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REPUBLIC ACT NO.

11232 Government directly or through its


instrumentalities either wholly, or where applicable
THE REVISED CORPORATION CODE OF as in the case of stock corporations, to the extent
THE PHILIPPINES of at least 51% of its capital stock.
Example:
TITLE I ● SSS
GENERAL PROVISIONS ● Philhealth
● Landbank
SEC 1. Title of the Code ● Pag-ibig
This Code shall be known as the
“Revised Corporation Code of the Requisites classified as stock corporation:
Philippines.” ● It has capital stock divided into shares
● It is authorized to distribute dividends and
The present revised corporation code (RA allotments of surplus and profits to its
NO 11232) took effect on Feb 23, 2019. stockholders.

Corporation is a juridical entity vested with For Non-stock Corporations:


a legal personality separate and distinct ● Must have members
from those acting for and in its behalf. ● Must not distribute any part of their income
to said members.
Characteristics of a Corporation
Piercing the Veil of Corporate Fiction or
1) It is an artificial being Instrumentality or Alter Ego Doctrine
2) Created by operation of law - The corporate veil should not and cannot
3) It has the right of succession be pierced unless it is clearly established
4) It has the powers, attributes and that the separate and distinct personality of
properties expressly authorized by the corporation was used to justify a wrong,
law or incidental to its existence. protect fraud, or perpetrate a deception.

The definition and characteristics refer to private Factors of Identity which could justify the
corporation application of the Doctrine of Piercing the
Corporate Veil:
Government - owned or controlled corporation
refers to any agency organized as a stock or 1) Stock ownership by one or common
non-stock corporation, vested with functions ownership of both corporations
relating to public needs whether governmental or 2) Identity of directors and officers
proprietary in nature, and owned by the
3) The manner of keeping corporate books Factors of identity that will justify the
and records; and application of the Dcotrine:
4) Methods of conducting the business 1) Stock ownership by one or common
ownership of both corporations
Elements of Piercing the Veil of Corporate 2) Identity of directors and officers
Fiction: 3) The manner of keeping corporate books
1) Control and records
● Not mere stock control, but 4) Methods of conducting the business
complete domination Succession (Artificial Succession)
● Not only of finances, but of policy - The continuation of a corporation’s legal
and business practice in respect to status despite changes in ownership or
the transaction attacked management.
● Corporate entity as to this
transaction had at the time no ➢ A corporation has no power except those
separate mind, will or existence of expressly conferred on it by the
its own. Corporation Code (or special laws)
2) Commit a Fraud or a wrong ➢ Those implied or incidental to its existence
● Used by the defendant to commit a ➢ Corporation exercises powers through its
fraud or a wrong board of directors and/or its duly authorized
● To perpetuate the violation of a officers and agents.
statutory or other positive legal ➢ Property acquired by a corporation is the
duty. property of a corporation and not the
● Dishonest and an unjust act in property of stockholders or members.
contravention of plaintiff’s legal
right. SEC. 3. Classes of Corporation - Corporations
3) Proximately caused injury or unjust loss formed or organized under this code may be
complained due to control and breach of stock or nonstock corporations.
duty. Stock corporations are those which
have capital stock divided into shares and are
The Supreme Court emphasized that the piercing authorized to distribute to the holders of such
of the veil of corporate fiction is only done if it has shares, dividends, or allotments of the surplus
been clearly established that the separate and profits on the basis of the shares held.
distinct personality of the corporation is used to All other corporations are nonstock
justify a wrong, protect fraud, or perpetuate a corporations.
deception. Courts are concerned with reality, not
for, and with how the corporation operated and the Nonstock corporation
individual defendant’s relationship to the operation.
- is one where no part of its income is the right of which to exist as a
distribtable as dividends to its members, trustees, corporation cannot be successfully
or officers attacked; or questioned by any
- any profit which a non-stock corporation party.
may obtain as an incidental to its operations shall ➢ De Facto Corporation
be used for the furtherance of the purpose or ● Due incorporation of any
purposes for which the corporation was organized. corporation claiming in good faith to
OTHER CLASSES OF CORPORATION be a corporation under this Code
● Its right to exercise corporate
As to Purpose
powers shall not be inquired into
➢ Public corporation
collaterally in any private suit to
A corporation organized for the
which such corporation may be a
government of a portion of the State for the
party.
general good and welfare.
● Inquiry may be made by the
➢ Private Corporation Solicitor General in a quo
A corporation formed for some warranto proceeding.
private purposes, benefit or end.
➢ Corporation by Estoppel
➢ Government-owned or controlled All persons who assume to act as a
corporation corporation knowing it to be without
A corporation owned by the authority to do so shall be liable as
Government directly or through its general partners for all debts, liabilities,
instrumentalities either wholly or in the and damages incurred.
case of stock corporations, to the extent of
at least 51% of its capital stock. ➢ Corporation by Prescription
➢ Quasi - public corporation Exercised corporate powers for an
A private corporation which has indefinite period without interference on the
accepted from the state the grant of part of the government.
franchise or contract involving the
As to Laws of Incorporation
performance of public duties but organized
for profit.
➢ Domestic Corporation
A corporation incorporated under
As to Legal Right to Corporate Existence
the laws of the Philippines.
➢ De jure corporation
➢ Foreign Corporation
A corporation created in
● Formed, organized or existing
● strict or substantial conformity with
under any laws other than those of
the mandatory statutory
the Philippines.
requirements for incorporation and
● Whose laws allow Filipino citizens As to the Number of Persons who compose
and corporations to do business in
them
its own country of State.
➢ Corporation Aggregate
As to whether they are Open to the Public
A corporation consisting of more
or Not than one member.

