Republic of the Philippines

President Ramon Magsaysay State University

(Formerly Ramon Magsaysay Technological University)
College of Accountancy and Business Administration
Iba, Zambales, Philippines
Tel/Fax No.: (047) 811-1683

MODULE
IN
CORPORATION LAW

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VISION: The President Ramon Magsaysay State University shall be a progressive learner-
centered research university recognized in the ASEAN Region in 2020.

MISSION: The President Ramon Magsaysay State University shall primarily provide instruction,
undertake research and extension, and provide advanced studies and progressive
leadership in agriculture, forestry, engineering, technology, education, arts, sciences,
humanities, and other fields as may be relevant to the development of the Province.

GOALS OF THE COLLEGE

The College shall aim for the following goals:

1. Continuously enhance instruction towards becoming a center of excellence in business

administration.
2. Enhance the quality of learning and upgrade its facilities to enable students to:
2.1 Acquire the knowledge, proficiency and skills in their respective specialization tracks.
2.2 Enhance their competencies in ICT-based and social entrepreneurship focused
business concerns and

Develop values required of professional accounts and business administrators in the context of
the evolving global industries and local and national economy.

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Intended Learning Outcomes:

Corporations play an important role in the economic well-being of the state, thus research shows
that there is a connection between positive national economic performance and the growth corporations
( Nepomuceno,2019)

At the end of the chapter, the students are expected to:

1. Apply the principles and laws of the Philippine Corporation Code
2. Understand and interpret the different provisions of the Corporation Code
3. To be familiar with the powers and liabilities of a corporation
4. To write a case digest of landmark cases involving corporations.

INTRODUCTION:

The revised Corporation Code 2019 otherwise known as Republic Act 112321 is significant piece
of legislation because of the provisions that will provide more protection to the stock holders. Additionally
the code now allows the One Person Corporation. Moreover, the registration requirements in the RCC
were also amended hence, “doing business” in the country gets easier, and most importantly, provisions
on good governance were also provided in the RCC.

The passage into law of this measure is critical in our bid to improve the country’s business
climate and make our economy more competitive with the rest of the world ( Drilon F.2019). This
landmark legislation will remove the barriers hindering the entry of both small and large enterprises in the
markets, as well as strengthening and simplifying corporate governance standards for a more streamlined
business environment. ( Id,2019)

CORPORATION

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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. It is an artificial being
2. I is created by operation of law
3. It has the right of succession
4. It has the powers, attributes, and properties expressly authorized by law or incident to its
existence.

Doctrine of Corporate Entity- a corporation has a personality of its own that is separate and distinct from
its officers and stockholders. From this doctrine flows the right of a corporation to purchase and own
properties, to enter into contracts, to incur liabilities and obligations, and to sue or be sued.

classifications of corporations.

(1) As to number of persons who compose them:

(a) Corporation aggregate or a corporation consisting of more than one member or corporator; or

(b) Corporation sole or a religious corporation which consists of one member or corporator only and his
successors, such as a bishop.
(2) As to whether they are for religious purpose or not:
(a) Ecclesiastical corporation or one organized for religious purposes; or
(b) Lay corporation or one organized for a purpose other than for religion. Lay corporations, in turn, may
be either eleemosynary or civil.
(3) As to whether they are for charitable purposes or not:
(a) Eleemosynary corporation or one established for charitable purposes; or
(b) Civil corporation or one established for business or profit.
(4) As to state or country under or by whose laws they have been created:
(a) Domestic corporation or one incorporated under the laws of the Philippines; or
(b) Foreign corporation or one formed, organized, or existing under any laws other than those of the
Philippines. (see Sec. 123.

(5) As to their legal right to corporate existence:

(a) De jure corporation or a corporation existing in fact and in law; or
(b) De facto corporation or a corporation existing in fact but not in law. (see Sec. 21.)
(6) As to whether they are open to the public or not:

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(a) Close corporation or one which is limited to selected persons or members of a family (see Secs. 96-
105.); or
(b) Open corporation or one which is open to any person who may wish to become a stockholder or
member thereto.
(7) As to their relation to another corporation:
(a) Parent or holding corporation or one which is so related to another corporation that it has the power
either, directly or indirectly to, elect the majority of the directors of such other corporation; or
(b) Subsidiary corporation or one which is so related to another corporation that the majority of its
directors can be elected either, directly or indirectly, by such other corporation.
(8) As to whether they are corporations in a true sense or only in a limited sense:
(a) True corporation or one which exists by statutory authority; or
(b) Quasi-corporation or one which exists without formal legislative grant. It is an exception to the general
rule that a corporation can exist only by authority of law; and it may be:
1) Corporation by prescription or one which has exercised corporate powers for an   indefinite period
without interference on the part of the sovereign power and which, by fiction of law, is given the status of
a corporation; or
2) Corporation by estoppel or one which in reality is not a corporation, either de jure or de facto, because
it is so defectively formed, but is considered a corporation in relation to those only who, by reason of their
acts or admissions, are precluded from asserting that it is not a corporation.
(9) As to whether they are for public (government) or private purpose:
(a) Public corporations or those formed or organized for the government of a portion of the State; or
(b) Private corporations or those formed for some private purpose, benefit, or end; it may be either a stock
or non-stock corporation, government-owned or -controlled corporation or quasi-public corporation.

The four classes of persons composing a corporation are the following:

(1) Corporators or those who compose the corporation, whether stockholders or members. Hence,
the term includes incorporators, stockholders, or members;

(2) Incorporators or those corporators mentioned in the articles of incorporation as originally forming
and composing the corporation and who executed and signed the articles of incorporation as
such. So, all incorporators are corporators but a corporator is not necessarily an incorporator. The
principal function of the incorporator is to incorporate the corporation and to enable it to become a
body politic and corporate under the law (see Sec. 10.);

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Number and Qualifications of Incorporators– Any person, partnership, association or
corporation, singly or jointly with others but not more than fifteen (15) in number, may organize a
corporation for any lawful purpose or purposes: Provided, That natural persons who are licensed
to practice a profession, and partnerships or associations organized for the purpose of practicing
a profession, shall not be allowed to organize as a corporation unless otherwise provided under
special laws. Incorporators who are natural persons must be of legal age.

Each incorporator of a stock corporation must own or be a subscriber to at least one (1)share of
the capital stock.

(3) Stockholders or the owners of shares of stock in a stock corporation. They are the owners of the
corporation. They are also called shareholders. They are the corporators in a stock corporation.
Stockholders may be natural or juridical persons but only natural persons can be incorporators (Sec. 10.);
and
(4) Members or corporators of a corporation which has no capital stock.

A corporation with a single stockholder is considered a One Person Corporation

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

Banks and quasi-banks, preneed, trust, insurance, public and publicly-listed companies,
and non-chartered government owned and controlled corporations may not incorporate
as One Person Corporations: Provided, further, That a natural person who is licensed
to exercise a profession may not organize as a One Person Corporation for the
purpose of exercising such profession except as otherwise provided under special
laws.

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

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

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 SEC. 121. Single Stockholder as Director, President. – The single stockholder shall
be the sole director and president of the One Person Corporation.

SEC. 122. Treasurer, Corporate Secretary, and Other Officers. – Within fifteen (15)
days from the issuance of its certificate of incorporation, the One Person Corporation
shall appoint a treasurer, corporate secretary, and other officers as it may deem
necessary, and notify the Commission thereof within five (5) days from appointment.

CORPORATE TERM

The corporation will exist perpetually, unless there is a provision in the Articles of Incorporation
with regard to the term of corporate existence or unless sooner dissolved.

A corporation whose term has expired may apply for a revival of its corporate existence, together
with all the rights and privileges under its certificate of incorporation and subject to all of its duties, debts
and liabilities existing prior to its revival. 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.

Under the New Corporation Code, SEC. 12. Minimum Capital Stock Not Required of
Stock Corporations. -- Stock corporations shall not be required to have a minimum capital stock,
except as otherwise specifically provided by special law.

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Shares of stock may be:

(1) Par value or no par value;

(2) Voting or non-voting;
(3) Common or preferred, and preferred shares may be voting, convertible, or redeemable. (infra.) They
may be:
(a) Preferred as to assets in case of liquidation; or
(b) Preferred as to dividends, and which, in turn, may be either:
1) Cumulative or non-cumulative; or
2) Participating or non-participating;
(4) Promotion share;
(5) Share in escrow;
(6) Convertible stock;
(7) Founders’ share (see Sec. 7.);
(8) Redeemable share (see Sec. 8.); and
(9) Treasury share. (see Sec. 9.)

Stock or share of stock is one of the units into which the capital stock is divided. It represents the
interest or right which the owner has —

(1) In the management of the corporation in which he takes part through his right to vote5 (if voting rights
are permitted for that class of stock by the articles of incorporation);
(2) In a portion of the corporate earnings, if and when segregated in the form of dividends; and
(3) Upon its dissolution and winding up, in the property and assets thereof remaining after the payment of
corporate debts and liabilities to creditors.

