CORPORATION CODE

Professor: Dean Nilo T. Divina

Sources: Aquino, Timoteo B. (2006). PHILIPPINE CORPORATE LAW COMPENDIUM. Quezon City: Rex Printing Company, Inc.; Marx Notes

BATAS PAMBANSA BLG. 68  Congress cannot enact a special law to create a

THE CORPORATION CODE OF THE PHILIPPINES private corporation to compete with another private
corporation (See Sec. 4)
TITLE I - GENERAL PROVISIONS DEFINITIONS AND  Congress can only enact a special law creating a
CLASSIFICATIONS corporation only if such corporation is owned and
controlled by the Government (at least 51%) and is
Section 1. Title of the Code. - This Code shall be known as organized for a governmental purpose. Otherwise,
"The Corporation Code of the Philippines." (n) such law is unconstitutional and it cannot even create
a de facto corporation (See Sec. 20)
Section 2. Corporation defined. –
 2 kinds of franchise:
A corporation is
1. Primary franchise – the authority to act as a
1) an artificial being
corporation. All corporation registered in
2) created by operation of law,
SEC has primary franchise
3) having the right of succession and
2. Secondary franchise – a special authority
4) the powers, attributes and properties expressly
given to a corporation to engage in a
authorized by law or incident to its existence. (2)
specialized business. (banks, insurance
companies, etc.)
ARTIFICIAL BEING – it exist in contemplation of law. It derives
its existence to the law that created it either by a general or
RIGHT OF SUCCESSION – A corporation is not immortal but is
special law. It is not a natural person but the law considers the
capable of continued existence because any change of
corporation not just a group of persons but as a person. A legal
ownership or in the composition of the stockholders will not
person and therefore it has a personality that is separate and
result to the dissolution of the Corporation. It will continue to
distinct from the person composing it. (DOCTRINE OF LEGAL
exist for as long as there is an extension of corporate term (See
ENTITY)
Sec. 11)
 can acquire properties, enter into contracts
 in case of death, ownership of shares is transmitted
 can have a cause of action, can incur liabilities
to the heirs by operation of law
 principal-agent relationship applies
 can be held liable for torts or quasi-delict
POWERS, ATTRIBUTES AND PROPERTIES EXPRESSLY
 can be entitled to constitutional protections like
AUTHORIZED BY LAW OR INCIDENT TO ITS EXISTENCE – these
unreasonable search and seizure
powers are found in the Corporation Code, AOI, By-laws. It also
 can be held liable for a crime if the penalty is fine or
includes powers incidental to its express powers of
forfeiture of license or franchise but not if the penalty
incorporation.
is imprisonment
 can be entitled to moral damages
DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION –
o GR: A corporation is not entitled to moral
1. a doctrine
damages because, not being a natural
2. that allows the State (judicial function)
person it cannot experience physical
3. to disregard for certain justifiable reasons the notion
suffering or sentiments.
that a corporation has a personality separate and
o XPN: When the corporation has a
distinct from the person composing it
reputation that is debased, resulting to
humiliation in the business realm
 Objective: To make the stockholders liable for the
o Case: Tortuous act should have directly
debts and obligations of the corporation and not the
resulted to the destruction or impairment
other way around.
of the reputation or good will of the
corporation (MERALCO v. TEAM
 Rules:
ELECTRONICS)
a. The obligation of the corporation is not the
o Case: Under the NCC, in case of libel, oral
liability of the stockholders, officers or
defamation or slander, the aggrieved
directors
person is entitled to moral damages.
b. The properties of the Corporation are not
(FILIPINAS BROADCASTING v. AGO
properties of the stockholders, officers or
MEDICAL)
directors
i. a stockholder is not a tenant, not
CREATED BY OPERATION OF LAW – the corporation owes its
an owner nor a co-possessor or
existence to the State thru a law enacted by Congress
usufructuary
(CONCESSION THEORY)
 A private corporation can only be organized in
 Factors not enough to disregard the separate legal
accordance with the Corporation Code.
personality of the corporation:
 A GOCC that may have a charted on its own, are not
a. controlling ownership or ownership over
organized under the Corporation Code.
the controlling shares
b. common directors
 c. substantial identity of the incorporators and
similarity of business
 Various test adopted by the SC:
a. Fraud test – when the corporate identity is
used to defeat public convenience, justify
wrong, protect fraud, or defend crime;
when the corporation is being used to
accomplish an intent to commit a wrong
b. Alter Ego or Instrumentality test – when the
corporation is a mere alter ego or business
conduit of a person, or when the
corporation is so organized and controlled
and its affairs are so conducted as to make
it merely an instrumentality, agency,
conduit or adjunct of another persons.
Fraud is not an element
c. Control test –
i. control, not mere majority or
complete stock control, but
complete domination not only of
finances but of policy and
business practice in respect to the
transaction attacked so that the
corporate entity as to this
transaction had at the time no
separate mind, will or existence f
its own;
ii. such control must have been used
by the defendant to commit fraud
or wrong, to perpetuate the
violation of a statutory or other
positive legal duty, or dishonest
and unjust act in contravention of
plaintiff's legal right; and
iii. the aforesaid control and breach
of duty must proximately cause
the injury or loss complained of
d. Objective test – the end result is to make
the stockholders liable for the debts and
obligations of the Corporation and not the
other way around.
As a general rule, the buyer of corporate assets are not bound
to honor or assume the obligation of the seller except:
1. merger or consolidation
2. if the buyer us only an extension or continuation of
the corporate personality of the seller
3. if the sale of assets is made in bad faith
4. if the buyer assumes the obligation of the seller
There are only 6 cases where a director or officer may be held
solidarily liable with the corporation:
1. gross negligence or bad faith in directing the affair of
the corporation
2. assenting or consenting to a patently unlawful act
3. acquiring interest in conflict of his duty as a director
or officer
4. if he agrees to make himself solidarily liable with the
corporation
5. if by express provision of law he is made liable
6. issuance of watered stocks
Section 3. Classes of corporations. –
Corporations formed or organized under this Code may be
1) stock or
2) non-stock corporations.
Corporations which have
a) capital stock divided into shares and
b) are authorized to distribute to the holders of such
shares dividends or allotments of the surplus profits
c) on the basis of the shares held are stock corporations.
All other corporations are non-stock corporations. (3a)
Classification of Corporations:
A. Function
1. Public – organized for the government to
govern a portion of a State; governed by the
special law creating it
2. Private – organized for a private purpose;
governed by the Corporation Code and its
AOI and By-laws
B. Existence of shares
1. Stock – See Sec. 3
2. Non-stock – defined by exclusion (See also
Secs. 87 and 88)
Capital stock – the absolute amount specified in the AOI and is
available for subscription
Capital – represents the assets of the Corporation. It fluctuates,
maybe more or less, depending on the results of operation
Stock – an integral unit of the capital stock
C. Legal status
1. De jure – a corporation that fully conforms
with the requirements for incorporation
under the law. A corporation in law and in
fact.
2. De facto – a corporation with a colorable
imitation or substantial compliance with the
requirements prescribed by law. A
corporation in fact but not in law.
3. By estoppel – if a group of person assumes
to be or represents themselves to be a
corporation when they have no legal
authority to do so and as such they are
precluded from denying their corporate
existence as regards to the 3rd persons who
relied on the representation.
4. By prescription – a corporation since time
immemorial have all the attributes and
powers of a corporation (e.g. Roman
Catholic Church)
D. Relationship of management and control
1. Parent – a corporation that owns shares in
another corporation. It has the power to
elect the board of directors of a subsidiary
or affiliate thru the ownership of shares
2. Holding – a corp that owns shares in various
companies for investment purposes
3. Subsidiary – if the parent owns shares in
another corp, if the investee is 50% or more
owned by the other corp
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 4. Affiliate – if the parent owns shares in
another corp, if the investee is less than
50% owned by the other corp
E. Place of Incorporation
1. Domestic – a corp formed organized and
existing under Philippine laws
2. Foreign – a corp formed organized and
existing under foreign laws AND whose
government allows Filipino citizens to do
business in their own country
F. Composition
1. Sole – a corp with only 1 corporator
2. Aggregate – at least 5 incorporators
G. Other classification
1. Open – shares are made available to the
public
2. Close – a corp whose AOI provides that (1)
the shares should be held by specified
number of persons not exceeding 20 and (2)
subject to certain restrictions on transfer of
shares and (3) whose shares are not
available for listing in the stock exchange
3. Religious
4. Educational
Corporation going public – the shares will be listed in the stock
exchange
Corporation going private – it will limit the number of shares to
a certain number of stockholders
Section 4. Corporations created by special laws or charters. -
Corporations created by special laws or charters shall be
governed primarily by the provisions of the special law or
charter creating them or applicable to them, supplemented by
the provisions of this Code, insofar as they are applicable. (n)
Discussion:
 GOCC with charter – Civil Service; not subject to SEC
except only to determine whether or not GOCC
 Corporation organized under the Corporation Code –
RTC as special commercial court (corporate officers)
or Labor court (ordinary officers)
 Government-acquired corporations – not subject to
rules of GOCC
Section 5. Corporators and incorporators, stockholders and
members. –
Corporators are those who compose a corporation, whether as
stockholders or as members.
Must be a natural person May be a natural or juridical
except in case of a registered person
cooperative or a rural bank
Majority must be Philippine No such requirement
resident
Names in the AOI can never be amended!
Tri-level hierarchy
1. Stockholders – elect the BOD
2. BOD – appoints the corporate officers; exercises
corporate powers
3. Corporate officers – appoint employees of the
corporation; implements the policies laid down by the
BOD
Promoter – person who brings about the formation of the
corporation; he may or may not be an incorporator
 Is the corporation bound by the contract entered into
by promoters? No, there is no corporation yet.
Subscriber/ stockholder – one who owns shares in the
corporation
Underwriter – one who sells security or shares in the
corporation
1. Firm commitment – shares acquired by the
underwriter are considered sold
2. Best effort – acts as an agent, shares not sold will be
returned to the corporation
Nationality of the corporation, how determined
1. Incorporation test – place of incorporation
2. Domiciliary test – where the corporation is located
3. Control test – the nationality of the stockholders
determines the nationality of the corporation, e.g.
60% of the capital
 Case: "Capital" – all types of shares, in terms of
voting, management, finance, etc. (GAMBOA v.
