Corporation Law Sec. 5.

Corporators and Incorporators, stockholders

and members.- Corporators are those compose a
Sec. 2. Corporation, defined. A corporation is an corporation, whether as stockholder or as members.
artificial being created by operation of law, having the Incorporators are those stockholders or members
right of succession and the powers, attributes and mentioned in the articles of incorporation as originally
properties expressly authorized by law or incident to forming and composing the corporation and who are
its existence. signatories therof.

Attributes of a Corporation: Corporators in a stock corporation are called

stockholders or shareholders. Corporators in a non-
1. Artificial being; stock corporation are called members.
2. Created by operation of law;
3. Enjoys the right to succession; Components of a Corporation
4. Has the powers, attributes and properties expressly
authorized by law or incident to its existence.
1. Corporators those who compose the corporation,
whether stockholders or members
3 Elements Piercing the Corporate Veil:
2. Incorporators those corporators mentioned in the
1. Instrumentality or control test
articles of incorporation as originally forming and composing
- Control - Complete dominion, not only of finances but
the corporation and who are signatories thereof and
of policy and business in respect to the transaction
acknowledge the same before a notary public
attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or
3. Stockholders owners of shares of stock in a stock
existence of its won.
2. Fraud test corporation.
- Such control must have been used by the defendant
to commit farud or wrong, violation of a statutory or 4. Members corporators of a corporation which has no
other positive legal duty, or dishonesty and unjust capital stocks
act in contravention of plaintiffs legal rights.
3. Harm/Causal Connection Test Note:
- The control and breach of duty must proximately
cause the injury or unjust loss complained of. All incorporators are corporators but not all corporators
- Sec. 3. Classes of corporation.- Corporation are incorporators
formed or organize under this code may be Shareholders maybe natural or juridical persons but only
stock or non-stock corporations. Corporations Natural persons are incorporators
which have capital stock divided into shares
and are authorized to distribute to the holders Other classes
of such shares dividends or allotments of the
surplus profits on the basis of the shares held 5. Promoters persons who bring about or causes to bring
are stock corporations. All other corporations about the formation and organization of a corporation by
are non-stock corporations. bringing together the incorporators or the person interested in
- Classification of corporation under this Code the enterprise, procuring subscription or capital for the
corporation and setting in motion the machinery which leads
Stock Corporation Non-stock Corporation to the incorporation of the corporators itself

Ordinary business Do not issue stock and 6. Subscribers persons who have agreed to take and pay
corporation created and distribute dividends to for original, unissued shares of a corporation formed or to be
operated for the purpose their members and formed
of making a profit which created for public good
may be distributed in the and welfare Note: all incorporators are subscribers but a subscribers but a
form of dividends to subscriber need not be an incorporators
stockholders on the basis
of their invested capital 7. Underwriters a person who

Has capital stock No capital stock a. has agreed to buy at stated terms an entire issue
of securities or a substantial part thereof
Sources from investors Sources from
contribution and b. has guaranteed the sale of an issue by agreement
donation to buy from the issuing party any unsold portion at a stated
price

c. has agreed to use his best effort to market all or

Sec. 4. Corporations created by special laws or part of an issue
charters.- Corporations created by special laws or
charters shall be governed primarily by the provisions d. has offered for sale stock he has purchased from a
of the special law or charter creating them or controlling stockholder
application to them, supplemented by the provisions of
this Code, insofar as they are applicable. 8. Board of directors governing body in a stock
corporation
9. Trustees governing body in a non-stock corporation 3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate
10. Corporate Officers the officers who are identified as property;
such in the Corporation Code, the Articles of Incorporation, or
the by-laws of the corporation 4. Incurring, creating or increasing bonded
indebtedness;
Sec. 6. Classification of Shares. The shares of stock of
stock corporation may be divided into classes or series 5. Increase or decrease of capital stock;
of shares, or both, any of which classes or series of
shares may have such rights, privileges or restrictions 6. Merger or consolidation of the corporation with
as may be stated in the articles of incorporation: another corporation or other corporations;
provided, that no share may be deprived of voting
rights except those classified and issued as 7. Investment of corporate funds in another
preferred or redeemable shares, unless otherwise corporation or business in accordance with this Code;
provided in this Code: provided, further, that there and
shall always be a class or series of shares which have
complete voting rights. Any or all of the shares or 8. Dissolution of the corporation.
series of shares may have a par value or have no par
value as may be provided for in the articles of Except as provided in the immediately
incorporation: provided, however, that banks, trust preceding paragraph, the vote necessary to approve a
companies, insurance companies, public utilities, and particular corporate act as provided in this Code shall
building and loan associations shall not be permitted be deemed to refer only to stock with voting rights.
to issue no-par value shares of stock.
Capital stock the amount fixed in the articles of
Preferred shares of stock issued by any incorporation, to be subscribed and paid in or agreed to be
corporation may be given preference in the distribution paid in or agreed to be paid in by the stockholders of a
of the assets to the corporation in case of liquidation corporation, in money, property, services, or other means at
and in the distribution of dividends, or such other the organization of the corporation or afterwards and upon
preference as may be stated in the articles of which it is to conduct its business.
incorporation which are not violative of the provision
of this Code; provided, that preferred shares of stock a. Authorized capital stock the amount of capital stock as
may be issued only with a stated par value. The board specified in the articles of incorporation. Synonymous with
of directors, where authorized in the articles of capital stock where the shares of the corporation have par
incorporation, may fix the terms and conditions of value
preferred shares of stocks or any series thereof:
- if shares of stock has no par value, the corporation has no
provided, that such terms and conditions shall be
authorized capital stock but it has capital stock
effective upon the filling of a certificate thereof with
the Securities and Exchange Commission .
b. Subscribed capital stock amount of the capital stock
subscribed, whether fully paid or not. Connotes original
Shares of capital stock issued without par
subscription
value shall be deemed fully paid and non-assessable
and the holder of such shares shall not be liable to the
c. Outstanding capital stock the total shares of stock
corporation or to its creditors in respect thereto:
issued to subscribers or stockholders, whether or not fully or
provided, that shares without par value may not be
partially paid, except treasury shares
issued for a consideration less than the value of five
pesos (P5.00) per share: provided, further, that the
d. Paid-up capital stock that portion of the subscribed or
entire consideration received by the corporation for its
outstanding capital stock that is actually paid
no-par value shares shall be treated as capital and
shall not be available for distribution as dividends. e. Unissued capital stock that portion of the capital stock
that is not issued or subscribed
A corporation may, furthermore, classify its
shares for the purpose of insuring compliance with f. Legal capital the amount equal to the aggregate par
constitutional or legal requirements. value and/or issued value of the outstanding capital stock.