SHARES OF STOCK
The shares of stock corporations may be divided into classes or series of shares, or both, any of which
classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles
of incorporation

Rules:

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(1) No share may be deprived of voting rights except those classified and issued as “preferred” or
“redeemable” shares, unless otherwise provided in this Code.
(2) There shall always be a class or series of shares which have complete voting rights.
(3) Any or all of the shares or series of shares may have a par value or have no par value as may be
provided for in the articles of incorporation: Provided, however, That banks, trust companies, insurance
companies, public utilities, and building and loan

1) No share may be deprived of voting rights except those classified and issued as “preferred” or
“redeemable” shares, unless otherwise provided in this Code.
(2) There shall always be a class or series of shares which have complete voting rights.
(3) Any or all of the shares or series of shares may have a par value or have no par value as may be
provided for in the articles of incorporation: Provided, however, That banks, trust companies, insurance
companies, public utilities, and building and loan associations shall not be permitted to issue no-par value
shares of stock.

Subscribed capital stock is the amount of the capital stock subscribed whether fully paid or not. It
connotes an original subscription contract for the acquisition by a subscriber of unissued shares in a
corporation (see Secs. 60, 61.) and would, therefore, preclude the acquisition of shares by reason of
subsequent transfer from a stockholder or resale of treasury shares. (Sec. 9.)

DISTINCTION BETWEEN PAR VALUE AND NO PAR VALUE SHARE

(1) Par value share is one with a specific money value

fixed in the articles of incorporation and appearing in the certificate of stock for each share of stock of the
same issue.

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(a) The primary purpose of par value is to fix the minimum issue price of the shares thus assuring
creditors that the corporation would receive a minimum amount for its stock.
(b) It is not usually the price at which investors buy or sell the stock.

 (2) No par value share is one without any stated or par

value appearing on the face of the certificate of stock. In other words, it is a stock which does not state
how much money it represents.

(a) While a no par value share has no par value, it has always an “issued value,” i.e., the consideration
fixed by the corporation for its issuance. (see Sec. 62, last par.)
(b) A corporation may issue no par value shares only, or together with par value shares.
(c) No par value stockholders have the same rights as holders of par value stock

Shares of capital stock issued without par value

Shall be:
(1) Deemed fully paid

(2) Non-assessable
(3) The holder of such shares shall not be liable (1) Par value share is one with a specific money value
fixed in the articles of incorporation and appearing in the certificate of stock for each share of stock of the
same issue.
(a) The primary purpose of par value is to fix the minimum issue price of the shares thus assuring
creditors that the corporation would receive a minimum amount for its stock.
(b) It is not usually the price at which investors buy or sell the stock.

 (2) No par value share is one without any stated or par value appearing on the face of the certificate of
stock. In other words, it is a stock which does not state how much money it represents.
(a) While a no par value share has no par value, it has always an “issued value,” i.e., the consideration
fixed by the corporation for its issuance. (see Sec. 62, last par.)
(b) A corporation may issue no par value shares only, or together with par value shares.

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(c) No par value stockholders have the same rights as holders of par value stock.

(3) Voting share is share with right to vote.

(a) It is generally customary to give the right to vote to the common stock and to withhold it from the
preferred.
(b) Under the Code, whenever a vote is necessary to approve a particular corporate act, such vote refers
only to stocks with voting rights except in certain cases when even non-voting shares may also vote.
(Sec. 6, par. 5, last par.)
(c) The rule is not “one stockholder, one vote’’ but “one share, one vote’’ because representation in a
corporation is commensurate to extent of ownership.

(4) Non-voting share is share without right to vote.

(a) If stock is originally issued as voting stock, it cannot thereafter be deprived of the right without the
consent of the holder.
(b) Under the Code, no share may be deprived of voting rights except those classified and issued as
“preferred” or “redeemable” shares, unless otherwise provided in the Code. (Sec. 6, par. 1.)
The proviso refers to fundamental matters enumerated in Section 6 (par. 5[1-8].) on which holders of non-
voting shares shall nevertheless be entitled to vote.
(c) Note that the enumeration in Section 6 does not include the election of directors or trustees (see Sec.
24.) as one of the matters on which non-voting shares may vote.
(d) Where non-voting shares are provided for, the Code requires that there shall always be a class or
series of shares which have complete voting rights. (Ibid., par. 1.)

Non-voting Shares
Where the articles of incorporation provide for non-voting shares in the case allowed by this Code, the
holders of such shares shall nevertheless be entitled to vote on the following matters:
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;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
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.

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5) Common share of stock is stock which entitles the holder thereof to pro rata division of the profits, if
there are any, without any preference or advantage in that respect over other stockholder or class of
stockholders. (2 Fletcher 43.)
(a) It is so-called because it is the stock which private corporations ordinarily issue; hence, the name.
(b) Common stocks are the residual owners of the corporation, i.e., they get only the assets left over in
case of liquidation after all other securities holders are paid.
(c) A corporation may issue more than one class of common stock, being designated class A, class B,
etc.
(6) Preferred share of stock is stock which entitles the holder thereof to certain preferences over the
holders of common stock.
(a) The preferences may consist in the payment of dividends or the distribution of the assets of a
corporation in case of its dissolution, or such other preferences as may be stated in the articles of
incorporation which are not violative of the provisions of the Code. (Sec. 6, par. 2.)
(b) As already stated, each share shall be in all respects equal to every other share except as otherwise
provided in the articles of incorporation and stated in the certificate of stock. (Ibid., par. 5.)
(c) Preferred shares are rarely given voting privileges.
(d) More than one class of preferred shares may be issued, usually designated “first preferred,” “second
preferred,” etc.
Common and preferred stocks are the two main classes or forms of stock.

“Preference” given to Preferred Shares

Preferred shares of stock issued by any corporation may be given preference in:
(1) The distribution of the assets of the corporation in case of liquidation
(2) The distribution of dividends
(3) Such other preferences as may be stated in the articles of incorporation which are not violative of the
provisions of this Code.

Provided, That preferred shares of stock may be issued only with a stated par value.

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7) Promotion share is such share as is issued to promoters, or those in some way interested in the
company, for incorporating the company, or for services rendered in launching or promoting the welfare of
the company, such as advancing the fees for incorporating, advertising, attorney’s fees, surveying, etc.
(11 Fletcher 48; Enright vs. Heckscher, 240 F. 863.)

(8) Share in escrow is share subject to an agreement by virtue of which the share is deposited by the
grantor or his agent with a third person to be kept by the depositary until the performance of a certain
condition or the happening of a certain event contained in the agreement. (Cannon vs. Handley, 12 P.
315.)
(a) The escrow deposit makes the depository a trustee under an express trust. (see Arts. 1440, 1441,
Civil Code.)
(b) The issuance of the shares is thus subject to a suspensive condition.
(c) Before the fulfillment of the condition, the grantee is not yet the owner of the shares and consequently,
he is not entitled to the rights belonging to a regular stockholder.

(9) Convertible stock is stock which is convertible or changeable by the stockholder from one class to
another class, such as from preferred to common, at the conversion ratio, i.e., the price at which the
common is to be valued as against the preferred.
(a) Except as may be restricted by the articles of incorporation, the stockholder may demand conversion
at his pleasure.
(b) The conversion ratio is the price at which the common is to be valued as against the preferred.

Capital stock is the amount fixed in the articles of incorporation, to be subscribed and paid in by the
shareholders of a corporation, either in money or property, labor or services, at the organization of the
corporation or afterwards and upon which it is to conduct its operation. (2 Fletcher 12.) It represents the
equity of the stockholders in the corporate assets.

Capital stock requirement.

The Code does not set a minimum authorized capital stock except as otherwise provided by special law
as long as the paid-up capital, as required by Section 13, is not less than P5,000.00.
Special laws may require a higher paid-up capital, as in the case of commercial banks, insurance
companies, and investment houses.

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Minimum subscription and paid-up capital

(1) Pre-incorporation. — Section 13 requires that at least 25% of the amount of the capital stock has been
actually subscribed and that at least 25% of such subscription paid.

Special laws may require a higher paid-up capital.

(2) Post incorporation. — The 25% subscription and 25% paid-up capital is required not only during the
incorporation period but also in case of increase of the authorized capital stock. (Sec. 38, par. 4.)

ILLUSTRATION:

Suppose it be desired that Corporation X be incorporated with a capital stock of P100,000.00 divided into
1,000 shares with a par value of P100.00 per share.

In such case, there must be subscribed 250 shares of the par value of P25,000.00 which “shares
represent twenty-five percent (25%)

INCORPORATION

The articles of incorporation is the document prepared by the persons establishing a corporation and
filed with the Securities and Exchange Commission containing the matters required by the Code.

A copy of the articles filed which is returned with the certificate of incorporation issued by the Commission
under its official seal becomes its corporate charter enabling the corporation to exist and function as such.
(see Sec. 19.)

