RCC Blue Notes

ATENEO CENTRAL
BAR OPERATIONS 2020/21 COMMERCIAL LAW
A. CAUSES OF DISSOLUTION (ART. 1830) ......................................................................................................90

B. EFFECTS OF DISSOLUTION .........................................................................................................................91
C. RIGHTS OF PARTNERS UPON DISSOLUTION ..............................................................................................92
D. WHEN BUSINESS OF DISSOLVED PARTNERSHIP IS CONTINUED ...............................................................93
4. LIMITED PARTNERSHIP .....................................................................................................................................93
A. CHARACTERISTICS OF LIMITED PARTNERSHIP ..........................................................................................93
B. GENERAL PARTNERSHIP V. LIMITED PARTNERSHIP ..................................................................................94
C. REQUIREMENTS FOR FORMATION OF LIMITED PARTNERSHIP .................................................................94
D. CONSENT/RATIFICATION OF ALL LIMITED PARTNERS NEEDED ................................................................94
E. SPECIFIC RIGHTS OF LIMITED PARTNERS ...................................................................................................94
F. REQUISITES FOR RETURN OF CONTRIBUTION OF LIMITED PARTNER .......................................................94
G. LIABILITIES OF A LIMITED PARTNER ..........................................................................................................95
H. DISSOLUTION OF LIMITED PARTNERSHIP .................................................................................................95
I. AMENDMENT OF CERTIFICATE OF PARTNERSHIP ......................................................................................95
B. CORPORATION ................................................................................................................................................. 96
1. DEFINITION OF CORPORATION ........................................................................................................................96
2. CLASSES OF CORPORATIONS ............................................................................................................................97
3. NATIONALITY OF CORPORATIONS ..................................................................................................................100
4. CORPORATE JURIDICAL PERSONALITY............................................................................................................102
A. DOCTRINE OF SEPARATE JURIDICAL PERSONALITY .................................................................................103
B. DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION ...................................................................106
5. CAPITAL STRUCTURE ......................................................................................................................................109
A. NUMBER AND QUALIFICATIONS OF INCORPORATORS ...........................................................................109
B. MINIMUM CAPITAL STOCK AND SUBSCRIPTION REQUIREMENTS ..........................................................110
C. CORPORATE TERM (SEC. 11) ...................................................................................................................110
D. CLASSES OF SHARES OF STOCK (SEC. 6) ..................................................................................................111
6. INCORPORATION AND ORGANIZATION .........................................................................................................112
A. PROMOTER..............................................................................................................................................112
B. SUBSCRIPTION CONTRACTS ....................................................................................................................113
C. PRE-INCORPORATION SUBSCRIPTION (SEC. 60) ......................................................................................113
D. CONSIDERATION FOR STOCKS (SEC. 61) .................................................................................................113
E. ARTICLES OF INCORPORATION ................................................................................................................114
F. CORPORATE NAME (SEC. 17) ...................................................................................................................115
G. REGISTRATION, INCORPORATION AND COMMENCEMENT OF CORPORATE EXISTENCE (SEC. 18) ........117
H. ELECTION OF DIRECTORS OR TRUSTEES (SEC. 23) ..................................................................................118
I. ADOPTION OF BY-LAWS ...........................................................................................................................118
J. EFFECTS OF NON-USE OF CORPORATE CHARTER (SEC. 21) .....................................................................120
7. CORPORATE POWERS .....................................................................................................................................121
A. GENERAL POWERS; THEORY OF GENERAL CAPACITY .............................................................................121
B. SPECIFIC POWERS: THEORY OF SPECIFIC CAPACITY ................................................................................121
C. POWER TO EXTEND OR SHORTEN CORPORATE TERM (SEC. 36) .............................................................121
D. POWER TO INCREASE OR DECREASE CAPITAL STOCK OR INCUR, CREATE, INCREASE BONDED
INDEBTEDNESS (SEC. 37) .............................................................................................................................122
E. POWER TO DENY PRE-EMPTIVE RIGHTS (SEC. 38) ...................................................................................122
F. POWER TO SELL OR DISPOSE CORPORATE ASSETS (SEC. 39)...................................................................122
G. POWER TO ACQUIRE OWN SHARES (SEC. 40) .........................................................................................123
H. POWER TO INVEST CORPORATE FUNDS IN ANOTHER CORPORATION OR FOR NON-PRIMARY PURPOSE
(SEC. 41).......................................................................................................................................................123
I. POWER TO DECLARE DIVIDENDS (SEC. 42) ...............................................................................................124
J. POWER TO ENTER INTO MANAGEMENT CONTRACT (SEC. 43) ................................................................124
K. LIMITATIONS ...........................................................................................................................................124
L. DOCTRINE OF INDIVIDUALITY OF SUBSCRIPTION ....................................................................................125
M. DOCTRINE OF EQUALITY OF SHARES ......................................................................................................125
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N. TRUST FUND DOCTRINE ..........................................................................................................................125

O. HOW CORPORATE POWERS ARE EXERCISED ..........................................................................................126
8. STOCKHOLDERS AND MEMBERS ....................................................................................................................127
A. FUNDAMENTAL RIGHTS OF STOCKHOLDERS AND MEMBERS ................................................................127
B. PARTICIPATION IN MANAGEMENT .........................................................................................................127
C. PROPRIETARY RIGHTS ..............................................................................................................................129
D. REMEDIAL RIGHTS ...................................................................................................................................135
E. OBLIGATIONS OF A STOCKHOLDER .........................................................................................................135
F. MEETINGS ................................................................................................................................................135
9. BOARD OF DIRECTORS AND TRUSTEES ...........................................................................................................138
A. REPOSITORY OF CORPORATE POWERS ...................................................................................................138
B. TENURE, QUALIFICATIONS AND DISQUALIFICATIONS OF DIRECTORS ....................................................139
C. REQUIREMENT OF INDEPENDENT DIRECTORS (SEC. 22) .........................................................................140
D. ELECTIONS ...............................................................................................................................................140
E. REMOVAL (SEC. 27) .................................................................................................................................143
F. FILLING OF VACANCIES (SEC. 28) .............................................................................................................143
G. COMPENSATION (SEC. 30) ......................................................................................................................144
H. DISLOYALTY .............................................................................................................................................144
I. BUSINESS JUDGMENT RULE .....................................................................................................................145
J. SOLIDARY LIABILITIES FOR DAMAGES ......................................................................................................145
K. PERSONAL LIABILITIES .............................................................................................................................145
L. RESPONSIBILITY FOR CRIMES ...................................................................................................................146
M. SPECIAL FACT DOCTRINE ........................................................................................................................146
N. INSIDE INFORMATION .............................................................................................................................146
O. CONTRACTS.............................................................................................................................................146
P. EXECUTIVE AND OTHER SPECIAL COMMITTEES ......................................................................................147
Q. MEETINGS ...............................................................................................................................................147
10. CAPITAL AFFAIRS ..........................................................................................................................................150
A. CERTIFICATE OF STOCK ...........................................................................................................................150
B. WATERED STOCK (DILUTED STOCK) ........................................................................................................152
C. PAYMENT OF BALANCE OF SUBSCRIPTION .............................................................................................153
D. SALE OF DELINQUENT SHARES ................................................................................................................154
E. ALIENATION OF SHARES ..........................................................................................................................155
F. CORPORATE BOOKS AND RECORDS.........................................................................................................156
11. DISSOLUTION AND LIQUIDATION .................................................................................................................157
A. MODES OF DISSOLUTION: .......................................................................................................................157
B. METHODS OF LIQUIDATION ....................................................................................................................161
12. OTHER CORPORATIONS................................................................................................................................162
A. CLOSE CORPORATIONS ...........................................................................................................................162
B. NON-STOCK CORPORATIONS .................................................................................................................165
C. EDUCATIONAL CORPORATIONS ..............................................................................................................168
D. RELIGIOUS CORPORATIONS ....................................................................................................................169
E. ONE PERSON CORPORATIONS .................................................................................................................170
F. FOREIGN CORPORATIONS .......................................................................................................................173
13. MERGER AND CONSOLIDATION ...................................................................................................................178
A. DEFINITION AND CONCEPT .....................................................................................................................178
B. CONSTITUENT AND CONSOLIDATED CORPORATIONS ............................................................................179
C. PLAN OF MERGER OR CONSOLIDATION (SEC. 75) ...................................................................................180
D. ARTICLES OF MERGER OR CONSOLIDATION (SEC. 78) ............................................................................180
E. PROCEDURE OF CONSOLIDATION OR MERGER .......................................................................................180
F. EFFECTIVITY OF MERGER OR CONSOLIDATION .......................................................................................181
G. LIMITATIONS OF MERGER AND CONSOLIDATION ..................................................................................181
H. EFFECTS OF MERGER OR CONSOLIDATION .............................................................................................182
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14. INVESTIGATIONS, OFFENSES, AND PENALTIES .............................................................................................182

A. AUTHORITY OF COMMISSIONER .............................................................................................................182
B. SANCTIONS FOR VIOLATIONS ..................................................................................................................183
C. AUTHORITY OF THE SECURITIES AND EXCHANGE COMMISSION (JURISDICTION) ..................................184
V. SECURITIES .................................................................................................................................................... 189
A. STATE POLICY ................................................................................................................................................. 189

B. DEFINTION OFSECURITIES .............................................................................................................................. 189
C. KINDS OF SECURITIES ..................................................................................................................................... 190
1. EXEMPT SECURITIES .......................................................................................................................................191
2. EXEMPT TRANSACTIONS ................................................................................................................................191
3. NON-EXEMPT TRANSACTIONS .......................................................................................................................193
D. POWERS AND FUNCTIONS OF THE SECURITIES AND EXCHANGE COMMISSION ............................................... 193
E. PROCEDURE FOR REGISTRATION OF SECURITIES............................................................................................. 194
F. PROHIBITIONS ON FRAUD, MANIPULATION, AND INSIDER TRADING .............................................................. 199
1. MANIPULATION OF SECURITY PRICES ............................................................................................................199
2. SHORT SALES ..................................................................................................................................................199
3. OPTION TRADING ...........................................................................................................................................200
4. FRAUDULENT TRANSACTIONS ........................................................................................................................200
G. PROTECTION OF INVESTORS .......................................................................................................................... 201
1. TENDER OFFER RULE ......................................................................................................................................201
2. RULES ON PROXY SOLICITATION ....................................................................................................................202
3. DISCLOSURE RULE ..........................................................................................................................................202
VI. BANKING ...................................................................................................................................................... 205
A. THE NEW CENTRAL BANK ACT ........................................................................................................................ 206

1. STATE POLICIES ..............................................................................................................................................206
2. CREATION OF THE BANGKO SENTRAL NG PILIPINAS (BSP) .............................................................................206
3. RESPONSIBILITY AND PRIMARY OBJECTIVE ....................................................................................................206
4. CORPORATE POWERS .....................................................................................................................................207
5. OPERATIONS OF THE BANGKO SENTRAL NG PILIPINAS ..................................................................................207
A. AUTHORITY TO OBTAIN DATA AND INFORMATION ................................................................................207
B. SUPERVISION AND EXAMINATION ..........................................................................................................207
C. AUTHORITY TO APPROVE TRANSFER OF SHARES ....................................................................................208
D. PROHIBITIONS .........................................................................................................................................208
E. EXAMINATION AND FEES.........................................................................................................................209
6. MONETARY BOARD, POWERS AND FUNCTIONS.............................................................................................209
7. HOW THE BANGKO SENTRAL NG PILIPINAS HANDLES BANKS IN DISTRESS ....................................................211
A. CONSERVATORSHIP .................................................................................................................................211
B. CLOSURE ..................................................................................................................................................212
C. RECEIVERSHIP ..........................................................................................................................................212
D. LIQUIDATION ...........................................................................................................................................213
8. ADMINISTRATIVE SANCTIONS ON SUPERVISED ENTITIES ..............................................................................214
9. SUPERVISION AND REGULATION OF BANK OPERATIONS ...............................................................................215
A. LOANS AND OTHER CREDIT ACCOMMODATIONS ...................................................................................215
B. SELECTIVE REGULATION ..........................................................................................................................216
B. LAWS ON SECRECY OF BANK DEPOSITS ........................................................................................................... 217
1. PURPOSE ........................................................................................................................................................217
2. PROHIBITED ACTS ...........................................................................................................................................217
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Note: The remedy of a general partner who B. CORPORATION

suffers from or faces interference from his
partners is dissolution. (Weil v. Diversified
Properties, 319 F. Supp., 1970) CORPORATION LAW
Republic Act No. 11232 Revised Corporation
Liability of a Limited Partner Whose Surname Code
Appears in the Partnership Name
GENERAL PRINCIPLES
General Rule: A limited partner whose surname
1. DEFINITION OF CORPORATION
appears in the partnership name is liable as a
general partner to the partnership creditors who
An artificial being created by operation of law,
extended credit without actual knowledge that he
having the right of succession and the powers,
is not a general partner.
attributes and properties expressly authorized by
law or incident to its existence. (RCC,1 Sec. 2)
Exceptions:
i. If the surname is also the surname of a
Attributes of a Corporation (Sec. 2)
general partner; or
a. Artificial Being
ii. If prior to the time the partner became a
limited partner, the business has been b. Created by operation of law
carried under such name. c. Has right of succession A corporation has
the capacity for continuous existence
despite changes in stockholders/members
--------- end of topic --------- d. Has only the powers, attributes, and
properties authorized by law or incident to its
existence.
Corporate Fiction
A corporation has a personality separate and

distinct from the persons composing it. (Civil
Code, Arts. 44-47; PNB v. Andrada Electric &
Engineering Co., G.R. No. 142936, 2002).
Corporation v. Partnership
CORPORATION PARTNERSHIP
Manner of Creation
Commences only By mere agreement
from the issuance of a
Certificate of
Incorporation by the
SEC, or, in proper
cases, passage of a
special law
Number of Organizers
Any person/s but not At least 2
more than fifteen
(15).2
Powers
1 For purposes of this part of the reviewer, unless 2Note- There is no 5 person minimum anymore for the
otherwise specified, all references refer to the Revised number of organizers (i.e., incorporators) of a
Corporation Code, Republic Act no. 11232. Corporation under the RCC. (see discussion at page
(hereinafter RCC) 15, Subheading 5.A)
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Restricted due to Subject to the to a special charter or through a general

limited powers agreement of partners enabling act such as the Corporation Code.
Authority of Those Who Compose It b. Public corporations - Formed or organized
Stockholders are not Mutual agency for the government of a portion of the state
agents of the between partners (e.g., barangay, municipality, city and
corporation in the province) Created for political purposes
absence of express connected with the public good in the
authority administration of the civil government
Transfers of Interest
Freely transferable Cannot be transferred Public Corporation v. Private Corporation
without the consent of without the consent of
PUBLIC PRIVATE
other stockholders the other partners
CORPORATION CORPORATION
(unless there is a
stipulation to the Government holds Government may
contrary) the controlling hold the controlling
Succession interest interest
Created under the
Existence continues Death of a partner
Corporation Code
even as persons who ends the partnership
compose it change Created by its charter
However, GOCCs
may also be created
Corporations as partners in a partnership
by special charter
Created for a public
Corporations have the power to enter into a
purpose
partnership, joint venture, merger, consolidation,
or any other commercial agreement with natural Exists primarily for
and juridical persons (Sec. 35(h)). the government of a Generally created for
portion of the state profit generation
Can a defective corporation result into a Subject to control and
partnership? (Two Views) supervision by the
State or its agency
No Partnership: When investors intended only to
invest in a corporate venture with no intention of Note:
participating in its corporate affairs, and the Ownership of the government of the majority
corporation was not formed, no partnership of the shares of a corporation does not by
relation is established by the failure to itself constitute such an entity as a public
incorporate, such investors cannot even be held corporation (National Coal Co., v. Collector of
liable for the contracts and transactions sued Internal Revenue, G.R. No. L-22619, 1994).
upon. (Pioneer Insurance v. CA, G.R. No. 84197, When the law vests corporate powers in a
1989) government instrumentality, it does not
necessarily become a corporation; a GOCC
Partnership Exists: However, when there was a must be organized as a stock or non-stock
clear intention to form a partnership venture corporation. (MIAA v. CA, G.R. No. 155650,
through a corporate vehicle (there was intention
2006)
Test to determine whether a corporation is
business), even those who did not directly
participate in the contract or transaction being public or private: If the corporation is
sued upon, but benefitted therefrom may be held
liable as general partners. (Lim Tong Lim v. agency or instrumentality to help it in carrying
Philippine Fishing Gear, G.R. No. 136448, 1999) out its governmental functions, then that
corporation is considered public; otherwise it
2. CLASSES OF CORPORATIONS is private. (Philippine Society for the
Prevention of Cruelty to Animals v. COA,
In Relation To The State G.R. No. 169752, 2007)
a. Private corporations Formed by private
persons alone, by or with the State pursuant
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a. Quasi-public corporation However, there is now formal administrative and

A species of private corporations created by
special law and required to render public instrumentalities with corporate
service or supply public wants. (Id.) Usually
covers school districts, water districts and the
may not fall within the definition of stock and non-
like.
stock corporations, but are government
b. Government owned and controlled instrumentalities that are vested with corporate
corporations (GOCCs) powers. (LRTA v. Quezon City, G.R. No. 221626,
Created under a special law or charter, or any 2019)
agency organized as a stock or non-stock
corporation, vested with functions relating to Under the Constitution, the COA has audit
public needs whether governmental or jurisdiction over both GOCCs with original
proprietary in nature, and owned by the
charters (subject to COA pre-audit) and those
Government of the Republic of the
Philippines directly or through its without original charters (those organized under
instrumentalities either wholly or, where the Corporation Code subject to post-audit).
applicable as in the case of stock (Alejandrino v. COA, G.R. No. 245400, 2019).
corporations, to the extent of at least a
majority of its outstanding capital stock (R.A. As to Place of Incorporation
No. 10149) a. Domestic one incorporated under laws of
the Philippines
Note: A GOCC when organized under the b. Foreign one formed, organized or existing
Corporation Code is still a private corporation. under any laws other than those of the
But being a GOCC makes it subject to laws and Philippines, and whose laws allow Filipino
provisions applicable to the Government or its
citizens and corporations to do business in its
entities and subject to the control of the
own country. (Sec. 140)
Government (Cervantes v. Auditor General, G.R.
No. L-4043, 1952).
As To Legal Status
The GOCC Governance Act (R.A. 10149), which a. De jure corporation
governs compensation and position classification Corporation organized in accordance
systems within the GOCC Sector, does not with requirements of law;
distinguish between chartered and non-chartered Every corporation is deemed to be a de
GOCCs, and its provisions apply equally to both. jure until proven otherwise
(GSIS Family Bank Employees Union v.
Villanueva, G.R. No. 210773, 2019). b. De facto corporation (Sec. 19)
A corporation claiming in good faith to be
In order to qualify as a GOCC, one must be a corporation under the Corporation
organized either as a stock or non-stock Code but where there exists a flaw in its
corporation. Section 31 defines a stock incorporation or it falls short of the
corporation as on requirements provided by law.
into shares and ... authorized to distribute to the
It is the result of an attempt to incorporate
under an existing law coupled with the
BCDA has an authorized capital of P100 Billion,
however, it is not divided into shares of stock; it exercise of corporate powers.
has no voting shares; and has no provision which A de facto corporation will incur the same
authorizes the distribution of dividends and obligations; have the same powers and
rights as a de jure corporation.
stockholders. It cannot qualify also as a non-stock The due incorporation of any corporation
corporation because its primary purpose do not claiming in good faith to be a corporation
fall within the purposes enumerated under under the Corporation Code, and its right
Section 88. (BCDA v. CIR, G.R. No. 205925, 20 to exercise corporate powers, shall not
June 2018) be inquired into collaterally in any private
suit.
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Under the Rules of Court Rule 66, inquiry b. Nonstock corporation (Secs. 86-87)
must be done by the Solicitor General in A corporation where no part of its income
a quo warranto proceeding where the is distributable as dividends to members,
main issue is the right to exist as a trustees or officers
corporation Any profit obtained as an incident to its
operations shall, whenever necessary or
Elements of a de facto corporation proper, be used for the furtherance of the
a. Valid law under which incorporated; purpose for which the corporation was
b. Attempt in good faith to incorporate or organized.
c. Assumption of corporate powers; and As To Control

d. Issuance of certificate of incorporation. a. Holding company one that controls
(Arnold Hall v. Piccio, G.R. No. L-2598, 1950) another as a subsidiary or affiliate by the
power to elect its management; one which
Note: A corporation which has failed to file its by- holds shares in other companies for purposes
laws within the prescribed period does not ipso of control rather than for mere investment.
facto lose its powers as such (Sawadjaan v. CA, (SEC Opinion No. 15-15)
G.R. No. 141735, 2005). b. Affiliate company one that is subject to
common control of a parent or holding
c. Corporation by estoppel (Sec. 20);
company and operated as part of a system.
All persons who assume to act as a corporation
(SEC Opinion No. 15-15)
knowing it to be without authority to do so shall be
liable as general partners for all debts, liabilities c. Parent and subsidiary companies when
and damages incurred or arising as a result a corporation has a controlling financial
thereof interest in one or more corporations, the one
having control is know
When such ostensible corporation is sued on any
transaction entered by it as a corporation or on
any tort committed by it as such, it shall not be
allowed to use its lack of corporate personality as As To Purpose of Incorporation
a defense. a. Municipal corporation
b. Religious corporation
Anyone who assumes an obligation to an c. Educational corporation
ostensible corporation as such cannot resist d. Charitable, Scientific or Vocational
performance thereof on the ground that there was corporation
in fact no corporation.
e. Business corporation
d. Corporation by prescription
As To Number of Members
The Roman Catholic Church is a corporation by
a. Aggregate - a corporation which consists of
prescription, with acknowledged juridical
personality inasmuch as it is an institution which many persons united to form a body politic
antedated by almost a thousand years any other and corporate (IEMELIF v. Lazaro, G.R. No.
personality in Europe (Barlin v Ramirez, G.R. No. 184088, 2010).
L-2832, 1906). b. Corporation sole Formed by one person
who may be the chief archbishop, bishop,
As To Existence of Stocks minister, rabbi, or other presiding elder of any
a. Stock corporation religious denomination, sect or church. (Sec.
Stock corporations are those which have 108)
capital stock divided into shares and are Purpose: created to administer and
authorized to distribute to the holders of manage the affairs, properties,
such shares, dividends, or allotments of temporalities of the church to which the
the surplus profits on the basis of the holder of the office belongs and also to
shares held. (Sec. 3) transmit the same to his successor in
office.
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c. Close Corporation- a corporation where:

a. stockholders of record shall not In order to determine the nationality of a
exceed twenty (20); corporation, the following steps should apply:
b. all the issued stock shall be
subject to one or more specified 1st Step: The nationality of a corporation is
restrictions on transfer permitted determined by the country under whose laws it is
by this Title; and incorporated (Place of Incorporation Test).
c. the corporation shall not list in
2nd Step: If the corporation is applying for a (2nd)
any stock exchange or make any
franchise for public utility and etc. which requires
public offering of its stocks of any
a certain percentage of control of stock, the Test
class. of Controlling Ownership would be applied.
Notwithstanding, a corporation shall not
be deemed a close corporation when at 3rd step: If there is doubt as to the domestic
least 2/3 of its voting stock is owned or control of the percentage of stock in a corporation
controlled by another corporation which with corporate stockholders, Grandfather test
is not a close corporation within the would be applied (Narra Nickel Mining and
meaning of this Code. (Sec. 95) Development Corp. v. Redmont Consolidated
d. One Person Corporation- a corporation with Mines Corp., G.R. No. 195580, 2014)
a single stockholder. Only a natural person,
trust, or an estate may form a One Person MAIN TESTS
Corporation. Banks and quasi-banks, pre- A. Place of Incorporation Test
need, trust, insurance, public and publicly- A corporation is a national of the country under
listed companies, and non-chartered whose laws it has been organized and registered
government-owned and -controlled
corporations may not incorporate as One B. Control Test
Person Corporations. A natural person who is In cases involving properties, business or
licensed to exercise a profession may not industries reserved for Filipinos, in addition to the
place of incorporation test, the nationality of a
organize as a One Person Corporation for the
corporation is determined by the nationality of the
purpose of exercising such profession except
as otherwise provided under special laws.
(Sec. 115) Absent any doubt, the Control Test shall be used
in determining the nationality of a corporation
3. NATIONALITY OF CORPORATIONS specially in cases where foreign ownership
restrictions apply. (SEC OGC Opinion No. 16-19)
Nationality of Corporation
Serves as a legal basis for subjecting the [T]here are two cases in determining the
enterprise or its activities to the laws, the nationality of the Investee Corporation. The first
economic and fiscal powers, and various social
and financial policies of the state to which it is as the Control Test in its 30 May 1990 Opinion,
supposed to belong. and pertains to the portion in said Paragraph 7 of
Tests: belonging to corporations or partnerships at least

1. Place of Incorporation 60% of the capital of which is owned by Filipino
2. Control Test citizens shall be considered as of Philippine
3. Grandfather Rule3
4. War-time in times of war, nationality of is no need to further trace the ownership of the
corporation is determined by the character or 60% (or more) Filipino stockholdings of the
citizenship of its controlling stockholders Investing Corporation since a corporation which
is at least 60% Filipino-owned is considered as
5. Investment Test
Filipino. (Narra Nickel Mining and Development
6. Place of Principal Business
3 Emphasis on no. 2 & 3 for they are expressly

indicated in the bar syllabus.
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Corp. v. Redmont Consolidated Mines Corp., Opinion No. 04-14 in reference to the Foreign
G.R. No. 195580, 2014). Investments Act)
The required percentage of Filipino Some instances wherein the control test
ownership shall be applied to both: applies:
a. The total number of outstanding shares of a. Exploitation of natural resources (> 60%)
stock entitled to vote in the election of Sec 2, Art XII, 1987 Constitution policy
directors, and of the State is to ensure that the
b. The total number of outstanding shares of exploitation of natural resources or the
stock, whether or not entitled to vote in the pursuit of the activities deemed to be of
election of directors. (SEC Memorandum public or national interest are in the
Circular No. 8, s. 2013, Sec. 2) control of the Filipinos
The State may directly undertake such
Mere legal title is not enough. Full beneficial activities, or it may enter into co-
ownership of 60 percent of the outstanding capital production, joint venture, or production
stocks, coupled with 60 percent of the voting sharing agreements with:
rights, is constitutionally required for the State's o Filipino citizens; or
grant of authority to operate a public utility. Thus, o Corporations or associations, at
voting rights of stocks which have been assigned
least 60% owned by such
or transferred to aliens cannot be considered held
citizens
by Philippine citizens or nationals (cannot give
proxies to vote). (Roy III v. Herbosa, et al., G.R. b. Public Utilities (> 60%)
No. 207246, 2016) Sec 11, Art XII, 1987 Constitution
requires that only domestic corporations
with at least 60% of the capital stock
ownership in the SRC-IRR, which is in owned by Filipinos may own and operate
public utilities in the Philippines
-IRR, is relevant in resolving The nationality test for public utilities
only the question of who is the beneficial owner applies not at the time of the grant of the
primary franchise that makes a
corporation a juridical person, but at the
review. If the Filipino has the voting power of the grant of the secondary franchise that
authorizes the corporation to engage in a
direct another to vote for him, or the Filipino has
nationalized industry. (People v. Quasha,
G.R. No. L-6055, 1953)
direct another to vote or dispose it for him, then The Constitution requires a franchise for
operating a public utility; however, it does
not require a franchise before one can own
the facilities needed to operate a public
the 60% Filipino ownership requirement under utility so long as it does not operate them to
the Constitution. The right to the dividends, jus
serve the public.(Tatad v. Garcia, Jr., G.R.
fruendi a right emanating from ownership of that
ry accrues to its Filipino No. 114222, 1995).
(Roy III v. Herbosa, G.R. No. c. Mass Media (100%)
207246 (Resolution), 18 April 2017.) Sec 11, Art XVI, 1987 Constitution
ownership of mass media shall be limited
General rule: The Control Test cannot overcome to the citizens of the Philippines, or to
the Place of Incorporation Test. corporations, cooperatives or
associations, wholly-owned and
Exception: A corporation organized abroad and managed by such citizens (100% Filipino
registered as doing business in the Philippines management of the entity)
under the Corporation Code, whose capital Cable Industry -
outstanding stock and entitled to vote is wholly
media which must, therefore, be owned
owned by Filipinos is a Philippine National. (SEC
and managed by Filipino citizens, or
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corporations, cooperatives or OTHER TESTS

associations, wholly-owned and
managed by Filipino citizens pursuant to A. War-Time Test
(DOJ
Opinion No. 95, series of 1999). In times of war, nationality of corporation is
d. Advertising Industry (> 70%) determined by the character or citizenship of its
Sec 11, Art XVI, 1987 Constitution only controlling stockholders
Filipino citizens or corporations or
B. Investment Test
associations at least 70% of the capital of
which is owned by such citizens shall be
allowed to engage in the advertising a. A corporation organized under Philippine
agency laws of which at least 60% of the outstanding
e. NEDA could advise Congress to set limitations capital stock entitled to vote is owned and
of stock ownership in Corporations vested with held by Filipino citizens; and
Public Interests (Sec. 176)
b. A corporation organized abroad and
C. Grandfather Rule
Where corporate shareholders are present (and Philippines under the Corporation Code of
when the Filipino-foreign equity ownership is in which 100% of the capital stock entitled to
doubt), the percentage of the Filipino equity in vote belong to Filipinos (R.A. No. 7042, Sec.
corporations is computed by attributing the 3[a], as amended or Foreign Investment Act
nationality of the second or subsequent tier of of 1991)
ownership to determine the nationality of the
corporate shareholder Double 60% Rule
Where a corporation and its non-Filipino
Example: MV Corporation and AC Corporation stockholders own stock in a SEC-registered
have equal interest in XYZ Company. MV enterprise, at least 60% of the outstanding capital
Corporation is 60% owned by Filipinos, while AC stock and entitled to vote of both corporations and
Corporation is 50% owned by Filipinos. By the at least 60% of the members of the Board of
grandfather rule, MV Corporation would have a Directors of both corporations must be Filipino
30% Filipino interest in XYZ Company (60% of citizens (R.A. No. 7042, Sec. 3[a], as amended)
50%), while AC Corporation would have a 25%
Filipino interest in XYZ Company (50% of 50%). C. Place of Principal Business Test
Hence, the total Filipino interest is only 55%. Residence of a corporation is the place where its
principal office is located, as stated in its Articles
The Control test is still the prevailing mode of of Incorporation.
determining whether or not a corporation is a
Filipino corporation within the ambit of the natural The place where the principal office of the
resources provisions of the Constitution. But corporation is to be located is one of the required
when in the mind of the court there is doubt based contents of the articles of incorporation to be filed
on attendant facts and circumstances, in the 60- with the SEC (Hyatt Elevators v. Goldstar, G.R.
40 Filipino equity ownership in the corporation, No. 161026, 2005).
then it may apply the grandfather rule (Narra
Nickel Mining and Development Corp. v. Applied to determine whether a state has
Redmont Consolidated Mines Corp., G.R. No. jurisdiction over the existence and legal character
195580, 2014). of a corporation, its capacity or powers, internal
organization, capital structure, the rights and
liabilities of directors, officers, and shareholders
does not eschew, but in fact
towards each other and to creditors and third
control test persons.
implements Filipinization provisions of the
Constitution. (Narra Nickel Mining and Development 4. CORPORATE JURIDICAL PERSONALITY
Corp. v. Redmont Consolidated Mines Corp., G.R.
No. 195580, 2015). General Rule: The Corporation has a separate
and distinct juridical personality from its directors,
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officers, trustees and shareholders (Doctrine of The failure of the corporate employer to comply
Separate Juridical Personality). with a legal duty, such as under the Labor Code
to grant separation pay to employees constitutes
Exception: When the corporation is used as a tort and its stockholder who was actively engaged
cloak for fraud, illegality, or in other certain in the management of the business should be
held personally liable (Naguiat v. NLRC, G.R. No.
circumstances, the courts may disregard the
116123, 1997).
separate and distinct personality of the
corporation and treat the corporation as a mere A corporation can be held liable for the tortious
collection of individuals undertaking business as acts of a corporate officer, in the absence of a
a group (Doctrine of Piercing the Veil of prior express direction from the BOD, if such was
Corporate Fiction). connected to the business of the corporation.
A. Doctrine of Separate Juridical The remedy of the corporation is to recover

