REVISED CORPORATION CODE

Republic Act No. 11232

Atty. Harjade Segura Dammang

DEFINITION OF CORPORATION AND CORPORATE JURIDICAL PERSONALITY

I. DEFINITION OF CORPORATION
- A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes, and properties expressly authorized by law or
incidental to its existence.

II. ATTRIBUTES OF CORPORATION

1. It is an artificial being.

Doctrine of Separate Personality / Corporate Entity Theory – The corporation has a

juridical personality separate and distinct from the stockholders or members.

Limited Liability Doctrine – The liabilities of the corporations are generally its own and
cannot extend to the stockholders in their personal capacities.

Doctrine of Piercing the Veil of Corporate Fiction/Entity – This allows the State to
disregard for certain justifiable reasons the notion that a corporation has a personality
separate and distinct from the persons composing it. The following are the tests:
a) Equity Cases – When the corporation is used to defeat public convenience.
b) Control Test – When the corporate entity is used to justify wrong, protect fraud, or
defend a crime.
c) Alter ego Cases – If a certain corporation is only an adjunct or an extension of the
personality of the corporation. When a corporation is merely a farce since it is a mere
alter ego or business conduit of a person, or where the corporation and its affairs are
so conducted as to make it merely an instrumentality, agency or conduit of another
corporation.
d) Objective Test – When the end result of piercing the veil is to make the stockholders
liable for debts and obligations of the corporation.

2. It is created by operation of law.

Concession or Fiat Theory – Corporation owes its existence to the law and the State and
the extent of its existence, powers, and liberties is fixed by its charter.
Ø Public Corporations or Private Corporations owned and controlled by the
government can only be created by special law (Charters).

Commencement of Corporate Existence – At the time of the issuance of the Certificate of

Incorporation or Registration. Except in the following cases:
a. Corporation by Estoppel
b. Corporation by Prescription
c. Those created by special law
d. Sole Corporation

3. It has the right of succession – A corporation has a capacity of continuous existence

irrespective of the death, withdrawal, insolvency, or incapacity of the individual stockholders
or members and regardless of the transfer of their interest or shares of stock.
4. It has only the powers, attributes and properties expressly authorized by law or incidental
to its existence.

1. Express Powers
a. To sue and be sued in its corporate name.
b. To have perpetual existence unless the certificate of incorporation provides
otherwise.
c. To adopt and use a corporate seal.
d. To amend its articles of incorporation in accordance with the provisions of this
Code.
e. To adopt bylaws, not contrary to law, morals or public policy, and to amend or repeal
the same in accordance with this Code.
f. To sue and be sued in its corporate name.
g. To have perpetual existence unless the certificate of incorporation provides
otherwise.
h. To adopt and use a corporate seal.
i. To amend its articles of incorporation in accordance with the provisions of this
Code.
j. To adopt bylaws, not contrary to law, morals or public policy, and to amend or repeal
the same in accordance with this Code.
k. In case of stock corporations, to issue or sell stocks to subscribers and to sell
treasury stocks in accordance with the provisions of this Code; and to admit members
to the corporation if it be a nonstock corporation.
l. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage,
and otherwise deal with such real and personal property, including securities and
bonds of other corporations, as the transaction of the lawful business of the corporation
may reasonably and necessarily require, subject to the limitations prescribed by law
and the Constitution.
m. To enter into a partnership, joint venture, merger, consolidation, or any other
commercial agreement with natural and juridical persons.
n. To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no foreign
corporation shall give donations in aid of any political party or candidate or for
purposes of partisan political activity.
o. To establish pension, retirement, and other plans for the benefit of its directors,
trustees, officers, and employees.
p. To exercise such other powers as may be essential or necessary to carry out its
purpose or purposes as stated in the articles of incorporation.

2. Implied Powers – those inferred from or reasonably necessary for the exercise of
provided powers of the Corporation.
3. Incidental or Inherent Powers – powers that attached to a corporation at the moment of
its creation without regard to its expressed powers or particular primary purposes.

Ultra Vires Acts of Corporations – No corporation shall possess or exercise corporate

powers other than those conferred by this Code or by its articles of incorporation and
except as necessary or incidental to the exercise of the powers conferred.

Effects of Ultra Vires Acts

a. Executed Contract – Voidable. Courts will not set aside or interfere with such
contracts.
b. Executory contracts – Unenforceable. No enforcement even at the suit of either
party.
 c. Partly executed and partly executory – principle of unjust enrichment at the expense
of another shall apply.
d. Ultra vires ats which are illegal per se – null and void
e. Ultra vires for being outside the primary and secondary purpose – voidable on
the part of the other party
f. Corporate officer exceeded authority or unauthorized – unenforceable

Doctrine of Apparent Authority – If a corporation knowingly permits its officer, or any other
agent to perform acts within the scope of an apparent authority, holding him out to the public
as possessing power to do those acts, the corporation will, as against any person who has dealt
in good faith with the corporation through such an agent, be estopped from denying such authority.

NATIONALITY OF CORPORATION

Test to Determine Nationality

1. Incorporation Test – the nationality of a corporation follows that of the country under
whose laws it was incorporated.
2. Business Domiciliary Test – the country where it is principal business is conducted.
3. Control Test – nationality of the corporation follows that of the stockholder owning the
controlling interest.
4. Grandfather Rule – is a method by which the percentage of Filipino equity in corporations
engaged in nationalized and/or partly nationalized areas of activities, provided for under
the Philippine Constitution and other nationalization laws, is accurately computed and the
diminution of such equity is prevented.

CLASSES OF CORPORATION

1. Stock Corporation – one that has capital stock divided

into shares and are authorized to distribute to holders
such shares dividend or allotments of the surplus profits
In General
on the basis of the shares held.
2. Non-stock Corporation – one no part of the income
which is distributable as dividends to its members,
trustees or officers.
1. Domestic Corporation – incorporated under Philippine
As to the State or country laws.
under whose laws it is 2. Foreign Corporation – formed, organized and existing
created under any laws other those of the Philippines and whose
laws allows Filipino citizens and corporations to do
business in its own country or State.
1. Corporation Aggregate – composed of more than one
As to number of persons
corporator.
composing
2. Corporation Sole – composed of only one person.
1. Public Corporation – organized for the government of a
portion of the State.
2. Private Corporation – formed for a private purpose or
As to its Purpose end.
3. Quasi-public Corporation – organized for profits which
are granted a franchise by the State to perform public
service.
1. Ecclesiastical Corporation – formed for a religious
As to whether its purpose is
purpose.
religious or not
2. Lay Corporation – formed for a purpose other than
ecclesiastical or religious.
As to relation to another 1. Parent or Holding Corporation – one which owns the
corporation share of another corporation having the power, directly or
 indirectly, over the latter including the election of the
directors thereof.
2. Subsidiary Corporation – one whose shares of stock
are owned by another corporation, called the parent
corporation.
3. Affiliate – corporation which is a member of a group of
companies.
1. Close Corporation – one which is limited to selected
persons or members of the family.
As to whether its share may
2. Open Corporation – one which is open to any person
be held by the public or not
who may wish to become a stockholder or member
thereto.
1. De jure Corporation – one that has been created in strict
compliance with all the legal requirements and whose
right to exist as a corporation cannot be successfully
attacked in a direct proceeding for that purpose by the
State.
2. De facto Corporation – one that is defectively created
As to legal their legal right to but there is an actual exercise of corporate rights and
corporate existence franchise resulting from an attempt in good faith to
incorporate on the part of the members.

Requisites of De facto Corporation: (1) Organized

under a valid law; (2) Attempt in good faith to form a
corporation according to the requirements of the law
(colorable compliance); and (3) Use of corporate powers.

CAPITAL STRUCTURE

I. Number and Qualifications of Incorporators

1) Who may be incorporators: (1) Natural Person; (2) Partnership; (3) Association; or (4)
Corporation
2) Number of Incorporators
i. Ordinary Corporation – two (2) or more persons, but not more than fifteen (15)
ii. One Person Corporation – only one incorporator is required who is also the single
stockholder and sole director.
3.) Qualifications of Incorporators
a. Stock Corporation – each incorporator must own, or be a subscriber to at least
one (1) share of capital stock.
b. Non-stock Corporation – each incorporator must be a member of the corporation.
c. Incorporators who are natural persons must be of legal age and must sign the
articles of incorporation.
d. Incorporation may be a combination of the incorporators under the RCC, as well
as foreign corporation/s.

II. Corporate Term

General Rule: A corporation shall have perpetual existence unless its articles of incorporation
provide for a specific corporate term.

Exception: Corporations with certificates of incorporation issued prior to the effectivity of

this Code (February 23, 2019), and which continue to exist – shall have perpetual existence,
without further action.

If continues to elect its corporate term – shall notify the Commission after it is approved by a
vote of its stockholders representing a majority of its outstanding capital stock.
Note: Any change in the corporate term is without prejudice to the appraisal right of
dissenting stockholders in accordance with the provisions of this Code.

Extending or shortening corporate term – by amending the articles of incorporation which is

approved by a vote or written assent of majority of Board of Directors of Trustee and the vote
or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding
capital stock of the corporation or of its members.

- No extension may be made earlier than three (3) years prior to the original or
subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as
may be determined by the SEC.
- Such extension of the corporate term shall take effect only on the day following the
original or subsequent expiry date(s).

Revival of corporate existence when corporate term has expired – A corporation whose term
has expired may apply for a revival of its corporate existence, together with all the rights and
privileges under its certificate of incorporation and subject to all of its duties, debts and liabilities
existing prior to its revival. Upon approval by the Commission, the corporation shall be
deemed revived and a certificate of revival of corporate existence shall be issued, giving it
perpetual existence, unless its application for revival provides otherwise.

- No application for revival of certificate of incorporation of (1) banks, (2) banking and (3)
quasi-banking institutions, (4) preneed, (5) insurance and trust companies, (6) non-stock
savings and loan associations (NSSLAs), (7) pawnshops, (8) corporations engaged in
money service business, and (9) other financial intermediaries shall be approved by the
Commission unless accompanied by a favorable recommendation of the
appropriate government agency.

III. Classifications of Shares

a. Preferred Shares v. Common Shares

1. Common Stock – ordinary stock of a corporation that entitles the holder to a pro rata
division of the dividends, without preference or advantage over other stockholders.
2. Preferred Stock – one that entitles the holder to a certain preference over other
stockholders. Such preferences may be as follows:
i. Preferred Stock as to Asset – preference in the distribution of assets.
ii. Preferred Stock as to Dividends – preference in the distribution of dividends
over common stock.
a) Cumulative Preferred Stock
b) Non-cumulative Preferred Stock
c) Participating Preferred Stock
d) Non-participating Preferred Stock

b. Scope of Voting Rights Subject to Classifications

1. Power to classify its own shares

a) A corporation may divide its shares into classes or series of shares.
b) The classification of shares, their corresponding rights, privileges, or restriction, and
their stated par value, if any, must be included in the AOI.
c) Except as otherwise provided in the articles of incorporation and in the certificate of
stock, each share shall be equal in all respects to every other share.

2. Limitation on the Issuance of Non-voting Shares

 a) Only those classified and issued as “preferred” or “redeemable” shares may be
deprived of voting rights, unless otherwise provided in this Code.
b) That there shall always be a class or series of shares with complete voting rights.
c) Holders of nonvoting shares shall nevertheless be entitled to vote on the following
matters:
i. Amendment of the articles of incorporation;
ii. Adoption and amendment of bylaws;
iii. Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially
all of the corporate property;
iv. Incurring, creating, or increasing bonded indebtedness;
v. Increase or decrease of authorized capital stock;
vi. Merger or consolidation of the corporation with another corporation or other
corporations;
vii. Investment of corporate funds in another corporation or business in accordance
with this Code; and
viii. Dissolution of the corporation.

3. Limitation on the Issuance of No-par Shares

a) Subscription to no-par shares shall be deemed fully paid and non-assessable and
the holder of such shares shall not be liable to the corporation or to its creditors in
respect thereto.
b) No-par value shares must be issued for a consideration of at least Five pesos (P5.00)
per share.
c) That the entire consideration received by the corporation for its no-par value shares
shall be treated as capital and shall not be available for distribution as
dividends.
d) Banks, trust, insurance, and preneed companies, public utilities, building and loan
associations, and other corporations authorized to obtain or access funds from the
public, whether publicly listed or not, shall not be permitted to issue no-par value
shares of stock.

