Law on corporation

1. NON-STOCK CORPORATION - SECTION 86-87

A Nonstock Corporation is a type of organization in which none of its income can be
distributed as dividends to its members, trustees, or officers. Any profits a nonstock
corporation generates must be used to further the purposes for which the corporation
was established, as specified in this title. In relevant cases, the regulations that apply to
stock corporations will also apply to nonstock corporations, except where specific
provisions in this title indicate otherwise.

- Non-stock corporation, concept

A nonstock corporation is one where no part of its income is distributable as dividends
to its members, trustees, or officers. Any profit it may obtain as an incident to its
operations shall, whenever necessary, be used to further the purpose or purposes for
which it was organized.

- Purposes of a nonstock corporation.

A nonstock corporation may be organized for any, or a combination, of the following
purposes:
a. Charitable
b. Religious
c. Educational
d. Professional
e. Cultural
f. Fraternal
g. Literary
h. Scientific
i. Social
j. Civic service
k. Similar purposes like trade, industry, agriculture, and chambers, or a combination
thereof.

- Provisions applicable to nonstock corporations

a. Provisions on nonstock corporations under Title XI.
b. The provisions governing stock corporations, when pertinent.

2. CLOSE CORPORATION - SECTION 95

A Close Corporation is a specific type of corporation that must include the following
three characteristics in its articles of incorporation:

- Limited Stockholders: All issued stock of all classes (excluding treasury shares)
must be held by no more than twenty (20) individuals. This restriction ensures
that ownership remains within a small, identifiable group.
 - Transfer Restrictions: All issued shares must have restrictions on transfers, as
permitted under Title XII. These limitations are designed to maintain the closely
held nature of the corporation and prevent unauthorized or unwanted ownership
transfers to outsiders.

- No Public Offering: The corporation must not list any of its shares on a stock
exchange nor offer its shares to the public. This requirement reinforces the
corporation's private and limited ownership structure
.
A corporation will not be considered a close corporation if at least two-thirds (2/3) of its
voting stock is owned or controlled by another corporation that is not a close
corporation.

WHAT MAY NOT BE INCORPORATED AS A CLOSE CORPORATION:

- Mining companies
- Oil companies
- Stock exchanges
- Banks
- Insurance companies
- Public Utilities
- Educational institutions
- Corporations vested with public interest under the Revised Corporation Code

Applicable Legal Provisions

Close corporations are primarily governed by Title XII of the Revised Corporation Code.
If certain areas are not addressed, the other Titles of the Code will apply to fill in gaps
unless specified otherwise in Title XII.

3. RELIGIOUS CORPORATION - SECTION 107-108

A Religious Corporation is formed for the service and worship of God or the
supernatural, or the perpetuation of religious beliefs and observances as well as proper
management of its properties and affairs.

KINDS OF RELIGIOUS CORPORATION

a. Corporation sole (Sec. 108, RCC)
b. Religious society
- Aggregate of persons at least two-thirds (2/3) of the membership of a religious
order, synod, or district organization of any religious denomination
 - Filing with the SEC
- Verified by affidavit

LAWS GOVERNING RELIGIOUS CORPORATIONS

a. Provisions of Chapter II, Title XIII, of the Revised Corporation Code.
b. General provisions on nonstock corporations insofar as applicable. (Sec. 107, Ibid.)

A corporation sole is a legal entity formed by a religious leader (such as a bishop or

minister) to manage the property and affairs of a religious organization. It consists of
one person at a time, with legal continuity through their successors. It has no nationality
and exists to provide legal and administrative stability for religious institutions.

Section 22

This section of the Revised Corporation Code provides that the board of directors or
trustees is responsible for exercising corporate powers, managing business operations,
and overseeing corporate property. Directors must be elected annually from among
stockholders, while trustees serve for up to three years from among the corporation’s
members. A director or trustee loses their position if they no longer hold stock or
membership, respectively. Corporations vested with public interest, such as those
registered under the Securities Regulation Code, financial institutions, and others as
determined by the Commission, must have independent directors making up at least
20% of the board. Independent directors must be free from any relationships that may
impair their objectivity and are elected by shareholders during director elections. Their
qualifications, term limits, and board memberships are subject to regulations set by the
Commission to ensure independence and adherence to international standards.

1. Board of directors or trustees for a corporation, concept

The board of directors or trustees is the highest governing body of a corporation and
can only act collectively, not individually. Although they are elected to represent the
corporation, they cannot bind it in their personal capacity unless authorized by the
articles of incorporation, bylaws, or a board resolution. Even majority stockholders must
act through the board. The law values collective decision-making, so directors or
trustees are not allowed to attend or vote by proxy during board meetings.
2. Powers of the board of directors, extent

The board of directors of a corporation has the following

powers:

a. To exercise corporate powers. (they carry out the legal powers granted to the
corporation)

b. To conduct all business of the corporation. (they oversee operations and make key
decisions)

c. To control and hold corporate property. (they manage and protect the corporation’s
assets)

The board of directors must act in good faith and with reasonable care in performing
their duties. While they have broad authority to promote the corporation’s business, their
powers may be limited by law, the articles of incorporation, or bylaws, especially for
actions requiring stockholder approval.

3. Qualifications of directors or trustees

a. In stock corporations, a director must own at least one share of stock registered in
their name, with bylaws allowed to set a higher minimum. Losing the required shares
means losing the directorship. In nonstock corporations, a trustee must be a member
during their term, except independent trustees in public-interest corporations who may
not be members. Trustees lose their position if their membership ends by resignation or
other reasons stated in the corporation’s governing documents.

b. A director or trustee, within five (5) years prior to his election or appointment, must
not have been:

1) convicted by final judgment:

a) of an offense punishable by imprisonment for a period exceeding six (6) years;

b) for violation of the Revised Corporation Code; or

c) for violation of Republic Act No. 8799, otherwise known as "The Securities
Regulation Code"; or
2) Been found administratively liable for any offense involving fraudulent acts; or

3) Been found liable by a foreign court or equivalent foreign regulatory authority for acts,
violations, or misconduct similar to those in items 1 and 2.

