PRIVATE

CORPORATIONS
(THE REVISED CORPORATION CODE OF
THE PHILIPPINES)
 THE REVISED CORPORATION CODE
OF THE PHILIPPINES
The New Corporation Code (NCC) was approved on May 1, 1980, and under
its Section 149, took effect also on the said date, as Batas Pambansa Blg. 68. It
supplanted Act 1459.
On February 20, 2019, Republic Act No. 11232, the Revised Corporation
Code, was approved and repealed Batas Pambansa Blg. 68.
 Salient Changes Introduced by RA 11232
1. The minimum number of incorporator is ONE.
2. One Person Corporation(OPC) is now allowed under Articles 115,et seq.
3. A corporation shall have perpetual existence unless its Articles of Incorporation provide
otherwise. *Without a defined end date or expiration

4. Corporations with certificates of incorporation and which continue to exist shall have
perpetual existence, unless the corporation notifies the SEC that it elects to retain its
specific corporate term pursuant to its Articles of Incoporation.
5. A corporation whose term has expired may apply for a revival of its corporate existence.
Upon approval by the SEC, the corporation shall have perpetual existence, unless its
application provide otherwise.
6. No minimum capital stock is required.
7. The period for non-use of corporate charter was increased to 5 years from the date of
incorporation. *no operation or exercise of corporate purpose since establishment
 8. Delinquent corporation shall have 2 years to resume operations. Failure to resume
operations within the period given by the SEC shall cause the renovation of its certificate
of incorporation. Revocation

9. The maximum number of trustees has been removed. The term for trustees has been
extended to 3 years.
10. A stockholder may participate in meetings through remote communication or in absentia.
*Online *proxy
11. A corporation vested with public interest shall have an independent director constituting at
least 20% of its board seats, and compliance officer.
12. The SEC can remove members of the board who are determined to be disqualified to be
elected or to hold such position.
13. When the vacancy in the board prevents the remaining directors from constituting a
quorum and emergency action is required to prevent grave, substantial, and irreparable loss
or damage to the corporation, the vacancy may be temporarily filled from among the
*Decision for the business

officers of the corporation by unanimous vote of the remaining directors or trustees.

14. The requirement that 25 % of the authorized capital stock be subscribed and that 25 % of
the subscribed capital stock be paid for the purposes of incorporation was deleted. But this
proportion was retained for any increase in the authorized capital stock.
15. Sending of notices to the shareholders, members, directors or trustees by electronic means
is permitted.
16. Within 60 days from the issuance by the SEC of a license to transact business to a branch
office of a foreign corporation, said branch must deposit acceptable securities to the SEC
with an actual market value of at least P 500,000.00 for present and future creditors. Within
6 months after the fiscal year, the SEC may require a deposit of additional securities of
financial instruments equivalent to 2% of the amount by which the licensee’s gross income
exceeds P 10,000,000.00.
17. Specific offenses and penalties have been enumerated.
18. The SEC is mandated to develop and implement a system to enable electronic submission
of applications, reports and other documents, as well as the sharing of pertinent
information with other government agencies.
19. The law also allows an arbitration agreement to be included in the AOI or By-Laws of a
corporation.
 CORPORATION
A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes, and properties expressly authorized by law or
incidental to its existence. (Sec. 2)
ATTRIBUTES:
a) It is an artificial being.
b) It is created by operation of law.
c) It has the right of succession – a corporation has the capacity for continuous
existence despite changes in stockholders/members; and
d) It has only the powers, attributes, and properties expressly authorized by law or
incidental to its existence.
 ARTIFICIAL BEING
• The law regards a corporation as a JURIDICAL PERSON, with a legal personality
separate and distinct from the persons composing it.
• As a juridical person, it is entitled to the rights of a person under the Bill of Rights
of the Constitution.
• A corporation may also sue for moral damages.
• A corporation may also be criminally prosecuted if the imposable penalty is not
imprisonment.
Corporate Fiction – a corporation has a personality separate and distinct from the
persons composing it.
 CREATED BY OPERATION OF LAW
• There ought to be a law from which the corporation derives its legal existence. This
may be a general law (RCC) or a special law passed by Congress to create a GOCC.

THE RIGHT OF SUCCESSION

• It has the power to exist continuously, either by opting to have perpetual existence
or to extend its corporate life if a fixed term is specified in its articles of
incorporation.
• Its capacity for continued existence is not affected by any changes in the
composition of corporators.
 It has only the powers, attributes and
properties expressly authorized by law
or incident to its existence
• A corporation can only exercise powers conferred upon it by law, its articles of
incorporation, those implied from the conferred powers, or incidental to its
existence.
• Any act of the corporation contrary to or outside these powers is ultra vires. illegal
• The test is whether the corporate act or transaction is related to or in
furtherance of the purposes of the corporation.
 PARTNERSHIP CORPORATION
As to Definition
A Partnership is an agreement whereby 2 or more A Corporation is an artificial being created by operation
persons bind themselves to contribute money, property or of law, having the right of succession and the powers,
industry to a common fund, with the intention of attributes, and properties expressly authorized by law or
dividing the profits among themselves. incidental to its existence.
As to the Manner of Creation
By agreement By operation of law
As to Composition
At least two partners One person may compose a corporation
As to Commencement of Juridical Personality
From the moment 2 or more persons agree to form a
Commences to have corporate existence and juridical
partnership. The registration of Articles of Co-
personality and is deemed incorporated from the date the
Partnership with the SEC is not a condition sine qua non
SEC issues a Certificate of Incorporation under its
for the acquisition of legal personality, it is only for
official seal.
administrative convenience.
 PARTNERSHIP CORPORATION

As to Liability
The general partners may be held liable beyond their The liability of stockholders, who are not directors,
contribution to the partnership if the assets thereof are officers and agents, is limited to their subscription to the
not sufficient to answer for creditor’s claims. capital stock of the corporation.
As to Transfer of Shares or Rights
A partner cannot assign his interest in the partnership in
A stockholder may sell his fully-paid shares of stock
favor of a third party without the consent of the partners,
without the necessity of securing consent of the
because a partnership is essentially based on trust and
corporation and/or the stockholders
confidence.
As to Management
By the Managing Partner designated, or by anyone of the
Generally conducted by the Board of Directors
general partners if none is designated.
As to Exercise of Powers
by any partenrs Cannot exercise powers except those conferred by law and
May perform any ac, unless contrary to law, good morals,
its AOI, those implied from expressly conferred powers
custom, public order, and public policy.
and those incidental to its existence.
 CLASSES OF CORPORATION
In Relation to the State:
• Private corporations – Formed by private persons alone, by or with the State
pursuant to a special charter or through a general enabling act such as the
Corporation Code.
• Public corporations - Formed or organized for the government of a portion of the
state (e.g., barangay, municipality, city and province) Created for political purposes
connected with the public good in the administration of the civil government.
Note: Ownership of the government of the majority of the shares of a corporation
does not by itself constitute such an entity as a public corporation.
Test to determine whether a corporation is public or private:
If the corporation is created by the State as the latter’s own agency or instrumentality to
help it in carrying out its governmental functions, then that corporation is considered
public; otherwise it is private.
PUBLIC CORPORATION PRIVATE CORPORATION
Government holds the controlling interest Government may hold the controlling interest

Created by its charter Created under the Corporation Code

However, GOCCs may also be created by special charter

Created for a public purpose

Exists primarily for the government of a portion of the Generally created for profit generation
state
Subject to control and supervision by the State or its
agency
• Quasi-public corporation - A species of private corporations created by special
law and required to render public service or supply public wants. Usually covers
school districts, water districts and the like.

