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

Since 1977

RFBT.3605 VILLEGAS/APRADO/MAGUMUN/CELIZ
Corporation (RA 11232) May 2024
LECTURE NOTES

Corporation which by fiction of law, is given the

status of a corporation;
A corporation is an artificial being created by operation of ii. Corporation by estoppel - in reality is
law, having the right of succession and the powers, not a corporation, either de jure or de
attributes, and properties expressly authorized by law or facto, because it is so defectively
incident to its existence. (Sec. 2, RCC) formed, but is considered a corporation
in relation to those only who, by reason
Classes of Corporation of theirs acts or admissions, are
1. As to whether their membership is represented by precluded from asserting that it is not a
shares of stock or not: corporation.
a. Stock –one which has:
i. Capital stock divided into shares; and 7. As to whether they are for public (government) or
ii. Are authorized to distribute to the holders private purpose:
of such shares dividends or allotments a. Public - formed or organized for the government
of the surplus profits on the basis of the of a portion of the State (like cities and
shares held. municipalities) for the purpose of serving the
b. Non-Stock – is one which does not issue general good and welfare.
shares and is - created not for profit but for b. Private - one formed for some private purpose,
public good and welfare and where no part of benefit or end. It may either be a stock or non-
its income is distributable as dividends to its stock
members, trustees, or officers
Tests in determining the nationality of corporations
2. As to the number of persons who compose them: 1. Control Test - In determining the nationality of a
a. One Person Corporation - corporation consisting corporation, the control test uses the nationality of
of a single stockholder: Provided, That only a the controlling stockholders or members of the
natural person, trust, or estate may form a One corporation.
Person Corporation
b. Corporation Aggregate - corporation consisting 2. Grandfather Rule – It is used in determining the
of more than one member or corporator. The nationality of a corporation engaged in a partly
RCC requires that these corporations must be nationalized activity. This applies in cases where the
formed jointly with others stocks of a corporation are owned by another
c. Corporation Sole - Religious corporation which corporation with foreign stockholders exceeding
consists of one member which is the head of the 40% of the capital stock of the corporation.
religious sect or corporator only and his
successor Doctrine of Separate Juridical Personality

3. As to state or country under or by whose laws The doctrine of corporate juridical personality states that a
they have been created: corporation is a juridical entity with legal personality
a. Domestic - incorporated and organized under separate and distinct from those acting for and in its behalf
the laws of the Philippines. and, in general, from the people comprising it.
b. Foreign - formed, organized, or existing under
any laws other than those of the Philippines and 1. Liability for acts or contracts – As a general rule, the
whose laws allow Filipino citizens and obligation of the corporation is not the liability of the
corporations to do business in its own country stockholders, officers or directors.
or state
2. Liability for torts or crimes - Since a corporation is a
4. As to their legal right to corporate existence: mere creation of legal fiction, it cannot be held liable for
a. De jure - existing both in fact and in law. crimes committed by its officers; in such case the
b. De facto - existing in fact but not in law. responsible officers would be criminally liable

5. As to whether they are open to the public or not: 3. Right to bring actions – may bring civil and criminal
a. Close - limited to selected persons or members actions in its own name in the same manner as natural
of the family. persons. However, rights belonging to the corporation
b. Open - open to any person who may wish to cannot be invoked by the stockholders (or directors and
become a stockholder or member thereto. officers) even if the latter owns substantial majority of
the shares in that corporation and rights of the
6. As to whether they are corporations in a true stockholders, directors and officers cannot be invoked
sense or only in a limited sense: by the corporation.
a. True - exists by statutory authority
b. Quasi - exist without formal legislative grant: 4. Acquisition of jurisdiction – service of summons may be
i. Corporation by prescription - has made only on the president, general manager,
exercised corporate powers for an corporate secretary, treasurer or in-house counsel.
indefinite period without interference on
the part of the sovereign power and 5. Recovery of damages - A corporation is not entitled to
moral damages because, being an artificial person and

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

Capital Structure Scope of Voting Rights Subject to Classification

Non-voting shares are not entitled to vote. The law only
Number and the qualifications of incorporators in a authorizes the denial of voting rights in the case of
stock corporation redeemable shares and preferred shares, provided that
1. As amended by RA No. 11232 (or the Revised there shall always be a class or series of shares which have
Corporation Code), any person, partnership, complete voting rights.
association or corporation, singly or jointly with
others Note, however, that these redeemable and preferred
2. Incorporators must not be more than 15, except in shares, when such voting rights are denied, shall
case of educational institutions and close nevertheless be entitled to vote on the following
corporations fundamental matters:
3. An incorporator must be of legal age a. Amendment of the Articles of Incorporation;
4. Each must own or subscribe to at least one (1) b. Adoption and amendment of by-laws;
share of the capital stock. c. Sale, lease, exchange, other disposition of all or
substantially all of the corporate property;
Subscription Requirements d. Incurring, creating or increasing bonded
Stock corporations shall not be required to have a minimum indebtedness;
authorized capital stock, except as may be provided by a e. Increase or decrease of capital stock;
special law. f. Merger and consolidation;
g. Investment of corporate funds in another
Corporate Term corporation or business; and
As amended by RA No. 11232, corporations now have a h. Dissolution of the corporation
perpetual existence, unless its Articles of Incorporation
provides otherwise. Incorporation and Organization

Classification of Shares Steps in the creation of a corporation

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1. Promotion more than fifteen (15) and the term of existence is

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

Contents: Registration and Issuance of Certificate of

1. Name of corporation; Incorporation
2. Purpose/s, indicating the primary and secondary
purposes (Purpose Clause); Basic requirements for the registration and issuance of a
3. Place of principal office; certificate of incorporation of a stock corporation
4. Term of existence; if the corporation has not elected 1. A person desiring to incorporate shall submit the
perpetual existence; intended corporate name to the Commission for
5. Names, nationalities and residences of Incorporators; verification slip
6. Number of directors, which shall not be more than 2. AOI and by-laws
fifteen (15) while the number of trustees which may be

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A corporation comes into existence upon the issuance of the 10. In case of stock corporations, the manner of issuing
certificate of incorporation by the SEC under its official seal, certificates.
except in case of a corporation sole which commences 11. Such other matters as may be necessary for the proper
existence upon the filing of the articles of incorporation. or convenient transaction of its corporate business and
affairs for the promotion of good governance and anti-
Election of Directors and Trustees graft and corruption measures.

Requirements and limitations for the election of directors Binding Effects

or trustees The following are the binding effects of by-laws:
1. Presence of Stockholders representing a majority of 1. As to members/ stockholders, officers, trustees/
the outstanding capital stock of the corporation or directors and corporation, they are bound by and
majority of the members, either in person or by proxy. must comply with it. They are presumed to know
the provisions of the by-laws.
New ways to vote in RCC, Sec 24: Through remote 2. As to third persons, they are not bound, unless they
communication or in absentia have knowledge or notice of the bylaws at the time
Note that it must be provided in the by-laws except the contract was executed.
in corporations vested with public interest
Amendments
2. The election must be by ballot, if requested by any 1. Amendment may be made by stockholders together
voting stockholder or member. with the Board – by majority vote of directors and
3. The total number of votes cast by him must not exceed owners of at least a majority of the outstanding
the number of shares owned by him as shown in the capital stock/members; or
books of the corporation multiplied by the whole 2. By the board only after due delegation by the
number of directors to be elected. stockholders owning 2/3 of the outstanding capital
4. No delinquent stock shall vote or be voted for. stock/members. Provided, that such power
5. A stockholder cannot be deprived in the articles of delegated to the board shall be considered as
incorporation or in the by-laws of his statutory right to revoked whenever stockholders owning at least
use any of the methods of voting in the election of majority of the outstanding capital stock or
directors. members, shall vote at a regular or special meeting.
6. The candidates receiving the highest number of votes
shall be declared. Effects of Non-use of Corporate Charter

Quorum – it shall consist of the stockholders representing a If a corporation does not formally organize and commence
majority of the outstanding capital stock or a majority of the its business within five (5) years from the date of its
members in the case of nonstock corporations, unless incorporation, its certificate of incorporation shall be
otherwise provided. deemed revoked as of the day following the end of the five-
year period.
Adoption of By-laws
If a corporation has commenced its business but
The by-laws supplement the AOI. The function of by-laws is subsequently becomes inoperative for a period of at least
to define the rights and duties of corporate officers and five (5) consecutive years, the Commission may, after due
directors or trustees, and of stockholders or members notice and hearing, place the corporation under delinquent
towards the corporation and among themselves with status.
reference to the management of corporate affairs and to
regulate transaction of the business of the corporation in a A delinquent corporation shall have a period of two (2) years
particular way. to resume operations and comply with all requirements that
the Commission shall prescribe. Upon compliance by the
Contents: corporation, the Commission shall issue an order lifting the
delinquent status. Failure to comply with the requirements
1. Time, place and manner of calling and conducting and resume operations within the period given by the
regular or special meetings of directors or trustees. Commission shall cause the revocation of the corporation’s
2. Time and manner of calling and conducting regular or certificate of incorporation.
special meetings of the stockholder or members.
3. The required quorum in meeting of stockholders or Corporate Powers
members and the manner of voting therein.
4. The modes by which a stockholder, member, director, 1. Express powers – granted by law, the Corporation
or trustee may attend meetings and cast their votes; Code, and its Articles of Incorporation or Charter,
5. The form for proxies of stockholders and members and and administrative regulations;
the manner of voting them. 2. Inherent/incidental powers – not expressly stated
6. The directors’ or trustees’ qualifications, duties and but are deemed to be within the capacity of
responsibilities, the guidelines for setting the corporate entities;
compensation of directors or trustees and officers, and 3. Implied/necessary powers – exists as a necessary
the maximum number of other board representations consequence of the exercise of the express powers
that an independent director or trustee may have which of the corporation or the pursuit of its purposes as
shall, in no case, be more than the number prescribed provided for in the Charter.
by the Commission;
7. Time for holding the annual election of directors or General Powers; Theory of General Capacity
trustees and the mode or manner of giving notice
thereof. The general powers of a corporation also called Theory of
8. Manner of election or appointment and the term of office General Capacity are the following:
of all officers other than directors or trustees. 1. To Sue and be sued;
9. Penalties for violation of the by-laws.