These qualifications are subject to additional rules or disqualifications that the SEC or
Philippine Competition Commission may impose to promote good corporate governance
or as sanctions.

c. The bylaws can include additional qualifications, such as disallowing stockholders

who compete with the corporation from becoming directors.

4. Number of directors or trustees

For stock corporations, the number should not exceed fifteen (15). Nonstock
corporations may have more than fifteen (15), except nonstock educational
corporations, where trustees must be between five (5) and fifteen (15), in multiples of
five (i.e., 5, 10, or 15).

5. Term of office of directors or trustees

Directors of stock corporations serve one (1) year terms. Trustees of nonstock
corporations generally serve terms not exceeding three (3) years. In nonstock
educational corporations, trustees serve five (5) year staggered terms, with one-fifth
(1/5) of trustees’ terms expiring each year.

6. Principle of holdover
Directors or trustees continue in office until their successors are elected and qualified,
even if their term has expired.

7. Independent director, concept

An independent director is one who, aside from fees and shareholdings, is free from
management or business relationships that could impair their independent judgment in
carrying out their duties.

8. Corporations required to have independent directors

Corporations vested with public interest must have independent directors making up at
least twenty percent (20%) of the board, including:
a. Corporations covered by Sec. 17.2 of Republic Act No. 8799 ("The Securities
Regulation Code"), such as those registered with the Commission, listed on an
exchange, or with assets of at least Fifty Million Pesos (₱50,000,000) and two hundred
(200) or more shareholders holding at least one hundred (100) shares each.

b. Banks, quasi-banks, NSSLAs, pawnshops, money service businesses, preneed, trust

and insurance companies, and other financial intermediaries.

c. other corporations with public interest as determined by the Commission, considering

factors like minority ownership, types of financial products, and the public impact of their
business operations.

9. Election and rules applicable to independent directors

Shareholders elect independent directors either in person or by absentia, and these

directors must comply with Commission-mandated standards to maintain independence
and conform to international governance practices.

Section 23

1. Right of stockholder or member to nominate director or trustee

Every member or stockholder is entitled to suggest for the rightful position,

especially those who have the qualifications or who satisfy the requirements in
the Revised Corporation Code, unless there's an exclusive right that is reserved
for holders of founders' shares.

2. Requisites for the election of directors and trustees

a. An individual must be a stockholder and have at least one share of the
corporation’s capital stock registered under their name and must be elected by
the stockholders to qualify for election to the Board of Directors of a stock
corporation in the Philippines.
b. Furthermore, the primary number of the board members should be Filipino
citizens.
c. The code and the governing documents of the corporation might establish further
qualifications or disqualifications, including legal age, absence of specific criminal
 convictions, and potentially other criteria outlined in the articles of incorporation
or bylaws.

3. Methods of Voting

1.) Stock Corporation

a. Cumulative Voting, concept

Cumulative voting is a process of voting in the election of directors that

allows minority shareholders to collect their votes and cast them for one
or a limited number of candidates. A stockholder is entitled to a number of
votes equal to the number of shares they own multiplied by the number of
directors to be elected. Then the stockholder casts these total votes for a
single candidate or conveys them among as many candidates as they
choose.

b. Purpose of cumulative voting

Its purpose is for minority shareholders to be empowered and to have a

better chance of electing a representative to the Board of Directors.
Allowing minority shareholders to focus their votes on a select group of
candidates gives them a better chance of getting a board seat and making
sure their opinions are taken into account when it comes to corporate
governance. This can result in better decision-making that considers the
interests of more kinds of shareholders and encourages more balanced
representation.

The following formula is used to find out the numbers of shares needed to select the
preferred number of directors:

N = [(A * B) / (C + 1)] + 1

Where:

N = Number of shares needed to select the preferred number of directors

A = Number of shares entitled to vote

B = Desired number of directors to be elected

C = Total number of directors elected

c. How the votes may be cast

● Straight Voting - the votes must be equal out of the total numbers of
directors that are selected.
● Cumulative Voting favor of one candidate - most of the votes are in favor
of one candidate.
● Cumulative voting by distribution - the voter/s must accommodate two or
more nominees that the stockholder wants to select.

2.) Nonstock corporation

● A member can cast one vote per candidate they want to select. only one vote per
person only. Cumulative voting is also allowed, but with bylaws provision.

4. How right to vote is exercised

a. In person
b. Through a proxy
c. In various technologies that enable real-time or near real-time interaction and
participation such as video conference, webinar, online meeting or phone calls.
or in absentia with the provision in the bylaws.

5. Rule when no election is held

If the election is not held, the corporation or any member may notify the
Securities and Exchange Commission (SEC) within thirty (30) days from the
date the election should have been held. The SEC then has sixty (60) days to
issue an order specifying the time, place, and manner of holding the election and
may designate a supervise officer.

Section 24
1. Corporate Officers
Directors set a corporation’s overall policies, but they must appoint officers to
handle daily operations and implement those policies. These officers manage the
corporation and carry out duties defined in the bylaws or set by the board. Therefore,
after being elected, the directors must promptly organize and elect the following officers:
 a. President - Must be director.
Appointing a director as the corporation’s president is meant to strengthen the
connection between the top officer and the board of directors, which holds the
corporation’s ultimate authority.
b. Treasurer - Must be a resident.
c. Corporate secretary - Must be a resident and citizen of the Philippines.
d. Compliance officer, if the corporation is vested with public interest.
e. Such other officers as may be provided in the bylaws.
Bylaws may create additional officer roles, but only those named in the charter or
bylaws are true officers, others are just employees. Officers’ disputes go to Regional
Trial Courts, employee issues to the NLRC. One person can hold multiple roles, except
the president cannot be secretary or treasurer to maintain check and balances.

