CORPORATION LAW (Provisions of B.P. Blg. 68, as amended by R.A. No.

11232)
A. General principles
A corporation is an artificial being created by operation of law having the right of
succession and the powers and attributes and properties expressly authorized by law or
incident to its existence.
ATTRIBUTES OF A CORPORATION
1. It is an artificial being – A corporation is a legal or juridical person with a personality
separate and distinct from its individual stockholders or members and from ay other
legal entity into which it may be connected or related

2. it is created by operation of law – no corporation can exist without the consent or

grant of the sovereign, and that the power to create corporations is one of the attributes
of sovereignty. Corporation cannot exist by mere agreement of the parties

3. it enjoys the right of succession – a corporation has a capacity of continuous

existence irrespective of the death, withdrawal, insolvency or incapacity of the individual
stockholders or members, regardless of the transfer of their interest or shares of stocks

4. It has the powers, attributes, and properties expressly authorized by law or

incident to its existence
- the powers that a corporation can exercise are only those which are granted by the
law of its creation. All powers which may be implied from those expressly provided by
law and those which are incidental or essential to the corporation’s existence may also
be exercised.

1. Nationality of corporations
a. Control Test – in determining the nationality of a corporation, the control test uses
the nationality of the controlling stockholders or members of the corporation.
b. Grandfather rule – a method of determining the nationality of a corporation which in
turn is owned by another corporation by breaking down the equity structure of the
shareholder of the corporation.
2. Doctrine of separate juridical personality – A corporation is a legal entity distinct
and separate from those composing it.
It states that a corporation is a juridical entity with legal personality separate and distinct
from those acting for and its behalf and in general from the people comprising it.
3. Doctrine of piercing the corporate veil – is the doctrine that allows the State to
disregard, for certain justifiable reasons, the notion that a corporation has a personality
separate and distinct from the persons composing it.
B. De facto corporations versus corporations by estoppel
De facto Corporation – a corporation where there exists a flaw in its corporation. An
attempt in good faith to incorporate
Use of Corporate powers.
De Jure Corporation- corporations organized in accordance with requirements of law
Corporation by estoppel – group of persons which holds itself out as a corporation
and enters into with a third person on the strength of such appearance cannot be
permitted to deny its existence in an action under said contract. This is actually not a
real corporation.
C. Corporate Powers
1. How powers are exercised – exercised by the Board of Directors. The stock holders
cannot overrule the directors in its exercise of the corporate powers.
a. Ultra vires doctrine - refers to an act outside or beyond express, implied or
incidental corporate powers. It also includes those acts that may ostensibly be within
such powers but are, by general or special laws, either proscribed or declared illegal.
- even if the act is lawful, moral, not contrary to public policy or order but such act is not
within the express implied or incidental powers
Types :
1. acts done beyond the powers of the corporation through BOD
2. Ultra Vires Acts by corporate officers
3. Acts or contracts which are per se illegal as being contrary to law.
b. Trust fund doctrine – subscriptions to capital stock, inclusive of the unpaid portion
there of constitutes a fund which the creditors have a right to rely upon the satisfaction
of their claims
D. Board of directors and trustees
1. Basic principles
a. Doctrine of Centralized Management – Questions of Policy and Management are
left solely to the honest decisions of the Board of Directors.
- states that all corporate power are exercised by the BOD or BOT
b. Business Judgment Rule – or Doctrine of Apparent Authority
- questions of policy or management are left solely to the honest decision of officers and
directors of a corporation and the courts are without authority to substitute their
judgement for the judgment of the BOD, the board is the business manager of the
corporation and so long as it acts in good faith, its orders are not reviewable by the
courts or the SEC.
Under the Corporation Code, whatever is expressed or whatever is incidental or
necessary for the operation forms part of the general purpose of a corporation. That
officer should not be liable for his acts.
the board of directors or trustees shall exercise the corporate powers, conduct all business, and
control all properties of the corporation.

