ACC135 Corporation Notes 2nd Sem, AY 2022 2023

7.
The stockholders’ rights have become

CORPORATION theoretical particularly in large corporations
because of the use of proxies and
Old Law: Batas Pambansa Blg. 68 or The
widespread ownership.
Corporation Code of the Philippines
8. The stockholders have little voice in the
conduct of the business.
New Law: Republic Act No. 11232 or the
Revised Corporation Code of the
Classifications of Corporations
Philippines
1. As to whether their membership is
represented by shares of stock or not
Date of Effectivity: February 23, 2019
a. Stock corporations – those which have
capital stock divided into shares and are
Corporation – an artificial being created by
authorized to distribute to the holders of
operation of law, having the right of succession
such shares dividends or allotments of the
and the powers, attributes and properties
surplus profits on the basis of the shares
expressly authorized by law or incidental to its
held.
existence.
b. Nonstock corporations – those which do
not issue stock and distribute dividends to
Attributes of a Corporation
their members, created not for profit but for
1. Artificial being.
the public good and welfare.
2. Created by operation of law.
3. Has the right of succession.
2. As to number of persons who compose
4. Has only the powers, attributes and
them:
properties expressly authorized by law or
a. Corporation aggregate – corporation
incidental to its existence.
consisting of more than one member or
corporator.
Doctrine of Piercing the Veil of Corporate
b. Corporation sole – special form of
Entity – being a mere creature of the law, a
corporation usually associated with the
corporation may be allowed to exist solely for
clergy. It is a religious corporation which
lawful purposes but where the fiction of
consists of one member or corporator only
corporate entity is being used as a cloak or cover
and his successors, such as bishops.
for fraud or illegality or defeat public
c. One Person Corporation – corporation
convenience, justify wrong, protect fraud or
with a single stockholder who must be either
defend crime, this fiction will be disregarded and
a natural person, trust or an estate.
the individuals composing it will be treated as
identical.
3. As to whether they are for religious purposes
or not
Advantages of a Business Corporation
a. Ecclesiastical corporation – one
1. Has a legal capacity to act and contract as a
organized for religious purposes.
distinct unit in its own name.
b. Lay corporation – one organized for a
2. Has continuity of existence.
purpose other than for religion. It may in
3. Its credit is strengthened by such continuity
of existence. turn be eleemosynary or civil.
4. Its management is centralized in the board
4. As to whether they are for charitable
of directors.
5. Its creation, organization, management and purposes or not
dissolution are standardized as they are a. Eleemosynary – one established for or
devoted to charitable purposes or those
governed under one general incorporation
supported by charity.
law.
6. Makes feasible gigantic financial b. Civil – one established for business or
undertakings since it enables many profit.
individuals to invest their separate funds in
5. As to State under or by whose laws they
the enterprise in order to furnish large
have been created
amounts of capital.
a. Domestic corporation – one incorporated
7. The shareholders have limited liability.
under the laws of the Philippines.
8. They are not general agents of the business.
b. Foreign corporation – one formed,
9. The shares of stocks can be transferred
organized or existing under any laws other
without the consent of the other
than those of the Philippines.
stockholders.
6. As to their legal right to corporate existence
Disadvantages of a Business Corporation
a. De jure – existing in fact and in law.
1. Relatively complicated in formation and
b. De facto corporation – existing in fact
management.
but not in law.
2. Entails relatively high cost of formation and
operations.
7. As to whether they are open to the public or
3. Its credit is weakened by the limited liability
not.
of the stockholders.
a. Close corporation – one which is limited
4. Ordinarily lack of personal element in view
to selected persons or members of a family.
of the transferability of shares.
b. Open corporation – one which is open to
5. Greater degree of governmental control and
any person who may wish to become a
supervision than in any other forms of
stockholder or member thereto.
business organization.
6. In large corporations management and
8. As to their relation to another corporation
control are separated from ownership.
VBS RFBT Corporation ACC135 2nd Sem, AY 2022 - 2023 1

a. Parent or holding corporation – one 2. Incorporators – those stockholders or
which is so related to another corporation members mentioned in the articles of
that it has the power either directly or incorporation as originally forming and
indirectly to elect the majority of the composing the corporation and who are
directors of such other corporation. It is one signatories thereof.
organized to hold the stock of another or 3. Stockholders – corporators of a stock
other corporations enabling it to control or corporation.
substantially influence the policies and 4. Members – corporators of a nonstock
management of such corporation or corporation.
corporations.
b. Subsidiary – one which is so related to Other Classes
another corporation that the majority of its 1. Promoters – persons who bring about or
directors can be elected either directly or cause to bring about the formation and
indirectly by such other corporation. It is organization of a corporation by bringing
one in which another corporation owns at together the incorporators or persons
least a majority of the share and thus has interested in the enterprise.
control. 2. Subscribers – persons who have agreed to
c. Affiliated – one related to another by take and pay for original, unissued shares of
owning or being owned by common a corporation formed or to be formed.
management or by a long-term lease of its 3. Underwriter – a person, usually an
properties or other control device. investment banker, who has agreed to buy
at stated terms an entire issue of securities
9. As to whether they are for public or a substantial part thereof.
(government) or private purpose
a. Public – those formed or organized for Capital stock – the amount fixed in the articles
the government of a portion of the State for of incorporation to be subscribed and paid
the general good and welfare. in or agreed to be paid in by the
b. Private – those formed for some private stockholders of a corporation. It limits the
purpose, benefit or end. They include: maximum amount or number of shares that
i. Government-owned or controlled may be issued by the corporation without
corporations – those created or formal amendment of the articles of
organized by government or of which the incorporation. It remains to be constant.
government is the majority stockholder. a. Authorized capital stock – the amount of
ii. Quasi-public corporations – private capital stock as specified in the articles
corporations which have accepted from of incorporation. It is synonymous with
the State the grant of franchise or capital stock where the shares of the
contract involving the performance of corporation have par value.
public duties but which are organized b. Subscribed capital stock – the amount
for profit. Also known as public utilities of the capital stock subscribed whether
or public service corporations. fully paid or not. It connotes an original
subscription contract for the acquisition
10. As to whether they are corporations in a true by a subscriber of unissued shares in a
sense or only in a limited sense corporation.
a. True corporation – one which exists by c. Outstanding capital stock – the portion
statutory authority. of the capital stock which is issued and
b. Quasi-corporation – one which exists held by persons other than the
without formal legislative grant. corporation itself. It refers to the total
i. Corporation by prescription – one shares of stock issued to subscribers or
which has exercised corporate powers stockholders, whether or not fully or
for an indefinite period without partially paid except treasury shares
interference on the part of the sovereign d. Paid-up capital stock – that portion of
power and which by fiction of law is the subscribed or outstanding capital
given the status of a corporation. E.g. stock that is actually paid.
Roman Catholic Church e. Unissued capital stock – that portion of
ii, Corporation by estoppel – one which the capital that is not issued or
in reality is not a corporation, either de subscribed. It does not vote and draws
jure or de facto, because it is so no dividends.
defectively formed, but is considered a f. Legal capital – is the amount equal to
corporation but in relation to those only the aggregate par value and/or issued
who, by reason of their acts or value of the outstanding capital stock.
admission, are precluded from asserting When par value shares are issued above
that it is not a corporation. par, the premium is not to be considered
as part of legal capital. In case of no par
Governing laws in case of corporations value shares, the entire consideration
created by special law or charter – the special received forms part of legal capital and
law and suppletorily by the provisions of the shall not be available for distribution as
Corporation Code insofar as they are applicable. dividends.
Classes of Persons Composing a Corporation Capital – used broadly to indicate the entire
1. Corporators – those who compose the property or assets of corporation. It includes the
corporation, whether stockholder in a stock amount invested by the stockholders plus the
corporation or members in a nonstock undistributed earnings less losses and expenses.
corporation.

Distinctions between Capital Stock and 1. Share of stock is incorporeal or intangible
Capital property while certificate of stock is tangible
1. Capital is the actual corporate property and property.
therefore a concrete thing. 2. Share of stock represents the right or
Capital stock is an amount and therefore interest of a person in a corporation while a
something abstract. certificate of stock is the written evidence of
2. Capital fluctuates or varies from day to day that right or interest.
according as there are profits or losses or 3. Share of stock may be issued even if the
appreciation or depreciation of corporate subscription is not fully paid except in no
assets. par shares while a certificate of stock may
Capital stock is an amount fixed in the not be issued unless the subscription is fully
articles of incorporation and is unaffected by paid.
profits and losses. 4. The situs of share of stock is deemed to be
3. Capital belongs to the corporation. It may be the State where the corporation has its
real or personal. domicile while a certificate of stock may
Capital stock when issued belongs to the have a situs at the place where it is located
corporation. It is always personal. or at the domicile of the owner, even though
the corporation is domiciled elsewhere.
Distinction between Capital Stock and
Legal Capital Classes of Shares
Capital stock limits the maximum amount or 1. Par value or no par value
number of shares that may be issued without Par value share – one with a specific money
formal amendment of the articles of value fixed in the articles of incorporation
incorporation. and appearing in the certificate of stock.
Legal capital sets the minimum amount of the No par value share – one without any stated
corporate assets which for the protection of value appearing on the face of the certificate
corporate creditors may not be lawfully of stock.
distributed to stockholders.
2. Voting or non-voting
Stock or share of stock – one of the units into Voting share – share with a right to vote.
which the capital stock is divided. It represents Customarily given to common stock and to
the interest or right which the owner has: withhold it from the preferred.
1. in the management of the corporation in Non-voting share is share without right to
which he takes part through his right to vote. vote. Under the Corporation Code, no share
2. in a portion of the corporate earnings, if and may be deprived of voting rights except
when segregated in the form of dividends those classified and issued as “preferred” or
3. upon its dissolution and winding up, in the “redeemable” shares, unless otherwise
property and assets of the corporation remaining provided.
after the payment of corporate debts and
liabilities to creditors. 3. Common or preferred
Common stock – one which entitles the
Distinction between Capital Stock and holder thereof to an equal pro rata division
Share of Stock of the profits, if there are any, and in its
Capital stock is used in a collective sense to assets upon dissolution without any
signify the whole body of shares of stock in the preference or advantage in that respect over
corporation. other stockholder.
Share of stock refers to the stock in the hands of Preferred stock – one with a stated par value
the stockholders and therefore belongs to them. which entitles the holder thereof to certain
preferences over the holders of common
Nature of share of stock stock. Under the Coder, preferred shares of
Share of stock confers no immediate legal right stock may be issued only with a stated par
or title to any of the property of the corporation value.
but it represents a distinct undivided share or a. Preferred as to assets in case of
interest in the common property of the liquidation
corporation. b. Preferred as to dividends
Share of stock constitutes property distinct from i, Cumulative preferred share –
the capital or tangible property of the share which entitles the holder thereof not
corporation. only to the payment of current dividends but
Share of stock is incorporeal in nature and also to dividends in arrears.
considered a personal property of the ii. Non-cumulative preferred share
stockholder. – share which entitles the holder thereof to
It typifies a proportionate or aliquot part of the the payment of current dividends only in
corporation’s property or the right to share in its preference to common stockholders.
proceeds to that extent when distributed iii. Participating preferred share –
according to law. share which gives the holder not only the
right to receive the stipulated dividends at
Certificate of Stock – a written the preferred rate but also to participate
acknowledgment by the corporation of the with the holders of common shares in the
interest, right and participation of a person in remaining profits pro rate after the common
the management, profits and assets of a shares have been paid the amount of the
corporation. stipulated dividend at the same rate.
iv. Non-participating preferred
Distinctions between Share of Stock and share – share which entitles the holder
Certificate of Stock

thereof to receive the stipulated preferred 9. Treasury shares – shares which have been
dividends and no more. issued and fully paid for, but subsequently
v. Cumulative participating reacquired by the issuing corporation by
preferred share – share which is a purchase, redemption, donation or through
combination of the cumulative share and some other means. They are not retired shares
participating share as they may again be disposed of for a
vi. Noncumulative and non- reasonable price fixed by the board of directors.
participating share – share that is not - They are issued shares but being in the
entitled to dividends in arrears and the treasury, they do not have the status of
holder thereof does not participate with the outstanding shares.
holders of common stock in the remaining - Not a part of outstanding capital stock.
profits. - Corporation can require its own shares
provided it has an adequate amount of
4. Promotion shares – such shares as are unrestricted retained earnings to support
issued to promoters or those in some way the cost of the said shares.
interested in the company for incorporating the - Amount of retained earnings equivalent to
company, or for services rendered in launching the cost of the treasury shares being held,
or promoting the welfare of the company. cannot be declared and distributed as
dividends. Such restriction shall be lifted
5. Share in escrow – share subject to an after the treasury shares are reissued or
agreement by virtue of which the share is retired in accordance with law.
deposited by the grantor or his agent with a - May be distributed as property dividend.
third person to be kept by the depository until - No voting rights as long as they remain in
the performance of a certain condition or the the treasury.
happening of a certain event contained in the - Not entitled to dividends because dividends
agreement. cannot be declared by a corporation to itself.
6. Convertible share – share which is Restrictions regarding the issuance of No par