2. Duties and functions of directors, trustees and officers.

The directors, trustees and officers shall perform the duties enjoined on them by
law and by the bylaws of the corporation. Among such duties and functions of officers
as provided in express lane forms of the Securities and Exchange Commission are as
follows:
a. President - The president shall be the Chief of Executive Officer of the
corporation and shall exercise the following functions:
1) To preside at the meeting of the stockholders.
2) Develop corporate goals, plans, and programs. Including executive
training and compensation for board approval.
3) To supervise and manage the business affairs of the corporation upon the
direction of the Board of Directors.
4) To implement the administrative and operational policies of the
corporation under his supervision and control.
5) To appoint, remove, suspend, or discipline employees of the corporation,
prescribe their duties, and determine their salaries.
6) To oversee the preparation of the budgets and the statements of accounts
of the corporation.
7) To represent the corporation at all functions and proceedings.
8) Executive board approved the contracts and agreements on the
corporation’s behalf.
 9) To make reports to the Board of Directors and stockholders.
10) To sign certificates of stock.
11) To perform such other duties as are incident to his office or are entrusted
to him by the Board of Directors.
b. Vice President - Act as President when absent, if qualified, and perform duties
assigned by the Board or President.
c. Corporate Secretary
1) Record and maintain minutes of board and stockholder meetings as
required by law.
2) Maintain legal records of stock certificates, including ledgers and transfer
books for all share transactions.
3) Keep the corporate seal, affix it to required documents, and attest them
with his signature.
4) To attend to the giving and serving of all notices of the corporation
required by law or the bylaws to be given.
5) Certify corporate acts, countersign documents, and prepare required
reports or statements.
6) Serve as election inspector, verify voting rights, quorum, proxies, count
votes, and determine election results.
7) Perform duties related to his office or assigned by the Board or President.
d. Treasurer
1) To keep full and accurate accounts of receipts and disbursements in the
books of the corporation.
2) To have custody of, and be responsible for, all the funds, securities and
bonds of the corporation.
3) Deposit all corporate funds and valuables in the designated bank under
the corporation’s name.
4) Submit an annual financial report and other financial statements as
requested by the Board or President.
5) Prepare and submit required financial reports and documents to
government agencies.
6) To exercise such powers and perform such duties and functions as may
be assigned to him by the President.
Section 25 - Reporting Requirements
1. Election of Directors, Trustees, and Officers
What to Report:
• Names, nationalities, shareholdings, and residence addresses of the
newly elected directors, trustees, and officers.
Who Must Report:
• The corporate secretary or any other officer of the corporation.
When to Report:
• Within 30 days after the election.
Where to Report:
• Submit the report to the Securities and Exchange Commission (SEC).

2. Non-Holding of Election
What to Report:
• The fact that the election was not held,
• The reasons for the non-holding, and
• A new election date, which must be set within 60 days from the originally
scheduled date.
SEC Intervention:
• If no new date is set or if the new election is still not held:
• A stockholder, member, director, or trustee may apply to the SEC.
• The SEC may summarily order an election after confirming the unjustified
failure to hold it.
The SEC may issue orders including:
• Setting the time and place of election,
• Appointing a presiding officer, and
• Determining record dates for identifying voters.

Quorum Rule (Overrides Bylaws/Articles):

• The shares or memberships represented at the meeting and entitled to
vote shall constitute a quorum for this election.
Who Must Report:
• The corporate secretary or any other officer.
When to Report:
• Within 30 days from the originally scheduled election date.
Where to Report:
• Submit to the SEC.

3. Cessation from Office (Death, Resignation, etc.)

What to Report:
• The fact of death, resignation, or any other form of cessation from office
by a director, trustee, or officer.
Who Must Report:
• The corporate secretary, or the director, trustee, or officer who has
knowledge of the event.
When to Report:
• Within 7 days from acquiring knowledge of the event.
Where to Report:
• Submit to the SEC.
Section 26
Disqualifications of Directors, Trustees, or Officers - A person is disqualified from
being a director, trustee, or officer of any corporation if, within the five years before their
election or appointment, they meet certain disqualifying conditions:
(a) Convicted by final judgment:
(1) Of an offense punishable by imprisonment for a period exceeding six (6) years;
(2) For violating this Code; and
(3) For violating Republic Act No. 8799, otherwise known as "The Securities
Regulation Code";
b. Found administratively liable for any offense involving fraudulent acts; and
c. By a foreign court or equivalent regulatory authority for acts, violations or
misconduct similar to those enumerated in paragraphs (a) and (b) above.
 This does not affect any additional qualifications or disqualifications that the
Commission or the Philippine Competition Commission may impose to promote good
corporate governance or as sanctions in administrative proceedings.
1. Persons disqualified from becoming director, trustee or officer
The following persons shall be disqualified from being a director, trustee or officer, if
within five (5) years prior to the election or appointment as such, the person was:
a. Convicted by final judgment:
1. Of an offense punishable by imprisonment for a period exceeding six (6)
years.
- The disqualification applies even if the court's penalty is less than six
years, as long as the offense is punishable by more than six years of
imprisonment
2. For violating the Revised Corporation Code.
3. For violating Republic Act No. 8799, otherwise known as "The Securities
Regulation Code".
b. Disqualified if found administratively liable for offenses involving fraud.
c. Disqualified if found liable by a foreign court or regulator for similar
offenses as in (a) and (b).
2. Additional qualifications or disqualifications
The listed disqualifications do not affect additional rules the SEC or other
authorities may impose to promote good governance or as sanctions in
administrative cases.
Section 45

