THE CORPORATION CODE

A. Corporation
1. Definition
2. Attributes of a Corporation

B. Classes of Corporations

C. Nationality of Corporations

1. Place of Incorporation Test

2. Control Test
3. Grandfather Rule
D. Corporate Juridical Personality
1. Doctrine of Separate Juridical Personality
a. Liability for Torts and Crimes
b. Recovery of Moral Damages
2. Doctrine of Piercing the Corporate Veil
a. Grounds for Application of Doctrine
b. Test in Determining Applicability
E. Incorporation and Organization
1. Number and Qualifications of Incorporators
2. Corporate Name; Limitations on Use of Corporate Name
3. Corporate Term
4. Minimum Capital Stock and Subscription Requirements
5. Articles of Incorporation
a. Nature and Function of Articles
b. Contents
c. Amendment
d. Non-Amendable Items

6. Registration and Issuance of Certificate of Incorporation

7. Adoption of By-Laws
a. Nature and Functions of By-Laws
b. Requisites of Valid By-Laws
c. Binding Effect
d. Amendment or Revision
F. CORPORATE POWERS
1. General Powers; Theory of General Capacity
2. Specific Powers; Theory of Specific Capacity
a. Power to Extend or Shorten Corporate Term
b. Power to Increase or Decrease Capital Stock or Incur, Create, Increase Bonded
Indebtedness
c. Power to Deny Pre-Emptive Rights
d. Power to Sell or Dispose of Corporate Assets
e. Power to Acquire Own Shares
f. Power to Invest Corporate Funds in Another Corporation or Business
g. Power to Declare Dividends
h. Power to Enter Into Management Contracts
i. Ultra Vires Acts
i. Applicability of Ultra Vires Doctrine
ii. Consequences of Ultra Vires Acts

3. How Exercised
a. By the Shareholders
b. By the Board of Directors
c. By the Officers
4. Trust Fund Doctrine
G. BOARD OF DIRECTORS AND TRUSTEES
1. Doctrine of Centralized Management
2. Business Judgment Rule
3. Tenure, Qualifications, and Disqualifications of Directors or Trustees
4. Elections
a. Cumulative Voting/Straight Voting
b. Quorum
5. Removal
6. Filling of Vacancies
7. Compensation
8. Rules on Fiduciaries’ Duties and Liabilities
9. Responsibility for Crimes
10. Inside Information
11. Contracts
a. By Self-Dealing Directors with the Corporation
b. Between Corporations with Interlocking Directors
12. Executive Committee
13. Meetings
a. Regular or Special
i. When and Where
ii. Notice
b. Who Presides
c. Quorum
d. Rule on Abstention
H. STOCKHOLDERS AND MEMBERS

1. Rights of Stockholders and Members

a. Doctrine of Equality of Shares

2. Participation in Management
a. Proxy
b. Voting Trust
c. Cases When Stockholders’ Action is Required
i. By a Majority Vote
ii. By a Two-Thirds Vote
iii. By Cumulative Voting

3. Proprietary Rights
a. Right to Dividends
b. Right of Appraisal
c. Right to Inspect
d. Pre-Emptive Right
e. Right to Vote
f. Right to Dividends
g. Right of First Refusal

4. Remedial Rights
a. Individual Suit
b. Representative Suit
c. Derivative Suit

5. Obligations of a Stockholder

6. Meetings
a. Regular or Special
i. When and Where
ii. Notice

b. Who Calls the Meetings

c. Quorum
d. Minutes of the Meetings
I. CAPITAL STRUCTURE

1. Subscription Agreements

2. Consideration for Shares of Stock

3. Shares of Stock
a. Nature of Shares of Stock
b. Consideration for Shares of Stock
c. Watered Stock
i. Definition
ii. Liability of Directors for Watered Stocks
iii. Trust Fund Doctrine for Liability for Watered Stocks
d. Situs of the Shares of Stock
e. Classes of Shares of Stock

4. Payment of Balance of Subscription

a. Call by Board of Directors
b. Notice Requirement
c. Sale of Delinquent Shares
i. Effect of Delinquency
ii. Call by Resolution of the Board of Directors
iii. Notice of Sale
iv. Auction Sale and the Highest Bidder
5. Certificate of Stock

a. Nature of the Certificate

b. Uncertificated Shares
c. Negotiability
i. Requirements for Valid Transfer of Stock
d. Issuance
i. Full Payment
ii. Payment Pro-Rata
e. Lost or Destroyed Certificates