convertible or changeable by stockholder from value shares
one class to another class (from preferred to 1. Not be permitted to issue no par value
common) at a certain price and within a certain shares of stock
period. a. Banks
b. Trust companies,
7. Founders’ shares – shares issued to the c. insurance companies,
organizers and promoters of a corporation in d. Building and loan associations,
consideration of some supposed right or e. Preneed companies
property. Such shares may be given special f. Public utilities and
rights and privileges not enjoyed by the owners g. Other corporations authorized to obtain
of other stock. or access funds from the public,
whether publicly listed or not.
Where the exclusive right to vote and be 2. Preferred shares of stock may be issued only
voted for in the election of directors is granted, it with a stated par value.
must be for a limited period not to exceed 5 3. Shares issued without par value shall be
years from the date of incorporation. Such deemed fully paid and nonassessable and
exclusive right shall not be allowed if its exercise the holder of such shares shall not be liable
will violate Commonwealth Act No. 108 (Anti- to the corporation or to its creditors in
Dummy Law), Republic Act No. 7042 (Foreign respect thereto.
Investments Act of 1991), and other pertinent 4. Shares without par value must be issued for
laws. a consideration of at least P5 per share.
5. Entire consideration received by the
8. Redeemable or callable shares – shares, corporation for its no par value shares shall
usually preferred, which by their terms are be treated as capital and therefore shall not
redeemable at a fixed date or at the option of be available for distribution as dividends.
either the issuing corporation or the stockholder
or both at a certain redemption price. Limitations regarding issuance of preferred
shares
They may be issued by corporation when 1. Nonvoting shares (preferred or redeemable
expressly provided in the articles of shares) shall not be entitled to vote for the
incorporation. approval of corporate acts except with the
following matters:
They are shares which may be purchased by the a. Amendment of the articles of
corporation from the holders of such shares incorporation
upon expiration of the fixed period, regardless of b. Adoption and amendment of by-laws
the existence of unrestricted retained earnings c. Sale, lease, exchange, mortgage, pledge
in the books of the corporation and upon such or other disposition of all or substantially all
terms and conditions stated in the articles of of the corporate property.
incorporation and the certificate of stock d. Incurring, creating or increasing bonded
representing said shares, subject to rules and indebtedness
regulations issued by the SEC. e. Increase or decrease of capital stock
f. Merger or consolidation of the
They may be deprived of voting rights in the corporation with another corporation or
articles of incorporation unless otherwise other corporations
provided in the Revised Corporation Code. g. Investment of corporate funds in
another corporation or business

h. Dissolution of the corporation profession, are not allowed to organize as a
2. Preferences of preferred shares must not be corporation unless otherwise provided under
violative of the provisions of the Code. special laws.
3. Preferred shares may be issued only with a 3. Incorporators who are natural persons must
stated par value be of legal age or must have the capacity to enter
4. Board of directors may fix the terms and into a valid contract.
conditions of preferred shares of stock or any 4. Each incorporator must own or be a
series thereof only when so authorized by the subscriber to at least 1 share of the capital stock
articles of incorporation and such terms and of corporation.
conditions shall be effective upon filing of a
certificate thereof with SEC. Partnership as Incorporator
In the event that an SEC-recorded partnership is
Incorporation of a private corporation a special made an incorporator, the application for
privilege conferred upon a group of persons by registration must be accompanied by a Partners'
the sovereign power of the State – There can be Affidavit, duly executed by all the partners, to
no corporation until there is a grant of such the effect that they have authorized the
right to be and act as a corporation, whether by partnership to invest in the corporation about to
a special act of the legislature or under general be formed and that they have designated one of
law. the partners to become a signatory to the
incorporation documents.
Primary or General Franchise – right or privilege
granted to individuals by the State to be and act Partnerships under "dissolved" or "expired"
as a corporation after its incorporation. It is status with the SEC shall not be authorized to
granted to and vests in the individuals who become an incorporator.
compose the corporation and not in the
corporation itself. Domestic Corporation as Incorporator
In the event that an SEC-registered domestic
Secondary or Special Franchise – franchise to corporation or association is made an
exercise powers and privileges granted to such incorporator, its investment in the new
corporation to the business for which it was corporation must be approved by a majority of
created, including those conferred for purposes the board of directors or trustees and ratified by
of public benefit such as the power of eminent the stockholders representing at least 2/3 of the
domain and other powers and privileges enjoyed outstanding capital stock, or by at least 2/3 of
by public utilities. It is conferred upon the the members in the case of nonstock
corporation after its incorporation and not upon corporations, at a meeting duly called for the
the individuals who compose the corporation. purpose.
Steps in the creation of a corporation A Directors'/Trustees' Certificate or a Secretary's

1. Promotion – refers to a number of business Certificate, indicating the necessary approvals,
operations peculiar to the commercial world by as well as the authorized signatory to the
which a company is generally brought into incorporation documents, shall be executed
existence. under oath and submitted by the applicant.
2. Incorporation – refers to the act by which a
corporation is created. It includes: Domestic corporations under "delinquent",
a. Drafting and execution of the articles of "suspended", "revoked" or "expired" status with
incorporation the SEC shall not be authorized to become an
b. Filing with SEC of the articles of incorporator.
incorporation together with the following:
i. Treasurer’s affidavit Foreign Corporation as Incorporator
ii. In case the corporation is governed In the event that a foreign corporation is made
by a special law, a favorable an incorporator, the application for registration
recommendation of the appropriate must be accompanied by a copy of a document
government agency that such articles of (i.e. Board Resolution, Directors' Certificate,
incorporation is in accordance with law. Secretary's Certificate, or its equivalent), duly
iii. Payment of the filing and authenticated by a Philippine Consulate or with
publication fees. an apostille affixed thereto, authorizing the
iv. Issuance by SEC of the certificate of foreign corporation to invest in the corporation
incorporation. being formed and specifically naming the
3. Formal organization and commencement of designated signatory on behalf of the foreign
business operations corporation.
Number and Qualifications of Incorporators Signatories of the Articles of Incorporation

1. At least 1 but not more than 15. Each individual signing the Articles of
Two or more but not more than 15 persons may Incorporation/ Bylaws must indicate the
organize a domestic corporation. capacity upon which he/she is affixing his/her
A corporation with a single stockholder is signature thereto, (i.e. Incorporator or
considered a One Person Corporation. Representative of XYZ Corp.)
2. Any person, partnership, association or
corporation, singly or jointly with others, may An individual designated to sign the Articles of
organize a corporation. Incorporation/ Bylaws on behalf of an
incorporator, which is not a natural person,
Natural persons who are licensed to practice must also indicate the corporate or partnership
a profession, and partnerships or associations name of the entity being represented and for
organized for the purpose of practicing a whom he/she is executing the Articles of

Incorporation/ Bylaws. The Taxpayer existence is issued, giving its perpetual
Identification Number (TIN) of the principal, as existence, unless its application for revival
well as the designated signatory, should both be provides otherwise.
indicated in the Articles of Incorporation.
The required number of votes for the revival is at
No application for incorporation shall be least a majority vote of the Board of Directors or
accepted unless the registration documents Trustees, and vote of at least majority of the
reflect the TIN or passport number of all its outstanding capital stock or members.
foreign investors other than foreign corporations
which have not yet been issued a Taxpayer No application for revival of certificate of
Identification Number. After incorporation, all incorporation of banks, banking and quasi-
the foreign investors, natural or juridical, shall banking institutions, preneed, insurance and
secure a Taxpayer Identification Number. All trust companies, nonstock savings and loan
documents to be filed with the SEC after associations, pawnshops, corporations engaged
incorporation (e.g. General Information Sheets) in money service business, and other financial
shall not be accepted unless the TIN of all its intermediaries shall be approved by the SEC
foreign investors, natural or juridical, resident or unless accompanied by a favorable
non-resident, are indicated therein recommendation of the appropriate government
agency.
Designation of Incorporators as Directors or
Trustees Capital stock requirement – No minimum
An individual who signs the Articles of capital stock, except as otherwise specially
Incorporation on behalf of an incorporator, provided by special law.
which is not a natural person, may not be
named as a director or trustee in the same Filipino percentage ownership requirement
Articles of Incorporation, unless when the said regarding corporate capital
individual is also the owner of at least 1 share of 1. Corporations for exploration, development,
stock or is also a member, of a corporation being and utilization of natural resources – at least
formed. 60% of the capital of which is owned by citizens
of the Philippines.
Corporate Term – A corporation shall have 2. Certain public service corporations engaged
perpetual existence unless its Articles of in the transmission and distribution of
Incorporation provides a specific corporate term. electricity, water pipeline and sewage
companies, seaports, petroleum pipelines and
The corporate term of a corporation with public utility vehicles – at least 60% of the
certificate of incorporation issued prior to the capital of which is owned by citizens of the
effectivity of the Revised Corporation Code, and Philippines. The participation of foreign
which continue to exists, shall be deemed investors in the governing body of any public
perpetual upon effectivity of the Code, without utility enterprise shall be limited to their
any action on the part of the corporation, unless proportionate share in its capital, and all the
the corporation, by majority vote of the Board of executive and managing officers of such
Directors or Trustees and by vote of its corporation must be Filipino citizens.
stockholders representing a majority of its 3. Educational corporations – other than those
outstanding capital stock, notifies the SEC that established by religious orders and mission
it elects to retain its specific corporate term boards, at least 60%. The control and
pursuant to its articles of incorporation. Any administration of educational institutions shall
change in the corporate term is without be vested in Filipino citizens.
prejudice to the appraisal right of dissenting 4. Corporations engaged in mass media – 100%
stockholders. owned by Filipino citizens.
5. Corporations engaged in advertising
Limitations on the Extension of Corporate industry – at least 70% owned by Filipino
Term citizens. The participation of foreign investors in
1. The corporate term for a specific period may the governing body of any public utility
be extended (or shortened) by amending the enterprise shall be limited to their proportionate
articles of incorporation upon vote or written share in its capital, and all the executive and
assent of majority of the Board of Directors managing officers of such corporation must be
or Trustees and vote or written assent of the Filipino citizens.
stockholders representing at least 2/3 of the
outstanding capital stock of the corporation. Minimum subscription and paid-up capital
2. The extension cannot be made earlier than 1. Pre-incorporation – no minimum
3 years prior to the original or subsequent subscription and paid-up
expiry date(s).
3. The extension shall take effect only on the 2. Post incorporation – The 25% subscription
day following the original or subsequent and 25% paid-up capital are required in case of
expiry date(s). increase of the authorized capital stock.
Revival of Corporate Existence Articles of Incorporation – a document

A corporation whose term has expired may apply prepared by persons establishing a corporation
for a revival of its corporate existence, together and filed with SEC containing the matter
with all the rights and privileges under its required by the Code. Once returned with the
certificate and subject to its duties, debts and certificate of incorporation, it becomes the
liabilities existing prior to its revival. Upon corporate charter enabling the corporation to
approval by the SEC, the corporation is deemed exist and function as such. A corporation
revived and a certificate of revival of corporate

created by special law has no articles of 1. Majority vote of the board of directors or
incorporation trustees.
2. Vote or written assent of stockholders
Contents of Articles of Incorporation representing at least 2/3 of the outstanding
1. Corporate name – it is customarily to use as capital stock or 2/3 of the members in case of
part of the name the word “corporation” or non-stock corporation
incorporated” or an abbreviation of either of
them to distinguish it from partnership and Limitation on the Power of Corporation to
other business organizations. Amend
2. Purpose or purposes (Primary and 1. The amendment of any provision or matter
Secondary in the articles is not allowed when it will be
a. Must be lawful contrary to Corporation Code or special law
b. Must be stated with sufficient clarity 2. It must be for legitimate purpose.
c. Must be capable of being lawfully 3. It must be approved by required vote of the
combined board of directors or trustees and the
3. Place where the principal office of stockholders or members.
corporation is located – the place must be within 4. The original articles and amended articles
the Philippines together must contain all provisions
4. Term for which the corporation is to exist, if required by law to be set out in the articles
the corporation has not elected perpetual of incorporation.
existence. 5. Such articles, as amended, must be
4. Incorporating directors or trustees – not indicated by underscoring the change or
more than 15 changes made, and a copy thereof duly
5. Capital Stock certified under oath by the corporate
secretary and a majority of the directors or
Form of Articles of Incorporation and trustees.
Amendments 6. The amendments shall take effect only upon
The articles of incorporation and applications for their approval by SEC. They are deemed
amendments thereto may be filed with the SEC approved by the Commissioner from the
in the form of an electronic document in date of filing if not acted upon within 6
accordance with the SEC’s rules and regulations months from said date for a cause not
on electronic form. attributable to corporation.
7. Dissenting stockholders may exercise
Corporate charter – an instrument or authority appraisal right
from the sovereign power bestowing the right or
privilege to be and act as corporation. Grounds for Rejection of Articles of
Incorporation or Amendment thereto (Not
Components of corporate charter Exclusive)
1. As to corporations formed under the general 1. Articles of incorporation or any amendment
incorporation law, thereto is not substantially in accordance with
a. The law under which it is organized the prescribed form.
(Corporation Code) 2. Purpose or purposes of the corporation are
b. Articles of Incorporation patently unconstitutional, illegal, immoral or
c. By-laws, contrary to government rules and regulations
d. Applicable provisions of the Constitution 3. Treasurer’s Affidavit or Certification
and the general laws of the State in force at the concerning the amount of capital stock
time of incorporation subscribed and/or paid is false.
4. Required percentage of ownership of the
2. As to corporations created by special laws capital stock to be owned by Filipinos has not
a. Special law which creates the been complied with.
corporation 5. Articles of incorporation or amendment
b. Executive Orders of the President thereto of banks, banking and quasi-banking
c. Rules and regulations applicable to such institutions, preneed, insurance and trust
corporations companies, non-stock savings and loan
d. All laws applicable thereto including the associations, pawnshops and other financial
Corporation Code the provisions of which apply other financial intermediaries must be
suppletorily. accompanied by favorable recommendation of
the appropriate government agency.
Power of Stockholders or Members to Amend
Articles of Incorporation – Matters that may be Corporate name
amended include No corporate name shall be allowed by the SEC
1. Extension or shortening of Corporate Term if is not distinguishable from that already
2. Increase or decrease of Capital Stock reserved or registered for the use of another
3. Others, except: corporation, or if such name is already protected
a. incorporators by law, or when its use is contrary to existing
b. first set of directors or trustees law, rules and regulations.
c. first subscribers
d. treasurer elected by subscribers A name is not distinguishable even if it contains
e. witnesses one or more of the following:
a. The word “corporation”, “company”,
Voting Requirements in case of Amendment “incorporated”, “limited liability”, or an
of Articles of Incorporation (other than abbreviation of one of such words; and
capital stock) b. Punctuations, articles, conjunctions,
contractions, prepositions,

