COMMERCIAL LAW REVIEW

A. Partnerships

1. General Provisions

a) Definition- By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves
(Article 1767)

Characteristics (PPCCBON): 1. Principal – does not depend on other contracts; 2. Preparatory – entered
as a means to an end; 3. Commutative – undertaking of each one is considered equal with others; 4.
Consensual – perfected by mere consent; 5. Bilateral – entered by two or more persons; 6. Onerous –
contributions have to be made, and 7. Nominate – has a special designation in law.

b) Rules to Determine Existence

i. persons who are not partners to each other are not partners as to third persons
EXCEPTION:PARTNERSHIP BY ESTOPPEL

ii. CO-OWNERSHIP of a property does not itself establish a partnership, even though the co-
owners share in the profits derived from the incident of joint ownership

iii. SHARING OF GROSS RETURNS ALONE does not indicate a partnership whether or not the
persons sharing them have a joint or common right or interest in any property from which the returns
are derived

iv. the receipt of the share in the profits is strong presumptive evidence of partnership
HOWEVER, no such inference will be drawn if such profits were received in payment

A) as a DEBT by installments or otherwise E) as INTEREST on a LOAN, though the amount

of payment varies with the profits of the
B) as WAGES of an employee
business
C) as RENT to a landlord
F) creditors are not partners, for their only
D) as an ANNUITY to a widow or representative interest in the sharing of profits is the receipt or
of a deceased partner payment of their credits. In a partnership, the
partners are supposed to trust and have
confidence in all the partners

c) Partnership Term- A partnership begins from the moment of the execution of the contract, unless it is
otherwise stipulated.

d) Partnership by Estoppel- A partner by estoppel is a person who, by words spoken or written or by

conduct: (1) represents himself as a partner or (2) consents to another representing him to anyone as a
partner – a. In an existing partnership; or b. With one or more persons not actual partners.
e) Partnership as Distinguished from Joint Venture- A joint venture is an agreement between two
parties to enter into a commercial undertaking. It may fall under a partnership with a limited purpose. A
joint venture is usually a form of partnership and should thus be governed by the laws of partnership.

f) Professional Partnership- those formed by persons for the sole purpose of exercising their common
profession, no part of the income of which is derived from engaging in any trade or business.

g) Management – GR: The partner designated as manager in the articles may execute all acts of
administration, despite opposition by the other partners. XPNS: Bad faith

1) If ONE is appointed manager In case of a tie, the matter shall be decided by

the partners owning the controlling interest.
May execute all acts of administration despite
the opposition of his partners, unless he should In case UNANIMITY OF ACTION is stipulated, the
act in bad faith; CONCURRENCE OF ALL shall be necessary for
the validity of the acts.
If appointed in articles of partnership, his power
is irrevocable without just or lawful cause. Thus, The absence or disability of any one of them
removal may be had only cannot be alleged, unless there is imminent
danger of grave or irreparable injury to the
a) For lawful cause of if there is bad faith; AND
partnership.
b) Through the votes of the partners
3) When the manner of management has NOT
representing the controlling interest.
been agreed upon, the following rules shall be
If appointed after the partnership has been observed:
constituted, his power may be revoked at any
a) ALL the partners shall be considered agents
time by the vote of the partners representing
and whatever any one of them may do alone
the controlling interest.
shall bind the partnership.
2) If TWO OR MORE are appointed managers
b) UNANIMOUS CONSENT is required in making
a) without specification of their respective any important alteration in the immovable
duties, or property of the partnership, even if it may be
useful to the partnership.
b) without a stipulation that one of them shall
not act without the consent of all the others, But if the refusal of consent by the other
each one may separately execute all acts of partners is manifestly prejudicial to the interest
administration, but if any of them should of the partnership, the court's intervention may
oppose the acts of the others, the decision of be sought.
the majority of the managers shall prevail.

2. Rights and Obligations of Partnership and Partners

a) Rights and Obligations of the Partnership

1) Refund amounts disbursed by the partner in behalf of the partnership plus the corresponding interest
from the time the expenses are made;

2) Answer for the obligations the partner may have contracted in good faith in the interest of the
business; and
3) Answer for risks in consequence of its management.

b) Obligations of Partners Among Themselves

1. Right to associate another person with him in his share without consent of other partners (sub
partnership)

2. Right to inspect and copy partnership books at any reasonable hour

3. Right to a formal account as to partnership affairs (even during existence of partnership): a. If he is

wrongfully excluded from partnership business or possession of its property by his copartners; b. If right
exists under the terms of any agreement; c. As provided by art 1807; and d. Whenever other
circumstances render it just and reasonable

4. Duty to render on demand true and full information affecting partnership to any partner or legal
representative of any deceased partner or of any partner under legal disability

5. Duty to account to the partnership as fiduciary

c) Obligations of Partnership/Partners to Third Persons

1. Every partnership shall operate under a firm name. Persons who include their names in the
partnership name even if they are not members shall be liable as a partner.

2. All partners shall be liable for contractual obligations of the partnership with their property, after all
partnership assets have been exhausted: Pro rata and Subsidiary

3. Admission or representation made by any partner concerning partnership affairs within scope of his
authority is evidence against the partnership

4. Notice to partner of any matter relating to partnership affairs operates as notice to partnership,
except in case of fraud: a. Knowledge, of partner acting in the particular matter, acquired while a
partner; b. Knowledge of the partner acting in the particular matter then present to his mind; c.
Knowledge of any other partner who reasonably could and should have communicated it to the acting
partner

5. Partners and the partnership are solidary liable to 3rd persons for the partner's tort or breach of trust

6. Liability of incoming partner is limited to

3. Dissolution and Winding Up - The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on as distinguished from the
winding up of the business. On dissolution the partnership is NOT terminated, but continues until the
winding up of partnership affairs is completed.

Three stages of ending a partnership:

1) Dissolution — is the change in the relation of the partners caused by any partner ceasing to be
associated in the carrying on of the business.
2) Winding up — is the actual process of settling the business or partnership affairs after dissolution,
involving a) The collection and distribution of partnership assets, b) Payment of debts, and c)
Determination of the value of each partner’s interest in the partnership.

3) Termination — point in time when all partnership affairs are completely wound up and finally settled.
It signifies the end of the partnership life.

On dissolution, the partnership is not terminated BUT continues until the winding up of partnership
affairs is completed.

EFFECT on OBLIGATIONS: 1. just because a partnership is dissolved this does not necessarily mean
that a partner can evade previous obligations entered into by the partnership; and 2. dissolution saves
the former partners from new obligations to which they have not expressly or impliedly consented
UNLESS the same be essential for winding up.

4. Limited Partnership- is one formed by two or more persons under the provisions of the following
article, having as members one or more general partners and one or more limited partners. The limited
partners as such shall not be bound by the obligations of the partnership (Art 1843)

 one where at least one partner is a general partner and the others are limited partners. One
whose liability is limited only up to the extent of his contribution
 A partnership where all the partners are limited partners cannot exist as a limited partnership
REFUSED REGISTRATION
 IF it continuous as such, it will be considered as a general partnership and all the partners will
be general partners.

UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY

CONTRIBUTION of 1. ALL the properties actually belonging to the partners; 2. the PROFITS acquired with
said property. It BECOMES COMMON PROPERTY. EXCEPT all FUTURE PROPERTY

FRUITS of FUTURE PROPERTY – INCLUDED IF STIPULATED UPON

UNIVERSAL PARTNERSHIP OF PROFITS it comprises all that the partners may acquire by the INDUSTRY
or WORK of the partners become common property regardless of within said profits were obtained
through the usufruct contributed- EXCEPT PRIZES and GIFTS

A CONTRACT of PARTNERSHIP is VOID: whenever immovable property is contributed thereto, if

“inventory” of said property is not made, signed by the parties and attached to the public instrument.

RULE on RISK of LOSS: after goods have been contributed, the partnership bears the risk of subsequent
changes in the value.