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2. To have perpetual existence unless the certificate of

incorporation provides otherwise; Power to Deny Pre-Emptive Rights
3. To adopt and use of Corporate seal; Pre-emptive right - It is the preferential right of
4. To amend its Articles of Incorporation; shareholders to subscribe to all issues or disposition of
5. To adopt its By-laws; shares of any class in proportion to their present
6. For Stock corporations: issue and sell stocks to shareholdings. This is to enable the shareholder to retain
subscribers and treasury stocks; for non-stock his proportionate control in the corporation and to retain his
corporations: admit members; equity in the surplus.
7. To Purchase, receive, take or grant, hold, convey, sell, a. It is available on re-issuance of treasury shares
lease, pledge, mortgage and deal with real and b. It may be waived
personal property, securities and bonds subject to the c. It is transferrable unless there is express restriction
Constitution and existing laws; in the AOI
8. To Enter into merger or consolidation, (To enter into a
partnership, joint venture, merger, consolidation, or Instances when pre-emptive right is not available
any other commercial agreement with natural and 1. Shares to be issued to comply with laws requiring
juridical persons); stock offering or minimum stock ownership by the
9. To make reasonable Donations, including those for public.
public welfare, or for hospital, charitable, cultural, 2. Shares issued in good faith with the approval of the
scientific, civic, or similar purposes: Provided, that no stockholders representing 2/3 of the outstanding
foreign corporation shall give donations in aid of any capital stock in exchange for property needed for
political party, candidate or partisan political activity corporate purposes.
10. To establish pension, Retirement, and other plans for 3. Shares issued in payment of previously contracted
the benefit of its directors, trustees, officers and debts.
employees – basis of which is the Labor code; and 4. In case the right is denied in the AOI.
11. To exercise Other powers essential or necessary to 5. Waiver of the right by the stockholder.
carry out its purposes.
Power to Sell or Dispose Corporate Assets
Specific Powers; Theory of Specific Capacity There is a sale, lease, exchange, mortgage, pledge, and any
The specific powers of a corporation, also called Theory of other disposition of substantially all of corporate asset if in
Specific Capacity, are the following: the sale, lease, exchange, mortgage, pledge, and any other
1. Power to extend or shorten corporate term disposition thereof, the corporation would be rendered:
2. Increase or decrease capital stock 1. Incapable of continuing the business; or
3. Incur, create, or increase bonded indebtedness 2. Incapable of accomplishing the purpose for which it
4. Deny pre-emptive right was incorporated.
5. Sell, dispose, lease, encumber all or substantially all of
corporate assets Requirements:
6. Purchase or acquire own Shares 1. Majority vote of the BOD or BOT
7. Invest corporate funds in another corporation or 2. Ratification by 2/3 of the stockholders representing
business for other purpose other than primary purpose outstanding capital stock or by at least 2/3 of the
8. Declare dividends out of unrestricted retained earnings members in case of non-stock corporation, except
9. Enter into management contract with another when:
corporation (not with an individual or a partnership – a. sale is necessary in the usual and regular course
within general powers) whereby one corporation of business;
undertakes to manage all or substantially all of the b. if the proceeds of the sale or other disposition
business of the other corporation for a period not longer of such property and assets are to be
than five (5) years for any one term appropriated for the conduct of the remaining
10. Amend Articles of Incorporation business; or
c. if the transaction does not cover all or
Power to Extend or Shorten Corporate Term substantially all of the assets.
1. Majority vote of the BOD or BOT 3. Required notice duly complied with.
2. Ratification by 2/3 of the stockholders representing
outstanding capital stock or by at least 2/3 of the Power to Acquire Own Shares
members in case of non-stock corporation.
3. Required notice duly complied with. Instances when a corporation may acquire its own shares:
4. Copy of the amended AOI shall be submitted to the SEC 1. To eliminate fractional shares arising out of stock
for its approval. dividends
2. To collect or compromise an indebtedness to the
Note: The extension must be done during the lifetime of corporation, arising out of unpaid subscription, in a
the corporation not earlier than 3 years prior to the delinquency sale and to purchase delinquent shares sold
expiry date unless exempted. during said sale
3. To pay dissenting or withdrawing stockholders (in the
Power to Increase or Decrease Capital Stock or exercise of the stockholder’s appraisal right)
Incur, Create, Increase Bonded Indebtedness 4. To acquire treasury shares
1. Majority vote of the BOD; 5. To acquire redeemable shares regardless of existence
2. Ratification by stockholders representing 2/3 of the of retained earnings
outstanding capital stock. 6. To effect a decrease of capital stock
3. Required notice duly complied with. 7. In close corporations, when there is a deadlock in the
4. Prior approval of the SEC. management of the business, the SEC may order the
purchase at their fair value of the shares of any
Note: The required 25% subscription shall be based on the stockholder by a corporation regardless of the
additional amount by which the capital stock increased and availability of unrestricted retained earnings in its
not on the total capital stock as increased. books.

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b. Majority of the members of the BOD of the

Note that where a corporation reacquires its own shares, it managing corporation also constitute a majority
does not thereby become a subscriber thereof. of the BOD of the managed corporation.
(Interlocking Directors)
Power to Invest Corporate Funds in Another
Corporation or Business Ultra Vires Doctrine

As a rule, a corporation is not allowed to engage in a An ultra vires act refers to an act outside or beyond express,
business different from those enumerated in its AOI, except implied and incidental corporate powers. The concept also
when the purpose will be amended to include the desired includes those acts that may ostensibly be within such
business activity among its secondary purpose. powers but are, by general or special laws, either proscribed
or declared illegal.
Statutory requirements:
1. Approval by the majority vote of the BOD or BOT; They are merely voidable and may become binding and
2. Ratification by stockholders representing at least enforceable when ratified by the stockholders.
2/3 of the outstanding capital stock or by at least
2/3 of the members in case of nonstock Ultra vires acts entered into by the board of directors bind
corporations; the corporation, and the courts will not interfere unless
3. Ratification must be made at a meeting duly called terms are oppressive and unconscionable.
for the purposes;
4. Required notice duly complied with. Doctrine of Individuality of Subscription

Power to Declare Dividends Subscribed stocks cannot be divided into portions so that
the stockholder shall not be entitled to a certificate of stock
Requirements for the declaration of dividends until he has remitted the fully payment of his subscription.
1. Existence of unrestricted retained earnings) As a result, a stockholder cannot transfer portion or part of
2. Resolution of the board. his stock in view of the indivisible nature of the subscription
contract. It is only upon full payment of the whole
In case stock dividend is to be declared, an additional subscription that a stockholder can transfer the same to
requirement of: several transferees.
3. A vote representing 2/3 of outstanding capital.
4. A corporation must have also a sufficient number of Doctrine of Equality of Shares
authorized unissued shares for distribution to
stockholders. Where the articles of incorporation do not provide for any
distinction of the shares of stock, all shares issued by the
Forms of dividends corporation are presumed to be equal and enjoy the same
1. Cash dividends due on delinquent stock shall first be rights and privileges and are also subject to the same
applied to the unpaid balance on the subscription plus liabilities.
cost and expenses.
2. Stock dividends are withheld from the delinquent Trust Fund Doctrine
stockholder until his unpaid subscription is fully paid.
3. Property Stockholders are entitled to dividends pro-rata The subscribed capital stock of the corporation is a trust
based on the total number of shares and not on the fund for the payment of debts of the corporation which the
amount paid on shares. creditors have the right to look up to satisfy their credits,
and which the corporation may not dissipate. The creditors
Power to Enter into a Management Contract may sue the stockholders directly for the latter’s unpaid
subscription.
Management Contract is any contract whereby a
corporation undertakes to manage or operate all or Exceptions to the trust fund doctrine
substantially all of the business of another corporation,
whether such contracts are called service contracts, The Code allows distribution of corporate capital only in
operating agreements or otherwise. instances of:
1. Amendment of the AOI to reduce authorized capital
Requirements: stock;
1. Contract must be approved by the majority of the BOD 2. Purchase of redeemable shares by the corporation
or BOT of both managing and managed corporation. regardless of existence of unrestricted retained
2. Ratified by the stockholders owning at least the majority earnings; or
of the outstanding capital stock, or members in case of 3. Dissolution and eventual liquidation of the
a non-stock corporation, of both the managing and the corporation.
managed corporation, at a meeting duly called for the
purpose. Stockholders and Members
3. Contract must be approved by the stockholders of the
managed corporation owning at least 2/3 of the A person becomes a shareholder the moment he:
outstanding capital stock entitled to vote or 2/3 of the 1. Enters into a subscription contract with an existing
members when: corporation (he is a stockholder upon acceptance of
a. Stockholders representing the same interest in the corporation of his offer to subscribe whether the
both of the managing and the managed consideration is fully paid or not);
corporation own or control more than 1/3 of the 2. Purchases treasury shares from the corporation; or
total outstanding capital stock entitled to vote 3. Acquires shares from existing shareholders by sale
of the managing corporation (Interlocking or any other contract, or acquires shares by
stockholders); operation of law like succession.

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Rights of a Stockholder and Member 4. A new certificate shall be issued in the name of the
trustee/s stating that they are issued pursuant to the
1. Management Right VTA.
a. To attend and vote in person or by proxy at a 5. The transfer shall be noted in the books of the
stockholders’ meetings corporation, that it is made pursuant to said VTA.
b. To elect and remove directors 6. The trustee/s shall execute and deliver to the
c. To approve certain corporate matters transferors voting trust certificates, which shall be
d. To adopt and amend or repeal the by-laws of transferable in the same manner and with the same
adopt new by-laws effect as certificates of stock.
e. To compel the calling of the meetings 7. No VTA shall be entered into for a period exceeding 5
f. To enter into a voting trust agreement; and years at any one time (i.e., for every voting trust)
g. To have the corporation voluntarily dissolved unless it requires a longer period as a condition in a loan
2. Proprietary rights agreement, the period may exceed 5 years but shall
a. To transfer stock in the corporate book automatically expire upon full payment of the loan.
b. To receive dividends when declared 8. No VTA shall be entered into for the purpose of
c. To the issuance of certificate of stock or other circumventing the law against monopolies and illegal
evidence of stock ownership combinations in restraint of trade.
d. To participate in the distribution of corporate 9. The agreement must not be used for purposes of fraud.
assets upon dissolution; and
e. To pre-emption in the issue of shares Cases when a Stockholder’s Action is Required
3. Remedial Rights
a. To inspect corporate books Under Section 6 of the Corporation Code, each share of
b. To recover stock unlawfully sold for delinquent stock is entitled to vote, unless otherwise provided in the
payment of subscription articles of incorporation or declared delinquent under
c. To be furnished with most recent financial Section 67 of the Corporation Code.
statements or reports of the corporation’s
operation Corporate powers exercised jointly by the BOD and
d. To bring suits (derivative suit, individual suit, stockholders
and representative suit); and 1. Amendment of the articles of incorporation;
e. To demand payment in the exercise of appraisal 2. Adoption and amendment of bylaws;
right. 3. Sale, lease, exchange, mortgage, pledge, or other
disposition of all or substantially all of the corporate
Participation in Management property;
4. Incurring, creating, or increasing bonded indebtedness;
Acts of management pertain to the board; and those of 5. Increase or decrease of authorized capital stock;
ownership, to the stockholders or members. 6. Merger or consolidation of the corporation with another
corporation or other corporations;
Proxy 7. Investment of corporate funds in another corporation or
While stockholders and members may vote in person or by business in accordance with this Code; and
proxy in all meetings of stockholders or members, this right 8. Dissolution of the corporation.
may be denied under the articles of incorporation or by-laws
of a non-stock corporation. Proprietary Rights
Requirements of Valid Proxy
1. Proxies shall be in writing and shall be signed by the The following are the proprietary rights of the stockholders:
stockholder or member concerned. Oral proxies are NOT
valid; 1. Appraisal Right - It refers to the right of the stockholder
2. The proxy shall be filed within a reasonable time before to demand payment of the fair value of his shares, after
the scheduled meeting with the corporate secretary; dissenting from a proposed corporate action involving a
3. Unless otherwise provided (continuing in nature) in the fundamental change in the charter or articles of
proxy, it shall be valid only for the meeting for which it incorporation in the cases provided by law.
is intended. The authority may be general or limited; 2. Right to Inspect - The stockholder’s right of inspection
and of the corporation’s book and records is based upon his
4. No proxy shall be valid and effective for a period longer ownership of shares in the corporation and the necessity
than 5 years at any one time. for self-protection.
The mere fact that the shareholdings of a
Voting Trust stockholder is merely .001 per cent of the issued
A voting trust agreement (VTA) is an agreement whereby shares of stock does not justify the denial of the
one or more stockholders transfer their shares of stocks to request of inspection of the corporate records.
a trustee, who thereby acquires for a period of time the 3. Pre-emptive Right- see discussion above.
voting rights (and/or any other specific rights) over such 4. Right to vote - The stockholders can exercise their right
shares; and in return, trust certificates are given to the to vote through the election, replacement and removal
stockholder/s, which are transferable like stock certificates, of Board of Directors or Trustees and on other corporate
subject, to the trust agreement. acts which require stockholders’ approval. It is a right
inherent in and incidental to the ownership of corporate
Requirements: stock, and such is a property right.
1. The agreement must be in writing and notarized and 5. Right to dividends - It is the right of the stockholder to
specify the terms and conditions thereof. demand payment of dividends after the board’s
2. A certified copy of such agreement shall be filed with declaration. Stockholders are entitled to dividends pro
the corporation and with the SEC, otherwise, it is rata based on the total number of shares that they own
ineffective and unenforceable. and not on the amount paid for the shares.
3. The certificate/s of stock covered by the VTA shall be
cancelled.

