Topic 9: Revised Corporation Code of the State of its incorporation, unless such license

Philippines (RA 11232) is:

I. OTHER CORPORATIONS  surrendered,

 revoked,
A. Foreign Corporations  suspended, or
Foreign Corporation — Those formed,  annulled in accordance with this Code or
organized, or existing under any laws other other special laws. [Sec. 143, RCC]
than those of the Philippines and whose laws Resident agent
allow Filipino citizens and corporations to do A resident agent may be either:
business in its own country or state [Sec. 140].
 an individual residing in the Philippines
As a rule, a foreign corporation can have no (must be of good moral character and
legal existence or status beyond the bounds of sound financial standing) or
the State or sovereignty by which it is created  a domestic corporation (must likewise
or incorporated and organized. be of sound financial standing and must
It exists only in contemplation of law and by show proof of good standing) lawfully
force of the law Where that law ceases to transacting business in the Philippines.
operate, the corporation can have no [Sec. 144, RCC]
existence. The foreign corporation shall file a written
However, this principle does not prevent a power of attorney:
corporation from acting in another State or (1) Designating a person (Philippine
country with the latter’s express or implied resident), on whom summons and other
consent. legal processes may be served in all
actions or other legal proceedings
Doctrine of “doing business” against such corporation; and
When a foreign corporation undertakes (2) Consenting that service upon such
business activities within the territorial resident agent shall be admitted and
jurisdiction of a host state, then it ascribes to held as valid, as if served upon the duly
the host state standing to enforce its laws, authorized officers of the foreign
rules and regulations. [Villanueva] corporation at its home office. [Sec.
144, RCC]
Said business activities serves as the basis by
which a host state is deemed to have authority It shall be the duty of the resident agent to
over a foreign corporation within its territorial immediately notify the Commission in writing of
jurisdiction. [Villanueva] any change in the resident agent’s address.
[Sec. 144, RCC]
Concept of “Doing Business”
The concept of "doing business" implies a Amendment of license
continuity of commercial dealings and A foreign corporation shall obtain an amended
arrangements and the performance of license in the event it changes its corporate
acts/works/exercise of some of the functions name, or desires to pursue other or additional
normally incident to the purpose or object of a purposes in the Philippines.
foreign corporation’s organization.
[Mentholatum Co., Inc. v. Mangaliman, 72 Phil. Said amendment may be made by submitting
525 (1941)] an application with the Commission, endorsed
by the appropriate government agency. [Sec.
Issuance of a License 148, RCC]
Upon issuance of the license, such foreign
corporation may commence to transact Personality to sue
business in the Philippines and continue to do A foreign corporation transacting business in
so for as long as it retains its authority to act as the Philippines is required to secure a license
a corporation under the laws of the country or to have the personality to sue before, or
intervene in, any court or administrative restrictions on transfer permitted by this
proceeding. [Sec. 150, RCC; CAMPOS] Title; and
c) The corporation shall not list in any
Suability of foreign corporations
stock exchange or make any public
No foreign corporation transacting business in
offering of its stocks of any class.
the Philippines without a license, or its
successors or assigns, shall be permitted to 2. One where two-thirds (2/3) or more of its
maintain or intervene in any action, suit or voting stock or voting rights is NOT owned or
proceeding in any court or administrative controlled by another corporation, which is not
agency of the Philippines. a close corporation within the meaning of this
Code. [Sec. 95, RCC]
Nevertheless, such corporation may be sued
or proceeded against before Philippine Incorporating a Close Corporation
courts or administrative tribunals on any valid General Rule: Any corporation may be
cause of action recognized under Philippine incorporated as a close corporation.
laws [Sec. 150, RCC].
Exceptions: The ff. cannot be incorporated as
a close corporation –
 Mining or oil companies
 Stock exchanges
 Banks
 Insurance companies
 Public utilities
 Educational institutions; and
 Corporations declared to be vested with
public interest in accordance with the
provisions of this Code. [Sec. 95, RCC]

