Law-Midterm Reviewer 6.

Non-Stock Corporation should be registered by

the non-profit corporations.
Corporation
7. Schools are always a corporation or
- Corporation is treated as an artificial being cooperative. They can be either for a non-stock
created by operation of law, having the right of corporation or stock corporation.
succession and the powers, attributes, and 8. A corporation’s good record is subject to
properties expressly authorized by law or evaluation of SEC.
incident to its existence. 9. OPC are always a Stock Corporation because its
 It is merely a juridical entity that is created purpose is always for profit.
by law therefor is NOT a natural person by 10. Stock Corporation – no minimum but maximum
an artificial or juridical being. is still 15.
 It is formed because there are legal 11. Non-Stock Corporation – must at least 5 but not
procedures and requirements that need to more than 15.
be satisfied strictly otherwise, no 12. General rule: decisions are made by majority of
corporation can be given life. the members of the Board of Directors or Board
 It has the right of succession because it of Trustees where there is quorum without
does not succumb upon the death of its regard to controlling interest.
stockholders and members. Their heirs Exceptions:
rather step into their shoes and claim their a. Close Corporation – stockholders manage
positions to continue their place in the the corporation directly, so BOD’s are not
corporation. In effect, the corporation needed.
likewise continues its life and legitimate b. Corporation Sole
affairs in the hands of the new breed of c. One Person Corporation.
owners. Controlling Interest – percentage of capital ownership
 It has the powers, attributes and properties is essential (51% or 67%)
expressly authorized by law or incident to
its existence. 1. Board of Directors – mere plurality of vote
a. The right to sue and be sued in its own without regard to controlling interest.
name. 2. Stockholders – controlling interest.
b. The right to own a property and name it
Note: BOD who voted in the BOD level can still vote in
to the corporation.
the Stockholders meeting because BOD’s are also a
Key take-aways: stockholders.

