RFBT 2_RCCP (R.A. No.

11232) ATTRIBUTES OF A CORPORATION

PARTNERSHIP AND PRIVATE CORPORATIONS SECTION 2
ATTRIBUTES OF A CORPORATION
TITLE I:
A. It is an artificial being.
GENERAL PROVISIONS DEFINITIONS AND B. It is created by operation of law.
CLASSIFICATIONS C. It has the right of succession.
D. It has only the powers, attributes, and properties
Title of the Code. – This Code shall be known as “The expressly authorized by law or incident to its
Corporation Coder of the Philippines”. existence.

INTRODUCTION
ATTRIBUTES OF A CORPORATION
SECTION 1
A. ARTIFICIAL BEING
HISTORICAL BACKGROUND - A corporation is not in fact and in reality a person,
- The law originally governing private corporations is but the law treats it as through it is a person.
the Corporation Law, Act No. 1459 which took effect  Meaning, it is not a real person, but the law will
on April 1, 1906. The Corporation Code of the treat it though as it is a person.
Philippines, Batas Pambansa (B.P.) Bilang 68, which  So dahil artificial being ang isang corporation,
took effect on May 1, 1980, reproduced with meron syang personality although it is artificial.
amendments many provisions of the old Corporation  So sa mata po ng batas may dalawang uri ng
Law. persons. So we have a natural person and an
artificial person. Kapag sinabi pong natural
- On February 23, 2019, The Revised Corporation Code person, tayo yun – as a human being. Yung
of the Philippines (RCCP) was enacted. The said law totoong tao kumbaga. Kapag artificial being or
reproduced many provisions of the Corporation Code artificial person naman, usually ito yung mga
but introduced substantial amendments which would businesses like corporation.
enhance the ease of doing business in the Philippines  So ang corporation as an artificial being meaning,
and considered advancements made in technology. It meron syang separate personality from its
also made governance of corporations easier while owners. So a corporation can be sued by
ensuring integrity by imposing stricter good someone pero not suing the owners directly, so
governance standards. It redefined the powers of the yun po ang use ng pagkakaroon ng separate
Securities and Exchange Commission (SEC) and personality ng isang corporation.
prescribed penalties for violations of the code. It also
paved the way for the creation of one person Doctrine of Corporate Entity
corporations. - A corporation is a legal or juridical person
with a personality separate and apart from
DEFINITION OF CORPORATION its individual stockholders or members and
from other corporations to which it may be
- The statutory definition refers only to private connected.
corporations or to corporations organized under the  It talks about the separate personality of a
corporation law. (obviously, it will not apply to corporation. Ibig sabihin yung personality ng
special corporations) corporation, iba yan sa personality ng mga
stockholders, ng mga members, and also iba sa
- A body, or artificial person, consisting of one or more personality ng mga corporations to which it may
individuals, or sometimes of individuals and other be connected – ibang tao sya.
corporations created by law, and invested by the law
with certain legal capacities, as the capacity of Effects of Juridical Personality of a Corporation
succession, and the capacity to sue and be sued, to 1. A corporation will be liable only for corporate
make contracts, to take, hold, and convey property, debts. (So yung mga stockholders and members,
and to do other acts, however numerous its if they have personal debts – obviously, the
members may be, like a single individual. (So, ang corporation will not be liable because ang
corporations ay marami silang powers) personality ng corporation is separate and
distinct from the stockholders)

Principles of limited liability

  This will refer to the protection from the  In a corporation, ang isang stockholder kapag
liability of shareholders or members. nag-invest sya, yun na yun. So kapag merong
Yung protection nila is from payment of corporate debts, naubos na ang corporate assets,
corporate debt or credit. Yung corporate wala kanang makukuha sa mga individual
stockholders or members. So there si actually a
debt is not the debt of a stockholder or a
veil of protection for the stockholders or
member. Also in the same light, a
members. Protected sila, kapag ubos na ang
stockholder or a member is not entitled assets ng corporation, hindi na sila liable. But
to the credit which is due to a there are times when the veil of corporate fiction
corporation because of the separate is pierced or binu-butas yung protection OR the
personality. fiction of corporate entity is disregarded.
2. A corporation has right to bring actions. (Ang
- So the rule is: the fiction of corporate entity
corporations pwedeng magdemanda at pwede
is disregarded or the veil of corporate fiction
rin namang idemanda/mademanda. So, it may
or yung protection ng mga stockholders or
bring civil actions – criminal actions – as if it is a
members is pierced when the fiction of
real person)
corporate entity is used for fraud to defeat
3. A corporation has the right to acquire and
the public convenience, protect fraud,
possess property (So, if a corporation has
defend crime, serve as a mere alter ego or
properties, it will be registered obviously in the
business conduit of a person or another
name of the corporation. So, the property of the
corporation.
corporation is the property ONLY of the
 If yung corporate personality or yung corporate
corporation, it is not the property of the
entity is used for fraudulent purposes, then
stockholders or members)
pwedeng i-pierced yung veil ng corporate fiction
4. There are liability for acts or contracts.
or pwedeng i-disregard yung protection which is
(Remember: Due to the separate personality of a
given to the stockholders or members.
corporation, obligations which are incurred by a
corporation even if it is incurred by the Instances when the Fiction Will Be Disregarded
stockholders or directors/agents, the rule is that 1. A corporation functions for the benefit of a
– the corporation will be made liable for single individual. (So, if a person has complete
contracts entered in its representation. Also, control over the funds and the one person is the
personal obligations of stockholders/members sole owner of the entire corporation, remember
are not liabilities of corporations. na pwedeng i-pierced yung corporate fiction or
Also, tax exceptions are personal to corporations ung corporate entity if this corporation which
changes in individual membership will not affect functions for the benefit of a single individual is
the corporation kasi nga ang corporation is not used to protect fraud)
dissolved due to the change in membership) 2. A corporation is a mere instrumentality of
individual stockholders. (Again, if there is fraud –
Doctrine of Piercing the Veil of Corporate Fiction or
pwedeng i-disregard yung corporate entity)
Disregarding the Fiction of Corporate Entity or
3. Instrumentality rule/alter ego rule where it
Doctrine of Corporate Alter Ego
appears that the corporation functions for the
- In this case, the law will not recognize
benefit of another corporation. (So, may
separate corporate existence. The
corporation pero meron syang ibang corporation
stockholders or members will be considered
and this corporation will function for the benefit
as the corporation, and liability will attach
of another corporation – usually nangyayari ‘to sa
personally or directly to the officers and
parent and subsidiary corporation)
stockholders.
Remember:
 Dahil nga merong limited liability ang mga
 If there is no fraud, there is no reason to
stockholders or members, meron silang
pierce a corporate veil.
protection. So corporate debts – hindi sila liable
4. Domestic corporation is controlled by aliens. (So
jan. Kumbaga, corporate debts should be the
it depends on the control test. During war time
liability of the corporation.
for reasons of national security - titignan kung
 However there are times that the law will impose
ano ang nationality ng isang corporation. So, if it
personal liability against the stockholders or the
is controlled by aliens – the fiction of corporate
members.
entity will be disregarded)
 5. A corporation is organized by an insolvent  Only the state through the SEC or the securities
debtor. (Yung insolvent debtor will transfer all its and exchange commission ang pwedeng mag-
properties to the corporation and yung kanyang grant or magbigay ng isang business license para
mga personal creditors cannot collect from him. mag-operate as a corporation. So may mga
So obviously yung corporate entity is used for formalities pang pagdadaanan and that’s the
fraud. Pwedeng magkaroon ng piercing ng time na makaka-create po tayo ng corporation.
corporate veil)
6. Subsidiary company is created by a parent C. IT HAS THE RIGHT OF SUCCESSION.
company (not automatically but if there is a - A corporation has a capacity of continuous existence
fraud, the fiction for the corporate entity may be irrespective of the death, withdrawal, insolvency, or
pierced) incapacity of the individual stockholders or members
7. A corporation is formed by a person for the and regardless of the transfer of their interest or
purpose of evading his contract. (Again, this is shares of stock.
fraud. Iniiwasan nya yung contract nya so  So, ang isang corporation, it can exist perpetually
obviously may fraudulent purposes that’s why regardless of the debt, withdrawal, insolvency, or
the doctrine of corporate entity will be incapacity of the individual stockholders or
disregarded) members even if their interest in the shares of
8. Dissolved corporation and its assets are
stocks are transferred to other individuals.
transferred to another corporation to avoid
financial liability of the first corporation. (So  Unlike in partnership na kapag may namatay lang
obviously, fraudulent ito kasi lilipat mo yung or nag-resign is idi-dissolve na, but here -
lahat ng assets mo sa bagong corporation para merong capacity of continuous existence.
lang yung creditors ng original corporation mo
hindi mo na kailangang bayaran) D. 4. IT HAS ONLY THE POWERS, ATTRIBUTES AND
PROPERTIES EXPRESSLY AUTHORIZED BY LAW OR
B. CORPORATION AS A CREATION OF LAW or BY INCIDENT TO ITS EXISTENCE.
OPERATION OF LAW.
- Corporations cannot come into existence by mere - A corporation, being purely a creation of law, may
agreement of the parties. They require special exercise only such powers as are granted by the law
authority or grant from the State. This power is of its creation and its articles of incorporation.
exercised by the State through the legislature, either  A corporation has limited capacity, so unlike
by a special incorporation law or charter which partnership, and sole proprietorship, ang mga
directly creates the corporation or by means of a kayang gawin lang or yung mga powers na
general incorporation law under which individuals pwedeng gamitin, or i-exercised ng isang
desiring to be and act as a corporation may corporation is kung ano lang yung sinabi or
incorporate. Compliance with the procedure and nakasulat sa batas, sa revised corporation code
conditions provided under the law for incorporation or any other special laws na nago-govern sa
must also be complied with. specific corporation na yun, yun lang po yung
 Corporations are not created by agreement, but masusunod.
a corporation will require a special authority or
grant from the state or the government – and it is  And also, pwede ring mag-exercise ang
exercised by a special incorporation law or corporation ng implied powers – so itong mga
charter – which will allow us to create implied powers, those are gathered from the
corporations or yung general incorporation law – express powers and also yung mga incidental
ito yung revised corporation code of the powers which are essential to the corporation’s
Philippines. So dahil sa law na yun, we can create existence. So yung express, implied tsaka
private corporations. incidental, any act exercise outside of the powers
 So unlike other business organization such as are considered ultra vires act or yung tinatawag
partnership and a sole proprietorship, iba ang na “beyond the powers”.
way para ma-create ang isang corporation. So
hindi po basta-basta nac’create ang isang
corporation. Hindi po basta-basta nalang na
magtitipon tipon yung mga tao para mag-
organize sila ng business at ico-consider nila itong
isang corporation.
 CLASSES OF CORPORATIONS designate ng kanyang nominee or alternate
nominee. So kapag yung single stockholder na
SECTION 3
yun is naging incapacitated sya, yung nominee
CLASSES OF CORPORATIONS UNDER THE RCCP ang pwedeng mag take over sa management as
director and president. Kapag naman namatay
- Corporations formed or organized under this Code
yung single stockholder na yun, yung nominee,
may be stock or non-stock corporations. Corporations
sya yung pansamantalang papalit hanggang ma-
which have capital stock divided into shares and are
determine nung mga legal heirs kung sino yung
authorized to distribute to the holders of such shares
magte-take ng position or place nung namatay.
dividends or allotments of the surplus profits on the
basis of shares held are stock corporations. All other
D. PUBLIC CORPORATIONS
corporations are non-stock corporations.
- Those formed or organized for the government of a
portion of the state which have for their purpose the
A. STOCK CORPORATION
general good and welfare.
- The ordinary business corporation created and
 Ang purpose ng public corporation is for the
operated for the purpose of making a profit which
general good and welfare.
may be distributed in the forms of dividends to
stockholders on the basis of their invested capital.
E. PRIVATE CORPORATIONS
 It is a type of for-profit company and meron
- Those formed for some private purpose, benefit, aim.
syang capital stock divided into shares.
 Generally, this are formed or organized for profit.
Authorized din sila to distribute yung kanilang
profits in the form of dividends to stockholders KINDS
on the basis of the capital invested. So bawat a) Stock corporation
stockholders is tumatangap ng bahagi ng b) Non-stock corporation
ownership of corporation through their shares of c) GOCC
stock.
 Ang stock corporation ay nag-iissue sya ng F. QUASI-PUBLIC
tinatawag nating stocks or shares. - are entities engaged in rendering basic services of
such public importance as to entitle them to certain
B. NON-STOCK CORPORATION privileges like eminent domain or use of public
- Corporations which do not issue stock to its members property (e.g. Electric, gas, water, and telephone
and are created not for profit but for the public good companies).
and welfare. Of this character are most of the
religious, charitable, social, political organizations G. GOVERNMENT-OWNED OR CONTROLLED
and societies. CORPORATION (GOCC)
 So, it may make profit, but the profits are not - are entities organized by the government or
distributed to the members. May pera din ang corporations of which the government is a majority
non-stock corporation kasi nagco-contribute din stockholder. (e.g. Philippine Air Lines)
naman ang mga members.  So, from the title itself. Ito yung corporations na
 Also, since ang isang non-stock corporation is pagmamay-ari ng government. So, malalaman
walang shareholders - so, it is owned by its natin if yung Philippine Government ang may-ari
members – meaning, a member-owned ng at least majority or entirely owned of its
corporation na hindi nag-iissue ng shares of outstanding capital stock.
stock.
 In simplest term, hindi sya for-profit. Lahat ng OTHER CLASSES OF CORPORATIONS
mga tao or members jan is pantay-pantay. A. CONTROL – according to control, we have :
 Parent – kapag sya yung kumu-control sa isang
C. ONE PERSON CORPORATION (OPC) corporation. Isang corporation na merong
- A corporation with a single stockholder. Only a investment sa isang corporation, let’s say meron
natural person, trust or estate may form a one- syang majority ng stocks OR nagmamay-ari sya
person corporation. nung majority of stocks – ibig-sabihin, sya yung
 So, it is simply a company or corporation with parent ng corporation na yun.
just one/single stockholder. So yung single  Subsidiary – ito naman yung tawag sa mga
stockholder is magiging sole director and corporation na kino-control ng isang parent.
president ng OPC. Also, dapat syang mag-
B. LEGAL STATUS – according naman sa legal status, we succession. So it’s different from one person
have: corporation.
 De jure – it is fully incorporated company. So
para ma-consider na de jure, dapat yung isang E. PUBLIC or NOT
company or corporation is na-fulfilled niya yung  Open – kapag open corporation, kahit stranger or
lahat ng mga statutory requirements para sa kung sino man yung mga nag-organize is
maayos na pag-form ng isang corporation. pwedeng maka-acquire ng stock ng corporation.
Kumbaga, kapag de jure, nag-comply sya with all  Close – kapag close naman, limited lang po yan.
the necessary requirements. So, once viewed in
this manner, yung mga officers ng isang F. CHARITABLE or NOT
corporation is free na sila to hold board of  Eleemosynary – kapag yung corporation natin is
directors meeting, mag-issue ng stock sa mga na-organize for charitable purposes.
shareholder and mag-simulang mag-conduct ng  Civil – other than charitable purposes.
business.
 De facto – actually kapag de facto corporation, G. RELIGIOUS or NOT
pina-pahiwatig nito na there is some degree of  Ecclesiastical – kapag ito ay na-organized for
legal recognition sa isang corporation, kahit na religious purposes
yung articles of incorporation para sa isang  Lay – other than religious purposes
corporation is pwedeng hindi na-file ng tama or
maayos. So, para ma-considered na isang de
CORPORATION BY PRESCRIPTION
facto corporation, yung mga parties who tried to
- A corporation that has existed longer than the
establish it must have acted in good faith and
memory of man can remember and is presumed to
dapat patakbuhin nila yung kanilang business as a
have acquired its juridical personality from the long
corporation.
time ago.
 So ang mga corporation na‘to – dahil dere-
C. LAWS OF INCORPORATION
deretso pa rin silang nag-ooperate ngayon at
 Domestic – ibig sabihin, na-organize under
walang maka-alala kung kelan ba talaga nag-start
Philippine laws. Tumutukoy siya sa isang
yang corporation na yan. Ang naging assumption
company na incorporated and nagka-conduct ng
nalang is merong batas dati na binigyan ng
business affairs in its own country.
juridical personality yung specific corporation na
 Foreign – nag-ooperate sya within the Philippines
yan. So kapag dere-deretsong nag-operate ang
pero hindi sya na-organize under Philippine laws.
isang corporation at walang batas na parang
And yung mga businesses na located sa isang
tumuligsa dito.
bansa na different from kung saan sila nagmula
 e.g. Roman catholic church – oldest corporation
is tinatawag na foreign corporations. Let’s say na
established in the Philippines
ang isang corporation na incorporated sa
California is considered sya na isang domestic
business/corporation doon sa lugar na yun or sa SPECIAL CORPORATIONS
state na yun. And maco-considered naman syang SECTION 4
foreign corporation sa lahat ng iba pang states.
INCORPORATION OF A PRIVATE CORPORATION BY
Determining its Nationality
SPECIAL ACT or CHARTER
D. NUMBER OF PERSONS - The enactment of a special act creating a private
 Aggregate – so, ang aggregate corporation ay corporation is subject to the constitutional limitation
isang separate legal entity na binuo ng several that such corporation shall be owned or controlled by
individual persons. Also, meron din syang the government or any subdivision or instrumentality
existence which is separate kapag there are thereof (Section 16, Article XII, The Constitution of
multiple stockholders. So ito ay isang group ng the Republic of the Philippines, February 2, 1987).
mga co-existing persons.  Itong mga special corporations na ‘to are not the
 Sole – so, it is an individual person na nagre- corporations covered by the revised corporation
represent sa isang official position na may isang code kasi mga private corporations lang ang
single separate legal entity. Yung pagkamatay ng pinag-uusapan natin sa RCCP.
isang individual is hindi nakakaapekto sa  So, kapag nagkaroon ng special corporation,
corporation dahil merong isang right of meron pong constitutional limitation that shall be
 owned or controlled by the government or any C. Stockholders or shareholders.
subdivision or instrumentality thereof. So ang  Sila yung owners ng shares of stock sa isang
isang special act creating a private corporation, corporation.
kailangan controlled or owned by the  They may be natural or juridical persons.
government.
D. Members.
GOVERNING LAWS  Corporators of a non-stock corporation
A. Primarily governed by the provisions of the special
THREE OTHER CLASSES
law or charter creating them or applicable to them.
A. Promoters.
B. Suppletorily governed by the provisions of the RCCP  So, isa itong firm or person na gumagawa ng
insofar as they are applicable either because they are preliminary work na related sa formation ng
not inconsistent with, or are expressly made isang company, including na dito yung
applicable by the special law. promotion, incorporation, and flotation at yung
 Ang mga private corporations by special act or pag-solicit ng mga tao na mag-invest ng pera sa
charter or special corporations are not created company, usually kapag ito ay nabuo na.
under the Revised Corporation Code pero meron  Generally, your promoters will promote the
silang sariling law. company. So, maghahanap silang subscribers,
mga incorporators, magbebenta sila ng shares
even before the corporation is established.
COMPONENTS OF A CORPORATION
General rule: A corporation is not bound by any
SECTION 5 agreement made by a promoter.

COMPONENTS OF A CORPORATION Exception to the rule: Unless and until the

corporation approves the agreement.
A. Corporators.
 Comprise of stockholders or members and also B. Subscribers.
include incorporators. So, any person na part sa - Persons who have agreed to take and pay for original
isang corporation ay tinatawag na corporator. unissued shares of a corporation formed or to be
 In general, ang isang corporator is entitled sya or formed.
may rights sya na i-enjoy yung lahat ng benefits  So, sila yung bumibili ng mga shares of stocks.
and rights na belong to any member of the  Remember that subscribers may not be
corporation. Pero sa ibang corporations – kung stockholders. Magiging stockholders sila from the
saan yung mga rights ay may pecuniary nature, time na accepted na yung kanilang mga
each corporator is entitled sila sa rights na yun in subscription by the corporations.
proportion nung kanilang interest. So, may rights
sya na mag-vote lang in proportion sa amount ng C. Underwriter.
kanyang stock.  So, tumutukoy ito sa pag-iissue ng stocks or
 A corporator is not in general liable personally for bonds ng isang corporation or a government
any act of the corporation unless he has been agency to raise capital.
made so by the charter creating the corporation.  Isa itong company, usually an investment banker,
na nag-agree na ibenta yung mga securities. So,
B. Incorporators. they will exert yung best efforts nila to market all
 Sila yung mga stockholders or members na or part of an issue which he has offered for sale
originally nag-formed at nag-composed nung or has purchased from a controlling stockholder.
corporations. So, they are the signatories to the So these are the persons who comprise the
Articles of Incorporation. corporation.
 So, bawat incorporator is dapat magkaroon sila
ng at least 1 share ng capital stock. Obviously, all
incorporators are corporators but not all
corporators are incorporators.
 Also, yung minimum number of incorporators is
na-cut down from 5 to 2. Pero yung maximum
number is 15 pa rin.
CLASSIFICATIONS OF SHARES
 SECTION 6 - After the corporation comes into existence, they may
be altered by the board of directors and the
POWER TO CLASSIFY SHARES stockholders by amending the articles of
- The shares of stock of stock corporations “may be incorporation by a majority vote of the board of
divided into classes or series of shares, or both, any directors and the vote or written assent of the
of which classes or series of shares may have such stockholders representing at least 2/3 of the
rights, privileges or restrictions as may be stated in outstanding capital stock. If the amendment changes
the articles of incorporation. “Unless restricted by or restricts the rights of any class of shares, or
the law or the provision of its charter (see Sec 14, authorizes preferences in any respect superior to
15.), a corporation has unrestricted freedom to issue those of outstanding shares of any class, any
such classes or series of shares as the prospects and stockholder may exercise his appraisal right.
needs of its business may require to attract investors.  Later on, if yung mga board of directors and
A “series” refers to a subdivision of a class of shares. stockholders gusto nilang baguhin yung
- A corporation may issue only one class or kind of classification of shares, pwede nilang baguhin
share. There must be at least one class of stock, and a yung articles of incorporation by a majority vote
corporation must have at least one class of stock with of the board of directors and yung vote or
voting rights. written assent ng mga stockholders representing
at least 2/3 ng outstanding capital stock.
The primary classification of shares is  Yung 2/3 outstanding capital stock – dependent
common and preferred, each of which may sya on the number of shares, voting for an
be divided into other classes, (infra.) Thus, amendment of the articles of incorporation, it
shares of stock may differ. does not depend on the number of stockholders.
 Granted to the corporations Isa itong financial interest actually.
 Ang corporation, pwede syang mag-issue ng isa  So, kapag nagkaroon na ng amendments sa
or maraming class ng share pero remember na articles of incorporation, mababago na yung
ang isang corporation must have one class with classification at yung number ng shares. Now, if
complete voting rights. any stockholder does not hindi agree doon sa
So, if a corporation has the power to classify shares classification of shares, any stockholder may
exercise his appraisal right.
QUESTION: Sino ang magka-classify ng shares at kalian? Appraisal right – ito yung right ng stockholder na
mabayaran yung fair value ng kanyang share. So
SO TWO INSTANCES KUNG KAILAN NAKA-CLASSIFY ANG
in short, yung shares held by the stockholder is
MGA SHARES
iba-buyout yan ng corporation kasi nga yung
A. AT THE FORMATION
stockholder is hindi na interested na manatili pa
B. AFTER THE INCORPORATION
sa corporation.
 The exercise of the appraisal right is VALID under
WHEN CLASSIFICATION OF SHARES MAY BE MADE
certain circumstances subject to certain
A. BY THE INCORPORATORS. requirements and limitations
- The classes and number of shares which a
corporation shall issue are first determined by the
SHARES PRESUMED TO BE EQUAL IN ALL RESPECTS
incorporators as stated in the articles of
(DOCTRINES OF EQUALITY OF SHARES)
incorporation filed with the SEC.
 classification of shares may be made by the - In the absence of any provision in the articles of
incorporators. So pwede silang mag-classify. incorporation and the certificate of stock to the
 Kelan? At the onset of the corporation. Nung contrary, all stocks, regardless of their class
time na ini-incorporate palang sya, kasi yung nomenclature, enjoy equal rights and privileges and
incorporators yung magde-determine ng subject to the same liabilities. Thus, if one class of
authorized capital stock – kung anong class and shares has the right to vote, all other classes are
number of shares yung ii-issue ng isang presumed to have the same voting power.
corporation kasi nga ang corporation is may  So itong doctrine of equality of shares holds that,
power na i-classify yung shares nito depende sa if yung articles of incorporation is hindi nagpo-
needs ng business. provide ng any distinction sa mga shares of stock,
lahat ng shares na in-issue ng corporation are
B. BY THE BOARD OF DIRECTORS AND THE presumed to be equal and enjoy the same rights
STOCKHOLDERS and privileges and also it is subject to the same
 liabilities. So yun ang presumption, but obviously shares, therefore, there is no authorized stock.
there can be a differences in the rights and Meron lang capital stock na pwede lang ma-
privileges of shares of stock. So, depende rin sa determined when all shares have been issued.
klase ng shares.  At least 25% of authorized capital stock yung
 And obviously, okay lang naman na may dapat na ma-subscribed and 25% naman ng
difference between the rights and privileges of a authorized capital stock yung dapat na bayaran
common share and the rights and privileges of a at the time of incorporation. Yung paid-up capital
preferred share. Obvious yun, it is expected na is hindi dapat mas mababa sa P5,000.
merong pagkakaiba.
B. Subscribed capital stock
CLASSIFICATION TO COMPLY WITH CONSTITUTIONAL - Amount of capital stock subscribed whether fully
OR LEGAL REQUIREMENTS paid or not. It is acquisition by a subscriber of
unissued shares a corporation in.
1) A corporation may, furthermore, classify its shares
for the purpose of insuring compliance with
CLASSES OF SHARES IN GENERAL
constitutional or legal requirements.
2) Corporations classify shares for reasons of A. Par value share.
expediency, primarily for monitoring purposes. The  It has a specific money value. So, yun ang
par value or number of one class of shares may be babayaran ng isang tao para sa share na yun ng
more than the others. capital stock. So yung par value, usually fixed sya
in the articles of incorporation and it will appear
CAPITAL STOCK AND CAPITAL also in the certificate of stock.
 Usually yung par value is yung minimum issued
- Capital stock is the amount fixed in the articles of
price ng shares. So, yun ang minimum amount
incorporation, to be subscribed and paid in or agreed
that the stockholders will receive for the stock,
to be paid in by the stockholders of a corporation, in
but it is usually not the price at which investors
money, property, services, or other means at the
or stockholder will buy or sell the shares.
organization of the corporation or afterwards and
upon which it is to conduct its business such B. No par value share.
contribution being made either directly through stock  It does not have any stated par value appearing
subscription or indirectly through the declaration of on the face of the certificate of stock. So, hindi
stock dividends. (Generally, Legal Capital) alam kung magkano ang value na nire-represent
 Ito yung amount ng common and preferred stock ng isang no par value share. Although, a no-par
that a company is authorized to issue, according value share always has an issued value.
sa corporate charter nito. Ito yung fixed amount  Issued value - ito yung amount na babayaran mo
na nakalagay sa articles of incorporation para for the issuance of a no-par value share. Yung
ma-subscribed at bayaran or assent to be paid by minimum consideration for no par value share is
the stockholders of a corporation. 5 pesos.

