MEETINGS

Kinds of meetings

Meetings of directors, trustees, stockholders, or members may be regular or special. (Sec.

48, RCCP)

Notice of Meeting

Notice of meetings shall be sent through the means of communication provided in the
bylaws, which notice shall state the time, place and purpose of the meetings. (Sec. 50,
RCCP)

Unjust Refusal to Call a Meeting

Whenever for any cause, there is no person authorized or the person authorized unjustly
refuses to call a meeting, the Commission, upon petition of a stockholder or member on a
showing of good cause therefor, may issue an order, directing the petitioning stockholder
or member to call a meeting of the corporation by giving proper notice required by this
Code or the bylaws. The petitioning stockholder or member shall preside thereat until at
least a majority of the stockholders or members present have chosen from among
themselves, a presiding officer.

Closing of Stock and Transfer Book or List of Members

Unless the bylaws provide for a longer period, the stock and transfer book or membership
book shall be closed at least twenty (20) days for regular meetings and seven (7) days for
special meetings before the scheduled date of the meeting. (Sec. 49, RCCP)

Nonstock corporation shall, at all times, keep a list of its members and their proxies in the
form the Commission may require. The list shall be updated to reflect the members and
proxies of record twenty (20) days prior to any scheduled election. (Sec. 92, RCCP)

Place of Meetings of Stockholders or Members

Stockholders’ or members’ meetings, whether regular or special, shall be held in the

principal office of the corporation as set forth in the articles of incorporation, or, if not
practicable, in the city or municipality where the principal office of the corporation is
located: Provided, That any city or municipality in Metro Manila, Metro Cebu, Metro Davao,
and other Metropolitan areas shall, for purposes of this section, be considered a city or
municipality.

Right to Vote of Secured Creditors and Administrators

In case a stockholder grants security interest in his or her shares in stock corporations,
the stockholder-grantor shall have the right to attend and vote at meetings of stockholders,
unless the secured creditor is expressly given by the stockholder-grantor such right in
writing which is recorded in the appropriate corporate books.

Executors, administrators, receivers, and other legal representatives duly appointed by

1
the court may attend and vote in behalf of the stockholders or members without need of
any written proxy. (Sec. 54, RCCP)

Voting right for treasury shares

Treasury shares shall have no voting right as long as such shares remain in the Treasury.
(Sec. 54, RCCP)

Voting Through Proxy or Remote Communication

Stockholders and members may vote in person or by proxy in all meetings of stockholders
or members.

When so authorized in the bylaws or by a majority of the board of directors, the

stockholders or members of corporations may also vote through remote communication
or in absentia provided that the votes are received before the corporation finishes the tally
of votes.

A stockholder or member who participates through remote communication or in absentia

shall be deemed present for purposes of quorum. (Sec. 57, RCCP)

Proxies

Proxies shall be in writing, signed and filed, by the stockholder or member, in any form
authorized in the bylaws and received by the corporate secretary within a reasonable time
before the scheduled meeting.

Unless otherwise provided in the proxy form, it shall be valid only for the meeting for which
it is intended. No proxy shall be valid and effective for a period longer than five (5) years
at any one time. (Sec. 57, RCCP)

Voting Trusts

One or more stockholders of a stock corporation may create a voting trust for the purpose
of conferring upon a trustee or trustees the right to vote and other rights pertaining to the
shares for a period not exceeding five (5) years at any time. (Sec. 58, RCCP)

In the case of a voting trust specifically required as a condition in a loan agreement, said
voting trust may be for a period exceeding five (5) years but shall automatically expire
upon full payment of the loan. (Sec. 58, RCCP)

Requirements for Voting Trust Agreement

1. Must be in writing and notarized

2. Shall specify the terms and conditions thereof
3. Certified copy of such agreement shall be filed with the corporation and with the SEC,
otherwise, the agreement is ineffective and unenforceable.
4. Period not exceeding five (5) years at any time unless required as a condition in a loan
agreement.

Difference Between Proxy and Voting Trust

2
 Proxy
Legal title Proxy has no legal title to
the shares
Duration Either for a specific
meeting or specific
duration no longer than
five (5) years at any one
time
Revocability Revocable unless coupled
with interest
Meetings covered Unless otherwise provided
in the proxy form, it shall
be valid only for the
meeting for which it is
intended
Effect of presence of Negates right of the proxy
owner of shares to vote
Notarization Not required
Certified copy filed with the Not required
corporation and SEC
Right to inspect corporate Proxy has no such right,
books unless proxy is also
shareholder
Voting Trust
Trustee acquires legal title
to the shares
Period not exceeding five
(5) years at any time
unless specifically required
as a condition in a loan
agreement, said voting
trust may be for a period
exceeding five (5) years
but shall automatically
expire upon full payment of
the loan
Irrevocable
Not limited to any particular
meeting
Will not negate trustees
right to vote
Required
Required, otherwise the
agreement is ineffective
and unenforceable
Trustee has such right

Effect of Improperly Held Stockholders or Members Meeting

All proceedings and any business transacted at a meeting of the stockholders or

members, if within the powers or authority of the corporation, shall be valid even if the
meeting is improperly held or called subject to the following conditions:

(1) That all the stockholders or members of the corporation are present or duly
represented at the meeting; and
(2) Not one of them expressly states at the beginning of the meeting that the purpose of
their attendance is to object to the transaction of any business because the meeting
is not lawfully called or convened. (Sec. 50, RCCP)

Regular and Special Meetings of Directors or Trustees

Regular Special
When held Held monthly, unless the Held at any time upon the
bylaws provide otherwise. call of the president or as
provided in the bylaws.

3
 Notice At least two (2) days prior same
to the scheduled meeting,
unless a longer time is
provided in the bylaws.
Waiver of notice A director or trustee may same
waive this requirement,
either expressly or
impliedly.

Quorum

Unless the articles of incorporation or the bylaws provides for a greater majority, a majority
of the directors or trustees as stated in the articles of incorporation shall constitute a
quorum to transact corporate business, and every decision reached by at least a majority
of the directors or trustees constituting a quorum, except for the election of officers which
shall require the vote of a majority of all the members of the board, shall be valid as a
corporate act.

Place and Time of Meetings of Stockholders or Members

Meetings of directors or trustees of corporations may be held anywhere in or outside of

the Philippines, unless the bylaws provide otherwise.

