Corporation
Commercial Law Review
Earl Louie M. Masacayan, LL.M, DBA (cand.)
Corporation Defined
´It is an Artificial being
´It is created by operation of Law
´It enjoys the right of Succession
´it has the Powers, Attributes, and Properties
expressly authorized by law or Incident to its
existence.
Classes
´Stock corporations are those which have capital stock
divided into shares and are authorized to distribute to
the holders of such shares, dividends, or allotments of
the surplus profits on the basis of the shares held.
´Non-Stock - is one which does not issue shares and is
created not for profit but or public good and welfare
and where no part of its income is distributable as
dividends to its members, trustees, or officers
Classes
´ Corporations created by special laws or charters shall be
governed primarily by the provisions of the special law or
charter creating them or applicable to them, supplemented by
the provisions of this Code, insofar as they are applicable.
´These are government-owned or controlled, operating under a
special law or charter. SEC registration is not required for them
to acquire legal and juridical personality because they owe their
own existence not by virtue of their compliance with the
requirements of registration under the Corporation Code but by
virtue of the law that specially created them.
Classes
´Public Corporation – those formed or organized for the
government of a portion of the State or any of its political
subdivisions and which have for their purpose the general good
and welfare. Strictly speaking, a public corporation is one that is
created, formed, or organized for political or governmental
purposes with political powers to be exercised for purposes
connected with the public good in the administration of the civil
government.
´Private Corporations – those formed for some private purpose,
benefit, aim or end. They are created for the immediate benefit
and advantage of the individuals or members composing it and
their franchise may be considered as privileges conferred by the
State to be exercised and enjoyed by them in the form of the
corporation.
Classes
´ ECCLESIASTICAL OR RELIGIOUS CORPORATIONS –
corporations exclusively organized for spiritual purposes or
for administering properties held for religious ones. They are
organized to secure public worship or perpetuating the right
of a particular religion.
´ LAY CORPORATIONS – are those organized for purposes other
than religion. They may further be classified as:
´ ELEEMOSYNARY: created for charitable and benevolent purposes such
as those organized for the purpose of maintaining hospitals and
houses for the sick, aged or poor.
´ CIVIL: organized not for the purpose of public charity but for the
benefit, pecuniary or otherwise, of its members.
Classes
´ AGGREGATE CORPORATIONS – those composed of a number
of individuals vested with corporate powers
´ CORPORATION SOLE – those consist of one person or
individual only and who are made as bodies corporate and
politic in order to give them some legal capacity and
advantage which, as natural persons, they cannot have. Under
the Code, a corporation sole may be formed by the chief
archbishop, bishop, priest, minister, rabbi, or other presiding
elder or religious denominations, sects, or churches.
Associations not Lawfully organized as
Partnership
´ DOMESTIC CORPORATIONS – those organized or created under or
by virtue of the Philippine laws, either by legislative act or under
the provisions of the General Corporation Law.
´ FOREIGN CORPORATIONS – those formed, organized or existing
under laws other than the Philippines’ and whose laws allow
Filipino citizens and corporations to do business in its own country
or State. It shall have the right to transact business in the
Philippines after obtaining a license for that purpose in accordance
with this Code and a certificate of authority from the appropriate
government agency (Sec. 140, Revised Corporation Code).
Classes
´CLOSE CORPORATIONS – those whose shares of stock are
held by a limited number of persons like the family or
other closely-knit group. No public investors and the
shareholders are active in the conduct of corporate
affairs. (Sec. 95, Revised Corporation Code)
´OPEN CORPORATIONS – those formed to openly accept
outsiders as stockholders or investors. They are
authorized and empowered to list in the stock exchange
and to offer their shares to the public such that stock
ownership can widely be dispersed.
Classes
´ PARENT OR HOLDING COMPANY – a corporation that controls another corporation or
several other corporations known as its subsidiaries. These corporations confine their
activities to owning stocks and supervising the management of other companies. A
holding company usually owns a controlling interest (more than 50% of the voting stock)
in the companies whose stocks it holds. Compared with an investment company
which is active in the sale or purchase of shares of stocks or securities, parent or holding
companies have passive portfolio and hold the securities merely for purposes of control
and management.
´ SUBSIDIARY CORPORATIONS – a corporation which is being controlled by a parent or
holding corporation by owning the majority of shares of the subsidiary corporation. A
subsidiary corporation is an independent and separate juridical entity or personality,
distinct from its parent company, hence any claim or suit against the subsidiary does not
bind the parent or vice versa.
´ AFFILIATES – are those corporations that are subject to common control and operated as
part of a system. They are sometimes called sister companies since the stockholdings of a
corporation is not substantial enough to control the former.
Example: XYZ company is owned by X, Y, and Z where 30% held by X, 30% held by Y, and
40% by Z. Thus, – X, Y and Z are called affiliates.
Classes
´Quasi-public, Otherwise called public service
corporations. These are private corporations that have
accepted from the state the grant of a franchise or
contract involving the performance of public duties. The
term is sometimes applied to corporations which are not
strictly public in the sense of being organized for
governmental purposes, but whose operations contribute
to the convenience or welfare of the general public.
Example: telegraph and telephone companies, water
companies, electric companies
Classes
´ DE JURE – juridical entities created or organized in strict or substantial compliance with statutory
requirements of incorporation and whose rights to exist as such cannot be successfully attacked even
by the State in a quo warranto proceeding. They are, in effect, incorporated by strict adherence to the
provisions of the law of their creation.
´ DE FACTO – are those which exist by the virtue of an irregularity or defect in the organization or
constitution or from some omission to comply with the conditions precedent by which corporations
de jure are created, but there was colorable compliance with the requirements of the law under
which they might be lawfully incorporated for the purpose and powers assumed, and user of the
rights claimed to be conferred by law. Its existence can only be attacked by the direct action of quo
warranto proceedings. 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.
´ CORPORATION BY ESTOPPEL – those which are so defectively formed as not to be either de jure or de
facto corporations but which are considered as corporations in relation only to those who cannot
deny their corporate existence due to their agreement, admission, or conduct. 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.
Doctrine of Separate Juridical
Personality
´states that a corporation is a juridical entity
with legal personality separate and distinct
from those acting for and in its behalf and, in
general, from the people comprising it.
(Francisco v. Mallen Jr. G.R No. 173169,
September 22, 2010)
Doctrine of Piercing the Corporate Veil
´ The doctrine of piercing the corporate veil is the doctrine that allows the State to
disregard, for certain justifiable reasons, the notion that a corporation has a personality
separate and distinct from the persons composing it.
´ There it appears that business enterprises are owned, conducted and controlled by the
same parties, law and equity will disregard the legal fiction that these corporations are
distinct entities and shall treat them as one. This is in order to protect the rights of third
persons. (Vicmar Development Corporation v. Elarcos, et al, G.R. No. 202215, December
09, 2015, Del Castillo,j.)
´ In order to justify the piercing of the corporate veil, allegation or proof of fraud or other
public policy considerations is needed. (Hacienda Luisita Incorporated vs. Presidential
Agrarian Reform Council, G.R. No. 171101, November 22, 2011)
´ This is an exception to the Doctrine of Separate Corporate Entity.
´ Effect of piercing the corporate veil
´ The corporation will be treated merely as an association of persons -undertaking a business and
the liability will attach directly to the officers and stockholders.
´ Where there are two (2) corporations, they will be merged into one, the one being merely
regarded as the instrumentality, agency, conduit or adjunct of the other.
´ Notwithstanding that the corporate veil has been pierced, the corporation continues for
other legitimate objectives the corporate character is not necessarily abrogated. ,
(Reynoso IV vs. CA, G.R. Nos. 116124-25, November 22, 2000)
Incorporators
´ As amended by RA No. 11232 (or the Revised Corporation
Code), any person, partnership, association or corporation,
singly or jointly with others
´ Except under the Rural Banks Act of 1992, incorporated
cooperatives are allowed to be incorporators of rural banks.
´ It must be 15 except Education and Close Corporation
´ Must of legal age
´ Each must own or subscribe to at least alone (1) share of the
capital stock. (Sec.10, RCC)
Corporate Term
´ As amended by RA No. 11232, corporations now have aperpetual
existence.
´ Unless its Articles of Incorporation provides otherwise. (Sec. 1, RCC)
´ Also, the Code mandates that corporations with certificates of
incorporation issued prior to the effectivity of this Code and which
continue to exist, shall likewise 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.
´ Under the RCC, if a corporation wishes to change its corporate
term, it may amend its AOI at least 3 years prior to the expiration of
its term. Previously, such change should be made at least 5 years
prior to the expiration.
Corporate Term
´ If the term has already expired, the corporation may apply for a
revival of their corporate existence, which option was not present
in the old code. Upon approval by the Commission, it will then issue
a certificate of revival of corporate existence, giving it perpetual
existence, unless its application for revival provides otherwise.
´ XPN: No revival is allowed for companies under the supervision of other
government agencies, such as banks, insurance and trust companies.
´ XPN to XPN: Revival is accompanied by a favorable recommendation of the
appropriate government agency.
´ Extension must also comply with procedural requirements for
amendment of AOI.
Classes of Shares
´ Par value shares
´ Fractional share
´ No par value shares
´ Shares in escrow
´ Common shares
´ Over-issued stock
´ Preferred shares
´ Street certificate
´ Redeemable shares
´ Promotion share
´ Treasury shares
´ Founder's share
´ Voting shares
´ Non-voting shares
´ Convertible shares
´ Watered stock
Right to Vote
´These redeemable and preferred shares, when such voting
rights are denied, shall nevertheless be entitled to vote on
the following fundamental matters:
´Amendment of the Articles of Incorporation;
´Adoption and amendment of by-laws;
´Sale, lease, exchange, other disposition of all or substantially all of
the corporate property;
´Incurring, creating or increasing bonded indebtedness;
´Increase or decrease of capital stock;
´Merger and consolidation
´Investment of corporate funds in another corporation or business;
and
´Dissolution of the corporation
Promoter
´ “Promoter” is a person who, acting alone or with others,
takes initiative in founding and organizing the business or
enterprise of the issuer and receives consideration therefor.