A. Authorized capital stock C. Voting share.

- If shares have par value, authorized capital stock is  Ito yung shares na may right to vote. Usually
the same as capital stock. If the shares have no par given ang right to vote to the common stock and
value, there is no authorized capital stock. There is withheld from the preferred stock. So kapag
only capital stock, which can only be determined sinabing voting to approve a particular corporate
when all shares have been issued. act, ang tinutukoy lang nyan is stock with voting
 Ito yung maximum amount ng shares na rights. However may mga instances kapag yung
permitted or ina-allow ng company to issue. non-voting shares are allowed to vote.
Usually nino-note ng charter ng isang company
yung number of authorized shares na pwede D. Non-voting share.
nitong ma-issue, pero yung number of  Shares without the right to vote. Usually yung
shareholders may be raised or lowered based sa mga dini-deprived ng voting rights ay yung mga
series of steps, procedures, that are summarized shares which are issued as preferred or
in the charter. redeemable shares, pero kung may non-voting
 If yung shares is walang par value, meaning yung shares, nire-required ng law na merong isang
authorized capital stock is the same as capital class ng share na ii-issue ang corporation with
stock. Kapag naman walang par value yung complete voting rights. Also, itong non-voting
 share is pwedeng mag-vote in some instances  So, if your authorized capital stock is ₱1M divided
provided by law. into 1,000 shares (nakapag-issue na kayo ng 1K
shares of stock) – anything in excess of 1,000
E. Common share of stock. shares of stock are over issued stock.
 So, yung mga holders ng isang common shares,
they are called residual owners. Kung merong
STATUTORY RESTRICTIONS REGARDING ISSUANCE OF
assets left over after liquidation, after all the
NO-PAR VALUE SHARES
debts are paid and after lahat nung mga interest
ng mga preferred shares ay nabigay – kung may A. Banks, trust companies, insurance companies, pre-
natira – mare-receive nila yung kanilang share need companies, public utilities, building and loan
tapos pro rata pa. associations, and other corporations authorized to
obtain or access funds from the public whether
F. Preferred share of stock publicly listed or not, shall not be permitted to issue
 yung holder is magkakaroon ng certain no par value shares of stock.
preferences over the holders ng common stock.  Corporations vested with public interest cannot
 So yung preference may consist in the payment issue no-par value shares of stocks.
of dividends or the distribution of assets upon
dissolution. OR other preferences basta B. Preferred shares of stock may be issued only with a
nakalagay sa articles of incorporation. stated par value.
 It is always issued with par value.
C. Shares issued without par value shall be deemed fully
G. Promotion stock or promotional stock. paid and non-assessable and the holder of such
- These are issued to promoters or people who are in shares shall not be liable to the corporation or to its
some way interested for incorporating the company creditors in respect thereto. This only means that the
or for services in launching or promoting the holder shall not be liable beyond the issued price.
corporation.  Remember: Kapag nag-issue ng no-par value
shares, mag-iissue lang ng certificate of stock if it
H. Share in escrow. is fully paid. So, hindi pwedeng installment
 Remember: The person who is entitled to receive payment ang mga no-par value shares – they are
the share of stock will not receive it until the always deemed fully paid and non-assessable
condition is fulfilled.
 So, ang share in escrow ay mayro’ng isang D. Shares without par value may not be issued for a
grantor who would want to give yung shares of consideration not less than the value of ₱5 per share.
stock to a 3rd person or beneficiary, but in the  Remember: wala nga syang par value pero
meantime, it is place in the name of an agent and meron syang issued value and the issued value
that agent will keep the share of stock until the should not be less than ₱5 per share.
fulfillment of a certain condition and at which
time – doon palang ire-release yung share of E. The entire consideration received by the corporation
stock dun sa beneficiary. for its no par value shares shall be treated as capital
and shall not be available for distribution as
I. Convertible stock. dividends.
 It is changeable from one class to another class;  Kailangang tandan sa no-par value shares: Kung
preferred to common, etc. at the conversion ang issued value nya is ₱5, even if the
ratio. corporation receives more than ₱5 or more than
 So, yung price of the common valued as against the issued value – hindi ito treated as capital and
the preferred if that is the conversion. Usually it it cannot be available as dividends for
is the stockholder who will demand a conversion distribution to stockholders. So, ito yata yung
at his (treasure) unless otherwise provided for in tinatawag nila na share premium – even if it sold
the articles of incorporation. at a higher price, part pa rin yan ng capital. Hindi
pwedeng i-distribute as dividends to
J. Fractional share. stockholders.
 It is less than one share
K. Over-issued stock. F. The articles of incorporation must state the fact that
- General rule: it is issued as null and void. it issued no par value shares as well as the number of
- Stock issued in excess of the authorized capital stock said shares.
  Kailangan lang nakalagay sa articles na ang
kanyang in-issue ay no-par value shares and B. Preferred shares deprived of voting rights in the
kailangan rin ilalagay doon ang number of shares. articles of incorporation shall still be entitled to vote
on matters enumerated in Section 6, although they
shall not be entitled to vote on other matters.
RIGHT TO VOTE OF VOTING SHARES
C. The preferences of preferred shares must not be
A. IN STOCK CORPORATIONS
violative of the provisions of the RCCP.
- Each share of stock is entitled to vote unless
otherwise provided in the articles of incorporation or
D. Preferred shares may be issued only with a stated par
declared delinquent (Section 66).
value.
- Unissued stocks may not be voted or considered in
determining whether a quorum is present in a
E. The board of directors may fix the terms and
stockholders’ meeting, or in determining majorities,
conditions of preferred shares of stock or any series
or whether a requisite proportion of the stock of the
thereof only when so authorized by the articles of
corporation is voted to adopt a certain measure or
incorporation and such terms and conditions shall be
act. Shares reacquired by the corporation and
effective upon filing a certificate thereof with the
remaining therein have no right to vote.
SEC.
 Each share of stock is entitled to vote unless it is
 So, if magkakaro’n ng terms & conditions
delinquent or otherwise provided in the articles
regarding preferred shares, this will be
of incorporation.
determined by the board – the board must be
 Unissued stocks may not be voted kasi wala
authorized by the articles to fix the terms &
namang may-ari jan and it is not counted in
conditions.
determining whether there is a quorum or not.
Shares also reacquired by the corporation and
remaining in the treasury have no right to vote. CASES WHEN NON-VOTING SHARES ARE ALLOWED TO
VOTE (ACIDRIP)
B. IN NON-STOCK CORPORATIONS
A. AMENDMENT AND ADOPTION
- The voting rights attach to membership. Members
- Any corporate act to amend the articles of
vote as persons, in accordance with the law and the
incorporation or the by-laws of the corporation or
by-laws of the corporation. Each member shall be
the adoption thereof.
entitled to one vote unless so limited, broadened, or
 In amendment, non-voting shares are also
denied in the articles of incorporation or by-laws.
allowed to vote.
- In determining quorum, only those who are actual
members with voting rights should be counted.
B. DISPOSITION OF PROPERTY
 MEMBERSHIP. One vote per member unless it is
- Any proposed action to sell, lease, exchange,
limited, broadened, or denied in the articles of
mortgage, pledge, or other act that would dispose of
incorporation or by-laws.
all or substantially all of the corporate property
(SLEMPO).
LIMITATIONS REGARDING ISSUANCE OF PREFERRED  So, even non-voting shares are allowed to vote if
SHARES that is the issue at hand.

A. A corporation may issue more than one class of C. INDEBTEDNESS

preferred stock as to assets or as to dividends. Thus, - Any proposed act to incur, create, or increase the
certain preferred shares may be given first corporation’s bonded indebtedness.
preference or second preference on earnings. Unless
a classification is provided in the articles of D. CAPITAL STOCK
incorporation, the rule is that preferred shares of - Any proposal to either increase or decrease the
stock enjoy the same preferences or privileges. Thus, capital stock.
if the articles do not distinguish between those  Pwedeng bumuto jan yung mga holders ng non-
preferred shares subscribed from the corporation voting shares
and those acquired by other modes, as far as
preferences are concerned, the former cannot be E. CORPORATE RESTRUCTURING
considered to enjoy privileges different from those of
the latter (SEC Opinion, December 4, 1981).
- Any planned merger or consolidation of the  Redemption – is the repurchase, reacquisition of
corporation with another corporation or other a stock by a corporation which issued the stock in
corporations. exchange for cash or property whether or not the
 merger or consolidation with another acquired stock is cancelled, retired, or held in the
corporation needs the approval of even non- treasury.
voting shares.  Redemption – a corporation buys back shares of
stock.
F. INVESTMENT
- Any proposed investment of corporate funds in LIMITATIONS ON REDEEMABLE SHARES
another corporation or business.
 Ito yung nasa kamay na ng stockholder, binili ulit
ng corporation. So, bin’ay back (buy back) ng
G. DISSOLUTION
corporation ‘tong mga shares na’to.
- Any planned termination of corporate life.

A. ISSUANCE OF REDEEMABLE SHARES

SECTION 7 - Redeemable shares may be issued only when
expressly so provided in the articles of incorporation.
FOUNDERS’ SHARES
In the absence of provisions on redemption of
- Shares issued to the organizers and promoters of a preferred shares in the articles of incorporation and
corporation in consideration of some supposed right the by-laws, they are deemed irredeemable.
or property. Such shares usually share in profits only
after a certain percentage has been paid upon the B. TERMS AND CONDITIONS AFFECTING REDEEMABLE
common stock, but are often given certain rights and SHARES
privileges over other stock such as the exclusive right - The terms and conditions affecting redeemable
to vote and be voted for in an election for directors shares must be stated not only in the articles of
(such right must be for a limited period not exceeding incorporation but also in the certificate of stock
five years, the period to commence from the date of representing said shares.
incorporation) and as to division of profits in excess
of a minimum dividend on the common stock. This C. VOTING RIGHTS
privilege is given in recognition of the fact that they - Redeemable shares may be deprived of voting rights
are the ones who founded or incorporated the in the articles of incorporation, unless otherwise
corporation in the first place. provided as in Section 6. (meaning yung ACIDRIP)
- May be deprived of voting rights even if not classified
as preferred or redeemable. D. REDEMPTION CAN BE MADE REGARDLESS OF
 Founders’ shares issued to organizers & EXISTENCE OF UNRESTRICTED RETAINED EARNINGS
promoters of a corporation. So, nagsh’share BUT CANNOT BE MADE IF IT WILL CAUSE
naman sila sa profit but they have certain rights INSOLVENCY
and privileges over other stock such as the - Upon the expiration of the period fixed, the law
exclusive right to vote and be voted for in an allows redemption of shares even if there are no
election for directors (such right is only for a unrestricted retained earnings on the books of the
limited period not exceeding 5 years). Yung 5 corporation. However, after such redemption, the
year-period will start from the date of corporation must have sufficient assets to cover
incorporation. Also, as to division of profits, debts and liabilities inclusive of capital stock. The
meron din silang privilege dun. And binibigay rights of the holders of redeemable shares should be
yung privilege na yun kasi sila yung nag-umpisa deemed subordinate to the rights of corporate
ng corporation. creditors. Therefore, redemption may not be made
where the corporation is insolvent or if such
SECTION 8 redemption would cause insolvency or inability of the
corporation to meet its debts as they mature.
REDEEMABLE or CALLABLE SHARES  Ang ating mga redeemable shares – pwede ‘yang
i-redeem even if there are no Unrestricted
- Shares which are usually preferred, which by its Retained Earnings BUT, it cannot be made if it
terms are redeemable at a fixed date or at the option will cause insolvency to the corporation.
of either the issuing corporation or the stockholder  Even if there are no unrestricted retained
or both at a certain redemption price. earnings on the books, pwedeng i-allow yung
Take note:
 redemption ng shares because the redemption is (CCP) No. 1-1982). Hence, the price paid out of
provided for by contract between stockholder retained earnings for the value of reacquired shares
and the corporation. However, corporation must should be treated in the corporate books as payment
have sufficient assets to cover debts and for the purchase of the shares (SEC Opinion, February
liabilities inclusive of capital stock. So, if yung 20, 1991) and an investment on such property.
pagre-redeem ng mga redeemable shares will  Treasury shares are not retired shares. Hindi sila
cause insolvency to the corporation, hindi muna babalik as unissued because ang treasury shares
dapat i-redeem yung mga yun even if it is already na-issue na yan, nabayaran na nga talaga fully
redeemable at that time. paid, except that they are acquired by the
corporation at some future time.
Take note:
 Treasury shares can also be re-issued or resolved
 Unrestricted Retained Earnings – earnings ng
by the corporation at a price fixed by the board
corporation na hindi earmarked for a definite
of directors. Pwede rin namang lower price pero
corporate purpose OR hindi sya nakalaan para sa
it should be reasonable price gaya ng sabi ng law.
isang corporate purpose that’s why it is called
- Treasury shares are issued shares but being in the
URE.
treasury they do not have the status of outstanding
shares, in the sense that they do not constitute a
SECTION 9 liability of the corporation. They are, therefore, not a
part of outstanding capital stock. A corporation may
TREASURY SHARES eliminate the treasury shares by reducing its
- Shares which have been lawfully issued by the authorized capital stock. Since they do not lose their
corporation and fully paid for and later reacquired by status as issued shares, they cannot be treated as
it for one reason or another either by purchase, new issues when disposed of or reissued.
redemption, donation, forfeiture, or other lawful  Treasury shares are issued shares kasi nga diba it
means. is issued, fully paid etc. but reacquired later on.
 So, yung mga treasury shares, obviously, nasa But because they are in the treasury, they do not
treasury yan. have the status of outstanding shares and not
part also of the capital stock.
RULES REGARDING TREASURY SHARES  Outstanding share – is any shares that are not in
the hands of the corporation.
A. STATUS
- A corporation may purchase or acquire its own B. RESALE
shares for legitimate corporate purposes in the - They may be resold by the corporation at any price
absence of a qualified bidder in case of delinquency the board of directors sees fit to accept, even at less
sales. Only surplus earnings may be used for the than par, having been once legally issued as fully
purchase of treasury shares. Title to the shares paid, provided such price is reasonable under the
purchased shall be vested in the corporation as circumstances. Stockholders may rightfully complain
treasury shares. The purchase by the corporation if the price is lower than reasonable. In case of sale or
operates, in effect, as a forfeiture of the shares. reissue, it again becomes outstanding stock and
 So, usually in delinquency sales – par value regains whatever dividends and voting rights it
shares ito na may mga balance, then yung originally held.
balance hindi nabayaran, so, they will become  So, you can resale yung treasury shares at a price
delinquent shares. Then they will be sold in the board of directors sees fit, even at less than
delinquency sales or yung mga auction ng mga par value, provided that the price is reasonable
shares of stock. under the circumstances. Kapag may bumili na, it
 Usually, kapag walang bidder na bibili dun sa mga will become outstanding stock and magkakaro’n
delinquent shares, the corporation can reacquire sya ng dividends and voting rights.
yung kanyang own shares, in which case
magiging treasury share sya. C. DECLARATION AS PROPERTY DIVIDEND
- Treasury shares are not retired shares. They do not - Treasury shares being unrealized income, are not
revert to the unissued shares of the corporation but considered as part of earned or surplus profits, and,
are regarded as property acquired by the corporation therefore, not distributable as dividends, either in
which may be reissued or resold by the corporation cash or stock. If there are retained earnings arising
at a price to be fixed by the board of directors (SEC from the business of the corporation, treasury
Rules Governing Redeemable and Treasury Shares shares, being the property of the corporation, may
 properly be distributed as property dividend (SEC  Meaning, it is not a civil right, it is not a natural
Opinion, April 24, 1979). right na kailangan nating ipaglaban, but it is a
 So, treasury shares dahil ito ay unrealized income mere special grant or privilege na binigay sa atin
and not considered as part of earned or surplus ng batas. So, pinagbigyan lang tayo para pwede
profit, and hindi sya distributable as cash tayong mag-incorporate ng corporation and yung
dividend or stock dividend, but they can be law na yun is known as the revised corporation
distributed as property dividend. code. Dahil sa revised corporation code of the
Philippines, nagkaroon tayo ng privilege or
D. VOTING RIGHTS pinagbigyan tayo na mag-incorporate ng mga
- Treasury shares have no voting rights as long as they corporations. So, without the special act of
remain in the treasury, i.e. uncancelled and subject legislature or kung wala yung general
to reissue. A corporation cannot in any proper sense incorporation law, which is again the RCCP, hindi
be a stockholder in itself, and shares of its own stock, pwedeng magkaroon ng corporation.
therefore, held by it cannot be voted or be entitled to
vote for otherwise the directors could be able to STEPS IN THE CREATION OF A CORPORATION
perpetuate control of the corporation.
1. Promotion.
 Treasury shares have no voting rights dahil di
2. Incorporation
naman sya outstanding and it is in the treasury
3. Formal organization and commencement of
 Remember: yung mga redeemable shares niyo,
business operations.
kapag ni-redeem na yun, if it’s not cancelled after
redemption, it will become treasury shares.
PROMOTION OF CORPORATIONS
- A number of business operations peculiar to the
E. RIGHT TO DIVIDENDS
business world by which a company is generally
- Treasury shares are not entitled to dividends or
brought into existence. It includes activities done by
assets because dividends cannot be declared by a
promoters for the founding and organizing of the
corporation to itself as such distribution would be
business.
like taking money or stock from one of its pockets
 Promotion of corporations is obviously done by
and putting the same in another, which would be
promoters. So kapag nagpo-promote tayo, ina-
pointless. Hence, stock dividend may not be declared
advertise natin ang isang bagay. So ang
on treasury stock even on express condition that
promotion, you are trying to bring into existence
such dividend will also be treated as treasury stocks
a certain entity which in this case is a
(SEC Opinion, November 2, 1966).
corporation. So lahat ng mga activities ng mga
 Treasury shares are not entitled to dividends. Ang
promoters for founding and yung pag-organize
corporation kasi ang may-ari ng treasury shares,
nung business, promotion yung tawag don.
so bawal itong magdeclare ng dividends for itself.
PROMOTER
- One who, alone or with others, takes it upon himself
TITLE II to organize a corporation: to procure the necessary
INCORPORATION AND ORGANIZATION OF PRIVATE legislation, where that is necessary; to procure the
CORPORATIONS necessary subscribers to the articles of incorporation,
where the corporation is organized under general
INCORPORATION OF laws; to see that the necessary document is
CORPORATIONS presented to the proper office to be recorded and
the certificate of incorporation issued; and generally,
INCORPORATION OF A PRIVATE CORPORATION IS A to “float the company.”
MERE PRIVILEGE  Sila po yung mga tumutulong satin para ma-
- The right to be act as a corporation does not belong organize and eventually ultimately ma-
to any person as a natural and civil right, but as a incorporate yung gusto nating gawing
mere special privilege conferred upon a group of corporation. They will procure the necessary
persons by the sovereign power of the State. Until legislation, kung ito ay special corporation, they
there is a grant of such right, therefore, whether by will go to the congress and lobby na ma-approve
special act of the legislature or under a general law, ‘tong legislation na ‘to if that is necessary. To
there can be ni corporation. procure the necessary subscribers to the articles
of incorporation, maghanap sila ng mga
 incorporators, ng subscribers, where the INCORPORATORS
corporation is organized under the general - Those stockholders or members mentioned in the
incorporation law (RCCP); then to make sure that articles of incorporation as originally forming and
the documents are presented to the SEC and a composing the corporation, and who are signatories
certificate of incorporation is later on issued. And thereof (SEC Memorandum Circular No. 16, Series of
ang general job ng isang promoter is to “float the 2019, Guidelines on the Number and Qualifications of
company” Incorporators under the Revised Corporation Code,
July 30, 2019).
Q: What is the liability of a promoter?
 Obviously, incorporation is done by the
A: All promoter(s) have joint personal liability for a incorporators. So, sila yung mga original
corporation that was never formed. He remains liable members or stockholders na nagform ng isang
on contracts even after incorporation even though corporation and sila yung magsa-sign don sa
corporation adopts the contract. articles of incorporation. So, each incorporator is
 So yung liability po ng isang promoter syempre dapat magkaroon ng at least 1 share ng capital
bukod sa kanyang obligation na mabuo yung stock.
corporation is magiging liable sya for damages
kapag hindi nabuo yung corporation. Also, yung
general rule kasi is that kapag ang isang promoter SECTION 10
is gumawa sya ng isang contract for the benefit of
QUALIFICATIONS OF INCORPORATORS
a proposed corporation, so personally liable pa
rin sya sa contract even after incorporation. A. NUMBER OF INCORPORATORS
- Only a One Person Corporation (OPC) may have a
Q: Are promoters agents of a corporation? single stockholder, as well as a sole director.
A: No. Promoters are not agents of the corporation Accordingly, its registration must comply with the
before it comes into existence. Upon incorporation, the corresponding separate guidelines on the
practice is for the BOD to pass a resolution ratifying the establishment of an OPC (SEC Memorandum Circular
contracts entered into by the incorporators with the No. 16, Series of 2019). Only a natural person, trust
promoter. Then, they become agents of the or estate may form a one-person corporation.
corporation. - For the purpose of forming a domestic corporation
 So, ang mga promoters ay hindi agents ng under the RCCP, 2 or more persons, but not more
corporation before it comes into existence. Mara- than 15, may organize themselves and form a
ratify lang yung contract once na nakapagpasa ng corporation (SEC Memorandum Circular No. 16,
resolution yung ating Board of Directors, so that’s Series of 2019).
the time na nagiging agent na ng corporation  Pwedeng isa lang kasi meron na tayo nung one
yung mga promoters. So kumbaga malilimitahan person corporation. So in case of one person
nalang yung liability nila, kumbaga liable nalang corporation, natural person, trust, or estate lang
sila as an agent. yung pwedeng magform ng OPC
 Kapag domestic corporation, 2 or more persons,
Incorporation but not more than 15.
- When the incorporators come together and perform - The incorporators may be composed of any
acts, conditions, deeds, writings, certifications or combination of natural person/s, SEC-registered
records, and official acts which give the corporation partnership, SEC-registered domestic corporation or
its existence. association, Foreign corporation
 Yung mga incorporators, nagsasama-sama sila  So, any combination of natural persons,
and perform acts, deeds etc. which will give the partnership, corporation, associations or even
corporation its existence. So in short, ang yung foreign corporations ay pwedeng maging
incorporation is yung process ng creation or incorporators nowadays. Dati ay bawal. Dati,
formation ng bagong corporation. Yung bawal ding maging incorporator yung mga
incorporators is i-eexecute at sign nila yung juridical persons or artificial beings like
articles of incorporation which will serve as the partnerships – bawal, bawal din ang corporation
charter ng isang private corporation and upon na maging incorporator although your
approval of the SEC and nag-issue sila ng corporations is pwedeng maging stockholders sa
certificate of incorporation, yung corporation is isang corporation pero dahil sa advent or
given existence. pagdating ng revised code, kaya naiba na rin yung
 composition ng incorporators, pwede ng natural regulatory restrictions. Usually, we will look to
persons at pwede na ring juridical persons. the foreign investment negative list para
malaman kung anong percentage ng foreign
B. IF A NATURAL PERSON, MUST HAVE LEGAL ownership or foreign investment yung allowed
CAPACITY OR IF AN INDIVIDUAL SIGNING ON sa isang corporation.
BEHALF OF AN INCORPORATOR WHICH IS NOT A
NATURAL PERSON, MUST BE AUTHORIZED STEPS IN INCORPORATION
- The act of forming a corporation as between the A. Name verification.
parties is contractual so it is a requirement that the  First step is yung name verification. Yung isang
incorporators who are natural persons must be of company kasi ay nakikilala sa pamamagitan ng
legal age and with capacity to contract while name nito. So, mag-iisip ang corporation ng gusto
individuals signing on behalf of an incorporator which nyang maging name then ive-verify nila nun sa
is not a natural person must be authorized (SEC SEC if yung name ba na yun is available to use or
Memorandum Circular No. 16, Series of 2019). hindi.
 If it is refers to a natural person, pag nag-form ka
B. Name reservation.
ng corporation – contract yan. So, obviously yung
 Reserve the name if it is available.
incorporators in case of natural persons ay dapat
nasa legal age yan and kailangang meron syang C. Drafting and execution of the articles of
legal capacity. If it is individual who will sign on incorporation by the incorporators and other
behalf of an incorporator na hindi natural person documents required for registration of the
either partnership man to or association, foreign corporation.
or domestic corporation, yung individual signing  Draft niyo na lahat ng kailangan para sa
on behalf of these juridical entities or artificial registration ng corporation.
beings is dapat authorized by their partnership or D. Filing with the SEC of the certificate or reservation
corporation. of corporate name, articles of incorporation and by-
laws and certificate of authority or favorable
C. STOCK SUBCRIPTION OR MEMBERSHIP
recommendation from proper government agency
- Each of the incorporators must own, or be a
for corporations vested with public interest.
subscriber to, at least one (1) share of the capital
stock or be a member of the corporation E. Payment of filing and publication fees.
 So, each incorporator ay dapat magkaroon sila or
F. The issuance by the SEC of the certificate of
maging subscriber sila ng at least 1 share ng
incorporation if all the papers filed after verification
capital stock and in case naman sa non-stock
and examination are found in order.
corporation, each incorporator is dapat maging
 So, ang isa-submit ng corporation proposing to
member nung non-stock corporation.
incorporate is yung articles of incorporation.
If stock corporation – kailangan meron syang
Kapag na-approve yan, yung SEC ay mag-iissue ng
biniling shares.
certificate of incorporation. Magkaiba yung
If non-stock corporation – must be a
dalawang yun. Also, in case of professionals, as a
member of the corporation.
general rule, hindi sila allowed mag-organize as
D. MUST HAVE THE REQUIRED CITIZENSHIP PERCENTAGE corporations. So, yung mga natural persons na
- The inclusion of foreign nationals in the articles of may license to practice a profession cannot do so
incorporation shall be subject to applicable in a corporate setting. But this is subject to
constitutional, statutory, and regulatory restrictions, exceptions wherein merong mga professions
as well as conditions, with respect to foreign which allow corporate practice.
participation in certain investment areas or activities
(SEC Memorandum Circular No. 16, Series of 2019). SECTION 11
 Ito lang yung mga industries which require
Filipino citizenship. Hindi kasi lahat ng TERM OF CORPORATE EXISTENCE
corporations natin ay kailangang Pilipino lahat, A. GENERAL RULE
meron lang tayong mga certain corporations - A corporation may exist ad infinitum or perpetually.
which require Filipino nationalities ng mga  Meaning wala po syang end or limit. Dati, 50
incorporators at ng mga stockholders. So, yung years renewable ito for another 50 years. Pero
mga inclusions ng foreign nationals shall be ngayon, ang isang corporation pwede ng mag-
applicable to constitutional, statutory, and exist perpetually. So yun ang default option,
 kapag nagtayo or nag incorporate kayo ng isang  So, if yung original term ng isang corporation is 5
corporation, yan yung general rule. years, it was incorporated under the old
corporation code. If they want to retain yung 5
B. EXCEPTION years – they have to approve a resolution. Naka-
- If the articles of incorporation provides for a specific state dun sa resolution na gusto nilang i-retain
period. A corporation for a specific period ceases to yung existing corporate term. Yung resolution is
exist and is dissolved ipso facto upon the expiration dapat i-approved ng majority Board of Directors
of the period fixed in the articles of incorporation in (BOD) or trustees and also yung majority vote ng
the absence of compliance with the legal requisites stockholder na nagre-represent sa majority of the
of regarding the extension of corporate term. In this outstanding capital stock (OCS) including yung
case the first day of the corporate term is the date of non-voting shares or majority ng members in
incorporation as stated in the certificate of case of non-stock corporation. And then they
incorporation and the last day is the day before have to submit to the SEC a notice with attached
corresponding numbered day of the same month of director’s certificate signifying their intention to
incorporation in the last year of its existence (SEC retain yung kanilang specific corporate term as
Memorandum Circular No. 21, Series of 2014, already provided in the articles of incorporation.
Guidelines Governing the Computation of Corporate And the SEC will issue a certificate of filing notice
Term, November 28, 2014). to retain specific corporate term.
 Unless yung articles of incorporation ay nag-  Any corporation which fail to file yung ganitong
provide ng specific period. So, kung ang nilagay notice to retain yung kanilang term will be
nya lang is 5 years, syempre yung period na given deemed perpetually existing.
to the corporation is only 5 years. So, kapag nag-  Also, you can extend or shorten corporate term
expire na yung 5 years na yun and walanang in case a specific period is provided (wala naman
extension ng corporate term then the limit yung number of extensions)
corporation will cease to exist, and it will be
dissolved ipso facto or as a matter of fact. SECTION 12
 Computation of the corporate term is provided
by SEC Memorandum Circular No. 21, Series of CAPITAL STOCK REQUIREMENT
2014, Guidelines Governing the Computation of - The law does not set a minimum authorized capital
Corporate Term. So it will include yung date of stock except as otherwise provided by special law.
incorporation – yun ang first day nya. And the Special laws may require a higher paid-up capital.
last day is yung day before corresponding  So, ang sabi dito is wala daw minimum
numbered day of the same month of authorized capital stock for corporations except if
incorporation in the last year of its existence. there is a special law which provides otherwise.
Let’s say, ang articles of incorporation, sabi ang Yung authorized capital stock is determined by
term nya is 5 years lang and na-issue yung the incorporator – sila ang nagsasabi kung ano
certificate of incorporation today (October 5, ang capital na kailangan nila para sa kanilang
2021), ang last day nya is October 4, 2026. business. So magkakaroon lang din kayo ng
authorized capital stock if yung shares na ini-
CORPORATIONS INCORPORATED UNDER THE OLD CODE issue mo ay par value shares. Now kung nag-
iissue ka ng no par value shares, capital stock
Term of existence (answered by SEC Memorandum meron kayo but not authorized capital stock.
Circular No. 22, Series of 2020), Guidelines on corporate Now, since yung authorized capital stock is
term enacted August 18, 2020. determined by the incorporators, yung basis nila
General Rule: In case of corporations already is yung amount sufficient to run a business.
incorporated under the old code, even without doing  Special laws may require a higher paid-up capital.
anything, yung kanilang term is magiging perpetual. If So, yung paid up capital is that portion of your
they do not act on the term, kahit merong nakasulat na subscription na binayaran mo na. So halimbawa
limit ng term don sa kanilang articles of incorporation, ang aking subscription
magiging perpetual term din ito according to SEC MC
nayan. Q: Is it required that each subscriber pay 25% of each
subscribed share?
Exception: In case a corporation intends to retain yung
kanilang original term as provided for in the articles of A: No. It is only required that at least 25% of the
incorporation. subscribed capital must be paid. (Hindi, yung nire-
required lang is yung at least 25% ng subscribed capital word “Company,” “Associates,” or “Partners,” or
yung dapat bayaran.) other similar descriptions.
d. The corporate name of foundations shall use the
Foreign investment negative list word “Foundation”.
(https://www.sec.gov.ph/wp-content/ e. The corporate name of all non-stock, non-profit
uploads/2019/11/EO-98-_-6th-Foreign- corporations, including non-governmental
Investment-Negative-List.pdf) organizations and foundations, engaging in
 Defines the Filipino ownership requirement microfinance activities shall use the word
regarding corporate capital. “Microfinance” or “Microfinancing”; provided,
that said corporations shall state in the purpose
ARTICLES OF INCORPORATION clause of their Articles of Incorporation that they
- The document prepared by the persons establishing a shall conduct microfinance operations pursuant
corporation and filed with the SEC containing the to Republic Act No. 8425 or the Social Reform
matters required by the RCCP. and Poverty Alleviation Act.

SECTIONS 13 & 14 B. PURPOSE/S OF THE CORPORATION

- The purpose clause will confer, as well as limit, the
CONTENTS AND FORM OF ARTICLES OF INCORPORATION powers which a corporation may exercise. Any act
- The law enumerates the matters which must be beyond its powers is known as ultra vires act.
stated in the articles of incorporation. The  Ang purpose will define the powers and also limit
incorporators may include such other matters as are the powers of a corporation.
not inconsistent with law and which they may deem
necessary and convenient. Rules regarding purpose
1. Must be lawful
A. NAME OF THE CORPORATION (Section 17)  So dapat lawful yan, kasi kapag meron
- The corporation acquires juridical personality under kayong illegal purpose, pwedeng maging
the name stated in the certificate of incorporation. A ground ito for rejection of your articles of
corporation has the power of succession by its incorporation.
corporate name. It is the name of the corporation 2. Must be stated with sufficient clarity.
which identifies and distinguishes it from other  Dapat sa purpose clause – kasi makikita sa
corporations, firms, or entities. Its name is one of its articles of incorporation dun sa format,
attributes, an element of existence, and essential to merong purpose clause don. So, ilalagay kung
its identity. Each corporation must have a name by anong purpose ng corporation. Dapat, kapag
which it is to sue and be sued and by that name, it is naglagay kayo ng purpose ng corporation,
authorized to transact business. The name of a maliwanag kung ano talaga yung business ng
corporation is, therefore, peculiarly essential to its corporation
existence. 3. Primary
 So, importante ang pangalan para sa isang 4. Must be lawfully combined
corporation. Dito kasi naa-identify kung anong  So, hindi sya kailangan na related to one another.
klase kang corporation at dito rin nadi- Hindi kailangan na sobrang magkaka-connect sila
distinguished or nakikilala ang isang corporation pero dapat lawfully combined sila with one
from other entities. another.

