COOPERATIVES

• RA 9520: PHILIPPINE COOPERATIVE CODE OF 2008

• Declaration of Policy: As a practical vehicle for promoting self-reliance and
harnessing people power towards the attainment of economic development and
social justice.
• Cooperative. Autonomous and and duly registered association of persons, with
common bond of interest, who have voluntarily joined together to achieve social,
economic, and cultural needs and aspirations by making equitable contributions to
the capital required, patronizing their products and services, and accepting a fair
share of the risks and benefits in accordance with universally accepted cooperative
principles.
• Cooperative Principles. Every cooperative shall conform with Filipino culture,
good values and experience, and the universally accepted principles of cooperative
such as:
o Voluntary and Open Membership- open to all persons
o Democrative Member Control- controlled by the members
o Member Economic Participation- equitable contribution and control
o Autonomy and Independence- autonomous, self-help
o Education, Training and Information- must provide education and training
to members, representatives, managers, employee
o Cooperation among Cooperatives- working together
o Concern for Community- sustainable development of their communities
through policy approved by the members

DEFINITION OF TERMS
• Member- either natural or juridical
• General Assembly- full membership of the cooperative duly assembled for the
purpose of exercising all the rights and performing all the duties. Highest policy-
making body of the cooperative
o Composed of members who are entitled to vote under AOC and bylaws
o Shall have the followings exclusive powers which cannot be
delegated:
▪ Determine and approve amendments of AOC and bylaws
▪ To elect, appoint, and remove members of the board, except electric
cooperatives where election of the boards shall be in accordance with
the bylaws
▪ Approve developmental plans
• Representative Assembly- full membership of a body of representatives elected
• Officers of the Cooperative- includes members of the board, members of different
committee, manager, CEO, secretary, treasurer, and members holding positions
• Board of Directors- entrusted with the management of affairs. Responsible for the
strategic planning, direction-setting, and policy-formulation activities of the
cooperatives
o Composed of 5 to 15 members elected by the general assembly
o Term of 2 years
o Shall not hold any other position directly involved in day to day operations
and management
o Shall not have the same business as the cooperative, or else disqualified
from the election
o Any vacancy in the board, aside from expiration of term, may be filled by
the majority of the votes of the remaining directors if still constituting a
quorum. Otherwise, the vacancy must be filled by the general assembly.
• Committee- entrusted with specific functions and responsibilities by general
assembly
o Audit- elected by general assembly
o Election- elected by general assembly
o Mediation- appointed by the board
o Conciliation- appointed by the board
o Ethics- appointed by the board
• Articles of Cooperation- articles of cooperation registered with CDA
• Bylaws- registered internal policies
• Registration- operative act granting juridical personality to proposed cooperative
• Cooperative Development Authority (CDA)- Government agency in charge of the
registration and regulation of cooperatives
• Universally Accepted Principles- cooperative principles adhered worldwide
• Social Audit- procedure where cooperatives assess their social impact and ethical
performance
• Performance Audit- audit on efficiency and effectiveness of cooperative as a whole
• Single-Line or Single Purpose Cooperative- shall include cooperative undertaking
activities which are related to its main line of business or purpose
• Service Cooperative- provide any type of service to its members
• Subsidiary Cooperative- three or more primary cooperatives doing the same line
of business
 • Laboratory Cooperative- organized by minors that must be affiliated with
registered cooperative. A laboratory cooperative shall be governed by special
guidelines promulgated by CDA.

ORGANIZATION AND REGISTRATION

• Purpose of Cooperatives. A cooperative may be organized and registered for any
of the following purposes:
o Encourage thrift and savings among members
o Generate funds to extend credit to the members
o Encourage members for systematic production and marketing
o Provide goods and services to members
o Develop expertise and skills of members
• Objectives and Goals of a Cooperative- Primary objective of every cooperative is
to help improve the quality of life of its members. The cooperative shall aim to:
o Provide goods and services; enable the members to increase income,
savings, investments; equitable distribution to net surplus.
o Provide optimum social and economic benefits to members
o Teach members efficient ways of doing things in a cooperative manner
o Propagate cooperative practices
o Allow poor people to increase ownership in the wealth of the nation
o Cooperate with government
• Cooperative Not in Restraint of Trade- No cooperative shall be deemed a
conspiracy or combination in restraint of trade or an illegal monopoly, or to lessen
competition or fix prices in violation of any laws in the Philippines.

ORGANIZING A PRIMARY COOPERATIVE

• Fifteen (15) or more natural persons who are Filipino citizens, of legal age, having
a common bond of interest and are residing or working in the intended area of
operation may organize a primary cooperative.
o Provided that a prospective member of a primary cooperative must have
completed a pre-membership education seminar (PMES)
• Newly registered primary cooperative may be registered as multipurpose
cooperative only after compliance with the minimum requirements for
multipurpose cooperative.
• A single-purpose cooperative may transform into multipurpose or may create
subsidiary only after 2 years of operations.
LIABILITY OF A COOPERATIVE

• Economic Survey- Every individual or cooperatives intending to form a

cooperative shall submit to CDA general statement describing the structure
and purpose of the proposed cooperative. Economic survey includes:
o Area of operation
o Size of membership and other pertinent information
• A cooperative shall have limited liability
• A cooperative shall exist for a period not exceeding 50 years from the date of
registration unless sooner dissolved or unless said period is extended.
o The extension must not exceed 50 years
o No extension can be made earlier than 5 years prior to the original or
subsequent expiry date unless there are justifiable reasons.

ARTICLES OF COOPERATION

• All cooperative applying for registration shall submit articles of cooperation to CDA
which shall be signed by organizers, acknowledged by them if natural persons,
and by the chairpersons or secretaries, if juridical person, before a notary public.
• To register, four copies of each must be submitted:
o Articles of Cooperation
o Bylaws- shall be filed at the same time as articles of cooperation
o General Statement
• Aside from Cooperative Union, no cooperative shall be registered unless included
in articles of cooperation are the bonds of the accountable officers and a sworn
statement of the treasurer elected by the subscribers showing at least 25% of
the authorized share capital has been subscribed and at least 25% of
the subscription has been paid. Provided that paid-up capital is not less
than Php 15,000
• CDA shall periodically assess the required paid-up share capital and may increase
it every 5 years when necessary upon consultation with NEDA

REGISTRATION

• A cooperative acquire juridical personality from the date the CDA issues a
certificate of registration under its official seal
o Application of registration shall be disposed of by CDA within 60 days, if
not, deemed approved, unless the cause of delay is fault of the applicant
 o If there is denial in application for registration, an appeal can be made to
the Office of the President within 90 days from the date of receipt of
denial. If the Office of the President did not act within 90 days, deemed
approved
• Certificate of registration issued by CDA shall be conclusive evidence that the
cooperative is registered
• Contracts executed prior to the registration of cooperative between private
companies and cooperative shall remain valid and binding

DIVISION OF COOPERATIVES
• Division to two or more cooperatives
•
• Division of cooperative in fraud of creditors is void

MERGER AND CONSOLIDATION

• Only cooperatives belonging to the same categories can be parties to merger or
consolidation. (E.g. Primary to Primary, Secondary to Secondary)
• Shall take effect upon issuance of certificate of merger or consolidation by
CDA
• Constituent cooperatives shall become as one either:
o Merger- surviving cooperative
o Consolidation- consolidated cooperative
• Constituent cooperatives shall cease to exist except surviving cooperative or
consolidated cooperative
• Surviving cooperative or consolidated cooperative shall possess all the assets,
rights, privileges, immunities, and franchises of each of the constituent
cooperatives
• Surviving cooperative or consolidated cooperative shall be responsible for all the
liabilities of each constituent cooperatives
o No rights of creditors or liens shall be impaired by such merger or
consolidation
PROCEDURES IN MERGER OR CONSOLIDATION OF
COOPERATIVES
1. Approval of proposal to merge or consolidate by general assembly or
representative assembly
2. Formulation of Plan of Merger by the representatives
3. Presentation to and Approval of the plan of merger or consolidation
4. Formulation of the Amendment/New AOC and Bylaws
5. Posting/Publication of Merger in 3 weeks
6. Written notification to creditors through registered mails
7. Filing with CDA the required documents
8. Issuance of Certificate of Registration of Merge/Consolidation by CDA

