REVISED CORPORATION CODE OF THE PHILIPPINES (R.A. 11232) BRIEF HISTORY Law Date Act 1409 April 1906 BP 68 May 1980 RA 11232 Corporation Law - Issued by Philippine Commission to replace the Laws for Sociedad Anonimas introduced by Spain through the Spanish Code of Commerce. Corporation Code of the Philippines February 2019 Revised Corporation Code of the Philippines OBJECTIVES OF THE RCCP a) Promote the ease of doing business through the corporate medium; b) Provide greater protection to stockholders; c) Strengthen corporate governance standards by expressing them in statutory language, compared to the corporate governance reforms effected through the issuance of codes of corporate governance; d) Express in statutory language internationally accepted best practices and norms of doing business; and e) Integrate within the statutory framework many significant SEC issuances. CORPORATION DEFINED A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incidental to its existence. ATTRIBUTES Artificial Being Created By Operation Of Law Right Of Succession Powers, Attributes And Properties Expressly Authorized By Law Or Incident To Its Existence Corporate Entity Theory Doctrine of Corporate Entity As a Legal Entity, the Corporation possesses personality separate and distinct from the individual stockholders or members and is not affected by the rights, obligations nd transactions of the latter. In other words, there is a Veil that separates the Corporation from the individuals composing it. Consequence of DCE – Separate Rights and Obligations Corporate Entity Theory Piercing the veil of corporate entity - When DCE disregarded? • When it is used as cloak or cover fraud or illegality, the Corp and the SH composing it are treated as identical; • When a Corporation is a mere dummy and serves no business purpose and is intended as an alterego or business conduit for the sole benefit of the stockholders. CORPORATION Classes of Corporations. – A Corporation may be stock or nonstock corporations. Stock corporations are those which have capital stock divided into shares and are authorized to distribute to the holders of such shares, dividends, or allotments of the surplus profits on the basis of the shares held. All other corporations are nonstock corporations. Other Classes of Corporations – Read CORPORATION Corporators and Incorporators, Stockholders and Members. – Corporators are those who compose a corporation, whether as stockholders or shareholders in a stock corporation or as members in a nonstock corporation. Incorporators are those stockholders or members mentioned in the articles of incorporation as originally forming and composing the corporation and who are signatories thereof. CLASSIFICATION OF SHARES 1. The classification of shares, their corresponding rights, privileges, or restrictions, and their stated par value, if any, must be indicated in the articles of incorporation. 2. Each share shall be equal in all respects to every other share, except as otherwise provided in the articles of incorporation and in the certificate of stock. (DOCTRINE OF EQUALITY OF SHARES) CLASSIFICATION OF SHARES 3. The shares in stock corporations may be divided into classes or series of shares, or both. No share may be deprived of voting rights EXCEPT THOSE CLASSIFIED AND ISSUED AS “PREFERRED” OR “REDEEMABLE” SHARES, unless otherwise provided in this Code: Provided, That there shall always be a class or series of shares with complete voting rights. 4. The vote required under this Code to approve a particular corporate act shall be deemed to refer only to stocks with voting rights. EXCEPTION: Holders of nonvoting shares shall nevertheless be entitled to vote on MI3DA2S CLASSIFICATION OF SHARES 5. Par and no-par value shares of stock. Par Value share is one with a specific money value fixed in the Articles of Incorporation. It usually appears in the Certificate of Stock. No Par Value share is one without a specific money appearing in the Certificate of Stock and does not state how much money it represents. Shares of Stock Vs Certificate of Stock Shares of Stock represents the rights and interest of a person in a corporation, while certificate of stock is the written evidence of that right or interest. CLASSIFICATION OF SHARES 5. Par and no-par value shares of stock. The shares or series of shares may or may not have a par value: Provided, That the following shall not be permitted to issue NO-PAR VALUE shares of stock: Banks Building and loan associations Trust, Insurance, Preneed companies, Public utilities, Other corporations authorized to obtain or access funds from the public, whether publicly listed or not. KINDS OF SHARES 1. Common and Preferred Shares (Sec 6) Common - Pro-rate division of profits – no advantage with respect to other shares; Preferred - entitled to certain preferences. 2. Founders Shares (Sec 7) 3. Redeemable Shares (Sec 8) 4. Treasury Shares (Sec 9 and Sec 40) 5. Shares in Escrow Shares subject to agreement deposited to a depositary until the performance of an act or fulfillment of a condition. TRUE OR FALSE Only redeemable or preferred shares may be deprived of the right to vote. -I also common shares TRUE OR FALSE Treasury shares may be allowed to vote in some cases provided by law. TRUE OR FALSE Treasury and redeemable shares are not entitled to dividends. ↳ still entitled TRUE OR FALSE Non-voting shares may vote in the election of Directors. ↳ not included MISDAYS in TRUE OR FALSE Preferred shares may be issued with or without stated par value. ↳ should a be always stated TRUE OR FALSE All Stock corporations may be permitted to issue par or nor par value shares of stock. is not all can issue LBb. HPPO) par TRUE OR FALSE Redeemable and Treasury shares may be redeemed/acquired despite the absence of unrestricted retained earnings. i redeemable only THANK YOU INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS SEC. 10. Number and Qualifications of Incorporators 1. 