1. Not all juridical beings are created by law, Status Quo should be observed if the vote in the
partnership is an example of a juridical being stockholders level is tied, it means the property will
created by mere consent. remain as is, no selling of property will happen.
2. If the heir is a minor, a guardian/administrator
In case of tie, the voting will be reset, the voting will
is needed.
happen depending on the number of BOD and
3. Corporation or Incorporated (Corp. or Inc.) must
stockholder present in the meeting.
be added to the corporate name. In case of One
Person Corporation, “OPC” shall be put either Complete attendance of the BOD and Stockholder is
below or at the end of its corporate name. IMPORTANT or at least they have a QUORUM.
4. In the past, at least 5 is needed to form a
1. Quorum for BOD – required minimum number
corporation, now, because of the Revised
of attendees in to order create a valid
Corporation Code, you can make a corporation
proceeding. The number of attendees is
even if you’re only one person, the corporation
whatever was declared in the bylaws. If the
is called One-Person-Corporation (OPC).
bylaw is silent, then the quorum to be observed
5. Unlike Partnership, a corporation’s purpose is
shall be the plain majority of the total number
not only for profits.
 of directors. (Ex: 15 BOD, then the attendees 1. Restricted liability for acts or contracts – the
should be at least 8). general rule is that obligations incurred by a
2. Quorum in Stockholder – the quorum depends corporation, acting through its authorized
on the stocks owned by the stockholders, the agents are its sole liabilities. Similarly, a
quorum should be the controlling interest. corporation may not generally, be made to
answer for acts or liabilities of its stockholders
Note: In Partnership, the quorum is the majority, but
or members or those of the legal entities to
the voting is controlling interest.
which it may be connected and vice versa.
The first step to valid proceeding is to determine if 2. It has the power to bring independent actions –
there is a quorum. it may bring civil and criminal actions in it own
name in the same manner as natural persons
ATTRIBUTES OF A CORPORATION (Art. 46, NCC).
1. It is a juridical entity with a separate and 3. It has the right to acquire and possess property
distinct personality. – property conveyed to or acquired by the
2. It is created by operation of law. corporation is in law the property of the
3. It has the right of succession. corporation itself as a distinct legal entity and
4. It has the powers, attributes, and properties not that of the stockholders or members.
expressly authorized by law or incident to its 4. Court can acquire jurisdiction over its person –
existence. service of summons may be made on the
president, general manager, corporate
DOCTRINE OF CORPORATE ENTITY secretary, treasurer or in-house counsel.
Section 19 of Corporation Code of the Philippines 5. Stronger identity despite any change in its
provides: composition – changes in individual
membership Corporation remains unchanged
Commencement of corporate existence – a private and unaffected in its identity by changes in its
corporation formed or organized under this Code individual membership.
commences to have corporate existence and juridical 6. Entitlement to constitutional guaranties –
personality and is deemed incorporated from the date corporations are entitled to constitutional
the SEC issues a certificate of incorporation under its rights, such as : Due Process, Equal Protection
official seal. of the law, Protection against unreasonable
searches and seizures. However, it is not
A corporation comes into existence upon the issuance
entitled to certain constitutional rights such as
of the Certificate of Incorporation. Then and only then
political rights or purely personal rights not only
will it acquire a juridical personality to sue and be sued,
because it is an artificial being but also because
enter contracts, hold or convey property or perform any
it is a mere creature of law.
legal act, in its own name. Corporations cannot come
7. Entitlement to moral damages – a corporation is
into existence by mere agreement of the parties as in
not entitled to damages because it has no
the case of business partnerships. They require special
feelings, no emotions, no senses. However, it
authority or grant from the State. This power is
was held that a juridical person such as a
exercised by the State through the legislature, either by
corporation can validly complain for libel or any
a special corporation or by means of a general
other form of defamation and claim for moral
corporation law under which individuals desiring to be
damages.
and act as a corporation may incorporate.
8. Liability for damages to third persons – a
DOCTRINE OF SEPARATE PERSONALITY corporation is liable for damages to third person
whenever a tortuous act is committed by an
A corporation is an artificial being or a juridical person
officer or agent under the express direction or
with a personality separate and distinct from its
authority of the stockholders or members
individual stockholders or members and from any other
acting as a body, or, generally, from the
legal entity to which it may be attached or connected.
directors as the governing body.
 9. Liability for crimes – since a corporation is a managers. Its life can come to an end only when
mere legal fiction, it cannot be held liable for a the same is dissolved according to law.
crime committed by its officers since it does not 4. Convenient transfer of ownership – ownership
have the essential element of malice, except if in a corporation is typically easy to transfer. In
by express provision of law, the corporation is the case of a public company, the shares are
held criminally liable; in such case, the freely transferrable. In the case of a private
responsible officers would be criminally liable. company however, it is comparatively difficult
to transfer shares as there are some
ADVANTAGES OF A CORPORATION
instructions.
1. Stockholders and owners have limited liability – 5. Convenient identification of accountability –
in a corporation, the owners of the company since the corporation has a separate personality
are only liable for the amount of money which of its own, clients are transacting to it as a
they have invested through purchasing shares. person with the power to do business in its own
This means that if the company goes bankrupt name. On the part of the clients, it is safe and
and has no money left to pay back the creditors convenient to deal with the corporation as they
and lenders, the money invested by its knew who is liable for every transaction since
shareholders into the company will be used to every officer or employee are deemed to be
pay back the creditors and lenders. Hence, the acting only in the name of the corporation.
shareholders will lose the amount invested. Accountability therefore begins and ends with
Creditors and lenders, however, have no claim the corporation.
on the personal properties and assets of the
DISADVANTAGES OF A CORPORATION
owners. The stockholders and owners are
limited up to the extent of the amount invested. 1. The process of formation is demanding and
2. Convenient multiplicity of funds through entails a lot of conditions – setting up a
investing public – it is relatively easy to raise corporation is a very complex process. It takes
huge sums of capital through the public. Since heavy paperwork to set it up. It needs a number
the total money a company wishes to raise is of conditions to satisfy and permission from
divided into thousands and lakhs of share, the different regulatory authorities Likewise, many
price of each share comes out to be very small. norms of different regulatory bodies that a
A small price allows a number of people to corporate must fulfill before it can start its
purchase the shares of the company. Hence, It business. For instance, if you are setting up an
becomes easy to raise a big amount for a educational corporation, you need prior
corporation by dividing it into smaller units. permission from DEPED, CHED, or TESDA
3. Perpetual Life of a corporation – in the past, depending on the kind of school you are going
corporations can only exist for a period not to operate. A medical corporation requires DOH
exceeding fifty (50) years, but it has now gained intervention and a recruitment agency needs
perpetual existence upon the effectivity of the prior permit from the DOLE.
Revise Corporation Code that took effect in 2. Profits obtained from corporate activities are
March 2019. The life of a corporation is taxed twice – income obtained from corporate
perpetual and has no more limit, unless its transaction faces two modes of taxation. Firstly,
Articles of Incorporation provides for a shorter the corporation has to pay a flat Corporate Tax
term. Likewise, a corporation whose term had on its profits. And then the dividends received
already expired may be revived upon by the shareholders are taxed in their hands.
application to and approval by SEC. This is This makes it less attractive for business owners
known as the LAZARUS PROVISION. Once to set up a corporation.
revived, its term is likewise perpetual unless a 3. The power to decide is concentrated on a select
shorter term is provided in its AOI. group of people – since the corporation is
Corporations continue to exist beyond the merely an artificial being, it needs real people to
deaths of the BOD, executives, and the conduct its affairs. This power resides in the
 group of people called the BOD or BOT who 5. It must be shown to be necessary and with
elect officers among themselves. factual basis. To disregard the separate juridical
4. Restricted claim on the part of prejudiced personality of a corporation, the wrongdoing
creditors - Since the corporation has a separate must be clearly and convincingly established, it
juridical personality distinct from its owners, the cannot be presumed.
prejudiced creditors can only run after the
TYPES OF CORPORATION
assets of the corporation. Save when the
corporation is used for fraud and illegal 1. STOCK CORPORATIONS – plainly intended to
schemes and piercing the corporate veil is engage in business and earn profit. Have capital
proper, the creditors can only collect what is left stocks divided into shares and are authorized to
of a drowning corporation. With nothing left distribute to the holders of such shares,
after all assets are exhausted, the creditors’ dividends, or allotment of the surplus profits on
claim become futile in the end. the basis of the shares held.
 Originally formed by incorporators who are
DOCTRINE OF PIERCING THE VEIL OF CORPORATE
stockholders thereof. No required minimum
ENTITY
number of incorporators, but not more than
It is a doctrine that a corporation is a legal entity distinct 15.
from the persons composing is a theory introduced for  After having been formed, all persons who
purposes of convenience and to serve the ends of may have acquired shares of stocks thereat