1. Bylaws, concept
Bylaws are the internal manual by corporation in outlining its policies and
procedures. Beyond the essential legal principles provided for by the articles of
incorporation, they provide smooth and transparent governance by including
procedures for meetings, elections, leader roles, and decision-making. It is
essential and it's a useful manual for managing the company on a daily basis.
2. Requisites of valid bylaws
a. The powers and purposes specified in the corporation's Articles of Incorporation
cannot be improved upon or denied by them. In case of conflicts, the Articles of
Incorporation usually takes priority.
b. They shall not contradict the applicable laws, as well as current public policy,
c. They could not overly target certain people or groups; instead, they should apply
consistently to all members or stockholders in similar situations.
d. The bylaws' provisions must be reasonable, fair, and non-repressive. They need
to be created with the corporation's clear goals in mind.
e. Legal bylaws shouldn't interfere with members' or stockholders' rights of
ownership or retroactively affect current contracts.
3. When bylaws are adopted and filed; by whom adopted
a. Prior to incorporation
Compile the documents altogether with the articles of incorporation to the
SEC and then it will be authorized and signed by all the incorporators.

b. After incorporation
It has been officially formed and the Securities and Exchange Commission
has issued its Certificate of Incorporation. Adopted by the affirmative vote of
stockholders representing at least a majority of the outstanding capital stock or at
least a majority of the members. These stockholders or members then sign the
bylaws. Under Sec. 21, the failure of a corporation to formally organize and
commence its business within five years from the date of incorporation will result
in the revocation of its certificate of incorporation.

4. Endorsement of bylaws for special corporations

It involves obtaining a favorable certification from the specific government
agency regulating their industry before the bylaws can be officially filed and
recognized by the SEC. These are accompanied by the government agency in
accordance with law:
a. Bank
b. Banking institution
c. Building and loan association
d. Trust company
 e. Insurance company
f. Public utility
g. Educational institution
h. Other special corporations are governed by special laws.

5. When bylaws are effective

It becomes effective only upon the Securities and Exchange Commission's
(SEC) issuance of a certification that they are in accordance with the Revised
Corporation Code.

6. Effect of failure to file bylaws within the period required

Failure to file bylaws within the time limit given may result in penalty from
the Securities and Exchange Commission (SEC). These penalties may consist of
the corporation's Certificate of Incorporation being suspended or even revoked.

7. Binding effect of bylaws

a. As to directors, trustees, officers, stockholders and members
Trustees, directors. Officers, stockholders or members are required to follow the
bylaws since they are the ones in charge of the corporation's management and
direction. Their powers, responsibilities, status, and meeting protocols are
frequently outlined in the bylaws.
b. As to third persons
Since they are not connected with the organization and unaffected by the bylaws
not until they get to know of its provisions. Therefore, they are not required to be
acquainted with them.

Section 46.
1. Contents of bylaws
A private corporation may provide the following in its bylaws.
a. Meetings of directors or trustees. The bylaws may include the following:
1) The time, place and manner of calling and conducting meetings, whether regular
or special.
2) The modes by which directors or trustees may attend meetings and cast their
votes.
b. Meetings of stockholders or members. The bylaws may include the following:
1) Set the schedule, procedure, and notification method for regular or special
meetings.
2) The required quorum in meetings and the manner of voting therein.
3) The mode by which stockholders or members may attend meetings and cast
their votes.
4) The form for proxies of stockholders and members and the manner of voting
them.
c. On directors or trustees.
1) Their qualifications.
2) Their duties and responsibilities.
3) The guidelines for setting the compensation of directors or trustees (as well as of
the officers).
4) Limit independent director roles to the SEC prescribed maximum.
d. The time for holding the annual election of directors or trustees and the mode
or manner of giving notice thereof.
e. Define the election, term, and compensation guidelines for officers other than
directors.
f. The penalties for violation of the bylaws.
g. In case of stock corporations, the manner of issuing stock certificates.
h. Include provisions for efficient operations, good governance, and
anti-corruption measures.
2. Distinctions between articles of incorporation and bylaws.
a. Articles of incorporation the charter forms the corporation’s foundation, while
bylaws guide its internal operations.
b. Articles of incorporation are executed before incorporation, while bylaws may be
adopted before or after incorporation.
c. Articles of incorporation the charter is adopted by incorporators, bylaws are
adopted by incorporators before incorporation or by stockholders/members after.
d. The filing of articles of incorporation the charter is required to gain legal
personality, filing bylaws comes afterward.
e. The articles of incorporation charter amendments need board approval and two-
thirds of stockholders or members, bylaws need board approval and a simple
majority of stockholders or members.
 f. The power to amend or repeal the articles of incorporation charter amendment
power can’t be delegated, bylaw amendment power can be delegated to the
board.

Section 47 - Amendment to Bylaws

1. Authority to Amend or Repeal Bylaws / Adopt New Bylaws

• May be exercised during a regular or special meeting.

• Requires majority vote from:

• The board of directors or trustees, and

• The owners of at least a majority of the outstanding capital stock, or a

majority of members (for nonstock corporations).

2. Delegation of Power

• The owners of two-thirds (2/3) of the outstanding capital stock or members

(in nonstock corporations) may delegate the power to amend/repeal/adopt bylaws to the
board of directors or trustees.

• The board may then act with a majority vote, provided there’s a quorum.

3. Revocation of Delegated Power

• The owners of a majority of the outstanding capital stock or members may

revoke the delegated power.

• This lower threshold for revocation ensures checks and prevents abuse by
the board.

4. Filing with the SEC

• Any amended or new bylaws must be filed with the Securities and
Exchange Commission (SEC).

• If delegation was granted, the stockholders’ or members’ resolution

authorizing it must also be filed.

• The filing must be duly certified under oath by the corporate secretary and
a majority of the board.

5. Effectivity

• The bylaws (amended or new) become effective only upon issuance of a

certification from the SEC confirming that they comply with the Revised Corporation
Code and relevant laws.

Section 115 - One Person Corporation

This section of the Revised Corporation Code states that the rules specifically
created for One Person Corporations, which have only one stockholder, are the main
laws that govern these corporations. These rules are designed to fit the unique nature of
having a single owner without needing other shareholders or incorporators. Other
general provisions of the Corporation Code apply only as additional rules unless the
Title says otherwise. This ensures that One Person Corporations operate under a legal
framework suited to their structure while still following relevant corporate laws.

