History of Corporation Law in the Philippines

The basis of corporation law before 2019 was the

 Old Corporation Code- Batas Pambansa Blg. 68. Took effect on May 1, 1980.
 Revised Corporation Code- Republic Act No. 11232. Took effect on February 23, 2019.

The difference of Revised Corporation Code from the old.

Salient features are the following:
 Introduction of the ONE MAN CORPORATION
-meaning a corporation can consist of only one shareholder and ang maximum number is 15.
Don sa old corporation code, The incorporators should not less than 5 but not more than 15.
 REMOVAL OF THE 50 YEAR LIMIT RULE(Corporations now can have perpetual
existence (meaning mag-eexist na siya forever), unless limited in the Article of
Incorporation.
-Before kase lahat ng corporations, ang maximum life ay hanggang 50 years lang, and kapag
gusto naman nilang iextend yung life ng corporation, pagbobotohan nila yun and iaamend yung
Aticles of Incorporation.
 Treasurer’s affidavit is no longer required for incorporation.
 There no longer any minimum subscribed and paid-up capital.
-Before, bago ka bigyan ng Certificate of Incorporation as signed from the Articles of
incorporation, required kang magsubmit ng treasurer’s affidavit, which is nakaindicate don na
bayad na yung 25% of subscribed capital. Under the Old Corporation Code, dapat 25% of the
authorized share capital should have been subscribed and 25% of that subscribed number should
have been paid. Sa Revised Corporation Code, wala ng ganong requirement, at kahit yung
treasurer’s affidavit.
 There is no more minimum capital requirement of P5,000.
-Para daw mas mapadali ang incorporation.

SCOPE OF THE CORPORATION CODE

1. The incorporation, organization, and registration of private corporations both stock and non-stock,
including educational and religious corporations;
2. Definition of the powers and povision for dissolution of a corporation;
3. The duties and liabilities of directors or trustees and other officers;
4. Declaration of the rights and liabilities of stockholders or members;
5. Prescription of the conditions which corporations including foreign corporations may transact
business;
6. Provision of the penalties for violation of the Code;
7. Repeal of all laws and parts of laws in conflict and inconsistent with the Code.

DEFINITION OF A CORPORATION
 A corporation is an artificial being created by operation of law, having the right of succession and
the powers, attributes and properties expressly authorized by law or incident to its existence.
ATTIBUTES OF A CORPORATION
1. It is an artificial being;
-It is not natural, it is a man made. It is a man who creates corporation.
2. It is created by operation of law;
-kapag sinabing operation of law, it is either ni-create ng Congress or in-incorporate ito under
SEC under the Corporation Code.
-Hindi pwedeng magkaroon ng Corporation dahil lang sa mayroong agreement unlike sa
Partnership. Dahil bago ka makabuo ng Corporation as a private individual, kailangan bigyan ka ng
Certificate of Incorporation ng SEC.
3. It has the right of succession
-meaning kahit mamatay yung mga stockholders, yung mga members of Board of Directors,
tuloy-tuloy pa rin ang Corporation, unlike sa partnership, kapag may namatay na partner, basta may
change sa relation ng partner, madidissolved yung partnership. Pero pagdating sa corporation, yung mga
mismong stockholders, pwede nilang ibenta yung mga shares nila nang hindi naapektuhan yung
corporation.
4. It has only the powers, attributes and properties expressly authorized by law or incident to its
existence.
-Nakalagay sa Articles of Incorporation, mayroong primary purpose and secondary purposes.
Ibig sabihin yun lang ang pwedeng eexercise ng Corporation.
For Example:
Meron kang merchandise store and ang primary purpose mo is nagbebenta ka ng mga retail
goods, etc., therefore, kung yun yung primary purpose ng business mo, hindi ka pwedeng
magmanufacture ng goods, because it’s not in your purposes. Sa corporation kase, kung ano lang yung
nakalagay sa primary purpose, secondary purpose yun lang ang pwedeng gawin ng corporation.

 The statutory definition refers only to private corporations or to corporations organized

under the Corporation Code.
-ito yung mga in-incorporate under SEC or Securities Exchange Commission. -SEC-ito yung
primary government entity that deals with the incorporation of corporations.
 Congress may enact laws creating government owned and controlled corporations. Also, a
municipal corporation also refers to a local government unit such as Lucena City.
-Corporation can either organized under SEC or created by law.
-Example of corporations created by law or under congress and not under the SEC: PAGCOR
(Philippine Amusement and Gaming Corporation) and Manila International Airport Authority.
-Municipal Corporation- ito yung mga LGU which is created by the Congress.

CORPORATION AS AN ARTIFICIAL PERSONALITY

 A corporation is a legal or juridical person with a personality separate and apart fromits
stockholders or shareholders (Stock corporation) or individual members (non-stock
corporations).
-Stock Corporation- stockhlders are shareholders which is the pimary purpose is to earn profit.
-Non-stock Corporations- composed of members which is the purpose is not for profit, it’s for an
advocacy, public welfare etc. . Ex: Rotaract Club, Habitat for Humanity etc.,

 Not in fact and reality a person, but the law treats it as a person.
-meaning yung corporation mismo ay magfile ng case or pwede ring kasuhan. Pwede rin siyang
mag-own ng properties.
 The stockholders or members compose the corporation but they are not the corporation.
-because corporation is a separate entity from stockholders
 The debts of the corporation are not the debts of the shareholders or members.
-iba yung utang ng corporation sa utang ng mga stockholders. Similar din siya sa partnership,
ang kaibahan nga lang, sa partnership once na hindi ito nakabayad sa utang niya, liable yung mga
partners don and pwedeng habulin yung kanilang separate properties, pero sa corporation, hindi
pwedeng habulin ng creditors ng corporation yung stockholders for their separate properties dahil at the
most hanggang investment lang ng stockholders yung pwedeng mahabol ng creditors.

