LAW ON CORPORATIONS

AMENDMENTS introduced by Republic Act No. 11232 or the Revised Corporation Code (RCC) are provided for in boxes under
provisions to which they relate.

DEFINITION: A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties
expressly authorized by law or incident to its existence.

ATTRIBUTES:
1. ARTIFICIAL BEING – it has a juridical personality, separate and distinct from the persons composing it.

CORPORATE ENTITY THEORY

As a legal entity, the corporation is possessed with a juridical personality separate and distinct from the individual stockholders or members and is
not affected by the personal rights, obligations or transactions of the latter. The properties it possesses belongs to it exclusively as a separate
juridical entity such that the personal creditors of its stockholders or members cannot attach corporate properties to satisfy their claims.

On the other hand, the corporation is not likewise liable for the debts, obligations or liabilities of its stockholders. Neither may it properties be made
answerable to satisfy the claim of creditors against its stockholders or member even if the stockholder concerned is its president.

PIERCING THE VEIL OF CORPORATE ENTITY: The applicability of the corporate entity theory is confined to legitimate transactions and is
subject to equitable limitations to prevent its being used as a cloak or cover for fraud or illegality, or to work injustice.

When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, defend crime, the law will regard the corporation
as a mere association of persons, or in the case of two corporations, merge them into one, the one being merely regarded as part or
instrumentality of the other. The same is true where a corporation is a mere dummy and serves no business purpose and is intended only as a
blind, or an alter-ego or business conduit for the sole benefit of the stockholders.

In cases where the doctrine of piercing the veil of corporate fiction, the concept of a separate juridical personality shall be set aside.

2. CREATED BY OPERATION OF LAW – the formal requirement of the State’s consent through compliance with the requirements imposed by law is
necessary for its creation such that the mere agreement of the persons composing it or intending to organize it does not warrant the grant of its
independent existence as a juridical entity;

COMMENCEMENT OF CORPORATE EXISTENCE: is at the time of the issuance of the Certificate of Incorporation or Registration. It is only from
this time that it acquires juridical personality and legal existence, EXCEPT: a. Corporations by Estoppel;
b. Those created by special laws;
c. Corporation Sole – which is reckoned from the filing of verified articles.

COMMENCEMENT OF BUSINESS: Once the certificate of incorporation has been issued, the corporation MUST formally organize and commence
its business.

Non-Use of Corporation Charter: the failure of the corporation to organize within 2 years would result in it automatic dissolution,
unless, of course, its failure to do so is due to causes beyond its control.

AMENDMENT: The period for the automatic revocation of the corporate charter has been increase from 2 to 5 years in case of failure to
organize.

Formal Organization: refers to the process of structuring the corporation to enable it to effectively pursue the purpose for which it was organized.
It includes:
a. Organizational meeting of the stockholders to elect the BOD;
b. Adoption of by-laws, if not simultaneously filed with the AOI, and its subsequent filing with the SEC which must be within 1 month from the
issuance of the certificate of incorporation;

AMENDMENT: Section 45 (amending Section 46) of the RCC removed the one-month (from receipt of the notice of issuance of the
certificate of incorporation) requirement to submit the by-laws.

c. Organizational meeting of the BOD to elect the corporate officers, adoption of corporate seal, accepting pre-incorporation subscriptions,
establishing the principal office and such other steps necessary to transact the legitimate business for which the corporation was formed.

Strict compliance is not required. Substantial compliance therewith is sufficient. Thus, it has been held in the case of Perez vs. Balmacaan
that a corporation is deemed to have formally organized if it had a governing board which direct its affairs, as well as a treasurer and a clerk,
and that through these instrumentalities, it actually functioned and engaged in the business for which it was organized. It cannot be held to
have forfeited its charter simply because it has not been shown that is also had a president and a secretary.

Commencement of Business Operations: when the corporation has actually functioned and engaged in business for which it was organized
which must be done within two years from the issuance of the certificate of incorporation lest it is deemed dissolved. This may
take the form of entering into contracts which tend to pursue its business undertaking or other acts related thereto.
 Continuous non-operation: If a corporation has commenced its business but subsequently becomes inoperative continuously for a
period of at least 5 years, the same shall be merely a ground for suspension or revocation of its corporate franchise or
certificate of registration.

AMENDMENTS: In case of continuous non-operation for 5 years, it is no longer considered a ground for revocation, at least not
immediately. In such case, the SEC may, after due hearing and notice, place the corporation under delinquent status and allow the
corporation to resume operations within 2 years upon compliance with the requirements of the SEC; where upon compliance, the SEC
shall issue an order lifting the delinquent status.

In case of non-compliance, with the requirements and to resume operations, only then will the SEC cause the revocation of the
corporation’s certificate of incorporation.

Notably, the Section 21 no longer includes the exception that the provision on failure to commence and continuous non-operation shall
not apply if the failure to organize, commence the transaction of its businesses or the construction of its works, or to continuously operate
is due to causes beyond the control of the corporation as may be determined by the SEC.

3. RIGHT OF SUCCESSION – unlike in a partnership, the death, incapacity or civil interdiction of one or more of its stockholder does not result in its
dissolution; this is otherwise referred to as the corporation’s “strong” juridical personality.

4. POWERS, ATTRIBUTES AND PROPERTIES EXPRESSLY AUTDHORIZED BY LAW – it can exercise only such powers and can hold only such
properties as are granted to it by the enabling statutes unlike natural persons who can do anything as they please.

Powers of a corporation:
a. Express Powers – those expressly authorized by the Corporation Code and other laws, and its Articles of Incorporation.
b. Implied Powers – Those that can be inferred from or necessary for the exercise of EXPRESS powers;
c. Incidental Powers – those that are incidental to the existence of the corporation.

under the Corporation Code, a Corporation has power and capacity:

a. To sue and be sued in its corporate name;
b. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation; c.
To adopt and use a corporate seal;
d. To amend its articles of incorporation in accordance with the provisions of this Code;
e. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in accordance with this Code;
f. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to subscribers and to sell treasury stocks in accordance
with the provisions of this Code; and to admit members to the corporation if it be a non-stock corporation;
g. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property,
including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed by law and the Constitution;
h. To enter into merger or consolidation with other corporations as provided in this Code;
i. To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes:
Provided, that no corporation, domestic or foreign, shall give donations in aid of any political party or candidate or for purposes of partisan
political activity;

AMENDMENT: A domestic corporation can now give donations in aid of any political party or candidate or for purposes of partisan
political activity since under par. (i), the word “domestic” in corporations prohibited from making such donations has already been
removed limiting the prohibition to foreign corporations only.

(1) To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees; and
(2) Implied Powers: To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the
articles of incorporation.

AMENDMENT: Section 35 (formerly Section 36) par. (h) now expressly authorizes a corporation to enter into a partnership and joint
venture.

ULTRA VIRES ACTS are those which cannot be executed or performed by a corporation because they are not within its express, inherent, or
implied powers as defined by its charter or AOI. Accordingly, it may be subject to a collateral attack questioning the authority of the corporation to
engage in such particular endeavor.

CLASSES OF CORPORATIONS:

STOCK CORPORATIONS Corporations 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 are stock
corporations.
NON-STOCK CORPORATIONS Corporations which are not authorized to distribute surplus profits.
DOMESTIC CORPORATION are those organized or created under or by virtue of the Philippine laws, either by legislative act or under the
provisions of the General Corporation Law.
FOREIGN CORPORATION are those formed, organized or existing under any laws other than those of the Philippines
CLOSE CORPORATIONS are those whose shares of stock are held by a limited number of persons like the family or other closely-knit
 group. There are no public investors and the shareholders are active in the conduct of the corporate affairs.
OPEN CORPORATIONS are those formed to openly accept outsiders as stockholders or investors. They are authorized and
empowered to list in the stock exchange and to offer their shares to the public such that stock ownership
can widely be dispersed. In which case, they are called PUBLICLY-LISTED CORPORATIONS.
CORPORATION BY ESTOPPEL A group of persons which holds itself out as a corporation and enters into a contract with third persons on the
strength of such appearance cannot be permitted to deny its existence in an action under the said contract.
DE JURE CORPORATION A corporation organized in accordance with the requirements of law
DE FACTO CORPORATION A corporation where there exists a flaw in its incorporation. The requisites: a.
There exists a valid law under which it may be incorporated;
b. An attempt in good faith to incorporate;
c. Use of corporate powers.
PRIVATE CORPORATIONS those formed for some private purpose, benefit, aim or end. They are created for the immediate benefit and
advantage of the individuals or members composing it and their franchise may be considered as privileges
conferred by the State to be exercised and enjoyed by them in the form of the corporation.
PUBLIC CORPORATIONS those formed or organized for the government of a portion of the State or any of its political subdivisions and
which have for their purpose the general good and welfare.
ECCLESIASTICAL are composed exclusively of ecclesiastics organized for spiritual purposes or for administering properties held
CORPORATIONS for religious ones. They are organized to secure public worship or perpetuating the right of a particular
religion.
LAY CORPORATIONS are those organized for purposes other than religion. They may further be classified as:
a. ELEEMOSYNARY: created for charitable and benevolent purposes such as those organized for the
purpose of maintaining hospitals and houses for the sick, aged or poor.
b. CIVIL: organized not for the purpose of public charity but for the benefit, pecuniary or otherwise,
of its members.
AGGREGATE CORPORATIONS are those composed of a number of individuals vested with corporate powers.
CORPORATION SOLE those consist of one person or individual only and who are made as bodies corporate and politic in order to
give them some legal capacity and advantage which, as natural persons, they cannot have. Under the Code,
a corporation sole may be formed by the chief archbishop, bishop, priest, minister, rabbi, or other presiding
elder or religious denominations, sects or churches.

ORGANIZATION AND INCORPORATION

1. PROMOTIONAL STAGE: undertaken by the organizers or promoters who bring together persons interested in the business venture. They enter
into contract either in their own names or in the name of the proposed corporation.

A promoter, although he may assume to act for and on behalf of a projected corporation and not for himself, will be held personally liable on
contracts made by him for the benefit of a corporation he intends to organize. The personal liability continues even after the formation of the
corporation unless there is novation or other agreement to release him from liability.

2. PROCESS OF INCORPORATION: includes the drafting of the Articles of Incorporation, preparation and submission of additional and supporting
documents, filing with the SEC, and the subsequent issuance of the Certificate of Incorporation.

Contents of the Articles of Incorporation:

a. The name of the corporation;

The name of the corporation is essential to its existence since it is through it that it can act and perform all legal acts. Each corporation should
therefore, have a name by which it is to sue and be sued and do all legal acts.

A corporation, once formed, cannot use any other name, unless its Articles of Incorporation has been amended in accordance with law as this
would result in confusion and may open the door to fraud and evasion as well as difficulties of administration and supervision.

Thus, the organizers must make sure that the name they intend to use as a corporate name is not similar or confusingly similar to any
other name already registered and protected by law since the SEC would refuse registration if such be the case.

AMENDMENTS: The requirement with regards the registration of corporate name now specifically includes those which are “already
reserved for the use of another corporation”, and indicated that a corporate name is NOT DISTINGUISHABLE EVEN IF it contains one or
more of the following:
1. The word “corporation”, “company”, “incorporated”, “limited”, “limited liability”, or an abbreviation of one of such words; and
2. Punctuations, articles, conjunctions, contractions, prepositions, abbreviations, different tenses, spacing, or number of the same word or
phrase.

