REVISED CORPORATION CODE OF THE PHILIPPINES

R.A. No. 11232 or the Revised Corporation Code of the Philippines was approved on February 20, 2019.

How are corporations created?

1. By a General Law- private corporations are generally created under the provisions of the Revised
Corporation Code.
2. By a Special Law- public corporations are created through special laws.

Private Corporation- is an artificial being created by operation of law having the right of succession, and the
powers, attributes and properties expressly authorized by law or incident to its existence.

Attributes of a Corporation
1. It is an artificial being with separate and distinct personality.
2. It is created by operation of law.
3. It enjoys the right of succession.
4. It has the powers, attributes and properties expressly authorized by law or incident to its existence.

Doctrines
1. Concession Theory or Government Paternity Theory or Franchise Theory-a corporation comes into
existence upon the issuance of the certificate of incorporation. Then and only then will it acquire juridical
personality.
2. Doctrine of Separate Personality or Corporate Entity-a corporation is a legal or juridical person with a
personality separate and apart from its individual stockholders or members. The stockholders are liable
to the creditors of the corporation up to the extent of their contribution and not to their separate
personal properties.
3. Doctrine of Piercing the Veil of Corporate Fiction or Alter Ego or Business Conduit Doctrine or
Instrumentality Rule -when the veil of corporate fiction is used as a shield to defeat public convenience,
justify wrong, protect fraud, or defend a crime, this fiction shall be disregarded and the individuals
composing it will be treated identical.
4. Trust Fund Doctrine- the capital stock, properties and other assets of a corporation are regarded as
equity in trust for the payment of corporate creditors.
5. Wasting Asset Doctrine- a wasting asset corporation or an entity engaged in the extraction of a natural
resource can legally return shareholders during the lifetime of the corporation. Accordingly, a wasting
asset corporation can pay dividend not only to the extent of the retained earnings but also to the extent
of the accumulated depletion.
6. Theory of General Capacities-a corporation may exercise any and all powers that may be exercised by
persons.
7. Theory of Special/Limited Capacities-no corporation under the Revised Corporation Code shall possess or
exercise any corporate power, except those conferred by law, its articles of incorporation, those implied
from express powers and those as are necessary or incidental to the exercise of the powers conferred.
8. Corporations cannot claim moral damages-a corporation is not entitled to moral damages because it has
no feelings, no emotions, no senses. However, when a corporation has a good reputation that is
debased, resulting in its humiliation in the business realm, it can claim moral damages.
9. Corporation cannot be held criminally liable-since a corporation is a mere legal fiction, it cannot be held
liable for a crime committed by its officers since it does not have the essential element of malice.

Tests to Determine the Nationality of Corporations

1. Incorporation Test
2. Domicile Test
3. Control Test or Wartime Test

Component of a Corporation
1. Incorporators
a. Natural or judicial person not suffering from legal incapacity
b. Not more than 15 persons
c. In stock corporation, each must own or subscribe to at least one share; and in a non-stock
corporation, he must be a member
*Natural persons who are licensed to practice a profession, and partnerships or associations
organized for the purpose of practicing a profession, shall not be allowed to organize a corporation.
*A corporation with a single stockholder is considered a One Person Corporation (OPC).
2. Corporators
3. Promoter
4. Subscriber
5. Underwriter

Classes of Corporation
1. Classification under the Code
a. Stock
b. Non-stock
2. As to purpose
a. Public
b. Private

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 3. As to legality of existence
a. De jure
b. De facto
c. Corporation by estoppel
d. Corporation by prescription
4. As to laws of incorporation
a. Domestic
b. Foreign
5. As to whether they are open to the public or not
a. Open
b. Close
6. As to number of persons who compose them
a. Aggregate corporation
b. One-person corporation
7. As to whether they are for religious purposes or not
a. Ecclesiastical
b. Lay
8. As to whether they are for charitable purpose or not
a. Eleemosynary
b. Civil

Doctrine of Equality of Shares- where the articles of incorporation do not provide for any distinction of the
shares of stock, all shares issued by the corporation are presumed to be equal and enjoy the same rights and
privileges and are also subject to the same liabilities.

Share of Stock Certificate of Stock

Incorporeal or intangible property Tangible property
Represents the right or interest of a person in a Written evidence of that right or interest
corporation
May be issued even if the subscription is not fully paid As a rule, may not be issued unless the subscription is
fully paid

Classification of Shares
1. Common shares
2. Preferred shares
3. Voting shares
4. Non-voting shares
*Holders of non-voting shares shall nevertheless be entitled to vote on the following matters:
a. Amendment of the articles of incorporation;
b. Adoption and amendment of bylaws;
c. Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the
corporate property;
d. Incurring, creating, or increasing bonded indebtedness;
e. Increase or decrease of authorized capital stock;
f. Merger or consolidation of the corporation with another corporation or other corporations;
g. Investment of corporate funds in another corporation or business in accordance with the Code; and
h. Dissolution of the corporation.
5. Par value shares
6. No par value shares
*Limitations
a. Banks, trust, insurance, preneed companies, public utilities, buildings and loan associations, and
other corporations authorized to obtain or access funds from the public shall not be permitted to
issue no par value shares;
b. No par value shares cannot have an issued price of less than P5.00;
c. The entire consideration for its issuance constitutes capital so that no part of it should be distributed
as dividends;
d. They cannot be issued as preferred stocks;
e. The articles of incorporation must state the fact that it issued no par value shares as well as the
number of said shares;
f. Once issued, they are deemed fully paid and non-assessable.
7. Share in escrow
8. Over-issued stock
9. Watered stock
a. Issued without consideration (bonus shares)
b. Issued as fully paid when the corporation has received a lesser sum of money than its par or issued
value (discount share)
c. Issued for consideration other than actual cash, the fair valuation of which is less than its par or
issued value
d. Issued as stock dividend when there are not sufficient retained earnings to justify it.
10. Fractional share
11. Promotional share
12. Founders’ share
13. Redeemable share
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 14. Treasury share