Personality damages against the acting corporate officer
responsible for the tortious act.
A corporation is a juridical entity with a legal
personality separate and distinct from those b) On Crimes
acting for and on its behalf, and, in general, from General rule: Corporations cannot commit
the people comprising it; the obligations incurred felonies under the RPC for it is incapable of the
by the corporation, acting through its directors, requisite intent to commit these crimes.
officers and employees are its sole liabilities
(Santos v NLRC, G.R. No. 101699, 1996). It also cannot commit crimes that are punishable
under special laws because crimes are personal
While a share of stock represents a proportionate in nature requiring personal performance of overt
or aliquot interest in the property of the acts.
corporation, it does not vest the owner thereof
with any legal right or title to any of the corporate A corporation cannot be arrested and imprisoned;
property, his interest in such property being hence, cannot be penalized for a crime
equitable or beneficial in nature. Shareholders punishable by imprisonment.
are in no legal sense the owners of corporate
property, which is owned by the corporation as a Exceptions: If the crime is committed by a
distinct legal person (Magsaysay-Labrador v CA, corporation, the directors, officers, employees or
G.R. No. 58168, 1989). other officers thereof responsible for the offense
shall be charged and penalized for the crime,
Corporate Liability precisely because of the nature of the crime and
the penalty therefore. However, the corporation
i. Liability for Torts and Crimes may be charged and prosecuted for a crime if the
imposable penalty is fine (Ching v. Secretary of
a) On Torts Justice, G.R. No. 164317, 2006).
A corporation is civilly liable in the same manner
as natural persons for torts, because the rules When a law expressly provides that a corporation
governing the liability of a principal for a tort may be proceeded against criminally, the
committed by an agent are the same whether the responsible officer will be held personally liable
principal be a natural person or a corporation, and for the crimes committed by the corporation.
whether the agent be a natural or artificial person. However, such liability will only attach to the
That a principal is liable for every tort which he officer when the corporation is directly required by
expressly directs or authorizes, is just as true of a law to do an act in a given manner, and the same
corporation as a natural person (PNB v. CA, G.R. law makes the person who fails to perform the act
No. L-27155, 1978). in the prescribed manner expressly liable
criminally (Sia v. Court of Appeals, G.R. No.
A corporate officer who caused the tort act to be 108222, 1997). For example:
committed in the name of the corporation is also 1) Under the Anti-Money Laundering Act,
personally liable as a joint-tortfeasor. juridical persons are also defined as
offenders.
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2) The RCC provides situations where Note: The right against self-incrimination has no
corporations are liable for criminal application to juridical persons. (Bataan Shipyard
sanctions: v. PCGG, G.R. No. 75885, 1987)
a) SEC. 161. Violation of Duty to The right against self-incrimination refers
Maintain Records, to Allow their only to testimonial compulsion;
Inspection or Reproduction; A corporation cannot testify; and
b) SEC. 165. Fraudulent Conduct The State can freely open the books of
of Business; the corporation to ensure that it does not
c) SEC. 166. Acting as exceed its powers
Intermediaries for Graft and
Corrupt Practices; Implications of the Existence of the Corporate
d) SEC. 167. Engaging Veil or a Separate and Distinct Juridical
Personality
Intermediaries for Graft and
Corrupt Practices
a) Controlling interest of and/or dealings in
shareholdings
ii. Recovery of Moral Damages Ownership of a majority of capital stock and the
fact that majority of directors of a corporation are
General rule: A corporation cannot recover moral the directors of another corporation creates no
damages as it cannot suffer physical suffering employer-employee relatio
and mental anguish (Prime White Cement v IAC, employees (DBP v. NLRC, G.R. No. 86932,
G.R. No. L-68555, 1993). 1990; Francisco, et al. v. Mejia, G.R. No. 141617,
2001).
Exception: A corporation with a good reputation,
if besmirched, is allowed to recover moral The mere fact that a stockholder sells his shares
damages upon proof of existence of factual basis of stock in the corporation during the pendency of
of damage (actual injury) and its causal relation a collection case against the corporation, does
(Crystal v. BPI, G.R. No. 172428, 2008). not make such stockholder personally liable for
the corporate debt, since the disposing
The following Constitutional rights apply to a stockholder has no personal obligation to the
corporation: creditor, and it is the inherent right of the
stockholder to dispose of his shares of stock
a. Due process - The due process clause is anytime he so desires (Remo, Jr. v. IAC, G.R. No.
universal in its application to all persons L-67626, 1989).
without regard to any differences of race,
color, or nationality. Private corporations, Mere substantial identity of the incorporators of
the two corporations does not necessarily imply
guaranty insofar as their property is fraud, nor warrant the piercing of the veil of
(Smith Bell & Co. v. Natividad, corporate fiction. In the absence of clear and
G.R. No. 15574, 1919). convincing evidence to show that the corporate
b. Equal protection of the law (Smith Bell & personalities were used to perpetuate fraud, or
Co. v. Natividad, G.R. No. 15574, 1919) circumvent the law, the corporations are to be
c. Unreasonable searches and seizures - treated as distinct and separate from each other
(Laguio v. NLRC, G.R. No. 108936, 1996).
(Stonehill v. Diokno, G.R. No. L-19550,
1967). b) Transaction amongst the corporation and
stockholders
In organizing itself as a collective body, the
corporation waives no constitutional immunities The transfer of the corporate assets to the
applicable to it. Its property cannot be taken stockholder is not in the nature of a partition but
without compensation; can only be proceeded is a conveyance from one party to another
against by due process of law; and is protected (Stockholders of F. Guanzon and Sons, Inc. v.
against unlawful discrimination (Bache & Co. Register of Deeds of Manila, G.R. No. L-18216,
(Phil.), Inc. v. Ruiz, G.R. No. 32409, 1971, citing 1962).
Hale v. Henkel, 201 U.S. 43, 50 L.Ed. 652.).
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Note: A corporation may not be made to answer shareholders in corporate property is purely
for acts or liabilities of its stockholders or those of inchoate (Saw v. CA, G.R. No. 90580, 1991).
the legal entities which it may be connected and
vice-versa (ARB Constructions Co., Inc. v. Court The interests of payees in promissory notes
of Appeals, G.R. No. 126554, 2000). cannot be off-set against the obligations between
the corporations to which they are stockholders
c) Pertaining to privileges enjoyed absent any allegation, much less, even a scintilla
The tax privileges enjoyed by a corporation do not of substantiation, that the parties interest in the
extend to its stockholders. A corporation has a corporation are so considerable as to merit a
personality distinct from that of its stockholders, declaration of unity of their civil personalities
enabling the taxing power to reach the latter when (CKH Industrial and Development Corp. v. CA,
they receive dividends from the corporation. It G.R. No. 111890, 1997).
must be considered as settled in this jurisdiction
that dividends of a domestic corporation which Even when the foreclosure on the assets of the
are paid and delivered in cash to foreign corporation was wrongful and done in bad faith,
corporations as stockholders are subject to the the stockholders of the corporation have no
payment of the income tax, the exemption clause standing to recover for themselves moral
to the charter [of the domestic corporation] damages. Otherwise, it would amount to the
notwithstanding. (Manila Gas Corporation. v. appropriation by, and the distribution to, such
Collector of Internal Revenue, G.R. No.L-42780,
1936). before the dissolution of the corporation and the
liquidation of its debts and liabilities (APT v. CA,
d) Assumption as a corporate officer G.R. No. 121171, 1998).
Being an officer or stockholder of a corporation
Where real properties included in the inventory of
corporation, and vice-versa, for they are separate the estate of a decedent are in the possession of
entities, and that shareholders are in no legal and are registered in the name of the
sense the owners of corporate property which is corporations, in the absence of any cogency to
owned by the corporation as a distinct legal shred the veil of corporate fiction, the
person (Good Earth Emporium, Inc. v. CA, G.R. presumption of conclusiveness of said titles in
No. 82797, 1991). favor of said corporations should stand
undisturbed (Lim v. CA, G.R. No. 124715, 2000).
The mere fact that one is president of the
corporation does not render the property he owns f) Third-parties to corporate acts
or possesses the property of the corporation, The fact that respondents are not stockholders of
since that president, as an individual, and the the disputed corporations does not make them
corporation, are separate entities (Cruz v. non-parties to the case. In this case, it is alleged
Dalisay, A.M. No. R-181-D, 1987). that the aforementioned corporations are mere
alter egos of the directors-petitioners, and that the
e) Properties, obligations and debts former acquired the properties sought to be
A corporation has no legal standing to file a suit reconveyed to FGSRC in violation of directors-
for recovery of certain parcels of land owned by
its members in their individual capacity, even
when the corporation is organized for the benefit The notion of corporate entity will be pierced or
of the members (Sulo ng Bayan v. Araneta, Inc., disregarded and the individuals composing it will
G.R. No. L-31061, 1976). be treated as identical if, as alleged in the present
case, the corporate entity is being used as a cloak
The corporate debt or credit is not the debt or or cover for fraud or illegality; as a justification for
a wrong; or as an alter ego, an adjunct, or a
debt or credit that of the corporation (Traders business conduit for the sole benefit of the
Royal Bank v. CA, G.R. No. L-78412, 1989). stockholders (Gochan v. Young, G.R. No.
131889, 2001).
Stockholders have no personality to intervene in
a collection case covering the loans of the
corporation on the ground that the interest of
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B. Doctrine of Piercing the Veil of pertaining to the corporation against

Corporate Fiction corporate officers or stockholders.
Under certain circumstances, the courts may Example cases:

disregard the separate and distinct personality of a) Where a stockholder, who has absolute
the corporation from its members or stockholders control over the affairs of the corporation,
and treat the corporation as a mere collection of entered into a contract with another
individuals or an aggregation of persons corporation through fraud and false
undertaking business as a group such as when representations, such stockholder shall be
the corporate legal entity is used as a cloak for liable solidarily with co-defendant corporation
fraud or illegality even when the contract sued upon was
182729, 2010). entered into on behalf of the corporation
(NAMARCO v. Associated Finance Co.,G.R.
It is an equitable doctrine used as a last resort No. L-20886, 1967).
only when the objective is to hold the officers b) Piercing is allowed where the corporation is
and/or stockholders liable. Thus, in one case, it used as a means to appropriate a property by
cannot be applied in order to declare a fraud which property was later resold to the
foreclosure proceeding a nullity (Umali v. CA, GR controlling stockholders. (Heirs of Ramon
No. 89561, 1990). Durano, Sr. v. Uy, G.R no.136456, 2000).
c) Fraud and bad faith on the part of certain
Being merely an equitable remedy, employment corporate officers or stockholders may warrant
of the piercing doctrine can only be for the the piercing of the veil of corporate fiction so
protection of the interests of innocent third that the said individual may not seek refuge
persons dealing with the corporate entity therein, but may be held individually and
personally liable for his or her actions.
(Traders Royal Bank v. Court of Appeals, G.R. (Lafarge Cement Phils., Inc. v. Continental
No. 93397, 1997). Cement Corp., G.R. no. 155173, 2004)
Classification of piercing cases: For Alter-ego Cases:

a. Fraud piercing when a corporate entity is The doctrine applies in this case even in the
used to commit fraud or justify a wrong or to absence of evil intent; it applies because of
defend a crime. the direct violation of a central corporate law
b. Alter-ego piercing when a corporate principle of separating ownership from
entity is used to defeat public convenience management.
or is merely a farce since the corporation is The doctrine in such cases is based on
merely the alter ego, business conduit, or estoppel: if stockholders do not respect the
instrumentality of a person or another entity. separate entity, others cannot also be
c. Equity cases when piercing the corporate expected to be bound by the separate
fiction is necessary to achieve justice or juridical entity.
equity. Piercing in alter ego cases may prevail even
when no monetary claims are sought to be
Note: The three cases may appear together in enforced against the stockholders or officers
one application (R.F. Sugay & Co. v. Reyes, G.R. of the corporation.
No. L-20451, 1964).
ii. Tests for Applicability of the Doctrine of
i. Grounds for application of the different Piercing the Veil of Corporate Fiction: (CUP)
types of piercing a. Control not mere stock control but
Complete Domination not only of
For Fraud Cases: finances, but of policy and business practice
1. There must have been fraud or an evil in respect to the transaction attacked and
motive in the affected transaction, and must have been such that the corporate
the mere proof of control of the corporation entity as to this transaction had at the time
by itself would not authorize piercing; and no separate mind, will or existence of its
2. The main action should seek for the own.
enforcement of pecuniary claims b. Such control must have been Used by the
defendant to commit a fraud or wrong to
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perpetuate the violation of a statutory or The parent corporation uses the property of
other positive legal breach of duty, or a the subsidiary as its own.
dishonest and an unjust act in contravention The directors or executives of the subsidiary
o do not act independently in the interest of the
c. The said control and breach of duty must subsidiary but take their orders from the
have Proximately caused the injury or parent corporation.
unjust loss complained of (Concept Builders The formal legal requirements of the
Inc. v. NLRC, 108734, 1996). subsidiary are not observed (Phil. National
Bank v. Ritratto Group, Inc., GR No. 142616,
These were expanded as three-pronged tests: 2001).
The first prong is the "instrumentality" or Note: Mere ownership by a single stockholder or
"control" test. This test requires that the by another corporation of all or substantially all of
subsidiary be completely under the control and the capital stock of the corporation does not justify
domination of the parent corporation or the application of the doctrine (Francisco v. Mejia,
shareholder. It seeks to establish whether the G.R. No. 141617, 2001).
corporation has no autonomy and the parent
corporation or shareholder "is operating the Example Cases:
business directly for itself or themselves." a) Where the stock of a corporation is owned by
one person whereby the corporation
The second prong is the "fraud" test. This test functions only for the benefit of such
requires that the conduct in using the corporation individual owner, the corporation and the
be unjust, fraudulent or wrongful. individual should be deemed the same
(Arnold v. Willets and Patterson, Ltd., G.R.
The third prong is the "harm" test. This test No. L-20214, 1923).
b) When the corporation is merely an adjunct,
control, exerted in a fraudulent, illegal or business conduit or alter ego of another
otherwise unfair manner toward it, caused the corporation, the fiction of separate and
harm suffered (PNB v. Hydro Resources distinct corporation entities should be
Contractors Corporations, G.R. no. 167530, disregarded (Tan Boon Bee & Co. v.
2013). Jarencio, G.R. No. L-41337, 1988).
c) Employment of same workers; single place of
Factors to Consider in cases of Parent and business, etc. (La Campana Coffee Factory
Subsidiary corporations in Alter-ego Piercing: v. Kaisahan ng Manggagawa, G.R. No. L-
The parent corporation owns all or most of 5677, 1953).
the capital of the subsidiary. d) Use of nominees (Marvel Building v. David,
The parent and subsidiary corporations have G.R. No. L-508, 1951)
common directors or officers. e) Avoidance of tax. (Yutivo Sons Hardware v.
The parent company finances the subsidiary. Court of Tax Appeals, G.R. No. L-13203,
The parent company subscribed to all the 1961; Liddell& Co. v. Collector of Internal
capital stock of the subsidiary or otherwise Revenue, G.R. No. L-9687, 1961).
caused its incorporation. f) Mixing of bank deposit accounts. (Ramirez
The subsidiary has grossly inadequate Telephone Corp. v. Bank of America, G.R.
capital. No. L-22614, 1969).
The parent corporation pays the salaries and g) Where it appears that two business
other expenses or losses of the subsidiary. enterprises are owned, conducted, and
The subsidiary has substantially no business controlled by the same parties, both law and
except with the parent corporation or no equity will, when necessary to protect the
assets except those conveyed to or by the rights of third persons, disregard the legal
parent corporation. fiction that two corporations are distinct
The papers of the parent corporation or in the entities and treat them as identical (Sibagat
statements of its officers, the subsidiary is Timber Corp. v. Garcia, G.R. No. 98185,
described as a department or subdivision of 1992)
the parent corporation, or its business or h) Thinly-capitalized corporations (McConnel v.
financial responsibility is referred to as the Court of Appeals, G.R. No. L-10510, 1961).
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i) Parent-subsidiary relationship. (Koppel Union-PTGWO v. Calica, G.R. No. 96490,

(Phil.), Inc. v. Yatco, G.R. No. L-47673,1946; 1992).
Philippine Veterans Investment Development
Corporation v. CA, G.R. No. 85266, 1990) Note: However, piercing in alter ego cases
j) Affiliated companies (Guatson International may prevail even when no monetary claims
Travel and Tours, Inc. v. NLRC, G.R. No. are sought to be enforced against the
100322, 1994) stockholders or officers of the corporation.
(e.g. piercing for other purposes such as
Summary of Probative Factors (Philippine
National Bank vs. Ritratto Group, Inc., et al., G.R.
No. 142616, 2001; Concept Builders, Inc. v. (d) Piercing is forbidden when the personal
NLRC, G.R. No. 108734, 1996): Whether the obligations of an individual are sought to
separate personality of the corporation should be be enforced against the corporation
pierced depends on questions of facts, (Robledo v. NLRC, G.R. No. 110358, 1994).
appropriately pleaded. Mere allegation that a
corporation is the alter ego of the individual Note: As an exception to this rule, the
stockholders is insufficient. The presumption is Supreme Court allowed such piercing by
that the stockholders or officers and the applying the concept of
corporation are distinct entities. The burden of In a traditional veil-piercing action, a court
proving otherwise is on the party seeking to have disregards the existence of the corporate
the court pierce the veil of corporate entity entity so a claimant can reach the assets of a
(Ramoso v. CA, G.R. No. 117416, 2000). corporate insider. In a reverse piercing
action, however, the plaintiff seeks to reach
For Equity Cases: the assets of a corporation to satisfy claims
These are cases, where there is no fraud or alter against a corporate insider."
ego circumstances that can warrant the piercing
of the corporate veil. This mainly used to render Reverse piercing has two (2) types:
justice in the situation at hand, or to brush aside 1. Outsider reverse - piercing occurs when
technical defenses. a party with a claim against an individual or
corporation attempts to be repaid with assets
For example: of a corporation owned or substantially
a) When used to confuse legitimate issues controlled by the defendant.
(Telephone Engineering and Service Co., 2. Insider reverse piercing - the controlling
Inc. V. WCC, G.R. No. L-28694, 1981). members will attempt to ignore the corporate
b) When used to raise issues relating only to fiction in order to take advantage of a benefit
technicalities (Emilio Cano Ent. v. CIR, G.R. available to the corporation, such as an
No. L-20502, 1965). interest in a lawsuit or protection of personal
assets. (International Academy of
The veil may not always be pierced, especially Management and Economics vs. Litton and
in the following circumstances: Company, G.R. No. 191525, 2017).
(a) Piercing is a remedy of last resort and is not (e) To disregard the separate juridical
available when other remedies are still personality of a corporation, the wrongdoing
available (Umali v. CA, G.R. No. 89561, must be clearly and convincingly
1990). established. It cannot be presumed (DBP vs.
(b) One cannot successfully invoke the piercing CA, G.R. No. 126200, 2001).
doctrine when it was proven that the act done (f) Piercing of the veil of corporate fiction is not
was contrary to the existing rules, which allowed when it is resorted to justify under
were well-known to the officers of the one a theory of co-ownership the continued
invoking it (Traders Royal Bank v. Court of use and possession by stockholders of
Appeals, G.R. No. 93397, 1997). corporate properties (Boyer-Roxas v. Court
(c) Piercing is forbidden unless the remedy of Appeals, G.R. No. 100866, 1992).
sought is to make the stockholder, officer (g) The piercing doctrine cannot be availed of in
or another corporation pecuniarily liable order to dislodge from the jurisdiction of
for corporate debts (Umali v. CA, G.R. No. the SEC the petition for suspension of
89561, 1990; Indophil Textile Mill Workers payments filed under Section 5(e) of Pres.
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Decree No. 902-A, on the ground that the They must:

petitioning individuals should be treated as a. Be a natural person, partnership,
the real petitioners to the exclusion of the association or corporation, singly or
petitioning corporate debtor (Union Bank v. jointly with others but not more than
CA, G.R. No. 131729, 1998). fifteen (15)5 ;
(h) i. may be composed of any
liabilities by converting them to guarantors of combination of natural person/s,
bad debts cannot be done by piercing the veil
SEC-registered partnership/s,
of corporate identity (Ramoso v. CA, G.R. No.
SEC-registered domestic
117416, 2000)
(i) Piercing doctrine is meant to prevent fraud, corporation/s or associations, and
and cannot be employed to perpetrate foreign corporation/s (SEC MC
fraud or a wrong (Araneta, Inc. v. Tuason, no. 16-19)
G.R. No. L-2886, 1952). b. If natural persons, be of Legal Age;
(j) Corporate persons are entitled to due c. Each owns or subscribes to at least
process protection. Thus, failure to implead one share for stock corporations and
a corporation in a suit for recovery of ill- be a member for non-stock
gotten wealth against its stockholders corporations.
cannot bind the corporation itself; Note: Natural persons who are licensed to
otherwise, its fundamental right to due practice a profession, and partnerships or
process will be violated. (COCOFED v. associations organized for the purpose of
Republic, G.R. No. 177857-58, 2016) practicing a profession, shall not be allowed to
(k) Mere ownership of all or nearly all of the organize as a corporation (for the practice of such
capital stocks of a corporation is not in itself a profession) unless otherwise provided under
sufficient reason for disregarding the fiction of special laws.(Sec. 10)
separate corporate personalities. The
probate court applied doctrine of piercing the Additional Guidelines issued by the SEC(SEC
corporate veil since Rosario had no other MC no. 16-19):
properties that comprise her estate other than 1) For Partnership as Incorporators:
her shares. Although the intention to protect Application for registration must be
the shares from dissipation is laudable, it is accompanied with an affidavit, executed
still an error to order tenants to remit
by all the partners, indicating that they
payments to the estate. Also, the court has
not acquired jurisdiction over Primrose and its authorized the partnership to be an
properties. Piercing applies to the incorporator and have designated one of
determination of liability not of the partners to sign the incorporation
jurisdiction. It is not available to confer documents.
jurisdiction over a party not impleaded in Partnerships under Dissolved or Expired
a case. (Mayor v. Tiu, G.R. No. 203770, status with the SEC shall not be
2016) authorized to become an incorporator.
2) For Domestic Corporations or Associations
5. CAPITAL STRUCTURE as Incorporators:
Its investment in the new corporation must
A. Number and Qualifications of be approved by a majority of the board of
Incorporators directors or trustees ratified by the
stockholders representing at least two-
1) Incorporators4 Incorporators are those
stockholders or members mentioned in the or at least two-
articles of incorporation as originally forming in cases of nonstock corporations.
and composing the corporation and who are A Directors'/Trustees' Certificate or a
signatories thereof (Sec. 5). Secretary's Certificate, indicating the
4 Note: Amendments were introduced by the RCC 5 A corporation with a single stockholder is considered
removing the qualifications to be natural persons, and either as an One Person Corporation or a Corporation
majority must be residents of the Philippines; Sole.
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necessary approvals, as well as the General Rule: A corporate term for a specific
authorized signatory to the incorporation period may be extended or shortened by
documents, shall be executed under oath amending the articles of incorporation.
and submitted by the applicant. Limitation: No extension may be made
Domestic corporations under "delinquent", earlier than three (3) years prior to the
"suspended", "revoked" or "expired" original or subsequent expiry date(s)
status with the SEC shall not be
Exception: There are justifiable reasons for an
authorized to become an incorporator.
earlier extension as may be determined by the
3) For Foreign Corporations as incorporators: SEC.
The application for registration must be
accompanied by a copy of a document Effects:
duly authenticated by a Philippine If extended:
Consulate or with an apostille affixed Such extension of the corporate term shall take
thereto, authorizing the foreign effect only on the day following the original or
corporation to invest in the corporation subsequent expiry date(s).
being formed and specifically naming the
designated signatory on behalf of the If not extended or expired:
foreign corporation. Upon expiration of the period fixed in the articles
of incorporation, in the absence of compliance
B. Minimum Capital Stock And with the legal requisites for the extension of the
period, the corporation ceases to exist and is
Subscription Requirements
dissolved ipso facto (PNB v. CFI Rizal, G.R. No.
63201, 1992)
Stock corporations shall not be required to have
a minimum capital stock, except as otherwise
Doctrine of Relations or Relating Back
specifically provided by special law (Sec 12). 6
Doctrine
C. Corporate Term (Sec. 11) Where the delay in affecting the amendment is
due to the neglect of the officer with whom the
New Rule: certificate is required to be filed, or to a wrongful
General rule: A corporation shall have perpetual refusal on his part to receive it, the same will be
existence, treated as having been filed before the expiry
Exception: Unless its articles of incorporation date. The doctrine does not apply where the delay
provide otherwise. is attributable to the corporation (Alhambra Cigar
v. SEC, G.R. No. L-23606, 1968)
For Corporations with certificates of
incorporation issued prior to the effectivity of Revival:
this Code, and which continue to exist shall have
perpetual existence, unless: may apply
upon a vote of its stockholders for a revival of its corporate existence,
representing a majority of its outstanding together with all the rights and privileges under its
certificate of incorporation and subject to all of its
capital stock
duties, debts and liabilities existing prior to its
the corporation notifies the SEC that it revival. Upon approval by the SEC, the
elects to retain its specific corporate corporation shall be deemed revived and a
term pursuant to its articles of incorporation. certificate of revival of corporate existence shall
Any change in the corporate term under this be issued, giving it perpetual existence, unless
section is without prejudice to the appraisal right its application for revival provides otherwise.
of dissenting stockholders in accordance with the
provisions of this Code. Who may file for petition for revival of
corporate existence:
Extension:
6 The RCC completely removed sec. 13 of the old

corporation code which provided for the 25-25 rule
upon incorporation.
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1) Generally, a corporation whose term has a favorable recommendation of the

expired; appropriate government agency:
2) An Expired Corporation whose Certificate of 1) Banks,
Registration has been revoked for non-filing 2) Banking and quasi banking institutions,
of reports, 3) Preneed, Insurance and trust companies,
3) An Expired Corporation whose Certificate of 4) Non-stock savings and loan associations
Registration has been suspended (NSSLAs),
5) Pawnshops,
Note for 2) & 3): it shall file the proper Petition to
6) Corporations engaged in money service
Lift its Suspended Status, which may be
business, and
incorporated in its Petition to Revive, and must
settle the corresponding penalties thereof 7) Other financial intermediaries (Sec. 11)
4) An Expired Corporation whose corporate Required Vote to Initiate Revival:

name has already been validly re-used, and is
currently being used, by another existing The required number of votes for the Revival of
corporation duly registered with the SEC, an Expired Stock Corporation is at least a majority
provided that the former shall change its vote of the board of directors, and the vote of at
corporate name within thirty (30) days from the least majority of the outstanding capital stock. For
issuance of its Certificate of Revival of nonstock corporations, at least a majority vote of
Corporate Existence. (SEC Memo. Circ. no. the board of trustees, and the vote of at least
23-19) majority of the members. (SEC MC no. 23-19)
Who may not file? D. Classes of Shares of Stock (Sec. 6)
1) An Expired Corporation which has completed The classification of shares, their corresponding
the liquidation of its assets; rights, privileges, or restrictions, and their stated
2) A corporation whose Certificate of par value, if any, must be indicated in the articles
Registration has been revoked for reasons of incorporation.
other than non-filing of reports;
3) A corporation dissolved by virtue of Sections Doctrine of Equality of Shares
6(c) and 6(d) of SEC Reorganization Act; Each share shall be equal in all respects to every
4) An Expired Corporation which already other share, except as otherwise provided in the
articles of incorporation and in the certificate of
availed of re-registration or other
stock. (sec. 6)
memorandum circulars issued by the SEC
pertaining to re-registration, except when: i. Common and Preferred shares
a) The re-registered corporation has given - Common shares are also called
its consent to the Petitioner to use its ordinary shares and they share in profits
corporate name, and has undertaken to pro-rata
undergo voluntary dissolution - Preferred shares may be preferred (a)
immediately after the issuance of the as to dividends, or (b) as to distribution of
Petitioner's Certificate of Revival; or assets during liquidation, or (c) as to any
b) The re-registered corporation has given other manner stated in the Articles, not
its consent to the Petitioner to use its violative of the Corp Code. If authorized
corporate name, and has undertaken to by Articles, Board may fix terms. It is
change its corporate name immediately ALWAYS with a stated par value.
after the issuance of the Petitioner's
Certificate of Revival. (SEC Memo. ii. Par Value and No-Par Value
Circ. no. 23-19) Par value shares - with a pre-stated
amount or denomination
No application for revival of certificate of Non- par value - no pre-stated value
incorporation of following corporations shall be
approved by the SEC unless accompanied by
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Non-par value shares are deemed fully paid and or deny the right of members of any class, the
non-assessable so holders of such are not liable
to the corporation or its creditors. must prevail, and that the nonstock corporation
can lawfully suspend or define the voting rights of
The consideration received is treated as capital its members, but with respect to fo
and cannot be declared as dividends. the exclusive right to vote and be voted for of the
Because they are vested with public interest, from the approval of the SEC. (Forest Hills and
the following types of corporations may only Country Club, Inc. v. Kings Properties Corp., G.R.
issue par value shares: No. 212833, 2019).
a. Banks
b. Trust Companies b. Redeemable shares Expressly
c. Insurance Companies provided in articles; may be
d. Public Utilities purchased/taken up upon expiration of
e. Building and Loan Associations. the period of said shares purchased
whether or not there are unrestricted
iii. Voting and Non- Voting Shares retained earnings; may be deprived of
Voting share with complete voting rights voting rights.
Non - voting shares are preferred or c. Treasury stocks stocks previously
redeemable shares that have limited issued and fully paid for and reacquired
voting rights. by the corporation through lawful means
(purchase, donation, etc.); not entitled to
Non-Voting Shares Have Voting Rights In The vote and no dividends could be declared
Following Matters: thereon as corporations cannot declare
a. Amendment of Articles dividends to itself.
b. Adoption/ Amendment of By- Laws
c. Sale, lease, exchange, mortgage, pledge or Escrow shares those held by a third person to
dispose of all or substantially all of corporate be released only upon the performance of a
property condition or the happening of a certain event
d. Incur, create, increase bonded indebtedness contained in the agreement.
e. Increase, decrease capital stock
f. Merger/ consolidation with another Preferred cumulative participating share of
corporation stock - Share entitling its holder to preference in
g. Investment of funds in another corporation the payment of dividends ahead of common
stockholders and to be paid the dividends due for
h. Dissolution of corporation
prior years and to participate further with common
stockholders in dividend declarations.
Other Classes of Shares: (Secs. 7, 8, 9)
a. Given rights and
Over-Issued Stock Stock issued in excess of
privileges not enjoyed by owners of other authorized capital stock; null and void.
stocks; exclusive right to vote/be voted in
the election of directors shall not exceed 6. INCORPORATION AND ORGANIZATION
5 years.
Note: such exclusive right shall not be A. Promoter
allowed if its exercise will violate the
- A person who, acting alone or with others, takes
initiative in founding and organizing the business
pertinent laws. or enterprise of the issuer and receives
consideration therefor. (Securities Regulation
Since Section 7 makes no distinction (and is Code, Sec. 3.10. [R.A. 8799])
found under General Provisions), then it must
i. Liability of a Promoter
both stock and nonstock corporations. Although General rule: Promoter is personally liable in the
[Section 88 of the Revised Corporation Code] event the corporation is not duly incorporated.
allows in a nonstock corporation to limit, broaden
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Exception: C. Pre-incorporation subscription (Sec. 60)
but who were merely convinced to invest in the

proposed corporate venture on the basis of the It is entered into before the incorporation and
feasibility study undertaken, are not liable irrevocable for a period of six (6) months from the
personally with the corporation for the cost of date of subscription unless:
such feasibility study.(Caram, Jr. v. CA, G.R. No. i. All other subscribers consent to the
L-48627, 1987) revocation, or
ii. The corporation failed to materialize after
6 months or within the stipulated period.
Contracts It cannot be revoked after filing the Articles of
General Rule: Corporation is not bound to a Incorporation with the SEC.
contract made by a promoter before its
incorporation (Cagayan Fishing v. Sandiko, G.R. In contrast
No. L-43350, 1937) Post-incorporation subscription entered into
after incorporation, such as for the unsubscribed
Exceptions: portion of the authorized capital stock and for the
a) Adopts or ratifies the contract; or purchase of increased capital stocks after an
b) Accepts its benefits with knowledge of the amendment of the article of incorporation.
terms thereof (Rizal Light v. Morong, G.R.
No. L-20993, 1968) D. Consideration for Stocks (Sec. 61)
Ratification is the key element in upholding the Stocks shall not be issued for a consideration less
validity and enforceability of promoter's contracts. than the par or issued price thereof.
Without ratification by a corporation after its due
incorporation, a contract entered into on behalf Consideration for issuance of stock may be by
of a corporation yet to be organized or still in the any or a combination of any two or more of the
process of incorporation is void as against the following:
corporation (Cagayan Fishing Development Co., a. Cash actually paid
Inc. v. Teodoro Sandiko, G.R. No. L-43350, b. Property (tangible or intangible) actually
1937). received and necessary or convenient for the
Although a franchise may be treated as a c. Labor performed or service actually rendered

