Business Laws and Regulations
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POWERS OF CORPORATIONS
Section 35. Corporation Powers and Capacity.. -
Every corporation incorporated under this Code has
the power and capacity:
a. To sue and be sued in its corporate name;
b. To have perpetual existence unless the
certificate of incorporation provides
otherwise;
c. To adopt and use a corporate seal;
d. To amend its articles of incorporation in
accordance with the provisions of this
Code;
e. To adopt bylaws, not contrary to law,
morals or public policy, and to amend or
repeal the same in accordance with this
Code;
f. In case of stock corporations, to issue or
sell stocks to subscribers and to sell
treasury stocks in accordance with the
provisions of this Code; and to admit
members to the corporation if it be a
nonstock corporation;
g. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage, and
otherwise deal with such real and personal
property, including securities and bonds of
other corporations, as the transaction of
the lawful business of the corporation may
reasonably and necessarily require,
subject to the limitations prescribed by
law and the Constitution;
h. To enter into a partnership, joint venture,
merger, consolidation, or any other
commercial agreement with natural and
juridical persons;
i. To make reasonable donations, including
those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or
similar purposes: Provided, That no foreign
corporation shall give donations in aid of
any political party or candidate or for
purposes of partisan political activity;
j. To establish pension, retirement, and other
plans for the benefit of its directors,
trustees, officers, and employees; and
k. To exercise such other powers as may be
essential or necessary to carry out its
purpose or purposes as stated in the
articles of incorporation.
KEY POINTS
Basically, this provision outlines the general powers and
capacities of corporations.
CLASSIFICATION OF CORPORATE POWERS AND CAPACITY
The powers of a corporation can be classified as follows:
1. Express Powers
● those which are expressly granted under the
RCC and those embodied in the
corporation’s articles as sanctioned by the
State
2. Implied or Incidental Powers
● corporation’s “powers, attributes, and
properties incident to its existence”, which
may be essential to carry out its purpose
3. Inherent Powers
● those which are not expressly stated but are
deemed to be within the capacity of
corporate entities
● these are also called inherent corporate
powers and includes rights such as:
○ right to succession
○ right to have a corporate name
○ right to adopt its own bylaws
Acts outside these powers are ultra vires acts. The statutory
provision prohibiting them is Section 44 of the RCC.
THEORY OF GENERAL CAPACITY
Under this theory, a corporation holds powers which are not
prohibited from it by general laws. General powers are
enumerated as follows:
1. To sue and be sued in its corporate name
● when the corporation is the injured party,
the power to sue is lodged with the board of
directors or trustees
○ for this, the board may authorize a
representative of the corporation to
perform all necessary physical acts
● in the absence of any clear authority, no suit
may be maintained on behalf of the
corporation
The only instance that board resolution is not necessary in
filing legal action is through a derivative suit.
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A derivative suit is an action filed by a minority stockholder
in the name and on behalf of the corporation to enforce a
corporate right or cause of action against the directors and
officers who committed the wrongful act against the
corporation.
2. To have perpetual existence
● corporations are now expressly allowed to
have perpetual existence unless their
certificate provides otherwise
3. In case of stock corporation, to issue or sell stocks
● the power to issue stocks includes the
authority to set the terms and conditions of
the issuance which may include terms and
dates of payment
○ ordinarily, the 25% payment
requirement for subscription only
applies in case of an increase of
capital stock
○ the corporation, however, may
require that 25% of the
subscription be paid upon issuance
of the shares and balance of
specified date
4. To deal with real and personal property
● the corporation’s power to purchase, receive,
take or grant, hold, convey, sell, lease,
pledge, mortgage, and otherwise deal with
real and personal property are limited to the
following requirements:
a. it must be in furtherance of the
purpose for which the corporation
was organized
b. it is subject to Constitutional
limitations
i. corporations cannot
acquire public lands
except by lease, for a
period not more than 25
years, renewable for not
more than 25 years, and
not to exceed 1,000
hectares in area
ii. only corporations at least
60% owned by Filipino
citizens can acquire
private lands
c. it is subject to the provisions of
special laws such as the Bulk Sales
Law, Philippine Competition Act,
and other related laws
Under Sec. 36 of the OCC, corporations were expressly
allowed to only enter into merger or consolidation with
other corporations as a form of corporate combination
5. To make reasonable donations
● there is no prohibition for domestic
corporations to donate in favor of a political
party or candidate
● the following are the requisites for a valid
donation by a corporation:
a. the donation must be reasonable
b. it must be for a valid purpose
including public welfare or for
hospital, charitable, cultural,
scientific, civic, or similar purposes
c. the donation must bear a
reasonable relation to the
corporation’s interest and must not
be so remote and fanciful
● for foreign corporations, there are additional
requirements which are that the donation
must not be in aid of any:
a. political party
b. candidate
c. partisan political activity
6. To adopt and use a corporate seal
7. To amend its articles of incorporation
8. To adopt bylaws
9. To enter into any commercial agreement
10. To establish financial plans for its employees
- pension, retirement, etc.
11. To exercise such other powers that are essential
THEORY OF SPECIFIC CAPACITY
Under this theory, a corporation cannot exercise powers
except those expressly or impliedly given to it. These powers
can be found in Section 36-43 of the RCC.
Section 36. Power to Extend or Shorten Corporate Term. -
A private corporation may extend or shorten its
term as stated in 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 the outstanding capital stock or
of its members. Written notice of the proposed
action and the time and place of the meeting shall
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be sent to stockholders or members at Appraisal rights for dissenting stockholders depend on the
their respective place of residence as intent behind shortening a corporation’s term. If it's for
shown in the books of the corporation, and dissolution, these rights are redundant since assets will be
must either be deposited to the addressee
liquidated and distributed to shareholders. If not for
in the post office with postage prepaid,
served personally, or when allowed in the dissolution, these rights ensure shareholders can receive
bylaws or done with the consent of the fair compensation for their shares.
stockholder, sent electronically in
accordance with the rules and regulations
of the Commission on the use of electronic Section 37. Power to Increase or Decrease Capital Stock; Incur,
data messages. In case of extension of Create or Increased Bonded Indebtedness. -
corporate term, a dissenting stockholder No corporation shall increase or decrease its capital
may exercise the right of appraisal under stock or incur, create or increase any bonded
the conditions provided in this Code. indebtedness unless approved by a majority vote of
the board of directors and by two-thirds (2/3) of
the outstanding capital stock at a stockholders’
POWER TO EXTEND OR SHORTEN THE CORPORATE TERM
meeting duly called for the purpose. Written notice
of the time and place of the stockholders’ meeting
The power to extend such may be exercised in case the
and the purpose for said meeting must be sent to
corporation has opted to have a fixed term, as specified in its
the stockholders at their places of residence as
articles and in lieu of perpetual existence.
shown in the books of the corporation and served
on the stockholders personally, or through
On the other hand, the corporate term may be shortened for
electronic means recognized in the corporation’s
corporations with a specified term in the articles of
bylaws and/or the Commission’s rules as a valid
incorporation or even those with perpetual existence.
mode for service of notices.
REQUIREMENTS FOR EXTENDING OR SHORTENING THE
A certificate must be signed by a majority of the
CORPORATE TERM
directors of the corporation and countersigned by
the chairperson and secretary of the stockholders’
1. At least majority vote of the board
meeting, setting forth:
2. Ratification by the stockholders representing at least
a. That the requirements of this section have
⅔ of the outstanding capital stock or by at least ⅔ of
been complied with;
the members in case of nonstock corporations
b. The amount of the increase or decrease of
3. Written notice of proposed action and the time and
the capital stock;
place of the meeting must be given to stockholders’
c. In case of an increase of the capital stock,
or members’ residences, served personally or sent
the amount of capital stock or number of
electronically
shares of no-par stock thereof actually
4. The extension or shortening of corporate term entails
subscribed, the names, nationalities and
an amendment of the articles of incorporation
addresses of the persons subscribing, the
● as such, it has to comply with the
amount of capital stock or number of
requirements of Section 15 which requires a
no-par stock subscribed by each, and the
favorable endorsement of the appropriate
amount paid by each on the subscription
government agency in case of special
in cash or property, or the amount of
corporations
capital stock or number of shares of
5. The extension must be done during the lifetime of the
no-par stock allotted to each stockholder
corporation but not earlier than 3 years prior to the
if such increase is for the purpose of
original or subsequent expiry date unless there are
making effective stock dividend therefor
justifiable reasons for an earlier extension
authorized;
d. Any bonded indebtedness to be incurred,
Failure to file for extension may lead to cease of a corporation’s
created or increased;
existence and its dissolution ipso facto (by this fact alone).
e. The amount of stock represented at the
However, automatic dissolution is no longer applied in the RCC
meeting; and
but rather given the option to revive the corporate term within a
f. The vote authorizing the increase or
reasonable period to be defined by the SEC.