Contents:
(1) The name of the corporation;
(2) The specific purpose or purposes for which the corporation is being incorporated.;
(3) The place where the principal office of the corporation is to be located, which must be within the
Philippines;
(4) The term for which the corporation is to exist;
(5) The names, nationalities and residences of the incorporators;
(6) The number of directors or trustees, which shall not be less than five (5) nor more than fifteen (15);
(7) The names, nationalities and residences of the 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;

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(8) 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 shares 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;
(9) 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
(10) Such other matters as are not inconsistent with law and which the incorporators may deem
necessary and convenient.
(11) The Securities and Exchange Commission shall not accept the articles of incorporation of any stock
corporation unless accompanied by a sworn statement of the Treasurer elected by the subscribers
showing that at least twenty-five percent (25%) of the authorized capital stock of the corporation has been
subscribed, and at least twenty-five percent (25%) of the total subscription has been fully paid to him in
actual cash and/or in property the fair valuation of which is equal to at least twenty-five percent (25%) of
the said subscription, such paid-up capital being not less than Five thousand pesos (P5,000.00).

By specific constitutional and legal provisions, Filipino ownership of a certain percentage of the
capital stock or capital is required in certain cases, such as:

(1) Corporations for exploration, development and utilization of natural resources. — at least 60% of the
capital of which is owned by citizens of the Philippines. (Constitution of the Philippines, Art. XII, Sec. 2.)
The word “capital” in the above constitutional provision should be understood to mean “outstanding
capital stock” in case of stock corporations;
(2) Public service corporations. — at least 60% of the capital of which is owned by citizens of the
Philippines (Ibid., Art. XII, Sec. 11.);
(3) Educational corporations. — Other than those established by religious orders and mission boards, at
least 60% of the capital of which is owned by citizens of the Philippines (Ibid., Art. XIV, Sec. 4[2].);
(4) Banking corporations. — at least 60% of the capital stock of any bank or banking institution which may
be established after the approval of the General Banking Act (July 24, 1948) shall be owned by citizens of
the Philippines (Rep. Act No. 377, Sec. 2.);
(5) Corporations engaged in retail trade. — the capital of which must be wholly owned by citizens of the
Philippines (R.A. No. 1180, Sec. 1.);

Capital stock requirement.

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The Code does not set a minimum authorized capital stock except as otherwise provided by special law
as long as the paid-up capital, as required by Section 13, is not less than P5,000.00.
Special laws may require a higher paid-up capital, as in the case of commercial banks, insurance
companies, and investment houses.

Minimum subscription and paid-up capital

(1) Pre-incorporation. — Section 13 requires that at least 25% of the amount of the capital stock has been
actually subscribed and that at least 25% of such subscription paid.

Special laws may require a higher paid-up capital.

(2) Post incorporation. — The 25% subscription and 25% paid-up capital is required not only during the
incorporation period but also in case of increase of the authorized capital stock. (Sec. 38, par. 4.)

ILLUSTRATION:

Suppose it be desired that Corporation X be incorporated with a capital stock of P100,000.00 divided into
1,000 shares with a par value of P100.00 per share.

In such case, there must be subscribed 250 shares of the par value of P25,000.00 which “shares
represent twenty-five percent (25%) of the authorized capital stock” and of the subscription, there must be
paid to the corporation “at least twenty-five percent (25%)” thereof or P6,250.00 in actual cash and/or
property the fair valuation of which equals P6,250.00. (see Sec. 14, last par.)

If the amount of the authorized capital stock is only P75,000.00, the 25% subscription would be
P18,750.00 and if 25% of the latter amount is paid, the paid-up capital would only be P4,687.50. Section
13 requires that the paid-up capital be not less than P5,000.00.

It is not required for purposes of incorporation that each and every subscriber shall pay 25% of his
subscription. The paid-up requirement is met as long as “25% of the total subscription” is paid although
some subscribers have paid less than 25%, or even have not paid any amount.

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 POWERS OF THE CORPORATION

Every corporation incorporated under this Code has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the articles of incorporation and the
certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in
accordance with this Code;
6. In case of stock corporations, to issue or 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;
7. 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 trans-
action of the lawful business of the corporation may reasonably and necessarily require, subject to the
limitations prescribed by law and the Constitution;
8. To enter into with other corporations, merger or consolidation as provided in this Code;
9. To make reasonable donations, including those for the public welfare or for hospital, charitable,
cultural, scientific, civic, or similar purposes: Pro-vided, That no corporation, domestic or foreign, shall
give donations in aid of any political party or candidate or for purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and
employees; and
11. To exercise such other powers as may be essential or necessary to carry out its purpose or purposes
as stated in its articles of incorporation. (13a)

The three classes of powers of a corporation are:

(1) Those expressly granted or authorized by law (Sec. 2.);
(2) Those that are necessary to the exercise of the express or incidental powers (Secs. 2, 36[11], 45.);
and

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(3) Those incidental to its existence. (Secs. 2, 45.)
The powers of a corporation, however, frequently cut across lines of the above classification.
Acts or contracts of a corporation outside the scope of its express, implied, and incidental powers
are ultra vires.

Express powers are the powers expressly conferred upon the corporation by law. These powers
can be ascertained from the special law creating the corporation, or from the general incorporation law
under which it is created, the general laws of the land applicable to corporations (i.e., Corporation Code),
and its articles of incorporation. (6 Fletcher 183.)
Section 36 contains an enumeration of powers expressly given to corporations created under the general
incorporation law. Other express powers of the corporation are specifically provided in Sections 37-44

Implied powers are those powers which are reasonably necessary to exercise the express powers and to
accomplish or carry out the purposes for which the corporation was formed.
Sometimes it is difficult to determine whether a certain activity is an implied power or not. However, the
following rough classification embraces most of the implied powers:

(1) Acts in the usual course of business. — This includes such acts as borrowing money; making ordinary
contracts; executing promissory notes, checks or bills of exchange; taking notes or other securities;
acquiring personal property for use in connection with the business; acquiring lands and buildings to be
used as places of business or in connection therewith; and selling, leasing, mortgaging or other transfers
of property of the corporation in connection with the running of the business. It is evident that all of such
acts, under ordinary circumstances, are necessary in order to run a business;
(2) Acts to protect debts owing to a corporation. — If a corporation is a creditor, it may do such acts as
may be necessary to protect its right as such creditor. Thus, a corporation may purchase property, act as
a guarantor or sometimes even run a business temporarily to collect a debt;
(3) Embarking in different business. — A corporation may not engage in a business different from that for
which it was created as a regular and a permanent part of its business. (see, however, Sec. 42.) This is
especially true with respect to those particular kinds of corporate activities which are governed by special
laws (see comments under Sec. 14[2].) Thus, a corporation not organized for that purpose cannot go into
the banking or insurance business but it may do any isolated act of banking or insurance in connection
with some express power. So, it is generally held that a corporation may temporarily conduct an outside
business to collect a debt out of its profits;
(4) Acts in part or wholly to protect or aid employees. — While the cases are divided, the better view
favors such acts as building homes, places of amusement, hospitals, etc., for employees, as

18
Incidental or inherent powers are powers which a corporation can exercise by the mere fact of its being a
corporation or powers which are necessary to corporate existence and are, therefore, impliedly granted.
As powers inherent in the corporation as a legal entity, they exist independently of the express powers.
(see Sec. 45.)
Some of the powers enumerated in Section 36 are incidental powers which can be exercised by a
corporation even in the absence of an express grant.
Examples of incidental powers are: the power of succession; to sue and be sued; to have a corporate
name; to purchase and hold real and personal property; to adopt and use a corporate seal; to contract; to
make by-laws; etc.

Under the new corporation code, the corporate term of the corporation is now PERPETUAL

DIVIDENDS

A dividend is that part or portion of the profits of a corporation set aside, declared and ordered by the
directors to be paid ratably to the stockholders on demand or at a fixed time.
It is a payment to the stockholders of a corporation as a return upon their investment. It is a characteristic
of a dividend that all stockholders of the same. 637-639
The board of directors of a stock corporation has the power to declare dividends out of the “unrestricted
retained earnings” which shall be payable in cash, in property, or in stock to all stockholders on the basis
of outstanding stock held by them.
(1) Stock dividends. — In case of stock dividend, it shall not be issued without the approval of
stockholders representing at least 2/3 of the capital stock then outstanding at a regular meeting of the
corporation or at a special meeting duly called for the purpose.

(2) Other dividends. — A mere majority of the quorum of the board of directors is sufficient to declare
other dividends. The board may declare dividends other than stock without need of stockholders’
approval. (Sec. 43)
The dividend is paid to the registered owner of stocks as of a record date usually a date different from the
date of declaration. It is stated either at a given percent or a fixed amount for each share.(13 Am. Jur
Concept of dividends.)
A dividend is that part or portion of the profits of a corporation set aside, declared and ordered by the
directors to be paid ratably to the stockholders on demand or at a fixed time.
It is a payment to the stockholders of a corporation as a return upon their investment. It is a characteristic
of a dividend that all stockholders of the same. 637-639.)