CORPORATION AS AN ARTIFICIAL PERSONALITY

1. Liability for debt/ownership of credit- The stockholders’ debt or credit is not debt or credit of the
corporation;
2. Right to bring actions- A corporation may incur obligations and bring civil and criminal actions in
its own same manner as a natural person. A corporator, has no personality to bring an action for and
in behalf ot its stockholders in their personal capacities and vice versa.
3. Right to acquire and possess property- Property conveyed to or acquired by the corporation is the
property of the corporation and not of the stockholders, and thus may not be sold without the
express authorization of the Board of Directors or trustees.
-BOARD OF DIRECTORS- nagmamanage ng corporation and lahat ng corporation ay may
Board of Directors. Ang nag-eelect ng Board of Directors ay mga stockholders, then yung mga nasa
Board of Directors, sila naman yung nag-eelect ng officers.
4. Liability for contracts-All contracts entered into the name of the corporation by its regular
appointed officers and agents are the contracts of the corporation and not those of the stockholders
or members;
5. Tax exemption/liability- A tax exemption granted to a corporation cannot be extended to include
the dividends paid by such corporationto its stockholders. The tax liability of a corporation cannot
be enforced against the stockholders.
-May dalawang bagay para kumita ka once na mag-invest ka sa corporation.
1. Kapag bibili ka ng shares tapos ibebenta mo kapag tumaas yung share price.
2. Kapag naman isa kang passive investor, in-invest mo yung pera mo sa corporation pwede kang mag-
antay ng dividends which is dinideclare ng Board of director as share income of the stockholders. Yung
matatanggap na dividends ay depende sa dami ng shares na hawak mo, and bago yun ibinibigay sa
individual stockholders meron na yung bawas na 10% final withholding tax.
6. Changes in individual membership- A corporation remains unchanged and unaffected by changes
in its individual membership. It has continuous existence since it would exist even if all the
stockholders die.
7. Liability under special circumstances - Personal or solidary liability may be incurred by corporate
agents acting in behalf of the corporation when exceptional circumstances warrant. Personal
liability may attach when the director/trustee or officer acted maliciously or in bad faith, or with
gross negligence, or when it is proven that the officer has used the fiction of separate corporate
personality to defraud a third party or for wrongful ends.

DISREGARDING FICTION OF CORPORATE ENTITY

 When fiction of corporate entity is being used as a cloak or cover for fraud or illegality, the fiction
of corporate entity will be disregarded and the individuals composing it will be treated as identical
with the corporation, or merely as an association of individuals undertaking certain activities as a
group although no corporation had been formed.
-General rule: Ang utang ng corporation ay hindi utang ng stockholders.
-Exception: Doctrine of piercing the veil
-For example: Nagtayo ka ng corporation para manloko ng tao, Let’s say sa corporation,
nagbebenta ka ng mga fraudulent products/illegal products. Hindi mo pwedeng gawing defense yung
corporation once na nagkahulihan na or hindi mo pwedeng gamitin ang corporation as a shield for fraud.
Dahil dito pwedeng habulin yung stockholders.
 The law will not recognize separate corporate existence, when it is clearly established that is used as
a shield for wrongdoing.
 Only the courts can declare/apply the “Doctrine of piercing the veil of corporate entity”.
 Creditors will be able to go after the assets of the individual shareholders.

INSTANCES WHERE FICTION IS DISREGARD

1. Where a corporation functions for the benefit of a single person- When a single person has
complete control over the funds and the said person is the sole owner thereof. (This has been
rendered moot by the new law allowing ONE PERSON CORPORATION);
-Hindi na ito applicable.
-Ang pinagkukunan kase ng batas is juris prudence.
-Juris prudence- court decisions ng supreme court. And dahil bago pa yung batas, wala pa
masiyadong juris prudence.

2. Where the corporation is a mere instrumentality of the individual stockholders -Kapag yung
corporation is instrumentality na ng individual stockholders which is very hard to prove.
-It is making the stockholders indvidually answer for corporate obligations.
-The corporate entity cannot be invoked or used for purposes that could not have been intended
by the law that created that separate personality.
3. Where the Philippine corporation is controlled by aliens- May mga corporations na dapat ay
controlled talaga by Filipinos. Ito yung mga nasa public utilities.
-Controlled by Filipinos- Dapat 60% or more of the stockholders are Filipino citizens.
4. Where a corporation is organized by an insolvent debtor to defraud his creditors
-For example: Kapag daw ang isang debtor is maraming utang, and hindi siya makabayad, aware siya na
kapag hindi makabayad is ibebenta ng creditors yung kanyang mga properties, then yung mga proceeds
don is iaapply sa mga utang niya, pero ang ginawa ng insolvent debtor na yun is gumawa siya ng
corporation, dahil nga ang sabi, the corporation is a separate entity from its stockholders, therefore,
nilipat niya lahat ng assets niya don sa corporation kaya nagtataka yung mga creditors kung bakit wala
silang makuha don sa debtor. In this case, pwedeng maiapply yung doctrine of piercing the veil, dahil
nga ginamit ng insolvent debtor yung corporation para lokohin yung kanyang mga creditors na wala
siyang assets. Therefore, maaari pa ring mahabol ng creditors yung mga assets na yun kay debtor.
5. Where a subsidiary company is created by a parent company merely as an instrumentality,
conduit or agency of the latter -If the stockholders or officers of the two corporations are
substantially the same or their system of operations is unified.
-For Example: Yung San Miguel Corporation is a parent company. Marami itong hinahawakang
business tulad ng food productions, retail, at constructions. These separate business ay may kanya kanya
ring corporation and those corporations are subsidiaries of San Miguel Corporation. Mayroong San
Miguel infrastracture, pure foods, Mayroon pang Petron. San Miguel Corporation is a holding company
and hawak niya yung mga subsidiaries na yun which are handling different businesses.
6. Where a corporation is formed by a person for the purpose of evading his/her individual
contract - gumawa ng corporationand yun yung pinangcontract mo, which is ang purpose mo don is
para hindi ka maging liable. Ang intention mo pala is lokohin yung tao na kinontract mo. Therefore,
maapply dito yung doctrine of piercing the veil.
7. Where a corporation is dissolved and its assets are transferred to another corporation to avoid
a financial liability of the first corporation- Both firms are owned and controlled by the same
person. The second corporation should be considered a continuation and successorfor the first
entity.