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decrease of the capital stock, or the
incurring, creating or increasing of any
bonded indebtedness.
Any increase or decrease in the capital stock or the
incurring, creating or increasing of any bonded
indebtedness shall require prior approval of the
Commission, and where appropriate, of the
Philippine Competition Commission. The
application with the Commission 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.
Copies of the certificate shall be kept on file in the
office of the corporation and filed with the
Commission and attached to the original articles of
incorporation. After approval by the Commission
and the issuance by the Commission of its
certificate of filing, the capital stock shall be
deemed increased or decreased and the incurring,
creating or increasing of any bonded indebtedness
authorized, as the certificate of filing may declare:
Provided, That the Commission 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: Provided, further, That no decrease in
capital stock shall be approved by the Commission
if its effect shall prejudice the rights of corporate
creditors.
Nonstock corporations may incur, create or
increase bonded indebtedness when approved by a
majority of the board of trustees and of at least
two-thirds (2/3) of the members in a meeting duly
called for the purpose.
Bonds issued by a corporation shall be registered
with the Commission, which shall have the
authority to determine the sufficiency of the terms
thereof.
RATIONALE FOR INCREASING CAPITAL STOCK OF
CORPORATIONS
The practical reasons are as follows:
1. To obtain additional funds
● increase in the capital stock entails
compliance with the 25% subscription -
25% payment requirement therefore, the
corporation is guaranteed to obtain fresh
equity from stockholders
2. To acquire corporate assets
● the required additional paid-in capital can be
paid in cash or property and there is also a
stipulation that a property may be used as
consideration for the issuance of shares
● thus, the properties exchanged for shares
become the assets of the corporation
3. To support stock dividend declaration
● if the unsubscribed shares are not sufficient
to accommodate the shares that the
corporation may issue (as a result of stock
dividends), the capital stock must be
increased to support such
○ over issuance of shares, on the
other hand, are considered ultra
vires acts
PROCEDURAL REQUIREMENTS IN INCREASING OR
DECREASING CAPITAL STOCK AND INCURRING, CREATING,
OR INCREASING BONDED INDEBTEDNESS
The procedural requirements are as follows:
1. At least majority of the board
2. Ratification by the stockholders representing at least
⅔ of the outstanding capital stock, or at least ⅔ of
the members
3. Written notice of proposed action and the time and
place of the meeting sent to the stockholders’ or
members’ residences, served personally or sent
electronically
4. A certificate signed by at least majority of the
directors, countersigned by the chairman and
secretary of the stockholder’s meeting, setting forth:
a. that the foregoing requirements have been
complied with
b. the amount of increase or diminution of the
capital stock
c. in case of an increase, the amount of capital
stock or no. of shares of no-part stock
subscribed, the names, nationalities, and
addresses of the persons subscribing, the
amount of capital stock or no. of no-par
stock subscribed by each, and the amount
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paid by each on the subscription in cash or
property, or the amount of capital stock or
no. of shares of no-par stock allotted to each
stockholder if such increase is for the
purpose of making effective stock dividend
therefore authorized
d. any bonded indebtedness to be incurred,
created, or increased
e. the amount of stock represented at the
meeting
f. the vote authorizing the increase or
decrease of the capital stock, or the
incurring, creating or increasing of any
bonded indebtedness
g. in case of an increase in capital stock, the
application to be filed with SEC shall be
accompanied by the sworn statement of the
treasurer of the corporation, showing at
least 25% of the increase in the capital stock
was subscribed and 25% of the said amount
has been paid either in actual cash or
property which valuation is equal to 25% of
the subscription, has been transferred to the
corporation
The law requires the approval of SEC before the increase or
decrease in the capital stock can be effected, or before the
incurring, creating, or increasing of any bonded indebtedness
WAYS OF INCREASING OR DECREASING CAPITAL STOCK
Increase or decrease in the capital stock can be effected by:
1. increasing or decreasing the number of shares and
retaining the par value
2. increasing or decreasing the par value of existing
shares and retaining the number of shares
3. increasing or decreasing both the number of shares
and the par value
In decreasing the capital stock, resorting to reduction of
number of shares may also be done through:
1. redemption of redeemable shares
2. acquiring the corporation’s own shares
3. canceling or retiring the shares including treasury
ISSUING SHARES VS. SUBSCRIBING TO UNISSUED
PORTION
A. Approval Requirements
● Increase in Capital Stock
○ to increase the capital stock (which
effectively raises the total amount of capital
○ a company has authorized to issue as
shares), approval is needed from a majority
of the board of directors and from
stockholders representing at least
two-thirds of the outstanding capital stock
○ this represents a significant decision that
requires substantial agreement among the
leadership and shareholders, reflecting the
major change in the company’s financial
structure
● Subscription to Unissued Portion of Authorized
Capital Stock
○ subscribing to the unissued portion of the
authorized capital stock (which refers to
shares that a company has been authorized
to issue but has not yet issued) only requires
a majority vote from the board of directors
present at a meeting where there is a
quorum
○ this is generally a more routine decision,
impacting the company’s operations less
significantly than increasing the total capital
stock
B. Payment Requirements
● Increase in Capital Stock
○ when the capital stock is increased, at least
25% of the new increase must be subscribed
(i.e., there must be commitments from
shareholders to buy this new stock), and at
least 25% of the amount subscribed must be
actually paid
○ this ensures that there is real financial
backing for the increase in capital
● Subscription to Unissued Portion of Authorized
Capital Stock
○ the payment required for subscribing to the
unissued shares depends on what the Board
of Directors decides
○ this amount can be higher or lower than
25% of the subscription. The flexibility here
allows the board to set terms based on
current business needs and market
conditions
The capital stock may be decreased by decreasing the number of
authorized shares or by decreasing the par value of the
authorized shares, or both.
Instances of decrease of capital stock through decrease in no. of
authorized shares are: (1) redemption of redeemable shares, (2)
purchase by the corporation of its own shares and then canceling
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or retiring them, and (3) canceling shares that have not yet been
issued.
There is no decrease of capital stock despite the
redemption or purchase of the corporation’s own stock
unless it is canceled or retired.
If no cancellation or retirement is made, it is considered
treasury shares and can be resold anytime in any terms.
An increase or decrease in capital stock is only effective when
it is approved by the SEC and its issuance comes with a
certification of filing of increase or decrease of capital stock.
BONDED INDEBTEDNESS
Bonded indebtedness is the act of borrowing by a corporation
which is long term in nature involving a large number of
lenders and secured by the encumbrance on corporate assets.
● since bonds are securities, they should also be
registered with the SEC
When a corporation wants to raise funds by issuing bonds,
only board approval is needed, not stockholder approval.
However, these bonds must be registered with the SEC.
In contrast, borrowing through bonded indebtedness
requires both board approval and approval from
stockholders representing at least two-thirds of the
outstanding capital stock due to its greater financial impact
and risk.
Its characteristics and features include the following with the
two principal elements of distinction being time duration and
the division of the whole debt into parts represented by
negotiable or assignable certificates.
1. Such certificates are generally called bonds with the
purpose of enabling the corporation to make use of
the borrowed money for a long period of years, to
obtain from a large number of people and to facilitate
the transfer of the certificate of indebtedness from
hand to hand during the term of the collective
obligation
2. Such bond issues are usually secured by the transfer
to a trustee of specific property to secure payment of
the debt
3. The bonds usually, but not necessarily, run to bearer
and transferable by delivery
4. The effect of the creation and issuance of such
obligations is borrowing from the general public
Whenever a corporation resorts to this method of borrowing
funds, the resulting obligations constitute a bonded
indebtedness, subject to the requirements of Section 37 as to
creation and increase
In a nutshell, corporations issue bonds to borrow long-term
funds by dividing the debt into negotiable certificates,
making it easy for many investors to buy and transfer them.
These bonds are often secured by specific assets and are
transferable by delivery. The issuance of bonds allows
corporations to raise capital from the public, creating
bonded indebtedness that must adhere to specific legal
requirements, such as those in Section 37.
Such aforementioned procedures for the increase and decrease
in capital stock is also applicable to incur, create, and increase
bonded indebtedness.
Section 38. Power to Deny Pre-emptive Right. -
All stockholders of a stock corporation
shall enjoy preemptive right to subscribe
to all issues or disposition of shares of any
class, in proportion to their respective
shareholdings, unless such right is denied
by the articles of incorporation or an
amendment thereto: Provided, That such
preemptive right shall not extend to
shares issued in compliance with laws
requiring stock offerings or minimum
stock ownership by the public; or to shares
issued in good faith with the approval of
the stockholders representing two-thirds
(2/3) of the outstanding capital stock, in
exchange for property needed for
corporate purposes or in payment of a
previously contracted debt.
PRE-EMPTIVE RIGHT
The preemptive right is the right of stockholders to subscribe
to all issues or disposition of shares of any class by the
corporation, in proportion to their respective shareholdings.
● in practical terms, this means that the shares of stock
of the corporation should first be offered
proportionately to the stockholders before they can
be issued or sold to nonstockholders
The purpose is to protect shareholders from dilution of their
stakes, which could reduce their control, dividend
entitlements, and share of assets upon dissolution.
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REMEDIES IN CASE OF AMENDMENT TO CREATE
PREFERRED REDEEMABLE SHARES
The remedies of the stockholders in case of an amendment to
the corporation’s articles of incorporation to create
redeemable shares are as follows:
1. Vote in favor of the amendment but pass up to the
opportunity to subscribe to the preferred redeemable
shares since this type of shares is non-voting and as
such, will not dilute the stockholder’s voting rights,
save for the eight (8) cases under Section 6 of the
RCC;
2. Subscribe to the new preferred shares since the
stockholders’ pre-emptive right covers shares of any
class;
3. Exercise their appraisal right.
INSTANCES WHEN PRE-EMPTIVE RIGHT DOES NOT APPLY
The pre-emptive right of stockholders is not an absolute right.
It is subject to the following exceptions:
1. Denial of pre-emptive right in the articles of
incorporation or amendment thereto
● in this case, the denial of such must be
contained in the articles of incorporation or
amendment thereto
○ the denial cannot be my mere
board resolution or as an
amendment to the bylaws of the
corporation
2. Waiver of such right by the stockholder, whether
express or implied
● this happens when the stockholder fails to
exercise such right within the period fixed by
the board
3. Shares issued in compliance with the laws requiring
minimum stock ownership by the public
● public companies are required to have a
portion of their outstanding capital stock
owned by the public (minimum public
ownership set by law is 10% of outstanding
capital stock)
○ failure to comply with this
requirement will result to the
delisting of the shares in the Stock
Exchange thus, the issuance of
shares to comply with the minimum
public ownership requirement is
not subject to pre-emptive right
4. Issuance of shares in exchange for property given for
a corporate purpose, if approved by the stockholders
representing at least ⅔ of the outstanding capital
stock
5. Issuance of share in payment of debt made in good
faith, if approved by the stockholders representing ⅔
of the outstanding capital stock
The remedy of a stockholder who is not in favor of an
amendment to the articles of incorporation to deny
pre-emptive right is that he can exercise his appraisal
right.
Section 39. Sale or Other Disposition of Assets. -
Subject to the provisions of Republic Act No. 10667,
otherwise known as “Philippine Competition Act”,
and other related laws, a corporation may, by a
majority vote of its board of directors or trustees,
sell, lease, exchange, mortgage, pledge, or
otherwise dispose of its property and assets, upon
such terms and conditions and for such
consideration, which may be money, stocks, bonds,
or other instruments for the payment of money or
other property or consideration, as its board of
directors or trustees may deem expedient.
A sale of all or substantially all of the corporation’s
properties and assets, including its goodwill, must
be authorized by the 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, in a stockholders’ or
members’ meeting duly called for the purpose.
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.
The determination of whether or not the sale
involves all or substantially all of the corporation’s
properties and assets must be computed based on
its net asset value, as shown in its latest financial
statements. 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.
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● such a major decision requires not only a

Written notice of the proposed action and of the
majority approval from the board of
time and place for the meeting shall be addressed
directors but also the affirmative votes of
to stockholders or members at their places of
stockholders representing at least
residence as shown in the books of the corporation
two-thirds of the voting power at a specially
and deposited to the addressee in the post office
called meeting
with postage prepaid, served personally, or when
○ for nonstock corporations, the
allowed by the bylaws or done with the consent of
approval must come from at least
the stockholder, sent electronically: Provided, That
two-thirds of the members at a
any dissenting stockholder may exercise the right
meeting convened for this purpose
of appraisal under the conditions provided in this
○ if there are no members with voting
Code.
rights in a nonstock corporation,
then the approval of a majority of
After such authorization or approval by the
the trustees in office is sufficient
stockholders or members, the board of directors or
trustees may, nevertheless, in its discretion,
CONSTITUTION OF CORPORATION’S ONLY PROPERTY
abandon such sale, lease, exchange, mortgage,
pledge, or other disposition of property and assets,
When a corporation plans to dispose of an asset that
subject to the rights of third parties under any
constitutes its only property, this is considered a sale or
contract relating thereto, without further action or
disposition of all the corporate assets. According to Section 39
approval by the stockholders or members.
of the Revised Corporation Code (RCC), such a significant
transaction requires specific approvals to be valid:
Nothing in this section is intended to restrict the
power of any corporation, without the authorization
1. Majority Vote of the Board
by the stockholders or members, to sell, lease,
● the proposal to dispose of the asset must
exchange, mortgage, pledge, or otherwise dispose
first receive approval from the majority of
of any of its property and assets if the same is
the legitimate board of directors
necessary in the usual and regular course of
business of the corporation or if the proceeds of the
2. Affirmative Vote of Stockholders
sale or other disposition of such property and
assets shall be appropriated for the conduct of its ● the disposition must also be concurred in by
remaining business. at least two-thirds of the outstanding capital
stock, represented by the stockholders’
affirmative votes in a meeting duly called for
KINDS OF SALE this purpose

