e) Properties, obligations and debts
A corporation has no legal standing to file a suit
for recovery of certain parcels of land owned by
its members in their individual capacity, even
when the corporation is organized for the benefit
of the members (Sulo ng Bayan v. Araneta, Inc.,
G.R. No. L-31061, 1976).
The corporate debt or credit is not the debt or
debt or credit that of the corporation (Traders
Royal Bank v. CA, G.R. No. L-78412, 1989).
Stockholders have no personality to intervene in
a collection case covering the loans of the
corporation on the ground that the interest of
COMMERCIAL LAW
shareholders in corporate property is purely
inchoate (Saw v. CA, G.R. No. 90580, 1991).
The interests of payees in promissory notes
cannot be off-set against the obligations between
the corporations to which they are stockholders
absent any allegation, much less, even a scintilla
of substantiation, that the parties interest in the
corporation are so considerable as to merit a
declaration of unity of their civil personalities
(CKH Industrial and Development Corp. v. CA,
G.R. No. 111890, 1997).
Even when the foreclosure on the assets of the
corporation was wrongful and done in bad faith,
the stockholders of the corporation have no
standing to recover for themselves moral
damages. Otherwise, it would amount to the
appropriation by, and the distribution to, such
before the dissolution of the corporation and the
liquidation of its debts and liabilities (APT v. CA,
G.R. No. 121171, 1998).
Where real properties included in the inventory of
the estate of a decedent are in the possession of
and are registered in the name of the
corporations, in the absence of any cogency to
shred the veil of corporate fiction, the
presumption of conclusiveness of said titles in
favor of said corporations should stand
undisturbed (Lim v. CA, G.R. No. 124715, 2000).
f) Third-parties to corporate acts
The fact that respondents are not stockholders of
the disputed corporations does not make them
non-parties to the case. In this case, it is alleged
that the aforementioned corporations are mere
alter egos of the directors-petitioners, and that the
former acquired the properties sought to be
reconveyed to FGSRC in violation of directors-
The notion of corporate entity will be pierced or
disregarded and the individuals composing it will
be treated as identical if, as alleged in the present
case, the corporate entity is being used as a cloak
or cover for fraud or illegality; as a justification for
a wrong; or as an alter ego, an adjunct, or a
business conduit for the sole benefit of the
stockholders (Gochan v. Young, G.R. No.
131889, 2001).
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B. Doctrine of Piercing the Veil of
Corporate Fiction
Under certain circumstances, the courts may
disregard the separate and distinct personality of
the corporation from its members or stockholders
and treat the corporation as a mere collection of
individuals or an aggregation of persons
undertaking business as a group such as when
the corporate legal entity is used as a cloak for
fraud or illegality
182729, 2010).
It is an equitable doctrine used as a last resort
only when the objective is to hold the officers
and/or stockholders liable. Thus, in one case, it
cannot be applied in order to declare a
foreclosure proceeding a nullity (Umali v. CA, GR
No. 89561, 1990).
Being merely an equitable remedy, employment
of the piercing doctrine can only be for the
protection of the interests of innocent third
persons dealing with the corporate entity
(Traders Royal Bank v. Court of Appeals, G.R.
No. 93397, 1997).
Classification of piercing cases:
a. Fraud piercing when a corporate entity is
used to commit fraud or justify a wrong or to
defend a crime.
b. Alter-ego piercing when a corporate
entity is used to defeat public convenience
or is merely a farce since the corporation is
merely the alter ego, business conduit, or
instrumentality of a person or another entity.
c. Equity cases when piercing the corporate
fiction is necessary to achieve justice or
equity.
Note: The three cases may appear together in
one application (R.F. Sugay & Co. v. Reyes, G.R.
No. L-20451, 1964).
i. Grounds for application of the different
types of piercing
For Fraud Cases:
1. There must have been fraud or an evil
motive in the affected transaction, and
the mere proof of control of the corporation
by itself would not authorize piercing; and
2. The main action should seek for the
enforcement of pecuniary claims
COMMERCIAL LAW
pertaining to the corporation against
corporate officers or stockholders.
Example cases:
a) Where a stockholder, who has absolute
control over the affairs of the corporation,
entered into a contract with another
corporation through fraud and false
representations, such stockholder shall be
liable solidarily with co-defendant corporation
even when the contract sued upon was
entered into on behalf of the corporation
(NAMARCO v. Associated Finance Co.,G.R.
No. L-20886, 1967).
b) Piercing is allowed where the corporation is
used as a means to appropriate a property by
fraud which property was later resold to the
controlling stockholders. (Heirs of Ramon
Durano, Sr. v. Uy, G.R no.136456, 2000).
c) Fraud and bad faith on the part of certain
corporate officers or stockholders may warrant
the piercing of the veil of corporate fiction so
that the said individual may not seek refuge
therein, but may be held individually and
personally liable for his or her actions.
(Lafarge Cement Phils., Inc. v. Continental
Cement Corp., G.R. no. 155173, 2004)
For Alter-ego Cases:
The doctrine applies in this case even in the
absence of evil intent; it applies because of
the direct violation of a central corporate law
principle of separating ownership from
management.
The doctrine in such cases is based on
estoppel: if stockholders do not respect the
separate entity, others cannot also be
expected to be bound by the separate
juridical entity.
Piercing in alter ego cases may prevail even
when no monetary claims are sought to be
enforced against the stockholders or officers
of the corporation.
ii. Tests for Applicability of the Doctrine of
Piercing the Veil of Corporate Fiction: (CUP)
a. Control not mere stock control but
Complete Domination not only of
finances, but of policy and business practice
in respect to the transaction attacked and
must have been such that the corporate
entity as to this transaction had at the time
no separate mind, will or existence of its
own.
b. Such control must have been Used by the
defendant to commit a fraud or wrong to
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perpetuate the violation of a statutory or
other positive legal breach of duty, or a
dishonest and an unjust act in contravention
o do not act independently in the interest of the
c. The said control and breach of duty must
have Proximately caused the injury or
unjust loss complained of (Concept Builders
Inc. v. NLRC, 108734, 1996).
These were expanded as three-pronged tests:
The first prong is the "instrumentality" or
"control" test. This test requires that the
subsidiary be completely under the control and
domination of the parent corporation or
shareholder. It seeks to establish whether the
corporation has no autonomy and the parent
corporation or shareholder "is operating the
business directly for itself or themselves."
The second prong is the "fraud" test. This test
requires that the conduct in using the corporation
be unjust, fraudulent or wrongful.
The third prong is the "harm" test. This test
control, exerted in a fraudulent, illegal or
otherwise unfair manner toward it, caused the
harm suffered (PNB v. Hydro Resources
Contractors Corporations, G.R. no. 167530,
2013).
Factors to Consider in cases of Parent and
Subsidiary corporations in Alter-ego Piercing:
The parent corporation owns all or most of
the capital of the subsidiary.
The parent and subsidiary corporations have
common directors or officers.
The parent company finances the subsidiary.
The parent company subscribed to all the
capital stock of the subsidiary or otherwise
caused its incorporation.
The subsidiary has grossly inadequate
capital.
The parent corporation pays the salaries and
other expenses or losses of the subsidiary.
The subsidiary has substantially no business
except with the parent corporation or no
assets except those conveyed to or by the
parent corporation.
The papers of the parent corporation or in the
statements of its officers, the subsidiary is
described as a department or subdivision of
the parent corporation, or its business or
financial responsibility is referred to as the
COMMERCIAL LAW
The parent corporation uses the property of
the subsidiary as its own.
The directors or executives of the subsidiary
subsidiary but take their orders from the
parent corporation.
The formal legal requirements of the
subsidiary are not observed (Phil. National
Bank v. Ritratto Group, Inc., GR No. 142616,
2001).
Note: Mere ownership by a single stockholder or
by another corporation of all or substantially all of
the capital stock of the corporation does not justify
the application of the doctrine (Francisco v. Mejia,
G.R. No. 141617, 2001).
Example Cases:
a) Where the stock of a corporation is owned by
one person whereby the corporation
functions only for the benefit of such
individual owner, the corporation and the
individual should be deemed the same
(Arnold v. Willets and Patterson, Ltd., G.R.
No. L-20214, 1923).
b) When the corporation is merely an adjunct,
business conduit or alter ego of another
corporation, the fiction of separate and
distinct corporation entities should be
disregarded (Tan Boon Bee & Co. v.
Jarencio, G.R. No. L-41337, 1988).
c) Employment of same workers; single place of
business, etc. (La Campana Coffee Factory
v. Kaisahan ng Manggagawa, G.R. No. L-
5677, 1953).
d) Use of nominees (Marvel Building v. David,
G.R. No. L-508, 1951)
e) Avoidance of tax. (Yutivo Sons Hardware v.
Court of Tax Appeals, G.R. No. L-13203,
1961; Liddell& Co. v. Collector of Internal
Revenue, G.R. No. L-9687, 1961).
f) Mixing of bank deposit accounts. (Ramirez
Telephone Corp. v. Bank of America, G.R.
No. L-22614, 1969).
g) Where it appears that two business
enterprises are owned, conducted, and
controlled by the same parties, both law and
equity will, when necessary to protect the
rights of third persons, disregard the legal
fiction that two corporations are distinct
entities and treat them as identical (Sibagat
Timber Corp. v. Garcia, G.R. No. 98185,
1992)
h) Thinly-capitalized corporations (McConnel v.
Court of Appeals, G.R. No. L-10510, 1961).
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i) Parent-subsidiary relationship. (Koppel
(Phil.), Inc. v. Yatco, G.R. No. L-47673,1946;
Philippine Veterans Investment Development
Corporation v. CA, G.R. No. 85266, 1990)
j) Affiliated companies (Guatson International
Travel and Tours, Inc. v. NLRC, G.R. No.
100322, 1994)
Summary of Probative Factors (Philippine
National Bank vs. Ritratto Group, Inc., et al., G.R.
No. 142616, 2001; Concept Builders, Inc. v.
NLRC, G.R. No. 108734, 1996): Whether the
separate personality of the corporation should be
pierced depends on questions of facts,
appropriately pleaded. Mere allegation that a
corporation is the alter ego of the individual
stockholders is insufficient. The presumption is
that the stockholders or officers and the
corporation are distinct entities. The burden of
proving otherwise is on the party seeking to have
the court pierce the veil of corporate entity
(Ramoso v. CA, G.R. No. 117416, 2000).
For Equity Cases:
These are cases, where there is no fraud or alter
ego circumstances that can warrant the piercing
of the corporate veil. This mainly used to render
justice in the situation at hand, or to brush aside
technical defenses.
For example:
a) When used to confuse legitimate issues
(Telephone Engineering and Service Co.,
Inc. V. WCC, G.R. No. L-28694, 1981).
b) When used to raise issues relating only to
technicalities (Emilio Cano Ent. v. CIR, G.R.
No. L-20502, 1965).
The veil may not always be pierced, especially
in the following circumstances:
(a) Piercing is a remedy of last resort and is not
available when other remedies are still
available (Umali v. CA, G.R. No. 89561,
1990).
(b) One cannot successfully invoke the piercing
doctrine when it was proven that the act done
was contrary to the existing rules, which
were well-known to the officers of the one
invoking it (Traders Royal Bank v. Court of
Appeals, G.R. No. 93397, 1997).
(c) Piercing is forbidden unless the remedy
sought is to make the stockholder, officer
or another corporation pecuniarily liable
for corporate debts (Umali v. CA, G.R. No.
89561, 1990; Indophil Textile Mill Workers
COMMERCIAL LAW
Union-PTGWO v. Calica, G.R. No. 96490,
1992).
Note: However, piercing in alter ego cases
may prevail even when no monetary claims
are sought to be enforced against the
stockholders or officers of the corporation.
(e.g. piercing for other purposes such as
(d) Piercing is forbidden when the personal
obligations of an individual are sought to
be enforced against the corporation
(Robledo v. NLRC, G.R. No. 110358, 1994).
Note: As an exception to this rule, the
Supreme Court allowed such piercing by
applying the concept of
In a traditional veil-piercing action, a court
disregards the existence of the corporate
entity so a claimant can reach the assets of a
corporate insider. In a reverse piercing
action, however, the plaintiff seeks to reach
the assets of a corporation to satisfy claims
against a corporate insider."
Reverse piercing has two (2) types:
1. Outsider reverse - piercing occurs when
a party with a claim against an individual or
corporation attempts to be repaid with assets
of a corporation owned or substantially
controlled by the defendant.
2. Insider reverse piercing - the controlling
members will attempt to ignore the corporate
fiction in order to take advantage of a benefit
available to the corporation, such as an
interest in a lawsuit or protection of personal
assets. (International Academy of
Management and Economics vs. Litton and
Company, G.R. No. 191525, 2017).
(e) To disregard the separate juridical
personality of a corporation, the wrongdoing
must be clearly and convincingly
established. It cannot be presumed (DBP vs.
CA, G.R. No. 126200, 2001).
(f) Piercing of the veil of corporate fiction is not
allowed when it is resorted to justify under
a theory of co-ownership the continued
use and possession by stockholders of
corporate properties (Boyer-Roxas v. Court
of Appeals, G.R. No. 100866, 1992).
(g) The piercing doctrine cannot be availed of in
order to dislodge from the jurisdiction of
the SEC the petition for suspension of
payments filed under Section 5(e) of Pres.
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Decree No. 902-A, on the ground that the
petitioning individuals should be treated as
the real petitioners to the exclusion of the
petitioning corporate debtor (Union Bank v.
CA, G.R. No. 131729, 1998).
(h)
liabilities by converting them to guarantors of
bad debts cannot be done by piercing the veil
of corporate identity (Ramoso v. CA, G.R. No.
117416, 2000)
(i) Piercing doctrine is meant to prevent fraud,
and cannot be employed to perpetrate
fraud or a wrong (Araneta, Inc. v. Tuason,
G.R. No. L-2886, 1952).
(j) Corporate persons are entitled to due
process protection. Thus, failure to implead
a corporation in a suit for recovery of ill-
gotten wealth against its stockholders
cannot bind the corporation itself;
otherwise, its fundamental right to due
process will be violated. (COCOFED v.
Republic, G.R. No. 177857-58, 2016)
(k) Mere ownership of all or nearly all of the
capital stocks of a corporation is not in itself a
sufficient reason for disregarding the fiction of
separate corporate personalities. The
probate court applied doctrine of piercing the
corporate veil since Rosario had no other
properties that comprise her estate other than
her shares. Although the intention to protect
the shares from dissipation is laudable, it is
still an error to order tenants to remit
payments to the estate. Also, the court has
not acquired jurisdiction over Primrose and its
properties. Piercing applies to the
determination of liability not of
jurisdiction. It is not available to confer
jurisdiction over a party not impleaded in
a case. (Mayor v. Tiu, G.R. No. 203770,
2016)
5. CAPITAL STRUCTURE
A. Number and Qualifications of
Incorporators
1) Incorporators4 Incorporators are those
stockholders or members mentioned in the
articles of incorporation as originally forming
and composing the corporation and who are
signatories thereof (Sec. 5).
4 Note: Amendments were introduced by the RCC
removing the qualifications to be natural persons, and
majority must be residents of the Philippines;
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They must:
a. Be a natural person, partnership,
association or corporation, singly or
jointly with others but not more than
fifteen (15)5 ;
i. may be composed of any
combination of natural person/s,
SEC-registered partnership/s,
SEC-registered domestic
corporation/s or associations, and
foreign corporation/s (SEC MC
no. 16-19)
b. If natural persons, be of Legal Age;
c. Each owns or subscribes to at least
one share for stock corporations and
be a member for non-stock
corporations.
Note: Natural persons who are licensed to
practice a profession, and partnerships or
associations organized for the purpose of
practicing a profession, shall not be allowed to
organize as a corporation (for the practice of such
profession) unless otherwise provided under
special laws.(Sec. 10)
Additional Guidelines issued by the SEC(SEC
MC no. 16-19):
1) For Partnership as Incorporators:
Application for registration must be
accompanied with an affidavit, executed
by all the partners, indicating that they
authorized the partnership to be an
incorporator and have designated one of
the partners to sign the incorporation
documents.
Partnerships under Dissolved or Expired
status with the SEC shall not be
authorized to become an incorporator.
2) For Domestic Corporations or Associations
as Incorporators:
Its investment in the new corporation must
be approved by a majority of the board of
directors or trustees ratified by the
stockholders representing at least two-
or at least two-
in cases of nonstock corporations.
A Directors'/Trustees' Certificate or a
Secretary's Certificate, indicating the
5 A corporation with a single stockholder is considered
either as an One Person Corporation or a Corporation
Sole.
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necessary approvals, as well as the
authorized signatory to the incorporation
documents, shall be executed under oath
and submitted by the applicant.
Domestic corporations under "delinquent",
"suspended", "revoked" or "expired"
status with the SEC shall not be
authorized to become an incorporator.
3) For Foreign Corporations as incorporators:
The application for registration must be
accompanied by a copy of a document
duly authenticated by a Philippine
Consulate or with an apostille affixed
thereto, authorizing the foreign
corporation to invest in the corporation
being formed and specifically naming the
designated signatory on behalf of the
foreign corporation.
B. Minimum Capital Stock And
Subscription Requirements
Stock corporations shall not be required to have
a minimum capital stock, except as otherwise
specifically provided by special law (Sec 12). 6
C. Corporate Term (Sec. 11)
New Rule:
General rule: A corporation shall have perpetual
existence,
Exception: Unless its articles of incorporation
provide otherwise.
For Corporations with certificates of
incorporation issued prior to the effectivity of
this Code, and which continue to exist shall have
perpetual existence, unless:
upon a vote of its stockholders
representing a majority of its outstanding
capital stock
the corporation notifies the SEC that it
elects to retain its specific corporate
term pursuant to its articles of incorporation.
Any change in the corporate term under this
section is without prejudice to the appraisal right
of dissenting stockholders in accordance with the
provisions of this Code.
Extension:
6 The RCC completely removed sec. 13 of the old
corporation code which provided for the 25-25 rule
upon incorporation.
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General Rule: A corporate term for a specific
period may be extended or shortened by
amending the articles of incorporation.
Limitation: No extension may be made
earlier than three (3) years prior to the
original or subsequent expiry date(s)
Exception: There are justifiable reasons for an
earlier extension as may be determined by the
SEC.
Effects:
If extended:
Such extension of the corporate term shall take
effect only on the day following the original or
subsequent expiry date(s).
If not extended or expired:
Upon expiration of the period fixed in the articles
of incorporation, in the absence of compliance
with the legal requisites for the extension of the
period, the corporation ceases to exist and is
dissolved ipso facto (PNB v. CFI Rizal, G.R. No.
63201, 1992)
Doctrine of Relations or Relating Back
Doctrine
Where the delay in affecting the amendment is
due to the neglect of the officer with whom the
certificate is required to be filed, or to a wrongful
refusal on his part to receive it, the same will be
treated as having been filed before the expiry
date. The doctrine does not apply where the delay
is attributable to the corporation (Alhambra Cigar
v. SEC, G.R. No. L-23606, 1968)
Revival:
may apply
for a revival of its corporate existence,
together with all the rights and privileges under its
certificate of incorporation and subject to all of its
duties, debts and liabilities existing prior to its
revival. Upon approval by the SEC, the
corporation shall be deemed revived and a
certificate of revival of corporate existence shall
be issued, giving it perpetual existence, unless
its application for revival provides otherwise.
Who may file for petition for revival of
corporate existence:
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1) Generally, a corporation whose term has
expired;
2) An Expired Corporation whose Certificate of
Registration has been revoked for non-filing
of reports,
3) An Expired Corporation whose Certificate of
Registration has been suspended
Note for 2) & 3): it shall file the proper Petition to
Lift its Suspended Status, which may be
incorporated in its Petition to Revive, and must
settle the corresponding penalties thereof
4) An Expired Corporation whose corporate
name has already been validly re-used, and is
currently being used, by another existing
corporation duly registered with the SEC,
provided that the former shall change its
corporate name within thirty (30) days from the
issuance of its Certificate of Revival of
Corporate Existence. (SEC Memo. Circ. no.
23-19)
Who may not file?
1) An Expired Corporation which has completed
the liquidation of its assets;
2) A corporation whose Certificate of
Registration has been revoked for reasons
other than non-filing of reports;
3) A corporation dissolved by virtue of Sections
6(c) and 6(d) of SEC Reorganization Act;
4) An Expired Corporation which already
availed of re-registration or other
memorandum circulars issued by the SEC
pertaining to re-registration, except when:
a) The re-registered corporation has given
its consent to the Petitioner to use its
corporate name, and has undertaken to
undergo voluntary dissolution
immediately after the issuance of the
Petitioner's Certificate of Revival; or
b) The re-registered corporation has given
its consent to the Petitioner to use its
corporate name, and has undertaken to
change its corporate name immediately
after the issuance of the Petitioner's
Certificate of Revival. (SEC Memo.
Circ. no. 23-19)
No application for revival of certificate of
incorporation of following corporations shall be
approved by the SEC unless accompanied by
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a favorable recommendation of the
appropriate government agency:
1) Banks,
2) Banking and quasi banking institutions,
3) Preneed, Insurance and trust companies,
4) Non-stock savings and loan associations
(NSSLAs),
5) Pawnshops,
6) Corporations engaged in money service
business, and
7) Other financial intermediaries (Sec. 11)
Required Vote to Initiate Revival:
The required number of votes for the Revival of
an Expired Stock Corporation is at least a majority
vote of the board of directors, and the vote of at
least majority of the outstanding capital stock. For
nonstock corporations, at least a majority vote of
the board of trustees, and the vote of at least
majority of the members. (SEC MC no. 23-19)
D. Classes of Shares of Stock (Sec. 6)
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.
Doctrine of Equality of Shares
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. (sec. 6)
i. Common and Preferred shares
- Common shares are also called
ordinary shares and they share in profits
pro-rata
- Preferred shares may be preferred (a)
as to dividends, or (b) as to distribution of
assets during liquidation, or (c) as to any
other manner stated in the Articles, not
violative of the Corp Code. If authorized
by Articles, Board may fix terms. It is
ALWAYS with a stated par value.
ii. Par Value and No-Par Value
Par value shares - with a pre-stated
amount or denomination
Non- par value - no pre-stated value
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Non-par value shares are deemed fully paid and
non-assessable so holders of such are not liable
to the corporation or its creditors.
The consideration received is treated as capital
and cannot be declared as dividends.
Because they are vested with public interest,
the following types of corporations may only
issue par value shares:
a. Banks
b. Trust Companies
c. Insurance Companies
d. Public Utilities
e. Building and Loan Associations.
iii. Voting and Non- Voting Shares
Voting share with complete voting rights
Non - voting shares are preferred or
redeemable shares that have limited
voting rights.
Non-Voting Shares Have Voting Rights In The
Following Matters:
a. Amendment of Articles
b. Adoption/ Amendment of By- Laws
c. Sale, lease, exchange, mortgage, pledge or
dispose of all or substantially all of corporate
property
d. Incur, create, increase bonded indebtedness
e. Increase, decrease capital stock
f. Merger/ consolidation with another
corporation
g. Investment of funds in another corporation
h. Dissolution of corporation
Other Classes of Shares: (Secs. 7, 8, 9)
a. Given rights and
privileges not enjoyed by owners of other
stocks; exclusive right to vote/be voted in
the election of directors shall not exceed
5 years.
Note: such exclusive right shall not be
allowed if its exercise will violate the
- A person who, acting alone or with others, takes
pertinent laws.
Since Section 7 makes no distinction (and is
found under General Provisions), then it must
both stock and nonstock corporations. Although
[Section 88 of the Revised Corporation Code]
allows in a nonstock corporation to limit, broaden
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or deny the right of members of any class, the
must prevail, and that the nonstock corporation
can lawfully suspend or define the voting rights of
its members, but with respect to fo
the exclusive right to vote and be voted for of the
from the approval of the SEC. (Forest Hills and
Country Club, Inc. v. Kings Properties Corp., G.R.
No. 212833, 2019).
b. Redeemable shares Expressly
provided in articles; may be
purchased/taken up upon expiration of
the period of said shares purchased
whether or not there are unrestricted
retained earnings; may be deprived of
voting rights.
c. Treasury stocks stocks previously
issued and fully paid for and reacquired
by the corporation through lawful means
(purchase, donation, etc.); not entitled to
vote and no dividends could be declared
thereon as corporations cannot declare
dividends to itself.
Escrow shares those held by a third person to
be released only upon the performance of a
condition or the happening of a certain event
contained in the agreement.
Preferred cumulative participating share of
stock - Share entitling its holder to preference in
the payment of dividends ahead of common
stockholders and to be paid the dividends due for
prior years and to participate further with common
stockholders in dividend declarations.
Over-Issued Stock Stock issued in excess of
authorized capital stock; null and void.
6. INCORPORATION AND ORGANIZATION
A. Promoter
initiative in founding and organizing the business
or enterprise of the issuer and receives
consideration therefor. (Securities Regulation
Code, Sec. 3.10. [R.A. 8799])
i. Liability of a Promoter
General rule: Promoter is personally liable in the
event the corporation is not duly incorporated.
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Exception:
but who were merely convinced to invest in the
proposed corporate venture on the basis of the
feasibility study undertaken, are not liable
personally with the corporation for the cost of
such feasibility study.(Caram, Jr. v. CA, G.R. No.
L-48627, 1987)
Contracts
General Rule: Corporation is not bound to a
contract made by a promoter before its
incorporation (Cagayan Fishing v. Sandiko, G.R.
No. L-43350, 1937)
Exceptions:
a) Adopts or ratifies the contract; or
b) Accepts its benefits with knowledge of the
terms thereof (Rizal Light v. Morong, G.R.
No. L-20993, 1968)
Ratification is the key element in upholding the
validity and enforceability of promoter's contracts.
Without ratification by a corporation after its due
incorporation, a contract entered into on behalf
of a corporation yet to be organized or still in the
process of incorporation is void as against the
corporation (Cagayan Fishing Development Co.,
Inc. v. Teodoro Sandiko, G.R. No. L-43350,
1937).
Although a franchise may be treated as a
contract,
1. The eventual incorporation of the applicant
corporation after the grant of the franchise;
and
2. Its acceptance of the franchise as shown
by its action in prosecuting the application
filed with the SEC for the approval of said
franchise,
respondent municipality and Morong Electric but
cured the deficiency in the application of Morong
Electric (Rizal Light & Ice Co., v. Municipality of
Morong, Rizal, G.R. No. L-20993, 1968).
B. Subscription Contracts
Any contract for the acquisition of unissued stock
shall be deemed a subscription, notwithstanding
the fact that the parties refer to it as a purchase
or some other contract. (Sec. 59)
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C. Pre-incorporation subscription (Sec. 60)
It is entered into before the incorporation and
irrevocable for a period of six (6) months from the
date of subscription unless:
i. All other subscribers consent to the
revocation, or
ii. The corporation failed to materialize after
6 months or within the stipulated period.
It cannot be revoked after filing the Articles of
Incorporation with the SEC.
In contrast
Post-incorporation subscription entered into
after incorporation, such as for the unsubscribed
portion of the authorized capital stock and for the
purchase of increased capital stocks after an
amendment of the article of incorporation.
D. Consideration for Stocks (Sec. 61)
Stocks shall not be issued for a consideration less
than the par or issued price thereof.
Consideration for issuance of stock may be by
any or a combination of any two or more of the
following:
a. Cash actually paid
b. Property (tangible or intangible) actually
received and necessary or convenient for the
c. Labor performed or service actually rendered
to the corporation
d. Debts incurred previously by the corporation
(for subscriptions after incorporation)
e. Amounts from unrestricted dividends (for
declaration of stock dividends)
f. Outstanding shares exchanged in
reclassification or conversion
g. Shares of stock in another corporation;
and/or
h. Other generally accepted forms of
consideration.
Other Rules pertaining to consideration of
stocks
a. Where the consideration is other than actual
cash, or consists of intangible property such
as patents of copyrights, the valuation thereof
shall initially be determined by the
incorporators or the board of directors,
subject to approval by the SEC.
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b. No issuance of shares on promissory notes
or future services.
c. The same considerations under sec. 61
whenever applicable are to be used for bonds
issued by the corporation.
d. The issued price of no par value shares is the
amount fixed:
i. In the Articles
ii. By the Board if authorized by its
Articles or By-Laws, or
iii. if not so fixed, by the stockholders
representing the majority of the
outstanding capital stock (Sec. 61)
Note: A special stipulation contained in a
subscription to corporate stock which, if valid,
would lessen the capital of the company and
relieve the subscriber from liability to be sued
upon the subscription, is illegal (National
Exchange v. Dexter, G.R. No. L-27872, 1928).
E. Articles of Incorporation
Nature and Function of Articles
The Articles of Incorporation is a basic contract
document in Corporate Law which defines the
charter of the corporation. Section 13 of the
Corporation Code provides that the Articles of
Incorporation do not become binding as the
charter of the corporation unless they have been
filed with and registered with the SEC.
Note: The Articles of Incorporation defines the
contractual relationships between the State and
the corporation, the stockholders and the State,
and between the corporation and its stockholders
(Lanuza v. CA, G.R. No. 131394, 2005).
i. Contents (Sec. 13)
All corporations shall file with the SEC articles of
incorporation in any of the official languages, duly
signed and acknowledged or authenticated, in
such form and manner as may be allowed by the
SEC, containing substantially the following
matters, except as otherwise prescribed by this
Code or by special law:
a. The name of the corporation;
b. The specific purpose or purposes for which
the corporation is being incorporated. Where
a corporation has more than one stated
purpose, the articles of incorporation shall
state which is the primary purpose and which
is/are the secondary purpose or purposes:
Provided, That a non-stock corporation may
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not include a purpose which would change or
contradict its nature as such;
c. The place where the principal office of the
corporation is to be located, which must be
within the Philippines;
d. The term for which the corporation is to exist,
IF not elected the perpetual existence;
e. The names, nationalities and residences of
the incorporators;
f. The number of directors or trustees, which
shall not more than fifteen (15);
g. The names, nationalities and residences of
persons who shall act as directors or
trustees until the first regular directors or
trustees are duly elected and qualified in
accordance with the Corporation Code;
h. If it be a stock corporation, the amount of its
authorized capital stock in lawful money of
the Philippines, the number of shares into
which it is divided, and in case the share are
par value shares, the par value of each, the
names, nationalities and residences of the
original subscribers, and the amount
subscribed and paid by each on his
subscription, and if some or all of the shares
are without par value, such fact must be
stated;
i. If it be a non-stock corporation, the amount
of its capital, the names, nationalities and
residences of the contributors and the
amount contributed by each; and
j. Such other matters as are not inconsistent
with law and which the incorporators may
deem necessary and convenient.
An arbitration agreement may be provided in the
articles of incorporation pursuant to Section 181
of this Code.
Note: The articles of incorporation and
applications for amendments thereto may be
filed with the SEC in the form of an electronic
document
and regulations on electronic filing.
Amendments
Requirement for Amending Articles of
Incorporation (Sec. 15)
a. A legitimate purpose for the amendment;
b. Majority vote of directors or trustees and the
vote or written assent of the stockholders
representing at least two-thirds (2/3) of the
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outstanding capital stock, without prejudice to
the appraisal right of dissenting stockholders
if available, or if it be a non-stock corporation,
two-thirds (2/3) of the members.
c. The original and amended articles together
shall contain all provisions required by law to
be set out in the articles of incorporation.
d. Indication in the articles, by underscoring, the
change or changes made.
e. A copy of amended articles duly certified
under oath by the corporate secretary and a
majority of the directors or trustees stating the
fact that said amendment or amendments
have been duly approved by the required
vote of stockholders or members, as the case
may be.
When would take effect:
a. The amendments shall take effect upon their
approval by the SEC or
b. From the date of filing with the said
Commission, if not acted upon within six (6)
months from the date of filing for a cause not
attributable to the corporation.
Grounds for Rejecting Incorporation or
Amendment to Articles of Incorporation (Sec.
16)
a. Not in prescribed form;
b. Illegal purpose;
c.
d. Non-compliance with required Filipino stock
ownership.
The SEC shall give the corporation a reasonable
time to correct or modify objectionable portions.
Note: A favorable recommendation of the
appropriate government agency to the effect that
such article or amendment is in accordance with
law is required in the following types of
corporation:
Banks, banking and quasi-banking
institutions,
Preneed, insurance and trust companies,
Non-stock savings and loan associations
(NSSLAS),
Pawnshops, and
Other financial intermediaries
ii. Non-Amendable Items:
1) Names of incorporators
2) Names of incorporating directors/trustees
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3) Names of original subscribers to capital stock
and subscribed and paid-up capital
4) Treasurer-in-trust elected by original
subscribers
5) Members who contributed to the initial capital
of non-stock corporation
6) Witnesses and acknowledgments
F. Corporate Name (Sec. 17)
name is a property right, it is a right in rem which
it may assert or protect against the whole world in
the same manner as it may protect its tangible
property against trespass or conversion (Philips
Export v. CA, G.R. No. 96161, 1992)
Statutory Limitations on Use of Corporate
Name (NPC)
No corporate name shall be allowed by the SEC
if:
a. it is Not distinguishable from that
already reserved or registered for the use
of another corporation,
b. if such name is already Protected by
law, or
c. when its use is Contrary to existing law,
rules and regulations.
Not Distinguishable
A name is not distinguishable even if it contains
one or more of the following:
a)
or an abbreviation of one of such words;
and
b) Punctuations, articles, conjunctions,
contractions, prepositions, abbreviations,
different tenses, spacing, or number of
the same word or phrase.
Effects if Statutory Limitations are Violated:
a) SEC may summarily order the
corporation to immediately cease and
desist from using such name and require
the corporation to register a new one.
b) The SEC shall also cause the removal of
all visible signages, marks,
advertisements, labels, prints and other
effects bearing such corporate name.
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c) Upon the approval of the new corporate
name, the SEC shall issue a certificate of
incorporation under the amended name.
Note: If the corporation fails to comply with the
and its responsible directors or officers in
contempt and/or hold them administratively,
civilly and/or criminally liable under this Code and
other applicable laws and/or revoke the
registration of the corporation.(Sec. 17)
Other Limitations on the Use of Corporate
Name:
a) The Corporate Name of the following entities
shall include:
i. For a Corporation- "Corporation" or
"Incorporated," or the abbreviations
"Corp." or "Inc."
ii. For One Person Corporations-
iii. Partnerships-
1) General Partnerships -
"Company" or "Co."
2) limited partnership, the
word "Limited" or "Ltd."
3) Professional partnership
- "Company,"
"Associates," or
"Partners," or other
similar descriptions;
iv. For Foundations-
v. For engaging in microfinance
activities - "Microfinance" or
"Microfinancing"
vi. Other words or phrases, authorized
by law or other rules and
regulations, to be used by specific
corporations or partnerships
b) A term that describes the business of a
corporation in its name should refer to
its primary purpose. If there are two
such terms, the first should refer to the
primary purpose and the second to
the secondary purpose.
c) If the name is similar to a registered
corporation or partnership, the applicant
shall add distinctive word/s to the
proposed name to remove the similarity
from the registered name
Note: This shall not be allowed if the
registered name is coined or unique
unless the board of directors or majority
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of the partners gives its consent to the
applied name.
d) A name that consists solely of special
symbols, punctuation marks or
specially designed characters shall not
be registered.
e) The name of an internationally known
foreign corporation cannot be used by a
domestic corporation unless it is its
subsidiary and the parent corporation
has consented to such use.
f) A name written in a foreign language,
even if registered in another country,
shall not be registered if the name
violates good morals, public order or
public policy
g) The name of a local geographical unit,
site or location cannot be used as a
corporate or partnership name unless it
is accompanied by a descriptive word
or phrase.
h) The name of a corporation or
partnership that has been dissolved or
whose registration has been revoked
shall not be used by another
corporation or partnership within five
(5) years from the approval of
dissolution or five (5) years from the
date of revocation, unless its use has
been allowed at the time of the
dissolution or revocation by the
stockholders, members or partners who
represent a majority of the outstanding
capital stock or membership of the
dissolved corporation or partnership, as
the case may be.
i) A corporate or partnership name, which
was previously used but become the
subject of amendment, shall not be
re-registered or used by another
corporation or partnership for a period
of three (3) years from the date of the
approval of the adoption of the new
corporate or partnership name. An
earlier period may be allowed for the
registration or use of the former
corporate or partnership name provided
that the corporation or partnership,
which previously owned the used
corporate or partnership name, gives its
consent.
j) Names of absorbed/constituent
corporation may not be used unless
it is the surviving corporation
intending to use the said
absorbed/constituent corporate name,
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or that another corporation may use the
names of absorbed/constituent
corporation if consent of the surviving
corporation is obtained
Doctrine of Secondary Meaning
General Rule: A corporation whose corporate
name is a word or phrase which is generally
descriptive or geographical cannot prevent
another corporation, which uses the same or
phrase as its corporate name, from using such.
Exception: A word or phrase originally incapable
of exclusive appropriation with reference to an
article on the market because geographically or
otherwise descriptive, might nevertheless have
been used so long and so exclusively by one
producer with reference to his article that, in that
trade and to that branch of the purchasing public,
the word or phrase has come to mean that the
article was his product. (Lyceum v. CA, G.R. No.
101897, 1993)
Change of Corporate Name
A corporation may change its name by the
amendment of its articles of incorporation, but the
same is not effective until approved by the SEC
(Philippine First Insurance Co. v. Hartigan, G.R.
No. L-26370, 1970).
A change in the corporate name does not make a
new corporation, and whether affected by special
act or under a general law, has no effect on the
identity of the corporation, or on its property,
rights, or liabilities (Republic Planters Bank v. CA,
G.R. No. 93073, 1992).
Other Doctrines: Corporate Name
Similarity in corporate names between two
corporations would cause confusion to the public
especially when the purposes stated in their
charter are also the same type of business
(Universal Mills Corp. v. Universal Textile Mills
Inc., G.R. No. L-28351, 1977).
A corporation has no right to intervene in a suit
using a name other than its registered name; if a
corporation legally and truly wants to intervene, it
should have used its corporate name as the law
requires and not another name which it had not
registered (Laureano Investment & Development
Corp. v. CA, G.R. No. 100468, 1997).
There would be no denial of due process when a
corporation is sued and judgment is rendered
against it under its unregistered trade name,
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holding that a corporation may be sued under the
name by which it makes itself known to its
workers (Pison-Arceo Agricultural Development
Corp. v. NLRC, G.R. No. 117890, 1997).
To determine the existence of confusing similarity
in corporate names, the test is whether the
similarity is such as to mislead a person,
using ordinary care and discrimination. In so
doing, the court must examine the record as well
as the names themselves. Proof of actual
confusion need not be shown. It suffices that
confusion is probably or likely to occur.
(Indian Chamber of Commerce Phils, Inc. v.
Filipino Indian Chamber of Commerce in the
Philippines, Inc., G.R. No. 184008, 2016)
G. Registration, Incorporation and
Commencement of Corporate Existence
(Sec. 18)
Registration
A person or group of persons desiring to
incorporate shall submit the intended corporate
name to the SEC for verification. If the SEC finds
that the name is distinguishable from a name
already reserved or registered for the use of
another corporation, not protected by law and not
contrary to law, rules and regulations, the name
shall be reserved in favor of the
incorporators. The incorporators shall then
submit their articles of incorporation and
bylaws to the SEC.
Issuance of Certificate of Incorporation:
If the SEC finds that the submitted documents
and information are fully compliant with the
requirements of this Code, other relevant laws,
rules and regulations, the SEC shall issue the
certificate of incorporation.
Commencement of Corporate Existence
A private corporation organized under this Code
commences its corporate existence and juridical
personality from the date the SEC issues the
certificate of incorporation under its official
seal and thereupon the incorporators,
stockholders/ members and their successors
shall constitute a body corporate under the name
stated in the articles of incorporation for the
period of time mentioned therein, unless said
period is extended or the corporation is sooner
dissolved in accordance with law. (Sec. 18)
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H. Election of Directors or Trustees (Sec.
23)7
Manner of Election
In any form; or
By ballot when requested by any voting
stockholder or member
In stock corporations, voting may be in
person or by proxy
Time to Determine Voting Right
At the time fixed in by- laws
If by- laws are silent, at time of election
I. Adoption of By-Laws
By-laws
Relatively permanent and continuing rules of
action adopted by the corporation for its own
government and of the individuals composing it
and those having direction, management and
control of its affairs, in whole or in part, in the
management and control of its affairs and
activities.
Regulations, ordinances, rules or laws adopted
by an association or corporation or the like for its
internal governance, including rules for routine
matters such as calling meetings and the like
(San Miguel Corp. v. Mandaue Packing Products
Plants Union-FFW, G.R. No. 152356, 2005).
By-laws are intended merely for the protection of
the corporation, and prescribe regulation, not
restrictions, they are always subject to the charter
of the corporation (Rural Bank of Salinas v. CA,
GR No. 96674, 1992).
Requisites of Valid By-Laws:
a. It must be consistent with the Corporation
Code, other pertinent laws and regulations.
b. It must be consistent with the Articles of
Incorporation.
c. It must be reasonable and not arbitrary or
oppressive.
d. It must not disturb vested rights, impair
contract or property rights of stockholders or
members or create obligations unknown to
law.
7This will be discussed extensively under the heading
Board of Directors and Trustees (9.D).
COMMERCIAL LAW
Binding Effects
The by-laws of the corporation are its own private
laws that have the same effect as the laws of the
corporation. They are deemed written into the
charter. Thus, they become part of the
fundamental laws of the corporation which are
binding upon the corporation and its officers, and
the litigating parties who are not part of the
corporation in accordance with their terms (Peña
v. CA, G.R. No. 91478, 1991; Forest Hills Golf
Club v. Gardpro Inc., G.R. No. 164686, 2014).
Procedure on Adoption of By-Laws (Sec. 45)
a. After Incorporation:
i. Approval by the majority of outstanding
shares/members
ii. By-laws must be signed by
stockholders/members voting for
them
iii. Kept in the principal office of the
corporation
iv. Subject to inspection by stockholders
or members
v. Certified copy signed by majority of
directors, countersigned by the
corporate secretary, filed w/ SEC and
attached to original Articles of
Incorporation
b. Prior to Incorporation:
i. such by-laws shall be approved and
signed by all the incorporators and
ii. submitted to the SEC, together with
the articles of incorporation.
Note: A certification of the appropriate
government agency to the effect that such bylaws
or amendments are in accordance with law is
required before he SEC shall accept for filing the
bylaws or any amendment thereto of the
following:
1) Bank,
2) Banking institution,
3) Building and loan association,
4) Trust company,
5) Insurance company,
6) Public utility,
7) Educational institution, or
8) Other special corporations governed by
special laws
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Failure to Adopt and Maintain the Bylaws Now
Specifically Criminally Punishable and
Su (Sec. 161,
please see discussion below)
Common Law Limitations on By-Laws
By-laws cannot be contrary to law and
articles of incorporation
A by-law provision granting to a stockholder a
permanent representation in the Board of
Directors is contrary to the Corporation Code
requiring all members of the Board to be elected
by the stockholders or members. Even when the
members of the association may have formally
adopted the provision, their action would be of no
avail because no provision of the by-laws can be
adopted if it is contrary to law (Grace Christian
High School v. CA, G.R. No. 108905 , 1997).
Although the right to amend by-laws lies solely in
the discretion of the employer, this being in the
exercise of management prerogative or business
judgment, such right cannot impair the obligation
of existing contracts or rights or undermine the
right to security of tenure of a regular employee.
Otherwise, it would enable an employer to
remove any employee from employment by the
simple expediency of amending its by-laws and
providing the position shall cease to exist upon
occurrence of a specified event (Salafranca v.
Philamlife (Pamplona) Village Homeowners
Association, Inc., G.R. No. 121791, 1998)
By-laws that prohibit directors who have interests
in competitor corporations are reasonable in
order to protect the interests of the company
(Gokongwei v. SEC, G.R. No. L-45911, 1979)
By-laws cannot be unreasonable or be
contrary to the nature of by-laws (GPI v. El
Hogar Filipino, G.R. No. L-26649, 1927).
Authority granted to a corporation to regulate the
transfer of its stock does not empower
corporation to restrict the right of a stockholder to
transfer his shares, but merely authorizes the
adoption of regulations as to the formalities and
procedure to be followed in effecting transfer
(Thomson v. CA, G.R. No. 116631, 1998).
By-laws are intended merely for the protection of
the corporation, and prescribe regulation, not
restrictions; they are always subject to the charter
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of the corporation (Rural Bank of Salinas, Inc. v.
CA, 1992; quoting from Thompson on
Corporation Sec. 4137, cited in Fleischer v.
Nolasco, G.R. No. L-23241, 1925).
By-law provisions cannot discriminate
among its stockholders or members
i. Contents of by-laws (Sec. 46)
A private corporation may provide the following in
its bylaws:
a) The time, place and manner of calling and
conducting regular or special meetings of
the directors or trustees;
b) The time and manner of calling and
conducting regular or special meetings and
mode of notifying the stockholders or
members thereof;
c) The required quorum in meetings of
stockholders or members and the manner of
voting therein;
d) The modes by which a stockholder,
member, director, or trustee may attend
meetings and cast their votes;
e) The form for proxies of stockholders and
members and the manner of voting them;
f)
duties and responsibilities, the guidelines for
setting the compensation of directors or
trustees and officers, and the maximum
number of other board representations that
an independent director or trustee may have
which shall, in no case, be more than the
number prescribed by the SEC;
g) The time for holding the annual election of
directors or trustees and the mode or
manner of giving notice thereof;
h) The manner of election or appointment and
the term of office of all officers other than
directors or trustees;
i) The penalties for violation of the bylaws;
j) In the case of stock corporations, the
manner of issuing stock certificates; and
k) Such other matters as may be necessary for
the proper or convenient transaction of its
corporate affairs for the promotion of good
governance and anti-graft and corruption
measures.
Note: An arbitration agreement may be provided
in the bylaws pursuant to Section 181 of this
Code.
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ii. Binding effect of by-laws:
As to the corporation and its components
Binding not only upon the corporation but
also on its stockholder, members and those
having direction, management and control of
its affairs. They have the force of contract
between the members/stockholders.
As to third persons Not binding unless
there is actual knowledge. Third persons are
not even bound to investigate the content
because they are not bound to know the by-
laws which are merely provisions for the
government of a corporation and notice to
them will not be presumed (China Banking
Corp. v. CA, G.R. No. 118332 1997).
iii. Amendment or Revision (Sec. 47)
1) With stockholders or members approval
- Majority vote of the members of the
Board; and
- Majority of the outstanding capital
stock or majority of the members in
case of non- stock corporation, in a
meeting duly called for the purpose
2) The board may be delegated to have the
power to amend or repeal any by- laws or
adopt new by- laws, by a vote of:
- 2/3 of the shareholders representing
the outstanding capital stock; or
- 2/3 of the members in a non- stock
corporation.
Such power of the Board may be revoked by
majority vote of the outstanding capital stock or
majority of the members in a non- stock
corporation
Note: The power to adopt the first original by-
laws cannot be delegated to the board of directors
or trustees; only the power to amend or repeal
any by- laws or adopt new by- laws that will
supplant the old by- laws can be validly
delegated.
Filing and Effectivity
Whenever the bylaws are amended or new
bylaws are adopted, the corporation shall file with
the SEC
a) amended or new bylaws and,
b)
resolution authorizing the
delegation of the power to amend and/or
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adopt new bylaws, duly certified under
oath by the corporate secretary and a
majority of the directors or trustees.
The amended or new by-laws shall only be
effective upon the issuance by the SEC of a
certification that the same is in accordance with
this Code and other relevant laws.
J. Effects Of Non-Use Of Corporate Charter
(Sec. 21)
a) If a corporation does not formally organize
and commence its business within five
(5) years from the date of its
incorporation, its certificate of
incorporation shall be deemed revoked as
of the day following the end of the five-year
period.
b) If a corporation has commenced its
business but subsequently becomes
inoperative for a period of at least five (5)
consecutive years, the SEC may, after due
notice and hearing, place the corporation
under delinquent status.
Delinquent Corporation:
A Corporation placed by the SEC under
delinquency status after due notice and hearing,
because it commenced its business but
subsequently becomes inoperative for a period of
at least five (5) consecutive years.
Effects of Delinquency Status:
A delinquent corporation shall have a period of
two (2) years to resume operations and comply
with all requirements that the SEC shall
prescribe.
a) Upon compliance by the corporation, the
SEC shall issue an order lifting the
delinquent status.
b) Failure to comply with the requirements and
resume operations within the period given
by the SEC shall cause the revocation of the
Corporations under special regulatory
jurisdiction
The SEC shall give reasonable notice to, and
coordinate with the appropriate regulatory agency
prior to the suspension or revocation of the
certificate of incorporation of companies under
their special regulatory jurisdiction.
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7. CORPORATE POWERS
A. General Powers; Theory of General
Capacity
The general capacity theory maintains that a
corporation is said to hold such powers as are not
prohibited or withheld from it by general law.
a. Express powers Those expressly
authorized by the Corporation Code and
other laws, and its Articles of Incorporation or
Charter
b. Implied/necessary powers Those that can
be inferred from or necessary for the exercise
of the express powers or for the pursuit of its
purposes as provided in the Charter.
Examples are powers related to the same line
of business (e.g. stevedoring services to
unload coal to its pier for corporations
supplying electric power)
c. Incidental/inherent powers Those that
are deemed to be within the capacity of
from the business and attach at the moment
of creation without regard to express powers
or primary purpose.
General Express Powers under the
Corporation Code (Sec. 35)
a. Sue and be sued in its corporate name;
b. Succession;
c. Adopt and use a corporate Seal;
d. Amend Articles of Incorporation
e. Adopt, amend or repeal By-laws;
f. For stock corporations Issue stocks to
subscribers and to sell treasury stocks; for
non-stock corporations admit members;
g. Purchase, receive, take, or grant, hold,
convey, sell, lease, pledge, mortgage and
otherwise deal with real and personal
property, pursuant to its lawful business;
h. Enter into Partnership, joint venture, merger,
consolidation, or any other commercial
agreement with natural and juridical persons;
i. Reasonable Donations for public welfare,
hospital, charitable, cultural, scientific, civil or
similar purposes (Prohibited: for partisan
political activity);
j. Establish pension, retirement and other
Plans for the benefit of directors, trustees,
officers and employees; and
COMMERCIAL LAW
k. Other powers essential or necessary to carry
out its purposes.
B. Specific Powers: Theory of Specific
Capacity
The specific capacity theory maintains that the
corporation cannot exercise powers except those
expressly/impliedly given.
Specific Powers Granted by the RCC:
1) Power to extend or shorten corporate
term (Sec. 36)
2) Power to increase or decrease capital
stock or incur, create, increase bonded
indebtedness (Sec. 37)
3) Power to deny pre-emptive rights (Sec.
38)
4) Power to sell or dispose corporate assets
(Sec. 39)
5) Power to acquire own shares (Sec. 40)
6) Power to invest corporate funds in
another corporation or business (Sec.
41)
7) Power to declare dividends (Sec. 42)
8) Power to enter into management contract
(Sec. 43)
C. Power to Extend or Shorten corporate
term (Sec. 36)
There should be a written notice of
stockholders/members meeting stating:
Proposed action and time and place of
meeting
Addressed to each stockholder/ member
Deposited to the addressee in post office,
with postage prepaid or served
personally;
Note: When allowed in the by-laws or done with
the consent of the stockholder, sent
electronically in accordance with the rules and
regulations of the SEC on the use of electronic
data messages
Vote needed:
Board majority (in board meeting) and
Ratified by 2/3 of OCS or members in a
meeting mere written assent is not
enough
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Appraisal rights available to dissenting
stockholders
In case of extension of term right of
appraisal exists
In shortening of term right of appraisal
recognized in Sec 81(1) amendment of
Articles to shorten or extend corporate
term
D. Power to Increase or Decrease Capital
Stock or Incur, Create, Increase Bonded
Indebtedness (Sec. 37)
Power to increase or decrease capital stock -
provided that in the case of an increase in capital
stock, the 25-25 rule is complied with, as
approved by the SEC
There shall be no increase or decrease of capital
stock unless :
Approved by majority of the board
Approved by at least 2/3 of OCS in a
meeting
With notice of the proposal and meeting
given to stockholders- given personally
or through electronic means if allowed
With prior approval of the SEC
o The application with the SEC shall be
made within six (6) months from the
date of approval of the board of
directors and stockholders, which
period may be extended for
justifiable reasons.
Accompanied by a sworn statement of
the treasurer showing that the 25-25 rule
has been complied with
25-25 Rule
The SEC shall not accept for filing any certificate
of increase of capital stock unless accompanied
by a sworn statement of the treasurer of the
corporation lawfully holding office at the time of
the filing of the certificate, showing that at least
twenty-five percent (25%) of the increase in
capital stock has been subscribed and that at
least twenty-five percent (25%) of the amount
subscribed has been paid in actual cash to the
corporation or that property, the valuation of
which is equal to twenty-five percent (25%) of the
subscription, has been transferred to the
corporation:
COMMERCIAL LAW
Note: No decrease of capital stock shall be
approved by the SEC if it will prejudice the rights
of corporate creditors
From and after the approval by the SEC and the
issuance of its certificate of filing, capital stock
shall stand increased or decreased as the
certificate may declare
Incur, create, or increase bonded
indebtedness (non-stock)- There should be no
incurring, creating or increasing any bonded
indebtedness unless :
Approved by majority of the board
Approved by at least 2/3 of members in a
meeting
With notice of the proposal and meeting
given to stockholders
With prior approval of the SEC
Bonds issued by a corporation shall be registered
with the SEC, which shall have the authority to
determine the sufficiency of the terms thereof.
E. Power to Deny Pre-Emptive Rights (Sec.
38)
General rule: Stockholders have the pre-emptive
right to subscribe to all issues or disposition of
shares by the corporation of any class in
proportion to their shareholdings
Unless:
Denied by the Articles of Incorporation or
amendment thereto;
Shares are issued in compliance with
laws requiring minimum stock ownership
by the public
Shares issued in good faith in exchange
for property for corporate purposes
approved by 2/3 of the OCS
Shares in payment of previously
contracted debts approved by 2/3 of
OCS
F. Power to Sell or Dispose Corporate
Assets (Sec. 39)
This Power is subject to the provisions of the
laws.
Votes Required:
Power to Sell or Dispose Corporate Assets
(Not all or Substantially All)
Majority Vote by Board of Directors or Trustees
ONLY
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Power to Sell or Dispose All or Substantially
All Corporate Assets Including its Goodwill
Needs vote of:
1) Majority Vote by Board of Directors or
Trustees
2) 2/3 of OCS or members
Note: In nonstock corporations where there
are no members with voting rights, the vote of
at least a majority of the trustees in office will
be sufficient authorization for the corporation to
enter into any transaction authorized by this
section.
Sale of all or substantially all corporate
assets:
Net Asset Value Test- The determination of
whether or not the sale involves all or
and assets must be computed based on its net
asset value, as shown in its latest financial
statements.
Incapacity Test- A sale or other disposition shall
be deemed to cover substantially all the corporate
property and assets if thereby the corporation
would be rendered incapable of continuing
the business or accomplishing the purpose
for which it was incorporated. (Sec. 39)
Notice:
Written notice of stockholder/member meeting
proposing said action served personally at their
places of residence and deposited to the
addressee in the post office with postage prepaid,
or when allowed by the by-laws or done with the
consent of the stockholder, sent electronically
Dissenting stockholders have appraisal rights.
After authorization or approval by the
stockholders/members, the Board may
however, abandon proposed action without
prior authorization/approval of
stockholders/members, subject to rights of 3rd
parties
not needed if
Disposition of property and assets is
necessary in the usual and regular
course of business, or
COMMERCIAL LAW
If the proceeds of sale or disposition is
appropriated for the conduct of the
remaining business
G. Power to Acquire Own Shares (Sec. 40)
Requirements:
1) Corporation has unrestricted retained
earnings in its books to cover the shares to
be purchased or acquired,
2) It is for a legitimate corporate purpose or
purposes, including the following cases:
To eliminate fractional shares arising out
of stock dividends;
To collect or compromise an
indebtedness to the corporation, arising
out of unpaid subscription, in a
delinquency sale, and to purchase
delinquent shares sold during said sale;
To pay dissenting or withdrawing
stockholders entitled to payment for their
shares under the provisions of the
Corporation Code.
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 are Treasury Shares. Such shares may
again be disposed of for a reasonable price fixed
by the board of directors (Sec. 9) subject to
H. Power to Invest Corporate Funds in
another Corporation or For Non-Primary
Purpose (Sec. 41)
Needs vote of:
Board majority in meeting
2/3 of OCS or members -
Sto
needed if investment in stock of other
corporations is reasonably necessary to
accomplish primary purpose
Written notice of proposed investment
and time and place of meeting sent to
stockholders
Dissenting stockholders have appraisal
rights
Investment by a sugar central in the equity of a
jute-bag manufacturing company used in packing
sugar, falls within the implied powers of the sugar
central as part of its primary purpose (De La
Rama v. Ma-ao Sugar Central, G.R. No. L-17504,
1969)
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I. Power to Declare Dividends (Sec. 42)
Only Board action is needed (except stock
dividends where stockholder action is needed)
Cash dividends due on delinquent stock
should first be applied to unpaid balance
plus cost and expenses
Stock dividends shall be withheld from
delinquent stockholders until the unpaid
subscription is fully paid
Stock dividends need 2/3 vote of the
OCS
Dividends are payable out of unrestricted
retained earnings
Stock corporations cannot retain surplus
profits more than 100% of paid-in capital
stock unless:
- Needed for corporate expansion
projects approved by the board
- Or prohibited by loan agreement
which prohibits declaration of
dividends without financial
- Or needed under special
circumstances
Unless otherwise provided in the articles
of incorporation, distribution of dividends
is done on a pro rata basis.
The power to declare dividends under [Sec. 42 of
RCC] is with the Board of Directors, and can be
declared only out of its unrestricted retained
earnings. Assuming that a corporate director was
authorized by the Board to fix the monthly
dividends, dividends can be declared only out of
unrestricted retained earnings of a corporation,
which earnings cannot obviously be fixed and
predetermined 5 years in advance. (Ongkingco v.
Sugiyama, G.R. No. 217787, 2019).
J. Power to Enter Into Management
Contract (Sec. 43)
Where one corporation undertakes to manage all
or substantially all of the business of another
corporation, whether the contract is called
General Rule: Contract may not exceed 5 yrs per
term
Exception: Contracts relating to exploration,
development, exploitation or utilization of natural
COMMERCIAL LAW
resources, where pertinent laws or regulations
will govern
A management contract is not an agency
contract, and therefore is not revocable at will
(Nielson v. Lepanto, G.R. No. L-21601, 1968)
This needs approval of:
1. Board of Directors of both managing and
managed corporation
2. Majority of outstanding shares or
members of both managed and
managing corporation
3. But 2/3 vote of outstanding
stock/members of managed corporation
necessary in the ff:
o Where stockholders of both
managing and managed
corporation (the common
stockholders) own or control
more than 1/3 or the outstanding
stock of managing corporation
o Where majority of directors in
both corporations are the same
K. Limitations
i. Ultra Vires Acts
1. Applicability of Ultra Vires Doctrine
An act not within the express or implied, and
incidental powers of the corporation.
Types of Ultra Vires Cases
a. First type: Acts done beyond the powers of
the corporation as provided for in the law or
its articles of incorporation (Sec. 44)
b. Second type: Acts or contracts entered into
on behalf of the corporation by persons
without corporate authority, even though the
contract is within the powers of the
corporation (Manila Metal Container Corp. v.
PNB, G.R. No. 166862, 2006) and
c. Third type: Acts or contracts, which are per
se illegal as being contrary to law.
2. Consequences of Ultra Vires Acts
Executed contract Courts will generally
not set aside or interfere with such contracts;
Executory contracts No enforcement
even at the suit of either party (void and
unenforceable);
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Partly executed and partly executory
Principle against unjust enrichment shall
apply.
Ultra vires test: It is a question, therefore, in
each case, of the logical relation of the act to the
corporate purpose expressed in the charter. If
that act is one which is lawful in itself, and not
otherwise prohibited, is done for the purpose of
serving corporate ends, and is reasonably
tributary to the promotion of those ends, in a
substantial, and not in a remote and fanciful,
sense, it may fairly be considered within charter
powers. The test to be applied is whether the act
in question is in direct and immediate furtherance
express powers and reasonably necessary to
their exercise. If so, the corporation has the power
to do it; otherwise, not. (University of Mindanao,
Inc. v. Bangko Sentral ng Pilipinas, G.R. 194964-
65, 2016)
L. Doctrine of Individuality of Subscription
No certificate of stock shall be issued to a
subscriber until the full amount of the subscription
together with interest and expenses (in case of
delinquent shares), if any is due, has been paid.
(Sec. 63)
The foregoing provision sets forth the Doctrine of
Indivisibility/Individuality of Subscription. This
doctrine espouses that the subscription contract
is one, entire, indivisible and whole contract
which cannot be divided into portions. It cannot
be divided into portions so that no stockholder
shall be entitled to a certificate of stock until said
stockholder has paid the entire value of the
shares subscribed, including the interest and
expenses. The Doctrine of Indivisibility of
Subscription is absolute since the above-quoted
Section 64 speaks of no exception.
The purpose of the prohibition is to prevent the
partial disposition of a subscription which is not
fully paid, because if it is permitted, and the
subscriber subsequently becomes delinquent in
the payment of his subscription, the corporation
may not be able to sell as many of his subscribed
shares as would be necessary to cover the total
amount due from him, which is authorized under
section [67]. (SEC OGC Opinion No. 16-05)
COMMERCIAL LAW
M. Doctrine of Equality of Shares
Under the doctrine of equality of shares all
stocks issued by the corporation are presumed
equal with the same privileges and liabilities,
provided that the Articles of Incorporation is silent
on such differences (CIR vs. CA, G.R. No.
108576, 1999)
This is now indicated under Sec. 6 of the RCC
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. (Sec. 6)
N. Trust Fund Doctrine
The subscriptions to the capital stock of a
corporation constitute a fund to which the
creditors have a right to look for satisfaction of
their claims and that the assignee in insolvency
can maintain an action upon any unpaid stock
subscription in order to realize assets for the
payment of its debts. (Phil. Trust Co. v. Rivera,
G.R. No. L-19761, 1923)
[Hence,] there can be no distribution of assets
among the stockholders without first paying
corporate creditors; any disposition of corporate
funds to the prejudice of creditors is null and void.
(Boman Environmental Dev. Corp. v. Court of
Appeals, G.R. No. 77860, 1988). This is without
prejudice to the ability of a corporation to effect
distributions to its stockholders by way of
dividends charged against unrestricted retained
earnings.
Coverage of the Trust Fund Doctrine
1. In case of Solvency: The coverage of the
trust fund doctrine is only up to the extent of
corporation. In this sense, the unrestricted
retained earnings do not constitute part of the
capital stock. Hence, the corporation is at
liberty to pay out assets to the stockholders
by way of dividends up to the extent of the
unrestricted retained earnings.
2. In case of Insolvency: The trust fund
doctrine is not limited to reaching the
The
scope of the doctrine when the
corporation is insolvent encompasses not
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only the capital stock, but also other
property and assets generally regarded in
equity as a trust fund for the payment of
corporate debts. Thus, the Trust Fund
Doctrine extends to all assets (not just
subscribed capital stock) when a corporation
becomes insolvent. (Halley v. Printwell, G.R.
No. 157549, 2011)
3. Releasing Subscribers: where the
corporation released the subscribers to the
capital stock from their subscriptions without
valuable consideration. (Ong yong v. Tiu,
G.R. No.144476, 2003)
O. How Corporate Powers are Exercised
1. By the Shareholders
(Note: Generally, the vote requirement of the
shareholders or members are joined with a vote
of, or a ratification by, a majority of the Board of
Directors)
Vote of stockholders representing 2/3 of the
outstanding capital stock or 2/3 of members
(as applicable) are needed in the following
instances:
(1) Extension or shortening of corporate term
(2) Increase or decrease of capital stock or the
creation of bonded indebtedness
(3) Power to deny pre-emptive right, in these
cases:
(a) Shares issued in good faith in exchange
for property for corporate purposes
(b) Shares in payment of previously
contracted debts
(4) Sale of all or substantially all corporate assets
(5) Investing corporate funds in another
corporation or business or for any other
purpose other than its primary purpose
(6) Power to enter into management contracts in
the following instances:
(a) where stockholders representing the
same interest of both the managing and
the managed corporations own more
than one-third (1/3) of the total
outstanding capital stock entitled to vote
of the managing corporation; or
(b) where a majority of the members of the
Board of Directors of the managing
corporation also constitute a majority of
COMMERCIAL LAW
the members of the Board of Directors
of the managed corporation
(7) Declaration of stock dividend
only majority vote is needed in:
(1) Power to enter into management contracts,
except in instances mentioned in number (6)
of the preceding section
2. By the Board of Directors
The Board of Directors is the main agency by
which all corporate powers and authority are
exercised
General rule: Majority vote of the Board is
needed in the following instances:
a. Extension or shortening of the corporate term
b. Increase or decrease of capital stock or the
creation of bonded indebtedness
c. Sale or other disposition corporate assets
d. Sale or other dispositions of all or
substantially all corporate assets (with 2/3
stockholders or members authorization, Sec
39)
e. Acquisition of its own shares
f. Investment of corporate funds in any
corporation or business or for any purpose
other than its primary purpose (with 2/3
stockholders ratification, Sec. 41)
g. Declaration of cash, property, and stock
dividends (if stock dividends, it must be joined
with 2/3 vote of shareholders, sec. 42)
h. Entering into management contracts
(accompanied by the approval of the
shareholders or members, Sec. 43)
3. By the Officers
The officers shall manage the corporation and
perform such duties as may be provided in the
bylaws and/or as resolved by the board of
directors. (Sec. 24)
Executive Committee (Sec. 34)
General rule: The Executive Committee may act,
by majority vote, on specific matters within the
competence of the board as delegated to it. Such
an Executive Committee may be established if
the bylaws so provide.
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Exception:
1.
needed
2. Filling vacancies within the Board of
Directors
3. Amending, repealing or adopting by-laws
4. Amending or repealing resolutions of the
Board where the resolution by express
terms is not so amendable or repealable
by the Executive Committee
5. Distribution of cash dividends
8. STOCKHOLDERS AND MEMBERS
A. Fundamental Rights of Stockholders
and Members
The following are important rights of
stockholders, which continue to exist even when
the shares have been sequestered:
a. Right to attend meetings and to vote
b. Right to receive dividends
c. Right to receive distributions upon liquidation
of the corporation
d. Right to inspect the books of the corporation
e. Pre-emptive rights (Cojuangco, Jr. vs. Roxas,
G.R. No. 91925, 1991)
B. Participation In Management
i. Proxy Section 57 of the Corporation Code
provides that stockholders and members may
vote in person or by proxy in all meetings of
stockholders or members.
ii. Voting Trust Agreements A stockholder
confers upon a trustee the right to vote and
other rights pertaining to the shares for a
period not exceeding 5 years at any one time.
(Sec. 58).
However, if the voting trust was a requirement for
a loan agreement, period may exceed 5 years but
shall automatically expire upon full payment of
the loan.
Pooling or voting agreements two or more
stockholders agree that their shares shall be
voted as a unit. Usually concerned with the
election of directors to gain control of the
management.
COMMERCIAL LAW
Requisites for Valid Proxy
1. The proxy shall be in writing;
2. Signed by the stockholder or member; and
3. Filed before the scheduled meeting with the
corporate secretary (Sec. 57)
Duration of Proxy
General Rule: It shall be valid only for the
meeting for which it is intended.
Exception: Unless otherwise provided in the
proxy
Note: No proxy shall be valid and effective for a
period longer than five (5) years at any one time.
The by-laws of the corporation may prescribe a
particular form for proxy and fix the deadline for
its submission.
Generally, proxies, even those with irrevocable
terms, have always been considered as
revocable, unless coupled with an interest, and
their revocation may be by formal notice, orally,
or by conduct as by the appearance of the
stockholder or member giving the proxy, or the
issuance of a subsequent proxy, or the sale of
shares.
Note: Proxies, who are not stockholders or
members, cannot be elected as a director or
trustee. (Lim v. Moldex Land, Inc., G.R. No.
206038, 2017)
Proxy Disputes Jurisdiction
The regular courts now have the power to hear
and decide cases involving all matters and
conduct of the elections of directors, including
validation of proxies. The power of SEC to
regulate proxies remains only in instances when
stockholders vote on matters other than the
election of directors (SEC v. CA, G.R. No.
187702/189014, 2014).
Requisites for Valid Voting Trust
a. In writing and notarized
b. Specifying the terms and conditions
c. A certified copy must be filed with the
corporation and with the SEC. (Sec. 58)
Duration
General Rule: Not exceeding 5 years
Exception: If the voting trust was a requirement
for a loan agreement, period may exceed 5 years
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but shall automatically expire upon full payment non-voting shares are not entitled to vote
of the loan. except as other provided in the said section.
b. Preferred or redeemable shares may be
No voting trust must be used for the purposes of deprived of the right to vote unless otherwise
fraud. Stockholders who are defrauded by their provided.
trustees have a right to revoke the trust and c. Fractional shares of stock cannot be voted
recover damages from such trustee.
unless they constitute at least one full share.
d. Treasury shares have no voting rights as long
Voting Trust v. Proxy
as they remain in treasury.
VOTING TRUST PROXY
e. Holders of stock declared delinquent by the
Trustee votes as Proxy holder votes as
board for unpaid subscription have no voting
owner agent
rights.
Agreement must be Proxy need not be f. A transferee of stock if his stock transfer is
notarized notarized not registered in the stock and transfer book
Trustee acquires legal Proxy has no legal of the corporation and does not have a proxy
title to the shares of title to the shares of from or voting trust agreement with the
the transferring the principal transferor may not vote the
stockholder; only purchased/acquired shares.
beneficial title g. A stockholder who mortgages or pledges his
remains with the shares retains the right to vote unless he
stockholder gives authority for the creditor to vote.
Trustee may vote in Proxy must vote in
person or by proxy person iii.
unless the agreement Required
provides otherwise
Trustee is not limited Proxy can only act at 1. Concurrence of majority of the
to act at any particular a specified outstanding capital stock (by majority vote)
meeting a. To enter into management
(if not continuing) contract if any of the two
Trustee can vote and Proxy can only vote in instances stated above are
exercise all the rights the absence of the absent;
of the stockholder owners of the stock b. To adopt, amend or repeal the
even when the latter by-laws.
is present 2. Concurrence of 2/3 of outstanding capital
Agreement must not Proxy cannot exceed stock (by 2/3 vote) (see similar enumeration
exceed 5 years at any 5 years at any one in the specific express powers of the
one time, except time corporation)
when the same is a. Extend or shorten corporate term;
made a condition of a b. Increase/Decrease Corporate Stock;
loan c. Incur, Create Bonded Indebtedness;
Voting right is Right to vote is d. Deny pre-emptive right;
divorced from the inherent or e. Sell, dispose, lease, encumber all or
ownership of stocks inseparable from the substantially all of corporate assets;
right to ownership of f. Investing another corporation, business
the stock other than the primary purpose;
Agreement is Revocable anytime, g. Declare stock dividends
irrevocable except if coupled with h. Enter into management contract if (1) a
interest stockholder or stockholders representing
the same interest of both the managing
Limitations on Right to Vote and the managed corporations own or
a. Where the Articles of Incorporation provides control more than 1/3 of the total
for classification of shares pursuant to Sec. 6, outstanding capital entitled to vote of the