2. Tenure and qualifications of directors or trustees

SEC. 22. Directors shall be elected for a term of one (1) year from among the holders of stocks
registered in the corporation’s books, while trustees shall be elected for a term not exceeding three (3)
years from among the members of the corporation. Each director and trustee shall hold office until the
successor is elected and qualified. A director who ceases to own at least one (1) share of stock or a
trustee who ceases to be a member of the corporation shall cease to be such.

3. Election and removal of directors or trustees

SEC. 23. Election of Directors or Trustees. – Except when the exclusive right is reserved for holders of
founders’ shares under Section 7 of this Code, each stockholder or member shall have the right to
nominate any director or trustee who possesses all of the qualifications and none of the
disqualifications set forth in this Code.

At all elections of directors or trustees, there must be present, either in person or through a
representative authorized to act by written proxy, the owners of majority of the outstanding capital
stock, or if there be no capital stock, a majority of the members entitled to vote. When so authorized in
the bylaws or by a majority of the board of directors, the stockholders or members may also vote
through remote communication or in absentia: Provided, That the right to vote through such modes
may be exercised in corporations vested with public interest, notwithstanding the absence of a
provision in the bylaws of such corporations. A stockholder or member who participates through
remote communication or in absentia, shall be deemed present for purposes of quorum. The election
must be by ballot if requested by any voting stockholder or member. In stock corporations, stockholders
entitled to vote shall have the right to vote the number of shares of stock standing in their own names in
the stock books of the corporation at the time fixed in the bylaws or where the bylaws are silent, at
the time of the election.
The said stockholder may:

(a) vote such number of shares for as many persons as there are directors to be elected;

(b) cumulate said shares and give one (1) candidate as many votes as the number of directors to be
elected multiplied by the number of the shares owned; or

(c) distribute them on the same principle among as many candidates as may be seen fit: Provided,

That the total number of votes cast shall not exceed the number of shares owned by the stockholders as
shown in the books of the corporation multiplied by the whole number of directors to be elected:
Provided, however, That no delinquent stock shall be voted. Unless otherwise provided in the articles
of incorporation or in the bylaws, members of nonstock corporations may cast as many votes as there
are trustees to be elected but may not cast more than one (1) vote for one (1) candidate. Nominees for
directors or trustees receiving the highest number of votes shall be declared elected. If no election is
held, or the owners of majority of the outstanding capital stock or majority of the members entitled to
vote are not present in person, by proxy, or through remote communication or not voting in absentia at
the meeting, such meeting may be adjourned and the corporation shall proceed in accordance with
Section 25 of this Code. Page 13 of 73 The directors or trustees elected shall perform their duties as
prescribed by law, rules of good corporate governance, and bylaws of the corporation.

SEC. 24. Corporate Officers. – Immediately after their election, the directors of a corporation must
formally organize and elect: (a) a president, who must be a director; (b) a treasurer, who must be a
resident; (c) a secretary, who must be a citizen and resident of the Philippines; and (d) such other
officers as may be provided in the bylaws. If the corporation is vested with public interest, the board
shall also elect a compliance officer. The same person may hold two (2) or more positions
concurrently, except that no one shall act as president and secretary or as president and treasurer at
the same time, unless otherwise allowed in this Code.

