BUSINESS LAW 202

AN ACT PROVIDING FOR THE REVISED CORPORATION CODE OF THE PHILIPPINES

(R.A. 11232)
TITLE 1

GENERAL PROVISIONS, DEFINITIONS AND CLASSIFICATIONS

SECTION1. TITLE OF THE CODE
SECTION 1. Title Of the Code. xxx shall be known as the “Revised Corporation
Code of the Philippines (RCC)”
• Was signed into law on 20 February 2019, and became effective on 23
February 2019.
• It expressly repealed the 1980 Corporation Code
• From 149 Sections, the RCC has 188 sections
• The most important innovation is the introduction of the OPC, or one-
person-corporation.
Types of Business Organizations

1. Sole Proprietorship – one with only one proprietary owner. It is when a

person personally or a single individual conducts business under his own
name or under a business name.

2. Partnerships – by a contract of partnership, two or more persons bind

themselves to contribute money, property or industry to a common fund,
with the intention of dividing the profit among themselves. Two or more
persons may also form a partnership for the exercise of a profession.

3. 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 the existence.

Q: What is the basic distinction between the three?

Ans.: The veil of corporation fiction only exists in a corporation, and not in sole
proprietorship or a partnership.
Q: What are the advantages of a corporation?
Ans.:

a. more capitalization
b. limited liability
c. right of succession – upon the death of a stockholder which provides
stability for the business to continue
d. transferability of interest – does not require the consent of other
stockholders
e. easier management – management is centralized in the Board of Directors
Q: What are its disadvantages?

Ans.:
a. higher income tax liability (may be taxed twice – corporate income tax and
income tax to stockholders
b. less participation in the management – participation of stockholders in a
corporation is indirect
c. no delectus personae – investing with people you do not know
d. dissolution – it is granted by the state.
e. Greater degree of government control and supervision
f. Difficulty in meeting requirements
SECTION 2. CORPORATION DEFINED

- A corporation is an artificial being created by operation of law, having the

right of succession, and the powers, attributes, and properties expressly
authorized by law or incidental to its existence.

Q: What are the types of corporations?

Ans.:

1. Public corporation – created to govern a portion of the state. Its purpose is

for the general good and welfare.
2. Private corporation – created for some private purpose, benefit, aim or
end. It may either be stock or non-stock, government owned or controlled
or quasi-public.
3. Publicly-listed corporations – private corporations whose stocks are listed in
the PSE (Philippine Stock Exchange)
Ex. San Miguel Corp., PLDT. SM Prime Holdings, Inc.
4. Quasi-public corporation – private corporations performing public
functions
5. GOCCs – private corporations created by Congress through a special
charter and the majority of its shareholdings are owned by the government.
Ex.: DBP, PPA, PAGCOR, Land Bank of the Philippines

Q: What are the consequences of being a corporation?

Ans.:
1. It has a separate and distinct personality from its members or shareholders,
thus incurs separate liability.
2. It enjoys rights separate from its stockholders.
3. Properties of the corporation are separate from the properties of the
stockholders.
Q: What rights does a corporation have?

Ans.:
1. Constitutional rights
a. Right to due process and equal protection of the law
b. Right against unreasonable searches and seizure
c. Right against non-impairment of contracts

2. Civil rights
3. Economic rights
a. Right to sue and be sued
b. Right to own and dispose of properties
c. Right to enter into contracts
Q: What is the liability of a corporation in case of debt?
Ans.: As a consequence of having a separate juridical personality, the debts
of the corporation cannot be demanded by the creditors against the
stockholders.

Stockholders cannot be held personally liable because their liability is

limited to the extent of their investments.
Reason: Veil of corporate fiction

Illustration: A corporation incurred debts and its assets are not sufficient to pay
its debts. Can the creditors demand payment from its stockholders?
Ans.: Generally, no. If the assets are not enough, it will be considered as losses
on the part of the creditor,
Q: What is a veil of corporate fiction?

Ans.: A corporation has a separate and distinct personality from its

shareholders, officers and directors. Once said corporate fiction is created,
the veil hides the stockholders such that when a corporation incurs liability,
the stockholders are shielded from liability.
Q: What are the instances when the veil of corporate fiction be pierced?
Ans.: When the corporate veil:

a. Defeats public convenience

b. Is used to perpetuate fraud
c. Is used to defend a crime
d. Is used to justify a wrong
Q: What are the different relationships of a corporation?

