BUSINESS ORGANIZATION II

Group 4 – Written Report on Other Corporations

As Partial Compliance in Business Organization II of

Atty. John Frederick E. Derije

Submitted by:
Pembraida P. Andoy

Jesus C. Ceballos
Jean Marie L. Abellana

Gridlin Matilac
Vienna Mae J. Miranda
Editha L. Roxas

Zusmitha D. Salcedo
Diann Kathelline A. Tado

December 19, 2019

 OTHER CORPORATIONS

CLOSE CORPORATIONS
Concept

Close Corporations are those in which the major part of the persons to
whom the powers have been granted, on the happening of vacancies, have the
right of themselves to appoint others to fill such vacancies, without allowing to the
stockholders in general any vote or choice in the selection of such new officers
(McKim v. Odom, Md., 3 Bland, 407, 416)

In Close Corporations, the business policy and activities are entirely

dominated for practical purposes by the majority stock ownership of a family
whose stock is nit traded in any market and is very infrequently sold (Brooks v.
Willcuts, D.C. Minn., 9 F. Supp. 19, 20)

Under Section 96 of the Corporation Code, a Close Corporation is “one whose

articles of incorporation provide” that:
 All the corporation’s issued stock of all classes, exclusive of treasury shares,
shall be held of record by not more than a specified number of persons,
not exceeding twenty (20);
 all the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this title; and
 The corporation shall not list in any stock exchange or make any public
offering of any of its stock of any class.

Characteristics of a Close Corporation

 Unstable
- A corporation may be a close corporation today, not a close
corporation tomorrow, and again is a close corporation the next day,
depending on how many stockholders hold its shares of stock.

 At least two-thirds (2/3) of its voting stock or voting rights is owned or

controlled by another corporation which is not a close corporation

 Have complied with “The Objective Test”, such that, its articles of
incorporation provide that:

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 o All the corporation’s issued stock of all classes, exclusive of treasury
shares, shall be held of record by not more than a specified number
of persons, not exceeding twenty (20);
o all the issued stock of all classes shall be subject to one or more
specified restrictions on transfer permitted by this title; and
o The corporation shall not list in any stock exchange or make any
public offering of any of its stock of any class.

 A distinct type of business organization as it embodies the best features of

a partnership and a corporation
- it has the advantage of having limited liability of a corporation while
at the same time entitling stockholders the opportunity to directly
manage the affairs

 A legal entity with its own legal personality

 Should not be an institution or a corporation vested with public interest

 There is a common identity between its stockholders and its corporate

manager
- its stockholders also act as the board of directors because they
themselves manage the close corporation

 It requires fewer formalities than standard corporations

Special Rules on Stock Ownership; Restriction on Transfers; Validity of Restrictions

on Transfer of Shares

In a close corporation, restrictions on the right to transfer shares must

appear both in the articles of incorporation and in the by-laws, as well as in the
certificate of stock; otherwise, the restriction shall not be binding on any
purchaser thereof in good faith. Said restrictions shall not be more onerous than
granting the existing stockholders or the corporation the option to purchase the
shares of the transferring stockholder with such reasonable terms, conditions or
period stated therein. If upon the expiration of said period, the existing
stockholders or the corporation fails to exercise the option to purchase, the
transferring stockholder may sell his shares to any third person. (Sec 98,
Corporation Code)

The restriction on transferability of shares of stock is limited to the “right of

first refusal”, a control scheme essential to a close corporation to allow the existing
stockholders the power to maintain the character of delectus personae and

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thereby prevent an outsider from coming into and interfering with the affairs of
the corporation.

This restriction is void when it only appears in the corporation’s by-laws

(Fleischer v. Boticca Nolasco Co.). The right to impose any restraint in this respect
[upon the right of stockholders to sell and assign their stock] must be conferred
upon the corporation either by governing statute or by the articles of corporation.
It cannot be done by a by-law, without statutory or charter authority.

Issuance or Transfer of Stock in Breach of Qualifying Conditions

Sec 99 of the Corporation Code provides that:

“Sec. 99. Effects of issuance or transfer of stock in breach of qualifying
conditions. -
1. If stock of a close corporation is issued or transferred to any person who
is not entitled under any provision of the articles of incorporation to be a
holder of record of its stock, and if the certificate for such stock
conspicuously shows the qualifications of the persons entitled to be holders
of record thereof, such person is conclusively presumed to have notice of
the fact of his ineligibility to be a stockholder.

2. If the articles of incorporation of a close corporation states the number

of persons, not exceeding twenty (20), who are entitled to be holders of
record of its stock, and if the certificate for such stock conspicuously states
such number, and if the issuance or transfer of stock to any person would
cause the stock to be held by more than such number of persons, the
person to whom such stock is issued or transferred is conclusively presumed
to have notice of this fact.

3. If a stock certificate of any close corporation conspicuously shows a

restriction on transfer of stock of the corporation, the transferee of the stock
is conclusively presumed to have notice of the fact that he has acquired
stock in violation of the restriction, if such acquisition violates the restriction.

4. Whenever any person to whom stock of a close corporation has been

issued or transferred has, or is conclusively presumed under this section to
have, notice either
(a) that he is a person not eligible to be a holder of stock of the
corporation, or
(b) that transfer of stock to him would cause the stock of the
corporation to be held by more than the number of persons

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 permitted by its articles of incorporation to hold stock of the
corporation, or
(c) that the transfer of stock is in violation of a restriction on transfer
of stock, the corporation may, at its option, refuse to register the
transfer of stock in the name of the transferee.

5. The provisions of subsection (4) shall not applicable if the transfer of stock,
though contrary to subsections (1), (2) of (3), has been consented to by all
the stockholders of the close corporation, or if the close corporation has
amended its articles of incorporation in accordance with this Title.

6. The term "transfer", as used in this section, is not limited to a transfer for
value.
7. The provisions of this section shall not impair any right which the transferee
may have to rescind the transfer or to recover under any applicable
warranty, express or implied.”

When Board Meeting is Unnecessary or Improperly Held

Under Sec 101 of the Corporation Code, “Unless the by-laws provide
otherwise, any action by the directors of a close corporation without a meeting
shall nevertheless be deemed valid if:

1. Before or after such action is taken, written consent thereto is signed by

all the directors; or
2. All the stockholders have actual or implied knowledge of the action and
make no prompt objection thereto in writing; or
3. The directors are accustomed to take informal action with the express or
implied acquiescence of all the stockholders; or
4. All the directors have express or implied knowledge of the action in
question and none of them makes prompt objection thereto in writing.

If a director's meeting is held without proper call or notice, an action taken

therein within the corporate powers is deemed ratified by a director who failed
to attend, unless he promptly files his written objection with the secretary of the
corporation after having knowledge thereof.”

Sec. 101. Pre-emptive right in close corporation – The pre-emptive right of

stockholders in close corporations shall extend to all stock to be issued,
including reissuance of treasury shares, whether for money, property or
personal services, or in payment of corporate debts, unless the articles of
incorporation provide otherwise. (RCC)

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 Pre-emptive Right is a right of the stockholders whenever the capital stock
of a corporation is increased and new shares of stock are issued, the new issue
must be offered first to the stockholders before subscriptions are received from
the general public.

The exercise of such right is different in an ordinary corporation as it only

extends to new issues out of the increased capital stock while in a close
corporation, the right extends to all stock, including treasury stock. Under Sec. 38
of the Corporation Code, pre-emptive right is denied to the stockholders if: 1)
Shares issued in compliance with laws requiring stock offerings or minimum stock
ownership by the public; and 2) Shares issued in good faith with the approval of
the stockholders two-thirds (2/3) of the outstanding capital stock, in exchange for
property needed for corporate purposes or in payment of a previously
contracted debt.

Sec. 102. Amendment of Articles of Incorporation. – Any amendments to the articles

of incorporation which seeks to delete or remove any provision required by this Title
or to reduce a quorum or voting requirements stated in said articles of incorporation
shall require the affirmative vote of at least two-thirds (2/3) of the outstanding capital
stock, whether with or without voting rights, or of such greater proportion of shares as
may be specifically provided in the articles of incorporation for amending, deleting
or removing any of the aforesaid provisions, at a meeting duly called for the
purpose.(RCC)

A close corporation shall cease to be as such if the following amendments

to the articles of incorporation are made: 1) amendment which seek to
delete/remove any provision required by this Title to be contained in the articles
of incorporation; or 2) To reduce a quorum or voting requirement stated in said
articles of incorporation.

Thus, for such amendment to be valid, the following votes are required: 1)
Vote of at least 2/3 of the outstanding capital stock, with or without voting rights;
or 2) Greater portion of shares as may be specifically provided in the articles of
incorporation for amending, deleting or removing any of the aforesaid provisions,
at a meeting duly called for the purpose.

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Sec. 99. Agreement by Stockholders. –

a) Agreements duly signed and executed by and among all stockholders

before the formation and organization of a close corporation shall
survive the incorporation and shall continue to be valid and binding
between such stockholders, if such be their intent, to the extent that such
agreements are consistent with the articles of incorporation, irrespective
of where the provisions of such agreements are contained, except those
required by this Title to be embodied in said articles of incorporation.

b) A written agreement signed by two (2) or more stockholders may

provide that in exercising any voting right, the shares held by them shall
be voted as provided or as agreed, or in accordance with a procedure
agreed upon.

c) No provisions in a written agreement signed by the stockholders, relating

to any phase of corporate affairs, shall be invalidated between the
parties on the ground that its effects is to make them partners among
themselves.

d) A written agreement among some or all of the stockholders in a close

corporation shall not be invalidated on the ground that it relates to the
conduct of the business and affairs of the corporation as to restrict or
interfere with the discretion or powers of the board of directors: Provided,
that such agreement shall impose on the stockholders who are parties
thereto the liabilities for managerial acts imposed on directors by this
Code.

e) Stockholders actively engaged in the management operation of the

business and affairs of a close corporation shall be held to strict fiduciary
duties to each other and among themselves. The stockholders shall be
personally liable for corporate torts unless the corporation has obtained
reasonably adequate liability insurance. (RCC)

The following agreement shall continue to be valid and binding among

stockholders:

1. Written and signed agreements executed before the formation and

organization of a close corporation even if such agreements are not
consistent and is not embodied in the articles of incorporation, if such be
their intent;

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 2. Written and signed agreements between two or more stockholders as to
the exercise of any voting rights and as to the procedures on how the shares
held by them be voted;
3. Written and signed agreements relating to any phase of the corporate
affairs even its effect is to make them partners among themselves; and
4. Written and signed agreements among some/all of the stockholders in a
close corporation that relates to the conduct of the business and affairs of
the corporation even it restrict or interfere with the discretion/powers of the
board of directors, as long as such agreement shall impose upon the privy
stockholders the liabilities for managerial acts imposed by this Code on
Directors.

