TITLE XI – NONSTOCK CORPORATIONS

Definition & Purpose

• Formed for charitable, religious, educational, professional, cultural, fraternal,
literary, scientific, social, or civic service purposes.
• May include chambers of trade, industry, agriculture, etc.
• Not organized for profit, but incidental profits must further corporate purposes.

Key Characteristics
1. No capital stock divided into shares.
2. Income not distributable as dividends.
3. Membership is non-transferable, unless stated otherwise.
4. Voting rights:
o May be limited, broadened, or denied in the articles/bylaws.
o Default: 1 vote per member.
o Proxy, remote communication, and absentee voting allowed.
5. Governing board need not be called “Board of Trustees”.
6. Meetings may be held anywhere in the Philippines.
7. No asset/income distribution during its lifetime.
8. Cannot convert into a stock corporation via mere amendment.
9. Membership termination:
o Governed by articles/bylaws.
o Leads to loss of all rights in the corporation.
o Requires notice and hearing.

Religious Corporations
• Ecclesiastical discipline left to the religious group.
Board of Trustees
• Up to 15 members (set in the articles/bylaws).
• Serve up to 3 years, until successors elected/qualified.
• Vacancy fills unexpired term.
• Only members may be elected as trustees (except independent trustees in public interest
nonstock corporations).
• Officers may be directly elected by members.

MEMBERSHIP RECORDS:
1. Corporation must maintain a list of members and proxies.
2. List updated 20 days before any election.

MEMBER MEETINGS:
1. Regular/special meetings may be held anywhere in the Philippines.
 2. Proper notice must indicate date, time, and place.

RULES ON DISTRIBUTION (UPON DISSOLUTION):

1. All liabilities/obligations must be settled or adequate provisions shall be made.
2. Conditional assets must be returned/transferred per conditions.
3. Restricted-purpose assets (charitable, etc.) go to similar organizations in the
Philippines.
4. Other assets distributed as per articles/bylaws.
5. Assets other than those mentioned, may go to specified persons or organization,
whether profit or nonprofit in accordance with AOI/ bylaws.

CORPORATE LIQUIDATION:
1. Corporate existence continues for 3 years post dissolution:
- To prosecute/defend suits.
- Settle affairs.
- Dispose of property
- Distribute Assets
2. May convey all property to trustees for benefit of members
3. Once conveyed, corporation’s i nterest in property ceases. Unknown/unlocatable
member assets are escheated to the government.
4. No asset distribution except upon lawful dissolution and after debts are settled.

PLANS OF DISTRIBUTION (UPON DISSOLUTION)

1. Board of trustees adopts a resolution recommending a plan (majority vote).
2. Written notice to all voting members with plan details and meeting info.
3. Approval by 2/3 of voting members present or represented by proxy.
TITLE XII – CLOSE CORPORATIONS
A close corporation is one whose articles of incorporation must state that:
1. All its issued stocks (excluding treasury shares) are held by no more than 20 persons;
2. All shares are subject to transfer restrictions as allowed by law; and
3. Its shares are not listed on any stock exchange or offered to the public.
Note: Must meet all 3 to be considered a close corp. However, it cannot be considered a close
corporation if at least 2/3 of its voting stock is owned or controlled by another non-close
corporation.
Any corporation may be incorporated as a close except:
• mining/oil company
• bank
• insurance company
• public utility
• educational institution
• stock exchange
• a corporation vested with public interest.
Summary of Sec. 95 – Applicability and Characteristics of a Close Corporation:
• The rules in Title XII primarily govern close corporations, while other provisions of the
Code apply only if not inconsistent.
• A corporation is not automatically a close corporation just because it has 20 or fewer
stockholders; all requisites must be met.
Characteristics of a Close Corporation:
1. Stockholders may manage the business directly (instead of a board), and are treated as
directors with corresponding liabilities.
2. Personal liability applies for corporate torts unless the corporation has adequate liability
insurance.
3. Quorum requirements may be higher than a simple majority.
4. Share transfer restrictions are enforceable.
5. Board actions without formal meetings can still be valid.
6. Pre-emptive rights apply to all stock issuances.
7. Deadlocks in management can be resolved by the SEC upon a stockholder's written
petition.
8. Stockholders have the right to withdraw and exercise appraisal rights.

