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INCORPORATION AND ORGANIZATION

What is incorporation?
 Incorporation is the legal process of forming a corporate entity or company. It is the process of
legally declaring a corporate entity as separate from its owners and investors. A corporation is
the resulting legal entity that separates the firm’s assets and income from its owners and
investors.
What is organization?
 Refers to the act of arranging or structuring something in a systematic way. It is the process of
creating a structure for a group of people to work together effectively and efficiently. This can
refer to the organization of a company, a team, or even a project
PROMOTERS OF CORPORATION
What is promoter?
 A promoter is someone, either on their own or with others, who takes the lead in setting up a
company. This involves doing things like getting the necessary permissions from the government
if needed, finding people who want to invest in the company, making sure all the required
paperwork is filed correctly, and generally getting the company up and running.
 They're sometimes called different names like "projectors," "agents," "stewards," or "trustees,"
but whatever you call them, they're the ones who work on creating and controlling the company
before the official board of directors takes over. Essentially, they're like the agents for the
people who are starting the company.
SUBSCRIPTION CONTRACT
What is subscription contract?
 A subscription contract is basically an agreement to buy shares in a company that already exists
or is going to be created. According to Section 60 of the Revised Corporation Code (RCC), if you
agree to buy shares in a company that's yet to be formed, your commitment to buy those shares
is usually locked in for at least six months from the date you agreed, unless everyone else who
also agreed to buy shares says it's okay to change your mind.
KINDS OF SUBSCRIPTIONS
a) Pre-incorporation subscription: This is an agreement made before the company is officially
formed. It's a solid contract among the people who've agreed to buy shares.(Before the
company start)
b) Post-incorporation subscription: This happens after the company is formed, and it's an
agreement to buy shares that weren't issued initially. Even if the parties call it something else,
legally it's still considered a subscription. Once the corporation accepts the offer from the
subscriber or vice versa, the person becomes a stockholder, even if they haven't paid yet.(After
the company start)
c) Conditional subscription: This is an agreement that depends on a condition, whether it's
something that's happened in the past but unknown to the parties or something uncertain in
the future. Until that condition is fulfilled, the person doesn't become a stockholder. If the
condition is void, the subscription becomes void too.(Dependent on Condition)
d) Absolute subscription: This is an agreement without any conditions. The subscriber is liable as
soon as it's accepted and gets the rights of a stockholder immediately.(No Condition,Just
Promise)
e) Subscription with a special term: Here, the corporation agrees to do something special, but it's
not a condition for the subscriber to become liable or gain stockholder rights. If, for example, a
subscriber agrees with a corporation that the office will move to a different place, and the
corporation doesn't fulfill that, the subscriber can't cancel the subscription but might seek
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damages. However, if this term is intended as a condition and it's not met, the subscriber can
cancel the subscription.(Special Agreements)
CONSIDERATION OF STOCKS
What is consideration of stocks?
 Sec. 62. Consideration for stocks. — Stocks shall not be issued for a consideration less than the
par or issued price thereof. Consideration for the issuance of stock may be any or a combination
of any two or more of the following:
a) Minimum Price: Stocks can't be sold for less than their set value. This value is called the "par
value" or the price set by the company for its stocks.
b) Acceptable Payments: When someone buys stocks, they can pay in different ways:
c) Cash: Money paid directly to the company.
d) Property: Tangible or intangible things (like patents or copyrights) that the company needs,
valued at least as much as the stock's set value.
e) Work or Services: If someone does work or provides services to the company, that can count as
payment.
f) Debts: Any debts that the company already owes.
g) Transfers from Profits: Money moved from the company's profits into its capital.
h) Exchanging Existing Shares: Swapping old shares for new ones during changes in the company
structure.
i) Valuation of Non-Cash Payments: If the payment isn't in cash or includes intangible things, like
patents, the value of these things needs to be decided by the initial team starting the company
or the company's board of directors. This valuation needs approval from the Securities and
Exchange Commission.
j) Limits on Acceptable Payments: The company can't give out shares in exchange for promises to
pay in the future or for services that haven't been given yet.
k) No-Par Value Shares: For shares without a set value, the company can decide their value in its
founding documents or through decisions made by its board of directors or shareholders in a
meeting.
ARTICLES OF INCORPORATION
 Articles of Incorporation are documents filed with the government to be legally recognized as a
corporation. They contain information about the corporation such as the name, their
incorporators, their purpose, types of stocks and amount that may be issued, and any other
details. The Articles of Incorporation is a document that is needed to form a corporation in the
Philippines. It states the name, purpose, place of office, incorporators, capital stock, and term of
the Company upon its establishment.
