It is an artificial being; (Doctrine of corporate personality) A corporation is a legal or juridical person, separate and distinct from its shareholders. Its corporate name may take, hold, or dispose property under its corporate capacity. May enter a contract, can sue and be sued on court. As a consequence: - Duller, Leigh Yrielle M. BSA OUTLINE: Republic Act 11232 (Revised Corporation Code of the Philippines) Sec 1. Title of the code a. Liability for acts or contracts – Utang ng corporation kanya lang, utang ng stockholders kanya lang. walang damayan (general rule) Exception: Doctrine of piercing the veil of corporate entity – It is when the corporate entity is being used as a cloak or cover for fraud or illegality, or to defeat public convenience, justify wrong, protect fraud, or defend crime. Instances: Where a corporation is dissolved and its assets are transferred to another corporation to avoid a financial liability of the first corporation. The code shall be known as the “Revised Corporation Code of the Philippines” - An act providing for the revised corporation code of the Philippines - Enacted on February 20, 2019 Scope of the code 1. Provide incorporation, organization, and regulation of private corporations, both stock and non-stock, including educational and religious corporations. 2. Defines their power and provides for their dissolution 3. Fixes the duties and liabilities of directors or trustees and other officers 4. Declares the rights and liabilities of stockholders and members 5. Prescribes the conditions under which corporations including foreign corporations may transact business 6. Provides penalties for violations of the code 7. Repeals all laws and parts of laws conflict and inconsistent with the code b. Right to acquire and possess property – acquire any property. Claims of ownership: but residual interest only. c. Property acquired by the corporation is owned by corporation and not of stockholders d. All contracts entered into in its name by its regular appointed officers or agents of contracts and not those of stockholders, belong to the partnership. e. The tax exemption granted to corporation is not extended to dividends paid. Sec. 2 CORPORATION DEFINED. Definition of Corporation (The definition refers only to private corporations or to corporations organized under the corporation code) f. Attributes of Corporation: 1. An artificial being; 2. Created by operation of law; 3. Having the right to succession; 4. has the powers, attributes, and properties expressly authorized by law or incidental to its existence. 0 Corporation has no personality to bring action in behalf of its stockholders g. Changes in stockholders will not change the partnership - 0 It is created by operation of Law; or created by law a. A corporation require special authority or grant from the state. (GOCC: GSIS, SSS) b. Created by operation of law – A special incorporation law which directly creates the corporation. May ginawang law na act as a guide lang or had provided the regulatory ways on how to create a corporation for those individual desiring to be and act as a corporation. - It has the right of succession a. A corporation has a capacity of continuous existence irrespective of the death, withdrawal, insolvency, or incapacity of a stockholders, and regardless of the transfer their interest or share of stock. (perpetual existence unless stipulated in AOI) b. 50 years renewable in the old law: batas pambansa bilang 68 c. Corporations created by special laws have the right of successions for the term provided in the laws creating them. It has only the powers, attributes and properties expressly authorized by law or incident to its existence. a. A corporation, being purely a creation of law, may exercise only such powers granted by the law of its creation. b. Express grant – power nakalagay sa law pag created by law, pag created by operation of law yung mga nakalagay sa AOI. c. Implied power- mga hindi nakalagay, mga kailangan lang gagawin. - Sec. 5 CORPORATORS – are those who compose a corporation, whether as: Stockholders in a stock corporation Members in a non-stock corporation INCORPORATORS - are those stockholders or members mentioned in the articles of incorporation as originally forming and composing the corporation and who are signatories thereof. Sec. 6 CLASSIFICATION OF SHARES The rights, privileges, or restrictions, and their stated par value must be indicated in the articles of incorporation. Each share shall be equal to other share, except provided in the articles of incorporation and in the certificate of stock. Par value shares – One in which a specific value if fixed in the articles of incorporation and appearing in the certificate of stock. No-par value shares – One without any value appearing on the face of the certificate of stock. It must be issued for a consideration of at