Panuda, Philip Graham - Corporation Law 2022
Corporation Law
Atty. Timoteo B. Aquino
SY 2021-2022
Types of Business Organizations
Sole Proprietorship
Partnership
Joint Accounts
Business Trust
Joint Venture
Cooperatives
Syndicate
Homeowners’ Association
2
3
3
4
5
5
6
6
6
Corporation
Concession Theory and Corporate Finances
Creation by General Law and by Special Law
Right of Succession
Doctrine of Separate Personality
Doctrine of Limited Liability
Doctrine Of Piercing The Veil Of Corporate Fiction
6
6
7
7
8
9
10
Classes of Corporations
Components of Corporations
Nature and Classes of Shares
16
20
20
Title II: Incorporation and Organization
SEC. 10. Number and Qualifications of Incorporators.
SEC. 11. Corporate Term.
SEC. 12. Minimum Capital Stock Not Required of Stock Corporations.
SEC. 13. Contents of the Articles of Incorporation.
SEC. 14 Form of Articles of Incorporation
SEC. 15. Amendment of Articles of Incorporation.
SEC. 16. Grounds When Articles of Incorporation or Amendment May be Disapproved.
SEC. 17. Corporate Name.
SEC. 18. Registration, Incorporation and Commencement of Corporate Existence.
SEC. 19. De facto Corporations.
21
22
23
24
25
26
28
30
31
32
33
Title III: Board of Directors/Trustees and Officers
36
1
Panuda, Philip Graham - Corporation Law 2022
Definition of corporation: A corporation is an artificial being created by operation of law, having
the right of succession and the power, attributes and properties expressly authorized by law or
incident to its existence (Sec. 2, RCCP)
Types of Business Organizations
Type
Definition
1. Sole Proprietorship
A sole proprietorship is a form of business organization with only
one proprietary owner; a single individual conducts business under
his own name or under a business name. In other words, it is an
unorganized business owned by a person.
2. Partnerships
A partnership exists when two or more persons bind themselves to
contribute capital to a common fund with the intention of dividing the
profits among themselves. (Civil Code)
3. Joint Account or
Cuentas en
Participación
A joint account is a partnership constituted in such a manner that
the existence of which is only known to those who had an interest in
the same, there being no mutual agreements between the partners,
and without a corporate name indicating to the public in some way
that the were other people besides the one who ostensibly
managed and conducted the business. (Bourns v. Carman)
4. Business Trust
A business trust is a legal relation whereby a trustor conveys a
property to another for the benefit of the beneficiary through the
trustee.
5. Joint Venture
A joint venture is an association of persons or companies jointly
undertaking some commercial enterprise; generally all contribute
assets and share risks. It is also defined in Aurbach v. Sanitary
Wares as an organization formed for some temporary purpose.
6. Cooperative
A cooperative is an autonomous and duly registered association of
persons, with a common bond of interest, who have voluntarily
joined together to achieve their social, economic, and cultural needs
and aspirations by making equitable contributions to the capital
required, patronizing their products and services and accepting a
fair share of the risks and benefits of the undertaking in accordance
with universally accepted cooperative principles. (Art. 3, R.A. 9520)
7. Syndicate
A syndicate is a group of people who come together to work for a
common aim.
8. Corporation
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 incident to its existence.
(Sec. 2, RCCP)
2
Panuda, Philip Graham - Corporation Law 2022
-
-
Q: If a person wants full control over the business, what business organizations are
available to him?
A: Sole proprietorship and corporation (One Person Corporation, although note that an
OPC only needs one person for incorporation purposes, but usually involves a lot of
people in practice such as the corporate secretary)
Q: If a person wants to do business, what are the things he must consider?
A: Number of persons, liability, control
Sole Proprietorship
-
-
-
The only choice of organization for some professions that cannot use the corporate
vehicle
The owner has unlimited personal liability for all debts and obligations of the business
(contrasted to OPC)
The life of a sole proprietorship is dependent upon the life of the proprietor
Is a sole proprietorship transferable? No, but it can be organized into a corporation later
on.
The general rule is that a sole proprietorship has no legal personality separate from the
owner, but the exception to this is under the FRIA where “debtor”, covering sole
proprietorship, is different from an “individual debtor”
A sole proprietor may do business under a business name
❖ Business name refers to any name that is different from the true name of an
individual which is used or signed in connection with his/her business
❖ The business owner must register their business name with the Bureau of Trade
Regulation and Consumer Protection of the DTI pursuant to Sec. 1 of Act No.
3883
Merchants are recognized under the Code of Commerce
❖ Merchants are: those who, having legal capacity to engage in commerce,
habitually devote themselves to it; the commercial or industrial companies which
may be created in accordance with existing legislation
❖ What does it mean to have legal capacity? At least 21 years of age; not being
subject to parental authority; and having the free disposition of their property
❖ What is relative disqualification? Under Art. 14 of the Code of Commerce, those
who are disqualified from engaging in mercantile activities due to their profession.
BUT, Macariola v. Asuncion held that this provision is in the nature of political law,
and has hence been abandoned upon the change of sovereignty (from Spain to
the US).
Partnership
- The purpose of registration of the partnership with SEC is to give notice to third parties,
but the partnership’s juridical personality exists absent registration
❖ What are the requirements for the registration of a partnership with SEC?
3
Panuda, Philip Graham - Corporation Law 2022
Partnership
Corporation
As to manner of creation
Created by mere agreement
Existence commences from
the issuance of a Certificate
of Incorporation by the SEC,
or through the passage of a
law
As to the number of
organizers
Two or more persons
One person (One Person
Corporation, R.A. 11232)
As to powers
Subject to the limitations
agreed upon
More restricted due to its
limited personality
Authority of those who
compose it
Mutual agency; each partner
can represent and bind the
partnership
Stockholders are not agents
of the corporation in the
absence of express authority
Transfer of interest
Interest in the partnership
cannot be transferred without
the consent of the other
partners
Corporate shares may be
freely transferred without the
consent of the stockholders
unless stipulated
As to liability of those who
compose it
Partners may be liable
beyond their investment
Liability of stockholders and
members is limited to their
investment
Right of succession
Death of a general partner
dissolves the partnership
There is a right of succession
As to capacity to be
partner/stockholder
Can be an incorporator or
stockholder of a corporation
(Sec. 10, RCCP)
Can enter into a partnership
or joint venture (Sec. 35,
RCCP)
Similarities of Partnerships and Corporations
1)
2)
3)
4)
5)
6)
Both have juridical personality distinct from their components
Both are groups of persons (One Person Corporation)
Capitals of both are derived from their components
Distribution of profits
Only act through their agents
Can be organized only where there is a law authorizing their organization
Joint Accounts
Joint Accounts
Partnerships
4
Panuda, Philip Graham - Corporation Law 2022
As to juridical personality
Has no juridical personality
Has personality separate and
distinct from its partners
As to business name
Cannot adopt a common
commercial name
May adopt a partnership
name
As to management
Only the ostensible partner
manages and transacts
business in his own name and
under his individual liability
The general partners are all
managers in a partnership
As to parties in cases; who
may be sued?
Only the ostensible partner can
be sued by, and is liable to
persons transacting with the
joint account
All general partners may be
sued by third persons
-
What do you call partners who are not the ostensible partner?
Should third parties be aware of other partners in a joint account? Can they sue the
other partners once a third party discovers them?
Joint accounts are also known as accidental partnerships, but are joint accounts
partnerships? No.
Business Trust
- Trust business is defined by the BSP as any activity resulting from a trustor-trustee
relationship involving the appointment of a trustee by a trustor for the administration,
holding, management of funds and/or properties of the trustor for the trustee for the use,
benefit or advantage of the trustor or of others called beneficiaries.
- What is the Massachusetts Trust? It is an unincorporated business association
established by a declaration or deed of trust, and governed to a great extent by the
general law of trust.
- A Real Estate Investment Trust under R.A. 9856 is not a real business trust.
- Why is a business trust a business organization? What is a business? What is an
organization? Are all businesses for profit?
- The general rule is that titles cannot be split, but in trust, there is an equitable title given
to the trustee and the beneficiary.
Joint Venture
- Why joint venture? To reduce the required investment and distribute risk; to achieve
diversification; to avoid government scrutiny
- Under Philippine law, joint ventures are governed by the law of partnerships
- The substance of the agreement, not its form, determines the nature of the agreement (if
it is a joint venture)
- The joint venture agreement need not be registered with SEC as long as the JVA will not
result in the formation of a partnership or corporation
5
Panuda, Philip Graham - Corporation Law 2022
Cooperatives
- Has limited liability
- Managed by the General Assembly, the highest policy-making body of a cooperative,
and the Board of Directors, for strategic planning, direction-setting, and policy
formulation activities
Syndicate
- In a syndicate, a borrower/third party has a direct contractual relationship with each
member of the lending syndicate
Homeowners’ Association
- Homeowners’ associations are under the HLURB
❖ HLURB has quasi-judicial functions
- Who are homeowners under R.A. 8763? An owner or purchaser of a lot in a
subdivision/village; a usufructuary or legal occupant of a unit in a government socialized
housing project; or an informal settler in the process of being accredited as beneficiary of
ownership under the CMP, LTAP, and other similar programs
Corporation
Definition of corporation: A corporation is an artificial being created by operation of law, having
the right of succession and the power, attributes and properties expressly authorized by law or
incident to its existence (Sec. 2, RCCP)
Based on the definition of corporation, a corporation has the following attributes:
1) Artificial being
2) Created by operation of law
3) Has the right of succession
4) Has the powers, attributes and properties expressly authorized by law or incident to its
existence
Attributes of a Corporation
a. Concession Theory and Corporate Finances
In relation to the attribute of a corporation that a corporation is an artificial being, where
does its existence come from? The concession theory provides that a corporation owes
its existence to the sovereign power of the State; its existence is dependent on the will of
the State.