CORPORATION AS A CREATION OF LAW OR BY OPERATION OF LAW

 GENERAL RULE: Special authority or grant by the State is required- dapat meron ka munang
Certificate of Incorporation bago ka magkaroon ka ng corporation.
-Corporations cannot come into existence by mere agreement of the parties.
-Corporation is created either by a special law which directly creates the corporation or by means
of incorporation through the SEC.
 EXCEPTION: Corporations by prescription such as the Roman Catholic Church and other
religious organizations. Dahil nga sa sobrang tagal na parang corporation na rin sila, kase nabuo sila
bago pa man mangyare yung Old and Revised Corporation Code.

RIGHT OF SUCCESSION OF A CORPORATION

 A corporation has a capacity of continuous existence irrespective of the death withdrawal,
insolvency, or incapacity of the stockholders and regardless of the transfer of their shares of stock.
 Under the Revised Corporation Code, a corporation shall have perpetual existence unless its Article
of Incorporation provides otherwise. The 50 years maximum rule NO LONGER APPLIES.

POWERS, ATTRIBUTES, AND PROPERTIES OF A CORPORATION

 A corporation may exercise only such powers as are granted by the law of its creation.
 All powers which may be implied from those expressly provided by law and those which are
incidental or essential to the corporaion’s existence may also be exercised.
-For example: Kung ang business mo ay retail of consumer goods, kasama don yung pagbili ng
lupa, pagrenta ng property para makapagpatayo ng tindahan because those powers are incidental or
essential to the primary purpose of selling consumer goods.

DISTINCTIONS BETWEEN A PARTNERSHIP AND A CORPORATION

PARTNERSHIP CORPORATION
Created by mere agreement of the parties Created by law or operation of law
May be organized by two or more persons Can now be created by a single person(ONE
PERSON CORPPORATION)
Commences to acquire juridical personality from Begins to have corporate existence and juridical
the moment of execution of the contract of personality from the issuance of the certificate of
partnership. incorporation by the SEC.
May exercise any power authorized by the partners Can only exercise powers expressly granted by law
provided it is not contrary to law, morals, good or implied from those granted or incident to its
customs, public order or public policy. existence.
When management is not agreed upon, every The power to do business and manage its affairs is
partner is an agent of the partnership. vested in the board of directors or trustees.
A partner can sue a co-partner who manages The suit against a member of the board of directors
or trustees who mismanages must be in the name
of the corporation.
-Yung corporation mismo yung magkakaso.
A partnership has NO right of succession A corporation has the right of succession.
The general partners are liable personally and The stockholders are liable only to the extent of
subsidiarily for partnership debts to third persons their investments.
A partner cannot transfer his interest in the A stockholder has the right to transfer his shares to
partnerrship SO AS TO MAKE the transferee a anyone without the prior consent of the other
partner in the partnership. stockholders.
A partnership may be dissolved at anytime by the A corporation can only be dissolved with the
will of any or all of the partners. consent of the State
A partnership is governed by the Civil Code A corporation is governed by the Revised
Corporation Code.
SIMILARITIES BETWEEN A PARTNERSHIP AND A CORPORATION
 Both a partnership and a corporation have juridical personalities separate and distinct from the
individuals composing them.
 Both of them can only act through agents.
-Sa partnership yung mga partners.
-Sa corporation yung mga Board of Directors.
 Both distribute profits to those who contribute capital.
-Sa partnership, mayroong partners share of the net income
-Sa Corporation, mayroong dividends yung mga stockholders kapag may declaration yung Board
of directors.
-May mga corporations na hindi nagdedeclare ng dividends for the growth of the corporation.
 Both are taxable. All partnerships, except for general professional partnerships, are subject to the
regular corporate income tax rate.

ADVANTAGES OF A BUSINESS CORPORATION

 Has continuity of existence because of its indepence on those who compose it;
 Its credit is strengthened by such continuity of existence.
 Its management is centralized in the board of directors.
 Its creation, organization, management and dissolution are standardized under the Corporation
Code.
 It makes feasible big enterprises because it enables many people to invest their separate funds in the
enterprise.
-kailangan ng corporations ng fundings kaya ang ginagawa nila si nagbebenta sila ng shares sa
mga tao.
 The shareholders have limited liability.
-ito yung gusto ng mga investors kase, ayaw nila na habulin sila ng creditors ng corporation.
 The shares of stock can be transferred without the consent of the other stockholders.
-kase nga yung price ng shares ng company, tumataas, bumababa. Bumababa yung price kung
pangit yung outlook ng company dahil sa tingin ng mga tao malulugi. Pero kung ang tingin ng mga tao
ay malakas yung company dahil may bagong products or innovations, tataas yung presyo ng shares non.

