POINTERS IN

CORPORATION LAW
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A corporation is an artificial being created by including submission of reportorial requirements not
operation of law, having the right of otherwise imposed in other
succession and the powers, attributes and business form.
properties expressly authorized by Classes of Corporation
law or incident to its existence. Stock Corporation is a corporation which
Attributes: have capital stock divided into shares and
1. Artificial being; are authorized to distribute to the holders
2. Created by operation of law; of such dividends or allotments of the
3. Right of succession; and surplus profits on the basis of the shares .
4. Powers, attributes and properties expressly Non-Stock Corporation is a corporation
authorized by law or incident to its where no part of its income is
existence. distributable as dividends to its members,
A corporation may claim for moral damages under trustees or officers.
Art. 2219 (7) of the Civil Public Corporation is organized for the
Code in cases of libel, slander or any form of government of a portion of the State for
defamation. (Filipinas the general good and welfare.
Broadcasting Network vs. Ago Medical and Private Corporation is formed for some
Educational Center) private purpose, benefit or end.
Advantages of corporate form of business: Government-owned or controlled
1. Capacity to act as a single unit; corporation is owned directly by the
2. Limited shareholder‟s liability; Government directly or through its
3. Continuity in existence; instrumentalities either wholly or where
4. Feasibility of greater undertaking; applicable as in the case of stock
5. Transferability of shares; corporations, to the extent of at least fiftyone
6. Centralized management; and (51) percent of its capital stock.
7. Standardized method of organization, Quasi-public Corporations is a private
management and finance corporation which has accepted from the
DISADVANTAGES: State the grant of franchise or contract
1. To have valid and binding corporate act, formal involving the performance of public duties
proceedings, such as board but which is organized for profit.
meetings are required. De jure Corporation is created in strict or
2. The business transactions of a corporation is substantial conformity with the mandatory
limited to the State of its incorporation statutory requirements for incorporation
and may not act as such corporation in other and right of which to exist as a corporation
jurisdiction unless it has obtained a cannot be successfully attacked or
license or authority from the foreign state. questioned by any party even in direct
3. The shareholders‟ limited liability tends to limit proceeding for the purpose of the State.
the credit available to the corporation De facto Corporation is claiming in good
as a separate legal entity. faith to be a corporation under this Code
4. By the very nature of shares of stock which are and the right to exercise corporate
personal properties, transferable at powers shall not be inquired into
will by the owners thereof, transfers of share may collaterally in any private suit to which
result to uniting incompatible and such corporation may be a party.
conflicting interests. Corporation by estoppel is all persons who
5. The minority shareholders have practically no assume to act as a corporation knowing it
say in the conduct of corporate affairs. to be without authority to do so shall be
6. In large scale enterprises, stockholders‟ voting liable as general partners for all debts,
rights may become merely fictitious liabilities and damages incurred or arising
and theoretical because of disinterest in as a result thereof.
management, wide-scale ownership and Corporation by prescription is one which
inaccessible place of meeting. has exercised corporate powers for an
7. Double taxation may be imposed on corporate indefinite period without interference on
income. the part of the government.
8. Corporations are subject to governmental Domestic Corporation is incorporated
regulations supervision and control under the laws of the Philippines.
Foreign Corporation is formed, organized
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or existing under any laws other than 5. Board of Directors is the governing body in a
those of the Philippines and whose laws stock corporation and
allow Filipinos citizens and corporation to Board of Trustees is the governing body in a non-
do business in its own country or State. stock corporation.
Open Corporation is open to any person 6. Corporate Officers are the President who shall be
who may wish to become a stockholder or a director, treasurer
member thereto. who may or may not be a director, a secretary who
Close Corporation is one whose articles shall be a resident and citizen of
of incorporation provides that (1) All the the Philippines and other officers.
corporation’s issued stock of all classes, 7. Subscriber are the persons who agreed to take
exclusive of treasury shares shall be held and pay for original,
of record by not more than a specified unissued shared or a corporation formed or to be
number of persons, not exceeding 20; (2) formed.
all the issued stock of all classes shall be 8. Underwriter is a person who guarantees on a firm
subject to one or more specified commitment and or
restrictions on transfer; and (3) the declared best effort basis the distribution and sale
corporation shall not list in any stock of securities of any kind by another
exchange or make any public offering of company.
any of its stock of any class. 9. Promoter is a person who brings about or cause
Parent or holding Corporation is that hold to bring about the
stocks on another corporation for purpose formation and organization of corporation.
of control. FORMATION AND ORGANIZATION
Subsidiary Corporation is more than 50% Stages in the life of a corporation:
of the voting stock of which is controlled 1. Creation
directly or indirectly by another 2. Reorganization or quasi-reorganization
corporation, which thereby becomes its 3. Dissolution and winding up
parents corporations. Steps in creation:
Corporation aggregate is consisting of 1. Promotional stage
more than one member. 2. Process of incorporation
Corporation sole is consisting of only 3. Organization and commencement of business
one member for the purpose of PROMOTIONAL STAGE
administering or managing, as trustee, A promoter acting for a proposed corporation has
the affairs, properties and temporalities of 3 options:
any religious denomination or church. 1. He may make a continuing offer on behalf of the
Ecclesiastical Corporation is organized for corporation, which, if accepted after
religious purposes. incorporation, will become a contract. In this case,
Lay Corporation is organized for a the promoter does not assume any
purpose other than for religion. personal liability, whether or not the corporation will
Eleemosynary Corporation is organized accept the offer.
