(Batch 1) Commercial Law and Taxation Syllabus-Based eREVIEWER 2024

1
Commercial Law and Taxation Syllabus-based Reviewer for the 2024 Bar by Atty. Rehne Gibb N. Larena
Introduction Table of Contents Negotiable Instruments
The Syllabus-based eReviewers of eCodal+Pro is now on its Corporation Taxation

4th edition. This passion project started in 2021 while the
author, Atty. RGL, reviewed for the 2020_21 #BestBarEver. Partnership
Corporation
The review materials are painstakingly curated to address I
the topics of the current bar syllabi. Know that the aim here Insurance R.A. No. 11232, Revised Corporation Code
is to be as concise and direct as possible, while making sure
all topics are covered. The materials are not envisioned to be General Principles
Transportation
a primary review material as we give deference to the Kinds of Corporation
scholarly works of legal luminaries. It is highly advised that Banking
the materials are to be treated as supplements to reviewers Incorporation and Organization
as prescribed by law school professors. Directors and Trustees
Intellectual Property
Please note as well that the author has no crystal ball and is Powers of Corporations; Incidental
not in the business of predicting what topics will come out Data Privacy Act Powers; Ultra Vires Doctrine
in the Bar. What the author would like to impart to the
reader is the sense of security and confidence that after Stockholders and Members
Securities Regulation Code
finishing the materials, all topics have been covered. Mergers and Consolidations
Lastly, the author wishes to request the reader to be Electronic Commerce Act Corporate Dissolution and Liquidation
vanguards of the law. If you happen to grab a copy of this
material without having subscribed to eCodal+Pro, please Foreign Corporations
Access Devices Registration
contact the author at fb.com/ecodalplus, or email him at
ecodalplus@gmail.com. A General Principles
Philippine Competition Act
May you have the strength and peace of mind as you take Nature and Attributes
one more step into becoming members of the noblest of all Public Service Act
professions. Nationality of Corporations
Padayon! Doctrine of Separate Judicial Personality
eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 2 of 31
capital stock, coupled with 60% of the voting rights, direct another to vote for him, or
Doctrine of Piercing the Corporate Veil; is required. (Gamboa v. Teves 2011 En Banc)
Liability of Directors and Officers b. Economic Rights — the investment power
2. Both the Voting Control Test and the Beneficial over the "specific stock", i.e., he can dispose
Trust Fund Doctrine Ownership Test must be applied to determine of the stock or direct another to dispose of it
whether a corporation is a “Philippine national.” for him, or
1 Nature and Attributes
The 60-40 ownership requirement in favor of c. both, i.e., he can vote and dispose of that
§2. Corporation Defined. – A corporation is an Filipino citizens must apply separately to each class "specific stock" or direct another to vote or
artificial being created by operation of law, having of shares, whether common, preferred non-voting, dispose it for him,
the right of succession and the powers, attributes, preferred voting or any other class of shares. (Heirs
and properties expressly authorized by law or then such Filipino is the "beneficial owner" of that
of Gamboa v. Teves 2012 En Banc Resolution)
incidental to its existence. "specific stock." (Roy III v. Herbosa 2017 En Banc
3. The SEC suggested applying the Grandfather Rule Resolution)
A corporation is on
1. an artificial being a. Control Test
a. two (2) levels of corporate relations for
Control Test finds initial application and "must govern
2. created by operation of law, i. publicly-held corporations or
in reckoning foreign equity ownership in corporations
3. having the right of succession and ii. where the shares are traded in the engaged in nationalized economic activities."
4. the powers, attributes, and properties expressly stock exchanges, and to
Where a corporation and its non-Filipino stockholders
authorized by law or incidental to its existence. b. three (3) levels for own stocks in a SEC registered enterprise,
i. closely held corporations or a. at least 60% of the capital stock outstanding and
2 Nationality of Corporations
ii. the shares of which are not traded in entitled to vote of each of both corporations
1. The term "capital" in Section 11, Article XII of the must be owned and held by citizens of the
the stock exchanges. (Narra Nickel
Constitution refers only to shares of stock entitled Mining v. Redmont Consolidated Mines Philippines; AND
to vote in the election of directors, and thus, refers 2015 Resolution) b. at least 60% of the members of the Board of
ONLY TO COMMON SHARES, and NOT to the total Directors of each of both corporations must be
outstanding capital stock comprising both common 4. If the Filipino has
citizens of the Philippines,
and non-voting preferred shares. a. Political Rights — the voting power of the
"specific stock", i.e., he can vote the stock or
Full beneficial ownership of 60% of the outstanding
all economic viability studies. (Narra Nickel experience physical suffering or sentiments like
in order that the corporation shall be considered a
Philippine national. Mining v. Redmont Consolidated Mines 2015 wounded feelings, serious anxiety, mental anguish
Resolution) and moral shock.
b. Grandfather Rule
Doctrine of Separate Judicial EXC: A juridical person can validly claim for libel or any
The Grandfather Rule may be used as a supplement to 3
Personality other form of defamation and claim moral damages.
the Control Test, that is, as a further check to ensure
A corporation has a personality separate and distinct Article 2219(7) of the Civil Code expressly authorizes
that control and beneficial ownership of a corporation is
from that of its stockholders or members composing it, the recovery of moral damages in cases of libel,
in fact lodged in Filipinos.
as well as from the directors, trustees and officers who slander or any other form of defamation. Article
The Grandfather Rule is the method by which the act on its behalf. 2219(7) does not qualify whether the plaintiff is a natural
percentage of Filipino equity in a corporation engaged or juridical person.
in nationalized and/or partly nationalized areas of Consequences
activities is computed. A resort to the Grandfather Rule 1. The property of the corporation is not the property Silverio Jr. v. Filipino Business Consultants Inc.
is necessary if doubt exists as to the locus of the of its stockholders or members.
WON FBCI's acquisition of the "substantial and controlling
“beneficial ownership” and “control.”
2. A corporation can incur obligations which should shares of stocks" of Esses and Tri-Star entitles it to the possession
“Doubt” refers to various indicia that the “beneficial not be attributed to its stockholders, directors and of the property owned by the latter.
ownership” and “control” of the corporation do not in officers.
NO. Esses and Tri-Star, just like FBCI, are corporations. A
fact reside in Filipino shareholders but in foreign 3. Limited Liability Rule — A stockholder is personally corporation has a personality distinct from that of its
stakeholders. These indicators are: liable for the financial obligations of the corporation stockholders. Thus, FBCI's alleged controlling
a. That the foreign investors provide practically all to the extent of his unpaid subscription. shareholdings in Esses and Tri-Star merely represent a
the funds for the joint investment undertaken by Liability for tort and crimes proportionate or aliquot interest in the properties of the
these Filipino businessmen and their foreign two corporations. Such controlling shareholdings do not
The corporation should alone be liable for its own
partner; vest FBCI with any legal right or title to any of Esses and
corporate acts and liabilities entered into by its
b. That the foreign investors undertake to provide Tri-Star's corporate properties.
authorized officers.
practically all the technological support for the
Recovery of damages
joint venture;
GR: A corporation is not entitled to moral damages Doctrine of Piercing the Corporate
c. That the foreign investors, while being minority 4
because, not being a natural person, it cannot Veil; Liability of Directors and Officers
stockholders, manage the company and prepare
are so conducted as to make it merely an instrumentality,