4. Limitation on the Issuance of Preferred Shares

a.) Preference in the distribution of dividends and in the distribution of corporate assets in
case of liquidation, or such other preferences, must be indicated in the AOI.
b.) Preferred shares of stock may be issued only with a stated par value.
c.) The board of directors, where authorized in the articles of incorporation, may fix the
terms and conditions of preferred shares of stock or any series thereof.
d.) Such terms and conditions shall be effective upon filing of a certificate thereof with
the Securities.

c. Founder’s Shares

Founder’s Shares – shares given certain rights and privileges not enjoyed by the owners of
other stocks.

Limitation on the Issuance of Founder’s Shares –

a. They must be classified as such in the Articles of Incorporation
b. Where the exclusive right to vote and be voted for in the election of directors is
granted, it must be for a limited period not to exceed five (5) years from the date of
incorporation: Provided, that such exclusive right shall not be allowed if its exercise
will violate Commonwealth Act No. 108, otherwise known as the “Anti-Dummy Law”;
Republic Act No. 7042, otherwise known as the “Foreign Investments Act of 1991”;
and other pertinent laws.
d. Redeemable Shares

Redeemable Shares – shares that grant the issuing corporation the power to purchase them
upon the expiration of a fixed period.

Characteristics of Redeemable Shares-

a. Issued by the corporation when expressly provided in the articles of incorporation.
b. They may be deprived of voting rights.
c. They may be purchased by the corporation from the holders of such shares upon the
expiration of a fixed period, regardless of the existence of unrestricted retained
earnings in the books of the corporation.
d. Terms and conditions for their purchase must be stated in the AOI and in the stock
certificate representing the said shares.

c. Treasury Shares

Treasury Shares – shares which have been issued and fully paid for, but subsequently
reacquired by the issuing corporation through purchase, redemption, donation or some other
lawful means.

Characteristics of Redeemable Shares –

a. They shall have no voting rights as long as they remain in the treasury.
b. Although they are part of the subscribed capital stock, they are not considered as
outstanding shares.
c. They may again be disposed of for a reasonable price fixed by the board of
directors.

INCORPORATION AND ORGANIZATION

I. Promoter

Promoter – is a person, natural or juridical, who usually discovers a prospective business and
brings person interested to invest in it through the formation of a corporation.

A promoter is a person who brings about or cause to bring about the formation and organization
of a corporation by: (1) Bringing together the incorporators or the persons interested in the
enterprise; (2) Procuring subscriptions or capital for the corporation; and (3) Setting in motion the
machinery which leads to the incorporation of the corporation itself.

• If corporation was never formed – the promoter remains personally liable.

• If the corporation was formed – promoter remains liable until the corporation ratifies or
adopts such contracts, or releases him from liability.

II. Subscription Contract

Subscription Contract – any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed. It is considered as such notwithstanding the
fact that the parties refer to it as a purchase or some other contract.

- Doctrine of Individuality (Indivisibility) of Subscription – a subscription contract is

indivisible.
- No particular form is required.
- Payment of subscription contract cannot be condoned by a corporation.
- Stockholder is entitled to the rights pertaining to shares of stock although not fully paid.
 SUBSCRIPTION PURCHASE

May be made before or after incorporation. May be made only after incorporation.
Buyer does not become a stockholder until the
fulfillment of the terms of the sale and
Subscriber becomes a stockholder even if he
registration thereof in the books of the
has not paid the subscription.
corporation.
Covers unissued stock. Covers issued stock
In purchase amounting to P500, the Statute of
Not covered by the Statute of Frauds.
Frauds apply.
Cannot be released from his subscription The corporation may rescind or cancel the
unless all stockholders agree thereto and no contract for non-fulfillment of the contract by
creditor is thereby prejudiced. the buyer.
Can vote on the share even if he has not paid
Purchaser of stock can vote only on the shares
his subscription in full as long as the shares
he has paid.
are not delinquent.

III. Pre-Incorporation Subscription Agreement

Kinds of Subscription:

1. Pre-incorporation Subscription – entered into before incorporation.

General Rule: Pre-incorporation Subscription shall be irrevocable for a period of at least six
(6) months from the date of subscription.

Exception: (1) All of the other subscribers’ consent to the revocation or (2) the corporation
fails to incorporate within the same period or within a longer period stipulated in the contract
of subscription.
Note: No pre-incorporation subscription may be revoked after the articles of incorporation is
submitted to the Commission.

2. Post-incorporation Subscription – entered into after incorporation. The subscription may

not be revoked after its acceptance by the corporation so as to release the subscriber from
liability unless consented to by all stockholders.

IV. Considerations for Stocks

Amount of Consideration:
1. Par value shares – should not be less than its par value as stated in the AOI.
2. No par value shares – should not be less than the issued price. The issued price of no-
par value shares may be fixed in the following:
a. Articles of incorporation
b. By the board of directors pursuant to authority conferred by the articles of
incorporation or the bylaws
c. If not so fixed, by the stockholders representing at least a majority of the
outstanding capital stock at a meeting duly called for the purpose.

Consideration for Stocks – Consideration for the issuance of stock may be:
(a) Actual cash paid to the corporation;
(b) Property, tangible or intangible, actually received by the corporation and necessary or
convenient for its use and lawful purposes at a fair valuation equal to the par or issued
value of the stock issued;
(c) Labor performed for or services actually rendered to the corporation.
(d) Previously incurred indebtedness of the corporation.
 (e) Amounts transferred from unrestricted retained earnings to stated capital.
(f) Outstanding shares exchanged for stocks in the event of reclassification or conversion.
(g) Shares of stock in another corporation; and/or
(h) Other generally accepted form of consideration.

Note:
• Where the consideration is other than actual cash, or consists of intangible property such
as patents or copyrights, the valuation thereof shall initially be determined by the
stockholders or the board of directors, subject to the approval of the SEC.
• Shares of stock shall not be issued in exchange for promissory notes or future service.
• The same considerations provided above, insofar as applicable, may be used for the
issuance of bonds by the corporation.

V. Articles of Incorporation

Contents – All corporations shall file with the Commission articles of incorporation in any of the
official languages, duly signed and acknowledged or authenticated, in such form and manner as
may be allowed by the Commission, containing substantially the following matters, except as
otherwise prescribed by this Code or by special law:

(a) The name of the corporation;

(b) The specific purpose or purposes for which the corporation is being formed. Where a
corporation has more than one stated purpose, the articles of incorporation shall indicate
the primary purpose and the secondary purpose or purposes: Provided, that a nonstock
corporation may not include a purpose which would change or contradict its nature as
such;
(c) The place where the principal office of the corporation is to be located, which must
be within the Philippines;
(d) The term for which the corporation is to exist, if the corporation has not elected
perpetual existence;
(e) The names, nationalities, and residence addresses of the incorporators;
(f) The number of directors, which shall not be more than fifteen (15) or the number of
trustees which may be more than fifteen (15);
(g) The names, nationalities, and residence addresses of persons who shall act as
directors or trustees until the first regular directors or trustees are duly elected and
qualified in accordance with this Code;
(h) If it be a stock corporation, (1) the amount of its authorized capital stock, (2) number of
shares into which it is divided, (3) the par value of each, (4) names, nationalities, and
residence addresses of the original subscribers, (5) amount subscribed and paid by each
on the subscription, and (6) a statement that some or all of the shares are without par
value, if applicable;
(i) If it be a nonstock corporation, (1) the amount of its capital, (2) the names, nationalities,
and residence addresses of the contributors, and (3) amount contributed by each; and
(j) Such other matters consistent with law and which the incorporators may deem
necessary and convenient.

- An arbitration agreement may be provided in the articles of incorporation pursuant to

Section 181 of this RCC.

Requirements for the Amendment of Articles of Incorporation –

a. The amendment must be for a legitimate purpose.
b. Vote required: (1) Majority of the Board of Directors or Trustees; and (2) The vote or
written assent of two-thirds (2/3) of the outstanding capital stock in the case of stock
corporation, or two-thirds (2/3) of the members in the case of non-stock corporation.
 c. The original and amended articles shall contain all provisions required by law to be set out
in the AOI.
d. The amendment shall indicate by underscoring the change/s made, and a copy thereof
duly certified under oath by the corporate secretary and majority of the directors or
trustees, with a statement that the amendments have been duly approved by the required
vote of the stockholders or members, shall be submitted to SEC.

Effectivity of Amendments –
a. Upon approval by the SEC.
b. From the date of filing with the SEC if not acted upon within six (6) months from the date
of filing for a cause not attributable to the corporation.

Grounds when AOI or amendment may be disapproved –

a.) The articles of incorporation or any amendment thereto is not substantially in accordance
with the form prescribed herein;
b.) The purpose or purposes of the corporation are patently unconstitutional, illegal, immoral
or contrary to government rules and regulations;
c.) The certification concerning the amount of capital stock subscribed and/or paid is false;
and
d.) The required percentage of Filipino ownership of the capital stock under existing laws or
the Constitution has not been complied with.

Non-amendable Items –
a. Names of incorporators
b. Names of original subscribers to the capital stock
c. Names of the original directors
d. Treasurer elected by the original subscribers
e. Members who contributed to the initial capital of the non-stock corporation
f. Witnesses to and acknowledgment with AOI.

VI. Corporate Name

Corporate Name – No corporate name shall be allowed by the Commission if it is not:

a. Distinguishable from that already reserved or registered for the use of another corporation.
b. If the name is already protected by law.
c. If the name is contrary to existing law, rules and regulations.

Consequence of Prohibited Corporate Name – The SEC, upon determination that the
corporate name is not allowed:
(1) May summarily order the corporation to immediately cease and desist from using such
name and require the corporation to register a new one.
(2) Shall also cause the removal of all visible signages, marks, advertisements, labels, prints
and other effects bearing such corporate name.

- Upon the approval of the new corporate name, the Commission shall issue a certificate of
incorporation under the amended name. If the corporation fails to comply with the
Commission’s order, the Commission may hold the corporation and its responsible
directors or officers in contempt and/or hold them administratively, civilly and/or criminally
liable under the RCC and other applicable laws and/or revoke the registration of the
corporation.
VIII. Registration, Incorporation, and Commencement of Corporate Existence

a. Application for use of corporate name – A person or group of persons desiring to

incorporate shall submit the intended corporate name to the SEC for verification. If the
Commission finds that the name is distinguishable from a name already reserved or
registered for the use of another corporation, not protected by law and is not contrary to
law, rules and regulations, the name shall be reserved in favor of the incorporators.
b. Submission of Articles of Incorporation – The incorporators shall then submit their
articles of incorporation and bylaws to the Commission.
c. Issuance of Certificate of Incorporation – If the SEC finds that the submitted documents
and information are fully compliant with the requirements of this Code, other relevant laws,
rules and regulations, the SEC shall issue the certificate of incorporation.

Effect of Issuance of Certificate of Incorporation –

- Commences its corporate existence and juridical personality from the date the
Commission issues the certificate of incorporation under its official seal and thereupon the
incorporators, stockholders/members and their successors shall constitute a body
corporate under the name stated in the articles of incorporation for the period of time
mentioned therein, unless said period is extended or the corporation is sooner dissolved
in accordance with law.

IX. Adoption of By-Laws

Content of By-laws – A private corporation may provide the following in its bylaws:

(a) The time, place and manner of calling and conducting regular or special meetings
of the directors or trustees;
(b) The time and manner of calling and conducting regular or special meetings and
mode of notifying the stockholders or members thereof;
(c) The required quorum in meetings of stockholders or members and the manner of
voting therein;
(d) The modes by which a stockholder, member, director, or trustee may attend
meetings and cast their votes;
(e) The form for proxies of stockholders and members and the manner of voting them;
(f) The directors’ or trustees’ qualifications, duties and responsibilities, the guidelines
for setting the compensation of directors or trustees and officers, and the maximum
number of other board representations that an independent director or trustee may have
which shall, in no case, be more than the number prescribed by the Commission;
(g) The time for holding the annual election of directors or trustees and the mode or
manner of giving notice thereof;
(h) The manner of election or appointment and the term of office of all officers other
than directors or trustees;
(i) The penalties for violation of the bylaws;
(j) In the case of stock corporations, the manner of issuing stock certificates; and
(k) Such other matters as may be necessary for the proper or convenient transaction
of its corporate affairs for the promotion of good governance and anti-graft and
corruption measures.

