1.

Private Corporations
1. Formation or creation
PROMOTION
Activities done by promoter for the founding and organizing of the business or
enterprise of the issuer

INCORPORATION
Steps:
- Execution of the AOI by the incorporators and other documents required
for registration of the corporation
- Filing of the articles of incorporation with the SEC together with the
treasurer’s affidavit
- If governed by special laws: a favorable recommendation of the
appropriate government agency.
FORMAL ORGANIZATION AND COMMENCEMENT OF BUSINESS TRANSACTIONS
- Examples:
1. Adoption of by-laws and filing the same with the sec
2. Election of board of directors or board of trustees and officers
3. Payment of shares

NATURAL PERSONS who are licensed to practice a profession, and

partnerships or associations organized for the purpose of practicing a
profession, shall not be allowed to organize a corporation unless
otherwise stated under special laws.

NUMBER OF INCORPORATORS: two or more persons, but not more than 15, may
organize themselves and form a corporation.

ONE PERSON CORPORATION – may have a single stockholder, as well as sole

director. Its registration must comply with the corresponding separate guidelines
on the establishment of an OPC.
2. Powers- board-policy making
Executive officers- executing
Stockholder or members-substantial change in the corporation
I. Express
- Express powers are explicitly granted to the corporation through
its articles of incorporation or charter and the laws of the
jurisdiction in which it is incorporated.
 - These powers define the corporation's primary objectives,
activities, and scope of operations. They provide the legal
authority to engage in specific business activities.
- For example, the articles of incorporation might expressly state
that the corporation is authorized to manufacture and sell a
certain type of product.

II. Implied
- Implied powers are not explicitly mentioned in the articles of
incorporation but are considered necessary to carry out the
corporation's express powers.
- These powers are generally recognized by law as essential for the
corporation's functioning. They may include the power to enter
into contracts, hire employees, or lease property.
- For instance, if a corporation is expressly authorized to operate a
restaurant, it implies the power to hire staff, purchase
ingredients, and rent a location.

III. Incidental Powers

- Incidental powers are those actions or abilities that are
reasonably necessary to achieve the corporation's express
or implied powers.
- They are actions that are considered natural and
customary in the course of conducting the corporation's
business.
- An example of incidental power is the authority to sign
routine contracts or engage in marketing and advertising
activities to promote the business.

IV. Ratification
- Ratification is a process by which a corporation formally
approves an action that was taken without proper
authorization.
- When someone, often an employee or agent of the
corporation, takes an action on behalf of the corporation
that wasn't explicitly authorized, the corporation's board
of directors or shareholders may choose to ratify the
action after the fact.
 - For instance, if an employee entered into a significant
contract on behalf of the corporation without prior
approval, the board might ratify the contract to make it
legally binding.

V. Ultra-vires vs. Void

- "Ultra vires"- may constitute the 4 defective contract
refers to actions taken by a corporation that go beyond its
express and implied powers, as well as those that are not
reasonably incidental to its intended business activities.
- If a corporation engages in ultra vires activities, it can be
challenged, and the actions may be considered void or
unenforceable.
- In some jurisdictions, modern corporate laws grant
corporations broad powers, reducing the risk of ultra vires
challenges. However, the concept is still relevant for
certain regulated or specialized industries.

- "Void" actions refer to those that are entirely outside the

scope of a corporation's legal powers. These actions are
usually unenforceable from the outset because they are
contrary to the law or the corporation's purposes.

- For example, if a corporation that specializes in healthcare

services attempts to enter into a real estate venture
without proper authorization, the real estate contract
might be considered void because it is unrelated to the
corporation's healthcare business.