abbreviations, different tenses, spacing, 3. a) The name shall be distinguishable from
or number of the same word or phrase. other corporate or partnership name
registered with the Commission, or with
If corporate name is not distinguishable, already the Department of Trade and Industry, in
protected or contrary to existing rules and the case of sole proprietorships;
regulations, the SEC may: b) If the name applied for is similar to that
a. Summarily order the corporation to of a registered corporation or partnership,
immediately cease and desist from using the applicant shall add one or more
such name and require the corporation distinctive words to the proposed name to
to register a new one. remove the similarity or differentiate it
b. Cause the removal of all visible from the registered name;
signages, marks, advertisements, labels,
prints and other effects bearing such However, the addition of one or more
corporate name. distinctive words shall not be allowed if
Upon approval of the new corporate name, the the registered name is coined or unique
SEC shall issue a certificate of incorporation unless the board of directors or majority
under the amended name. of the partners of the subject corporation
or partnership gives its consent to the
Registration and Incorporation applied name.
A person or group of persons desiring to
incorporate shall submit the intended corporate c) Punctuation marks, spaces, signs,
name to the SEC for verification. If the SEC finds symbols, and other similar characters,
that the name is distinguishable, not protected regardless of their form or arrangement,
by law or not contrary to law, rules and shall not be acceptable as distinguishing
regulations, the name shall be reserved in favor words for purposes of differentiating a
of the incorporators. proposed name from a registered name.
d) A name that consist solely of special
If the SEC finds that the submitted documents symbols, punctuation marks or specially
and information are fully compliant with the designed characters shall not be
requirements of the Revised Code, other relevant registered.
laws, rules and regulations, the SEC shall issue
the certificate of incorporation. 4. Business or trade name which is different
from the corporate or partnership name
Guidelines and procedures in the registration shall be indicated in the articles of
of corporate, one person corporate and incorporation or partnership. A company
partnership names: may have more than one business or
1. a) The corporate name shall contain the trade name.
word "Corporation" or "Incorporated," or
the abbreviations "Corp." or "Inc." 5. A trade name or trademark registered
respectively; with the Intellectual Property Office may
b) In the case of a One Person be used as part of the corporate or
Corporation, the corporate name shall partnership name of a party other than
contain the word "OPC" either below or at its owner if the latter gives its consent to
the end of its corporate name; such use.
c) The partnership name shall bear the
word "Company" or "Co." and if it is a 6. a) The full name or surname of a person
limited partnership, the word "Limited" or may be used in a corporate or
"Ltd.". A professional partnership name partnership name if he or she is a
may bear the word "Company," stockholder, member or partner of the
"Associates," or "Partners," or other said entity and has consented to such
similar descriptions; use; if the person is already deceased, the
d) The corporate name of a foundation consent shall be given by his or her
shall use the word "Foundation"; estate;
e) The corporate name of all non-stock, b] A single stockholder of a One Person
non-profit corporations, including non- Corporation (OPC) may use his/her name;
governmental organizations and provided, that said name shall be
foundations, engaging in microfinance accompanied with descriptive words aside
activities shall use the word from the suffix OPC. The single
"Microfinance" or "Microfinancing"; stockholder may also use the name of
provided that said corporations shall state another person provided consent was
in the purpose clause of their Articles of given by the said person or if deceased,
Incorporation that they shall conduct his estate. Provided that the name shall
microfinance operations pursuant to be accompanied by the descriptive words
Republic Act No. 8425 or the Social other than the suffix OPC.
Reform and Poverty Alleviation Act. c] The Commission may require a
registrant to explain to its satisfaction the
2. A term that describes the business of a reason for the use of a person's name;
corporation in its name should refer to its d] The meaning of initials used in a name
primary purpose. If there are two such shall be stated by the registrant in the
terms, the first should refer to the primary Articles of Incorporation, Articles of
purpose and the second to the secondary Partnership or in a separate document
purpose. signed by an incorporator, director or
partner, as the case may be.

Commencement of Corporate Existence – a Example:
corporation commences to have corporate If a corporation does not formally organize
existence or juridical personality only from the and commence its business within 5 years from
moment the SEC issues to the incorporators a the date of its corporation, its certificate of
certificate of incorporation under its official seal. incorporation shall be deemed revoked as of the
day following the end of the 5-year period.
Exceptions:
In case of corporation sole, wherein the Delinquent Status of a Corporation
corporation shall become as such from and after If a corporation has commenced its business
the filing with the SEC of the articles of but subsequently becomes inoperative for a
incorporation. period of at least 5 consecutive years, the SEC
may, after due notice and hearing, place the
Cooperatives acquire juridical personality upon corporation under delinquent status.
registration with Cooperatives Development
Authority. A delinquent corporation shall have a period
of 2 years to resume operations and comply with
De jure corporation – one created in strict and all the requirements that the SEC shall
substantial conformity with the statutory prescribe. Upon compliance by the corporation,
requirements for incorporation and the right of the SEC shall issue an order lifting the
which to exist as a corporation cannot be delinquent status. Failure to comply with the
successfully attacked even in a direct proceeding requirements and resume operations within the
for that purpose by the State. period given by the SEC shall cause the
revocation of the corporation’s certificate of
De facto corporation – one which actually incorporation.
exists for all practical purposes as a corporation
but which has no legal right to corporate Board of Directors or Trustees – the governing
existence as against the State. body of the corporation since the corporate
powers shall be exercised, all business
Requisites of a De Facto Corporation conducted and all property of the corporation
1. A valid law under which a corporation with controlled and held by the said board.
powers assumed might be incorporated.
2. A bona fide attempt to organize a Limitations on Power of Board of Directors or
corporation under such law. Trustees
3. Actual user or exercise in good faith of 1. Limitations or restrictions imposed by the
corporate powers conferred upon it by law. Constitution, statutes, articles of incorporation
or by-laws of the corporation.
Direct attack – one whereby the State, in a 2. It cannot perform constituent acts or those
proceeding brought for that purpose, attacks the involving fundamental changes in the
existence of an association claiming to be a corporation which require the approval or
corporation. It can only be instituted by the ratification of the stockholders or members.
government through the Solicitor General be quo 3. It cannot exercise powers not possessed by
warranto proceedings. the corporation.
Collateral attack – one whereby corporate Term of Office of Directors or Trustees – the
existence is questioned in some incidental fixed and definite period of time which the law
proceedings not provided by law for the express prescribes that an officer may hold office and a
purpose of attacking the corporate existence. hold-over does not change the length of the term
but results in shortening the period served by
Liability of stockholders or member of a his successor.
corporation by estoppel or ostensible - They shall hold office for 1 year and
corporation – persons not stockholders or until their successors are elected and
members who assume to act as a corporation qualified. (stock corporations)
knowing it to be without authority to do so shall - In case of non-stock corporation – not
be liable as general partners for all debts, exceeding 3 years
liabilities and damages incurred or arising as a - In case of non-stock educational
result thereof. corporation – 5 years
Mandatory provisions – prescribe formalities Number of Directors or Trustees to be Elected

for incorporation which are designed to protect 1. Generally, the number of directors in a stock
the public. Non compliance therewith is fatal to corporation must not be more than 15, except as
valid incorporation. otherwise provided by the Code or by special
law.
Directory provisions – regarded as relatively
inconsequential so that the failure to comply is 2. In ordinary non-stock corporations, the
not fatal to valid incorporation. number of trustees, unless otherwise provided in
the articles of incorporation or by-laws, may or
2 Kinds of Mandatory Provisions may not be more than 15.
1. Conditions precedent – those conditions
noncompliance therewith will prevent the legal 3. In a close corporation, the articles of
existence of a corporation incorporation may provide that the business of
2. Conditions subsequent – conditions to be the corporation shall be managed by its
complied with after acquiring corporate stockholders rather than by a board of directors
existence in order that a corporation may legally in which case no meeting of stockholders need
continue as such. be held to elect directors.

each holding at least 100 shares of a
4. Trustees of non-stock educational class of its equity.
corporation – not less than 5 nor more than 15 b. Banks and quasi-banks, nonstock
provided that the number shall be in multiples savings and loan associations,
of 5 with the term of office of 1/5 of their pawnshops, corporations engaged in
number expiring every year. money service business, preneed, trust
and insurance companies, and other
5. In a corporation sole, there is no board of financial intermediaries
directors or trustees as it consists of one c. Other corporation engaged in
member or corporator only. businesses vested with public interest
similar to the above
6. In one person corporation, the single
stockholder is the sole director. They must be elected by the shareholders
present or entitled to vote in absentia during the
Qualifications of directors or trustees election of directors. Independent directors are
1. Stock Corporation subject to rules and regulations governing their
a. Director must own at least one share of qualifications, voting requirements, duration of
the capital stock term and term limit, maximum number of board
b. Share of stock held by the director must memberships and other requirements that the
be registered in his name on the books SEC will prescribe to strengthen their
of the corporation independence and align with international best
c. Every director must continuously own at practice.
least a share of stock during his term.
2. Non-stock Corporation
a. Trustee must be a member of the Citizenship requirement – no citizenship
corporation requirement unless other provided by law.
Additional Qualifications of a Director or Limitations or Conditions imposed on the

Trustee Election of Directors or Trustees
1. Not disqualified from being a director,
trustee or officer of any corporation if, within 5 1. At any meeting of stockholders or members
years prior to the election or appointment as called for the election of directors or trustees,
such, the person was: there must be present in person or by
a. Convicted by final judgment representative authorized to act by written
1. Of an offense punishable by proxy, the owners of the majority of the
imprisonment for a period outstanding capital stock (voting and non-voting
exceeding stock) or if there be no capital stock, a majority
6 years of the members entitled to vote.
2. For violating the Revised
Corporation 2. The election must be by ballot if requested
Code by any voting stockholder or member. It means
3. For violating RA No. 8799 or the that voting by ballot is exception rather than the
Securities Regulation Code rule.
b. Found administratively liable for any
offense involving fraudulent acts When authorized in the by-laws or by a majority
c. By a foreign court or equivalent foreign of the board of directors, the stockholders or
regulatory authority for acts, violations members may also vote through remote
or misconduct similar to those communication or in absentia. For corporations
enumerated in paragraphs a and b vested with public interest, the right to vote
above. through such modes may be exercised
2. The qualifications as may be provided in the notwithstanding the absence of a provision in
by-laws. the bylaws of such corporations.
Independent Director – a person who, apart A stockholder or member who participates

from shareholdings and fees received from the through remote communication or in absentia
corporation, is independent of management and shall be deemed present for purposes of
free from any business or other relationship quorum.
which could, or could reasonably be perceived to
materially interfere with the exercise of 3. A stockholder cannot be deprived in the
independent judgment in carrying out the articles of incorporation or in the by-laws of his
responsibilities as a director. statutory right to use any of the methods of
voting in the election of directors.
Independent Directors are required to be part of 4. No delinquent stock shall be voted.
the Board of Directors of the following
corporations vested with public interest, 5. If a quorum is present, the candidates
constituting 20% of such board: receiving the highest number of votes shall be
a. Corporations covered by Sec. 17.2 of RA declared elected. The law requires only plurality
No. 8799 (The Securities Regulation and not majority of the votes.
Code), namely those whose securities
are registered with the SEC, 6. In case of failure to hold an election for any
corporations listed with an exchange or reason, the meeting may be adjourned from day
with assets of at least P50 million and to day or time to tome but it cannot be
having 200 or more holders of shares, adjourned sine die or indefinitely

