LAW ON CORPORATION
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A. Definition of Corporation – Sec. 2, RCC
A corporation is an artificial being created by operation of
law, having the right of succession and the powers,
attributes, and properties expressly authorized by law or
incidental to its existence.
Attributes
1. It is an artificial being – it has a juridical personality.
2. Created by operation of law (state’s consent; compliance with
the requirements imposed by law)
3. Has the right of succession (it continues to exist regardless of
the changes in the ownership)
4. Has power, attributes, properties granted by law (Doctrine of
Limited Capacity: a corporation can exercise only the powers
expressly conferred upon it by law and its AOI, those implied
from such powers expressly granted, and those that are
inherent to its existence)
B. Nature of Corporation
a. Composition
→ two (2) or more persons, but not more than fifteen (15)
→ Only OPC may have a single stockholder, as well as a sole
director.
→ incorporators may be composed of any combination of
natural persons/s, SEC-registered partnership/s SECregistered domestic corporation/s or association/s as well as
foreign corporation/s,
→ Incorporators who are natural persons must be of legal age,
and must sign the AOI/Bylaws.
b. Juridical Personality
→ A corporation commences its corporate existence and
juridical personality and is deemed incorporated from the
date the SEC issues certificate of incorporation under its
official seal.
c. Limited Liability Rule
→ achieved to protect the shareholders.
→ The corporation separates the owners as a different legal
entity and makes the corporation responsible for all debts
and obligations
C. Formation
a. Components
1. Corporators - those who compose a corporation.
2. Incorporators - those mentioned in the AOI as originally
forming and composing the corporation.
3. Stockholders – corporators in a stock corporation
4. Members – corporators in a nonstock corporation
5. BOD –the governing body in a stock corporation.
Board of Trustees –the governing body in a non-stock
corporation.
6. Corporate Officers – officers as may be provided for in the bylaws
7. Subscribers – persons who have agreed to take and pay for
original, unissued shares of a corporation formed or to be
formed.
8. Promoter – founder or organizer of a corporation
b. Certificate of Incorporation
If the Commission finds that the submitted documents and
information are fully compliant with the requirements, certificate
of incorporation shall be issued. (RCC Sec. 18, Paragraph 2)
c. Articles of Incorporation
Defines the charter of the corporation and is executed before
incorporation
d. Capital Requirement
Stock corporations shall not be required to have a minimum
capital stock, except as otherwise specifically provided by special
law.
D. Classes of Corporation
a. Stock v Non-Stock (Sec. 3, RCC)
Stock corporations
nonstock corporation
those which have capital one where no part of its
stock divided into shares & income is distributable as
are authorized to distribute to dividends to its members,
the holders of such shares, trustees, or officers
dividends, or allotments of the any profit it may obtain shall
surplus profits on the basis of be used for the furtherance of
the shares held.
the purpose/ purposes for
which it was organized
c. Public v. Private
Public Corporations
formed/ organized for the
government which have for
their purpose the general
good and welfare.
d. De Jure v. De Facto
De facto
exits but not in law;
substantially complied with
the requirements of RCC.
Private Corporations
formed for some private
purpose, benefit, aim or end.
De Jure
one
created
in
strict
conformity with the statutory
requirements
for
incorporation
e. Corporation by Estoppel
→ founded on principles of equity and is designed to prevent
injustice and unfairness. It applies when persons assume to
form a corporation and exercise corporate functions and
enter into business relations with third persons.
→ All persons who assume to act as a corporation knowing it to
be w/o authority to do so shall be liable as general partners
for all debts, liabilities and damages incurred.
f. Domestic v. Foreign
Domestic corporation – one incorporated under Philippine laws.
Foreign corporation – one formed, organized or existing under
laws other than those of the Philippines’ and whose laws allow
Filipino citizens and corporations to do business in its own
country.
g. Aggregate v. Sole v. One Person Corporation
Corporation
Corporation sole
OPC
aggregate
formed for the consists of one a corporation with
same purpose as member
or a
single
corporation sole. It corporator and his stockholder, who
consists of two or successors.
can only be a
more persons.
natural
person,
trust or estate.
h. Close Corporation
one wherein all the outstanding stock is owned (exclusive) by the
persons who are active in management and conduct of the
business (family or other closely-knit group)
i. Educational Corporation
a corporation formed for an educational purpose.
j. Religious Corporation
may be incorporated by one (1) or more persons. Such
corporations may be classified into corporations sole and
religious societies.
E. Corporation as Distinguished from a Contract of Partnership:
Point of Comparison
Manner of Creation
Partnership
By mere agreement of the parties
Number of Parties
Commencement of Juridical
Personality
Powers
By a minimum of two (2) persons
from the moment of execution of the contract
Management
In absence of stipulation, partner is
considered an agent of the partnership
No right of succession
Partners (except limited partners) are liable
personally and subsidiarily for partnership
debts to third persons.
A partner cannot transfer interest so as to
make a partner without the consent of all
other existing partners.
May be established for any period of time
stipulated by the partners.
A limited partnership is required to add the
word ‘Ltd.’ to its name.
Right of Succession
Extent of Liability to Third
Persons
Transferability of interest
Term of existence
Firm name
Dissolution
Governing Laws
May exercise powers authorized by partners
provided the same are not contrary to law,
morals, good customs, public policy or public
order.
May be dissolved at any time by the will of
any or all partners.
Revised Civil Code
F. Nationality of Corporations
a. Control Test (general rule)
→ If a corporation is at least 60% Filipino-owned, all shares
(100%) are recorded as Filipino shares. There is no need to
further trace the ownership of the 60% (or more) Filipino
stockholdings since a corporation which is at least 60%
Filipino-owned is considered as Filipino.
b. Grandfather Rule (strict rule)
→ If a corporation is less than 60% Filipino-owned, then the
corresponding percentage belonging to Filipino shall be the
only shares to be recorded as Filipino shares.
→ It is applied to corporations where 60-40 Filipino-foreign
ownership is in doubt. Under this rule, the combined totals of
the foreign and Filipino-owned corp. must be traced (i.e.,
“grandfathered”) to determine the total percentage of Filipino
ownership.
c. Corporate Juridical Personality:
Can a corporation become a partner in a partnership?
General rule: NO
Exceptions: The authority to enter into a partnership relation is
expressly conferred by the charter of (or) the AOI and the nature
to be undertaken by the partnership is in line with business of the
Corporation
CANNOT be created without the consent of
the state
Not more than fifteen (15) in number
From the date of the issuance of the
certificate of incorporation of the SEC.
Can exercise only the powers expressly
granted by law or incident to its existence.
It is vested in the BOD or trustees.
Possesses right of succession
Stockholders are liable only to the extent of
their investments as represented by the
shares subscribed by them.
A stockholder has the right to transfer his
shares without the prior consent of the other
stockholders.
Has perpetual existence
A corporation may adopt a firm name
provided it is not identical or deceptively
similar to any registered firm name or contrary
to existing laws.
May only be dissolved with the consent of the
state.
Revised Corporation Code
corporation. If it is a foreign corporation, must obtain license to
transact business in the Philippines.
i. Doctrine of Separate Personality
a corporation has a separate and distinct personality from those
who represent it. Its officers are solidarily liable only when
exceptional circumstances exist, such as cases enumerated in
Sec. 31 of the corporation code.
1. Limited Liability for Torts and Crimes
Is a corporation liable for torts?
YES, whenever a tortuous act is committed by an officer/ agent
under the express direction/ authority of the stockholders/
members acting as a body, or, generally, from the directors as
the governing body. (PNB v. CA, G.R. No. L-27155, May 18,
1978)
Is a corporation liable for crimes?
NO, since a corporation is a mere legal fiction, it cannot be held
liable for a crime committed by its officers, since it does not
have the essential element of malice; in such case the
responsible officers would be criminally liable. (People v. Tan
Boon Kong, G.R. No. L35262, Mar. 15, 1930)
Exception: If the penalty of the crime is only fine or forfeiture
of license or franchise. (Ching v. Secretary of Justice, G.R. No
164317, Feb. 6, 2006)
2. Recovery for Damages
Can a corporation recover damages? YES
Exception: Moral damages
Is a corporation entitled to moral damages?