DISADVANTAGES OF A BUSINESS CORPORATION

 Relatively complicated foormation and management;
-kailangan mo pang lumapit sa SEC. Mas mahirap siya compare sa sole proprietorship and
partnership.
 There is a relatively high cost of formation and operation;
-Sa corporation kase, marami kang finafile na income tax returns, and maraming compliance
requirements.
 There is a greater degree of governmental control and supervision;
-lalo na kung ang business ng corporation can affect environment, mas binabantayan yun ng
government agencies like DENR.
 The stockholders’ voting rights have become theoretical because of the use of proxies and
widespread ownership.
-may voting rights nga yung mga shareholders, pero in reality yung mga proxies na lang yung
bumoboto.
 The stockholders have little voice in the conduct of the business.
-Stockholders, ang pwede lang nila gawin is to vote the members of Board of directors who will
manage the corporation.

CLASSIFICATION OF CORPORATIONS
1. Stock corporation- the ordinary business corporation created and operated for the purpose of making
a PROFIT. Such profit may be distributed in the form of DIVIDENDS to stockholders on the basis of
their invested capital. Dividends may be in the form of money, property, or additional stock.
2. Non-stock corporation- not created for profit. It does not issue stock. Its purpose is for the public
good and welfare. Capital is sourced from contributions and donations.

OTHER CLASSIFICATION OF CORPORATIONS

1. As to the state or country under or by whose laws they have been created-
a) Domestic Corporation- A corporation incorporated under the laws of the Philipppines.
b) Foreign Corporation- one formed, organized, or existing under any laws other than those of the
Philippines.
 -pwede silang magbusiness sa Philippines pero kailangan nilang mag-apply ng license sa SEC.
2. As to their legal right to corporate existence-
a) De jure corporation- a corporation existing in fact and in law, or
-complete sa requirements.
b) De facto corporation- a corporation existing in fact but not in law.
-hindi complete sa requirements.
3. As to whether they are open to the public or not-
a) Close corporation- one which is limited to selected persons or members of a family.
-maliliit na business na tipong hindi na binebenta shares nila sa mga tao. FAMILY CO.
b) Open corporation- one which is open to any person who may wish to become a stockholder or
member thereto.
-publicly listed yung shares nila. Meaning nasa SEC yung kanilang shares, and kahit sino
pwedeng bumili ng kanilang shares. Example: JFC-Jollibee food corporation, San Miguel
Corporation, Ayala Co. Etc.,
4. As to their relation to another corporation
a) Parent or holding corporation- holds most of the shares of another corporation. It has the power
to either directly or indirectly elect the members of the board of directors of the subsidiary
corporation.
-kase ang corporation pwede silang humawak ng shares ng ibang Corporation. “corporation can
be a stockholder of another corporation”.
b) Subsidiary corporation- most of its hares are held by the parent corporation or holding
company.
5. As to whether they are for public (government) or private purpose-
a) Public corporations- those formed or organize for the government of a portion of the State e.g.
autonomous regions, provinces, cities, municipalities, and barangays.
-There is only one autonomous region in the Philipines.
-the Autonomous Region of Muslim Mindanao (ARMM)- this is a separate local government
unit. May sariling governor ang ARMM
-Cordillera Administrative region is not an autonomous region because wala itong sariling
governor and it is only use for administrative purposes.
b) Private corporations- those formed for some private purpose, benefit, or end.
-ang purpose nito is for profit.

CORPORATIONS CREATED BY SPECIAL LAWS OR CHARTERS

 Corporations created by law (Congress) such as PAGCOR, Land Bank of the Philippines, etc.

CAPITAL STOCK AND CAPITAL

1. Capital Stock- amount fixed in the articles of incorporation. To be subscribed and paid in by the
shareholders of a corporation. It limits the maximum amount or number of each class of shares that may
be issued by the corporation without formal amendment of the articles of incorporation.
-ito yung maximum amount na nakalagay sa Articles of Incorporation, in case of par value
shares. Kapag yung shares ay may par value lahat, yung authorized capital stock yung amount non same
lang sa capital stock.
a) Authorized capital stock- if shares have par value, authorized capital stock is the same as caital
stock. If the shares have no par value, there is no authorized capital stock. There is only capital
stock, which can only be determined when all shares have been issued.
b) Subscribed capital stock- amount of capital stock subscribed whether fully paid or not. It is
acquisition by a subscriber of unissued shares in a corporation.

Sample of authorized capital stock

SEVENTH: That the Authorized Capital stock of the Corporation is 100 million pesos in lawful
money of the Philippines divided into:

i. 94,164,560 Common shares with a par value of P1.00 per share, or the aggregate amount of
P94,164,560.
ii. 6,344 Preferred A Shares with a par value of P10 per share, or the aggregate amount of
P63,440.
iii. 520 Preferred B Shares with a par value of P100 per share, or the aggregate amount of
P52,000.
 -mayroong declaration sa article of incorporationkung magkano yung Authorized Capital Stock.
Meaning hindi pa naiissue lahat ng Authorized capital stock, kumbaga wala pang ganyang pera sa
ngayon ang corporation, kumbaga ito pa lang balak iissue ng corporation.