RULE: a partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor
for the interest and damages from the time he should have complied with his obligation

CAPITALIST PARTNER- one who FURNISHES CAPITAL- NOT EXEMPTED from LOSSES
-he can engage in other business PROVIDED there is no competition between the partnership and his
business

-share in the profits according to agreements

INDUSTRIAL PARTNER- one who FURNISHES INDUSTRY or LABOR - he is EXEMPTED from LOSSES as
between the partner BUT liable to strangers without prejudice to reimbursement from the capitalist
partner

-he CANNOT engage in any other BUSINESS WITHOUT the express CONSENT of the other partners,
OTHERWISE: 1. he can be EXCLUDED from the firm - plus damages OR 2. the BENEFITS he obtains
from the other businesses CAN BEAVAILED of by the other partners-plus damages

whether or not there is COMPETITION- in computing always look for -----NET PROFITS and NET LOSSES

Kinds of Partner:

CAPITALIST – INDUSTRIALIST PARTNER- one who contributes BOTH CAPITAL and INDUSTRY

GENERAL PARTNER- one who is liable “beyond” the extent of his contribution

LIMITED PARTNER- one who is liable “only” to the extent of his contribution

- an industrial partner can only be a general partner, never a limited partner

MANAGING PARTNER- one who manages actively the firms affair

SILENT PARTNER- one who does not participate in the management, though he shares in the PROFITS or
LOSSES

LIQUIDATING PARTNER- one who winds up or liquidates the affairs of the firm after it has been dissolved

OSTENSIBLE PARTNER- one whose connection with the firm is public and open

SECRET PARTNER- one whose connection with the firm is concealed or kept secret

DORMANT PARTNER- one who is both a secret (hidden) and silent (not managing) partner

NOMINAL PARTNER- one who is not really a partner BUT who may become liable as such insofar as third
persons are concerned

HOW PROFITS ARE DISTRIBUTED: 1. according to AGREEMENT 2. IF NONE, according to amount of

CONTRIBUTION

HOW LOSSES are DISTRIBUTED: 1. according to AGREEMENT as to losses 2. IF NONE, according to

agreement as to PROFITS3. IF NONE, according to amount of CONTRIBUTION

- an INDUSTRIAL PARTNER shall receive a JUST and EQUITABLE share in the profit

B. Corporations
1. Definition of Corporation- A corporation is an 1. artificial being created by the 2. operation of law,
having the 3. right of succession and the 4. powers, attributes and properties expressly authorized by
law or incident to its existence.”

2. Classes of Corporations

1. Stock corporation – Ordinary business corporation created and operated for purpose of making a
profit and may be distributed on the basis of their invested capital.

2 elements: a. Have capital stock divided into shares; b. Authorized to distribute to the holders of such
shares based on the shares held.

2. Non-stock corporation – Does not issue stock and are created not for profit but for the public good
and welfare.

3. One Person Corporation- A corporation with a single stockholder. Only a natural person, trust, or an
estate.

OTHER CLASSIFICATIONS:

1. Corporation sole – Consists of only one power to elect the majority of directors of other
member and his successors. corporation.

2. Ecclesiastical corporation – Organized for [Link]-corporation – One which exists

religious purposes. without formal legislative grant.

3. Eleemosynary corporation – Established for a. Corporation by prescription – One which have

charitable purposes. never exercised corporate powers for an
indefinite period without interference on the
4. Domestic corporation – Incorporated under
part of the sovereign power and which, by
the laws of the Philippines.
fiction of law, is given the status of corporation.
5. Foreign corporation – Formed, organized and
b. Corporation by estoppel – One which in
exists under any laws other than those of
reality is not a corporation but is considered
thePhilippines.
onefor only those who are precluded from
6. De jure corporation – Corporation existing in asserting that it is not a corporation.
fact and in law.
12. Public corporation – Formed or organized
[Link] facto corporation – Corporation existing in for the government of a portion of the state.
fact but not in law.
13. Private corporation – Formed for some
8. Close corporation – One which is limited to private purpose, benefit or end.
selected persons.
a. Government-owned / controlled corporations
[Link] corporation – One which is open to any – Directly created by special law or organized
person under the general corporation law.

[Link] or holding corporation – One which is b. Quasi-public corporations – Accepted from

so related to another corporation that it has the state the grant of a franchise or contract
involving rendition/performance of public
duty/service but which are organized for profits.
3. Nationality of Corporations

Incorporation Test: determined by state of incorporation regardless of the nationality of the

stockholders;

Domiciliary Test: determined by the principal place of business of the corporation

a) Control Test- determined by the nationality of the controlling stockholders/members. This is applied
in times of war; majority of the OCS is determine.

Small scale-100% filipino

Mass Media-100%
Recruitment Agency- 75% Filipino; 25% Foreign Equity

b) Grandfather Rule- nationality is attributed to the percentage of equity (voting shares) in the
corporation; used in nationalized or partly nationalized area. As a rule, corporation is citizen of country
of incorporation {incorporation test} except in times of war where nationality of majority
stockholders/members determinative of nationality of corporation {control test}.

- Narra Nickel vs Redmont. Subtest to control test. Happen if there is doubt with ownership.

4. Corporate Juridical Entity

a) Doctrine of Separate Juridical Personality- a corporation has a personality distinct and separate from
its individual stock holders or members.

“Ang utang ni president is not the utang of the Corporation”

b) Doctrine of Piercing the Corporate Veil

- if a corporator takes advantage of the separate personality the the corporation becomes liable.

- Used in order for the primary corporation to escape liability

Disregard the general rule of the corporation to find the real criminal. Used only in some cases. 1. Defeat
public convenience, 2. Alter ego doctrine/instrumentality rule applicable if 3 test is present. CONTROL
TEST (not only finance but also management), FRAUD TEST,CAUSAL CONNECTION TEST. 3. Justify
wrong, 4. Fraud, 5. Defend crime

5. Capital Structure

a) Number and Qualifications of Incorporators

INCORPORATOR- available in stock and non stock, must appear in AOI, and must sign the AOI.

Qualification: 1. Any person; 2. Legal Age; and 3. one share of capital stock (not continuing
requirement).

Note: The RCC removed the Philippine residency requirement for the majority of the incorporators.

b) Subscription Requirements - No minimum capital requirement

Double 25% Rule- (old rule)

Double 25% in increase amount not with original (new rule); Double majority rule (If gusto e retain ang
corporate term)

c) Corporate Term- The Revised Corporation Code provides that a corporation shall have perpetual
existence. The AOIs of existing corporations shall be deemed amended to reflect their perpetual term.

XPNS: The AOIs of corporations created under the effectivity of this Code provide for a specific period.

d) Classification of Shares

1) Par are shares with specific money value fixed in the articles of incorporation.

No-par are shares without specific money value but with issued value fixed in the articles of
incorporation or by the board (but in no case less than P5.00 per share); if issued value not fixed, it shall
be fixed by the majority of OCS (Sec. 62). Cannot be issued by banks, trust and insurance companies,
public utilities, building and loan association. Once issued, deemed fully paid and non-assessable; entire
consideration for no par value treated as capital, not available for dividends

2) Voting shares are those with voting rights; there shall always be voting shares; no share can be
deprived of voting right except preferred and redeemable shares. Court will not deprive stockholder of
voting right except when denied in articles of incorporation or by-laws. The stock and transfer book is
the best evidence to establish the stockholders who are entitled to vote at stockholders meeting,

The vote required to approve a particular corporate act shall refer only to stocks with voting right except
those instances enumeration in par. 3, Sec. 6 of the Code.

Non-voting shares: no voting right except on matters enumerated in par. 3, Sec. 6 of the Code (8
instances). Non-voting shares cannot participate in the corporate management. Consequently, they
cannot be elected as a member of the board of directors (SEC Opinion dated March 20, 1996 addressed
to Rural Bank of Mabalacat)

4) Common: those that share pro-rata in the division of profits and assets upon dissolution.

Preferred: (always with par value) may be given preference in:

[a] the distribution of assets upon liquidation {preferred without specification preferred to dividends
only}; or,

[b] the distribution of dividends {in the absence of agreement, deemed non-cumulative and non-
participating; Classification: [b.1] cumulative or non-cumulative; [b.2] participating or non-paticipating;
or,

[c] other preferences stated in the articles not violative of the Code.

