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incorporators) of a Corporation under the RCC. (see

A. CORPORATION discussion at page 15, Subheading 5.A)

CORPORATION LAW
Republic Act No. 11232 – Revised
Corporation Code

GENERAL PRINCIPLES

1. DEFINITION OF CORPORATION

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. (RCC,1 Sec. 2)

Attributes of a Corporation (Sec. 2)

a. Artificial Being
b. Created by operation of law
c. Has right of succession – A
corporation has the capacity for
continuous existence despite
changes in stockholders/members
d. Has only the powers, attributes, and
properties authorized by law or
incident to its existence.

Corporate Fiction

A corporation has a personality separate

and distinct from the persons composing
it. (Civil Code, Arts. 44-47; PNB v.
Andrada Electric & Engineering Co., G.R.
No. 142936, 2002).

Corporation v. Partnership
CORPORATION PARTNERSHIP
Manner of Creation
Commences only By mere agreement
from the issuance of a
Certificate of
Incorporation by the
SEC, or, in proper
cases, passage of a
special law
Number of Organizers
Any person/s but not At least 2
more than fifteen
(15).2
Powers

2 Note- There is no 5 person minimum anymore

for the number of organizers (i.e.,

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to a special charter or through a general
Restricted due to Subject to the
limited powers agreement of partners enabling act such as the Corporation Code.
Authority of Those Who Compose It b. Public corporations - Formed or organized
Stockholders are not Mutual agency for the government of a portion of the state
agents of the between partners (e.g., barangay, municipality, city and
corporation in the province) Created for political purposes
absence of express connected with the public good in the
authority administration of the civil government
Transfers of Interest
Freely transferable Cannot be transferred Public Corporation v. Private Corporation
without the consent of without the consent of PUBLIC PRIVATE
other stockholders the other partners CORPORATION CORPORATION
(unless there is a Government holds Government may
stipulation to the the controlling hold the controlling
contrary) interest interest
Succession Created under the
Existence continues Death of a partner Corporation Code
even as persons who ends the partnership
Created by its charter However, GOCCs
compose it change
may also be created
Corporations as partners in a partnership by special charter
Created for a public
Corporations have the power to enter into a purpose
partnership, joint venture, merger, consolidation, Exists primarily for
or any other commercial agreement with natural the government of a Generally created for
and juridical persons (Sec. 35(h)). portion of the state profit generation
Subject to control and
Can a defective corporation result into a supervision by the
partnership? (Two Views) State or its agency

No Partnership: When investors intended only to Note:

invest in a corporate venture with no intention of ● Ownership of the government of the majority
participating in its corporate affairs, and the of the shares of a corporation does not by
corporation was not formed, no partnership itself constitute such an entity as a public
relation is established by the failure to corporation (National Coal Co., v. Collector of
incorporate, such investors cannot even be held
Internal Revenue, G.R. No. L-22619, 1994).
liable for the contracts and transactions sued
● When the law vests corporate powers in a
upon. (Pioneer Insurance v. CA, G.R. No. 84197,
1989) government instrumentality, it does not
necessarily become a corporation; a GOCC
Partnership Exists: However, when there was a must be organized as a stock or non-stock
clear intention to form a partnership venture corporation. (MIAA v. CA, G.R. No. 155650,
through a corporate vehicle (there was intention 2006)
to be active participants in the corporation’s ● Test to determine whether a corporation is
business), even those who did not directly public or private: If the corporation is
participate in the contract or transaction being created by the State as the latter’s own
sued upon, but benefitted therefrom may be held agency or instrumentality to help it in carrying
liable as general partners. (Lim Tong Lim v. out its governmental functions, then that
Philippine Fishing Gear, G.R. No. 136448, 1999)
corporation is considered public; otherwise it
is private. (Philippine Society for the
2. CLASSES OF CORPORATIONS Prevention of Cruelty to Animals v. COA,
G.R. No. 169752, 2007)
In Relation To The State
a. Private corporations – Formed by private
persons alone, by or with the State pursuant
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However, there is now formal administrative and
a. Quasi-public corporation
A species of private corporations created by statutory recognition of “government
special law and required to render public instrumentalities with corporate
service or supply public wants. (Id.) Usually powers/government corporate entities,” which
covers school districts, water districts and the may not fall within the definition of stock and non-
like. stock corporations, but are government
instrumentalities that are vested with corporate
b. Government owned and controlled
powers. (LRTA v. Quezon City, G.R. No. 221626,
corporations (GOCCs)
2019)
Created under a special law or charter, or any
agency organized as a stock or non-stock
corporation, vested with functions relating to Under the Constitution, the COA has audit
public needs whether governmental or jurisdiction over both GOCCs with original
proprietary in nature, and owned by the charters (subject to COA pre-audit) and those
Government of the Republic of the Philippines without original charters (those organized under
directly or through its instrumentalities either the Corporation Code—subject to post-audit).
wholly or, where applicable as in the case of (Alejandrino v. COA, G.R. No. 245400, 2019).
stock corporations, to the extent of at least a
majority of its outstanding capital stock (R.A.
No. 10149) As to Place of Incorporation
a. Domestic – one incorporated under laws of
Note: A GOCC when organized under the the Philippines
Corporation Code is still a private corporation. But b. Foreign – one formed, organized or existing
being a GOCC makes it subject to laws and under any laws other than those of the
provisions applicable to the Government or its Philippines, and whose laws allow Filipino
entities and subject to the control of the citizens and corporations to do business in its
Government (Cervantes v. Auditor General, G.R. own country. (Sec. 140)
No. L-4043, 1952).
As To Legal Status
The GOCC Governance Act (R.A. 10149), which a. De jure corporation
governs compensation and position classification ● Corporation organized in accordance with
systems within the GOCC Sector, does not requirements of law;
distinguish between chartered and non-chartered ● Every corporation is deemed to be a de
GOCCs, and its provisions apply equally to both. jure until proven otherwise
(GSIS Family Bank Employees Union v.
Villanueva, G.R. No. 210773, 2019).
b. De facto corporation (Sec. 19)
In order to qualify as a GOCC, one must be ● A corporation claiming in good faith to be
organized either as a stock or non-stock a corporation under the Corporation
corporation. Section 31 defines a stock Code but where there exists a flaw in its
corporation as one whose “capital stock is divided incorporation or it falls short of the
into shares and ... authorized to distribute to the requirements provided by law.
holders of such shares dividends.” Although BCDA ● It is the result of an attempt to incorporate
has an authorized capital of P100 Billion, under an existing law coupled with the
however, it is not divided into shares of stock; it exercise of corporate powers.
has no voting shares; and has no provision which ● A de facto corporation will incur the same
authorizes the distribution of dividends and obligations; have the same powers and
allotment of surplus and profits to BCDA’s rights as a de jure corporation.
stockholders. It cannot qualify also as a non-stock
● The due incorporation of any corporation
corporation because its primary purpose do not
fall within the purposes enumerated under claiming in good faith to be a corporation
Section 88. (BCDA v. CIR, G.R. No. 205925, 20 under the Corporation Code, and its right
June 2018) to exercise corporate powers, shall not be
inquired into collaterally in any private
suit.
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b. Nonstock corporation (Secs. 86-87)
● Under the Rules of Court Rule 66, inquiry
● A corporation where no part of its income
must be done by the Solicitor General in
is distributable as dividends to members,
a quo warranto proceeding where the
trustees or officers
main issue is the right to exist as a
● Any profit obtained as an incident to its
corporation
operations shall, whenever necessary or
Elements of a de facto corporation proper, be used for the furtherance of the
a. Valid law under which incorporated; purpose for which the corporation was
b. Attempt in good faith to incorporate or organized.
“colorable compliance;”
As To Control
c. Assumption of corporate powers; and
a. Holding company – one that controls
d. Issuance of certificate of incorporation.
another as a subsidiary or affiliate by the
(Arnold Hall v. Piccio, G.R. No. L-2598, 1950)
power to elect its management; one which
Note: A corporation which has failed to file its by- holds shares in other companies for purposes
laws within the prescribed period does not ipso of control rather than for mere investment.
facto lose its powers as such (Sawadjaan v. CA, (SEC Opinion No. 15-15)
G.R. No. 141735, 2005). b. Affiliate company – one that is subject to
common control of a parent or holding
c. Corporation by estoppel (Sec. 20); company and operated as part of a system.
All persons who assume to act as a corporation (SEC Opinion No. 15-15)
knowing it to be without authority to do so shall be c. Parent and subsidiary companies – when
liable as general partners for all debts, liabilities a corporation has a controlling financial
and damages incurred or arising as a result interest in one or more corporations, the one
thereof having control is known as the “parent
company” and the controlled corporations are
When such ostensible corporation is sued on any
known as the “subsidiary companies”.
transaction entered by it as a corporation or on
any tort committed by it as such, it shall not be
As To Purpose of Incorporation
allowed to use its lack of corporate personality as
a. Municipal corporation
a defense.
b. Religious corporation
Anyone who assumes an obligation to an c. Educational corporation
ostensible corporation as such cannot resist d. Charitable, Scientific or Vocational
performance thereof on the ground that there was corporation
in fact no corporation. e. Business corporation

d. Corporation by prescription As To Number of Members

The Roman Catholic Church is a corporation by a. Aggregate - a corporation which consists of
prescription, with acknowledged juridical many persons united to form a body politic
personality inasmuch as it is an institution which and corporate (IEMELIF v. Lazaro, G.R. No.
antedated by almost a thousand years any other 184088, 2010).
personality in Europe (Barlin v Ramirez, G.R. No. b. Corporation sole – Formed by one person
L-2832, 1906). who may be the chief archbishop, bishop,
minister, rabbi, or other presiding elder of any
As To Existence of Stocks
religious denomination, sect or church. (Sec.
a. Stock corporation
108)
● Stock corporations are those which have
Purpose: created to administer and
capital stock divided into shares and are
manage the affairs, properties,
authorized to distribute to the holders of temporalities of the church to which the
such shares, dividends, or allotments of holder of the office belongs and also to
the surplus profits on the basis of the transmit the same to his successor in
shares held. (Sec. 3) office.
c. Close Corporation- a corporation where:
a. stockholders of record shall not In order to determine the nationality of a
exceed twenty (20); corporation, the following steps should apply:
b. all the issued stock shall be
subject to one or more specified 1st Step: The nationality of a corporation is
restrictions on transfer permitted determined by the country under whose laws it is
by this Title; and incorporated (Place of Incorporation Test).
c. the corporation shall not list in
2nd Step: If the corporation is applying for a (2nd)
any stock exchange or make any
franchise for public utility and etc. which requires
public offering of its stocks of any a certain percentage of control of stock, the Test
class. of Controlling Ownership would be applied.
Notwithstanding, a corporation shall not
be deemed a close corporation when at 3rd step: If there is doubt as to the domestic
least 2/3 of its voting stock is owned or control of the percentage of stock in a corporation
controlled by another corporation which with corporate stockholders, Grandfather test
is not a close corporation within the would be applied (Narra Nickel Mining and
meaning of this Code. (Sec. 95) Development Corp. v. Redmont Consolidated
d. One Person Corporation- a corporation with Mines Corp., G.R. No. 195580, 2014)
a single stockholder. Only a natural person,
trust, or an estate may form a One Person MAIN TESTS
Corporation. Banks and quasi-banks, pre- A. Place of Incorporation Test
need, trust, insurance, public and publicly- A corporation is a national of the country under
listed companies, and non-chartered whose laws it has been organized and registered
government-owned and -controlled
corporations may not incorporate as One B. Control Test
Person Corporations. A natural person who is In cases involving properties, business or
industries reserved for Filipinos, in addition to the
licensed to exercise a profession may not
place of incorporation test, the nationality of a
organize as a One Person Corporation for the corporation is determined by the nationality of the
purpose of exercising such profession except “controlling stockholders”.
as otherwise provided under special laws.
(Sec. 115) Absent any doubt, the Control Test shall be used
in determining the nationality of a corporation
3. NATIONALITY OF CORPORATIONS specially in cases where foreign ownership
restrictions apply. (SEC OGC Opinion No. 16-19)
Nationality of Corporation
Serves as a legal basis for subjecting the [T]here are two cases in determining the
enterprise or its activities to the laws, the nationality of the Investee Corporation. The first
economic and fiscal powers, and various social case is the ‘liberal rule’, later coined by the SEC
and financial policies of the state to which it is as the Control Test in its 30 May 1990 Opinion,
supposed to belong. and pertains to the portion in said Paragraph 7 of
the 1967 SEC Rules which states, ‘(s)hares
Tests: belonging to corporations or partnerships at least
1. Place of Incorporation 60% of the capital of which is owned by Filipino
2. Control Test citizens shall be considered as of Philippine
3. Grandfather Rule3 nationality.’ Under the liberal Control Test, there
4. War-time – in times of war, nationality of is no need to further trace the ownership of the
60% (or more) Filipino stockholdings of the
corporation is determined by the character or
Investing Corporation since a corporation which
citizenship of its controlling stockholders
is at least 60% Filipino-owned is considered as
5. Investment Test Filipino. (Narra Nickel Mining and Development
6. Place of Principal Business

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

indicated in the bar syllabus.
 Opinion No. 04-14 in reference to the Foreign
Corp. v. Redmont Consolidated Mines Corp.,
Investments Act)
G.R. No. 195580, 2014).
Some instances wherein the control test
The required percentage of Filipino
applies:
ownership shall be applied to both:
a. Exploitation of natural resources (> 60%)
a. The total number of outstanding shares of
● Sec 2, Art XII, 1987 Constitution – policy
stock entitled to vote in the election of
of the State is to ensure that the
directors, and
exploitation of natural resources or the
b. The total number of outstanding shares of
pursuit of the activities deemed to be of
stock, whether or not entitled to vote in the
public or national interest are in the
election of directors. (SEC Memorandum
control of the Filipinos
Circular No. 8, s. 2013, Sec. 2)
● The State may directly undertake such
Mere legal title is not enough. Full beneficial activities, or it may enter into co-
ownership of 60 percent of the outstanding capital production, joint venture, or production
stocks, coupled with 60 percent of the voting sharing agreements with:
rights, is constitutionally required for the State's o Filipino citizens; or
grant of authority to operate a public utility. Thus, o Corporations or associations, at
voting rights of stocks which have been assigned least 60% owned by such
or transferred to aliens cannot be considered held citizens
by Philippine citizens or nationals (cannot give b. Public Utilities (> 60%)
proxies to vote). (Roy III v. Herbosa, et al., G.R. ● Sec 11, Art XII, 1987 Constitution –
No. 207246, 2016) requires that only domestic corporations
with at least 60% of the capital stock
The definition of “beneficial owner or beneficial owned by Filipinos may own and operate
ownership in the SRC-IRR, which is in consonance public utilities in the Philippines
with the concept of “full beneficial ownership” in
● The nationality test for public utilities
the FIA-IRR, is relevant in resolving only the
question of who is the beneficial owner or has applies not at the time of the grant of the
beneficial ownership of each “specific stock” of primary franchise that makes a
the public utility whose stocks are under review. If corporation a juridical person, but at the
the Filipino has the voting power of the “specific grant of the secondary franchise that
stock”, i.e., he can vote the stock or direct authorizes the corporation to engage in a
another to vote for him, or the Filipino has the nationalized industry. (People v. Quasha,
investment power over the “specific stock”, i.e., G.R. No. L-6055, 1953)
he can dispose of that “specific stock” or direct ● The Constitution requires a franchise for
another to vote or dispose it for him, then such operating a public utility; however, it does
Filipino is the “beneficial owner” of that “specific
not require a franchise before one can own
stock.” Being considered Filipino, that “specific
stock” is then to be counted as part of the 60% the facilities needed to operate a public
Filipino ownership requirement under the utility so long as it does not operate them to
Constitution. The right to the dividends, jus serve the public.(Tatad v. Garcia, Jr., G.R.
fruendi—a right emanating from ownership of that No. 114222, 1995).
“specific stock” necessary accrues to its Filipino c. Mass Media (100%)
“beneficial owner.” (Roy III v. Herbosa, G.R. No. ● Sec 11, Art XVI, 1987 Constitution –
207246 (Resolution), 18 April 2017.) ownership of mass media shall be limited
to the citizens of the Philippines, or to
General rule: The Control Test cannot overcome
corporations, cooperatives or
the Place of Incorporation Test.
associations, wholly-owned and
Exception: A corporation organized abroad and managed by such citizens (100% Filipino
registered as doing business in the Philippines management of the entity)
under the Corporation Code, whose capital ● Cable Industry - CATV as “a form of mass
outstanding stock and entitled to vote is wholly media which must, therefore, be owned
owned by Filipinos is a Philippine National. (SEC and managed by Filipino citizens, or
 OTHER TESTS
corporations, cooperatives or
associations, wholly-owned and A. War-Time Test
managed by Filipino citizens pursuant to
the mandate of the Constitution.” (DOJ In times of war, nationality of corporation is
Opinion No. 95, series of 1999). determined by the character or citizenship of its
d. Advertising Industry (> 70%) controlling stockholders
● Sec 11, Art XVI, 1987 Constitution – only
Filipino citizens or corporations or B. Investment Test
associations at least 70% of the capital of
which is owned by such citizens shall be “Philippine National”
allowed to engage in the advertising a. A corporation organized under Philippine
agency laws of which at least 60% of the outstanding
e. NEDA could advise Congress to set limitations capital stock entitled to vote is owned and
of stock ownership in Corporations vested with held by Filipino citizens; and
Public Interests (Sec. 176) b. A corporation organized abroad and
registered as “doing business” in the
C. Grandfather Rule Philippines under the Corporation Code of
Where corporate shareholders are present (and which 100% of the capital stock entitled to
when the Filipino-foreign equity ownership is in vote belong to Filipinos (R.A. No. 7042, Sec.
doubt), the percentage of the Filipino equity in 3[a], as amended or Foreign Investment Act
corporations is computed by attributing the
of 1991)
nationality of the second or subsequent tier of
ownership to determine the nationality of the
Double 60% Rule
corporate shareholder
Where a corporation and its non-Filipino
Example: MV Corporation and AC Corporation stockholders own stock in a SEC-registered
have equal interest in XYZ Company. MV enterprise, at least 60% of the outstanding capital
stock and entitled to vote of both corporations and
Corporation is 60% owned by Filipinos, while AC
Corporation is 50% owned by Filipinos. By the at least 60% of the members of the Board of
Directors of both corporations must be Filipino
grandfather rule, MV Corporation would have a
30% Filipino interest in XYZ Company (60% of citizens (R.A. No. 7042, Sec. 3[a], as amended)
50%), while AC Corporation would have a 25%
Filipino interest in XYZ Company (50% of 50%). C. Place of Principal Business Test
Hence, the total Filipino interest is only 55%. Residence of a corporation is the place where its
principal office is located, as stated in its Articles
of Incorporation.
The Control test is still the prevailing mode of
determining whether or not a corporation is a
The place where the principal office of the
Filipino corporation within the ambit of the natural
corporation is to be located is one of the required
resources provisions of the Constitution. But
contents of the articles of incorporation to be filed
when in the mind of the court there is doubt based
with the SEC (Hyatt Elevators v. Goldstar, G.R.
on attendant facts and circumstances, in the 60-
No. 161026, 2005).
40 Filipino equity ownership in the corporation,
then it may apply the grandfather rule (Narra
Applied to determine whether a state has
Nickel Mining and Development Corp. v.
jurisdiction over the existence and legal character
Redmont Consolidated Mines Corp., G.R. No.
195580, 2014). of a corporation, its capacity or powers, internal
organization, capital structure, the rights and
liabilities of directors, officers, and shareholders
The “grandfather rule” does not eschew, but in fact towards each other and to creditors and third
supplements the “control test”, as the latter persons.
implements Filipinization provisions of the
Constitution. (Narra Nickel Mining and Development 4. CORPORATE JURIDICAL PERSONALITY
Corp. v. Redmont Consolidated Mines Corp., G.R.
General Rule: The Corporation has a separate
No. 195580, 2015).
and distinct juridical personality from its directors,
 The failure of the corporate employer to comply
officers, trustees and shareholders (Doctrine of
with a legal duty, such as under the Labor Code
Separate Juridical Personality).
to grant separation pay to employees constitutes
tort and its stockholder who was actively engaged
Exception: When the corporation is used as a in the management of the business should be
cloak for fraud, illegality, or in other certain held personally liable (Naguiat v. NLRC, G.R. No.
circumstances, the courts may disregard the 116123, 1997).
separate and distinct personality of the
corporation and treat the corporation as a mere A corporation can be held liable for the tortious
collection of individuals undertaking business as acts of a corporate officer, in the absence of a
a group (Doctrine of Piercing the Veil of prior express direction from the BOD, if such was
connected to the business of the corporation.
Corporate Fiction).
The remedy of the corporation is to recover
A. Doctrine of Separate Juridical
damages against the acting corporate officer
Personality responsible for the tortious act.
A corporation is a juridical entity with a legal b) On Crimes
personality separate and distinct from those General rule: Corporations cannot commit
acting for and on its behalf, and, in general, from felonies under the RPC for it is incapable of the
the people comprising it; the obligations incurred requisite intent to commit these crimes.
by the corporation, acting through its directors,
officers and employees are its sole liabilities It also cannot commit crimes that are punishable
(Santos v NLRC, G.R. No. 101699, 1996).
under special laws because crimes are personal in
nature requiring personal performance of overt
While a share of stock represents a proportionate acts.
or aliquot interest in the property of the
corporation, it does not vest the owner thereof A corporation cannot be arrested and imprisoned;
with any legal right or title to any of the corporate hence, cannot be penalized for a crime
property, his interest in such property being punishable by imprisonment.
equitable or beneficial in nature. Shareholders are
in no legal sense the owners of corporate Exceptions: If the crime is committed by a
property, which is owned by the corporation as a corporation, the directors, officers, employees or
distinct legal person (Magsaysay-Labrador v CA, other officers thereof responsible for the offense
G.R. No. 58168, 1989).
shall be charged and penalized for the crime,
precisely because of the nature of the crime and
Corporate Liability
the penalty therefore. However, the corporation
may be charged and prosecuted for a crime if the
i. Liability for Torts and Crimes
imposable penalty is fine (Ching v. Secretary of
Justice, G.R. No. 164317, 2006).
a) On Torts
A corporation is civilly liable in the same manner When a law expressly provides that a corporation
as natural persons for torts, because the rules may be proceeded against criminally, the
governing the liability of a principal for a tort responsible officer will be held personally liable
committed by an agent are the same whether the for the crimes committed by the corporation.
principal be a natural person or a corporation, and However, such liability will only attach to the
whether the agent be a natural or artificial person. officer when the corporation is directly required by
That a principal is liable for every tort which he law to do an act in a given manner, and the same
expressly directs or authorizes, is just as true of a law makes the person who fails to perform the act
corporation as a natural person (PNB v. CA, G.R. in the prescribed manner expressly liable
No. L-27155, 1978). criminally (Sia v. Court of Appeals, G.R. No.
108222, 1997). For example:
A corporate officer who caused the tort act to be 1) Under the Anti-Money Laundering Act,
committed in the name of the corporation is also
juridical persons are also defined as
personally liable as a joint-tortfeasor.
offenders.
 Note: The right against self-incrimination has no
2) The RCC provides situations where
application to juridical persons. (Bataan Shipyard
corporations are liable for criminal v. PCGG, G.R. No. 75885, 1987)
sanctions: ● The right against self-incrimination refers
a) SEC. 161. Violation of Duty to only to testimonial compulsion;
Maintain Records, to Allow their ● A corporation cannot testify; and
Inspection or Reproduction; ● The State can freely open the books of
b) SEC. 165. Fraudulent Conduct of the corporation to ensure that it does not
Business; exceed its powers
c) SEC. 166. Acting as
Intermediaries for Graft and Implications of the Existence of the Corporate
Corrupt Practices; Veil or a Separate and Distinct Juridical
d) SEC. 167. Engaging Personality
Intermediaries for Graft and
Corrupt Practices a) Controlling interest of and/or dealings in
shareholdings
ii. Recovery of Moral Damages Ownership of a majority of capital stock and the
fact that majority of directors of a corporation are
General rule: A corporation cannot recover moral the directors of another corporation creates no
damages as it cannot suffer physical suffering employer-employee relationship with the latter’s
and mental anguish (Prime White Cement v IAC, employees (DBP v. NLRC, G.R. No. 86932, 1990;
G.R. No. L-68555, 1993). Francisco, et al. v. Mejia, G.R. No. 141617, 2001).

Exception: A corporation with a good reputation, The mere fact that a stockholder sells his shares
if besmirched, is allowed to recover moral of stock in the corporation during the pendency of
damages upon proof of existence of factual basis a collection case against the corporation, does
of damage (actual injury) and its causal relation not make such stockholder personally liable for
(Crystal v. BPI, G.R. No. 172428, 2008). the corporate debt, since the disposing
stockholder has no personal obligation to the
The following Constitutional rights apply to a creditor, and it is the inherent right of the
corporation: stockholder to dispose of his shares of stock
anytime he so desires (Remo, Jr. v. IAC, G.R. No.
a. Due process - The due process clause is L-67626, 1989).
universal in its application to all persons
without regard to any differences of race, Mere substantial identity of the incorporators of
color, or nationality. Private corporations, the two corporations does not necessarily imply
likewise, are “persons” within the scope of the fraud, nor warrant the piercing of the veil of
corporate fiction. In the absence of clear and
guaranty insofar as their property is
convincing evidence to show that the corporate
concerned.” (Smith Bell & Co. v. Natividad,
personalities were used to perpetuate fraud, or
G.R. No. 15574, 1919). circumvent the law, the corporations are to be
b. Equal protection of the law (Smith Bell & treated as distinct and separate from each other
Co. v. Natividad, G.R. No. 15574, 1919) (Laguio v. NLRC, G.R. No. 108936, 1996).
c. Unreasonable searches and seizures -
(Stonehill v. Diokno, G.R. No. L-19550, b) Transaction amongst the corporation and
1967). stockholders

In organizing itself as a collective body, the The transfer of the corporate assets to the
corporation waives no constitutional immunities stockholder is not in the nature of a partition but
applicable to it. Its property cannot be taken is a conveyance from one party to another
without compensation; can only be proceeded (Stockholders of F. Guanzon and Sons, Inc. v.
against by due process of law; and is protected Register of Deeds of Manila, G.R. No. L-18216,
against unlawful discrimination (Bache & Co. 1962).
(Phil.), Inc. v. Ruiz, G.R. No. 32409, 1971, citing
Hale v. Henkel, 201 U.S. 43, 50 L.Ed. 652.).
 shareholders in corporate property is purely
Note: A corporation may not be made to answer
inchoate (Saw v. CA, G.R. No. 90580, 1991).
for acts or liabilities of its stockholders or those of
the legal entities which it may be connected and
The interests of payees in promissory notes
vice-versa (ARB Constructions Co., Inc. v. Court
cannot be off-set against the obligations between
of Appeals, G.R. No. 126554, 2000).
the corporations to which they are stockholders
absent any allegation, much less, even a scintilla
c) Pertaining to privileges enjoyed
of substantiation, that the parties interest in the
The tax privileges enjoyed by a corporation do not
corporation are so considerable as to merit a
extend to its stockholders. A corporation has a
declaration of unity of their civil personalities
personality distinct from that of its stockholders, (CKH Industrial and Development Corp. v. CA,
enabling the taxing power to reach the latter when G.R. No. 111890, 1997).
they receive dividends from the corporation. It
must be considered as settled in this jurisdiction Even when the foreclosure on the assets of the
that dividends of a domestic corporation which
corporation was wrongful and done in bad faith,
are paid and delivered in cash to foreign the stockholders of the corporation have no
corporations as stockholders are subject to the standing to recover for themselves moral
payment of the income tax, the exemption clause
damages. Otherwise, it would amount to the
to the charter [of the domestic corporation] appropriation by, and the distribution to, such
notwithstanding. (Manila Gas Corporation. v.
stockholders of part of the corporation’s assets
Collector of Internal Revenue, G.R. No.L-42780,
before the dissolution of the corporation and the
1936).
liquidation of its debts and liabilities (APT v. CA,
G.R. No. 121171, 1998).
d) Assumption as a corporate officer
Being an officer or stockholder of a corporation
Where real properties included in the inventory of
does not by itself make one’s property also of the
the estate of a decedent are in the possession of
corporation, and vice-versa, for they are separate
and are registered in the name of the
entities, and that shareholders are in no legal
corporations, in the absence of any cogency to
sense the owners of corporate property which is
shred the veil of corporate fiction, the
owned by the corporation as a distinct legal presumption of conclusiveness of said titles in
person (Good Earth Emporium, Inc. v. CA, G.R.
favor of said corporations should stand
No. 82797, 1991).
undisturbed (Lim v. CA, G.R. No. 124715, 2000).
The mere fact that one is president of the
f) Third-parties to corporate acts
corporation does not render the property he owns
The fact that respondents are not stockholders of
or possesses the property of the corporation,
the disputed corporations does not make them
since that president, as an individual, and the
non-parties to the case. In this case, it is alleged
corporation, are separate entities (Cruz v.
that the aforementioned corporations are mere
Dalisay, A.M. No. R-181-D, 1987).
alter egos of the directors-petitioners, and that the
former acquired the properties sought to be
e) Properties, obligations and debts
reconveyed to FGSRC in violation of directors-
A corporation has no legal standing to file a suit
petitioners’ fiduciary duty to FGSRC.
for recovery of certain parcels of land owned by
its members in their individual capacity, even
The notion of corporate entity will be pierced or
when the corporation is organized for the benefit
disregarded and the individuals composing it will
of the members (Sulo ng Bayan v. Araneta, Inc.,
be treated as identical if, as alleged in the present
G.R. No. L-31061, 1976).
case, the corporate entity is being used as a cloak
or cover for fraud or illegality; as a justification for
The corporate debt or credit is not the debt or
a wrong; or as an alter ego, an adjunct, or a
credit of the stockholder nor is the stockholder’s
business conduit for the sole benefit of the
debt or credit that of the corporation (Traders
stockholders (Gochan v. Young, G.R. No.
Royal Bank v. CA, G.R. No. L-78412, 1989).
131889, 2001).
Stockholders have no personality to intervene in
a collection case covering the loans of the
corporation on the ground that the interest of
 B. Doctrine of Piercing the Veil of pertaining to the corporation against
Corporate Fiction corporate officers or stockholders.