(Sec. 3.10, SRC)
´ Promoters are personally liable on their contracts made on
behalf of a corporation to be formed except If there is an
express or implied agreement to the contrary. It must be
noted that the fact that the corporation when formed has
adopted or ratified the contract does not release the
promoter from responsibility unless a novation was intended.
´ A corporation is not bound by the contract. A corporation,
until organized, has no life and no legal existence. It could not
have had an agent (the promoter) who could legally bind it.
(Cagayan Fishing Development Co. Inc. v. Sandiko, G.R. No. L43350)
Promoter
´ While a corporation could not have been a party to a
promoter’s contract since it did yet exist at the time the
contract was entered into and thus could not possible
have had an agent who could legally bind it, the
corporation may make the contracts its own and become
bound thereon if, after incorporation, it:
´Accepts or ratifies the contract; or
´Accepts its benefits with knowledge of the terms thereof.
´ The contract must be adopted in its entirety. The
corporation cannot adopt only the part that is beneficial
to it and discard that which is burdensome. The contract
must be one which is within the powers of the corporation
to enter, and one which the usual agents of the company
have express or implied authority to enter.
Subscription Contract
´ Any contract for the acquisition of unissued stock in an existing corporation
or a corporation still to be formed shall be deemed a subscription within the
meaning of this Title, notwithstanding the fact that the parties refer to it as a
purchase or some other contract.
´ A subscription contract is indivisible. Consequently, where stocks were
subscribed and Purchase price does not corporation, hence, corporation
unless fully part of the subscription contract price was not paid, the whole
subscription shall be considered delinquent and not only the shares which
correspond to the amount not paid.
´ This is called the Doctrine of Individuality (Indivisibility) of Subscription. A
subscription is one entire and indivisible whole contract. It cannot be divided into
portions.
Pre-incorporation Subscription
´A subscription of shares in a corporation still to
be formed shall be irrevocable for a period of at
least six (6) months from the date of subscription,
unless all of the other subscribers consent to the
revocation, or the corporation fails to
incorporate within the same period or within a
longer period stipulated in the contract of
subscription. No pre-incorporation subscription
may be revoked after the articles of
incorporation is submitted to the Commission.
Consideration for Stocks
´ Stocks shall not be issued for a consideration less than the par or issued
price thereof. Consideration for the issuance of stock may be:
´ (a) Actual cash paid to the corporation;
´ (b) Property, tangible or intangible, actually received by the corporation
and necessary or convenient for its use and lawful purposes at a fair
valuation equal to the par or issued value of the stock issued;
´ (c) Labor performed for or services actually rendered to the corporation;
´ (d) Previously incurred indebtedness of the corporation;
´ (e) Amounts transferred from unrestricted retained earnings to stated
capital;
´ (f) Outstanding shares exchanged for stocks in the event of reclassification
or conversion;
´ (g) Shares of stock in another corporation; and/or
´ (h) Other generally accepted form of consideration.
Consideration for Stocks
´ Where the consideration is other than actual cash, or consists of
intangible property such as patents or copyrights, the valuation
thereof shall initially be determined by the stockholders or the board
of directors, subject to the approval of the Commission.
´ Shares of stock shall not be issued in exchange for promissory notes
or future service. The same considerations provided in this section,
insofar as applicable, may be used for the issuance of bonds by the
corporation.
´ The issued price of no-par value shares may be fixed in the articles
of incorporation or by the board of directors pursuant to authority
conferred by the articles of incorporation or the bylaws, or if not so
fixed, by the stockholders representing at least a majority of the
outstanding capital stock at a meeting duly called for the purpose.
Contents of 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;
Contents of Articles of Incorporation
´ (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.
´ The articles of incorporation and applications for amendments thereto may be
filed with the Commission in the form of an electronic document, in
accordance with the Commission’s rules and regulations on electronic filing.
Non-Amendable Items in the AOI
´Names of incorporators;
´Names of original subscribers to the capital stock of the
corporation and their subscribed and paid up capital;
´Names of the original directors;
´Treasurer elected by the original subscribers;
´Members who contributed to the initial cap! of the non-stack
corporation; or
´Witnesses to and acknowledgment with AOI.
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.
Corporate Name
´ THE SEC, 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
SEC 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 SEC shall issue a certificate
of incorporation under the amended name.
´ If the corporation fails to comply with the SEC’s order, the SEC 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.
Registration
´Basic requirements for the registration and issuance of a
certificate of incorporation of a stock corporation
´A person desiring to incorporate shall submit the intended corporate
name to the Commission for verification slip
´AOI and by-laws
´The articles of incorporation and applications for amendments
thereto may be filed with the Commission in the form of an
electronic document, in accordance with the Commission's
rules and regulations on electronic filing.
You are asked to incorporate a new company to be called FSB Savings & Mortgage
Bank, Inc. List the documents that you must submit to the Securities and Exchange
Commission(SEC) to obtain a Certificate of Incorporation for FSB Savings &
Mortgage Bank, Inc. (2002 BAR)
´ The documents to be submitted to the Securities and Exchange Commission (SEC) to
incorporate a new company to be called FSB Savings & Mortgage Bank, Inc., to obtain
the certificate of incorporation for said company, are:
1) Articles of Incorporation
2) Treasurer‘s Affidavit;
3) Certificate of Authority from the Monetary Board of the BSP;
4) Verification slip from the records of the SEC whether or not the proposed name has
already been adopted by another corporation, partnership or association;
5) Letter undertaking to change the proposed name if already adopted by another
corporation, partnership or association;
6) Bank certificate of deposit concerning the paid-up capital;
7) Letter authorizing the SEC or Monetary Board or its duly authorized representative to
examine the bank records regarding the deposit of the paid-up capital;
8) Registration Sheet;
Commencement of Corporate
Existence
´A corporation comes into existence upon the
issuance of the certificate of incorporation by the
SEC under its official seal. Then and only then will
it acquire a juridical personality. (Sec. 18, REC)
´In case of a corporation sole, the corporation sole
commences existence upon the filing of the
articles of incorporation.
Election of Director or Trustees
´ Presence of Stockholders representing a majority of the outstanding capital stock of the
corporation or majority of the members, either in person or by proxy.
´ [New ways to vote in RCC, Sec 24]:
Through remote communication or in absentia
´ it must be provided in the by-laws but 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
´ The election must be by ballot, if requested by any voting stockholder or member.
´ The total number of votes cast by him must not exceed the number of shares owned by him as
shown in the books of the corporation multiplied by the whole number of directors to be
elected.
´ No delinquent stock shall vote or be voted for.
´ The stockholder cannot be deprived in the articles of incorporation or in the by-laws of his
statutory right to use any of the methods of voting in the election of directors
´ The candidates receiving the highest number of votes shall be declared (Sec. 24, RCC)
Methods of Voting
´ Straight voting - every stockholder may vote such number of shares for as
many persons as there are directors to be elected.
´ Cumulative voting for one candidate - a stockholder is allowed to concentrate
his votes and give one candidate, as many votes as the number of directors to
be elected multiplied by the number of his shares shall equal.
´ Cumulative voting by distribution - a stockholder may cumulate his shares by
multiplying the number of his shares by the number of directors to be elected
and distribute the same among as many candidates as he shall see fit.
´ Cumulative voting in Stock vs. Nonstock
´ Cumulative voting in case of non-stock corporations is allowed only if it is provided in the
AOL The members of non-stock corporations may cast as many votes as there are trustees to
be elected but may cast not more than one vote for one candidate. Cumulative voting is
mandatory in stock corporations to protect the rights of minority stockholders
Contents of By-Laws
´ Time, place and manner of calling and conducting regular or special meetings of directors or trustees.
´ Time and manner of calling and conducting regular or special meetings of the stockholder or
members.
´ The required quorum in meeting of stockholders or members and the manner of voting therein.
´ The modes by which a stockholder, member, director, or trustee may attend meetings and cast their
votes;
´ The form for proxies of stockholders and members and the manner of voting them.
´ 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;
´ Time for holding the annual election of directors or trustees and the mode or manner of giving notice
thereof.
´ Manner of election or appointment and the term of office of all officers other than directors or
trustees.
´ Penalties for violation of the by-laws.
´ In case of stock corporations, the manner of issuing certificates.
´ Such other matters as may be necessary for the proper or convenient transaction of its corporate
business and affairs for the promotion of good governance and anti- graft and corruption measures.
(Sec. 46, RCC)
´ Also, an arbitration agreement may be provided in the bylaws pursuant Section 181 of the RCC
Binding Effects of By-Laws
´As to members/stockholders, officers, trustees/
directors and corporation
´They are bound by and must comply with it.
They are presumed to know the provisions of
the by-laws.
´As to third persons
´They are not bound. Except if they have
knowledge or notice of the by- laws at the
time the contract was executed. (China
Banking Corp. v. CA, G.R. No. 117604, March
26, 1997)
Amendment of By-Laws
´Amendment may he made by stockholders together with
the Board - by majority vote of directors and owners of at
least a majority of the outstanding capital stock/members;
or
´By the board only after due delegation by the stockholders
owning 2/3 of the outstanding capital stock/members.
Provided, that such al, supra) franchise between the SH/M
inter se; simultaneously with the Articles of Incorporation
power delegated to the board shall be considered as
revoked whenever stockholders owning at least majority
of the outstanding capital stock or members, shall vote at
a regular or special meeting. (Sec. 47, RCC)
Effect of Non-Use of Corporate Name
´If a corporation does not formally organize and commence
its business within five (5) years from the date of its
incorporation, its certificate of
´A delinquent corporation shall have a period of two (2)
years to resume operations and comply with al
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. (Sec. 21,
RCC)
Corporate Powers
´Express powers - granted by law, the Corporation Code,
and its Articles of Incorporation or Charter, and
administrative regulations;
´Inherent/incidental powers - not expressly but are
deemed to be ithin the capacity of corporate entities
´Implied/necessary powers - exists as a necessary
consequence of the exercise of the express powers of the
corporation or the pursuit of its purposes as provided for
in the Charter.