5) Founder’s share: holders granted exclusive right to vote and be voted for in the election of directors,
such right not to exceed 5 years from the date of incorporation (old law: from approval by SEC). The
period is not subject to renewal.
One and indivisible- Subscription Indivisible Doctrine (di pwede hatiin); Solution: IBENTA ANG SHARE MO
(DELINQUENCY SELL)- PROMOTER: UNJUST ENRICHMENT (REMEDY)

6) Redeemable share: shares redeemable by corporation at fixed period regardless of URE; the option to
redeem is with corpo; once redeemed, they become treasury shares; Capital Stock not to be used to
redeem since it would amount to withdrawal of capital. Corporation may reduce/decrease capital stock
to create reduction surplus to be used for redemption.

7) Treasury share: shares fully paid but reacquired by corporation by purchase, redemption, donation, or
some other lawful means; may be sold for a price fixed by the Board; no voting right while they remain
in the treasury; do not have status of Outstanding Capital Stock. The corporation who re-acquired its
shares does not acquire the status of a stockholder.

6. Incorporation and Organization- It is the performance of conditions, acts, deeds, and writings by
incorporators, and the official acts, certification or records, which give the corporation its existence.

Promotion – Incorporation- Formal organization and commencement of business operations

a) Promoter- persons who, acting alone or with others, take initiative in founding and organizing the
business or enterprise of the issuer and receives consideration therefor

(1) Liability of Promoter- binds himself personally and assumes the responsibility of looking to the
proposed corporation for reimbursement.

XPNS: Express or implied agreement to the contrary; or Novation, not merely adoption or ratification, of
the contract.

(2) Liability of Corporation for Promoter’s Contracts- A corporation is NOT bound by the contract. A
corporation, until organized, has no life and no legal existence. It could not have had an agent [the
promoter] who could legally bind it. XPNS: Adoption or ratification of the ENTIRE contract after
incorporation, Acceptance of benefits under the contract with knowledge of the terms thereof, and
Performance of its obligation under the contract

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

c) Pre-Incorporation Subscription Agreements- a type of promoter’s contract for the acquisition of

unissued stock in a corporation still to be formed. Shall be irrevocable for a period of at least six (6)
months from the date of subscription.

- No pre-incorporation subscription may be revoked after the articles of incorporation is

submitted to the Commission.

d) Consideration for Stocks- Stocks shall not be issued for a consideration less than the par or issued
price thereof. Consideration for the issuance of stock may be:

a) Actual cash paid to the corporation; fair valuation equal to the par or issued value of
the stock issued;
b) Property, tangible or intangible, actually
received by the corporation and necessary or c) Labor performed for or services actually
convenient for its use and lawful purposes at a rendered to the corporation;
d) Previously incurred indebtedness of the g) Shares of stock in another corporation;
corporation; and/or

e) Amounts transferred from unrestricted h) Other generally accepted form of

retained earnings to stated capital; consideration.

f) Outstanding shares exchanged for stocks in

the event of reclassification or conversion;

e) Articles of Incorporation- is a basic contract document, defining the charter of the corporation, and
serves as the basis by which to judge whether it exists for legal purposes.

(1) Contents- name; purpose; principal office; term; names of incorporators; names and number (not
more than 15) of directors; if stock corp., the ACS; number of shares; par value; if non-stock, names of
contributors and amount.

1. Choose corpo. Name

2. Sec Verify if there is existing similar name (Verification of Corpo Name)
3. Payment (reservation)
4. Draft AOI- name, primary purpose;secondary purpose (ultra vires act..), principal office, name of
incorpo. Max 15, directors 15 max., must sign the AOI and notary public, sign instrumental
witness, treasurer affidavit is required in new law, term (not mandatory), SUBSTANTIAL
COMPLIANCE IS ENOUGH- De JURE (Failed to subs. Complied De Facto 3 reqsts: valid law, good
faith, exercise of corpo power)
5. Submit AOI to SEC (If gitago sa EX case? Yes. Doctrine of Relation (relating fact doctrine)
6. Commencement: issuance of COI

(2) Non-Amendable Items- 1) names of the incorporators, 2) the first set of directors and subscribers, 3)
the initial treasurer, 4) their original subscription and 5) the place and date of execution

f) Corporate Name and Limitations on its Use- Corporate name disallowed if not distinguishable from
that already reserved or registered for use by another corporation; or name protected by law; or when
use thereof illegal; if so, SEC orders corp to cease and desist use of name. In case of non compliance,
SEC will hold corp and responsible directors/officers in contempt, administratively, civilly and criminally
liable.

- Confusingly similar test (Old law) – Distinguishability Test (new law)

g) Registration, Incorporation, and Commencement of Corporate Existence- from the date SEC issues
the certificate of incorporation under its official seal. AOIs do not become binding as the charter of the
corporation unless they have been filed and registered with, and certified by the SEC.

h) Election of Directors or Trustees

Stock corpo

Formula: D= (AXB/C=1)+1 E=DXC

D- no. of Shares of Stock

A-Outstanding capital stock with right to vote ; B-No. of directors desired to be elected; C-No. of
directors to be elected; E- total no. of votes

-Straight, cumulative Voting in favor of 1, cumulative voting by distribution

-Non-stock= 1 multiply by no. to be elected ; source:donation

One way of casting only (straight voting)

Class of voting rights (with right to vote) common ss

Preferred stocks (may not vote)

Eight (8) instances when non-voting shares may vote:

(1) Amendment of articles of incorporation (4) Incurring, creating, or increasing bonded

indebtedness
(2) Adoption/Amendment of by laws
(5) Increase or decrease of capital stock
(3) Sale, lease, exchange, mortgage, etc., or
other disposition of all, or substantially all the (6) Merger or consolidation
assets of the corporation
(7) Invest funds in another corporation

(8) Dissolution

Corporations Officer: If silent by laws then Pres, sec, treas, compliance officer.

i) Adoption of By-Laws

- By-laws- rules of action adopted by corporation for its internal government and for the
government of its S/M;- Corp, SH/M BOD. No state
- Not bind 3rd person unless with actual knowledge thereof.
- Old law (submitted 1 month AOI-pwede sabay) new law(pwede sabay, simultaneously) No
reglementary period, importante naka submit AOI what if di naka submit? Not formally
organize-revoke the COI.
- By laws can be amended. AOI prevail over by laws.

j) Effects of Non-Use of Corporate Charter- 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. If it is inoperative for 5
years then it is place under delinquent status.

7. Corporate Powers

a) General Powers; Theory of General Capacity- states that a corporation is said to hold such powers as
are not prohibited or withheld from it by general law.

a) To sue and be sued in its corporate name; b) To have perpetual existence unless the certificate of
incorporation provides otherwise; c) To adopt and use a corporate seal; d) To amend its articles of
incorporation; e) To adopt bylaws, not contrary to law, morals or public policy, and to amend or repeal
the same; f) In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury
stocks; and to admit members to the corporation if it be a nonstock corporation; g) To purchase,
receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal with such real and
personal property, including securities and bonds of other corporations, as the transaction of the lawful
business of the corporation may reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution; h) To enter into a partnership, joint venture, merger,
consolidation, or any other commercial agreement with natural and juridical persons; i) To make
reasonable donations, including those for the public welfare or for hospital, charitable, cultural,
scientific, civic, or similar purposes: Provided, That no foreign corporation shall give donations in aid of
any political party or candidate or for purposes of partisan political activity; j) To establish pension,
retirement, and other plans for the benefit of its directors, trustees, officers, and employees; and k) To
exercise such other powers as may be essential or necessary to carry out its purpose or purposes as
stated in the articles of incorporation

b) Specific Powers; Theory of Specific Capacity- states that the corporation cannot exercise powers
except those expressly/impliedly given.