least 5 pesos per share. Entire consideration received by the corporation for its no par value shares shall be treated as capital and shall not be available for distribution as dividends. (banks, trust, insurance, and preneed companies, public utilities, building and loan associations, and other corporations authorized to obtain or access funds from the public, whether publicly listed or not, shall not be permitted to issue no par value shares of stock.) Sec. 3&4 DIFFERENT TYPES OF CORPORATION Stock Corporations – Corporations that have capital stock divided into shares that are authorized to be distributed. BOD Non-stock Corporations – Corporations that are not stock corporations. Contribution of the 0 member is where they get their capital. BOT Corporations created by special laws or charters – This Corporation shall be governed primarily by the provisions of the special law or charter. GOCC 0 Voting Shares – Issued with the right to vote BOD and officers Non-voting shares – issued without the right to vote BOD and officers Ordinary shares – These shares entitle the holder to an equal pro-rata division of profits without any preference. Preference shares – These shares entitle the holder to certain advantages over the holders of ordinary shares. Issued only with stated par value Promotion shares – Those issued to promoters as compensation in promoting the incorporation of a corporation. Treasury shares – A stock that has been issued by the corporation as fully paid and later reacquired but not retired. Convertible shares – A stock which convertible from one class to another class. is Founder’s share - Founders’ shares may be given certain rights and privileges not enjoyed by the owners of other stocks. Redeemable shares – These are shares which may be purchased by the corporation from the holders of such shares. May be issued by the corporations when expressly provided in the article of corporation. TITLE II Sec. 10 NUMBER AND QUALIFICATIONS OF INCORPORATORS Any person, partnership, association or corporation, singly or jointly with others but not more than 15 in number, may organize a corporation. Following persons not allowed to organize as a corporation: 1. Natural persons who are licensed to practice a profession; and 0 2. Partnerships or associations organized for the purpose of practicing a profession. (Unless otherwise provided by special laws) NUMBER OF INCORPORATORS: • Not more than 15. • Note: RCC removed the minimum number of incorporators. QUALIFICATIONS OF INCORPORATORS 1. Natural persons 2. Legal age; and 3. Must own or be a subscriber to at least 1 share of the capital stock. Sec. 11 CORPORATE TERM Corporate term shall have a perpetual existence. Unless the corporation, upon a vote of its stockholders representing a majority of its outstanding capital stock, notifies the Commission that it elects to retain its specific corporate term pursuant to its AoI. Dissenting stockholder – yung umayaw sa amendment of AOI tsaka extension of term(appraisal rights) isauli ang share na lang EXTENSION OF CORPORATE TERM A corporate term for a specific period may be extended or shortened by amending the AOI, provided that: 1. No extension may be made earlier than 3 years prior to the expiration; 2. If there are justifiable reasons; or 3. Such extension shall take effect only on the day following the original or subsequently expiry date(s). RULE ON CORPORATION WHOSE TERM EXPIRED 1. They may apply for a revival of its existence together with: a. All rights & privileges under its certificate; and b. All of its duties, debt & liabilities existing prior to its revival. 0 2. Such revival must be approved by the SEC, and shall only be deemed revived upon issuance of certificate of revival of corporate existence. Sec. 12. MINIMUM CAPITAL STOCK SHALL NOT BE REQUIRED OF STOCK CORPORATION. Otherwise provided by special law or all of the shares are without par value, if applicable. 9. (Non-stock Corp) amount of its capital, names, nationalities and residence addresses of the contributors, and amount contributed by each; and 10. Other matters consistent and which incorporators may deem necessary and convenient. Sec. 13 CONTENTS OF ARTICLES OF CORPORATION All corporations shall file with the SEC the AoI, in any of the official languages, duly signed and acknowledged or authenticated, in such form and manner as be allowed by the Commission. 11. Arbitration agreement – (not mandatory, as the word in the code provided that such agreement “may be provided” in the articles. FILING OF ARTICLES OF INCORPORATION The articles of incorporation and applications for amendments may be filed with the SEC in the form of an electronic document, in accordance with the SEC’s rules and regulations on electronic filing. SUBSTANTIAL CONTENTS OF ARTICLES OF INCORPORATION 1. Name of the corporation. 