GENERAL RULES C. PRINCIPAL OFFICE OF THE CORPORATION

a. The corporate name shall contain the word - The place of the principal office does not necessarily
“Corporation” or “Incorporated,” or the mean the place where the business of the
abbreviations “Corp.” or “Inc.” respectively. corporation is transacted but the place where its
b. In case of a One Person Corporation, the books and records are ordinarily kept, and its officers
corporate name shall contain the word “OPC” usually meet for the purpose of managing the affairs
either below or at the end of its corporate name. and transacting the business of the corporation.
c. The partnership name shall bear the word  So, yung place po ng principal office is hindi
“Company” or “Co.” and if it is a limited naman necessarily mean na sa place kung saan
partnership, the word “Limited” or “Ltd.”. A isinasagawa yung business ng corporation, pero
professional partnership name may bear the sa place kung saan usually kini-kept yung records
 and books and usually nagme-meet yung mga 6. If some or all of the shares are without par value,
officers nito for the purpose of managing the such fact must be stated.
affairs and transacting the business of the
corporation. NECESSARY PROVISIONS IN NON-STOCK CORPORATIONS
 So, yung place kung saan yung principal office ng
1. The amount of its capital or money contributed
corporation is dapat within the Philippines.
or donated by specified persons.
 According kasi sa SEC Memorandum circular (MC)
2. The names, nationalities, and residences of the
No. 6 series of 2016, the Omnibus Guidelines on
donors or contributors.
Principal Office address. Address of each
3. The respective amount contributed by each.
incorporator, director, trustee, or partner is
dapat po very specific. So remember po
G. NATIONALIZED CORPORATIONS
kailangan sa address ng corporation, dapat naka-
- Corporations which will engage in any business or
include if possible or feasible yung street
activity reserved for Filipino citizens shall provide in
number, street name, barangay city or
their articles of incorporation the restriction against
municipality and if applicable, yung name and
the “transfer of stock or interest which will reduce
number ng building and nung room or nung unit.
the ownership of Filipino citizens to less than the
 Also, in relation to the same circular, change in
required percentage of the capital stock as provided
address, kailangan if yung move is from the same
by existing laws.”
city or municipality, hindi po nun required yung
corporation to amend its articles of incorporation
pero kailangang i-declare nya po yung kanyang AMENDMENT OF THE ARTICLES OF
new address sa general information sheet INCORPORATION SECTION 15
although if they want to so amend – pwede
naman If the change of address is to a different REQUISITES TO AMEND ARTICLES OF INCORPORATION
city or municipality.
A. The amendment must not be contrary to law and
D. CORPORATE TERM must be for a legitimate purpose.
- See Section 11.
B. Approved by majority vote of the board of directors
E. INCORPORATING DIRECTORS OR TRUSTEES or trustees and at least 2/3 vote or written assent of
- The names, nationalities, and residences of the the stockholders of the outstanding capital stock or
incorporators must be specified. the members in case of a non-stock corporation.
- The number of incorporating directors shall not be
more than 15 or in case of trustees may be more C. The original and amended articles together shall
than 15. The incorporating directors or trustees shall contain all provisions required by law to be set out in
hold office until their successors are duly elected and the articles of incorporation. Such articles, as
qualified. They are intended to be replaced by the amended, shall be indicated by underscoring the
regularly elected directors or trustees who shall hold change or changes made.
office for one year in case of directors and three
years in case of trustees. D. Certification under oath by the corporate secretary
and a majority of the directors or trustees stating the
F. CAPITAL STOCK or CAPITAL AND SUBSCRIBERS or fact that the said amendments have been duly
CONTRIBUTORS approved by the required vote of the stockholders or
members, shall be submitted to the SEC.
NECESSARY PROVISIONS IN STOCK CORPORATIONS
E. The amendment shall take effect only upon their
1. The amount of its authorized capital stock in approval by the SEC. they are deemed approved by
pesos. the SEC from the date of filing if not acted upon
2. The number of shares into which it is divided. within six months from the said date for cause not
3. The par value in pesos of each share. attributable to the corporation.
4. The names, nationalities, and residences of the
original subscribers. F. If the corporation is governed by special laws such as
5. The amount of capital stock subscribed, and banks, banking and quasi-banking institutions, pre-
amount paid by each on his subscription. need, insurance, and trust companies, NSSLAs,
pawnshops, and other financial intermediaries, the
 amendments must be accompanied by a favorable B. The purpose or purposes of the corporation are
recommendation of the appropriate government patently unconstitutional, illegal, immoral or contrary
agency to the effect that such amendments are in to government rules and regulations.
accordance with law.  Purposes are illegal obviously.

G. Such portion of the articles of incorporation which C. The certification concerning the amount of capital
states an established or accomplished fact at the stock or subscribed capital or paid-up is false
time of incorporation, e.g., names of the  Ire-reject nila yung certification concerning the
incorporators and the first directors or trustees, amount of capital stock or subscribed capital or
cannot be changed or amended by substituting for paid-up is false. Obviously, the SEC will reject
the name of an incorporator the name of another, for yang articles nayan or any amendment.
the reason that the same states an accomplished
fact, just as the place and date of the execution of D. The required percentage of Filipino ownership of the
the articles and the original subscriptions of the capital stock under existing laws or the Constitution
incorporators cannot be changed or amended. has not been complied with.
Similarly, the names, etc. of the subscribers, the
treasurer of the corporation of the corporation GROUNDS FOR SUSPENSION OR REVOCATION OF
elected by the subscribers, and the witnesses cannot CERTIFICATE OF REGISTRATION OF CORPORATIONS (SEC
be amended except to correct mistakes. REORGANIZATION ACT, P.D. NO. 902-A, MARCH 11, 1976)

A. Fraud in procuring its certificate of incorporation

H. In the case of foreign corporations authorized to
(such as making it appear that it has cash paid-up
transact business in the Philippines, they are merely
capital when actually it has none, the money being in
required to file, within 60 days after the amendment
fact merely borrowed and returned to the lender
to the articles of incorporation (or by-laws) becomes
after the incorporation).
effective, with the SEC and in proper cases, with the
appropriate government agency, a duly
B. Serious misrepresentation as to that the corporation
authenticated copy of the articles of incorporation
can do or is doing to the great prejudice of, or
(or by-laws) for record purposes. The filing thereof,
damage to, the general public.
however, shall not itself enlarge or alter the purpose
or purposes for which such corporation is authorized
C. Refusal to comply with or defiance of a lawful order
under its license to transact business in the
of the SEC restraining the commission of acts which
Philippines.
would amount to grave violation of its franchise.

D. Continuous inoperation for a period of at least five

years.
DISAPPROVAL OF THE ARTICLES OF
E. Failure to file by-laws within the required period.
INCORPORATION
SECTION 16 F. Failure to file required reports in appropriate forms
as determined by the SEC within the prescribed
GROUNDS FOR DISAPPROVAL OF THE ARTICLES OF
period
INCORPORATION OR AMENDMENT THERETO

A. The articles of incorporation or any amendment INCORPORATION OF

thereto is not substantially in accordance with the CORPORATIONS
form prescribed herein.
 If the articles are not substantially in the form
SECTION 18
prescribed. So substantial compliance lang ACQUISITION OF JURIDICAL PERSONALITY
naman ang required sa form as found in section
14 – if you do not substantially comply with it, A. ISSUANCE OF CERTIFICATE OF INCORPORATION
the SEC may reject your articles or any - A corporation commences to have juridical
amendment thereto. personality and legal existence only from the
moment the SEC issues to the incorporators a
certificate of incorporation under its official seal. The
corporation is now de jure.
  So magkakaroon lang naman yung corporation ng - A cooperative acquires juridical personality upon
juridical personality separate and distinct from registration with the Cooperatives Development
the stockholders or members if yung SEC is nag- Authority (Cooperative Code of the Philippines, R.A.
issue sa incorporators ng certificate of No. 6938, March 10, 1990). It need not be registered
incorporation under its official seal. Yung again with the SEC.
corporation is now de jure corporation. So yung  So, hindi na kailangang i-register sa SEC yan. For
kanyang certificate of incorporation together cooperatives iba yung pinagre-register-an nila.
with the articles and the bylaws, sila yung magko-
constitute nung corporate charter or corporate FORMAL ORGANIZATION AND COMMENCEMENT OF
franchise. BUSINESS OPERATIONS
 Kapag nagkaroon na ng buhay ang corporation - The process of structuring the corporation so that it
dahil nga meron na syang certificate of can carry out the purposes for which it has been
incorporation, iba pa rin yung formal organization incorporated.
and commencement ng business transaction. So - A corporation achieves legal existence from the date
it has 5 years from the date of incorporation para the SEC issues a certificate of incorporation under its
simulan or para ma-organize formally and official seal, but formal organization brings the
commence yung business transaction ng corporation to life.
corporation or else it shall be deemed dissolved  Kapag meron ng certificate of incorporation,
- Such certificate is a final determination of the meron ng legal existence or juridical personality
corporation’s right and competence to transact yung isang corporation but formal organization
business or enter into contracts in its name. It is the will bring the corporation to life. Meron ng legal
certificate of incorporation that not only gives existence but, as yet wala pang buhay ang isang
juridical personality to a corporation but places it corporation until meron ng formal organization.
under the jurisdiction of the SEC. Once issued, the  Anyway, yung acts na nagco-constitute sa formal
certificate becomes the charter or corporate organization ng business is yung adoption ng
franchise from which the authority of the corporation bylaws if it is not yet adopted at the start. Hindi
to operate flows. kasabay na sinubmit ng articles, pwede namang
- The issuance of the certificate calls the corporation mahuli.
into being, but it is not really ready to do business  Kapag nag-adopt na sila ng bylaws and files the
until it is organized. The corporation must formally same with the SEC, they elect yung members ng
organize and commence the transaction of its Board of Directors or yung trustees. They also
business or the construction of its works within 5 elect officers. They established yung principal
years from the date of its incorporation or, office. Nagpo-provide din sila for subscription and
otherwise, its corporate powers shall cease, and it payment ng capital stock and other steps which
shall be deemed dissolved. The law under which the will enable the corporation na makapag-transact
corporation is organized may require a separate ng isang legitimate business. So kumbaga yung
permit or license to operate from other government mga preparatory steps para makapag-transact
agencies. sila ng business and para ma-accomplish yung
B. ISSUANCE OF CERTIFICATE OF INCORPORATION TO purpose kung saan ito na-incorporate.
RELIGIOUS CORPORATIONS
- In the case of religious corporations, the RCCP does
not require the SEC to issue a certificate of DE FACTO CORPORATIONS
incorporation. In fact, Section 110 clearly states that SECTION 19
from and after the filing with the SEC of the articles
of incorporation, the chief archbishop, etc. shall KINDS OF CORPORATIONS AS TO THEIR LEGAL RIGHT TO
become a corporation sole. CORPORATE EXISTENCE
 In case naman sa religious corporations, this is an
A. DE JURE CORPORATIONS
exception. So yung RCCP hindi nire-require yung
- A corporation is one created in strict or substantial
SEC na mag-issue ng certificate of incorporation.
conformity with the mandatory statutory
Under sa section 110, basta nag-file na ng articles
requirements for incorporation and the right of
of incorporation, corporation sole na ang isang
which to exist as a corporation cannot be successfully
religious corporation.
attacked or questioned by any party even in a direct
proceeding for that purpose by the State.
C. REGISTRATION OF COOPERATIVES
  So, hindi mo pwede i-attacked ang existence ng compliance by the corporation, the SEC shall issue an
isang de jure corporation either collaterally or order lifting the delinquent status. Failure to comply
directly with the requirements and resume operations within
the period given by the SEC shall cause the
B. DE FACTO CORPORATIONS (Sec. 19) revocation of the corporation’s certificate of
- A corporation is one which actually exists for all incorporation.
practical purposes as a corporation, but which has no F. So, yung delinquent corporation is kailangan mag-
legal right to corporate existence as against the State. resume sya in a period of two years and will comply
It is a corporation from the fact of its acting as such, sa lahat ng requirements prescribed by the SEC.
though not in law of right a corporation. It is one kapag na-comply nila yan, mag-iissue ang SEC ng
which has not complied with all the requirements order lifting the delinquent status ng isang
necessary to be a de jure corporation but has delinquent corporation.
complied sufficiently to be accorded corporate status
as against third parties although not against the EFFECTIVITY OF REVOCATION
State. - A SEC order of revocation is immediately effective.
Once the revocation order is issued, the subject
corporation’s existence is terminated at that very
CORPORATION BY ESTOPPEL instant and is deemed terminated until the particular
SECTION 20 revocation order is lifted.
G. So, yung revocation is magiging effective sya kaagad.
CORPORATION BY ESTOPPEL or OSTENSIBLE CORPORATION So once na-issue na yung order ng revocation,
- Founded on principles of equity and is designed to matatapos na or mate-terminate na yung existence
prevent injustice and unfairness. It applies when ng isang corporation unless yung order of revocation
persons assume to form a corporation and exercise is lifted.
corporate functions and enter into business relations - It may not continue to operate its business and issue
with third persons. shares. It may, however, sell its assets but it may only
 So, kapag nagpanggap kang corporation, purchase property if such purchase will be consistent
magiging liable ka as general partner. with liquidation. It may sue for purposes of
 In corporations by estoppel – basta nalang recovering its property (SEC Opinion No. 0-24, July
kayong nagpanggap na isa kayong corporation. 28, 2009).
H. So, kapag revoke na ang certificate of incorporation
INCORPORATION OF ng isang corporation, hindi na sya pwedeng mag-
operate ng business and mag-issue ng shares. Ang
CORPORATIONS pwede nalang nyang gawin is to liquidate the assets.
SECTION 21 Pwede naman syang mag-demanda para marecover
yung kanyang property.
EFFECT OF NON-USE OF CORPORATE CHARTER AND
CONTINUOUS INOPERATION OF THE CORPORATION
LIFTING OF ORDER OF REVOCATION
A. In case of failure to formally organize and commence - The lifting restores the corporation to its original
its business within five years from the date of status as if there was no revocation order issued
incorporation, the certificate of incorporation shall be against it, with the capacity to exercise all the
deemed revoked as of the day following the end of powers of a duly registered corporation under the
the five-year period. Corporation Code (now RCCP) (SEC Opinion No. 09-
B. In case of continuous inoperation for a period of at 29, November 11, 2009).
least five consecutive years, the SEC may, after due
notice and hearing, place the corporation under NOTICE TO APPROPRIATE REGULATORY AGENCY
delinquent status. - The SEC shall give reasonable notice to, and
E. So, may hearing pa to and meron pang notice. If yung coordinate with the appropriate regulatory agency
corporation will be placed delinquent status, it prior to the suspension or revocation of the
depends on the SEC. certificate of incorporation of companies under their
special regulatory jurisdiction.
DELINQUENT CORPORATION I. So, for corporation na na-revoke or na-suspend ang
- A delinquent corporation shall have a period of two certificate of incorporation or registration,
years to resume operations and will comply with all magbibigay yung SEC ng notice to the appropriate
the requirements prescribed by the SEC. Upon regulatory agency.
 act and contract only through the aid and by means of
individuals. So syempre di naman pwedeng bumuto yung
TITLE III mga juridical persons, kailangan talaga merong natural
BOARD OF DIRECTORS/TRUSTEES AND OFFICERS persons who will transact with third persons. Also, pwede
rin namang mag-act ang isang corporation through
THREE LEVELS OF CONTROL IN A CORPORATION agents or officers if authorized sila by the board of
directors or trustees, or by a board resolution or its by-
1. BOARD OF DIRECTORS/TRUSTEES
laws
- Primarily in control of the corporation. They will
exercise all corporate powers which are provided for BUSINESS JUDGMENT RULE
in the Revised corporation code as well as the articles - The courts cannot undertake to control the discretion
of incorporation and the by-laws. of the board of directors about administrative
- They will conduct all the business of the corporation, matters as to which they have the legitimate power
and it will hold all the property of the corporation. of action, and contracts intra vires entered into by
the board of directors are binding upon the
2. OFFICERS corporation and courts will not interfere unless such
- In theory, they will execute the policies they’ve done contracts are so unconscionable and oppressive also
by the board of directors/trustees. amount to a wanton destruction of the rights of the
- However, in practice, they have a larger or wider minority. As long as it acts in good faith, its orders are
latitude in determining business operations of the not reviewable by the courts. Its acts or contracts are
corporation. presumed to be valid and regular.
 If the board of directors/ trustees are in control
3. STOCKHOLDERS of the corporation, the next question is “can the
- The stockholders or the members, they have residual courts interfere with the policy making decisions
control or residual power over the corporation of the board of directors/trustees?”.
because some corporate acts cannot be performed  Now as a general rule, the courts cannot
without the consent of the stockholders or members. undertake to control the discretion of the board
So when it comes to fundamental corporate changes, of directors about administrative matters as to
kailangan ng boto ng stockholders/members that’s which they have the legitimate power of action.
why they have residual control over the affairs of the The reason why we elect yung members of the
corporation. board as stockholders or as members, is because
we assumed that they are knowledgeable about
Board as governing body the affairs of the corporation. Alam nila kung
CORPORATE POWERS EXERCISED BY BOARD OF paano ito i-control or i-manage. So kung meron
DIRECTORS OR TRUSTEES ACT AS THE GOVERNING mang may alam kung papano patakbuhin
BODY OF A CORPORATION corporation – it would be the members of the
- All corporations being invisible, existing only in board. Now the courts, hindi naman talaga nila
contemplation of law, can only act and contract alam yan e, so as a general rule, yung mga acts ng
through the aid and by means of individuals. A mga board of directors – if they are entered into
corporation can only execute its powers and transact intra vires or within the power of the
its business through its board of directors, in the case corporation, they are binding to the corporation
of stock corporations, or board of trustees in the case and as a general rule, the courts will not interfere
of non-stock corporations, and through its officers with the control and discretion of the board.
and agents when authorized by a board resolution or  EXCEPTION: If the acts are so unconscionable and
its by-laws, except in the instances when the RCCP oppressive as to an amount of wanton
requires stockholders’ or members’ approval for destruction of the rights of the minority
certain specific acts. The stockholders have residual stockholders, so as long as there is good faith on
power over fundamental corporate changes. the part of the board hindi makiki-alam ang
courts jan sa administrative actions ng board. So
Q: BAKIT GOVERNING BODY ANG BOARD OF there is a presumption also that the acts are valid
DIRECTORS? and regular.

A: Kasi ang isang corporation being a juridical person LIMITATIONS ON POWER OF BOARD OF DIRECTORS OR
cannot act by itself kasi nga invisible sila. Nag-eexist lang TRUSTEES
sila in the mind of the law, and if they will act – they will
A. Limitations or restrictions imposed by the
Constitution, statutes, articles of incorporation, or B. The corporation is bound by a contract entered into
by-laws of the corporation. by a corporate officer such as the general manager,
authorized by the board of directors either expressly
B. It cannot perform constituent acts, that is, acts or impliedly, to bind it by contract.
involving fundamental changes in the corporation  If the contract is entered into by a corporate
which require the approval or ratification of the officer, if there is authority from the board of
stockholders or members. directors, the authority may be given expressly or
 It cannot perform constituent acts involving impliedly
fundamental changes in the corporation. So, if it
involves fundamental changes in the corporation, C. The corporation is also bound by a particular
it needs the ratification or approval of the transaction ratified in a subsequent board meeting.
stockholders or members because the  If the transaction is ratified in a subsequent
stockholders or members have residual power board meeting. So when the transaction was
over fundamental changes sa corporation. entered into by an officer, by an agent of the
corporation or may be by a member of the board
C. It cannot exercise powers not possessed by the is hindi authorized or what. But in a subsequent
corporation. meeting, the action is ratified so it is binding on
 Any power not possessed by the corporation – the corporation even if nung ginawa yang act
ultra vires yan so they cannot be exercised by the nayan, the board is not acting as a body in a duly
board of directors or trustees. constituted meeting.

MANNER OF EXERCISE OF POWERS OF THE BOARD D. The by-laws of a corporation may create an executive
- The board of directors or trustees must act together committee with authority to act on such specific
as a body in a lawful meeting, not individually or matters within the competence of the board.
separately, in order to bind the corporation by their  By-laws may create an executive committee. So
acts. In other words, to exercise their powers, they ang executive committee, kapag nag-meet yan is
must meet as directors or trustees and act “at a hindi naman board meeting yan kasi ang board
meeting at which there is a quorum.” If they act or meeting it comprises all of the members of the
give their consent separately or if they act at a board. So kapag executive committee – binding
meeting which is not a legal meeting, their action is pa rin yan kasi duly authorized by the by-laws
not that of a corporation, although all may consent, and they will act only on specific matters which
and the corporation is not bound. they are authorized. There are certain matters
 In case of exercise of the powers of the board, which the executive committee cannot act upon.
they will exercise it as a body in a lawful meeting,
not individually or separately. So kailangan, if E. A corporation is expressly allowed, subject to certain
there is corporate action , it must be an act at a limitations provided in Sec. 43, to enter into a
meeting which is properly called and there is a management contract under which it delegates the
quorum. So hindi pwedeng isa-isa, kailangan management of its affairs to another corporation for
mag-meeting sila kasi there is opportunity for a certain period of time.
discussion and exchange of views and also,  If the corporation enters into a management
kailangan talaga – they act as a body. contract under Section 43. So, here the
Individually, wala silang power to bind the management of the affairs of one corporation is
corporation. delegated to another corporation. So yung board
of directors ng specific corporation na ‘to. Let’s
EXCEPTIONS say corporation A, pumasok sya sa isang
management contract with corporation B. So si
A. A contract entered into without a meeting is binding
corporation B ang magma-manage sa affairs ng
where the directors happen to be the sole
Corporation A. So, itong affairs ng Corporation A,
stockholders.
yung management nya hindi kino-control ng
 So lahat ng directors, sila din yung stockholders.
board ng corporation A. ang nagko-control is
So ngayon if the meeting is not properly called,
yung board ng Corporation B. So even if the
they are not acting as a body, anyway, sila-sila
Board of corporation A does not act as a body,
lang naman e so contracts entered into even
yung mga acts ng corporation B which manages
without a meeting – binding yan
 yung affairs ng Corporation A is binding on hindi na kailangang mag-isip – it may be
Corporation A delegated.

F. In a close corporation, any action by the directors 2. There is a limit, even to the power of the directors or
without a meeting or at a meeting improperly held, trustees to delegate authority. They cannot delegate
shall, unless the by-laws otherwise provide, be entire supervision and control of the corporation to
deemed valid or ratified in the cases mentioned in others for this is not only unnecessary and contrary
Section 100. to usage, but it is inconsistent with Section 22, which
 In case of a close corporation, directors may act requires that “the corporate powers xxx shall be
without a meeting. Also, in cases mentioned in exercised, all business conducted, and all property of
Section 100, yung kanilang acts will be deemed such corporations controlled and held by its board of
valid or ratified. directors or trustees.”

POWER OF DIRECTORS OR TRUSTEES TO DELEGATE 3. Neither can the board delegate special powers
AUTHORITY especially conferred upon nearly resolution of the
stockholders or members of the corporation.
A. GENERAL RULE
Unquestionably, it may delegate purely ministerial
- In the absence of authority from the board of
duties.
directors, no persons, not even its officers, can validly
bind a corporation. The power to bind the
4. It is quite clear that the power of the board to
corporation by contracts rests in its board of
delegate authority is subject to restrictions as may be
directors or trustees, but the power may be
provided in the by-laws.
delegated either expressly or impliedly to other
officers or agents of the corporation appointed by it
or to an executive committee. The directors or
trustees do not themselves exercise delegated SECTION 22
authority so as to be precluded from delegating TERM OF OFFICE OF DIRECTORS OR TRUSTEES
power by the maxim that no delegated powers can
be further delegated (delegate potestas non potest A. GENERAL RULE
delegare). - It is now expressly provided that directors shall be
 Pwede nilang i-delegate yung kanilang power. So elected for a term of one year and until their
remember na yung mga board of directors or successors are elected and qualified. Trustees shall
trustees, yung kanilang power may be delegated be elected for a term not exceeding three years and
expressly or impliedly to officers, to agents or to until their successors are elected and qualified.
an executive committee. So, yung power kasi ng
trustees and ng directors is an original power so B. HOLD-OVER PRINCIPLE
they can delegate it further hindi katulad ng - Upon failure of a quorum at any meeting of the
delegated power na hindi mo ito further mede- stockholders or members called for an election, the
delegate. directorate naturally holds over and continues to
function until another directorate is chosen and
B. EXCEPTIONS qualified. The failure to elect does not terminate the
terms of incumbent officers nor dissolve the
1. It has been held that discretionary powers which, by
corporation.
provisions of law (e.g., election of corporate officers,
 So, remember yung portion na “until their
to declare dividends) or the by-laws or by the vote of
successors are elected and qualified – this is
the stockholders, are vested exclusively in the board
known as your HOLD-OVER PRINCIPLE. So kung
of directors or are especially delegated to them,
wala pang qualified director, there if failure of a
cannot be delegated to subordinate officers and
quorum, there is failure to elect at a meeting.
agents. But purely ministerial duties connected
Yung mga incumbent o yung naka-pwesto
therewith may be delegated.
ngayon, they will naturally hold over yung
 In case of discretionary power. So they are vested
position ng director or trustee and will continue
exclusively in the board of directors and hindi sila
to function as such director or trustee until new
pwedeng i-delegate to subordinate officers and
directors or new trustees are chosen and
agents. So yung mag-eexercise sila ng decision
qualified.
making – di pwedeng i-delegate yan sa mga
officers or agents. But purely ministerial – yung
  HOW LONG IS THE TERM OF THE NEW shall automatically cease to be a director (Section
DIRECTORS/TRUSTEES AFTER MA-ELECT – yung 22).
kanilang term of office is only 10 months.  Must continuously own the share during his
term. So, kung binenta niya yung share na yan,
he is no longer a director – disqualified na sya
5. No person shall be qualified to be a director,
NUMBER OF DIRECTORS OR TRUSTEES TO BE ELECTED trustee, or officer in the corporation if, within five
years prior to the election or appointment as
A. The number of directors in a stock corporation “shall
such, the person was: (a) convicted by final
not be more than 15” (Section 13).
judgment: (1) of an offense punishable by
B. In ordinary non-stock corporations, the number of imprisonment for a period exceeding six years;
trustees “may or may not be more than 15” (Sections (2) for violating this Code; (3) for violating the
13 and 91). Securities Regulation Code, R.A. No. 8799, July
19, 2000; (b) found administratively liable for any
C. In a close corporation, the articles of incorporation offense involving fraud acts; and (c) by a foreign
may provide that the business of the corporation court or equivalent foreign regulatory authority
shall be managed by its stockholders rather than by a for acts, violations or misconduct similar to those
board of directors in which case no meeting of enumerated above (Section 26).
stockholders need be held to elect directors (Section
96). B. FOR NON-STOCK CORPORATIONS
 A close corporation may choose not to elect yung 1. Must be of legal age and have legal capacity.
board nila and all of the stockholders will manage 2. Trustees of non-stock corporations must be
the corporation. members in good standing thereof (Section 22).
3. No person shall be qualified to be a director,
D. Trustees of non-stock educational corporation “shall trustee, or officer of any corporation if, within
not be less than five nor more than 15” provided that five years prior to the election or appointment as
the number “shall be in multiples of five,” with the such, the person was; (a) convicted by final
term or office of 1/5 of their number expiring every judgment: (1) of an offense punishable by
year (Section 106). imprisonment for a period exceeding six years;
(2) for violating this Code; (3) for violating the
E. In a corporation sole, there is no board of trustees as
Securities Regulation Code, R.A. No. 8799, July
it consists of one member or corporator only.
19, 2000; (b) found administratively liable for any
 In a corporation sole, there is no need for board
offense involving fraud acts; and (c) by a foreign
of trustees because there is only one member or
court or equivalent foreign regulatory authority
one corporator.
for acts, violations or misconduct similar to those
F. In a one-person corporation, there is no board of enumerated above (Section 26).
directors as the sole stockholder is the director and  Additional qualifications may be imposed on
president of the corporation. directors or trustees as long as it is provided in
the by-laws. Also, yung mga qualifications
G. The board of trustees of religious societies shall also provided for by the revised corporation code,
“be not less than five nor more than 15” (Section hindi mo sya pwedeng kontrahin. So, any
114). qualifications which will modify yung qualification
which are given by the revised code – hindi sya
QUALIFICATIONS OF DIRECTORS OR TRUSTEES pwede if it is in conflict. So additional
qualifications – as long as they are not in conflict
A. FOR STOCK CORPORATIONS
with the revised corporation code.
1. Must be of legal age and have legal capacity.
2. Every director (including an incorporating INDEPENDENT DIRECTOR (Section 22)
director) must own at least one share of the - A person who, apart from shareholdings and fees
capital stock (Section 22). received from the corporation, is independent of
3. The share of stock held by the director must be management and free from any business or other
registered in his name on the books of the relationship which could, or could reasonably be
corporation. perceived to materially interfere with the exercise of
4. Every director must continuously own at least a independent judgment in carrying out the
share of stock during his term; otherwise, he responsibilities as a director.
  Sa mga independent directors, usually they are LIMITATIONS IN THE ELECTION OF DIRECTORS OR
elected in cases of corporations vested with a TRUSTEES
public interest. So if the corporation is vested
A. Except when the exclusive right is reserved for
with public interest, dapat yung kanyang board of
holders of founders’ shares under Section 7, each
directors should constitute at least 20% na
stockholder or member shall have the right to
independent directors. So if you have 10 –
nominate any director or trustee who possesses all of
kailangang at least 2 ay mga independent
the qualifications and none of the disqualifications
directors. Remember ang mga independent
set forth in the RCCP.
director apart from shareholdings and fees – yun
ang natatanggap nya sa corporation, wala na B. At any meeting called for the election of directors or
syang ibang connection sa corporation which will trustees, there must be present the owners of the
affect his judgment doon sa management ng majority of the outstanding capital stock, or if there
corporation. And also, it applies to non-stock be no capital stock, a majority of the members
corporations entitled to vote.
- The board of corporations vested with public interest
shall have independent directors constituting at least C. At any meeting called for the election of directors or
20% of such board. trustees, the stockholders or members may vote in
- Non-stock corporations vested with public interest the election either 1) personally by attending the
are required to have independent trustees (Section meeting; 2) through a proxy; or 3) through remote
91) constituting at least 20% of such board. communication or in absentia.