- An arbitration agreement may be provided in the bylaws pursuant to Section 181 of this
Code.

Requisites of Valid By-laws –

a. Consistent with the RCC, other pertinent laws and regulations.
b. Must not be contrary to morals and public policy.
 c. Must not impair obligations and contracts or property rights of stockholders.
d. Must be reasonable.
e. Consistent with the charter or AOI.
f. Must be of general application and not directed against a particular individual.

Adoption of By-laws –

I. Prior to Incorporation
1. Submitted together with the AOI to the SEC.
2. Approved and signed by all the incorporators.
II. After Incorporation – approved by the stockholders representing at least a majority of
the outstanding capital stock, or by a majority of the members, voting and non-voting. They
shall be signed by the stockholders or members voting for them.

- The SEC shall not accept for filing the bylaws or any amendment thereto of any bank,
banking institution, building and loan association, trust company, insurance company,
public utility, educational institution, or other special corporations governed by special
laws, unless accompanied by a certificate of the appropriate government agency to
the effect that such bylaws or amendments are in accordance with law.

Effectivity – Bylaws shall be effective only upon the issuance by the Commission of a
certification that the bylaws are in accordance with this Code.

Binding Effects –
§ As to members, stockholders, officers, trustees, directors and corporation – they
are bound and must comply them.
§ As to third persons – not bound unless they have knowledge of the bylaws.

Effect of Non-Filing – The SEC may revoke or suspend the certificate of registration of the
corporation.

Amendment of By-laws –

a. Amendment of By-laws – Requires: (1) majority of the board of directors or trustees,

and the (2) owners of at least a majority of the outstanding capital stock, or at least a
majority of the members of a nonstock corporation, at a regular or special meeting duly
called for the purpose, may amend or repeal the bylaws or adopt new bylaws.

b. Delegation of Power to Amend or Repeal – owners of two-thirds (2/3) of the

outstanding capital stock or two-thirds (2/3) of the members in a nonstock corporation
may delegate to the board of directors or trustees the power to amend or repeal the bylaws
or adopt new bylaws.

c. Revocation of Power Delegated – shall be considered as revoked whenever

stockholders owning or representing a majority of the outstanding capital stock or
majority of the members shall so vote at a regular or special meeting.

d. Amended By-laws – The corporation shall file with the Commission such amended or
new bylaws and, if applicable, the stockholders’ or members’ resolution authorizing the
delegation of the power to amend and/or adopt new bylaws, duly certified under oath
by the corporate secretary and a majority of the directors or trustees.

e. Effectivity of Amended Bylaws – Effective upon the issuance by the Commission of a

certification that the same is in accordance with this Code and other relevant laws.
X. Effects of Non-use of Corporate Charter

Effects of non-use of corporate charter within five (5) years from incorporation –certificate
of incorporation shall be deemed revoked as of the day following the end of the five (5)-year
period.

Effects of continuous operation for at least five (5) after the corporation has commenced
operations – the Commission may, after due notice and hearing, place the corporation under
delinquent status.

A delinquent corporation shall have a period of two (2) years to resume operations and comply
with all requirements that the Commission shall prescribe. Upon compliance by the corporation,
the Commission shall issue an order lifting the delinquent status. Failure to comply with the
requirements and resume operations within the period given by the Commission shall cause the
revocation of the corporation’s certificate of incorporation.

CORPORATE POWERS

I. General and Specific Powers

§ Theory of General Capacity – general powers of the corporation Section 35 of the RCC.
§ Theory of Specific Capacity – specific powers of the corporation provided under Section
36 – 43 of the RCC and power to amend Articles of Incorporation under Section 15 of the
RCC.

II. Power to Extend or Shorten Corporate Term

Requisites for the exercise of power to extend or shorten corporate term –

1. Written notice of the proposed action and the time and place of the meeting shall
be sent to stockholders or members at their respective place of residence as shown in
the books of the corporation, and must either be deposited to the addressee in the post
office with postage prepaid, served personally, or when allowed in the bylaws or done with
the consent of the stockholder, sent electronically.
2. Approved by a majority vote of the board of directors or trustees, and ratified at a
meeting by the stockholders or members representing at least two-thirds (2/3) of the
outstanding capital stock or of its members.
3. Amendment of the Articles of Incorporation reflecting such extension or shortening of
corporate term.

II. Power to Increase or Decrease Capital Stock; Incur, Create or Increase Bonded
Indebtedness

A. Requisite for the exercise of power to increase or decrease capital stock –

1. Written notice of the proposed action and the time and place of the meeting shall be sent
to stockholders or members.
- Written notice of the time and place of the stockholders’ meeting and the purpose
for said meeting must be sent to the stockholders at their places of residence as
shown in the books of the corporation and served on the stockholders personally,
or through electronic means recognized in the corporation’s bylaws and/or the
Commission’s rules as a valid mode for service of notices.
2. Approved by a majority vote of the board of directors and by two-thirds (2/3) of the
outstanding capital stock at a stockholders’ meeting duly called for the purpose.
 - Nonstock corporations may incur, create or increase bonded indebtedness
when approved by a majority of the board of trustees and of at least two-thirds
(2/3) of the members in a meeting duly called for the purpose.

3. Certificate must be signed by a majority of the directors of the corporation and

countersigned by the chairperson and secretary of the stockholders’ meeting, setting forth:
(a) That the requirements for such increase or decrease in capital stocks have been
complied with.
(b) The amount of the increase or decrease of the capital stock.
(c) In case of an increase of the capital stock, the amount of capital stock or number
of shares of no-par stock thereof actually subscribed, the names, nationalities and
addresses of the persons subscribing, the amount of capital stock or number of
no-par stock subscribed by each, and the amount paid by each on the subscription
in cash or property, or the amount of capital stock or number of shares of no-par
stock allotted to each stockholder if such increase is for the purpose of making
effective stock dividend therefor authorized.
(d) The amount of stock represented at the meeting.
(e) The vote authorizing the increase or decrease of the capital stock, or the incurring,
creating or increasing of any bonded indebtedness.
4. In case of increase in capital stock, the Treasurer must execute a sworn statement
showing that at least twenty-five percent (25%) of the increase in capital stock has been
subscribed and that at least twenty-five percent (25%) of the amount subscribed has been
paid in actual cash to the corporation or that property, the valuation of which is equal to
twenty-five percent (25%) of the subscription, has been transferred to the corporation.
5. In case of decrease of capital stock, it shall not prejudice the rights of corporate
creditors.
6. The increase or decrease of capital stock and the incurring, creating or increasing bonded
indebtedness must be approved by the SEC.

Ways of increasing capital stock –

1. Increasing the number of shares without increasing the par value (or issued price in the
case of no-par shares).
2. Increasing the par value (or issued price in the case of no-par shares), without increasing
the number of shares.
3. Increasing both the number of shares and the par value (or issued price).

Ways of decreasing capital stock –

1. Decreasing the number of shares without decreasing the par value (or issued price in the
case of no-par shares).
2. Decreasing the par value (or issued price in the case of no-par shares), without decreasing
the number of shares.
3. Decreasing both the number of shares and the par value (or issued price).

B. Requisite for the exercise of power to incur, create or increase bonded indebtedness –

1. Written notice of the proposed action and the time and place of the meeting shall be sent
to stockholders or members.
- Written notice of the time and place of the stockholders’ meeting and the purpose
for said meeting must be sent to the stockholders at their places of residence as
shown in the books of the corporation and served on the stockholders personally,
or through electronic means recognized in the corporation’s bylaws and/or the
Commission’s rules as a valid mode for service of notices.
2. Approved by a majority vote of the board of directors and by two-thirds (2/3) of the
outstanding capital stock at a stockholders’ meeting duly called for the purpose.
 3. Certificate must be signed by a majority of the directors of the corporation and
countersigned by the chairperson and secretary of the stockholders’ meeting, setting forth:
(a) That the requirements for such incurring or creating or increasing bonded
indebtedness have been complied with
(b) The bonded indebtedness to be incurred, created, or increased
(c) The amount of stock represented at the meeting.
(d) The vote authorizing the incurring, creating or increasing the bonded
indebtedness.
4. The incurring, creating or increasing of bonded indebtedness must be approved by the
SEC, and where appropriate by the Philippine Competition Commission.
5. The bonds so issued must be registered with the Sec which shall have the authority to
determine the sufficiency of their terms thereof.

Note:
• Any increase or decrease in the capital stock or the incurring, creating or increasing of any
bonded indebtedness shall require prior approval of the Commission, and where
appropriate, of the Philippine Competition Commission.
• The application with the Commission shall be made within six (6) months from the date of
approval of the board of directors and stockholders, which period may be extended for
justifiable reasons.

III. Power to Deny Pre-emptive Rights

Pre-emptive right – the right of existing stockholder to subscribe to all issues or disposition of
shares of any class, in proportion to their respective stockholdings, before such shares are offered
to the public.

Shares covered in the exercise of pre-emptive right –

(a) Shares issued as a result of an increase in capital stock.
(b) Shares issued out of the unsubscribed portion of the authorized capital stock.
(c) Other shares that may be disposed including treasury shares.

Pre-emptive right not available –

1. Denied by the AOI or an amendment thereto.
2. Shares issued in compliance with laws requiring stock offerings or minimum stock
ownership by the public.
3. Shares issued in good faith with the approval of the stockholders representing two-thirds
(2/3) of the outstanding capital stock, (1) in exchange for property needed for corporate
purposes or (2) in payment of a previously contracted debt.

IV. Sale or Other Disposition of Assets

Sale or other disposition to cover substantially all the corporate assets – if thereby the
corporation would be rendered (1) incapable of continuing the business or (2) accomplishing the
purpose for which it was incorporated.

Requisites:
1. Notice to stockholders or members.
2. Majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge,
or otherwise dispose of its property and assets.
3. Authorized by the vote of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, or at least two-thirds (2/3) of the members, in a stockholders’
or members’ meeting duly called for the purpose.
 In nonstock corporations where there are no members with voting rights, the vote of at
least a majority of the trustees in office will be sufficient authorization for the corporation
to enter into any transaction authorized by this section.
4. The sale or disposition shall be subject to Republic Act No. 10667, and other related
laws, and upon such terms and conditions.

- Abandonment of the act to sell or dispose all or substantially all of the corporate
assets – the board of directors or trustees may, nevertheless, in its discretion, abandon
such sale, lease, exchange, mortgage, pledge, or other disposition of property and assets,
subject to the rights of third parties under any contract relating thereto, without further
action or approval by the stockholders or members.

- When vote of the board of directors or trustees are sufficient – (1) when the sale or
other disposition is necessary in the usual and regular course of business of the
corporation or (2) if the proceeds of the sale or other disposition of such property and
assets shall be appropriated for the conduct of its remaining business, or (3) If the
transaction does not cover all or substantially all of the assets.

V. Power to Acquire Own Share

Requisites:
1. Acquisition must be for a legitimate purpose, including but not limited to the following:
a. To eliminate fractional shares arising out of stock dividends;
b. To collect or compromise an indebtedness to the corporation, arising out of unpaid
subscription, in a delinquency sale, and to purchase delinquent shares sold during
said sale; and
c. To pay dissenting or withdrawing stockholders entitled to payment for their shares
under the provisions of this Code.
d. To acquire treasury shares.
e. To acquire redeemable shares regardless of the existence of retained earnings.
f. To effect a decrease of capital stock.
g. In close corporations, when there is a deadlock in the management of the
business, the SEC may order the purchase of their fair value of the shares of the
stockholder by a corporation regardless of the availability of unrestricted retained
earnings.
2. The corporation must have unrestricted retained earnings to cover the purchase of
the shares.

VI. Power to Invest Corporate Funds in Another Corporation or Business

Requisites –
1. Notice to stockholders or members.
2. Approved by a majority of the board of directors or trustees and ratified by the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock,
or by at least two thirds (2/3) of the members in the case of nonstock corporations, at
a meeting duly called for the purpose.