General Powers; Theory of General
Capacity
´ Every corporation incorporated under this Code has the power and
capacity:
´ (a) To sue and be sued in its corporate name;
´ (b) To have perpetual existence unless the certificate of
incorporation provides otherwise;
´ (c) To adopt and use a corporate seal;
´ (d) To amend its articles of incorporation in accordance with the
provisions of this Code;
´ (e) To adopt bylaws, not contrary to law, morals or public policy,
and to amend or repeal the same in accordance with this Code;
´ (f) In case of stock corporations, to issue or sell stocks to
subscribers and to sell treasury stocks in accordance with the
provisions of this Code; and to admit members to the corporation if
it be a nonstock corporation;
General Powers; Theory of General
Capacity
´ (g) To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage,
and otherwise deal with such real and personal property, including securities and
bonds of other corporations, as the transaction of the lawful business of the
corporation may reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution;
´ (h) To enter into a partnership, joint venture, merger, consolidation, or any other
commercial agreement with natural and juridical persons;
´ (i) To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That
no foreign corporation shall give donations in aid of any political party or
candidate or for purposes of partisan political activity;
´ It shall be unlawful for any foreigner, whether judicial or natural person, to aid any candidate or political party,
directly or indirectly, or take par tin or influence in any manner any election, or to contribute or make any
expenditure in connection with any election campaign or partisan political activity". (Sec. 31, Omnibus
Election Code}
´ (j) To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers, and employees; and
´ (k) To exercise such other powers as may be essential or necessary to carry out
its purpose or purposes as stated in the articles of incorporation.
Specific Powers; Theory of Specific
Capacity
´ The specific powers of a corporation, also called Theory of Specific Capacity, are the
following:
´ Power to Extend or shorten corporate term (Sec. 36, RCC)
´ Increase or decrease capital Stock (Sec. 37, RCC)
´ Incur, create, or increase Bonded indebtedness (Sec. 37, RCC)
´ Deny Pre-emptive right (Sec.38,RCC)
´ Sell, dispose, lease, encumber all or substantially all of corporate Assets (Sec. 39, RCC)
´ Purchase or acquire own Shares (Sec. 40, RCC)
´ Invest corporate funds in another corporation or business for other purpose other than primary
purpose (Sec. 41, RCC)
´ Declare Dividends out of unrestricted retained earnings (Sec. 42, RCC)
´ Enter into management contract with another corporation (not with an individual or a
partnership - within general powers) whereby one corporation undertakes to manage al or
substantially al of the business of the other corporation for a period not longer than five (5)
years for any one term (Sec. 43, RCC)
´ Amend Articles of Incorporation (Sec. 15, RCC)
Substantially all of Corporate Assets
´There is a sale, lease, exchange, mortgage, pledge,
and any other disposition (SLEMPOD) of
substantially all of corporate asset if in the
SLEMPOD thereof, the corporation would be
rendered:
´1. Incapable of continuing the business; or
2. Incapable of accomplishing the purpose for which it was
incorporated. (Sec. 39, RCC)
´NOTE: This is subject to the provisions of Republic
Act No. 10667, otherwise known as the
“Philippine Competition Act.”
Substantially all of Corporate Assets
´There is a sale, lease, exchange, mortgage, pledge,
and any other disposition (SLEMPOD) of
substantially all of corporate asset if in the
SLEMPOD thereof, the corporation would be
rendered:
´1. Incapable of continuing the business; or
2. Incapable of accomplishing the purpose for which it was
incorporated. (Sec. 39, RCC)
´NOTE: This is subject to the provisions of Republic
Act No. 10667, otherwise known as the
“Philippine Competition Act.”
Unrestricted Retained Earnings
´It represents the surplus profits of the
corporation.
´It is determined by subtracting the liabilities (L),
the Capital Stock (CS) and the Restricted Retained
Earnings (RRE) from the assets (A) of the
corporation (URE =A -(L +CS+ RRE)).
Management Contract
´Management Contract is any contract whereby a
corporation undertakes to manage or operate all or
substantially all of the business of another
corporation, whether such contracts are called service
contracts, operating agreements or otherwise. (Sec.
43, RCC)
´Sec. 43 refers only to a management contract with
another corporation. Hence, it does not apply to
management contracts entered into by a corporation
with natural persons. Corollary to this, management
contract with a natural person need not comply with
the requisites of Sec. 43.
Types of Ultra vires Acts
´Acts done beyond the powers of the
corporation (through BOD)
´Ultra vires acts by corporate officers;
and
´Acts or contracts which are per se illegal
as being contrary to law
´Ultra vires acts entered into by the board of directors bind the
corporation, and the courts will not interfere unless terms are
oppressive and unconscionable. (Gamboa vs. Victoriano, G.R.
No. L- 40620. May 5,1979)
Doctrine of Apparent Authority
´If a corporation knowingly permits one of its
officers, or any other agent, to act within the
scope of an apparent authority, it holds him
out to the public possessing the power to do
those acts; and thus, the corporation will, as
against anyone who has in good faith dealt
with it through such agent, be estopped
from denying the agent's authority.
Doctrine of Apparent Authority
´If a corporation knowingly permits one of its
officers, or any other agent, to act within the
scope of an apparent authority, it holds him
out to the public possessing the power to do
those acts; and thus, the corporation will, as
against anyone who has in good faith dealt
with it through such agent, be estopped
from denying the agent's authority.
Trust Fund Doctrine
´The subscribed capital stock of the
corporation is a trust fund for the payment
of debts of the corporation which the
creditors have the right to look up to satisfy
their credits, and which the corporation may
not dissipate.
´The creditors may sue the stockholders
directly for the latter's unpaid subscription.
Rights of the Stockholder
Management Rights
´ To attend and vote in person or by proxy at a stockholders’ meetings
(Sec. 49, 57, RCC)
´ To elect and remove directors (Sec. 23, 27, REC)
´ To approve certain corporate (Sec. 57, REC)
´ To adopt and amend or repeal the by-laws of adopt new by-laws
(Sec.45,47,RCC)
´ To compel the calling of the meetings (Sec. 49, RCC)
´ To enter into a voting trust agreement (Sec. 58, RCC)and
´ To have the corporation voluntarily dissolved (Sec. 117, 118 RCC)
Rights of a stockholder
Remedial rights
´To inspect corporate books(Sec.73,RCC)
´To recover stock unlawfully sold for delinquent payment
of subscription (Sec. 68, RCC)
´To be furnished with most recent financial statements or
reports of the corporation's operation (Sec. 73, 74, RCC)
´To bring suits (derivative suit, individual )
´suit, and representative suit); ande. To demand payment
in the exercise of
´appraisal right (Sec. 40, 81, RCC)
Rights of a stockholder
Proprietary rights
´To transfer stock in the corporate book (Sec. 62, RCC)
´To receive dividends when declared (Sec. 42, RCC)
´To the issuance of certificate of stock or other
evidence of stock ownership (Sec. 63, RCC)
´To participate in the distribution of
´corporate assets upon dissolution (Sec. 117, 118, RCC)
´To pre-emption in the issue of shares (Sec. 38, RCC)
Obligations of a stockholder
´ Liability to the corporation for unpaid subscription (Sec. 65-69, RCC);
´ Liability to the corporation for interest on unpaid subscription if so
required by the subscription contract (Sec. 65, RCC);
´ Liability to the creditors of the corporation for wrongful disposition of
corporate assets, breaches of fiduciary duties, fraud, gross negligence,
unpaid subscription(Sec.59,RCC);
´ Liability for watered stock (Sec. 64, RCC);
´ Liability for dividends unlawfully paid(Sec.42, RCC); and
´ Liability for failure to create corporation (Sundiang Sr. & Aquino, 2014)
(See.10, RCC);
´ While a stockholder has no personal liability for the debts of the
corporation beyond the amount of his capital investment, he is personally
liable for the above obligations.
´ In addition, he may become personally liable for damages or otherwise
for any unauthorized acts, violations of law, or improper us of the
corporate form.
Meetings
´ Meetings of directors, trustees, stockholders, or members
may be regular or special.
´ Regular meetings of stockholders or members shall be held
annually on a date fixed in the bylaws, or if not so fixed, on
any date after April 15 of every year as determined by the
board of directors or trustees:
´ Provided, That written notice of regular meetings shall be
sent to all stockholders or members of record at least
twenty-one (21) days prior to the meeting, unless a different
period is required in the bylaws, law, or regulation:
Provided, further, That written notice of regular meetings
may be sent to all stockholders or members of record
through electronic mail or such other manner as the
Commission shall allow under its guidelines.
Place and Time of Meeting
´Stockholders’ or members’ meetings, whether regular
or special, shall be held in the principal office of the
corporation as set forth in the articles of incorporation,
or, if not practicable, in the city or municipality where
the principal office of the corporation is located:
Provided, That any city or municipality in Metro Manila,
Metro Cebu, Metro Davao, and other Metropolitan
areas shall, for purposes of this section, be considered a
city or municipality.
Notice and Conduct of Meeting
´ Notice of meetings shall be sent through the means of communication provided
in the bylaws, which notice shall state the time, place and purpose of the
meetings.
´ Each notice of meeting shall further be accompanied by the following:
´ (a) The agenda for the meeting;
´ (b) A proxy form which shall be submitted to the corporate secretary within a
reasonable time prior to the meeting;
´ (c) When attendance, participation, and voting are allowed by remote
communication or in absentia, the requirements and procedures to be followed
when a stockholder or member elects either option; and
´ (d) When the meeting is for the election of directors or trustees, the
requirements and procedure for nomination and election.