CORPORATIONS VESTED WITH PUBLIC INTEREST D. Voting in a stock corporation is on the basis of the
(Section 22) number of shares (one share/vote) and not on the
A. Corporations covered by Section 17.2 of The number of stockholders present in the stockholders’
Securities Regulation Code, R.A. No. 8799, July 19, meeting.
2000, namely those whose securities are registered  So if one stockholders owns 80% of the
with the SEC, corporations listed with an exchange or corporation – vote palang nya is sufficient to
with assets of at least P50,000,000 and having 200 or elect a director in case of stock corporation.
more holders of shares, with at least 100 shares of a
E. A stockholder cannot be deprived in the articles of
class of its equity shares.
incorporation or in the by-laws of his statutory right
to use any of the methods of voting in the election of
B. Banks and quasi-banks, NSSLAs, pawnshops,
directors.
corporations engaged in money service business, pre-
need, trust and insurance companies, and other F. No stock delinquent for unpaid subscription shall be
financial intermediaries. voted.
 Any corporation which receives money from the  In case of a delinquent stock, they will have no
public are considered as corporations vested with right to vote.
public interest.
G. Members of non-stock corporations may cast as
C. Other corporations engaged in business vested with many votes as there are trustees to be elected but
public interest similar to the above, as may be may not cast more than one vote for one candidate.
determined the SEC, after considering relevant  If there are five to be elected, each member po is
factors which are germane to the objective and merong five votes. Now itong 5 votes na ‘to will
purpose of requiring the election of an independent be distributed into 5 candidates.
director, such as the extent of minority ownership,
H. The election must be by ballot if requested by any
type of financial products or securities issued or
voting stockholder or member.
offered to investors, public interest involved in the
 General rule, election may be through any
nature of business operations, and other analogous
manner but if there is a request that the election
factors.
must be by ballot, doon lang magkakaroon ng
election by ballot.
ELECTION OF
DIRECTORS/TRUSTEES I. If a quorum is present, the candidates receiving the
SECTION 23 highest number of votes will be declared elected. The
 law requires only plurality, and not majority of the - Immediately after their election, the directors of a
votes cast at the election. corporation must formally organize by the election of
 Quorum is present doon sa meeting to elect the its officers such as the president, treasurer, secretary,
candidates who will receive the highest number and such other officers as may be provided for in the
of votes will be declared elected. Plurality only, by-laws.
not majority - The board of directors or trustees formulates the
J. In case of failure to hold an election for any reason, broad policy of the corporation and directs the
the same shall be reported within 30 days from the conduct of its business operations. But the task of
date of the scheduled election. The report shall actual management and carrying on the details of
specify a new date for the election which shall not be business operations and corporate policy are
later than 60 days from the original scheduled date. delegated to the officers elected by it and over whom
 In case there is a failure to hold an election for it exercises supervision.
whatsoever reason, merong kelangan na report - The acts of corporate officers within the scope of
na i-file sa SEC. 30 days from the date of the their authority are binding on the corporation.
scheduled election. So yung report na yun, will However, when officers exceed their authority, their
specify a new date for the election which shall actions cannot bind the corporation, unless it has
not be later than 60 days from the original ratified such acts or is estopped from disclaiming
scheduled date. them.
K. The requisite notice must be given.
 The requisite notice for the election must be COMPENSATION AND TERM OF OFFICE OF OFFICERS
given before the scheduled meeting. - It is within the power of the board to fix the salaries
of corporate officers whom it appoints (SEC Opinion,
METHODS OF VOTING IN A STOCK CORPORATION October 14, 1968) for the power to employ must
necessarily include the power to grant compensation.
A. STRAIGHT VOTING
It may likewise grant bonuses to them subject to the
- By this voting method, every stockholder “may vote
test of reasonableness.
such number of shares for as many persons as there
- The term of office may be fixed in the by-laws;
are directors” to be elected.
otherwise, they shall be deemed elected for one year
and until their successors shall have been elected.
B. CUMULATIVE VOTING FOR ONE CANDIDATE
They may be removed at any time by the board.
- By this method, a stockholder is allowed to cumulate
his shares and “give one candidate as many votes as
POSITIONS CONCURRENTLY HELD BY THE SAME PERSON
the number of directors to be elected multiplied by
the number of the shares owned.” A. Any two or more positions may be held concurrently
by the same person except the positions of president
C. CUMULATIVE VOTING BY DISTRIBUTION and secretary or president and treasurer as they are
- By this method, a stockholder may cumulate his considered by law as incompatible with each other
shares by multiplying also the number of his shares due to the very nature appertaining to each office.
by the number of directors to be elected and The rationale behind the provision is to ensure the
distribute the same among as many candidates as he effective monitoring of each officer’s separate
shall see fit. functions.

VOTING IN A NON-STOCK CORPORATION B. There is no prohibition in the law against a

- Members of non-stock corporations may cast as stockholder being a director or officer of two or more
many votes as there are trustees to be elected but corporations.
may not cast more than one vote for one candidate.
This is the manner of voting in non-stock C. The RCCP does not prohibit a corporate officer from
corporations unless otherwise provided in the articles occupying the same position in another corporation
of incorporation or in the by-laws. organized for the same purpose. However, such a
situation may be prohibited by special law, the
articles of incorporation, or the by-laws of the
corporation.
CORPORATE OFFICERS
SECTION 24 CORPORATE OFFICERS
A. President.
ELECTION OF OFFICERS
B. Vice-president. or officer, kailangang i-report din yun sa SEC. So
C. Secretary. yung corporate secretary or any director, trustee,
D. Treasurer. or officer ng corporation ang pwedeng mag-
E. General Manager report nito sa SEC. In case of death, even yung
F. Compliance Officer mga heirs ng deceased director, trustee or officer
may report such fact to the SEC within 7 days
REPORT OF ELECTION from knowledge thereof.
SECTION 25
POWER OF THE SEC IN CASE OF NON-HOLDING OF
REPORTS TO BE SUBMITTED TO THE SEC ELECTION
- If no new date has been designated in the report
A. Report on the names, nationalities, shareholdings,
submitted to the SEC, or if the rescheduled election is
and residence addresses of the directors or trustees
likewise not held, the SEC may, upon the application
and officers elected, which must be done within 30
of a stockholder, member, director, or trustee, and
days after the meeting in which they were elected.
after verification of the unjustified non-holding of the
The corporate secretary or any other officer of the
election, summarily order that an election be held.
corporation shall submit the report to the SEC.
The SEC shall have the power to issue such orders as
 Report on the names, nationalities,
may be appropriate, including orders directing the
shareholdings, and residence addresses of the
issuance of a notice stating the time and place of the
directors or trustees and officers elected. So
election, designated presiding officer, and the record
pagka-elect nila within 30 days kailangang
date/s for the determination of stockholders or
makapag-submit na sila ng report ng kanilang
members entitled to vote.
information doon sa SEC. And usually yung mga
 So diba po sabi kanina na kailangan i-report yung
corporate secretary or yung iba pang officer ng
non-holding of election within 30 days from the
corporation yung dapat mag-submit ng report sa
originally scheduled date – kailangang i-report ng
SEC.
corporation yan. Now yung SEC may order an
election in case (1) no new date has been
B. Report on the non-holding of elections, the reasons
designated in the report submitted to the SEC or
therefore and the new date of election, which shall
(2) yung rescheduled election is likewise not held.
not be later than 60 days from the originally
So merong nag-reklamo, merong nagsabi na wala
scheduled date, to be submitted within 30 days from
pa silang election etc. any stockholder, member,
the date of the scheduled election.
director, or trustee may apply to the SEC for an
 In case na merong annual meeting. Usually sa
order na sila ay mag-hold ng election. So the SEC
annual meeting – doon ginagawa yung election.
will verify yung unjustified non-holding of
Ngayon if merong non-holding of election or
election and it will issue a summary order to hold
there is failure to elect yung mga bagong board,
an election. Together with this power, the SEC
of course the SEC must be notified. So yung
will also have such other power which they may
notification or yung report sa non-holding of
issue such other orders as may be appropriate.
election is dapat i-submit/ma-submit within 30
So yung orders nya to direct issuance of notice na
days from the date of the originally scheduled
nakalagay yung time and place of election,
election. So don sa report ng non-holding of
magde-designate ng presiding officer, also yung
elections, kailangan meron kanang bagong date
record date/s para sa pagde-determine ng mga
don. So new date of election which shall not be
stockholders or members who entitled to vote.
later than 60 days from the originally scheduled
 DEFINITION: Record Date – ito yung date na ide-
date.
designate sa notice of meeting kung saan titignan
na kung sino ang qualified to vote doon sa next
C. Report that a director, trustee, or officer died,
election. So obviously kung stock corporation ‘to,
resigned or in any manner, ceased to hold office. The
titignan sino ba yung mga stockholder na hindi
corporate secretary, or the director, trustee, or
delinquent ang subscription – so yan yung
officer of the corporation, or in case of death, the
pwedeng bumuto. As of this date – itong record
heirs of such director, trustee, or officer, shall within
date na to, so sino ang qualified then pagdating
seven days from knowledge thereof, report in writing
naman sa members, sino ba ang members na
such fact to the SEC.
hindi delinquent or sino ba ang outstanding
 In case na namatay, nag-resign or in any manner,
members, so they will be entitled to vote in the
ceases to hold office ang isang director, trustee,
elections.
  any provision in the articles of incorporation or was found administratively liable for any offense
by-laws to the contrary, only yung shares of stock involving fraudulent acts.
or membership represented during the meeting
na ki-nol ng SEC will be sufficient to constitute a C. If within five years prior to the election of
quorum. So let’s say in a corporation nakalagay appointment as such, the director, trustee, or officer
80% dapat ang attendance bago magkaroon ng was found liable by a foreign court or equivalent
quorum, regardless of such provision in the foreign regulatory authority for acts, violations, or
articles or in the by-laws, basta kung sino lang misconduct similar to the to those enumerated in
yung nag-attend doon sa meeting na yun who are paragraphs (1) and (2) of this section.
entitled to vote – quorum na yun for the  Any conviction by final judgement, any violation
purposes of conducting an election called by the involving fraudulent acts, if committed 5 years
SEC prior to election of appointment, any or such
- Notwithstanding any provision of the articles of person is disqualified from becoming a director,
incorporation or by-laws to the contrary, the shares trustee, or officer.
of stock or membership represented at such meeting
and entitled to vote shall constitute a quorum for
purposes of conducting an election under this REMOVAL OF
section. DIRECTORS/TRUSTEES
SECTION 27

GROUNDS FOR DISQUALIFICATION POWER OF STOCKHOLDERS OR MEMBERS TO REMOVE

DIRECTORS OR TRUSTEES
SECTION 26
A. GENERAL RULE
GROUNDS FOR DISQUALIFICATION OF DIRECTORS OR - The law does not specify cases for removal of a
TRUSTEES OR OFFICERS director or trustee nor even require that removal
should be for sufficient cause or reason. The
A. If within five years prior to the election or
legislative policy is that the stockholders shall be the
appointment as such, the director, trustee, or officer
ultimate masters, not the directors, “to make the
was convicted by final judgment:
corporate government responsible to the owners”. If
1. Of an offense punishable by imprisonment for a
the directors have a right to continue in office to the
period exceeding six years.
completion of their term, in spite of change in
 If it is exactly 6 years, the provision does not
controlling stockholders, those who acquire control
apply but if the offense is punishable for a period
will have to wait or else make some bargain with the
exceeding six years or more than 6 years and
existing directors to resign in order that they may put
there is conviction by final judgment, so this
in office a new board of directors representing their
person is disqualified to become a director,
views or policy.
trustee, or officer
 Yung general rule is that there is no specific
reason that is required for the removal of any
2. For violating the RCCP.
director or trustee kasi nga sila naman yung nag-
 In cases of violation of the RCCP. So if yung
upo jan. Any reason is sufficient for them to be
disqualification is based sya sa violation of the
removed. Except in case ang isang director or
RCCP, the duration of the imprisonment is
trustee is ma-elect by cumulative voting, hindi
immaterial.
sila pwedeng i-remove without just and lawful
costs. So kahit na merong prescribed vote pero
3. For violating The Securities Regulation Code
kung ang director or trustee is elected by
(SRC), R.A. No. 8799, July 19, 2000.
cumulative voting and such removal will deprive
 There are violations of the securities regulation
the minorities stockholders or members of
code or yung SRC. So any violation committed
representation to the board, remember po na
within five years prior to election or appointment
hindi pwede if it is without just and lawful cause
will disqualify a person from becoming a director,
for the protection of minority stockholders
trustee, or officer
against abuse.
B. If within five years prior to the election of
B. DIRECTOR OR TRUSTEE ELECTED BY CUMULATIVE
appointment as such, the director, trustee, or officer
VOTING
- A director or trustee may be removed by the  In addition to that, Section 160,
prescribed vote without cause subject to the merong liability. So a director,
limitation that a director or trustee cannot be trustee, or officer
removed without cause if the effect of such removal  So in addition to a removal as a
is to deprive minority stockholders or members who director or trustee based on an order
united in cumulative voting to elect such director, of of the SEC, pwede pang magkaroon
right of representation to which they may be entitled ng punishment by a fine imposed by
under Section 23. This provision necessary to protect the court
the minority against any abuse by the majority since
there is no cumulative voting in the removal of
REQUISITES FOR REMOVAL OF DIRECTORS OR TRUSTEES
directors.
A) The removal must take place either at a regular
POWER OF THE SEC TO REMOVE DIRECTORS OR meeting of the corporation or at a special meeting
TRUSTEES called for the purpose.
- The SEC shall motu proprio or upon a verified
complaint, after due notice and hearing order the  The removal must take place at a meeting,
removal of a director or trustee elected despite the regular or special.
disqualification, or whose disqualification arose or is
discovered subsequent to an election. The removal of
a disqualified director shall be without prejudice to B. There must be previous notice to the stockholders or
other sanctions that the SEC may impose on the members of the corporation of the intention to propose
board of directors or trustees who, with knowledge such removal at the meeting either by written notice or
of the disqualification, failed to remove such director publication as well as the time and place of such
or trustee (Section 27). meeting either by written notice or publication.
 So yung mga director or trustee hindi sila  Previous notice to the stockholders or members
pwedeng tanggalin ng kapwa nila director or of the intention to propose such removal. So
trustee. Also, yung court cannot remove yung merong written notice or publication pati na rin
director or trustee – it is not within the scope of yung time and place nung meeting
the power of the courts.
 So now, yung SEC is meron ng power to remove
directors or trustee. Yung SEC is dapat motu
C. The removal must be by a vote of the stockholders
proprio or upon verified complaint. Motu proprio
holding or representing 2/3 of the outstanding capital
meaning on its own account or impulse. Sya mag-
stock, or if the corporation be a non-stock corporation,
isa – parang voluntarily based on its own
by a vote of 2/3 of the members entitled to vote.
discretion or if merong verified complaint after
there is notice and hearing, yung SEC is pwedeng  So yung removal is dapat sa pamamagitan ng
mag-order na tanggalin ang isang director or vote ng mga stockholders holding or representing
trustee na na-elect despite the fact that he is 2/3 nung outstanding capital stock, or kung isang
disqualified or after electing the said director or non-stock corporation ‘to, sa vote naman ng 2/3
trustee, doon sya na-discovered to be na mga members who have the right or who are
disqualified or yung kanyang disqualification is entitled to vote.
arose after the election
- When, despite the knowledge of the existence of a
ground for disqualification as provided in Section 26 D. The special meeting of the stockholders or members
of this Code, a director, trustee, or officer willfully of the corporation with purpose of removal must be
holds office, or willfully conceals such called by the secretary on order of the president or on
disqualification, such director, trustee, or officer shall the written demand of the stockholders representing or
be punished by a fine ranging from P10,000 to holding at least a majority of the outstanding capital
P200,000 at the discretion of the Court, and shall be stock or a majority of the members entitled to vote.
permanently disqualified from being a director,
 Special meeting of the stockholder or members
trustee, or officer of any corporation. When the
of a corporation with the purpose of removing
violation of this provision is injurious or detrimental
the director must be called by the secretary on
to the public, the penalty shall be a fine ranging from
order of the president or kung ayaw ng president
P20,000 to P400,000 (Section 160).
na mag-order ng meeting para sa pag-remove ng
 directors or trustee, pwedeng based ito sa corporation to the SEC within 7 days
written demand ng mga stockholders from knowledge thereof
representing or holding at least majority ng OCS
or majority ng mga members na entitled to vote.

ABANDONMENT OF OFFICE AND FAILURE TO ATTEND

E. The removal of a director or trustee must be reported
MEETINGS
in writing by the corporate secretary, or the director,
trustee, or officer of the corporation to the SEC within
seven days from knowledge thereof (Section 25).
A) ACCEPTANCE OF INCOMPATIBLE OFFICE
 Yung removal is dapat reported ‘to in writing by
the corporate secretary, director, trustee, or - Where a director or trustee in a corporation
officer ng corporation to the SEC within 7 days accepts a position in which his duties are
from knowledge thereof incompatible with those as such director or
trustee, it is presumed that he has
abandoned his office as director or trustee
of the corporation.
 Nagkakaroon ng abandonment if there is
an acceptance of an incompatible office.
RESIGNATION OF DIRECTORS OR TRUSTEES So director ka ngayon then bigla
tumanggap ka ng position which is in
- The fact that the law requires directors or
conflict sa duties mo as a director. There
trustees unless removed to continue in office
is a presumption of abandonment.
until their successors are elected and qualified
does not prevent a director or trustee from B) ABSENCE FOR AN UNREASONABLE LENGTH OF
resigning at any time. By reason, however, of TIME
the fiduciary nature of the position they occupy,
a director cannot resign, as part of fraudulent - Similarly, where a director absented himself
scheme to prejudice the corporation or its from all meetings for nearly a year and
stockholders and make profit to his own announced his refusal to act as an officer
advantage or at an unreasonable time if the and stockholder, there is an abandonment
immediate consequence would be to leave the of his position as director. Abandonment by
interest of the corporation without proper care a director of all his duties for a number of
and protection. If a director quits under years must be regarded as an implied
circumstances which occasioned a deprivation resignation of his office as director.
of profits to the corporation, it is but right that  Absence for an unreasonable length of
he should repair and make good such loss. time. So merong implied resignation of
- The resignation of a director or trustee must be his office as a director.
reported in writing by the corporate secretary,
or a director, trustee, or officer of the FILLING OF VACANCIES
corporation to the SEC within seven days from TENURE OF REPLACEMENT DIRECTOR OR TRUSTEE
knowledge thereof (Section 25).
 So as a general rule, effective ‘to - A director or trustee elected to fill a vacancy
immediately even if wala pa syang shall serve only for the unexpired term of
successor, pwede namang mag-resign the predecessor in office.
ang director or trustee at any time except  Yung tenure ng replacement director or
if it is part of a fraudulent scheme. So trustee is only for the unexpired term of
pwede syang magbayad ng damages if the predecessor in office. So yung term
yung kanyang resignation ay part ng ng isang director is for 1 year. Now kung
fraudulent scheme which will leave yung after 8 months is nag-resign yung
corporation vulnerable. director na ‘to, yung kanyang kapalit
 Yung removal is dapat reported ‘to in meron lang syang tenure na 4 months –
writing by the corporate secretary, so yung unexpired portion lang ng term
director, trustee, or officer ng of the originally elected director or yung
predecessor in office. In case of trustee
 naman, the term of office is 3 years, now A) When the vacancy is due to term expiration, the
if your trustee is served for 2 years then election shall be held no later than the day of such
nag-resign sya or tinanggal sya, so if that expiration at a meeting called for that purpose.
is the case, yung tenure ng kanyang
successor in interest is only yung
unexpired portion nung term ng B) When the vacancy arises as a result of removal by the
predecessor in office. stockholders or members, the election may be held on
the same day of the meeting authorizing the removal
and this fact must be so stated in the agenda and notice
SECTION 28 of said meeting.
FILLING OF VACANCIES

C) In all other cases of vacancy, the election must be

FILLING OF VACANCIES IN THE OFFICE OF DIRECTOR OR
held no later than 45 days from the time the vacancy
TRUSTEE
arose.
A) BY THE STOCKHOLDERS OR MEMBERS

1. If the vacancy results from the removal by the

CREATION OF EMERGENCY BOARD
stockholders or members or from the expiration
of term. - There are cases when the vacancies in the
Board are such that the remaining directors
2. If the vacancy is created by reason of an or trustees no longer constitute a quorum,
increase in the number of directors or trustees. but emergency action is required to prevent
A directorship or trusteeship to be filled by grave, substantial, and irreparable loss or
reason of an increase in the number of directors damage to the corporation, the vacancy may
or trustees shall be filled only by an election at a be temporarily filled from among the
regular or at a special meeting of stockholders officers of the corporation by unanimous
or members duly called for the purpose, or in vote of the remaining directors or trustees.
the same meeting authorizing the increase or The action by the designated director or
directors or trustees if so stated in the notice of trustee shall be for a limited purpose i.e. to
the meeting. the emergency action necessary, and the
term shall cease within a reasonable time
3. If the vacancy occurs other than by removal or from the termination of the emergency or
by expiration of term, such as death, upon election of the replacement director or
resignation, abandonment, or disqualification, if trustee, whichever comes earlier.
the remaining directors or trustees do not - The corporation must notify the SEC within
constitute a quorum for the purpose of filling three (3) days from the creation of the
the vacancy. emergency board, stating therein the reason
for its creation.
4. If the vacancy may be filled by the remaining
directors or trustees but the board refers the
matter to the stockholders or members. REQUISITES FOR THE CREATION OF AN EMERGENCY
BOARD
B) BY THE MEMBERS OF THE BOARD

- If still constituting a quorum, at least a

majority of the members are empowered to A) The remaining directors or trustees do not constitute
fill any vacancy occurring in the board other a quorum.
than by removal by the stockholders or
members by expiration of term. B) There is a need for emergency action.

C) The action is necessary to prevent grave, substantial,

and irreparable loss or damage to the corporation.
WHEN ELECTION OF REPLACEMENT SHOULD BE MADE
IN CASE OF VACANCY D) The temporary replacement must come from the
officers of the corporation.
E) The temporary replacement must be elected by a - Whether or not authorized by the by-laws or by
unanimous vote of the remaining directors or trustees. the stockholders, directors or trustees are
entitled to receive per diems. In view of the real
F) Notice must be given to the SEC within three (3) days
distinction between per diems and
from the creation of an emergency board.
compensation, the per diems granted to
directors should not be included in their total
SECTION 29 yearly compensation for purposes of the 10%
COMPENSATION OF DIRECTORS/TRUSTEES limitation.

COMPENSATION OF DIRECTORS/TRUSTEES
COMPENSATION OF CORPORATE OFFICERS

A) GENERAL RULE
A) CORPORATE OFFICERS WHO ARE NOT DIRECTORS
- Directors or trustees shall not receive
compensation as such directors or trustees, - If they are elected or appointed to perform
except for reasonable per diems. valuable services for the corporation under
circumstances indicating an intention and
expectation of payment, there arises an implied
B) EXCEPTIONS promise on the part of the corporation to pay a
reasonable compensation for services rendered,
1. A private corporation is authorized to provide in
even in the absence of an express contract.
its by-laws for the compensation of directors or
- This principle applies as well to employees hired
trustees. In the absence of any provision in the
by the corporation.
by-laws fixing their compensation, the directors,
or trustees, as such, shall not receive any
compensation.
B) CORPORATE OFFICERS WHO ARE DIRECTORS
2. When the stockholders, representing at least a
majority of the outstanding capital stock, or a - Directors who are also corporate officers are
majority of the members, may grant directors or entitled, in addition to reasonable per diems as
trustees with compensation and approve the directors, to compensation as such corporate
amount thereof at a regular or special meeting. officers, and the amount thereof may be fixed
by mere board resolution in the absence of
provision to the contrary in the by-laws and
LIMIT TO COMPENSATION subject to the provision of Section 31. It must
appear that the intention is to give them
A) Where compensation is granted either in the by-laws
salaries as such officers. Considering that the
or by the vote of the stockholders, the total yearly
board of directors and officers have different
compensation of directors, as such, shall in no case
functions, the 10% limitation excludes salaries
exceed 10% of the net income before tax of the
for services rendered by officers (SEC Opinion,
corporation during the preceding year.
August 19, 1992).

B) Directors or trustees shall not participate in the

determination of their own per diems or compensation.
SECTION 30
LIABILITY OF DIRECTORS/TRUSTEES OR OFFICERS
THREE-FOLD DUTIES OF DIRECTORS
C) Corporations vested with public interest shall submit
to their shareholders and the SEC, an annual report of A) Duty of obedience.
the total compensation of each of their directors or
B) Duty of diligence.
trustees.
C) Duty of loyalty.

PER DIEMS OF DIRECTORS/TRUSTEES

CASES WHEN DIRECTORS OR TRUSTEES OR OFFICERS corporation suffers injury or damage as a result
ARE SOLIDARILY LIABLE FOR DAMAGES of the contract.

A) When a director, trustee, or officer willfully and

knowingly votes or assents to patently unlawful acts of
B. EXCEPTIONS
the corporation.
- In any of the following cases, the contract shall
B) When a director, trustee, or officer is guilty of gross
be valid and cannot be set aside merely because
negligence (not mere want of ordinary prudence) or bad
of the relationship of the parties:
faith in directing the affairs of the corporation.

C) When a director, trustee, or officer acquires any 1. all the conditions in Section 31 are present to
personal or pecuniary interest in conflict with his duty wit:
as such director, trustee, or officer.
(a) That the presence of such director or trustee
D) When a director or officer consents to the issuance of
in the board meeting in which the contract
watered stocks or having knowledge of the issuance of
was approved was not necessary to
the same, does not notify the corporate secretary in
constitute a quorum for such meeting.
writing of the fact of issuance.

E) When a director, trustee, or officer has contractually (b) That the vote of such director or trustee was
agreed or stipulated to hold himself personally and not necessary for the approval of the
solidarily liable with the corporation. contract.

F) When a director, trustee, or officer is made personally (c) That the contract is fair and reasonable
liable for his corporate by specific provision of law. under the circumstances.

(d) That in the case of corporations vested with

public interest, material contracts are
SECTION 31 approved by at least two-thirds (2/3) of the
LIABILITY OF DIRECTORS/TRUSTEES OR OFFICERS entire membership of the board, with at
least a majority of the independent
directors voting to approve the material
SELF-DEALING DIRECTORS, TRUSTEES OR OFFICERS contract.
WITH THE CORPORATION.
(e) That in case of an officer, the contract has
- A contract of the corporation with (1) one or
been previously authorized by the board of
more of its directors, trustees, officers or their
directors.
spouses and relatives within the fourth civil
degree of consanguinity or affinity enters into a
contract with the corporation where he is a
director, trustee, officer, stockholder, or 2. Not all the conditions set forth in the preceding
member. enumeration are present but the corporation
(through the board) elects not to question the
A. GENERAL RULE validity of the contract.
3. In case of a contract with a self-dealing director,
- Section 31 Section 31 renders voidable at the
trustee or officer including their spouses and
option of the corporation a contract of such
relatives within the fourth civil degree of
corporation with one or more of its directors or
consanguinity or affinity, where any of the first
trustees or officers including their spouses and
three conditions set forth are absent but such
relatives. Being its agents and entrusted with
contract is ratified.
the management of its affairs, the directors or
trustees and other officers of a corporation
occupy a fiduciary relation towards it, and
cannot be allowed to contract with the
corporation, directly or indirectly, or to sell
property to it, or purchase properly from it,
where they act both for the corporation and for
themselves. It does not require that the
REQUISITES IN RATIFICATION OF CONTRACTS WITH under the circumstances. However, if the
SELF-DEALING DIRECTORS, TRUSTEES OR OFFICERS interest of the interlocking director in one
INCLUDING THEIR SPOUSES AND RELATIVES corporation is substantial, i.e., his stockholdings
exceed 20% of the outstanding capital stock and
in the other merely nominal, i.e., his
- A contract of the corporation with such stockholdings do not exceed 20% the rules of
directors, trustees, or officers including their Section 31 on self-dealing directors shall apply
spouses and relatives may be ratified. insofar as the latter corporation is concerned.
 Now, contracts between corporations
A. Any of the first three conditions set forth in with interlocking directors. As a rule, they
paragraph 1 of this section is absent. are valid contracts even if pareho yung
B. Full disclosure of the adverse interest of the directors kanilang sets of directors as long as there
or trustees involved is made at such meeting. is no fraud, and the contract is fair and
reasonable under the circumstances, but
C. Vote of the stockholders representing at least 2/3 of this will only apply if yung interest ng
the outstanding capital stock of at least 2/3 of the interlocking directors in one corporation
members in a meeting called for the purpose. is substantial and yung interest nya in
- Section 31 fails to specify whether the vote of another corporation is also substantial.
the self-dealing director or trustee shall be The rule will apply – valid yung contract
counted in the meeting for the ratification of the if the interest is nominal in one and also
contract. However, Section 52 provides that a nominal in another. Now if the interest
director or trustee who has a potential interest of the interlocking directors in one
in any related party transaction must recuse corporation is substantial meaning it
from voting on the approval of the related party exceeds 20% or para mas madali 21%
transaction. pataas and yung interest nya sa isang
corporation is nominal naman – 20% and
D. The contract is fair and reasonable under the below. Remember na doon ia-apply yung
circumstances. test na nakita natin sa self-dealing
directors. In which case, if hindi niyo nai-
pasa yung test ng self-dealing directors,
the contract may be annulled on the part
SECTION 32 of the corporation where in the interest
LIABILITY OF DIRECTORS/TRUSTEES OR OFFICERS of the interlocking directors is nominal.

INTERLOCKING DIRECTORS
CONDITIONS FOR VALIDITY
- One, some, or all of the directors in one
A) There is no fraud, and the contract is fair and
corporation is/are also director/s in another
reasonable under circumstances.
corporation.
 So two corporations obviously are B) If there is substantial interest or nominal interest in
involved in the scenario on which one both corporations, the contract entered into by
corporation – yung mga directors nya are interlocking directors cannot be declared voidable.
the same doon sa isang corporation. Let’s
say yung isang director in corporation X, C) If there is substantial interest in one corporation and
which is si A, then A is also a director in nominal interest in another, the contract shall be
corporation Y, so here – A is an subjected to the tests self-dealing directors.
interlocking director.