Ans.:
1. Relationship between corporation and the shareholders
- Which is why it is necessary to execute the Articles of Incorporation. It
manages the relationship between the corporation and the shareholders.

2. Relationship among shareholders themselves

- The articles and the law provide the regulation and monitors this
relationship.

3. Relationship between the corporation and the state

- A corporation is created by the state. It is the state that granted the
privilege; thus, it can only be withdraw by the state.

4. Relationship between the corporation and the public

- It includes the clients.

Q: What are its capital structures?

Ans.:
1. Authorize capital stock (ACS) – maximum amount that a corporation
intends to invest on a business.
2. Subscribed capital stock (SCS) – the number of shares a stockholder
intends to invest in the corporation which he commits himself to pay.
3. Paid-up capital – stock actually paid for by the stockholders.
Q: If you are new corporation, how much should be subscribed?

Ans.: RCC does not require a minimum subscribed capital stock.

Reason: To attract the formation of more business organizations.
Q: When will the balance be due?
Ans.: It depends on the Board. The Board may indicate the date when the
balance will be due or will simply announce or make a call on the balance.

Q: How is it paid?
Ans.: The paid-up capital may either be done in cash or property equivalent
to the amount you intend to pay.
Q: What does right of succession mean?
Ans.: If a stockholder or member dies, withdraws, is insolvent, or suffers
incapacity, the corporation will still continue and not be dissolved.
Q: How powers, attributes, properties of corporation be determined?
Ans.: These rights may be determined in the Articles of Incorporation, the
Corporation Code, and the By-Laws. These are the sources of rights and
obligations of the stockholders.
SECTION 3. CLASSES OF CORPORATIONS
- Corporations formed or organized under this Code may be stock or non-
stock corporations. 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. All other corporations are nonstock corporations.

A. As to purpose
1. Public corporation
2. Private corporation
a. Publicly listed
b. Quasi-public
c. GOCC

B. Under the RCC

1. Stock corporation
2. Non-stock corporation
- Do not issue shares and do not distribute profits to its members.

C. As to number of corporators
1. Corporation sole – one member or corporator, for purely religious
purposes
2. One person corporation – one member or corporator also but not
limited to purely religious purposes
 3. Corporate aggregate – consisting or more than one corporator or
member

D. As to whether it is open or close

1. Open corporation – open to any person who may wish to become
shareholders. Most of these are publicly listed.
2. Close corporation – limited to selected persons or members of a family.

E. As to legal or corporate existence

1. De jure – one existing in fact or in law
2. De facto – one existing in fact but not in law

F. Whether it is for a religious purpose or not

1. Ecclesiastical – religious purposes
2. Lay – purpose other than religion

G. As to formation
1. Domestic – one formed, organized or existing under the laws of the
Philippines
2. Foreign – formed under any laws other than those of the Philippines

H. As to their relation to another corporation

1. Parent – one which holds ownership of various corporations, thereby
having control over such corporations.
2. Subsidiary – owned or controlled by the parent corporation.
3. Affiliated – those related to the parent corporation or subsidiary
corporation
4. Sister – fellow subsidiary with respect to another subsidiary; both owned
by the parent corporation

I. As to nationality
1. Place of incorporation test
2. Citizenship of stockholders
a. Philippine national – 100% owned by the Filipino citizens, even if
incorporated abroad.
b. Foreign-owned – majority of the stockholdings are owned by
foreigners, even if incorporated in the Philippines.
SECTION 4. CORPORATIONS CREATED BY SPECIAL LAW OR CHARTERS
SEC. 4. Corporations Created by Special Laws or Charters. – Corporations
created by special laws or charters shall be governed primarily by the
provisions of the special law or charter creating them or applicable to them,
supplemented by the provisions of this Code, insofar as they are applicable.

SEC.5. Corporators and Incorporators, Stockholders and Members. –

Corporators are those who compose a corporation, whether as stockholders
or shareholders in a stock corporation or as members in a nonstock
corporation. Incorporators are those stockholders or members mentioned in
the articles of incorporation as originally forming and composing the
corporation and who are signatories thereof.

Q: Who are the persons involved in the organization of a corporation?