Corporations can undertake two main types of sale,
encumbrance, or disposition of their assets:
1. Ordinary Course of Business
● this type involves the sale, encumbrance, or
disposition of assets that are necessary for
the regular operations of the corporation
● this kind can be approved solely by the
board of directors, based on a majority vote
of those present at a quorum
● this is done routinely and is part of the
normal management of the company’s
affairs
2. Sale of All or Substantially All Assets
● this type is more significant and involves
selling, encumbering, or disposing of almost
all of the corporation’s assets
These requirements ensure that both the directors and the
major stakeholders (stockholders) agree on such a
fundamental decision affecting the corporation's future,
thereby protecting the interests of all parties involved.
BULK SALES LAW
The Bulk Sales Law regulates sales that are outside the usual
course of business to prevent fraud against creditors. Under
this law, a sale is considered a "bulk sale" if it involves:
a. selling, transferring, mortgaging, or assigning
properties not typically handled in the business’s
ordinary course
b. dealing with all or substantially all of the assets used
in the business
c. transferring, selling, mortgaging, or assigning all or
most of the business or trade itself.
For these bulk sales to be legally sound, several steps must be

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followed:
1. the seller must provide the buyer with a verified list of
creditors, including their names, addresses, amounts
owed, and the due dates for these debts
2. a comprehensive, detailed inventory of the assets for
sale, including their purchase cost or acquisition
price, must be compiled
3. both the inventory list and the list of creditors must
be filed with the Department of Trade and Industry.
Failure to meet these requirements can render the sale
fraudulent and void. This means that the sale can be
considered as done in fraud of creditors, making it illegal and
unenforceable. If such a sale is conducted improperly:
a. the buyer holds the assets in trust for the benefit of
the creditors
b. creditors have the right to demand the return of the
purchase price and may seek damages for losses
incurred.
This law aims to protect creditors by ensuring they are not
circumvented through the sudden and unnoted disposal of a
business’s assets.
The remedy of a stockholder who is not in favor of an
amendment of the disposition of all or substantially all of
the corporate properties is that he can exercise his
appraisal right.
THE NELL DOCTRINE
The Nell Doctrine establishes that a corporation acquiring the
assets of another corporation is generally not responsible for
the liabilities of the seller. However, there are key exceptions
to this rule:
1. Assumption of Liabilities
● if the acquiring corporation explicitly or
implicitly agrees to take on the debts and
liabilities of the seller, it becomes liable for
those obligations.
2. Merger or Consolidation
● if the asset transfer is part of a merger or
consolidation, the successor corporation is
responsible for the debts and liabilities of
the predecessor.
3. Fraudulent Transfer
● if the asset transfer is conducted
fraudulently or in bad faith to escape
liabilities, the acquiring corporation may be
held liable.
4. Continuation of Enterprise
● if the acquiring corporation is merely a
continuation of the selling corporation (often
referred to as a "mere continuation"),
meaning that it retains the same
management, personnel, location, and
assets, and only the ownership changes, it
can be liable for the seller's obligations.
These exceptions are designed to prevent corporations from
evading liabilities through asset transfers, ensuring creditors
and other stakeholders can seek redress and maintain their
rights.
Section 40. Power to Acquire Own Shares. -
Provided that the corporation has
unrestricted retained earnings in its books
to cover the shares to be purchased or
acquired, a stock corporation shall have the
power to purchase or acquire its own shares
for a legitimate corporate purpose or
purposes, including the following cases: (a)
To eliminate fractional shares arising out of
stock dividends; (b) 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; and (c) To pay dissenting or
withdrawing stockholders entitled to
payment for their shares under the
provisions of this Code..
Ordinarily, a stock corporation has no power to acquire its own
shares as it is illogical for the corporation to be its own
stockholder. Moreover, the funds of the corporation should be
devoted to attain the purposes of incorporation. However, the
RCC allows the corporation to acquire or purchase its own
shares in certain instances.
CONDITIONS WHERE CORPORATION MAY ACQUIRE AND
PURCHASE ITS OWN SHARES
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A corporation can acquire or purchase its own shares under
specific conditions as outlined by the Revised Corporation
Code (RCC). These conditions are as follows:
1. Legitimate Corporate Purpose
● the acquisition should serve a legitimate and
proper corporate purpose, enhancing the
overall corporate strategy or financial
stance
2. Unrestricted Retained Earnings
● the corporation must have sufficient
unrestricted retained earnings to cover the
purchase. This ensures that the capital of the
corporation is not impaired by the
acquisition.
3. Good Faith and Fairness
● the transaction must be conducted in good
faith, without prejudicing the rights of
creditors and other stockholders. This
means acting within the legal and ethical
boundaries and considering the impact on
all corporate stakeholders.
4. Suitable Corporate Conditions
● the acquisition should be made under
conditions that warrant such action based on
the corporation’s financial health and
strategic needs.
It is imperative that there must be unrestricted retained
earnings before it may purchase its own shares. Otherwise,
this
would lead to an unauthorized increase of shares of stock, as
well as constitutes a violation of the trust fund doctrine.
● the rationale for this is that share repurchase
constitutes in effect a distribution to the stockholders
which, if abused and without proper safeguards, will
deplete and impair the assets of the corporation.
With respect to banks, as previously indicated, no bank shall
purchase or acquire shares of its own capital stock or
accept its own shares as security for a loan, except when
authorized by the Monetary Board; Provided that in every
case the stock so purchased or acquired shall, within six (6)
months from the time of its purchase or acquisition, be sold
or disposed of at a public or private sale.
CORPORATE PURPOSES TO WARRANT ACQUISITION BY
CORPORATION OF ITS OWN SHARES
The following are legitimate corporate purposes for which a
corporation may acquire or purchase its own shares of stock:
1. To Eliminate Fractional Shares
● fractional shares often occur following stock
dividends where the division does not result
in a whole number of shares
○ for instance, if a stockholder owns
250 shares and the corporation
declares a 25% stock dividend, the
stockholder would receive an
additional 62.5 shares
■ the corporation might
purchase the fractional
0.5 share to streamline
share ownership and
distribution
2. To Collect or Compromise Indebtedness
● when a stockholder fails to fully pay for their
subscribed shares, the corporation might
purchase these shares to settle the
indebtedness, especially during a
delinquency sale if there are no other buyers
willing to cover the full amount due
3. To Pay Dissenting or Withdrawing Stockholders
● if stockholders dissent or decide to withdraw
their shares following corporate actions they
disagree with, and if they are entitled to
payment for their shares under the
corporation's rules or local laws (such as the
appraisal right), the corporation may acquire
these shares
4. To Acquire Redeemable Shares
● corporations might issue redeemable shares
that can be re-purchased or redeemed after
a certain period as stipulated in the articles
of incorporation
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○ this action is typically pre-defined
by the terms of the shares and may
not necessarily depend on the
existence of unrestricted retained
earnings
5. To Acquire Treasury Shares
● treasury shares result when a corporation
buys back its own issued stock, thereby
reducing the amount of outstanding stock
on the open market
○ these shares can later be resold,
potentially at a higher price, to
raise new capital or adjust the
capital structure without issuing
new shares
INSTANCES A CORPORATION MAY ACQUIRE ITS OWN
SHARES DESPITE THE ABSENCE OF UNRESTRICTED
RETAINED EARNINGS
a. Redemption of redeemable shares
b. Donation of shares to the corporation
c. Levy/garnishment of shares to satisfy the judgment
in favor of the corporation
d. Conveyance of shares to the corporation in payment
of a debt.
By express provision of law, a corporation may redeem
redeemable shares regardless of the existence of retained
earnings.
Surplus profit should only be required if the corporation will
disburse its funds. Thus, the conveyance and garnishment
of shares to satisfy a debt may be done even without
surplus profit, otherwise, the corporation’s right as a
creditor will be significantly impaired.
Section 41. Power to Invest Corporate Funds in Another
Corporation or Business or for Any Other Purpose. -
Subject to the provisions of this Code, a
private corporation may invest its funds in
any other corporation, business, or for any
purpose other than the primary purpose for
which it was organized, when approved by a
majority of the board of directors or
trustees and ratified by the stockholders
representing at least two-thirds (2/3) of the
outstanding capital stock, or by at least two
thirds (2/3) of the members in the case of
nonstock corporations, at a meeting duly
called for the purpose. Notice of the
proposed investment and the time and
place of the meeting shall be addressed to
each stockholder or member at the place of
residence as shown in the books of the
corporation and deposited to the addressee
in the post office with postage prepaid,
served personally, or sent electronically in
accordance with the rules and regulations
of the Commission on the use of electronic
data message, when allowed by the bylaws
or done with the consent of the
stockholders: Provided, That any dissenting
stockholder shall have appraisal right as
provided in this Code: Provided, however,
That where the investment by the
corporation is reasonably necessary to
accomplish its primary purpose as stated in
the articles of incorporation, the approval of
the stockholders or members shall not be
necessary.
WHERE MAY THE FUNDS BE INVESTED?
The funds of the corporation may be invested in the primary
purpose or in the secondary purpose/s of the corporation as
specified in the articles of incorporation or in any other
corporation or business other than the corporation’s primary
and secondary purposes
➔ Primary Purpose
◆ The board approval suffices
➔ Other kinds of investment
◆ Board and stockholders’ approvals are
required.
➔ Investment made in any business other than the
primary and secondary purpose
◆ There should be an amendment to the
articles of incorporation to include the
desired business activity
◆ Otherwise, the investment is ultra vires.
(beyond the powers)
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REQUISITES TO INVEST CORPORATE FUNDS FOR
PURPOSES OTHER THAN PRIMARY PURPOSE
A. Such action must be approved by a majority of the
board of directors or trustees and ratified by the
stockholders representing at least two-thirds (2/3) of
the outstanding capital stock, or by at least
two-thirds (2/3) of the members in case of a
nonstock corporation, at a stockholders’ or members’
meeting duly called for the purpose.
B. The notice for a proposed investment and the
meeting details must be sent to each stockholder or
member at their residence as recorded in the
corporation's books. It can be sent via mail with
prepaid postage, delivered personally, or
electronically following SEC regulations on electronic
messages, if permitted by the bylaws or approved by
the stockholders.
C. Any dissenting stockholder shall have appraisal right
as provided in the RCC
Section 42. Power to Declare Dividends. -
The board of directors of a stock
corporation may declare dividends out of
the unrestricted retained earnings which
shall be payable in cash, property, or in
stock to all stockholders on the basis of
outstanding stock held by them: Provided,
That any cash dividends due on delinquent
stock shall first be applied to the unpaid
balance on the subscription plus costs and
expenses, while stock dividends shall be
withheld from the delinquent stockholders
until their unpaid subscription is fully paid:
Provided, further, That no stock dividend
shall be issued without the approval of
stockholders representing at least
two-thirds (2/3) of the outstanding capital
stock at a regular or special meeting duly
called for the purpose.
Stock corporations are prohibited from
retaining surplus profits in excess of one
hundred percent (100%) of their paid-in
capital stock, except: (a) when justified by
definite corporate expansion projects or
programs approved by the board of
directors; or (b) when the corporation is
prohibited under any loan agreement with
financial institutions or creditors, whether
local or foreign, from declaring dividends
without their consent, and such consent has
not yet been secured; or (c) when it can be
clearly shown that such retention is
necessary under special circumstances
obtaining in the corporation, such as when
there is need for special reserve for
probable contingencies.
DIVIDENDS
Dividends are corporate profits allocated, lawfully declared
and ordered by the directors to be paid proportionately to the
stockholders in the form of cash, property, or stocks.
ARE PROFITS THE SAME AS DIVIDENDS?
Profits are the sources of dividends. Profits are dividends only
when they have been set aside for distribution to stockholders
under the conditions specified by law.
Profits belong to the corporation while dividends once
declared, belong to the stockholder
CONDITIONS CORPORATIONS CAN DECLARE DIVIDENDS
A. The corporation must have unrestricted retained
earnings as of the last fiscal or calendar year.
● a corporation cannot declare dividends
when it has zero or negative retained
earnings.
● surplus profits from the corporation's
business operations are necessary before
dividends can be declared.
B. The dividends shall be payable in cash, in property, or
in stock to all stockholders based on outstanding
stock held by them.
C. board of directors. In case of stock dividends, in
addition to board approval, the declaration must
likewise be approved by the stockholders
representing at least twothirds (2/3) of the
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outstanding capital stock at a regular or special
meeting duly called for the purpose