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Note: Stock corporations are prohibited from retaining in the by-laws – at least 1 week prior to the
surplus profits in excess of 100% of their paid-in capital meeting.
stock, except:
a. When justified by definite corporate expansion Quorum
projects or programs approved by the board of Shall consist of the stockholders representing majority of
directors; or the outstanding capital stock or a majority of the actual and
b. When the corporation is prohibited under any living members with voting rights, in the case of non-stock
loan agreement with any financial institution or corporation, unless otherwise provided in the law or by-
creditor, whether local or foreign, from laws.
declaring dividends without its/his consent, and
such consent has not yet been secured; or Minutes of the Meetings
c. When it can be clearly shown that such The minutes are a brief statement not only of what
retention is necessary under special transpired at a meeting, usually of stockholders/ members
circumstances obtaining in the corporation, or directors/ trustees, but also at meeting of an executive
such as when there is need for special reserve committee.
for probable contingencies.
Remote communication
Remedial Rights Attendance, participation, and voting through remote
communication must be provided in the by-laws.
Actions that the stockholders or members can bring
1. Derivative suit – one brought by one or more Board of Directors and Trustees
stockholders or members in the name and on behalf
of the corporation to redress wrongs committed Doctrine of Centralized Management
against it or to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to It states that all corporate powers are exercised by the
sue or are the ones to be sued or hold control of the BOD or BOT.
corporation.
Requisites: Board is the body which:
a. The cause of action must devolve upon the 1. Exercises all powers provided for under the
corporation itself; Corporation Code;
b. The party bringing the suit must be a 2. Conducts all Business of the corporation; and
stockholder at the time the acts or transactions 3. Controls and holds all the properties of the
subject of the action occurred; and at the time corporation
the action was filed
2. Individual suit – an action brought by a stockholder Term of Office of BOD/BOT
against the corporation for direct violation of his
contractual rights as such individual stockholder, Directors shall be elected for a term of one (1) year from
such as the right to vote and be voted for, the right among the holders of stocks registered in the corporation’s
to share in the declared dividends, the right to books, while trustees shall be elected for a term not
inspect corporate books and records, and others. exceeding three (3) years from among the members of the
3. Representative suit – one brought by a person in his corporation.
own behalf and on behalf of all similarly situated.
Term - time during which the officer may claim to hold the
Obligations of a Stockholder office as a matter of right, and fixes the interval after which
the several incumbents shall succeed one another. The term
1. Liability to the corporation for unpaid subscription of office is not affected by the holdover. It is fixed by statute
2. Liability to the corporation for interest on unpaid and does not change simply because the office may have
subscription if so required by the subscription become vacant, nor because the incumbent holds office
contract beyond his term when a successor has not been elected.
3. Liability to the creditors of the corporation for
unpaid subscription Tenure - represents the term during which the incumbent
4. Liability for watered stock actually holds office. The tenure may be shorter (or, in case
5. Liability for dividends unlawfully paid; and of holdover, longer) than the term for reasons within or
6. Liability for failure to create corporation beyond the power of the incumbent.

Meetings Hold-over Period - the time from the lapse of one year from
a member’s election to the Board and until his successor’s
1. Regular election and qualification. It is not part of the director’s
a. Annually on date fixed in the by-laws; or original term of office, nor is it a new term; the holdover
b. If there is no date in the by-laws – any period, however, constitutes part of his tenure.
date in April as determined by the board
The notice shall be sent to the stockholder within Duties of Directors/Trustees:
the period provided in the by-laws or in the 1. Duty of Obedience
absence of provision in the by-laws – at least 2 2. Duty of Diligence
weeks prior to the meeting. 3. Duty of Loyalty

2. Special Common qualifications and disqualifications of a

a. Any time deemed necessary; or director and trustee
b. As provided in the by-laws
1. He must not have been, within five (5) years prior
The notice shall be sent to the stockholder within to the election or appointment as such:
the period provided in the by-laws or if no provision

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a.
Convicted by final judgment of an offense e. Increase in the number of directors results to
punishable by imprisonment for a period vacancy.
exceeding 6 years; violation of the 2. Vacancies filled up by members of the board -If still
Corporation Code; or Violation of RA 8799 constituting a quorum, at least a majority of the
b. Found administratively liable for any members are empowered to fill any vacancy occurring
offense involving fraudulent acts; and in the board other than by removal by the stockholders
c. By a foreign court or equivalent foreign or members or by expiration of term.
regulatory authority for acts, violations or
misconduct similar to those enumerated in However, if the by-laws prescribe the specific mode of filling
paragraphs (a) and (b) above up existing vacancies, the provisions of the by-laws should
2. He must be of legal age; and be followed.
3. Other qualifications as may be prescribed in special
laws or regulations or in the by-laws of the Compensation
corporation.
Directors, in their capacity as such, are not entitled to
Independent Directors receive any compensation except for reasonable per diems.
However, they may receive compensation:
At least two (2) independent directors are required in the 1. When their compensation is fixed in the bylaws;
following companies: 2. When granted by the vote of stockholders
1. Any corporation with a class of equity securities representing at least a majority of the outstanding
listed for trading on an Exchange; capital stock at a regular or special meeting; or
2. Banks; and 3. If they perform services other than as directors of
3. Corporations with secondary franchise. the corporation (i.e. where directors are also
corporate officers or employees of the corporation)
The board of the following corporations vested with public
interest shall have independent directors constituting at Disloyalty
least twenty percent (20%) of the board:
1. Corporations whose: The director must account for and refund to the office all
a. Securities are registered with the such profits, which such director, by virtue of such office
Commission; acquires a business opportunity which should belong to the
b. Corporations listed with an exchange; corporation thereby obtaining profits to the prejudice of
c. Corporations with: such corporation, unless the act has been ratified by a vote
i. assets of at least 50 Million Pesos; of the stockholders owning or representing at least two-
ii. having 200 or more shareholders; thirds (2/3) of the outstanding capital stock.
iii. each shareholder holding at least 100
shares of a class of its equity shares Business Judgment Rule
2. Banks, quasi-banks, preneed, insurance and trust Questions of policy or management are left solely to the
companies, nonstock savings and loan associations, honest decision of officers and directors of a corporation and
pawnshops, corporations engaged in money service the courts are without authority to substitute their judgment
business and other financial intermediaries; and for the judgment of the board of directors; the board is the
3. Other corporations engaged in business vested with business manager of the corporation and so long as it acts
public interest similar to the above, as may be in good faith, its orders are not reviewable by the courts or
determined by the Commission, after taking into the SEC, unless:
account relevant factors which are germane to the 1. Unconscionable and oppressive as to amount to wanton
objective and purpose of requiring the election of destruction to the rights of the minority; or
independent director. 2. When there is bad faith or gross negligence by the
directors.
Removal
Personal Liability
The power to remove, with or without cause, belongs to the
stockholders representing at least 2/3 of the outstanding The officers of a corporation are not personally liable for
capital stock or if non stock corporation, by a vote of at least their official acts unless it is shown that they exceeded their
2/3 of the members entitled to vote. authority, such as:
1. When they willfully and knowingly vote for or assent to
Note, however, that if the director was elected by the patently unlawful acts of the corporation;
minority, there must be cause for removal because the 2. When they are guilty of gross negligence or bad faith in
minority may not be deprived of the right to representation directing the affairs of the corporation;
which they may be entitled under Sec. 23 of the Code. 3. When they acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees
Filling of Vacancies 4. When they consent to the issuance of watered stocks or
who, having knowledge thereof, does not forthwith file
Ways of filling up the vacancies in the board with the corporate secretary his written objection
1. Vacancies to be filled up by stockholders or members: thereto
a. Expiration of term; 5. When they are made, by a specific provision of law, to
b. Removal; personally answer for their corporate action
c. Grounds Other than removal or expiration of 6. When they agree to hold themselves personally and
term, where the remaining directors do not solidarily liable with the corporation; or
constitute a quorum for the purpose of filling the 7. When the corporate fiction is used to defeat public
vacancy; convenience, justify wrong, protect fraud, or defend
d. If the vacancy may be filled by the remaining crime.
directors or trustees but the board Refers the
matter to stockholders or members; or Responsibility for Crimes

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EXCEL PROFESSIONAL SERVICES, INC.