CONTENTS OF ARTICLES OF INCORPORATION
 Sec. 14. Contents of articles of incorporation. — All corporations organized under this Code shall
file with the Securities and Exchange Commission articles of incorporation In any of the official
languages duly signed and acknowledged by all of the incorporators, containing substantially the
following matters, except as otherwise prescribed by this Code or by special law:
(1) The name of the corporation;
(2) The specific purpose or purposes for which the corporation is being incorporated. Where a
corporation has more than one stated purpose, the articles of incorporation shall state which is the
primary purpose and which is/are the secondary purpose or purposes; Provided, That a nonstock
corporation may not include a purpose which would change or contradict its nature as such;
(3) The place where the principal office of the corporation is to be located, which must be within the
Philippines;
(4) The term for which the corporation is to exist;
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(5) The names, nationalities and residences of the

incorporators;
(6) The number of directors or trustees, which shall not be less than five (5) nor more than fifteen (15);
(7) The names, nationalities and residences of the persons who shall act as directors or trustees until the
first regular directors or trustees are duly elected and qualified in accordance with this Code;
(8) If it be a stock corporation, the amount of its authorized capital stock in lawful money of the
Philippines, the number of shares into which it is divided, and in case the shares are par value shares,
the par value of each, the names, nationalities and residences of the original subscribers, and the
amount subscribed and paid by each on his subscription, and if some or all of the shares are without par
value, such fact must be stated;
(9) If it be a non-stock corporation, the amount of its capital, the names, nationalities and residences of
the contributors and the amount contributed by each; and
(10) Such other matters as are not inconsistent with law and which the incorporators may deem
necessary and convenient. The Securities and Exchange Commission shall not
accept the articles of incorporation of any stock corporation unless accompanied by a sworn statement
of the Treasurer Melected by the subscribers showing that at least twenty five percent (25%) of the
authorized capital stock of the corporation has been subscribed, and at least twenty-five percent (25%)
of the total subscription has been fully paid to him in actual cash and/or in property the fair valuation of
which is equal to at least twenty-five percent (25%) of the said subscription, such paid-up capital being
not less than five thousand pesos (P5,000.00).
NON-AMENDABLE ITEMS
What is non-amendable items?
 In the context of corporate law, non-amendable items refer to the details of a corporation that
cannot be changed once the corporation has been formed. These include the names of the
original incorporators, subscribers, and directors, as well as the treasurer elected by the original
subscribers.

CORPORATE NAME;LIMITATIONS
What is corporate name?
a) Unique Name: A company's name needs to be different from existing ones. The Securities and
Exchange Commission won't allow a name if it's exactly the same or sounds too similar to
another company's name. This rule prevents confusion among companies and customers.
b) Legal Protection: If a name is already protected by law or is known for another reason, a new
company can't use it. This prevents using names that are already trademarked or known for
specific purposes.
c) No Deception or Confusion: The name should be straightforward and not misleading or
confusing. It shouldn't trick people into thinking the company is something it's not.
d) Name Changes: If a company wants to change its name and the new name gets approved, the
Securities and Exchange Commission will give the company an updated certificate of
incorporation with the new name on it. This ensures that the company's legal documents reflect
its new name officially.
What is limitation of corporate name?
 Limitations upon use of corporate name.
a) Similarity with Existing Names: New corporations can't use names that are identical or too
similar to existing corporations, unincorporated associations, or names used by individuals
as trade names. The goal is to prevent confusion and unfair competition.
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b) Infringement Test: The right to use a corporate name without infringement is determined by
who adopted it first. If a new name could confuse people, even without actual confusion
being proven, it's considered infringing.
c) Required Part of the Name: Corporate names need to include words like "Corporation,"
"Incorporated," or their abbreviations like "Corp." or "Inc." For foundations, the word
"Foundation" should be part of their name.
d) Prohibited Words: Certain words or terms are prohibited from being part of a corporate
name, especially if they imply engaging in activities that aren't legally allowed for that type
of corporation.
e) Generic, Geographical, and Descriptive Terms: Some terms or names, like generic words or
geographical names, can't be exclusively appropriated by a corporation unless they've
acquired a secondary meaning or distinctiveness.
f) Trade Name of Another Corporation: A new corporate name shouldn't be identical,
misleading, or confusingly similar to a name already registered by another corporation. If it's
similar, it needs distinctive words to differentiate it.
g) Use of a Person's Name: A person's full name or surname can be used in a corporate name if
they're a stockholder and have given consent. If deceased, their estate must consent. Initials
used in a name should be explained.
h) Doctrine of Secondary Meaning: This doctrine suggests that even if a word or phrase was
initially descriptive, it can gain exclusive meaning through long and exclusive usage by a
particular producer.
i) Protection in Different Business Fields: Protection of a corporate name isn't just limited to
preventing direct competition but extends to situations where the use might mislead people
about a company's expansion or connection with another entity.
REGISTRATION,INCORPORATION AND COMMENCEMENT OF CORPORATE EXISTENCE
a) Starting Point: A private corporation comes into existence and gains legal recognition from the
exact date when the Securities and Exchange Commission (SEC) issues a certificate of
incorporation under its official seal.
b) Legal Existence: Once this certificate is issued, the corporation is considered legally established.
It becomes a distinct and independent entity with its own rights and obligations, separate from
its founders or members.
c) Corporate Body: At this point, the incorporators, stockholders, or members, and their
successors, collectively form the corporation. They operate and function as a unified entity
under the name mentioned in the articles of incorporation.
d) Duration: The corporation's existence continues for the period specified in its articles of
incorporation. If the specified period ends or the corporation is dissolved according to legal
procedures, its existence ceases at that point unless extended or dissolved earlier according to
the law.