Management of Stockholders

The stockholders shall be held to strict fiduciary duties to each other and
among themselves with respect to the management/operation of the business
and affairs of the corporation. The said stockholders shall be personally liable for
corporate torts unless the corporation has obtained reasonably adequate liability
insurance.

Deadlocks

It is when the directors or stockholders are so divided respecting the

management of the business and affairs of the corporation that the votes
required for any corporate action cannot be obtained and as a result, business
and affairs can no longer be conducted to the advantage of the stockholders
generally.

If ever there will be a deadlock, the SEC, upon written petition by any
stockholder, shall have the power to arbitrate the dispute.

In the exercise of such power, the Commission shall have authority to make
such order as it deems appropriate, including an order:
1) Cancelling or altering any provision contained in the articles of
incorporation, by-laws, or any stockholder’s agreement;
2) Cancelling, altering or enjoining any resolution or act of the corporation or
its board of directors, stockholders, or officers;
3) Directing or prohibiting any act of the corporation or its board of directors,
stockholders, officers, or other persons party to the action;
4) Requiring the purchase at their fair value of shares of any stockholders,
either by the corporation regardless of the availability of unrestricted
retained earnings in its books, or by the other stockholders;

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 5) Appointing a provisional director;
6) Dissolving the corporation; or
7) Granting such other relief as the circumstances may warrant.

Provisional director – it is an impartial person who is neither a stockholder nor a

creditor of the corporation or of any subsidiary or affiliate of the corporation,
whose further qualifications, if any maybe determined by the SEC; he is not a
receiver and does not have the title and powers of a custodian or receiver but
rather has all the powers of a duly elected director.

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 NON-STOCK CORPORATIONS
Section 3 of RA 11232 provides for the Classes of Corporations which states that:

“Corporations formed or organized under this Code may be stock or

nonstock corporations. Stock corporations are those which have 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
held. All other corporations are nonstock corporations.”

Thus, the two Classes of corporations are:

1. Stock
2. Non-stock

DEFINITION

Non-Stock Corporation is defined under Section 86 of the Corporation Code

which says:

Sec. 86 - For purposes of this Code and subject to its provisions on

dissolution, a nonstock corporation is one 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 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, subject to the provisions
of this Title. The provisions governing stock corporations, when pertinent, shall
be applicable to non-stock corporations, except as may be covered by
specific provisions of this Title.

A Non-Stock Corporation is one where no part of its income is distributable

as dividends to its members, trustees, or officers, subject to the provisions of the
Code on dissolution. Even if a corporation has capital stock divided into shares, it
is considered as non-stock so long as it does not distribute dividends to its
members and officers. (CIR vs. Club Filipino de Cebu).

Any profit which a non-stock corporation may obtain as an incident to its

operations shall, whenever necessary or proper, be used for the furtherance of
the purpose or purposes for which the corporation was organized.
The fact that a non-profit corporation earns a profit, gain or income for the
corporation or members does not make it a profit-making corporation where such

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profit or income is used for the purpose set forth in the articles of incorporation
and is not distributable to its incorporators, members or officers, since mere
intangible or pecuniary benefits of the members does not change the nature of
the corporation.

To determine whether or not a non-stock corporation can engage in profit-

making business or activity depends largely on the purpose or purposes indicated
in the articles of incorporation. If the business activity is authorized in the said
articles, necessary, incidental or essential thereto, the same may be undertaken
by the corporation, otherwise, not, as it would be an ultra-vires act.

PURPOSE

SEC. 87. Purposes. – Non-stock corporations may be formed or organized for

charitable, religious, educational, professional, cultural, fraternal, literary,
scientific, social, civic service, or similar purposes, like trade, industry,
agricultural and like chambers, or any combination thereof, subject to the
special provisions of this Title governing particular classes of non-stock
corporations.

Non-stock corporations may be organized or formed for any purpose or

purposes allowed or indicated in the above provision. The enumeration, however,
is not exclusive as the law itself recognizes similar or allied purpose or purposes for
which non-stock corporations may be organized. Recreational, sports club,
athletic or allied activities of similar import, for instance, may likewise be lawful
purpose of a non-stock corporation.

MEMBERSHIP AND VOTING RIGHTS

SEC. 88. Right to Vote. – The right of the members of any class or classes
to vote may be limited, broadened, or denied to the extent specified in the
articles of incorporation or the bylaws. Unless so limited, broadened, or denied,
each member, regardless of class, shall be entitled to one (1) vote. Unless
otherwise provided in the articles of incorporation or the bylaws, a member
may vote by proxy, in accordance with the provisions of this Code. The bylaws
may likewise authorize voting through remote communication and/or in
absentia.

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 Section 88 provides that as a general rule, each member, regardless of
class, shall be entitled to one vote (no cumulative voting). Exception to that is that
the right to vote is limited, broadened or denied in the articles of incorporation or
the bylaws.

The said provision also provides that a member may vote by proxy except
when the proxy voting is denied in the articles of incorporation or the by-laws.
Voting by mail or other similar means by members of non-stock corporations
may be authorized by the by-laws of non-stock corporations with the approval of,
and under such conditions which may be prescribed by the SEC.

SEC. 89. Nontransferability of Membership. – Membership in a nonstock

corporation and all rights arising therefrom are personal and nontransferable,
unless the articles of incorporation or the by-laws otherwise provide.

Generally, membership in a non-stock corporation and all rights arising

therefrom are personal and non-transferable. Exception is when the articles of
incorporation or the by-laws provide otherwise.

SEC. 90. Termination of Membership. – Membership shall be terminated

in the manner and for the causes provided in the articles of incorporation or
the by-laws. Termination of membership shall extinguish all rights of a member
in the corporation or in its property, unless otherwise provided in the articles of
incorporation or the by-laws.

Membership in non-stock corporations may be acquired by complying with

the provisions of its rules prescribed in the by-laws. In absence of restrictions, a
non-stock corporation may act arbitrarily and exclude any persons it may see fit,
and the courts have no power to interfere. It is free to fix qualifications for
membership and to provide for termination of membership.

General rule is that the board of directors of a non-stock corporation shall

have the authority to admit members except when the by-laws provide
otherwise.

Membership shall be terminated in the manner and for the causes provided
in the articles of incorporation or the by-laws. The termination of membership shall
have the effect of extinguishing all rights of a member in the corporation or in its
property unless the articles of incorporation or the by-laws provide otherwise.

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 In terminating membership, strict compliance with the manner and
procedure laid down in the bylaws must be observed, otherwise it may render the
expulsion ineffective and invalid. (Carmoan vs, PED)

In absence of any provision in the articles of incorporation or by-laws

relative to the manner and causes of termination, the power is nonetheless
inherent in the following situations:
1. When an offense is committed which, although it has no immediate
relation to a member’s duty as such, it is so infamous as to render him unfit for
society of honest men, and which is indictable at common law;
2. When the offense is a violation of his duty as a member of the
corporation; and
3. When the offense is of a mixed nature, being both against his duty as a
member of the corporation, and also indictable at common law.

As to whether or not a member should be expelled or maintained is the

established right of the corporation to determine and the courts are without
authority to strip a member of his membership without cause. Courts cannot strip
a member of a non-stock corporation of his membership therein without cause.
Otherwise, that would be an unwarranted and undue interference with the well-
established right of a corporation to determine its membership. (Chinese YMCA
vs. Ching)

TRUSTEES AND OFFICERS

SEC. 91. Election and Term of Trustees. – The number of trustees shall be fixed in
the articles of incorporation or bylaws which may or may not be more than fifteen
(15). They shall hold office for not more than three (3) years until their successors are
elected and qualified. Trustees elected to fill vacancies occurring before the
expiration of a particular term shall hold office only for the unexpired period. Except
with respect to independent trustees of nonstock corporations vested with public
interest, only a member of the corporation shall be elected as trustee. Unless otherwise
provided in the articles of incorporation or the bylaws, the members may directly elect
officers of a nonstock corporation.

SEC. 92. List of Members and Proxies, Place of Meetings. – The corporation shall, at all
times, keep a list of its members and their proxies in the form the Commission may
require. The list shall be updated to reflect the members and proxies of record
twenty (20) days prior to any scheduled election. The bylaws may provide that the
members of a nonstock corporation may hold their regular or special meetings at
any place even outside the place where the principal office of the corporation is
located: Provided, That proper notice is sent to all members indicating the date,
time and place of the meeting: Provided, further, That the place of meeting shall be
within Philippine territory.

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 Non-stock or special corporations may designate their governing boards
by any name through their articles of incorporation or their by-laws. The number
of trustees in a non-stock corporation may exceed 15 unless the articles of
incorporation or the by-laws provide otherwise

The term of office of the board of trustees may be staggered. They shall
classify themselves in order that 1/3 of their number shall expire every year and
subsequent elections of trustees comprising 1/3 shall be held annually. Exception
is when the articles of incorporation or the by-laws provide otherwise.

Qualifications of trustees:
1. He is a member of the corporation;
2. Majority thereof must be residents of the Philippines; and
3. Other qualifications as may be provided for in the by-laws.

Officers of a non-stock corporation may be directly elected by the

members unless the articles of incorporation or the by-laws provide.
General rule: The courts will not interfere on matters involving the internal affairs
of an unincorporated association such as elections, the manner by which it was
conducted and the results thereof. (Lions Club International vs. CA)

Exceptions:
1. There is fraud, oppression or bad faith;
2. The action complained of is capricious, arbitrary or unjustly discriminatory;

3. Property and civil rights are invaded;

4. The proceedings are violative of the laws of society, or the law of the
land, as by depriving a person of due process of law;

5. There is lack of jurisdiction on the part of the tribunal conducting the

proceedings;

6. The organization exceeds its powers;

7. The proceedings are illegal; or
8. An incorporated association or its members avail of the remedy of
instituting an intracorporate dispute case.