7. The requisite notice must be given. trustee elected despite the disqualification,
or whose disqualification arose or is
Methods of Voting discovered subsequent to an election.
1. Straight voting – every stockholder may vote • Removal of a disqualified director is without
such number of shares for as many persons as prejudice to other sanctions that the SEC
there are directors to be elected. may impose on the board of directors or
2. Cumulative voting for one candidate – trustees who, with knowledge of the
stockholder is allowed to concentrate his votes disqualification, failed to remove such
and give one candidate as many votes as the director or trustee.
number of directors to be elected multiplied by
the number of his shares shall equal. Cause for the Removal of a Director
3. Cumulative voting by distribution – Gen. Rule: It may be with cause or without
stockholder may cumulate his shares by cause.
multiplying also the number of his shares by the Exception: Removal is to deprive minority
number of directors to be elected and distribute stockholders or members who united in
the same among as many candidates as he shall cumulative voting to elect such director.
see fit.
Filing of Vacancies in the Office of Director
Corporate Officers and Qualifications or Trustee
1. President 1. By the stockholders or member
a. Must be a director a. If the vacancy results from the removal
b. Must not be the treasurer or secretary by the stockholder or members or the expiration
2. Treasurer of term
a. May or may not be a director b. If the vacancy occurs other than by
b. Must not be the president removal or expiration of term, such as death,
c. Must be a resident of the Philippines resignation, abandonment or disqualification, if
3. Secretary the remaining directors or trustees do not
a. Must not be the president constitute a quorum for the purpose of filling the
b. Must be a resident and citizen of the vacancy.
Philippines c. If the vacancy may be filled by the
4. Other officers as may be provided in the remaining directors or trustees but the board
bylaws refers the matter to the stockholders or
• Compliance Officer, if corporation is members
vested with public interest. d. If the vacancy is created by reason of an
increase in the number of directors or trustees.
Requisites for Board Meeting 2. By the member of the board
1. Meeting of the directors or trustees duly If still constituting a quorum, at least a
assembled as a board. All members must attend majority of them are empowered to fill any
the meeting and act in person. They cannot vacancy occurring in the board other than by
validly act by proxy/ removal by the stockholders or members or by
2. Presence of a quorum expiration of term.
Quorum – such number of the membership The board has no power to fill any
of a collective body as is competent to transact directorship or trusteeship by reason of an
its business or do any other corporate act. increase in the number of directors or trustees.
General Rule: Majority of the number
of directors or trustees fixed in the articles of Vacancies When Filled
incorporation. 1. When the vacancy is due to term expiration,
Exception: If the articles of incorporation or the election shall be held no later than the day
by-laws provide for a greater number. of such expiration at a meeting called for that
3. Decision of the majority of the quorum or in purpose.
other cases, a majority of the entire board like in 2. When the vacancy arises as a result of
the election of officers removal by the stockholders or members, the
4. Meeting at the place, time and in the election may be held on the same day of the
manner provided in the by-laws. meeting authorizing the removal and this fact
must be stated in the agenda and notice of said
Requisites for Removal of Directors or meeting.
Trustees by Stockholders or Members 3. In all other cases, the election must be held
1. The removal must take place either at a no later than 45 days from the time the vacancy
regular meeting of the corporation or at a special arose.
meeting called for the purpose.
2. There must be previous notice to the A director or trustee elected to fill a vacancy
stockholders or members of the corporation of shall be referred to as replacement director or
the intention to propose such removal at the trustee and shall serve only for the unexpired
meeting term of the predecessor in office.
3. The removal must be by a vote of the
stockholders holding or representing 2/3 of the Emergency Board
outstanding capital stock or if the corporation be • When the vacancy prevents the remaining
non-stock corporation, by a vote of 2/3 of the directors from constituting a quorum and
members entitle to vote. emergency action is required to prevent
grave, substantial and irreparable loss or
Removal of Directors or Trustees by SEC damage to the corporation, the vacancy
• The SEC shall motu proprio or upon may be temporarily filled from among the
verified complaint, and after due notice and officers of the corporation by unanimous
hearing, order the removal of a director or vote of the remaining directors or trustees.

• The action by the designated director or 5. In case of an officer, the contract with
trustee shall be limited to the emergency the officer has been previously
action necessary, and the term shall cease authorized by board of directors or
within reasonable time from the trustees.
termination of the emergency or upon
election of the replacement director or If any of the first 3 conditions is absent, the
trustee, whichever comes earlier. contract is valid if the following are present
• The corporation must notify the SEC within 1. Ratification by the vote of the
3 days from the creation of the emergency stockholders representing at least 2/3 of
board, stating the reason for its creation. the outstanding capital stock or of 2/3
of the members in a meeting called for
Compensation of Directors or Trustees the purpose.
• No compensation except for reasonable per 2. Full disclosure of the adverse interest of
diems in absence of any provision in the by- the directors or trustees involved is
laws fixing for their compensation. made at such meeting,
• But may be granted to directors by a vote of 3. Contract is fair and reasonable under
the stockholders representing at least a the circumstances.
majority of the outstanding capital stock, or
to trustees by majority of the members at a Contracts between Corporations with
regular to special meeting. interlocking directors – VALID provided that
• Limit: Total yearly compensation shall not 1. There is no fraud.
exceed 10% of the net income before income 2. Contract is fair and reasonable under
tax of the corporation during the preceding the circumstances.
year. 3. If the interest of the interlocking director
• Directors or trustees shall not participate in in one corporation or corporations is
the determination of their own per diems or merely nominal and the other
compensation. substantial, the rule on self-dealing
director or trustee shall be applied with
Compensation of Corporate Officers respect to that corporation or
1. Corporate officers who are not directors – corporations in which his interest is
entitled to reasonable compensation even in nominal.
absence of an express contract.
2. Corporate officers who are directors – Note: Stockholdings exceeding 20% of the
entitled to compensation as officers in addition outstanding capital stock shall be considered
to reasonable per diems as directors. substantial for purposes of interlocking
directors.
Liability of Directors/Trustees for damages
1. He wilfully and knowingly votes or assents When Disloyalty of a Director Committed
to patently unlawful acts of the corporation. (The Corporate Opportunity Theory)
2. He is guilty of gross negligence or bad faith A director who, by virtue of his office, acquires
in directing the affairs of the corporation. for himself a business opportunity which should
3. He acquires any personal or pecuniary belong to the corporation, thereby obtaining
interest in conflict with his duty as such director profits to the prejudice of such corporation, is
or trustee. guilty of disloyalty and therefore should account
to the latter for all such profits by refunding the
Nature of Liability – The erring board members same, notwithstanding that he risked his funds
shall be held solidarily liable for all the in the venture.
damages suffered by the corporation, its Exception: unless his act has been ratified by a
stockholders or member, or other persons such vote of the stockholders owning or representing
as corporate creditors. at least 2/3 of the outstanding capital stock
Rule on Self-dealing Director or Trustee Executive Committee – composed of not less

Contract of the corporation with one or more of than 3 members of the board to be appointed by
its directors, trustees, officers or their spouses the board exercising delegated corporate powers
and relatives within the 4th civil degree of to expedite action on important matters without
consanguinity or affinity is voidable, at the the need for a board meeting especially when
option of such corporation, unless the following such meeting cannot be readily held.
conditions are present: It may act specific matters within the
1. Presence of such director or trustee in competence of the board, as may be delegated to
the board meeting in which the contract it by the board or in the by-laws, except:
was approved was not necessary to 1. Approval of any action requiring
constitute a quorum for such meeting stockholders’ approval
2. Vote of such director or trustee was not 2. Filling of the vacancies in the board
necessary for the approval of the 3. Amendment or repeal of by-laws or the
contract adoption of new by-laws
3. Contract is fair and reasonable under 4. Amendment or repeal of any resolution
the circumstances. of the board which by its express terms
4. In case of corporations vested with is not so amendable or repealable
public interest, material contracts are 5. Distribution of cash dividends to the
approved by at least 2/3 of the entire shareholders
membership of the board, with at least a
majority of the independent directors Special Committee
voting to approve the material contract. The board of directors may create special
committees of temporary or permanent nature

and determine the members’ term, composition, 9. To make reasonable donations,
compensation, powers, and responsibilities. including those for the public welfare or
for hospital, charitable, cultural,
Quorum and Voting – same as that for board of scientific, civic or similar purposes.
directors. Provided that no foreign corporation
shall give donations in aid of any
Membership – all members must be directors of political party or candidate or for
the corporation. purposes of partisan political activity.
Exception: if the acts of the committee are 10. To establish pension, retirement and
recommendatory in nature and shall not be other plans for the benefit of its
carried out without approval of the board of directors, trustees, officers and
directors, some of the members may not be employees
directors. 11. To exercise such other powers as may be
essential or necessary to carry out its
Classification of Corporate Powers purpose or purposes as stated in its
1. Express powers – powers expressly articles of incorporation
conferred upon the corporation by law,
2. Implied powers – powers which are Power to extend or shorten corporate term
reasonably necessary to exercise the express Voting Requirements:
powers and to accomplish or carry out the 1. Approved by majority vote of the board
purposes for which the corporation was formed. of directors or trustees
a. Acts in the usual course of business 2. Ratified at a meeting by the stockholders
b. Acts to protect debts due to the representing at least 2/3 of the
corporation outstanding capital stock or at least 2/3
c. Acts which involve embarking on a of the members (non-stock)
different line of business 3. Written notice of any proposed corporate
d. Acts designed to protect or aid action may now be sent electronically in
employees. accordance with rules and regulations of
e. Acts to increase the business of the the SEC on the use of electronic data
corporation. messages, when allowed in the bylaws
3. Incidental or inherent powers – powers or done with consent of the stockholder.
which a corporation can exercise by the mere
fact of its being a corporation or powers which Note: Dissenting Stockholders may exercise
are necessary to corporate existence and are their appraisal right.
therefore impliedly granted.
a. Power of succession Power to increase or decrease capital stock
b. Power to have a corporate name Voting Requirements:
c. Power to adopt a corporate seal 1. Approved by majority vote of the board
d. Power to acquire, hold or dispose of directors or trustees
property as its business may reasonably 2. Ratified at a meeting by the stockholders
require. representing at least 2/3 of the
e. Power to adopt and amend its by-laws. outstanding capital stock
Express Powers of Corporation Limitations:

Every corporation has the power and 1. Corporation cannot lawfully decrease its
capacity capital stock if such decrease will have the effect
1. To sue and be sued in its corporate of relieving existing subscribers from the
name obligation of paying for their unpaid
2. To have perpetual existence unless the subscriptions without valuable consideration.
certificate of incorporation provides 2. A corporation cannot issue stock in excess
otherwise of the amount limited by its articles of
3. To adopt and use a corporate seal incorporation.
4. To amend its articles of incorporation 3. A reduction or increase of the capital stock
5. To adopt by-laws, not contrary to law, can take place only in the manner and under the
morals or public policy, and to amend or conditions prescribed by law.
repeal the same.
6. In case of stock corporations, to issue or Necessity for increasing capital stock
sell stocks to subscribers and to sell 1. Increase in corporate assets.
treasury stocks and to admit members 2. Issuance of stock dividends without
to the corporation if it be a non-stock increasing corporate assets.
corporation.
7. To purchase, receive, take or grant, hold Ways of increasing or decreasing authorized
convey, sell, lease, pledge, mortgage and capital stock
otherwise deal with such real and 1. By increasing or decreasing the number of
personal property, including securities shares authorized without increasing or
and bonds of other corporations, as the decreasing the par value
transaction of the lawful business of the 2. By increasing or decreasing the par value
corporation may reasonably and without increasing or decreasing the number
necessarily require thereof
8. To enter into a partnership, joint 3. By increasing or decreasing both the
venture, merger, consolidation, or other number of shares and the par value.
commercial agreement with natural and
juridical persons

Note: No decrease of the capital stock shall be 2. Ratified at a meeting by the stockholders
approved by the Commission if its effect shall representing at least 2/3 of the
prejudice the rights of corporate directors. outstanding capital stock or at least 2/3
of the members (non-stock)
Trust Fund Doctrine – the capital stock and 3. If there are no members with voting
assets of the corporation are held in trust for rights, the vote of at least a majority of
creditors. Accordingly, there shall be no the trustees in case of nonstock)
distribution of assets to shareholders until the Exception:
claims of creditors have been paid or an a. If it is necessary in the usual and
appropriation of such assets has been made for regular course of business of the
the payment of such claims. corporation
b. When the proceeds of the sale or
Power to Incur Bonded Indebtedness other disposition are to be
Voting Requirements appropriated for the conduct of the
1. Approved by majority vote of the board remaining business of the
of directors or trustees corporation.
2. Ratified at a meeting by the stockholders
representing at least 2/3 of the Abandonment of the Action – After such
outstanding capital stock or at least 2/3 authorization or approval of the stockholders or
of the members (non-stock) members, the board of directors may abandon
such sale or other disposition of property and
Pre-Emptive Right of Stockholders – whenever assets without further action or approval by the
the capital stock of a corporation is increased stockholders or members, subject to the rights
and new shares of stock are issued, the new of third parties under any contract relating
issue must be offered first to the stockholders thereto.
who are such at the time the increase was made
in proportion to their existing shareholdings and Sale or Other Disposition Deemed to Cover
on equal terms with other holders of the original Substantially All the Corporate Property &
stocks before subscriptions are received from the Assets – if thereby the corporation would be
general public. rendered incapable of continuing the business or
accomplishing the purpose for which it was
Shares to which Pre-emptive Right Not incorporated.
Available • The determination of whether or not the
1. Shares to be issued in compliance with laws sale involves all or substantially all of
requiring stock offerings or minimum stock the corporation’s properties and assets
ownership by the public must be computed based on its net
2. Shares to be issued in good faith with the asset value, as shown in its latest
approval of the stockholders representing 2/3 of financial statements.
the outstanding capital stock in exchange for
property needed for corporate purposes. Power to Acquire Own Shares
3. Shares to be issued in good faith with the Requisites:
approval of the stockholders representing 2/3 of 1. The purchase or acquisition must be for a
the outstanding capital stock in payment of legitimate purpose or purposes including but not
previously contracted debt. limited to the following cases:
a. To eliminate fractional shares arising
Power to Deny Pre-emptive Right – only if out of stock dividends
such power is granted as stated in the articles of b. To collect or compromise an
incorporation or an amendment thereto indebtedness of the corporation, arising out
of unpaid subscription, in a delinquency
Pre-emptive Right as to Treasury Shares sale, and to purchase delinquent shares sold
1. In close corporation, the pre-emptive right of during said sale
stockholders extends to all stock to be issued c. To pay dissenting or withdrawing
including re-issuance of treasury shares. stockholders entitled to payment for their
2. In widely held corporations – it extends to shares.
treasury shares because of the phrase 2. Corporation has unrestricted retained
“disposition of shares of any class.” earnings in its books to cover the shares to be
purchased or acquired.
Other Shares covered by Pre-emptive Right
1. Shares to be issued as a result of Power to Invest Corporate Funds in Another
increase in capital stock Corporation or Business or for any Other
2. Shares to be issued out of the Purpose
unsubscribed portion of the authorized Voting Requirements
capital stock. 1. Approved by majority vote of the board
of directors or trustees
Power to Sell, Lease, Exchange, etc. of All or 2. Ratified at a meeting by the stockholders
Substantially All of Corporate Property, representing at least 2/3 of the
including Goodwill. – Such sale is subject to outstanding capital stock or at least 2/3
the provisions of RA No. 10667 [Philippine of the members (non-stock)
Competition Act] and other related laws. Exception:
Where the investment is reasonably
Voting Requirements necessary to accomplish its primary
1. Approved by majority vote of the board purpose as stated in the articles of
of directors or trustees incorporation, the approval of the