Under certain circumstances, the courts may Example cases:

disregard the separate and distinct personality of a) Where a stockholder, who has absolute control
the corporation from its members or stockholders over the affairs of the corporation, entered
and treat the corporation as a mere collection of into a contract with another corporation
individuals or an aggregation of persons through fraud and false representations, such
undertaking business as a group such as when stockholder shall be liable solidarily with co-
the corporate legal entity is used as a cloak for defendant corporation even when the contract
fraud or illegality (Kukan Int’l v Reyes, G.R. No. sued upon was entered into on behalf of the
182729, 2010). corporation (NAMARCO v. Associated
Finance Co.,G.R. No. L-20886, 1967).
It is an equitable doctrine used as a last resort b) Piercing is allowed where the corporation is
only when the objective is to hold the officers used as a means to appropriate a property by
and/or stockholders liable. Thus, in one case, it fraud which property was later resold to the
cannot be applied in order to declare a controlling stockholders. (Heirs of Ramon
foreclosure proceeding a nullity (Umali v. CA, GR Durano, Sr. v. Uy, G.R no.136456, 2000).
No. 89561, 1990). c) Fraud and bad faith on the part of certain
corporate officers or stockholders may warrant
Being merely an equitable remedy, employment the piercing of the veil of corporate fiction so
of the piercing doctrine can only be for the that the said individual may not seek refuge
“protection of the interests of innocent third therein, but may be held individually and
persons dealing with the corporate entity personally liable for his or her actions.
which the law aims to protect by this doctrine” (Lafarge Cement Phils., Inc. v. Continental
(Traders Royal Bank v. Court of Appeals, G.R. Cement Corp., G.R. no. 155173, 2004)
No. 93397, 1997).
For Alter-ego Cases:
Classification of piercing cases: ● The doctrine applies in this case even in the
a. Fraud piercing – when a corporate entity is absence of evil intent; it applies because of
used to commit fraud or justify a wrong or to the direct violation of a central corporate law
defend a crime. principle of separating ownership from
b. Alter-ego piercing – when a corporate management.
entity is used to defeat public convenience ● The doctrine in such cases is based on
or is merely a farce since the corporation is estoppel: if stockholders do not respect the
merely the alter ego, business conduit, or separate entity, others cannot also be
instrumentality of a person or another entity. expected to be bound by the separate
c. Equity cases – when piercing the corporate juridical entity.
fiction is necessary to achieve justice or ● Piercing in alter ego cases may prevail even
equity. when no monetary claims are sought to be
enforced against the stockholders or officers
Note: The three cases may appear together in of the corporation.
one application (R.F. Sugay & Co. v. Reyes, G.R.
No. L-20451, 1964). ii. Tests for Applicability of the Doctrine of
Piercing the Veil of Corporate Fiction: (CUP)
i. Grounds for application of the different a. Control – not mere stock control but
types of piercing Complete Domination – not only of
finances, but of policy and business practice
For Fraud Cases: in respect to the transaction attacked and
1. There must have been fraud or an evil must have been such that the corporate
motive in the affected transaction, and entity as to this transaction had at the time
the mere proof of control of the corporation no separate mind, will or existence of its
by itself would not authorize piercing; and own.
2. The main action should seek for the b. Such control must have been Used by the
enforcement of pecuniary claims defendant to commit a fraud or wrong to
 ● The parent corporation uses the property of
perpetuate the violation of a statutory or
the subsidiary as its own.
other positive legal breach of duty, or a
● The directors or executives of the subsidiary
dishonest and an unjust act in contravention
do not act independently in the interest of the
of the plaintiff’s legal right; and,
subsidiary but take their orders from the
c. The said control and breach of duty must
parent corporation.
have Proximately caused the injury or
● The formal legal requirements of the
unjust loss complained of (Concept Builders
subsidiary are not observed (Phil. National
Inc. v. NLRC, 108734, 1996).
Bank v. Ritratto Group, Inc., GR No. 142616,
2001).
These were expanded as three-pronged tests:
Note: Mere ownership by a single stockholder or
The first prong is the "instrumentality" or
by another corporation of all or substantially all of
"control" test. This test requires that the
the capital stock of the corporation does not justify
subsidiary be completely under the control and
the application of the doctrine (Francisco v. Mejia,
domination of the parent corporation or G.R. No. 141617, 2001).
shareholder. It seeks to establish whether the
corporation has no autonomy and the parent Example Cases:
corporation or shareholder "is operating the
a) Where the stock of a corporation is owned by
business directly for itself or themselves."
one person whereby the corporation
functions only for the benefit of such
The second prong is the "fraud" test. This test
individual owner, the corporation and the
requires that the conduct in using the corporation
individual should be deemed the same
be unjust, fraudulent or wrongful.
(Arnold v. Willets and Patterson, Ltd., G.R.
No. L-20214, 1923).
The third prong is the "harm" test. This test
b) When the corporation is merely an adjunct,
requires the plaintiff to show that the defendant’s business conduit or alter ego of another
control, exerted in a fraudulent, illegal or corporation, the fiction of separate and
otherwise unfair manner toward it, caused the distinct corporation entities should be
harm suffered (PNB v. Hydro Resources disregarded (Tan Boon Bee & Co. v.
Contractors Corporations, G.R. no. 167530,
Jarencio, G.R. No. L-41337, 1988).
2013).
c) Employment of same workers; single place of
business, etc. (La Campana Coffee Factory
Factors to Consider in cases of Parent and
v. Kaisahan ng Manggagawa, G.R. No. L-
Subsidiary corporations in Alter-ego Piercing:
5677, 1953).
● The parent corporation owns all or most of d) Use of nominees (Marvel Building v. David,
the capital of the subsidiary. G.R. No. L-508, 1951)
● The parent and subsidiary corporations have
e) Avoidance of tax. (Yutivo Sons Hardware v.
common directors or officers.
Court of Tax Appeals, G.R. No. L-13203,
● The parent company finances the subsidiary.
1961; Liddell& Co. v. Collector of Internal
● The parent company subscribed to all the
Revenue, G.R. No. L-9687, 1961).
capital stock of the subsidiary or otherwise
f) Mixing of bank deposit accounts. (Ramirez
caused its incorporation.
Telephone Corp. v. Bank of America, G.R.
● The subsidiary has grossly inadequate capital.
No. L-22614, 1969).
● The parent corporation pays the salaries and
g) Where it appears that two business
other expenses or losses of the subsidiary.
enterprises are owned, conducted, and
● The subsidiary has substantially no business
except with the parent corporation or no controlled by the same parties, both law and
assets except those conveyed to or by the equity will, when necessary to protect the
parent corporation. rights of third persons, disregard the legal
● The papers of the parent corporation or in the fiction that two corporations are distinct
statements of its officers, the subsidiary is entities and treat them as identical (Sibagat
Timber Corp. v. Garcia, G.R. No. 98185,
described as a department or subdivision of
1992)
the parent corporation, or its business or
h) Thinly-capitalized corporations (McConnel v.
financial responsibility is referred to as the
Court of Appeals, G.R. No. L-10510, 1961).
parent corporation’s own.
 Union-PTGWO v. Calica, G.R. No. 96490,
i) Parent-subsidiary relationship. (Koppel
1992).
(Phil.), Inc. v. Yatco, G.R. No. L-47673,1946;
Philippine Veterans Investment Development
Note: However, piercing in alter ego cases
Corporation v. CA, G.R. No. 85266, 1990)
may prevail even when no monetary claims
j) Affiliated companies (Guatson International are sought to be enforced against the
Travel and Tours, Inc. v. NLRC, G.R. No.
stockholders or officers of the corporation.
100322, 1994) (e.g. piercing for other purposes such as
laborer’s rights)
Summary of Probative Factors (Philippine
National Bank vs. Ritratto Group, Inc., et al., G.R.
(d) Piercing is forbidden when the personal
No. 142616, 2001; Concept Builders, Inc. v.
obligations of an individual are sought to
NLRC, G.R. No. 108734, 1996): Whether the
be enforced against the corporation
separate personality of the corporation should be
(Robledo v. NLRC, G.R. No. 110358, 1994).
pierced depends on questions of facts,
appropriately pleaded. Mere allegation that a
Note: As an exception to this rule, the
corporation is the alter ego of the individual
Supreme Court allowed such piercing by
stockholders is insufficient. The presumption is applying the concept of “reverse piercing”.
that the stockholders or officers and the In a traditional veil-piercing action, a court
corporation are distinct entities. The burden of disregards the existence of the corporate
proving otherwise is on the party seeking to have entity so a claimant can reach the assets of a
the court pierce the veil of corporate entity corporate insider. In a reverse piercing
(Ramoso v. CA, G.R. No. 117416, 2000).
action, however, the plaintiff seeks to reach
the assets of a corporation to satisfy claims
For Equity Cases:
against a corporate insider."
These are cases, where there is no fraud or alter
ego circumstances that can warrant the piercing
Reverse piercing has two (2) types:
of the corporate veil. This mainly used to render
1. Outsider reverse - piercing occurs when
justice in the situation at hand, or to brush aside
a party with a claim against an individual or
technical defenses.
corporation attempts to be repaid with assets
of a corporation owned or substantially
For example:
controlled by the defendant.
a) When used to confuse legitimate issues
2. Insider reverse piercing - the controlling
(Telephone Engineering and Service Co.,
members will attempt to ignore the corporate
Inc. V. WCC, G.R. No. L-28694, 1981).
fiction in order to take advantage of a benefit
b) When used to raise issues relating only to
available to the corporation, such as an
technicalities (Emilio Cano Ent. v. CIR, G.R.
interest in a lawsuit or protection of personal
No. L-20502, 1965).
assets. (International Academy of
Management and Economics vs. Litton and
The veil may not always be pierced, especially
Company, G.R. No. 191525, 2017).
in the following circumstances:
(e) To disregard the separate juridical personality
(a) Piercing is a remedy of last resort and is not
of a corporation, the wrongdoing must be
available when other remedies are still
clearly and convincingly established. It
available (Umali v. CA, G.R. No. 89561,
cannot be presumed (DBP vs. CA, G.R. No.
1990).
126200, 2001).
(b) One cannot successfully invoke the piercing
(f) Piercing of the veil of corporate fiction is not
doctrine when it was proven that the act done
allowed when it is resorted to justify under
was contrary to the existing rules, which
a theory of co-ownership the continued
were well-known to the officers of the one
use and possession by stockholders of
invoking it (Traders Royal Bank v. Court of
corporate properties (Boyer-Roxas v. Court
Appeals, G.R. No. 93397, 1997).
of Appeals, G.R. No. 100866, 1992).
(c) Piercing is forbidden unless the remedy
(g) The piercing doctrine cannot be availed of in
sought is to make the stockholder, officer
order to dislodge from the jurisdiction of
or another corporation pecuniarily liable
the SEC the petition for suspension of
for corporate debts (Umali v. CA, G.R. No.
payments filed under Section 5(e) of Pres.
89561, 1990; Indophil Textile Mill Workers
 They must:
Decree No. 902-A, on the ground that the
a. Be a natural person, partnership,
petitioning individuals should be treated as
the real petitioners to the exclusion of the association or corporation, singly or
petitioning corporate debtor (Union Bank v. jointly with others but not more than
CA, G.R. No. 131729, 1998). fifteen (15)5 ;
(h) Changing of the petitioner’s subsidiary i. may be composed of any
liabilities by converting them to guarantors of combination of natural person/s,
bad debts cannot be done by piercing the veil SEC-registered partnership/s,
of corporate identity (Ramoso v. CA, G.R. No. SEC-registered domestic
117416, 2000) corporation/s or associations, and
(i) Piercing doctrine is meant to prevent fraud, foreign corporation/s (SEC MC
and cannot be employed to perpetrate no. 16-19)
fraud or a wrong (Araneta, Inc. v. Tuason, b. If natural persons, be of Legal Age;
G.R. No. L-2886, 1952).
c. Each owns or subscribes to at least
(j) Corporate persons are entitled to due process
one share for stock corporations and
protection. Thus, failure to implead a
corporation in a suit for recovery of ill- be a member for non-stock
gotten wealth against its stockholders corporations.
cannot bind the corporation itself; Note: Natural persons who are licensed to
otherwise, its fundamental right to due practice a profession, and partnerships or
process will be violated. (COCOFED v. associations organized for the purpose of
Republic, G.R. No. 177857-58, 2016) practicing a profession, shall not be allowed to
(k) Mere ownership of all or nearly all of the organize as a corporation (for the practice of such
capital stocks of a corporation is not in itself a profession) unless otherwise provided under
sufficient reason for disregarding the fiction of special laws.(Sec. 10)
separate corporate personalities. The probate
court applied doctrine of piercing the Additional Guidelines issued by the SEC(SEC
corporate veil since Rosario had no other MC no. 16-19):
properties that comprise her estate other than 1) For Partnership as Incorporators:
her shares. Although the intention to protect ● Application for registration must be
the shares from dissipation is laudable, it is accompanied with an affidavit, executed
still an error to order tenants to remit by all the partners, indicating that they
payments to the estate. Also, the court has authorized the partnership to be an
not acquired jurisdiction over Primrose and its incorporator and have designated one of
properties. Piercing applies to the the partners to sign the incorporation
determination of liability not of documents.
jurisdiction. It is not available to confer ● Partnerships under Dissolved or Expired
jurisdiction over a party not impleaded in status with the SEC shall not be authorized
a case. (Mayor v. Tiu, G.R. No. 203770,
to become an incorporator.
2016)
2) For Domestic Corporations or Associations
5. CAPITAL STRUCTURE as Incorporators:
● Its investment in the new corporation must
A. Number and Qualifications of be approved by a majority of the board of
Incorporators directors or trustees ratified by the
stockholders representing at least two-
1) Incorporators4 – Incorporators are those thirds (⅔) of the outstanding capital stock,
stockholders or members mentioned in the or at least two-thirds (⅔) of the members
articles of incorporation as originally forming in cases of nonstock corporations.
and composing the corporation and who are ● A Directors'/Trustees' Certificate or a
signatories thereof (Sec. 5). Secretary's Certificate, indicating the

5 A corporation with a single stockholder is considered

4 Note: Amendments were introduced by the RCC
either as an One Person Corporation or a Corporation
removing the qualifications to be natural persons, and
Sole.
majority must be residents of the Philippines;
 General Rule: A corporate term for a specific
necessary approvals, as well as the
period may be extended or shortened by
authorized signatory to the incorporation amending the articles of incorporation.
documents, shall be executed under oath Limitation: No extension may be made
and submitted by the applicant. earlier than three (3) years prior to the
● Domestic corporations under "delinquent", original or subsequent expiry date(s)
"suspended", "revoked" or "expired"
status with the SEC shall not be authorized Exception: There are justifiable reasons for an
to become an incorporator. earlier extension as may be determined by the
3) For Foreign Corporations as incorporators: SEC.
● The application for registration must be
accompanied by a copy of a document Effects:
duly authenticated by a Philippine If extended:
Such extension of the corporate term shall take
Consulate or with an apostille affixed
effect only on the day following the original or
thereto, authorizing the foreign
subsequent expiry date(s).
corporation to invest in the corporation
being formed and specifically naming the If not extended or expired:
designated signatory on behalf of the Upon expiration of the period fixed in the articles
foreign corporation. of incorporation, in the absence of compliance
with the legal requisites for the extension of the
B. Minimum Capital Stock And period, the corporation ceases to exist and is
Subscription Requirements dissolved ipso facto (PNB v. CFI Rizal, G.R. No.
63201, 1992)
Stock corporations shall not be required to have
a minimum capital stock, except as otherwise Doctrine of Relations or Relating Back
specifically provided by special law (Sec 12).6 Doctrine
Where the delay in affecting the amendment is
C. Corporate Term (Sec. 11) due to the neglect of the officer with whom the
certificate is required to be filed, or to a wrongful
New Rule: refusal on his part to receive it, the same will be
General rule: A corporation shall have perpetual treated as having been filed before the expiry
existence, date. The doctrine does not apply where the delay
Exception: Unless its articles of incorporation is attributable to the corporation (Alhambra Cigar
provide otherwise. v. SEC, G.R. No. L-23606, 1968)

For Corporations with certificates of Revival:

incorporation issued prior to the effectivity of
this Code, and which continue to exist shall have If a corporation’s term has expired, it may apply
perpetual existence, unless: for a revival of its corporate existence,
● upon a vote of its stockholders together with all the rights and privileges under its
representing a majority of its outstanding certificate of incorporation and subject to all of its
capital stock duties, debts and liabilities existing prior to its
● the corporation notifies the SEC that it revival. Upon approval by the SEC, the
elects to retain its specific corporate corporation shall be deemed revived and a
term pursuant to its articles of incorporation. certificate of revival of corporate existence shall
Any change in the corporate term under this be issued, giving it perpetual existence, unless
section is without prejudice to the appraisal right its application for revival provides otherwise.
of dissenting stockholders in accordance with the
provisions of this Code. Who may file for petition for revival of
corporate existence:
Extension:

6 The RCC completely removed sec. 13 of the old

corporation code which provided for the 25-25 rule
upon incorporation.
 1) Generally, a corporation whose term has a favorable recommendation of the
expired; appropriate government agency:
2) An Expired Corporation whose Certificate of 1) Banks,
Registration has been revoked for non-filing 2) Banking and quasi banking institutions,
of reports, 3) Preneed, Insurance and trust companies,
3) An Expired Corporation whose Certificate of 4) Non-stock savings and loan associations
Registration has been suspended (NSSLAs),
5) Pawnshops,
Note for 2) & 3): it shall file the proper Petition to
6) Corporations engaged in money service
Lift its Suspended Status, which may be
business, and
incorporated in its Petition to Revive, and must
settle the corresponding penalties thereof 7) Other financial intermediaries (Sec. 11)

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

has already been validly re-used, and is
currently being used, by another existing The required number of votes for the Revival of
corporation duly registered with the SEC, an Expired Stock Corporation is at least a majority
provided that the former shall change its vote of the board of directors, and the vote of at
corporate name within thirty (30) days from the least majority of the outstanding capital stock. For
issuance of its Certificate of Revival of nonstock corporations, at least a majority vote of
Corporate Existence. (SEC Memo. Circ. no. the board of trustees, and the vote of at least
23-19) majority of the members. (SEC MC no. 23-19)

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

1) An Expired Corporation which has completed The classification of shares, their corresponding
the liquidation of its assets; rights, privileges, or restrictions, and their stated
2) A corporation whose Certificate of par value, if any, must be indicated in the articles
Registration has been revoked for reasons of incorporation.
other than non-filing of reports;
3) A corporation dissolved by virtue of Sections Doctrine of Equality of Shares
6(c) and 6(d) of SEC Reorganization Act; Each share shall be equal in all respects to every
other share, except as otherwise provided in the
4) An Expired Corporation which already availed
articles of incorporation and in the certificate of
of re-registration or other memorandum
stock. (sec. 6)
circulars issued by the SEC pertaining to re-
registration, except when: i. Common and Preferred shares
a) The re-registered corporation has given - Common shares are also called ordinary
its consent to the Petitioner to use its shares and they share in profits pro-rata
corporate name, and has undertaken to - Preferred shares may be preferred (a)
undergo voluntary dissolution as to dividends, or (b) as to distribution of
immediately after the issuance of the assets during liquidation, or (c) as to any
Petitioner's Certificate of Revival; or other manner stated in the Articles, not
b) The re-registered corporation has given violative of the Corp Code. If authorized
its consent to the Petitioner to use its by Articles, Board may fix terms. It is
corporate name, and has undertaken to ALWAYS with a stated par value.
change its corporate name immediately
after the issuance of the Petitioner's ii. Par Value and No-Par Value
Certificate of Revival. (SEC Memo. Circ. ● Par value shares - with a pre-stated
no. 23-19) amount or denomination
● Non- par value - no pre-stated value
No application for revival of certificate of
incorporation of following corporations shall be
approved by the SEC unless accompanied by
 or deny the right of members of any class, the
Non-par value shares are deemed fully paid and
specific provision of Section 7 to founders’ share
non-assessable so holders of such are not liable
must prevail, and that the nonstock corporation
to the corporation or its creditors.
can lawfully suspend or define the voting rights of
its members, but with respect to founders’ share,
The consideration received is treated as capital
the exclusive right to vote and be voted for of the
and cannot be declared as dividends.
founders’ share should expire after five years
from the approval of the SEC. (Forest Hills and
Because they are vested with public interest,
Country Club, Inc. v. Kings Properties Corp., G.R.
the following types of corporations may only
No. 212833, 2019).
issue par value shares:
a. Banks
b. Redeemable shares – Expressly
b. Trust Companies
provided in articles; may be
c. Insurance Companies
purchased/taken up upon expiration of
d. Public Utilities
the period of said shares purchased
e. Building and Loan Associations.
whether or not there are unrestricted
retained earnings; may be deprived of
iii. Voting and Non- Voting Shares
voting rights.
● Voting share with complete voting rights
c. Treasury stocks – stocks previously
● Non - voting shares are preferred or
issued and fully paid for and reacquired
redeemable shares that have limited
by the corporation through lawful means
voting rights.
(purchase, donation, etc.); not entitled to
Non-Voting Shares Have Voting Rights In The vote and no dividends could be declared
Following Matters: thereon as corporations cannot declare
a. Amendment of Articles dividends to itself.
b. Adoption/ Amendment of By- Laws
c. Sale, lease, exchange, mortgage, pledge or Escrow shares – those held by a third person to
be released only upon the performance of a
dispose of all or substantially all of corporate
condition or the happening of a certain event
property
contained in the agreement.
d. Incur, create, increase bonded indebtedness
e. Increase, decrease capital stock Preferred cumulative participating share of
f. Merger/ consolidation with another stock - Share entitling its holder to preference in
corporation the payment of dividends ahead of common
g. Investment of funds in another corporation stockholders and to be paid the dividends due for
h. Dissolution of corporation prior years and to participate further with common
stockholders in dividend declarations.
Other Classes of Shares: (Secs. 7, 8, 9)
a. Founder’s shares – Given rights and Over-Issued Stock – Stock issued in excess of
privileges not enjoyed by owners of other authorized capital stock; null and void.
stocks; exclusive right to vote/be voted in
the election of directors shall not exceed 6. INCORPORATION AND ORGANIZATION
5 years.
Note: such exclusive right shall not be A. Promoter
allowed if its exercise will violate the
“Anti-Dummy Law”; the “Foreign A person who, acting alone or with others, takes
Investments Act of 1991”; and other initiative in founding and organizing the business
pertinent laws. or enterprise of the issuer and receives
consideration therefor. (Securities Regulation
Since Section 7 makes no distinction (and is found Code, Sec. 3.10. [R.A. 8799])
under General Provisions), then it must mean that
founders’ shares may be applied to both stock i. Liability of a Promoter
and nonstock corporations. Although [Section 88 General rule: Promoter is personally liable in the
of the Revised Corporation Code] allows in a event the corporation is not duly incorporated.
nonstock corporation to limit, broaden
 C. Pre-incorporation subscription (Sec. 60)
Exception: Investors who were not the “moving
spirit” behind the organization of the corporation,
but who were merely convinced to invest in the
It is entered into before the incorporation and
proposed corporate venture on the basis of the
irrevocable for a period of six (6) months from the
feasibility study undertaken, are not liable
date of subscription unless:
personally with the corporation for the cost of
i. All other subscribers consent to the
such feasibility study.(Caram, Jr. v. CA, G.R. No.
L-48627, 1987) revocation, or
ii. The corporation failed to materialize after
ii. Liability of Corporation for Promoter’s 6 months or within the stipulated period.
Contracts It cannot be revoked after filing the Articles of
General Rule: Corporation is not bound to a Incorporation with the SEC.
contract made by a promoter before its
incorporation (Cagayan Fishing v. Sandiko, G.R. In contrast
No. L-43350, 1937) Post-incorporation subscription – entered into
after incorporation, such as for the unsubscribed
Exceptions: portion of the authorized capital stock and for the
a) Adopts or ratifies the contract; or purchase of increased capital stocks after an
b) Accepts its benefits with knowledge of the amendment of the article of incorporation.
terms thereof (Rizal Light v. Morong, G.R.
D. Consideration for Stocks (Sec. 61)
No. L-20993, 1968)
Stocks shall not be issued for a consideration less
Ratification is the key element in upholding the than the par or issued price thereof.
validity and enforceability of promoter's contracts.
Without ratification by a corporation after its due Consideration for issuance of stock may be by any
incorporation, a contract entered into on behalf or a combination of any two or more of the
of a corporation yet to be organized or still in the following:
process of incorporation is void as against the a. Cash actually paid
corporation (Cagayan Fishing Development Co.,
b. Property (tangible or intangible) actually
Inc. v. Teodoro Sandiko, G.R. No. L-43350,
1937). received and necessary or convenient for the
corporation’s use
Although a franchise may be treated as a c. Labor performed or service actually rendered
contract, to the corporation
1. The eventual incorporation of the applicant d. Debts incurred previously by the corporation
corporation after the grant of the franchise; (for subscriptions after incorporation)
and e. Amounts from unrestricted dividends (for
2. Its acceptance of the franchise as shown declaration of stock dividends)
by its action in prosecuting the application f. Outstanding shares exchanged in
filed with the SEC for the approval of said reclassification or conversion
franchise, g. Shares of stock in another corporation;
and/or
…not only perfected a contract between the h. Other generally accepted forms of
respondent municipality and Morong Electric but consideration.
cured the deficiency in the application of Morong
Electric (Rizal Light & Ice Co., v. Municipality of Other Rules pertaining to consideration of
Morong, Rizal, G.R. No. L-20993, 1968). stocks
a. Where the consideration is other than actual
B. Subscription Contracts cash, or consists of intangible property such
as patents of copyrights, the valuation thereof
Any contract for the acquisition of unissued stock
shall initially be determined by the
shall be deemed a subscription, notwithstanding
the fact that the parties refer to it as a purchase incorporators or the board of directors,
or some other contract. (Sec. 59) subject to approval by the SEC.
 not include a purpose which would change or
b. No issuance of shares on promissory notes or
contradict its nature as such;
future services.
c. The place where the principal office of the
c. The same considerations under sec. 61
corporation is to be located, which must be
whenever applicable are to be used for bonds
within the Philippines;
issued by the corporation.
d. The term for which the corporation is to exist,
d. The issued price of no par value shares is the
IF not elected the perpetual existence;
amount fixed:
e. The names, nationalities and residences of
i. In the Articles
the incorporators;
ii. By the Board if authorized by its
f. The number of directors or trustees, which
Articles or By-Laws, or
shall not more than fifteen (15);
iii. if not so fixed, by the stockholders
g. The names, nationalities and residences of
representing the majority of the
persons who shall act as directors or
outstanding capital stock (Sec. 61)
trustees until the first regular directors or
Note: A special stipulation contained in a trustees are duly elected and qualified in
subscription to corporate stock which, if valid, accordance with the Corporation Code;
would lessen the capital of the company and h. If it be a stock corporation, the amount of its
relieve the subscriber from liability to be sued authorized capital stock in lawful money of
upon the subscription, is illegal (National the Philippines, the number of shares into
Exchange v. Dexter, G.R. No. L-27872, 1928). which it is divided, and in case the share are
par value shares, the par value of each, the
E. Articles of Incorporation names, nationalities and residences of the
original subscribers, and the amount
Nature and Function of Articles
subscribed and paid by each on his
The Articles of Incorporation is a basic contract
subscription, and if some or all of the shares
document in Corporate Law which defines the
charter of the corporation. Section 13 of the are without par value, such fact must be
Corporation Code provides that the Articles of stated;
Incorporation do not become binding as the i. If it be a non-stock corporation, the amount
charter of the corporation unless they have been of its capital, the names, nationalities and
filed with and registered with the SEC. residences of the contributors and the
amount contributed by each; and
Note: The Articles of Incorporation defines the j. Such other matters as are not inconsistent
contractual relationships between the State and with law and which the incorporators may
the corporation, the stockholders and the State, deem necessary and convenient.
and between the corporation and its stockholders
(Lanuza v. CA, G.R. No. 131394, 2005). An arbitration agreement may be provided in the
articles of incorporation pursuant to Section 181
i. Contents (Sec. 13) of this Code.
All corporations shall file with the SEC articles of
incorporation in any of the official languages, duly Note: The articles of incorporation and
signed and acknowledged or authenticated, in applications for amendments thereto may be
such form and manner as may be allowed by the filed with the SEC in the form of an electronic
SEC, containing substantially the following document, in accordance with the SEC’s rules
matters, except as otherwise prescribed by this and regulations on electronic filing.
Code or by special law:
a. The name of the corporation; Amendments
b. The specific purpose or purposes for which
the corporation is being incorporated. Where Requirement for Amending Articles of
a corporation has more than one stated Incorporation (Sec. 15)
purpose, the articles of incorporation shall a. A legitimate purpose for the amendment;
state which is the primary purpose and which b. Majority vote of directors or trustees and the
is/are the secondary purpose or purposes: vote or written assent of the stockholders
Provided, That a non-stock corporation may representing at least two-thirds (2/3) of the
 3) Names of original subscribers to capital stock
outstanding capital stock, without prejudice to
and subscribed and paid-up capital
the appraisal right of dissenting stockholders
if available, or if it be a non-stock corporation, 4) Treasurer-in-trust elected by original
two-thirds (2/3) of the members. subscribers
5) Members who contributed to the initial capital
c. The original and amended articles together
of non-stock corporation
shall contain all provisions required by law to
6) Witnesses and acknowledgments
be set out in the articles of incorporation.
d. Indication in the articles, by underscoring, the F. Corporate Name (Sec. 17)
change or changes made.
e. A copy of amended articles duly certified A corporation’s right to use its corporate and trade
under oath by the corporate secretary and a name is a property right, it is a right in rem which
majority of the directors or trustees stating the it may assert or protect against the whole world in
fact that said amendment or amendments the same manner as it may protect its tangible
have been duly approved by the required property against trespass or conversion (Philips
vote of stockholders or members, as the case Export v. CA, G.R. No. 96161, 1992)
may be.
Statutory Limitations on Use of Corporate
When would take effect: Name (NPC)
a. The amendments shall take effect upon their No corporate name shall be allowed by the SEC
approval by the SEC or if:
a. it is Not distinguishable from that
b. From the date of filing with the said
already reserved or registered for the use
Commission, if not acted upon within six (6)
of another corporation,
months from the date of filing for a cause not
b. if such name is already Protected by
attributable to the corporation.
law, or
Grounds for Rejecting Incorporation or c. when its use is Contrary to existing law,
Amendment to Articles of Incorporation (Sec. rules and regulations.
16)
a. Not in prescribed form; Not Distinguishable
b. Illegal purpose;
c. False Treasurer’s affidavit; and A name is not distinguishable even if it contains
d. Non-compliance with required Filipino stock one or more of the following:
a) The word “corporation”, “company”,
ownership.
“incorporated”, “limited”, “limited liability”,
The SEC shall give the corporation a reasonable or an abbreviation of one of such words;
time to correct or modify objectionable portions. and
b) Punctuations, articles, conjunctions,
Note: A favorable recommendation of the contractions, prepositions, abbreviations,
appropriate government agency to the effect that different tenses, spacing, or number of
such article or amendment is in accordance with the same word or phrase.
law is required in the following types of
corporation: Effects if Statutory Limitations are Violated:
● Banks, banking and quasi-banking a) SEC may summarily order the corporation
institutions, to immediately cease and desist from
● Preneed, insurance and trust companies, using such name and require the
● Non-stock savings and loan associations corporation to register a new one.
(NSSLAS), b) The SEC shall also cause the removal of
● Pawnshops, and all visible signages, marks,
● Other financial intermediaries advertisements, labels, prints and other
effects bearing such corporate name.
ii. Non-Amendable Items:
1) Names of incorporators
2) Names of incorporating directors/trustees
 of the partners gives its consent to the
c) Upon the approval of the new corporate
applied name.
name, the SEC shall issue a certificate of d) A name that consists solely of special
incorporation under the amended name. symbols, punctuation marks or
Note: If the corporation fails to comply with the specially designed characters shall not
SEC’s order, the SEC may hold the corporation be registered.
and its responsible directors or officers in e) The name of an internationally known
contempt and/or hold them administratively, foreign corporation cannot be used by a
civilly and/or criminally liable under this Code and domestic corporation unless it is its
other applicable laws and/or revoke the subsidiary and the parent corporation
registration of the corporation.(Sec. 17) has consented to such use.
f) A name written in a foreign language,
Other Limitations on the Use of Corporate even if registered in another country,
Name: shall not be registered if the name
violates good morals, public order or
a) The Corporate Name of the following entities public policy
shall include: g) The name of a local geographical unit,
i. For a Corporation- "Corporation" or site or location cannot be used as a
"Incorporated," or the abbreviations corporate or partnership name unless it
"Corp." or "Inc." is accompanied by a descriptive word
ii. For One Person Corporations- or phrase.
“OPC” h) The name of a corporation or
iii. Partnerships- partnership that has been dissolved or
1) General Partnerships - whose registration has been revoked
"Company" or "Co." shall not be used by another
2) limited partnership, the corporation or partnership within five
word "Limited" or "Ltd." (5) years from the approval of
3) Professional partnership dissolution or five (5) years from the
- "Company," date of revocation, unless its use has
"Associates," or been allowed at the time of the
"Partners," or other dissolution or revocation by the
similar descriptions; stockholders, members or partners who
iv. For Foundations- “Foundation” represent a majority of the outstanding
v. For engaging in microfinance capital stock or membership of the
activities - "Microfinance" or dissolved corporation or partnership, as
"Microfinancing" the case may be.
vi. Other words or phrases, authorized i) A corporate or partnership name, which
by law or other rules and was previously used but become the
regulations, to be used by specific subject of amendment, shall not be
corporations or partnerships re-registered or used by another
b) A term that describes the business of a corporation or partnership for a period
corporation in its name should refer to of three (3) years from the date of the
its primary purpose. If there are two approval of the adoption of the new
such terms, the first should refer to the corporate or partnership name. An
primary purpose and the second to earlier period may be allowed for the
the secondary purpose. registration or use of the former
c) If the name is similar to a registered corporate or partnership name provided
corporation or partnership, the applicant that the corporation or partnership,
which previously owned the used
shall add distinctive word/s to the corporate or partnership name, gives its
proposed name to remove the similarity consent.
from the registered name j) Names of absorbed/constituent
Note: This shall not be allowed if the corporation may not be used unless
registered name is coined or unique it is the surviving corporation
unless the board of directors or majority intending to use the said
absorbed/constituent corporate name,
 holding that a corporation may be sued under the
or that another corporation may use the
names of absorbed/constituent name by which it makes itself known to its
corporation if consent of the surviving workers (Pison-Arceo Agricultural Development
corporation is obtained Corp. v. NLRC, G.R. No. 117890, 1997).