6. Stock and Transfer Book

a. Contents
b. Who May Make Valid Entries

7. Disposition and Encumbrance of Shares

a. Sale of shares
b. Allowable Restrictions on the Sale of Shares
c. Requisites of a Valid Transfer
d. Involuntary Dealings with Shares
J. DISSOLUTION AND LIQUIDATION

1. Modes of Dissolution

a. Voluntary
i. Where No Creditors Are Affected
ii. Where Creditors Are Affected
iii. Shortening of Corporate Term

b. Involuntary
i. Expiration of Corporate Term
ii. Non-use of Corporate Charter or Continuous
Inorperation of a Corporation
iii. Legislative Dissolution
iv. Dissolution by the SEC

2. Methods of Liquidation

a. By the Corporation Itself

b. By Conveyance to a Trustee within a Three-Year Period
c. By Management Committee or Rehabilitation Receiver
d. By Liquidation after Three Years K. Other Corporations
K. NON-STOCK AND FOREIGN CORPORATIONS

1. Non-Stock Corporations
a. Definition
b. Purposes
c. Treatment of Profits
d. Distribution of Assets upon Dissolution

2. Foreign Corporations
a. Bases of Authority over Foreign Corporations
i. Consent
ii. Doctrine of “Doing Business” (related to definition under the
R.A. No. 7042 or the Foreign Investments Act)
b. Necessity of a License to Do Business
i. Requisites for Issuance of a License
ii. Resident Agent
c. Personality to Sue
d. Suability of Foreign Corporations
e. Instances When Unlicensed Foreign Corporations May Be Allowed
to Sue
f. Grounds for Revocation of License
L. Mergers and Consolidations

1. Definition and Concept

2. Plan of Merger or Consolidation

3. Articles of Merger or Consolidation

4. Procedure

5. Effectivity

6. Effects and Limitations

 CORPORATION CODE

1. DEFINITIONS, THEORIES and CLASSIFICATIONS

Section 2

A corporation is an artificial being created by operation of

law, having the right of succession, and the power, attributes and
properties expressly authorized by law or incident to its existence.
 Four Attributes of Corporation

An Artificial Being - Juridical Capacity to Contract and Transact Business

Being only a juridical entity, the physical acts of the corporation like the signing of documents,
can by performed only be natural persons duly authorized for the purpose.

Created By Operation of Law - Creature of Law

With Right of Succession- Strong Juridical Personality

Having Such Powers, Attributes and Properties Expressly Authorized by Law or Incident to its
Existence - A Creature of Limited Powers
THEORIES OF CORPORATE EXISTENCE AND POWERS

a. Theory of Concession

A corporation is a creature of the State and all its powers and capacities are only to the extent that the
laws and its charter has granted it.

b. Theory of Business Enterprise

Corporation is not merely an artificial being, but an aggregation of persons doing business through
an underlying economic unit called the “business enterprise.” Underlying theory is used to justify
piercing the veil of corporate fiction.
FOUR BASIC ADVANTAGES OF CORPORATE
ORGANIZATIONS

STRONG JURIDICAL PERSONALITY

CENTRALIZED MANAGEMENT

LIMITED LIABILITY TO INVESTORS

FREE TRANSFERABILITY OF UNITS OF

OWNERSHIP
FOUR BASIC ADVANTAGES OF CORPORATE
ORGANIZATIONS
Section 2

A corporation is an artificial being created by operation of law, having the

right of succession, and the power, attributes and properties expressly authorized
by law or incident to its existence.

a. STRONG JURIDICAL PERSONALITY

PLDT v. NTC, 190 SCRA 717 (1990)

Sale of franchise of a public utility requires approval of the NTC, but the sale of the shares
of the shareholders holding the franchise does not.
b. CENTRALIZED MANAGEMENT

Section 23. The board of directors or trustees. - Unless otherwise provided in this Code,

the corporate powers of all corporations formed under this Code shall be exercised,

all business conducted and

all property of such corporations controlled and held

by the board of directors or trustees to be elected from among the holders of stocks, or
where there is no stock, from among the members of the corporation,

who shall hold office for one (1) year until their successors are elected and qualified.
Section 22. The Board of Directors of a Corporation; Qualification and Term. –
Unless otherwise provided in this code, the board of directors or trustees shall
exercise the corporate powers, conduct all business, and control all properties of the
corporation.