Under the doctrine of "piercing the veil of corporate fiction,"
agency, conduit or adjunct of another corporation. c. the mere fact that CyberOne PH's major
the court looks at the corporation as a mere collection of
stockholders are CyberOne AU and respondent
individuals or an aggregation of persons undertaking business as a Case law lays down a three-pronged test to determine the
Mikrut does not prove that CyberOne PH was
group, disregarding the separate juridical personality of the application of the alter ego theory, which is also known as the
corporation unifying the group. instrumentality theory, namely: organized and controlled and its affairs conducted
in a manner that made it merely an
The procedure for the doctrine to be properly applied: 1) Instrumentality or Control Test — Control, not mere
instrumentality, agency, conduit or adjunct of
majority or complete stock control, but complete
1) The court must first acquire jurisdiction over the CyberOne AU.
domination, not only of finances but of policy and business
corporation or corporations involved before its or their
practice in respect to the transaction attacked so that the
separate personalities are disregarded; and
corporate entity as to this transaction had at the time no
2) The doctrine can only be raised during a full-blown trial over separate mind, will or existence of its own; Parayday v. Shogun Shipping Co. 2020
a cause of action duly commenced involving parties duly
brought under the authority of the court by way of service of
2) Fraud Test — Such control must have been used by the Other than their bare allegations, petitioners could have
defendant to commit fraud or wrong; and presented before the labor tribunals Oceanview's
summons or what passes as such service. (Kukan
International v. Reyes 2010) 3) Harm Test — The aforesaid control and breach of duty amended Articles of Incorporation indicating that it
must have proximately caused the injury or unjust loss changed its name to Shogun Ships.
Stockholders of a corporation are liable for the debts of the
complained of. (DBP v. Hydro Resources Contractors 2013)
corporation up to the extent of their unpaid subscriptions. They The doctrine of piercing the veil of corporate entity can
cannot invoke the veil of corporate identity as a shield from liability, only be raised during a full-blown trial over a cause of
because the veil may be lifted to avoid defrauding corporate
Gesolgon v. CyberOne PH 2020
action duly commenced involving parties duly brought
creditors. (Halley v. Printwell 2011) Here, the application of the doctrine of piercing the under the authority of the court by way of service of
The doctrine of piercing the corporate veil applies only in three (3) corporate veil is unwarranted. summons or what passes as such service.
basic areas, namely:
a. no evidence was presented to prove that CyberOne Here, Oceanview was never impleaded as a party
1) Defeat of public convenience as when the corporate fiction PH was organized for the purpose of defeating respondent and was never validly served with summons.
is used as a vehicle for the evasion of an existing obligation; public convenience or evading an existing
2) Fraud cases or when the corporate entity is used to justify a obligation; Reverse Piercing of the Corporate Veil
wrong, protect fraud, or defend a crime; or
b. petitioners failed to allege any fraudulent acts International Academy of Management & Economics v. Litton
3) Alter ego cases, where a corporation is merely a farce since it committed by CyberOne PH in order to justify a 2017
is a mere alter ego or business conduit of a person, or where wrong, protect a fraud, or defend a crime;
the corporation is so organized and controlled and its affairs
The plaintiff seeks to reach the assets of a corporation to
satisfy claims against a corporate insider. It has two (2) Case Circumstance Apply Case Circumstance Apply
types:
International fiction that it has a separate Rosales v. New The sale of the assets of New
Outsider reverse piercing occurs when a party with a Exchange personality from that of A.N.J.H. ANJH to NH Oil was a
claim against an individual or corporation attempts to Bank 2013 Hammer should be brushed Enterprises circumvention of the employees'
✔
be repaid with assets of a corporation owned or aside as they are, undeniably, 2015 security of tenure.
substantially controlled by the defendant. one and the same.
International Santos used I/AME as a means
In contrast, in insider reverse piercing, the controlling
members will attempt to ignore the corporate fiction While ownership by one Academy of to defeat judicial processes and
in order to take advantage of a benefit available to the corporation of all or a great Management to evade his obligation to Litton. ✔
corporation, such as an interest in a lawsuit or majority of stocks of another & Economics v. Outsider reverse veil-piercing is
DBP v. Hydro
protection of personal assets. corporation and their Litton 2017 applicable in the instant case.
Resources
interlocking directorates may
Contractors
serve as indicia of control, by
✘ G Holdings-being the majority
Survey of Cases. — Apply Piercing?
Corporation Maricalum and controlling stockholder-had
Case Circumstance Apply themselves and without more,
2013 Mining Corp. been exercising significant
however, these circumstances ✘
are insufficient to establish an v. Florentino control over Maricalum Mining.
A corporation not impleaded in a
Kukan 2018 However, the fraud and harm
suit cannot be subject to the alter ego relationship.
International
court's process of piercing the
✘ tests were not satisfied.
v. Reyes 2010 The mere ownership by a single
veil of its corporate fiction.
stockholder of even all or nearly
The prevailing rule is that a WPM all of the capital stocks of a 5 Trust Fund Doctrine
Halley v. stockholder is personally liable International corporation is not by itself a
Under the doctrine, the capital stock, property, and
Printwell, Inc. for the financial obligations of ✔ Trading, Inc. sufficient ground to disregard ✘
other assets of a corporation are regarded as equity in
2011 the corporation to the extent of v. Labayen the separate corporate
trust for the payment of corporate creditors, who are
his unpaid subscription. 2014 personality. The wrongdoing
preferred in the distribution of corporate assets. Thus,
must be clearly and convincingly
Heirs of Tan Goldkey was merely an adjunct of any disposition of corporate funds and assets to the
✔ established.
Uy v. Hammer and, as such, the legal prejudice of creditors is null and void. (Turner v. Lorenzo
Shipping 2010)
The Trust Fund Doctrine provides that subscriptions to §3. Stock corporations are those or any combination
the capital stock of a corporation constitute a fund to thereof.
a. which have capital stock
which the creditors have a right to look for the
satisfaction of their claims. b. divided into shares and Non-Diversion Rule
This doctrine is the underlying principle in the c. are authorized to distribute to the holders of Any profit which a nonstock corporation may obtain
procedure for the distribution of capital assets, embodied such shares, dividends, or allotments of the incidental to its operations shall, whenever necessary or
in the Corporation Code, which allows the distribution surplus profits on the basis of the shares held. proper, be used for the furtherance of the purpose or
of corporate capital only in three instances: purposes for which the corporation was organized. The
2 Non-Stock Corporation law strictly implements the non-diversion rule by:
1) amendment of the AOI to reduce the ACS,
§86. Definition. – xxx a nonstock corporation is one a) Forbidding distribution of profits;
2) purchase of redeemable shares by the
where no part of its income is distributable as
corporation, regardless of the existence of b) Requiring immediate utilization of
dividends to its members, trustees, or officers: contributions for intended purposes; and
unrestricted retained earnings, and
Provided, That any profit which a nonstock
3) dissolution and eventual liquidation of the corporation may obtain incidental to its operations c) Limiting administrative expenses of certain
corporation. (Ong Yong v. Tiu) shall, whenever necessary or proper, be used for the eleemosynary corporations. (of, relating to, or
furtherance of the purpose or purposes for which the supported by charity)
B Kinds of Corporation corporation was organized, subject to the provisions
of this Title. 3 Close Corporation
Stock Corporation
§87. Purposes. – May be formed or organized for §86. A close corporation is one whose AOI provide
Non-Stock Corporation that:
1) charitable, 6) fraternal, or similar purposes,
Close Corporation like 1) All of the corporation’s issued stock of all classes,
2) religious, 7) literary, exclusive of treasury shares, shall be held of record
Educational Corporations 11) trade,
3) educational, 8) scientific, by not more than a specified number of persons, not
Religious Corporation 12) industry, exceeding twenty (20);
4) professional, 9) social,
One Person Corporation 5) cultural, 10) civic service, 13) agricultural and 2) All of the issued stock of all classes shall be subject to
like chambers, one or more specified restrictions on transfer; and
1 Stock Corporation
"the stockholders of the corporation shall be subject to all personal services, or in payment of corporate debts,
3) The corporation shall not list in any stock exchange
or make any public offering of any of its stock of any liabilities of directors." Nowhere in that provision do we unless the AOI provides otherwise.
class. find any inference that stockholders of a close corporation Amendment of Articles of Incorporation
are automatically liable for corporate debts and
A corporation shall be deemed NOT a close corporation Shall require the affirmative vote of at least two-thirds
obligations.
when at least two-thirds (2/3) of its voting stock or voting (2/3) of the OCS, whether with or without voting rights,
rights is owned or controlled by another corporation which Given that the true owner of the subject property is not the or of such greater proportion of shares as may be
is not a close corporation. (San Juan Structural and Steel corporation, petitioner cannot be considered a creditor of specifically provided in the AOI.
Fabricators, Inc. v. CA) MSI but a holder of a claim against respondent spouses.
GR: ANY corporation may be incorporated as a close 4 Educational Corporations

Validity of Restrictions on Transfer of Shares
corporation; §106. The number of trustees of educational
MUST APPEAR in the AOI, in the bylaws, as well as in
EXC: institutions organized as nonstock corporations shall
the certificate of stock; otherwise, the same shall not be
be between 5 and 15.
1) mining or oil companies, binding on any purchaser in good faith.
The number of trustees shall be in multiples of five
2) stock exchanges, Said restrictions shall not be more onerous than
(5).
granting the existing stockholders or the corporation
3) banks,
the option to purchase the shares. Unless otherwise provided in the AOI or bylaws, the
4) insurance companies, BOT shall, as soon as organized, so classify
1. The law only permits restrictions based on
5) public utilities, themselves that the term of office of one-fifth (1/5) of
qualifications and conditions, and NOT on the
their number shall expire every year.
6) educational institutions and personality of shareholders.
Trustees thereafter elected to fill vacancies, occurring
7) corporations declared to be vested with public 2. The most the restrictions may do is to give the
before the expiration of a particular term, shall hold
interest. remaining stockholders the right of first
office only for the unexpired period. Trustees elected
refusal—that is, to match the offer of a third party
thereafter to fill vacancies caused by expiration of
Bustos v. Millians Shoe, Inc 2017 meeting the prescribed qualifications.
term shall hold office for five (5) years.
WON the CA correctly considered the properties of Spouses Cruz Preemptive Right A majority of the trustees shall constitute a quorum
answerable for the obligations of MSI. Extends to ALL stock to be issued, including reissuance for the transaction of business.
NO. Section 97 of the Corporation Code only specifies that of treasury shares, whether for money, property or
sect or church, may, upon written consent and/or by an