2. 3. Any person, partnership, association or corporation, singly or jointly with others but not more than fifteen (15) in number, may organize a corporation for any lawful purpose or purposes. Incorporators who are natural persons must be of legal age. Each incorporator of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock. SEC. 10. Number and Qualifications of Incorporators 4. 5. Natural persons who are licensed to practice a profession, and partnerships or associations organized for the purpose of practicing a profession, shall not be allowed to organize as a corporation unless otherwise provided under special laws. A corporation with a single stockholder is considered a One Person Corporation as described in Title XIII, Chapter III of this Code. SEC. 11. Corporate Term 1. A corporation shall have perpetual existence or with specific corporate term. Default Corporate Term is Perpetual. SEC. 11. Corporate Term 2. The corporation, may notify the Commission that it elects to retain its specific corporate term pursuant to its articles of incorporation: subject to appraisal right of dissenting stockholders. SEC. 11. Corporate Term 3. A corporate term for a specific period may be extended or shortened by amending the articles of incorporation: Provided, That no extension may be made earlier than three (3) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as may be determined by the Commission. SEC. 11. Corporate Term 4. A corporation whose term has expired may, at any time, apply for a revival of its corporate existence, subject to all of its duties, debts and liabilities existing prior to revival. SEC. 11. Corporate Term 5. No application for revival of certificate of incorporation of banks, banking and quasi-banking institutions, preneed, insurance and trust companies, non-stock savings and loan associations (NSSLAs), pawnshops, corporations engaged in money service business, and other financial intermediaries shall be approved by the Commission unless accompanied by a favorable recommendation of the appropriate government agency. SEC. 12. Minimum Capital Stock Not Required of Stock Corporations Stock corporations shall not be required to have a minimum capital stock, except as otherwise specifically provided by special law. SEC. 12. Minimum Capital Stock Not Required of Stock Corporations One of the salient changes in Corporation Law. Entire Section 13 of the old law is deleted. Section 13. Amount of capital stock to be subscribed and paid for the purposes of incorporation. – At least twenty-five percent (25%) of the authorized capital stock as stated in the articles of incorporation must be subscribed at the time of incorporation, and at least twentyfive (25%) per cent of the total subscription must be paid upon subscription, the balance to be payable on a date or dates fixed in the contract of subscription without need of call, or in the absence of a fixed date or dates, upon call for payment by the board of directors: Provided, however, That in no case shall the paid-up capital be less than five Thousand (P5,000.00) pesos. (n) THANK YOU ARTICLES OF INCORPORATION ARTICLES OF INCORPORATION DEFINITION AND PURPOSE Document prepared and filed before the SEC Corporate Charter – Threefold Contract CONTENT AND FORM Deletion Of The 25%-25% Rule – But retained in Increase of Authorized Capital Stock (Section 37) Insertion of Arbitration Agreement Filing as Electronic Document AMENDMENT AND APPROVAL Any provision or matter stated in the articles of incorporation may be amended by a MAJORITY VOTE of the board of directors or trustees and the vote or written assent of the stockholders representing at least TWO-THIRDS (2/3) of the outstanding capital stock. No articles of incorporation or amendment to articles of incorporation of banks, banking and quasi-banking institutions, preneed, insurance and trust companies, NSSLAS, pawnshops, and other financial intermediaries shall be approved by the Commission unless accompanied by a favorable recommendation of the appropriate government agency to the effect that such articles or amendment is in accordance with law. GROUNDS FOR DISAPPROVAL Not substantially in accordance with the form prescribed; Purpose or purposes of the corporation are patently unconstitutional, illegal, immoral or contrary to government rules and regulations; False certification concerning the amount of capital stock subscribed and/or paid; and Non-Compliance with the required percentage of Filipino ownership of the capital stock under existing laws or the Constitution. CORPORATE NAME Must be distinguishable from a name already reserved or registered for the use of another corporation. Must not be already protected by law; or contrary to law, rules and regulations. The SEC may summarily order the corporation to immediately cease and desist from using such name and require the corporation to register a new one. Theory of IDEM SONANS – Must not be Identical, deceptively and confusingly similar. Doctrine of