Executive Committee
A director or officer can be held liable for a criminal offense
only when there is a specific provision of law making a An executive committee is a body created by the by-laws
particular officer liable because being a corporate officer by and composed of not less than three (3) members of the
itself is not enough to hold him criminally liable. board which, subject to the statutory limitations, has all the
authority of the board to the extent provided in the board
Special Fact Doctrine resolution or by-laws. The committee may act by a majority
vote of all of its members.
The special fact doctrine is an exception to the majority rule
doctrine. It states that where special circumstances or facts Executive committees provided in the Revised Code of
are present which make it inequitable for the director to Corporate Governance
withhold information from the stockholder, the duty to 1. Audit Committee;
disclose arises, and concealment is fraud. 2. Nomination Committee;
3. Compensation and Remuneration Committee
Inside Information
Creation of Special Committees
Any material non-public information about the issuer of the The Board of directors may create special committees of
securities (corporation) or the security obtained by being an temporary or permanent nature and determine the
insider, which includes: members’ term, composition, powers, and responsibilities.
1. The Issuer;
2. A Director or officer (or any person performing similar Meetings
functions) of, or a person controlling the issuer;
3. A person whose Relationship or former relationship to Requisites for valid tele/videoconferencing
the issuer gives or gave him access to material R.A. 8792, as implemented by SEC Memo. Circular No. 15
information about the issuer or the security that is not on November 30, 2001, provides that:
generally available to the public;
4. A Government employee, director, or officer of an 1. Directors must express their intent on
exchange, clearing agency and/or self-regulatory teleconferencing;
organization who has access to material information 2. Proper identification of those attending; and
about an issuer or a security that is not generally 3. The corporate secretary must safeguard the
available to the public; or integrity of the meeting by recording it.
5. A person who Learns such information by a
communication from any forgoing insiders. Who Presides
The chairman or, in his absence, the president shall preside
Contracts at all meetings of the directors or trustees as well as of the
stockholders or members, unless the bylaws provide
By Self-Dealing Directors with the Corporation otherwise.
A contract of the corporation with one or more of its
directors, trustees, officers, or their spouses and relatives Quorum
within the fourth civil degree of consanguinity or affinity is Majority of the number of directors or trustees as stated in
voidable, at the option of the corporation unless all the the articles of incorporation shall constitute quorum, unless
following conditions are present: the articles of incorporation or the bylaws provide for a
1. That the presence of such director or trustee in the greater number.
board meeting in which the contract was approved was
not necessary to constitute a quorum for such meeting; Rule on Abstention
2. That the vote of such director or trustee was not No inference can be drawn in a vote of abstention. When a
necessary for the approval of the contract; director or trustee abstains, it cannot be said that he
3. That the contract is fair and reasonable under the intended to acquiesce in the action taken by those who
circumstances; voted affirmatively. Neither, for that matter, can such
4. In case of corporations vested with public interest, inference be drawn from the abstention that he was
material contracts are approved by at least 2/3 of the abstaining because he was not then ready to make a
entire membership of the board, with at least a majority decision.
of the independent directors voting to approve the
material contract; and Capital Affairs
5. That in the case of an officer, the contract with the
officer has been previously authorized by the board of Certificate of Stock
directors.
A certificate of stock is a written instrument signed by the
By Corporations with Interlocking Directors proper officer of a corporation stating or acknowledging that
A contract between two or more corporations having the person named therein is the owner of a designated
interlocking directors shall not be invalidated on that ground number of shares of its stock. It indicates the name of the
alone. Provided that: holder, the number, kind and class of shares represented,
1. Contract is not fraudulent; and the date of issuance.
2. Contract is fair and reasonable under the
circumstances; and Watered Stocks
3. If the interest of the interlocking director in one
corporation or corporations is merely nominal (not A watered stock is a stock issued in exchange for cash,
exceeding 20% of the outstanding capital stock), he property, share, stock dividends, or services lesser than its
shall be subject to the provisions of Sec. 32 insofar par value or issued value. These include stocks:
as the latter corporation or corporations are 1. Issued without consideration (bonus share);
concerned. 2. Issued for a consideration other than cash, the fair
valuation of which is less than its par or issued value;

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EXCEL PROFESSIONAL SERVICES, INC.

3. Issued as stock dividend when there are no sufficient 3. a statement of every alienation, sale or transfer of stock
retained earnings to justify it; and made, the date thereof, by /to whom made;
4. Issued as fully paid when the corporation has received 4. such other entries as the bylaws may prescribe.
a lesser sum of money than its par or issued value
(discount share). Right to Inspect Corporate Records
Corporate records, regardless of the form in which they are
Payment of balance of subscription stored, shall be open to inspection by any director, trustee,
stockholder or member of the corporation in person or by a
Time when the balance of the subscription should be paid: representative at reasonable hours on business days, and a
1. On the date specified in the subscription contract, demand in writing may be made by such director, trustee
without need of demand or call; or stockholder at their expense, for copies of such records
2. If no date of payment has been specified, on the or excerpts from said records.
date specified in the call made by the BOD (Sec. 66,
RCC); Effect of Refusal to Inspect Corporate Records
3. If no date of payment has been specified in the call Any officer or agent of the corporation who shall refuse to
made, within 30 days from the date of call; and allow the inspection and/or reproduction of records in
4. When insolvency supervenes upon a corporation accordance with the provisions of this Code shall be liable
and the court assumes jurisdiction to wind it up, all to such director, trustee, stockholder or member for
unpaid subscriptions become payable on demand, damages, and in addition, shall be guilty of an offense which
and are at once recoverable, without necessity of shall be punishable under Section 161 of this Code.
any prior call.
Dissolution and Liquidation
Sale of Delinquent Shares
Dissolution
If no payment is made within thirty (30) days from the date
specified in the subscription contract or on the date stated It is the extinguishment of the franchise of a corporation
in the call made by the board, all stocks covered by the and the termination of its corporate existence.
subscription shall thereupon become delinquent and shall
be subject to sale, unless the board of directors orders Modes of Dissolution
otherwise.
The following are the modes of dissolution of the
Alienation of Shares corporation:
1. Voluntary
If represented by a certificate, the following must a. By the vote of the BOD/ BOT and the
be strictly complied with: stockholders/ members where no creditors
1. Indorsement by the owner and his agent; are affected;
2. Delivery of the certificate; b. By the judgment of the SEC after hearing of
3. To be valid to third parties and to the corporation, petition for voluntary dissolution, where
the transfer must be recorded in the books of the creditors are affected;
corporation; and c. By amending the AOI to shorten the
4. No shares of stock against which the corporation corporate term. In case of a corporation sole,
holds any unpaid claim shall be transferrable. by submitting to the SEC a verified
declaration of the dissolution for approval
Corporate Books and Records and
d. Merger or consolidation
Records to be Kept at Principal Office 2. Involuntary
Every corporation shall keep and carefully preserve at its a. Non-use of corporate charter as provided
principal office all information relating to the corporation under Section 21 of this Code;
including, but not limited to: b. Continuous inoperation of a corporation as
1. The articles of incorporation and bylaws of the provided under Section 21;
corporation and all their amendments; c. Upon receipt of a lawful court order
2. The current ownership structure and voting rights of the dissolving the corporation;
corporation, including lists of stockholders or members, d. Upon finding by final judgment that the
group structures, intra-group relations, ownership data, corporation procured its incorporation
and beneficial ownership; through fraud;
3. The names and addresses of all the members of the e. Upon finding by final judgment that the
board of directors or trustees and the executive officers; corporation:
4. A record of all business transactions; i. Was created for the purpose of
5. A record of the resolutions of the board of directors or committing, concealing or aiding
trustees and of the stockholders or members; the commission of securities
6. Copies of the latest reportorial requirements submitted violations, smuggling, tax evasion,
to the Commission; and money laundering, or graft and
7. The minutes of all meetings of stockholders or corrupt practices;
members, or of the board of directors or trustees. ii. Committed or aided in the
commission of securities violations,
Stock corporations must also keep a stock and transfer smuggling, tax evasion, money
book, which shall contain a: laundering, or graft and corrupt
1. record of all stocks in the names of the stockholders practices, and its stockholders
alphabetically arranged; knew; and
2. the installments paid and unpaid on all stocks for which iii. Repeatedly and knowingly tolerated
subscription has been made, and the date of payment the commission of graft and corrupt
of any installment; practices or other fraudulent or

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EXCEL PROFESSIONAL SERVICES, INC.

illegal acts by its directors, trustees, 6. Fraternal,

officers, or employees. 7. Literary,
8. Scientific,
Liquidation 9. Social,
10. Civic service, or
It is the process by which all the assets of the corporation 11. Similar purposes, like trade, industry, agriculture
are converted into liquid assets (cash) in order to facilitate and like chambers, or any combination thereof.
the payment of obligations to creditors and the remaining
balance if any is to be distributed to the stockholders. Educational Corporations

Methods of Liquidation Educational corporations shall be governed by special laws

1. By the corporation itself or its board of directors or and by the general provisions of the Revised Corporation
trustees; Code.

Sec 122 authorizes the dissolved corporation’s Trustees of educational institutions organized as nonstock
board of directors to conduct its liquidation within 3 corporations shall not be less than five (5) nor more than
years from its dissolution. Jurisprudence has even fifteen (15).
recognized the board’s authority to act as trustee
for persons in interest beyond the said 3-year Religious Corporations
period.
Religious corporations may be incorporated by one or more
2. By conveyance to a trustee within a three-year persons. Such corporations may be classified into:
period;
1. Corporation sole
At any time during the 3-year period for liquidation, For the purpose of administering and managing, as
said corporation is authorized and empowered to trustee, the affairs, property and temporalities of
convey all of its property to trustees for the benefit any religious denomination, sect or church, a
of its stockholders, members, creditors and other corporation sole may be formed by the chief
persons in interest. archbishop, bishop, priest, minister, rabbi, or other
presiding elder of such religious denomination,
From and after any such conveyance by the sect, or church.
corporation of its property in trust for the benefit
of its stockholders, members, creditors and others 2. Religious societies
in interest, all interest which the corporation had Unless forbidden by competent authority, the
in the property terminates, the legal interest vests Constitution, pertinent rules, regulations, or
in the trustees, and the beneficial interest in the discipline of the religious denomination, sect, or
stockholders, members, creditors or other persons church of which it is a part, any religious society,
in interest. religious order, diocese, synod, or district
organization of any religious denomination, sect, or
3. By a management committee or rehabilitation church, may, upon written consent and/or by an
receiver appointed by SEC. affirmative vote at a meeting called for the purpose
of at least two-thirds (2/3) of its membership,
In the case of a dissolution order where creditors incorporate for the administration of its
are affected, the SEC may appoint a receiver to take temporalities or for the management of its affairs,
charge of the liquidation of the corporation. properties, and estate by filing with the
Commission, articles of incorporation verified by
Corporate Rehabilitation the affidavit of the presiding elder, secretary, or
It refers to the restoration of the debtor to a clerk or other member of such religious society or
condition of successful operation and solvency, if it religious order, or diocese, synod, or district
is shown that its continuance of operation is organization of the religious denomination, sect, or
economically feasible and its creditors can recover church.
by way of the present value of payments projected
in the plan, more if the debtor continues as a going One Person Corporation
concern than if it is immediately liquidated.
A corporation with a single stockholder: Provided, That only
a natural person, trust, or an estate may form a One Person
Other Corporations Corporation.

Non-stock Corporation Excepted Corporations

Banks and quasi-banks, pre-need, trust, insurance, public
It is one where no part of its income is distributable as and publicly-listed companies, and non-chartered
dividends to its members, trustees or officers. Any profit government-owned and –controlled corporations may not
which it may obtain as an incident to its operations shall incorporate as One Person Corporations: Provided, further,
whenever necessary or proper, be used in furtherance of That a natural person who is licensed to exercise a
the purpose or purposes for which it was organized. profession may not organize as a One Person Corporation
for the purpose of exercising such profession except as
Non-stock corporations may be formed or organized for: otherwise provided under special laws.
1. Charitable,
2. Religious, Capital Stock Requirement
3. Educational,
4. Professional,
5. Cultural,

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EXCEL PROFESSIONAL SERVICES, INC.

