Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

RFBT.3405 VILLEGAS/APRADO/MAGUMUN
Corporation (RA 11232) MAY 2023

LECTURE NOTES

Corporation 6. As to whether they are corporations in a true

A corporation is an artificial being created by operation of sense or only in a limited sense:
law, having the right of succession and the powers, a. True - exists by statutory authority
attributes, and properties expressly authorized by law or b. Quasi - exist without formal legislative
incident to its existence. (Sec. 2, RCC) grant:
i. Corporation by prescription - has
Classes of Corporation exercised corporate powers for an
1. As to whether their membership is indefinite period without
represented by shares of stock or not: interference on the part of the
a. Stock –one which has: sovereign power and which by
i. Capital stock divided into shares; and fiction of law, is given the status of
ii. Are authorized to distribute to the holders a corporation;
of such shares dividends or allotments ii. Corporation by estoppel - in reality
of the surplus profits on the basis of the is not a corporation, either de jure
shares held. or de facto, because it is so
b. Non-Stock – is one which does not issue defectively formed, but is
shares and is - created not for profit but considered a corporation in relation
for public good and welfare and where no to those only who, by reason of
part of its income is distributable as theirs acts or admissions, are
dividends to its members, trustees, or precluded from asserting that it is
officers not a corporation.

2. As to the number of persons who compose 7. As to whether they are for public
them: (government) or private purpose:
a. One Person Corporation - corporation a. Public - formed or organized for the
consisting of a single stockholder: Provided, government of a portion of the State (like
That only a natural person, trust, or estate cities and municipalities) for the purpose of
may form a One Person Corporation serving the general good and welfare.
b. Corporation Aggregate - corporation b. Private - one formed for some private
consisting of more than one member or purpose, benefit or end. It may either be a
corporator. The RCC requires that these stock or non-stock
corporations must be formed jointly with
others Tests in determining the nationality of corporations
c. Corporation Sole - Religious corporation 1. Control Test - In determining the nationality of a
which consists of one member which is the corporation, the control test uses the nationality of
head of the religious sect or corporator only the controlling stockholders or members of the
and his successor corporation.

3. As to state or country under or by whose laws 2. Grandfather Rule – It is used in determining the
they have been created: nationality of a corporation engaged in a partly
a. Domestic - incorporated and organized nationalized activity. This applies in cases where the
under the laws of the Philippines. stocks of a corporation are owned by another
b. Foreign - formed, organized, or existing corporation with foreign stockholders exceeding
under any laws other than those of the 40% of the capital stock of the corporation.
Philippines and whose laws allow Filipino
citizens and corporations to do business in Doctrine of Separate Juridical Personality
its own country or state
The doctrine of corporate juridical personality states that a
4. As to their legal right to corporate existence: corporation is a juridical entity with legal personality
a. De jure - existing both in fact and in law. separate and distinct from those acting for and in its behalf
b. De facto - existing in fact but not in law. and, in general, from the people comprising it.

5. As to whether they are open to the public or 1. Liability for acts or contracts – As a general rule, the
not: obligation of the corporation is not the liability of the
a. Close - limited to selected persons or stockholders, officers or directors.
members of the family.
b. Open - open to any person who may wish 2. Liability for torts or crimes - Since a corporation is a
to become a stockholder or member mere creation of legal fiction, it cannot be held liable
thereto. for crimes committed by its officers; in such case
the responsible officers would be criminally liable

3. Right to bring actions – may bring civil and criminal

actions in its own name in the same manner as
natural persons. However, rights belonging to the

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corporation cannot be invoked by the stockholders

(or directors and officers) even if the latter owns Subscription Requirements
substantial majority of the shares in that Stock corporations shall not be required to have a minimum
corporation and rights of the stockholders, directors authorized capital stock, except as may be provided by a
and officers cannot be invoked by the corporation. special law.

4. Acquisition of jurisdiction – service of summons Corporate Term

may be made only on the president, general As amended by RA No. 11232, corporations now have a
manager, corporate secretary, treasurer or in- perpetual existence, unless its Articles of Incorporation
house counsel. provides otherwise.

5. Recovery of damages - A corporation is not entitled Classification of Shares

to moral damages because, being an artificial 1. Common Shares - These are ordinarily and usually
person and having existence only in legal issued stocks without extraordinary rights and
contemplation, it has no feelings, no emotions, no privileges, and entitle the shareholder to a pro rata
senses. division of profits. It represents the residual
ownership interest in the corporation. The holders
Exceptions: of this kind of share have complete voting rights and
a. In cases of libel, slander, or any other form of they cannot be deprived of the said rights except as
defamation. provided by law.
b. When the corporation has a reputation that is
debased, resulting in its humiliation in the 2. Preferred Shares - These entitle the shareholder to
business realm. some priority on distribution of dividends and assets
over those holders of common shares. Preferred
Doctrine of Piercing the Corporate Veil shares may be issued only with a stated par value.
The doctrine of piercing the corporate veil is the doctrine
that allows the State to disregard, for certain justifiable 3. Voting Shares - Shares with a right to vote. If the
reasons, the notion that a corporation has a personality stock is originally issued as voting stock, it may not
separate and distinct from the persons composing it. thereafter be deprived of the right to vote without
the consent of the holder.
Grounds for Application of Doctrine
1. If the fiction is used to perpetrate fraud (Fraud Test) 4. Non-voting shares - Shares without right to vote.
2. If the complete control of one corporate entity to The law only authorizes the denial of voting rights
another which perpetuated the wrong is the in the case of redeemable shares and preferred
proximate cause of the injury (Control Test) shares, provided that there shall always be a class
3. If a certain corporation is only an adjunct or an or series of shares which have complete voting
extension of the personality of the corporation rights
(Alter ego or Instrumentality Test)
4. If the fiction is pierced to make the stockholders 5. Founder’s Shares - Shares classified as such in the
liable for the obligation of the corporation (Objective articles of incorporation and which may be given
Test) special preference in voting rights and dividend
payments.
Test in Determining Applicability
6. Redeemable Shares - These are shares which may
1. Control, not mere majority or complete stock be purchased by the corporation from the holders of
control, but complete domination, not only of such shares upon the expiration of a fixed period,
finances but of policy and business practice in regardless of the existence of unrestricted retained
respect to the transaction attacked so that the earnings in the books of the corporation, and upon
corporate entity as to this transaction had at the such other terms and conditions stated in the
time no separate mind, will or existence of its own articles of incorporation and the certificate of stock
(Instrumentality or Control test); representing the shares, subject to rules and
2. Such control must have been used by the defendant regulations issued by the Commission.
to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, 7. Treasury Shares - Shares that have been earlier
or dishonest and unjust act in contravention of issued as fully paid and have thereafter been
plaintiff’s legal right (Fraud test); and acquired by the corporation by purchase, donation,
3. The aforesaid control and breach of duty must have and redemption or through some lawful means.
proximately caused the injury or unjust loss
complained of (Harm test). Scope of Voting Rights Subject to Classification
Non-voting shares are not entitled to vote. The law only
Capital Structure authorizes the denial of voting rights in the case of
Number and the qualifications of incorporators in a redeemable shares and preferred shares, provided that
stock corporation there shall always be a class or series of shares which have
1. As amended by RA No. 11232 (or the Revised complete voting rights.
Corporation Code), any person, partnership,
association or corporation, singly or jointly with Note, however, that these redeemable and preferred
others shares, when such voting rights are denied, shall
2. Incorporators must not be more than 15, except in nevertheless be entitled to vote on the following
case of educational institutions and close fundamental matters:
corporations a. Amendment of the Articles of Incorporation;
3. An incorporator must be of legal age b. Adoption and amendment of by-laws;
4. Each must own or subscribe to at least one (1) c. Sale, lease, exchange, other disposition of all or
share of the capital stock. substantially all of the corporate property;

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d. Incurring, creating or increasing bonded corporation, the stockholders and the State, and between
indebtedness; the corporation and its stockholders.
e. Increase or decrease of capital stock;
f. Merger and consolidation; Contents:
g. Investment of corporate funds in another 1. Name of corporation;
corporation or business; and 2. Purpose/s, indicating the primary and secondary
h. Dissolution of the corporation purposes (Purpose Clause);
3. PlAce of principal office;
Incorporation and Organization 4. Term of existence; if the corporation has not elected
perpetual existence;
Steps in the creation of a corporation 5. Names, nationalities and residences of
1. Promotion Incorporators;
2. Incorporation 6. Number of directors, which shall not be more than
3. Formal organization and commencement of fifteen (15) while the number of trustees which may
business operations be more than fifteen (15) and the term of existence
is generally perpetual;
Promoter - is a person who, acting alone or with others, 7. Names, nationalities, and residences of the persons
takes initiative in founding and organizing the business or who shall Act as directors or trustees until the first
enterprise of the issuer and receives consideration therefor. regular ones are elected and qualified;
8. If a Stock corporation, the amount of its authorized
Incorporation - is the performance of conditions, acts, capital stock, number of shares and in case the
deeds, and writings by incorporators, and the official acts, shares are par value shares, the par value of each
certification or records, which give the corporation its share;
existence. 9. Names, nationalities, number of shares, and the
amounts subscribed and paid by each of the Original
Subscription Contract - It is a contract for the acquisition of subscribers
unissued stock in an existing corporation or a corporation 10. If Non-stock, the amount of capital, the names,
still to be formed. It is considered as such notwithstanding residences, and amount paid by each contributor,
the fact that the parties refer to it as purchase or some other 11. Other matters as are not inconsistent with law and
contract. which the incorporators may deem necessary and
convenient.
Pre-incorporation Subscription Agreement - is irrevocable
for a period of six (6) months from the date of subscription Non-amendable Items in the Articles of Incorporation
except if all of the other subscribers consent to the Those matters referring to accomplished facts, except to
revocation, or if the incorporation of said corporation fails correct mistakes, such as:
to materialize within said period or within a longer period as 1. Names of incorporators;
may be stipulated in the contract of subscription. 2. Names of original subscribers to the capital stock of
the corporation and their subscribed and paid up
However, no pre-incorporation subscription may be revoked capital;
after the submission of the AOI to the Securities and 3. Names of the original directors;
Exchange Commission. 4. Treasurer elected by the original subscribers;
5. Members who contributed to the initial capital of the
Consideration for Stocks non-stock corporation; or
Valid considerations in a subscription agreement: 6. Witnesses to and acknowledgment with AOI
1. Actual cash paid to the corporation;
2. Property, tangible or intangible (i.e. patents or Corporate Name
copyrights), provided: Limitations on Use of Corporate Name
a. The property is actually received by the 1. No corporate name shall be allowed by the
corporation Commission if it is not distinguishable from that
b. The property is necessary or convenient already reserved or registered for the use of
for its use and lawful purposes another corporation, or if such name is already
c. It must be subject to a fair valuation equal protected by law, or when its use is contrary to
to the par or issued value of the stock existing law, rules and regulations.
issued 2. If the name applied for is similar to the name of a
d. The valuation thereof shall initially be registered corporation, the applicant shall add one
determined by the incorporators; and or more distinctive words to the proposed name to
e. The valuation is subject to the approval by remove the similarity or differentiate it from the
the SEC. registered name.
3. Labor or services actually rendered to the 3. The corporate name shall contain the word
corporation. “Corporation” or “Incorporated,” or the
4. Prior corporate obligations or indebtedness. 5 abbreviations “Corp.” or “Inc.” respectively. The
5. Amounts transferred from unrestricted retained corporate name of a foundation shall use the word
earnings to stated capital (in case of declaration of “Foundation”.
stock dividends). 4. The name of a dissolved corporation or whose
6. Outstanding shares in exchange for stocks in the registration has been revoked shall not be used by
event of reclassification or conversion. another corporation within five (5) years from the
7. Shares of stock in another corporation; and/or 8. approval of dissolution or five (5) years from the
Other generally accepted form of consideration date of revocation, unless it has been allowed at the
time of the dissolution or revocation by the
Articles of Incorporation stockholders, members or partners who represent a
It is one that defines the charter of the corporation and the majority of the outstanding capital stock or
contractual relationships between the State and the membership of the dissolved corporation.