TYPES OF COOPERATIVES
• Credit Cooperative- savings and lending services. Generates common pool of funds
to provide financial assistance to members
• Consumers Cooperative- procure and distribute commodities to members and non-
members
• Producers Cooperative- joint production whether agricultural or industrial
production and processing of raw materials or goods by its members
• Marketing Cooperative- marketing of the members products
• Service Cooperative- medical and dental care, hospitalization, transportation,
insurance, housing, labor, electric light and power, communication, other
professional services
• Multipurpose Cooperative- 2 or more business activities
• Advocacy Cooperative- promotes and advocates cooperativism through socially
oriented projects
• Agrarian Reform Cooperative- marginal farmers
• Cooperative Bank- wide range of financial services to cooperatives and members
• Dairy Cooperative- fresh milk
• Education Cooperative- educational institutions
• Electric Cooperative- power generations, renewable energy sources
• Financial Service Cooperative- savings and credit services and other financial
services
• Fishermen Cooperative- marginalized fishermen
• Health Services Cooperative- medical, dental, and other health services
• Housing Cooperative- access to housing
 • Insurance Cooperative- insuring life
• Transport Cooperative- land and sea transportation
• Water Service Cooperative- water systems
• Workers Cooperative- organized by workers
• Others

CATEGORIES OF COOPERATIVE
• Shall be categorized according to membership and territorial considerations
• In terms of membership:
o Primary- members are natural persons
o Secondary- members are primaries
o Tertiary- members are secondary
• In terms of territorial, shall be categorized according to areas of operations which
may or may not coincide with political subdivisions

FEDERATION OF COOPERATIVES

• May be registered by carrying out the formalities for registration of a cooperative

• Registered cooperatives may organize a federation according to the type of
business activities

COOPERATIVE UNIONS

• Bigger than registered cooperatives and federations. Registered cooperatives

and federations may organize a cooperative unions to represent interest and
welfare of all types of cooperatives at the provincial, city, regional, and national
level

MEMBERSHIP
• Two kinds of members:
o Regular- one who has complied with all the requirements and entitled to all
the rights and privileges
o Associate- one who has no right to vote nor be voted. Shall only have rights
if stated in bylaws.
 ▪ An associate who meets requirements of regular membership,
continues to patronize the cooperative for 2 years, signifies his
intention to remain a member shall be considered a regular
member
• Officers and Employees of CDA- shall be disqualified to be elected or appointed
at any position in a cooperative unless he himself organized a cooperative
• Elective Officials of the Government- shall be ineligible to become officers and
directors of cooperatives, unless he is a party list representative of a cooperative
he represents
• Any Government Employee or Official- may be allowed as long as operations of
the office concerned are not adversely affected
• Application- an applicant is a member once the applications has been approved by
the board and shall exercise the rights after paying the required payments
o In case the application is denied by the board, an appeal may be made to
general assembly and the latter’s decision shall be final
• Liability of Members- limited. Shall be liable only up to the extent of capital
contributions

TERMINATION OF MEMBERSHIP

• A member may withdraw his membership for a valid reason by giving a 60 days
notice to the board
o The withdrawing member shall be entitled to refund of capital and all
interests in cooperative
• Valid grounds for termination of members in:
o Primary- Death and insanity. Except agrarian member where next-of-kin
may assume the duties and responsibilities of the deceased member.
o Secondary and Tertiary- insolvency or dissolution
• Membership of a member may be terminated by members of the board through
majority vote in the following cases:
o Member is not patronizing the products of the cooperative for reasonable
period
o Member failed to comply with obligations
o Member violated bylaws
o Act or omission that damaged the cooperative
• Board of Directors shall notify the member in writing about the pending
termination and the member shall be given a chance to be heard before the board
makes its decision.
 o Once the decision has been made, the board shall communicate the
decision to the member through writing and shall be appealable within
30 days from the receipt thereof
o General Assembly may appeal. The member will be given 1 year to
remain as a member and after the said period, Grievance Committee
shall decide the termination within 30 days. Failure to decide within 30
days, the appeal is deemed approved in favor of the member

MEETINGS
• Regular Meetings
o Held annually by the general assembly on a fixed date
o If not fixed, within 90 days after the end of fiscal year
o Notice of regular meetings shall be in writing, posting, publications, or
through other electronic means
• Special Meetings
o Shall be called only after compliance of the board where at least 10%
of all the entitled members shall are covered by the call
o Held by the general assembly that may be called at any time by a
majority vote of the board or as provided by the bylaws.
o Notice in writing shall be sent 1 week prior to the meeting to all the
members entitled to vote
o CDA may call a special meeting to report to the members the result of any
examination or other investigation of the cooperative affairs

If the board fails to call a regular or special meeting within the given period, the
CDA, upon petition of 10% of all the members entitled to vote, shall issue
an order to petitioners directing them to call a meeting of the general assembly by
giving proper notice

• Special General Assembly

o For newly approved cooperative only. Shall be called within 90 days from
such approval
• Quorum
o Shall consist of at least 25% of all the members entitled to vote
o In case of cooperative bank, one half plus one of the number of voting
shares of all the members in good standing
 o In case of electric cooperative, 5% of all the members entitled to vote

Notice of any meeting may be waived, expressly or impliedly by any

member

MEETING OF THE BOARD AND QUORUM REQUIREMENTS

• Primary Cooperative and Regular Meeting of the Board

o At least once a month
• Special Meeting
o Anytime upon the call of the chairperson or majority of the board
o Written notice shall be given 1 week prior to the meeting
• Majority of the member of the board shall constitute a quorum or the conduct of
business
• Directors cannot attend or vote by proxy at board meetings

VOTING SYSTEM

• Primary Cooperative
o Only 1 vote per member
o No voting by proxy
• Secondary and Tertiary Cooperative
o 1 basic vote and 5 incentive votes at most provided by bylaws
o Voting by proxy is allowed. Votes cast by delegates are deemed as votes
cast by members

ARTICLE 44
• Functions, responsibilities, and training requirements of directors, officers and
committee members shall be in accordance with the rules and regulations of CDA

ARTICLE 45
• Directors, officers and committee members who are willfully and knowingly
involved in unlawful acts or guilty of gross negligence shall be liable jointly and
severally for all damages or profits resulting therefrom
ARTICLE 46
• In the absence of any provision, directors shall not receive any compensation
except for reasonable diems. No diems shall be provided if the cooperative
incurred net loss in the preceding calendar year OR the dividend rate is less than
the official inflation rate of the same year. Any compensation other than per diems
may be granted to directors by majority vote of all the members with voting right
in regular or special meetings

DEALINGS OF DIRECTORS, OFFICERS, OR COMMITTEE

MEMBERS
• A contract entered into by the cooperative with 1 or more of its directors, officers,
and committee members is voidable at the option of cooperative unless all of the
following conditions are present:
o The presence of such director in the board meeting where contract was
approved was not necessary to constitute a quorum for such meeting
o Vote of the director was not necessary for the approval of the contract
o Contract is fair and reasonable in any circumstances
o In case of officer or committee, the contract with officer or committee was
previously approved by the assembly or director

DISLOYALTY OF A DIRECTOR
• Liable to damages and must account for double the profits that otherwise would
have been accrued to the cooperative by refunding the same, unless ratified by a
¾ vote of all the members with voting rights, present and constituting a quorum.

REPORTS
• Every cooperative shall draw up regular reports of its programs of activities
showing their progress at the end of every fiscal year. The reports shall be made
accessible to members. These reports shall be filed with the CDA within 120 days
from the end of the calendar year. The form and contents shall be in
accordance with the guidelines of the CDA.
 • Failure to comply, the CDA, within 15 days from the expiration of the
prescribed period, send such written notice

TAX TREATMENT OF COOPERATIVE

• Transaction with members, tax exempt
• Transaction with nonmembers, not exempt unless:
o Accumulated reserves and undivided net savings of the cooperative is not
more than Php 10M
• Importation of machinery, equipment, and spare parts not available locally and
certified by DTI shall be, likewise, exempt from importation taxes.
o Do take note that the acquired machinery, equipment, and spare parts shall
not be sold, nor the beneficial ownership be transferred to any person until
after 5 years. Otherwise, the cooperative or assignee shall be solidarily
liable to pay twice the amount of the imposed tax/duties

NET SURPLUS
• Net surplus of cooperatives shall be determined in accordance with the bylaws
• Net surplus shall be determined at the close of every fiscal year and at other times
as may be prescribed by law
• Shall not be construed as profit but rather as excess of payments made by the
members

ORDER OF DISTRIBUTION OF NET SURPLUS

1. An amount of reserve fund which shall be at least 10% of net surplus. Provided
that in the first 5 years of operation after registration, it shall not be less
than 50% of the net surplus
a. Reserve fund shall be used for stability of the cooperative and meeting the
net losses
b. Reserve fund shall not be utilized for investments
c. Upon dissolution of cooperative, reserve fund shall not be distributed to the
members but rather:
i. Establish a usufructuary and trust fund for the benefit of affiliated
union or federation
 ii. Donate, contribute, or dispose for the benefit of the community
where the cooperative operates
2. An amount for the education and training fund shall not be more than 10% of
the net surplus
3. An amount for the community development fund which shall not be less than
3% of the net surplus
4. An amount for optional fund, a land an building, and any other necessary fund the
total of which shall not be more than 7% of the net surplus
5. The remaining shall be made available to the members in the form of interest on
share capital not exceeding the normal rate of return

DISSOLUTION OF COOPERATIVE
• Voluntary
o Without prejudice to the creditors
▪ May be affected by the majority vote of the board of directors with
resolution duly adopted by the affirmative vote of at least ¾ of all
members with voting rights present and constituting a quorum
▪ Notice of time, place, and object of the meeting shall be published
for 3 consecutive weeks in a newspaper
▪ Notice of each meeting shall be sent to the members through
registered mail or personal delivery at least 30 days prior to the
meeting
o With prejudice to the creditors
▪ Petition for dissolution shall be filed with the CDA

• Involuntary
o Violation of any law, regulation, or provision of its bylaws
o Insolvency
o Dissolution by Failure to Organize and Operate
▪ Cooperative has not commenced operations within 2 years
after the issuance of certificate of registration OR has not
carried operations for 2 consecutive years

Upon dissolution, all donated capital shall be subject to escheat.