Doctrine of Secondary Meaning To determine the existence of confusing similarity

General Rule: A corporation whose corporate in corporate names, the test is whether the
name is a word or phrase which is generally similarity is such as to mislead a person,
descriptive or geographical cannot prevent using ordinary care and discrimination. In so
another corporation, which uses the same or doing, the court must examine the record as well
phrase as its corporate name, from using such. as the names themselves. Proof of actual
confusion need not be shown. It suffices that
Exception: A word or phrase originally incapable confusion is probably or likely to occur.
of exclusive appropriation with reference to an (Indian Chamber of Commerce Phils, Inc. v.
article on the market because geographically or Filipino Indian Chamber of Commerce in the
otherwise descriptive, might nevertheless have Philippines, Inc., G.R. No. 184008, 2016)
been used so long and so exclusively by one
G. Registration, Incorporation and
producer with reference to his article that, in that
trade and to that branch of the purchasing public, Commencement of Corporate Existence
the word or phrase has come to mean that the (Sec. 18)
article was his product. (Lyceum v. CA, G.R. No.
101897, 1993) Registration

Change of Corporate Name A person or group of persons desiring to

A corporation may change its name by the incorporate shall submit the intended corporate
amendment of its articles of incorporation, but the name to the SEC for verification. If the SEC finds
same is not effective until approved by the SEC that the name is distinguishable from a name
(Philippine First Insurance Co. v. Hartigan, G.R. already reserved or registered for the use of
No. L-26370, 1970). another corporation, not protected by law and not
contrary to law, rules and regulations, the name
A change in the corporate name does not make a shall be reserved in favor of the
new corporation, and whether affected by special incorporators. The incorporators shall then
act or under a general law, has no effect on the submit their articles of incorporation and
identity of the corporation, or on its property, bylaws to the SEC.
rights, or liabilities (Republic Planters Bank v. CA,
G.R. No. 93073, 1992). Issuance of Certificate of Incorporation:

Other Doctrines: Corporate Name If the SEC finds that the submitted documents
Similarity in corporate names between two and information are fully compliant with the
corporations would cause confusion to the public requirements of this Code, other relevant laws,
especially when the purposes stated in their rules and regulations, the SEC shall issue the
charter are also the same type of business certificate of incorporation.
(Universal Mills Corp. v. Universal Textile Mills
Inc., G.R. No. L-28351, 1977). Commencement of Corporate Existence

A corporation has no right to intervene in a suit A private corporation organized under this Code
using a name other than its registered name; if a commences its corporate existence and juridical
corporation legally and truly wants to intervene, it personality from the date the SEC issues the
should have used its corporate name as the law certificate of incorporation under its official
requires and not another name which it had not seal and thereupon the incorporators,
registered (Laureano Investment & Development stockholders/ members and their successors shall
Corp. v. CA, G.R. No. 100468, 1997). constitute a body corporate under the name
stated in the articles of incorporation for the
There would be no denial of due process when a period of time mentioned therein, unless said
corporation is sued and judgment is rendered period is extended or the corporation is sooner
against it under its unregistered trade name, dissolved in accordance with law. (Sec. 18)
 Binding Effects
H. Election of Directors or Trustees (Sec. The by-laws of the corporation are its own private
23)7 laws that have the same effect as the laws of the
corporation. They are deemed written into the
Manner of Election charter. Thus, they become part of the
● In any form; or fundamental laws of the corporation which are
● By ballot when requested by any voting binding upon the corporation and its officers, and
stockholder or member the litigating parties who are not part of the
● In stock corporations, voting may be in corporation in accordance with their terms (Peña
person or by proxy v. CA, G.R. No. 91478, 1991; Forest Hills Golf
Club v. Gardpro Inc., G.R. No. 164686, 2014).
Time to Determine Voting Right
● At the time fixed in by- laws Procedure on Adoption of By-Laws (Sec. 45)
● If by- laws are silent, at time of election a. After Incorporation:
i. Approval by the majority of outstanding
I. Adoption of By-Laws shares/members
ii. By-laws must be signed by
By-laws stockholders/members voting for
Relatively permanent and continuing rules of them
action adopted by the corporation for its own iii. Kept in the principal office of the
government and of the individuals composing it
corporation
and those having direction, management and
iv. Subject to inspection by stockholders
control of its affairs, in whole or in part, in the
management and control of its affairs and or members
activities. v. Certified copy signed by majority of
directors, countersigned by the
Regulations, ordinances, rules or laws adopted by corporate secretary, filed w/ SEC and
an association or corporation or the like for its attached to original Articles of
internal governance, including rules for routine Incorporation
matters such as calling meetings and the like b. Prior to Incorporation:
(San Miguel Corp. v. Mandaue Packing Products i. such by-laws shall be approved and
Plants Union-FFW, G.R. No. 152356, 2005). signed by all the incorporators and
ii. submitted to the SEC, together with
By-laws are intended merely for the protection of the articles of incorporation.
the corporation, and prescribe regulation, not
restrictions, they are always subject to the charter
Note: A certification of the appropriate
of the corporation (Rural Bank of Salinas v. CA,
government agency to the effect that such bylaws
GR No. 96674, 1992).
or amendments are in accordance with law is
required before he SEC shall accept for filing the
Requisites of Valid By-Laws:
bylaws or any amendment thereto of the
a. It must be consistent with the Corporation
following:
Code, other pertinent laws and regulations. 1) Bank,
b. It must be consistent with the Articles of 2) Banking institution,
Incorporation. 3) Building and loan association,
c. It must be reasonable and not arbitrary or 4) Trust company,
oppressive. 5) Insurance company,
d. It must not disturb vested rights, impair 6) Public utility,
contract or property rights of stockholders or 7) Educational institution, or
members or create obligations unknown to 8) Other special corporations governed by
law. special laws

7This will be discussed extensively under the heading

Board of Directors and Trustees (9.D).
 of the corporation (Rural Bank of Salinas, Inc. v.
Failure to Adopt and Maintain the Bylaws Now
CA, 1992; quoting from Thompson on
Specifically Criminally Punishable and
Corporation Sec. 4137, cited in Fleischer v.
Subject to SEC’s Contempt Power (Sec. 161,
Nolasco, G.R. No. L-23241, 1925).
please see discussion below)
● By-law provisions cannot discriminate
Common Law Limitations on By-Laws
among its stockholders or members
● By-laws cannot be contrary to law and
articles of incorporation i. Contents of by-laws (Sec. 46)
A private corporation may provide the following in
its bylaws:
A by-law provision granting to a stockholder a
a) The time, place and manner of calling and
permanent representation in the Board of
Directors is contrary to the Corporation Code conducting regular or special meetings of
requiring all members of the Board to be elected the directors or trustees;
by the stockholders or members. Even when the b) The time and manner of calling and
members of the association may have formally conducting regular or special meetings and
adopted the provision, their action would be of no mode of notifying the stockholders or
avail because no provision of the by-laws can be members thereof;
adopted if it is contrary to law (Grace Christian c) The required quorum in meetings of
High School v. CA, G.R. No. 108905 , 1997). stockholders or members and the manner of
voting therein;
Although the right to amend by-laws lies solely in d) The modes by which a stockholder,
the discretion of the employer, this being in the
member, director, or trustee may attend
exercise of management prerogative or business
meetings and cast their votes;
judgment, such right cannot impair the obligation
of existing contracts or rights or undermine the e) The form for proxies of stockholders and
right to security of tenure of a regular employee. members and the manner of voting them;
Otherwise, it would enable an employer to f) The directors’ or trustees’ qualifications,
remove any employee from employment by the duties and responsibilities, the guidelines for
simple expediency of amending its by-laws and setting the compensation of directors or
providing the position shall cease to exist upon trustees and officers, and the maximum
occurrence of a specified event (Salafranca v. number of other board representations that
Philamlife (Pamplona) Village Homeowners an independent director or trustee may have
Association, Inc., G.R. No. 121791, 1998) which shall, in no case, be more than the
number prescribed by the SEC;
By-laws that prohibit directors who have interests g) The time for holding the annual election of
in competitor corporations are reasonable in
directors or trustees and the mode or
order to protect the interests of the company
(Gokongwei v. SEC, G.R. No. L-45911, 1979) manner of giving notice thereof;
h) The manner of election or appointment and
● By-laws cannot be unreasonable or be the term of office of all officers other than
contrary to the nature of by-laws (GPI v. El directors or trustees;
Hogar Filipino, G.R. No. L-26649, 1927). i) The penalties for violation of the bylaws;
j) In the case of stock corporations, the
Authority granted to a corporation to regulate the manner of issuing stock certificates; and
transfer of its stock does not empower k) Such other matters as may be necessary for
corporation to restrict the right of a stockholder to the proper or convenient transaction of its
transfer his shares, but merely authorizes the corporate affairs for the promotion of good
adoption of regulations as to the formalities and governance and anti-graft and corruption
procedure to be followed in effecting transfer measures.
(Thomson v. CA, G.R. No. 116631, 1998).
Note: An arbitration agreement may be provided
By-laws are intended merely for the protection of in the bylaws pursuant to Section 181 of this
the corporation, and prescribe regulation, not Code.
restrictions; they are always subject to the charter
 adopt new bylaws, duly certified under
ii. Binding effect of by-laws:
● As to the corporation and its components oath by the corporate secretary and a
– Binding not only upon the corporation but majority of the directors or trustees.
also on its stockholder, members and those
The amended or new by-laws shall only be
having direction, management and control of
effective upon the issuance by the SEC of a
its affairs. They have the force of contract certification that the same is in accordance with
between the members/stockholders. this Code and other relevant laws.
● As to third persons – Not binding unless
there is actual knowledge. Third persons are J. Effects Of Non-Use Of Corporate Charter
not even bound to investigate the content (Sec. 21)
because they are not bound to know the by-
laws which are merely provisions for the a) If a corporation does not formally organize
government of a corporation and notice to and commence its business within five
them will not be presumed (China Banking (5) years from the date of its
Corp. v. CA, G.R. No. 118332 1997). incorporation, its certificate of
incorporation shall be deemed revoked as
iii. Amendment or Revision (Sec. 47) of the day following the end of the five-year
1) With stockholders or members approval period.
- Majority vote of the members of the b) If a corporation has commenced its
Board; and business but subsequently becomes
- Majority of the outstanding capital inoperative for a period of at least five (5)
stock or majority of the members in consecutive years, the SEC may, after due
case of non- stock corporation, in a notice and hearing, place the corporation
meeting duly called for the purpose under delinquent status.
2) The board may be delegated to have the
power to amend or repeal any by- laws or Delinquent Corporation:
adopt new by- laws, by a vote of: A Corporation placed by the SEC under
- 2/3 of the shareholders representing delinquency status after due notice and hearing,
the outstanding capital stock; or because it commenced its business but
subsequently becomes inoperative for a period of
- 2/3 of the members in a non- stock
at least five (5) consecutive years.
corporation.
Effects of Delinquency Status:
Such power of the Board may be revoked by A delinquent corporation shall have a period of
majority vote of the outstanding capital stock or two (2) years to resume operations and comply
majority of the members in a non- stock with all requirements that the SEC shall prescribe.
corporation a) Upon compliance by the corporation, the
SEC shall issue an order lifting the
Note: The power to adopt the first original by-
laws cannot be delegated to the board of directors delinquent status.
or trustees; only the power to amend or repeal b) Failure to comply with the requirements and
any by- laws or adopt new by- laws that will resume operations within the period given
supplant the old by- laws can be validly by the SEC shall cause the revocation of the
delegated. corporation’s certificate of incorporation.

Filing and Effectivity Corporations under special regulatory

jurisdiction
Whenever the bylaws are amended or new The SEC shall give reasonable notice to, and
bylaws are adopted, the corporation shall file with coordinate with the appropriate regulatory agency
the SEC prior to the suspension or revocation of the
a) amended or new bylaws and, certificate of incorporation of companies under
their special regulatory jurisdiction.
b) if applicable, the stockholders’ or
members’ resolution authorizing the
delegation of the power to amend and/or
 k. Other powers essential or necessary to carry
7. CORPORATE POWERS
out its purposes.
A. General Powers; Theory of General
B. Specific Powers: Theory of Specific
Capacity
Capacity
The general capacity theory maintains that a
The specific capacity theory maintains that the
corporation is said to hold such powers as are not
corporation cannot exercise powers except those
prohibited or withheld from it by general law.
expressly/impliedly given.
a. Express powers – Those expressly
Specific Powers Granted by the RCC:
authorized by the Corporation Code and other
1) Power to extend or shorten corporate
laws, and its Articles of Incorporation or
term (Sec. 36)
Charter
2) Power to increase or decrease capital
b. Implied/necessary powers – Those that can
stock or incur, create, increase bonded
be inferred from or necessary for the exercise
indebtedness (Sec. 37)
of the express powers or for the pursuit of its
3) Power to deny pre-emptive rights (Sec.
purposes as provided in the Charter.
38)
Examples are powers related to the same line
4) Power to sell or dispose corporate assets
of business (e.g. stevedoring services to
(Sec. 39)
unload coal to its pier for corporations
5) Power to acquire own shares (Sec. 40)
supplying electric power)
6) Power to invest corporate funds in
c. Incidental/inherent powers – Those that
another corporation or business (Sec. 41)
are deemed to be within the capacity of
7) Power to declare dividends (Sec. 42)
corporate entities. These “necessarily flow”
8) Power to enter into management contract
from the business and attach at the moment (Sec. 43)
of creation without regard to express powers
or primary purpose. C. Power to Extend or Shorten corporate
term (Sec. 36)
General Express Powers under the
Corporation Code (Sec. 35) There should be a written notice of
a. Sue and be sued in its corporate name; stockholders/members meeting stating:
b. Succession; ● Proposed action and time and place of
c. Adopt and use a corporate Seal; meeting
d. Amend Articles of Incorporation ● Addressed to each stockholder/ member
e. Adopt, amend or repeal By-laws; ● Deposited to the addressee in post office,
f. For stock corporations – Issue stocks to with postage prepaid or served
subscribers and to sell treasury stocks; for personally;
non-stock corporations – admit members; Note: When allowed in the by-laws or done with
g. Purchase, receive, take, or grant, hold, the consent of the stockholder, sent
convey, sell, lease, pledge, mortgage and electronically in accordance with the rules and
otherwise deal with real and personal regulations of the SEC on the use of electronic
property, pursuant to its lawful business; data messages
h. Enter into Partnership, joint venture, merger,
consolidation, or any other commercial Vote needed:
agreement with natural and juridical persons; ● Board majority (in board meeting) and
i. Reasonable Donations for public welfare, ● Ratified by 2/3 of OCS or members in a
hospital, charitable, cultural, scientific, civil or meeting – mere written assent is not
similar purposes (Prohibited: for partisan enough
political activity);
j. Establish pension, retirement and other Plans
for the benefit of directors, trustees, officers
and employees; and
Appraisal rights available to dissenting Note: No decrease of capital stock shall be
stockholders approved by the SEC if it will prejudice the rights
● In case of extension of term – right of of corporate creditors
appraisal exists
● In shortening of term – right of appraisal From and after the approval by the SEC and the
recognized in Sec 81(1) – amendment of issuance of its certificate of filing, capital stock
Articles to shorten or extend corporate shall stand increased or decreased as the
term certificate may declare

D. Power to Increase or Decrease Capital Incur, create, or increase bonded

indebtedness (non-stock)- There should be no
Stock or Incur, Create, Increase Bonded
incurring, creating or increasing any bonded
Indebtedness (Sec. 37) indebtedness unless :
● Approved by majority of the board
Power to increase or decrease capital stock - ● Approved by at least 2/3 of members in a
provided that in the case of an increase in capital meeting
stock, the 25-25 rule is complied with, as ● With notice of the proposal and meeting
approved by the SEC given to stockholders
● With prior approval of the SEC
There shall be no increase or decrease of capital Bonds issued by a corporation shall be registered
stock unless : with the SEC, which shall have the authority to
● Approved by majority of the board determine the sufficiency of the terms thereof.
● Approved by at least 2/3 of OCS in a
meeting E. Power to Deny Pre-Emptive Rights (Sec.
● With notice of the proposal and meeting 38)
given to stockholders- given personally or
through electronic means if allowed General rule: Stockholders have the pre-emptive
● With prior approval of the SEC right to subscribe to all issues or disposition of
o The application with the SEC shall be shares by the corporation of any class in
made within six (6) months from the proportion to their shareholdings
date of approval of the board of Unless:
directors and stockholders, which ● Denied by the Articles of Incorporation or
period may be extended for amendment thereto;
justifiable reasons. ● Shares are issued in compliance with
● Accompanied by a sworn statement of laws requiring minimum stock ownership
the treasurer showing that the 25-25 rule by the public
has been complied with ● Shares issued in good faith in exchange
for property for corporate purposes
25-25 Rule approved by 2/3 of the OCS
● Shares in payment of previously
The SEC shall not accept for filing any certificate contracted debts approved by 2/3 of OCS
of increase of capital stock unless accompanied
by a sworn statement of the treasurer of the F. Power to Sell or Dispose Corporate
corporation lawfully holding office at the time of Assets (Sec. 39)
the filing of the certificate, showing that at least
twenty-five percent (25%) of the increase in This Power is subject to the provisions of the
capital stock has been subscribed and that at “Philippine Competition Act”, and other related
least twenty-five percent (25%) of the amount laws.
subscribed has been paid in actual cash to the
corporation or that property, the valuation of Votes Required:
which is equal to twenty-five percent (25%) of the Power to Sell or Dispose Corporate Assets
subscription, has been transferred to the (Not all or Substantially All)
corporation:
Majority Vote by Board of Directors or Trustees
ONLY
 ● If the proceeds of sale or disposition is
Power to Sell or Dispose All or Substantially
appropriated for the conduct of the
All Corporate Assets Including its Goodwill
remaining business
Needs vote of: G. Power to Acquire Own Shares (Sec. 40)
1) Majority Vote by Board of Directors or
Trustees Requirements:
2) 2/3 of OCS or members 1) Corporation has unrestricted retained
earnings in its books to cover the shares to
Note: In nonstock corporations where there be purchased or acquired,
are no members with voting rights, the vote of 2) It is for a legitimate corporate purpose or
at least a majority of the trustees in office will purposes, including the following cases:
be sufficient authorization for the corporation to ● To eliminate fractional shares arising out
enter into any transaction authorized by this of stock dividends;
section. ● To collect or compromise an
indebtedness to the corporation, arising
Sale of all or substantially all corporate out of unpaid subscription, in a
assets: delinquency sale, and to purchase
delinquent shares sold during said sale;
Net Asset Value Test- The determination of ● To pay dissenting or withdrawing
whether or not the sale involves all or stockholders entitled to payment for their
substantially all of the corporation’s properties shares under the provisions of the
and assets must be computed based on its net Corporation Code.
asset value, as shown in its latest financial
statements. Shares of stock which have been issued and fully
paid for, but subsequently reacquired by the
Incapacity Test- A sale or other disposition shall issuing corporation through purchase,
be deemed to cover substantially all the corporate redemption, donation, or some other lawful
property and assets if thereby the corporation means are Treasury Shares. Such shares may
would be rendered incapable of continuing again be disposed of for a reasonable price fixed
the business or accomplishing the purpose by the board of directors (Sec. 9) subject to
for which it was incorporated. (Sec. 39) stockholders’ preemptive rights.
Notice: H. Power to Invest Corporate Funds in
Written notice of stockholder/member meeting another Corporation or For Non-Primary
proposing said action served personally at their
places of residence and deposited to the Purpose (Sec. 41)
addressee in the post office with postage prepaid,
Needs vote of:
or when allowed by the by-laws or done with the
● Board majority in meeting
consent of the stockholder, sent electronically
● 2/3 of OCS or members -
Stockholders/members’ approval not
Dissenting stockholders have appraisal rights.
needed if investment in stock of other
corporations is reasonably necessary to
After authorization or approval by the
stockholders/members, the Board may accomplish primary purpose
however, abandon proposed action without ● Written notice of proposed investment
and time and place of meeting sent to
prior authorization/approval of
stockholders
stockholders/members, subject to rights of 3rd
parties ● Dissenting stockholders have appraisal
rights
However, stockholders’/members’ authorization
Investment by a sugar central in the equity of a
not needed if
● Disposition of property and assets is jute-bag manufacturing company used in packing
necessary in the usual and regular course sugar, falls within the implied powers of the sugar
of business, or central as part of its primary purpose (De La
Rama v. Ma-ao Sugar Central, G.R. No. L-17504,
1969)
 resources, where pertinent laws or regulations
I. Power to Declare Dividends (Sec. 42) will govern
Only Board action is needed (except stock
A management contract is not an agency
dividends where stockholder action is needed)
contract, and therefore is not revocable at will
● Cash dividends due on delinquent stock (Nielson v. Lepanto, G.R. No. L-21601, 1968)
should first be applied to unpaid balance
plus cost and expenses This needs approval of:
● Stock dividends shall be withheld from 1. Board of Directors of both managing and
delinquent stockholders until the unpaid managed corporation
subscription is fully paid 2. Majority of outstanding shares or
● Stock dividends need 2/3 vote of the OCS members of both managed and
● Dividends are payable out of unrestricted managing corporation
retained earnings 3. But 2/3 vote of outstanding
● Stock corporations cannot retain surplus stock/members of managed corporation
profits more than 100% of paid-in capital necessary in the ff:
stock unless: o Where stockholders of both
- Needed for corporate expansion managing and managed
projects approved by the board corporation (the common
- Or prohibited by loan agreement stockholders) own or control
which prohibits declaration of more than 1/3 or the outstanding
dividends without financial stock of managing corporation
institution’s consent o Where majority of directors in
- Or needed under special both corporations are the same
circumstances
● Unless otherwise provided in the articles K. Limitations
of incorporation, distribution of dividends
is done on a pro rata basis. i. Ultra Vires Acts

The power to declare dividends under [Sec. 42 of 1. Applicability of Ultra Vires Doctrine
RCC] is with the Board of Directors, and can be An act not within the express or implied, and
declared only out of its unrestricted retained incidental powers of the corporation.
earnings. Assuming that a corporate director was
authorized by the Board to fix the monthly Types of Ultra Vires Cases
dividends, dividends can be declared only out of a. First type: Acts done beyond the powers of
unrestricted retained earnings of a corporation, the corporation as provided for in the law or
which earnings cannot obviously be fixed and its articles of incorporation (Sec. 44)
predetermined 5 years in advance. (Ongkingco v. b. Second type: Acts or contracts entered into
Sugiyama, G.R. No. 217787, 2019). on behalf of the corporation by persons
without corporate authority, even though the
J. Power to Enter Into Management contract is within the powers of the
Contract (Sec. 43) corporation (Manila Metal Container Corp. v.
PNB, G.R. No. 166862, 2006) and
Where one corporation undertakes to manage all c. Third type: Acts or contracts, which are per
or substantially all of the business of another
se illegal as being contrary to law.
corporation, whether the contract is called
“service contracts” or “operating agreement”
2. Consequences of Ultra Vires Acts
General Rule: Contract may not exceed 5 yrs per ● Executed contract – Courts will generally
term not set aside or interfere with such contracts;
● Executory contracts – No enforcement
Exception: Contracts relating to exploration, even at the suit of either party (void and
development, exploitation or utilization of natural unenforceable);
 M. Doctrine of Equality of Shares
● Partly executed and partly executory –
Principle against unjust enrichment shall
Under the doctrine of equality of shares – all
apply. stocks issued by the corporation are presumed
equal with the same privileges and liabilities,
Ultra vires test: It is a question, therefore, in provided that the Articles of Incorporation is silent
each case, of the logical relation of the act to the on such differences (CIR vs. CA, G.R. No.
corporate purpose expressed in the charter. If 108576, 1999)
that act is one which is lawful in itself, and not
otherwise prohibited, is done for the purpose of This is now indicated under Sec. 6 of the RCC
serving corporate ends, and is reasonably
tributary to the promotion of those ends, in a Each share shall be equal in all respects to every
substantial, and not in a remote and fanciful, other share, except as otherwise provided in the
sense, it may fairly be considered within charter articles of incorporation and in the certificate of
powers. The test to be applied is whether the act stock. (Sec. 6)
in question is in direct and immediate furtherance
of the corporation’s business, fairly incident to the N. Trust Fund Doctrine
express powers and reasonably necessary to their
exercise. If so, the corporation has the power to do The subscriptions to the capital stock of a
it; otherwise, not. (University of Mindanao, Inc. v. corporation constitute a fund to which the
Bangko Sentral ng Pilipinas, G.R. 194964- 65, creditors have a right to look for satisfaction of
2016) their claims and that the assignee in insolvency
can maintain an action upon any unpaid stock
L. Doctrine of Individuality of Subscription subscription in order to realize assets for the
payment of its debts. (Phil. Trust Co. v. Rivera,
No certificate of stock shall be issued to a G.R. No. L-19761, 1923)
subscriber until the full amount of the subscription
together with interest and expenses (in case of [Hence,] there can be no distribution of assets
delinquent shares), if any is due, has been paid. among the stockholders without first paying
(Sec. 63) corporate creditors; any disposition of corporate
funds to the prejudice of creditors is null and void.
The foregoing provision sets forth the Doctrine of (Boman Environmental Dev. Corp. v. Court of
Indivisibility/Individuality of Subscription. This Appeals, G.R. No. 77860, 1988). This is without
doctrine espouses that the subscription contract prejudice to the ability of a corporation to effect
is one, entire, indivisible and whole contract distributions to its stockholders by way of
which cannot be divided into portions. It cannot dividends charged against unrestricted retained
be divided into portions so that no stockholder earnings.
shall be entitled to a certificate of stock until said
stockholder has paid the entire value of the Coverage of the Trust Fund Doctrine
shares subscribed, including the interest and
expenses. The Doctrine of Indivisibility of 1. In case of Solvency: The coverage of the
Subscription is absolute since the above-quoted trust fund doctrine is only up to the extent of
Section 64 speaks of no exception.
the “subscribed capital stock” of the
corporation. In this sense, the unrestricted
The purpose of the prohibition is to prevent the
partial disposition of a subscription which is not retained earnings do not constitute part of the
fully paid, because if it is permitted, and the capital stock. Hence, the corporation is at
subscriber subsequently becomes delinquent in liberty to pay out assets to the stockholders
the payment of his subscription, the corporation by way of dividends up to the extent of the
may not be able to sell as many of his subscribed unrestricted retained earnings.
shares as would be necessary to cover the total
amount due from him, which is authorized under 2. In case of Insolvency: The trust fund
section [67]. (SEC OGC Opinion No. 16-05) doctrine is not limited to reaching the
stockholders’ unpaid subscriptions. The
scope of the doctrine when the
corporation is insolvent encompasses not
 the members of the Board of Directors
only the capital stock, but also other
property and assets generally regarded in of the managed corporation
equity as a trust fund for the payment of (7) Declaration of stock dividend
corporate debts. Thus, the Trust Fund
However, among the “powers of
Doctrine extends to all assets (not just
corporations” only majority vote is needed in:
subscribed capital stock) when a corporation
becomes insolvent. (Halley v. Printwell, G.R. (1) Power to enter into management contracts,
No. 157549, 2011) except in instances mentioned in number (6)
of the preceding section
3. Releasing Subscribers: where the
corporation released the subscribers to the 2. By the Board of Directors
capital stock from their subscriptions without The Board of Directors is the main agency by
valuable consideration. (Ong yong v. Tiu, which all corporate powers and authority are
G.R. No.144476, 2003) exercised

O. How Corporate Powers are Exercised General rule: Majority vote of the Board is
needed in the following instances:
1. By the Shareholders
a. Extension or shortening of the corporate term
(Note: Generally, the vote requirement of the b. Increase or decrease of capital stock or the
shareholders or members are joined with a vote creation of bonded indebtedness
of, or a ratification by, a majority of the Board of c. Sale or other disposition corporate assets
Directors) d. Sale or other dispositions of all or
substantially all corporate assets (with 2/3
Vote of stockholders representing 2/3 of the
stockholders or members authorization, Sec
outstanding capital stock or 2/3 of members
(as applicable) are needed in the following 39)
instances: e. Acquisition of its own shares
f. Investment of corporate funds in any
(1) Extension or shortening of corporate term corporation or business or for any purpose
(2) Increase or decrease of capital stock or the other than its primary purpose (with 2/3
creation of bonded indebtedness stockholders ratification, Sec. 41)
(3) Power to deny pre-emptive right, in these g. Declaration of cash, property, and stock
cases: dividends (if stock dividends, it must be joined
(a) Shares issued in good faith in exchange with 2/3 vote of shareholders, sec. 42)
for property for corporate purposes h. Entering into management contracts
(b) Shares in payment of previously (accompanied by the approval of the
contracted debts shareholders or members, Sec. 43)
(4) Sale of all or substantially all corporate assets
(5) Investing corporate funds in another 3. By the Officers
corporation or business or for any other
purpose other than its primary purpose The officers shall manage the corporation and
perform such duties as may be provided in the
(6) Power to enter into management contracts in
bylaws and/or as resolved by the board of
the following instances:
directors. (Sec. 24)
(a) where stockholders representing the
same interest of both the managing and Executive Committee (Sec. 34)
the managed corporations own more
than one-third (1/3) of the total General rule: The Executive Committee may act,
outstanding capital stock entitled to vote by majority vote, on specific matters within the
of the managing corporation; or competence of the board as delegated to it. Such
(b) where a majority of the members of the an Executive Committee may be established if the
Board of Directors of the managing bylaws so provide.
corporation also constitute a majority of
 Requisites for Valid Proxy
Exception:
1. The proxy shall be in writing;
1. Acts where stockholders’ approval is also
2. Signed by the stockholder or member; and
needed
3. Filed before the scheduled meeting with the
2. Filling vacancies within the Board of
corporate secretary (Sec. 57)
Directors
3. Amending, repealing or adopting by-laws
Duration of Proxy
4. Amending or repealing resolutions of the General Rule: It shall be valid only for the
Board where the resolution by express meeting for which it is intended.
terms is not so amendable or repealable
by the Executive Committee Exception: Unless otherwise provided in the
5. Distribution of cash dividends proxy