contract, to the corporation
1. The eventual incorporation of the applicant d. Debts incurred previously by the corporation
corporation after the grant of the franchise; (for subscriptions after incorporation)
and e. Amounts from unrestricted dividends (for
2. Its acceptance of the franchise as shown declaration of stock dividends)
by its action in prosecuting the application f. Outstanding shares exchanged in
filed with the SEC for the approval of said reclassification or conversion
franchise, g. Shares of stock in another corporation;
and/or
h. Other generally accepted forms of
respondent municipality and Morong Electric but
consideration.
cured the deficiency in the application of Morong
Electric (Rizal Light & Ice Co., v. Municipality of
Morong, Rizal, G.R. No. L-20993, 1968). Other Rules pertaining to consideration of
stocks
B. Subscription Contracts a. Where the consideration is other than actual
cash, or consists of intangible property such
Any contract for the acquisition of unissued stock as patents of copyrights, the valuation thereof
shall be deemed a subscription, notwithstanding shall initially be determined by the
the fact that the parties refer to it as a purchase incorporators or the board of directors,
or some other contract. (Sec. 59) subject to approval by the SEC.
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b. No issuance of shares on promissory notes not include a purpose which would change or
or future services. contradict its nature as such;
c. The same considerations under sec. 61 c. The place where the principal office of the
whenever applicable are to be used for bonds corporation is to be located, which must be
issued by the corporation. within the Philippines;
d. The issued price of no par value shares is the d. The term for which the corporation is to exist,
amount fixed: IF not elected the perpetual existence;
i. In the Articles e. The names, nationalities and residences of
ii. By the Board if authorized by its the incorporators;
Articles or By-Laws, or f. The number of directors or trustees, which
iii. if not so fixed, by the stockholders shall not more than fifteen (15);
representing the majority of the g. The names, nationalities and residences of
outstanding capital stock (Sec. 61) persons who shall act as directors or
trustees until the first regular directors or
Note: A special stipulation contained in a trustees are duly elected and qualified in
subscription to corporate stock which, if valid, accordance with the Corporation Code;
would lessen the capital of the company and h. If it be a stock corporation, the amount of its
relieve the subscriber from liability to be sued authorized capital stock in lawful money of
upon the subscription, is illegal (National the Philippines, the number of shares into
Exchange v. Dexter, G.R. No. L-27872, 1928).
which it is divided, and in case the share are
E. Articles of Incorporation par value shares, the par value of each, the
names, nationalities and residences of the
Nature and Function of Articles original subscribers, and the amount
The Articles of Incorporation is a basic contract subscribed and paid by each on his
document in Corporate Law which defines the subscription, and if some or all of the shares
charter of the corporation. Section 13 of the are without par value, such fact must be
Corporation Code provides that the Articles of stated;
Incorporation do not become binding as the i. If it be a non-stock corporation, the amount
charter of the corporation unless they have been of its capital, the names, nationalities and
filed with and registered with the SEC. residences of the contributors and the
amount contributed by each; and
Note: The Articles of Incorporation defines the
j. Such other matters as are not inconsistent
contractual relationships between the State and
the corporation, the stockholders and the State, with law and which the incorporators may
and between the corporation and its stockholders deem necessary and convenient.
(Lanuza v. CA, G.R. No. 131394, 2005).
An arbitration agreement may be provided in the
i. Contents (Sec. 13) articles of incorporation pursuant to Section 181
All corporations shall file with the SEC articles of of this Code.
incorporation in any of the official languages, duly
signed and acknowledged or authenticated, in Note: The articles of incorporation and
such form and manner as may be allowed by the applications for amendments thereto may be
SEC, containing substantially the following filed with the SEC in the form of an electronic
matters, except as otherwise prescribed by this document
Code or by special law: and regulations on electronic filing.
a. The name of the corporation;
b. The specific purpose or purposes for which Amendments
the corporation is being incorporated. Where
Requirement for Amending Articles of
a corporation has more than one stated
Incorporation (Sec. 15)
purpose, the articles of incorporation shall
a. A legitimate purpose for the amendment;
state which is the primary purpose and which
b. Majority vote of directors or trustees and the
is/are the secondary purpose or purposes:
vote or written assent of the stockholders
Provided, That a non-stock corporation may
representing at least two-thirds (2/3) of the
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outstanding capital stock, without prejudice to 3) Names of original subscribers to capital stock
the appraisal right of dissenting stockholders and subscribed and paid-up capital
if available, or if it be a non-stock corporation, 4) Treasurer-in-trust elected by original
two-thirds (2/3) of the members. subscribers
c. The original and amended articles together 5) Members who contributed to the initial capital
shall contain all provisions required by law to of non-stock corporation
be set out in the articles of incorporation. 6) Witnesses and acknowledgments
d. Indication in the articles, by underscoring, the
change or changes made. F. Corporate Name (Sec. 17)
e. A copy of amended articles duly certified
under oath by the corporate secretary and a
majority of the directors or trustees stating the name is a property right, it is a right in rem which
it may assert or protect against the whole world in
fact that said amendment or amendments
the same manner as it may protect its tangible
have been duly approved by the required property against trespass or conversion (Philips
vote of stockholders or members, as the case Export v. CA, G.R. No. 96161, 1992)
may be.
Statutory Limitations on Use of Corporate
When would take effect: Name (NPC)
a. The amendments shall take effect upon their No corporate name shall be allowed by the SEC
approval by the SEC or if:
b. From the date of filing with the said a. it is Not distinguishable from that
Commission, if not acted upon within six (6) already reserved or registered for the use
months from the date of filing for a cause not of another corporation,
attributable to the corporation. b. if such name is already Protected by
law, or
Grounds for Rejecting Incorporation or c. when its use is Contrary to existing law,
Amendment to Articles of Incorporation (Sec. rules and regulations.
16)
a. Not in prescribed form; Not Distinguishable
b. Illegal purpose;
c. A name is not distinguishable even if it contains
d. Non-compliance with required Filipino stock one or more of the following:
ownership. a)
The SEC shall give the corporation a reasonable or an abbreviation of one of such words;
time to correct or modify objectionable portions. and
b) Punctuations, articles, conjunctions,
Note: A favorable recommendation of the contractions, prepositions, abbreviations,
appropriate government agency to the effect that different tenses, spacing, or number of
such article or amendment is in accordance with the same word or phrase.
law is required in the following types of
corporation:
Effects if Statutory Limitations are Violated:
Banks, banking and quasi-banking
a) SEC may summarily order the
institutions,
corporation to immediately cease and
Preneed, insurance and trust companies,
desist from using such name and require
Non-stock savings and loan associations
the corporation to register a new one.
(NSSLAS),
b) The SEC shall also cause the removal of
Pawnshops, and
all visible signages, marks,
Other financial intermediaries
advertisements, labels, prints and other
effects bearing such corporate name.
ii. Non-Amendable Items:
1) Names of incorporators
2) Names of incorporating directors/trustees
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c) Upon the approval of the new corporate of the partners gives its consent to the
name, the SEC shall issue a certificate of applied name.
incorporation under the amended name. d) A name that consists solely of special
Note: If the corporation fails to comply with the symbols, punctuation marks or
specially designed characters shall not
and its responsible directors or officers in be registered.
contempt and/or hold them administratively, e) The name of an internationally known
civilly and/or criminally liable under this Code and foreign corporation cannot be used by a
domestic corporation unless it is its
other applicable laws and/or revoke the
subsidiary and the parent corporation
registration of the corporation.(Sec. 17) has consented to such use.
f) A name written in a foreign language,
Other Limitations on the Use of Corporate even if registered in another country,
Name: shall not be registered if the name
a) The Corporate Name of the following entities violates good morals, public order or
shall include: public policy
i. For a Corporation- "Corporation" or g) The name of a local geographical unit,
"Incorporated," or the abbreviations site or location cannot be used as a
"Corp." or "Inc." corporate or partnership name unless it
ii. For One Person Corporations- is accompanied by a descriptive word
or phrase.
iii. Partnerships- h) The name of a corporation or
1) General Partnerships - partnership that has been dissolved or
"Company" or "Co." whose registration has been revoked
2) limited partnership, the shall not be used by another
word "Limited" or "Ltd." corporation or partnership within five
3) Professional partnership (5) years from the approval of
- "Company," dissolution or five (5) years from the
"Associates," or date of revocation, unless its use has
"Partners," or other been allowed at the time of the
similar descriptions; dissolution or revocation by the
iv. For Foundations- stockholders, members or partners who
v. For engaging in microfinance represent a majority of the outstanding
activities - "Microfinance" or capital stock or membership of the
"Microfinancing" dissolved corporation or partnership, as
vi. Other words or phrases, authorized the case may be.
by law or other rules and i) A corporate or partnership name, which
regulations, to be used by specific was previously used but become the
subject of amendment, shall not be
corporations or partnerships re-registered or used by another
b) A term that describes the business of a corporation or partnership for a period
corporation in its name should refer to of three (3) years from the date of the
its primary purpose. If there are two approval of the adoption of the new
such terms, the first should refer to the corporate or partnership name. An
primary purpose and the second to earlier period may be allowed for the
the secondary purpose. registration or use of the former
c) If the name is similar to a registered corporate or partnership name provided
corporation or partnership, the applicant that the corporation or partnership,
shall add distinctive word/s to the which previously owned the used
proposed name to remove the similarity corporate or partnership name, gives its
from the registered name consent.
Note: This shall not be allowed if the j) Names of absorbed/constituent
corporation may not be used unless
registered name is coined or unique
it is the surviving corporation
unless the board of directors or majority
intending to use the said
absorbed/constituent corporate name,
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or that another corporation may use the holding that a corporation may be sued under the
names of absorbed/constituent name by which it makes itself known to its
corporation if consent of the surviving workers (Pison-Arceo Agricultural Development
corporation is obtained Corp. v. NLRC, G.R. No. 117890, 1997).
Doctrine of Secondary Meaning To determine the existence of confusing similarity

General Rule: A corporation whose corporate in corporate names, the test is whether the
name is a word or phrase which is generally similarity is such as to mislead a person,
descriptive or geographical cannot prevent using ordinary care and discrimination. In so
another corporation, which uses the same or doing, the court must examine the record as well
phrase as its corporate name, from using such. as the names themselves. Proof of actual
confusion need not be shown. It suffices that
Exception: A word or phrase originally incapable confusion is probably or likely to occur.
of exclusive appropriation with reference to an (Indian Chamber of Commerce Phils, Inc. v.
article on the market because geographically or Filipino Indian Chamber of Commerce in the
otherwise descriptive, might nevertheless have Philippines, Inc., G.R. No. 184008, 2016)
been used so long and so exclusively by one
producer with reference to his article that, in that G. Registration, Incorporation and
trade and to that branch of the purchasing public, Commencement of Corporate Existence
the word or phrase has come to mean that the (Sec. 18)
article was his product. (Lyceum v. CA, G.R. No.
101897, 1993) Registration
Change of Corporate Name A person or group of persons desiring to
A corporation may change its name by the incorporate shall submit the intended corporate
amendment of its articles of incorporation, but the name to the SEC for verification. If the SEC finds
same is not effective until approved by the SEC that the name is distinguishable from a name
(Philippine First Insurance Co. v. Hartigan, G.R. already reserved or registered for the use of
No. L-26370, 1970). another corporation, not protected by law and not
contrary to law, rules and regulations, the name
A change in the corporate name does not make a shall be reserved in favor of the
new corporation, and whether affected by special incorporators. The incorporators shall then
act or under a general law, has no effect on the submit their articles of incorporation and
identity of the corporation, or on its property, bylaws to the SEC.
rights, or liabilities (Republic Planters Bank v. CA,
G.R. No. 93073, 1992). Issuance of Certificate of Incorporation:
Other Doctrines: Corporate Name If the SEC finds that the submitted documents
Similarity in corporate names between two and information are fully compliant with the
corporations would cause confusion to the public requirements of this Code, other relevant laws,
especially when the purposes stated in their rules and regulations, the SEC shall issue the
charter are also the same type of business certificate of incorporation.
(Universal Mills Corp. v. Universal Textile Mills
Inc., G.R. No. L-28351, 1977). Commencement of Corporate Existence
A corporation has no right to intervene in a suit A private corporation organized under this Code
using a name other than its registered name; if a commences its corporate existence and juridical
corporation legally and truly wants to intervene, it personality from the date the SEC issues the
should have used its corporate name as the law certificate of incorporation under its official
requires and not another name which it had not seal and thereupon the incorporators,
registered (Laureano Investment & Development stockholders/ members and their successors
Corp. v. CA, G.R. No. 100468, 1997). shall constitute a body corporate under the name
stated in the articles of incorporation for the
There would be no denial of due process when a period of time mentioned therein, unless said
corporation is sued and judgment is rendered period is extended or the corporation is sooner
against it under its unregistered trade name, dissolved in accordance with law. (Sec. 18)
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H. Election of Directors or Trustees (Sec. Binding Effects

23)7 The by-laws of the corporation are its own private
laws that have the same effect as the laws of the
Manner of Election corporation. They are deemed written into the
In any form; or charter. Thus, they become part of the
By ballot when requested by any voting fundamental laws of the corporation which are
stockholder or member binding upon the corporation and its officers, and
In stock corporations, voting may be in the litigating parties who are not part of the
corporation in accordance with their terms (Peña
person or by proxy
v. CA, G.R. No. 91478, 1991; Forest Hills Golf
Club v. Gardpro Inc., G.R. No. 164686, 2014).
Time to Determine Voting Right
At the time fixed in by- laws Procedure on Adoption of By-Laws (Sec. 45)
If by- laws are silent, at time of election a. After Incorporation:
i. Approval by the majority of outstanding
I. Adoption of By-Laws
shares/members
By-laws ii. By-laws must be signed by
Relatively permanent and continuing rules of stockholders/members voting for
action adopted by the corporation for its own them
government and of the individuals composing it iii. Kept in the principal office of the
and those having direction, management and corporation
control of its affairs, in whole or in part, in the iv. Subject to inspection by stockholders
management and control of its affairs and or members
activities. v. Certified copy signed by majority of
directors, countersigned by the
Regulations, ordinances, rules or laws adopted corporate secretary, filed w/ SEC and
by an association or corporation or the like for its attached to original Articles of
internal governance, including rules for routine
Incorporation
matters such as calling meetings and the like
b. Prior to Incorporation:
(San Miguel Corp. v. Mandaue Packing Products
Plants Union-FFW, G.R. No. 152356, 2005). i. such by-laws shall be approved and
signed by all the incorporators and
By-laws are intended merely for the protection of ii. submitted to the SEC, together with
the corporation, and prescribe regulation, not the articles of incorporation.
restrictions, they are always subject to the charter
of the corporation (Rural Bank of Salinas v. CA, Note: A certification of the appropriate
GR No. 96674, 1992). government agency to the effect that such bylaws
or amendments are in accordance with law is
Requisites of Valid By-Laws: required before he SEC shall accept for filing the
a. It must be consistent with the Corporation bylaws or any amendment thereto of the
Code, other pertinent laws and regulations. following:
b. It must be consistent with the Articles of 1) Bank,
Incorporation. 2) Banking institution,
c. It must be reasonable and not arbitrary or 3) Building and loan association,
oppressive. 4) Trust company,
d. It must not disturb vested rights, impair 5) Insurance company,
contract or property rights of stockholders or 6) Public utility,
members or create obligations unknown to 7) Educational institution, or
law. 8) Other special corporations governed by
special laws
7This will be discussed extensively under the heading

Board of Directors and Trustees (9.D).
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Failure to Adopt and Maintain the Bylaws Now of the corporation (Rural Bank of Salinas, Inc. v.
Specifically Criminally Punishable and CA, 1992; quoting from Thompson on
Su (Sec. 161, Corporation Sec. 4137, cited in Fleischer v.
please see discussion below) Nolasco, G.R. No. L-23241, 1925).
Common Law Limitations on By-Laws By-law provisions cannot discriminate

among its stockholders or members
By-laws cannot be contrary to law and
articles of incorporation i. Contents of by-laws (Sec. 46)
A private corporation may provide the following in
A by-law provision granting to a stockholder a its bylaws:
permanent representation in the Board of a) The time, place and manner of calling and
Directors is contrary to the Corporation Code conducting regular or special meetings of
requiring all members of the Board to be elected the directors or trustees;
by the stockholders or members. Even when the b) The time and manner of calling and
members of the association may have formally conducting regular or special meetings and
adopted the provision, their action would be of no mode of notifying the stockholders or
avail because no provision of the by-laws can be
members thereof;
adopted if it is contrary to law (Grace Christian
c) The required quorum in meetings of
High School v. CA, G.R. No. 108905 , 1997).
stockholders or members and the manner of
Although the right to amend by-laws lies solely in voting therein;
the discretion of the employer, this being in the d) The modes by which a stockholder,
exercise of management prerogative or business member, director, or trustee may attend
judgment, such right cannot impair the obligation meetings and cast their votes;
of existing contracts or rights or undermine the e) The form for proxies of stockholders and
right to security of tenure of a regular employee. members and the manner of voting them;
Otherwise, it would enable an employer to f)
remove any employee from employment by the duties and responsibilities, the guidelines for
simple expediency of amending its by-laws and setting the compensation of directors or
providing the position shall cease to exist upon trustees and officers, and the maximum
occurrence of a specified event (Salafranca v.
number of other board representations that
Philamlife (Pamplona) Village Homeowners
Association, Inc., G.R. No. 121791, 1998) an independent director or trustee may have
which shall, in no case, be more than the
By-laws that prohibit directors who have interests number prescribed by the SEC;
in competitor corporations are reasonable in g) The time for holding the annual election of
order to protect the interests of the company directors or trustees and the mode or
(Gokongwei v. SEC, G.R. No. L-45911, 1979) manner of giving notice thereof;
h) The manner of election or appointment and
By-laws cannot be unreasonable or be the term of office of all officers other than
contrary to the nature of by-laws (GPI v. El directors or trustees;
Hogar Filipino, G.R. No. L-26649, 1927). i) The penalties for violation of the bylaws;
j) In the case of stock corporations, the
Authority granted to a corporation to regulate the manner of issuing stock certificates; and
transfer of its stock does not empower k) Such other matters as may be necessary for
corporation to restrict the right of a stockholder to the proper or convenient transaction of its
transfer his shares, but merely authorizes the
corporate affairs for the promotion of good
adoption of regulations as to the formalities and
governance and anti-graft and corruption
procedure to be followed in effecting transfer
(Thomson v. CA, G.R. No. 116631, 1998). measures.
By-laws are intended merely for the protection of Note: An arbitration agreement may be provided
the corporation, and prescribe regulation, not in the bylaws pursuant to Section 181 of this
restrictions; they are always subject to the charter Code.
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ii. Binding effect of by-laws: adopt new bylaws, duly certified under
As to the corporation and its components oath by the corporate secretary and a
Binding not only upon the corporation but majority of the directors or trustees.
also on its stockholder, members and those
having direction, management and control of The amended or new by-laws shall only be
its affairs. They have the force of contract effective upon the issuance by the SEC of a
between the members/stockholders. certification that the same is in accordance with
As to third persons Not binding unless this Code and other relevant laws.
there is actual knowledge. Third persons are
J. Effects Of Non-Use Of Corporate Charter
not even bound to investigate the content
because they are not bound to know the by- (Sec. 21)
laws which are merely provisions for the
a) If a corporation does not formally organize
government of a corporation and notice to
and commence its business within five
them will not be presumed (China Banking
(5) years from the date of its
Corp. v. CA, G.R. No. 118332 1997).
incorporation, its certificate of
incorporation shall be deemed revoked as
iii. Amendment or Revision (Sec. 47)
1) With stockholders or members approval of the day following the end of the five-year
- Majority vote of the members of the period.
b) If a corporation has commenced its
Board; and
- Majority of the outstanding capital business but subsequently becomes
inoperative for a period of at least five (5)
stock or majority of the members in
case of non- stock corporation, in a consecutive years, the SEC may, after due
meeting duly called for the purpose notice and hearing, place the corporation
under delinquent status.
2) The board may be delegated to have the
power to amend or repeal any by- laws or Delinquent Corporation:
adopt new by- laws, by a vote of: A Corporation placed by the SEC under
- 2/3 of the shareholders representing delinquency status after due notice and hearing,
the outstanding capital stock; or because it commenced its business but
- 2/3 of the members in a non- stock subsequently becomes inoperative for a period of
corporation. at least five (5) consecutive years.
Such power of the Board may be revoked by Effects of Delinquency Status:

majority vote of the outstanding capital stock or A delinquent corporation shall have a period of
majority of the members in a non- stock two (2) years to resume operations and comply
corporation with all requirements that the SEC shall
prescribe.
Note: The power to adopt the first original by- a) Upon compliance by the corporation, the
laws cannot be delegated to the board of directors SEC shall issue an order lifting the
or trustees; only the power to amend or repeal delinquent status.
any by- laws or adopt new by- laws that will b) Failure to comply with the requirements and
supplant the old by- laws can be validly resume operations within the period given
delegated. by the SEC shall cause the revocation of the
Filing and Effectivity

Corporations under special regulatory
Whenever the bylaws are amended or new jurisdiction
bylaws are adopted, the corporation shall file with The SEC shall give reasonable notice to, and
the SEC coordinate with the appropriate regulatory agency
a) amended or new bylaws and, prior to the suspension or revocation of the
b) certificate of incorporation of companies under
resolution authorizing the their special regulatory jurisdiction.
delegation of the power to amend and/or
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7. CORPORATE POWERS k. Other powers essential or necessary to carry

out its purposes.
A. General Powers; Theory of General
Capacity B. Specific Powers: Theory of Specific
Capacity
The general capacity theory maintains that a
corporation is said to hold such powers as are not The specific capacity theory maintains that the
prohibited or withheld from it by general law. corporation cannot exercise powers except those
expressly/impliedly given.
a. Express powers Those expressly
authorized by the Corporation Code and Specific Powers Granted by the RCC:
other laws, and its Articles of Incorporation or 1) Power to extend or shorten corporate
Charter term (Sec. 36)
b. Implied/necessary powers Those that can 2) Power to increase or decrease capital
be inferred from or necessary for the exercise stock or incur, create, increase bonded
of the express powers or for the pursuit of its indebtedness (Sec. 37)
purposes as provided in the Charter. 3) Power to deny pre-emptive rights (Sec.
Examples are powers related to the same line 38)
of business (e.g. stevedoring services to 4) Power to sell or dispose corporate assets
unload coal to its pier for corporations (Sec. 39)
supplying electric power) 5) Power to acquire own shares (Sec. 40)
c. Incidental/inherent powers Those that 6) Power to invest corporate funds in
are deemed to be within the capacity of another corporation or business (Sec.
41)
from the business and attach at the moment 7) Power to declare dividends (Sec. 42)
of creation without regard to express powers 8) Power to enter into management contract
or primary purpose. (Sec. 43)
General Express Powers under the C. Power to Extend or Shorten corporate

Corporation Code (Sec. 35) term (Sec. 36)
a. Sue and be sued in its corporate name;
b. Succession; There should be a written notice of
c. Adopt and use a corporate Seal; stockholders/members meeting stating:
d. Amend Articles of Incorporation Proposed action and time and place of
e. Adopt, amend or repeal By-laws; meeting
f. For stock corporations Issue stocks to Addressed to each stockholder/ member
subscribers and to sell treasury stocks; for Deposited to the addressee in post office,
non-stock corporations admit members; with postage prepaid or served
g. Purchase, receive, take, or grant, hold, personally;
convey, sell, lease, pledge, mortgage and Note: When allowed in the by-laws or done with
otherwise deal with real and personal the consent of the stockholder, sent
electronically in accordance with the rules and
property, pursuant to its lawful business;
regulations of the SEC on the use of electronic
h. Enter into Partnership, joint venture, merger,
data messages
consolidation, or any other commercial
agreement with natural and juridical persons; Vote needed:
i. Reasonable Donations for public welfare, Board majority (in board meeting) and
hospital, charitable, cultural, scientific, civil or Ratified by 2/3 of OCS or members in a
similar purposes (Prohibited: for partisan meeting mere written assent is not
political activity); enough
j. Establish pension, retirement and other
Plans for the benefit of directors, trustees,
officers and employees; and
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Appraisal rights available to dissenting Note: No decrease of capital stock shall be

stockholders approved by the SEC if it will prejudice the rights
In case of extension of term right of of corporate creditors
appraisal exists
In shortening of term right of appraisal From and after the approval by the SEC and the
recognized in Sec 81(1) amendment of issuance of its certificate of filing, capital stock
Articles to shorten or extend corporate shall stand increased or decreased as the
term certificate may declare
D. Power to Increase or Decrease Capital Incur, create, or increase bonded

indebtedness (non-stock)- There should be no
Stock or Incur, Create, Increase Bonded
incurring, creating or increasing any bonded
Indebtedness (Sec. 37) indebtedness unless :
Approved by majority of the board
Power to increase or decrease capital stock - Approved by at least 2/3 of members in a
provided that in the case of an increase in capital meeting
stock, the 25-25 rule is complied with, as With notice of the proposal and meeting
approved by the SEC given to stockholders
With prior approval of the SEC
There shall be no increase or decrease of capital Bonds issued by a corporation shall be registered
stock unless : with the SEC, which shall have the authority to
Approved by majority of the board determine the sufficiency of the terms thereof.
Approved by at least 2/3 of OCS in a
meeting E. Power to Deny Pre-Emptive Rights (Sec.
With notice of the proposal and meeting 38)
given to stockholders- given personally
or through electronic means if allowed General rule: Stockholders have the pre-emptive
With prior approval of the SEC right to subscribe to all issues or disposition of
o The application with the SEC shall be shares by the corporation of any class in
made within six (6) months from the proportion to their shareholdings
date of approval of the board of Unless:
directors and stockholders, which Denied by the Articles of Incorporation or
period may be extended for amendment thereto;
justifiable reasons. Shares are issued in compliance with
Accompanied by a sworn statement of laws requiring minimum stock ownership
the treasurer showing that the 25-25 rule by the public
has been complied with Shares issued in good faith in exchange
for property for corporate purposes
25-25 Rule approved by 2/3 of the OCS
Shares in payment of previously
The SEC shall not accept for filing any certificate contracted debts approved by 2/3 of
of increase of capital stock unless accompanied OCS
by a sworn statement of the treasurer of the
corporation lawfully holding office at the time of F. Power to Sell or Dispose Corporate
the filing of the certificate, showing that at least Assets (Sec. 39)
twenty-five percent (25%) of the increase in
capital stock has been subscribed and that at This Power is subject to the provisions of the
least twenty-five percent (25%) of the amount
subscribed has been paid in actual cash to the laws.
corporation or that property, the valuation of
which is equal to twenty-five percent (25%) of the Votes Required:
subscription, has been transferred to the Power to Sell or Dispose Corporate Assets
corporation: (Not all or Substantially All)
Majority Vote by Board of Directors or Trustees

ONLY
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Power to Sell or Dispose All or Substantially If the proceeds of sale or disposition is

All Corporate Assets Including its Goodwill appropriated for the conduct of the
remaining business
Needs vote of:
1) Majority Vote by Board of Directors or G. Power to Acquire Own Shares (Sec. 40)
Trustees
2) 2/3 of OCS or members Requirements:
1) Corporation has unrestricted retained
Note: In nonstock corporations where there earnings in its books to cover the shares to
are no members with voting rights, the vote of be purchased or acquired,
at least a majority of the trustees in office will 2) It is for a legitimate corporate purpose or
be sufficient authorization for the corporation to purposes, including the following cases:
enter into any transaction authorized by this To eliminate fractional shares arising out
section. of stock dividends;
To collect or compromise an
Sale of all or substantially all corporate indebtedness to the corporation, arising
assets: out of unpaid subscription, in a
delinquency sale, and to purchase
Net Asset Value Test- The determination of delinquent shares sold during said sale;
whether or not the sale involves all or To pay dissenting or withdrawing
stockholders entitled to payment for their
and assets must be computed based on its net shares under the provisions of the
asset value, as shown in its latest financial Corporation Code.
statements.
Shares of stock which have been issued and fully
Incapacity Test- A sale or other disposition shall paid for, but subsequently reacquired by the
be deemed to cover substantially all the corporate issuing corporation through purchase,
property and assets if thereby the corporation redemption, donation, or some other lawful
would be rendered incapable of continuing means are Treasury Shares. Such shares may
the business or accomplishing the purpose again be disposed of for a reasonable price fixed
for which it was incorporated. (Sec. 39) by the board of directors (Sec. 9) subject to
Notice:
Written notice of stockholder/member meeting H. Power to Invest Corporate Funds in
proposing said action served personally at their another Corporation or For Non-Primary
places of residence and deposited to the Purpose (Sec. 41)
addressee in the post office with postage prepaid,
or when allowed by the by-laws or done with the Needs vote of:
consent of the stockholder, sent electronically Board majority in meeting
2/3 of OCS or members -
Dissenting stockholders have appraisal rights. Sto
needed if investment in stock of other
After authorization or approval by the corporations is reasonably necessary to
stockholders/members, the Board may accomplish primary purpose
however, abandon proposed action without Written notice of proposed investment
prior authorization/approval of and time and place of meeting sent to
stockholders/members, subject to rights of 3rd stockholders
parties Dissenting stockholders have appraisal
rights
not needed if Investment by a sugar central in the equity of a

Disposition of property and assets is jute-bag manufacturing company used in packing
necessary in the usual and regular sugar, falls within the implied powers of the sugar
course of business, or central as part of its primary purpose (De La
Rama v. Ma-ao Sugar Central, G.R. No. L-17504,
1969)
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I. Power to Declare Dividends (Sec. 42) resources, where pertinent laws or regulations
will govern
Only Board action is needed (except stock
dividends where stockholder action is needed) A management contract is not an agency
Cash dividends due on delinquent stock contract, and therefore is not revocable at will
should first be applied to unpaid balance (Nielson v. Lepanto, G.R. No. L-21601, 1968)
plus cost and expenses
Stock dividends shall be withheld from This needs approval of:
delinquent stockholders until the unpaid 1. Board of Directors of both managing and
subscription is fully paid managed corporation
Stock dividends need 2/3 vote of the 2. Majority of outstanding shares or
OCS members of both managed and
Dividends are payable out of unrestricted managing corporation
retained earnings 3. But 2/3 vote of outstanding
Stock corporations cannot retain surplus stock/members of managed corporation
profits more than 100% of paid-in capital necessary in the ff:
stock unless: o Where stockholders of both
- Needed for corporate expansion managing and managed
projects approved by the board corporation (the common
- Or prohibited by loan agreement stockholders) own or control
which prohibits declaration of more than 1/3 or the outstanding
dividends without financial stock of managing corporation
o Where majority of directors in
- Or needed under special both corporations are the same
circumstances
K. Limitations
Unless otherwise provided in the articles
of incorporation, distribution of dividends i. Ultra Vires Acts
is done on a pro rata basis.
1. Applicability of Ultra Vires Doctrine
The power to declare dividends under [Sec. 42 of An act not within the express or implied, and
RCC] is with the Board of Directors, and can be incidental powers of the corporation.
declared only out of its unrestricted retained
earnings. Assuming that a corporate director was Types of Ultra Vires Cases
authorized by the Board to fix the monthly a. First type: Acts done beyond the powers of
dividends, dividends can be declared only out of the corporation as provided for in the law or
unrestricted retained earnings of a corporation, its articles of incorporation (Sec. 44)
which earnings cannot obviously be fixed and
b. Second type: Acts or contracts entered into
predetermined 5 years in advance. (Ongkingco v.
on behalf of the corporation by persons
Sugiyama, G.R. No. 217787, 2019).
without corporate authority, even though the
J. Power to Enter Into Management contract is within the powers of the
Contract (Sec. 43) corporation (Manila Metal Container Corp. v.
PNB, G.R. No. 166862, 2006) and
Where one corporation undertakes to manage all c. Third type: Acts or contracts, which are per
or substantially all of the business of another se illegal as being contrary to law.
corporation, whether the contract is called
2. Consequences of Ultra Vires Acts
Executed contract Courts will generally
General Rule: Contract may not exceed 5 yrs per not set aside or interfere with such contracts;
term Executory contracts No enforcement
even at the suit of either party (void and
Exception: Contracts relating to exploration, unenforceable);
development, exploitation or utilization of natural
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Partly executed and partly executory M. Doctrine of Equality of Shares

Principle against unjust enrichment shall
apply. Under the doctrine of equality of shares all
stocks issued by the corporation are presumed
Ultra vires test: It is a question, therefore, in equal with the same privileges and liabilities,
each case, of the logical relation of the act to the provided that the Articles of Incorporation is silent
corporate purpose expressed in the charter. If on such differences (CIR vs. CA, G.R. No.
that act is one which is lawful in itself, and not 108576, 1999)
otherwise prohibited, is done for the purpose of
serving corporate ends, and is reasonably This is now indicated under Sec. 6 of the RCC
tributary to the promotion of those ends, in a
substantial, and not in a remote and fanciful, Each share shall be equal in all respects to every
sense, it may fairly be considered within charter other share, except as otherwise provided in the
powers. The test to be applied is whether the act articles of incorporation and in the certificate of
in question is in direct and immediate furtherance stock. (Sec. 6)
express powers and reasonably necessary to N. Trust Fund Doctrine

their exercise. If so, the corporation has the power
to do it; otherwise, not. (University of Mindanao, The subscriptions to the capital stock of a
Inc. v. Bangko Sentral ng Pilipinas, G.R. 194964- corporation constitute a fund to which the
65, 2016) creditors have a right to look for satisfaction of
their claims and that the assignee in insolvency
L. Doctrine of Individuality of Subscription can maintain an action upon any unpaid stock
subscription in order to realize assets for the
No certificate of stock shall be issued to a payment of its debts. (Phil. Trust Co. v. Rivera,
subscriber until the full amount of the subscription G.R. No. L-19761, 1923)
together with interest and expenses (in case of
delinquent shares), if any is due, has been paid. [Hence,] there can be no distribution of assets
(Sec. 63) among the stockholders without first paying
corporate creditors; any disposition of corporate
The foregoing provision sets forth the Doctrine of funds to the prejudice of creditors is null and void.
Indivisibility/Individuality of Subscription. This (Boman Environmental Dev. Corp. v. Court of
doctrine espouses that the subscription contract Appeals, G.R. No. 77860, 1988). This is without
is one, entire, indivisible and whole contract prejudice to the ability of a corporation to effect
which cannot be divided into portions. It cannot distributions to its stockholders by way of
be divided into portions so that no stockholder dividends charged against unrestricted retained
shall be entitled to a certificate of stock until said earnings.
stockholder has paid the entire value of the
shares subscribed, including the interest and Coverage of the Trust Fund Doctrine
expenses. The Doctrine of Indivisibility of
Subscription is absolute since the above-quoted 1. In case of Solvency: The coverage of the
Section 64 speaks of no exception. trust fund doctrine is only up to the extent of
The purpose of the prohibition is to prevent the corporation. In this sense, the unrestricted
partial disposition of a subscription which is not retained earnings do not constitute part of the
fully paid, because if it is permitted, and the capital stock. Hence, the corporation is at
subscriber subsequently becomes delinquent in liberty to pay out assets to the stockholders
the payment of his subscription, the corporation by way of dividends up to the extent of the
may not be able to sell as many of his subscribed unrestricted retained earnings.
shares as would be necessary to cover the total
amount due from him, which is authorized under
2. In case of Insolvency: The trust fund
section [67]. (SEC OGC Opinion No. 16-05)
doctrine is not limited to reaching the
The
scope of the doctrine when the
corporation is insolvent encompasses not
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only the capital stock, but also other the members of the Board of Directors
property and assets generally regarded in of the managed corporation
equity as a trust fund for the payment of (7) Declaration of stock dividend
corporate debts. Thus, the Trust Fund
Doctrine extends to all assets (not just
subscribed capital stock) when a corporation only majority vote is needed in:
becomes insolvent. (Halley v. Printwell, G.R.
No. 157549, 2011) (1) Power to enter into management contracts,
except in instances mentioned in number (6)
3. Releasing Subscribers: where the of the preceding section
corporation released the subscribers to the
capital stock from their subscriptions without 2. By the Board of Directors
valuable consideration. (Ong yong v. Tiu, The Board of Directors is the main agency by
which all corporate powers and authority are
G.R. No.144476, 2003)
exercised
O. How Corporate Powers are Exercised
General rule: Majority vote of the Board is
needed in the following instances:
1. By the Shareholders
a. Extension or shortening of the corporate term
(Note: Generally, the vote requirement of the
shareholders or members are joined with a vote b. Increase or decrease of capital stock or the
of, or a ratification by, a majority of the Board of creation of bonded indebtedness
Directors) c. Sale or other disposition corporate assets
d. Sale or other dispositions of all or
Vote of stockholders representing 2/3 of the substantially all corporate assets (with 2/3
outstanding capital stock or 2/3 of members stockholders or members authorization, Sec
(as applicable) are needed in the following 39)
instances: e. Acquisition of its own shares
f. Investment of corporate funds in any
(1) Extension or shortening of corporate term corporation or business or for any purpose
(2) Increase or decrease of capital stock or the other than its primary purpose (with 2/3
creation of bonded indebtedness stockholders ratification, Sec. 41)
(3) Power to deny pre-emptive right, in these g. Declaration of cash, property, and stock
cases: dividends (if stock dividends, it must be joined
(a) Shares issued in good faith in exchange with 2/3 vote of shareholders, sec. 42)
for property for corporate purposes h. Entering into management contracts
(b) Shares in payment of previously (accompanied by the approval of the
contracted debts shareholders or members, Sec. 43)
(4) Sale of all or substantially all corporate assets
(5) Investing corporate funds in another 3. By the Officers
corporation or business or for any other
purpose other than its primary purpose The officers shall manage the corporation and
(6) Power to enter into management contracts in perform such duties as may be provided in the
the following instances: bylaws and/or as resolved by the board of
(a) where stockholders representing the directors. (Sec. 24)
same interest of both the managing and
the managed corporations own more Executive Committee (Sec. 34)
than one-third (1/3) of the total
General rule: The Executive Committee may act,
outstanding capital stock entitled to vote
by majority vote, on specific matters within the
of the managing corporation; or
competence of the board as delegated to it. Such
(b) where a majority of the members of the an Executive Committee may be established if
Board of Directors of the managing the bylaws so provide.
corporation also constitute a majority of
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Exception: Requisites for Valid Proxy