Participation Through Remote Communication

Directors or trustees who cannot physically attend or vote at board meetings can
participate and vote through remote communication such as videoconferencing,
teleconferencing, or other alternative modes of communication that allow them reasonable
opportunities to participate.
Duty to Refuse from Voting

A director or trustee who has a potential interest in any related party transaction must
refuse from voting on the approval of the related party transaction without prejudice to
compliance with the requirements of Section 31 of this Code. (Sec. 52, RCCP)

Who Shall Preside at Meetings

The chairman or, in his absence, the president shall preside at all meetings of the directors
or trustees as well as of the stockholders or members, unless the by-laws provide
otherwise. (Sec. 53, RCCP)

STOCKHOLDERS AND MEMBERS

Stockholders

A person becomes a stockholder of a corporation by acquiring a share through either

purchase or subscription. (Insigne v. Abra Valley Colleges, Inc., G.R. No. 204089, July
29, 2015)

4
Rights of Stockholders

The stockholders are the owners of the corporation but not its manager.

Indeed, the concentration in the board of the powers of control of corporate business and
of appointment of corporate officers and managers is necessary for efficiency in any large
organization. Stockholders are too numerous, scattered and unfamiliar with the business
of a corporation to conduct its business directly. And so the plan of corporate organization
is for the stockholders to choose the directors who shall control and supervise the conduct
of corporate business. (Filipinas Port Service, Inc. v. Go, G.R. NO. 161886, March 16,
2007)

As owners, the stockholders are entitled to dividends and certain rights summarized as
follows:

No. Right Legal Basis

1 Right to nominate and elect a directors Sec. 23, RCCP
2 Right to be nominated and elected as director Sec. 23, RCCP
3 Right to receive notice of meeting Sec. 49, RCCP
4 Right to remove directors Sec. 27, RCCP
5 Right to vote, even if shares are non-voting, on matters Sec. 6, RCCP
enumerated in section 6
6 Right to participate in the exercise of powers of corporation Secs. 36 – 43,
enumerated in sections 36 to 43 RCCP
7 Right to participate in the adoption and amendment of Sec. 45 and 47,
bylaws RCCP
8 Right to petition SEC to order calling of stockholders Sec. 49, RCCP
meeting in certain cases
9 Right to object to the transaction of any business because Sec. 50, RCCP
the stockholder meeting is not lawfully called or convened
10 Right to vote in person or through proxy or through remote Sec. 57, RCCP
communication or in absentia
11 Right to create voting trust Sec. 58, RCCP
12 Issuance of stock certificate upon payment of full amount Sec. 63, RCCP
of subscription
13 Right to sell, transfer or otherwise dispose of his/her shares Sec. 62, RCCP
and
14 Right to receive dividends Sec. 42, RCCP
15 Right to participate in declaring stock dividends Sec. 43, RCCP
16 Right to participate in the distribution of corporate assets Sec. 139, RCCP
upon corporate liquidation
17 Right to inspect corporate books and records Sec. 73, RCCP
18 Right to financial statements Sec. 74, RCCP
19 Right to exercise appraisal right Sec. 80, RCCP
20 Right to file derivative suit Jurisprudence

Suits Filed by Stockholders on Account of Wrongful or Fraudulent Corporate

Actions

Justice Leonen in Florete Jr. v. Florete, G.R. No. 174909, January 20, 2016 explains:
5
“A stockholder suing on account of wrongful or fraudulent corporate actions (undertaken
through directors, associates, officers, or other persons) may sue in any of three (3)
capacities: as an individual; as part of a group or specific class of stockholders; or as a
representative of the corporation.”

Individual Suits

Individual suits are filed when the cause of action belongs to the individual stockholder
personally, and not to the stockholders as a group or to the corporation, e.g., denial of
right to inspection and denial of dividends to a stockholder. (Villamor v. Umale, G.R. Nos.
172843, 172881, September 24, 2014, 736 SCRA 325, per J. Leonen)

Class or Representative Suits

If the cause of action belongs to a group of stockholders, such as when the rights violated
belong to preferred stockholders, a class or representative suit may be filed to protect the
stockholders in the group. (Villamor v. Umale, G.R. Nos. 172843, 172881, September 24,
2014, 736 SCRA 325, per J. Leonen)

Derivative Suit

Derivative suit "is an action filed by stockholders to enforce a corporate action." A

derivative suit, therefore, concerns "a wrong to the corporation itself." The real party in
interest is the corporation, not the stockholders filing the suit. The stockholders are
technically nominal parties but are nonetheless the active persons who pursue the action
for and on behalf of the corporation. (Villamor v. Umale, G.R. Nos. 172843, 172881,
September 24, 2014, 736 SCRA 325, per J. Leonen)

Legal Basis of Derivative Suit

Remedies through derivative suits are not expressly provided for in our statutes—more
specifically, in the Corporation Code and the Securities Regulation Code—but they are
"impliedly recognized when the said laws make corporate directors or officers liable for
damages suffered by the corporation and its stockholders for violation of their fiduciary
duties." (Cua, Jr. v. Tan, 622 Phil. 661, 715 [2009])

Distinction between Individual and Class Suit v. Derivative Suits

Justice Leonen in Florete Jr. v. Florete, G.R. No. 174909, January 20, 2016 explains:

The distinction between individual and class/representative suits on one hand and
derivative suits on the other is crucial. These are not discretionary alternatives. The fact
that stockholders suffer from a wrong done to or involving a corporation does not vest in
them a sweeping license to sue in their own capacity. The recognition of derivative suits
as a vehicle for redress distinct from individual and representative suits is an
acknowledgment that certain wrongs may be addressed only through acts brought for the
corporation.

Although in most every case of wrong to the corporation, each stockholder is necessarily

6
affected because the value of his interest therein would be impaired, this fact of itself is
not sufficient to give him an individual cause of action since the corporation is a person
distinct and separate from him, and can and should itself sue the wrongdoer.

The avenues for relief are, thus, mutually exclusive. The determination of the appropriate
remedy hinges on the object of the wrong done. When the object is a specific stockholder
or a definite class of stockholders, an individual suit or class/representative suit must be
resorted to. When the object of the wrong done is the corporation itself or "the whole body
of its stock and property without any severance or distribution among individual holders," it
is a derivative suit that a stockholder must resort to.