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managing corporation; or (2) a majority of
the members of the board of directors of
the managing corporation also constitute
a majority of the members of the board of
the managed corporation;
i. Amend the Articles of Incorporation
3. By Cumulative Voting
a. See discussion on election of
directors
4. Without board resolution
a. 2/3 of outstanding capital stock
delegate to the board the power
to amend the by-laws;
b. Majority of the outstanding
capital stock revoke the power
of the board to amend the by-
laws which was previously
delegated.
c. Removal of directors by a vote of
the stockholders representing at
least 2/3 of the outstanding
capital stock
outstanding capital stock (OCS),
means the total shares of stock issued under
binding subscription contracts to subscribers or
stockholders, whether fully or partially paid,
except treasury shares. (Sec. 173)
iv. Manner of Voting (sec. 57)
Stockholders and members may vote in person
or by proxy in all meetings of stockholders or
members.
Voting through remote communication or in
absentia; Requisites:
1. Authorized in the by-laws or by a majority
of the board of directors
2. Votes are received before the
corporation finishes the tally of votes.
Effect: A stockholder or member who
participates through remote communication or in
absentia, shall be deemed present for purposes
of quorum.
The corporation shall establish the appropriate
requirements and procedures for voting through
remote communication and in absentia, taking
shareholders or members, structure and other
COMMERCIAL LAW
factors consistent with the basic right of corporate
suffrage.
C. Proprietary Rights
i. Right To Dividends
The right to dividends vests at the time of its
declaration by the Board of Directors.
Although stock certificates grant the stockholder
the right to receive quarterly dividends of 1%,
cumulative and participating, the stockholders do
not become entitled to the payment thereof
without necessity of a prior declaration of
dividends. (Republic Planters Bank v. Hon.
Agana, Sr., G.R. No. 51765, 1997)
Stock Corporations are prohibited from retaining
surplus profits in excess of 100% of their paid-in
capital stock, except:
1. When justified by definite corporate
expansion projects or programs approved by
the board of directors
2. Corporation is prohibited under a loan
agreement from declaring dividends without
3. Under special circumstances such as when
there is a need for special reserve for
probable contingencies
Form of Dividends
1. Cash Dividends (revocable before
announcement).
2. Property Dividends (revocable before
announcement).
3. Stock Dividends, which requires, aside from
the declaration by the Board, the approval of
2/3 of the outstanding capital stock
(revocable before issuance).
Note: No dividends can be declared out of capital,
except liquidating dividends distributed at
dissolution.
ii. Right Of Appraisal
The right to withdraw from the corporation and
demand payment of the fair value of his shares
after dissenting from certain corporate acts
involving fundamental changes in corporate
structure.
1. When available
a. Extension or shortening of corporate term;
(Sec. 36)
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b. In case 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 of
outstanding shares of any class; (Sec. 80)
c. Investing of corporate funds for any purpose
other than the primary purpose; (Sec. 80)
d. Sell or dispose all or substantially all assets
of corporation;(Sec. 80)
e. Merger or consolidation.(Sec. 80)
2. Manner of exercise of right (Sec 81, RCC)
A written demand on the corporation within
30 days after the vote was taken (failure to do
so means waiver);(Sec. 81)
From the time of demand, all rights accruing
to such shares including voting and dividend
rights shall be suspended except the right of
such stockholder to receive payment of the
(Sec. 82)
Ten (10) days from demand, the dissenting
stockholder must submit his certificates of
stocks for notation that such certificates
represent dissenting shares. (Sec. 85)
The price to be paid is the fair value of the
shares on the date the vote was taken; (Sec.
81)
The fair value shall be agreed upon by the
corporation and the dissenting stockholders
within 60 days from the date the vote was
taken. In case there is no agreement, the fair
value shall be determined by a majority of the
3 distinguished persons one of whom shall be
named by the stockholder another by the
corporation and the third by the two who were
chosen; (Sec. 81)
The right of appraisal is extinguished when:
(Sec. 83)
a. He withdraws the demand with
b. The proposed action is
abandoned;
c. The SEC disapproves of such
action where approval is
necessary
d. The SEC determines that such
dissenting stockholder is not
entitled to the appraisal right.
If the dissenting stockholder is not paid within
30 days from the award, he shall
COMMERCIAL LAW
automatically be restored to all his rights as
stockholder. (Sec. 82)
iii. Right To Inspect
What Records Can Be Inspected?
Corporate records, regardless of the form in
which they are stored, shall be open to inspection
by any director, trustee, stockholder or member
of the corporation in person or by a representative
at reasonable hours on business days, and a
demand in writing may be made by such director,
trustee or stockholder at their expense, for copies
of such records or excerpts from said records.
(Sec. 73).
Also, a corporation shall furnish a stockholder or
member, within 10 days from receipt of their
written request, its most recent financial
statement (Sec. 74).
The first three are the formulation of the old code.
Under the Revised Corporation Code, inspection
Stock and transfer book
Record of:
1. All stocks in the names of the stockholders
alphabetically arranged;
2. The installment paid and unpaid on all stock
for which subscription has been made, and
the date of payment of any installment;
3. A statement of every alienation, sale or
transfer of stock made; and
4. Such other entries as the by-laws may
prescribe.
Notes: Stock and Transfer Book
Section [73], while specific in the kinds of records
that must be maintained, is not limiting, thus, the
inspection right is applicable to the stock and
transfer book (Yujuico v. Quiambao, G.R. No.
180416, 2014)
The corporate secretary is the officer who is duly
authorized to make entries on the stock and
transfer book (Gokongwei v. SEC, GR No. 45911,
1979).
All transfers of shares not entered in the stock
and transfer book of the corporation are invalid as
to attaching or execution creditors of the
assignors, as well as to the corporation and to
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subsequent purchasers in good faith and to all
persons interested, except the parties to such
books of the corporation are absolutely void; not
because they are without notice or fraudulent in
law or fact, but because they are made so void by
statute (Uson vs. Diosomito, G.R. No. 42135,
1935).
The entries are considered prima facie evidence
only and may be subject to proof to the contrary
(Bitong v. CA, G.R. No. 123553, 1998).
The stock and transfer book of the corporation
cannot be used as the sole basis for determining
the quorum as it does not reflect the totality of
shares which have been subscribed, and more so
when the articles of incorporation show a
significantly larger amount of shares issued and
outstanding as compared to that listed in the
stock and transfer book (Lanuza v. Court of
Appeals, G.R. No. 131394, 2005).
Grounds for Not Allowing Inspection by a
Stockholder
a. If the person demanding to examine the
records has improperly used any information
secured for prior examination,
b. He is not acting in good faith,
c. A requesting party who is not a stockholder
or member of record, or is a competitor shall
have no right to inspect or demand
reproduction of corporate records. (Sec. 73)
Competitor- competitor, director, officer,
controlling stockholder or otherwise represents
the interests of a competitor shall have no right to
inspect or demand reproduction of corporate
records. (Sec. 73)
In one case, the Supreme Court clarified that the
right of inspection may only be exercised by a
stockholder of record. As such, the corporation
may validly set up the defense in its refusal to
grant a claim of the right of inspection on the
ground that the person is not a stockholder of
record. (Puno v. Puno Enterprises Inc., GR No.
177066, September 11, 2009)
In Terelay Investment and Development Corp. v.
Yulo, the court ruled that although the corporation
may deny a stockholder's request to inspect
corporate records, the corporation must show
that the purpose of the shareholder is improper
by way of defense.
COMMERCIAL LAW
The purposes held to justify a demand for
inspection are the following:
(1) To ascertain the financial condition of the
company or the propriety of dividends;
(2) the value of the shares of stock for sale or
investment;
(3) whether there has been mismanagement;
(4) in anticipation of shareholders' meetings to
obtain a mailing list of shareholders to solicit
proxies or influence voting;
(5) to obtain information in aid of litigation with the
corporation or its officers as to corporate
transactions.
The improper purposes which may warrant
the denial of the right of inspection:
(1) Obtaining of information as to business
secrets or to aid a competitor;
(2) to secure business "prospects" or investment
or advertising lists;
(3) to find technical defects in corporate
transactions in order to bring "strike suits" for
purposes of blackmail or extortion. (Terelay
Investment and Development Corp. v. Yulo, G.R.
No. 160924, 2015)
The Right to Inspect Corporate Records is
Subject to Confidentiality rules
The inspecting or reproducing party shall remain
bound by confidentiality rules under prevailing
laws, such as:
1. Trade secrets or processes under
Republic Act No. 8293, or the
2.
3.
4. the Rules of Court. (Sec. 73)
Doctrinal Rulings on Right to Inspect
The demand for inspection should cover only
reasonable hours on business days;
The stockholder, member, director or trustees
demanding the right is one who has not
improperly used any information secured through
any previous examination of the records;
The demand must be accompanied with
statement of the purpose of the inspection, which
must show good faith or legitimate purpose.
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Illegitimate purposes include to obtain corporate
secrets (formula), nuisance suit, or to embarrass
the company. (Africa v. PCGG, G.R. No. 83831,
1992)
If the corporation or its officers contest such
purpose or contend that there is evil motive
behind the inspection, the burden of proof is with
the corporation or such officer to show the same.
The RTC, and not the Sandiganbayan, has
right to inspect under the Corporation Code
where the case does not involve a sequestration-
related incident, but an intra-corporate
controversy (Abad v. PHILCOMSAT, G.R. No.
200620, 2015)
subsists during the period of liquidation (three
year period for dissolution per Sec. 145). (Chua
v. SEC, G.R. No. 216146, 2016)
Remedies If Right to Inspect is Denied
Mandamus
Refusal to allow stockholders (or members of a
non-stock corporation) to examine books of the
company is not a ground for appointing a receiver
(or creating a mgt. committee) since there are
other adequate remedies, such as mandamus.
(Ao-as v. CA, G.R. No. 128464, 2006)
Damages
Administrative Sanction (Sec. 158)
Requisites for Section [158] to Apply (Ang-Abaya
v. Ang, G.R. no. 178511, 2008)
A director, trustee, stockholder or member
has made a prior demand in writing for a copy
of excerpts from the corporations records or
minutes;
Any officer or agent of the concerned
corporation shall refuse to allow the said
director, trustee, stockholder or member of
the corporation to examine and copy said
excerpts;
If refusal is made per a resolution or order of
the board of directors or trustees, the liability
under this section for such action shall be
imposed upon the directors or trustees who
voted for refusal;
Where the officer or agent of the corporation
sets up the defense that the person
COMMERCIAL LAW
demanding to examine and copy excerpts
from the
has improperly used any information secured
through any prior examination of the records
or minutes of such corporation or of any other
corporation, or was not acting in good faith or
for a legitimate purpose in making his
demand, the contrary must be shown or
proved.
The person demanding to examine has
improperly used any information secured
through any prior examination of the records
or minutes of such corporation or for any
other corporation; and
The one requesting to inspect was not acting
in good faith or for a legitimate purpose in
making his demand
Criminal sanctions under Sec. 170
refer to discussion at the respective topic below
iv. Pre-Emptive Right
or dispositions of shares of any class in proportion
to his present stockholdings, the purpose being to
enable the shareholder to retain his proportionate
control in the corporation and to retain his equity
in the surplus.
Instances When Preemptive Right Is Not
Available
a. Shares to be issued to comply with laws
requiring stock offering or minimum stock
ownership by the public;
b. Shares issued in good faith with approval of
the stockholders representing 2/3 of the
outstanding capital stock in exchange for
property needed for corporate purposes;
c. Shares issued in good faith with approval of
the stockholders representing 2/3 of the
outstanding capital stock issued in payment
of previously contracted debts;
d. In case the right is denied in the Articles of
Incorporation;
e. Waiver of the right by the stockholder;
f. If the shares of a corporation are offered and
not subscribed and purchased by the
stockholders, and the shares are being
offered again, there is no pre-emptive right
with respect to the latter offer of shares
(Benito v. SEC, G.R. No. L-56655, 1983)
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Right of first refusal v. Right to Vote