● Board approval does not mean the majority
of the entire board. Majority of the quorum
will suffice unless the bylaws provide
otherwise
RETAINED EARNINGS
Accumulated profits realized out of normal and continuous
operations of the business after deducting therefrom
distributions to stockholders and transfers to capital stock or
other accounts
● retained earnings or portion thereof are
unrestricted if there are no legal and
contractual impediment for their distribution
to the stockholders.
Retained Earnings = Assets - Liabilities and Subscriptions
It is not mandatory for the corporation to seek prior approval/
advice from the SEC to declare cash and stock dividend
provided the following are complied with:
1. Cash Dividend Declaration
● Board of Directors approval of the cash
dividend declaration
● SUfficient unrestricted retained earnings as
of the last fiscal or calendar year.
2. Stock DIvidend Declaration
● Board of Directors approval of the stock
dividend declaration
● Stockholders’ approval representing at least
twothirds (2/3) of the outstanding capital
and sufficient portion of the present
authorized capital;
● Sufficient unrestricted retained earnings as
of the last fiscal or calendar year.
If the stock dividend declaration requires an increase of
authorized capital stock, an application therefor is mandated
to be filed with the SEC pursuant to Section 37 of the RCC
The declaration of dividends is discretionary, but surplus
profits exceeding 100% of paid-in capital stock must be
justified. The board may need to declare dividends if surplus
profits exceed this limit without valid reasons. Section 49 of
the RCC requires the board to explain dividend policies and
reasons for payment or nonpayment to stockholders.
EXCEPTION:
➔ when justified by definite corporate expansion
projects or programs approved by the board of
directors
➔ when the corporation is prohibited under any loan
agreement with financial institutions or creditors
➔ when it can be clearly shown that such retention is
necessary under special circumstances obtaining in
the corporation
CLASSES AND SOURCES OF SURPLUS
A. Surplus arising from profits earned by the corporation
in the regular course of its business.
B. Earned surplus which includes non-operating profits
arising from the sale of fixed assets, investments, and
other non-recurring profit transactions.
C. Paid-up surplus which arises from the issuance of
shares for a premium or a price above par value.
D. Revaluation or appraisal surplus which arises from the
revaluation of the acquired corporate assets or
marking up their value in the books of the
corporation.
E. Reduction surplus which arises from the reduction of
the corporation’s capital stock.
Dividends cannot be paid from paid-in capital or
revaluation/appraisal surplus:
1. Paid-in Capital. This includes premiums above the par
value of shares and must not be used for dividends unless
there's an approved corporate restructuring by the SEC.
2. Revaluation/Appraisal Surplus. Increases in asset values
recorded as revaluation surplus do not count as retained
earnings and cannot be used for dividends. Only actual
gains from the sale of such revalued assets are eligible for
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dividend distribution.
KINDS OF DIVIDENDS
Dividends are primarily of two types: cash dividends and stock
dividends.
1. Cash Dividends
● these involve the payment of corporate
earnings directly to shareholders in cash
● cash dividends…
○ increase the shareholder's wealth
directly
○ do not alter the shareholder's
proportional interest in the
company
○ are taxable when received by
individuals
○ once declared, create a restriction is due to the trust fund doctrine, which protects
creditor-debtor relationship
between the shareholder and the
corporation, making revocation
impossible
2. Stock Dividends
● these are paid out in the form of additional
shares instead of cash
● stock dividends…
○ do not involve the direct
disbursement of corporate earnings
○ do not immediately alter the wealth
of the shareholder
○ decrease each share's fractional
interest in the corporate property
○ are not taxable since they
represent a transfer of surplus to
the capital account without a
realized income flow
○ require the approval of the majority
of the board of directors and
stockholders holding at least
two-thirds of the outstanding
capital stock
○ can be revoked before the actual
issuance of shares, as the dividend
is consummated not by declaration
but by issuance
Additionally, if there are cash dividends due on delinquent
stock, they must first be applied to the unpaid balance on the
subscription, along with costs and expenses. In contrast, stock
dividends are withheld from delinquent shareholders until
their subscription is fully paid.
A corporation may offset or apply cash dividends against
any debts a stockholder owes to the corporation. Once cash
dividends are declared, stockholders become creditors of
the corporation, allowing the principle of legal
compensation under the Civil Code to apply. This means
that the mutual obligations can extinguish each other to the
extent of their common value.
However, treasury shares cannot be distributed as property
dividends to stockholders without unrestricted retained
earnings beyond the cost of these treasury shares. This
corporate capital for the benefit of creditors, preventing
these assets from being distributed to shareholders.
MANAGEMENT CONTRACT
A management contract is an agreement under which one
corporation delegates the management of its affairs to
another corporation for a certain period of time. Although it
may have a different name, it is considered a management
contract as long as the intention is to entrust the management
of one corporation's business affairs to another corporation.
To enter into management contracts, the following
requirements and limitations must be observed:
1. Approval Requirements
● the management contract must be approved
by the board of directors and by
stockholders owning at least the majority of
the outstanding capital stock, or by at least
the majority of members in the case of a
nonstock corporation, of both the managing
and managed corporations at a meeting duly
called for the purpose
2. Special Approval for Interconnected Corporations
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● if a stockholder or group of stockholders
representing the same interest own and
control more than one-third of the total
outstanding capital stock entitled to vote of
the managing corporation, or if a majority of
the members of the board of directors of the
managing corporation also constitute a
majority of the board of the managed
corporation, then the management contract
must be approved by stockholders of the
managed corporation owning at least
two-thirds (2/3) of the total outstanding
capital stock entitled to vote, or by at least
two-thirds (2/3) of the members in the case
of a nonstock corporation
3. Duration Limitation
● generally, no management contract should
be entered into for a period longer than five
(5) years for one term
○ however, exceptions exist for
service contracts or operating
agreements related to the
exploration, development,
exploitation, or utilization of natural
resources, which may be entered
into for periods as stipulated by
relevant laws or regulations (e.g., up
to 25 years under certain
conditions like the Mining Act of
1995)
These conditions ensure both operational consistency and the
avoidance of potential conflicts of interest, especially in
scenarios where the management roles overlap significantly
between the managing and managed entities.
LIMITATIONS (ULTRA VIRES ACTS)
An ultra vires act occurs when a corporation undertakes
activities beyond the scope of its legal powers and objectives
as defined by its charter and relevant laws
● these acts are unauthorized and cannot be
legitimized even with shareholder approval, unless
they are incidental to the corporation’s lawful
purposes
Test for Ultra Vires Acts
The test to determine whether an act is within the powers of a
corporation checks if the act directly and immediately
advances the corporation’s business, relates closely to its
express powers, and is necessary for their execution. It
assesses the logical connection between the act and the
corporation’s stated purpose in its charter.
If the act is legal, serves corporate goals, and substantially
aids in promoting these ends, it is typically considered within
the corporation’s powers. Acts that meaningfully support or
enhance the corporation’s objectives, even if not explicitly
listed in its primary purposes, may still fall within its scope of
powers.
APPLICABILITY OF ULTRA VIRES DOCTRINE
Ultra vires acts are not limited only to activities outside the
corporation's express and incidental powers. They also include:
1. Actions taken beyond the powers provided by law or
the corporation's articles of incorporation
2. Actions performed by individuals without proper
authority or exceeding their granted authority
3. Actions or contracts inherently illegal as they
contradict existing laws.
While illegal acts are inherently ultra vires (beyond the powers
of the corporation), not all ultra vires acts are illegal. An ultra
vires act is merely voidable and can potentially be ratified
under equitable conditions, whereas an illegal act is void and
cannot be validated. An ultra vires act that isn't illegal may be
ratified by the stockholders unless it affects the rights of the
state or creditors. However, the general rule is that ultra vires
acts cannot simply be ratified to make them valid.
CONSEQUENCES OF ULTRA VIRES ACTS
The consequences of ultra vires acts can vary based on the
status of the contract and the jurisdiction, but they generally
fall into several categories:
1. If the contract is executed on both sides
● courts will typically not intervene or undo
the transaction if both parties have fully
performed their obligations under the
contract
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● both parties will be left to the consequences
of what has already been transacted
2. If the contract is executory on both sides
● such contracts will generally not be enforced
by the courts and this non-enforcement is
due to the principle that no party should
benefit from an agreement that was outside
the corporation's legal capacity to enter, as
enforcing such a contract would be against
public policy.
3. If the contract is executed on one side and executory
on the other
● in some jurisdictions, the courts may enforce
the contract in favor of the party who has
fulfilled their part of the agreement
○ this enforcement can occur to
prevent the other party, who has
benefitted from the contract, from
avoiding their obligations simply
because the contract was ultra vires
4. Contracts apparently authorized but actually ultra
vires
● if a contract was made for purposes outside
the corporation's scope of business and this
purpose was unknown to the other party, the
contract may still be enforceable against the
corporation
○ this scenario ensures fairness to
the party that entered into the
agreement in good faith and
without knowledge of the
corporation's limitations
REMEDY OF THE STOCKHOLDER AGAINST AN ULTRA
VIRES ACT
● Preventive
○ if the ultra vires act has not yet been
executed, a stockholder may seek an
injunction to prevent the corporation from
performing or continuing the ultra vires act
● Corrective
○ if the act has already been performed, a
stockholder can initiate a derivative suit on
behalf of the corporation to seek redress or
set aside the act
DOCTRINE OF INDIVIDUALITY OF SUBSCRIPTION
● a subscription is one, entire, and indivisible whole
contract
● this indivisibility of subscription is absolute as Section
63 of the RCC speaks no exception
● the purpose of the doctrine is to prevent the
partial disposition of a subscription, which is
not fully paid, because if it is permitted and
the stockholder 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 from him pursuant to Section 67 of
the RCC.
DOCTRINE OF EQUALITY OF SHARES
● it means that all stocks issued by the corporation are
presumed equal, with the same privileges and
liabilities, provided that the articles of incorporation
are silent on such differences
As stated otherwise, each share shall be equal in all
respects to every other share, except as otherwise provided
in the articles of incorporation and the certificate of stock.
Thus, all shares have the same rights and privileges unless
classified differently in the Articles of Incorporation, and
such classification is not contrary to law. Preferred shares,
therefore, have the same voting rights similar to common
shares unless the preferred shares are denied such rights in
the articles of incorporation.
● Any restriction on shares should also be stated in the
articles of incorporation, otherwise, it is not valid. In a
couple of cases, the Supreme Court held that any lien
on shares, like being held as security for payment of
dues and assessments, must be in the articles of
incorporation, not only in the bylaws, otherwise, it is
invalid.
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TRUST FUND DOCTRINE
● The trust fund doctrine provides that subscriptions to
the capital stock of a corporation constitute a fund to
which the creditors have a right to look for the
satisfaction of their claims. In a sense, they have to be
unimpaired for the protection of creditors. These
cover the entire consideration received for the
issuance of no par value shares or the aggregate
amount for the par value shares issued by the
corporation
○ it must be noted, however, that the trust
fund doctrine is not limited to the
stockholders’ subscriptions
■ the scope of the doctrine
encompasses not only the capital
stock but also other property and
assets generally regarded in equity
as a trust fund for the payment of
corporate debts
VIOLATING THE TRUST FUND DOCTRINE
The Trust Fund Doctrine is violated in the following cases:
1. The corporation has distributed its capital among the
stockholders without providing for the payment of
creditors
2. It released the subscribers to the capital stock from
their unpaid subscriptions
3. It transferred corporate property in fraud of its
creditors
4. It distributed properties to stockholders except by
way of dissolution and liquidation, the redemption of
redeemable shares, and the reduction of capital stock
5. When it declared dividends without unrestricted
retained earnings
6. When it acquired its shares without unrestricted
retained earnings
Additional paid-in capital or APIC forms part of the equity
emanating from the original subscription agreement.
● APIC, as a premium, forms part of the capital of the
corporation and therefore, falls within the purview
of the trust fund doctrine. There have been
previous SEC Opinions. that stock dividends can be
declared out of APIC but the most recent SEC
regulation, as previously pointed out, is that APIC
shall neither be declared as a dividend nor shall it
be reclassified to absorb deficiency except through