(a) Power to extend or shorten corporate term majority vote of BOD/BOT and ratified by 2/3 OCS/M.
Notice served by mail, personally or electronically. In case of extension, dissenting stockholders exercise
appraisal rights. Shortening of term also recognized ground for exercise of appraisal right

(b) Power to increase or decrease capital stock, or incur, create, increase bonded indebtedness

Requisites:

(1) Approval by a majority vote of the board of directors or trustees; (2) Approval by two-thirds (2/3) of
the outstanding capital stock or at least two-thirds (2/3) of the members at a stockholders’ meeting duly
called for the purpose; (3) Notice Requirement – Written notice of the time and place of the
stockholders’ meeting; (4) Certification Requirement – A certificate must be signed by a majority of the
directors of the corporation and countersigned by the chairperson and secretary of the stockholders’
meeting; (5) Sworn Statement of the Treasurer – A sworn statement of the corporation’s treasurer must
accompany the filing of the certificate; (6) Prior SEC Approval – The application with the Commission
shall be made within six (6) months from the date of approval of the board of directors and
stockholders, which period may be extended for justifiable reasons; (7) Prior PCC Approval – Where
appropriate, prior approval of the Philippine Competition Commission is required for any increase or
decrease in the capital stock or the incurring, creating or increasing of any bonded indebtedness; and (8)
SEC Registration – Applicable only to bonds issued by a corporation.

(c) Power to deny pre-emptive rights- The preferential right of shareholders to subscribe to all issues or
disposition of shares of any class in proportion to their present shareholdings. Purpose: to enable the
shareholder to retain his proportionate control in the corporation and to retain his equity in the surplus.

(d) Power to sell or dispose corporate assets

GR: No liability cannot be transferred (doctrine of legal fiction); XPNS: Nell Doctrine- can be consider
liable:

Why remove fractional share of stocks? Because fractional share is not entitle to vote.
(e) Power to acquire own shares: a) To eliminate fractional shares arising out of stock dividends; b) To
collect or compromise an indebtedness to the corporation, 1) arising out of unpaid subscription, 2) in a
delinquency sale, and 3) to purchase delinquent shares sold during said sale; and c) To pay dissenting or
withdrawing stockholders entitled to payment for their shares under the provisions of this Code.

(f) Power to invest corporate funds in another corporation or business, or for any other purpose

- If investment of corporate funds for secondary purpose of corp, the approval by majority board
and 2/3 of OCS/M; provided approval of s/m not necessary if investment is to accomplish
primary purpose;
- Dissenting Sh may exercise appraisal right

(g) Power to declare dividends- Requirements: (1) Must be distributed out of URE; (2) Payable in cash,
in property, or in stock to all shareholders on the basis of outstanding stock held by them; (3) Resolution
by the Board and (4) approved by 2/3 SH.

- Cash dividend = majority of BOD; if stocks delinquent, dividend applied to the delinquency
- Property dividend = majority vote of BOD; if stocks delinquent, withheld
- Stock dividend = majority of BOD and 2/3 OCS; if stocks delinquent, withheld

(h) Power to enter into management contract- Approved by board and majority of OCS/M in both
managed and managing corp. but: [a] if a Sh in both corporations own/control more than 1/3 of OCS in
managing corp.; or, b] majority of the board in managing also majority of board in managed, then mgt K
approved by 2/3 OCS/M of managed corp.

- Management contract shall not exceed 5 years for any one term

(i) Power to amend AOI- majority vote of the board and the vote/written assent of 2/3 of the OCS
[including non-voting shares, Sec. 6, Par. 3] {with appraisal right of dissenting stockholders}; or, if non-
stock, may be amended by vote of 2/3 of members.

- The amendment is effective: (1) upon approval of SEC; or, (b) if unacted by SEC without fault of
corporation, within 6 months from the date of filing of amendment.

 Doctrine of Individuality of Subscription- The law requires payment of the “full amount of
subscription.” A subscription covers all stipulated shares. The corporation accepted partial
payment on the premise that the nonpayment of the balance renders all subscribed shares
delinquent.

-A subscription contract is indivisible. Consequently, where stocks were subscribed and part of
the subscription contract price was not paid, the whole subscription shall be considered
delinquent and not only the shares which correspond to the amount not paid

 Doctrine of Equality of Shares- states that all stocks issued by the corporation are presumed
equal with the same privileges and liabilities, provided that the Articles of Incorporation is silent
on such differences.
 Ultra Vires Doctrine- Those acts which a corporation is not empowered to do or perform
because they are outside or beyond the express and implied powers conferred by its Articles of
 Incorporation or by the Revised Corporation Code, or not necessary or incidental to the exercise
of the powers so conferred.
 Trust Fund Doctrine- the capital stock, property, and other assets of a corporation are regarded
as equity in trust for the payment of corporate creditors, who are preferred in the distribution of
corporate assets. Thus, any disposition of corporate funds and assets to the prejudice of
creditors is null and void.

8. Stockholders and Members

a) Fundamental Rights of a Stockholder – Management, proprietary and Remedial Rights

b) Participation in Management: Direct Participation- voting ; Indirect Participation- amendment on AOI

(1) Proxy- A proxy is a form of agency created in instances when a person is unable to personally cast his
or her vote; hence, the act of voting is delegated to another person. There is NO requirement that the
same be notarized. Proxies shall be: 1. in writing, 2. signed and filed, by the stockholder or member, 3. in
any form authorized in the bylaws and 4. received by the corporate secretary within a reasonable time
before the scheduled meeting.

(2) Voting Trust- One or more stockholders of a stock corporation may create a voting trust for the
purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the
shares. Voting trust agreements shall not exceed five (5) years at any one time.

(3) Cases When Stockholders’ Action is Required

By a majority vote

1) Electing to retain specific corporate term 5) Adoption of the by laws;

indicated in the AOI);
6) Amendment, repeal, or adoption of a new
2) Calling a special meeting of the stockholders bylaws;
or members for the purpose of removing any
7) Quorum in meetings;
director or trustee;
8) Fixing the issue price of no-par value shares);
3) Granting compensation to directors or
trustees (including the amount thereof); 9) Voluntary dissolution where no creditors are
affected
4) Concluding a management contract with
another corporation;

By a 2/3 vote

1) Amendment of the AOI; 4) Sale of all or substantially all of the

corporation’s properties and assets, including
2) Extending or shortening corporate term;
its goodwill;
3) Increasing or decreasing capital stock or
5) Approval of the plan of merger or
incurring, creating or increasing bonded
consolidation (and any amendment thereto);
indebtedness;
6) Removal of director or trustees;
7) Ratifying an act which amounts to disloyalty 11) Approving the conclusion of a management
of a director (corporate business opportunity contract where there is interlocking ownership
rule); or interlocking management;

8) Approving property-for-share exchange and 12) Delegating to the board of directors or

debt to equity conversion; trustees the power to amend or repeal the
bylaws or adopt new bylaws;
9) Investing funds in any other corporation,
business, or for any purpose other than the 13) Approving a plan for the distribution of
primary purpose for which the corporation was assets in non-stock corporations;
organized;
14) Voluntary dissolution.
10) Issuing stock dividends;

(4) Manner of Voting- Stockholders and members may vote in person or by proxy in all meetings of
stockholders or members. When so authorized in the bylaws or by a majority of the board of directors,
the stockholders or members of corporations may also vote through remote communication or in
absentia.

c) Proprietary Rights (DAVIP) Dividend, Appraisal, Vote, Inspect, Preemptive Right

(1) Rights to Dividends- is the unrestricted retained earnings set apart from the general mass of the
funds of the corporation and distributed among the stockholders in proportion to their shares or
interest in the corporation, in the form of cash, property or stocks.

(2) Appraisal Right- Any stockholder of a corporation shall have the right to dissent and demand
payment of the fair value of the shares.