C) Outstanding Capital Stock. Portion of the capital stock which has already been issued and held by
persons other than the corporation itself. It is the total shares of stock issued to subscribers and
shareholders, except treasury shares.
-Eto yung naissue na, so hawak na siya ng shareholders. Binabawas dito yung treasury shares.
D) Paid-Up Capital- portion of the subscribed or outstanding capital stock that is paid.
E) Unissued capital stock- Portion of the capital stock that is not issued or subscribed. It does not vote
and draws no dividends.
-hawak pa siya ng corporation, hindi pa ini issue sa shareholders.

1. Capital- It is the entire assets of the corporation. It includes the amount invested by the stockholders
plus the undistributed earnings less losses and expenses.
A) Legal Capital- It is the amount equal to the aggregate par value and/or issued value of the
outstanding capital stock. With regard to issuance of par value shares, Share premium is not
included in the computation of legal capital. In case of no par value shares, the entire consideration
received forms part of legal capital.
-kapag par value shares, yung amount lang nong par value shares , yung lang yung part ng legal capital.
Hindi kasama yung share premium. And pwede mag issue ng more than the par value and yung excess
non is a share premium.

Stock or share of stock

-One of the units into which the capital stock is divided. It represents the interest or right which the
owner has the right to vote, in case of voting shares; the right to receive dividends declared by the BOD;
and the right in the remaining assets and properties upon liquidation of the corporation.
-dito papasok yung capitalism. Kug marami kang stock, let say you own the 60% of the stock of the
corporation you have the controlling interest. Kahit mag isang tao ka lang pwede mong iboto kung sino
yung mga members ng Board of Directors. And ikaw din yung may pinakamalaking dividends na
matatanggap. Yung rights to receive mo ng dividends ay nakadepende sa number of shares mo.

Nature of share of stock

- hindi porket shareholder ka ay may karapatan kana don sa mga assets nong corporations. Because
those assets belongs to the corporation, they do not belong to you.

-The share of stock is incorporeal in nature. They are personal property.

Incorporeal kasi hindi mo siya nakikita, it is also intangible but it is considered as personal property.

-Ang share of stock ay hindi utang ng corporation sa shareholder. Example: if may nakuha kayong
certificate of stock, hindi kayo pwedeng pumunta sa company para ipatubos yun or whatever but rather
pwede mong ibenta yun or ipatransfer mo sa pangalan mo.

-It only represents an undivided part of the corporation’s property.

Certificate of Stock
-formal written evidence of the holder’s ownership of one or more shares of a corporation.
-It is a mere instrument for the transfer of title.

Classes of Shares
1. Par value Shares- a share with specific money value fixed in the articles of incorporation for each of
stock of the same issue.
A) xPrimary purpose is to fix the minimum issue price of the shares to assure the creditors that the
corporation would receive a minimum amount to its stock.
B) It is not usually the price at which investors buy or sell the stock.
-Yung corporation hindi siya pwede mag issue below par value, pero kapag nasa kamay na ng
shareholder yung stock na yun, pwede na ibenta yun below par value.

2. No Par Value Share- a share without any stated or par value appearing on the face of the certifcate
of stock. It is a stock which does not state how much money it represents.
A) It has an issued value. The issued value is the consideration fixed by the corporation for its issuance
B) A corporation may issue no par value share only, or together with par value
C) No par value stockholders have the same rights as par value stockholders.

3. Voting Share- A share with right to vote.

A) Common shares usually have the right to vote. Preferred shares usually do not.
B) Representation in a corporation us commensurate to the extent of ownership of shares.
Depende sa dami ng ng voting shares mo, don ka magkakaroon ng shares sa corporations. Don ka
makakapag elect ng members of BOD na gusto mo. Pero kung maliit lang, hindi masyado pero meron pa
din.

4. Non Voting share- a share without the right to vote

A) No share may be deprived of voting rights to except those classified and issued as preferred or
redeemable shares.
-Kahit na preferred shareholder ka ay wala kang voting previliges when it comes to electing the
members of the BOD.
B) Preferred shares may still vote on the following: (Found in Sec. 6)
i. Amendment of the articles of incorporation; adoption and amendment of by-laws; sale, lease,
exchange, mortgage, pledge, or other disposition of all or substantially all of the corporate property;
incurring, creating, or increasing bonded indebtedness; increase or decrease of authorized cpital stock;
merger or consolidation of the corporation with another corporation or other corporations; investment of
corporate funds in another corporation or business; dissolution of the corporation.
-etong mga ito ay medyo mabigat na decision, so meaning lahat ng shareholders including the preferred
shareholders ay pwede pagbotohan dito.

other disposition of all or substantially all of the corporate property- importante siya kasi let say
maliit na property lang yung binebenta, hindi kailangan ng botohan.

Nature of par value/ book value/market value

1. Par value per share- The par value indicated in the Certificate of stock represents the amount or
property contributed by the shareholder to the capital stock of the corporation.
2. Book Value per share- Value of total corporate assets divided by the number of shares issued or
outstanding.
-pag nalulugi na yung company meaning mababa yung book value per share niya, kasi maliit na yung
asset niya.
3. Market Value- The price a willing seller would sell and a willing buyer would buy.
- makikita siya sa stock exchange. It is readuly available sa stock exchange.

Kinds of Preferred Shares

1. Preferred shares as to assets- Gives the holder preference in the distribution of assets of the
corporation in case of liquidation.
2. Preferred share as to dividends- Entitled to receive dividends at fixed rates before any dividend is
paid to common stockholders.
-may dividend rate, meaning sila muna ang babayaran bago yung remaining ay maibigay sa mga
ordinary. Preferred sila pagdating sa dividends, Pero pag dating sa voting rights ay wala sila gaanong
ganun.