Ans.: They are:

1. Incorporators – they are the organizers of the corporation upon its

inception. They are mentioned in AOI as originally forming and composing
the corporation, and who are signatories thereof. Under RCC, juridical
persons can now be incorporators.

2. Corporators – those who fund the corporation. These refer to stockholders,

investors and incorporators themselves. They are people who have interest
over the corporation.

3. Board of Directors (BOD)/Trustees (BOT) – the group of people who manage

the corporation.

4. Promoters – they promote the corporation itself. They convince the people
to invest. They tell the people that they are organizing such corporation.
However, they are not committed to buy the shares

5. Underwriters – are mostly banking companies. As distinguished from

promoters who have no commitment since they simply promote,
underwriters have commitment such that they guarantee the sale of stocks
and these were not sold, they will be the ones who will buy the shares. They
assume liability.

6. Founders – those who came about the idea.

SEC. 6. Classification of Shares. – The classification of shares, their

corresponding rights, privileges, or restrictions, and their stated par value, if
any, must be indicated in the articles of incorporation. Each share shall be
equal in all respects to every other share, except as otherwise provided in
the articles of incorporation and in the certificate of stock. The shares in
stock corporations may be divided into classes or series of shares, or both.
No share may be deprived of voting rights except those classified and
issued as “preferred” or “redeemable” shares, unless otherwise provided in
this Code: Provided, That there shall always be a class or series of shares
with complete voting rights. Holders of nonvoting shares shall nevertheless
be entitled to vote on the following matters: (a)Amendment of the articles
of incorporation; (b)Adoption and amendment of bylaws; (c)Sale, lease,
exchange, mortgage, pledge, or other disposition of all or substantially all
of the corporate property; (d)Incurring, creating, or increasing bonded
indebtedness; (e)Increase or decrease of authorized capital stock;
(f)Merger or consolidation of the corporation with another corporation or
other corporations; (g)Investment of corporate funds in another
corporation or business in accordance with this Code; and (h)Dissolution of
the corporation. Except as provided in the immediately preceding
paragraph, the vote required under this Code to approve a particular
corporate act shall be deemed to refer only to stocks with voting rights. The
shares or series of shares may or may not have a par value: Provided, That
banks, trust, insurance, and preneed companies, public utilities, building
and loan associations, and other corporations authorized to obtain or
access funds from the public, whether publicly listed or not, shall not be
permitted to issue nopar value shares of stock. Preferred shares of stock
issued by a corporation may be given preference in the distribution of
dividends and in the distribution of corporate assets in case of liquidation,
or such other preferences: Provided, That preferred shares of stock may be
issued only with a stated par value. The board of directors, where
authorized in the articles of incorporation, may fix the terms and conditions
of preferred shares of stock or any series thereof: Provided, further, That such
terms and conditions shall be effective upon filing of a certificate thereof
with the Securities and Exchange Commission, hereinafter referred to as
“Commission”. Shares of capital stock issued without par value shall be
deemed fully paid and non-assessable and the holder of such shares shall
not be liable to the corporation or to its creditors in respect thereto:
Provided, That no-par value shares must be issued for a consideration of at
least Five pesos (P5.00) per share: Provided, further, That the entire
consideration received by the corporation for its no-par value shares shall
be treated as capital and shall not be available for distribution as dividends.
A corporation may further classify its shares for the purpose of ensuring
compliance with constitutional or legal requirements.

SEC. 7. Founders’ Shares. – Founders’ shares may be given certain rights and
privileges not enjoyed by the owners of other stocks. Where the exclusive
right to vote and be voted for in the election of directors is granted, it must
be for a limited period not to exceed five (5) years from the date of
incorporation: Provided, That such exclusive right shall not be allowed if its
exercise will violate Commonwealth Act No. 108, otherwise known as the
“Anti-Dummy Law”; Republic Act No. 7042, otherwise known as the
“Foreign Investments Act of 1991”; and other pertinent laws.

SEC. 8. Redeemable Shares. – Redeemable shares may be issued by the

corporation when expressly provided in the articles of incorporation. They
are shares which may be purchased by the corporation from the holders of
such shares upon the expiration of a fixed period, regardless of the
existence of unrestricted retained earnings in the books of the corporation,
and upon such other terms and conditions stated in the articles of
incorporation and the certificate of stock representing the shares, subject
to rules and regulations issued by the Commission.