- Investment by the corporation is reasonably necessary to accomplish its primary

purpose as stated in the articles of incorporation – the approval of the stockholders or
members shall not be necessary.
VII. Power to Declare Dividends

Forms of Dividends – cash, property, or in stock to all stockholders on the basis of outstanding
stock held by them.

Requirements for the declaration of dividends –

1. Existence of Unrestricted Retained Earnings.
2. Resolution of the Board
3. Voting requirement:
a.) Stock dividends: (1) Majority vote of the directors present provided there is a
quorum and (2) approval of stockholders representing at least two-thirds (2/3) of
the outstanding capital stock at a regular or special meeting duly called for the
purpose.
b.) Cash dividends: the declaration thereof requires only the vote of majority of the
directors present provided there is a quorum.

Prohibition imposed by law on Unrestricted retained earnings of a stock corporation –

Stock corporations are prohibited from retaining surplus profits of one hundred (100%) percent of
their paid-in capital stock. Except:

1. When justified by definite corporate expansion projects or programs approved by the

board of directors.
2. When the corporation is prohibited under any loan agreement with financial institutions
or creditors, whether local or foreign, from declaring dividends without their consent, and
such consent has not yet been secured.
3. When it can be clearly shown that such retention is necessary under special
circumstances obtaining in the corporation, such as when there is need for special
reserve for probable contingencies.

VIII. Power to Enter into Management Contract

Management Contract – an agreement whereby a corporation delegates the management or

operation of all or substantially all of its business to another corporation.

The period of management contract shall not exceed five (5) years for any one term. Except:
Service contracts or operating agreement which relate to exploration, development, exploitation
or utilization of natural resources may be entered into for such periods as may be provided by the
pertinent laws or regulations.

Voting requirement to enter into management contract for both the managing corporation and
the managed corporation, the management contract must be approved by a –
a. Majority of the board of directors or trustee present provided there is a quorum, and
b. Majority of the outstanding capital stock or majority of the members entitled to vote in a
meeting duly called for that purpose.

When qualified majority vote required for stockholders or members of managed

corporation – The vote of stockholders representing at least two-thirds (2/3) of the members of
the outstanding capital stock or two-thirds of the members entitled to vote of the managed
corporation is required for the following cases:
a. Where a stockholder or stockholders representing the same interest of both the managing
and the managed corporations own or control more than one-third (1/3) of the total
outstanding capital stock entitled to vote of the managing corporation (Interlocking
Stockholders).
 b. where a majority of the members of the board of directors of the managing corporation
also constitute a majority of the members of the board of directors of the managed
corporation (Interlocking Directors).

IX. Trust Fund Doctrine

Concept – The subscribed capital stock of the corporation is a trust fund for the payment of
debts of the corporation which the creditors have the right to look up to satisfy their credits, and
which the corporation may not dissipate.

Effects of Trust Fund Doctrine –

a. Dividends must never impair the subscribed capital stock and must only be declared out
of Unrestricted Retained Earnings.
b. Subscription commitments cannot be condoned or remitted.
c. Corporation cannot buy its own shares using the subscribed capital as the consideration
therefore.
Exceptions to subsection (c):
1. Redeemable shares may be acquired even without surplus profits for as long as it
will not result to the insolvency of the corporation.
2. In cases the corporation conveys stocks in payment of a debt.
3. In a close corporation, a stockholder may demand the payment of the fair value of
shares regardless of existence of retained earnings for as long as it will not result
to the insolvency of the corporation.

Exceptions to Trust Fund Doctrine – The RCC allows distribution of corporate capital only in
these instances:
1. Amendment of the Articles of Incorporation to reduce authorized capital stock.
2. Purchase of redeemable shares by the corporation regardless of existence of unrestricted
retained earnings.
3. Dissolution and eventual liquidation of the corporation.

STOCKHOLDERS AND MEMBERS

I. Rights of a Stockholder and Member

Management Rights –
1. To attend and vote in person or by proxy at a stockholders’ meeting.
2. To elect and remove directors.
3. To approve certain corporate acts.
4. To adopt and amend or repeal bylaws or adopt new bylaws.
5. To compel the calling of the meetings.
6. To enter into a voting trust agreement.
7. To have the corporation voluntarily dissolved.

Proprietary Rights –
1. To transfer stock in the corporation.
2. To secure dividends when declared.
3. To the issuance of certificate of stock or other evidence of stock ownership.
4. To participate in the distribution of corporate assets upon dissolution.
5. To pre-emption in the issue of shares.

Remedial Rights –
1. To inspect corporate books.
2. To recover stock unlawfully sold for delinquent payment of subscription.
 3. To be furnished with most recent financial statements or reports of the corporation’s
operations.
4. To bring suits (derivative suit, individual suit, and representative suit)
5. To demand payment in the exercise of appraisal right.

Doctrine of Equality of Shares – Where the articles of incorporation do not provide for any
distinction of the shares of stock, all shares issued by the corporation are presumed to be equal
and enjoy the same rights and privileges and are also subject to the same liabilities.

II. Participation in the Management

Proxy – designates the formal written authority given by the owner or holder of the stock,
who has a right to vote, or by a member, as principal, to another person, as agent, to exercise
the voting rights of the former.

Duration of Proxy
(1) Specific Proxy – authority to vote only for a particular meeting on a specific date.
(2) Continuing Proxy – authority to appear and vote for a continuing period which should
not be more than 5 years.

Extent of Authority of Proxy

(1) General Proxy – general discretionary power to attend and vote at an annual meeting,
with all the powers the undersigned would possess if personally present, to vote for
directors and all ordinary meetings that may properly come before a regular meeting. No
authority to vote for a fundamental change in the corporate charter or other unusual
transactions such as merger or consolidation.
(2) Limited Proxy – restrict the authority to vote for a specified matters only and may
direct the manner in which the vote shall be cast.

Requisites and Limitations of Proxy –

1. Proxies shall be in writing and shall be signed, and filed by the stockholder or member, in
any form authorized and received by the corporate secretary.
2. Shall be filed within reasonable time before the scheduled meeting.
3. It is valid only for the meeting for which it is intended.
4. No proxy shall be valid and effective for a period longer than 5 years at any one time.

Voting Trust Agreement – is an agreement in writing whereby one or more stockholders of a

corporation transfer their shares to a trustee or trustees, for the purpose of conferring in the latter,
voting and other rights pertaining to such shares.

Procedure on transfer of shares –

1. The certificate/s of stock covered by the voting trust agreement shall be surrendered for
cancellation.
2. New ones shall be issued in the name of the trustee or trustees, stating that they are
issued pursuant to said agreement. The books of the corporation shall state that the
transfer in the name of the trustee or trustees is made pursuant to the voting trust
agreement.
3. The trustee or trustees shall execute and deliver to the transferors, voting trust certificates,
which shall be transferable in the same manner and with the same effect as certificates of
stock.

Requisites and Limitations of the Voting Trust Agreement –

1. It must be in writing and duly notarized, and shall specify the terms and conditions
thereof.
 2. A certified copy must be filed with the SEC; otherwise, it is ineffective and unenforceable.
3. The voting trust shall not exceed five (5) years at any one time, except if is specifically
required under a loan agreement, in which case, the period may be more than five (5)
years, but it shall automatically expire upon full payment of the loan.
4. Unless the voting trust is renewed, all rights granted in the agreement shall
automatically expire at the period agreed upon, and the voting trust certificates and
the stock certificates issued in the name of the trustee shall be deemed cancelled, and
new stock certificates issued in the name of the trustors.
5. No voting trust agreement shall be entered into for purposes of circumventing the laws
against anti-competitive agreements, abuse of dominant position, anti-competitive
mergers and acquisitions, violation of nationality and capital requirements, or for the
perpetuation of fraud.

VOTING TRUST PROXY

If validly executed, VTA is intended to be A proxy, unless coupled with interest, is
irrevocable for a definite and limited period of revocable.
time.
Trustee acquires legal title to the shares. Proxy has no legal title to the shares.
Right to vote as well as other rights may be
Only the right to vote is given. The proxy must
given except the right to receive dividends.
vote in person.
The trustee may vote in proxy unless the
agreement provides otherwise.
Agreement must be notarized. Need not be notarized.
Trustee is not limited to act at any particular Proxy can only act at a specified stockholder’s
meeting. meeting (if not continuing).
The stock certificate shall be cancelled and a
No cancellation of the certificate shall be
new one in the name of the trustee shall be
made.
issued.
A trustee can vote and exercise all the rights
A proxy can vote only in the absence of the
of the stockholder even when the latter is
owner of the stocks and does not have the
present including the right to inspect corporate
right to inspect.
books.
An agreement must not exceed 5 years at any
Of shorter duration, although under Sec. 58 it
one time except when the same is made a
cannot exceed 5 years at any one time.
condition of loan.

II. Proprietary Rights

Appraisal Right – refers to the right of the stockholder to demand payment of the fair value of
his shares, after dissenting from a proposed corporate action involving a fundamental change in
the charter or articles of incorporation in the cases provided by law.

Instances where a stockholder may exercise his appraisal right –

1. In case of amendment to the articles of incorporation has the effect of changing or
restricting the rights of any stockholder or class of shares, or of authorizing preferences in
any respect superior to those of outstanding shares of any class, or of extending or
shortening the term of corporate existence.
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of
all or substantially all of the corporate property and assets.
3. In case of merger or consolidation.
4. In case the corporation decides to invest its funds in another corporation or business for
any purpose other than its primary purpose.
5. Any stockholder of a close corporation may, for any reason, compel said corporation to
purchase his shares at their value, which shall not be less than their par value or issued
 value, when the corporation has sufficient assets in its books to cover its debts and
liabilities exclusive of its capital stock.

Limitations on the exercise of the appraisal right –

1. Any of the instances provided by law for the exercise of the right by a dissenting
stockholder must be present.
2. The dissenting stockholder must have voted against the proposed corporate action.
3. A written demand on the corporation for payment of his shares must be made by him
within 30 days after the date the vote was taken.
4. The price must be based on the fair value of the shares as of the day prior to the date on
which the vote was taken.
5. Such fair value must be determined.
6. Payment of the shares must be made only out of the unrestricted earnings of the
corporation.
7. Upon such payment, the stockholder must transfer his shares to the corporation.

Effects of the exercise of the right of appraisal –

1. Once the dissenting stockholder demands payment of the fair value of his shares:
a. All rights accruing to such shares including voting and dividend rights shall be
suspended.
b. He shall be entitled to receive payment of the fair value of his shares as agreed upon
between him and the corporation or as determined by the appraiser chosen by him.
c. He is not allowed to withdraw his demand for payment of his shares unless the
corporation consents thereto.
2. If the dissenting stockholder was not paid the value of his shares within 30 days after the
award, his voting and dividend rights shall be immediately restored until payment of the
shares.
3. But upon payment of the stockholder’s shares, all his rights as stockholders are terminated,
not merely suspended.
4. If before the stockholder is paid, the proposed corporate action is abandoned, his rights and
status as a stockholder shall thereupon be permanently restored.

When does the right to payment cease –

a. Demand for payment is withdrawn with the consent of the corporation.
b. The proposed corporate action is abandoned by the corporation.
c. The proposed corporate action is rescinded by the corporation.
d. The proposed corporate action is disapproved by the SEC where such approval is
necessary.
e. The SEC determines that the dissenting stockholder is not entitled to the appraisal right.

Right to Inspect –

General Rule: Every corporation shall keep and carefully preserve at its principal office all
information relating to the corporation.

Exception: The stock and transfer book shall be kept in the principal office of the corporation
or in the office of its stock transfer agent.

Right of directors, trustees, stockholders or members to the books and records –

1. Right to inspect the books and records, regardless of the form in which they are stored.
2. Right to demand in writing may be made by such director, trustee or stockholder at their
expense, for copies of such records or excerpts from said records.
Grounds to deny inspection and reproduction of records –

1. Requesting party who is not a stockholder or member of record.

2. Was not acting in good faith or of any other corporation or was not acting in good faith
or for a legitimate purpose.
3. Is a competitor, director, officer, controlling stockholder or otherwise represents the
interests of a competitor.
4. Has improperly used any information secured through any prior examination of the
records or minutes of such corporation or of any other corporation.