5 Religious Corporation Capital Stock Requirement
affirmative vote at a meeting called for the purpose of at
least two-thirds (2/3) of its membership, incorporate for Shall not be required to have a minimum ACS except as
Corporation Sole
the administration of its temporalities or for the otherwise provided by special law.
A corporation sole may be formed by the chief
management of its affairs, properties, and estate by
archbishop, bishop, priest, minister, rabbi, or other Articles of Incorporation and By-Laws
filing with the SEC, AOI verified by the affidavit of the
presiding elder of such religious denomination, sect, or Aside from the requirements set forth in Sec 14, the AOI
presiding elder, secretary, or clerk or other member of
church, for the purpose of administering and of the OPC shall likewise substantially contain the
such religious society.
managing, as trustee, the affairs, property and following:
temporalities of such religious denomination, sect or
6 One Person Corporation a) If the single stockholder is a trust or an estate,
church.
the name, nationality, and residence of the
§116. A One Person Corporation is a corporation
A corporation aggregate formed for the same purpose, trustee, administrator, executor, guardian,
on the other hand, consists of two or more persons. A with a single stockholder. Only a natural person,
conservator, custodian, or other person
corporation sole may be converted into a corporation trust, or an estate may form an OPC.
exercising fiduciary duties together with the
aggregate by mere amendment of its AOI. The one Excepted Corporations proof of such authority to act on behalf of the
member, with the concurrence of two-thirds of the trust or estate; and
1) Banks and quasi-banks,
membership of the organization for whom he acts as
2) Pre-need, b) Name, nationality, residence of the nominee and
trustee, can self-will the amendment. (Iglesia Evangélica
alternate nominee, and the extent, coverage and
Metodista en las Islas Filipinas v. Lazaro) 3) Trust, limitation of the authority.
Effectivity — From and after filing with the SEC of the 4) Insurance, Bylaws are NOT required to be submitted.
AOI, verified by affidavit or affirmation, and
5) Public and publicly-listed companies, and
accompanied by the required documents. Corporate Name
6) Non-chartered GOCCs
DOES NOT require approval of the SEC in consonance The letters “OPC” shall be indicated either below or at
with the separation of church and state doctrine. may not incorporate as an OPC the end of its corporate name.
7) A natural person who is licensed to exercise a
Religious Societies Corporate Structure and Officers
profession may not organize as an OPC for the
Any religious society, religious order, diocese, synod, or The single stockholder shall be
purpose of exercising such profession except as
district organization of any religious denomination, 1) The sole director and president of the OPC;
otherwise provided under special laws.
2) May NOT be appointed as the corporate When a single stockholder acquires all the stocks of an Corporate Name
secretary; ordinary stock corporation, the latter may apply for
conversion into an OPC. Capitalization
3) May likewise be the self-appointed treasurer.
2. From OPC to Ordinary Stock Corporate Term
Here, the single stockholder shall give a bond to the SEC
in such a sum as may be required, to be renewed every A notice shall be filed with the SEC within sixty (60) Classification of Shares
two (2) years or as often as may be required. days from the occurrence of the circumstances
Articles of Incorporation
leading to the conversion into an ordinary stock
Nominee corporation. By-Laws
In the event of the single stockholder’s death or
In case of death of the single stockholder, the Corporate Officers
incapacity, the nominee shall take the place of the single
nominee or alternate nominee shall
stockholder as director and shall manage the De Facto Corporation
corporation’s affairs. a) transfer the shares to the duly designated
legal heir or estate within seven (7) days Corporation by Estoppel
The written consent of the nominee and alternate
from receipt of either an affidavit of heirship
nominee shall be attached to the application for Number and Qualification of
or self-adjudication executed by a sole heir, 1
incorporation. Such consent may be withdrawn in Incorporators
and
writing any time before the death or incapacity of the
b) notify the SEC of the transfer. §10. Number and Qualifications of Incorporators. –
single stockholder.
Any person, partnership, association or
Within sixty (60) days from the transfer of the
Liability corporation, singly or jointly with others but not
shares, the legal heirs shall notify the SEC of their
A sole shareholder claiming limited liability has the more than fifteen (15) in number, may organize a
decision to either
burden of affirmatively showing that the corporation corporation for any lawful purpose or purposes:
was adequately financed. a) wind up and dissolve the OPC or
Provided, That natural persons who are
The principles of piercing the corporate veil applies b) convert it into an ordinary stock corporation.
1. licensed to practice a profession, and
with equal force to OPCs as with other corporations.
C Incorporation and Organization 2. partnerships or associations organized for the
Conversion of Corporation to One Person purpose of practicing a profession,
Corporations and Vice-Versa Number and Qualification of Incorporators
1. From Ordinary to OPC
shall not be allowed to organize as a corporation 2 Corporate Name may summarily order the corporation to immediately
unless otherwise provided under special laws. cease and desist from using such name and require
§17. Corporate Name. – No corporate name shall be
the corporation to register a new one. xxx
Incorporators who are natural persons must be of allowed by the Commission
legal age. If the corporation fails to comply with the
1. if it is not distinguishable from that already
Commission’s order, the Commission may
Each incorporator of a stock corporation must own reserved or registered for the use of another
or be a subscriber to at least one (1) share of the corporation, or 1. hold the corporation and its responsible
capital stock. directors or officers in contempt and/or
2. if such name is already protected by law, or
A corporation with a single stockholder is considered 2. hold them administratively, civilly and/or
3. when its use is contrary to existing law, rules
a One Person Corporation. criminally liable under this Code and other
and regulations.
applicable laws and/or
Incorporators are those stockholders or members
A name is not distinguishable even if it contains one
mentioned in the AOI as originally forming and composing 3. revoke the registration of the corporation.
or more of the following:
the corporation and who are signatories thereof. §18. Registration, Incorporation and Commencement of
a) The word “corporation”, “company”,
1. Any person, partnership, association or corporation, Corporate Existence. – xxx
“incorporated”, “limited”, “limited liability”,
2. Singly or jointly with others; or an abbreviation of one of such words; and A private corporation organized under this Code
b) Punctuations, articles, conjunctions, commences its corporate existence and juridical
3. Not more than fifteen (15) in number;
contractions, prepositions, abbreviations, personality from the date the Commission issues the
4. Incorporators who are natural persons must be of certificate of incorporation xxx.
different tenses, spacing, or number of the
legal age;
same word or phrase.
Corporate Name and Limitations on its Use
5. Each incorporator of a stock corporation must own
The Commission, upon determination that the No corporate name shall be allowed by the SEC
or be a subscriber to at least one (1) share of the
corporate name is:
capital stock. 1. if it is not distinguishable from that already
1. not distinguishable from a name already reserved or registered for the use of another
Changes from BP 68
reserved or registered for the use of another corporation, or
6. No more prescribed minimum number of corporation;
incorporators; 2. if such name is already protected by law, or
2. already protected by law; or
7. Majority need not be PH residents. 3. when its use is contrary to existing law, rules and
3. contrary to law, rules and regulations, regulations.
The SEC 3. The incorporators shall then submit their AOI and Type What It Is Practical Purpose
bylaws to the SEC.
1. may summarily order the corporation to approval from the SEC
immediately cease and desist from using such 4. If the SEC finds that the submitted documents and and its stockholders.
name; information are fully compliant, the SEC shall issue
the certificate of incorporation. The amount of SCS
2. may require the corporation to register a new one;
The committed represents the value of
3. shall cause the removal of all visible signages, A private corporation organized under the RCC
commences its corporate existence and juridical Subscribed amount of capital assets that are
marks, advertisements, labels, prints and other Capital which the considered as corporate
effects bearing such corporate name. personality from the date the SEC issues the certificate of
incorporation. Stock corporation will trust fund. Prospective
If the corporation fails to comply with the SEC’s order, the receive from its creditors may rely on
SEC may 3 Capitalization (SCS) existing this amount as their
subscribers. buffer fund against
1. hold the corporation and its responsible directors or
§17. Minimum Capital Stock Not Required of Stock corporate losses.
officers in contempt and/or
Corporations. – Stock corporations shall not be
2. hold them administratively, civilly and/or criminally required to have a minimum capital stock, except as The amount of The PUC is the
liable and/or revoke the registration of the otherwise specifically provided by special law. capital which the reference point of the
corporation. corporation extent of corporate
Type What It Is Practical Purpose already received earnings that the board
Registration, Incorporation, and from its may retain for use of
Commencement of Corporate Existence The minimum Information about the Paid-up
subscribers the corporation.
1. A person or group of persons desiring to incorporate amount of capital ACS permits Capital
(represents the Whenever a
shall submit the intended corporate name to the Authorized which the government regulators
paid portion of the corporation proposes to
SEC for verification. Capital corporation will and major corporate (PUC)
SCS) and the value increase its ACS, it
Stock receive when it creditors to assess the
2. If the Commission finds that the name is of assets that are must establish that it
issues all its ability of the
distinguishable, not protected by law and is not available to the has received additional
(ACS) shares. corporation to raise
contrary to law, rules and regulations, the name corporation for its PUC of at least 6.25% of
ACS = No. of their prescribed capital
shall be reserved in favor of the incorporators. use. the proposed increase.
Shares x Par Value without further
Type What It Is Practical Purpose stock, notifies the Commission that it elects to retain elects to retain its specific corporate term pursuant
its specific corporate term pursuant to its articles of to its AOI.
The aggregate incorporation:
Corporations with a limited term may extend or shorten its
amount of
Provided, That any change in the corporate term term by amending its AOI within 3 years prior to the
premium arising The APIC also forms under this section is without prejudice to the expiration of the term.
from capital stock part of the corporate appraisal right of dissenting stockholders in
subscriptions, trust fund; thus, it may 1. An extension may be made earlier than the three (3)
accordance with the provisions of this Code. year period only for justifiable reasons.
Additional donations not be declared as
Paid-in received, and dividend not be A corporate term for a specific period may be 2. Such extension of the corporate term shall take
Capital shareholders’ reclassified to absorb extended or shortened by amending the articles of effect only on the day following the original or
additional capital deficiency except incorporation: subsequent expiry date.
(APIC) infusion without through an Provided, That no extension may be made earlier than 3. In case of extension of corporate term, a dissenting
corresponding organizational three (3) years prior to the original or subsequent stockholder may exercise the right of appraisal.
shares of stock to restructuring approved expiry date(s) unless there are justifiable reasons for
wipe out the by the SEC. an earlier extension as may be determined by the Corporations with expired terms may apply for a revival of its
corporation Commission: corporate existence. The GR and EXC apply.
deficit.
Provided, further, That such extension of the corporate Action Taken Voting Required
term shall take effect only on the day following the
original or subsequent expiry date(s). Xxxx Opting out from the default Stockholders representing
4 Corporate Term regime of Perpetual Existence MAJORITY of OCS
GR: Perpetual existence, including those already
§11. Corporate Term. — A corporation shall have existing during the effectivity of the RCC. Majority of Board +
perpetual existence unless its articles of Extending or Shortening the
EXC: Unless the AOI of newly established corporations Stockholders representing
incorporation provide otherwise. Corporate Term
provide otherwise. 2/3 of OCS
Corporations with certificates of incorporation
The existing corporation, upon a vote of its
issued prior to the effectivity of this Code, and which
stockholders representing a MAJORITY of its
continue to exist, shall have perpetual existence, Classification of Shares
outstanding capital stock, notifies the SEC that it 5
unless the corporation, upon a vote of its stockholders §6-9
representing a majority of its outstanding capital
Scope of voting rights subject to classification Preferred profits, the BOD has the discretion to determine whether
or not dividends are to be declared.
Common shareholders, as residual owners, have full One which entitles the holder thereof to certain
voting rights. Holders of other shares have similar preferences over the holders of common stock. The In this case, while the stock certificate does allow
rights, except when denied by the corporation’s charter preferences are designed to induce persons to subscribe redemption, the option to do so was clearly vested in the
or in compliance with the provisions of the constitution for shares of a corporation. Preferred shares take a petitioner bank. The redemption therefore is clearly the
or the law. multiplicity of forms. The most common forms may be type known as "optional". Thus, except as otherwise
classified into two: provided in the stock certificate, the redemption rests
Non-voting shares are merely prevented from electing
entirely with the corporation and the stockholder is
directors and other matters presented to the 1. preferred shares as to assets. — gives the holder
without right to either compel or refuse the redemption
shareholders in general for approval. thereof preference in the distribution of the assets of
of its stock.
Holders of nonvoting shares shall nevertheless be entitled to the corporation in case of liquidation.
vote on the following matters: 2. preferred shares as to dividends. — the holder of Common
a) Amendment of the AOI; which is entitled to receive dividends on said share Shares with no preferences. Holders of these shares are
to the extent agreed upon before any dividends at all regarded as residual owners, who assume all the risks
b) Adoption and amendment of bylaws;
are paid to the holders of common stock. There is no but reap all the benefits in the affairs of the corporation.
c) Sale, lease, exchange, mortgage, pledge, or other guaranty, however, that the share will receive any They may only receive dividends and/or assets upon
disposition of all or substantially all of the corporate dividends. liquidation following the satisfaction of the stipulated
property;
returns to other funders of the corporation, such as
Republic Planters Bank v. Agana, Sr.
d) Incurring, creating, or increasing bonded creditors or preferred shareholders.
indebtedness; WON petitioner can be compelled to redeem the preferred shares
issued to the private respondent.
Founder's
e) Increase or decrease of ACS;
Where the exclusive right to vote and be voted for in the
f) Merger or consolidation of the corporation with NO. Preferences granted to preferred stockholders do not
election of directors is granted, it must be for a limited
another corporation or other corporations; give them a lien upon the property of the corporation nor
period not to exceed five (5) years from the date of
make them creditors of the corporation, the right of the
g) Investment of corporate funds in another incorporation.
former being always subordinate to the latter. Dividends
corporation or business; and Such exclusive right shall not be allowed if its exercise
are thus payable only when there are profits earned by the
h) Dissolution of the corporation. corporation and as a general rule, even if there are existing will violate
inability of the corporation to meet its debts as