8. STOCKHOLDERS AND MEMBERS Note: No proxy shall be valid and effective for a
period longer than five (5) years at any one time.
A. Fundamental Rights of Stockholders
The by-laws of the corporation may prescribe a
and Members
particular form for proxy and fix the deadline for
its submission.
The following are important rights of
stockholders, which continue to exist even when
Generally, proxies, even those with irrevocable
the shares have been sequestered:
a. Right to attend meetings and to vote terms, have always been considered as
revocable, unless coupled with an interest, and
b. Right to receive dividends
their revocation may be by formal notice, orally,
c. Right to receive distributions upon liquidation or by conduct as by the appearance of the
of the corporation stockholder or member giving the proxy, or the
d. Right to inspect the books of the corporation issuance of a subsequent proxy, or the sale of
e. Pre-emptive rights (Cojuangco, Jr. vs. Roxas, shares.
G.R. No. 91925, 1991)
Note: Proxies, who are not stockholders or
B. Participation In Management members, cannot be elected as a director or
trustee. (Lim v. Moldex Land, Inc., G.R. No.
i. Proxy – Section 57 of the Corporation Code 206038, 2017)
provides that stockholders and members may
vote in person or by proxy in all meetings of Proxy Disputes—Jurisdiction
stockholders or members. The regular courts now have the power to hear
and decide cases involving all matters and
ii. Voting Trust Agreements – A stockholder conduct of the elections of directors, including
confers upon a trustee the right to vote and validation of proxies. The power of SEC to
other rights pertaining to the shares for a regulate proxies remains only in instances when
stockholders vote on matters other than the
period not exceeding 5 years at any one time.
election of directors (SEC v. CA, G.R. No.
(Sec. 58).
187702/189014, 2014).
However, if the voting trust was a requirement for Requisites for Valid Voting Trust
a loan agreement, period may exceed 5 years but a. In writing and notarized
shall automatically expire upon full payment of
b. Specifying the terms and conditions
the loan.
c. A certified copy must be filed with the
Pooling or voting agreements – two or more corporation and with the SEC. (Sec. 58)
stockholders agree that their shares shall be
voted as a unit. Usually concerned with the Duration
election of directors to gain control of the General Rule: Not exceeding 5 years
management.
Exception: If the voting trust was a requirement
for a loan agreement, period may exceed 5 years
 non-voting shares are not entitled to vote
but shall automatically expire upon full payment
of the loan. except as other provided in the said section.
b. Preferred or redeemable shares may be
No voting trust must be used for the purposes of deprived of the right to vote unless otherwise
fraud. Stockholders who are defrauded by their provided.
trustees have a right to revoke the trust and c. Fractional shares of stock cannot be voted
recover damages from such trustee. unless they constitute at least one full share.
d. Treasury shares have no voting rights as long
Voting Trust v. Proxy as they remain in treasury.
VOTING TRUST PROXY e. Holders of stock declared delinquent by the
Trustee votes as Proxy holder votes as board for unpaid subscription have no voting
owner agent rights.
Agreement must be Proxy need not be f. A transferee of stock if his stock transfer is
notarized notarized not registered in the stock and transfer book
Trustee acquires legal Proxy has no legal of the corporation and does not have a proxy
title to the shares of title to the shares of from or voting trust agreement with the
the transferring the principal transferor may not vote the
stockholder; only purchased/acquired shares.
beneficial title g. A stockholder who mortgages or pledges his
remains with the shares retains the right to vote unless he
stockholder gives authority for the creditor to vote.
Trustee may vote in Proxy must vote in
person or by proxy person iii. Cases When Stockholder’s Action is
unless the agreement Required
provides otherwise
1. Concurrence of majority of the
Trustee is not limited Proxy can only act at
to act at any particular a specified outstanding capital stock (by majority vote)
meeting stockholder’s meeting a. To enter into management
(if not continuing) contract if any of the two
instances stated above are
Trustee can vote and Proxy can only vote in
absent;
exercise all the rights the absence of the
b. To adopt, amend or repeal the
of the stockholder owners of the stock
by-laws.
even when the latter
2. Concurrence of 2/3 of outstanding capital
is present
stock (by 2/3 vote) (see similar enumeration
Agreement must not Proxy cannot exceed
in the specific express powers of the
exceed 5 years at any 5 years at any one
corporation)
one time, except time
a. Extend or shorten corporate term;
when the same is
b. Increase/Decrease Corporate Stock;
made a condition of a
c. Incur, Create Bonded Indebtedness;
loan
d. Deny pre-emptive right;
Voting right is Right to vote is
e. Sell, dispose, lease, encumber all or
divorced from the inherent or
substantially all of corporate assets;
ownership of stocks inseparable from the
f. Investing another corporation, business
right to ownership of
other than the primary purpose;
the stock
g. Declare stock dividends
Agreement is Revocable anytime,
h. Enter into management contract if (1) a
irrevocable except if coupled with
stockholder or stockholders representing
interest
the same interest of both the managing
and the managed corporations own or
Limitations on Right to Vote control more than 1/3 of the total
a. Where the Articles of Incorporation provides outstanding capital entitled to vote of the
for classification of shares pursuant to Sec. 6,
 factors consistent with the basic right of corporate
managing corporation; or (2) a majority of
suffrage.
the members of the board of directors of
the managing corporation also constitute C. Proprietary Rights
a majority of the members of the board of
the managed corporation; i. Right To Dividends
i. Amend the Articles of Incorporation The right to dividends vests at the time of its
declaration by the Board of Directors.
3. By Cumulative Voting
a. See discussion on election of Although stock certificates grant the stockholder
directors the right to receive quarterly dividends of 1%,
cumulative and participating, the stockholders do
4. Without board resolution not become entitled to the payment thereof
a. 2/3 of outstanding capital stock – without necessity of a prior declaration of
delegate to the board the power dividends. (Republic Planters Bank v. Hon.
Agana, Sr., G.R. No. 51765, 1997)
to amend the by-laws;
b. Majority of the outstanding
Stock Corporations are prohibited from retaining
capital stock – revoke the power surplus profits in excess of 100% of their paid-in
of the board to amend the by- capital stock, except:
laws which was previously 1. When justified by definite corporate
delegated. expansion projects or programs approved by
c. Removal of directors by a vote of the board of directors
the stockholders representing at 2. Corporation is prohibited under a loan
least 2/3 of the outstanding agreement from declaring dividends without
capital stock the creditor’s consent.
3. Under special circumstances such as when
The term “outstanding capital stock (OCS),” there is a need for special reserve for
means the total shares of stock issued under
probable contingencies
binding subscription contracts to subscribers or
stockholders, whether fully or partially paid,
Form of Dividends
except treasury shares. (Sec. 173)
1. Cash Dividends (revocable before
iv. Manner of Voting (sec. 57) announcement).
2. Property Dividends (revocable before
Stockholders and members may vote in person announcement).
or by proxy in all meetings of stockholders or 3. Stock Dividends, which requires, aside from
members. the declaration by the Board, the approval of
2/3 of the outstanding capital stock
Voting through remote communication or in (revocable before issuance).
absentia; Requisites:
1. Authorized in the by-laws or by a majority Note: No dividends can be declared out of capital,
of the board of directors except liquidating dividends distributed at
2. Votes are received before the dissolution.
corporation finishes the tally of votes.
ii. Right Of Appraisal
Effect: A stockholder or member who participates The right to withdraw from the corporation and
through remote communication or in absentia, demand payment of the fair value of his shares
shall be deemed present for purposes of quorum. after dissenting from certain corporate acts
involving fundamental changes in corporate
The corporation shall establish the appropriate structure.
requirements and procedures for voting through
remote communication and in absentia, taking 1. When available
into account the company’s scale, number of a. Extension or shortening of corporate term;
shareholders or members, structure and other (Sec. 36)
 automatically be restored to all his rights as
b. In case any amendment to the articles of
stockholder. (Sec. 82)
incorporation has the effect of changing or
restricting the rights of any stockholders or
iii. Right To Inspect
class of shares, or of authorizing preferences
in any respect superior to those of What Records Can Be Inspected?
outstanding shares of any class; (Sec. 80)
c. Investing of corporate funds for any purpose Corporate records, regardless of the form in
other than the primary purpose; (Sec. 80) which they are stored, shall be open to inspection
d. Sell or dispose all or substantially all assets of by any director, trustee, stockholder or member
corporation;(Sec. 80) of the corporation in person or by a representative
e. Merger or consolidation.(Sec. 80) at reasonable hours on business days, and a
demand in writing may be made by such director,
2. Manner of exercise of right (Sec 81, RCC) trustee or stockholder at their expense, for copies
● A written demand on the corporation within of such records or excerpts from said records.
30 days after the vote was taken (failure to do (Sec. 73).
so means waiver);(Sec. 81)
● From the time of demand, all rights accruing Also, a corporation shall furnish a stockholder or
member, within 10 days from receipt of their
to such shares including voting and dividend
written request, its most recent financial
rights shall be suspended except the right of
statement (Sec. 74).
such stockholder to receive payment of the
fair value of stockholder’s shares. (Sec. 82) The first three are the formulation of the old code.
● Ten (10) days from demand, the dissenting Under the Revised Corporation Code, inspection
stockholder must submit his certificates of rights covers a’’ “corporate records, regardless of
stocks for notation that such certificates the form in which they are stored” (see Sec. 73)
represent dissenting shares. (Sec. 85)
● The price to be paid is the fair value of the Stock and transfer book
shares on the date the vote was taken; (Sec. Record of:
81) 1. All stocks in the names of the stockholders
● The fair value shall be agreed upon by the alphabetically arranged;
corporation and the dissenting stockholders 2. The installment paid and unpaid on all stock
within 60 days from the date the vote was for which subscription has been made, and
taken. In case there is no agreement, the fair the date of payment of any installment;
value shall be determined by a majority of the 3. A statement of every alienation, sale or
3 distinguished persons one of whom shall be transfer of stock made; and
named by the stockholder another by the 4. Such other entries as the by-laws may
corporation and the third by the two who were prescribe.
chosen; (Sec. 81)
● The right of appraisal is extinguished when: Notes: Stock and Transfer Book
(Sec. 83) Section [73], while specific in the kinds of records
a. He withdraws the demand with that must be maintained, is not limiting, thus, the
the corporation’s consent; inspection right is applicable to the stock and
transfer book (Yujuico v. Quiambao, G.R. No.
b. The proposed action is
180416, 2014)
abandoned;
c. The SEC disapproves of such The corporate secretary is the officer who is duly
action where approval is authorized to make entries on the stock and
necessary transfer book (Gokongwei v. SEC, GR No. 45911,
d. The SEC determines that such 1979).
dissenting stockholder is not
entitled to the appraisal right. All transfers of shares not entered in the stock
● If the dissenting stockholder is not paid within and transfer book of the corporation are invalid as
30 days from the award, he shall to attaching or execution creditors of the
assignors, as well as to the corporation and to
subsequent purchasers in good faith and to all
persons interested, except the parties to such The purposes held to justify a demand for
transfers: “All transfers not so entered on the inspection are the following:
books of the corporation are absolutely void; not (1) To ascertain the financial condition of the
because they are without notice or fraudulent in company or the propriety of dividends;
law or fact, but because they are made so void by (2) the value of the shares of stock for sale or
statute (Uson vs. Diosomito, G.R. No. 42135, investment;
1935). (3) whether there has been mismanagement;
(4) in anticipation of shareholders' meetings to
The entries are considered prima facie evidence obtain a mailing list of shareholders to solicit
only and may be subject to proof to the contrary proxies or influence voting;
(Bitong v. CA, G.R. No. 123553, 1998). (5) to obtain information in aid of litigation with the
corporation or its officers as to corporate
The stock and transfer book of the corporation transactions.
cannot be used as the sole basis for determining
the quorum as it does not reflect the totality of The improper purposes which may warrant
shares which have been subscribed, and more so the denial of the right of inspection:
when the articles of incorporation show a (1) Obtaining of information as to business
significantly larger amount of shares issued and secrets or to aid a competitor;
outstanding as compared to that listed in the (2) to secure business "prospects" or investment
stock and transfer book (Lanuza v. Court of or advertising lists;
Appeals, G.R. No. 131394, 2005). (3) to find technical defects in corporate
transactions in order to bring "strike suits" for
Grounds for Not Allowing Inspection by a purposes of blackmail or extortion. (Terelay
Stockholder Investment and Development Corp. v. Yulo, G.R.
a. If the person demanding to examine the No. 160924, 2015)
records has improperly used any information
secured for prior examination, The Right to Inspect Corporate Records is
b. He is not acting in good faith, Subject to Confidentiality rules
c. A requesting party who is not a stockholder
or member of record, or is a competitor shall The inspecting or reproducing party shall remain
bound by confidentiality rules under prevailing
have no right to inspect or demand
laws, such as:
reproduction of corporate records. (Sec. 73)
1. Trade secrets or processes under
Republic Act No. 8293, or the
Competitor- competitor, director, officer,
controlling stockholder or otherwise represents “Intellectual Property Code of the
the interests of a competitor shall have no right to Philippines”, as amended,
inspect or demand reproduction of corporate 2. Republic Act No. 10173, or the “Data
records. (Sec. 73) Privacy Act of 2012”,
3. Republic Act No. 8799, or “The Securities
In one case, the Supreme Court clarified that the Regulation Code”, and
right of inspection may only be exercised by a 4. the Rules of Court. (Sec. 73)
stockholder of record. As such, the corporation
may validly set up the defense in its refusal to Doctrinal Rulings on Right to Inspect
grant a claim of the right of inspection on the The demand for inspection should cover only
ground that the person is not a stockholder of reasonable hours on business days;
record. (Puno v. Puno Enterprises Inc., GR No.
177066, September 11, 2009) The stockholder, member, director or trustees
demanding the right is one who has not
In Terelay Investment and Development Corp. v. improperly used any information secured through
Yulo, the court ruled that although the corporation any previous examination of the records;
may deny a stockholder's request to inspect
corporate records, the corporation must show The demand must be accompanied with
that the purpose of the shareholder is improper statement of the purpose of the inspection, which
by way of defense. must show good faith or legitimate purpose.
 demanding to examine and copy excerpts
Illegitimate purposes include to obtain corporate
secrets (formula), nuisance suit, or to embarrass from the corporation’s records and minutes
the company. (Africa v. PCGG, G.R. No. 83831, has improperly used any information secured
1992) through any prior examination of the records
or minutes of such corporation or of any other
If the corporation or its officers contest such corporation, or was not acting in good faith or
purpose or contend that there is evil motive for a legitimate purpose in making his
behind the inspection, the burden of proof is with demand, the contrary must be shown or
the corporation or such officer to show the same. proved.
● The person demanding to examine has
The RTC, and not the Sandiganbayan, has improperly used any information secured
jurisdiction over a stockholder’s suit to enforce its through any prior examination of the records
right to inspect under the Corporation Code
or minutes of such corporation or for any
where the case does not involve a sequestration-
other corporation; and
related incident, but an intra-corporate
controversy (Abad v. PHILCOMSAT, G.R. No. ● The one requesting to inspect was not acting
200620, 2015) in good faith or for a legitimate purpose in
making his demand
A stockholder’s right to inspect corporate records
subsists during the period of liquidation (three Criminal sanctions under Sec. 170
year period for dissolution per Sec. 145). (Chua refer to discussion at the respective topic below
v. SEC, G.R. No. 216146, 2016)
iv. Pre-Emptive Right
Remedies If Right to Inspect is Denied The shareholders’ right to subscribe to all issues
or dispositions of shares of any class in proportion
Mandamus to his present stockholdings, the purpose being to
Refusal to allow stockholders (or members of a enable the shareholder to retain his proportionate
non-stock corporation) to examine books of the control in the corporation and to retain his equity
company is not a ground for appointing a receiver in the surplus.
(or creating a mgt. committee) since there are
other adequate remedies, such as mandamus. Instances When Preemptive Right Is Not
(Ao-as v. CA, G.R. No. 128464, 2006) Available
a. Shares to be issued to comply with laws
Damages requiring stock offering or minimum stock
ownership by the public;
Administrative Sanction (Sec. 158) b. Shares issued in good faith with approval of
Requisites for Section [158] to Apply (Ang-Abaya the stockholders representing 2/3 of the
v. Ang, G.R. no. 178511, 2008) outstanding capital stock in exchange for
property needed for corporate purposes;
● A director, trustee, stockholder or member
c. Shares issued in good faith with approval of
has made a prior demand in writing for a copy
the stockholders representing 2/3 of the
of excerpts from the corporations records or
outstanding capital stock issued in payment
minutes;
of previously contracted debts;
● Any officer or agent of the concerned
d. In case the right is denied in the Articles of
corporation shall refuse to allow the said
Incorporation;
director, trustee, stockholder or member of
e. Waiver of the right by the stockholder;
the corporation to examine and copy said f. If the shares of a corporation are offered and
excerpts; not subscribed and purchased by the
● If refusal is made per a resolution or order of
stockholders, and the shares are being
the board of directors or trustees, the liability
offered again, there is no pre-emptive right
under this section for such action shall be
with respect to the latter offer of shares
imposed upon the directors or trustees who (Benito v. SEC, G.R. No. L-56655, 1983)
voted for refusal;
● Where the officer or agent of the corporation
sets up the defense that the person
 v. Right to Vote
Right of first refusal
The right to vote is given to the shareholders but
The right of first refusal provides that a
can be limited if stipulated in the Articles of
stockholder who may wish to sell or assign his
Incorporation and the Certificate of Stock.
shares must first offer the shares to the
corporation or to the existing stockholders of the
corporation, under terms and conditions which However, holders of nonvoting shares shall
are reasonable; and that only when the nevertheless be entitled to vote on the following
corporation or the other stockholders do not or fail matters:
to exercise their option, is the offering stockholder a) Amendment of the articles of
at liberty to dispose of his shares to third parties. incorporation; (b)Adoption and
amendment of bylaws;
b) Sale, lease, exchange, mortgage,
Pre-Emptive Right v. Right of First Refusal
pledge, or other disposition of all or
PRE-EMPTIVE RIGHT OF FIRST
substantially all of the corporate property;
RIGHT REFUSAL c) Incurring, creating, or increasing bonded
Generally may be indebtedness;
Arises only by virtue
exercised, subject to d) Increase or decrease of authorized
of contractual
limitations in capital stock;
stipulations or by law
Corporation Code e) Merger or consolidation of the
Covers unissued corporation with another corporation or
Covers shares other corporations;
shares offered for
already issued f) Investment of corporate funds in another
subscriptions
Can only be exercised corporation or business in accordance
with this Code; and
May be exercised by by the owner and not
g) Dissolution of the corporation
mere trustees or mere trustee or
conservators conservator, since it is vi. Other Rights
(Republic v. an act of ownership ● Right to issuance of stock certificate for
Sandiganbayan, G.R. (Republic v. fully paid shares - Under Section 64 of the
No. 107789, 2003) Sandiganbayan, G.R. Corporation Code, no certificate of stock shall
No. 107789, 2003) be issued to a subscriber until the full amount
Right claimed against of his subscription together with interest and
Right exercisable
the Corporation, expenses (in case of delinquent shares), if
against the seller-
where the stockholder any is due, has been paid. A subscriber must
stockholder
must pay first totally pay his subscription before a
certificate of stock covering shares
Note: subscribed and paid for could be issued to
A corporation has no power to prevent or restrain him. But an unpaid subscription (not declared
transfers of its shares, unless such power is delinquent) can be voted upon in corporate
expressly conferred in the Articles of meetings. Such delinquent shares are also
Incorporation or the law. (Fleischer v. Botica entitled to dividends, subject to the rules set
Nolasco Co., G.R. No. L-23241, 1925)
forth in Section 43 of the Corporation Code
A provision in the by-laws granting the right of first on delinquent shares.
refusal (and therefore, restrains trade) is void and
does not bind third parties (Fleischer v. Botica Nevertheless, Section 64 does not prohibit the
Nolasco Co., G.R. No. L-23241, 1925) corporation from “dividing” the subscription of a
subscriber by considering portion thereof as fully
By-laws are intended merely for the protection of paid and issuing a corresponding certificate over
the corporation and prescribe relation, not the paid- up shares. Thus, in the absence of
restriction; they are always subject to the charter provisions in the by- laws to the contrary, a
of the corporation. (Rural Bank of Salinas v. CA, corporation may apply payments made by
G.R. No. 96674, 1992) subscribers on account of their subscriptions
either as:
 3. To be valid against third parties, the transfer
1. Full payment for the corresponding
must be recorded in the books of the
number of shares, the par value of which
corporation
is covered by such payment; or
2. Payment pro rata to each and all the
Note: The delivery of the stock certificate duly
entire number of shares subscribed for
endorsed by the owner is the operative act of
transfer of shares from the lawful owner to the
Once an alternative is chosen, it must be applied new transferee. (Bitong v. Court of Appeals, G.R.
uniformly to all stockholders similarly situated, No. 123553, 1998)
and therefore, it cannot be changed without the
consent of all stockholders who might be affected. The delivery contemplated in Section [73],
however, pertains to the delivery of the
● Proportionate participation in the certificate of shares by the transferor to the
distribution of assets in liquidation transferee, that is, from the original stockholder
- Stockholders and stock corporation – named in the certificate to the person or entity the
Except by decrease of capital stock, and stockholder was transferring the shares to,
as otherwise allowed by the Corporation whether by sale or some other valid form of
Code, no corporation shall distribute any absolute conveyance of ownership. It does not
of its assets or property to its pertain to the surrender of the stock certificate to
stockholders except upon lawful the corporation. (Teng v. SEC, G.R. No. 184332,
dissolution and after payment of all its 2016)
liabilities (Sec. 122)
However: The surrender of the original certificate
- Members and foundations – Upon of stock is necessary before the issuance of a new
one so that the old certificate may be cancelled.
dissolution of a non-stock corporation, all
A corporation is not bound and cannot be required
liabilities and obligations must first be
to issue a new certificate unless the original
paid, and assets received and held certificate is produced and surrendered. (Teng v.
subject to limitations permitting their use SEC, G.R. No. 184332, 2016)
for specified eleemosynary purposes
shall be properly transferred or returned, A transfer of shares not recorded in the stock and
then the net assets remaining, if any, transfer book is non- existent as far as the
shall be distributed to the members, or corporation is concerned, and consequently, a
any class or classes of members, to the petition for mandamus filed by a transferee,
extent that the articles of incorporation or compelling it to issue the corresponding
by- laws provide for a plan of distribution. certificates in the name of the transferee would be
Otherwise, a plan of distribution may be without basis. It is only when the transfer has
adopted in the process of dissolution by: been recorded in the stock and transfer book that
a corporation may rightfully regard the transferee
a. Majority vote of the Board of
as one of its stockholders. From this time, the
Trustees
consequent obligations on the part of the
b. Adopted by at least 2/3 of the corporation to recognize such right as it is
members having voting rights mandated by law to recognize arises (Ponce v.
(Secs. 94–95) Alsons Cement, G.R. No. 139802, 2002).

● Right to transfer of stocks in corporate Note: In Andaya v. Rural Bank of Cabadbaran,

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

D. Remedial Rights As a general rule, corporate litigation must be

commenced by the corporation itself, with the
Suits by Stockholders/Members imprimatur of the board of directors, which,
i. Individual Suit – those brought by the pursuant to the law, wields the power to sue.
shareholder in his own name against the Therefore, since the derivative suit is a remedy of
corporation when a wrong is directly inflicted last resort, it must be shown that the board, to the
detriment of the corporation and without a valid
against him.
business consideration, refuses to remedy a
ii. Representative/Class Suit – those brought
corporate wrong. A derivative suit may only be
by the stockholder on behalf of himself and all instituted after such an omission. Simply put,
other stockholders similarly situated when a derivative suits take a back seat to board-
wrong is committed against a group of sanctioned litigation whenever the corporation is
stockholders. willing and able to sue in its own name. (Ago
iii. Derivative Suit – those brought by one or Realty & Dev. Corp. v. Ago, G.R. No.s 210906 &
more stockholders/members in the name and 211203, 2019)
on behalf of the corporation to redress
wrongs committed against it, or E. Obligations of a Stockholder
protect/vindicate corporate rights whenever
a. Liability to the corporation for unpaid
the officials of the corporation refuse to sue,
subscription;
or the ones to be sued, or has control of the
b. Liability to the creditors of the corporation for
corporation. (Ching v. Subic Bay, G.R. No.
unpaid subscription;
174353, 2014)
c. Liability to the corporation for interest on
- A lawyer engaged as counsel for a
unpaid subscription if so required by the by-
corporation cannot represent members
laws;
of the Board in a derivative suit against
d. Liability for watered stock;
them. To do so would be tantamount to
e. Liability for dividends unlawfully paid;
conflicting interest between the Board
and the corporation (Hornilla v. Salunat, F. Meetings
A.C. 5804, 2003).
i. Regular or Special:
Requisites of Derivative Suit Regular - held annually on a date fixed in the by-
a. He (Plaintiff) was a stockholder or member at laws, or if not so fixed, on date after April 15 of
the time the acts or transactions subject of every year as determined by the board of
the action was filed; directors or trustees.(Sec. 49)
b. He exerted all reasonable efforts, and alleges
the same with particularity in the complaint, to Special - held at any time deemed necessary or
exhaust all remedies available under the as provided in the by- laws. Provided that at least
articles of incorporation, by-laws, laws or 1 week written notice shall be sent to all
rules governing the corporation or stockholders or members, unless otherwise
partnership to obtain the relief he desires; provided in the by- laws. Note that notice of any
meeting may be waived, expressly or impliedly by
any stockholder or member.
The exhaustion of intra-corporate remedies
cannot be dispensed even if the company is
ii. Notice of Meeting
a family corporation (Yu v. Yukayguan, G.R.
When - written notice of regular meetings shall be
No. 177549, 2009; Ang v. Sps. Ang, G.R. No.
201675, 2013) sent to stockholders or members of record at
least twenty-one (21) days prior to the meeting.
(Sec. 49)
c. No appraisal rights are available for the act or
acts complained of; and
d. The suit is not a nuisance or harassment suit
(Interim Rules of Procedure for Intra-
 meeting of the corporation by giving proper notice
How - written notice to regular meetings may be
required by this Code or the bylaws, with the
sent to the stockholders or members of record
petitioner presiding thereat until at least a majority
through:
of stockholders/ members present have chosen a
a. means of communication provided in the presiding officer. (Sec. 49).
bylaws (Sec. 50)
b. electronic mail (Sec.49) Who presides over the meetings?
c. such other manner as the SEC shall allow General Rule: The chairman
under its guidelines. Exceptions:
1. In the absence of the chairman, the
Notice of Meetings shall state the time place and president shall preside at all meetings of
purpose of the meeting and shall be the directors or trustees as well as of the
accompanied by: stockholders or members, unless the
1. agenda for the meeting bylaws provide otherwise.
2. proxy form 2. In the following cases:
3. requirements and procedures to be (1) there is no person designated by the
followed in case a stockholder elects by-laws to call a meeting, or
and is allowed to participate, attend (2) the person authorized unjustly
and vote by remote communication. refuses to call a meeting,
4. requirements and procedures for The petitioning stockholders / member
nomination and in case the meeting is shall preside until at least a majority of
stockholders/ members present have
for election of directors. (Sec. 50) chosen a presiding officer. (Sec 49).
Section 50 of the Corporation Code expressly iv. Quorum
allows a shorter period of notice of stockholders’ General rule: Majority of the outstanding capital
meetings that those provided under its default two stock, or of the members, shall constitute a
(2) week period, provided the same is provided quorum (Sec. 51)
for in the By-Laws, (Ricafort v. Dicdican, 787
SCRA 163, 2016); such period set in the by-laws Outstanding Capital Stock – the total shares of
is valid even when the period is reckoned from stock issued under binding subscription
the mailing of the notice rather than when it is agreements to subscribers or stockholders,
actually received by the stockholder of record, whether or not fully or partially paid, except
(Guy v. Guy, 790 SCRA 288, 2016) treasury shares
iii. Place and time of meetings Exceptions:
Where?- The meetings of stockholders or a. The bylaws provides for a greater
members whether regular or special shall be held majority (Sec. 51)
in the principal office of the corporation as set
b. If the rescheduled election of
forth in the articles or if not practicable, in the city
or municipality where the principal office of the directors/trustees is held, the voting
corporation is located. (Sec. 49) shares of stock or membership
represented at the meeting ordered by
When? - Regular - held annually ; Special - held the SEC shall constitute a quorum for
at any time deemed necessary purposes of conducting an election under
this Section 25.
Who calls for the meetings? c. In cases where greater vote for an act or
In case the ff. shall occur: business is required by law as when the
(1) there is no person designated by the by-laws required vote is 2/3 of the outstanding
to call a meeting, or capital stock, or membership as the case
(2) the person authorized unjustly refuses to call may be.
a meeting,
Note: For stock corporations, the “quorum”
The SEC upon petition of a stockholder/ member, referred to in Section 52 of the Corporation Code
and on the showing of good cause therefore, may is based on the number of outstanding voting
issue an order directing the petitioner to call a
 Resolution vs. Minutes Of The Meeting
stocks. For non- stock corporations, only those
(People v. Dumlao, G.R. No. 168918, 2009)
who are actual, living members with voting rights
RESOLUTION MINUTES OF THE
shall be counted in determining the existence of
a quorum during member’s meetings. Dead MEETING
members shall not be counted (Tan v. Sycip, G.R. A formal action by a A brief statement not
No. 153468, 2006). corporate board of only of what transpired
directors or other at a meeting, usually of
v. Minutes and agenda of meetings corporate body stockholders/members
Minutes of the meeting authorizing a or directors/trustees,
● Records of all business transactions and particular act, but also at a meeting of
minutes of all meetings shall be kept and transaction, or an executive
carefully preserved at a corporation’s appointment committee
principal office
● It shall set forth in detail: Agenda of meetings (Sec. 49)
- the time and place of the meeting At each regular meeting of stockholders or
held members, the board of directors or trustees shall
- how it was authorized endeavor to present to stockholders or members
- the notice given the following:
- the agenda therefor a. The minutes of the most recent regular
- whether the meeting was regular or meeting
special, its object if special b. A members’ list for non-stock
- those present and absent, and corporations and, for stock corporations,
- every act done or ordered done at material information on the current
the meeting. stockholders, and their voting rights;
- upon the demand of any director, c. A detailed, descriptive, balanced and
trustee, stockholder or member, the comprehensible assessment of the
time when any director, trustee, corporation’s performance,
stockholder or member entered or d. A financial report for the preceding year,
left the meeting must be noted in the e. An explanation of the dividend policy and
minutes; the fact of payment of dividends
- on a similar demand, the yeas and f. Director or trustee profiles
nays must be taken on any motion or g. A director or trustee attendance report,
proposition, and a record thereof indicating the attendance of each director
carefully made. or trustee at each of the meetings of the
- the protest of any director, trustee, board and its committees and in regular
stockholder or member on any action or special stockholder meetings;
or proposed action must be recorded h. Appraisals and performance reports for
in full upon their. (Sec. 75) the board and the criteria and procedure
for assessment;
The signing of the minutes by all the members of i. A director or trustee compensation report
the board is not required—there is no provision in j. Director disclosures on self-dealings and
the Corporation Code that requires that the related party transactions; and/or
minutes of the meeting should be signed by all k. The profiles of directors nominated or
the members of the board. The signature of the seeking election or reelection.
corporate secretary gives the minutes of the
meeting probative value and credibility (People v.
Dumlao, G.R. No. 168918, 2009).