CAPITAL, PROPERTY, AND FUNDS
• No member of primary cooperative other than the cooperative itself shall own or
hold more than 10% of the share capital of the cooperative
• Assignment of shares is not allowed
• When the member dies, his heir may inherit his share provided that the share does
not exceed the 10% threshold and provided even further that the heir qualifies as
a member
• Par Value of shares in cooperative shall be Php 100 to Php 1000

VOTING SUMMARY
2/3 3/4 MAJORITY (50+1)
Amendment of Articles of Division of Cooperatives. All Termination of
Cooperation and Bylaws. All members with voting Membership. Members of
members with voting rights, present and the board only.
rights. constituting a quorum.
Merger and Consolidation Special Meeting of the
of Cooperatives. All General Assembly.
members with voting Members of the board only.
rights, present and
constituting a quorum. No
Merger and Consolidation is
valid unless there is 3/4
votes.
For Purposes of Prompt and Special Meeting of the
Intelligent Decision- Board. Members of the
Making. General assembly board only.
may be a 3/4vote of all its
members with voting
rights.
Ratification of Contract Constitution of a Quorum or
Entered into by the the Conduct of Business.
Cooperative with a Members of the board only.
Director. Members with
voting rights, present and
constituting a quorum in a
meeting.
Ratifying a Disloyal Filling the Vacancy, other
Director. Members with than by expiration of term,
voting rights, present and in the Board if Still in the
Quorum and the Newly
constituting a quorum in a Elected Shall Serve the
meeting. Unexpired Portion of the
Term Only. Remaining
board of directors only.
Removal of Elective Officer. Granting Compensation to
Regular members present Board of Directors.
and constituting a quorum. Members with voting rights
at regular or special
meeting only.
Resolution Duly Adopted by Dissolution of Cooperative
the Affirmative Vote for the without prejudice. Board of
Dissolution of the Directors. With a
Cooperative with or without corresponding resolution
prejudice. All the members duly adopted by the
with voting rights, present affirmative vote.
and constituting quorum.
Dissolution of Cooperative
with prejudice. Board of
directors or other officers
managing its affairs,
verified by chairperson.
With a corresponding
resolution duly adopted by
the affirmative vote.
CORPORATION
RA 11232: Revised Corporation Code of the Philippines. The General Law.
• Only for private corporations
o Sec 16. Article 8 of the 1987 Constitution- The congress shall not
provide for the formation, organization, or regulation of private
corporations, except general law
o Special Laws/Charters enacted by the Congress are responsible for public
corporations or GOCCs
• Signed into law by Duterte on February 20, 2019
• Took effect on February 23, 2019
• Existing corporation affected by the new requirements of RCC are given 2 years to
comply

DEFINITION OF CORPORATION (A-L-S-P-A-P-I)

• Artificial being
o Juridical personality distinct and separate from corporators.
o Veil of Corporate Fiction- Corporators cannot be held liable for the
obligations of the corporation, and vice versa
▪ Such veil can only be pierced or lifted (Doctrine of Piercing the
Corporate Veil) through the following:
• Entity is used to further the ends of injustice
• Mere alter ego or business conduit
• Bad faith
• Fraud

• Created by operation of law

o Not created by mere agreement of the incorporators nor by the execution
of Articles of Incorporation
o Only derive its existence upon the consent of the STATE.
▪ Can only validly act as corporate entity if:
• Undergone incorporation process set forth by SEC
• Issuance of Certificate of Incorporation by SEC
o Theory of Concession or Fiat Theory
▪ Looks at a corporation as creature created by the State within the
control of latter
▪ It owes its life to the State, its birth purely being dependent on its
will
 ▪ Corporate by-laws must yield to judicial orders
▪ Before a corporation may acquire its juridical personality, the State
must give its consent either in the form of a conditions provided
under the law or a general enabling act

• Having the right of succession (Strong Juridical Personality); and

o The power to exist is perpetual or to extend its corporate life if a fixed term
is specified in its AOI
o Not dissolved by mere change in the composition of corporators

• Power, Attributes, Property expressly authorized by law or incidental to

its existence
o Can only exercise powers conferred upon it by the law, its AOI, those
implied from the conferred powers, incidental to its existence.
▪ Any act contrary to or outside of these powers is ultra vires
o A corporation engaged in a specific purpose cannot acquire properties not
related to its purpose.

GOCCs
• To be a GOCC, all must be met:
o Stock or non-stock corporations
o Functions relating to public needs
o Owned by the Government directly or through its instrumentalities
• Created by Special Law/Charter enacted by the Congress
• Government’s majority shares do not make an entity a public corporation
• Employees of GOCC are under Civil Service Commission and are compulsory
members of GSIS

ADVANTAGES VS DISADVANTAGES OF CORPORATION

ADVANTAGE DISADVANTAGE
May sue and be sued, enter contracts, More stringent administrative and
acquire properties in its name and right reportorial requirements
Stockholders not liable beyond their Minority stockholders may be denied the
subscription right to participate in the management
Perpetual existence despite changes in Business activities are limited by the
corporators powers provided by law, AOI, incidental
thereto
Shares are transferrable without the Transferring of ownership may result in
consent of the corporation or other persons having conflicting interests
stockholders against the same corporation
Management is defined and centralized
through BOD
Can mobilize more capital through
issuance of its shares

CLASSES OF CORPORATION
1. As to existence of shares of stock
o Stock- one which has capital stock divided into shares and are authorized
to distribute to the holders
o Nonstock- All other corporations not classified as stock. No part of its
income is distributable as dividends. Any profit which a nonstock
corporation may obtain incidental to is operations shall be used for the
furtherance of purpose of the corporation. Nonstock corporation may be
organized for the following:
▪ Charitable
▪ Religious
▪ Educational/Literary/Scientific
▪ Professional
▪ Cultural
▪ Fraternal
▪ Social Civic Service

2. As to place of incorporation
o Domestic- incorporated and organized under Philippine Law
o Foreign- incorporated and organized under Foreign Law and whose laws
allow Filipino citizens and corporations to do business in its own country or
state

3. As to their legal status

o De Jure (A matter of law)- Fulfilled all the requirements mandated by law
and can successfully resist a suit by the State to challenge its existence
 o De Facto- Organized with colorable compliance with the requirements of a
valid law. Its existence cannot be inquired collaterally. Such inquiry may be
inquired only by a direct attack by the State (Solicitor General) through
quo warranto proceeding. Requisites of de facto corporation are as follows:
▪ Organized under a valid law
• If the law is unconstitutional, no de facto nor de jure
corporation exist
▪ Colorable compliance
• Bona fide attempt in good faith to form a corporation
according to the requirements of the law
• Filing of AOI and issuance of the Certificate of Incorporation
by SEC are essential for the existence of de facto corporation
▪ Actual use
• Use of corporate powers
o By Estoppel- Two or more persons assume to act as a corporation knowing
it to be without authority to do so. Liable for all debts, liabilities, and
damages. If ostensible corporation is sued on any transaction entered by it,
it shall not be allowed to use as a defense its lack of corporate personality
o By Prescription- Exercises corporate powers for an indefinite period without
interference of the State such as Roman Catholic Church

4. As to their relationship management and control

o Holding Corporation- A corporation that holds stock in other companies for
purposes of control rather than mere investment
o Subsidiary Corporation- A company owned and controlled by a parent
company
o Affiliates (Associate)- When one company owns less than the majority of
the voting stock of the other
o Parent Company- A corporation that owns enough voting stock in another
company (subsidiary) to control management and operation