Directors shall be elected for a term of one (1) year from the among the holders of
stocks registered in the corporation’s books, while trustees shall be elected for a
term not exceeding three (3) years from among the members of the corporation.
Each director and trustee shall hold office until their successor is elected and
qualified. A director who ceases to own at least one (1) share of stock or a trustee
who ceases to be a member of the corporation shall cease to be as such.

The board of the following corporations vested with public interest shall have
independent directors constituting at least 20% of such board
LIMITED LIABILITY TO INVESTORS

As a general rule, stockholders in a stock corporation are

personally liable for corporate debts and liabilities only the
extent of what they have invested (paid-up capital) and what
they have promised to invest in the corporation (unpaid
subscriptions).

- in line with “doctrine of separate juridical personality”

and “trust fund doctrine”.
FREE TRANSFERABILITY OF UNITS OF
OWNERSHIP- The doctrine of delectus
personam in partnership is not applicable to
corporate setting, and that stockholders
hold their shares as personal property with
rights to dispose, assign or encumber them
as they desire.
MAIN DOCTRINE OF SEPARATE
JURIDICAL PERSONALITY

A corporation has a personality

separate and distinct from that of its
stockholders or members, and the officers
that represent it. Article 44 (3) Civil Code.
 PIERCING THE VEIL OF CORPORATE FICTION

Upon coming into existence, a corporation is legally invested with a

personality separate and distinct from those persons composing it, its

directors and officers, as well as from any other legal entity to which

it may be related. This separate personality is, however, merely a

fiction created by law for convenience and may therefore be pierced

to promote the ends of justice. Land Bank of the Philippines v. Court

of Appeals 364 SCRA 375 (2001).

The doctrine of piercing the corporate veil applies only in
three (3) basic areas, namely:

(a) defeat of public convenience - equity piercing;

(b)fraud cases- fraud piercing; or

(c) alter ego cases -alter ego piercing or the instrumentality

test.
The doctrine of piercing the corporate veil applies only in three (3)
basic areas, namely:

(a) “defeat of public convenience,” as when the corporate fiction is

used a vehicle for the evasion of an existing obligation (“equity
piercing”);

(b) “fraud cases”, as when the corporation is used to justify a wrong,

protect fraud, or defend a crime (fraud piercing); or

(c) “alter ego cases” - where a corporation is merely a farce since it is a

mere alter ego or business conduit of a person or where the
corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation (alter ego piercing or the
instrumentality test).
 Nature of Piercing Doctrine

(1) General Rule: A corporation will be looked upon as a

separate legal entity, unless and until sufficient reason to the
contrary appears.

(2) Piercing Doctrine is only an Equitable Remedy

 Piercing the veil of corporate fiction is remedy of last

resort.
 Fraud must be proven clearly and convincingly.
 It cannot be alleged nor presumed.
 The burden is on the party who seeks its application.
 And piercing of the corporate veil has to be done with
caution.
 (2) Piercing Doctrine is only an Equitable Remedy

 Piercing the veil of corporate fiction is remedy of last

resort.
 Fraud must be proven clearly and convincingly.
 It cannot be alleged nor presumed.
 The burden is on the party who seeks its application.
 And piercing of the corporate veil has to be done with
caution.
 Alter – ego

The Test in determining the applicability of the doctrine of piercing

the veil of corporate fiction are as follows:

(a) Control, not mere majority or complete stock control, but

complete domination, not only of finances but of policy and business
practice in respect to the transaction attacked so that the corporate
entity as to this transaction had at the time no separate mind, will or
existence of its own;

(b) Such control must have been sued by the defendant to commit
fraud or wrong to perpetuate the violation of a statutory right or
other positive legal duly, or dishonest and unjust acts in
contravention of plaintiff’s legal rights; and

(c) The aforesaid control and breach of duty must proximately

cause the injury or unjust loss complained of.
PNB v. Ritratto Group, Inc., 362 SCRA 216 (2001)

⦁ The Circumstance rendering the subsidiary an instrumentality (common circumstances)

⦁
(a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its
incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or no assets
except those conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is
described as a department or division of the parent corporation, or its business or financial
responsibility is referred to as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the interest of the
subsidiary but take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.
 Fraud Piercing Cases

(1) When it is proven that the corporate officer has used the
corporation fiction to defraud a third party, or that he has acted
negligently, maliciously, or in bad faith, the corporate fiction may be
pierced to make both the officer and the corporation liable.

