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Kinds of corporation  Any natural person can become

incorporators except under the Rural Banking
1. Stock corporation- dividends are received by the Act in relation to the Development Cooperative
stockholders as return of investment. Law. But a corporation can become a subscriber
2. Non-stock corporation- organized for charitable of a corporation.
purposes and civic investments
Composition of articles of incorporation
 The articles of incorporation are binding within
the period of 6 months. 1. Name
 Must not be misleading
 The general rule is that a corporation is vested  Must not be a name of a past
by law with a personality separate and distinct president
from the persons composing it, including its  Must not be in resemblance with the
officers as well as from that of any other legal Phil flag
entity to which it may be related. 2.Name of incorporators
3.address of incorporators
 Accordingly, corporate officers acting within the
scope of their authority are not personally liable  The incorporators are the original signatories of
for damages or labor claims of its employees, the corporation
unless it is alleged and shown that such officers  The capital of the corporation has no limit but
deliberately and maliciously designed to evade must not be less than Php 5,000.00.
the financial obligation of the corporation to its
employees, or used the corporate fiction as a  Differentiate Corporators from Incorporators
means to perpetrate an illegal act or as a vehicle
for the evasion of existing obligations, the INCORPORATORS CORPORATORS
circumvention of statutes, or to confuse the Stockholder of stock
legitimate issues, in which case the separate Signatory of Articles corporation or member of
corporate personality is disregarded. non-stock corporation
Cease to be such if they are
Do not cease to be such
 The by-laws are the governing rules and no longer stockholders
regulations of the corporation. Number is limited to 5 to No restriction as to
15 number
 The members should not be less than 5 but not Must have contractual May be such through his
more than 15. capacity guardian

 It should be registered at the Securities and Temporary Officers

Exchange Commission (SEC).
1. President- must be a stockholder of the
 In order that the SEC can take cognizance of a corporation
case, the controversy (INTRACORPORATE 2.Secretary- may not be a stockholder
CONTROVERSY) must pertain to any of the 3.Treasurer- may not be a stockholder
following relationships:
1. between the corporation, partnership or Contribution
association and the public
2.Between the corporation, partnership or 1. money
association and its stockholders, partners, The general rule is that a check is not allowed
members, or officers. except if it is a manager’s check or cashier’s
3.between the corporation, partnership, or check
association and the state in so far as its 2.services
franchise, permit or license to operate is The general rule is that it is allowed except if it is
concerned for future services
4.among stockholders, partners or associates 3.valuables
themselves It should be with something of value and must
be appraised by a committee to determine its
 The SEC is vested with the jurisdiction, value
supervision and control over all corporations
which are enfranchised to act as corporate  The treasurers affidavit should be 25%
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entities. The fact that a corporation which of capital actually subscribed and 25% of it is already
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requires a license or permit from another paid.

government agency does not restrict such
supervision.  The lifetime of a corporation is 50 yrs
and must be renewed on the 45th year.
 The corporation continues to be vested
with legal personality until it is dissolved  An advantage of a corporation is that it
according to law and SEC continues to have can obtain loans from banks.
jurisdiction over it.
 The certificate of incorporation is issued
 Meetings of the directors must be by the SEC as a proof of the existence of a duly
personal while stockholders’ meeting, proxy registered legal and organized corporation.
voting is allowed
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 The meeting of stockholders shall 5,000.00). 25% of the capital stock must be
always be at the principal office of the corporation subscribed and 25% of the subscribed capital must
and held annually. be fully paid (treasurer’s affidavit).

 The Board of Directors is only entitled of

per diem unless denied by the stockholders.