SEC. 96 - Articles of Incorporation of a Close Corporation:

• The articles of incorporation may provide for:
1. Classification of Shares or Rights: The shares can be classified with specific
qualifications for ownership or holding, as well as restrictions on their transfer,
subject to the next section.
 2. Classification of Directors: The articles can allow for one or more classes of
directors, each of whom may be elected solely by a particular class of
stockholders.
3. Greater Quorum or Voting Requirements: The articles may specify a greater
quorum or voting requirement for stockholder or director meetings than the
Corporation Code outlines.
• Stockholder Management of Business:
o The articles of incorporation may provide that the business of the corporation will
be managed by stockholders rather than a board of directors. Under this provision:
1. No Need for Director Elections: No meeting of stockholders is needed to
elect directors.
2. Stockholders as Directors: Stockholders are deemed to be directors for
the purposes of applying the provisions of the Corporation Code.
3. Liabilities of Stockholders: Stockholders will be subject to all liabilities
of directors.
• Appointment of Officers:
o The articles may allow stockholders to elect or appoint officers or employees,
instead of the board of directors doing so.
• Normal Board of Directors for Other Corporations:
o While typically the management of a corporation is entrusted to a board of
directors, a close corporation can deviate from this rule by having stockholders
manage the business directly.

SEC. 97 - Validity of Restrictions on Transfer of Shares:

• Requirement for Valid Restrictions:
o Restrictions on the transfer of shares must be included in the articles of
incorporation, by-laws, and stock certificates. If they are not included in these
documents, the restrictions will not be binding on a purchaser in good faith.
• Conditions of Transfer Restrictions:
o Restrictions must not be more onerous than giving the existing stockholders or the
corporation the option to purchase the shares from the transferring stockholder
under reasonable terms and conditions within a reasonable time period.
o If the existing stockholders or the corporation do not exercise the option within
the specified period, the transferring stockholder may sell their shares to any third
party.

SEC. 98 - Effects of Issuance or Transfer of Stock in Breach of Qualifying Conditions:

• Issuing or Transferring to Ineligible Stockholders:
 1. If stocks are issued or transferred to someone who is not eligible to be a
stockholder, and the stock certificate clearly indicates who is eligible, the
transferee is presumed to know they are ineligible.
2. If the number of stockholders exceeds the limit (e.g., more than 20 stockholders),
the transferee is presumed to know the violation.
3. If a stock certificate has a transfer restriction and the stock is transferred in
violation of that restriction, the transferee is presumed to know about the
violation.
• Consequences of Violation:
o The corporation may refuse to register the transfer of shares in violation of the
restrictions.
o If all stockholders agree to the transfer or if the articles of incorporation are
amended, the previous provision does not apply.
o The term “transfer” is not limited to transfers for value; it applies to all transfers,
including gifts.
• Rights of Transferee:
o Even if the transfer violates the restrictions, the transferee has the right to rescind
the transfer or seek compensation for the transfer.

SEC. 99 - Agreements by Stockholders:

• Agreements Made Before Formation:
o If stockholders agree to terms before the corporation’s formation, the agreement is
valid, as long as it does not violate the articles of incorporation.
• Written Voting Agreements:
o Two or more stockholders may sign a written agreement regarding how their
shares will be voted. The shares will be voted according to the agreement.
• Agreements Similar to Partnership Agreements:
o Stockholders can make agreements that resemble partnership agreements, and
these are still valid. However, such agreements may subject stockholders to
liabilities if there is misconduct.
• Business Affairs Agreements:
o Stockholders may enter into written agreements regarding the business affairs of
the corporation, even if these agreements limit the powers of the board of
directors. However, the stockholders are liable for any misconduct that may arise
from such decisions.
• Fiduciary Duties and Liability:
o Stockholders who are actively engaged in managing the business owe fiduciary
duties to each other. They are liable for any wrongdoing, unless the corporation
has adequate liability insurance to cover such acts.
SEC. 100 - When a Board Meeting is Unnecessary or Improperly Held:
• A board meeting may still be considered valid even if the rules for calling the meeting are
not followed if:
1. Written Consent of All Directors: All directors sign a written consent, either
before or after the action is taken.
2. Stockholder Awareness: All stockholders are aware of the decision and do not
object in writing.
3. Informal Action with Stockholder Consent: If the directors are accustomed to
making informal decisions and stockholders have expressly or implicitly agreed to
this practice.
4. Unopposed Action: If all directors know of the action and no one objects in
writing.
SEC. 101 - Preemptive Right in Close Corporations:
• General Rule:
o Stockholders in a close corporation have a preemptive right to purchase newly
issued shares, including reissuance of treasury shares. This right extends to all
stock issued by the corporation, whether the stock is issued for:
▪ Money
▪ Property
▪ Personal services
▪ Payment of corporate debts
• Exception:
o This preemptive right can be waived if the articles of incorporation specifically
provide otherwise.