Except as otherwise provided in the articles of

Capital Capital stock
incorporation and stated in the certificate of stock,
each share shall be equal in all respect to every other Actual corporate property, An amount, abstract
share. concrete thing

Where the articles of incorporation provide for Fluctuates or varies from day An amount fixed in the
non-voting shares in the cases allowed by this Code, to day articles of incorporation
the holders of such shares shall nevertheless be
entitled to vote on the following matters: Belongs to the corporation Belongs to stockholders

1. Amendment of the articles of incorporation; Real or personal Always personal

2. Adoption and amendment of by-laws;

Stock or shares of stock one of the units into which the Preferred share of stock one with a stated par value
capital stock is divided, represents the interest or right which which entitles the holder thereof to certain preference over
the owner has the holders of common stock

a. In the management of the corporation through Promotion share shares which are issued to promoters, or
right to vote those in some way interested in the company, for
incorporating the company, or services rendered in launching
b. In proportion of the corporate earnings through or promoting the welfare of the company such as advancing
dividends fees, advertising, attorneys fees, surveying, etc.

c. upon dissolution and winding up assets of the Shares in escrow shares subject to agreement by virtue of
corporation remaining after the payment of corporate debts which the share is deposited by the grantor or his agent with a
and liabilities. third person to be kept by the depository until the
performance of a certain condition or the happening of a
Share of stock Capital stock certain event contained in the agreement

Distributive sense, stocks in Collective sense, signify the Convertible share share which is convertible or
the hands of the stockholders whole body of shares of stock changeable by the stockholder from one class to another class
in the corporation at certain price and within certain period

Certificate of stock a written acknowledgement by the Nature of par value/book value/ market value
corporation of the interest, right, and participation of a person
in the management, profits, and assets of a corporation 1. Par value represents the amount of money or property
contributed by the shareholders to the capital stock of the
Classes of Shares in general corporation

1. Par value or no par value 2. Book value determined by dividing the total
stockholders equity or the net value of the total corporate
2. Voting or non-voting assets by the number of shares issued or outstanding.

3. Common or preferred, and preferred shares maybe voting, 3. Market value the price at which a willing seller would
convertible, or redeemable sell and a willing buyer would buy, assuming that both have
reasonable knowledge of the facts and neither being under
Preferred maybe
abnormal pressure

a. Cumulative or non-cumulative
Kinds of Preferred shares

b. Participating or non-participating
1. Preferred shares as to assets - shares which gives the
holder thereof preference in the distribution of the assets of
4. Promote share
the corporation in case of liquidation
5. Share in escrow
2. Preferred shares as to dividends - shares which is
entitled to receive dividends on said share to the extent
6. Convertible share
agreed upon before any dividends at all are paid to the
holders of common stock
7. Founders share