(2) When the corporate officers do fraudulent or illegal acts in the

names of the corporation, such as illegal dismissal or unfair labor
practices, they become personally liable for the consequences of their
fraudulent or illegal acts done in behalf of the corporation.

(3) When one tries to evade the civil liability by incorporating the
properties or the business to insulate them from judgment creditors
and employing the doctrine of limited liability.
NATIONALITY OF CORPORATION

PLACE OF INCORPORATION TEST

CONTROL TEST
 PRIMARY PLACE OF INCORPORATION TEST

The corporation is a national of the country under whose laws it is

organized or incorporated. This is termed as the “Place of Incorporation
Test” which is the primary test in Philippine jurisdiction.

Sec. 140 (formerly 123). Definition and rights of foreign corporations. –

For the purposes of this Code, a foreign corporation is one formed,

organized or existing under any laws other than those of the Philippines
and whose laws allow Filipino citizens and corporations to do business in
its own country or state. It shall have the right to transact business in the
Philippines after it shall have obtained a license to transact business in this
country in accordance with this Code and a certificate of authority from
the appropriate government agency.
 CONTROL TEST

In cases involving properties, business or

industries reserved for Filipinos, in addition to the
place of incorporation test, the “Control Test” is
applied: The nationality of a corporation is
determined by the nationality of the
“controlling” stockholders.
Three distinct sub-tests have evolved administrative and
jurisprudentially under the Control Test, thus:

(a) DOJ-SEC Control Test

(DOJ Opinion No. 20, s. 2005 [first part])

(b) Grandfather Rule

(DOJ Opinion No. 20, s. 2005 [second part])

(c) SEC Control Test

SEC Memorandum Circular No. 8, s. 2013
Three distinct sub-tests have evolved administrative and
jurisprudentially under the Control Test, thus:

(a) DOJ-SEC Control Test

Shares belonging to corporations at least 60% of the capital of which is

owned by Filipino citizens shall be considered Philippine Nationality.
(DOJ Opinion No. 20, s. 2005 [first part])

(b) Grandfather Rule

But if the percentage of Filipino ownership in the corporation is less

than 60%, only the number of shares corresponding to such percentage
shall be counted as Philippine Nationality.
 Mining Corporation
(10,000 shares)

60% (6,000 shares)

FILIPINO (Stockholders
Corporations A - 2000 40% (4,000 shares)
Corporation B-2000 Foreign
Corporation C-2000)

3,600 shares – 36 %

Corporation A Corporation B Corporation C

60% - Filipino 60% - Filipino 60% - Filipino
stockholders -1200 stockholders -1200 stockholders -1200
shares shares shares
40% - Foreign- 800 40% - Foreign- 800 40% - Foreign- 800
Narra Nickel Mining and Dev. Corp. v. Redmont Consolidated Mines Corp., G.R. No. 195580, 21 April
2014

Under the above-quoted SEC Rules, there are two cases in determining the nationality of the Investee
Corporation.
Liberal Rule
The first case is the ‘liberal rule’, later coined by the SEC as the Control Test in its 30 May 1990 Opinion,
and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which states, ‘(s)hares belonging
to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall
be considered as of Philippine nationality.’ Under the liberal Control Test, there is no need to further
trace the ownership of the 60% (or more) Filipino stockholdings of the Investing Corporation since a
corporation which is at least 60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said
Paragraph 7 of the 1967 SEC Rules which states, "but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality."
Under the Strict Rule or Grandfather Rule Proper, the
combined totals in the Investing Corporation and the Investee
Corporation must be traced (i.e., "grandfathered") to determine
the total percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares must
first be traced to the level of the Investing Corporation and
added to the shares directly owned in the Investee Corporation
x x x.
In other words, based on the said SEC Rule and DOJ Opinion,
the Grandfather Rule or the second part of the SEC Rule applies
only when the 60-40 Filipino-foreign equity ownership is in
doubt (i.e., in cases where the joint venture corporation with
Filipino and foreign stockholders with less than 60% Filipino
stockholdings [or 59%] invests in other joint venture
corporation which is either 60-40% Filipino-alien or the 59%
less Filipino). Stated differently, where the 60-40 Filipino-
foreign equity ownership is not in doubt, the Grandfather Rule
will not apply.
(c) SEC Control Test: SEC Memorandum Circular No. 8,
s. 2013