1. the “Anti-Dummy Law”; 1) When the corporation redeems its shares pursuant
they mature. to its contract with shareholders;
2. the “Foreign Investments Act of 1991”; and
These may be issued by the corporation when expressly 2) When permitted or required by law, as when:
3. other pertinent laws. provided in the AOI.
a) The corporation eliminates fractional shares
Redeemable Mandatory Redemption arising out of stock dividends;
Shares usually preferred, which by their terms are Corporations which have issued mandatory redeemable
b) The corporation collects or compromises on
redeemable shares with mandatory redemption features are
delinquency subscription; or
1. at a fixed date, or required to set up and maintain a sinking fund to be
deposited in a trustee bank, and which shall not be c) The corporation pays a dissenting
2. at the option of either issuing corporation, or stockholder.
invested in risky or speculative ventures.
the stockholder, or both
3) In close corporations, in case of:
at a certain redemption price. A redemption by the Treasury
Shares of stock which have been issued and fully paid for, a) Deadlock (§ 103); or
corporation of its stock is, in a sense, a repurchase of it
for cancellation. but subsequently reacquired by the issuing corporation b) Withdrawal by a shareholder (§ 104).
through purchase, redemption, donation, or some
Redemption of shares is allowed even if there are no
other lawful means. Such shares may again be disposed Articles of Incorporation
unrestricted retained earnings on the books of the 6
of for a reasonable price fixed by the board of directors. §13-15
corporation. It in effect qualifies the general rule that
the corporation cannot purchase its own shares except The common shares after conversion and release from Contents
out of current retained earnings. sequestration become treasury stocks.
a) The name of the corporation;
However, while redeemable shares may be redeemed A treasury share or stock, which may be common or
b) The specific purpose or purposes for which the
regardless of the existence of unrestricted retained preferred, may be used for a variety of corporate
corporation is being formed. Where a corporation
earnings, this is subject to the condition that the purposes, such as for a stock bonus plan for
has more than one stated purpose, the AOI shall
corporation has, after such redemption, assets in its books to management and employees or for acquiring another
indicate the primary purpose and the secondary
cover debts and liabilities inclusive of capital stock. company. It may be held indefinitely, resold or retired.
purpose or purposes.
Redemption, therefore, may not be made where While held in the company's treasury, the stock earns
no dividends and has no vote in company affairs. A nonstock corporation may not include a purpose
1. the corporation is insolvent or which would change or contradict its nature as such;
Instances giving rise to Treasury Shares
2. if such redemption will cause insolvency or
c) The place where the principal office of the i) If it be a nonstock corporation, c) The required quorum in meetings of stockholders or
corporation is to be located, which must be within members and the manner of voting therein;
1) the amount of its capital,
the Philippines;
2) the names, nationalities, and residence d) The modes by which a stockholder, member,
d) The term for which the corporation is to exist, if the addresses of the contributors, and director, or trustee may attend meetings and cast
corporation has not elected perpetual existence; their votes;
3) amount contributed by each.
e) The names, nationalities, and residence addresses of e) The form for proxies of stockholders and members
the incorporators; j) An arbitration agreement may be provided in the and the manner of voting them;
AOI pursuant to Section 181.
f) The number of directors, which shall not be more f) The directors’ or trustees’
than fifteen (15) or the number of trustees which Non-Amendable Items i) qualifications, duties and responsibilities,
may be more than fifteen (15); 1) names of the incorporators,
ii) the guidelines for setting the compensation
g) The names, nationalities, and residence addresses of 2) the first set of directors and subscribers, of directors or trustees and officers, and
persons who shall act as directors or trustees until
3) the initial treasurer, iii) the maximum number of other board
the first regular directors or trustees are duly elected
and qualified; 4) their original subscription and representations that an independent director
or trustee may have which shall, in no case,
h) If it be a stock corporation, 5) the place and date of execution.
be more than the number prescribed by the
1) the amount of its authorized capital stock, SEC;
By-Laws
7
2) number of shares into which it is divided, §45-47 g) The time for holding the annual election of directors
or trustees and the mode or manner of giving notice
3) the par value of each, names,
Contents of By-Laws thereof;
4) nationalities, and residence addresses of the a) The time, place and manner of calling and
original subscribers, h) The manner of election or appointment and the term
conducting regular or special meetings of the of office of all officers other than directors or
5) amount subscribed and paid by each on the directors or trustees; trustees;
subscription, and b) The time and manner of calling and conducting i) The penalties for violation of the bylaws;
6) a statement that some or all of the shares are regular or special meetings and mode of notifying
without par value, if applicable; the stockholders or members thereof; j) In the case of stock corporations, the manner of
issuing stock certificates; and
directors or trustees the power to amend or repeal the