Incorporation and Organization

Corporate Term
a. A corporation shall have perpetual existence unless its articles of incorporation provides otherwise.
b. Corporations with certificates of incorporation issued prior to the effectivity of the Revised Corporation
Code (RCC), and which continue to exist, shall have perpetual existence, unless the corporation, upon a
vote of its stockholders representing a majority of its outstanding capital stock, notifies the Commission
that it elects to retain its specific corporate term pursuant to its articles of incorporation.
c. A corporate term for a specific period may be extended or shortened by amending the articles of
incorporation.
d. No extension may be made earlier than three (3) years prior to the original or subsequent expiry date(s)
unless there are justifiable reasons.
e. A corporation whose term has expired may apply for a revival of its corporate existence, together with
all the rights and privileges under its certificate of incorporation. Upon approval by the SEC, the
corporation shall be deemed revived and a certificate of revival of corporate existence shall be issued.

Minimum Capital Stock- stock corporations shall not be required to have a minimum capital stock.
*No minimum amount of capital stock to be subscribed and paid for the purpose of incorporation.
*Insurance corporation- P5 million
*Pawnshop- P100,000
*Financial intermediary applying for authority to perform quasi-banking functions-P50 million

Articles of Incorporation- the document prepared by the persons establishing a corporation and filed with the
SEC containing the matters required by the code. It is one that defines the charter of the corporation, and the
contractual relationships between the State and the corporation, the stockholder and the State, and between
the corporation and its stockholders.

Amendment of Articles of Incorporation- may be amended by majority vote of the board of directors or
trustees and the vote or written assent of the stockholders representing at least 2/3 of the outstanding capital
stock. The amendments shall take effect upon their approval by the SEC or from the date of filing with the SEC
if not acted upon within 6 months from the date of filing (Doctrine of Approval by Inaction).

By-Laws- rules of action adopted by a corporation for its internal government and for the regulation of
conduct, and prescribe the rights and duties of its stockholders or members towards itself and among
themselves in reference to the management of its affairs.

Adoption of By-Laws- the affirmative vote of the stockholders representing at least a majority of the
outstanding capital stock, or of at least a majority of the members in case of nonstock corporations, shall be
necessary. By-laws may be adopted and filed prior to incorporation; in such case, such by-laws shall be
approved and signed by all the incorporators and submitted to the SEC, together with the articles of
incorporation.

Amendment of By-laws- a majority of the board of directors or trustees, and the owners of at least a majority
of the outstanding capital stock, or at least a majority of the members of a nonstock corporation, at a regular or
special meeting duly called for the purpose, may amend or repeal the bylaws or adopt new bylaws.

Delegation to Amend the By-Laws- the owners of two-thirds (2/3) of the outstanding capital stock or two-
thirds (2/3) of the members in a nonstock corporation may delegate to the board of directors or trustees the
power to amend or repeal the by-laws or adopt new by-laws. Any power delegated to the board of directors or
trustees to amend or repeal the by-laws or adopt new by-laws shall be considered as revoked whenever
stockholders owning or representing a majority of the outstanding capital stock or majority of the members
shall so vote at a regular or special meeting.

Corporate Name- a name is not distinguishable even if it contains one or more of the following:
a. The word “corporation”, “company”, “incorporated”, “limited”, “limited liability”, or an abbreviation of
one of such words; and
b. Punctuations, articles, conjunctions, contractions, prepositions, abbreviations, different tenses, spacing,
or number of the same word or phrase.

Registration
a. A person or group of persons desiring to incorporate shall submit the intended corporate name to the
SEC for verification.
b. If the Commission finds that the name is distinguishable from a name already reserved or registered for
the use of another corporation, not protected by law and is not contrary to law, rules and regulations,
the name shall be reserved in favor of the incorporators.
c. The incorporators shall then submit their articles of incorporation and bylaws to the Commission.
d. If the Commission finds that the submitted documents and information are fully compliant with the
requirements of this Code, other relevant laws, rules and regulations, the Commission shall issue the
certificate of incorporation.
*A private corporation organized under this Code commences its corporate existence and juridical
personality from the date the Commission issues the certificate of incorporation.

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Effects of Non-Use of Corporate Charter and Continuous Inoperation
a. If a corporation does not formally organize and commence its business within five (5) years from the
date of its incorporation, its certificate of incorporation shall be deemed revoked as of the day following
the end of the five (5)-year period.
b. However, if a corporation has commenced its business but subsequently becomes inoperative for a
period of at least five (5) consecutive years, the SEC may, after due notice and hearing, place the
corporation under delinquent status.
c. A delinquent corporation shall have a period of two (2) years to resume operations and comply with all
requirements that the SEC shall prescribe. Upon compliance by the corporation, the SEC shall issue an
order lifting the delinquent status. Failure to comply with the requirements and resume operations
within the period given by the Commission shall cause the revocation of the corporation’s certificate of
incorporation.

Board of Directors and Trustees

-corporate powers are exercised by the board of directors or trustees.

Qualifications
1. Natural person with legal capacity
2. Not more than 15 persons
*In an ordinary non-stock corporation, the articles of incorporation or the by-laws may provide more
than 15 trustees.
*In a non-stock educational corporation, it shall not be less than 5 nor more than 15 persons provided
that the number shall be in multiples of 5.
3. For stock corporation, he must own or subscribe to at least 1 share; for non-stock corporation, he must
be a member. A director who ceases to own at least one (1) share of stock or a trustee who ceases to
be a member of the corporation shall cease to be such.