All covered corporations shall observe the constitutional

ownership requirement in that the required ownership
percentage of Filipino ownership shall be applied to BOTH (a)
the total number of outstanding shares of stock entitled to vote
in the election of directors; AND (b) the total number of
outstanding shares of stock (common shares, preferred non-
voting and preferred shares), whether or not entitled to vote in
the election of directors.
Public Utilities

Section 11, Article XII, 1987

Constitution

No franchise, certificate or any other form of

authorization for the operation of a public utility
shall be granted except to citizens of the Philippines
or to corporations or associations organized under
the laws of the Philippines at least 60% of whose
capital is owned by such citizens.
Exploitation of Natural Resources

Section 2, Article XII, 1987 Constitution

Only Filipino citizens or corporations

whose capital stock are at least 60% Filipinos can
qualify to exploit natural resources.
 Strategic Alliance Dev. Corp. v. Radstock Securities
Ltd., 607 SCRA 413 (2009)

Radstock, a foreign corporation with unknown owners

whose nationalities are also unknown, is not qualified to
own land in the Philippines. Since Radstock is disqualified
to own land in the Philippines, it is also disqualified to own
the rights to ownership of lands in the Philippines. The
assignment by PNCC of the real properties to a nominee to
be designated by Radstock is a circumvention of the
constitutional prohibition against a foreign corporation
owning lands in the Philippines
 MATTERS PERTAINING TO CORPORATION AS
“PERSON”

a. Liability for Torts or Negligence

A corporation can be held liable for torts committed by its

officers for corporate purpose.
 b. Liability for Crimes

Since a corporation is a mere legal fiction, it cannot be held

liable for a crime committed by its officers, since it does
not have the essential element of malice; in such case the
responsible officers would be criminally liable.
c. Non-Entitlement to Moral Damages
CLASSIFICATIONS OF CORPORATIONS
Stock Corporation

Non-Stock Corporation

Corporation de Jure

De Facto Corporation

Corporation by Estoppel

Public Corporation

Private Corporation

Corporation sole

One Person Corporation

Sec. 3. Classes of corporations. - Corporations
formed or organized under this Code may be
stock or non-stock corporations. Corporations
which have capital stock divided into shares and
are authorized to distribute to the holders of
such shares dividends or allotments of the
surplus profits on the basis of the shares held
are stock corporations. All other corporations
are non-stock corporations.
NON-STOCK CORPORATIONS

Sec. 86. Definition. - For the purposes of this Code, a non-stock corporation is one
where no part of its income is distributable as dividends to its members, trustees, or
officers, subject to the provisions of this Code on dissolution: Provided, That any
profit which a non-stock corporation may obtain as an incident to its operations shall,
whenever necessary or proper, be used for the furtherance of the purpose or
purposes for which the corporation was organized, subject to the provisions of this
Title.
The provisions governing stock corporation, when pertinent, shall be applicable to
non-stock corporations, except as may be covered by specific provisions of this Title.
Sec. 87. Purposes. - Non-stock corporations may be formed or organized for
charitable, religious, educational, professional, cultural, fraternal, literary, scientific,
social, civic service, or similar purposes, like trade, industry, agricultural and like
chambers, or any combination thereof, subject to the special provisions of this Title
governing particular classes of non-stock corporations.
 c. Corporation de Jure - a corporation organized in
accordance with the requirements of law.

d. De Facto Corporation - Section 20

Sec. 19. De facto corporations. - The due incorporation of any

corporation claiming in good faith to be a corporation under this
Code, and its right to exercise corporate powers, shall not be
inquired into collaterally in any private suit to which such
corporation may be a party. Such inquiry may be made by the
Solicitor General in a quo warranto proceeding.
Arnold Hall v. Piccio, 86 Phil. 603 (1950)

Requisites of De Factor Corporation:

(a) Organized under a valid law;

(b) Bonafide compliance with formalities of law;

(c) User of corporate powers;

(d) SEC issuance of certificate of incorporation.

e. Corporation by Estoppel

Sec. 22. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be
without authority to do so shall be liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided, however, That when any such ostensible
corporation is sued on any transaction entered by it as a corporation or on any tort committed by it
as such, it shall not be allowed to use as a defense its lack of corporate personality.

On who assumes an obligation to an ostensible corporation as such, cannot resist performance

thereof on the ground that there was in fact no corporation.
f. Public Corporation - one formed or
organized for the government of a portion of the
State. Its purpose is for the general good and
welfare.