2. Stock
- Corporations which have a capital stock divided into shares and are
authorized to distribute to the holders of such shares dividends or
allotments of the surplus profits on the basis of the shares are stock
corporations
- Example: LAND BANK OF THE PHILIPPINES, Philippine Crop insurance
coproration, Philippine International trading corporation, and Philippine
national bank
3. Non-stock
- Where no part of its income is distributable as dividends to its members,
trustees, or officers. Provided, that any profit which a non-stock
corporation may obtain as an incidental to its operations shall, whenever
necessary or proper, be used for the furtherance of the purpose or
purposes for which the corporation was organized.
- Example: St. Luke’s medical center inc., Advent Health

4. Other Special Kinds- LGU’s barangays

Corporations created by special laws or “charters”
Two essential conditions
- Common Good: The first condition is that the corporation must serve the
common good. In other words, its existence and operations should be in
the interest of the public welfare and benefit society as a whole. The
corporation should contribute to the well-being of the people.
- Economic Viability: The second condition relates to economic viability.
This condition applies mainly to government-owned or controlled
corporations that engage in economic or commercial activities and need
to compete in the marketplace. These corporations should be financially
sustainable and able to compete effectively.

5. Composition
I. Corporators
- Those who compose corporation, whether as stockholders or members
II. Incorporators
- signatories .
- People mentioned in the articles of incorporation as originally forming
and composing the corporation.
III. Stockholders
- Owners of shares of stock in a stock corporation
IV. Members
- Corporators of a non-stock corporation
V. Board of directors or board of trustees
- Governing body in a stock corporation, while the board of trustees is the
governing body in a non-stock corporation
VI. Corporate Officers
- The president, who shall be a director, a treasurer who may or may not
be a director, a secretary who shall be a resident and citizen of the
 Philippines, and such other officers as may be provided for in the by-laws.
If the corporation is vested with public interest, the board shall also elect
a compliance officer.
VII. Subscribers
- Persons who have agreed to take and pay for original, unissued shares of
a corporation formed or to be formed.
VIII. Underwriter
- A person who guarantees on a firm commitment and/or declared best
effort basis the distribution and sale of securities of any kind by another
company.
- A person or entity, especially an investment banker, who guarantees the
sale of newly issued securities by purchasing all or part of the shares for
resale to the public. 22
IX. Promoter
- Is a person who brings about or cause to bring about the formation and
organization of a corporation by:
1. Bringing together the incorporators or the persons interested in the enterprise;
2. Procuring subscriptions or capital for the corporation; and
3. Setting in motion the machinery which leads to the incorporation of the
corporation itself.
A founder or organizer of a corporation or business venture;
business enterprise.
one who takes the entrepreneurial initiative in funding or organizing a business
enterprise.