ELECTIONS OF DIRECTORS OR TRUSTEE
a) Quorum Requirement: For an election of directors or trustees to take place, a certain
threshold of ownership representation must be met. This means that the majority of the
capital stock owners (or members entitled to vote if there's no capital stock) must be
present, either in person or through a proxy authorized in writing.
b) Voting Procedure: The election is typically conducted by ballot if requested by any voting
stockholder or member. Each stockholder entitled to vote can do so in person or through a
proxy. The number of votes a stockholder can cast is based on the shares they own at a
specified time according to the corporation's by-laws or, if not specified, at the time of the
election.
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c) Voting Rights for Stockholders: Stockholders can use their voting rights in different ways.
They can distribute their votes among multiple candidates, give multiple votes to a single
candidate (cumulative voting), or cast their votes individually for each director position to be
filled.
d) Restrictions on Voting: Delinquent stock—shares for which the stockholder hasn't met
payment obligations—cannot be used for voting purposes.
e) Voting in Corporations Without Capital Stock: For corporations without capital stock, each
member may cast as many votes as there are trustees to be elected, but not more than one
vote for a single candidate.
f) Declaration of Elected Candidates: The candidates receiving the highest number of votes
become the elected directors or trustees.
g) Adjournment of Meetings: If, for any reason, an election isn't held or if the required
ownership representation isn't present at the meeting, the meeting may adjourn from day
to day or from time to time. However, it cannot adjourn indefinitely (sine die) unless the
necessary ownership representation is present.
ADOPTION BY LAWS
a) Mandatory Adoption: Every corporation formed under the Corporation Code needs to create a
set of by-laws for its internal governance within one month after receiving official notice of the
issuance of its certificate of incorporation from the Securities and Exchange Commission (SEC).
These by-laws should not contradict the provisions outlined in the Corporation Code.
b) Voting Requirements: To adopt these by-laws, there must be an affirmative vote from either the
stockholders (representing a majority of the outstanding capital stock) or the majority of the
members in the case of non-stock corporations.
c) Document Verification and Filing: The adopted by-laws need to be signed by the stockholders or
members who voted for them. A certified copy, endorsed by a majority of the directors or
trustees and countersigned by the corporate secretary, should be filed with the Securities and
Exchange Commission. This certified copy will be attached to the original articles of
incorporation.
d) Pre-Incorporation By-laws: By-laws may also be adopted and filed before incorporation. In this
case, all incorporators need to approve and sign the by-laws. These pre-incorporation by-laws
should be submitted to the SEC along with the articles of incorporation.
e) Effectiveness and Certification: By-laws become effective only after the SEC issues a certification
that confirms their consistency with the Corporation Code.
f) Special Corporations and Special Laws: Special corporations like banks, financial institutions,
utilities, educational institutions, or those governed by special laws require an additional step.
The SEC won't accept their by-laws or amendments without a certificate from the appropriate
government agency, confirming that these by-laws comply with the law governing those
particular entities.
CONTENTS
a) Regulated Matters: The Corporation Code permits corporations to outline specific matters in
their by-laws. However, for subjects already governed by the Code, the by-laws cannot
contravene or modify these statutory provisions. The by-laws are complementary to, not in
conflict with, the Code.
b) Meeting Locations: While directors' or trustees' meetings can occur anywhere in or outside the
Philippines as determined by the by-laws, stockholders' or members' meetings must generally
take place at the corporation's principal office or in a practicable location.
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c) Quorum and Voting: By-laws can specify the quorum needed for meetings. However, they
cannot allow a lesser number to constitute a quorum if the law requires a minimum number of
votes for certain corporate acts.
d) Proxy Regulations: By-laws can dictate the form and manner of voting proxies, but they cannot
bypass the limitations set forth by the law regarding voting by proxy.
e) Qualifications and Disqualifications of Directors: By-laws can establish qualifications for directors
but cannot disregard legal prerequisites like director share ownership or residency
requirements.
f) Term Limits for Directors: Amendments in by-laws can limit the term of directors to three
consecutive years, with a mandatory break of one year before running for re-election. This
change applies prospectively and not to directors serving longer terms at the time of the by-
law's effect.
g) Disqualification Criteria: By-laws can set forth disqualification criteria for directors, like engaging
in competing businesses.
h) Compensation for Stockholders/Members: By-laws cannot provide compensation to
stockholders or members unless they also hold positions as directors, trustees, officers, or
employees.
i) Election Process and Terms of Office for Directors: Matters already regulated by law, such as the
election process and term duration for directors, cannot be altered by the by-laws.
j) Penalties and Sanctions: By-laws can enforce regulations with penalties or sanctions
proportional to the violation, but the enforcement must align with appropriate measures, and
penalties cannot include forfeiture of property or stock.
k) Transfer of Stock Certificates: Corporations have the authority to regulate the issuance of stock
certificates and their transfer procedures but cannot restrict a shareholder's right to transfer
shares.
BINDING EFFECTS
What is binding effects?