Liability of officer or agent who refuses to allow inspection and/or reproduction of records
–

a) Shall be liable to such director, trustee, stockholder or member for damages, and in
addition, shall be guilty of an offense which shall be punishable under Section 161 of this
Code.

b) If such refusal is made pursuant to a resolution or order of the board of directors or

trustees, the liability under this section for such action shall be imposed upon the
directors or trustees who voted for such refusal.

Limitations on the right to inspect or reproduce corporate books and records – The
inspecting or reproducing party shall remain bound by confidentiality rules under prevailing laws,
such as the rules on trade secrets or processes under (1) Republic Act No. 8293 (Intellectual
Property Code of the Philippines), (2) Republic Act No. 10173 (Data Privacy Act of 2012), (3)
Republic Act No. 8799 (Securities Regulation Code), and (4) the Rules of Court.

Penalties for abuse of right to inspect or reproduce corporate books and records – Any
stockholder who shall abuse the rights granted under this section shall be penalized under (1)
Section 158 of this Code, without prejudice to the provisions of (2) Republic Act No. 8293
(Intellectual Property Code of the Philippines) and (3) Republic Act No. 10173 (Data Privacy Act
of 2012).

Remedies of aggrieved party – If the corporation denies or does not act on a demand for
inspection and/or reproduction, the aggrieved party may report such denial or inaction to the
Commission within five (5) days from receipt of such report, the Commission shall conduct
a summary investigation and issue an order directing the inspection or reproduction of the
requested records.

Right to Dividend –

It is the right of the stockholder to demand payment of dividends after the board’s declaration.
Stockholders are entitled to dividends pro rata based on the total number of shares that
they own and not on the amount paid for the shares.

Entitlement to receive dividends –

General Rule: Those stockholders are the time of declaration are entitled to dividends.

Exception:
1. In case a record date is provided for.
2. Holders of shares not fully paid which are not delinquent shall have all the rights of the
stockholder.
Remedial Rights –

1. Individual Suit – an action brought by a stockholder against the corporation for direct
violation of his contractual rights as such individual stockholder, such as the right to
vote and be voted and the right to inspect corporate books and records.
2. Derivative Suit – one brought by one or more stockholders or members in the name and
on behalf of the corporation to redress wrongs committed against it or to protect or
vindicate corporate rights.
3. Representative Suit – one filed by the shareholder individually, or on behalf of a class of
shareholders to which or she belongs, for the injury to his or her interest as a shareholder.

MEETINGS

Stockholders or Members’ Meeting –

REGULAR MEETING SPECIAL MEETING

Held annually on a date fixed in Shall be held at any time deemed
the bylaws, or if not so fixed in the necessary or as provided in the
Date of Meeting bylaws, or if not so fixed, on any bylaws.
date After April 15 of every year as
determined by the board of
directors or trustees.
Written notice of meetings shall be At least one (1) week written
sent through the means of notice shall be sent to all
Notice of Meeting communication provided in the stockholders or members, unless
bylaws, which notice shall state a different period is provided in the
the time, place and purpose of the bylaws, law or regulation.
meetings.
1. Notice of any meeting may be waived, expressly or impliedly, by
any stockholder or member.
o Attendance at a meeting shall constitute a waiver of notice
Waiver of Notice of of such meeting, except when the person attends a meeting
Meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or
convened.
2. General waivers of notice in the articles of incorporation or the
bylaws shall not be allowed.
1. Person authorized in the bylaws.
2. No person authorized or the person authorized unjustly refuses to
call a meeting, the SEC, upon petition of a stockholder or member
on a showing of good cause therefor, may issue an order, directing
Who may call
the petitioning stockholder or member to call a meeting by giving
meetings
proper notice required by this Code or the bylaws. The latter
petitioner shall preside until at least a majority of the stockholders or
members present have chosen from among themselves, a presiding
officer.
When stock and At least twenty (20) days unless At least seven (7) days unless the
transfer book or the bylaws provide for a longer bylaws provide for a longer period.
membership is period.
closed before a
meeting
In case of postponement of stockholders' or members' regular
Notice of meetings, written notice thereof and the reason therefor shall be sent
Postponement of to all stockholders or members of record at least two (2) weeks prior
Regular Meeting to the date of the meeting, unless a different period is required under
the bylaws, law or regulation.
1. In person, by stockholder or member being physically present during
Right to vote is
the meeting.
exercised
2. By proxy.
 3. Through remote communication or in absentia, when so authorized
by laws.
Stockholders representing a majority of the outstanding capital
stock or a majority of the members in the case of nonstock
corporations, unless otherwise provided in the Code or bylaws.
Quorum
- A stockholder or member who participates through remote
communication or in absentia shall be deemed present for
purposes of quorum.
Shall be held in the principal office of the corporation, or if not
practicable, in the city or municipality where the principal office of the
corporation is located: Provided, that any city of municipality in Metro
Manila, Metro Cebu, Metro Davao, and other Metropolitan areas shall,
for purposes of this section, be considered a city or municipality.
Place of Meetings
For a nonstock corporation, the bylaws may provide that the members
may hold their regular or special meetings at any place even outside the
place where the principal office of the corporation is located., provided
that proper notice is sent to all members indicating the date, time and
place of meeting and the place of the meeting shall be within Philippine
territory.
1. Person authorized in the bylaws.
Who shall preside 2. If no person is authorized in the bylaws, the chairman of the board
of directors or, in his absence, the president.
a. It must be held at the proper place.
b. It must be held at the stated place and time.
Requisites for a c. It must be called by the proper person.
Valid Meeting d. Previous notice of meeting must have been given.
e. It must be presided by the proper person.
f. There must be quorum during the meetings.
General Rule: The meeting is improperly held or called.
Exception: All proceedings and any business transacted at a meeting
of the stockholders or members shall be valid:
Effect of the
a. If within the powers or authority of the corporation.
absence of a valid
b. All the stockholders or members of the corporation are present
meeting
or duly represented at the meeting and not one of them
expressly states at the beginning of the meeting that the purpose
of their attendance is to object to the transaction of any business
because the meeting is not lawfully called or convened.

Board of Directors or Trustees’ Meeting –

REGULAR MEETING SPECIAL MEETING

Shall be held monthly, unless the May be held at any time upon the
Date of Meeting bylaws provide otherwise. call of the president or as provided
in the bylaws.
Through electronic mail, message The same with regular meeting.
service or such other manner as A director or trustee may waive
may be provided in the bylaws or requirement, either expressly or
Notice of Meeting by board resolution, at least two impliedly.
(2) days before scheduled
meeting, unless a longer time is
provided in the bylaws.
The meetings may be held anywhere in or outside the Philippines,
Place of Meeting
unless the bylaws provide otherwise.
Majority of the directors or trustees as stated in the articles of
Quorum incorporation shall constitute a quorum to transact corporate business,
unless otherwise provided.
Vote Required for General Rule: Every decision reached by at least a majority of the
the Validity of directors or trustees constituting a quorum.
Corporate Act
 Exception: For the election of officers, vote of a majority of all the
members of the board shall be valid as a corporate act.
The chairman or, in his absence, the president, unless the bylaws
Presiding Officer
provide otherwise.
Directors or trustees who cannot physically attend or vote at board
meetings can participate and vote through remote communication
such as videoconferencing, teleconferencing, or other alternative
Manner of Voting
modes of communication that allow them reasonable opportunities to
participate. Directors or trustees cannot attend or vote by proxy at
board meetings.

BOARD OF DIRECTORS AND TRUSTEES

I. Corporate Power

Repository of Corporate Power – The basic rule on corporate management that all businesses
of the corporation shall be conducted and all its properties shall be conducted and all its properties
shall be controlled and held by the Board of Directors or Trustees. In other words, the
management of the business of the corporation is generally vested in its Board of Directors, not
its stockholders. Stockholders are basically investors in a corporation.

Business Judgment Rule – Under this rule, the will of the majority controls in corporate affairs,
and contracts intra vires entered into by the Board of Directors are binding on the corporation and
courts will not interfere unless such contracts are so unconscionable and oppressive as to amount
to wanton destruction of rights of the minority. The directors are also not liable to the stockholder
in making decisions using their business judgment. The directors will not be liable even if the
corporation will suffer losses or if its profits will decrease so long as the resolution of the board
was passed in good faith.

II. Qualifications and Term of Office

1. The director or trustee must:

a. Stock Corporations – a director must be the owner of at
least one (1) share in his name in the books of the corporation
while he is director.
b. Non-stock Corporations – a trustee must be a member
thereof, except with respect to independent trustees of non-
stock corporations vested with public interest who may not be
a member of the corporation.
2. A director or trustee, within five (5) years prior to his election or
appointment, must not have been:
a) Convicted by final judgment:
1. Of an offense punishable by imprisonment for a period
exceeding six (6) years
2. For violation of the RCC; or
2. For violation of Republic Act No. 8799 (Securities
Regulation Code).
b) Found administratively liable for any offense involving
fraudulent acts: and
Qualifications
c) Found liable by a foreign court or equivalent foreign
regulatory authority for acts, violations or misconduct similar
to those enumerated in paragraphs (a) and (b) above.

Ø The foregoing is without prejudice to qualifications or other

disqualifications, which the Commission, the primary regulatory
agency, or Philippine Competition Commission may impose in its
promotion of good corporate governance or as a sanction in its
administrative proceedings.
 Stock Corporations – the number should not be more than fifteen (15).
Number of
Non-stock Corporations – the number may or may be more than fifteen
Directors and
(15), except with respect to non-stock corporations where the number of
Trustees
trustees must not be less than five (5) nor more than fifteen (15),
provided that the number shall be in multiples of five (5).
Stock Corporations – directors shall be elected for a term of one (1)
year.

Non-stock Corporations – trustees shall be elected for a term not

exceeding three (3) years.
Term of Office
Non-stock Educational Corporations – trustees shall be elected for a
term of five (5) years, with the first trustees so classifying themselves that
the term of one-fifth (1/5) of their number shall be expire every year.

Note: Each director or trustee shall hold office until his successor is
elected and qualified (Principle of Holdover).

IV. Independent Directors

Independent Director – is a person who apart from shareholdings and fees received from any
business or other relationship which could, or could reasonable be received to materially
interfere with the exercise of independent judgment in carrying out the responsibilities as
a director.

Election of Independent Directors – Independent Director must be elected by the shareholders

present or entitled to vote in absentia during the election of directors. Independent directors shall
be subject to rules and regulations governing their qualifications, disqualifications, voting
requirements, duration of term and term limit, maximum number of board membership and other
requirements that the Commission will prescribed to strengthen their independence and align with
international best practices.

Corporations requiring Independent Directors – The board of the following corporations

vested with public interest shall have independent directors constituting at least twenty
percent (20%) of such board:

a) Corporations covered by Section 17.2 of Republic Act No. 8799 (Securities

Regulation Code), namely those whose securities are registered with the Commission,
corporations listed with an exchange or with assets of at least Fifty million pesos
(50,000,000.00) and having two hundred (200) or more holders of shares, each holding at
least one hundred (100) shares of a class of its equity shares.
b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money
service business, preneed, trust and insurance companies and other financial
intermediaries.
c) Other corporations engaged in businesses vested with public interest similar to the
above, as may be determined by the Commission, after taking into account relevant
factors which are germane to the objective and purpose of requiring the election of an
independent director, such as the extent of minority ownership, type of financial products
or securities issued or offered to investors, public interest involved in the nature of
business operations, and other analogous factors.

V. Election of Directors and Trustees

a. The election must take place in a meeting duly called for that purpose.
Requisites b. There must be present, either in person or through a representative
authorized to act by written proxy:
 1. The owners of majority of the outstanding capital stock, if stock
corporation. However, no delinquent stock shall be voted.
2. The majority of the members entitled to vote, if a nonstock
corporation.
c. The election must be by ballot if required by any voting stockholder or
member.
d. Nominees of directors or trustees receiving the highest number of votes
shall be declared elected.
In stock corporations, stockholders entitled to vote shall have the right to
vote the number of shares of stock standing in their own names in the stock
books of the corporation at the time fixed in the bylaws or where the bylaws
are silent at the time of the election.