TEVES, on MR)
Nationalized activities:
100%
1. Mass media
2. Retail and trade – if capital of the corporation
exceeds $2.5M, foreigners may be stockholders
3. Rice and corn
4. Security, watchman and detective agency

Incorporators are those stockholders or members mentioned in 75%

the articles of incorporation as originally forming and 5. Recruitment
composing the corporation and who are signatories thereof.
70%
Corporators in a stock corporation are called stockholders or 6. Advertising
shareholders. Corporators in a non-stock corporation are called
members. (4a) 60%
7. Exploration of natural resources/mining
Incorporator Corporator 8. Public utility/transport service
Signatory of the AOI x 9. Educational
10. Banks
Always a corporator Not always an incorporator
11. Realty
Not less than 5 but not more There is no limit except for a
12. Investment house
than 15 except in case of close corporation (20 only)
corporation sole (1 only)

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Foreigners cannot occupy any executive position in any
corporation engaged in a nationalized activity, whether wholly
or partly nationalized
GRANDFATHER RULE – a method to determine the nationality
of the corporation by making reference to the nationality of the
stockholders of the investor corporation
DOUBLE 60% RULE – in case of registered enterprise
corporations under the Foreign Investments Act of 1991, 60%
of the stockholders must be Filipinos and 60% of the BOD must
be Filipinos
Section 6. Classification of shares. –
The shares of stock of stock corporations may be divided into
classes or series of shares, or both, any of which classes or
series of shares may have such rights, privileges or restrictions
as may be stated in the articles of incorporation:
Provided, That no share may be deprived of voting rights except
those classified and issued as
1) "preferred" or
2) "redeemable" shares, unless otherwise provided in
this Code:
Provided, further, That there shall always be a class or series of
shares which have complete voting rights. (COMMON SHARES)
Any or all of the shares or series of shares may
1) have a par value or
2) have no par value as may be provided for in the
articles of incorporation:
Provided, however, That banks, trust companies, insurance
companies, public utilities, and building and loan associations
shall not be permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be
given preference
1) in the distribution of the assets of the corporation in
case of liquidation and
2) in the distribution of dividends, or
3) such other preferences as may be stated in the
articles of incorporation which are not violative of
the provisions of this Code:
Provided, That preferred shares of stock may be issued only
with a stated par value.
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:
 Provided, That such terms and conditions shall be
effective upon the filing of a certificate thereof with
the Securities and Exchange Commission.
Shares of capital stock issued without par value
1) 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:
2) Provided; That shares without par value may not be
issued for a consideration less than the value of five
(P5.00) pesos per share:
3) Provided, further, 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.
A corporation may, furthermore, classify its shares for the
purpose of insuring compliance with constitutional or legal
requirements.
Except as otherwise provided in the articles of incorporation
and stated in the certificate of stock, each share shall be equal
in all respects to every other share.
Where the articles of incorporation provide for non-voting
shares in the cases allowed by this Code, the holders of such
shares shall nevertheless be entitled to vote on the following
matters:
1) Amendment of the articles of incorporation;
2) Adoption and amendment of by-laws;
3) Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate
property;
4) Incurring, creating or increasing bonded
indebtedness;
5) Increase or decrease of capital stock;
6) Merger or consolidation of the corporation with
another corporation or other corporations;
7) Investment of corporate funds in another corporation
or business in accordance with this Code; and
8) Dissolution of the corporation.
Except as provided in the immediately preceding paragraph,
the vote necessary to approve a particular corporate act as
provided in this Code shall be deemed to refer only to stocks
with voting rights. (5a)
Section 7. Founders' shares. –
Founders' shares classified as such in the articles of
incorporation may be given certain rights and privileges not
enjoyed by the owners of other stocks,
1) provided that 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
2) subject to the approval of the Securities and
Exchange Commission.
The five-year period shall commence from the date of the
aforesaid approval by the Securities and Exchange Commission.
(n)
Section 8. Redeemable shares. –
Redeemable shares may be issued by the corporation when
expressly so provided in the articles of incorporation.
1) They may be purchased or taken up by the
corporation upon the expiration of a fixed period,
2) regardless of the existence of unrestricted retained
earnings in the books of the corporation, and
3) upon such other terms and conditions as may be
stated in the articles of incorporation,
4) which terms and conditions must also be stated in the
certificate of stock representing said shares. (n)
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Section 9. Treasury shares. –
Treasury shares are shares of stock
1) which have been issued and fully paid for,
2) but subsequently reacquired by the issuing
corporation by
a. purchase,
b. redemption,
c. donation or
d. through some other lawful means.
Such shares may again be disposed of for a reasonable price
fixed by the board of directors. (n)
Classification of shares
1. Common and Preferred
2. Par Value and No Par Value
3. Voting and Non Voting
4. Founder's
5. Redeemable
6. Treasury
7. Watered
8. Other Classifications as may be provided for in the
AOI
Street Certificate
a. indorsed in blank by the stockholder (quasi-
negotiable instrument)
b. held by a stock broker for the benefit of a client
Common – shares not accorded with any special privileges,
rights, except that they always have the right to vote and be
voted
Preferred –
1. As to assets – in case of dissolution and liquidation,
they get the assets of the corporation ahead of the
common shares; they are given priority or preference
with respect to distribution of assets
2. As to dividends – they have to be paid ahead of the
holders of common shares; they are not absolutely
entitled, it depends on the availability of surplus
profits; they are not creditors
a. Cumulative – the right to receive dividends
are carried over to the succeeding year
(accrued)
b. Non-cumulative – the right to receive
dividends only in the year the dividends
were declared; if no declaration made,
extinguished
c. Participating – can participate in the
residual dividends with the holders of the
common shares
d. Non-participating – not allowed to
participate in the residual dividends
Preferred shares are not bonds or borrowing instruments. The
relationship between the holders of the preferred shares to the
corporation is different from the relationship of the corporation
with the bond holders or creditors
Par Value – the assigned value for the share determined by the
BOD indicated in the stock certificate and in the AOI
 Book Value – actual value of share based on the
finances and capital of the corporation (Formula:
Capital or Net worth / # of outstanding shares)
 FMV – the value in which the seller is willing to sell
and a buyer is willing to buy without any compulsion
 Par value is a limitation on the amount of the shares
to be issued by a corporation, not to the shares sold
or transferred by the stockholder to another
 Par value is the minimum amount for which the
corporation may issue shares
 Corporation cannot issue value below par; otherwise,
watered shares
 Stockholder can sell his share below par
No Par Value –
 a corporation cannot issue a No Par value share
below P5.00; in Par Value shares, the minimum is 1
centavo
 Limitations on the issuance of No Par Value shares
1. 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:
2. That shares without par value may not be
issued for a consideration less than the
value of five (P5.00) pesos per share:
3. 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.
4. That banks, trust companies, insurance
companies, public utilities, and building and
loan associations shall not be permitted to
issue no-par value shares of stock.
5. That preferred shares of stock may be
issued only with a stated par value.
Voting/ Non-Voting –
 Common shares cannot be denied the right to vote or
be voted
 Treasury shares, by their nature, cannot vote or be
voted
 Shares that may be deprived the right to vote:
1. Preferred
2. Redeemable
 In computing, exclude the non-voting shares when
the law requires at least 2/3 of the outstanding
capital stock
Founder's –
 accorded certain rights and privileges that are not
given to ordinary shares IF AUTHORIZED BY AOI
 must be classified as such IN THE AOI
 The 5-year limitation, with regard the exclusive right
to vote and be voted subject to the approval of the
SEC, is reckoned from the date of said approval
Redeemable –
1. Compulsory – if the corporation has no choice but to
redeem the shares UNLESS it will result in the
insolvency of the corporation
2. Optional – there is no mandatory obligation on the
part of the corporation to redeem the shares
SEC issued a regulation that any corporation issuing
redeemable shares must set up a savings fund. Savings fund in
the sense that every year until the term arise, the corporation
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must allocate or earmark or segregate certain funds to be able
to meet the cost of redemption
The law says there is no need to have surplus profit or retained
earnings to effect the redemption
Instances when a corporation may reacquire shares even
without U.R.E
1. when shares are redeemable
2. when it is a close corporation
Once reverted to the corporation, they form part of the
treasury shares. Thus, they are no longer outstanding, they can
no longer declare dividends.
Once redeemed, they are retired (cease to exist) unless
reissuance is expressly authorized by the AOI
Treasury –
 as distinguished from redeemable shares, a
corporation may acquire its own shares ONLY IF it has
unrestricted retained earnings
 no need for a provision in the AOI to acquire its own
shares. Mere board approval suffices
 may be reissued by the Corporation upon approval of
the BOD.
Trust Fund Doctrine – the legal capital of the corporation which
cannot be touched or impaired because it is intended for the
benefit of the creditors. This cannot be used to acquire treasury
shares
The corporation has to have money on top of the legal capital,
such is called surplus profits.
"Other lawful means" (See Sec. 41)
1. To eliminate fractional shares arising out of stock
dividends;
2. 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
3. To pay dissenting or withdrawing stockholders
entitled to payment for their shares under the
provisions of this Code.
Appraisal right – the right of the stockholder to dissent from a
proposed corporate act and demand the payment of the fair
value of the shares (See Sec. 81)
POINT OF CLARIFICATION:
 If the shares are redeemed, apply Section 8: shares
are retired by redemption, thus, can no longer be
reissued unless reissuance is expressly authorized by
the AOI
 If the shares are reacquired other than redemption,
apply Section 9: shares can be reissued.
TITLE II - INCORPORATION AND ORGANIZATION OF PRIVATE
CORPORATIONS
Section 10. Number and qualifications of incorporators. –
Any number of
1) natural persons
2) not less than five (5) but not more than fifteen (15),
3) all of legal age and
4) a majority of whom are residents of the Philippines,
may form a private corporation for any lawful purpose or
purposes.
Each of the incorporators of a stock corporation
 must own or be a subscriber to at least one (1) share
of the capital stock of the corporation. (6a)
Qualifications
1) natural persons – except in case of a cooperative as
regards rural banks (but still through a
representative)
2) not less than five (5) but not more than fifteen (15) –
except in case of a corporation sole
3) a majority of whom are residents of the Philippines –
except when engaged in a nationalized activity
4) all of legal age
Citizenship is NOT a requirement except if the corporation is
engaged in a nationalized activity
SEC & DOJ: GRANDFATHER RULE will only apply if the
percentage of share ownership of Filipinos is less than 60% of
the investor corporation
Section 11. Corporate term. –
A corporation shall exist for a period not exceeding fifty (50)
years from the date of incorporation unless sooner dissolved or
unless said period is extended.