Disqualification or Directors, Trustees or Officers

-A person shall be disqualified from being a director, trustee or officer of any corporation if, within five (5) years
prior to the election or appointment as such, the person was:
1. Convicted by final judgment:
a. of an offense punishable by imprisonment for a period exceeding six (6) years;
b. for violating this Code; and
c. for violating Republic Act No. 8799, otherwise known as “The Securities Regulation
Code”;
2. Found administratively liable for any offense involving fraudulent acts; and
3. By a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct similar to
those enumerated in paragraphs (a) and (b) above.

Independent Director- is a person who, apart from shareholdings and fees received from the corporation, is
independent of management and free from any business or other relationship which could, or could reasonably
be perceived to materially interfere with the exercise of independent judgment in carrying out the
responsibilities as a director. Independent directors must be elected by the shareholders present or entitled to
vote in absentia during the election of directors.

The board of the following corporations vested with public interest shall have independent directors constituting
at least twenty percent (20%) of such board:
1. Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as “The Securities
Regulation Code”, namely those whose securities are registered with the SEC, corporations listed with an
exchange or with assets of at least Fifty million pesos (P50,000,000.00) and having two hundred (200)
or more holders of shares, each holding at least one hundred (100) shares of a class of its equity
shares;
2. Banks and quasi-banks, Non-stock savings and loan associations (NSSLAs), pawnshops, corporations
engaged in money service business, pre-need, trust and insurance companies, and other financial
intermediaries; and
3. Other corporations engaged in business vested with public interest similar to the above, as may be
determined by the Commission, after taking into account relevant factors which are germane to the
objective and purpose of requiring the election of an independent director, such as the extent of
minority ownership, type of financial products or securities issued or offered to investors, public interest
involved in the nature of business operations, and other analogous factors.

Non-Competition Clause- statement in the by-laws providing that no person shall qualify or be eligible for
nomination or election to the board if he is engaged in any business which competes with or is antagonistic to
that of the corporation is valid.

Term of Office
1. Stock corporation- directors shall be elected for a term of one (1) year. Each director shall hold office
until the successor is elected and qualified.
2. Ordinary non-stock corporation- trustees shall hold office for not more than three (3) years until their
successors are elected and qualified. Trustees elected to fill vacancies occurring before the expiration of
a particular term shall hold office only for the unexpired period.

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 3. Non-stock educational corporation- one-fifth (1/5) of their number shall expire every year. Trustees
thereafter elected to fill vacancies, occurring before the expiration of a particular term, shall hold office
only for the unexpired period. Trustees elected thereafter to fill vacancies caused by expiration of term
shall hold office for five (5) years.

Holdover Principle- the directors or trustees shall be elected for a fix term but may continue to serve until
their successors are elected and qualified.

Election of the Board of Directors or Trustees

1. At all elections of directors or trustees, there must be present, either in person or through a
representative authorized to act by written proxy, the owners of majority of the outstanding capital
stock, or if there be no capital stock, a majority of the members entitled to vote.
2. When so authorized in the bylaws or by a majority of the board of directors, the stockholders or
members may also vote through remote communication or in absentia. The right to vote through such
modes may be exercised in corporations vested with public interest, notwithstanding the absence of a
provision in the bylaws of such corporations.
3. A stockholder or member, who participates through remote communication or in absentia, shall be
deemed present for purposes of quorum.
4. The election must be by ballot if requested by any voting stockholder or member.

Methods of Voting
1. Straight voting- every stockholder may vote such number of shares for as many persons as there are
directors to be elected.
2. Cumulative Voting for Once Candidate-a stockholder is allowed to concentrate his votes and give to one
candidate.
3. Cumulative Voting by Distribution- a stockholder is allowed to concentrate his votes and distribute them
among as many candidates as he deems fit.

*Unless otherwise provided in the articles of incorporation or in the bylaws, members of nonstock corporations
may cast as many votes as there are trustees to be elected but may not cast more than one (1) vote for one
(1) candidate.

Corporate Officers
1. President- must be a director
2. Secretary- must be a citizen and resident of the Philippines
3. Treasurer- must be a resident of the Philippines
4. such other officers as may be provided in the bylaws

* The same person may hold two (2) or more positions concurrently, except that no one shall act as president
and secretary or as president and treasurer at the same time.
*If the corporation is vested with public interest, the board shall also elect a compliance officer.
*Within thirty (30) days after the election of the directors, trustees and officers of the corporation, the
secretary, or any other officer of the corporation, shall submit to the Commission, the names, nationalities,
shareholdings, and residence addresses of the directors, trustees, and officers elected.

Executive Committee
-the board may create an executive committee composed of at least three (3) directors. Said committee may
act, by majority vote of all its members, on such specific matters within the competence of the board, as may
be delegated to it in the bylaws or by majority vote of the board, except with respect to the:
1. approval of any action for which shareholders’ approval is also required;
2. filling of vacancies in the board;
3. amendment or repeal of bylaws or the adoption of new bylaws;
4. amendment or repeal of any resolution of the board which by its express terms is not amendable or
repealable; and
5. distribution of cash dividends to the shareholders.

Compensation of Directors or Trustees

General rule: The directors or trustees shall not receive any compensation in their capacity as such.
Exceptions:
1. Allowed in the bylaws fixing their compensation
2. Reasonable per diems
3. Stockholders representing at least a majority of the outstanding capital stock or majority of the
members may grant directors or trustees with compensation.
*In no case shall the total yearly compensation of directors exceed ten (10%) percent of the net income before
income tax of the corporation during the preceding year.