Exception: The corporation may recover moral damages
under item 7 of article 2219 of the New Civil Code because said
provision expressly authorizes the recovery of moral damages
in cases of libel, slander, or any other form of defamation.
Article 2219 does not qualify whether the injured party is a
natural or juridical person. Therefore, a corporation, as a
juridical person, can validly complain for libel or any other form
of defamation and claim for moral damages.
ii. Doctrine of Piercing the Corporate Veil
Disregards the separate personality of a corporation if this
separate personality is used as an alter ego of another entity and
was used to justify wrong, protect fraud, perpetrate deception, or
defeat public convenience. This doctrine may also be used to
achieve equity.
Test in Determining its Applicability
The three-pronged test to determine the application of the alter
ego theory/ instrumentality theory:
(1) control of the corporation by the stockholder or parent
corporation (“instrumentality” or “control” test)
It examines the parent corporation’s relationship w/ the
subsidiary. It seeks to establish whether the subsidiary
corporation has no autonomy and the parent corporation,
though acting through the subsidiary in form and
appearance, “is operating the business directly for itself.”
(2) fraud or fundamental unfairness imposed on the plaintiff,
(“fraud” test)
It examines the relationship of the plaintiff to the corporation.
It recognizes that piercing is appropriate only if the parent
corporation uses the subsidiary in a way that harms the
plaintiff creditor. As such, it requires a showing of “an
element of injustice or fundamental unfairness.”
(3) harm or damage caused to the plaintiff by the fraudulent or
unfair act of the corporation. (“harm” test)
d. Capital Structure
i. Number and Qualifications of incorporators – (Sec. 5, 10, RCC)
→ Natural or artificial person
→ Not more than 15 (5-15 before)
→ Natural persons, partnerships or associations cannot
organize corporations for practice of profession (not allowed
to organize as a corporation unless otherwise provided
under special laws)
→ Legal age (if natural person)
→ Holder or subscriber of at least 1 stock (required only during
the incorporation)
ii. Subscription Requirements – (Sec. 10, RCC )
→ Initial subscription requirements were removed in the revised
corporation code
→
→
Stock corporations shall not be required to have minimum
capital stock, except as otherwise specifically provided by
special law. (ex. Pawnshop – P100,000, elementary school
for stock corporations – 1,000,000, security agency –
500,000) (RCC Sec. 12)
2015PR_MinimumPaidUpCapital.pdf (sec.gov.ph)
iii. Corporate Term – (Sec. 11, RCC)
→ perpetual existence unless its AOI provides otherwise.
→ Existing corporations w/ certificates of incorporation issued
prior to the effectivity of this Code shall have perpetual
existence, unless the corporation, upon a vote of its
stockholders representing a majority of its outstanding
capital stock, notifies the SEC that it elects to retain its
specific corporate term pursuant to its AOI.
→ A corporate term for a specific period may be extended/
shortened by amending the AOI (no extension may be made
earlier than 3 years prior to the original or subsequent expiry
date(s) unless there are justifiable reasons)
→ A corporation whose term has expired may apply for a revival
of its corporate existence (Upon approval by the SEC, the
corporation shall be deemed revived and a certificate of
revival of corporate existence shall be issued, giving it
perpetual existence, unless its application for revival
provides otherwise)
→ No application for revival of certificate of incorporation of
corporations engaged in money service business, & other
financial intermediaries shall be approved by the SEC unless
accompanied by a favorable recommendation of the
appropriate government agency.
iv. Classification of Shares – (Sec. 6, RCC)
→ Each share shall be equal in all respects to every other
share, except as otherwise provided in the AOI and in the
certificate of stock.
→ No share may be deprived of voting rights except “preferred”/
“redeemable” shares, unless otherwise provided in this
Code: Provided, That there shall always be a class or series
of shares with complete voting rights
→ Instances when holders of non-voting shares are allowed to
vote:
(a) Amendment of the AOI;
(b) Adoption & amendment of bylaws;
(c) Sale, lease, exchange, mortgage, pledge, or other
disposition of all/ substantially all of the corporate
property;
(d) Incurring, creating, or increasing bonded indebtedness;
(e) Increase/ decrease of authorized capital stock;
(f) Merger/ consolidation of the corporation w/ another
corporation/ other corporations;
(g) Investment of corporate funds in another corporation or
business in accordance w/ this Code; and
(h) Dissolution of the corporation.
→ Except as provided above, the vote required under this Code
to approve a particular corporate act shall be deemed to refer
only to stocks with voting rights.
→ The shares/ series of shares may or may not have a par
value (banks, trust, insurance, and preneed companies, and
other corporations authorized to obtain/ access funds from
the public, whether publicly listed or not, shall not be
permitted to issue no-par value shares of stock
→ Limitations on no par value shares:
- no-par value shares must be issued for a consideration of
at least Five pesos (P5.00) per share
- It is deemed fully paid and non-assessable;
- The entire consideration for its issuance constitutes capital
so that no part of it should be distributed as dividends;
v. Classification of Shares
1. Preferred v. Common Shares (Sec. 6, RCC)
Preferred shares
→ may be deprived of voting rights.
→ may be given preference in the distribution of dividends
and in the distribution of corporate assets in case of
liquidation, or such other preferences
Common shares
→ a class of stock entitling the holder to vote on corporate
matters, to receive dividend after other claims and
dividends have been paid (especially to preferred
shareholders), & to share in assets upon liquidation. Also
called as ordinary shares & capital stock (if it is the
corporation’s only class of stock outstanding).
→ It has no preference and entitles the shareholder to a pro
rata division of the profits, if any. The common stock
shareholders have complete voting rights.
2. Founder’s Share (Sec. 7, RCC)
→ may be given certain rights and privileges not enjoyed by
the owners of other stocks
→ The exclusive right to vote and be voted for in the election
directors, if granted, must be for a limited period not to
exceed 5 years from the date of incorporation.
3. Redeemable Shares (Sec. 8, RCC)
→ may be issued by the corporation when expressly
provided in the AOI.
→ They are shares which may be purchased by the
corporation from the holders of such shares upon the
expiration of a fixed period even there if are no
unrestricted retained earnings on the books of the
corporation.
4. Treasury Shares (Sec. 9, RCC)
→ shares of stock which have been issued & fully paid for,
but subsequently reacquired by the issuing corporation
through purchase, redemption, donation, or some other
lawful means.
→ Such shares may again be disposed of for a reasonable
price fixed by the BOD.
→ • The existence of unrestricted retained earnings is
important
e. Incorporation and organization
i. Promoter
→ founder or organizer of a corporation
→ Promoter(s) have joint liability for a corporation that was
never formed. He remains liable on contracts even after
incorporation although corporation adopts the contract.
ii. Subscription contract
→ Any contract for the acquisition of unissued stock in an
existing corporation/ a corporation still to be formed shall be
deemed a subscription notwithstanding the fact that the
parties refer to it as a purchase or some other contract.
iii. Pre-incorporation for subscription agreements – (Sec. 12,
RCC)
→ a subscription for shares of stock of a corporation still to be
formed.
→ irrevocable for a period of at least 6 months from the date of
subscription.
Exceptions:
a. All of the other subscribers consent to the revocation.
b. 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
submission of the AOI to the SEC.
iv. Consideration for stocks
→ Stocks shall not be issued for a consideration less than the
par or issued price. 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 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/ 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
→ The valuation of the consideration other than those listed
above shall initially be determined by the stockholders/ BOD,
subject to the approval of the SEC.
→ Shares of stock shall not be issued in exchange for
promissory notes/ future service
v. Articles of Incorporation
1. Contents – Sec.13
(a) The name of the corporation.
(b) Specific purpose/ purposes
- if more than 1 purpose, the AOI shall indicate primary
& secondary purpose/purposes
- a nonstock corporation may not include a purpose
which would change or contradict its nature
(c) principal office of the corporation
(d) term for which the corporation is to exist
(e) names, nationalities, and residence addresses of the
incorporators;
(f) number of directors/ trustees (not more than 15)
(g) names, nationalities, and residence addresses of
directors/ trustees
(h) for stock corporation, the amount of authorized capital
stock, no. of shares into which it is divided, the par value
of each, names, nationalities, and residence addresses
of the original subscribers, amt subscribed and paid by
each on the subscription, and a statement that some/ all
of the shares are w/o par value, if applicable;
(i) for nonstock corporation, the amt of its capital, the
names, nationalities, and residence addresses of the
contributors, and amount contributed by each; and
(j) other matters consistent with law and which the
incorporators may deem necessary and convenient
2. Non-Amendable Items
→ Names of incorporators, the first set of directors and
subscribers, the initial treasurer, their original subscription
and the place and date of execution of the first AOI cannot
be amended.
vi. Corporate Name; Limitations – (Sec. 17, RCC)
→ No corporate name shall be allowed by the Commission if:
(1) It is not distinguishable from that already reserved/
registered
(2) It is already protected by law,
(3) its use is contrary to existing law, rules and regulations.