stockholders or members shall not be 1. When justified by definite corporate
necessary. expansion projects or programs
Note: Dissenting stockholders may exercise their approved by the board of directors
appraisal right 2. When the corporation is prohibited
under any loan agreement with any
Dividend – that part or portion of the profits of a financial institution or creditor, whether
corporation set aside, declared and ordered by or local from declaring dividends
the directors to be paid ratably to the without its/his consent and such
stockholders on demand or at a fixed time. It is consent has not yet been secured
a return on investment made by the 3. When it can be clearly shown that such
stockholders. retention is necessary under special
circumstances obtaining in the
Distinctions between Dividends and Profits corporation, such as when there is a
1. Dividends come from profits, while profits need for special reserve for probable
are a source of dividends. contingencies.
2. Profits are not dividends until so declared or
set aside by the corporation. In the meantime, Payment when Stockholder is Delinquent
all profits are a part of assets of the corporation 1. Cash dividends – Payment shall first be
and do not belong to the stockholders applied to the unpaid balance on the
individually. subscription plus costs and expenses
2. Stock dividends – Stock dividends shall
Classes of Dividends be withheld from the delinquent stockholder
1. Cash dividends – dividends payable in cash until his unpaid subscription is fully paid.
2. Property dividends – dividends distributed in
the form of property, real or personal. They are Right of Stockholders after Declaration of
actually cash dividends. Dividends
3. Stock dividend – dividend payable on 1. Cash dividends – as soon as dividends are
unissued or increased or additional shares of the public declared, the stockholders have the right
corporation instead of in cash or in property. to their pro rata shares. In absence of a record
4. Optional dividend – dividend which gives the date, the dividend belongs to the person who is
stockholder an option to receive cash or stock the owner of the shares of stock at the time of
dividend. declaration.
5. Composite dividend – dividend which is 2. Stock dividends- the declaration of such
partly in cash and partly in stocks. dividends may be rescinded at any time before
6. Scrip dividend – a writing or certificate actual issuance of the stock.
issued to a stockholder entitling him to the
payment of money or the like at some future Classes of Dividends
time, It is in the form of promissory note or 1. Cash dividends – dividends payable in cash
promise to pay and may be issued to bear 2. Property dividends – dividends distributed in
interest. the form of property, real or personal. They are
7. Bond dividend – dividend distributed in actually cash dividends.
bonds of the corporation to the stockholders 3. Stock dividend – dividend payable on
8. Liquidating dividends – which are actually unissued or increased or additional shares of the
distributions of the assets of the corporation corporation instead of in cash or in property.
upon dissolution or winding up of the same. 4. Optional dividend – dividend which gives the
stockholder an option to receive cash or stock
Power to Declare Dividends dividend.
Conditions: 5. Composite dividend – dividend which is
1. Voting Requirements partly in cash and partly in stocks.
a. Stock dividends – the majority vote of 6. Scrip dividend – a writing or certificate
the board of directors and approved by the issued to a stockholder entitling him to the
stockholders representing at least 2/3 of the payment of money or the like at some future
capital stock then outstanding at regular or time, It is in the form of promissory note or
special meeting. promise to pay and may be issued to bear
b. Other dividends – a mere majority of the interest.
quorum of the board of directors is 7. Bond dividend – dividend distributed in
sufficient. bonds of the corporation to the stockholders
2. The corporation must have unrestricted 8. Liquidating dividends – which are actually
retained earnings out of which the dividends distributions of the assets of the corporation
may be declared and paid. upon dissolution or winding up of the same.
Retained Earnings – the difference between the Distinctions between Cash Dividend and
total present value of the assets of the Stock Dividend
corporation after deducting losses and liabilities 1. Cash dividend involves a disbursement to
and the amount of its capital stock. the stockholder of accumulated earnings; while
stock dividend does not involve any
Sources of Dividends disbursement.
1. Surplus profits (Retained earnings) 2. Cash dividend declared and paid becomes
2. Paid-in surplus in case of stock dividends the absolute property of the stockholder and
only cannot be reached by the creditors of the
corporation in absence of fraud, while stock
Limit: Stock corporations are prohibited from dividend, being still part of corporate property
retaining surplus profits in excess of 100% of may be reached by corporate creditors.
their paid-in capital stock except:

3. Cash dividend is declared only by the board Intra Vires – acts within the legitimate powers
of directors while stock dividend is declared by of a corporation
the board with the concurrence of the
stockholders. Ratification of Ultra Vires Acts
4. Cash dividend does not increase the 1. Where the contract is illegal per se, it is
corporate capital while it is increased by a stock wholly void or inexistent. It cannot be
dividend. ratified.
5. Declaration of cash dividend creates a debt 2. Where the contract is not illegal per se,
from the corporation in favour of its stockholder the same is merely voidable and may be
while no such debt is created by the declaration enforced by performance, ratification or
of stock dividend. estoppels, or on equitable ground.
6. Cash dividend is taxable as income to the
stockholder, while stock dividend is generally Effects of Ultra Vires Acts which are Not
not subject to income tax. Illegal
1. An ultra vires contract, executor on both
Power to Enter into Management Contract sides, cannot be enforced by either party
with Another Corporation – does not apply to thereto.
management contract with natural persons. 2. When an ultra vires contract has been
fully performed on both sides, neither
Management Contract – refers to any contract party thereto can lawfully set aside the
whereby a corporation undertakes to manage or same or to recover what has been given.
operate all or substantially all of the business of 3. When an ultra vires contract has been
another corporation, whether such contracts are performed on one side and the other has
called service contracts, operating agreements or received benefits by reason of such
otherwise. performance, recovery is permitted in
most court on behalf of the former.
Voting Requirements for both Managing and
Managed Corporation By-Laws – the rules of action adopted by the
1. Approved by majority vote of the board corporation for its internal regulations and for
of directors or trustees the government of its officers and of its
2. Approved also by the stockholders stockholders or members
representing at least the majority of the
outstanding capital stock or at least a Elements of Valid By-Laws
majority of the members in case of non- 1. They must not be contrary to existing law
stock corporation and inconsistent with the Corporation Code.
Exceptions: Approved by the 2. They must not be contrary to morals and
stockholders of the MANAGED public policy.
CORPORATION representing at least 3. They must not impair obligations of
2/3 of the total outstanding capital contract.
stock or at least 2/3 of the members for 4. The must be general and uniform in their
non-stock corporation, in case of either operation and not directed against particular
of the following: individuals.
a. Interlocking stockholders – Where a 5. They must be consistent with the articles of
stockholder or stockholders incorporation.
representing the same interest of 6. They must be reasonable.
both managing and the managed
corporations own or control more Operation & Binding Effect of By-Laws
than 1/3 of the total outstanding 1. By-laws have substantially the same force
capital of the managing corporation and effect as the laws applicable to the
b. Interlocking directors – Where a corporation.
majority of the members of the They are a part of the fundamental law of the
board of directors of the managing corporation.
corporation also constitute a 2. Corporation and its directors and officers
majority of the members of the are bound by and must comply with them.
board of directors. 3. Subordinate employees without actual
knowledge of the by-laws are not bound.
Limitations: 4. Third persons are not also bound except
1. No management contract shall be when they have actual or constructive
entered into for a period longer than 5 knowledge of the provisions of the by-laws.
years for any one term.
2. A management contract cannot delegate Adoption of By-Laws
entire supervision and control over the 1. Affirmative vote of stockholders representing
officers and business of a corporation to at least majority of the outstanding capital stock
another. or at least majority of the members in case of
nonstock corporations.
Ultra Vires Act – one not within the express, 2. Must be signed by the stockholders or
implied and incidental powers of a corporation. members voting for them and kept ion the
It is an act which is impliedly forbidden, because principal office of the corporation.
it is not expressly or impliedly authorized or 3. May be adopted and filed prior to
necessary or incidental in the exercise of the incorporation, and in such case must be
powers so conferred. But it is not necessarily approved and signed by all the incorporators
illegal. and submitted to the SEC, together with the
articles of incorporation.

4. Must be accompanied by a certificate of the
appropriate government agency to the effect that Distinctions between Articles of
such bylaws or amendments are in accordance Incorporation and By-laws
with law for the following corporations: 1. The former constitutes the charter or
a. Bank fundament law of the corporation while
b. Banking institution the latter are merely rules and
c. Building and loan association regulations adopted by the corporation.
d. Trust company 2. The former is executed before
e. Insurance company incorporation by incorporators, while
f. Public utility the latter, may be before or after
g. Educational institutions incorporation by stockholder or
h. Other special corporations governed members.
special laws 3. The filing of the former is a condition
precedent to corporate existence, while
Contents of By-Laws the filing of the latter is a condition
1. The time, place and manner of calling and subsequent.
conducting regular or special meetings of
directors or trustees. Effectivity of Amended or New By-Laws
2. The time and manner of calling and The amended or new by-laws shall be effective
conducting regular or special meetings of the only upon the issuance by the SEC of a
stockholders or members. certification that the same are not inconsistent
3. The required quorum in meetings of with the Corporation Code.
stockholders or members and the manner of
voting. Kinds of Meetings
4. The modes, by which a stockholder, 1. Meetings of Stockholders or Members
member, director or trustee may attend a. Regular – those held annually on a date
meetings and cast their vote. fixed in the by-laws. If not fixed, on any day after
5. The form for proxies of stockholders and April 15 of every year.
members and the manner of voting them. b. Special – those held at any time deemed
6. The qualifications, duties and necessary or as provided in the by-laws.
responsibilities and compensation of directors or
trustees, officers and employees, and the 2. Meetings of Directors or Trustees
maximum number of other board a. Regular – those held by the board
representations that an independent director or monthly, unless the by-laws provide otherwise.
trustee may have which shall, in no case, be b. Special – those held by the board at any
more than the number prescribed by the SEC. time upon call of the president or as provided in
7. The time for holding the annual election of by the by-laws.
directors or trustees and the mode or manner of
giving notice thereof. Meetings of Directors or Trustees
8. The manner of election or appointment and Place, whether regular or special – Anywhere in
the term of office of all officers other than or outside the Philippines, unless the by-laws
directors or trustees. provide otherwise.
9. The penalties for violation of the by-laws. Quorum – Majority of the number of directors or
10. In case of stock corporations, the manner of trustees stated in the articles of incorporation,
issuing certificates unless such articles or the by-laws provide for a
11. Such other matters as may be necessary for greater majority
the proper or convenient transaction of its Presiding Officer – President shall preside at all
corporate business and affairs. meetings of the directors or trustees, unless the
by-laws provide otherwise.
Amendments to or Repeal of Any By-Laws, or Manner of Voting
Adopt new By-laws • Directors or trustees vote during meetings
Voting Requirements per head.
1. Approved by majority vote of the board • Directors or trustees who cannot physically
of directors or trustees attend or vote at board meetings can
2. Concurred by the vote of the participate and vote through remote
stockholders representing at least the communication such as videoconferencing,
majority of the outstanding capital stock teleconferencing, or other alternative modes
or at least a majority of the members in of communication that allow them
case of non-stock corporation reasonable opportunities to participate.
Exception: Concurrence by the
stockholders or members no longer Meetings of Stockholders or Members
needed if they delegated to the board of Place, whether regular or special – They shall be
directors or trustees the power to amend held in the city or municipality where the
or repeal any by-laws or adopt new by- principal office of the corporation is located, and
laws by vote of stockholders if practicable in the principal office of the
representing 2/3 of the outstanding corporation.
capital stock or 2/3 of the members in a For this purpose, any city or municipality in
non-stock corporation. Metro Manila, Metro Cebu, Metro Davao, and
Exception to Exception: The power is other Metro areas is a city or municipality.
revoked whenever the stockholders
owning a majority of the outstanding Quorum – Majority of the outstanding capital
capital stock or majority of the members stock or majority of the members unless a
in a non-stock corporation shall so vote greater majority is provided for in the
at a regular or special meeting. Corporation Code or in the by-laws.