The right of first refusal provides that a The right to vote is given to the shareholders but
stockholder who may wish to sell or assign his can be limited if stipulated in the Articles of
shares must first offer the shares to the Incorporation and the Certificate of Stock.
corporation or to the existing stockholders of the
corporation, under terms and conditions which However, holders of nonvoting shares shall
are reasonable; and that only when the nevertheless be entitled to vote on the following
corporation or the other stockholders do not or fail matters:
to exercise their option, is the offering stockholder a) Amendment of the articles of
at liberty to dispose of his shares to third parties. incorporation; (b)Adoption and
amendment of bylaws;
Pre-Emptive Right v. Right of First Refusal b) Sale, lease, exchange, mortgage,
PRE-EMPTIVE RIGHT OF FIRST pledge, or other disposition of all or
RIGHT REFUSAL substantially all of the corporate property;
Generally may be c) Incurring, creating, or increasing bonded
Arises only by virtue indebtedness;
exercised, subject to
of contractual d) Increase or decrease of authorized
limitations in
stipulations or by law capital stock;
Corporation Code e) Merger or consolidation of the
Covers unissued corporation with another corporation or
Covers shares
shares offered for other corporations;
already issued
subscriptions f) Investment of corporate funds in another
Can only be exercised corporation or business in accordance
May be exercised by by the owner and not with this Code; and
mere trustees or mere trustee or g) Dissolution of the corporation
conservators conservator, since it is
(Republic v. an act of ownership vi. Other Rights
Sandiganbayan, G.R. (Republic v. Right to issuance of stock certificate for
No. 107789, 2003) Sandiganbayan, G.R. fully paid shares - Under Section 64 of the
No. 107789, 2003) Corporation Code, no certificate of stock shall
Right claimed against be issued to a subscriber until the full amount
Right exercisable of his subscription together with interest and
the Corporation,
against the seller- expenses (in case of delinquent shares), if
where the stockholder
stockholder any is due, has been paid. A subscriber must
must pay
first totally pay his subscription before a
certificate of stock covering shares
Note:
A corporation has no power to prevent or restrain subscribed and paid for could be issued to
transfers of its shares, unless such power is him. But an unpaid subscription (not declared
expressly conferred in the Articles of delinquent) can be voted upon in corporate
Incorporation or the law. (Fleischer v. Botica meetings. Such delinquent shares are also
Nolasco Co., G.R. No. L-23241, 1925) entitled to dividends, subject to the rules set
forth in Section 43 of the Corporation Code
A provision in the by-laws granting the right of first on delinquent shares.
refusal (and therefore, restrains trade) is void and
does not bind third parties (Fleischer v. Botica Nevertheless, Section 64 does not prohibit the
Nolasco Co., G.R. No. L-23241, 1925)
subscriber by considering portion thereof as fully
By-laws are intended merely for the protection of paid and issuing a corresponding certificate over
the corporation and prescribe relation, not the paid- up shares. Thus, in the absence of
restriction; they are always subject to the charter provisions in the by- laws to the contrary, a
of the corporation. (Rural Bank of Salinas v. CA, corporation may apply payments made by
G.R. No. 96674, 1992) subscribers on account of their subscriptions
either as:

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1. Full payment for the corresponding
number of shares, the par value of which
is covered by such payment; or
2. Payment pro rata to each and all the
entire number of shares subscribed for
Once an alternative is chosen, it must be applied
uniformly to all stockholders similarly situated,
and therefore, it cannot be changed without the
consent of all stockholders who might be
affected.
Proportionate participation in the
distribution of assets in liquidation
- Stockholders and stock corporation
Except by decrease of capital stock, and
as otherwise allowed by the Corporation
Code, no corporation shall distribute any
of its assets or property to its
stockholders except upon lawful
dissolution and after payment of all its
liabilities (Sec. 122)
- Members and foundations Upon
dissolution of a non-stock corporation, all
liabilities and obligations must first be
paid, and assets received and held
subject to limitations permitting their use
for specified eleemosynary purposes
shall be properly transferred or returned,
then the net assets remaining, if any,
shall be distributed to the members, or
any class or classes of members, to the
extent that the articles of incorporation or
by- laws provide for a plan of distribution.
Otherwise, a plan of distribution may be
adopted in the process of dissolution by:
a. Majority vote of the Board of
Trustees
b. Adopted by at least 2/3 of the
members having voting rights
(Secs. 94 95)
Right to transfer of stocks in corporate
books;
Requirements for valid transfer of stocks
1. There must be delivery of the stock
certificate;
2. The certificate must be endorsed by the
owner, or his attorney-in-fact, or other
persons legally authorized to make the
transfer; and
COMMERCIAL LAW
3. To be valid against third parties, the transfer
must be recorded in the books of the
corporation
Note: The delivery of the stock certificate duly
endorsed by the owner is the operative act of
transfer of shares from the lawful owner to the
new transferee. (Bitong v. Court of Appeals, G.R.
No. 123553, 1998)
The delivery contemplated in Section [73],
however, pertains to the delivery of the
certificate of shares by the transferor to the
transferee, that is, from the original stockholder
named in the certificate to the person or entity the
stockholder was transferring the shares to,
whether by sale or some other valid form of
absolute conveyance of ownership. It does not
pertain to the surrender of the stock certificate to
the corporation. (Teng v. SEC, G.R. No. 184332,
2016)
However: The surrender of the original certificate
of stock is necessary before the issuance of a
new one so that the old certificate may be
cancelled. A corporation is not bound and cannot
be required to issue a new certificate unless the
original certificate is produced and surrendered.
(Teng v. SEC, G.R. No. 184332, 2016)
A transfer of shares not recorded in the stock and
transfer book is non- existent as far as the
corporation is concerned, and consequently, a
petition for mandamus filed by a transferee,
compelling it to issue the corresponding
certificates in the name of the transferee would be
without basis. It is only when the transfer has
been recorded in the stock and transfer book that
a corporation may rightfully regard the transferee
as one of its stockholders. From this time, the
consequent obligations on the part of the
corporation to recognize such right as it is
mandated by law to recognize arises (Ponce v.
Alsons Cement, G.R. No. 139802, 2002).
Note: In Andaya v. Rural Bank of Cabadbaran,
Inc., G.R. No. 188769, 2016, the Court ruled that
the registration of a transfer of shares of stock is
a ministerial duty on the part of the corporation.
Aggrieved parties may then resort to the remedy
of mandamus to compel corporations that
wrongfully or unjustifiably refuse to record the
transfer or to issue new certificates of stock. This
remedy is available even upon the instance of
a bona fide transferee who is able to establish
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a clear legal right to the registration of the
transfer.
D. Remedial Rights
Suits by Stockholders/Members
i. Individual Suit those brought by the
shareholder in his own name against the
corporation when a wrong is directly inflicted
against him.
ii. Representative/Class Suit those brought
by the stockholder on behalf of himself and all
other stockholders similarly situated when a
wrong is committed against a group of
stockholders.
iii. Derivative Suit those brought by one or
more stockholders/members in the name and
on behalf of the corporation to redress
wrongs committed against it, or
protect/vindicate corporate rights whenever
the officials of the corporation refuse to sue,
or the ones to be sued, or has control of the
corporation. (Ching v. Subic Bay, G.R. No.
174353, 2014)
- A lawyer engaged as counsel for a
corporation cannot represent members
of the Board in a derivative suit against
them. To do so would be tantamount to
conflicting interest between the Board
and the corporation (Hornilla v. Salunat,
A.C. 5804, 2003).
Requisites of Derivative Suit
a. He (Plaintiff) was a stockholder or member at
the time the acts or transactions subject of
the action was filed;
b. He exerted all reasonable efforts, and alleges
the same with particularity in the complaint, to
exhaust all remedies available under the
articles of incorporation, by-laws, laws or
rules governing the corporation or
partnership to obtain the relief he desires;
The exhaustion of intra-corporate remedies
cannot be dispensed even if the company is
a family corporation (Yu v. Yukayguan, G.R.
No. 177549, 2009; Ang v. Sps. Ang, G.R. No.
201675, 2013)
c. No appraisal rights are available for the act or
acts complained of; and
d. The suit is not a nuisance or harassment suit
(Interim Rules of Procedure for Intra-
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Corporate Controversies, A.M. No. 01-2-04-
SC, 2001).
As a general rule, corporate litigation must be
commenced by the corporation itself, with the
imprimatur of the board of directors, which,
pursuant to the law, wields the power to sue.
Therefore, since the derivative suit is a remedy of
last resort, it must be shown that the board, to the
detriment of the corporation and without a valid
business consideration, refuses to remedy a
corporate wrong. A derivative suit may only be
instituted after such an omission. Simply put,
derivative suits take a back seat to board-
sanctioned litigation whenever the corporation is
willing and able to sue in its own name. (Ago
Realty & Dev. Corp. v. Ago, G.R. No.s 210906 &
211203, 2019)
E. Obligations of a Stockholder
a. Liability to the corporation for unpaid
subscription;
b. Liability to the creditors of the corporation for
unpaid subscription;
c. Liability to the corporation for interest on
unpaid subscription if so required by the by-
laws;
d. Liability for watered stock;
e. Liability for dividends unlawfully paid;
F. Meetings
i. Regular or Special:
Regular - held annually on a date fixed in the by-
laws, or if not so fixed, on date after April 15 of
every year as determined by the board of
directors or trustees.(Sec. 49)
Special - held at any time deemed necessary or
as provided in the by- laws. Provided that at least
1 week written notice shall be sent to all
stockholders or members, unless otherwise
provided in the by- laws. Note that notice of any
meeting may be waived, expressly or impliedly by
any stockholder or member.
ii. Notice of Meeting
When - written notice of regular meetings shall be
sent to stockholders or members of record at
least twenty-one (21) days prior to the meeting.
(Sec. 49)
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How - written notice to regular meetings may be
sent to the stockholders or members of record
through:
a. means of communication provided in the
bylaws (Sec. 50)
b. electronic mail (Sec.49)
c. such other manner as the SEC shall
allow under its guidelines.
Notice of Meetings shall state the time place and
purpose of the meeting and shall be
accompanied by:
1. agenda for the meeting
2. proxy form
3. requirements and procedures to be
followed in case a stockholder elects
and is allowed to participate, attend
and vote by remote communication.
4. requirements and procedures for
nomination and in case the meeting is
for election of directors. (Sec. 50)
Section 50 of the Corporation Code expressly
meetings that those provided under its default two
(2) week period, provided the same is provided
for in the By-Laws, (Ricafort v. Dicdican, 787
SCRA 163, 2016); such period set in the by-laws
is valid even when the period is reckoned from
the mailing of the notice rather than when it is
actually received by the stockholder of record,
(Guy v. Guy, 790 SCRA 288, 2016)
iii. Place and time of meetings
Where?- The meetings of stockholders or
members whether regular or special shall be held
in the principal office of the corporation as set
forth in the articles or if not practicable, in the city
or municipality where the principal office of the
corporation is located. (Sec. 49)
When? - Regular - held annually ; Special - held
at any time deemed necessary
Who calls for the meetings?
In case the ff. shall occur:
(1) there is no person designated by the by-laws
to call a meeting, or
(2) the person authorized unjustly refuses to call
a meeting,
The SEC upon petition of a stockholder/ member,
and on the showing of good cause therefore, may
issue an order directing the petitioner to call a
COMMERCIAL LAW
meeting of the corporation by giving proper notice
required by this Code or the bylaws, with the
petitioner presiding thereat until at least a majority
of stockholders/ members present have chosen a
presiding officer. (Sec. 49).
Who presides over the meetings?
General Rule: The chairman
Exceptions:
1. In the absence of the chairman, the
president shall preside at all meetings of
the directors or trustees as well as of the
stockholders or members, unless the
bylaws provide otherwise.
2. In the following cases:
(1) there is no person designated by the
by-laws to call a meeting, or
(2) the person authorized unjustly
refuses to call a meeting,
The petitioning stockholders / member
shall preside until at least a majority of
stockholders/ members present have
chosen a presiding officer. (Sec 49).
iv. Quorum
General rule: Majority of the outstanding capital
stock, or of the members, shall constitute a
quorum (Sec. 51)
Outstanding Capital Stock the total shares of
stock issued under binding subscription
agreements to subscribers or stockholders,
whether or not fully or partially paid, except
treasury shares
Exceptions:
a. The bylaws provides for a greater
majority (Sec. 51)
b. If the rescheduled election of
directors/trustees is held, the voting
shares of stock or membership
represented at the meeting ordered by
the SEC shall constitute a quorum for
purposes of conducting an election under
this Section 25.
c. In cases where greater vote for an act or
business is required by law as when the
required vote is 2/3 of the outstanding
capital stock, or membership as the case
may be.
Note:
referred to in Section 52 of the Corporation Code
is based on the number of outstanding voting
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stocks. For non- stock corporations, only those
who are actual, living members with voting rights
shall be counted in determining the existence of
members shall not be counted (Tan v. Sycip, G.R.
No. 153468, 2006).
v. Minutes and agenda of meetings
Minutes of the meeting
Records of all business transactions and
minutes of all meetings shall be kept and
principal office
It shall set forth in detail:
- the time and place of the meeting
held
- how it was authorized
- the notice given
- the agenda therefor
- whether the meeting was regular or
special, its object if special
- those present and absent, and
- every act done or ordered done at
the meeting.
- upon the demand of any director,
trustee, stockholder or member, the
time when any director, trustee,
stockholder or member entered or
left the meeting must be noted in the
minutes;
- on a similar demand, the yeas and
nays must be taken on any motion or
proposition, and a record thereof
carefully made.
- the protest of any director, trustee,
stockholder or member on any action
or proposed action must be recorded
in full upon their. (Sec. 75)
The signing of the minutes by all the members of
the board is not required there is no provision in
the Corporation Code that requires that the
minutes of the meeting should be signed by all
the members of the board. The signature of the
corporate secretary gives the minutes of the
meeting probative value and credibility (People v.
Dumlao, G.R. No. 168918, 2009).
The entries contained in the minutes are prima
facie evidence of what actually took place during
the meeting, pursuant to Section 44, Rule 130 of
the Revised Rule on Evidence (People v.
Dumlao, G.R. No. 168918, 2009).
COMMERCIAL LAW
Resolution vs. Minutes Of The Meeting
(People v. Dumlao, G.R. No. 168918, 2009)
RESOLUTION MINUTES OF THE
MEETING
A formal action by a A brief statement not
corporate board of only of what transpired
directors or other at a meeting, usually of
corporate body stockholders/members
authorizing a or directors/trustees,
particular act, but also at a meeting of
transaction, or an executive
appointment committee
Agenda of meetings (Sec. 49)
At each regular meeting of stockholders or
members, the board of directors or trustees shall
endeavor to present to stockholders or members
the following:
a. The minutes of the most recent regular
meeting
b. -stock
corporations and, for stock corporations,
material information on the current
stockholders, and their voting rights;
c. A detailed, descriptive, balanced and
comprehensible assessment of the
d. A financial report for the preceding year,
e. An explanation of the dividend policy and
the fact of payment of dividends
f. Director or trustee profiles
g. A director or trustee attendance report,
indicating the attendance of each director
or trustee at each of the meetings of the
board and its committees and in regular
or special stockholder meetings;
h. Appraisals and performance reports for
the board and the criteria and procedure
for assessment;
i. A director or trustee compensation report
j. Director disclosures on self-dealings and
related party transactions; and/or
k. The profiles of directors nominated or
seeking election or reelection.
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9. BOARD OF DIRECTORS AND
TRUSTEES
A. Repository of Corporate Powers
Doctrine of Centralized Management
Unless otherwise provided in this Code, the board
of directors or trustees shall exercise the
corporate powers, conduct all business, and
control all properties of the corporation (Sec. 22).
Powers of the Board of Directors
General Rule: The Board of Directors ALONE
exercises the powers of the corporation.
Exceptions: Other persons or groups within the
corporation may do so similarly:
a) If (1) there is a management contract and
(2) powers are delegated by majority of
the board to an executive committee;
b) Corporate officers (e.g. the President)
via authority from (1) law, (2) corporate
by-laws; and (3) authorization from the
board, either expressly or impliedly by
habit, custom or acquiescence in the
general course of business;
c) A corporate agent in transactions with
third persons to the extent of the authority
to do so has been conferred upon him;
d) Those with apparent authority
(doctrine of apparent authority).
Theories on Source of Board Power
a. Directly-Vested / Original Power
Pursuant to Section 22, the source of power of
the Board of Directors is primarily and directly-
vested by law; it is not a delegated power from
the stockholders or members of the corporation
b. Delegated Powers from Stockholders
The Board of Directors is a creation of the
stockholders and controls and directs the affairs
of the corporation by delegation of the
stockholders. By drawing to themselves the
powers of the corporation, they occupy positions
of trusteeship in relation to the stockholders.
Doctrine of Ratification
The corporation may ratify the unauthorized acts
of its corporate officer. The substance of the
COMMERCIAL LAW
doctrine is confirmation after conduct, amounting
to a substitute for a prior authority. Ratification
can be made either expressly or impliedly like
silence or acquiescence and acceptance of
benefits (Yasuma v. Heirs of Cecilio De Villa, G.R.
No. 150350, 2006). But illegal acts cannot be
ratified.
Doctrine of Apparent Authority
If a corporation knowingly permits one of its
officers, or any other agent, to act within the
scope of an apparent authority, it holds him out to
the public possessing the power to so do those
acts; and thus, the corporation will, as against
anyone who has in good faith dealt with it through
such agent, be estopped from denying the
a (Francisco v. GSIS, G.R. No. L-
18287, 1963)
Apparent authority may be ascertained
through:
a. The general manner in which the
corporation holds out an officer or agent as
having the power to act or, in other words, the
apparent authority to act in general, with which it
clothes him; or
b. The acquiescence in his acts of a
particular nature, with actual or constructive
knowledge thereof, whether within or beyond the
scope of his ordinary powers.
If a private corporation intentionally or negligently
clothes its officers or agents with apparent power
to perform acts for it, the corporation will be
estopped to deny that the apparent authority is
real as to innocent third persons dealing in good
faith with such officers or agents.
Note:
It requires presentation of evidence of similar acts
executed either in its favor or in favor of other
parties. It is not the quantity of similar acts which
establishes apparent authority, but the vesting of
a corporate officer with the power to bind the
corporation
Co., Inc. v. CA., G.R. No. 117847, 1998).
When the officers or agents of a corporation
exceed their powers in entering into contracts or
doing other acts, the corporation, when it has
knowledge thereof, must promptly disaffirm the
contract or act and allow the other party or third
persons to act in the belief that it was authorized
or has been ratified. If it acquiesces, with
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knowledge of the facts, or fails to disaffirm,
ratification will be implied or else it will be
estopped to deny ratification (Premiere
Development Bank vs. CA, G.R. No. 159352,
2004).
while Miguel was the President. Bonanza leased
the lot to Efren but eventually notified the latter
about the rescission of lease. Using the Doctrine
of Apparent Authority, Bonanza was estopped
from denying the existence and enforceability of
Lease Contract after it effectively ratified the
lease by accepting proceeds throughout several
years. Also, while it is true that the doctrine
cannot be invoked by one who is not a third party,
an officer of a corporation can actually be a third
person in contract with the corporation.
(Quesada, et al. v. Bonanza Restaurants, Inc.,
G.R. No. 207500, 2016)
B. Tenure, Qualifications and
Disqualifications of Directors
Term of Office (Sec. 22)
Directors shall be elected for a term of one
(1) year from among the holders of stocks
Trustees shall be elected for a term not
exceeding three (3) years from among the
members of the corporation.
Each director/trustee shall hold office until the
successor is elected and qualified.
Qualifications of Directors
a. Must own at least one (1) share of the capital
stock of the corporation in his own name or
must be a member in the case of non-stock
corporations
i. Any director who ceases to be the
owner of at least one (1) share of the
capital stock of the corporation of
which he is a director shall thereby
cease to be a director. (Sec. 22)
b. He must not be disqualified under the RCC
(Sec. 26)
c. He must possess other qualifications as may
be prescribed in the by-laws of the
corporation. (Gokongwei, Jr. v. SEC, G.R.
No. L-45911, 1979)
d. He must be of legal age
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Disqualifications of Directors, Trustees, or
Officers (Sec. 26)
A person shall be disqualified from being a
director, trustee, or officer of any corporation if,
within five (5) years prior to the election or
appointment as such, the person was:
a) Convicted by final judgment:
i. Of an offense punishable by
imprisonment for a period
exceeding six (6) years;
ii. For violating this Code; and
iii.
b) Found administratively liable for any
offense involving fraud acts; and
c) By a foreign court or equivalent foreign
regulatory authority for acts, violations or
misconduct similar to those enumerated
in paragraphs (a) and (b) above.
Grounds not exclusive
The foregoing is without prejudice to
qualifications or other disqualifications, which the
SEC or the Philippine Competition Commission
may impose in its promotion of good corporate
governance or as a sanction in its administrative
proceedings. (Sec. 26)
By-law provisions that prohibit directors who have
interests in competitor corporations are
reasonable in order to protect the interests of the
company (Gokongwei v. SEC, G.R. No. L-45911,
1979)
Hold-Over Principle
Directors/Trustees may continue to hold office
despite the lapse of one year until their
successors are elected and qualified.
Remaining members of the board of directors
cannot elect another director to fill in a vacancy
caused by the resignation of a hold-over director.
The hold-over period is not part of the term of
office of a member of the board of directors. (Valle
Verde Country Club v. Africa, G.R. No. 151969,
2009)
Thus, when during the holdover period, a director
resigns from the board, the vacancy can only be
filled-up by the stockholders, since there is no
term left to fill-up pursuant to the provisions of
Section 29 which mandates that a vacancy
occurring in the board of directors caused by the
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(Valle Verde
Country Club v. Africa, G.R. No. 151969, 2009)
A director continuing to serve after one year from
his election (on a holdover capacity), cannot be
considered as extending his term. This hold-over
period is not part of his term, which, as declared,
had already expired. (Valle Verde Country Club v.
Africa, G.R. No. 151969, 2009)
C. Requirement of Independent Directors
(Sec. 22)
An independent director is a person who, apart
from shareholdings and fees received from the
corporation, is independent of management and
free from any business or other relationship which
could, or could reasonably be perceived to
materially interfere with the exercise of
independent judgment in carrying out the
responsibilities as a director.
Requirements:
Independent directors must be:
1) independent of management and free
from any relationship which could
materially interfere with the exercise of
independent judgment as a director
2) a shareholder and receive fees from the
corporation
3) elected by the shareholders present or
entitled to vote in absentia during the
election of directors.
4) subject to rules and regulations
governing their qualifications,
disqualifications, voting requirements,
duration of term and term limit, maximum
number of board memberships and other
requirements that the SEC will prescribe.
Corporations required to have Independent
Directors
The board of the following corporations vested
with public interest shall have independent
directors constituting at least twenty percent
(20%) of such board:
a)
i. those whose securities are
registered with the SEC,
ii. corporations listed with an
exchange or with assets of at
least Fifty million pesos
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(P50,000,000.00) and having two
hundred (200) or more holders of
shares, each holding at least one
hundred (100) shares of a class of
its equity shares;
b) Banks and quasi-banks, NSSLAs,
pawnshops, corporations engaged in
money service business, pre-need, trust
and insurance companies, and other
financial intermediaries; and
c) Other corporations engaged in business
vested with public interest similar to the
above, as may be determined by the
SEC, considering such factors:
i. such as the extent of minority
ownership,
ii. type of financial products or
securities issued or offered to
investors,
iii. public interest involved in the
nature of business operations,
and
iv. other analogous factors.
D. Elections
Election of Directors or Trustees (Sec. 23)
Manner of Election
In any form; or
By ballot when requested by any voting
stockholder or member
In stock corporations, voting may be in
person or by proxy
Time to Determine Voting Right
At the time fixed in by- laws
If by- laws are silent, at time of election
i. Cumulative Voting/Straight Voting
a. Straight voting Every stockholder may
vote the number of outstanding capital stock
in his own name for as many persons as there
are directors to be elected; or in non-stock
corporations, members may cast as many
votes as there are trustees to be elected but
may not cast more than one vote for one
candidate. (In straight voting, the votes are
spread out evenly among all the elective
positions)
b. Cumulative voting for one candidate a
stockholder may accumulate his shares and
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give one candidate as many votes as the
number of directors to be elected multiplied
by the number of his shares shall equal;
c. Cumulative voting by distribution a remote communication or in absentia. The right to
stockholder may also cumulate his shares by
multiplying the number of his shares by the
number of directors to be elected and
distribute the same among as many
candidates as he shall see fit
Methods of Voting in Relation to Type of
Corporation
a) Stock Corporations
Stockholders entitled to vote shall have the right
to vote the number of shares of stock standing in
their own names in the stock books of the
corporation at the time fixed in the bylaws or
where the bylaws are silent, at the time of the
election
The stockholder may use:
1) Straight Voting
2) Cumulative voting for one candidate
3) Cumulative voting by distribution
Note: The total number of votes cast shall not
exceed the number of shares owned by the
stockholders as shown in the books of the
corporation multiplied by the whole number of
directors to be elected; and that no delinquent
stock shall be voted.
b) Non-stock Corporations
General Rule: Members of nonstock
corporations may use Straight Voting, i.e. cast as
many votes as there are trustees to be elected
but may not cast more than one (1) vote for one
(1) candidate.
Exception: Unless otherwise provided in the
articles of incorporation or in the bylaws. (Sec. 23)
ii. Quorum
At all elections of directors or trustees, there must
be present, either in person or through a
representative authorized to act by written proxy:
Stock Corporation owners majority of
outstanding capital stock
Non-stock Corporation majority of
members entitled to vote
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Note: When so authorized in the bylaws or by a
majority of the board of directors, the
stockholders or members may also vote through
vote through such modes may be exercised in
corporations vested with public interest,
notwithstanding the absence of a provision in the
by-laws of such corporations. (sec. 23)
Who Elects Directors or Trustees
By the stockholders/members as
provided in the by-laws (traditionally
during annual SH/M meetings
By the board, if still constituting quorum
for vacancies in the interim (i.e. between
annual meetings) due to causes other
than removal or expiry of term (Sec. 28)
If the vacancies are due to removal or
expiry of term, the directors/trustees
must be elected by the
stockholders/members at a meeting for
this purpose (special meeting)
How Elected
By owners of majority of outstanding
capital stock or by members in annual
Stockholders/members may be present
in person or by written proxy
For stock corporations: Number of votes
= (no. of shares) x (no. of directors to be
elected)
By straight voting or cumulative voting,
which is all votes may be cast for a
candidate or distributed among the
candidates
For non-stock corporations: Unless
otherwise provided in the articles of
incorporation or in the by-laws,
members of non-stock corporations may
cast as many votes as there are trustees
to be elected but may not cast more than
one vote for one candidate.
Viva voce (live voice) or must be by
ballot if requested
Delinquent shares and treasury shares
cannot vote
Candidates with highest number of
votes will be declared elected
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Election Rules on Stock and Non-Stock
Corporations
STOCK NON-STOCK
CORPORATION CORPORATION
Owners of a majority A majority of the
of outstanding capital members, either in
stock, either in person person or by
or by representative representative
authorized to act by authorized to act by
written proxy, must be written proxy, must be
present at the election present at the election
of the directors of the trustees
Cumulative voting or Cumulative voting is
Straight voting can be not available, unless
used; a matter of right allowed by the articles
granted by law to or by-laws.
each stockholder with
voting rights. The Board may be
elected by region.
Directors are elected
at large.
Alien Membership in Board of Directors
P.D. No. 715: "election of aliens as members of
the board of directors of governing body of
corporations or associations engaging in partially
nationalized activity shall be allowed in proportion
to their allowable participation or share in the
capital of such entities."
Non-Filipino citizens may become members of
the board of directors of a bank to the extent of
the foreign participation in the equity of said bank.
(General Banking Law, Sec. 15)
Filling Vacancies in Board - Permissive
The filling of vacancies in the board by the
remaining directors or trustees constituting a
quorum as provided for by Section [28] is merely
permissive, not mandatory, and the vacancies
may still be filled-up by the stockholders of
members in a regular or special meeting called
for the purpose. However, when the by-laws of
the corporation contain a specific mode of filling-
up existing vacancies in the board, the same is
mandatory (Tan v. Sycip, G.R. No. 153468,
2006).
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Report Of Election of Directors, Trustees and
Officers
Within thirty (30) days after the election of the
directors, trustees and officers of the corporation,
the secretary, or any other officer of the
corporation, shall submit to the SEC, the names,
nationalities, shareholdings, and residence
addresses of the directors, trustees, and officers
elected. (Sec. 25)
Only the directors and officers of the corporation
whose names appear in the report submitted to
the SEC are deemed legally constituted to bind
the corporation in bringing a suit on behalf of the
corporation (Premium Marble Resources v. CA,
G.R. No. 96551, 1996).
Non-holding of Election
The non-holding of elections and the reasons
shall be reported to the SEC within thirty (30)
days from the date of the scheduled election. The
report shall specify a new date for the election,
which shall not be later than sixty (60) days from
the scheduled date.
If no new date has been designated, or if the
rescheduled election is likewise not held, the SEC
may, upon the application of a stockholder,
member, director or trustee, and after verification
of the unjustified non-holding of the election,
summarily order that an election be held.
The SEC shall have the power to issue such
orders as may be appropriate, including:
a) orders directing the issuance of a notice
stating the time and place of the election,
b) designated presiding officer, and
c) the record date or dates for the
determination of stockholders or
members entitled to vote.
Notwithstanding any provision of the articles of
incorporation or bylaws to the contrary, the
shares of stock or membership represented at
such meeting and entitled to vote shall constitute
a quorum for purposes of conducting an election
under this section. (Sec. 25)
Cessation from Office
Should a director, trustee or officer die, resign or
in any manner cease to hold office, the secretary,
or the director, trustee or officer of the
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shall, within seven (7) days from knowledge
thereof, report in writing such fact to the SEC.
(Sec. 25)
E. Removal (Sec. 27)
Requisites of Removal from the Board
a. It must take place either at a regular meeting
or special meeting of the stockholders or
members called for the purpose;
b. There must be previous notice to the
stockholders or members of the intention to
remove;
c. The removal must be by a vote of the
stockholders representing 2/3 of the
outstanding capital stock or 2/3 of the
members, as the case may be;
d. The director may be removed with or without
cause unless he was elected by the minority,
in which case, it is required that there is cause
for removal.
Note:
The SEC shall, motu proprio or upon verified
complaint, and after due notice and hearing,
order the removal of a director or trustee elected
despite the disqualification, or whose
disqualification arose or is discovered
subsequent to an election. This is without
prejudice to other sanctions that the SEC may
impose on the board of directors or trustees who,
with knowledge of the disqualification, failed to
remove such director or trustee.
F. Filling of Vacancies (Sec. 28)
Replacement director or trustee - A director or
trustee elected to fill a vacancy and shall serve
only for the unexpired term of the predecessor in
office.
How Elections should be held:
In all elections to fill vacancies under this section,
the procedure set forth in Sections 23 and 25 of
this Code shall apply.
When Elections may be held:
a) Due to term expiration- the election
shall be held no later than the day of
such expiration at a meeting called for
that purpose.
b) Result of removal- the election may be
held on the same day of the meeting
COMMERCIAL LAW
authorizing the removal and this fact
must be so stated in the agenda and
notice of said meeting.
c) In all other cases, the election must be
held no later than forty-five (45) days
from the time the vacancy arose.
Vacancy NOT by removal or expiration of term
May be filled by:
a) the vote of at least a majority of the
remaining directors or trustees, if still
constituting a quorum;
b) if not, said vacancies must be filled by the
stockholders or members in a regular or
special meeting called for that purpose.
Cases when Emergency Action is Required
Requirements:
a) If the vacancy prevents the remaining
directors from constituting a quorum
b) emergency action is required to prevent
grave, substantial, and irreparable loss or
damage to the corporation
Effects:
a) The vacancy may be temporarily filled from
among the officers of the corporation by
unanimous vote of the remaining directors or
trustees.
b) The action by the designated director or
trustee shall be limited to the emergency
action necessary,
c) The term shall cease within a reasonable
time from the termination of the emergency or
upon election of the replacement director or
trustee, whichever comes earlier.
d) The corporation must notify the SEC within
three (3) days from the creation of the
emergency board, stating therein the reason
for its creation.
Vacancy filled by reason of an increase in the
number of directors or trustees
This vacancy shall be filled only by an election at
a regular or at a special meeting of stockholders
or members duly called for the purpose, or in the
same meeting authorizing the increase of
directors or trustees if so stated in the notice of
the meeting.
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G. Compensation (Sec. 30)
General Rule: In the absence of any provision in
the by-laws fixing their compensation, the
directors shall not receive any compensation, as
such
Exception: They may receive reasonable per
diems [i.e. at meetings]
Qualifiers to General Rule and Exception
Any such compensation other than per diems
may be granted to directors by the vote of the
stockholders representing at least a majority of
the outstanding capital stock at a regular or
special stockholders' meeting.
However: In no case shall the total yearly
compensation of directors, as such directors,
exceed 10% percent of the net income before
income tax of the corporation during the
preceding year.
Directors or trustees shall not participate in the
determination of their own per diems or
compensation.
Note: The implication of the phrase
is that members of the Board may
receive compensation, in addition to reasonable
per diems, when they render services to the
corporation in a capacity other than as directors
or trustees [in this case, if serving as corporate
officers] (Western Technology v. Salas, G.R. No.
113032, 1997)
For Corporations vested with public interest
These corporations shall submit to their
shareholders and the SEC, an annual report of
the total compensation of each of their directors
or trustees.
H. Disloyalty
Three-Fold Duties of Directors (Strategic
Alliance Development Corporation v. Radstock,
G.R. No. 178158, 2009)
a. Duty of Obedience (Basis: Sec. 24)
To direct the affairs of the corporation only in
accordance with the purposes for which it was
organized
COMMERCIAL LAW
b. Duty of Loyalty (Basis: Secs. 30 & 33)
Directors or trustees shall not acquire any
personal or pecuniary interest in conflict with their
duty as such directors or trustees.
Disloyalty: Sec. 30(2) v. Sec. 33
SEC. 30(2) SEC. 33
Applicable to
Applicable to directors
directors, trustees,
only
and officers
Allows ratification of a
No ratification allowed transaction by the
director
Covers stock and
Covers stock
non-stock
corporations only
corporations
c. Duty of Diligence (Basis: Sec. 30)
Directors and/or trustees shall not willfully and
knowingly vote for or assent to patently unlawful
acts of the corporation or act in bad faith or with
gross negligence in directing the affairs of the
corporation.
Doctrine of Corporate Opportunity
If there is presented to a corporate officer or
director a business opportunity, which the
corporation has an interest or a reasonable
expectancy, the self-interest of the officer or
director will be brought into conflict with that of his
corporation. The law does not permit him to seize
the opportunity even if he will use his own funds
in the venture. If he seizes the opportunity thereby
obtaining profits to the expense of the
corporation, he must account all the profits by
refunding the same to the corporation.
Requisites of Doctrine of Corporate
Opportunity
a. The Corporation is financially able to
undertake the business opportunity.
b. From the nature of the business opportunity,
is of practical advantage to the corporation.
c. The corporation has an interest or a
reasonable expectancy, by embracing the
opportunity.
Consequence of violation
a. Directors must account for all the profits by
refunding the same to the corporation
b. Directors may be removed from the board.
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Exception: The act of the director has been
ratified by a vote of the stockholders owning or
representing at least two-thirds (2/3) of the
outstanding capital stock.
Violations of Secs. 30 and 33 are not penal
offenses in relation Sec. 158: Had the
Legislature intended to attach penal sanctions to
said sections, it could have expressly stated such
intent in the same manner it did for Section 74 of
the same Code that the violation thereof is
likewise considered an offense under Section
144. (Ient v. Tullet, Inc., G.R. No. 189158, 2016)
I. Business Judgment Rule
Questions of policy or management are left solely
to the honest decision of officers and directors of
a corporation and the courts are without authority
to substitute their judgment for the judgment of
the board of directors; the board is the business
manager of the corporation and so long as it acts
in good faith its orders are not reviewable by the
courts or the SEC. The directors are also not
liable to the stockholders in performing such acts
(Philippine Stock Exchange, Inc. v. CA, GR No.
130644, 1997).
Coverage of the Rule: Two Branches
a. Resolutions and transactions entered into by
the Board of Directors within the powers of
the corporation cannot be reversed by the
courts not even on the behest of the
stockholders of the corporation; and
b. Directors and officers acting within such
business judgment cannot be held personally
liable for the consequences of such acts.
J. Solidary liabilities for damages
Liability under Sec. 30(1)
Directors or trustees who willfully and knowingly:
a) vote for or assent to patently unlawful acts
of the corporation
b) are guilty of gross negligence or bad faith in
directing the affairs of the corporation
c) acquire any personal or pecuniary interest in
conflict with their duty as such directors or
trustees
shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation,
its stockholders or members and other persons.
COMMERCIAL LAW
Liability for Watered Stocks
Directors or officers consenting to issuance of
watered stocks are solidarily liable with the
stockholder concerned, to the corporation or its
creditors for the difference between the fair value
received (by the corporation at the time of the
issuance) and the par or issued value of the stock
issued. (Sec. 64)
K. Personal Liabilities
Personal liability of a corporate director, trustee
or officer may so validly attach, as a rule, only
when:
1. He assents:
a. To a patently unlawful act of the
corporation, or
b. For bad faith, or gross negligence in
directing its affairs, or
c. For conflict of interest, resulting in
damages to the corporation, its
stockholders or other persons
(solidary liability under Sec. 30(1));
2. He attempts to acquire, or acquires any
interest adverse to the corporation in respect
of any matter which has been reposed in
them in confidence (liable as a trustee for the
corporation under Sec. 30(2))
3. He consents to the issuance of watered
stocks or who, having knowledge thereof,
does not forthwith file with the corporate
secretary his written objection thereto
(solidary liability under Sec. 64);
4. He agrees to hold himself personally and
solidarily liable with the corporation; or
5. He is made, by a specific provision of law, to
personally answer for his corporate action
(Tramat Mercantile, Inc. v. CA, G.R. No.
111008, 1994).
Case law states that to hold a director or officer
personally liable for corporate obligations, two
requisites must concur:
1. it must be alleged in the complaint that
the director or officer assented to patently
unlawful acts of the corporation or that
the officer was guilty of gross negligence
or bad faith; and
2. there must be proof that the officer acted
in bad faith. (Freyssinet Filipinas Corp. v.
Lapuz, G.R. No. 226722, 2019)
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L. Responsibility For Crimes
General rule: The Board being generally a
policy-making body, directors as such cannot be
held liable under a criminal statute making those
in charge of the management of the corporation
liable for the criminal acts done in pursuit of
corporate operations.
The members of the Board generally do not
concern themselves with the day-to-day affairs of
the corporation, except those corporate officers
who are charged with the running of the business
of the corporation and are concomitantly
members of the Board, like the President.
(Federated Dealers Assn. v. Del Rosario, G.R.
No. 202639, 2016).
Exception: To be held criminally liable for the
acts of a corporation, there must be a showing
that its officers, directors, and shareholders
actively participated in or had the power to
prevent the wrongful act. (SEC v. Price
Richardson Corp., G.R. No. 197032, 2017)
M. Special Fact Doctrine
Under the Special Facts Doctrine, although a
director does not stand in fiduciary relation to the
stockholder, he is under legal obligation to make
fair and full disclosure of pertinent official
information where special circumstances exist,
giving rise to the obligation to disclose. (Soledad
M. Cagampang, The Fiduciary Duties of
Corporate Directors Under Philippine Law, 46
Phil. L. J., 513, 562 [1971])
N. Inside Information
Unlawful Acts of Insider (RA 8799, Sec. 27)
It shall be unlawful for an insider to sell or to buy
a security of an issuer, while in the possession of
material information with respect to the issuer or
the security that is not generally available to the
public unless:
1. The insider proves that the info was not
gained from such relationship
2. That the other party selling to or buying from
the insider is identified the insider proves
a. That he disclosed the information
b. That he had reason to believe that
the other party otherwise is also in
possession of the information
COMMERCIAL LAW
Presumption of a Purchase or Sale of a
Security of an Issuer of Insider
relatives by affinity or consanguinity within the
second degree, legitimate or common-law, while
in possession of material nonpublic information if
transacted after such information came into
existence but prior to dissemination of such
information to the public and the lapse of a
reasonable time for market to absorb such
information.
This presumption is rebutted upon a showing by
the purchaser or seller that he was aware of the
material nonpublic information at the time of the
purchase or sale.
Material Nonpublic Information
a. It has not been generally disclosed to the
public and would likely affect the market price
of the security after being disseminated to the
public and the lapse of a reasonable time for
the market to absorb the information; or
b. Would be considered by a reasonable person
important under the circumstances in
determining his course of action whether to
buy, sell or hold a security.
O. Contracts
i. By Self-Dealing Directors with the
Corporation (Sec. 31)
A contract of the corporation with its director/s or
trustee/s or officer/s, or their spouses and
relatives within the fourth civil degree of
consanguinity or affinity is voidable at the option
of such corporation, unless the following are
present:
a. The presence of such director/trustee in the
Board meeting in which the contract was
approved was not necessary to constitute a
quorum.
b. The vote of such director or trustee was not
c. The contract is fair and reasonable
d. In case of corporations vested with public
interest, material contracts are approved by
at least two-thirds (2/3) of the entire
membership of the board, with at least a
majority of the independent directors voting to
approve the material contract; and
e. In case of an officer, the contract with him has
been previously authorized by the Board.
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Where any of the first three (3) conditions set forth
in the is absent such contract may be ratified by:
a) the vote of the stockholders representing at
least two-thirds (2/3) of the outstanding
capital stock or of at least two-thirds (2/3) of
the members in a meeting called for the
purpose; and
b) Full disclosure of the adverse interest of the
directors or trustees involved is made at such
meeting and the contract is fair and
reasonable under the circumstances.
ii. Contracts Between Corporations with
Interlocking Directors (Sec. 32)
A contract between two (2) or more corporations
having interlocking directors shall not be
invalidated on that ground alone. These are valid
so long as there is no fraud and the contract is fair
is nominal in one of the contracting corporations
(not exceeding 20% of the outstanding capital
stock), then the contract must comply with the
requisites provided supra, Sec. 31, otherwise
voidable.
P. Executive and Other Special
Committees
Executive Committees (Sec. 34)
i. Creation
If the bylaws so provide, the board may create an
executive committee composed of at least three
(3) directors. Said committee may act, by majority
vote of all its members, on such specific matters
within the competence of the board, as may be
delegated to it in the bylaws or by majority vote
of the board.
ii. Limitations
Powers That Cannot Be Delegated to the
Executive Committee
a. Approval of action requiring concurrence of
stockholders;
b. Filling of vacancies in the board;
c. Adoption, amendment or repeal of by-laws;
d. Amendment or repeal of board resolution
which by its terms cannot be amended or
repealed;
e. Distribution of cash dividends. (Sec. 34)
COMMERCIAL LAW
Special Committees (Sec. 34)
The board of directors may create special
committees of temporary or permanent nature
composition, compensation, powers, and
responsibilities.
Other delegations of authority
a) The Board may delegate such powers to
either an executive committee or officials or
contracted managers.
b) The delegation, except for the executive
committee, must be for specific purposes.
Accordingly, the general rules of agency
as to the binding effects of their acts
would apply.
For such officers to be deemed fully
clothed by the corporation to exercise a
power of the Board, the latter must
specially authorize them to do so (ABS-
CBN Broadcasting Corporation v. CA,
GR No. 128690, 1999).
Q. Meetings
-laws can provide otherwise
to all the rules hereunder, so long as minimum
requirements are satisfied.
i. Regular or Special
1. Regular- held monthly, unless the by- laws
provide otherwise
2. Special- held anytime upon the call of the
President or as provided in the by- laws
(1) When and Where -
Monthly, unless otherwise provided in the
by-laws, or anytime upon the call of the
President or as provided in the by- laws ;
Anywhere in or outside the Philippines,
unless the bylaws provide otherwise.
(2) Notice of the meeting - at least two (2) days
prior to the scheduled meeting, unless a
longer time is provided in the bylaws. A
director may waive the requirement,
expressly or impliedly.
(3) Attendance in Meetings - Directors or
trustees cannot attend or vote by proxy at
board meetings.
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Those who cannot physically attend or
vote at board meetings can participate
and vote through remote
communication such as
videoconferencing, teleconferencing,
or other alternative modes of
communication that allow them
reasonable opportunities to
participate.
ii. Who Presides - The chairman or, in his
absence, the president shall preside at all
meetings of the directors or trustees as well as of
the stockholders or members, unless the bylaws
provide otherwise. (Sec. 53)
iii. Quorum of Board
General Rule: A majority of the directors or
trustees as stated in the articles of incorporation
shall constitute a quorum to transact corporate
business
Exception: Unless the articles of incorporation or
the by-laws provides for a greater majority (Sec.
52)
COMMERCIAL LAW
Valid Corporate Acts
General Rule: Every decision reached by at least
a majority of the directors or trustees constituting
a quorum are considered valid.
Exception: The election of officers shall require
the vote of a majority of all the members of the
board.(Sec. 52)
Note: A director or trustee who has a potential
interest in any related party transaction must
recuse from voting on the approval of the related
party transaction without prejudice to compliance
with the requirements of Section 31 of this Code.
iv. Rule on Abstention
In case of abstention during a board meeting on
a vote taken on any issue, the general rule is that
an abstention is counted in favor of the issue that
won the majority vote; since by their act of
abstention, the abstaining directors are deem to
abide by the rule of the majority. (Lopez v. Ericta,
G.R. No. L-32991, 1972)
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Comparison Between Stockholder and Director Meeting