→ A name is not distinguishable even if it contains one or more
of the ff:
(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.
→ If the name is (1) not distinguishable from a name already
reserved/ registered (2) already protected by law; or (3)
contrary to law, the SEC may summarily order the
corporation to immediately cease & desist from using such
name and require it to register a new one
vii. Registration, incorporation and commencement of corporate
existence – (Sec. 18, RCC)
→ Person(s) desiring to incorporate shall submit the intended
corporate name to the SEC for verification.
→ If the SEC finds it distinguishable from a name already
registered, not protected by law & is not contrary to law, the
name shall be reserved in favor of the incorporators. The
incorporators shall then submit their AOI and bylaws to the
Commission.
→ If the Commission finds that the submitted documents &
information are fully compliant w/ the requirements,
certificate of incorporation shall be issued
→ A corporation commences its corporate existence and
juridical personality and is deemed incorporated from the
date the SEC issues certificate of incorporation under its
official seal.
viii. Election of Directors or Trustees (Sec. 23, RCC)
→ The owners of majority of the outstanding capital stock or if
there be no capital stock, a majority of the members entitled
to vote, must be present, either in person or through a
representative authorized to act by written proxy.
→ When so authorized in the bylaws/ by majority of the BOD,
the stockholders/ members may also vote through remote
communication or in absentia.
→ The election must be by ballot, if requested by any voting
stockholder/ member.
→ In stock corporations, the total number of votes cast shall not
exceed the number of shares owned by the stockholder as
shown in the books of the corporation multiplied by the whole
number of directors to by elected. Provided, that no
delinquent stock shall be voted.
→ In nonstock corporations, the members of nonstock
corporations may cast as many votes as there are trustees
to be elected but may not cast more than one (1) vote for one
(1) candidate.
→
Nominees for directors or trustees receiving the highest
number of votes shall be declared elected.
ix. Adoption of By-Laws – (Sec. 45, RCC)
→ Before incorporation: bylaws shall be approved and signed
by all the incorporators and submitted to the Commission,
together with the AOI.
→ After incorporation: the affirmative vote of the stockholders
representing at least a majority of the outstanding capital
stock/ at least a majority of the members in case of nonstock
corporations, shall be necessary.
→ The bylaws shall be signed by the stockholders/ members
voting for them and shall be kept in the principal office
→ A copy thereof, duly certified by a majority of the directors or
trustees and countersigned by the secretary of the
corporation, shall be filed with the Commission and attached
to the original AOI.
→ The Commission shall not accept for filing the bylaws or any
amendment thereto of special corporations governed by
special laws, unless accompanied by a certificate of the
appropriate government agency to the effect that such
bylaws or amendments are in accordance with law.
1. Contents – (Sec. 46, RCC)
(a) time, place and manner of calling and conducting
regular/special meetings
(b) time and manner of calling and conducting regular/ special
meetings and mode of notifying the stockholders/
members thereof;
(c) The required quorum in meetings of stockholders/
members and the manner of voting therein;
(d) The modes by which a stockholder, member, director, or
trustee may attend meetings and cast their votes;
(e) The form for proxies of stockholders and members and the
manner of voting them;
(f) The directors’ or trustees’ qualifications, duties and
responsibilities, the guidelines for setting the
compensation of directors or trustees and officers, and the
maximum number of other board representations that an
independent director or trustee may have which shall, in
no case, be more than the number prescribed by the
Commission;
(g) The time for holding the annual election of directors or
trustees and the mode or manner of giving notice thereof;
(h) The manner of election or appointment and the term of
office of all officers other than directors or trustees;
(i) The penalties for violation of the bylaws;
(j) In the case of stock corporations, the manner of issuing
stock certificates; and
(k) Such other matters as may be necessary for the proper or
convenient transaction of its corporate affairs for the
promotion of good governance and anti-graft and
corruption measures.
→ arbitration agreement may be provided in the bylaws.
2. Binding Effects – (Sec. 45, RCC)
(1) As to Directors/ Trustees, Officers, and Stockholders/
Members – they are bound and must comply because
they are presumed to know the provisions of the bylaws.
(2) As to Third Persons – they are not bound unless they
have knowledge of the by-laws.
3. Amendments – (Sec. 47, RCC)
→ majority of the BOD/ trustees, and the owners of at least a
majority of the outstanding capital stock,/ at least a
majority of the members of a nonstock corporation, at a
regular or special meeting duly called for the purpose, may
amend or repeal the bylaws or adopt new bylaws.
→ The owners of two-thirds (2/3) of the outstanding capital
stock or two-thirds (2/3) of the members in a nonstock
corporation may delegate to the BOD or trustees the
power to amend or repeal the bylaws or adopt new bylaws
→ any power delegated to the BOD or trustees to amend or
repeal the bylaws or adopt new bylaws shall be considered
as revoked whenever stockholders owning or representing
a majority of the outstanding capital stock or majority of the
members shall so vote at a regular or special meeting.
→ The amended or new by-laws shall only be effective upon
the issuance by the SEC of a certification that the same is
in accordance with the Revised Corporation Code and
other relevant laws.
x. Effect of Non-Use of Corporate Charter – (Sec. 21, RCC)
Failure to formally organize and commence its business within 5
years from the date of its incorporation
→ the certificate of incorporation shall be deemed revoked as
of the day following the end of the five (5) year period.
Continuous inoperation for at least 5 consecutive years
→ The SEC may, after due notice and hearing, place the
corporation under delinquent status.
→ A delinquent corporation shall have a period of 2 years to
resume operations and comply with all requirements that the
Commission shall prescribe.
→ Upon compliance by the corporation, the SEC shall issue an
order lifting the delinquent status. Failure to comply with the
requirements and resume operations within the period given
shall cause the revocation of the corporation’s certificate of
incorporation.
f. Corporate Powers
A corporation exercises its powers through its BOD and/or
authorized its duly officers and agents, except in instances where
the Corporation Code requires stockholders’ approval for certain
specific acts.
i. Kinds
→ Express powers - powers expressly conferred upon it by law
(e.g., general & specific powers) and its AOI.
→ Implied powers - those implied from such powers expressly
granted (e.g., acts in the usual course of business, acts to
protect debts due to the corporation, acts designed to protect
employees.
→ Inherent powers – powers inherent to the existence of a
corporation (e.g., power of succession, power to have
corporate name, to adopt corporate seal, and to adopt &
amend its bylaws).
ii. General Powers; theory of general capacity - (Sec. 35, RCC)
(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 AOI 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;
(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;
(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 AOI.
iii. Specific Powers; theory of specific capacity
Corporate Power
Required vote
Power to Extend or Shorten
Corporate Term (Sec. 36, RCC)
1.
2.
Majority of the BOD/trustees
2/3 of the outstanding capital stock or of
the members
Majority of the BOD/trustees
2/3 of the outstanding capital stock or of
the members
Power to increase or decrease
capital stock or incur, create,
increase bonded indebtedness (Sec.
37, RCC)
1.
2.
Power to deny pre-emptive rights
(Sec. 38, RCC)
Power to sell or dispose corporate
assets (Sec. 39, RCC)
1.
2/3 of the outstanding capital stock
1.
2.
Majority of the BOD/trustees
2/3 of the outstanding capital stock or
2/3 of the members (In nonstock
corporations where there are no
members with voting rights, the vote of
Additional information
- Written notice shall be sent to
stockholders/members.
- Appraisal right may be exercised
- Written notice must be sent to
stockholders.
- There is a certificate that must be signed by
majority of the BOD
- Prior approval of the SEC/PCC is required
- Written notice shall be addressed to
stockholders/members
- Appraisal right may be exercised
at least a majority of the trustees will be
sufficient)
Power to acquire own shares (Sec.