The same provision likewise granted the following powers to the SEC:
1. Authority to summarily order the corporation to immediately cease and desist from using such name and require the corporation to
register a new one whenever its name is:
a. not distinguishable from a name already reserved or registered for the use of another corporation; b.
already protected by law; or
c. contrary to law, rules and regulations.
 2. Cause the removal of all visible signages, marks, advertisements, labels, prints and other effects bearing such corporate name; and
3. Hold the corporation and its responsible directors or officers in contempt and/or hold them administratively, civilly and/or
criminally liable and/or revoke the registration of the corporation if the corporation fails to comply with the Commission’s order.

Prior checking of availability of name: It is now included under Section 18 that “[a] person or group of persons desiring to
incorporate shall submit the intended corporate name to the Commission for verification.” Once allowed, only then will the
Corporation submit its Articles of Incorporation.

b. The specific purpose or purposes for which the corporation is being incorporated. Where a corporation has more than one
stated purpose, the articles of incorporation shall state which is the primary purpose and which is/are the secondary purpose
or purposes: Provided, that a non-stock corporation may not include a purpose which would change or contradict its nature
as such;

The statement of the objects or purpose or powers in the charter results practically in defining the scope of authority of the corporate
enterprise or undertaking. This statement both congers and also limits the actual authority of the corporate representatives.

The reasons for requiring a statement of the purposes or objects:

1. In order that the stockholder who contemplates on an investment in a business enterprise shall know within what lines of business his
money is to be put at risks;
2. So that the board of directors and management may know within what lines of business they are authorized to act; and
3. So that anyone who deals with the company may ascertain whether a contract or transaction into which he contemplates entering is
one within the general authority of the management.

SECONDARY PURPOSE: Although the Corporation Code does not restrict nor limit the number of purpose or purposes which a corporation
may have, Sec. 14 thereof, requires that if it has more than one purpose, the primary purpose as well as the secondary ones must be
indicated therein.

PROHIBITION: The following are prohibited by special laws for having any other purpose not peculiar to them:
1. Educational, religious, and other non-stock corporations cannot include any other purpose which would change or contradict its nature or
to engage in any enterprise to make profits for is members;
2. Insurance companies cannot engage in commercial banking at the same time, and vice-versa; and
3. Stock brokers can have no other line of business not peculiar to them.

RESTRICTIONS AND/OR ADDITIONAL REQUIREMENTS :

1. As a general rule, the purpose or purposes must be lawful. Hence, the SEC is duty bound to determine the legality of the corporate
purpose/s before it issues the certificate of registration;
2. A corporation may not be formed for the purpose of practicing a profession like law, medicine or accountancy, either directly or
indirectly. These are reserved exclusively for professional partnerships;
3. The retail trade, where the corporate capital is less than $2.5M, or its peso equivalent are reserved exclusively for Filipinos, or for
corporations or partnerships wholly owned by such citizen.
4. As a general rule, corporations with foreign equity are not allowed to engage in restaurant business but corporations with such foreign
equity can purse such undertaking if it is incidental or in connection with hotel or inn-keeping business.
5. Management consultants, advisers and/or specialists, must submit the personal information sheet of the incorporators and directors in
order that the SEC may be able to find out or determine whether or not the applicant corporation is qualified to act as such.
6. As a matter of policy, financing companies are required by the SEC to submit certain additional documents together with their
applications for registration to verify compliance with RA 8556.
7. For bonded warehousing companies, an undertaking to comply with the General Bonded Warehousing Act must be submitted along with
the AOI.
8. In case the applicant proposes to engage in the business of hospital and/or clinic, the purpose clause must contain the following proviso:
“Provided that purely medical or surgical services in connection therewith shall be performed by duly qualified physician and surgeon who
may or may not be freely and individually contracted by the parties.”
9. In the case of Customs Brokerage business, the applicant must submit the license of at least two customs brokers connected with the
applicant corporation;
10. Transfer Agents, Broker and Clearing Houses must submit the certificate of admission to the profession of the CPA of any officer of the
corporation;
11. Carriage of mails cannot be a purpose of a corporation unless a special franchise has been granted to it.
12. If the corporate purpose or objective includes any purpose under the supervision of another government agency, prior clearance and/or
approval of the concerned government agencies or instrumentalities will be required pursuant to the last paragraph of Sec. 17 of the
Code.

GENERAL LIMITATIONS:
1. The purpose or purposes must be lawful;
2. The purpose must be specific or stated concisely although in broad or general terms;
3. If there is more than one purpose, the primary as well as the secondary ones must be specified; and
4. The purposes must be capable of being lawfully combined

c. The place where the principal office of the corporation is to be located, which must be within the Philippines;
 It must be located within the Philippines. The AOI must not only specify the province, but also the City or Municipality where it is located. In
this regard, it is to be observed that the principal office may be in one place, but the business operations are actually conducted in other
areas. The law does not, of course, require a statement of the place of corporate operations and, therefore, may be dispensed with.

The principal office serves as the residence of the corporation and is thus important in: (1) venue of actions; (2) registration of chattel
mortgage of shares; (3) validity of meetings of stockholders or members in so far as venue thereof is concerned.

d. The term for which the corporation is to exist;

The corporate term is necessary in determining at what point in time the corporation will cease to exist or have lost its juridical personality.
Once it ceases to exist, its legal personality also expires and could not thereafter, act in its own name for the purpose of prosecuting it
business.

EXTENSION: can be made no earlier than 5 years prior to expiry date unless there are justifiable reasons.

AMENDMENTS:
Perpetual Existence: The Revised Corporation Code removed the limitation of 50 years for corporate existence, since under the
revised Sec. 11, “[a] corporation shall have perpetual existence unless its articles of incorporation provides otherwise.”

As to corporations already existing prior to the effectivity of the Code, and which continue to exist, they shall have perpetual
existence. Except if by majority vote of its stockholders, it notifies the SEC to retain its specific corporate term. The same section provides
that dissenting stockholders can exercise their appraisal right.

Extension: The same section also changed the period of extension of corporate term from 5 years to 3 years prior to expiration and
that such extension takes effect on the day following the original or subsequent expiry dates.

Revival: Also under Sec. 11, after the expiration of the corporate term, a corporation may file for revival of its corporate existence.
Upon approval by the Commission, the corporation shall be deemed revived and a certificate of revival of corporate existence shall be
issued, giving it perpetual existence, unless its application for revival provides otherwise

e. The names, nationalities and residences of the incorporators;

CORPORATORS apply to all who compose the corporation at any given time and need not be among those who executed the AOI at the
start of its formation or organization.

INCORPORATORS are those mentioned in the AOI as originally forming the corporation and who are signatories in the AOI.

An incorporator may be considered as a corporator as long as he continues to be a stockholder or a member, but not all corporators are
incorporators.

Number of Incorporators: not less than 5 but not more than 15.

Qualifications:
1. Must be natural persons.
2. Of Legal Age.
3. Must own or subscribe to at least 1 share.
4. Majority must be residents of the Philippines.

The law does not provide for citizenship requirements. EXCEPT: in certain areas of activity or industry wherein ownership of shares of
stock are reserved wholly or partially to Filipino citizens. Hence, all incorporators may be foreigners provided majority of them are
residents. Note that the requirement is residence and not citizenship

AMENDMENT: The following are the changes on the rules concerning incorporators of a corporation:
1. A partnership, association or corporation are now included in the enumeration of who may be incorporators, which used to have “natural
persons” only.
2. The minimum of 5 incorporators has been removed, it is now just indicated as not more than 15.
3. Inclusion of restriction for the following to organize a corporation:
a. Natural persons who are licensed to practice a profession and
b. Partnerships or associations organized to practice a profession

Unless otherwise provided under special laws.

It is also notable that the requirement that majority are residents of the Philippines and individuals must be of legal age are also not in the
amended provision. (Sec. 10, Revised Corporation Code)

Under the SEC Memorandum Circular No. 16-2019, implementing the amendment, the qualifications for incorporators, are now
accordingly revised as follows:
1. Number: 2 or more but not more than 15. Only a OPC may have a single stockholder and director.
2. Must own or subscribe to at least one share.
 3. May be composed of a combination of:
a. Natural Persons
b. SEC-registered partnership/s (EXCEPT: Partnerships under “Dissolved” or “Expired” status)
c. SEC-registered domestic corporations or association/s (EXCEPT: Corporations under “Delinquent, Suspended, or Revoked” status)
d. Foreign corporations.
4. Incorporators who are natural persons must be of legal age, and must sign the AOI/By-laws.

f. The number of directors or trustees, which shall not be less than five (5) nor more than fifteen (15);

DIRECTORS compose the governing board in stock corporations. TRUSTEES pertain to non-stock corporations.

There must be at least 5 but not more than 15 directors in a private corporation. EXCEPTIONS:
1. Educational corporations registered as non-stock corporations whose number of trustees, though not less than 5 and not more than 15
should be divisible by 5.
2. In close corporations where all stockholders are considered as members of the board of directors (Sec. 97) thereby effectively allowing
20 members in the board.

AMENDMENT: Section 22 of the RCC, the following corporations vested with public interest are shall have independent directors
constituting at least 20% of such board:
1. Corporations covered by the Securities Regulations Code;
2. Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business, pre-need, trust and insurance
companies, and other financial intermediaries; and
3. Other corporations engaged in business vested with public interest similar to the above, as may be determined by the SEC.

An independent director is a person who, apart from shareholdings and fees received from the corporation, is independent of management
and free from any business or other relationship which could, or could reasonably be perceived to materially interfere with the exercise of
independent judgment in carrying out the responsibilities as a director.

g. The names, nationalities and residences of persons who shall act as directors or trustees until the first regular directors or
trustees are duly elected and qualified in accordance with this Code;

h. If it be a stock corporation, the amount of its authorized capital stock in lawful money of the Philippines, the number of
shares into which it is divided, and in case the share are par value shares, the par value of each, the names, nationalities and
residences of the original subscribers, and the amount subscribed and paid by each on his subscription, and if some or all of
the shares are without par value, such fact must be stated;

The Corporation Code requires the AOI to state the authorized capital stock, the number of shares and/or kind of shares into which the
authorized capital is divided, the par value of each share, if there be any, the names, nationalities and residences of the original subscribers,
and the amount subscribed and paid by each. At least 25% of the authorized capital stock must be subscribed and at least 25% of the
subscribed capital must be paid and in no case may the paid-up capital be less than P5,000.

The 25% minimum paid-in capital can be paid by any shareholder, meaning that it is not particularly required that each subscriber pay 25% of
their subscription.

There are instances where the SEC, by virtue of an existing law, rules and regulations or policies, requires the payment of more than the
amount provided in the Code, such as Financing Companies where the required minimum paid-up capital be P10,000,000 (within Metro
Manila), P5,000,000 (other cities), and P2,000,000 (municipalities), HMOs which require P10M paid-up capital, Insurance Brokers which
require P20M.

AMENDMENTS: The requirement under the old Section 13 requiring that at least 25% of the Authorized Capital Stock be subscribed and
that at least 25% of the subscribed capital must be paid-up, has been removed.