Tayag v. Benguet Consolidated (G.R. 23145)
6
Panuda, Philip Graham - Corporation Law 2022
The existence of a corporation emanates from the will of the State. In this case,
the by-laws cannot prevail over a court decree. The CFI ordered County Trust
Company, the domiciliary administrator of the estate of Idonah Slade Perkins, to
produce and deposit the stock certificates of Perkins (covering Perkins’ shares of
Benguet Consolidated, Inc.) with the clerk of court. Benguet questioned the order
and invoked its own by-laws which provided for the procedure to be followed in
case of a lost, stolen, or destroyed stock certificate. Benguet erroneously invoked
its own by-laws since the court order, as an act of the State, must prevail.
JRS v. Imperial Insurance (G.R. L-19891)
Petitioner JRS failed to pay the judgment obligation, so the CFI issued a writ of
execution to sell inter alia the whole capital stocks of JRS, the secondary
franchise, and corporate name. The Court held that the sale was invalid because
secondary franchises, such as the right to operate a messenger and express
delivery service, are subject to levy and sale on execution if such sale is
especially decreed and ordered in the judgment and confirmed by the Court after
due notice. In this case, the compromise agreement and CFI judgment do not
contain a special decree or order making the franchise answerable to the
judgment debt.
b. Creation by General Law and by Special Law
-
“Under the contract theory, incorporation is deemed to involve contracts among
the members, between the members and the corporation, and between the
members or the corporation and the State.”
c. Right of Succession
SME Bank v. De Guzman
During the transition between SME Bank and the Samson Group, some
employees were advised to file a letter of resignation with the promise that they
would be rehired under the new management. The Court held that there are two
types of corporate acquisitions: asset sales, and stock sales. The stock sales in
this case changed the composition of the shareholders but did not affect the
existence and continuity of the corporation in line with the doctrine of separate
personality which provides that a corporation is a separate and distinct entity
from its shareholders. Perpetual succession allows the corporation, as a juridical
entity to remain the same despite the changing of its members or shareholders.
-
“A corporation continues to exist even if there is a change in those who compose
it.”
“A shift in the composition of the shareholders of a corporation would not affect
its existence and continuity.”
“Perpetual succession does not always imply corporate immortality but rather a
continuity of existence irrespective of that of its components.”
7
Panuda, Philip Graham - Corporation Law 2022
d. Doctrine of Separate Personality
Separate Properties
Nature of Stockholders’ Interest on Corporate Properties
Separate Obligations
Alvarado v. Ayala Land, Inc.
The general rule under the doctrine of separate personality is that corporate
properties are owned by the corporation and not its stockholders; and that the
interest of shareholders in the corporate properties is inchoate (not fully formed).
But the exception in this case is that members of a non-stock corporation may
have an interest in the corporate property that is not related to ownership. In
other words, they may have legal interest over the property, not necessarily a
claim of ownership. Respondents in this case sought to annul the tax delinquency
sale of the Capitol Golf and Country Club to petitioner Alvarado on the ground
that the sale failed to adhere to legal requisites under the Local Government
Code. Petitioner argued that respondents are not real parties in interest for not
being the owner of the property. The Court held that Sec. 267 allows the owner or
any party with a legal interest over the property to assail thee validity of the tax
sale.
NEA v. MAGELCO
A corporation only has one juridical personality despite maintaining different
places of business. A branch office does not have a separate legal personality,
and hence, cannot maintain a separate action in court. In this case,
MAGELCO-PALMA has no capacity to sue following Rule 1, Sec. 3 of the ROC.
And so the action for forcible entry filed by MAGELCO-PALMA against
COTELCO cannot be maintained.
Tumangan v. Kairuz
Under the doctrine of separate personality, the properties of the corporation are
not the properties of the shareholders, and so the shareholders cannot maintain
an action in his own name against the corporation. In this case, respondent
Mariam Kairuz cannot maintain the action against Bali Irisan Resources, Inc.
(BIRI) since she is the successor of her husband who is a shareholder of BIRI.
This is an example of an intra-corporate controversy.
HSBC v. Sps. Galang
Respondent Galang obtained a loan from her employer HSBC through the
HSBC-SRP (Staff Retirement Plan). For her default in payment, the HSBC-SRP
foreclosed her mortgaged property. Galang filed an action against both HSBC
and HSBC-SRP, but the Court held that the two corporations are separate. It was
established during trial that HSBC is limited to determining who among its
employees are eligible for a loan, while the approval for such loans rests with the
HSBC-SRP. On the topic of separate personality, a company’s separate
8
Panuda, Philip Graham - Corporation Law 2022
corporate personality may be disregarded if the parent company uses its
separate corporate personality to perpetuate fraud or evade an existing
obligation, but the Galang spouses failed to establish these and only alleged that
the HSBC-SRP foreclosed the property in bad faith.
e. Doctrine of Limited Liability
❖ Reason
❖ Remedy:
- “The stockholders who are sought to be made liable for their unpaid
subscription should be impleaded. If the stockholders are not impleaded
as defendants, a separate action should be filed against them to enforce
any judgment obligation.
❖ One Person Corporation:
- the limited liability rule applies to OPCs, but the sole stockholder must
show that the corporation was adequately financed in order to invoke
limited liability
❖ Separate Acts:
- “The acts of the stockholders do not bind the corporation unless they are
properly authorized.”
❖ Separate Personality in Court Actions
- The power of the corporation to sue or be sued lies on the board of
directors
- Summons served on the corporation does not bind the stockholders who
must be personally served
Halley v. Printwell
- From the book: “When the petitioner was made to pay Php 262,500 for
her unpaid subscription, the veil of corporate fiction was not pierced
because she was just made to pay up to the extent of her investment.”
- Facts: petitioner was the director of Business Media Philippines (BMPI),
and Printwell is engaged in the commercial and industrial printing
business; Printwell filed a collection suit for the unpaid balance from the
orders of BMPI, and amended the complaint to include the stockholders;
RTC ruled in favor of Printwell, applied the trust fund doctrine that
provides that stockholders are liable to the extent of their contributions;
upon appeal, CA affirmed, declared that the veil of corporate fiction could
be pierced
- Issues: Was the piercing of the corporate veil justified?
- Ruling: YES; although it was not alleged in the complaint that petitioner
caused the default in their payment, she was still the person in charge of
BMPI when it reneged on its obligation; trust fund doctrine in Philippine
Trust Co v. Rivera; unpaid creditors may claim from stockholders (in this
case, they paid one of the installments via check, which is not legal
tender);
9
Panuda, Philip Graham - Corporation Law 2022
Enano-Bote v. Alvarez
- Facts: Petitioners were stockholders of Centennial Air (CAIR) which
entered into a lease agreement with SBMA; CAIR became delinquent in
its payment; Petitioners then claimed that they assigned their shares to
defendant Jose Alvarez; RTC applied the trust fund doctrine and affirmed
by the CA
- Issue: Are petitioners jointly and severally liable with CAIR to SBMA?
- Ruling: NO, only CAIR is liable; the trust fund doctrine may be invoked by
the creditor if, among other things, the debtor corporation is insolvent; but
in this case, SBMA did not indicate that CAIR was insolvent
f. Doctrine Of Piercing The Veil Of Corporate Fiction
❖ The corporation’s separate entity may be disregarded when there is an abuse of
the corporate form; the conduit corporation will be held solidarily liable with the
principal
❖ “Mere ownership by a single stockholder or by another corporation of all or nearly
all of the capital stock of a corporation is not in itself sufficient ground for
disregarding the separate corporate personality.”
❖ “Even the overlapping of incorporators and stockholders of two or more
corporations will not necessarily justify the piercing of the veil of corporate
fiction.”
❖ Do the Limited Liability Rule and the Doctrine of Piercing the Veil of Corporate
Fiction go hand in hand? The Court says yes, but Atty. Aquino says no.
According to the authors, the legal personality of the corporation is not pierced if
the Limited Liability Rule is applied.