The said stockholder may:

(a) vote such number of shares for as many persons as there are
directors to be elected (Straight Voting);
(b) cumulate said shares and give one (1) candidate as many votes as
the number of directors to be elected multiplied by the number of
shares owned (Cumulative voting in favor of one candidate); or
(c) distribute them on the same principle among as many candidates
Methods of
as may be seen fit (Cumulative voting by distribution).
Voting
That the total number of votes cast shall not exceed the number of shares
owned by the stockholders as shown in the books of the corporation
multiplied by the whole number of directors to be elected.

In non-stock corporations, members may cast as many votes as there

are trustees to be elected by may not cast more than one (1) vote for one
(1) candidate, unless otherwise provided in the articles of incorporation or
in the bylaws.

Ø Nominees for directors or trustees receiving the highest number of

votes shall be declared elected.
1. In person.
2. Proxy
Right to vote is 3. Through remote communication or in absentia, when so authorized by
exercised the bylaws, or by resolution of the majority of the board of directors or
trustees, provided that the resolution shall only be applicable to a
particular meeting.
The non-holding of elections and the reasons therefor shall be reported to
the Commission within thirty (30) days from the date of the scheduled
election. The report shall specify a new date for the election, which shall not
be later than sixty (60) days from the scheduled date.
Rule when no
election is held If no new date has been designated, or if the rescheduled election is
likewise not held, the Commission may, upon the application of a
stockholder, member, director or trustee, and after verification of the
unjustifiable non-holding of the election, summarily order that an election
be held.

VI. Removal of Directors and Trustees

Requisites for removal of directors or trustees –

1. The removal must take place either at a regular meeting of the corporation or at a
special meeting called for the purpose.
2. Previous notice of the intention to propose such removal.
3. The following vote is required:
1. Stock corporation – stockholders holding or representing at least two-thirds (2/3
of the outstanding capital stock entitled to vote.
2. Non-stock corporation – at least two-thirds (2/3) of the members entitled to vote.
Cause of removal –

General Rule: Removal of a director or trustee may be with or without cause.

Exception: Removal without cause may not be used to deprive minority stockholders or members
of the right of representation to which they are entitled.

The Commission shall, motu propio or upon verified complaint, and after due notice and hearing,
order the removal of a director or trustee elected despite the disqualification, or whose
disqualification arose or is discovered subsequent to an election.

VII. Filling of Vacancies

(1) Removal; (2) Expiration of term; (3) Increase in the number of

Grounds directors; (4) Resignation; (5) Death; (6) Abandonment; and (7)
Disqualification
a. By the stockholders or members –
1) If the cause of vacancy is any of the following: (1) Removal;
(2) Expiration of term; or (3) Increase in number of directors
or trustees.
2) The cause of vacancy is other than removal, expiration of
Filling of Vacancy
term, or increase in the number of directors and trustees, but
the remaining directors or trustees do not constitute a
quorum for the purpose of filling the vacancy.
b. By the board of directors or trustees – The cause of vacancy is
other than removal, expiration of term, or increase in the number of
directors and trustees, if still constituting a quorum.
Replacement director or trustee shall serve only for the unexpired
Term of Office
portion of the term of his predecessor in office.
Requisites for creation of Emergency Board: (1) There is a vacancy
in the board of directors; (2) Such vacancy prevents the remaining
director from constituting a quorum; (3) Emergency action is required to
prevent grave, substantial, and irreparable loss or damage of the
corporation.

Appointment of Emergency Director – the vacancy may be

temporarily filled from among the officers of the corporation by
unanimous vote of the remaining directors or trustees.
Emergency Board
Scope of Authority – The action by the designated director or trustee
shall be limited to the emergency action necessary, and the term shall
cease within a reasonable time form the termination of the emergency or
upon election of the replacement director or trustee, whichever comes
earlier.

Reporting to SEC – The corporation must notify the Commission within

three (3) days from the creation of the emergency board, stating therein
the reason for its creation.

VIII. Compensation of Directors or Trustees

General Rule: The directors or trustees shall not receive any compensation in their capacity as
such.

Exceptions:

1. When there is a provision in the bylaws fixing their compensation

2. Reasonable per diems.
 3. When the compensation is approved by the stockholders representing at least a majority
of the outstanding capital stock or majority of the members at a regular or special meeting.

Limitations on Compensation – The total yearly compensation of directors shall not exceed
ten percent (10%) of the net income before income tax of the corporation during the preceding
year.

Corporations vested with public interest – Shall submit to their shareholders and the
Commission an annual report of the total compensation of each of their directors or trustees.

IX. Liability of Directors or Trustees

Fiduciary Duties – (1) Duty of obedience; (2) Duty of diligence; and (3) Duty of Loyalty

Liability for Damages –

1. By willfully and knowingly vote for or assent to patently unlawful acts of the corporation.
2. By being guilty of gross negligence or bad faith in directing the affairs of the corporation.
3. By acquiring any personal or pecuniary interest in conflict with their duty as such
directors or trustees.

Liability for Secret Profits –A director, trustee or officer shall not attempt to acquire, or any
interest adverse to the corporation in respect of any matter which has been reposed in them in
confidence, and upon which, equity imposes a disability upon themselves to deal in their own
behalf; otherwise, the said director, trustee or officer shall be liable as a (1) trustee for the
corporation and (2) must account for the profits which otherwise would have accrued to the
corporation.

X. Disloyalty of Directors

Doctrine of Corporate Opportunity – prohibits directors from usurping for, or diverting to,
themselves business deals or opportunities that in equity or fairness belong to the corporation.

Consequence of Disloyalty – Where a director, by virtue of such office, acquires a business

opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of
such corporation, must account for and refund to the latter all such profits.

Non-applicability of the consequence – The obligation to account for and refund does not apply
when the act has been ratified by a vote of the stockholders owning or representing at least
two-thirds (2/3) of the outstanding capital stock.

XI. Dealing of Directors, Trustees or Corporate Officers

Self-dealing director or trustee – A contract of the corporation with one (1) or more of its
directors, trustees, officers or their spouses and relatives within the fourth civil degree of
consanguinity or affinity is voidable, at the option of such corporation, unless all the following
conditions are present:
(a) The presence of such director or trustee in the board meeting in which the contract was
approved was not necessary to constitute a quorum for such meeting;
(b) The vote of such director or trustee was not necessary for the approval of the contract;
(c) The contract is fair and reasonable under the circumstances; and
(d) In case of corporations vested with public interest, material contracts are approved by at
least a majority of the independent directors voting to approved the material contract.
Ratification of a contract with a director or trustee – Where any of the first three (3)
conditions is absent, in the case of a contract with a director or trustee, such contract may be
ratified by the vote of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting called
for the purpose. Full disclosure of the adverse interest of the directors or trustees involved is made
at such meeting and the contract is fair and reasonable under the circumstances.

Requisites for validity of contract with an officer who is not a director or trustee or with
such officer’s spouse or relative within the same degree –
1. The contract is fair and reasonable under the circumstances; and
2. The contract has been previously authorized by the board of directors.

XII. Interlocking Directors or Trustees

Interlocking Directorate – Contract between two (2) or more corporations having interlocking
directors shall not be invalidated on that ground alone provided the following requisites are
present:
1. There is no fraud.
2. The contract is fair and reasonable under the circumstances
3. If the interest of the interlocking director in one (1) corporation is substantial and the
interest in the other corporation or corporations is merely nominal, the contract shall be
subject to the following conditions:
1. The presence of such director or trustee in the board meeting in which the contract
was approved was not necessary to constitute a quorum for such meeting;
2. The vote of such director or trustee was not necessary for the approval of the
contract.

Stockholding exceeding twenty percent (20%) of the outstanding capital stock shall be
considered substantial for purposes of interlocking directors.
XIII. Executive Committee

Composition Composed of at least three (3) directors.

Said committee may act, by majority of vote of all its members, on
Power such specific matters within the competence of the board, as may be
delegated to it in the bylaws or by majority vote of the board.
The following act cannot be delegated to the executive committee:
a. Approval of any action for which shareholders' approval is also
required;
Non-delegable b. Filing of vacancies in the board;
Power c. Amendment or repeal of bylaws or the adoption of new bylaws;
d. Amendment or repeal of any resolution of the board which by its
express terms is not amendable or repealable; and
e. Distribution of cash dividends to the shareholders.

CAPITAL STRUCTURE

I. Certificate of Stock

Certificate of Stock – The capital stock of corporations shall be divided into shares for which
certificates:
1. It must be signed by the president or vice-president, countersigned by the corporate
secretary or assistant corporate secretary.
2. It must be sealed with the seal of the corporation.
3. Issued in accordance with the bylaw.
Issuance of Certificate of Stock – No certificate of stock shall be issued to a subscriber until
(1) the full amount of subscription together with (2) interest and expenses (in case of delinquent
shares), if any is due, has been paid.

Transfer of shares of stock – Shares of stock so issued are personal property and may be
transferred by delivery of the certificate or certificates indorsed by the owner, his attorney-in-fact,
or any other person legally authorized to make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the books of the corporation
showing the names of the parties to the transaction, the date of the transfer, the number of the
certificate or certificates, and the number of shares transferred.

Note: No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation.

II. Watered Stock

Watered Stock – stock issued below its par or issued value either without consideration or for
no adequate consideration.

Grounds for liability of directors for watered stock –

(a) consents to the issuance of stocks for a consideration less than its par or issued value:
(b) consents to the issuance of stocks for the consideration other than cash, valued in excess
of its fair value; or
(c) having knowledge of the insufficient consideration, does not file written objection with the
corporate secretary.

Nature and amount of liability – The director shall be liable to the corporation or its creditors,
solidarily with the stockholder concerned for the difference between the value receive at the
time of issuance of the stock and the par or issued value of the same.

III. Payment on Unpaid Subscription

Interest on Unpaid Subscriptions – Subscribers to stock shall be liable to the corporation for
interest on all unpaid subscriptions from the date of subscription, if so required by and at the
(1) rate of interest fixed in the subscription contract. If no rate of interest is fixed in the subscription
contract, the (2) prevailing legal rate shall apply.

Date and amount of payment for the balance of subscription –

1. On the date specified in the contract of subscription.
2. If no date for payment is fixed in the contract of subscription, payment shall be made on
the date stated in the call made by the board of directors. The board may declare due and
payable:
a. The whole balance of the subscription;
b. A percentage of the unpaid subscription.

Effect of failure to pay on subscription date –

1. The entire balance shall become due and payable.
2. The stockholder liable for interest at the legal rate on such balance, unless a different
interest at the legal rate on such balance, computed from the date specified, until full
payment of the subscription.
3. If no payment is made within thirty (30) days from the said sate, all stocks covered by the
subscription shall thereupon become delinquent and shall be subject to sale, unless the
board of directors’ orders otherwise.
Remedies of to enforce delinquent shares –
a. Apply any cash dividends due on the delinquent stock to the unpaid balance on the
subscription plus costs and expenses, or in case of stock dividends, withhold the same
from the delinquent stockholder until his unpaid subscription is fully paid.
b. File a court action to collect the amount due on the unpaid subscription, with accrued
interest, cost and expenses.
c. Sell the shares at public auction (delinquency sale).

Procedure of Delinquency Sale –

1. The board of directors, by resolution, orders the sale of delinquent stock.
2. Notice of the sale.
3. Publication once a week for two (2) consecutive weeks in newspaper of general
circulation in the province or city where the principal office of the corporation is located.
4. If the delinquent stockholder fails to pay, the delinquent stock shall be sold at public
auction to the highest bidder.

Ø Highest Bidder – one who offers to pay the full amount of the balance on the
subscription together with accrued interest, costs of advertisement, and expenses of sale,
for the smallest number of shares or fraction of a share.

Grounds to recover delinquent stock sold –

a. Irregularity or defect in the notice of sale
b. Irregularity or defect in the sale itself of the delinquent stock

Requisites for recovery –

1. The party seeking to maintain such action first pays or tenders to the party holding the
sum for which the same was sold with interest from the date of sale at the legal rate.
2. Complaint is filed within six (6) months from the date of sale.