Kinds of Preferred Shares

8. Redeemable share

1. Cumulative Preferred shares is a share which entitles

9. Treasury Share
the holder thereof not only to the payment of current
Par value share - one with a specific money value fixed in dividends but also to dividend in arrears
the articles of incorporation and appearing in the certificate of
2. Non-cumulative Preferred share is a share which
stock
entitles the holder thereof to the payment of current dividends
No par value share one without any stated value only in preference to common stockholders
appearing on the face of the certificate of stock, other words,
3. Participating Preferred share is a share which gives
it is a stock which does not state how much money it
the holder not only the right to receive the stipulated
represents
dividends at the preferred rate but also to participate with the
Common share of stock a share which entitles the holder holders of common shares in the remaining profits pro rate
thereof to a pro rata division of the profits, if there are any, after the common shares have been paid the amount of the
and in its assets upon dissolution, without any preference or stipulated dividends at the same preferred rate
advantage over other stockholders or class of stockholders
4. Non-participating preferred shares is a share which
but equally with all other stockholders EXCEPT preferred
entitles the holder thereof to receive the stipulated preferred
stockholders
dividends and no more.
5. Cumulative-participating preferred share the holder least one (1) share of the capital stock of the
is entitled not only to dividends in arrears but also to corporation. (6a)
participation with the holders of common stock in the
remaining profits Concept of franchise

Sec. 7. Founders share Founders share classified as Franchise- includes any special privilege or right affected
such in the articles of incorporation may be given with public interest, conferred by the State on corporations or
certain rights and privileges not enjoyed by the owners persons and which does not belong to the citizens of the
of other stocks, provided that where the exclusive country, generally as a matter of common right.
right to vote and be voted for in the election of
directors is granted, it must be for a limited period not Primary franchise and secondary franchise
to exceed 5 years subject to the approval of the
Securities and Exchange Commission. The five-year (1) Primary or corporate franchise- the right or privilege
period shall commence from the date of the aforesaid granted to individuals by the State to be and act as a
approval by the Securities and Exchange Commission. corporation after its incorporation.

Founders share shares issued to the organizers and The primary franchise (also known as general franchise)
promoters of a corporation in consideration of some supposed is granted to and vests in the individuals who compose
right or property the corporation and not in the corporation itself.

Sec. 8. Redeemable shares.- Redeemable shares may (2) Secondary franchise- franchise to exercise powers and
be issued by the corporation when expressly so privileges granted to such corporation to the business for
provided in the articles of incorporation. They may be which it was created, including those conferred for
purchased or taken up by the corporation upon the purposes of public benefit such as the power of eminent
expiration of a fixed period, regardless of the existence domain and other powers and privileges enjoyed by
of unrestricted retained earnings in the books of public utilities.
corporation, and upon such other terms and conditions The secondary franchise is conferred upon the
stated in the articles of incorporation, which terms and corporation after its incorporation and not upon the
conditions must also be stated in the certificate of individuals who compose the corporation.
stock representing said shares.
Steps in the creation of a corporation
Redeemable shares
(1) Promotion;
(2) Incorporation (Sec.10);
Redeemable or callable shares- are shares by their terms are
(3) Formal organization and commencement of business
redeemable at a fixed date or at the option of either the
operations. (see Sec.22)
issuing corporation or the stockholder or both at a certain
redemption price. Promotion of corporations