justice. But when the veil of corporate fiction is used as are called stockholders but only those who
a shield to defeat public convenience, justify wrong, originally formed the corporation in the
protect fraud, or defend a crime, this fiction shall be beginning are called incorporators.
disregarded and the individuals composing it will be  Corporators are those who compose the
treated identically. The piercing of the veil of corporate corporation whether as incorporators or
fiction can only be done if it has been clearly established stockholders in general.
that the separate and distinct personality of the  Governed by the Board of Directors; at least
corporation is used to justify a wrong, protect fraud, or 2 but not more than 15; Except One Person
perpetrate a deception. Corporation, Sole, and Close corp.
NATURE AND OBJECTIVES OF PIERCING DOCTRINE
2. NON-STOCK CORPORATIONS – are those which
1. It has only res judicata effect – it prevents a are established not for the profits purposes but
party from bringing a claim once that particular for some other noble purposes such as
claim has been subjected to a final judgment in educational, religious and charitable
some previous lawsuit. organizations. Since they are not intended for
2. Its purpose is to prevent fraud or wrong and not profit, they have no capital stocks, no
available for other purposes; shareholders and are not allowed by law to
3. The doctrine could not be employed by a declare dividends for distribution to its
corporation to complete its claims against owners/members.
another corporation and cannot therefor be  Originally formed by incorporators who are
employed by the claimant who does not appear members of thereof. No required minimum
to be the victim of any wrong or fraud; number of incorporators, but not more than
4. It is essentially a judicial prerogative only. To 15.
pierce the veil of corporate fiction being a  Any person who desires to become a
power belonging to the courts, a sheriff who has member must invest in the form of a
ministerial duty to enforce a final and executory contribution (no shares of stocks) but only
decision cannot pierce the veil of corporate those who originally formed the
fiction by enforcing the decision against the corporation shall be called incorporators.
stockholders who are not parties to the action.
  Corporators are those who compose the subscribed capital stocks must be paid-up. Ex:
corporation whether as incorporators of ACS – 1,000,000 SCS – 250,000 PCS – 62,500.
members in general. Note: this is already removed by the revised
 Governed by the Board of Trustees, at least corporation code.
2 but may or may not be more than 15. 16. You are given 30 days to retrify if your paid up
capital is not enough
Key Take-aways
17. The corporate officers should also be a
1. If the business is specific type, citizenship is stockholder.
important. 18. According to the law, the president and
2. If the issue is already dead on the BOD, the secretary should be on the BOD, while the
issue should not be talked about in the treasurer may or may not be on the BOD.
stockholders meeting anymore. 19. A corporation who’s not yet registered can
3. Dual Citizenship is not a problem, being a open a bank account but is named as “ABC
natural or naturalized Filipino is also not a Corporation in the Process of Registration”.
problem. 20. ACS for Universal Banks – 3.5 Billion
4. A corporation can’t be formed in the Philippines Construction Corporation – 100,000
if its principal office is situated abroad. The Life Insurance – 1 Billion
principal office should be in the PH. Investment House – 300M
5. Foreign Corporation – business whose principal Pawnshop – 100,000
office is in abroad and it wants to do business in 21. Anyone who assumes an obligation to an
the PH. ostensible corporation as such cannot resist
6. Domestic corporation – business whose performance thereof on ground that there was
principal office is in the PH and is doing its in fact no corporation.
business in the PH. 22. Trustees in anon-stock corporation may or may
7. The corporation will begin the moment the not be more than 15. They shall hold officer for
Certificate of Incorporation is issued under the not more than three years.
official seal. 23. Division of dividend in corporation is always
8. There is no more minimum capitalization for a PRO RATA.
stock corporation (before it is 5,000). However, 24. Unpaid creditors can only run for the
there are special laws set for the minimum paid- corporation, not the stockholders.
up capital stocks on certain businesses. 25. When the corporation is being used for illegal or
9. Minimum total contribution for Non-Stock criminal activities, then the doctrine of piercing
corporation is 1M. the veil of corporate entity will be applied,
10. Non-Stock corporation calls its investment as unpaid creditors can now run for the
contribution. stockholders.
11. Corporate officers under the Law – President,
TYPES OF TRADABLE STOCKS AND STOCK WARRANTS
Secretary, treasurer. Any other position may be
deemed as corporate officer only if so declared What are stocks and equities?
as such under the bylaws.
A share is evidence of a fractional ownership in a
12. According to the law, you can occupy two or
corporation. Buying a share of common stock is in fact
more positions, but you can’t be the President
buying a share of a business. An individual who owns
and Secretary or President and Treasurer.
shares in any company has an ownership interest in
13. President – must be a resident of the PH.
therein and is called a stockholder or shareholder. This
14. Secretary – must be a resident and citizen of the
ownership is also referred to as having equity in a
PH.
company, hence, stocks are also called equities or
15. Registering stock corporation – at least 25% of
equity securities. The percentage or proportion of
the authorized capital stocks must be
ownership depends on how many of the company’s
subscribed, and then at least 25% of the
share one owns.
For example, 1,000 shares of common stock in a voting rights. Common stock holders are entitled to an
corporation that has 100,000 outstanding shares equal pro rata division of profits without preference or
represents 1,000/100,000 ownership interest. This advantage over another stockholder. However, they
means you have one percent ownership interest in the have the last claim on dividends and are the last to
company’s plant, its building, its inventories, and other collect in case of liquidation. Common shares can be
assets. classified into class A and class B shares. Class A shares
are reserved to Filipino investors, while Class B shares
What are stock certificates? are open to foreign investors as well as Filipinos. Thus,
Filipinos can own both classes while foreigners can only
Ownership of a business is represented by stock avail of Class B shares. Both classes have the same
certificates. When an individual becomes a stockholder privileges and rights, and receive the same amount of
of any corporation, he receives a stock certificate – a dividends.
written evidence of ownership certified to the
corporation. The certificate indicates the investor’s Preferred stocks are another type of securities issued
by corporations. Its name is derived from the
name, total number of shares purchased, the certificate
preference given to the holders of this stock over
number, the par value, and the name of the issuing
holders of common stocks. Holders of the preferred
corporation. stocks are entitled to receive a fixed minimum amount
When shares are purchased, the stock certificates will of dividends (expressed either in pesos or as percentage
be issued either in street name or in the investor’s of the stock’s par value), to the extent declared by the
company’s Board and if there are sufficient retained
name. The difference is important to know since
earnings, before any dividends are paid to the holders
without notice form the investors all stock certificates
of common stocks.
will be issued in street name, i.e. in the name of the
brokerage firm. In this way, the brokerage firm – and Cumulative preferred stocks are special preferred
NOT the investor – will be the holder of the stock stocks that accumulate unpaid dividends for future
certificates. Only when the investor specifically asks for payment. Cumulative preferred stock has prior rights to
it will the stock certificates be issued in the investor’s dividends over common stock; therefore the omitted
name. cumulative preferred dividends must be paid before the
common stock dividends can be paid. Convertible
Stock certificate that are in the street name facilitate preferred stocks are preferred stocks which are
the transactions by brokers. When the investor decides exchangeable into common stocks at the option of the
to sell his shares, the street certificate simply be holder under specified terms and conditions. The
endorsed by the stockbroker. If it were in the investor’s conversion ratio specifies the number of shares the
name, the process would be lengthier since it is the holder receives upon surrender while the conversion
investor who needs to endorse it at the back of the price is effective price paid for the common stock when
conversion occurs.
certificate. When shares are brought and sold
frequently, it is advisable to have them issued in street What are warrants?
name since it will facilitate the quick transfer of
ownership. Warrants are another type of investment which you can
buy or sell in the stock market. By definition, a warrant
is a security which grants the holder the right but not
What type of stocks can you buy or sell?
the obligation to buy (in the case of a call warrant) or
There are different types of stocks that you can buy or sell (in the case of a put warrant), a stated number of
sell at the Philippine Stock Exchange (PSE): common underlying shares of stock at a specified price during a
stock, preferred stock, cumulative preferred specified period of time.
stock and convertible preferred stock. The difference
Underlying shares are the shares, unissued or issued as
depends on the right and privileges which you receive
the case may be, of a corporation which may subscribed
as a stockholder.
to or purchased by the warrant holder upon the
The majority of securities traded in the PSE are exercise of the right granted under the warrants. The
common stocks. Common stocks are usually purchased number of underlying shares a warrant holder is
for participation in the profits and control of ownership entitled to buy or sell for every warrant he holds is
and the management of the company – they have known as the conversion ratio. The exercise
period specifies the life of a warrant while the relevant provisions in the Revised Corporation Code
the expiration date is the date at which the warrant (Republic Act No. 11232).
expires. The exercise price is the stipulated stock price
at which the holder can buy or sell the underlying. CLASSES/SERIES OF SHARES