Effect of delinquency – (1) No delinquent stock shall be voted for, (2) be entitled to vote, or (3)
be represented at any stockholder's meeting, (4) nor shall the holder thereof be entitled to any of
the rights of a stockholder except the right to dividends, until and unless payment is made by the
holder of such delinquent stock for the amount due on the distribution with accrued interest, and
the costs and expenses of advertisement, if any.

MERGER AND CONSOLIDATION

Merger – is one where a corporation absorbs another corporation and remains in existence while
the other is dissolved. Thus, A+B=A.

Consolidation – is one where a new corporation is created, and consolidating corporations are
extinguished. Thus, A+B=C.

I. PROCEDURE FOR MERGER AND CONSOLIDATION

1. The majority of the board of directors or trustees of each corporation, party to the merger
or consolidation, shall approve a plan of merger or consolidation setting forth the following:
a. The names of the corporations proposing to merge or consolidate hereinafter
referred to as the constituent corporations;
b. The terms of the merger or consolidation and the mode of carrying the same into
effect;
c. A statement of the changes, if any, in the articles of incorporation of the surviving
corporation in case of merger; and, in case of consolidation, all the statements
 required to be set forth in the articles of incorporation for corporations organized
under this Code; and
d. Such other provisions with respect to the proposed merger or consolidation as are
deemed necessary or desirable.

2. The plan of merger or consolidation shall be submitted for approval by the

stockholders or members of each of such corporations at separate corporate meetings
duly called for the purpose.
Ø The affirmative vote of stockholders representing at least two-thirds (2/3) of the
outstanding capital stock of each corporation in the case of stock corporations or
at least two-thirds (2/3) of the members in the case of nonstock corporations shall
be necessary for the approval of such plan.

3. Articles of merger or articles of consolidation shall be executed by each of the

constituent corporations, signed by the president or vice president and certified by the
secretary or assistant secretary of each corporation setting forth:
a. The plan of the merger or the plan of consolidation;
b. As to stock corporations, the number of shares outstanding, or in the case of
nonstock corporations, the number of members;
c. As to each corporation, the number of shares or members voting for or against
such plan, respectively;
d. The carrying amounts and fair values of the assets and liabilities of the respective
companies as of the agreed cut-off date;
e. The method to be used in the merger or consolidation of accounts of the
companies;
f. The provisional or pro forma values, as merged or consolidated, using the
accounting method; and
g. Such other information as may be prescribed by the Commission.

4. The articles of merger or of consolidation shall be submitted to the SEC for its approval.
Ø In the case of merger or consolidation of banks or banking institutions, loan
associations, trust companies, insurance companies, public utilities, educational
institutions, and other special corporations governed by special laws, the favorable
recommendation of the appropriate government agency shall first be obtained.

5. If the Commission is satisfied that the merger or consolidation of the corporations

concerned is consistent with the provisions of this Code and existing laws, it shall issue
a certificate approving the articles and plan of merger or of consolidation, at which
time the merger or consolidation shall be effective.

II. AMENDMENT TO THE PLAN FOR MERGER AND CONSOLIDATION

Amendment to the plan of merger or consolidation – Any amendment to the plan of merger
or consolidation may be made:
1. Any amendment is approved by a majority vote of the respective boards of directors or
trustees of all the constituent corporations and
2. Ratified by the affirmative vote of stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or of two-thirds (2/3) of the members of each of the constituent
corporations.

Such plan, together with any amendment, shall be considered as the agreement of merger or
consolidation.
III. EFFECTS OF MERGER AND CONSOLIDATION

Effects of Merger or Consolidation – The merger or consolidation shall have the following
effects:

1. The constituent corporations shall become a single corporation. The surviving

corporation in case of merger, and the consolidated corporation in case of
consolidation.
2. The separate existence of the constituent corporations shall cease, except that of the
surviving or the consolidated corporation.
3. The surviving or the consolidated corporation shall possess:
a. All the rights, privileges, immunities, and powers and shall be subject to all
the duties and liabilities of a corporation organized under this Code.
b. All the rights, privileges, immunities and franchises of each constituent
corporation.
c. All real or personal property, all receivables due on whatever account, including
subscriptions to shares and other choses in action, and every other interest of,
belonging to, or due to each constituent corporation, shall be deemed transferred
to and vested in such surviving or consolidated corporation without further act or
deed.
4. The surviving or consolidated corporation shall be responsible for all the liabilities and
obligations of each constituent corporation as though such surviving or consolidated
corporation had itself incurred such liabilities or obligations; and any pending claim, action
or proceeding brought by or against any constituent corporation may be prosecuted by or
against the surviving or consolidated corporation. The rights of creditors or liens upon the
property of such constituent corporations shall not be impaired by the merger or
consolidation.

DISSOLUTION

Dissolution – Termination of the existence of a corporation.

Kinds of Dissolution:
1. Voluntary Dissolution
1. Voluntary Dissolution where creditors are affected
2. Voluntary Dissolution where no creditors are affected
3. Amending the articles of incorporation to shorten corporate term
4. In the case of corporation sole, by submitting to the SEC a verified declaration of
dissolution
2. Involuntary Dissolution
1. By the order of the SEC
2. By legislative dissolution

I. VOLUNTARY DISSOLUTION WHERE NO CREDITORS ARE AFFECTED

Requisites of voluntary dissolution where creditors are affected –

1. Vote Required – The resolution for the dissolution of the corporation must be approved
by:
1. Majority vote of the board of directors or trustees, and
2. Majority voted of the outstanding capital stock or of the members (voting and non-
voting).
2. A verified petition for dissolution shall be filed with the SEC stating the following:
a. Reason for the dissolution.
b. The form, manner, and time when the notices were given.
 c. Names of the stockholders and directors or members and trustees who approved
the dissolution.

II. VOLUNTARY DISSOLUTION WHERE NO CREDITORS ARE AFFECTED

Requisites of voluntary dissolution where no creditors are affected –

1. Vote Required – The resolution for the dissolution of the corporation must be approved
by:
1. Majority vote of the board of directors or trustees, and
2. Majority voted of the outstanding capital stock or of the members (voting and non-
voting).
2. A verified request for dissolution shall be filed with the SEC stating the following:
a. Reason for the dissolution.
b. The form, manner, and time when the notices were given.
Ø The notice shall be given to each shareholder or member of record at least
twenty (20) days prior to the meeting, whether or not entitled to vote,
personally, by registered mail, or by any means authorized under its bylaws,
and shall state that the purpose of the meeting is to vote on the dissolution of
the corporation.
c. Names of the stockholders and directors or members and trustees who approved
the dissolution.
d. Date, place, and time of the meeting in which the vote was made; and
e. Details of publication of the proposed dissolution.
3. The corporation shall submit the following to the Commission: (1) a copy of the resolution
authorizing the dissolution, certified by a majority of the board of directors or trustees and
countersigned by the secretary of the corporation; (2) proof of publication of proposed
dissolution; and (3) favorable recommendation from the appropriate regulatory agency,
when necessary.
4. Approval of the request for dissolution and the issuance of the certificate of dissolution by
the SEC. The date dissolution shall take effect on the date stated in the certificate of
dissolution issued by the SEC.

II. VOLUNTARY DISSOLUTION WHERE CREDITORS ARE AFFECTED

Requisites of voluntary dissolution where creditors are affected –

1. Vote Required – The resolution for the dissolution of the corporation must be approved
by:
1. Majority vote of the board of directors or trustees, and
2. Resolved upon by the affirmative vote of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock or at least two-thirds (2/3) of the
members at a meeting of its stockholders or members called for that purpose.
2. A verified petition for dissolution, signed by the majority of the board of directors or
trustees, verified by its president or secretary or one of its directors or trustees, shall be
filed with the SEC stating the following:
a. All claims and demands against the corporation.
b. Vote required.
c. The reason for the dissolution.
d. The form, manner, and time when the notices were given.
e. Date, place, and time of the meeting in which the vote was made.
3. The corporation shall submit to the Commission the following: (1) a copy of the resolution
authorizing the dissolution, certified by a majority of the board of directors or trustees and
countersigned by the secretary of the corporation; and (2) a list of all its creditors.
4. If the petition is sufficient in form and substance, the Commission shall, by an order reciting
the purpose of the petition, fix a deadline for filing objections to the petition which date
 shall not be less than thirty (30) days nor more than sixty (60) days after the entry of the
order. Before such date, a copy of the order shall be published at least once a week
for three (3) consecutive weeks in a newspaper of general circulation published in
the municipality or city where the principal office of the corporation is situated, or if
there be no such newspaper, then in a newspaper of general circulation in the Philippines,
and a similar copy shall be posted for three (3) consecutive weeks in three (3) public
places in such municipality or city.
5. Upon five (5) days’ notice, given after the date on which the right to file objections as fixed
in the order has expired, the Commission shall proceed to hear the petition and try any
issue raised in the objections filed; and if no such objection is sufficient, and the material
allegations of the petition are true, it shall render judgment dissolving the corporation and
directing such disposition of its assets as justice requires, and may appoint a receiver to
collect such assets and pay the debts of the corporation. The dissolution shall take effect
only upon the issuance by the Commission of a certificate of dissolution.

III. DISSOLUTION BY SHORTENING CORPORATE TERM

Requisites of voluntary dissolution by shortening corporate term –

1. Amendment of the articles of incorporation. Such amendment reflecting the shortened
term requires the approval of:
1. Majority of the board of directors or trustees.
2. Two-thirds (2/3) of the outstanding capital stock or two-thirds (2/3) of the members.
2. A copy of the amended articles of incorporation shall be submitted to the SEC.
3. Upon the expiration of the shortened term, the corporation shall be deemed dissolved
without any further proceedings, subject to the provisions of this Code on liquidation.

IV. INVOLUNTARY DISSOLUTION

Involuntary Dissolution – A corporation may be dissolved by the Commission motu proprio or
upon filing of a verified complaint by any interested party. The following may be grounds for
dissolution of the corporation:

1. Non-use of corporate charter as provided under Section 21 of this Code.

2. Continuous inoperation of a corporation as provided under Section 21 of this Code.
3. Upon receipt of a lawful court order dissolving the corporation.
4. Upon finding by final judgment that the corporation procured its incorporation
through fraud.
5. Upon finding by final judgment that the corporation:
a) Was created for the purpose of committing, concealing or aiding the commission
of securities violations, smuggling, tax evasion, money laundering, or graft and
corrupt practices;
b) Committed or aided in the commission of securities violations, smuggling, tax
evasion, money laundering, or graft and corrupt practices, and its stockholders
knew; and
c) Repeatedly and knowingly tolerated the commission of graft and corrupt practices
or other fraudulent or illegal acts by its directors, trustees, officers, or employees.

Involuntary Dissolution by Legislative Enactment – a corporation may be dissolved by an act

of Congress either by an amendment or repeal of the Revised Corporation Code. Consequently,
no right or remedy in favor of or against any corporation, its stockholders, members, directors,
trustees, or officers, nor any liability incurred by any such corporation, stockholders, members,
directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution
of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof.
V. CORPORATE LIQUIDATION

Liquidation – getting the assets of the corporation, settling with creditors and debtors, and
apportioning the amount of profit and loss. After dissolution, the corporation shall nevertheless
continue as a body corporate for three (3) years, not for continuing the business for which it
was established, but for the following:
a) To prosecute and defend suits by or against it.
b) To enable it to settle and close it affairs.
c) To dispose of and convey its property.
d) To distribute its assets.

Who may effect the liquidation of the corporation – (1) By the corporation itself; (2) Receiver;
and (3) Trustee

Conveyance to Trustees – At any time during said three (3) years, the corporation is authorized
and empowered to convey all of its property to trustees for the benefit of stockholders, members,
creditors and other persons in interest. After any such conveyance to the trustee, it produces the
following effects:
1. All interest which the corporation had in the property terminates.
2. The legal interest vests in the trustees.
3. The beneficial interest in the stockholders, members, creditors or other persons-
in-interest.

SPECIAL CORPORATIONS

I. NON-STOCK CORPORATION

Non-stock Corporation – is one where no part of its income is distributable as dividends to its
members, trustees, or officers. Any profit which a nonstock corporation may obtain incidental to
its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or
purposes for which the corporation was organized.