Section 9. Treasury shares. - Treasury shares are Promotion- a number of business operations peculiar to
shares of stock which have been issued and fully paid the commercial world by which a company is generally
for, but subsequently reacquired by the issuing brought into existence.
corporation by purchase, redemption, donation or
through some other lawful means. Such shares may Underwriting Agreements
again be disposed of for a reasonable price fixed by
the board of directors. (n) There are four (4) general types of underwriting
contract.
Treasury shares
(1) the syndicate may make a firm commitment under which
Treasury shares- are shares which have been lawfully issued the members severally but not jointly agree to purchase
by the corporation and fully ppaid for and later reacquired by the whole issue outright at a particular price for resale at
it either by purchase, redemption, donation, forfeiture or other a price differential to the public, or to dealers who sell at
lawful means. another differential to the public.
(2) the underwriters may make an all-or-nothing
Title 2 commitment under which they agree to accept liability for
the purchase of an issue at a given price only if the entire
Incorporation and organization of private issue is not sold usually within a 30-day period.
corporations (3) the syndicate may make a standby commitment or rights
offering under which it will purchase and distribute at
Section 10. Number and qualifications of predetermined prices to the public any amount of the
incorporators. - Any number of natural persons issue not taken by stockholders in exercising their pre-
not less than five (5) but not more than fifteen emptive rights.
(15), all of legal age and a majority of whom (4) this merely means that the syndicate will use its best
are residents of the Philippines, may form a efforts to distribute the issue to the public.
private corporation for any lawful purpose or
purposes. Each of the incorporators of s stock Steps in incorporation
corporation must own or be a subscriber to at
Incorporation includes the following:
(1) Drafting and execution of the articles of incorporation by Section 13. Amount of capital stock to be subscribed
the incorporators and other documents required for and paid for the purposes of incorporation. - At least
registration of the corporation. In this connection, the twenty-five percent (25%) of the authorized capital
person chosen as temporary treasurer pending stock as stated in the articles of incorporation must be
incorporation must also execute: subscribed at the time of incorporation, and at least
twenty-five (25%) per cent of the total subscription
(a) An affidavit certifying compliance with subscription must be paid upon subscription, the balance to be
and paid-up requirements as to capital stock. payable on a date or dates fixed in the contract of
(2) Filing with the Securities and Exchange Commission of
subscription without need of call, or in the absence of
the articles of incorporation together with the following:
a fixed date or dates, upon call for payment by the
(a) Treasurers affidavit in the form prescribed in Section
board of directors: Provided, however, That in no case
15 showing at least 25% of the entire authorized
shall the paid-up capital be less than five Thousand
shares has been subscribed and at least 25% of the
(P5,000.00) pesos. (n)
subscription has been paid in cash and/or property to
the corporation (Ibid); and
Section 14. Contents of the articles of incorporation. -
(b) In case the corporation is governed by a special (e.g.
All corporations organized under this code shall file
educational institution), a favorable recommendation
with the Securities and Exchange Commission articles
of the appropriate government agency (i.e.,
of incorporation in any of the official languages duly
Department of Education, Culture and Sports) that
signed and acknowledged by all of the incorporators,
such articles of incorporation is in accordance with
containing substantially the following matters, except
the law.
(3) Payments of the filing and publication fees; and as otherwise prescribed by this Code or by special law:
(4) The issuance by the Securities and Exchange Commission
of the certificate of incorporation if all the papers filed 1. The name of the corporation;
after verification and examination are found in order.
2. The specific purpose or purposes for which the
Incorporators: number and qualifications corporation is being incorporated. Where a corporation
has more than one stated purpose, the articles of
(1) Incorporators must not be less than 5 but not more incorporation shall state which is the primary purpose
than 15; and which is/are the secondary purpose or purposes:
(2) All of legal age Provided, That a non-stock corporation may not include
(3) A majority of whom are residents of the Philippines a purpose which would change or contradict its nature
(4) Each must own or be a subscriber to at least one as such;
share of the capital stock of the corporation.
(5) If the number of incorporators is more than than 15, 3. The place where the principal office of the
the excess will not be considered as incorporators. corporation is to be located, which must be within the
Philippines;
Unless otherwise provided in AOI, a corporation
cannot impose other qualifications. The same rule
4. The term for which the corporation is to exist;
shall apply to stockholders.
5. The names, nationalities and residences of the
Section 11. Corporate term. - A corporation shall exist incorporators;
for a period not exceeding fifty (50) years from the
date of incorporation unless sooner dissolved or unless 6. The number of directors or trustees, which shall not
said period is extended. The corporate term as be less than five (5) nor more than fifteen (15);
originally stated in the articles of incorporation may be
extended for periods not exceeding fifty (50) years in 7. The names, nationalities and residences of persons
any single instance by an amendment of the articles of who shall act as directors or trustees until the first
incorporation, in accordance with this Code; Provided, regular directors or trustees are duly elected and
That no extension can be made earlier than five (5) qualified in accordance with this Code;
years prior to the original or subsequent expiry date(s)
unless there are justifiable reasons for an earlier 8. If it be a stock corporation, the amount of its
extension as may be determined by the Securities and authorized capital stock in lawful money of the
Exchange Commission. (6) Philippines, the number of shares into which it is
divided, and in case the share are par value shares, the
Section 12. Minimum capital stock required of par value of each, the names, nationalities and
stock corporations. - Stock corporations residences of the original subscribers, and the amount
incorporated under this Code shall not be required subscribed and paid by each on his subscription, and if
to have any minimum authorized capital stock some or all of the shares are without par value, such
except as otherwise specifically provided for by fact must be stated;
special law, and subject to the provisions of the
following section. 9. If it be a non-stock corporation, the amount of its
capital, the names, nationalities and residences of the
Capital stock requirement. contributors and the amount contributed by each; and

The Code does not set a minimum authorized capital 10. Such other matters as are not inconsistent with law
stock except as otherwise provided by special law as long and which the incorporators may deem necessary and
as the paid-up capital as required by Section 13 is not convenient.
less than P5,000.00.
The Securities and Exchange Commission shall not nationalities and residences of the first directors or
accept the articles of incorporation of any stock trustees of the corporation are as follows:
corporation unless accompanied by a sworn statement
of the Treasurer elected by the subscribers showing NAME NATIONALITY RESIDENCE
that at least twenty-five (25%) percent of the
authorized capital stock of the corporation has been ___________________ ___________________ ___________________
subscribed, and at least twenty-five (25%) of the total
subscription has been fully paid to him in actual cash ___________________ ___________________ ___________________
and/or in property the fair valuation of which is equal
to at least twenty-five (25%) percent of the said ___________________ ___________________ ___________________
subscription, such paid-up capital being not less than
five thousand (P5,000.00) pesos. ___________________ ___________________ ___________________