for charitable purposes. 2. The promoter may make a contract at the time
Civil Corporation is organized for binding himself, with the
business or profit. understanding that if the corporation, once formed,
Components of a corporation accepts or adopts the contract, he
1. Corporators are those who compose a will be relieved of responsibility.
corporation whether as 3. The promoter may bind himself personally and
stockholders or members. assume the responsibility of looking
2. Incorporators are the stockholders or members to the proposed corporation, when formed, for
mentioned in the reimbursement.
articles of incorporation as originally forming and PROCESS OF INCORPORATION
comprising the corporation who are Process of incorporation:
signatories thereof. 1. Drafting the articles of incorporation
3. Stockholders or shareholders are the owners of 2. Preparation and submission of additional and
shares of stock in a supporting documents
corporation. 3. Filing with the SEC
4. Members are the corporators of non-stock 4. Subsequent issuance of certificate of
corporation. incorporation
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Contents of the articles of incorporation INCORPORATORS (see changes in the revised

1. Name code)
2. Purpose General rule: Only natural persons can be
3. Principal office incorporators. (in the revised code, even juridical
4. Term persons)
5. Incorporators Exception: Cooperatives and corporations primarily
6. Number of directors/trustees organized to hold equities in rural
7. Names, nationalities and residences of banks.
directors/trustees Minors are not qualified to become incorporators.
8. If a stock corporation, amount of authorized THE DIRECTORS/TRUSTEES
capital stock, number of shares, par General rule: There must be at least 5 but not more
value, original subscribers than 15 directors or trustees in a
9. If a non-stock corporation, amount of capital, private corporation.
contributors Exceptions:
10. Such other matters not inconsistent with law 1. Educational corporations registered as a non-
and which the incorporator may deem stock corporation whose number of
necessary and convenient trustees, though not less than 5 and not more than
11. Treasurer‟s certificate 15 should be divisible by 5;
CORPORATE NAME 2. In close corporations where all the stockholders
A corporation cannot use a name which is: are considered as members of the
1. identical or deceptively or confusingly similar to board of directors thereby effectively allowing 20
that of any existing corporation or to members in the board; and
any other name protected by law; or 3. Corporation sole.
2. patently deceptive, confusing or contrary to law. The by-laws may provide for additional
PURPOSE CLAUSE qualifications and disqualifications.
A corporation has only such powers as are However, it may not do away with the minimum
expressly granted to it by law and by disqualifications laid down by
its articles of incorporation including those which the Code.
are incidental to such conferred Qualifications:
powers, those reasonably necessary to accomplish 1. Directors must own at least one (1) share of the
its purpose and those which may capital stock of the corporation.
be incidental to its existence. Trustees must be members.
THE PRINCIPAL OFFICE 2. A majority of the directors or trustees must be
The residence of the corporation is the place of its residents of the Philippines.
principal office as may be Disqualifications:
indicated in its articles of incorporation and may, 1. Conviction by final judgment of an offense
therefore, be sued only at that punishable by imprisonment for a period
place. (CRS vs. Antillon) exceeding six (6) years, or a violation of this Code
TERM OF EXISTENCE committed within five (5) years prior
Sec. 11. Corporate term. - A corporation shall exist to the date of election or appointment.
for a period not exceeding fifty (50) 2. Other disqualifications under applicable special
years from the date of incorporation unless sooner laws.
dissolved or unless said period is Shares of stock and their classification
extended. The corporate term as originally stated in Shares of stock designate the interest or right
the articles of incorporation may which the stockholder has in the
be extended for periods not exceeding fifty (50) management of the corporation, and in the surplus
years in any single instance by an profits and, in case of
amendment of the articles of incorporation, in distribution, in all assets remaining after the
accordance with this Code; Provided, payment of its debts.
That no extension can be made earlier than five (5) Stock certificate is a document or instrument
years prior to the original or evidencing the interest of a
subsequent expiry date(s) unless there are stockholder in the corporation.
justifiable reasons for an earlier extension The shares of stock of stock corporations may be
as may be determined by the Securities and divided into classes or series
Exchange Commission. of shares, or both, any of which classes or series of
shares may have such
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rights, privileges or restrictions as may be stated in 2. Evasion of the danger of liability upon watered
the articles of incorporation. stock; and
Purpose of classification: 3. Disappearance of personal liability on the part of
1. To specify and define the rights and privileges of the holder thereof for unpaid
the stockholders. subscription.
2. For regulation and control of the issuance of sale Voting and non-voting shares
of corporate securities for the – gives the holder thereof the right to vote and
protection of purchasers and stockholders. participate in the
3. As a management control device. management of the corporation through the
4. To comply with statutory requirements. exercise of such right, either at the election
5. To better insure return on investment. of the board of directors, or in any manner requiring
6. For flexibility in price. the stockholder‟s approval.
Except as otherwise provided in the articles of -voting shares – do not grant the holder thereof the
incorporation and stated in the right to vote except under the
certificate of stock, each share shall be equal in all penultimate paragraph of Sec. 6.
respects to every other Founders’ shares
share. 7. Founders‟ shares. - Founders' shares classified
Common and preferred shares as such in the articles of
– a stock which entitles its owner to an equal pro- incorporation may be given certain rights and
rata division of privileges not enjoyed by the owners of
profits, if there be any, but without any preference other stocks, provided that where the exclusive right
or advantage in that respect over to vote and be voted for in the
any other stockholder or class of stockholders. election of directors is granted, it must be for a
– a stock that gives the holder a preference over limited period not to exceed five (5)
the holder of years subject to the approval of the Securities and
common stocks with respect to the payment of Exchange Commission. The fiveyear
dividends and/or with respect to period shall commence from the date of the
distribution of capital upon liquidation. aforesaid approval by the Securities
1. Must be issued with a stated par value; and and Exchange Commission.
2. The preferences must be stated in the articles of Redeemable shares
incorporation and in the certificate in the articles of incorporation.