Warrants can be issued in a number of ways: (a) as part The shares in stock corporations may be divided into
of an initial public offering; (b) attached to a rights issue; classes or series of shares, or both. A corporation may
(c) attached to bonds; or (d) as stand alone. In the case further classify its shares for the purpose of ensuring
of debt or equity offerings, warrants are used as compliance with constitutional or legal requirements.
“sweeteners” to enhance marketability of the issuances. PAR VALUE
Under the SEC Rules Governing Warrants, Issuers or
warrants may be the issuer of the underlying shares or The shares or series of shares may or may not have a
an entity other than the company underlying the par value. However, the following shall not be
warrants and may be in the form of: permitted to issue no-par value shares of stocks:

1. Subscription Warrant– a warrant which grants  Banks

the right to subscribe to the new or unissued  Trust
shares of stock of the Issuer;  Insurance
2. Covered Warrant – a warrant which is issued by  pre-need companies
a party other than the Issuer of the underlying  public utilities
shares and whose performance of obligation is  building and loan associations, and
secured by the deposit of the underlying shares  other corporations authorized to obtain or
for the Covered Warrant with an independent access funds from the public, whether
Trustee which is a reputable commercial bank; publicly listed or not
3. Non-collateralized Warrant – a warrant issued
by a party other than the Issuer of the NO-PAR VALUE
underlying shares and whose performance of
obligation is not secured by a deposit of the No-par value shares must be issued for a consideration
underlying shares. Instead, the Issuer normally of at least Five pesos (P5) per share. The entire
adopts hedging strategies to provide for its consideration received by the corporation for its no-par
obligations during the life of the Non- value shares shall be treated as capital and shall not be
collateralized Warrant. available for distribution as dividends.

Even if the trading of warrants is relatively new in the Shares of capital stock issued without par value shall be
Philippine stock market, it has gained some popularity. deemed fully paid and non-assessable and the holder of
Currently, there are eight (8) warrants listed at the PSE. such shares shall not be liable to the corporation or to
its creditors in respect thereto.
The warrant holder has the chance to have the same
exposure in the market, as with buying the stock itself, NONVOTING SHARES
using lesser amounts of money and the advantage of
having more time, i.e. exercise period, in which to raise Certain shares may be deprived of voting rights under
money to purchase more shares (the underlying stock). the articles of incorporation, provided that there shall
Also, the investor is protected from the downside risk of always be a class or series of shares with complete
the underlying stock’s price depreciation since the voting rights. This fact must be reflected in the
exposure of their money is limited to only the price of certificate of stock. Nonvoting shares may nevertheless
the warrants. vote in certain instances.