1. 1. The proxy shall be in writing;
needed 2. Signed by the stockholder or member; and
2. Filling vacancies within the Board of 3. Filed before the scheduled meeting with the
Directors corporate secretary (Sec. 57)
3. Amending, repealing or adopting by-laws
4. Amending or repealing resolutions of the Duration of Proxy
Board where the resolution by express General Rule: It shall be valid only for the
terms is not so amendable or repealable meeting for which it is intended.
by the Executive Committee
5. Distribution of cash dividends Exception: Unless otherwise provided in the
proxy
8. STOCKHOLDERS AND MEMBERS Note: No proxy shall be valid and effective for a
period longer than five (5) years at any one time.
A. Fundamental Rights of Stockholders
and Members The by-laws of the corporation may prescribe a
particular form for proxy and fix the deadline for
The following are important rights of its submission.
stockholders, which continue to exist even when
the shares have been sequestered: Generally, proxies, even those with irrevocable
a. Right to attend meetings and to vote terms, have always been considered as
b. Right to receive dividends revocable, unless coupled with an interest, and
c. Right to receive distributions upon liquidation their revocation may be by formal notice, orally,
of the corporation or by conduct as by the appearance of the
d. Right to inspect the books of the corporation stockholder or member giving the proxy, or the
e. Pre-emptive rights (Cojuangco, Jr. vs. Roxas, issuance of a subsequent proxy, or the sale of
G.R. No. 91925, 1991) shares.
B. Participation In Management Note: Proxies, who are not stockholders or

members, cannot be elected as a director or
i. Proxy Section 57 of the Corporation Code trustee. (Lim v. Moldex Land, Inc., G.R. No.
206038, 2017)
provides that stockholders and members may
vote in person or by proxy in all meetings of
Proxy Disputes Jurisdiction
stockholders or members. The regular courts now have the power to hear
and decide cases involving all matters and
ii. Voting Trust Agreements A stockholder conduct of the elections of directors, including
confers upon a trustee the right to vote and validation of proxies. The power of SEC to
other rights pertaining to the shares for a regulate proxies remains only in instances when
period not exceeding 5 years at any one time. stockholders vote on matters other than the
(Sec. 58). election of directors (SEC v. CA, G.R. No.
187702/189014, 2014).
However, if the voting trust was a requirement for
a loan agreement, period may exceed 5 years but Requisites for Valid Voting Trust
shall automatically expire upon full payment of a. In writing and notarized
the loan. b. Specifying the terms and conditions
c. A certified copy must be filed with the
Pooling or voting agreements two or more corporation and with the SEC. (Sec. 58)
stockholders agree that their shares shall be
voted as a unit. Usually concerned with the Duration
election of directors to gain control of the General Rule: Not exceeding 5 years
management.
Exception: If the voting trust was a requirement
for a loan agreement, period may exceed 5 years
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but shall automatically expire upon full payment non-voting shares are not entitled to vote
of the loan. except as other provided in the said section.
b. Preferred or redeemable shares may be
No voting trust must be used for the purposes of deprived of the right to vote unless otherwise
fraud. Stockholders who are defrauded by their provided.
trustees have a right to revoke the trust and c. Fractional shares of stock cannot be voted
recover damages from such trustee.
unless they constitute at least one full share.
d. Treasury shares have no voting rights as long
Voting Trust v. Proxy
as they remain in treasury.
VOTING TRUST PROXY
e. Holders of stock declared delinquent by the
Trustee votes as Proxy holder votes as
board for unpaid subscription have no voting
owner agent
rights.
Agreement must be Proxy need not be f. A transferee of stock if his stock transfer is
notarized notarized not registered in the stock and transfer book
Trustee acquires legal Proxy has no legal of the corporation and does not have a proxy
title to the shares of title to the shares of from or voting trust agreement with the
the transferring the principal transferor may not vote the
stockholder; only purchased/acquired shares.
beneficial title g. A stockholder who mortgages or pledges his
remains with the shares retains the right to vote unless he
stockholder gives authority for the creditor to vote.
Trustee may vote in Proxy must vote in
person or by proxy person iii.
unless the agreement Required
provides otherwise
Trustee is not limited Proxy can only act at 1. Concurrence of majority of the
to act at any particular a specified outstanding capital stock (by majority vote)
meeting a. To enter into management
(if not continuing) contract if any of the two
Trustee can vote and Proxy can only vote in instances stated above are
exercise all the rights the absence of the absent;
of the stockholder owners of the stock b. To adopt, amend or repeal the
even when the latter by-laws.
is present 2. Concurrence of 2/3 of outstanding capital
Agreement must not Proxy cannot exceed stock (by 2/3 vote) (see similar enumeration
exceed 5 years at any 5 years at any one in the specific express powers of the
one time, except time corporation)
when the same is a. Extend or shorten corporate term;
made a condition of a b. Increase/Decrease Corporate Stock;
loan c. Incur, Create Bonded Indebtedness;
Voting right is Right to vote is d. Deny pre-emptive right;
divorced from the inherent or e. Sell, dispose, lease, encumber all or
ownership of stocks inseparable from the substantially all of corporate assets;
right to ownership of f. Investing another corporation, business
the stock other than the primary purpose;
Agreement is Revocable anytime, g. Declare stock dividends
irrevocable except if coupled with h. Enter into management contract if (1) a
interest stockholder or stockholders representing
the same interest of both the managing
Limitations on Right to Vote and the managed corporations own or
a. Where the Articles of Incorporation provides control more than 1/3 of the total
for classification of shares pursuant to Sec. 6, outstanding capital entitled to vote of the
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managing corporation; or (2) a majority of factors consistent with the basic right of corporate
the members of the board of directors of suffrage.
the managing corporation also constitute
a majority of the members of the board of C. Proprietary Rights
the managed corporation;
i. Right To Dividends
i. Amend the Articles of Incorporation
The right to dividends vests at the time of its
declaration by the Board of Directors.
3. By Cumulative Voting
a. See discussion on election of Although stock certificates grant the stockholder
directors the right to receive quarterly dividends of 1%,
cumulative and participating, the stockholders do
4. Without board resolution not become entitled to the payment thereof
a. 2/3 of outstanding capital stock without necessity of a prior declaration of
delegate to the board the power dividends. (Republic Planters Bank v. Hon.
to amend the by-laws; Agana, Sr., G.R. No. 51765, 1997)
b. Majority of the outstanding
capital stock revoke the power Stock Corporations are prohibited from retaining
of the board to amend the by- surplus profits in excess of 100% of their paid-in
laws which was previously capital stock, except:
delegated. 1. When justified by definite corporate
c. Removal of directors by a vote of expansion projects or programs approved by
the stockholders representing at the board of directors
least 2/3 of the outstanding 2. Corporation is prohibited under a loan
capital stock agreement from declaring dividends without
outstanding capital stock (OCS), 3. Under special circumstances such as when

means the total shares of stock issued under there is a need for special reserve for
binding subscription contracts to subscribers or probable contingencies
stockholders, whether fully or partially paid,
except treasury shares. (Sec. 173) Form of Dividends
1. Cash Dividends (revocable before
iv. Manner of Voting (sec. 57) announcement).
2. Property Dividends (revocable before
Stockholders and members may vote in person announcement).
or by proxy in all meetings of stockholders or 3. Stock Dividends, which requires, aside from
members. the declaration by the Board, the approval of
2/3 of the outstanding capital stock
Voting through remote communication or in
absentia; Requisites: (revocable before issuance).
1. Authorized in the by-laws or by a majority
of the board of directors Note: No dividends can be declared out of capital,
except liquidating dividends distributed at
2. Votes are received before the
dissolution.
corporation finishes the tally of votes.
ii. Right Of Appraisal
Effect: A stockholder or member who The right to withdraw from the corporation and
participates through remote communication or in demand payment of the fair value of his shares
absentia, shall be deemed present for purposes after dissenting from certain corporate acts
of quorum. involving fundamental changes in corporate
structure.
The corporation shall establish the appropriate
requirements and procedures for voting through 1. When available
remote communication and in absentia, taking a. Extension or shortening of corporate term;
(Sec. 36)
shareholders or members, structure and other
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b. In case any amendment to the articles of automatically be restored to all his rights as
incorporation has the effect of changing or stockholder. (Sec. 82)
restricting the rights of any stockholders or
class of shares, or of authorizing preferences iii. Right To Inspect
in any respect superior to those of
outstanding shares of any class; (Sec. 80) What Records Can Be Inspected?
c. Investing of corporate funds for any purpose
other than the primary purpose; (Sec. 80) Corporate records, regardless of the form in
which they are stored, shall be open to inspection
d. Sell or dispose all or substantially all assets
by any director, trustee, stockholder or member
of corporation;(Sec. 80)
of the corporation in person or by a representative
e. Merger or consolidation.(Sec. 80) at reasonable hours on business days, and a
demand in writing may be made by such director,
2. Manner of exercise of right (Sec 81, RCC) trustee or stockholder at their expense, for copies
A written demand on the corporation within of such records or excerpts from said records.
30 days after the vote was taken (failure to do (Sec. 73).
so means waiver);(Sec. 81)
From the time of demand, all rights accruing Also, a corporation shall furnish a stockholder or
to such shares including voting and dividend member, within 10 days from receipt of their
rights shall be suspended except the right of written request, its most recent financial
such stockholder to receive payment of the statement (Sec. 74).
(Sec. 82)
Ten (10) days from demand, the dissenting The first three are the formulation of the old code.
stockholder must submit his certificates of Under the Revised Corporation Code, inspection
stocks for notation that such certificates
represent dissenting shares. (Sec. 85)
The price to be paid is the fair value of the Stock and transfer book
shares on the date the vote was taken; (Sec. Record of:
81) 1. All stocks in the names of the stockholders
The fair value shall be agreed upon by the alphabetically arranged;
corporation and the dissenting stockholders 2. The installment paid and unpaid on all stock
within 60 days from the date the vote was for which subscription has been made, and
taken. In case there is no agreement, the fair the date of payment of any installment;
value shall be determined by a majority of the 3. A statement of every alienation, sale or
3 distinguished persons one of whom shall be transfer of stock made; and
named by the stockholder another by the 4. Such other entries as the by-laws may
corporation and the third by the two who were prescribe.
chosen; (Sec. 81)
The right of appraisal is extinguished when: Notes: Stock and Transfer Book
(Sec. 83) Section [73], while specific in the kinds of records
a. He withdraws the demand with that must be maintained, is not limiting, thus, the
inspection right is applicable to the stock and
b. The proposed action is transfer book (Yujuico v. Quiambao, G.R. No.
abandoned; 180416, 2014)
c. The SEC disapproves of such
action where approval is The corporate secretary is the officer who is duly
authorized to make entries on the stock and
necessary
transfer book (Gokongwei v. SEC, GR No. 45911,
d. The SEC determines that such
1979).
dissenting stockholder is not
entitled to the appraisal right. All transfers of shares not entered in the stock
If the dissenting stockholder is not paid within and transfer book of the corporation are invalid as
30 days from the award, he shall to attaching or execution creditors of the
assignors, as well as to the corporation and to
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subsequent purchasers in good faith and to all

persons interested, except the parties to such The purposes held to justify a demand for
inspection are the following:
books of the corporation are absolutely void; not (1) To ascertain the financial condition of the
because they are without notice or fraudulent in company or the propriety of dividends;
law or fact, but because they are made so void by (2) the value of the shares of stock for sale or
statute (Uson vs. Diosomito, G.R. No. 42135, investment;
1935). (3) whether there has been mismanagement;
(4) in anticipation of shareholders' meetings to
The entries are considered prima facie evidence obtain a mailing list of shareholders to solicit
only and may be subject to proof to the contrary proxies or influence voting;
(Bitong v. CA, G.R. No. 123553, 1998). (5) to obtain information in aid of litigation with the
corporation or its officers as to corporate
The stock and transfer book of the corporation transactions.
cannot be used as the sole basis for determining
the quorum as it does not reflect the totality of The improper purposes which may warrant
shares which have been subscribed, and more so the denial of the right of inspection:
when the articles of incorporation show a (1) Obtaining of information as to business
significantly larger amount of shares issued and secrets or to aid a competitor;
outstanding as compared to that listed in the (2) to secure business "prospects" or investment
stock and transfer book (Lanuza v. Court of or advertising lists;
Appeals, G.R. No. 131394, 2005). (3) to find technical defects in corporate
transactions in order to bring "strike suits" for
Grounds for Not Allowing Inspection by a purposes of blackmail or extortion. (Terelay
Stockholder Investment and Development Corp. v. Yulo, G.R.
a. If the person demanding to examine the No. 160924, 2015)
records has improperly used any information
secured for prior examination, The Right to Inspect Corporate Records is
b. He is not acting in good faith, Subject to Confidentiality rules
c. A requesting party who is not a stockholder
or member of record, or is a competitor shall The inspecting or reproducing party shall remain
bound by confidentiality rules under prevailing
have no right to inspect or demand
laws, such as:
reproduction of corporate records. (Sec. 73)
1. Trade secrets or processes under
Republic Act No. 8293, or the
Competitor- competitor, director, officer,
controlling stockholder or otherwise represents
the interests of a competitor shall have no right to
inspect or demand reproduction of corporate 2.
records. (Sec. 73)
3.
In one case, the Supreme Court clarified that the
right of inspection may only be exercised by a 4. the Rules of Court. (Sec. 73)
stockholder of record. As such, the corporation
may validly set up the defense in its refusal to Doctrinal Rulings on Right to Inspect
grant a claim of the right of inspection on the The demand for inspection should cover only
ground that the person is not a stockholder of reasonable hours on business days;
record. (Puno v. Puno Enterprises Inc., GR No.
177066, September 11, 2009) The stockholder, member, director or trustees
demanding the right is one who has not
In Terelay Investment and Development Corp. v. improperly used any information secured through
Yulo, the court ruled that although the corporation any previous examination of the records;
may deny a stockholder's request to inspect
corporate records, the corporation must show The demand must be accompanied with
that the purpose of the shareholder is improper statement of the purpose of the inspection, which
by way of defense. must show good faith or legitimate purpose.
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Illegitimate purposes include to obtain corporate demanding to examine and copy excerpts
secrets (formula), nuisance suit, or to embarrass from the
the company. (Africa v. PCGG, G.R. No. 83831, has improperly used any information secured
1992) through any prior examination of the records
or minutes of such corporation or of any other
If the corporation or its officers contest such corporation, or was not acting in good faith or
purpose or contend that there is evil motive
for a legitimate purpose in making his
behind the inspection, the burden of proof is with
demand, the contrary must be shown or
the corporation or such officer to show the same.
proved.
The RTC, and not the Sandiganbayan, has The person demanding to examine has
improperly used any information secured
right to inspect under the Corporation Code through any prior examination of the records
where the case does not involve a sequestration- or minutes of such corporation or for any
related incident, but an intra-corporate other corporation; and
controversy (Abad v. PHILCOMSAT, G.R. No. The one requesting to inspect was not acting
200620, 2015) in good faith or for a legitimate purpose in
making his demand
subsists during the period of liquidation (three Criminal sanctions under Sec. 170
year period for dissolution per Sec. 145). (Chua refer to discussion at the respective topic below
v. SEC, G.R. No. 216146, 2016)
iv. Pre-Emptive Right
Remedies If Right to Inspect is Denied
or dispositions of shares of any class in proportion
Mandamus to his present stockholdings, the purpose being to
Refusal to allow stockholders (or members of a enable the shareholder to retain his proportionate
non-stock corporation) to examine books of the control in the corporation and to retain his equity
company is not a ground for appointing a receiver in the surplus.
(or creating a mgt. committee) since there are
other adequate remedies, such as mandamus. Instances When Preemptive Right Is Not
(Ao-as v. CA, G.R. No. 128464, 2006) Available
a. Shares to be issued to comply with laws
Damages requiring stock offering or minimum stock
ownership by the public;
Administrative Sanction (Sec. 158)
Requisites for Section [158] to Apply (Ang-Abaya b. Shares issued in good faith with approval of
v. Ang, G.R. no. 178511, 2008) the stockholders representing 2/3 of the
outstanding capital stock in exchange for
A director, trustee, stockholder or member property needed for corporate purposes;
has made a prior demand in writing for a copy c. Shares issued in good faith with approval of
of excerpts from the corporations records or the stockholders representing 2/3 of the
minutes; outstanding capital stock issued in payment
Any officer or agent of the concerned of previously contracted debts;
corporation shall refuse to allow the said d. In case the right is denied in the Articles of
director, trustee, stockholder or member of Incorporation;
the corporation to examine and copy said e. Waiver of the right by the stockholder;
excerpts; f. If the shares of a corporation are offered and
If refusal is made per a resolution or order of not subscribed and purchased by the
the board of directors or trustees, the liability stockholders, and the shares are being
under this section for such action shall be offered again, there is no pre-emptive right
imposed upon the directors or trustees who with respect to the latter offer of shares
voted for refusal; (Benito v. SEC, G.R. No. L-56655, 1983)
Where the officer or agent of the corporation
sets up the defense that the person
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Right of first refusal v. Right to Vote

The right of first refusal provides that a The right to vote is given to the shareholders but
stockholder who may wish to sell or assign his can be limited if stipulated in the Articles of
shares must first offer the shares to the Incorporation and the Certificate of Stock.
corporation or to the existing stockholders of the
corporation, under terms and conditions which However, holders of nonvoting shares shall
are reasonable; and that only when the nevertheless be entitled to vote on the following
corporation or the other stockholders do not or fail matters:
to exercise their option, is the offering stockholder a) Amendment of the articles of
at liberty to dispose of his shares to third parties. incorporation; (b)Adoption and
amendment of bylaws;
Pre-Emptive Right v. Right of First Refusal b) Sale, lease, exchange, mortgage,
PRE-EMPTIVE RIGHT OF FIRST pledge, or other disposition of all or
RIGHT REFUSAL substantially all of the corporate property;
Generally may be c) Incurring, creating, or increasing bonded
Arises only by virtue indebtedness;
exercised, subject to
of contractual d) Increase or decrease of authorized
limitations in
stipulations or by law capital stock;
Corporation Code e) Merger or consolidation of the
Covers unissued corporation with another corporation or
Covers shares
shares offered for other corporations;
already issued
subscriptions f) Investment of corporate funds in another
Can only be exercised corporation or business in accordance
May be exercised by by the owner and not with this Code; and
mere trustees or mere trustee or g) Dissolution of the corporation
conservators conservator, since it is
(Republic v. an act of ownership vi. Other Rights
Sandiganbayan, G.R. (Republic v. Right to issuance of stock certificate for
No. 107789, 2003) Sandiganbayan, G.R. fully paid shares - Under Section 64 of the
No. 107789, 2003) Corporation Code, no certificate of stock shall
Right claimed against be issued to a subscriber until the full amount
Right exercisable of his subscription together with interest and
the Corporation,
against the seller- expenses (in case of delinquent shares), if
where the stockholder
stockholder any is due, has been paid. A subscriber must
must pay
first totally pay his subscription before a
certificate of stock covering shares
Note:
A corporation has no power to prevent or restrain subscribed and paid for could be issued to
transfers of its shares, unless such power is him. But an unpaid subscription (not declared
expressly conferred in the Articles of delinquent) can be voted upon in corporate
Incorporation or the law. (Fleischer v. Botica meetings. Such delinquent shares are also
Nolasco Co., G.R. No. L-23241, 1925) entitled to dividends, subject to the rules set
forth in Section 43 of the Corporation Code
A provision in the by-laws granting the right of first on delinquent shares.
refusal (and therefore, restrains trade) is void and
does not bind third parties (Fleischer v. Botica Nevertheless, Section 64 does not prohibit the
Nolasco Co., G.R. No. L-23241, 1925)
subscriber by considering portion thereof as fully
By-laws are intended merely for the protection of paid and issuing a corresponding certificate over
the corporation and prescribe relation, not the paid- up shares. Thus, in the absence of
restriction; they are always subject to the charter provisions in the by- laws to the contrary, a
of the corporation. (Rural Bank of Salinas v. CA, corporation may apply payments made by
G.R. No. 96674, 1992) subscribers on account of their subscriptions
either as:
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1. Full payment for the corresponding 3. To be valid against third parties, the transfer
number of shares, the par value of which must be recorded in the books of the
is covered by such payment; or corporation
2. Payment pro rata to each and all the
entire number of shares subscribed for Note: The delivery of the stock certificate duly
endorsed by the owner is the operative act of
Once an alternative is chosen, it must be applied transfer of shares from the lawful owner to the
uniformly to all stockholders similarly situated, new transferee. (Bitong v. Court of Appeals, G.R.
and therefore, it cannot be changed without the No. 123553, 1998)
consent of all stockholders who might be
affected. The delivery contemplated in Section [73],
however, pertains to the delivery of the
Proportionate participation in the certificate of shares by the transferor to the
distribution of assets in liquidation transferee, that is, from the original stockholder
- Stockholders and stock corporation named in the certificate to the person or entity the
Except by decrease of capital stock, and stockholder was transferring the shares to,
whether by sale or some other valid form of
as otherwise allowed by the Corporation
absolute conveyance of ownership. It does not
Code, no corporation shall distribute any
pertain to the surrender of the stock certificate to
of its assets or property to its the corporation. (Teng v. SEC, G.R. No. 184332,
stockholders except upon lawful 2016)
dissolution and after payment of all its
liabilities (Sec. 122) However: The surrender of the original certificate
of stock is necessary before the issuance of a
- Members and foundations Upon new one so that the old certificate may be
dissolution of a non-stock corporation, all cancelled. A corporation is not bound and cannot
liabilities and obligations must first be be required to issue a new certificate unless the
paid, and assets received and held original certificate is produced and surrendered.
subject to limitations permitting their use (Teng v. SEC, G.R. No. 184332, 2016)
for specified eleemosynary purposes
shall be properly transferred or returned, A transfer of shares not recorded in the stock and
transfer book is non- existent as far as the
then the net assets remaining, if any,
corporation is concerned, and consequently, a
shall be distributed to the members, or petition for mandamus filed by a transferee,
any class or classes of members, to the compelling it to issue the corresponding
extent that the articles of incorporation or certificates in the name of the transferee would be
by- laws provide for a plan of distribution. without basis. It is only when the transfer has
Otherwise, a plan of distribution may be been recorded in the stock and transfer book that
adopted in the process of dissolution by: a corporation may rightfully regard the transferee
a. Majority vote of the Board of as one of its stockholders. From this time, the
Trustees consequent obligations on the part of the
b. Adopted by at least 2/3 of the corporation to recognize such right as it is
members having voting rights mandated by law to recognize arises (Ponce v.
(Secs. 94 95) Alsons Cement, G.R. No. 139802, 2002).
Note: In Andaya v. Rural Bank of Cabadbaran,

Right to transfer of stocks in corporate
Inc., G.R. No. 188769, 2016, the Court ruled that
books; the registration of a transfer of shares of stock is
a ministerial duty on the part of the corporation.
Requirements for valid transfer of stocks Aggrieved parties may then resort to the remedy
1. There must be delivery of the stock of mandamus to compel corporations that
certificate; wrongfully or unjustifiably refuse to record the
2. The certificate must be endorsed by the transfer or to issue new certificates of stock. This
owner, or his attorney-in-fact, or other remedy is available even upon the instance of
persons legally authorized to make the a bona fide transferee who is able to establish
transfer; and
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a clear legal right to the registration of the Corporate Controversies, A.M. No. 01-2-04-
transfer. SC, 2001).
D. Remedial Rights As a general rule, corporate litigation must be

commenced by the corporation itself, with the
Suits by Stockholders/Members imprimatur of the board of directors, which,
i. Individual Suit those brought by the pursuant to the law, wields the power to sue.
shareholder in his own name against the Therefore, since the derivative suit is a remedy of
corporation when a wrong is directly inflicted last resort, it must be shown that the board, to the
against him. detriment of the corporation and without a valid
ii. Representative/Class Suit those brought business consideration, refuses to remedy a
by the stockholder on behalf of himself and all corporate wrong. A derivative suit may only be
other stockholders similarly situated when a instituted after such an omission. Simply put,
wrong is committed against a group of derivative suits take a back seat to board-
stockholders. sanctioned litigation whenever the corporation is
willing and able to sue in its own name. (Ago
iii. Derivative Suit those brought by one or
Realty & Dev. Corp. v. Ago, G.R. No.s 210906 &
more stockholders/members in the name and
211203, 2019)
on behalf of the corporation to redress
wrongs committed against it, or E. Obligations of a Stockholder
protect/vindicate corporate rights whenever
the officials of the corporation refuse to sue, a. Liability to the corporation for unpaid
or the ones to be sued, or has control of the subscription;
corporation. (Ching v. Subic Bay, G.R. No. b. Liability to the creditors of the corporation for
174353, 2014) unpaid subscription;
- A lawyer engaged as counsel for a c. Liability to the corporation for interest on
corporation cannot represent members unpaid subscription if so required by the by-
of the Board in a derivative suit against laws;
them. To do so would be tantamount to d. Liability for watered stock;
conflicting interest between the Board e. Liability for dividends unlawfully paid;
and the corporation (Hornilla v. Salunat,
A.C. 5804, 2003). F. Meetings
Requisites of Derivative Suit i. Regular or Special:

a. He (Plaintiff) was a stockholder or member at Regular - held annually on a date fixed in the by-
the time the acts or transactions subject of laws, or if not so fixed, on date after April 15 of
the action was filed; every year as determined by the board of
directors or trustees.(Sec. 49)
b. He exerted all reasonable efforts, and alleges
the same with particularity in the complaint, to
Special - held at any time deemed necessary or
exhaust all remedies available under the as provided in the by- laws. Provided that at least
articles of incorporation, by-laws, laws or 1 week written notice shall be sent to all
rules governing the corporation or stockholders or members, unless otherwise
partnership to obtain the relief he desires; provided in the by- laws. Note that notice of any
meeting may be waived, expressly or impliedly by
The exhaustion of intra-corporate remedies any stockholder or member.
cannot be dispensed even if the company is
a family corporation (Yu v. Yukayguan, G.R. ii. Notice of Meeting
No. 177549, 2009; Ang v. Sps. Ang, G.R. No. When - written notice of regular meetings shall be
201675, 2013) sent to stockholders or members of record at
least twenty-one (21) days prior to the meeting.
c. No appraisal rights are available for the act or (Sec. 49)
acts complained of; and
d. The suit is not a nuisance or harassment suit
(Interim Rules of Procedure for Intra-
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How - written notice to regular meetings may be meeting of the corporation by giving proper notice
sent to the stockholders or members of record required by this Code or the bylaws, with the
through: petitioner presiding thereat until at least a majority
a. means of communication provided in the of stockholders/ members present have chosen a
bylaws (Sec. 50) presiding officer. (Sec. 49).
b. electronic mail (Sec.49)
c. such other manner as the SEC shall Who presides over the meetings?
allow under its guidelines. General Rule: The chairman
Exceptions:
1. In the absence of the chairman, the
Notice of Meetings shall state the time place and
purpose of the meeting and shall be president shall preside at all meetings of
accompanied by: the directors or trustees as well as of the
1. agenda for the meeting stockholders or members, unless the
2. proxy form bylaws provide otherwise.
2. In the following cases:
3. requirements and procedures to be
(1) there is no person designated by the
followed in case a stockholder elects
by-laws to call a meeting, or
and is allowed to participate, attend
(2) the person authorized unjustly
and vote by remote communication. refuses to call a meeting,
4. requirements and procedures for The petitioning stockholders / member
nomination and in case the meeting is shall preside until at least a majority of
for election of directors. (Sec. 50) stockholders/ members present have
chosen a presiding officer. (Sec 49).
Section 50 of the Corporation Code expressly
iv. Quorum
meetings that those provided under its default two General rule: Majority of the outstanding capital
(2) week period, provided the same is provided stock, or of the members, shall constitute a
for in the By-Laws, (Ricafort v. Dicdican, 787 quorum (Sec. 51)
SCRA 163, 2016); such period set in the by-laws
is valid even when the period is reckoned from Outstanding Capital Stock the total shares of
the mailing of the notice rather than when it is stock issued under binding subscription
actually received by the stockholder of record, agreements to subscribers or stockholders,
(Guy v. Guy, 790 SCRA 288, 2016) whether or not fully or partially paid, except
treasury shares
iii. Place and time of meetings
Where?- The meetings of stockholders or Exceptions:
members whether regular or special shall be held a. The bylaws provides for a greater
in the principal office of the corporation as set majority (Sec. 51)
forth in the articles or if not practicable, in the city b. If the rescheduled election of
or municipality where the principal office of the directors/trustees is held, the voting
corporation is located. (Sec. 49) shares of stock or membership
represented at the meeting ordered by
When? - Regular - held annually ; Special - held the SEC shall constitute a quorum for
at any time deemed necessary purposes of conducting an election under
this Section 25.
Who calls for the meetings?
c. In cases where greater vote for an act or
In case the ff. shall occur:
(1) there is no person designated by the by-laws business is required by law as when the
to call a meeting, or required vote is 2/3 of the outstanding
(2) the person authorized unjustly refuses to call capital stock, or membership as the case
a meeting, may be.
The SEC upon petition of a stockholder/ member, Note:

and on the showing of good cause therefore, may referred to in Section 52 of the Corporation Code
issue an order directing the petitioner to call a is based on the number of outstanding voting
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stocks. For non- stock corporations, only those Resolution vs. Minutes Of The Meeting
who are actual, living members with voting rights (People v. Dumlao, G.R. No. 168918, 2009)
shall be counted in determining the existence of RESOLUTION MINUTES OF THE
MEETING
members shall not be counted (Tan v. Sycip, G.R. A formal action by a A brief statement not
No. 153468, 2006). corporate board of only of what transpired
directors or other at a meeting, usually of
v. Minutes and agenda of meetings
Minutes of the meeting corporate body stockholders/members
Records of all business transactions and authorizing a or directors/trustees,
minutes of all meetings shall be kept and particular act, but also at a meeting of
transaction, or an executive
principal office appointment committee
It shall set forth in detail:
- the time and place of the meeting Agenda of meetings (Sec. 49)
held At each regular meeting of stockholders or
members, the board of directors or trustees shall
- how it was authorized
endeavor to present to stockholders or members
- the notice given
the following:
- the agenda therefor a. The minutes of the most recent regular
- whether the meeting was regular or meeting
special, its object if special b. -stock
- those present and absent, and corporations and, for stock corporations,
- every act done or ordered done at material information on the current
the meeting. stockholders, and their voting rights;
- upon the demand of any director, c. A detailed, descriptive, balanced and
trustee, stockholder or member, the comprehensible assessment of the
time when any director, trustee,
stockholder or member entered or d. A financial report for the preceding year,
left the meeting must be noted in the e. An explanation of the dividend policy and
minutes; the fact of payment of dividends
- on a similar demand, the yeas and f. Director or trustee profiles
nays must be taken on any motion or g. A director or trustee attendance report,
proposition, and a record thereof indicating the attendance of each director
carefully made. or trustee at each of the meetings of the
- the protest of any director, trustee, board and its committees and in regular
stockholder or member on any action or special stockholder meetings;
or proposed action must be recorded h. Appraisals and performance reports for
in full upon their. (Sec. 75) the board and the criteria and procedure
for assessment;
The signing of the minutes by all the members of
i. A director or trustee compensation report
the board is not required there is no provision in
j. Director disclosures on self-dealings and
the Corporation Code that requires that the
minutes of the meeting should be signed by all related party transactions; and/or
the members of the board. The signature of the k. The profiles of directors nominated or
corporate secretary gives the minutes of the seeking election or reelection.
meeting probative value and credibility (People v.
Dumlao, G.R. No. 168918, 2009).
The entries contained in the minutes are prima

facie evidence of what actually took place during
the meeting, pursuant to Section 44, Rule 130 of
the Revised Rule on Evidence (People v.
Dumlao, G.R. No. 168918, 2009).
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9. BOARD OF DIRECTORS AND doctrine is confirmation after conduct, amounting