 When a contract includes a binding effect, it means that the terms, conditions, rights, and
obligations outlined in the contract are legally enforceable on all parties involved. This legal
enforcement ensures that each party is held accountable for fulfilling their obligations as per the
agreement's terms. Even if circumstances change or ownership of the involved entities shifts,
the obligations and benefits of the contract persist.
a) Corporation and its Officers:By-laws, considered as private laws within a corporation, hold
similar legal authority as the provisions of its charter. They are integral to the fundamental
structure and governance of the corporation, and both the corporation itself and its directors or
officers are obliged to abide by them.These by-laws are incorporated into the charter and
become an essential part of the corporation's fundamental legal framework. Compliance with
these by-laws is mandatory unless they are duly changed, amended, or repealed following the
procedures specified in Section 48 of the Corporation Code.
b) Stockholders or Members:Stockholders or members are presumed to be aware of the provisions
outlined in the corporation's by-laws. This presumption is considered legally conclusive, implying
that stockholders or members are held accountable for knowing the by-laws, even if they claim
ignorance of their contents.The original by-laws must be approved by the majority of the
outstanding capital stock or members, signed by those voting for them, and maintained in the
corporation's principal office, thereby invalidating claims of lack of notice or knowledge among
stockholders or members.
c) Third Persons:Generally, third parties outside the corporation are not inherently bound by the
corporation's by-laws, as these rules primarily serve as internal governance for the corporation
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and its stakeholders.An exception exists if a third party is aware, either actually or
constructively, of the by-law's provisions at the time they enter into a transaction with the
corporation. In such cases, the third party could be bound by these provisions.If a third party
contracts with a corporation explicitly referencing or relying on a particular by-law, that by-law
becomes part of the contract and may be enforceable against the third party.However, if a third
party does not contract with reference to or in reliance on a specific by-law, that by-law typically
does not influence or affect their contract with the corporation.
AMENDMENTS
What is amendments?
 An amendment is a formal or official change made to a law, contract, constitution, or other legal
document.
a) Amendment or Repeal Process:The board of directors or trustees, with a majority vote, and the
owners of at least a majority of the outstanding capital stock (or majority of the members in a
non-stock corporation) can make amendments or repeal existing by-laws or introduce new
ones.There's an option for two-thirds (2/3) of the outstanding capital stock or members in a
non-stock corporation to delegate this power to the board of directors or trustees.However, this
delegated power can be revoked if stockholders (representing a majority of the outstanding
capital stock or majority of the members in a non-stock corporation) vote to do so at a regular
or special meeting.
b) Procedures for Amendments or New By-laws:When amendments or new by-laws are adopted,
they must be attached to the original by-laws in the corporation's office.A duly certified copy,
confirmed by the corporate secretary and a majority of directors or trustees, must be filed with
the Securities and Exchange Commission (SEC). This copy is appended to the original articles of
incorporation and original by-laws.
c) Effectiveness and Certification:The amended or new by-laws only become effective upon the
issuance of a certification by the Securities and Exchange Commission. This certification confirms
that the updated by-laws are consistent with the provisions outlined in the Corporation Code.
EFFECT OF NON USE OF CORPORATE CHARTER

CORPORATE POWERS
 means the power and authority of a Business Entity, under the terms of its Governing
Documentation and applicable law, to enter into, and become bound by, the terms of any
particular transaction.
CLASSIFICATION OF CORPRATE POWER
a) Expressly Granted or Authorized Powers: These powers are explicitly conferred by law, such
as those outlined in the Corporation Code and the articles of incorporation. They are
specifically stated and provided for by legal statutes.
b) Powers Necessary to Exercise Express or Incidental Powers: Corporations may require
certain additional powers that are necessary to execute their expressly granted powers or
that are incidental to their operation. These powers are essential for the effective exercise
of the explicitly granted powers or for carrying out activities closely related to their main
purposes.
c) Incidental Powers to Its Existence: These powers are inherent in the nature of the
corporation's existence. They are not explicitly mentioned but are understood to be
essential for the corporation to function, grow, and operate within legal bounds.
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 While these classifications help delineate the types of powers a corporation may wield, the
exercise of these powers is usually through the board of directors, trustees, officers, and
authorized agents acting on behalf of the corporation. Physical acts, like signing legal
documents, can only be performed by individuals duly authorized either through corporate by-
laws or by specific directives from the board of directors.

 The concept of ultra vires, mentioned in the explanation, refers to acts or contracts executed by
a corporation that go beyond the scope of its expressly granted, implied, or incidental powers.
Any action taken by a corporation outside these defined powers is considered ultra vires,
meaning it's beyond the corporation's legal authority and may be void or unenforceable.For
instance, if a corporation engages in activities or contracts that are not aligned with its stated
purposes or go beyond the powers granted by law, those actions can be deemed ultra vires and
may not hold legal validity.