This allows the sole stockholder to have limited liability protection, which means
their personal assets are separate from the corporation’s debts and obligations. It also
simplifies the management and regulatory requirements compared to regular
corporations with multiple owners or directors. For example, a freelance architect who
wants to formalize her business can set up a One Person Corporation to protect her
personal assets from business liabilities while managing the company alone and
following the necessary legal requirements for corporations.

Section 35. Corporate Powers and Capacity

Kinds of powers of a corporation
1. Express powers - These are powers explicitly granted to a corporation by its
charter, the Revised Corporation Code, and applicable laws. For
corporations organized under the Revised Corporation Code, the charter
includes the Code itself, the articles of incorporation, and other applicable laws. If
a corporation is created by a special law, then its charter is that specific law
along with the Revised Corporation Code. Express powers are straightforward
because they are directly stated, leaving little room for ambiguity about the
corporation’s authority to act in those areas.
 2. Implied powers - are not directly written into the corporation’s charter or the law
but are reasonably necessary to carry out the express powers. These powers
are assumed to have been intended when the government granted the
corporation its legal existence.
3. Incidental powers - are those that a corporation may exercise simply because it
exists as a corporation. These powers are tied to the corporation’s nature and
are required for it to function and carry out its express powers effectively.

Express powers
Every corporation has the following powers:
a. To sue and be sued in its corporate name
b. To have perpetual existence unless the certificate of incorporation provides
otherwise
c. To adopt and use a corporate seal
d. To amend its articles of incorporation
e. To adopt by laws and amend or repeal them
f. To issue or sell stocks or admit members (depending on type)
- For stock corporations, this includes issuing new shares to investors or
selling treasury shares (shares previously issued and reacquired by the
corporation).
- The action complies with the law and Constitution.
g. A corporation is allowed to buy, receive, give, own, transfer, sell, lease, use as
collateral, or otherwise manage real and personal property—including stocks and
bonds from other companies—if these actions are reasonably and necessarily
connected to carrying out its lawful business. However, such property dealings
must meet two conditions:
1. They must be essential and appropriate for the corporation’s legitimate
business operations; and
2. They must follow the restrictions set by existing laws and the Constitution.
A bank may acquire property for its own use (e.g., a building for office
operations) or through foreclosure. However, it cannot keep foreclosed
properties indefinitely like a real estate company would. By law or by
regulation (e.g., by the Monetary Board), banks must dispose of such
properties within five years, unless they are used for banking purposes.
h. To enter into partnerships, joint ventures, mergers, and similar agreements
i. To make reasonable donations. To be valid, a donation must meet two
conditions:
1. The amount must be reasonable, and
2. The purpose must be for public welfare or similar causes (political
donations only allowed for local corporations).
j. To establish pension and benefit plans for employees
k. To exercise other necessary or essential powers

Implied powers
These are some of the implied powers of a corporation
 a. Acts in the usual course of business - (e.g., a furniture manufacturing corporation
has the implied power to purchase raw materials like wood and fabric, hire
workers to produce the furniture, and advertise its products to attract customers.)
b. Acts to protect debts due to the corporation
c. Acts which involve embarking on a different line of business
d. Acts designed to protect and aid employees
e. Acts to increase the business of the corporation
Incidental powers
Some express powers are incidental powers such as:
a. Power of succession.
b. Power to have a corporate name.
c. Power to adopt a corporate seal.
d. Power to acquire, hold or dispose or convey property as its business may
reasonably require.
e. Power to adopt and amend its by-laws.

Specific express powers of a corporation

Specific express powers of a corporation are the powers clearly written in its articles of
incorporation, laws, or regulations. These include things like the power to sue or be
sued, make contracts, borrow money, or issue stocks. They are directly given and must
be followed exactly as written.
a. Power to extend or shorten corporate term. (Sec. 36, RCC)
b. Power to increase or decrease capital stock. (Sec. 37, Ibid.)
c. Power to incur, create or increase bonded indebtedness. (Sec. 37, Ibid.)
d. Power to deny preemptive right. (Sec. 38, Ibid.)
e. Power to sell, lease, exchange, mortgage, pledge or otherwise dispose all or
substantially all of its corporate property. (Sec. 39, Ibid.)
f. Power to acquire its own shares. (Sec. 40, Ibid.)
g. Power to invest corporate funds in another corporation or business or for any
other purpose. (Sec. 41, Ibid.)
h. Power to declare dividends. (Sec. 42, Ibid.)
i. Power to enter into management contract. (Sec. 43, Ibid.)

Section 38. Power to Deny Preemptive Right

The preemptive right is the right of existing stockholders to subscribe to newly issued
shares before the corporation offers them to others. It is designed to protect
stockholders from dilution of ownership, voting power, and economic interest.
● Applies to any class of shares, in proportion to current holdings.
● Must be exercised within a specified period, or it is waived.
● Ensures continued control and stake in the corporation.

Preemptive rights generally cover the following:

A. Shares issued due to an increase in capital stock

● Applies when the corporation increases its authorized capital stock.
 B. Shares issued from the unsubscribed portion of the authorized capital
stock
● Stockholders have preemptive rights even if the shares were not originally
offered at incorporation.
● SEC-OGC Opinion No. 11-41 (October 5, 2011) confirms:
○ Section 39 of the Corporation Code (now Section 38 of the RCC)
does not limit preemptive rights based on the source of the shares.
○ Earlier Supreme Court rulings (Benito vs. SEC, Dee vs. SEC)
denying these rights are no longer controlling, as they were based
on the old Corporation Law which did not expressly provide for
preemptive rights.

C. Other shares that may be disposed of by the corporation, including

treasury shares
● May also be subject to preemptive rights depending on corporate
governance rules.