Shipside, Inc. v. Court of Appeals, 352 SCRA

334 (2001)

BCDA is a not a mere government agency but a

corporate body performing proprietary functions.
g. Private Corporation - one formed for some private purpose,
benefit, aim or end.

Baluyot v. Holganza, 325 SCRA 248 (2000)

The test to determine whether a corporation is government-

owned or controlled, or private in nature, is if a corporation is
created by its own charter for the exercise of a public function,
or by incorporation under the general corporation law. The
Philippine National Red Cross is a government-owned and
controlled corporation, with an original charter under R.A. 95.
Consequently, the employees are under the jurisdiction of the
Civil Service Commission and are compulsorily covered by
GSIS.
Corporation Sole
Section 110

Sec. 108. Corporation sole - For the purpose of administering and

managing, as trustee, the affairs, property and temporalities of any
religious denomination, sect or church, a corporation sole may be
formed by the chief archbishop, bishop, priest, minister, rabbi or
other presiding elder of such religious denomination, sect or church.

Roman Catholic Apostolic, etc. v. Register of Deeds of Davao

City, 102 Phil. 596

A corporation sole has no nationality.

i. Domestic Corporation - a corporation organized or
existing under the laws of the Republic.

j. Foreign Corporation
Section 140

Sec. 140. Definition and rights of foreign corporations. - For the

purposes of this Code, a foreign corporation is one formed,
organized or existing under any laws other than those of the
Philippines and whose laws allow Filipino citizens and
corporations to do business in its own country or state. It shall
have the right to transact business in the Philippines after it shall
have obtained a license to transact business in this country in
accordance with this Code and a certificate of authority from the
appropriate government agency.
Section 115. Applicability of Provisions to One
Person Corporations. – The Provisions of this Title
shall primarily apply to One Person Corporations.
Other provisions of this cade apply suppletorily,
except as otherwise provided in this Title.
Section 116. One Person Corporation – A One Person is a
corporation with a single stockholder; Provided, That only a
natural person, trust, or an estate may form a One Person
Corporation.

Banks and quasi-banks, preneed, trust, insurance, public and

publicly-listed companies, and non-chartered government
owned and controlled corporations may not incorporate as One
Person Corporations;
Provided further,
That a natural person who is licensed to exercise a profession
may not organize as a One Person Corporation for the purpose
of exercising such profession except as otherwise provided
under special laws.
Section 117. Minimum Capital Stock Not
Required for One Person Corporation-
A One Person Corporation shall not be
required to have a minimum authorized
capital stock except as otherwise provided by
special law.
CORPORATORS AND INCORPORATORS,
STOCKHOLDERS and MEMBERS

Sec. 5. Corporators and incorporators, stockholders and

members. - Corporators are those who compose a corporation,
whether as stockholders or as members. Incorporators are those
stockholders or members mentioned in the articles of
incorporation as originally forming and composing the
corporation and who are signatories thereof.
Corporators in a stock corporation are called stockholders or
shareholders. Corporators in a non-stock corporation are called
members.
a. Incorporators

Incorporators are those stockholders or members mentioned

in the articles of incorporation as originally forming and
composing the corporation and who are signatories thereof.

b. Corporators

Corporators are those who compose a corporation, whether

as stockholders or as members
c. Stockholders or Shareholders

d. Members
 SHARES OF STOCK
General Rule on Classification of Shares

The shares of stock of stock corporations may be divided into classes or series of shares,
or both, any of which classes or series of shares may have such rights, privileges or
restrictions as may be stated in the articles of incorporation.

Exceptions:

(1) No share may be deprived of voting rights except those classified and issued as
"preferred" or "redeemable" shares.
(2) There shall always be a class or series of shares which have complete voting
rights.
(3) Any or all of the shares or series of shares may have a par value or have no par
value as may be provided for in the articles of incorporation: Provided, however, That
banks, trust companies, insurance companies, public utilities, and building and loan
associations shall not be permitted to issue no-par value shares of stock.
Common Shares

- a stockholder, owner of at least one common share

has the following rights: (i) right to vote at meetings;
(2) right to dividends; (iii) right examine corporate
books.
 Preferred Shares

- may enjoy preference in (1) dividends; (ii) voting (particularly

in election of directors; (iii) corporate assets upon dissolution.