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General rule: Regular or special meetings of members of a non-stock corporation
shall be held in the city or municipality where the principal office is located, and
if practicable in the principal office of the corporation.
Exceptions: 1. The by-laws of the corporation provide otherwise; and

2. Metro Manila is considered a city or municipality.

Requirements for meetings held outside the location of the principal office
as provided for by the by-laws:
1. Proper notice is sent to all members indicating the date, time and place
of the meeting; and

2. The place of meeting must be within the Philippines.

General rule: All proceedings and business transactions at a meeting improperly

held or called are invalid.
Exception: All of the members are present or duly represented at the meeting.

DISTRIBUTION OF ASSETS IN NON-STOCK CORPORATIONS

SEC. 93. Rules of Distribution. – The assets of a nonstock corporation undergoing

the process of dissolution for reasons other than those set forth in Section 139 of
this Code, shall be applied and distributed as follows:

(a) All liabilities and obligations of the corporation shall be paid, satisfied
and discharged,
or adequate provision shall be made therefor;

(b) Assets held by the corporation upon a condition requiring return,

transfer or conveyance, and which condition occurs by reason of the
dissolution, shall be returned, transferred or conveyed in accordance with
such requirements;

(c) Assets received and held by the corporation subject to limitations

permitting their use only for charitable, religious, benevolent, educational
or similar purposes, but not held upon a condition requiring return, transfer
or conveyance by reason of the dissolution, shall be transferred or
conveyed to one (1) or more corporations, societies or organizations
engaged in activities in the Philippines substantially similar to those of the

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 dissolving corporation according to a plan of distribution adopted pursuant
to this Chapter;

(d) Assets other than those mentioned in the preceding paragraphs, if any,
shall be distributed in accordance with the provisions of the articles of
incorporation or the bylaws, to the extent that the articles of incorporation
or the bylaws, determine the distributive rights of members, or any class or
classes of members, or provide for distribution; and (e) In any other case,
assets may be distributed to such persons, societies, organizations or
corporations, whether or not organized for profit, as may be specified in a
plan of distribution adopted pursuant to this Chapter.

SEC. 94. Plan of Distribution of Assets. – A plan providing for the distribution of
assets, consistent with the provisions of this Title, may be adopted by a non-stock
corporation in the process of dissolution in the following manner:

a) The board of trustees shall, by majority vote, adopt a resolution

recommending a plan of distribution and directing the submission thereof
to a vote at a regular or special meeting of members having voting rights;
b) Each member entitled to vote shall be given a written notice setting
forth the proposed plan of distribution or a summary thereof and the date,
time and place of such meeting within the time and in the manner
provided in this Code for the giving of notice of meetings; and
c) Such plan of distribution shall be adopted upon approval of at least two-
thirds (2/3) of the members having voting rights present or represented by
proxy at such meeting.

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 SPECIAL CORPORATIONS

(1) EDUCATIONAL CORPORATIONS

SECTION 105. Incorporation. – Educational corporations shall be governed

by special laws and by the general provisions of this Code. (RCC)
- It is apparent that the Corporation Code governs suppletorily
educational corporations.

Section 105 of the Corporation Code expressly provides that educational

corporations shall be governed by special laws and by the general provisions of
the Corporation Code.
Section 107 which provides that the SEC shall not accept or approve the
articles of incorporation and by-laws of any educational institution, except upon
favorable recommendation of the Department of Education and Culture and
also the Commission on Higher Education, has been repealed under the Revised
Corporation Code.

Under Section 4 (2), Article XIV of the 1987 Constitution, educational

institution, other than those establish by religious group and mission boards,
shall be owned solely by citizens of the Philippines or corporations or
associations at least 60% of the Capital of which is owned by such citizens.
Congress may however require increased Filipino equity participation in all
educational institutions. The control and administration of all educational
institutions shall be vested in Filipino citizens.
In addition, it provides that no educational institution shall be established
exclusively for aliens and no group of aliens shall comprise more than one-third
(1/3) of the enrollment in any school. Those provision however shall not apply to
schools established for foreign diplomatic personnel and their dependents and,
unless otherwise provided by law, for other foreign temporary residents.
The Educational Act of 1982 provides for the requirements on corporate
structure of educational institutions.
Special Laws governing educational institutions
a. CHEd laws
b. DepEd laws
Stock and Non-Stock Educational Institutions

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  Educational Act of 1982, educational institutions could only be organized
as non-stock, non-profit corporations.
 R.A 7798 (1994), the Educational Act of 1982 was amended to allow the
incorporation of private schools as either a non-stock non-profit
educational corporations in accordance with the provisions of the
Corporation Code of the Philippines provided that the “minimum paid-up
capital for stock education institutions is Five Million Pesos (P5,000,000) for
those offering secondary and tertiary and post-graduate courses.”

Limitation of a Stock Educational Institution

It shall be ineligible for any form of government subsidy, incentive or

assistance, except those given to individual students and teachers in the form of
scholarships, student loans or other forms of subsidy as already mandated under
existing laws.

a. Conversion of Non-Stock School into Stock Corporation

(1) Dissolve the corporation under any of the methods specified in
Title XIV of the Corporation Code;
(2) The liquidation and distribution of its corporate assets;
(3) Registration as a new stock corporation subject to the
requirements of the Department of Education, Culture and Sports.

The SEC has ruled that a non-stock and non-profit educational foundation
cannot be converted into a stock corporation by the amendment of its articles
of incorporation, because it would be tantamount to distribution of the corporate
assets or income of the corporation to its members inasmuch as thereafter they
automatically become the stockholders thereof.

This scheme might defraud the public who may have contributed
donations, gifts, or grants to the non-stock, non-profit corporation since after the
conversion the donated corporate assets would in effect be treated as paid-in-
capital or subscription payments of the stockholders.
Board of Trustees

SEC. 106. Board of Trustees. –Trustees of educational institutions organized as

nonstock corporations shall not be less than five (5) nor more than fifteen (15):
Provided, That the number of trustees shall be in multiples of five (5).

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 Unless otherwise provided in the articles of incorporation or bylaws, the board
of trustees of incorporated schools, colleges, or other institutions of learning
shall, as soon as organized, so classify themselves that the term of office of one-
fifth (1/5) of their number shall expire every year. Trustees thereafter elected to
fill vacancies, occurring before the expiration of a particular term, shall hold
office only for the unexpired period. Trustees elected thereafter to fill vacancies
caused by expiration of term shall hold office for five (5) years. A majority of the
trustees shall constitute a quorum for the transaction of business. The powers
and authority of trustees shall be defined in the bylaws.

For institutions organized as stock corporations, the number and term of

directors shall be governed by the provisions on stock corporations. (RCC)

Trustees of educational institutions organized as non-stock corporation shall

not be less than five nor more than 15, provided that the number of trustees shall
be in multiples of five, and may hold office for a term of five years.
“The number of directors for schools organized as stock corporations may
be any number between five and fifteen and shall hold office for one year.”
According to the SEC, the multiple of five in the Board of Trustees in an
educational institution must be complied, since the provisions of Section 108 are
mandatory provision, otherwise, the legislature would have provided for an
exception to the same.

This position has been overturned in Barayuga vs. Adventist University of the
Philippines, where it was held that the second paragraph of Section 108, contains
a proviso expressly subjecting the duration to what is otherwise provided in the
articles of incorporation or by-laws of the educational corporation, then the
contrary provisions control therein control the term of office of the Board of
Trustees.
Barayuga vs. Adventist
G.R. No. 168008 : August 17, 2011
Facts:

AUP non-stock and non-profit domestic educational institution

incorporated under the Philippine laws, was directly under the North Philippine
Union Mission (NPUM) of the Southern Asia Pacific Division of the Seventh Day
Adventist which elected the petitioner Barayuga as secretary for the NPUM and
subsequently appointed him as President of AUP. During his tenure as President,
the audit revealed that the petitioner committed several anomalies and serious
violations. The NPUM Executive Committee then called for a special meeting for

18
the purpose of deciding petitioner’s case, and by secret ballot was voted to be
removed from his Presidency, and to appoint an interim committee to assume the
powers of the President. Thereafter, the petitioner filed a temporary restraining
order (TRO) alleging that he was removed as President without valid grounds,
despite his five(5) year term as President of AUP as provided for in the latter’s
Constitution and by-laws. The RTC issued the injunction and rule in petitioner’s
favor however the CA reversed the RTC’s decision, hence this petition.

Issue: Whether or not the termination of Barayuga was in accord with AUP’s
Constitution and by-laws.

Ruling: No, the petitioner's assertion of a five-year duration for his term of office
lacked legal basis.

Section 108 of the Corporation Code determines the membership and number of
trustees in an educational corporation,
Section 108. Board of trustees. - Trustees of educational institutions
organized as educational corporations shall not be less than five (5) nor
more than fifteen (15): Provided, however, That the number of trustees shall
be in multiples of five (5).
Unless otherwise provided in the articles of incorporation or the by-laws, the board
of trustees of incorporated schools, colleges, or other institutions of learning shall,
as soon as organized, so classify themselves that the term of office of one-fifth
(1/5) of their number shall expire every year. Trustees thereafter elected to fill
vacancies, occurring before the expiration of a particular term, shall hold office
only for the unexpired period. Trustees elected thereafter to fill vacancies caused
by expiration of term shall hold office for five (5) years. A majority of the trustees
shall constitute a quorum for the transaction of business. The powers and authority
of trustees shall be defined in the by-laws.

For institutions organized as stock corporations, the number and term of

directors shall be governed by the provisions on stock corporations.

The second paragraph of the provision, although setting the term of the
members of the Board of Trustees at five years, contains a proviso expressly
subjecting the duration to what is otherwise provided in the articles of
incorporation or by-laws of the educational corporation. That contrary provision
controls on the term of office.

In AUP's case, its amended By-Laws provided the term of the members of the
Board of Trustees, and the period within which to elect the officers, thusly:

19
 Article I
Board of Trustees

Section 1. At the first meeting of the members of the corporation, and thereafter
every two years, a Board of Trustees shall be elected. It shall be composed of
fifteen members in good and regular standing in the Seventh-day Adventist
denomination, each of whom shall hold his office for a term of two years, or until
his successor has been elected and qualified. If a trustee ceases at any time to
be a member in good and regular standing in the Seventh-day Adventist
denomination, he shall there by cease to be a trustee.