The corporate term as originally stated in the articles of
incorporation may be extended for periods
1) not exceeding fifty (50) years
2) in any single instance
3) by an amendment of the articles of incorporation, in
accordance with this Code;
4) Provided, That no extension can be made earlier than
five (5) years prior to the original or subsequent
expiry date(s)
a. unless there are justifiable reasons for an
earlier extension
b. as may be determined by the Securities and
Exchange Commission. (6)
No limit as to number of extensions
Extension of corporate term entails an amendment in the AOI
thus, approval of the BOD by at least majority vote and by the
vote of the stockholders representing at least 2/3 of the
outstanding capital stock or in case of a non-stock, 2/3 of the
members
Section 12. Minimum capital stock required of stock
corporations. –
Stock corporations incorporated under this Code SHALL NOT BE
REQUIRED TO HAVE ANY MINIMUM AUTHORIZED CAPITAL
STOCK except
1) as otherwise specifically provided for by special law,
and
2) subject to the provisions of the following section.
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Section 13. Amount of capital stock to be subscribed and
paid for the purposes of incorporation. –
1) At least twenty-five percent (25%) of the authorized
capital stock as stated in the articles of incorporation
must be subscribed at the time of incorporation, and
2) at least twenty-five (25%) per cent of the total
subscription must be paid upon subscription,
the balance to be payable
1) on a date or dates fixed in the contract of
subscription without need of call, or (Demand is not
necessary to put the obligor in default)
2) in the absence of a fixed date or dates, upon call for
payment by the board of directors:
Provided, however, That in no case shall the paid-up capital be
less than five Thousand (P5,000.00) pesos. (n)
Under certain special laws, there are certain corporations that
are required to have a minimum capital, e.g.:
1. Universal bank 4.95B
2. Commercial bank 2.4B
3. Thrift bank 325M/52.5M
4. Insurance company
5. Investment company
If there is no special law, there is no minimum authorized
capital stock
Under the 25-25 Rule, it is not always required to pay up the
subscription
 GR: Partial payment is allowed for as long as the first
tranche represent at least 25% of the total
subscription
 XPN: Must be fully paid
a. No Par Value shares
b. Non-Resident Foreign Subscriber unless it is
secured by a surety undertaking made by a
Filipino resident
The corporation cannot declare dividends out of the subscribed
capital stock
Section 14. Contents of the articles of incorporation. –
All corporations organized under this code shall file with the
Securities and Exchange Commission articles of incorporation in
any of the official languages duly signed and acknowledged by
ALL OF THE INCORPORATORS, containing substantially the
following matters, except as otherwise prescribed by this Code
or by special law:
1) The name of the corporation;
2) The specific purpose or purposes for which the
corporation is being incorporated.
a. Where a corporation has more than one
stated purpose, the articles of incorporation
shall state which is the primary purpose and
which is/are the secondary purpose or
purposes: (See Sec. 42)
1 ownership of Filipino citizens to less than the required
b. Provided, That a non-stock corporation may
not include a purpose which would change
or contradict its nature as such;
1 xxx
Investment of corporate funds in the secondary purpose requires
stockholders' approval by 2/3 of the outstanding capital stock
3) The place where the principal office of the
corporation is to be located, which must be within the
Philippines;
4) The term for which the corporation is to exist;
5) The names, nationalities and residences of the
incorporators;
6) The number of directors or trustees, which shall not
be less than five (5) nor more than fifteen (15);
7) The names, nationalities and residences 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;
8) If it be a stock corporation,
a. the amount of its authorized capital stock in
lawful money of the Philippines,
b. the number of shares into which it is
divided, and
c. in case the share are par value shares, the
par value of each, the names, nationalities
and residences of the original subscribers,
and the amount subscribed and paid by
each on his subscription, and
d. if some or all of the shares are without par
value, such fact must be stated;
9) If it be a non-stock corporation,
a. the amount of its capital,
b. the names, nationalities and residences of
the contributors and
c. the amount contributed by each; and
10) Such other matters as are not inconsistent with law
and which the incorporators may deem necessary
and convenient.
The Securities and Exchange Commission shall not accept the
articles of incorporation of any stock corporation
 unless accompanied by a sworn statement of the
Treasurer elected by the subscribers showing that
a. at least twenty-five (25%) percent of the
authorized capital stock of the corporation
has been subscribed, and
b. at least twenty-five (25%) of the total
subscription has been fully paid to him in
actual cash and/or in property the fair
valuation of which is equal to at least
twenty-five (25%) percent of the said
subscription,
c. such paid-up capital being not less than five
thousand (P5,000.00) pesos.
Section 15. Forms of Articles of Incorporation. -
xxx
ELEVENTH: (Corporations which will engage in any business or
activity reserved for Filipino citizens shall provide the
following):
"No transfer of stock or interest which shall reduce the
percentage of the capital stock as provided by existing laws
shall be allowed or permitted to be recorded in the proper
books of the corporation and this restriction shall be indicated
in all stock certificates issued by the corporation."
7|P LATON
Documents needed:
1. Articles of Incorporation
2. By-laws (See Sec. 46)
a. to be with the AOI
b. within 1 month from approval of
incorporation
3. Treasurer's Affidavit – proof of compliance. 2
situations when needed:
a. upon incorporation
b. amending the AOI that concerns the
increase of capital stock
4. Bank Certification – showing money is in the hands of
the treasurer; deposit in the name of the "treasurer in
trust for the corporation"
5. Name Verification Slip – an undertaking to change the
name if it is identical or similar to an existing
corporate name (See Sec. 18)
6. Company data maintenance sheet
7. In case of special corporation, an endorsement from
the appropriate government agency
8. Payment of Fees
SEC will issue a certificate of registration which is the operative
date by which a corporation acquires legal personality (See Sec.
19)
Place where the principal office of the corporation is to be
located – Test: the place where the books are kept and where
the meeting is held must be consistent with what appears in
the AOI
 for purposes of venue in filing an action (the principal
place in the AOI.
 it would be easy on the part of the corporation to
evade service of process, it will just keep on changing
the principal office of the corporation
Section 16. Amendment of Articles of Incorporation. –
Unless otherwise prescribed by this Code or by special law, and
for legitimate purposes, any provision or matter stated in the
articles of incorporation may be amended
1) by a majority vote of the board of directors or
trustees and (ENTIRE BOARD)
2) the vote or written assent of the stockholders
representing at least two-thirds (2/3) of the
outstanding capital stock,
a. without prejudice to the appraisal right of
dissenting stockholders in accordance with
the provisions of this Code,
3) or the vote or written assent of at least two-thirds
(2/3) of the members if it be a non-stock corporation.
The original and amended articles together shall contain all
provisions required by law to be set out in the articles of
incorporation. (CERTIFICATE OF AMENDMENTS)
1) Such articles, as amended shall be indicated by
underscoring the change or changes made, and
2) a copy thereof duly certified under oath by the
corporate secretary and a majority of the directors or
trustees stating the fact that said amendment or
amendments have been duly approved by the
required vote of the stockholders or members,
(include when it was approved)
3) shall be submitted to the Securities and Exchange
Commission.
The amendments shall take effect
1) upon their approval by the Securities and Exchange
Commission or
2) from the date of filing with the said Commission if not
acted upon within six (6) months from the date of
filing for a cause not attributable to the corporation.
With respect to the board approval, it is indispensable that
there be a board meeting.
Section 17. Grounds when articles of incorporation or
amendment may be rejected or disapproved. –
The Securities and Exchange Commission may
1) reject the articles of incorporation or
2) disapprove any amendment thereto if the same is not
in compliance with the requirements of this Code:
a. Provided, That the Commission shall give
the incorporators a reasonable time within
which to correct or modify the
objectionable portions of the articles or
amendment.
The following are grounds for such rejection or disapproval:
1) That the articles of incorporation or any amendment
thereto is not substantially in accordance with the
form prescribed herein;
2) That the purpose or purposes of the corporation are
patently unconstitutional, illegal, immoral, or
contrary to government rules and regulations;
3) That the Treasurer's Affidavit concerning the amount
of capital stock subscribed and/or paid is false;
4) That the percentage of ownership of the capital stock
to be owned by citizens of the Philippines has not
been complied with as required by existing laws or
the Constitution.
No articles of incorporation or amendment to articles of
incorporation of
1) banks, banking and quasi-banking institutions,
2) building and loan associations,
3) trust companies and other financial intermediaries,
4) insurance companies,
5) public utilities,
6) educational institutions, and
7) other corporations governed by special laws
shall be accepted or approved by the Commission UNLESS
accompanied by a favorable recommendation of the
appropriate government agency to the effect that such articles
or amendment is in accordance with law. (n)
Section 17 is not exclusive,. Other possible grounds:
1. fraud or misrepresentation in filing the AOI or in
procuring certificate of registration/incorporation
2. non-filing of by-laws within one month from
incorporation
Section 18. Corporate name. –
No corporate name may be allowed by the Securities and
Exchange Commission if the proposed name is
1) identical or deceptively or confusingly similar to that
of any existing corporation or
2) (identical or deceptively or confusingly similar) to any
other name already protected by law or
3) is patently deceptive, confusing or contrary to
existing laws.
8|P LATON

When a change in the corporate name is approved, the
Commission shall issue an amended certificate of incorporation
under the amended name. (n)
DOCTRINE OF SECONDARY MEANING – if the generic word has
become distinctive such that it is associated with the mind of
the public as it has been sourced or manufactured by a person
or a corporation then it is entitled to protection under the law
Requisites:
1. the one who opposes the use of the corporate name
must have acquired a prior right over such corporate
name (through registration from filing with the SEC
2. See Enumerations under Sec. 18.
Obligations of a corporation under the old name will be
absorbed by the same corporation under the new corporate
name
Section 19. Commencement of corporate existence. –
A private corporation formed or organized under this Code
commences to have corporate existence and juridical
personality and is deemed incorporated
 from the date the Securities and Exchange
Commission issues a certificate of incorporation
under its official seal;
and thereupon the incorporators, stockholders/members and
their successors shall constitute a body politic and 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. (n)
Section 20. De facto corporations. –
1) The due incorporation of any corporation (VALID
LAW)
2) claiming in good faith to be a corporation under this
Code, and
3) its right to exercise corporate powers,
shall not be inquired into collaterally in any private suit to
which such corporation may be a party.