Likewise, the provision in the AOI disclosing the 25%/25% subscribed/paid-up capital requirement has been removed. (but this
requirement still applies in case of increase of authorized capital stock under Section 37).

Moreover, the RCC now authorizes the filing of the AOI and applications for amendments thereto in the form of electronic document.

AUTHORIZED CAPITAL signifies the MAXIMUM amount fixed in the articles to be subscribed and paid-in or secured to be paid by the
subscribers. It may also refer to the maximum number of shares that a corporation can issue.

SUBSCRIBED CAPITAL STOCK is the total number of shares and its total value for which there are contracts for their acquisition or
subscription. It is in effect, the stockholder’s equity account showing that part of the authorized capital stock which has been paid or promised
to be paid, or that portion of the authorized capital stock which has been subscribed by the subscribers or stockholders.

PAID UP CAPITAL STOCK or paid-in capital is the actual amount or value which has been actually contributed or paid to the corporation
in consideration of the subscriptions made thereon.

Considerations for stocks:

1. Actual cash paid to the corporation;
 2. Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and lawful purposes at a fair
valuation equal to the par or issued value of the stock issued;
3. Labor performed for or services actually rendered to the corporation;
4. Previously incurred indebtedness of the corporation;
5. Amounts transferred from unrestricted retained earnings to stated capital; and
6. Outstanding shares exchanged for stocks in the event of reclassification or conversion.

AMENDMENT: Consideration for stocks under Section 61 (formerly Section 60) now includes:
1. Shares of stock in another corporation; and/or 2. Other generally accepted form of
consideration.

Note:
• Stocks cannot be issued for a consideration less than the par or issue price thereof.
• Promissory notes or future service cannot be considered valid consideration for stocks.

OUTSTANDING CAPITAL STOCK: total number of shares issued, including those which are subscribed and not yet fully paid, but
excluding treasury shares.

i. If it be a non-stock corporation, the amount of its capital, the names, nationalities and residences of the contributors and the
amount contributed by each; and

j. Such other matters as are not inconsistent with law and which the incorporators may deem necessary and convenient.

RESTRICTIONS AND PREFERENCES:

If the corporation desires to grant such options, restrictions and/or preferences, the same must be indicated in the AOI AND in all of the stock
certificates. Failure to provide the same in the AOI would not bind the purchasers in good faith despite the fact that the said restriction and/or
preference is indicated in the by-laws of the corporation.

In a close corporation, however, such restrictions and preferences must not only appear in the articles of incorporation and in the stock
certificates BUT ALSO be embodied in the by-laws of that close corporation otherwise it may not bind purchasers in good faith.

OTHER MATTERS TO BE INDICATED IN THE ARTICLES OF INCORPORATION:

1. The name of the Treasurer duly elected by the subscribers
2. No Transfer Clause: in case a corporation is required to maintain a required minimum Filipino ownership, committing that no transfer
shall be made which shall reduce the ownership of Filipino citizens to less than the required percentage.
3. The Execution Clause: which will contain the names and signatures of the incorporators
4. Treasurer’s Affidavit which contains the certification of the Treasurer, under oath, that the required 25% of the authorized capital stock
has been subscribed, 25% of the subscription has been paid, in an amount not less than P5,000.
5. Notarial Acknowledgment

GROUNDS FOR DISAPPORVAL BY THE SEC:

a. That the articles of incorporation or any amendment thereto is not substantially in accordance with the form prescribed herein;
b. That the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and
regulations;
c. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or paid if false;
d. That the percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by
existing laws or the Constitution.
e. That the required favorable recommendation from the appropriate government agency, for corporations governed by special laws, was not
obtained, e.g., Banks – BSP, Insurance Companies – Insurance Commission.

AMENDMENT: The following were specifically included as those who would be needing a favorable recommendation from the concerned
government agency:
1. Non-Stock Savings and Loans Associations; and
2. Pawnshops.

On the other hand, the following were removed from the enumeration of entities requiring favorable recommendations:
1. Educational Institutions; and
2. Other corporations governed by special laws.

AMENDMENT OF THE ARTICLES OF INCORORPATION, IN GENERAL WOULD REQUIRE:

a. Majority approval of the members of the Board;
b. Written assent of stockholders representing 2/3 of the outstanding stocks
c. Approval of the SEC. If the SEC did not act on the application within 6 months from the date of filing, the amended is deemed approved.

BOARD OF DIRECTORS

The Board of Directors (or trustees or other designation allowed under Sec. 138) is the supreme authority in matter of management of the regular and
ordinary business affairs of the corporation.
However, this authority does not extend to the fundamental changes in the corporate charter such as amendments or substantial changes thereof,
which belong to the stockholders as a whole.

Classification of powers of the board members/corporate officers: The general rule is that a corporation is bound by the acts of its
corporate officers who act within the scope of the 5 classifications of powers of corporate agents, which are:
1. Those expressly conferred or those granted by the articles of incorporation, corporate by-laws or by the official act of the board of directors;
2. Those that are incidental or those acts as are naturally and ordinarily done which are reasonable and necessary to carry out the corporate
purpose or purposes;
3. Those that are inherent or acts that go with the office;
4. Those that are apparent or those acts which although not actually granted, the principal knowingly allows or permits it to be done; and
5. Powers arising out of customs, usage or emergency

QUALIFICATIONS AND DISQUALIFICATIONS: The by-laws of a corporation may provide for additional qualifications and disqualifications of its
members of the board of directors or trustees. However, it may not do away with the minimum qualifications and disqualifications.

Qualifications of a Director/Trustee:
1. Must own at least 1 share in their own names or a member (in the case of trustees);
2. Majority must be resident of the Philippines. Even aliens may be elected as directors, provided that the majority of such directors are residents of the
Philippines. EXCEPT: in activities exclusively reserved to Filipino citizens like the management of educational institutions and those governed by the
Retail Trade Law

Disqualifications of a Director/Trustee:
1. Imprisonment for a period exceeding 6 years;
2. Violation of the Corporation Code within 5 years prior to the date of election or appointment;
3. Such other disqualifications that may be provided in the by-laws.

AMENDMENT: The list of disqualification of directors now includes:

1. Conviction by final judgment for violation of the Securities Regulations Code;
2. Found administratively liable for any offense involving fraud acts; and
3. By a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct similar to the disqualifications under the Code.

Under Section 26, the SEC and the Philippine Competition Commission may provide for qualifications or additional disqualifications.

ELECTION OF MEMBERS OF THE BOARD/TRUSTEES

1. Majority of the outstanding capital stock, whether in person or by written proxy must be present at the election of the directors; or majority of
members entitled to vote, in the case of a non-stock corporation. If the required quorum is not obtaining, the meeting may be adjourned;
2. On the request of any voting stockholder or member, the election may be held by ballot otherwise viva-voce would suffice.
3. The candidates receiving the highest number of votes shall be elected

AMENDMENT: Report Requirement: Section 25 of the RCC requires a report within 30 days to be submitted to the SEC in case of non-holding of
elections, which shall include a new date for the election, which shall not be later than 60 days from the scheduled date.

If no new date has been designated, or if the rescheduled election is likewise not held, the SEC may, upon the application of a stockholder, member,
director or trustee, summarily order that an election be held.

Should a director, trustee or officer die, resign or in any manner cease to hold office, the secretary, or the director, trustee or officer of the
corporation, or in case of death, the officer’s heirs shall, within seven (7) days from knowledge thereof, report in writing such fact to the SEC.

METHODS OF VOTING:
1. Straight Voting – every stockholder may vote such number of shares for as many persons as there are directors to be elected 2.
Cumulative Voting:
a. Cumulative voting gives the stockholder entitled to vote the right to give a candidate as many votes as the number of directors to be elected
multiplied by the number of his shares shall equal (Cumulative Voting for one candidate) or he may distribute them among the candidates as he
may see fit (Cumulative voting by distribution)
b. This is granted by law to each stockholder with voting rights. However, in non-stock corporations, cumulative voting is generally not allowed,
UNLESS allowed by the AOI or by-laws.
c. Under this method, if there are 10 directors to be elected, a holder of 1,000 shares will have 10,000 votes which he may cast in favor of one
candidate or may apportion to any number of candidate he may wish
d. PURPOSE: to allow the minority to have a rightful representation in the board of directors.
e. Cumulative voting is not available in non-stock corporations.

REMOVAL AND FILLING-UP OF VACANCIES

1. By-laws may provide for causes or grounds for removal of a director;
2. A director representing the minority may not be removed except for those causes;
3. A director NOT representing the minority may be removed even without a cause.

AMENDMENT: The SEC is now empowered to motu proprio, or upon verified complaint, and after due notice and hearing, order the removal of a
director or trustee elected despite the disqualification, or whose disqualification arose or is discovered subsequent to an election.
Requirements for a valid removal:
1. The removal should take place at a general or special meeting duly call for that purpose;
2. The removal must be by the vote of the stockholders holding or representing 2/3 of the outstanding capital stock or the members entitled to vote in
cases of non-stock corporations; and
3. There must be a previous notice to the stockholders or members of the intention to propose such removal at the meeting either by publication or
on written notice to the stockholders or members.

Vacancy:

CAUSE OF VACANCY WHO WILL FILL THE VACANCY WHEN ELECTION WILL BE HELD*
Removal Stockholders by the election of a replacement in Same day of the meeting authorizing
the same meeting as that of the removal the removal

Expiration of the term Stockholders No later than the day of such expiration
at a meeting called for that purpose

Other causes (death, Board of Directors – if they still constitute a No later than 45 days from the time the
resignation, abandonment) quorum; vacancy arose

Stockholders – if the Directors no longer

constitute a quorum

AMENDMENTS: Section 28 of the RCC now provides when* the election of the replacement member of the Board will be held.

INCREASE IN THE NUMBER OF DIRECTORS: Any directorship or trusteeship to be filled by reason of an increase in the number of directors or
trustees shall be filled only by an election at a regular or at a special meeting of stockholders or members duly called for the purpose, or
in the same meeting authorizing the increase of directors or trustees if so stated in the notice of the meeting.

Replacement of Hold-Over Directors: in the event that a director, after the expiration of his term is not replace since there was no election held,
such director can continue to function in a holdover capacity. However, if he resigns, the stockholders will be the one to replace him even if the
remaining directors continue to constitute a quorum. Note that the power of the Board to fill up the vacancy is only if the director resigns before the
expiration of his term. In this instance, the term of the director already expired, he just continued as such only in a hold-over capacity.

AMENDMENT: EMERGENCY BOARD: When the vacancy prevents the remaining directors from constituting a quorum and emergency action is
required to prevent grave, substantial, and irreparable loss or damage to the corporation, the vacancy may be temporarily filled from among
the officers of the corporation by unanimous vote of the remaining directors or trustees.

The action by the designated director or trustee shall be limited to the emergency action necessary, and the term shall cease within a reasonable
time from the termination of the emergency or upon election of the replacement director or trustee, whichever comes earlier. The corporation must
notify the SEC within 3 days from the creation of the emergency board, stating therein the reason for its creation

Compensation of Directors/Trustees: General Rule: Directors are not entitled to receive any compensation this is because the office of a director
is usually filled up by those chiefly interested in the welfare of the institution by virtue of their interest in stock or other advantages and such interests
are presumed to be the motive for executing duties of the office without compensation. Except:
1. Reasonable per diems;
2. As provided in the by-laws
3. Upon a majority vote of the stockholders; and
4. If they are performing functions other than that of a director.