40, RCC)
- In case of stock corporation, there should
be legitimate corporate purpose(s)
- There must be unrestricted retained
earnings to cover the shares to be acquired
Power to invest corporate funds in
another corporation or business or
for any other purpose (Sec. 41,
RCC)
1.
2.
Majority of the BOD/trustees
2/3 of the outstanding capital stock or
2/3 of the members
Power to declare dividends (Sec.
42, RCC)
1.
2.
Majority of the BOD
2/3 of the outstanding capital stock
Power to enter into management
contracts - (Sec. 43, RCC)
1.
2.
Majority of the BOD
Majority or 2/3 of the outstanding capital
stock or of members of both the
managing and the managed corporation
Ultra Vires Acts - (Sec. 44, RCC)
→ No corporation shall possess or exercise corporate
powers other than those conferred by this Code or by its
AOI and except as necessary or incidental to the exercise
of the powers conferred.
Doctrine of individuality of subscription (Sec. 62-63, RCC)
→ The capital stock of corporations shall be divided into
shares for which certificates (signed by the president or
VP, countersigned by the secretary, & sealed w/ the seal
of the corporation) shall be issued in accordance with the
bylaws
→ Shares of stock so issued are personal property and may
be transferred by delivery of the certificate or certificates
→ No transfer shall be valid, except as bet. the parties, until
the transfer is recorded in the books of the corporation
→ No shares of stock against which the corporation holds
any unpaid claim shall be transferable in the books of the
corporation
→ No certificate of stock shall be issued to a subscriber until
the full amount of the subscription together with interest
and expenses (in case of delinquent shares), if any is due,
has been paid.
5.
6.
7.
- Notice shall be addressed to each
stockholder/ member
- Appraisal right may be exercised
- If the investment is reasonably necessary
to accomplish the primary purpose, the
approval of the stockholders/ members
shall not be necessary
- Existence of unrestricted retained earnings
matters
- No management contract shall be entered
into for a period longer than five (5) years
for any one (1) term.
To compel the calling of the meetings
To enter into a voting trust agreement
To have the corporation voluntarily dissolved
Proprietary Rights
1. To transfer stock in the corporate book
2. To receive dividends when declared
3. To issuance of certificate of stock
4. To participate in the distribution of corporate assets upon
dissolution
5. To pre-emption in the issue of shares
Remedial Rights
1. To inspect corporate books
2. To recover stock unlawfully sold for delinquent payment of
subscription
3. To be furnished with most recent financial statements
4. To bring suits (derivative, individual, and representative
suit)
5. To demand payment in the exercise of appraisal right
Trust fund doctrine
→ provides that subscriptions to the capital stock of a
corporation constitute a fund to which the creditors have a
right to look for the satisfaction of their claims.
ii. Participation in management
1. Proxy – (Sec. 57, RCC)
→ Stockholders and members may vote in person or by proxy
in all meetings of stockholders/ members
→ Proxies shall be in writing, signed and filed, by the
stockholder or member, in any form authorized in the
bylaws and received by the corporate secretary within a
reasonable time before the scheduled meeting.
→ Unless otherwise provided in the proxy form, it shall be
valid only for the meeting for which it is intended.
→ No proxy shall be valid and effective for a period longer
than five (5) years at any one time
g. Stockholders and members
i. Fundamental rights of stockholders
Management Rights
1. To attend and vote in person or by proxy at a stockholders’
meetings
2. To elect and remove directors
3. To approve certain corporate acts
4. To adopt and amend or repeal the by-laws or adopt new
by-laws
2. Voting Trust Agreement – (Sec. 58, RCC)
→ 1 or more stockholders of a stock corporation may create
a voting trust for the purpose of conferring upon a trustee
or trustees the right to vote and other rights pertaining to
the shares for a period not exceeding 5 years at any time
→ in the case of a voting trust specifically required as a
condition in a loan agreement, it may be for a period
exceeding 5 years but shall automatically expire upon full
payment of the loan.
Doctrine of equality of shares
→ Each share shall be equal in all respects (rights and
liabilities) to every other share except as otherwise
provided in the AOI and stated in the certificate of stock.
→
→
→
→
→
→
→
A voting trust agreement must be in writing and notarized,
and shall specify the terms and conditions thereof.
A certified copy of such agreement shall be filed with the
corporation and with the Commission; otherwise, the
agreement is ineffective and unenforceable.
The certificate or certificates of stock covered by the voting
trust agreement shall be cancelled and new ones shall be
issued in the name of the trustee or trustees stating that
they are issued pursuant to said agreement;
The books of the corporation shall state that the transfer in
the name of the trustee or trustees is made pursuant to the
voting trust agreement
The trustee or trustees shall execute and deliver to the
transferors voting trust certificates, which shall be
transferable in the same manner and with the same effect
as certificates of stock;
No voting trust agreement shall be entered into for
purposes of circumventing the laws against anticompetitive agreements, abuse of dominant position, anticompetitive mergers and acquisitions, violation of
nationality and capital requirements, or for the
perpetuation of fraud.
Unless expressly renewed, all rights granted in a voting
trust agreement shall automatically expire at the end of the
agreed period
→
→
→
→
→
→
3. Cases when stockholder’s action is required
4. Manner of voting - (Sec. 54-68, RCC)
Right to Vote of Secured Creditors and Administrators (Sec.
54, RCC)
→ In case a stockholder grants security interest in his or her
shares in stock corporations, the stockholder-grantor shall
have the right to attend and vote at meetings of
stockholders, unless the secured creditor is expressly
given by the stockholder-grantor such right in writing which
is recorded in the appropriate corporate books.
→ Executors, administrators, receivers, and other legal
representatives duly appointed by the court may attend
and vote in behalf of the stockholders/ members without
need of any written proxy
Voting in Case of Joint Ownership of Stock (Sec. 55, RCC)
→ consent of all the co-owners shall be necessary in voting
shares of stock owned jointly by two (2) or more persons,
unless there is a written proxy
→ when the shares are owned in an “and/or” capacity by the
holders thereof, any one of the joint owners can vote said
shares or appoint a proxy therefor.
Voting Right for Treasury Shares (Sec. 56, RCC)
→ Treasury shares shall have no voting right as long as such
shares remain in the Treasury.
iii. Proprietary rights
1. Appraisal right- (Sec. 80-85, RCC)
→ Any stockholder shall have the right to dissent and
demand payment of the fair value of the shares.
→ May be exercised by making a written demand on the
corporation for the payment of the fair value of shares held
within 30 days from the date on which the vote was taken.
→
→
failure to make the demand within such period shall be
deemed a waiver of the appraisal right
If, within 60 days from the approval of the corporate action
by the stockholders, the withdrawing stockholder and the
corporation cannot agree on the fair value of the shares, it
shall be determined and appraised by three (3)
disinterested persons
no payment shall be made to any dissenting stockholder
unless the corporation has unrestricted retained earnings
in its books to cover such payment
upon payment by the corporation of the agreed or awarded
price, the stockholder shall forthwith transfer the shares to
the corporation. (sec. 81, RCC)
From the time of demand for payment of the fair value of
shares until either the abandonment of the corporate
action involved/ the purchase of the said shares by the
corporation, all rights accruing to such shares, including
voting and dividend rights, shall be suspended, except the
right of such stockholder to receive payment of the fair
value (if the dissenting stockholder is not paid the value of
the said shares within 30 days after the award, the voting
and dividend rights shall immediately be restored) (Sec.
82, RCC)
No demand for payment may be withdrawn unless the
corporation consents.
the right of the stockholder to be paid the fair value of the
shares shall cease if such demand for payment is:
(1) withdrawn with the consent of the corporation
(2) if the proposed corporate action is abandoned
(3) rescinded by the corporation
(4) disapproved by the Commission where such approval
is necessary
(5) if the Commission determines that such stockholder is
not entitled to the appraisal right,
The costs and expenses of appraisal shall be borne by the
corporation, unless the fair value ascertained by the
appraisers is approximately the same as the price which
the corporation may have offered to pay. In the case of an
action to recover such fair value, all costs and expenses
shall be assessed against the corporation, unless the
refusal of the stockholder to receive payment was
unjustified (Sec.84, RCC)
Within 10 days after demanding payment for shares held,
a dissenting stockholder shall submit the certificates of
stock for notation that such shares are dissenting shares.