Limitations regarding the issuance of preferred shares

- Preferred shares may be deprived of voting rights such as election of members of the BOD, but may
still vote on matters enumerated in Sec. 6;
- Preferred shares may be issued only with a stated par value.

Kinds of preferred shares as to dividends

1. Cumulative preferred shares- included dividends in arrears. If the stipulated dividend is not paid in
a given year (no declaration by BOD) it will be added to the dividend which shall be due. Accumulated
dividends must be paid to the holder of the preferred share before any dividend may be paid to the
holders of common stock.
Arrears- yung mga nakaraan ay kasama.
-meaning, nagkakaroon lang ng dividends kapag nagdeclare yung BOD, and yung sa mga years na hindi
nagdeclare yung mga BOD, for example, five years na yung corporation tapos merong preferred shares
na 10% of dividend rate so ibig sabihin let say yung year 1, 2, 3 and 4 ay walang declaration and sa year
5 ay agdeclare and cumulative share yung hawak nong share holder. Yung sa apat na taon ay
icoconsider, kumabag pati yung nakaraang taon ay bibigyan. Pag ganun ay kunti na lang yung matitira
para sa mga ordinary stockholders.
2. Non-cumulative preferred shares- entitles the holder to payment of current dividends only in
preference to common shareholders. If dividends are not declared in a given year, the right to the
dividends for that particular year is extinguished.
Example base sa taas: So sa year 5 lang nag declare ng dividends, so walang dividends para sa year 1,2,
3, and 4.
3. Participating preferred share- bibigyan muna ng percentage yung mga preferred stockholders, tapos
yung ordinary stock holders ay bibigyan din ng share based don sa percentage of preferred share. Pag
may natitira pa ibibigay ulit yun sa preferred share.
4. Non-participating preferred share- entitles the holder to receive the stipulated preferred deividends
and no more. The rest goes to the common stockholders.
- In the absence of any agreement, dividends are deemed non-cumulative and non-participating

Redeemable Shares
-A share which is usually a preferred share, which is redeemable at a fixed date or at the option of either
the issuing corporation or the stockholder or both at a certain redemption price.
- Redemption is the repurchase of reacquisition of stock by a corporation which issued the stock for
cash or property.
- Redeemable shares may be issued only when the expressly so provided in the AOI. Common shares
are never redeemed.

Treasury shares
- naissue na, hawak na ng shareholders. And shareholder na yun ay nagsubscribe ng share. So, yung
corporation ay binigay sa kanya yung share. And yung shareholder na yun ay hindi na binabayadan yung
subscribed shares niya, kapag may delinquent stock ay binibid siya and pwede yung corporation mismo
yung bumili ng stocks na yun. And yun ang tinatawag na treasury shares.
-Ginagawa yun ng corporation kasi yung treasury shares ay pwede niyang ibenta in the future.
-Hindi siya babalik sa unissued shares.
-Treasury shares have no voting rights as long as they remain in the treasury.
-cannot vote, kasi hawak siya ng corportion.
-not entitled to dividends because it is held by the corporation, because hawak siya ng corporation
because it’s like you are paying yourself.

Title II- INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS

STEPS IN INCORPORATION
1. Reservation of the Corporate Name (Sec. 18, RCCP)
-Before you can create a corporation, you have to check first if the corporate name is available.
2. Drafting and Execution of the Articles of Incorporation and By-Laws by the incorporator or
incorporators (not more than 15);
-If the corporate name is available, you can
-This is ecxecuted by the incorporator or incorporators.
-Under the revised corporation code pwede na ang one person corporation, it should not be more than
15.
3. Filing with the Securities and Exchange Commission of the articles of incorporation and By-laws;
- In case the corporation is governed by a special law, such as an education institution or a banking
institution, a favorable recommendation of the appropriate government agency is required.
Example:
You want to put a banking corporation, you need a recommendation from the BSP (Bangko
Sentral ng Pilipinas).
4. Payment of the filing and publication fees;
5. Issuance by the SEC of the certificate of incorporation if all the papers filed after verification and
examination are found in order.
CERTIFICATE OF INCORPORATION- malalaman mo na meron ka ng corporation kapag meron
ng issuance ng SEC ng certificate of incorporation na nanggagaling nga sa SEC.
ARTICLES OF INCORPORATION- ang gumagawa ay yung mga incorporators. Yung mga
nagsisimula ng corporation. Then, sinasubmit sa SEC and yung SEC yung mag dedetermine if all the
requirements are complete. And if it is complete, magbibigay yung SEC ng Certificate of incorporation.