(3) Right to Inspect- Corporate records, regardless of the form in which they are stored, shall be open to
inspection by any director, trustee, stockholder or member of the corporation in person or by a
representative at reasonable hours on business days, and a demand in writing may be made by such
director, trustee or stockholder at their expense, for copies of such records or excerpts from said
records. The inspecting or reproducing party shall remain bound by confidentiality rules under prevailing
laws and the Rules of Court

(4) Preemptive Right- it refers to the right of a stockholder of a stock corporation to subscribe to all
issues or disposition of shares of any class, in proportion to their respective shareholdings. The right may
be restricted or denied under the articles of incorporation, and subject to certain exceptions and
limitations. The stockholder must be given a reasonable time within which to exercise their preemptive
rights

(5) Right to Vote- No share may be deprived of the right to vote except those classified and issued as
“preferred” or “redeemable” shares. Nonvoting shares may vote on corporate actions that materially
change the premises and conditions when they subscribed to their shares

 Right of First Refusal — Obligates a stockholder who may wish to sell or assign his shares to first
offer the shares to the corporation or to the other existing stockholders under terms and
conditions which are reasonable
d) Remedial Rights- Suits by stockholders or members of a corporation based on wrongful or fraudulent
acts of directors or other persons may be classified into individual suits, class suits, and derivative suits

1) Individual Suit- directly injured (one right that is violated) Basic right of SH is the one violated (Ex: DI
PINA VOTE)

(2) Representative Suit – oposa vs. factoran. Situated in the same matter (similarly situated) mu
represent ka dapat na violate sad imong right. AGAINST SH

(3) Derivative Suit- VIOLATION AGAINST THE RIGHT OF CORPORATION Requisites: 1. He was SH at the
time of the wrong act is done. 2. SH at the time action is filed; 3. Exhaust administrative remedies;4. No
appraisal right is available; 5. not nuisance or harassment suit it need cause of action; 6. corpo is
impleaded as plaintiff (INDESPENSABLE PARTY)

e) Obligations of a Stockholder

1. Unpaid subscription
2. Liability to the Corporation for Interest on Unpaid Subscription if so Required by the By-Laws-
Written in Contract
3. limited liability rule
4. Watered stocks- issued no consideration at all or less par value or property
5. Liability for Dividends Unlawfully Paid

f) Meetings

- Regular- annual or any date after April 15 of every year, as determined by the board; notice
(may be electronic mail) sent 21 days prior to meeting unless different period required in BL, law
or regulation.
- Special- Anytime as necessary; 1 week notice
- Venue of S/M meeting whether regular or special = At the principal office of corp or, if not
practicable, in the city or municipality where principal office located.
- 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.

9. Board or Directors and Trustees

The directors of a corporation must formally organize and elect: a) a president, who must be a director;
b) a treasurer, who must be a resident; c) a secretary, who must be a citizen and resident of the
Philippines; and d) such other officers as may be provided in the bylaws. If the corporation is vested with
public interest, the board shall also elect a compliance officer.

a) Repository of Corporate Powers- The board of directors or trustees shall: 1. exercise the corporate
powers, 2. conduct all business, and 3. control all properties of the corporation

b) Tenure, Qualifications, and Disqualifications of Directors

i. Tenure:

1. Directors shall be elected for a term of one (1) year from among the holders of stocks registered in
the corporation’s books,
2. While trustees shall be elected for a term not exceeding three (3) years from among the members of
the corporation.

3. Each director and trustee shall hold office until the successor is elected and qualified.

4. 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.

ii. Qualifications: Qualifications of BOD: MEMORIZE (1stock, non- member; Legal age; conviction 6yrs;
Citizenship is not requirment (General Rule) unless if fully authorize corpo (MASS MEDIA). Can by laws
provide other qualifications? Go Cong Wei case

iii. Disqualification: if within five (5) years prior to the election or appointment as such, the person was:
a) Convicted by final judgment: 1) Of an offense punishable by imprisonment for a period exceeding six
(6) years; 2) For violating this Code; and 3) For violating the SRC; b) Found administratively liable for any
offense involving fraudulent acts; and c) By a foreign court or equivalent foreign regulatory authority for
acts, violations or misconduct similar to those enumerated in paragraphs (a) and (b) above

c) Requirement of Independent Directors - An independent director is a person who, apart from

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

- The board of the following corporations vested with public interest shall have independent
directors constituting at least 20%

d) Elections- The law follows plurality voting. The nominees who received the highest number of votes
shall be elected as members of the board. The election is generally done through a) straight voting; or b)
cumulative voting.

- Cumulative voting Allows minority shareholders to bundle their votes together and cast them in
favor of one or some nominees. In this manner, minority shareholders may have a
representative to the board in a corporation dominated by controlling shareholders.

e) Removal- by vote of 2/3 OCS {non voting shares excluded} or 2/3 of members entitled to vote; in a
regular/special meeting, with notice to S/M.

- Special meeting for removal called by Secretary, on order of President; or, by the written
demand of majority of OCS/Members entitled to vote; vacancy may be filled up in the same
meeting without notice; or, at any regular/special meeting, with notice.
- Removal may be with or without cause ; provided, that removal without cause may not be used
to deprive minority stockholders or members of the right of representation to which they may
be entitled.

f) Filling of Vacancies

By Directors/Trustee: If vacancy due to death, resignation, abandonment or disqualification and the

remaining D/T still constitute a quorum, majority of them may fill vacancy;

By stock holder/member:
 - If vacancy due to death, resignation, abandonment or disqualification – and remaining D/T do
not constitute a quorum;
- Vacancy due to term expiration, election held not later than the day of expiration
- Vacancy due to removal, election of replacement done on same day of meeting approving
removal;
- Vacancy caused by increase in the number of D/T.

In all other cases, election held not later than 45 days from vacancy; D/T elected to fill vacancy called
replacement D/T; shall serve only the unexpired term of predecessor;

Note: When vacancy results to no quorum and emergency action required, vacancy temporarily filled by
any officer upon unanimous vote of remaining director; term cease upon termination of emergency or
upon election of replacement D/T, whichever comes first.

g) Compensation- No salary except for reasonable per diem. Salary may be granted, aside from per
diem, provided: [a] salary fixed in the by-laws; or [b] by the vote of the majority of the OCS/M in a
regular or special meeting.

- In no case shall the total yearly compensation of directors exceed 10% of net income before tax
during the preceding year {so as not to reduce the taxable income of corporation; to protect the
interest of SH and the corporate creditors}.
- Corp vested with public interest submit annual report to SH/SEC of the amount of total salary of
each D/T.

h) Disloyalty- Doctrine of Corporate Opportunity - Corporate officers "are not permitted to use their
position of trust and confidence to further their private interests."

1. DUTY OF OBEDIENCE — shall direct the affairs of the corporation only in accordance with the
purposes for which it was organized.

2. DUTY OF DILIGENCE — shall not willfully and knowingly vote for or assent to patently unlawful acts of
the corporation or act in bad faith or with gross negligence in directing the affairs of the corporation.

3. DUTY OF LOYALTY — shall not acquire any personal or pecuniary interest in conflict with their duty as
such directors or trustees.

i) Business Judgment Rule- Questions of policy or management are left solely to the honest decision of
officers and directors of a corporation and the courts are without authority to substitute their judgment
for the judgment of the board of directors. The board is the business manager of the corporation and so
long as it acts in good faith, its orders are not reviewable by the courts or the SEC.

j) Solidary Liabilities for Damages- Solidary liability will only attach to the directors, officers or
employees of the corporation in certain circumstances, such as:

1. When directors and trustees or, in appropriate cases, the officers of a corporation: a) vote for or
assent to patently unlawful acts of the corporation; b) act in bad faith or with gross negligence in
directing the corporate affairs; and c) are guilty of conflict of interest to the prejudice of the corporation,
its stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate secretary his written objection thereto;

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally
and solidarily liable with the corporation; or

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.

k) Personal Liabilities: Members of the Board, who purport to act in good faith for and on behalf of the
corporation within the lawful scope of their authority, are not liable for the consequences of their acts.
When the acts are of such nature and done under those circumstances, they are attributed to the
corporation alone and no personal liability is incurred. XPNS: When sufficient proof exists on record that
the officers acted fraudulently, beyond his authority or when the officer agrees to be personally liable on
behalf of the corporation.

l) Responsibility for Crimes- Since a corporation is a person by mere legal fiction, it cannot be proceeded
against criminally because it cannot commit a crime in which personal violence or malicious intent is
required.

m) Special Fact Doctrine- Conceding the absence of a fiduciary relationship in the ordinary case, where
special circumstances or facts are present which make it inequitable for the director to withhold
information from the stockholder – Courts nevertheless hold that the duty to disclose arises and
concealment is fraud.

n) Inside Information- The fiduciary position of insiders, directors, and officers prohibits them from
using confidential information relating to the business of the corporation to benefit themselves or any
competitor corporation in which they may have a mere substantial interest.