The entries contained in the minutes are prima

facie evidence of what actually took place during
the meeting, pursuant to Section 44, Rule 130 of
the Revised Rule on Evidence (People v. Dumlao,
G.R. No. 168918, 2009).
 doctrine is confirmation after conduct, amounting
9. BOARD OF DIRECTORS AND
to a substitute for a prior authority. Ratification
TRUSTEES can be made either expressly or impliedly like
silence or acquiescence and acceptance of
A. Repository of Corporate Powers benefits (Yasuma v. Heirs of Cecilio De Villa, G.R.
No. 150350, 2006). But illegal acts cannot be
Doctrine of Centralized Management ratified.
Unless otherwise provided in this Code, the board Doctrine of Apparent Authority
of directors or trustees shall exercise the If a corporation knowingly permits one of its
corporate powers, conduct all business, and officers, or any other agent, to act within the
control all properties of the corporation (Sec. 22). scope of an apparent authority, it holds him out to
the public possessing the power to so do those
Powers of the Board of Directors acts; and thus, the corporation will, as against
anyone who has in good faith dealt with it through
General Rule: The Board of Directors ALONE such agent, be estopped from denying the
exercises the powers of the corporation. agent’s authority. (Francisco v. GSIS, G.R. No. L-
18287, 1963)
Exceptions: Other persons or groups within the
corporation may do so similarly: Apparent authority may be ascertained
a) If (1) there is a management contract and through:
(2) powers are delegated by majority of a. The general manner in which the
the board to an executive committee; corporation holds out an officer or agent as
b) Corporate officers (e.g. the President) having the power to act or, in other words, the
via authority from (1) law, (2) corporate apparent authority to act in general, with which it
by-laws; and (3) authorization from the clothes him; or
board, either expressly or impliedly by
b. The acquiescence in his acts of a
habit, custom or acquiescence in the
particular nature, with actual or constructive
general course of business; knowledge thereof, whether within or beyond the
c) A corporate agent in transactions with scope of his ordinary powers.
third persons to the extent of the authority
to do so has been conferred upon him; If a private corporation intentionally or negligently
d) Those with apparent authority clothes its officers or agents with apparent power
(doctrine of apparent authority). to perform acts for it, the corporation will be
estopped to deny that the apparent authority is
real as to innocent third persons dealing in good
Theories on Source of Board Power
faith with such officers or agents.
a. Directly-Vested / Original Power
Note:
Pursuant to Section 22, the source of power of
It requires presentation of evidence of similar acts
the Board of Directors is primarily and directly-
executed either in its favor or in favor of other
vested by law; it is not a delegated power from
parties. It is not the quantity of similar acts which
the stockholders or members of the corporation
establishes apparent authority, but the vesting of
a corporate officer with the power to bind the
b. Delegated Powers from Stockholders
corporation (People’s Aircargo and Warehousing
The Board of Directors is a creation of the
Co., Inc. v. CA., G.R. No. 117847, 1998).
stockholders and controls and directs the affairs
of the corporation by delegation of the
When the officers or agents of a corporation
stockholders. By drawing to themselves the
exceed their powers in entering into contracts or
powers of the corporation, they occupy positions
doing other acts, the corporation, when it has
of trusteeship in relation to the stockholders.
knowledge thereof, must promptly disaffirm the
contract or act and allow the other party or third
Doctrine of Ratification
persons to act in the belief that it was authorized
The corporation may ratify the unauthorized acts
or has been ratified. If it acquiesces, with
of its corporate officer. The substance of the
 Disqualifications of Directors, Trustees, or
knowledge of the facts, or fails to disaffirm,
Officers (Sec. 26)
ratification will be implied or else it will be
estopped to deny ratification (Premiere
A person shall be disqualified from being a
Development Bank vs. CA, G.R. No. 159352,
director, trustee, or officer of any corporation if,
2004).
within five (5) years prior to the election or
appointment as such, the person was:
Efren was Bonanza’s General Property Manager
a) Convicted by final judgment:
while Miguel was the President. Bonanza leased
i. Of an offense punishable by
the lot to Efren but eventually notified the latter
about the rescission of lease. Using the Doctrine imprisonment for a period
of Apparent Authority, Bonanza was estopped exceeding six (6) years;
from denying the existence and enforceability of ii. For violating this Code; and
Lease Contract after it effectively ratified the iii. For violating “The Securities
lease by accepting proceeds throughout several Regulation Code”;
years. Also, while it is true that the doctrine b) Found administratively liable for any
cannot be invoked by one who is not a third party, offense involving fraud acts; and
an officer of a corporation can actually be a third c) By a foreign court or equivalent foreign
person in contract with the corporation. regulatory authority for acts, violations or
(Quesada, et al. v. Bonanza Restaurants, Inc., misconduct similar to those enumerated
G.R. No. 207500, 2016)
in paragraphs (a) and (b) above.
B. Tenure, Qualifications and
Grounds not exclusive
Disqualifications of Directors
The foregoing is without prejudice to
Term of Office (Sec. 22) qualifications or other disqualifications, which the
SEC or the Philippine Competition Commission
may impose in its promotion of good corporate
● Directors shall be elected for a term of one
governance or as a sanction in its administrative
(1) year from among the holders of stocks
proceedings. (Sec. 26)
registered in the corporation’s books
● Trustees shall be elected for a term not By-law provisions that prohibit directors who have
exceeding three (3) years from among the interests in competitor corporations are
members of the corporation. reasonable in order to protect the interests of the
Each director/trustee shall hold office until the company (Gokongwei v. SEC, G.R. No. L-45911,
successor is elected and qualified. 1979)

Qualifications of Directors Hold-Over Principle

a. Must own at least one (1) share of the capital Directors/Trustees may continue to hold office
stock of the corporation in his own name or despite the lapse of one year until their
must be a member in the case of non-stock successors are elected and qualified.
corporations
i. Any director who ceases to be the Remaining members of the board of directors
owner of at least one (1) share of the cannot elect another director to fill in a vacancy
capital stock of the corporation of caused by the resignation of a hold-over director.
which he is a director shall thereby The hold-over period is not part of the term of
office of a member of the board of directors. (Valle
cease to be a director. (Sec. 22)
Verde Country Club v. Africa, G.R. No. 151969,
b. He must not be disqualified under the RCC 2009)
(Sec. 26)
c. He must possess other qualifications as may Thus, when during the holdover period, a director
be prescribed in the by-laws of the resigns from the board, the vacancy can only be
corporation. (Gokongwei, Jr. v. SEC, G.R. filled-up by the stockholders, since there is no
No. L-45911, 1979) term left to fill-up pursuant to the provisions of
d. He must be of legal age Section 29 which mandates that a vacancy
occurring in the board of directors caused by the
expiration of a member’s term shall be filled by
 (P50,000,000.00) and having two
the corporation’s stockholders. (Valle Verde
Country Club v. Africa, G.R. No. 151969, 2009) hundred (200) or more holders of
shares, each holding at least one
A director continuing to serve after one year from hundred (100) shares of a class of
his election (on a holdover capacity), cannot be its equity shares;
considered as extending his term. This hold-over b) Banks and quasi-banks, NSSLAs,
period is not part of his term, which, as declared, pawnshops, corporations engaged in
had already expired. (Valle Verde Country Club v. money service business, pre-need, trust
Africa, G.R. No. 151969, 2009) and insurance companies, and other
financial intermediaries; and
C. Requirement of Independent Directors c) Other corporations engaged in business
(Sec. 22) vested with public interest similar to the
above, as may be determined by the SEC,
An independent director is a person who, apart
considering such factors:
from shareholdings and fees received from the
corporation, is independent of management and i. such as the extent of minority
free from any business or other relationship which ownership,
could, or could reasonably be perceived to ii. type of financial products or
materially interfere with the exercise of securities issued or offered to
independent judgment in carrying out the investors,
responsibilities as a director. iii. public interest involved in the
nature of business operations,
Requirements: and
Independent directors must be: iv. other analogous factors.
1) independent of management and free
from any relationship which could D. Elections
materially interfere with the exercise of
independent judgment as a director Election of Directors or Trustees (Sec. 23)
2) a shareholder and receive fees from the
corporation Manner of Election
3) elected by the shareholders present or ● In any form; or
entitled to vote in absentia during the ● By ballot when requested by any voting
election of directors. stockholder or member
4) subject to rules and regulations ● In stock corporations, voting may be in
governing their qualifications, person or by proxy
disqualifications, voting requirements,
Time to Determine Voting Right
duration of term and term limit, maximum
● At the time fixed in by- laws
number of board memberships and other
● If by- laws are silent, at time of election
requirements that the SEC will prescribe.
i. Cumulative Voting/Straight Voting
Corporations required to have Independent
Directors
a. Straight voting – Every stockholder may
The board of the following corporations vested vote the number of outstanding capital stock
with public interest shall have independent in his own name for as many persons as there
directors constituting at least twenty percent are directors to be elected; or in non-stock
(20%) of such board: corporations, members may cast as many
a) Corporations covered by “The Securities votes as there are trustees to be elected but
Regulation Code”, namely: may not cast more than one vote for one
i. those whose securities are candidate. (In straight voting, the votes are
registered with the SEC, spread out evenly among all the elective
ii. corporations listed with an positions)
exchange or with assets of at b. Cumulative voting for one candidate – a
least Fifty million pesos stockholder may accumulate his shares and
 Note: When so authorized in the bylaws or by a
give one candidate as many votes as the
majority of the board of directors, the
number of directors to be elected multiplied stockholders or members may also vote through
by the number of his shares shall equal; remote communication or in absentia. The right to
c. Cumulative voting by distribution – a vote through such modes may be exercised in
stockholder may also cumulate his shares by corporations vested with public interest,
multiplying the number of his shares by the notwithstanding the absence of a provision in the
number of directors to be elected and by-laws of such corporations. (sec. 23)
distribute the same among as many
candidates as he shall see fit Who Elects Directors or Trustees
● By the stockholders/members as
Methods of Voting in Relation to Type of provided in the by-laws (traditionally
Corporation during annual SH/M meetings
● By the board, if still constituting quorum
a) Stock Corporations for vacancies in the interim (i.e. between
Stockholders entitled to vote shall have the right annual meetings) due to causes other
to vote the number of shares of stock standing in than removal or expiry of term (Sec. 28)
their own names in the stock books of the ● If the vacancies are due to removal or
corporation at the time fixed in the bylaws or expiry of term, the directors/trustees
where the bylaws are silent, at the time of the
must be elected by the
election
stockholders/members at a meeting for
The stockholder may use: this purpose (special meeting)
1) Straight Voting
How Elected
2) Cumulative voting for one candidate
● By owners of majority of outstanding
3) Cumulative voting by distribution
capital stock or by members in annual
Note: The total number of votes cast shall not stockholders’/members’ meeting
exceed the number of shares owned by the ● Stockholders/members may be present
stockholders as shown in the books of the in person or by written proxy
corporation multiplied by the whole number of ● For stock corporations: Number of votes
directors to be elected; and that no delinquent = (no. of shares) x (no. of directors to be
stock shall be voted. elected)
● By straight voting or cumulative voting,
b) Non-stock Corporations which is all votes may be cast for a
General Rule: Members of nonstock corporations candidate or distributed among the
may use Straight Voting, i.e. cast as many votes candidates
as there are trustees to be elected but may not ● For non-stock corporations: Unless
cast more than one (1) vote for one otherwise provided in the articles of
(1) candidate. incorporation or in the by-laws,
members of non-stock corporations may
Exception: Unless otherwise provided in the
cast as many votes as there are trustees
articles of incorporation or in the bylaws. (Sec. 23)
to be elected but may not cast more than
ii. Quorum one vote for one candidate.
● Viva voce (live voice) or must be by
At all elections of directors or trustees, there must ballot if requested
be present, either in person or through a ● Delinquent shares and treasury shares
representative authorized to act by written proxy: cannot vote
● Stock Corporation – owners majority of ● Candidates with highest number of votes
outstanding capital stock will be declared elected
● Non-stock Corporation – majority of
members entitled to vote
 Report Of Election of Directors, Trustees and
Election Rules on Stock and Non-Stock
Officers
Corporations
STOCK NON-STOCK Within thirty (30) days after the election of the
CORPORATION CORPORATION directors, trustees and officers of the corporation,
Owners of a majority A majority of the the secretary, or any other officer of the
of outstanding capital members, either in corporation, shall submit to the SEC, the names,
stock, either in person person or by nationalities, shareholdings, and residence
or by representative representative addresses of the directors, trustees, and officers
authorized to act by authorized to act by elected. (Sec. 25)
written proxy, must be written proxy, must be
present at the election present at the election Only the directors and officers of the corporation
whose names appear in the report submitted to
of the directors of the trustees
the SEC are deemed legally constituted to bind
Cumulative voting or Cumulative voting is the corporation in bringing a suit on behalf of the
Straight voting can be not available, unless corporation (Premium Marble Resources v. CA,
used; a matter of right allowed by the articles G.R. No. 96551, 1996).
granted by law to or by-laws.
each stockholder with Non-holding of Election
voting rights. The Board may be
elected by region. The non-holding of elections and the reasons
Directors are elected shall be reported to the SEC within thirty (30)
at large. days from the date of the scheduled election. The
report shall specify a new date for the election,
Alien Membership in Board of Directors which shall not be later than sixty (60) days from
the scheduled date.
P.D. No. 715: "election of aliens as members of
the board of directors of governing body of If no new date has been designated, or if the
corporations or associations engaging in partially rescheduled election is likewise not held, the SEC
nationalized activity shall be allowed in proportion may, upon the application of a stockholder,
to their allowable participation or share in the member, director or trustee, and after verification
capital of such entities." of the unjustified non-holding of the election,
summarily order that an election be held.
Non-Filipino citizens may become members of the
board of directors of a bank to the extent of the The SEC shall have the power to issue such
foreign participation in the equity of said bank. orders as may be appropriate, including:
(General Banking Law, Sec. 15) a) orders directing the issuance of a notice
stating the time and place of the election,
Filling Vacancies in Board - Permissive b) designated presiding officer, and
c) the record date or dates for the
The filling of vacancies in the board by the determination of stockholders or
remaining directors or trustees constituting a
members entitled to vote.
quorum as provided for by Section [28] is merely
permissive, not mandatory, and the vacancies
Notwithstanding any provision of the articles of
may still be filled-up by the stockholders of
incorporation or bylaws to the contrary, the
members in a regular or special meeting called
shares of stock or membership represented at
for the purpose. However, when the by-laws of
such meeting and entitled to vote shall constitute
the corporation contain a specific mode of filling-
a quorum for purposes of conducting an election
up existing vacancies in the board, the same is
under this section. (Sec. 25)
mandatory (Tan v. Sycip, G.R. No. 153468,
2006).
Cessation from Office

Should a director, trustee or officer die, resign or

in any manner cease to hold office, the secretary,
or the director, trustee or officer of the
 authorizing the removal and this fact
corporation, or in case of death, the officer’s heirs
shall, within seven (7) days from knowledge must be so stated in the agenda and
thereof, report in writing such fact to the SEC. notice of said meeting.
(Sec. 25) c) In all other cases, the election must be
held no later than forty-five (45) days
E. Removal (Sec. 27) from the time the vacancy arose.

Requisites of Removal from the Board Vacancy NOT by removal or expiration of term
a. It must take place either at a regular meeting May be filled by:
or special meeting of the stockholders or a) the vote of at least a majority of the
members called for the purpose; remaining directors or trustees, if still
b. There must be previous notice to the constituting a quorum;
stockholders or members of the intention to b) if not, said vacancies must be filled by the
remove; stockholders or members in a regular or
c. The removal must be by a vote of the special meeting called for that purpose.
stockholders representing 2/3 of the
outstanding capital stock or 2/3 of the Cases when Emergency Action is Required
members, as the case may be; Requirements:
d. The director may be removed with or without a) If the vacancy prevents the remaining
cause unless he was elected by the minority, directors from constituting a quorum
in which case, it is required that there is cause b) emergency action is required to prevent
for removal. grave, substantial, and irreparable loss or
damage to the corporation
Note:
The SEC shall, motu proprio or upon verified Effects:
complaint, and after due notice and hearing, a) The vacancy may be temporarily filled from
order the removal of a director or trustee elected among the officers of the corporation by
despite the disqualification, or whose unanimous vote of the remaining directors or
disqualification arose or is discovered subsequent trustees.
to an election. This is without prejudice to other b) The action by the designated director or
sanctions that the SEC may impose on the board trustee shall be limited to the emergency
of directors or trustees who, with knowledge of action necessary,
the disqualification, failed to remove such director c) The term shall cease within a reasonable time
or trustee.
from the termination of the emergency or upon
F. Filling of Vacancies (Sec. 28) election of the replacement director or
trustee, whichever comes earlier.
Replacement director or trustee - A director or d) The corporation must notify the SEC within
trustee elected to fill a vacancy and shall serve three (3) days from the creation of the
only for the unexpired term of the predecessor in emergency board, stating therein the reason
office. for its creation.

How Elections should be held: Vacancy filled by reason of an increase in the

In all elections to fill vacancies under this section, number of directors or trustees
the procedure set forth in Sections 23 and 25 of
this Code shall apply. This vacancy shall be filled only by an election at
a regular or at a special meeting of stockholders
When Elections may be held: or members duly called for the purpose, or in the
a) Due to term expiration- the election same meeting authorizing the increase of
shall be held no later than the day of directors or trustees if so stated in the notice of
such expiration at a meeting called for the meeting.
that purpose.
b) Result of removal- the election may be
held on the same day of the meeting
 b. Duty of Loyalty (Basis: Secs. 30 & 33)
G. Compensation (Sec. 30)
Directors or trustees shall not acquire any
personal or pecuniary interest in conflict with their
General Rule: In the absence of any provision in
the by-laws fixing their compensation, the duty as such directors or trustees.
directors shall not receive any compensation, as
such Disloyalty: Sec. 30(2) v. Sec. 33
SEC. 30(2) SEC. 33
Exception: They may receive reasonable per Applicable to
Applicable to directors
diems [i.e. at meetings] directors, trustees,
only
and officers
Qualifiers to General Rule and Exception Allows ratification of a
Any such compensation other than per diems may No ratification allowed transaction by the
be granted to directors by the vote of the director
stockholders representing at least a majority of Covers stock and
the outstanding capital stock at a regular or Covers stock
non-stock
special stockholders' meeting. corporations only
corporations
However: In no case shall the total yearly
compensation of directors, as such directors, c. Duty of Diligence (Basis: Sec. 30)
exceed 10% percent of the net income before Directors and/or trustees shall not willfully and
income tax of the corporation during the knowingly vote for or assent to patently unlawful
preceding year. acts of the corporation or act in bad faith or with
gross negligence in directing the affairs of the
Directors or trustees shall not participate in the corporation.
determination of their own per diems or
compensation. Doctrine of Corporate Opportunity
If there is presented to a corporate officer or
Note: The implication of the phrase “as such director a business opportunity, which the
directors” is that members of the Board may corporation has an interest or a reasonable
receive compensation, in addition to reasonable expectancy, the self-interest of the officer or
per diems, when they render services to the director will be brought into conflict with that of his
corporation in a capacity other than as directors corporation. The law does not permit him to seize
or trustees [in this case, if serving as corporate the opportunity even if he will use his own funds
officers] (Western Technology v. Salas, G.R. No. in the venture. If he seizes the opportunity thereby
113032, 1997) obtaining profits to the expense of the
corporation, he must account all the profits by
For Corporations vested with public interest refunding the same to the corporation.

These corporations shall submit to their Requisites of Doctrine of Corporate

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

Directors or trustees who willfully and knowingly: Case law states that to hold a director or officer
a) vote for or assent to patently unlawful acts personally liable for corporate obligations, two
of the corporation requisites must concur:
b) are guilty of gross negligence or bad faith in 1. it must be alleged in the complaint that
directing the affairs of the corporation the director or officer assented to patently
c) acquire any personal or pecuniary interest in unlawful acts of the corporation or that
conflict with their duty as such directors or the officer was guilty of gross negligence
trustees or bad faith; and
shall be liable jointly and severally for all damages 2. there must be proof that the officer acted
resulting therefrom suffered by the corporation, in bad faith. (Freyssinet Filipinas Corp. v.
its stockholders or members and other persons. Lapuz, G.R. No. 226722, 2019)
 Presumption of a Purchase or Sale of a
L. Responsibility For Crimes Security of an Issuer of Insider
Applies when an insider or an insider’s spouse, or
General rule: The Board being generally a policy-
relatives by affinity or consanguinity within the
making body, directors as such cannot be held
second degree, legitimate or common-law, while
liable under a criminal statute making those in
in possession of material nonpublic information if
charge of the management of the corporation
transacted after such information came into
liable for the criminal acts done in pursuit of
existence but prior to dissemination of such
corporate operations.
information to the public and the lapse of a
reasonable time for market to absorb such
The members of the Board generally do not information.
concern themselves with the day-to-day affairs of
the corporation, except those corporate officers
This presumption is rebutted upon a showing by
who are charged with the running of the business the purchaser or seller that he was aware of the
of the corporation and are concomitantly material nonpublic information at the time of the
members of the Board, like the President. purchase or sale.
(Federated Dealers Assn. v. Del Rosario, G.R.
No. 202639, 2016).
Material Nonpublic Information
a. It has not been generally disclosed to the
Exception: To be held criminally liable for the
acts of a corporation, there must be a showing public and would likely affect the market price
that its officers, directors, and shareholders of the security after being disseminated to the
actively participated in or had the power to public and the lapse of a reasonable time for
prevent the wrongful act. (SEC v. Price the market to absorb the information; or
Richardson Corp., G.R. No. 197032, 2017) b. Would be considered by a reasonable person
important under the circumstances in
M. Special Fact Doctrine determining his course of action whether to
buy, sell or hold a security.
Under the Special Facts Doctrine, although a
director does not stand in fiduciary relation to the O. Contracts
stockholder, he is under legal obligation to make
fair and full disclosure of pertinent official i. By Self-Dealing Directors with the
information where special circumstances exist, Corporation (Sec. 31)
giving rise to the obligation to disclose. (Soledad
M. Cagampang, The Fiduciary Duties of A contract of the corporation with its director/s or
Corporate Directors Under Philippine Law, 46 trustee/s or officer/s, or their spouses and
Phil. L. J., 513, 562 [1971]) relatives within the fourth civil degree of
consanguinity or affinity is voidable at the option
N. Inside Information of such corporation, unless the following are
present:
Unlawful Acts of Insider (RA 8799, Sec. 27) a. The presence of such director/trustee in the
It shall be unlawful for an insider to sell or to buy Board meeting in which the contract was
a security of an issuer, while in the possession of
approved was not necessary to constitute a
material information with respect to the issuer or
quorum.
the security that is not generally available to the
public unless: b. The vote of such director or trustee was not
1. The insider proves that the info was not necessary for the contract’s approval.
gained from such relationship c. The contract is fair and reasonable
2. That the other party selling to or buying from d. In case of corporations vested with public
the insider is identified the insider proves interest, material contracts are approved by
a. That he disclosed the information at least two-thirds (2/3) of the entire
b. That he had reason to believe that membership of the board, with at least a
the other party otherwise is also in majority of the independent directors voting to
possession of the information approve the material contract; and
e. In case of an officer, the contract with him has
been previously authorized by the Board.
Where any of the first three (3) conditions set forth Special Committees (Sec. 34)
in the is absent such contract may be ratified by:
a) the vote of the stockholders representing at The board of directors may create special
least two-thirds (2/3) of the outstanding committees of temporary or permanent nature
capital stock or of at least two-thirds (2/3) of and to determine the members’ term,
the members in a meeting called for the composition, compensation, powers, and
purpose; and responsibilities.
b) Full disclosure of the adverse interest of the
Other delegations of authority
directors or trustees involved is made at such
a) The Board may delegate such powers to
meeting and the contract is fair and
either an executive committee or officials or
reasonable under the circumstances.
contracted managers.
ii. Contracts Between Corporations with b) The delegation, except for the executive
Interlocking Directors (Sec. 32) committee, must be for specific purposes.
● Accordingly, the general rules of agency
A contract between two (2) or more corporations as to the binding effects of their acts
having interlocking directors shall not be would apply.
invalidated on that ground alone. These are valid ● For such officers to be deemed fully
so long as there is no fraud and the contract is fair clothed by the corporation to exercise a
and reasonable. However, if the director’s interest power of the Board, the latter must
is nominal in one of the contracting corporations specially authorize them to do so (ABS-
(not exceeding 20% of the outstanding capital CBN Broadcasting Corporation v. CA,
stock), then the contract must comply with the GR No. 128690, 1999).
requisites provided supra, Sec. 31, otherwise
voidable. Q. Meetings
P. Executive and Other Special The corporation’s by-laws can provide otherwise
Committees to all the rules hereunder, so long as minimum
requirements are satisfied.
Executive Committees (Sec. 34)
i. Regular or Special
i. Creation
1. Regular- held monthly, unless the by- laws
If the bylaws so provide, the board may create an provide otherwise
executive committee composed of at least three 2. Special- held anytime upon the call of the
(3) directors. Said committee may act, by majority
President or as provided in the by- laws
vote of all its members, on such specific matters
within the competence of the board, as may be
(1) When and Where -
delegated to it in the bylaws or by majority vote
of the board. ○ Monthly, unless otherwise provided in the
by-laws, or anytime upon the call of the
ii. Limitations President or as provided in the by- laws ;
○ Anywhere in or outside the Philippines,
Powers That Cannot Be Delegated to the unless the bylaws provide otherwise.
Executive Committee
a. Approval of action requiring concurrence of (2) Notice of the meeting - at least two (2) days
stockholders; prior to the scheduled meeting, unless a
b. Filling of vacancies in the board; longer time is provided in the bylaws. A
c. Adoption, amendment or repeal of by-laws; director may waive the requirement,
d. Amendment or repeal of board resolution expressly or impliedly.
which by its terms cannot be amended or
repealed; (3) Attendance in Meetings - Directors or
e. Distribution of cash dividends. (Sec. 34) trustees cannot attend or vote by proxy at
board meetings.
 Valid Corporate Acts
○ Those who cannot physically attend or
vote at board meetings can participate General Rule: Every decision reached by at least
and vote through remote a majority of the directors or trustees constituting
communication such as a quorum are considered valid.
videoconferencing, teleconferencing,
or other alternative modes of Exception: The election of officers shall require
communication that allow them the vote of a majority of all the members of the
reasonable opportunities to board.(Sec. 52)
participate.
Note: A director or trustee who has a potential
ii. Who Presides - The chairman or, in his interest in any related party transaction must
absence, the president shall preside at all recuse from voting on the approval of the related
meetings of the directors or trustees as well as of party transaction without prejudice to compliance
the stockholders or members, unless the bylaws with the requirements of Section 31 of this Code.
provide otherwise. (Sec. 53)
iv. Rule on Abstention
iii. Quorum of Board
In case of abstention during a board meeting on
General Rule: A majority of the directors or a vote taken on any issue, the general rule is that
trustees as stated in the articles of incorporation an abstention is counted in favor of the issue that
shall constitute a quorum to transact corporate won the majority vote; since by their act of
business abstention, the abstaining directors are deem to
abide by the rule of the majority. (Lopez v. Ericta,
Exception: Unless the articles of incorporation or G.R. No. L-32991, 1972)
the by-laws provides for a greater majority (Sec.
52)
 Comparison Between Stockholders’ and Direct ors’ Meeting
STOCKHOLDERS’ MEETING DIRECTORS’ / TRUSTEES’
MEETING
Types of Regular and Special Regular and Special
Meetings
Place of Held in the principal office of the corporation as Anywhere in or outside of the
Meetings set forth in the articles of incorporation, or if not Philippines, unless the by- laws
practicable, in the city or municipality where the provide otherwise
principal office of the corporation is located.
When held REGULAR – held annually on a date fixed by the REGULAR – held monthly
by- laws, or if not so fixed, on any date after April
15 every year as determined by the board of
directors or trustees
SPECIAL – held at any time deemed necessary SPECIAL – held at any time upon
or as provided in the by- laws the call of the President
Notice of REGULAR – notice must be sent at least 21 days Notice must be sent at least two
Meeting before the meeting (2) days prior to the scheduled
SPECIAL – notice must be sent at least 1 week. meeting, unless a longer time is
Notice may be waived, expressly or impliedly, by provided in the bylaws. Notice
any stockholder or member may be waived expressly or
impliedly, by any Director or
Trustee
Who presides General Rule: Person designated in the bylaws The chairman or, in his absence,
In default: Chairman, and in his absence, the the president shall preside
president
Quorum Majority of the outstanding capital stock, or of the Majority of the number of
members. directors and trustees as fixed in
EXCEPT:(a) greater majority is provided in the the articles of incorporation,
bylaws (b) in cases where greater vote for an act unless the articles of
or business is required by law. incorporation or the by-laws
provides for a greater majority.
Note: For stock corporations, quorum is based on
outstanding voting stocks. For non-stock
corporations, only those who are actual, living
members with voting rights shall be counted.(Tan
v. Sycip, G.R. No. 153468, 2006
 certificate. The subscription price of the stocks
10. CAPITAL AFFAIRS subscribed by him should first be paid.
A. Certificate of stock b. Consideration for Shares of Stock
(See earlier discussion)
A stock certificate or a certificate of stock is
defined as a written instrument signed by the ii. Uncertificated Shares/Securities
proper officer of a corporation stating or Defined as security evidenced by electronic or
acknowledging that the person named in the similar records. (Securities and Regulation Code,
document is the owner of a designated number of Sec. 3.14)
shares of its stock. It is prima facie evidence that
the holder is a shareholder of a corporation. Note: Under Sec. 43.1 of the Securities and
(Teng v. Securities and Exchange Commission,
Regulation Code, a corporation whose shares of
G.R. No. 184332, [February 17, 2016], 781 PHIL
stock are registered pursuant to the Corporation
133-148)
Code or listed in a stock exchange may:
a. If so resolved by its Board of Directors and
i. Nature of the certificate
agreed by a shareholder, issue shares to, or
It is the paper representation or tangible evidence
of the stock itself and of the various record the transfer of some or all of its shares
representations therein. It expresses the contract into the name of said shareholders, investors
between the corporation and the stockholder. It is or, securities intermediary in the form of
not essential to the ownership and/or existence of uncertificated securities;
the share of stock. It is prima facie evidence that b. The use of uncertificated securities shall be
the holder is a shareholder in a corporation without prejudice to the rights of the securities
(Makati Sports Club v. Cheng, G.R. No. 178523, intermediary subsequently to require the
2010) corporation to issue a certificate in respect of
any shares recorded in its name; and
It is a written acknowledgment by the corporation c. If so provided in its articles of incorporation
of the stockholder’s interest in the corporation. It
and by-laws, issue all of the shares of a
is a personal property that may be mortgaged or
particular class in the form of uncertificated
pledged. Transfer binds the corporation only
when it is recorded in the corporate books. securities and subject to a condition that
investors may not require the corporation to
Note: It is the shares that can be the subject of a issue a certificate in respect of any shares
security interest, not the certificate of stock recorded in their name.

Shares of Stock v. Certificate of Stock iii. Negotiability; Requirements for Valid