SECTION 33
CONTRACTS BETWEEN CORPORATIONS WITH LIABILITY OF DIRECTORS/TRUSTEES OR OFFICERS
INTERLOCKING DIRECTORS DISLOYALTY OF A DIRECTOR
- Section 32 recognizes as valid a contract - Consists of any act whereby the director is
between two or more corporations which have personally benefitted at the expense of the
interlocking directors as long as there is no corporation. Such act is a betrayal of the
fraud, and the contract is fair and reasonable
 fiduciary relation between the director and the doctrine of corporate opportunity, itong
corporation. dalawang requisites na ‘to must occur.
 So yung disloyalty, consists of any act Kailangang merong opportunity which
where the director is personally presented itself to the corporation. Sa
benefitted at the expense of the corporation talaga binigay yung
corporation. So here, merong betrayal ng opportunity and kaya nyang i-undertake
fiduciary relationship between director yung opportunity.
and ng corporation and yung personal
benefit ng director dito causes prejudice
WHEN DOCTRINE NOT APPLICABLE
(prejudis) sa part ng corporation.
A) When a director is engaged in a distinct enterprise of
the same general class of business as that which his
DOCTRINE OF CORPORATE OPPORUNITY
corporation is engaged in, so long as he acts in good
- Under this doctrine, a director who, by virtue of faith.
his office, acquires for himself a business
 So the doctrine is not available or
opportunity which should belong to the
applicable if the director is engaged in a
corporation, thereby obtaining profits to the
distinct enterprise of the same general
prejudice of such corporation, is guilty of
class of business as the corporation as
disloyalty and should, therefore, account to the
long as he is in good faith. So obviously
latter for all such profits by refunding the same,
dahil parehong general class of business,
notwithstanding that he risked his funds in the
kailangan exempted na yan sa doctrine
venture.
- Any profit must be refunded ratified by 2/3 B) Where the opportunity is one which is not essential
votes of the outstanding capital stock. to the corporation’s business, or where the director or
 Under the doctrine of corporate officer does not exploit opportunity by employment of
opportunity, the corporation has the company’s resources or where the director or officer
opportunity to undertake this business embracing opportunity personally is not brought into
pero ang ginawa ng director, he acquires direct competition with the corporation. Note that
for himself yung business opportunity na under Section 33, the profits must have been obtained
dapat pag-aari ng corporation, so yung by the director to the prejudice of the corporation.
director na yun is tinatawag na disloyal
director. So yun yung corporate  Opportunity is not essential to the
opportunity na ninakaw ng isang disloyal business of the corporation, there is no
director. So yung consequence ng exploitation of the opportunity by the
disloyal director is that he will account to director or officers and wala namang
the corporation lahat ng profits na na- employment ng companies resources.
obtained nya and it must be refunded, Wala ring competition na nangyayari
even if he risked his own funds in the between the corporation and the
venture unless ratified by 2/3 votes of director. In short, wala talagang damage
the OCS. So kung na-ratify yan, hindi na cost to the corporation that’s why hindi
kailangang i-refund yung profit don sa mag-aapply yung doctrine.
corporation. C) When this property or business opportunity ceases to
be a “corporate opportunity” and transforms into a
“personal opportunity” where the corporation is
REQUISITES FOR APPLICATION definitely no longer able to avail itself of the
opportunity, which may “arise from financial insolvency,
A) The opportunity presented itself to the corporation.
or from legal restrictions, or from any other factor
B) The corporation is actually able to avail of the which prevents it from acting upon the opportunity for
opportunity. its own advantage.”

 So requisites for the application of the  Property or business opportunity ceases

rule. There is an opportunity which to be a “corporate opportunity” and
presented itself to the corporation and transforms into a “personal opportunity.
the corporation is actually able to avail of So mangyayari to kapag yung corporation
the opportunity. So bago mo i-apply yung is no longer able to undertake the
 business dahil sa financial constraints speedy action and solution to important matters
ganon. So dito, the corporate without the need for a board meeting,
opportunity is no longer corporate but especially where such meetings cannot readily
personal nalang sa part ng director. In be held. Thus the committee directly manages
this case, you will not apply the doctrine the operations of the corporation between
of corporate opportunity. meetings of the board thereby reducing the
workload of the latter.
RATIFICATION BY STOCKHOLDERS OF DISLOYAL ACT
 So an executive committee assure
- Under Section 33, the guilty director will only be prompt and speedy action and solution
exempt from liability to the corporation to to important matters without the need
account for the profits he realized if his disloyal for a board meeting especially if hindi
acts is ratified by the vote of the stockholders makapag-hold ng meeting. So mina-
owning or representing at least 2/3 of the manage ng executive committee yung
outstanding capital stock. There is no similar operations ng corporation in between
provision in Section 30. meetings of the board and nare-reduce
- Section 33 is silent on whether the disloyal yung workload ng board of directors or
director shall be allowed to vote his shares in trustees
ratification of his act. However, Section 52
provides that a director or trustee who has a
potential interest in any related party B) EXPRESS PROVISION IN THE BY-LAWS
transaction must recuse from voting on the - Under Section 34, the executive committee
approval of the related party transaction. must be provided for in the by-laws and
 Ratification by the stockholders, so tulad composed of not less than three members of
nga po ng sinabi niyo na, para hindi na i- the board. The committee may act on specific
refund yung profit, pwedeng i-ratify ng matters within the competence of the board, as
stockholders representing 2/3 OCS. Also, may be delegated to it by the board or in the by-
silent itong Section 33 whether or not laws, except those matters enumerated with
the vote of the disloyal director will be respect to which only the board duly called and
counted in the ratification of his disloyal assembled as such can act upon.
act. However, in consideration of Section  So magkakaroon lang ng executive
52, a director who has a potential committee if provided for expressly in
interest in any related party transaction the by-laws. So they can act on specific
must recuse from voting – dapat hindi na matters which can be acted upon by the
sya bumuto in the first place. board, and also ung mga specific matters
which are delegated by the board or by
the by-laws except matters with respect
SECTION 34 to only yung board ang pwedeng mag-
EXECUTIVE COMMITTEE decide
EXECUTIVE COMMITTEE

- It is a body created by the by-laws and

C) COMMITTEE CONTEMPLATED
composed of not less than three members of
- The “executive committee” referred to in
the board which, subject to the statutory
Section 34 should be distinguished from other
limitations, has all the authority of the board of
committees which are within the competence of
directors to the extent provided in the by-laws.
the board to create at any time and whose
 So ang executive committee, ito yung
actions require confirmation by the board itself.
kumikilos in the meantime na hindi
 Committee contemplated here, should
nagme-meeting ang mga board of
be distinguished from other committees.
directors
Yung other committees kasi is pwedeng i-
create ng board mismo. Now, yung
executive committee under Section 34
A) NEED FOR AN EXECUTIVE COMMITTEE should be created by a provision in the
- The board of directors delegates to an executive by-laws
committee composed of some members of the
board corporate powers to assure prompt and
 D) RESTRICTIONS ON POWER  As well filling of vacancies. Ang pwede
- It is as powerful as the board, as it actually lang naman mag-fill ng vacancies ay yung
performs certain duties of the board, and, in mga stockholders in the cases provided
effect, it is acting for the board itself. by law and yung board of directors if they
 Restrictions on power. So powerful as the constitute a quorum and the reason for
board, actually performs certain duties of vacancy is not because of removal or not
the board, and it is acting for the board. because of exploration of the term.
So ang executive committee obviously
can bind the corporation C) The amendment or repeal of by-laws or the
adoption of new by-laws.
 Amendment or repeal of by-laws or the
E) QUORUM AND VOTING adoption of new by-laws. So ang board
- The general rule for quorum requirements is the lang ang pwedeng gumawa nyan.
same as that for board of directors. A majority
of the committee members (regardless of the D) The amendment or repeal of any resolution of
classification of membership into the board which by its express terms is not so
directors/members or non-directors/members) amendable or repealable.
constitute a quorum.  amendment or repeal of any board
 Quorum and voting. So in case of resolution which is not so amendable or
quorum, ang requirements is majority of repealable
the members of the committee
regardless of whether or not they are E) A distribution of cash dividends to the
members or non-members of the board shareholders.
of directors, so it will constitute a  Distribution of cash dividends to the
quorum. shareholders so kailangan ng approval ng
 Now in case of voting, it is essential that board yan
the executive committee acts by majority
SPECIAL COMMITTEES
vote of all its members . so majority vote
ng members to approve an action - The board of directors may create special
committees of temporary or permanent nature
and determine the members’ term,
F) MEMBERSHIP composition, compensation, powers, and
- Non-membership of the board may be responsibilities.
appointed as members of the executive  The directors may create special
committee provided that there are at least three committees, may be permanent, may be
members of the board who are members of the temporary and they can also determine
committee (SEC Opinion, September 16, 1986). the term of the members, composition,
So in case of Membership. Non- compensation, powers, and
membership of the board is pwedeng i- responsibilities.
appoint as members ng executive
committee provided na merong at least 3
directors or members ng board.

TITLE IV
POWERS OF CORPORATIONS
MATTERS NOT WITHIN THE COMPETENCE OF THE
EXECUTIVE COMMITTEE
SECTION 35
CORPORATE POWERS
A) Approval of any action for which shareholders’
approval is also required.
POWERS OF A CORPORATION
 So any action which will require the
approval of the shareholders. - Refers to the right or capacity of a corporation
to perform all acts or things, except for those
B) The filling of vacancies in the board. forbidden by law and its articles of
 incorporation in furtherance of its purpose or CLASSIFICATION OF CORPORATE POWERS
purposes.
A. Those expressly granted or authorized by law, i.e.,
- A corporation exercises its powers through its
those conferred by the RCCP and its articles of
board of directors or trustees and/or its duly
incorporation.
authorized officers and agents, except in
instances where the RCCP requires stockholders’  So yung 3 classifications ng corporate
or members’ approval for certain specific acts. powers (1) those expressly granted or
 So powers of a corporation will refer to authorized by law so meaning – ito yung
the right or capacity ng isang corporation RCCP or yung articles of incorporation na
na i-perform yung lahat ng acts or things, nagbibigay or confers this power sa
except sa mga ipinagbabawal ng law at corporation. So express – malinaw na
ng articles of incorporation in order to sinabi.
further the purposes of the said
corporation. Also, the powers of a B. Those that are necessary to the exercise of the
corporation are exercised through the express or incidental powers.
board of directors or trustees or the  So para ma-exercise yung express tsaka
officers or the agents of the corporation incidental powers – ito yung mga powers
except otherwise provided or in na kailangan ng isang corporation. So,
instances where in yung approval ng itong #2 is refers to your implied powers.
stockholders or members ay kailangan
for a specific corporate act kasi in case of C. Those incidental to its existence.
stockholders or members, they keep a  #3 naman, those which are incidental to
residual powers para ma-control yung the existence of a corporation, meaning,
corporation by merely becoming a corporation, these
are the powers that are given. Also, the
powers will cut across lines – mahirap
DOCTRINE OF LIMITED CAPACITY ikulong sa isang classification yung mga
- A corporation has only such powers as are powers ng corporation.
expressly granted and those that are necessarily EXPRESS POWERS
implied from those expressly granted or those
which are incidental to its existence. It is, - The powers expressly conferred upon the
therefore, not correct to say that a corporation corporation by its charter – its articles of
has the power to do all acts not expressly or incorporation, the RCCP or from the special law
impliedly prohibited. In other words, the creating such corporation and other applicable
enumeration of corporate powers implies the laws.
exclusion of all other powers except when they - The express powers may be exercised by the
are incidental or implied in conformity with the corporation whether or not any such powers are
generally accepted principle of statutory stated in the articles of incorporation or by-
construction “expression unius est exclusio laws, for they are deemed vested in any
alterius ” corporation organized under the RCCP.
 The doctrine of limited capacity states  So conferred by the revised corporation
that ang powers ng corporation ay (1) code at ng charter of the corporation. So
those that are expressly granted and (2) yung charter of the corporation will
those which are necessarily implied from include the articles of incorporation and
the express and (3) those which are pati na rin yung general incorporation
incidental to the existence of the law which is yung RCCP or in case of a
corporation. So yung enumeration ng special corporation, yung special law na
mga powers ng corporation as provided nag-create ng ganyang corporation. So,
for in the revised code implies the itong mga express powers na ‘to, kahit
exclusion of all other powers except if hindi niyo i-state sa articles or sa by-laws,
yung power is implied or yung power is they can be exercised by the corporation
incidental sa corporation. because they are provided for in the
RCCP

IMPLIED POWERS
 - Those powers which are reasonably necessary view ng mga experts is that yung mga
to execute the express powers and to acts which will favor yung mga
accomplish or carry out the purposes for which employees such as building homes,
the corporation was formed. These implied places of abusements, hospitals etc. are
powers are expressly recognized by Section 35 within corporate powers. And lastly, Acts
(k) to increase business. So this are part of
 So implied powers are reasonably implied powers again. So ito yung mga
necessary to execute the express powers. pa-contest sa radyo sa mga tv programs,
So para magawa ang express powers – pa-advertisement ganon para lang i-
ito ang mga powers na impliedly given to promote yung business ng corporation.
a corporation. So to accomplish also or So this is obviously an implied power
carry out the purposes for which the pero again, no fixed rule can be laid
corporation was formed, kailangan ng down to mechanically determine yung
mga implied powers. So itong mga cases ng implied powers. So
implied powers na ‘to are expressly nakadepende ‘to sa mga facts and
recognized under section 35 (k) of the circumstances whether yung isang
RCCP corporation has the power impliedly to
perform yung mga acts na ‘to.
IMPLIED POWERS CLASSIFIED

A. Acts in the usual course of business.

INCIDENTAL or INHERENT POWERS
B. Acts to protect debts owning to a corporation.
- Are powers which a corporation can exercise by
C. Embarking in different business.
the mere fact of its being a corporation or
D. Acts in part or wholly to protect or aid employees. powers which are necessary to corporate
existence and are, therefore, impliedly granted.
E. Acts to increase business. As powers inherent in the corporation as a legal
 So also yung implied powers are entity, they exist independently of the express
classified or binigyan tayo ng mga powers. These incidental powers are expressly
activities or rough classification which recognized by Sections 22 and 44.
will embrace most of the implied powers.  So incidental or inherent powers, so this
So (1) Acts in the usual course of are powers which a corporation can
business. So this will include borrowing exercise merely by being a corporation.
money, making contracts, executing So obviously, impliedly granted sila. So
promissory notes ganon. So itong mga dahil corporation sya, binigay agad tong
powers na ‘to, acts sila in the ordinary power na ‘to. And these are recognized
course of business ng corporation. Acts under Sections 2 and 44. So, some of the
sila under ordinary circumstances and powers enumerated under section 35 are
they are acts necessary to run a business. actually incidental powers pero mahirap
(2) Acts to protect debts owning to a kasing mag-define ng mga klase ng
corporation. So dito obviously, creditor powers because they cut across lines
yung corporation and ito yung mga
implied acts na pwedeng gawin ng
creditor in order to protect his right as POWER TO SUE AND BE SUED
such creditor. So a corporation may also
- This power is an incident to corporate existence.
(3) Embark in different business. But as a
As a rule, suits are to be brought by or against
general rule, yung pag-eengage sa
the corporation in its own name.
different business hindi talaga pwedeng
 Power to sue and to be sued. So yung
gawin ng corporation yan because it can
power ng isang corporation na mag-
only engage in the purpose for which it
demanda and of course yung liability ng
was created. Pero as a temporary part of
isang corporation to be sued. So sabi sa
its business – pwede naman. Temporarily
book, incidental powers ito to corporate
conduct outside a business is allowed to
existence meaning, merely because of
corporations. (4) Acts in part or wholly to
becoming a corporation, meron kayong
protect or aid employees. So dito, yung
 power to sue and a liability to be sued. So Philippines is hindi pwedeng mag-
pagka-nagdemanda kayo sa corporation, demanda in the Philippines except in
it is brought against the name of the some cases.
corporation if ang corporation is magde-
demanda – it will file an action in its own
name. E) RIGHT TO CLAIM MORAL DAMAGES
- As a general rule, a corporation is not entitled to
moral damages because, not being a natural
APPLICATION OF POWER TO SUE AND LIABILITY TO BE person, it cannot experience physical suffering,
SUED mental anguish, besmirched reputation, or such
sentiments as wounded feelings, serious
A) DE FACTO CORPORATIONS
anxiety, moral shock, social humiliation, and
- Corporations de facto may sue or be sued.
similar injury. Such can only be experienced by
 In case of de facto corporations of
one having a nervous system. Nevertheless, a
course they may sue or be sued kasi,
corporation may have a good reputation or
again de facto corporations are legally
business standing which, if besmirched or
existing except in the eyes of the state so
debased resulting in social humiliation, may be a
they can claim existence kasi nga may
ground for the award of moral damages and
exercise ng corporate powers yan and
attorney’s fees. The basis of recovery would be
then merong bona fide intention to
Articles 19,20 and 21 of the Civil Code of the
incorporate. So yun nga ang de facto
Philippines, Republic Act No. 386, as amended,
corporation, considered sila as
June 18, 1949.
corporations except sa mata ng state so
 In case of moral damages. So ang
dahil don, pwede silang mag-demanda at
corporation as a general rule, hindi sya
ma-demanda.
entitled to moral damages because moral
damages is paid
B) DISSOLVED CORPORATIONS
 There is no standing doctrine that
- A corporation which has been dissolved after
corporations are, as a matter of right,
the expiration of the three-year winding-up
entitled to moral damages. The existing
period ceases to exist de jure or de facto and
rule is that moral damages are not
therefore it cannot sue or be sued.
awarded to a corporation since it is
 Dissolved corporations, so obviously after
incapable of feelings or mental anguish.
yung 3-year winding up period, hindi na
So as a general rule, it cannot claim
yan de jure and de facto. So after that
moral damages except if a corporation
period, it cannot sue anymore, and it
has a good reputation or business
cannot be sued anymore.
standing, and yung kanyang reputation
or business standing – if na-besmirched
C) UNREGISTERED CORPORATIONS
yan or na-debased or nasira yung
- A corporation not duly registered in accordance
kanyang reputation, it can result to social
with law has no legal capacity to sue as such.
humiliation and pwede syang ma-
 Unregistered corporations, wala silang
award’an ng moral damages but only in
juridical personality so hindi sila pwedeng
this case. So kailangan nyang i-
legal na mag-demanda ng ganon. Pero
established na meron na syang
pwede naman silang i-demanda.
reputation and nasira yung kanyang
Probably considered sila as corporations
reputation which cause social humiliation
by estoppel. So ang liability jan is that of
and damages to the corporation
general partners.

D) FOREIGN CORPORATIONS POWER TO ADOPT AND USE A CORPORATE SEAL

- Neither can a foreign corporation which
A) A seal is not required for the validity of any
transacts business in the Philippines without the
corporate act. Under Section 62, certificates of
necessary license from the SEC sue in the
stock issued by corporations are required to be
Philippine courts except in some cases.
sealed with the seal of the corporation.
 So a foreign corporations na walang
Nevertheless, the use of a corporate seal in
license to transact business in the
 certificates of stock must be deemed merely B) SHARES OF THE ACQUIRING CORPORATION
directory rather than mandatory. A corporation - The RCCP expressly authorizes a corporation
may exist even without a seal. subject to limitations stated therein to acquire
its own stocks (Section 39, 40, 41, 67, 76, 80, and
B) Although it may not be necessary, the reason is 104). A corporation may purchase its own stock,
desirable to attest all contracts and other acts of however, only when it has “unrestricted
the corporation with its seal, when this is retained earnings” to cover the shares to be
possible, is that the presence of such seal purchased or acquired.
establishes, prima facie, that the instrument to
which it is affixed is the act of the corporation.
POWER TO ENTER INTO PARTNERSHIP

- Before the enactment of the RCCP, corporations

POWER TO ACQUIRE AND CONVEY PROPERTY
cannot enter into a contract of partnership
A) INHERENT IN EVERY CORPORATION except in cases of a joint venture or a limited
- This power which is also expressly conferred partnership. The limitation was based on public
under the law has always been regarded as an policy since in a partnership’s concept of mutual
incident ti every corporation. A corporation agency, the corporation would be bound by the
needs properties or assets to carry on its acts of persons who are not members of the
business. board. However, the RCCP now expressly gave
corporations the power to enter into a
B) AS NECESSARY TO THE TRANSACTION OF ITS partnership.
LAWFULL BUSINESS
- The power is qualified by the phrase “as the
transaction of the lawful business of the POWER TO CONTRIBUTE TO CHARITY
corporation may reasonably and necessarily
require.” A) PUBLIC RESPONSIBILITY OF CORPORATIONS
- Property obtained by a corporation which is - Section 35 expressly vests in business
foreign to the purposes for which it was corporations the authority to contribute to
organized is an unlawful acquisition. purely charitable purposes. It gives recognition
to the growing tendency to regard charitable
C) AS SUBJECT TO LIMITATIONS OR RESTRICTIONS gifts as within the scope of corporate authority.
- The right or power of private corporations to It is based on the modern view that business
deal in real as well as personal property is also corporations are not organized solely as profit-
subject to limitations or restrictions prescribed making enterprises but also as economic and
by special laws and the Constitution. social institutions with corresponding public
responsibility to aid in the betterment of
economic and social conditions in the
community in which such corporations are doing
business.

B) LIMITATIONS ON POWER
POWER TO ACQUIRE SHARES OR SECURITIES
- Under the RCCP, the only limitations imposed
A) SHARES OF OTHER CORPORATIONS on the authority of a corporation to make
- Section 35 authorizes a private corporation to donations are: (1) the amount thereof must be
acquire shares or securities of other reasonable; and (2) no foreign corporation shall
corporations. Such an act does not need the give donations in aid of any political party or
approval of the stockholders if done in candidate or for purposes of partisan political
pursuance of the purpose/s of the corporation activity.
as stated in its articles of incorporation but
when the purpose is done solely for investment,
the approval of the stockholders as required by POWER TO CONTRIBUTE TO CHARITY
Section 41 is necessary.
- The authority granted to every corporation by
Section 35 to establish pension, retirement, and
other plans for the benefit of its officers and
 employees is a statutory recognition that 2. The increased of the par value shares
disbursement of corporate funds in pursuance authorized to be issued.
of such plans likewise promotes the purpose/s B) ISSUANCE OF STOCK DIVIDENDS
for which the corporation was formed. - The capital stock may also be increased without
any corresponding increase in the corporate
assets by the issuance of stock dividends.
SECTION 36
POWER TO MODIFY CORPORATE TERM
WAYS OF INCREASING or DECREASING AUTHORIZED
CAPITAL STOCK
POWER TO EXTEND OR SHORTEN CORPORATE TERM
A) By increasing or decreasing the number of
- The corporate term of a private corporation may
shares authorized to be issued without
be extended or shortened by an amendment of
increasing or decreasing the par value thereof.
the articles of incorporation approved by the
majority vote of the board of directors or
B) By increasing or decreasing the par value of
trustees and ratified at a meeting of the
each share without increasing or decreasing the
stockholders representing at least 2/3 of the
number thereof.
outstanding capital stock or by at least 2/3 of
the members in case of non-stock corporations.
C) By increasing or decreasing both the number of
shares authorized to be issued and the par value
thereof.
REQUISITES TO EXTEND OR SHORTEN CORPORATE TERM

A) Majority vote of the board of directors or REQUISITES TO INCREASE or DECREASE CAPITAL STOCK
trustees.
B) Vote of 2/3 of the outstanding capital stock or A. Majority vote of the board of directors.
2/3votes of the members in case of a non-stock B. Ratification by the stockholders holding at least
corporation. 2/3 of the outstanding capital.
C) A meeting called for such purpose. C. A meeting called for such purpose.
D. A certificate must be signed by a majority of the
directors of the corporation and countersigned
APPRAISAL RIGHT AVAILABLE TO DISSENTING by the chairperson and the secretary of the
STOCKHOLDERS stockholders’ meeting, setting forth:

- Section 36 grants appraisal right to a dissenting 1. That the requirements of this section
stockholder in case of extension of corporate have been complied with.
term. Such right should also be available to a
dissenting stockholder if the corporate term is 2. The amount of the increase or decrease
shortened. Note that the appraisal right applies of the capital stock.
only to a stockholder of a stock corporation.
3. In case of an increase of the capital
stock, the amount of capital stock or
SECTION 37 number of shares of no-par stock
Power to Increase or Decrease Capital Stock thereof actually subscribed, the names,
nationalities and addresses of the
NECESSITY FOR INCREASING CAPITAL STOCK persons subscribing, the amount of
capital stock or number of no-par stock
A) INCREASE OF CORPORATE ASSETS
subscribed by each, and the amount
- An increase of the amount of the stated capital
paid by each on the subscription in cash
may be for the purpose of effecting an increase
or property, or the amount of capital
in the corporate assets. It may be effected by:
stock or number of shares of no-par
stock allotted to each stockholder if such
1. Authorizing the creation of new shares
increase is for the purpose of making
to be offered and issued at a fixed
effective stock dividend therefor
valuation; or
authorized
 REQUISITES TO INCUR, CREATE, OR INCREASE BONDED
4. The amount of stock represented at the INDEBTEDNESS
meeting.
A) Majority vote of the board of directors or
trustees.
5. The vote authorizing the increase or
B) Vote of 2/3 of the outstanding capital stock or
decrease of the capital stock, or the
2/3 votes of the members in case of a non-stock
incurring, creating, or increasing of any
corporation as applicable.
bonded indebtedness.
C) A meeting called for such purpose.
D) A certificate must be signed by a majority of the
E. Sworn statement of the treasurer of the
directors of the corporation and countersigned
corporation lawfully holding office at the time of
by the chairperson and the secretary of the
the filing of the certificate, showing that at least
stockholders’ meeting, setting forth:
25% of such increased capital stock has been
subscribed and that at least 25% of the amount
1. That the requirements of this section
subscribed has been paid in actual cash to the
have been complied with.
corporation or that property, the valuation of
2. Any bonded indebtedness to be
which is equal to 25% of the subscription, has
incurred, created, or increased.
been transferred to the corporation. The
3. The amount of stock represented at the
certificate of filing shall not be accepted if the
meeting.
sworn statement is not files with the certificate.

SECTION 37 4. The vote authorizing incurring, creating,

Power to Incur, Create or Increase Bonded Indebtedness or increasing of any bonded
indebtedness.
A) STOCK AND NON-STOCK CORPORATION
- The power of a corporation to incur, create, or
increase bonded indebtedness or indebtedness
secured by its notes or bonds is likewise EFFECTIVITY OF INCURRING, CREATING, OR INCREASING
expressly conferred by Section 37. But it is also a BONDED INDEBTEDNESS
power implied from the express powers. A
- Any incurring, creating, or increasing of any
business corporation, in the absence of
bonded indebtedness shall require prior
restriction, may borrow money whenever the
approval of the SEC, and where appropriate, of
necessity of its business so requires and issue
the Philippines Competition Commission. The
security or customary evidence of debt such as
application with the SEC shall be made within
notes, bonds or mortgages. Under Section 37,
six months from the date of approval of the
non-stock corporations are now expressly
board of directors or trustees and stockholders
authorized to incur, create, or increase bonded
or members, which period may be extended for
indebtedness.
justifiable reasons.
- Copies of the certificate shall be kept on file in
B) SHARES AND MEMBERS ENTITLED TO VOTE the office of the corporation and filed with the
- Even holders of non-voting shares or non-voting SEC and attached to the original articles of
members, as the case may be, are entitled to incorporation. After approval by the SEC and the
vote on the matter. issuance by the SEC of its certificate of filing, the
incurring, creating, or increasing of any bonded
C) PRIOR APPROVAL OF, AND REGISTRATION OF indebtedness is authorized, as the certificate of
BONDS WITH. SEC filing may declare.
- Any incurring, creating, or increasing by the
corporation of any bonded indebtedness is
subject to prior approval of the SEC. the bonds SECTION 38
issued by the corporation have to be registered Power to DENY Pre-emptive Right
with the SEC which is given the authority to
determine the sufficiency of the terms thereof. RIGHT OF PRE-EMPTION or PRE-EMPTIVE RIGHT

- It is the right of a stockholder who are such at

the time of increase of the capital stock of a
corporation to be offered first the new shares of
 stock issued in proportion to their existing although they are of a class different from those
shareholdings and on equal terms with other issued or disposed of.
holders of the original stocks before  Now obviously kung yung pre-emptive
subscriptions are received from the general right is a right na binigay sa mga
public. stockholder, it can also be denied. So
 Yung right of pre-emption or pre-emptive pre-emptive right may be denied by the
right is, i-offer muna sa isang existing articles of incorporation or an
stockholder yung mga bagong issue ng amendment thereto or if it falls under
shares of stock before they are offered to any of the exception. So if hindi naman
the general public sya denied, hindi naman sya nalaglag
 WHAT IS THE PURPOSE OF PRE-EMPTIVE doon sa exceptions, yung mga
RIGHT stockholders are allowed to exercise
- To safeguard yung right ng yung pre-emptive right.
stockholders and to preserve or
unimpaired/ unaltered yung
kanilang proportionate influence SHARES TO WHICH PRE-EMPTIVE RIGHT IS NOT
and interest sa corporation and AVAILABLE
relative value ng kanilang
stockholding. So let’s say 100,000 (A) SHARES SPECIFIED BY LAW
shares ang isang corporation, - Under Section 38, the pre-emptive right of
then si A – owner sya ng 51,000 stockholders to subscribe to all issues or
shares so obviously A is a disposition of shares in proportion to their
majority stockholder. Now this respective shareholdings extends “to all issues
corporation let’s say increases or disposition of shares of any class” (such as
yung kanilang capital stock and treasury shares) unless denied by the articles of
naging 200,000 kunwari, so kung incorporation or an amendment thereto (in
hindi bumili si A don sa increase which case they are deemed to have waived the
na 100K, yung kanyang stock right), and except to the following:
subscription remains at 51,000
out of 200,000 shares, obviously 1. Shares to be issued in compliance with
there is a possibility that A is no laws requiring stock offerings or
longer a majority stockholder. minimum stock ownership by the public.
Now para maiwasan ‘to, A should  So, obviously you have to identify ano ba
be offered first 51,000 shares yung shares which are exempted na hindi
doon sa bagong issue na 100,000 pwedeng i-apply yung pre-emptive right.
shares - in proportion to his (1) shares specified by law, so dito, pre-
existing stock ownership – yun emptive right will not extend to shares
ang pre-emptive right. So yun which are issued to comply with the legal
ang offer sakanya for A to be requirement.
sure na ime-maintain nya yung
kanyang proportionate interest 2. Shares to be issued in good faith with
of 51% doon sa corporation. the approval of the stockholders
representing 2/3 of the outstanding
capital stock, in exchange for property
needed for corporate purposes.
POWER TO DENY PRE-EMPTIVE RIGHT
 In case of shares issued in good faith with
- The pre-emptive right of stockholders of a stock the approval of the stockholders
corporation “to subscribe to all issues or representing 2/3 OCS, in exchange for
disposition of shares of any class in proportion property needed for corporate purposes.
to their respective shareholdings” may be So dito, bumibili ng property ang
“denied by the articles of incorporation or an corporation and yung gagamitin nilang
amendment thereto or may fall under any of the pambayad is shares of stock, so walang
exceptions.” Unless so denied or excepted, the pre-emptive right jan.
right should be granted to a holder of shares
 3. Shares to be issued in good faith with  (2) to stockholders of record. so SEC
the approval of the stockholders considers it a sound corporate practice.
representing 2/3 of the outstanding kung hindi in-avail yung pre-emptive
capital stock in payment of a previously right as to newly issued shares or original
contracted debt. unissued shares. Maganda na rin na
 Yung shares issued as payment for sound corporate practice to offer it to
previously contracted debt. So may utang existing stockholders before it is offered
ang corporation tapos mag-iissue sila ng to the public. Pero dito, in case of
shares with the approval of 2/3 OCS then existing stockholder, hindi naman
yung mga shares na in-issue nila. New kailangang in proportion to their
shares will be used to pay the previously stockholdings.
contracted debt. So obviously dito, to  As to treasury shares, merong pre-
convert liability into capital, new shares emptive right in both open corporations
must be issued by the corporation, by
SECTION 39
amendment of the articles of
POWER TO DISPOSE ALL OR SUBSTANTIALLY ALL
incorporation
CORPORATE PROPERTY
(B) OFFERING OF REMAINING UNSUBSCRIBED SHARES