 Such inquiry may be made by the Solicitor General in
a quo warranto proceeding. (n)
There is NO de facto corporation unless there is a certificate of
incorporation issued by the SEC which presupposes the filing of
AOI
Stockholders of such corporation have the same rights and
subject to the same obligations of stockholders of a de jure
corporation
A de facto corporation for all intents and purposes, is a de jure
corporation except that the State reserves the right to question
its corporate existence through a quo warranto proceeding
Other examples of infirmities resulting to de facto existence:
1. majority of the residences of the incorporators
2. treasurer's affidavit is false
3. information indicated in the AOI inaccurate
4. non-submission of by-laws
Section 21. Corporation by estoppel. –
1) All persons
2) who assume to act as a corporation knowing it to be
without authority to do so
3) shall be liable as general partners for all debts,
liabilities and damages incurred or arising as a result
thereof:
Provided, however, That when any such ostensible corporation
is sued on any transaction entered by it as a corporation or on
any tort committed by it as such, it shall not be allowed to use
as a defense its lack of corporate personality.
On who assumes an obligation to an ostensible corporation as
such, cannot resist performance thereof on the ground that
there was in fact no corporation. (n)
Only those who made representations! So, anyone who
benefited from the transaction
The doctrine cannot be invoked when there is no 3rd party
involved
Section 22. Effects on non-use of corporate charter and
continuous inoperation of a corporation. –
1) If a corporation does not formally organize and
commence the transaction of its business or the
construction of its works within two (2) years from
the date of its incorporation, its corporate powers
cease and the corporation shall be deemed dissolved.
2) However, if a corporation has commenced the
transaction of its business but subsequently becomes
continuously inoperative for a period of at least five
(5) years, the same shall be a ground for the
suspension or revocation of its corporate franchise or
certificate of incorporation. (19a)
This provision shall not apply if the failure to organize,
commence the transaction of its businesses or the construction
of its works, or to continuously operate is due to
 causes beyond the control of the corporation as may
be determined by the Securities and Exchange
Commission.
When the corporation appoints the board and the board
appoints the corporate officers within 2 years, it is deemed
organized
Other grounds to suspend or revoke corporate franchise:
1. failure to submit by-laws
2. violation of Code
3. Non-submission of reports
4. fraud or misrepresentation
TITLE III - BOARD OF DIRECTORS/TRUSTEES AND OFFICERS
Section 23. The board of directors or trustees. –
2
Unless otherwise provided in this Code , the corporate powers
of all corporations formed under this Code shall be exercised,
all business conducted and all property of such corporations
controlled and held by the board of directors or trustees
2
certain powers are reserved for the stockholders solely, or
jointly with the BOD
9|P LATON
 1) to be elected from among the holders of stocks, or
where there is no stock, from among the members of
the corporation,
2) who shall hold office for one (1) year until their
successors are elected and qualified. (28a) (HOLD
3
OVER CAPACITY)
Every director
1) must own at least one (1) share of the capital stock of
the corporation of which he is a director,
a. which share shall stand in his name on the
books of the corporation.
b. Any director who ceases to be the owner of
at least one (1) share of the capital stock of
the corporation of which he is a director
shall thereby cease to be a director.
*Trustees of non-stock corporations must be
members thereof.
2) A majority of the directors or trustees of all
corporations organized under this Code must be
residents of the Philippines.
Qualifications of a BOD:
1. All the qualifications under the Code, as well as under
the By-laws
2. None of the disqualifications under the Code, as well
as under the By-laws
4
Qualifications under the Code:
1. natural person except cooperative
2. legal age
3. ownership of at least 1 share registered in his name in
the books. (continuing qualification) When required
to own?
a. as indicated in the by-laws, or
b. upon assumption of office
*acquisition is not a mode for the election or
appointment of a director
*when legal title is lost then the director
automatically losses his seat
*a trustee can qualify as a director even if he is not a
full owner because it is the legal title that counts not
the beneficial title
4. not less than 5 nor more than 15 except in case of
corporation sole (only 1) or in case of merger or
consolidation (up to 21) or non-stock (more than 15)
except educational (up to 15)
5. majority must be Philippine residents except when
engaged in nationalized activity (if 100%)
Disqualifications: See Sec. 27.
Any transaction not authorized by the board is ultra vires or
beyond the authority of the corporation, thus, unenforceable.
The following must be required:
1. Board resolution that the transaction has been
approved by the board
3
Not a fresh term! In case the director resigns, it will be
considered as expiration of term NOT resignation. (Relevant to
Sec. 29)
4
By laws may expand the qualifications as long as it is not
intended to deprive minority representation.
2. The officer concerned is duly authorized by the board
for that purpose
Powers of the BOD in a hold over period: Same as regular BOD
BUSINESS JUDGMENT RULE – stockholders or the courts
cannot interfere with the BOD on how to run the affairs of the
corporation. (questions of policy)
 remedy: removal with or without cause, derivative
suit, don't elect next time
Majority of the entire board + 2/3 stockholders
1. amendment of AOI
2. adoption or amendment of by-laws
3. power to extend or shorten corporate term
4. power to increase or decrease capital stock; incur,
create or increase bonded indebtedness
5. sale or other dispositions of substantially all or all
assets
6. power to invest corporate funds in another
corporation or for any other (secondary) purpose
7. merger or consolidation
8. dissolution
Majority of the board of directors (quorum) + Majority of
stockholders (outstanding shares)
1. power to enter into management contract
Note: See Section 44
Section 24. Election of directors or trustees. –
At all elections of directors or trustees,
1) there must be present, either in person or by
representative authorized to act by written proxy, the
owners of a majority of the outstanding capital stock
5
(may only be 1, e.g. Henry Sy) , or
a. if there be no capital stock, a majority of
the members entitled to vote.
2) The election must be by ballot if requested by any
voting stockholder or member. (generally viva voce)
In stock corporations,
1) every stockholder entitled to vote shall have the right
to vote in person or by proxy
2) the number of shares of stock standing,
a. at the time fixed in the by-laws,
b. in his own name on the stock books of the
corporation, or
c. where the by-laws are silent, at the time of
the election; and
3) said stockholder may vote
6
a. such number of shares for as many persons
as there are directors to be elected (spread)
b. or he may cumulate said shares and give
one candidate as many votes as the number
of directors to be elected multiplied by the
number of his shares shall equal,
c. or he may distribute them on the same
principle among as many candidates as he
shall see fit: (apportion)
d. Provided, That the total number of votes
cast by him shall not exceed the number of
5
If meeting will deal on other matters, you need a higher
number of those present if the Code requires such
6
Subscribed, not necessarily paid up!
10 | P LATON
 shares owned by him as shown in the books
of the corporation multiplied by the whole
number of directors to be elected:
Provided, however, That no delinquent stock shall be voted.
(non-voting shares shall also be excluded)
Unless otherwise provided in the articles of incorporation or in
the by-laws, members of corporations which have no capital
stock may cast as many votes as there are trustees to be
elected but may not cast more than one vote for one
candidate.
Candidates receiving the highest number of votes shall be
declared elected.
Any meeting of the stockholders or members called for an
election may adjourn from day to day or from time to time but
not sine die or indefinitely if, for any reason, no election is held,
or if there are not present or represented by proxy, at the
meeting, the owners of a majority of the outstanding capital
stock, or if there be no capital stock, a majority of the member
entitled to vote. (31a)
INDEPENDENT DIRECTORS – requirement of at least 2
independent directors for
1. issuers of registered securities to the public whether
or not listed in the PSE
2. public companies or those with assets of at least 50M
and having 200 or more holders each holding at least
100 shares
3. finance co
4. investment houses
5. broker and dealers of securities
6. investment co
7. pre-need co
8. subsidiaries or branches of foreign corporations
which operate in the Philippines and are listed in the
PSE
9. stock and other securities exchange/s
Must not be:
1. a director or officer or substantial stockholder
2. a relative of any d, o, subs SH
3. acting as a nominee or representative of a subs SH
4. employed in any exec capacity
5. retained as professional adviser
6. engaged in any transaction with the corporation or
with any of its company or with any of its subs SH
The law does not mandate the stockholders to vote for
independent directors
There will still be only one election held; Computation is still no.
of shares x 15
Section 25. Corporate officers, quorum. –
Immediately after their election, the directors of a corporation
must formally organize by the election of
1) a president, who shall be a director,
7 1. amendment of AOI (+ SH 2/3)
2) a treasurer who may or may not be a director,
8 2. adoption or amendment of by-laws (+ SH majority)
7 4. power to increase or decrease capital stock; incur,
He must have all the qualifications and none of the
disqualifications of a director
8
SEC: must be a resident
3) a secretary who shall be a resident and citizen of the
Philippines, and
4) such other officers as may be provided for in the by-
laws.
Any two (2) or more positions may be held concurrently by the
same person, except that no one shall act
1) as president and secretary or
2) as president and treasurer at the same time.
The directors or trustees and officers to be elected shall
perform the duties enjoined on them by law and the by-laws of
the corporation.
Unless the articles of incorporation or the by-laws provide for a
greater majority,
 a majority of the number of directors or trustees as
fixed in the articles of incorporation shall constitute a
quorum for the transaction of corporate business,
and
 every decision of at least a majority of the directors
or trustees present at a meeting at which there is a
quorum shall be valid as a corporate act,
 except for the election of officers which shall require
the vote of a majority of all the members of the
board.