GENERAL POWERS;THEORY OF GENERAL CAPACITY
 The Theory of General Capacity encapsulates the idea that a corporation possesses the inherent
ability to engage in various legal activities unless expressly prohibited by law or in conflict with
societal standards of morality and public policy. This theory assumes that a corporation is vested
with broad powers to conduct its affairs as long as its actions don't violate specific legal
restrictions, moral principles, or public policy guidelines.In the Philippines, the Revised
Corporation Code grants corporations certain inherent powers that are fundamental to their
functioning. These include:

a) Suing and Being Sued: Corporations have the legal capacity to bring lawsuits and be parties to
legal proceedings under their corporate name
b) .Perpetual Existence: Unless otherwise stipulated in the certificate of incorporation,
corporations have the inherent capacity for perpetual existence, enabling them to continue
their operations despite changes in ownership or leadership.
c) Corporate Seal: Corporations can adopt and utilize a corporate seal, which serves as a formal
symbol of
d) the corporation and is often used to authenticate important documents.
e) Amending Articles of Incorporation: Corporations can modify or amend their articles of
incorporation as per the provisions of the Corporation Code.
f) Adopting Bylaws: Corporations have the authority to create bylaws that govern their internal
operations, provided these bylaws adhere to legal requirements and align with moral and public
policy considerations.
g) Issuing Stocks (for stock corporations): For stock corporations, the power to issue or sell stocks
to subscribers, sell treasury stocks, and admit members to the corporation for non-stock
corporations is inherent.
 This general capacity theory essentially implies that a corporation possesses the authority to
engage in activities and exercise powers not explicitly prohibited by law or deemed contrary to
morals and public policy. It emphasizes the wide range of actions and decisions a corporation
can undertake within the boundaries of legality, morality, and public welfare.
 However, this inherent capacity does not grant absolute freedom to corporations. Legal
restrictions, specific prohibitions, and societal norms serve as checks and balances to ensure
that corporate actions align with the greater public good and do not violate established legal or
ethical standards.
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SPECIFIC POWERS;THEORY OF SPECIFIC CAPACITY

 The Theory of Specific Capacity delineates particular powers that a corporation holds, typically
requiring explicit authorization either within the articles of incorporation or through subsequent
approval by the board of directors and shareholders. These specific powers enable corporations
to engage in crucial actions that significantly impact their structure, operations, and financial
aspects. Here's an explanation of the enumerated specific powers:
a) Extending or Shortening Corporate Term: Corporations have the power, subject to compliance
with legal requirements, to extend or shorten their existence beyond or less than the initial term
specified in their articles of incorporation.
b) Increasing or Decreasing Corporate Stock: Corporations can augment or diminish their capital
stock, which includes increasing the number of authorized shares or reducing the capital
through share buybacks.
c) Incurring or Increasing Bonded Indebtedness: Corporations may take on or expand their bonded
indebtedness, such as issuing bonds or securing loans with specific collateral, subject to legal
and regulatory limitations.
d) Denying Pre-emptive Rights: The power to deny pre-emptive rights allows corporations to issue
new shares without offering them to existing shareholders first, potentially diluting their
ownership.
e) Selling, Disposing, Leasing Assets: Corporations can make significant decisions regarding their
assets, including selling, disposing, leasing, or encumbering a substantial portion or all of their
assets, subject to legal restrictions and shareholder approval.
f) Purchasing or Acquiring Shares: Corporations possess the authority to buy back their own
shares, which could affect capital structure, ownership distribution, and shareholder returns.
g) Investing in Other Businesses: Corporations may use their funds to invest in other corporations
or ventures, expanding their business interests beyond their primary objectives.
h) Declaring Dividends: Corporations have the power to declare dividends to distribute profits
among shareholders, often sourced from unrestricted retained earnings.
i) Entering Management Contracts: Corporations can engage in management contracts with other
entities, allowing one corporation to manage a substantial part or the entirety of another
corporation's business for a specified period.
j) Amending Articles of Incorporation: Corporations can modify their articles of incorporation,
subject to legal procedures and shareholder approval, to effect changes in corporate structure,
purposes, or governance.
 These specific powers grant corporations the flexibility to make critical decisions, engage in
financial transactions, and alter their structure, ensuring they can adapt to changing business
environments while adhering to legal requirements and shareholder interests.
POWER TO EXTEND OR SHORTEN CORPORATE TEAM
a) Approval by the Board: The decision to extend or shorten the corporate term begins with the
board of directors or trustees. A majority vote among them is required to initiate this action.
b) Ratification by Shareholders or Members: After the board's approval, the proposed change in
the corporate term must be ratified at a meeting of the stockholders or members. For approval:
c) For corporations with capital stock, at least two-thirds (2/3) of the outstanding capital stock
must vote in favor.For non-stock corporations, the approval requires at least two-thirds (2/3) of
the members.
d) Notification Requirement: The corporation must notify each stockholder or member of the
proposed action, along with the details of the meeting discussing this matter. This notification
can be sent via mail to their address as listed in the corporation's records or served personally.
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e) Appraisal Right: In the case of an extension of the corporate term, any stockholder who dissents
(disagrees) with this decision has the right to exercise what's known as an "appraisal right." This
right allows the dissenting shareholder to request the corporation to buy back their shares at a
fair value determined under the conditions outlined in the Corporation Code.

 This process ensures that any extension or shortening of the corporate term involves a
deliberate decision-making procedure involving both the governing body (board of directors or
trustees) and the stakeholders (stockholders or members). Additionally, it safeguards the
dissenting shareholders' interests by granting them the right to dissent and seek fair
compensation for their shares if they disagree with the change in the corporate term.
POWER TO INCREASE OR DECREASE CAPITAL STOCK; INCUR, CREATE OR INCREASE BONDED
INDEBTEDNESS.