Reason for Disallowing Derivative Suit

In Asset Privatization Trust v. Court of Appeals, the reasons for disallowing a direct
individual suit were further explained:

(1) "the universally recognized doctrine that a stockholder in a corporation has no title
legal or equitable to the corporate property; that both of these are in the corporation
itself for the benefit of the stockholders." In other words, to allow shareholders to sue
separately would conflict with the separate corporate entity principle;
(2) that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held
in the case of Evangelista v. Santos, that 'the stockholders may not directly claim
those damages for themselves for that would result in the appropriation by, and the
distribution among them of part of the corporate assets before the dissolution of the
corporation and the liquidation of its debts and liabilities, something which cannot be
legally done in view of Section 16 of the Corporation Law...";
(3) the filing of such suits would conflict with the duty of the management to sue for the
protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in ascertaining the effect of partial recovery by an individual
on the damages recoverable by the corporation for the same act. (Florete Jr. v.
Florete, G.R. No. 174909, January 20, 2016)

Requisites of Derivative Suit

Rule 8, Section 1 of the Interim Rules of Procedure for Intra Corporate Controversies
(Interim Rules) provides the five (5) requisites for filing derivative suits:
(1) He was a stockholder or member at the time the acts or transactions subject of the
action occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation, by-
laws, laws or rules governing the corporation or partnership to obtain the relief he
desires;
(3) No appraisal rights are available for the act or acts complained of;
(4) The suit is not a nuisance or harassment suit; and
(5) The action brought by the stockholder or member must be "in the name of [the]
corporation or association. . . ."

7
Right to Inspect

Corporate records shall be open to inspection by any director, trustee, stockholder or

member of the corporation in person or by a representative at reasonable hours on
business days, and a demand in writing may be made by such director, trustee or
stockholder at their expense, for copies of such records or excerpts from said records.
(Sec. 73, RCCP)

“Insignificant Holding” Not Ground to Deny Right

In Terelay Investment and Development Corporation v. Yulo, G.R. No. 160924, August 5,
2015, the Supreme Court ruled that the submission of the petitioner corporation that
respondent’s “insignificant holding” of only .001% of the petitioner’s stockholding did not
justify the granting of her application for inspection of the corporate books is unwarranted.

The Court held “the Corporation Code has granted to all stockholders the right to inspect
the corporate books and records, and in so doing has not required any specific amount of
interest for the exercise of the right to inspect. Ubi lex non distinguit nee nos distinguere
debemos. When the law has made no distinction, we ought not to recognize any
distinction.”

Justification to Demand Inspection

Among the purposes held to justify a demand for inspection are the following:

(1) To ascertain the financial condition of the company or the propriety of dividends;
(2) the value of the shares of stock for sale or investment;
(3) whether there has been mismanagement;
(4) in anticipation of shareholders' meetings to obtain a mailing list of shareholders to
solicit proxies or influence voting;
(5) to obtain information in aid of litigation with the corporation or its officers as to corporate
transactions. (Terelay Investment and Development Corporation v. Yulo, G.R. No.
160924, August 5, 2015)

No Right to Inspect

A requesting party who is not a stockholder or member of record, or is a competitor,

director, officer, controlling stockholder or otherwise represents the interests of a
competitor shall have no right to inspect or demand reproduction of corporate records.
(Sec. 73, RCCP)

Abuse of Right

Any stockholder who shall abuse the rights granted under this section shall be penalized
under Section 158 of this Code, without prejudice to the provisions of Republic Act No.
8293, otherwise known as the “Intellectual Property Code of the Philippines”, as amended,
and Republic Act No. 10173, otherwise known as the “Data Privacy Act of 2012”. (Sec.
73, RCCP)

Liability of Officer Who Refuses to Allow Inspection

8
Any officer or agent of the corporation who shall refuse to allow the inspection and/or
reproduction of records in accordance with the provisions of this Code shall be liable to
such director, stockholder or member entered or left the meeting must be noted in the
minutes; and on a similar demand, the yeas and nays must be taken on any motion or
proposition, and a record thereof carefully made.

The protest of a director, trustee, stockholder or member on any action or proposed action
must be recorded in full upon their demand.

If the corporation denies or does not act on a demand for inspection and/or reproduction,
the aggrieved party may report such denial or inaction to the Commission. Within five (5)
days from receipt of such report, the Commission shall conduct a summary investigation
and issue an order directing the inspection or reproduction of the requested records. (Sec.
73, RCCP)

APPRAISAL RIGHT

A stockholder who dissents from certain corporate actions has the right to demand
payment of the fair value of his or her shares. This right, known as the right of appraisal,
is expressly recognized in Section 81 of the Corporation Code (now Sec. 80, RCCP). (J.
Bersamin in Turner v. Lorenzo Shipping Corporation, G.R. No. 157479, November 24,
2010)

Reason for Appraisal Right

Cua, Jr. v. Tan, G.R. No. 181455-56, December 4, 2009

However, in certain specified instances, the Code grants the stockholder the right to get
out of the corporation even before its dissolution because there has been a major change
in his contract of investment with which he does not agree and which the law presumes
he did not foresee when he bought his shares. Since the will of two-thirds of the stocks
will have to prevail over his objections, the law considers it only fair to allow him to get
back his investment and withdraw from the corporation. (Cua, Jr. v. Tan, G.R. No. 181455-
56, December 4, 2009, citing Jose Campos, Jr. and Maria Clara L. Campos, THE
CORPORATION CODE: COMMENTS, NOTES AND SELECTED CASES (1990 ed.), Vol. I, pp. 501-
502.)

When the Right of Appraisal May Be Exercised

Any stockholder of a corporation shall have the right to dissent and demand payment of
the fair value of the shares in the following instances:

(a) In case an amendment to the articles of incorporation has the effect of changing or
restricting the rights of any stockholder or class of shares, or of authorizing preferences in
any respect superior to those of outstanding shares of any class, or of extending or
shortening the term of corporate existence;
(b) In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all
or substantially all of the corporate property and assets as provided in this Code;
(c) In case of merger or consolidation; and
(d) In case of investment of corporate funds for any purpose other than the primary
9
purpose of the corporation. (Sec. 80, RCCP)

How Right is Exercised

The dissenting stockholder who votes against a proposed corporate action may exercise
the right of appraisal by making a written demand on the corporation for the payment of
the fair value of shares held within thirty (30) days from the date on which the vote was
taken. (Sec. 81, RCCP)

If the proposed corporate action is implemented, the corporation shall pay the stockholder,
upon surrender of the certificate or certificates of stock representing the stockholder’s
shares, the fair value thereof as of the day before the vote was taken, excluding any
appreciation or depreciation in anticipation of such corporate action. (Sec. 81, RCCP)

Waiver of Right

Failure to make the demand within thirty (30) days from the date on which the vote was
taken shall be deemed a waiver of the appraisal right. (Sec. 81, RCCP)

Suspension of Stockholder’s Rights

From the time of demand for payment of the fair value of a stockholder’s shares until either
the abandonment of the corporate action involved or the purchase of the said shares by
the corporation, all rights accruing to such shares, including voting and dividend rights,
shall be suspended except the right of such stockholder to receive payment of the fair
value thereof. (Sec. 82, RCCP)