Applicability of RCC Provisions

The provisions of Title XII (Close Corporations)
primarily govern close corporations, while other
Titles of the RCC apply suppletorily, except as
otherwise provided under Title XII. [Sec. 95,
RCC]

Characteristics of a close corporation

The AOI of a close corporation may provide
that the business of the corporation shall be
managed by the stockholders of the
B. Close corporations corporation rather than by a board of directors.
Statutory Definition [Sec. 96, RCC]
A close corporation is – So long as the abovementioned AOI provision
1. One whose AOI provides that: continues in effect, no meeting of stockholders
a) All the corporation’s issued stock of all need be called to elect directors.
classes, exclusive of treasury shares, Provided, that the stockholders of the
shall be held of record by not more than corporation shall be:
a specified number of persons, not  Deemed to be directors for the purpose
exceeding twenty (20); of applying the provisions of this Code;
b) All the issued stock of all classes shall and
be subject to one or more specified o Unless the context clearly
requires otherwise
  Subject to all liabilities of directors.  Any combination thereof, subject to the
[Sec.96,RCC] special provisions of this Title governing
particular classes of non-stock
All or most of the stockholders of a close
corporations. [Sec. 87, RCC]
corporation are active in the corporate
business either as directors, officers or other A non-stock corporation may not include in its
key men in management [Campos]. AOI a purpose which would change or
contradict its nature as such. [Sec. 13(b), RCC]
IDENTITY AND NUMBER STOCKHOLDERS
A nonstock corporation may not engage in
(1) Stockholders of record not more than 20
investment business, where profit is the main
(2) Stocks not publicly listed
or underlying purpose. [People v. Menil, 340
(3) Restricted transfer of ownership of stocks
SCRA 125 (2000)]
[Sec. 95, RCC]
Treatment of Profits
C. Non-stock corporations
Any profit which a non-stock corporation may
Definition obtain incidental to its operations shall,
A non- stock corporation is one where no part whenever necessary or proper, be used for
of its income is distributable as dividends to its the furtherance of the purpose or purposes
members, trustees, or officers. [Sec. 86, RCC] for which the corporation was organized,
Essence of a Non-Stock Corporation subject to the provisions of this Title. [Sec. 86,
It is legally possible for a corporation having RCC]
capital stock to still be considered a non-stock A non-stock corporation holds its funds in trust
corporation. for the carrying out of the objectives and
For this reason, the essence of a non-stock purposes expressed in its AOI. Thus, if it were
corporation is NOT the non-existence of shares to be converted to a stock corporation, it must
of stock, but that: be dissolved first, otherwise, such
a. Its primary purpose should be transformation would be tantamount to an
eleemosynary(benevolent) in nature; unauthorized distribution of its assets or
and income to its members. [Villanueva]
b. There is a prohibition in its AOI and by- Earning of Profits Merely Incidental
laws that no part of the income or any It is not inconsistent with the nature of a
form of dividend is distributable to the nonstock corporation to incidentally earn profits
members, trustees, or officers of the in pursuing its eleemosynary purpose. [CIR v.
corporation. [Villanueva] University of Visayas, 1 SCRA 669 (1961)]

Purposes The incurring of profit or losses does not

determine whether an activity is for profit or
Non-stock corporations may be formed or non-profit, what the courts will consider is:
organized for the ff. purposes:
 Charitable, 1. Whether dividends have been declared;
 Religious, or
2. Whether its profit was ever used for
 Educational,
personal or individual gain, and not for
 Professional,
the purpose of carrying out the
 Cultural, objectives of the enterprise. [Manila
 Fraternal, Sanitarium and Hospital v. Gabuco, 7
 Literary, SCRA 14 (1963)]
 Scientific,
 Social,
 Civic service,
 Similar purposes, like trade, industry,
agricultural and like chambers; or