CLASSES OF SHARES Only shares classified and issued

as “preferred” or “redeemable” shares, unless
The classification of shares, their corresponding rights, otherwise provided in the Revised Corporation Code,
privileges, or restrictions, and their stated par value, if shall have no voting rights.
any, must be indicated in the articles of incorporation.
Each share shall be equal in all respects to every other PREFERRED SHARES
share, except as otherwise provided in the articles of
Preferred shares of stock issued by a corporation may
incorporation and in the certificate of stock. These are
be given preference in the distribution of dividends and
in the distribution of corporate assets in case of a. Amendment of the articles of incorporation;
liquidation, or such other preferences. b. Adoption and amendment of bylaws;
c. Sale, lease, exchange, mortgage, pledge, or
Preferred shares must always be issued with a other disposition of all or substantially all of the
stated par value. corporate property;
The board of directors, where authorized in the articles d. Incurring, creating, or increasing bonded
of incorporation, may fix the terms and conditions of indebtedness;
preferred shares of stock or any series thereof. Such e. Increase or decrease of authorized capital
terms and conditions shall be effective upon filing of a stock;
certificate thereof with the Securities and Exchange f. Merger or consolidation of the corporation with
Commission. another corporation or other corporations;
g. Investment of corporate funds in
FOUNDERS’ SHARES another corporation or business in accordance
with the Revised Corporation Code; and
Founders’ shares may be given certain rights and h. Dissolution of the corporation.
privileges not enjoyed by the owners of other stocks.
Where the exclusive right to vote and be voted for in Except the foregoing instances, the vote required under
the election of directors is granted, it must be for a the Revised Corporation Code to approve a particular
limited period not to exceed five (5) years from the date corporate act shall be deemed to refer only to stocks
of incorporation: Provided, That such exclusive right with voting rights.
shall not be allowed if its exercise will violate
Commonwealth Act No. 108, otherwise known as the
“Anti-Dummy Law”; Republic Act No. 7042, otherwise FUNDAMENTAL STEPS IN FORMING A PRIVATE
known as the “Foreign Investments Act of 1991”; and CORPORATION
other pertinent laws.
1. Have a pre-approved name of the corporation.
REDEEMABLE SHARES 2. The SEC company registration system allows
you to follow the step by step guide in
Redeemable shares may be issued by registering online your intended company. The
the corporation when expressly provided in the articles first and foremost consideration however is for
of incorporation. They are shares which may be
you to come up with a proposed corporate
purchased by the corporation from the holders of such
name that will be acceptable to the SEC criteria.
shares upon the expiration of a fixed period, regardless
of the existence of unrestricted retained earnings in the Allow verification of name if original or
books of the corporation, and upon such other terms confusingly similar, if the proposed name is
and conditions stated in the articles of incorporation denied, you can submit a motion for
and the certificate of stock representing the shares, reconsideration.
subject to rules and regulations issued by the Securities Case 1: In 2002, Refractories Corp. of the
and Exchange Commission (SEC). Philippines was patented. In 2003, Industrial
Refractories Corp. of the Philippines was formed
TREASURY SHARES
on the same line of business. Is the latter
Treasury shares are shares of stock which have been confusingly similar with the former?
issued and fully paid for, but subsequently reacquired Answer: Yes, because the word “industrial” is
by the issuing corporation through purchase, just a mere description of the nature of the
redemption, donation, or some other lawful means. business. With or without it, it creates a
Such shares may again be disposed of for a reasonable damaging sense of doubt or confusion to a
price fixed by the board of directors. corporate name that has already been existing.
RIGHT TO VOTE OF NONVOTING SHARES
Case 2: PHILLIPS INC. has been in the industry of
Notwithstanding any provision in the articles of lights for many years, Phillips Sy came with his
incorporation, holders of nonvoting shares shall own lighting products and he wants to call it
nevertheless be entitled to vote on the following STANDARD PHILLIPS INC., the latter from his
matters:
very own name. PHILLIPS contended that it was
 confusingly similar but Phillips Sy argued that notarized. Thereafter, you will need to upload
he is entitled to use his very own name. is the them to the same SEC website for their perusal.
latter confusingly similar with the former? 6. The Treasurer’s Affidavit shows that 25% OF
Answer: Yes, because one could not have an THE ACS HAVE BEEN SUBSCRIBED AND 25% OF
exclusive use of his name especially so if that THE SCS HAVE BEEN PAID-UP.
name is so common that it was already long 7. Once accepted by SEC, you will receive an Order
of Payment indicating the amount of
existing for business use. Further, the use of the
Registration Fees you will need to pay. Print the
added word “standard” is obviously resorted to
same and proceed to Landbank or other
merely set out a very slim difference yet the accredited payment centers. Then upload again
effect of which still confuses the public to SEC website your proof of payment.
consumers. 8. Wait for an email directive from SEC. Once your
online submissions are all satisfactory, SEC will
Case 3: CROCOS is a well-known mark in the
order you to proceed to the SEC Head Office
industry as a registered popular brand of
and submit personally the hard copies of the
clothing owned by Crocos Fashion Inc. X, a
same documents you sent them online (AOI, BL,
veteran chef on the other hand applied for
TA) together with Bank Certificate of Deposit to
registration of mark “CROCOS” at the
show real deposits of minimum 25% paid-up
Intellectual Property Office for the burger that
capital. (The Bank Issues This In the Name of the
he is planning to sell to the public. He plans to
Treasurer. Ex. “Ian Cruz, In Trust for ABC Corp.
introduce it as “CROCOS BURGER”. Crocos
in the Process of Incorporation)”.
Fashion is opposing X’s application. Q: Should
9. Submit Authority To Inspect Bank
the application for registration of X be allowed?
Documents. (TO AVOID HASSLE UNDER THE
Answer: NO. because it violates the Confusion BANK SECRECY LAW).
of Business Test. The goods of the contending 10. The SEC will evaluate again your personal
parties are actually different although claiming submissions and once approved, you will
under the same trademark but the one with receive your CERTIFICATE OF INCORPORATION
prior registration has the better right and which means that your corporation is finally
should prevail. The danger if registration will be born beginning on the date indicated therein.
allowed is that the defendant’s product may be
falsely assumed to originate from the plaintiff
CONTENTS OF THE ARTICLES OF INCORPORATION
who is the owner of the similar
trademark. Since the trademark is well-known 1. Corporate Name
and identified to one person, the buying public 2. Primary and Secondary Purpose
may patronize it under a false belief that it 3. Principal Office or Location
belongs to the same owner. 4. Term
3. Approval of your corporate name necessarily 5. Names, nationalities and the residences of
includes your “Undertaking to Change incorporators
Corporate Name” in case the same is later on 6. Number, names, nationalities and residences of
found to be pre-existing already and is being the first directors or trustees
claimed ownership by others. 7. Authorize capital stocks and division of share
4. Fill-up the online form and provide all the 8. Name and nationality of subscriber, number of
necessary information required by the online shares subscribed and the amount subscribed
registration system about your company. The 9. Total paid-in of the amount subscribed
information you provide online will
10. Name of the treasurer
automatically translate to your Articles of
Incorporation and By-Laws. Note: If it is a non-stock corporation, it must also
5. When the system accepts your submissions, you state the amount of its capital consisting of
will be required to print your Articles of Contributions by the members thereof.
Incorporation, By-Laws and Treasurer's
Affidavit. Have them signed by all the CLOSE CORPORATION
incorporators, Treasurer and have them
Aside from a family corporation, it is one whose Articles incapacity; or until such time that the heirs have
of Incorporation provides that: designated one of them as replacement.