´ All proceedings and any business transacted at a meeting of the stockholders or
members, if within the powers or authority of the corporation, shall be valid
even if the meeting is improperly held or called: Provided, That all the
stockholders or members of the corporation are present or duly represented at
the meeting and not one of them expressly states at the beginning of the
meeting that the purpose of their attendance is to object to the transaction of
any business because the meeting is not lawfully called or convened.
Doctrine of Centralized Management
´ The Doctrine of Centralized Management states that all corporate
powers are exercised by the BOD or BOT. (Sec. 22, RCC)
´ the board of directors or trustees shall exercise the corporate
powers, conduct all business, and control all properties of the
corporation.
´ The doctrine is not applicable to the following instances:
´1. In case of delegation to the Executive Committee duly
authorized in the by-laws;
´2. Authorization pursuant to a contracted manager which may
be an individual, a partnership, or another corporation; and
´3. In case of close corporations, the stockholders may manage
the business of the corporation instead of aboard of directors, if
the articles of incorporation so provide.
Term of Office of BOD/BOT
´Directors shall be elected for a term of one (1)
year from among the holders of stocks registered
in the corporation's books, while trustees shall be
elected for a term not exceeding three (3) years
from among the members of the corporation.
(Sec. 22, RCC)
´If no election is held, the directors and officers will
continue to occupy position even after the lapse of
1 year under a hold-over capacity until their
successors are elected and qualified.
Qualifications of BOD/BOT
´ 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 RRC; 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 the Philippine
Competition Commission may impose in its promotion of good corporate
governance or as a sanction in it administrative proceedings.
Qualifications of BOD/BOT
´Of legal age
´Other qualifications as may be prescribed in special
laws and regulations or in the by-laws of the
corporation
´A person who does not own a stock at the time of his
election or appointment does not disqualify him as
director if he becomes a shareholder before assuming
the duties of his office. (SEC Opinions, November
9,1987&April5,1990)
Qualifications of BOD/BOT
´ Sec. 30 of the Corporation Code requires directors to own the shares of stock in their own
right. To be eligible to be a director, it is not required that he owns legal title to the share of
stock. It suffices that he possesses a beneficial ownership in the books of the corporation. A
trustee is a stockholder of record. (Lee v. CA, G.R. No. 93695, February 4, 1992),
Consequently, the omission of the phrase “in his own right” in Section 23 of the Revised
Corporation Code means that in order to be eligible to be elected ta the Board and to
remain a member thereof, what is material is legal title thereto, beneficial ownership being
insufficient. {RCC Annotated Aquino, Cruz 2019)
´ Both under the old and the new Corporation Codes, there is no dispute as to he most
immediate effect of a Voting Trust Agreement(VTA)on the status of a stockholder who is a
party to its execution -from legal titleholder or owner of shares subject of the VTA, he
becomes equitable or beneficial owner. Any director who executes a VTA over all his shares
ceases to be a stockholder of record in the books of the corporation and therefore ceases
to be a director (Lee v. CA, G.R. No. 93695, February 4, 1992)
Qualifications of BOD/BOT
´Additional qualifications provided by the Revised
Code of Corporate Governance
´1. College education or equivalent academic degree;
´2. Practical understanding of the business of the
corporation;
´3. Membership in good standing in relevant industry,
business or professional organizations; and
´4. Previous business experience (RCCG, Art. 3[D])
Independent Director
´ In independent director is a person who apart from shareholdings and fess
received from the corporation, is independent of management and fees
from any business or other relationship which could or could reasonably be
perceived to materially interfere with the exercise of independent judgment
in carrying out the responsibilities as a director. (Sec 2, RCC)
´ At least two (2) independent directors are required in the following
companies:
´ 1. Any corporation with a class of equity securities listed for trading on an Exchange
(Publicly traded companies);
´ 2. Banks; and
´ 3. Corporations with secondary franchise.
´ The Board should have at least two (2) independent directors, or such
number as to constitute at least one-third of the members of the Board,
whichever is higher.
May the composition of the board of directors of the National Power
Corporation be validly reduced to three? (2008 BAR)
´YES. NPC is a government owned and controlled corporation
created by a special charter. Its charter allows composition of
its board of directors to be reduced. As clearly enunciated in
Section 16, Article XII, 1987 Constitution: Congress shall not,
except by general law, provide for the formation,
organization, or regulation of private corporations. The
prohibition under the Corporation Code only applies to
private corporations. Since NPC is not governed by the
Corporation Code, the standard number of directors is not
required.
Removal of a Board Member
´ The power to remove belongs to the stockholders representing at least
2/3 of the outstanding capital stock or if non stack corporation, by a
vote of at least 2/3 of the members entitled to vote. (Sec. 27, RCC)
´ Removal may be with or without cause.
´ If the director was elected by the minority, there must be cause for
removal because the minority may not be deprived of the right to
representation to which they may be entitled under Sec. 23 of the
Code. (Sec. 27, RCC)
´ The right of representation referred to is the right to cumulative voting
for one candidate under Sec. 23 of the Code.
Filling of Vacancy of a Board Member
´Any vacancy occurring in the board of directors or
trustees other than by removal or by 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.
´Stockholders will also fill the vacancy if its referred
by the board or there will increase in the number of
members.
Compensation of Board Members
´ Directors, in their capacity as such, are not entitled to receive any compensation
except for reasonable per diems, except
´ 1. When their compensation is fixed in the by- laws;
´ 2. When granted by the vote of stockholders representing at least a majority of
the outstanding capital stock at a regular or special meeting; or
´ 3. If they perform services other than as directors of the corporation (i.e. where
directors are also corporate officers or employees of the corporation).
(Sec.29,RCC)
´ Directors or trustees shall not participate in the determination of their own per diems
or compensation (Se29,RCC)
´ Per diems are paid attendance in board meetings. Other benefits and emoluments of
directors fall within the term “compensation.”
Disloyalty of Board Members
´The director must account for and refund to the office all
such profits, which such director, by virtue of such office:
´1. acquires a business opportunity which should belong to the
corporation;
´2. thereby obtaining profits to the prejudice of such corporation.
(Sec. 3, RCC)
´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. (lbid.)
´This rule shall be applicable, notwithstanding the fact that
the director risked one's own funds in the venture. (Ibid)
Business Judgment Rule
´ Questions of policy or management are left solely to the honest decision of officers and
directors of a corporation and the courts are without authority to substitute their judgment for
the judgment of the board of directors; the board is the business manager of the corporation
and so long as it acts in good faith, its orders are not reviewable by the courts or the SEC.
(Montelibano v. Bacolod-Murica Milling Co, G.R. No. L-15092, May 18, 1962; Phil. Stock
Exchange, Inc. v. CA, GR. No. 125469, October 27,1997)
´ Contracts intra vires entered into by the board of directors are binding upon the corporation
beyond the interference of courts. The courts are barred from intruding into business
judgments of corporations, when the same are made in good faith. (Ong v Tiu, G.R. No. 144476.
April 8, 2003)
´ Courts can inquire unto contracts which are:
´ Unconscionable and oppressive as to amount to wanton destruction to the rights of the minority (Ong
v. Tiu, ibid); or
´ When there is bad faith or gross negligence by the directors. (Republic Communications Inc v CA, GR.
No. 135074, January29, 1999)
Consequences of Business Judgment Rule
´ 1. Resolutions and transactions entered into by the Board within the
powers of the corporation cannot be reversed by the courts not even
on the behest of the stockholders.
´ 2. Directors and officers acting within such business judgment cannot
be held personally liable for such acts.
´ 3. If the cause of the losses is merely error in business judgment, not
amounting to bad faith or negligence, directors and/or officers are not
liable. (Filipinas Port Services v. Go, G.R. No. 161886, March 16, 2007)
´ 4, The Board of Directors has the power to create positions not
provided for in the corporation's by-laws since the board is the
corporation's governing body, clearly upholding the power of its board
to exercise its prerogatives in managing the business affairs of the
corporation. (Filipinas Port Services v. Go, supra)
Consequences of Business Judgment Rule
´5. Directors and officers who purport to act for the
corporation, keep within the lawful scope of their authority
and act in good faith, do not become liable, whether civilly or
otherwise, for the consequences of their acts, which are
properly attributed to the corporation alone. (Benguet
Electric Cooperative, Inc. v. NLRCGR 89070, May 18, 1992)
´6. The power to elect corporate officers was a discretionary
power that the law exclusively vested in the Board of
Directors and could not be delegated to subordinate officers
or agents. (Matling Industrial. and Commercial Corporation,
et al. v. Coras, G.R. No. 157802, October 13, 2010)
Requirements for the Judgment Rule to
apply
´Presence of a business decision including decisions on policy
management and administration;
´The decision must be intra vires and must comply with the
procedural and substantive requirements of law;
´Good Faith
´Due care in making the decision; and
´The director must not have personal interest or nor selfdealing or otherwise on breach of the duty of loyalty.
(Villanueva, 2018)
PALI sought to offer its shares to the public in order to raise funds for development
of properties and pay its loans with several banks. To facilitate the trading of its
shares, PALI applied for a listing in the Philippine Stock Exchange Inc. (PSE), a nonprofit corporation. Subsequently, PSE received a letter from the Heirs of Marcos,
requesting PSE to defer PALI's registration, contending that certain properties of
PALI are owned by Marcos. Consequently, PSE rejected PALI's application. The SEC
reversed the ruling of the PSE. Is the SEC correct?
´ NO. In applying the business judgment rule, the SEC and the courts are
barred from intruding into business judgments of corporations, when
the same are made in good faith, The said rule precludes the reversal of
the decision of the PSE to deny PALI's listing application, absent a
showing of bad faith on the part of the PSE. Under the listing rules of
the PSE, to which PALI had previously agreed to comply, the PSE retains
the discretion to accept or reject applications for listing. (PSE v. CA, GR
No. 125469, October 27, 1997)
Liability of Board Members
´ 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 acquire
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.