Failure to do so shall, at the option of the corporation,
terminate the rights. If shares represented by the
certificates bearing such notation are transferred, and the
certificates consequently cancelled, the rights of the
transferor as a dissenting stockholder shall cease and the
transferee shall have all the rights of a regular stockholder;
and all dividend distributions which would have accrued on
such shares shall be paid to the transferee. (Sec. 85, RCC)
2. Right to inspect – (Sec. 73, RCC)
→ not absolute when the stockholder is not acting in good
faith and for a legitimate purpose or when the demand is
purely speculative or merely to satisfy curiosity.
→ Corporate records 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 for
copies of such records or excerpts from said records.
→
A requesting party who is not a stockholder or member of
record, or represents the interests of a competitor shall
have no right to inspect or demand reproduction of
corporate records
→
3. Preemptive right – (Sec. 38, RCC)
It is the preferential right of all stockholders of a stock
corporation to subscribe to all issues or disposition of shares of
any class, in proportion to their respective shareholdings.
4. Right to dividends – (Sec. 42, 70, 82-83, RCC)
→ The BOD of a stock corporation may declare dividends out
of the unrestricted retained earnings which shall be
payable in cash, property, or in stock to all stockholders on
the basis of outstanding stock held by them
→ any cash dividends due on delinquent stock shall first be
applied to the unpaid balance on the subscription plus
costs and expenses, while stock dividends shall be
withheld from the delinquent stockholders until their
unpaid subscription is fully paid (Sec. 42, RCC)
→ No delinquent stock shall be voted for at any stockholder’s
meeting, nor shall the holder be entitled to any of the rights
of a stockholder (except the right to dividends), until and
unless payment is made for the amount due on the
subscription with accrued interest, and the costs and
expenses of advertisement, if any. (Sec. 70, RCC)
iv. Remedial rights
1. Individual suit
→ filed when the cause of action belongs to the individual
stockholder personally, and not to the stockholders as a
group or to the corporation, e.g., denial of right to inspection
and denial of dividends to a stockholder.
2. Representative suit
→ the cause of action belongs to a group of stockholders, such
as when the rights violated belong to preferred stockholders.
3. Derivative suit
→ One brought by one or more stockholders/ members in the
name and on behalf of the corporation to redress wrongs
committed against it or to protect or vindicate corporate
rights, whenever the officials of the corporation refuse to sue
or are the ones to be sued or hold control of the corporation.
→ Requisites of derivative rights:
(a) The party filing the suit must be a stockholder at the time
of the objectionable acts or transactions occurred unless
such transactions are continuing in nature
(b) the stockholder should exert reasonable efforts to
exhaust all remedies
(c) the suit should not be nuisance or harassment suit
(d) corporation is the impleaded plaintiff
v. Obligation of stockholders
1. Obligation to pay the corporation for the unpaid subscription
including interest therein;
2. Obligation to pay the creditors of the corporation to the extent
of their subscription if the corporate assets are not sufficient.
vi. Meetings
1. Regular or special (Secs. 48-49, RCC)
→ Regular meetings of stockholders/ members shall be held
annually on a date fixed in the bylaws, or if not fixed, on
2.
→
→
any date after April 15 of every year as determined by the
BOD/ trustees
Special meetings of stockholders/ members shall be held
at any time deemed necessary or as provided in the
bylaws: Provided, however, That at least one (1) week
written notice shall be sent to all stockholders/ members,
unless a different period is provided in the bylaws, law or
regulation.
Notice (Sec. 49, RCC)
written notice of regular meetings shall be sent at least 21
days prior to the meeting, unless a different period is
required in the bylaws, law, or regulation ( may be sent
through electronic mail or such other manner allowed by
the SEC)
written notice of special meetings shall be sent at least one
(1) week, unless a different period is provided in the
bylaws, law or regulation.
3. Place and Time of Meetings (Sec. 50, RCC)
→ held in the principal office of the corporation as set forth in
the AOI, or, if not practicable, in the city or municipality
where the principal office of the corporation is located
4. Minutes and Agenda of Meetings (Sec. 49, RCC)
Special: stockholder or member may propose the holding of a
special meeting and items to be included in the agenda.
Regular:
(a) The minutes of the most recent regular meeting which
shall include, among others:
(1) A description of the voting and vote tabulation
procedures used in the previous meeting;
(2) A description of the opportunity given to stockholders/
members to ask questions and a record of the
questions asked and answers given;
(3) The matters discussed and resolutions reached;
(4) A record of the voting results for each agenda item;
(5) A list of the directors or trustees, officers and
stockholders/ members who attended the meeting;
and
(6) Such other items that the Commission may require in
the interest of good corporate governance and the
protection of minority stockholders;
(b) A members’ list for nonstock corporations and, for stock
corporations, material information on the current
stockholders, and their voting rights;
(c) A detailed, descriptive, balanced and comprehensible
assessment of the corporation’s performance, which shall
include information on any material change in the
corporation’s business, strategy, and other affairs;
(d) A financial report for the preceding year, which shall
include financial statements duly signed and certified in
accordance with this Code and the rules the Commission
may prescribe, a statement on the adequacy of the
corporation’s internal controls or risk management
systems, and a statement of all external audit and nonaudit fees;
(e) An explanation of the dividend policy and the fact of
payment of dividends or the reasons for nonpayment
thereof;
(f) Director or trustee profiles which shall include, among
others, their qualifications and relevant experience, length
of service in the corporation, trainings and continuing
education attended, and their board representations in
other corporations;
(g) A director or trustee attendance report, indicating the
attendance of each director or trustee at each of the
meetings of the board and its committees and in regular or
special stockholder meetings;
(h) Appraisals and performance reports for the board and the
criteria and procedure for assessment;
(i) A director or trustee compensation report prepared in
accordance with this Code and the rules the Commission
may prescribe;
(j) Director disclosures on self-dealings and related party
transactions; and/or
(k) The profiles of directors nominated or seeking election or
reelection.
5. Remote communication (Sec. 49, RCC)
The right to vote of stockholders/ members may be exercised
through remote communication/ in absentia when authorized in
bylaws.
vii. Board of Directors and Trustees
1. Repository of Corporate Powers (Sec. 23, RCC)
The directors or trustees elected shall perform their duties as
prescribed by law, rules of good corporate governance, and
bylaws of the corporation.
2.
Tenure, qualifications and disqualifications of directors (Sec.
22, RCC)
Qualifications
Not more than 15 (RCC Sec. 13 (f))
Owner of at least 1 share
1 year term (director); 3 years term (trustees) Exception: Principle of holder
Not convicted by final judgement in certain cases within
5 years prior to election (RCC Sec. 26)
other qualifications provided in the bylaws.
Disqualifications
Convicted by final judgement
(a) Of an offense punishable by imprisonment for a
period exceeding 6 years;
(b) For violating this code; and
(c) For violating RA No. 8799, otherwise known as
“The Securities Regulation Code”
Found administratively liable for any offense involving
fraudulent acts
By a foreign court or equivalent foreign regulatory
authority for acts, violations or misconduct similar to
those enumerated above.
3.
Corporations vested with public interest (Sec. 22, RCC)
The board of the following corporations vested with public
interest shall have independent directors constituting at least
twenty percent (20%) of such board:
(a) Corporations covered by Section 17.2 of Republic Act
No. 8799, otherwise known as “The Securities
Regulation Code”
(b) corporations engaged in money service business
(c) Other corporations engaged in businesses vested with
public interest similar to the above
4. Independent directors (Sec. 22, RCC)
→ Those who are independent of management and free from
→
any business or other relationship which could be
perceived to materially interfere with the exercise of
independent judgment in carrying out the responsibilities
as a director.
must be elected by the shareholders present or in absentia
5. Election (Sec. 23, RCC)
→ owners of majority of the outstanding capital stock/ majority
of the members entitled to vote, must be present, either in
person or by proxy
→ may also vote through remote communication or in absentia
when authorized.
→ The election must be by ballot, if requested by any voting
stockholder/ member.
→ In stock corporations, the total number of votes cast shall not
exceed the number of shares owned by the stockholder as
shown in the books of the corporation multiplied by the whole
number of directors to by elected. Provided, that no
delinquent stock shall be voted.