5. As to whether public or private purpose

o Public- Formed and organized for the government for the purpose of serving
the general good and welfare
o Private- Formed for some private purposes
6. Other classifications
o Closed Corporation- Going Private. Whose AOI provides that all of the
corporation’s issued stock of all classes, exclusive of treasury shares, shall
be:
▪ Held of record by not more than a specified number of persons not
exceeding 20
▪ Subject to specified restrictions on transfers
▪ Not listed in any stock exchange or make any public offering
o Special Corporation- Includes educational corporations and religious
corporations. Religious corporations may be incorporated by one or more
persons. Religious corporations are as follows:
▪ Corporation Sole- Formed by chief archbishop, bishop, priest,
minister, rabbi for the purpose of administering and managing, as
trustee, the affairs, property, and temporalities of any religious
denomination, sect, or churches
▪ Religious Societies
o One-Person Corporation- Only one stockholder that is natural, trust, or
estate only. The following cannot be a One-Person Corporation:
▪ Banks and quasi-banks
▪ Preneed, trusts and insurance
▪ Public and publicly listed companies
▪ GOCCs
▪ Natural person who is licensed to exercise a profession except as
provided under special law

7. As to corporations vested with public interest

o Publicly-held Corporations- Whose securities are registered with SEC. With
an exchange or assets of at least Php 50M and having at least 200
holders of shares, each holding at least 100 shares of a class of its
equity
o Banks and quasi-banks, nonstock savings and loan associations,
pawnshops, corporations engaged in money service business, preneed,
trust and insurance companies, and other financial intermediaries
o Other corporation engaged in business vested with public interest like the
above
NATIONALITY OF CORPORATIONS
1. Place of Incorporation Test
o Applied if the corporation is not engaged in activities reserve, in whole or
in part, for Filipinos. Under such a test, the nationality is determined by the
State of Incorporation.

2. Control Test
o Applied if the corporation is engaged in nationalized areas of activities,
provided under the constitution and other laws. If the capital of the
investing corporation is at least 60% owned by Filipinos, then the entire
shareholdings of the investing corporation shall be recorded as Filipino-
owned making both the investing and investee corporations Philippine
national.
o Refers to test where nationality of corporation is determined by nationality
of controlling stockholders

3. Grandfather Rule
o Used only when the Control Test is first complied with that the grandfather
rule may be applied
o Used if the corporation is owned by another corporation with foreign
stockholders exceeding 40% of the capital stock.
o There is doubt in the mind of the court based on the attendant facts and
circumstances of the case, in the 60-40 Filipino equity ownership
requirement in the corporation.
o This rule is to trace the nationality of the stockholder of investor
corporations to ascertain the nationality of the investee
o Direct and indirect shareholdings in the corporation are determined. In case
of multi-tiered corporation, the stock attribution rule must be allowed to run
continuously along the chain of ownership until if finally reaches the
individual stockholders

RA 7042. FOREIGN INVESTMENT ACT OF 1991

o Other than Filipino citizens, the following are considered Philippine Nationals:
o Corporations organized under Philippine laws of which at least 60% of the
capital stock outstanding and entitled to vote is owned and held by Filipino
Citizens.
 o When a corporation organized/incorporated abroad and registered as doing
business in the Philippines under RCC, of which 100% of the capital stock
outstanding and entitled to vote is wholly owned by Filipinos, may be
considered a Philippine National
o Trustee of funds for pension, employee retirement, or separation benefits
is Philippine national and at least 60% of the fund will accrue to the benefit
of Philippine nationals
o A corporation and its Non-Filipino stockholders own stocks in SEC-registered
enterprise, at least 60% of the capital stock outstanding and entitled to
vote and at least 60% of the members of the BOD of each of both
corporation must be citizens in order to be considered as Philippine National
(Double 60% rule)

o In case of church, since it is nonstock, the controlling members should be

composed of Filipino citizens in order to become Philippine National

NATIONALIZED ACTIVITIES RESERVED FOR FILIPINOS UNDER THE

CONSTITUTION AND SPECIAL LAWS

100% 80% Filipino 75% Filipino 70% Filipino 60% Filipino

Filipino Owned Owned Owned Owned
Owned
Cooperatives Private Radio Contract for Advertising Supply of
Communication construction of goods to GOCC
Network an repair of
locally-funded
public works
Manufacturer Infrastructure Pawnshop Ownership of
of Firecrackers developments private lands
and other pyro
Manufacturer, Foreign funded Ownership of
of biological, projects educational
chemical, and undergone institutions
radiological competitive
weapons and international
anti-personal bidding
mines
Mass media, Contracts for Adjustment
except construction of companies
recording Defense-
related
structure
Utilization of Private Rice and corn
Marine recruitment
Resources
Manufacturer Flag law Exploration of
of nuclear natural
weapons resources
Cockpits Condominium
Small-scale Public utilities
mining
Private security Deep sea
agencies commercial
fishing vessel
Retail trade Coastwise
enterprises shipping
with paid-up
capital of less
than $2.5M

DOCTRINE OF SEPARATE JURIDICAL PERSONALITY

1. Liability for Acts or Contracts
o The obligation of the corporation is not the obligation of the corporators
2. Right to Bring Actions
o A corporation may bring civil and criminal actions in its own name and in
the same manner as natural persons
3. Right to Acquire and Possess Property
o The property conveyed by the corporation is the property of the corporation
and not the corporators
4. Acquisition of Jurisdiction
o When a juridical person is a defendant, service may be made on the
president, managing partner, general manager, corporate secretary,
treasurer, or in-house counsel of the corporation wherever they may be
found, or in their absence, their secretaries
5. Changes in Individual Membership
o Corporation remains unchanged and unaffected by changes in the
composition of corporators
TRUST FUND DOCTRINE
• Capital, stock, property, and other assets of corporation are regarded as equity in
trust for the payment of corporate creditors which are preferred over the
stockholders.

LIABILITY OF CORPORATION IN CASE OF TORTS

• Corporation may be held liable for torts
• A corporation is liable when a tortious act is committed by an officer or agent
under express direction or authority from the stockholders or members acting as
a body or from the directors of the governing body
• A corporation is civilly liable in the same manner as a natural person for torts. The
rationale behind is the rules governing the liability of a principal or master for a
tort committed by an agent are the same whether the agent is natural or artificial

LIABILITY OF CORPORATION IN CASE OF CRIMES

• General Rule: If the crime is committed by the corporation or other juridical
entity, the director, officers, employees, or other officers shall be charged and
penalized for the crime. A corporation cannot be arrested or imprisoned, hence
cannot be penalized for a crime punishable by imprisonment
• Corporation are incapable of intent; hence, they cannot commit felonies that are
punishable under Revised Penal Code. Crimes are personal in nature
• Exception: A corporation may be charged and prosecuted for a crime if the
imposable penalty is fine. A corporation may be held criminally liable as well for
AMLA and Anti-Dummy Act Law

RECOVERY OF DAMAGES
• General Rule: Corporation is not entitled to moral damages
• Exception:
o May recover moral damages in case of libel, slander, or any other form of
defamation
o When the corporation has a reputation that is debased, resulting in
humiliation in the business realm
INCORPORATION AND ORGANIZATION
• Any person, natural or juridical
• Incorporators must not be more than 15
• Natural person incorporator must be of legal age
• Each must own or subscribe to at least 1 share of the capital stock

ARTICLE OF INCORPORATION
• Shall be submitted together with Certificate of Authentication signed by all
incorporators. No notarization required
• May be amended by majority of BOD or BOT and 2/3 of outstanding stockholders
or members.
o Amendments of AOI shall take effect upon the approval of SEC or withing
6 months from the date of filing if SEC did not take any action

CORPORATE NAME AND LIMITAIONS ON ITS USE

• No corporate name shall be allowed by the SEC if:
o Not distinguishable- A name is not distinguishable even if:
▪ There is a word corporation, company, inc., limited
▪ Punctuations, articles, conjunctions, prepositions, contractions,
different tenses, spacing
o Name is already protected by law
o Contrary to law
• A change in corporate name does not make a new corporation and has no effect
to the identity of the corporation

FIRST STEP IN FORMATION OF CORPORATION

• Promotion
o Promoters- A person who, acting alone or with others, initiate the formation
and organization of a corporation
o At the promoter’s stage, no juridical entity yet until SEC issues COI, hence
no de facto corporation still. Prior to the de facto stage, any contracts
entered into are unenforceable and not binding but can be ratified
 ▪ Express Ratification- Mere board resolution making the corporation
liable by accepting the contract
▪ Implied Ratification- By accepting of benefits