Removal of Directors or Trustees

-Any director or trustee of a corporation may be removed from office by a vote of the stockholders holding or
representing at least two-thirds (2/3) of the outstanding capital stock, or in a nonstock corporation, by a vote of
at least two-thirds (2/3) of the members entitled to vote.
General rule: Removal may be with or without cause.

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Exception: Removal without cause may not be used to deprive minority stockholders or members of the right of
representation to which they may be entitled.

Vacancies in the Office of the Director or Trustee

1. By the stockholders or members
a. If the vacancy results from the removal by the stockholder or member;
b. Expiration of the term;
c. If the vacancy is created by reason of an increase in the number of directors or trustees
d. If the vacancy occurs other than by (a), (b), or (c), such as death, resignation, abandonment, or
disqualification, if the remaining directors or trustees do not constitute a quorum for the purpose of
filling the vacancy; and
e. If the board refer the matter to the stockholders or members.
2. By majority of the remaining members of the board if still constituting a quorum.
*Quorum means majority of the total number of the members of the board.
* A director or trustee elected to fill a vacancy shall be referred to as replacement director or trustee and shall
serve only for the unexpired term of the predecessor in office.
*When the vacancy prevents the remaining directors from constituting a quorum and emergency action is
required to prevent grave, substantial, and irreparable loss or damage to the corporation, the vacancy may be
temporarily filled by the emergency board from among the officers of the corporation by unanimous vote of the
remaining directors or trustees.

Liability of Directors, Trustees or Officers

General rule: Directors, Trustees or Officers are not solidarily liable with the corporation.
Exceptions:
1. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the
corporation
2. Those who are guilty of gross negligence or bad faith in directing the affairs of the corporation
3. Those who acquire any personal or pecuniary interest in conflict with their duty as such directors or
trustees
4. Consent to the issuance of watered stock
5. Agree or stipulate in a contract to hold himself personally liable with the corporation.

Three-Fold Duties of Directors

1. Duty of obedience
2. Duty of diligence
3. Duty of loyalty

Business Judgement Rule- courts will not interfere in the decisions made by the BOD as regards the internal
affairs of the corporation unless such contracts are so unconscionable and oppressive as to amount to a wanton
destruction of rights of the minority.

Self-Dealing Directors, Trustees or Officers- a contract of the corporation with (1) one or more of its
directors, trustees, officers or their spouses and relatives within the fourth civil degree of consanguinity or
affinity is voidable, at the option of such corporation, unless all the following conditions are present:
1. The presence of such director or trustee in the board meeting in which the contract was approved was
not necessary to constitute a quorum for such meeting;
2. The vote of such director or trustee was not necessary for the approval of the contract;
3. The contract is fair and reasonable under the circumstances;
4. In case of corporations vested with public interest, material contracts are approved by at least two-
thirds (2/3) of the entire membership of the board, with at least a majority of the independent directors
voting to approve the material contract; and
5. In case of an officer, the contract has been previously authorized by the board of directors.

*Where any of the first three (3) conditions set forth above is absent, in the case of a contract with a director or
trustee, such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of
the outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose.

Interlocking Directors- when a director in one corporation is also a director in another corporation.
* A contract between two (2) or more corporations having interlocking directors shall not be invalidated on that
ground alone, except in cases of fraud, and provided the contract is fair and reasonable under the
circumstances, provided that if the interest of the interlocking director in one (1) corporation is substantial and
the interest in the other corporation or corporations is merely nominal, the contract shall be subject to the
provisions on self-dealing directors insofar as the latter corporation or corporations are concerned.
*Stockholdings exceeding twenty percent (20%) of the outstanding capital stock shall be considered substantial
for purposes of interlocking directors.

Disloyalty of a Director- where a director, by virtue of such office, acquires a business opportunity which
should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, the director
must account for and refund to the latter all such profits, unless the act has been ratified by a vote of the
stockholders owning or representing at least two thirds (2/3) of the outstanding capital stock (Doctrine of
Corporate Opportunity).