of stock, otherwise, each share shall be, in all period, regardless of the existence of unrestricted
respect, equal to every other share. retained earnings in the books of the
Par and no par value shares corporation, and upon such other terms and
– those whose value are fixed in the articles of conditions as may be stated in the articles
incorporation. of incorporation, which terms and conditions must
– those whose issued price are not stated in the also be stated in the certificate of
certificate of stock representing said shares.
stock but which may be fixed in the articles of Treasury shares
incorporation, or by the board of subsequently reacquired by the issuing corporation
directors when so authorized by the said articles or by purchase, redemption, donation
by the by-laws, or in the absence or through some other lawful means. Such shares
thereof, by the stockholders themselves. may again be disposed of for a
1. Such shares, once issued, are deemed fully paid reasonable price fixed by the board of directors.
and thus, non assessable; COMMENCEMENT OF CORPORATE EXISTENCE
2. The consideration for its issuance should not be is only from the time of the issuance of the
less than P5.00; certificate of incorporation that a
3. The entire consideration for its issuance corporation acquires juridical personality and legal
constitutes capital, hence, not available for existence.
dividend declaration; contracts. (Cagayan Fishing Development vs.
4. They cannot be issued as preferred stock; and Sandiko)
5. They cannot be issued by banks, trust DE FACTO CORPORATION
companies, insurance companies, public – one that is so defectively created as not to be a
utilities and building and loan associations. de jure
1. Flexibility in price; corporation but nevertheless exists, for all practical
purposes, as a corporate body, by
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virtue of its bona fide attempt to incorporate under the directors or trustees stating the fact that such
existing statutory authority, coupled amendments have been duly
with the exercise of corporate powers. approved by the required vote of the stockholders
1. There is a valid law under which the corporation or members.
could have been created as a de c. Favorable recommendation of the appropriate
jure corporation; government agency concerned in the
2. An attempt, in good faith, to form a corporation case where the corporation is under its supervision.
according to the requirements of law 1. Upon approval of the SEC; or
(colorable compliance); 2. From the date of filing with the SEC if not acted
3. A user of corporate powers; and upon with 6 months from the date of
4. Good faith in claiming to be and doing business filing for a cause not attributable to the corporation.
as a corporation. (Note: not applicable to special
CORPORATE CHARTER amendments)
– an instrument or authority from the sovereign 1. Extension or shortening of corporate term (Sec.
power, bestowing 37)
rights and power. 2. Increase or decrease of capital stock (Sec. 38)
-fold contract: 3. Incurring, creating or increasing bonded
1. Between the corporation and the state insofar as indebtedness (Sec. 38)
it concerns its primary franchise to PROVISIONS SUBJECT TO AMENDMENT
be and act as a corporation; entity of the
2. Between the corporation and the stockholders or corporation, nor in any way affect the rights,
members insofar as it governs their privileges, or obligations previously
respective rights and obligations; and acquired or incurred by it. (Philippine First
3. Between and among the stockholders or Insurance Co. vs. Hartigan)
members themselves as far as their AMENDMENT OF THE CORPORATE TERM
relationship with one another is concerned. 1. Approval by a majority vote of the board or
PIERCING THE VEIL OF CORPORATE FICTION directors or trustees.
ercing the veil of the corporate fiction is resorted to 2. Written notice of the proposed action and the
only in cases where the time and place of meeting shall be
corporation is used or being used to defeat public served to each stockholder or member either by
convenience, justify wrong, protect mail or by personal service.
fraud, defend crime, confuse legitimate issues, or to 3. Ratification by the stockholders representing at
circumvent the law or perpetuate least 2/3 of the outstanding capital
deception, or an alter-ego, adjunct or business stock or 2/3 of the members in case of non-stock
conduit for the sole benefit of a corporations.
stockholder or a group of stockholders or another 4. In case of extension of corporate term, the
corporation. extension should be for periods not
AMENDMENT OF THE CORPORATE CHARTER exceeding 50 years in any single instance, and
oration: provided that no extension can be
1. Resolution by at least a majority of the board of made earlier than 5 years prior to the original or
directors or trustees. subsequent expiry date(s) unless there
2. Vote or written assent of the stockholders are justifiable reasons for an earlier extension as
representing at least 2/3 of the may be determined by the SEC.
outstanding capital stock or 2/3 of the members in 5. In cases of extension of corporate term, a
case of non-stock corporation. dissenting stockholder may exercise his
3. Submission and filing of the amendments with appraisal rights.
the SEC as follows: POWERS OF THE BOARD
a. The original and amender articles together shall - Unless otherwise provided in the
contain all the provisions required Code, the corporate powers of all corporations
by law to be set out in the articles of incorporation. formed under this Code shall be
Such articles, as amended, shall be exercised, all business conducted and all property
indicated by underscoring the change or changes of such corporations controlled and
made. held by the board of directors or trustees.
b. A copy thereof, duly certified under oath by the in the corporate charter.
corporate secretary and a majority of board may delegate the exercise of corporate
powers.