Restoration of Voting and Dividend Rights

If the dissenting stockholder is not paid the value of the said shares within thirty (30) days
after the award, the voting and dividend rights shall immediately be restored. (Sec. 82,
RCCP)

Withdrawal of Demand for Payment

No demand for payment under this Title may be withdrawn unless the corporation
consents thereto. (Sec. 83, RCCP)

Instances When Appraisal Right Ceases; Effect

The following instances will have the effect of cessation of appraisal right:

(1) If, however, such demand for payment is withdrawn with the consent of the
corporation
(2) If the proposed corporate action is abandoned or rescinded by the corporation or
disapproved by the Commission where such approval is necessary
(3) If the Commission determines that such stockholder is not entitled to the appraisal
right

The status as the stockholder shall be restored, and all dividend distributions which would
have accrued on the shares shall be paid to the stockholder. (Sec. 83, RCCP)
10
POWERS OF CORPORATIONS

Classes of Powers of Corporations

(1) Express powers – those expressly conferred by law and the articles of incorporation.
(2) Implied powers – those implied from or reasonably necessary to carry out the
corporation’s express power.
(3) Incidental powers – those incidental to the corporation’s existence.

Ultra Vires Act

Corporate acts that are outside those express definitions under the law or articles of
incorporation or those "committed outside the object for which a corporation is created."

Test to Determine if Corporate Act is in Accordance with its Purpose

It is a question, therefore, in each case, of the logical relation of the act to the corporate
purpose expressed in the charter. If that act is one which is lawful in itself, and not
otherwise prohibited, is done for the purpose of serving corporate ends, and is reasonably
tributary to the promotion of those ends, in a substantial, and not in a remote and fanciful,
sense, it may fairly be considered within charter powers. The test to be applied is whether
the act in question is in direct and immediate furtherance of the corporation's business,
fairly incident to the express powers and reasonably necessary to their exercise. If so, the
corporation has the power to do it; otherwise, not. (University of Mindanao citing
Montelibano, et al. v. Bacolod-Murcia Milling Co., Inc, 115 Phil. 18)

Corporate Powers and Capacity

No. Corporate Act Notes

1 Power to sue
2 Power to be sued in its
corporate name
3 Have perpetual existence
4 To adopt and use a corporate
seal
5 To amend its articles of
incorporation
Commenced by the corporation itself, with
imprimatur of the board of directors. (Reyes, Jr.,
J. in Ago v. Ago Realty & Development
Corporation, G.R. No. 211203, October 16,
2019)
Attribute of a corporation having its own
corporate entity. (Sec. 2, RCCP)
A corporation shall have perpetual existence
unless its articles of incorporation provides
otherwise. (Sec. 11, RCCP)
Express power of the corporation under Sec. 35,
RCCP
By majority vote of the board of directors or
trustees and the vote or written assent of the
stockholders representing at least 2/3 of the
outstanding capital stock or vote or written
assent of 2/3 of members. (Majority and 2/3
Rule)

Subject to appraisal right of dissenting

stockholders.
11
 6 To adopt by-laws
7 Amend bylaws or repeal of by
laws
8 Delegate to the board of
directors or trustees the power
to amend or repeal the bylaws
or adopt a new one
9 Revoke the delegated power
to the board of directors or
trustees to amend or repeal
the bylaws or adopt a new one
10 To issue or sell stocks to
subscribers.
11 To alienate properties that is
not considered all or
substantially all of the
corporation’s properties and
assets.
12 To enter into commercial
agreements.
13 To make reasonable donations
14 To establish pension,
retirement, and other plans for
the benefit of its directors,
trustees, officers and
employees
15 To exercise such other powers
as may be essential or
necessary to carry out its
purpose or purposes as stated
in the articles of incorporation.
Powers of the Corporation Requiring Stockholder’s Action
Sec. Corporate Power
36 Power to Extend or
Shorten Corporate Term
Affirmative vote of the stockholders representing
at least a majority of the outstanding capital
stock or at least a majority of the members in
case of non stock corporations.
A majority of the board of directors or trustees,
and the owners of at least a majority of the
outstanding capital stock, or at least a majority
of the members of a non-stock corporation, at a
regular or special meeting duly called for the
purpose.
(Majority and Majority Rule)
Affirmative vote of the stockholders representing
at least 2/3 of the outstanding capital stock or at
least 2/3 of the members in case of non stock
corporations at a regular or special meeting duly
called for the purpose.
Affirmative vote of the stockholders representing
at least a majority of the outstanding capital
stock or at least a majority of the members in
case of non stock corporations at a regular or
special meeting duly called for the purpose.
Corporation may enter into subscription or pre-
incorporation subscription. (Sec. 59 and 60,
RCCP)
Generally treated as exercise of ordinary power
through the board of directors.
Generally treated as exercise of ordinary power
through the board of directors.
Generally treated as exercise of ordinary power
through the board of directors.
Generally treated as exercise of ordinary power
through the board of directors.
Incidental power of the corporation.
Notes
How – Amend articles of incorporation
12

37 Power to Increase or
Decrease Capital Stock;
Incur, Create or Increase
Bonded Indebtedness
38 Power to Deny
Preemptive Right
39 Sale or Other Disposition
of All or Substantially All
of the Corporation’s
Properties
Vote – Majority and 2/3 Rule
Appraisal right – only in case of extension of
corporate term
Vote – Majority and 2/3 Rule
Certificates - Must be signed by a majority of
the directors of the corporation and
countersigned by the chairperson and
secretary of the stockholders’ meeting,
Need for Prior SEC Approval – Any increase
or decrease in the capital stock or the
incurring, creating or increasing of any bonded
indebtedness shall require prior approval of
the Commission, and where appropriate, of
the Philippine Competition Commission.
How - Amend articles of incorporation if
necessary
Vote - Majority and 2/3 Rule
Limitation – Pre-emptive right shall not extend
to shares to be issued in compliance with laws
requiring stock offerings or minimum stock
ownership by the public; or to shares to be
issued in good faith with the approval of the
stockholders representing two-thirds (2/3) of
the outstanding capital stock, in exchange for
property needed for corporate purposes or in
payment of a previously contracted debt.
Vote - Majority and 2/3 Rule
Nonstock Corporation – Where there are no
members with voting rights, the vote of at least
a majority of the trustees in office will be
sufficient authorization
Limitation - Subject to the provisions of
Republic Act No. 10667, otherwise known as
the “Philippine Competition Act”, and other
related laws
Determination of whether sale is all or
substantially all – The determination of
whether or not the sale involves all or
substantially all of the corporation’s properties
and assets must be computed based on its net
asset value, as shown in its latest financial
statements
13
 When Sale covers is substantially all – A sale
or other disposition shall be deemed to cover
substantially all the corporate property and
assets if thereby the corporation would be
rendered incapable of continuing the business
or accomplishing the purpose for which it was
incorporated.