→ In nonstock corporations, the members of nonstock
corporations may cast as many votes as there are trustees
to be elected but may not cast more than one (1) vote for one
(1) candidate.
→ Nominees for directors or trustees receiving the highest
number of votes shall be declared elected.
6. Removal (Sec. 27, RCC)
→ Takes place at regular or special meeting called for the
purpose
→ Previous notice of intention to propose removal given to
stockholders/ members
→ Vote of holders with at least 2/3 outstanding capital stock,
or 2/3 of members
→ may be with or without cause: removal without cause may
not be used to deprive minority stockholders
7. Filing of vacancies (Sec. 28, RCC)
By
the
stockholders/ By the members of the BOD
members
or trustees
1.
Removal
by
the If still constituting a quorum,
stockholders/ members;
at least a majority of them
are empowered to fill any
2. Expiration of term;
3. Increase in the number of vacancy occurring in the
directors or trustees due to board other than by
by
the
amendment of the AOI; and removal
4. Other than the removal or stockholders/ members or
expiration of term, like by expiration of term.
death,
resignation,
abandonment,
or
disqualification,
if
the
remaining
directors
or
trustees do constitute not q
quorum for the purpose of
filling the vacancy.
→
→
→
A director or trustee elected to fill a vacancy shall be
referred to as replacement director or trustee and shall
serve only for the unexpired term of the predecessor in
office.
When the vacancy is due to term expiration, the election
shall be held no later than the day of such expiration at a
meeting called for that purpose.
In all other cases, the election must be held no later than
forty-five (45) days from the time the vacancy arose.
8. Compensation of directors (Sec. 29, RCC)
General rule: Directors or Trustees shall not receive any
compensation, as such directors or trustees, except for
reasonable per diems.
Exception:
1. When it is fixed by the corporation’s by-laws; or
2.When the stockholders, representing at least a majority of the
outstanding capital stock, or majority of the members, vote to
grant the same.
→
→
→
In no case shall the total yearly compensation of directors,
as such directors, exceed 10% of the net income before
income tax of the corporation during the preceding year.
Directors or trustees shall not participate in the
determination of their own per diems or compensation.
Corporations vested with public interest shall submit to
their shareholders and the Commission, an annual report
of the total compensation of each of their directors or
trustees.
9. Disloyalty
a. Business Judgment Rule
General rule: Courts will not interfere in the decisions made
by the BOD as regards the internal affairs of the corporation
Exception: Unless such contracts are so unconscionable and
oppressive as to amount to a wanton destruction of rights of
the minority.
b. Solidary Liability for Damages (Sec. 30, RCC)
being an insider owes a limited fiduciary duty to a shareholder
in transactions involving transfer of stock
13. Inside information
Information not known to the public that one has obtained by
virtue of being an insider like a director
14. Contracts (Sec. 31, RCC)
General Rule:
A contract of the corporation with one or more of its directors
or trustees, officers or their spouses and relatives within the
fourth civil degree of consanguinity or affinity is voidable, at the
option of such corporation.
Exceptions:
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 reasonable and under the
circumstances;
4. In case of corporations vested with public interest, material
contracts are approved by at least two-thirds (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 case of an officer, the contract has been previously
authorized by the BOD.
→
→
10. Personal liabilities (Sec. 30, RCC)
A director, trustee, or officer shall not attempt to 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.
→
Where any of the first 3 conditions 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 2/3 of the outstanding capital stock or of at least 2/3
of the members in a meeting called for the purpose:
full disclosure of the adverse interest of the directors or
trustees involved is made at such meeting
the contract is fair and reasonable under the
circumstances.
15. Between corporations with interlocking directors (Sec.32,
RCC)
General rule: A contract between two or more corporations
having interlocking directors shall not be invalidated on that
ground alone.
Requisites:
1. The contract is not fraudulent; and
2. The contract is fair and reasonable under the
circumstances.
11. Responsibility for Crimes
→ when a law requires a corporation to do a particular act,
failure to do so constitutes an offense, the responsible
officer is criminally liable therefore.
→ a corporation can act through its officers and agents. when
the business itself involves a violation of law, all 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.
→ 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.
Exception: If the interest of the interlocking director in one
corporation is substantial and his interest in the other
corporation or corporations is merely nominal, he shall be
subject to the provisions of section 31 insofar as the latter
corporation or corporations are concerned.
12. Special fact doctrine
a corporate officer with superior knowledge gained by virtue of
16. Executive and other special committees (Sec. 34, RCC)
Executive Committee
Substantial interest
Stockholdings exceeding twenty percent (20%) of the
outstanding capital stock shall be considered substantial for
purposes of interlocking directors.
It is a body created by the by-laws and composed of not less
than three members of the board which, subject to the statutory
limitations, has all the authority of the BOD to the extent
provided in the bylaws.
Limitations on the powers of the executive committee
1. Approval of any action for which shareholders’ approval is
also required;
2. Filing of vacancies in the board;
3. Amendment or repeal of by-laws or the adoption of new
by-laws;
4. Amendment or repeal of any resolution of the board which
by its express terms is not amendable or repealable; and
5. Distribution of cash dividends to the shareholders.
17. Meetings
a. Regular and Special Meetings (Sec. 52, RCC)
→ Regular meetings of the BOD or trustees shall be held
monthly, unless the bylaws provide otherwise.
→ Special meetings of the BOD or trustees may be held at
any time upon the call of the president or as provided in
the bylaws.
→ Meetings of directors or trustees may be held anywhere
in/ outside of the Philippines, unless the bylaws provide
otherwise.
→ Notice of regular or special meetings stating the date,
time and place of the meeting must be sent to every
director or trustee at least two (2) days prior to the
scheduled meeting, unless a longer time is provided in
the bylaws
b. Who presides (Sec. 53, RCC)
The chairman (if absent, the president) shall preside at all
meetings of the directors or trustees as well as of the
stockholders/ members, unless the bylaws provide
otherwise.
c. Quorum (Sec. 52, RCC)
Unless the AOI or the bylaws provides for a greater majority,
a majority of the directors or trustees as stated in the AOI
shall constitute a quorum to transact corporate business, and
every decision reached by at least a majority of the directors
or trustees constituting a quorum, except for the election of
officers which shall require the vote of a majority of all the
members of the board, shall be valid as a corporate act.
d. Remote communication (Sec. 52, RCC)
Directors or trustees who cannot physically attend or vote at
board meetings can participate and vote through remote
communication
such
as
videoconferencing,
teleconferencing, or other alternative modes of
communication that allow them reasonable opportunities to
participate. Directors or trustees cannot attend or vote by
proxy at board meetings.
e. Rule on abstention (Sec. 52, RCC)
A director or trustee who has a potential interest in any
related party transaction must recuse from voting on the
approval of the related party transaction without prejudice to
compliance with the requirements of Section 31 of this Code.
viii. Capital Affairs
1. Certificate of stocks (Sec. 62, RCC)
Certificate of stocks – tangible evidence of the holder’s
ownership of the stock & of his right as a shareholder. May be
issued only if the subscription is fully paid.
Shares of stock may be transferred by delivery of the certificate
or certificates endorsed by the owner or any other person
legally authorized to make the transfer. the transfer must be
recorded in the books of the corporation To be valid against
third parties.
2. Watered stocks (Sec. 61, 64, RCC)
→ Stocks issued for a consideration less than the par or
issued price thereof or in any other form other than cash
valued in excess of its fair value.
→ A director or officer of a corporation who:
(a) consents to the issuance of stocks for a consideration
less than its par or issued value; or other than cash, valued
in excess of its fair value; or
(c) having knowledge of the insufficient consideration,
does not file a written objection with the corporate
secretary, shall be liable to the corporation or its creditors,
solidarily with the stockholder concerned for the difference
between the value received at the time of issuance of the
stock and the par or issued value of the same.
3. Payment of balance of subscription (Sec. 66, RCC)
→ Payment of unpaid subscription shall be made on the date
specified in the subscription contract/ on the date stated in
the call made by the board.
→ Failure to pay on such date shall render the entire balance
due and payable and shall make the stockholder liable for
interest at the legal rate on such balance, unless a different
interest rate is provided in the subscription contract.
→ The interest shall be computed from the date specified,
until full payment of the subscription.