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of the 5 classifications of powers of corporate same; and

agents: 3. If the director renders extra-ordinary or unusual
1. Those expressly conferred or those granted by service.
the articles of incorporation, the 10% of the net income before income tax of the
corporate by-laws or by the official act of the board corporation during the preceding year.
of directors. LIABILITY OF CORPORATE OFFICERS
2. Those that are incidental or those acts as are agent is not civilly or criminally liable for acts done
naturally and ordinarily done which are by him as such officer or agent.
reasonable and necessary to carry out the may validly attach, as a rule, only when:
corporate purpose or purposes. 1. He assents (a) to a patently unlawful act of the
3. Those that are inherent or acts that go with the corporation, or (b) for bad faith, gross
office. negligence in directing its affairs, or (c) for conflict
4. Those that are apparent or those acts which of interest, resulting in damages to
although not actually granted, the the corporation, its stockholders or other persons;
principal knowingly allows or permits it to be done. 2. He consents to the issuance of watered stocks or
5. Powers arising out of customs, usage or who, having knowledge thereof,
emergency. does not forthwith file with the corporate secretary
QUALIFICATIONS AND DISQUALIFICATIONS his written objection thereto;
Qualifications: 3. He agrees to hold himself personally and
1. Directors must own at least one (1) share of the solidarily liable with the corporation; or
capital stock of the corporation. 4. He is made, by specific provision of law, to
Trustees must be members. personally answer for his corporate
2. A majority of the directors or trustees must be action.
residents of the Philippines. Corporate opportunity doctrine – It places a director
Disqualifications: of a corporation in the position of a
1. Conviction by final judgment of an offense fiduciary and prohibits him from seizing a business
punishable by imprisonment for a period opportunity and/or developing it at
exceeding six (6) years, or a violation of this Code the expense and with the facilities of the
committed within five (5) years prior corporation. He cannot appropriate
to the date of election or appointment. DERIVATIVE SUIT
2. Other disqualifications under applicable special stockholders may bring against erring directors or
laws. officers:
REMOVAL AND FILLING UP OF VACANCIES 1. Individual or personal suit – one brought by the
1. The removal should take place at a general or shareholders for direct injury to his
special meeting duly called for that rights, such as denial of his right to inspect
purpose; corporate books and records or pre-emptive
2. The removal must be a vote of the stockholders right;
representing at least 2/3 of the 2. Representative of class suit - ; and
outstanding capital stock or 2/3 of the members in 3. Derivative suit – an action based on injury to the
case of non-stock corporations; corporation – to enforce a corporate
3. Prior notice of the proposed removal must be right – wherein the corporation is joined as a
made stating the time and place of necessary party, and recovery is in favor
meeting either by publication or by written notice. of the corporation.
Vacancies to be filled by the stockholders or EXECUTIVE COMMITTEE
members in a regular or special meeting: -laws.
1. Vacancy due to removal; on such specific matters within the competence of
2. Vacancy due to expiration of term; the board, as may be delegated to it
3. Vacancy due to an increase in the number of in the by-laws or on a majority vote of the board.
board of directors; and 1. Approval of any action for which shareholders'
4. Vacancy due approval is also required;
COMPENSATION OF DIRECTORS 2. The filling of vacancies in the board;
for reasonable per diems. 3. The amendment or repeal of by-laws or the
1. When there is a provision in the by-laws fixing adoption of new by-laws;
their compensation; 4. The amendment or repeal of any resolution of the
2. When the stockholders, by a majority vote the board which by its express terms
outstanding capital stock grant the is not so amendable or repealable; and
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5. A distribution of cash dividends to the -vires acts – are those that can not be executed or
shareholders. performed by a corporation
CORPORATE POWERS AND AUTHORITY because they are not within its express, inherent or
1. Those expressly granted or authorized by law implied powers as defined by its
inclusive of the corporate charter or charter or articles of incorporation.
articles of incorporation By-laws – are rules and ordinances made by a
2. Those impliedly granted as are essential or corporation for its own government; to
reasonably necessary to the carrying out regulate the conduct and define the duties of the
of the express powers stockholders or members towards the
3. Those that are incidental to its existence. corporation and among
Powers expressly granted: themselves. They are rules and regulations or
1. Power to sue and be sued (Sec. 36) private laws enacted by the corporation
2. Power of succession (Sec. 36) to regulate, govern and control its own actions,
3. Power to adopt and use a corporate seal (Sec. affairs and concerns and its
36) stockholders or member and directors and officers
4. Power to amend its articles of incorporation (Sec. with relation thereto and among
36) themselves in their relation to it.
5. Power to adopt, amend or repeal by-laws (Sec. -laws:
36) 1. The by laws must not be inconsistent with the
6. Power to issue or sell stocks/ to admit members Code;
(Sec. 36) 2. If adopted prior to incorporation:
7. Power to acquire or alienate real or personal a. Approved and signed by all the incorporators;
property (Sec. 36) b. Submitted together with the articles of
8. Power to enter into merger or consolidation (Sec. incorporation to the SEC;
36) Contents of by-laws:
9. Power to make reasonable donations (Sec. 36) 1. The time, place and manner of calling and
10. Power to establish pension, retirement, and conducting regular or special meetings of
other plans (Sec. 36) the directors or trustees;
11. Power to extend or shorten corporate term 2. The time and manner of calling and conducting
(Sec. 37) regular or special meetings of the
12. Power to increase or decrease capital stock stockholders or members;
(Sec. 38) 3. The required quorum in meetings of stockholders
13. Power to incur, create or increase bonded or members and the manner of
indebtedness (Sec. 38) voting therein;
14. Power to deny pre-emptive right (Sec. 39) 4. The form for proxies of stockholders and
15. Power to sell or dispose corporate assets (Sec. members and the manner of voting them;
40) 5. The qualifications, duties and compensation of
16. Power to acquire own shares (Sec. 41) directors or trustees, officers and
17. Power to invest corporate funds in another employees;
corporation or business or for any other 6. The time for holding the annual election of
purpose (Sec. 42) directors of trustees and the mode or
18. Power to declare dividends (Sec. 43) manner of giving notice thereof;
19. Power to enter into management contract (Sec. 7. The manner of election or appointment and the
44) term of office of all officers other
POWER TO SUE AND BE SUED than directors or trustees;
indicated in its articles of incorporation and may, 8. The penalties for violation of the by-laws;
therefore, be sued only at that place. 9. In the case of stock corporations, the manner of