Presiding Officer – The chairman, or in his iii. When so authorized in the
absence, the president shall preside at all bylaws or by a majority of the
meetings of the directors or trustees, as well as board of directors, the
the stockholders or members, unless the bylaws stockholders or members of
provide otherwise. corporations may also vote
through remote communication
Persons who May Call Meeting or in absentia. However, the
1. The person authorized in the by-laws. votes must be received before
2. If none, the call may be made by the the corporation finishes the tally
director, trustee or officer entrusted with of votes.
the management of the corporation.
3. Petitioning stockholder or member on A stockholder or member who
order of the SEC, may call a meeting, if participates through remote
for any cause, there is no person communication or in absentia
authorized to call a meeting. shall be deemed present for
4. Secretary of the corporation or by a purposes of quorum.
stockholder or member in case of a
special meeting to remove directors or 2. Through representative voting
trustees. a. By means of proxy which refers to the
formal written authority given by the owner
Requisites for a Valid Meeting or holder of the stock who has a right to vote
1. It must be held at proper place it, or by a member, as principal, to another
2. It must be held at the stated date and person, as agent, to exercise the voting
time. rights of the former
3. It must be called by the proper person, Limitations on proxies
4. Previous notice must have been given. i. They must be in writing signed by
5. There must be a quorum. the stockholder or member and
filed before the scheduled
Effect if Meeting is Improperly Held or Called meeting with the corporate
All proceedings had and any business secretary.
transacted shall be valid provided the following ii. They are valid only for the meeting
requisites are present: for which it is intended, unless
1. They must be within the powers or otherwise provided in the
authority of the corporation (intra vires) proxies.
2. All stockholders or members are present iii. In case of continuing proxies, they
or duly represented at the meeting must be for a period not
exceeding 5 years at any one
Manner of Voting time, otherwise they shall not be
1. Stockholders vote by shares. Members valid and effective after such
vote on a per head basis, unless the by- period.
laws provide otherwise. b. By means of a voting trust agreement
2. Right to vote The trustee under voting trust
a. Directly by the stockholder or agreement shall exercise the voting
member right.
i. If the shares are pledged or c. Through legal representatives
mortgaged, the stockholder Executors, administrators, receivers and
pledgor or mortgagor other legal representatives duly
(stockholder-grantor) shall have appointed by the court may attend and
the right to attend and vote at vote in behalf of the stockholder or
meetings of stockholders, unless members without need of any written
the pledgee or mortgagee proxy.
(secured creditor) is expressly
given such right in writing Voting Trust Agreement – an agreement in
which is recorded in the writing whereby one or more stockholders of a
appropriate corporate books by stock corporation transfer his or their shares to
the pledgor or mortgagor. any person or persons or to a corporation having
ii. In case of shares owned jointly authority to act as a trustee for the purpose of
by two or more persons, in order vesting in such person or persons or corporation
to vote the same, the consent of as trustee or trustees voting or other rights
all co-owners shall be necessary, pertaining to the shares for a certain period not
except: exceeding that fixed by the Corporation Code
1. There is a written proxy, and upon the terms and conditions stated in the
signed by all co-owners agreement.
authorizing one or some
of them or any other Powers or Rights of Voting Trustees
person to vote such 1. The trustee or trustees shall possess the
share or shares. right to vote and other rights pertaining to
2. The shares are owned in the shares so transferred and registered in
an “and/or” capacity in his or their names subject to the terms and
which case, any one conditions of and for the period specified in
may vote the shares or the agreement.
appoint a proxy for the 2. They may vote in person or by proxy unless
purpose. the agreement provides otherwise,

3. They may exercise, like transferor, the rights a. By subscription contract with an
of inspection of all corporate books and existing corporation for the
records. acquisition of unissued shares
4. The trustee is the legal title holder or owner b. By purchase from corporation of
of the shares so transferred under the treasury shares
agreement. He is qualified to be a director. c. By transfer from a previous
stockholder of the outstanding
Limitations on Voting Trust Agreement shares or existing subscription to
1. No voting trust agreement shall be entered shares.
into: 2. In a non-stock corporation, membership
a. For a period exceeding 5 years at any is acquired by contract with the
time except in the case of a voting trust corporation the modes of entering into
specifically requiring a longer period as which vary according to the charter and
condition in a loan agreement, in which case, by-laws of the particular corporation.
the period may exceed 5 years but shall
automatically expire upon full payment of the Subscription Contract – any contract for the
loan. acquisition of unissued stock in an existing
b. For the purpose of circumventing the corporation or a corporation still to be formed,
laws against anti-competitive agreements, abuse notwithstanding the fact that the parties refer to
of dominant position, anti-competitive mergers it as a purchase or some other contract,
and acquisitions, violation of nationality and
capital requirements or for the perpetuation of Kinds of Subscription Contract
fraud. 1. Pre-incorporation subscription –
2. The agreement must not be used for Subscription to the unissued stock of a
purposes of fraud. corporation still to be formed.
3. The agreement must be in writing and a. Before the filing of the articles of
notarized and specify the terms and conditions incorporation
thereof. The subscription cannot be revoked for
4. A certified copy of said agreement must be a period of not less than 6 months from the
filed with the corporation and with the SEC, date of subscription except:
otherwise, it is ineffective and unenforceable. i. All the other subscribers
5. The agreement shall be subject to consent to the revocation
examination by any stockholder of the ii. The incorporation of the
corporation in the same manner as any other proposed corporation fails to materialize
corporate book or record. with 6 months from date of subscription or
6. Unless expressly renewed, all rights granted within a longer period as may be stipulated
in the agreement shall automatically expire at in the contract of subscription.
the end of the agreed period. b. After the filing of the articles of
incorporation
Distinctions between Proxy and Voting Trust No pre-incorporation subscription may
1. The proxy has no legal title to the shares be revoked after the submission of the
while the trustee acquires legal title to articles of incorporation to the SEC.
the shares of the transferring 2. Post-incorporation subscription –
stockholder. Subscription to the unissued stock of a
2. A proxy, unless coupled with interest, is corporation that has been formed.
revocable at any time, while a voting
trust agreement, if validly executed, is Different Modes by which Shares may be
irrevocable. Issued
3. A proxy can only act at the specified 1. By subscription before and after
stockholders’ or members’ meeting, incorporation, to original, unissued stock
while a trustee is not limited to any 2. By sale of treasury stock after incorporation
particular meeting. for money, property or service.
4. A proxy votes only in the absence of the 3. By subscription to new stocks, when all the
owner of the stock, while a trustee can original stocks have been issued and the
vote and exercise all the rights of the amount of the capital stock increased
transferring stockholder even when the 4. By making a stock dividend
latter is present.
5. A proxy is usually of shorter duration Consideration for Shares of Stock/Issuance
than a voting trust agreement, although of Bonds by the Corporation
under the law the maximum duration of 1. Actual cash paid to the corporation
both cannot exceed 5 years at any time. 2. Property, tangible or intangible, which must
6. A proxy need not be notarized nor a be:
copy filed with SECT, which a voting a. Actually received by the corporation,
trust must be notarized and a certified b. Necessary or convenient for its use and
copy filed with Commission. lawful purposes at a fair valuation equal to the
7. A proxy does not have a right of par or issued value of the stock issued.
inspection of corporate books, while a 3. Labor performed for or services actually
trustee has such right. rendered to the corporation
4. Previously incurred indebted by the
How Participation in a Corporation Acquired corporation
1. In a stock corporation, a person may 5. Amounts transferred from unrestricted
become a shareholder: retained earnings to stated capital
6. Outstanding shares exchanged for stocks in
event of reclassification or conversion.

7. Shares of stock in another corporation, 2. The interest and expenses (in case of
and/or other generally accepted form of delinquent shares), if any, is due.
consideration
In case of Partial Payment – the partial
Limitations: payment shall be applied pro-rata to all the
1. Shares of stock shall not be issued for a subscribed shares, accordingly no certificate of
consideration less than the par or issued stock shall be issued until the subscription is
price thereof. fully paid. The subscription contract is an
2. They shall not be issued in exchange for indivisible contract.
promissory notes or future services.
3. When the consideration is other than actual Exception: The Board of Directors, at its option
cash, or consists of intangible property such and if not prohibited by the by-laws, may apply
as patents or copyrights, the valuation the payment to such number of shares as may
thereof shall initially be determined by the be covered by the payment and issue the
incorporators or the board of directors, corresponding certificate therefor.
subject to approval by the SEC.
4. The issued price of no par value shares Liability of Directors and Officers for Watered
must be fixed in the articles of incorporation Stock
or by the board of directors pursuant to Grounds:
authority conferred upon it by the articles of 1. By consenting to the issuance of stocks for a
incorporation or the by-laws, or in absence consideration less than its par or issued value or
thereof by the stockholders at a meeting for a consideration in any form other than cash,
duly called for the purpose representing at valued in excess of its fair value.
least a majority of the outstanding capital 2. By not expressing his objection in writing
stock. and filing the same with the corporate secretary
despite having knowledge of such issuance.
Nature of a Certificate of Stock
1. A certificate of stock is a written instrument Nature of Liability
signed by the proper officer of a corporation Such director or officer is solidarily liable
stating or acknowledging that the person named with the stockholder concerned for the difference
therein is the owner of a designated number of between the fair value received at the time of
shares of its stock. issuance of the stock and par or issued value of
2. It indicates the name of the holder, the the same.
number, kind and class of shares represented,
and the date of issuance. To whom liable – corporation and its creditors
3. The certificate is not stock in the corporation
but is merely evidence of the holder’s interest in Liability of Subscriber for Unpaid
the corporation, his ownership of the share Subscription
represented thereby. 1. Date and amount of payment
4. It is not essential to make one a stockholder a. On the date specified in the contract of
in a corporation. subscription. The amount of the payment is that
stated to be paid on the date fixed in the
Modes of Stock Transfer contract of subscription.
1. Indorsement and delivery of stock b. In the absence thereof, on the date
certificate stated in the call made by the board of directors.
2. Transfer or assignment in a separate The board may declare due and payable in its
instrument call either of the following:
3. Judicial or extra-judicial settlement of i. The whole balance of the
the estate subscription or
ii. A percentage of the unpaid
Validity of Stock Transfer subscription
1. As between the parties, the requisite for
a valid transfer is merely the delivery of Effect of Failure to Pay Subscription on Due
the certificate indorsed by the owner or Date
his attorney-in-fact or other person 1. The entire balance shall become due and
legally authorized to make the transfer. payable.
Registration is not necessary to enable 2. The stockholder shall be liable for the
the transferee to acquire the right of a interest at legal rate on such balance, unless a
stockholder as against the transfer. different rate of interest is provided in the
2. To be valid as against third person, the subscription contract, computed from the date
transfer of shares must be entered and specified until full payment of the subscription.
noted upon the books of the corporation. 3. If within 30 days from said date, no payment
In such case, the buyer becomes a is made, all stocks covered by the subscription
stockholder of record entitled to enjoy all shall become delinquent and shall be subject to
the privileges of a stockholder delinquent sale, unless the board of directors
orders otherwise.
Non-Transferability of Unpaid Stock – shares
of stock against which the corporation holds any Effect of Delinquency
unpaid claim shall not be transferable on the 1. The delinquent stock shall not be voted.
books of the corporation. 2. It shall not be entitled to vote or to
representation at any stockholders’ meeting.
Issuance of Certificates of Stock – shall be 3. The holder shall not be entitled to any rights
done if the following is paid: of a stockholder, except the right to dividends.
1. The full amount of subscription

Remedies of Corporation to enforce payment of incorporation or by-laws to obtain the relief he
of the Contract of Subscription desires.
1. By applying the cash dividends due on the 3. No appraisal rights are available for the act
shares to the unpaid balance of the subscription or acts complained of.
plus costs and expenses or withholding the 4. The suit is not a nuisance or harassment
stock dividends until the subscriber pays his suit.
obligation.
2. By filing a court action to collect the amount Distinction among Derivative Suit,
due on the unpaid subscription, with accrued Representative Suit and Individual Suit
interest, costs, and expenses. Derivative suit – the wrong sought to be
3. By selling the shares at public auction. redressed is committed against the corporation
Highest bidder is the one who offers to pay itself.
the full amount of the balance of the Representative suit – the cause of action is a
subscription, accrued interest, cost of wrong committed against the stockholders
advertisement and expenses of sale for the themselves.
smallest number of shares. Individual or personal suit – wrong affects only a
a. If there is a highest bidder particular stockholder
The shares shall be transferred to him
in the books of the corporation and a Books to be Kept by Corporation
certificate of stock issued in his favour. 1. Articles of incorporation and bylaws
The remaining shares, if any, shall be 2. Current ownership structure and voting
credited in favour of the delinquent rights including the lists of stockholders or
stockholder who shall likewise be issued members, group structures, intra-group
a certificate of stock covering such relations, ownership data and beneficial
shares. ownership
b. If there is no highest bidder. 3. Names and addresses of all members of the
The corporation may bid for the board of directors or trustees and the executive
delinquent shares and the total amount officers
due shall be credited as paid in full in 4. Record of all business transactions
the books of the corporation. Title to the 5. Record of the resolutions of the board of
shares shall be vested in the corporation directors or trustees and of the stockholders or
as treasury shares. members
6. Copies of the latest reportorial requirements
Right of Subscriber to Recover Shares submitted to the SEC
Illegally Sold 7. Minutes of all meetings of stockholders, of
Grounds the board of directors or trustees
1. Irregularity or defect in the notice of sale of
the delinquent stock The above are likewise open to inspection and a
2. Irregularity in the sale of the delinquent demand in writing may be made for copies. The
stock inspecting or reproducing party shall remain
bound by confidentiality rules under prevailing
Requisites for Recovery laws such as rules on trade secrets or processes
1. The party seeking recovery must pay or under RA No. 8293 (The Intellectual Property
tender to the party holding the stock the sum for Code of the Philippines), RA No. 10173 (Data
which the same was sold, with interest from date Privacy Act of 2012), RA No. 8799 (The
of sale at legal rate. Securities Regulation Code), and the Rules of
2. The complaint must be filed within 6 Court.
months from date of sale.
A requesting party who is not a stockholder or
Liability for Interest member of record, or is a competitor, director,
Subscribers shall pay interest on unpaid controlling stockholder or otherwise represents
subscriptions from date of subscription if so the interests of a competitor shall have no right
required by and at the rate of interest fixed in to inspect or demand reproduction of corporate
the subscription contract. If no rate of interest is records.
fixed in the subscription contract, the prevailing
legal rate shall apply. Any stockholder who shall abuse the rights
granted shall be penalized under Sec. 158 of the
Right of Stockholder to bring Derivative Suit Revised Corporation Code, without prejudice to
Derivative suit – suit filed by a stockholder in RA No. 8293 and RA No. 10173.
the name and in behalf of the corporation to
protect corporate rights or redress wrongs Liability of Officer or Agent in case of Refusal
committed against the corporation, whenever to Allow Examination and Copy Excerpts
corporate officers refuse to bring such actions or from Corporate Books
such officers are the ones to be sued or held 1. Civil liability – damages
liable. Stockholder is nominal party while the 2. Criminal liability – Sec. 161 of the Revised
corporation is regarded as real party in interest Corporation Code (Violation of Duty to Maintain
Records, to Allow their Inspection or
Requisites: Reproduction) Penalties:
1. He was a stockholder or member at the time • Fine from P10,000 to P200,000 at the
the acts or transactions subject of the action discretion of the court.
occurred and at the time the action was filed. • Fine from P20,000 to P400,000 if violation is
2. He exerted all reasonable efforts, and alleges injurious or detrimental to the public.
the same with particularity in the complaint, to
exhaust all remedies available under the articles