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Powers of a Corporation

Kinds
1. Express
2. Incidental
3. Implied

Express Powers
1. Power to extend or shorten corporate term
-majority vote of the BOD/BOT and 2/3 vote of SH/M
-dissenting SH may exercise their appraisal right
*SH- those who own the outstanding capital stock
2. Power to increase or decrease capital stock
-majority vote of the BOD and 2/3 vote of SH
-any increase in capital stock must be accompanied by a sworn statement of the treasurer showing that
at least 25% of the increase in capital stock has been subscribed and that at least 25% of the amount
subscribed has been paid
3. Power to create or increase bonded indebtedness
-majority vote of the BOD/BOT and 2/3 vote of SH/M
4. Power to deny pre-emptive right
*Pre-emptive right- the preferential right of shareholders to subscribe to all issues or disposition of
shares of any class in proportion to their present shareholdings.
-majority vote of the BOD and 2/3 vote of SH
-the right may be denied by the articles of incorporation or an amendment thereto.
-pre-emptive right is not available under the following:
a. shares to be issued to comply with the laws requiring stock offering or minimum stock ownership by
the public
b. it does not apply to shares that are being reoffered by the corporation
c. shares issued in good faith with approval of the 2/3 of SH
d. in case the right is denied in the articles of incorporation
e. waiver of right by the SH
f. in case of non-stock corporations
5. Power to sell or dispose all or substantially all of the corporate assets
-majority vote of the BOD/BOT and 2/3 vote of SH/M
-dissenting SH may exercise their appraisal right
-a sale or other disposition shall be deemed to cover substantially all the corporate property and assets
if thereby the corporation would be rendered incapable of continuing the business
6. Power to acquire own shares
- provided that the corporation has unrestricted retained earnings
-purposes:
a. To eliminate fractional shares arising out of stock dividends;
b. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a
delinquency sale, and to purchase delinquent shares sold during said sale;
c. To pay dissenting or withdrawing stockholders entitled to payment for their shares;
d. To acquire treasury shares;
e. To redeem redeemable shares;
f. To effect a decrease of capital stock; and
g. In close corporations, when there is a deadlock in the management of the business.
7. Power to invest corporate funds in another corporation or business or for any other purpose
-majority vote of the BOD/BOT and 2/3 vote of SH/M
-dissenting SH may exercise their appraisal right
8. Power to declare dividends
*cash and property dividends- majority vote of the quorum BOD
*stock dividends- majority of vote the quorum of BOD and 2/3 vote of SH
-there must be unrestricted retained earnings
-any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the
subscription plus costs and expenses, while stock dividends shall be withheld from the delinquent
stockholders until their unpaid subscription is fully paid
-stock corporations are prohibited from retaining surplus profits in excess of one hundred percent
(100%) of their paid-in capital stock, except:
a. when justified by definite corporate expansion projects or programs approved by the board of
directors;
b. when the corporation is prohibited under any loan agreement with financial institutions or creditors,
whether local or foreign, from declaring dividends without their consent, and such consent has not
yet been secured; or
c. when it can be clearly shown that such retention is necessary under special circumstances obtaining
in the corporation, such as when there is need for special reserve for probable contingencies.
9. Power to enter into management contract
-majority vote of the quorum BOD/BOT and majority vote of the SH/M of both the managing and
managed corporation.
-majority vote of the quorum BOD/BOT and majority vote of the SH/M of the managing corporation and
majority vote of the quorum BOD/BOT and 2/3 vote of the SH/M of the managed corporation in the
following instances:

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 a. where a stockholder or stockholders representing the same interest of both the managing and the
managed corporations own or control more than one-third (1/3) of the total outstanding capital
stock entitled to vote of the managing corporation; or
b. where a majority of the members of the board of directors of the managing corporation also
constitute a majority of the members of the board of directors of the managed corporation,
-no management contract shall be entered into for a period longer than five (5) years for anyone (1)
term.

Ultra Vires Acts of Corporation-an act committed outside the object for which a corporation is created as
defined by the law of its organization and therefore beyond the powers conferred upon it by law. It also refers
to acts done by a corporation outside of the express and implied powers vested in it by its charter and by the
law; hence, illegal.

Types of ultra vires acts

1. acts done beyond the powers of the corporation as provided in the law or its articles of incorporation
2. acts or contracts entered into in behalf of a corporation by persons who have no corporate authority
3. acts or contracts, which are per se illegal as being contrary to law

Appraisal Right- the right to demand payment of the fair value of his share after dissenting from a propose
corporate action involving a fundamental change in the corporation in the cases provided by law.

Instances of Appraisal Right

1. In case an amendment to the articles of incorporation has the effect of changing or restricting the rights
of any stockholder or class of shares, or of authorizing preferences in any respect superior to those of
outstanding shares of any class, or of extending or shortening the term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all
of the corporate property and assets as provided in this Code;
3. In case of merger or consolidation;
4. In case of investment of corporate funds for any purpose other than the primary purpose of the
corporation; and
5. In close corporation, a stockholder may for any reason compel the corporation to purchase his shares.

Procedures of Exercising Appraisal Right

1. The dissenting stockholder who votes against a proposed corporate action may exercise the right of
appraisal by making a written demand on the corporation for the payment of the fair value of shares
held within thirty (30) days from the date on which the vote was taken. The failure to make the demand
within such period shall be deemed a waiver of the appraisal right.
2. If the proposed corporate action is implemented, the corporation shall pay the stockholder, upon
surrender of the certificate or certificates of stock representing the stockholder’s shares, the fair value
thereof as of the day before the vote was taken, excluding any appreciation or depreciation in
anticipation of such corporate action.
3. If, within sixty (60) days from the approval of the corporate action by the stockholders, the withdrawing
stockholder and the corporation cannot agree on the fair value of the shares, it shall be determined and
appraised by three (3) disinterested persons, one of whom shall be named by the stockholder, another
by the corporation, and the third by the two (2) thus chosen. The findings of the majority of the
appraisers shall be final.
*The costs and expenses of appraisal shall be borne by the corporation, unless the fair value ascertained
by the appraisers is approximately the same as the price which the corporation may have offered to pay
the stockholder, in which case they shall be borne by the latter.
4. The award price shall be paid by the corporation within thirty (30) days after such award is made
provided that no payment shall be made to any dissenting stockholder unless the corporation has
unrestricted retained earnings in its books to cover such payment.
5. Upon payment by the corporation of the agreed or awarded price, the stockholder shall forthwith
transfer the shares to the corporation.

Effect of Demand
–from the time of demand for payment of the fair value of a stockholder’s shares, all rights accruing to such
shares, including voting and dividend rights, shall be suspended, except the right of such stockholder to receive
payment of the fair value thereof. If the dissenting stockholder is not paid the value of the said shares within
thirty (30) days after the award, the voting and dividend rights shall immediately be restored.

Meetings of Directors and Stockholders or Members

Meetings of Directors
1. Regular- shall be held monthly, unless the bylaws provide otherwise.
2. Special- may be held at any time upon the call of the president or as provided in the by-laws.