1. Board Approval and Stockholders' Meeting: Before making any changes to the capital stock or
bonded indebtedness, the corporation's board of directors must first approve the proposed
action. Subsequently, a stockholders' meeting should be duly called to discuss and vote on the
matter. The approval requires two-thirds (2/3) of the outstanding capital stock to favor the
proposed change.
2. Notification Requirement: The corporation must notify each stockholder about the proposed
increase or decrease in capital stock or the incurring of bonded indebtedness. This notice should
include details of the meeting discussing these matters, and it can be sent via mail to the
stockholders' addresses listed in the corporation's records or served personally.
3. Certificate of Compliance: After the meeting, a certificate in duplicate must be signed by a
majority of the directors, countersigned by the meeting's chairman and secretary, and
submitted to the Securities and Exchange Commission (SEC). This certificate should detail
various aspects:Confirmation that all legal requirements have been met.Specifics about the
increase or decrease in capital stock, including the amount subscribed and paid by each
stockholder.Details of any bonded indebtedness incurred or increased.The corporation's actual
indebtedness and other relevant information.
4. SEC Approval: Any increase or decrease in capital stock or incurring of bonded indebtedness
needs prior approval from the Securities and Exchange Commission. The corporation needs to
file the duplicate certificate with the SEC. The commission's approval and issuance of a
certificate of filing are necessary for the changes to take effect.
5. 25% Subscription and Payment Requirement: For an increase in capital stock, the treasurer's
sworn statement must show that at least 25% of the increased capital has been subscribed and
that at least 25% of the subscription amount has been paid, either in cash or transferred
property.
6. Protection of Creditors' Rights: The SEC will not approve a decrease in capital stock if it harms
the rights of corporate creditors.
7. Non-stock Corporations: The rules for non-stock corporations follow a similar process but
involve approval by the board of trustees and at least two-thirds (2/3) of the members in a
meeting called for that purpose.
8. Bond Issuance: Any bonds issued by a corporation must be registered with the Securities and
Exchange Commission, which assesses the sufficiency of their terms.
 This section of the Corporation Code ensures a rigorous process involving board approval,
stockholders' consent, notification, compliance certificates, and SEC oversight for any changes
related to the capital stock or bonded indebtedness of a corporation.
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POWER TO DENY PRE-EMPTIVE RIGHT

 Pre-emptive Right: Stockholders in a stock corporation typically have the pre-emptive right to
subscribe to new shares of any class issued by the corporation. This right allows existing
stockholders to maintain their proportionate ownership by purchasing new shares in proportion
to their current shareholdings.
 Exceptional Circumstances for Denying Pre-emptive Right: However, there are situations when
this pre-emptive right may be denied, as specified in the Corporation Code:
a. Articles of Incorporation or Amendments: The articles of incorporation or subsequent amendments to
these articles can specifically deny the pre-emptive right of stockholders to subscribe to new shares.
b. Compliance with Laws: The pre-emptive right does not extend to shares that must be issued to
comply with laws requiring stock offerings or maintaining a minimum stock ownership by the public. For
instance, if regulations mandate a public offering of shares or set minimum public ownership thresholds,
the pre-emptive right may not apply to these specific issuances.
c. Approval by the Majority of Stockholders: The pre-emptive right may also be denied if two-thirds (2/3)
of the outstanding capital stock, represented by the stockholders, approve the issuance of new shares.
This approval must be in good faith and may occur in scenarios such as exchanging shares for property
necessary for corporate purposes or settling previously contracted debts.
SALE OR OTHER DISPOSITION OF ASSETS
1. Authorization for Asset Disposition: A corporation, through a majority vote of its board of
directors or trustees, can sell, lease, exchange, mortgage, pledge, or otherwise dispose of all or
substantially all of its assets, including goodwill. This action necessitates authorization by a vote
of stockholders (representing at least two-thirds of outstanding capital stock) or, for non-stock
corporations, by a vote of at least two-thirds of the members in a duly called meeting for the
purpose.
2. Notification Requirement: Before such a meeting, written notice must be sent to each
stockholder or member at their registered place of residence, specifying the proposed action
and the meeting details. Dissenting stockholders may exercise their appraisal rights as provided
in the Code.
3. Definition of Substantially All Assets: A sale or disposition is deemed to cover "substantially all"
assets if it renders the corporation incapable of continuing its business or accomplishing its
original purpose for incorporation.
4. Board's Discretion: Once authorized, the board may still decide, at its discretion and without
further stockholder or member approval, to abandon the sale or disposition, subject to the
rights of third parties under any related contract.
5. Limitations and Exemptions: This section doesn't restrict a corporation from selling, leasing, or
disposing of its property in the usual course of its business without stockholder or member
authorization if such action is necessary for the corporation's regular operations or if the
proceeds are directed towards its ongoing business.
6. Non-Stock Corporations: In non-stock corporations without members holding voting rights, the
vote of at least a majority of the trustees currently in office is sufficient to authorize such
transactions.