A One Person Corporation shall not be required to have a

minimum authorized capital stock except as otherwise Conversion from One Person Corporations to Ordinary Stock
provided by special law. Corporation

Articles of Incorporation and By-Laws A One Person Corporation may be converted into an
ordinary stock corporation after due notice to the
One Person Corporation shall file articles of incorporation in Commission of such fact and of the circumstances leading
accordance with the requirements under Section 14 of this to the conversion, and after compliance with all other
Code. It shall likewise substantially contain the following: requirements for stock corporations under this Code and
1. If the single stockholder is a trust or an estate, the applicable rules. Such notice shall be filed with the
name, nationality, and residence of the trustee, Commission within sixty (60) days from the occurrence of
administrator, executor, guardian, conservator, the circumstances leading to the conversion into an ordinary
custodian, or other person exercising fiduciary stock corporation.
duties together with the proof of such authority to
act on behalf of the trust or estate; and Foreign Corporations
2. Name, nationality, residence of the nominee and A foreign corporation is done, formed, organized or existing
alternate nominee, and the extent, coverage and under any laws other than those of the Philippines and
limitation of the authority. whose laws allow Filipino citizens and corporations to do
business in its own country or State.
On the other hand, the One Person Corporation is not
required to submit and file corporate bylaws. Bases of Authority over Foreign Corporation

Corporate Name The following are the two bases of authority

(jurisdiction) over foreign corporations:
A One Person Corporation shall indicate the letters “OPC” 1. A corporation may give actual consent to judicial
either below or at the end of its corporate name. jurisdiction manifested normally by compliance with
the State’s foreign corporation qualification
Corporate Structure and Officers requirements (licensing requirements and other
requisites to lawfully transact business in the
The single stockholder shall be the sole director and Philippines); and
president of the One Person Corporation. 2. A corporation, even though not qualified (not
licensed), by engaging in sufficient activity (doing
Within fifteen (15) days from the issuance of its certificate business) within the State, established judicial
of incorporation, the One Person Corporation shall appoint jurisdiction over the foreign corporation.
a treasurer, corporate secretary, and other officers as it
may deem necessary, and notify the Commission thereof Necessity of a License to do Business
within five (5) days from appointment. The purpose of the law in requiring that a foreign
corporation doing business in the Philippines be licensed to
The single stockholder may not be appointed as corporate do so is to subject such corporation to the jurisdiction of the
secretary. A single stockholder who is likewise the self- courts. The object is not to prevent foreign corporation from
appointed treasurer of the corporation shall give a bond to performing single acts but to prevent it from acquiring a
the Commission in such a sum as may be required. The domicile for the purpose of business without taking steps
bond shall be renewed every two (2) years or as often as necessary to render it amenable to suits in local courts.
may be required.
Personality to Sue
Nominee As a rule, only foreign corporations that have been issued a
The single stockholder shall designate a nominee and an license to operate a business in the Philippines have the
alternate nominee who shall, in the event of the single personality to sue.
stockholder’s death or incapacity, take the place of the
single stockholder as director and shall manage the However, under the rule on estoppel, a party is estopped to
corporation’s affairs. challenge the personality of a foreign corporation to sue,
even if it has no license, after having acknowledged the
Liability same by entering to a contract with it.
A sole shareholder claiming limited liability has the burden
of affirmatively showing that the corporation was Suability of Foreign Corporations
adequately financed. Where the single stockholder cannot A foreign corporation, which was granted a license to
prove that the property of the One Person Corporation is transact business in the Philippines, is suable before local
independent of the stockholder’s personal property, the courts or administrative agencies.
stockholder shall be jointly and severally liable for the debts
and other liabilities of the One Person Corporation. It is suable since any foreign corporation lawfully doing
business in the Philippines shall be bound by all laws, rules
Conversion of Corporation to One Person Corporation and regulations applicable to domestic corporations of the
When a single stockholder acquires all the stocks of an same class, save and except:
ordinary stock corporation, the latter may apply for 1. Such only as provided for the creation, formation,
conversion into a One Person Corporation, subject to the organization or dissolution of the corporations or
submission of such documents as the Commission may 2. Those which fix the relations, liabilities,
require. responsibilities, or duties of stockholders, members
or officers of corporations to each other or to the
The One Person Corporation converted from an ordinary corporation.
stock corporation shall succeed the latter and be legally
responsible for all the latter’s outstanding liabilities as of the Instances when an Unlicensed Foreign Corporation be
date of conversion. Allowed to Sue:

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1. Isolated transaction. 4. Merger – One where a corporation absorbs another

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

Grounds for Revocation of License Plan of Merger or Consolidation

Without prejudice to other grounds provided by special The plan of merger or consolidation is a plan created by the
laws, the license of a foreign corporation to transact representatives of the constituent corporations, providing
business in the Philippines may be revoked or suspended by for the details of such merger to wit:
the SEC upon any of the following grounds:
1. Failure to file its annual report or pay any fees as 1. The names of the corporations proposing to merge
required by the Code; or consolidate, hereinafter referred to as the
2. Failure to appoint and maintain a resident agent in constituent corporations;
the Philippines; 2. The terms of the merger or consolidation and the
3. Failure, after change of its resident agent or of his mode of carrying the same into effect;
address, to submit to the Securities and Exchange 3. A statement of the changes, if any, in the AOI of the
Commission a statement of such change;
surviving corporation in case of a merger; and, with
3. Failure to submit to the SEC an authenticated copy
respect to the consolidated corporation in case of
of any amendment to its articles of incorporation or
by-laws or of any articles of merger or consolidation consolidation, all the statements required to be set
within the time prescribed by the Corporation Code; forth in the AOI for corporations organized under
4. A misrepresentation of any material matter in any the RCC; and
application, report, affidavit or other document 4. Such other provisions with respect to the proposed
submitted by such corporation pursuant to this merger or consolidation as are deemed necessary
Title; or desirable.
5. Failure to pay any and all taxes, imposts,
assessments or penalties, if any, lawfully due to the Articles of Merger and Consolidation
Philippine Government or any of its agencies or
political subdivisions; After the approval by the stockholders or members as
6. Transacting business in the Philippines outside of required by the preceding section, articles of merger or
the purpose or purposes for which such corporation articles of consolidation shall be executed by each of the
is authorized under its license; constituent corporations, to be signed by the president or
7. Transacting business in the Philippines as agent of vice president and certified by the secretary or assistant
or acting for and in behalf of any foreign corporation secretary of each corporation setting forth:
or entity not duly licensed to do business in the 1. The plan of the merger or the plan of consolidation;
Philippines; or 2. As to stock corporations, the number of shares
8. Any other ground as would render it unfit to transact outstanding, or in the case of nonstock
business in the Philippines. corporations, the number of members;
3. As to each corporation, the number of shares or
Merger and Consolidation
members voting for or against such plan,
respectively;
1. Sale of assets – One corporation sells all or
substantially all of its assets to another. Such sale, 4. The carrying amounts and fair values of the assets
usually, though not necessarily made in the course and liabilities of the respective companies as of the
of the dissolution of the vendor corporation. agreed cut-off date;
5. The method to be used in the merger or
2. Lease of assets – A corporation, without being consolidation of accounts of the companies;
dissolved, leases its property to another corporation 6. The provisional or pro-forma values, as merged or
for which the lessor merely receives rental paid by consolidated, using the accounting method; and
the lessee. This is similar to the sale of assets, 7. Such other information as may be prescribed by
except that under a lease, nothing passes, except the Commission.
the right to use the property leased.
Effectivity
3. Sale of stock – The purpose of a holding corporation
is to acquire a sufficient amount of the stock of The merger or consolidation shall become effective upon
another corporation for the purpose of acquiring issuance by the SEC of the certificate of merger and
control. The acquiring corporation is called the consolidation.
parent/ holding company. The corporation whose
stocks were acquired is the subsidiary. Effects and Limitations

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EXCEL PROFESSIONAL SERVICES, INC.

1. The constituent corporations shall become a single d. Dissolution of the corporation and forfeiture of
corporation which: its assets under the conditions in Title XIV of
a. In case of merger, shall be the surviving this Code.
corporation designated in the plan of merger.
b.In case of consolidation, shall be the Who are Liable?
consolidated corporation designated in the
plan of consolidation. 1. Directors, Trustees, Officers, or Other Employees
b. The separate existence of the constituent If the offender is a corporation, the penalty may, at
corporations shall cease, except that of the the discretion of the court, be imposed upon such
corporation and/or upon its directors, trustees,
surviving or the consolidated corporation.
stockholders, members, officers, or employees
c. The surviving or the consolidated corporation shall
responsible for the violation or indispensable to its
possess all the rights, privileges, immunities and
commission. (Sec. 171, RCC)
powers and shall be subject to all the duties and
liabilities of a corporation organized under this 2. Aiders and Abettors and Other Secondary Liability
Code. Anyone who shall aid, abet, counsel, command,
d. The surviving or the consolidated corporation shall induce, or cause any violation of this Code, or any
thereupon and thereafter possess: rule, regulation, or order of the Commission shall be
a. All the rights, privileges, immunities and punished with a fine not exceeding that imposed on
franchises of each of the constituent the principal offenders, at the discretion of the
corporations; court, after taking into account their participation in
b. All property, real or personal, and all the offense.
receivables due on whatever account,
including subscriptions to shares and other Securities
choses in action, and all and every other
Securities are shares, participation or interests in a
interest of, or belonging to, or due to each
corporation or in a commercial enterprise or profit-making
constituent corporation. venture and evidenced by a certificate, contract,
e. These shall be deemed transferred to and vested in instrument, whether written or electronic in character.
such surviving or consolidated corporation without
further act or deed. Kinds of Securities

Investigations, Offenses and Penalties 1. Debt instruments – bonds, debentures, notes,

evidence of indebtedness, asset-backed securities.
Authority of Commissioner 2. Other instruments as may in the future be
determined by the SEC.
The Commission may investigate an alleged violation of this
3. Derivatives– options and warrants
Code, or of rule, regulation, or order of the Commission.
4. Investments instruments – Investment contracts,
fractional undivided interests in oil, gas, or other
Contempt
Any person who, without justifiable cause, fails or refuses mineral rights.
to comply with any lawful order, decision, or subpoena
issued by the Commission shall, after due notice and Howey Test
hearing, be held in contempt and fined in an amount not For an investment contract to exist, the following elements
exceeding Thirty thousand pesos (P30,000.00). must concur:
a. A contract, transaction or scheme;
When the refusal amounts to clear and open defiance of the b. An investment of money;
Commission’s order, decision, or subpoena, the Commission c. Investment is made in a common
may impose a daily fine of One thousand pesos (P1,000.00) enterprise;
until the order, decision, or subpoena is complied with. d. Expectation of profits; and
e. Profits arising primarily from the effort of
Sanctions for violations others.