1. TO PUBLIC OR ANY PERSON ACCEPTABLE TO POWER TO SELL, LEASE, EXCHANGE, MORTGAGE,

CORPORATION PLEDGE OR OTHERWISE DISPOSE OF ALL OR
- If the unissued shares, whether from the SUBSTANTIALLY ALL OF ITS PROPERTY AND ASSETS,
original or increased capital stock, INCLUDING ITS GOODWILL
corresponding to one stockholder are not - A corporation, by the action of its board of
subscribed or purchased by him within the directors or trustees supported by the vote of
period fixed for the exercise of his pre-emptive shareholders or members may sell, lease,
right, he is deemed to have impliedly waived his exchange, mortgage, pledge, or otherwise
right to subscribe to the same or to the balance dispose of all or substantially all of its property,
if he subscribes only to a portion. and assets including its goodwill.
 So, offering of remaining unsubscribed - There must be a fundamental change in the
shares. ito yung hindi bago, pero hindi organization of the corporation that they want
sya in-offer initially. so let's say 100,000 to sell or dispose of all or substantially all of its
shares, ang in-offer lang is 50 ,000 so properties.
meron syang 50K unsubscribed shares - - The approval of the SEC is not required.
remaining yan sa corporation. (1) so it  So dito, yung corporation, may dispose of
may be offered to the public or any all or substantially all of the corporate
person acceptable to corporation. so property by the action of the board of
pagka yung mga unissued shares directors or trustees supported by the
whether from original or increased required vote of the stockholders or
capital stock corresponding to one members. Now, before i-disposed yung
stockholder, hindi nya in-avail yung all or substantially all of the corporate
kanyang pre-emptive right, it is deemed property, there must be a fundamental
wave change in the corporation which would
 warrant the selling or disposition of all or
substantially all of its property. So dito,
2. TO STOCKHOLDERS OF RECORD hindi required yung approval ng SEC.
- As a matter of policy, the SEC considers it a
sound corporate practice to offer always the
remaining shares to the stockholders of record REQUISITES FOR VALIDITY OF SELL, ETC.
whenever practical and feasible before offering
them to the public (SEC Opinions, May 14, 1990. A) Written notice of the proposed action and of the
December 6, 1994, March 23, 1998), although time and place for the meeting shall be
this “right of first refusal” is not provided for in addressed to stockholders or members at their
the articles of incorporation. places of residence as shown in the books of the
corporation and deposited to the addressee in
 the post office with postage prepaid, served by the board of directors for some
personally, or when allowed by the by-laws or corporate purpose. So kung wala syang
done with the consent of the stockholder, sent pinaglalaanan na corporate purpose,
electronically. itong retained earnings na to will be
considered unrestricted and because
B) Approval by a majority vote of the board of they are unrestricted retained earnings,
directors or trustees. they may even be available for dividend
distribution.
C) Authorization by the vote of the stockholders s
representing at least 2/3 of the outstanding
capital stock, or at least or in case of non-stock INSTANCES WHEN A CORPORATION MAY ACQUIRE ITS
corporations, by the vote of at least 2/3 of the OWN SHARES
members.
A) To eliminate fractional shares arising out of
stock dividends.
 (1) To eliminate fractional shares. So
APPRAISAL RIGHT OF DISSENTING STOCKHOLDER
these are shares less than one share.
 In case of disposition is necessary and Para nga naman mabuo yung shares na
usual in the course of the business. Yung to, bilhin nalang nila yung mga fraction
stockholders consent or ratification is not ng mga shares. Usually nangyayari ‘to
required. Also, if the proceeds of the sale kapag may issuance ng stock dividends.
or other disposition of such property and B) To collect or compromise an indebtedness to
assets will be appropriated for the the corporation, arising out of unpaid
conduct of remaining business. Dina subscription, in a delinquency sale, and to
kailangang ng ratification ng stockholders purchase delinquent shares sold during said
or members. And yung dissenting sale.
stockholders can exercise yung kanilang  So para mare-acquire yung mga unpaid
appraisal right if they are not amenable and delinquent shares, power din ito ng
to the disposition of all or substantially all corporation
of the corporate assets C) To pay dissenting or withdrawing stockholders
entitled to payment for their shares under the
SECTION 40
provisions of this Code.
POWER TO ACQUIRE OWN SHARES
 (3) To pay dissenting or withdrawing
POWER TO ACQUIRE OWN SHARES stockholders entitled to payment for
their shares. So itong dissenting or
- Section 40 expressly authorizes a stock withdrawing stockholders especially yung
corporation to purchase or acquire its own dissenting ones – they exercise their
shares subject to the limitation that the appraisal right pursuant to title 10. So
acquisition is for a legitimate corporate purpose yung kanilang mga shares na pag-aari ng
or purposes and that there be unrestricted mga dissenting stockholders, bibilhin ng
retained earnings in its books to cover the corporation yan.
shares acquired. D) To acquire treasury shares
 Before a corporation will acquire its own E) To acquire redeemable shares
shares, it is subject to certain rules. So, F) To effect a decrease in the capital stock of a
first before we learn of unrestricted corporation
retained earnings, tignan muna natin G) In case of deadlock in management
kung ano muna yung retained earnings.  And last one, in case of deadlock in
So yung retained earnings are management of a corporation. So, this
accumulated profits realized out of will refer to your close corporation. Yung
normal and continuous business SEC may order the purchase at their fair
operations after deducting therefrom value of the shares of any stockholder by
distributions to stockholders and transfer the corporation regardless of
to capital and other accounts. Now yung unavailability of unrestricted retained
retained earnings will be unrestricted if earnings in the book. So, kapag may
they have not been reserved or set aside deadlock na sa management ng closed
 corporation, SEC will just order the its assets to the prejudice of the creditors of the
corporation to buy a shares of stock of corporation is null and void.
any stockholder even if merong
unrestricted retained earnings or not.

CONDITIONS FOR THE EXERCISE OF THE POWER TO

ACQUIRE OWN SHARES SECTION 4I
POWER TO INVEST FUNDS IN OTHER CORPORATIONS
A) That the capital is not thereby impaired.
 There is no impairment of capital POWER TO INVEST FUNDS IN OTHER CORPORATIONS
OR FOR OTHER PURPOSES
B) That it be for a legitimate and proper corporate
purpose. - The investment of the corporate funds (includes
 It is for a legitimate purpose any corporate property to be used in
furtherance of the business) is limited to the
C) That there shall be unrestricted retained primary purpose. In order that it may invest its
earnings to purchase the shares except in cases funds in any other corporation or business or for
of redeemable shares which may be purchased any purposes other than the primary purpose,
even in the absence of unrestricted retained compliance with the requirements of Section 41
earnings provided that the corporation is not is necessary and, of course, subject to the
insolvent or that such purchase will not render prohibition against certain corporations having
the corporation insolvent and in case of a close more than one purpose (e.g., insurance and
corporation. banking corporations).
- But a corporation may invest its funds in
 There are unrestricted retained earnings another business which is incident or auxiliary
except in cases of redeemable shares. So to its primary purpose as stated in the articles of
even if there are no unrestricted retained incorporation without the approval of the
earnings, pwede nating i-redeemed yung stockholders or members as required under
redeemable shares provided it will not Section 41. In such case, a dissenting
render the corporation insolvent and also stockholder shall have no appraisal right.
in case of a closed corporation
D) That the corporation acts in good faith and
without prejudice to the rights of the creditors SECTION 42
and stockholders. POWER TO DECLARE DIVIDENDS
 corporation acts in good faith and does POWER TO DECLARE DIVIDENDS
not prejudice the right of the creditors.
- The board of directors of a stock corporation has
E) That the conditions of corporate affairs warrant the power to declare dividends out of the
it (SEC Opinion, February 27, 1976). “unrestricted retained earnings” which shall be
 And the corporate conditions warrant it. payable in cash, in property, or in stock to all
So ito yung mga condition for the stockholders “on the basis of the outstanding
acquisition of own shares of a shares held by them.”
corporation

RULES IN THE DECLARATION OF DIVIDENDS

TRUST FUND DOCTRINE
A. GENERAL RULE
- The assets of a corporation as represented by its - Declaration of dividends is generally
capital stock are “trust funds that are to be discretionary.
maintained unimpaired and to be used by the
corporation to pay corporate creditors in the B. EXCEPTION
sense that there can be no distribution of such - When the surplus profit is in excess of 100% of
assets among the stockholders without their paid-up capital stock.
provision being first made for the payment of
corporate debts and that any such disposition of C. EXCEPTION TO THE EXCEPTION
 - The corporation is allowed not to declare have not been declared delinquent only
dividends even when the surplus profit is in if the stockholders concerned give their
excess of 100% of their paid-up capital stock. consent thereto (SEC Opinion, March 18,
1991).
1. When justified by definite corporate
expansion projects or programs C) FROM STOCK DIVIDENDS
approved by the board of directors. - A stockholder's indebtedness to a corporation
2. When the corporation is prohibited under a subscription agreement cannot be
under any loan agreement with any compensated with the amount of his shares in
financial institution or creditor, whether the same corporation, there being no relation of
local or foreign, from declaring creditor and debtor with regard to such shares.
dividends without its or his consent, and
such consent has not yet been secured. 1. Under Section 42, "stock dividends shall
3. When it can be clearly shown that such be withheld from the delinquent
retention is necessary under special stockholder until his unpaid subscription
circumstances obtaining in the is fully paid." In other words, under the
corporation, such as when there is a provision, it is not allowed to apply
need for special reserve for probable stock dividend to unpaid subscription.
contingencies.
2. A stockholder, as such, is not a creditor
of the corporation for his shares
PAYMENT OF SUBSCRIPTION FROM DIVIDENDS although the latter is creditor of the
former for the unpaid balance of his
A) FROM DIVIDENDS TO BE DECLARED subscription. It is the prevailing doctrine
- It has been held that a stipulation to the effect that the capital stock of a corporation is
that the subscription is “payable from the first a trust fund to be used more particularly
dividends are declared on any and all shares of for the security of creditors of the
said company owned by me at the time corporation who presumably deal with
dividends are declared until the full amount of it on the credit of its capital stock. In
the subscription has been paid" is illegal for it view of the foregoing, a stockholder's
"obligates the subscriber to pay nothing for the liability for unpaid subscriptions
shares except as dividends may accrue upon the (although not yet delinquent) may not
stock." In the contingency that dividends are not be offset by the issuance and
paid, there is no liability at all. distribution of stock dividends.
B) FROM CASH DIVIDENDS
- Where payment has been made on stock
subscription, the rule depends on whether the CLASSES OF DIVIDENDS
stockholder is delinquent or not.
A) CASH DIVIDEND
- Dividend payable in cash.
1. The stockholder is still entitled to
receive cash dividends due on
B) PROPERTY DIVIDEND
delinquent stock but the dividends
- It is dividend distributed to the stockholders in
"shall first be applied to the unpaid
the form of property, real or personal, such as
balance on the subscription, plus costs
warehouse receipts, or shares of stock of
and expenses." The cash dividends may
another corporation.
be applied as payment for the unpaid
subscription of all delinquent shares.
C) STOCK DIVIDEND
- It is dividend payable in unissued or increased or
2. Cash dividends cannot be withheld from
additional shares of the corporation instead of
the subscribers who have not fully paid
in cash or in property out of the unrestricted
their subscriptions unless they are
retained earnings of the corporation.
delinquent on their unpaid
subscriptions. The corporation may use
the cash dividends to pay off
D) OPTIONAL DIVIDEND
stockholders' subscriptions, but which
- It is dividend which gives the stockholder an SECTION 43
option to receive cash or stock dividend. POWER TO ENTER INTO MANAGEMENT CONTRACT
MANAGEMENT CONTRACT
E) COMPOSITE DIVIDEND - Any contract whereby a corporation undertakes
- It is dividend which is partly in cash and partly in to manage or operate all or substantially all of
stocks. Here, there is no option involved. the business of another corporation, whether
such contracts are called service contracts,
F) PREFERRED or PRRFERENTIAL DIVIDEND operating agreements or otherwise.
- It is dividend, which is payable, by virtue of
contract, to one class of stockholders in priority - It is an agreement under which a corporation
to that to be paid to another class. delegates the management of its affairs to
another corporation for a certain period of time.
G) CUMULATIVE DIVIDEND Since the corporation can employ officers and
- It is dividend which is contracted to be paid at a agents to manage its business, there can be no
certain rate at stated times and, if net earnings objection to employing another corporation for
at any dividend period are insufficient to pay the the purpose.
contract dividend, it is to be made out of
subsequent net earnings.
POWER TO ENTER INTO MANAGEMENT CONTRACT
H) SCRIP DIVIDEND
A) WITH ANOTHER CORPORATION
- It is dividend in the form of a writing or
- A corporation is expressly allowed, without the
certificate issued to a stockholder entitling him
need of amending its articles of incorporation,
to the payment of money, stock or other benefit
to enter into a management contract with
at some future time inasmuch as the
another corporation. A corporation under
corporation at the time such dividends are
management is bound by the acts of the
declared has profits not in cash or has no
managing corporation and is estopped to deny
sufficient cash, or has the cash but wishes to
its authority.
reserve it for some corporate purposes. It is in
the form of a promissory note or a promise to
B) WITH PARENT CORPORATION
pay and may be issued to bear interest.
- Absent a finding of fraud or bad faith, contracts
entered into by a parent corporation with a
I) BOND DIVIDEND
subsidiary or affiliate may be held legal where
- It is dividend distributed in bonds of the
the purpose is to provide more efficient
corporation to the stockholders. The
operation and greater convenience to both.
bondholder becomes a creditor of the
Thus, a holding company may, in some cases,
corporation to the extent of the amount of the
intervene in the management and affairs of its
bond. Thus, a corporation may use its retained
subsidiaries or affiliates such as the
earnings in improvement of its plant, or
centralization of accounting and personnel
purchasing machinery or other property and
functions, provided the management in those
issue its bonds in payment of dividends from
affairs will not affect the separate and
such earnings.
continuing existence of the managed
corporation. However, since this situation may,
J) LIQUIDATING DIVIDENDS
in effect, place the subsidiary or affiliate to a
- They are dividends which are actually
certain extent within the control of the present
distributions of the assets of the corporation
company and the latter, in turn, assumes
upon dissolution or winding up of the same.
responsibility for such management, the same
They are not paid on account of earnings or
shall be subject to the provisions of Section 43
profits, but as a return of capital invested. So,
relative to execution of management contracts
the assets of a dissolved corporation are not
(SEC Opinion, November 28, 1990).
distributed as dividends, as dividends are
commonly known. The term has also been used
C) WITH A NATURAL PERSON
to describe a distribution of assets made upon a
- Section 43 refers only to a management
reduction of the capital stock.
contract with another corporation. Hence, it
does not apply to management contracts
 entered into by a corporation with natural B) PERIOD OF THE CONTRACT
persons.
- The period must not be longer than five years
for any one term except those contracts which
LIMITATIONS ON THE POWER
relate to the exploration, development,
exploitation, or utilization of natural resources
GENERAL RULE that may be entered into for such as may be
MANAGING MANAGED provided by pertinent laws or regulations.
CORPORATION CORPORATION
C) MANAGERIAL POWER UNDER THE CONTRACT
BOD/T Majority of Majority of
quorum. quorum. - A management contract cannot delegate entire
SH/M Majority of Majority of supervision and control over the officers and
OCS/members. OCS/members. business of a corporation to another as this will
QUALIFICATIONS contravene Section 22, which lays down the
Interlocking fundamental rule that the corporate powers of
stockholders MANAGING MANAGED all corporations shall be exercised by the board.
own more than CORPORATION CORPORATION
In general, the management contract must
1/3 of OCS with
always be subject to the superior power of the
voting rights in
managing board to give specific directions from time to
corporation. time or to recall the delegation of managerial
BOD Majority of Majority of power. The board cannot surrender or abdicate
quorum. quorum. its power and duty of supervision and control
SH Majority of OCS. 2/3 of OCS. for otherwise, it becomes a mere
instrumentality of the management company.
Majority MANAGING MANAGED
interlocking CORPORATION CORPORATION
directors or
trustees.
BOD/T Majority of Majority of SECTION 44
quorum. quorum. ULTRA VIRES ACTS
SH/M Majority of 2/3 of
OCS/members. OCS/members. ULTRA VIRES
A) RATIFICATION OF THE CONTRACT - An act not within the express, implied, and
- The contract must be approved by a majority of incidental powers of the corporation conferred
the quorum of the board of directors or trustees by the RCCP or articles of incorporation. It is an
and ratified by the prescribed vote of the act which is not positively forbidden, but
outstanding capital stock entitled to vote or of impliedly forbidden because not expressly or
the members, as three case may be, of both the impliedly authorized or necessary or incidental
managing and the managed corporations, at a in the exercise of the powers so conferred.
meeting duly called for the purpose.
INTRA VIRES
- In either of the two cases mentioned in
paragraph 1 of Section 43 the management - Acts or transactions within the legitimate
contract must be approved by the stockholders powers of a corporation or are related to its
of the managed corporation owning at least purposes are said to be intra vires.
2/3,not merely a majority, of the total
outstanding capital stock entitled to vote, or in
case the managed corporation is a non-stock ULTRA VIRES ACTS AND ILLEGAL ACTS DISTINGUISHED
corporation, by at least 2/3,not merely a
majority, of the members. Where the contract is - When properly used, an ultra vires act means
between two corporations having interlocking simply an act which is beyond the conferred
directors, the contract must comply with the powers of a corporation or the purposes or
requirements of Section 32. objects for which it is created as defined by the
law of its organization. By itself, an ultra vires
ILLUSTRATION OF VOTING REQUIREMENTS act is not necessarily illegal. On the contrary, it
may be lawful, moral, and even praiseworthy.
An illegal corporate act, on other hand, is an act
 which is contrary to law, morals, good customs, the opportunity to vote in the meeting.
public order, or public policy and, therefore, per So, there are exceptions to this rule:
se illicit. The buying and selling of contraband
EXCEPTIONS TO THE RULE
goods would not only be illegal act for the
former is merely voidable which may be (A) When the stockholders act are valid even if there
enforced by performance, ratification or is no meeting held. So in Section 15, in case of
estoppel while the latter is void and cannot be amendment of the articles of incorporation,
validated. pwedeng wala ng meeting yan, but it will require
written assent of the stockholders representing at
least 2/3 OCS. And, in case of non-stock
RATIFICATION OF ULTRA VIRES ACTS corporation, 2/3 of the members and yung written
assent ng majority of the trustees. In case of
A) Where the contract or act is illegal per se, it is wholly amendment under Section 15, meeting of the
void or inexistent. It cannot be ratified or validated. stockholders or members is not necessary.
Inexistent contracts defined in Article 1409 of the Civil
Code of the Philippines, Republic Act No. 386, as (B) In case merong unanimous consent or agreement
amended, June 18, 1949, cannot also be ratified. The ng mga stockholders or members even if it’s not
doctrine of estoppel cannot operate to give effect to an expressed in a formal meeting. Lahat sila nag-
act which is null and void. agree to approve this action kahit na walang
formal meeting obviously, this is a binding act on
B) Where the contract or act is not illegal per se but the corporation.
merely beyond the power of a corporation, the same is
merely voidable and may be enforced by performance, (C) In cases provided for under Section 100. So, in
ratification, or estoppel, or on equitable grounds. section 100 – this will talk about a closed
corporation. So in close corporations, if there is
consent of the other members of the board,
TITLE VI
written consent before or after any action is taken
MEETINGS
in an informal meeting – that is valid. Also if the
stockholders have actual or implied knowledge of
MEETINGS OF STOCKHOLDERS / MEMBERS the act of the board at hindi sila nag-object – it is a
valid action kahit na yung action na yun is
NECESSITY OF MEETINGS OF STOCKHOLDERS OR approved in an informal meeting. And yung mga
MEMBERS directors are accustomed to take informal action –
that is also valid and binding kasi any corporate
 So, it is necessary to call meetings of
acts approved in those kinds of informal meeting
stockholders or members kasi yung mga
are valid and binding to the corporation. And the
stockholder or member, pwede lang
last one in case all the directors have expressed or
silang mag-act in meetings that are
implied knowledge of an action and does not
properly convened and assembled.
question it or hindi sila nag-object, remember,
Usually, as a general rule, yung written
yung mga cases na yun that are mentioned in
assent ng majority ng mga shareholder or
Section 100, even though there is meeting which
member without a meeting to a matter
is informally held in a closed corporation – valid
which requires action by them is not
and binding pa rin.
sufficient. So in short, kailangan daw
magkaroon ng meeting ang mga
(D) As a rule obviously, in case of one person
stockholder or member and the meeting
corporations, meetings are no longer necessary
must be properly convened and
kasi mag-isa na nga lang sya.
assembled. Now the reason is for the
protection of the stockholders or REQUISITES FOR A VALID MEETING OF STOCKHOLDERS
members because if you give them notice OR MEMBERS
to attend the meeting and they grab the
(A) It must be held at the proper place.
opportunity to so attend, pwede silang
(B) It must be held at the stated date and at the
makapag-discuss and they will be
appointed time or at a reasonable time
informed also. And again, they will have
thereafter.
 (C) It must be called by the proper person. PROPER NOTICE
(D) There must be a previous notice.
 So, proper notices na binibigay sa mga
(E) There must be a quorum.
stockholders or members in case of
regular meetings, dapat mabigay yung
notice na yun at least 21 days bago yung
PROPER PERSON TO CALL MEETING
meeting unless a different period is
 So yung proper person to call the provided for in the by-laws. For special
meeting is different from the presiding meeting naman, at least 1 week before
officer. Yung person who calls the yung meeting unless otherwise provided
meeting, is the person who can exercise in the by-laws or regulation. So written
the power to direct the secretary of the notice shall be sent to all stockholders or
corporation to notify the stockholders or members of record, may be mailed
members of a meeting. Kumbaga, sya through the post office or pwede ring
yung nagsasabi sa secretary na tawagin ibigay personally, or because of
or i-notify yung mga stockholders or amendments to the Code, it may now be
members para mag-meeting sila. sent by electronic mail or such other
matter as the SEC shall allow under its
(A) So yung proper persons to call the meeting are guidelines.
(1) person/persons designated in the by-laws
(B) In the absence of a provision in the by-laws, the
RULES ON WAIVER OF NOTICE TO STOCKHOLDERS
meeting may be called by a director or trustee or
by an officer entrusted with the management of (A) Yung general waivers of notice sa articles of
the corporation incorporation or the by-laws are not valid. Yung
(C) And in (3) sabi dito, there is no person na mga general waivers, so nakalagay “as a
authorized to call the meeting or yung person provision in the articles that all notices are
who is actually authorized refuses to call a waived” – hindi pwede yun o kaya nakalagay sa
meeting. So yung stockholder or member na by-laws na all notices are waived – so bawal din
interested is pwede silang pumunta sa SEC, and yun.
upon petition, yung SEC may issue an order QUESTION: Pwede bang i-waived ang notice
which will direct yung nag-petition na requirement even general waivers are not
stockholder or member to call a meeting. So allowed?
here, yung meeting is called by the petitioning  Pwede
stockholder or member – sya yung person (B) So, notice of any meeting may be waived,
authorized by the SEC to call the meeting. So, he expressly or impliedly, by any stockholder or
will call the meeting by giving yung proper member. Ang bawal lang is general waivers of
notices as required by this Code or by the by-laws notice as a provision in the articles or in the by-
of the corporation. In addition, yung petitioning laws
stockholder or member is dapat mamuno sya sa
meeting until pumili/makapili na ng presiding
officer yung at least majority ng mga MATTERS TO BE PRESENTED BY THE BOARD DURING
stockholders or members. THE REGULAR MEETING OF STOCKHOLDERS OR
(D) So, in case of special meetings para sa removal ng MEMBERS
mga directors or trustees, yung meeting is called
by the president by ordering the secretary to give A) (1) so, bago palang mag-umpisa ang meeting na yun,
notices or it may be called by the stockholders or kailangang i-present nya yung minutes ng most recent
members by written demand of majority vote of regular meeting. So in short, you will talk about the past
the OCS or majority of the members entitled to meeting. So, it will include a description of the voting and
vote. vote tabulation procedures used in the previous meeting.
Also, (2) yung description ng opportunity na binigay sa
mga stockholders or members para mag-ask ng questions
and a record of the questions asked, and answers given.
(3) the matters discussed, and resolutions reached. (4)
SECTION 49 record ng voting results for each agenda item during the
MEETINGS OF STOCKHOLDERS / MEMBERS previous meeting. (5) a list of directors or trustees,
officers and stockholders or members who attended the POSTPONEMENT OF MEETINGS OF STOCKHOLDERS OR
meeting. (6.) such other items as the SEC may require. MEMBERS

B) So, another matters that the corporation or the board  So, in case of postponement, kailangan
has to present. (2) A members’ list for non-stock na merong written notice and yung
corporations and, for stock corporations, material reason ng postponement shall be sent to
information for current stockholders and their voting all stockholders or members of record at
rights. least two weeks before yung date ng
meeting, unless merong ibang period na
C) A detailed, descriptive, balanced, and comprehensible
required sa by-laws or sa regulation.
assessment of the corporation’s performance, which
include information on any material change in the CLOSING OF STOCK AND TRANSFER BOOK TO
corporation’s business, strategy, and other affairs. DETERMINE STOCKHOLDERS OR MEMBERS OF RECORD

D) A financial report for the preceding year, which shall  So yung stock and transfer book or yung
include financial statement duly signed and certified in membership book must be closed at least
accordance with this Code and the rules the SEC may 20 days before yung regular meetings
prescribe, a statement on the adequacy of the and 7 days naman for the scheduled
corporation’s internal controls or risk management special meetings. Kasi at least 20 days,
systems, and a statement of all external audit and non- kung sino lang yung nakalista sa
audit fees. membership books, yun lang ang allowed
na bumuto during the regular meeting of
E) An explanation of the dividend policy and the fact of
the members. In case naman of
payment of dividends or the reasons for non-payment
corporations, kung sino lang yung
thereof. – obviously applies only to stock corporation.
stockholders na hindi delinquent ang
F) Director or trustee profiles. So kikilalanin pa isa-isa subscriptions na nakalagay sa stock and
yung mga director or trustees, which will include yung transfer book, sila lang ang allowed na
kanilang qualification and relevant experience, trainings, mag-vote dun sa regular meeting ng
education etc. etc. stockholders

G) And also, a director or trustee attendance report. So MANNER OF EXERCISING THE RIGHT TO VOTE OF
itong mga directors ninyo nung mga nakaraan, ano ba STOCKHOLDERS OR MEMBERS
yung kanilang attendance. Did they attend the board
A. In person
meeting etc., yung mga committee meetings kailangan pa
ring ilagay jan. B. Through a proxy

H) Appraisals and performance reports for the board and C. Through remote communication or in absentia.
the criteria and procedure for assessment. So meron
pang assessment not only the corporation but also the
board should be assessed as weel.

I) compensation report ng director or trustee SECTION 50

MEETINGS OF STOCKHOLDERS / MEMBERS
J) Director disclosures on self-dealings and related party
transactions.
NOTICE OF EVERY MEETING REQUIRED
K) Profiles of directors nominated pr seeking election or
re-election.  Notice of every meeting is required
under Section 50. So the rule is, yung
notice ng meeting is dapat daw ibigay
AGENDA through the means of communication
provided in the by-laws, and yung notice
 So pwede pa raw magdagdag ng other
is dapat naka-state dun yung time, place
matter for inclusion in the agenda at any
and yung purpose ng meeting. Yung
regular meeting of stockholders or
procedure sa pags’send ng notice is
members and it may also propose any
usually governed in the by-laws. If
agenda to be included in the holding of
walang provision sa by-laws, the manner
special meeting
 prescribed under Section 49 of the RCCP So, all proceedings had, and any business
shall be followed. transacted at any meeting shall be valid
even if the meeting is improperly called
REQUISITES OF NOTICE OF MEETING (Sections 49 & 50)
or held, provided that the two following
(A) It must be issued by one who has authority to requisites are present. So in short, if you
issue it. fail to comply with the requisites under
(B) It must be in writing. section 50, valid pa rin yung meeting but
(C) It must state the date, time, and place of the it is subject to two requisites.
meeting, unless otherwise provided in the by-
1. So the (1) requisite is that the proceedings
laws.
had, and the business transacted are within
(D) It must be sent at a certain time before the
the powers of the corporation. Meaning,
scheduled meeting as fixed by law unless a
they are not ultra vires. So, within the power,
different period is required by the by-laws.
mas maganda – intra vires.
(E) It must state the agenda for the meeting or the
business to be transacted thereat. (2) all stockholders or members of the
(F) It must be accompanied by the following: corporation are present or kapag hindi sila
present, they are properly represented at the
1. A proxy form which shall be submitted to the meeting and none of them express the states
corporate secretary within a reasonable time at the beginning of the meeting na yung
prior to the meeting. purpose nung pagiging present sana nila or
 So it must be accompanied by the yung attendance nila, is to object to the
following documents. (1) a proxy form. In transaction of any business because the
case yung stockholders is gustong mag- meeting is improperly held. So obviously, if
attend sa pamamagitan ng proxy, so yung dalawang requisites ay hindi present,
kailangan nilang mag-fill out ng form any action taken at the meeting shall not be
which is yung proxy form. valid.