• Government owned and controlled corporations (GOCCs) - Created under a

special law or charter, or any agency organized as a stock or non-stock corporation,
vested with functions relating to public needs whether governmental or proprietary
in nature, and owned by the Government of the Republic of the Philippines directly
or through its instrumentalities either wholly or, where applicable as in the case of
stock corporations, to the extent of at least a majority of its outstanding capital
stock.
Note: A GOCC when organized under the Corporation Code is still a private
corporation. But being a GOCC makes it subject to laws and provisions applicable to
the Government or its entities and subject to the control of the Government.
As to Place of Incorporation:
• Domestic – one incorporated under laws of the Philippines;
• Foreign – one formed, organized or existing under any laws other than those of the
Philippines, and whose laws allow Filipino citizens and corporations to do business in its own
country. (Sec. 140)
As To Legal Status:
• De jure corporation - Corporation organized in accordance with requirements of law (Every corporation is
deemed to be a de jure until proven otherwise);
• De facto corporation (Sec. 19) - A corporation claiming in good faith to be a corporation under the
Corporation Code but where there exists a flaw in its incorporation or it falls short of the requirements
provided by law. It is the result of an attempt to incorporate under an existing law coupled with the exercise
of corporate powers.
A de facto corporation will incur the same obligations; have the same powers and rights as a de jure corporation.
The due incorporation of any corporation claiming in good faith to be a corporation under the Corporation
Code, and its right to exercise corporate powers, shall not be inquired into collaterally in any private suit.
Elements of a de facto corporation:
a) Valid law under which incorporated;
b) Attempt in good faith to incorporate or “colorable compliance;”
c) Assumption of corporate powers; and
d) Issuance of certificate of incorporation.
• Corporation by estoppel (Sec. 20) - All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all debts,
liabilities and damages incurred or arising as a result thereof.
• Corporation by prescription – one which has exercised corporate powers for an
indefinite period w/o interference on the part of the sovereign power. *Old corporations

The Roman Catholic Church is a corporation by prescription, with acknowledged

juridical personality inasmuch as it is an institution which antedated by almost a thousand
years any other personality in Europe.
As To Existence of Stocks:
• Stock corporation - those which have capital stock divided into shares and are authorized to
distribute to the holders of such shares, dividends, or allotments of the surplus profits on the
basis of the shares held. (Sec. 3)
• Nonstock corporation (Secs. 86-87) - A corporation where no part of its income is
distributable as dividends to members, trustees or officers. Any profit obtained as an incident
to its operations shall, whenever necessary or proper, be used for the furtherance of the
purpose for which the corporation was organized.
As To Control
• Holding company – one that controls another as a subsidiary or affiliate by the
power to elect its management; one which holds shares in other companies for
purposes of control rather than for mere investment.
• Affiliate company – one that is subject to common control of a parent or holding
company and operated as part of a system.
• Parent and subsidiary companies – when a corporation has a controlling financial
interest in one or more corporations, the one having control is known as the “parent
company” and the controlled corporations are known as the “subsidiary companies”.

As To Purpose of Incorporation
a. Municipal corporation
b. Religious corporation
c. Educational corporation
d. Charitable, Scientific or Vocational corporation
e. Business corporation
As To Number of Members
• Aggregate - a corporation which consists of many persons united to form a body politic and
corporate.
• Corporation sole - Formed by one person who may be the chief archbishop, bishop,
minister, rabbi, or other presiding elder of any religious denomination, sect or church.
Purpose: created to administer and manage the affairs, properties, temporalities of the church to
which the holder of the office belongs and also to transmit the same to his successor in office
• Close Corporation - a corporation where:
a) stockholders of record shall not exceed twenty (20);
b) all the issued stock shall be subject to one or more specified restrictions on transfer
permitted by this Title; and
c) the corporation shall not list in any stock exchange or make any public offering of its stocks
of any class.
 Notwithstanding, a corporation shall not be deemed a close corporation when at least
2/3 of its voting stock is owned or controlled by another corporation which is not a close
corporation within the meaning of this Code. (Sec. 95)

• One Person Corporation - a corporation with a single stockholder. Only a natural

person, trust, or an estate may form a One Person Corporation. Banks and quasi-banks,
preneed, trust, insurance, public and publicly-listed companies, and non-chartered
government-owned and -controlled corporations may not incorporate as One Person
Corporations. A natural person who is licensed to exercise a profession may not organize
as a One Person Corporation for the purpose of exercising such profession except as
otherwise provided under special laws. (Sec. 115)
 NATIONALITY OF CORPORATIONS
Serves as a legal basis for subjecting the enterprise or its activities to the laws, the economic and
fiscal powers, and various social and financial policies of the state to which it is supposed to
belong.
Tests:
1. Place of Incorporation
2. Control Test Liberal Rule

3. Grandfather Rule Strict Rule

4. War-time – in times of war, nationality of corporation is determined by the character or

citizenship of its controlling stockholders
5. Investment Test
6. Place of Principal Business
In order to determine the nationality of a corporation, the following steps should
apply:
1st Step: The nationality of a corporation is determined by the country under whose laws
it is incorporated (Place of Incorporation Test).
2nd Step: If the corporation is applying for a (2nd) franchise for public utility and etc.
which requires a certain percentage of control of stock, the Test of Controlling
Ownership would be applied.
3rd step: If there is doubt as to the domestic control of the percentage of stock in a
corporation with corporate stockholders, Grandfather test would be applied.
Place of Incorporation Test
A corporation is a national of the country under whose laws it has been organized and
registered. (State of incorporation)
 Control Test
In cases involving properties, business or industries reserved for Filipinos, in addition to the place
of incorporation test, the nationality of a corporation is determined by the nationality of the
“controlling stockholders”.
Absent any doubt, the Control Test shall be used in determining the nationality of a corporation
specially in cases where foreign ownership restrictions apply.
The required percentage of Filipino ownership shall be applied to both:
a. The total number of outstanding shares of stock entitled to vote in the election of directors, and
b. he total number of outstanding shares of stock, whether or not entitled to vote in the election
of directors.
Mere legal title is not enough. Full beneficial ownership of 60 percent of the outstanding capital
stocks, coupled with 60 percent of the voting rights, is constitutionally required for the State's grant
of authority to operate a public utility. Thus, voting rights of stocks which have been assigned or
transferred to aliens cannot be considered held by Philippine citizens or nationals (cannot give
proxies to vote).
General rule: The Control Test cannot overcome the Place of Incorporation Test.
Exception: A corporation organized abroad and registered as doing business in the
Philippines under the Corporation Code, whose capital outstanding stock and entitled to
vote is wholly owned by Filipinos is a Philippine National.