❖ Piercing the veil in OPC: the sole shareholder has the burden of proving that the
corporation was adequately financed (Sec. 130, RCCP); if the corporation is
inadequately financed, the presumption is that the corporation is just a conduit of
the person
❖ Classifications of piercing the corporate veil:
1. Cases where public convenience may be defeated, as when the
corporation is used to evade an existing obligation
2. Fraud cases; when the corporation is used to justify a wrong
3. Alter ego cases; when the corporation is used as a conduit of a person
❖ Kinds of piercing cases:
1. Traditional veil-piercing action: a court disregards the existence of the
corporate entity so a claimant can reach the assets of a corporate insider
2. Reverse piercing action: makes the corporation liable for the debt of the
shareholders, where the plaintiff seeks to reach the assets of a
corporation to satisfy the claims against a corporate insider
a) Outsider reverse piercing: a party with a claim against an
individual or corporation attempts to be repaid with assets of a
corporation owned or substantially controlled by the defendant
10
Panuda, Philip Graham - Corporation Law 2022
❖
❖
❖
❖
❖
❖
❖
b) Insider reverse piercing: the controlling members will attempt to
ignore the corporate fiction in order to take advantage of a benefit
available to the corporation, such as an interest in a lawsuit or
protection of personal assets
Variants within the doctrine of piercing the veil of corporate fiction:
1. Instrumentality doctrine
- The primary test in applying the doctrine of piercing the corporate
veil
- Three-pronged Control Test (Concept Builders case): determine
the presence of three factors
1. Control, not mere majority or complete stock, but complete
domination
2. Such control must have been used by the defendant to
commit fraud or wrong
3. The aforesaid control and breach of duty must proximately
cause the injury or unjust loss complained of
2. Identity doctrine: the plaintiff must show that there is a unity of interest
and ownership that the independence of corporations had not begun, and
the person/persons would take advantage of the separate entity to defeat
justice and equity
3. Alter ego doctrine: where a corporation is a dummy and serves no
purpose
Totality of Circumstances Test: 19 circumstances listed by Justice Cardozo (pp.
82-84)
What factors would justify piercing the corporate veil? The probative factors that
justify piercing the corporate veil are:
1. Stock ownership by one or common ownership of both corporations
2. Identity of directors and officers
3. The manner of keeping corporate books and records
4. Methods of conducting the business
Theory of Enterprise Entity
“Associated enterprises means that two or more enterprises are associated if one
participates directly or indirectly in the management, control, or capital of the
other; or if the same persons participate directly or indirectly in the management,
control, or capital of the enterprises.”
“Control refers to the ability to substantially influence or direct the actions or
decisions of an entity, whether by contract, agency or otherwise.”
Can an entity have control over another entity despite only owning half or less
than half of the voting power of another entity? Yes, such as when:
1. There is power over more than half of the voting rights by virtue of an
agreement with the investors
2. There is power to direct or govern the financial and operating policies of
the entity under a statute or agreement
11
Panuda, Philip Graham - Corporation Law 2022
3. There is power to appoint or remove the majority of the members of the
board of directors or equivalent governing body
4. There is power to cast the majority votes at meetings of the board of
directors or equivalent governing body
5. There exists ownership over or the right to use all or a significant part of
the assets of the entity
6. There exists rights or contracts which confer decisive influence on the
decisions of the entity
Concept Builders v. NLRC
- From the book: “There was no need to implead HHPI because the
personalities of the two corporations were merged into one.”
- Doctrine:
- Facts: Petitioner laid off private respondents claiming that the project was
finished; NLRC found that the project was not yet completed upon the
termination of their employment; ordered plaintiff to pay back wages;
sheriff sought to levy petitioner’s properties
- Issue: Should the veil be pierced in this case?
- Ruling: YES. Carino filed the two documents (CB’s suspension of
operations, and HPPI’s transfer of address) on the same day; indicates
the identity of the corporations.
Kukan v. Reyes
- Doctrine:
- Facts: Romeo Morales was given the contract to supply and install
signages on a building in Makati; Morales was only paid a certain sum by
Kukan, with a balance of over Php 1 million; Morales filed a complaint for
a sum of money, but Kukan did not participate in the proceedings; sheriff
levied on the personal properties of Kukan; Kukan International filed a
third party claim alleging that the properties levied were theirs and not
Kukan Inc.; Morales filed an Omnibus Motion to apply the doctrine of
piercing the veil of corporate fiction on the ground that they are the same
company
- Issue:
- Ruling: Kukan International was not impleaded, so the court did not have
jurisdiction over it; lack of proof that Kukan used it to evade obligation
Heirs of Fe Tan Uy v. Int’l Exchange Bank
Lanuza v. BF Corp.
Guillermo v. Uson
IAME v. Litton & Co.
Kho, Sr. v. Magbanua
Total Petroleum Philippines Corp. v. Lim
12
Panuda, Philip Graham - Corporation Law 2022
g. Rules of attribution
❖ The actions of the Board of Directors will be treated as the actions of the
corporation.
h. Nationality, citizenship and foreign equity
Aggregate Test & Entity Test
- The two principal tests in determining if a corporation is foreign or
domestic
- Aggregate Test (Control Test): looks into the nationality, domicile, or
residence of the individuals who control the corporation
- Entity Test (Incorporation Test): looks into where the corporation was
incorporated
Incorporation Test/Place of Incorporation Test/Entity Test
- Sec. 140, RCCP: a foreign corporation is one formed, organized, or
existing under laws other than those of the Philippines’ and whose laws
allow Filipino citizens and corporations to do business in its own country
or State
Wartime control test
- Looks into the nationality of the controlling stockholders during wartime
- What’s the relevance of this? If the controlling stockholders are citizens of
the enemy state, then the corporation will also be deemed as a public
enemy corporation
Investment test
- Relates to the 60/40 Constitutional requirement
- “Both the voting control test and beneficial ownership test must be applied
to determine whether the corporation is a Philippine National”
- Includes the voting control test, and the beneficial ownership test
- Even if 100 common shares are owned by a foreigner, but 1 million
non-voting preferred shares are owned by Filipinos, the corporation does
not comply with the Constitutional requirement; still, only the foreigners
have voting rights in the election of directors
- Beneficial ownership must be in the hands of Filipinos
Control Test & Grandfather Rule
- The control test is the prevailing mode of determining whether or not a
corporation is a Filipino corporation; the Grandfather Rule, as a general
rule, is supplementary
- The control test was taken from R.A. 7042, as amended by R.A. 8179, or
the Foreign Investments Act of 1991
13
Panuda, Philip Graham - Corporation Law 2022
-
-
-
-
Sec. 3, R.A. 7042: a corporation shall be considered a “Philippine
National” if it is:
1) A corporation organized under Philippine laws of which 60% of the
capital stock outstanding and entitled to vote is owned and held by
Filipino citizens; or
2) A corporation organized abroad and registered as doing business
in the Philippines under the Corporation Code of which 100% of
the capital stock entitled to vote belongs to Filipinos
Equation to determine the ultimate Filipino ownership of the subsidiary
corporation = (percentage of shares held by the second corporation in the
first) x (second corporation’s Filipino equity)
The general rule is that the control test will be applied and the grandfather
test will not be resorted to; but the exception to this is the grandfather rule
may still be applied despite the 60-40 compliance if there is doubt as to
the locus of the beneficial ownership and control (Narra Nickel case)
Still, the Grandfather Rule applies when the share of Filipinos in a
shareholder corporation is less than 60%
Corporation sole
- A corporation sole has no nationality
- “The Roman Catholic Apostolic Church in the Philippines has no
nationality and that the framers of the Constitution did not have in mind
the religious corporations sole when they provide the 60% requirement”
- What’s the effect of this? The 60% Filipino ownership requirement does
not apply to corporation soles
Heirs of Wilson Gamboa v. Teves
- Doctrine: “Both the voting control test and beneficial ownership test must be
applied to determine whether the corporation is a Philippine National”
- Facts:
- Issue:
- Ruling:
Narra Nickel Mining and Development Corp. v. Redmont Consolidated Mines,
Corp.
Roy III v. Herbosa
i.
Residence
- “...a corporation is in a metaphysical sense a resident of a place where its
principal office is located as stated in the Articles of Incorporation.”
- Foreign corporations may have a separate residence and domicile
j.
Tort liability and doctrine of corporate responsibility
14
Panuda, Philip Graham - Corporation Law 2022
❖ Tort liability
- “A corporation is liable, therefore, whenever a tortious act is committed by
an officer or agent under express direction or authority from the
stockholders or members acting as a body, or generally, from the
directors as the governing body.”
- Liability of corporations may be vicarious, or direct and personal
- “Under the primary rule of attribution, the corporation is liable based on
contract if the board of directors sanctioned the breach.”
- Direct corporate responsibility may be imposed under Art. 2176 NCC
- Vicarious liability may be based on quasi-delict under Art. 2180 NCC,
Arts. 102 and 104 RPC
- Tort obligation may concur with contractual obligation
❖ Doctrine of Corporate Responsibility
- The corporate negligence doctrine imposes the following duties on
hospitals:
1. To use reasonable care in the maintenance of safe and adequate
facilities and equipment
2. To select and retain only competent physicians
3. To oversee as to patient care all persons who practice medicine
within its walls; and
4. To formulate, adopt, and enforce adequate rules and policies to
ensure quality care for its patients
- This means that the liability of the hospital as a corporate entity is direct
and primary, not merely vicarious
- The defense of diligence in the selection and supervision of employees is
only available under Art. 2180 on vicarious liability; not to direct corporate
liability under Art. 2176
Read pp. 233-235 of Torts and Damages
k. Right to moral damages
Read pp. 895-989 of Torts and Damages
Noell Whessoe, Inc. v. Independent Testing Consultants, Inc.
l. Constitutional Rights
m. Criminal liability
❖ Corporations are now criminally liable under the RCCP; but it is necessary for the
penal law to expressly include corporations as an entity that could violate the said
law, and the legislature must prescribe a criminal procedure applicable to
corporations
❖ Sen. Franklin Drilon: this concept (of making corporations criminally liable) is in
compliance with our obligations under the UN Convention Against Corruption to
prevent the use of the corporation as a vehicle for committing crimes
15
Panuda, Philip Graham - Corporation Law 2022
❖ “A crime is the doing of that which the penal code forbids to be done, or omitting
to do what it commands.”