Directors or trustees cannot attend or vote by proxy at board
meetings. (33a)
Points to remember:
 The president is required to be a Filipino citizen if the
corporation is engaged in a nationalized activity,
wholly or partly, under the Anti-Dummy Law. No
foreigner will be allowed to occupy an executive
position
 SEC: President cannot be chairman
 Foreigner can be a chairman if such position is non-
executive
 Secretary must be a Filipino. See also other
qualifications according to the SEC
 Treasurer need not be a citizen but must be a
resident
 Treasurer can be a secretary
 General counsel may be a secretary
 Vice president not required to be a stockholder unless
it takes the place of the president
 Other positions: controller
Importance in determining whether one is a corporate officer
or an ordinary officer:
1) jurisdiction:
a. C.O.: Intra-corporate controversy = RTC as
special commercial court
b. O.O.: Labor dispute = Labor court
2) manner of creation:
a. C.O.: required by the by-laws
b. O.O: created by the BOD
Majority "of the entire board" or "of the board"
3. power to extend or shorten corporate term (+ SH 2/3)
create or increase bonded indebtedness (+ SH 2/3)
11 | P LATON
 5. sale or other dispositions of substantially all or all
assets (+ SH 2/3)
6. power to invest corporate funds in another
corporation or for any other (secondary) purpose (+
SH 2/3)
7. merger or consolidation
8. dissolution
9. election, appointment or removal of corporate
officers
10. delegation of powers to the executive committee
"Majority of the directors" (quorum)
1. declaring cash dividends
2. declaring stock dividends (+ SH 2/3)
3. power to enter into management contract (+ SH
majority)
4. filling up vacancies not due to removal, expiration or
increase in number of directors
5. investment for primary purpose
6. sale mortgage or other dispositions in ordinary course
of business
Section 26. Report of election of directors, trustees and
officers. - Within thirty (30) days after the election of the
directors, trustees and officers of the corporation,
1) the secretary, or any other officer of the corporation,
2) shall submit to the Securities and Exchange
Commission,
a. the names, nationalities and residences of
the directors, trustees, and officers elected.
b. Should a director, trustee or officer die,
resign or in any manner cease to hold
office, his heirs in case of his death, the
secretary, or any other officer of the
corporation, or the director, trustee or
officer himself, shall immediately report
such fact to the Securities and Exchange
Commission. (n)
General Information Sheet – controlling as to the names of
directors elected
Section 27. Disqualification of directors, trustees or officers. –
No person
1) convicted by final judgment of an offense punishable
by imprisonment for a period exceeding six (6) years,
or
2) a violation of this Code committed within five (5)
years prior to the date of his election or appointment,
shall qualify as a director, trustee or officer of any corporation.
(n)
Section 28. Removal of directors or trustees. –
Any director or trustee of a corporation may be removed from
office
1) by a vote of the stockholders holding or representing
at least two-thirds (2/3) of the outstanding capital
stock, or if the corporation be a non-stock
corporation, by a vote of at least two-thirds (2/3) of
the members entitled to vote:
2) Provided, That such removal shall take place either at
a regular meeting of the corporation or at a special
meeting called for the purpose, and in either case,
3) after previous notice to stockholders or members of
the corporation of the intention to propose such
removal at the meeting.
4) A special meeting of the stockholders or members of
a corporation for the purpose of removal of directors
or trustees, or any of them,
a. must be called by the secretary on order of
the president or on the written demand of
the stockholders representing or holding at
least a majority of the outstanding capital
stock,
b. or, if it be a non-stock corporation, on the
written demand of a majority of the
members entitled to vote.
Should the secretary
 fail or refuse to call the special
meeting upon such demand or
 fail or refuse to give the notice, or
 if there is no secretary,
the call for the meeting may be addressed
directly to the stockholders or members by
any stockholder or member of the
corporation signing the demand.
Notice of the time and place of such meeting, as well as of the
intention to propose such removal, must be given
1) by publication or
2) by written notice prescribed in this Code.
Removal may be with or without cause:
Provided, That removal without cause may not be used to
deprive minority stockholders or members of the right of
representation to which they may be entitled under Section 24
of this Code. (n)
Important points:
 The provisions in the by-laws contrary to this Section
will not justify the acts of the BOD in removing a
director
 the power to remove belongs solely to the
stockholders
 Removal of a director cannot included as other
matters. There must be notice of the intention to
remove!
 The replacement may be appointed by the
stockholders in the same meeting where the removal
was effected or in a meeting called for the purpose of
electing a replacement
Section 29. Vacancies in the office of director or trustee. –
Any vacancy occurring in the board of directors or trustees
OTHER THAN
1) by removal by the stockholders or members or
2) by expiration of term,
a. may be filled by the vote of at least a
majority of the remaining directors or
trustees, if still constituting a quorum;
b. otherwise, said vacancies must be filled by
the stockholders in a regular or special
meeting called for that purpose.
A director or trustee so elected to fill a vacancy shall
be elected only or the unexpired term of his
predecessor in office.
12 | P LATON

3) Any directorship or trusteeship to be filled by reason
of an increase in the number of directors or trustees
a. shall be filled only by an election at a
regular or at a special meeting of
stockholders or members duly called for the
purpose,
b. or in the same meeting authorizing the
increase of directors or trustees if so stated
in the notice of the meeting. (n)
The stockholders in these cases has the power to fill up
vacancies:
1. due to expiration of term, removal and increase in
the number of board seats
2. Not due to No. 1 but the remaining directors do not
constitute a quorum
3. Not due to No. 1 and the remaining directors
constitute a quorum the directors but they decided to
delegate the matter or responsibility to the
stockholders
The board is NOT obligated to fill up the vacancy.
Term of the replacement director: unexpired portion
Section 30. Compensation of directors. –
In the absence of any provision in the by-laws fixing their
compensation,
 the directors shall not receive any compensation, as
such directors,
 except for reasonable per diems:
Provided, however, That any such compensation other than per
diems
 may be granted to directors by the vote of the
stockholders representing at least a majority of the
outstanding capital stock
 at a regular or special stockholders' meeting
In no case shall the total yearly compensation of directors, as
such directors, exceed ten (10%) percent of the net income
before income tax of the corporation during the preceding year.
(n)
Compensation – any form of remuneration
GR: No compensation because of the presumption that the
return of their investment is enough compensation.
XPN:
provided that it has been authorized by the
1. by-laws
2. stockholders representing at least majority of the
outstanding capital stock at a regular or special
stockholders' meeting
3. OR when they render services to the corporation
other than as director
a. Example: director as president
Per diem –
 allowance for the attendance during the meetings
 must be reasonable
LIMITATION: Must not exceed 10% of the net income before
income tax of the corporation during the preceding year
The limitation does not apply to payment of compensation for
other services meaning it was rendered in a capacity other than
as a director
Section 31. Liability of directors, trustees or officers. –
Directors or trustees
1) who wilfully and knowingly vote for or assent to
patently unlawful acts of the corporation or
2) who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or
3) acquire any personal or pecuniary interest in conflict
with their duty as such directors or trustees
shall be liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders or
members and other persons.
When a director, trustee or officer
 attempts to acquire or acquires,
 in violation of his duty,
 any interest adverse to the corporation
 in respect of any matter which has been reposed in
him in confidence,
 as to which equity imposes a disability upon him to
deal in his own behalf,
he shall be liable as a trustee for the corporation and must
account for the profits which otherwise would have accrued to
the corporation. (n)
 In a broad sense, management has threefold duties
namely, (a) obedience, (b) diligence, and (c) loyalty
 GR: As a rule, directors and officers are not solidarily liable
with the corporation. Obligations incurred by them, acting
as such corporate agents, are not theirs but the direct
accountabilities of the corporation they represent
XPN: In the following cases, personal liability may be
incurred by directors and officers:
In addition to Sec. 31, 1-3:
4) When a director has consented to the issuance of
watered stocks or who, having knowledge thereof,
did not forthwith file with the corporate secretary his
written objection thereto (Sec. 65)
5) When a director, trustee or officer is made, by
specific provisions of law, personally liable for his
corporate actions (e.g. Trust Receipts Law)
6) When a director, trustee or officer has contractually
agreed or stipulated to hold himself personally and
solidarily liable with the corporation (e.g. surety or
guarantor)
 Enumeration is EXCLUSIVE.
 Conflict of interest per se is not a ground for liability:
Doctrine of Corporate Opportunity – The duty of loyalty
mandates that directors should not give preference to
their own personal amelioration by taking the opportunity
belonging to the corporation.
13 | P LATON
 If there is an interest that belongs to the corporation, it
must not be seized or taken advantage of by the director
or officer, otherwise any interest, income or profit earned
by that venture or undertaking must be fully accounted for
and remitted to the corporation. There is an obligation on
the part of the director or officer to hold the profit in trust
for the benefit of the corporation (Sec. 34)
Section 34. Disloyalty of a director. –
Where a director, by virtue of his office,
1) acquires for himself a business opportunity
which should belong to the corporation,
2) thereby obtaining profits to the prejudice of
such corporation,
he must account to the latter for all such profits by
refunding the same,
 UNLESS his act has been ratified by a vote of the
stockholders owning or representing at least
two-thirds (2/3) of the outstanding capital stock.
This provision shall be applicable, notwithstanding the fact
that the director risked his own funds in the venture. (n)
 Section 34 applies if the corporate/business opportunity:
1) is one which the corporation is financially able to
undertake;
2) from its nature, is in line with corporation's
business and is of practical advantage to it; and
3) is one in which the corporation has an interest or
a reasonable expectancy
 The burden of proof on the questions of good faith, fair
dealing and loyalty of the officer to the corporation should
rest upon the officer who appropriated the business
opportunity for his own advantage
 The theory is that profits made and advantage gained by
an agent belongs to the principal
 The corporation may choose to ratify the acts of the
director
 Property or business opportunity ceases to be a corporate
opportunity and is transformed into personal opportunity
where the corporation is definitely no longer able to avail
itself of the opportunity
Section 32. Dealings of directors, trustees or officers with the
corporation. –
A contract of the corporation with one or more of its directors
or trustees or officers is VOIDABLE, at the option of such
corporation, unless all the following conditions are present:
1. That 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. That the vote of such director or trustee was not
necessary for the approval of the contract;
3. That the contract is fair and reasonable under the
circumstances; and
4. That in case of an officer, the contract has been
previously authorized by the board of directors.