Administrative Sanctions 5. Equity instruments – Shares of stock, certificates of

If, after due notice and hearing, the Commission finds that interest or participation in a profit sharing
any provision of this Code, rules or regulations, or any of agreement, certificates of deposit for a future
the Commission’s orders has been violated, the Commission subscription, proprietary or non-proprietary
may impose any of the following sanctions, taking into membership certificates in corporations.
consideration the extent of participation, nature, effects, 6. Trust instruments – Certificates of assignments,
frequency and seriousness of the violation: certificates of participation, trust certificates, voting
trust certificates or similar instruments.
a. Imposition of a fine ranging from P5,000.00 to
2,000,000.00, and not more than One Insider Trading
thousand pesos P1,000.00 for each day of
continuing violation but in no case to exceed A purchase or sale made by an insider, or such insider’s
2,000,000.00; spouse or his relative by affinity or consanguinity within the
b. Issuance of a permanent cease and desist second degree, legitimate or common-law, shall be
order; presumed to be effected while in possession of material
c. Suspension or revocation of the certificate of non-public information if transacted after such information
incorporation; and came into existence but prior to the public dissemination of

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such information, and lapse of reasonable time for the Tender offer means a publicly announced intention by a
market to absorb such information. person acting alone or in concert with other persons to
acquire equity securities of a public company. It is also an
Protection of Investors offer by the acquiring person to stockholders of a public
Tender Offer Rule company for them to tender their shares therein on the
terms specified in the offer.

CORPORATION MC QUESTIONS

1. A private corporation commences to have corporate b. may not be issued even if the subscription is not
existence and juridical personality from the date: fully paid
a. the officers of the corporation are elected by the c. written evidence of ownership of the shares
stockholders d. intangible
b. the incorporators sign the Articles of incorporation
c. the Articles of incorporation and the by-laws are 8. The appraisal right can be exercised by a stockholder
presented to the SEC under the conditions provided by law, which one of the
d. the SEC issues a certificate of incorporation under following is the ground in case of close corporation?
its official seal a. merger or consolidation
e. all of the above b. sale, lease, exchange, transfer, mortgage, pledge
or other disposition of all or substantially all of the
2. One of the following is not required and does not form corporate property
part of the three-fold duties of a director of a c. amendment of articles of incorporation
corporation. Which one is it? d. investment of corporate funds in another purpose
a. Duty of diligence e. for any reason
b. Duty of loyalty
c. Duty of obedience 9. The by-laws of the non-stock corporation may provide
d. Duty of efficiency that the meetings of the members of the non-stock
corporation may be held:
3. It is one brought by one or more of the stockholders or a. within the principal place of business only
members in the name and on behalf of the corporation b. within the Philippines only
to redress wrongs committed against it or to protect or c. at any place even outside the place where the
vindicate corporate rights, whenever the officials of the principal office of the corporation is located provided
corporation refuse to sue, or are the ones to be sued or within the Philippines
hold control of the corporation. d. at any place even outside the place where the
a. mandamus principal office of the corporation is located and
b. quo warranto even outside the Philippines
c. appraisal right e. anywhere
d. derivative suit
e. individual suit 10. In case of a delinquent stockholder, the following rights
are not given to him, except:
4. A corporation cannot exist if: a. right to receive dividends in accordance with the
a. there are incorporators who are juridical persons provisions of the law
b. there are no articles of incorporation b. right to vote
c. no incorporating directors or trustees c. right to be voted for
d. there is no name provided for in the articles of d. right of representation at any stockholders’ meeting
incorporation
e. a, b and c only 11. A corporation commences its existence from the
f. b, c and d only issuance of the certificate of incorporation, which one is
the exception?
5. Unless otherwise provided by the Corporation Code or a. close corporation
special law, the number of directors must be: b. widely-held corporation
a. not less than five (5) nor more than fifteen (15) c. religious corporation
b. not more than fifteen (15) d. non-stock corporation
c. not less than fifteen (15) not more than twenty-five e. educational corporation
(25)
d. more than five (5) nor more than fifteen (15) 12. Stocks which are previously issued and fully paid for and
e. more than five (5) but not less than fifteen (15) reacquired by the corporation either by purchase,
donation, forfeiture or some other lawful means.
6. Which of the following does not belong in the a. scrip shares
enumeration? b. treasury shares
a. serious misrepresentation as to what the c. scrip shares
corporation can do or is doing d. redeemable shares
b. the articles of incorporation is not substantially in e. delinquent shares
the form prescribed by law
c. the purpose is patently unconstitutional, illegal or 13. A religious corporation acquires juridical personality
immoral from –
d. the treasurer’s certification is false. a. execution of the articles of incorporation and by-
laws
7. Which of the following is not a characteristic of b. filing of the articles of incorporation and other
certificate of stock? documents
a. tangible c. issuance of the certificate of incorporation from SEC

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d. approval of the Securities and Exchange 21. I - Stock corporations are formed by not less than 2 but
Commission not more than 15 incorporators who are natural or
e. None of the above juridical persons
II - Corporation sole is composed of only one natural
14. Which of the following is not an Involuntary dissolution person
of the corporation? II - Corporation may exist perpetually or for a fixed
a. by the vote of the board of directors and period from the date of incorporation unless sooner
stockholders, where no creditors are affected dissolved or unless said period is extended.
b. non-use of corporate charter IV – Corporation is automatically dissolved if it fails to
c. receipt of a lawful order of the court dissolving the do any business within 2 years from date of
corporation incorporation
d. continuous inoperation of a corporation a. I, II, III and IV are true
b. I and II are true, III and IV are false
15. Voting requirement for the amendment of the by-laws. c. I, II and III are true, IV is false
a. 2/3 of the outstanding capital stock d. I, II, III are true, IV are false
b. majority of the board of directors e. I, III and IV are false, II is true
c. majority of the board consented to by 2/3 of the
outstanding capital stock 22. Sebastian, one of the stockholders of Longan Corp
d. majority of the board of directors consented to by was convinced by Fernando, one of the directors of said
majority of the outstanding capital stock corporation to sell to him (Fernando) his stockholding
for a certain price. Since the offer was good, Sebastian
16. One of the characteristics of treasury shares is that: consented to the sale. Unknown to Sebastian, at the
a. they have the status of outstanding shares time of the sale, Fernando was the chief negotiator of
b. they may not be reissued or sold again Longan Corp. in selling its substantial property to the
c. they can vote in the election of directors government at a price which greatly enhanced the value
d. they participate neither in dividends not in the of the stock. Under what doctrine is Fernando as
meetings of the corporation as voting stocksa director of the corporation liable?
e. they can be reacquired by the corporation a. Doctrine of Corporate Opportunity
regardless of the existence of unrestricted retained b. Special Fact Doctrine
earnings c. Business Judgment Rule
d. Trust Fund Doctrine
17. It means the total shares of stock issued to subscribers e. Doctrine of Alter Ego
or stockholders, whether or not fully or partially paid (as f. Doctrine of Special Theory
long as there is a binding subscription agreement),
except treasury shares. 23. Hokkaido, Hakone, Ajinamoto, Nissin and Oishi are five
a. authorized capital stock Japanese citizens who organized a corporation in the
b. paid-up capital stock Philippines and registered in the same in the office of
c. shares in escrow the Securities and Exchange Commission
d. voting stock a. It is a foreign corporation
e. outstanding capital stock b. It is a domestic corporation
c. It is a nationalized corporation
18. The following are the advantages of par value shares, d. It is partly nationalized
which is one is not? e. Answer not given
a. easily sold
b. easily issued as fully paid and non-assessable 24. The corporate existence may be disregarded where the
c. greater protection to creditors entity is formed or used for illegal purposes.
d. unlikelihood of distribution of dividends that are a. Doctrine of Limited Capacity
only ostensible profits b. Doctrine of Piercing the Veil of Corporate Fiction
e. unlikelihood of sale of subsequently issued shares c. Doctrine of Corporate Fiction
at a lower price d. Alter Ego Doctrine

19. The following are some of the corporate acts that need 25. A corporation can be formed for the practice of law,
the vote of stockholders holding 2/3 of the authorized medicine or other professions.
capital stock. Which should not be included? a. True, the rights are granted explicitly under the law
a. Adoption, amendment or repeal of by-laws. b. True, since the same right is allowed in partnerships
b. Amendment of articles to increase or decrease c. False, because the principle of delectus personarum
capital stock. applies in corporation.
c. Incurring, creation or increase of bonded d. False, because consent of all the corporators is
indebtedness. necessary.
d. Approval of merger or consolidation. e. None of the following

20. Statement No. I – Dividends shall be deemed non- Choices from Question Nos. 26-31
cumulative in the absence of an agreement. a. All are true f. I is false; II and III are true
Statement No. 2 – Shares without par value may be b. All are false g. I/II are false; III is true
issued for a consideration less than the value of P5.00 c. I is true; II/III are false h. I/III are false; II is true
per share d. I/II are true, III is false i. None of the above
a. No.1 is true; No.2 is false e. I/III are true; II is false
b. No.1 is false; No.2 is true
c. Both are true 26. Statement No. 1 - The remedy against a corporation de
d. Both are false jure is a quo warranto proceeding against the said
e. None of the above corporation to oust it from the exercise of corporate
powers usurped by it and to have it dissolved.

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Statement No. 2 - The issuance of the certificate of 33. Which of the following does not belong to the limitation
incorporation gives the corporation the legal personality of the Executive Committee?
and the authority to do business. a. filling of the vacancies in the board
Statement No. 3 - The vote of the majority of the b. the amendment or repeal of by-laws or the adoption
outstanding capital stock is sufficient for the removal of of new by-laws
the directors. c. determination of the presence of the quorum
d. distribution of cash dividends
27. Statement No. 1 - Proxy voting is allowed in the election e. amendment or repeal of any board resolution
of the board of directors.
Statement No. 2 - Under the law, the secretary of the 34. Which of the following does not require the 2/3 vote of
corporation must be a director of the corporation. the stockholders?
Statement No. 3 - Under the law, the secretary of the a. entering into management contracts
corporation must be a resident and citizen of the b. power to shorten or extend corporate term
Philippines. c. sale or disposition of corporate assets
d. investment of corporate funds in another
28. Statement No. 1 - If the vacancy results by reason of corporation
increase in the number of directors or trustees and the
remaining directors or trustees still constitute a 35. Which of the following does not belong in the
quorum, the remaining directors or trustees can be filled enumeration?
by them. a. elimination of fractional shares
Statement No. 2 - The acts done by a disloyal director b. redemption of redeemable shares
may be ratified by the vote of the stockholders owning c. satisfaction of indebtedness to the corporation
or representing at least 2/3 of the outstanding capital d. payment of shares of dissenting or withdrawing
stock. stockholders
Statement No. 3 - In case of the abandonment of the e. satisfaction of corporation’s indebtedness
contract for the sale or disposition of all or substantially
all of the corporate assets, approval of the stockholders 36. Stikki Cement corporation (STIKKI) was organized
is not necessary. primarily for cement manufacturing. Anticipating
substantial profits, its president proposed that STIKKI
29. Statement No. 1 - After the incorporation of the invest in (a) a power plant project, (b) concrete road
corporation, it is given one year after official notice of project, and (c) quarry operations for limestone used in
the issuance of certification from SEC to make by-laws. the manufacture of cement. What vote is needed if the
Statement No. 2 - A stockholder’s indebtedness to a aforementioned are reasonably necessary to
corporation under a subscription agreement cannot be manufacture of the cement?
compensated or set-off with the amount of his shares in a. majority of the board and 2/3 vote of the
the same corporation there being no relation of creditor outstanding capital stock
and debtor with regard to such shares. b. majority of the board of directors
Statement No. 3 - The stockholders have the power to c. majority of the stockholders and majority of the
declare dividends in case of stock dividends. board of directors
d. majority of the stockholders
30. Statement No. 1 - Two-thirds (2/3) vote on the part of e. 2/3 vote of the outstanding capital stock
the board of directors is required to declare cash
dividends. 37. These do not form part of the outstanding capital stock:
Statement No. 2 - The declaration of cash dividends a. bonus shares
creates a debt from the corporation in favor of its b. treasury shares
stockholders. c. redeemable shares
Statement No. 3 - A corporation can be an incorporator. d. founder’s shares
e. preferred shares
31. Statement No. 1 - If the shares of stock have no par
value, the corporation has no authorized capital stock, 38. The distinction between subscription of shares from
but it has capital stock, the amount of which is not purchase of shares is that in subscription of shares:
specified in the articles of incorporation as it cannot be a. it is an independent agreement between the
determined until all the shares have been issued. individual and the corporation to buy shares of stock
Statement No. 2 - No par values shares may not be from it at a stipulated price.
issued without being fully paid. b. it takes place before or after incorporation and is
Statement No. 3 - Stockholders are liable with their generally paid in installment or upon a call.
separate property for the payment of the debts of the c. in case on insolvency of the corporation, the
corporation. subscription price cannot be enforced on the theory
that the corporation can no longer perform its
32. A writing or certificate issued to a stockholder entitling obligation to deliver the certificate of stock.
him to the payment of money or the like at some future d. answer not given
time inasmuch as the corporation at the time of such
dividends are declared has profits in cash, or has no 39. One of the characteristics of treasury shares is that:
sufficient cash, or has cash but wishes to reserve it from a. they have the status of outstanding shares
some corporate purposes. b. they may not be reissued or sold again
a. optional dividend c. they participate neither in dividends nor in the
b. bond dividend meetings of the corporation as voting stocks
c. stock dividend d. answer not given
d. scrip dividend
e. liquidating dividend 40. Watered stocks are shares of stock issued by the
corporation for a consideration less than its par or
issued value or for a consideration in any form other