1. All issued stocks of all classes, exclusive of Note: If the nominee dies, the temporary successor
treasury shares, shall be held of record by not would be the alternate nominee. OPC also have a right
exceeding twenty (20) persons. of succession. The purpose of Nominee and Alternate
2. The issued stocks shall be subject to one or Nominee is to have a continuity not necessarily to
more restrictions on permissible transfer. replace the single stockholder.
3. The corporation shall not list in any stock
Likewise, in case of death of the single stockholder, the
exchange or public offering. Despite these
NOMINEE, along with the known legal heirs of the single
requirements however, a corporation shall not
stockholder, shall facilitate the election of the new
be deemed as close corporation if at least 2/3 of
director and the amendment of the articles of
its voting stocks are owned or controlled by
incorporation. It is the duty of Corporate Secretary to
another corporation which is not a close
inform SEC of the death of the single stockholder.
corporation within the meaning of the code.
Election of Officers in One Person Corporation
The following CANNOT incorporate as a Close
Corporation - The single stockholder shall be the Sole Director
and President of the OPC.
- Mining or oil companies
- During the process of incorporation, the single
- Stock exchange
stockholder who is also the self-appointed
- Banks
Treasurer of the OPC shall give a bond to the
- Insurance companies
SEC in a sum as may be required. The bond is
- Public utilities
renewable every two years. He shall submit also
- Educational institutions
a written undertaking to faithfully administer its
- Other corporations vested with public interest
funds, disburse and invest the same according
ONE PERSON CORPORATION to its registration.
- As a rule, the single stockholder may not be
- A corporation with a single stockholder:
appointed as Corporate Secretary.
Provided that only a natural person, trust or an
- It is important to note though that the New
estate may form a one person corporation.
Code requires the single stockholder to prove
The following cannot incorporate as a One-Person that the OPC is sufficiently financed, and its
Corporation assets are independent from his personal
property, in order to claim limited liability.
- Banks and quasi-banks Otherwise, he shall be jointly and severally
- Pre-need companies liable for the liabilities of the OPC.
- Trust companies - Within fifteen (15) days from issuance of the
- Insurance companies certificate of incorporation, the OPC shall
- Public and publicly-listed companies appoint its Treasurer, Corporate Secretary and
- Non-chartered GOCCs other officers as it may deem necessary, and
- Professionals for the exercise of profession shall notify the SEC thereof within five (5) days
The Articles of Incorporations shall also state the name, from appointment.
nationality and residence of the NOMINEE and Note: the single stockholder passes an inventory of
ALTERNATE NOMINEE and the extent and limitations of assets to the SEC so that their property will be
his authority. Nominee is important because in case of known to the SEC, it they were not able to do it
death or incapacity of the single stockholder, the and experiences loss, they will be liable up to the
NOMINEE shall take over as Director and shall manage extent of their personal assets.
the corporate affairs until such time that the Single
Stockholder has recovered in case of temporary The doctrine of piercing the veil of corporate entity
also applies to OPC.
 When OPC acquired all the stocks of an ordinary Shareholding issued by the duly-elected Corporate
stock corporation, the latter may be converted into Secretary of the corporation.
OPC. In the same manner, OPC may be converted
E. What are the qualifications of incorporators?
into an ordinary Stock Corporation. In either case,
application to the SEC shall be made and subject to 1. May be natural or juridical persons; singly or jointly
its approval. with others; (Sec.10, New Code)
2. Any number but not more than fifteen (15)
ONE PERSON CORPORATION VS. SOLE 3. Natural person of legal ages; juridical persons
CORPORATION should be duly-registered;
4. Majority of whom are residents of the Philippines;
Sole Corporation – a religious corporation hence a
5. In the case of a stock corporation, each must own
non-stock corporation.
or subscribe at least one (1) share of the capital
OPC – always a stock corporation intended for stock thereof.
profit. F. Citizenship is not a strict requirement in forming a
OPC VS. SOLE PROPRIETORSHIP corporation except in cases where the law requires the
minimum Filipino participation. Example: Meralco may
Sole Proprietorship – has no juridical personality of only be run by Filipinos owning at least 60% of the
its own that is separate from the proprietor. It capital thereof.
cannot acquire properties, conduct transaction with
G. The life of a corporation is perpetual and has no
other juridical entities or exercise separate rights or
more limit, unless its Articles of Incorporation provides
powers in its own name. for a shorter term. Likewise, a corporation whose term
OPC – has juridical personality that is separate and had already expired may be revived upon application to
distinct from the single stockholder. It can acquire and approval by SEC. This is known as the “Lazarus
provision”. Once revived, its term is likewise perpetual
properties, conduct transaction with other juridical
unless a shorter term is provided in its articles. (Section
entities or exercise separate rights or powers in its
11, Revised Corporation Code)
own name.
H. A Corporation can’t be formed in the Philippines if its
ADDITIONAL REVISIONS UNDER THE NEW LAW principal office is situated abroad.
A. From date of incorporation, a corporation is given I. Corporate existence commences from the date the
five (5) years to commence operation (Sec. 21; Revised SEC issues a Certificate of Incorporation under the
Corporation Code). Revocation in case of failure. official seal.
B. However, if a corporation has commenced its J. As a general rule, there is no more minimum
business but subsequently becomes inoperative for a capitalization for a stock corporation. However, special
period of at least five (5) consecutive years, the SEC laws set minimum paid-up capital stocks on certain
may, after due notice and hearing, place the businesses exclusive for specialized corps. such as bank,
corporation under a delinquent status. HMO etc.
C. A delinquent corporation shall have a period of two K. In case of a non-stock corporation such as a
(2) years to resume operations and comply with all the Foundation, the minimum total contribution is P1
SEC requirements. Upon compliance, the SEC shall issue Million.
an order lifting the delinquent status. Otherwise, failure
to comply and resume operations within 2-years, the L. QUORUM is the presence of required number to
SEC shall cause the revocation of the Certificate of sustain the validity of an act. Quorum depends on what
Incorporation. kind of meeting is conducted whether it be a
Stockholders’ Meeting or Board Meeting. In BM,
D. Shares of stocks may be the subject of pledge or sale quorum is established by declared majority. In SM,
just like any other incorporeal rights which are quorum is the presence of controlling interest, not
evidenced by negotiable instruments. Ownership of necessarily majority, to a certain meeting in order to
shares of stock is evidenced by Certificate of make the conduct thereof valid and binding. Without
quorum, the meeting is invalid. Consequently, a
decision arrived out of an invalid meeting is also A: The number of Trustees in a non-stock corporation
defective & invalid. shall be fixed in the Articles of Incorporation or By-Laws
which may or may not be more than fifteen (15). They
M. Unless otherwise stated in the by-laws, Quorum in shall hold office for not more than three (3) years until
the Board Meeting refers to the majority of number of their successors are elected and qualified. Trustees