Preemptive rights do not apply in the following situations:

A. If expressly denied in the Articles of Incorporation or through an amendment

● The corporation’s charter can exclude the preemptive right altogether.

B. If shares are issued to comply with laws requiring public offering or minimum
public ownership
● Example: Under Section 7 of R.A. No. 8762 (Retail Trade Liberalization
Act):

○ Foreign-owned retail enterprises (over 80% foreign equity) under

Category B or C must offer at least 30% of their equity to the public
through a Philippine stock exchange within 8 years from starting
operations.
○ This issuance is mandated by law, and preemptive rights do not
apply.

C. If shares are issued in good faith with approval of 2/3 of outstanding capital stock
• These are exceptions where issuance is allowed without honoring
preemptive rights:
1. In exchange for property needed for corporate purposes.
2. In payment of a previously contracted debt.

Section 80. When the Right of Appraisal May Be Exercised

Appraisal right allows a stockholder who disagrees with certain major corporate
decisions to demand payment for the fair value of their shares. This right protects
stockholders from being forced to stay invested in a corporation that is significantly
changing from the one they originally joined.

When it may be exercised:

a. Amendment of Articles of Incorporation that:
● Alters or limits stockholder rights
● Grants superior rights to a class of shares
● Changes the corporation’s term of existence
b. Disposition of all or substantially all corporate assets
c. Merger or consolidation
d. Investment of corporate funds in a business or purpose outside the corporation’s
primary purpose.

Section 81. How Right is Exercised

Procedure for Exercising Appraisal Right:
a. A dissenting stockholder must submit a written demand for payment of the
fair value of their shares within 30 days from the date of the stockholders’
vote. Failure to do so waives the right.
b. Within 10 days after the demand, the stockholder must submit the stock
certificates for notation as "dissenting shares." Failure to do this may result
in the termination of the right.
c. If the corporate action is implemented, the corporation must pay the fair value
upon surrender of the stock certificates.

Amount to Be Paid:
a. The stockholder is entitled to the fair value of the shares as of the day before
the vote, excluding any increase or decrease in value due to anticipation of the
action.
b. If the corporation and stockholder cannot agree on the value within 60 days, the
fair value will be determined by three disinterested appraisers—one appointed by
each party and a third chosen by the two.

The corporation must pay the stockholder within 30 days after the fair value is
determined and the corporation must have unrestricted retained earnings to cover the
payment. No payment will be made otherwise.

Section 82. Effect of Demand and Termination of Right

As an effect, a stockholder who chooses to “dissent” from an important company
decision will be suspended in accordance with its advantage that comes with owning
shares, including dividends right and voting rights. Receiving payment of the fair value
of his shares are the only exception.
 The period of time that the dissenting stockholder's rights are suspended begins
when they request payment and continues until the corporation decides to change its
mind and revokes the decision, or until the firm purchases the dissenting stockholders'
shares.

The dissenting stockholder's voting and dividend rights will be immediately

brought back, if no payment is received within 30 days from award.

Section 83. When Right to Payment Ceases

When the stockholder's right to demand or accept payment for their shares is no
longer in effect:
● When the dissenting stockholder changes his mind and chooses to withdraw his
demand for payment and the company agrees to it.
● If the company decides to cancel and not go through with the proposed plan.
● If SEC disapproves the company’s planned action as an approval.
● If the SEC concludes that the stockholder does not have the right to an appraisal.
● The corporation may terminate the dissenting stockholder's appraisal right if,
within ten days of requesting payment for his shares, he fails to provide his
certificate of stock, properly noting that the shares it represents are dissenting
shares.
● Once the stock certificate has been marked as dissenting shares, if the shares
are transferred by the dissenting stockholder, then they may lose the right to be
paid.

When the dissident stockholder's right to receive payment for the fair value of his
shares is terminated, the following outcomes occur:
a. His status as a stockholder shall be restore
b. He will get all dividend distributions that would have been due on his
shares.
The new owner of the shares becomes a regular stockholder once again if the
dissenting stockholder sells or transfers their shares after designating them as
"dissenting" on the stock certificate. All of the expected privileges, including the ability to
vote and receive dividends, are thereby restored to the new owner.

Section 84. Who Bears the Costs of Appraisal

When a stockholder disagrees with the corporation’s offer to buy their shares and
requests an appraisal of the share’s fair value, the corporation generally pays for the
costs and expenses associated with the appraisal. However, there are two exceptions:

1. If the fair value of the shares, as determined by the appraisers, is close to the
price that the corporation initially offered to pay, the stockholder will then be
responsible for the appraisal costs.
 2. If the stockholder files a legal action to recover the fair value but unjustifiably
refuses to accept the corporation’s payment, the corporation will not bear the
legal costs. Instead, those costs will be the responsibility of the stockholder.

Section 85. Notation on Certificates; Rights of Transferee

A stockholder who dissents and demands payment for their shares must submit the
stock certificates to the corporation within 10 days so that the corporation can mark
them as “dissenting shares.” This is important because:

1. Failure to submit the certificate within the 10-day period means the
corporation can choose to end the dissenting stockholder’s right to demand
the fair value of their shares.

2. If the stock represented by a dissenting certificate is transferred to another

person, the following happens:

a. The original stockholder loses their dissenting rights.

b. The new owner of the shares becomes a regular stockholder, with the
same rights as any other stockholder. This includes the right to receive
dividends that would have been given to the original stockholder.

I. Merger, Consolidation- Sec 39 and 75-79

SEC. 39. Sale or other disposition of assets.

covers how a corporation can sell or dispose of its assets. If the sale involves only part
of the assets, approval from the board of directors or trustees is enough. However, if it
involves all or most of the company's assets, it must be approved by at least two-thirds
of the stockholders or members.

The law also requires proper notice for meetings to approve such sales and gives
dissenting stockholders the right to demand payment for their shares (called appraisal
rights).