k) Such other matters as may be necessary 1. as president and secretary or
bylaws or adopt new bylaws.
i) for the proper or convenient transaction of 2. as president and treasurer
its corporate affairs Revocation of the Delegation — Any power delegated to
the board to amend, repeal, or adopt new bylaws shall at the same time, unless otherwise allowed in this
ii) for the promotion of good governance and be considered as revoked whenever stockholders Code.
anti-graft and corruption measures. owning or representing a majority of the OCS or
l) An arbitration agreement may be provided in the majority of the members shall so vote at a regular or 9 De Facto Corporation
bylaws. special meeting. §19. De facto Corporations. — The due incorporation
The amended or new bylaws shall only be effective upon of any corporation claiming in good faith to be a
Binding Effects
the issuance by the SEC of a certification that the same corporation, and its right to exercise corporate
Bylaws shall be effective only upon the issuance by the powers, shall not be inquired into collaterally in any
is in accordance with this Code and other relevant laws.
SEC of a certification that the bylaws are in accordance private suit to which such corporation may be a
with the Code.
8 Corporate Officers party. Such inquiry may be made by the Solicitor
For the adoption of bylaws, the affirmative vote of the General in a quo warranto proceeding.
stockholders representing at least a majority of the §24. Corporate Officers. — Immediately after their
election, the directors of a corporation must formally There are stringent requirements before one can qualify as a
OCS, or of at least a majority of the members in case of de facto corporation:
nonstock corporations, shall be necessary. organize and elect:
a) a president, who must be a director; a. the existence of a valid law under which it may be
Amendments incorporated;
b) a treasurer, who must be a resident;
A majority of the board of directors or trustees, and the b. an attempt in good faith to incorporate; and
owners of at least a majority of the OCS, or at least a c) a secretary, who must be a citizen and
resident of the Philippines; and c. assumption of corporate powers.
majority of the members of a nonstock corporation, at a
regular or special meeting duly called for the purpose, d) such other officers as may be provided in the Sawadjaan v. CA
may amend or repeal the bylaws or adopt new bylaws. bylaws.
WON AIIBP had NO legal personality to dismiss Sawadjaan
Delegation to the Board — The owners of two-thirds (2/3) If the corporation is vested with public interest, the since it failed to file its by-laws within the designated 60 days
of the OCS or two-thirds (2/3) of the members in a board shall also elect a compliance officer. The same from the effectivity of Rep. Act No. 6848.
nonstock corporation may delegate to the board of person may hold two (2) or more positions
concurrently, except that no one shall act NO. At the very least, by its failure to submit its by-laws on
time, the AIIBP may be considered a de facto corporation principle of separate juridical personality apply since
Corporation by estoppel is founded on principles of equity
whose right to exercise corporate powers may not be there was never any corporation to speak of. and is designed to prevent injustice and unfairness. It
inquired into collaterally in any private suit to which such applies when persons assume to form a corporation and
corporations may be a party. exercise corporate functions and enter into business
Moreover, a corporation which has failed to file its by-laws 10 Corporation by Estoppel relations with third persons. Where there is no third person
within the prescribed period does not ipso facto lose its §20. Corporation by Estoppel — All persons who involved and the conflict arises only among those assuming the
powers as such. assume to act as a corporation knowing it to be form of a corporation, who therefore know that it has not been
without authority to do so shall be liable as general registered, there is no corporation by estoppel.
partners for all debts, liabilities and damages
Seventh Day Adventist Conference Church of Southern Phil. incurred or arising as a result thereof:
Inc. v. Northeastern Mindanao Mission of Seventh Day Macasaet v. Co, Jr. 2013
Adventist, Inc. Provided, however, That when any such ostensible
corporation is sued on any transaction entered by it Abante Tonite is a corporation by estoppel as the result of its
The alleged donation to petitioners was void. The donation having represented itself to the reading public as a
as a corporation or on any tort committed by it as
could not have been made in favor of an entity yet corporation despite its not being incorporated.
such, it shall not be allowed to use its lack of
inexistent at the time it was made. Nor could it have been
corporate personality as a defense. Anyone who The non-incorporation of Abante Tonite with the SEC was
accepted as there was yet no one to accept it.
assumes an obligation to an ostensible corporation as of no consequence, for, otherwise, whoever of the public
There are stringent requirements before one can qualify as such cannot resist performance thereof on the who would suffer any damage from the publication of
a de facto corporation. The filing of articles of ground that there was in fact no corporation. articles in the pages of its tabloids would be left without
incorporation and the issuance of the certificate of recourse.
incorporation are essential for the existence of a de facto Lozano v. De los Santos
corporation.
The doctrine of corporation by estoppel advanced by Anda
Corporate existence begins only from the moment a cannot override jurisdictional requirements. Jurisdiction Missionary Sisters of Our Lady of Fatima v. Alzona 2018
certificate of incorporation is issued. No such certificate is fixed by law and is not subject to the agreement of the WON petitioner has the legal capacity to accept the donation of
was ever issued to petitioners or their supposed parties. It cannot be acquired through or waived, enlarged Purificacion.
predecessor-in-interest at the time of the donation. or diminished by any act or omission of the parties,
Petitioners obviously could not have claimed succession to YES, not in the capacity as a de facto corporation but as a
neither can it be conferred by the acquiescence of the
an entity that never came to exist. Neither could the corporation by estoppel. It is the act of registration with
court.
SEC through the issuance of a certificate of incorporation D Directors and Trustees 3. control all properties of the corporation.
that marks the beginning of an entity's corporate
Tenure, Qualifications, and Disqualifications of
existence. Qualifications and Disqualifications
Directors
Petitioner filed its AOI and by-laws on August 28. Elections 1. Directors shall be elected for a term of one (1) year
However, the SEC issued the corresponding Certificate of
Independent Directors from among the holders of stocks registered in the
Incorporation only on August 31, two (2) days after
corporation’s books,
Purificacion executed a Deed of Donation on August 29. Term, Holdover, and Removal
Clearly, at the time the donation was made, the Petitioner 2. While trustees shall be elected for a term not
cannot be considered a corporation de facto.
Compensation exceeding three (3) years from among the members
Vacancy of the corporation.
Rather, a review of the attendant circumstances reveals
that it calls for the application of the doctrine of 3. Each director and trustee shall hold office until the
Voting Requirements
corporation by estoppel. successor is elected and qualified.
Duties and Liabilities
Jurisprudence dictates that the doctrine of corporation by 4. A director who ceases to own at least one (1) share of
estoppel applies for as long as there is no fraud and when Doctrine of Centralized Management stock or a trustee who ceases to be a member of the
the existence of the association is attacked for causes corporation shall cease to be such.
Business Judgment Rule
attendant at the time the contract or dealing sought to be A person shall be disqualified from being a director, trustee
enforced was entered into, and not thereafter. Doctrine of Apparent Authority or officer of any corporation if, within five (5) years prior to
Here, Purificacion dealt with the petitioner as if it were a Doctrine of Ratification or Estoppel the election or appointment as such, the person was:
corporation. This is evident from the fact that Purificacion a) Convicted by final judgment:
executed two (2) documents conveying her properties in Qualifications and Disqualifications
1 1) Of an offense punishable by imprisonment
§ 22-26
favor of the petitioner.
for a period exceeding six (6) years;
Further, the subsequent act by Purificacion of Repository of Corporate Powers
2) For violating this Code; and
re-conveying the property in favor of the petitioner is a The board of directors or trustees shall
ratification by conduct of the otherwise defective 3) For violating the SRC;
1. exercise the corporate powers,
donation. b) Found administratively liable for any offense
2. conduct all business, and involving fraudulent acts; and
c) By a foreign court or equivalent foreign regulatory Except with respect to independent trustees of Independent Directors
3
authority for acts, violations or misconduct similar nonstock corporations vested with public interest, §22
to those enumerated in paragraphs (a) and (b) above. only a member of the corporation shall be elected as
An independent director is a person who, apart from
trustee.
shareholdings and fees received from the corporation, is
2 Elections §25. Non-holding of Election. — The non-holding of independent of management and free from any
§23. Election of Directors or Trustees. — xxx there elections and the reasons therefor shall be reported business or other relationship.
must be present, either in person or through a to the Commission within thirty (30) days from the
The board of the following corporations vested with
representative authorized to act by written proxy, the date of the scheduled election. The report shall
public interest shall have independent directors
owners of majority of the outstanding capital stock, specify a new date for the election, which shall not be
constituting at least 20% of such board:
or if there be no capital stock, a majority of the later than sixty (60) days from the scheduled date.
members entitled to vote. When so authorized in the a) Corporations covered by Section 17.2 of the SRC,
1) If no new date has been designated, or
bylaws or by a majority of the board of directors, the namely those
2) if the rescheduled election is likewise not
stockholders or members may also vote through i) whose securities are registered with the SEC,
held,
remote communication or in absentia:
ii) corporations listed with an exchange or with
the Commission may,
Provided, That the right to vote through such modes assets of at least P50M AND having 200 or
may be exercised in corporations vested with public 1) upon the application of a stockholder, more holders of shares, each holding at least
interest, notwithstanding the absence of a provision in member, director or trustee, and 100 shares of a class of its equity shares;
the bylaws of such corporations. xxxx 2) after verification of the unjustified b) Banks and quasi-banks, NSSLAs, pawnshops,
§91. Election and Term of Trustees. — The number of non-holding of the election, corporations engaged in money service business,
trustees shall be fixed in the articles of incorporation summarily order that an election be held. xxxx pre-need, trust and insurance companies, and other
or bylaws which may or may not be more than fifteen financial intermediaries; and
Cessation from Office. — Should a director, trustee or
(15). They shall hold office for not more than three (3)
officer die, resign or in any manner cease to hold c) Other corporations engaged in business vested with
years until their successors are elected and qualified.
office, the secretary, or the director, trustee or officer public interest.
Trustees elected to fill vacancies occurring before the
of the corporation, shall, within seven (7) days from
expiration of a particular term shall hold office only
knowledge thereof, report in writing such fact to the Term, Holdover, and Removal
for the unexpired period. 4
Commission. §22 and 27
trustees with compensation and approve the amount