Personal Liability of Board Members
´ In the following instances, the directors/ trustees may be held personally liable for
damages:
´ 1. When they willfully and knowingly vote for or assent to patently unlawful acts of the
corporation;
´ 2. When they are guilty of gross negligence or bad faith in directing the affairs of the
corporation;
´ Bad faith or negligence is a question of fact. Bad faith does not simply mean bad judgment or
negligence. It imparts ad is honest purpose or some moral obliquity and conscious
doing of wrong. It means breach of a known duty through some motive or interest or
ill-will; it partakes of the nature of fraud. (Ford Phils, Ine, et al. vs. CA, GR 99039, Feb.
3, 1997)
´ 3. When they acquire any personal or pecuniary interest in conflict with their duty as such
directors or trustees (Sec. 30, RCC);
´ 4. When they consent to the issuance of watered stocks or who, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto (Sec, 64,
RCC);
Personal Liability of Board Members
´ 5. When they are made, by a specific provision of law, to personally
answer for their corporate action (CC Sec. 144; PD 115, Sec.13; Uichico
v. NLRC G.R. No. 121434, June 2, 1997);
´ 6. When they agree to hold themselves personally and solidarily liable
with the corporation (Tramat Mercantile, Inc. vs. CA, GR. No. 111008,
November7, 1994); or
´ 7. When the corporate fiction is used to defeat public convenience,
justify wrong, protect fraud, or defend crime. (Carag v. NLRC, GR No.
147590, April 2, 2007)
´ When the officers of the corporation exceeded their authority, their actions are
not binding upon the corporation unless ratified by the corporation or is estopped
from disclaiming them. (Reyes v. RCPI Credit Employees Union, GR. No. 146535,
August 18, 2006)
Responsibility for Crime of Board Members
´ Where a law requires a corporation to do a particular act, failure of
which on the part of the responsible officer to do so constitutes an
offense, the responsible officer is criminally liable therefore. The reason
is that a corporation can act through its officers and agents and where
the business itself involves a violation of law al who participate in it are
liable. While the corporation may be fined for such criminal offense if
the law so provides, only the responsible corporate officer can be
imprisoned. (People vs. Tan Boon Kong, G.R. No. L-35262, March 15,
1930)
´ However, a director or officer can be held liable for a criminal offense
only when there is a specific provision of law making a particular officer
liable because being a corporate officer by itself is not enough to hold
him criminally liable.
Special Fact Doctrine
´The special fact doctrine is an exception to
the majority rule doctrine. It states that
where special circumstances or facts are
present which make it inequitable for the
director to withhold information from the
stockholder, the duty to disclose arises,
and concealment is fraud.
Special Fact Doctrine (US Jurisprudence)
´ In foreign US jurisprudence, the special fact doctrine was applied in the
following cases:
´ 1. Where a director actively participates in the negotiations for a transfer
of the corporate property. (Strong v. Repide, 213 U.S. 419, 29 S.Ct. 521, 53
L.Ed. 853)
´ 2. Where a director undertakes to speak or becomes active in inducing the
sale, he must speak fully, frankly, and honestly, and conceal nothing to the
disadvantage of the selling stockholder. (Poole v. Camden, 79 W. Va. 310)
´ 3. Where a director personally seeks a stockholder for the purpose of
buying his shares without making disclosure of material facts within his
peculiar knowledge and not within reach of the stockholders, the
transaction will be closely scrutinized and relief may be granted in
appropriate instances. (Strong v. Repide, supra)
Inside Information
´ Any material non-public information about the issuer of the securities
(corporation) or the security obtained by being an insider, which
includes:
´ 1. The Issuer;
´ 2. A Director or officer (or any person performing similar functions) of, or a person
controlling the issuer;
´ 3. A person whose Relationship or former relationship to the issuer gives or gave
him access to material information about the issuer or the security that is not
generally available to the public;
´ 4. A Government employee, director, or officer of an exchange, clearing agency
and/or self- regulatory organization who has access to material information about
an issuer or a security that is not generally available to the public; or
´ 5. A person who Learns such information by a communication from any forgoing
insiders (Se.3.8,SRE)
Contracts by Self-Dealing with the
Corporation
´ A contract of the corporation with one 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 the corporation unless all the following conditions are present:
´ 1. That 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;
´ 2. That the vote of such director or trustee was not necessary for the approval of the contract
´ 3. That the contract is fair and reasonable under the circumstances;
´ 4. In case of corporations vested with public interest, material contracts are approved by at least 2/3 of
the entire membership of the board, with at least a majority of the independent directors voting to
approve the material contract; and
´ 5. That in the case of an officer, the contract with the officer has been previously authorized by the
board of directors. (Sec. 31, par. 1, RCC)
´ Section 31 does not require that the corporation suffers injury or damage as aresuolf the
contract.
´ Under the old law, spouses and relatives are not included under Section 31.
Contracts by Self-Dealing with the
Corporation
´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.
Contracts between Corporations with
interlocking directors
´ A contract between two or more corporations having interlocking directors shall not be
invalidated on that ground alone. Provided that:
´ Contract is not fraudulent;
´ Contract is fair and reasonable under the circumstances; and
´ If the interest of the interlocking director in one corporation or corporations is merely nominal (not
exceeding 20% of the outstanding capital stock), he shall be subject to the provisions of Sec. 32 insofar
as the latter corporation or corporations are concerned. (Se. 32, REC);
´ Stockholdings exceeding 20% of the outstanding capital stock shall be considered substantial
for purposes of interlocking directors.
´ When a mortgagee bank foreclosed the mortgage on the real and personal property of the
debtor and thereafter assigned the properties to a corporation it formed to manage the
foreclosed assets, the unpaid seller of the debtor cannot complain that the assignment is
invalid simply because the mortgagee and the assignee have interlocking directors. There is no
bad faith on the part of DBP by its creation of Nonac Mining, Maricalum and Island Cement as
the creation of these three corporations was necessary to manage and operate the assets
acquired in the foreclosure sale lest they deteriorate from non-use and lose their value. (DBP v.
CA, GR No, 126200, August 16, 2001)
Certificate of Stock
´ A certificate of stock is a written instrument signed by the proper
officer of a corporation stating or acknowledging that the person
named therein is the owner of a designated number of shares of its
stock. It indicates the name of the holder, the number, kind and class of
shares represented, and the date of issuance.
´ It is not stock in the corporation but is merely evidence of the holder's
interest and status in the corporation.
´ The SEC may require corporations whose securities are traded in
trading markets and which can reasonably demonstrate their ability to
do so, to issue their securities or shares of stock in uncertified or in
scripless form in accordance with the rules imposed by SEC. (Sec. 62,
RCC)
Nature of Certificate of Stock
´A certificate of stock is a prima facie evidence of
ownership and evidence can he presented to
determine the real owner of the shares. (Bitong vs.
CA)
´It is not essential to the existence of a share of stock
or the creation of the relation of the shareholder with
the corporation. (Tan v. SEC, G.R. No. 95696, March 3,
1992)
´A certificate of stock has a value separate and distinct
from the value of the shares represented.
Uncertified Shares
´ An uncertificated share is a subscription duly recorded in the corporate books but has no
corresponding certificate of stock yet issued.
´ Stockholder may alienate his shares even if there is no certificate of stock issued by the
corporation
´ The absence of a certificate of stock does not preclude the stockholder from alienating or
transferring hiss hares of stock. corporations has not yet issued a certificate of stock
´ In case of a fully paid subscription, without the corporation having issued a certificate of stock,
the transfer may be effected by the subscriber or stockholder executing a contract of sale or
deed of assignment covering the number of shares sold and submitting said contract or deed to
the corporate secretary for recording.
´ In case of subscription not fully paid, the corporation may record such transfer, provided that
the transfer is approved by the board of directors and the transferee executes a verified
assumption of obligation to pay the unpaid balance of the subscription.
Negotiability of Stock Certificate
´ Stock certificate is not negotiable
´ Although a stock certificate is sometimes regarded as quasi-negotiable,
in the sense that it may be transferred by delivery, it is well-settled that
the instrument is NON-NEGOTIABLE, because the holder thereof takes
it without prejudice to such rights or defenses as the registered owner
or creditor may have under the law, except insofar as such rights or
defenses are subject to the limitations imposed by the principles
governing estoppels. (Republic v. Sandiganbayan, GR. Nos. 107789&
147214, April30,2003)
´ Certificates of stock may be issued only to registered owners of stock.
The issuance of “bearer” stock certificates is not allowed under the law.
(SEC Opinion No. 05-02, Jan. 31, 2005)
Ais the registered owner of Stock Certificate No. 000011. He entrusted the
possession of said certificate to his best friend B who borrowed the said endorsed
certificate to support B's application for passport (or for a purpose other than
transfer). But B sold the certificate to X, a bona fide purchaser who relied on the
endorsed certificates and believed him to be the owner thereof. Can A claim the
shares of stocks from X? Explain. (2001 BAR)
´NO. Since the shares were already transferred to "B cannot
claim the shares of stock from The certificate of stock
covering said shares have been duly endorsed by "A" and
entrusted by him to “B". By his said acts, "A" is now estopped
from claiming said shares from "X", a bona fide purchaser
who relied on the endorsement by “A" of the certificate of
stock.
Requirement for Valid Transfer of Stocks
´ If represented by a certificate, the following must be strictly complied
with:
´ a. Indorsement by the owner and his agent
´ B. delivery of the certificate
´ c. To be valid to third parties and to the corporation the transfer must be recorded
in the books of the corporation. (Rural Bank of Lipa v. CA, GR No. 124535,
September 28, 2001)
´ If NOT represented by a certificate (such as when the certificate has not
yet been issued or where for some reason is not in the possession of
the stockholder):
´ a. By means of deed of assignment; and
´ b. Such is duly recorded in the books of the corporation. (Sundiang Sr. & Aquino,
2009)
Issuance of Stocks
´ It may only be issued until the full amount of the stockholder’s subscription together
with the interest and expenses [in case of delinquent shares) if due has been paid.