❖ Criminal liability is expressed in the RCCP: Arts. 17, 161, 165, 166, 167
❖ A civil case may be instituted against the corporation separately
Classes of Corporations
❖ Are public companies and public corporations the same? No. Public companies are
those that are publicly-listed, meaning, their shares are listed in the stock exchange. On
the other hand, public corporations are corporations that are organized for the
government of a portion of a State for the purpose of serving general good and welfare.
As to the number of components: (How many incorporators are there?)
Aggregate Corporation
-
More than one member
“Defined as an artificial body of men, composed of diverse
individuals, th ligaments of which body, the franchises and
liberties bestowed upon it, bind and unite all into one, and
consists the whole frame and essence of the corporation”
Corporation Sole
-
Only one person or member
Sec. 108, RCCP: formed by the chief archbishop, bishop,
priest, minister, rabbi or other presiding elder of a religious
denomination, sect or church for the purpose of
administering and managing, as trustee, the affairs,
property, and temporalities of such religious denomination,
sect, or church
One Person Corporation
-
A single stockholder; though in practice, it may be
managed by more than one person
As to functions:
Public Corporation
A corporation organized for the government of a portion of a State
(cities and municipalities) for the purpose of serving general good
and welfare
Private Corporation
A corporation formed for some private purpose, benefit, aim or
end; may be stock or non-stock
As to the manner of creation:
Corporation created by special law
Created by Congress; GOCC
16
Panuda, Philip Graham - Corporation Law 2022
Corporation created under a general law
Created under the RCCP
Corporations by prescription
A corporation not formally organized, but is
recognized by immemorial usage as a
corporation, with rights and duties
enforceable under the law
As to legal status:
De jure corporation
Organized in accordance with requirements
of law
De facto corporation
There exists a flaw in its incorporation, but
there is colorable compliance with the
requirements of law
Corporation by estoppel
-
-
A group of persons which holds itself
out as a corporation and enters into a
contract with a third person on the
strength of such appearance
Ex: Roman Catholic Church? (p. 139)
As to existence of stocks:
Stock corporation
A corporation with capital stock that is divided
into shares and is authorized to distribute to
holders of such shares, dividends, or
allotments of the surplus profits on the basis
of the shares held
Non-stock corporation
A corporation that has no capital stock, does
not issue stocks, and does not distribute
dividends to its members
As laws of incorporation:
Domestic corporation
A corporation formed, organized or existing
under Philippine laws
Foreign corporation
A corporation formed, organized or existing
under laws other than those of the Philippines
and whose laws allow Filipino citizens and
corporations to do business in its own country
or State
17
Panuda, Philip Graham - Corporation Law 2022
As to relationship: (what is a conglomerate relationship?)
Subsidiary
“A corporation more than 50% of the voting stock of which is owned or
controlled directly or indirectly through one or more intermediaries by
another corporation, which thereby become a parent company.”
Affiliate
“A corporation that directly or indirectly, through one or more
intermediaries, is controlled by, or is under the control of another
corporation, which thereby becomes its parent company”
Parent corporation
“A corporation that has control over another corporation directly or
indirectly through one or more intermediaries. It is the corporation that
owes all or substantially all or the controlling shares in the subsidiary.”
Special Types of Corporations under the RCCP:
Close Corporation
Special Corporations
Ecclesiastial and Lay Corporations
Ecclesiastical corporations
Corporations composed entirely of spiritual
persons like bishops, deacons, and the like
and are established for the furtherance of
religion and for perpetuating the rights of a
church
Lay corporations
All corporations other than ecclestiastical
Additional references from the syllabus:
- Sec. 2, par. 13 of the 1987 Administrative Code (E.O. 297)
(13) Government-owned or controlled corporation refers to any agency organized
as a stock or non-stock corporation, vested with functions relating to public needs
whether governmental or proprietary in nature, and owned by the Government
directly or through its instrumentalities either wholly, or, where applicable as in
the case of stock corporations, to the extent of at least fifty-one (51) per cent of
its capital stock: Provided, That government-owned or controlled corporations
may be further categorized by the Department of the Budget, the Civil Service
Commission, and the Commission on Audit for purposes of the exercise and
discharge of their respective powers, functions and responsibilities with respect
to such corporations.
- Sec. 16, Art. XII of 1987 Const.
18
Panuda, Philip Graham - Corporation Law 2022
-
SECTION 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Government-owned
or controlled corporations may be created or established by special charters in
the interest of the common good and subject to the test of economic viability.
Arts. 44 & 45 NCC
Article 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose,
created by law; their personality begins as soon as they have been constituted
according to law;
(3) Corporations, partnerships and associations for private interest or purpose to
which the law grants a juridical personality, separate and distinct from that of
each shareholder, partner or member. (35a)
Article 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article
are governed by the laws creating or recognizing them.
Private corporations are regulated by laws of general application on the subject.
Partnerships and associations for private interest or purpose are governed by the
provisions of this Code concerning partnerships. (36 and 37a)
BSP v. COA
CIR v. Club Filipino
Liban v. Gordon
Republic v. Heirs of Bernabe
❖ Corporation by Prescription
❖ “The issuance of ‘share certificates’ is not, by itself, proof that the corporation is a stock
corporation.”
❖ “A public corporation has been defined as such as are created for the purpose of
government and management of public affairs founded by the State and managed by it
for governmental purposes.”
❖ Requisites for a GOCC:
1. There must be an agency organized as a stock or non-stock corporation;
2. The corporation must be vested with functions relating to public needs whether
governmental or proprietary in nature;
3. The corporation must be owned directly by the government or through its
instrumentalities either wholly, or where applicable as in the case of stock
corporations, to the extent of at least 51% of its capital stock
❖ GOCCs are regarded as private corporations; GOCCs may be Chartered GOCCs, or
non-chartered GOCCS
❖ PNRC (Philippine National Red Cross): a private institution while also being a public
service organization that is an auxiliary of the government in the humanitarian field
19
Panuda, Philip Graham - Corporation Law 2022
❖ When is the ⅔ requirement applicable?
1. To extend or shorten corporate trm
2. To increase or decrease capital stock
3. To incur, create, or increase bonded indebtedness
4. To deny pre-emptive rights after incorporation…
5. To sell, lease, exchange, mortgage, pledge, or otherwise dispose of all or
substantially all of corporate assets
6. To invest in another corporation…
7. To declare stock dividends
8. To enter into management contract
9. To amend the articles of incorporation
10. To merge or consolidate with another corporation or other corporations
11. To voluntarily dissolve the corporation where major creditors are affected
❖ When is the majority vote required?
1. To enter into management contract…
2. To adopt, amend or repeal the By-laws
3. Voluntary dissolution where no creditor is affected
Components of Corporations
Nature and Classes of Shares
❖ Kinds of shares:
1. Common or preferred shares
- Preferred shares may be cumulative or non-cumulative; participating or
non-participating; and preferred as to dividends, or preferred as to assets
upon distribution
- Preferred shares may also be convertible shares
2. Voting or non-voting shares
3. Par value or no par value shares
4. Treasury shares
5. Redeemable shares
6. Founder’s shares
❖ Dividends are only payable when the corporation earns profits; up to the discretion of the
Board of Directors
20
Panuda, Philip Graham - Corporation Law 2022
Title II: Incorporation and Organization
❖ “Incorporation means the performance of conditions, acts, deeds, and writings by
incorporators, and the official acts, certification or records, which give the corporation its
existence.”
1.
2.
3.
4.
5.
6.
Incorporation
Effect if not Incorporated
Electronic filing
Documentary requirements for incorporation
Organized under existing laws
Agreement to incorporate
21
Panuda, Philip Graham - Corporation Law 2022
SEC. 10. Number and Qualifications of Incorporators.
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:
Provided, That 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. 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.
A corporation with a single stockholder is considered a One Person Corporation as
described in Title XIII, Chapter III of this Code.
1. Incorporators
Basic qualifications (4)
2. Persons who can be incorporators
a. Reason for the new rule
b. Meaning of associations
c. Practice of profession
d. Rural banks
e. Local government units
f. Nominees
g. Approval to act as incorporator
3. Number of incorporators and shares
4. Capacity
5. Gender
6. Philippine residence not required
7. No citizenship requirement
8. Accomplished fact
22
Panuda, Philip Graham - Corporation Law 2022
SEC. 11. Corporate Term.
A corporation shall have perpetual existence unless its articles of incorporation provides
otherwise. Corporations with certificates of incorporation issued prior to the effectivity of this
Code, and which continue to exist, shall have perpetual existence, unless the corporation, upon
a vote of its stockholders representing a majority of its outstanding capital stock, notifies the
Commission that it elects to retain its specific corporate term pursuant to its articles of
incorporation: Provided, That any change in the corporate term under this section is without
prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of
this Code.
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: Provided, further, That such extension of the
corporate term shall take effect only on the day following the original or subsequent expiry
date(s).
A corporation whose term has expired may apply for a revival of its corporate existence,
together with all the rights and privileges under its certificate of incorporation and subject to all
of its duties, debts and liabilities existing prior to its revival. Upon approval by the Commission,
the corporation shall be deemed revived and a certificate of revival of corporate existence shall
be issued, giving it perpetual existence, unless its application for revival provides otherwise.