Directors in Articles of Incorporation who are present in elected to fill vacancies occurring before the expiration
the meeting regardless of their shareholdings. Further, of a particular term shall hold office only for the
each Director is equal to only one vote. unexpired period. (Section 91 of R.A. 11232)
N. On the other hand, Quorum in the Stockholders’ Q: What is the term of office of Directors as compared
Meeting is based on the majority of the outstanding to Trustees?
shares of stock represented by the stockholders who
are present at the meeting. Further, issues are decided A: Unlike Trustees which shall hold office for not more
by votes based on controlling interests of the than three (3) years, Directors shall hold office for a
stockholders. period of one (1) year until their successors are elected
and qualified. Directors elected to fill vacancies
O. The Corporate Officers under the law are the occurring before the expiration of a particular term shall
President; the Secretary; and the Treasurer. Any other hold office only for the unexpired period. (Title III,
position may be deemed as Corporate Officer only if so Section 22 of R.A. 11232; The Revised Corporation Code
declared as such under the By-Laws. of the Philippines; signed into law on July 2018 and
P. Any 2 or more positions may be held concurrently by became effective on March 10, 2019)
the same person, except that no one shall act as Moreover, the New Code reiterated the requirement to
President and Secretary or as President and Treasurer at elect independent directors in corporations vested with
the same time. public interest such as: (a) public companies, (b) banks
Q. As a rule, in order to approve the incorporation of a and quasi-banks, non-stock savings loan associations,
registering stock corporation, at least 25% of the etc., and (c) other corporations as may be determined
AUTHORIZED Capital Stocks must be subscribed; and by the SEC. The independent directors shall constitute
then at least 25% of the SUBSCRIBED Capital Stocks at least 20% of the entire board membership.
must be PAID-UP. Ex: ACS = P1,000,000.00; SCS = The New Code also allows the creation of an
P250,000.00; PCS = P62,500.00. “emergency board” when the vacancy in the board
R. CORPORATION BY ESTOPPEL – All persons who prevents the remaining directors from constituting a
assume to act as a corporation knowing it to be without quorum and emergency action is required to prevent
authority to do so shall be liable as general partners for grave, substantial, and irreparable loss or damage to the
all debts and liabilities incurred or arising as a result corporation. During an emergency, the remaining
thereof. It cannot invoke the veil of corporate fiction as directors or trustees may fill the vacancy temporarily
a defense. from among the officers of the corporation to pass the
necessary emergency action.
S. Anyone who assumes an obligation to an ostensible
corporation as such cannot resist performance thereof Section 24 of the New Code retained the officers and its
on ground that there was in fact no corporation. qualifications under the Old Code, except for
the treasurer, who is now required to be a resident of
T. A CORPORATION BY ESTOPPEL can never have assets the Philippines. In addition, corporations vested with
because it lacks legitimate personality to exercise that public interest are now obliged to appoint a compliance
power. However, the Supreme Court ruled that it may officer.
be sued considering that it possesses the attributes of a
juridical person; otherwise if it cannot be sued, then it REMOTE COMMUNICATION AND “IN ABSENTIA”
cannot be held liable for damages and injuries to other VOTING
persons. (Macasaet vs. Francisco; G.R. No. 156759; June Following the concept of allowing board meeting by
05, 2013) way of videoconferencing, teleconferencing, or other
Q: How many Trustees are there in a non-stock alternative modes of remote communication which
corporation? have been made explicit under the New Code and SEC
memorandum circular No. 6, S.2020, stockholder or
members are now allowed to exercise their right to vote At least 75% of the capital must be owned by Filipino
through remote communication or in absentia when Citizens
authorized under the by-laws. With this amendment, it
appears that they need not be physically present or 1. Corporations engaged in the recruitment and
represented by proxies in meetings, as required before. placement of workers, locally or overseas;
2. Corporations subject to Under the Flag Law. ---
Filipino Percentage Ownership Requirement Regarding In the purchase of articles for the Government,
Corporate Capital: preference shall be given to materials and
supplies produced, made or manufactured in
At least 60% of the capital must be owned by Filipino the Philippines and to domestic entities or
Citizens: corporations at least 75% of the capital of which
1. Corporations for exploration, development and is owned by Filipino citizens.
utilization of natural resources; Q: Does our law allow 100% foreign equity on business
2. Public service corporations. corporations?
3. Educational corporations, other than those
established by religious orders and mission ANSWER: As a general rule, micro and small domestic
boards; market enterprises with paid-in equity capital of less
4. Banking corporations; than the equivalent of US$ 200,000.00 are reserved to
5. Corporations engaged in coastwise shipping. Philippine nationals.
6. Financing companies; and
7. Corporations engaged in power-generating and However, RA 11647, which took effect on April 01,
electric distribution. 2022, amending Foreign Investments Act of 1991,
provides that in the following instances, a business
corporation with a minimum paid-in capital of
US$100,000.00 shall be fully allowed to foreign
nationals:
100% of the capital must be owned by Filipino citizens (a) If the business involves advanced technology as
1. Corporations engaged in mass media; determined by the DOST;
2. Corporations engaged in retail trade; except (b) Those endorsed as startup or startup enablers by the
that foreign retailers and investors can lead host agency pursuant to RA 11337 or the
participate with a minimum paid-up capital of Innovative Startup Act (such as the DOST, DTI, DICT,
P25M; and P10M per store in case of foreign among others); or
retailers with single-owned proprietorship if it
has more than one (1) physical store, pursuant (c) When majority of their direct employees are
to RA 11595 which amended RA 8762; Filipinos, but in no case shall the number of the Filipino
3. Rural banks; and employees be less than fifteen (15).
4. Corporations engaged in the operation of a
private detective, watchman or security guard RA 11647 reiterates that one hundred percent (100%)
agencies. foreign capital investment in domestic enterprises is
5. Those relating to practice of professions, except allowed unless foreign participation is prohibited or
if subject to reciprocity in certain special laws; limited by other laws or the Constitution. These foreign-
6. Small-scale mining; welcoming domestic enterprises include:
7. Utilization of marine resources in archipelagic (a) Subways; Railways;
waters as well as of natural resources in rivers,
lakes, bays and lagoons; (b) Airports; Airlines;
8. Ownership and operation of cockpits;
9. Manufacture, repair, stockpiling and/or (c) Tollways; and
distribution of nuclear & biochemical (d) Transport Network Vehicle Services (TNVS).
weapons; &
10. Manufacture of firecrackers and other Full foreign ownership under the foregoing entities that
pyrotechnic devices. are traditionally considered as “public utilities”, is now
allowed under RA 11647.
Furthermore, under EO 175, effective June 2022, full Minimum PAID-UP CAPITAL STOCK for Pawnshop
foreign participation is allowed to business re: Corporations – (P100 Thousand)
manufacture and distribution of products requiring
clearance from DND such as guns, ammunitions, May binago dito si atty, hindi ko pa sure alin diyan
military communication gadgets and the likes. huhu