1. Any director or trustee of a corporation may be 4. Removal may be WITH or WITHOUT cause.
removed from office by a vote of the stockholders thereof at a regular or special meeting.
Removal without cause may NOT be used to deprive
holding or representing at least two-thirds (2/3) of minority stockholders or members of the right of In no case shall the total yearly compensation of
the OCS, or in a nonstock corporation, by a vote of at representation to which they may be entitled under directors exceed ten (10%) percent of the net income
least two-thirds (2/3) of the members entitled to Section 23. before income tax of the corporation during the
vote. preceding year.
5. The SEC shall, motu proprio or upon verified
2. Such removal shall take place either at a regular complaint, and after due notice and hearing, order GR: In the absence of any provision in the bylaws fixing
meeting of the corporation or at a special meeting the removal of a director or trustee their compensation, the directors or trustees shall
called for the purpose, and in either case, after not receive any compensation in their capacity as
previous notice to stockholders or members of the a. elected despite the disqualification, or
such, except for reasonable per diems.
corporation of the intention to propose such b. whose disqualification arose or is discovered
EXC: The stockholders representing at least a majority of
removal at the meeting. subsequent to an election.
the OCS or majority of the members may grant
3. A special meeting of the stockholders or members The removal of a disqualified director shall be directors or trustees with compensation and
for the purpose of removing any director or trustee without prejudice to other sanctions that the SEC approve the amount thereof at a regular or special
must be called may impose on the board of directors or trustees meeting.
a. by the secretary on order of the president, or who, with knowledge of the disqualification, failed to
In no case shall the total yearly compensation of
remove such director or trustee.
b. upon written demand of the stockholders directors exceed ten (10%) percent of the net income
representing or holding at least a majority of before income tax of the corporation during the
5 Compensation
the OCS, or a majority of the members preceding year.
entitled to vote. §29. Compensation of Directors or Trustees. — In the
absence of any provision in the bylaws fixing their Vacancy
If there is no secretary, or if the secretary, despite 6
compensation, the directors or trustees shall not §28 and 25
demand, fails or refuses to call the special meeting
receive any compensation in their capacity as such,
or to give notice thereof, the stockholder or member
except for reasonable per diems:
of the corporation signing the demand may call for
the meeting by directly addressing the stockholders Provided however, That the stockholders representing
or members. at least a majority of the outstanding capital stock or
majority of the members may grant directors or
Reason Manner of Filling Period to Fill Up where the bylaws are silent, at the time of the
1. When the vacancy prevents the remaining directors
from constituting a quorum and election. The said stockholder may:
On the same day of the
2. Emergency action is required to prevent grave, a) vote such number of shares for as many
Removal meeting authorizing the persons as there are directors to be elected;
removal substantial, and irreparable loss or damage to the
corporation, b) cumulate said shares and give one (1)
No later than the day of candidate as many votes as the number of
The vacancy may be temporarily filled from among the
Expiration By the such expiration at a directors to be elected multiplied by the
officers of the corporation by unanimous vote of the
of Term stockholders or meeting called for that number of the shares owned; or
remaining directors or trustees.
members in a purpose
Scope — The action by the designated director or trustee c) distribute them on the same principle among
regular or special
At a regular or at a shall be limited to the emergency action necessary, and the as many candidates as may be seen fit
meeting called for
the purpose special meeting duly term shall cease within a reasonable time Unless otherwise provided in the articles of
called for the purpose, or incorporation or in the bylaws, members of nonstock
Increase in 1. from the termination of the emergency or
in the same meeting corporations may cast as many votes as there are
number 2. upon election of the replacement director or trustee,
authorizing the increase trustees to be elected but may not cast more than one
if so stated in the notice of whichever comes earlier. (1) vote for one (1) candidate. Nominees for directors
the meeting. or trustees receiving the highest number of votes
Notice to SEC — The corporation must notify the SEC within
shall be declared elected.
If still constituting three (3) days from the creation of the emergency board,
a quorum, by the stating therein the reason for its creation.
8 Duties and Liabilities
vote of at least a No later than forty-five
All other 7 Voting Requirements
majority of the (45) days from the time Three-Fold Duty
causes
remaining; the vacancy arose
§23. Election of Directors or Trustees. — xxx 1. DUTY OF OBEDIENCE — shall direct the affairs of
otherwise, same as the corporation only in accordance with the
above In stock corporations, stockholders entitled to vote
purposes for which it was organized.
shall have the right to vote the number of shares of
Emergency Board: Matling Doctrine stock standing in their own names in the stock books 2. DUTY OF DILIGENCE — shall not willfully and
of the corporation at the time fixed in the bylaws or knowingly vote for or assent to patently unlawful
When applicable
acts of the corporation or act in bad faith or with
gross negligence in directing the affairs of the

2. “Related Party”. A party is regarded as related party 1. which the corporation is financially able to
corporation. if such person is undertake,
3. DUTY OF LOYALTY — shall not acquire any
a. a director, trustee, officer, or a substantial 2. is from its nature, in the line of the corporation's
personal or pecuniary interest in conflict with their shareholder (one who is directly or indirectly business and is of practical advantage to it,
duty as such directors or trustees. (Strategic Alliance a beneficial owner of at least 10% of any class
Development Corp. v. Radstock Securities) 3. is one in which the corporation has an interest or
of equity security), and a reasonable expectancy, and
Disloyalty b. his spouse or relative within the 4th CDCA. 4. by embracing the opportunity, the self-interest
Observance of the duty of loyalty is relevant when 3. Rule if no disinterested board. The law only requires of the officer or director will be brought into
directors or trustees enter in to a the approval of the shareholders or members if there conflict with that of his corporation, the law will
1) contract with the corporation (self-dealing is no disinterested board that may approve the not permit him to seize the opportunity for
contracts), transaction. himself.
2) negotiate on their compensation, and 4. Rule if disinterested board disapproves. Where the And, if, in such circumstances, the interests of the
disinterested board disapproves the self-dealing corporation are betrayed, the corporation may elect to
3) personally acquire a corporate opportunity.
transaction, the shareholders or members cannot claim all of the benefits of the transaction for itself.
Where a director, by virtue of such office, acquires a override such decision of the board, consistent with (Gokongwei, Jr. v. SEC)
business opportunity which should belong to the the principle of board supremacy.
corporation, thereby obtaining profits to the prejudice of TOPROS, Inc. v. Chang, Jr. 2021 En Banc
such corporation, the director must account for and Doctrine of Corporate Opportunity
The Court laid down the following elements to determine
refund to the latter all such profits. Corporate officers "are not permitted to use their
position of trust and confidence to further their private when a prohibited corporate opportunity exists, giving
Unless the act has been ratified by a vote of the interests." rise to a claim of damages:
stockholders owning or representing at least 2/3 of the 1. The corporation is financially able to exploit the
OCS. The doctrine of "corporate opportunity" is precisely a
recognition by the courts that the fiduciary standards opportunity;
Material Related Party Transactions could not be upheld where the fiduciary was acting for 2. The opportunity is within the corporation’s line of
1. “Material”. A transaction is material if its value is at two entities with competing interests. business;
least 10% of the corporation’s total assets, as If there is presented to a corporate officer or director a
provided in its latest AFS. business opportunity
3. The corporation has an interest or expectancy in 1. When directors and trustees or, in appropriate 1. the complainant alleged in the complaint that the
the opportunity; and cases, the officers of a corporation: director or officer assented to patently unlawful
a) vote for or assent to patently unlawful acts of acts of the corporation, or that the officer was
4. By taking the opportunity for his own, the
corporate director, trustee, or officer will the corporation; guilty of gross negligence or bad faith; and
consequently be placed in a position inimical to his b) act in bad faith or with gross negligence in 2. the complainant clearly and convincingly proved
duties to the corporation. directing the corporate affairs; and such unlawful acts, negligence or bad faith.
In determining if the opportunity is within the c) are guilty of conflict of interest to the Here, Atienza established sufficient and specific evidence
corporation’s line of business, the involved corporations prejudice of the corporation, its stockholders to show that Bartolome had acted in bad faith or gross
must be shown to be in competition with one another, or members, and other persons; negligence in the sale of the defective vessel engine.
such that they are both engaged in related areas of
2. When a director or officer has consented to the
businesses, producing the same products with Personal Liabilities
issuance of watered stocks or who, having
overlapping markets. A director, trustee, or officer shall not attempt to acquire, or
knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto; acquire any interest adverse to the corporation
Solidary Liabilities for Damages
3. When a director, trustee or officer has contractually 1. in respect of any matter which has been reposed in
Directors or trustees who them in confidence, and
agreed or stipulated to hold himself personally and
1. willfully and knowingly vote for or assent to patently solidarily liable with the corporation; or 2. upon which, equity imposes a disability upon
unlawful acts of the corporation or themselves to deal in their own behalf;
4. When a director, trustee or officer is made, by
2. are guilty of gross negligence or bad faith in specific provision of law, personally liable for his Otherwise he shall be liable as a trustee for the corporation
directing the affairs of the corporation or corporate action. (Heirs of Tan Uy v. International and must account for the profits which otherwise would
3. acquire any personal or pecuniary interest in Exchange Bank 2013) have accrued to the corporation. The following requisites
conflict with their duty as such directors or trustees must concur:
Atienza v. Golden Ram Engineering Supplies and Equipment
shall be liable jointly and severally for all damages. 2021 1) The complainant must allege in the complaint that
the director or officer assented to patently unlawful
Solidary liability will only attach to the directors, officers or Settled is the rule that a director or officer shall only be
employees of the corporation in certain circumstances, such acts of the corporation, or that the officer was guilty
personally liable for the obligations of the corporation, if of gross negligence or bad faith; AND
as: the following conditions concur
2) The complainant must clearly and convincingly
prove such unlawful acts, negligence or bad faith. rational business purpose or actuated by legitimate
10 Business Judgment Rule
(Heirs of Tan Uy v. International Exchange Bank 2013) business reasons.
Contracts intra vires entered into by the board of
Responsibility for Crimes As a Defense
directors are binding upon the corporation and courts
The following provisions of the RCC provide specific will not interfere unless such contracts are so The law upholds board supremacy. Thus, the business
penalties, which render the non-application of the “other unconscionable and oppressive as to amount to wanton judgment rule is a defense when:
violations” provision under Section 170: destruction to the rights of the minority. (Ong Yong v. a) the act is intra vires;
1. Corporation by estoppel (§20); Tiu)
b) the members of the board observed process due
2. Effects of non-use of corporate charter and The duty of diligence requires the members of the board to care; and
continuous inoperation of a corporation (§21); a) take steps to sufficiently inform themselves of c) the action has a rational business purpose, with no
3. Liability of directors, trustees or officers (§30); relevant information before making a decision obvious corporate waste.
(process due care) and
4. Disloyalty of a director (§33); Legal Effects
b) act in good faith and in the honest belief that their
5. Liability of directors for watered stocks (§64); 1. First Branch. The resolutions, contracts and
action is in the best interest of the corporation
transactions of the board cannot be overturned by
6. Interest on unpaid subscriptions (§65); (substantive due care).
the stockholders or members, and not even by the
7. Payment of balance of subscription (§66); and 1. The business judgment rule does not apply in process courts.
8. Books to be kept (§73). due care (oversight cases).
2. Second Branch. Directors and authorized officers
2. There is gross negligence if there is sustained or cannot be held personally liable for acts or contracts
9 Doctrine of Centralized Management systematic failure of the board to exercise oversight. done with the exercises of their business judgment,
3. The business judgment rule applies in the observance of except:
Principle of Board Supremacy — The board of directors or
trustees shall substantive due care (hindsight cases). The substantive a) When otherwise provided by law;
due care standard depends on the actual abilities of the
1. exercise the corporate powers, b) When the directors or officers acted with
concerned director or trustee.
fraud, gross negligence or in bad faith; and
2. conduct all business, and
4. Under the substantive due care standard, there must be
3. control all properties of the corporation. c) When directors or officers act against the
no obvious corporate waste and the action must have a
corporation in conflict of interest situation.
11 Doctrine of Apparent Authority The relationship between a corporation and its