Sales done in the ordinary course of business or when the proceeds are used for
continuing the business do not require stockholder approval. Lastly, even after approval,
the board can cancel the sale if needed, unless this affects other parties' rights.

SEC. 75. Plan of merger consolidation.

Section 75 of the Revised Corporation Code of the Philippines outlines the

requirements for a Plan of Merger or Consolidation.

Two or more corporations may merge into a single corporation (merger) or consolidate
into a new corporation (consolidation). The board of directors or trustees of each
corporation involved must approve a plan detailing
1. Names of the constituent corporations proposing to merge or consolidate.

2. Terms and procedures for executing the merger or consolidation.

3. Amendments to the articles of incorporation, if any, for the surviving corporation in a

merger; or the complete articles for the new corporation in a consolidation.

4. Any other necessary or desirable provisions related to the proposed merger or

consolidation.

SEC. 76. Stockholders’ or members’ approval Section 76 of the Revised

Corporation Code of the Philippines outlines the procedures for obtaining
stockholders' or members' approval in the context of mergers or consolidations.

1. Board Approval: After the boards of directors or trustees of the corporations

involved approve the plan of merger or consolidation, the plan must be presented to the
stockholders or members for approval.

2. Notice of Meeting: Each corporation must provide notice to its stockholders or

members about a meeting to discuss the plan. This notice should be given in the same
manner as notices for regular or special meetings, stating the purpose and including a
copy or summary of the plan.

3. Voting Requirement: Approval of the plan requires the affirmative vote of at least
two-thirds (2/3) of the outstanding capital stock for stock corporations, or two-thirds (2/3)
of the members for nonstock corporations, during the meeting.

4. Appraisal Right: Dissenting stockholders have the right to demand payment for the
fair value of their shares (appraisal right). However, if the board decides to abandon the
plan after stockholders' approval, this appraisal right is extinguished.

5. Amendments to the Plan: Any amendments to the plan must be approved by a

majority vote of the boards of all constituent corporations and ratified by the
stockholders or members as previously described. The amended plan then becomes
the agreement of merger or consolidation.

This section ensures that significant corporate changes like mergers or

consolidations receive proper oversight and consent from both the boards and
the stockholders or members.

SEC. 77. Articles of Merger or Consolidation

The article shall be executed by each of the constituent corporations, signed by the
president or vice-president, and certified by the secretary or assistant secretary of each
corporation stating the following:

1. The plan of merger or consolidation

2. For stock corporations, the number of shares. For nonstock corporation, the
number of members.

3. For each corporation, the number of shares or members voting for and against the
plan.

4. The amounts and market value of the assets and liabilities of the companies.

5. The methods to be used in handling the accounts of the companies.

6. The estimated values as merged or consolidated.

7. Other details prescribed by the SEC.

SEC. 78. Effectivity of Merger or Consolidation

The article shall be submitted to the SEC for approval. For mergers or consolidations
involving banks, insurance companies, schools, and other special companies, approval
from the proper government agency must be obtained first. Once the SEC issues a
certificate approving the article, the merger or consolidation will take effect.

SEC. 79. Effects of Merger or Consolidation

· The constituent corporation will become a single corporation. Surviving

corporation for merger and consolidated corporation for consolidation

· Separate existence of the constituent corporation will cease, except for the
surviving corporation and consolidated corporation.

· The surviving or the consolidated corporation shall possess

1. All the rights and powers, and must follow all the duties, of a
corporation under the Revised Corporation Code.

2. All rights, privileges, and licenses of each merging company.

3. All the property, money owed to them, share subscriptions, and

other interests of each constituent corporation will automatically transfer
without needing any other action.

· The surviving or consolidated corporation automatically assumes the liabilities of

the dissolved corporations.

II. Corporate dissolution and liquidation- Sec 133-139

SEC. 133 Methods of Dissolution

Section 133 provides an outline for the general methods of corporation

dissolution.
 1. The concept of dissolution

Dissolution refers to the termination of the existence of a corporation. It marks

the legal “death” of a corporation as a juridical entity. It undergoes a legal
cessation of its rights and responsibilities as an artificial “person” recognized by
law.

2. Kinds of Dissolution

a. Voluntary Dissolution- it occurs when the corporation itself has decided to

terminate its existence.

The following are several ways this can be done:

1. Where no creditors are affected - If there’s no financial obligations left, the

corporation can be dissolved by a simple internal procedure.
2. When creditors are affected - If the corporation still has unsettled
obligations or indebted to creditors, a more rigorous process must be
followed to protect those creditors.
3. By amending the articles of incorporation - A corporation may choose to
shorten its corporate term, which causes its dissolution at an earlier date.
4. For a corporation sole - By submitting a verified declaration of dissolution
to the SEC, this type of corporation can be dissolved.

b. Involuntary Dissolution- it happens when an external authority initiates the

procedure, usually due to violations or failure to comply with certain laws.

1. By order of the SEC - The Securities and Exchange Commission may

dissolve a corporation due to specific grounds provided by law.
2. By legislative action - Through legislation, Congress may dissolve a
corporation.

SEC. 134 Voluntary Dissolution Where No Creditors are Affected

Section 134 addresses how a corporation might dissolve without jeopardizing its
creditors’ interests through an internal decision-making process. The law permits this
type of dissolution to be initiated by a majority vote of the board of directors or trustees,
and ratified through a resolution adopted by a majority of the stockholders or members
during a properly convened meeting.

In this context, notice is a key requirement. All stockholders or members must be

notified personally, via registered mail, or any other means permitted by the bylaws, at
least 20 days prior to the meeting. The purpose, time, date, and location of the meeting
must be included in the notice, which must also be published, if necessary, in a
newspaper of general circulation.

Once the resolution has been approved, a verified request for dissolution must
be submitted to the SEC. This includes:
 1. The cause for dissolution;
2. The form, manner and time when the notices were distributed to the stockholders
or members;
3. The names of the stockholders and directors or members and trustees who voted
in favor of the dissolution;
4. The details of the meeting such as the date, place and time in which the vote for
the dissolution was made;
5. The proof of publication of the proposed dissolution.