an organizational restructuring duly approved by
the SEC.
DOCTRINE OF APPARENT AUTHORITY
● The doctrine of apparent authority provides that a
corporation will be estopped from denying the agent’s
authority if it knowingly permits one of its officers or
any other agent to act within the scope of apparent
authority, and it holds him out to the public as
possessing the power to do those acts.
○ although an officer or agent acts without, or
in excess of, his actual authority if he acts
within the scope of an apparent authority
with which the corporation has clothed him,
by holding him out or permitting him to
appear as having such authority, the
corporation is bound thereby in favor of a
person who deals with him in good faith in
reliance on such apparent authority, as
where an officer is allowed to exercise a
particular authority with respect to the
business, or a particular branch of its
continuously and publicly, for a considerable
time.
SEC. 48. Kinds of Meetings. -
Meetings of directors, trustees, stockholders, or
members may be regular or special.
The revised text of SEC. 48 provides an outline of the different
types of meetings that may be held by a corporation,
specifically meetings of directors, trustees, stockholders, or
members. It states that these meetings may be either regular
or special.
1. Regular Meetings
● These are scheduled meetings that take
place at fixed intervals as specified in the
corporation's by-laws.
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● The purpose of these meetings is to conduct
routine business and discuss ongoing
matters within the corporation.
2. Special Meetings
● These are meetings called for a specific
purpose outside of the regular meeting
schedule.
● Special meetings may be called by certain
individuals (such as the board of directors or
trustees) or groups as outlined in the
by-laws or governing documents of the
corporation.
● The purpose of a special meeting must be
specified when calling the meeting, and
discussions at the meeting should focus on
the stated purpose.
SEC. 49. Regular and Special Meetings of Stockholders or
Members. -
Regular meetings of stockholders or members shall
be held annually on a date fixed in the bylaws, or if
not so fixed, on any date after April 15 of every year
as determined by the board of directors or trustees:
Provided, That written notice of regular meetings
shall be sent to all stockholders or members of
record at least twenty-one (21) days prior to the
meeting, unless a different period is required in the
bylaws, law, or regulation: Provided, further, That
written notice of regular meetings may be sent to all
stockholders or members of record through
electronic mail or such other manner as the
Commission shall allow under its guidelines.
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 which shall include, among
others:
i. a description of the voting and
vote tabulation procedures used
in the previous meeting;
ii. a description of the opportunity
given to stockholders or
members to ask questions and a
record of the questions asked and
answers given;
iii. the matters discussed and
resolutions reached
iv. a record of the voting results for
each agenda item;
v. a list of the directors or trustees,
officers and stockholders or
members who attended the
meeting; and
vi. such other items that the
Commission may require in the
interest of good corporate
governance and the protection of
minority stockholders.
b. a members’ list for nonstock 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
corporation’s performance, which shall
include information on any material
change in the corporation’s business,
strategy, and other affairs;
d. a financial report for the preceding year,
which shall include financial statements
duly signed and certified in accordance
with this Code and the rules the
Commission may prescribe, a statement
on the adequacy of the corporation’s
internal controls or risk management
systems, and a statement of all external
audit and non-audit fees;
e. an explanation of the dividend policy and
the fact of payment of dividends or the
reasons for nonpayment thereof;
f. director or trustee profiles which shall
include, among others, their qualifications
and relevant experience, length of service
in the corporation, trainings and
continuing education attended, and their
board representations in other
corporations;
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
prepared in accordance with this Code and
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the rules the Commission may prescribe;
j. director disclosures on self-dealings and
related party transactions; and/or
k. the profiles of directors nominated or
seeking election or reelection.
A director, trustee, stockholder, or member may
propose any other matter for inclusion in the
agenda at any regular meeting of stockholders or
members.
Special meetings of stockholders or members shall
be held at any time deemed necessary or as
provided in the bylaws: Provided, however, That at
least one (1) week written notice shall be sent to all
stockholders or members, unless a different period
is provided in the bylaws, law or regulation.
A stockholder or member may propose the holding
of a special meeting and items to be included in the
agenda.
Notice of any meeting may be waived, expressly or
impliedly, by any stockholder or member: Provided,
That general waivers of notice in the articles of
incorporation or the bylaws shall not be allowed:
Provided, further, That attendance at a meeting
shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the
express purpose of objecting to the transaction of
any business because the meeting is not lawfully
called or convened.
Whenever for any cause, there is no person
authorized or the person authorized unjustly
refuses to call a meeting, the Commission, upon
petition of a stockholder or member on a showing
of good cause therefor, may issue an order
directing the petitioning stockholder or member to
call a meeting of the corporation by giving proper
notice required by this Code or the bylaws. The
petitioning stockholder or member shall preside
thereat until at least a majority of the stockholders
or members present have chosen from among
themselves, a presiding officer.
Unless the bylaws provide for a longer period, the
stock and transfer book or membership book shall
be closed at least twenty (20) days for regular
meetings and seven (7) days for special meetings
before the scheduled date of the meeting.
In case of postponement of stockholders’ or
members’ regular meetings, written notice thereof
and the reason therefor shall be sent to all
stockholders or members of record at least two (2)
weeks prior to the date of the meeting, unless a
different period is required under the bylaws, law or
regulation.
The right to vote of stockholders or members may
be exercised in person, through a proxy, or when so
authorized in the bylaws, through remote
communication or in absentia. The Commission
shall issue the rules and regulations governing
participation and voting through remote
communication or in absentia, taking into account
the company’s scale, number of shareholders or
members, structure, and other factors consistent
with the protection and promotion of shareholders’
or member’s meetings.
REQUISITES OF A VALID STOCKHOLDERS MEETING
I. Regular or Special Meeting
a. It must be held at the stated date and the appointed
time or at a reasonable time thereafter.
i. To determine the date of the annual
stockholder’s meeting, consult the
company’s bylaws.
b. There must be a previous notice
i. The notice must be in the form required by
the bylaws,
ii. given within the period fixed in the bylaws
and;
iii. sent by the proper officer authorized
therein.
c. It must be called by the proper person.
i. Authorized person is stated in the bylaws.
ii. If not, the authority to call a stockholders’
meeting rests with the board of directors.
d. It must be held in the proper place.
i. Meetings are mandatorily held in the
principal office of the corporation.
ii. If not practicable, in the city or municipality
where the principal office is located.
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e. The quorum and voting requirements must be met.
KEY POINTS
This section outlines the procedural and informational
requirements for the conduct of regular meetings of
stockholders or members in a corporation. It emphasizes
transparency, accountability, and active participation in
corporate governance.
1. Timing and Notice of Meetings
● Regular meetings must occur annually, with
a date set either in the bylaws or determined
by the board of directors or trustees
● The timing for these meetings is set to occur
after April 15 each year
○ all stockholders or members must
receive written notice of the
meeting at least twenty-one days in
advance, unless otherwise specified
in the bylaws or required by law
● Notices can be sent via traditional mail or
electronically, as permitted by the
Commission's guidelines.
2. Contents of Regular Meetings
● Minutes of Previous Meeting
○ should detail the voting procedures,
opportunities for shareholder
questions, discussions, resolutions,
voting results, attendee list, and
other required items
● Members' and Stockholders' Information
○ for nonstock corporations, a
members' list, and for stock
corporations, details about current
stockholders and their voting rights
● Corporate Performance Assessment
○ a thorough and balanced review of
the corporation’s past year's
performance, noting any significant
changes in business strategies or
operations
● Financial Report
○ an annual report including financial
statements and audits, the
adequacy of internal controls, and
external audit fees
● Dividend Policy
○ explanation of the policy and
details of dividends paid or reasons
for non-payment
● Director/Trustee Information
○ profiles, attendance records,
qualifications, training, and other
relevant experiences, including
board representations in other
corporations
● Board Appraisals and Performance Reports
○ assessment of the board's
performance and the criteria used
for evaluations
● Compensation and Self-dealings Report
○ reports on director or trustee
compensation and disclosures
regarding self-dealings and related
party transactions
● Nominations for Directors/Trustees
○ profiles of individuals nominated for
election or re-election
3. Proposal of Agenda Items
● Directors, trustees, stockholders, or
members can propose additional matters for
inclusion in the meeting agenda.
4. Special Meetings
● These can be called as necessary or as
specified in the bylaws, with at least one
week's notice required unless otherwise
stipulated.
5. Waiving of Notice
● Notices can be waived either expressly or
impliedly; however, attendance at a meeting
mainly to object to the proceedings does not
constitute a waiver.
6. Remote Participation and Voting
● The bylaws may allow voting in person, via
proxy, remotely, or in absentia, with specific
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rules and regulations issued by the
Commission.
SEC. 50. Place and Time of Meetings of Stockholders or
Members. –
Stockholders’ or members’ meetings, whether
regular or special, shall be held in the principal
office of the corporation as set forth in the articles
of incorporation, or, if not practicable, in the city or
municipality where the principal office of the
corporation is located: Provided, That any city or
municipality in Metro Manila, Metro Cebu, Metro
Davao, and other Metropolitan areas shall, for
purposes of this section, be considered a city or
municipality.
Notice of meetings shall be sent through the means
of communication provided in the bylaws, which
notice shall state the time, place and purpose of the
meetings. Each notice of meeting shall further be
accompanied by the following:
The agenda for the meeting;
A proxy form which shall be submitted to the
corporate secretary within a reasonable time prior
to the meeting;
When attendance, participation, and voting are
allowed by remote communication or in absentia,
the requirements and procedures to be followed
when a stockholder or member elects either option;
and
When the meeting is for the election of directors or
trustees, the requirements and procedure for
nomination and election.
All proceedings and any business transacted at a
meeting of the stockholders or members, if within
the powers or authority of the corporation, shall be
valid even if the meeting is improperly held or
called: Provided, That all the stockholders or
members of the corporation are present or duly
represented at the meeting and not one of them
expressly states at the beginning of the meeting
that the purpose of their attendance is to object to
the transaction of any business because the
meeting is not lawfully called or convened.
PLACE AND TIME OF MEETINGS
Regular meetings of stockholders or members happen yearly
on a date set in the bylaws or after April 15, chosen by the
board of directors or trustees if not specified.
● This date change is because April 15 is typically the
deadline for tax filing, making it more practical to
hold the meeting after that.
Special meetings can be held whenever necessary or as stated
in the bylaws
● Shareholders can suggest holding a special meeting
and what should be discussed.
● Shareholders holding at least five percent of a
publicly-listed company's stock can add items to the
agenda before regular or special meetings.
○ If any company official wrongly blocks this
right, they may face penalties under the
RCC.
REQUIRED VENUE FOR MEETINGS
A. Principal Office
● For regular or special meetings
B. Any City or Municipality where the principal location
is located
According to the RCC, stockholder or member meetings
must take place at the principal office, or if that's not
possible, in the same city or town as the office. However, the
OCC allows meetings in the city or town where the principal
office is located and, if feasible, at the principal office itself.
The RCC limits the venue options for meetings.
For example, if the bylaws specify Makati City as the
principal office, meetings cannot happen in any other city,
even if it's within Metro Manila.
NOTICE OF THE MEETING
For regular meetings, written notice must be sent to all
stockholders or members at least 21 days in advance, unless
the bylaws, law, or regulation require a different period.
● Electronic mail or other methods approved by the
SEC can be used for sending notices.
● Special meetings require at least one week's written
notice unless specified otherwise.
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With this, stockholders or members can waive notice, but
general waivers in the articles of incorporation or bylaws are
not allowed.
● Attendance at a meeting is considered a waiver of
notice, except if attending solely to object to the
meeting's legality.
● The person who petitions will lead the meeting until a
majority of the stockholders or members present
choose a presiding officer.
MINUTES AND AGENDA OF MEETINGS