Appraisal Right – applicable

Abandoning such sale without further approval

by the stockholder – the board of directors or
trustees may abandon such sale, lease,
exchange, mortgage, pledge, or other
disposition of property and assets, subject to
the rights of third parties under any contract
relating thereto, without further action or
approval by the stockholders or members.

Note: Please see discussion in Chapter IV

under Merger and Consolidation.
40 Power to Acquire Own Condition – (1) corporation has unrestricted
Shares (treasury shares) earnings in the books to cover the shares to
be purchased or acquired; (2) for legitimate
corporate purpose

Considered legitimate purposes - (a) To

eliminate fractional shares arising out of stock
dividends; (b) To collect or compromise an
indebtedness to the corporation, arising out of
unpaid subscription, in a delinquency sale,
and to purchase delinquent shares sold during
said sale; and (c) To pay dissenting or
withdrawing stockholders entitled to payment
for their shares.
41 Power to Invest Corporate Vote - Majority and 2/3 Rule
Funds in Another
Corporation or Business When stockholders or members approval not
or for Any Other Purpose necessary – Where the investment by the
corporation is reasonably necessary to
accomplish its primary purpose as stated in
the articles of incorporation, the approval of
the stockholders or members shall not be
necessary.

Appraisal right - applicable

42 Power to Declare Vote - Majority and 2/3 Rule only for stock
Dividends dividends
43 Power to Enter into Vote – Majority and Majority Rule of both the
Management Contract managing and managed corporation
14
 But Majority and 2/3 Rule applies for the
managed corporation when (a) where a
stockholder or stockholders representing the
same interest of both the managing and the
managed corporations own or control more
than one-third (1/3) of the total outstanding
capital stock entitled to vote of the managing
corporation; or (b) where a majority of the
members of the board of directors of the
managing corporation also constitute a
majority of the members of the board of
directors of the managed corporation.

Limit – No management contract shall be

entered into for a period longer than five (5)
years for any one (1) term

When applicable - any contract whereby a

corporation undertakes to manage or operate
all or substantially all of the business of
another corporation, whether such contracts
are called service contracts, operating
agreements or otherwise

When not applicable – when such service

contracts or operating agreements which
relate to the exploration, development,
exploitation or utilization of natural resources
may be entered into for such periods as may
be provided by pertinent laws or regulations

Trust Fund Doctrine

The Trust Fund Doctrine is an inherent limitation on the powers of corporation.

Under the doctrine, the capital stock, property, and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors, who are preferred in the
distribution of corporate assets. (Turner v. Lorenzo Shipping Corporation, G.R. No.
157479, November 24, 2010)

G Bar Exam 2019:

Define the following terms: (a) Trust fund doctrine.

15
Trust Fund Doctrine in Capital Stock

The doctrine equates the capital stock of the corporation to the “trust fund” of the
corporation held in trust as security for satisfaction of creditors in case of corporate
liquidation. (PLDT v. NTC, G.R. No. 152685, December 4, 2007)

Dividends Defined

The term "dividend" both in the technical sense and its ordinary acceptation, is that part
or portion of the profits of the enterprise which the corporation, by its governing agents,
sets apart for ratable division among the holders of the capital stock. It means the fund
actually set aside, and declared by the directors of the corporation as dividends and duly
ordered by the director, or by the stockholders at a corporate meeting, to be divided or
distributed among the stockholders according to their respective interests. (7 THOMPSON
ON CORPORATIONS 134-135 cited in Nelson & Company, Inc. v. Lepanto Consolidated
Mining Company, G.R. No. L-21601, December 28, 1968)

Kinds of Dividends

The board of directors of a stock corporation may declare dividends out of the unrestricted
retained earnings which shall be payable in cash, property, or in stock to all stockholders
on the basis of outstanding stock held by them. (Sec. 42, RCCP)

Thus, the kinds of dividends are:

(1) cash
(2) property
(3) stocks

Application of Dividends to Delinquent Stocks

Any cash dividends due on delinquent stock shall first be applied to the unpaid balance
on the subscription plus costs and expenses, while stock dividends shall be withheld from
the delinquent stockholders until their unpaid subscription is fully paid. (Sec. 42, RCCP)

When Dividends Mandatory; Exceptions

Stock corporations are prohibited from retaining surplus profits in excess of one hundred
percent (100%) of their paid-in capital stock.

The exceptions are the following:

(a) when justified by definite corporate expansion projects or programs approved by the
board of directors; or
(b) when the corporation is prohibited under any loan agreement with financial institutions
or creditors, whether local or foreign, from declaring dividends without their consent, and
such consent has not yet been secured; or
(c) when it can be clearly shown that such retention is necessary under special
circumstances obtaining in the corporation, such as when there is need for special reserve
for probable contingencies. (Sec. 42, RCCP)

16
MERGER AND CONSOLIDATION

Merger and Consolidation, Distinguished

Two (2) or more corporations may merge into a single corporation which shall be one of
the constituent corporations or may consolidate into a new single corporation which shall
be the consolidated corporation. (Sec. 75, RCCP)

A consolidation is the union of two or more existing entities to form a new entity called the
consolidated corporation. A merger, on the other hand, is a union whereby one or more
existing corporations are absorbed by another corporation that survives and continues the
combined business. (PNB v. Andrada Electric & Engineering Company, G.R. No. 142936,
April 17, 2002)

Effects of Merger or Consolidation

The merger or consolidation shall have the following effects:

(a) The constituent corporations shall become a single corporation which, in case of
merger, shall be the surviving corporation designated in the plan of merger; and, in case
of consolidation, shall be the consolidated corporation designated in the plan of
consolidation;

(b) The separate existence of the constituent corporations shall cease, except that of the
surviving or the consolidated corporation;

(c) The surviving or the consolidated corporation shall possess all the rights, privileges,
immunities, and powers and shall be subject to all the duties and liabilities of a corporation
organized;

(d) The surviving or the consolidated corporation shall possess all the rights, privileges,
immunities and franchises of each constituent corporation; and all real or personal
property, all receivables due on whatever account, including subscriptions to shares and
other choses in action, and every other interest of, belonging to, or due to each constituent
corporation, shall be deemed transferred to and vested in such surviving or consolidated
corporation without further act or deed; and