Dividends that may be declared by a corporation may be classified as follows:

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(1) Cash dividend or dividend payable in cash.
(a) Dividends on par value shares are made at a stated percentage (e.g., 10%) of the par value although
they may also be paid as a fixed amount per share.
(b) As to no par value shares, dividends are payable in terms of so many pesos or centavos (e.g., P10.00,
P0.05) per share since there is no basis on which a percentage can be stated.
(c) Dividends are usually paid in money;
(2) Property dividend or dividend distributed to the stock-holders in the form of property, real or personal,
such as warehouse receipts, or shares of stock of another corporation.
(a) A dividend payable in property is actually a cash dividend. The stockholder can take the property, sell
it and realize the cash.
(b) A corporation may, therefore, pay declared cash dividend in the form of a “property” provided the
distribution of the same is practicable, specifically where the surplus is in that form (property) and is no
longer intended to be used in the operation of the business;
(c) The property must form part of the surplus or retained earnings of the corporation, otherwise it cannot
be declared as property dividends;
(3) Stock dividend or dividend payable on unissued or increased or additional shares of the corporation
instead of in cash or in property.
(a) By this alternative to declaring dividends, the corporation can retain earnings. The declaration involves
the issuance of new shares to be distributed pro rata to the stockholders;
(b) A stock dividend may be declared to the extent of the maximum number of shares authorized in the
articles of
Incorporation.

Retained earnings will be the balance of the net worth or net assets after ) The retained earnings of a
corporation is “the difference between the total present value of its assets after deducting losses and
liabilities and the amount of its capital stock.” (see 11 Fletcher 1041.) Capital stock, in this instance,
should be understood to refer to outstanding stock (see Sec. 137.) and not the stated or nominal
(authorized) capital stock.

Stated otherwise, the ordinary way of determining whether a corporation has retained earnings or not is to
compute the value of all its assets and deduct therefrom all of its liabilities including legal capital, and thus
ascertain whether the balance exceeds the amount of its outstanding shares of capital stock. This may be
expressed in the following formula:

Retained earnings = Assets - (liabilities and capital)

20
The difference between the total assets deducting the value of the corporation’s outstanding capital stock.
They refer to the accumulated undistributed earnings or profits realized by a corporation arising from the
transaction of its business and the management of its affairs, out of current and prior years.

, the ordinary way of determining whether a corporation has retained earnings or not is to compute the
value of all its assets and deduct therefrom all of its liabilities including legal capital, and thus ascertain
whether the balance exceeds the amount of its outstanding shares of capital stock. This may be
expressed in the following formula:

Retained earnings = Assets - (liabilities and capital)

KINDS OF VOTING

Every stockholder entitled to vote shall have the right to vote in person or by proxy the numbers of shares
of stock standing, at the time fixed in the by-laws, in his own name on the stock books of the corporation
or where the by-laws are silent, at the time of the election, and said stockholder may vote his shares in
any of the ways mentioned below.

(1) Straight voting. — By this voting method, every stockholder “may vote such number of shares for
as many persons as there are directors” to be elected.
FILLING UP VACANCIES

(2) PERIOD OF FILLING UP VACANCIES BY ELECTION AND EMERGENCY BOARD: If vacancy is

by term expiration, the election shall be held no later than the day of such expiration at a meeting
called for that purpose. If by removal, the election may be held on the same day of the meeting
authorizing the removal. In all other cases, the election must be held no later than 45- days from
vacancy.
An emergency board may be created from among the officers in the event of urgency to prevent
grave, substantial, and irreparable loss or damage to the corporation.

The emergency board:

a) The corporation can be more decisive in times of emergency.

The RCC allows the creation of an emergency board from among the officers when a
vacancy in a corporation’s board of directors prevents the remaining directors from
constituting a quorum and consequently from making emergency action required to
prevent grave, substantial and irreparable loss or damage.

21
 b) Creation, election and duration of the emergency board.

• 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.
• 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.
• Notify SEC within 3-days from creation stating reasons for creation.

KINDS OF MEETINGS

1) Meetings of stockholders or members. — It may be:

(a) Regular or those held annually on a date fixed in the by-laws, or if not so fixed, on any date in April of
every year as determined by the board of directors or trustees; or
(b) Special or those held at any time deemed necessary or as provided in the by-laws. (Secs. 49, 50.)
(2) Meetings of directors or trustees. — It may be:
(a) Regular or those held by the board monthly, unless the by-laws provide otherwise; or
(b) Special or those held by the board at any time upon the call of the president or as provided in the by-
laws. (Secs. 49-53.)
The president shall preside at all meetings of directors or trustees and of the stockholders or members,
unless otherwise provided in the by-laws (Sec. 54.) and subject to the provisions of Section 50. (last par.)
Thus, the by-laws may provide that the chairman instead of the President, shall preside at board
meetings.

DISSOLUTION

The term dissolution, as applied to a corporation, signifies the extinguishment of its franchise to be a

corporation and the termination of its corporate existence. (16 Fletcher 655.)

Under the RCC, GROUNDS FOR DISSOLUTION WAS EXPANDED.

The RCC was modified to expand the grounds for dissolution to include the following:

22
a) a finding (by final judgment) of fraud;

b) a finding that the corporation was used to commit, conceal or aid commission of crime,
smuggling, tax evasion, money laundering, graft and corrupt practices, and/or violate the
SRC;

c) commission of fraudulent and illegal acts and/or repeated and willful misstatement of
facts by directors, trustees, officers, or employees.

The provision:

SEC. 138. Involuntary Dissolution. – A corporation may be dissolved by the

Commission motu proprio or upon filing of a verified complaint by any interested party.
The following may be grounds for dissolution of the corporation:

(a) Non-use of corporate charter as provided under Section 21 of this Code;

(b) Continuous inoperation of a corporation as provided under Section 21 of this
Code;
(c) Upon receipt of a lawful court order dissolving the corporation;
(d) Upon finding by final judgment that the corporation procured its incorporation
through fraud;
(e) Upon finding by final judgment that the corporation:

(1) 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;
(2) Committed or aided in the commission of securities violations,
smuggling, tax evasion, money laundering, or graft and corrupt practices,
and its stockholders knew; and
(3) 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 grounds set forth
in subparagraph (e) hereof, its assets, after payment of its liabilities, shall, upon petition
of the Commission with the appropriate court, be forfeited in favor of the national
government. Such forfeiture shall be without prejudice to the rights of innocent

23
 stockholders and employees for services rendered, and to the application of other penalty
or sanction under this Code or other laws.

The Commission shall give reasonable notice to, and coordinate with, the appropriate
regulatory agency prior to the involuntary dissolution of companies under their special
regulatory jurisdiction.

Liquidation, as applied to a corporation, means the winding-up of the affairs of the corporation, by
reducing its assets into money, settling with creditors and debtors, and apportioning the amount of profit
and loss.

There are three methods by which a dissolved corporation may wind-up its affairs:
(1) Liquidation by the corporation itself (Sec. 122, par. 1.);
(2) Liquidation by a duly appointed receiver (Sec. 119, last par.); and
(3) Liquidation by trustees to whom the board of directors or trustees had conveyed the corporate assets.
(see Sec. 122, par. 2.)

Upon winding-up of the corporate affairs, any asset distributable to any creditor or stockholder or member
who is unknown or cannot be found shall be escheated to the city or municipality where such assets are
located. (Sec. 122, par. 3.) Under the law, such distributive shares of the assets of the corporation upon
its dissolution are not available for general distribution among the stockholders. The reason for this rule is
that upon the dissolution of a corporation, the assets become a trust fund (see Sec. 41.) with the title of
the stockholders becoming an equitable right to a distributive share therein, and that the stockholders, in
respect of the liquidating dividend, are not mere creditors, but the money is set apart for them and is,
therefore, not available for general distribution. (19 Am. Jur. 2d 1035-1036.)

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 SOME OF THE NOTABLE CHANGES IN THE
2019 REVISED CORPORATION CODE (RCC)

REPUBLIC ACT NO. 11232

AN ACT PROVIDING FOR THE REVISED CORPORATION CODE OF THE PHILIPPINES

I. FUNDAMENTAL CHANGES

1. INCORPORATORS: Removal of the minimum number of incorporators. Partnership,

association or corporation, singly or jointly with others may now form a corporation

2. ONE PERSON CORPORATION (OPC): Allowance for a single person - whether natural or
juridical to organize and put up a corporation.

Features of an OPC:

a) A one person corporation (OPC) is a corporation with a single stockholder, who can only
be a natural person, trust or estate. The incorporator of an OPC being a natural person
must be of legal age.

b) The “trust” as incorporator in OPC.

25
 As an incorporator, the “trust” as used by the law does not refer to a trust entity, but as
subject being managed by a trustee.

If the single stockholder is a trustee, administrator, executor, guardian, conservator,

custodian, or other person exercising fiduciary duties, proof of authority to act on behalf
of the trust or estate must be submitted at the time of incorporation.

c) Entities NOT allowed to form a OPC:

• Banks
• Non-bank financial institutions
• Quasi-banks
• Pre-need, trust and insurance companies
• Public and publicly listed companies
• Non-chartered (GOCCS)
• A natural person who is licensed to exercise a profession may not organize as an
OPC for the purpose of exercising such profession except as otherwise provided
under special laws.

d) The corporate name of OPC.