Section 15. Forms of Articles of Incorporation. - Unless ___________________ ___________________ ___________________

otherwise prescribed by special law, articles of
SEVENTH: That the authorized capital stock of the
incorporation of all domestic corporations shall comply
corporation is ______________________ (P___________) PESOS
substantially with the following form:
in lawful money of the Philippines, divided into
ARTICLES OF INCORPORATION OF __________ shares with the par value of
____________________ (P_____________) Pesos per share.
__________________________
(In case all the share are without par value):
(Name of Corporation)
That the capital stock of the corporation is ______________
KNOW ALL MEN BY THESE PRESENTS: shares without par value. (In case some shares have
par value and some are without par value): That the
The undersigned incorporators, all of legal age and a capital stock of said corporation consists of _____________
majority of whom are residents of the Philippines, have shares of which ______________ shares are of the par
this day voluntarily agreed to form a (stock) (non- value of _________________ (P____________) PESOS each, and
stock) corporation under the laws of the Republic of of which _________________ shares are without par value.
the Philippines;
EIGHTH: That at least twenty five (25%) per cent of the
AND WE HEREBY CERTIFY: authorized capital stock above stated has been
subscribed as follows:
FIRST: That the name of said corporation shall be
"_____________________, INC. or CORPORATION"; Name of Subscriber Nationality No of Shares Amount

SECOND: That the purpose or purposes for which such Subscribed Subscribed
corporation is incorporated are: (If there is more than
one purpose, indicate primary and secondary _________________ __________ ____________ ____________
purposes);
_________________ __________ ____________ ____________
THIRD: That the principal office of the corporation is
located in the City/Municipality of _________________ __________ ____________ ____________
________________________, Province of _______________________,
_________________ __________ ____________ ____________
Philippines;

_________________ __________ ____________ ____________

FOURTH: That the term for which said corporation is to
exist is _____________ years from and after the date of
NINTH: That the above-named subscribers have paid at
issuance of the certificate of incorporation;
least twenty-five (25%) percent of the total
subscription as follows:
FIFTH: That the names, nationalities and residences of
the incorporators of the corporation are as follows:
Name of Subscriber Amount Subscribed Total Paid-In
NAME NATIONALITY RESIDENCE
_________________ ___________________ _______________
___________________ ___________________ ___________________
_________________ ___________________ _______________
___________________ ___________________ ___________________
_________________ ___________________ _______________
___________________ ___________________ ___________________
_________________ ___________________ _______________
___________________ ___________________ ___________________
_________________ ___________________ _______________
___________________ ___________________ ___________________
(Modify Nos. 8 and 9 if shares are with no par value. In
case the corporation is non-stock, Nos. 7, 8 and 9 of
SIXTH: That the number of directors or trustees of the
the above articles may be modified accordingly, and it
corporation shall be _______; and the names,
is sufficient if the articles state the amount of capital ____________________
or money contributed or donated by specified persons,
stating the names, nationalities and residences of the (Signature of Treasurer)
contributors or donors and the respective amount
given by each.) SUBSCRIBED AND SWORN to before me, a Notary
Public, for and in the City/Municipality of
TENTH: That _____________________ has been elected by ___________________ Province of _____________________, this
the subscribers as Treasurer of the Corporation to act _______ day of ___________, 19 _____; by __________________
as such until his successor is duly elected and qualified with Res. Cert. No. ___________ issued at
in accordance with the by-laws, and that as such _______________________ on ____________, 19 ______
Treasurer, he has been authorized to receive for and in
the name and for the benefit of the corporation, all NOTARY PUBLIC
subscription (or fees) or contributions or donations
paid or given by the subscribers or members. My commission expires on

ELEVENTH: (Corporations which will engage in any _________, 19 _____

business or activity reserved for Filipino citizens shall
provide the following): Doc. No. _________;

"No transfer of stock or interest which shall reduce the Page No. _________;
ownership of Filipino citizens to less than the required
percentage of the capital stock as provided by existing Book No. ________;
laws shall be allowed or permitted to be recorded in
Series of 19____ (7a)
the proper books of the corporation and this restriction
shall be indicated in all stock certificates issued by the
corporation."
Articles of incorporation
IN WITNESS WHEREOF, we have hereunto signed these
Articles of Incorporation, this __________ day of
(1) AOI- is the document prepared by the persons
________________, 19 ______ in the City/Municipality of
establishing a corporation and filed with the SEC
____________________, Province of ________________________,
containing the matters required by the code.
Republic of the Philippines. (2) One that defines the charter of the corporation and the
contractual relationships between the State and the
_______________________ _______________________
corporation, the stockholders and the State, and between
the corporation and the stockholders.
_______________________ _______________________

________________________________ Section 16. Amendment of Articles of Incorporation. -

Unless otherwise prescribed by this Code or by special
(Names and signatures of the incorporators)
law, and for legitimate purposes, any provision or
matter stated in the articles of incorporation may be
SIGNED IN THE PRESENCE OF:
amended by a majority vote of the board of directors
or trustees and the vote or written assent of the
_______________________ _______________________
stockholders representing at least two-thirds (2/3) of
the outstanding capital stock, without prejudice to the
(Notarial Acknowledgment)
appraisal right of dissenting stockholders in
TREASURER'S AFFIDAVIT accordance with the provisions of this Code, or the
vote or written assent of at least two-thirds (2/3) of
REPUBLIC OF THE PHILIPPINES ) the members if it be a non-stock corporation.