Some instances wherein the control test applies:

*Filipino-owned
a. Exploitation of natural resources (60%) Sec 2, Art XII, 1987 Constitution
b. Public Utilities (60%) Sec 11, Art XII, 1987
c. Constitution Mass Media (100%) Sec 11, Art XVI, 1987 Constitution
d. Advertising Industry (70%) Sec 11, Art XVI, 1987 Constitution
e. Private recruitment for local employees abroad
 Grandfather Rule
Where corporate shareholders are present (and when the Filipino-foreign equity
ownership is in doubt), the percentage of the Filipino equity in corporations is computed
by attributing the nationality of the second or subsequent tier of ownership to determine
the nationality of the corporate shareholder.
The Control test is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation within the ambit of the natural resources provisions
of the Constitution. But when in the mind of the court there is doubt based on attendant
facts and circumstances, in the 60- 40 Filipino equity ownership in the corporation, then it
may apply the grandfather rule.
The “grandfather rule” does not eschew, but in fact supplements the “control test”, as
the latter implements Filipinization provisions of the Constitution.
If less than 60% Filipino-owned, then corresponding percentage only, record as it is.
If at 60% or more, then record as 100% Filipino-owned
Example:
BSA Corporation and CPA Corporation have equal interest in XYZ Company. BSA Corporation is
60% owned by Filipinos, while CPA Corporation is 50% owned by Filipinos. By the grandfather
rule, BSA Corporation would have a 30% Filipino interest in XYZ Company (60% of 50%), while
CPA Corporation would have a 25% Filipino interest in XYZ Company (50% of 50%). Hence, the
total Filipino interest is only 55%.
OTHER TESTS
War-Time Test - In times of war, nationality of corporation is determined by the character or
citizenship of its controlling stockholders.
Investment Test - Where a corporation and its non-Filipino stockholders own stock in a SEC-
registered enterprise, at least 60% of the outstanding capital stock and entitled to vote of both
corporations and at least 60% of the members of the Board of Directors of both corporations
must be Filipino citizens. (Double 60% Rule)
Place of Principal Business Test - Residence of a corporation is the place where its principal
office is located, as stated in its Articles of Incorporation.
 Corp can form a partnership but not a corp Corp is liable for torts (quasi-delicts)
Corp is not liable for crimes unless if penalty of crime is only fine or forfeiture, no
imprisonment