POWER TO ACQUIRE OWN SHARES.
a) Fractional Shares from Stock Dividends: A corporation can purchase or acquire its own shares to
eliminate fractional shares that arise due to the issuance of stock dividends. This action helps
tidy up ownership by eliminating fractions of shares that may result from dividend distributions.
b) Collection of Indebtedness to the Corporation: The corporation can acquire its shares to collect
or settle an indebtedness owed to it, especially arising from unpaid subscriptions or in a
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delinquency sale. This provision enables the company to acquire shares sold during a
delinquency sale due to unpaid subscriptions.
c) Payment to Dissenting or Withdrawing Stockholders: If stockholders dissent or withdraw from
certain corporate actions and are entitled to payment for their shares under the provisions of
the Corporation Code, the corporation can acquire these shares to settle payments owed to
dissenting or withdrawing stockholders.
POWER TO INVEST CORPORATE FUNDS IN ANOTHER CORPORATION OR BUSINESS OR FOR ANY OTHER
PURPOSE.
a) Approval by the Board of Directors or Trustees: The decision to invest corporate funds in
another corporation or business or for any other purpose must be approved by a majority of the
board of directors or trustees. This ensures that the investment decision is made by the
governing body responsible for managing the affairs of the corporation.
b) Ratification by Stockholders or Members: After the board's approval, the proposed investment
needs to be 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 non-stock
corporations. This ratification is crucial as it involves the shareholders or members, who are the
ultimate owners of the corporation.
c) Notice to Stockholders or Members: Written notice of the proposed investment and details of
the meeting where the ratification will take place must be sent to each stockholder or member
at their place of residence, as recorded in the corporation's books. This notice ensures that
shareholders or members are informed about the proposed investment and have the
opportunity to participate in the decision-making process.
d) Appraisal Right for Dissenting Stockholders: Any stockholder who dissents from the decision to
invest corporate funds has the right to an appraisal, as provided in the Corporation Code.
Appraisal right allows dissenting shareholders to receive the fair value of their shares instead of
participating in the proposed investment.
e) Exception for Investments Necessary for the Primary Purpose: The approval and ratification
requirements are waived if the investment is reasonably necessary to accomplish the
corporation's primary purpose, as stated in its articles of incorporation. This exception
recognizes that certain investments aligned with the corporation's primary purpose may not
require extensive approval processes.
POWER TO DECLARE DIVIDENDS.
a) Declaration of Dividends: The board of directors of a stock corporation has the authority to
declare dividends. These dividends can be paid out of the corporation's unrestricted retained
earnings. Dividends can be paid in cash, property, or stock, distributed to all stockholders based
on the outstanding stock they hold.
b) Treatment of Delinquent Stockholders: Any cash dividends owed to delinquent stockholders are
initially applied to the unpaid balance of their subscription, along with any associated costs and
expenses. Stock dividends are withheld from delinquent stockholders until their unpaid
subscriptions are fully settled.
c) Approval for Stock Dividends: The issuance of stock dividends requires approval from
stockholders representing not less than two-thirds (2/3) of the outstanding capital stock. This
ensures that significant decisions regarding the issuance of stock dividends are made with the
consent of the majority of the shareholders.
d) Limitations on Retaining Surplus Profits: Stock corporations are generally prohibited from
retaining surplus profits exceeding one hundred percent (100%) of their paid-in capital stock.
However, there are exceptions to this rule:
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e) Justified Corporate Expansion: Retention beyond 100% may be justified if it is earmarked for
definite corporate expansion projects or programs approved by the board of directors.
f) Loan Agreements: Retention may also exceed the limit if the corporation is contractually bound
by loan agreements with financial institutions or creditors, prohibiting dividend declarations
without their consent, which has not yet been obtained.
g) Special Circumstances: Retention beyond the limit might be allowed under special
circumstances specific to the corporation, such as the need for a reserve for probable
contingencies.
POWER TO ENTER INTO MANAGEMENT CONTRACT.
a) Approval Requirement: Before a corporation can enter into a management contract with
another corporation, several levels of approval are necessary. This includes approval by the
board of directors of both the managing and managed corporations.
b) Approval by Stockholders or Members: Furthermore, the contract must be approved by the
stockholders or members who collectively represent the majority of the outstanding capital
stock or at least a majority of the members in the case of non-stock corporations, of both the
managing and managed corporations. This ensures that significant decisions like management
contracts are made with the consent of the majority of the shareholders or members.
c) Exceptions: There are exceptions to the standard approval requirements:
d) If the same stockholder or group of stockholders with the same interest owns or controls more
than one-third (1/3) of the total outstanding capital stock entitled to vote of both the managing
and managed corporations, orIf a majority of the members of the board of directors of the
managing corporation also constitute a majority of the board of directors of the managed
corporation.
e) Contract Duration: The management contract cannot be for a period longer than five years for
any single term. This limitation aims to ensure regular reviews and prevent excessively long-
term commitments without periodic evaluations.
f) Applicability: These regulations also extend to any contract where one corporation undertakes
to manage or operate all or substantially all of the business of another corporation. This includes
contracts labeled as service contracts, operating agreements, or similar arrangements.
g) Exception for Natural Resources: Contracts related to the exploration, development,
exploitation, or utilization of natural resources may be entered into for periods as provided by
pertinent laws or regulations specific to those industries.