The suffix “OPC” should be indicated by the one-person corporation either below or at the
end of its corporate name.

e) Unique features:

• Not be required to have a minimum authorized capital stock except as otherwise

provided by special law.
• NOT required to submit and file BLs.
• The single stockholder shall be the sole director and president.
• The single stockholder may not be appointed as the corporate secretary.
• A single stockholder can be a treasurer; shall post a surety bond.
• The principles of piercing the corporate veil applies with equal force to OPC
as with other corporations.

f) Within 15-days from the issuance of its certificate of incorporation, the OPC shall appoint
a:

26
 • treasurer,
• corporate secretary, and
• other officers as it may deem necessary, and
• notify the SEC thereof within five (5) days from appointment.

g) A nominee and alternate nominee, whose written consent must be obtained, shall be
designated.

The single stockholder may, at any time, change its nominee and alternate nominee by
submitting to the Commission the names of the new nominees and their corresponding
written consent. The Articles of Incorporation need not be amended.

In case the single stockholder becomes incapacitated, the nominee can take over the
management of the OPC as director and president. At the end of the incapacity, the
single stockholder can resume the management of the OPC.

In case of death or permanent incapacity of the single stockholder, the nominee will take
over the management of the OPC until the legal heirs of the single stockholder have been
lawfully determined and the heirs have agreed among themselves who will take the place
of the deceased.

h) Conversion to OPC.

Only a Domestic Corporation organized as a Stock Corporation may be converted into a

One Person Corporation. The Ordinary Stock Corporation (OSC) may only apply for its
conversion to OPC after a natural person of legal age, a trust, or an estate (“single
stockholder”) acquired all outstanding capital stocks of an OSC.

Conversion is processed in the same manner as amendment of an Articles of

Incorporations/By-laws.

Conversion shall take effect upon approval of the Amended Articles of Incorporation
through the issuance of a Certificate of Filing of Conversion to One Person Corporation.

i) Conversion from OPC to ordinary corporation

27
 A OPC may be converted into an ordinary stock corporation by filing an amended AOI
with the SEC and comply with all the requirements.

If all requirements have been complied with, the SEC shall issue a certificate of filing of
amended articles of incorporation reflecting the conversion.

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

The provisions:

SEC. 10. Number and Qualifications of Incorporators– Any person, partnership,

association or corporation, singly or jointly with others but not more than fifteen (15) in
number, may organize a corporation for any lawful purpose or purposes: Provided, That
natural persons who are licensed to practice a profession, and partnerships or
associations organized for the purpose of practicing a profession, shall not be allowed to
organize as a corporation unless otherwise provided under special laws. Incorporators
who are natural persons must be of legal age.

Each incorporator of a stock corporation must own or be a subscriber to at least one (1)
share of the capital stock.

A corporation with a single stockholder is considered a One Person Corporation as

described in Title XIII, Chapter III of this Code.

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

Banks and quasi-banks, preneed, trust, insurance, public and publicly-listed companies,
and non-chartered government owned and controlled corporations may not incorporate
as One Person Corporations: Provided, further, That a natural person who is licensed
to exercise a profession may not organize as a One Person Corporation for the
purpose of exercising such profession except as otherwise provided under special
laws.

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

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

SEC. 121. Single Stockholder as Director, President. – The single stockholder shall
be the sole director and president of the One Person Corporation.

SEC. 122. Treasurer, Corporate Secretary, and Other Officers. – Within fifteen (15)
days from the issuance of its certificate of incorporation, the One Person Corporation
shall appoint a treasurer, corporate secretary, and other officers as it may deem
necessary, and notify the Commission thereof within five (5) days from appointment.

The single stockholder may not be appointed as the corporate secretary.

SEC. 124. 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 One Person Corporation.

29
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.

SEC. 130. Liability of Single Shareholder. – A sole shareholder claiming limited liability
has the burden of affirmatively showing that the corporation was adequately financed.

Where the single stockholder cannot prove that the property of the One Person
Corporation is independent of the stockholder’s personal property, the stockholder shall
be jointly and severally liable for the debts and other liabilities of the One Person
Corporation.

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

SEC. 131. Conversion from an Ordinary Corporation to a One Person Corporation.

– When a single stockholder acquires all the stocks of an ordinary stock corporation, the
latter may apply for conversion into a One Person Corporation, subject to the submission
of such documents as the Commission may require. If the application for conversion is
approved, the Commission shall issue a certificate of filing of amended articles of
incorporation reflecting the conversion. The One Person Corporation converted from an
ordinary stock corporation shall succeed the latter and be legally responsible for all the
latter’s outstanding liabilities as of the date of conversion.

SEC. 132. Conversion from a One Person Corporation to an Ordinary Stock

Corporation. – A One Person Corporation may be converted into an ordinary stock
corporation after due notice to the Commission of such fact and of the circumstances
leading to the conversion, and after compliance with all other requirements for stock
corporations under this Code and applicable rules. Such notice shall be filed with the
Commission within sixty (60) days from the occurrence of the circumstances leading to
the conversion into an ordinary stock corporation. If all requirements have been complied
with, the Commission shall issue a certificate of filing of amended articles of incorporation
reflecting the conversion.

In case of death of the single stockholder, the nominee or alternate nominee shall
transfer the shares to the duly designated legal heir or estate within seven (7) days from
receipt of either an affidavit of heirship or self-adjudication executed by a sole heir, or any

30
 other legal document declaring the legal heirs of the single stockholder and notify the
Commission of the transfer. Within sixty (60) days from the transfer of the shares, the
legal heirs shall notify the Commission of their decision to either wind up and dissolve the
One Person Corporation or convert it into an ordinary stock corporation.

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

3. CORPORATE TERM: Removal of the 50-year corporate term. The corporation will exist
perpetually, unless there is a provision in the Articles of Incorporation with regard to the
term of corporate existence or unless sooner dissolved.

4. REVIVIVAL OF CORPORATIONS: A corporation whose term has expired may apply for a
revival of its corporate existence, together with all the rights and privileges under its
certificate of incorporation and subject to all of its duties, debts and liabilities existing
prior to its revival. 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.

The provision:

SEC. 11. Corporate Term. – A corporation shall have perpetual existence unless its
articles of incorporation provides otherwise.

Corporations with certificates of incorporation issued prior to the effectivity of this Code,
and which continue to exist, shall have perpetual existence, unless the corporation, upon
a vote of its stockholders representing a majority of its outstanding capital stock, notifies
the Commission that it elects to retain its specific corporate term pursuant to its articles of
incorporation: Provided , that any change in the corporate term under this section is
without prejudice to the appraisal right of dissenting stockholders in accordance with the
provisions of this Code.

A corporate term for a specific period may be extended or shortened by amending the
articles of incorporation: Provided, That no extension may be made earlier than three (3)
years prior to the original or subsequent expiry date(s) unless there are justifiable
reasons for an earlier extension as may be determined by the Commission: Provided,

31
 further, That such extension of the corporate term shall take effect only on the day
following the original or subsequent expiry date(s).

A corporation whose term has expired may apply for a revival of its corporate existence,
together with all the rights and privileges under its certificate of incorporation and subject
to all of its duties, debts and liabilities existing prior to its revival. 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.

No application for revival of certificate of incorporation of banks, banking and quasi-

banking institutions, preneed, insurance and trust companies, nonstock savings and loan
associations, pawnshops, corporations engaged in money service business, and other
financial intermediaries shall be approved by the Commission unless accompanied by a
favorable recommendation of the appropriate government agency.

5. DELETION OF PROVISION REQUIRING SUBSCRIPTION OF, AND PAID-UP, CAPITAL.

The deleted provision:

Section 13. Amount of capital stock to be subscribed and paid for the purposes of
incorporation. – At least twenty-five percent (25%) of the authorized capital stock as
stated in the articles of incorporation must be subscribed at the time of incorporation, and
at least twenty-five (25%) per cent of the total subscription must be paid upon
subscription, the balance to be payable on a date or dates fixed in the contract of
subscription without need of call, or in the absence of a fixed date or dates, upon call for
payment by the board of directors: Provided, however, That in no case shall the paid-up
capital be less than five Thousand (P5,000.00) pesos. (n)

6. NO MINIMUM STOCK REQUIRED: One can start a business with as little capital or funding
possible.

The provision:

32
 SEC. 12. Minimum Capital Stock Not Required of Stock Corporations. -- Stock
corporations shall not be required to have a minimum capital stock, except as otherwise
specifically provided by special law.