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.
1.
2.
3.
4.
5.
6.
Basic rules
Rationale for perpetual term
Perpetual term of existing corporation
Option to have a fixed term
Extension of term
Revival of corporate existence
23
Panuda, Philip Graham - Corporation Law 2022
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.
1. Minimum Authorized Capital
- Authorized Capital Stock is the amount fixed in the articles of incorporation to be
subscribed and paid by the stockholders of the corporation.
- Subscribed Capital is that portion of the authorized capital stock that is covered
by subscription agreements whether fully paid or not.
- Paid Up Capital is the portion of the authorized capital that is subscribed and
paid;
- Paid-In Capital is the amount of outstanding capital stock and additional paid-in
capital (APIC) or premium paid over the par value of the shares. APIC is any
additional contribution by shareholders over the par value of shares.
- Outstanding Capital Stock refers to the total shares of stock issued to subscribers
or stockholders, whether or not fully or partially paid except treasury shares so
long as there is a binding subscription agreement.
- Capital includes properties and assets of the corporation that are used for its
business or operation.
- Stated Capital is the sum of the par value of all issued par value shares, the
entire amount received for no-par value shares and any amount transferred by a
stock dividend
2. Paid-up Capital
3. Initial Subscribed and Paid-up Capital
- The investment of the subscribers is the primary source of the capital that the
corporation will use for its operations
- There is no required minimum subscribed capital and paid-up capital under the
RCCP. The exceptions are corporations governed by special laws that require a
minimum subscribed and/or paid-up capital.
- The general rule is that the payment of paid-up capital may be in full or in part of
the subscription price; the exception is if the subscription contract requires full
payment of the subscription price.
Roy v. Herbosa; how many voting/non-voting shares can you apply?
❖ Justice Carpio cited the Gamboa v. Finance Sec. Teves ruling in saying that the mere
legal title is insufficient to meet the 60% Filipino-owned capital requirement; it should be
full beneficial ownership coupled with 60% of the voting rights to meet the constitutional
requirement to operate a public utility
❖ “In short, the 60-40 ownership requirement in favor of Filipino citizens must apply
separately to each class of shares, whether common, preferred non-voting, preferred
voting or any other class of shares.” (J. Carpio’s separate opinion)
24
Panuda, Philip Graham - Corporation Law 2022
SEC. 13. Contents of the Articles of Incorporation.
All corporations shall file with the Commission articles of incorporation in any of the official
languages, duly signed and acknowledged or authenticated, in such form and manner as may
be allowed by the Commission, containing substantially the following matters, except as
otherwise prescribed by this Code or by special law:
(a) The name of the corporation;
(b) The specific purpose or purposes for which the corporation is being formed. Where a
corporation has more than one stated purpose, the articles of incorporation shall indicate
the primary purpose and the secondary purpose or purposes: Provided, That a nonstock
corporation may not include a purpose which would change or contradict its nature as
such;
(c) The place where the principal office of the corporation is to be located, which must be
within the Philippines;
(d) The term for which the corporation is to exist, if the corporation has not elected
perpetual existence;
(e) The names, nationalities, and residence addresses of the incorporators;
(f) The number of directors, which shall not be more than fifteen (15) or the number of
trustees which may be more than fifteen (15);
(g) The names, nationalities, and residence addresses of persons who shall act as
directors or trustees until the first regular directors or trustees are duly elected and
qualified in accordance with this Code;
(h) If it be a stock corporation, the amount of its authorized capital stock, number of
shares into which it is divided, the par value of each, names, nationalities, and residence
addresses of the original subscribers, amount subscribed and paid by each on the
subscription, and a statement that some or all of the shares are without par value, if
applicable;
(i) If it be a nonstock corporation, the amount of its capital, the names, nationalities, and
residence addresses of the contributors, and amount contributed by each; and
(j)Such other matters consistent with law and which the incorporators may deem
necessary and convenient.
An arbitration agreement may be provided in the articles of incorporation pursuant to
Section 181 of this Code.
25
Panuda, Philip Graham - Corporation Law 2022
SEC. 14 Form of Articles of Incorporation
1. Articles of Incorporation as Charter and Contract
2. Substantial Compliance
3. Name
4. Purpose Clause
a. Rationale of purpose clause
- For the investor to know where and in what kind of business or activity his
money will be invested in
- For directors and officers to be informed regarding the scope of business
they are authorized to act; and
- For a third person to be aware if the transaction he has with the
corporation is within the authority of the corporation
b. General limitations
c. Questions regarding the purpose
- The legality of the purpose of a corporation cannot be attacked
collaterally. Instead, a person must file a case to question if the purpose
of the corporation is legal.
5. Principal Office
- Importance of the principal office:
- Address must be specific
- If main office is transferred, within the same city or municipality, it must be
declared in the General Information Sheet within 15 days from its transfer
- What is the importance of indicating the specific address? For tax purposes, and
summons.
6. Corporate Term
- If a corporation’s term expires, but the corporation continues to operate in good
faith, it may be deemed a de facto corporation, or a corporation by estoppel
(under certain conditions)
7. Incorporators
8. Directors
- Should not exceed 15 directors
9. Capital Stock
- Both the RCCP and Corporation Code do not impose a minimum capital stock
10. Paid-up Capital
- Paid-up capital may be in the form of property; of which the value must be
ascertained by the SEC
11. Treasurer’s Certification
12. Effect if Sole Proprietorship is Organized
- Something about Deed of Assignment
- Excellent Quality Apparel, Inc. v. Win Multi Rich Builders
13. Foreign Equity
A. Domestic Market Enterprise
- Includes “holding companies”
B. Retail Business
26
Panuda, Philip Graham - Corporation Law 2022
-
“Retail business is limited to Filipinos depending on the capitalization.”
Sec. 3(1) of R.A. 8762 defines retail trade as “any act, occupation or
calling of habitually selling direct to the general public merchandise,
commodities or goods for consumption.”
- Requisites of a retail business: 1) the person or entity must be selling
merchandise, commodities, or goods; 2) the sale must be direct to the
general public; and 3) the merchandise, commodities, or goods are for
consumption
- Consumer goods are those that are used or bought for use primarily for
personal, family, or household purposes.
- Producer goods have been defined as goods that are factors in the
production of other goods and that satisfy wants only indirectly and are
also called auxiliary goods, instrumental goods, and intermediate goods.
C. Mass Media
- Sec. 1 of PD No. 1018 defines mass media as “print medium of
communication, which includes all newspapers, periodicals, magazines,
journals, and publications and all advertising therein, and billboards, neon
signs and the like, and thee broadcast medium of communication, which
includes radio and television broadcasting in all their aspects and all other
cinematographic or radio promotions and advertising.”
D. Real Estate Companies
E. Anti-Dummy Law
27
Panuda, Philip Graham - Corporation Law 2022
SEC. 15. Amendment of Articles of Incorporation.
Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, 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, without prejudice to the appraisal right
of dissenting stockholders in accordance with the provisions of this Code. The articles of
incorporation of a nonstock corporation may be amended by the vote or written assent of
majority of the trustees and at least two-thirds (2/3) of the members. The original and amended
articles together shall contain all provisions required by law to be set out in the articles of
incorporation. Amendments to the articles shall be indicated by underscoring the change or
changes made, and a copy thereof duly certified under oath by the corporate secretary and a
majority of the directors or trustees, with a statement that the amendments have been duly
approved by the required vote of the stockholders or members, shall be submitted to the
Commission. The amendments shall take effect upon their approval by the Commission or from
the date of filing with the said Commission if not acted upon within six (6) months from the date
of filing for a cause not attributable to the corporation
1. Amendments
2. Requirements (6)
3. Express and Implied Approval (by SEC)
- The amendments shall take effect upon the express approval of the SEC.
- But the same may take effect within 6 months (counting from the filing with the
SEC) if the Commission has not acted upon it, and the delay is not attributable to
the corporation.
4. Documentary Requirements
1. Amended AOI
2. Directors’ or Trustees’ Certificate
3. Monitoring Clearance issued by the Compliance Monitoring Division
4. Secretary’s Certificate
5. Provisions to be Amended
- Amendment cannot be allowed if it goes against the nature of the corporation.
- Accomplished Fact Rule: refers to provisions of the AOI which cannot be
amended since they are accomplished facts (i.e. names of incorporators, the
number of incorporators)
6. Effect of Amendment
7. Written Assent of Stockholders
- The general rule is that a stockholders’ meeting is not required to approve
amendments; the exception to this is if the amendment is to extend/shorten the
corporate term, and if the amendment involves the increase or decrease of the
capital stock.
8. Who can Question Amendments
- Only real parties-in-interest
28
Panuda, Philip Graham - Corporation Law 2022
-
In the United Church of Christ in the Philippines, Inc. v. Bradford United Church
of Christ, Inc., the Court held that the UCCP was not allowed to question the
validity of the AOI amendments of BCCI since it was not a member of BCCI
29
Panuda, Philip Graham - Corporation Law 2022
SEC. 16. Grounds When Articles of Incorporation or Amendment May be Disapproved.