2. When attendance, participation, and voting PLACE OF MEETING OF STOCKHOLDERS OR MEMBERS

are allowed by remote communication or in
 So yung place of meeting ng mga
absentia, the requirements, and procedures to
stockholders’ or members’ ay sa principal
be followed when a stockholder or member
office ng corporation gaya ng nakalagay
elects either option.
or naka-set sa kanilang articles of
 So if yung attendance is allowed by incorporation, but if it’s not practicable,
remote communication or in absentia, sa city or municipality kung saan naka-
yung mga stockholders or members who locate yung principal office ng
choose to attend via remote corporation unless provided for under
communication, kailangan nilang sundin Section 92.
yung mga procedures and requirements
that are laid down in the notice of
meeting. SECTION 51
MEETINGS OF STOCKHOLDERS / MEMBERS
3. When the meeting is for the election of
QUORUM REQUIRED IN STOCKHOLDERS’ AND
directors or trustees, the requirements and
MEMBERS’ MEETINGS
procedure for nomination and election.
 So, yung mga corporations is nade-
determine nila sa kanilang by-laws yung
(G) Further, the notice must comply with any other required na quorum sa meetings ng mga
requirements prescribed by the law or by the stockholders or members para sa
by-laws of the corporation transaction ng business at such meetings.
So, in the absence of a quorum,
kailangan lang nilang mag-adjourn.
EFFECT OF FAILURE TO COMPLY WITH REQUISITES FOR
 So yung quorum naman in case of stock
MEETING
corporations, naka-base ‘to on the
 So effect of failure to comply with number of outstanding voting stocks
requisites for meeting under section 50. meaning yung total shares ng inissue’ng
 stock under subscription contracts, fully sa articles will constitute the quorum for the transaction
paid man yan or partially paid, except of corporate business.
yung mga treasury shares so depende sa
B. Number required for approval of corporate acts. So,
outstanding shares ang quorum.
yung general rule, majority ng quorum of the board for
 In case naman of non-stock corporation,
corporate acts meaning to approve a contract with a 3 rd
yung majority ng members shall
person – to buy property ganon, kung ano lang, yung mga
constitute a quorum unless otherwise
simpleng acts of administration approved by majority of
provided in this Code or in the by-laws.
the quorum of the board.
So, yung total number ng registered
members yung magiging basis para ma- C. In case of election of officers, again, majority ng lahat
determine kung may quorum or wala. ng board members ang kailangan.

D. Number provided greater than majority, pwedeng

gawin ito ng corporations kasi binigay na ng revised code
Section 48, 52 and 53
yung power sa mga corporations to require a number
NECESSITY OF MEETINGS OF DIRECTORS OR TRUSTEES greater than majority of the board members para mag-
constitute ng quorum.
 So, there is a necessity for meeting of directors or
trustees because again your board acts as a body. Also, yung mga ibang corporate actions especially
So magiging binding lang yung action ng board if yung power to extend or shorten corporate term,
they act as a body. or power to increase or decreased capital stock,
Now, how can they act as a body? nakikita naman dun na ang required number of
 So, they should act in a duly constituted meeting votes of stockholders is majority of the board –
para maging binding yung corporate action ng kapag sinabing majority of the board, it is
board. And this is subject to exception na majority of the full board. So, majority of the
nabanggit na dati. So, dapat mag-act sila as a quorum is magkaiba sa majority of the full board.
board, not individually or separately. Kung majority of the full board to extend or
shorten corporate term, parang yan din yung
requirement in case of election of officers.

REQUISITES FOR A VALID BOARD MEETING

A. Yung meeting ng mga directors or trustees should be PROXY AND CONSTRUCTIVE PRESENCE IN MEETINGS OF
assembled as a board, kumbaga, as a body in a lawful THE BOARD
meeting
A. So, proxy actually is not allowed but constructive
B. There is a required quorum presence as of now – meron na tayong bagong rules jan.
Kailangan kasi ang mga board members should attend in
C. Decision ng majority ng quorum or, in other cases,
person para ma-exercise nila yung kanilang personal
majority ng entire board.
judgement and discretion in running the affairs of the
D. Meeting at the place, time, and manner provided for corporation. Hindi nya pwedeng i-delegate yung kanyang
in the by-laws powers or i-assign yung kanyang duties sa ibang director,
corporate officer or to any person. So in other words, he
cannot appoint a proxy.

B. In case sa mga directors or trustees na hindi maka-

SECTION 52 attend or makapag-vote physically sa board meeting,
MEETINGS OF DIRECTORS / TRUSTEES pwede silang mag-participate at bumuto through remote
communication such as videoconferencing,
teleconferencing or other alternative modes of
RULES REGARDING QUORUM communication that allow them to participate. Nakapag-
A. So, yung numbers ng board of directors or trustees – participate kasi sila that’s why this is allowed, nakapag-
nakalagay yan sa articles of incorporation, so yung mga deliberate or nakapag-exercise sila ng discretion nila
incorporators yung magde-determine if how many unlike if you appoint a proxy, yung proxy ang magde-
directors or trustees are there unless yung articles or decide for the director or trustee, kasi hindi naman lahat
yung by-laws provides for a greater majority – majority ng matters meron ng prepared vote or meron ng
lang nung number of directors or trustees na nakalagay instruction as to how the proxy will vote. Hindi naman
kasi lahat ng bagay maa-anticipate. So, sometimes yung PRESIDING OFFICER
discretion ng proxy is kinakailangan e bawal yun sa board.
Ang kailangan lang is yung discretion ng directors or
PRESIDING OFFICER AT MEETINGS
trustee.
A. PERSON DESIGNATED IN THE BY-LAWS
So in case of attendance to remote communication, SEC
Memorandum Circular No. 15 series of 2001: Board  So yung taong naka-designate sa by-laws,
Meeting Through Teleconferencing or Videoconferencing he will be the one who preside in the
(Tele/Video Conferencing) enacted November 11, 2001. meeting. Pero If walang naka-designate
So, kailangan directors or trustees must choose and give sa by-laws, yung chairman or yung
notice that he will intend to resort to remote president yung mamumuno sa meeting
communication five days before the meeting and all
proceedings must be record and the recording shall be
restored by the corporate secretary. B. CHAIRMAN OR PRESIDENT

NOTICE OF EVERY MEETING REQUIRED - the chairman shall preside at all meetings of directors
or trustees and of the stockholders or members, and in
 So, bawal ang hindi magbigay ng meeting his absence, the president shall preside.
but again yung notice of meeting can be
waived expressly or impliedly.
C. STOCKHOLDER OR MEMBER IN A TEMPORARY
CAPACITY
WAIVER OF NOTICE OF MEETING
 So, they can also preside in meetings.
- A director or trustee may waive the notice This has to do kapag walang presiding
requirement, either expressly or impliedly officer and nagkaroon ng meeting. So any
 So pwedeng i-waive ng director or stockholder or member who takes the
trustee yung notice requirement, either floor is pwedeng mamuno temporarily sa
expressly or impliedly meeting habang hinihintay yung pag-
select ng kanilang talagang presiding
officer. So, usually yung presiding officer
RECUSAL OF A DIRECTOR OR TRUSTEE
is pwedeng ma-select by viva voce vote
- A director or trustee who has potential interest of the stockholders or members present
in any related party transaction must recuse
himself from voting on the approval of the said
related party transaction without prejudice to D. STOCKHOLDER OR MEMBER CHOSEN
compliance with the requirements of Section 31.
- So yung director, if meron syang interest sa  Stockholders or members are chosen by
transaction kung saan yung isang corporation will the SEC. So, kapag walang authorized
enter into, so related sakanya, he must abstain para mag-call ng meeting, yung
from voting doon sa approval ng party petitioning stockholder or member that
transaction na yun. authorized by the SEC – sila yung
magtatawag ng meeting and sila din yung
mamumuno dun until yung majority ng
stockholders or members na present
In case of election of officers
have chosen one of their number as
In case of issuance of stock dividends presiding officer.

In case of entering into management contracts

In case of fixing the issued price of no-par value shares MANNER OF VOTING
MANNER OF VOTING OF STOCKHOLDERS OR MEMBERS
- Jan lang nire-require ang majority of the
quorum of the board of directors or trustees as A. Directly.
the case may be
B. Indirectly through a representative.

SECTION 53
  It may be a direct voting and also, it may with the corporation or with a
be indirect voting through a corporation still to be formed.
representative.  So if the parties refer to it as a purchase
 So, in case of stock corporations, ang or some other contract, considered pa rin
right to vote nya is like the right to elect itong subscription contract under Section
and dependent on the number of shares. 59.
 In case naman of non-stock
corporations, yung right to vote is kind of
HOW A PARTICIPATION IN A CORPORATION ACQUIRED
different kasi yung non-stock corporation
– yung number of votes during an
election is depende sya sa number ng i-
eelect na trustees. So, if member ka, (A) STOCK CORPORATION
merong 5 trustees na i-eelect, then you  So, participation in a corporation is
have 5 votes – so yun ang manner of acquired in the following ways. So (1) in
electing. But, in case of manner of voting case of Stock Corporation, magiging
for a proposed corporate action, yung stockholder ka kapag nag-subscribe ka to
vote is one member, one vote unissued shares. So, merong subscription
1. By executors, administrators, receivers, or contract and bibili ka ng unissued shares.
other legal representative duly appointed by (2) Pwede ka ring bumili ng treasury
the court. shares from the corporation. So
2. By means of a proxy obviously yung treasury shares niyo are
3. By a trustee under a voting trust agreement. shares reacquired by the corporation and
nilagay sila sa treasury. Also (3), to
become a stockholder, you can buy
SECTION 54 outstanding shares from other
stockholders.
REPRESENTATIVE VOTING

REPRESENTATIVE VOTING (B) NON-STOCK CORPORATION

 In a non-stock corporation naman, so na-
A. LEGAL REPRESENTATIVE OF STOCKHOLDER OR
aacquire yung membership sa
MEMBER
pamamagitan ng contract and yung
modes of entering is mag-iiba sya
according sa charter and by-laws ng isang
particular non-stock corporation. So
TITLE VII depende sa qualifications or sa rules na
si-net ng non-stock corporation.
STOCKS AND STOCKHOLDERS

TRUST FUND DOCTRINE

SECTION 59
 So yung trust fund doctrine, again, states
SUBSCRIPTION CONTRACT that stock subscriptions are in the nature
SUBSCRIPTION CONTRACT. of a trust fund in the sense that they are
to be maintained unimpaired for the
- Any contract for the acquisition of unissued protection of corporate creditors. So
stock in an existing corporation or a corporation yung stocks subscription, ipambabayad
still to be formed shall be deemed a subscription yan sa corporate creditors
within the meaning of this Title,
notwithstanding the fact that the parties refer
to it as a purchase or some other contract. SECTION 60
 So yung subscription contract, ito yung PRE-INCORPORATION SUBSCRIPTION
contract that will be entered into by a
subscriber and also a corporation or a KINDS OF SUBSCRIPTION
corporation still to be formed for the sale
of shares. So kapag bumibili ka ng shares, (A) PRE–INCORPORATION SUBSCRIPTION
papasok ka sa isang subscription contract
  So according to Section 60, there are 2 that is the agreed upon period kasi nga
Kinds of Subscription: (1) is yung pre- prinovide ‘to ng law.
incorporation subscription defined as one 2) No pre-incorporation subscription may
entered into before incorporation and it be revoked after submission of the
will also constitute a binding contract articles of incorporation to the SEC
among the subscribers. And mandatory although it is beyond the 6 months
din ‘to. So before mag-incorporate ang period. So if lampas na sa 6-month
corporation – it is mandatory. Kailangan period and nagkataon na hindi mo pa
nilang maghanap ng subscribers, and also nababawi yung subscription mo – hindi
ng incorporators but remember yung mo na sya mababawi kung nai-file na
mga subscribers or incorporators – lahat yung articles of incorporation sa SEC.
yan may shares of stock, so in short,
kailangan nilang magbenta ng shares These rules is subject to exceptions:
before a corporation is incorporated.
 So sa OLD LAW po, kailangan pa nga don
na yung pre-incorporation subscription is (B) EXCEPTIONS
25% ng capital stock in case of no-par
value shares and 25% ng authorized 1) When all of the other subscribers
capital stock in case of par value shares. consent to the revocation
Pero ngayon po na-delete na po ata yun. 2) The incorporation of the said
So any portion ng capital stock or ng corporation fails to materialize within
authorized capital stock must be the said period of 6-months or within a
subscribed pero kailangan talaga na may longer period as may be stipulated in
subscription, hindi po pwedeng wala. So the contract of subscription. So if sa loob
this is mandatory. ng 6-months is hindi na-incorporate yung
corporation, pwede ng i-revoke yung
(B) POST-INCORPORATION SUBSCRIPTION subscription mo. If ang sinabi sa
 In case naman of post-incorporation subscription contract is irrevocable for a
subscription, this is entered into after period of 1 year – that is a longer period,
incorporation for the acquisition of but it is provided for in the subscription
unissued stock. So yung subscriber, contract. Ngayon kapag lumipas na yung
magiging stockholder sya upon 1-year na yan and hindi pa rin na-
acceptance ng corporation nung offer ng incorporate yung corporation na ‘to, the
subscriber or upon acceptance ng subscription will become revocable
subscriber nung offer ng corporation THE REASON WHY SUBSCRIPTION
even though hindi pa nya binayaran or CONTRACTS ARE GENERALLY
nababayaran yung share nya unless the IRREVOCABLE IS para ma-prevent yung
subscription agreement otherwise speculation with respect to stocks on the
provides proposed corporation and also, maganda
rin na if may subscribers ka – may
operating capital yung corporation. Yung
RULES REGARDING PRE-INCORPORATION operating capital nya will come from the
SUBSCRIPTION CONTRACTS subscriptions. So, para ma-protect yung
corporation from irresponsible
subscribers, bawal i-revoke yung kanilang
(A) WHEN IRREVOCABLE subscription for a period of at least 6-
months.
1) Rules regarding pre-incorporation
subscription contracts. So, it is
irrevocable in 2 cases: (1) Sabi ng Law, it
is irrevocable for a period of at least 6
SECTION 61
months from the date of subscription in
CONSIDERATION FOR STOCKS
case of a corporation still to be formed.
So, it cannot be for a lesser period even if
SOURCES OF CORPORATE CAPITAL purposes at a fair valuation equal to the par
or issued value of the stock issued.
 So yung pera ng corporation is
 Property, tangible or intangible na na-
nanggagaling obviously from (1)
received na ng corporation and provided
SUBSCRIPTION – So, funds furnished by
that there is a fair valuation of the
the shareholders. So, contributions ng
property, and the valuation is equal to
shareholders or yung mga perang na-
the par or issued value of the stock
receive nito for the issuance of shares of
issued. So kung magkano yung
stock. (2) source of corporate capital is
subscription mo, dapat ganon din yung
yung BORROWINGS. So, pwedeng mang-
value ng property na ibibigay mo sa
hiram ang corporation from creditors.
corporation.
And itong mga borrowings na ‘to will
become part of the corporate capital. So
c) Labor performed for or services actually
mangungutang sila para meron silang
rendered to the corporation.
operating capital. Also, another source of
corporate capital is yung PROFITS AND
d) Previously incurred indebtedness of the
STOCK DIVIDEND. So obviously yung
corporation.
profits ng business is pwedeng i-reinvest
 So may utang yung corporation sa
sa business. So, para ma-reinvest ng
creditor, and instead na bayaran ng
corporation yung profits nya sa business
corporation yung utang niya, mag-iissue
usually nag-iissue sila ng stock dividend
sila sa creditor ng shares then yung
because again, yung mga stock dividends,
creditor na yun is magiging stockholder.
kapag in-issue sila – it is a forced sale of
So ang pinambayad ng creditor na ‘to is
share of stocks. And yung mga issuance
actually yung previously incurred
of stock dividends is a transfer from
indebtedness of the corporation.
surplus to the capital. So pinipilit natin na
mag-reinvest yung mga stockholders sa
e) Amounts transferred from unrestricted
corporation if we issue stock dividends.
retained earnings to stated capital.
 So, ito yung profit URE which will be
transferred to capital by the issuance of
DIFFERENT MODES BY WHICH SHARES MAY BE ISSUED stock dividends.
1) By subscription before or/and after
incorporation to unissued original stock f) Outstanding shares exchanged for stocks in
2) Sale of treasury shares after incorporation the event of reclassification or conversion.
3) Subscription to new issues of stock
 Kapag naubos na lahat ng original g) Shares of stock in another corporation.
unissued shares, pwedeng mag-increase
ng capital stock ang corporation and h) Other generally accepted form of
pwede kang mag-subscribe dun. consideration.
4) By declaring stock dividends

CONSIDERATION FOR ISSUE OF STOCKS

LIMITATIONS
- Stocks shall not be issued for a consideration
less than the par or issued price thereof. (A) Share of stocks and bonds may be issued in
Consideration for the issuance of stock may be: exchange for any or a combination of any two or
 Ito yung mga pwede mong ibayad sa more of the considerations enumerated in
shares of stock Section 61.
 So remember, pwede kang magbayad
a) Actual cash paid to the corporation. using cash and property, property, and
stocks etc. you can combine the modes
b) Property, tangible, or intangible, actually of payment.
received by the corporation and necessary
or convenient for its use and lawful (B) The corporation may receive more than the par
or issued value.
  Obviously, kapag shares of stock usually  Kung Halimbawa meron akong
naman if it is from corporation to a promissory note, obviously kung holder
stockholder, hindi naman binebenta yan ako ng promissory note, I’m a creditor, so
sa par or issued value. So usually more merong may utang sakin. So, ang
than par or more than issued value. And ipambabayad ko yung promissory note.
for no par value shares – kapag nagbayad As a general rule, that cannot be used as
ka ng more than issued value, yung entire cash payment. So hindi pwede, kasi hindi
subscription or entire payment will pa naman sya natatanggap e, still only a
become part of the corporation’s capital. promissory note but this may be
Now, in case of payment of par value considered as property payment but
shares at more than par, remember always subject to verification by the SEC
magkakaroon kayo ng share premium. of the existence of the debt and also
collectability of the debt and the shares
(C) Shares of stock shall not be issued for a will be held in escrow until actual
consideration less than the par or issued price payment of the amount.
thereof, except treasury shares so long as the
price is reasonable.
Where the consideration is other than actual
cash, or consists of intangible property such as patents
CONSIDERATIONS IN CASH AND PROPERTY MAY BE or copyrights, the valuation thereof shall initially be
SUBJECTED TO SEVERAL RULES determined by the stockholders or the board of
directors, subject to the approval of the Commission.
a) Cash and property
 In case of cash and property, payment Shares of stock shall not be issued in exchange
must be actually received by the for promissory notes or future service. The same
corporation considerations provided in this section, insofar as
applicable, may be used for the issuance of bonds by
b) Negotiable Instruments the corporation.
 So, negotiable instruments such as
The issued price of no-par value shares may be
promissory notes, checks ganon pwede
fixed in the articles of incorporation or by the board of
naman silang pambayad but they will
directors pursuant to authority conferred by the articles
produce payment only when they have
of incorporation or the bylaws, or if not so fixed, by the
been cashed or through the fault of
stockholders representing at least a majority of the
creditor, the negotiable instruments have
outstanding capital stock at a meeting duly called for
been impaired.
the purpose.
c) Property, tangible, or intangible
 Also if it is property which may be
tangible or intangible – it must be subject
to a fair valuation which is equal to the
par or issued value of the subscription.
Now, the valuation is initially determined FIXING OF ISSUED PRICE OF NO PAR SHARES
by the stockholders or the board of (A) MODE OF FIXING ISSUED PRICE
directors, but it is always subject to the  Fixing of issued price of no-par value
approval of the SEC. so either way, if the shares. So these are the rules, letter A,
valuation is made either at the time of mode of fixing issued price. So the three
incorporation or thereafter, it should be modes are
subject to approval of the SEC. so laging (1) if it is fixed in the articles of
pinapa-approve yung valuation ng incorporation or any amendment
property. thereto.
(2) it may also be fixed majority vote of
d) Shares of stock shall not be issued in the OCS in a meeting called for that
exchange for promissory notes or future purpose.
service. (3) no par value shares may also be fixed
by the Board of Directors pursuant to
 authority conferred upon it by the only stock corporations obviously can
articles or the by-laws. issue stock certificates.

(B) CHANGE IN VALUE OF ISSUED SHARES SECTION 62

 Remember also that changes in value of Certificate of Stock and Transfer of Shares
issued shares – hindi pwede ‘to. If no par
MODES OF STOCK TRANSFER
value shares – naibenta na sa
stockholders yan, hindi na pwedeng A) INDORSEMENT AND DELIVERY OF STOCK
palitan yung kanyang issued value kasi CERTIFICATE
yung shares of capital stock issued  There must be endorsement and delivery
without par value, it shall be deemed of the certificate of stock. So ang
fully paid and non-assessable. So, bayad pwedeng mag-endorsed and deliver is
na yan, papano mo pa papalitan ang yung owner or his attorney in fact or
issued value. yung ibang person na legally authorized
to make the transfer
1) The certificate must be properly indorsed
(C) CHANGE IN VALUE OF UNISSUED SHARES and that title to such certificate of stock
 Also, in case naman of change in value of is vested in the transferee by the delivery
unissued shares – so pwede yan, kasi the of the duly indorsed certificate. So even if
shares are unissued. So, in case of no-par there is no deed of sale, deed of
value shares – pwede mong palitan ang assignment basta properly endorsed
kanyang issued value. So any change in yung stock certificate and na-deliver sya
issued value of no-par value shares shall to the transferee – it will constitute a
apply only to the unissued portion ng valid transfer of stock. This transfer is
capital stock ng corporation valid and as between the transferor and
the transferee. However yung
corporation, hindi sya bound to record sa
CERTIFICATE OF STOCK kanyang books ng transfer of stock and
mag-issue ng new certificate unless yung
 So ang certificate of stock is a written original certificate is surrendered to them
instrument signed by the proper officer for cancellation or is clearly shown to
and it is merely the evidence of the have been lost, stolen, or destroyed.
holder’s interest and status in the Now, if yung transfer is hindi recorded sa
corporation and yung ownership nya is books ng corporation, hindi sya valid as
also represented thereby. Pero sa law, to 3rd persons and probably also, the
yung certificate of stock is not equivalent corporation is subject to exceptions kasi
to ownership. So sa certificate of stock, if yung corporation is aware of the sale,
naka-indicate dito yung name ng holder, kumbaga parang nalaman na ng
yung number, kind and class ng shares na corporation na there is actually transfer
pag-aari nya and also naka-indicate rin of the shares – it can bind the
dito yung date of issuance. corporation also.

2) Yung endorsement is done by signing

RIGHT TO ISSUANCE OF CERTIFICATE OF STOCK yung certificate of stock on the back. So,
 So yung certificate of stock, it is not pipirma yung stockholders sa likod then
necessary to make one a stockholder kasi ide-deliver nya sa kanyang transferee. So
nga ang subscription ang necessary. Now, yung transferee, kung gusto na nyang
if there is already full payment of the ma-transfer sa pangalan nya yung shares
subscription and the stockholder or the of stock, fill nya lang yung blank and
subscriber has already complied with all kailangan lang nyang ilagay yung name
the conditions in case of the subscription, nya as the transferee and he will deliver
he will have the right to have the the certificate to the corporation, then
certificate of stock issued to his name. so yung secretary ng corporation will enter
 the transfer in the stock and transfer - So sa sale of assets, it is a union of corporations
book. So, yung certificate, once affected by one corporation selling all or
surrendered, it is cancelled, and new substantially all of its assets to another. Usually
ones will be issued to the name of the yung sale of all assets will lead to the dissolution
transferee. So obviously yung procedure ng vendor corporation pero hindi sa lahat ng
na ‘to cannot be followed kung wala cases. And remember yung mere sale of all
pang nai-issue na certificate of stock. property of a corporation and the distribution of
its assets do not work a dissolution of the
SO PAPANO ANG TRANSFER NIYAN? corporation in as much as possession of property
is not essential to corporate existence. Meaning,
B) TRANSFER MADE IN A SEPARATE INSTRUMENT yung isang corporation, kahit na ibenta nya lahat
- Kung wala pang certificate of stock, it may be nung kanyang assets, it can continue to survive.
made in a separate instrument. So ito na yung Anyway kasi yung possession ng corporate
mga pumapasok na deed of sale, conveyance, property is hindi naman sya essential for
deed of assignment. This is done in lieu of corporate existence.
endorsement of the certificate of stock. Pwede
B) LEASE OF ASSETS
naman ‘to unless merong express provision sa
by-laws na transfer may be made exclusively in - So a corporation again, leases its property to
the manner authorized by the statute. another corporation, so yung corporation niyo is
- Execution ng separate instrument na ‘to is magiging lessor corporation then yung isang
equivalent to indorsement of certificate. corporation naman who leases the property is
known as your lessee corporation. So, yung lessor
– yung nagpaupa will receive rentals paid by the
C) JUDICIAL OR EXTRA–JUDICIAL SETTLEMENT OF lessee. So dito, yung lease – ito yung assets ng
THE STATE lessor corporation. So it is similar to the sale of
- Also, transfer may be made in case of a dead assets except that the ownership do not pass to
stockholder, there is judicial or extrajudicial the lessee corporation.
partition of his estate that will be necessary to
C) SALE OF STOCK
transfer the shares of stock in favor of his heirs.
- In case of sale of stock naman. So dito, one
EFFECTS OF AN UNREGISTERED TRANSFER OF SHARES
corporation – bibili sya ng stock ng ibang
A. It is valid ad binding, as between the transferor (record corporation. And yung purpose dito is to buy
owner) and the transferee (beneficial owner). sufficient amount of stocks for the purpose of
control. So obviously here, you will have yung
B. Invalid or ineffective as to the corporation except parent or holding company which is the acquiring
when there is already notice given to the corporation for corporation or yung corporation who buys shares
purposes of registration. Ito yung sinasabi kanina na of stock in another corporation. Now yung
corporation is already aware that there is a transfer. So, corporation kung saan binili yung shares of stocks
equivalent to registration yung notice na binigay sa – they will be called your subsidiary corporation.
corporation na sale of shares and yung presentation ng Usually ang isang subsidiary corporation is
certificates for transfer controlled by the parent or holding corporation
kasi yung parent/holding corporation na ‘to is
yung majority stockholder sa subsidiary
TITLE IX corporation.
MERGER AND CONSOLIDATION D) MERGER

- 2 or more corporations unite, one corporation

SECTION 75 will retains its corporate existence and the other
FORMS OF CORPORATE COMBINATIONS one will absorb or merge itself and then
disappear as a separate corporation. So dito, A
FORMS OF CORPORATE COMBINATIONS corporation plus B corporation equals either A
corporation or B corporation depending on the
A) SALE OF ASSETS
agreement of the two corporations. So si A and B
corporations are originally constituent
 corporations yung tawag sa kanila. Later on
kapag pumasok na sila into a merger, and let’s
SECTION 80
say yung natira dito is si B corporation, so later
APPRAISAL RIGHT OF A STOCKHOLDER
on, A will become your merged or absorbed
corporation while si B corporation will become - Refers to the right of a stockholder to demand
the merging, absorbing or surviving corporation. payment of the fair value of his shares after
So in short, na-dissolve si A, B will survive and will dissenting from a proposed corporate action
continue its corporate existence. So obviously, involving a fundamental change in the
yung stockholders ni A corporation will become corporation in the cases provided by law.
the stockholders of B corporation. So here  So in certain specific cases – may mga
remember, yung merger will become effective cases lamang where in yung law, ina-
upon the issuance of the SEC of a certificate of allow yung isang stockholder na maka-
merger. alis sa corporation even before it is
dissolved kasi remember, there is a
E) CONSOLIDATION
fundamental change in the corporation
- So, 2 or more corporations will unite, and they that the stockholder did not anticipate at
will give rise to a new corporation and then yung the time he made his investment. So
constituent corporations will be dissolved and nung nag-invest sya dito sa corporation
will cease to exist as separate corporations. So in na ‘to, hindi nya na-foresee, hindi nya na-
consolidation, A corporation plus B corporation anticipate na magkakaroon ng ganitong
equals C corporation. Pareho silang na-dissolved. klase na substantial na pagbabago that is
So here, si A and B will unite to form C why gusto nyang umalis dun sa
corporation and ita-transfer nila yung lahat ng corporation. Obviously you are the
kanilang asset to C corporation kasi dissolved na stockholder, yung stockholder na
nga yung A and B corporation then also, lahat ng gustong i-exercise yung kanyang
kanilang property, rights and liabilities will be appraisal right disagrees with the
assumed by C corporation. Now, si A and B fundamental change in the corporation,
corporations will be known as your original or kaya nga gusto na nyang umalis.
constituent corporation. Later on, magiging  Maganda ‘to para sa mga maliliit na
dissolved corporations na sila kasi mawawala corporations kasi yung kanilang stocks is
silang pareho. Now, C which is yung new usually walang ready market na bibili sa
corporation that is created by the dissolution of A kanilang stocks – wala silang
and B is called the consolidated corporation. mapagbentahan, walang interesado kasi
Obviously magiging stockholder ni C corporation nga small corporation – baka mamaya
yung stockholder ni A and B. and yung hindi rin kilala so paano nun aalis yung
consolidation, magiging effective sya upon the stockholder kung ganon yung case.
issuance by the SEC of a certificate of Unlike in big corporations or yung
consolidation. corporations where in yung stocks are
actively traded in the stock exchange.
Madali lang nilang idi-dispose yung
shares nila kasi maraming may interest or
gustong bumili but in small corporations
SECTION 75 it can happen that nobody wants to buy
PROCEDURE FOR EFFECTING MERGER OR yung shares ng isang dissenting
CONSOLIDATION stockholder, that’s why maganda na may
PROCEDURE FOR EFFECTING A PLAN OF MERGER OR appraisal right. So it is the corporation
CONSOLIDATION who will purchase the shares from the
stockholder at fair value

INSTANCES OF APPRAISAL RIGHT (Sections 80 and 104)

- this enumeration is exclusive. Certain specified

TITLE X cases - ito lang, wala ng iba. if it is not included in
APPRAISAL RIGHT this enumeration, yung appraisal right cannot be
 availed off or exercise by a dissenting (A) Any of the instances provided by law for the exercise
stockholder. ito lang na nasa listahan. of the right by a dissenting stockholder must be present.