CORPORATE JURIDICAL PERSONALITY

General Rule: The Corporation has a separate and distinct juridical personality from its
directors, officers, trustees and shareholders (Doctrine of Separate Juridical Personality).
Exception: When the corporation is used as a cloak for fraud, illegality, or in other
certain circumstances, the courts may disregard the separate and distinct personality of
the corporation and treat the corporation as a mere collection of individuals undertaking
business as a group (Doctrine of Piercing the Veil of Corporate Fiction).
Doctrine of Separate Juridical Personality
A corporation is a juridical entity with a legal personality separate and distinct from those
acting for and on its behalf, and, in general, from the people comprising it; the obligations
incurred by the corporation, acting through its directors, officers and employees are its
sole liabilities Corp can recover damages unless moral damages
Corp is entitled to moral damages from libel, defamation, and more
Nine individuals formed a private corporation pursuant to the provisions of the
Corporation Code of the Philippines. Incorporator S was elected director and
president—general manager. Part of his emolument is a Ford Expedition,
which the corporation owns. After a few years. S lost his corporate positions but
he refused to return the motor vehicle claiming that as a stockholder with a
substantial equity share, he owns that portion of the corporate assets now in his
possession. Is the contention of S valid?
No. The contention of S is not valid. The Ford Expedition is owned by the
corporation. The corporation has a legal personality separate and distinct from that
of its stockholder. What the corporation owns is its own property and not property of
any stockholder even how substantial the equity share that stockholder owns.
Property is named after the corporation not by its stockholders, for a corporation is a separate with the right to own
 PIERCING THE CORPORATE VEIL
Under the doctrine of "piercing the veil of corporate entity," the legal fiction that a
corporation is an entity with a juridical personality separate and distinct from its
members or stockholders may be disregarded and the corporation will be considered as a
mere association of persons such that liability may be attached directly to the officers
and the stockholders.
It is an equitable doctrine developed to address situations where the separate corporate
personality of a corporation is abused or used for wrongful purposes.
Being merely an equitable remedy, employment of the piercing doctrine can only be for
the “protection of the interests of innocent third persons dealing with the
corporate entity which the law aims to protect by this doctrine”.
The doctrine of “piercing the veil of corporate entity” will apply when the
corporation’s separate juridical personality is used:
a) To defeat public convenience;
b) To justify wrong, protect fraud, or defend crime;
c) As a shield to confuse the legitimate issues;
d) Where a corporation is the mere alter ego or business conduit of a person; or
e) Where the corporation is so organized and controlled and its affairs are so conducted
as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.
The veil of corporate fiction may be pierced by proving in court that the notion of legal
entity is being used to defeat public convenience, justify wrong, protect fraud, or defend
crime or the entity is just an instrument or alter ego or adjunct of another entity or
person.
Classification of piercing cases:
a. Fraud piercing – when a corporate entity is used to commit fraud or justify a wrong
or to defend a crime.
b. Alter-ego piercing – when a corporate entity is used to defeat public convenience or
is merely a farce since the corporation is merely the alter ego, business conduit, or
instrumentality of a person or another entity.
c. Equity cases – when piercing the corporate fiction is necessary to achieve justice or
equity.
Note: The three cases may appear together in one application.
Grounds for application of the different types of piercing
For Fraud Cases:
1. There must have been fraud or an evil motive in the affected transaction, and the
mere proof of control of the corporation by itself would not authorize piercing; and
2. The main action should seek for the enforcement of pecuniary claims pertaining to
the corporation against corporate officers or stockholders.
Example:
Where a stockholder, who has absolute control over the affairs of the corporation,
entered into a contract with another corporation through fraud and false representations,
such stockholder shall be liable solidarily with co-defendant corporation even when the
contract sued upon was entered into on behalf of the corporation.
When company x is established by company y to evade taxes, courts can disregard
corporate veil of company x to make y liable for legitimate taxes
For Alter-ego Cases:
• The doctrine applies in this case even in the absence of evil intent; it applies because
of the direct violation of a central corporate law principle of separating ownership
from management.
• The doctrine in such cases is based on estoppel: if stockholders do not respect the
separate entity, others cannot also be expected to be bound by the separate juridical
entity.
• Piercing in alter ego cases may prevail even when no monetary claims are sought to be
enforced against the stockholders or officers of the corporation.
Whether the separate personality of the corporation should be pierced depends on
questions of facts, appropriately pleaded. Mere allegation that a corporation is the alter
ego of the individual stockholders is insufficient. The presumption is that the
stockholders or officers and the corporation are distinct entities. The burden of proving
otherwise is on the party seeking to have the court pierce the veil of corporate entity
Burden of proof is the responsibility
of the person piercing the veil
ELEMENT OF ALTER-EGO TEST
1. CONTROL, complete domination not only of finances but of policy and
business practice in respect to the transaction attacked so that the corporate entity as
to this transaction had at the time no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and
unjust act in contravention of plaintiff ’s legal right; and
3. The aforesaid control and breach of duty must have proximately caused the
injury or unjust loss complained of.
Example Cases:
• Where the stock of a corporation is owned by one person whereby the corporation
functions only for the benefit of such individual owner, the corporation and the
individual should be deemed the same
• Employment of same workers; single place of business, etc.
For Equity Cases:
These are cases, where there is no fraud or alter ego circumstances that can warrant the piercing of
the corporate veil. This mainly used to render justice in the situation at hand, or to brush aside
technical defenses. Ex: When used to confuse legitimate issues; or when used to raise issues relating
only to technicalities.
The veil may not always be pierced, especially in the following circumstances:
a) Piercing is a remedy of last resort and is not available when other remedies are still available;
b) One cannot successfully invoke the piercing doctrine when it was proven that the act done was
contrary to the existing rules, which were well-known to the officers of the one invoking it;
c) Piercing is forbidden unless the remedy sought is to make the stockholder, officer or another
corporation pecuniarily liable for corporate debts;
d) Piercing is forbidden when the personal obligations of an individual are sought to be enforced
against the corporation.
Plaintiffs filed a collection action against “X” Corporation. Upon execution of
the court’s decision, “X” Corporation was found to be without assets. Thereafter
plaintiffs filed an action against its present and past stockholder “Y”
Corporation which owned substantially all of the stocks of “X” Corporation.
The two corporations have the same board of directors and “Y” Corporation