 The President, secretary and treasurer  Trust Fund Doctrine

are entitled to a salary that should be duly approved
by the stockholders provided they do not exceed 10% It is the obligation of the officers of the
of the net income before income tax. corporation to protect the fund of the corporation for
the benefit of the stockholders and the creditors
 From the issuance of certificate of
incorporation within 2 yrs, they must elect their Examples of cases involving Trust Fund Doctrine
officers from the start of their business.
a. When the corporation releases or condones
NOTA BENE: payment of the unpaid subscription
b. When there is payment of dividends without
1. A corporation cannot donate unrestricted earnings
to a political body c. When properties are transferred in fraud of
2. The government cannot creditors
organize a private corporation but can create a d. When properties are disposed or undue
corporation like the PNB, Summit Bank and preference is given to some creditors even if the
Land Bank of the Philippines. corporation is insolvent

DOCTRINES OF CORPORATION LAW  Preferred Creditors

 Piercing the veil of a corporate entity 1. taxes for the government

2. creditors of the corporation
An agreement to organize a corporation is valid 3. stockholders
for 6 months and no one can withdraw without the
consent of another.  De Jure Corporation

If the corporation was organized to commit A corporation duly organized in accordance with law
fraud, to avoid any liability, hence the corporation is a de jure corporation
and the stockholders are one and the same person.
 De Facto Corporation
The general rule is that the death of the
stockholders is not the death of the corporation The following are instances of a De facto Corporation
except when the corporation is considered as one,
therefore the death of the stockholder is also the 1. a corporation with defect
death of the corporation. 2. the SEC issued a certificate of incorporation
even if the incorporators are insufficient
Factors that may justify piercing the corporate veil 3. the corporation is not authorized
1. stock ownership by one or common 4. the treasurer’s affidavit is not correct
ownership of both corporations
2. identity of directors and officers Note: Only the government can question the de facto
3. manner of keeping corporate books and government for which the Office of the Solicitor General
records will issue a quo warranto proceeding
4. methods of conducting business
De jure vs. de facto
 Go Kong Wei Doctrine
De jure De facto
A director cannot be elected in two (2) One which actually exists
corporations, where the business of the two (2) One created in strict or
for all practical purposes
corporations is similar. substantial conformity
as a corporation but which
with the statutory
has no legal right to
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requirements for
 genosssenshaft theory - a theory holding that corporate existence as
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incorporation
corporation's existence does not depend on the against the State
Right to exist cannot be Right to exist can be
consent of the state. it remains a legal entity successfully attacked even successfully attacked in a
despite lack of consent and concession there in a direct proceeding by direct proceeding by the
from. the state state

A corporation is independent from Governmental

control, rules and regulations  Doctrine of Corporate opportunity

 Capital Stock The doctrine states that if there is presented to a

corporate officer or director a business opportunity
There is no maximum capital of the corporation, but for which the corporation is financially able to
the minimum is five thousand pesos ( Php undertake, is from its nature in line with the
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corporations business and is of practical advantage c. Incidental/inherent Powers – those that

expectancy, and by embracing the opportunity, the are incidental to the existence of the
self –interest of the officer or director will be corporation
brought into conflict with that of the corporation, the - same as express powers
law will not permit him to seize the opportunity for
himself. Note: there are express powers that are
incidental powers like the power to acquire
 Corporation by Estoppel property.