6. Articles of Incorporation (page 233)

1. Nature
- Three fold-nature of the AOI
- Contract between state and the corporation
- Between corporation and its stockholders
- Between stockholders inter se.
2. Adoption
- The adoption process in Philippine corporate law involves the
approval and acceptance of the Articles of Incorporation. It
requires the founders, initial shareholders, or members of the
corporation to meet and formally adopt these articles. In this
context, adoption signifies that the corporation acknowledges the
Articles as its governing document and agrees to abide by its
 provisions. For example, if a group of shareholders gathers to
approve the Articles of Incorporation for a new retail corporation
in the Philippines, they are adopting the document.
3. Amendment
- ⅔ vote of the outstanding capital stock, or ⅔ members if its a
non-stock corporation.
- Underscoring the changes made
- Certification under oath by:
- Corporate secretary
- Majority of the BOD or BOT stating the fact that siad
amendments have been duly approved by the required
vote of the stockholders or members, shall be submitted
to SEC
- Approved by sec
- Accompanied by a favorable recommendation of the
appropriate government agency in cases of: (dili maapprove if
walay recommendation)
- Banks
- Banking and quasi-banking institutions
- Preneed
- Insurance and trust companies
- Nonstock savings and loan associations
- Pawnshops
- Other financial intermediaries
7. By-laws- bound by the principle of estoppel
1. Nature
- Rules and regulations or private laws enacted sa corporation
para ma regulate, govern, and control its own actions, affairs
and concerns and its stockholders or members and directors and
officers with relation thereto and among themselves in their
relation to it.
- Relatively continuing rules of action adopted by the corporation
for its government.
- PURPOSE: TO REGULATE THE CODUCT AND DEFINE THE DUTIES
OF THE MEMBERS TOWARDS THE CORPORATIONS AND AMONG
THEMSELVES.
- They specify the authority granted to each role and detail their
responsibilities.
 2. Adoption
3. Amendment
- Ang bylaws kay pwede ma-amend or repealed and new bylaws
can be adopted pero dapat majority of the board or owners kay
muagree and muvote.
- A special meeting must be called for for the purpose of
amending the bylaws.
- Delegation of power, pwede nga ang board of directors or
trustees ang mu decide ani. However, those owners who
represent ⅔ of the capital stock or ⅔ for noncapital stock, kay
pwede irevoke ang delegated power.
- Amendment shall only be effective upon the issuance by the
commission of a certification that the same is in accordance with
this code and other relevant laws.
4. Binding third persons
- Not bound unless have knowledge of the by-laws.
8. Incorporators
-
9. Amount of Capital Stock to be prescribed or paid-up (authorized capital stock)
- Amount of its capital stock
- Division into shares
- Par value of shares
- Original subscribers (nationalities, residence, and the amount subscribed
and paid)
10.) When corporate existence commences
- A corporate shall have perpetual existence unless its articles of
incorporation says otherwise.
11.) Corporate books and records
1. Minutes
- Minutes refer to the detailed written records of meetings held by
a corporation's board of directors, shareholders, or various
committees. These records capture the discussions, decisions, and
actions taken during these meetings. Minutes are essential for
maintaining a clear and accurate history of corporate activities
and ensuring compliance with legal and regulatory requirements.
2. Accounts
- accounts encompass the financial records and accounting books
of the corporation. These records include ledgers, journals,
 financial statements, and other accounting documents that track
the financial transactions and financial health of the corporation.
Proper accounting is essential for financial transparency, tax
compliance, and financial reporting
3. Stock and Transfer Book
- The stock and transfer book is a record that tracks the ownership
of shares in a stock corporation. It contains details about the
shareholders, the number of shares they own, the dates of
acquisition or transfer, and any related information, such as stock
certificates issued. This book is vital for maintaining an accurate
record of share ownership, facilitating the transfer of shares, and
ensuring compliance with securities regulations.