2. Specific purpose or purposes for which is being formed. Where a corporation has more than one state purpose, it shall indicate the following: a. Primary purpose; b. Secondary purpose(s). 3. Principal office of the corporation, must be located within the Philippines; 4. Term of the corporation, if such has not elected perpetual existence; 5. Names, nationalities, and residence addresses of the incorporators; 6. Number of directors/trustees, which shall not be more than 15. 7. Names, nationalities, and residence addresses of persons who shall act as directors or trustees; 8. (For stock corporation) amount of its authorized capital stock, number of shares which is divided, par value of each, names, nationalities, and residence addresses of the original subscription, and a statement that some 0 Sec. 15 AMMENDMENT OF ARTICLES OF INCORPORATION Any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least twothirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code. Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, The articles of incorporation of a nonstock corporation may be amended by the vote or written assent of majority of the trustees and at least two-thirds (2/3) of the members. The amendments shall take effect upon their approval by the Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing 0 If the corporation fails to comply with the SEC’s order: for a cause not attributable to the corporation. Sec. 16 The commission may disapprove the articles of incorporation or any amendment thereto if the same is not compliant with requirements of this code. Sec. 17. CORPORATE NAME. No corporate name shall be allowed by the SEC 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, WHEN: 1. The word “corporation”, “company”, “incorporate”, “limited”, “limited liability”, an abbreviation of one of such words; and 2. Punctuations, articles, conjunctions, contractions, prepositions, abbreviations, different tenses, spacing, or number of the same word or phrase. 1. SEC may hold the corporation and its responsible directors or officers in contempt; 2. May hold them administratively, civilly, and/or criminally liable under this Code and other applicable laws; and/or 3. Revoke the registration of the corporation. SEC. 18. REGISTRATION, INCORPORATION AND COMMENCEMENT OF CORPORATION EXISTENCE PROCEDURE ON REGISTRATION 1. A person or group of persons desiring to incorporate shall submit the intended corporate name to the SEC for verification. 2. If the SEC finds that the name is distinguishable (provided the requirements for corporate name are followed), the name shall be reserved in favor of the incorporators. 3. Incorporators shall submit their articles of incorporation and by-laws to the SEC. 4. If SEC finds that the submitted documents and information are fully compliant with the requirements of this Code, SEC shall issue the certificate of incorporation. INVALID CORPORATE NAMES 1. Not distinguishable from a name already reserved or registered for the use of another corporation; 2. Protected by law; or 3. Contrary to law & rules and regulations. RULES ON CORPORATE NAMES 1. If the corporate name is one of the invalid corporate names mentioned above, the Sec may summarily order the corporation to immediately cease and desist from using such name and require the corporation to register a new one. 2. SEC shall also cause the removal of all visible signage, marks, advertisements, labels, prints and other effects bearing such corporate name. COMMENCEMENT OF CORPORATE EXISTENCE A private corporations commences its corporate existence and juridical personality from the date the Commission issues the certificate of incorporation under its official seal. Sec. 21 EFFECTS OF NON-USE OF CHARTER AND CONTINUOS INOPERATION 3. If the change of corporate name is approved, SEC shall issue a certificate of incorporation under the amended name. EFFECT OF FAILURE TO COMPLY 0 0 If a corporation does not formally organize and commence its business within five (5) years from the date of its incorporation, its certificate of incorporation shall be deemed revoked as of the day following the end of the five-year period. If a corporation has commenced its business but subsequently becomes inoperative for a period of at least five (5) consecutive years, the Commission may, after due notice and hearing, place the corporation under delinquent status. b. Banks and quasi-banks, nonstock savings and loan associations, pawnshops, corporations, engaged in money service business, preneed, trust and insurance companies, and other financial intermediaries; and TITLE III Sec. 22 THE BOARD OF DIRECTORS OR TRUSTEES OF A CORPORATION; QUALIFICATIONS AND TERM ELECTION OF INDEPENDENT DIRECTORS It must be elected by shareholders present or entitled to vote in absentia during the election of directors. ROLE OF BOARD OF DIRECTORS / TRUSTEES They shall exercise the corporate powers, conduct all business, and control all properties of the corporation. TERM OF BOARD OF DIRECTORS / TRUSTEES 1. Directors shall be elected for a term of 1 year from among the holders of stock registered in the corporation’s books; 2. Trustees shall be elected for a term not exceeding 3 years from among the members of the corporation. 