Notices should be sent according to the communication methods At every regular meeting of stockholders or members, the
specified in the bylaws and should include the time, place, and board of directors or trustees should try to provide the
purpose of the meeting. following:

CONTENTS OF THE NOTICE 1. Minutes of the previous meeting, including details on

1. Agenda for the meetings voting procedures, questions asked, matters
discussed, and voting results.

2. A proxy form to be submitted to the secretary within 2. A list of attendees.

a reasonable time prior the meeting 3. Any additional items required by the SEC for good
3. When stockholders or members can attend, corporate governance.
participate, and vote remotely or in absentia, the 4. For nonstock corporations, a members' list, and for
requirements and procedures for choosing either stock corporations, details on current stockholders
option must be followed. and their voting rights.
4. When the meeting is for the election of directors or 5. An overview of the corporation's performance,
trustees, the requirements and procedure for including any significant changes in business,
nomination and election. strategy, or affairs.
6. Financial report for the previous year, including
MODES OF NOTICE OF MEETING signed and certified financial statements, statements
1. Personal on internal controls or risk management, and audit
2. Mail or publication fees.
3. Electronic mail 7. Explanation of the dividend policy and whether
4. Other modes allowed by the SEC as long as it follows dividends were paid or not.
the bylaws 8. Profiles of directors or trustees, including
qualifications, experience, and other board
VALIDITY OF REGULAR MEETINGS EVEN WITHOUT NOTICE memberships.
9. Attendance report of directors or trustees at board
The regular stockholders’ meeting is valid despite lack of and committee meetings
written notice to the stockholders if the bylaws specify the 10. Appraisals and performance reports for the board,
date and time of the annual meeting. It was held that the along with assessment criteria and procedures.
failure to give notice of the regular or annual meetings, will not 11. Compensation report for directors or trustees.
affect the validity of the regular or annual stockholders’ 12. Disclosures on self-dealings and related party
meeting or the proceedings therein. transactions.
13. Profiles of nominated or seeking election directors.
WHO CALLS THE STOCKHOLDERS’ AND MEMBERS’ 14. Any other matters proposed by a director, trustee,
MEETING stockholder, or member for inclusion in the agenda.

The authorized person according to the bylaws should call the

For closure of books, the stock or membership book must
meeting. But if there's no authorized person or if they refuse be closed for at least 20 days before regular meetings and
without a good reason, a stockholder or member can ask the seven days before special meetings.
SEC for an order to call the meeting.

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RULE ON POSTPONEMENT OF MEETINGS
1. Postponement of regular meetings requires written
notice sent to all stockholders or members at least
two weeks prior, unless the bylaws or regulations
demand a different period.
2. If regular stockholder elections are not held, a report
with reasons must be submitted to the SEC within 30
days from the scheduled date. A new election date
must be set within 60 days from the original date.
3. If no new date is set or the rescheduled election
doesn't happen, the SEC, upon request and after
verifying the unjustified delay, can order an election.
The SEC has the authority to issue necessary orders,
including specifying the election details and setting
the record date for voting.
4. Despite any contrary provisions in the articles of
incorporation or bylaws, the shares represented at
the meeting and entitled to vote will constitute a
quorum for the election.
INSTANCES WHERE POSTPONEMENT IS NOT VALID
1. The SEC has consistently stated that directors and
officers cannot postpone regular elections to extend
their terms unless there are valid and justifiable
reasons. Holdover terms are only allowed when no
successors are elected for valid reasons.
2. Incurring significant expenses to hold a meeting or
uncertainty about achieving a quorum are not
considered valid reasons for postponing an election,
according to another SEC opinion.
3. Section 88 of the RCC allows nonstock corporations
to address quorum issues by enabling voting by
proxy, mail, or similar means if members cannot
attend in person.
EFFECT OF THE STOCKHOLDER’S ABSTENTION DURING
THE MEETING
● If a shareholder is present at a meeting but chooses
not to vote, they can't demand payment for their
shares' fair value, even if appraisal rights apply by law.
○ This is because one of the conditions for
appraisal rights is voting against the
proposed corporate action, and abstention
means they didn't fulfill this requirement.
○ However, abstaining shareholders are still
considered for meeting quorum.
SEC. 51. Quorum in Meetings. -
Unless otherwise provided in this Code or in the
bylaws, a quorum shall consist of the stockholders
representing a majority of the outstanding capital
stock or a majority of the members in the case of
nonstock corporations.
QUORUM
● Unless stated differently in the Corporation Code or
bylaws, a quorum requires a majority of the
outstanding capital stock for stock corporations.
○ This includes all shares issued, such as
founders’ shares or common shares, not just
those listed in the stock and transfer book.
● For nonstock corporations, the quorum is based on
the number of members eligible to vote unless the
bylaws specify otherwise.
○ For example, delinquent members may not
be counted toward the quorum if the bylaws
say so.
Quorum which is less than a majority. The corporation's
bylaws can set a quorum that's either less than or more than
what's stated in the RCC, unless the RCC says otherwise.
But if the RCC requires a specific number of stockholders or
members for certain decisions, the bylaws' quorum rule
won't apply.
VALIDITY OF IMPROPERLY HELD MEETING
All proceedings and any business transacted at a meeting of
the stockholders or members, if within the powers or authority
of the corporation, shall be valid even if the meeting is
improperly held or called.
● It should be noted that the stockholders or
members should be present and properly
represented and none object to its
lawfulness at the start
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This section serves as a general rule for determining the

Directors or trustees who cannot physically attend
minimum representation required for a meeting of
or vote at board meetings can participate and vote
stockholders or members to conduct business. However, the
through remote communication such as
provision allows for alternative quorum requirements if
videoconferencing, teleconferencing, or other
specified in the Revised Corporation Code itself or in the
alternative modes of communication that allow
corporation's by-laws.
them reasonable opportunities to participate.
Directors or trustees cannot attend or vote by
This flexibility means corporations can tailor their own quorum
proxy at board meetings.
requirements through their by-laws to fit their specific needs,
as long as these provisions are not inconsistent with the
A director or trustee who has a potential interest in
Revised Corporation Code.
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.

Section 52. Regular and Special Meetings of Directors or

SEC. 52 of the Revised Corporation Code outlines the rules
Trustees; Quorum. -
and procedures for holding regular and special meetings of
Unless the articles of incorporation or the bylaws
directors or trustees, as well as the quorum requirements and
provide for a greater majority, a majority of the
voting rules for such meetings.
directors or trustees as stated in the articles of
incorporation shall constitute a quorum to transact
QUORUM FOR BOARD MEETINGS
corporate business, and every decision reached by
at least a majority of the directors or trustees
Here, a majority of the directors or trustees as stated in the
constituting a quorum, except for the election of
articles of incorporation shall constitute a quorum to transact
officers which shall require the vote of a majority
corporate business, unless the articles of incorporation or the
of all the members of the board, shall be valid as a
bylaws provides for a greater majority.
corporate act.

Furthermore, every decision reached by at least a majority of

Regular meetings of the board of directors or
the directors or trustees constituting a quorum, except for the
trustees of every corporation shall be held
election of officers which shall require the vote of a majority of
monthly, unless the bylaws provide otherwise.
all the members of the board, shall be valid as a corporate act.

Special meetings of the board of directors or

CORPORATE ACTS UNDER RCC REQUIRING ONLY
trustees may be held at any time upon the call of
MAJORITY OF THE QUORUM
the president or as provided in the bylaws.

1. Declaration of dividends
Meetings of directors or trustees of corporations
2. Entering into a management contract
may be held anywhere in or outside of the
3. Fixing the issued price of no-par value shares
Philippines, unless the bylaws provide otherwise.
4. And such other corporate acts which under the RCC
Notice of regular or special meetings stating the
and the bylaws do not require approval by at least
date, time and place of the meeting must be sent
majority of the entire board.
to every director or trustee at least two (2) days
prior to the scheduled meeting, unless a longer
Thus, whenever the RCC or the bylaws require board approval, as
time is provided in the bylaws. A director or
opposed to the majority of the entire board, it means the majority
trustee may waive this requirement, either
of the quorum of the board of directors.
expressly or impliedly.