→ If no payment is made within 30 days from the said date,
all stocks covered by the subscription shall become
delinquent and be subject to sale, unless the BOD orders
otherwise.
4. Sale of delinquent shares (Sec. 67, RCC)
→ The BOD may, by resolution, order the sale of delinquent
stock (not less than 30 days nor more than 60 days from
the date the stocks become delinquent)
→ delinquent stock shall be sold at a public auction, unless
the delinquent stockholder pays to the corporation
5. Alienation of shares (Secs. 68-71, RCC)
→ No action to recover delinquent stock sold can be
sustained, unless the party seeking to maintain such
action first pays to the party holding the stock the sum for
which the same was sold (Sec. 68, RCC)
6. Corporate books and records
a. Records to be kept at principal office (Sec. 73, RCC)
(1) The AOI and bylaws
(2) The current ownership structure and voting rights
(3) The names and addresses of all the members of the
BOD or trustees and the executive officers;
(4) A record of all business transactions;
(5) A record of the resolutions of the board of directors or
trustees and of the stockholders or members;
(6) Copies of the latest reportorial requirements submitted
to the Commission; and
(7) The minutes of all meetings of stockholders or
members, or of the board of directors or trustees.
b. Right to inspect corporate books (Sec. 73, RCC)
→ Corporate records 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 for
copies of such records or excerpts from said records.
c. Effect of refusal to inspect corporate books (Sec. 73, RCC)
→ Any officer or agent who shall refuse to allow the
inspection shall be liable for damages
→ if such refusal is made pursuant to a resolution/ 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
7. Dissolution and liquidation
Voluntarily dissolution
a. By the vote of the BOD/ trustees and the resolution
adopted by the stockholders/ members where no
creditors are affected;
b. By the judgment of the SEC after hearing of petition for
voluntary dissolution where creditors are affected;
c. By amending the AOI to shorten the corporate term;
d. In case of a corporation sole, by submitting to the SEC
a verified declaration of the dissolution for approval; and
e. In case of merger or consolidation.
Involuntarily dissolution
1. non-use of corporate charter;
2. Continuous inoperation of a corporation;
3. Upon receipt of a lawful court order dissolving the
corporation;
4. Upon finding by final judgment that the corporation
procured its incorporation through fraud; and
5. Upon finding by final judgment that the corporation:
a. Was created for the purpose of committing,
concealing or aiding the commission of securities
violations, smuggling, tax evasion, money
laundering, or graft and corrupt practices;
b. Committed or aided in the commission of securities
violations, smuggling, tax evasion, money
laundering, or graft and corrupt practices, and its
stockholders knew of the same; and
c. Repeatedly and knowingly tolerated the
commission of graft and corrupt practices or other
fraudulent or illegal acts by its directors, trustees,
officers, or employees.
a. Modes of dissolution (Sec. 133-138, RCC)
Voluntary Dissolution Where No Creditors Are Affected
Procedure:
(1) meeting held upon call of directors/trustees
(2) notice to stockholders/ members at least 20 days prior to
the meeting
(3) resolution to dissolve must be approved by majority vote
of the board of directors or trustees, and by a resolution
duly adopted by the affirmative vote of the stockholders
owning at least majority of the outstanding capital stock or
of at least majority of the members;
(4) verified request for dissolution shall be filed with the
Commission stating: (a) the reason for the dissolution; (b)
the form, manner, and time when the notices were given;
(c) names of the stockholders and directors or members
and trustees who approved the dissolution; (d) the date,
place, and time of the meeting in which the vote was made;
and (e) details of publication.
(5) The corporation shall submit the following to the
Commission: (1) a copy of the resolution authorizing the
dissolution, certified by a majority of the board of directors
or trustees and countersigned by the secretary of the
corporation; (2) proof of publication; and (3) favorable
recommendation from the appropriate regulatory agency,
when necessary; and
(6) The Securities and Exchange Commission shall
thereupon issue the certificate of dissolution.
Voluntary Dissolution Where Creditors Are Affected
Procedures:
(1) The petition for dissolution shall be filed with the (SEC)
(2) The petition shall be signed by a majority of its board of
directors or trustees and that its dissolution was resolved
upon by the affirmative vote of the stockholders
representing at least 2/3 of the outstanding capital stock or
by at least 2/3 of the members at a meeting of its
stockholders or members called for that purpose.;
(3) The SEC shall, by an order reciting the purpose of the
petition, fix a date on or before which objections thereto
may be filed by any person, which date shall not be less
than 30 days nor more than 60 days after the entry of the
order;
(4) The copy of the order shall be published at least once a
week for 3 consecutive weeks in a newspaper of general
circulation published in the municipality or city where the
principal office of the corporation is situated, or if there be
no such newspaper, then in a newspaper of general
circulation in the Philippines, and a similar copy shall be
posted for 3 consecutive weeks in 3 public places in such
municipality or city;
(5) The SEC shall proceed to hear the petition and try any
issue made by the objections filed;
(6) If no such objection is sufficient, and the material
allegations of the petition are true, the SEC shall render
judgment dissolving the corporation and directing such
disposition of its assets as justice requires, and may
appoint a receiver to collect such assets and pay the debts
of the corporation; and
(7) The dissolution shall take effect only upon the issuance by
the Commission of a certificate of dissolution.
Dissolution by Shortening Corporate Term
Procedures:
(1) A voluntary dissolution may be effected by amending the
articles of incorporation;
(2) A copy of the amended articles of incorporation shall be
submitted to the SEC; and
(3) Approval of the SEC of the amended articles of
incorporation.
b. Methods of liquidation (Sec. 139, RCC)
→ every corporation whose charter expires, is annulled by
forfeiture, or whose corporate existence is terminated in
any other manner, shall remain as a body corporate for 3
years after the effective date of dissolution
→ At any time during said 3 years, the corporation is
authorized to convey all of its property to trustees. After
any such conveyance, all interest which the corporation
had in the property terminates
→
→
ix. Other Corporation
1. Non-stock corporation (Sec. 86-94, RCC)
Stock corporation
Nonstock corporation
Has capital stock divided Has no capital stock.
into shares.
organized for profit.
not organized for profit.
Profit are distributed to the Profits are not distributed
stockholders
through to members
dividends.
Directors cannot exceed Trustees may exceed 15
15 in number.
in number.
the term of a director is 1 The term of a trustee is
year.
not more than 3 years
Officers are elected by the Officers may be directly
BOD
elected by the members
unless
_
otherwise
provided in the articles. of
incorporation or by-laws.
Stockholders’ meetings Members’ meetings may
shall be held in the city or be held at any place
municipality where the outside the principal office
principal office of the of
the
corporation
corporation is located, and provided it shall be within
if practicable in the the Philippines.
principal office.
Shares
may
be Membership is personal in
transferred
by
the character and is not
stockholder
with
or transferable
unless
without the consent of the allowed by the articles of
corporation.
incorporation or by-laws.
→
→
→
→
the Philippines substantially similar to those of the
dissolving corporation
(d) Assets other than those mentioned in the preceding
paragraphs, if any, shall be distributed in accordance
with the provisions of the articles of incorporation or
the bylaws, to the extent that the articles of
incorporation or the bylaws determine the distributive
rights of members, or any class or classes of
members, or provide for distribution; and
(e) In any other case, assets may be distributed to such
persons, societies, organizations or corporations,
whether or not organized for profit, as may be
specified in a plan of distribution adopted pursuant to
this Chapter.
Except as provided, upon the winding up any asset
distributable to any creditor/ stockholder/ member who is
unknown shall be escheated in favor of the national
government
Except by decrease of capital stock and as otherwise
allowed, no corporation shall distribute any of its assets or
property except upon lawful dissolution and after payment
of all its debts and liabilities.
The right of the members of any class to vote may be
limited, broadened, or denied to the extent specified in the
articles of incorporation or the bylaws
Unless otherwise provided in the articles of incorporation
or the bylaws, a member may vote by proxy or through
remote communication and/or in absentia.
Membership shall be terminated for the causes provided
in the articles of incorporation or the bylaws. All rights shall
also be extinguished, unless otherwise provided in the
articles of incorporation or the bylaws.