Article IV
Officers

Section 1. Election of officers. - At their organization meeting, the members of the

Board of Trustees shall elect from among themselves a Chairman, a Vice-
Chairman, a President, a Secretary, a Business Manager, and a Treasurer. The
same persons may hold and perform the duties of more than one office, provided
they are not incompatible with each other.
In light of foregoing, the members of the Board of Trustees were to serve a
term of office of only two years; and the officers, who included the President, were
to be elected from among the members of the Board of Trustees during their
organizational meeting, which was held during the election of the Board of
Trustees every two years. Naturally, the officers, including the President, were to
exercise the powers vested by Section 2 of the amended By-Laws for a term of
only two years, not five years.

Ineluctably, the petitioner, having assumed as President of AUP on January

23, 2001, could serve for only two years, or until January 22, 2003. By the time of
his removal for cause as President on January 27, 2003, he was already occupying
the office in a hold-over capacity, and could be removed at any time, without
cause, upon the election or appointment of his successor. His insistence on
holding on to the office was untenable, therefore, and with more reason when
one considers that his removal was due to the loss of confidence on the part of
the Board of Trustees

Benefits and Privileges of Educational Institutions

All revenue and assets of non-stock, non-profit educational institution used
actually, directly and exclusively for educational purposes shall be exempt from
taxes and duties.

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 Upon the dissolution or cessation of the corporate existence of an
educational institution, its assets shall be disposed on in the manner provided by
law.
Proprietary educational institutions, including those cooperatively owned,
may likewise be entitled to such exemptions subject to the limitations provided
by law including restrictions on dividends and provisions of reinvestments.
Subject to the conditions prescribed by law, all grants, endowments,
donations or contributions used actually, directly and exclusively for educational
purposes shall be exempt from tax.

c. RELIGIOUS CORPORATIONS – such as the Roman Catholic Church, is

considered to be a juridical entity with full capabilities of a corporation,
such as the ability to own properties.

REV. JORGE BARLIN vs P. VICENTE RAMIREZ

G.R. No. L-2832 November 24, 1906
Facts:
Priests were already been in existence in the Municipality of Lagonoy since 1839.
January 13,1869 the church and convent were burned. They were rebuilt
between 1870 and 1873. Rebuilding process were ordered by the Governor and
was the laborers were the people from the barangay as per the order of the
Cabeza De Barangay. The materials and funds that were used on the renovation
were from the parish priests funds.

The defendant, Ramirez, having been appointed by the plaintiff parish priest, took
possession of the church on the 5th of July, 1901. he administered it as such under
the orders of his superiors until his successor has been appointed which made a
demand for the delivery of the church. However, Ra,irez refused to make such
delivery alleging that the town of Lagonoy, in conjunction with the parish priest
thereof, has seen fit to sever connection with the Pope at Rome and his
representatives in these Islands, and join the Filipino Church, the head of which is
at Manila and that the property is under authority of the municipality of Lagonoy
and of the inhabitants of the same, who were the lawful owners of the said
property.

In January, 1904, the plaintiff brought this action against the defendant, Ramirez,
alleging in his amended complaint that the Roman Catholic Church was the

21
owner of the church building, the convent, cemetery, the books, money, and
other property belonging thereto, and asking that it be restored to the possession
thereof and that the defendant render an account of the property which he had
received and which was retained by him, and for other relief.

Issue: Whether or not that the subject property wherein the said church situated
were own by the government or by the Catholic Church having the capacity as
Juridical Personality.

Ruling: The Court recognized the Roman Catholic Church to possess a juridical
personality as that of a corporation, “as an institution which antedates by almost
a thousand years any other personality in Europe, and which existed "when
Grecian eloquence still flourished in Antioch, and when idols were still worshiped
in the temple of Mecca.” he Church belongs to God and therefore the use of the
Church should be to glorify God which is the Catholic Church used to do. The
public properties are the Roads and other properties wherein the public should
have.

Classes of Religious Corporations (Section 107 of the Revised Corporation Code)

(a) Corporations sole – consists only of one person and his successors.
(b) Religious societies

CORPORATION SOLE
For the purpose of administering and managing, as trustee, the affairs,
property and temporalities of any religious denomination, sect or church, a
corporation sole may be formed by the chief archbishop, bishop, priest, minister,
rabbi or other presiding elder of such religious denomination, sect or church
(Section 108of the Revised Corporation Code).
Primary Characteristic:
It may be formed by only one qualified individual (i.e., not just any
religious person), who must be the chief archbishop, bishop, priest, minister,
rabbi or other presiding elder of such religious denomination, sect or
church.

Purpose: Is for the administration and management, as trustee, of the

affairs, property and temporalities of any religious denomination, sect or
church.

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Section 109. Articles of incorporation. - In order to become a corporation sole, the
chief archbishop, bishop, priest, minister, rabbi or presiding elder of any religious
denomination, sect or church must file with the Securities and Exchange
Commission articles of incorporation setting forth the following:

1. That he is the chief archbishop, bishop, priest, minister, rabbi or presiding

elder of his religious denomination, sect or church and that he desires to
become a corporation sole;
2. That the rules, regulations and discipline of his religious denomination, sect
or church are not inconsistent with his becoming a corporation sole and do
not forbid it;
3. That as such chief archbishop, bishop, priest, minister, rabbi or presiding
elder, he is charged with the administration of the temporalities and the
management of the affairs, estate and properties of his religious
denomination, sect or church within his territorial jurisdiction, describing
such territorial jurisdiction;
4. The manner in which any vacancy occurring in the office of chief
archbishop, bishop, priest, minister, rabbi of presiding elder is required to be
filled, according to the rules, regulations or discipline of the religious
denomination, sect or church to which he belongs; and
5. The place where the principal office of the corporation sole is to be
established and located, which place must be within the Philippines.
The articles of incorporation may include any other provision not contrary to law
for the regulation of the affairs of the corporation.
Submission of Articles of Incorporation:
a. The AoI must be verified by an affidavit or affirmation of the chief
archbishop, bishop, priest, minister, rabbi or presiding elder, as the case
may be;
b. A copy of the commission or certificate of election or letter of appointment
of such chief archbishop, bishop, priest, minister, rabbi or presiding elder,
certified by a notary republic.

Note: no need to file by laws with SEC and other reportorial requirements (GIS and
AFS).
 From and after the filing with the Securities and Exchange Commission of
the said articles of incorporation, verified by affidavit or affirmation, and
accompanied by the documents mentioned in the preceding paragraph,
such chief archbishop, bishop, priest, minister, rabbi or presiding elder shall
become a corporation sole and all temporalities, estate and properties of

23
 the religious denomination, sect or church theretofore administered or
managed by him as such chief archbishop, bishop, priest, minister, rabbi or
presiding elder shall be held in trust by him as a corporation sole, for the
use, purpose, behalf and sole benefit of his religious denomination, sect or
church, including hospitals, schools, colleges, orphan asylums, parsonages
and cemeteries thereof.
Beginning of legal existence – “from and after the filing with the SEC of the Articles
of Incorporation”
Acquisition and alienation of real property (Section 111)
Any corporation sole may purchase and hold real estate and personal
property for its church, charitable, benevolent or educational purposes, and may
receive bequests or gifts for such purposes.

Such corporation may sell or mortgage real property held by it by:

1. Obtaining an order for that purpose from the Regional Trial Court of the
province where the property is situated;
2. Proof must be made to the satisfaction of the court that notice of the
application for leave to sell or mortgage has been given by publication or
otherwise in such manner and for such time as said court may have
directed;
3. That it is to the interest of the corporation that leave to sell or mortgage
should be granted.

Republic of the Philippines vs Villanueva

G.R. No. L-55289 June 29, 1982
Facts:
Lots Nos. 568 and 569, located at Barrio Dampol, Plaridel, Bulacan, with an area
of 313 square meters and an assessed value of P1,350 were acquired by the
Iglesia Ni Cristo on January 9, 1953 from Andres Perez. The said lots were already
possessed by Perez in 1933. They are not included in any military reservation. They
are inside an area which was certified as alienable or disposable by the Bureau
of Forestry in 1927.

On September 13, 1977, the Iglesia Ni Cristo, a corporation sole, duly existing under
Philippine laws, filed with the Court of First Instance of Bulacan an application for
the registration of the two lots. It invoked section 48(b) of the Public Land Law,
which provides for Judicial confirmation of imperfect or incomplete titles granted
to citizens of the Philippines.

24
The Republic of the Philippines, through the Direct/r of Lands, opposed the
application on the grounds that applicant, as a private corporation, is disqualified
to hold alienable lands of the public domain, that the land applied for is public
land not susceptible of private appropriation and that the applicant and its
predecessors-in-interest have not been in the open, continuous, exclusive and
notorious possession of the land since June 12, 1945.

Issue: Whether or not the INC is allowed to acquire or hold alienable lands of the
public domain.

Ruling: No. The Iglesia Ni Cristo, as a corporation sole or a juridical person, is

disqualified to acquire or hold alienable lands of the public domain, like the two
lots in question in accordance with the constitutional prohibition in Section 11,
Article XIV of the 1973 Constitution that “no private corporation or association
may hold alienable lands of the public domain except by lease not to exceed
one thousand hectares in area.”

Further a church is not entitled to avail itself of the benefits of section 48(b)
which applies only to Filipino citizens or natural persons. A corporation sole (an
"unhappy freak of English law") has no nationality.

THE DIRECTOR OF LANDS vs INTERMEDIATE APPELLATE COURT and ACME

PLYWOOD
G.R. No. 73002 December 29, 1986

Ruling: The court held that alienable public land held by a possessor, personally
or through his predecessor-in-interest, openly, continuously and exclusively for the
prescribed statutory period of 30 years under the Public Land Act is converted to
private property by the mere lapse or completion of said period, ipso jure.
Consequently the requirements of the Public Land Act qualifying only individuals
to acquire public land, cannot apply to corporate entities who have acquired
land by such prescription since the same would then be private land, not covered
by the Public Land Act.