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QUORUM IN STOCK QUORUM IN NON STOCK
CORPORATIONS CORPORATIONS
A quorum for a meeting of A quorum for a meeting of
stockholders in a stock members in a non-stock
corporation consists of the corporation consists of a
stockholders representing a majority of the members.
majority of the outstanding
capital stock.
DIRECTOR OR TRUSTEE CASTING A VOTE IN A MEETING
VIA REMOTE COMMUNICATION
● The director or trustee in the meeting via remote
communication may cast his vote through electronic
mail, messaging service or such other manner as may
be provided in internal procedures. The vote shall be
sent to the Presiding Officer and the Corporate
Secretary for notation.
RULE ON ABSTENTION
a. Effects of stockholder’s abstention during
stockholders’ meetings?
● In those cases specified by law on instances
of appraisal right, a stockholder present in a
meeting but abstains, is not entitled to
exercise such right. He cannot demand
payment of the fair value of his shares,
because one of the elements of appraisal
right is his vote against the proposed
corporate act. As such, abstention is
tantamount to a waiver of appraisal right.
● Stockholders who abstain from voting are,
however, counted for quorum purposes.
b. When is a director or trustee required to recuse
from voting during a board meeting?
● Without prejudice to Section 31 of the RCC
(Dealings of Directors, Trustees or Officers
with the Corporation), a director or trustee
who has a potential interest in any related
party transaction is required to recuse from
voting on the approval of the related party
transaction pursuant to Section 52 of the
RCC.
c. Is the director who abstained or recused himself
from voting on a particular measure counted for
quorum purposes?
● A director who abstained or recused himself
from voting should be considered as present
for quorum purposes. His abstention,
however, may have a bearing on the validity
of the board approval depending on whether
the RCC or the bylaws require the majority
of the entire board or simply, majority of the
quorum.
● For example, if there are 15 board
members and only eight (8) are
present, on matters where only a
majority of the quorum is needed,
the abstention of a director on a
particular item requiring board
approval will be immaterial.
● On the other hand, if the approval
of a majority of the entire board is
required, the abstention of a
director is tantamount to a “No”
vote and thus the transaction
cannot be effected.
REGULAR MEETINGS
FREQUENCY Regular meetings of the board of
directors or trustees should be held
monthly unless otherwise specified in the
by-laws.
QUORUM A quorum consists of a majority of the
directors or trustees as stated in the
articles of incorporation. Decisions
reached by at least a majority of the
directors or trustees constituting a
quorum are valid as corporate acts,
except for the election of officers, which
requires the vote of a majority of all the
members of the board.
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LOCATION Meetings may be held anywhere in or

outside the Philippines, unless the
by-laws provide otherwise.

NOTICE Notice of regular meetings, stating the

date, time, and place, must be sent to
every director or trustee at least two (2)
days prior to the scheduled meeting
unless a longer time is specified in the
by-laws.
Directors or trustees may waive the notice
requirement, either expressly or impliedly.

SPECIAL MEETINGS

Special meetings of the board may be held at any time upon

the call of the president or as provided in the by-laws.

REMOTE PARTICIPATION AND VOTING

Directors or trustees who cannot physically attend or vote at

board meetings can participate and vote through remote
communication methods such as videoconferencing,
teleconferencing, or other alternative modes of
communication.
SEC. 53. Who Shall Preside at Meetings. -
● Directors or trustees cannot attend or vote by proxy
The chairman or, in his absence, the president shall
at board meetings.
preside at all meetings of the directors or trustees as
well as of the stockholders or members, unless the
CONFLICT OF INTEREST (RECUSAL)
bylaws provide otherwise.

A director or trustee who has a potential interest in any related

party transaction must recuse from voting on the approval of SEC. 53 of the Revised Corporation Code outlines who shall
the transaction, without prejudice to compliance with the preside at meetings of directors or trustees, as well as
requirements of Section 31 of the Code. meetings of stockholders or members.

BOD/BOT MEETINGS VS. STOCKHOLDERS MEETINGS WHO PRESIDES DURING BOARD MEETING

● Compared to the OCC, the RCC provides that the

president can only preside during meetings in the
absence of the chairman, unless the bylaws provide
otherwise.
● The revision recognized the long-standing practice
wherein the chairman presides over the board’s and
stockholders’ meetings. As such, the chairman need
not be specifically authorized in the bylaws to preside
over the meetings.