financed the operations of “X” Corporation. May “Y” Corporation be held liable
for the debts of “X” Corporation?
Yes, “Y” Corporation may be held liable for the debts of “X” Corporation. The doctrine of
piercing the veil of corporate fiction applies to this case. The two corporations have the same
board of directors and “Y” corporation owned substantially all of the stocks of “X”
Corporation, which facts justify the conclusion that the latter is merely an extension of the
personality of the former, and that the former controls the policies of the latter. Added to this
is the fact that “Y” Corporation controls the finances of “X” Corporation which is merely an
adjunct, business conduit or alter-ego of “Y” Corporation.
Is the Doctrine of Piercing the Corporate Veil applicable to a nonstock non-profit
corporation and natural persons?
Yes. While it may appear to be impossible for a person to exercise ownership control
over a nonstock non-profit corporation, a person can be held personally liable under the
alter ego theory if the evidence shows that the person controlling the corporation did in
fact exercise control even though there was no stock ownership.
What are the effects of piercing the corporate veil? Does it result in the dissolution
of the corporation?
The piercing of the corporate veil does not dissolve the corporation. It simply means
that the stockholder and/or director and/or officer, whose action/s became the basis for
the application of the doctrine, and the corporation shall be treated as one and the same
entity.
In case the corporation is just an alter ego of another corporation, both corporations
become one and the same entity.
 Capital Structure
What are the number and qualifications of incorporators?
a) Any person, partnership, association or corporation, singly or jointly with others but not more than 15
in number, may organize a corporation for any lawful purpose/s.
b) Natural persons who are licensed to practice a profession, and partnerships or associations organized
for the purpose of practicing a profession, shall not be allowed to organize as a corporation unless
otherwise provided under special laws.
c) Incorporators who are natural persons must be of legal age.
d) Each incorporator of a stock corporation must own or be a subscriber to at least 1 share of the capital
stock or be a member in a nonstock corporation.
e) A corporation with a single stockholder is considered a One Person Corporation. (Sec. 10, RCC)
Must all incorporators and directors be residents of the Philippines?
NO. The RCC has removed the residency requirement of the majority of incorporators and directors
under the old law.
• RCC ALLOWS JURIDICAL PERSONS TO BE INCORPORATORS.
Can a person who signs the AOI on behalf of a juridical incorporator be named
as director or trustee?
No, unless the said individual is also the owner of at least 1 share of stock, or is also
a member, of the corporation being formed.
May foreigners be incorporators of a private domestic corporation?
Yes, foreigners may be incorporators of a private domestic corporation. The law does
not require Philippine citizenship for incorporators.
However, if the corporation will engage in economic activities which are reserved for
Filipino, foreigners can be incorporators and/or directors but only in proportion to their
foreign ownership equity in the corporation, as allowed by law. Foreigners cannot be
incorporators of corporations engaged in wholly nationalized activities.
• Stock corporations shall not be required to have minimum capital stock,
except as otherwise specifically provided by special laws.
Authorized Capital Stock – the amount fixed in the AOI to be subscribed and paid by
the stockholders of the corporation. It is the maximum number of shares that the corp.
is legally allowed to issue without amending the AOI.
Subscribed Capital Stock – the portion of the authorized capital stock which is
covered by subscription agreements whether fully paid or not.
Outstanding/Issued Capital Stock – the total shares of stock issued under binding
subscription contracts to subscribers or stockholders, whether fully or partially paid,
except treasury shares.
Paid-up Capital Stock – the portion of the authorized capital stock which has been
subscribed and paid by the stockholders of the corporation.
How much of the authorized capital stock should be subscribed and paid-up upon
incorporation?
The RCC dispensed with the minimum subscription and paid-up capital requirement except as
otherwise provided by a special law.
After incorporation, however, in case of increase of capital stock, at least 25% of the increase
in capital stock must be subscribed and at least 25% of the amount subscribed should be paid in
cash or property the valuation of which is equivalenr to at least 25% of the subscription.
Under the Constitution, at least 60% of the capital of corporations engaged in public utility,
large scale mining, and exploration of natural resources should be owned by Filipinos.
What does the term capital mean in this context?
Capital refers to shares with voting rights, as well as with full beneficial ownership. This
is precisely because the right to vote in the election of directors, coupled with full beneficial
ownership of stocks, translates to effective control of corporation.
What the Constitution requires is the full and legal beneficial ownership of 60% of the
outstanding capital stock, coupled with 60% of the voting rights which must rest in the hands of
Filipino nationals.
 Corporate Term
• A corporation shall have perpetual existence unless its AOI provides otherwise. (Sec.
11,RCC) In other words, the corporation continues to exist until the corporation
decides to end it, or it may have a fixed term if specified in the AOI.
• The corporate term of a corporation is deemed extended and amended to perpetual
existence pursuant to 2nd par. of Sec.11, RCC.
• The corporate term of a corporation existing prior to, and which continues to exist
upon the effectivity of RCC, shall be automatically deemed perpetual without any
further action on the part of the corp.
• In view of the automatic conversion to perpetual existence, the stockholder may
exercise his appraisal right – demand payment of the fair value of his shares, unless
the corp, upon a vote of its stockholders representing a majority of its outstanding
capital stock, notifies the SEC that it elects to retain its specific corp term pursuant to
its AOI.
• A corporation whose term has expired may apply for a revival of its corporate existence,
together with all the rights and privileges under its cert of incorporation and subject to all of its
duties, debts and liabilities existing prior to its revival. Upon approval by the SEC, the
corporation shall be deemed revived and a certificate of revival of corporate existence shall be
issue, giving it perpetual existence, unless its application for revival provides otherwise.
Requisites for extension or shortening of the corporate term:
a) A corp term for a specific period may be extended or shortened by amending the AOI.
b) The extension must be approved by at least the majority of the BOD and the stockholders
representing at least 2/3s of the outstanding capital stock.
c) No extension may be made earlier than 3 years prior to the original or subsequent expiry date/s
unless there are justifiable reasons, as may be determined by SEC.
d) Such an extension shall take effect only on the day following the original or subsequent expiry
date(s).
e) The extension or shortening of the term is effective upon approval of the SEC.
 Classification of Shares
Shares of stock are forms of securities representing equity ownership in a corporation,
divided up into units. They are the measure of the stockholder's proportionate interest in
the corporation in terms of the right to vote and to receive dividends, as well as the right to
share in the assets of the corporation when distributed in accordance with law and equity.
Classes of Shares