Limit: In no case shall the total yearly compensation of the directors (except number 4 above), exceed 10% of the net income before tax of the
corporation during the preceding year. (Section 30)

AMENDMENT: Section 29 of the RCC now specifically prohibits the Director/Trustee from participating in the fixing of their own per diems
or compensation.

Likewise, the same section requires corporations vested with public interest to submit to their shareholders and the Commission, an annual report
of the total compensation of each of their directors or trustees.

CORPORATE OPPORTUNITY DOCTRINE: it places a director of a corporation in the position of a fiduciary and prohibits him from seizing a business
opportunity and/or developing it at the expense and with the facilities of the corporation. He cannot appropriate to himself opportunity which in fairness
should belong to the corporation.

Ratification:
1. The second paragraph of Sec. 31 which makes a director liable to account for profits if he attempts to acquire or acquires any interest adverse to
the corporation in respect to any matter reposed in him in confidence as to which equity imposes a disability upon him to deal in his own behalf is
not subject to ratification.
2. Whereas, in Sec. 34, if a director acquires a business opportunity which should belong to the corporation, he is bound to account for such profits
unless his act is ratified by the stockholders owing or representing at least 2/3 of the outstanding capital stock.

Example: A, B, C, D and E are directors of REALTY CORP., Z wanted to sell his property with a fair market value of P100M for P90M.
a. If it was offered first to A, and A made a profit of P90M, this would fall under Sec. 34 and may be subject to ratification; A merely acquired a
business opportunity owing to the corporation.
b. If it was offered to REALTY CORP., and A, later on offered to buy it for P95 and sold it making a profit of P5M, it would fall under Sec. 31 and not
subject to ratification, A should return the profits to REALTY CORP. It was a matter reposed in him in confidence.

SELF-DEALING DIRECTORS: is one who deals or transacts business with his own corporation.

Generally, A contract entered into by a director with his own corporation is voidable at the latter’s option, except
1. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for
such meeting;
2. That the vote of such director or trustee was nor necessary for the approval of the contract (see amendment below);
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the board of directors.

On the other hand, where any of the first two conditions is absent, the contract becomes voidable subject to the ratification of the stockholders
representing 2/3 of the outstanding capital stock – the requirements of which are: (1) there must be a meeting called for that purpose; (2) full
disclosure of the adverse interest of the director; and (3) the contract is fair and reasonable under the circumstances.

If the self-dealing director owns all or substantially all of the shares of stock, thereby making ratification easily possible, the reasonableness of the
transaction shall be determined - to which there is no yardstick and remains to be a question of fact depending on the circumstances.

AMENDMENT: An additional requisite is provided for transactions of self-dealing directors of corporations vested with public interest:
Approval of:
1. At least two-thirds (2/3) of the entire membership of the board, with
2. At least a majority of the independent directors.

INTERLOCKING DIRECTOR: is a director in one corporation who deals or transacts with another corporation of which he is also a director. In such
case, there may effectively be a dual agency, a divided allegiance where allegiance in one corporation may subordinated to the other.

1. The contract between corporations with interlocking director is valid absent fraud and provided it is reasonable under the circumstances;
2. If the interest of the interlocking director in one corporation exceeds 20% and in the other merely nominal, the contract becomes voidable at the
latter corporation’s option. In effect, the director would be treated as a self-dealing director discussed above.
3. If the interest in both companies is either both substantial or both nominal, no. 1 would apply.

REMEDIES AGAINST ERRING OFFICERS/DIRECTORS: In case of a wrongful or fraudulent act of a director, officer or agent, stockholders have the
following options:
1. Individual or Personal Action – for direct injury to his rights, such as denial of his right to inspect corporate books and records or pre-emptive
rights;
2. Representative or Class Suit – in which one or more members of a class sue for themselves as a class or for all to whom the right was denied,
either as an individual action or a derivative suit; and a
3. Derivative Suit – an action based on injury to the corporation – to enforce a corporate right – wherein the corporation itself is joined as a
necessary party, and recovery is in favor of and for the corporation. It is a suit granted to any stockholder to institute a case to remedy a wrong
done directly to the corporation and indirectly to stockholders.

The requisites for a derivative suit are as follows:

a. the party bringing suit should be a shareholder as of the time of the act or transaction complained of, the number of his shares not
being material;
b. he has tried to exhaust intra-corporate remedies , i.e., has made a demand on the board of directors for the appropriate relief but the
latter has failed or refused to heed his plea; and
c. the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being caused to the corporation and
not to the particular stockholder bringing the suit.

EXECUTIVE COMMITTEE: The bylaws of a corporation may create an executive committee, composed of not less than three members of the board, to
be appointed by the board.

Said committee may act, by majority vote of all its members, on such specific matters within the competence of the board, as may be delegated to it in
the by-laws or on a majority vote of the board, except with respect to: 1. Approval of any action for which shareholders’ approval is also required;
2. The filing of vacancies in the board;
3. The amendment or repeal of bylaws or the adoption of new by-laws;
4. The amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable; and
5. A distribution of cash dividends to the shareholders.

AMENDMENT: The board of directors may create special committees of temporary or permanent nature and to determine the members’ term,
composition, compensation, powers, and responsibilities.
CORPORATE OFFICERS

ELECTION OF CORPORATE OFFICERS: Except in a close corporation where the corporate officers may be elected directly by the stockholders, the
Code requires the BOD to elect the said officers;

The officers that may be elected are the:

1. President – who must be a director;
2. Treasurer – who may or may not be a director;
3. Secretary – who should be a resident and citizen of the Philippines;
4. Such other officers as may be provided for in the by-laws.

AMENDMENTS: Section 24 now requires that the Treasurer of the Corporation be a resident.

Compliance Officer – is now a required corporate officer in corporations vested with public interest.

Any two or more positions may be held concurrently by the same person, except:
1. The president and the secretary; 2. The president and the treasurer.

Individual directors, however, can rightfully be considered as agents of the corporation. And although they cannot bind the corporation by their
individual acts, this is subject to certain EXCEPTIONS: (1) by delegation of authority; (2) when expressly conferred; or (3) where the officer or agent is
clothed with actual or apparent authority.

AUTHORITY OF CORPORATE OFFICERS TO ACT IN BEHALF OF THE CORPORATION: a corporate officer or agent may represent and bind the
corporation in transactions with third person to the extent that authority has been conferred upon him, and this includes powers which have been:
1. intentionally conferred, and
2. also, such powers as, in the usual course of business, are incidental thereto, or may be implied therefrom,
3. powers added by custom and usage, as usually pertaining to the particular officer or agent, and
4. such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred

LIABILITY OF CORPORATE OFFICERS: The general rule is that unless the law specifically provides a corporate officer or agent is not civilly or
criminally liable for acts done by him as such officer or agent, or when absent bad faith or malice. Personal liability of a corporate director, trustee or
officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when:
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith, or (c) gross negligence in directing its affairs, or (d) conflict of
interest, resulting in damages to the corporation, its stockholders or other persons;
2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written
objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation;
4. He is made, by a specific provision of law, to personally answer for his corporate action.

ELECTION OF CORPORATE OFFICERS: require the majority of ALL MEMBERS of the Board, not just the usual majority of those present in the
meeting. Meaning, if there are 15 members of the Board, and 9 are present, 8 votes would be necessary to elect a corporate officer.

CLASSES OF SHARES OF STOCK

Shares of Stock designate the units into which the proprietary interest in a corporation is divided. They represent the proportionate integers or units,
the sum of which constitutes the capital stock of the corporation. It is likewise the interest or right which the owner, called the stockholders or
shareholder, has in the management of the corporation, and in the surplus profits and in case of distribution, in all of its assets remaining after the
payment of its debts.

Certificate of Stock is a document or instrument evidencing the interest of a stockholder in the corporation.

AMENDMENT: The SEC may require corporations whose securities are traded in trading markets and which can reasonably demonstrate their
capability to do so to issue their securities or shares of stocks in uncertificated or scripless form in accordance with the rules of the SEC. (Section
62) COMMON STOCKS are the most commonly issued shares of stock of a corporation. Although no clear-cut definition can be found, it has been
described as one which entitles it owner to an equal or pro-rata division of profits, if there are any, but without any preference or advantage in that
respect over any other stockholder or class of stockholders.

Voting Rights: A common share usually carries with it the right to vote, and frequently, the exclusive right to do so. The only time a common stock’s
right to vote may be limited is where there exists Founders’ Shares.

FOUNDER’S SHARES: are shares issued to the founders of the corporation which are granted certain right and privileges such as the exclusive
right to vote and be voted for in the election of directors, for a period not to exceed 5 years, subject to the approval of the SEC.

The period of 5 years is non-extendable because it may result in the almost perpetual disqualification of other stockholders to elect or be elected as
members of the BOD resulting to the lack of proper representation thereat.

AMENDMENT: the amended Section removed the requirement of “approval of the SEC,” from where the start of the five-year period shall
commence.
 On the other hand, a limitation was added “That such exclusive right shall not be allowed if its exercise will violate Commonwealth Act No. 108,
otherwise known as the “Anti-Dummy Law”; Republic Act No. 7042, otherwise known as the “Foreign Investments Act of 1991”; and other
pertinent laws.”

PREFERRED STOCKS is a stock that gives the holder preference over the holder of common stocks with respect to the payment of dividends and/or
with respect to distribution of capital upon liquidation.

LIMITATIONS imposed by the Code in the issuance of preferred stocks: 1.

They can be issued only with a stated par value; and
2. The preference must be stated in the AOI and in the certificate of stock otherwise each share shall be, in all respect, equal to every other share.

Preference as to Dividends
They have the privilege of being paid dividends first before any other stockholders are paid theirs. The guaranty is not absolute so as to create a relation
of debtor and creditor between the corporation and the holders of such stock. The amount of preference is stated in the contract of subscription and is
usually a fixed percentage or by specified amount indicated therein.

Participating and Non-Participating Preferred Shares

If the preferred share is participating, they are entitled to participate in dividends with the common shareholders beyond their stated preference.
Nonparticipating preferred shares on the other hand are entitled to its fixed priority or preference only.

Cumulative and Non-cumulative Preference Shares

Cumulative preferred shares are those that entitle the owner thereof to payment not only of current dividends but also back dividends not previously
paid whether or not, during the past years, dividends were declared or paid. In light of the provision of the Code stating that all shares are equal in all
respects unless otherwise stated in the AOI, a preferred share to be considered cumulative, the same must be provided for and specified in the
certificate.

Non-cumulative preferred shares are those which grant the holders of such shares only to the payment of current dividends but not back dividends,
when and if dividends are paid, to the extent agreed upon before any other stockholders are paid the same.

Voting Rights of Preferred Shares: same with redeemable shares, preferred shares are usually denied voting rights – but this right must be clearly
withheld. However, even if the right to vote is withheld, they shall have the right to vote on the following:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;

AMENDMENTS: In determining whether the sale involved covers all or substantially all the properties and assets of the corporation, the old
Section 40 only provides “if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for
which it was incorporated”.

Section 39, amending the above-mentioned provision now includes “The determination of whether or not the sale involves all or substantially all
of the corporation’s properties and assets must be computed based on its net asset value, as shown in its latest financial statements.”