SEC. 102 - Amendment of Articles of Incorporation:

• General Rule:
o Amendments to the articles of incorporation that aim to delete or remove any
required provision or to reduce the quorum or voting requirements stated in the
articles must be approved by the affirmative vote of at least two-thirds (2/3) of
the outstanding capital stock, regardless of whether the stock has voting rights.
• Exception:
o The articles of incorporation may specify a greater proportion of shares for
approval in amending, deleting, or removing certain provisions.

SEC. 103 - Deadlocks:

• General Rule:
o If the directors or stockholders are divided on the management of the
corporation’s business and affairs, making it impossible to reach the necessary
 votes for corporate action, leading to a deadlock, any stockholder can file a
written petition with the Securities and Exchange Commission (SEC).
• Remedies:
The SEC has the authority to:
1. Cancel or alter provisions in the articles of incorporation, bylaws, or stockholders'
agreements.
2. Cancel, alter, or enjoin a resolution or act of the corporation, its board of directors,
stockholders, or officers.
3. Direct or prohibit any action by the corporation or its directors, stockholders, or officers.
4. Require the purchase of shares from any stockholder at their fair value, either by the
corporation or other stockholders.
5. Appoint a provisional director to resolve the deadlock.
6. Dissolve the corporation, if necessary.
7. Grant other relief as the circumstances may require.
• Provisional Director:
o A provisional director is an impartial person who is not a stockholder or creditor
of the corporation or its subsidiaries. The provisional director has the following:
▪ Full rights and powers of a duly elected director, including voting rights
and participation in board meetings.
▪ The ability to be removed either by SEC order or by a unanimous vote of
all stockholders.
▪ Compensation is determined by agreement between the provisional
director and the corporation, subject to SEC approval.

SEC. 104 - Withdrawal of Stockholder or Dissolution of Corporation:

• Right to Compel the Corporation to Buy Back Shares:
o A stockholder in a close corporation has the right to compel the corporation to
purchase shares at their fair value (not less than the par or issued value) if:
▪ The corporation has sufficient assets to cover its debts and liabilities
(excluding capital stock).
▪ The reason for the stockholder’s withdrawal does not matter.
• Right to Petition for Dissolution:
o A stockholder can petition the SEC for the dissolution of the corporation under
the following conditions:
▪ Illegal acts by the directors or officers.
▪ Fraud or dishonesty in the corporation's actions.
▪ Oppression or unfair prejudice to any stockholder.
▪ Misapplication or waste of corporate assets.
TITLE XIII – SPECIAL CORPORATIONS

CHAPTER I: EDUCATIONAL CORPORATIONS

Definition
• Private, non-profit, or for-profit corporations operating schools, colleges, universities, etc.
Governing Laws
• Non-stock: RCCP + special laws (Sec. 105)
• Stock: RCCP provisions on stock corps (Sec. 106)
Trustees in Non-Stock Educational Corps (Sec. 106)
• Number: not less than 5, 10, not more than 15 (multiples of 5)

General Rule:
Term of office of 1/5 of the trustees shall expire every year.
• 5 – 1/5 or 1 will expire, the first set of trustees
• 10 - 1/5 or 2 will expire
Someone will then fill the vacancies, who will have 5 years of term
XPN: Unless otherwise provided in the AOI or by-laws.

General Term of Office

1. Trustees filling vacancies that occurred before expiration of term – serve only for the
UNEXPIRED term.
2. Trustees filling vacancies that occurred due to expiration of term – serve for FIVE
years.

Quorum in Educational Corporation

– Majority of trustees.

Powers of BOT
– defined in BY-LAWS
TITLE XIII – SPECIAL CORPORATIONS

CHAPTER II: Religious Corporation

• Definition:
o A religious corporation is formed for:
▪ The service and worship of God or the supernatural.
▪ The perpetuation of religious beliefs and observances.
▪ The management of its properties and affairs.
• Governing Laws:
o Chapter II, Title XIII of the Revised Corporation Code.
o General provisions applicable to nonstock corporations.
• Registration:
o Not mandatory for religious corporations.
o Bylaws are not necessary.
• Classification:
Religious corporations may be classified into:
1. Corporation sole (Section 108).
2. Religious societies (Section 114).