3. A director who ceases to own at least one (1) share of stock or a trustee who ceases to be a member of the corporation shall cease to be such. INDEPENDENT DIRECTORS - A person who is independent of management and free from any business or other relationship which could, or could reasonably be perceived to materially interfere with the exercise of independent judgment in carrying out the responsibilities as a director. c. Other corporations engaged in business vested with public interest. Sec. 23. ELECTION OF DIRECTORS OR TRUSTEES Each stockholder or member shall have the right to nominate any director or trustee who possesses all of the qualifications and none of the disqualifications in this Code. Unless when the exclusive rights is reserved for holders of founders’ shares under Sec. 7 of this Code. RULE ON PROXY (IES) 1. At all elections of directors or trustees, there must be present, either in person or through a representative authorized to act by written proxy, the owners of majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote. 2. When so authorized in the by-laws or by a majority of the board of directors, the stockholders or member may also vote through remote communications or in absentia. Board of the following corporations vested with public interest shall have independent directors constituting at least 20% of such board: a. Corporations covered by Sec. 17.2 of RA 8799 (Securities Regulation Code), 0 0 Provided that the right to vote through such modes may be exercised in corporations vested with public interest, notwithstanding the absence of a provision in the by-laws of such corporations. Stockholders or members who participates through remote communication or in absentia shall be deemed present for purposes of quorum. cause. Provided, that w/out cause may not be used to deprive. SEC. 24. CORPORATE OFFICERS Board of directors, after their election, must formally organize and elect the following officers: a. President, who must be a director; b. Treasurer, must be a resident of the Philippines; c. Secretary, must be a resident of the Philippines; and Requisites for removal of directors or trustees: d. Other officers as may be provided in the bylaws. e. If the corporation vested with public interest – compliance officer. SEC. 26. DISQUALIFICATION OF DRECTORS, TRUSTEES OR OFFICERS. A person shall be disqualified from being a director, trustee, or officer of any corporation if, within 5 years prior to the election or appointment as such, the person was: 1. Convicted by final judgment: a. Offense punishable by imprisonment for a period exceeding 6 years; b. Violating this code; and c. Violating RA 8799 (Securities Regulation Code; 2. Found administratively liable for any offense involving fraudulent t acts; and 3. 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 removal must “take place either in a general meeting or in a special meeting called for the purpose.” There must be “previous notice to the stockholders or members of the corporation of the intention to propose such removal at the meeting” Director or trustee may be removed by a vote of stockholders holding or representing at least 2/3 of the outstanding capital or 2/3 of the vote of members in a non-stock corp. A director or trustee can be removed from office but he cannot be removed a stockholders of the corporation, depriving him of his ownership of shares, without due process. SEC. 28 VACANCIES FOR REMOVAL OF DIRECTORS OR TRUSTEES QUORUM – IS THE MINIMUM REQUIREMENT NUMBER OF PERSONS IN A MEETING TO MAKE A MEETING VALID, WILL CONSTITUTE THE MAJORITY OR ALL OF BOD OR BOT. SEC. 27. REMOVAL DIRECTORS OR TRUSTEES. . SEC shall motu proprio, (out of their own will) or upon verified complaint, and after due notice and hearing, order the removal of a director or trustee elected despite the disqualification, or whose disqualification arose or is discovered subsequent to an election. If the secretary refuses, the stockholders or members, holding the majority of capital stock or majority of members, signing the demand can initiate the meeting for the removal with or without 0 0 Any vacancy in board, other than because of removal or by expiration of term, the remaining of the boards can fill the vacancy, constituting the quorum. The stockholders or members can fill if there is no quorum. When the vacancy is because of the expiration of term, the election shall held no later than the day of such expiration. (july 1 nag expire dapat july 1 may na elect na) on a meeting called