A) So (1),in case of any amendment to the articles of - So yun nga, dapat yung instances ng appraisal
incorporation, but remember, not just any right must be present or else that right is not
amendment. the amendment must consist or must available.
have the effect of changing or restricting the rights of
(B) The dissenting stockholder must have voted against
any stockholder or class of share. Binago mo yung
the proposed corporate action.
rights nila. Ni-restrict mo yung rights ng mga
stockholder na humahawak ng ganitong klaseng - So obviously, yung dissenting stockholder, ayaw
share. Or pangalawa, of authorizing preferences in nila yung corporate action, ayaw nila ng merger,
any respect superior to those of outstanding shares ng extending or shortening corporate term.
of any class. So, merong isang class ng shares na Ayaw nila ng amendment which will restrict the
nagkaroon ng preferences over other shares. Ikaw rights etc. so ayaw nila, kaya nga sila dissenting.
naman, na nakahawak don sa other share na yan, Now, kung hindi ka dissenting stockholder,
kumbaga parang hindi mo gusto, parang ayaw mo na. meaning pumapayag ka dun sa corporate action
so pwede mong i-exercise yung appraisal right mo. (assenting), then you cannot exercise your
appraisal right
B) In case of extending or shortening the term of
corporate existence WHAT IF NAKALIMUTAN MAG-VOTE NOONG MEETING
NG STOCKHOLDERS (when the vote was taken, you
- So, If hindi ka agree dito, you can simply get out
failed to vote), ARE YOU CONSIDERED A DISSENTING
of the corporation
STOCKHOLDER?
C) In case of sale, lease, exchange, transfer,
- Of course not, kasi hindi ka nag-vote against the
mortgage, pledge, or other disposition of all or
proposed corporate action, so obviously, if you
substantially all of the corporate property and
are absent during the meeting, hindi mo rin
assets, including its goodwill.
pwedeng i-exercise yung appraisal right mo.
- So napansin mo, binebenta na lahat, bakit kapa Remember, dissenting ka, so you must vote
mags’stay sa corporation when they are no against the proposed corporate action before
longer interested in keeping property for their you can avail of the appraisal right.
operations.
(C) A written demand on the corporation for payment of
D) In case of merger or consolidation with another
his shares must be made by him within 30 days after the
corporation.
date the vote was taken. (Section 81).
E) In case the corporation decides to invest its
funds in another corporation or business for any - So if the vote is taken today, you have 30 days to
purpose other than its primary purpose. make a written demand on the corporation for
- So, gusto nilang mag-invest sa ibang business. the payment of your shares, so you have simply
Kung hindi ka payag sa ganyan, maybe wala kang 30 days to exercise your appraisal right.
tiwala sa ibang business, you can choose to (D) The price must be based on the fair value of the
exercise your appraisal right. shares as of the day prior to the date on which
F) In cases of close corporations, so any the vote was taken excluding any appreciation
stockholder, for any reason, can compel the said or depreciation in anticipation of such corporate
close corporation to purchase his shares at their action.
fair value, provided that the corporation has - So if the vote is taken today, the basis of the fair
sufficient assets in its books to cover its debts value of the shares is not today, not tomorrow,
and liabilities exclusive of capital stock. So, these but based yesterday. So on the date prior to the
are the only instances of appraisal right. If hindi date on which the vote was taken.
sya enumerated dito, appraisal right is not
available. (E) Such fair value must be determined as provided
for by law (Section 81).
- So kailangan lang naman ng determination ng fair
LIMITATIONS ON THE EXERCISE OF THE APPRAISAL value if the corporation and the stockholder do
RIGHT not agree on the fair value on the day prior to the
date on which the vote was taken. Kung hindi sila
nag-agree, meron tayong ibang procedure para i-
 determined kung ano yung fair value nung shares DETERMINATION OF FAIR VALUE
yesterday.
DETERMINATION OF FAIR VALUE OF SHARES (Section
81)
(F) Payment of the shares must be made only out of
the unrestricted retained earnings of the Fair value again is the fair value of the shares on the day
corporation. prior to the date when the vote is taken.
- Again, this is based on the trust fund doctrine.
Kung walang URE tapos bumili ka ng shares, SO HOW TO DETERMINE THE FAIR VALUE OF THE
remember yung title 4 -Power to acquire own SHARES
shares, so yung limit don is dapat merong URE - If the stockholder and the corporation, they
except in the case of redeemable or callable agree already on the fair value on the day prior
shares. to the date when the vote was taken, wala
tayong problema. Now if there is disagreement,
(G) Upon such payment, the stockholder must remember there should be an appraisal of the
transfer shares to the corporation. stockholders share or appraisal of the dissenting
- So, certificate of stock must be surrendered to shares
the corporation and the corporation will buy the
shares from the stockholders. So yung shares will (A) APPRAISAL OF STOCKHOLDER'S SHARES
be transferred to the corporation. - Now, yung appraisal must be made within a
period of 60 days from the date the corporate
action was approved by the stockholders. So if
PROCEDURE FOR THE EXERCISE OF THE APPRAISAL they cannot agree, it shall be determined and
RIGHT (Sections 81 and 85) appraised by three disinterested persons. So
A) The dissenting stockholder shall make a written kailangang mangyari 'to within 1 month /60 days.
demand on the corporation within 30 days after the So magha-hire sila ng 3 appraisers. One is named
date on which the vote was taken for payment of the by the dissenting stockholder. Yung dissenting
fair value of his shares. stockholder ang mamimili. Ang pinili ni
stockholder ay si A. Then the other one is chosen
- So exercise your appraisal right within 30 days by the corporation. Ang pinili naman ni
from the date when the vote was taken. corporation ay si B. So yung pipili naman ng
pangatlo ay hindi si corporation at dissenting
B) Within 10 days after demanding payment for his
stockholder, but ang pipili ng pangatlo ay si A and
shares, a dissenting stockholder shall submit the
B. So let's say pinili ni A and B si X. So si X yung
certificates of stock representing his shares to the
pangatlong appraiser.
corporation for notation thereon such shares are
dissenting shares.
- Also, findings of the majority of the appraisers
- So, surrender yung shares, then yung gagawin ng shall be final, and kapag nagkaroon na sila ng
corporate secretary is maglalagay lang sya ng decision - ang tawag don is award. So, the award
notation na dissenting na yung shares mo. So will be paid by the corporation within 30 days
gagawin mo yan within 10 days after kang after such award is made. So, in-award ngayon
nagbigay ng written demand. So kung nagbigay then 30 days to pay yung corporation. In such
ka ng written demand today, you have 10 days to case, kapag hindi na nagkakasundo, either yung
surrender your shares. Also, you have 30 days to dissenting stockholder or yung corporation is
make your written demand. entitled to demand an appraisal of the former's
shares, and to compel such appraisal, if the other
C) If the proposed corporate action is implemented or
refuses to have it effected. So kung ayaw ng
effected, the corporation shall pay to such stockholder,
stockholder na ipa-appraised yung shares nya,
the fair value of his shares.
pwedeng i-compel ng corporation. Kung ayaw ng
D) Upon payment of the agreed or awarded price, the corporation na ipa-appraised yung shares ng
stockholder must transfer his shares to the corporation. dissenting stockholder, then yung dissenting
stockholder can also compel such appraisal.

(B) VALUATION DATE

 - Again, the day prior to the date on which the
vote was taken notwithstanding any appreciation (B) A written agreement signed by two or more
or depreciation in value of the shares in stockholders may provide that in exercising any
anticipation of such corporate action. So this will voting right, the shares held by them shall be
prevent speculation on the shares. And again, voted as provided or as agreed, or in accordance
payment must be made when there URE. with a procedure agreed upon by them.
 Written agreement signed by two or
BAKIT KAYA KAILANGAN ON THE DAY PRIOR TO THE
more stockholders to exercise yung
DATE WHEN THE VOTE WAS TAKEN
voting rights as per agreement will be
Kasi ang purpose ng appraisal is to compensate valid agreements. So yung una kanina
the dissenting stockholder for the value of his will refer to any agreement by the
shares. Ngayon yung value ng shares na 'to is the stockholders in general before
value of the stock as it was originally constituted. incorporation. Itong number 2 naman
So, it will be determined without regard to the will refer to your voting or polling
effect of the corporate action which was agreements in particular. Ito yung
approved during the stockholders meeting na agreement natin kung papano yung
nag-disagree yung dissenting stockholder. voting. So that agreement will be valid
between the stockholders.

(C) No provision in a written agreement signed by

the stockholders, relating to any phase of
corporate affairs, shall be invalidated between
TITLE XII the parties on the ground that its effect is to
CLOSE CORPORATIONS make them partners among themselves.
 So, kung merong contract between any
stockholder that has the effect of making
SECTION 99 them partners as to one another, hindi
VALID AGREEMENTS BY STOCKHOLDERS ito mai-invalidate based solely on this
VALID AGREEMENTS BY STOCKHOLDERS ground kasi again, ang isang close
corporation is an incorporated
(A) Agreements duly signed and executed by and partnership. So nag-ooperate sila as a
among all stockholders before the formation partnership among themselves pero tini-
and organization of a close corporation shall treat sila ng law as a corporation
survive the incorporation and shall continue to
be valid and binding between such stockholders, (D) A written agreement among some or all of the
if such be their intent, to the extent that such stockholders in a close corporation shall not be
agreements are consistent with the articles of invalidated on the ground that it relates to the
incorporation, irrespective of where the conduct of the business and affairs of the
provisions of such agreements are contained, corporation as to restrict or interfere with the
except those required by this Title to be discretion or powers of the board of directors:
embodied in said articles of incorporation. Provided, That such agreement shall impose on
 Agreements signed and executed by and the stockholders who are parties thereto the
among stockholders before the liabilities for managerial acts imposed on
incorporation will continue to be directors by this Code.
effective between the stockholders even  So if the agreement will restrict the
after incorporation, provided that the power of the Board of Directors or
agreements are consistent with the interfere with the power of the BOD,
articles of incorporation. So merong hindi mai-invalidate yang agreement na
agreements before, nag-incorporate yan. Provided
tapos afterwards yung mga stockholders
na yan – they are still bound by the same (E) Stockholders actively engaged in the
agreement provided na yung original management or operation of the business and
agreement before incorporation is not affairs of a close corporation shall be held to
inconsistent with the articles of strict fiduciary duties to each other and among
incorporation. themselves. The stockholders shall be
 personally liable for corporate torts unless the C. The directors are accustomed to take
corporation has obtained reasonably adequate informal action with express or implied consent
liability insurance. of all the stockholders.
 Stockholders who are actively engaged in
 So dito, actions taken during an informal
the management of the business shall be
meeting are again valid corporate actions
held to strict fiduciary duties and liable
dahil nga sanay sila sa walang formality -
din sila for corporate torts or quasi
sanay sila sa ganong style.
delicts unless merong liability insurance
obtained by the corporation. So, ‘tong D. All the directors have express or implied
mga agreement na ‘to remember ABCDE knowledge of the action and none of them
are valid agreements which may be makes a prompt objection thereto in writing.
entered into, by the stockholders
 So dapat yung objections dito is in
writing. Alam na nila na merong action in
an improperly called or held meeting,
SECTION 100
then hindi sila nag-object promptly in
VALIDITY OF ACTIONS TAKEN WITHOUT PROPER
writing, remember na valid yung
MEETING
corporate actions na yun due to waiver
WHEN ACTION TAKEN BY DIRECTORS WITHOUT sa part ng director who actually wants to
MEETING OR AT IMPROPERLY CALLED MEETING IS express objection pero hindi nya ginawa.
VALID So obviously, there can be no ratification
if yung action taken is beyond the powers
 Actions taken without proper meeting.
of the corporation or ultra vires.
So meeting is not properly called. Walang
proper notice, probably hindi sya proper
place, etc. Merong defect sa meeting. SECTION 101
Usually yung rules kapag yung meeting is PRE-EMPTIVE RIGHT
improperly called kapag meron tayong
PRE-EMPTIVE RIGHT OF STOCKHOLDERS IN CLOSE
mga corporate actions jan, the corporate
CORPORATIONS
actions are deemed void actions.
 But here in Section 100, valid sya and the - The preemptive right of stockholders in close
exception is when otherwise provided by corporations shall extend to all stock to be
the by-laws. So, yung actions ng mga issued, including reissuance of treasury shares,
directors ng close corporation without a whether for money, property, or personal
properly called meeting is deemed valid services, or in payment of corporate debts,
in 4 instances: unless the articles of incorporation provide
otherwise.
A. Before or after such action is taken, a written Sa open and close corporation, merong pre-emptive
consent is signed by all the directors. right. So yung pre-emptive right again is the right to be
first offered shares of stock before it is offered to the
 So meron ng written consent before or
public. So, kapag pre-emptive right ang pinag-uusapan,
after such action is taken. Obviously, if it
iba to sa right of first refusal. Yung right of first refusal is
is signed by all of the directors, there is
transfer from a stockholder papunta sa ibang tao or yung
an implied ratification of the corporate
corporation. Offer mo muna sa corporation or sa existing
action taken at an improperly called or
stockholder before offering it to the public. Pre emptive
held meeting.
right naman is a transfer from corporation to the
B. All the stockholders have actual or implied stockholder. So whatever kind of share it is, as long the
knowledge of the action and make no prompt transfer is from the corporation to the stockholder, may
objection in writing. pre-emptive right ang mga stockholders sa close
corporation. Other exception as provided for in section
 So, alam nila na merong gano’ng klaseng
38 is not applicable in close corporations. So, matter of
action pero hindi sila nag-object. So,
absolute right on the part of the stockholder except
there is again implied ratification of the
when there is a provision or exception in the articles of
corporate action qt an improperly called
incorporation.
meeting.
 corporation that the votes required for any
corporate action cannot be obtained. Laging tie
SECTION 102
kapag nagbotohan. Kaya nga deadlock - laging
AMENDMENT OF THE ARTICLES OF INCORPORATION equal, laging tie. walakang makuhang majority
vote, di mo makuha yung 2/3 ganon. You cannot
AMENDMENT OF THE ARTICLES OF INCORPORATION get the required vote to transact business. So
- Any amendment to the articles of incorporation obviously, yung business ng corporation cannot
which seeks to delete or remove any provision be conducted because of the deadlock. So kung
required by this Title or to reduce a quorum or isa kang stockholder sa close corporation na 'to,
voting requirement stated in said articles of pwede kang mag-file ng petition sa SEC to
incorporation shall require the affirmative vote arbitrate the dispute. So, mamamagitan sila.
of at least two-thirds (2/3) of the outstanding ARBITRATION OF INTRA-CORPORATE DEADLOCKS BY
capital stock, whether with or without voting THE SEC
rights, or of such greater proportion of shares as
may be specifically provided in the articles of - So to be an arbiter is a power granted to the SEC.
incorporation for amending, deleting or Kahit may provision sa articles or by-laws or
removing any of the aforesaid provisions, at a agreement ng mga stockholder na pinagbabawal
meeting duly called for the purpose. yung arbitration by the SEC - pwede pa ring mag-
 So Amendment in Section 102. The arbitrate ang SEC because that is the power
amendment here will seek to delete or provided by law. Hindi sya pwedeng baguhin by
remove any provision required by Section agreement or by the articles or any provision in
95. So tatanggalin mo yung isa sa tatlo or the by-laws. So in the exercised of the powers if
kahit yung tatlo ng mandatory provisions the SEC, pwede syang magbigay ng kahit na
sa Section 95 or to reduce a quorum or anong order which it will deems appropriate
voting requirement stated in the articles, under the circumstances, and it may also include
magre-require sya ng at least 2/3 OCS dissolving the close corporation.
with or without voting rights or any - SEC may order the dissolution but if yung
greater proportion as is required sa business is successful, pwede naman din syang
articles of incorporation. And dapat mag-appoint ng isang provisional director as an
meron ding meeting called for the additional member of the board. So kung may
purpose. So mere written assent is not additional member of the board, obviously,
sufficient although allowed to under mab'break na yung tie.
Section 15. Para sa close corporation,
bawal 'to.
MATTERS WITHIN THE COMPETENCE OF THE SEC AS
 Also dun sa first part kanina. yung seeks
ARBITRATOR
to delete or remove any provision
required by Section 95, yung effect dito is A. The SEC may cancel or alter any provision in the
to terminate yung status ng corporation articles, by-laws, or any stockholder's agreement, para
as a close corporation. Kaya nga lang at least ma-break yung deadlock.
tinanggal mo yung isa sa tatlong yun or
B. Pwede rin nilang i-cancel, alter or enjoin ang kahit
yung tatlong yun mismo because your
anong resolution or any act ng corporation or ng board of
close corporation - hindi na sya close. ite-
directors, stockholders, or officers.
terminate mo na sya. Probably, it will be
open to the public. C. They can also direct or prohibit any act of the
corporation, BOD, or other persons party to the action.
So pwedeng ipagawa or prohibit nila 'tong bagay na 'to as
long as it will serve to break the tie or to resolve yung
deadlock sa close corporation.
SECTION 103
INTRA-CORPORATE DEADLOCKS D. Also, the SEC can require yung purchase at fair value
ng shares of any stockholder just to resolve yung
deadlock. So it can be bought by the corporation even
INTRA-CORPORATE DEADLOCKS
there are no URE in its books wherein isa to sa mga
- Meaning, directors, or stockholders are so exceptions, or by the other stockholders.
divided respecting the management of the
E. Appointing a provisional director

F. Dissolving the corporation

G. Granting such other relief as the circumstances may

warrant.
CHAPTER III

ONE PERSON CORPORATIONS

PROVISIONAL DIRECTOR

- An impartial person, not a stockholder, not a

SECTION 115
creditor ng corporation or ng any subsidiary or
affiliate, and whose further qualifications may be APPLICABILITY OF PROVISIONS
determined by the SEC. So, a provisional director
shall have all the rights and powers of a duly - So, since your one-person corporation is
elected director - director talaga sya, meron classified as a "special corporation", it is
syang right to notice, right to vote, etc. until such governed primarily by the provisions of Title 13
time he is removed by the SEC or by all of the of RCCP and Suppletorily by applicable provisions
stockholders. on stock corporations kasi remember, ang one
stock corporation is essentially a stock
corporation except na iisa nga lang kasi yung
kanyang stockholder.
SECTION 104

RIGHT TO WITHDRAW OF A STOCKHOLDER

SECTION 116

ONE PERSON CORPORATION

RIGHT TO WITHDRAW OF A STOCKHOLDER

- So, for any reason, pwedeng mag-withdraw ang

ONE PERSON CORPORATION
isang stockholder from close corporation kasi nga
meron syang right to withdraw. kahit trip nya - One person corporation is defined under Section
lang yun or what. So if a stockholder will 116 as a corporation with a single stockholder. So
withdraw from a corporation, pwede nyang i- even if it is a corporation with only one
compel yung corporation na bilhin yung shares stockholder, yung personality ng nag-iisang
nya at fair value, which shall not be less than stockholder na yan is separate and distinct from
their par or issued value provided na yung the personality of those one-person corporation.
corporation has sufficient assets in its books para
ma-cover yung kanyang debts and liabilities WHO MAY FORM A ONE PERSON CORPORATION
exclusive of capital stock. - So, yung pwede lang magform ng one person
corporation is yung mga natural person, trust or
RIGHT OF STOCKHOLDER TO PETITION FOR estate lang po. - And in case of a natural person,
DISSOLUTION dapat nasa legal age yung incorporator or yung
sole stockholder.
- Any stockholder of a close corporation has the
right to petition to the SEC for dissolution if WHO CANNOT FORM A ONE PERSON CORPORATION
there are illegal, or fraudulent acts of the - Syempre yung mga banks and quasi-banks, pre-
directors, officers, or any person in control of the need, trust, insurance, public and publicly-
corporation. So ung isang stockholder, kung owned companies, non-chartered government-
feeling nya meron ng mismanagement, this owned and government-controlled corporations.
stockholder can petition the SEC for dissolution
of a close corporation. Obviously there must be a EXERCISE OF A PROFESSION
legal ground and kailangan merong notice and - A natural person who is licensed to exercise a
hearing. So SEC may order the dissolution of this profession may not organized as a one-person
close corporation. corporation subject to exceptions provided by
special laws.
 SECTION 117 “OPC” either below or at the end of its corporate
name.
- Also, yung single stockholder ng one person
CAPITAL STOCK IN A ONE PERSON CORPORATION corporation, pwede nyang gamitin yung kanyang
name, provided, it shall be accompanied by
- Like in a regular stock corporation, hindi required descriptive words aside from the suffix OPC.
magkaroon ng minimum authorized capital stock Pwede rin nyang gamitin yung name ng another
otherwise provided by especial laws. person or ng deceased person provided that the
consent was given by the said person or by the
deceased estate.
SECTION 118

ARTICLES OF INCORPORATION OF ONE PERSON

CORPORATIONS SECTION 121

- So, dapat mag-file ang one person corporations

ng kanyang articles of incorporation in DIRECTORS AND OFFICERS OF A ONE PERSON
accordance with the requirements of Sections 13 CORPORATION
and 14 of the RCCP.
A. DIRECTOR AND PRESIDENT (Section 121)

ADDITIONAL MATTERS CONTAINED IN THE ARTICLES OF - Yung director and president nya obviously will be
INCORPORATION OF A ONE PERSON CORPORATION the single stockholder. Since mag-isa naman sya,
so sya lahat. Pero pwede naman sya kumuha ng
ibang tao as employees.
A. If yung single stockholder ay isang trust or estate, B. OTHER OFFICERS (Section 122)
kailangang ilagay din yung name, nationality, and yung
residence ng trustee, executor or other person exercising - Other officers may be appointed. So, within 15
fiduciary duties. So, ilalagay jan kung sino ang magma- days from the issuance nung certificate of
manage nung trust or estate. and also there must be incorporation, yung OPC – mag-aappoint sya ng
present proof of the authority given to trust person to isang treasurer, corporate secretary, and other
become trustee, administrator and etc. officers as it may deem necessary. Ang
importante lang talaga is yung secretary and
B. Name, nationality and yung residence ng nominee, at treasurer, yung other officers – pwede pero ang
ng alternate nominee, and yung extent coverage and mas nire-require ng law is to appoint a treasurer
limitation ng authority. and secretary and notify the SEC within 5 days
from appointment.

SECTION 119

BY-LAWS NOT REQUIRED

- So yung one person corporation, hindi sila SECTION 122

required na mag-submit and mag-file ng RULES REGARDING APPOINTMENT OF TREASURER
corporate by-laws kasi nga by-laws are internal
rules – mag-isa lang sya so ano pang rules yung A. The single stockholder may be also self-appointed
kailangan nya. treasurer. So kung wala syang ibang ma-appoint as
treasurer, pwedeng sya na rin lang.

B. So if you are a self-appointed treasurer and ikaw rin

SECTION 120 yung sole stockholder, you must file a bond with the SEC
CORPORATE NAME OF A ONE PERSON CORPORATION in such a sum as the SEC may require renewable every 2
years or as often as may be required.
- So in addition doon sa name na gusto mo, you
must also indicate yung pagiging one person
corporation mo by including yung letters na
  So ang foreign corporation na nire-recognize
natin is one incorporated elsewhere other than in
the Philippines. And yung mga countries na 'to
kung saan na-incorporate yung foreign
corporation ina-allow nya din yung mga Filipino
citizen and corporations to do business in its own
TITLE XV country or state.
FOREIGN CORPORATIONS  Remember: when it comes to a corporation, ang
kanyang existence is only confined to the state
wherein it is incorporated. So kung ang domestic
NATIONALITY OF CORPORATIONS corporation - Philippine corporation, yung
TWO TESTS TO DETERMINE NATIONALITY OF A kanyang existence is confined only in the
CORPORATION Philippines. But obviously, pwede rin namang
mag-business sa ibang state ang isang Philippine
A. INCORPORATION TEST corporation pero with the consent of the foreign
state . The same is true with the foreign
 Incorporation test provides that if ang isang
corporation . Yung existence ng isang foreign
corporation is organized or incorporated sya
corporation is limited only dun sa foreign country
under sa Philippines laws, then domestic
where it is incorporated. But again, pwede syang
corporation 'to. If incorporated naman sya under
mag-business dito sa Philippines provided that
sa laws ng Foreign Country, then it is a foreign
there is consent from our state.
corporation. So kapag yung foreign corporation is
 So para makakuha sya ng authorization from our
organized po sya under sa laws ng another
state, need nyang kumuha ng license. It will
country, with respect po sa country na yun, then
imposed conditions para makakuha ng license
yung corporation po na 'to is a domestic
and dapat yung conditions is reasonable.
corporation. Any corporation which is
incorporated in a place other than dun sa foreign
country na yun, the foreign country po will
consider as a foreign corporation. It depends on PURPOSE OF REGULATION OF FOREIGN CORPORATIONS
where it was incorporated.  reasons why we regulate foreign corporations or why
B. CONTROL TEST we require them to get licenses in the Philippines

 Control test is employed during war times for A. To place them on an equality with domestic
reasons of national security. So ang isang corporations
domestic corporation which is controlled by B. To subject them to inspection so that their
enemy aliens shall be deemed a foreign condition may be known.
corporation depende sa controlling stockholders
'to. So if yung controlling stockholders are enemy C. To protect the residents of the State doing
aliens, considered 'to as foreign corporation. business with them by subjecting them to the courts
of the State.
GRANDFATHER RULE
D. Incidentally, to require the payment of fees and
 It is a method sa pagde-determine ng nationality taxes so that we can raise revenues.
ng isang corporation which owned in part by
another corporation. So, this talks about two
corporations. Isang corporation, yung LICENSE AND CERTIFICATE OF AUTHORITY REQUIRED OF
stockholder nya is isa na namang corporation. So FOREIGN CORPORATIONS
bago malaman yung nationality ng main
corporation, yung shareholder corporation - - As a rule po, yung foreign corporations hindi po
ib'break down ung kanyang equity structure to sila allowed to transact business in the
determine yung nationality. Philippines unless meron sila or nakakuha sila ng
license or a certificate of authority from the
appropriate government agency.
SECTION 140

FOREIGN NATIONALITY SECTION 141

WHERE LICENSE ISSUED BEFORE EFFECTIVITY OF THE license through a resident agent. So yung
RCCP resident agent po is authorized sya to
accept summons and other legal
- Pagka yung foreign corporation authorized po
processes – yung mga sulat galling SEC –
syang mag-transact ng business dito sa
yun ung tatanggapin ng resident agent.
Philippines, yung license nya na inisyu pursuant
to the Revised Corporation Code, obviously po it 4. The place in the Philippines where the
will be bound by the terms and conditions of corporation intends to operate kung
such license and the provisions of the Code. If saan nila gustong i-established yung
Inisyu po yung license before yung effectivity ng kanilang office tsaka yung kanilang
RCCP, hindi po kailangang kumuha ng bagong business establishment
license kasi continues pa rin yung authority nya,
5. The specific purpose or purposes
but subject po sya to the provisions revised Code
which the corporation intends to pursue
and other special laws
in the transaction of its business in the
Philippines. So kung ano yung gusto
PROCEDURE FOR APPLICATION FOR A LICENSE nilang i-business dito sa corporation –
ano ang purpose nila. So yun ang
PROCEDURE FOR APPLICATION FOR A LICENSE OF
kailangan nilang i-indicate sa kanilang
FOREIGN CORPORATIONS
application.
A. SUBMIT TO THE SEC AN APPLICATION UNDER OATH
6. The names and addresses of the
SETTING FORTH THE FOLLOWING MATTERS STATED IN
present directors and officers of the
SECTION 142.
corporation.
- So #1, submit to the sec an application tapos it will set
7. A statement of the authorized capital
forth the following matters under section 142. So yung
stock in case of par value shares. A
matters enumerated by law, hindi na kailangang ilagay sa
statement of the capital stock in case of
application kung nakalagay na sa articles of
par value shares. Kung ilan ang number
incorporation.
of shares na ii-issue ng corporation,
CONTENTS OF THE APPLICATION (Section 142) itemized by classes, par value or shares
without par value and series, if any. So
1. The date and term of incorporation. ilalagay yang mga classification.
So kung nakalagay na sa articles yan, wag
ng ilagay sa application. 8. A statement of its outstanding capital
stock and the aggregate number of
2. The address, including the street shares which the corporation has issued,
number, of the principal office of the itemized by class, par value, shares
corporation in the country or state of without par value and series, if any. So
incorporation. So ano yan – foreign ilagay niyo kung ano yung mga stocks na
corporation, incorporated in Italy, ilagay nasa kamay ng ibang tao other than the
natin ang address ng foreign corporation corporation such as your stockholders. So
na yan sa state of incorporation nya yun ang outstanding capital stock.
which is Italy.
9. A statement of paid in capital
3. The name and address of its resident
agent authorized to accept summons 10. Such additional information as may
and process in all legal proceedings and be necessary for the SEC to determine
all legal notices affecting the whether or not the corporation is
corporation, pending the establishment entitled to be issued a license and also
of a local office. Syempre nag-aaply ka to determine and assess the fees
palang for license, hindi naman alam ng payable by the corporation.
foreign corporations kung maga-grant
B. SUBMIT TO THE SEC THE APPLICATION WITH
yan or hindi. So probably, it will not yet
ACCOMPANYING DOCUMENTS ATTACHED
establish a local office. So in the
meantime po, yung SEC – makikipag- ACCOMPANYING DOCUMENTS (Section 142)
communicate sya dito sa foreign
corporation na ‘to na nag-aaply ng
1. A copy of its articles of incorporation corporation. Ito yung assets namin
and by-laws, certified in accordance liabilities namin.
with law, and their translation to an
4. No application for license to transact
official language of the Philippines, if
business will be accepted by the SEC
necessary.
without previous authority from the
- Copy of articles and by-laws. appropriate government agency
kung nasa foreign language – whenever it is required by law
with official translations, if
5. Yung written power ng attorney
necessary.
which designated a resident agent and
2. The oath of reciprocity. If such also there must be an agreement that
certificate is in a foreign language, a the SEC is designated as receiver of
translation thereof in English under oath summons and all legal processes in case
of the translator shall be attached na yung foreign corporation shall cease
thereto. to transact business or be without a
resident agent in the Philippines.
- If yung oath of reciprocity is in a
foreign language, of course
official translation under oath.

OATH OF RECIPROCITY

- is a certificate under oath issued

by an authorized official or
officials of the jurisdiction of its
incorporation, attesting to the
fact that the laws of the country
or state of the applicant allow
Filipino citizens and
corporations to do business
therein, and the applicant is an
existing corporation in good
standing.
- So dito sa foreign country,
pwedeng kumuha ng license ang
Filipino corporations and yung
mga Filipino citizens – pwede
ring mag-business dito. So, oath
of reciprocity nga kasi reciprocal.
We allow this foreign countries
to transact business in the
Philippines, they also allow
Filipino corporations and citizens
to do business in their country.

3. A statement under oath of the

president or any other person
authorized by the corporation that the
applicant is solvent, and in sound
financial standing. So kailangang ilagay
yang assets and liabilities as of date not
exceeding one year prior to the filing of
the application. So may pera kami, so yan
lang ang sasabihin ng foreign