Where any of the first two conditions set forth in the preceding
paragraph 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:
1) Provided, That full disclosure of the adverse
interest of the directors or trustees involved is
made at such meeting:
2) Provided, however, That the contract is fair and
reasonable under the circumstances. (n)
 Self-dealing directors, trustees, or officers are those who
personally contract with the corporation in which they are
directors, trustees or officers
o It is discouraged because the directors, trustees
and officers have fiduciary relationship with the
corporation and there can be no real bargaining
where the same is acting on both sides of the
trade
 The contract between the corporation and the self-dealing
director, trustee or officer is voidable. However, the
contract is valid if the requirements for its validity under
Section 32 are present
 However, even if not all the requirements are met, the
contract with the self-dealing director, trustee or officer
may still be ratified by a vote of stockholders representing
at least 2/3 of the Outstanding Capital Stock or by the vote
of at least 2/3 of the members in a meeting called for the
purpose provided the following conditions are met:
1) There must be full disclosure of the adverse
interest of the directors or trustees involved is
made at such meeting
2) the contract is fair and reasonable under the
circumstances
 Discussion: When may a corporate officer bind the
corporation?
1) Authorized by the By-Laws
2) Authorized by the Board of Directors
3) If not authorized by By-Laws nor the Board, the act
can be ratified by the Board
4) Doctrine of Apparent Authority (must be related to
his function)
Section 33. Contracts between corporations with interlocking
directors. –
1) Except in cases of fraud, and
2) provided the contract is fair and reasonable under the
circumstances,
a contract between two or more corporations having
interlocking directors shall not be invalidated on that ground
alone:
 Provided, That if the interest of the interlocking
director in one corporation is substantial and his
interest in the other corporation or corporations is
merely nominal,
o he shall be subject to the provisions of the
preceding section insofar as the latter
corporation or corporations are concerned.
Stockholdings exceeding twenty (20%) percent of the
outstanding capital stock shall be considered substantial for
purposes of interlocking directors. (n)
14 | P LATON

 Interlocking directorship by itself is not prohibited under
the Corporation Code. However, the by-laws may contain
provisions that disallow interlocking directorship in certain
cases. A contract between two or more corporations
having interlocking directors shall not be invalidated on
that ground alone
 There is an interlocking director in a corporation when one
(or some or all) of the directors in one corporation is (or
are) a director(s) in another corporation
 If the interest of the interlocking director in one of the
corporations is nominal in one and substantial in the
other, a contract between the two corporations shall be
valid, if the conditions under Section 32 are present
 Contract between corporations with interlocking
directors/trustees must always meet the third condition,
that is, said contracts must be fair and reasonable under
the circumstances
o If the contract is fair and reasonable, the
absence of either the first or second condition
makes the contract voidable and capable of
ratification
 Section 33 which provides for rules regarding transactions
between corporations with interlocking directors applies if
the contract results in prejudice to one of the
corporations. This rule does not apply if the corporation
allegedly prejudiced is a third party, not one of the
corporations with interlocking directors
o The option to nullify the contract belongs to the
parties to the contract (stockholders, directors,
corporations) only and not to a third party
 Interlocking directors are not allowed between banks,
quasi-banks, investment houses, insurance companies
without prior BSP approval.
o How about in non-banks? Allowed, except if
there is a contrary provision (e.g. Gokongwei)
 SUMMARY – For a contract between 2 corporations with
interlocking directors to be valid:
1) there is no fraud
2) the contract if fair and reasonable
3) the interest of the interlocking director in one
corporation is substantial and his interest in the other
corporation is merely nominal
4) compliance with the requirements in Section 32 in so
far as the nominal corporation is concerned
Section 35. Executive committee. –
The by-laws of a corporation may create an executive
committee,
 composed of not less than three members of the
board, to be appointed by the board.
Said committee may act, by majority vote of all its members, on
such specific matters within the competence of the board, as
may be delegated to it in the by-laws or on a majority vote of
the board,
EXCEPT with respect to: (Limitations)
1. approval of any action for which shareholders'
approval is also required;
2. the filing of vacancies in the board;
3. the amendment or repeal of by-laws or the adoption
of new by-laws;
4. the amendment or repeal of any resolution of the
board which by its express terms is not so amendable
or repealable; and
5. a distribution of cash dividends to the shareholders.
N.B. Distribution of stock dividends falls under the first
exception
 The Corporation Code allows the creation of an executive
committee because the board may not readily face the
contingency of confronting urgent matters which requires
its attention
 The executive committee can only be created by virtue of
a provision in the by-laws. The board, by itself, cannot
create an executive committee if nothing is stated in the
by-laws
o GR: The board alone or the board per se cannot
create a mini board or a committee that will
function as BOD
o XPN:
1) the by-laws may authorize the creation of
the executive committee
2) the BOD pursuant to an authority under the
by-laws may likewise create an executive
committee
 TEST: Will that committee perform board functions? Will
that committee act on matters according to the board
competence?
If yes, then it requires authority in the by-laws. If it
does not perform the functions of the board and is
for administrative purposes only, the BOD can create
such by mere board approval.
 Section 35 provides that an executive committee must be
composed of not less than three members of the board, to
be appointed by the board. This means that there can be
members of the executive committee who are not
directors provided that at least three members are
directors
o Can non-board directors be members?
Yes, provided their function is merely
recommendatory or advisory in nature. They
cannot vote.
o SEC Opinion, November 5, 1984: The required
majority vote requirement for an executive
committee shall be interpreted to mean majority
of all the committee members regardless of the
classification of the membership into
director/members or non-director/members
 A foreigner can be a member of the executive committee
in proportion to the foreign shareholdings in the
corporation
 The executive committee has all the authority of the board
to the extent provided in the resolution of the board or in
the by-laws. The resolutions passed and approved by the
executive committee are as valid as the resolutions of the
15 | P LATON
 board provided the resolutions have been made at the
time the committee is constituted
 Decisions of executive committee are not absolute. It can
be abdicated by the board of directors
o SEC Opinion, July 29, 1995: The decision of the
executive committee is not subject to appeal to
the board. They are valid and unappealable.
However, if the resolution of the executive
committee is invalid (as for instance it is not one
of the powers conferred thereto) it may be
ratified by the board
 If the executive committee was not validly constituted, the
members thereof may be considered de facto officers
Read CASE OUTLINE in Marx, pages 57-70
TITLE IV - POWERS OF CORPORATIONS
Section 36. Corporate powers and capacity. –
Every corporation incorporated under this Code has the power
and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of
time stated in the articles of incorporation and the
certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance
with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or
public policy, and to amend or repeal the same in
accordance with this Code;
6. 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 non-stock
corporation;
7. 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;
8. To enter into merger or consolidation with other
corporations as provided in this Code;
9. To make reasonable donations, including those for
the public welfare or for hospital, charitable, cultural,
scientific, civic, or similar purposes: Provided, That no
corporation, domestic or foreign, shall give donations
in aid of any political party or candidate or for
purposes of partisan political activity;
10. To establish pension, retirement, and other plans for
the benefit of its directors, trustees, officers and
employees; and
11. 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. (13a)
 A corporation may exercise
1) Express powers – the powers expressly provided
by the
a. The Corporation Code;
i. The general powers under
Section 36 and
ii. The specific powers under
Section 11, 16 and 37 to 44
b. Applicable special laws;
c. Administrative regulations; and
d. The Articles of Incorporation and by-
laws of the corporation
2) Implied powers – all powers that are reasonably
necessary or proper for the execution of the
powers expressly granted and are not expressly
or impliedly excluded
3) Incidental powers – powers that are deemed
conferred on the corporation because they are
incidental to the existence of the corporation. It
includes:
a. Right to succession
b. Right to have a corporate name
c. Right to make by-laws for its
government
d. Right to sue and be sued
e. Right to acquire and hold properties
for the purposes authorized by the
charter
 To sue and be sued in its corporate name
This power is exercised by the corporation through
the board. Hence, the Supreme Court now requires
corporations to attach a copy of the Board Resolution
authorizing the filing of the complaint or petition
The suit must be in the name of the corporation. It
should use the complete name and not an acronym
(LIDECO v. CA)
 Of succession by its corporate name for the period of
time stated in the articles of incorporation and the
certificate of incorporation
Section 11
 To adopt and use a corporate seal
A corporate seal is a sign, emblem, device adopted by
the corporation to distinguish it from other
corporations
Under the Corporation Code, a seal is not
indispensable for the transactions or contracts of the
corporation. A document may be considered valid
and binding even in the absence of a seal. However,
one instance when a seal is necessary is with respect
to the certificate of stock as provided for under
Section 63 (merely directory not mandatory, thus, the
absence of such will not invalidate the certificate)
 To amend its articles of incorporation in accordance with
the provisions of this Code (not to adopt because AOI is
required at the outset)
Section 16
 To adopt by-laws, not contrary to law, morals, or public
policy, and to amend or repeal the same in accordance
with this Code
Section 46 and 48
16 | P LATON
 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 non-stock corporation
Sections 60-72
 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,
1) as the transaction of the lawful business of the
corporation may reasonably and necessarily require,
2) subject to the limitations prescribed by
a. law and
b. the Constitution
The power under this provision can be exercised by
the Board without concurrence of the stockholders.
Stockholder’s approval is necessary only in cases
covered by Sections 40 and 42.
What are the basic requirements/limitations?
1) It must be reasonably and necessarily required
by the transaction of the lawful business of the
corporation
a. It can mortgage its properties to
secure its obligations
b. Parent can mortgage its properties to
secure its subsidiary’s obligation IF (1)
the latter is wholly-owned by the
former, and (2) it will not prejudice
third persons.
c. It can act as an accommodation
mortgagor IF it is engaged in the
business of a surety, bonding
company, etc.
d. In case of donations, if such is contrary
to the corporation’s purpose, amend
the AOI first before accepting.
2) It is subject to limitations prescribed by law and
the Constitution
a. Foreign corporations are not allowed
to acquire private lands in the
Philippines unless 60% of its capital
stock is owned by Filipinos
b. Corporation cannot acquire alienable
lands of public domain
c. Domestic corporation owned by
Filipinos can lease a public land
d. Foreign banks can be a mortgagee but
cannot foreclose properties. Remedy:
They assign the right to their lawyers.
e. Bulk Sales Law
 To enter into merger or consolidation with other
corporations as provided in this Code
Section 76
 To make reasonable donations, including those for the
public welfare or for hospital, charitable, cultural,
scientific, civic, or similar purposes:
 Provided, That no corporation, domestic or foreign,
shall give donations in aid of any political party or
candidate or for purposes of partisan political
activity
The Corporation Code now allows corporations to
make donation so long as the following are complied
with:
1) The donation must be reasonable;
2) The donation must be for valid purposes
including public welfare or for hospital,
charitable, cultural, scientific, civic, or
similar purposes;
3) The donation must not be in aid of any
political party or candidate or for purposes
of partisan political activity
Factors to determine reasonableness:
1) Income of the corporation
2) Capital/Assets of the corporation
3) Operations
4) Volume or magnitude of the donation
 To establish pension, retirement, and other plans for the
benefit of its directors, trustees, officers and employees
superior than what the law provides
Article 27 of the Labor Code provides a default
retirement plan: If 60 years of age and at least 5 years
in service, you get ½ month salary for every year of
service
A corporation can act as a collection agent as long as
it will not earn any commission or remuneration from
that arrangement
 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
ALL ENCOMPASSING
A corporation cannot enter into a contract of partnership.