LIMITATIONS: Preferred shares can only be issued with par

value, and such preference must be:

(a) Stated in the Articles of Incorporation; or

(b) May be fixed by Board of Directors when authorized

by articles of incorporation, Provided such terms and conditions
shall be effective upon filing of a SEC certificate.
 Republic Planters Bank v. Agana, 269 SCRA 1 (1997)

Although the certificates of stock granted the stockholders the right to

receive dividends at 1%, cumulative and participating, the
stockholders do not become entitled to the payment thereof as a matter
of right without necessity of prior declaration of dividends. Both
Section 16 of the Corporation Law and Sec. 43 of the Corporation Code
prohibit issuance the issuance of stock dividends without the approval
of not less than 2/3 of the outstanding capital stock at a regular or
special meeting duly called for the purpose.
Section 42. Power to declare dividends. - The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be
payable in cash, in property, or in stock to all stockholders on the basis of outstanding stock held by them: Provided, That any cash dividends due on delinquent stock
shall first be applied to the unpaid balance on the subscription plus costs and expenses, while stock dividends shall be withheld from the delinquent stockholder until
his unpaid subscription is fully paid: Provided, further, That no stock dividend shall be issued without the approval of stockholders representing not less than two-
thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose.
Gamboa v. Teves, 652 SCRA 690 (2011)
In the absence of provisions in the articles of
incorporation denying voting rights to
preferred shares, preferred shares have the
same voting rights as common shares. Under
the Corporation Code, only preferred or
redeemable shares can be deprived of the right
to vote. Common shares cannot be deprived of
the right to vote in any corporate meeting.
Holders of nonvoting shares shall nevertheless be entitled to vote on
the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation
or other corporations;
7. Investment of corporate funds in another corporation or business in
accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding
paragraph, the vote required under this code to
approve a particular act shall be deemed to refer
only to stocks with voting rights.
. Par Value Shares - value is fixed in the articles of incorporation.

No - Par Value Shares - They have no assigned value, their value

being dependent on the changes in the profits of the corporation and the
market value of the shares themselves at the time the shares are issued.
Minimum consideration; P5.00.

Three ways of Determining Value of No-Par Value Share:

(1) By majority vote of the outstanding shares (issued shares) in a

meeting called for that purpose;
(2) By Board of Directors pursuant to authority conferred upon it by the
articles of incorporation; or
(3) By amendment of articles of incorporation.
Redeemable Shares

Redeemable shares can only be issued when expressly

authorize by the articles of incorporation, wherein in the
terms and conditions affecting them much so stated, as well
as on the certificates of stock.
The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of
Philippine Trust Co. vs. Rivera, provides that subscriptions to the capital stock of
a corporation constitute a fund to which the creditors have a right to look for
the satisfaction of their claims.
This doctrine is the underlying principle in the procedure for the distribution of capital assets, embodied
in the Corporation Code, which allows the distribution of corporate capital only in three instances:

(1) amendment of the Articles of Incorporation to reduce the authorized capital stock,
(2) purchase of redeemable shares by the corporation, regardless of the existence of unrestricted
retained earnings, and
(3) dissolution and eventual liquidation of the corporation.

Furthermore, the doctrine is articulated in Section 41 (now Section 40) on the power of a corporation to
acquire its own shares and in Section 122 (now Section 139) on the prohibition against the distribution of
corporate assets and property unless the stringent requirements therefor are complied with.
Section 41. Power to acquire own shares. - Provided, That the
corporation has unrestricted retained earnings in its books to cover the
shares to be purchased or acquired, a stock corporation shall have the
power to purchase or acquire its own shares for a legitimate corporate
purpose or purposes, including but not limited to the following cases::
1. To eliminate fractional shares arising out of stock dividends;
2. 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
3. To pay dissenting or withdrawing stockholders entitled to payment
for their shares under the provisions of this Code.

Section 139. Corporate liquidation

 Founders’ Shares
These must be provided for in the articles of incorporation, which would be entitled to
vote and be voted directors to the Board of Directors. But such privilege is good only for
five (5) years, which period shall begin from the date of the approval thereof by SEC
(Provided that such exclusive right shall not be allowed if its exercise will violate the
Anti-Dummy law). Thereafter, they may form part of the common shares.

h. Treasury Stocks
They are shares of stock which have been issued and fully paid for, but subsequently re-
acquired by the issuing corporation by purchase, donation, or through some lawful
means. Such shares may again be disposed of for a reasonable price fixed by the board
of directors.
 Escrow Shares

Shares that specifically segregated and to be issued

subject to a condition