- Special Fact Doctrine- relates with inside information- Applicable to BOD and officers
- Material inside information- E.g a disinformation is not yet disclose to the SH only to the BOD
(Tips information) (Corporate expansion- instead of declaring dividend, RRE) (merger and
consolidation) (stock split)

o) Contracts

(1) By Self-Dealing Directors With the Corporation:

- Entered by director: VIODABLE – 1. it must be fair and reasonable; 2. the vote of such director or
trustee was not necessary for the approval of the contract; c. 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 d. In case of an officer: The contract has been previously
authorized by the BOD

(2) Between Corporations With Interlocking Directors

- Except in cases of fraud, and provided the contract is fair and reasonable under the
circumstances, a contract between two (2) or more corporations having interlocking directors
shall not be invalidated on that ground alone. INVALID if UNFAIR
 - 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 regarding self-dealing directors insofar as the latter corporation or corporations are
concerned.
- Stockholdings exceeding twenty percent (20%) of the OCS shall be considered substantial for
purposes of interlocking directors.

10. Capital Affairs

a) Certificate of Stock

(1) Nature of the Certificate

A certificate of stock is a written instrument signed by the proper officer of a corporation stating or
acknowledging that the person named in the document is the owner of a designated number of shares
of its stock. It is prima facie evidence that the holder is a shareholder of a corporation. A certificate,
however, is merely a tangible evidence of ownership of shares of stock.

Street Certificate – Proof that you are an owner of stock- Kept by the corporate secretary at the principal
place of office- A certificate that is not in the possession of the corporate secretary.

(2) Uncertificated Shares- Uncertificated shares are shares that are tracked and represented in the
books of a company. These shares are recorded in the company as a “book entry” and are not
represented with a paper certificate.

(3) Negotiability; Requirements for Valid Transfer of Stocks

Theory of Quasi-Negotiability Although a stock certificate is sometimes regarded as quasi-negotiable, in

the sense that it may be transferred by delivery, it is well-settled that the instrument is NON-
NEGOTIABLE, because — The holder thereof takes it without prejudice to such rights or defenses as the
registered owner or creditor may have under the law Except insofar as such rights or defenses are
subject to the limitations imposed by the principles governing estoppels.

REQUIREMENTS FOR VALID TRANSFER OF STOCKS: (1) There must be delivery of the stock certificate; (2)
The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized
to make the transfer; and (3) To be valid against third parties, the transfer must be recorded in the
books of the corporation (i.e., 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)

(4) Issuance

Full Payment- 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

Payment pro-rata- The entire subscription must be paid first before the certificates of stock can be
issued. Partial payments are to be applied pro rata to each share of stock subscribed.

(5) Stock and Transfer Book

a) It shall contain a record of: 1. all stocks in the names of the stockholders alphabetically arranged; 2.
the installments paid and unpaid on all stocks for which subscription has been made, and the date of
payment of any installment; 3. a statement of every alienation, sale or transfer of stock made, the date
thereof, by and to whom made; and 4. such other entries as the bylaws may prescribe. The stock and
transfer book shall be kept in the principal office of the corporation or in the office of its stock transfer
agent and shall be open for inspection by any director or stockholder of the corporation at reasonable
hours on business days.

b) Who is authorized to make entries? Only the corporate secretary. Entries made by the Chairman or
President are INVALID.

c) Stock transfer agent- one engaged principally in the business of registering transfers of stocks in
behalf of a stock corporation shall be allowed to operate in the Philippines upon: 1. securing a license
from the SEC and 2. the payment of a fee to be fixed by the SEC, which shall be renewable annually.

(6) Situs of the Shares of Stock- The situs of shares of stock is the country where the corporation is
domiciled. It is not the domicile of the owner of a certificate but the domicile of the corporation which is
decisive. XPNS: Property Taxation; XPN to XPN: non-resident alien and estate tax.

b) Watered Stocks

(1) Definition- Watered stock are shares issued as fully paid when in truth — (1)No consideration is paid
in any form; or (2)The consideration received is known to be less than the par value or issued value of
the shares.

(2) Liability of Directors for Watered Stocks- A director or officer of a corporation who: 1) consents to
the issuance of stocks for a consideration less than its par or issued value; 2) consents to the issuance of
stocks for a consideration other than cash, valued in excess of its fair value 3) having knowledge of the
insufficient consideration, does not file a written objection with the corporate secretary shall be
solidarily liable with the stockholder concerned to the corporation and its creditors for the difference in
value.

(3) Trust Fund Doctrine for Liability for Watered Stocks- The issuance of watered stocks constitutes
fraud on creditors. It gives a false impression that the corporation has a certain amount of assets
equivalent to the subscribed capital stock that creditors may rely on as a buffer against losses.

c) Payment of Balance of Subscription- Time when the balance of the subscription should be paid: 1) On
the date specified in the subscription contract, without need of demand or call. 2) If no date of payment
has been specified, on the date specified on the call made by the BOD 3) If no date of payment has been
specified on the call made, within 30 days from the date of call; and 4) When insolvency supervenes
upon a corporation and the court assumes jurisdiction to wind it up, all unpaid subscriptions become
payable on demand, and are at once recoverable, without necessity of any prior call.

(1) Call by Board of Directors- The board of directors may, at any time, declare due and payable to the
corporation unpaid subscriptions and may collect the same or such percentage thereof, in either case,
with accrued interest, if any, as it may deem necessary.

- If no payment within 30 days from said due date, all stocks covered by said subscription shall
become delinquent and subject to sale unless BOD orders otherwise.
(2) Notice Requirement- Notice must be given to the stockholder concerned. A call without notice to the
subscriber is practically no call at all. Notice of sale + board resolution sent to every DS + publication for
two consecutive weeks in a newspaper where principal office located

d) Sale of Delinquent Shares- shares in which the corresponding subscription or balance remains unpaid
after a grace period of 30 days from — (a)The date specified in the contract of subscription; or (b)The
date stated in the call made by the BOD.

(1) Effect of Delinquency- Delinquency suspends the political and economic rights of the subscriber,
except the right to receive dividends. The dividends corresponding to such shares, however, shall be
applied against the unpaid amount.

(2) Call by Resolution of the Board of Directors — order the sale of delinquent stock and shall
specifically state 1. the amount due on each subscription plus all accrued interest, and 2. 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.

 Kahit may unpaid subscription, hindi ka pa din matatawag na “Delinquent stockholder”

 Corporation follows the procedure, maniningil lang sila kapag gusto nila, and they will call for a
board meeting that needs majority of votes to result for resolution na magdemand namaningil
ng unpaid subscription sa isang stockholder.
 Has 30 days period to pay. If exceeded, a meeting again will be held and if it has majority of
votes, he/she will be called a “Delinquent stockholder”

e) Alienation of Shares

(1) Allowable Restrictions on the Sale of Shares- Deny recognition of share transfers. No shares of stock
against which the corporation holds any unpaid claim shall be transferable in the books of the
corporation.

— The incomplete payment of the subscription does not preclude the subscriber from alienating his
shares of stock.

(2) Requisites of a Valid Transfer: a) there must be delivery of the stock certificate; b) the certificate
must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the
transfer; and c) to be valid against third parties, the transfer must be recorded in the books of the
corporation

f) Corporate Books and Records- Every corporation shall keep and carefully preserve at its principal
office all information including but not limited to: a) The AOI and bylaws and all their amendments; b)
The current ownership structure and voting rights of the corporation, including lists of stockholders or
members, group structures, intra-group relations, ownership data, and beneficial ownership; c) The
names and addresses of all the members of the board of directors or trustees and the executive officers;
d) A record of all business transactions; e) A record of the resolutions of the board and of the
stockholders or members; f) Copies of the latest reportorial requirements submitted to the SEC; and g)
The minutes of all meetings of stockholders or members, or of the board

(1) Right to Inspect Corporate Records- Corporate records, regardless of the form in which they are
stored, shall be open to inspection by any director, trustee, stockholder or member of the corporation in
person or by a representative at reasonable hours on business days, and a demand in writing may be
made at their expense, for copies of such records or excerpts from said records.

(2) Effect of Refusal to Inspect Corporate Records- Any officer or agent of the corporation who shall
refuse to allow the inspection and/or reproduction of records shall be liable for damages, and in
addition, shall be guilty of an offense. If such refusal is made pursuant to a resolution or order of the
board of directors or trustees, the liability shall be imposed upon the directors or trustees who voted for
such refusal.