2. Stock or Share Corporations

1. Doctrine of Equality of Shares (default principle)- applies to the ordinary stock
- This doctrine ensures that all shareholders of the same class of shares
have uniform rights and responsibilities.
- Each share shall be equal in all respects (rights and liabilities) to every
other share except as otherwise provided in the articles of incorporation
and stated in the certificate of stock.
2. Trust Fund Doctrine
- The Trust Fund Doctrine ensures that the capital assets of a corporation
are preserved to satisfy the claims of creditors before they are
distributed to shareholders. This is a fundamental principle in corporate
law that protects the interests of creditors and maintains the financial
integrity of the corporation
1. Restricted Retained Earnings
- refer to a portion of a company's accumulated profits that are
earmarked or reserved for specific purposes. These purposes are
typically defined by the company's management or board of
directors. The reservation of these earnings is done by allocating
them to specific reserves or accounts within the company's
financial statements.
- Common reasons for restricting retained earnings include setting
aside funds for future investments, planned expansions, debt
repayments, legal requirements, or other specific uses.
 2. Unrestricted Retained Earnings
- These earnings are free and available for various uses, including
dividend payments to shareholders, reinvestment in the business,
debt reduction, or any other general corporate use.
- are more liquid and flexible because they are not subject to
specific restrictions. They can be utilized by the company as
needed for various operational and financial purposes.
3. Capital-25% must be subscribed, 25% must be paid up
- No longer exists in the revised corporation code
- Capital refers to the financial resources, including money and assets, that
a company uses to operate and generate income. It can encompass
various forms of funding, such as equity capital (funds from shareholders)
and debt capital (borrowed funds).
4. Capital Stock
- Capital stock represents the ownership interests in a corporation. It is
typically divided into shares, and shareholders own these shares in
proportion to their investments. Capital stock can be issued in various
classes, each with different rights and liabilities
5. Authorized Capital Stock
- Authorized capital stock is the maximum amount of capital stock that a
corporation is legally allowed to issue. It is defined in the corporation's
articles of incorporation.
6. Share of Stock
- A share of stock is a unit of ownership in a corporation. Shareholders own
one or more shares, which represent their ownership stake and may
come with certain rights, such as voting rights and dividend entitlements.
7. Subscribed Capital
- Subscribed capital is the portion of the authorized capital stock that
shareholders have committed to purchase. It represents the total value of
shares for which shareholders have agreed to subscribe.
8. Paid-up Capital
- the portion of the subscribed capital that shareholders have already paid
for in cash or other assets. It reflects the actual funds that have been
contributed to the corporation.
9. Pre-emptive Right-
Appraisal right- right to sell stock if he’s no longer happy in the corporation
- The pre-emptive right is the right of existing shareholders to purchase
additional shares of stock before the corporation offers them to external
 investors. This right helps protect the ownership interests of current
shareholders.
10. Increase or decrease of Capital Stock
- A corporation can change the amount of its authorized capital stock
through an increase (issuing more shares) or a decrease (reducing the
number of shares). This process typically requires approval by the
shareholders and compliance with legal requirements.
11. Subscription contract
- A subscription contract is a legal agreement between a subscriber (an
individual or entity) and the corporation to purchase a specified number
of shares of stock. It outlines the terms, conditions, and obligations
related to the purchase.
- A subscription contract is indivisible
12. Consideration for stocks
- Consideration refers to the value (such as money, assets, or services)
that a subscriber provides in exchange for the shares they are purchasing.
It is a fundamental element of the subscription contract.
13. Certificate of stocks and transfer of shares
- A certificate of stock is a document that certifies a shareholder's
ownership of a certain number of shares. The transfer of shares involves
changing ownership, which requires proper documentation and record-
keeping.
14. Liability for watered stocks
- Watered stocks are shares that are issued with an overvaluation of assets
or an inadequate consideration. Shareholders can be held liable for
watered stocks, meaning they may need to repay any excessive value
they received when they initially subscribed to the shares.
15. Balance of subscription and delinquency sale
- This term relates to any unpaid balance on the subscribed shares. If a
shareholder fails to pay the full subscription amount, the corporation
may sell the delinquent shares to recover the outstanding balance.

3. Classification of Stock
1. Par and Non-par
- Par value is a nominal or face value assigned to shares. Par stock has a
specified par value, and the shares cannot be sold for less than this value.
 - Non-par stock does not have a designated par value, and the shares can
be sold at any price determined by the market.
2. Voting (grants shareholders the right to participate in corporate decisions and
vote on matters such as board elections and major company decisions)
1. Founder's
- shares that are initially issued to the founders of a corporation. It
often carries specific rights or restrictions.
2. Common
- represents ownership in the company and typically carries voting
rights. Shareholders of common stock may receive dividends and
have a say in corporate decisions
- Has more rights in voting but not priority in dividends
3. "Voting Trust Agreement"
- A voting trust agreement allows shareholders to transfer their
voting rights to a trustee for a specified period. This is often used
to consolidate voting power.
- Limitations of voting trust agreement. E MEMORIZE!!!
3. Non-voting
1. Preferred
2. Redeemable
3. Treasury
4. Promotion
5. Escrow
6. Over-issued
7. Watered

4. Rights of Stockholders
1. Management
1. Indirect
1. To vote directors
2. To remove directors
2. Direct
1. To give approval to certain corporate actions
2. Proprietary
1. Appraisal
2. Issuance of Stock Certificate
 3. To proportionately participate in the distribution of assets during
liquidation
4. To transfer stocks
5. Pre-emptive or First Refusal
6. To inspect books and records
7. To financial statements
8. To recover stocks unlawfully sold to delinquent payment of subscription
9. To commence suits

1. Remedial- a stockholder files a case against the corporation

1. Individual- in behalf of one stockholder only
2. Representative- in behalf of a group of shareholders
3. Derivative- a case against the corporation itself
2. Dividends

1. Dividends vs. Profits

2. When and how issued
3. Kinds
1. Cash- general rule
2. Stock
3. Property
5. Board of Directors, Trustees and Officers
1. Meetings
2. Board
3. Corporate officers
4. Compensation, liability and dealings