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5. For as long as a corporation is existing regardless of 3. The required quorum in meeting of stockholders or
whether or not it is in operation, its corporate name members and the manner of voting therein.
cannot be used by any other group or corporation. 4. The modes by which a stockholder, member,
6. The practice of a profession regulated by special law director, or trustee may attend meetings and cast
which among others provides for the permissible their votes;
use of the profession’s name in a firm, partnership 5. The form for proxies of stockholders and members
or association shall govern the use of the name. and the manner of voting them.
6. The directors’ or trustees’ qualifications, duties and
Registration and Issuance of Certificate of responsibilities, the guidelines for setting the
Incorporation compensation of directors or trustees and officers,
and the maximum number of other board
Basic requirements for the registration and issuance of a representations that an independent director or
certificate of incorporation of a stock corporation trustee may have which shall, in no case, be more
1. A person desiring to incorporate shall submit the than the number prescribed by the Commission;
intended corporate name to the Commission for 7. Time for holding the annual election of directors or
verification slip trustees and the mode or manner of giving notice
2. AOI and by-laws thereof.
8. Manner of election or appointment and the term of
A corporation comes into existence upon the issuance of the office of all officers other than directors or trustees.
certificate of incorporation by the SEC under its official seal, 9. Penalties for violation of the by-laws.
except in case of a corporation sole which commences 10. In case of stock corporations, the manner of issuing
existence upon the filing of the articles of incorporation. certificates.
11. Such other matters as may be necessary for the
Election of Directors and Trustees proper or convenient transaction of its corporate
business and affairs for the promotion of good
Requirements and limitations for the election of directors governance and anti-graft and corruption
or trustees measures.
1. Presence of Stockholders representing a majority
of the outstanding capital stock of the corporation Binding Effects
or majority of the members, either in person or by The following are the binding effects of by-laws:
proxy. 1. As to members/ stockholders, officers, trustees/
directors and corporation, they are bound by and
New ways to vote in RCC, Sec 24: Through remote must comply with it. They are presumed to know
communication or in absentia the provisions of the by-laws.
Note that it must be provided in the by-laws except 2. As to third persons, they are not bound, unless they
in corporations vested with public interest have knowledge or notice of the bylaws at the time
the contract was executed.
2. The election must be by ballot, if requested by any
voting stockholder or member. Amendments
3. The total number of votes cast by him must not 1. Amendment may be made by stockholders together
exceed the number of shares owned by him as with the Board – by majority vote of directors and
shown in the books of the corporation multiplied by owners of at least a majority of the outstanding
the whole number of directors to be elected. capital stock/members; or
4. No delinquent stock shall vote or be voted for. 2. By the board only after due delegation by the
5. A stockholder cannot be deprived in the articles of stockholders owning 2/3 of the outstanding capital
incorporation or in the by-laws of his statutory right stock/members. Provided, that such power
to use any of the methods of voting in the election delegated to the board shall be considered as
of directors. revoked whenever stockholders owning at least
6. The candidates receiving the highest number of majority of the outstanding capital stock or
votes shall be declared. members, shall vote at a regular or special meeting.

Quorum – it shall consist of the stockholders representing a Effects of Non-use of Corporate Charter
majority of the outstanding capital stock or a majority of the
members in the case of nonstock corporations, unless If a corporation does not formally organize and commence
otherwise provided. its business within five (5) years from the date of its
incorporation, its certificate of incorporation shall be
Adoption of By-laws deemed revoked as of the day following the end of the five-
year period.
The by-laws supplement the AOI. The function of by-laws is
to define the rights and duties of corporate officers and If a corporation has commenced its business but
directors or trustees, and of stockholders or members subsequently becomes inoperative for a period of at least
towards the corporation and among themselves with five (5) consecutive years, the Commission may, after due
reference to the management of corporate affairs and to notice and hearing, place the corporation under delinquent
regulate transaction of the business of the corporation in a status.
particular way.
A delinquent corporation shall have a period of two (2) years
Contents: to resume operations and comply with all requirements that
the Commission shall prescribe. Upon compliance by the
1. Time, place and manner of calling and conducting corporation, the Commission shall issue an order lifting the
regular or special meetings of directors or trustees. delinquent status. Failure to comply with the requirements
2. Time and manner of calling and conducting regular and resume operations within the period given by the
or special meetings of the stockholder or members. Commission shall cause the revocation of the corporation’s
certificate of incorporation.

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2. Ratification by 2/3 of the stockholders representing

Corporate Powers outstanding capital stock or by at least 2/3 of the
members in case of non-stock corporation.
1. Express powers – granted by law, the Corporation 3. Required notice duly complied with.
Code, and its Articles of Incorporation or Charter, 4. Copy of the amended AOI shall be submitted to the
and administrative regulations; SEC for its approval.
2. Inherent/incidental powers – not expressly stated
but are deemed to be within the capacity of Note: The extension must be done during the lifetime of
corporate entities; the corporation not earlier than 3 years prior to the
3. Implied/necessary powers – exists as a necessary expiry date unless exempted.
consequence of the exercise of the express powers
of the corporation or the pursuit of its purposes as Power to Increase or Decrease Capital Stock or
provided for in the Charter. Incur, Create, Increase Bonded Indebtedness
1. Majority vote of the BOD;
General Powers; Theory of General Capacity 2. Ratification by stockholders representing 2/3 of the
outstanding capital stock.
The general powers of a corporation also called Theory of 3. Required notice duly complied with.
General Capacity are the following: 4. Prior approval of the SEC.
1. To Sue and be sued;
2. To have perpetual existence unless the certificate Note: The required 25% subscription shall be based on the
of incorporation provides otherwise; additional amount by which the capital stock increased and
3. To adopt and use of Corporate seal; not on the total capital stock as increased.
4. To amend its Articles of Incorporation;
5. To adopt its By-laws; Power to Deny Pre-Emptive Rights
6. For Stock corporations: issue and sell stocks to Pre-emptive right - It is the preferential right of
subscribers and treasury stocks; for non-stock shareholders to subscribe to all issues or disposition of
corporations: admit members; shares of any class in proportion to their present
7. To Purchase, receive, take or grant, hold, convey, shareholdings. This is to enable the shareholder to retain
sell, lease, pledge, mortgage and deal with real his proportionate control in the corporation and to retain his
and personal property, securities and bonds equity in the surplus.
subject to the Constitution and existing laws; a. It is available on re-issuance of treasury shares
8. To Enter into merger or consolidation, (To enter b. It may be waived
into a partnership, joint venture, merger, c. It is transferrable unless there is express restriction
consolidation, or any other commercial agreement in the AOI
with natural and juridical persons);
9. To make reasonable Donations, including those for Instances when pre-emptive right is not available
public welfare, or for hospital, charitable, cultural, 1. Shares to be issued to comply with laws requiring
scientific, civic, or similar purposes: Provided, that stock offering or minimum stock ownership by the
no foreign corporation shall give donations in aid public.
of any political party, candidate or partisan political 2. Shares issued in good faith with the approval of the
activity stockholders representing 2/3 of the outstanding
10. To establish pension, Retirement, and other plans capital stock in exchange for property needed for
for the benefit of its directors, trustees, officers corporate purposes.
and employees – basis of which is the Labor code; 3. Shares issued in payment of previously contracted
and debts.
11. To exercise Other powers essential or necessary to 4. In case the right is denied in the AOI.
carry out its purposes. 5. Waiver of the right by the stockholder.

Specific Powers; Theory of Specific Capacity Power to Sell or Dispose Corporate Assets
The specific powers of a corporation, also called Theory of There is a sale, lease, exchange, mortgage, pledge, and any
Specific Capacity, are the following: other disposition of substantially all of corporate asset if in
1. Power to extend or shorten corporate term the sale, lease, exchange, mortgage, pledge, and any other
2. Increase or decrease capital stock disposition thereof, the corporation would be rendered:
3. Incur, create, or increase bonded indebtedness 1. Incapable of continuing the business; or
4. Deny pre-emptive right 2. Incapable of accomplishing the purpose for which it
5. Sell, dispose, lease, encumber all or substantially all was incorporated.
of corporate assets
6. Purchase or acquire own Shares
7. Invest corporate funds in another corporation or
business for other purpose other than primary
purpose
8. Declare dividends out of unrestricted retained
earnings
9. Enter into management contract with another
corporation (not with an individual or a partnership
– within general powers) whereby one corporation
undertakes to manage all or substantially all of the
business of the other corporation for a period not
longer than five (5) years for any one term
10. Amend Articles of Incorporation

Power to Extend or Shorten Corporate Term

1. Majority vote of the BOD or BOT

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Requirements: 1. Cash dividends due on delinquent stock shall first

1. Majority vote of the BOD or BOT be applied to the unpaid balance on the subscription
2. Ratification by 2/3 of the stockholders representing plus cost and expenses.
outstanding capital stock or by at least 2/3 of the 2. Stock dividends are withheld from the delinquent
members in case of non-stock corporation, except stockholder until his unpaid subscription is fully
when: paid.
a. sale is necessary in the usual and regular 3. Property Stockholders are entitled to dividends pro-
course of business; rata based on the total number of shares and not
b. if the proceeds of the sale or other on the amount paid on shares.
disposition of such property and assets are
to be appropriated for the conduct of the Power to Enter into a Management Contract
remaining business; or Management Contract is any contract whereby a
c. if the transaction does not cover all or corporation undertakes to manage or operate all or
substantially all of the assets. substantially all of the business of another corporation,
3. Required notice duly complied with. whether such contracts are called service contracts,
operating agreements or otherwise.
Power to Acquire Own Shares
Requirements:
Instances when a corporation may acquire its own shares: 1. Contract must be approved by the majority of the
1. To eliminate fractional shares arising out of stock BOD or BOT of both managing and managed
dividends corporation.
2. To collect or compromise an indebtedness to the 2. Ratified by the stockholders owning at least the
corporation, arising out of unpaid subscription, in a majority of the outstanding capital stock, or
delinquency sale and to purchase delinquent shares members in case of a non-stock corporation, of both
sold during said sale the managing and the managed corporation, at a
3. To pay dissenting or withdrawing stockholders (in meeting duly called for the purpose.
the exercise of the stockholder’s appraisal right) 3. Contract must be approved by the stockholders of
4. To acquire treasury shares the managed corporation owning at least 2/3 of the
5. To acquire redeemable shares regardless of outstanding capital stock entitled to vote or 2/3 of
existence of retained earnings the members when:
6. To effect a decrease of capital stock a. Stockholders representing the same
7. In close corporations, when there is a deadlock in interest in both of the managing and the
the management of the business, the SEC may managed corporation own or control more
order the purchase at their fair value of the shares than 1/3 of the total outstanding capital
of any stockholder by a corporation regardless of stock entitled to vote of the managing
the availability of unrestricted retained earnings in corporation (Interlocking stockholders);
its books. b. Majority of the members of the BOD of the
managing corporation also constitute a
Note that where a corporation reacquires its own shares, it majority of the BOD of the managed
does not thereby become a subscriber thereof. corporation. (Interlocking Directors)

Power to Invest Corporate Funds in Another Ultra Vires Doctrine

Corporation or Business
An ultra vires act refers to an act outside or beyond express,
As a rule, a corporation is not allowed to engage in a implied and incidental corporate powers. The concept also
business different from those enumerated in its AOI, except includes those acts that may ostensibly be within such
when the purpose will be amended to include the desired powers but are, by general or special laws, either proscribed
business activity among its secondary purpose. or declared illegal.