➢ Open Corporation ➢ Corporation Sole


● Open to any person who may wish ● A corporation consisting of only one

to become a stockholder or member for the purpose of

member. administering and managing as

➢ Close Corporation trustee, the affairs, property and


temporalities of any religious
Whose Articles of Incorporation provide:
denomination, sect or church.
All the corporation’s issued stock of
all classes, exclusive of treasury As to whether they are for Religious Purposes
shares, shall be held of record by or Not
not more than a specified number
➢ Ecclesiastical Corporation
of persons, not exceeding 20
A corporation organized for
All the issued stock of all classes religious purposes.
shall be subject to one or more
➢ Lay Corporation
specified restrictions on transfer
A corporation organized for a
The corporation shall not list in any
purpose other than for religion.
stock exchange or make any public
offering of any of its stock of any
As to whether they are for Charitable or Not
class.
➢ Eleemosynary Corporation
As to Relationship of Management and
A corporation organized for
Control charitable purposes.
➢ Parent or Holding Corporation ➢ Civil Corporation
● Hold stocks in another corporation A corporation organized for
for purposes of control.
business or profit.
➢ Subsidiary Corporation
● A corporation more than 50% of the
Sec 4. Corporations Created by Special
voting stock of which is controlled
Laws or Charters
directly or indirectly by another
Corporations created by special
corporation, which thereby becomes
laws or charters shall be governed
its parent corporation
primarily by the provisions of the special Incorporators are those stockholders or
law or charter creating them or applicable members mentioned in the articles of

to them, supplemented by the provisions incorporation as originally forming and


composing the corporation and who are
of this Code, insofar as they are applicable.
signatories thereof.