CITY/MUNICIPALITY OF ) S.S. The original and amended articles together shall

contain all provisions required by law to be set out in
PROVINCE OF ) the articles of incorporation. Such articles, as amended
shall be indicated by underscoring the change or
I, ____________________, being duly sworn, depose and say: changes made, and a copy thereof duly certified under
oath by the corporate secretary and a majority of the
That I have been elected by the subscribers of the directors or trustees stating the fact that said
corporation as Treasurer thereof, to act as such until amendment or amendments have been duly approved
my successor has been duly elected and qualified in by the required vote of the stockholders or members,
accordance with the by-laws of the corporation, and shall be submitted to the Securities and Exchange
that as such Treasurer, I hereby certify under oath that Commission.
at least 25% of the authorized capital stock of the
corporation has been subscribed and at least 25% of The amendments shall take effect upon their approval
the total subscription has been paid, and received by by the Securities and Exchange Commission or from
me, in cash or property, in the amount of not less than the date of filing with the said Commission if not acted
P5,000.00, in accordance with the Corporation Code. upon within six (6) months from the date of filing for a
cause not attributable to the corporation.
Meaning of corporate charter seal; and thereupon the incorporators,
stockholders/members and their successors shall
Charter- an instrument or authority from the sovereign constitute a body politic and corporate under the name
power bestowing the right or privilege to be and act as stated in the articles of incorporation for the period of
corporation.Section 17. Grounds when articles of time mentioned therein, unless said period is extended
incorporation or amendment may be rejected or or the corporation is sooner dissolved in accordance
disapproved. - The Securities and Exchange with law. (n)
Commission may reject the articles of incorporation or
disapprove any amendment thereto if the same is not Section 20. De facto corporations. - The due
in compliance with the requirements of this Code: incorporation of any corporation claiming in good faith
Provided, That the Commission shall give the to be a corporation under this Code, and its right to
incorporators a reasonable time within which to correct exercise corporate powers, shall not be inquired into
or modify the objectionable portions of the articles or collaterally in any private suit to which such
amendment. The following are grounds for such corporation may be a party. Such inquiry may be made
rejection or disapproval: by the Solicitor General in a quo warranto proceeding.
(n)

De jure corporation/de facto corporation defined.

1. That the articles of incorporation or any
amendment thereto is not substantially in (1) A de jure corporation is one created in strict or
accordance with the form prescribed herein; substantial conformity with the mandatory statutory
2. That the purpose or purposes of the requirements for incorporation and the right of which
corporation are patently unconstitutional, to exist as a corporation cannot be successfully
illegal, immoral, or contrary to government attacked or questioned by any party even in a direct
rules and regulations; proceeding for that purpose by the State.
(2) A de facto corporation is one which actually exist for
3. That the Treasurer's Affidavit concerning the all practical purposes as against the State. It is a
amount of capital stock subscribed and/or paid corporation from the fact of its acting as such,
is false; though not in law or right a corporation