representatives.
representatives is governed by the general principles of The doctrine of apparent authority does not go into the
agency. question of the corporation's competence or power to do a
University of Mindanao, Inc. v. BSP 2016 particular act. It involves the question of whether the
as to Sec 41 Unauthorized acts that are merely beyond the powers of
the corporation under its articles of incorporation are officer has the power or is clothed with the appearance of
Acts of an officer that are not authorized by the board of having the power to act for the corporation. A finding that
NOT void ab initio. They may be ratified.
directors/trustees do not bind the corporation unless the there is apparent authority is not the same as a finding
corporation ratifies the acts or holds the officer out as a Here, it was not shown that petitioner issued a resolution that the corporate act in question is within the
person with authority to transact on its behalf. ratifying the execution of the mortgage contracts. It was corporation's limited powers.
not shown that it received proceeds of the loans secured by
WON UM is bound by the real estate mortgage contracts executed
the mortgage contracts. There was also no showing that it
by Petalcorin.
received any consideration for the execution of the
12 Doctrine of Ratification or Estoppel
NO. The mortgage contracts executed in favor of mortgage contracts. It even appears that petitioner was
respondent do not bind petitioner. They were executed unaware of the mortgage contracts until respondent
without authority from petitioner. notified it of its desire to foreclose the mortgaged University of Mindanao, Inc. v. BSP 2016
properties.
UM does not have the power to mortgage its properties in
Ratification is a voluntary and deliberate confirmation or
order to secure loans of other persons. As an educational The general rule is that knowledge of an officer is
adoption of a previous unauthorized act.
institution, it is limited to developing human capital considered knowledge of the corporation.
through formal instruction. It is not a corporation 1. It converts the unauthorized act of an agent into
However, even though the Sps Torres were officers of both
engaged in the business of securing loans of others. an act of the principal.
the thrift banks and petitioner, their knowledge of the
Securing FISLAI's loans by mortgaging petitioner's mortgage contracts cannot be considered as knowledge of 2. It cures the lack of consent at the time of the
properties does not appear to have even the remotest the corporation. execution of the contract entered into by the
connection to the operations of petitioner as an representative, making the contract valid and
educational institution. Securing loans is not an adjunct The rule that knowledge of an officer is considered
enforceable.
of the educational institution's conduct of business. It knowledge of the corporation applies only when the officer
is acting within the authority given to him or her by the 3. It is, in essence, consent belatedly given through
does not appear that securing third-party loans was
corporation. Thus, knowledge should be actually express or implied acts that are deemed a
necessary to maintain petitioner's business of providing
communicated to the corporation through its authorized confirmation or waiver of the right to impugn the
instruction to individuals.
unauthorized act. mortgaged properties. securities and bonds of other corporations, as the
transaction of the lawful business of the corporation
Ratification has the effect of placing the principal in a Ratification must be knowingly and voluntarily done. may reasonably and necessarily require, subject to
position as if he or she signed the original contract. Petitioner's lack of knowledge about the mortgage the limitations prescribed by law and the
executed in its name precludes an interpretation that
Ratification by a corporation of an unauthorized act or Constitution;
contract by its officers or others relates back to the time of there was any ratification on its part.
h) To enter into a partnership, joint venture, merger,
the act or contract ratified, and is equivalent to original consolidation, or any other commercial agreement with
authority. The adoption or ratification of a contract by a natural and juridical persons;
corporation is nothing more nor less than the making of Powers of Corporations; Incidental
an original contract. The theory of corporate ratification E Powers; Ultra Vires Doctrine i) To make reasonable donations, including those for
is predicated on the right of a corporation to contract, and §35-44 the public welfare or for hospital, charitable,
any ratification or adoption is equivalent to a grant of cultural, scientific, civic, or similar purposes:
General Powers
prior authority. Provided, That no foreign corporation shall give
a) To sue and be sued in its corporate name; donations in aid of any political party or candidate
Implied ratification may take the form of silence,
acquiescence, acts consistent with approval of the act,, or b) To have perpetual existence unless the certificate of or for purposes of partisan political activity;
acceptance or retention of benefits. For an act to incorporation provides otherwise; j) To establish pension, retirement, and other plans for
constitute an implied ratification, there must be no c) To adopt and use a corporate seal; the benefit of its directors, trustees, officers, and
acceptable explanation for the act—other than that there employees; and
d) To amend its articles of incorporation;
is an intention to adopt the act as his or her own.
k) To exercise such other powers as may be essential or
e) To adopt bylaws, not contrary to law, morals or
Here, no act by petitioner can be interpreted as anything necessary to carry out its purpose or purposes as
public policy, and to amend or repeal the same;
close to ratification. It was not shown that it issued a stated in the articles of incorporation.
resolution ratifying the execution of the mortgage f) In case of stock corporations, to issue or sell stocks
contracts. It was not shown that it received proceeds of to subscribers and to sell treasury stocks; and to Specific Powers
the loans secured by the mortgage contracts. There was admit members to the corporation if it be a Theory of specific capacity — No corporation shall possess
also no showing that it received any consideration for the nonstock corporation; or exercise any corporate powers except
execution of the mortgage contracts. It even appears that g) To purchase, receive, take or grant, hold, convey, 1. those conferred by law, its AOI,
petitioner was unaware of the mortgage contracts until sell, lease, pledge, mortgage, and otherwise deal
2. those implied from express powers and
respondent notified it of its desire to foreclose the with such real and personal property, including
3. those as are necessary or incidental to the Effectivity is upon approval by the SEC and the issuance addressed to each stockholder at his place of
exercise of the powers so conferred. by the SEC of its certificate of filing. residence;
The corporation’s capacity is limited to such express, SEC shall not accept for filing any certificate of increase c. 2/3 of the outstanding capital stock voting
implied and incidental powers. of capital stock unless accompanied by a sworn favorably at the said stockholders' meeting duly;
statement of the treasurer of the corporation lawfully d. Certificate in duplicate, signed by majority of the
Power to Extend or Shorten Corporate Term holding office at the time of the filing of the certificate, directors and countersigned by the chairman and
When approved by a majority vote of the board of showing that secretary of the stockholders' meeting stating that
directors or trustees, and ratified at a meeting by the
1. at least 25% of the increase in capital stock has legal requirements have been complied with;
stockholders or members representing at least
been subscribed and e. Prior approval of the SEC; and
two-thirds (2/3) of the OCS or of its members.
2. that at least 25% of the amount subscribed has f. Effects do not prejudice the rights of corporate
In case of extension of corporate term, a dissenting
been paid in actual cash to the corporation or creditors.
stockholder may exercise the right of appraisal.
3. that property, the valuation of which is equal to SEC only has the ministerial duty to approve the decrease
Power to Increase or Decrease Capital Stock or 25% of the subscription, has been transferred to of a corporation's authorized capital stock.
Incur, Create, Increase Bonded Indebtedness the corporation.
Needs to be approved by a majority vote of the board of After a corporation faithfully complies with the
No decrease in capital stock shall be approved by the requirements laid down in Section 38, the SEC has
directors and by two-thirds (2/3) of the outstanding
SEC if its effect shall prejudice the rights of corporate creditors. nothing more to do other than approve the same.
capital stock at a stockholders’ meeting duly called for
the purpose. Metroplex Berhad and Paxell Investment Ltd v. Sinophil Corp Ong Yang v. Tiu teaches that decreasing a corporation's
A certificate must be signed by a majority of the 2021 authorized capital stock, which is an amendment of the
directors of the corporation and countersigned by the corporation's AOI, is a decision that only the stockholders
A corporation can only decrease its capital stock if the
chairperson and secretary of the stockholders’ meeting. and the directors can make.
following are present:
Prior approval of the SEC shall be required, and where Furthermore, the SEC is not vested by law with any power
a. Approval by a majority vote of the board of
appropriate, of the PCC. The application with the SEC to interpret contracts and interfere in the determination