Also, the notice requirement can likewise now be sent through electronic means, if allowed by the by-laws or done with the consent of the
stockholders.

Amendment of by-laws: The submission of the amended by-laws no longer requires that it be filed with the SEC attached to the original articles
of incorporation and original bylaws.

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

AMENDMENT: Section 37 (formerly Section 38) of the RCC revised the requirements for the increase/decrease of capital stock or
creating/increasing any bonded indebtedness as follows:
1. The written notice requirement may now be sent through electronic means.
2. On the other hand, the certificate signed by the BOD and the chairperson and secretary of the stockholders’ meeting no longer includes the
actual indebtedness of the corporation on the day of the meeting.
3. Whenever appropriate, the approval of the Philippine Competition Commission shall be secured also.
4. Submission with the SEC shall be within 6 months from the date of approval of the BOD and stockholders, which period may be extended for
justifiable reasons.

6. Merger or consolidation of the corporation with another corporation or other corporations;

7. Investment of corporate funds in another corporation or business in accordance with this Code; and
8. Dissolution of the corporation.

Preference upon liquidation: this preference must be stated in the contract to accordingly grant such preference in the distribution of the assets
ahead of the common stockholders, including dividends in arrears in case the preferred shares are cumulative.

PAR AND NO-PAR VALUE SHARES

Par Value Shares are those whose values are fixed in the Articles and shown on the certificate. The par value is the minimum subscription or original
issue price of the shares. If the shares are issued at less than its par value, the shares sold is considered as watered stocks, and the stockholders will
remain liable for the difference of the par value and the amount paid therefor.

No Par Value Shares are those whose issued price are not stated in the certificate of stock but may be fixed in the AOI, or by the BOD when so
authorized the articles or the by-laws, or in the absence thereof, the stockholders themselves. They do not purport to represent any stated
proportionate interest in the capital measured by value, but only an aliquot part of the whole number of shares of the corporation issuing it.

The Code allows the issuance of no par value shares, subject to the following limitations provided in Sec. 6:
1. Such shares once issued, are deemed fully paid and thus, non-assessable;
2. The consideration for its issuance should not be less than P5;
3. The entire consideration constitutes capital, hence, not available for dividend declaration;
4. They cannot be issued as preferred stock; and
5. They cannot be issued by banks, trust companies, insurance companies, public utilities and building and loans associations.

WATERED STOCKS: Watering of stocks happened when the shares are issued at less than its par or issue price.

ILLUSTRATION: X Co. has P10M Authorized Capital Stock divided into: (1) 5M shares at P1.00 par value; and (2) 1M no par value shares with
issued value at P5.00. A acquired 1M of the par value shares for P.80 and 100,000 no par value shares at P4.00:
1. LIABILITY FOR PAR VALUE SHARES: The directors who consented to the issuance or were passive about it, without written dissent, are
solidarily liable with A for the difference of P.20;
2. LIABILITY FOR NO PAR VALUE SHARES: A cannot be held liable because the no par value shares are “deemed fully paid and non-assessable”
(Sec. 6). Accordingly, only the directors or officers consenting to the issuance are liable.

REDEEMABLE SHARES: are those subject to redemption, as indicated in the contract, usually attached to preferred shares and other debt securities
like bonds. This type of shares grants the corporation the right to repurchase the shares at its option or at the option of the holder based on the face or
issued value plus a specified premium. The redemption may be optional or mandatory at a fixed future date.

The repurchase is not subject to the availability of unrestricted retained earnings.

TREASURY SHARES: are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation by
purchase, redemption, donation or through some other lawful means. Subsequently, the corporation can re-issue the shares of stock or sell them or
declare them as property dividends.

Such shares, though paid for already, do not form part of outstanding shares and accordingly, do not have the right to vote and receive dividends.

SUBSCRIPTION CONTRACT: Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be
deemed a subscription, notwithstanding the fact that the parties refer to it as a purchase or some other contract.

Pre-incorporation subscriptions: refer to subscriptions for shares of stock of a corporation still to be formed while post-incorporation subscriptions
are those made or executed after the formation or organization of the corporation, and are deemed irrevocable:
1. For a period of at least 6 months from the date of subscription unless (a) all the subscribers consent to the revocation; or (b) the incorporation fails
to materialize within said period or within a longer period as may stipulated in the contract of subscription; and
2. After submission of the AOI to the SEC

Issuance of certificates of stock; requisites:

1. It must be signed by the president or vice-president and countersigned by the secretary or assistant
secretary; 2. It must be sealed with the corporate seal, and
3. The entire value thereof (together with the interest or expenses, if any) should have been paid.

Indivisibility: Subscription to shares of stock are deemed indivisible and no certificate of stock can be issued unless and until the full amount of his
subscription including interest and expenses, if any is paid.

Rights of a SUBSCRIBER: a subscriber, even if not yet fully paid, is entitled to exercise all the rights of a stockholder and the corresponding liability
that attach thereunder, except:
1. For the issuance of a certificate of
stock; 2. If his shares are declared delinquent;
or
3. When he exercises appraisal right.

Delinquent Shares of Stock: a subscription to shares of stock become delinquent if there no payment made on the balance of all or any portion of
the subscription within 30 days on the date or dates fixed in the contract of subscription without need of call, or on the date specified by the BOD
pursuant to a call.

Effect of Delinquency:
General Rule: the stockholder thereof immediately loses the right to vote and be voted upon or represented in any stockholders meeting as well as
all the rights pertaining to a stockholder

Except: the right to receive dividends:

1. Cash dividend - shall first be applied to the unpaid balance on his subscription plus cost and expenses; while
2. Stock dividends - shall be withheld until his unpaid subscription is paid in full.

Delinquent shares; enforcement of payment of subscriptions: Unpaid subscription or any percentage thereof, together with interest if
required by the by-laws or the contract of subscription, shall be paid either:
1. On the date or dates fixed in the contract or subscription;
2. On the date or dates that may be specified by the BOD pursuant to a “call” declaring any or all unpaid portion thereof to be so payable

To enforce payment, the following remedies are available:

1. By board action; and
2. By a collection case in court.

Failure or refusal of the BOD to enforce or collect payment of unpaid subscription will not prevent the creditors or the receiver of the corporation to
institute a court action to collect the unpaid portion thereof.

Delinquency Sale:
1. Amount to be paid includes:
a. The balance due on each subscription
b. All accrued interest
c. Costs of advertisement
d. Expenses of sale

2. Bids: shall all be for the amount due above and shall differ only on the number of shares that the bidders are willing to accept in exchange of the
said amount.
3. Highest Bidder: shall be the bid made for the least number of shares in exchange for the total amount due.
4. Effect of Delinquency Sale: The stock so purchased shall be transferred to such purchaser in the books of the corporation and a certificate for such
stock shall be issued in his favor. The remaining shares, if any, shall be credited in favor of the delinquent stockholder who shall likewise be entitled
to the issuance of a certificate of stock covering such shares.
5. No bidder: Should there be no bidder at the public auction, the corporation may bid for the same, and the total amount due shall be credited as
paid in full in the books of the corporation. Title to all the shares of stock covered by the subscription shall be vested in the corporation as treasury
shares.

RIGHTS OF A STOCKHOLDER:
1. Participation in the management of the corporate affairs by exercising their right to vote and be voted upon either personally or by proxy
as provided for under Sec. 50 and 58 of the Code;

Instances where the concurrence of the stockholders are necessary for the exercise of the powers of the corporations
a. Requiring majority vote of the BOD and concurrence of the stockholders representing 2/3 of the outstanding capital stock: i.
Increase/decrease corporate stock ii. Incur or create bonded indebtedness;
iii. Sell, dispose, lease, encumber all or substantially all of corporate
assets; iv. Invest in another corporation other than the primary purpose; v.
Amend the articles of incorporation.
vi. Merger or consolidation
vii. Voluntary dissolution of the corporation

AMENDMENT: Voluntary dissolution now requires a majority vote only of the stockholders, no longer 2/3, for instances with no
creditors affected.

For voluntary dissolutions where creditors are affected, the voting requirement remains to be 2/3.

i. Extend or shorten the corporate term; ii. Deny pre-

emptive right iii. Declare stock dividends
iv. Enter into a management contract - where a stockholder(s) own 1/3 of the capital stock of the managing corporation or where a majority of
the members of the board of the managing corporation also constitute a majority of the board of the managed corporation;

AMENDMENT: Section 43 of the RCC now limits the term for a management contract to 5 years for any 1 term.

b. Majority of the BOD + majority of the outstanding capital:

i. Enter into a management contract other than above; ii.
adopt, amend or repeal the by-laws

c. Without board resolution, 2/3 of the stockholders may:

i. Delegate to the board the power to amend the by-laws ii.
Remove a member of the Board of Directors – vote required
iii. Ratify a business opportunity entered into by a member of the Board (corporate opportunity doctrine)
iv. Ratification of contracts of self-dealing directors, where his presence is required to constitute a quorum and/or his vote is required for its
approval by the BOD.

d. Without board resolution, majority of the stockholders may:

 i. Revoke delegated power to amend by-laws ii. Calling a
special meeting to remove directors iii. To fix compensation
of directors iv. To fix the issue price or stated value of no-par
value shares.

2. To enter into a voting trust agreement subject to the procedure, requirements and limitations imposed under Sec. 50;
3. To receive DIVIDENDS and to compel their declaration if warranted under Sec. 43;

If the dividends to be declared are stock dividends, it requires not only the majority vote of the BOD but also the approval of stockholders owning at
least 2/3 of the outstanding capital stock.

The BOD can be compelled to declare dividends if the retained earnings are in excess of 100% of the paid-up capital. However, the BOD can still
refuse, if:
a. Justified by a definite corporate expansion/projects/programs approved by the Board;
b. The corporation is prohibited under a loan agreement to declare dividends without the creditor’s consent and such consent has not yet been
secured;
c. It can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation.

If there are no retained earnings, dividends, as a rule, cannot be declared out of capital stock. EXCEPT: a.
Liquidating dividends
b. Investments in wasting assets such as mining, oil, well, etc.

4. To transfer shares of stock subject only to reasonable restrictions such as the options and preferences as may be allowed by law inclusive of the
right of the transferee to compel the registration of the transfer in the books of the corporation as provided for in Sec. 63;
5. To be issued a certificate of stock for fully paid-up shares in accordance with Sec. 64;
6. To exercise pre-emptive rights as provided for in Sec. 39;

A pre-emptive right is the shareholder’s right to subscribe to all issues or disposition of shares of any class in proportion to his present holdings, the
purpose being to enable the shareholder to retain his proportionate control in the corporation and to retain his equity in the surplus. Except in the
following cases:
a. Shares to be issued to comply with the laws requiring stock offering or minimum stock ownership by the public;
b. Shares issued in good faith in exchange for property needed for corporate purposes;
c. Shares issued in payment for previously contracted debt;
d. In case the right is denied in the Articles of Incorporation;
e. If one shareholder does not want to exercise his pre-emptive right, the other shareholders are not entitled to purchase the corresponding shares
of the shareholder who declined. But if nobody purchased the same and later on the board re-issued the shares, the pre-emptive right applies.