When a corporation sole is headed by a foreigner:

The SEC ruled that it may acquire land in the Philippines only when records
are submitted showing that the members of the Church or religious denomination
represented by it constitute at least 60% Filipinos.

25
FILLING OF VACANCIES
The successors in office of any chief archbishop, bishop, priest, minister, rabbi
or presiding elder in a corporation sole shall become the corporation sole on their
accession to office and shall be permitted to transact business upon filing with the
SEC a certified copy:
(a) Commission;
(b) Certificate of election; or
(c) Letters of Appointment

During any vacancy in the office of chief archbishop, bishop, priest, minister,
rabbi or presiding elder of any religious denomination, sect or church
incorporated as a corporation sole, the person or persons authorized and
empowered by the rules, regulations or discipline of the religious denomination,
sect or church represented by the corporation sole to administer the temporalities
and manage the affairs, estate and properties of the corporation sole during the
vacancy shall exercise all the powers and authority of the corporation sole during
such vacancy.

Rule: The successors shall become the corporation sole upon filing with the SEC
proof of appointment to such office verified by any notary public.

DISSOLUTION
A corporation sole may be dissolved and its affairs settled voluntarily by
submitting to the SEC a verified declaration of dissolution, setting forth:
(a) The name of the corporation;
(b) The reason for dissolution and winding up;
(c) The authorization for the dissolution of the corporation by the particular
religious denomination, sect, or church;
(d) The names and addresses of the persons who are to supervise the winding
up of the affairs of the corporation.

Upon approval of such declaration of dissolution by the Commission, the

corporation shall cease to carry on its operations except for the purpose of
winding up its affairs.

RELIGIOUS SOCIETIES (Section 114)

Any religious society, religious order, diocese, synod, or district organization
of any religious denomination, sect or church, may, upon written consent and/or
by an affirmative vote at a meeting called for the purpose of at least two-thirds

26
(2/3) of its membership, incorporate by filing with the Securities and Exchange
Commission its:

(1) Articles of incorporation;

(2) Verified affidavit of the presiding elder, secretary, or clerk or other
member of such religious society or religious order, or diocese,synod, or
district organization of the religious denomination, sect or church, setting
forth the following:
a. That the religious society or religious order, or diocese, synod, or
district organization is a religious organization of a religious
denomination, sect or church;

b. That at least two-thirds (2/3) of its membership has given written

consent or has voted to incorporate, at a duly convened meeting of
the body;

c. That the incorporation of the religious society or religious order, or

diocese, synod, or district organization is not forbidden by competent
authority or by the Constitution, rules, regulations or discipline of the
religious denomination, sect or church of which it forms part;

d. That the religious society or religious order, or diocese, synod, or

district organization desires to incorporate for the administration of its
affairs, properties and estate;

e. The place within the Philippines where the principal office of the
corporation is to be established and located; and

f. The names, nationalities, and residence addresses of the trustees, not

less than five (5) nor more than fifteen (15), elected by the religious
society or religious order, or the diocese, synod, or district
organization to serve for the first year or such other period as may be
prescribed by the laws of the religious society or religious order, or of
the diocese, synod, or district organization.

Purpose:
(1) The administration of its temporalities; or
(2) Management of its affairs, properties, and estate.

27
 ONE PERSON CORPORATIONS

 One of the additions of the Republic Act 11232 or the Revised Corporation
Code.
 Under the new law, individuals can register their business with only one
incorporator, a decrease from the previous law requiring at least five
shareholders. This means that entrepreneurs without any business partners
now have another business structure they can apply for apart from sole
proprietorships.

Applicability of Provisions to One Person Corporation (Section 115)

The provisions of this Title shall primarily apply to One Person Corporations.
Other provisions of this Code apply suppletorily, except as otherwise provided in
this Title.

Definition –
SEC. 116. One Person Corporation. – A One Person Corporation is a
corporation with a single stockholder: Provided, That only a natural person,
trust, or an estate may form a One Person Corporation.

 The incorporator must be of legal age.

 As an incorporator, the “trust” as used by the law does not refer to a trust
entity, but as subject being managed by a trustee. If the single stockholder
is a trustee, administrator, executor, guardian, conservator, custodian, or
other person exercising fiduciary duties, proof of authority to act on behalf
of the trust or estate must be submitted at the time of incorporation.

Who are not allowed to form OPC:

a. Banks, non-bank financial institutions, quasi-banks, pre-need, trust,
insurance, public and publicly listed companies, non-chartered
government-owned-and controlled corporations (GOCCs) cannot
incorporate as OPC.

b. A natural person who is licensed to exercise a profession may not organize

as an OPC for the purpose of exercising such profession except as otherwise
provided under special.

Foreign National

28
 A foreign natural person may put an OPC, subject to the applicable
constitutional and statutory restrictions on foreign participation in certain
investment areas or activities.

One Person Corporation vs Sole Proprietorships

Sole Proprietorships One Person Corporation
They become personally liable for all
the risks that their business may take. The business owner can claim limited
liability, which means that the
- The assets of the business and company’s assets and the owner’s
the entrepreneur are treated as personal assets are treated
the same, making it risky for a separately.
sole proprietor’s personal
resources.

Sole proprietors are treated as As OPCs are corporations, they have a

individuals when taxed, which means fixed income tax rate of 30%.
their applicable rates would vary
depending on their gross sales.

Articles of Incorporation
A One Person Corporation shall file articles of incorporation in accordance
with the requirements under Section 14 of this Code. It shall likewise substantially
contain the following:

(a) If the single stockholder is a trust or an estate, the name, nationality,

and residence of the trustee, administrator, executor, guardian,
conservator, custodian, or other person exercising fiduciary duties
together with the proof of such authority to act on behalf of the trust
or estate; and
(b) Name, nationality, residence of the nominee and alternate nominee,
and the extent, coverage and limitation of the authority.

Regulations for a One Person Corporation

(1) All one person corporations must add “OPC” to their corporate names. In
the case of the first OPC registration accepted, its full corporate name is
“Smart Transportation and Solutions OPC.”

(2) No required minimum Capital Stock and corporate by-laws

29
 SEC. 117. Minimum Capital Stock Required for One Person Corporation. – A
One Person Corporation shall not be required to have a minimum
authorized capital stock except as otherwise provided by special law.

SEC. 119. Bylaws. – The One Person Corporation is not required to submit
and file corporate bylaws.

(3) An OPC only has one incorporator, they will serve as both the director and
president of the formalized company. The law also states that OPCs must
appoint a corporate secretary, treasurer, and other necessary officers
within 15 days from the date of incorporation. The business owner cannot
take the role of corporate secretary, but they may assume the role of
treasurer provided that they submit a bond to the SEC. The bond shall be
renewed every two (2) years or as often as may be required.

(4) While OPCs will only have one board member, registrants must submit the
written consents of a nominee and an alternate nominee. These are the
designated individuals who will take over the business in the event of the
founder’s death. They will handle company operations until an heir to the
founder is legally recognized.

Term of Nominee and Alternate Nominee

30
 When the incapacity of the single stockholder is temporary, the nominee
shall sit as director and manage the affairs of the One Person Corporation until
the stockholder, by self-determination, regains the capacity to assume such
duties.

In case of death or permanent incapacity of the single stockholder, the

nominee shall sit as director and manage the affairs of the One Person
Corporation until the legal heirs of the single stockholder have been lawfully
determined, and the heirs have designated one of them or have agreed that the
estate shall be the single stockholder of the One Person Corporation.

The alternate nominee shall sit as director and manage the One Person
Corporation in case of the nominee’s inability, incapacity, death, or refusal to
discharge the functions as director and manager of the corporation, and only for
the same term and under the same conditions applicable to the nominee.

SEC. 126. Change of Nominee or Alternate Nominee. – The single stockholder may,
at any time, change its nominee and alternate nominee by submitting to the
Commission the names of the new nominees and their corresponding written
consent. For this purpose, the articles of incorporation need not be amended.

Reportorial Requirements
The OPC must submit the following documents within the period required
by the SEC:
a) annual audited financial statements within 120 days from the end of its
fiscal year as indicated in its Articles of Incorporation;

b) a report on all explanations or comments by the president on the

qualification, reservation or adverse remarks made by the auditor in
the financial statements;

c) a disclosure of all self-dealings and related party transactions entered

into between the OPC and the single stockholder; and

d) other reports as the SEC may require.

Liability of Single Shareholder

31
SEC. 130. Liability of Single Shareholder. – A sole shareholder claiming limited
liability has the burden of affirmatively showing that the corporation was
adequately financed.
Where the single stockholder cannot prove that the property of the One
Person Corporation is independent of the stockholder’s personal property, the
stockholder shall be jointly and severally liable for the debts and other liabilities of
the One Person Corporation.

The principles of piercing the corporate veil applies with equal force to One
Person Corporations as with other corporations.
Conversion from an Ordinary Corporation to a One Person Corporation (Section
131)
When a single stockholder acquires all the stocks of an ordinary stock
corporation, the latter may apply for conversion into a One Person Corporation,
subject to the submission of such documents as the Commission may require.

If the application for conversion is approved, the Commission shall issue a

certificate of filing of amended articles of incorporation reflecting the conversion.
The One Person Corporation converted from an ordinary stock corporation shall
succeed the latter and be legally responsible for all the latter’s outstanding
liabilities as of the date of conversion.

GUIDELINES BY THE SEC

(1) Only a domestic corporation organized as a stock corporation (“Ordinary
Stock Corporation”) may be converted into a One Person Corporation.

(2) After a natural person of legal age, a trust, or an estate (“single

stockholder”) has acquired all of the outstanding capital stocks of an
Ordinary Stock Corporation, the Ordinary Stock Corporation may apply for
its conversion into a One Person Corporation.

(3) Applications for conversion from Ordinary Stock Corporation into a One
Person Corporation will be processed as an amendment of an Articles of
Incorporation/By-laws.

Conversion from One Person Corporation to Ordinary Corporation (Section 132)

A One Person Corporation may be converted into an ordinary stock
corporation after due notice to the Commission of such fact and of the
circumstances leading to the conversion, and after compliance with all other
requirements for stock corporations under this Code and applicable rules.