COMMENCEMENT OF CORPORATE EXISTENCE

• General Rule: Upon issuance of certificate of incorporation by SEC
• Exception:
o Corporations created by special charter
o Corporation Sole

CORPORATE TERM
• Perpetual existence, unless otherwise stipulated in AOI
• Corporation existing prior to RCC shall have perpetual existence, unless the
corporation, upon a vote of its stockholders representing a majority of its
outstanding capital stocks, elects to retain its specific corporate term
• A corporate term for a specific period may be extended or shortened by amending
the AOI. Provided:
o No extension may be made earlier than 3 years prior to the original or
subsequent expiry, unless there is justifiable reason
• A corporation whose term has expired may apply for a revival of its corporate
existence and deemed revived upon approval of revival by SEC, except:
o Banks, quasi-banks, preneed, insurance and trust companies, non-stock
saving associations, pawnshop, corporations engaged in money services,
unless accompanied by a favorable recommendation of the appropriate
government agency. The same goes true with its AOI
EFFECTS OF NON-USE OF CORPORATE CHARTER

EFFECTS OF DELINQUENT STATUS

• A delinquent corporation are given 2 years to resume operations and comply with
SEC
• Failure to comply within the prescribed period shall revoke the corporation’s
certificate of incorporation

3 LEVELS OF CONTROL IN THE CORPORATE HIERARCHY

1. Board of Directors- responsible for corporate policies and the general
management
2. Officers- execution of the policies
3. Stockholders- residual power over fundamental corporate changes
BOARD OF DIRECTORS/TRUSTEES
ELECTION OF DIRECTORS OR TRUSTEES AND INDEPENDENT DIRECTORS

• Except when the exclusive right is reserved for the holders of founder’s, each
stockholder of majority of the outstanding capital or majority member, present or
in person or through proxy with written authorization, shall have the right to
nominate any director or trustee who possess all the qualification
• BOD must not be more than 15.
o Term of 1 year
• BOT may be more than 15.
o Term of not more than 3 years
• The board of corporations vested with public interest shall have
independent directors constituting at least 20% of such board such as:
o Publicly-held Corporations- Whose securities are registered with SEC. With
an exchange or assets of at least Php 50M and having at least 200
holders of shares, each holding at least 100 shares of a class of its
equity
o Banks and quasi-banks, nonstock savings and loan associations,
pawnshops, corporations engaged in money service business, preneed,
trust and insurance companies, and other financial intermediaries
o Other corporation engaged in business vested with public interest like the
above
• Within 30 days after the election of directors/trustees and officers, the names,
nationality, shareholdings, and residence addresses of the directors or trustees
shall be submitted to SEC by any of the following:
o Secretary
o Any other officer
• Regional Trial Court (RTC) has general jurisdiction over the election contests.

TIME TO DETERMINE VOTING RIGHT

• Time fixed in the bylaws

• If no fixed time, at the time of election

CUMULATIVE VOTING

• A matter of right granted to stockholders to multiply their votes by the number of

candidates, sum of which is the total number of votes. He can vote it all to once
 candidate or spread it to multiple candidates as long as it will not exceed his total
number of votes
o Stock Corporation- A matter of right. Mandatory in stock corporation to
protect the rights of minority.
o Non-stock Corporation- Only allowed if stated in AOI or bylaws. 1 vote per
1 candidate only.

TYPES OF CUMULATIVE VOTING

• Straight Voting- Multiplication of votes depending on the number of candidates

• Cumulative Voting for One Candidate- Concentration of votes to one candidate
only
• Cumulative Voting by Distribution- Spreading of votes to multiple candidates
• Independent Directors- must be elected by shareholders present or entitled to vote
during the election of directors. Shall be subject to governing rules and regulations.

REMOVAL OF DIRECTORS AND TRUSTEES

• The power to remove belongs to the stockholders representing at least 2/3 of the
outstanding capital stockholders or members entitled to vote.
• General Rule: Removal may be with or without cause
• Exception: If the director was elected by minority, there must be a cause for
removal

FILLING OF VACANCIES

• Vacancies may be filled up by stockholders or members when (E-R-O-R-

I):
o Expiration of term
o Removal
o Grounds Other than the two, where the remaining directors do not
constitute a quorum for the purpose of filling the vacancy
o If the vacancy may be filled by the remaining directors by the directors
Refer the matter to stockholders or members
o Increase in the number of directors
 • Vacancies may be filled up by members of the board other than the
scenarios stated above by the vote of at least a majority of the remaining
directors/trustees, if still constituting a quorum.

COMPENSATION OF DIRECTORS/TRUSTEES

• In the absence of any provision in the bylaws fixing their compensation, they shall
not receive any compensation except for reasonable per diems
• Stockholders representing majority of outstanding capital stocks or majority
members may grant directors or trustees compensation and must be approved at
a regular or special meetings
• If granted, compensation shall not exceed 10% of the net income before
tax during the preceding year.
• Corporations vested with public interest shall submit to their shareholders and SEC
the annual compensation of directors/trustees.

OFFICERS
• Shall manage the corporation and perform such duties provided by the bylaws or
board resolution
• Immediately after the election of the board, directors must formally organize and
elect:
o President- who must be a director
o Treasurer- who must be a resident
o Secretary- who must be a citizen and resident
o Other Officers
o Compliance Officers in case of corporation vested with public
interest
• The same person may hold 2 or more positions concurrently, except that no one
shall act as president and secretary or president and treasurer at the same time

CORPORATE BOOKS AND RECORDS

• If the corporation denies or does not act on demand of stockholders/members to
inspect the corporate records, the aggrieved stockholder/member may report such
denial or inaction to SEC. Within 5 days from the receipt of report, SEC shall
conduct an investigation and issue order directing the inspection.
 • If the paid-up capital of the corporation is less than Php 600k or such other
amount as may be determined appropriate by DOF, the FS may be certified
under oath of the President and Treasurer, and no need for independent
CPA.

LIABILITY OF DIRECTORS/TRUSTEES/OFFICERS
• Who willfully and knowingly vote for or assent to unlawful acts of the corporation
or who are guilty of gross negligence or bad faith in directing the affairs, shall be
jointly and severally liable for all the damages

DEALINGS OF DIRECTORS/TRUSTEES/OFFICERS WITH THE

CORPORATION
• A contract of corporation with one or more of its directors/trustees/officers or their
spouses/relatives within the fourth civil degree of consanguinity/affinity is
voidable, at the option of corporation, unless all the following conditions are
present:
o The presence of director/trustee in the board meeting in which the contract
was approved was not necessary
o The vote of director/necessary was not necessary
o The contract is fair and reasonable
o In case of corporation vested with public interest, material contracts are
approved by majority of the independent directors
o In case of an officer, the contract was previously authorized by the board
• If any of the first three conditions stated above is absent, such contract
with directors/trustees may be ratified by 2/3 votes of outstanding capital
stockholders or members

CONTRACTS BETWEEN CORPORATIONS WITH INTERLOCKING

DIRECTORS
• Except in cases of fraud, and provided the contract is fair and reasonable under
the circumstances a contract between 2 or more corporations having interlocking
directors shall not be invalidated
 o Provided that the interest of the interlocking director in one corporation is
substantial and the interest in another corporation is merely nominal.
▪ Substantial- Stockholding exceeding 20% of the outstanding
capital stock

DISLOYALTY OF A DIRECTOR
• When a director acquires business opportunity which should belong to the
corporation, thereby obtaining profits to the prejudice of such corporation, the
director must account for and refund all such profits unless ratified by
2/3 votes of outstanding capital stockholders.