SEC. 9. Treasury Shares. – Treasury shares are shares of stock which have
been issued and fully paid for, but subsequently reacquired by the issuing
corporation through purchase, redemption, donation, or some other lawful
means. Such shares may again be disposed of for a reasonable price fixed
by the board of directors.

Q: What are shares?

Ans.: Shares represent the interest or the investment of a stockholder in a

corporation.

Q: What is a share of stock?

Ans.: It is a unit of division of the capital stock of a corporation.

Q: What is Doctrine of Equality of Shares?

Ans.: Each share shall be equal in all respects to every other share, except
as otherwise provided in the AOI and stated in the certificate of stock.
Q: What are common shares?

Ans.: These entitle the holders to a pro rata share in the profits of the
corporation without preference over the other stockholders. They are given
voting rights. They are the common type of shares, which enjoy no
preference, but the owners are entitled to management of the corporation
and to equal pro rata division of profits after preference.

Q: What are preferred shares?

Ans.: These are shares having certain rights and privileges not available to
holders of common shares such as in distribution of dividends, distribution of
the assets of the corporation in case of liquidation, or such other
preferences as may be stated in the AOI which do not violate the Code.

Q: What are par value shares?

Ans.: These are the minimum issue price of a share of stock which must be
stated in the AOI and the Certificate of Stock (COS). If the incorporators
agreed to the price, that is the price at which the shares will be sold to the
public.

Q: What are no par value shares?

Ans.: These are shares without a stated value. One still have to pay for these
shares, but its value is not stated in the AOI and in the COS. There is no fixed
value stated in the AOI but issued for a consideration not less than five (5)
pesos per share. Once issued, they shall be deemed fully paid and non-
assessable, and the holders of such shares shall not be liable to the
corporation or to its creditors in respect thereto.

Q: What are watered stocks?

Ans.: These are stocks sold or issued at a price less than the stocks’ par
value. The value of these shares is diluted, in that the public is not apprised
of the real value of the corporation.

Q: What are founder’s shares?

Ans.: These are shares, classified as such in the AOI, which are given certain
rights and privileges not enjoyed by the owners of other stocks.

Q: What are redeemable shares?

Ans.: These are shares which permit the issuing corporation to redeem or
purchase its shares. They are redeemable at a fixed date or at the option
of either the issuing corporation or the stockholder or both at a certain
redemption price.

Q: What is the purpose of redeemable shares?

Ans.: They are issued for the purpose of attracting capital.

Illustration: There are many ways of acquiring funds from the corporation:

1. Borrow from the banks

2. Borrow from the public

You have heard that bonds are floated, this is just the corporation issuing
bonds to the public, telling the public that if you buy these bonds, they will
buy this back from you in 5 years with interest or premium. Or, redeemable
shares, this is an option to raise more money with the public.
Q: What are treasury shares?
Ans.: These are stocks and were fully paid, but were reacquired by the
corporation through purchase, donation, sale, and other lawful means.
They are part of capital, to which, they can be sold again. They can only
be reacquired if there are unrestricted retained earnings. It is not entitled to
dividends because in effect, the corporation is paying itself. It is not entitled
to right to vote.

Q: What are convertible shares?

Ans.: These are type of preferred stocks that the holder can exchange for
a predetermined number of common shares at a specified time.

Q: What are voting shares?

Ans.: These are shares that are provided with voting rights on any issue on
the corporation. The voter can participate in any meeting and on any issue
that may be raised during the meeting.
Q: What are non-voting shares?
Ans.: These are shares that are not provided with voting rights but subject
to exceptions.
Exceptions: Holders of non-voting shares shall nevertheless be entitled to
vote on the following matters:
1. Amendment of AOI;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge, or other disposition
(SLEMPOD) of all or substantially all of the corporate property;
4. Incurring, creating, or increasing bonded indebtedness
5. Increase or decrease of authorized capital stock;
6. Merger or consolidation of the corporation with another corporation or
other corporations;
7. Investment of corporate funds in another corporation or business in
accordance with this Code; and
8. Dissolution of the corporation.

Prepared by:

ATTY. GLAIZA MAE L. LAGUNDE

Instructor