for that purpose. When the vacancy is due of removal, the election for the vacancy may happen at the same day of the removal and must be stated in the agenda of the meeting. The election, in all other cases must be held no later than 45 days from the time the vacancy arose. The substitute or new elect shall serve only the remaining years left. When in emergency, and a meeting that needs a quorum. The vacancies can be filled by the officers temporarily. Emergencies that require grave, substantial, and irreplaceable loss or damage to the corporation. Shall notify the commission within 3 days from the creation. Increase of BOD or BOT shall only be filled by an election during a meeting. In absence of any provision in the AOI or bylaws, there will be no compensation, except for reasonable per diems (allowances). The stockholders holding the majority of the capital stock or majority of members may grant compensation and approve amount at a meeting. Not exceeding 10% of the net income before income tax. SEC. 30. LIABILITY OF A DIRECTORS, TRUSTEES, OR OFICERS. He wilfully and knowing fully votes or assents to patently unlawful acts of the corporations He is guilty of gross negligence, or bad faith in directing the affairs of the corporation. He acquires any personal or pecuniary interest I conflict with his duty as such director or officer or trustee. SEC. 31. DEALINGS OF DIRECTORS, TRUSTEES, OR OFFICERS WITH THE CORPORATION A contract of the corporation with 1 or more of its directors, trustees, officers, or their spouses and relatives within the 4thPAGE 5 OF 5 civil degree of consanguinity or affinity is voidable, at the option of such corporation. Unless all the following conditions are present: 1. 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; SEC. 29. COMPENSATION OF DIRECTORS OR TRUSTEES. Solidarily obligations (jointly and severally) – each debtor is liable to the entire obligations, each creditor is entitled to the entire obligation. Cases when directors/trustees or officers liable damages: 0 2. The vote of such director or trustee was not necessary for the approval of the contract; 3. 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. In case of an officer, the contract has been previously authorized by the board of directors. EFFECT; WHERE ANY OF THE FIRST 3 CONDITIONS ARE ABSENT Where any of the set forth in the preceding paragraph is absent, in the case of director or trustee, such contract may be ratified by the vote of the stockholders representing at least two- 0 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. 10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers, and employees; and 11. To exercise such other powers as may be essential to necessary to carry out its purpose or purposes as stated in the articles of incorporation. . TITLE IV POWERS OF CORPORATION SEC. 35. CORPORATE POWERS AND CAPACITY 1. To sue and be sued in its corporate name; 2. To have perpetual existence unless the certificate of incorporation provides otherwise; SEC. 36. POWER TO EXTEND OR SHORTEN CORPORATE TERM. Notice can also be allowed through by-laws, or done with the consent of the stockholder, sent electronically in accordance with the rules and regulations of the Commission on the use of electronic data messages. 3. Adopt and use a corporate seal; 4. Amend its articles of incorporation in accordance with the provisions of this Code; TITLE V BY-LAWS 5. To adopt bylaws, not contrary to law, morals or public policy, and to amend or repeal the same in accordance with this Code; SEC. 45. ADOPTION OF BY-LAWS. • The one-month period to adopt by-laws was deleted. 6. 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 non-stock corporation; 7. 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. 8. To enter into a partnership, joint venture, merger, consolidation, or any other commercial agreement with natural and juridical persons; 9. 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; 0 SEC. 46. CONTENTS OF BY-LAWS (a) The time, place and manner of calling and conducting regular or special meetings of the directors or trustees; (b) The time and manner of calling and conducting regular or special meetings and mode of notifying the stockholders or members thereof; (c) The required quorum in meetings of stockholders or members and the manner of voting therein; (d) The modes by which a stockholder, member, director, or trustee may attend meetings and cast their votes; (e) The form for proxies of stockholders and members and the manner of voting them; (f) The directors’ or trustees’ qualifications, duties and responsibilities, the guidelines for setting the compensation of directors or trustees and officers, and the maximum number of other board representations that an independent director or trustee may have which shall, in no 0 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. 0 0