STOCKS AND STOCKHOLDERS

SHARES OF STOCK

• Units of capital stock

• Once issued, considered as personal property of stockholder
• May be transferred either through sale, donation, succession, encumbrances, or
subject to security interest

CONSIDERATION FOR SHARES OF STOCK

• Cash
• Property, tangible, or intangible
• Services actually rendered to the corporation.
• Payment of debt of the corporation
• Amounts transferred from URE to stated capital in case of stock dividends
• Outstanding shares exchanged for stocks
• Shares of stock in another corporation
• Other generally form of consideration

• Future service and promissory note are not valid consideration

AMOUNT OF CONSIDERATION

• Shall not be less than the par value, except treasury share so long as
reasonable
• Any director/officer who, as stated below, shall be liable solidarily to the
corporation or its creditors for the difference between the value receive from the
issuance and par value of the shares:
o Consents to the issuance of watered shares
o Having knowledge of the issuance of watered shares but does not file a
written objection to the corporate secretary

MINIMUM CAPITAL STOCK REQUIREMENTS FOR STOCK CORPORATION

• No minimum requirements
• However, the 25%-25% rule was retained for any increase in the authorized
capital stock

DOCTRINE OF INDIVIDUALITY OR INDIVISIBILITY OF SUBSCRIPTION

• No certificate of stock shall be issued to a subscriber until the full payment of his
subscription together with interest and expense in case of delinquency

SUBSCRIPTION REQUIREMENTS

• Subscription Contract- Any contract for the acquisition of unissued stock in an

existing corporation or a corporation still to be formed
• Pre-incorporation Subscription- Refers to subscription of shares in a corporation
still to be formed. Shall be irrevocable for at least 6 months from the date of
subscription, unless the lapse of 6 months, all of the subscribers consent to
the revocation or the corporation fails to incorporate within the same
period or within a longer period stipulated in the contract of subscription
o Offer Theory- Construes subscription agreement as only continuing offers
to proposed corporations.
o Contract Theory- A subscription agreement among several persons to take
shares in a proposed corporation becomes a binding contract
• No pre-incorporation subscription may be revoked after the submission of AOI to
the Commission
PERSONS REQUIRED TO PAY IN FULL

• Non-resident foreign subscribers upon incorporation must pay in full their

subscription, unless their unpaid subscription is guaranteed by surety bond or
assumption by a resident stockholder

WHEN TO PAY SUBSCRIPTION

• Date specified in the subscription contract

• If no specified date, on the call of the BOD
o If no date specified in the call, within 30 days from the date of call
• When corporation becomes insolvent and the court told to wind it up, all
subscriptions become payable on demand even without a call

EFFECTS OF FAILURE TO PAY ON SPECIFIED DATE (DELINQUENCY)

• Will render the subscriber to pay the entire balance together with interest and
expense
o Accrual of interest will start if the unpaid balance is not paid on the given
date at the fixed rate of interest specified in the subscription contract.
If no specified fixed interest rate, legal rate of 6%
• Disenfranchises the shares from any right that inheres to a stockholder, except
dividends
o Any cash dividends on delinquent shares shall apply first to the unpaid
balances of subscription plus interest and expenses
o Any stock dividends shall be withheld from the delinquent stockholders
until their unpaid subscription is fully paid

REMEDIES TO ENFORCE PAYMENT

1. Extra-judicial sale at public auction (Delinquency Sale)

2. Judicial action

DELINQUENCY SALE

• If the subscriber failed to pay within 30 days from the due date or date of call,
through board resolution, directors may order the sale of delinquent shares to
public auction and shall specifically state the amount due plus accrued interest
 and expense, and the date, time, and place of sale which shall not be less
than 30 days nor more than 60 days from the date the stock become
delinquent.
o Unless the delinquent stockholder pays the amount prior to the sale at
public auction, the delinquent stock shall be sold to the highest bidder at
the auction.
▪ Highest bidder- one who offers to pay full amount of the balance
on the subscription, including interest and expense, in exchange for
the smallest number of shares
• If no bidder is willing to buy the delinquent stock, the corporation itself may
purchase the same.
• Notice of sale shall be sent to the delinquent stockholder, personally or mail
• 2 consecutive weeks of publication prior to the sale

CLASSIFICATION OF SHARES

1. Par Value Shares- Shares with a value fixed in the AOI and certificate of stock

2. No Par Value Shares- Shares without stated par value in AOI, only in certificate
of stock. Such shares shall be deemed fully paid and nonassessable and the holder
of such shares shall not be liable to the corporation or to its creditors. Preference
shares cannot be issued without par value
a. Not less than Php 5
b. May be fixed in AOI, BOD, Bylaws, or Stockholders representing at least a
majority of the outstanding capital stock at a meeting duly called

3. Common Shares- Basic class of stock ordinarily and usually issued without
privileges or advantages except they cannot be denied the right to vote

4. Preferred Shares- Par value shares given preference as to dividends and as to

liquidation. Terms and conditions of preference shares are fixed in AOI by BOD
that are effective upon filing of certificate with the SEC
a. As to Preference
i. As to Assets- Gives the holders preference in the distribution of
assets in case of liquidation
ii. As to Dividends- Gives the holders preference in dividends to the
extent agreed upon before anyone else
b. As to Participation
 i. Participating- Entitled to participate with the common shares in
excess distribution
ii. Non-participating- Not entitled to participate with common shares
in excess distribution
c. As to Cumulation
i. Cumulative- Dividend in arrears. Must be preferred over common
shares in the later years
ii. Non-cumulative- No need to make up for undeclared dividends

5. Redeemable Shares- May be issued only if expressly provided in AOI. These are
shares that may be purchased by the corporation from the holders of such share
upon the expiration of a fixed period, regardless of the existence of URE as
long as it will not result to insolvency of the corporation
a. Mandatory- Issuing corporation must redeem the shares after the
expiration of a stated period or when demanded by the holder
b. Optional- Issuing corporation may or may not redeem

6. Treasury Shares- Shares issued and fully paid but subsequently reacquired by
the corporation. Such share may be reissued again for a reasonable price fixed by
BOD.
a. Such share cannot participate in dividends and has no voting rights
b. Can only be acquired if there is sufficient URE
c. Amount of URE equivalent to the cost of Treasury shall be restricted
d. Can be distributed only as property dividends. Cannot be declared as cash
or stock dividends

7. Founder’s Shares- Shares classified in AOI which are given certain rights and
privileges not enjoyed by the owners of other stocks. Where the exclusive right to
vote and be voted for in the election of directors is granted. Must be for a limited
period not to exceed 5 years from the date of incorporation/approval by
SEC

8. Voting Shares- Shares with right to vote on all corporate acts

9. Non-voting Shares- Shares without right to vote. Preference and Redeemable

Shares subject to exception. Holders of such shall be entitled to vote on the
following matters:
a. Amendment of AOI
 b. Adoption and Amendment of Bylaws
c. Sale, lease, exchange, mortgage, disposition of corporate properties
d. Incurring, creating, increasing bonded indebtedness
e. Increasing or decreasing of capital stock
f. Merger or consolidation of the corporation
g. Investment of corporate funds to another
h. Dissolution of the corporation
10. Convertible Shares

WHO MAY CLASSIFY SHARES

1. Incorporators- Classes and number of shares which a corporation shall issue are
first determined in the AOI filed with SEC
2. BOD and Stockholders- After the corporation comes into existence, classification
of shares may be altered by BOD or Stockholders by amending the AOI
a. Amendments- Any provision in AOI may be amended by majority vote of
BOD or BOT and the vote or written assent of the stockholders
representing at least 2/3 of the outstanding capital stock, without
prejudice to the appraisal right.
b. The amendments shall take effect upon the approval by SEC or if the
SEC did not take any action within 6 months from the date of filing

MEETINGS
REGULAR MEETING OF STOCKHOLDERS/MEMBERS

• Date and Time

o Annually on date fixed in the bylaws
o If not so fixed, on any date after April 15 of every year
• Venue
o Stock Corporation- Principal office of the corporation stated in
AOI. If not practicable, in the city or municipality where the
principal office is located. (Metro Manila, Metro Cebu, Metro Davao)
o Nonstock Corporation- Any place as long as within the Philippine
territory and proper notice is sent to members
NOTICE FOR REGULAR MEETING OF STOCKHOLDERS/MEMBERS

• Must be in writing
o May be sent personally or through email
• Shall be sent at least 21 days (3 weeks) prior to the meeting, unless a
different period is required
• Notice may be waived, expressly or impliedly, by the stockholder/member

SPECIAL MEETING OF STOCKHOLDERS/MEMBERS

• Date and Time

o Anytime deemed necessary
o As provided by the bylaws
• Venue
o Principal office of the corporation stated in AOI. If not practicable,
in the city or municipality where the principal office is located. (Metro
Manila, Metro Cebu, Metro Davao)

NOTICE FOR SPECIAL MEETING OF STOCKHOLDERS/MEMBERS

• Must be in writing
o May be sent personally or through email
• Shall be sent at least 1 week prior to the meeting, unless a different period
is required
• Notice may be waived, expressly or impliedly, by the stockholder/member

REQUIREMENTS FOR A VALID MEETING

• Held in proper place

• Held at the stated date and time
• Called by the proper person

PROXY

• Stockholders/members may vote in person or by proxy, with written

authorization and signed by the stockholder, in all meetings, unless denied by
bylaws or AOI
• Bylaws restricting the stockholders’ or members’ right in this respect is
void.
DURATION OF PROXY

• Specific Proxy- only for a particular meeting on a specific date

• Continuing Proxy- for a continuing period not more than 5 years. Bylaws may
provide for a shorter period.