Common
Founder’s Redeemable Other
shares Par value shares Voting shares
shares shares classification as
may be
provided in the
Preferred No par value Non-voting AOI; provided
Treasury shares Watered shares it is not
shares shares shares
contrary to law.
• The classification of shares, their corresponding rights, privileges, or
restrictions, and their stated par value, if any, must be indicated in the articles
of incorporation.
• Doctrine of Equality of Shares - each share shall be equal in all respects to every
other share, except as otherwise provided in the articles of incorporation and in the
certificate of stock. (Sec. 6)
Common and Preferred shares
Common shares are also called ordinary shares and they share in profits pro-rata.
The basic class of stock usually issued w/o privileges or advantages except that they
cannot be denied the right to vote.
Preferred shares may be preferred (a) as to dividends, or (b) as to distribution of
assets during liquidation, or (c) as to any other manner stated in the Articles, not violative
of the Corp Code. If authorized by Articles, Board may fix terms. It is ALWAYS with
a stated par value. May be denied the right to vote.
Are holders of preferred shares creditors of the corporation?
No. Shareholders, both common and preferred, are considered risk-takers who
invest capital in the business and who can look only to what is left after corporate debts
and liabilities are fully paid. There is also no guarantee that the shares will receive any
dividends. The holders cannot compel the payment of dividends if there is no surplus
profit.
• Holders of preferred shares as to dividends are paid first prior to any
distribution to the holders of common shares.
Kinds of Preferred shares as to dividends:
- Cumulative - Participating
- Non-cumulative - Non-participating
 Par Value and No-Par Value
Par value shares - with a pre-stated amount or denomination
No par value shares - no pre-stated value
No par value shares are deemed fully paid and non-assessable so holders of such are not liable to the
corporation or its creditors.
The consideration received is treated as capital and cannot be declared as dividends.
Because they are vested with public interest, the following types of corporations may only issue
par value shares:
a. Banks
b. Trust Companies
c. Insurance Companies
d. Public Utilities
e. Building and Loan Associations.
 Voting and Non- Voting Shares
Voting shares - with complete voting rights. Can vote on all corporate acts requiring
stockholders’ approval. The corp. should always have voting shares. These are common shares of
stocks.
Non-voting shares – denied the right to vote in the AOI. Provided, however, that there shall
always be a class or series of shares which have complete voting rights.
Non-Voting Shares Have Voting Rights In The Following Matters:
a. Amendment of Articles
b. Adoption/ Amendment of By- Laws
c. Sale, lease, exchange, mortgage, pledge or dispose of all or substantially all of corporate property
d. Incur, create, increase bonded indebtedness
e. Increase, decrease capital stock
f. Merger/ consolidation with another corporation
g. Investment of funds in another corporation
h. Dissolution of corporation
 Founder’s Shares
Founders' shares are shares classified as such in the articles of incorporation which
may be given certain rights and privileges not enjoyed by the owners of other stocks.
Where the exclusive right to vote and be voted for in the election of directors is granted,
it must be for a limited period not to exceed five (5) years from the date of
incorporation: Provided, That such exclusive right shall not be allowed if its exercise will
violate Commonwealth Act No.108, otherwise known as the "Anti-Dummy Law'; R.A.
No. 7042, otherwise known as the "Foreign Investments Act of 1991"; another pertinent
laws. (Sec. 7)
Note: Only the exclusive right to vote and be voted for in the election of directors is
subject to a limited period of five (5) years from the date of incorporation.
 Redeemable Shares
Redeemable shares are shares classified as such in the articles of incorporation
which may be issued by the corporation by the corporation when expressly provided in
the AOI. They are shares which may be purchased by the corporation from the holders
of such shares upon the expiration of a fixed period, regardless of the existence of
unrestricted retained earnings in the books of the corporation, and upon such other
terms and conditions stated in the AOI and the certificate of stock representing the
shares, subject to rules and regulations issued by the SEC. (Sec. 8, RCC)
Redeemable shares may be redeemed, regardless of the existence of unrestricted
retained earnings, and provided that the corporation has, after such redemption,
sufficient assets in its books to absorb corporate debts and liabilities.
 Treasury Shares
Treasury shares are shares of stock that have been issued and fully paid for, but
subsequently reacquired by the issuing corporation through purchase, redemption, donation, or
some other lawful means. Such shares may again be disposed of for a reasonable price fixed by
the board of directors.
• Treasury shares shall have no voting right as long as such shares remain in the Treasury. No
dividends can be declared thereon as corporations cannot declare dividends to themselves.
• If treasury shares are purchased from the stockholder, the transaction in effect is a return to
the stockholders of the value of their investment in the company and a reversion of the
shares to the corporation.
Escrow shares - those held by a third person to be released only upon the performance of a
condition or the happening of a certain event contained in the agreement.
Over-Issued Stock – Stock issued in excess of authorized capital stock; null and void.
 INCORPORATION AND ORGANIZATION
Who composes a Corporation?
a) Corporators – those who compose the corporation, whether as stockholders or
shareholders in a stock corporation, or as members of a nonstock corporation.
b) Incorporators – those stockholders or members mentioned in the AIO as originally
forming or composing the corporation and who are signatories thereof.
c) Board of Directors – generally elected by the stockholders to conduct business, control
the property, and exercise corporate powers. Directors may also be elected by their fellow
directors in the cases and under the conditions in Sec. 28 of the RCC. They are called
Board of Trustees in a nonstock corporation.
d) Officers – those appointed to assist the Board to manage the affairs of the corporation.
 BASIS INCORPORATOR CORPORATOR
Those stockholders ог members mentioned in the
AOI as originally forming and composing the Those who compose a corporation, whether
Who are they
corporation and who are signatories thereof. as stockholders or as members.