Statutory requirements: They are merely voidable and may become binding and
1. Approval by the majority vote of the BOD or BOT; enforceable when ratified by the stockholders.
2. Ratification by stockholders representing at least
2/3 of the outstanding capital stock or by at least Ultra vires acts entered into by the board of directors bind
2/3 of the members in case of nonstock the corporation, and the courts will not interfere unless
corporations; terms are oppressive and unconscionable.
3. Ratification must be made at a meeting duly called
for the purposes; Doctrine of Individuality of Subscription
4. Required notice duly complied with.
Subscribed stocks cannot be divided into portions so that
Power to Declare Dividends the stockholder shall not be entitled to a certificate of stock
until he has remitted the fully payment of his subscription.
Requirements for the declaration of dividends As a result, a stockholder cannot transfer portion or part of
1. Existence of unrestricted retained earnings) his stock in view of the indivisible nature of the subscription
2. Resolution of the board. contract. It is only upon full payment of the whole
subscription that a stockholder can transfer the same to
In case stock dividend is to be declared, an additional several transferees.
requirement of:
3. A vote representing 2/3 of outstanding capital. Doctrine of Equality of Shares
4. A corporation must have also a sufficient number of
authorized unissued shares for distribution to Where the articles of incorporation do not provide for any
stockholders. distinction of the shares of stock, all shares issued by the
corporation are presumed to be equal and enjoy the same
Forms of dividends

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rights and privileges and are also subject to the same Participation in Management
liabilities.
Acts of management pertain to the board; and those of
Trust Fund Doctrine ownership, to the stockholders or members.

The subscribed capital stock of the corporation is a trust Proxy

fund for the payment of debts of the corporation which the While stockholders and members may vote in person or by
creditors have the right to look up to satisfy their credits, proxy in all meetings of stockholders or members, this right
and which the corporation may not dissipate. The creditors may be denied under the articles of incorporation or by-laws
may sue the stockholders directly for the latter’s unpaid of a non-stock corporation.
subscription. Requirements of Valid Proxy
1. Proxies shall be in writing and shall be signed by the
Exceptions to the trust fund doctrine stockholder or member concerned. Oral proxies are
NOT valid;
The Code allows distribution of corporate capital only in 2. The proxy shall be filed within a reasonable time
instances of: before the scheduled meeting with the corporate
1. Amendment of the AOI to reduce authorized capital secretary;
stock; 3. Unless otherwise provided (continuing in nature) in
2. Purchase of redeemable shares by the corporation the proxy, it shall be valid only for the meeting for
regardless of existence of unrestricted retained which it is intended. The authority may be general
earnings; or or limited; and
3. Dissolution and eventual liquidation of the 4. No proxy shall be valid and effective for a period
corporation. longer than 5 years at any one time.

Stockholders and Members Voting Trust

A voting trust agreement (VTA) is an agreement whereby
A person becomes a shareholder the moment he: one or more stockholders transfer their shares of stocks to
1. Enters into a subscription contract with an existing a trustee, who thereby acquires for a period of time the
corporation (he is a stockholder upon acceptance of voting rights (and/or any other specific rights) over such
the corporation of his offer to subscribe whether the shares; and in return, trust certificates are given to the
consideration is fully paid or not); stockholder/s, which are transferable like stock certificates,
2. Purchases treasury shares from the corporation; or subject, to the trust agreement.
3. Acquires shares from existing shareholders by sale
or any other contract, or acquires shares by Requirements:
operation of law like succession. 1. The agreement must be in writing and notarized and
specify the terms and conditions thereof.
Rights of a Stockholder and Member 2. A certified copy of such agreement shall be filed
with the corporation and with the SEC, otherwise, it
1. Management Right is ineffective and unenforceable.
a. To attend and vote in person or by proxy at a 3. The certificate/s of stock covered by the VTA shall
stockholders’ meetings be cancelled.
b. To elect and remove directors 4. A new certificate shall be issued in the name of the
c. To approve certain corporate matters trustee/s stating that they are issued pursuant to
d. To adopt and amend or repeal the by-laws of the VTA.
adopt new by-laws 5. The transfer shall be noted in the books of the
e. To compel the calling of the meetings corporation, that it is made pursuant to said VTA.
f. To enter into a voting trust agreement; and 6. The trustee/s shall execute and deliver to the
g. To have the corporation voluntarily dissolved transferors voting trust certificates, which shall be
2. Proprietary rights transferable in the same manner and with the same
a. To transfer stock in the corporate book effect as certificates of stock.
b. To receive dividends when declared 7. No VTA shall be entered into for a period exceeding
c. To the issuance of certificate of stock or other 5 years at any one time (i.e., for every voting trust)
evidence of stock ownership unless it requires a longer period as a condition in a
d. To participate in the distribution of corporate loan agreement, the period may exceed 5 years but
assets upon dissolution; and shall automatically expire upon full payment of the
e. To pre-emption in the issue of shares loan.
3. Remedial Rights 8. No VTA shall be entered into for the purpose of
a. To inspect corporate books circumventing the law against monopolies and
b. To recover stock unlawfully sold for delinquent illegal combinations in restraint of trade.
payment of subscription 9. The agreement must not be used for purposes of
c. To be furnished with most recent financial fraud.
statements or reports of the corporation’s
operation Cases when a Stockholder’s Action is Required
d. To bring suits (derivative suit, individual suit,
and representative suit); and Under Section 6 of the Corporation Code, each share of
e. To demand payment in the exercise of appraisal stock is entitled to vote, unless otherwise provided in the
right. articles of incorporation or declared delinquent under
Section 67 of the Corporation Code.

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Corporate powers exercised jointly by the BOD and whenever the officials of the corporation refuse to
stockholders sue or are the ones to be sued or hold control of the
1. Amendment of the articles of incorporation; corporation.
2. Adoption and amendment of bylaws; Requisites:
3. Sale, lease, exchange, mortgage, pledge, or other a. The cause of action must devolve upon the
disposition of all or substantially all of the corporate corporation itself;
property; b. The party bringing the suit must be a
4. Incurring, creating, or increasing bonded stockholder at the time the acts or transactions
indebtedness; subject of the action occurred; and at the time
5. Increase or decrease of authorized capital stock; the action was filed
6. Merger or consolidation of the corporation with 2. Individual suit – an action brought by a stockholder
another corporation or other corporations; against the corporation for direct violation of his
7. Investment of corporate funds in another contractual rights as such individual stockholder,
corporation or business in accordance with this such as the right to vote and be voted for, the right
Code; and to share in the declared dividends, the right to
8. Dissolution of the corporation. inspect corporate books and records, and others.
3. Representative suit – one brought by a person in his
Proprietary Rights own behalf and on behalf of all similarly situated.

The following are the proprietary rights of the stockholders: Obligations of a Stockholder

1. Appraisal Right - It refers to the right of the 1. Liability to the corporation for unpaid subscription
stockholder to demand payment of the fair value of 2. Liability to the corporation for interest on unpaid
his shares, after dissenting from a proposed subscription if so required by the subscription
corporate action involving a fundamental change in contract
the charter or articles of incorporation in the cases 3. Liability to the creditors of the corporation for
provided by law. unpaid subscription
2. Right to Inspect - The stockholder’s right of 4. Liability for watered stock
inspection of the corporation’s book and records is 5. Liability for dividends unlawfully paid; and
based upon his ownership of shares in the 6. Liability for failure to create corporation
corporation and the necessity for self-protection.
The mere fact that the shareholdings of a Meetings
stockholder is merely .001 per cent of the issued
shares of stock does not justify the denial of the 1. Regular
request of inspection of the corporate records. a. Annually on date fixed in the by-laws; or
3. Pre-emptive Right- see discussion above. b. If there is no date in the by-laws – any
4. Right to vote - The stockholders can exercise their date in April as determined by the board
right to vote through the election, replacement and The notice shall be sent to the stockholder within
removal of Board of Directors or Trustees and on the period provided in the by-laws or in the
other corporate acts which require stockholders’ absence of provision in the by-laws – at least 2
approval. It is a right inherent in and incidental to weeks prior to the meeting.
the ownership of corporate stock, and such is a
property right. 2. Special
5. Right to dividends - It is the right of the stockholder a. Any time deemed necessary; or
to demand payment of dividends after the board’s b. As provided in the by-laws
declaration. Stockholders are entitled to dividends
pro rata based on the total number of shares that The notice shall be sent to the stockholder within
they own and not on the amount paid for the shares. the period provided in the by-laws or if no provision
in the by-laws – at least 1 week prior to the
Note: Stock corporations are prohibited from retaining meeting.
surplus profits in excess of 100% of their paid-in capital
stock, except: Quorum
a. When justified by definite corporate expansion Shall consist of the stockholders representing majority of
projects or programs approved by the board of the outstanding capital stock or a majority of the actual and
directors; or living members with voting rights, in the case of non-stock
b. When the corporation is prohibited under any corporation, unless otherwise provided in the law or by-
loan agreement with any financial institution or laws.
creditor, whether local or foreign, from
declaring dividends without its/his consent, and Minutes of the Meetings
such consent has not yet been secured; or The minutes are a brief statement not only of what
c. When it can be clearly shown that such transpired at a meeting, usually of stockholders/ members
retention is necessary under special or directors/ trustees, but also at meeting of an executive
circumstances obtaining in the corporation, committee.
such as when there is need for special reserve
for probable contingencies. Remote communication
Attendance, participation, and voting through remote
Remedial Rights communication must be provided in the by-laws.

Actions that the stockholders or members can bring

1. Derivative suit – one brought by one or more
stockholders or members in the name and on behalf
of the corporation to redress wrongs committed
against it or to protect or vindicate corporate rights,

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Board of Directors and Trustees 3. Corporations with secondary franchise.