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PRESIDING PERSONS AT MEETINGS
1. Chairperson
● The chairman (often referred to as the
chairperson) shall preside at all meetings of
the directors or trustees and meetings of the
stockholders or members.
2. President:
● If the chairman is absent, the president shall
preside at the meetings of the directors or
trustees and the meetings of the
stockholders or members.
3. By-laws:
● The section allows for flexibility by providing
that the by-laws may specify otherwise.
Therefore, the by-laws can establish an
alternative presiding officer if desired.
This provision sets the default presiding officer for meetings
to maintain order and facilitate the conduct of business. The
chairman, as the leader of the board, or the president, in the
absence of the chairman, generally have the authority and
experience to effectively manage and guide meetings.
Nonetheless, the flexibility in allowing for an alternative
presiding officer in the by-laws provides corporations with
the ability to adapt governance structures to their specific
needs and preferences.
Section 54. Right to Vote of Secured Creditors and
Administrators. –
In case a stockholder grants security interest in his
or her shares in stock corporations, the
stockholder-grantor shall have the right to attend
and vote at meetings of stockholders, unless the
secured creditor is expressly given by the
stockholder-grantor such right in writing which is
recorded in the appropriate corporate books.
Executors, administrators, receivers, and other
legal representatives duly appointed by the court
may attend and vote in behalf of the stockholders
or members without need of any written proxy
The provision, Section 54, outlines the rights regarding voting
at stockholder meetings in situations where shares have been
used as security for a loan and in cases involving legal
representatives:
1. Voting Rights of Secured Creditors
● when a stockholder uses their shares as
collateral for a loan (securing the loan with
their stock shares), they retain their right to
attend and vote at stockholder meetings
unless they have explicitly transferred this
right to the creditor
● this transfer of voting rights to the secured
creditor must be in writing and must be
recorded in the corporation's books to be
effective
○ if no such explicit written and
recorded transfer of rights has
occurred, the right to vote remains
with the stockholder who provided
the shares as security
2. Voting Rights of Executors, Administrators, and Other
Legal Representatives
● executors, administrators, receivers, and
other legal representatives who are
appointed by the court do not require a
written proxy to attend and vote at meetings
on behalf of the stockholders or members
they represent
● this provision facilitates the participation of
these representatives in corporate
governance during periods of transition or
legal proceedings affecting the stockholder,
ensuring that the interests of the
stockholder are represented even if they are
unable to attend due to incapacity or legal
constraints
These regulations ensure clarity in voting rights during
complex financial and legal situations, providing a structured
approach to maintaining corporate governance integrity.
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Section 55. Voting in Case of Joint Ownership of Stock. -
The consent of all the co-owners shall be necessary
in voting shares of stock owned jointly by two (2) or
more persons, unless there is a written proxy,
signed by all the co-owners, authorizing one (1) or
some of them or any other person to vote such
share or shares: Provided, That when the shares are
owned in an “and/or” capacity by the holders
thereof, any one of the joint owners can vote said
shares or appoint a proxy therefor.
Section 55 addresses the voting procedures for shares of
stock that are held in joint ownership, detailing how these
shares can be voted in stockholders' meetings under different
circumstances:
1. Consent for Voting
● if two or more individuals jointly own shares,
the consent of all co-owners is required to
vote these shares
● this rule ensures that all parties with an
ownership interest in the shares have a say
in how they are voted, promoting fairness
among co-owners
2. Written Proxy Authorization
● co-owners may decide to authorize one of
them or another person to vote on their
behalf by issuing a written proxy
○ this proxy must be signed by all
co-owners
● The use of a proxy allows for more practical
and flexible management of voting rights,
especially when all co-owners cannot attend
meetings but agree on their voting stance
3. Special Provision for “And/Or” Ownership
● in cases where shares are owned jointly in an
“and/or” capacity, any one of the joint
owners is empowered to vote the shares or
appoint a proxy without needing the consent
of the other owners
● this provision is particularly useful in
simplifying the voting process and avoiding
deadlock situations where co-owners are
unable to reach a unanimous decision
This setup allows for different levels of control based on the
nature of the joint ownership agreement, providing
mechanisms to ensure that each co-owner's rights are
respected while also allowing for efficient decision-making
when necessary.
Section 56. Voting Right for Treasury Shares. –
Treasury shares shall have no voting right as long
as such shares remain in the Treasury.
Section 56 pertains to the voting rights associated with
treasury shares within a corporation.
Treasury shares are those that were once part of the issued
stock of a company but were subsequently repurchased by the
corporation itself. Once repurchased, these shares are held in
the company's treasury and are essentially owned by the
corporation.
Basically, this section reiterates one thing:
No Voting Rights
Treasury shares do not carry voting rights while they are held
in the treasury. This means that these shares cannot influence
decisions made at shareholder meetings, nor can they be
counted for quorum purposes. The rationale behind this rule is
to prevent the company from essentially voting for itself
through these shares, maintaining fairness and the integrity of
voting processes.
Section 57. Manner of Voting; Proxies. –
Stockholders and members may vote in
person or by proxy in all meetings of
stockholders or members.
When so authorized in the bylaws or by a
majority of the board of directors, the
stockholders or members of corporations
may also vote through remote
communication or in absentia: Provided,
That the votes are received before the
corporation finishes the tally of votes.
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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 into account the
company’s scale, number of shareholders
or members, structure and other factors
consistent with the basic right of
corporate suffrage.
Proxies shall be in writing, signed and
filed, by the stockholder or member, in
any form authorized in the bylaws and
received by the corporate secretary
within a reasonable time before the
scheduled meeting. Unless otherwise
provided in the proxy form, it shall be
valid only for the meeting for which it is
intended. No proxy shall be valid and
effective for a period longer than five (5)
years at any one time.
SEC. 57 of the Revised Corporation Code provides the
guidelines for voting methods at meetings of stockholders or
members and the use of proxies.
PROXY
● A proxy is the written instrument signed by the
stockholder authorizing another person to exercise
the voting rights of the former. It may also refer to the
person exercising the voting authority granted by the
stockholder.
PURPOSE OF PROXIES
● A stockholder is allowed to vote in person or by proxy.
Through proxies, stockholders can ensure their
participation and voting during the stockholders
meeting and protect their interest even though they
may not be physically present.
● The system of proxy voting also helps the corporation
achieve quorum during stockholders’ meetings and
assists Management secure control of the
corporation.
WHO MAY BE A PROXY?
● Any natural person who has the legal capacity to act
may be a proxy. He is basically an agent, with the
stockholder granting the proxy as his principal. A
stockholder disqualified to vote under the RCC or the
bylaws of the corporation may be appointed proxy as
long as he has the legal capacity.
● If the stockholder is a natural person, the proxy will
be basically in the form of a power of attorney. In case
of corporate stockholder, the proxy will be in the form
of a board resolution authorizing another person to
exercise the stockholder’s voting rights in the
corporation.
LIMITATIONS OF PROXIES
a. Proxies shall be in writing, signed, and filed, by the
stockholder or member, in any form authorized in the
bylaws and received by the corporate secretary on
the date fixed in the bylaws but not later than a
reasonable time before the scheduled meeting.
b. Unless otherwise provided in the proxy form, it shall
be valid only for the meeting for which it is intended.
c. No proxy shall be valid and effective for a period
longer than five (5) years at any one (1) time.412
While the proxy cannot exceed five (5) years, a new
proxy can always be given with another five-year
period.
VOTING METHODS
1. In Person or By Proxy
● Stockholders and members may vote in
person or by proxy at all meetings.
2. Remote Communication or In Absentia
● When authorized in the by-laws or by a
majority of the board of directors,
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stockholders or members may vote through
remote communication or in absentia.
● Votes must be received before the
corporation finishes tallying votes to be
valid.
● Stockholders or members who participate
through remote communication or in
absentia are considered present for quorum
purposes.
3. Requirements and Procedures
● The corporation must establish appropriate
requirements and procedures for voting
through remote communication and in
absentia.
● These procedures should account for the
company's scale, number of shareholders or
members, structure, and other factors
consistent with the basic right of corporate
suffrage.
PROXIES
1. Form and Filing
● Proxies must be in writing, signed and filed
by the stockholder or member.
● The proxy form must be authorized by the
by-laws and received by the corporate
secretary within a reasonable time before
the scheduled meeting.
● Proxies are typically valid only for the
meeting for which they are intended, unless
otherwise specified in the proxy form.
2. Validity Period
● Proxies cannot be valid and effective for a
period longer than five (5) years at any one
time.
Section 58. Voting Trusts. -
One or more stockholders of a stock corporation
may create a voting trust for the purpose of
conferring upon a trustee or trustees the right to
vote and other rights pertaining to the shares for a
period not exceeding five (5) years at any time:
Provided, That in the case of a voting trust
specifically required as a condition in a loan
agreement, said voting trust may be for a period
exceeding five (5) years but shall automatically
expire upon full payment of the loan. A voting trust
agreement must be in writing and notarized, and
shall specify the terms and conditions thereof. A
certified copy of such agreement shall be filed with
the corporation and with the Commission;
otherwise, the agreement is ineffective and
unenforceable. The certificate or certificates of
stock covered by the voting trust agreement shall
be cancelled and new ones shall be issued in the
name of the trustee or trustees, stating that they
are issued pursuant to said agreement. The books
of the corporation shall state that the transfer in
the name of the trustee or trustees is made
pursuant to the voting trust agreement.
The trustee or trustees shall execute and deliver to
the transferors, voting trust certificates, which
shall be transferable in the same manner and with
the same effect as certificates of stock.
The voting trust agreement filed with the
corporation shall be subject to examination by any
stockholder of the corporation in the same manner
as any other corporate book or record: Provided,
That both the trustor and the trustee or trustees
may exercise the right of inspection of all
corporate books and records in accordance with
the provisions of this Code.
Any other stockholder may transfer the shares to
the same trustee or trustees upon the terms and
conditions stated in the voting trust agreement,
and thereupon shall be bound by all the provisions
of said agreement.
No voting trust agreement shall be entered into for
purposes of circumventing the laws against
anti-competitive agreements, abuse of dominant
position, anti-competitive mergers and
acquisitions, violation of nationality and capital
requirements, or for the perpetuation of fraud.
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Unless expressly renewed, all rights granted in a
voting trust agreement shall automatically expire at
the end of the agreed period. The voting trust
certificates as well as the certificates of stock in the
name of the trustee or trustees shall thereby be
deemed cancelled and new certificates of stock
shall be reissued in the name of the trustors.
The voting trustee or trustees may vote by proxy or
in any manner authorized under the bylaws unless
the agreement provides otherwise.
SEC. 58 of the Revised Corporation Code provides guidelines
for creating and managing voting trusts in stock corporations.
A voting trust allows one or more stockholders to confer the
right to vote and other rights pertaining to their shares upon a
trustee or trustees.
VOTING TRUST
It is an agreement where one (1) or more stockholders of a
stock corporation confer upon a trustee or trustees the right to
vote and other rights pertaining to the shares for a period
generally not exceeding five (5) years at any time.
● By its nature, a voting trust agreement creates a
dichotomy between the voting rights of the
stockholder and his other rights. The transferring
stockholder parts away with his voting rights but
retains equitable or beneficial ownership over the
stock. As such, he has the right to receive dividends
and other rights a stockholder is entitled to, until the
dissolution and liquidation of the corporation. He also
retains his right of inspection which he can exercise
concurrently with the voting trustee. But, having
conveyed the legal title to the trustee, the
transferring stockholder is disqualified from being
elected as a director
○ if he executes the voting trust agreement
during his term as a director, he shall cease
to be a director of the corporation.
POWERS OF VOTING TRUSTEE
The voting trustee is entitled to all the rights of a stockholder
pertaining to the shares transferred subject to the terms and
conditions of the agreement.
● He may vote in person or by proxy unless the
agreement provides otherwise
Having legal title to the shares, he is qualified to be elected as
a director. However, he is not entitled to proprietary rights, like
to receive dividends and the assets of the corporation upon
dissolution and liquidation. He may, however, create a security
interest over the dividends of the transferring stockholder, as
a security for a loan.
PURPOSE OF VOTING TRUST
Voting trust is a control device by which a group may gain or
retain control over the management of the corporation. This
control device is allowed as long as it is not entered into for
purposes of circumventing the laws against anti-competitive
agreements, abuse of dominant position, anti-competitive
mergers and acquisitions, violation of nationality and capital
requirements, or for the perpetuation of fraud.
A voting trust is created to confer upon a trustee or trustees
the right to vote and other rights pertaining to shares.
DURATION OF VOTING TRUST
● Voting trusts may last for a period not exceeding five
(5) years at any time.
● If a voting trust is specifically required as a condition
in a loan agreement, it may last longer but expires
automatically upon full payment of the loan.
REQUIREMENTS OF VOTING TRUST
1. The agreement must be in writing, notarized, and
specify the terms and conditions.
2. A certified copy of the agreement must be filed with
the corporation and the Securities and Exchange
Commission (SEC); otherwise, the agreement is
ineffective and unenforceable.
FORMALITIES AND LIMITATIONS ON VOTING TRUST
AGREEMENT
1. It should not exceed five (5) years at any time,
provided, that in the case of a voting trust specifically
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required as a condition in a loan agreement, said
voting trust may be for a period exceeding five (5)
years but shall automatically expire upon full
payment of the loan
2. A voting trust agreement must be in writing and
notarized and shall specify the terms and conditions
thereof.
3. A certified copy of such agreement shall be filed with
the corporation and with the SEC; otherwise, the
agreement is ineffective and unenforceable.
4. The certificate or certificates of stock covered by the
voting trust agreement shall be canceled and new
ones shall be issued in the name of the trustee or
trustees, stating that they are issued pursuant to said
agreement. The books of the corporation shall state
that the transfer in the name of the trustee or
trustees is made pursuant to the voting trust
agreement.
5. The trustee or trustees shall execute and deliver to
the transferors, voting trust certificates, which shall
be transferable in the same manner and with the
same effect as certificates of stock.
6. The voting trust agreement filed with the corporation
shall be subject to examination by any stockholder of
the corporation in the same manner as any other
corporate book or record: Provided, That both the
trustor and the trustee or trustees may exercise the
right of inspection of all corporate books and records
in accordance with the provisions of the RCC.
7. No voting trust agreement shall be entered into for
purposes of circumventing the laws against
anticompetitive agreements, abuse of dominant
position, anti-competitive mergers and acquisitions,
violation of nationality and capital requirements, or
for the perpetuation of fraud.
8. Unless expressly renewed, all rights granted in a
voting trust agreement shall automatically expire at
the end of the agreed period. The voting trust
certificates, as well as the certificates of stock in the
name of the trustee or trustees, shall thereby be
deemed canceled and new certificates of stock shall
be reissued in the name of the trustors.
9. The voting trustee or trustees may vote by proxy or in
any manner authorized under the bylaws unless the
agreement provides otherwise.
MANAGEMENT OF SHARES CERTIFICATE COVERED BY
VOTING TRUST
1. Certificates of Stock:
● Certificates of stock covered by the voting
trust agreement are canceled, and new ones
are issued in the name of the trustee or
trustees, indicating they are issued pursuant
to the agreement.
○ the books of the corporation must
record that the transfer in the name
of the trustee or trustees is made
pursuant to the agreement.
2. Voting Trust Certificates:
● Trustees must execute and deliver voting
trust certificates to the transferors.
○ voting trust certificates are
transferable in the same manner
and with the same effect as
certificates of stock.
RIGHTS AND OBLIGATIONS OF VOTING TRUST
1. Right of Inspection
● The voting trust agreement filed with the
corporation is subject to examination by any
stockholder in the same manner as any
other corporate book or record.
○ trustors and trustees may exercise
the right of inspection of all
corporate books and records in
accordance with the Code.
2. Transfer of Shares
● Other stockholders may transfer their
shares to the same trustee or trustees under
the terms and conditions of the voting trust
agreement
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○ once the transfer is complete, they

the meeting. otherwise, it is not
are bound by all the provisions of enforceable.
the agreement. The RCC clarified that
proxy may be in any
form as long as the
same is authorized by
the bylaws.
RESTRICTIONS
As to the A proxy is vested the A trustee is vested
Voting trusts cannot be used to circumvent laws against rights right to vote. legal title to the
anti-competitive agreements, abuse of dominant position, conferred No right to inspect is shares and as such,
anti-competitive mergers and acquisitions, violation of granted, unless may exercise not
nationality and capital requirements, or to perpetuate fraud. separately authorized only voting right
for that purpose. but the right of
inspection as well.
EXPIRY AND RENEWAL
A proxy cannot be
voted and cannot A trustee is
1. Expiry qualify as director of a qualified to be
● All rights granted in a voting trust corporation unless he elected as director
agreement automatically expire at the end is a stockholder in his or trustee.
of the agreed period unless expressly own right.
All rights of a
renewed.
stockholder may
● Voting trust certificates and certificates of be exercised by
stock in the name of the trustee or trustees trustee EXCEPT
are deemed canceled at the end of the proprietary rights
agreed period, and new certificates of stock (e.g., right to
are reissued in the name of the trustors. receive dividends
and to receive the
assets upon
VOTING AUTHORITY
dissolution and
liquidation of the
Voting trustees may vote by proxy or in any manner corporation).
authorized under the by-laws unless the agreement provides
otherwise. As to term Valid only for the Valid for a period
meeting intended, not exceeding five
unless general and (5) years. The
DIFFERENCES BETWEEN PROXY FROM VOTING TRUST
continuing in nature voting trust can be
AGREEMENT
but not to exceed five longer than five (5)
(5) years. years if
executed pursuant
The presence of to a loan
stockholder or agreement, but
PROXY VOTING TRUST principal revokes the expires upon full
AGREEMENT authority of the proxy payment of a loan.
holder.
As to form It must be in writing, It must be in The voting trust
signed by the writing, signed by can be extended if
stockholder and filed the stockholder it is co-terminus
with the corporate and notarized. A with the loan
secretary on the date copy of the voting agreement.
fixed in the bylaws but trust agreement The presence of
not later than a must be submitted trustor does not
reasonable time before to the SEC, revoke the

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authority of the
trustee.

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