7. To exercise their appraisal right in accordance with the provision of Sec. 81 and in those instances allowed by law such as Sec. 42 and 105;

APPRAISAL RIGHT: Right is the method of paying a shareholder for the taking of his property. It is a statutory means whereby a stockholder can
avoid the conversion of this property into another property not of his own choosing.

When may it be exercised:

1. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares,
or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of
corporate existence;

Not all amendments: the right may only be exercised in cases of amendment which “has the effect of changing or restricting the rights of any
stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending
or shortening the term of corporate existence”.

Accordingly, if the amendment is to increase or decrease the number of directors, or change the corporate name, or change of principal office,
the appraisal right is not available.

2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets
as provided in the Code;
3. In case of merger or consolidation;
4. Investment of funds in another corporation or business or for any other purpose other than its primary purpose;

AMENDMENT: this ground is now specifically included in the Code.

5. In a close corporation, a stockholder has the unbridled right to compel the corporation “for any reason” to purchase his shares at their fair
value which shall not be less than the par or issued value, when the corporation has sufficient assets to cover its debts and liabilities, exclusive
of capital stock.

Suspension of rights: the stockholder concerned is regarded as having made an election to withdraw from the corporate enterprise and take the
value of his stock. Such a procedure suspends (for a maximum period of 30 days) certain ownership rights associated with stockholder status, such
as the right to receive dividends or distribution and the right to vote which cannot be restored without compliance with the governing statutory
conditions.
8. To institute and file a derivative suit;
9. To recover shares of stock unlawfully sold for delinquency as may be allowed under Sec. 69;
10. To inspect the books of the corporation subject only to the limitations imposed by Sec. 75;

AMENDMENTS: Section 73 (formerly Section 74) introduced the following amendments:

1. Includes an enumeration of, and specified, the records to be kept in the principal place of business.
2. Specifies that the inspection of the books and records are bound by the Intellectual Property Law, the Data Privacy Act, the Securities
Regulations Code and the Rules of Court.
3. A requesting party who is not a stockholder or member of record, or is a competitor or otherwise represents the interests of a competitor
shall have no right to inspect or demand reproduction of corporate records.
4. Abuse of the right to inspect is punishable under Section 158.
5. If the corporation denies or does not act on a demand for inspection and/or reproduction, the aggrieved party may report such to the SEC.
Within five (5) days from receipt of such report, the SEC shall conduct a summary investigation and issue an order directing the inspection
or reproduction of the requested records.
6. the SEC may require stock corporations which transfer and/or trade stocks in secondary markets to have an independent transfer agent.

11. To be furnished by the most recent financial statement of the corporation as by Sec. 75;

AMENDMENT: Changes introduced by Section 74 (formerly Section 75) concerning the issuance of the corporation’s financial statements are as
follows:

Section 75 (old) Section 74 (RCC)

Certification Independent CPA In accordance with the Code and the rules the SEC may
prescribe

Alternative If paid-up capital is less than P50,000, the FS may be If the total assets or total liabilities of the corporation is
Certification certified under oath by the Treasurer or any responsible less than P600,000, or such other amount as may be
officer of the corporation determined appropriate by the DoF, the financial
statements may be certified under oath by the treasurer
and the president.

12. To be issued a new stock certificate in lieu of the lost or destroyed one subject to the procedure laid down in Sec. 73;
13. To have the corporation dissolved under Sec. 118 to 121, and Sec. 105 in a close corporation;
14. To participate in the distribution of assets of the corporation upon dissolution under Sec. 122;
15. In the case of a close corporation, to petition the SEC to arbitrate in the event of a deadlock as allowed under Sec. 104; and
16. Also, in the case of a close corporation, to withdraw therefrom, for any reason, and compel the corporation to purchase his shares as
provided for in Sec. 105.

BY-LAWS

BY-LAWS are rules made by a corporation for its own government; to regulate the conduct and define the duties of the stockholders or members
towards the corporation and among themselves. They are the rules and regulations or private laws enacted by the corporation to regulate, govern and
control its own actions, affairs and concerns and its stockholder or members and directors and officers with relation thereto and among themselves in
their relation to it.

Effectivity: After approval by the SEC.

Adoption of by-laws: may be made:

1. Prior to incorporation – it must be signed by all the incorporators without need of the majority vote of outstanding stocks or members as long as it
is submitted together with the AOI;
2. After incorporation – must be submitted within 1 month after receipt of the notice of issuance of certificate of registration or incorporation and
must be approved by majority of the outstanding capital stock or members. Failure to file within the 1 month period may be a ground for
suspension or revocation of the corporate franchise.

Amendment of by-laws; two modes:

1. By a majority vote of the directors or trustees and the majority vote of the outstanding capital stock or members, at a regular or special meeting
called for that purpose; or
2. By the board of directors alone when delegated by stockholders owning 2/3 of the outstanding capital stock or 2/3 of the members. This power,
however, is considered revoked, when so voted by a majority of the outstanding capital stock or members in a regular or special meeting.

AMENDMENTS: The new Section 45 amending the old provision notably does not contain the part where the by-laws must be submitted within 1
month from incorporation.

Section 46(d) of the RCC now includes “The modes by which a stockholder, member, director, or trustee may attend meetings and cast their vote.”
 It likewise includes that an arbitration agreement may be provided in the bylaws.

The submission of the amended by-laws no longer requires that it be filed with the SEC attached to the original articles of incorporation and original
bylaws.

MEETINGS

DIRECTORS STOCKHOLDERS

Quorum Majority Majority of the Outstanding Capital Stock

Date of Regular Monthly as fixed in the by-laws Annual as fixed in the by-laws. If no such date is fixed, any
Meeting date in April as the BOD/T may determine.

AMENDMENT: Any date after April 15.

Date of Special At any time deemed necessary or as provided for in the bylaws
Meeting
Notice Regular/Special Meetings – 1 day prior to the meeting. Regular Meetings – 2 weeks (now 21 days) Special
Meetings – 1 week
AMENDMENT: 2 days prior to the meeting.
Place Anywhere City or Municipality where the principal office is located. For this
purpose, Metro Manila shall be considered as one city.

AMENDMENT: the meeting shall not be at the principal

office itself, unless it is not practicable, in the city or
municipality where the principal office is located.

Moreover, Metro Cebu and Metro Davao, as well as other

Metropolitan Areas are now considered a city or municipality.
Proxy Voting Not allowed for a director or trustee, since he was supposedly Generally allowed
elected because of his personal qualifications and thus must
personally attend and vote on matters brought before the
meeting.
Voting Requirement General Rule: Majority of those present shall be valid as a Refer to voting requirements under Rights of Stockholders
corporate act.

Exceptions:
a. Election of corporate officers: majority of all the members
of the board.
b. When the by-laws provide for higher voting requirement.

Validity of Stockholders’ Meetings despite defect: If the voting requirement is met, any resolution passed in the meeting, even if improperly held or
called will be valid if ALL the stockholders or members are present or duly represented thereat, as provided under the last paragraph of Sec. 51: “ All
proceedings had and any business transacted at any meeting of the stockholders or members, if within the powers or authority of the
corporation, shall be valid even if the meeting be improperly held or called, provided all the stockholders or members of the corporation are
present or duly represented at the meeting.”

AMENDMENT: The meeting is still considered valid even if improperly held as long as ALL the stockholders or members are present or duly represented,
EXCEPT if the purpose of their attendance is only object to the transaction of any business because the meeting is not lawfully called or convened.

OTHER AMENDMENTS TO STOCKHOLDERS’ MEETINGS:

1. Notice of meetings can now be sent through electronic means and shall be accompanied by: a. The agenda for the meeting
b. A proxy form which shall be submitted to the corporate secretary within a reasonable time prior to the meeting
c. When attendance, participation, and voting are allowed by remote communication or in absentia, the requirements and procedures to be
followed when a stockholder or member elects either option; and
d. When the meeting is for the election of directors or trustees, the requirements and procedure for nomination and election
2. Unless the bylaws provide for a longer period, the stock and transfer book or membership book shall be closed at least 20 days for
regular meetings and 7 days for special meetings before the scheduled date of the meeting.
3. Postponement can be validly made if there is a notice of at least 2 weeks prior to the meeting.
4. The revised provision likewise authorizes the voting in absentia or through remote communication.
5. A director, trustee, stockholder, or member may propose any other matter for inclusion in the agenda at any regular or special meeting.
6. In the stockholders’ meeting for the election of directors/trustees, Section 23 of the RCC now specifically allows the stockholders or members to
vote through remote communication or in absentia, in case the by-laws or majority of the BOD authorizes the same, or even without such
authorization in case of corporations vested with public interest.

A stockholder or member who participates through remote communication or in absentia, shall be deemed present for purposes of quorum.

Notice: Notice of any meeting may be waived, expressly or impliedly, by any stockholder or member.
 However, under the revised Section 49 of the RCC, general waivers of notice in the articles of incorporation or the bylaws shall not be allowed.

The attendance at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not lawfully called or convened.

OTHER AMENDMENTS TO DIRECTORS’ MEETINGS: The following are the changes introduced by Section 52 (formerly Section 53) of the RCC:
1. Directors/trustees are now allowed to attend the meeting through remote communication such as videoconferencing, teleconferencing, or other
alternative modes of communication that allow them reasonable opportunities to participate. Directors or trustees cannot attend or vote by
proxy at board meetings.
2. A director or trustee who has a potential interest in any related party transaction must recuse from voting on the approval of the related party
transaction without prejudice to compliance with the requirements for Self-Dealing Directors.

REORGANIZATION; MERGER AND CONSOLIDATION

REORGANIZATION: is generally entered into to put the company upon a sound financial basis and to enable it to take care of its obligations thereby
avoiding liquidation or bankruptcy. But in some cases, a reorganization is effected notwithstanding the fact that the corporation is solvent.

MERGER: is a union effected by absorbing one or more existing corporations by another which survives and continues the combined business. It is the
uniting of two or more corporations by the transfer of property to one of them which continue in existence, the other or the others being dissolved and
merged therein.

Example: It was agreed that B Company will take over and acquire all the business, assets, properties, rights and liabilities of C Corporation and by
virtue of which B will absorb C which is to be dissolved.

CONSOLIDATION: is the uniting or amalgamation of two or more existing corporations to form a new corporation. It signifies a union as necessarily
results in the creation of a new corporation and the termination of existence of old ones. The united concern resulting from such union is called
consolidated corporation.

Thus, in the example given, if B and C agreed to form a new corporation, A Company, which will absorb both business, and all of B’s and C’s assets,
properties, rights and liabilities are transferred to A which will continue their combined business while B and C will be dissolved, a consolidation takes
place.

In effect, in a consolidation, the constituent corporations are all dissolved, while in a merger, the absorbing or surviving corporation is not, only the
absorbed.