Doctrine of Centralized Management The board of the following corporations vested with public
interest shall have independent directors constituting at
It states that all corporate powers are exercised by the least twenty percent (20%) of the board:
BOD or BOT. 1. Corporations whose:
a. Securities are registered with the
Board is the body which: Commission;
1. Exercises all powers provided for under the b. Corporations listed with an exchange;
Corporation Code; c. Corporations with:
2. Conducts all Business of the corporation; and i. assets of at least 50 Million Pesos;
3. Controls and holds all the properties of the ii. having 200 or more shareholders;
corporation iii. each shareholder holding at least 100
shares of a class of its equity shares
Term of Office of BOD/BOT 2. Banks, quasi-banks, preneed, insurance and trust
companies, nonstock savings and loan associations,
Directors shall be elected for a term of one (1) year from pawnshops, corporations engaged in money service
among the holders of stocks registered in the corporation’s business and other financial intermediaries; and
books, while trustees shall be elected for a term not 3. Other corporations engaged in business vested with
exceeding three (3) years from among the members of the public interest similar to the above, as may be
corporation. determined by the Commission, after taking into
account relevant factors which are germane to the
Term - time during which the officer may claim to hold the objective and purpose of requiring the election of
office as a matter of right, and fixes the interval after which independent director.
the several incumbents shall succeed one another. The term
of office is not affected by the holdover. It is fixed by statute Removal
and does not change simply because the office may have
become vacant, nor because the incumbent holds office The power to remove, with or without cause, belongs to the
beyond his term when a successor has not been elected. stockholders representing at least 2/3 of the outstanding
capital stock or if non stock corporation, by a vote of at least
Tenure - represents the term during which the incumbent 2/3 of the members entitled to vote.
actually holds office. The tenure may be shorter (or, in case
of holdover, longer) than the term for reasons within or Note, however, that if the director was elected by the
beyond the power of the incumbent. minority, there must be cause for removal because the
minority may not be deprived of the right to representation
Hold-over Period - the time from the lapse of one year from which they may be entitled under Sec. 23 of the Code.
a member’s election to the Board and until his successor’s
election and qualification. It is not part of the director’s Filling of Vacancies
original term of office, nor is it a new term; the holdover
period, however, constitutes part of his tenure. Ways of filling up the vacancies in the board
1. Vacancies to be filled up by stockholders or
Duties of Directors/Trustees: members:
1. Duty of Obedience a. Expiration of term;
2. Duty of Diligence b. Removal;
3. Duty of Loyalty c. Grounds Other than removal or expiration
of term, where the remaining directors do
Common qualifications and disqualifications of a not constitute a quorum for the purpose of
director and trustee filling the vacancy;
d. If the vacancy may be filled by the
1. He must not have been, within five (5) years prior remaining directors or trustees but the
to the election or appointment as such: board Refers the matter to stockholders or
a. Convicted by final judgment of an offense members; or
punishable by imprisonment for a period e. Increase in the number of directors results
exceeding 6 years; violation of the to vacancy.
Corporation Code; or Violation of RA 8799 2. Vacancies filled up by members of the board -If still
b. Found administratively liable for any constituting a quorum, at least a majority of the
offense involving fraudulent acts; and members are empowered to fill any vacancy
c. By a foreign court or equivalent foreign occurring in the board other than by removal by the
regulatory authority for acts, violations or stockholders or members or by expiration of term.
misconduct similar to those enumerated in
paragraphs (a) and (b) above However, if the by-laws prescribe the specific mode of filling
2. He must be of legal age; and up existing vacancies, the provisions of the by-laws should
3. Other qualifications as may be prescribed in special be followed.
laws or regulations or in the by-laws of the
corporation. Compensation

Independent Directors Directors, in their capacity as such, are not entitled to

receive any compensation except for reasonable per diems.
At least two (2) independent directors are required in the However, they may receive compensation:
following companies: 1. When their compensation is fixed in the bylaws;
1. Any corporation with a class of equity securities 2. When granted by the vote of stockholders
listed for trading on an Exchange; representing at least a majority of the outstanding
2. Banks; and capital stock at a regular or special meeting; or

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3. If they perform services other than as directors of Inside Information

the corporation (i.e. where directors are also
corporate officers or employees of the corporation) Any material non-public information about the issuer of the
securities (corporation) or the security obtained by being an
Disloyalty insider, which includes:
1. The Issuer;
The director must account for and refund to the office all 2. A Director or officer (or any person performing
such profits, which such director, by virtue of such office similar functions) of, or a person controlling the
acquires a business opportunity which should belong to the issuer;
corporation thereby obtaining profits to the prejudice of 3. A person whose Relationship or former relationship
such corporation, unless the act has been ratified by a vote to the issuer gives or gave him access to material
of the stockholders owning or representing at least two- information about the issuer or the security that is
thirds (2/3) of the outstanding capital stock. not generally available to the public;
4. A Government employee, director, or officer of an
Business Judgment Rule exchange, clearing agency and/or self-regulatory
Questions of policy or management are left solely to the organization who has access to material information
honest decision of officers and directors of a corporation and about an issuer or a security that is not generally
the courts are without authority to substitute their judgment available to the public; or
for the judgment of the board of directors; the board is the 5. A person who Learns such information by a
business manager of the corporation and so long as it acts communication from any forgoing insiders.
in good faith, its orders are not reviewable by the courts or
the SEC, unless: Contracts
1. Unconscionable and oppressive as to amount to
wanton destruction to the rights of the minority; or By Self-Dealing Directors with the Corporation
2. When there is bad faith or gross negligence by the A contract of the corporation with one or more of its
directors. directors, trustees, officers, or their spouses and relatives
within the fourth civil degree of consanguinity or affinity is
Personal Liability voidable, at the option of the corporation unless all the
following conditions are present:
The officers of a corporation are not personally liable for 1. That the presence of such director or trustee in the
their official acts unless it is shown that they exceeded their board meeting in which the contract was approved
authority, such as: was not necessary to constitute a quorum for such
1. When they willfully and knowingly vote for or assent meeting;
to patently unlawful acts of the corporation; 2. That the vote of such director or trustee was not
2. When they are guilty of gross negligence or bad necessary for the approval of the contract;
faith in directing the affairs of the corporation; 3. That the contract is fair and reasonable under the
3. When they acquire any personal or pecuniary circumstances;
interest in conflict with their duty as such directors 4. In case of corporations vested with public interest,
or trustees material contracts are approved by at least 2/3 of
4. When they consent to the issuance of watered the entire membership of the board, with at least a
stocks or who, having knowledge thereof, does not majority of the independent directors voting to
forthwith file with the corporate secretary his approve the material contract; and
written objection thereto 5. That in the case of an officer, the contract with the
5. When they are made, by a specific provision of law, officer has been previously authorized by the board
to personally answer for their corporate action of directors.
6. When they agree to hold themselves personally and
solidarily liable with the corporation; or By Corporations with Interlocking Directors
7. When the corporate fiction is used to defeat public A contract between two or more corporations having
convenience, justify wrong, protect fraud, or defend interlocking directors shall not be invalidated on that ground
crime. alone. Provided that:
1. Contract is not fraudulent;
Responsibility for Crimes 2. Contract is fair and reasonable under the
circumstances; and
A director or officer can be held liable for a criminal offense 3. If the interest of the interlocking director in one
only when there is a specific provision of law making a corporation or corporations is merely nominal (not
particular officer liable because being a corporate officer by exceeding 20% of the outstanding capital stock), he
itself is not enough to hold him criminally liable. shall be subject to the provisions of Sec. 32 insofar
as the latter corporation or corporations are
Special Fact Doctrine concerned.

The special fact doctrine is an exception to the majority rule Executive Committee
doctrine. It states that where special circumstances or facts
are present which make it inequitable for the director to An executive committee is a body created by the by-laws
withhold information from the stockholder, the duty to and composed of not less than three (3) members of the
disclose arises, and concealment is fraud. board which, subject to the statutory limitations, has all the
authority of the board to the extent provided in the board
resolution or by-laws. The committee may act by a majority
vote of all of its members.

Executive committees provided in the Revised Code of

Corporate Governance
1. Audit Committee;
2. Nomination Committee;

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3. Compensation and Remuneration Committee 2. If no date of payment has been specified, on the
date specified in the call made by the BOD (Sec. 66,
Creation of Special Committees RCC);
The Board of directors may create special committees of 3. If no date of payment has been specified in the call
temporary or permanent nature and determine the made, within 30 days from the date of call; and
members’ term, composition, powers, and responsibilities. 4. When insolvency supervenes upon a corporation
and the court assumes jurisdiction to wind it up, all
Meetings unpaid subscriptions become payable on demand,
and are at once recoverable, without necessity of
Requisites for valid tele/videoconferencing any prior call.
R.A. 8792, as implemented by SEC Memo. Circular No. 15
on November 30, 2001, provides that: Sale of Delinquent Shares

1. Directors must express their intent on If no payment is made within thirty (30) days from the date
teleconferencing; specified in the subscription contract or on the date stated
2. Proper identification of those attending; and in the call made by the board, all stocks covered by the
3. The corporate secretary must safeguard the subscription shall thereupon become delinquent and shall
integrity of the meeting by recording it. be subject to sale, unless the board of directors orders
otherwise.
Who Presides
The chairman or, in his absence, the president shall preside Alienation of Shares
at all meetings of the directors or trustees as well as of the
stockholders or members, unless the bylaws provide If represented by a certificate, the following must
otherwise. be strictly complied with:
1. Indorsement by the owner and his agent;
Quorum 2. Delivery of the certificate;
Majority of the number of directors or trustees as stated in 3. To be valid to third parties and to the corporation,
the articles of incorporation shall constitute quorum, unless the transfer must be recorded in the books of the
the articles of incorporation or the bylaws provide for a corporation; and
greater number. 4. No shares of stock against which the corporation
holds any unpaid claim shall be transferrable.
Rule on Abstention
No inference can be drawn in a vote of abstention. When a Corporate Books and Records
director or trustee abstains, it cannot be said that he
intended to acquiesce in the action taken by those who Records to be Kept at Principal Office
voted affirmatively. Neither, for that matter, can such Every corporation shall keep and carefully preserve at its
inference be drawn from the abstention that he was principal office all information relating to the corporation
abstaining because he was not then ready to make a including, but not limited to:
decision. 1. The articles of incorporation and bylaws of the
corporation and all their amendments;
Capital Affairs 2. The current ownership structure and voting rights
of the corporation, including lists of stockholders or
Certificate of Stock members, group structures, intra-group relations,
ownership data, and beneficial ownership;
A certificate of stock is a written instrument signed by the 3. The names and addresses of all the members of the
proper officer of a corporation stating or acknowledging that board of directors or trustees and the executive
the person named therein is the owner of a designated officers;
number of shares of its stock. It indicates the name of the 4. A record of all business transactions;
holder, the number, kind and class of shares represented, 5. A record of the resolutions of the board of directors
and the date of issuance. or trustees and of the stockholders or members;
6. Copies of the latest reportorial requirements
Watered Stocks submitted to the Commission; and
7. The minutes of all meetings of stockholders or
A watered stock is a stock issued in exchange for cash, members, or of the board of directors or trustees.
property, share, stock dividends, or services lesser than its
par value or issued value. These include stocks: Stock corporations must also keep a stock and transfer
1. Issued without consideration (bonus share); book, which shall contain a:
2. Issued for a consideration other than cash, the fair 1. record of all stocks in the names of the stockholders
valuation of which is less than its par or issued alphabetically arranged;
value; 2. the installments paid and unpaid on all stocks for
3. Issued as stock dividend when there are no which subscription has been made, and the date of
sufficient retained earnings to justify it; and payment of any installment;
4. Issued as fully paid when the corporation has 3. a statement of every alienation, sale or transfer of
received a lesser sum of money than its par or stock made, the date thereof, by /to whom made;
issued value (discount share). 4. such other entries as the bylaws may prescribe.