SHARES OF STOCK CERTIFICATE OF Transfer of Stocks
STOCK
Negotiability
Unit of interest in a Evidence of the
Stock certificates are not negotiable instruments
corporation holder’s ownership of
under the purview of Negotiable Instruments Law
the stock and of his because there is no promise or order to pay
right as a shareholder money.
and up to the extend
specified therein A stock certificate is a quasi-negotiable
Incorporeal or It is concrete and instrument because it may be transferred by
intangible property tangible endorsement coupled with delivery but the holder
May be issued by the May be issued only if thereof takes it without prejudice to such rights or
corporation even if the the subscription is defenses as the registered owner or creditor may
subscription is not fully paid have under the law, except insofar as such rights
fully paid or defenses are subject to the limitations imposed
by the principles governing estoppel. (De los
Santos v. McGrath, G.R. No. L-4818, 1955)
Note: A stockholder who does not pay his
subscription is not entitled to the issue of a stock
Requirements for Valid Transfer of Stock:
1. If represented by a certificate, the
following must be strictly complied with: Principle of Indivisibility of Subscription
a. Endorsement by owner or his A subscription is one entire and indivisible
representative contract. It cannot be divided into portions, so that
b. Delivery coupled with an intention of the stockholder shall not be entitled to a certificate
constituting the person to whom the of stock until he has remitted the full payment.
stock is delivered the transferred (sic)
2. Payment pro rata
thereof.(Neugene Marketing, Inc. v. All partial payments on one subscription shall be
Court of Appeals, G.R. No. 112941, deemed applied proportionately among the
[February 18, 1999], 362 PHIL 633- number of shares. To permit the issuance of a
646) stock certificate without full payment will be in
c. Must be recorded in the corporation’s violation of Sec. 63 (Timoteo Aquino, 2018)
Stock and Transfer Book (STB) to bind
the corporation and third parties (Teng In the absence of special agreement to the
v. SEC, Gr 184332, February 17, 2016) contrary, the subscriber’s right consists only in an
equity entitling him to a certificate for the total
Note: Recording in STB is only required number of shares subscribed for by him upon
for absolute transfers, which do not payment of the remaining portion of the
include pledges, mortgages, etc. subscription price (Fua Cun vs. Summers, G.R.
(Monserrat v. Ceron, G.R. No. 37078, No. 19441, 1923).
September 27, 1933)
Requisites for Issuance of Certificate of Stock
2. If NOT represented by the certificate (such 1. The certificate must be signed by the
as when the certificate has not yet been president or vice-president, countersigned
issued or where for some reason is not in by the secretary or assistant secretary;
the possession of the stockholder): 2. The certificate must be sealed with the seal
a. By means of deed of assignment or of the corporation;
public document; and 3. The certificate must be delivered;
b. Such deed of assignment or public 4. The par value, as to par value shares or full
document must be duly recorded in the subscription as to no par value shares must
books of the corporation (Ponce v. first be fully paid; and
Alsons Cement Corporation, G.R. No. 5. The original certificate must be
139802, December 10, 2002) surrendered where the person requesting
the issuance of a certificate is a transferee
If, however, the reason for the absence of from the stockholder (Bitong v. CA, G.R.
a certificate is that the subscription has No. 123553, July 13, 1998)
not been fully paid, the corporation may
refuse to record a sale given that under v. Stock And Transfer Book
Sec. 62, “[n]o shares of stock against
which the corporation holds any unpaid 1. Contents
claim shall be transferable in the books of Stock corporations must keep a stock and
the corporation.” transfer book, which shall contain a record of:
1. All stocks in the names of the
iv. Issuance stockholders alphabetically arranged;
2. The installments paid and unpaid on
1. Full Payment (Sec. 63) all stock for which subscription has
No stock certificate shall be issued unless there been made, and the date of payment
is full payment of:
of any installment;
1. Subscription;
3. A statement of every alienation, sale
2. Interest; and
or transfer of stock made; and
3. Expenses (in case of delinquent
4. Such other entries as the by-laws may
shares).
prescribe. (Sec. 73)
 b. The corporation shall publish a notice
Only absolute transfers of shares of stock are of loss once a week for at least three
required to be recorded in the corporation’s stock (3) consecutive weeks in a
and transfer book in order to have force and effect newspaper of general circulation in
as against third persons. Attachments of shares the place where the corporation has
are not “transfers” and need not be recorded in its principal office. The notice shall
the corporation’s stock and transfer book. (Ferro state the ff:
Chemicals v. Garcia, et al., G.R. 168134, 2016) i. name of the corporation
ii. name of the registered
2. Who May Make Valid Entries owner
Only the corporate secretary is duly authorized to iii. the serial number of the
make entries on the stock and transfer book. certificate
Hence, entries made by the Chairman or the
iv. the number of shares
President are invalid. (Torres Jr. v. CA, G.R. No.
120138, 1997). represented by such
certificate
Registration of a transfer of shares of stock is a v. after one (1) year from the
ministerial duty on the part of the corporation. date of the last publication
Aggrieved parties may then resort to the remedy without contest, the right to
of mandamus to compel corporations that make such contest shall be
wrongfully or unjustifiably refuse to record the barred and the corporation
transfer or to issue new certificates of stock. This shall cancel the lost
remedy is available even upon the instance of a certificate
bona fide transferee who is able to establish a vi. in lieu thereof, a new
clear legal right to the registration of the transfer. certificate of stock is issued
(Andaya v. Rural Bank of Cabadbaran, Inc., G.R.
c. If a contest is presented to the
No. 188769, 2016)
corporation or if an action is pending
in court, issuance of new certificates
3. Stock transfer agents
A stock transfer agent or one engaged principally is suspended until the court renders
in the business of registering transfers of stocks a decision regarding the ownership
on behalf of a stock corporation. (Sec. 75) of the certificate of stock
d. No action is allowed against the
A stock transfer agent shall be allowed to operate corporation for issuing new shares
in the Philippines upon compliance with the except for fraud, bad faith, or
following: negligence.
1. securing a license from the SEC
(renewable annually) vii. Situs of the Shares of Stocks
2. payment of a fee fixed by the SEC
The situs of shares of stock is the domicile of the
vi. Lost or Destroyed Certificate corporation (Tayag v. Benguet Consolidated Inc.,
G.R. No. L-23145, 1968).
Procedure for the issuance of new certificates to
replace those lost, stolen, or destroyed: (Sec. 72) B. Watered Stock (Diluted Stock)
a. The registered owner of a certificate
of stock in a corporation or his legal i. Definition
representative shall file with the
Stocks issued for a consideration less than the par
corporation an affidavit in triplicate
or issued price thereof. (Sec. 61)
setting forth the ff:
i. Circumstances of the Loss; ii. Liability Of Directors For Watered Stock
ii. Certificates and Serial
Numbers of lost certificates; Directors or officers who shall commit the
and following will be liable to the corporation or its
iii. Other Information and creditors, solidarily with the stockholder
Evidence.
 ii. Notice Requirement
concerned for the difference between the value
received at the time of issuance of the stock and
The unpaid subscriptions are not due and payable
the par or issued value of the same : (Sec. 64)
without a call. A corporation cannot file an action
1. consents to the issuance of stocks for a
to recover the unpaid price if the action is not
consideration less than the par or issued
preceded by a call, until a call is made, no cause
value; of action accrues (Lingayen Gulf Electric Power
2. consents to the issuance of stocks for a Company v. Baltazar, G.R. No. L-4824, June 30,
consideration other than cash, valued in 1954).
excess of its fair value;
3. having knowledge of the insufficient Payment of balance of subscription
consideration does not file a written Payment of unpaid subscription or any
objection with the corporate secretary percentage thereof, together with any interest
accrued, shall be made on the date specified in
iii. Trust Fund Doctrine On Watered Stocks the subscription contract or on the date stated in
the call made by the board.(Sec 66)
The Trust Fund Doctrine is the basis for the
prohibition on issuing watered stock. Effect of Failure to Pay Balance (Sec. 66)
1. The entire balance shall be due and
A Corporation has no power to release an original payable
subscriber of its capital stock from the obligation 2. The stockholder shall liable for interest
of paying for his shares, without a valuable 3. If no payment is made within thirty (30)
consideration for such release; and as against days from the said date, all stocks
creditors, a reduction of the capital stock can take covered by the subscription shall
place only in the manner and under the conditions thereupon become delinquent and shall
prescribed by the statute or the charter or the be subject to sale as hereinafter
articles of incorporation (Philippine Trust Corp. v. provided, unless the board of directors
Rivera, G.R. No. L-19761, 1923).
orders otherwise.
See subsection F.4. for discussion on Trust Fund
The prescriptive period in case of subscription of
Doctrine.
shares begins to run only from the time the board
C. Payment of Balance of Subscription of directors declares that the balance is due and
payable (Garcia v. Suarez, G.R. No. 45493, 1939)
i. Call by Board of Directors
Unpaid Subscriptions (Sec. 66)
The board of directors may, at any time, declare a. There will be interest imposed on unpaid
due and payable to the corporation unpaid subscriptions
subscriptions and may collect the same or such b. Payable to the corporation from date of
percentage thereof, in either case, with accrued subscription
interest, if any, as it may deem necessary. c. If required by and interest fixed in the By-laws
d. If interest is required but not fixed – legal rate
Requisites for a valid call e. Therefore, no interest on unpaid subscription
a) Must be made in the manner prescribed by is required:
law; b. If not required by by-laws
b) Must be made by the Board of Directors; and c. If not required by subscription contract
c) Must operate uniformly upon all shareholders
Methods of Collection of Unpaid Subscription
Note: A call is not necessary in two cases a. Call for payment
1. when the date of payment is specified in b. Declaration of delinquency and sale at public
the subscription auction of delinquent shares;
2. when the corporation becomes insolvent c. Ordinary civil action;
(Velasco v. Poizat)
 iv. Auction Sale
d. Collection from cash dividends and other
Auction Sale is conducted not less than thirty (30)
amounts due to stockholders if allowed by by- days nor more than sixty (60) days from the date
laws/agreed to by him. the stocks become delinquent.
D. Sale of Delinquent Shares 1. The delinquent stock shall be sold at a
public auction to such bidder who shall
Delinquent stocks - Stocks not paid within 30
offer to pay ff:
days from the date fixed in the contract of
subscription or from the date stated in the call a. the full amount of the balance on
made by the Board of Directors. the subscription together
b. accrued interest
i. Effect of Delinquency c. costs of advertisement
1. They shall be subject to delinquency sale. d. expenses of sale for the smallest
2. The stock shall not be voted or be entitled number of shares or fraction of a
to vote or to representation at any share.
stockholder’s meeting. 2. The stock so purchased shall be
3. The holder shall not be entitled to any of transferred to such purchaser in the
the rights of a stockholder except the books of the corporation and a certificate
right to dividends for such stock shall be issued in the
4. The corporation has the right to apply purchaser’s favor.
cash dividends due to the unpaid balance 3. The remaining shares, if any, shall be
plus cost and expenses and to withhold credited in favor of the delinquent
stock dividends until the unpaid stockholder who shall likewise be entitled
subscription is fully paid. to the issuance of a certificate of stock
Note: the only right that may not be exercised is covering such shares. (Sec. 67)
the right to dividends
Note: There shall be no sale at public auction if:
Procedure of Delinquency Sale a. The delinquent stockholder pays on or
before the sale: (a) balance due, (b)
ii. Call by resolution of the board of directors accrued interest, or (c) advertising costs
The board of directors shall issue a resolution and expenses of sale.
ordering the sale of delinquent stocks. (Sec. 67) b. The Board orders otherwise, on any of
the following grounds: (a) Defect in the
There is no need for a call if the subscription
Notice of Sale; or (b) Defect in sale itself.
contract specifies dates when subscription
(Sec. 67)
balance is due. If no payment is made within thirty
(30) days from the date specified, the board shall
order the sale of delinquent shares. When Sale May Be Questioned
a. The action is filed on the ground of irregularity
iii. Notice of Sale or defect in the notice of sale, or in the sale of
1. Notice of the sale, with a copy of the the delinquent stock;
resolution, shall be sent to every b. The party seeking to maintain such action
shareholder with unpaid subscriptions first pays or tenders to the party holding the
either personally, by registered mail, or stock the sum for which the same was sold
through other means provided in the with interest from the date of the sale at the
bylaws. legal rate; and
2. Notice of the sale shall be published once c. The complaint was filed within 6 months from
a week for two (2) consecutive weeks in the date of the sale (Sec. 68)
a newspaper of general circulation in the
province or city where the principal office
of the corporation is located.
 E. Alienation of shares
v. Sale of fully paid shares
i. Allowable restrictions on the sale of shares Section 63 provides that shares of stock issued
The authority granted to a corporation to regulate with a corresponding certificate of stock are
the transfer of its stock does not empower the personal property and may be transferred by
corporation to restrict the right of a stockholder to delivery of the certificate or certificates indorsed
transfer his shares, but merely authorizes the by the owner or his attorney-in-fact or other
adoption of regulations as to the formalities and person legally authorized to make the transfer.
procedure to be followed in effecting transfer
(Thomson v. CA, G.R. No. 116631, 1998). vi. Requisites of a valid transfer
If represented by a certificate, the following must
ii. Sale of partially paid shares be strictly complied with:
Section 62 provides that no share of stock against a. Delivery of the certificate;
which the corporation holds any unpaid claims b. Indorsement by the owner or his agent;
shall be transferable in the books of the c. To be valid against third parties, the transfer
corporation. must be recorded in the books of the
corporation (Rural Bank of Lipa v. CA, G.R.
iii. Sale of a portion of shares not fully paid No. 124535, 2001).
A stockholder who has not paid the full amount of
his subscription cannot transfer part of his
If NOT represented by a certificate, the following
subscription in view of the indivisible nature of a
must be complied with:
subscription contract. a. By means of a deed of a Deed of Assignment;
b. The same must be recorded in the books of
iv. Sale of all shares not fully paid
The entire subscription, although not yet fully the corporation.
paid, may be transferred to a single transferee,
who as a result of the transfer must assume the If, however, the reason for the absence of a
unpaid balance. (SEC Opinion) Consent of the certificate is that the subscription has not
corporation must first be secured since the been fully paid, the corporation may refuse to
transfer of subscription rights and obligations record a sale given that under Sec. 62, “[n]o
contemplates a novation of contract. (Civil Code, shares of stock against which the corporation
Art. 1923) holds any unpaid claim shall be transferable
in the books of the corporation.”
The SEC correctly categorized the assignment of
the subscription agreements as a form of The failure by a seller to deliver, within a
novation by substitution of a new debtor and reasonable time, the stock certificates
which required the consent of or notice to the representing shares of stock subject of a sale
creditor. In this case, the change of debtor took transaction may be a basis to rescind such sale
place when R.C. Lee assigned the Oceanic shares (Fil-Estate Gold and Development v. Vertex, G.R.
under the subscription agreements to SSI so that No. 202079, 2013)
the latter became obliged to settle the 75% unpaid
balance on the subscription. The SEC was correct Note: Recording in STB is only required for
in saying that Interport was duly notified of the absolute transfers, which do not include pledges,
assignment when SSI tendered its payment for mortgages, etc. (Monserrat v. Ceron, G.R. No.
the 75% unpaid balance, and that it could not 37078, September 27, 1933)
anymore refuse to recognize the transfer of the
In case of chattel mortgage [Note: the Personal
transfer of the subscription agreements to SSI
was to extinguish the obligation of R.C. Lee to Property Security Act has done away with chattel
Oceanic, now Interport. Interport was no longer mortgages], a double registration is necessary
obliged to accept any payment from R.C. Lee with the Register of Deeds where:
a. The debtor resides
because the latter had ceased to be privy to the
subscription agreements, but was now legally b. The corporation has its principal place of
bound to accept SSi’s tender of payment as the business.
new debtor. (Interport Resources Corporation v.
Security Specialist, Inc., G.R. No. 154069, 2016) Registration on the stock and transfer book would
be of no effect
 ii. Right to inspect corporate records
What does the right to inspect corporate
In case of attachments and levies, shares may be
records include? (Sec. 73)
attached by leaving with the corporate officer a
1. Right to inspect corporate records
copy of the writ and notice. No recording in the
2. Right to demand for their reproduction,
stock and transfer book is needed. The moment
the notice has been duly delivered, it becomes provided that [D-E-Co]:
binding. a. demand in writing is made by the
requesting party
vii. Involuntary dealings b. copies are reproduced at the
As an incident of ownership, a stockholder may requesting party’s expense
pledge, mortgage or encumber his shares of c. The inspecting or reproducing
stocks. Restrictions by the corporation are only party shall remain bound by
valid when: confidentiality rules under
a. They appear in the Articles of Incorporation, prevailing laws, such as the rules
by-laws, and the certificates. on trade secrets or processes
b. They are not more onerous than granting under Republic Act No. 8293,
existing stockholders an option to purchase otherwise known as the
within a reasonable period and within “Intellectual Property Code of the
reasonable terms. Philippines”, as amended,
Republic Act No. 10173,
F. Corporate Books and Records
otherwise known as the “Data
Privacy Act of 2012”, Republic
i. Corporate records to be kept at principal
office: (Sec. 73) [AB-O-NA-BResRepMi] Act No. 8799, otherwise known
1. The articles of incorporation and bylaws as “The Securities Regulation
of the corporation and all their Code”, and the Rules of Court.
amendments;
Who may inspect corporate records?
2. The current ownership structure and
A director, trustee, stockholder or member of the
voting rights of the corporation, including
corporation in person or by a representative has
lists of stockholders or members, group the right to inspect corporate records (Sec. 73).
structures, intra-group relations,
ownership data, and beneficial The ff. may NOT inspect or demand reproduction
ownership; of corporate records: (Sec. 73)
3. The names and addresses of all the 1. One who is not a stockholder or member
members of the board of directors or of record,
trustees and the executive officers; 2. A competitor, director, officer, controlling
4. A record of all business transactions; stockholder or otherwise represents the
5. A record of the resolutions of the board of interests of a competitor shall have no
directors or trustees and of the right to inspect or demand reproduction
stockholders or members; of corporate records.
6. Copies of the latest reportorial
requirements submitted to the SEC; and Any stockholder who shall abuse the rights
7. The minutes of all meetings of granted under Sec. 73 shall be penalized under
stockholders or members, or of the board Section 158 the RCC without prejudice to the
of directors or trustees. provisions of Republic Act No. 8293, otherwise
known as the “Intellectual Property Code of the
Note: This is not an exclusive list. Section 73 Philippines”, as amended, and Republic Act No.
states that Every corporation shall keep and 10173, otherwise known as the “Data Privacy Act
carefully preserve at its principal office all of 2012”.
information relating to the corporation including,
but not limited to the abovementioned.
 11. DISSOLUTION AND LIQUIDATION
Requisites for the exercise of the right to
inspect
Dissolution
1. It must be exercised at reasonable hours
Extinguishment of the franchise of a corporation
on business days and the termination of its corporate existence.
2. The stockholder has not improperly used
any information he secured through any However, the corporation shall nevertheless be
previous examination continued as a body corporate for three (3) years
3. The demand is made in good faith and for after the time when it would have been so
a legitimate purpose dissolved, for the purpose of prosecuting and
defending suits by or against it and enabling it to
When may corporate records be inspected? settle and close its affairs, to dispose of and
Authorized persons may inspect corporate books convey its property and to distribute its assets, but
at reasonable hours on business days (Sec. 73) not for the purpose of continuing the business for
which it was established. (Sec. 122)
iii. Effect of refusal to inspect corporate
records A. Modes of Dissolution:
Any officer or agent of the corporation who shall
refuse to allow the inspection and/or reproduction i. Voluntary
of records shall be liable for:
1. damages 1. Where No Creditors Are Affected
2. shall be guilty of an offense which shall
be punishable under Section 161, RCC Procedure where no creditors are affected by
the dissolution of the corporation:
If such refusal is made pursuant to a resolution or 1. A meeting must be held on the call of
order of the board of directors or trustees, the directors or trustees;
liability under this section for such action shall be 2. Notice of the meeting should be given to
imposed upon the directors or trustees who voted the stockholders by personal delivery or
for such refusal. (Sec. 73) registered mail at least twenty (20) days
prior to the meeting;
Defenses that may be used by officer / agent / 3. The notice of meeting should also be
director / trustee: published for once in a newspaper
1. the requesting party improperly used any published in the principal place of
information secured through any prior business, otherwise, in a newspaper of
examination of the records or minutes of general circulation
such corporation or of any other 4. The resolution to dissolve must be
corporation, approved by the majority of the
2. the requesting party was not acting in directors/trustees and approved by the
good faith or for a legitimate purpose in stockholders representing at least
making the demand to examine or majority of the outstanding capital stock
reproduce corporate records, or majority of members;
3. the requesting party is a competitor, 5. A verified request for dissolution is then
director, officer, controlling stockholder or filed with the SEC stating:
otherwise represents the interests of a a. the reason for dissolution
competitor (Sec. 73) b. the form, manner and time when
the notices were given
c. names of the stockholders and
directors or members and
trustees who approved the
dissolution
d. the date, place, and time of the
meeting in which the vote was
made; and
e. details of publication
 4. The corporation shall submit to the SEC
6. In addition, the following shall be
the following:
submitted to the SEC:
a. a copy of the resolution
a. Copy of the resolution
authorizing the dissolution,
authorizing the dissolution,
certified by a majority of the
certified by a majority of the
board of directors or trustees and
board and countersigned by the
countersigned by the secretary
secretary;
b. Proof of publication of the corporation; and
b. list of all its creditors.
c. Favorable recommendation from
5. By an order reciting the purpose of the
the appropriate regulatory
petition, the SEC shall fix a deadline for
agency, when necessary.
filing objections to the petition (shall not
7. The SEC shall, within 15 days from the
be less than thirty (30) days nor more
receipt of the verified request for
than sixty (60) days after the entry of the
dissolution, and in the absence of any
order).
withdrawal within said period, approve
6. Publication: Before such the deadline, a
the request and issue the certificate of
copy of the order shall be published at
dissolution, upon which the dissolution
least once a week for three (3)
will take effect. (Sec. 134)
consecutive weeks in a newspaper of
2. Where Creditors Are Affected general circulation published in the
municipality or city where the principal
Procedure where the dissolution of the office of the corporation is situated,
corporation may prejudice the rights of any otherwise, in a newspaper of general
creditor: circulation in the Philippines
1. A verified petition for dissolution shall be 7. Posting: A similar copy shall be posted
filed with the SEC. for three (3) consecutive weeks in three
2. The petition shall be: (3) public places in such municipality or
a. signed by a majority of the city.
corporation’s board of directors 8. After the expiration of the time to file
or trustees objections, a hearing shall be conducted
b. verified by its president or upon prior five (5) day notice to hear the
secretary or one of its directors objections;
or trustees 9. Judgment shall be rendered dissolving
c. shall set forth all claims and the corporation and directing the
demands against it disposition of assets; the judgment may
d. that its dissolution was resolved include appointment of a receiver.
upon by the affirmative vote of 10. The dissolution shall take effect only
the stockholders representing at upon issuance by the SEC of a certificate
least two-thirds (2/3) of the of dissolution* (Sec. 135)
outstanding capital stock or at
least two-thirds (2/3) of the 3. By Shortening Corporate Term-
members at a meeting of its
stockholders or members called Procedure on voluntary dissolution by
for that purpose. shortening of the corporate term (Sec. 36):
3. The petition shall likewise state: 1. A private corporation may extend or
a. the reason for the dissolution; shorten its term by amending the the
b. the form, manner, and time when articles of incorporation when approved
the notices were given; by a majority vote of the board of
c. the date, place, and time of the directors or trustees, and ratified at a
meeting in which the vote was meeting by the stockholders or members
made. representing at least two-thirds (2/3) of
 c. Issue such other orders as it may
the outstanding capital stock or of its
deem appropriate. (Sec. 137)
members.
2. Written notice of the proposed action and
Procedure on Withdrawal of Petition for
the time and place of the meeting shall be
Dissolution
sent to stockholders or members A withdrawal of the petition for dissolution shall be
3. In case of extension of corporate term, a in the form of a motion and similar in substance
dissenting stockholder may exercise the to a withdrawal of request for dissolution but shall
right of appraisal under the conditions be verified and filed prior to publication of the
provided in this Code. (Sec. 137) order setting the deadline for filing objections to
the petition. (Sec. 137)
Note: Under Sec. 11, the RCC now allows the
revival of a the corporate existence of an Expired ii. Involuntary
Corporation.
A corporation may be dissolved by the SEC motu
If a corporation’s term has expired, it may apply proprio or upon filing of a verified complaint by
for a revival of its corporate existence, any interested party. (Sec. 138)
together with all the rights and privileges under its
certificate of incorporation and subject to all of its Grounds for dissolution of the corporation:
duties, debts and liabilities existing prior to its a. Non-use of corporate charter as provided
revival. Upon approval by the SEC, the under Section 21 of this Code;
corporation shall be deemed revived and a b. Continuous inoperation of a corporation
certificate of revival of corporate existence shall as provided under Section 21 of this
be issued, giving it perpetual existence, unless Code;
its application for revival provides otherwise.
c. Upon receipt of a lawful court order
(Sec. 11)
dissolving the corporation;
4. Withdrawal of dissolution d. Upon finding by final judgment that the
corporation procured its incorporation
Procedure on Withdrawal of Request for through fraud;
Dissolution: e. Upon finding by final judgment that the
1. Withdrawal of Request of Dissolution: corporation:
Not later than 15 days from the receipt by 1. Was created for the purpose of
SEC of the request for dissolution, the committing, concealing or aiding
withdrawal thereof shall be made in the SEC of securities violations,
writing, duly verified by any incorporator, smuggling, tax evasion, money
director, trustee, shareholder, or member laundering, or graft and corrupt
and signed by the same number of practices;
incorporators, directors, trustees, 2. Committed or aided in the SEC of
shareholders, or members necessary to securities violations, smuggling,
request for dissolution. tax evasion, money laundering,
2. Upon receipt of a withdrawal of request or graft and corrupt practices,
for dissolution, the SEC shall withhold and its stockholders knew of the
action on the request for dissolution and same; and
shall, after investigation: 3. Repeatedly and knowingly
a. Make a pronouncement that the tolerated the SEC of graft and
request for dissolution is deemed corrupt practices or other
withdrawn; fraudulent or illegal acts by its
b. Direct a joint meeting of the directors, trustees, officers, or
board of directors or trustees and employees. (Sec. 138)
the stockholders or members for
the purpose of ascertaining If the corporation is ordered dissolved by final
whether to proceed with judgment pursuant to the grounds set forth in
dissolution; or subparagraph (e) hereof, its assets, after
 ● Entering into contracts or negotiations for
payment of its liabilities, shall, upon petition of the
SEC with the appropriate court, be forfeited in lease or sale of properties to be used as
favor of the national government. Such forfeiture business or factory site;
shall be without prejudice to the rights of innocent ● Making plans for and the construction of the
stockholders and employees for services factory; and
rendered, and to the application of other penalty ● Taking steps to expedite the construction of
or sanction under this Code or other laws. (Sec. the company’s working equipment
138)
In the event of failure to file for an extension if a
The SEC shall give reasonable notice to, and corporation’s term has expired, it may apply for a
coordinate with, the appropriate regulatory revival of its corporate existence, together with all
agency prior to the involuntary dissolution of the rights and privileges under its certificate of
companies under their special regulatory incorporation and subject to all of its duties, debts
jurisdiction.(Sec. 138) and liabilities existing prior to its revival. Upon
approval by the SEC, the corporation shall be
Non-use of corporate charter (Sec. 21) deemed revived and a certificate of revival of
If a corporation does not formally organize and corporate existence shall be issued, giving it
commence its business within 5 years perpetual existence, unless its application for
● Effect: certificate of incorporation shall be revival provides otherwise.
deemed revoked following the end of
the 5-year period Demands of Minority for Dissolution
Corporate dissolution due to mismanagement of
Continuous Inoperation (Sec. 21) majority stockholder is too drastic a remedy,
If a corporation has commenced its business but especially when the situation can be remedied
subsequently becomes inoperative for a period of such as giving minority stockholders a veto power
at least 5 consecutive years to any decision (Chase v. Buencamino, G.R. No.
● Effect: after due notice and hearing, the 20395, 1985).
corporation will be put on delinquent
status Effects of Dissolution
(a) Vesting of legal title to the corporate property
● Remedy: it shall have a period of 2 years
in the stockholders, who become co-owners
to resume operations. Otherwise,
thereof
certificate of incorporation will likewise be
(b) The corporation ceases to be a body
revoked.
corporate to continue the business for which
“Organization” under SEC Rules it was established.
● Adoption of the by-laws and the filing and
approval of the same with and by the SEC if The termination of the life of a juridical entity does
the same were not adopted and filed not by itself cause the extinction or diminution of
the rights and liability of such entity, since it is
simultaneously with the articles of
allowed to continue as a juridical entity for three
incorporation;
(3) years for the purpose of prosecuting and
● Election of the Board of Directors or Trustees defending suits by or against it and enabling it to
and of the officers; settle and close its affairs, to dispose of and
● Establishment of the principal office; and convey its property, and to distribute its assets
● Providing for the subscription and payment of (Republic v. Tancinco, G.R. No. 139256, 2002).
the capital stock and the taking of such steps
as are necessary to endow the legal entity A board resolution to dissolve the corporation
with capacity to transact the legitimate does not operate to so dissolve the juridical entity.
business for which it was created For dissolution to be effective “the requirements
mandated by the Corporation Code should have
“Commenced Business” under SEC Rules been strictly complied with” (Vesagas v. Court of
When the corporation has performed preparatory Appeals, G.R. No. 142924, 2001)
acts geared towards the fulfillment of the
purposes for which it was established such as but When the period of corporate life expires, the
not limited to the following: corporation ceases to be a body corporate for the
 designation of the trustee is made within said
purpose of continuing the business for which it
was organized (PNB v. Court of First Instance of period.
Rizal, Pasig, Br. XXI, G.R. No. 63201, 1992).
c. Through Receiver – created by means of
A party’s stockholding in a corporation, whether judicial or quasi-judicial appointment of the
existing or dissolved, is a property right which he receiver. The receiver is actually an officer of
may vindicate against another party who has the court and must therefore be accountable
deprived him thereof. to the court.

Stockholders may convey their respective Note: If there is no Board of Directors or

shareholdings toward the creation of a new Trustees, those having pecuniary interest in the
corporation to continue the business of the old or assets, including not only the shareholders but
they may reincorporate by filing new articles of likewise the creditors of the corporation, acting for
incorporation and by-laws. and in its behalf, may liquidate (Alabang Dev’t v.
Alabang Hills Village Ass’n, G.R. No. 196950,
B. Methods of Liquidation 2014)

Liquidation d. Liquidation after Three Years

Process by which all the assets of the corporation
are converted into liquid assets in order to If full liquidation can only be effected after the 3-
facilitate the payment of obligations to creditors, year period and there is no trustee, the directors
and the remaining balance if any is to be may be permitted to complete the liquidation by
distributed to the stockholders. continuing as trustees by legal implication
(Reburiano v. CA, G.R. No. 102965, 1999).
There is no time limit within which the
trustees must complete a liquidation placed in The trustee may continue to prosecute a case
their hands (Vigilla et.al. v. Philippine College of commenced by the corporation within three years
Criminology, G.R. No. 200094, 2013). from its dissolution until rendition of the final
judgment, even if such judgment is rendered
Modes of Liquidation beyond the three-year period allowed by Section
[139]. However, an already defunct corporation
a. Through Board of Directors or Trustees – cannot initiate a suit after the lapse of the three-
normal method of procedure year period. (Alabang Dev’t v. Alabang Hills
Village Ass’n, G.R. No. 196950, 2014)
Even if no trustee is appointed or designated
during the three-year period of the liquidation of Note: When a corporation threatened by
the corporation, the Court has held that the Board bankruptcy is taken over by a receiver, all the
of Directors may be permitted to complete the creditors shall stand on equal footing. Not one of
corporate liquidation by continuing as trustees by them should be given preference by paying one
legal implication (Vigilla et al. v Philippine College or some of them ahead of the others.
of Criminology, G.R. No. 200094, 2013)
The Civil Code provisions on concurrence and
Note: This only concerns the matters/actions that preference of credits are applicable to the
are initiated during the 3 year grace period. The liquidation proceedings.
Board cannot be considered as trustees for
matters initiated after the 3-year period. A corporation in the process of liquidation has no
legal authority to engage in any new business,
b. Through Trustee – at any time during the even if the same is in accordance with the primary
three years of liquidation, a corporation is purpose stated in its articles of incorporation.
authorized and empowered to convey all of
its property to trustees for the benefit of When a Corporation Must Wind Up (Sec. 139)
stockholders, members, creditors, and other If it is dissolved by:
persons in interest. The three (3)-year a. By expiry of term or
limitation will not apply provided the b. Is annulled by forfeiture, or
otherwise, or
 c. Is terminated In any other
manner Notwithstanding the foregoing, a corporation shall
not be deemed a close corporation when at least
Effects of Winding Up of Affairs: (Sec. 139) two-thirds (2/3) of its voting stock or voting rights
a. Continues as a corporate body for 3 years is owned or controlled by another corporation
to prosecute and defend suits against it, which is not a close corporation within the
close its affairs, dispose and convey its meaning of the Corporation Code. (Sec. 95)
property and distribute assets
Suppletory Effect
b. Cannot continue business for which it
The provisions of other Titles of the Corporation
was established
Code shall apply suppletorily except insofar as
c. Can convey property to trustees for the Title of Close Corporation otherwise provides.
benefit of the stockholders/members, (Sec. 95)
creditors and other persons in interest
i. Legal interest vests in Management of a close corporation
business 1. The articles of incorporation of a close
ii. Beneficial interest remains corporation may provide that the business of
with stockholders/ the corporation shall be managed by the
members, creditors stockholders of the corporation rather than by
d. Assets distributable to unknown a board of directors.
creditors, stockholders/ members, a. When they manage, stockholders are
persons in interest or those who cannot liable as directors;
be found shall be escheated to the city or b. There is no need to call a meeting to elect
municipality where the assets are directors;
located. c. To the extent that the stockholders are
e. Distribution of assets only upon lawful actively engaged in the management,
dissolution and payment of all debts and said stockholders shall be liable for
liabilities. corporate torts unless the corporation
Exceptions: has obtained reasonably adequate
a. Decrease of capital stock liability insurance.
b. As otherwise allowed in the
Corporation Code Companies That Cannot Be Close
Corporations (MIPES-BOO)
12. OTHER CORPORATIONS a. Mining companies;
b. Insurance companies;
A. Close Corporations c. Public utilities;
d. Educational institutions;
i. Characteristics of a close corporation e. Stock exchanges;
f. Banks;
A close corporation, within the meaning of the g. Oil companies;
Corporation Code, is one whose articles of h. Other corporations declared to be vested with
incorporation provides that: public interest.
1. All the corporation's issued stock of all
classes, exclusive of treasury shares, shall be ii. Validity Of Restrictions On Transfers Of
held of record by not more than a specified Shares (Sec 97)
number of persons, not exceeding twenty Restrictions on the right to transfer shares must
(20) appear in:
2. All the issued stock of all classes shall be 1. The articles of incorporation;
subject to one or more specified restrictions 2. The by-laws; and
on transfer permitted by this Title 3. In the certificate of stock
3. The corporation shall not list in any stock
exchange or make any public offering of any Otherwise, the same shall not be binding on any
of its stock of any class. purchaser thereof in good faith.
Said restrictions shall not be more onerous than permitted under its articles of
granting the existing stockholders or the incorporation; or
corporation the option to purchase the shares of 3. that the transfer violates a restriction on
the transferring stockholder with such reasonable transfer of stock, and the corporation
terms, conditions or period stated therein. may, at its option, refuse to register the
transfer in the name of the transferee.
If upon the expiration of said period, the existing
stockholders or the corporation fails to exercise
(e) The provisions of subsection (d) shall not
the option to purchase, the transferring
be applicable if the transfer of stock, though
stockholder may sell his shares to any third
contrary to subsections (a), (b) or (c), has been
person.
consented to by all the stockholders of the close
corporation, or if the close corporation has
iii. Effects of Issuance or Transfer of Stock in
amended its articles of incorporation in
Breach of Qualifying Conditions. –
accordance with this Title.
(a) If shares of stock of a close corporation
(f) The term “transfer”, as used in this
are issued or transferred to any person who is not
section, is not limited to a transfer for
eligible to be a holder thereof under any provision
value.
of the articles of incorporation, and if the
certificate for such stock conspicuously shows the
(g) The provisions of this section shall not
qualifications of the persons entitled to be holders
impair any right which the transferee may have to
of record thereof, such person is conclusively
either rescind the transfer or recover the stock
presumed to have notice of the fact of the
under any express or implied warranty. (Sec. 98)
ineligibility to be a stockholder.
Note: Even if the transfer of shares is made in
(b) If the articles of incorporation of a close
violation of the restrictions enumerated under
corporation states the number of persons, not
[Sec. 98 of RCC], such transfer is still valid if it
exceeding twenty (20), who are entitled to be
has been consented to by all the shareholders of
stockholders of record, and if the certificate for
the close corporation and the corporation cannot
such stock conspicuously states such number,
refuse to register the transfer of shares in the
and the issuance or transfer of stock to any
name of the transferee. (Florete, Sr. v. Florete,
person would cause the stock to be held by more
Jr., G.R. No. 223321, 2018)
than such number of persons, the person to
whom such stock is issued or transferred is
Need for factual determination of close
conclusively presumed to have notice of this
corporation to apply
fact.
Before courts can allow the operation of Section
98 to a case, there must first be a factual
(c) If a stock certificate of a close corporation
determination that the corporation is indeed a
conspicuously shows a restriction on transfer of
close corporation. There needs to be a
the corporation’s stock and the transferee presentation of evidence on the relevant
acquires the stock in violation of such restriction, restrictions in the articles of incorporation and by-
the transferee is conclusively presumed to have laws of the corporation. (Rural Bank of Andaya v.
notice of the fact that the stock was acquired Cabadbaran, G.R. No. 188769, 2016)
in violation of the restriction.
iv. When board meeting is unnecessary or
(d) Whenever a person to whom stock of a improperly held (Sec. 100)
close corporation has been issued or transferred
has or is conclusively presumed under this section General Rule: Any action taken by the directors
to have notice of:
without a board meeting shall be deemed
1. the person’s ineligibility to be a
INVALID.
stockholder of the corporation; or
2. that the transfer of stock would cause the Exception: The following shall nonetheless be
stock of the corporation to be held by valid despite the lack of a valid board meeting,
more than the number of persons unless the by-laws provide otherwise
 vii. Deadlocks (Sec. 103)
1. Before or after such action is taken, a
written consent thereto is signed by all Power To Buy-Back Shares Of Close
the directors; or Corporations v. Appraisal Right In Stock
2. All the stockholders have actual or
Corporations
implied knowledge of the action and
CLOSE CLOSE STOCK
make no prompt objection in writing; or
CORP CORP CORP
3. The directors are accustomed to take
Sec. 103 Sec. 104
informal action with the express or
(Deadlocks) (Withdrawal)
implied acquiescence of all the
Exercised by Exercised by Exercised by
stockholders; or
the the the
4. All the directors have express or implied
corporation stockholder stockholder
knowledge of the action in question and
There are
none of them makes a prompt objection
certain
in writing. Exercisable
Exercisable instances
only in a
An action within the corporate powers taken at for any where
deadlock
a meeting held without proper call or notice, is reason appraisal
situation
deemed ratified by a director who failed to rights can be
attend, unless after having knowledge thereof, exercised
the director promptly files his written objection Can be
with the secretary of the corporation. directed
Available Available
either against
only against only against
v. Pre-Emptive Rights Of Stockholders In the
Close Corporations (Sec 101) the the
corporation
corporation corporation
or any other
General Rule: It shall extend to all stock to be stockholder
issued, including reissuance of treasury shares,
Available Limited only Unrestricted
whether for money, property or personal services,
or in payment of corporate debts even without in a situation retained
unrestricted when the earnings are
Exception: Unless the articles of incorporation retained corporation required for
provide otherwise. earnings and has sufficient buyback to
not subject to assets in its happen,
vi. Amendment of the articles of incorporation any formula books generally
(Sec. 102)
Compelling Dissolution In Close
Any amendment to the articles of incorporation Corporations v. Stock Corporations
which seeks to delete or remove any provision CLOSE CLOSE STOCK
required by this Title or to reduce a quorum or
CORP CORP CORP
voting requirement stated in said articles of
incorporation shall require the affirmative vote Sec. 104 Sec. 105
of at least two- thirds (2/3) of the outstanding SEC is given
capital stock, whether with or without voting express Majority of
rights, or of such greater proportion of shares as power to A stockholder the Board
may be specifically provided in the articles of dissolve a must make a plus 2/3
incorporation for amending, deleting or removing close written stockholder
any of the aforesaid provisions, at a meeting duly corporation petition to the vote is
called for the purpose. when there is dissolution required for
a deadlock dissolution
situation
 B. Non-Stock Corporations
The incurring of profit or losses does not
i. Definition determine whether an activity is for profit or non-
A non-stock corporation is one where no part of profit, and the courts will consider whether
its income is distributable as dividends to its dividends have been declared or its members or
members, trustees, or officers, subject to the that is property, effects or profit was ever used for
provisions of the Corporation Code on dissolution personal or individual gain, and not for the
purpose of carrying out the objectives of the
Any profit which a non-stock corporation may enterprise (Manila Sanitarium and Hospital v.
obtain as an incident to its operations shall, Gabuco, G.R. No. 13873, 1963).
whenever necessary or proper, be used for the
furtherance of the purpose or purposes for which In a mutual life insurance corporation, organized
the corporation was organized, subject to the as a non-stock nonprofit corporation, the so-
provisions of this Title. (Sec. 86) called “dividend” that is received by members-
policyholders is not a portion of profits set aside
Requisites: for distribution to the stockholders in proportion to
1. Does not have a capital stock divided into their subscription to the capital stock of a
share corporation. One, a mutual company has no
2. No part of its income is distributable as capital stock to which subscription is necessary;
dividends to its member there are no stockholders to speak of, but only
3. They must be formed or organized for members. And, two, the amount they receive
does not partake of the nature of a profit or
purposes specified in Sec. 87
income. The quasi-appearance of profit will not
change its character; it remains an overpayment,
Conversion between Stock and Non-Stock
a benefit to which the member-policyholder is
Corporation
equitably entitled (Republic v. Sunlife Assurance
A non-stock corporation cannot be converted into Company of Canada, GR No. 158085, 2005).
a stock corporation through mere amendment of
its Articles of Incorporation as this would be in Delinquency in Membership Dues of Non-
violation of Section 87 which prohibits distribution Stock Corporations
of income as dividends to members. (SEC
A non-stock corporation may seize and dispose of
Opinion, 20 March 1995) However, a non-stock
the membership share of a fully-paid member on
corporation can be converted into a stock
account of his unpaid monthly dues, when such
corporation only if the members dissolve it first
corporation is authorized to do so under the by-
and then organize a stock corporation. The result
laws, even when no provision on the matter
is a new corporation. (SEC Opinion, 13 May
appears in the articles of incorporation, and in
1992)
spite of the fact that Sec. 67 of Corporation Code
on delinquency sale pertains to payment of
On the other hand, a stock corporation may be
shares subscription. (Valley Golf v. De Caram,
converted into a non-stock corporation by mere
G.R. No. 155805, 2000)
amendment provided all the requirements are
complied with. Its rights and liabilities will remain.