4. That the percentage of ownership of the Requisites of a de facto corporation.

capital stock to be owned by citizens of the
Philippines has not been complied with as required (1) A valid law under which a corporation with powers
by existing laws or the Constitution. assumed might be incorporated;
(2) A bona fide attempt to organize a corporation under
No articles of incorporation or amendment to such law; and
articles of incorporation of banks, banking and (3) Actual user or exercise in good faith of corporate
quasi-banking institutions, building and loan powers conferred upon it by law.
associations, trust companies and other financial
intermediaries, insurance companies, public
utilities, educational institutions, and other
corporations governed by special laws shall be Section 21. Corporation by estoppel. - All persons who
accepted or approved by the Commission unless assume to act as a corporation knowing it to be
accompanied by a favorable recommendation of without authority to do so shall be liable as general
the appropriate government agency to the effect partners for all debts, liabilities and damages incurred
that such articles or amendment is in accordance or arising as a result thereof: Provided, however, That
with law. (n) 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.
Section 18. Corporate name. - No corporate name may
be allowed by the Securities and Exchange Commission On who assumes an obligation to an ostensible
if the proposed name is identical or deceptively or corporation as such, cannot resist performance thereof
confusingly similar to that of any existing corporation on the ground that there was in fact no corporation.
or to any other name already protected by law or is (n)
patently deceptive, confusing or contrary to existing
laws. When a change in the corporate name is Sec. 22. Effects on non-use of corporate charter and
approved, the Commission shall issue an amended continuous inoperation of a corporation. - If a
corporation does not formally organize and commence
certificate of incorporation under the amended name.
the transaction of its business or the construction of
(n) its works within two (2) years from the date of its
incorporation, its corporate powers cease and the
Section 19. Commencement of corporate existence. - A corporation shall be deemed dissolved. However, if a
private corporation formed or organized under this corporation has commenced the transaction of its
Code commences to have corporate existence and business but subsequently becomes continuously
juridical personality and is deemed incorporated from inoperative for a period of at least five (5) years, the
same shall be a ground for the suspension or
the date the Securities and Exchange Commission
revocation of its corporate franchise or certificate of
issues a certificate of incorporation under its official incorporation.
 1) Straight voting- every stockholder may vote such
This provision shall not apply if the failure to number of shares for as many persons as there are
organize, commence the transaction of its businesses directors to be elected.
or the construction of its works, or to continuously 2) Cumulative voting for one candidate- a
operate is due to causes beyond the control of the stockholder is allowed to concentrate his votes and
corporation as may be determined by the Securities give one candidate as many votes as the number of
and Exchange Commission. directors to be elected multiplied by the number of
his shares shall equal.
TITLE III 3) Cumulative voting by distribution- a stockholder
BOARD OF DIRECTORS/TRUSTEES/OFFICERS may cumulate his shares by multiplying also the
number of his shares by the number of directors to
Sec. 23. The board of directors or trustees. - Unless be elected and distribute the same among as many
otherwise provided in this Code, the corporate powers candidates as he shall see fit. (please read the
of all corporations formed under this Code shall be illustrations in the book.)
exercised, all business conducted and all property of Sec. 25. Corporate officers, quorum. -
such corporations controlled and held by the board of Immediately after their election, the directors
directors or trustees to be elected from among the of a corporation must formally organize by the
holders of stocks, or where there is no stock, from election of a president, who shall be a director,
among the members of the corporation, who shall hold a treasurer who may or may not be a director, a
office for one (1) year until their successors are elected secretary who shall be a resident and citizen of
and qualified. the Philippines, and such other officers as may
be provided for in the by-laws. Any two (2) or
Every director must own at least one (1) share more positions may be held concurrently by
of the capital stock of the corporation of which he is a the same person, except that no one shall act
director, which share shall stand in his name on the as president and secretary or as president and
books of the corporation. Any director who ceases to treasurer at the same time.
be the owner of at least one (1) share of the capital
stock of the corporation of which he is a director shall The directors or trustees and officers to be
thereby cease to be a director. Trustees of non-stock elected shall perform the duties enjoined on
corporations must be members thereof. a majority of them by law and the by-laws of the
the directors or trustees of all corporations organized corporation. Unless the articles of
under this Code must be residents of the Philippines. incorporation or the by-laws provide for a
greater majority, a majority of the number of
directors or trustees as fixed in the articles of
incorporation shall constitute a quorum for the
Sec. 24. Election of directors or trustees. - At all transaction of corporate business, and every
elections of directors or trustees, there must be decision of at least a majority of the directors
present, either in person or by representative or trustees present at a meeting at which there
authorized to act by written proxy, the owners of a is a quorum shall be valid as a corporate act,
majority of the outstanding capital stock, or if there be except for the election of officers which shall
no capital stock, a majority of the members entitled to require the vote of a majority of all the
vote. The election must be by ballot if requested by members of the board.
any voting stockholder or member. In stock
corporations, every stockholder entitled to vote shall
have the right to vote in person or by proxy the The corporate officers are:
number of shares of stock standing, at the time fixed 1. President Must be a director at the time the assumes
in the by-laws, in his own name on the stock books of office, not at the time of appointment;
the corporation, or where the by-laws are silent, at the 2. Treasurer May or may not be a director; as a matter of
time of the election; and said stockholder may vote sound corporate practice, must be a resident.
such number of shares for as many persons as there 3. Secretary Need not be a director unless required by the
are directors to be elected or he may cumulate said bylaws; must be a resident and citizen of the Philippines; and
shares and give one candidate as many votes as the 4. Such other officers as may be provided in the bylaws.
number of directors to be elected multiplied by the Note: the only officers are those elected or
number of his shares shall equal, or he may distribute appointed by the board of directors.
them on the same principle among as many candidates On the other hand, Corporate employees are those
as he shall see fit: Provided, That the total number of whose duties are of a clerical or manual nature.
votes cast by him shall not exceed the number of
shares owned by him as shown in the books of the
corporation multiplied by the whole number of Section 27. Disqualification of directors, trustees or
directors to be elected: Provided, however, That no officers. No person convicted by final judgment of an
delinquent stock shall be voted. Unless otherwise offense punishable by imprisonment for a period
provided in the articles of incorporation or in the by- exceeding six (6) years, or a violation of this Code
laws, members of corporations which have no capital committed within five (5) years prior to the date of his
stock may cast as many votes as there are trustees to
election or appointment, shall qualify as a director,
be elected but may not cast more than one vote for
one candidate. Candidates receiving the highest trustee or officer of any corporation.
number of votes shall be declared elected. Any
meeting of the stockholders or members called for an
election may adjourn from day to day or from time to
time but not sine die or indefinitely if, for any reason, Requisites for removal of directors or trustees.
no election is held, or if there not present or
represented by proxy, at the meeting, the owners of a
majority of the outstanding capital stock, or if there be
no capital stock, a majority of the members entitled to
1. The removal must take place either at a regular
vote.
meeting of the corporation or at a special meeting
Methods of voting
called for the purpose;
 2. There must be previous notice to the stockholders or compensation, the directors shall not receive any
members of the corporation of the intention to compensation, as such directors, except for reasonable
propose such removal at the meeting; and per diems: Provided, however, That any such
3. The removal must be by a vote of the stockholders
compensation other than per diems may be granted to
holding or representing two-thirds of the outstanding
capital stock, or if the corporation be a non-stock directors by the vote of the stockholders representing
corporation, by a vote of two-thirds of the members at least a majority of the outstanding capital stock at a
entitled to vote. regular or special stockholders meeting. In no case
shall the total yearly compensation of directors, as
such directors, exceed ten (10%) percent of the net
Section 28. Removal of directors or trustees. Any income before income tax of the corporation during the
director or trustee of a corporation may be removed preceding year. (n)
from office by a vote of the stockholders holding or
representing at least two-thirds (2/3) of the Section 31. Liability of directors, trustees or officers. -
outstanding capital stock, or if the corporation be a Directors or trustees who willfully and knowingly vote
non-stock corporation, by a vote of at least two-thirds for or assent to patently unlawful acts of the
(2/3) of the members entitled to vote: Provided, That corporation or who are guilty of gross negligence or
such removal shall take place either at a regular bad faith in directing the affairs of the corporation or
meeting of the corporation or at a special meeting acquire any personal or pecuniary interest in conflict
called for the purpose, and in either case, after with their duty as such directors or trustees shall be
previous notice to stockholders or members of the liable jointly and severally for all damages resulting
corporation of the intention to propose such removal therefrom suffered by the corporation, its stockholders
at the meeting. A special meeting of the stockholders or members and other persons.
or members of a corporation for the purpose of
removal of directors or trustees, or any of them, must When a director, trustee or officer attempts to acquire
be called by the secretary on order of the president or or acquire, in violation of his duty, any interest adverse
on the written demand of the stockholders to the corporation in respect of any matter which has
representing or holding at least a majority of the been reposed in him in confidence, as to which equity
outstanding capital stock, or, if it be a non-stock imposes a disability upon him to deal in his own behalf,
corporation, on the written demand of a majority of the he shall be liable as a trustee for the corporation and
members entitled to vote. Should the secretary fail or must account for the profits which otherwise would
refuse to call the special meeting upon such demand or have accrued to the corporation. (n)
fail or refuse to give the notice, or if there is no
secretary, the call for the meeting may be addressed Section 32. Dealings of directors, trustees or officers
directly to the stockholders or members by any with the corporation. A contract of the corporation
stockholder or member of the corporation signing the with one or more of its directors or trustees or officers
demand. Notice of the time and place of such meeting, is voidable, at the option of such corporation, unless
as well as of the intention to propose such removal, all the following conditions are present:
must be given by publication or by written notice
prescribed in this Code. Removal may be with or
1. That the presence of such director or trustee
without cause: Provided, That removal without cause
in the board meeting in which the contract was
may not be used to deprive minority stockholders or
approved was not necessary to constitute a
members of the right of representation to which they
quorum for such meeting;
may be entitled under Section 24 of this Code. (n)