7. NO MORE RESIDENCY REQUIREMENT FOR INCORPORATORS AND DIRECTORS.

The RCC states that each incorporator of a stock corporation must own or be a subscriber to at
least one (1) share of the capital stock. (Secs. 10) A director who ceases to own at least one (1)
share of stock or a trustee who ceases to be a member of the corporation shall cease to be such.
(Sec. 22)

8. PERIOD OF FILLING UP VACANCIES BY ELECTION AND EMERGENCY BOARD: If vacancy

is by term expiration, the election shall be held no later than the day of such expiration at a
meeting called for that purpose. If by removal, the election may be held on the same day of
the meeting authorizing the removal. In all other cases, the election must be held no later
than 45- days from vacancy.

An emergency board may be created from among the officers in the event of urgency to
prevent grave, substantial, and irreparable loss or damage to the corporation.

The emergency board:

a) The corporation can be more decisive in times of emergency.

The RCC allows the creation of an emergency board from among the officers when a
vacancy in a corporation’s board of directors prevents the remaining directors from
constituting a quorum and consequently from making emergency action required to
prevent grave, substantial and irreparable loss or damage.

b) Creation, election and duration of the emergency board.

• 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.
• 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.

33
 • Notify SEC within 3-days from creation stating reasons for creation.

The provision:

SEC. 28. Vacancies in the Office of Director or Trustee; Emergency Board. – Any
vacancy occurring in the board of directors or trustees other than by removal or by
expiration of term may be filled by the vote of at least a majority of the remaining directors
or trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the
stockholders or members in a regular or special meeting called for that purpose.

When the vacancy is due to term expiration, the election shall be held no later than
the day of such expiration at a meeting called for that purpose. When the vacancy
arises as a result of removal by the stockholders or members, the election may be
held on the same day of the meeting authorizing the removal and this fact must be
so stated in the agenda and notice of said meeting. In all other cases, the election must
be held no later than forty-five (45) days from the time the vacancy arose. A director
or trustee elected to fill a vacancy shall be referred to as replacement director or trustee
and shall serve only for the unexpired term of the predecessor in office.

However, 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 Commission within three (3) days from the creation of the
emergency board, stating therein the reason for its creation.

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.

In all elections to fill vacancies under this section, the procedure set forth in Sections 23
and 25 of this Code shall apply.

34
9. INTEGRATION OF ARBITRATION AGREEMENT IN THE ARTICLES OF INCORPORATION OR
BYLAWS.

The RCC allows for an arbitration agreement to be provided in the articles of incorporation (AOI)
or bylaws (BLs) of a corporation.

With such an agreement in place, disputes between the corporation, its stockholders or members
that arise from the implementation of AOI or BLs or from intracorporate relations shall now be
referred to arbitration.

Disputes involving criminal offenses or the interests of third parties remain non-arbitrable.

The provision:

SEC. 181. Arbitration for Corporations. – An arbitration agreement may be provided in

the articles of incorporation or bylaws of an unlisted corporation. When such an
agreement is in place, disputes between the corporation, its stockholders or members,
which arise from the implementation of the articles of incorporation or bylaws, or from
intra-corporate relations, shall be referred to arbitration. A dispute shall be nonarbitrable
when it involves criminal offenses and interests of third parties. x x x

10. THE BAN ON CORPORATE DONATIONS FOR POLITICAL PARTIES OR CANDIDATES

LIFTED.

The RCC amended Section 36(9) of the Old Code, which stated that no corporation, domestic or
foreign, shall give donations in aid of any political party or candidate or for purposes of partisan
political activity.

The RCC now expressly bans only foreign corporations from giving such donations.

The provision:

SEC. 35. Corporate Powers and Capacity. – Every corporation incorporated under this
Code has the power and capacity:
xxx

35
 (i) To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no foreign
corporation shall give donations in aid of any political party or candidate or for purposes
of partisan political activity;
xxx

11. TERM OF TRUSTEES AND INDEPENDENT DIRECTORS IN CORPORATIONS VESTED WITH

PUBLIC INTEREST: Trustees shall be elected for a term not exceeding three (3) years.
Corporations vested with public interest shall have independent directors constituting at
least twenty percent (20%) of such board.

The provision:

SEC. 22. The Board of Directors or Trustees of a Corporation; Qualification and

Term. – x x x

Directors shall be elected for a term of one (1) year from among the holders of stocks
registered in the corporation’s books, while trustees shall be elected for a term not
exceeding three (3) years from among the members of the corporation. Each director
and trustee shall hold office until the successor is elected and qualified. A director who
ceases to own at least one (1) share of stock or a trustee who ceases to be a member of
the corporation shall cease to be such.

The board of the following corporations vested with public interest shall have independent
directors constituting at least twenty percent (20%) of such board:
xxx

Requirement of independent directors

The board of the following corporations vested with public interest shall have
independent directors constituting at least twenty percent (20%) of such board:

a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as
“The Securities Regulation Code”, namely those whose securities are registered with the
Commission, corporations listed with an exchange or with assets of at least Fifty million

36
 pesos (P50,000,000.00) and having two hundred (200) or more holders of shares, each
holding at least one hundred (100) shares of a class of its equity shares;

b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money

service business, pre-need, trust and insurance companies, and other financial
intermediaries; and

c) Other corporations engaged in business vested with public interest similar to the
above, as may be determined by the Commission, after taking into account relevant
factors which are germane to the objective and purpose of requiring the election of an
independent director, such as the extent of minority ownership, type of financial products
or securities issued or offered to investors, public interest involved in the nature of
business operations, and other analogous factors. (Sec. 22)

Independent director

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.
Independent directors must be elected by the shareholders present or entitled to vote in
absentia during the election of directors.

Independent directors shall be subject to rules and regulations governing their

qualifications, disqualifications, voting requirements, duration of term and term limit,
maximum number of board memberships and other requirements that the Commission
will prescribe to strengthen their independence and align with international best practices.
(Sec. 22)

12. DELETION OF THE THREE (3) BATCHES OF EXPIRATION

The deleted provision:

Section 92. Election and term of trustees. – Unless otherwise provided in the articles
of incorporation or the by-laws, the board of trustees of non-stock corporations, which
may be more than fifteen (15) in number as may be fixed in their articles of incorporation

37
 or by-laws, shall, as soon as organized, so classify themselves that the term of office of
one-third (1/3) of their number shall expire every year; and subsequent elections of
trustees comprising one-third (1/3) of the board of trustees shall be held annually and
trustees so elected shall have a term of three (3) years. Trustees thereafter elected to fill
vacancies occurring before the expiration of a particular term shall hold office only for the
unexpired period.

13. CORPORATE OFFICERS: Treasurer must be a resident. Compliance officer was added in
corporations vested with public interest.

The provision:

SEC. 24. Corporate Officers. – Immediately after their election, the directors of a
corporation must formally organize and elect: (a) a president, who must be a director; (b)
a treasurer, who must be a resident; (c) a secretary, who must be a citizen and
resident of the Philippines; and (d) such other officers as may be provided in the bylaws.
If the corporation is vested with public interest, the board shall also elect a
compliance officer. The same person may hold two (2) or more positions concurrently,
except that no one shall act as president and secretary or as president and treasurer at
the same time, unless otherwise allowed in this Code.

The officers shall manage the corporation and perform such duties as may be provided in
the bylaws and/or as resolved by the board of directors.

14. ADDITIONAL REGULATORY CONDITIONS AND OFFICERS AND IN CORPORATION

VESTED WITH PUBLIC INTEREST.

Corporations vested with public interest are required to elect a compliance officer upon
organization. (Sec. 24) They are required to submit additional annual reports to the SEC,
particularly a director/trustee compensation report and a director/trustee appraisal or performance
report. (Sec. 177) At least 20% composition of the boards of such corporations shall be independent
directors. (Sec. 22)
  Corporations vested with public interest are:

a) Those whose securities are registered with the SEC, corporations listed with an
exchange or with assets of at least P50Million and having two hundred (200) or more

38
 holders of shares, each holding at least one hundred (100) shares of a class of its equity
shares;

b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service

business, pre-need, trust and insurance companies, and other financial intermediaries;
and

c) Other corporations engaged in business vested with public interest similar to the above,
as may be determined by the SEC.
(Sec. 22)

II. TECHNOLOGICAL CHANGES

Participation via remote communication, in absentia.

Shareholders may be involved in the decision making process whenever and wherever they are.
The RCC allowed the use of remote communication such as videoconferencing and
teleconferencing during stockholder meetings. Stockholder may also participate and vote in
absentia.

The SEC shall issue the rules and regulations governing participation and voting through remote
communication or in absentia

Voting and participation in board meetings through remote communication now allowed.

1. ELECTION AND MANNER OF VOTING OF DIRECTORS OR TRUSTEES: When so authorized

in the bylaws or by a majority of the board of directors, the stockholders or members may
also vote through remote communication or in absentia.

The provision:

Sec. 23. Election of Directors or Trustees. – x x x

At all elections of directors or trustees, there must be present, either in person or through
a representative authorized to act by written proxy, the owners of majority of the
outstanding capital stock, or if there be no capital stock, a majority of the members
entitled to vote. When so authorized in the bylaws or by a majority of the board of

39
 directors, the stockholders or members may also vote through remote
communication or in absentia: Provided, That the right to vote through such modes
may be exercised in corporations vested with public interest, notwithstanding the
absence of a provision in the bylaws of such corporations.
xxx

SEC. 57. Manner of Voting; Proxies. – Stockholders and members may vote in person
or by proxy in all meetings of stockholders or members.