TRUSTEES to a substitute for a prior authority. Ratification
can be made either expressly or impliedly like
A. Repository of Corporate Powers silence or acquiescence and acceptance of
benefits (Yasuma v. Heirs of Cecilio De Villa, G.R.
Doctrine of Centralized Management No. 150350, 2006). But illegal acts cannot be
ratified.
Unless otherwise provided in this Code, the board
of directors or trustees shall exercise the Doctrine of Apparent Authority
corporate powers, conduct all business, and If a corporation knowingly permits one of its
control all properties of the corporation (Sec. 22). officers, or any other agent, to act within the
scope of an apparent authority, it holds him out to
Powers of the Board of Directors the public possessing the power to so do those
acts; and thus, the corporation will, as against
General Rule: The Board of Directors ALONE anyone who has in good faith dealt with it through
exercises the powers of the corporation. such agent, be estopped from denying the
a (Francisco v. GSIS, G.R. No. L-
18287, 1963)
Exceptions: Other persons or groups within the
corporation may do so similarly: Apparent authority may be ascertained
a) If (1) there is a management contract and through:
(2) powers are delegated by majority of
the board to an executive committee; a. The general manner in which the
b) Corporate officers (e.g. the President) corporation holds out an officer or agent as
having the power to act or, in other words, the
via authority from (1) law, (2) corporate
apparent authority to act in general, with which it
by-laws; and (3) authorization from the clothes him; or
board, either expressly or impliedly by
habit, custom or acquiescence in the b. The acquiescence in his acts of a
general course of business; particular nature, with actual or constructive
c) A corporate agent in transactions with knowledge thereof, whether within or beyond the
third persons to the extent of the authority scope of his ordinary powers.
to do so has been conferred upon him;
If a private corporation intentionally or negligently
d) Those with apparent authority clothes its officers or agents with apparent power
(doctrine of apparent authority). to perform acts for it, the corporation will be
estopped to deny that the apparent authority is
Theories on Source of Board Power real as to innocent third persons dealing in good
faith with such officers or agents.
a. Directly-Vested / Original Power
Pursuant to Section 22, the source of power of Note:
the Board of Directors is primarily and directly- It requires presentation of evidence of similar acts
vested by law; it is not a delegated power from executed either in its favor or in favor of other
the stockholders or members of the corporation parties. It is not the quantity of similar acts which
establishes apparent authority, but the vesting of
b. Delegated Powers from Stockholders a corporate officer with the power to bind the
The Board of Directors is a creation of the corporation
stockholders and controls and directs the affairs Co., Inc. v. CA., G.R. No. 117847, 1998).
of the corporation by delegation of the
stockholders. By drawing to themselves the When the officers or agents of a corporation
powers of the corporation, they occupy positions exceed their powers in entering into contracts or
of trusteeship in relation to the stockholders. doing other acts, the corporation, when it has
knowledge thereof, must promptly disaffirm the
Doctrine of Ratification contract or act and allow the other party or third
The corporation may ratify the unauthorized acts persons to act in the belief that it was authorized
of its corporate officer. The substance of the or has been ratified. If it acquiesces, with
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knowledge of the facts, or fails to disaffirm, Disqualifications of Directors, Trustees, or

ratification will be implied or else it will be Officers (Sec. 26)
estopped to deny ratification (Premiere
Development Bank vs. CA, G.R. No. 159352, A person shall be disqualified from being a
2004). director, trustee, or officer of any corporation if,
within five (5) years prior to the election or
appointment as such, the person was:
while Miguel was the President. Bonanza leased a) Convicted by final judgment:
the lot to Efren but eventually notified the latter i. Of an offense punishable by
about the rescission of lease. Using the Doctrine imprisonment for a period
of Apparent Authority, Bonanza was estopped exceeding six (6) years;
from denying the existence and enforceability of ii. For violating this Code; and
Lease Contract after it effectively ratified the iii.
lease by accepting proceeds throughout several
years. Also, while it is true that the doctrine
b) Found administratively liable for any
cannot be invoked by one who is not a third party,
an officer of a corporation can actually be a third offense involving fraud acts; and
person in contract with the corporation. c) By a foreign court or equivalent foreign
(Quesada, et al. v. Bonanza Restaurants, Inc., regulatory authority for acts, violations or
G.R. No. 207500, 2016) misconduct similar to those enumerated
in paragraphs (a) and (b) above.
B. Tenure, Qualifications and
Disqualifications of Directors Grounds not exclusive
The foregoing is without prejudice to
Term of Office (Sec. 22) qualifications or other disqualifications, which the
SEC or the Philippine Competition Commission
Directors shall be elected for a term of one may impose in its promotion of good corporate
(1) year from among the holders of stocks governance or as a sanction in its administrative
proceedings. (Sec. 26)
Trustees shall be elected for a term not
exceeding three (3) years from among the By-law provisions that prohibit directors who have
members of the corporation. interests in competitor corporations are
Each director/trustee shall hold office until the reasonable in order to protect the interests of the
successor is elected and qualified. company (Gokongwei v. SEC, G.R. No. L-45911,
1979)
Qualifications of Directors
a. Must own at least one (1) share of the capital Hold-Over Principle
Directors/Trustees may continue to hold office
stock of the corporation in his own name or
despite the lapse of one year until their
must be a member in the case of non-stock successors are elected and qualified.
corporations
i. Any director who ceases to be the Remaining members of the board of directors
owner of at least one (1) share of the cannot elect another director to fill in a vacancy
capital stock of the corporation of caused by the resignation of a hold-over director.
which he is a director shall thereby The hold-over period is not part of the term of
cease to be a director. (Sec. 22) office of a member of the board of directors. (Valle
b. He must not be disqualified under the RCC Verde Country Club v. Africa, G.R. No. 151969,
(Sec. 26) 2009)
c. He must possess other qualifications as may
be prescribed in the by-laws of the Thus, when during the holdover period, a director
corporation. (Gokongwei, Jr. v. SEC, G.R. resigns from the board, the vacancy can only be
filled-up by the stockholders, since there is no
No. L-45911, 1979)
term left to fill-up pursuant to the provisions of
d. He must be of legal age Section 29 which mandates that a vacancy
occurring in the board of directors caused by the
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(Valle Verde (P50,000,000.00) and having two

Country Club v. Africa, G.R. No. 151969, 2009) hundred (200) or more holders of
shares, each holding at least one
A director continuing to serve after one year from hundred (100) shares of a class of
his election (on a holdover capacity), cannot be its equity shares;
considered as extending his term. This hold-over b) Banks and quasi-banks, NSSLAs,
period is not part of his term, which, as declared,
pawnshops, corporations engaged in
had already expired. (Valle Verde Country Club v.
money service business, pre-need, trust
Africa, G.R. No. 151969, 2009)
and insurance companies, and other
C. Requirement of Independent Directors financial intermediaries; and
(Sec. 22) c) Other corporations engaged in business
vested with public interest similar to the
An independent director is a person who, apart above, as may be determined by the
from shareholdings and fees received from the SEC, considering such factors:
corporation, is independent of management and i. such as the extent of minority
free from any business or other relationship which ownership,
could, or could reasonably be perceived to ii. type of financial products or
materially interfere with the exercise of securities issued or offered to
independent judgment in carrying out the investors,
responsibilities as a director.
iii. public interest involved in the
nature of business operations,
Requirements:
Independent directors must be: and
1) independent of management and free iv. other analogous factors.
from any relationship which could
D. Elections
materially interfere with the exercise of
independent judgment as a director Election of Directors or Trustees (Sec. 23)
2) a shareholder and receive fees from the
corporation Manner of Election
3) elected by the shareholders present or In any form; or
entitled to vote in absentia during the By ballot when requested by any voting
election of directors. stockholder or member
4) subject to rules and regulations In stock corporations, voting may be in
governing their qualifications, person or by proxy
disqualifications, voting requirements,
duration of term and term limit, maximum Time to Determine Voting Right
number of board memberships and other At the time fixed in by- laws
requirements that the SEC will prescribe. If by- laws are silent, at time of election
Corporations required to have Independent i. Cumulative Voting/Straight Voting

Directors
a. Straight voting Every stockholder may
The board of the following corporations vested vote the number of outstanding capital stock
with public interest shall have independent in his own name for as many persons as there
directors constituting at least twenty percent are directors to be elected; or in non-stock
(20%) of such board: corporations, members may cast as many
a) votes as there are trustees to be elected but
may not cast more than one vote for one
i. those whose securities are candidate. (In straight voting, the votes are
registered with the SEC, spread out evenly among all the elective
ii. corporations listed with an positions)
exchange or with assets of at b. Cumulative voting for one candidate a
least Fifty million pesos stockholder may accumulate his shares and
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give one candidate as many votes as the Note: When so authorized in the bylaws or by a
number of directors to be elected multiplied majority of the board of directors, the
by the number of his shares shall equal; stockholders or members may also vote through
c. Cumulative voting by distribution a remote communication or in absentia. The right to
stockholder may also cumulate his shares by vote through such modes may be exercised in
multiplying the number of his shares by the corporations vested with public interest,
notwithstanding the absence of a provision in the
number of directors to be elected and
by-laws of such corporations. (sec. 23)
distribute the same among as many
candidates as he shall see fit Who Elects Directors or Trustees
By the stockholders/members as
Methods of Voting in Relation to Type of provided in the by-laws (traditionally
Corporation
during annual SH/M meetings
By the board, if still constituting quorum
a) Stock Corporations
for vacancies in the interim (i.e. between
Stockholders entitled to vote shall have the right
to vote the number of shares of stock standing in annual meetings) due to causes other
their own names in the stock books of the than removal or expiry of term (Sec. 28)
corporation at the time fixed in the bylaws or If the vacancies are due to removal or
where the bylaws are silent, at the time of the expiry of term, the directors/trustees
election must be elected by the
stockholders/members at a meeting for
The stockholder may use: this purpose (special meeting)
1) Straight Voting
2) Cumulative voting for one candidate How Elected
3) Cumulative voting by distribution By owners of majority of outstanding
capital stock or by members in annual
Note: The total number of votes cast shall not
exceed the number of shares owned by the Stockholders/members may be present
stockholders as shown in the books of the in person or by written proxy
corporation multiplied by the whole number of For stock corporations: Number of votes
directors to be elected; and that no delinquent = (no. of shares) x (no. of directors to be
stock shall be voted.
elected)
By straight voting or cumulative voting,
b) Non-stock Corporations
which is all votes may be cast for a
General Rule: Members of nonstock
corporations may use Straight Voting, i.e. cast as candidate or distributed among the
many votes as there are trustees to be elected candidates
but may not cast more than one (1) vote for one For non-stock corporations: Unless
(1) candidate. otherwise provided in the articles of
incorporation or in the by-laws,
Exception: Unless otherwise provided in the members of non-stock corporations may
articles of incorporation or in the bylaws. (Sec. 23) cast as many votes as there are trustees
to be elected but may not cast more than
ii. Quorum one vote for one candidate.
Viva voce (live voice) or must be by
At all elections of directors or trustees, there must ballot if requested
be present, either in person or through a
Delinquent shares and treasury shares
representative authorized to act by written proxy:
Stock Corporation owners majority of cannot vote
outstanding capital stock Candidates with highest number of
Non-stock Corporation majority of votes will be declared elected
members entitled to vote
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Election Rules on Stock and Non-Stock Report Of Election of Directors, Trustees and
Corporations Officers
STOCK NON-STOCK
CORPORATION CORPORATION Within thirty (30) days after the election of the
directors, trustees and officers of the corporation,
Owners of a majority A majority of the
the secretary, or any other officer of the
of outstanding capital members, either in
corporation, shall submit to the SEC, the names,
stock, either in person person or by nationalities, shareholdings, and residence
or by representative representative addresses of the directors, trustees, and officers
authorized to act by authorized to act by elected. (Sec. 25)
written proxy, must be written proxy, must be
present at the election present at the election Only the directors and officers of the corporation
of the directors of the trustees whose names appear in the report submitted to
Cumulative voting or Cumulative voting is the SEC are deemed legally constituted to bind
Straight voting can be not available, unless the corporation in bringing a suit on behalf of the
used; a matter of right allowed by the articles corporation (Premium Marble Resources v. CA,
granted by law to or by-laws. G.R. No. 96551, 1996).
each stockholder with
voting rights. The Board may be Non-holding of Election
elected by region.
Directors are elected The non-holding of elections and the reasons
at large. shall be reported to the SEC within thirty (30)
days from the date of the scheduled election. The
Alien Membership in Board of Directors report shall specify a new date for the election,
which shall not be later than sixty (60) days from
P.D. No. 715: "election of aliens as members of the scheduled date.
the board of directors of governing body of
corporations or associations engaging in partially If no new date has been designated, or if the
nationalized activity shall be allowed in proportion rescheduled election is likewise not held, the SEC
to their allowable participation or share in the may, upon the application of a stockholder,
capital of such entities." member, director or trustee, and after verification
of the unjustified non-holding of the election,
Non-Filipino citizens may become members of summarily order that an election be held.
the board of directors of a bank to the extent of
the foreign participation in the equity of said bank. The SEC shall have the power to issue such
(General Banking Law, Sec. 15) orders as may be appropriate, including:
a) orders directing the issuance of a notice
Filling Vacancies in Board - Permissive stating the time and place of the election,
b) designated presiding officer, and
The filling of vacancies in the board by the c) the record date or dates for the
remaining directors or trustees constituting a determination of stockholders or
quorum as provided for by Section [28] is merely members entitled to vote.
permissive, not mandatory, and the vacancies
may still be filled-up by the stockholders of Notwithstanding any provision of the articles of
members in a regular or special meeting called incorporation or bylaws to the contrary, the
for the purpose. However, when the by-laws of shares of stock or membership represented at
the corporation contain a specific mode of filling- such meeting and entitled to vote shall constitute
up existing vacancies in the board, the same is a quorum for purposes of conducting an election
mandatory (Tan v. Sycip, G.R. No. 153468, under this section. (Sec. 25)
2006).
Cessation from Office
Should a director, trustee or officer die, resign or

in any manner cease to hold office, the secretary,
or the director, trustee or officer of the
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authorizing the removal and this fact

shall, within seven (7) days from knowledge must be so stated in the agenda and
thereof, report in writing such fact to the SEC. notice of said meeting.
(Sec. 25) c) In all other cases, the election must be
held no later than forty-five (45) days
E. Removal (Sec. 27)
from the time the vacancy arose.
Requisites of Removal from the Board
a. It must take place either at a regular meeting Vacancy NOT by removal or expiration of term
May be filled by:
or special meeting of the stockholders or
a) the vote of at least a majority of the
members called for the purpose;
remaining directors or trustees, if still
b. There must be previous notice to the
constituting a quorum;
stockholders or members of the intention to
b) if not, said vacancies must be filled by the
remove;
stockholders or members in a regular or
c. The removal must be by a vote of the
special meeting called for that purpose.
stockholders representing 2/3 of the
outstanding capital stock or 2/3 of the Cases when Emergency Action is Required
members, as the case may be; Requirements:
d. The director may be removed with or without a) If the vacancy prevents the remaining
cause unless he was elected by the minority, directors from constituting a quorum
in which case, it is required that there is cause b) emergency action is required to prevent
for removal. grave, substantial, and irreparable loss or
damage to the corporation
Note:
The SEC shall, motu proprio or upon verified Effects:
complaint, and after due notice and hearing, a) The vacancy may be temporarily filled from
order the removal of a director or trustee elected among the officers of the corporation by
despite the disqualification, or whose unanimous vote of the remaining directors or
disqualification arose or is discovered
trustees.
subsequent to an election. This is without
prejudice to other sanctions that the SEC may b) The action by the designated director or
impose on the board of directors or trustees who, trustee shall be limited to the emergency
with knowledge of the disqualification, failed to action necessary,
remove such director or trustee. c) The term shall cease within a reasonable
time from the termination of the emergency or
F. Filling of Vacancies (Sec. 28) upon election of the replacement director or
trustee, whichever comes earlier.
Replacement director or trustee - A director or d) The corporation must notify the SEC within
trustee elected to fill a vacancy and shall serve three (3) days from the creation of the
only for the unexpired term of the predecessor in emergency board, stating therein the reason
office.
for its creation.
How Elections should be held:
Vacancy filled by reason of an increase in the
In all elections to fill vacancies under this section,
number of directors or trustees
the procedure set forth in Sections 23 and 25 of
this Code shall apply.
This vacancy shall be filled only by an election at
When Elections may be held: a regular or at a special meeting of stockholders
a) Due to term expiration- the election or members duly called for the purpose, or in the
same meeting authorizing the increase of
shall be held no later than the day of
directors or trustees if so stated in the notice of
such expiration at a meeting called for the meeting.
that purpose.
b) Result of removal- the election may be
held on the same day of the meeting
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G. Compensation (Sec. 30) b. Duty of Loyalty (Basis: Secs. 30 & 33)

Directors or trustees shall not acquire any
General Rule: In the absence of any provision in personal or pecuniary interest in conflict with their
the by-laws fixing their compensation, the duty as such directors or trustees.
directors shall not receive any compensation, as
such Disloyalty: Sec. 30(2) v. Sec. 33
SEC. 30(2) SEC. 33
Exception: They may receive reasonable per Applicable to
diems [i.e. at meetings] Applicable to directors
directors, trustees,
only
and officers
Qualifiers to General Rule and Exception
Any such compensation other than per diems Allows ratification of a
may be granted to directors by the vote of the No ratification allowed transaction by the
stockholders representing at least a majority of director
the outstanding capital stock at a regular or Covers stock and
Covers stock
special stockholders' meeting. non-stock
corporations only
corporations
However: In no case shall the total yearly
compensation of directors, as such directors, c. Duty of Diligence (Basis: Sec. 30)
exceed 10% percent of the net income before Directors and/or trustees shall not willfully and
income tax of the corporation during the knowingly vote for or assent to patently unlawful
preceding year. acts of the corporation or act in bad faith or with
gross negligence in directing the affairs of the
Directors or trustees shall not participate in the corporation.
determination of their own per diems or
compensation. Doctrine of Corporate Opportunity
If there is presented to a corporate officer or
Note: The implication of the phrase director a business opportunity, which the
is that members of the Board may corporation has an interest or a reasonable
receive compensation, in addition to reasonable expectancy, the self-interest of the officer or
per diems, when they render services to the director will be brought into conflict with that of his
corporation in a capacity other than as directors corporation. The law does not permit him to seize
or trustees [in this case, if serving as corporate the opportunity even if he will use his own funds
officers] (Western Technology v. Salas, G.R. No. in the venture. If he seizes the opportunity thereby
113032, 1997) obtaining profits to the expense of the
corporation, he must account all the profits by
For Corporations vested with public interest refunding the same to the corporation.
These corporations shall submit to their Requisites of Doctrine of Corporate
shareholders and the SEC, an annual report of Opportunity
the total compensation of each of their directors a. The Corporation is financially able to
or trustees.
undertake the business opportunity.
H. Disloyalty b. From the nature of the business opportunity,
is of practical advantage to the corporation.

c. The corporation has an interest or a
Three-Fold Duties of Directors (Strategic reasonable expectancy, by embracing the
Alliance Development Corporation v. Radstock, opportunity.
G.R. No. 178158, 2009)
Consequence of violation
a. Duty of Obedience (Basis: Sec. 24) a. Directors must account for all the profits by
To direct the affairs of the corporation only in refunding the same to the corporation
accordance with the purposes for which it was b. Directors may be removed from the board.
organized
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Exception: The act of the director has been Liability for Watered Stocks
ratified by a vote of the stockholders owning or
representing at least two-thirds (2/3) of the Directors or officers consenting to issuance of
outstanding capital stock. watered stocks are solidarily liable with the
stockholder concerned, to the corporation or its
Violations of Secs. 30 and 33 are not penal creditors for the difference between the fair value
offenses in relation Sec. 158: Had the received (by the corporation at the time of the
Legislature intended to attach penal sanctions to issuance) and the par or issued value of the stock
said sections, it could have expressly stated such issued. (Sec. 64)
intent in the same manner it did for Section 74 of
the same Code that the violation thereof is K. Personal Liabilities
likewise considered an offense under Section
144. (Ient v. Tullet, Inc., G.R. No. 189158, 2016) Personal liability of a corporate director, trustee
or officer may so validly attach, as a rule, only
I. Business Judgment Rule when:
1. He assents:
Questions of policy or management are left solely a. To a patently unlawful act of the
to the honest decision of officers and directors of corporation, or
a corporation and the courts are without authority b. For bad faith, or gross negligence in
to substitute their judgment for the judgment of directing its affairs, or
the board of directors; the board is the business c. For conflict of interest, resulting in
manager of the corporation and so long as it acts
damages to the corporation, its
in good faith its orders are not reviewable by the
stockholders or other persons
courts or the SEC. The directors are also not
liable to the stockholders in performing such acts (solidary liability under Sec. 30(1));
(Philippine Stock Exchange, Inc. v. CA, GR No. 2. He attempts to acquire, or acquires any
130644, 1997). interest adverse to the corporation in respect
of any matter which has been reposed in
Coverage of the Rule: Two Branches them in confidence (liable as a trustee for the
a. Resolutions and transactions entered into by corporation under Sec. 30(2))
the Board of Directors within the powers of 3. He consents to the issuance of watered
the corporation cannot be reversed by the stocks or who, having knowledge thereof,
courts not even on the behest of the does not forthwith file with the corporate
stockholders of the corporation; and secretary his written objection thereto
b. Directors and officers acting within such (solidary liability under Sec. 64);
business judgment cannot be held personally 4. He agrees to hold himself personally and
liable for the consequences of such acts. solidarily liable with the corporation; or
5. He is made, by a specific provision of law, to
J. Solidary liabilities for damages personally answer for his corporate action
(Tramat Mercantile, Inc. v. CA, G.R. No.
Liability under Sec. 30(1) 111008, 1994).
Directors or trustees who willfully and knowingly: Case law states that to hold a director or officer
a) vote for or assent to patently unlawful acts personally liable for corporate obligations, two
of the corporation requisites must concur:
b) are guilty of gross negligence or bad faith in 1. it must be alleged in the complaint that
directing the affairs of the corporation the director or officer assented to patently
c) acquire any personal or pecuniary interest in unlawful acts of the corporation or that
conflict with their duty as such directors or the officer was guilty of gross negligence
trustees or bad faith; and
shall be liable jointly and severally for all damages 2. there must be proof that the officer acted
resulting therefrom suffered by the corporation, in bad faith. (Freyssinet Filipinas Corp. v.
its stockholders or members and other persons. Lapuz, G.R. No. 226722, 2019)
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L. Responsibility For Crimes Presumption of a Purchase or Sale of a

Security of an Issuer of Insider
General rule: The Board being generally a
policy-making body, directors as such cannot be relatives by affinity or consanguinity within the
held liable under a criminal statute making those second degree, legitimate or common-law, while
in charge of the management of the corporation in possession of material nonpublic information if
liable for the criminal acts done in pursuit of transacted after such information came into
corporate operations. existence but prior to dissemination of such
information to the public and the lapse of a
The members of the Board generally do not reasonable time for market to absorb such
concern themselves with the day-to-day affairs of information.
the corporation, except those corporate officers
who are charged with the running of the business This presumption is rebutted upon a showing by
of the corporation and are concomitantly the purchaser or seller that he was aware of the
members of the Board, like the President. material nonpublic information at the time of the
(Federated Dealers Assn. v. Del Rosario, G.R. purchase or sale.
No. 202639, 2016).
Material Nonpublic Information
Exception: To be held criminally liable for the a. It has not been generally disclosed to the
acts of a corporation, there must be a showing public and would likely affect the market price
that its officers, directors, and shareholders of the security after being disseminated to the
actively participated in or had the power to public and the lapse of a reasonable time for
prevent the wrongful act. (SEC v. Price the market to absorb the information; or
Richardson Corp., G.R. No. 197032, 2017) b. Would be considered by a reasonable person
important under the circumstances in
M. Special Fact Doctrine
determining his course of action whether to
Under the Special Facts Doctrine, although a buy, sell or hold a security.
director does not stand in fiduciary relation to the
stockholder, he is under legal obligation to make O. Contracts
fair and full disclosure of pertinent official
information where special circumstances exist, i. By Self-Dealing Directors with the
giving rise to the obligation to disclose. (Soledad Corporation (Sec. 31)
M. Cagampang, The Fiduciary Duties of
Corporate Directors Under Philippine Law, 46 A contract of the corporation with its director/s or
Phil. L. J., 513, 562 [1971]) trustee/s or officer/s, or their spouses and
relatives within the fourth civil degree of
N. Inside Information consanguinity or affinity is voidable at the option
of such corporation, unless the following are
Unlawful Acts of Insider (RA 8799, Sec. 27) present:
It shall be unlawful for an insider to sell or to buy a. The presence of such director/trustee in the
a security of an issuer, while in the possession of Board meeting in which the contract was
material information with respect to the issuer or approved was not necessary to constitute a
the security that is not generally available to the quorum.
public unless: b. The vote of such director or trustee was not
1. The insider proves that the info was not
gained from such relationship c. The contract is fair and reasonable
2. That the other party selling to or buying from d. In case of corporations vested with public
the insider is identified the insider proves interest, material contracts are approved by
a. That he disclosed the information at least two-thirds (2/3) of the entire
b. That he had reason to believe that membership of the board, with at least a
the other party otherwise is also in majority of the independent directors voting to
possession of the information approve the material contract; and
e. In case of an officer, the contract with him has
been previously authorized by the Board.
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Where any of the first three (3) conditions set forth Special Committees (Sec. 34)
in the is absent such contract may be ratified by:
a) the vote of the stockholders representing at The board of directors may create special
least two-thirds (2/3) of the outstanding committees of temporary or permanent nature
capital stock or of at least two-thirds (2/3) of
the members in a meeting called for the composition, compensation, powers, and
purpose; and responsibilities.
b) Full disclosure of the adverse interest of the
Other delegations of authority
directors or trustees involved is made at such
a) The Board may delegate such powers to
meeting and the contract is fair and
either an executive committee or officials or
reasonable under the circumstances.
contracted managers.
b) The delegation, except for the executive
ii. Contracts Between Corporations with
Interlocking Directors (Sec. 32) committee, must be for specific purposes.
Accordingly, the general rules of agency
A contract between two (2) or more corporations as to the binding effects of their acts
having interlocking directors shall not be would apply.
invalidated on that ground alone. These are valid For such officers to be deemed fully
so long as there is no fraud and the contract is fair clothed by the corporation to exercise a
power of the Board, the latter must
is nominal in one of the contracting corporations specially authorize them to do so (ABS-
(not exceeding 20% of the outstanding capital CBN Broadcasting Corporation v. CA,
stock), then the contract must comply with the GR No. 128690, 1999).
requisites provided supra, Sec. 31, otherwise
voidable. Q. Meetings
P. Executive and Other Special -laws can provide otherwise
Committees to all the rules hereunder, so long as minimum
requirements are satisfied.
Executive Committees (Sec. 34)
i. Regular or Special
i. Creation
1. Regular- held monthly, unless the by- laws
If the bylaws so provide, the board may create an provide otherwise
executive committee composed of at least three 2. Special- held anytime upon the call of the
(3) directors. Said committee may act, by majority
President or as provided in the by- laws
vote of all its members, on such specific matters
within the competence of the board, as may be
(1) When and Where -
delegated to it in the bylaws or by majority vote
of the board. Monthly, unless otherwise provided in the
by-laws, or anytime upon the call of the
ii. Limitations President or as provided in the by- laws ;
Anywhere in or outside the Philippines,
Powers That Cannot Be Delegated to the unless the bylaws provide otherwise.
Executive Committee
a. Approval of action requiring concurrence of (2) Notice of the meeting - at least two (2) days
stockholders; prior to the scheduled meeting, unless a
b. Filling of vacancies in the board; longer time is provided in the bylaws. A
c. Adoption, amendment or repeal of by-laws; director may waive the requirement,
d. Amendment or repeal of board resolution expressly or impliedly.
which by its terms cannot be amended or
repealed; (3) Attendance in Meetings - Directors or
e. Distribution of cash dividends. (Sec. 34) trustees cannot attend or vote by proxy at
board meetings.
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Those who cannot physically attend or Valid Corporate Acts

vote at board meetings can participate
and vote through remote General Rule: Every decision reached by at least
communication such as a majority of the directors or trustees constituting
videoconferencing, teleconferencing, a quorum are considered valid.
or other alternative modes of
Exception: The election of officers shall require
communication that allow them
the vote of a majority of all the members of the
reasonable opportunities to
board.(Sec. 52)
participate.
Note: A director or trustee who has a potential
ii. Who Presides - The chairman or, in his interest in any related party transaction must
absence, the president shall preside at all recuse from voting on the approval of the related
meetings of the directors or trustees as well as of party transaction without prejudice to compliance
the stockholders or members, unless the bylaws with the requirements of Section 31 of this Code.
provide otherwise. (Sec. 53)
iv. Rule on Abstention
iii. Quorum of Board
In case of abstention during a board meeting on
General Rule: A majority of the directors or a vote taken on any issue, the general rule is that
trustees as stated in the articles of incorporation an abstention is counted in favor of the issue that
shall constitute a quorum to transact corporate won the majority vote; since by their act of
business abstention, the abstaining directors are deem to
abide by the rule of the majority. (Lopez v. Ericta,
Exception: Unless the articles of incorporation or G.R. No. L-32991, 1972)
the by-laws provides for a greater majority (Sec.
52)
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Comparison Between Stockholder and Director Meeting
MEETING
Types of Regular and Special Regular and Special
Meetings
Place of Held in the principal office of the corporation as Anywhere in or outside of the
Meetings set forth in the articles of incorporation, or if not Philippines, unless the by- laws
practicable, in the city or municipality where the provide otherwise
principal office of the corporation is located.
When held REGULAR held annually on a date fixed by the REGULAR held monthly
by- laws, or if not so fixed, on any date after April
15 every year as determined by the board of
directors or trustees
SPECIAL held at any time deemed necessary SPECIAL held at any time upon
or as provided in the by- laws the call of the President
Notice of REGULAR notice must be sent at least 21 days Notice must be sent at least two
Meeting before the meeting (2) days prior to the scheduled
SPECIAL notice must be sent at least 1 week. meeting, unless a longer time is
Notice may be waived, expressly or impliedly, by provided in the bylaws. Notice
any stockholder or member may be waived expressly or
impliedly, by any Director or
Trustee
Who presides General Rule: Person designated in the bylaws The chairman or, in his absence,
In default: Chairman, and in his absence, the the president shall preside
president
Quorum Majority of the outstanding capital stock, or of the Majority of the number of
members. directors and trustees as fixed in
EXCEPT:(a) greater majority is provided in the the articles of incorporation,
bylaws (b) in cases where greater vote for an act unless the articles of
or business is required by law. incorporation or the by-laws
provides for a greater majority.
Note: For stock corporations, quorum is based
on outstanding voting stocks. For non-stock
corporations, only those who are actual, living
members with voting rights shall be counted.(Tan
v. Sycip, G.R. No. 153468, 2006
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10. CAPITAL AFFAIRS certificate. The subscription price of the stocks

subscribed by him should first be paid.
A. Certificate of stock
b. Consideration for Shares of Stock
A stock certificate or a certificate of stock is (See earlier discussion)
defined as a written instrument signed by the
proper officer of a corporation stating or ii. Uncertificated Shares/Securities
acknowledging that the person named in the Defined as security evidenced by electronic or
document is the owner of a designated number of similar records. (Securities and Regulation Code,
shares of its stock. It is prima facie evidence that Sec. 3.14)
the holder is a shareholder of a corporation.
(Teng v. Securities and Exchange Commission, Note: Under Sec. 43.1 of the Securities and
G.R. No. 184332, [February 17, 2016], 781 PHIL Regulation Code, a corporation whose shares of
133-148) stock are registered pursuant to the Corporation
Code or listed in a stock exchange may:
i. Nature of the certificate a. If so resolved by its Board of Directors and
It is the paper representation or tangible evidence agreed by a shareholder, issue shares to, or
of the stock itself and of the various record the transfer of some or all of its shares
representations therein. It expresses the contract into the name of said shareholders, investors
between the corporation and the stockholder. It is or, securities intermediary in the form of
not essential to the ownership and/or existence of uncertificated securities;
the share of stock. It is prima facie evidence that b. The use of uncertificated securities shall be
the holder is a shareholder in a corporation
without prejudice to the rights of the securities
(Makati Sports Club v. Cheng, G.R. No. 178523,
2010) intermediary subsequently to require the
corporation to issue a certificate in respect of
It is a written acknowledgment by the corporation any shares recorded in its name; and
c. If so provided in its articles of incorporation
is a personal property that may be mortgaged or and by-laws, issue all of the shares of a
pledged. Transfer binds the corporation only particular class in the form of uncertificated
when it is recorded in the corporate books. securities and subject to a condition that
investors may not require the corporation to
Note: It is the shares that can be the subject of a issue a certificate in respect of any shares
security interest, not the certificate of stock recorded in their name.
Shares of Stock v. Certificate of Stock iii. Negotiability; Requirements for Valid

SHARES OF STOCK CERTIFICATE OF Transfer of Stocks
STOCK
Unit of interest in a Evidence of the Negotiability
corporation Stock certificates are not negotiable instruments
the stock and of his under the purview of Negotiable Instruments Law
right as a shareholder because there is no promise or order to pay
and up to the extend money.
specified therein
A stock certificate is a quasi-negotiable
Incorporeal or It is concrete and
instrument because it may be transferred by
intangible property tangible endorsement coupled with delivery but the holder
May be issued by the May be issued only if thereof takes it without prejudice to such rights or
corporation even if the the subscription is defenses as the registered owner or creditor may
subscription is not fully paid have under the law, except insofar as such rights
fully paid or defenses are subject to the limitations imposed
by the principles governing estoppel. (De los
Note: A stockholder who does not pay his Santos v. McGrath, G.R. No. L-4818, 1955)
subscription is not entitled to the issue of a stock
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Requirements for Valid Transfer of Stock:

1. If represented by a certificate, the
following must be strictly complied with: Principle of Indivisibility of Subscription
a. Endorsement by owner or his A subscription is one entire and indivisible
representative contract. It cannot be divided into portions, so that
b. Delivery coupled with an intention of the stockholder shall not be entitled to a certificate
constituting the person to whom the of stock until he has remitted the full payment.
stock is delivered the transferred (sic)
2. Payment pro rata
thereof.(Neugene Marketing, Inc. v.
All partial payments on one subscription shall be
Court of Appeals, G.R. No. 112941, deemed applied proportionately among the
[February 18, 1999], 362 PHIL 633- number of shares. To permit the issuance of a
646) stock certificate without full payment will be in
c. violation of Sec. 63 (Timoteo Aquino, 2018)
Stock and Transfer Book (STB) to bind
the corporation and third parties (Teng In the absence of special agreement to the
v. SEC, Gr 184332, February 17, 2016) contrary, th
equity entitling him to a certificate for the total
Note: Recording in STB is only required number of shares subscribed for by him upon
for absolute transfers, which do not payment of the remaining portion of the
include pledges, mortgages, etc. subscription price (Fua Cun vs. Summers, G.R.
(Monserrat v. Ceron, G.R. No. 37078, No. 19441, 1923).
September 27, 1933)
Requisites for Issuance of Certificate of Stock
2. If NOT represented by the certificate (such 1. The certificate must be signed by the
as when the certificate has not yet been president or vice-president, countersigned
issued or where for some reason is not in by the secretary or assistant secretary;
the possession of the stockholder): 2. The certificate must be sealed with the seal
a. By means of deed of assignment or of the corporation;
public document; and 3. The certificate must be delivered;
b. Such deed of assignment or public 4. The par value, as to par value shares or full
document must be duly recorded in the subscription as to no par value shares must
books of the corporation (Ponce v. first be fully paid; and
Alsons Cement Corporation, G.R. No. 5. The original certificate must be
139802, December 10, 2002) surrendered where the person requesting
the issuance of a certificate is a transferee
If, however, the reason for the absence of from the stockholder (Bitong v. CA, G.R.
a certificate is that the subscription has No. 123553, July 13, 1998)
not been fully paid, the corporation may
refuse to record a sale given that under v. Stock And Transfer Book
which the corporation holds any unpaid 1. Contents

claim shall be transferable in the books of Stock corporations must keep a stock and
transfer book, which shall contain a record of:
1. All stocks in the names of the
iv. Issuance stockholders alphabetically arranged;
2. The installments paid and unpaid on
1. Full Payment (Sec. 63) all stock for which subscription has
No stock certificate shall be issued unless there been made, and the date of payment
is full payment of:
of any installment;
1. Subscription;
3. A statement of every alienation, sale
2. Interest; and
or transfer of stock made; and
3. Expenses (in case of delinquent
4. Such other entries as the by-laws
shares).
may prescribe. (Sec. 73)
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b. The corporation shall publish a notice

Only absolute transfers of shares of stock are of loss once a week for at least three
(3) consecutive weeks in a
and transfer book in order to have force and effect newspaper of general circulation in
as against third persons. Attachments of shares the place where the corporation has
its principal office. The notice shall
the corporati (Ferro
state the ff:
Chemicals v. Garcia, et al., G.R. 168134, 2016)
i. name of the corporation
2. Who May Make Valid Entries ii. name of the registered
Only the corporate secretary is duly authorized to owner
make entries on the stock and transfer book. iii. the serial number of the
Hence, entries made by the Chairman or the certificate
President are invalid. (Torres Jr. v. CA, G.R. No. iv. the number of shares
120138, 1997). represented by such
certificate
Registration of a transfer of shares of stock is a v. after one (1) year from the
ministerial duty on the part of the corporation. date of the last publication
Aggrieved parties may then resort to the remedy without contest, the right to
of mandamus to compel corporations that make such contest shall be
wrongfully or unjustifiably refuse to record the
barred and the corporation
transfer or to issue new certificates of stock. This
remedy is available even upon the instance of a shall cancel the lost
bona fide transferee who is able to establish a certificate
clear legal right to the registration of the transfer. vi. in lieu thereof, a new
(Andaya v. Rural Bank of Cabadbaran, Inc., G.R. certificate of stock is issued
No. 188769, 2016) c. If a contest is presented to the
corporation or if an action is pending
3. Stock transfer agents in court, issuance of new certificates
A stock transfer agent or one engaged principally is suspended until the court renders
in the business of registering transfers of stocks a decision regarding the ownership
on behalf of a stock corporation. (Sec. 75) of the certificate of stock
d. No action is allowed against the
A stock transfer agent shall be allowed to operate corporation for issuing new shares
in the Philippines upon compliance with the
except for fraud, bad faith, or
following:
negligence.
1. securing a license from the SEC
(renewable annually)
vii. Situs of the Shares of Stocks
2. payment of a fee fixed by the SEC
The situs of shares of stock is the domicile of the
vi. Lost or Destroyed Certificate corporation (Tayag v. Benguet Consolidated Inc.,
G.R. No. L-23145, 1968).
Procedure for the issuance of new certificates to
replace those lost, stolen, or destroyed: (Sec. 72) B. Watered Stock (Diluted Stock)
a. The registered owner of a certificate
of stock in a corporation or his legal i. Definition
representative shall file with the
corporation an affidavit in triplicate Stocks issued for a consideration less than the
setting forth the ff: par or issued price thereof. (Sec. 61)
i. Circumstances of the Loss;
ii. Certificates and Serial ii. Liability Of Directors For Watered Stock
Numbers of lost certificates;
and Directors or officers who shall commit the
iii. Other Information and following will be liable to the corporation or its
creditors, solidarily with the stockholder
Evidence.
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concerned for the difference between the value ii. Notice Requirement
received at the time of issuance of the stock and
the par or issued value of the same : (Sec. 64) The unpaid subscriptions are not due and
1. consents to the issuance of stocks for a payable without a call. A corporation cannot file
consideration less than the par or issued an action to recover the unpaid price if the action
value; is not preceded by a call, until a call is made, no
2. consents to the issuance of stocks for a cause of action accrues (Lingayen Gulf Electric
consideration other than cash, valued in Power Company v. Baltazar, G.R. No. L-4824,
excess of its fair value; June 30, 1954).
3. having knowledge of the insufficient
Payment of balance of subscription
consideration does not file a written
Payment of unpaid subscription or any
objection with the corporate secretary percentage thereof, together with any interest
accrued, shall be made on the date specified in
iii. Trust Fund Doctrine On Watered Stocks the subscription contract or on the date stated in
the call made by the board.(Sec 66)
The Trust Fund Doctrine is the basis for the
prohibition on issuing watered stock. Effect of Failure to Pay Balance (Sec. 66)
1. The entire balance shall be due and
A Corporation has no power to release an original payable
subscriber of its capital stock from the obligation
2. The stockholder shall liable for interest
of paying for his shares, without a valuable
3. If no payment is made within thirty (30)
consideration for such release; and as against
creditors, a reduction of the capital stock can take days from the said date, all stocks
place only in the manner and under the conditions covered by the subscription shall
prescribed by the statute or the charter or the thereupon become delinquent and shall
articles of incorporation (Philippine Trust Corp. v. be subject to sale as hereinafter
Rivera, G.R. No. L-19761, 1923). provided, unless the board of directors
orders otherwise.
See subsection F.4. for discussion on Trust Fund
Doctrine. The prescriptive period in case of subscription of
shares begins to run only from the time the board
C. Payment of Balance of Subscription of directors declares that the balance is due and
payable (Garcia v. Suarez, G.R. No. 45493,
i. Call by Board of Directors 1939)
The board of directors may, at any time, declare Unpaid Subscriptions (Sec. 66)
due and payable to the corporation unpaid a. There will be interest imposed on unpaid
subscriptions and may collect the same or such subscriptions
percentage thereof, in either case, with accrued b. Payable to the corporation from date of
interest, if any, as it may deem necessary. subscription
c. If required by and interest fixed in the By-laws
Requisites for a valid call
a) Must be made in the manner prescribed by d. If interest is required but not fixed legal rate
law; e. Therefore, no interest on unpaid subscription
b) Must be made by the Board of Directors; and is required:
c) Must operate uniformly upon all shareholders b. If not required by by-laws
c. If not required by subscription contract
Note: A call is not necessary in two cases
1. when the date of payment is specified in Methods of Collection of Unpaid Subscription
the subscription a. Call for payment
2. when the corporation becomes insolvent b. Declaration of delinquency and sale at public
(Velasco v. Poizat) auction of delinquent shares;
c. Ordinary civil action;
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d. Collection from cash dividends and other iv. Auction Sale

amounts due to stockholders if allowed by by- Auction Sale is conducted not less than thirty (30)
laws/agreed to by him. days nor more than sixty (60) days from the date
the stocks become delinquent.
D. Sale of Delinquent Shares
1. The delinquent stock shall be sold at a
Delinquent stocks - Stocks not paid within 30 public auction to such bidder who shall
days from the date fixed in the contract of offer to pay ff:
subscription or from the date stated in the call a. the full amount of the balance on
made by the Board of Directors. the subscription together
b. accrued interest
i. Effect of Delinquency c. costs of advertisement
1. They shall be subject to delinquency d. expenses of sale for the smallest
sale. number of shares or fraction of a
2. The stock shall not be voted or be entitled share.
to vote or to representation at any 2. The stock so purchased shall be
transferred to such purchaser in the
3. The holder shall not be entitled to any of books of the corporation and a certificate
the rights of a stockholder except the for such stock shall be issued in the
right to dividends
4. The corporation has the right to apply 3. The remaining shares, if any, shall be
cash dividends due to the unpaid balance credited in favor of the delinquent
plus cost and expenses and to withhold stockholder who shall likewise be entitled
stock dividends until the unpaid to the issuance of a certificate of stock
subscription is fully paid. covering such shares. (Sec. 67)
Note: the only right that may not be exercised is
the right to dividends Note: There shall be no sale at public auction if:
a. The delinquent stockholder pays on or
Procedure of Delinquency Sale
before the sale: (a) balance due, (b)
ii. Call by resolution of the board of directors accrued interest, or (c) advertising costs
The board of directors shall issue a resolution and expenses of sale.
ordering the sale of delinquent stocks. (Sec. 67) b. The Board orders otherwise, on any of
the following grounds: (a) Defect in the
There is no need for a call if the subscription Notice of Sale; or (b) Defect in sale itself.
contract specifies dates when subscription (Sec. 67)
balance is due. If no payment is made within thirty
(30) days from the date specified, the board shall When Sale May Be Questioned
order the sale of delinquent shares. a. The action is filed on the ground of irregularity
or defect in the notice of sale, or in the sale of
iii. Notice of Sale the delinquent stock;
1. Notice of the sale, with a copy of the b. The party seeking to maintain such action
resolution, shall be sent to every first pays or tenders to the party holding the
shareholder with unpaid subscriptions stock the sum for which the same was sold
either personally, by registered mail, or with interest from the date of the sale at the
through other means provided in the legal rate; and
bylaws. c. The complaint was filed within 6 months from
2. Notice of the sale shall be published once the date of the sale (Sec. 68)
a week for two (2) consecutive weeks in
a newspaper of general circulation in the
province or city where the principal office
of the corporation is located.
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E. Alienation of shares
v. Sale of fully paid shares
i. Allowable restrictions on the sale of shares Section 63 provides that shares of stock issued
The authority granted to a corporation to regulate with a corresponding certificate of stock are
the transfer of its stock does not empower the personal property and may be transferred by
corporation to restrict the right of a stockholder to delivery of the certificate or certificates indorsed
transfer his shares, but merely authorizes the by the owner or his attorney-in-fact or other
adoption of regulations as to the formalities and person legally authorized to make the transfer.
procedure to be followed in effecting transfer
(Thomson v. CA, G.R. No. 116631, 1998). vi. Requisites of a valid transfer
If represented by a certificate, the following must
ii. Sale of partially paid shares be strictly complied with:
Section 62 provides that no share of stock against a. Delivery of the certificate;
which the corporation holds any unpaid claims b. Indorsement by the owner or his agent;
shall be transferable in the books of the c. To be valid against third parties, the transfer
corporation. must be recorded in the books of the
corporation (Rural Bank of Lipa v. CA, G.R.
iii. Sale of a portion of shares not fully paid No. 124535, 2001).
A stockholder who has not paid the full amount of
his subscription cannot transfer part of his
If NOT represented by a certificate, the following
subscription in view of the indivisible nature of a
must be complied with:
subscription contract.
a. By means of a deed of a Deed of Assignment;
b. The same must be recorded in the books of
iv. Sale of all shares not fully paid
The entire subscription, although not yet fully the corporation.
paid, may be transferred to a single transferee,
who as a result of the transfer must assume the If, however, the reason for the absence of a
unpaid balance. (SEC Opinion) Consent of the certificate is that the subscription has not
corporation must first be secured since the been fully paid, the corporation may refuse to
transfer of subscription rights and obligations
contemplates a novation of contract. (Civil Code, shares of stock against which the corporation
Art. 1923) holds any unpaid claim shall be transferable
The SEC correctly categorized the assignment of

the subscription agreements as a form of The failure by a seller to deliver, within a
novation by substitution of a new debtor and reasonable time, the stock certificates
which required the consent of or notice to the representing shares of stock subject of a sale
creditor. In this case, the change of debtor took transaction may be a basis to rescind such sale
place when R.C. Lee assigned the Oceanic (Fil-Estate Gold and Development v. Vertex, G.R.
shares under the subscription agreements to SSI No. 202079, 2013)
so that the latter became obliged to settle the 75%
unpaid balance on the subscription. The SEC Note: Recording in STB is only required for
was correct in saying that Interport was duly absolute transfers, which do not include pledges,
notified of the assignment when SSI tendered its mortgages, etc. (Monserrat v. Ceron, G.R. No.
payment for the 75% unpaid balance, and that it 37078, September 27, 1933)
could not anymore refuse to recognize the
transfer of the transfer of the subscription In case of chattel mortgage [Note: the Personal
agreements to SSI was to extinguish the Property Security Act has done away with chattel
obligation of R.C. Lee to Oceanic, now Interport. mortgages], a double registration is necessary
Interport was no longer obliged to accept any with the Register of Deeds where:
payment from R.C. Lee because the latter had a. The debtor resides
ceased to be privy to the subscription b. The corporation has its principal place of
agreements, but was now legally bound to accept business.
(Interport Resources Corporation v. Security Registration on the stock and transfer book would
Specialist, Inc., G.R. No. 154069, 2016) be of no effect
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ii. Right to inspect corporate records

In case of attachments and levies, shares may be What does the right to inspect corporate
attached by leaving with the corporate officer a records include? (Sec. 73)
copy of the writ and notice. No recording in the 1. Right to inspect corporate records
stock and transfer book is needed. The moment 2. Right to demand for their reproduction,
the notice has been duly delivered, it becomes provided that [D-E-Co]:
binding. a. demand in writing is made by the
requesting party
vii. Involuntary dealings b. copies are reproduced at the
As an incident of ownership, a stockholder may
expense
pledge, mortgage or encumber his shares of
c. The inspecting or reproducing
stocks. Restrictions by the corporation are only
valid when: party shall remain bound by
a. They appear in the Articles of Incorporation, confidentiality rules under
by-laws, and the certificates. prevailing laws, such as the rules
b. They are not more onerous than granting on trade secrets or processes
existing stockholders an option to purchase under Republic Act No. 8293,
within a reasonable period and within otherwise known as the
reasonable terms.
F. Corporate Books and Records Republic Act No. 10173,
i. Corporate records to be kept at principal

office: (Sec. 73) [AB-O-NA-BResRepMi] Act No. 8799, otherwise known
1. The articles of incorporation and bylaws
of the corporation and all their
amendments;
2. The current ownership structure and Who may inspect corporate records?
voting rights of the corporation, including A director, trustee, stockholder or member of the
lists of stockholders or members, group corporation in person or by a representative has
structures, intra-group relations, the right to inspect corporate records (Sec. 73).
ownership data, and beneficial
ownership; The ff. may NOT inspect or demand reproduction
3. The names and addresses of all the of corporate records: (Sec. 73)
members of the board of directors or 1. One who is not a stockholder or member
trustees and the executive officers; of record,
4. A record of all business transactions; 2. A competitor, director, officer, controlling
5. A record of the resolutions of the board of stockholder or otherwise represents the
directors or trustees and of the interests of a competitor shall have no
stockholders or members; right to inspect or demand reproduction
6. Copies of the latest reportorial of corporate records.
requirements submitted to the SEC; and
Any stockholder who shall abuse the rights
7. The minutes of all meetings of
granted under Sec. 73 shall be penalized under
stockholders or members, or of the board Section 158 the RCC without prejudice to the
of directors or trustees. provisions of Republic Act No. 8293, otherwise
Note: This is not an exclusive list. Section 73

states that Every corporation shall keep and t
carefully preserve at its principal office all
information relating to the corporation including,
but not limited to the abovementioned.
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Requisites for the exercise of the right to 11. DISSOLUTION AND LIQUIDATION
inspect
1. It must be exercised at reasonable hours Dissolution
on business days Extinguishment of the franchise of a corporation
2. The stockholder has not improperly used and the termination of its corporate existence.
any information he secured through any
previous examination However, the corporation shall nevertheless be
3. The demand is made in good faith and for continued as a body corporate for three (3) years
after the time when it would have been so
a legitimate purpose
dissolved, for the purpose of prosecuting and
defending suits by or against it and enabling it to
When may corporate records be inspected?
settle and close its affairs, to dispose of and
Authorized persons may inspect corporate books
convey its property and to distribute its assets, but
at reasonable hours on business days (Sec. 73)
not for the purpose of continuing the business for
which it was established. (Sec. 122)
iii. Effect of refusal to inspect corporate
records A. Modes of Dissolution:
Any officer or agent of the corporation who shall
refuse to allow the inspection and/or reproduction i. Voluntary
of records shall be liable for:
1. damages 1. Where No Creditors Are Affected
2. shall be guilty of an offense which shall
be punishable under Section 161, RCC Procedure where no creditors are affected by
the dissolution of the corporation:
If such refusal is made pursuant to a resolution or 1. A meeting must be held on the call of
order of the board of directors or trustees, the directors or trustees;
liability under this section for such action shall be 2. Notice of the meeting should be given to
imposed upon the directors or trustees who voted the stockholders by personal delivery or
for such refusal. (Sec. 73)
registered mail at least twenty (20) days
prior to the meeting;
Defenses that may be used by officer / agent /
director / trustee: 3. The notice of meeting should also be
1. the requesting party improperly used any published for once in a newspaper
information secured through any prior published in the principal place of
examination of the records or minutes of business, otherwise, in a newspaper of
such corporation or of any other general circulation
corporation, 4. The resolution to dissolve must be
2. the requesting party was not acting in approved by the majority of the
good faith or for a legitimate purpose in directors/trustees and approved by the
making the demand to examine or stockholders representing at least
reproduce corporate records, majority of the outstanding capital stock
3. the requesting party is a competitor, or majority of members;
director, officer, controlling stockholder or 5. A verified request for dissolution is then
otherwise represents the interests of a filed with the SEC stating:
competitor (Sec. 73) a. the reason for dissolution
b. the form, manner and time when
the notices were given
c. names of the stockholders and
directors or members and
trustees who approved the
dissolution
d. the date, place, and time of the
meeting in which the vote was
made; and
e. details of publication
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6. In addition, the following shall be 4. The corporation shall submit to the SEC
submitted to the SEC: the following:
a. Copy of the resolution a. a copy of the resolution
authorizing the dissolution, authorizing the dissolution,
certified by a majority of the certified by a majority of the
board and countersigned by the board of directors or trustees and
secretary; countersigned by the secretary
b. Proof of publication of the corporation; and
c. Favorable recommendation from b. list of all its creditors.
the appropriate regulatory 5. By an order reciting the purpose of the
agency, when necessary. petition, the SEC shall fix a deadline for
7. The SEC shall, within 15 days from the filing objections to the petition (shall not
receipt of the verified request for be less than thirty (30) days nor more
dissolution, and in the absence of any than sixty (60) days after the entry of the
withdrawal within said period, approve order).
the request and issue the certificate of 6. Publication: Before such the deadline, a
dissolution, upon which the dissolution copy of the order shall be published at
will take effect. (Sec. 134) least once a week for three (3)
consecutive weeks in a newspaper of
2. Where Creditors Are Affected general circulation published in the
municipality or city where the principal
Procedure where the dissolution of the office of the corporation is situated,
corporation may prejudice the rights of any otherwise, in a newspaper of general
creditor: circulation in the Philippines
1. A verified petition for dissolution shall be
7. Posting: A similar copy shall be posted
filed with the SEC.
for three (3) consecutive weeks in three
2. The petition shall be:
(3) public places in such municipality or
a. signed by a majority of the
city.
8. After the expiration of the time to file
or trustees
objections, a hearing shall be conducted
b. verified by its president or
upon prior five (5) day notice to hear the
secretary or one of its directors
objections;
or trustees
9. Judgment shall be rendered dissolving
c. shall set forth all claims and
the corporation and directing the
demands against it
disposition of assets; the judgment may
d. that its dissolution was resolved
include appointment of a receiver.
upon by the affirmative vote of
10. The dissolution shall take effect only
the stockholders representing at
upon issuance by the SEC of a certificate
least two-thirds (2/3) of the
of dissolution* (Sec. 135)
outstanding capital stock or at
least two-thirds (2/3) of the 3. By Shortening Corporate Term-
members at a meeting of its
stockholders or members called Procedure on voluntary dissolution by
for that purpose. shortening of the corporate term (Sec. 36):
3. The petition shall likewise state: 1. A private corporation may extend or
a. the reason for the dissolution; shorten its term by amending the the
b. the form, manner, and time when articles of incorporation when approved
the notices were given; by a majority vote of the board of
c. the date, place, and time of the directors or trustees, and ratified at a
meeting in which the vote was meeting by the stockholders or members
made. representing at least two-thirds (2/3) of
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the outstanding capital stock or of its c. Issue such other orders as it may
members. deem appropriate. (Sec. 137)
2. Written notice of the proposed action and
the time and place of the meeting shall be Procedure on Withdrawal of Petition for
sent to stockholders or members Dissolution
3. In case of extension of corporate term, a A withdrawal of the petition for dissolution shall be
dissenting stockholder may exercise the in the form of a motion and similar in substance
right of appraisal under the conditions to a withdrawal of request for dissolution but shall
be verified and filed prior to publication of the
provided in this Code. (Sec. 137)
order setting the deadline for filing objections to
the petition. (Sec. 137)
Note: Under Sec. 11, the RCC now allows the
revival of a the corporate existence of an Expired
ii. Involuntary
Corporation.
A corporation may be dissolved by the SEC motu
may apply
proprio or upon filing of a verified complaint by
for a revival of its corporate existence,
any interested party. (Sec. 138)
together with all the rights and privileges under its
certificate of incorporation and subject to all of its
Grounds for dissolution of the corporation:
duties, debts and liabilities existing prior to its
a. Non-use of corporate charter as provided
revival. Upon approval by the SEC, the
corporation shall be deemed revived and a under Section 21 of this Code;
certificate of revival of corporate existence shall b. Continuous inoperation of a corporation
be issued, giving it perpetual existence, unless as provided under Section 21 of this
its application for revival provides otherwise. Code;
(Sec. 11) c. Upon receipt of a lawful court order
dissolving the corporation;
4. Withdrawal of dissolution d. Upon finding by final judgment that the
corporation procured its incorporation
Procedure on Withdrawal of Request for through fraud;
Dissolution: e. Upon finding by final judgment that the
1. Withdrawal of Request of Dissolution: corporation:
Not later than 15 days from the receipt by 1. Was created for the purpose of
SEC of the request for dissolution, the committing, concealing or aiding
withdrawal thereof shall be made in the SEC of securities violations,
writing, duly verified by any incorporator, smuggling, tax evasion, money
director, trustee, shareholder, or member laundering, or graft and corrupt
and signed by the same number of practices;
incorporators, directors, trustees, 2. Committed or aided in the SEC
shareholders, or members necessary to of securities violations,
request for dissolution. smuggling, tax evasion, money
2. Upon receipt of a withdrawal of request laundering, or graft and corrupt
for dissolution, the SEC shall withhold practices, and its stockholders
action on the request for dissolution and knew of the same; and
shall, after investigation: 3. Repeatedly and knowingly
a. Make a pronouncement that the tolerated the SEC of graft and
request for dissolution is deemed corrupt practices or other
withdrawn; fraudulent or illegal acts by its
b. Direct a joint meeting of the directors, trustees, officers, or
board of directors or trustees and employees. (Sec. 138)
the stockholders or members for
the purpose of ascertaining If the corporation is ordered dissolved by final
whether to proceed with judgment pursuant to the grounds set forth in
dissolution; or subparagraph (e) hereof, its assets, after
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payment of its liabilities, shall, upon petition of the Entering into contracts or negotiations for
SEC with the appropriate court, be forfeited in lease or sale of properties to be used as
favor of the national government. Such forfeiture business or factory site;
shall be without prejudice to the rights of innocent Making plans for and the construction of the
stockholders and employees for services factory; and
rendered, and to the application of other penalty Taking steps to expedite the construction of
or sanction under this Code or other laws. (Sec.
138)
In the event of failure to file for an extension if a
The SEC shall give reasonable notice to, and
a
coordinate with, the appropriate regulatory
revival of its corporate existence, together with all
agency prior to the involuntary dissolution of
the rights and privileges under its certificate of
companies under their special regulatory
incorporation and subject to all of its duties, debts
jurisdiction.(Sec. 138)
and liabilities existing prior to its revival. Upon
approval by the SEC, the corporation shall be
Non-use of corporate charter (Sec. 21)
deemed revived and a certificate of revival of
If a corporation does not formally organize and
corporate existence shall be issued, giving it
commence its business within 5 years
perpetual existence, unless its application for
Effect: certificate of incorporation shall be
revival provides otherwise.
deemed revoked following the end of
the 5-year period Demands of Minority for Dissolution
Corporate dissolution due to mismanagement of
Continuous Inoperation (Sec. 21) majority stockholder is too drastic a remedy,
If a corporation has commenced its business but especially when the situation can be remedied
subsequently becomes inoperative for a period of such as giving minority stockholders a veto power
at least 5 consecutive years to any decision (Chase v. Buencamino, G.R. No.
Effect: after due notice and hearing, the 20395, 1985).
corporation will be put on delinquent
status Effects of Dissolution
Remedy: it shall have a period of 2 years (a) Vesting of legal title to the corporate property
to resume operations. Otherwise, in the stockholders, who become co-owners
certificate of incorporation will likewise be thereof
revoked. (b) The corporation ceases to be a body
corporate to continue the business for which
it was established.
Adoption of the by-laws and the filing and
approval of the same with and by the SEC if The termination of the life of a juridical entity does
the same were not adopted and filed not by itself cause the extinction or diminution of
simultaneously with the articles of the rights and liability of such entity, since it is
incorporation; allowed to continue as a juridical entity for three
Election of the Board of Directors or Trustees (3) years for the purpose of prosecuting and
and of the officers; defending suits by or against it and enabling it to
Establishment of the principal office; and settle and close its affairs, to dispose of and
Providing for the subscription and payment of convey its property, and to distribute its assets
(Republic v. Tancinco, G.R. No. 139256, 2002).
the capital stock and the taking of such steps
as are necessary to endow the legal entity
A board resolution to dissolve the corporation
with capacity to transact the legitimate does not operate to so dissolve the juridical entity.
business for which it was created requirements
mandated by the Corporation Code should have
(Vesagas v. Court of
When the corporation has performed preparatory Appeals, G.R. No. 142924, 2001)
acts geared towards the fulfillment of the
purposes for which it was established such as but When the period of corporate life expires, the
not limited to the following: corporation ceases to be a body corporate for the
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purpose of continuing the business for which it designation of the trustee is made within said
was organized (PNB v. Court of First Instance of period.
Rizal, Pasig, Br. XXI, G.R. No. 63201, 1992).
c. Through Receiver created by means of
judicial or quasi-judicial appointment of the
existing or dissolved, is a property right which he receiver. The receiver is actually an officer of
may vindicate against another party who has the court and must therefore be accountable
deprived him thereof.
to the court.
Stockholders may convey their respective
Note: If there is no Board of Directors or
shareholdings toward the creation of a new
Trustees, those having pecuniary interest in the
corporation to continue the business of the old or
assets, including not only the shareholders but
they may reincorporate by filing new articles of
likewise the creditors of the corporation, acting for
incorporation and by-laws.
and in its behalf, may liquidate
B. Methods of Liquidation
2014)
Liquidation
Process by which all the assets of the corporation d. Liquidation after Three Years
are converted into liquid assets in order to
facilitate the payment of obligations to creditors, If full liquidation can only be effected after the 3-
and the remaining balance if any is to be year period and there is no trustee, the directors
distributed to the stockholders. may be permitted to complete the liquidation by
continuing as trustees by legal implication
There is no time limit within which the (Reburiano v. CA, G.R. No. 102965, 1999).
trustees must complete a liquidation placed in
their hands (Vigilla et.al. v. Philippine College of The trustee may continue to prosecute a case
Criminology, G.R. No. 200094, 2013). commenced by the corporation within three years
from its dissolution until rendition of the final
Modes of Liquidation judgment, even if such judgment is rendered
beyond the three-year period allowed by Section
a. Through Board of Directors or Trustees [139]. However, an already defunct corporation
normal method of procedure cannot initiate a suit after the lapse of the three-
year period.
Even if no trustee is appointed or designated
during the three-year period of the liquidation of
Note: When a corporation threatened by
the corporation, the Court has held that the Board
of Directors may be permitted to complete the bankruptcy is taken over by a receiver, all the
corporate liquidation by continuing as trustees by creditors shall stand on equal footing. Not one of
legal implication (Vigilla et al. v Philippine College them should be given preference by paying one
of Criminology, G.R. No. 200094, 2013) or some of them ahead of the others.
Note: This only concerns the matters/actions that The Civil Code provisions on concurrence and
are initiated during the 3 year grace period. The preference of credits are applicable to the
Board cannot be considered as trustees for liquidation proceedings.
matters initiated after the 3-year period.
A corporation in the process of liquidation has no
b. Through Trustee at any time during the legal authority to engage in any new business,
even if the same is in accordance with the primary
three years of liquidation, a corporation is
purpose stated in its articles of incorporation.
authorized and empowered to convey all of
its property to trustees for the benefit of When a Corporation Must Wind Up (Sec. 139)
stockholders, members, creditors, and other If it is dissolved by:
persons in interest. The three (3)-year a. By expiry of term or
limitation will not apply provided the b. Is annulled by forfeiture, or
otherwise, or
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c. Is terminated In any other

manner Notwithstanding the foregoing, a corporation shall
not be deemed a close corporation when at least
Effects of Winding Up of Affairs: (Sec. 139) two-thirds (2/3) of its voting stock or voting rights
a. Continues as a corporate body for 3 is owned or controlled by another corporation
years to prosecute and defend suits which is not a close corporation within the
against it, close its affairs, dispose and meaning of the Corporation Code. (Sec. 95)
convey its property and distribute assets
Suppletory Effect
b. Cannot continue business for which it
The provisions of other Titles of the Corporation
was established
Code shall apply suppletorily except insofar as
c. Can convey property to trustees for the Title of Close Corporation otherwise provides.
benefit of the stockholders/members, (Sec. 95)
creditors and other persons in interest
i. Legal interest vests in Management of a close corporation
business 1. The articles of incorporation of a close
ii. Beneficial interest remains corporation may provide that the business of
with stockholders/ the corporation shall be managed by the
members, creditors stockholders of the corporation rather than by
d. Assets distributable to unknown a board of directors.
creditors, stockholders/ members, a. When they manage, stockholders are
persons in interest or those who cannot liable as directors;
be found shall be escheated to the city or b. There is no need to call a meeting to elect
municipality where the assets are directors;
located. c. To the extent that the stockholders are
e. Distribution of assets only upon lawful actively engaged in the management,
dissolution and payment of all debts and said stockholders shall be liable for
liabilities. corporate torts unless the corporation
Exceptions: has obtained reasonably adequate
a. Decrease of capital stock liability insurance.
b. As otherwise allowed in the
Corporation Code Companies That Cannot Be Close
Corporations (MIPES-BOO)
12. OTHER CORPORATIONS a. Mining companies;
b. Insurance companies;
A. Close Corporations c. Public utilities;
d. Educational institutions;
i. Characteristics of a close corporation e. Stock exchanges;
f. Banks;
A close corporation, within the meaning of the g. Oil companies;
Corporation Code, is one whose articles of h. Other corporations declared to be vested with
incorporation provides that: public interest.
1. All the corporation's issued stock of all
classes, exclusive of treasury shares, shall ii. Validity Of Restrictions On Transfers Of
be held of record by not more than a specified Shares (Sec 97)
number of persons, not exceeding twenty Restrictions on the right to transfer shares must
(20) appear in:
2. All the issued stock of all classes shall be 1. The articles of incorporation;
subject to one or more specified restrictions 2. The by-laws; and
on transfer permitted by this Title 3. In the certificate of stock
3. The corporation shall not list in any stock
exchange or make any public offering of any Otherwise, the same shall not be binding on any
of its stock of any class. purchaser thereof in good faith.
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Said restrictions shall not be more onerous than permitted under its articles of
granting the existing stockholders or the incorporation; or
corporation the option to purchase the shares of 3. that the transfer violates a restriction on
the transferring stockholder with such reasonable transfer of stock, and the corporation
terms, conditions or period stated therein. may, at its option, refuse to register the
transfer in the name of the transferee.
If upon the expiration of said period, the existing
stockholders or the corporation fails to exercise
(e) The provisions of subsection (d) shall not
the option to purchase, the transferring
be applicable if the transfer of stock, though
stockholder may sell his shares to any third
contrary to subsections (a), (b) or (c), has been
person.
consented to by all the stockholders of the close
corporation, or if the close corporation has
iii. Effects of Issuance or Transfer of Stock in
amended its articles of incorporation in
Breach of Qualifying Conditions.
accordance with this Title.
(a) If shares of stock of a close corporation
(f)
are issued or transferred to any person who is not
section, is not limited to a transfer for
eligible to be a holder thereof under any provision
value.
of the articles of incorporation, and if the
certificate for such stock conspicuously shows
(g) The provisions of this section shall not
the qualifications of the persons entitled to be
impair any right which the transferee may have to
holders of record thereof, such person is
either rescind the transfer or recover the stock
conclusively presumed to have notice of the
under any express or implied warranty. (Sec. 98)
fact of the ineligibility to be a stockholder.
Note: Even if the transfer of shares is made in
(b) If the articles of incorporation of a close
violation of the restrictions enumerated under
corporation states the number of persons, not
[Sec. 98 of RCC], such transfer is still valid if it
exceeding twenty (20), who are entitled to be
has been consented to by all the shareholders of
stockholders of record, and if the certificate for
the close corporation and the corporation cannot
such stock conspicuously states such number,
refuse to register the transfer of shares in the
and the issuance or transfer of stock to any
name of the transferee. (Florete, Sr. v. Florete,
person would cause the stock to be held by more
Jr., G.R. No. 223321, 2018)
than such number of persons, the person to
whom such stock is issued or transferred is
Need for factual determination of close
conclusively presumed to have notice of this
corporation to apply
fact.
Before courts can allow the operation of Section
98 to a case, there must first be a factual
(c) If a stock certificate of a close corporation
determination that the corporation is indeed a
conspicuously shows a restriction on transfer of
close corporation. There needs to be a
presentation of evidence on the relevant
acquires the stock in violation of such restriction,
restrictions in the articles of incorporation and by-
the transferee is conclusively presumed to have
laws of the corporation. (Rural Bank of Andaya v.
notice of the fact that the stock was acquired
Cabadbaran, G.R. No. 188769, 2016)
in violation of the restriction.
iv. When board meeting is unnecessary or
(d) Whenever a person to whom stock of a
improperly held (Sec. 100)
close corporation has been issued or transferred
has or is conclusively presumed under this
General Rule: Any action taken by the directors
section to have notice of:
without a board meeting shall be deemed
1.
INVALID.
stockholder of the corporation; or
2. that the transfer of stock would cause the Exception: The following shall nonetheless be
stock of the corporation to be held by valid despite the lack of a valid board meeting,
more than the number of persons unless the by-laws provide otherwise
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1. Before or after such action is taken, a vii. Deadlocks (Sec. 103)