MEETING
Types of Regular and Special Regular and Special
Meetings
Place of Held in the principal office of the corporation as Anywhere in or outside of the
Meetings set forth in the articles of incorporation, or if not Philippines, unless the by- laws
practicable, in the city or municipality where the provide otherwise
principal office of the corporation is located.
When held REGULAR held annually on a date fixed by the REGULAR held monthly
by- laws, or if not so fixed, on any date after April
15 every year as determined by the board of
directors or trustees
SPECIAL held at any time deemed necessary SPECIAL held at any time upon
or as provided in the by- laws the call of the President
Notice of REGULAR notice must be sent at least 21 days Notice must be sent at least two
Meeting before the meeting (2) days prior to the scheduled
SPECIAL notice must be sent at least 1 week. meeting, unless a longer time is
Notice may be waived, expressly or impliedly, by provided in the bylaws. Notice
any stockholder or member may be waived expressly or
impliedly, by any Director or
Trustee
Who presides General Rule: Person designated in the bylaws The chairman or, in his absence,
In default: Chairman, and in his absence, the the president shall preside
president
Quorum Majority of the outstanding capital stock, or of the Majority of the number of
members. directors and trustees as fixed in
EXCEPT:(a) greater majority is provided in the the articles of incorporation,
bylaws (b) in cases where greater vote for an act unless the articles of
or business is required by law. incorporation or the by-laws
provides for a greater majority.
Note: For stock corporations, quorum is based
on outstanding voting stocks. For non-stock
corporations, only those who are actual, living
members with voting rights shall be counted.(Tan
v. Sycip, G.R. No. 153468, 2006

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10. CAPITAL AFFAIRS
A. Certificate of stock
A stock certificate or a certificate of stock is
defined as a written instrument signed by the
proper officer of a corporation stating or
acknowledging that the person named in the
document is the owner of a designated number of
shares of its stock. It is prima facie evidence that
the holder is a shareholder of a corporation.
(Teng v. Securities and Exchange Commission,
G.R. No. 184332, [February 17, 2016], 781 PHIL
133-148)
i. Nature of the certificate
It is the paper representation or tangible evidence
of the stock itself and of the various
representations therein. It expresses the contract
between the corporation and the stockholder. It is
not essential to the ownership and/or existence of
the share of stock. It is prima facie evidence that
the holder is a shareholder in a corporation
(Makati Sports Club v. Cheng, G.R. No. 178523,
2010)
It is a written acknowledgment by the corporation
is a personal property that may be mortgaged or
pledged. Transfer binds the corporation only
when it is recorded in the corporate books.
Note: It is the shares that can be the subject of a
security interest, not the certificate of stock
Shares of Stock v. Certificate of Stock
SHARES OF STOCK CERTIFICATE OF
STOCK
Unit of interest in a Evidence of the
corporation
the stock and of his
right as a shareholder
and up to the extend
specified therein
Incorporeal or It is concrete and
intangible property tangible
May be issued by the May be issued only if
corporation even if the the subscription is
subscription is not fully paid
fully paid
Note: A stockholder who does not pay his
subscription is not entitled to the issue of a stock
COMMERCIAL LAW
certificate. The subscription price of the stocks
subscribed by him should first be paid.
b. Consideration for Shares of Stock
(See earlier discussion)
ii. Uncertificated Shares/Securities
Defined as security evidenced by electronic or
similar records. (Securities and Regulation Code,
Sec. 3.14)
Note: Under Sec. 43.1 of the Securities and
Regulation Code, a corporation whose shares of
stock are registered pursuant to the Corporation
Code or listed in a stock exchange may:
a. If so resolved by its Board of Directors and
agreed by a shareholder, issue shares to, or
record the transfer of some or all of its shares
into the name of said shareholders, investors
or, securities intermediary in the form of
uncertificated securities;
b. The use of uncertificated securities shall be
without prejudice to the rights of the securities
intermediary subsequently to require the
corporation to issue a certificate in respect of
any shares recorded in its name; and
c. If so provided in its articles of incorporation
and by-laws, issue all of the shares of a
particular class in the form of uncertificated
securities and subject to a condition that
investors may not require the corporation to
issue a certificate in respect of any shares
recorded in their name.
iii. Negotiability; Requirements for Valid
Transfer of Stocks
Negotiability
Stock certificates are not negotiable instruments
under the purview of Negotiable Instruments Law
because there is no promise or order to pay
money.
A stock certificate is a quasi-negotiable
instrument because it may be transferred by
endorsement coupled with delivery but the holder
thereof takes it without prejudice to such rights or
defenses as the registered owner or creditor may
have under the law, except insofar as such rights
or defenses are subject to the limitations imposed
by the principles governing estoppel. (De los
Santos v. McGrath, G.R. No. L-4818, 1955)
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Requirements for Valid Transfer of Stock:
1. If represented by a certificate, the
following must be strictly complied with:
a. Endorsement by owner or his
representative
b. Delivery coupled with an intention of
constituting the person to whom the
stock is delivered the transferred (sic)
thereof.(Neugene Marketing, Inc. v.
Court of Appeals, G.R. No. 112941,
[February 18, 1999], 362 PHIL 633-
646)
c.
Stock and Transfer Book (STB) to bind
the corporation and third parties (Teng
v. SEC, Gr 184332, February 17, 2016)
Note: Recording in STB is only required
for absolute transfers, which do not
include pledges, mortgages, etc.
(Monserrat v. Ceron, G.R. No. 37078,
September 27, 1933)
2. If NOT represented by the certificate (such
as when the certificate has not yet been
issued or where for some reason is not in
the possession of the stockholder):
a. By means of deed of assignment or
public document; and
b. Such deed of assignment or public
document must be duly recorded in the
books of the corporation (Ponce v.
Alsons Cement Corporation, G.R. No.
139802, December 10, 2002)
If, however, the reason for the absence of
a certificate is that the subscription has
not been fully paid, the corporation may
refuse to record a sale given that under
which the corporation holds any unpaid
claim shall be transferable in the books of
iv. Issuance
1. Full Payment (Sec. 63)
No stock certificate shall be issued unless there
is full payment of:
1. Subscription;
2. Interest; and
3. Expenses (in case of delinquent
shares).
COMMERCIAL LAW
Principle of Indivisibility of Subscription
A subscription is one entire and indivisible
contract. It cannot be divided into portions, so that
the stockholder shall not be entitled to a certificate
of stock until he has remitted the full payment.
2. Payment pro rata
All partial payments on one subscription shall be
deemed applied proportionately among the
number of shares. To permit the issuance of a
stock certificate without full payment will be in
violation of Sec. 63 (Timoteo Aquino, 2018)
In the absence of special agreement to the
contrary, th
equity entitling him to a certificate for the total
number of shares subscribed for by him upon
payment of the remaining portion of the
subscription price (Fua Cun vs. Summers, G.R.
No. 19441, 1923).
Requisites for Issuance of Certificate of Stock
1. The certificate must be signed by the
president or vice-president, countersigned
by the secretary or assistant secretary;
2. The certificate must be sealed with the seal
of the corporation;
3. The certificate must be delivered;
4. The par value, as to par value shares or full
subscription as to no par value shares must
first be fully paid; and
5. The original certificate must be
surrendered where the person requesting
the issuance of a certificate is a transferee
from the stockholder (Bitong v. CA, G.R.
No. 123553, July 13, 1998)
v. Stock And Transfer Book
1. Contents
Stock corporations must keep a stock and
transfer book, which shall contain a record of:
1. All stocks in the names of the
stockholders alphabetically arranged;
2. The installments paid and unpaid on
all stock for which subscription has
been made, and the date of payment
of any installment;
3. A statement of every alienation, sale
or transfer of stock made; and
4. Such other entries as the by-laws
may prescribe. (Sec. 73)
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Only absolute transfers of shares of stock are
and transfer book in order to have force and effect
as against third persons. Attachments of shares
the corporati (Ferro
Chemicals v. Garcia, et al., G.R. 168134, 2016)
2. Who May Make Valid Entries
Only the corporate secretary is duly authorized to
make entries on the stock and transfer book.
Hence, entries made by the Chairman or the
President are invalid. (Torres Jr. v. CA, G.R. No.
120138, 1997).
Registration of a transfer of shares of stock is a
ministerial duty on the part of the corporation.
Aggrieved parties may then resort to the remedy
of mandamus to compel corporations that
wrongfully or unjustifiably refuse to record the
transfer or to issue new certificates of stock. This
remedy is available even upon the instance of a
bona fide transferee who is able to establish a
clear legal right to the registration of the transfer.
(Andaya v. Rural Bank of Cabadbaran, Inc., G.R.
No. 188769, 2016)
3. Stock transfer agents
A stock transfer agent or one engaged principally
in the business of registering transfers of stocks
on behalf of a stock corporation. (Sec. 75)
A stock transfer agent shall be allowed to operate
in the Philippines upon compliance with the
following:
1. securing a license from the SEC
(renewable annually)
2. payment of a fee fixed by the SEC
vi. Lost or Destroyed Certificate
Procedure for the issuance of new certificates to
replace those lost, stolen, or destroyed: (Sec. 72)
a. The registered owner of a certificate
of stock in a corporation or his legal
representative shall file with the
corporation an affidavit in triplicate
setting forth the ff:
i. Circumstances of the Loss;
ii. Certificates and Serial
Numbers of lost certificates;
and
iii. Other Information and
Evidence.
COMMERCIAL LAW
b. The corporation shall publish a notice
of loss once a week for at least three
(3) consecutive weeks in a
newspaper of general circulation in
the place where the corporation has
its principal office. The notice shall
state the ff:
i. name of the corporation
ii. name of the registered
owner
iii. the serial number of the
certificate
iv. the number of shares
represented by such
certificate
v. after one (1) year from the
date of the last publication
without contest, the right to
make such contest shall be
barred and the corporation
shall cancel the lost
certificate
vi. in lieu thereof, a new
certificate of stock is issued
c. If a contest is presented to the
corporation or if an action is pending
in court, issuance of new certificates
is suspended until the court renders
a decision regarding the ownership
of the certificate of stock
d. No action is allowed against the
corporation for issuing new shares
except for fraud, bad faith, or
negligence.
vii. Situs of the Shares of Stocks
The situs of shares of stock is the domicile of the
corporation (Tayag v. Benguet Consolidated Inc.,
G.R. No. L-23145, 1968).
B. Watered Stock (Diluted Stock)
i. Definition
Stocks issued for a consideration less than the
par or issued price thereof. (Sec. 61)
ii. Liability Of Directors For Watered Stock
Directors or officers who shall commit the
following will be liable to the corporation or its
creditors, solidarily with the stockholder
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concerned for the difference between the value
received at the time of issuance of the stock and
the par or issued value of the same : (Sec. 64)
1. consents to the issuance of stocks for a
consideration less than the par or issued
value;
2. consents to the issuance of stocks for a
consideration other than cash, valued in
excess of its fair value;
3. having knowledge of the insufficient
consideration does not file a written
objection with the corporate secretary
iii. Trust Fund Doctrine On Watered Stocks
The Trust Fund Doctrine is the basis for the
prohibition on issuing watered stock.
A Corporation has no power to release an original
subscriber of its capital stock from the obligation
of paying for his shares, without a valuable
consideration for such release; and as against
creditors, a reduction of the capital stock can take
place only in the manner and under the conditions
prescribed by the statute or the charter or the
articles of incorporation (Philippine Trust Corp. v.
Rivera, G.R. No. L-19761, 1923).
See subsection F.4. for discussion on Trust Fund
Doctrine.
C. Payment of Balance of Subscription
i. Call by Board of Directors
The board of directors may, at any time, declare
due and payable to the corporation unpaid
subscriptions and may collect the same or such
percentage thereof, in either case, with accrued
interest, if any, as it may deem necessary.
Requisites for a valid call
a) Must be made in the manner prescribed by
law;
b) Must be made by the Board of Directors; and
c) Must operate uniformly upon all shareholders
Note: A call is not necessary in two cases
1. when the date of payment is specified in
the subscription
2. when the corporation becomes insolvent
(Velasco v. Poizat)
COMMERCIAL LAW
ii. Notice Requirement
The unpaid subscriptions are not due and
payable without a call. A corporation cannot file
an action to recover the unpaid price if the action
is not preceded by a call, until a call is made, no
cause of action accrues (Lingayen Gulf Electric
Power Company v. Baltazar, G.R. No. L-4824,
June 30, 1954).
Payment of balance of subscription
Payment of unpaid subscription or any
percentage thereof, together with any interest
accrued, shall be made on the date specified in
the subscription contract or on the date stated in
the call made by the board.(Sec 66)
Effect of Failure to Pay Balance (Sec. 66)
1. The entire balance shall be due and
payable
2. The stockholder shall liable for interest
3. If no payment is made within thirty (30)
days from the said date, all stocks
covered by the subscription shall
thereupon become delinquent and shall
be subject to sale as hereinafter
provided, unless the board of directors
orders otherwise.
The prescriptive period in case of subscription of
shares begins to run only from the time the board
of directors declares that the balance is due and
payable (Garcia v. Suarez, G.R. No. 45493,
1939)
Unpaid Subscriptions (Sec. 66)
a. There will be interest imposed on unpaid
subscriptions
b. Payable to the corporation from date of
subscription
c. If required by and interest fixed in the By-laws
d. If interest is required but not fixed legal rate
e. Therefore, no interest on unpaid subscription
is required:
b. If not required by by-laws
c. If not required by subscription contract
Methods of Collection of Unpaid Subscription
a. Call for payment
b. Declaration of delinquency and sale at public
auction of delinquent shares;
c. Ordinary civil action;
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d. Collection from cash dividends and other
amounts due to stockholders if allowed by by-
laws/agreed to by him.
D. Sale of Delinquent Shares
Delinquent stocks - Stocks not paid within 30
days from the date fixed in the contract of
subscription or from the date stated in the call
made by the Board of Directors.
i. Effect of Delinquency
1. They shall be subject to delinquency
sale.
2. The stock shall not be voted or be entitled
to vote or to representation at any
3. The holder shall not be entitled to any of
the rights of a stockholder except the
right to dividends
4. The corporation has the right to apply
cash dividends due to the unpaid balance
plus cost and expenses and to withhold
stock dividends until the unpaid
subscription is fully paid.
Note: the only right that may not be exercised is
the right to dividends
Procedure of Delinquency Sale
ii. Call by resolution of the board of directors
The board of directors shall issue a resolution
ordering the sale of delinquent stocks. (Sec. 67)
There is no need for a call if the subscription
contract specifies dates when subscription
balance is due. If no payment is made within thirty
(30) days from the date specified, the board shall
order the sale of delinquent shares.
iii. Notice of Sale
1. Notice of the sale, with a copy of the
resolution, shall be sent to every
shareholder with unpaid subscriptions
either personally, by registered mail, or
through other means provided in the
bylaws.
2. Notice of the sale shall be published once
a week for two (2) consecutive weeks in
a newspaper of general circulation in the
province or city where the principal office
of the corporation is located.
COMMERCIAL LAW
iv. Auction Sale
Auction Sale is conducted not less than thirty (30)
days nor more than sixty (60) days from the date
the stocks become delinquent.
1. The delinquent stock shall be sold at a
public auction to such bidder who shall
offer to pay ff:
a. the full amount of the balance on
the subscription together
b. accrued interest
c. costs of advertisement
d. expenses of sale for the smallest
number of shares or fraction of a
share.
2. The stock so purchased shall be
transferred to such purchaser in the
books of the corporation and a certificate
for such stock shall be issued in the
3. The remaining shares, if any, shall be
credited in favor of the delinquent
stockholder who shall likewise be entitled
to the issuance of a certificate of stock
covering such shares. (Sec. 67)
Note: There shall be no sale at public auction if:
a. The delinquent stockholder pays on or
before the sale: (a) balance due, (b)
accrued interest, or (c) advertising costs
and expenses of sale.
b. The Board orders otherwise, on any of
the following grounds: (a) Defect in the
Notice of Sale; or (b) Defect in sale itself.
(Sec. 67)
When Sale May Be Questioned
a. The action is filed on the ground of irregularity
or defect in the notice of sale, or in the sale of
the delinquent stock;
b. The party seeking to maintain such action
first pays or tenders to the party holding the
stock the sum for which the same was sold
with interest from the date of the sale at the
legal rate; and
c. The complaint was filed within 6 months from
the date of the sale (Sec. 68)
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E. Alienation of shares
i. Allowable restrictions on the sale of shares
The authority granted to a corporation to regulate
the transfer of its stock does not empower the
corporation to restrict the right of a stockholder to
transfer his shares, but merely authorizes the
adoption of regulations as to the formalities and
procedure to be followed in effecting transfer
(Thomson v. CA, G.R. No. 116631, 1998).
ii. Sale of partially paid shares
Section 62 provides that no share of stock against
which the corporation holds any unpaid claims
shall be transferable in the books of the
corporation.
iii. Sale of a portion of shares not fully paid
A stockholder who has not paid the full amount of
his subscription cannot transfer part of his
subscription in view of the indivisible nature of a
subscription contract.
iv. Sale of all shares not fully paid
The entire subscription, although not yet fully
paid, may be transferred to a single transferee,
who as a result of the transfer must assume the
unpaid balance. (SEC Opinion) Consent of the
corporation must first be secured since the
transfer of subscription rights and obligations
contemplates a novation of contract. (Civil Code,
Art. 1923)
The SEC correctly categorized the assignment of
the subscription agreements as a form of
novation by substitution of a new debtor and
which required the consent of or notice to the
creditor. In this case, the change of debtor took
place when R.C. Lee assigned the Oceanic
shares under the subscription agreements to SSI
so that the latter became obliged to settle the 75%
unpaid balance on the subscription. The SEC
was correct in saying that Interport was duly
notified of the assignment when SSI tendered its
payment for the 75% unpaid balance, and that it
could not anymore refuse to recognize the
transfer of the transfer of the subscription
agreements to SSI was to extinguish the
obligation of R.C. Lee to Oceanic, now Interport.
Interport was no longer obliged to accept any
payment from R.C. Lee because the latter had
ceased to be privy to the subscription
agreements, but was now legally bound to accept
(Interport Resources Corporation v. Security
Specialist, Inc., G.R. No. 154069, 2016)
COMMERCIAL LAW
v. Sale of fully paid shares
Section 63 provides that shares of stock issued
with a corresponding certificate of stock are
personal property and may be transferred by
delivery of the certificate or certificates indorsed
by the owner or his attorney-in-fact or other
person legally authorized to make the transfer.
vi. Requisites of a valid transfer
If represented by a certificate, the following must
be strictly complied with:
a. Delivery of the certificate;
b. Indorsement by the owner or his agent;
c. To be valid against third parties, the transfer
must be recorded in the books of the
corporation (Rural Bank of Lipa v. CA, G.R.
No. 124535, 2001).
If NOT represented by a certificate, the following
must be complied with:
a. By means of a deed of a Deed of Assignment;
b. The same must be recorded in the books of
the corporation.
If, however, the reason for the absence of a
certificate is that the subscription has not
been fully paid, the corporation may refuse to
shares of stock against which the corporation
holds any unpaid claim shall be transferable
The failure by a seller to deliver, within a
reasonable time, the stock certificates
representing shares of stock subject of a sale
transaction may be a basis to rescind such sale
(Fil-Estate Gold and Development v. Vertex, G.R.
No. 202079, 2013)
Note: Recording in STB is only required for
absolute transfers, which do not include pledges,
mortgages, etc. (Monserrat v. Ceron, G.R. No.
37078, September 27, 1933)
In case of chattel mortgage [Note: the Personal
Property Security Act has done away with chattel
mortgages], a double registration is necessary
with the Register of Deeds where:
a. The debtor resides
b. The corporation has its principal place of
business.
Registration on the stock and transfer book would
be of no effect
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ii. Right to inspect corporate records

In case of attachments and levies, shares may be What does the right to inspect corporate
attached by leaving with the corporate officer a records include? (Sec. 73)
copy of the writ and notice. No recording in the 1. Right to inspect corporate records
stock and transfer book is needed. The moment 2. Right to demand for their reproduction,
the notice has been duly delivered, it becomes provided that [D-E-Co]:
binding. a. demand in writing is made by the
requesting party
vii. Involuntary dealings b. copies are reproduced at the
As an incident of ownership, a stockholder may
expense
pledge, mortgage or encumber his shares of
c. The inspecting or reproducing
stocks. Restrictions by the corporation are only
valid when: party shall remain bound by
a. They appear in the Articles of Incorporation, confidentiality rules under
by-laws, and the certificates. prevailing laws, such as the rules
b. They are not more onerous than granting on trade secrets or processes
existing stockholders an option to purchase under Republic Act No. 8293,
within a reasonable period and within otherwise known as the
reasonable terms.