Signatory of the AOI A signatory of the AOI May or may not be signatory of the AOI
Ceases to be a corporator by sale of his
Effect upon the sale Does not cease to be an incorporator upon sale of shares in case of stock corporation.
of his shares his shares In case of non-stock corporation, the
corporator ceases to be a member.
GR: not more than 15 GR: No limit
NOTE: The RCC now provides that any person, Exception: Close corporations - not more
Number of
partnership, corporation, association or singly or than a specified number of persons, usually
Incorporators/
jointly with others but not more than fifteen (15) in not exceeding 20.
Corporators
number, may organize a corporation for any lawful NOTE: A juridical person may be a
purpose or purposes corporator.

GR: Filipino citizenship is not a requirement.

Filipino
Exception: When engaged in a business which is partly or wholly nationalized where majority must
Citizenship
be citizens.
Promoter - is a person who brings about or causes to bring about the formation and organization
of a corporation by bringing together the incorporators the persons interested in the enterprise,
procuring subscriptions or capital to the corporation and setting in motion the machinery which
leads to the incorporation of the corporation itself.
• In actuality though, a corporation is usually formed and organized by the incorporators
themselves, without the need for any promoter.
Liability of a Promoter
General rule: Promoter is personally liable in the event the corporation is not duly incorporated.
Exception: Investors who were not the “moving spirit” behind the organization of the corporation, but who
were merely convinced to invest in the proposed corporate venture on the basis of the feasibility study
undertaken, are not liable personally with the corporation for the cost of such feasibility study.
Liability of Corporation for Promoter’s Contracts
General Rule: Corporation is not bound to a contract made by a promoter before its incorporation
Exceptions: a) Adopts or ratifies the contract; or b) Accepts its benefits with knowledge of the terms thereof
• Subscription Contract - Any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed shall be deemed a subscription, notwithstanding
the fact that the parties refer to it as a purchase or some other contract. (Sec. 59)
It provides for the kind of shares to be issued, the consideration for the issuance of the
shares, date and other terms of payment.
• Pre-incorporation Subscription - refers to subscription of shares in a corporation still
to be formed. This shall be revocable for a period of at least six (6) months from the date of
subscription, unless all of the other subscribers consent to the revocation, or the corporation
fails to incorporate within the same period or within a longer period stipulated in the contract
of subscription. No pre-incorporation subscription may be revoked after the articles of
incorporation is submitted to the SEC.
In contrast
Post-incorporation Subscription – entered into after incorporation, such as for the
unsubscribed portion of the authorized capital stock and for the purchase of increased capital
stocks after an amendment of the article of incorporation.
 Consideration for Stocks
• Stocks shall not be issued for a consideration less than the par or issued price thereof.
Consideration for issuance of stock may be by any or a combination of any two or more
of the following:
a. Cash actually paid
b. Property (tangible or intangible) actually received and necessary or convenient for the
corporation’s use
c. Labor performed or service actually rendered to the corporation
d. Debts incurred previously by the corporation (for subscriptions after incorporation)
e. Amounts from unrestricted dividends (for declaration of stock dividends)
f. Outstanding shares exchanged in reclassification or conversion
g. Shares of stock in another corporation; and/or
h. Other generally accepted forms of consideration.
Other Rules pertaining to consideration of stocks:
1. Where the consideration is other than actual cash, or consists of intangible property such
as patents of copyrights, the valuation thereof shall initially be determined by the
incorporators or the board of directors, subject to approval by the SEC.
2. No issuance of shares on promissory notes or future services.
3. The same considerations under sec. 61 whenever applicable are to be used for bonds
issued by the corporation
4. The issued price of no par value shares is the amount fixed:
i. In the Articles
ii. By the Board if authorized by its Articles or By-Laws, or
iii. if not so fixed, by the stockholders representing the majority of the outstanding
capital stock (Sec. 61)
Note: A special stipulation contained in a subscription to corporate stock which, if valid, would
lessen the capital of the company and relieve the subscriber from liability to be sued upon the
subscription, is illegal
 Articles of Incorporation
The Articles of Incorporation is a basic contract document in Corporate Law which
defines the charter of the corporation. Section 13 of the Corporation Code provides that
the AOI do not become binding as the charter of the corporation unless they have been
filed with and registered with the SEC. It offers the ultimate evidence of the nature
and purpose of a corporation.
Note: The Articles of Incorporation defines the contractual relationships between the
State and the corporation, the stockholders and the State, and between the corporation
and its stockholders.
 Contents of AOI
All corporations shall file with the SEC articles of incorporation in any of the official languages, duly
signed and acknowledged or authenticated, in such form and manner as may be allowed by the SEC,
containing substantially the following matters, except as otherwise prescribed by this Code or by special
law:
a. The name of the corporation;
b. The specific purpose or purposes for which the corporation is being incorporated. Where a
corporation has more than one stated purpose, the articles of incorporation shall state which is the
primary purpose and which is/are the secondary purpose or purposes: Provided, That a non-stock
corporation may not include a purpose which would change or contradict its nature as such;
c. The place where the principal office of the corporation is to be located, which must be within the
Philippines;
d. The term for which the corporation is to exist, IF not elected the perpetual existence;
e. The names, nationalities and residences of the incorporators
f. The number of directors or trustees, which shall not more than fifteen (15);
g. The names, nationalities and residences of persons who shall act as directors or trustees until the
first regular directors or trustees are duly elected and qualified in accordance with the Corporation
Code;
 Contents of AOI
h) If it be a stock corporation, the amount of its authorized capital stock in lawful money of the
Philippines, the number of shares into which it is divided, and in case the share are par value
shares, the par value of each, the names, nationalities and residences of the original subscribers,
and the amount subscribed and paid by each on his subscription, and if some or all of the shares
are without par value, such fact must be stated;
i) If it be a non-stock corporation, the amount of its capital, the names, nationalities and residences
of the contributors and the amount contributed by each; and
j) Such other matters as are not inconsistent with law and which the incorporators may deem
necessary and convenient.
An arbitration agreement may be provided in the articles of incorporation pursuant to Section 181 of this
Code. (Sec. 13)
Note: The articles of incorporation and applications for amendments thereto may be filed with the SEC
in the form of an electronic document, in accordance with the SEC’s rules and regulations on electronic
filing.
Requirements for Amending Articles of Incorporation (Sec. 15)
a) A legitimate purpose for the amendment;
b) Majority vote of directors or trustees and the vote or written assent of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the
appraisal right of dissenting stockholders if available, or if it be a non-stock corporation, two-thirds
(2/3) of the members.
c) The original and amended articles together shall contain all provisions required by law to be set out
in the articles of incorporation.
d) Indication in the articles, by underscoring, the change or changes made.
e) A copy of amended articles duly certified under oath by the corporate secretary and a majority of
the directors or trustees stating the fact that said amendment or amendments have been duly
approved by the required vote of stockholders or members, as the case may be.
Effectivity:
a) The amendments shall take effect upon their approval by the SEC or
b) From the date of filing with the said Commission, if not acted upon within six (6) months from the
date of filing for a cause not attributable to the corporation.
Then considered approved
Grounds for Rejecting Incorporation or Amendment to Articles of
Incorporation (Sec. 16)
a. Not in prescribed form;
b. Illegal purpose;
c. False Treasurer’s affidavit; and
d. Non-compliance with required Filipino stock ownership.
The SEC shall give the corporation a reasonable time to correct or modify objectionable portions.
Non-Amendable Items:
1. Names of incorporators
2. Names of incorporating directors/trustees
3. Names of original subscribers to capital stock and subscribed and paid-up capital
4. Treasurer-in-trust elected by original subscribers
5. Members who contributed to the initial capital of non-stock corporation
6. Witnesses and acknowledgments
 Corporate Name
What are the limitations on the adoption and use of corporate name?
Under Sec. 17, any corporate name is allowed, provided that none of the following
disqualifications are present, to wit:
a) Not distinguishable from that already reserved or registered for the use of another
corporation.
b) Name is already protected by law.
c) Use is contrary to existing law, rules, and regulations.
Further, appending the following words to the corporate name, does not mean that it is already
distinguishable, to wit:
1. The word corporation, company, incorporated, limited, limited liability, or an abbreviation
of one of such words.
2. Punctuations, articles, conjunctions, contractions, prepositions, abbreviations, different
tenses, spacing, Or number of the same word or phrase.
When may a corporation prohibit the use of a corporate name by another corporation?
A corporation may prohibit another corporation from adopting a corporate name if the following
requisites are present:
a) that the complainant corporation acquired a prior righ over the use of such corporate name
through earlier registration; and
b) the proposed name is either: not distinguishable from that already reserved or registered for the
use of the complainant corporation or a name which is already protected by law or its use is
contrary to existing law, rules and regulations.
What are the remedies available to a corporation against the unauthorized use of its
corporate name?
a) File a petition with the SEC to compel the other corporation to change it. Court action is not
necessary.
b) File a complaint against the unauthorized use of the corporate name under Section 159 of the
RCC.
c) If the corporate name is used as a tradename, file a complaint for infringement of tradename.
Change of Corporate Name
• A corporation may change its name by the amendment of its articles of incorporation, but the
same is not effective until approved by the SEC.
• A change in the corporate name does not make a new corporation, and whether affected by
special act or under a general law, has no effect on the identity of the corporation, or on its
property, rights, or liabilities.
Other Doctrines:
• Similarity in corporate names between two corporations would cause confusion to the public
especially when the purposes stated in their charter are also the same type of business.
• There would be no denial of due process when a corporation is sued and judgment is rendered