(e) The surviving or consolidated corporation shall be responsible for all the liabilities and
obligations of each constituent corporation as though such surviving or consolidated
corporation had itself incurred such liabilities or obligations; and any pending claim, action
or proceeding brought by or against any constituent corporation may be prosecuted by or
against the surviving or consolidated corporation. The rights of creditors or liens upon the
property of such constituent corporations shall not be impaired by the merger or
consolidation. (Sec. 79, RCCP)

Nell Doctrine

The Nell Doctrine states the general rule that the transfer of all the assets of a corporation
to another shall not render the latter liable to the liabilities of the transferor. If any of the
above-cited exceptions are present, then the transferee corporation shall assume the

17
liabilities of the transferor. (Nell v. Pacific Farms, Inc., 122 Phil. 825 [1965])

Exceptions to the Nell Doctrine

(1) Where the purchaser expressly or impliedly agrees to assume such debts;
(2) Where the transaction amounts to a consolidation or merger of the corporations;
(3) Where the purchasing corporation is merely a continuation of the selling corporation;
and
(4) Where the transaction is entered into fraudulently in order to escape liability for such
debts.

Business-Enterprise Transfer

The transferee is liable for the debts and liabilities of his transferor arising from the
business enterprise conveyed. Many of the application of the business-enterprise transfer
have been related by the Court to the application of the piercing doctrine.

The purpose of the business-enterprise transfer is to protect the creditors of the business
by allowing them a remedy against the new owner of the assets and business enterprise.
Otherwise, creditors would be left "holding the bag," because they may not be able to
recover from the transferor who has "disappeared with the loot," or against the transferee
who can claim that he is a purchaser in good faith and for value. Based on the foregoing,
as the exception of the Nell doctrine relates to the protection of the creditors of the
transferor corporation, and does not depend on any deceit committed by the transferee -
corporation, then fraud is certainly not an element of the business enterprise doctrine. (Y-
I Leisure Philippines, Inc. v. Yu, G.R. No. 207181, September 8, 2015)

Fraud is Not an Essential Consideration in a Business-Enterprise Transfer

Notably, an evaluation of the relevant jurisprudence reveals that fraud is not an essential
element for the application of the business-enterprise transfer. xxx

The exception of the Nell doctrine, which finds its legal basis under Section 40, provides
that the transferee corporation assumes the debts and liabilities of the transferor
corporation because it is merely a continuation of the latter's business. A cursory reading
of the exception shows that it does not require the existence of fraud against the creditors
before it takes full force and effect. Indeed, under the Nell Doctrine, the transferee
corporation may inherit the liabilities of the transferor despite the lack of fraud due to the
continuity of the latter's business. (Y-I Leisure Philippines, Inc. v. Yu, G.R. No. 207181,
September 8, 2015)

Absorbing Corporation Continued Existence in Merger

Merger is a re-organization of two or more corporations that results in their consolidating

into a single corporation, which is one of the constituent corporations, one disappearing
or dissolving and the other surviving. To put it another way, merger is the absorption of
one or more corporations by another existing corporation, which retains its identity and
takes over the rights, privileges, franchises, properties, claims, liabilities and obligations
of the absorbed corporation(s). The absorbing corporation continues its existence while
the life or lives of the other corporation(s) is or are terminated. (Bank of Commerce v.
Radio Philippines Network, Inc., G.R. No. 195615, April 21, 2014)
18
DISSOLUTION

Methods of Dissolution

A corporation formed or organized under the provisions of this Code may be dissolved
voluntarily or involuntarily. (Sec. 133, RCCP)

Voluntary dissolution may be any of the following:

(1) Voluntary dissolution where no creditors are affected (Sec. 134, RCCP)
(2) Voluntary dissolution where creditors are affected (Sec. 135, RCCP)
(3) Dissolution by shortening corporate term (Sec. 136, RCCP)

Voluntary Dissolution Where No Creditors are Affected

If dissolution of a corporation does not prejudice the rights of any creditor having a claim
against it, the dissolution may be effected by majority vote of the board of directors or
trustees, and by a resolution adopted by the affirmative vote of the stockholders owning
at least majority of the outstanding capital stock or majority of the members of a meeting
to be held upon the call of the directors or trustees. (Sec. 134, RCCP)

Verified Request with SEC

A verified request for dissolution shall be filed with the Commission stating: (a) the reason
for the dissolution; (b) the form, manner, and time when the notices were given; (c) names
of the stockholders and directors or members and trustees who approved the dissolution;
(d) the date, place, and time of the meeting in which the vote was made; and (e) details of
publication.

The corporation shall submit the following to the Commission: (1) a copy of the resolution
authorizing the dissolution, certified by a majority of the board of directors or trustees and
countersigned by the secretary of the corporation; (2) proof of publication; and (3)
favorable recommendation from the appropriate regulatory agency, when necessary.
(Sec. 134, RCCP)

When Dissolution Effective

Within fifteen (15) days from receipt of the verified request for dissolution, and in the
absence of any withdrawal within said period, the Commission shall approve the request
and issue the certificate of dissolution. The dissolution shall take effect only upon the
issuance by the Commission of a certificate of dissolution.

No application for dissolution of banks, banking and quasi-banking institutions, preneed,

insurance and trust companies, nonstock savings and loan associations, pawnshops, and
other financial intermediaries shall be approved by the Commission unless accompanied
by a favorable recommendation of the appropriate government agency. (Sec. 134, RCCP)

Voluntary Dissolution Where Creditors are Affected

Where the dissolution of a corporation may prejudice the rights of any creditor, a verified
petition for dissolution shall be filed with the Commission.
19
The petition shall be signed by a majority of the corporation’s board of directors or trustees,
verified by its president or secretary or one of its directors or trustees, and shall set forth
all claims and demands against it, and that its dissolution was resolved upon by the
affirmative vote of the stockholders representing at least two-thirds (2/3) of the outstanding
capital stock or at least two-thirds (2/3) of the members at a meeting of its stockholders or
members called for that purpose.

The petition shall likewise state: (a) the reason for the dissolution; (b) the form, manner,
and time when the notices were given; and (c) the date, place, and time of the meeting in
which the vote was made. The corporation shall submit to the Commission the following:
(1) a copy of the resolution authorizing the dissolution, certified by a majority of the board
of directors or trustees and countersigned by the secretary of the corporation; and (2) a
list of all its creditors. (Sec. 135, RCCP)

Dissolution by Shortening Corporate Term

A voluntary dissolution may be effected by amending the articles of incorporation to

shorten the corporate term pursuant to the provisions of this Code. A copy of the amended
articles of incorporation shall be submitted to the Commission in accordance with this
Code.