One, which has been issued a certificate of A corporation can exercise not only powers
registration, but is considered a corporation by expressly conferred upon it by its charter but also
estoppel precluding either the person behind, or those that may be reasonably necessary or proper to
third parties dealing with it to deny its corporate promote the interest or welfare of the corporation.
existence. It is also known as ostensible corporation
If the act is one which is lawful in itself, and not
Solutio indebiti- unjust enrichment otherwise prohibited, is done for the purpose of
Negotiorium gestio-unauthorized management serving corporate ends, and is reasonably tributary
to the promotion of those ends, is a substantial, and
 Voting trust agreement not in a remote and fanciful sense, it may fairly be
considered within the charter powers. The test is
a voting trust is a trust created by agreement whether the act is in direct and immediate
between a group of stockholders and the trustee or furtherance of the corporation’s business, fairly
by a group of identical agreements between incident to the express powers and necessary to their
individual stockholders and a common trustee, exercise. If so, the corporation has the power to do it;
whereby it is provided that for a term of five years, or if otherwise, not.
for a period contingent upon a certain event, or until
the agreement is terminated, control over the stock  Ultra-vires – Acts outside the powers of
owned by such stockholders, either for certain the corporation
purposes or for all purposes, is lodged in the trustee, Kinds
either with or without a reservation to the owners, or
persons designated by them, of the power 6to direct 1. void per se (illegal act)- void abinitio
how such control shall be used. 2. voidable- valid until annulled\ four (4) years
prescription
The law simply provides that a voting trust
agreement in writing whereby one or more 3 stages of voidable ultra vires acts
stockholders of a corporation consent to transfer his
or her shares to a trustee in order to vest in the latter 1. executory on both sides
voting for other rights pertaining to said shares for a 2. executory on one side/executed on other
period not exceeding five (5) years upon the side
fulfillment of statutory conditions specified in the 3. already executed by both parties
agreement. The five year period may be extended in
cases where the voting trust is executed pursuant to Kinds of Ultra Vires Acts
a loan agreement whereby the period is made
contingent upon full payment of the loan 1. executory on both sides – this could be set
aside.
 Voting rights in a corporation 2. Executor on one side and executed on the
other side – if the corporation has already
It is a fundamental rule that a stockholder received the benefits, it must honor the
acquires voting rights only when the shares of stock contract
to be voted are registered in his name in the 3. Executed on both sides – if both parties have
corporate books. An unrecorded transferee cannot already benefited, both should honor a
enjoy the status of a stockholder, he cannot vote nor contract
be voted for, and he will not be entitled to dividends
 Nationality of a
 Intra-vires – Lawful act of the Corporation(Grandfather’s Rule)
corporation
The citizenship of a private corporation registered in
3

Powers of a corporation the Philippines is determined by the citizenship of

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the controlling stockholders, in accordance of the

a. Express – those expressly authorized by control test.
the Corporation Code and other laws, It is also the place of incorporation or where the or
and its Articles of incorporation or where the corporation is organized.
charter
- enumerated powers (to sue and be  Control test
sued, to collect or acquire property)
In times of war, the corporations in the Philippines
b. Implied powers – those that can be are controlled by the enemies
inferred from or necessary for the
exercise of the express powers Kinds of shares/stocks
- those agreed upon
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1. par value share- the amount is written in the  A subscription contract is executed
certificate of stock when a person buys a stock/share for which it
stipulates the terms of payment.
2. no par value share- the amount of share is not
included, but should not be less than Php 5.00  A call resolution is a resolution
demanding the payment of the balance of the
3. treasury share- reacquired by the corporation subscription contract.
from a stockholder by donation, when the
shares are delinquent, when the corporation  To validate the buying of a share of
buys the share to make it even stock, the owner/seller must surrender the
certificate of stock to the buyer. The buyer must go
4. redeemable share- there is a stipulation in the to the stock and transfer clerk of the corporation to
contract cancel the certificate of stock in the name of the
-When there is one contract, the latter provision seller and the stock and transfer clerk must issue
prevails another stock certificate in the name of the buyer.