32
 Such notice shall be filed with the Commission within sixty (60) days from the
occurrence of the circumstances leading to the conversion into an ordinary stock
corporation. If all requirements have been complied with, the Commission shall
issue a certificate of filing of amended articles of incorporation reflecting the
conversion.

In case of death of the single stockholder, the nominee or alternate

nominee shall transfer the shares to the duly designated legal heir or estate within
seven (7) days from receipt of either an affidavit of heirship or self-adjudication
executed by a sole heir, or any other legal document declaring the legal heirs of
the single stockholder and notify the Commission of the transfer.

Within sixty (60) days from the transfer of the shares, the legal heirs shall
notify the Commission of their decision to either wind up and dissolve the One
Person Corporation or convert it into an ordinary stock corporation. The ordinary
stock corporation converted from a One Person Corporation shall succeed the
latter and be legally responsible for all the latter’s outstanding liabilities as of the
date of conversion.

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 FOREIGN CORPORATIONS

DEFINITION

REPUBLIC ACT NO. 11232 (Revised Corporation Code of the Philippines)

SEC. 140. Definition and Rights of Foreign Corporations – For purposes of this Code,
a foreign corporation is one formed, organized or existing under laws other than
those of the Philippines’ and whose laws allow Filipino citizens and corporations to
do business in its own country or State. It shall have the right to transact business
in the Philippines after obtaining a license for that purpose in accordance with
this Code and a certificate of authority from the appropriate government
agency.

A foreign corporation is one which owes its existence to the laws of another
state, and generally, has no legal existence within the state in which it is foreign.
It is a fundamental rule of international jurisdiction that no state can by its
laws, and no court (which is only a creature of the state) can by its judgments or
decrees, directly bind or affect property or persons beyond the limits of that state.
However, under the doctrine of comity in international laws, "a corporation
created by the laws of one state is usually allowed to transact business in other
states and to sue in the courts of the forum."

The phrase “whose laws allow Filipino citizens and corporations to do

business in its own country or state” is a mere condition precedent to the grand
of a license of a foreign corporation to do business in the Philippines.

General rule: The “incorporation test” is applied in determining whether a

corporation is domestic or foreign. If it is incorporated in another state, it is a
foreign corporation, while if it is registered under Philippine laws, it is deemed a
Filipino or domestic corporation irrespective of the nationality of its stockholders.

Exception: In times of war, the “control test” would apply in determining the
corporate nationality, i.e., the citizenship of the controlling stockholders
determines the nationality of the corporation.

BASES OF AUTHORITY OVER FOREIGN CORPORATIONS

The following are the two bases of authority (jurisdiction) over foreign
corporations:

34
 1. Consent.
A corporation may give actual consent to judicial jurisdiction
manifested normally by compliance with the State’s foreign
corporation qualification requirements (licensing requirements and
other requisites to lawfully transact business in the Philippines); and

2. A corporation, even though not qualified (not licensed), by

engaging in sufficient activity (doing business) within the State,
established judicial jurisdiction over the foreign corporation (Foreign
Corporations: The Interrelation of Jurisdiction and Qualification,
Indiana Law Journal, Article 4, Vol. 33, Issue 3, retrieved on April 29,
2013).
Consent

Through compliance with the Philippines’ legal requirements to lawfully

engage in business within the country’s territory, the foreign corporation gives its
actual consent to be subjected to the jurisdiction of the Philippines.

By securing a license, which is a legal requirement to lawfully engage in

business in the Philippines, the foreign entity would be giving assurance that it will
abide by the decisions of our courts, even if adverse to it (Eriks PTE, Ltd. v. CA, GR
118843, February 6, 1997).
General rule: Foreign corporations shall not be permitted to transact or do
business in the Philippines until they have secured a license for that purpose from
the SEC and certificate of authority from the appropriate government agency
(Corporation Code, Sec. 123 as amended by Sec. 140 of the Revised Corporation
Code).
Exception: Isolated Transactions – where a foreign corporation had no
intention to engage continuously in the transaction is not doing in the Philippines
and need not get a license.

Doctrine of “doing business” under Foreign Investment Act Of 1991

Under the Foreign Investment Act (R.A. No. 7402), a foreign corporation is
“deemed doing business in the Philippines” if it is continuing the body or
substance of the business or enterprise for which it was organized. It is the intention
of an entity to continue the body of its business in the country. The grant and
extension of 90-day credit terms of a foreign corporation to a domestic

35
corporation for every purchase shows an intention to continue transacting with
the latter.

Instead of defining a "foreign corporation," the Act refers to a "non-

Philippine national" as an entity not falling within the definition of "Philippine
National." A Philippine national means
“a corporation organized under the laws of the Philippines of which at least
sixty percent (60%) of the capital stock outstanding and entitled to vote is
owned and held by citizens of the Philippines . . . Provided, That where a
corporation and its non-Filipino stockholders own stocks in a SEC registered
enterprise, at least sixty percent (60%) of the capital stock outstanding and
entitled to vote of both corporations must be owned and held by citizens
of the Philippines and at least sixty percent (60%) of the members of the
Board of Directors of both corporations must be citizens of the Philippines,
in order that the corporation shall be considered a Philippine national.”
Under the negative list concept of the Act, a non-Philippine national, upon
registration with the SEC, may do business in the Philippines or invest in a domestic
enterprise up to one hundred percent (100%) of its capital, unless participation of
non-Philippine nationals in the enterprise is prohibited or limited to a smaller
percentage by existing law and/or under the negative lists of the Act.

"Doing business" does not include the following acts and activities:
(a) Mere investment as a shareholder by a foreign entity in a domestic
corporation duly registered to do business, and/or the exercise of rights as
such investor;
(b) Having a nominee director or officer to represent its interests in such
corporation; and
(c) Appointing a representative or distributor domiciled in the Philippines
which transacts business in its own name and for its own account.

The DTI Implementing Rules and Regulations, in defining "doing business," not only
carry the same language as appearing in the Act, but also includes the following
items as not being included in the term "doing business":
(a) The publication of a general advertisement through any print or
broadcast media;

(b) Maintaining a stock of goods in the Philippines solely for the purpose of
having the same processed by another entity in the Philippines;

36
 (c) Consignment by a foreign entity of equipment with a local company to
be used in the processing of products for export;

(d) Collecting information in the Philippines; and

(e) Performing services auxiliary to an existing isolated contract of sale
which are not on a continuing basis, such as installing in the Philippines
machinery it has manufactured or exported to the Philippines, servicing the
same, training domestic workers to operate it, and similar incidental
services.54
A review of the enumerated instances of activities not constituting doing
business shows a common denominator that by themselves the activities do not
bring any direct receipts or profits to the foreign corporation.

Jurisdictional tests of “doing or transacting business” in the Philippines for foreign

corporations:
1. Twin Characterization Test

a. Continuity Test –implies a continuity of commercial dealings and

arrangements, and contemplates to some extent the performance
of acts or works or the exercise of some functions normally incident
to and in progressive prosecution of, the purpose and object of its
organization.

b. Subsequent Test – a foreign corporation is doing business in the

country if it is continuing the body or substance of the enterprise of
business for which it was organized (Sundiang Sr. & Aquino, 2009).
2. Contract Test - Whether the contracts entered into by the foreign
corporation, or by an agent acting under the control and direction of the
foreign corporation, are consummated in the Philippines.

“Territoriality Test”

Actual transaction of business within the Philippine territory is an essential

requisite for the Philippines to acquire jurisdiction over a foreign corporation and
thus require the foreign corporation to secure a Philippine business license (B. Van
Zuiden Bros., Ltd. v. GTVL Manufacturing Industries, Inc., G.R. No. 147905, May 28,
2007).

37
Necessity of a license to do business
The purpose of the law in requiring that a foreign corporation doing business
in the Philippines be licensed to do so is to subject such corporation to the
jurisdiction of the courts. The object is not to prevent foreign corporation from
performing single acts but to prevent it from acquiring a domicile for the purpose
of business without taking steps necessary to render it amenable to suits in local
courts (Marshall-Wells Co. vs. Elser & Co, G. R. No. 22015, September 1, 1924).

Objectives of the statutory provisions prescribing regulation of foreign

corporations:
1. To place the foreign corporations under the jurisdiction of the court;

2. To place them in the same footing as domestic corporation; and

3. To protect the public in dealing with the said corporation.

A corporation engaged in exporting goods to the Philippines is not required to

obtain a license

If a foreign corporation does not transact such kind of business in the

Philippines, even if it exports its products to the Philippines, the Philippines has no
jurisdiction to require such foreign corporation to secure a Philippine business
license. Actual transaction of business within the Philippine territory is an essential
requisite for the Philippines to acquire jurisdiction over a foreign corporation and
thus require the foreign corporation to secure a Philippine business license (B. Van
Zuiden Bros., Ltd. v. GTVL Manufacturing Industries, Inc., G.R. No. 147905, May 28,
2007).

Requisites for issuance of a license

SEC. 142. Application for a License -

The foreign corporation must submit to SEC the following:
1. Copy of its articles of incorporation and by-laws, certified in accordance
with law and their translation to an official language of the Philippines, if
necessary;

2. The application, which shall be under oath unless already stated in its
articles of incorporation, shall specifically set forth the following:
(a) The date and term of incorporation;

38
 (b) The address, including the street number, of the principal office
of the corporation in the country or State of incorporation;

(c) The name and address of its resident agent authorized to accept
summons and process in all legal proceedings and all notices
affecting the corporation, pending the establishment of a local
office;
(d) The place in the Philippines where the corporation intends to
operate;
(e) The specific purpose or purposes which the corporation intends
to pursue in the transaction of its business in the Philippines: Provided,
That said purpose or purposes are those specifically stated in the
certificate of authority issued by the appropriate government
agency;
(f) The names and addresses of the present directors and officers of
the corporation;
(g) A statement of its authorized capital stock and the aggregate
number of shares which the corporation has authority to issue,
itemized by class, par value of shares, shares without par value, and
series, if any;
(h) A statement of its outstanding capital stock and the aggregate
number of shares which the corporation has issued, itemized by class,
par value of shares, shares without par value, and series, if any;

(i) A statement of the amount actually paid in; and

(j) Such additional information as may be necessary or appropriate
in order to enable the Commission to determine whether such
corporation is entitled to a license to transact business in the
Philippines, and to determine and assess the fees payable.