INCORPORATORS
 Any person, partnership, association or corporation, singly or jointly with others but not more than
15.
-Under the revised corporation code pwede ng maging incorporator ang partnership at saka isa pang
corporation.
 Each incorporator of a stock corporation must own or be a subscriber to at least one (1) share of
stock.
 A corporation with a single stockholder is considered a ONE PERSON CORPORATION (OPC)
-pwede na ang one person corporation

CORPORATE TERM
 A corporate shall have perpetual existence unless its articles of incorporation provides otherwise;
- before under the old incorporation code the maximum term is only 50 years, but now it is perpetual or
infinity. And pwede nila limitahan yung corporation nila. But if wala naman sa article of incorporation,
let say gagawa ka ng bagong corporation ngayon under the revised corporate code, kapag wala kang
binigay na specific term the presumption is it is perpetual.
 A corporate term for a specific period may be extended or shortened by amending the articles of
incorporation;
-if may nilagay kang term sa existence of corporation, let say 50 years tapos nagbago isip ng mga
shareholders, after 50 years. They can extend the life of corporation by amending or babaguhin yung
articles of incorporation. Pwede ding paiksian. Let say perpetual yung existence mo pero nafefeel nong
mga shareholders na hindi na kumikita yung corporation, and hindi nila pwedeng I stop yun all of the
sudden kasi may mga penalties yun. Instead, they will amend to articles of incorporation na papaiksihin
na lang.
-no extension may be made earlier than three years prior to the original or subsequent expiry date unless
there are justifiable reason for an earlier extension.
Meaning, kung gusto mong I extend yung corporate life, let say mag eend na sa 50 years, yung mga
shareholders pwedeng mag ammend to articles of incorporation, let say nasa 47 years na and above.
Kasi hindi pwedena earlier than 3 years ay magpapaextend kana.
 A corporation whose term has expired may apply for a revival of its corporate existence.
-kapag nag expired na yung term ay mag a -apply ka ng revival. Bubuhayin mo yung corporation.

IMPORTANT FEATURED
- there is no MINIMUM CAPITAL STOCK REQUIRED, Stock corporations are no longer required
to have minimum capital stock, except as otherwise provided by special law.
 The 25% of 25% rule NO LONGER APPLIES under the Revised Corporation Code.

Filipino percentage ownership requirement regarding corporate capital Art. XII, Sec. 2, 1987 Phil.
Constitution
-Our constitution is the highest law of the land, so dapat kapag gagawa ng batas ang congress ay hindi
labag sa constitution.
1. Corporations for exploration, development and utilization of natural resources- at least 60% of
the outstanding capital stock of which is owned by the citizens of the Phil.
2. Public service corporations- at least 60% of the outstanding capital stock is owned by citizens of the
Phil.
3. Educational Corporations- at least 60% of the outstanding capital stock is owned by citizens of the
Phil.

Meaning of Articles of Incorporation

- It is the document prepared by the person or persons establishing a corporation;
-It is filed with the SEC;
- A corporation created by special law has no articles of incorporation. Rather, its management is
governed by its charter. It is also known as a corporation with an original charter. A corporation without
an original charter is one which is created under the SEC.
-Meaning, merong 2 klase of corporation, merong corporation with an original charter and corporation
without original charter.
corporation with an original charter- created by congress.
Example: PAGCOR or Philippine Amusement in Gaming Corporation. So, there is a law passed to
congress creating PAGCOR.
corporation without original charter- Example: Ayala corporation, Jollibee and yung mga hindi
created by special law passed by congress, eto yung dumaan sa SEC. Yung PAGCOR hindi siya dumaan
sa SEC kasi siya ay created by congress.

Contents of the Articles

1. Name of the corporation- the name shall be followed by “Inc.”, “Corporation”, or “OPC” for one
person corporation.
2. The specific purpose or purposes for which the corporation is being formed- Must be stated with
sufficient clarity and not too indefinitely. No corporation can be formed with the purpose, “to carry on
any business not contrary to law.” If there is more than one purpose, there shall be a primary purpose
and then secondary purposes. A corporation cannot be created for the purpose of carrying out a
profession i.e. law firms, accounting firms, etc.;
-dahilan kung bakit siya tinatayo. If ikaw ay business person hindi pwede na marami kang purposes. Let
say gagawa ka ng corporation. If holding corporations, ang purpose niya is to hold shares of various
companies. Example ayala corporations and SM. But the thing is hindi ka pwedeng gumawa ng
corporations na lahat ng negosyo y ikaw ang nagooperat. At most pwede lang maging holding
corporations which is hahawakan mo yung share nong mga companies na yun.
3. The place where the principal office of the corporation is to be located, which must be within
the Phil.
4. The term for which the corporation is to exist, if the corporation has not elected perpetual
existence- Corporations now can have perpetual existence. The 50 year limit has been removed.
5. The names, nationalities and residence addresses of the incorporator/s- The residency
requirement has been removed, and juridical persons (partnerships and corporations) can now be
incorporators.
6. The number of directors, which shall not be more than 15, or the number of trustees which may
be more than 15- Kapag stock corporations ang tawag ay directors, pag non-stock corporations ang
tawag ay trustees. Kapag stock corporations ang tawag ay shareholders, pag non-stock corporations ang
tawag aymembers.
Example of non stock corporations:
Yung mga civic corporation such as rotary club
7. The names, nationalities, and residence addresses or persons who shall act as directors or
trustees until the first regular directors or trustees are duly elected and qualified.
8. In case it is a stock corporation, the amount of its authorized capital stock, number of shares
into which it is divided, the par value of each share names, nationalities and residence addresses of
the original subscribers, and the amount subscribed and paid. In case of no-par value shares, a
statement of the fact of existence or such no-par value shares.
9. In case it is a nonstock corporation, the amount of its capital, the names, nationalities, and
residence addresses of the contributors, and amount contributed by each.

Principal office of the corporation

-specific address of the principal office, which shall include street number, street name, barangay, city or
municipality.
-Place where corporate books are ordinarily kept and its officers meet. Not necessarily the place where
the business of the corporation is transacted.