(CRS vs. Antillon) issuing stock certificates; and
1. President, 10. Such other matters as may be necessary for the
2. Managing partner, proper or convenient transaction
3. General manager, of its corporate business and affairs.
4. Corporate secretary, MEETINGS
5. treasurer, or – applies to every duly convened assembly either
6. In-house counsel stockholders, members,
directors or trustees, manages, etc. for any legal
ULTRA-VIRES ACTS purpose, or the transaction of
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business of a common interest. -owners shall

1. General be necessary.
2. Special 1. Written proxy signed by all the co-owners
STOCKHOLDER’S MEETINGS 2. The shares are owned in an "and/or" capacity
equirements to have a valid stockholder‟s meeting: PROXY
1. It must be held on the date fixed in the by-laws or – the authority given by the stockholder or member
in accordance with law. to another to vote for him
2. Prior notice must be given. at a stockholders‟ or members‟ meeting. It also
3. It must be held at the proper place. refers to the instrument or paper which
4. It must be called by the proper party. is evidence of the authority of the agent or the
5. Quorum and voting requirements must be met holder thereof to vote for and in behalf of
It must be held on the date fixed in the by-laws or in the stockholder or member.
accordance with law. Two types of proxies:
-laws, or if not so 1. General – gives a general discretionary power of
fixed, on any date in April of every year as attorney to vote for directors and all
determined by the board of directors or ordinary matters that may properly come before a
trustees. meeting. It is not an authority,
Special meetings of stockholders or members shall however, to vote for fundamental changes in the
be held at any time deemed corporate charter or for other unusual
necessary or as provided in the by-laws. transactions, unless specified.
Prior notice must be given. 2. Limited – restricts the authority to vote on
– 2 weeks prior notice specified matters only and may direct the
– 1 week prior notice manner in which the vote will be cast.
-laws may provide for a different period (shorter or -stock corporation.
longer) 1. In writing
render the resolution made thereunder 2. Signed by the stockholder or member
voidable at the option of the stockholder or member 3. Filed before the scheduled meeting with the
who was not notified. (Board of corporate secretary
Directors vs. Tan) -laws may reasonably regulate the form and
STOCKHOLDERS’ RIGHT TO VOTE AND execution of proxies.
MANNER OF VOTING which it is intended.
way he pleases. eriod longer than five (5) years at any
ions: one time.
1. Non-voting shares are not entitled to vote except 1. To the proxy holder
in those instances provided for in 2. To the election committee
the penultimate paragraph of Sec. 6 3. By a subsequent proxy to another
2. Treasury shares 4. By sale of the shares
3. Delinquent shares VOTING TRUST
4. Unregistered transferee of stock corporation and a trustee, or a group of identical
vote personally or through a agreements between individual
representative by way of proxy, voting trust stockholders and a common trustee, whereby it is
agreement or by the executor, provided that for a term of years, or
administrator, receiver of other legal representative. for a period contingent upon a certain event, or until
-stock corporations, the right to vote may be limited, the agreement is terminated,
broadened or control over the stock owned by such stockholders,
denied in the articles of incorporation or in the by- shall be lodged in the trustee,
laws. either with or without reservation to the owners or
in absence of a written agreement (recorded in the persons designated by them the
corporate books) to the contrary. power to direct how such control shall be used. It is
(Sec. 55) a device of binding stockholders to
by the court may attend and vote in behalf of the vote as a unit and thus assuring a desirable stability
stockholders or members without and continuity in management in
need of any written proxy. (Sec. 50) situations where it is needed.
executor or administrator of a stockholder may not STOCKS AND STOCKHOLDERS
be elected unless he owns at become a stockholder:
least 1 share. 1. By a contract of subscription with the corporation;
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2. By the purchase of treasury shares from the least in so far as the contracting parties are
corporation; and concerned.
3. By purchase or acquisition of shares from 1. To enable the corporation to know who its
existing stockholders (includes purchase stockholders are;
from the stock exchange). 2. To enable the transferee to exercise his rights as
SUBSCRIPTION CONTRACT a stockholder;
– the mutual agreement of the subscribers to take 3. To afford the corporation an opportunity to object
and pay for the or refuse registration of the
stocks of a corporation. transfer in cases allowed by law (as when it has
– any contract for the acquisition of unissued stock unpaid claims on the shares
in an transferred);
existing corporation or a corporation still to be 4. To avoid fictitious and fraudulent transfers; and
formed, not withstanding the fact that the 5. To protect creditors who have the right to look
parties refer to it as a purchase or some other upon stockholders, in case of nonpayment
contract. or watered shares, for the satisfaction of their
is valid and enforceable. The statutes of fraud do claims.
not apply to a subscription contract FORGED AND UNAUTHORIZED TRANSFERS
because such subscription does not fall under the transfer – what is forged or unauthorized is the
statutory definition of a sale. transfer of
CERTIFICATES OF STOCK AND THEIR the certificate from the true and lawful owner to
TRANSFER another person.