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than cash, valued in excess of its fair value. In this it does not formally organize and commence the
regard: transaction of its business
a. the issue itself is void a. 4 years
b. the agreement that it shall be paid for less than its b. 3 years
par value is illegal and void and cannot be enforced. c. 2 years
c. the subscriber or purchaser shall not be liable for d. 5 years
the full par value of the shares
d. answer not given 49. A representative action where a stockholder brings an
action in the name and in behalf of the corporation and
41. An officer of a corporation may hold two or more any relief obtained belongs to the corporation and not
positions in the corporation but not as: to the stockholders individually or collectively.
a. Chairman of the Board and President a. Individual suit
b. President and Treasurer b. Derivative suit
c. Secretary and Treasurer c. Representative suit
d. Vice-President and Secretary d. Corporate suit

42. The right of the corporation to exist as a juridical person 50. Cash dividend as distinguished from stock dividend
during its term as stated in its Articles of Incorporation a. needs stockholders approval
despite the death of any of its stockholders is: b. declared by the board of directors
a. right of existence c. not a taxable income
b. right of redemption d. results to withdrawal of assets from the corporation
c. right of succession
d. pre-emptive right 51. A non-voting stock may vote in the following acts,
except in the case of:
43. The nationality of a corporation is determined by the a. approval of the compensation of directors
place of the controlling stockholders, This test is: b. merger or consolidation
a. Control test c. increase or decrease of capital stock
b. Domicile test d. sale, lease, exchange of all or substantially all of
c. Incorporation test corporate property
d. Management test
52. Under this theory, the nationality of the corporation is
44. Contracts between a corporation and third persons must that of the country under whose laws it was formed
be made by or under the authority of its: a. Control test
a. Board of Directors b. Incorporation test
b. Stockholders c. Corporation by estoppel
c. President and chief Operating Officer d. corporation by prescription
d. General Manager
53. This is a characteristic of a stock corporation as
45. Purely ultra vires acts of the officers of corporation to distinguished from a non-stock corporation
invest corporate funds in another business or a. the powers are vested in the Board
corporation, i.e acts not contrary to law, morals, public b. the members can vote by mail
policy may be ratified by: c. it is formed by at least 5 but not more than 15
a. the stockholders holding two-thirds (2/3) of the persons
voting power d. it is organized for profit
b. majority vote of all the members of the Board
c. The stockholders holding one-half (1/2) of the 54. Amount equal to the aggregate par value or issued
voting power value of the outstanding capital stock
d. majority vote of the Board of Directors present a. Legal Capital
b. Unissued capital stock
46. The following are the requisites, except one for a valid c. Outstanding capital stock
declaration of stock dividend: d. authorized capital stock
a. existence of original and unissued shares
b. dividend declarations is made by the Board of 55. Shares without par value may not be issued for a
Directors and approved by 2/3 of the outstanding consideration
capital stocks a. less than P1 per share
c. it is issued to increase the authorized capital b. less than P5 per share
d. existence of the unrestricted retained earnings c. Outstanding capital stock
d. less than P100 per share
47. Which of the following is a disadvantage of forming a
corporation: 56. If the remaining directors constitute a quorum, they can
a. the shareholders are not liable for the debts of the fill up the vacancy
business a. in case of removal of the director
b. the subservience of minority stockholders to the b. in case of expiration of the term of director
wishes of the majority subject only to equitable c. if there is an increase in the number of directors
restraints
c. Because of the power of succession, the existence d. in case of resignation of a director
of the entity is not affected by the personal
vicissitudes of the individual shareholders. 57. Stock dividends differ from cash dividend in that stock
d. the free and ready transferability of ownership dividends
a. do not increase capital stock
48. The corporation shall be deemed dissolved and its b. involves the disbursements of corporate funds
corporate powers cease, if from the of its incorporation,

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c. require the approval of both the board of directors 65. The executive committee cannot act on this matter
and the stockholders except:
d. once received by the stockholders, are beyond the a. Filling of vacancy in the board of directors
reach of corporate directors b. Cash dividend declaration
c. Board resolution on depository bank of the
58. Rules of action adopted by the corporation for its corporation
internal government and for the government of its d. Stock dividend declaration
officers and of its stockholders or members
a. contract 66. At the annual meeting of ABC Corporation for the
b. Articles of Incorporation election of five directors, A, B, C, D, E, F and G were
c. Ultra vires act nominated. A, B, C, D and E received the highest
d. By-Laws number of votes and proclaimed elected. F received ten
votes less than E. Subsequently, E sold his shares to F.
59. A stockholders’ option to subscribe to allotment of Who between E and F has the right to attend as director
shares in proportion to his holding of outstanding in the board meeting? The transfer of shares having
shares. been registered with the corporation.
a. Voting right c. Pre-emptive right a. E is the director because his term is one year until
b. Ultra vires act d. Appraisal right his successor is elected and qualified
b. F is the director for he has acquired all the shares
60. For purposes of interlocking directors, the stockholdings of E.
shall be considered substantial if: c. Either of them shall be the director
a. exceeding 10% of the authorized capital stock d. Neither of them shall be the director
b. exceeding 10% of the outstanding capital stock
c. exceeding 20% of the authorized capital stock 67. S1 The merger or consolidations of corporations become
d. exceeding 20% of the outstanding capital stock effective upon approval by the constituent corporations
of the plan of merger or consolidation as the case may
61. Shares deposited by the seller or his agent with a bank be.
or third party to be delivered to the buyer or subscriber S2 After the merger the absorbed corporation must
only upon the fulfillment of the stipulated suspensive undertake dissolution and winding-up procedures.
condition. a. Both statements are false
a. Promotion shares c. Founder’s shares b. Both are true.
b. Redeemable shares d. Escrow stock c. First is false, second is true.
d. First is true, second is false.
62. X Corporation posted a P1M profit in its realty business
and its real estate has appreciated in value to the tune 68. The corporation has nine-member board. Two of the
of P4M. The board then declared dividends to its members have sold their shares while two others are
stockholders computed on the basis of representing abroad. To have a quorum, the number required is:
profits and appreciation in value of its real estate. Is the a. Seven
dividend declaration valid? b. Five
a. Not valid because there was no approval of 2/3 of c. Three
the outstanding capital stock. d. Four
b. Valid because it was based on profit and increment
in the value of the corporate assets. 69. A director of a corporation may be removed from the
c. Not valid because the dividends must only come office by a vote of the stockholders holding
from unrestricted retained earnings representing:
d. Valid if no creditors shall be prejudiced and a. Majority of the outstanding capital stock
approved by the required votes of the directors and b. 2/3 of the stockholder
stockholders. c. 2/3 of the OCS
d. Majority of the stockholders
63. S1 - After dissolution but within the three-year period
of liquidation a corporation’s term may still be extended 70. The effectivity of the Founders’ Shares.
by amendment of its articles of incorporation. a. 3 years
S2 - The dissolution of a corporation shall take place b. 4 years
because it has been in continuous non-operation for 2 c. 5 years
years. d. 10 years
a. Both statements are false
b. Both are true. 71. Vote in Corporations vested with public interest in case
c. First is false, second is true. of Self-dealing director.
d. First is true, second is false a. majority of the BOD and 2/3 of OCS
b. majority of the BOD and majority of OCS
64. The doctrine of corporate opportunity rests on the c. majority of the BOD and 2/3 of Independent
unfairness of an officer or director of a corporation directors
taking advantage of an opportunity for his own personal d. 2/3 of the BOD and majority of the independent
benefit adverse to the corporation. directors
The by-laws must be filed with the SEC for the e. Answer not given
corporation to acquire juridical personality.
a. Both statements are true 72. Period to notify in case of election of Regular Meeting of
b. Both are false. Stockholders.
c. First is true, second is false a. At least 20 days
d. First is false, second is true. b. At least 21 days
c. 1 week
d. 2 weeks

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EXCEL PROFESSIONAL SERVICES, INC.

e. 10 days d. Yes, since such name would give his business a

corporate identity.
73. Percentage requirement to consider stockholdings
substantial 80. The rule is that no stock dividend shall be issued without
a. exceeds 10% the approval of stockholders representing at least 2/3
b. exceeds 100% of the outstanding capital stock at a regular or special
c. exceeds 20% meeting called for the purpose. As to other forms of
d. exceeds 25% dividends:
e. exceeds 30% a. A mere majority of the entire Board of Directors
applies.
74. Period for Pre-Incorporation Subscription Contract b. A mere majority of the quorum of the Board of
a. at least 1 month Directors applies.
b. at least 3 months c. A mere majority of the votes of stockholders
c. at least 6 months representing the outstanding capital stock applies.
d. at least 1 year d. The same rule of 2/3 votes applies.