Payment of balance of subscription Right to Inspect Corporate Records

Corporate records, regardless of the form in which they are
Time when the balance of the subscription should be paid: stored, shall be open to inspection by any director, trustee,
1. On the date specified in the subscription contract, stockholder or member of the corporation in person or by a
without need of demand or call; representative at reasonable hours on business days, and a
demand in writing may be made by such director, trustee

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or stockholder at their expense, for copies of such records Methods of Liquidation

or excerpts from said records. 1. By the corporation itself or its board of directors or
trustees;
Effect of Refusal to Inspect Corporate Records
Any officer or agent of the corporation who shall refuse to Sec 122 authorizes the dissolved corporation’s
allow the inspection and/or reproduction of records in board of directors to conduct its liquidation within 3
accordance with the provisions of this Code shall be liable years from its dissolution. Jurisprudence has even
to such director, trustee, stockholder or member for recognized the board’s authority to act as trustee
damages, and in addition, shall be guilty of an offense which for persons in interest beyond the said 3-year
shall be punishable under Section 161 of this Code. period.

Dissolution and Liquidation 2. By conveyance to a trustee within a three-year

period;
Dissolution
At any time during the 3-year period for liquidation,
It is the extinguishment of the franchise of a corporation said corporation is authorized and empowered to
and the termination of its corporate existence. convey all of its property to trustees for the benefit
of its stockholders, members, creditors and other
Modes of Dissolution persons in interest.

The following are the modes of dissolution of the From and after any such conveyance by the
corporation: corporation of its property in trust for the benefit
1. Voluntary of its stockholders, members, creditors and others
a. By the vote of the BOD/ BOT and the in interest, all interest which the corporation had
stockholders/ members where no creditors in the property terminates, the legal interest vests
are affected; in the trustees, and the beneficial interest in the
b. By the judgment of the SEC after hearing of stockholders, members, creditors or other persons
petition for voluntary dissolution, where in interest.
creditors are affected;
c. By amending the AOI to shorten the 3. By a management committee or rehabilitation
corporate term. In case of a corporation sole, receiver appointed by SEC.
by submitting to the SEC a verified
declaration of the dissolution for approval In the case of a dissolution order where creditors
and are affected, the SEC may appoint a receiver to take
d. Merger or consolidation charge of the liquidation of the corporation.
2. Involuntary
a. Non-use of corporate charter as provided Corporate Rehabilitation
under Section 21 of this Code; It refers to the restoration of the debtor to a
b. Continuous inoperation of a corporation as condition of successful operation and solvency, if it
provided under Section 21; is shown that its continuance of operation is
c. Upon receipt of a lawful court order economically feasible and its creditors can recover
dissolving the corporation; by way of the present value of payments projected
d. Upon finding by final judgment that the in the plan, more if the debtor continues as a going
corporation procured its incorporation concern than if it is immediately liquidated.
through fraud;
e. Upon finding by final judgment that the
corporation: Other Corporations
i. Was created for the purpose of
committing, concealing or aiding Non-stock Corporation
the commission of securities
violations, smuggling, tax evasion, It is one where no part of its income is distributable as
money laundering, or graft and dividends to its members, trustees or officers. Any profit
corrupt practices; which it may obtain as an incident to its operations shall
ii. Committed or aided in the whenever necessary or proper, be used in furtherance of
commission of securities violations, the purpose or purposes for which it was organized.
smuggling, tax evasion, money
laundering, or graft and corrupt Non-stock corporations may be formed or organized for:
practices, and its stockholders 1. Charitable,
knew; and 2. Religious,
iii. Repeatedly and knowingly tolerated 3. Educational,
the commission of graft and corrupt 4. Professional,
practices or other fraudulent or 5. Cultural,
illegal acts by its directors, trustees, 6. Fraternal,
officers, or employees. 7. Literary,
8. Scientific,
9. Social,
Liquidation 10. Civic service, or
11. Similar purposes, like trade, industry, agriculture
It is the process by which all the assets of the corporation and like chambers, or any combination thereof.
are converted into liquid assets (cash) in order to facilitate
the payment of obligations to creditors and the remaining
balance if any is to be distributed to the stockholders.

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Educational Corporations duties together with the proof of such authority to

act on behalf of the trust or estate; and
Educational corporations shall be governed by special laws 2. Name, nationality, residence of the nominee and
and by the general provisions of the Revised Corporation alternate nominee, and the extent, coverage and
Code. limitation of the authority.

Trustees of educational institutions organized as nonstock On the other hand, the One Person Corporation is not
corporations shall not be less than five (5) nor more than required to submit and file corporate bylaws.
fifteen (15).
Corporate Name
Religious Corporations A One Person Corporation shall indicate the letters “OPC”
either below or at the end of its corporate name.
Religious corporations may be incorporated by one or more
persons. Such corporations may be classified into: Corporate Structure and Officers
1. Corporation sole The single stockholder shall be the sole director and
For the purpose of administering and managing, as president of the One Person Corporation.
trustee, the affairs, property and temporalities of
any religious denomination, sect or church, a Within fifteen (15) days from the issuance of its certificate
corporation sole may be formed by the chief of incorporation, the One Person Corporation shall appoint
archbishop, bishop, priest, minister, rabbi, or other a treasurer, corporate secretary, and other officers as it
presiding elder of such religious denomination, may deem necessary, and notify the Commission thereof
sect, or church. within five (5) days from appointment.

2. Religious societies The single stockholder may not be appointed as corporate

Unless forbidden by competent authority, the secretary. A single stockholder who is likewise the self-
Constitution, pertinent rules, regulations, or appointed treasurer of the corporation shall give a bond to
discipline of the religious denomination, sect, or the Commission in such a sum as may be required. The
church of which it is a part, any religious society, bond shall be renewed every two (2) years or as often as
religious order, diocese, synod, or district may be required.
organization of any religious denomination, sect, or
church, may, upon written consent and/or by an Nominee
affirmative vote at a meeting called for the purpose The single stockholder shall designate a nominee and an
of at least two-thirds (2/3) of its membership, alternate nominee who shall, in the event of the single
incorporate for the administration of its stockholder’s death or incapacity, take the place of the
temporalities or for the management of its affairs, single stockholder as director and shall manage the
properties, and estate by filing with the corporation’s affairs.
Commission, articles of incorporation verified by
the affidavit of the presiding elder, secretary, or Liability
clerk or other member of such religious society or A sole shareholder claiming limited liability has the burden
religious order, or diocese, synod, or district of affirmatively showing that the corporation was
organization of the religious denomination, sect, or adequately financed. Where the single stockholder cannot
church. prove that the property of the One Person Corporation is
independent of the stockholder’s personal property, the
One Person Corporation stockholder shall be jointly and severally liable for the debts
and other liabilities of the One Person Corporation.
A corporation with a single stockholder: Provided, That only
a natural person, trust, or an estate may form a One Person Conversion of Corporation to One Person Corporation
Corporation. When a single stockholder acquires all the stocks of an
ordinary stock corporation, the latter may apply for
Excepted Corporations conversion into a One Person Corporation, subject to the
Banks and quasi-banks, pre-need, trust, insurance, public submission of such documents as the Commission may
and publicly-listed companies, and non-chartered require.
government-owned and –controlled corporations may not
incorporate as One Person Corporations: Provided, further, The One Person Corporation converted from an ordinary
That a natural person who is licensed to exercise a stock corporation shall succeed the latter and be legally
profession may not organize as a One Person Corporation responsible for all the latter’s outstanding liabilities as of the
for the purpose of exercising such profession except as date of conversion.
otherwise provided under special laws.
Conversion from One Person Corporations to Ordinary Stock
Capital Stock Requirement Corporation
A One Person Corporation shall not be required to have a A One Person Corporation may be converted into an
minimum authorized capital stock except as otherwise ordinary stock corporation after due notice to the
provided by special law. Commission of such fact and of the circumstances leading
to the conversion, and after compliance with all other
Articles of Incorporation and By-Laws requirements for stock corporations under this Code and
One Person Corporation shall file articles of incorporation in applicable rules. Such notice shall be filed with the
accordance with the requirements under Section 14 of this Commission within sixty (60) days from the occurrence of
Code. It shall likewise substantially contain the following: the circumstances leading to the conversion into an ordinary
1. If the single stockholder is a trust or an estate, the stock corporation.
name, nationality, and residence of the trustee,
administrator, executor, guardian, conservator,
custodian, or other person exercising fiduciary

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Foreign Corporations Grounds for Revocation of License

A foreign corporation is done, formed, organized or existing Without prejudice to other grounds provided by special
under any laws other than those of the Philippines and laws, the license of a foreign corporation to transact
whose laws allow Filipino citizens and corporations to do business in the Philippines may be revoked or suspended by
business in its own country or State. the SEC upon any of the following grounds:
1. Failure to file its annual report or pay any fees as
Bases of Authority over Foreign Corporation required by the Code;
The following are the two bases of authority 2. Failure to appoint and maintain a resident agent in
(jurisdiction) over foreign corporations: the Philippines;
1. A corporation may give actual consent to judicial 3. Failure, after change of its resident agent or of his
jurisdiction manifested normally by compliance with address, to submit to the Securities and Exchange
the State’s foreign corporation qualification Commission a statement of such change;
requirements (licensing requirements and other 3. Failure to submit to the SEC an authenticated copy
requisites to lawfully transact business in the of any amendment to its articles of incorporation or
Philippines); and by-laws or of any articles of merger or consolidation
2. A corporation, even though not qualified (not within the time prescribed by the Corporation Code;
licensed), by engaging in sufficient activity (doing 4. A misrepresentation of any material matter in any
business) within the State, established judicial application, report, affidavit or other document
jurisdiction over the foreign corporation. submitted by such corporation pursuant to this
Title;
Necessity of a License to do Business 5. Failure to pay any and all taxes, imposts,
The purpose of the law in requiring that a foreign assessments or penalties, if any, lawfully due to the
corporation doing business in the Philippines be licensed to Philippine Government or any of its agencies or
do so is to subject such corporation to the jurisdiction of the political subdivisions;
courts. The object is not to prevent foreign corporation from 6. Transacting business in the Philippines outside of
performing single acts but to prevent it from acquiring a the purpose or purposes for which such corporation
domicile for the purpose of business without taking steps is authorized under its license;
necessary to render it amenable to suits in local courts. 7. Transacting business in the Philippines as agent of
or acting for and in behalf of any foreign corporation
Personality to Sue or entity not duly licensed to do business in the
As a rule, only foreign corporations that have been issued a Philippines; or
license to operate a business in the Philippines have the 8. Any other ground as would render it unfit to transact
personality to sue. business in the Philippines.

However, under the rule on estoppel, a party is estopped to Merger and Consolidation
challenge the personality of a foreign corporation to sue,
even if it has no license, after having acknowledged the 1. Sale of assets – One corporation sells all or
same by entering to a contract with it. substantially all of its assets to another. Such sale,
usually, though not necessarily made in the course
Suability of Foreign Corporations of the dissolution of the vendor corporation.
A foreign corporation, which was granted a license to
transact business in the Philippines, is suable before local 2. Lease of assets – A corporation, without being
courts or administrative agencies. dissolved, leases its property to another corporation
for which the lessor merely receives rental paid by
It is suable since any foreign corporation lawfully doing the lessee. This is similar to the sale of assets,
business in the Philippines shall be bound by all laws, rules except that under a lease, nothing passes, except
and regulations applicable to domestic corporations of the the right to use the property leased.
same class, save and except:
1. Such only as provided for the creation, formation, 3. Sale of stock – The purpose of a holding corporation
organization or dissolution of the corporations or is to acquire a sufficient amount of the stock of
2. Those which fix the relations, liabilities, another corporation for the purpose of acquiring
responsibilities, or duties of stockholders, members control. The acquiring corporation is called the
or officers of corporations to each other or to the parent/ holding company. The corporation whose
corporation. stocks were acquired is the subsidiary.