*Meetings of directors or trustees of corporations may be held anywhere in or outside of the Philippines, unless
the bylaws provide otherwise.
*Notice of regular or special meetings stating the date, time and place of the meeting must be sent to every
director or trustee at least two (2) days prior to the scheduled meeting, unless a longer time is provided in the
by-laws.

RFBT by Atty. Bernard D. Bakilan, CPA, LLM Page 8 of 13

*The chairman or, in his absence, the president shall preside at all meetings of the directors or trustees as well
as of the stockholders or members, unless the bylaws provide otherwise.
*Unless the articles of incorporation or the bylaws provides for a greater majority, a majority of the directors or
trustees as stated in the articles of incorporation shall constitute a quorum to transact corporate business, and
every decision reached by at least a majority of the directors or trustees constituting a quorum, except for the
election of officers which shall require the vote of a majority of all the members of the board, shall be valid as a
corporate act
*Directors or trustees who cannot physically attend or vote at board meetings can participate and vote through
remote communication such as videoconferencing, teleconferencing, or other alternative modes of
communication that allow them reasonable opportunities to participate. Directors or trustees cannot attend or
vote by proxy at board meetings.

Meetings of Stockholders or Members

1. Regular- shall be held annually on a date fixed in the bylaws, or if not so fixed, on any date after April
15 of every year as determined by the board of directors or trustees. A written notice of regular
meetings shall be sent to all stockholders or members of record at least twenty-one (21) days prior to
the meeting, unless a different period is required in the bylaws, law, or regulation.
2. Special- shall be held at any time deemed necessary or as provided in the bylaws. At least one (1) week
written notice shall be sent to all stockholders or members, unless a different period is provided in the
bylaws, law or regulation.

*Stockholders’ or members’ meetings, whether regular or special, shall be held in the principal office of the
corporation as set forth in the articles of incorporation, or, if not practicable, in the city or municipality where
the principal office of the corporation is located
*Unless otherwise provided in this Code or in the bylaws, a quorum shall consist of the stockholders
representing a majority of the outstanding capital stock or a majority of the members in the case of nonstock
corporations.
*The right to vote of stockholders or members may be exercised in person, through a proxy, or when so
authorized in the bylaws, through remote communication or in absentia.

Rules on Meeting/Voting Applicable to Certain Kinds of Shares

1. Delinquent shares shall not be entitled vote.
2. Treasury shares have no voting rights while they remain in the treasury.
3. Fractional shares shall not be entitled to vote.
4. Escrow shares shall not be entitled to vote before the fulfillment of the condition imposed thereon.
5. Unpaid shares, if not delinquent, are entitled to all the rights of stockholder including the right to vote.

Manner of Voting of Stockholders or Members

1. Directly (in person)
2. Indirectly
a. By means of proxy
b. By trustee under a voting trust agreement
c. By executor, administrator, receiver or other legal representative duly appointed by the court
d. Through remote communication or in absentia

*Proxies shall be in writing, signed and filed, by the stockholder or member, in any form authorized in the
bylaws and received by the corporate secretary within a reasonable time before the scheduled meeting. Unless
otherwise provided in the proxy form, it shall be valid only for the meeting for which it is intended. No proxy
shall be valid and effective for a period longer than five (5) years at any one time.

Revocation of Proxy
1. Formal notice
2. Orally
3. By conduct, i.e. appearance of the stockholder or member giving the proxy during the meeting, or
issuance of subsequent proxy, or the sale of shares.

Voting Trust Agreement- an agreement whereby a stockholder of a stock corporation confers upon a
trustee/s the right to vote and other rights pertaining to the shares for a period not exceeding five (5) years at
any time. It must be in writing and notarized, and shall specify the terms and conditions thereof. A certified
copy of such agreement shall be filed with the corporation and with the SEC; otherwise, the agreement is
ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall
be cancelled and new ones shall be issued in the name of the trustee or trustees, stating that they are issued
pursuant to said agreement. The voting trustee or trustees may vote by proxy or in any manner authorized
under the by-laws unless the agreement provides otherwise.

Subscription Contract- any contract for the acquisition of unissued stock in an existing corporation or a
corporation still to be formed.

Kinds:
1. Pre-incorporation subscription- irrevocable for a period of at least six (6) months from the date of
subscription, unless all of the other subscribers consent to the revocation, or the corporation fails to
incorporate within the same period or within a longer period stipulated in the contract of subscription.
2. Post-incorporation subscription

RFBT by Atty. Bernard D. Bakilan, CPA, LLM Page 9 of 13

Consideration for the issuance of stock may be:
1. Actual cash paid to the corporation;
2. Property, tangible or intangible, actually received by the corporation and necessary or convenient for its
use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued;
3. Labor performed for or services actually rendered to the corporation;
4. Previously incurred indebtedness of the corporation;
5. Amounts transferred from unrestricted retained earnings to stated capital;
6. Outstanding shares exchanged for stocks in the event of reclassification or conversion;
7. Shares of stock in another corporation; and/or
8. Other generally accepted form of consideration.
*Shares of stock shall not be issued in exchange for promissory notes or future service.
*Shares of stock so issued are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner, his attorney-in-fact, or any other person legally authorized to make the
transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the
books of the corporation showing the names of the parties to the transaction, the date of the transfer, the
number of the certificate or certificates, and the number of shares transferred.
*No certificate of stock shall be issued to a subscriber until the full amount of the subscription together with
interest and expenses (in case of delinquent shares), if any is due, has been paid.