The corporation must also submit to the SEC the following:

1. A certified copy of the dissolution resolution, certified by a majority of the board of

directors or trustees and countersigned by the secretary of the corporation;
2. Proof that the notice of dissolution was properly published;
3. A favorable endorsement from the appropriate regulatory agency, if needed.

The SEC will review the request after it has been submitted. If everything is
correct and no withdrawals are made within 15 days, the SEC will issue a certificate of
dissolution, thereby ending the legal existence of the corporation.

SEC. 135. Voluntary Dissolution Where Creditors are Affected; Procedure and
Contents of Petition.

Section 135 outlines the process a corporation must follow when it chooses to dissolve
voluntarily but has outstanding obligations to creditors. Since creditors’ rights may be at
risk, the law provides a strict and transparent procedure to ensure fairness and due
notice.

Procedure:
1. The corporation must file a verified petition for dissolution with the SEC.
2. The petition must be signed by a majority of the BOD or trustees and approved
by at least 2/3 of the stockholders or members in a meeting specifically called for
this purpose.
3. The SEC will issue an order indicating the purpose of the petition and will set a
date (30-60 days later) for filing objections.
4. The order must be published weekly for 3 consecutive weeks in a local or
national newspaper and posted in 3 public places in the city or municipality of the
corporation’s principal office.
5. The SEC will hold a hearing to consider any objections and verify the truthfulness
of the petition’s claims.
6. If valid, the SEC may order the dissolution, decide how the corporation’s assets
should be handled, and appoint a receiver if needed to pay off debts.
7. The dissolution is only effective upon the issuance of a Certificate of Dissolution
by SEC.
Contents of the Petition:
- The reason for dissolution
- Details of the notice given (form, manner, and time)
- The date, place, and time of stockholders’/members’ meeting

SEC. 136. Dissolution by Shortening Corporate Term.

Section 136 allows a corporation to dissolve automatically by simply shortening its

corporate term through an amendment to its Article of Incorporation. This is considered
a form of voluntary dissolution that does not require the full process of notifying
creditors, unless they are affected.

Procedure:

1. The corporation must amend its Articles of Incorporation to state a shorter

corporate term than originally provided.
2. A copy of the amended articles must be submitted to the SEC.
3. The dissolution takes effect upon the SEC’s approval of the amended articles.

SEC. 137. Withdrawal of request and petition for Dissolution.

Sec 137 allows for the withdrawal of a request or petition for dissolution, but it must be
done within specific timeframes and procedures. A withdrawal of a request happens
when no creditors are affected, this requires a written, verified, and signed document
from the necessary number of incorporators, directors, trustees, shareholders, or
members. This withdrawal must be submitted to the Securities and Exchange
Commission (SEC) within fifteen (15) days of the SEC receiving the original request for
dissolution. A withdrawal of a petition for dissolution occurs when creditors are affected,
it is handled similarly, but it must be submitted before the publication of the order setting
the deadline for objections to the petition.

SEC. 138. Involuntary Dissolution.

Sec 138 outlines the grounds for involuntary dissolution of a corporation by the
Securities and Exchange Commissions (SEC), either in its own initiative or upon a
verified complaint. Dissolution can occur due to the following:

1. By expiration of the corporate term

2. By order of the SEC
a) Non- use of corporate charter
b) Continuous inoperative for the period of at least five (5) years
c) By court order
d) By fraud in incorporation
e) By illegal activities such as securities violation, smuggling, tax evasion, or
graft.
3. By order of the SEC in other provisions
a) In case of disagreement leading to unable to reach consensus in the
management of the business of a close corporation.
 b) Written petition to the SEC by any stockholder for acts of directors,
officers, or those in the management that are illegal , fraudulent,
dishonest, or oppressive.
c) Violations of the Revised Corporation Code
d) As provided in the Presidential decree No. 902-A
4. By legislative enactment

SEC. 139. Corporate liquidation.

Liquidation means getting the assets of the corporation, settling with creditors and
debtors, and apportioning the amount of profit and loss. The process of winding up the
affairs of a corporation entails the collection of assets, payment of liabilities and
distribution of the remaining assets.

After dissolution, the corporation shall nevertheless continue as a body for 3 years for
the following:
● To prosecute and defend suits by or against it;
● To enable it to settle and close its affairs;
● To dispose and convey its property;
● To distribute its assets.

General rule: there is no juridical personality after dissolution.

Who may affect the liquidation of the corporation

● By the corporation itself. It is through the board of directors or trustees, or by
stockholders, or members who have been given the authority to liquidate.

An action for the recovery of the debts of the corporation may, however, be
brought against the liquidator after the lapse of the three-year period.

● By a receiver. The SEC shall render judgement dissolving the corporation and
directing such disposition of its assets as justice requires and may appoint a
receiver to collect such assets and pay liabilities of the corporation in case of
voluntary dissolution.

The following effects of appointing a receiver:

● The corporation ceases to exist as a corporate entity and is substituted for
purposes of liquidation by the receiver.
● During the continuance of the receivership, claims can be presented and
allowed if they are not barred by the statute of limitations and even beyond
the three-year period against the receiver.

● By a trustee. During the three-year period, the corporation is authorized and

empowered to convey all its property to trustees for the benefit of
stockholders,members,creditors, and other persons in interest.
 The conveyance of all property of the corporation to a trustee produces the
following effects:

● All interest which the corporation has in the property terminates.

● The legal interest vests in the trustees.
● The beneficial interest vests in the stockholders, members or other person's-
interest.
● The corporation ceases to exist as a corporate entity and is substituted for
purposes of liquidation by the trustee.
● During the continuance of the trusteeship, claims can be presented and allowed
if they are not barred by the statute of limitations even beyond the three-year
period against the trustee.