On the other hand, all other “public utilities” businesses

such as electricity distribution and transmission,
petroleum products, pipeline systems and distribution,
seaports, and public utility vehicles (PUVs) are subject
to a maximum of 40% foreign equity restriction under
the 1987 Constitution.

STOCKHOLDERS’ VOTE REQUIREMENTS

1.Amendments of the Articles of Incorporation (must be

approved by the stockholders representing at least 2/3
of the outstanding capital stock);

2.Adoption and amendment of by-laws; (majority)

3.Sale, lease, exchange, mortgage, pledge or other

disposition of all or substantially all of the corporate
property; (2/3)

4.Incurring, creating or increasing bonded

indebtedness; (2/3)

5. Increase or decrease of capital stocks; (2/3)

6.Merger or consolidation of the corporation with

another corporation (2/3)

7.Investment of corporate funds in another corporation

or business in accordance with law; (2/3)

8.Dissolution of the corporation. (2/3)

MINIMUM CAPITALIZATION OF CERTAIN BUSINESSES

Latest Samples as of March 2023:

AUTHORIZED CAPITAL STOCK for Universal Banks – (P3.5

Billion)

AUTHORIZED CAPITAL STOCK for Construction

Corporations – (P100 Thousand)

Minimum PAID-UP CAPITAL STOCK for Insurance Broker

Corporation – (P50 Million)

Minimum PAID-UP CAPITAL STOCK for Life Insurance

Corporation - (P1 Billion)

Minimum PAID-UP CAPITAL STOCK for Investment

House – (P300 Million)

Minimum PAID-UP CAPITAL STOCK for Local

Recruitment Business – (P1 Million)