GENERAL LAW vs SPECIAL LAW


➢ Stockholders (shareholders)
○ The owners of shares of stock in a
General Law stock corporation.
A private corporation may be formed or ➢ Members
organized is the Corporation Code, the ○ The corporators of a non-stock
requirements of which must be complied with corporation.
by those wishing to incorporate. ➢ Board of Directors or Board of Trustees
The Board of Directors is the governing
Special Law body in a stock corporation.
By which a government corporation is The Board of Trustees is the governing
normally created. body in a non-stock corporation.
Referred often as a Charter ➢ Corporate Officers
○ The PRESIDENT, who shall be a
The constitution expressly authorizes the director, a treasurer, who may or
legislature to create “government-owned or may not be a director
controlled corporations” through special charters ○ SECRETARY who shall be a
only if these entities are required to meet the twin resident and citizen of the
conditions of common good and economic Philippines, and such other officers
viability as may be provided for in the
by-laws
Economic Viability If the corporation is vested with public interest, the
● Perform economic or commercial activities board shall also elect a compliance officer.
and need to compete in the marketplace. ➢ Subscribers
Persons who have agreed to take and pay
Sec 5. Corporators and Incorporators, for original, unissued shares of a
Stockholders and Members. corporation formed or to be formed.
Corporators are those who compose a
corporation, whether as stockholders or
shareholders in a stock corporation or as
members in a nonstock corporation.
➢ Underwriter ➔ Only a One Person Corporation (OPC)
● A person who guarantees on a firm may have a single stockholder, as well as a
commitment and/or declared best sole director.
effort basis the distribution and sale ◆ Its registration must comply with the
of securities of any kind by another corresponding separate guidelines
company. on the establishment of an OPC .
● A person or entity, especially an ➔ Each incorporator of a stock
investment banker, who guarantees corporation must own, or be a subscriber
the sale of newly issued securities to, at least one (1) share of the capital
by purchasing all or part of the stock.
shares for resale to the public. ➔ Each incorporator of a nonstock
➢ Promoter corporation must be a member of the
Is a person who brings about or cause to corporation.
bring about the formation and organization ➔ Incorporators may be composed of any
of a corporation by: combination:
● Bringing together the incorporators ◆ Natural person/s
or the persons interested in the ◆ SEC-registered partnership/s
enterprise ◆ SEC-registered domestic
● Procuring subscriptions or capital corporation/s or association/s
for the corporation ◆ Foreign corporation/s
● Setting in motion the machinery ➔ Incorporators who are natural persons
which leads to the incorporation of must be of legal age, and must sign the
the corporation itself. Articles of Incorporation/Bylaws.
Founder or Organizer of a Corporation or Business ➔ Each individual signing the Articles of
venture Incorporation/Bylaws must indicate the
- One who takes the entrepreneurial initiative capacity upon which he/she is affixing
in funding or organizing a business his/her signature thereto.
enterprise. (i.e. Incorporator or Representative of XYZ Corp.)
➔ An individual designated to sign the
➔ For the purpose of forming a New Articles of Incorporation/Bylaws on behalf
Domestic Corporation under the Revised of an incorporator which is not a natural
Corporation Code, two (2) or more person must also indicate the corporate or
persons, but not more than fifteen (15) may partnership name of the entity being
organize themselves and form a represented and for whom he/she is
corporation. executing the Articles of
Incorporation/Bylaws.
SEC. 6. Classification of Shares. H. Dissolution of the corporation
The classification of shares, their
corresponding rights, privileges, or Except as provided in the immediately
restrictions, and their stated par value, if any, preceding paragraph, the vote required under
must be indicated in the articles of this Code to approve a particular corporate act
incorporation. Each share shall be equal in all shall be deemed to refer only to stocks with
respects to every other share, except as voting rights.
otherwise provided in the articles of The shares or series of shares may or
incorporation and in the certificate of stock. may not have a par value; Provided, that
The shares in stock corporations may banks, trust, insurance, and preneed
be divided into classes or series of shares, or companies, public utilities, building and loan
both. No share may be deprived of voting associations, and other corporations
rights except those classified and issued as authorized to obtain or access funds from the
“preferred” or “redeemable” shares, unless public, whether publicly listed or not, shall not
otherwise provided in this Code: Provided, that be permitted to issue no-par value shares of
there shall always be a class or series of stock.
shares with complete voting rights. Preferred shares of stock issued by a
Holders of nonvoting shares shall corporation may be given preference in the
nevertheless be entitled to vote on the distribution of dividends and in the distribution
following matters: of corporate assets in case of liquidation, or
A. Amendment of the articles of such other preferences; provided, that
incorporation preferred shares of stock may be issued only
B. Adoption and amendment of bylaws with a stated par value. The board of directors,
C. Sale, lease, exchange, mortgage, where authorized in the articles of
pledge, or other disposition of all or incorporation , may fix the terms and
substantially all of the corporate conditions of preferred shares of stock or any
property series thereof: provided further, that such
D. Incurring, creating, or increasing terms and conditions shall be effective upon
bonded indebtedness filing of a certificate thereof with the Securities
E. Increase or decrease of authorized and Exchange Commission, hereinafter
capital stock
referred to as the “Commission”.
F. Merger or consolidation of the
par value multiplied by the total number of
corporation with another
shares issued is the minimum amount of capital
corporation or other corporations
that will be generated if the company sells all the
G. Investment of corporate funds in
shares.
another corporation or business in
Shares of capital stock issued without
accordance with this Code
par value shall be deemed fully paid and
nonassessable and the holder of such shares 2. Board of Directors and Stockholders
shall not be liable to the corporation or to its the original classification of shares made
creditors in respect thereto: Provided that by the incorporators which was stated in
no-par value shares must be issued for a the articles of incorporation can be
consideration of at least five pesos per amended by a majority vote of the board of
share:Provided further, that the entire directors and the vote or written assent of
consideration received by the corporation for the stockholders representing at least ⅔ of
its no-par value shares shall be treated as the outstanding capital stock.
capital and shall not be available for Voting Shares
distribution as dividends. ● shares with a right to vote.
A corporation may further classify its there shall always be a class or series of
shares for the purpose of ensuring compliance shares which have complete voting rights.
with constitutional or legal requirements. Right to Vote in Stock Corporation
The par value of a security is the minimum ● The right to vote is inherent in and
value declared in the company charter or its incidental to the ownership of corporate
certificate by the issuers when issued for the first stocks.