Delinquent Shares
1. If the subscription contract fixes the date for payment, failure to pay on such date shall render the
entire balance due and payable with interest. Thirty (30) days therefrom, if still unpaid, the shares
become delinquent as of the due date and subject to sale, unless the board declares otherwise.
2. If no date is fixed in the subscription contract, the board of directors can make the call for payment, and
specify the due date. The notice of call is mandatory. A mere demand is insufficient. The failure to pay
on such date shall render the entire balance due and payable with interest. Thirty days therefrom, if still
unpaid, the shares become delinquent, as of the date of call, and subject to sale, unless the board
declares otherwise.

Call- the resolution or formal declaration of the board that the unpaid subscription are due and payable.

Delinquency sale
-The board of directors may, by resolution, order the sale of delinquent stock and shall specifically state the
amount due on each subscription plus all accrued interest, and the date, time and place of the sale which shall
not be less than thirty (30) days nor more than sixty (60) days from the date the stocks become delinquent.

Highest bidder in delinquency sale- the bidder who shall offer to pay the full amount of the balance on the
subscription together with accrued interest, costs of advertisement and expenses of sale, for the smallest
number of shares or fraction of a share.

*The stock so purchased shall be transferred to such purchaser in the books of the corporation and a certificate
for such stock shall be issued in the purchaser’s favor. The remaining shares, if any, shall be credited in favor of
the delinquent stockholder who shall likewise be entitled to the issuance of a certificate of stock covering such
shares.
*No delinquent stock shall be voted for, be entitled to vote, or be represented at any stockholder’s meeting, nor
shall the holder thereof be entitled to any of the rights of a stockholder except the right to dividends.

Actions by stockholders or Members

1. Derivative suit
2. Individual suit
3. Representative suit

Non-Stock Corporation

Right to vote- unless so limited, broadened, or denied, each member, regardless of class, shall be entitled to
one (1) vote.

*Membership in a nonstock corporation and all rights arising therefrom are personal and non-transferable,
unless the articles of incorporation or the bylaws otherwise provide.
*Unless otherwise provided in the articles of incorporation or the bylaws, the members may directly elect
officers of a nonstock corporation.
*The bylaws may provide that the members of a nonstock corporation may hold their regular or special
meetings at any place even outside the place where the principal office of the corporation is located provided
that the place of meeting shall be within the Philippines.

Rules on Conversion:
1. Stock to non-stock corporation
-conversion may be made by mere amendments of the articles of incorporation.
2. Non-stock to stock corporation
-a non-stock corporation cannot be converted into a stock corporation by mere amendment of its articles
of incorporation because the conversion would change the corporate nature from non-profit to monetary
gain. What the corporation should do is to dissolve itself and its members may decide to organize a
stock corporation.

RFBT by Atty. Bernard D. Bakilan, CPA, LLM Page 10 of 13

Close Corporation- is one whose articles of incorporation provides that: (a) all the corporation’s issued stock
of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of
persons, not exceeding twenty (20); (b) all the issued stock of all classes shall be subject to one or more
specified restrictions on transfer; and (c) the corporation shall not list in any stock exchange or make any public
offering of its stocks of any class.
*A corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its voting stock or
voting rights is owned or controlled by another corporation which is not a close corporation.
*Any corporation may be incorporated as a close corporation, except mining or oil companies, stock exchanges,
banks, insurance companies, public utilities, educational institutions and corporations declared to be vested with
public interest.
*The articles of incorporation may likewise provide that all officers or employees or that specified officers or
employees shall be elected or appointed by the stockholders, instead of by the board of directors.
*The preemptive right of stockholders in close corporations shall extend to all stock to be issued, including
reissuance of treasury shares, whether for money, property or personal services, or in payment of corporate
debts, unless the articles of incorporation provide otherwise.
One Person Corporation- is a corporation with a single stockholder.

Persons who are allowed to form a One Person Corporation (OPC):

1. Natural persons, except those who are licensed to exercise their profession
2. Trust
3. Estate

Persons who are prohibited to form an OPC:

1. Banks and quasi-banks
2. Pre-need
3. Trust
4. Insurance
5. Public and publicly-listed companies
6. Non-chartered government-owned and controlled corporations
7. Natural persons who are licensed to exercise their profession

*OPC shall not be required to have a minimum authorized capital stock and not required to submit and file
corporate bylaws.
*OPC shall indicate the letters “OPC” either below or at the end of its corporate name.

Corporate Officers
*The single stockholder shall be the sole director and president of the OPC.
*Within fifteen (15) days from the issuance of its certificate of incorporation, the One Person Corporation shall
appoint a treasurer, corporate secretary, and other officers as it may deem necessary, and notify the SEC
thereof within five (5) days from appointment.
*The single stockholder may not be appointed as the corporate secretary. A single stockholder who is likewise
the self-appointed treasurer of the corporation shall give a bond to the SEC in such a sum as may be required.
The bond shall be renewed every two (2) years or as often as may be required.

Nominee and Alternate Nominee

*The single stockholder shall designate a nominee and an alternate nominee who shall, in the event of the
single stockholder’s death or incapacity, take the place of the single stockholder as director and shall manage
the corporation’s affairs.
*The written consent of the nominee and alternate nominee shall be attached to the application for
incorporation.
*The single stockholder may, at any time, change its nominee and alternate nominee by submitting to the
Commission the names of the new nominees and their corresponding written consent. For this purpose, the
articles of incorporation need not be amended.

Terms of the Nominee and Alternate Nominee

*When the incapacity of the single stockholder is temporary, the nominee shall sit as director and manage the
affairs of the OPC until the stockholder, by self-determination, regains the capacity to assume such duties.
*In case of death or permanent incapacity of the single stockholder, the nominee shall sit as director and
manage the affairs of the OPC until the legal heirs of the single stockholder have been lawfully determined, and
the heirs have designated one of them or have agreed that the estate shall be the single stockholder of the
OPC.
*The alternate nominee shall sit as director and manage the OPC in case of the nominee’s inability, incapacity,
death, or refusal to discharge the functions as director and manager of the corporation, and only for the same
term and under the same conditions applicable to the nominee.