– the piece of paper or document which evidences – the act of the corporation in issuing a
the ownership certificate, either fraudulently or by mistake.
of shares and a convenient instrument for the title as against the lawful owner and will have no
transfer of the title. right or remedy against the
Requisites for the issuance of a certificate of stock: corporation (non-negotiability of stock certificates).
1. It must be signed by the president or vice- ISSUANCE OF STOCK CERTIFICATES
president and countersigned by the issued to a subscriber until the full amount of his
secretary or assistant secretary; subscription together with interest and
2. It must be sealed with the corporate seal; and expenses (in case of delinquent shares), if any is
3. The full amount of subscription together with due, has been paid.
interest and expenses (in case of a stock certificate.
delinquent shares) if any is due, has been paid. ministerial duty enforceable by mandamus.
of a stockholder. kholder whose subscription is not fully paid may not
1. The shares have been declared delinquent; or be issued a stock
2. The stockholder exercises his appraisal right. certificate for that portion already paid. (Fua Cun vs.
subscriber as a stockholder. Summers and China Banking
modes of transferring shares of stock: Corporation)
1. When the corporation has already issued stock WATERED STOCK
certificates – only by delivery of the – one which is issued by the corporation as fully
certificate or certificates of stock indorsed by the paid-up shares when
owner or his attorney-in-fact or other in fact the whole amount of the value thereof has
person legally authorized to make the transfer. not been paid.
2. When the corporation has not yet issued liable with the stockholder concerned to the
certificates of stock – by a duly notarized corporation and its creditors for the difference
deed. between the fair value received at the
recorded in the books of the corporation. time of issuance of the stock and the par or issued
s accomplished, the transfer of stock, though valid value of the same for the following
between the acts:
parties, cannot be effective as against the 1. Consenting to the issuance of watered stocks; or
corporation. The corporation looks only 2. Having knowledge thereof, failing to forthwith
though its books for the purpose of determining who express his objection in writing and file
its stockholders are. the same with the corporate secretary.
-registration of a transfer of stock will not, however, enforce payment of such water.
affect the validity thereof at 1. For a monetary consideration less than its par or
issued value;
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2. For a consideration in property, tangible or 2. To pay interest on his unpaid subscription if

intangible, valued in excess of its fair required by the by-laws or by the
market value; contract of subscription;
3. Gratuitously or under an agreement that nothing 3. To answer to creditors for the unpaid portion of
shall be paid at all; or their subscription;
4. In the guise of stock dividends when there are no 4. To answer the “water” in their stocks;
surplus profits of the corporation. 5. To be liable, as general partners, for all debts,
ENFORCEMENT OF PAYMENT OF liabilities and damages of ostensible
SUBSCRIPTIONS corporations; and
interest if 6. In case of a close corporation, to be personally
required, shall be paid: liable for corporate torts when they
1. On the date or dates fixed in the contract of actively participate in the management of the
subscription; or corporation.
2. On the date or dates that may be specified by the CORPORATE BOOKS AND RECORDS
board of directors pursuant to a 1. Records of all business transactions – which
“call” declaring any or all unpaid portion thereof to include, among others, journals,
be so payable. ledgers, contracts, vouchers and receipts, financial
subscription: statements and other books of
1. By board action (delinquency sale); accounts, income tax returns, and voting trust
2. By a collection case in court. agreement which must be kept and
RIGHTS AND LIABILITIES OF STOCKHOLDERS carefully preserved at its principal office.
basic rights for the protection of stockholders: 2. Minutes of all meetings of stockholders or
1. Participation in the management of the corporate members and of the directors or trustees -
affairs by exercising their right to setting forth in detail the time and place of holding
vote and be voted upon either personally or by the meeting, how authorized, the
proxy; notice given, whether the meeting was regular or
2. To enter into a voting trust agreement; special, if special its object, those
3. To receive dividends and to compel their present and absent, and every act done or ordered
declaration if warranted; done thereat which must likewise
4. To transfer shares of stock subject only to be kept at the principal office of the corporation.
reasonable restrictions inclusive of the 3. Stock and transfer book – showing the names of
right of the transferee to compel the registration of the stockholders, the amount padi
the transfer in the books of the or unpaid on all stock for which subscription has
corporation; been made, a statement of every
5. To be issued a certificate of stock for fully paid- alienation, sale or transfer of stock made, the date
up shares; thereof, and by and to whom made
6. To exercise pre-emptive rights; which must be kept either in the principal office of
7. To exercise their appraisal right; the corporation or in the office of its
8. To institute and file a derivative suit; stock transfer agent.
9. To recover shares of stock unlawfully sold for MERGER AND CONSOLIDATION
delinquency; – a union effected by absorbing one or more
10. To inspect the books of the corporation; existing corporations by another
11. To be furnished the most recent financial which survives and continues the combined
statements of the corporation; business; the uniting of two or more
12. To be issued a new stock certificate in lieu of corporations by the transfer of property to one of
the lost or destroyed one; them which continues in existence,
13. To have the corporation dissolved; the other or others being dissolved and merged
14. To participate in the distribution of the assets of therein.
the corporation upon dissolution; – the uniting or amalgamation of two or more
15. In the case of a close corporation, to petition the existing corporations to
SEC to arbitrate a deadlock; and form a new corporation and the termination of
16. In the case of a close corporation, to withdraw existence of the old ones.
therefrom, for any reason, and to Appraisal right – the method of paying a
compel the purchase of his shares. shareholder for the taking of his property; the
1. To pay the corporation the balance of his unpaid statutory means whereby a stockholder can avoid
subscriptions; the conversion of his property into
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another property not of his own choosing. The name through their articles of incorporation or their
purpose of the right is to protect the by-laws.