75. Period for notation of Certificate of Stock in case of 81. What vote is needed to consider every decision to be
exercise of Appraisal Right valid corporate act?
a. 20 days a. A majority of the directors present at the meeting
b. 3 days b. 2/3 of the directors present at the meeting
c. 15 days c. A majority of the directors present at the meeting
d. 10 days at which there is a quorum
e. 30 days d. 2/3 of the directors present at the meeting at which
there is a quorum
76. Annual Financial Statements need not need an
independent CPA if the total assets or liabilities is – 82. Facundo, the President of AAA Corporation, was
a. below 50,0000 authorized by the Board of Directors of AAA Corporation
b. below 100,000 to obtain a loan from BPO Bank and to sign documents
c. below 500,000 in behalf of the corporation. Facundo personally
d. below 600,000 negotiated for the loan and got the loan at very low
e. below 1 Million interest rates. Upon maturity of the loan, AAA
Corporation was unable to pay. Which statement is
77. The following are penalties imposable by SEC, except: most accurate?
a. Escheat a. Because Facundo was personally acting in behalf of
b. Contempt the Corporation, he can be held personally liable
c. Dissolution b. Facundo, as President, cannot be personally held
d. permanent cease and desist liable for the obligation of the corporation even
e. Suspension of COI though he signed all the loan documents, because
the loan was authorized by the Board
78. Shanky’s Corp. operates a call center that received c. BPO Bank can choose as to who it wants to hold
orders for pizzas on behalf of Domina Corp. which liable for the loan;
operates a chain of pizza restaurants. The two d. If AAA Corporation cannot pay, Facundo can be held
companies have the same set of corporate officers. subsidiarily liable.
After 2 years, Shanky’s Corp. dismissed its call center
agents for no apparent reason. The agents filed a 83. It is settled that neither par value nor book value is an
collective suit for illegal dismissal against both Shanky’s accurate indicator of the fair value of a share of stock of
Corp. and Domina Corp. based on the doctrine of a corporation. As to unpaid subscriptions to its shares
piercing the veil of corporate fiction. The latter set up a of stock, as they are regarded as corporate assets, they
defense that the agents are in the employ of Shanky’s should be included in the
Corp. which is a separate juridical entity. Is the defense a. Capital value.
appropriate? b. Par value.
a. No, since the doctrine would apply, the two c. Book value
companies having the same set of corporate d. Market value.
officers.
b. No, the real employer is Domina Corp., the pizza 84. South China Airlines is a foreign airline company. South
company, with Shanky’s Corp. serving as an arm for China Airlines tickets are sold in the Philippines though
receiving its outside orders for pizzas. PAL as their general agent. South China Airlines is not
c. Yes, it is not shown that one company completely registered to do business as such with the Philippine
dominates the finances, policies, and business SEC. which statement is most accurate?
practices of the latter. a. Although unlicensed to do business in the
d. Yes, since the two companies perform two distinct Philippines, South China Airlines can sue before the
businesses. Philippine Courts and can also be sued.
b. South China Airlines can sue but cannot be sued.
79. Sunny, the proprietor of a fleet of 10 taxicabs, decides c. South China Airlines cannot sue and cannot be sued
to adopt, as his business name, “Sunny Transport Co., also.
Inc.” May this be allowed? d. South China Airlines can be sued in the Philippine
a. No, it would be deceptive since he is a proprietor, Courts but it cannot sue.
not a corporation.
b. No, since “Sunny” is a generic name, not suitable 85. The term of JGY Corporation in accordance with its
for registration. Articles of Incorporation ended last January 30, 2022.
c. Yes, since his line of business is public The term was not extended. What will happen to the
transportation. corporation?

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EXCEL PROFESSIONAL SERVICES, INC.

a. The corporation is dissolved ipso facto. 91. A contract of the corporation with one or more of its
b. There is a need to pass a board resolution to directors or trustees or officers.
formally dissolve the corporation. a. Doctrine of self-dealing board of directors
c. The Board of Directors must pass a resolution for b. Doctrine of corporate opportunity
the corporation to formally go into liquidation. c. Doctrine of double compensation
d. The stockholders must pass a resolution to dissolve d. Doctrine of trust fund
the corporation.
92. It is a person who apart from shareholdings and fees
86. Gemma subscribed 10,000 shared in the capital stocks received from any business or other relationship which
of NCA Corporation. She paid 50% of the 10,000 shares. could, or could reasonable be received to materially
Gemma asked the Corporate Secretary to issue her the interfere with the exercise of independent judgment in
corresponding stock certificate representing the 50% of carrying out the responsibilities as a director.
what she already paid. The Corporate Secretary of the a. Regular board of director c. Authorized director
corporation refused. Was the Corporate Secretary b. Independent director d. Outstanding director
correct?
a. The Corporate Secretary cannot refuse because a 93. Immediately after their election, the directors of a
Stock Certificate can be issued corresponding to the corporation must formally organize an elect:
percentage of shares which were paid. a. a president, who must be a director.
b. The Corporation Secretary cannot refuse because a b. a treasurer, who must be a resident.
certificate of Stock can be issued provided it is c. a secretary, who must be a citizen and resident of
indicated in the Certificate the actual percentage of the Philippines.
what has been paid. d. All of the above.
c. The Corporate Secretary cannot refuse because it is
his legal duty to issue a stock certificate 94. Where the wrong is done to a group of stockholders as
corresponding to the number of shares actually where preferred stockholders’ rights are violated, this
subscribed regardless of the actual payment. suit will be proper for the protection of all stockholders
d. The Corporate Secretary is correct because the belonging to the same group.
Corporation Code provides that no certificate of a. Class suit c. Individual suit
stock shall be issued to a subscriber until the shares b. Derivative suit d. Representative suit
as subscribed have been fully paid.
95. The following are the attributes of a corporation,
87. The BIR assessed ABS Corp. for deficiency income tax except:
for taxable year 2020 in the amount of P16,731,208.00, a. It has the right of succession.
inclusive of surcharge and penalties. The BIR can b. It is an artificial being.
_______. c. It is created by operation of a contract.
a. Run after the directors and officers of the ABS Corp. d. It has powers, attributes and properties expressly
to collect the deficiency tax and their liability will be authorized by law or incident to its existence.
solidary.
b. Run after the stockholders of ABS Corp. and their 96. 1st Statement: De jure corporations are not subject to
liability will be joint. attack, not even by the government.
c. Run after the stockholders of ABS Corp. and their 2nd Statement: De facto corporations are subject to
liability will be solidary. direct attack by the government, although not subject
d. Run after the unpaid subscriptions still due to ABS to collateral attack by private individuals.
Corp., if any. a. 1st statement is true; 2nd statement is false
b. Both statements are true
88. In case of amendments of the AOI, the date of the c. 1st statement is false; 2nd statement is true
approval of the SEC is the reckoning point of the d. Both statements are false
approval. However, if after _______, then the date of
filing shall be the approval. 97. As regards treasury stocks, which is not correct?
a. 30 days c. 6 months a. They are considered part of earned surplus profits
b. 3 months d. 12 months and therefore distributable as dividends.
b. They have no voting rights as long as they remain
89. S1 – Under the Revised Corporation Code, the resident in the treasury.
agent of a foreign corporation must be a resident and c. They may be distributed as property dividend if
citizen of the Philippines. there are retained earnings from operations.
S2 – The period to elect the officers for an ordinary d. They are not entitled to dividends.
corporation is 30 days from the issuance of the COI.
a. All are correct 98. The following are the legal effects of merger or
b. All are incorrect consolidation, except one:
c. Only S1 is incorrect a. All properties, interest, claims and the like
d. Only S2 is incorrect pertaining to the constituent corporations shall now
pertain to the surviving corporation.
90. S1 – Period to extend the life of corporation if fixed is 5 b. Consolidated corporation shall enjoy the same
years before its expiration. rights, powers, privileges and immunities and shall
S2 – Period to extend the life of a cooperative is 3 years be subject to the same duties and obligations of
before its expiration. corporations provided in the corporation law.
a. All are correct c. The liabilities and obligations or claim against the
b. All are incorrect constituent corporations may not be assumed by
c. Only S1 is incorrect the consolidated corporations because of the theory
d. Only S2 is incorrect of separate legal entity.

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EXCEL PROFESSIONAL SERVICES, INC.

d. All actions pending, by or against the constituent

corporations shall now be litigated by the 108. Statement 1: A director whose shares are declared
consolidated corporation. delinquent automatically cease to be a director.
Statement 2: All educational corporations must have a
99. If A owns 100 voting shares and there are five (5) governing board of only either 5,10 or 15 members.
directors to be elected, A is entitled to 500 votes. If A a. True, False c. False, True
voted (giving his 500 votes) to Z alone, this kind of b. True, True d. False, False
voting is called:
a. Cumulative voting by distribution 109. Period to report the creation of the Emergency
b. Cumulative voting for one candidate board.
c. Direct voting a. 2 days
d. Straight voting b. 3 days
c. 5 days
100. The Revised Corporation Code (R.A. No 11232) d. 10 days
provides that a corporation shall have _________ (as e. 20 days
corporate term), unless its articles of incorporation
provides otherwise. 110. Period to give notice to the Board of Directors.
a. Twenty-five (25) years c. Fifty (50) years a. 2 days
b. Thirty (30) years d. Perpetual b. 3 days
Existence c. 5 days
d. 10 days
101. Which of the following statements is correct? e. 20 days
a. Proxy lasts longer than voting trust.
b. Proxy can vote even if the owner of the stock is 111. Period foe SEC to conduct investigation in case of
present. denial of the right of inspection.
c. A proxy has legal title to the shares of the a. 2 days
stockholder. b. 3 days
d. Proxy is revocable at any time. c. 5 days
e. Proxy has right of inspection. d. 10 days
e. 20 days
102. The following are the other modes of dissolving a
corporation, except: 112. Period to submit the certificate of stock for notation
a. Expiration of term in case of exercise of the appraisal right.
b. Failure to organize and commence business a. 2 days
c. Legislative dissolution b. 3 days
d. Withdrawal of stockholders c. 5 days
d. 10 days
103. The right given to the stockholders to dissent and e. 20 days
demand payment of the fair value of their shares is
called: 113. Period to close the stock and transfer book in case
a. Appraisal right c. Right of Proxy of regular meeting of stockholders.
b. Pre-emptive right d. Right of Stock Ownership a. 2 days
b. 3 days
104. The corporation's separate juridical personality may c. 5 days
be disregarded when the corporate identity is used to d. 10 days
defeat public convenience, justify wrong, protect fraud, e. 20 days
or defend crime.
a. Doctrine of Limited capacity 114. Period to submit list of members and proxy for non-
b. Doctrine of Limited Liability stock corporations.
c. Doctrine of Corporate Entity a. 2 days
d. Doctrine of Piercing the Veil of Corporate Entity b. 3 days
c. 5 days
105. This share can be acquired by the corporation which d. 10 days
issued it even without unrestricted retained earnings: e. 20 days
a. founder's shares c. redeemable shares PATIENCE
b. par value shares d. no par shares
Forget all the reasons it won’t work and believe the one
106. A delinquent stockholder can, nonetheless, exercise reason that it will.”
this right. - Carpe Diem –
a. Right to vote God is with you. Have faith!
b. Right to be voted for
c. Right of representation of any stockholders’ End of RFBT.3605
meeting
d. Right to receive dividends in accordance with the
provisions of the law

107. A stockholder whose shares are declared delinquent

will have:
a. No voting and dividend right
b. No voting rights at any meeting
c. Voting and dividend right
d. Voting rights but no dividend right

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