written consent thereto is signed by all
the directors; or Power To Buy-Back Shares Of Close
2. All the stockholders have actual or Corporations v. Appraisal Right In Stock
implied knowledge of the action and Corporations
make no prompt objection in writing; or CLOSE CLOSE STOCK
3. The directors are accustomed to take CORP CORP CORP
informal action with the express or Sec. 103 Sec. 104
implied acquiescence of all the (Deadlocks) (Withdrawal)
stockholders; or Exercised by Exercised by Exercised by
4. All the directors have express or implied the the the
knowledge of the action in question and corporation stockholder stockholder
none of them makes a prompt objection There are
in writing. certain
Exercisable
Exercisable instances
An action within the corporate powers taken at only in a
for any where
a meeting held without proper call or notice, is deadlock
reason appraisal
deemed ratified by a director who failed to situation
rights can be
attend, unless after having knowledge thereof, exercised
the director promptly files his written objection
Can be
with the secretary of the corporation.
directed
Available Available
v. Pre-Emptive Rights Of Stockholders In either against
only against only against
Close Corporations (Sec 101) the
the the
corporation
corporation corporation
General Rule: It shall extend to all stock to be or any other
issued, including reissuance of treasury shares, stockholder
whether for money, property or personal services, Available Limited only Unrestricted
or in payment of corporate debts even without in a situation retained
unrestricted when the earnings are
Exception: Unless the articles of incorporation retained corporation required for
provide otherwise. earnings and has sufficient buyback to
not subject to assets in its happen,
vi. Amendment of the articles of incorporation
any formula books generally
(Sec. 102)
Any amendment to the articles of incorporation Compelling Dissolution In Close

which seeks to delete or remove any provision Corporations v. Stock Corporations
required by this Title or to reduce a quorum or CLOSE CLOSE STOCK
voting requirement stated in said articles of CORP CORP CORP
incorporation shall require the affirmative vote Sec. 104 Sec. 105
of at least two- thirds (2/3) of the outstanding SEC is given
capital stock, whether with or without voting express Majority of
rights, or of such greater proportion of shares as power to A stockholder the Board
may be specifically provided in the articles of
dissolve a must make a plus 2/3
incorporation for amending, deleting or removing
any of the aforesaid provisions, at a meeting duly close written stockholder
called for the purpose. corporation petition to the vote is
when there is dissolution required for
a deadlock dissolution
situation
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B. Non-Stock Corporations
The incurring of profit or losses does not
i. Definition determine whether an activity is for profit or non-
A non-stock corporation is one where no part of profit, and the courts will consider whether
its income is distributable as dividends to its dividends have been declared or its members or
members, trustees, or officers, subject to the that is property, effects or profit was ever used for
provisions of the Corporation Code on dissolution personal or individual gain, and not for the
purpose of carrying out the objectives of the
Any profit which a non-stock corporation may enterprise (Manila Sanitarium and Hospital v.
obtain as an incident to its operations shall, Gabuco, G.R. No. 13873, 1963).
whenever necessary or proper, be used for the
furtherance of the purpose or purposes for which In a mutual life insurance corporation, organized
the corporation was organized, subject to the as a non-stock nonprofit corporation, the so-
provisions of this Title. (Sec. 86) ved by members-
policyholders is not a portion of profits set aside
Requisites: for distribution to the stockholders in proportion to
1. Does not have a capital stock divided into their subscription to the capital stock of a
share corporation. One, a mutual company has no
2. No part of its income is distributable as capital stock to which subscription is necessary;
dividends to its member there are no stockholders to speak of, but only
3. They must be formed or organized for members. And, two, the amount they receive
purposes specified in Sec. 87 does not partake of the nature of a profit or
income. The quasi-appearance of profit will not
change its character; it remains an overpayment,
Conversion between Stock and Non-Stock
a benefit to which the member-policyholder is
Corporation
equitably entitled (Republic v. Sunlife Assurance
A non-stock corporation cannot be converted into
Company of Canada, GR No. 158085, 2005).
a stock corporation through mere amendment of
its Articles of Incorporation as this would be in
Delinquency in Membership Dues of Non-
violation of Section 87 which prohibits distribution
Stock Corporations
of income as dividends to members. (SEC
A non-stock corporation may seize and dispose
Opinion, 20 March 1995) However, a non-stock
of the membership share of a fully-paid member
corporation can be converted into a stock
on account of his unpaid monthly dues, when
corporation only if the members dissolve it first
such corporation is authorized to do so under the
and then organize a stock corporation. The result
by-laws, even when no provision on the matter
is a new corporation. (SEC Opinion, 13 May
appears in the articles of incorporation, and in
1992)
spite of the fact that Sec. 67 of Corporation Code
on delinquency sale pertains to payment of
On the other hand, a stock corporation may be
shares subscription. (Valley Golf v. De Caram,
converted into a non-stock corporation by mere
G.R. No. 155805, 2000)
amendment provided all the requirements are
complied with. Its rights and liabilities will remain.
Theory on Non-Stock Corporations

A non-stock corporation may only be formed or
organized for charitable, religious, educational,
professional, cultural, fraternal, literary, scientific,
social, civic or other similar purposes. It may not
engage in undertakings such as the investment
business where profit is the main or underlying
purpose. Although the non-stock corporation may
obtain profits as an incident to its operation such
profits are not to be distributed among its
members but must be used for the furtherance of
its purposes (People v. Menil, G.R. No. 115054-
66, 1999).
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Comparative Table: Stock v. Non-Stock explanation if its articles or by-laws provide for
Corporations more than 15 members of the Board. (Sec. 91)
STOCK CORP NON-STOCK CORP
Can they earn profit? Term
Trustees shall hold office for a period of three (3)
Yes Yes
years until their successors are elected and
Distribution of Dividends qualified (Sec. 91)
Yes No
Qualifications of Trustees
Stockholders Members Only ONE qualification under Sec. 92:
Limitation to Purpose Membership in the corporation. Nonetheless, the
May not include a member who may be elected as trustee may just
There can be purpose which would be a nominee. A trustee who ceases to be a
secondary purposes change or contradict member of the corporation can no longer act as a
trustee.
its nature in AOI
Kind of Board Note: An independent trustee of a non-stock
Board of Directors Board of Trustees corporation vested with public interest need not
Number of Board Members be a member of such non-stock corporation (Sec.
may be more than 15 91)
must not be more
EXC: special
than 15
corporations For stock corporations, the "quorum" referred to
Term of Board Members in Section 52 of the Corporation Code is based on
3 years, but AOI or the number of outstanding voting stocks. For
by-laws may provide nonstock corporations, only those who are actual,
otherwise living members with voting rights shall be counted
1 year in determining the existence of a quorum during
5 years - educational members' meetings. Dead members shall not be
Constant terms counted. (Tan v. Sycip, G.R. No. 153468 August
institutions
17, 2006)
Staggered terms
How Board Members are Elected ii. Purposes
A non-stock corporation may be formed or
Directly elected by
Elected by the organized for the following purposes:
the members, unless a. Charitable,
stockholders (per
AOI provides b. Religious,
Corp. Code)
otherwise c. Educational,
Manner of Voting d. Professional,
Straight voting, e. Cultural,
Straight or cumulative unless AOI or by- f. Recreation,
voting laws provide g. Fraternal,
otherwise h. Literary,
Can a stockholder/member disengage i. Scientific,
from the corporation? j. Social,
Can sell to other Articles or by-laws k. Civic Service,
stockholders OR specifically provide l. Similar purposes, like trade, industry,
exercise of appraisal for the method of agriculture and like chambers, or
rights termination m. Any combination of thereof (Sec. 87)
Number of Trustees In the Articles of Incorporation, a non-stock

A non-stock corporation may OR may not have corporation may not include a purpose which
more than 15 trustees. would change or contradict its nature as such.
NOTE: However, SEC has adopted a policy of

requiring registrant corporations to submit an
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iii. Treatment Of Profits 2. Assets held by the corporation upon a

Non-stock non-profit corporations may actually condition requiring return, transfer or
earn profits incidentally from its operations, conveyance, and which condition occurs
provided that the profits are devoted to their by reason of the dissolution, shall be
purpose. returned, transferred or conveyed in
accordance with such requirements;
The mere fact that a non-stock corporation may
3. Assets received and held by the
earn profit does not make it a profit-making
corporation subject to limitations
corporation, where such profit is used to carry out
the purposes set forth in the Articles of permitting their use only for charitable,
Incorporation and is not distributed to its religious, benevolent, educational or
incorporators, members, trustees, or officers. similar purposes, but not held upon a
(SEC Opinion, 13 November 1990, XXIV SEC condition requiring return, transfer or
Quarterly Bulletin 63) conveyance by reason of the dissolution,
shall be transferred or conveyed to one
Note: or more corporations, societies or
Despite its nomenclature, the essence of a non- organizations engaged in activities in the
stock non-profit corporation is not the non- Philippines substantially similar to those
existence of shares of stock to cover its capital (it of the dissolving corporation according to
is legally possible for a corporation having capital a plan of distribution adopted pursuant to
stock to still be considered a non-stock
this Chapter;
corporation), but that:
a. Its primary purpose should be any of those 4. Assets other than those mentioned in the
under Sec. 88 of the Corporation Code, and preceding paragraphs, if any, shall be
b. There is a prohibition in the articles of distributed in accordance with the
incorporation and by-laws that no part of the provisions of the articles of incorporation
income or any form of dividend is or the by-laws, to the extent that the
distributable to the members, trustees, and articles of incorporation or the by-laws,
officers of the corporation (CIR v. Club determine the distributive rights of
Filipino Inc. de Cebu, G.R. No. L-12719, members, or any class or classes of
1962) members, or provide for distribution; and
Even though the corporation 5. In any other case, assets may be
may incidentally earn profits distributed to such persons, societies,
from its operations. (CIR v. organizations or corporations, whether or
University of Visayas, G.R. No. not organized for profit, as may be
L-13554, 1961) specified in a plan of distribution adopted
pursuant to this Chapter.(Sec. 93)
iv. Plan and Distribution of Assets upon
Dissolution Plan of Distribution of Assets
A non-stock corporation in the process of
Rules of Distribution of Assets upon dissolution may adopt a plan providing for the
Dissolution distribution of assets, not inconsistent with the
The assets of a nonstock corporation undergoing RCC, in the following manner:
the process of dissolution for reasons other than
those set forth in Section 139 of the RCC (every 1. The board of trustees shall, by majority
corporation whose charter expires pursuant to its vote, adopt a resolution recommending a
articles of incorporation, is annulled by forfeiture, plan of distribution and directing the
or whose corporate existence is terminated in any submission thereof to a vote at a regular
other manner) shall be applied and distributed as or special meeting of members having
follows: voting rights;
1. All liabilities and obligations of the 2. Each member entitled to vote shall be
corporation shall be paid, satisfied and given a written notice setting forth the
discharged, or adequate provision shall proposed plan of distribution or a
be made therefore; summary thereof and the date, time and
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place of such meeting within the time and

in the manner provided in this Code for Term of Office
the giving of notice of meetings; and Unless otherwise provided in the articles of
3. Such plan of distribution shall be adopted incorporation or bylaws, the board of trustees of
upon approval of at least two-thirds (2/3) incorporated schools, colleges, or other
of the members having voting rights institutions of learning shall, as soon as
organized, so classify themselves that the term of
present or represented by proxy at such
office of one- fifth (1/5) of their number shall
meeting.
expire every year. Trustees thereafter elected to
fill vacancies, occurring before the expiration of a
Note: particular term, shall hold office only for the
Although a non-stock corporation cannot unexpired period. Trustees elected thereafter to
distribute incidental profits or dividends to its fill vacancies caused by expiration of term shall
members, trustees and officers during its hold office for five (5) years. (Sec. 106)
corporate term, in the event of dissolution, after
the payment of all liabilities and return of assets Note: For institutions organized as stock
received subject to limitations permitting their corporations, the number and term of directors
use, the remaining assets may be distributed to shall be governed by the provisions on stock
the members, as provided for in the articles of corporations.(Sec. 106)
incorporation of by-laws.
Quorum
In the absence of distribution rules, the remaining A majority of the trustees shall constitute a
assets may be distributed to such persons, quorum for the transaction of business. The
societies, organizations, or corporations, powers and authority of trustees shall be defined
whether or not organized for profit, as may be in the bylaws.(Sec. 106)
specified in a plan of distribution as adopted by
the Board of Trustees and ratified by the 1987 Constitution Provisions
members.
shall give priority to education [...] to foster
In a regular non-stock corporation it is possible for patriotism and nationalism, accelerate social
progress, and promote total human liberation and
operations, to inure to the benefit of private
individuals (e.g., its own members) or entities,
but only as a consequence of dissolution. Article XIV, Sec. 4 of the Constitution requires:
1. That educational institutions shall be:
Suppletory Effect a. Solely owned by Filipino
The provisions governing stock corporation,
citizens; OR
when pertinent, shall be applicable to non-stock
b. If owned by a corporation, at
corporations, except as may be covered by
specific provisions of this Title. least 60% of the capital must be
owned by Filipino citizens.
C. Educational Corporations 2. The control and administration shall be
vested in citizens of the Philippines.
Educational corporations shall be governed by: 3. No educational institution shall be
1. established exclusively for aliens. The
60% ownership requirement does not
2. General provisions of the Revised apply to the following:
Corporation Code (Sec. 105) a. Educational institutions
established by religious groups
Board of Trustees of Educational and mission boards;
Corporations b. Schools established for foreign
Trustees of educational institutions organized as diplomatic personnel and their
nonstock corporations shall not be less than five dependents;
(5) nor more than fifteen (15): Provided, That the
number of trustees shall be in multiples of five
(5).(Sec 106)
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c.Other foreign temporary 4. The manner by which any vacancy

residents (unless otherwise occurring in the office of chief
provided by law) archbishop, bishop, priest, minister,
4. No group of aliens shall comprise more rabbi, or presiding elder is required to be
filled, according to the rules, regulations
or discipline of the religious
D. Religious Corporations denomination, sect or church; and
5. The place where the principal office of the
i. Corporation Sole; Nationality corporation sole is to be established and
Special form of corporation, usually associated located, which place must be within the
with the clergy and consists of one person only
territory of the Philippines.
and his successors, who are incorporated by law
to give some legal capacities and advantages. 6. The articles of incorporation may include
any other provision not contrary to law for
A corporation sole does not have any nationality the regulation of the affairs of the
but for purposes of applying our nationalization corporation. (Sec. 109)
laws, nationality is determined by the nationality
of the members (Roman Catholic Apostolic Note: The articles must be verified by affidavit or
Church v. LRC, G.R. No. 8451, 1957). affirmation of presiding elder. Document that
such presiding elder was duly elected or
Composition appointed as such and this document must be
A corporation sole may be formed by the chief certified by notary public. (Sec. 110)
archbishop, bishop, priest, minister, rabbi, or
other presiding elder of such religious Acquisition and Alienation of Property
denomination, sect or church, for the purpose of A corporation sole may purchase and hold real
administering and managing, as trustee, the estate and personal property for its church,
affairs, property and temporalities of any religious charitable, benevolent, or educational purposes,
denomination, sect or church. and may receive bequests or gifts for such
purposes. (Sec. 111)
Articles of Incorporation: Contents
In order to become a corporation sole, the chief Such corporation may sell or mortgage real
archbishop, bishop, priest, minister, rabbi, or property held by it by obtaining an order for that
presiding elder of any religious denomination, purpose from the Regional Trial Court of the
sect or church must file with the SEC articles of province where the property is situated upon
incorporation setting forth the following: proof that the notice of the application for leave to
1. That the applicant chief archbishop, sell or mortgage has been made through
bishop, priest, minister, rabbi, or publication or as directed by the Court, and that it
presiding elder represents the religious is in the interest of the corporation that leave to
denomination, sect or church which sell or mortgage be granted. (Sec. 111)
desires to become a corporation sole;
Note: In cases where the rules, regulations, and
2. That the rules, regulations and discipline
discipline of the religious denomination, sect or
of the religious denomination, sect or church, religious society, or order concerned
church are consistent with becoming a represented by such corporation sole regulate the
corporation sole and do not forbid it; method of acquiring, holding, selling, and
3. That such chief archbishop, bishop, mortgaging real estate and personal property,
priest, minister, rabbi, or presiding elder such rules, regulations and discipline shall
is charged with the administration of the govern, and the intervention of the courts shall not
temporalities and the management of the be necessary. (Sec. 111)
affairs, estate and properties of the
religious denomination, sect, or church The doctrine in Republic v. Villanueva (G.R. No.
within the territorial jurisdiction, so 55418-19, 1982) and Republic v. Iglesia ni Cristo
described succinctly in the articles of (G.R. No. 180067, 1984), that a corporation
sole is disqualified to acquire/hold alienable
incorporation
lands of the public domain, because of the
constitutional prohibition qualifying only
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individuals to acquire land and the provision Exception: As otherwise provided by special
under the Public Land Act which applied only to law.
Filipino citizens or natural persons, has been
expressly overturned in Director of Lands v. Note: Unless required by applicable laws or
IAC (G.R. No. 66575 1986). regulations, no portion of the authorized capital is
required to be paid up at the time of incorporation.
A registered corporation sole can acquire land if (SEC Circular No. 7, Series of 2019)
its members constitute at least 60% Filipinos.
(SEC Opinion, 8 August 1994) iii. Articles of incorporation and by-laws
Dissolution of a Corporation Sole Requirements for filing the Articles of

A corporation sole may be dissolved and its Incorporation:
affairs settled voluntarily by submitting to the SEC i. In accordance with Sec. 14 of the RCC.
a verified declaration of dissolution, setting forth: ii. If the single stockholder is a trust or an
1. The name of the corporation; estate - the name, nationality, and
2. The reason for dissolution and winding residence of the trustee, administrator,
up; executor, guardian, conservator,
3. The authorization for the dissolution of custodian, or other person exercising
the corporation by the particular religious fiduciary duties together with the proof
denomination, sect or church; and of such authority to act on behalf of the
4. The names and addresses of the trust or estate
persons who are to supervise the winding iii. Name, nationality, residence of the
up of the affairs of the corporation. nominee and alternate nominee, and
the extent, coverage and limitation of
Upon approval of such declaration of dissolution the authority. (Sec. 118)
by the SEC, the corporation shall cease to carry
on its operations except for the purpose of Note: OPCs are NOT required to file their
winding up its affairs. (Sec. 113) corporate bylaws. (Sec. 119)
E. One Person Corporations iv. Corporate name
i. Excepted Corporations It should Indicate the

or at the end of their corporate name. (Sec. 120)
The following are not allowed to incorporate as
OPC: v. Corporate structure and officers
a. Banks,
b. Non-bank financial institutions, One Person Corporation (OPC) (Sec. 116)
c. Quasi-banks, - a corporation with a single stockholder
d. Pre-need,
e. Trust, Who may form?
f. Insurance public and publicly listed 1. Natural person must be of legal age
companies, a. A foreign natural person may
g. Non-chartered GOCCs; and put up an OPC subject to
h. Natural person who is licensed to applicable capital requirement
exercise a profession may not organize and constitutional and statutory
an OPC for the purpose of exercising restrictions on foreign
such a profession. EXC: unless participation in certain
otherwise provided by special laws. (Sec. investment areas or activities
116) (SEC Memorandum 7-2019)
b. Trust does not refer to a trust
ii. Capital stock requirement (Sec. 117) entity, but the subject being
managed by a trustee. If the
General Rule: A One Person Corporation is not single stockholder is a trustee,
required to have a minimum authorized capital administrator, executor,
stock. guardian, conservator,
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custodian, or other person BOND REQUIREMENT as per SEC

exercising fiduciary duties Memorandum 7-2019:
i. proof of authority to act on ACS Surety Bond
behalf of the trust or estate Coverage
must be submitted at the 1 to 1,000,000 1,000,000
time of incorporation (SEC 1,000,001 to 2,000,000 2,000,000
Memorandum 7-2019) 2,000,001 to 3,000,000 3,000,000
c. Estate 3,000,001 to 4,000,000 4,000,000
4,000,001 to 5,000,000 5,000,000
Who may NOT form?
5,000,001 and above Equal to the
1. Banks and quasi-banks, non-bank
financial institutions (SEC Memorandum
7-2019)
2. Pre-need, trust, insurance, public and Bond shall be renewed every two (2)
publicly-listed companies years or as often as may be required,
3. Non-chartered government-owned and - upon review of the Audited Financial
controlled Statements/ Financial Statements
4. Natural person who is licensed to certified under oath by the
exercise a profession to form an OPC for
the purpose of exercising such Bond is a continuing requirement as
profession long as the single stockholder is the
self-appointed Treasurer of the OPC
Exception: as provided under special laws Bond may be cancelled upon proof of
appointment of another person as
The single stockholder shall be the sole director the Treasurer and Filing of Amended
and president of the One Person Corporation. Form for Appointment of Officers
(Sec. 121) 2. Undertake in writing to faithfully
When to appoint officers? (Sec. 122) funds to be received as treasurer

Within fifteen (15) days from the issuance of its 3. To disburse and invest the same
certificate of incorporation according to the articles of incorporation
as approved by the SEC
Who to appoint?
a. Treasurer Special Functions of the Corporate
b. Corporate secretary Secretary(Sec. 123)
c. Other officers as may be deemed necessary In addition to the functions designated by the One
Person Corporation, the corporate secretary
Who and when to notify? shall:
Securities and Exchange Commission (SEC) 1. Be responsible for maintaining the
- within five (5) days from appointment minutes book and/or records of the
- using the Appointment Form as may be corporation
prescribed by the SEC (SEC Memorandum 2. Notify the nominee or alternate
7-2019) nominee of the death or incapacity of the
single stockholder
Single stockholder allowed? i. notice shall be given no
- Corporate secretary NO later than five (5) days from
- Treasurer YES such occurrence
- Conditions: 3. Notify the SEC of the death of the
1. Give bond to the SEC in such a sum single stockholder
as may be required i. within five (5) days from
such occurrence
ii. state the names, residence
addresses, and contact
details of all known legal
heirs
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4. Call the nominee or alternate 2. Death or Permanent - until the legal heirs
nominee and the known legal heirs to a of the single stockholder have been lawfully
meeting and advise the legal heirs with determined, and the heirs have designated one of
regard to: them or have agreed that the estate shall be the
i. the election of a new single stockholder of the One Person Corporation
director
ii. amendment of the articles Alternate Nominee
of incorporation - shall sit as director and manage the One
iii. other ancillary and/or
consequential matters inability, incapacity, death, or refusal to
discharge the functions as director and
manager of the corporation
vi. Nominee
- for the same term and under the same
1. designated by a single stockholder
conditions applicable to the nominee
2.
death or incapacity, nominee takes the
Minimum Capital Stock Required for One
place of the single stockholder as director
Person Corporation (Sec. 117)
affairs
General rule: No minimum authorized capital
3. written consent of both nominee and
stock
alternate nominee (SEC Memorandum 7-
2019) to be attached in the application
Exception: as otherwise provided by special law
of incorporation
a. may be withdrawn in writing any
Required Paid Up Capital (SEC Memorandum
time before the death or
7-2019)
incapacity of the single
stockholder
General rule: No portion of authorized capital
4. may be changed at any time
stock is required to be paid up at the time of
a. by submitting to the SEC the
incorporation
names of the new nominees and
their corresponding written
Exception: as otherwise required by applicable
consent
laws or regulations
b. Articles of Incorporation need
NOT be amended (SEC
vii. Minutes and records
Memorandum 7-2019)
A One Person Corporation shall maintain a
minutes book which shall contain all actions,
What shall be contained in articles of
decisions, and resolutions taken by the One
incorporation with regard to the nominee and
Person Corporation. (Sec. 127)
alternate nominee?
a. names
When action is needed on any matter, it shall be
b. residence addresses
sufficient to prepare a written resolution, signed
c. contact details
and dated by the single stockholder, and
d. extent and limitations of their authority in
recorded in the minutes book of the One Person
managing the affairs of the One Person
Corporation. The date of recording in the minutes
Corporation.
book shall be deemed to be the date of the
meeting for all purposes under this Code. (Sec.
Term of Nominee and Alternate Nominee (Sec.
128)
125)
viii. Liability (Sec. 130)
Incapacity of the single stockholder:
1. Temporary - until the stockholder, by self
A sole shareholder claiming limited liability has
determination, regains the capacity to assume
the burden of affirmatively showing that:
such duties.
1. the corporation was adequately financed.
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2. the property of the One Person

Corporation is independent of the date of conversion.
F. Foreign Corporations
The principles of piercing the corporate veil
applies with equal force to One Person A corporation formed, organized or existing under
Corporations as with other corporations any law other than those of the Philippines, and
whose laws allow Filipino citizens and
ix. Conversion of corporation to OPC and corporations to do business in its own country or
vice-versa state. (Sec. 140)
Conversion from an Ordinary Corporation to A foreign corporation is one which owes its
a OPC (Sec. 131) existence to the laws of another state, and
generally, has no legal existence within the state
When a single stockholder acquires all the stocks in which it is foreign (Avon Insurance PLC v.
of an ordinary stock corporation, the latter may Court of Appeals, G.R. No. 97642, 1997).
apply for conversion into a OPC, subject to the
submission of such documents as the SEC may A fundamental rule of international jurisdiction is
require. If the application for conversion is that no state can by its laws, and no court which
approved, the SEC shall issue certificate of filing is only a creature of the state, can by its
of amended articles of incorporation reflecting the judgments and decrees, directly bind or affect
conversion. property or persons beyond the limits of that state
(Time, Inc. v. Reyes, GR No. 28882, 1971).
Conversion from an OPC to an Ordinary Stock
Corporation (Sec. 132) i. Bases of Authority over Foreign
Corporations
A One Person Corporation may be converted into
an ordinary stock corporation after due notice to 1. Consent - It is the voluntary surrender of
the SEC of such fact and of the circumstances jurisdiction over its person in a pending suit
leading to the conversion, and after compliance before the host state (Salonga, Private
with all other requirements for stock corporations International Law, 1979 ed., p.344).
under this Code and applicable rules. Such notice
shall be filed with the SEC within sixty (60) days
from the occurrence of the circumstances leading Corporations - Continuity of commercial
to the conversion into an ordinary stock dealings incident to prosecution of purpose and
corporation. If all requirements have been object of the organization. Isolated, occasional or
complied with, the SEC shall issue an amended casual transactions do not amount to engaging in
certificate of incorporation reflecting the business. But where the isolated act is not
conversion. incidental/casual but indicates the foreign
corpo
In case of death of the single stockholder, the single act constitutes engaging in business in the
nominee or alternate nominee shall transfer the Philippines.
shares to the duly designated legal heir or estate
within seven (7) days from receipt of either an
affidavit of heirship or self- adjudication executed
by a sole heir, or any other legal document a. Isolated Transactions Test: where a foreign
declaring the legal heirs of the single stockholder corporation needs to obtain a license and
and notify the SEC of the transfer. Within sixty fails to do so, whether it should be denied
(60) days from the transfer of the shares, the legal legal standing to obtain remedies from local
heirs shall notify the SEC of their decision to courts and administrative agencies or not,
either wind up and dissolve the One Person depends therefore on the issue whether it will
Corporation or convert it into an ordinary stock engage in business in the Philippines. Not
corporation.
every activity undertaken in the Philippines
amounts to doing business as to require a
Note: The Converted Corporations shall succeed
the former corporation and be legally responsible foreign corporation to obtain such license.
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business subjecting the parties to local

Single or isolated acts, contracts, or transactions registration and licensing requirements
of foreign corporations are not regarded as a (Pacific Vegetable Oil Corp. v Singzon, G.R.
doing or carrying on of business. Typical No. 7917, 1955)
examples of these are the making of a single
contract, sale, sale with the taking of a note and
mortgage in the state to secure payment thereof, Investment Act and IRR
purchase, or note, or the mere commission of a
tort. In these instances, there is no purpose to do - Includes:
any other business within the country (MR. a. Soliciting orders, service contracts, opening
Holdings, Ltd. V. Bajar, G.R. No. 138104, 2002).
branches;
BUT: Where a single act or transaction is not
b. Appointing representatives or distributors
merely incidental or casual but indicates the
foreign corporation's intention to do other domiciled in the Philippines;
business in the Philippines, said single act or
transaction constitutes doing business (Far East Note
Int'l. v. Nankai Kogyo, G.R. No. 13525, 1962). but not when the
Need to Allege: The fact that a foreign (Alfred Hahn

corporation is not doing business in the v. CA, G.R. No.113074, 1997)
Philippines must be alleged, if a foreign
corporation desires to sue in Philippines courts c. Participating in the management,
(Atlantic supervision, or control of any domestic
Mutual Inc. Co. v. Cebu Stevedoring Co., G.R. business, firm, entity, or corporation in the
No. 18961, 1966); if not alleged, it can be Philippines; and
dismissed for lack of capacity to sue by the d. Any other act or acts that imply a continuity of
plaintiff (Commissioner of Customs v. K.M.K. commercial dealings or arrangements, and
Gani, G.R. No. 73722, 1990). contemplate to that extent the performance of
acts or works, or the exercise of some of the
b. Twin Characterization Test (Mentholatum functions normally incident to, and in
Co. Inc v. Mangaliman G.R. No. 47701, 1941) progressive prosecution of, commercial gain
or of the purpose and object of the business
Substance Test: Consider the body or organization
substance of the business or the enterprise for
which it was ORGANIZED or whether it has
Note:
substantially retired from it and turned it over to
Pioneer International for soliciting orders and
another.
service contracts in the performance of acts that
imply continuity of commercial dealings. Pioneer
Continuity Test: That doing business implies a
continuity of commercial dealings and
to employ Todaro to run its pre-mixed concrete
arrangements and contemplates, to that extent,
operations in the Philippines, which acts are
the performance of acts or works or the exercise
of some of the functions normally incidental to,
motion to dismiss, are not mere acts of a passive
and in progressive prosecution of, the purpose
investor in a domestic corporation. Such are
and object of its organization.
managerial and operational acts in directing and
establishing commercial operations in the
Taken together, DOING BUSINESS in the
Philippines. (Pioneer International, LTD v.
Philippines must cover transactions and series of
Guadiz, G.R. No. 156848, 2007)
transactions in pursuit of the main business goals
of the corporation and done with the intent to
Does Not Include:
continue the same in the Philippines.
a. Mere investment as a shareholder by a
c. Contract Test: if the salient points of a foreign entity in domestic corporations duly
contract do not find themselves in the registered to do business, and/or the exercise
Philippines, Philippine authorities have no of rights as such investor;
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b. Having a nominee director or officer to 2. The application shall be under oath and shall
represent its interests in such corporation; specifically set forth the following:
c. Appointing a representative or distributor a. The date and term of incorporation;
domiciled in the Philippines which transacts b. The address, including the street
business in its own name and for its own number, of the principal office of the
account; corporation in the country or State of
d. The publication of a general advertisement incorporation;
through any print or broadcast media; c. The name and address of its resident
e. Maintaining a stock of goods in the agent authorized to accept summons
Philippines solely for the purpose of having and process in all legal proceedings
the same processed by another entity in the and all notices affecting the
Philippines; corporation, pending the
f. Consignment by a foreign entity of equipment establishment of a local office;
with a local company to be used in the d. The place in the Philippines where
processing of products for export; the corporation intends to operate;
g. Collecting information in the Philippines; and e. The specific purpose or purposes
h. Performing services auxiliary to an existing which the corporation intends to
isolated contract of sale which are not on a pursue in the transaction of its
continuing basis, such as Installing in the business in the Philippines:
Philippine machinery it has manufactured or Provided, That said purpose or
exported to the Philippines, servicing the purposes are those specifically
same, training domestic workers to operate it, stated in the certificate of authority
and similar incidental services. issued by the appropriate
government agency;
No foreign corporation transacting business in the f. The names and addresses of the
Philippines without a license, or its successors or present directors and officers of the
assigns, shall be permitted to maintain or corporation;
intervene in any action, suit or proceeding in any g. A statement of its authorized capital
court or administrative agency of the Philippines; stock and the aggregate number of
but such corporation may be sued or proceeded
shares which the corporation has
against before Philippine courts or administrative
authority to issue, itemized by class,
tribunals on any valid cause of action recognized
under Philippine laws (Lorenzo Shipping Corp. v. par value of shares, shares without
Chubb & Sons, Inc., et al., G.R. No. 147724, par value, and series, if any;
2004). h. A statement of its outstanding capital
stock and the aggregate number of
ii. Necessity of a License to Do Business: shares which the corporation has
To place them under the jurisdiction of issued, itemized by class, par value
the courts of shares, shares without par value,
To place them in the same footing as and series, if any;
domestic corporations i. A statement of the amount actually
Protection for the public in dealing with paid in; and
said corporations. j. Such additional information as may
be necessary or appropriate in order
1. Requisites for Issuance of License to enable the Commission to
determine whether such corporation
A foreign corporation applying for a license to is entitled to a license to transact
transact business in the Philippines shall submit business in the Philippines, and to
to the SEC the following: determine and assess the fees
1. A copy of its articles of incorporation and
payable.
bylaws, certified in accordance with law and
3. The application shall be accompanied by the
their translation to an official language of the
following:
Philippines, if necessary.
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a. A certificate under oath duly Service of Process upon a Foreign