The Commission may disapprove the articles of incorporation or any amendment thereto if the
same is not compliant with the requirements of this Code: Provided, That the Commission shall
give the incorporators, directors, trustees, or officers a reasonable time from receipt of the
disapproval within which to modify the objectionable portions of the articles or amendment. The
following are grounds for such disapproval:
(a)The articles of incorporation or any amendment thereto is not substantially in
accordance with the form prescribed herein;
(b)The purpose or purposes of the corporation are patently unconstitutional, illegal,
immoral or contrary to government rules and regulations;
(c)The certification concerning the amount of capital stock subscribed and/or paid is
false; and
(d)The required percentage of Filipino ownership of the capital stock under existing laws
or the Constitution has not been complied with.
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.
1. Ministerial Duty
- The general rule is that the AOI must be approved; the exception is provided in
Sec. 16. This provision empowers the SEC to reject AOIs beyond its ministerial
duty to approve them.
2. Rejection not based on the submitted articles
- The SEC may consult with other agencies, even if the corporation has submitted
all the necessary documents, if the establishment, organization, or operation of
the corporation is inconsistent with the declared national policies.
- 5 items under p. 236
3. Illegal or immoral purposes
4. False certification
5. Time to correct
6. Nationalization requirement
7. Endorsement by government agencies
30
Panuda, Philip Graham - Corporation Law 2022
SEC. 17. Corporate Name.
No corporate name shall be allowed by the Commission if it is not distinguishable from that
already reserved or registered for the use of another corporation, or if such name is already
protected by law, or when its use is contrary to existing law, rules and regulations. A name is not
distinguishable even if it contains one or more of the following: (a) The word “corporation”,
“company”, “incorporated”, “limited”, “limited liability”, or an abbreviation of one of such words;
and (b) Punctuations, articles, conjunctions, contractions, prepositions, abbreviations, different
tenses, spacing, or number of the same word or phrase. The Commission, upon determination
that the corporate name is: (1) not distinguishable from a name already reserved or registered
for the use of another corporation; (2) already protected by law; or (3) contrary to law, rules and
regulations, may summarily order the corporation to immediately cease and desist from using
such name and require the corporation to register a new one. The Commission shall also cause
the removal of all visible signages, marks, advertisements, labels, prints and other effects
bearing such corporate name. Upon the approval of the new corporate name, the Commission
shall issue a certificate of incorporation under the amended name.
If the corporation fails to comply with the Commission’s order, the Commission may hold the
corporation and its responsible directors or officers in contempt and/or hold them
administratively, civilly and/or criminally liable under this Code and other applicable laws and/or
revoke the registration of the corporation.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Basic Policy
What must be proved by oppositor
Power of SEC
Distinguishability Test
Priority of Adoption Rule
Name in Articles of Incorporation
SEC Rules
Change of Name
Corporations with Same Name
❖ Prior right
❖ Doctrine of secondary meaning
❖ Distinguishability test
31
Panuda, Philip Graham - Corporation Law 2022
SEC. 18. Registration, Incorporation and Commencement of Corporate Existence.
A person or group of persons desiring to incorporate shall submit the intended corporate name
to the Commission for verification. If the Commission finds that the name is distinguishable from
a name already reserved or registered for the use of another corporation, not protected by law
and is not contrary to law, rules and regulations, the name shall be reserved in favor of the
incorporators. The incorporators shall then submit their articles of incorporation and bylaws to
the Commission. If the Commission finds that the submitted documents and information are fully
compliant with the requirements of this Code, other relevant laws, rules and regulations, the
Commission shall issue the certificate of incorporation. A private corporation organized under
this Code commences its corporate existence and juridical personality from the date the
Commission issues the certificate of incorporation under its official seal and thereupon the
incorporators, stockholders/members and their successors shall constitute a body corporate
under the name stated in the articles of incorporation for the period of time mentioned therein,
unless said period is extended or the corporation is sooner dissolved in accordance with law.
1.
2.
3.
4.
Certificate of Incorporation
Contract law in corporate law
Promoters
Underwriters
32
Panuda, Philip Graham - Corporation Law 2022
SEC. 19. De facto Corporations.
The due incorporation of any corporation claiming in good faith to be a corporation under this
Code, and its right to exercise corporate powers, shall not be inquired into collaterally in any
private suit to which such corporation may be a party. Such inquiry may be made by the Solicitor
General in a quo warranto proceeding.
1.
2.
3.
4.
5.
6.
7.
Defective corporations
Requisites of a de facto corporation
Distinguished from de jure corporations
Policy considerations
Nature and status of de facto corporations
Dissolved corporations
Effect of non-filing of by-laws
- Sawadjaan v. CA: a corporation may be considered a de facto corporation
because of its failure to submit their by-laws timely
- TBA: the filing of by-laws is a condition-subsequent, and it is a rule that
non-compliance with conditions subsequent may not affect the existence of a
corporation, although it is a ground for revocation of the certificate of
incorporation
De Facto Corporations
- Certificate of incorporation indispensable
- Exists until State questions its existence
❖
1.
2.
3.
Requisites of a de facto corporation (Sec. 20):
A valid law under which the corporation is organized
An attempt in good faith to incorporate
An assumption of corporate powers
33
Panuda, Philip Graham - Corporation Law 2022
SEC. 20. Corporation by Estoppel. – All persons who assume to act as a corporation knowing it
to be without authority to do so shall be liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof: Provided, however, That when any such
ostensible corporation is sued on any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use its lack of corporate personality as a
defense. Anyone who assumes an obligation to an ostensible corporation as such cannot resist
performance thereof on the ground that there was in fact no corporation.
1.
2.
3.
4.
5.
Estoppel
Liability as general partner
When not applicable
Cannot override jurisdictional requirements
Rules of court provision
34
Panuda, Philip Graham - Corporation Law 2022
SEC. 21. Effects of Non-Use of Corporate Charter and Continuous Inoperation. – If a
corporation does not formally organize and commence its business within five (5) years from the
date of its incorporation, its certificate of incorporation shall be deemed revoked as of the day
following the end of the five (5)-year period. However, if a corporation has commenced its
business but subsequently becomes inoperative for a period of at least five (5) consecutive
years, the Commission may, after due notice and hearing, place the corporation 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. Upon
compliance by the corporation, the Commission shall issue an order lifting the delinquent status.
Failure to comply with the requirements and resume operations within the period given by the
Commission shall cause the revocation of the corporation’s certificate of incorporation. The
Commission shall give reasonable notice to, and coordinate with the appropriate regulatory
agency prior to the suspension or revocation of the certificate of incorporation of companies
under their special regulatory jurisdiction
1. Conditions Subsequent
2. Period to Organize
3. Effect of Failure to Organize and Commence Business
- Corporation’s powers shall be deemed dissolved; certificate of incorporation shall
be deemed revoked
4. Delinquency for Non-Operation
- SEC may place a corporation under delinquent status if it fails to operate for at
least 5 consecutive years
5. Meaning of Organization
- “The election of officers, providing for the subscription and payment of the capital
stock, the adoption of by-laws, and such other similar steps.”
6. Meaning of Commencement of Business
- “...shall be considered to have commenced the transaction of its business when it
has performed preparatory acts geared towards the fulfillment of the purposes for
which it was established…”
35
Panuda, Philip Graham - Corporation Law 2022
Title III: Board of Directors/Trustees and Officers
Section 22. The Board of Directors or Trustees of a Corporation; Qualification and Term. Unless otherwise provided in this Code, the board of directors or trustees shall exercise the
corporate powers, condict all business, and control all properties of the corporation.
Directors shall be elected for a term of one (10 Year from among the holders of stocks
registered in the corporation's book while trustees shall be elected for a term not exceeding
three (3) years from among the members of the corporation. 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.
The board of the following corporations vested with public interest shall have independent
directors constituting at least twenty percent (20%) of such board:
(a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as
"The Securities Regulation Code", namely those whose securities are registered with the
Commission, corporations listed with an exchange or with assets of at least Fifty million
pesos (50,000,000.00) and having two hundred (200) or more holders of shares, each
holding at least one hundred (100) shares of a class of its equity shares;
(b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service
business, preneed, trust and insurance companies and other financial intermediaries; and
(c) Other corporations engaged in businesses vested with public interest similar to the
above, as may be determined by the Commission, after taking into account relevant factors
which are germane to the objective and purpose of requiring the election of an independent
director, such as the extent of minority ownership, type of financial products or securities
issued or offered to investors, public interest involved in the nature of business operations,
and other analogous factors.
An independent director is a person who apart from shareholdings and fees received from any
business or other relationship which could, or could reasonable be received to materially
interfere with the exercise of independent judgment in carrying out the responsibilities as a
director.
Independent directors must be elected by the shareholders present or entitled to vote in
absentia during the election of directors. Independent directors shall be subject to rules and
regulations governing their qualifications, disqualifications, voting requirements, duration of term
and term limit, maximum number of board membership and other requirements that the
Commission will prescribed to strengthen their independence and align with international best
practices.
36
Panuda, Philip Graham - Corporation Law 2022
1. Corporate management
2. Reason for concentration of power
3. Theories on sources of power
a. Agency theory: all powers reside in the stockholders and are just delegated to the
directors as agents
b. Concession theory: powers of the directors emanate from the State
c. Platonic guardian theory: every corporation must have a board, and the board is
an aristocracy which exercises control over corporate affairs
d. Sui generis theory: directors are not agents but rather fiduciaries
4. Independence
- “...directors control all businesses of the corporation”
5. Business judgment rule
- “Under this rule, the will of the majority of thee Board members controls in
corporate affairs, and contracts intra vires entered into by the board of directors
are binding on the corporation and courts will not interfere unless such contracts
are so unconscionable and oppressive as to amount to a wanton destruction of
rights of the minority.”