time. It is also referred to as face value or nominal ● unissued stocks may not be voted or
value. considered in determining whether a
The par value of a share of preferred stock quorum is present in a stockholders
is the amount upon which the associated dividend meeting or whether a requisite proportion
is calculated. Thus, if the par value of the stock is of the stock of the corporation is voted to
$1,000 and the dividend is 5%, then the issuing adopt a certain measure or act
entity must pay $50 per year for as long as the ● only stock actually issued and outstanding
preferred stock is outstanding. may be voted.
● Under Section 6 Revised Corporation
Doctrine of Equality of Shares Code, each share of stock is entitled to
Each share shall be equal in all aspects vote, unless otherwise provided in the
(rights and liabilities) to every other share except articles of incorporation or declared
as otherwise provided in the articles of delinquent under Section 67 of the Code
incorporation and stated in the certificate of stock. (now Section 66, Revised Corporation
Code)
WHO MAY CLASSIFY SHARES? ● neither the stockholders nor the
1. Incorporators corporation can vote or represent shares
It is to be determined by the incorporators that have never passed to the ownership of
by stating it in their articles of incorporators stockholders
which will be filed with the Securities and ● when the law speaks of a given proportion
Exchange Commission. of the stock,it must be construed to mean
the shares that have passed from the ● Has no preference and entitles the
corporation, and that may be voted. shareholder to a pro rata division of the
The Right to Vote in Non-Stock Corporations profits.
● the voting rights attach to membership. ● The common stock shareholders have
● members vote as persons, in accordance complete voting rights.
with the law and the by-laws of the Preferred Stock
corporation ● Is one which entitles the holder thereof to
● each member shall be entitled to one vote certain preferences over the holders of
unless so limited, broadened, or denied in common stock.
the articles of incorporation or by-laws. ● Designed to induce persons to subscribe
● only those who are actual members with for shares of a corporation.
voting rights should be counted COMMON FORMS:
one of the rights of a stockholder is the ★ Preferred Shares as to Assets
right to participate in the control and management Is a share which gives the holder thereof
of the corporation that is exercised through his preference in the distribution of the assets of the
vote corporation in case of liquidation.
the stockholder cannot be deprived of the ★ Preferred Shares as to Dividends
right to vote his stock nor may the right be Is a share the holder of which is entitled to
essentially impaired, either by the legislature or by receive dividends on said share to the extent
the corporation, without his consent through agreed upon before any dividends at all are paid
amending the charter or the bylaws. to the holders of common stock. There is no
Non-Voting Shares guarantee, however, that the share will receive any
● shares without the right to vote dividends.
● The law provides that shares classified and Preference granted to preferred
issued as preferred or redeemable shares stockholders, moreover, do not give them a lien
may be deprived of voting rights. upon the property of the corporation nor make
Common Stock them creditors of the corporation.
● a class of stock entitling the holder to vote Redeemable Shares
on corporate matters, to receive dividends ● May be issued by the corporation when
after other claims and dividends have been expressly sp provided in the articles of
paid (especially to preferred shareholders), incorporation.
and to share in assets upon liquidation. ● May be purchased or taken up by he
● Often called as Capital Stock, if it is the corporation upon the expiration of a fixed
corporation’s only class of stock period, regardless of the existence of
outstanding unrestricted retained earnings in the books
● Also termed ordinary shares of the corporation
Shares classified both as voting and non-voting until the performance of a certain condition or the
shares are entitled to vote in eight instances. happening of a certain event contained in the
Par Value Shares agreement.
Shares with a value fixed in the articles of Fractional Share
incorporation and the certificate of stock A share that is less than one full share.
No Par Value Shares Over-issued Stock
Shares with no value It is a stock or share issued in excess of the
Stocks shall not be issued for a authorized capital stock
consideration less than the par or Such issuance is null and void
issued price thereof. Convertible Share
Limitations on No Par Value Shares A share that is convertible by the stockholder from
1. The no-par value shares must be issued one class to another class at a certain price and
for a consideration of at least P5.00 per within a certain period.
share. SEC 7. Founders’ Shares
2. It is deemed fully paid and non-assessable Founders’ shares may be given certain
3. The entire consideration for its issuance rights and privileges not enjoyed by the
constitutes capital so that no part of it owners of other stocks. Where the exclusives
should be distributed as dividends right to vote and be voted for in the election of
4. It cannot be issued as preferred shares directors is granted, it must be for limited
5. It cannot be issued by banks, trust, period not to exceed five (5) years from the
insurance, and preneed companies, public date of incorporation:Provided, that such
utilities, building and loan associations, and exclusive right shall not be allowed if its
other corporations authorized to obtain or exercise will violate Commonwealth Act No.
access funds from the public whether 108, otherwise known as the “Anti-Dummy
publicly listed or not Law”; Republic Act No. 7042, otherwise known
6. The articles of incorporation must state the as the “Foreign investments Act of 1991”; and
fact that it is issued no par value shares as other pertinent laws.
well as the number of said shares.
Promotion/al Share Founders’ Shares
A share issued to promoters or those in some way Shares classified as such in the articles of
interested in the company, for incorporating the incorporation which may be given certain rights
company, or for services rendered in launching or and privileges not enjoyed by the owners of other
promoting the welfare of the company. stocks.
Share in Escrow Limitation of Founders’ Shares
A share subject to an agreement by virtue of which The exclusive right to vote and be voted for
the share is deposited by the grantor or his agent in the electron of directors, if granted, must be for
with a third person to be kept by the depositary
a limited period not to exceed 5 years from the 3. It may be deprived of voting rights in
date of incorporation. the articles of incorporation
SEC 8. Redeemable Shares 4. Redemption cannot be made if it will
Redeemable shares may be issued by cause insolvency of the corporation
the corporation when expressly provided in the Retained Earnings
articles of incorporation. A corporation’s accumulated income after
They are shares which may be dividends have been distributed
purchased by the corporation from the holders Also termed as earned surplus,
of such shares upon the expiration of a fixed undistributed profit.
period, regardless of the existence of Kinds of Redeemable Shares
unrestricted retained earnings in the books of 1. Compulsory
the corporation, and upon such other terms The corporation is required to redeem the
and conditions stated in the articles of shares
incorporation and the certificate of stock 2. Optional
representing the shares, subject to rules and The corporation is not mandated to redeem
regulations issued by the Commission. the shares.