This limitation is based on public policy since in a
partnership, the corporation would be bound by the acts of
the persons who are not its duly appointed and authorized
agents and officers, which would be entirely inconsistent
with the policy of the law that the corporation shall manage
its own affairs separately and exclusively. By way of
exception, the SEC allows a corporation to be a partner if the
following conditions are present:
1) The authority to enter into a partnership relation
is expressly conferred by the charter or Articles of
Incorporation of the corporation, and the nature
of the business venture to be undertaken by the
partnership is in line with the business authorized
by the charter or articles of incorporation of the
corporation involved
2) The partnership must be a limited partnership
and the corporation must be a limited partner
3) If it is a foreign corporation, it must obtain a
license to transact business in the country
A corporation can enter into a joint venture agreement
The general rule is that a corporation may not ordinarily be
bound by a contract of guarantee or surety for the benefit of
third persons. However, such guaranty may be given in the
accomplishment of any object for which the corporation was
created, or when the particular transaction is reasonably
necessary or proper in the conduct of its business
Consistently, a corporation cannot act as an accommodation
party in a negotiable instrument
17 | P LATON
 o UNLESS it is engaged in such nature of business
(e.g. surety, bonding company, etc)
Section 37. Power to extend or shorten corporate term. - A private
corporation may extend or shorten its term as stated in the
articles of incorporation
1) when approved by a majority vote of the board of
directors or trustees and
2) ratified at a meeting 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 case of non-stock corporations.
3) Written notice of the proposed action and of the time
and place of the meeting shall be addressed to each
stockholder or member at his place of residence as
shown on the books of the corporation and deposited
to the addressee in the post office with postage
prepaid, or served personally:
Provided, That in case of extension of corporate term, any
dissenting stockholder may exercise his appraisal right under
the conditions provided in this code. (n)
 Limitations on the power:
1) Done during the lifetime of the corporation
a. X expiration of term, liquidation or winding
up. The corporation is already dissolved,
there is nothing more to extend. Remedy if
term already expired: Reincorporation.
2) Approved by at least majority of the board
a. Entails amendment of the AOI therefore
approval by the stockholders representing
at least 2/3 of the OCS is required at a
meeting
b. For purposes of such stockholder’s meeting,
written notice of the proposed action and of the
time and place of the meeting shall be addressed
to each stockholder or member at his place of
residences as shown on the books of the
corporation and deposited to the addressee in
the post office with postage prepaid, or served
personally
3) Must not exceed 50 years at any given time
4) Cannot be done earlier than 5 years or prior to the
original or subsequent expiry date unless there are
justifiable reasons for an earlier extension as may be
determined by the SEC
5) In case of banks, insurance companies, public utilities,
the favorable endorsement of the appropriate
government agency
6) A copy of the amended articles of incorporation shall
be submitted to the SEC for its approval
 Appraisal right is available in extension AND shortening of
corporate term (see Sec. 81). However, if shortening will
result in the corporation’s dissolution, the right is no
longer practical.
Section 38. Power to increase or decrease capital stock;
incur, create or increase bonded indebtedness. - No corporation
shall increase or decrease its capital stock or incur, create or
increase any bonded indebtedness unless
1) approved by a majority vote of the board of directors
and,
 But when you issue shares from the unissued
portion of the capital stock without the
corresponding increase in capital stock– board
approval suffices
2) at a stockholder's meeting duly called for the
purpose, two-thirds (2/3) of the outstanding capital
stock shall favor the increase or diminution of the
capital stock, or the incurring, creating or increasing
of any bonded indebtedness.
3) Written notice of the proposed increase or
diminution of the capital stock or of the incurring,
creating, or increasing of any bonded indebtedness
and of the time and place of the stockholder's
meeting at which the proposed increase or
diminution of the capital stock or the incurring or
increasing of any bonded indebtedness is to be
considered, must be addressed to each stockholder at
his place of residence as shown on the books of the
corporation and deposited to the addressee in the
post office with postage prepaid, or served
personally.
4) A certificate (of amendment) in duplicate must be
a. signed by a majority of the directors of the
corporation and
b. countersigned by the chairman and the
secretary of the stockholders' meeting,
c. setting forth:
1. That the requirements of this section have been
complied with;
2. The amount of the increase or diminution of the
capital stock;
3. If 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 residences 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 his subscription in
cash or property, or the amount of capital stock
or number of shares of no-par stock allotted to
each stock-holder if such increase is for the
purpose of making effective stock dividend
therefor authorized;
4. Any bonded indebtedness to be incurred,
created or increased;
5. The actual indebtedness of the corporation on
the day of the meeting;
 Consent of creditors not required
6. The amount of stock represented at the
meeting; and
7. The vote authorizing the increase or diminution
of the capital stock, or the incurring, creating or
increasing of any bonded indebtedness.
8. (the original articles of incorporation and the
amended articles of incorporation with the
amendments duly underscored)
5) Any increase or decrease in the capital stock or the
incurring, creating or increasing of any bonded
indebtedness shall require prior approval of the
Securities and Exchange Commission.
 One of the duplicate certificates shall be kept on file
in the office of the corporation and
18 | P LATON
  the other shall be filed with the Securities and
Exchange Commission and attached to the original
articles of incorporation.
From and after approval by the Securities and Exchange
Commission and the issuance by the Commission of its
certificate of filing, the capital stock shall stand increased or
decreased and the incurring, creating or increasing of any
bonded indebtedness authorized, as the certificate of filing may
declare:
6) (Treasurer’s affidavit required in increase) Provided,
That the Securities and Exchange Commission shall
not accept for filing any certificate of increase of
capital stock unless accompanied by the sworn
statement of the treasurer of the corporation lawfully
holding office at the time of the filing of the
certificate, showing that at least twenty-five (25%)
percent of such increased capital stock (of the
increase not as increased) has been subscribed and
that at least twenty-five (25%) percent of the amount
subscribed has been paid either in actual cash to the
corporation or that there has been transferred to the
corporation property the valuation of which is equal
to twenty-five (25%) percent of the subscription:
Provided, further, That no decrease of the capital stock shall be
approved by the Commission if its effect shall prejudice the
rights of corporate creditors.
Non-stock corporations may incur or create bonded
indebtedness, or increase the same, with the approval by a
majority vote of the board of trustees and of at least two-thirds
(2/3) of the members in a meeting duly called for the purpose.
Bonds issued by a corporation shall be registered with the
Securities and Exchange Commission, which shall have the
authority to determine the sufficiency of the terms thereof.
(17a)
 Tools to obtain funds:
1) Increase capital stock
2) Issuance of primary shares (Quorum of BOD’s
approval suffices)
3) Loans granted by stockholders to the corporation
(creditor-debtor relationship, thus, stockholder can
insist on payment and interest)
4) Deposit for future subscription (converted to equity)
 INCREASE OR DECREASE IN CAPITAL STOCK
The exercise of the power to increase or decrease the
authorized capital stock of the corporation results in the
amendment of the articles of incorporation.
o This should be distinguished from mere increase of
subscribed capital stock or paid-up capital which does not
necessarily require amendment of the Articles of
Incorporation
A corporation may increase its capital stock even though the
original authorized capital stocks are not yet fully subscribed
What are the ways by which the corporation may increase or
decrease its capital stock?
1) By increasing (reducing) the number of shares and
retaining the par value
2) Increasing (reducing) the par value without changing
the number of shares
3) Increasing (reducing) the number of shares and
increasing (reducing) the par value
There will be no increase or decrease of capital in case of stock
split. In stock split, a share is divided or converted into two or
more shares but the amount of the outstanding capital remains
the same because the par value is also divided in as many
shares
Increase in the capital stock of the corporation is necessary
when additional funds are required by the operation and the
corporation opted to raise funds through additional
investments. Additional investment may be infused initially by
increasing the subscribed capital. Increase in the subscribed
capital need not go through the process provided for under
Section 38 and mere approval of the board is sufficient
o However, an increase in the authorized capital stock is
required if the additional subscription cannot be covered
by the original authorized capital or if the original
authorized capital is already exhausted
See Section 38 for requirements for increase in capital stock
What are the requirements for reduction of capital stock?
1) Same requirements except the treasurer’s affidavit
2) The reduction of capital stock must not prejudice
creditors
Ways of methods allowed by law where properties of the
corporation may be distributed back to the stockholders:
1) Dissolution
2) Redemption of redeemable shares
3) Reduction of capital stock
 INCUR, CREATE OR INCREASE BONDED INDEBTEDNESS
To incur and to increase requires two board and stockholders’
approvals. You cannot in one approval incur and increase. It
cannot be done holistically.
All borrowings are not subject to stockholder’s approval
Only in cases of bonded indebtedness – if the
obligation is burdened with or encumbered by
corporate assets, then there is a need for
stockholder’s approval.