3. Attached to the application for license shall be a duly executed

certificate under oath by the authorized official or officials of the jurisdiction
of its incorporation, attesting to the fact that:
a. The laws of the country or state of the applicant allow Filipino
citizens and corporations to do business therein.

b. The applicant is an existing corporation in good standing.

39
 c. If such certificate is in a foreign language, a translation thereof in
English under oath of the translator shall be attached thereto.

4. Statement under oath by the President or other person authorized by the

Corporation showing to the satisfaction of the SEC and other governmental
agency in the proper cases that the:
a. applicant is solvent and in sound financial condition
b. the assets and liabilities of the corporation as of the date not
exceeding one (1) year immediately prior to the filing of the
application.
5. An agreement or stipulation stating the designated resident agent who
will receive summons and other legal processes for the corporation
together with a Special Power of Attorney;

6. An agreement that if it ceases to transact business or if there is no more

resident agent, summons shall then be served through SEC; and
7. Deposit securities for the benefit of present and future creditors, within 60
days after the issuance of license.

Resident agent
SEC. 144. Who May be a Resident Agent. –
1. An individual, who must be of good moral character and of sound
financial standing, residing in the Philippines; or
2. A domestic corporation lawfully transacting business in the Philippines.

Provided, further, That in case of a domestic corporation who will act as a resident
agent, it must likewise be of sound financial standing and must show proof that it
is in good standing as certified by the Commission.

Purpose of appointing a resident agent

The appointment of a resident agent is required for the purpose of accepting and
receiving, on behalf of the foreign corporation:
1. Notice affecting the corporation pending the establishment of its local
office and

40
 2. Summons and other legal processes in all proceedings for or against the
corporation.

Effect of service of summons and notices to the resident agent

Service upon any agent of a foreign corporation, whether or not engaged

in business in the Philippines, constitutes personal service upon the corporation
(CC, Sec. 128; Facilities Management Corp. v. Dela Rosa, G.R. No. L-38649, March
26, 1979).
As a condition to the issuance of the license for a foreign corporation to
transact business in the Philippines, such corporation shall file with the Commission
a written power of attorney designating a person who must be a resident of the
Philippines, on whom summons and other legal processes may be served in all
actions or other legal proceedings against such corporation, and consenting that
service upon such resident agent shall be admitted and held as valid as if served
upon the duly authorized officers of the foreign corporation at its home office.
(RCC, Sec. 145)

Resident agent cannot sign the certificate of non-forum shopping

While a resident agent may be aware of the actions filed against the
principal, he may not be aware of the actions initiated by the principal, therefore
he cannot sign the certificate of non-forum shopping that is a requirement for
filing of an initiatory pleading in court (Expert Travel & Tours Inc. v. CA, G.R. No.
152392, May 26, 2005).

Replacement of a resident agent

Securities and Exchange Commission requires the submission of:

1. A duly authenticated copy of board resolution or a certification from the
authorized officer of the company formally revoking his appointment as a
resident agent of the corporation; and
2. Accompanied by a duly authenticated written power of attorney
designating the substitute or the new resident agent.
The appointment of a resident agent of a foreign corporation is revocable at any
time at the instance of the corporation (SEC Opinion, Sept. 4, 1990).

41
Duty of the resident agent in case it changes its address

Sec. 145. Resident Agent; Service of Process –

… It shall be the duty of the resident agent to immediately notify the
Commission in writing of any change in the resident agent’s address.

Instances when service of summons or other legal processes made upon the
Securities and Exchange Commission instead of a resident agent

1. If a foreign corporation, previously granted a license, ceases to transact

business in the Philippines.
2. A foreign corporation without any resident agent in the Philippines on
whom any summons or other legal processes may be served (CC, Sec. 128).

Effect of service made upon the Securities and Exchange Commission

Such service made upon the SEC shall have the same force and effect as
if made upon the duly authorized officers of the corporation at its home office
(CC, Sec. 128).
Whenever such service shall be made upon the SEC, it must, within 10 days
thereafter, transmit by mail a copy of such summons or other legal process to the
corporation at its home or principal office. The sending of such copy by the
Commission shall be a necessary part of and shall complete such service.

Doctrine of Estoppel

In Merrill Lynch Futures, Inc. v. Court of Appeals, through a domestic

corporation, was found to be engaging in business (commodity futures) in the
Philippines without obtaining the proper license. It brought a suit in Philippine
courts to enforce a claim against local investors. Although the Court found the
foreign corporation to have engaged in business in the Philippines without the
requisite license, it overturned the dismissal of the suit, on the ground that if the
local investors knew that the foreign corporation had no license to do business in
the Philippines, then they are estopped from using the lack of license to avoid
their obligations, thus—
“The rule is that a party is estopped to challenge the personality of a
corporation after having acknowledged the same by entering into a
contract with it. And the "doctrine of estoppel to deny corporate existence
applies to foreign as well as to domestic corporations;" “one who has dealt

42
 with a corporation of foreign origin as corporate entity is estopped to deny
its corporate existence and capacity." The principle "will be applied to
prevent a person contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes, chiefly in cases where
such person has received the benefits of the contract . . .”

The ruling in Merrill Lynch Futures, Inc. v. Court of Appeals was reiterated in
the case of Communication Materials and Design, Inc. v. Court of Appeals which
effectively revoked a previous doctrine of pari delicto used by the court.

Personality to sue

General rule: Only foreign corporations that have been issued a license to
operate a business in the Philippines have the personality to sue (CC, Sec.133).
No foreign corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of the
Philippines; but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws. (RCC, Sec. 150)
Exception: Under the rule on estoppel, a party is estopped to challenge the
personality of a foreign corporation to sue, even if it has no license, after having
acknowledged the same by entering to a contract with it.
One who has dealt with a corporation of foreign origin as a corporate entity
is estopped to deny its corporate existence.

A foreign corporation which is not licensed to do business in the Philippines is not

absolutely incapacitated from filing a suit in local courts
Only when that foreign corporation is “transacting” or “doing business” in
the country will a license be necessary before it can institute suits. It may, however,
bring suits on isolated business transactions, which is not prohibited under
Philippine law. Thus, a foreign insurance company may sue in Philippine courts
upon the marine insurance policies issued by it abroad to cover international-
bound cargoes shipped by a Philippine carrier, even if it has no license to do
business in this country. It is the act of engaging in business without the prescribed
license which bars a foreign corporation from access to our courts (Aboitiz
Shipping Corp. vs. Insurance Co. of NA, G.R. No. 168402, August 6, 2008, in Divina,
2010).

43
 The obtainment of a license prescribed by the Corporation Code is not a
condition precedent to the maintenance of any kind of action in Philippine courts
by a foreign corporation. However, no foreign corporation shall be permitted to
transact business in the Philippines, as this phrase is understood under the
Corporation Code, unless it shall have the license required by law, and until it
complies with the law in transacting business here, it shall not be permitted to
maintain any suit in local courts. As thus interpreted, any foreign corporation not
doing business in the Philippines may maintain an action in our courts upon any
cause of action, provided that the subject matter and the defendant are within
the jurisdiction of the court. It is not the absence of the prescribed license but
"doing business" in the Philippines without such license which debars the foreign
corporation from access to our courts. In other words, although a foreign
corporation is without license to transact business in the Philippines, it does not
follow that it has no capacity to bring an action. Such license is not necessary if it
is not engaged in business in the Philippines (Columbia Pictures v. CA, G.R. No.
110318, August 28, 1996).
A foreign corporation, although not licensed to do business in the
Philippines, may seek recognition and enforcement of the foreign arbitral award
in accordance with the provisions of the Alternative Dispute Resolution Act of
2004. A foreign corporation‘s capacity to sue in the Philippines is not material
insofar as the recognition and enforcement of a foreign arbitral award is
concerned (Tuna Processing Inc., v. Philippine Kingford Inc., G.R. No. 185582,
February 29, 2012).

Suability of Foreign Corporations

A foreign corporation, which was granted a license to transact business in

the Philippines, is suable before local courts or administrative agencies. It is suable
since any foreign corporation lawfully doing business in the Philippines shall be
bound by all laws, rules and regulations applicable to domestic corporations of
the same class.

Exception:
1. Such only as provided for the creation, formation, organization or
dissolution of the corporations; or
2. Those which fix the relations, liabilities, responsibilities, or duties of
stockholders, members or officers of corporations to each other or to the
corporation (CC, Sec. 129). (RCC, Sec. 146)

44
 Matters relating to the organization or internal affairs of the corporation are
governed by the laws of the home or incorporating State unless they offend any
public policy of the Philippines.
A foreign corporation doing business in the Philippines without license may
be sued in the country.
While an unlicensed foreign corporation doing business in the country
cannot maintain any action, said corporation can be sued in the country, under
the doctrine of quasi-estoppel by acceptance of benefits. It shall not be allowed
to invoke its lack of license to impugn the jurisdiction of the courts (Marubeni
Nedeland BV v. Tensuan, G.R. No. 61950, September 28, 1990; SEC Opinion, Jan.
10, 1995).

Instances when unlicensed Foreign Corporations may be allowed to sue –

Isolated Transactions
1. Isolated transactions.
2. A license subsequently granted enables the foreign corporation to sue on
contracts executed before the grant of the license.
3. In an action for infringement of patent or other intellectual property rights,
provided that the country of the foreign corporation is a party to the Paris
Convention.
4. If the foreign corporation is co-plaintiff with a domestic corporation and the
domestic corporation is the one who instituted the suit in the Philippines; -or
5. By reason of the doctrine of estoppel.

Isolated transaction

The doctrine is that for isolated transactions, foreign corporation are not
required to obtain a license in order to obtain relief from local courts or agencies.
In one case, the Court held that the phrase "isolated transaction" has a definite
and fixed meaning, i.e., "a transaction or series of transactions set apart from the
common business of a foreign enterprise in the sense that there is no intention to
engage in a progressive pursuit of the purpose and object of the business
organization."
The Court has not construed the term “isolated transaction” to literally
mean “one” or a mere single act. The phrase “isolated transaction” has a definite
and fixed meaning, i.e., a transaction or series of transaction set apart from the
common business of a foreign enterprise in the sense that there is no intention to
engage in progressive pursuit of the purpose and object of the business

45
organization (Lorenzo Shipping Corp., v. Chubb and Sons, G.R. No. 147724, June
8, 2004).