(Sec. 63, RCC)
´ Requisites for the issuance of the certificate of stock:
´ The certificate must be signed by the president or vice-president, countersigned by the
corporate secretary or assistant secretary. (Bitong v. CA, G.R. No. 123553, July 13, 1998)
´ Unless it complies with the foregoing, it is not deemed issued.
´ The certificate must be sealed with the seal of the corporation.
´ The certificate shall be issued in accordance with the by-laws.
´ The certificate must be delivered.
´ The par value as to par value shares, or full subscription as to no par value shares must be
fully paid, the basis of which is the doctrine of indivisibility of subscription
´ The original certificate must be surrendered where the person requesting the issuance of a
certificate is a transferee from the stockholder. (CCSec.64)
Stock Transfer Book
´Stock corporations must also keep a stock and
transfer book, which shall contain:
´A record of all stocks in the names of the stockholders
alphabetically arranged;
´The installments paid and unpaid on al stocks for which
subscription has been made, and the date of payment of
any installment;
´A statement of every alienation, sale or transfer of stock
made, the date thereof, by and to whom made; and
´Such other entries as the by-laws may prescribe.
Situs of shares of Stocks
´The situs of shares of stock is the country where the
corporation is domiciled. (Wells Fargo Bank v. CIR, G.R. No.
L-46720, June 28, 1940)
´The residence of the corporation is the place where the
principal office of the corporation is located as stated in its
AOI even though the corporation has closed its office therein
and relocated to another place. (Hyatt Elevators and
Escalators Corp. v. Goldstar Elevator Phils, Inc., supra.)
´In property taxation, the situs of intangible property, such as
shares of stocks, is at the domicile or residence of the owner.
Watered Stock
´A watered stock is a stock issued in exchange for cash,
property, share, stock dividends, or services lesser than its
par value or issued value. (Sec. 64, RCC) Watered Stocks
include stacks:
´1. Issued without consideration (bonus share);
´2. Issued for a consideration other than cash, the fair valuation of
which is less than its par or issued value;
´3. Issued as stack dividend when there are no sufficient retained
earnings to justify it; and
´4. Issued as fully paid when the corporation has received a lesser
sum of money than its par or issued value (discount share).
´Watered stocks can either be par or no par value shares.
Liability of Directors for Watered Stock
´Defenses that can be invoked in order that a director
or an officer can escape liability for the issue of a
watered stocks
´The director or officer did not consent and did not have
knowledge in the issuance of the watered stock
´The director or officer objected to its issuance, provided:
´a. Objection must be directed to the issuance of the watered
stocks;
´b. Inwriting
´c. File the same with the corporate secretary; and. Such
objection must be done before the sale of stocks. (Sec. 64, RCC)
Payment of Balance of Subscription
´On the date specified in the subscription contract, without
need of demand or call;
´If no date of payment has been specified, on the date
specified in the call made by the BOD (Sec. 6, RCC);
´If no date of payment has been specified in the call made,
within 30 days from the date of call;
´When insolvency supervenes upon a corporation and the
court assumes jurisdiction to wind it up, al unpaid
subscriptions become payable on demand, and are at once
recoverable, without necessity of any prior call.
Payment of Balance of Subscription
´ Unpaid balance will accrue interest if so required by the subscription
contract and at the rate of interest fixed in the subscription contract. If
no rate of interest is fixed in subscription contract, such rate shall be
deemed to be the legal rate. (Sec. 65, RCC)
´ The above interest is different from the interest contemplated by Sec.
6, the unpaid balance involved in which, will only accrue interest, by
way of penalty, on the date specified in the contract of subscription or
on the date stated in the call made by the board.
´ Interest contemplated in Sec. 65, RCC pertains to moratory interest
which is the interest on account of subscription in an installment basis,
while Sec. 66 speaks of compensatory interest which is the interest on
account of delay.
Call by the BOD and Notice Requirement
´ A call is made in a form of board resolution that unpaid subscription to
the capital stock are due and payable and the same or such percentage
thereof shall be collected, together with all accrued interest, on a
specified date and that if no payment is made within 30 days from said
date, all stocks covered by said subscription shall thereupon become
delinquent and shall be subject to public auction sale.
´ The notice of the call must be served on the stockholders concerned in
the manner prescribed in the call, which may either be by registered
mail and/or personal delivery and publication.
´ Notice of call is necessary to bind the stockholders. (Ibid, citing Baltazar
v. Lingayen Gulf Electric Power, G.R. No. L-16236, June 30, 1965)
Sale of Delinquent Shares
´If no payment is made within thirty (30) days from
the date specified in the subscription contract or on
the date stated in the call made by the board, al
stocks covered by the subscription shall thereupon
become delinquent and shall be subject to sale,
unless the board of directors orders otherwise.
(Sec.66,RCC)
Call by Resolution of the BOD
´Stocks become delinquent when the unpaid
subscription and accrued interests thereon are not
paid within 30 days from their due date as specified
in the subscription contract or in the call by the board
of directors.
´The delinquency is automatic after said 30-day period
and does not need a declaration by the board making
the stock delinquent.
Allowable Restrictions on
the Sale of Shares
´1. Restrictions are provided in the articles of incorporation
´2. It must be printed at the back oft he certificate of stock; an
´3. Must not be more onerous than the right of first refusal
´Corporation can provide regulations to the sale/transfer of
the shares of stockholders but the authority granted to a
corporation to regulate the transfer of its stock does not
empower it to restrict the right of a stockholder to transfer
his shares, but merely authorizes the adoption of regulations
as to the formalities and procedure to be followed in
effecting transfer. (Thomson v. CA, G.R. No. 116631,
Requisites for the valid
transfer of Shares
´ If represented by a certificate, the following must be strictly complied with:
´ 1. Indorsement by the owner and his agent;
´ 2. Delivery of the certificate;
´ 3. To be valid to third parties and to the corporation, the transfer must be recorded in
the hooks of the corporation (Rural Bank of
Lipav.CA,G.R.No.124535,Sepember28,2001); and
´ 4. No shares of stock against which the corporation holds any unpaid claim shall be
transferrable (Sec. 62, RCC)
´ Unpaid claim refers to claim arising from unpaid subscription, and not to any
indebtedness which a stockholder or subscriber may owe to the corporation
arising from any other transaction. (China Banking Corp. v. CA and Valley Golf
and Country Club, G.R. No. 117604, March 26, 1997)
´ If NOT represented by a certificate (such as when the certificate has not yet been issued
or where for some reason is not in the possession of the stockholder):
´ By means of Deed of Assignment
´ Such is duly recorded in the books of the Corporation
Right to Inspect Corporate Records
´ Corporate records, regardless of the form in which they are stored, shall
be open to inspection by any director, trustee, stockholder or member
of the corporation in person or by a representative at reasonable hours
on business days, and a demand in writing may be made by such
director, trustee or stockholder at their expense, for copies of such
records or excerpts from said records.
´ The inspecting or reproducing party shall remain bound by
confidentiality rules under prevailing laws, such as the rules on trade
secrets or processes under Republic Act No. 8293, otherwise known as
the “Intellectual Property Code of the Philippines”, as amended,
Republic Act No. 10173, otherwise known as the “Data Privacy Act of
2012”, Republic Act No. 8799, otherwise known as “The Securities
Regulation Code”, and the Rules of Court.
Effect of Refusal to Inspect Corporate
Records
´ Any officer or agent of the corporation who shall refuse to allow the inspection
and/or reproduction of records in accordance with the provisions of this Code
shall be liable to such director, trustee, stockholder or member for damages,
and in addition, shall be guilty of an offense which shall be punishable under
Section 161 of the RCC:
´ Provided , That if such refusal is made pursuant to a resolution or order of the
board of directors or trustees, the liability under this section for such action shall
be imposed upon the directors or trustees who voted for such refusal:
´ Provided , further , That it shall b e a defense to any action under this section
that the person demanding to examine and copy excerpts from the
corporation’s records and minutes has improperly used any information secured
through any prior examination of the records or minutes of such corporation or
of any other corporation, or was not acting in good faith or for a legitimate
purpose in making the demand to examine or reproduce corporate records, or
is a competitor, director, officer, controlling stockholder or otherwise represents
the interests of a competitor
Dissolution
´A corporation may be dissolved voluntarily or involuntarily.
Voluntary dissolution could be done by (1) shortening the
corporate term, (2) filing a request for dissolution (where no
creditors are affected), and (3) filing a petition for dissolution
(where creditors are affected). In case of shortening of
corporate term, the SEC makes a distinction between a
remaining corporate term of at least one year from the
approval of the application and a remaining corporate term
of less than one year.
´On the other hand, involuntary dissolution could be initiated
by the SEC on its own or by petition of an interested party.
Close Corporation
´A close corporation is one whose articles of
incorporation provides that:
1. all the corporation’s issued stock of all classes, exclusive of
treasury shares, shall be held of record by not more than a
specified number of persons, not exceeding twenty (20);
2. all the issued stock of all classes shall be subject to one or
more specified restrictions on transfer; and
3. the corporation shall not list in any stock exchange or make
any public offering of its stocks of any class.
Close Corporation
´Any corporation may be incorporated as a close
corporation, except:
• mining companies
• oil companies
• stock exchanges
• banks
• insurance companies
• public utilities
• educational institutions
• corporations declared to be vested with public interest
Validity of Restrictions on Transfer of
Shares
´Restrictions on the right to transfer shares must
appear in the articles of incorporation, in the
bylaws, as well as in the certificate of stock;
otherwise, the same shall not be binding on any
purchaser in good faith.