11. Dissolution and Liquidation

Dissolution of a corporation is the extinguishment of its franchise and the termination of its corporate
existence or business purpose. For the purpose only of winding up its affairs and liquidating its assets, its
corporate existence continues for a period of 3 years from such dissolution.

a) Modes of Dissolution

(1) Voluntary Dissolution

Without Creditor: [1] Vote of majority of the board; [2] Vote of the majority of OCS/M; [3] Personal
notice or by registered mail given 20 days prior to the meeting to each SH/member, whether voting or
non voting, in the manner provided in S. 50; [4] Publication of notice once prior to meeting; [5] Verified
Request for Dissolution filed with SEC stating: the reason(s) therefor; how notice given; names of
approving D/T and SH/M; date, place and time of meeting where vote made; and, details of
publication; Corpo submit to SEC the ff: resolution authorizing dissolution; proof of publication; and,
favorable recommendation of govt regulatory agency, when necessary; [6] Within 15 days from receipt
of request, SEC issues certificate of dissolution.

With Creditor: 1] Verified Petition filed with SEC signed by majority of the board; listing the names of
creditors; [2] Vote of 2/3 OCS/M at a meeting; [3] SEC issue order fixing deadline for objections – not
less than 30 days nor more than 60 days after entry of order; order published 1x/week for 3 consecutive
weeks; and, posting of order in 3 public places; [4] Hearing; then judgment directing disposition of
assets; SEC then issues certificate of dissolution.

Amend articles to shorten term; Amended articles submitted to SEC; upon expiration of term, corp
deemed dissolved on the day following last day of corporate term without need of certificate of
dissolution

Withdrawal of Request for Dissolution (No Creditors) and Petition for Dissolution (With Creditors). [1] In
writing, verified by an incorporator, D, T, SH or M; signed by: [a] majority of the board and majority of
OCS/M, if no creditors; or, [b] majority of the board and 2/3 OCS/M, if with creditors

(2) Involuntary Dissolution- Upon verified complaint by any interested party based on the ff grounds: [a]
non use of corporate charter (within 5 years from incorporation); [b] continuous inoperation of
corporation (for at least 5 consecutive years) under S. 21; [c] court order dissolving corp.; [d] final
judgment that incorporation procured through fraud; [e] final judgment that corporation: created to
commit securities violation, smuggling, tax evasion, money laundering, graft and corruption; or tolerated
graft.
 - The SEC shall give reasonable notice to, and coordinate with, the appropriate regulatory agency
prior to the involuntary dissolution of companies under their special regulatory jurisdiction.

b) Methods of Liquidation- Liquidation is the settlement of corporate affairs following the dissolution of
the corporation. The end of corporate affairs does not result in the immediate termination of corporate
existence, but the corporation loses the power to deal and enter into further legal relations with other
persons.

(1) By the Corporation Itself- Every corporation whose charter expires pursuant to its AOI, is annulled by
forfeiture, or whose corporate existence is terminated in any other manner, shall nevertheless remain
as a body corporate for three (3) years after the effective date of dissolution.

(2) Conveyance to a Trustee Within a Three-Year Period- The corporation is authorized and empowered
to convey all of its property to trustees for the benefit of stockholders, members, creditors and other
persons in interest. After any such conveyance, all interest which the corporation had in the property
terminates, the legal interest vests in the trustees, and the beneficial interest in the stockholders,
members, creditors or other persons-in-interest.

(3) By Management Committee or Rehabilitation Receiver

Distribution of Assets- Upon the winding up of corporate affairs, any asset distributable to any creditor
or stockholder or member who is unknown or cannot be found shall be escheated in favor of the
national government.

Winding up the affairs of the corporation means the collection of all assets, the payment of all its
creditors, and the distribution of the remaining assets, if any among the stockholders thereof in
accordance with their contracts, or if there be no special contract, on the basis of their respective
interests.

(4) Liquidation after Three Years

- If full liquidation can only be effected after the three-year period and there is no trustee, the
directors may be permitted to complete the liquidation by continuing as trustees by legal
implication.
- The trustee of a corporation may continue to prosecute a case commenced by the corporation
within three years from its dissolution until rendition of the final judgment, even if such
judgment is rendered beyond the three-year period. However, an already defunct corporation is
not allowed to initiate a suit after the lapse of the said three-year period.
- There is a view to the effect that the trustee or receiver CAN maintain an action for the
corporation even after the three-year period.

12. Other Corporations

a) Close Corporations

(1) Characteristics : A close corporation is one whose articles of incorporation provide that: 1) All of the
corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of record by not more
than a specified number of persons, not exceeding twenty (20); 2) All of the issued stock of all classes
shall be subject to one or more specified restrictions on transfer; and 3) The corporation shall not list in
any stock exchange or make any public offering of any of its stock of any class. Notwithstanding the
foregoing, a corporation shall be deemed NOT 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.

(2) Validity of Restrictions on Transfer of Shares- In order to be binding on any purchaser in good faith,
restrictions on the right to transfer shares must appear in the: (1) AOI; (2) By-laws; and (3) Certificate of
stock.

(3) Preemptive Right- Extends 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 AOI
provides otherwise.

(4) Amendment of Articles of Incorporation: Any amendment to the AOI which seeks to 1. delete or
remove any provision required or 2. reduce a quorum or voting requirement stated in said AOI shall
require the affirmative vote of at least two-thirds (2/3) of the OCS, whether with or without voting
rights, or of such greater proportion of shares as may be specifically provided in the AOI for amending,
deleting or removing any of the aforesaid provisions, at a meeting duly called for the purpose.

b) Non-Stock Corporations

(1) Definition- A nonstock corporation is one where no part of its income is distributable as dividends to
its members, trustees, or officers.

(2) Treatment of Profits- Non-Diversion Rule:

Any profit which a nonstock corporation may obtain incidental to its operations shall, whenever
necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation
was organized. The law strictly implements the non-diversion rule by: i) Forbidding distribution of
profits; ii) Requiring immediate utilization of contributions for intended purposes; and iii) Limiting
administrative expenses of certain eleemosynary corporations. (of, relating to, or supported by charity)

c) Educational Corporations- A stock or non-stock corporation organized for educational purposes.\

 The number of trustees of educational institutions organized as nonstock corporations shall be

between 5 and 15.
 The number of trustees shall be in multiples of five (5).
 Unless otherwise provided in the AOI or bylaws, the BOT shall, as soon as organized, so classify
themselves that the term of office of one-fifth (1/5) of their number shall expire every year.

d) Religious Corporations - may be incorporated by one or more persons. Such corporations may be
classified into corporations sole and religious societies

(1) Corporation Sole- A corporation sole may be formed by the chief archbishop, bishop, priest,
minister, rabbi, or other presiding elder of such religious denomination, sect, or church.

 A corporation sole consists of only one person and his successors (who will always be one at a
time), in some particular station.
(2) Religious Societies- Any religious society, religious order, diocese, synod, or district organization of
any religious denomination, sect or church, may, upon written consent and/or by an affirmative vote at
a meeting called for the purpose of at least two-thirds (2/3) of its membership, incorporate for the
administration of its temporalities or for the management of its affairs, properties, and estate by filing
with the SEC, AOI verified by the affidavit of the presiding elder, secretary, or clerk or other member of
such religious society

e) One Person Corporations- A corporation with a single stockholder; Who May Form OPCs: (1) A natural
person; (2) A trust; or (3) An estate.

(1) Excepted Corporations- 1) Banks and quasi-banks, 2) Pre-need, 3) Trust, 4) Insurance, 5) Public and
publicly-listed companies, and 6) Non-chartered GOCCs may not incorporate as an OPC 7) A natural
person who is licensed to exercise a profession may not organize as an OPC for the purpose of exercising
such profession except as otherwise provided under special laws.

(2) Capital Stock Requirement- Shall not be required to have a minimum ACS except as otherwise
provided by special law.

(3) Articles of Incorporation and By-Laws- Aside from the requirements set forth in Sec 14, the AOI of
the OPC shall likewise substantially contain the following: a) If the single stockholder is a trust or an
estate, the name, nationality, and residence of the trustee, administrator, executor, guardian,
conservator, custodian, or other person exercising fiduciary duties together with the proof of such
authority to act on behalf of the trust or estate; and b) Name, nationality, residence of the nominee and
alternate nominee, and the extent, coverage and limitation of the authority.