property rights of dissenting stockholders from -stock corporation may exceed 15.
actions by the majority shareholders -laws provide otherwise.
which alters the nature and character of their shall classify themselves in order that 1/3 of their
investment. It is a right granted to number shall expire every year and
dissenting stockholders on certain corporate or subsequent elections of trustees comprising 1/3
business decisions to demand payment shall be held annually.
of the fair market value of their shares. -laws provide otherwise.
the fair value of his shares: Qualifications of trustees:
1. In case any amendment to the articles of 1. He is a member of the corporation;
incorporation has the effect of: 2. Majority thereof must be residents of the
a. Changing or restricting the rights of any Philippines; and
stockholder or class of shares; 3. Other qualifications as may be provided for in the
b. Authorizing preferences in any respect superior by-laws.
to those of outstanding shares of -stock corporation may be directly elected by the
any class; or members.
c. Extending or shortening the term of corporate -laws provide otherwise.
existence. hold office only for the unexpired period.
2. In case of sale, lease, exchange, transfer, terfere on matters involving the internal affairs of
mortgage, pledge or other disposition of an unincorporated association such as elections,
all or substantially all of the corporate property and the manner by which it was
assets as provided in the Code; conducted and the results thereof. (Lions Club
and International vs. CA)
3. In case of merger or consolidation. 1. There is fraud, oppression or bad faith;
NON-STOCK CORPORATIONS 2. The action complained of is capricious, arbitrary
-stock corporation - one where no part of its income or unjustly discriminatory;
is distributable as dividends 3. Property and civil rights are invaded;
to its members, trustees, or officers, subject to the 4. The proceedings are violative of the laws of
provisions of the Code on society, or the law of the land, as by
dissolution. depriving a person of due process of law;
- 5. There is lack of jurisdiction on the part of the
stock so long as it does not distribute dividends to tribunal conducting the proceedings;
its members and officers. (CIR vs. 6. The organization exceeds its powers;
Club Filipino de Cebu) 7. The proceedings are illegal; or
-stock corporation may obtain as an incident to its 8. An incorporated association or its members avail
operations of the remedy of instituting an
shall, whenever necessary or proper, be used for intra-corporate dispute case.
the furtherance of the purpose or DISTRIBUTION OF ASSETS UPON
purposes for which the corporation was organized. DISSOLUTION
MEMBERSHIP AND VOTING RIGHTS 1. All liabilities and obligations of the corporation
cumulative voting). shall be paid, satisfied and
incorporation or the by-laws. discharged, or adequate provision shall be made
-laws. therefore;
-stock corporations may be 2. Assets held by the corporation upon a condition
authorized by the by-laws of non-stock corporations requiring return, transfer or
with the approval of, and under conveyance, and which condition occurs by reason
such conditions which may be prescribed by the of the dissolution, shall be
SEC. returned, transferred or conveyed in accordance
-stock corporation and all rights arising therefrom with such requirements;
are personal and non-transferable. 3. Assets received and held by the corporation
cles of incorporation or the by-laws provide subject to limitations permitting their
otherwise. use only for charitable, religious, benevolent,
TRUSTEES AND OFFICERS educational or similar purposes, but not
-stock or special corporations may designate their held upon a condition requiring return, transfer or
governing boards by any conveyance by reason of the
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dissolution, shall be transferred or conveyed to one f religious corporations:

or more corporations, societies or 1. Corporations sole; and
organizations engaged in activities in the 2. Religious societies.
Philippines substantially similar to those of general provisions on non-stock corporations.
the dissolving corporation according to a plan of Corporation Sole
distribution; – consists of one person only and his successor in
4. Assets other than those mentioned in the some particular
preceding paragraphs, if any, shall be station, who are incorporated by law in order to give
distributed in accordance with the provisions of the them some legal capacities and
articles of incorporation or the bylaws, advantages, particularly that of perpetuity, which in
to the extent that the articles of incorporation or the their natural persons they could not
by-laws, determine the have had.
distributive rights of members, or any class or – Administration and management, as trustee, of
classes of members, or provide for the affairs, properties and
distribution; and temporalities of any religious denomination, sect or
5. In any other case, assets may be distributed to church.
such persons, societies, – Chief archbishop, bishop, priest, minister, rabbi or
organizations or corporations, whether or not other presiding elder of
organized for profit, as may be specified such religious denomination, sect or church.
in a plan of distribution. DISSOLUTION
Close corporation - one whose articles of – the extinguishment of the corporate franchise and
incorporation provide that: the termination of
1. All the corporation's issued stock of all classes, corporate existence.
exclusive of treasury shares, shall be can no longer pursue the business for which it is
held of record by not more than a specified number incorporated.
of persons, not exceeding 20; years from the time it is dissolved for the purpose of
2. All the issued stock of all classes shall be subject winding up its affairs and the
to one or more specified liquidation of its assets.
restrictions on transfer permitted by Title XV of the 1. By expiration of the corporate term;
Code; and 2. By voluntary surrender of its primary franchise
3. The corporation shall not list in any stock (voluntary dissolution); or
exchange or make any public offering of 3. By the revocation of its corporate franchise
any of its stock of any class. (involuntary dissolution).
EDUCATIONAL CORPORATIONS EXPIRATION OF CORPORATE TERM
– those which provide facilities for teaching or indicate its term of existence in the articles of
instruction. incorporation.
the Code. eptions:
itutions are required to incorporate within 90 days 1. Corporations sole; and
after their 2. Religious societies.
recognition as such. However, failure to comply will SURRENDER OF FRANCHISE (VOLUNTARY
not immune the educational DISSOLUTION)
institution from suit as a corporation. 1. Voluntary dissolution where no creditors are
Sports is affected;
required before the SEC accepts or approves the 2. Voluntary dissolution where creditors are
articles of incorporation or by-laws of affected; and
any educational institution. 3. Shortening of corporate term.