Instances when an Unlicensed Foreign Corporation be 4. Merger – One where a corporation absorbs another
Allowed to Sue: corporation and remains in existence while others
1. Isolated transaction. are dissolved.
2. A license subsequently granted enables the foreign
corporation to sue on contracts executed before the 5. Consolidation - One where a new corporation is
grant of the license. created and consolidating corporations are
3. In an action for infringement of patent or other extinguished.
intellectual property rights, provided that the
country of the foreign corporation is a party to the a. Constituent Corporation – one of the parties
Paris Convention. to a merger or consolidation
4. If the foreign corporation is co-plaintiff with a b. Consolidated Corporation – A completely
domestic corporation and the domestic corporation new corporation formed when two or more
is the one who instituted the suit in the Philippines; corporations combined.
-or
5. By reason of the doctrine of estoppel.

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Plan of Merger or Consolidation d. The surviving or the consolidated corporation shall

thereupon and thereafter possess:
The plan of merger or consolidation is a plan created by the a. All the rights, privileges, immunities and
representatives of the constituent corporations, providing franchises of each of the constituent
for the details of such merger to wit: corporations;
b. All property, real or personal, and all
1. The names of the corporations proposing to merge
receivables due on whatever account,
or consolidate, hereinafter referred to as the
including subscriptions to shares and other
constituent corporations;
choses in action, and all and every other
2. The terms of the merger or consolidation and the
interest of, or belonging to, or due to each
mode of carrying the same into effect;
constituent corporation.
3. A statement of the changes, if any, in the AOI of the
e. These shall be deemed transferred to and vested in
surviving corporation in case of a merger; and, with
such surviving or consolidated corporation without
respect to the consolidated corporation in case of
further act or deed.
consolidation, all the statements required to be set
forth in the AOI for corporations organized under Investigations, Offenses and Penalties
the RCC; and
4. Such other provisions with respect to the proposed Authority of Commissioner
merger or consolidation as are deemed necessary
or desirable. The Commission may investigate an alleged violation of this
Code, or of rule, regulation, or order of the Commission.
Articles of Merger and Consolidation
Contempt
After the approval by the stockholders or members as Any person who, without justifiable cause, fails or refuses
required by the preceding section, articles of merger or to comply with any lawful order, decision, or subpoena
articles of consolidation shall be executed by each of the issued by the Commission shall, after due notice and
constituent corporations, to be signed by the president or hearing, be held in contempt and fined in an amount not
vice president and certified by the secretary or assistant exceeding Thirty thousand pesos (P30,000.00).
secretary of each corporation setting forth:
1. The plan of the merger or the plan of consolidation; When the refusal amounts to clear and open defiance of the
2. As to stock corporations, the number of shares Commission’s order, decision, or subpoena, the Commission
outstanding, or in the case of nonstock may impose a daily fine of One thousand pesos (P1,000.00)
corporations, the number of members; until the order, decision, or subpoena is complied with.
3. As to each corporation, the number of shares or
members voting for or against such plan, Sanctions for violations
respectively;
Administrative Sanctions
4. The carrying amounts and fair values of the assets
If, after due notice and hearing, the Commission finds that
and liabilities of the respective companies as of the any provision of this Code, rules or regulations, or any of
agreed cut-off date; the Commission’s orders has been violated, the Commission
5. The method to be used in the merger or may impose any of the following sanctions, taking into
consolidation of accounts of the companies; consideration the extent of participation, nature, effects,
6. The provisional or pro-forma values, as merged or frequency and seriousness of the violation:
consolidated, using the accounting method; and
7. Such other information as may be prescribed by a. Imposition of a fine ranging from P5,000.00 to
the Commission. 2,000,000.00, and not more than One
thousand pesos P1,000.00 for each day of
Effectivity continuing violation but in no case to exceed
2,000,000.00;
The merger or consolidation shall become effective upon b. Issuance of a permanent cease and desist
issuance by the SEC of the certificate of merger and order;
consolidation. c. Suspension or revocation of the certificate of
incorporation; and
Effects and Limitations
d. Dissolution of the corporation and forfeiture of
its assets under the conditions in Title XIV of
1. The constituent corporations shall become a single
this Code.
corporation which:
a. In case of merger, shall be the surviving
Who are Liable
corporation designated in the plan of merger.
b.In case of consolidation, shall be the 1. Directors, Trustees, Officers, or Other Employees
consolidated corporation designated in the If the offender is a corporation, the penalty may, at
plan of consolidation. the discretion of the court, be imposed upon such
b. The separate existence of the constituent corporation and/or upon its directors, trustees,
corporations shall cease, except that of the stockholders, members, officers, or employees
surviving or the consolidated corporation. responsible for the violation or indispensable to its
c. The surviving or the consolidated corporation shall commission. (Sec. 171, RCC)
possess all the rights, privileges, immunities and
powers and shall be subject to all the duties and 2. Aiders and Abettors and Other Secondary Liability
liabilities of a corporation organized under this Anyone who shall aid, abet, counsel, command,
Code. induce, or cause any violation of this Code, or any
rule, regulation, or order of the Commission shall be

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punished with a fine not exceeding that imposed on e. Profits arising primarily from the effort of
the principal offenders, at the discretion of the others.
court, after taking into account their participation in
the offense. 5. Equity instruments – Shares of stock, certificates of
interest or participation in a profit sharing
Securities agreement, certificates of deposit for a future
subscription, proprietary or non-proprietary
Securities are shares, participation or interests in a membership certificates in corporations.
corporation or in a commercial enterprise or profit-making 6. Trust instruments – Certificates of assignments,
venture and evidenced by a certificate, contract, certificates of participation, trust certificates, voting
instrument, whether written or electronic in character. trust certificates or similar instruments.

Kinds of Securities Insider Trading

A purchase or sale made by an insider, or such insider’s
1. Debt instruments – bonds, debentures, notes, spouse or his relative by affinity or consanguinity within the
evidence of indebtedness, asset-backed securities. second degree, legitimate or common-law, shall be
2. Other instruments as may in the future be presumed to be effected while in possession of material
determined by the SEC. non-public information if transacted after such information
3. Derivatives– options and warrants came into existence but prior to the public dissemination of
4. Investments instruments – Investment contracts, such information, and lapse of reasonable time for the
fractional undivided interests in oil, gas, or other market to absorb such information.
mineral rights.
Protection of Investors
Tender Offer Rule
Howey Test
Tender offer means a publicly announced intention by a
For an investment contract to exist, the following elements
person acting alone or in concert with other persons to
must concur:
acquire equity securities of a public company. It is also an
a. A contract, transaction or scheme;
offer by the acquiring person to stockholders of a public
b. An investment of money;
company for them to tender their shares therein on the
c. Investment is made in a common terms specified in the offer.
enterprise;
d. Expectation of profits; and

QUESTIONS

1. A private corporation commences to have corporate d. there is no name provided for in the articles of
existence and juridical personality from the date: incorporation
a. the officers of the corporation are elected by the e. a, b and c only
stockholders f. b, c and d only
b. the incorporators sign the Articles of incorporation
c. the Articles of incorporation and the by-laws are 5. Unless otherwise provided by the Corporation Code or
presented to the SEC special law, the number of directors must be:
d. the SEC issues a certificate of incorporation under a. not less than five (5) nor more than fifteen (15)
its official seal b. not more than fifteen (15)
e. all of the above c. not less than fifteen (15) not more than twenty-five
(25)
2. One of the following is not required and does not form d. more than five (5) nor more than fifteen (15)
part of the three-fold duties of a director of a e. more than five (5) but not less than fifteen (15)
corporation. Which one is it?
a. Duty of diligence 6. Which of the following does not belong in the
b. Duty of loyalty enumeration?
c. Duty of obedience a. serious misrepresentation as to what the
d. Duty of efficiency corporation can do or is doing
b. the articles of incorporation is not substantially in
3. It is one brought by one or more of the stockholders or the form prescribed by law
members in the name and on behalf of the corporation c. the purpose is patently unconstitutional, illegal or
to redress wrongs committed against it or to protect or immoral
vindicate corporate rights, whenever the officials of the d. the treasurer’s certification is false.
corporation refuse to sue, or are the ones to be sued or
hold control of the corporation. 7. Which of the following is not a characteristic of
a. mandamus certificate of stock?
b. quo warranto a. tangible
c. appraisal right b. may not be issued even if the subscription is not
d. derivative suit fully paid
e. individual suit c. written evidence of ownership of the shares
d. intangible
4. A corporation cannot exist if:
a. there are incorporators who are juridical persons 8. The appraisal right can be exercised by a stockholder
b. there are no articles of incorporation under the conditions provided by law, which one of the
c. no incorporating directors or trustees following is the ground in case of close corporation?
a. merger or consolidation

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b. sale, lease, exchange, transfer, mortgage, pledge

or other disposition of all or substantially all of the 16. One of the characteristics of treasury shares is that:
corporate property a. they have the status of outstanding shares
c. amendment of articles of incorporation b. they may not be reissued or sold again
d. investment of corporate funds in another purpose c. they can vote in the election of directors
e. for any reason d. they participate neither in dividends not in the
meetings of the corporation as voting stocksa
9. The by-laws of the non-stock corporation may provide e. they can be reacquired by the corporation
that the meetings of the members of the non-stock regardless of the existence of unrestricted retained
corporation may be held: earnings
a. within the principal place of business only
b. within the Philippines only 17. It means the total shares of stock issued to subscribers
c. at any place even outside the place where the or stockholders, whether or not fully or partially paid (as
principal office of the corporation is located provided long as there is a binding subscription agreement),
within the Philippines except treasury shares.
d. at any place even outside the place where the a. authorized capital stock
principal office of the corporation is located and b. paid-up capital stock
even outside the Philippines c. shares in escrow
e. anywhere d. voting stock
e. outstanding capital stock
10. In case of a delinquent stockholder, the following rights
are not given to him, except: 18. The following are the advantages of par value shares,
a. right to receive dividends in accordance with the which is one is not?
provisions of the law a. easily sold
b. right to vote b. easily issued as fully paid and non-assessable
c. right to be voted for c. greater protection to creditors
d. right of representation at any stockholders’ meeting d. unlikelihood of distribution of dividends that are
only ostensible profits
11. A corporation commences its existence from the e. unlikelihood of sale of subsequently issued shares
issuance of the certificate of incorporation, which one is at a lower price
the exception?
a. close corporation 19. The following are some of the corporate acts that need
b. widely-held corporation the vote of stockholders holding 2/3 of the authorized
c. religious corporation capital stock. Which should not be included?
d. non-stock corporation a. Adoption, amendment or repeal of by-laws.
e. educational corporation b. Amendment of articles to increase or decrease
capital stock.
12. Stocks which are previously issued and fully paid for and c. Incurring, creation or increase of bonded
reacquired by the corporation either by purchase, indebtedness.
donation, forfeiture or some other lawful means. d. Approval of merger or consolidation.
a. scrip shares
b. treasury shares 20. Statement No. I – Dividends shall be deemed non-
c. scrip shares cumulative in the absence of an agreement.
d. redeemable shares Statement No. 2 – Shares without par value may be
e. delinquent shares issued for a consideration less than the value of P5.00
per share
13. A religious corporation acquires juridical personality a. No.1 is true; No.2 is false
from – b. No.1 is false; No.2 is true
a. execution of the articles of incorporation and by- c. Both are true
laws d. Both are false
b. filing of the articles of incorporation and other e. None of the above
documents
c. issuance of the certificate of incorporation from SEC 21. I - Stock corporations are formed by not less than 2
d. approval of the Securities and Exchange but not more than 15 incorporators who are natural or
Commission juridical persons
e. None of the above II - Corporation sole is composed of only one natural
person
14. Which of the following is not an Involuntary dissolution III - Corporation may exist perpetually or for a fixed
of the corporation? period from the date of incorporation unless sooner
a. by the vote of the board of directors and dissolved or unless said period is extended.
stockholders, where no creditors are affected IV – Corporation is automatically dissolved if it fails to
b. non-use of corporate charter do any business within 2 years from date of
c. receipt of a lawful order of the court dissolving the incorporation
corporation a. I, II, III and IV are true
d. continuous inoperation of a corporation b. I and II are true, III and IV are false
c. I, II and III are true, IV is false
15. Voting requirement for the amendment of the by-laws. d. I, II, III are true, IV are false
a. 2/3 of the outstanding capital stock e. I, III and IV are false, II is true
b. majority of the board of directors
c. majority of the board consented to by 2/3 of the 22. Sebastian, one of the stockholders of Longan Corp
outstanding capital stock was convinced by Fernando, one of the directors of said
d. majority of the board of directors consented to by corporation to sell to him (Fernando) his stockholding
majority of the outstanding capital stock for a certain price. Since the offer was good, Sebastian