ULTRA VIRES ACTS OF CORPORATIONS
a) Corporate Powers Limited by Law and Articles of Incorporation: The section stipulates that a
corporation cannot possess or exercise any corporate powers beyond those explicitly granted by
the Corporation Code or by its articles of incorporation.
b) Scope of Corporate Powers: Corporations are confined to the powers expressly stipulated in the
Corporation Code or within their articles of incorporation. This limitation restricts corporations
from engaging in activities or exercising powers not specifically permitted.
c) Necessary and Incidental Powers: Corporations are allowed to exercise powers that are
necessary or incidental to those specifically conferred by the Corporation Code or the articles of
incorporation. These are powers that are closely associated with and essential for the effective
exercise of the granted powers.
d) Regulation of Corporate Actions: The provision aims to regulate and confine corporate actions
within legally defined boundaries. It prevents corporations from overstepping their prescribed
powers or engaging in activities beyond the scope permitted by law or their articles of
incorporation.
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DOCTRINE OF INDIVIDUALITY OF SUBSCRIPTION

The Doctrine of Individuality and Indivisibility of Subscription is a legal principle embedded in the
Revised Corporation Code of the Philippines. It governs stock subscriptions within corporations and
comprises two fundamental components:
1. Indivisible Nature of Subscription Contracts: When an individual subscribes to stocks within
a corporation, the subscription is treated as one single, complete, and indivisible contract.
Even if the subscription covers multiple shares, it remains a unified commitment until the
full payment is made. This indivisibility principle ensures that the subscriber cannot receive
a stock certificate for a portion of the subscribed shares until the entire subscribed amount
is paid.
2. Restrictions on Transfer and Certificates: Until the subscriber fulfills the entire payment for
the subscribed shares, they are not entitled to a certificate of stock. Additionally, due to the
indivisible nature of the subscription, the subscriber cannot divide or transfer a portion of
the subscribed stock to others. Only after the full payment of the entire subscribed amount
can the stockholder transfer or assign their shares to multiple transferees.
 This principle safeguards the integrity of stock subscriptions by enforcing full payment
before the stockholder can exercise the rights associated with the shares or transfer them to
other parties. It ensures that stockholders are committed to the entirety of their
subscription, preventing partial transactions or transfers until the obligation is entirely
fulfilled.
DOCTRINE OF EQUALITY OF SHARES
The Doctrine of Equality of Shares is a foundational principle in the context of corporations, particularly
in the Philippines. Here's a breakdown:
1. Equal Rights and Privileges: In the absence of any specific provisions in the articles of
incorporation that differentiate between various classes or types of shares, all shares issued by
the corporation are considered equal. This equality extends to the rights, privileges, and
liabilities attached to each share. Each share is presumed to hold the same status and
entitlements as every other share issued by the company.
2. Presumption of Uniformity: The default position within this doctrine assumes that each share
carries identical attributes unless expressly stated otherwise in the articles of incorporation or
within the certificate of stock. These documents can outline specific distinctions between classes
of shares, such as voting rights, dividend preferences, or liquidation preferences.
3. Exceptions through Articles and Certificates: If the articles of incorporation or the certificate of
stock stipulates any differences among shares, such as special voting rights for certain classes of
shares or preferences in dividend distributions, those stipulations will prevail. The doctrine only
applies in the absence of explicit specifications regarding different rights or privileges associated
with specific shares.
 This doctrine ensures simplicity and clarity in corporate structures by presuming uniformity
among shares unless expressly stated otherwise. It provides a default framework for
shareholders' rights and privileges unless otherwise specified in the foundational corporate
documents. The principle also maintains transparency and consistency in corporate
governance by clarifying the baseline equality among shares in the absence of specific
distinctions outlined in the articles of incorporation or the certificate of stock.
TRUST FUND DOCTRINE
a) Equity for Creditors: The essence of the Trust Fund Doctrine is that the capital stock,
assets, and property of a corporation are considered as a collective equity or fund. This
fund is established for the benefit and protection of corporate creditors. It signifies that
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these resources don't merely belong to the shareholders but also hold an inherent
obligation to meet the corporation's debts and liabilities.
b) Creditor Protection: The doctrine ensures that creditors have a claim on this collective
equity in the event of insolvency or when the corporation cannot meet its financial
obligations. In such circumstances, creditors can seek satisfaction from not only the
shareholders' unpaid subscriptions but also from other assets and properties held by the
corporation.
c) Judicial Recognition: The Trust Fund Doctrine has historical and legal precedence, with
its origins dating back to the 19th century in cases like Wood v. Dummer. In the
Philippines, the Supreme Court's ruling in the case of Philippine Trust Co. vs. Rivera
solidified the application of this doctrine in the country's corporate law.
d) Scope Beyond Unpaid Subscriptions: While it indeed encompasses the shareholders'
unpaid subscriptions, the doctrine's scope extends further. It includes all assets and
property held by the corporation that can be reasonably regarded as part of a trust fund
for settling corporate debts in insolvency scenarios.
e) Protection of Corporate Assets: The doctrine serves as a safeguard by ensuring that the
corporation's assets are not just at the disposal of shareholders but are also considered
as a collective resource to honor the obligations owed to creditors.
f) Application in Insolvency: Particularly in cases of insolvency, the Trust Fund Doctrine
holds significant weight. It signifies that the entirety of the corporation's assets, not just
the nominal capital, can be called upon to satisfy the claims of creditors.