The assets of a nonstock corporation undergoing the
process of dissolution shall be applied and distributed as
follows:
(a) All liabilities shall be paid
(b) Assets held by the corporation upon a condition
requiring return, transfer or conveyance, and which
condition occurs by reason of the dissolution, shall be
returned, transferred or conveyed in accordance with
such requirements;
(c) Assets received and held subject to limitations
permitting their use only for charitable, religious,
benevolent, educational or similar purposes, but not
held upon a condition requiring return, shall be
transferred or conveyed to one (1) or more
corporations, or organizations engaged in activities in
2. Educational corporation (Sec. 105-105, RCC)
→ shall be governed by special laws and by the general
provisions of this Code.
→ not be less than five (5) nor more than fifteen (15); shall be
in multiples of five (5).
→ Unless otherwise provided in the AOI/ bylaws, the board
of trustees shall, as soon as organized, classify
themselves that the term of office of 1/5 of their number
shall expire every year.
3. One person corporation
a. Excepted corporation (Sec. 116, RCC)
→ OPC is a corporation with a single stockholder and only a
natural person, trust, or an estate may form a it.
→ 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.
b.
Capital stock requirement (Sec. 117, RCC)
not be required to have a minimum authorized capital
stock except as otherwise provided by special law.
c.
→
→
AOI and by-laws (Sec. 118-119, RCC)
AOI shall be filed in accordance with the requirements.
Bylaws is not required
d.
Corporate Name (Sec. 120, RCC)
A One Person Corporation shall indicate the letters “OPC”
either below or at the end of its corporate name.
e. Corporate structure and officers (Sec. 121-122, RCC)
→ 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
f. Nominee (Sec. 124, 125, RCC)
→ a nominee and an alternate nominee take the place of the
single stockholder as director and manage the
corporation’s affairs in the event of the single stockholder’s
death or incapacity
When the incapacity of
the single stockholder
is temporary
In case of death or
permanent incapacity
of
the
single
stockholder
in
case
of
the
nominee’s
inability,
incapacity, death, or
refusal to discharge the
functions as director
the nominee shall sit as director and
manage
the
One
Person
Corporation until the stockholder
regains the capacity to assume
such duties.
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
The alternate nominee shall sit as
director and manage the One
Person Corporation only for the
same term and under the same
conditions
applicable
to
the
nominee
g. Liability (Sec. 130, RCC)
→ Where the single stockholder cannot prove that the
property of the OPC is independent of the stockholder’s
personal property, the stockholder shall be jointly and
severally liable for the debts and other liabilities of the
OPC.
→ The principles of piercing the corporate veil applies with
equal force to OPCs as with other corporations.
h. Conversion (Secs. 131-132, RCC)
from
an
Ordinary from OPC to an Ordinary
Corporation to OPC
Stock Corporation
When a single stockholder may be converted into an
acquires all the stocks of an ordinary Stock corporation
ordinary stock corporation, after due notice to the SEC
the latter may apply for of such fact and of the
conversion into a OPC
circumstances leading to the
conversion.
shall succeed the latter and be legally responsible for all the
latter’s outstanding liabilities as of the date of conversion.
4. Foreign Corporation
a. Bases of authority over foreign corporation
(1) Consent
(2) Doing business in the Philippines
To constitute "doing business," the activity undertaken in
the Philippines should involve profit-making.
b. Necessity of a license to do business (Secs. 141-143, RCC)
c. Personality to sue (Sec. 145, RCC)
→ Only foreign corporations with license have the personality
to sue.
→ Exception: doctrine of 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.
e. Instances when foreign corporations without license may be
allowed to sue (Sec. 150, RCC)
→ Can’t sue but may be sued
x. Merger and Consolidation
1. Definition and concept
MERGER
one or more existing
corporations are absorbed
by another corporation that
survives and continues the
combined business.
All of the constituent
corporations involved are
dissolved except one
No new corporation is
created
The surviving corporation
acquires all the assets,
liabilities, and capital stock
of all constituent
corporations
CONSOLIDATION
union of two or more
existing entities to form a
new entity called the
consolidated corporation
All consolidated
corporations are dissolved
without exception
A single new corporation
emerges
All assets, liabilities, and
capital stock of all
consolidated corporations
are transferred to the new
corporation
2. Distinguish: constituent and consolidated corporation
constituent corporation
consolidated corporation
created when two or more created when two or more
corporations merge into a corporations merge into an
single corporation which is entirely new corporation.
one of those merging
corporations.
3. Plan of merger or consolidation (Sec. 75, RCC)
The plan of merger or consolidation shall set forth the following:
(1) Names of corporations involved (constituent corporations)
(2) Terms and mode of carrying it out
(3) Statement of changes, if any, in the present articles of
surviving corporation; or the articles of the new corporation
to be formed in case of consolidation
4. Articles of merger or consolidation (Sec. 77, RCC)
An article of merger or consolidation is a document to be signed
by the president or VP of each corporation and signed by their
secretary setting forth:
(1) The plan of the merger or the plan of consolidation
(2) As to stock corporations, the number of shares
outstanding, or in the case of non‐stock corporations, the
number of members
(3) As to each corporation, the number of shares or members
voting for and against such plan, respectively
5. Procedure, effectivity, limitations, and effect (Secs. 76, 78,
79, RCC)
Procedure:
(1) each corporation shall draw up a plan of merger/
consolidation.
(2) the plan shall be approved by majority vote of each board
of the corporations
(3) the plan shall be submitted for approval by the
stockholders/ members
(4) Affirmative vote of 2/3 of the outstanding capital stock or
2/3 of the members shall be required.
(5) appraisal right may be exercised. But if Board abandons
the plan to merge or consolidate, such right is
extinguished.
(6) The plan may still be amended before filled with the SEC;
any amendment must be approved by votes of the
BOD/trustees and stockholders/members
(7) After approval, Articles of Merger/ Articles of Consolidation
shall be executed, setting forth:
a. Plan of merger or consolidation
b. In stock corporation, the number of shares
outstanding; in non‐ stock, the number of members
c. As to each corporation, number of shares or members
voting for and against such plan, respectively
d. The carrying amounts and fair values of the assets
and liabilities of the respective companies as of the
agreed cut-off date;
e. The method to be used in the merger or consolidation
of accounts of the companies;
f. The provisional or pro forma values, as merged or
consolidated, using the accounting method; and
g. Such other information as may be prescribed by the
Commission.
(8) 4 copies of the Articles of Merger or Consolidation shall be
submitted to the SEC for approval. Special corporations
like banks, insurance companies, building and loan
associations, etc., need the prior approval of the
respective government agency concerned.
(9) If SEC is satisfied that the merger or consolidation is legal,
it shall issue the Certificate of Merger or the Certificate of
Incorporation, as the case may be.
(10) If the SEC is not satisfied, it shall set a hearing, giving due
notice to all the corporations concerned.
Effectivity:
→ Upon issuance by the SEC of the certificate of merger and
consolidation.
→ In the case of merger or consolidation special corporations
governed by special laws, the favorable recommendation
of the appropriate government agency shall first be
obtained.
Limitations:
the merger or consolidation should not create illegal
combinations nor create monopolies and it should not eliminate
free and healthy competition.
Effect:
(1) The constituent corporations shall become a single
corporation which:
a. in case of merger, shall be the surviving corporation
designated in the plan of merger; and,
b. in case of consolidation, shall be the consolidated
corporation designated in the plan of consolidation;
(2) The separate existence of the constituent corporations
shall cease, except that of the surviving or the
consolidated corporation;
(3) The surviving or the consolidated corporation shall
possess all the rights, privileges, immunities, and powers
and shall be subject to all the duties and liabilities of a
corporation organized under this Code;
(4) The surviving or the consolidated corporation shall
possess:
a. all the rights, privileges, immunities and franchises of
each constituent corporation; and
b. 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 constituent
corporation, shall be deemed transferred to and
vested in such surviving or consolidated corporation
without further act or deed; and
(5) The surviving or consolidated corporation shall:
a. be responsible for all the liabilities and obligations of
each constituent corporation as though such surviving
or consolidated corporation had itself incurred such
liabilities or obligations; and
b. any pending claim, action or proceeding brought by or
against any constituent corporation may be
prosecuted by or against the surviving or consolidated
corporation.
c. The rights of creditors or liens upon the property of
such constituent corporations shall not be impaired by
the merger or consolidation.