against it under its unregistered trade name holding that a corporation may be sued under the
name by which it makes itself known to its workers.
• To determine the existence of confusing similarity in corporate names, the test is whether the
similarity is such as to mislead a person, using ordinary care and discrimination. In so
doing, the court must examine the record as well as the names themselves. Proof of actual
confusion need not be shown. It suffices that confusion is probably or likely to occur.
 Registration, Incorporation and
Commencement of Corporate Existence
• Registration
A person or group of persons desiring to incorporate shall submit the intended
corporate name to the SEC for verification. If the SEC finds that the name is
distinguishable from a name already reserved or registered for the use of another
corporation, not protected by law and not contrary to law, rules and regulations, the
name shall be reserved in favor of the incorporators. The incorporators shall
then submit their articles of incorporation and bylaws to the SEC.
• Issuance of Certificate of Incorporation
If the SEC finds that the submitted documents and information are fully
compliant with the requirements of the RCC, other relevant laws, rules and
regulations, the SEC shall issue the certificate of incorporation.
• Commencement of Corporate Existence
A private corporation organized under the RCC commences its corporate existence
and juridical personality from the date the SEC issues the certificate of
incorporation under its official seal and thereupon the incorporators, stockholders/
members and their successors shall constitute a body corporate under the name stated
in the articles of incorporation for the period of time mentioned therein, unless said
period is extended or the corporation is sooner dissolved in accordance with law. (Sec.
18)
A corporation does not acquire legal personality from the mere execution of the
articles of incorporation or its filing with the SEC. No amount of good faith on the
part of the incorporators that they are duly organized will suffice. It commences its
corporate existence and acquires juridical personality from the date the SEC issues the
certificate of incorporation ender its official seal.
 Election of Directors or Trustees
What are the requisites for the election of the directors or trustees to be valid?
a) Except when the exclusive right to be voted as directors is reserved for holders of founders'
shares under Section 7 of the RCC, every/stockholder or member has the right to nominate
the director or trustee to be elected.
b) There must be a notice of meeting sent to the stockholders in accordance with the form and
mode under the bylaws.
c) The owners of the majority of the outstanding capital stock or the majority of the members
entitled to vote mast be present either in person or by a representative authorized to act by a
written proxy. If voting through remote communication or in absentia will be allowed, such
voter, voting through said means, shall be deemed present for purposes of counting the
majority/quorum.
d) The meeting must be presided by the officer indicated under the bylaws.
e) The election must be by ballot if requested by any voting stockholder or member.
f) For stock corporations, the stockholders may cast such number of votes based on
the shares registered in their names in the books of corporation multiplied by the
whole number of directors to be elected.
g) On the other hand, for nonstock corporations, unless otherwise provided in their
articles of incorporation of bylaws, members may cast as many votes as there are
trustees to be elected but may not cast more than one (1) vote for one (1)
candidate.
h) The nominees receiving the highest number of votes shall be duly elected as
directors or trustees.
i) The elected directors or trustees must possess all of the qualifications and none
of the disqualifications under the RCC and the bylaws of the corporation.
Time to Determine Voting Right
• At the time fixed in by- laws;
• If by- laws are silent, at time of election.
How many votes are stockholders entitled to cast?
For stock corporations, the stockholders may cast such number of votes based on
the shares registered in their names in the books of the corporation, at the time
specified in the bylaws, or by the board of directors or trustees, multiplied by the total
number of directors to be elected.
How many votes are members of nonstock corporations entitled to cast?
For nonstock corporations, unless cumulative voting is allowed in their articles of
incorporation or bylaws, members may cast as many votes as there are trustees to be
elected but may not cast more than one (1) vote for one (1) candidate.
 Adoption of Bylaws
Bylaws
Relatively permanent and continuing rules of action adopted by the corporation for its own
government and of the individuals composing it and those having direction, management and control of
its affairs, in whole or in part, in the management and control of its affairs and activities.
Regulations, ordinances, rules or laws adopted by an association or corporation or the like for its
internal governance, including rules for routine matters such as calling meetings and the like.
By-laws are intended merely for the protection of the corporation, and prescribe regulation, not
restrictions, they are always subject to the charter of the corporation.
Requisites of Valid ByLaws:
a. It must be consistent with the Corporation Code, other pertinent laws and regulations.
b. It must be consistent with the Articles of Incorporation.
c. It must be reasonable and not arbitrary or oppressive.
d. It must not disturb vested rights, impair contract or property rights of stockholders or members or
create obligations unknown to law.
Binding Effects
The bylaws of the corporation are its own private laws that have the same effect as the laws of
the corporation. They are deemed written into the charter. Thus, they become part of the
fundamental laws of the corporation which are binding upon the corporation and its officers,
and the litigating parties who are not part of the corporation in accordance with their terms.
Procedure on Adoption of By-Laws (Sec. 45)
a. After Incorporation:
i. Approval by the majority of outstanding shares/members
ii. By-laws must be signed by stockholders/members voting for them
iii. Kept in the principal office of the corporation
iv. Subject to inspection by stockholders or members
v. Certified copy signed by majority of directors, countersigned by the corporate secretary, filed w/ SEC
and attached to original Articles of Incorporation
b. Prior to Incorporation:
i. such by-laws shall be approved and signed by all the incorporators and
ii. submitted to the SEC, together with the articles of incorporation
• Failure to Adopt and Maintain the Bylaws Now Specifically Criminally
Punishable and Subject to SEC’s Contempt Power.
• Bylaws cannot be contrary to law and articles of incorporation.
• Bylaws cannot be unreasonable or be contrary to the nature of by-laws.
• Bylaw provisions cannot discriminate among its stockholders or members.
Contents of bylaws (Sec. 46)
A private corporation may provide the following in its bylaws:
a) The time, place and manner of calling and conducting regular or special meetings of the
directors or trustees;
b) The time and manner of calling and conducting regular or special meetings and mode of
notifying the stockholders or members thereof;
c) The required quorum in meetings of stockholders or members and the manner of voting
therein;
d) The modes by which a stockholder, member, director, or trustee may attend meetings and
cast their votes;
e) The form for proxies of stockholders and members and the manner of voting them;
f) The directors’ or trustees’ qualifications, duties and responsibilities, the guidelines for setting
the compensation of directors or trustees and officers, and the maximum number of other
board representations that an independent director or trustee may have which shall, in no
case, be more than the number prescribed by the SEC;
g) The time for holding the annual election of directors or trustees and the mode or
manner of giving notice thereof;
h) The manner of election or appointment and the term of office of all officers other
than directors or trustees;
i) The penalties for violation of the bylaws;
j) In the case of stock corporations, the manner of issuing stock certificates; and
k) Such other matters as may be necessary for the proper or convenient transaction of
its corporate affairs for the promotion of good governance and anti-graft and
corruption measures.
Note: An arbitration agreement may be provided in the bylaws pursuant to Section 181
of this Code.
Binding effects of bylaws
• As to the corporation and its components
Binding not only upon the corporation but also on its stockholder, members and
those having direction, management and control of its affairs. They have the force of
contract between the members/stockholders.
• As to third persons
Not binding unless there is actual knowledge. Third persons are not even bound to
investigate the content because they are not bound to know the bylaws which are merely
provisions for the government of a corporation and notice to them will not be
presumed
Amendment or Revision
1) With stockholders or members approval
- Majority vote of the members of the Board; and
- Majority of the outstanding capital stock or majority of the members in case of non-
stock corporation, in a meeting duly called for the purpose
2) The board may be delegated to have the power to amend or repeal any by- laws or adopt new
by- laws, by a vote of:
- 2/3 of the shareholders representing the outstanding capital stock; or
- 2/3 of the members in a non- stock corporation.
Such power of the Board may be revoked by majority vote of the outstanding capital stock or
majority of the members in a non- stock corporation
Note: The power to adopt the first original bylaws cannot be delegated to the board of
directors or trustees; only the power to amend or repeal any by- laws or adopt new by- laws that
will supplant the old by- laws can be validly delegated.
Filing and Effectivity
Whenever the bylaws are amended or new bylaws are adopted, the corporation shall file
with the SEC
a) amended or new bylaws and,
b) b) if applicable, the stockholders’ or members’ resolution authorizing the
delegation of the power to amend and/or adopt new bylaws, duly certified under
oath by the corporate secretary and a majority of the directors or trustees.
The amended or new by-laws shall only be effective upon the issuance by the SEC
of a certification that the same is in accordance with this Code and other relevant laws.
 Effects Of Non-Use Of Corporate Charter
a) If a corporation does not formally organize and commence its business within five
(5) years from the date of its incorporation, its certificate of incorporation shall be
deemed revoked as of the day following the end of the five-year period.
b) If a corporation has commenced its business but subsequently becomes
inoperative for a period of at least five (5) consecutive years, the SEC may, after
due notice and hearing, place the corporation under delinquent status.
Delinquent Corporation: A Corporation placed by the SEC under delinquency status
after due notice and hearing, because it commenced its business but subsequently
becomes inoperative for a period of at least five (5) consecutive years.
Effects of Delinquency Status:
A delinquent corporation shall have a period of two (2) years to resume operations and
comply with all requirements that the SEC shall prescribe.
a) Upon compliance by the corporation, the SEC shall issue an order lifting the
delinquent status.
b) Failure to comply with the requirements and resume operations within the period
given by the SEC shall cause the revocation of the corporation’s certificate of
incorporation.
Corporations under special regulatory jurisdiction
The SEC shall give reasonable notice to, and coordinate with the appropriate regulatory
agency prior to the suspension or revocation of the certificate of incorporation of
companies under their special regulatory jurisdiction.