Upon the expiration of the shortened term, as stated in the approved amended articles of
incorporation, the corporation shall be deemed dissolved without any further proceedings,
subject to the provisions of this Code on liquidation.

In the case of expiration of corporate term, dissolution shall automatically take effect on
the day following the last day of the corporate term stated in the articles of incorporation,
without the need for the issuance by the Commission of a certificate of dissolution. (Sec.
136, RCCP)

Withdrawal of Request and Petition for Dissolution

A withdrawal of the request for dissolution shall be made in writing, duly verified by any
incorporator, director, trustee, shareholder, or member and signed by the same number
of incorporators, directors, trustees, shareholders, or members necessary to request for
dissolution as set forth in the foregoing sections.

The withdrawal shall be submitted no later than fifteen (15) days from receipt by the
Commission of the request for dissolution. (Sec. 137, RCCP)

Involuntary Dissolution

A corporation may be dissolved by the Commission motu proprio or upon filing of a verified
complaint by any interested party.

Grounds for Dissolution

The following may be grounds for dissolution of the corporation:

(a) Non-use of corporate charter as provided under Section 21 of this Code;

20
(b) Continuous inoperation of a corporation as provided under Section 21 of this Code;

(c) Upon receipt of a lawful court order dissolving the corporation;

(d) Upon finding by final judgment that the corporation procured its incorporation through
fraud;

(e) Upon finding by final judgment that the corporation:

(1) Was created for the purpose of committing, concealing or aiding the
commission of securities violations, smuggling, tax evasion, money laundering, or
graft and corrupt practices;

(2) Committed or aided in the commission of securities violations, smuggling, tax

evasion, money laundering, or graft and corrupt practices, and its stockholders
knew of the same; and

(3) Repeatedly and knowingly tolerated the commission of graft and corrupt
practices or other fraudulent or illegal acts by its directors, trustees, officers, or
employees.

If the corporation is ordered dissolved by final judgment pursuant to the grounds set forth
in subparagraph (e) hereof, its assets, after payment of its liabilities, shall, upon petition
of the Commission with the appropriate court, be forfeited in favor of the national
government.

Such forfeiture shall be without prejudice to the rights of innocent stockholders and
employees for services rendered, and to the application of other penalty or sanction under
this Code or other laws.

The Commission shall give reasonable notice to, and coordinate with, the appropriate
regulatory agency prior to the involuntary dissolution of companies under their special
regulatory jurisdiction. (Sec. 138, RCCP)

INVESTIGATIONS, OFFENSES, AND PENALTIES

Investigation and Prosecution of Offenses

The Commission may investigate an alleged violation of this Code, or of a rule, regulation,
or order of the Commission.

The Commission may publish its findings, orders, opinions, advisories, or information
concerning any such violation, as may be relevant to the general public or to the parties
concerned, subject to the provisions of Republic Act No. 10173, otherwise known as the
“Data Privacy Act of 2012”, and other pertinent laws.

The Commission shall give reasonable notice to and coordinate with the appropriate
regulatory agency prior to any such publication involving companies under their regulatory
jurisdiction. (Sec. 154, RCCP)

21
Summary of Offenses
Offenses
Unauthorized use of corporate name
(Sec. 159)
Violation of Disqualification Provision.
Despite the knowledge of the existence of
a ground for disqualification, a director,
trustee or officer willfully holds office, or
willfully conceals such disqualification.
(Sec. 160)
Violation of Duty to Maintain Records, to
Allow their Inspection or Reproduction
(Sec. 161)
Willful Certification of Incomplete,
Inaccurate, False, or Misleading
Statements of Reports (Sec. 162)
Independent Auditor Collusion (Sec. 163)
Obtaining Corporate Registration Through
Fraud (Sec. 164)
Penalty
Fine ranging from P10,000.00 to
P200,000.00
Fine ranging from P10,000.00 to
P200,000.00
When the violation of this provision is
injurious or detrimental to the public, the
penalty shall be a fine ranging from
P20,000.00 to P400,000.00
The director, trustee or officer shall be
permanently disqualified from being a
director, trustee or officer of any
corporation.
Fine ranging from P10,000.00 to
P200,000.00
When the violation of this provision is
injurious or detrimental to the public, the
penalty shall be a fine ranging from
P20,000.00 to P400,000.00
Without prejudice to the Commission’s
exercise of its contempt powers.
Fine ranging from P20,000.00 to
P200,000.00
When the wrongful certification is
injurious or detrimental to the public, the
auditor or the responsible person may
also be punished with a fine ranging from
P40,000.00 to P400,000.00
Fine ranging from P80,000.00 to
P500,000.00
When the statement or report certified is
fraudulent, or has the effect of causing
injury to the general public, the auditor or
responsible officer may be punished with
a fine ranging from P100,000.00 to
P600,000.00
Fine ranging from P200,000.00 to
P2,000,000.00
When the violation of this provision is
injurious or detrimental to the public, the
penalty is a fine ranging from
22
 P400,000.00 to P5,000,000.00
Fraudulent Conduct of Business (Sec. Fine ranging from P200,000.00 to
165) P2,000,000.00

When the violation of this provision is

Acting as Intermediaries for Graft and
Corrupt Practices (Sec. 166)
injurious or detrimental to the public, the
penalty is a fine ranging from
P400,000.00 toP5,000,000.00
Fine ranging from P100,000.00) to
P5,000,000.00

When there is a finding that any of its

Engaging Intermediaries for Graft and
Corrupt Practices (Sec. 167)
Tolerating Graft and Corrupt Practices
(Sec. 168)
Retaliations Against Whistleblowers (Sec. Fine ranging from P100,000.00 to
169)
directors, officers, employees, agents, or
representatives are engaged in graft and
corrupt practices, the corporation’s failure
to install: (a) safeguards for the
transparent and lawful delivery of
services; and (b) policies, code of ethics,
and procedures against graft and
corruption shall be prima facie evidence
of corporate liability under this section.
Fine ranging from P100,000.00 to
P1,000,000.00
Fine ranging from P500,000.00 to
P1,000,000.00
P1,000,000.00

A whistleblower refers to any person who

Other Violation of the Code (Sec. 170)
provides truthful information relating to
the commission or possible commission
of any offense or violation under this
Code
Fine of not less than Ten thousand pesos
P10,000.00 but not more than
P1,000,000.00

Liability of Directors, Trustees, Officers, or Other Employees

If the offender is a corporation, the penalty may, at the discretion of the court, be imposed
upon such corporation and/or upon its directors, trustees, stockholders, members, officers,
or employees responsible for the violation or indispensable to its commission. (Sec. 171,
RCCP)

Liability of Aiders and Abettors and Other Secondary Liability

Anyone who shall aid, abet, counsel, command, induce, or cause any violation of this
Code, or any rule, regulation, or order of the Commission shall be punished with a fine not
exceeding that imposed on the principal offenders, at the discretion of the court, after
taking into account their participation in the offense. (Sec. 172, RCCP)

23
Reportorial Requirements of Corporations

Except as otherwise provided in this Code or in the rules issued by the Commission, every
corporation, domestic or foreign, doing business in the Philippines shall submit to the
Commission:

(a) Annual financial statements audited by an independent certified public accountant:

Provided, That if the total assets or total liabilities of the corporation are less than Six
hundred thousand pesos (P600,000.00), the financial statements shall be certified under
oath by the corporation’s treasurer or chief financial officer; and

(b) A general information sheet.