Change of address
- If new address is within the same city or municipality- no need to amend articles of Incorporation.
What is required is the submission of an amended General Information Sheet (GIS) to the SEC within
15 days from transfer;
-If new address is in a different city or municipality- need to amend articles of Incorporation

Perpetual Corporate Term

-a corporation shall have perpetual existence unless its Articles of Incorporation provides otherwise;
-Corporations with certificates of incorporation issued prior to the effectivity of the Revised Corporation
Code, and which continue to exist, shall have perpetual existence. Existing corporations need not do
anything if they want to have perpetual term.
-Meaning yung mga dating corporation na may term limit and upon the effectivity of the revised code ay
perpetual na sila.

Amendment of Articles of Incorporation

Includes:
1. Extension or shortening of corporate term. (no extension may be made earlier than 3 years prior to the
original or subsequent expiry date/s unless justified.)
-hindi pwede na masyadong maaga ka na mag eextend. You have to wait 3 years prior to the original or
subsequent expiry date/s unless justified.
2. Increase or decrease of authorized capital stock;
3. Amendments to purposes of the corporation.
-let say magbabago ng corporation, so papalitan yung purpose, you have to amend the articles of the
corporation.

Requires:
1. Majority vote of the members of the board of directors in the case of stock corporations; or trustees in
the case of non-stock corporations; AND
2. At least 2/3 vote written assent of the shareholders representing at least two-thirds 2/3 of the
outstanding capital stock, or 2/3 vote of the members in the case of non-stock corporations.
What if yung shareholder ay 70% yung own niya don sa outstanding capital stock? Meaning, kahit boto
niya lang mag isa, that is more than 2/3 of outstanding capital stock already. Pwede na siya yung
magdecide if i-aamend yung articles of incorporation.

Acquisition of Juridical Personality

Upon the issuance of the Certificate of Incorporation to the incorporators by the SEC.
-kapag na issuahan na yung corporation ng certificate of incorporation, there is already a juridical
personality.

De jure corporation
A corporation created in strict or substantial conformity with the mandatory statutory requirements for
incorporation and whose right to exist cannot be successfully questioned by any party even in a direct
proceeding by the state.
-eto ung walang kaduda duda, or kumpleto sa requirements.

De facto Corporation
One which actually exists for all practices as a corporation but has not complied with all the
requirements necessary to be a de jure corporation. It has complied sufficiently to be accorded corporate
status as against third parties but not against the state.
-may pang ilan ilan na kulang or hindi kumpleto.

What if walang certificate of Incorporation?

-it is not a de facto corporation, there is no corporation at all.

Requisites of a De Facto Corporation

1. A valid law under which a corporation might be incorporated. (Revised Corporation Code f the Phil.,
R.A. NO. 11232):
2. A bona fide attempt to organize a corporation under such law; and
3. Actual use or exercise in good faith of corporate powers.

No corporation in the ff. Cases (Not even a de facto corporation)

A. Absence of articles of Incorporation;
B. Failure to file articles of Incorporation with the SEC;
C. Lack of certificate of incorporation from the SEC.

Questioning validity of corporate existence

- COLLATERAL ATTACK NOT ALLOWED. A collateral attack on the valid existence of a
corporation is an incidental attack on the validity of existence of a corporation in a case which has a
different lis mota.
Example: nagpautang ka, gusto mong kasuahan yung coporation na nangutang sayo, kasi hindi siya
nagbabayad. Hindi mo pwede atakihin yung existence nong corporation na yun.
-ONLY DIRECT ATTACK BY THE STATE IS ALLOWED: Only a direct attack thru the Solicitor
General by quo warranto proceedings is allowed in questioning the validity of corporate existence.
Solicitor General- lawyer ng government

Corporation by estoppel
- An ostensible corporation compromising of persons who assume to act as a corporation knowing it to
be without authority. Such persons shall be liable as general partners for all debts, liabilites and
damages to third persons who believed in such persons.
-nagkukunwari kayong magkakaibigan na may corporation kayo, so nakipag business kayo don sa isang
stranger na naniwala na corporation kayo. Pwede kayong kasuhan, pwede nilang habulin lahat nong mga
kasama sa pagkukunwari.
-Such person shall not be allowed to use the defense of lack corporate personality. In the same manner,
anyone who assumes an obligation to an ostensible corporation cannot resist performance on the ground
that there is no corporation.
-So yung mga nagkukuwari na may corporation sila, hindi pwede nilang sabihin na hindi sila pwedeng
kasuhan kasi wala talaga silang corporation. Hindi siya pwede kasi they are in bad faith, they let people
to believe that they have a corporation. So mananagot sila don.

Effects of non-use of corporate charter and continuous inoperation

-Certificate of incorporation shall be revoked if a corporation does not formally organize and commence
its business within 5 years from the date of its incorporaton.
Meaning dapat 5 years after ka maissuehan ng certifcate of incorportion dapat nagstart na yung
business. Under the old corporation code is 2 years. Kapag 5 years na hindi ka pa rin nakakapag start ng
business mo, irerevoked yung certificate of incorporation mo.

-If a corporation has commenced its business but becomes inoperative for a period of at least 5
consecutive years, the corporation will be placed under delinquent status after due notice and hearing;
Kapag bigla kang tumigil for 5 years ay ilalagay kasa delinquent status.
-A delinquent operation shall have a period of 2 years to resume operations and comply with all
requirements.
Kapag gusto mong bumalik sa active status you have a period of 2 years to resume operations and
comply with all of the requirements.

Reason for rule against collateral attack

1. No individual right is invade;
2. It would produce endless confusion and hardship and probably destroy the corporation if the legality
of its existence could be questioned in every suit to which it is a party;
3. For public interest.