Redeemable Shares Redeemable shares, once redeemed are retired


Are shares usually preferred, which by their unless reissuance is expressly allowed in the
terms are redeemable at a fixed rate, or at the articles of incorporation
option of either issuing corporation, or the Trust Fund Doctrine
stockholder, or both at a certain redemption price. Subscription to the capital stock of a
Redemption by the corporation of its stocks corporation constitutes a fund to which the
is, in a sense, a repurchase of it for cancellation. creditors have a right to look for the satisfaction of
Redemption may not be made where the their claims.
corporation is insolvent or if such redemption will This doctrine is the underlying principle in
cause insolvency or inability of the corporation to the procedure for the distribution of capital assets,
meet its debts as they mature. embodied in the Corporation Code. which allows
Limitations on Redeemable Shares the distribution of corporate capital only in three
1. It must be expressly provided in the instances:
articles of incorporation 1. Amendment of the Articles of Incorporation
2. The terms and conditions affecting to reduce the authorized capital stock
said shares must stated both in the 2. Purchase of redeemable shares by the
articles of incorporation and in the corporation, regardless of the existence of
certificate of stock unrestricted retained earnings
3. Dissolution and eventual liquidation of the Watered Stocks
corporation Stocks issued for a consideration less than
the par or issued price thereof or in any other for,
The distribution of corporate assets and other than cash valued in excess of its fair value.
property cannot be made to depend on the whims Watered stocks refers only to original issue
and caprices of the stockholders, officers, or of shares but not to a subsequent transfer of such
directors of the corporation, or even for that matter, shares by the corporation.
on the earnest desire of the court a quo (the Treasury shares may be sold for less
court from which an appeal has been than their par or issued for they
taken) “to prevent further squabbles and future have already been issued and paid

litigations” unless the indispensable conditions and for.

procedures for the protection of corporate creditors


are followed.
SEC. 9. Treasury Shares
Treasury shares are shares of stock
which have been issued and fully paid for, but
subsequently reacquired by the issuing
corporation through purchase, redemption,
donation, or some other lawful means. Such
shares may gain be disposed of for a
reasonable price fixed by the board of
directors.

Treasury Shares
Are shares of stock which have been
issued and fully paid for, but subsequently
reacquired by the issuing corporation by purchase,
redemption, donation or through some other lawful
means.
Rights that are Denied to the Treasury Shares
1. Voting Rights
2. Right to Dividends

Treasury shares sold below par value


are not watered stock because watered
stock contemplates an original
issuance of shares.

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