F. Corporate Books and Records Republic Act No. 10173,

i. Corporate records to be kept at principal

office: (Sec. 73) [AB-O-NA-BResRepMi]
1. The articles of incorporation and bylaws
of the corporation and all their
amendments;
2. The current ownership structure and
voting rights of the corporation, including
lists of stockholders or members, group
structures, intra-group relations,
ownership data, and beneficial
ownership;
3. The names and addresses of all the
members of the board of directors or
trustees and the executive officers;
4. A record of all business transactions;
5. A record of the resolutions of the board of
directors or trustees and of the
stockholders or members;
6. Copies of the latest reportorial
requirements submitted to the SEC; and
7. The minutes of all meetings of
stockholders or members, or of the board
of directors or trustees.
Act No. 8799, otherwise known
Who may inspect corporate records?
A director, trustee, stockholder or member of the
corporation in person or by a representative has
the right to inspect corporate records (Sec. 73).
The ff. may NOT inspect or demand reproduction
of corporate records: (Sec. 73)
1. One who is not a stockholder or member
of record,
2. A competitor, director, officer, controlling
stockholder or otherwise represents the
interests of a competitor shall have no
right to inspect or demand reproduction
of corporate records.
Any stockholder who shall abuse the rights
granted under Sec. 73 shall be penalized under
Section 158 the RCC without prejudice to the
provisions of Republic Act No. 8293, otherwise

Note: This is not an exclusive list. Section 73

states that Every corporation shall keep and t
carefully preserve at its principal office all
information relating to the corporation including,
but not limited to the abovementioned.

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Requisites for the exercise of the right to
inspect
1. It must be exercised at reasonable hours
on business days
2. The stockholder has not improperly used
any information he secured through any
previous examination
3. The demand is made in good faith and for
a legitimate purpose
When may corporate records be inspected?
Authorized persons may inspect corporate books
at reasonable hours on business days (Sec. 73)
iii. Effect of refusal to inspect corporate
records
Any officer or agent of the corporation who shall
refuse to allow the inspection and/or reproduction
of records shall be liable for:
1. damages
2. shall be guilty of an offense which shall
be punishable under Section 161, RCC
If such refusal is made pursuant to a resolution or
order of the board of directors or trustees, the
liability under this section for such action shall be
imposed upon the directors or trustees who voted
for such refusal. (Sec. 73)
Defenses that may be used by officer / agent /
director / trustee:
1. the requesting party improperly used any
information secured through any prior
examination of the records or minutes of
such corporation or of any other
corporation,
2. the requesting party was not acting in
good faith or for a legitimate purpose in
making the demand to examine or
reproduce corporate records,
3. the requesting party is a competitor,
director, officer, controlling stockholder or
otherwise represents the interests of a
competitor (Sec. 73)
COMMERCIAL LAW
11. DISSOLUTION AND LIQUIDATION
Dissolution
Extinguishment of the franchise of a corporation
and the termination of its corporate existence.
However, the corporation shall nevertheless be
continued as a body corporate for three (3) years
after the time when it would have been so
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. (Sec. 122)
A. Modes of Dissolution:
i. Voluntary
1. Where No Creditors Are Affected
Procedure where no creditors are affected by
the dissolution of the corporation:
1. A meeting must be held on the call of
directors or trustees;
2. Notice of the meeting should be given to
the stockholders by personal delivery or
registered mail at least twenty (20) days
prior to the meeting;
3. The notice of meeting should also be
published for once in a newspaper
published in the principal place of
business, otherwise, in a newspaper of
general circulation
4. The resolution to dissolve must be
approved by the majority of the
directors/trustees and approved by the
stockholders representing at least
majority of the outstanding capital stock
or majority of members;
5. A verified request for dissolution is then
filed with the SEC stating:
a. the reason for dissolution
b. the form, manner and time when
the notices were given
c. names of the stockholders and
directors or members and
trustees who approved the
dissolution
d. the date, place, and time of the
meeting in which the vote was
made; and
e. details of publication
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6. In addition, the following shall be
submitted to the SEC:
a. Copy of the resolution
authorizing the dissolution,
certified by a majority of the
board and countersigned by the
secretary;
b. Proof of publication
c. Favorable recommendation from
the appropriate regulatory
agency, when necessary.
7. The SEC shall, within 15 days from the
receipt of the verified request for
dissolution, and in the absence of any
withdrawal within said period, approve
the request and issue the certificate of
dissolution, upon which the dissolution
will take effect. (Sec. 134)
2. Where Creditors Are Affected
Procedure where the dissolution of the
corporation may prejudice the rights of any
creditor:
1. A verified petition for dissolution shall be
filed with the SEC.
2. The petition shall be:
a. signed by a majority of the
or trustees
b. verified by its president or
secretary or one of its directors
or trustees
c. shall set forth all claims and
demands against it
d. that its dissolution was resolved
upon by the affirmative vote of
the stockholders representing at
least two-thirds (2/3) of the
outstanding capital stock or at
least two-thirds (2/3) of the
members at a meeting of its
stockholders or members called
for that purpose.
3. The petition shall likewise state:
a. the reason for the dissolution;
b. the form, manner, and time when
the notices were given;
c. the date, place, and time of the
meeting in which the vote was
made.
COMMERCIAL LAW
4. The corporation shall submit to the SEC
the following:
a. a copy of the resolution
authorizing the dissolution,
certified by a majority of the
board of directors or trustees and
countersigned by the secretary
of the corporation; and
b. list of all its creditors.
5. By an order reciting the purpose of the
petition, the SEC shall fix a deadline for
filing objections to the petition (shall not
be less than thirty (30) days nor more
than sixty (60) days after the entry of the
order).
6. Publication: Before such the deadline, a
copy of the order shall be published at
least once a week for three (3)
consecutive weeks in a newspaper of
general circulation published in the
municipality or city where the principal
office of the corporation is situated,
otherwise, in a newspaper of general
circulation in the Philippines
7. Posting: A similar copy shall be posted
for three (3) consecutive weeks in three
(3) public places in such municipality or
city.
8. After the expiration of the time to file
objections, a hearing shall be conducted
upon prior five (5) day notice to hear the
objections;
9. Judgment shall be rendered dissolving
the corporation and directing the
disposition of assets; the judgment may
include appointment of a receiver.
10. The dissolution shall take effect only
upon issuance by the SEC of a certificate
of dissolution* (Sec. 135)
3. By Shortening Corporate Term-
Procedure on voluntary dissolution by
shortening of the corporate term (Sec. 36):
1. A private corporation may extend or
shorten its term by amending the the
articles of incorporation when approved
by a majority vote of the board of
directors or trustees, and ratified at a
meeting by the stockholders or members
representing at least two-thirds (2/3) of
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the outstanding capital stock or of its
members.
2. Written notice of the proposed action and
the time and place of the meeting shall be
sent to stockholders or members
3. In case of extension of corporate term, a
dissenting stockholder may exercise the
right of appraisal under the conditions
provided in this Code. (Sec. 137)
Note: Under Sec. 11, the RCC now allows the
revival of a the corporate existence of an Expired
Corporation.
may apply
for a revival of its corporate existence,
together with all the rights and privileges under its
certificate of incorporation and subject to all of its
duties, debts and liabilities existing prior to its
revival. Upon approval by the SEC, the
corporation shall be deemed revived and a
certificate of revival of corporate existence shall
be issued, giving it perpetual existence, unless
its application for revival provides otherwise.
(Sec. 11)
4. Withdrawal of dissolution
Procedure on Withdrawal of Request for
Dissolution:
1. Withdrawal of Request of Dissolution:
Not later than 15 days from the receipt by
SEC of the request for dissolution, the
withdrawal thereof shall be made in
writing, duly verified by any incorporator,
director, trustee, shareholder, or member
and signed by the same number of
incorporators, directors, trustees,
shareholders, or members necessary to
request for dissolution.
2. Upon receipt of a withdrawal of request
for dissolution, the SEC shall withhold
action on the request for dissolution and
shall, after investigation:
a. Make a pronouncement that the
request for dissolution is deemed
withdrawn;
b. Direct a joint meeting of the
board of directors or trustees and
the stockholders or members for
the purpose of ascertaining
whether to proceed with
dissolution; or
COMMERCIAL LAW
c. Issue such other orders as it may
deem appropriate. (Sec. 137)
Procedure on Withdrawal of Petition for
Dissolution
A withdrawal of the petition for dissolution shall be
in the form of a motion and similar in substance
to a withdrawal of request for dissolution but shall
be verified and filed prior to publication of the
order setting the deadline for filing objections to
the petition. (Sec. 137)
ii. Involuntary
A corporation may be dissolved by the SEC motu
proprio or upon filing of a verified complaint by
any interested party. (Sec. 138)
Grounds for dissolution of the corporation:
a. Non-use of corporate charter as provided
under Section 21 of this Code;
b. Continuous inoperation of a corporation
as provided under Section 21 of this
Code;
c. Upon receipt of a lawful court order
dissolving the corporation;
d. Upon finding by final judgment that the
corporation procured its incorporation
through fraud;
e. Upon finding by final judgment that the
corporation:
1. Was created for the purpose of
committing, concealing or aiding
the SEC of securities violations,
smuggling, tax evasion, money
laundering, or graft and corrupt
practices;
2. Committed or aided in the SEC
of securities violations,
smuggling, tax evasion, money
laundering, or graft and corrupt
practices, and its stockholders
knew of the same; and
3. Repeatedly and knowingly
tolerated the SEC of graft and
corrupt practices or other
fraudulent or illegal acts by its
directors, trustees, officers, or
employees. (Sec. 138)
If the corporation is ordered dissolved by final
judgment pursuant to the grounds set forth in
subparagraph (e) hereof, its assets, after
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payment of its liabilities, shall, upon petition of the
SEC with the appropriate court, be forfeited in
favor of the national government. Such forfeiture
shall be without prejudice to the rights of innocent
stockholders and employees for services
rendered, and to the application of other penalty
or sanction under this Code or other laws. (Sec.
138)
The SEC shall give reasonable notice to, and
coordinate with, the appropriate regulatory
agency prior to the involuntary dissolution of
companies under their special regulatory
jurisdiction.(Sec. 138)
Non-use of corporate charter (Sec. 21)
If a corporation does not formally organize and
commence its business within 5 years
Effect: certificate of incorporation shall be
deemed revoked following the end of
the 5-year period
Continuous Inoperation (Sec. 21)
If a corporation has commenced its business but
subsequently becomes inoperative for a period of
at least 5 consecutive years
Effect: after due notice and hearing, the
corporation will be put on delinquent
status
Remedy: it shall have a period of 2 years
to resume operations. Otherwise,
certificate of incorporation will likewise be
revoked.
Adoption of the by-laws and the filing and
approval of the same with and by the SEC if
the same were not adopted and filed
simultaneously with the articles of
incorporation;
Election of the Board of Directors or Trustees
and of the officers;
Establishment of the principal office; and
Providing for the subscription and payment of
the capital stock and the taking of such steps
as are necessary to endow the legal entity
with capacity to transact the legitimate
business for which it was created
When the corporation has performed preparatory
acts geared towards the fulfillment of the
purposes for which it was established such as but
not limited to the following:
COMMERCIAL LAW
Entering into contracts or negotiations for
lease or sale of properties to be used as
business or factory site;
Making plans for and the construction of the
factory; and
Taking steps to expedite the construction of
In the event of failure to file for an extension if a
a
revival of its corporate existence, together with all
the rights and privileges under its certificate of
incorporation and subject to all of its duties, debts
and liabilities existing prior to its revival. Upon
approval by the SEC, the corporation shall be
deemed revived and a certificate of revival of
corporate existence shall be issued, giving it
perpetual existence, unless its application for
revival provides otherwise.
Demands of Minority for Dissolution
Corporate dissolution due to mismanagement of
majority stockholder is too drastic a remedy,
especially when the situation can be remedied
such as giving minority stockholders a veto power
to any decision (Chase v. Buencamino, G.R. No.
20395, 1985).
Effects of Dissolution
(a) Vesting of legal title to the corporate property
in the stockholders, who become co-owners
thereof
(b) The corporation ceases to be a body
corporate to continue the business for which
it was established.
The termination of the life of a juridical entity does
not by itself cause the extinction or diminution of
the rights and liability of such entity, since it is
allowed to continue as a juridical entity for three
(3) years 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
(Republic v. Tancinco, G.R. No. 139256, 2002).
A board resolution to dissolve the corporation
does not operate to so dissolve the juridical entity.
requirements
mandated by the Corporation Code should have
(Vesagas v. Court of
Appeals, G.R. No. 142924, 2001)
When the period of corporate life expires, the
corporation ceases to be a body corporate for the
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purpose of continuing the business for which it
was organized (PNB v. Court of First Instance of
Rizal, Pasig, Br. XXI, G.R. No. 63201, 1992).
existing or dissolved, is a property right which he
may vindicate against another party who has
deprived him thereof.
Stockholders may convey their respective
shareholdings toward the creation of a new
corporation to continue the business of the old or
they may reincorporate by filing new articles of
incorporation and by-laws.
B. Methods of Liquidation
Liquidation
Process by which all the assets of the corporation
are converted into liquid assets in order to
facilitate the payment of obligations to creditors,
and the remaining balance if any is to be
distributed to the stockholders.
There is no time limit within which the
trustees must complete a liquidation placed in
their hands (Vigilla et.al. v. Philippine College of
Criminology, G.R. No. 200094, 2013).
Modes of Liquidation
a. Through Board of Directors or Trustees
normal method of procedure
Even if no trustee is appointed or designated
during the three-year period of the liquidation of
the corporation, the Court has held that the Board
of Directors may be permitted to complete the
corporate liquidation by continuing as trustees by
legal implication (Vigilla et al. v Philippine College
of Criminology, G.R. No. 200094, 2013)
Note: This only concerns the matters/actions that
are initiated during the 3 year grace period. The
Board cannot be considered as trustees for
matters initiated after the 3-year period.
b. Through Trustee at any time during the
three years of liquidation, a 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. The three (3)-year
limitation will not apply provided the
COMMERCIAL LAW
designation of the trustee is made within said
period.
c. Through Receiver created by means of
judicial or quasi-judicial appointment of the
receiver. The receiver is actually an officer of
the court and must therefore be accountable
to the court.
Note: If there is no Board of Directors or
Trustees, those having pecuniary interest in the
assets, including not only the shareholders but
likewise the creditors of the corporation, acting for
and in its behalf, may liquidate
2014)
d. Liquidation after Three Years
If full liquidation can only be effected after the 3-
year period and there is no trustee, the directors
may be permitted to complete the liquidation by
continuing as trustees by legal implication
(Reburiano v. CA, G.R. No. 102965, 1999).
The trustee may continue to prosecute a case
commenced by the corporation within three years
from its dissolution until rendition of the final
judgment, even if such judgment is rendered
beyond the three-year period allowed by Section
[139]. However, an already defunct corporation
cannot initiate a suit after the lapse of the three-
year period.
Note: When a corporation threatened by
bankruptcy is taken over by a receiver, all the
creditors shall stand on equal footing. Not one of
them should be given preference by paying one
or some of them ahead of the others.
The Civil Code provisions on concurrence and
preference of credits are applicable to the
liquidation proceedings.
A corporation in the process of liquidation has no
legal authority to engage in any new business,
even if the same is in accordance with the primary
purpose stated in its articles of incorporation.
When a Corporation Must Wind Up (Sec. 139)
If it is dissolved by:
a. By expiry of term or
b. Is annulled by forfeiture, or
otherwise, or
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c. Is terminated In any other
manner
Effects of Winding Up of Affairs: (Sec. 139)
a. Continues as a corporate body for 3
years to prosecute and defend suits
against it, close its affairs, dispose and
convey its property and distribute assets
b. Cannot continue business for which it
was established
c. Can convey property to trustees for the
benefit of the stockholders/members,
creditors and other persons in interest
i. Legal interest vests in
business
ii. Beneficial interest remains
with stockholders/
members, creditors
d. Assets distributable to unknown
creditors, stockholders/ members,
persons in interest or those who cannot
be found shall be escheated to the city or
municipality where the assets are
located.
e. Distribution of assets only upon lawful
dissolution and payment of all debts and
liabilities.
Exceptions:
a. Decrease of capital stock
b. As otherwise allowed in the
Corporation Code
12. OTHER CORPORATIONS
A. Close Corporations
i. Characteristics of a close corporation
A close corporation, within the meaning of the
Corporation Code, is one whose articles of
incorporation provides that:
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 this Title
3. The corporation shall not list in any stock
exchange or make any public offering of any
of its stock of any class.
COMMERCIAL LAW
Notwithstanding the foregoing, a corporation shall
not be deemed a close corporation when at least
two-thirds (2/3) of its voting stock or voting rights
is owned or controlled by another corporation
which is not a close corporation within the
meaning of the Corporation Code. (Sec. 95)
Suppletory Effect
The provisions of other Titles of the Corporation
Code shall apply suppletorily except insofar as
Title of Close Corporation otherwise provides.
(Sec. 95)
Management of a close corporation
1. The articles of incorporation of a close
corporation may provide that the business of
the corporation shall be managed by the
stockholders of the corporation rather than by
a board of directors.
a. When they manage, stockholders are
liable as directors;
b. There is no need to call a meeting to elect
directors;
c. To the extent that the stockholders are
actively engaged in the management,
said stockholders shall be liable for
corporate torts unless the corporation
has obtained reasonably adequate
liability insurance.
Companies That Cannot Be Close
Corporations (MIPES-BOO)
a. Mining companies;
b. Insurance companies;
c. Public utilities;
d. Educational institutions;
e. Stock exchanges;
f. Banks;
g. Oil companies;
h. Other corporations declared to be vested with
public interest.
ii. Validity Of Restrictions On Transfers Of
Shares (Sec 97)
Restrictions on the right to transfer shares must
appear in:
1. The articles of incorporation;
2. The by-laws; and
3. In the certificate of stock
Otherwise, the same shall not be binding on any
purchaser thereof in good faith.
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Said restrictions shall not be more onerous than permitted under its articles of
granting the existing stockholders or the incorporation; or
corporation the option to purchase the shares of 3. that the transfer violates a restriction on
the transferring stockholder with such reasonable transfer of stock, and the corporation
terms, conditions or period stated therein. may, at its option, refuse to register the
transfer in the name of the transferee.
If upon the expiration of said period, the existing
stockholders or the corporation fails to exercise
(e) The provisions of subsection (d) shall not
the option to purchase, the transferring
be applicable if the transfer of stock, though
stockholder may sell his shares to any third
contrary to subsections (a), (b) or (c), has been
person.
consented to by all the stockholders of the close
corporation, or if the close corporation has
iii. Effects of Issuance or Transfer of Stock in
amended its articles of incorporation in
Breach of Qualifying Conditions.
accordance with this Title.
(a) If shares of stock of a close corporation
(f)
are issued or transferred to any person who is not
section, is not limited to a transfer for
eligible to be a holder thereof under any provision
value.
of the articles of incorporation, and if the
certificate for such stock conspicuously shows
(g) The provisions of this section shall not
the qualifications of the persons entitled to be
impair any right which the transferee may have to
holders of record thereof, such person is
either rescind the transfer or recover the stock
conclusively presumed to have notice of the
under any express or implied warranty. (Sec. 98)
fact of the ineligibility to be a stockholder.
Note: Even if the transfer of shares is made in
(b) If the articles of incorporation of a close
violation of the restrictions enumerated under
corporation states the number of persons, not
[Sec. 98 of RCC], such transfer is still valid if it
exceeding twenty (20), who are entitled to be
has been consented to by all the shareholders of
stockholders of record, and if the certificate for
the close corporation and the corporation cannot
such stock conspicuously states such number,
refuse to register the transfer of shares in the
and the issuance or transfer of stock to any
name of the transferee. (Florete, Sr. v. Florete,
person would cause the stock to be held by more
Jr., G.R. No. 223321, 2018)
than such number of persons, the person to
whom such stock is issued or transferred is
Need for factual determination of close
conclusively presumed to have notice of this
corporation to apply
fact.
Before courts can allow the operation of Section
98 to a case, there must first be a factual
(c) If a stock certificate of a close corporation
determination that the corporation is indeed a
conspicuously shows a restriction on transfer of
close corporation. There needs to be a
presentation of evidence on the relevant
acquires the stock in violation of such restriction,
restrictions in the articles of incorporation and by-
the transferee is conclusively presumed to have
laws of the corporation. (Rural Bank of Andaya v.
notice of the fact that the stock was acquired
Cabadbaran, G.R. No. 188769, 2016)
in violation of the restriction.
iv. When board meeting is unnecessary or
(d) Whenever a person to whom stock of a
improperly held (Sec. 100)
close corporation has been issued or transferred
has or is conclusively presumed under this
General Rule: Any action taken by the directors
section to have notice of:
without a board meeting shall be deemed
1.
INVALID.
stockholder of the corporation; or
2. that the transfer of stock would cause the Exception: The following shall nonetheless be
stock of the corporation to be held by valid despite the lack of a valid board meeting,
more than the number of persons unless the by-laws provide otherwise

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1. Before or after such action is taken, a vii. Deadlocks (Sec. 103)

written consent thereto is signed by all
the directors; or Power To Buy-Back Shares Of Close
2. All the stockholders have actual or Corporations v. Appraisal Right In Stock
implied knowledge of the action and Corporations
make no prompt objection in writing; or CLOSE CLOSE STOCK
3. The directors are accustomed to take CORP CORP CORP
informal action with the express or Sec. 103 Sec. 104
implied acquiescence of all the (Deadlocks) (Withdrawal)
stockholders; or Exercised by Exercised by Exercised by
4. All the directors have express or implied the the the
knowledge of the action in question and corporation stockholder stockholder
none of them makes a prompt objection There are
in writing. certain
Exercisable
Exercisable instances
An action within the corporate powers taken at only in a
for any where
a meeting held without proper call or notice, is deadlock
reason appraisal
deemed ratified by a director who failed to situation
rights can be
attend, unless after having knowledge thereof, exercised
the director promptly files his written objection
Can be
with the secretary of the corporation.
directed
Available Available
v. Pre-Emptive Rights Of Stockholders In either against
only against only against
Close Corporations (Sec 101) the
the the
corporation
corporation corporation
General Rule: It shall extend to all stock to be or any other
issued, including reissuance of treasury shares, stockholder
whether for money, property or personal services, Available Limited only Unrestricted
or in payment of corporate debts even without in a situation retained
unrestricted when the earnings are
Exception: Unless the articles of incorporation retained corporation required for
provide otherwise. earnings and has sufficient buyback to
not subject to assets in its happen,
vi. Amendment of the articles of incorporation
any formula books generally
(Sec. 102)

Any amendment to the articles of incorporation Compelling Dissolution In Close

which seeks to delete or remove any provision Corporations v. Stock Corporations
required by this Title or to reduce a quorum or CLOSE CLOSE STOCK
voting requirement stated in said articles of CORP CORP CORP
incorporation shall require the affirmative vote Sec. 104 Sec. 105
of at least two- thirds (2/3) of the outstanding SEC is given
capital stock, whether with or without voting express Majority of
rights, or of such greater proportion of shares as power to A stockholder the Board
may be specifically provided in the articles of
dissolve a must make a plus 2/3
incorporation for amending, deleting or removing
any of the aforesaid provisions, at a meeting duly close written stockholder
called for the purpose. corporation petition to the vote is
when there is dissolution required for
a deadlock dissolution
situation

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B. Non-Stock Corporations
i. 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
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, subject to the
provisions of this Title. (Sec. 86)
Requisites:
1. Does not have a capital stock divided into
share
2. No part of its income is distributable as
dividends to its member
3. They must be formed or organized for
purposes specified in Sec. 87
Conversion between Stock and Non-Stock
Corporation
A non-stock corporation cannot be converted into
a stock corporation through mere amendment of
its Articles of Incorporation as this would be in
violation of Section 87 which prohibits distribution
of income as dividends to members. (SEC
Opinion, 20 March 1995) However, a non-stock
corporation can be converted into a stock
corporation only if the members dissolve it first
and then organize a stock corporation. The result
is a new corporation. (SEC Opinion, 13 May
1992)
On the other hand, a stock corporation may be
converted into a non-stock corporation by mere
amendment provided all the requirements are
complied with. Its rights and liabilities will remain.
The incurring of profit or losses does not
determine whether an activity is for profit or non-
profit, and the courts will consider whether
dividends have been declared or its members or
that is property, effects or profit was ever used for
personal or individual gain, and not for the
purpose of carrying out the objectives of the
enterprise (Manila Sanitarium and Hospital v.
Gabuco, G.R. No. 13873, 1963).
In a mutual life insurance corporation, organized
as a non-stock nonprofit corporation, the so-
ved by members-
policyholders is not a portion of profits set aside
for distribution to the stockholders in proportion to
their subscription to the capital stock of a
corporation. One, a mutual company has no
capital stock to which subscription is necessary;
there are no stockholders to speak of, but only
members. And, two, the amount they receive
does not partake of the nature of a profit or
income. The quasi-appearance of profit will not
change its character; it remains an overpayment,
a benefit to which the member-policyholder is
equitably entitled (Republic v. Sunlife Assurance
Company of Canada, GR No. 158085, 2005).
Delinquency in Membership Dues of Non-
Stock Corporations
A non-stock corporation may seize and dispose
of the membership share of a fully-paid member
on account of his unpaid monthly dues, when
such corporation is authorized to do so under the
by-laws, even when no provision on the matter
appears in the articles of incorporation, and in
spite of the fact that Sec. 67 of Corporation Code
on delinquency sale pertains to payment of
shares subscription. (Valley Golf v. De Caram,
G.R. No. 155805, 2000)

Theory on Non-Stock Corporations

A non-stock corporation may only be formed or
organized for charitable, religious, educational,
professional, cultural, fraternal, literary, scientific,
social, civic or other similar purposes. It may not
engage in undertakings such as the investment
business where profit is the main or underlying
purpose. Although the non-stock corporation may
obtain profits as an incident to its operation such
profits are not to be distributed among its
members but must be used for the furtherance of
its purposes (People v. Menil, G.R. No. 115054-
66, 1999).

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Comparative Table: Stock v. Non-Stock explanation if its articles or by-laws provide for
Corporations more than 15 members of the Board. (Sec. 91)
STOCK CORP NON-STOCK CORP
Can they earn profit? Term
Trustees shall hold office for a period of three (3)
Yes Yes
years until their successors are elected and
Distribution of Dividends qualified (Sec. 91)
Yes No
Qualifications of Trustees
Stockholders Members Only ONE qualification under Sec. 92:
Limitation to Purpose Membership in the corporation. Nonetheless, the
May not include a member who may be elected as trustee may just
There can be purpose which would be a nominee. A trustee who ceases to be a
secondary purposes change or contradict member of the corporation can no longer act as a
trustee.
its nature in AOI
Kind of Board Note: An independent trustee of a non-stock
Board of Directors Board of Trustees corporation vested with public interest need not
Number of Board Members be a member of such non-stock corporation (Sec.
may be more than 15 91)
must not be more
EXC: special
than 15
corporations For stock corporations, the "quorum" referred to
Term of Board Members in Section 52 of the Corporation Code is based on
3 years, but AOI or the number of outstanding voting stocks. For
by-laws may provide nonstock corporations, only those who are actual,
otherwise living members with voting rights shall be counted
1 year in determining the existence of a quorum during
5 years - educational members' meetings. Dead members shall not be
Constant terms counted. (Tan v. Sycip, G.R. No. 153468 August
institutions
17, 2006)
Staggered terms
How Board Members are Elected ii. Purposes
A non-stock corporation may be formed or
Directly elected by
Elected by the organized for the following purposes:
the members, unless a. Charitable,
stockholders (per
AOI provides b. Religious,
Corp. Code)
otherwise c. Educational,
Manner of Voting d. Professional,
Straight voting, e. Cultural,
Straight or cumulative unless AOI or by- f. Recreation,
voting laws provide g. Fraternal,
otherwise h. Literary,
Can a stockholder/member disengage i. Scientific,
from the corporation? j. Social,
Can sell to other Articles or by-laws k. Civic Service,
stockholders OR specifically provide l. Similar purposes, like trade, industry,
exercise of appraisal for the method of agriculture and like chambers, or
rights termination m. Any combination of thereof (Sec. 87)

Number of Trustees In the Articles of Incorporation, a non-stock

A non-stock corporation may OR may not have corporation may not include a purpose which
more than 15 trustees. would change or contradict its nature as such.