Section 29. Vacancies in the office of director or 2. That the vote of such director or trustee was
trustee. Any vacancy occurring in the board of not necessary for the approval of the contract;
directors or trustees other than by removal by the
stockholders or members or by expiration of term, may 3. That the contract is fair and reasonable
be filled by the vote of at least a majority of the under the circumstances; and
remaining directors or trustees, if still constituting a
quorum; otherwise, said vacancies must be filled by
4. That in case of an officer, the contract has
the stockholders in a regular or special meeting called
been previously authorized by the board of
for that purpose. A director or trustee so elected to fill
directors.
a vacancy shall be elected only or the unexpired term
of his predecessor in office.
Where any of the first two conditions set forth
in the preceding paragraph is absent, in the
Any directorship or trusteeship to be filled by reason of
case of a contract with a director or trustee,
an increase in the number of directors or trustees shall
such contract may be ratified by the vote of the
be filled only by an election at a regular or at a special
stockholders representing at least two-thirds
meeting of stockholders or members duly called for the
(2/3) of the outstanding capital stock or of at
purpose, or in the same meeting authorizing the
least two-thirds (2/3) of the members in a
increase of directors or trustees if so stated in the
meeting called for the purpose: Provided, That
notice of the meeting. (n)
full disclosure of the adverse interest of the
directors or trustees involved is made at such
Section 30. Compensation of directors. In the absence meeting: Provided, however, That the contract
of any provision in the by-laws fixing their
 is fair and reasonable under the circumstances. corporationsismerelynominal,heshallbesubjecttotheprovisionsof
(n) theprecedingsectioninsofarasthelattercorporationorcorporationsare
concerned.
Section33. Contractsbetweencorporationswithinterlockingdirectors.
Exceptincasesoffraud,andprovidedthecontractisfairandreasonable Stockholdingsexceedingtwenty(20%)percentoftheoutstandingcapital
underthecircumstances,acontractbetweentwoormorecorporations stock shall be considered substantial for purposes of interlocking
having interlocking directors shall not be invalidated on that ground directors.(n)
alone:Provided,Thatiftheinterestoftheinterlockingdirectorinone
corporation is substantial and his interest in the other corporation or