VOTING TRUST

• Principal Purpose: To acquire control of the corporation

• Voting Trust Agreement is an agreement where one or more stockholders transfer
their stocks to a trustee, who thereby acquires the voting rights or any other
specific for a period of time; and in return, trust certificates are given to the
stockholders

REQUIREMENTS ON VOTING TRUST AGREEMENTS

• Written and notarized

• Certified copy of such agreement, otherwise ineffective and unenforcable
• Certificate of stock covered by VTAs shall be cancelled
• A new stock certificate shall be issued in the name of trustee
• The transfer shall be noted in the books of corporation
• VTAs entered into shall not exceed 5 years, unless there is a condition in loan
agreement

PROPRIETARY RIGHTS OF STOCKHOLDERS

• Right to Dividends
o It is the right of the stockholder to demand dividends after the board’s
declaration.
• Right to Appraisal
o It is the right of the stockholder to dissent and demand payment of fair
value of shares in the certain instances provided:
▪ In case of any amendment to AOI changing or restricting the
rights of stockholders
▪ In case of sale, lease, exchange, transfer, mortgage, pledge,
disposal substantially all or all of corporate assets
▪ In case of merger or consolidation
▪ In case of investment of corporate fund to another corporation
• Right to Inspect
 o It is the right of the stockholder to inspect the corporate’s book and
records based upon his ownership. Requirements to exercise the rights
are as follows:
▪ Must be in reasonable hours on business days
▪ Information obtained shall not be improperly used
▪ The demand is made in writing, in good faith, and for legitimate
purpose
o The books of the corporation shall be kept at the principal office, except
stock and transfer book
o Valid purposes for inspection are as follows:
▪ Ascertain the financial condition of the corporation
▪ Value of shares for sale or investment
▪ Existence of mismanagement
▪ Obtainment of information to solicit proxies
▪ Obtainment of information to aid litigation
• Pre-emptive Right
o It is the right of existing shareholders to subscribe to all issues or
disposition of shares of any class in proportion to their respective
shareholdings, unless such right is denied by the AOI or an
amendment thereto, and subject to certain exceptions
o Pre-emptive right is transferrable unless expressly restricted by
AOI
• Right of First Refusal
o Is a right that arises only by virtue of contractual stipulations, in which
case the right is construed strictly against the right of person to dispose
of or deal with property.
o A right granting existing stockholders or the corporation to
purchase the shares of transferring stockholder with such
reasonable terms, conditions or period stated.
▪ In case the period lapses, the transferring stockholder shall sell it
to any third person.

REMEDIAL RIGHTS (D-I-R)

• Derivative Suit
o Brought by one or more stockholders or members on behalf of the
corporation to redress wrongs committed against it or to vindicate and
protect corporate rights
 ▪ This is the exception to the rule that only BOD or BOT can sue.
▪ Stockholders may be allowed to sue on behalf of the corporation if
the BOD or BOT refuse to do so.
• Individual Suit
o An action brought by a stockholder against the corporation for direct
violation of his contractual rights
• Representative Suit
o Brought by one person on his own behalf and on behalf of similarly situated.

KINDS OF CORPORATE POWERS

1. Express Powers- granted by law, AOI, and administrative regulations
2. Inherent/Incidental Powers- not expressly stated but are deemed to be within the
capacity of corporate entities
3. Implied/Necessary Powers- exists as a necessary consequence of the exercise of
the express powers of the corporation

GENERAL POWERS OF CORPORATION

THEORY OF GENERAL CAPACITY

• A corporation holds such powers which are not prohibited or withheld from it by
general laws

GENERAL CORPORATE POWERS AND CAPACITY

• To sue and be sued

o Exercised by the BOD
o Commences upon issuance of Certificate of Incorporation
o If the real party in interest is a corporate body, an officer of the corporation
can sign the verification against forum shopping as long as he is
authorized through board resolution by the board. The following can
sign without authorization of the board:
▪ Chairperson of the board
▪ President
▪ General Manager
▪ Personnel Officer
▪ Employment Specialist in labor cases
 • Perpetual existence
• Adopt and use corporate seal
• Amend its AOI and bylaws
• Purchase, receive, take, grant, hold, convey, sell, lease, pledge, mortgage real and
personal properties
o Reasonably and Necessarily required by the lawful business of the
corporation
o Transaction is done within the limits prescribed by law
• Enter into partnership, joint venture, merger and consolidation
• Make reasonable donations for public welfare, hospital, charitable, cultural,
scientific, civic. No foreign corporation shall give donations in aid of any political
party or candidate
o Donation must be Reasonable
o Must be for valid Purpose
o Donation must bear a reasonable relation to the corporation’s Interest and
not remote or fanciful
o For Foreign Corporation, must not Aid politics

SPECIFIC POWERS OF CORPORATION

THEORY OF SPECIFIC CAPACITY

• A corporation cannot exercise powers except those expressly or impliedly given to

it

SPECIFIC CORPORATE POWERS AND CAPACITY

• Power to extend or shorten corporate term

• Power to increase or decrease capital stock
o No decrease shall be approved by SEC if it will prejudice the rights of
corporate credits (Trust Fund)
• Incur, create, increase bonded indebtedness
o Bonds issued by the corporation shall be registered with SEC
• Deny pre-emptive right
o Existing stockholders shall be offered first to subscribe newly authorized
shares before offering it to the public to retain their proportionate control
over the corporation.
o Pre-emptive right is available on the re-issuance of treasury shares
 o Pre-emptive right may be waived by the stockholder
• Sell, dispose, lease, encumber all or substantially all corporate assets
o Nell Doctrine- When one corporation sells or transfers all of its assets to
another corporation, the transferee is not liable for the debts and liabilities
of the transferor. Except:
▪ Express assumption of liability
▪ Consolidation or Merger
▪ Business Enterprise Transfer- the purchasing corporation is merely a
continuation of the selling corporation
▪ Entered Fraudulently
• Purchase or acquire own shares
o Corporation may only acquire its own shares if there are Unrestricted
Retained Earnings. No URE needed under the following (R-D-L-D):
▪ Redemption of Redeemable Shares
▪ Donation of Shares
▪ Levy/Garnishment
▪ Conveyance of shares to the corporation in payment of a Debt
• Invest corporate funds in another corporation for purposes other than primary
purpose
o If for business purposes, only majority vote of BOD
o If for other purposes other than primary purpose, majority vote of BOD and
2/3 of outstanding capital stock
• Declare dividends
o Discretionary
o Corporate profits allocated, lawfully and declared, and ordered by
directors to be paid proportionately to stockholders.
▪ Wrongful or illegal declaration of the board will held them liable.
Stockholders should return such dividend under the principle of
solutio indebiti.
o May declare when there is Unrestricted Retained Earnings and board
resolution
▪ No corporation shall retain surplus profits in excess of 100% of paid-
in capital stock unless:
• Necessary for corporate expansion
• Prohibition from loan agreement/covenants
• Special circumstances
o In case of stock dividends, 2/3 votes of outstanding capital stockholders
together with declaration of BOD.
 o Those stockholders of record are entitled to receive dividends
o Transfer of shares not recorded in the books of corporation is valid only
between the parties. Thus:
▪ The transferor still has the right to the dividends against the
corporation but, in essence, will only serve as trustee of the real
owner of the dividends which is the transferee
o In case of mortgaged or pledged shares:
▪ Mortgagor or Pledgor has the right to dividends, unless when the
mortgagor or pledgor defaults and the mortgagee or pledgee
acquires the pledged stocks and the transfer is recorded to the
books of corporation
• Enter into management contract with another corporation
o A Management Contract is any contract where a corporation undertakes to
manage or operate substantially all of the business of another corporation
o Refers only to management contracts with another corporation and not
with natural persons.
o No management contract shall be entered into for a period longer than 5
years for any 1 term except for service contracts or operating agreements
relating to exploration, development, exploitation, utilization of natural
resources

ULTRA VIRES DOCTRINE

• No corporation shall possess or exercise any corporate powers except those
conferred by the law, AOI, and incidental thereto.