NOTE: However, SEC has adopted a policy of

requiring registrant corporations to submit an

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iii. Treatment Of Profits
Non-stock non-profit corporations may actually
earn profits incidentally from its operations,
provided that the profits are devoted to their
purpose.
The mere fact that a non-stock corporation may
earn profit does not make it a profit-making
corporation, where such profit is used to carry out
the purposes set forth in the Articles of
Incorporation and is not distributed to its
incorporators, members, trustees, or officers.
(SEC Opinion, 13 November 1990, XXIV SEC
Quarterly Bulletin 63)
Note:
Despite its nomenclature, the essence of a non-
stock non-profit corporation is not the non-
existence of shares of stock to cover its capital (it
is legally possible for a corporation having capital
stock to still be considered a non-stock
corporation), but that:
a. Its primary purpose should be any of those
under Sec. 88 of the Corporation Code, and
b. There is a prohibition in the articles of
incorporation and by-laws that no part of the
income or any form of dividend is
distributable to the members, trustees, and
officers of the corporation (CIR v. Club
Filipino Inc. de Cebu, G.R. No. L-12719,
1962)
Even though the corporation
may incidentally earn profits
from its operations. (CIR v.
University of Visayas, G.R. No.
L-13554, 1961)
iv. Plan and Distribution of Assets upon
Dissolution
Rules of Distribution of Assets upon
Dissolution
The assets of a nonstock corporation undergoing
the process of dissolution for reasons other than
those set forth in Section 139 of the RCC (every
corporation whose charter expires pursuant to its
articles of incorporation, is annulled by forfeiture,
or whose corporate existence is terminated in any
other manner) shall be applied and distributed as
follows:
1. All liabilities and obligations of the
corporation shall be paid, satisfied and
discharged, or adequate provision shall
be made therefore;
COMMERCIAL LAW
2. Assets held by the corporation upon a
condition requiring return, transfer or
conveyance, and which condition occurs
by reason of the dissolution, shall be
returned, transferred or conveyed in
accordance with such requirements;
3. Assets received and held by the
corporation subject to limitations
permitting their use only for charitable,
religious, benevolent, educational or
similar purposes, but not held upon a
condition requiring return, transfer or
conveyance by reason of the dissolution,
shall be transferred or conveyed to one
or more corporations, societies or
organizations engaged in activities in the
Philippines substantially similar to those
of the dissolving corporation according to
a plan of distribution adopted pursuant to
this Chapter;
4. Assets other than those mentioned in the
preceding paragraphs, if any, shall be
distributed in accordance with the
provisions of the articles of incorporation
or the by-laws, to the extent that the
articles of incorporation or the by-laws,
determine the distributive rights of
members, or any class or classes of
members, or provide for distribution; and
5. In any other case, assets may be
distributed to such persons, societies,
organizations or corporations, whether or
not organized for profit, as may be
specified in a plan of distribution adopted
pursuant to this Chapter.(Sec. 93)
Plan of Distribution of Assets
A non-stock corporation in the process of
dissolution may adopt a plan providing for the
distribution of assets, not inconsistent with the
RCC, in the following manner:
1. The board of trustees shall, by majority
vote, adopt a resolution recommending a
plan of distribution and directing the
submission thereof to a vote at a regular
or special meeting of members having
voting rights;
2. Each member entitled to vote shall be
given a written notice setting forth the
proposed plan of distribution or a
summary thereof and the date, time and
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place of such meeting within the time and
in the manner provided in this Code for
the giving of notice of meetings; and
3. Such plan of distribution shall be adopted
upon approval of at least two-thirds (2/3)
of the members having voting rights
present or represented by proxy at such
meeting.
Note:
Although a non-stock corporation cannot
distribute incidental profits or dividends to its
members, trustees and officers during its
corporate term, in the event of dissolution, after
the payment of all liabilities and return of assets
received subject to limitations permitting their
use, the remaining assets may be distributed to
the members, as provided for in the articles of
incorporation of by-laws.
In the absence of distribution rules, the remaining
assets may be distributed to such persons,
societies, organizations, or corporations,
whether or not organized for profit, as may be
specified in a plan of distribution as adopted by
the Board of Trustees and ratified by the
members.
In a regular non-stock corporation it is possible for
operations, to inure to the benefit of private
individuals (e.g., its own members) or entities,
but only as a consequence of dissolution.
Suppletory Effect
The provisions governing stock corporation,
when pertinent, shall be applicable to non-stock
corporations, except as may be covered by
specific provisions of this Title.
C. Educational Corporations
Educational corporations shall be governed by:
1.
2. General provisions of the Revised
Corporation Code (Sec. 105)
Board of Trustees of Educational
Corporations
Trustees of educational institutions organized as
nonstock corporations shall not be less than five
(5) nor more than fifteen (15): Provided, That the
number of trustees shall be in multiples of five
(5).(Sec 106)
COMMERCIAL LAW
Term of Office
Unless otherwise provided in the articles of
incorporation or bylaws, the board of trustees of
incorporated schools, colleges, or other
institutions of learning shall, as soon as
organized, so classify themselves that the term of
office of one- fifth (1/5) of their number shall
expire every year. Trustees thereafter elected to
fill vacancies, occurring before the expiration of a
particular term, shall hold office only for the
unexpired period. Trustees elected thereafter to
fill vacancies caused by expiration of term shall
hold office for five (5) years. (Sec. 106)
Note: For institutions organized as stock
corporations, the number and term of directors
shall be governed by the provisions on stock
corporations.(Sec. 106)
Quorum
A majority of the trustees shall constitute a
quorum for the transaction of business. The
powers and authority of trustees shall be defined
in the bylaws.(Sec. 106)
1987 Constitution Provisions
shall give priority to education [...] to foster
patriotism and nationalism, accelerate social
progress, and promote total human liberation and
Article XIV, Sec. 4 of the Constitution requires:
1. That educational institutions shall be:
a. Solely owned by Filipino
citizens; OR
b. If owned by a corporation, at
least 60% of the capital must be
owned by Filipino citizens.
2. The control and administration shall be
vested in citizens of the Philippines.
3. No educational institution shall be
established exclusively for aliens. The
60% ownership requirement does not
apply to the following:
a. Educational institutions
established by religious groups
and mission boards;
b. Schools established for foreign
diplomatic personnel and their
dependents;
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c.Other foreign temporary
residents (unless otherwise
provided by law)
4. No group of aliens shall comprise more
D. Religious Corporations
i. Corporation Sole; Nationality
Special form of corporation, usually associated
with the clergy and consists of one person only
and his successors, who are incorporated by law
to give some legal capacities and advantages.
A corporation sole does not have any nationality
but for purposes of applying our nationalization
laws, nationality is determined by the nationality
of the members (Roman Catholic Apostolic
Church v. LRC, G.R. No. 8451, 1957).
Composition
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, for the purpose of
administering and managing, as trustee, the
affairs, property and temporalities of any religious
denomination, sect or church.
Articles of Incorporation: Contents
In order to become a corporation sole, the chief
archbishop, bishop, priest, minister, rabbi, or
presiding elder of any religious denomination,
sect or church must file with the SEC articles of
incorporation setting forth the following:
1. That the applicant chief archbishop,
bishop, priest, minister, rabbi, or
presiding elder represents the religious
denomination, sect or church which
desires to become a corporation sole;
2. That the rules, regulations and discipline
of the religious denomination, sect or
church are consistent with becoming a
corporation sole and do not forbid it;
3. That such chief archbishop, bishop,
priest, minister, rabbi, or presiding elder
is charged with the administration of the
temporalities and the management of the
affairs, estate and properties of the
religious denomination, sect, or church
within the territorial jurisdiction, so
described succinctly in the articles of
incorporation
COMMERCIAL LAW
4. The manner by which any vacancy
occurring in the office of chief
archbishop, bishop, priest, minister,
rabbi, or presiding elder is required to be
filled, according to the rules, regulations
or discipline of the religious
denomination, sect or church; and
5. The place where the principal office of the
corporation sole is to be established and
located, which place must be within the
territory of the Philippines.
6. The articles of incorporation may include
any other provision not contrary to law for
the regulation of the affairs of the
corporation. (Sec. 109)
Note: The articles must be verified by affidavit or
affirmation of presiding elder. Document that
such presiding elder was duly elected or
appointed as such and this document must be
certified by notary public. (Sec. 110)
Acquisition and Alienation of Property
A corporation sole may purchase and hold real
estate and personal property for its church,
charitable, benevolent, or educational purposes,
and may receive bequests or gifts for such
purposes. (Sec. 111)
Such corporation may sell or mortgage real
property held by it by obtaining an order for that
purpose from the Regional Trial Court of the
province where the property is situated upon
proof that the notice of the application for leave to
sell or mortgage has been made through
publication or as directed by the Court, and that it
is in the interest of the corporation that leave to
sell or mortgage be granted. (Sec. 111)
Note: In cases where the rules, regulations, and
discipline of the religious denomination, sect or
church, religious society, or order concerned
represented by such corporation sole regulate the
method of acquiring, holding, selling, and
mortgaging real estate and personal property,
such rules, regulations and discipline shall
govern, and the intervention of the courts shall not
be necessary. (Sec. 111)
The doctrine in Republic v. Villanueva (G.R. No.
55418-19, 1982) and Republic v. Iglesia ni Cristo
(G.R. No. 180067, 1984), that a corporation
sole is disqualified to acquire/hold alienable
lands of the public domain, because of the
constitutional prohibition qualifying only
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individuals to acquire land and the provision
under the Public Land Act which applied only to
Filipino citizens or natural persons, has been
expressly overturned in Director of Lands v.
IAC (G.R. No. 66575 1986).
A registered corporation sole can acquire land if
its members constitute at least 60% Filipinos.
(SEC Opinion, 8 August 1994)
Dissolution of a Corporation Sole
A corporation sole may be dissolved and its
affairs settled voluntarily by submitting to the SEC
a verified declaration of dissolution, setting forth:
1. The name of the corporation;
2. The reason for dissolution and winding
up;
3. The authorization for the dissolution of
the corporation by the particular religious
denomination, sect or church; and
4. The names and addresses of the
persons who are to supervise the winding
up of the affairs of the corporation.
Upon approval of such declaration of dissolution
by the SEC, the corporation shall cease to carry
on its operations except for the purpose of
winding up its affairs. (Sec. 113)
E. One Person Corporations
i. Excepted Corporations
The following are not allowed to incorporate as
OPC:
a. Banks,
b. Non-bank financial institutions,
c. Quasi-banks,
d. Pre-need,
e. Trust,
f. Insurance public and publicly listed
companies,
g. Non-chartered GOCCs; and
h. Natural person who is licensed to
exercise a profession may not organize
an OPC for the purpose of exercising
such a profession. EXC: unless
otherwise provided by special laws. (Sec.
116)
ii. Capital stock requirement (Sec. 117)
General Rule: A One Person Corporation is not
required to have a minimum authorized capital
stock.
COMMERCIAL LAW
Exception: As otherwise provided by special
law.
Note: Unless required by applicable laws or
regulations, no portion of the authorized capital is
required to be paid up at the time of incorporation.
(SEC Circular No. 7, Series of 2019)
iii. Articles of incorporation and by-laws
Requirements for filing the Articles of
Incorporation:
i. In accordance with Sec. 14 of the RCC.
ii. If the single stockholder is a trust or an
estate - the name, nationality, and
residence of the trustee, administrator,
executor, guardian, conservator,
custodian, or other person exercising
fiduciary duties together with the proof
of such authority to act on behalf of the
trust or estate
iii. Name, nationality, residence of the
nominee and alternate nominee, and
the extent, coverage and limitation of
the authority. (Sec. 118)
Note: OPCs are NOT required to file their
corporate bylaws. (Sec. 119)
iv. Corporate name
It should Indicate the
or at the end of their corporate name. (Sec. 120)
v. Corporate structure and officers
One Person Corporation (OPC) (Sec. 116)
- a corporation with a single stockholder
Who may form?
1. Natural person must be of legal age
a. A foreign natural person may
put up an OPC subject to
applicable capital requirement
and constitutional and statutory
restrictions on foreign
participation in certain
investment areas or activities
(SEC Memorandum 7-2019)
b. Trust does not refer to a trust
entity, but the subject being
managed by a trustee. If the
single stockholder is a trustee,
administrator, executor,
guardian, conservator,
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custodian, or other person BOND REQUIREMENT as per SEC

exercising fiduciary duties Memorandum 7-2019:
i. proof of authority to act on ACS Surety Bond
behalf of the trust or estate Coverage
must be submitted at the 1 to 1,000,000 1,000,000
time of incorporation (SEC 1,000,001 to 2,000,000 2,000,000
Memorandum 7-2019) 2,000,001 to 3,000,000 3,000,000
c. Estate 3,000,001 to 4,000,000 4,000,000
4,000,001 to 5,000,000 5,000,000
Who may NOT form?
5,000,001 and above Equal to the
1. Banks and quasi-banks, non-bank
financial institutions (SEC Memorandum
7-2019)
2. Pre-need, trust, insurance, public and Bond shall be renewed every two (2)
publicly-listed companies years or as often as may be required,
3. Non-chartered government-owned and - upon review of the Audited Financial
controlled Statements/ Financial Statements
4. Natural person who is licensed to certified under oath by the
exercise a profession to form an OPC for
the purpose of exercising such Bond is a continuing requirement as
profession long as the single stockholder is the
self-appointed Treasurer of the OPC
Exception: as provided under special laws Bond may be cancelled upon proof of
appointment of another person as
The single stockholder shall be the sole director the Treasurer and Filing of Amended
and president of the One Person Corporation. Form for Appointment of Officers
(Sec. 121) 2. Undertake in writing to faithfully

When to appoint officers? (Sec. 122) funds to be received as treasurer

Within fifteen (15) days from the issuance of its 3. To disburse and invest the same
certificate of incorporation according to the articles of incorporation
as approved by the SEC
Who to appoint?
a. Treasurer Special Functions of the Corporate
b. Corporate secretary Secretary(Sec. 123)
c. Other officers as may be deemed necessary In addition to the functions designated by the One
Person Corporation, the corporate secretary
Who and when to notify? shall:
Securities and Exchange Commission (SEC) 1. Be responsible for maintaining the
- within five (5) days from appointment minutes book and/or records of the
- using the Appointment Form as may be corporation
prescribed by the SEC (SEC Memorandum 2. Notify the nominee or alternate
7-2019) nominee of the death or incapacity of the
single stockholder
Single stockholder allowed? i. notice shall be given no
- Corporate secretary NO later than five (5) days from
- Treasurer YES such occurrence
- Conditions: 3. Notify the SEC of the death of the
1. Give bond to the SEC in such a sum single stockholder
as may be required i. within five (5) days from
such occurrence
ii. state the names, residence
addresses, and contact
details of all known legal
heirs

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4. Call the nominee or alternate 2. Death or Permanent - until the legal heirs
nominee and the known legal heirs to a of the single stockholder have been lawfully
meeting and advise the legal heirs with determined, and the heirs have designated one of
regard to: them or have agreed that the estate shall be the
i. the election of a new single stockholder of the One Person Corporation
director
ii. amendment of the articles Alternate Nominee
of incorporation - shall sit as director and manage the One
iii. other ancillary and/or
consequential matters inability, incapacity, death, or refusal to
discharge the functions as director and
manager of the corporation
vi. Nominee
- for the same term and under the same
1. designated by a single stockholder
conditions applicable to the nominee
2.
death or incapacity, nominee takes the
Minimum Capital Stock Required for One
place of the single stockholder as director
Person Corporation (Sec. 117)
affairs
General rule: No minimum authorized capital
3. written consent of both nominee and
stock
alternate nominee (SEC Memorandum 7-
2019) to be attached in the application
Exception: as otherwise provided by special law
of incorporation
a. may be withdrawn in writing any
Required Paid Up Capital (SEC Memorandum
time before the death or
7-2019)
incapacity of the single
stockholder
General rule: No portion of authorized capital
4. may be changed at any time
stock is required to be paid up at the time of
a. by submitting to the SEC the
incorporation
names of the new nominees and
their corresponding written
Exception: as otherwise required by applicable
consent
laws or regulations
b. Articles of Incorporation need
NOT be amended (SEC
vii. Minutes and records
Memorandum 7-2019)
A One Person Corporation shall maintain a
minutes book which shall contain all actions,
What shall be contained in articles of
decisions, and resolutions taken by the One
incorporation with regard to the nominee and
Person Corporation. (Sec. 127)
alternate nominee?
a. names
When action is needed on any matter, it shall be
b. residence addresses
sufficient to prepare a written resolution, signed
c. contact details
and dated by the single stockholder, and
d. extent and limitations of their authority in
recorded in the minutes book of the One Person
managing the affairs of the One Person
Corporation. The date of recording in the minutes
Corporation.
book shall be deemed to be the date of the
meeting for all purposes under this Code. (Sec.
Term of Nominee and Alternate Nominee (Sec.
128)
125)
viii. Liability (Sec. 130)
Incapacity of the single stockholder:
1. Temporary - until the stockholder, by self
A sole shareholder claiming limited liability has
determination, regains the capacity to assume
the burden of affirmatively showing that:
such duties.
1. the corporation was adequately financed.

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2. the property of the One Person
Corporation is independent of the
The principles of piercing the corporate veil
applies with equal force to One Person
Corporations as with other corporations
ix. Conversion of corporation to OPC and
vice-versa
Conversion from an Ordinary Corporation to
a OPC (Sec. 131)
When a single stockholder acquires all the stocks
of an ordinary stock corporation, the latter may
apply for conversion into a OPC, subject to the
submission of such documents as the SEC may
require. If the application for conversion is
approved, the SEC shall issue certificate of filing
of amended articles of incorporation reflecting the
conversion.
Conversion from an OPC to an Ordinary Stock
Corporation (Sec. 132)
A One Person Corporation may be converted into
an ordinary stock corporation after due notice to
the SEC of such fact and of the circumstances
leading to the conversion, and after compliance
with all other requirements for stock corporations
under this Code and applicable rules. Such notice
shall be filed with the SEC within sixty (60) days
from the occurrence of the circumstances leading
to the conversion into an ordinary stock
corporation. If all requirements have been
complied with, the SEC shall issue an amended
certificate of incorporation reflecting the
conversion.
In case of death of the single stockholder, the
nominee or alternate nominee shall transfer the
shares to the duly designated legal heir or estate
within seven (7) days from receipt of either an
affidavit of heirship or self- adjudication executed
by a sole heir, or any other legal document
declaring the legal heirs of the single stockholder
and notify the SEC of the transfer. Within sixty
(60) days from the transfer of the shares, the legal
heirs shall notify the SEC of their decision to
either wind up and dissolve the One Person
Corporation or convert it into an ordinary stock
corporation.
Note: The Converted Corporations shall succeed
the former corporation and be legally responsible
COMMERCIAL LAW
date of conversion.
F. Foreign Corporations
A corporation formed, organized or existing under
any law other than those of the Philippines, and
whose laws allow Filipino citizens and
corporations to do business in its own country or
state. (Sec. 140)
A foreign corporation is one which owes its
existence to the laws of another state, and
generally, has no legal existence within the state
in which it is foreign (Avon Insurance PLC v.
Court of Appeals, G.R. No. 97642, 1997).
A fundamental rule of international jurisdiction is
that no state can by its laws, and no court which
is only a creature of the state, can by its
judgments and decrees, directly bind or affect
property or persons beyond the limits of that state
(Time, Inc. v. Reyes, GR No. 28882, 1971).
i. Bases of Authority over Foreign
Corporations
1. Consent - It is the voluntary surrender of
jurisdiction over its person in a pending suit
before the host state (Salonga, Private
International Law, 1979 ed., p.344).
Corporations - Continuity of commercial
dealings incident to prosecution of purpose and
object of the organization. Isolated, occasional or
casual transactions do not amount to engaging in
business. But where the isolated act is not
incidental/casual but indicates the foreign
corpo
single act constitutes engaging in business in the
Philippines.
a. Isolated Transactions Test: where a foreign
corporation needs to obtain a license and
fails to do so, whether it should be denied
legal standing to obtain remedies from local
courts and administrative agencies or not,
depends therefore on the issue whether it will
engage in business in the Philippines. Not
every activity undertaken in the Philippines
amounts to doing business as to require a
foreign corporation to obtain such license.
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Single or isolated acts, contracts, or transactions
of foreign corporations are not regarded as a
doing or carrying on of business. Typical
examples of these are the making of a single
contract, sale, sale with the taking of a note and
mortgage in the state to secure payment thereof,
purchase, or note, or the mere commission of a
tort. In these instances, there is no purpose to do
any other business within the country (MR.
Holdings, Ltd. V. Bajar, G.R. No. 138104, 2002).
BUT: Where a single act or transaction is not
merely incidental or casual but indicates the
foreign corporation's intention to do other
business in the Philippines, said single act or
transaction constitutes doing business (Far East
Int'l. v. Nankai Kogyo, G.R. No. 13525, 1962).
Need to Allege: The fact that a foreign
corporation is not doing business in the
Philippines must be alleged, if a foreign
corporation desires to sue in Philippines courts
(Atlantic
Mutual Inc. Co. v. Cebu Stevedoring Co., G.R.
No. 18961, 1966); if not alleged, it can be
dismissed for lack of capacity to sue by the
plaintiff (Commissioner of Customs v. K.M.K.
Gani, G.R. No. 73722, 1990).
b. Twin Characterization Test (Mentholatum
Co. Inc v. Mangaliman G.R. No. 47701, 1941)
Substance Test: Consider the body or
substance of the business or the enterprise for
which it was ORGANIZED or whether it has
substantially retired from it and turned it over to
another.
Continuity Test: That doing business implies a
continuity of commercial dealings and
arrangements and contemplates, to that extent,
the performance of acts or works or the exercise
of some of the functions normally incidental to,
and in progressive prosecution of, the purpose
and object of its organization.
Taken together, DOING BUSINESS in the
Philippines must cover transactions and series of
transactions in pursuit of the main business goals
of the corporation and done with the intent to
continue the same in the Philippines.
c. Contract Test: if the salient points of a
contract do not find themselves in the
Philippines, Philippine authorities have no
COMMERCIAL LAW
business subjecting the parties to local
registration and licensing requirements
(Pacific Vegetable Oil Corp. v Singzon, G.R.
No. 7917, 1955)
Investment Act and IRR
- Includes:
a. Soliciting orders, service contracts, opening
branches;
b. Appointing representatives or distributors
domiciled in the Philippines;
Note
but not when the
(Alfred Hahn
v. CA, G.R. No.113074, 1997)
c. Participating in the management,
supervision, or control of any domestic
business, firm, entity, or corporation in the
Philippines; and
d. Any other act or acts that imply a continuity of
commercial dealings or arrangements, and
contemplate to that extent the performance of
acts or works, or the exercise of some of the
functions normally incident to, and in
progressive prosecution of, commercial gain
or of the purpose and object of the business
organization
Note:
Pioneer International for soliciting orders and
service contracts in the performance of acts that
imply continuity of commercial dealings. Pioneer
to employ Todaro to run its pre-mixed concrete
operations in the Philippines, which acts are
motion to dismiss, are not mere acts of a passive
investor in a domestic corporation. Such are
managerial and operational acts in directing and
establishing commercial operations in the
Philippines. (Pioneer International, LTD v.
Guadiz, G.R. No. 156848, 2007)
Does Not Include:
a. Mere investment as a shareholder by a
foreign entity in domestic corporations duly
registered to do business, and/or the exercise
of rights as such investor;
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b. Having a nominee director or officer to
represent its interests in such corporation;
c. Appointing a representative or distributor
domiciled in the Philippines which transacts
business in its own name and for its own
account;
d. The publication of a general advertisement
through any print or broadcast media;
e. Maintaining a stock of goods in the
Philippines solely for the purpose of having
the same processed by another entity in the
Philippines;
f. Consignment by a foreign entity of equipment
with a local company to be used in the
processing of products for export;
g. Collecting information in the Philippines; and
h. Performing services auxiliary to an existing
isolated contract of sale which are not on a
continuing basis, such as Installing in the
Philippine machinery it has manufactured or
exported to the Philippines, servicing the
same, training domestic workers to operate it,
and similar incidental services.
No foreign corporation transacting business in the
Philippines without a license, or its successors or
assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines;
but such corporation may be sued or proceeded
against before Philippine courts or administrative
tribunals on any valid cause of action recognized
under Philippine laws (Lorenzo Shipping Corp. v.
Chubb & Sons, Inc., et al., G.R. No. 147724,
2004).
ii. Necessity of a License to Do Business:
To place them under the jurisdiction of
the courts
To place them in the same footing as
domestic corporations
Protection for the public in dealing with
said corporations.
1. Requisites for Issuance of License
A foreign corporation applying for a license to
transact business in the Philippines shall submit
to the SEC the following:
1. A copy of its articles of incorporation and
bylaws, certified in accordance with law and
their translation to an official language of the
Philippines, if necessary.
COMMERCIAL LAW
2. The application shall be under oath and shall
specifically set forth the following:
a. The date and term of incorporation;
b. The address, including the street
number, of the principal office of the
corporation in the country or State of
incorporation;
c. The name and address of its resident
agent authorized to accept summons
and process in all legal proceedings
and all notices affecting the
corporation, pending the
establishment of a local office;
d. The place in the Philippines where
the corporation intends to operate;
e. The specific purpose or purposes
which the corporation intends to
pursue in the transaction of its
business in the Philippines:
Provided, That said purpose or
purposes are those specifically
stated in the certificate of authority
issued by the appropriate
government agency;
f. The names and addresses of the
present directors and officers of the
corporation;
g. A statement of its authorized capital
stock and the aggregate number of
shares which the corporation has
authority to issue, itemized by class,
par value of shares, shares without
par value, and series, if any;
h. A statement of its outstanding capital
stock and the aggregate number of
shares which the corporation has
issued, itemized by class, par value
of shares, shares without par value,
and series, if any;
i. A statement of the amount actually
paid in; and
j. Such additional information as may
be necessary or appropriate in order
to enable the Commission to
determine whether such corporation
is entitled to a license to transact
business in the Philippines, and to
determine and assess the fees
payable.
3. The application shall be accompanied by the
following:
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a. A certificate under oath duly
executed by the authorized official or
officials of the jurisdiction of its
incorporation, attesting to the fact
that the laws of the country or State
of the applicant allow Filipino citizens
and corporations to do business
therein, and that the applicant is an
existing corporation in good
standing. If the certificate is in a
foreign language, a translation
thereof in English under oath of the
translator shall be attached to the
application.
b. A statement under oath of the
president or any other person
authorized by the corporation,
showing to the satisfaction of the
Commission and when appropriate,
other governmental agencies that
the applicant is solvent and in sound
financial condition, setting forth the
assets and liabilities of the
corporation as of the date not
exceeding one (1) year immediately
prior to the filing of the application.
4. Foreign banking, financial, and insurance
corporations shall, in addition to the above
requirements, comply with the provisions of
existing laws applicable to them.
5. In the case of all other foreign corporations,
no application for license to transact business
in the Philippines shall be accepted by the
Commission without previous authority from
the appropriate government agency,
whenever required by law. (Sec. 142)
2. Resident Agent
Who may be a Resident Agent
a. Individual residing in the Philippines of
good moral character and of sound
financial standing
b. Domestic corporation lawfully transacting
business in the Philippines, with a sound
financial standing and must show proof
that it is in good standing as certified by
the SEC (Sec. 144)
COMMERCIAL LAW
Service of Process upon a Foreign
Corporation Through A Resident Agent
Before a foreign corporation can be issued a
license to transact business in the Philippines,
such corporation must first file with the SEC
1. A written power of attorney designating some
person who must be a resident of the
Philippines, on whom any summons and
other legal processes may be served in all
actions or other legal proceedings against
such corporation;
2. Consent that service upon such resident
agent shall be admitted and held as valid as
if served upon the duly authorized officers of
the foreign corporation at its home office.
a. Whenever such service of summons
or other process is made upon the
SEC, it must, within 10 days
thereafter, transmit by mail a copy of
such summons or other legal
process to the corporation at its
home or principal office. When SEC
sends such copy, it shall constitute a
necessary part of and shall complete
such service
b. In case of a change of address of the
resident agent, it shall be his or its
duty to immediately notify the SEC in
writing. (Sec. 145)
3. Amendment of license (Sec. 148)
A foreign corporation authorized to transact
business in the Philippines shall obtain an
amended license in the event it changes its
corporate name, or desires to pursue other or
additional purposes in the Philippines, by
submitting an application with the Commission,
favorably endorsed by the appropriate
government agency in the proper cases.
Amendment of the Articles of Incorporation or
By-laws of Foreign Corporations
Sixty (60) days after the effectivity of the
amendment of the articles of incorporation or
bylaws of a foreign corporation authorized to
transact business in the Philippines, such foreign
corporation shall, file with the Commission, and in
the proper cases, with the appropriate
government agency, a duly authenticated copy of
the amended articles of incorporation or bylaws,
indicating clearly in capital letters or underscoring
the change or changes made, duly certified by the
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authorized official or officials of the country or rights, may sue in trademark or service mark
State of incorporation. enforcement action (Sehwani Inc v. In-n-Out
Burger, G.R. No. 171053, 2007).
Such filing shall not in itself enlarge or alter the
purpose or purposes for which such corporation Rules Regarding A Foreign
is authorized to transact business in the Right to Bring Suit in the Philippines
Philippines. (Sec. 147) FOREIGN CORP CAN FC SUE IN PH?
STATUS
iii. Personality to Sue Doing business in
Section 35 enumerates the express powers of a Cannot sue before
Philippines without a
Philippine courts
license
ability to sue and be sued. Can sue before
Philippine courts on
The power of the corporation to sue and be sued an isolated
in any court is lodged with the board of directors Not doing business in transaction or on a
that exercises its corporate powers. (Bitong v. the Philippines cause of action
CA, G.R. No. 123553, 1998) entirely independent
of any business
iv. Suability of Foreign Corporations transaction
Doing business in the
Every foreign corporation Philippines without a
Doing business in the Philippines with a license, but Philippine
license may sue and can be sued in the Can sue before
citizen or entity has
Philippines Philippine courts due
contracted with said
Doing business in the Philippines without a to estoppel
corporation or derived
license cannot sue, but may be sued in the benefits from the
Philippines Foreign Corporation
Not doing business in the Philippines, or on Doing business in the Can sue before
isolated transactions may sue and can be Philippines and has Philippine courts on
sued (if jurisdiction can be acquired) the required license any transaction
(Agilent Technologies v. Integrated Silicon, G.R.
v. Instances When Unlicensed Foreign No. 154618, 2004)
Corporations May Be Allowed To Sue:
a. Isolated transactions; Capability to Sue and Suability of Foreign
b. Action to protect good name, goodwill, Corporations W/N Doing Business
and reputation of a foreign corporation; NOT DOING
DOING BUSINESS IN
c. The subject contracts provide that BUSINESS IN
PHILIPPINES
Philippine Courts will be venue to PHILIPPINES
controversies; Isolated
Licensed Unlicensed
d. A license subsequently granted enables Transactions
the foreign corporation to sue on Yes, can sue;
contracts executed before the grant of
NO, cannot EXC: if
the license (Eriks Ltd. v. Court of
sue; transactions
Appeals, G.R. No. 118843, 1997); YES, can
exhibits intent to
e. Recovery of misdelivered property; sue
EXC: do business,
f. Where the defendant is estopped. estoppel Foreign
Corporation needs
The Intellectual Property Code provides that any license to sue
foreign corporation not engaged in business in YES, can be sued
the Philippines and a national of a country which
is a party to any convention, treaty or agreement YES, can
Qualifier: as long as summons
relating to intellectual property rights or the be sued
were properly served (to acquire
repression of unfair competition, to which the jurisdiction)
Philippines is also a party or extends reciprocal