6. Resolution
7. Ratification
8. Proxy not allowed
9. Term
- For non-stock corporations, the term is 3 years
37
Panuda, Philip Graham - Corporation Law 2022
Section 23. 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 posseses all of the qualifications and
none of the disqualifications and none of the disqualifications set forth in this Code.
At all elections of directors or trustees, there must be present, either in person or through a
representative authorized to act by written proxy, the owners of majority of the outstanding
capital stock, or if there be no capital stock, a majority of the members entitled to vote. When so
authorized in the bylaws or by a majority of the board of directors, the stockholders or members
may also vote through remote communication or in absentia: Provided, That the right to vote
through such modes may be exercised in corporations vested with public interest,
notwithstanding the absence of a provision in the bylaws of such corporations.
A stockholder or member who participates through remote communication or in absentia, shall
be deemed present for purposes of quorum.
The election must be by ballot if requested by any voting stockholder or member.
In stock corporations, stockholders entitled to vote shall have the right to vote the number of
shares of stock standing in their own names in the stock books of the corporation at the time
fixed in the bylaws or where the bylaws are silent at the time of the election. The said
stockholder may: (a) vote such number of shares for as many persons as there are directors to
be elected; (b) cumulate said shares and give one (1) candidate as many votes as the number
of directors to be elected multiplied by the number of shares owned; or (c) distribute them on the
same principle among as many candidates as may be seen fit: Provided, That the total number
of votes cast shall not exceed the number of shares owned by the stockholders as shown in the
books of the corporation multiplied by the whole number of directors to be elected: Provided,
however, That no delinquent stock shall be voted. Unless otherwise provided in the articles of
incorporation or in the bylaws, members of nonstock corporations may cast as many votes as
there are trustees to be elected by may not cast more than one (1) vote for one (1) candidate.
Nominees for directors or trustees receiving the highest number of votes shall be declared
elected.
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.
The directors or trustees elected shall perform their duties as prescribed by law, rules of good
corporate governance, and bylaws of the corporation
1. Manner of election
- Who can be elected? “Every qualified stockholder or member can be a candidate
in the election of the members of the Board… The exception is a corporation with
38
Panuda, Philip Graham - Corporation Law 2022
2.
3.
4.
5.
6.
7.
8.
founders’ shares where the founders are given the exclusive right to be elected
as directors.”
- The general rule is that any qualified stockholder can be a candidate in the
elections; the exception is if the corporation
Plurality of votes
Quorum
- Without a quorum, the election will be invalid
Presence of candidate
- A director may be elected in absentia
Cumulative voting
- Defined as “a method of concentrating votes devised to give sufficient opportunity
to minority shareholders to secure representation in the board.”
- Formula to determine the number of shares needed to elect a single director:
(S) divided by (D+1) plus (1) = number of shares needed to elect one director
Election of incomplete directors
Failure to hold an election
Election contests
39
Panuda, Philip Graham - Corporation Law 2022
Section 24. Corporate Officers. - Immediately after their election, the directors of a corporation
must formally organize an elect: (a) a president, who must be a director; (b) a treasurer, who
must be a resident of the Philippines; and (d) such other officers as may be provided in the
bylaws. If the corporation is vested with public interest, the board shall also elect a compliance
officer. The same person may hold two (2) or more positions concurrently, except that no one
shall act as president and secretary or as president and treasurer at the same time, unless
otherwise allowed in this Code.
The officers shall manage the corporation and perform such duties as may be provided in the
bylaws and/or as resolved by the board of directors.
1. Corporate Officers - Corporate officers are officers who are designated or specified as
such or given that character in the law, the Articles of Incorporation, and the By-Laws of
the corporation.
2. Qualification and Functions
3. Concurrent Positions
4. Corporate Officer Concurrently an Employee
5. Anti-Dummy Law
- “Foreigners cannot be officers in a wholly nationalized and partly nationalized
corporations.”
- “However… a foreigner can be elected as a director in a partly nationalized
activity in proportion to the equity participation allowed to foreigners.”
6. Authority of Officers
- Sources: law, AOI, By-Laws, authorization from the Board, or those inherent in
their office
7. Implied Authority
8. Practice, Custom and Policy
9. Ratification
10. Agency by Estoppel
11. De Facto Officers
12. Compensation
40
Panuda, Philip Graham - Corporation Law 2022
Section 25. Report of Election of Directors, Trustees and Officers, Non-holding of Election and
Cessation from Office. - Within thirty (30) days after the election of the directors, trustees and
officers of the corporation, the secretary, or any other officer of the corporation, the secretary, or
any other officer of the corporation, shall submit to the Commission, the names, nationalities,
shareholdings, and residence addresses of the directors, trustees and officers elected.
The non-holding of elections and the reasons therefor shall be reported to the Commission
within thirty (30) days from the date of the scheduled election. The report shall specify a new
date for the election, which shall not be later than sixty (60) days from the scheduled date.
If no new date has been designated, or if the rescheduled election is likewise not held, the
Commission may, upon the application of a stockholder, member, director or trustee, and after
verification of the unjustifiable non-holding of the election, summarily order that an election be
held. The Commission shall have the power to issue such orders as may be appropriate,
including other directing the issuance of a notice stating the time and place of the election,
designated presiding officer, and the record date or dates for the determination of stockholders
or members entitled to vote.
Notwithstanding any provision of the articles of incorporation or by laws to the contrary, the
shares of stock or membership represented at such meeting and entitled to vote shall constitute
a quorum for purposes of conducting an election under this section.
Should a director, trustee or officer die, resign or in any manner case to hold office, the
secretary or the director, trustee or officer of the corporation, shall, within seven (7) days form
knowledge thereof, report in writing such fact to the Commission.
1. Rationale
41
Panuda, Philip Graham - Corporation Law 2022
Section 26. Disqualification of Directors, Trustees or Officers. - A person shall be disqualified
from being a director, trustee or officer of any corporation if, within five (5) years prior to the
election or appointment as such, the person was:
(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 foreign regulatory authority for acts, violations or misconduct
similar to those enumerated in paragraphs (a) and (b) above.
The foregoing is without prejudice to qualifications or other disqualifications, which the
Commission, the primary regulatory agency, or Philippine Competition Commission may impose
in its promotion of good corporate governance or as a sanction in its administrative proceedings.
42
Panuda, Philip Graham - Corporation Law 2022
Section 27. Removal of Director or Trustees. - Any director or trustee of a corporation may be
removed from office by 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 member entitled to vote: Provided, That such removal shall take place either at a
regular meeting of the corporation or at a special meeting called for the purpose, and in either
case, after previous notice to stockholders or members of the corporation of the intention to
propose such removal at the meeting. A special meeting of the stockholders or members for the
purpose of removing any director or trustee must be called by the secretary on order of the
president, or upon written demand of stockholders representing or holding at least a majority of
the outstanding capital stock, or a majority of the members entitled to vote. If there is no
secretary, or the secretary, despite demand, fails or refuses to call the special meeting or to give
notice thereof, the stockholder or member of the corporation signing the demand may call the
special meeting or to give notice thereof, the stockholder or member of the corporation signing
the demand may call for the meeting by directly addressing the stockholders or members.
Notice of the time and place of such meeting, as well as of the intention to propose such
removal, must be given by publication or by written notice prescribed in this Code. Removal may
be with or without cause: Provided, That removal without cause may not be used to deprive
minority stockholders or members of the right representation to which they may be entitled
under Section 23 of this Code.
The Commission shall, motu propio or upon verified complaint, and after due notice and
hearing, order the removal of a director or trustee elected despite the disqualification, or whose
disqualification arose or is discovered subsequent to an election. The removal of a disqualified
director shall be without prejudice to other sanctions that the Commission may impose on the
board of directors or trustees who, with knowledge of the disqualification, failed to remove such
director or trustee.
-
amotion
43
Panuda, Philip Graham - Corporation Law 2022
Section 28. Vacancies in the Office of Director or Trustee; Emergency Board. - Any vacancy
occurring in the board of directors or trustees other that by removal or expiration of term may be
filled by the vote of at least a majority of the remaining directors or trustees, if still constituting a
quorum; otherwise, said vacancies must be filled by the stockholders or members in a regular or
special meeting called for that purpose.
When the vacancy is due to term expiration, the election shall be held no later that the day of
such expiration at a meeting called for that purpose. When the vacancy arises as a result of
removal by the stockholders or members, the election may be held on the same day of the
meeting authorizing the removal and this fact must be so stated in the agenda and notice of said
meeting. In all other cases, the election must be held no later than forty-five (45) days from the
time the vacancy arose. A director or trustee elected to fill vacancy shall be referred to as
replacement director or trustee elected to fill a vacancy shall be referred to as replacement
director or trustee and shall serve only for the unexpired term of the predecessor in office.
However, 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. The action by the designated director
or trustee shall be limited to the emergency action necessary, and the term shall cease within a
reasonable time form the termination of the emergency or upon election of the replacement
director or trustee, whichever comes earlier. The corporation must notify the Commission within
three (3) days from the creation of the emergency board, stating therein the reason for its
creation.