directors;
shall be made within six (6) months from the date of of the rights between and among a corporation's
b. Written notice of the proposed diminution of the stockholders. Neither can the SEC adjudicate on the
approval of the BOD and stockholders, which period
capital stock, and of the time and place of a contractual relations among these same stockholders.
may be extended for justifiable reasons.
stockholders' meeting duly called for the purpose,
Power to Deny Pre-Emptive Rights 4) To restructure the finances of the corporation Here, any dissenting stockholder may exercise the right
through a debt to equity conversion. of appraisal.
Pre-emptive right under Sec 38 of the RCC refers to
the right of a stockholder of a stock corporation to Power to Sell or Dispose Corporate Assets Power to Acquire Own Shares
subscribe to all issues or disposition of shares of any A corporation may, by a majority vote of its board of Provided that the corporation has unrestricted retained
class, in proportion to their respective shareholdings. directors or trustees, sell, lease, exchange, mortgage, earnings in its books to cover the shares to be purchased
The right may be restricted or denied under the articles pledge, or otherwise dispose of its property and assets, or acquired, a stock corporation shall have the power to
of incorporation, and subject to certain exceptions and upon such terms and conditions and for such purchase or acquire its own shares for a legitimate
limitations. consideration, which may be money, stocks, bonds, or corporate purpose, including the following cases:
other instruments for the payment of money or other
The stockholder must be given a reasonable time within a) To eliminate fractional shares arising out of stock
property or consideration, as its board of directors or dividends;
which to exercise their preemptive rights. Upon the
trustees may deem expedient.
expiration of said period, any stockholder who has not b) To collect or compromise an indebtedness to the
exercised such right will be deemed to have waived it. a. If ordinary disposition = No need for authorization corporation,
from stockholders;
Stock Transactions Covered 1) arising out of unpaid subscription,
b. If it involves the sale of all or substantially all of the
1) Increase in the ACS; 2) in a delinquency sale, and
corporation’s properties and assets, including its
2) Opening for subscription of the unissued portion of goodwill = must be authorized by the vote of the 3) to purchase delinquent shares sold during
existing capital stock; and stockholders representing at least 2/3 of the OCS, or said sale; and
3) Disposition of treasury shares. at least 2/3 of the members, in a stockholders’ or
c) To pay dissenting or withdrawing stockholders
members’ meeting duly called for the purpose.
When NOT Available entitled to payment for their shares under the
When is the sale deemed a substantial disposition? provisions of this Code.
1) When denied by the AOI;
If the corporation would be rendered incapable of Power to Invest Corporate Funds in Another
2) Shares issued to comply with the prescribed stock
offerings or minimum stock ownership by the 1. continuing the business or Corporation or Business
public; 2. accomplishing the purpose for which it was Investment Voting Required
3) To acquire needed investment through incorporated.
property-for-share exchange; and is reasonably necessary to accomplish Majority of Board
Investment Voting Required Any cash dividends due on delinquent stock shall first Power to Enter into Management Contract
be applied to the unpaid balance on the subscription +
its primary purpose as stated in the Voting Required
costs and expenses, while stock dividends shall be
AOI withheld from the delinquent stockholders until their Majority of Board +
unpaid subscription is fully paid. In interlocking
Majority of Board + Stockholders representing 2/3 of OCS or
in any other corporation, business, or ownership or
Stockholders No stock dividend shall be issued without the approval 2/3 of members of MANAGED
for any purpose other than the management
representing 2/3 of of stockholders representing at least 2/3 of the OCS at a corporation.
primary purpose for which it was
OCS or 2/3 of regular or special meeting duly called for the purpose.
organized Majority of Board +
members.
GR: Stock corporations are prohibited from retaining
otherwise Stockholders representing majority of
The board must evaluate whether the investment has a surplus profits in excess of 100% of their paid-in
capital stock. OCS or majority of members.
logical relation to or is in direct and immediate furtherance
of the corporation’s main business. EXC: a) Interlocking ownership — where a stockholder or
Ratification by stockholders or members must be in a a) when justified by definite corporate expansion stockholders representing the same interest of both
meeting duly called for the purpose. projects or programs approved by the board; or the managing and the managed corporations own or
control more than one-third (1/3) of the total OCS
Here, any dissenting stockholder may exercise the right b) when the corporation is prohibited under any loan
entitled to vote of the managing corporation; or
of appraisal. agreement with financial institutions or creditors,
whether local or foreign, from declaring dividends b) Interlocking management — where a majority of the
Power to Declare Dividends members of the board of directors of the managing
without their consent, and such consent has not yet
The board of directors of a stock corporation may been secured; or corporation also constitute a majority of the
declare dividends out of the unrestricted retained members of the board of directors of the managed
c) when it can be clearly shown that such retention is
earnings which shall be payable in corporation,
necessary under special circumstances obtaining in
1) cash, the corporation, such as when there is need for Management Contract — contract whereby a corporation
special reserve for probable contingencies. undertakes to manage or operate all or substantially all
2) property, or
of the business of another corporation, whether such
3) in stock contracts are called service contracts, operating
to ALL stockholders on the basis of outstanding stock agreements or otherwise.
held by them:
GR: No management contract shall be entered into for a 2. Mere ultra vires acts, on the other hand, or those Ultra Vires Act Consequences
period longer than five (5) years for any one (1) term. which are not illegal and void ab initio, but are
not merely within the scope of the articles of its articles of Shareholders may ratify the action,
EXC: Such service contracts or operating agreements incorporation prevent its enforcement and, if proper,
which relate to the exploration, development, incorporation, are merely VOIDABLE and may
become binding and enforceable when ratified institute a derivative suit.
exploitation or utilization of natural resources may
be entered into for such periods as may be provided by the stockholders. (Bernas v. Cinco 2015) If the action has been implemented, the
by the pertinent laws or regulations. The test to be applied is whether the act in question is in members of the board shall be liable
direct and immediate furtherance of the corporation's business, jointly and severally for all damages
A management contract amounts to a de facto merger
fairly incidental to the express powers and reasonably resulting from the ultra vires act.
when the management relates to all or substantially all
of the business of the corporation. This does NOT necessary to their exercise. If so, the corporation has the
trigger the exercise of appraisal right. power to do it; otherwise, not. (Magallanes Watercraft
Association v. Auguis 2016)
Ultra Vires Doctrine
No corporation shall possess or exercise corporate Ultra Vires Act Consequences
powers other than those conferred by this Code or by its
The resulting contract is void.
AOI and except as necessary or incidental to the
exercise of the powers conferred. The contract is not subject to ratification.
Acts contrary to
A distinction should be made between corporate acts or The action or defense for the
law, morals or
contracts which are illegal and those which are merely declaration of its nullity does not
public policy
ultra vires. prescribe.
1. An illegal act contemplates the doing of an act
which is contrary to law, morals, or public order, The rule on in pari delicto applies.
or contravene some rules of public policy or Acts performed The act is unenforceable.
public duty, and are, like similar transactions outside the scope
between individuals, VOID. They cannot serve as of the powers The act shall not prejudice third parties
basis of a court action, nor acquire validity by granted to the who acted in good faith.
performance, ratification, or estoppel. corporation by

(Batch 1) Commercial Law and Taxation Syllabus-Based eREVIEWER 2024

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(Batch 1) Commercial Law and Taxation Syllabus-Based eREVIEWER 2024

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1

Introduction Table of Contents Negotiable Instruments

The Syllabus-based eReviewers of eCodal+Pro is now on its Corporation Taxation

Padayon! Doctrine of Separate Judicial Personality

are so conducted as to make it merely an instrumentality,

GR: ANY corporation may be incorporated as a close 4 Educational Corporations

sect or church, may, upon written consent and/or by an

inability of the corporation to meet its debts as

directors or trustees the power to amend or repeal the

trustees with compensation and approve the amount

gross negligence in directing the affairs of the

11 Doctrine of Apparent Authority The relationship between a corporation and its

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