5. Founder’s share- it is good for 5 years.  Baltazar Doctrine- if a stockholder has

-given to the founders of the corporation not fully paid his share, the corporation will only
issue a certificate of sock equivalent to the amount
Distinction of share of stock and certificate of stock paid. However, this doctrine is no longer in effect,
the SEC will only serve or issue a certificate of stock
Share of stock Certificate of stock until the shares are fully paid.
 Watered
Unit ofstock
interest in a Evidence of the
corporation holder’s ownership of  Doctrine of equality of shares
the stock and of his
right as a shareholder It provides that where the Articles of
and up to the extent Incorporation do not provide for any distinction of
specified therein the shares of stock, all shares issued by the
It is an incorporeal or It is concrete and corporation are presumed to be equal and enjoy the
intangible property tangible same rights and privileges and are also subject to the
It may be issued by the May only be issued same liabilities.
corporation even if the only if the
subscription is not subscription is fully  Vote required in board resolution
fully paid paid 1. majority vote as a general rule
2. all other vote, 2/3 vote
Watered stock is those issued not in exchange
for its equivalent either in cash, property, share,  one-man corporation- one man controls
stock dividends, or services; thus, the issuances the corporation in terms of voting in the following:
of such stocks are prohibited. 1. extension of corporate life
These include stocks: 2. investment in other corporation
a. Issued without consideration (bonus 3. merger
share) 4. consolidation
b. Issued as fully paid when the 5. dissolution
corporation has received a lesser sum of
money than its par or issued  The Board of Directors is the governing
value(discounted share) body of the corporation composed of 15 members.
c. Issued for consideration other than
actual cash (i.e. property or services),  Only natural persons can become
the fair valuation of which is less than its incorporators exception is the Rural Bank Act in
par or issued value relation to the Cooperative Development Act for
d. Issued as stock dividend when there are which the cooperative can borrow money from the
no sufficient retained earnings or rural bank, therefore, the rural bank may become an
surplus to justify incorporator.

Note: Directors or officers who consented to its  Requirements for corporation

issuance is solidarily liable to the corporation for the 1. not less than 5 persons but not more than 15
difference in value 2. agreement is good for 6 months
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3. articles of incorporation
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 Stock and transfer books are the 4. by laws

responsibility of the secretary who is in-charge of 5. treasurer’s affidavit
transferring shares for which he must file a surety
bond to protect the stockholders.  Proxy Voting

 A corporation by prescription is a It is not allowed in meeting of directors but it is

corporation that need not to be registered because allowed in stockholders annual meeting, it is also
they already existed before the effectivity of the allowed if there is an SPA
corporation code, they antedated the corporation
code (churches) Rights of a stockholder

1. to receive dividends
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2. to inspect the books of the corporation-  An open corporation is a corporation for

there must be no conflict of interest, under which the shares of stock are open to the public.
doctrine of corporate opportunity
3. to sell his shares without consent of others-  A religious sole is a corporation formed
delectus personae by head of churches. A corporation sole can buy land
in the Philippines because it is owned by the head of
Kinds of dividends the church.

1.
cash dividend- mandatory if there is an  A foreign company must register to the
excess of 100% on net surplus SEC in order to validly do business in the
2. stock dividends- not taxable Philippines.
 A call resolution to pay subscription
must be enacted by the Board of Directors  A religious sole/religious corporation
cannot sell their property without the approval from
 The declaration of dividends can be the RTC, except, when approved by their parish
revoked by the Board of Directors if it is not yet church, to protect the rights of the members of the
announce to the stockholders. church