Defenses to Resist Liability c. Extending or shortening the term of
The person demanding to examine and copy corporate existence
except, he 2. In case of sale or other disposition of all
1. Has improperly used any information or substantially all of the corporate
secured through prior examination of the property.
records or minutes of the corporation or of any 3. In case of merger or consolidation
other corporation 4. In case of investment of funds by the
2. Was not acting in good faith or for a corporation in another corporation or for
legitimate purpose in making his demand other than the primary purpose.
3. Is a competitor, director, officer, controlling
stockholder or otherwise represents the interests How Right is Exercised
of a competitor. 1. A written demand on the corporation by the
stockholder who voted against the proposed
Financial Statements corporate action
Financial Statements must be in the form and 2. It must be done within 30 days after the on
substance of the financial reporting required by which the vote was taken. Failure to do so
the SEC. within such period shall be deemed a waiver of
the appraisal right.
The financial statements must be signed and 3. If the proposed corporate action is
certified in accordance with the Revised implemented or affected, the corporation shall
Corporation Code and the rules of the SEC may pay the dissenting stockholder the fair value of
prescribe. the shares as of the day prior to the date on
which the vote was taken, excluding any
Exception: If the total assets or total liabilities of appreciation or depreciation in anticipation of
the corporation are less than P600,000 or such such corporate action.
other amount as may be determined appropriate 4. The withdrawing stockholder shall
by the Department of Finance, the financial surrender of the certificate/s of stock
statements may be certified under oath by the representing his shares.
treasurer and the president. 5. If within 60 days from the date the corporate
action was approved, the withdrawing
Merger – union of 2 or more corporations stockholder and the corporation cannot agree on
whereby one or more but not all of the the fair value of the shares, it shall be
constituent corporations are absorbed by one determined and appraised by 3 disinterested
which continues in existence. persons, one of whom shall be named by the
stockholder, another by the corporation and the
Consolidation – union of 2 or more corporation third by the two thus chosen. The findings of the
whereby the existence of the constituent majority of the appraisers shall be final, and
corporations is terminated and a new one called their award shall be paid by the corporation
the consolidated corporation is created. within 30 days after such award is made.
Effects of Merger or Consolidation Effect of Demand

1. Constituent corporations become a From the time of demand until either the
single corporation, the surviving abandonment of the corporation action or the
corporation in case of merger and the purchase of the shares by the corporation, all
consolidated corporation in case of rights accruing to the shares, including voting
consolidation. and dividend rights, shall be suspended, except
2. Separate existence of the constituent the right to receive payment of the fair value of
corporations ceases, except that of the the shares. However, if the stockholder is not
surviving corporation or the paid within 30 days after the award, the voting
consolidated corporation. and dividend rights shall immediately be
3. Surviving or consolidated corporation restored.
possesses all the rights, privileges,
immunities and powers, subject to all When Right to Payment Ceases
the duties and responsibilities of a 1. If demand for payment is withdrawn with
corporation. the consent of the corporation
4. Surviving or consolidated corporation 2. If the proposed action is abandoned or
possesses all the rights, privileges, rescinded by the corporation
franchises, property and all interest of 3. If the proposed action is disapproved by the
each of the constituent corporations. SEC where such approval is necessary
5. Surviving or consolidated corporation is 4. If the SEC determines that the stockholder
liable for all the liabilities of each of the is not entitled to the appraisal right.
constituent corporations.
Who Bears Costs of Appraisal
Appraisal Right – right given to dissenting General Rule: The corporation
stockholder to demand payment of the fair value Exception: The stockholder
of his shares in the following cases: a. if the fair value ascertained by the
1. In case any amendment to the articles of appraisers is approximately the same as
incorporation has the effect of: the price which the corporation may
a. Changing or restricting the rights of have offered to pay the stockholder, or
any stockholders or class of shares b. the stockholder’s refusal to receive
b. Authorizing preferences in any payment was unjustified
respect superior to those of
outstanding shares of any class Nonstock Corporation – one where no part of
its income is distributable as dividends to its

members, trustees, or officers and any profit 3. Assets received and held by the corporation
obtained incident to its operations shall be used subject to limitations permitting their use only
for the furtherance of the purpose or purposes for charitable, religious, benevolent, educational
for which the corporation was organized or similar purposes, shall be transferred or
conveyed to one or more corporations, societies
Purposes or organized engaged in similar activities in the
1. Charitable Philippines
2. Religious 4. Assets other than those mentioned shall be
3. Educational distributed in accordance with the provisions of
4. Professional the articles of incorporation or the by-laws.
5. Cultural 5. In any other case, assets may be distributed
6. Fraternal to such persons, societies, organizations or
7. Literary corporations, whether or not organized for profit
8. Scientific as may be specified in a plan for distribution
9. Social which shall be adopted upon approval of at least
10. Civic service 2/3 of the members.
11. Similar purposes like trade, industry,
agricultural and like chambers or any Close Corporation – one whose articles of
combination thereof incorporation provide that:
1. All the corporation’s issued stock of all
Right to Vote classes, exclusive of treasury shares, shall be
Each member is entitled to one vote, unless held of record by not more than a specified
limited, broadened or denied to the extent number of persons, not exceeding 20
specified in the articles of incorporation or the 2. All the issued stock of all classes shall be
bylaws. subject to one or more specified restrictions of
transfer, and
Nontransferability of Membership 3. The corporation shall not list in any stock
Membership and all rights arising therefrom exchange or make public offering of any of its
are personal and non-transferable, unless the stock of any class.
articles of incorporation or the by-laws otherwise
provide. A corporation shall not be deemed a close
corporation when at least 2/3 of its voting stock
Termination of Membership and its Effect or voting rights is owned or controlled by
Membership is terminated in the manner another corporation which is not a close
and for the causes provided in the articles of corporation
incorporation or by-laws. Termination has the
effect of extinguishing all rights of a member in Not Allowed to Form a Close Corporation
the corporation or in its property, unless 1. Mining or oil companies
otherwise provided in the articles of 2. Stock exchanges
incorporation or the bylaws. 3. Banks
4. Insurance companies
Qualification of Trustee 5. Public utilities
Must be a member of the corporation 6. Educational institutions
7. Corporations declared to vested with public
Number of Trustees interest
The trustees may be more than 15 in number as
may be fixed in their articles of incorporation or Articles of Incorporation of a Close
by-laws. Corporation May Provide For:
1. Classification of shares or rights and the
Election and Term of Trustees qualification for owning or holding the same and
The term of office is not more than 3 years until restrictions on their transfers
the successors are elected and qualified. 2. Classification of directors into one or more
classes, each of whom may be voted for and
Election of Officers elected solely by a particular class of stock
The members may directly elect officers unless 3. Greater quorum or voting requirements in
otherwise provided in the articles of meetings of stockholders or directors than those
incorporation or by-laws. provided in the Corporation Code
4. Business of the corporation to be managed
Place of Meetings of Members by the stockholders of the corporation rather
At any place even outside the place where the than by a board. So long as this provision
principal office of the corporation is located continues in effect:
a. No meeting of stockholders need be
Rules for Distribution of Assets in Nonstock called to elect directors
Corporations b. The stockholder shall be deemed to be
1. All liabilities and obligations of the directors
corporation shall be paid, satisfied and c. The stockholders shall be subject to all
discharged, or adequate provision shall be made liabilities of directors
therefor. 5. Election or appointment of all or specified
2. Assets held by the corporation upon a officers or employees to be made by the
condition requiring return, transfer, or stockholders, instead of by the board of
conveyance, and which condition occurs by directors.
reason of dissolution, shall be returned,
transferred or conveyed in accordance with such Validity of Restrictions on Transfer of Shares
requirements.

1. Restrictions must appear in the articles of 3. Directing or prohibiting any act of the
incorporation and in the by-laws as well as in corporation or its board of directors,
the certificate of stock; otherwise, the same shall stockholders, officers or other persons party to
not be binding on any purchaser in good faith the action
2. They shall not be more onerous than 4. Requiring the purchase at their fair value of
granting the existing stockholders or the shares of any stockholder, either by the
corporation the option to purchase the shares of corporation regardless of the availability of
the transferring stockholder with such unrestricted retained earnings in its books, or by
reasonable terms, conditions or period stated. If the other stockholders
upon expiration of said period, the existing 5. Appointing a provisional director
stockholders or the corporation fails to exercise a. An impartial person who is neither a
the option to purchase, the transferring stockholder nor a creditor of the corporation
stockholder may sell his shares to any third or of any subsidiary or affiliate of the
person corporation.
b. Not a receiver of the corporation and
When Board Meeting is Unnecessary does not have the title and powers of a
Unless the by-laws provide otherwise, any action custodian or receiver
by the directors of a close corporation without a c. Has all the rights and powers of a duly
meeting shall nevertheless be deemed valid if: elected director of the corporation
1. Before or after such action is taken, written 6. Dissolving the corporation, or
consent thereto is signed by all the directors; or 7. Granting such other relief as the
2. All stockholders have actual or implied circumstances may warrant
knowledge of the action and make no prompt
objection thereto in writing; or Withdrawal of Stockholder
3. The directors are accustomed to take Any stockholder of a close corporation may, for
informal action with the express or implied any reason, compel the corporation to purchase
acquiescence of all the stockholders; or his shares at their fair value, which shall not be
4. All the directors have express or implied less than their par value or issued value, when
knowledge of the action in question and none of the corporation has sufficient assets in its books
them makes prompt objection thereto in writing. to cover its debts and liabilities exclusive of
capital stock
When Board Meeting is Held Without Proper
Call or Notice Dissolution of Close Corporation by Petition
An action taken is deemed by ratified by a of Stockholder
director who failed to attend, unless he promptly Stockholder of close corporation may, by written
files his written objection with the secretary of petition to the SEC, compel the dissolution of
the corporation after having knowledge thereof. such corporation whenever any of acts of the
directors, officers or those in control of the
Pre-emptive Right in Close Corporation corporation is illegal, or fraudulent, or
Extends to all stock to be issued, including dishonest, or oppressive or unfairly prejudicial
reissuance of treasury shares to the corporation or any stockholder, or
whenever corporate assets are being misapplied
Amendment of Articles of Incorporation or wasted.
Any amendment which seeks to delete or remove
any required provision to be contained in the Special Corporations
articles of incorporation or to reduce a quorum 1. Educational corporations – governed by
or voting requirement stated in the articles of special laws and by the general provisions of the
incorporation shall not be valid or effective Corporation Code, the articles of incorporation
unless approved by the affirmative vote of at and by-laws of which are accepted or approved
least 2/3 of the outstanding capital stock, by SEC upon favorable recommendation of the
whether with or without voting rights, or such Ministry of Education and Culture (Department
greater proportion of shares. of Education or Commission on Higher
Education)
Deadlocks
If the directors or stockholders are so divided Number of Trustees – not less than 5 nor
respecting the management of the corporation’s more than 15 in multiples of five.
business and affairs that the votes required for
any corporate action cannot be obtained. With Term of Office – 5 years with 1/5 of the
the consequence that the business and affairs of number of trustees expiring every year
the corporation can no longer be conducted to
the advantage of the stockholders generally, the 2. Religious corporations which may be
SEC, upon written petition by any stockholder, incorporated by:
shall have the power to arbitrate the dispute. a. One person – Corporation sole which
may be formed by the chief archbishop, bishop,
In the exercise of such power, the SEC shall priest, minister, rabbi or other presiding elder of
have the authority to make such order as it any religious denomination, sect or church for
deems appropriate, including an order: the purpose of administering and managing, as
1. Cancelling or altering any provision trustee, the affairs, property and temporalities of
contained in the articles of incorporation, by- such religious denomination, sect or church.
laws, or any stockholder’s agreement b. More than One person – Religious
2. Cancelling, altering or enjoining any society or religious order or any diocese, synod
resolution or act of the corporation or its board or district organization of any religious
of directors, stockholders or officers denomination, sect or church, may upon written
consent and/or by an affirmative vote of at least