-stock educational corporations shall not be less Dissolution by shortening the corporate term
than 5 nor more 1. Approval by a majority vote of the board or
than fifteen 15, in multiples of 5. directors or trustees.
RELIGIOUS CORPORATIONS 2. Written notice of the proposed action and the
– one composed entirely of spiritual persons which time and place of meeting shall be
is created served to each stockholder or member either by
for the furtherance of religion or perpetuating the mail or by personal service.
rights of the church or for the 3. Ratification by the stockholders representing at
administration of church or religious work or least 2/3 of the outstanding capital
property.
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stock or 2/3 of the members in case of non-stock proportionate stockholdings in the corporation or in
corporations. accordance with their respective
4. Submission of the amended articles of contracts of subscription (e.g. preferred stocks).
incorporation to the SEC. the time of dissolution for the purpose of
5. Approval of the SEC. prosecuting and defending suits by or against
religious denomination, sect or church is necessary. it and enabling it to settle and close its affairs, to
of the SEC that the corporation is deemed dispose of and convey its property
dissolved. and to distribute its assets, but not for the purpose
INVOLUNTARY DISSOLUTION of continuing the business for which
1. Filing of a verified complaint; and it was established.
2. Proper notice and hearing on the grounds n is authorized and empowered
provided by laws, rules and regulations. to convey all of its property to trustees for the
EFFECTS OF DISSOLUTION benefit of stockholders, members,
directors, trustees, or officers, nor any liability creditors, and other persons in interest. From and
incurred by any such corporation, after any such conveyance by the
stockholders, members, directors, trustees, or corporation of its property in trust for the benefit of
officers, shall be removed or impaired by its stockholders, members, creditors
the subsequent dissolution of said corporation. and others in interest, all interest which the
from further exercising other or secondary corporation had in the property terminates,
franchises which have been conferred to it. the legal interest vests in the trustees, and the
the business as a going concern. (Hall vs. Piccio) beneficial interest in the stockholders,
not extinguished by the corporation‟s dissolution members, creditors or other persons in interest.
since leases affect property rights and or stockholder or member who is unknown or
survives the death of parties. The stockholders cannot be found shall be escheated to
succeed to the rights and liabilities of the city or municipality where such assets are
the dissolved corporation in an unexpired leasehold located.
state which may be enforced by or lawful dissolution and after payment of all its debts
against the receiver or liquidating trustee. and liabilities.
corporation. There is an implied condition that the 1. By decrease of capital stock; or
contract shall terminate in such 2. As otherwise allowed the Code.
event. (Gelano vs. CA) methods of liquidation:
corporation and cannot apply for a new certificate or 1. By the corporation itself though the Board of
a secondary franchise. (Buenaflor Directors.
vs. Camarines Sur Industry Corp.) 2. By a Trustee appointed by the corporation.
-year period allowed by the law is only for the 3. By appointment of a receiver.
purpose of liquidation or winding of a corporation.
up of corporate affairs. No act can be done for the FOREIGN CORPORATIONS
purpose of continuing the business – one formed, organized or existing under any laws
for which it was established. Neither can it enforce other than
a contract executed prior to its those of the Philippines (and whose laws allow
dissolution. (Cebu Port Labor Union vs. State Filipino citizens and corporations to do
Marine Co.) business in its own country or state).
or extinction of rights demandable against such own country or state” is a mere condition precedent
juridical entity. Debts due to or against to the grand of a license of a
the corporation will not be extinguished. Otherwise, foreign corporation to do business in the
it will amount to an impairment of Philippines.
contracts or a denial of due process. (Gonzales vs. ation test” is applied in determining whether a
Sugar Regulatory Administration) corporation
LIQUIDATION AND WINDING UP is domestic or foreign. If it is incorporated in another
– the collection of all corporate assets, the state, it is a foreign corporation,
payments of while if it is registered under Philippine laws, it is
all its debts and settlement of its obligations and the deemed a Filipino or domestic
ultimate distribution of the corporation irrespective of the nationality of its
corporate assets, if any of it remains, to all stockholders.
stockholders in accordance with their nationality, i.e., the citizenship of the controlling
stockholders determines the nationality
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of the corporation.
General rule: A corporation can have no legal
existence outside the boundaries of
the sovereign by which it is created.
usually allowed to transact business in other states
and to sue in the courts of the
forum, subject to restrictions and certain
requirements imposed therein.
1. A license or permit to do so; and
2. A certificate of authority from the appropriate
government agency.
MODES OF ENTRY OF FOREIGN
CORPORATIONS
1. Branch office;
2. Representative or liaison office;
3. Local subsidiary;
4. Regional or area headquarters;
5. Regional operating headquarters;
6. Regional warehouse; or
7. Joint venture.
RESIDENT AGENT
license to transact business in the Philippines by a
foreign corporation.
1. An individual residing in the Philippines, of good
moral character and of sound
financial standing; or
2. A domestic corporation lawfully transacting
business in the Philippines (includes
partnerships such as law firms and accounting
firms).
CAPACITY TO SUE
order that it may proceed and effectively institute a
case in Philippine courts.
1. The action involves a complaint for violation of
the Revised Penal Code.
2. The foreign corporation is not suing or
maintaining a suit but is merely defending
itself from one filed against it.

_End_