 If the dividends are deposited in a bank, Foreign Corporation

the resolution cannot be revoked.
1. A foreign corporation must secure a license
 A foreigner can be a stockholder in a and appoint a resident agent before it is
nationalized corporation provided that the shares allowed to do business in the Philippines
shall be 60% Filipino and 40% foreigner. 2. There is a contract of reciprocity between
the Philippines and the country where the
 Election of Board of Directors- corporation was organized.
cumulative voting is mandatory in the election 3. That with respect to Intra- corporate
Controversy, the law of the foreign
Qualifications: corporation where it is organized shall
1. legal age govern.
2. have knowledge in corporation law 4. In stockholders’ meeting, all preferred and
common stockholders should be notified to
Disqualifications: vote, although as a general rule, a preferred
stockholder is not entitled to vote.
1. conviction of a crime involving moral
turpitude and the penalty is more than 6 years Can all the stockholder in a corporation be foreigners?
2. Violation of corporation code in 5 years
prior to the election. Yes, except in fully or partly nationalized
corporations. For example, a manufacturer that exports
 Under the doctrine of cumulative voting, all its products can be wholly-owned by foreigners
the shares of stockholders shall be multiplied to the
number of candidates to determine how many votes What are the fully and partly nationalized corporations?
a stockholder will have.
1. Where no foreign stockholder is allowed.
 A corporation is not entitled to moral
damages except in violations of the intellectual a. Mass Media except recording (Art
property law where the Philippines is a member. XVI, Sec 11, Constitution)
b. Retail trade enterprises with paid-
Kinds of Damages up capital of less than US$ 2.5
Million (Sec 5, RA No 8762)
1. moral c. Private security agencies (Sec 4, RA
2. liquidated No 5487)
3. nominal d. Small scale mining(Sec 3, RA No
4. actual 7076)
5. exemplary e. Utilization of natural resources (Art
XII, Sec 2, Constitution)
 Pre-emptive right is the right of first f. Cockpits (Sec 5, PD 449)
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refusal, the stockholder sells his shares first to co- g. Manufacture, repair, stockpiling
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stockholders before selling to the public and/or distribution of nuclear

weapons (Art II, Sec 8, Constitution)
 Appraisal right is the right of the h. Manufacture of firecrackers and
stockholder to determine the price of his share. If other pyrotechnic devices (Sec 5, RA
there is a conflict in the decision, they shall form a 3- No 7183)
man committee to determine the price, the decision
of the 3-man committee is final. 2. Up to twenty percent (20%) foreign equity

 A close corporation is a family a. Private radio communications

corporation composed of the members of the family, network (RA No 3846)
non-member of the family is not allowed(20
members) 3. Up to twenty-five percent (25%) foreign
equity
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conservatorship shall be 0ne (1) year, the

a. Private Recruitment, whether local corporation shall pay the expenses of the
or overseas employment (Art 27, PD conservator
No 442) 3. Receivership – when the corporation is bankrupt
b. Construction and repair of locally and cannot pay its debts, the SEC will assign an
funded works (Sec 1, CA 541) administrator or receiver to collect all the assets
and debts owning in the corporation to pay the
4. up to forty percent (40%) foreign equity debtors.

a. Exploration, development and  An interlocking directorate is a person

utilization of natural resources (Art who is a directorate in two corporations with more
XII, Sec 2, Constitution) than 20% of outstanding capital
b. Realty companies and other
corporations that own private lands  The general rule is that an interlocking
(Art XII, Sec 7, Constitution) director cannot engage into a contract between the
c. Operation and management of corporation except when it is approved by the board
public Utilities (Art XII, Sec 11, via a 2/3 vote in favor for which the interlocking
Constitution) director shall not participate.
d. Culture, production, milling,
processing, trading except retail of  Directors, officers, stockholders and
rice and corn and by-products (Sec related interest cannot borrow from their own
5, PD No 194; Sec 15, RA No 8762 corporation except when there is approval by the
e. Adjustment companies (Sec 323, PD Board of Directors where the borrowers inhibit
No 612) themselves and there must be approval from the
f. Sauna and steam bath bathhouses, SEC.
massage clinics and similar
activities (RA No 7042) Removal of a Director (Grounds)

5. up to sixty percent (60%) foreign equity 1. any ground provided

2. removed by 2/3 vote of the outstanding
a. Financing companies (Sec 6, RA No capital stocks
5980, as amended by RA No 8556) 3. there must be a meeting for the removal
b. Investment houses (Sec 5, PD No 4. the director sought to be removed must be
129, as amended by RA No 8366) duly notified