REQUIREMENTS AND PROCEDURE TO ACCOMPLISH MERGER OR CONSOLIDATION:

1. The BOD/T of each constituent corporations shall approve a plan or merger or consolidation setting for the matters required in Sec. 76;
2. Approval of the plan by the stockholders representing 2/3 outstanding capital stock or 2/3 of the member in non-stock corporations of each of such
corporations at separate corporate meetings called for the purpose;
3. Prior notice of such meeting, with a copy or summary of the plan of merger or consolidation shall be given to all stockholders or members at least 2
weeks prior to the scheduled meeting, either personally or by registered mail stating the purpose thereof;
4. Execution of the articles of merger or consolidation by each constituent corporations to be signed by the president or vice-president and certified by
the corporate secretary or assistant secretary setting forth the matters required in Sec. 78;
5. Submission of the articles of merger or consolidation in quadruplicate to the SEC subject to the requirement of Sec. 79 that if it involve corporations
under direct supervision of any other government agency or governed by special laws the favorable recommendation of the government agency
concerned shall first be secured; and
6. Issuance of the certificate of merger or consolidation by the SEC at which time the merger or consolidation shall be effective. If the plan, however,
is believed to be contrary to law, the SEC shall set a hearing to give the corporations concerned an opportunity to be heard upon notice and
thereafter, the Commission shall proceed as provided in the Code.

EFFECTS OF MERGER OR CONSOLIDATION:

1. There will only be a single corporation. In case of merger, the surviving corporation or the consolidate corporation in case of consolidation;
2. The termination of corporate existence of the constituent corporations, except that of the surviving corporation or the consolidated corporation;
3. The surviving corporation or the consolidated corporation will possess all the rights, privileges, immunities and powers and shall be subject to all
the duties and liabilities of a corporation organized under the Code;
4. The surviving or consolidated corporation shall possess all the rights, privileges, immunities and franchises of the constituent corporations, and all
property and all receivables due, including subscriptions to shares and other choses in action, and every other interest of, or belonging to or due to
the constituent corporations shall be deemed transferred to and vested in such surviving or consolidated corporation without further act or deed;
and
5. The rights of creditors or any lien on the property of the constituent corporations shall not be impaired by the merger or consolidation.
6. There would be no need to liquidate or wind-up the affairs of the corporation because (1) there are no assets to distribute; (2) no debts and
liabilities to pay – since all these are transferred to the surviving or consolidated corporation.

AMENDMENTS: The contents of the Articles of Merger or Consolidation now includes:

1. The carrying amounts and fair values of the assets and liabilities of the respective companies as of the agreed cut-off date;
2. The method to be used in the merger or consolidation of accounts of the companies;
3. The provisional or pro-forma values, as merged or consolidated, using the accounting method; and
4. Such other information as may be prescribed by the SEC.
 Section 78 (amending Section 79) now removed the requirement that the Articles of Merger/Consolidation must be submitted in quadruplicate.

NON-STOCK CORPORATIONS

A non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees, or officers, except upon dissolution.
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 provisions governing stock corporation, when pertinent, shall be applicable to non-stock corporations, except as may be covered by specific
provisions pertaining to non-stock corporations.

Differences:

STOCK CORPORATION NON-STOCK CORPORATION

Purpose Generally, for profit Primarily organized for charitable, religious, educational, professional,
cultural, scientific, social, civic service, or similar purposes, like trade,
industry, agricultural and like chambers or any combination thereof
Distribution of dividend Authorized Not authorized
Term of office of the 1 year until their successor is elected 1/3 of the number of directors shall expire every year; and subsequent
directors/trustees and qualified elections of trustees comprising 1/3 shall be held annually and trustees so
elected shall have a term of 3 years

The RCC removed the staggered term requirement

Voting Cumulative Straight voting unless authorized under the by-laws or AOI
Manner of voting Either in person or by proxy By mail or other similar means as may be authorized by the by-laws

AMENDMENT: Section 88 of the RCC (amending Section 89) removed the

paragraph on voting by mail or other similar means by members and now
specifies that “[t]he bylaws may xxx authorize voting through
remote communication and/or in absentia.”
Transferability of interest Transferable Membership is personal and non-transferable, unless the AOI or by-laws
provide otherwise
Ownership of director At least one share Member

AMENDMENT: independent trustees are not required to be a member

Place of meeting of City or municipality where the principal Any place in the Philippines
stockholders/members office is located (now Principal Office
unless not practicable)

Membership: non-stock corporations have the right to adopt rules prescribing the mode and manner in which membership thereat can be obtained or
maintained. This includes the right to limit membership in accordance with its by-laws.

It has thus been stated that in the absence of charter or statutory restrictions, non-stock corporations may determine who shall be admitted to
membership and how they shall be admitted. It may exclude any person whom it deems unfit for membership. Indeed, in the absence of restrictions, it
may act arbitrarily and exclude any persons it may see fit, and the courts have no power to interfere. In other words, it is free to fix qualifications for
membership and to provide for termination of membership.

Classification of membership: the by-laws or the AOI may provide for classification as to members with voting or non-voting rights, since it is provided
that “the right of the members of any class or classes to vote may be limited, broadened or denied”.

Termination of membership: membership may be terminated in the manner and for causes provided in the AOI or by-laws and when a member is so
terminated it shall extinguish all his rights in the corporation or in its property unless otherwise provided in the said articles or by-laws.

The power or authority to terminate members in non-stock corporations is said to be inherent but strict compliance with the manner and procedure laid
down in the by-laws must be observed, otherwise it may render the expulsion ineffective and invalid.

In the absence of any provision in the AOI or by-laws relative to the manner and causes of termination or expulsion of member, the decided weight of
authority is to the effect that the power is inherent and may be exercised in certain situations, namely:
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 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.
CLOSE CORPORATIONS

DEFINITION: A close corporation is one whose articles of incorporation provide that:

1. 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);
2. All the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and
3. The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.

Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when 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 within the meaning of this Code.

Business with public interest: may not be formed as close corporation. Sec. 140 of the Code lays down a similar policy authorizing NEDA to
recommend to the legislature the setting of maximum limits to family or group ownership of stock in corporations vested with public interest, and the
determination of whether or not it should be vested with public interest within its domain. The following cannot be a close corporation: 1. Mining
companies;
2. Oil companies;
3. Stock exchanges;
4. Banks;
5. Insurance companies;
6. Public utility;
7. Educational institutions

Differences with an Ordinary Stock Corporation:

CLOSE CORPORATION ORDINARY STOCK CORPORATION

The number of stockholders cannot exceed 20 No limitation as to number of shareholder
Shares of stock are subject to specified restrictions Generally no restriction on transfer of shares
Shares of stock are prohibited from being listed in the stock exchange or No prohibition
offered for sale to the public

Stockholders may take an active part in corporate management by Management is lodged in the Board of Directors
vesting management to them rather than a Board of Director
To the extent that all stockholders can be deemed directors, the number Maximum number of directors is 15
of directors can effectively be more than 15
To the extent that directors may be classified into one or more classes Ordinarily, no such classification and no restrictions on cumulative voting
and to be voted solely by a particular class of stock, cumulative voting
may, in effect, be restricted
The articles of incorporation may provide that all officers shall be elected Officers are elected by the Board of Directors
or appointed by the stockholders
Restriction on transfer of shares should be indicated in the articles of Valid and binding if indicated in the articles of incorporation and stock
incorporation, by-laws and stock certificates certificates
Pre-emptive right of stockholders is broader as it includes all issues Pre-emptive rights may be denied as provided for in section 39
without exception
Appraisal right may be exercised for any reason with the limitation only Appraisal right may be exercised only on specific grounds
that the corporation has sufficient assets to cover its liabilities exclusive
of capital stock

ONE PERSON CORPORATION:

A One Person Corporation is one formed by a natural person, a trust or an estate, who is the sole stockholder thereof. The provision of the new
Chapter
III of the Revised Corporation Code shall apply to an OPC and other provisions of the Code shall apply suppletorily (Section 115);

Corporate Name: must contain the words “OPC”.

Not Applicable to OPC:

1. Authorized Capital Stock
2. By-Laws
3. Minutes of the Meetings of the Board of Directors (in lieu of which shall be the resolutions recorded in a Minutes Book)

Not allowed to incorporate as an OPC:

1. Banks, quasi-banks, pre-need, trust, insurance companies
2. Public and publicly-listed companies
3. Non-chartered GOCCs
4. Natural persons for the purpose of exercising their profession.
Articles of Incorporation: shall be the same as an ordinary corporation with the following additional provisions:
1. 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
2. Name, nationality, residence of the nominee and alternate nominee, and the extent, coverage and limitation of the authority.

Corporate Officers: The sole stockholder shall automatically be the sole director and the President. Within 15 days from the issuance of its certificate of
incorporation, an OPC shall appoint a treasurer, corporate secretary, and other officers as it may deem necessary, and notify the SEC thereof within 5
days from appointment.

Other positions of the president/sole stockholder:

1. Corporate Secretary: not allowed

Corporate Secretary: In addition to the functions designated by the OPC, the corporate secretary shall:
a. Be responsible for maintaining the minutes book and/or records of the corporation;
b. Notify the nominee or alternate nominee of the death or incapacity of the single stockholder, which notice shall be given no later than 5 days
from such occurrence;
c. Notify the SEC of the death of the single stockholder within 5 days from such occurrence and stating in such notice the names, residence
addresses, and contact details of all known legal heirs; and
d. Call the nominee or alternate nominee and the known legal heirs to a meeting and advise the legal heirs with regard to, among others, the
election of a new director, amendment of the articles of incorporation, and other ancillary and/or consequential matters.

2. Treasurer: allowed provided ge shall give a bond to the SEC in such a sum as may be required and a written undertaking to faithfully administer
the OPC’s funds to be received as treasurer, and to disburse and invest the same according to the Articles as approved by the SEC.

Nominee and Alternate Nominee: The single stockholder shall designate a nominee and an alternate nominee who shall, in the event of the single
stockholder’s death or incapacity, take the place of the single stockholder as director and shall manage the corporation’s affairs.

The articles of incorporation shall state the names, residence addresses and contact details of the nominee and alternate nominee, as well as the extent
and limitations of their authority in managing the affairs of the OPC.

The written consent of the nominee and alternate nominee shall be attached to the application for incorporation. Such consent may be withdrawn in
writing any time before the death or incapacity of the single stockholder

Term of the Nominee: When the incapacity of the single stockholder is temporary, the nominee shall sit as director and manage the affairs of the
OPC 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 OPC 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 OPC.

The alternate nominee shall sit as director and manage the OPC 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.

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

Liability of Single Stockholder: 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 OPC is independent of the stockholder’s personal property, the stockholder shall be
jointly and severally liable for the debts and other liabilities of the OPC.

The principles of piercing the corporate veil applies with equal force to OPC as with other corporations.

Conversion from Ordinary Corporation to OPC: When a single stockholder acquires all the stocks of an ordinary stock corporation, the latter
may apply for conversion into n OPC, subject to the submission of such documents as the SEC may require.

If the application for conversion is approved, the Commission shall issue certificate of filing of amended articles of incorporation reflecting the
conversion. The OPC 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.

Conversion from OPC to Ordinary Corporation: An OPC may be converted into an ordinary stock corporation after due notice to the SEC (within 60
days from occurrence) of such fact and of the circumstances leading to the conversion, and after compliance with all other requirements for stock
corporations under the RCC. If all requirements have been complied with, the Commission shall issue an amended certificate 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 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 SEC of the transfer. Within 60 days from the transfer of the shares, the legal heirs shall notify the SEC of their
decision to either wind up and dissolve the OPC or convert it into an ordinary stock corporation.

The ordinary stock corporation converted from an OPC shall succeed the latter and be legally responsible for all the latter’s outstanding liabilities as of
the date of conversion.