Secondary Meaning - Long Use of Name and so Exclusively by one product. COMMENCEMENT OF CORPORATE EXISTENCE A private corporation commences its corporate existence and juridical personality from the date the Commission issues the certificate of incorporation under its official seal. EFFECTS OF NON-USE OF CORPORATE CHARTER AND CONTINUOUS INOPERATION Case of Non-use/Non-operation No formal organization and commencement of business within five (5) years from the date of its incorporation. Has commenced its business but subsequently becomes inoperative for a period of at least five (5) consecutive years, Effect Certificate of incorporation shall be deemed revoked as of the day following the end of the five-year period. Corporation will be under delinquent status. A delinquent corporation shall have a period of two (2) years to resume operations and comply with all requirements that the Commission shall prescribe. Noncompliance within the period shall cause the revocation of COI. CORPORATIONS BASED ON COMPLIANCE WITH INCORPORATION REQUIREMENTS DE JURE DE FACTO CORPORATION ESTOPPEL Level of Compliance Full How Existence is Attacked Cannot be attacked either Directly or Collaterally. Direct Attack through the Solicitor General in a quo warranto proceeding. It shall not be inquired into collaterally in any private suit to which such corporation may be a party. BY Highly Defective and Direct and Collateral either Irregular – act as a by the State or Private corporation knowing it to party. be without authority. Defective but claiming in GOOD FAITH to be a corporation under this Code and uses its corporate powers. TITLE III BOARD OF DIRECTORS/TRUSTEES AND OFFICERS BOARD OF DIRECTROS/TRUSTEES OF A CORPORATION Qualification and Term Stock Non-Stock Term 1 term not exceeding three (3) years Basic Qualification Owner of 1 share Must be a Member Each director and trustee shall hold office until the successor is elected and qualified. A director who ceases to own at least one (1) share of stock or a trustee who ceases to be a member of the corporation shall cease to be such. KINDS OF DIRECTORS Regular and Independent Executive and Non-Executive The board of the following corporations vested with public interest shall have independent directors constituting at least twenty percent (20%) of such board. An independent director is a person who, apart from shareholdings and fees received from the corporation, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to materially interfere with the exercise of independent judgment in carrying out the responsibilities as a director. ELECTION OF DIRECTORS OR TRUSTEES Except when the exclusive right is reserved for holders of founders’ shares under Section 7 of this Code, each stockholder or member shall have the right to nominate any director or trustee who possesses all of the qualifications and none of the disqualifications set forth in this Code. there must be present, either in person or through a representative authorized to act by written proxy, the owners of MAJORITY OF THE OUTSTANDING CAPITAL STOCK, or if there be no capital stock, a majority of the members entitled to vote. The stockholders or members may also vote through remote communication or in absentia. ELECTION OF DIRECTORS OR TRUSTEES If no election is held, or the owners of majority of the outstanding capital stock or majority of the members entitled to vote are not present in person, by proxy, or through remote communication or not voting in absentia at the meeting, such meeting may be adjourned and the corporation shall proceed in accordance with Section 25 of this Code. (See Section 25 Par 2 and 3) ELECTION OF DIRECTORS OR TRUSTEES SEC. 26. Disqualification of Directors, Trustees or Officers. Grounds SEC. 27. Removal of Directors or Trustees. Any director or trustee of a corporation may be removed from office by a vote of the stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock, or in a nonstock corporation, by a vote of at least two-thirds (2/3) of the members entitled to vote. The SEC may also motu proprio or upon verified complaint, and after due notice and hearing, order the removal of a director or trustee elected. SEC. 28. Vacancies in the Office of Director or Trustee Emergency Board Reason for Vacancy Who Fills-up Removal or by Expiration of term/ Stockholders or members in Increase in the number of directors or a regular or special meeting trustees called for that purpose. Other than Removal or by Expiration of At least a majority of the term or Increase in the number of remaining directors or directors or trustees trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the stockholders . EMERGENCY BOARD When the vacancy prevents the remaining directors from constituting a quorum and emergency action is required to prevent grave, substantial, and irreparable loss or damage to the corporation, the vacancy may be temporarily filled from among the officers of the corporation by unanimous vote of the remaining directors or trustees. SEC. 29. Compensation of Directors or Trustees Approval Per Diem Other Compensation As Director By-laws As Officer By-laws By-laws/ stockholders representing at least a majority of the outstanding capital stock or majority of the members Limit Reasonable Total yearly compensation of directors exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year. Reasonable Directors or trustees shall not participate in the determination of their own per diems or compensation.