2/3 of its membership, incorporate for the c. Notify the SEC of the death of the single
administration of its temporalities or for the stockholder within 5 days from such
management of its affairs, properties and estate. occurrence and stating in such notice
the names, residence addresses, and
3. One Person Corporation – a corporation contact details of all known legal heirs,
with a single stockholder who may be a natural and
person, trust or an estate. d. Call the nominee or alternate nominee
and the known legal heirs to a meeting
Not Allowed to Incorporate as One Person and advise the legal heirs with regard to,
Corporation among others, the election of a new
a. Banks and quasi-banks director, amendment of the articles of
b. Preneed companies incorporation, and other ancillary
c. Trust companies and/or consequential matters
d. Public and publicly-listed companies
e. Non-chartered government owned and Nominee and Alternate Nominee – the
controlled corporations single stockholder shall designate a nominee
f. Natural person who is licensed to and an alternate nominee who shall, in the
exercise a profession for the purpose of event of the single stockholder’s death or
exercising such profession except as incapacity, take the place of the single
otherwise provided under special laws. stockholder as director and shall manage
the corporation’s affairs.
Minimum Capital Stock – no required
minimum authorized capital stock except as The written consent of the nominee and
otherwise provided by special law alternate nominee shall be attached to the
application for incorporation. Such consent
Articles of Incorporation – shall may be withdrawn in writing any time before
substantially contain the following: the death or incapacity of the single
a. If the single stockholder is a trust or an stockholder.
estate, the name, nationality, and
residence of the trustee, administrator, Term of Nominee and Alternate Nominee
executor, guardian, conservator, a. When the incapacity of the single
custodian, or other person exercising stockholder is temporary, the nominee
fiduciary duties shall sit as director and manage the
b. Name, nationality, residence of the affairs of the OPC until the stockholder,
nominee and alternate nominee, and the by self-determination, regains the
extent, coverage and limitation of capacity to assume such duties.
authority b. In case of death or permanent
incapacity, the nominee shall sit as
Bylaws – not required to submit and file. director and manage the affairs of the
OPC until the legal heirs of the single
Display of Corporate Name – indicate the stockholder have been lawfully
letter “OPC” either below or at the end of its determined, and the heirs have
corporate name. designated one of them or have agreed
that the estate shall be the single
Single Stockholder – the sole director and stockholder of the OPC
president of the OPC c. Alternate nominee shall sit as director
and manage the OPC in case of the
Corporate Officers – within 15 days from nominee’s inability, incapacity, death or
the issuance of its certificate of refusal to discharge the functions as
incorporation, the OPC shall appoint a director and manager of the corporation,
treasurer, corporate secretary, and other and only for the same term and under
officers as it may deem necessary, and notify the same conditions applicable to the
the SEC within 5 days from appointment. nominee.
The single stockholder may not be appointed Minutes Books – OPC shall maintain a
as the corporate secretary. minutes book which shall contain all
actions, decisions, and resolutions taken by
A single stockholder who is likewise the self- OPC.
appointed treasurer shall give a bond to the
SEC in such a sum as may be required. The Records in Lieu of Meetings – When action
bond shall be renewed every 2 years or as is needed on any matter, it shall be
often as may be required. sufficient to prepare a written resolution,
signed and dated by the single stockholder,
Special Functions of the Corporate and recorded in the minutes book of the
Secretary OPC. The date of recording in the minutes
a. Be responsible for maintaining the books shall be deemed to be the date of the
minutes book and/or records of the meeting.
corporation
b. Notify the nominee or alternate nominee Reportorial Requirements
of the death or incapacity of the single a. Annual financial statements audited by
stockholder, which notice shall be given an independent CPA. However, if the
no later than 5 days from such total assets or total liabilities of the
occurrence corporation are less than P600,000, the
financial statements shall be certified

under oath by the treasurer and its dissolution was resolved upon by
president. the affirmative vote of the
b. A report containing explanations or stockholders at least 2/3 of the
comments by the president on every outstanding capital stock or of at
qualification, reservation, or adverse least 2/3 of the members
remark or disclaimer made by the c. Amending the articles of
auditor in the latter’s report incorporation to shorten the
c. A disclosure of all self-dealings and corporate term. Upon approval of
related party transactions entered into the amended articles, the
between the OPC and the single corporation shall be deemed
stockholder dissolved without any further
d. Other reports as the Commission may proceedings
require d. In case of corporation sole, by
submitting to the SEC a verified
Failure to Submit – the SEC may place the declaration of dissolution.
OPC under delinquent status should the 2. Involuntary dissolution
corporation fail to submit reportorial a. By the expiration of the term
requirements 3 times, consecutively or b. By its failure to formally organize
intermittently, within a period of 5 years. and commence the transaction of its
business or construction of its
Accounting Period – may be fiscal or works within 2 years from its
calendar year incorporation
c. By order of SEC
Liability of Single Stockholder – A sole d. By legislative dissolution.
stockholder claiming limited liability has the
burden of affirmatively showing that the Grounds for Dissolution
corporation was adequately financed. a. Non-use of corporate charter
b. Continuous inoperation of a
When the single stockholder cannot prove corporation
that the property of the OPC is independent c. Upon receipt of a lawful court order
of the stockholder’s personal property, the dissolving the corporation
stockholder shall be jointly and severally d. Upon finding by final judgment that
liable for the debts and other liabilities of the the corporation procured its
OPC. incorporation through fraud
e. Upon finding by final judgment that
The principles of piercing the corporate veil the corporation
applies with equal force to OPC as with i. Was created for the purpose of
other corporation committing, concealing, or
aiding the commission of
Conversion from an Ordinary Corporation securities violations,
to OPC – when a single stockholder smuggling, tax evasion,
acquires all the stocks of an ordinary stock money laundering, or graft
corporation, the latter may apply for and corrupt practices
conversion, subject to the submission of ii. Committed or aided in the
required documents. commission of securities
violations, smuggling, tax
Conversion of OPC to Ordinary Stock evasion, money laundering,
Corporation – OPC may be converted into or graft and corrupt
ordinary stock corporation after due notice practices, and its
to the SEC of such fact and of the stockholders knew of the
circumstances leading to the conversion and same; and
after compliance with all other requirements iii. Repeatedly and knowingly
for stock corporations. Such notice shall be tolerated the commission of
filed with the SEC within 60 days from the graft and corrupt practices
occurrence of the circumstances leading to or other fraudulent or illegal
the conversion. acts by its directors,
trustees, officers or
Dissolution – termination of existence of a employees
corporation
Liquidation – the process of winding up the
Kinds of Dissolution affairs of the corporation and entails the
1. Voluntary Dissolution collection of all assets, the payment of all its
a. Voluntary dissolution where no creditors, and the distribution of the remaining
creditors are affected by majority assets.
vote of the board of directors or
trustees, and by resolution duly After dissolution, the corporation shall
adopted by the affirmative vote of nevertheless continue as a body corporate for 3
the stockholders owning at least years not for continuing the business but for the
majority of the outstanding capital following:
stock or majority of the members. 1. To prosecute and defend suits by or
b. Voluntary dissolution where against it
creditors are affected by petition 2. To enable it to settle and close its affairs
signed by a majority vote of the 3. To dispose of and convey its property
board of directors or trustees, and 4. To distribute its assets

d. A written power of attorney
At any time during the 3-year period, the designating a resident agent on
corporation is authorized and empowered to whom summons and other legal
convey all of its property to trustees for the processes against the
benefit of stockholders, members, creditors, and corporation may be served and a
other persons in interest. written agreement consenting
that such service may be made
From and after any such conveyance, all interest upon SEC.
which the corporation had in the property 3. Compliance with provisions of special
terminates, the legal interest vests in the laws
trustees, and the beneficial interest in the 4. Issuance of license to transact business.
stockholders, members, creditors or other
persons in interest. Resident agent – an individual who must be of
good moral character and of sound financial
Escheat – any asset distributable to any creditor standing, residing in the Philippines, or
or stockholder or member who is unknown or domestic corporation lawfully transacting
cannot be found shall be escheated in favor of business in the Philippines which must likewise
the national government be of sound financial standing and must show
proof that it is in good standing as certified by
Foreign Corporation – a corporation created by the SEC.
or under the laws other than those of the
Philippines and whose laws allow Filipino Service of Summons
citizens and corporations to do business in its - on resident agent or if there is no such
country or state. It shall have the right to agent, on the government official designated by
transact business in the Philippines after law to the effect or any of its officers or agents
obtaining a license to do so and a certificate of within the Philippines.
authority from the appropriate government
agency. Applicable Law to Foreign Corporations
1. Philippine Laws – bound by all laws,
Incorporation test – the nationality of a rules and regulations applicable to
corporation is that of the State of incorporation domestic corporations of the same class.
regardless of the nationality of its stockholders. 2. Laws of State of Creation -
a. the creation, formation,
Control test – identical to the nationality of organization or dissolution of
stockholders holding controlling interest. It is corporation, and
applied in times of war. b. the relations, liabilities,
responsibilities or duties of
Grandfather Rule – the method by which the stockholders, members or
percentage of Filipino equity in a corporation officers of corporations to each
engaged in nationalized and/or partly other or to the corporation.
nationalized areas of activities, provided for
under the Constitution and other nationalization Effectivity of Amendment of Articles of
laws, is computed where corporate shareholders Incorporation or By-laws – effective even before
are present, by attributing the nationality of the the filing with SEC of the authenticated copy of
second or even subsequent tier of ownership to the articles or by-laws, as amended, which filing
determine the nationality of the corporate must done with 60 days after such amendment
shareholder. becomes effective.
Requirements to Transact or Do Business in Amendment of License Required

the Philippines. 1. Corporate name is changed
License and Certificate of Authority 2. Desires to pursue in the Philippines
other or additional purposes
Application for Issuance of License
1. Certified copy of articles of incorporation Merger or Consolidation – if permitted under
with translation to an official language Philippine laws and law of its incorporation
of the Philippines and application for a
license under oath. Effectivity – effective even before the filing with
2. Documents accompanying application SEC of the authenticated copy of the articles of
a. Certificate under oath attesting merger or consolidation, which filing must done
to the fact that laws of the with 60 days after such amendment becomes
country or State of the applicant effective.
allow Filipino citizens and
corporations to do business and Effects of Doing Business without License
the applicant is an existing 1. Not permitted to maintain or intervene
corporation in good standing, in any action, suit or proceeding in any
with English translation. court or administrative agency in the
b. Sworn statement of the Philippines
President showing that the 2. May be sued or proceeded against before
applicant is solvent and in Philippine courts or administrative
sound financial condition. tribunals
c. Certificate of Authority from
appropriate government Grounds for Revocation of License
authority 1. Failure to file its annual report or pay
required fees

2. Failure to appoint and maintain a 9. Tolerating graft and corrupt practices
resident agent 10. Retaliation against whistleblowers
3. Failure, after change of its resident 11. Other violations of the code
agent or his address, to submit
statement of such change to SEC Liability of Directors, Trustees, Officers or
4. Failure to submit an authenticated copy Other Employees – If the offender is a
of any amendment to its articles of corporation, the penalty may, at the discretion of
incorporation or by-laws or any articles the court, be imposed upon such corporation
of merger or consolidation and/or upon its directors, trustees,
5. Misrepresentation of any material stockholders, members, officers, or employees
matter in any application, report, responsible for the violation or indispensable to
affidavit or other document submitted its commission
6. Failure to pay any and all taxes, impost,
assessments or penalties, if any, Liability of Aiders and Abettors and Other
lawfully due to the Philippine Secondary Liability – Anyone who shall aid,
Government abet, counsel, command, induce, or cause any
7. Transacting business in the Philippines violation of the Code or any rule, regulation, or
outside of the purpose or purposes for order of SEC shall be punished with fine not
which such corporation is authorized exceeding that imposed on principal offenders,
under its license at the discretion of the court, after taking into
8. Transacting business in the Philippines account their participation.
as agent of or acting for and in behalf of
any foreign corporation or entity not
duly licenses to do business in the
Philippines
9. Any other ground as would render it
unfit to transact business in the
Philippines.
Requirements before Certificate of

Withdrawal
1. All claims which have accrued in the
Philippines have been paid,
compromised or settled
2. All taxes, imposts, assessments and
penalties, if any, lawfully due to the
Philippine Government
3. Petition for Withdrawal has been
published once a week for 3 consecutive
weeks in a newspaper of general
circulation in the Philippines
Investigation, Offenses and Penalties

Investigation of Offenses
The SEC may investigate an alleged violation of
this Code, or its rule, regulation or order.
Administrative Sanctions:
1. Imposition of a fine ranging from P5,000 to
P2,000,000, and not more than P1,000 for each
day of continuing violation but in no case to
exceed P2,000,000
2. Issuance of a permanent cease and desist
order
3. Suspension or revocation of the certificate of
incorporation
4. Dissolution of the corporation and forfeiture
of assets
Offenses under Revised Corporation Code

1. Unauthorized use of corporate name
2. Violation of disqualification provision
3. Violation of duty to maintain records, to
allow their inspection or reproduction
4. Willful certification of incomplete,
inaccurate, false or misleading statements or
reports
5. Obtaining corporate registration through
fraud
6. Fraudulent conduct of business
7. Acting as intermediaries for graft and
corrupt practices
8. Engaging intermediaries for graft and
corrupt practices

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7.

The stockholders’ rights have become

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6. Convertible share – share which is Restrictions regarding the issuance of No par

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Steps in the creation of a corporation A Directors'/Trustees' Certificate or a Secretary's

Number and Qualifications of Incorporators Signatories of the Articles of Incorporation

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Revival of Corporate Existence Articles of Incorporation – a document

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Mandatory provisions – prescribe formalities Number of Directors or Trustees to be Elected

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Additional Qualifications of a Director or Limitations or Conditions imposed on the

Independent Director – a person who, apart A stockholder or member who participates

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Rule on Self-dealing Director or Trustee Executive Committee – composed of not less

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Express Powers of Corporation Limitations:

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Effects of Merger or Consolidation Effect of Demand

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Requirements to Transact or Do Business in Amendment of License Required

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Requirements before Certificate of

Investigation, Offenses and Penalties

Offenses under Revised Corporation Code

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