When so authorized in the bylaws or by a majority of the board of directors, the

stockholders or members of corporations may also vote through remote
communication or in absentia: Provided, That the votes are received before the
corporation finishes the tally of votes.

A stockholder or member who participates through remote communication or in absentia

shall be deemed present for purposes of quorum. x x x

2. CONSENT OF STOCKHOLDERS VIA ELECTRONIC MEANS IN CASE OF

EXTENSION/SHORTENING OF CORPORATE TERM; INCREASE OR DECREASE CAPITAL
STOCK; INCURRING, CREATING OR INCREASE OF BONDED INDEBTEDNESS;
INVESTMENT OF CORPORATE FUNDS.

The provision:

SEC. 36. Power to Extend or Shorten Corporate Term. – A private corporation may
extend or shorten its term as stated in the articles of incorporation when approved by a
majority vote of the board of directors or trustees and ratified at a meeting by the
stockholders or members representing at least two-thirds (2/3) of the outstanding capital
stock or of its members. Written notice of the proposed action and the time and place of
the meeting shall be sent to stockholders or members at their respective place of
residence as shown in the books of the corporation, and must be deposited to the
addressee in the post office with postage prepaid, served personally, or when allowed in
the by-laws or done with the consent of the stockholder, sent electronically in
accordance with the rules and regulations of the Commission on the use of electronic
data messages. In case of extension of corporate term, a dissenting stockholder may
exercise the right of appraisal under the conditions provided in this Code.

40
 SEC. 37. Power to Increase or Decrease Capital Stock; Incur, Create or Increase
Bonded Indebtedness. – No corporation shall increase or decrease its capital stock or
incur, create or increase any bonded indebtedness unless approved by a majority vote of
the board of directors and by two-thirds (2/3) of the outstanding capital stock at a
stockholders’ meeting duly called for the purpose. Written notice of the time and place of
the stockholders’ meeting and the purpose for said meeting must be sent to the
stockholders at their places of residence as shown in the books of the corporation and
served on the stockholders personally, or through electronic means recognized in the
corporation’s bylaws and/or the Commission’s rules as a valid mode for service of
notices.

SEC. 41. Power to Invest Corporate Funds in Another Corporation or Business or for
Any Other Purpose. – Subject to the provisions of this Code, a private corporation may
invest its funds in any other corporation, business, or for any purpose other than the
primary purpose for which it was organized, when approved by a majority of the board of
directors or trustees and ratified by the stockholders representing at least two-thirds (2/3)
of the outstanding capital stock, or by at least two-thirds (2/3) of the members in the case
of non-stock corporations, at a meeting duly called for the purpose. Notice of the proposed
investment and the time and place of the meeting shall be addressed to each stockholder
or member at the place of residence as shown in the books of the corporation and
deposited to the addressee in the post office with postage prepaid, served personally, or
sent electronically in accordance with the rules and regulations of the Commission on the
use of electronic data message, when allowed by the bylaws or done with the consent of
the stockholders: Provided, That any dissenting stockholder shall have appraisal right as
provided in this Code: Provided, however, That where the investment by the corporation is
reasonably necessary to accomplish its primary purpose as stated in the articles of
incorporation, the approval of the stockholders or members shall not be necessary.

3. NOTICE OF REGULAR NOTICE SPECIAL MEETINGS VIA ELECTRONIC MAIL OR SUCH

OTHER MANNER. 

The provision:

SEC. 49. Regular and Special Meetings of Stockholders or Members. – Regular

meetings of stockholders or members shall be held annually on a date fixed in the bylaws,
or if not so fixed, on any date after April 15 of every year as determined by the board of
directors or trustees: Provided, That written notice of regular meetings shall be sent to all

41
 stockholders or members of record at least twenty-one (21) days prior to the meeting,
unless a different period is required in the bylaws, law, or regulation: Provided, further,
That written notice of regular meetings may be sent to all stockholders or members of
record through electronic mail or such other manner as the Commission shall allow
under its guidelines. xxx

The right to vote of stockholders or members may be exercised in person, through a

proxy, or when so authorized in the bylaws, through remote communication or in
absentia. The Commission shall issue the rules and regulations governing participation
and voting through remote communication or in absentia, taking into account the
company’s scale, number of shareholders or members, structure, and other factors
consistent with the protection and promotion of shareholders’ or member’s meetings.

4. BOARD MEETINGS: Allowance of remote communication methods in attending board

meetings subject to provisions of the by-laws. 

The provision:

SEC. 52. Regular and Special Meetings of Directors or Trustees; Quorum. — x x x

Directors or trustees who cannot physically attend or vote at board meetings can
participate and vote 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.

5. ELECTRONIC FILING AND MONITORING SYSTEM. 

Register, apply or file online.

As part of efforts of doing business in the country, the RCC mandated the SEC to develop and
implement an electronic filing and monitoring system.

II. OTHER CHANGES

1. CHANGE IN CORPORATIONS NOT PERMITTED TO ISSUE NO PAR VALUE SHARES.

42
 The provision:

SEC. 6. Classification of shares.

The shares or series of shares may or may not have a par value: Provided, That banks,
trust, insurance, and preneed companies, public utilities, building and loan associations,
and other corporations authorized to obtain or access funds from the public, whether
publicly listed or not, shall not be permitted to issue no-par value shares of stock. x x x
2. DELETION OF ONE-MONTH PERIOD TO ADOPT BY-LAWS. 

The deleted provision:

Section 46. Adoption of by - laws. – Every corporation formed under this Code must,
within one (1) month after receipt of official notice of the issuance of its certificate of
incorporation by the Securities and Exchange Commission, adopt a code of by-laws for
its government not inconsistent with this Code.

3. FAILURE TO ORGANIZE AS A GROUND REVOCATION OF CORPORATE EXISTENCE WAS

MODIFIED FROM 2-YEARS TO 5-YEARS. PROVISION LIFTING DELINQUENT STATUS
INCLUDED.

Corporations are now allowed five (5) years from incorporation to commence operations. The old
Code had only allowed two years.

The provision:

SEC. 21. Effects of Non - Use of Corporate Charter and Continuous Inoperation. – If
a corporation does not formally organize and commence its business within five (5) years
from the date of its incorporation, its certificate of incorporation shall be deemed revoked
as of the day following the end of the five (5) year period.

However, if a corporation has commenced its business but subsequently becomes

inoperative for a period of at least five (5) consecutive years, the Commission may, after
due notice and hearing, place the corporation under delinquent status.

43
 A delinquent corporation shall have a period of two (2) years to resume operations and
comply with all requirements that the Commission shall prescribe. Upon compliance by
the corporation, the Commission shall issue an order lifting the delinquent status.

Failure to comply with the requirements and resume operations within the period given by
the Commission shall cause the revocation of the corporation’s certificate of
incorporation.

The Commission shall give reasonable notice to, and coordinate with the appropriate
regulatory agency prior to the suspension or revocation of the certificate of incorporation
of companies under their special regulatory jurisdiction.

4. VOIDABLE DEALINGS OF DIRECTORS OR TRUSTEES: It now includes spouses and

relatives within the fourth civil degree of consanguinity or affinity.

The provision:
SEC. 31. Dealings of Directors, Trustees or Officers with the Corporation. – A
contract of the corporation with one (1) or more of its directors, trustees, officers or their
spouses and relatives within the fourth civil degree of consanguinity or affinity is
voidable, at the option of such corporation, x x x.

5. REMOVAL OF A MEMBER OF THE BOARD OF DIRECTORS OR TRUSTEES: The SEC may

remove disqualified members of the Board of Directors or Trustees.

The provision:

SEC. 27. Removal of Directors or Trustees. –

The Commission shall, 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. The removal of a
disqualified director shall be without prejudice to other sanctions that the Commission
may impose on the board of directors or trustees who, with knowledge of the
disqualification, failed to remove such director or trustee.

6. CONSIDERATION FOR STOCKS: Shares of stocks and other generally accepted form of
consideration added as acceptable considerations.

44
 The provision:

Sec. 61. Consideration for Stocks. – Stocks shall not be issued for a consideration less
than the par or issued price thereof. Consideration for the issuance of stock may be:
(g) Shares of stock in another corporation; and/or
(h) Other generally accepted form of consideration.

7. POWER TO SELL CORPORATE ASSETS SUBJECT TO THE PROVISIONS OF THE

PHILIPPINE COMPETITION ACT (RA 10667).

A corporation can freely dispose of its assets

However, any sale, lease, exchange, mortgage, pledge or other disposition of all or substantially
all of corporate assets will be required to be undertaken upon a majority vote of the Board and 2/3
vote of stockholders or members, written notice having been given when the contemplated
disposition will rendered it incapable of continuing the business or accomplishing its purpose.
This is also subject to the provisions of the Philippine Competition Act (RA 10667).