Liability of the Single Stockholder

*A sole shareholder claiming limited liability has the burden of affirmatively showing that the corporation was
adequately financed.
*Where the single stockholder cannot prove that the property of the OPC is independent of the stockholder’s
personal property, the stockholder shall be jointly and severally liable for the debts and other liabilities of the
OPC.
*The principle of piercing the corporate veil applies with equal force to OPCs as with other corporations.

RFBT by Atty. Bernard D. Bakilan, CPA, LLM Page 11 of 13

Conversion
1. Ordinary Corporation to OPC- when a single stockholder acquires all the stocks of an ordinary stock
corporation, the latter may apply for conversion into an OPC, subject to the submission of such
documents as the SEC may require. If the application for conversion is approved, the SEC shall issue a
certificate of filing of amended articles of incorporation reflecting the conversion. The OPC converted
from an ordinary stock corporation shall succeed the latter and be legally responsible for all the latter’s
outstanding liabilities as of the date of conversion.
2. OPC to Ordinary Corporation- an OPC may be converted into an ordinary stock corporation after due
notice to the SEC of such fact and of the circumstances leading to the conversion, and after compliance
with all other requirements for stock corporations. Such notice shall be filed with the SEC within sixty
(60) days from the occurrence of the circumstances leading to the conversion into an ordinary stock
corporation. If all requirements have been complied with, the SEC shall issue a certificate of filing of
amended articles of incorporation reflecting the conversion. The ordinary stock corporation converted
from an OPC shall succeed the latter and be legally responsible for all the latter’s outstanding liabilities
as of the date of conversion.

Dissolution
-the extinguishment of the corporate franchise and the termination of corporate existence.

De Jure vs. De Facto Dissolution

1. De Jure dissolution- a dissolution in law adjudged and determined by judicial sentence, or brought about
by an act of or with the consent of the sovereign power, or which results from the expiration of the
charter period of corporate life.
2. De Facto dissolution- one which takes place in substance and in fact when the corporation by reason of
insolvency, cessation of business or otherwise, suspends all its operations and goes into liquidation still
retaining its primary franchise to be a corporation.

Methods of Dissolution
1. Voluntarily
2. Involuntarily

Voluntary Dissolution
1. Where no creditors are affected- the dissolution may be effected by majority vote of the board of
directors or trustees, and by a resolution adopted by the affirmative vote of the stockholders owning at
least majority of the outstanding capital stock or majority of the members of a meeting to be held upon
the call of the directors or trustees.
2. Where creditors are affected- a verified petition for dissolution shall be filed with the SEC. The petition
shall be signed by a majority of the corporation’s board of directors or trustees, verified by its president
or secretary or one of its directors or trustees, and shall set forth all claims and demands against it, and
that its dissolution was resolved upon by the affirmative vote of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock or at least two-thirds (2/3) of the members at a
meeting of its stockholders or members called for that purpose.
*A voluntary dissolution may be effected by amending the articles of incorporation to shorten the corporate
term.

Involuntary Dissolution
-a corporation may be dissolved by the SEC motu proprio or upon filing of a verified complaint by any interested
party. The following may be grounds for involuntary dissolution:
1. Non-use of corporate charter as provided under Section 21 of this Code;
2. Continuous inoperation of a corporation as provided under Section 21 of this Code;
3. Upon receipt of a lawful court order dissolving the corporation;
4. Upon finding by final judgment that the corporation procured its incorporation through fraud;
5. Upon finding by final judgment that the corporation:
a. Was created for the purpose of committing, concealing or aiding the commission of securities
violations, smuggling, tax evasion, money laundering, or graft and corrupt practices;
b. Committed or aided in the commission of securities violations, smuggling, tax evasion, money
laundering, or graft and corrupt practices, and its stockholders knew; and
c. Repeatedly and knowingly tolerated the commission of graft and corrupt practices or other
fraudulent or illegal acts by its directors, trustees, officers, or employees.

Corporate liquidation- the process by which all the assets of the corporation are converted into liquid assets
in order to facilitate the payment of obligations to creditor, and the remaining balance, if any, is to be
distributed to the stockholders or members.
*A dissolved corporation continues to be a body corporate for 3 years from the time it is dissolved for the
purpose of liquidation or winding up its corporate affairs.

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

*No foreign corporation transacting business in the Philippines without a license, or its successors or assigns,
shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative

RFBT by Atty. Bernard D. Bakilan, CPA, LLM Page 12 of 13

agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine laws.
*As a condition to the issuance of the license for a foreign corporation to transact business in the Philippines,
such corporation shall file with the Commission a written power of attorney designating a person who must be a
resident of the Philippines, on whom summons and other legal processes may be served in all actions or other
legal proceedings against such corporation, and consenting that service upon such resident agent shall be
admitted and held as valid as if served upon the duly authorized officers of the foreign corporation at its home
office.

Resident Agent- may be either an individual residing in the Philippines or a domestic corporation lawfully
transacting business in the Philippines provided that an individual resident agent must be of good moral
character and of sound financial standing and that in case of a domestic corporation who will act as a resident
agent, it must likewise be of sound financial standing and must show proof that it is in good standing as
certified by the SEC.

---nothing follows---

RFBT by Atty. Bernard D. Bakilan, CPA, LLM Page 13 of 13