4. Duties, responsibilities and liabilities for unlawful acts

E. Stockholders and members
1. Rights and obligations of stockholders and members
a. Doctrine of equality of shares – Where the articles of incorporation do not provide
for any distinction of the shares of stock, all shares issued by the corporation are
presumed to be equal and enjoy the same rights and privileges and are also subject to
the same liabilities.
2. Participation in management
a. Proxy – designates the formal written authority given by the owner or holder of the
stock, who has a right to vote it, or by a member as principal, to another person as
agent, to exercise the voting rights of the former.
b. Voting trust – an agreement whereby one or more stockholders transfer their
shares of stocks to a trustee, who thereby acquires for a period of time the voting rights
over such shares, and in return, trust certificates are given to the stockholders, which
are transferable like stock certificates subject to trust agreements
c. Cases when stockholders’ action is required
1.amendments, repeals or adoption of new by laws
2. entering into management contract
3. issuing of stock dividends
4. amendment of articles of incorporation
5. grant of compensation to directors
6. extending or shortening the corporate term
Increase or decrease of capital stock
7. to incur, create or increase bonded indebtedness
8. deny preemptive right
9.merger
10.dissolution
i. By a majority vote
ii. By a two-thirds vote
iii. By cumulative voting
3. Proprietary rights
Right to dividends, appraisal, inspect, pre-emptive right, vote and of first refusal
a. Right to dividends
b. Right to inspect
c. Pre-emptive right
d. Right of first refusal - a right that grants to the corporation or another sh the right to
buy the shares of stock of another SH at affixed price and only valid if made on
reasonable terms and conditions
4. Remedial rights
5. Intra-corporate disputes (individual vs. representative vs. derivative suits)
F. Capital structure
1. Shares of stock
a. Nature of shares of stock
b. Consideration for shares of stock
c. Watered stock d. Situs of the shares of stock
e. Classes of shares of stock
1. Par value shares – shares with a value fixed in the articles of incorporation
and the certificates of stock. The par value fixes the minimum issue price of the shares.
2. No Par value shares – these are shares having no stated value in the Articles
of Incorporation
3. Common Shares – these are ordinarily and usually issued stocks without
extraordinary rights and privileges, and entitle the shareholder to a prorate division of
profits, It represents the residual ownership interest in the corporation. The holders of
this kind of share have complete voting rights and they cannot be deprived of the said
rights except as provided by law.
4. Preferred shares – these entitle the shareholder to some priority on
distribution of dividends and assets over those holders of common shares. Preferred
shares may be issued only with a stated par value.
5. Redeemable shares – these 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 existed of unrestricted retained earnings in the books of corporation,
and upon such other terms and conditions stayed in the articles of incorporation and the
certificate of stock representing the shares subject to rules and regulations issued by
the commission.
6. Treasury shares – shares that have been earlier issued as fully paid and
have thereafter been acquired by the corporation by purchase, donation, and
redemption or through some lawful means.
7. Founder’s shares – shares classified as such in the AOI and which may be
given special preference in voting rights and dividend payments.
8. Voting shares – shares with a right to vote. If the stock is originally issued as
voting stock, it may not thereafter be deprived of the right to vote without the consent of
the holder.
9. Non-voting shares – shares without right to vote. The law only authorizes
the denial of voting rights in the case of redeemable shares and preferred shares,
provided that there shall always be a class or series of shares which have complete
voting rights.
10. Convertible shares – shares which are changeable by the stock holder from
one class to another ( such as from preferred to common ) at a certain period.
11. Fractional share – a fractional share is a share of equity that is less than
one full share.
12. Shares in escrow – subject to an agreement by virtue of which the share is
deposited by the grantor or his agent with a third person to be kept by the depositary
until the performance of certain condition or the happening of a certain event contained
in the agreement.
13. Over – issued stock – it is a stock issued in excess of the authorized capital
stock. Stocks which are issued in this manner are null and void.
14. Street certificate – it is a stock certificate endorsed by the registered holder
in blank and the transferee can command its transfer to his name from issuing
corporation.
15. Promotional share – this is a share issued to promoters or those in some
way interested in the company, for incorporating the company, or for services rendered
in launching or promoting the welfare of the company.
16. Watered stock – shares issued below its par value or issued value.
NOTE: watered stocks pertain only to original issuance of shares.
2. Certificate of stock
a. Nature of the certificate
b. Uncertificated shares
c. Negotiability;
requirements for valid transfer of stocks
d. Issuance
e. Lost or destroyed certificates
3. Disposition and encumbrance of shares
a. Sale of shares
b. Allowable restrictions on the sale of shares
c. Requisites of a valid transfer
d. Involuntary dealings
G. Dissolution and liquidation
1. Modes of dissolution
a. Voluntary and involuntary dissolution
2. Methods of liquidation
H. Other corporations
1. Close corporations
2. Non-stock corporations
3. Foreign corporations
a. What constitutes “doing business”
b. Necessity of a license to do business
c. Requisites for issuance of a license
d. Resident agent
e. Personality to sue and suability
4. One-person corporations
I. Mergers and consolidations
1. Concept
2. Effects and limitations