The provision:

SEC. 39. Sale or Other Disposition of Assets. – Subject to the provisions of Republic
Act No. 10667, otherwise known as “Philippine Competition Act”, and other related laws,
a corporation may, by a majority vote of its board of directors or trustees, sell, lease,
exchange, mortgage, pledge, or otherwise dispose of its property and assets, upon such
terms and conditions and for such consideration, which may be money, stocks, bonds, or
other instruments for the payment of money or other property or consideration, as its
board of directors or trustees may deem expedient. x x x

8. GROUNDS FOR DISSOLUTION EXPANDED.

The RCC was modified to expand the grounds for dissolution to include the following:

a) a finding (by final judgment) of fraud;

b) a finding that the corporation was used to commit, conceal or aid commission of crime,
smuggling, tax evasion, money laundering, graft and corrupt practices, and/or violate the
SRC;

45
c) Commission of fraudulent and illegal acts and/or repeated and willful misstatement of
facts by directors, trustees, officers, or employees.

The provision:

SEC. 138. Involuntary Dissolution. – A corporation may be dissolved by the

Commission motu proprio or upon filing of a verified complaint by any interested party.
The following may be grounds for dissolution of the corporation:

(a) Non-use of corporate charter as provided under Section 21 of this Code;

(b) Continuous inoperation of a corporation as provided under Section 21 of this
Code;
(c) Upon receipt of a lawful court order dissolving the corporation;
(d) Upon finding by final judgment that the corporation procured its incorporation
through fraud;
(e) Upon finding by final judgment that the corporation:

(1) 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;
(2) Committed or aided in the commission of securities violations,
smuggling, tax evasion, money laundering, or graft and corrupt practices,
and its stockholders knew; and
(3) 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 grounds set forth
in subparagraph (e) hereof, its assets, after payment of its liabilities, shall, upon petition
of the Commission 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 this Code or other laws.

46
 The Commission shall give reasonable notice to, and coordinate with, the appropriate
regulatory agency prior to the involuntary dissolution of companies under their special
regulatory jurisdiction.

CHAPTER SUMMARY:

The Revised Corporation Code ( RCC) was signed into law on February 20, 2020. It repeals Batas
Pambansa Blg.68 or the Corporation Code of the Philippines. It simplifies the requirements is setting up
and registering a corporation with the Securities and Exchange Commission. Additionally, the new law
recognizes the importance of technology and its use to facilitate government and internal corporate
process.

The RCC, NO longer requires five shareholders in order to put up a corporation. It has also
removed the minimum subscribed paid up capital requirement for stock corporations. The new law also
provides perpetual existence to corporations whose corporate terms have not yet expired unless its
articles of incorporation provide. Moreover, the RCC mandates the SEC to develop and implement a
system to enable electronic submission of applications, reports, and other documents as well as the
sharing of pertinent information with other government agencies to eliminate “Red Tape”.

In order to cope with the changing world, the RCC allows the Shareholders and Directors to
participate in meetings through remote communication. Another notable change in the Corporation
Code, is the strengthening of Corporate Governance. Under the RCC, a corporation vested with public
interest must have; 1) a board with independent directors occupying at least 20% of its board seats, and
2) a compliance officer.

The RCC also include the following that the corporate articles of incorporation and/ or by laws
may include an arbitration agreement for intra-corporate disputes. Also, the minimum amount of
security deposit required for Foreign Corporations doing business in the Philippines is increased from
P100,000 to P500,000. Additionally, a person required to file a report with the SEC may redact
confidential information from such report.( www.conventuslaw.com )

47
REFERENCES:

1. Ignacio J., Some Notable Changes in the Corporation Code 2019

2. Sundiang C. , Notes in Corporation Law.2017.Central Bookstore
3. Villanueva,C., Corporation Law Reiviewer.2017.Rex Bookstore
4. Quisumbing Torres. www.conventuslaw.com. Retrieved August 14,2020

COURSE GRADING CRITERIA FOR ONLINE:

Participation ( Virtual Discussion and Chat ) 30%

Online Assignment and Activities 20%

Online Quizzes 20%

Major Examination Via Online App 20%

Project 10%

_____________

100%

48
UNIT TEST:
I. Encircle the letter of the correct answer

1. These are the persons who sign the articles of incorporation and therefore must be subscribers of
shares.
a. Incorporators
b. Directors
c. Stockholders
d. Corporate officers
2. A certificate of stock is not a negotiable instrument because it lacks the requirement of:
a. The instrument must be in writing and signed by the maker or drawer
b. It must contain an unconditional order or promise to pay a sum certain in money.
c. It must be payable to order or to the bearer
d. It must be payable in demand or at a fixed or determinable future time
3. As regards treasury shares, which is not correct?
a. They have no voting rights while in the treasury
b. They may be distributed as property dividend if there is a surplus profit
c. They are not entitled dividend
d. They are considered as part of the earned or surplus profits thus distributable as
dividends
4. This is the equitable right of the stockholders to subscribe to all issues of shares in proportion to
their shareholdings to maintain their equity participation in the corporation:
a. Right of first refusal in close corporation
b. Right to dividends date entity

49
 c. Pre-emptive right
d. Appraisal right of dissenting stockholder
5. For a de facto corporation to exist, it is necessary that it is issued by the SEC a certificate of
incorporation just like a de jure corporation.
In corporation by estoppel those who represent themselves as forming by a corporation are liable
as stockholders to third person.
a. First statement is true, second is false
b. First is false, second is true.
c. Both are false.
d. Both are true.
6. X corporation posted P 1M profit in its realty business and its real estate has appreciated in value
to the tune of P 4M. The board then declared dividends to its stockholder computed in the basis
of representing profits and appreciation in value of its real estate. Is the dividend declaration
valid?
a. Not valid because there was no approval of 2/3 of the outstanding capital stock
b. Valid because it was based on profit and increment in the value of the corporate assets.
c. Not valid because dividends must be only come from the unrestricted retained earnings
d. Valid if no creditors shall be prejudiced and approved by the required votes of the
directors and stockholders
7. Redeemable shares may be taken up or purchased by the corporation even in the absence of
surplus profits.
Treasury shares may be reissued for a reasonable price even below par value.
a. Both are false
b. Both are true
c. Only the first is false
d. Only the first is true
8. A subscribed to 100 shares of X corporation, paying 25% of the amount thereof. The corporation
refuses to issue to the former stock certificate for his subscription despite the demand of A for a
stock certificate corresponding to 25 shares which he claims have been paid. Meanwhile, the
corporation has become insolvent and A now refuses to pay for his unpaid balance on his
subscription. Is the refusal of the corporation to issue the certificate valid?
a. Not valid because there can be issued a stock certificate for the number of shares
already paid
b. Valid because the stock certificate can only be issued after the full payment of the
subscription
c. Valid with respect to the unpaid portion of the subscription
d. Not valid because only delinquent shares may be denied in a stock certificate.

50
9. I. No share may be deprived of voting rights except those classified ad issued as preferred or
subscribed shares
II. Preferred shares of stock issued by a corporation may be given preference in the distribution of
dividends and I the distribution of assets in case of liquidation.
a. False,true c. true,false
b. True, true d. false,false
10. A kind of corporation with a single stock holder
a. Corporation sole
b. Close corporation
c. One person corporation
d. Single corporation

II. Essay:

1. Briefly explain the doctrine of “corporate entity” in relation to the doctrine of piercing the veil of the
corporate fiction.
2. Distinguish de jure corporation from a de facto corporation
3. X, Inc. has an authorized capital stock of php10,000,00 consisting of 100,000 common shares @
Php100 par value. So far only 80,000 common shares have bee offered for subscription, all of
which are now subscribed and fully paid for, in effect giving the corporation an outstanding capital
stock of Php 8,000,000 ( 80,000 shares x 100)
a. Is X Inc. allowed to increase its capital stock by creating additional new 40,000 common
shares @ p100 par value? Explain.
b. Considering your answer in letter (a), how much must be subscribed and paid in order to
meet the 25% - 25% subscription requirement? Explain briefly.
c. Assuming that A is a stock holder of X, Inc. owning 4,000 shares, up to what extent is his
right of pre-emption? Explain
4. How may a corporation be dissolved? Explain.

5. X corporation has nine (9) members of the board of directors, A recent plane crash resulted into
the death of some of the directors. How will the vacancies be filled up assuming:
a. Three directors died in the accident or
b. Five directors died in the accident

6. Define a corporation and give its attributes

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7. Enumerate the Elements for the doctrine of “ piercing the veil of corporate entity”

8. X owned 90% of the outstanding capital stock of CDE Inc. and also 95% of the outstanding
capital stock of LMN,Inc. CDE, Inc. had financial obligations to its employees. It stopped its
operations and turned over all its assets to LMN, Inc.

May LMN, Inc. be held Liable for the financial obligations of CDE, Inc. to its employees?
9. Distinguish corporators from incorporators.
10. Give some rules to be observed in the issuance or transfer of shares of stock.

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53