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consented to the sale. Unknown to Sebastian, at the Statement No. 2 - The acts done by a disloyal director
time of the sale, Fernando was the chief negotiator of may be ratified by the vote of the stockholders owning
Longan Corp. in selling its substantial property to the or representing at least 2/3 of the outstanding capital
government at a price which greatly enhanced the value stock.
of the stock. Under what doctrine is Fernando as Statement No. 3 - In case of the abandonment of the
director of the corporation liable? contract for the sale or disposition of all or substantially
a. Doctrine of Corporate Opportunity all of the corporate assets, approval of the stockholders
b. Special Fact Doctrine is not necessary. F
c. Business Judgment Rule
d. Trust Fund Doctrine 29. Statement No. 1 - After the incorporation of the
e. Doctrine of Alter Ego corporation, it is given one year after official notice of
f. Doctrine of Special Theory the issuance of certification from SEC to make by-laws.
Statement No. 2 - A stockholder’s indebtedness to a
23. Hokkaido, Hakone, Ajinamoto, Nissin and Oishi are five corporation under a subscription agreement cannot be
Japanese citizens who organized a corporation in the compensated or set-off with the amount of his shares in
Philippines and registered in the same in the office of the same corporation there being no relation of creditor
the Securities and Exchange Commission and debtor with regard to such shares.
a. It is a foreign corporation Statement No. 3 - The stockholders have the power to
b. It is a domestic corporation declare dividends in case of stock dividends. H
c. It is a nationalized corporation
d. It is partly nationalized 30. Statement No. 1 - Two-thirds (2/3) vote on the part of
e. Answer not given the board of directors is required to declare cash
dividends.
24. The corporate existence may be disregarded where the Statement No. 2 - The declaration of cash dividends
entity is formed or used for illegal purposes. creates a debt from the corporation in favor of its
a. Doctrine of Limited Capacity stockholders.
b. Doctrine of Piercing the Veil of Corporate Fiction Statement No. 3 - A corporation can be an incorporator.
c. Doctrine of Corporate Fiction F
d. Alter Ego Doctrine
31. Statement No. 1 - If the shares of stock have no par
25. A corporation can be formed for the practice of law, value, the corporation has no authorized capital stock,
medicine or other professions. but it has capital stock, the amount of which is not
a. True, the rights are granted explicitly under the law specified in the articles of incorporation as it cannot be
b. True, since the same right is allowed in partnerships determined until all the shares have been issued.
c. False, because the principle of delectus personarum Statement No. 2 - No par values shares may not be
applies in corporation. issued without being fully paid.
d. False, because consent of all the corporators is Statement No. 3 - Stockholders are liable with their
necessary. separate property for the payment of the debts of the
e. None of the following corporation. D

Choices from Question Nos. 26-31 32. A writing or certificate issued to a stockholder entitling
a. All are true f. I is false; II and III are him to the payment of money or the like at some future
true time inasmuch as the corporation at the time of such
b. All are false g. I/II are false; III is true dividends are declared has profits in cash, or has no
c. I is true; II/III are false h. I/III are false; II is sufficient cash, or has cash but wishes to reserve it from
true some corporate purposes.
d. I/II are true, III is false i. None of the above a. optional dividend
e. I/III are true; II is false b. bond dividend
c. stock dividend
26. Statement No. 1 - The remedy against a corporation de d. scrip dividend
jure is a quo warranto proceeding against the said e. liquidating dividend
corporation to oust it from the exercise of corporate
powers usurped by it and to have it dissolved. 33. Which of the following does not belong to the limitation
Statement No. 2 - The issuance of the certificate of of the Executive Committee?
incorporation gives the corporation the legal personality a. filling of the vacancies in the board
and the authority to do business. b. the amendment or repeal of by-laws or the adoption
Statement No. 3 - The vote of the majority of the of new by-laws
outstanding capital stock is sufficient for the removal of c. determination of the presence of the quorum
the directors. B d. distribution of cash dividends
e. amendment or repeal of any board resolution
27. Statement No. 1 - Proxy voting is allowed in the election
of the board of directors. 34. Which of the following does not require the 2/3 vote of
Statement No. 2 - Under the law, the secretary of the the stockholders?
corporation must be a director of the corporation. a. entering into management contracts
Statement No. 3 - Under the law, the secretary of the b. power to shorten or extend corporate term
corporation must be a resident and citizen of the c. sale or disposition of corporate assets
Philippines. E d. investment of corporate funds in another
corporation
28. Statement No. 1 - If the vacancy results by reason of
increase in the number of directors or trustees and the 35. Which of the following does not belong in the
remaining directors or trustees still constitute a enumeration?
quorum, the remaining directors or trustees can be filled a. elimination of fractional shares
by them. b. redemption of redeemable shares

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c. satisfaction of indebtedness to the corporation d. pre-emptive right

d. payment of shares of dissenting or withdrawing
stockholders 43. The nationalilty of a corporation is determined by the
e. satisfaction of corporation’s indebtedness place of the controlling stockholders, This test is:
a. Control test
36. Stikki Cement corporation (STIKKI) was organized b. Domicile test
primarily for cement manufacturing. Anticipating c. Incorporation test
substantial profits, its president proposed that STIKKI d. Management test
invest in (a) a power plant project, (b) concrete road
project, and (c) quarry operations for limestone used in 44. Contracts between a corporation and third persons must
the manufacture of cement. What vote is needed if the be made by or under the authority of its:
aforementioned are reasonably necessary to a. Board of Directors
manufacture of the cement? b. Stockholders
a. majority of the board and 2/3 vote of the c. President and chief Operating Officer
outstanding capital stock d. General Manager
b. majority of the board of directors
c. majority of the stockholders and majority of the 45. Purely ultra vires acts of the officers of corporation to
board of directors invest corporate funds in another business or
d. majority of the stockholders corporation, i.e acts not contrary to law, morals, public
e. 2/3 vote of the outstanding capital stock policy may be ratified by:
a. the stockholders holding two-thirds (2/3) of the
37. These do not form part of the outstanding capital stock: voting power
a. bonus shares b. majority vote of all the members of the Board
b. treasury shares c. The stockholders holding one-half (1/2) of the
c. redeemable shares voting power
d. founder’s shares d. majority vote of the Board of Directors present
e. preferred shares
46. The following are the requisites, except one for a valid
38. The distinction between subscription of shares from declaration of stock dividend:
purchase of shares is that in subscription of shares: a. existence of original and unissued shares
a. it is an independent agreement between the b. dividend declarations is made by the Board of
individual and the corporation to buy shares of stock Directors and approved by 2/3 of the outstanding
from it at a stipulated price. capital stocks
b. it takes place before or after incorporation and is c. it is issued to increase the authorized capital
generally paid in installment or upon a call. d. existence of the unrestricted retained earnings
c. in case on insolvency of the corporation, the
subscription price cannot be enforced on the theory 47. Which of the following is a disadvantage of forming a
that the corporation can no longer perform its corporation:
obligation to deliver the certificate of stock. a. the shareholders are not liable for the debts of the
d. answer not given business
b. the subservience of minority stockholders to the
39. One of the characteristics of treasury shares is that: wishes of the majority subject only to equitable
a. they have the status of outstanding shares restraints
b. they may not be reissued or sold again c. Because of the power of succession, the existence
c. they participate neither in dividends nor in the of the entity is not affected by the personal
meetings of the corporation as voting stocks vicissitudes of the individual shareholders.
d. answer not given d. the free and ready transferability of ownership

40. Watered stocks are shares of stock issued by the 48. The corporation shall be deemed dissolved and its
corporation for a consideration less than its par or corporate powers cease, if from the of its incorporation,
issued value or for a consideration in any form other it does not formally organize and commence the
than cash, valued in excess of its fair value. In this transaction of its business
regard: a. 4 years
a. the issue itself is void b. 3 years
b. the agreement that it shall be paid for less than its c. 2 years
par value is illegal and void and cannot be enforced. d. 5 years
c. the subscriber or purchaser shall not be liable for
the full par value of the shares 49. A representative action where a stockholder brings an
d. answer not given action in the name and in behalf of the corporation and
any relief obtained belongs to the corporation and not
41. An officer of a corporation may hold two or more to the stockholders individually or collectively.
positions in the corporation but not as: a. Individual suit
a. Chairman of the Board and President b. Derivative suit
b. President and Treasurer c. Representative suit
c. Secretary and Treasurer d. Corporate suit
d. Vice-President and Secretary
50. Cash dividend as distinguished from stock dividend
42. The right of the corporation to exist as a juridical person a. needs stockholders approval
during its term as stated in its Articles of Incorporation b. declared by the board of directors
despite the death of any of its stockholders is: c. not a taxable income
a. right of existence d. results to withdrawal of assets from the corporation
b. right of redemption
c. right of succession