ULTRA VIRES ACT

• Act committed outside the object for which a corporation is created as defined by
the law
• Unlike any other illegal activities and are void, ultra vires acts are not illegal and
void ab initio but are not merely within the scope of the AOI. They are merely
voidable and may become binding and enforceable when ratified by the
stockhodlers.
ONE PERSON CORPORATION (OPC)
• Only one stockholder that is natural, trust, or estate only. The following cannot
be a One-Person Corporation:
o Banks and quasi-banks
o Preneed, trusts and insurance
o Public and publicly listed companies
o GOCCs
o Natural person who is licensed to exercise a profession except as provided
under special law
• No minimum paid-up capital required, unless otherwise provided by special law
• Not required to submit and file corporate bylaws
• Shall indicate OPC in its name
• The single stockholder shall be the sole director and and president
• Within 15 days after the issuance of its Certificate of Incorporation, OPC shall
appoint treasurer, corporate secretary, and other officers it may deem necessary
and notify the commission within 5 days from the date of appointment.
• The sole stockholder cannot appoint himself as corporate secretary
• If he appoints himself as the treasurer, he shall give bond to SEC in such a
sum as may be required. The bond shall be renewed every 2 years

SPECIAL FUNCTIONS OF CORPORATE SECRETARY

• Maintain minutes of the book

• Notify the nominee or alternate nominee of the death or incapacity of the single
stockholder within 5 days from such occurrence
• Notify the SEC of the death of the single stockholder within 5 days from such
occurrence
• Call the nominee or alternate nominee and the legal heir to meeting and advise
about the election of new director and amendment of AOI

NOMINEE AND ALTERNATE NOMINEE

• The single stockholder shall designate nominee and alternate nominee who shall
take place of the single stockholder in case of his death or incapacity
• The names of nominee and alternate nominee shall be indicated in AOI
• In case of permanent incapacity of the single stockholder, nominee shall act as
director until the legal heirs are determined and designated new director
 • In case of the death of the single stockholder, the nominee or alternate nominee
shall transfer the shares to the duly designated heirs within 7 days from
receipt of affidavit of heirship or self-adjudication executed by the sole
heir
o Within 60 days from the transfer of share, the heirs shall notify SEC
of the decision to either wind up or convert to Ordinary Corporation

CHANGE OF NOMINEE AND ALTERNATE NOMINEE

• Single stockholder may any time change the nominee and alternate nominee by
submitting to SEC the names of the new and their written consent. AOI need not
be amended

REPORTORIAL REQUIREMENTS

• Annual FS audited by independent CPA, provided that if the total assets or

liabilities is less than Php 600,000, the FS shall be certified under oath
by the corporate treasurer and president
• The fiscal year shall be indicated in the AOI, if none, calendar year
• SEC may place the corporation failure to submit reportorial requirements 3 times
consecutively or intermittently within a period of 5 years

LIABILITY OF SINGLE SHAREHOLDER

• A sole shareholder claiming limited liability has the burden to affirmatively showing
that the corporation was adequately financed
• If he cannot prove that the OPC is independent of the shareholder’s personal
property, he shall be jointly and severally liable for the debts of OPC
• Piercing of Corporate Veil applies to OPC

CONVERSION OF CORPORATION

• Conversion from Ordinary Corporation to OPC

o Allowed as long as he acquired all the stocks. Shall submit documents to
SEC and shall be approved by the latter.
o If the application of conversion is approved, SEC shall issue certificate of
filing of amended articles of incorporation
 • Conversion from OPC to Ordinary Corporation
o May be converted to Ordinary Corporation after due notice to SEC of
such fact and circumstances leading to conversion filed within 60
days from the occurrence of such circumstances
o If all requirements are complied with, SEC shall issue certificate of filing
of amended articles of incorporation
o The Ordinary Corporation is now liable to the outstanding liabilities
of the OPC

MERGER AND CONSOLIDATION

• Merger- 2 to 1 which shall be one of the constituent corporations
• Consolidation- 2 to 1 which shall be the consolidated corporation

PLAN OF MERGER OR CONSOLIDATION

• Two or more corporations may merge into one corporation which shall be one of
the constituents of the corporation, or consolidated into one which shall be the
consolidated corporation
• BOD or BOT of each corporation, party to the merger or consolidation, shall
approve a plan of merger or consolidation under the following:
o Names of the corporation proposing to merge or consolidate
o Terms of merger or consolidation
o Statement of changes in AOI of the surviving corporation in case of merger
o Statements required to be set forth in AOI in case of consolidation
o Other provisions regarding merger or consolidation

APPROVAL OF PLAN OF MERGER OR CONSOLIDATION

• Majority vote of BOD or BOT of each constituent corporation; and

• Affirmative vote of the 2/3 of outstanding capital stockholders or members
• There must approval by the stockholders or members of the respective corporation
• Notice of such meetings shall be given to the stockholders or members of the
respective corporation
• After such approval, Articles of Merger or Consolidation shall be executed
by each of the constituent corporations, to be signed by the president or vice
president, and certified by the secretary or assistant secretary of each
constituent.
 o Mere agreement will only make the merger or consolidation invalid.
o Merger or Consolidation shall only be valid upon issuance of the Certificate
of Merger or Consolidation by SEC

AMENDMENT OF PLAN OF MERGER OR CONSOLIDATION

• Any amendment may be made, provided that such amendment is approved by

majority vote of respective BOD or BOT of all the constituents; and
• Ratified by the affirmative vote of 2/3 of outstanding capital stockholders or
members

WHEN HEARING IS SET

• If, upon investigation, the SEC has reason to believe that the merger or
consolidation is contrary or inconsistent to provision of RCC or existing laws, it
shall set a hearing to give the corporation opportunity to be heard.
o Written notice of the date, time, and place of the hearing shall be sent at
least 2 weeks prior to the hearing.
• If the SEC is satisfied with the explanation of the corporation, it shall issue a
certificate of merger or consolidation.

VOTING SUMMARY
2/3 MAJORITY
Corporation existing prior
to RCC shall have perpetual
existence unless elected to
retain the specific term.
Outstanding capital
stockholders.
Election of BOD. In person
or through written proxy,
owners of majority of
outstanding capital,
excluding nonvoting shares
or members.
Quorum in General.
• Majority of
outstanding capital
stockholders.
 • Majority of members
who are actual,
living members
with voting rights.
Quorum in board meetings.
BOD or BOT except when
AOI or bylaws require
higher number.
Vacancies filled by the
remaining members of the
board. Remaining directors
or trustees.
Post-Incorporation
Adoption of Bylaws.
Outstanding capital
stockholder or members
Granting of compensation
to BOD or BOT.
Outstanding capital
stockholders or members.
Issued price of no par value
shares may be fixed.
Stockholders representing
at least majority of the
outstanding capital stock at
a meeting duly called.
Invest corporate funds in
another corporation for
primary purpose. Each
BOD or BOT.
Power to remove directors
and trustees. Outstanding
capital stockholders or
members entitled to vote.
Ratification of contract
between corporation and
any of its
director/trustee/officer.
Outstanding capital
stockholder or members.
Declaration of stock
dividends by BOD. Shall
concur with outstanding
capital stockholders.
Management contract Management contract
entered into with another entered into with another
corporation must be corporation must be
approved by stockholders approved by. BOD or BOT
of managed corporation and outstanding capital
only when: stockholders or members.
• Stockholders in the
managing and the
managed
corporation own or
control more than
1/3 of the total OR
outstanding capital
share entitled to
vote
Majority of BOD of the
managing corporation also
constitutes majority of the
managed corporation
Delegation of Amendment Amendment of bylaws. At a
of bylaws by stockholders regular or special meeting
to BOD or BOT alone. Can by BOD, BOT, and majority
be amended by BOD or of holders capital
BOT alone if: outstanding or members in
• 2/3 of the OR case of nonstock.
outstanding capital
holders or members

Delegate their powers to

the BOD or BOT such
power
In case a SEC-registered In case a SEC-registered
DC or association is made DC or association is made
an incorporator, its an incorporator, its
investment in the new AND investment in the new
corporation must ratify. at corporation must be
least 2/3 of outstanding approved. By BOD or BOT
capital stock or at least
2/3 of the members.
Amendment of AOI by vote Amendment of AOI. Vote of
or written assent. BOD or BOT.
Stockholders representing AND
2/3 of the outstanding
capital stock or members.
Increase, decrease capital Increase, decrease capital
stock (not issuance) or AND stock (not issuance) or
incur, create, increase incur, create, increase
bonded indebtedness. bonded indebtedness. BOD
Outstanding capital
stockholders meeting duly
called for the purpose
Sale, Lease, Exchange, Sale, Lease, Exchange,
Mortgage, Pledge, Dispose Mortgage, Pledge, Dispose
corporate assets. AND corporate assets. BOD or
Outstanding capital BOT.
stockholders or members.
Invest corporate funds in Invest corporate funds in
another corporation for another corporation for
purposes other than purposes other than
primary purpose. AND primary purpose. BOD or
Outstanding capital BOT.
stockholders or members.

Approval of the Plan of Approval of the Plan of

Merger or Consolidation.
Affirmative vote of
outstanding capital
stockholders or members.
Amendment of the Plan of
Merger or Consolidation.
Ratified by outstanding
capital stockholders or
members.
Merger or Consolidation.
AND Each BOD or BOT of the
constituent corporation.
Amendment of the Plan of
Merger or Consolidation.
AND BOD or BOT of all the
constituent
THANK YOU!!!