Any directorship or trusteeship to be filled by a reason of an increase in the number of directors
or trustees shall be filled only by an election at a regular or at a special meeting of stockholders
or members duly called for the purpose, or in the same meeting authorizing the increase of
directors or trustees if so stated in the notice of the meeting.
In all elections to fill vacancies under this section, the procedure set forth in Section 23 and 25
of this Code shall apply.
44
Panuda, Philip Graham - Corporation Law 2022
Section 29. Compensation of Directors or Trustees. - In the absence of any provision in the
bylaws fixing their compensation, the directors or trustees shall not received any compensation
in their capacity as such, except for reasonable per diems: Provided, however, That the
stockholders representing at least a majority of the outstanding capital stock or majority of the
members may grant directors or trustees with compensation and approve the amount thereof at
a regular or special meeting.
In no case shall the total yearly compensation of directors exceed ten percent (10%) of the net
income before income tax of the corporation during the preceding year.
Directors or trustees shall not participate in the determination of their own per diems or
compensation.
Corporations vested with public interest shall submit to their shareholders and the Commission,
an annual report of the total compensation of each of their directors or trustees.
45
Panuda, Philip Graham - Corporation Law 2022
Section 30. Liability of Directors, Trustees or Officers. - Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly
and severally for all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons.
A director, trustee or officer shall not attempt to acquire, or any interest adverse to the
corporation in respect of any matter which has been reposed in them in confidence, and upon
which, equity imposes a disability upon themselves to deal in their own behalf; otherwise, the
said director, trustee or officer shall be liable as a trustee for the corporation and must account
for the profits which otherwise would have accrued to the corporation.
46
Panuda, Philip Graham - Corporation Law 2022
Section 31. Dealings of Directors, Trustees or Officers with the Corporation. - A contract of the
corporation with one (1) or more of its directors, trustees, officers or their spouses and relatives
within the fourth civil degree of consanguinity or affinity is voidable, at the option of such
corporation, unless all the following conditions are present:
(a) The presence of such director or trustee in the board meeting in which the contract was
approved was not necessary to constitute a quorum for such meeting;
(b) The vote of such director or trustee was not necessary for the approval of the contract;
(c) The contract is fair and reasonable under the circumstances;
(d) In case of corporations vested with public interest, material contracts are approved by at
least a majority of the independent directors voting to approved the material contract; and
(e) In case of an officer, the contract has been previously authorized by the board of directors.
Where any of the first three (3) conditions set forth in the preceding paragraph is absent, in the
case of a contract with a director or trustee, such contract may be ratified by the vote of the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of at least
two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That full
disclosure of the adverse interest of the directors or trustees involved is made at such meeting
and the contract is fair and reasonable under the circumstances.
47
Panuda, Philip Graham - Corporation Law 2022
Section 32. Contracts Between Corporations with Interlocking Directors. - Except in cases of
fraud, and provided the contract is fair and reasonable under the circumstances a contract
between two (2) or more corporations having interlocking directors shall not be invalidated on
that ground alone: Provided, That if the interest of the interlocking director in one (1) corporation
is substantial and the interest in the other corporation or corporations is merely nominal, the
contract shall be subject to the provisions of the preceding section insofar as the latter
corporation or corporations are concerned.
Stockholding exceeding twenty percent (20%) of the outstanding capital stock shall be
considered substantial for purposes of interlocking directors.
-
Interlocking Directorship: when one, or some, or all directors of a corporation are also
directors of another corporation
48
Panuda, Philip Graham - Corporation Law 2022
Section 33. Disloyalty of a Director. - Where a director, by virtue of such office, acquires a
business opportunity which should belong to the corporation, thereby obtaining profits to the
prejudice of such corporation, the director must account for and refund to the latter all such
profits, unless the act has been ratified by a vote of the stockholders owning or representing at
least two-thirds (2/3) of the outstanding capital stock. This provision shall be applicable,
nothwithstanding the fact that the director risked one's own funds in the venture.
1. Doctrine of Corporate Opportunity: “The duty of loyalty mandates that directors should
not give preference to their own personal amelioration by taking the opportunity
belonging to the corporation.”
2. Tests
- Interest or expectancy test
- Line of business test
- Fairness test
- Mixed test
- In our jurisdiction, the line of business test cannot apply; fairness and mixed test
can
3. Burden of Proof
4. Profits
5. Ratification
6. Financial capability
7. Trustees and officers not covered
- The law specifies that only directors
49
Panuda, Philip Graham - Corporation Law 2022
Section 34. Executive Management, and Other Special Committees. - If the bylaws so provide,
the board may create an executive committee composed of at least three (3) directors. Said
committee may act, by majority of vote of all its members, on such specific matters within the
competence of the board, as may be delegated to it in the bylaws or by majority vote of the
board, except with respect to the: (a) approval of any action for which shareholders' approval is
also required; (b) filing of vacancies in the board; (c) amendment or repeal of bylaws or the
adoption of new bylaws; (d) amendment or term is not amendable or repealable; and (e)
distribution of cash dividends to the shareholders.
The board of directors may create special committees of temporary or permanent nature and
determine the members' term, composition, compensation, powers, and responsibilities.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Purpose
By-laws
Composition
Authority
Quorum
Required vote
De facto officers
Board committees
Code of corporate governance
50
Panuda, Philip Graham - Corporation Law 2022
SEC. 45. Adoption of Bylaws. – For the adoption of bylaws by the corporation, the affirmative
vote of the stockholders representing at least a majority of the outstanding capital stock, or of at
least a majority of the members in case of nonstock corporations, shall be necessary. The
bylaws shall be signed by the stockholders or members voting for them and shall be kept in the
principal office of the corporation, subject to the inspection of the stockholders or members
during office hours. A copy thereof, duly certified by a majority of the directors or trustees and
countersigned by the secretary of the corporation, shall be filed with the Commission and
attached to the original articles of incorporation. Notwithstanding the provisions of the preceding
paragraph, bylaws may be adopted and filed prior to incorporation; in such case, such bylaws
shall be approved and signed by all the incorporators and submitted to the Commission,
together with the articles of incorporation. In all cases, bylaws shall be effective only upon the
issuance by the Commission of a certification that the bylaws are in accordance with this Code.
The Commission shall not accept for filing the bylaws or any amendment thereto of any bank,
banking institution, building and loan association, trust company, insurance company, public
utility, educational institution, or other special corporations governed by special laws, unless
accompanied by a certificate of the appropriate government agency to the effect that such
bylaws or amendments are in accordance with law.
SEC. 46. Contents of Bylaws. – A private corporation may provide the following in its bylaws: (a)
The time, place and manner of calling and conducting regular or special meetings of the
directors or trustees; (b) The time and manner of calling and conducting regular or special
meetings and mode of notifying the stockholders or members thereof; (c) The required quorum
in meetings of stockholders or members and the manner of voting therein; (d) The modes by
which a stockholder, member, director, or trustee may attend meetings and cast their votes; (e)
The form for proxies of stockholders and members and the manner of voting them; (f) The
directors’ or trustees’ qualifications, duties and responsibilities, the guidelines for setting the
compensation of directors or trustees and officers, and the maximum number of other board
representations that an independent director or trustee may have which shall, in no case, be
more than the number prescribed by the Commission; (g) The time for holding the annual
election of directors or trustees and the mode or manner of giving notice thereof; (h) The
manner of election or appointment and the term of office of all officers other than directors or
trustees; (i) The penalties for violation of the bylaws; (j) In the case of stock corporations, the
manner of issuing stock certificates; and (k) Such other matters as may be necessary for the
proper or convenient transaction of its corporate affairs for the promotion of good governance
and anti-graft and corruption measures. Page 24 of 73 An arbitration agreement may be
provided in the bylaws pursuant to Section 181 of this Code.
SEC. 47. Amendment to Bylaws. – A majority of the board of directors or trustees, and the
owners of at least a majority of the outstanding capital stock, or at least a majority of the
members of a nonstock corporation, at a regular or special meeting duly called for the purpose,
may amend or repeal the bylaws or adopt new bylaws. The owners of two-thirds (2/3) of the
outstanding capital stock or two-thirds (2/3) of the members in a nonstock corporation may
delegate to the board of directors or trustees the power to amend or repeal the bylaws or adopt
51
Panuda, Philip Graham - Corporation Law 2022
new bylaws: Provided, That any power delegated to the board of directors or trustees to amend
or repeal the bylaws or adopt new bylaws shall be considered as revoked whenever
stockholders owning or representing a majority of the outstanding capital stock or majority of the
members shall so vote at a regular or special meeting. Whenever the bylaws are amended or
new bylaws are adopted, the corporation shall file with the Commission such amended or new
bylaws and, if applicable, the stockholders’ or members’ resolution authorizing the delegation of
the power to amend and/or adopt new bylaws, duly certified under oath by the corporate
secretary and a majority of the directors or trustees. The amended or new bylaws shall only be
effective upon the issuance by the Commission of a certification that the same is in accordance
with this Code and other relevant laws
52
Panuda, Philip Graham - Corporation Law 2022
For March 31
-
Duties of the directors
Meetings and powers of corporations
Powers of the corporation
> Sec. 44 on ultra vires acts
General principles of powers
53
Panuda, Philip Graham - Corporation Law 2022
VI. Meetings
54