Corporations vested with public interest must also submit the following:
(1) A director or trustee compensation report;

(2) A director or trustee appraisal or performance report and the standards or

criteria used to assess each director or trustee.

The reportorial requirements shall be submitted annually and within such period as may
be prescribed by the Commission. (Sec. 177, RCCP)

Reportorial Requirement vis-à-vis Right Against Self-Incrimination

The Supreme Court, in Phil. Society for the Prevention of Cruelty to Animals v.
Commission on Audit (560 Phil. 385 [2007]) said:

By virtue of the fiction that all corporations owe their very existence and powers to the
State, the reportorial requirement is applicable to all corporations of whatever nature,
whether they are public, quasi-public, or private corporations—as creatures of the State,
there is a reserved right in the legislature to investigate the activities of a corporation to
determine whether it acted within its powers. In other words, the reportorial requirement
is the principal means by which the State may see to it that its creature acted according
to the powers and functions conferred upon it. These principles were extensively
discussed in Bataan Shipyard & Engineering Co., Inc. v. Presidential Commission on
Good Government. Here, the Court, in holding that the subject corporation could not
invoke the right against self-incrimination whenever the State demanded the production
of its corporate books and papers, extensively discussed the purpose of reportorial
requirements, viz:

The corporation is a creature of the state. It is presumed to be incorporated for the benefit
of the public. It received certain special privileges and franchises, and holds them subject
to the laws of the state and the limitations of its charter. Its powers are limited by law. It
can make no contract not authorized by its charter. Its rights to act as a corporation are
only preserved to it so long as it obeys the laws of its creation. There is a reserve[d] right
in the legislature to investigate its contracts and find out whether it has exceeded its
powers. It would be a strange anomaly to hold that a state, having chartered a corporation
to make use of certain franchises, could not, in the exercise of sovereignty, inquire how
these franchises had been employed, and whether they had been abused, and demand
the production of the corporate books and papers for that purpose. The defense amounts
to this, that an officer of the corporation which is charged with a criminal violation of the
24
statute may plead the criminality of such corporation as a refusal to produce its books. To
state this proposition is to answer it. While an individual may lawfully refuse to answer
incriminating questions unless protected by an immunity statute, it does not follow that a
corporation vested with special privileges and franchises may refuse to show its hand
when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771,
780.).

Visitorial Power and Confidential Nature of Examination Results

The Commission shall exercise visitorial powers over all corporations, which powers shall
include the examination and inspection of records, regulation and supervision of activities,
enforcement of compliance, and imposition of sanctions in accordance with this Code.

Should the corporation, without justifiable cause, refuse or obstruct the Commission’s
exercise of its visitorial powers, the Commission may revoke its certificate of incorporation,
without prejudice to the imposition of other penalties and sanctions under this Code.

All interrogatories propounded by the Commission and the answers thereto, as well as the
results of any examination made by the Commission or by any other official authorized by
law to make an examination of the operations, books, and records of any corporation, shall
be kept strictly confidential, except when the law requires the same to be made public,
when necessary for the Commission to take action to protect the public or to issue orders
in the exercise of its powers under this Code, or where such interrogatories, answers or
results are necessary to be presented as evidence before any court. (Sec. 178, RCCP)

Power, Functions, and Jurisdiction of the Commission

The Commission shall have the power and authority to:

(a) Exercise supervision and jurisdiction over all corporations and persons acting on their
behalf, except as otherwise provided under this Code;

(b) Pursuant to Presidential Decree No. 902-A, retain jurisdiction over pending cases
involving intracorporate disputes submitted for final resolution. The Commission shall
retain jurisdiction over pending suspension of payment/ rehabilitation cases filed as of 30
June 2000 until finally disposed;

(c) Impose sanctions for the violation of this Code, its implementing rules and orders of
the Commission;

(d) Promote corporate governance and the protection of minority investors, through,
among others, the issuance of rules and regulations consistent with international best
practices;

(e) Issue opinions to clarify the application of laws, rules and regulations;

(f) Issue cease and desist orders ex parte to prevent imminent fraud or injury to the public;

(g) Hold corporations in direct and indirect contempt;

(h) Issue subpoena duces tecum and summon witnesses to appear in proceedings before
25
the Commission;

(i) In appropriate cases, order the examination, search and seizure of documents, papers,
files and records, and books of accounts of any entity or person under investigation as
may be necessary for the proper disposition of the cases, subject to the provisions of
existing laws;

(j) Suspend or revoke the certificate of incorporation after proper notice and hearing;

(k) Dissolve or impose sanctions on corporations, upon final court order, for committing,
aiding in the commission of, or in any manner furthering securities violations, smuggling,
tax evasion, money laundering, graft and corrupt practices, or other fraudulent or illegal
acts;

(l) Issue writs of execution and attachment to enforce payment of fees, administrative
fines, and other dues collectible under this Code;

(m) Prescribe the number of independent directors and the minimum criteria in
determining the independence of a director;

(n) Impose or recommend new modes by which a stockholder, member, director, or

trustee may attend meetings or cast their votes, as technology may allow, taking into
account the company’s scale, number of shareholders or members, structure, and other
factors consistent with the basic right of corporate suffrage;

(o) Formulate and enforce standards, guidelines, policies, rules, and regulations to carry
out the provisions of this Code; and

(p) Exercise such other powers provided by law or those which may be necessary or
incidental to carrying out the powers expressly granted to the Commission.

In imposing penalties and additional monitoring and supervision requirements, the

Commission shall take into consideration the size, nature of the business, and capacity of
the corporation.

No court below the Court of Appeals shall have jurisdiction to issue a restraining order,
preliminary injunction, or preliminary mandatory injunction in any case, dispute, or
controversy that directly or indirectly interferes with the exercise of the powers, duties and
responsibilities of the Commission that falls exclusively within its jurisdiction. (Sec. 179,
RCCP)

26