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vi. Grounds for Revocation of License 13. MERGER AND CONSOLIDATION

Section 151 provides that the SEC may cancel A. Definition and Concept
the certificate or license of a foreign corporation
on any of the following grounds: Merger
a. Failure to file its annual report or pay any A union whereby one or more existing
fees as required by Code; corporations are absorbed by another corporation
b. Failure to appoint and maintain a resident that survives and continues the combined
agent; business (Villanueva, 2018).
c. Failure to inform SEC of the change of
Consolidation
address; The union of two or more existing corporations. A
new corporation is created, and consolidating
d. Failure to submit a copy of amended
corporations are extinguished. (PNB v. Andrada
articles of incorporation or by- laws; or Electric & Engineering Co., G.R. No. 142936,
articles of merger or consolidation; [April 17, 2002], 430 PHIL 882-903)
e. A misrepresentation of any material
matters in reports; MERGER CONSOLIDATION
f. Failure to pay any and all taxes, imposts, A corporation A NEW corporation is
assessments or penalties; ABSORBS another created, and
g. Engaged in a business not authorized by corporation and constituent
SEC; REMAINS IN corporations are
h. Acting as a dummy of a foreign EXISTENCE while EXTINGUISHED.
corporation not licensed to do business in the other is
the Philippines; or DISSOLVED
i. Any other ground as would render it unfit
to transact business in the Philippines. The power to merge or consolidate is not within
the inherent powers of the corporation.
Therefore, it must be expressly granted by law.
Law applicable to Foreign Corporations (Sec.
146)
Merger or consolidation does not become
effective by mere agreement of the constituent
A foreign corporation lawfully doing business in
corporations. The approval of the SEC is required
the Philippines shall be bound by all laws, rules
(PNB v. Andrada Electric & Engr. Co., Inc., G.R.
and regulations applicable to domestic
No. 142936, 2002)
corporations of the same class, except:
1. those which provide for the creation,
Mere Acquisition/Transfer (3 Levels)
formation, organization or dissolution of
Merger/ Consolidation Transfer of
corporations or
Property
2. those which fix the relations, liabilities,
Loss of separate No loss of
responsibilities, or duties of stockholders, existence by the separate
members, or officers of corporations to absorbed corporation (in existence
each other or to the corporation. mergers) or the
constituent corporations
(in consolidation)

1) Assets-Only Level.
General Rule: A corporation that purchases
the assets of another will not be liable for the
debts and liabilities of the selling corporation
provided the former acted in good faith.
Except, when the following circumstances
are present:
1. where the purchasers expressly or
impliedly agrees to assume the debts

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2. where the selling corporation fraudulently
enters into the transactions to escape
liability for those debts
3. where the purchasing corporation is
merely a continuation of the selling
corporation
4. where the transaction amounts to a
consolidation or merger of the
corporations
(Edward J. Nell Co. v Pacific Farms Inc., G.R.
No. L-20850, 1965)
2) Business Enterprise Level. Purchase of
substantially all the assets of the corporation
(ability to do
business and make money, goodwill,
clientele, stock-in-trade, etc). There is case
law, based on equity, that holds the
transferee liable for the debts and
liabilities of the transferor.
from the liabilities of the transferor is binding
only between them and cannot prejudice
creditors who are not parties thereto. (Y-I
Leisure Philippines, Inc. et al. v James Yu,
G.R. No. 207161, 2015)
Note: The sale under [Sec. 39] does not
contemplate an ordinary sale of all corporate
assets; the transfer must be of such degree that
the transferor corporation is rendered incapable
of continuing its business or its corporate
purpose. (Y-I Leisure Philippines, Inc. et al. v
James Yu, G.R. No. 207161, 2015)8
However, not every transfer of the entire
corporate assets would qualify under Section
[39]. It does not apply:
(1) if the sale of the entire property and
assets is necessary in the usual and
regular course of business
corporation, or
(2) if the proceeds of the sale or other
disposition of such property and assets
will be appropriated for the conduct of its
remaining business.
Philippines, Inc. et al. v James Yu, G.R. No.
207161, 2015)
3) Equity Level. Purchaser 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.
In order to transfer ownership of shares of stock
not traded in the Stock Exchange, it is necessary
to secure a Certificate of Authorizing Registration
(CAR) pursuant to the process laid down in RMO
No. 15-03. The receipts of the payment of the tax
should also be filed with and recorded by the
secretary of the corporation pursuant to Section
11 of RR. No. 06-08.
B. Constituent and consolidated
corporations
ee Constituent Consolidated
Corporations Corporation
The corporations that The corporation
shall cease to exist after formed after the
joining together through consolidation of
consolidation (Bank of two constituent
Commerce v. Radio corporations
Philippines Network, Inc.,
G.R. No. 195615, [April
21, 2014], 733 PHIL 491-
581)
The names of the
corporations proposing to
merge or consolidate,
hereinafter referred to as
the constituent
corporations;
The constituent corporations shall become a
of single corporation which, in case of merger, shall
be the surviving corporation designated in the
plan of merger; and, in case of consolidation,
shall be the consolidated corporation designated
in the plan of consolidation

Thus, the litmus test to determine the applicability

of Section [39] would be the capacity of the
corporation to continue its business after the sale
of all or substantially all its assets.(Y-I Leisure

8 Please refer to the Net Asset Value Test and the

Incapacity Test in p. 123

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C. Plan of Merger or Consolidation (Sec.
75)
The plan of merger or consolidation shall set forth
the ff:
1) The names of the constituent
corporations;
2) The terms of the merger or consolidation
and the mode of carrying the same into
effect;
3) A statement of the changes, if any, in the
articles of incorporation of the
surviving corporation in case of merger;
and, in case of consolidation, all the
statements required to be set forth in the
articles of incorporation for corporations
organized under this Code; and
4) Such other provisions with respect to
the proposed merger or consolidation as
are deemed necessary or desirable.
Note: The plan of merger has to be approved by
majority of the board of each constituent
corporation; it has to be approved by affirmative
vote of stockholders representing of the
outstanding capital stock or of the members in
case of a non-stock corporation.
D. Articles of Merger or Consolidation
(Sec. 78)
The articles must be signed by the president or
vice president and certified by the secretary or
assistant secretary setting forth:
1) The plan of the merger or the plan of
consolidation;
2) As to stock corporations, the number of
shares outstanding, or in the case of non-
stock corporations, the number of members;
3) As to each corporation, the number of shares
or members voting for or against such plan,
respectively;
4) The carrying amounts and fair values of the
assets and liabilities of the respective
companies as of the agreed cut-off date;
5) The method to be used in the merger or
consolidation of accounts of the companies;
6) The provisional or pro-forma values, as
merged or consolidated, using the
accounting method; and
7) Such other information as may be prescribed
by the SEC.
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E. Procedure of Consolidation or Merger
STEP 1: Drawing up of the Plan of Merger or
Consolidation (Sec. 75)
The board of constituent corporations shall draw
up a plan of merger or consolidation. It shall
contain the following:
a. The names of the constituent
corporations;
b. The terms of the merger or
consolidation and the mode of
carrying the same into effect;
c. A statement of the changes, if any, in
the articles of incorporation of the
surviving corporation in case of
merger; and, in case of
consolidation, all the statements
required to be set forth in the articles
of incorporation for corporations
organized under this Code; and
d. Such other provisions with respect
to the proposed merger or
consolidation as are deemed
necessary or desirable.
STEP 2: Board Approval (Sec. 75)
The plan of merger or consolidation shall be
approved by majority vote of each of the boards
of the corporations involved at separate
meetings;
(Sec. 76)
1. Notice of such meeting should be given
to all stockholders or members at least 1
week before the meeting.
2. The plan has to be approved by a vote of
outstanding capital stock, if a stock
non- stock corporation.
3. Dissenting stockholders may exercise
their right of appraisal. However, if the
board abandons the plan, such right is
extinguished.
4. Any amendment to the plan must be
approved by the same votes of the board
members or trustees and stockholders or
members required for the original plan.
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STEP 4: Articles of Merger or Consolidation
(Sec. 77)
Once the required number of stockholders or
members approved of the plan, Articles of Merger
or Articles of Consolidation shall be executed by
each of the constituent corporations, to be signed
by the president or vice-president and certified by
the secretary or assistant secretary of each
corporation, setting forth:
a. The plan of the merger or the plan of
consolidation;
b. As to stock corporations, the number
of shares outstanding, or in the case
of non-stock corporations, the number
of members;
c. As to each corporation, the number of
shares or members voting for or
against such plan, respectively;
d. The carrying amounts and fair values
of the assets and liabilities of the
respective companies as of the
agreed cut-off date;
e. The method to be used in the merger
or consolidation of accounts of the
companies;
f. The provisional or pro-forma values,
as merged or consolidated, using the
accounting method; and
g. Such other information as may be
prescribed by the SEC.
STEP 5: Approval by the SEC
The Articles of Merger or Articles of Consolidation
shall be submitted to the SEC for approval.
However, in the case of special corporations, like
banks, insurance companies, building and loan
associations, etc., the favorable recommendation
of the appropriate government agency shall first
be obtained.
1. If the SEC is satisfied that the merger or
consolidation of the corporations
concerned is legal, it shall issue a
certificate of merger or of consolidation,
at which time the merger or consolidation
shall be effective.
2. If the SEC is not satisfied, it shall set a
hearing to give the corporations
concerned the opportunity to be heard.
Written notice of the date, time and place
of hearing shall be given to each
COMMERCIAL LAW
constituent corporation at least two (2)
weeks before said hearing.
F. Effectivity of Merger or Consolidation
A merger does not become effective upon the
mere agreement of the constituent corporations,
but open approval of the articles of merger by the
SEC issuing the certificate of merger as required
by Section 79 of the Corporation Code (Bank of
Commerce v. Heirs of Rodolfo dela Cruz).
G. Limitations of Merger and Consolidation
Under the Philippine Competition Act (R.A. no.
10667), the Philippine Competition Commission
can review the mergers and acquisitions of a
corporation/s based on the factors it deems to be
relevant. (Sec. 16 of R.A. no. 10667)
Parties to a merger or acquisition agreement
without complying with the thresholds are
prohibited from consummating their agreement
until thirty (30) days after providing notification to
the Commission in the form and containing the
information specified in the regulations issued by
the Commission. A transaction that meets the
thresholds and does not comply with the
notification requirements and waiting periods set
out in Section 5 shall be considered void and will
subject the parties to an administrative fine of one
percent (1%) to five percent (5%) of the value of
the transaction. (Sec. 17 of R.A. no. 10667; PCA
Rule 4, as amended by PCC Resolution No. 02-
2020)
Thresholds for compulsory notification
M&A transactions whose definitive agreements
are executed on or after 1 March 2020 will be
subject to mandatory notification to the PCC if
they meet the ff. thresholds:
Size of (i) the aggregate annual gross
Party revenues in, into or from the
Philippines, or
(ii) the value of the assets in the
Philippines of the ultimate
parent entity (UPE) of either the
acquiring or acquired entities
exceeds PhP 6 billion
Size of The size of transaction will be
Transaction met if the transaction value, as
determined below, exceeds
PhP 2.4 billion.
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Merger or acquisition agreements that
substantially prevent, restrict or lessen
competition in the relevant market or in the
market for goods or services as may be
determined by the Commission shall be
prohibited. (Sec. 20 of R.A. no. 10667)
Exemptions: Notwithstanding such prohibition,
the PCC would allow such merger or acquisition
provided the parties prove the following:
(a) The concentration has brought about or is
likely to bring about gains in efficiencies that are
greater than the effects of any limitation on
competition that result or likely to result from the
merger or acquisition agreement; or
(b) A party to the merger or acquisition agreement
is faced with actual or imminent financial failure,
and the agreement represents the least anti-
competitive arrangement among the known
assets.(Sec. 21 of R.A. no. 10667)
H. Effects of Merger or Consolidation
1. Constituent corporations become a single
corporation
a. Merger: surviving corporation
b. Consolidation: consolidated
corporation under the plan of
consolidation
2. Separate existence of constituent
corporations cease EXCEPT that of the
surviving or consolidated corporation
3. Surviving or consolidated corporation
possesses the rights privileges immunities;
and powers and is subject to all duties and
liabilities of a corporation organized under
this Code
4. ALL of the following are deemed transferred
to and vested in such surviving or
consolidated corporation: (BY OPERATION
OF LAW)
a. Rights
b. Privileges
c. Immunities
d. Franchises of each constituent
corporation
e. Real or personal property
f. Receivables due on whatever
account (hence surviving / subpoena and subpoena duces tecum, take
consolidated corporation has the
COMMERCIAL LAW
power to file an action for recovery)
including:
i. subscriptions to shares and
other choses in action
ii. and every other interest of,
belonging to, or due to each
constituent corporation
5. Regarding liabilities and pending claims:
a. Liabilities and obligations of each
constituent corporation:
i. Surviving or consolidated
corporation shall be
responsible
b. Pending claim, action or proceeding
brought by or against any constituent
corporation
i. may be prosecuted by or
against the surviving or
consolidated corporation
c. The rights of creditors or liens upon
the property of such constituent
corporations are not impaired
14. INVESTIGATIONS, OFFENSES, AND
PENALTIES
A. Authority of Commissioner
i. Investigation and prosecution of
offenses
The SEC may investigate an alleged violation of
this Code, rule, regulation, or order of the SEC.
The SEC may publish its findings, orders,
opinions, advisories, or information concerning
any such violation, as may be relevant to the
general public or to the parties concerned,
The SEC shall give reasonable notice to and
coordinate with the appropriate regulatory agency
prior to any such publication involving companies
under their special regulatory jurisdiction.
ii. Administration of oath and issuance
of subpoena
The SEC, through its designated officer, may
administer oaths and affirmations, issue
testimony in any inquiry or investigation, and may
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perform other acts necessary to the proceedings P1,000.00 for each day of continuing violation
or to the investigation. but in no case to exceed P2,000,000.00;
2. Issuance of a permanent cease-and-desist
iii. Cease and desist power order;
3. Suspension or revocation of the certificate of
Whenever the SEC has reasonable basis to incorporation; and
believe that a person has violated, or is about to 4. Dissolution of the corporation and forfeiture of
violate, the RCC, rule, regulation, or order of the its assets under the conditions in Title XIV of
SEC, it may direct such person to desist from the RCC
committing the act constituting the violation.
ii. Prohibited Acts and Penalties
The SEC may issue a cease and desist order ex
parte to enjoin an act or practice which is Table of Violations and Fines
fraudulent or can be reasonably expected to Violation Fine
cause significant, imminent, and irreparable SEC. 165. Fraudulent 200k - 2M
danger or injury to public safety or welfare. The Conduct of Business
ex parte order shall be valid for a maximum period
of twenty (20) days, without prejudice to the order A corporation that conducts 400k - 5M
being made permanent after due notice and its business through fraud. (When the
hearing. violation of this
provision is
Thereafter, the SEC may proceed injurious or
administratively against such person in detrimental to
accordance with Section 158, and/or transmit the public)
evidence to the Department of Justice for SEC. 166. Acting as 100k - 5M
preliminary investigation or criminal prosecution Intermediaries for Graft
and/or initiate criminal prosecution for any and Corrupt Practices
violation of this Code, rule, or regulation.
A corporation used for
iv. Contempt fraud, or for committing or
concealing graft and corrupt
Any person who, without justifiable cause, fails or practices as defined under
refuses to comply with any lawful order, decision, pertinent statutes.
or subpoena issued by the SEC shall, after due
notice and hearing, be held in contempt and fined When there is a finding that
in an amount not exceeding P30,000.00. When any of its directors, officers,
the refusal amounts to clear and open defiance of employees, agents, or
representatives are
may impose a daily fine of P1,000.00 until the engaged in graft and corrupt
order, decision, or subpoena is complied with.
failure to install:
B. Sanctions for violations a. safeguards for the
transparent and lawful
i. Administrative sanctions (Sec. 158) delivery of services;
and
If, after due notice and hearing, the SEC finds that b. policies, code of ethics,
any provision of this Code, rules or regulations, or and procedures against
orders has been violated, the graft and corruption
SEC may impose any or all of the following shall be prima facie
sanctions, taking into consideration the extent of evidence of corporate
participation, nature, effects, frequency and liability under this
seriousness of the violation: section.
SEC. 167. Engaging 100k 1M
1. Imposition of a fine ranging from P5,000.00) Intermediaries for Graft
to P2,000,000.00, and not more than and Corrupt Practices

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A corporation that appoints
an intermediary who
engages in graft and corrupt
practices for the
interest.
SEC. 168. Tolerating Graft
and Corrupt Practices
A director, trustee, or officer
who knowingly fails to
sanction, report, or file the
appropriate action with
proper agencies, allows or
tolerates the graft and
corrupt practices or
fraudulent acts committed
trustees, officers, or
employees.
SEC. 169. Retaliation
Against Whistleblowers
Any person who, knowingly
and with intent to retaliate,
commits acts detrimental to
a whistleblower such as
interfering with the lawful
employment or livelihood of
the whistleblower.
A whistleblower refers to
any person who provides
truthful information relating
to the SEC or possible
commission of any offense
or violation under this Code.
SEC. 170. Other Violations
of the Code
Violations of any of the other
provisions of this Code or its
amendments not otherwise
specifically penalized
therein
If the violation is committed
by a corporation, the same
may, after notice and
hearing, be dissolved in
appropriate proceedings
before the SEC:
- Provided, That such
dissolution shall not
COMMERCIAL LAW
preclude the institution
of appropriate action
against the director,
trustee, or officer of the
corporation responsible
for said violation:
- Provided, further, That
500k 1M nothing in this section
shall be construed to
repeal the other causes
for dissolution of a
corporation provided in
this Code.
Liability for any of the
foregoing offenses shall be
separate from any other
administrative, civil, or
criminal liability under this
Code and other laws.
100k 1M iii. Who are liable (Sec. 171-172)
1. Corporation- Penalty may be imposed
upon its directors, trustees, stockholders,
members, officers, or employees
responsible for the violation or
indispensable to its commission.
2. Aiders and Abettors- Penalty would be a
punishment of a fine not exceeding that
imposed on the principal offenders, at the
discretion of the Court, after taking into
account their participation in the offense.
C. Authority of the Securities and
Exchange Commission (Jurisdiction)
10k 1M The SEC shall have visitorial powers over all
corporations. These powers include:
1. Examination and inspection of records
2. Regulation and supervision of activities
3. Enforcement of compliance
4. Imposition of sanctions in accordance
with the Revised Corporation Code.
Should the corporation, without justifiable
cause,
powers, the SEC may revoke its certificate of
incorporation, without prejudice to the
imposition of other penalties and sanctions under
the RCC.
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GENERAL RULE: All interrogatories propounded
by the SEC and the answers thereto, as well as
the results of any examination made by the SEC
or any other official authorized by law to make an
examination of the operations, books, records of
any corporation, shall be kept strictly
CONFIDENTIAL,
EXCEPT:
(1) When the law requires the same to be
made public;
(2) When necessary for the SEC to take
action to protect the public;
(3) To issue orders in the exercise of its
powers under RCC
(4) Where such interrogatories, answers or
results are necessary to be presented as
evidence before any Court. (Sec. 178)
What are the functions, powers, and
jurisdiction of the SEC? (Sec. 179)
SEC shall have the power and authority to:
1. Exercise supervision and jurisdiction
over all corporations and all persons
acting on their behalf, except otherwise
provided by RCC;
2. Retain jurisdiction over pending cases
involving intra-corporate disputes
submitted for final resolution. (PD 902-A);
a. The SEC shall retain jurisdiction
over pending suspension of
payment/ rehabilitation cases
filed as of 30 June 2000 until
finally disposed.
3. Impose sanctions for the violation of the
RCC, its implementing rules and orders
of the SEC;
4. Promote corporate governance and the
protection of minority investors, through,
among others, the issuance of rules and
regulations consistent with international
best practices;
5. Issue opinions to clarify of laws, rules,
and regulations;
6. Issue cease and desist orders ex parte to
prevent imminent fraud or injury to the
public;
7. Hold corporations in direct or indirect
contempt;
8. Issue subpoena duces tecum and
summon witnesses to appear in
proceedings before the SEC;
9. In appropriate cases, order the
examination, search and seizure of
documents, papers, files and records,
COMMERCIAL LAW
and books of accounts of any entity or
person under investigation as may be
necessary for the proper disposition of
the cases, subject to the provisions of
existing laws;
10. Suspend or revoke the certificate of
incorporation after proper notice and
hearing;
11. Dissolve or impose sanctions on
corporations, upon final court order, for
committing, aiding in the SEC of, or in
any manner furthering securities
violations, smuggling, tax evasion,
money laundering, graft and corrupt
practices, or other fraudulent or illegal
acts;
12. Issue writs of execution and attachment
to enforce payment of fees,
administrative fines, and other dues
collectible under this Code;
13. Prescribe the number of independent
directors and the minimum criteria in
determining the independence of a
director;
14. Impose or recommend new modes by
which a stockholder, member, director,
or trustee may attend meetings or cast
their votes, as technology may allow,
number of shareholders or members,
structure, and other factors consistent
with the basic right of corporate suffrage;
15. Formulate and enforce standards,
guidelines, policies, rules, and
regulations to carry out the provisions of
this Code; and
16. Exercise such other powers provided by
law or those, which may be necessary or
incidental to carrying out, the powers
expressly granted to the SEC.
Note: In imposing penalties and other
requirements, SEC shall take into consideration
the size, nature of the business, and capacity
of the corporation.
NO COURT BELOW THE CA SHALL HAVE
JURISDICTION (Sec. 179)
Only the CA has the jurisdiction to issue a
restraining order, preliminary injunction, or
preliminary mandatory injunction in any case,
dispute, or controversy that directly or indirectly
interferes with the exercise of the powers,
duties, and responsibilities of the SEC that
falls exclusively within its jurisdiction.
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JURISDICTIONS
On Jurisdiction of RTC in Intra-Corporate
Disputes:
Section 5 of the Securities Regulation Code
transferred the jurisdiction of the (SEC) over
intra-corporate disputes to RTCs designated by
the Supreme Court as commercial courts. The
existence of an intra-corporate dispute must be
clearly alleged in the complaint.
Two tests to determine existence of intra-
corporate dispute
Relationship Test
A dispute is intra-corporate if it is:
1. Between the corporation, partnership or
association and the public;
2. Between the corporation, partnership or
association and the state insofar as its
franchise, permit or license to operate is
concerned;
3. Between the corporation, partnership or
association and its stockholders, partners,
members or officers; and
4. Among the stockholders, partners or
associates themselves (Philippine
Communications Satellite Corp. v.
Sandiganbayan, G.R. No. 203023, 2015)
Nature of the Controversy Test
The dispute itself must be intrinsically connected
with the regulation of the corporation, partnership
or association.
The controversy "must not only be rooted in the
existence of an intra-corporate relationship, but
must also refer to the enforcement of the parties'
correlative rights and obligations under the
Corporation Code as well as the internal and
intra-corporate regulatory rules of the
corporation." (Dy Teban Trading Inc. v. Dy, G.R.
No. 161803, 2008)
The following are within the jurisdiction of the
RTC:
1. Fraudulent devices and schemes employed
by directors detrimental to the public interest
and to other firms
2. Intra-corporate dispute and with the state in
relation to their franchise and right to exist
3. Controversies in election, appointment of
directors or trustees and petition to be
COMMERCIAL LAW
declared in the state of suspension of
payments.
4. Appointment of Rehabilitation Receiver or
Management Committee
What is a management committee?
- Tasked to manage, take custody of and
control all existing assets, funds, and
records of the corporation.
- To determine the best way to protect the
interest of its stockholders and creditors.
What is a Rehabilitation Receiver?
- Appointed when the corporation is in
financial distress.
- To rehabilitate.
Arbitration for unlisted corporations. (Sec.
181)
Where can the arbitration agreement be
found? The same may be provided in the articles
of incorporation or by-laws of an unlisted
corporation.
When can cases be referred to arbitration?
When the agreement is in place, disputes
between the corporation, its stockholders or
members, which arise from the implementation
of the articles of incorporation or by-laws, or
from intra-corporate relations.
When shall the dispute be non-arbitrable?
When it involves criminal offenses and
interests of third parties.
The arbitration agreement. (Sec. 181)
- The same shall be binding on the
corporation, its directors, trustees, officers,
and executives or managers.
- To be enforceable, the same should
indicate
- the number of arbitrators
- the procedure for their appointment.
- The power to appoint the arbitrators forming
the arbitral tribunal shall be granted to a
designated independent third party.
- Should the third party fail to appoint
the arbitrators in the manner and
within the period specified in the
arbitration agreement, the parties
may request the SEC to appoint the
arbitrators. In any case, arbitrators
must be accredited or must belong
to organizations accredited for the
purpose of arbitration.
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The arbitral tribunal (Sec. 181)

- shall have the power to rule on its own
jurisdiction and on questions relating to the
validity of the arbitration agreement. When
an intra-corporate dispute is filed with a
Regional Trial Court, the Court shall dismiss
the case before the termination of the
pretrial conference, if it determines that an
arbitration agreement is written in the
-
laws, or in a separate agreement.
- shall have the power to grant interim
measures necessary to ensure enforcement
of the award, prevent a miscarriage of
justice, or otherwise protect the rights of the
parties.

Final Arbitral award (Sec. 181)

- Shall be executory after the lapse of fifteen
(15) days from receipt thereof by the parties
and shall be stayed only by the filing of a
bond or the issuance by the appellate court
of an injunctive writ. (Under Sec. 181
specifically)

2 kinds of arbitration
1. Voluntary- when parties both agree to submit
themselves to the jurisdiction of the
arbitrators. The parties choose who the
arbitrators will be.
2. Compulsory- The judge is a stranger. There
is still a decision. This kind of arbitration is

arbitrators are the judges of the courts (MTC,

RTC etc.)

Jurisdiction over Party-List Organizations.

(Sec. 182)
- The powers, authorities, and responsibilities
of the SEC involving party-list organizations
are transferred to the SEC on Elections
(COMELEC)
- Within 6 months after the effectivity of the
RCC, the monitoring, supervision, and
regulation of such corporations shall be
deemed automatically transferred to the
COMELEC.
- The COMELEC in coordination with the SEC
shall promulgate the corresponding IRR for
the transfer of jurisdiction

- end of topic -

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