Theory on Non-Stock Corporations

A non-stock corporation may only be formed or
organized for charitable, religious, educational,
professional, cultural, fraternal, literary, scientific,
social, civic or other similar purposes. It may not
engage in undertakings such as the investment
business where profit is the main or underlying
purpose. Although the non-stock corporation may
obtain profits as an incident to its operation such
profits are not to be distributed among its
members but must be used for the furtherance of
its purposes (People v. Menil, G.R. No. 115054-
66, 1999).
 explanation if its articles or by-laws provide for
Comparative Table: Stock v. Non-Stock
more than 15 members of the Board. (Sec. 91)
Corporations
STOCK CORP NON-STOCK CORP Term
Can they earn profit? Trustees shall hold office for a period of three (3)
Yes Yes years until their successors are elected and
Distribution of Dividends qualified (Sec. 91)
Yes No
Name of “Constituents” Qualifications of Trustees
Only ONE qualification under Sec. 92:
Stockholders Members
Membership in the corporation. Nonetheless, the
Limitation to Purpose member who may be elected as trustee may just
May not include a be a nominee. A trustee who ceases to be a
There can be purpose which would member of the corporation can no longer act as a
secondary purposes change or contradict trustee.
its nature in AOI
Kind of Board Note: An independent trustee of a non-stock
Board of Directors Board of Trustees corporation vested with public interest need not
Number of Board Members be a member of such non-stock corporation (Sec.
91)
may be more than 15
must not be more
EXC: special
than 15 For stock corporations, the "quorum" referred to
corporations
in Section 52 of the Corporation Code is based on
Term of Board Members the number of outstanding voting stocks. For
3 years, but AOI or nonstock corporations, only those who are actual,
by-laws may provide living members with voting rights shall be counted
otherwise in determining the existence of a quorum during
1 year
members' meetings. Dead members shall not be
5 years - educational counted. (Tan v. Sycip, G.R. No. 153468 August
Constant terms
institutions 17, 2006)

Staggered terms ii. Purposes

How Board Members are Elected A non-stock corporation may be formed or
Directly elected by organized for the following purposes:
Elected by the a. Charitable,
the members, unless
stockholders (per
AOI provides b. Religious,
Corp. Code) c. Educational,
otherwise
Manner of Voting d. Professional,
Straight voting, e. Cultural,
Straight or cumulative unless AOI or by- f. Recreation,
voting laws provide g. Fraternal,
otherwise h. Literary,
Can a stockholder/member disengage i. Scientific,
from the corporation? j. Social,
Can sell to other Articles or by-laws k. Civic Service,
stockholders OR specifically provide l. Similar purposes, like trade, industry,
exercise of appraisal for the method of agriculture and like chambers, or
rights termination m. Any combination of thereof (Sec. 87)

In the Articles of Incorporation, a non-stock

Number of Trustees
corporation may not include a purpose which
A non-stock corporation may OR may not have
would change or contradict its nature as such.
more than 15 trustees.

NOTE: However, SEC has adopted a policy of

requiring registrant corporations to submit an
 2. Assets held by the corporation upon a
iii. Treatment Of Profits
Non-stock non-profit corporations may actually condition requiring return, transfer or
earn profits incidentally from its operations, conveyance, and which condition occurs
provided that the profits are devoted to their by reason of the dissolution, shall be
purpose. returned, transferred or conveyed in
accordance with such requirements;
The mere fact that a non-stock corporation may 3. Assets received and held by the
earn profit does not make it a profit-making corporation subject to limitations
corporation, where such profit is used to carry out permitting their use only for charitable,
the purposes set forth in the Articles of religious, benevolent, educational or
Incorporation and is not distributed to its similar purposes, but not held upon a
incorporators, members, trustees, or officers. condition requiring return, transfer or
(SEC Opinion, 13 November 1990, XXIV SEC
conveyance by reason of the dissolution,
Quarterly Bulletin 63)
shall be transferred or conveyed to one
Note: or more corporations, societies or
Despite its nomenclature, the essence of a non- organizations engaged in activities in the
stock non-profit corporation is not the non- Philippines substantially similar to those
existence of shares of stock to cover its capital (it of the dissolving corporation according to
is legally possible for a corporation having capital a plan of distribution adopted pursuant to
stock to still be considered a non-stock this Chapter;
corporation), but that: 4. Assets other than those mentioned in the
a. Its primary purpose should be any of those preceding paragraphs, if any, shall be
under Sec. 88 of the Corporation Code, and distributed in accordance with the
b. There is a prohibition in the articles of provisions of the articles of incorporation
incorporation and by-laws that no part of the or the by-laws, to the extent that the
income or any form of dividend is articles of incorporation or the by-laws,
distributable to the members, trustees, and determine the distributive rights of
officers of the corporation (CIR v. Club members, or any class or classes of
Filipino Inc. de Cebu, G.R. No. L-12719, members, or provide for distribution; and
1962) 5. In any other case, assets may be
● Even though the corporation distributed to such persons, societies,
may incidentally earn profits organizations or corporations, whether or
from its operations. (CIR v. not organized for profit, as may be
University of Visayas, G.R. No. specified in a plan of distribution adopted
L-13554, 1961) pursuant to this Chapter.(Sec. 93)

iv. Plan and Distribution of Assets upon Plan of Distribution of Assets

Dissolution A non-stock corporation in the process of
dissolution may adopt a plan providing for the
Rules of Distribution of Assets upon distribution of assets, not inconsistent with the
Dissolution RCC, in the following manner:
The assets of a nonstock corporation undergoing
the process of dissolution for reasons other than 1. The board of trustees shall, by majority
those set forth in Section 139 of the RCC (every vote, adopt a resolution recommending a
corporation whose charter expires pursuant to its plan of distribution and directing the
articles of incorporation, is annulled by forfeiture,
submission thereof to a vote at a regular
or whose corporate existence is terminated in any
or special meeting of members having
other manner) shall be applied and distributed as
follows: voting rights;
1. All liabilities and obligations of the 2. Each member entitled to vote shall be
corporation shall be paid, satisfied and given a written notice setting forth the
discharged, or adequate provision shall proposed plan of distribution or a
be made therefore; summary thereof and the date, time and
 place of such meeting within the time and
in the manner provided in this Code for Term of Office
the giving of notice of meetings; and Unless otherwise provided in the articles of
3. Such plan of distribution shall be adopted incorporation or bylaws, the board of trustees of
upon approval of at least two-thirds (2/3) incorporated schools, colleges, or other
of the members having voting rights institutions of learning shall, as soon as
organized, so classify themselves that the term of
present or represented by proxy at such
office of one- fifth (1/5) of their number shall
meeting. expire every year. Trustees thereafter elected to
fill vacancies, occurring before the expiration of a
Note: particular term, shall hold office only for the
Although a non-stock corporation cannot unexpired period. Trustees elected thereafter to
distribute incidental profits or dividends to its fill vacancies caused by expiration of term shall
members, trustees and officers during its hold office for five (5) years. (Sec. 106)
corporate term, in the event of dissolution, after
the payment of all liabilities and return of assets Note: For institutions organized as stock
received subject to limitations permitting their corporations, the number and term of directors
use, the remaining assets may be distributed to shall be governed by the provisions on stock
the members, as provided for in the articles of corporations.(Sec. 106)
incorporation of by-laws.
Quorum
In the absence of distribution rules, the remaining A majority of the trustees shall constitute a
assets may be distributed to such persons, quorum for the transaction of business. The
societies, organizations, or corporations, whether powers and authority of trustees shall be defined
or not organized for profit, as may be specified in the bylaws.(Sec. 106)
in a plan of distribution as adopted by the Board
of Trustees and ratified by the members. 1987 Constitution Provisions
Article II, Sec. 17 of the Constitution: “The State
In a regular non-stock corporation it is possible for shall give priority to education [...] to foster
its net assets and accumulated “earnings” from its patriotism and nationalism, accelerate social
operations, to inure to the benefit of private progress, and promote total human liberation and
individuals (e.g., its own members) or entities, development.”
but only as a consequence of dissolution.
Article XIV, Sec. 4 of the Constitution requires:
Suppletory Effect 1. That educational institutions shall be:
The provisions governing stock corporation, when a. Solely owned by Filipino citizens;
pertinent, shall be applicable to non-stock OR
corporations, except as may be covered by
b. If owned by a corporation, at
specific provisions of this Title.
least 60% of the capital must be
C. Educational Corporations owned by Filipino citizens.
2. The control and administration shall be
Educational corporations shall be governed by: vested in citizens of the Philippines.
1. Special laws (e.g. “Education Act of 3. No educational institution shall be
1982”) established exclusively for aliens. The
2. General provisions of the Revised 60% ownership requirement does not
Corporation Code (Sec. 105) apply to the following:
a. Educational institutions
Board of Trustees of Educational established by religious groups
Corporations and mission boards;
Trustees of educational institutions organized as b. Schools established for foreign
nonstock corporations shall not be less than five diplomatic personnel and their
(5) nor more than fifteen (15): Provided, That the dependents;
number of trustees shall be in multiples of five
(5).(Sec 106)
 c.Other foreign temporary 4. The manner by which any vacancy
residents (unless otherwise occurring in the office of chief
provided by law) archbishop, bishop, priest, minister,
4. No group of aliens shall comprise more rabbi, or presiding elder is required to be
than ⅓ of the enrollment in any school. filled, according to the rules, regulations
or discipline of the religious
D. Religious Corporations denomination, sect or church; and
5. The place where the principal office of the
i. Corporation Sole; Nationality corporation sole is to be established and
Special form of corporation, usually associated located, which place must be within the
with the clergy and consists of one person only
territory of the Philippines.
and his successors, who are incorporated by law
to give some legal capacities and advantages. 6. The articles of incorporation may include
any other provision not contrary to law for
A corporation sole does not have any nationality the regulation of the affairs of the
but for purposes of applying our nationalization corporation. (Sec. 109)
laws, nationality is determined by the nationality
of the members (Roman Catholic Apostolic Note: The articles must be verified by affidavit or
Church v. LRC, G.R. No. 8451, 1957). affirmation of presiding elder. Document that
such presiding elder was duly elected or
Composition appointed as such and this document must be
A corporation sole may be formed by the chief certified by notary public. (Sec. 110)
archbishop, bishop, priest, minister, rabbi, or
other presiding elder of such religious Acquisition and Alienation of Property
denomination, sect or church, for the purpose of A corporation sole may purchase and hold real
administering and managing, as trustee, the estate and personal property for its church,
affairs, property and temporalities of any religious charitable, benevolent, or educational purposes,
denomination, sect or church. and may receive bequests or gifts for such
purposes. (Sec. 111)
Articles of Incorporation: Contents
In order to become a corporation sole, the chief Such corporation may sell or mortgage real
archbishop, bishop, priest, minister, rabbi, or property held by it by obtaining an order for that
presiding elder of any religious denomination, purpose from the Regional Trial Court of the
sect or church must file with the SEC articles of province where the property is situated upon
incorporation setting forth the following: proof that the notice of the application for leave to
1. That the applicant chief archbishop, sell or mortgage has been made through
bishop, priest, minister, rabbi, or publication or as directed by the Court, and that it
presiding elder represents the religious is in the interest of the corporation that leave to
denomination, sect or church which sell or mortgage be granted. (Sec. 111)
desires to become a corporation sole;
Note: In cases where the rules, regulations, and
2. That the rules, regulations and discipline
discipline of the religious denomination, sect or
of the religious denomination, sect or church, religious society, or order concerned
church are consistent with becoming a represented by such corporation sole regulate the
corporation sole and do not forbid it; method of acquiring, holding, selling, and
3. That such chief archbishop, bishop, mortgaging real estate and personal property,
priest, minister, rabbi, or presiding elder such rules, regulations and discipline shall govern,
is charged with the administration of the and the intervention of the courts shall not be
temporalities and the management of the necessary. (Sec. 111)
affairs, estate and properties of the
religious denomination, sect, or church The doctrine in Republic v. Villanueva (G.R. No.
within the territorial jurisdiction, so 55418-19, 1982) and Republic v. Iglesia ni Cristo
(G.R. No. 180067, 1984), that a corporation
described succinctly in the articles of
sole is disqualified to acquire/hold alienable
incorporation
lands of the public domain, because of the
constitutional prohibition qualifying only
individuals to acquire land and the provision Exception: As otherwise provided by special law.
under the Public Land Act which applied only to
Filipino citizens or natural persons, has been Note: Unless required by applicable laws or
expressly overturned in Director of Lands v. regulations, no portion of the authorized capital is
IAC (G.R. No. 66575 1986). required to be paid up at the time of incorporation.
(SEC Circular No. 7, Series of 2019)
A registered corporation sole can acquire land if
its members constitute at least 60% Filipinos. iii. Articles of incorporation and by-laws
(SEC Opinion, 8 August 1994)

Dissolution of a Corporation Sole Requirements for filing the Articles of

A corporation sole may be dissolved and its Incorporation:

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

E. One Person Corporations iv. Corporate name

i. Excepted Corporations It should Indicate the letters “OPC” either below

or at the end of their corporate name. (Sec. 120)
The following are not allowed to incorporate as
OPC: v. Corporate structure and officers
a. Banks,
b. Non-bank financial institutions, One Person Corporation (OPC) (Sec. 116)
c. Quasi-banks, - a corporation with a single stockholder
d. Pre-need,
e. Trust, Who may form?
f. Insurance public and publicly listed 1. Natural person – must be of legal age
companies, a. A foreign natural person may
g. Non-chartered GOCCs; and put up an OPC subject to
h. Natural person who is licensed to applicable capital requirement
exercise a profession may not organize and constitutional and statutory
an OPC for the purpose of exercising such restrictions on foreign
a profession. EXC: unless otherwise participation in certain
provided by special laws. (Sec. 116) investment areas or activities
(SEC Memorandum 7-2019)
ii. Capital stock requirement (Sec. 117) b. Trust – does not refer to a trust
entity, but the subject being
General Rule: A One Person Corporation is not managed by a trustee. If the
required to have a minimum authorized capital single stockholder is a trustee,
stock. administrator, executor,
guardian,
cons
ervator,
 custodian, or other person BOND REQUIREMENT as per SEC
exercising fiduciary duties Memorandum 7-2019:
i. proof of authority to act on ACS Surety Bond
behalf of the trust or estate Coverage
must be submitted at the 1 to 1,000,000 1,000,000
time of incorporation (SEC 1,000,001 to 2,000,000 2,000,000
Memorandum 7-2019) 2,000,001 to 3,000,000 3,000,000
c. Estate 3,000,001 to 4,000,000 4,000,000
4,000,001 to 5,000,000 5,000,000
Who may NOT form?
5,000,001 and above Equal to the
1. Banks and quasi-banks, non-bank
OPC’s ACS
financial institutions (SEC Memorandum
7-2019)
2. Pre-need, trust, insurance, public and ● Bond shall be renewed every two (2)
publicly-listed companies years or as often as may be required,
3. Non-chartered government-owned and - upon review of the Audited Financial
controlled Statements/ Financial Statements
4. Natural person who is licensed to certified under oath by the
exercise a profession to form an OPC for company’s President/Treasurer
the purpose of exercising such profession ● Bond is a continuing requirement as
long as the single stockholder is the
Exception: as provided under special laws self-appointed Treasurer of the OPC
● Bond may be cancelled upon proof of
The single stockholder shall be the sole director appointment of another person as
and president of the One Person Corporation. the Treasurer and Filing of Amended
(Sec. 121) Form for Appointment of Officers
2. Undertake in writing to faithfully
When to appoint officers? (Sec. 122) administer the One Person Corporation’s
Within fifteen (15) days from the issuance of its funds to be received as treasurer
certificate of incorporation 3. To disburse and invest the same
according to the articles of incorporation
Who to appoint? as approved by the SEC
a. Treasurer
b. Corporate secretary Special Functions of the Corporate
c. Other officers as may be deemed necessary Secretary(Sec. 123)
In addition to the functions designated by the One
Who and when to notify? Person Corporation, the corporate secretary shall:
Securities and Exchange Commission (SEC) 1. Be responsible for maintaining the
- within five (5) days from appointment minutes book and/or records of the
- using the Appointment Form as may be corporation
prescribed by the SEC (SEC Memorandum 7- 2. Notify the nominee or alternate
2019) nominee of the death or incapacity of the
single stockholder
Single stockholder allowed? i. notice shall be given no
- Corporate secretary – NO later than five (5) days from
- Treasurer – YES such occurrence
- Conditions: 3. Notify the SEC of the death of the
1. Give bond to the SEC in such a sum single stockholder
as may be required i. within five (5) days from
such occurrence
ii. state the names, residence
addresses, and contact
details of all known legal
heirs
 4. Call the nominee or alternate 2. Death or Permanent - until the legal heirs
nominee and the known legal heirs to a of the single stockholder have been lawfully
meeting and advise the legal heirs with determined, and the heirs have designated one of
regard to: them or have agreed that the estate shall be the
i. the election of a new single stockholder of the One Person Corporation
director
ii. amendment of the articles Alternate Nominee
of incorporation - shall sit as director and manage the One
iii. other ancillary and/or Person Corporation in case of the nominee’s
consequential matters inability, incapacity, death, or refusal to
discharge the functions as director and
vi. Nominee manager of the corporation
1. designated by a single stockholder - for the same term and under the same
conditions applicable to the nominee
2. in the event of the single stockholder’s
death or incapacity, nominee takes the
Minimum Capital Stock Required for One
place of the single stockholder as director
Person Corporation (Sec. 117)
and shall manage the corporation’s
affairs
General rule: No minimum authorized capital
3. written consent of both nominee and
stock
alternate nominee (SEC Memorandum 7-
2019) – to be attached in the application
Exception: as otherwise provided by special law
of incorporation
a. may be withdrawn in writing any
Required Paid Up Capital (SEC Memorandum
time before the death or
7-2019)
incapacity of the single
stockholder
General rule: No portion of authorized capital
4. may be changed at any time
stock is required to be paid up at the time of
a. by submitting to the SEC the
incorporation
names of the new nominees and
their corresponding written
Exception: as otherwise required by applicable
consent
laws or regulations
b. Articles of Incorporation need
NOT be amended (SEC
vii. Minutes and records
Memorandum 7-2019)
A One Person Corporation shall maintain a
minutes book which shall contain all actions,
What shall be contained in articles of
decisions, and resolutions taken by the One
incorporation with regard to the nominee and
Person Corporation. (Sec. 127)
alternate nominee?
a. names
When action is needed on any matter, it shall be
b. residence addresses
sufficient to prepare a written resolution, signed
c. contact details
and dated by the single stockholder, and
d. extent and limitations of their authority in
recorded in the minutes book of the One Person
managing the affairs of the One Person
Corporation. The date of recording in the minutes
Corporation.
book shall be deemed to be the date of the
meeting for all purposes under this Code. (Sec.
Term of Nominee and Alternate Nominee (Sec.
128)
125)
viii. Liability (Sec. 130)
Incapacity of the single stockholder:
1. Temporary - until the stockholder, by self
A sole shareholder claiming limited liability has
determination, regains the capacity to assume
the burden of affirmatively showing that:
such duties.
1. the corporation was adequately financed.
 2. the property of the One Person for all the latter’s outstanding liabilities as of the
Corporation is independent of the date of conversion.
stockholder’s personal property.
F. Foreign Corporations
The principles of piercing the corporate veil
applies with equal force to One Person A corporation formed, organized or existing under
Corporations as with other corporations any law other than those of the Philippines, and
whose laws allow Filipino citizens and
ix. Conversion of corporation to OPC and corporations to do business in its own country or
vice-versa state. (Sec. 140)