Corporation Sole (Section 108)

• Definition:
o A corporation sole is formed by a religious leader (e.g., chief archbishop,
bishop, priest, minister, rabbi, or other presiding elder) of a religious
denomination, sect, or church.
o The purpose is to administer or manage the affairs, properties, and temporalities
of that religious denomination, sect, or church.
• Articles of Incorporation Requirements:
o Who May Apply: The religious leader (chief archbishop, bishop, priest,
minister, rabbi, or presiding elder).
o The Articles of Incorporation must state:
1. The applicant represents a religious denomination, sect, or church.
2. The rules, regulations, and discipline of the denomination are consistent
with becoming a corporation sole and do not forbid it.
3. The applicant manages the affairs, properties, and estate within a
defined territorial jurisdiction.
4. The procedure for filling office vacancies is according to religious rules.
5. The principal office must be located in the Philippines.
Religious Societies (Section 114)
• Definition:
o A religious society is incorporated by a group of individuals forming a religious
order or a diocese, synod, or district organization of any religious
denomination, sect, or church (unless prohibited by the rules of the denomination
or by competent authority).
o It is formed for the administration of temporalities, management of affairs,
properties, and estate.
• Conditions for Incorporation:
1. Written consent or ⅔ affirmative vote from the membership at a duly called meeting.
2. Incorporation is not prohibited by the Constitution, rules, or discipline of the religious
denomination or by competent authority.
• Articles of Incorporation Filing Requirements:
o The Articles of Incorporation must be verified by the affidavit of the presiding
elder, secretary, clerk, or another member of the organization.
o The Articles must state:
1. The organization is a religious entity.
2. ⅔ of the members agreed to incorporate.
3. The incorporation is not forbidden by the denomination’s rules or
authorities.
4. The purpose is for the administration of its affairs, properties, and
estate.
5. The principal office is located in the Philippines.
6. The names, nationalities, and addresses of 5 to 15 trustees elected to serve
for the first year, or for a period prescribed by law.

Section 110: Submission of Articles of Incorporation (AOI)

• Formal Requisites for AOI:
1. Verification: The Articles of Incorporation (AOI) must be verified by affidavit or
affirmation of the chief archbishop, bishop, priest, minister, rabbi, or presiding
elder, stating the matters outlined in Section 109.
2. Accompanying Documents: The AOI must be accompanied by:
▪ A copy of the commission, certificate of election, or letter of
appointment of the religious leader, duly certified by a notary public.
• Submission of AOI and Acquisition of Juridical Personality:
o Upon filing the AOI with the Securities and Exchange Commission (SEC) and
submitting the required verified documents, the religious leader will become a
corporation sole.
o Properties and temporalities of the religious denomination, sect, or church
previously administered by the religious leader will be held in trust as part of the
 corporation sole. This includes churches, hospitals, schools, orphanages, and
cemeteries.
o A certificate of incorporation is not required for the corporation sole to acquire
juridical personality.

Acquisition and Alienation of Property

• Acquisition of Property:
o A corporation sole can purchase or hold real estate and personal property for
the purposes of the church, benevolent, or educational purposes.
o It can receive bequests or gifts for these purposes.
• Alienation of Property:
o To sell or mortgage real property, the corporation sole must obtain an order
from the Regional Trial Court in the province where the property is located.
However, this court intervention is not necessary if the religious denomination’s
rules govern how property is acquired, held, sold, or mortgaged.
o No court order is needed for the sale or mortgage of movable or personal
property.

Section 112: Vacancy

• Filling a Vacancy:
o When there is a vacancy in the position of the religious leader, the successor
becomes the corporation sole upon filing a notarized copy of their commission,
certificate of election, or letter of appointment with the SEC.
o During the vacancy, those authorized by the denomination's rules to manage the
corporation sole’s affairs will exercise all the powers of the corporation sole.
• Effect of the Death of the Incumbent:
o Church properties acquired by the deceased religious leader do not pass to their
personal heirs. Instead, the properties automatically pass to their successor in
office by operation of law.
o A corporation sole exists to manage, hold, and transmit the church properties to
the next successor.

Section 113: Dissolution

• Dissolution of Corporation Sole:
o A corporation sole may be voluntarily dissolved by submitting a verified
declaration of dissolution to the SEC.
o Upon approval by the SEC, the corporation ceases its operations, except for the
winding up of its affairs.
• Contents of the Verified Declaration of Dissolution:
o The declaration must contain:
1. The corporation’s name.
2. The reason for its dissolution and winding up.
3. The authorization for the dissolution by the particular religious
denomination, sect, or church it represents.
4. The names and addresses of the individuals responsible for overseeing
the winding up of the corporation’s affairs.