Purposes – Nonstock corporations may be formed or organized for charitable, religious,

educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar
purposes, like trade, industry, agricultural and like chambers, or any combination thereof.

Right of Members to Vote –

a. Number of votes to which a member is entitled – Each member is entitled to one
vote, except in the following cases:
1. If the right is limited, broadened, or denied to the extent specified in the articles of
incorporation or the bylaws.
2. In the election of trustees, members may cast as many votes as there are
trustees to be elected, but they may not cast more than one (1) vote for one (1)
candidate, unless the articles of incorporation or the by-laws provide otherwise,
such as where cumulative voting has been adopted as in the case of non-stock
corporations that have capital stock.
b. How members may vote – Members may vote through any of the following ways:
a. In person
b. By proxy
c. By remote communication and/or in absentia as provided in the by laws

Non-transferability of Membership – Membership in a nonstock corporation and all rights

arising therefrom are personal and non-transferable, unless the articles of incorporation or the
bylaws otherwise provide.
 1. Termination of Membership –
i. Procedure and Cause of Termination – Membership shall be terminated
in the manner and for the causes provided in the articles of incorporation
or the bylaws.
ii. Effect of Termination of Membership – Termination of membership shall
extinguish all rights of a member in the corporation or in its property, unless
otherwise provided in the articles of incorporation or the bylaws.

Trustees and Officers –

a. Number of Trustees – The number of trustees shall be fixed in the articles of
incorporation or bylaws which may or may not be more than fifteen (15).
b. Qualification of Trustees – Trustees must be members of the corporation.
Except with respect to independent trustees of nonstock corporations vested with
public interest, only a member of the corporation shall be elected as trustee.
c. Term of Office of Trustees – They shall hold office for not more than three (3)
years until their successors are elected and qualified. Trustees elected to fill
vacancies occurring before the expiration of a particular term shall hold office only
for the unexpired period.

II. EDUCATIONAL CORPORATIONS

Number of members of the board of trustees of educational corporations –

a. Stock educational corporations – The number of trustees shall not be more than fifteen
(15).
b. Non-stock educational corporations – Trustees shall not be less than five (5) nor more
than fifteen (15), but the number of trustees shall be in multiples of five (5).

Term of office of board of directors or trustees –

a. Stock educational corporations – The term of office of directors shall be the same as
that of the term of directors of stock corporations in general.
b. Non-stock educational corporations – The term of office shall be five (5) years. Unless
otherwise provided in the articles of incorporation or bylaws, the board of trustees of
incorporated schools, colleges, or other institutions of learning shall, as soon as organized,
so classify themselves that the term of office of one-fifth (1/5) of their number shall expire
every year.

Vacancy in the board of directors or trustees – Trustees thereafter elected to fill vacancies,
occurring before the expiration of a particular term, shall hold office only for the unexpired
period. Trustees elected thereafter to fill vacancies caused by expiration of term shall hold office
for five (5) years.

Quorum – Majority of the trustees shall constitute a quorum for the transaction of business.
The powers and authority of trustees shall be defined in the bylaws.

III. ONE PERSON CORPORATIONS

Definition – One Person Corporation (OPC) is a corporation with a single stockholder.

Who may Form an OPC – (1) Natural person, who must be of legal age; (2) Trust; and (3) Estate

Who may not incorporate –

a. Banks and quasi-banks, pre-need, trust, insurance, public and publicly-listed companies,
and non-chartered government-owned and -controlled corporations.
 b. Natural person who is licensed to exercise a profession may not organize as a One Person
Corporation for the purpose of exercising such profession except as otherwise provided
under special laws.

Term – Term of existence shall be perpetual.

Capital Stock Requirement – A One Person Corporation shall not be required to have a
minimum authorized capital stock except as otherwise provided by special law.

Articles of Incorporation – One Person Corporation shall file articles of incorporation in

accordance with the requirements under Section 14 of this Code. It shall likewise substantially
contain the following:
a) If the single stockholder is a trust or an estate, the name, nationality, and residence of the
trustee, administrator, executor, guardian, conservator, custodian, or other person
exercising fiduciary duties together with the proof of such authority to act on behalf of the
trust or estate; and
b) Name, nationality, residence of the nominee and alternate nominee, and the extent,
coverage and limitation of the authority.

By laws – One Person Corporation is not required to submit and file corporate bylaws.

Corporate Name – A One Person Corporation shall indicate the letters “OPC” either below or at
the end of its corporate name.

Corporate Officers –
1. President – The single stockholder shall be the sole director and president of the OPC.
He may not be appointed as the corporate secretary.
2. Treasurer – A single stockholder who is the self-appointed treasurer of the corporation
shall give a bond to the SEC in such a sum as may be required.
3. Corporate Secretary
4. Other officers that OPC may appoint

Designation of Nominee and Alternate Nominee – The single stockholder shall designate a
nominee and an alternate nominee in the articles of incorporation who shall replace the single
stockholder in the event of the latter’s death and/or incapacity.

The written consent of the nominee and alternate nominee shall be attached to the application for
incorporation. Such consent may be withdrawn in writing any time before the death or incapacity
of the single stockholder.

The articles of incorporation shall state the names, residence addresses and contact details of
the nominee and alternate nominee, as well as the extent and limitations of their authority in
managing the affairs of the One Person Corporation.

Term of Nominee and Alternate Nominee –

a. Incapacity of the single stockholder is temporary – the nominee shall sit as director
and manage the affairs of the One Person Corporation until the stockholder, by self-
determination, regains the capacity to assume such duties.
b. In case of death or permanent incapacity of the single stockholder – the nominee
shall sit as director and manage the affairs of the OPC until the legal heirs of the single
stockholder have been lawfully determined, and the heirs have designated one of them or
have agreed that the estate shall be the single stockholder of the OPC.
When Alternate Nominee shall sit as director and manage the OPC – The alternate nominee
shall sit as director and manage the OPC for the same term and under the same conditions
applicable to the nominee, in case of the following:
1. Inability, incapacity, death, or
2. Refusal to discharge the functions as director and manager of the corporation, and only
for the same term and under the same conditions applicable to the nominee.

Change of Nominee or Alternate Nominee – The single stockholder may, at any time, change
its nominee and alternate nominee by submitting to the SEC: (1) The names of the new nominees
and (2) their corresponding written consent. The articles of incorporation need not be amended.

Liability of Single Shareholder – A sole shareholder claiming limited liability has the burden of
affirmatively showing that the corporation was adequately financed. Where the single stockholder
cannot prove that the property of the One Person Corporation is independent of the stockholder’s
personal property, the stockholder shall be jointly and severally liable for the debts and other
liabilities of the One Person Corporation.

Application of the Doctrine of Piercing the Veil of Corporate Fiction – The principles of
piercing the corporate veil applies with equal force to One Person Corporations as with other
corporations.

Conversion from an Ordinary Corporation to a One Person Corporation – When a single

stockholder acquires all the stocks of an ordinary stock corporation, the latter may apply for
conversion into a One Person Corporation, subject to the submission of such documents as the
Commission may require. If the application for conversion is approved, the Commission shall
issue a certificate of filing of amended articles of incorporation reflecting the conversion.

Effect of Conversion – The One Person Corporation converted from an ordinary stock
corporation shall succeed the latter and be legally responsible for all the latter’s outstanding
liabilities as of the date of conversion.

Conversion from a One Person Corporation to an Ordinary Stock Corporation; Procedure

–
1. Notice must be given to the SEC of such fact and of the circumstances leading to the
conversion within sixty (60) days from the occurrence of the circumstances.
2. The requirements for stock corporations and applicable rules must be complied with.
3. The SEC shall issue a certificate of filing of amended articles of incorporation reflecting
the conversion.

Effects of Conversion – The ordinary stock corporation converted from an OPC shall succeed
the latter and be legally responsible for all the latter’s outstanding liabilities as of the date of
conversion.

Rule in case of death of single stockholder of OPC – In case of death of the single stockholder,
the nominee or alternate nominee shall transfer the shares to the duly designated legal heir
or estate within seven (7) days from receipt of either an affidavit of heirship or self-
adjudication executed by a sole heir, or any other legal document declaring the legal heirs of
the single stockholder and notify the Commission of the transfer. Within sixty (60) days from the
transfer of the shares, the legal heirs shall notify the SEC of their decision to either wind up and
dissolve the One Person Corporation or convert it into an ordinary stock corporation.
 FOREIGN CORPORATIONS

Foreign Corporation – is one formed, organized or existing under laws other than those of the
Philippines’ and whose laws allow Filipino citizens and corporations to do business in its own
country or State.

License required before a foreign corporation can transact business in the Philippines – It
shall have the right to transact business in the Philippines after obtaining a license for that purpose
in accordance with this Code and a certificate of authority from the appropriate government
agency.

I. DOING BUSINESS IN THE PHILIPPINES

Doing business – Shall include:

1. Soliciting orders
2. Service contracts
3. Opening offices, whether called "liaison" offices or branches
4. Appointing representatives or distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods totalling one hundred eighty (180)
days or more
5. Participating in the management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines; and
6. Any other act or acts that imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the exercise of some of
the functions normally incident to, and in progressive prosecution of, commercial gain or
of the purpose and object of the business organization.

Test to determine whether a foreign corporation is doing business in the Philippines –

1. Substance Test – The true test for doing business is whether the foreign corporation is
continuing the body of the business or enterprise for which it was organized or
whether it has substantially retired from it and turned it over to another.
2. Continuity Test – The term “doing business” implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent, the performance of acts
or works, or the exercise of some functions normally incident to, and in the progressive
prosecution of, the purpose or object of its organization.

Doing business without a license – A foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall not be permitted to maintain or intervene
in any action, suit or proceeding in any court or administrative agency of the Philippines;
but such corporation may be sued or proceeded against before Philippine courts or administrative
tribunals on any valid cause of action recognized under Philippine laws.

Doing business in the Philippines

It may sue and be sued in the Philippines.
with a license
Doing business in the Philippines
It cannot sue, but it may be sued in the Philippines.
without a license
A foreign corporation not doing business in the
Philippines may sue and be sued in the Philippines
depending on the attendant circumstances.
Not doing business in the Philippines
a. When transaction is isolated
b. When the suit was brought to assert property
right
II. REVOCATION OF LICENSE

Grounds for Revocation of License – Without prejudice to other grounds provided under special
laws, the license of a foreign corporation to transact business in the Philippines may be revoked
or suspended by the Commission upon any of the following grounds:
1. Failure to file its annual report or pay any fees as required by this Code;
2. Failure to appoint and maintain a resident agent in the Philippines as required by this
Title;
3. Failure, after change of its resident agent or address, to submit to the SEC a
statement of such change as required by this Title;
4. Failure to submit to the Commission an authenticated copy of any amendment to its
articles of incorporation or bylaws or of any articles of merger or consolidation within the
time prescribed by this Title;
5. Misrepresentation of any material matter in any application, report, affidavit or other
document submitted by such corporation pursuant to this Title;
6. Failure to pay any and all taxes, imposts, assessments or penalties, if any, lawfully
due to the Philippine Government or any of its agencies or political subdivisions;
7. Transacting business in the Philippines outside of the purpose or purposes for which
such corporation is authorized under its license;
8. Transacting business in the Philippines as agent of or acting on behalf of any
foreign corporation or entity not duly licensed to do business in the Philippines; or
9. Any other ground as would render it unfit to transact business in the Philippines.

III. RESIDENT AGENT

Resident Agent – A resident agent may be either an (1) individual residing in the Philippines or
(2) a domestic corporation lawfully transacting business in the Philippines.
- An individual resident agent must be of good moral character and of sound financial
standing.
- In case of a domestic corporation who will act as a resident agent, it must likewise be of
sound financial standing and must show proof that it is in good standing as certified by the
Commission.

Upon whom may summon and other legal processes on foreign corporation be served –
1. To the resident agent designated in the power of attorney executed by the foreign
corporation to accept service of such summons and other legal processes.
2. To the SEC where the foreign corporation shall cease to transact business in the
Philippines, or shall be without any resident agent. In such a case, the SEC shall, within
ten (10) days thereafter, transmit by mail a copy of such summons or other legal process
to the corporation at its home or principal office.