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51. A non-voting stock may vote in the following acts, d. exceeding 20% of the outstanding capital stock
except in the case of:
a. approval of the compensation of directors 61. Shares deposited by the seller or his agent with a bank
b. merger or consolidation or third party to be delivered to the buyer or subscriber
c. increase or decrease of capital stock only upon the fulfillment of the stipulated suspensive
d. sale, lease, exchange of all or substantially all of condition.
corporate property a. Promotion shares c. Founder’s shares
b. Redeemable shares d. Escrow stock
52. Under this theory, the nationality of the corporation is
that of the country under whose laws it was formed 62. X Corporation posted a P1M profit in its realty business
a. Control test and its real estate has appreciated in value to the tune
b. Incorporation test of P4M. The board then declared dividends to its
c. Corporation by estoppel stockholders computed on the basis of representing
d. corporation by prescription profits and appreciation in value of its real estate. Is the
dividend declaration valid?
53. This is a characteristic of a stock corporation as a. Not valid because there was no approval of 2/3 of
distinguished from a non-stock corporation the outstanding capital stock.
a. the powers are vested in the Board b. Valid because it was based on profit and increment
b. the members can vote by mail in the value of the corporate assets.
c. it is formed by at least 5 but not more than 15 c. Not valid because the dividends must only come
persons from unrestricted retained earnings
d. it is organized for profit d. Valid if no creditors shall be prejudiced and
approved by the required votes of the directors and
54. Amount equal to the aggregate par value or issued stockholders.
value of the outstanding capital stock
a. Legal Capital 63. S1 - After dissolution but within the three-year period
b. Unissued capital stock of liquidation a corporation’s term may still be extended
c. Outstanding capital stock by amendment of its articles of incorporation.
d. authorized capital stock S2 - The dissolution of a corporation shall take place
because it has been in continuous non-operation for 2 years.
55. Shares without par value may not be issued for a a. Both statements are false
consideration b. Both are true.
a. less than P1 per share c. First is false, second is true.
b. less than P5 per share d. First is true, second is false
c. Outstanding capital stock
d. less than P100 per share 64. The doctrine of corporate opportunity rests on the
unfairness of an officer or director of a corporation
56. If the remaining directors constitute a quorum, they can taking advantage of an opportunity for his own personal
fill up the vacancy benefit adverse to the corporation.
a. in case of removal of the director The by-laws must be filed with the SEC for the
b. in case of expiration of the term of director corporation to acquire juridical personality.
c. if there is an increase in the number of directors
a. Both statements are true
b. Both are false.
d. in case of resignation of a director
c. First is true, second is false
d. First is false, second is true.
57. Stock dividends differ from cash dividend in that stock
dividends
65. The executive committee cannot act on this matter
a. do not increase capital stock
except:
b. involves the disbursements of corporate funds
a. Filling of vacancy in the board of directors
c. require the approval of both the board of directors
b. Cash dividend declaration
and the stockholders
c. Board resolution on depository bank of the
d. once received by the stockholders, are beyond the
corporation
reach of corporate directors
d. Stock dividend declaration
58. Rules of action adopted by the corporation for its
66. At the annual meeting of ABC Corporation for the
internal government and for the government of its
election of five directors, A, B, C, D, E, F and G were
officers and of its stockholders or members
nominated. A, B, C, D and E received the highest
a. contract
number of votes and proclaimed elected. F received ten
b. Articles of Incorporation
votes less than E. Subsequently, E sold his shares to F.
c. Ultra vires act
Who between E and F has the right to attend as director
d. By-Laws
in the board meeting? The transfer of shares having
been registered with the corporation.
59. A stockholders’ option to subscribe to allotment of
shares in proportion to his holding of outstanding a. E is the director because his term is one year until
shares. his successor is elected and qualified
a. Voting right c. Pre-emptive right b. F is the director for he has acquired all the shares
b. Ultra vires act d. Appraisal right of E.
c. Either of them shall be the director
60. For purposes of interlocking directors, the stockholdings d. Neither of them shall be the director
shall be considered substantial if:
a. exceeding 10% of the authorized capital stock 67. S1 The merger or consolidations of corporations become
b. exceeding 10% of the outstanding capital stock effective upon approval by the constituent corporations
c. exceeding 20% of the authorized capital stock

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of the plan of merger or consolidation as the case may a. below 50,0000

be. b. below 100,000
S2 After the merger the absorbed corporation must c. below 500,000
undertake dissolution and winding-up procedures. d. below 600,000
a. Both statements are false e. below 1 Million
b. Both are true.
c. First is false, second is true. 77. The following are penalties imposable by SEC, except:
d. First is true, second is false. a. Escheat
b. Contempt
68. The corporation has nine-member board. Two of the c. Dissolution
members have sold their shares while two others are d. permanent cease and desist
abroad. To have a quorum, the number required is: e. Suspension of COI
a. Seven
b. Five 78. Shanky’s Corp. operates a call center that received
c. Three orders for pizzas on behalf of Domina Corp. which operates
d. Four a chain of pizza restaurants. The two companies have the
same set of corporate officers. After 2 years, Shanky’s Corp.
69. A director of a corporation may be removed from the dismissed its call center agents for no apparent reason. The
office by a vote of the stockholders holding agents filed a collective suit for illegal dismissal against both
representing: Shanky’s Corp. and Domina Corp. based on the doctrine of
a. Majority of the outstanding capital stock piercing the veil of corporate fiction. The latter set up a
b. 2/3 of the stockholder defense that the agents are in the employ of Shanky’s Corp.
c. 2/3 of the OCS which is a separate juridical entity. Is the defense
d. Majority of the stockholders appropriate?
a. No, since the doctrine would apply, the two
70. The effectivity of the Founders’ Shares. companies having the same set of corporate
a. 3 years officers.
b. 4 years b. No, the real employer is Domina Corp., the pizza
c. 5 years company, with Shanky’s Corp. serving as an arm
d. 10 years for receiving its outside orders for pizzas.
c. Yes, it is not shown that one company completely
71. Vote in Corporations vested with public interest in case dominates the finances, policies, and business
of Self-dealing director. practices of the latter.
a. majority of the BOD and 2/3 of OCS d. Yes, since the two companies perform two distinct
b. majority of the BOD and majority of OCS businesses.
c. majority of the BOD and 2/3 of Independent
directors 79. Sunny, the proprietor of a fleet of 10 taxicabs, decides
d. 2/3 of the BOD and majority of the independent to adopt, as his business name, “Sunny Transport Co., Inc.”
directors May this be allowed?
e. Answer not given a. No, it would be deceptive since he is a proprietor,
not a corporation.
72. Period to notify in case of election of Regular Meeting of b. No, since “Sunny” is a generic name, not suitable
Stockholders. for registration.
a. At least 20 days c. Yes, since his line of business is public
b. At least 21 days transportation.
c. 1 week d. Yes, since such name would give his business a
d. 2 weeks corporate identity.
e. 10 days
80. The rule is that no stock dividend shall be issued without
73. Percentage requirement to consider stockholdings the approval of stockholders representing at least 2/3 of the
substantial outstanding capital stock at a regular or special meeting
a. exceeds 10% called for the purpose. As to other forms of dividends:
b. exceeds 100% a. A mere majority of the entire Board of Directors
c. exceeds 20% applies.
d. exceeds 25% b. A mere majority of the quorum of the Board of
e. exceeds 30% Directors applies.
c. A mere majority of the votes of stockholders
74. Period for Pre-Incorporation Subscription Contract representing the outstanding capital stock
a. at least 1 month applies.
b. at least 3 months d. The same rule of 2/3 votes applies.
c. at least 6 months
d. at least 1 year 81. What vote is needed to consider every decision to be
valid corporate act?
75. Period for notation of Certificate of Stock in case of a. A majority of the directors present at the
exercise of Appraisal Right meeting
a. 20 days b. 2/3 of the directors present at the meeting
b. 3 days c. A majority of the directors present at the
c. 15 days meeting at which there is a quorum
d. 10 days d. 2/3 of the directors present at the meeting
e. 30 days at which there is a quorum

76. Annual Financial Statements need not need an 82. Facundo, the President of AAA Corporation, was
independent CPA if the total assets or liabilities is – authorized by the Board of Directors of AAA Corporation to

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TEAM PRTC

obtain a loan from BPO Bank and to sign documents in certificate corresponding to the number of
behalf of the corporation. Facundo personally negotiated for shares actually subscribed regardless of the
the loan and got the loan at very low interest rates. Upon actual payment.
maturity of the loan, AAA Corporation was unable to pay. d. The Corporate Secretary is correct because
Which statement is most accurate? the Corporation Code provides that no
a. Because Facundo was personally acting in certificate of stock shall be issued to a
behalf of the Corporation, he can be held subscriber until the shares as subscribed
personally liable have been fully paid.
b. Facundo, as President, cannot be personally
held liable for the obligation of the 87. The BIR assessed ABS Corp. for deficiency income tax
corporation even though he signed all the for taxable year 2020 in the amount of P16,731,208.00,
loan documents, because the loan was inclusive of surcharge and penalties. The BIR can _______.
authorized by the Board a. Run after the directors and officers of the
c. BPO Bank can choose as to who it wants to ABS Corp. to collect the deficiency tax and
hold liable for the loan; their liability will be solidary.
d. If AAA Corporation cannot pay, Facundo can b. Run after the stockholders of ABS Corp.
be held subsidiarily liable. and their liability will be joint.
c. Run after the stockholders of ABS Corp.
83. It is settled that neither par value nor book value is an and their liability will be solidary.
accurate indicator of the fair value of a share of stock of a d. Run after the unpaid subscriptions still due
corporation. As to unpaid subscriptions to its shares of to ABS Corp., if any.
stock, as they are regarded as corporate assets, they should
be included in the 88. In case of amendments of the AOI, the date of the
a. Capital value. approval of the SEC is the reckoning point of the approval.
b. Par value. However, if after _______, then the date of filing shall be
c. Book value the approval.
d. Market value. a. 30 days c. 6 months
b. 3 months d. 12 months
84. South China Airlines is a foreign airline company. South
China Airlines tickets are sold in the Philippines though PAL 89. S1 – Under the Revised Corporation Code, the resident
as their general agent. South China Airlines is not registered agent of a foreign corporation must be a resident and citizen
to do business as such with the Philippine SEC. which of the Philippines.
statement is most accurate? S2 – The period to elect the officers for an ordinary
a. Although unlicensed to do business in the corporation is 30 days from the issuance of the COI.
Philippines, South China Airlines can sue a. All are correct
before the Philippine Courts and can also be b. All are incorrect
sued. c. Only S1 is incorrect
b. South China Airlines can sue but cannot be d. Only S2 is incorrect
sued.
c. South China Airlines cannot sue and cannot 90. S1 – Period to extend the life of corporation if fixed is 5
be sued also. years before its expiration.
d. South China Airlines can be sued in the S2 – Period to extend the life of a cooperative is 3 years
Philippine Courts but it cannot sue. before its expiration.
a. All are correct
85. The term of JGY Corporation in accordance with its b. All are incorrect
Articles of Incorporation ended last January 30, 2022. The c. Only S1 is incorrect
term was not extended. What will happen to the d. Only S2 is incorrect
corporation?
a. The corporation is dissolved ipso facto. Forget all the reasons it won’t work and believe the one
b. There is a need to pass a board resolution reason that it will.”
to formally dissolve the corporation.
c. The Board of Directors must pass a - Carpe Diem –
resolution for the corporation to formally go God is with you. Have faith!
into liquidation.
d. The stockholders must pass a resolution to End of RFBT.3405
dissolve the corporation.

86. Gemma subscribed 10,000 shared in the capital stocks

of NCA Corporation. She paid 50% of the 10,000 shares.
Gemma asked the Corporate Secretary to issue her the
corresponding stock certificate representing the 50% of
what she already paid. The Corporate Secretary of the
corporation refused. Was the Corporate Secretary correct?
a. The Corporate Secretary cannot refuse
because a Stock Certificate can be issued
corresponding to the percentage of shares
which were paid.
b. The Corporation Secretary cannot refuse
because a certificate of Stock can be issued
provided it is indicated in the Certificate the
actual percentage of what has been paid.
c. The Corporate Secretary cannot refuse
because it is his legal duty to issue a stock

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