executed by the authorized official or Corporation Through A Resident Agent
officials of the jurisdiction of its Before a foreign corporation can be issued a
incorporation, attesting to the fact license to transact business in the Philippines,
that the laws of the country or State such corporation must first file with the SEC
of the applicant allow Filipino citizens 1. A written power of attorney designating some
and corporations to do business person who must be a resident of the
therein, and that the applicant is an Philippines, on whom any summons and
existing corporation in good other legal processes may be served in all
standing. If the certificate is in a actions or other legal proceedings against
foreign language, a translation such corporation;
thereof in English under oath of the 2. Consent that service upon such resident
translator shall be attached to the agent shall be admitted and held as valid as
application. if served upon the duly authorized officers of
b. A statement under oath of the the foreign corporation at its home office.
president or any other person a. Whenever such service of summons
authorized by the corporation, or other process is made upon the
showing to the satisfaction of the SEC, it must, within 10 days
Commission and when appropriate, thereafter, transmit by mail a copy of
other governmental agencies that such summons or other legal
the applicant is solvent and in sound process to the corporation at its
financial condition, setting forth the home or principal office. When SEC
assets and liabilities of the sends such copy, it shall constitute a
corporation as of the date not necessary part of and shall complete
exceeding one (1) year immediately such service
prior to the filing of the application. b. In case of a change of address of the
4. Foreign banking, financial, and insurance resident agent, it shall be his or its
corporations shall, in addition to the above duty to immediately notify the SEC in
requirements, comply with the provisions of writing. (Sec. 145)
existing laws applicable to them.
5. In the case of all other foreign corporations, 3. Amendment of license (Sec. 148)
no application for license to transact business
A foreign corporation authorized to transact
in the Philippines shall be accepted by the
business in the Philippines shall obtain an
Commission without previous authority from
amended license in the event it changes its
the appropriate government agency, corporate name, or desires to pursue other or
whenever required by law. (Sec. 142) additional purposes in the Philippines, by
submitting an application with the Commission,
2. Resident Agent favorably endorsed by the appropriate
government agency in the proper cases.
Who may be a Resident Agent
a. Individual residing in the Philippines of Amendment of the Articles of Incorporation or
good moral character and of sound By-laws of Foreign Corporations
financial standing
b. Domestic corporation lawfully transacting Sixty (60) days after the effectivity of the
business in the Philippines, with a sound amendment of the articles of incorporation or
financial standing and must show proof bylaws of a foreign corporation authorized to
that it is in good standing as certified by transact business in the Philippines, such foreign
the SEC (Sec. 144) corporation shall, file with the Commission, and in
the proper cases, with the appropriate
government agency, a duly authenticated copy of
the amended articles of incorporation or bylaws,
indicating clearly in capital letters or underscoring
the change or changes made, duly certified by the
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authorized official or officials of the country or rights, may sue in trademark or service mark
State of incorporation. enforcement action (Sehwani Inc v. In-n-Out
Burger, G.R. No. 171053, 2007).
Such filing shall not in itself enlarge or alter the
purpose or purposes for which such corporation Rules Regarding A Foreign
is authorized to transact business in the Right to Bring Suit in the Philippines
Philippines. (Sec. 147) FOREIGN CORP CAN FC SUE IN PH?
STATUS
iii. Personality to Sue Doing business in
Section 35 enumerates the express powers of a Cannot sue before
Philippines without a
Philippine courts
license
ability to sue and be sued. Can sue before
Philippine courts on
The power of the corporation to sue and be sued an isolated
in any court is lodged with the board of directors Not doing business in transaction or on a
that exercises its corporate powers. (Bitong v. the Philippines cause of action
CA, G.R. No. 123553, 1998) entirely independent
of any business
iv. Suability of Foreign Corporations transaction
Doing business in the
Every foreign corporation Philippines without a
Doing business in the Philippines with a license, but Philippine
license may sue and can be sued in the Can sue before
citizen or entity has
Philippines Philippine courts due
contracted with said
Doing business in the Philippines without a to estoppel
corporation or derived
license cannot sue, but may be sued in the benefits from the
Philippines Foreign Corporation
Not doing business in the Philippines, or on Doing business in the Can sue before
isolated transactions may sue and can be Philippines and has Philippine courts on
sued (if jurisdiction can be acquired) the required license any transaction
(Agilent Technologies v. Integrated Silicon, G.R.
v. Instances When Unlicensed Foreign No. 154618, 2004)
Corporations May Be Allowed To Sue:
a. Isolated transactions; Capability to Sue and Suability of Foreign
b. Action to protect good name, goodwill, Corporations W/N Doing Business
and reputation of a foreign corporation; NOT DOING
DOING BUSINESS IN
c. The subject contracts provide that BUSINESS IN
PHILIPPINES
Philippine Courts will be venue to PHILIPPINES
controversies; Isolated
Licensed Unlicensed
d. A license subsequently granted enables Transactions
the foreign corporation to sue on Yes, can sue;
contracts executed before the grant of
NO, cannot EXC: if
the license (Eriks Ltd. v. Court of
sue; transactions
Appeals, G.R. No. 118843, 1997); YES, can
exhibits intent to
e. Recovery of misdelivered property; sue
EXC: do business,
f. Where the defendant is estopped. estoppel Foreign
Corporation needs
The Intellectual Property Code provides that any license to sue
foreign corporation not engaged in business in YES, can be sued
the Philippines and a national of a country which
is a party to any convention, treaty or agreement YES, can
Qualifier: as long as summons
relating to intellectual property rights or the be sued
were properly served (to acquire
repression of unfair competition, to which the jurisdiction)
Philippines is also a party or extends reciprocal
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vi. Grounds for Revocation of License 13. MERGER AND CONSOLIDATION
Section 151 provides that the SEC may cancel A. Definition and Concept
the certificate or license of a foreign corporation
on any of the following grounds: Merger
a. Failure to file its annual report or pay any A union whereby one or more existing
fees as required by Code; corporations are absorbed by another corporation
b. Failure to appoint and maintain a resident that survives and continues the combined
agent; business (Villanueva, 2018).
c. Failure to inform SEC of the change of
Consolidation
address; The union of two or more existing corporations. A
new corporation is created, and consolidating
d. Failure to submit a copy of amended
corporations are extinguished. (PNB v. Andrada
articles of incorporation or by- laws; or Electric & Engineering Co., G.R. No. 142936,
articles of merger or consolidation; [April 17, 2002], 430 PHIL 882-903)
e. A misrepresentation of any material
matters in reports; MERGER CONSOLIDATION
f. Failure to pay any and all taxes, imposts, A corporation A NEW corporation is
assessments or penalties; ABSORBS another created, and
g. Engaged in a business not authorized by corporation and constituent
SEC; REMAINS IN corporations are
h. Acting as a dummy of a foreign EXISTENCE while EXTINGUISHED.
corporation not licensed to do business in the other is
the Philippines; or DISSOLVED
i. Any other ground as would render it unfit
to transact business in the Philippines. The power to merge or consolidate is not within
the inherent powers of the corporation.
Therefore, it must be expressly granted by law.
Law applicable to Foreign Corporations (Sec.
146)
Merger or consolidation does not become
effective by mere agreement of the constituent
A foreign corporation lawfully doing business in
corporations. The approval of the SEC is required
the Philippines shall be bound by all laws, rules
(PNB v. Andrada Electric & Engr. Co., Inc., G.R.
and regulations applicable to domestic
No. 142936, 2002)
corporations of the same class, except:
1. those which provide for the creation,
Mere Acquisition/Transfer (3 Levels)
formation, organization or dissolution of
Merger/ Consolidation Transfer of
corporations or
Property
2. those which fix the relations, liabilities,
Loss of separate No loss of
responsibilities, or duties of stockholders, existence by the separate
members, or officers of corporations to absorbed corporation (in existence
each other or to the corporation. mergers) or the
constituent corporations
(in consolidation)
1) Assets-Only Level.
General Rule: A corporation that purchases
the assets of another will not be liable for the
debts and liabilities of the selling corporation
provided the former acted in good faith.
Except, when the following circumstances
are present:
1. where the purchasers expressly or
impliedly agrees to assume the debts
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2. where the selling corporation fraudulently Philippines, Inc. et al. v James Yu, G.R. No.
enters into the transactions to escape 207161, 2015)
liability for those debts
3. where the purchasing corporation is 3) Equity Level. Purchaser takes control of the
merely a continuation of the selling business by purchasing the shareholdings.
corporation Purchasing corporation is still protected by
4. where the transaction amounts to a the limited liability feature but the same can
consolidation or merger of the be pierced.
corporations
(Edward J. Nell Co. v Pacific Farms Inc., G.R. In order to transfer ownership of shares of stock
No. L-20850, 1965) not traded in the Stock Exchange, it is necessary
to secure a Certificate of Authorizing Registration
2) Business Enterprise Level. Purchase of (CAR) pursuant to the process laid down in RMO
substantially all the assets of the corporation No. 15-03. The receipts of the payment of the tax
should also be filed with and recorded by the
(ability to do
secretary of the corporation pursuant to Section
business and make money, goodwill,
11 of RR. No. 06-08.
clientele, stock-in-trade, etc). There is case
law, based on equity, that holds the B. Constituent and consolidated
transferee liable for the debts and corporations
liabilities of the transferor.
ee Constituent Consolidated
from the liabilities of the transferor is binding Corporations Corporation
only between them and cannot prejudice The corporations that The corporation
creditors who are not parties thereto. (Y-I shall cease to exist after formed after the
Leisure Philippines, Inc. et al. v James Yu, joining together through consolidation of
G.R. No. 207161, 2015) consolidation (Bank of two constituent
Commerce v. Radio corporations
Note: The sale under [Sec. 39] does not Philippines Network, Inc.,
contemplate an ordinary sale of all corporate G.R. No. 195615, [April
assets; the transfer must be of such degree that 21, 2014], 733 PHIL 491-
the transferor corporation is rendered incapable 581)
of continuing its business or its corporate
purpose. (Y-I Leisure Philippines, Inc. et al. v The names of the
James Yu, G.R. No. 207161, 2015)8 corporations proposing to
merge or consolidate,
However, not every transfer of the entire hereinafter referred to as
corporate assets would qualify under Section the constituent
[39]. It does not apply: corporations;
(1) if the sale of the entire property and
assets is necessary in the usual and The constituent corporations shall become a
regular course of business of single corporation which, in case of merger, shall
corporation, or be the surviving corporation designated in the
(2) if the proceeds of the sale or other plan of merger; and, in case of consolidation,
disposition of such property and assets shall be the consolidated corporation designated
will be appropriated for the conduct of its in the plan of consolidation
remaining business.
Thus, the litmus test to determine the applicability

of Section [39] would be the capacity of the
corporation to continue its business after the sale
of all or substantially all its assets.(Y-I Leisure
8 Please refer to the Net Asset Value Test and the

Incapacity Test in p. 123
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C. Plan of Merger or Consolidation (Sec. E. Procedure of Consolidation or Merger

75)
STEP 1: Drawing up of the Plan of Merger or
The plan of merger or consolidation shall set forth Consolidation (Sec. 75)
the ff:
1) The names of the constituent The board of constituent corporations shall draw
corporations; up a plan of merger or consolidation. It shall
2) The terms of the merger or consolidation contain the following:
and the mode of carrying the same into a. The names of the constituent
effect; corporations;
3) A statement of the changes, if any, in the b. The terms of the merger or
articles of incorporation of the consolidation and the mode of
surviving corporation in case of merger; carrying the same into effect;
and, in case of consolidation, all the c. A statement of the changes, if any, in
statements required to be set forth in the the articles of incorporation of the
articles of incorporation for corporations surviving corporation in case of
organized under this Code; and merger; and, in case of
4) Such other provisions with respect to consolidation, all the statements
the proposed merger or consolidation as required to be set forth in the articles
are deemed necessary or desirable. of incorporation for corporations
organized under this Code; and
Note: The plan of merger has to be approved by d. Such other provisions with respect
majority of the board of each constituent to the proposed merger or
corporation; it has to be approved by affirmative consolidation as are deemed
vote of stockholders representing of the necessary or desirable.
outstanding capital stock or of the members in
case of a non-stock corporation. STEP 2: Board Approval (Sec. 75)
D. Articles of Merger or Consolidation The plan of merger or consolidation shall be

(Sec. 78) approved by majority vote of each of the boards
of the corporations involved at separate
The articles must be signed by the president or meetings;
vice president and certified by the secretary or
assistant secretary setting forth:
1) The plan of the merger or the plan of (Sec. 76)
consolidation; 1. Notice of such meeting should be given
2) As to stock corporations, the number of to all stockholders or members at least 1
shares outstanding, or in the case of non- week before the meeting.
stock corporations, the number of members; 2. The plan has to be approved by a vote of
3) As to each corporation, the number of shares
or members voting for or against such plan, outstanding capital stock, if a stock
respectively;
4) The carrying amounts and fair values of the non- stock corporation.
assets and liabilities of the respective 3. Dissenting stockholders may exercise
companies as of the agreed cut-off date; their right of appraisal. However, if the
5) The method to be used in the merger or board abandons the plan, such right is
consolidation of accounts of the companies; extinguished.
6) The provisional or pro-forma values, as 4. Any amendment to the plan must be
merged or consolidated, using the approved by the same votes of the board
accounting method; and members or trustees and stockholders or
7) Such other information as may be prescribed members required for the original plan.
by the SEC.
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STEP 4: Articles of Merger or Consolidation constituent corporation at least two (2)

(Sec. 77) weeks before said hearing.
Once the required number of stockholders or F. Effectivity of Merger or Consolidation

members approved of the plan, Articles of Merger
or Articles of Consolidation shall be executed by A merger does not become effective upon the
each of the constituent corporations, to be signed mere agreement of the constituent corporations,
by the president or vice-president and certified by but open approval of the articles of merger by the
the secretary or assistant secretary of each SEC issuing the certificate of merger as required
corporation, setting forth: by Section 79 of the Corporation Code (Bank of
a. The plan of the merger or the plan of Commerce v. Heirs of Rodolfo dela Cruz).
consolidation;
b. As to stock corporations, the number G. Limitations of Merger and Consolidation
of shares outstanding, or in the case
of non-stock corporations, the number Under the Philippine Competition Act (R.A. no.
10667), the Philippine Competition Commission
of members;
can review the mergers and acquisitions of a
c. As to each corporation, the number of
corporation/s based on the factors it deems to be
shares or members voting for or relevant. (Sec. 16 of R.A. no. 10667)
against such plan, respectively;
d. The carrying amounts and fair values Parties to a merger or acquisition agreement
of the assets and liabilities of the without complying with the thresholds are
respective companies as of the prohibited from consummating their agreement
agreed cut-off date; until thirty (30) days after providing notification to
e. The method to be used in the merger the Commission in the form and containing the
or consolidation of accounts of the information specified in the regulations issued by
companies; the Commission. A transaction that meets the
f. The provisional or pro-forma values, thresholds and does not comply with the
as merged or consolidated, using the notification requirements and waiting periods set
out in Section 5 shall be considered void and will
accounting method; and
subject the parties to an administrative fine of one
g. Such other information as may be
percent (1%) to five percent (5%) of the value of
prescribed by the SEC. the transaction. (Sec. 17 of R.A. no. 10667; PCA
Rule 4, as amended by PCC Resolution No. 02-
STEP 5: Approval by the SEC 2020)
The Articles of Merger or Articles of Consolidation Thresholds for compulsory notification
shall be submitted to the SEC for approval. M&A transactions whose definitive agreements
However, in the case of special corporations, like are executed on or after 1 March 2020 will be
banks, insurance companies, building and loan subject to mandatory notification to the PCC if
associations, etc., the favorable recommendation they meet the ff. thresholds:
of the appropriate government agency shall first Size of (i) the aggregate annual gross
be obtained. Party revenues in, into or from the
1. If the SEC is satisfied that the merger or Philippines, or
consolidation of the corporations (ii) the value of the assets in the
concerned is legal, it shall issue a Philippines of the ultimate
certificate of merger or of consolidation, parent entity (UPE) of either the
at which time the merger or consolidation acquiring or acquired entities
shall be effective. exceeds PhP 6 billion
2. If the SEC is not satisfied, it shall set a Size of The size of transaction will be
hearing to give the corporations Transaction met if the transaction value, as
concerned the opportunity to be heard. determined below, exceeds
Written notice of the date, time and place PhP 2.4 billion.
of hearing shall be given to each
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Merger or acquisition agreements that power to file an action for recovery)

substantially prevent, restrict or lessen including:
competition in the relevant market or in the i. subscriptions to shares and
market for goods or services as may be other choses in action
determined by the Commission shall be ii. and every other interest of,
prohibited. (Sec. 20 of R.A. no. 10667) belonging to, or due to each
constituent corporation
Exemptions: Notwithstanding such prohibition,
5. Regarding liabilities and pending claims:
the PCC would allow such merger or acquisition
provided the parties prove the following: a. Liabilities and obligations of each
constituent corporation:
(a) The concentration has brought about or is i. Surviving or consolidated
likely to bring about gains in efficiencies that are corporation shall be
greater than the effects of any limitation on responsible
competition that result or likely to result from the b. Pending claim, action or proceeding
merger or acquisition agreement; or brought by or against any constituent
corporation
(b) A party to the merger or acquisition agreement i. may be prosecuted by or
is faced with actual or imminent financial failure, against the surviving or
and the agreement represents the least anti- consolidated corporation
competitive arrangement among the known
c. The rights of creditors or liens upon
assets.(Sec. 21 of R.A. no. 10667) the property of such constituent
corporations are not impaired
H. Effects of Merger or Consolidation
14. INVESTIGATIONS, OFFENSES, AND
1. Constituent corporations become a single PENALTIES
corporation
a. Merger: surviving corporation A. Authority of Commissioner
b. Consolidation: consolidated
corporation under the plan of i. Investigation and prosecution of
consolidation offenses
2. Separate existence of constituent
corporations cease EXCEPT that of the The SEC may investigate an alleged violation of
surviving or consolidated corporation this Code, rule, regulation, or order of the SEC.
3. Surviving or consolidated corporation
The SEC may publish its findings, orders,
possesses the rights privileges immunities;
opinions, advisories, or information concerning
and powers and is subject to all duties and any such violation, as may be relevant to the
liabilities of a corporation organized under general public or to the parties concerned,
this Code
4. ALL of the following are deemed transferred
to and vested in such surviving or
consolidated corporation: (BY OPERATION The SEC shall give reasonable notice to and
OF LAW) coordinate with the appropriate regulatory agency
a. Rights prior to any such publication involving companies
b. Privileges under their special regulatory jurisdiction.
c. Immunities
ii. Administration of oath and issuance
d. Franchises of each constituent
of subpoena
corporation
e. Real or personal property The SEC, through its designated officer, may
f. Receivables due on whatever administer oaths and affirmations, issue
account (hence surviving / subpoena and subpoena duces tecum, take
consolidated corporation has the testimony in any inquiry or investigation, and may
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perform other acts necessary to the proceedings P1,000.00 for each day of continuing violation
or to the investigation. but in no case to exceed P2,000,000.00;
2. Issuance of a permanent cease-and-desist
iii. Cease and desist power order;
3. Suspension or revocation of the certificate of
Whenever the SEC has reasonable basis to incorporation; and
believe that a person has violated, or is about to 4. Dissolution of the corporation and forfeiture of
violate, the RCC, rule, regulation, or order of the its assets under the conditions in Title XIV of
SEC, it may direct such person to desist from the RCC
committing the act constituting the violation.
ii. Prohibited Acts and Penalties
The SEC may issue a cease and desist order ex
parte to enjoin an act or practice which is Table of Violations and Fines
fraudulent or can be reasonably expected to Violation Fine
cause significant, imminent, and irreparable SEC. 165. Fraudulent 200k - 2M
danger or injury to public safety or welfare. The Conduct of Business
ex parte order shall be valid for a maximum period
of twenty (20) days, without prejudice to the order A corporation that conducts 400k - 5M
being made permanent after due notice and its business through fraud. (When the
hearing. violation of this
provision is
Thereafter, the SEC may proceed injurious or
administratively against such person in detrimental to
accordance with Section 158, and/or transmit the public)
evidence to the Department of Justice for SEC. 166. Acting as 100k - 5M
preliminary investigation or criminal prosecution Intermediaries for Graft
and/or initiate criminal prosecution for any and Corrupt Practices
violation of this Code, rule, or regulation.
A corporation used for
iv. Contempt fraud, or for committing or
concealing graft and corrupt
Any person who, without justifiable cause, fails or practices as defined under
refuses to comply with any lawful order, decision, pertinent statutes.
or subpoena issued by the SEC shall, after due
notice and hearing, be held in contempt and fined When there is a finding that
in an amount not exceeding P30,000.00. When any of its directors, officers,
the refusal amounts to clear and open defiance of employees, agents, or
representatives are
may impose a daily fine of P1,000.00 until the engaged in graft and corrupt
order, decision, or subpoena is complied with.
failure to install:
B. Sanctions for violations a. safeguards for the
transparent and lawful
i. Administrative sanctions (Sec. 158) delivery of services;
and
If, after due notice and hearing, the SEC finds that b. policies, code of ethics,
any provision of this Code, rules or regulations, or and procedures against
orders has been violated, the graft and corruption
SEC may impose any or all of the following shall be prima facie
sanctions, taking into consideration the extent of evidence of corporate
participation, nature, effects, frequency and liability under this
seriousness of the violation: section.
SEC. 167. Engaging 100k 1M
1. Imposition of a fine ranging from P5,000.00) Intermediaries for Graft
to P2,000,000.00, and not more than and Corrupt Practices
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preclude the institution

A corporation that appoints of appropriate action
an intermediary who against the director,
engages in graft and corrupt trustee, or officer of the
practices for the corporation responsible
for said violation:
interest. - Provided, further, That
SEC. 168. Tolerating Graft 500k 1M nothing in this section
and Corrupt Practices shall be construed to
repeal the other causes
A director, trustee, or officer for dissolution of a
who knowingly fails to corporation provided in
sanction, report, or file the this Code.
appropriate action with
proper agencies, allows or Liability for any of the
tolerates the graft and foregoing offenses shall be
corrupt practices or separate from any other
fraudulent acts committed administrative, civil, or
criminal liability under this
trustees, officers, or Code and other laws.
employees.
SEC. 169. Retaliation 100k 1M iii. Who are liable (Sec. 171-172)
Against Whistleblowers 1. Corporation- Penalty may be imposed
upon its directors, trustees, stockholders,
Any person who, knowingly members, officers, or employees
and with intent to retaliate, responsible for the violation or
commits acts detrimental to indispensable to its commission.
a whistleblower such as 2. Aiders and Abettors- Penalty would be a
interfering with the lawful punishment of a fine not exceeding that
employment or livelihood of imposed on the principal offenders, at the
the whistleblower. discretion of the Court, after taking into
account their participation in the offense.
A whistleblower refers to
any person who provides C. Authority of the Securities and
truthful information relating Exchange Commission (Jurisdiction)
to the SEC or possible
commission of any offense
or violation under this Code.
SEC. 170. Other Violations 10k 1M The SEC shall have visitorial powers over all
of the Code corporations. These powers include:
Violations of any of the other 1. Examination and inspection of records

provisions of this Code or its 2. Regulation and supervision of activities
amendments not otherwise 3. Enforcement of compliance
specifically penalized 4. Imposition of sanctions in accordance
therein with the Revised Corporation Code.
If the violation is committed Should the corporation, without justifiable

by a corporation, the same cause,
may, after notice and powers, the SEC may revoke its certificate of
hearing, be dissolved in incorporation, without prejudice to the
appropriate proceedings imposition of other penalties and sanctions under
before the SEC: the RCC.
- Provided, That such
dissolution shall not
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GENERAL RULE: All interrogatories propounded and books of accounts of any entity or
by the SEC and the answers thereto, as well as person under investigation as may be
the results of any examination made by the SEC necessary for the proper disposition of
or any other official authorized by law to make an the cases, subject to the provisions of
examination of the operations, books, records of existing laws;
any corporation, shall be kept strictly 10. Suspend or revoke the certificate of
CONFIDENTIAL, incorporation after proper notice and
hearing;
EXCEPT: 11. Dissolve or impose sanctions on
(1) When the law requires the same to be corporations, upon final court order, for
made public; committing, aiding in the SEC of, or in
(2) When necessary for the SEC to take any manner furthering securities
action to protect the public; violations, smuggling, tax evasion,
(3) To issue orders in the exercise of its money laundering, graft and corrupt
powers under RCC practices, or other fraudulent or illegal
(4) Where such interrogatories, answers or acts;
results are necessary to be presented as 12. Issue writs of execution and attachment
evidence before any Court. (Sec. 178) to enforce payment of fees,
administrative fines, and other dues
What are the functions, powers, and collectible under this Code;
jurisdiction of the SEC? (Sec. 179) 13. Prescribe the number of independent
directors and the minimum criteria in
SEC shall have the power and authority to: determining the independence of a
1. Exercise supervision and jurisdiction director;
over all corporations and all persons 14. Impose or recommend new modes by
acting on their behalf, except otherwise which a stockholder, member, director,
provided by RCC; or trustee may attend meetings or cast
2. Retain jurisdiction over pending cases their votes, as technology may allow,
involving intra-corporate disputes
submitted for final resolution. (PD 902-A); number of shareholders or members,
a. The SEC shall retain jurisdiction structure, and other factors consistent
over pending suspension of with the basic right of corporate suffrage;
payment/ rehabilitation cases 15. Formulate and enforce standards,
filed as of 30 June 2000 until guidelines, policies, rules, and
finally disposed. regulations to carry out the provisions of
3. Impose sanctions for the violation of the this Code; and
RCC, its implementing rules and orders 16. Exercise such other powers provided by
of the SEC; law or those, which may be necessary or
4. Promote corporate governance and the incidental to carrying out, the powers
protection of minority investors, through, expressly granted to the SEC.
among others, the issuance of rules and
regulations consistent with international Note: In imposing penalties and other
best practices; requirements, SEC shall take into consideration
5. Issue opinions to clarify of laws, rules, the size, nature of the business, and capacity
and regulations; of the corporation.
6. Issue cease and desist orders ex parte to
prevent imminent fraud or injury to the NO COURT BELOW THE CA SHALL HAVE
public; JURISDICTION (Sec. 179)
7. Hold corporations in direct or indirect
contempt; Only the CA has the jurisdiction to issue a
8. Issue subpoena duces tecum and restraining order, preliminary injunction, or
summon witnesses to appear in preliminary mandatory injunction in any case,
proceedings before the SEC; dispute, or controversy that directly or indirectly
9. In appropriate cases, order the interferes with the exercise of the powers,
examination, search and seizure of duties, and responsibilities of the SEC that
documents, papers, files and records, falls exclusively within its jurisdiction.
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declared in the state of suspension of

JURISDICTIONS payments.
4. Appointment of Rehabilitation Receiver or
On Jurisdiction of RTC in Intra-Corporate Management Committee
Disputes:
Section 5 of the Securities Regulation Code What is a management committee?
transferred the jurisdiction of the (SEC) over - Tasked to manage, take custody of and
intra-corporate disputes to RTCs designated by control all existing assets, funds, and
the Supreme Court as commercial courts. The records of the corporation.
existence of an intra-corporate dispute must be - To determine the best way to protect the
clearly alleged in the complaint. interest of its stockholders and creditors.
Two tests to determine existence of intra- What is a Rehabilitation Receiver?

corporate dispute - Appointed when the corporation is in
financial distress.
Relationship Test - To rehabilitate.
A dispute is intra-corporate if it is:
1. Between the corporation, partnership or Arbitration for unlisted corporations. (Sec.
association and the public; 181)
2. Between the corporation, partnership or
association and the state insofar as its Where can the arbitration agreement be
franchise, permit or license to operate is found? The same may be provided in the articles
concerned; of incorporation or by-laws of an unlisted
corporation.
3. Between the corporation, partnership or
association and its stockholders, partners,
When can cases be referred to arbitration?
members or officers; and When the agreement is in place, disputes
4. Among the stockholders, partners or between the corporation, its stockholders or
associates themselves (Philippine members, which arise from the implementation
Communications Satellite Corp. v. of the articles of incorporation or by-laws, or
Sandiganbayan, G.R. No. 203023, 2015) from intra-corporate relations.
Nature of the Controversy Test When shall the dispute be non-arbitrable?

The dispute itself must be intrinsically connected When it involves criminal offenses and
with the regulation of the corporation, partnership interests of third parties.
or association.
The arbitration agreement. (Sec. 181)
The controversy "must not only be rooted in the - The same shall be binding on the
existence of an intra-corporate relationship, but corporation, its directors, trustees, officers,
must also refer to the enforcement of the parties' and executives or managers.
correlative rights and obligations under the - To be enforceable, the same should
Corporation Code as well as the internal and indicate
intra-corporate regulatory rules of the - the number of arbitrators
corporation." (Dy Teban Trading Inc. v. Dy, G.R. - the procedure for their appointment.
No. 161803, 2008) - The power to appoint the arbitrators forming
the arbitral tribunal shall be granted to a
The following are within the jurisdiction of the designated independent third party.
RTC: - Should the third party fail to appoint
1. Fraudulent devices and schemes employed the arbitrators in the manner and
by directors detrimental to the public interest within the period specified in the
and to other firms arbitration agreement, the parties
2. Intra-corporate dispute and with the state in may request the SEC to appoint the
relation to their franchise and right to exist arbitrators. In any case, arbitrators
3. Controversies in election, appointment of must be accredited or must belong
directors or trustees and petition to be to organizations accredited for the
purpose of arbitration.
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The arbitral tribunal (Sec. 181)

- shall have the power to rule on its own
jurisdiction and on questions relating to the
validity of the arbitration agreement. When
an intra-corporate dispute is filed with a
Regional Trial Court, the Court shall dismiss
the case before the termination of the
pretrial conference, if it determines that an
arbitration agreement is written in the
-
laws, or in a separate agreement.
- shall have the power to grant interim
measures necessary to ensure enforcement
of the award, prevent a miscarriage of
justice, or otherwise protect the rights of the
parties.
Final Arbitral award (Sec. 181)

- Shall be executory after the lapse of fifteen
(15) days from receipt thereof by the parties
and shall be stayed only by the filing of a
bond or the issuance by the appellate court
of an injunctive writ. (Under Sec. 181
specifically)
2 kinds of arbitration
1. Voluntary- when parties both agree to submit
themselves to the jurisdiction of the
arbitrators. The parties choose who the
arbitrators will be.
2. Compulsory- The judge is a stranger. There
is still a decision. This kind of arbitration is
arbitrators are the judges of the courts (MTC,

RTC etc.)
Jurisdiction over Party-List Organizations.

(Sec. 182)
- The powers, authorities, and responsibilities
of the SEC involving party-list organizations
are transferred to the SEC on Elections
(COMELEC)
- Within 6 months after the effectivity of the
RCC, the monitoring, supervision, and
regulation of such corporations shall be
deemed automatically transferred to the
COMELEC.
- The COMELEC in coordination with the SEC
shall promulgate the corresponding IRR for
the transfer of jurisdiction
- end of topic -
Page 187 of 393

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ATENEO CENTRAL

BAR OPERATIONS 2020/21 COMMERCIAL LAW

A. CAUSES OF DISSOLUTION (ART. 1830) ......................................................................................................90

N. TRUST FUND DOCTRINE ..........................................................................................................................125

14. INVESTIGATIONS, OFFENSES, AND PENALTIES .............................................................................................182

V. SECURITIES .................................................................................................................................................... 189

A. STATE POLICY ................................................................................................................................................. 189

VI. BANKING ...................................................................................................................................................... 205

A. THE NEW CENTRAL BANK ACT ........................................................................................................................ 206

Note: The remedy of a general partner who B. CORPORATION

A corporation has a personality separate and

Restricted due to Subject to the to a special charter or through a general

a. Quasi-public corporation However, there is now formal administrative and

c. Assumption of corporate powers; and As To Control

c. Close Corporation- a corporation where:

Tests: belonging to corporations or partnerships at least

3 Emphasis on no. 2 & 3 for they are expressly

Page 100 of 393

Page 101 of 393

corporations, cooperatives or OTHER TESTS

Page 102 of 393

A. Doctrine of Separate Juridical The remedy of the corporation is to recover

Page 103 of 393

Page 104 of 393

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B. Doctrine of Piercing the Veil of pertaining to the corporation against

Under certain circumstances, the courts may Example cases:

Classification of piercing cases: For Alter-ego Cases:

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Page 107 of 393

i) Parent-subsidiary relationship. (Koppel Union-PTGWO v. Calica, G.R. No. 96490,

Page 108 of 393

Decree No. 902-A, on the ground that the They must:

Page 109 of 393

6 The RCC completely removed sec. 13 of the old

Page 110 of 393

1) Generally, a corporation whose term has a favorable recommendation of the

4) An Expired Corporation whose corporate Required Vote to Initiate Revival:

Who may not file? D. Classes of Shares of Stock (Sec. 6)

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Exception: C. Pre-incorporation subscription (Sec. 60)

but who were merely convinced to invest in the

Although a franchise may be treated as a c. Labor performed or service actually rendered

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Doctrine of Secondary Meaning To determine the existence of confusing similarity

Page 117 of 393

H. Election of Directors or Trustees (Sec. Binding Effects

7This will be discussed extensively under the heading

Page 118 of 393

Common Law Limitations on By-Laws By-law provisions cannot discriminate

Page 119 of 393

Such power of the Board may be revoked by Effects of Delinquency Status:

Filing and Effectivity

Page 120 of 393

7. CORPORATE POWERS k. Other powers essential or necessary to carry

General Express Powers under the C. Power to Extend or Shorten corporate