´If upon the expiration of the period, the existing
stockholders or the corporation fails to exercise
the option to purchase, the transferring
stockholder may sell their shares to any third
person.
Pre-emptive right in close corporations
´The preemptive right of stockholders in close
corporations shall extend to all stock to be issued,
including reissuance of treasury shares, whether for
money, property or personal services, or in payment of
corporate debts, unless the articles of incorporation
provide otherwise.
Pre-emptive right in close corporations
´ The preemptive right of stockholders in close corporations shall extend to all
stock to be issued, including reissuance of treasury shares, whether for money,
property or personal services, or in payment of corporate debts, unless the
articles of incorporation provide otherwise.
´ Issued shares: In case of valid restrictions on the right to transfer shares,
existing stockholders or the corporation has the option to purchase the
shares of the transferring stockholder. If, upon the expiration of the
prescribed period, the existing stockholders or the corporation fails to
exercise the option to purchase, the transferring stockholder may sell their
shares to any third person.
´ Unissued shares: The preemptive right of stockholders in close
corporations shall extend to all stock to be issued, including reissuance
of treasury shares, whether for money, property or personal services, or in
payment of corporate debts, unless the articles of incorporation provide
otherwise.
Amendments of Articles of Incorporation
´Any
amendment
to
the
articles
of
incorporation which seeks to delete or remove any
provision required by Title XII or to reduce a quorum
or voting requirement stated in said articles of
incorporation shall require the affirmative vote of at
least 2/3 of the outstanding capital stock, whether
with or without voting rights, or of such greater
proportion of shares as may be specifically provided
in the articles of incorporation for amending, deleting
or removing any of the aforesaid provisions, at a
meeting duly called for the purpose.
Non-stock Corporation
´a corporation that does not issue shares of stock. It can be
formed as either a for-profit or non-profit corporation. Since
the Non-Stock Corporation has no shareholders, it is owned
by its members – meaning a member-owned corporation
that does not issue shares of stock.
´That any profit which a nonstock corporation
may obtain incidental to its operations shall,
whenever necessary or proper, be used for the
furtherance of the purpose or purposes for which
the corporation was organized, subject to the
provisions of the law.
Educational Corporations
´ shall be governed by special laws and by the general provisions of this
RCC.
´ Unless otherwise provided in the articles of incorporation or bylaws,
the board of trustees of incorporated schools, colleges, or other
institutions of learning shall, as soon as organized, so classify
themselves that the term of office of one-fifth (1/5) of their number
shall expire every year. Trustees thereafter elected to fill vacancies,
occurring before the expiration of a particular term, shall hold office
only for the unexpired period. Trustees elected thereafter to fill
vacancies caused by expiration of term shall hold office for five (5)
years. A majority of the trustees shall constitute a quorum for the
transaction of business. The powers and authority of trustees shall be
defined in the bylaws.
´ For institutions organized as stock corporations, the number and term
of directors shall be governed by the provisions on stock corporations.
Religious Corporations
´Religious corporations may be
incorporated by one or more persons.
Such corporations may be classified into
corporations sole and religious societies.
Corporation Sole
´For the purpose of administering and
managing, as trustee, the affairs,
property and temporalities of any
religious denomination, sect or church, a
corporation sole may be formed by the
chief archbishop, bishop, priest, minister,
rabbi, or other presiding elder of such
religious denomination, sect, or church.
Religious Societies
´ Unless forbidden by competent authority, the Constitution, pertinent rules,
regulations, or discipline of the religious denomination, sect or church of
which it is a part, any religious society, religious order, diocese, synod, or
district organization of any religious denomination, sect or church, may,
upon written consent and/or by an affirmative vote at a meeting called for
the purpose of at least two-thirds (2/3) of its membership, incorporate for
the administration of its temporalities or for the management of its affairs,
properties, and estate by filing with the Commission, articles of
incorporation verified by the affidavit of the presiding elder, secretary, or
clerk or other member of such religious society or religious order, or
diocese, synod, or district organization of the religious denomination, sect
or church, setting forth the following:
´ (a) That the religious society or religious order, or diocese, synod, or district
organization is a religious organization of a religious denomination, sect or
church;
Religious Societies
´ (b) That at least two-thirds (2/3) of its membership has given written consent or has
voted to incorporate, at a duly convened meeting of the body;
´ (c) That the incorporation of the religious society or religious order, or diocese,
synod, or district organization is not forbidden by competent authority or by the
Constitution, rules, regulations or discipline of the religious denomination, sect or
church of which it forms part;
´ (d) That the religious society or religious order, or diocese, synod, or district
organization desires to incorporate for the administration of its affairs, properties
and estate;
´ (e) The place within the Philippines where the principal office of the corporation is
to be established and located; and
´ (f) The names, nationalities, and residence addresses of the trustees, not less than
five (5) nor more than fifteen (15), elected by the religious society or religious order,
or the diocese, synod, or district organization to serve for the first year or such
other period as may be prescribed by the laws of the religious society or religious
order, or of the diocese, synod, or district organization.
One Person Corporation
´ A One Person Corporation is a corporation with a single stockholder: Provided, that only a
natural person, trust, or an estate may form a One Person Corporation.
´ Banks and quasi-banks, pre-need, trust, insurance, public and publicly-listed companies, and
non-chartered government-owned and -controlled corporations may not incorporate as One
Person Corporations: Provided, further, That a natural person who is licensed to exercise a
profession may not organize as a One Person Corporation for the purpose of exercising such
profession except as otherwise provided under special laws.
´
A One Person Corporation shall not be required to have a minimum authorized capital stock
except as otherwise provided by special law.
´ A One Person Corporation shall file articles of incorporation in accordance with the
requirements under Section 14 of this Code. It shall likewise substantially contain the
following:
´ (a) If the single stockholder is a trust or an estate, the name, nationality, and residence of the trustee,
administrator, executor, guardian, conservator, custodian, or other person exercising fiduciary duties
together with the proof of such authority to act on behalf of the trust or estate; and
´ (b) Name, nationality, residence of the nominee and alternate nominee, and the extent, coverage and
limitation of the authority.
´ The One Person Corporation is not required to submit and file corporate bylaws.
One Person Corporation
´ A One Person Corporation shall indicate the letters “OPC” either below or at the end of its
corporate name.
´ The single stockholder shall be the sole director and president of the One Person Corporation.
´ Within fifteen (15) days from the issuance of its certificate of incorporation, the One Person
Corporation shall appoint a treasurer, corporate secretary, and other officers as it may deem
necessary, and notify the Commission thereof within five (5) days from appointment.
´ The single stockholder may not be appointed as the corporate secretary. In addition to the
functions designated by the One Person Corporation, the corporate secretary shall:
´ (a) Be responsible for maintaining the minutes book and/or records of the corporation;
´ (b) Notify the nominee or alternate nominee of the death or incapacity of the single
stockholder, which notice shall be given no later than five (5) days from such occurrence;
´ (c) Notify the Commission of the death of the single stockholder within five (5) days from
such occurrence and stating in such notice the names, residence addresses, and contact
details of all known legal heirs; and
´ (d) Call the nominee or alternate nominee and the known legal heirs to a meeting and
advise the legal heirs with regard to, among others, the election of a new director,
amendment of the articles of incorporation, and other ancillary and/or consequential
matters.
One Person Corporation
´ A single stockholder who is likewise the self-appointed treasurer of the corporation shall give
a bond to the Commission in such a sum as may be required: Provided, That the said
stockholder/treasurer shall undertake in writing to faithfully administer the One Person
Corporation’s funds to be received as treasurer, and to disburse and invest the same
according to the articles of incorporation as approved by the Commission. The bond shall be
renewed every two (2) years or as often as may be required.
´ he single stockholder shall designate a nominee and an alternate nominee who
shall, in the event of the single stockholder’s death or incapacity, take the place of
the single stockholder as director and shall manage the corporation’s affairs.
´ The articles of incorporation shall state the names, residence addresses and
contact details of the nominee and alternate nominee, as well as the extent and
limitations of their authority in managing the affairs of the One Person
Corporation.
´ The written consent of the nominee and alternate nominee shall be attached to the
application for incorporation. Such consent may be withdrawn in writing any time
before the death or incapacity of the single stockholder.
One Person Corporation
´ When the incapacity of the single stockholder is temporary, the nominee shall sit as
director and manage the affairs of the One Person Corporation until the
stockholder, by self determination, regains the capacity to assume such duties.
´ In case of death or permanent incapacity of the single stockholder, the nominee
shall sit as director and manage the affairs of the One Person Corporation until the
legal heirs of the single stockholder have been lawfully determined, and the heirs
have designated one of them or have agreed that the estate shall be the single
stockholder of the One Person Corporation.
´ The alternate nominee shall sit as director and manage the One Person
Corporation in case of the nominee’s inability, incapacity, death, or refusal to
discharge the functions as director and manager of the corporation, and only for
the same term and under the same conditions applicable to the nominee.
´ The single stockholder may, at any time, change its nominee and alternate nominee
by submitting to the Commission the names of the new nominees and their
corresponding written consent. For this purpose, the articles of incorporation need
not be amended.
One Person Corporation
´A sole shareholder claiming limited liability has the
burden of affirmatively showing that the corporation
was adequately financed.
´Where the single stockholder cannot prove that the
property of the One Person Corporation is
independent of the stockholder’s personal property,
the stockholder shall be jointly and severally liable for
the debts and other liabilities of the One Person
Corporation.
´The principles of piercing the corporate veil applies
with equal force to One Person Corporations as with
other corporations.
One Person Corporation
´ When a single stockholder acquires all the stocks of an ordinary stock corporation, the latter may
apply for conversion into a One Person Corporation, subject to the submission of such documents
as the Commission may require. If the application for conversion is approved, the Commission shall
issue a certificate of filing of amended articles of incorporation reflecting the conversion. The One
Person Corporation converted from an ordinary stock corporation shall succeed the latter and be
legally responsible for all the latter’s outstanding liabilities as of the date of conversion.