 Bylaws are NOT required to be submitted.

(4) Corporate Name- The letters “OPC” shall be indicated either below or at the end of its corporate
name

(5) Corporate Structure and Officer-

 Single Stockholder as Director, President The single stockholder shall be the sole director and
president of the One Person Corporation.
 Within fifteen (15) days from the issuance of its certificate of incorporation, the OPC shall
appoint: (1) A treasurer; (2) A corporate secretary; and (3) Other officers as it may deem
necessary.
 The single stockholder may NOT be appointed as the corporate secretary. Within five (5) days
from appointment, the OPC shall notify the Commission thereof.
 Di pwede si single SH maging secretary. Bcos pag mamatay si SSH kay walay manawag sa
nominee and alternate nominee.
 Gray area in nominee: SSH has power to change and terminate nominee at any time even
without amending AOI.

(6) Nominee

 In the event of the single stockholder’s death or incapacity, the nominee shall 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. Such consent may be withdrawn in writing any time before the death or
incapacity of the single stockholder.
 Should there be a change of nominee or alternate nominee, the single stockholder need only to
submit the names of the new nominees with their written consent. The AOI need NOT be
amended.

(7) Liability

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

(8) Conversion of Corporation to One Person Corporations and Vice-Versa

Conversion from ordinary corp to OPC: When SSH acquires all the shares of ordinary corp., he may
apply for conversion to OPC; if application for conversion approved, SEC issues certificate of filing of
amended articles of incorporation showing conversion. The OPC succeeds the ordinary corp and
assumes latter’s debts as of the date of conversion.

Conversion from OPC to ordinary corp upon notice to SEC and compliance with requirements for stock
corp. Notice filed with SEC 60 days from conversion; SEC then issues amended certificate of
incorporation showing conversion; In case of death of SSH, NOM or ALTNOM shall transfer shares to
designated heir or estate within 7 days from receipt of affidavit of heirship or self adjudication by sole
heir, with notice to SEC;

Within 60 days from transfer of shares, heirs notify SEC of decision to wind up or dissolve OPC or
convert it into ordinary corp; The ordinary corp converted from OPC shall assume all liabilities of OPC as
of date of conversion;

f) Foreign Corporations- A 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: 1.
a license for that purpose; and 2. a certificate of authority from the appropriate government agency

(1) Bases of Authority Over Foreign Corporations

(a) Consent- The legal standing of foreign corporations in the host state is founded on international law
on the basis of consent, whether implied or express. A corporation can exercise none of the functions
and privileges conferred by its charter in another State or country except by the comity and consent of
such State or country. Under Philippine law, the condition is that it must obtain a license to do business
in the Philippines.

(b) Doctrine of “Doing Business” - The concept of "doing business" implies a continuity of commercial
dealings and arrangements and the performance of acts/works/exercise of some of the functions
normally incident to the purpose or object of a foreign corporation’s organization.
(2) Necessity of a License to Do Business

A foreign corporation applying for a license to transact business in the Philippines shall submit to the
SEC a copy of its AOI and bylaws, certified in accordance with law, and their translation to an official
language of the Philippines, if necessary.

Requisites for Issuance: 1) Name and address of designated resident agent + an SPA; 2) An agreement
that if it ceases to transact business or if there is no more resident agent, summons shall then be served
through the SEC; 3) Oath of the president or any authorized officer that the corporation is solvent and in
sound financial condition; and 4) Oath of Reciprocity. Certificate under oath of the authorized official of
the foreign corporation’s country of incorporation that the laws of said country allow Filipinos to do
business in said country and that the applicant is an existing corporation in good standing therein.

(a) Resident Agent- A resident agent may be either: an individual residing in the Philippines (must be of
good moral character and sound financial standing); or a domestic corporation (must likewise be of
sound financial standing and must show proof of good standing) lawfully transacting business in the
Philippines.

(3) Personality to Sue- 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 agency of the Philippines

(4) Suability of Foreign Corporations- 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. The principles regarding the right of a foreign corporation to bring suit in PH courts may thus be
condensed in four statements:

 if a foreign corporation does business in the Philippines without a license, it cannot sue before
the Philippine courts;
 if a foreign corporation is not doing business in the Philippines, it needs no license to sue before
Philippine courts on an isolated transaction or on a cause of action entirely independent of any
business transaction;
 if a foreign corporation does business in the Philippines without a license, a Philippine citizen or
entity which has contracted with said corporation may be estopped from challenging the foreign
corporation’s corporate personality in a suit brought before Philippine courts;
 if a foreign corporation does business in the Philippines with the required license, it can sue
before Philippine courts on any transaction

(5) Instances When Unlicensed Foreign Corporations May be Allowed to Sue (Isolated Transactions)-
Foreign corporations are not required to obtain a license in order to obtain relief from local courts or
agencies. In an isolated transaction, there is no intent on the part of the foreign corporation to engage in
a progressive pursuit of the purpose of a business transaction.

(6) Grounds for Revocation of License:

-Failure to file its annual report or pay any fees - -Failure to appoint and maintain a resident
as required by this Code; agent in the Philippines as required by this Title;
-Failure, after change of its resident agent or -Failure to pay any and all taxes, imposts,
address, to submit to the Commission a assessments or penalties, if any, lawfully due to
statement of such change as required by this the Philippine Government or any of its
Title; agencies or political subdivisions;

-Failure to submit to the Commission an -Transacting business in the Philippines outside

authenticated copy of any amendment to its of the purpose or purposes for which such
articles of incorporation or bylaws or of any corporation is authorized under its license;
articles of merger or consolidation within the
-Transacting business in the Philippines as agent
time prescribed by this Title;
of or acting on behalf of any foreign corporation
-A misrepresentation of any material matter in or entity not duly licensed to do business in the
any application, report, affidavit or other Philippines; or
document submitted by such corporation
-Any other ground as would render it unfit to
pursuant to this Title;
transact business in the Philippines.

13. Merger and Consolidation

a) Concept

- Merger – 2 or more corporation unite, 1 corporation which remains in being, absorbing or

merging in itself the other which disappears as a separate corporation.
- Consolidation – 2 or more corporations unite, giving rise to a new corporate body and
dissolving constituent corporations as separate corporations

b) Constituent Corporation vs. Consolidated Corporation

Constituent Corporations – the parties to a merger or consolidation

Consolidated Corporation - The new single corporation created through consolidation.

c) Plan of Merger or Consolidation

The board of directors or trustees of each corporation, party to the merger or consolidation, shall
approve a plan of merger or consolidation setting forth the following: a) The names of the
corporations proposing to merge or consolidate, hereinafter referred to as the constituent
corporations; b) The terms of the merger or consolidation and the mode of carrying the same into
effect; c) A statement of the changes, if any, in the AOI of the surviving corporation in case of
merger; and, in case of consolidation, all the statements required to be set forth in the AOI; and d)
Such other provisions with respect to the proposed merger or consolidation as are deemed
necessary or desirable.

d) Articles of Merger or Consolidation - Shall be executed by each of the constituent corporations,

to be signed by the president or vice president and certified by the secretary or assistant secretary
of each corporation setting forth:

a) The plan of the merger or the plan of consolidation; b) As to stock corporations, the number of
shares outstanding, or in the case of nonstock corporations, the number of members; c) As to each
corporation, the number of shares or members voting for or against such plan, respectively; d) The
carrying amounts and fair values of the assets and liabilities of the respective companies as of the
agreed cut-off date; e) The method to be used in the merger or consolidation of accounts of the
companies; f) The provisional or pro forma values, as merged or consolidated, using the accounting
method; and g) Such other information as may be prescribed by the SEC.

e) Effects

- The constituents shall become single corp – either Surviving Corp. (for merger) or
Consolidated Corp. S/C (in case of a consolidation);
- separate existence of constituents cease except that of the S/C;
- S/C possess rights, privileges and powers, duties and liabilities of a corporation organized
under the Code;
- S/C possess all rights, privileges, immunities and franchises of the constituents; property,
receivables, etc., of constitutents transferred to S/C;
- The S/C assumes liabilities and obligations of constituents