Foreign Corporation – power to sue and be sued  Executive Committee is delegated by the
Board of Directors of their powers and duties (e.g.
a. Suit by a foreign corporation – the foreign repeal/adoption of bylaws, removal of directors,
corporation transacting business in the declaration of cash dividends
Philippines without a license to do business shall
not be permitted to maintain or intervene in any Kinds of Franchise
court or administrative agency.
b. Suit against a Foreign Corporation – Any foreign 1. Primary franchise- the law authorizing the
corporation transacting business in the formation of a corporation(the corporation
Philippines whether or not with a license, may code
be sued against/before Philippine Courts or 2. Secondary franchise- the moment a
administrative tribunals on any valid cause of corporation is organized, it enjoys some
action recognized under Philippine Laws powers. These powers are called secondary
(Doctrine of Quasi- Estoppel by acceptance of franchise
benefits)\
 A merger is the absorption of a
Kinds of Suit corporation of another corporation. It is allowed
provided that the debts of the corporation are
1. Class Suit –there are many stockholders absorbed by the absorbing corporation.
who have the same problem, but a few of
them can file the suit in their behalf  A consolidation is the joining together of
2. Individual Suit – a stockholder whose right two or more corporations. It is allowed provided that
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have been violated the debts of the corporations are not extinguished.
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3. Derivative suit – the officers and directors

are the ones liable, hence any stockholder  The merger of air and land transport is
can sue in behalf of the corporation prohibited.

Remedies in a corporation  Liabilities of officers/directors of a

corporation
1. Rehabilitation- if the corporation cannot pay the
obligations on time, it should file in court a case 1. conflict of interest
of rehabilitation 2. engage in business in competition with the
2. Conservatorship- there is mismanagement in the corporation
corporation; the SEC will assign/appoint a 3. entering in illegal/unlawful contract
conservator to manage the corporation and to
have a better management. The period for
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 The officers/directors are solidarily 3. Winding-up all obligations of the corporation

liable to the stockholders in approving have been settled
unlawful/illegal contracts. 4. Distribution of the assets of preferred
stockholders
 The remedy of an officer/director is to
write to the President of the corporation thru the A corporation must organize (elect officers) within 3
SEC stating his objection to the contract. years and transact business within 5 years, otherwise its
franchise will be cancelled by the SEC.
 When there is no meeting in the
corporation a petition must be filed to the SEC to The corporation code is a penal law as provided for
become an acting president for the purpose of in Sec 144. A share of stock is a chattel and if foreclosed
conducting a meeting. must be redeemed before its foreclosure

 In case of non-stock corporation

1. scheme/schedule of distribution of assets

2. if a scheme is not made, the assets of the
corporation shall be given to the municipality
2 kinds of stockholder where the corporation holds its principal office

1. Preferred stockholder- an investor of the  Cuentas in participation- not registered,

corporation. Not entitled to vote, when the two or more persons are partners but only one
corporation is dissolved, return of investment is appears as owner and is the one liable
first given to the preferred stockholder  Watered stock- the consideration given
2. common stockholder- with voting rights is below the value of the shares of stock or
consideration is over valued
 both are required to vote in the  In case of overvalued consideration, the
following instances: one who issued the certificate and the buyer is liable
solidarily for claims of creditors and other
1. dissolution of corporation (2/3) stockholders.
2. merger/consolidation
3. shortening or extending corporate life `
4. management contract
5. investment of funds
6. amendments of incorporation

 the membership to a non-stock

corporation is non-transferable

 a non-stock school can demand an

increase in tuition fees but it cannot be used to
increase the per diem of the Board of Directors but
can be used for the improvement if facilities and
increase in the wages of teachers.

Grounds for dissolution

1. violation of corporation code

2. insolvency
3. shortening of corporation code(corporate life)

 Stages of dissolution

1. dissolution- upon filing of petition, the

corporation shall cease its business operation
(It cannot transact business anymore)
a) voluntary- the stockholders pass a
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resolution thru the BOD to

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dissolve/shorten the life of the

corporation
b) involuntary- upon petition of 3
creditors/upon order for violation of
corporation code(failure to submit
annual report, failure to keep record of
book of corporation)

2. Liquidation- 5 years period of liquidation-the

SEC shall appoint a receiver who shall collect the
debts and assets of the corporation. (to recover
debts due to the corporation)