´ A One Person Corporation may be converted into an ordinary stock corporation after due notice to
the Commission of such fact and of the circumstances leading to the conversion, and after
compliance with all other requirements for stock corporations under this Code and applicable rules.
Such notice shall be filed with the Commission within sixty (60) days from the occurrence of the
circumstances leading to the conversion into an ordinary stock corporation. If all requirements have
been complied with, the Commission shall issue a certificate of filing of amended articles of
incorporation reflecting the conversion.
´ In case of death of the single stockholder, the nominee or alternate nominee shall transfer the
shares to the duly designated legal heir or estate within seven (7) days from receipt of either an
affidavit of heirship or self-adjudication executed by a sole heir, or any other legal document
declaring the legal heirs of the single stockholder and notify the Commission of the transfer. Within
sixty (60) days from the transfer of the shares, the legal heirs shall notify the Commission of their
decision to either wind up and dissolve the One Person Corporation or convert it into an ordinary
stock corporation. The ordinary stock corporation converted from a One Person Corporation shall
succeed the latter and be legally responsible for all the latter’s outstanding liabilities as of the date
of conversion.
Bases of Authority over Foreign
Corporations
´A corporation may give actual consent to judicial jurisdiction
manifested normally by compliance with the State's foreign
corporation qualification requirements (licensing
requirements and other requisites to lawfully transact
business in the Philippines);
´A corporation, even though not qualified (not licensed), by
engaging in sufficient activity (doing business) within the
State, established judicial jurisdiction over the foreign
corporation. (Foreign Corporations: The Interrelation of
Jurisdiction and Qualification, Indiana Law Journal, Article 4,
Vol. 33, Issue 3, retrieved on April 29, 2013)
Consent
´ Through compliance with the Philippines’ legal requirements to lawfully engage in
business within the country’s territory, the foreign corporation gives its actual consent
to be subjected to the jurisdiction of the Philippines. (Ibid)
´ By securing a license, which isa legal requirement to lawfully engage in business in the
Philippines, the foreign entity would be giving assurance that it will abide by the
decisions of our courts, even if adverse to it. (Eriks PTE, Ltd. v. CA, GR 118843,
February6,1997)
´ Foreign Corporations shall have the right to transact business in the Philippines after
obtaining a license for that purpose in accordance with the RCC and a certificate of
authority from the appropriate government agency. (Sec. 140, RCC)
´ Isolated Transactions - where a foreign corporation had no intention to engage
continuously in the transaction, it is not considered as doing business in the
Philippines and therefore need not get a license.
Doctrine of Doing Business
´Under the Foreign Investment Act (R.A. No. 7402), a
foreign corporation is “deemed doing business in the
Philippines” if it is continuing the body or substance
of the business or enterprise for which it was
organized. It is the intention of an entity to continue
the body of its business in the country. The grant and
extension of 90-day credit terms of a foreign
corporation to a domestic corporation for every
purchase shows an intention to continue transacting
with the later.
Necessity of a License to do Business
´ The purpose of the law in requiring that a foreign corporation doing
business in the PI pines be licensed to do so is to subject such
corporation to the jurisdiction of the courts. The object is not to
prevent foreign corporation from performing single acts but to prevent
it from acquiring a domicile for the purpose of business without taking
steps necessary to render it amenable to suits in local courts. (MarshallWells Co. vs. Elser & Co, G. R. No. 22015, September 1, 1924)
´ Further, the following are considered objectives of the statutory
provisions prescribing regulation of foreign corporations:
´ 1. To place the foreign corporations under the jurisdiction of the court;
´ 2. To place them in the same footing as domestic corporation; and
´ 3. To protect the public in dealing with the said corporation.
Resident Agent
´ A Resident Agent is an individual/corporation appointed by a foreign corporation to
receive summons and other legal proceedings served to or against the foreign
corporation’s local entity in the Philippines, on behalf of the corporation.
´ The resident agent can be an individual residing in the Philippines or a domestic
corporation lawfully doing business in the country. If an individual, s/he must be of
good moral character and sound financial standing. If a corporation, it must be fully
compliant with SEC and have sound financial standing.
´ The appointment of a resident agent must be authorized through a Board
Resolution and an agreement executed by the Board of Directors of the foreign
corporation. The resident agent must signify their acceptance of the
appointment through an official document.
´ Failure to appoint or maintain a resident agent is a ground for revocation of the
license issued by SEC.
Resident Agent
´ In compliance with the RCC and other applicable laws, a resident agent shall have the
following responsibilities:
• Receive summons and legal proceedings served to the local entity and transmit
them to the Board of Directors of the foreign corporation
• Regularly communicate with the Board of Directors for any updates on corporate
compliance and other related concerns
• Prepare minutes of meetings of the Board of Directors
• Prepare and file General Information Sheet (GIS) annually with SEC or when there
are changes in any information about the local entity (address, directors/officers,
etc.)
´ The appointment of a resident agent can be revoked if the foreign corporation decides
to replace their incumbent resident agent. The foreign corporation must submit to SEC
a copy of the Board Resolution certifying the revocation and a duly authenticated Power
of Attorney which shall designate the name and other pertinent details of the new
resident agent.
Personality to Sue
´ Only foreign corporations that have been issued a license to operate a
business in the Philippines have the personality to sue. (Sec. 150, RCC)
´ No foreign corporation transacting business in the Philippines without
a license, or its successors or in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such corporation
may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under
Philippine laws. (Sec. 150, RCC)
´ Exception is under the rule on estoppel, a party is estopped to
challenge the personality of a foreign corporation to sue, even if it has
no license, after having acknowledged the same by entering to a
contract with it. One who has dealt with a corporation of foreign origin
as a corporate entity is estopped to deny its corporate existence.
Suability of Foreign Corporations
´A foreign corporation may be sued in the
Philippines:
´[1]
If it is transacting or doing business in the
Philippines with a license;
´[2]
If it is transacting or doing business in the
Philippines without a license;
´However, if it is not transacting or doing business
in the Philippines and does not have any license
to so transact or do business in the Philippines, it
cannot be sued in the Philippines for lack of
jurisdiction.
Revocation of License
´ Without prejudice to other grounds provided under special laws,
the license of a foreign corporation to transact business in the
Philippines may be revoked or suspended by the Commission
upon any of the following grounds:
´ (a) Failure to file its annual report or pay any fees as required by this
Code;
´ (b) Failure to appoint and maintain a resident agent in the
Philippines as required by this Title;
´ (c) Failure, after change of its resident agent or address, to submit
to the Commission a statement of such change as required by this
Title;
´ (d) Failure to submit to the Commission an authenticated copy of
any amendment to its articles of incorporation or bylaws or of any
articles of merger or consolidation within the time prescribed by this
Title;
Revocation of License
´ (e) A misrepresentation of any material mater in any application,
report, affidavit or other document submitted by such corporation
pursuant to this Title;
´ (f) Failure to pay any and all taxes, imposts, assessments or
penalties, if any, lawfully due to the Philippine Government or any of
its agencies or political subdivisions;
´ (g) Transacting business in the Philippines outside of the purpose or
purposes for which such corporation is authorized under its license;
´ (h) Transacting business in the Philippines as agent of or acting on
behalf of any foreign corporation or entity not duly licensed to do
business in the Philippine; or
´ (i) Any other ground as would render it unfit to transact business in
the Philippines.
Merger and Consolidation
´ A merger involves two companies joining together to create a resulting
company that is either a combination of the two. The resulting company may
also be a continuation of the dominant company after it absorbs the other.
´ In a business consolidation, one or more companies combine using new
branding.
´ Consolidation, on the other hand, happens when two (or more)
corporations unite, giving rise to a new corporate body and dissolving
the constituent corporations which cease to exist as separate
corporations.
´ The Revised corporation code provided that two (2) or more
corporations may merge into a single corporation which shall be one of
the constituent corporations or may consolidate into a new single
corporation which shall be the consolidated corporation.
Plan of Merger or Consolidation
´ Two (2) or more corporations may merge into a single corporation which shall be one of
the constituents corporations or may consolidate into a new single corporation which
shall be the consolidated corporation.
´ The board of directors or trustees of each corporation, party to the merger or
consolidation, shall approved a plan of merger or consolidation, shall approved a plan of
merger or consolidation, shall approve a plan of merger or consolidation setting forth the
following:
´ (a) The names of the corporations proposing to merge or consolidate hereinafter
referred to as the constituent corporations;
´ (b) The terms of the merger or consolidation and the mode of carrying the same into
effect;
´ (c) A statement of the changes, if any, in the articles of incorporation of the surviving
corporation in case of merger; and, in case of consolidation, all the statements
required to be set forth in the articles of incorporation for corporations organized
under this Code; and
´ (d) Such other provisions with respect to the proposed merger or consolidation as
are deemed necessary or desirable.
Effects of Merger or Consolidation
´ (a) The constituent corporations shall become a single corporation shall become a single
corporation which, in case of merger, shall be the surviving corporation designated in the
plan of merger; and in case of consolidation, shall be the consolidated corporation
designated in the plan of consolidation;
´ (b) The separate existence of the constituent corporations shall cease, except that of the
surviving or the consolidated corporation;
´ (c) The surviving or the consolidated corporation shall possess all the right, privileges,
immunities and franchises of each constituent corporation; and all real or personal
property, all receivables due on whatever account, including subscriptions to shares and
other choses in action, and every other interest of, belonging to, or due to each
constituents corporation, shall be deemed transferred to and vested in such surviving or
consolidated corporation as though such surviving or consolidated corporation had itself
incurred such liabilities or obligations; and any pending claim, action or proceeding
brought by or against any constituent corporation may be prosecuted by or against the
surviving or consolidated corporation. The rights of creditors or liens upon the property of
such constituent corporations shall not be impaired by the merger or consolidation.