In Antam Consolidated, Inc. v. Court of Appeals, The Court found that from
the facts alone it could be deduced that there was only one agreement between
the petitioners and the respondent and that was the delivery by the former of 500
long tons of crude coconut oil to the latter, who in turn, must pay the
corresponding price for the same. The only reason why the respondent entered
into the second and third transactions with the petitioners was because it wanted
to recover the loss it sustained from the failure of the petitioners to deliver the
crude coconut oil under the first transaction and in order to give the latter a
chance to make good on their obligation. The Court discussed the policy behind
the rule:
“The doctrine of lack of capacity to sue based on failure to first acquire a
local license is based on consideration of sound public policy. It was never
intended to favor domestic corporations who enter into solitary
transactions with unwary foreign firms and then repudiate their obligations
simply because the latter are not licensed to do business in this country.”

46
Sec. 129. Law applicable. — Any foreign corporation lawfully doing business in the
Philippines shall be bound by all laws, rules and regulations applicable to domestic
corporations of the same class, save and except such only as provide for the creation,
formation, organization or dissolution of corporations or such as fix the relations,
liabilities, responsibilities, or duties of stockholders, members or officers of
corporations to each other or to the corporation. (73a)

Laws applicable to foreign corporations.

(1) Philippine laws. — A foreign corporation licensed to do business in the Philippines

is subject to the laws of the Philippines.

(2) Laws of state of creation. — But matters relative to:

(a) the creation, formation, organization, or dissolution of corporations; and

(b) the relations, liabilities, responsibilities, or duties of members, stockholders, or
officers of corporations to each other or to the corporation, are governed by the laws
of the State of its creation.

In other words, matters relating to the organization or internal affairs of the

corporation are governed by the laws of the home or incorporating State unless they
offend any public policy of the
Philippines.

(3) Proof of foreign laws. - It is well-settled that foreign laws do not prove themselves
in our jurisdiction and our courts are not authorized to take judicial notice of them.
Like any other fact, they must be alleged and proved; otherwise, that will be
presumed to be the same as those of the Philippines. (Collector of Internal Revenue
vs. Fisher, 1 SCRA 93 [1961].)

LAWS GOVERNING FOREIGN CORPORATIONS

47
 General rule: Any foreign corporation lawfully doing business in the Philippines
shall be bound by all laws, rules and regulations applicable to domestic corporations
of the same class.

Exceptions:

1. Laws which provide for the creation, formation, organization or dissolution of

corporations;
or
2. Laws which fix the relations, liabilities, responsibilities, or duties of stockholders,
members or officers of a corporation to each other or to the corporation.

Intra-corporate or internal matters not affecting creditors or the public in general are
governed not by Philippine laws but the law under which the foreign corporation was
formed or organized.

Special laws may provide or grant certain restrictions, limitations, privileges or

incentives to a foreign corporation not otherwise applicable or granted to domestic
corporations (e.g. import duties and tax incentives under the Omnibus Investments
Code).

A foreign corporation authorized to transact business in the Philippines which

amends its articles of incorporation or by-laws must file a copy of such amended
articles of incorporation or by-laws with the SEC or the appropriate government
agency within 60 days from the effectivity of such amendment.

Instances when a foreign corporation authorized to transact business in the

Philippines must obtain an amended license:

1. The foreign corporation changes its corporate name; or

48
2. The foreign corporation desires to pursue other or additional purposes in the
Philippines.

Sec. 130. Amendments to articles of incorporation orby-laws of foreign corporations.

— Whenever the articles of incorporation or the by-laws of a foreign corporation
authorized to transact business in the Philippines are amended, such foreign
corporation shall, within sixty (60) days after such amendment becomes effective, file
with the Securities and Exchange Commission, and in the proper cases with the
appropriate government agency, a duly authenticated copy of the articles of
incorporation or by-laws, as amended, indicating clearly in capital letters or by
underscoring the change or changes made, duly certified by the authorized official or
officials of the country or State of incorporation. The filing thereof shall not of itself
enlarge or alter the purpose or purposes for which such corporation is authorized to
transact business in the Philippines, (n)

Amendment of articles of incorporation and by-laws.

(1) Effectivity. — The amendments to the articles of incorporation or the by-laws of a

foreign corporation licensed to transact business in the Philippines may become
effective even before they are filed with the Securities and Exchange Commission,
and in the proper cases, with the appropriate government agency. (Sec. 130.) With
respect to domestic corporations, the amendment to the articles of incorporation shall
take effect only upon its approval by the Securities and Exchange Commission. (Sec.
16, last par.)

(2) Need for amended license. — The filing of the amended articles of incorporation
or by-laws by the foreign corporation, however, does not of itself enlarge or alter the
purpose or purposes for which it is authorized to transact business in the Philippines.
(Sec. 130.)

(a) The foreign corporation must first obtain an amended license showing the other
or additional purposes which it intends to pursue in the transaction of its business in
the
Philippines (Sees. 131, 125[5].); otherwise, its license shall be subject to revocation by
the Commission, (see Sec. 134[7].)

49
(b) But an isolated or incidental transaction by a foreign corporation outside its
corporate franchise does not constitute engaging in that line of business which would
require the filing of an amended license.

Sec. 131. Amended license. — A foreign corporation authorized to transact business

in the Philippines shall obtain an amended license in the event it changes its
corporate name, or desires to pursue in the Philippines other or additional purposes,
by submitting an application therefor to the Securities and Exchange Commission,
favorably endorsed by the appropriate government agency in the proper cases, (n)

When amended license required.

Section 131 requires a foreign corporation authorized to transact business in the

Philippines to obtain an amended license in case:

(1) it changes its corporate name; or

- the amendment is necessary because the foreign corporation is authorized to do

business under its original corporate name as stated in its articles of incorporation
(see Sec. 125, par. 1.) and not in its new name

(2) it desires to pursue in the Philippines other or additional purposes.

- only "for the purpose or purposes specified in such license." (Ibid., [5];
Sec. 126, par. 1.) and not for the "other or additional purpose."

The application for an amended license must be submitted to the Securities and
Exchange Commission favorably endorsed by the appropriate government agency in
the proper cases.

50
A foreign corporation that fails to comply with Section 131 and conducts business
operations in the Philippines may not intervene in any action before any court or
administrative agency here but such corporation may be sued. (Sec. 133.)

Sec. 132. Merger or consolidation involving a foreign corporation licensed in the

Philippines. — One or more foreign corporations authorized to transact business in
the Philippines may merge or consolidate with any domestic corporation or
corporations if such is permitted under Philippine laws and by the law of its
incorporation: Provided, That the requirements on merger or consolidation as
provided in this Code are followed.

Whenever a foreign corporation authorized to transact business in the Philippines

shall be a party to a merger or consolidation in its home country or state as permitted
by the law of its incorporation, such foreign corporation shall, within sixty (60) days
after such merger or consolidation becomes effective, file with the Securities and
Exchange Commission, and in proper cases with the appropriate government agency,
a copy of the articles of merger or consolidation duly authenticated by the proper
official or officials of the country or state under the laws of which such merger or
consolidation was effected: Provided, however, That if the absorbed corporation is the
foreign corpo-
ration doing business in the Philippines, the latter shall at the same time file a
petition for withdrawal of its license in accordance with this Title, (n)

Requirements in a merger or consolidation of a foreign corporation licensed in the

Philippines:

With a domestic corporation:

Such must be permitted under Philippines laws and by the law of its incorporation;
and
The requirements on merger or consolidation provided by the Code must be followed.

With a foreign corporation:

51
Such must be permitted by the law of its incorporation;
A duly authenticated articles of merger or consolidation must be filed with the SEC
or the appropriate government agency within 60 days from the effectivity of the
merger or consolidation; and
If the absorbed corporation is the foreign corporation doing business in the
Philippines, a petition for withdrawal of its license must also be filed.

Requirements and procedure for the withdrawal of foreign corporations:

1. Filing of a petition for withdrawal of license;

2. All claims which have accrued in the Philippines have been paid, compromised or
settled;
3. All taxes, imposts, assessments and penalties, if any, lawfully due to the Philippine
Government or any of its agencies or political subdivisions have been paid;
4. Publication of the petition for withdrawal once a week for 3 consecutive weeks in a
newspaper of general circulation in the Philippines; and
5. Issuance of the certificate of withdrawal by the SEC.

Sec. 134. Revocation of license. —Without prejudice to other grounds provided by

special laws, the license of a foreign corporation to transact business in the
Philippines
may be revoked or suspended by the Securities and Exchange Commission upon any
of the following grounds:

Grounds for the revocation or suspension of license:

1. Failure to file its annual report or pay any fees as required by the Code;
2. Failure to appoint and maintain a resident agent in the Philippines;
3. Failure, after change of its resident agent or of his address, to submit to the SEC a
statement of such change;

52
4. Failure to submit to the SEC an authenticated copy of any amendment to its
articles of incorporation or by-laws or of any articles of merger or consolidation within
the time prescribed by the Code;
5. Misrepresentation of any material matter in any application, report, affidavit or
other document submitted;
6. Failure to pay any and all taxes, imposts, assessments or penalties, if any, lawfully
due to the Philippine Government or any of its agencies or political subdivisions;
7. Transacting business in the Philippines outside of the purpose or purposes for
which such corporation is authorized under its license;
8. Transacting business in the Philippines as agent of or acting for and in behalf of
any foreign corporation or entity not duly licensed to do business in the Philippines;
or
9. Any other ground as would render it unfit to transact business in the Philippines.

Other grounds for revocation of license under special laws:

1. General Banking Act – imminent danger of insolvency;

2. Insurance Code – unsound condition, failure to comply with the provisions of law
or regulation obligatory upon it, a condition or method of business hazardous to the
public or its policy holders, impairment of its security deposit, or deficiency in the
margin of solvency.

3. Omnibus Investments Code – willful violation of the provisions of existing laws and
implementing guidelines or violation of the terms and conditions of its license.

In case the revocation is warranted the SEC shall:

1. Issue a certificate of revocation;

2. Furnish a copy thereof to the appropriate government agency; and

53
3. Mail a notice of such revocation accompanied by a copy of the certificate of
revocation to the corporation at its registered office in the Philippines

54