FOREIGN CORPORATIONS

A FOREIGN CORPORATION is one formed, organized or existing under any laws other than those of the Philippines.

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.

Control Test: on the other hand, is used to determine corporate nationality for purposes of applying laws, e.g., prohibition to acquire lands applicable to
corporations more than 40% of which is owned by non-Filipinos.

Grandfather Rule: a method of determining the nationality of a corporation which in turn is owned by another corporation by breaking down the
entity structure of the shareholders of the corporation. The true Filipino ownership is traced all the way to the individual stockholders of the
corporation (A) owning shares in another corporation (B), by multiplying the Filipino ownership of the first corporation (A) to the corresponding
ownership of the other corporation (B).

It applies to nationalized activities or those which require whole or partial Filipino ownership.

Example: 60% of ABC Corporation’s voting stocks are owned by XYZ Corporation and 40% is owned by foreign individuals. XYZ Corporation’s
outstanding stocks, on the other hand, are 70% owned by Filipino individuals while 30% is owned by foreign nationals. Is ABC Corporation treated
as a Philippine national?

Answer: No. Applying the grandfather rule, ABC Corporation would be considered as 42% Filipino-owned only (60% * 70%)

RESIDENT AGENT: As a condition precedent to the grant of license to do or transact business in the Philippines, the foreign corporation is required to
designate its resident agent on whom summons and other legal processes may be served in all actions or legal proceedings against such corporation.

AMENDMENT: A resident agent corporation for a foreign corporation is now required that it is of sound financial standing and must show proof that
it is in good standing as certified by the SEC.

LICENSE REQUIREMENT AND DOING BUSINESS WITHOUT ONE: A foreign corporation must secure the necessary license before it can transact
or do business in the Philippines.

Without a license: a foreign corporation shall NOT 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.

What constitutes “doing business”: Doing business in the Philippines may be determined using the following tests:
1. Continuity test – doing business 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;
2. Substance 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
3. Contract test – actual performance of specific commercial acts within the territory of the Philippines

“DOING BUSINESS” under the Foreign Investment Act (Sec. 3, d), “doing business” would include:
1. Soliciting orders, service contracts;
2. Opening offices, whether called “liaison offices” or branches;
3. Appointing representatives or distributor domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling
180 days or more;
4. Participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines;
5. Any other act that imply a continuity of commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or
the exercise of functions normally incident to and in progressive prosecution of commercial gain or of the purpose and object of the business
organization.

Provided, however, that the phrase “doing business” shall not be deemed to include:
1. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or exercise of rights as such
investor, nor
2. Having a nominee director or officer to represent its interest in such corporation; nor
3. Appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.

DISSOLUTION

DISSOLUTION is the extinguishment of the corporate franchise and the termination of corporate existence.
When a corporation is dissolved, it ceases to be a juridical entity and can no longer pursue the business for which it was incorporated. It will
nevertheless continue as a body corporate for another period of three years from the time it is dissolved but only for the purpose of winding up its
affairs and the liquidation of its assets.

THREE WAYS OF DISSOLUTION:

1. Expiration of its corporate term

Extension: should be made before the expiration of the original term, but not earlier than 5 years prior to such expiration, otherwise the
corporation is dissolved, ipso facto.

Dissolution by shortening the term of corporate existence: A corporation may exist for 50 years, but there is no law which prevents the
shareholders thereof to shorten that period and effect a dissolution of the corporation. This, however, requires the vote of the stockholders to be
cast in a meeting therefor, not only “written assent” as for general amendments. Moreover, this requires the approval of the SEC and its inaction is
not deemed an approval therefor.

AMENDMENT: Section 136 now explicitly provides that “[i]n the case of expiration of corporate term, dissolution shall automatically
take effect on the day following the last day of the corporate term stated in the articles of incorporation, without the need for
the issuance by the Commission of a certificate of dissolution.”

2. Voluntary surrender of its primary franchise (voluntary dissolution); and

Formal and Procedural Requirements when no creditors are

affected. a. Majority vote of the board of directors or trustees;
b. Sending of notice of each stockholders or member either by registered mail or personal delivery at least thirty (30) days prior (now 20 days)
to the meeting (scheduled by the board for the purpose of submitting the board action to dissolve the corporation for approval of the
stockholder or members.);
c. Publication of the notice of time, place and subject of the meeting for three (3) consecutive weeks (now once) in a newspaper published in
the place where the principal office of said corporation is located or in a newspaper of general circulation in the Philippines;
d. Resolution adopted by the affirmative vote of the stockholders owning at least 2/3 of the outstanding capital stock or 2/3 of the members
(now majority) at the meeting duly called for the purpose;
e. A copy of the resolution authorizing the dissolution must be certified by a majority of the board of directors or trustees and countersigned by
the corporate secretary (now A verified request for dissolution shall be filed with the SEC stating: (a) the reason for the dissolution; (b)
the form, manner, and time when the notices were given; (c) names of the stockholders and directors or members and trustees, who
approved the dissolution; (d) the date, place, and time of the meeting in which the vote was made; and (e) details of publication.)

Withdrawal:
i. A withdrawal of the request for dissolution shall be made in writing, duly verified by any incorporator, director, trustee, shareholder, or
member and signed by the same number of incorporators, directors, trustees, shareholders, or members necessary to request for
dissolution.
ii. The withdrawal shall be submitted no later than fifteen (15) days from receipt by the SEC of the request for dissolution.
iii. Upon receipt of a withdrawal of request for dissolution, the SEC shall withhold action on the request for dissolution and shall, after
investigation: (a) make a pronouncement that the request for dissolution is deemed withdrawn; (b) direct a joint meeting of the board of
directors or trustees and the stockholders or members for the purpose of ascertaining whether to proceed with dissolution; or (c) issue
such other orders as it may deem appropriate.
f. Issuance of a certificate of dissolution by the SEC.

Where creditors are affected, the voting requirement remains to be 2/3 of the stockholders and what is filed with the SEC is a petition not a
request.

3. The revocation of its corporate franchise (involuntary dissolution)

Grounds:
a. Serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or damage to the general public;
b. Refusal to comply or defiance of any lawful order of the Commission restraining commission of acts which would amount to a grave
violation of its franchise;
c. Continuous inoperation for a period of at least five (5) years;
d. Failure to file by-laws within the required period;
e. Failure to file required reports in appropriate forms as determined by the Commission within the prescribed period.

Other grounds provided under the Corporation Code:

a. Violation of any provision of the Code under section 144;
b. In case of deadlock in a close corporation as provided for in section 105;
c. In a close corporation, any acts of directors, officers or those in control of the corporation which is illegal or fraudulent or dishonest or
oppressive or unfairly prejudicial to the corporation or any stockholder or whenever corporate assets are being misapplied or wasted under
section 105.

AMENDMENTS: Aside from empowering the SEC to motu proprio dissolve a corporation, the following grounds are now specified under
 Section 138:
1. Non-use of corporate charter
2. Continuous inoperation of a corporation
3. Upon receipt of a lawful court order dissolving the corporation
4. Upon finding by final judgment that the corporation procured its incorporation through fraud 5. Upon finding by final judgment
that the corporation:
a. Was created for the purpose of committing, concealing or aiding the commission of securities violations, smuggling, tax evasion,
money laundering, or graft and corrupt practices;
b. Committed or aided in the commission of securities violations, smuggling, tax evasion, money laundering, or graft and corrupt
practices, and its stockholders knew; and
c. Repeatedly and knowingly tolerated the commission of graft and corrupt practices or other fraudulent or illegal acts by its directors,
trustees, officers, or employees.

If the corporation is ordered dissolved by final judgment pursuant to the above grounds (a), (b) and (c) under no. 5, its assets, after
payment of its liabilities, shall, upon petition of the SEC with the appropriate court, be forfeited in favor of the national government. Such
forfeiture shall be without prejudice to the rights of innocent stockholders and employees for services rendered, and to the application of
other penalty or sanction under the RCC or other laws

EFFECTS OF DISSOLUTION: Dissolution terminates its power to enter into contracts or to continue the business as a going concern.

The SC held that a corporation, whose corporate life expired, cannot lawfully pursue the business for which it was organized. It cannot apply for a new
certificate or a secondary franchise for it is incapable of receiving a grant (Buenaflor vs. Camarines Sur Industry Corp). Neither can it enforce a
contract executed prior to its dissolution for the purpose of continuing the business of its organization (Cebu Ports vs. State Marine).

Debts due to or by a corporation are not extinguished. It has thus been held that the termination of the life of a juridical entity does not, by itself, imply
the diminution or extinction of rights demandable against such juridical entity (Gonzales vs. Sugar Regulatory Adm.)

Despite its dissolution, a corporation nonetheless, continues to be a body corporate for a period of 3 years for purposes of liquidation and winding up its
affairs (Sec. 122). Upon expiration of the 3-year period to wind up its affairs, the juridical personality of the corporation ceases for all intent and
purposes, and as a general rule, it can no longer sue and be sued.

LIQUIDATION AND WINDING-UP:

1. The assets are collected and sold;
2. The rights and claims of creditors are settled;
3. The remaining assets, if any, are distributed to the stockholders.

Liquidation can be taken up in any of the following manner:

1. By the corporation itself through the BOD - This is the usual method or procedure of liquidating a corporation (China Banking Corp vs.
Michelin) and although there is no law authorizing it, neither is there anything that prohibits the BOD from undertaking the same. a. If this method
is resorted to, the board will only have a period of 3 years to finish its task of liquidation
b. Claims for or against the corporate entity not filed within the period will become unenforceable as there exist no corporate entity against which
they can be enforced.
c. Actions pending for or against the corporation when the 3-year period expires are abated, since after the period, the corporation ceases for all
intents and purposes and is no longer capable of suing or being sued (National Abaca & Other Fibers Co. vs. Pore)

2. By a trustee appointed by the corporation - The corporation may opt to convey all corporate assets to a trustee who will take charge of
liquidation a. If this method is used, the three-year period limitation imposed by section 122 will not apply provided the designation of the trustee is
made within that period.
b. Thus, during the period of liquidation, but before the completion thereof, a dissolved corporation is still liable for all its debts and liabilities in an
action filed against it through its trustee even if the case is filed beyond the 3-year period of liquidation.

3. By appointment of a receiver - A receiver may be appointed by the proper forum on petition or moto proprio upon the dissolution of the
corporation
(Sec. 119)
a. If a receiver is appointed, the 3-year period fixed by law within which to complete the task of liquidation will not likewise apply because the
dissolved corporation is substituted by the receiver who may sue or be sued even after that period (Sumera vs. Valencia).
b. Thus, it has been held that when a corporation is dissolved and the liquidation of assets is placed in the hands of a receiver or assignee, the 3
year period is not applicable and the assignee may institute all actions leading to the liquidation of the corporation even after the expiration of 3
years.
c. Note however, that a receiver may be appointed by the court even while the corporation is a going concern and does not always imply
dissolution of a corporation.

AMENDMENTS: Section 139 of the RCC introduced the following amendments concerning Corporate Liquidation:
1. The exclusion of Banks is now specifically provided, given that they are governed by the New Central Bank Act and the PDIC Law;
2. Upon the winding up of corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown or cannot be found
shall now be escheated in favor of the national government, which used to be the city or municipality where the property is located under the
old Section 122.