Conversion from an Ordinary Corporation to A foreign corporation is one which owes its
a OPC (Sec. 131) existence to the laws of another state, and
generally, has no legal existence within the state
When a single stockholder acquires all the stocks in which it is foreign (Avon Insurance PLC v.
of an ordinary stock corporation, the latter may Court of Appeals, G.R. No. 97642, 1997).
apply for conversion into a OPC, subject to the
submission of such documents as the SEC may A fundamental rule of international jurisdiction is
require. If the application for conversion is that no state can by its laws, and no court which
approved, the SEC shall issue certificate of filing is only a creature of the state, can by its
of amended articles of incorporation reflecting the judgments and decrees, directly bind or affect
conversion. property or persons beyond the limits of that state
(Time, Inc. v. Reyes, GR No. 28882, 1971).
Conversion from an OPC to an Ordinary Stock
Corporation (Sec. 132) i. Bases of Authority over Foreign
Corporations
A One Person Corporation may be converted into
an ordinary stock corporation after due notice to 1. Consent - It is the voluntary surrender of
the SEC of such fact and of the circumstances jurisdiction over its person in a pending suit
leading to the conversion, and after compliance before the host state (Salonga, Private
with all other requirements for stock corporations International Law, 1979 ed., p.344).
under this Code and applicable rules. Such notice
shall be filed with the SEC within sixty (60) days 2. “Doing Business” with regard to Foreign
from the occurrence of the circumstances leading Corporations - Continuity of commercial
to the conversion into an ordinary stock dealings incident to prosecution of purpose and
corporation. If all requirements have been object of the organization. Isolated, occasional or
complied with, the SEC shall issue an amended casual transactions do not amount to engaging in
certificate of incorporation reflecting the business. But where the isolated act is not
conversion. incidental/casual but indicates the foreign
corporation’s intention to do other business, said
In case of death of the single stockholder, the single act constitutes engaging in business in the
nominee or alternate nominee shall transfer the Philippines.
shares to the duly designated legal heir or estate
within seven (7) days from receipt of either an Test to Determine “Doing Business”
affidavit of heirship or self- adjudication executed
by a sole heir, or any other legal document a. Isolated Transactions Test: where a foreign
declaring the legal heirs of the single stockholder corporation needs to obtain a license and fails
and notify the SEC of the transfer. Within sixty to do so, whether it should be denied legal
(60) days from the transfer of the shares, the legal standing to obtain remedies from local courts
heirs shall notify the SEC of their decision to and administrative agencies or not, depends
either wind up and dissolve the One Person therefore on the issue whether it will engage
Corporation or convert it into an ordinary stock in business in the Philippines. Not every
corporation.
activity undertaken in the Philippines
amounts to doing business as to require a
Note: The Converted Corporations shall succeed
the former corporation and be legally responsible foreign corporation to obtain such license.
 business subjecting the parties to local
Single or isolated acts, contracts, or transactions registration and licensing requirements
of foreign corporations are not regarded as a (Pacific Vegetable Oil Corp. v Singzon, G.R.
doing or carrying on of business. Typical No. 7917, 1955)
examples of these are the making of a single
contract, sale, sale with the taking of a note and “Doing Business” Under The Foreign
mortgage in the state to secure payment thereof, Investment Act and IRR
purchase, or note, or the mere commission of a
tort. In these instances, there is no purpose to do “Doing Business” in the Philippines - Includes:
any other business within the country (MR. a. Soliciting orders, service contracts, opening
Holdings, Ltd. V. Bajar, G.R. No. 138104, 2002). offices, whether called “liaison” offices or
branches;
BUT: Where a single act or transaction is not b. Appointing representatives or distributors
merely incidental or casual but indicates the domiciled in the Philippines;
foreign corporation's intention to do other
business in the Philippines, said single act or Note: Includes “appointing representatives or
transaction constitutes doing business (Far East distributors in the Philippines” but not when the
Int'l. v. Nankai Kogyo, G.R. No. 13525, 1962). representative or distributor “transacts business
in its name and for its own account.” (Alfred Hahn
Need to Allege: The fact that a foreign v. CA, G.R. No.113074, 1997)
corporation is not doing business in the
Philippines must be alleged, if a foreign c. Participating in the management,
corporation desires to sue in Philippines courts supervision, or control of any domestic
under the “isolated transactions rule” (Atlantic business, firm, entity, or corporation in the
Mutual Inc. Co. v. Cebu Stevedoring Co., G.R.
Philippines; and
No. 18961, 1966); if not alleged, it can be
d. Any other act or acts that imply a continuity of
dismissed for lack of capacity to sue by the
plaintiff (Commissioner of Customs v. K.M.K. commercial dealings or arrangements, and
Gani, G.R. No. 73722, 1990). contemplate to that extent the performance of
acts or works, or the exercise of some of the
b. Twin Characterization Test (Mentholatum functions normally incident to, and in
Co. Inc v. Mangaliman G.R. No. 47701, 1941) progressive prosecution of, commercial gain
or of the purpose and object of the business
Substance Test: Consider the body or organization
substance of the business or the enterprise for
which it was ORGANIZED or whether it has Note: “Doing business” was upheld against
substantially retired from it and turned it over to Pioneer International for soliciting orders and
another. service contracts in the performance of acts that
imply continuity of commercial dealings. Pioneer
Continuity Test: That doing business implies a International’s alleged acts in actively negotiating
continuity of commercial dealings and to employ Todaro to run its pre-mixed concrete
arrangements and contemplates, to that extent, operations in the Philippines, which acts are
the performance of acts or works or the exercise hypothetically admitted in Pioneer International’s
of some of the functions normally incidental to, motion to dismiss, are not mere acts of a passive
and in progressive prosecution of, the purpose investor in a domestic corporation. Such are
and object of its organization. managerial and operational acts in directing and
establishing commercial operations in the
Taken together, DOING BUSINESS in the Philippines. (Pioneer International, LTD v.
Philippines must cover transactions and series of Guadiz, G.R. No. 156848, 2007)
transactions in pursuit of the main business goals
of the corporation and done with the intent to Does Not Include:
continue the same in the Philippines. a. Mere investment as a shareholder by a
foreign entity in domestic corporations duly
c. Contract Test: if the salient points of a registered to do business, and/or the exercise
contract do not find themselves in the of rights as such investor;
Philippines, Philippine authorities have no
 2. The application shall be under oath and shall
b. Having a nominee director or officer to
specifically set forth the following:
represent its interests in such corporation;
a. The date and term of incorporation;
c. Appointing a representative or distributor
b. The address, including the street
domiciled in the Philippines which transacts
number, of the principal office of the
business in its own name and for its own
corporation in the country or State of
account;
incorporation;
d. The publication of a general advertisement
c. The name and address of its resident
through any print or broadcast media;
agent authorized to accept summons
e. Maintaining a stock of goods in the
and process in all legal proceedings
Philippines solely for the purpose of having
and all notices affecting the
the same processed by another entity in the
corporation, pending the
Philippines;
establishment of a local office;
f. Consignment by a foreign entity of equipment
d. The place in the Philippines where
with a local company to be used in the
the corporation intends to operate;
processing of products for export;
g. Collecting information in the Philippines; and e. The specific purpose or purposes
h. Performing services auxiliary to an existing which the corporation intends to
isolated contract of sale which are not on a pursue in the transaction of its
continuing basis, such as Installing in the business in the Philippines: Provided,
Philippine machinery it has manufactured or That said purpose or purposes are
exported to the Philippines, servicing the those specifically stated in the
same, training domestic workers to operate it, certificate of authority issued by the
and similar incidental services. appropriate government agency;
f. The names and addresses of the
No foreign corporation transacting business in the present directors and officers of the
Philippines without a license, or its successors or corporation;
assigns, shall be permitted to maintain or g. A statement of its authorized capital
intervene in any action, suit or proceeding in any stock and the aggregate number of
court or administrative agency of the Philippines; shares which the corporation has
but such corporation may be sued or proceeded authority to issue, itemized by class,
against before Philippine courts or administrative par value of shares, shares without
tribunals on any valid cause of action recognized par value, and series, if any;
under Philippine laws (Lorenzo Shipping Corp. v. h. A statement of its outstanding capital
Chubb & Sons, Inc., et al., G.R. No. 147724, stock and the aggregate number of
2004).
shares which the corporation has
ii. Necessity of a License to Do Business: issued, itemized by class, par value
● To place them under the jurisdiction of of shares, shares without par value,
the courts and series, if any;
● To place them in the same footing as i. A statement of the amount actually
domestic corporations paid in; and
● Protection for the public in dealing with j. Such additional information as may
said corporations. be necessary or appropriate in order
to enable the Commission to
1. Requisites for Issuance of License determine whether such corporation
is entitled to a license to transact
A foreign corporation applying for a license to business in the Philippines, and to
transact business in the Philippines shall submit determine and assess the fees
to the SEC the following: payable.
1. A copy of its articles of incorporation and 3. The application shall be accompanied by the
bylaws, certified in accordance with law and following:
their translation to an official language of the
Philippines, if necessary.
 a. A certificate under oath duly Service of Process upon a Foreign
executed by the authorized official or Corporation Through A Resident Agent
officials of the jurisdiction of its Before a foreign corporation can be issued a
incorporation, attesting to the fact license to transact business in the Philippines,
that the laws of the country or State such corporation must first file with the SEC
of the applicant allow Filipino citizens 1. A written power of attorney designating some
and corporations to do business person who must be a resident of the
therein, and that the applicant is an Philippines, on whom any summons and
existing corporation in good other legal processes may be served in all
standing. If the certificate is in a actions or other legal proceedings against
foreign language, a translation such corporation;
thereof in English under oath of the 2. Consent that service upon such resident
translator shall be attached to the agent shall be admitted and held as valid as
application. if served upon the duly authorized officers of
b. A statement under oath of the the foreign corporation at its home office.
president or any other person a. Whenever such service of summons
authorized by the corporation, or other process is made upon the
showing to the satisfaction of the SEC, it must, within 10 days
Commission and when appropriate, thereafter, transmit by mail a copy of
other governmental agencies that such summons or other legal process
the applicant is solvent and in sound to the corporation at its home or
financial condition, setting forth the principal office. When SEC sends
assets and liabilities of the such copy, it shall constitute a
corporation as of the date not necessary part of and shall complete
exceeding one (1) year immediately such service
prior to the filing of the application. b. In case of a change of address of the
4. Foreign banking, financial, and insurance resident agent, it shall be his or its
corporations shall, in addition to the above duty to immediately notify the SEC in
requirements, comply with the provisions of writing. (Sec. 145)
existing laws applicable to them.
3. Amendment of license (Sec. 148)
5. In the case of all other foreign corporations,
no application for license to transact business
A foreign corporation authorized to transact
in the Philippines shall be accepted by the
business in the Philippines shall obtain an
Commission without previous authority from amended license in the event it changes its
the appropriate government agency, corporate name, or desires to pursue other or
whenever required by law. (Sec. 142) additional purposes in the Philippines, by
submitting an application with the Commission,
2. Resident Agent favorably endorsed by the appropriate
government agency in the proper cases.
Who may be a Resident Agent
a. Individual residing in the Philippines of Amendment of the Articles of Incorporation or
good moral character and of sound By-laws of Foreign Corporations
financial standing
b. Domestic corporation lawfully transacting Sixty (60) days after the effectivity of the
business in the Philippines, with a sound amendment of the articles of incorporation or
financial standing and must show proof bylaws of a foreign corporation authorized to
that it is in good standing as certified by transact business in the Philippines, such foreign
the SEC (Sec. 144) corporation shall, file with the Commission, and in
the proper cases, with the appropriate
government agency, a duly authenticated copy of
the amended articles of incorporation or bylaws,
indicating clearly in capital letters or underscoring
the change or changes made, duly certified by the
 rights, may sue in trademark or service mark
authorized official or officials of the country or
enforcement action (Sehwani Inc v. In-n-Out
State of incorporation.
Burger, G.R. No. 171053, 2007).
Such filing shall not in itself enlarge or alter the
Rules Regarding A Foreign Corporation’s
purpose or purposes for which such corporation
is authorized to transact business in the Right to Bring Suit in the Philippines
Philippines. (Sec. 147) FOREIGN CORP CAN FC SUE IN PH?
STATUS
iii. Personality to Sue Doing business in
Cannot sue before
Section 35 enumerates the express powers of a Philippines without a
Philippine courts
corporation, which includes the corporation’s license
ability to sue and be sued. Can sue before
Philippine courts on
The power of the corporation to sue and be sued an isolated
in any court is lodged with the board of directors Not doing business in transaction or on a
that exercises its corporate powers. (Bitong v. the Philippines cause of action
CA, G.R. No. 123553, 1998) entirely independent
of any business
iv. Suability of Foreign Corporations transaction
Doing business in the
Every foreign corporation Philippines without a
● Doing business in the Philippines with a license, but Philippine
Can sue before
license may sue and can be sued in the citizen or entity has
Philippine courts due
Philippines contracted with said
to estoppel
● Doing business in the Philippines without a corporation or derived
license cannot sue, but may be sued in the benefits from the
Foreign Corporation
Philippines
Doing business in the Can sue before
● Not doing business in the Philippines, or on
Philippines and has Philippine courts on
isolated transactions may sue and can be the required license any transaction
sued (if jurisdiction can be acquired) (Agilent Technologies v. Integrated Silicon, G.R.
No. 154618, 2004)
v. Instances When Unlicensed Foreign
Corporations May Be Allowed To Sue: Capability to Sue and Suability of Foreign
a. Isolated transactions;
Corporations W/N Doing Business
b. Action to protect good name, goodwill,
NOT DOING
and reputation of a foreign corporation; DOING BUSINESS IN
BUSINESS IN
c. The subject contracts provide that PHILIPPINES
PHILIPPINES
Philippine Courts will be venue to Isolated
controversies; Licensed Unlicensed
Transactions
d. A license subsequently granted enables Yes, can sue;
the foreign corporation to sue on
contracts executed before the grant of NO, cannot EXC: if
the license (Eriks Ltd. v. Court of sue; transactions
YES, can
Appeals, G.R. No. 118843, 1997); exhibits intent to
sue
e. Recovery of misdelivered property; EXC: do business,
f. Where the defendant is estopped. estoppel Foreign
Corporation needs
The Intellectual Property Code provides that any license to sue
foreign corporation not engaged in business in YES, can be sued
the Philippines and a national of a country which YES, can
is a party to any convention, treaty or agreement Qualifier: as long as summons
be sued were properly served (to acquire
relating to intellectual property rights or the
repression of unfair competition, to which the jurisdiction)
Philippines is also a party or extends reciprocal
 13. MERGER AND CONSOLIDATION
vi. Grounds for Revocation of License
A. Definition and Concept
Section 151 provides that the SEC may cancel the
certificate or license of a foreign corporation on
Merger
any of the following grounds:
A union whereby one or more existing
a. Failure to file its annual report or pay any
corporations are absorbed by another corporation
fees as required by Code; that survives and continues the combined
b. Failure to appoint and maintain a resident business (Villanueva, 2018).
agent;
c. Failure to inform SEC of the change of Consolidation
resident agent or the latter’s change of The union of two or more existing corporations. A
address; new corporation is created, and consolidating
d. Failure to submit a copy of amended corporations are extinguished. (PNB v. Andrada
articles of incorporation or by- laws; or Electric & Engineering Co., G.R. No. 142936,
articles of merger or consolidation; [April 17, 2002], 430 PHIL 882-903)
e. A misrepresentation of any material
matters in reports; MERGER CONSOLIDATION
f. Failure to pay any and all taxes, imposts, A corporation A NEW corporation is
assessments or penalties; ABSORBS another created, and
corporation and constituent
g. Engaged in a business not authorized by
REMAINS IN corporations are
SEC; EXISTENCE while EXTINGUISHED.
h. Acting as a dummy of a foreign the other is
corporation not licensed to do business in DISSOLVED
the Philippines; or
i. Any other ground as would render it unfit The power to merge or consolidate is not within
to transact business in the Philippines. the inherent powers of the corporation.
Therefore, it must be expressly granted by law.
Law applicable to Foreign Corporations (Sec.
146) Merger or consolidation does not become
effective by mere agreement of the constituent
A foreign corporation lawfully doing business in corporations. The approval of the SEC is required
the Philippines shall be bound by all laws, rules (PNB v. Andrada Electric & Engr. Co., Inc., G.R.
and regulations applicable to domestic No. 142936, 2002)
corporations of the same class, except:
1. those which provide for the creation, Mere Acquisition/Transfer (3 Levels)
formation, organization or dissolution of Merger/ Consolidation Transfer of
corporations or Property
2. those which fix the relations, liabilities, Loss of separate No loss of
responsibilities, or duties of stockholders, existence by the separate
members, or officers of corporations to absorbed corporation (in existence
each other or to the corporation. mergers) or the
constituent corporations
(in consolidation)

1) Assets-Only Level.
General Rule: A corporation that purchases
the assets of another will not be liable for the
debts and liabilities of the selling corporation
provided the former acted in good faith.
Except, when the following circumstances
are present:
1. where the purchasers expressly or
impliedly agrees to assume the debts
 Philippines, Inc. et al. v James Yu, G.R. No.
2. where the selling corporation fraudulently
207161, 2015)
enters into the transactions to escape
liability for those debts 3) Equity Level. Purchaser takes control of the
3. where the purchasing corporation is business by purchasing the shareholdings.
merely a continuation of the selling Purchasing corporation is still protected by
corporation the limited liability feature but the same can
4. where the transaction amounts to a be pierced.
consolidation or merger of the
corporations In order to transfer ownership of shares of stock
(Edward J. Nell Co. v Pacific Farms Inc., G.R. not traded in the Stock Exchange, it is necessary
No. L-20850, 1965) to secure a Certificate of Authorizing Registration
(CAR) pursuant to the process laid down in RMO
2) Business Enterprise Level. Purchase of No. 15-03. The receipts of the payment of the tax
substantially all the assets of the corporation should also be filed with and recorded by the
extending to its “going concern” (ability to do secretary of the corporation pursuant to Section
business and make money, goodwill, 11 of RR. No. 06-08.
clientele, stock-in-trade, etc). There is case
law, based on equity, that holds the B. Constituent and consolidated
transferee liable for the debts and corporations
liabilities of the transferor. A “free and
harmless clause” holding the transferee free Constituent Consolidated
Corporations Corporation
from the liabilities of the transferor is binding
only between them and cannot prejudice The corporations that The corporation
shall cease to exist after formed after the
creditors who are not parties thereto. (Y-I
joining together through consolidation of
Leisure Philippines, Inc. et al. v James Yu,
consolidation (Bank of two constituent
G.R. No. 207161, 2015) Commerce v. Radio corporations
Philippines Network, Inc.,
Note: The sale under [Sec. 39] does not G.R. No. 195615, [April
contemplate an ordinary sale of all corporate 21, 2014], 733 PHIL 491-
assets; the transfer must be of such degree that 581)
the transferor corporation is rendered incapable
of continuing its business or its corporate The names of the
purpose. (Y-I Leisure Philippines, Inc. et al. v corporations proposing to
James Yu, G.R. No. 207161, 2015)8 merge or consolidate,
hereinafter referred to as
However, not every transfer of the entire the constituent
corporate assets would qualify under Section corporations;
[39]. It does not apply:
(1) if the sale of the entire property and The constituent corporations shall become a
assets is necessary in the usual and single corporation which, in case of merger, shall
regular course of business of corporation, be the surviving corporation designated in the
or plan of merger; and, in case of consolidation,
(2) if the proceeds of the sale or other shall be the consolidated corporation designated
disposition of such property and assets in the plan of consolidation
will be appropriated for the conduct of its
remaining business.

Thus, the litmus test to determine the applicability

of Section [39] would be the capacity of the
corporation to continue its business after the sale
of all or substantially all its assets.(Y-I Leisure

8 Please refer to the Net Asset Value Test and the

Incapacity Test in p. 123
 E. Procedure of Consolidation or Merger
C. Plan of Merger or Consolidation (Sec.
75) STEP 1: Drawing up of the Plan of Merger or
Consolidation (Sec. 75)
The plan of merger or consolidation shall set forth
the ff: The board of constituent corporations shall draw
1) The names of the constituent up a plan of merger or consolidation. It shall
corporations; contain the following:
2) The terms of the merger or consolidation a. The names of the constituent
and the mode of carrying the same into corporations;
effect; b. The terms of the merger or
3) A statement of the changes, if any, in the consolidation and the mode of
articles of incorporation of the carrying the same into effect;
surviving corporation in case of merger; c. A statement of the changes, if any, in
and, in case of consolidation, all the the articles of incorporation of the
statements required to be set forth in the surviving corporation in case of
articles of incorporation for corporations merger; and, in case of
organized under this Code; and consolidation, all the statements
4) Such other provisions with respect to required to be set forth in the articles
the proposed merger or consolidation as of incorporation for corporations
are deemed necessary or desirable. organized under this Code; and
d. Such other provisions with respect
Note: The plan of merger has to be approved by to the proposed merger or
majority of the board of each constituent consolidation as are deemed
corporation; it has to be approved by affirmative
necessary or desirable.
vote of stockholders representing ⅔ of the
outstanding capital stock or ⅔ of the members in
STEP 2: Board Approval (Sec. 75)
case of a non-stock corporation.

D. Articles of Merger or Consolidation The plan of merger or consolidation shall be

approved by majority vote of each of the boards
(Sec. 78) of the corporations involved at separate
meetings;
The articles must be signed by the president or
vice president and certified by the secretary or STEP 3: Stockholders’ or Members’ Approval
assistant secretary setting forth: (Sec. 76)
1) The plan of the merger or the plan of 1. Notice of such meeting should be given
consolidation; to all stockholders or members at least 1
2) As to stock corporations, the number of
week before the meeting.
shares outstanding, or in the case of non-
2. The plan has to be approved by a vote of
stock corporations, the number of members;
stockholders representing ⅔ of the
3) As to each corporation, the number of shares
outstanding capital stock, if a stock
or members voting for or against such plan,
corporation, or ⅔ of the members of the
respectively;
non- stock corporation.
4) The carrying amounts and fair values of the
3. Dissenting stockholders may exercise
assets and liabilities of the respective
their right of appraisal. However, if the
companies as of the agreed cut-off date;
board abandons the plan, such right is
5) The method to be used in the merger or
extinguished.
consolidation of accounts of the companies;
4. Any amendment to the plan must be
6) The provisional or pro-forma values, as
approved by the same votes of the board
merged or consolidated, using the accounting
members or trustees and stockholders or
method; and
members required for the original plan.
7) Such other information as may be prescribed
by the SEC.
 constituent corporation at least two (2)
STEP 4: Articles of Merger or Consolidation
(Sec. 77) weeks before said hearing.

Once the required number of stockholders or

F. Effectivity of Merger or Consolidation
members approved of the plan, Articles of Merger
or Articles of Consolidation shall be executed by A merger does not become effective upon the
each of the constituent corporations, to be signed mere agreement of the constituent corporations,
by the president or vice-president and certified by but open approval of the articles of merger by the
the secretary or assistant secretary of each SEC issuing the certificate of merger as required
corporation, setting forth: by Section 79 of the Corporation Code (Bank of
Commerce v. Heirs of Rodolfo dela Cruz).
a. The plan of the merger or the plan of
consolidation; G. Limitations of Merger and Consolidation
b. As to stock corporations, the number
of shares outstanding, or in the case Under the Philippine Competition Act (R.A. no.
of non-stock corporations, the number 10667), the Philippine Competition Commission
of members; can review the mergers and acquisitions of a
c. As to each corporation, the number of corporation/s based on the factors it deems to be
shares or members voting for or relevant. (Sec. 16 of R.A. no. 10667)
against such plan, respectively;
d. The carrying amounts and fair values Parties to a merger or acquisition agreement
of the assets and liabilities of the without complying with the thresholds are
respective companies as of the agreed prohibited from consummating their agreement
until thirty (30) days after providing notification to
cut-off date;
the Commission in the form and containing the
e. The method to be used in the merger
information specified in the regulations issued by
or consolidation of accounts of the the Commission. A transaction that meets the
companies; thresholds and does not comply with the
f. The provisional or pro-forma values, notification requirements and waiting periods set
as merged or consolidated, using the out in Section 5 shall be considered void and will
accounting method; and subject the parties to an administrative fine of one
g. Such other information as may be percent (1%) to five percent (5%) of the value of
prescribed by the SEC. the transaction. (Sec. 17 of R.A. no. 10667; PCA
Rule 4, as amended by PCC Resolution No. 02-
STEP 5: Approval by the SEC 2020)

The Articles of Merger or Articles of Consolidation Thresholds for compulsory notification

shall be submitted to the SEC for approval. M&A transactions whose definitive agreements
However, in the case of special corporations, like are executed on or after 1 March 2020 will be
banks, insurance companies, building and loan subject to mandatory notification to the PCC if
associations, etc., the favorable recommendation they meet the ff. thresholds:
of the appropriate government agency shall first Size of (i) the aggregate annual gross
be obtained. Party revenues in, into or from the
1. If the SEC is satisfied that the merger or Philippines, or
consolidation of the corporations (ii) the value of the assets in the
concerned is legal, it shall issue a Philippines of the ultimate
parent entity (UPE) of either the
certificate of merger or of consolidation,
acquiring or acquired entities
at which time the merger or consolidation
exceeds PhP 6 billion
shall be effective. Size of The size of transaction will be
2. If the SEC is not satisfied, it shall set a Transaction met if the transaction value, as
hearing to give the corporations determined below, exceeds
concerned the opportunity to be heard. PhP 2.4 billion.
Written notice of the date, time and place
of hearing shall be given to each
Merger or acquisition agreements that power to file an action for recovery)
substantially prevent, restrict or lessen including:
competition in the relevant market or in the i. subscriptions to shares and
market for goods or services as may be other choses in action
determined by the Commission shall be ii. and every other interest of,
prohibited. (Sec. 20 of R.A. no. 10667) belonging to, or due to each
constituent corporation
Exemptions: Notwithstanding such prohibition,
5. Regarding liabilities and pending claims:
the PCC would allow such merger or acquisition
provided the parties prove the following: a. Liabilities and obligations of each
constituent corporation:
(a) The concentration has brought about or is i. Surviving or consolidated
likely to bring about gains in efficiencies that are corporation shall be
greater than the effects of any limitation on responsible
competition that result or likely to result from the b. Pending claim, action or proceeding
merger or acquisition agreement; or brought by or against any constituent
corporation
(b) A party to the merger or acquisition agreement i. may be prosecuted by or
is faced with actual or imminent financial failure, against the surviving or
and the agreement represents the least anti- consolidated corporation
competitive arrangement among the known
c. The rights of creditors or liens upon
alternative uses for the failing entity’s
the property of such constituent
assets.(Sec. 21 of R.A. no. 10667)
corporations are not impaired
H. Effects of Merger or Consolidation
14. INVESTIGATIONS, OFFENSES, AND
1. Constituent corporations become a single PENALTIES
corporation
a. Merger: surviving corporation A. Authority of Commissioner
b. Consolidation: consolidated
corporation under the plan of i. Investigation and prosecution of
consolidation offenses
2. Separate existence of constituent
corporations cease EXCEPT that of the The SEC may investigate an alleged violation of
this Code, rule, regulation, or order of the SEC.
surviving or consolidated corporation
3. Surviving or consolidated corporation
The SEC may publish its findings, orders,
possesses the rights privileges immunities; opinions, advisories, or information concerning
and powers and is subject to all duties and any such violation, as may be relevant to the
liabilities of a corporation organized under general public or to the parties concerned,
this Code subject to the provisions of the “Data Privacy Act
4. ALL of the following are deemed transferred of 2012”, and other pertinent laws.
to and vested in such surviving or
consolidated corporation: (BY OPERATION The SEC shall give reasonable notice to and
OF LAW) coordinate with the appropriate regulatory agency
a. Rights prior to any such publication involving companies
b. Privileges under their special regulatory jurisdiction.
c. Immunities
ii. Administration of oath and issuance
d. Franchises of each constituent
of subpoena
corporation
e. Real or personal property The SEC, through its designated officer, may
f. Receivables due on whatever administer oaths and affirmations, issue
account (hence surviving / subpoena and subpoena duces tecum, take
consolidated corporation has the testimony in any inquiry or investigation, and may
 P1,000.00 for each day of continuing violation
perform other acts necessary to the proceedings
but in no case to exceed P2,000,000.00;
or to the investigation.
2. Issuance of a permanent cease-and-desist
order;
iii. Cease and desist power
3. Suspension or revocation of the certificate of
incorporation; and
Whenever the SEC has reasonable basis to
4. Dissolution of the corporation and forfeiture of
believe that a person has violated, or is about to
its assets under the conditions in Title XIV of
violate, the RCC, rule, regulation, or order of the
the RCC
SEC, it may direct such person to desist from
committing the act constituting the violation.
ii. Prohibited Acts and Penalties
The SEC may issue a cease and desist order ex
Table of Violations and Fines
parte to enjoin an act or practice which is
Violation Fine
fraudulent or can be reasonably expected to
cause significant, imminent, and irreparable SEC. 165. Fraudulent 200k - 2M
danger or injury to public safety or welfare. The Conduct of Business
ex parte order shall be valid for a maximum period
of twenty (20) days, without prejudice to the order A corporation that conducts 400k - 5M
being made permanent after due notice and its business through fraud. (When the
hearing. violation of this
provision is
Thereafter, the SEC may proceed administratively injurious or
against such person in accordance with Section detrimental to
158, and/or transmit evidence to the Department the public)
of Justice for preliminary investigation or criminal SEC. 166. Acting as 100k - 5M
prosecution and/or initiate criminal prosecution Intermediaries for Graft
for any violation of this Code, rule, or regulation. and Corrupt Practices

iv. Contempt A corporation used for

fraud, or for committing or
Any person who, without justifiable cause, fails or concealing graft and corrupt
refuses to comply with any lawful order, decision, practices as defined under
or subpoena issued by the SEC shall, after due pertinent statutes.
notice and hearing, be held in contempt and fined
in an amount not exceeding P30,000.00. When When there is a finding that
the refusal amounts to clear and open defiance of any of its directors, officers,
the SEC’s order, decision, or subpoena, the SEC employees, agents, or
may impose a daily fine of P1,000.00 until the representatives are
order, decision, or subpoena is complied with. engaged in graft and corrupt
practices, the corporation’s
B. Sanctions for violations failure to install:
a. safeguards for the
i. Administrative sanctions (Sec. 158) transparent and lawful
delivery of services;
If, after due notice and hearing, the SEC finds that and
any provision of this Code, rules or regulations, or b. policies, code of ethics,
any of the SEC’s orders has been violated, the and procedures against
SEC may impose any or all of the following graft and corruption
sanctions, taking into consideration the extent of shall be prima facie
participation, nature, effects, frequency and evidence of corporate
seriousness of the violation: liability under this
section.
1. Imposition of a fine ranging from P5,000.00) SEC. 167. Engaging 100k – 1M
to P2,000,000.00, and not more than Intermediaries for Graft
and Corrupt Practices
 preclude the institution
A corporation that appoints of appropriate action
an intermediary who against the director,
engages in graft and corrupt trustee, or officer of the
practices for the corporation responsible
corporation’s benefit or for said violation:
interest. - Provided, further, That
SEC. 168. Tolerating Graft 500k – 1M nothing in this section
and Corrupt Practices shall be construed to
repeal the other causes
A director, trustee, or officer for dissolution of a
who knowingly fails to corporation provided in
sanction, report, or file the this Code.
appropriate action with
proper agencies, allows or Liability for any of the
tolerates the graft and foregoing offenses shall be
corrupt practices or separate from any other
fraudulent acts committed administrative, civil, or
by a corporation’s directors, criminal liability under this
trustees, officers, or Code and other laws.
employees.
SEC. 169. Retaliation 100k – 1M iii. Who are liable (Sec. 171-172)
Against Whistleblowers 1. Corporation- Penalty may be imposed
upon its directors, trustees, stockholders,
Any person who, knowingly members, officers, or employees
and with intent to retaliate, responsible for the violation or
commits acts detrimental to indispensable to its commission.
a whistleblower such as 2. Aiders and Abettors- Penalty would be a
interfering with the lawful punishment of a fine not exceeding that
employment or livelihood of imposed on the principal offenders, at the
the whistleblower. discretion of the Court, after taking into
account their participation in the offense.
A whistleblower refers to
any person who provides C. Authority of the Securities and
truthful information relating Exchange Commission (Jurisdiction)
to the SEC or possible
commission of any offense The SEC’s visitorial powers. (Sec. 178)
or violation under this Code.
SEC. 170. Other Violations 10k – 1M The SEC shall have visitorial powers over all
of the Code corporations. These powers include:

Violations of any of the other 1. Examination and inspection of records

provisions of this Code or its 2. Regulation and supervision of activities
amendments not otherwise 3. Enforcement of compliance
specifically penalized 4. Imposition of sanctions in accordance
therein with the Revised Corporation Code.

If the violation is committed Should the corporation, without justifiable

by a corporation, the same cause, refuse or obstruct the SEC’s exercise of
may, after notice and powers, the SEC may revoke its certificate of
hearing, be dissolved in incorporation, without prejudice to the
appropriate proceedings imposition of other penalties and sanctions under
before the SEC: the RCC.
- Provided, That such
dissolution shall not
 and books of accounts of any entity or
GENERAL RULE: All interrogatories propounded
person under investigation as may be
by the SEC and the answers thereto, as well as
necessary for the proper disposition of
the results of any examination made by the SEC
the cases, subject to the provisions of
or any other official authorized by law to make an
existing laws;
examination of the operations, books, records of
10. Suspend or revoke the certificate of
any corporation, shall be kept strictly
incorporation after proper notice and
CONFIDENTIAL,
hearing;
11. Dissolve or impose sanctions on
EXCEPT:
corporations, upon final court order, for
(1) When the law requires the same to be committing, aiding in the SEC of, or in
made public; any manner furthering securities
(2) When necessary for the SEC to take violations, smuggling, tax evasion,
action to protect the public; money laundering, graft and corrupt
(3) To issue orders in the exercise of its practices, or other fraudulent or illegal
powers under RCC acts;
(4) Where such interrogatories, answers or
12. Issue writs of execution and attachment
results are necessary to be presented as
to enforce payment of fees,
evidence before any Court. (Sec. 178)
administrative fines, and other dues
collectible under this Code;
What are the functions, powers, and 13. Prescribe the number of independent
jurisdiction of the SEC? (Sec. 179) directors and the minimum criteria in
determining the independence of a
SEC shall have the power and authority to: director;
1. Exercise supervision and jurisdiction over 14. Impose or recommend new modes by
all corporations and all persons acting which a stockholder, member, director,
on their behalf, except otherwise or trustee may attend meetings or cast
provided by RCC; their votes, as technology may allow,
2. Retain jurisdiction over pending cases taking into account the company’s scale,
involving intra-corporate disputes number of shareholders or members,
submitted for final resolution. (PD 902-A); structure, and other factors consistent
a. The SEC shall retain jurisdiction with the basic right of corporate suffrage;
over pending suspension of 15. Formulate and enforce standards,
payment/ rehabilitation cases
guidelines, policies, rules, and
filed as of 30 June 2000 until regulations to carry out the provisions of
finally disposed. this Code; and
3. Impose sanctions for the violation of the 16. Exercise such other powers provided by
RCC, its implementing rules and orders of law or those, which may be necessary or
the SEC; incidental to carrying out, the powers
4. Promote corporate governance and the expressly granted to the SEC.
protection of minority investors, through,
among others, the issuance of rules and Note: In imposing penalties and other
regulations consistent with international requirements, SEC shall take into consideration
best practices; the size, nature of the business, and capacity
5. Issue opinions to clarify of laws, rules, of the corporation.
and regulations;
6. Issue cease and desist orders ex parte to NO COURT BELOW THE CA SHALL HAVE
prevent imminent fraud or injury to the JURISDICTION (Sec. 179)
public;
7. Hold corporations in direct or indirect Only the CA has the jurisdiction to issue a
contempt; restraining order, preliminary injunction, or
8. Issue subpoena duces tecum and preliminary mandatory injunction in any case,
summon witnesses to appear in dispute, or controversy that directly or indirectly
proceedings before the SEC; interferes with the exercise of the powers,
9. In appropriate cases, order the duties, and responsibilities of the SEC that
examination, search and seizure of falls exclusively within its jurisdiction.
documents, papers, files and records,
 declared in the state of suspension of
payments.
JURISDICTIONS
4. Appointment of Rehabilitation Receiver or
Management Committee
On Jurisdiction of RTC in Intra-Corporate
Disputes:
What is a management committee?
Section 5 of the Securities Regulation Code
- Tasked to manage, take custody of and
transferred the jurisdiction of the (SEC) over
control all existing assets, funds, and
intra-corporate disputes to RTCs designated by
records of the corporation.
the Supreme Court as commercial courts. The
- To determine the best way to protect the
existence of an intra-corporate dispute must be
interest of its stockholders and creditors.
clearly alleged in the complaint.
What is a Rehabilitation Receiver?
Two tests to determine existence of intra-
- Appointed when the corporation is in
corporate dispute
financial distress.
- To rehabilitate.
Relationship Test
A dispute is intra-corporate if it is:
Arbitration for unlisted corporations. (Sec.
1. Between the corporation, partnership or 181)
association and the public;
2. Between the corporation, partnership or Where can the arbitration agreement be
association and the state insofar as its found? The same may be provided in the articles
franchise, permit or license to operate is of incorporation or by-laws of an unlisted
concerned; corporation.
3. Between the corporation, partnership or
association and its stockholders, partners, When can cases be referred to arbitration?
members or officers; and When the agreement is in place, disputes
4. Among the stockholders, partners or between the corporation, its stockholders or
associates themselves (Philippine members, which arise from the implementation
Communications Satellite Corp. v. of the articles of incorporation or by-laws, or
from intra-corporate relations.
Sandiganbayan, G.R. No. 203023, 2015)
When shall the dispute be non-arbitrable?
Nature of the Controversy Test
When it involves criminal offenses and
The dispute itself must be intrinsically connected interests of third parties.
with the regulation of the corporation, partnership
or association. The arbitration agreement. (Sec. 181)
- The same shall be binding on the
The controversy "must not only be rooted in the
corporation, its directors, trustees, officers,
existence of an intra-corporate relationship, but
and executives or managers.
must also refer to the enforcement of the parties' - To be enforceable, the same should
correlative rights and obligations under the
indicate
Corporation Code as well as the internal and - the number of arbitrators
intra-corporate regulatory rules of the - the procedure for their appointment.
corporation." (Dy Teban Trading Inc. v. Dy, G.R. - The power to appoint the arbitrators forming
No. 161803, 2008)
the arbitral tribunal shall be granted to a
designated independent third party.
The following are within the jurisdiction of the
- Should the third party fail to appoint
RTC:
the arbitrators in the manner and
1. Fraudulent devices and schemes employed
within the period specified in the
by directors detrimental to the public interest
arbitration agreement, the parties
and to other firms
may request the SEC to appoint the
2. Intra-corporate dispute and with the state in
arbitrators. In any case, arbitrators
relation to their franchise and right to exist
must be accredited or must belong
3. Controversies in election, appointment of
to organizations accredited for the
directors or trustees and petition to be
purpose of arbitration.
The arbitral tribunal (Sec. 181)
- shall have the power to
rule on its own
jurisdiction and on
questions relating to the
validity of the arbitration
agreement. When an
intra-corporate dispute
is filed with a Regional
Trial Court, the Court
shall dismiss the case
before the termination
of the pretrial
conference, if it
determines that an
arbitration agreement is
written in the
corporation’s articles of
incorporation, by- laws,
or in a separate
agreement.
- shall have the power to
grant interim measures
necessary to ensure
enforcement of the
award, prevent a
miscarriage of justice, or
otherwise protect the
rights of the parties.

Final Arbitral award (Sec. 181)

- Shall be executory after the lapse of fifteen
(15) days from receipt
thereof by the parties
and shall be stayed only
by the filing of a bond or
the issuance by the
appellate court of an
injunctive writ. (Under
Sec. 181 specifically)

2 kinds of arbitration
1. Voluntary- when parties
both agree to submit
themselves to the
jurisdiction of the
arbitrators. The parties
choose who the
arbitrators will be.
2. Compulsory- The judge
is a stranger. There is
still a decision. This kind
of arbitration is more
commonly known as
 “litigation”. The
arbitrators are the judges
of the courts (MTC, RTC
etc.)

Jurisdiction over Party-

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

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