Different situations:
1) Ordinary borrowing – board approval suffices if only
against the general credit of the corporation
2) Loan secured by mortgage – SH approval if it includes
all or substantially all (See Sec. 40)
3) Obligations in a form of a bond – SH approval not
required if not secured by mortgage BUT if registered
with SEC and encumbered or secured by the assets of
the corporation regardless of volume or magnitude,
SH approval is required
19 | P LATON
 BONDED INDEBTEDNESS ORDINARY BORROWING before such shares can be offered
Requires stockholder’s approval Board approval suffices if the to third parties
value is against the general credit Available even if AOI is silent Not available if AOI, By-Laws,
of the corporation Certificates of Stock is silent
Long term and involve large Short term and usually involves
number of investors one lender  Purpose: To maintain the stockholder’s proportionate
Bonded indebtedness is a form of Based only on the capacity of the influence or interest in the corporation
a bond secured by a mortgage or debtor or the borrower of the
o To maintain the relative and proportionate
a charge of corporate assets corporation to pay based on the
perception or judgment of the
voting strength and control of existing
Bonds must be registered with lender without charging the shareholders. It is aimed to maintain the existing
the SEC properties ratio of the shareholder’s interest and voting
power in the corporation
BONDS SHARES OF STOCK/ DIVIDENDS
Borrowing Equity investment/ Fruits thereof A owns 100,000 common shares. Corporation will issue common and
Bond holder must be paid and is Earns dividends/ Dividends are preferred shares. Is preemptive right available to both issuances?
entitled to the payment of available only if there are surplus No. It is available only in common shares because he has no
interest on the bond regardless of profits basis in the proportionate sharing of the preferred shares.
whether or not there is surplus Remedy: Appraisal right.
profit Sec. 8, corporation is bound to
redeem despite lack of surplus  SEC Opinion, July 28, 1988: The pre-emptive right is not
profits so long as it would not available when shares are issued in exchange for shares in
result to insolvency another corporation if the same is the result of a merger
Bond holders are creditors of the Stockholders are risk takers of the to which the corporation are parties
corporation; they have no right to corporation; they have the right
participate in the management of to participate in the management
 SEC Opinion, October 9, 1990: The right to subscribe to
the corporation and to vote
new issues and disposition may be transferred by the
shareholder. Unless there is an express restriction in the
Can a bond be converted into shares?
Articles of Incorporation, the pre-emptive right is
It depends if the bonds are convertible in nature.
transferable
Unless there is such feature, the bonds are simply
loan obligations on the part of the corporation and
 Preemptive right is not absolute. Cases where pre-emptive
the owner thereof are not entitled to vote nor to the
right of stockholders does not apply:
assets of the corporation upon dissolution (?)
In addition to Sec. 39, Nos. 1 – 3:
Section 39. Power to deny pre-emptive right. - All 4) Waiver of preemptive right, express or implied. If
stockholders of a stock corporation shall enjoy pre-emptive there’s a period indicated in a board resolution to
right to subscribe to all issues or disposition of shares of any exercise such right and if not exercised by the
class, in proportion to their respective shareholdings, UNLESS stockholder within said period, then it is deemed
1) such right is denied by the articles of incorporation or waived.
an amendment thereto:
2) Provided, That such pre-emptive right shall not Bar Exam Question
extend to shares to be issued in compliance with laws Seller of property wants to be paid in shares of stock in exchange of
requiring stock offerings or minimum stock ownership property to be purchased by the corporation. Board approved the
by the public (all listed companies: 10% of the capital issuance of shares in exchange of the property. In a stockholders
stock must be owned by the public); or meeting, a proposal to increase capital stock to accommodate shares to
3) to shares to be issued in good faith with the approval be issued in exchange of property was approved by stockholders
representing 2/3 of the outstanding capital stock. One stockholder
of the stockholders representing two-thirds (2/3) of
invoked violation of his preemptive right. Will it prosper?
the outstanding capital stock, Yes. Approval of the stockholders to increase the capital
a. in exchange for property needed for stock is independent to the approval to issue shares in
corporate purposes or exchange for property.
b. in payment of a previously contracted debt.
Section 40. Sale or other disposition of assets. –
 This is a limitation on the power to issue shares Subject to the provisions of existing laws on illegal
combinations and monopolies,
 Preemptive right – the right of the stockholder to
subscribe to all issues or disposition of shares of any class a corporation may,
(preferred, treasury, or issuance from increase of capital 1) by a majority vote of its board of directors or
stock or from original or unissued portion of capital stocks) trustees,
in proportion to their shareholdings
sell, lease, exchange, mortgage, pledge or otherwise dispose of
PREEMPTIVE RIGHT RIGHT OF FIRST REFUSAL
all or substantially all of its property and assets, including its
Section 39 Not in the Corporation Code
goodwill, upon such terms and conditions and for such
The right of the stockholder to The right of a stockholder to buy
subscribe to all issues or the shares of a selling stockholder
consideration, which may be money, stocks, bonds or other
disposition of shares of any class before they are offered to third instruments for the payment of money or other property or
by the corporation in proportion parties consideration, as its board of directors or trustees may deem
to their respective shareholdings expedient,

20 | P LATON

2) when authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the
outstanding capital stock, or in case of non-stock
corporation, by the vote of at least to two-thirds (2/3)
of the members, in a stockholder's or member's
meeting duly called for the purpose.
3) Written notice of the proposed action and of the time
and place of the meeting shall be addressed to each
stockholder or member at his place of residence as
shown on the books of the corporation and deposited
to the addressee in the post office with postage
prepaid, or served personally:
Provided, That any dissenting stockholder may exercise his
appraisal right under the conditions provided in this Code.
A sale or other disposition shall be deemed to cover
substantially all the corporate property and assets if thereby
the corporation would be rendered incapable of
 continuing the business or
 accomplishing the purpose for which it was
incorporated.
After such authorization or approval by the stockholders or
members, 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.
Nothing in this section is intended to restrict the power of any
corporation, without the authorization by the stockholders or
members, to sell, lease, exchange, mortgage, pledge or
otherwise dispose of any of its property and assets
 if the same is necessary in the usual and regular
course of business of said corporation or
 if the proceeds of the sale or other disposition of such
property and assets be appropriated for the conduct
of its remaining business.
In non-stock 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.
 2 kinds of sale contemplated in Section 40:
1) Sale, mortgage, pledge or disposition of properties in
the ordinary course of business – board approval
suffices (quorum)
2) Sale, mortgage, pledge or disposition
a. not in the ordinary course of business, or
b. of all or substantially all of the assets, or
c. of all or substantially all of the business of
the corporation
– majority of entire board and stockholders
representing at least 2/3 of OCS’ approval are
required and subject to laws against illegal
combination, monopoly or restraint of trade and the
Bulk Sales Law.
 The transferee-corporation of all or substantially all of the
assets (or even shares) of the transferor-corporation will
not be liable for the debts of said transferor-corporation
o However, by way of exception, the transferee-
corporation is liable:
1) If there is an express or implied
assumption of liabilities;
2) There is a consolidation or merger or a
de facto merger;
3) If the purchase was in fraud of
creditors; and
4) If the purchaser becomes a
continuation of the seller
ACT No. 3952
THE BULK SALES LAW (as amended)
Sec. 2. Sale and transfer in bulk. — Any sale, transfer, mortgage or
assignment of a stock of goods, wares, merchandise, provisions, or
materials otherwise than in the ordinary course of trade and the
regular prosecution of the business of the vendor, mortgagor,
transferor, or assignor, or sale, transfer, mortgage or assignment of all,
or substantially all, of the business or trade theretofore conducted by
the vendor, mortgagor, transferor, or assignor, or of all, or substantially
all, of the fixtures and equipment used in and about the business of the
vendor, mortgagor, transferor, or assignor, shall be deemed to be a sale
and transfer in bulk, in contemplation of this Act: Provided, however,
That if such vendor, mortgagor, transferor or assignor, produces and
delivers a written waiver of the provisions of this Act from his creditors
as shown by verified statements, then, and in that case, the provisions
of this section shall not apply.
 Under the Bulk Sales Law, it requires:
1) A verified list of creditors under oath given by the
seller to the buyer 10 days before the sale, which
contains the names, addresses, due dates and
amount owing to the creditors.
2) Inventory of goods or properties to be sold, cost
price, acquisition price and the amount for which it
has been sold
3) The list of inventory and notice filed with the DTI.
 Non-compliance – proceeds of the sale are held in trust for
the benefit of the creditors. The sale is void with respect to
the creditors but not with respect to the buyer and seller.
Once the creditor has been paid, the buyer has the right to
reimbursement and damages against the seller.
Section 41. Power to acquire own shares. –
A stock corporation shall have the power to purchase or
acquire its own shares
 for a legitimate corporate purpose or purposes,
including but not limited to the following cases:
 Provided, That the corporation has unrestricted
retained earnings in its books to cover the shares to
be purchased or acquired:
1. To eliminate fractional shares arising out of stock
dividends;
2. 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
3. To pay dissenting or withdrawing stockholders
entitled to payment for their shares under the
provisions of this Code. (a)
 Enumeration is NOT EXCLUSIVE
21 | P LATON
 Other cases: (N.B. URE not required)
4) In case of redeemable shares (Sec. 9)
5) In case of close corporations
6) Dacion en pago or shares conveyed in payment of a
debt
 According to foreign laws, surplus profit is only required
when there is cash out on the part of the corporation in
acquiring its own shares
 SEC Opinion, October 12, 1992: the power to acquire its
own shares is now an express power. However, in order to
avoid the dangers that accompany the exercise of this
express power, the SEC has always imposed the following
conditions on its exercise:
1) The capital of the corporation must not be
impaired;
2) A legitimate and proper corporate objective is
advanced;
3) The condition of corporate affairs warrants it;
and
4) The transaction is designed and carried out in
good faith
Section 42. Power to invest corporate funds in another
corporation or business or for any other purpose. –
Subject to the provisions of this Code,
a private corporation may invest its funds
 in any other corporation or business or
 for any purpose other than the primary purpose for
which it was organized
1) when 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 non-stock corporations, at a stockholder's or
member's meeting duly called for the purpose.
2) Written notice of the proposed investment and
the time and place of the meeting shall be
addressed to each stockholder or member at his
place of residence as shown on the books of the
corporation and deposited to the addressee in
the post office with postage prepaid, or served
personally:
Provided, That any dissenting stockholder shall have appraisal
right as provided in this Code:
Provided, however, That where the 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. (17
1/2a)
 Investment of a corporation in a business which is in line
with its primary purpose requires only the approval of the
board
 Investment of funds includes not only investment of
money but also investment of property of the corporation
 SEC Opinion, November 9, 1994: Lease of property is
included in the term “investment of funds.” However, the
SEC imposes the following requirements: (See Page 242,
Philippine Corporate Law Compendium)
Section 43. Power to declare dividends. –
The board of directors of a stock corporation may declare
dividends out of the unrestricted retained earnings which shall
be payable
1) in cash,
2) in property, or
3) in stock
to all stockholders on the basis of outstanding stock held by
them:
Provided,
 That any cash dividends due on delinquent stock shall
first be applied to the unpaid balance on the
subscription plus costs and expenses,
 while stock dividends shall be withheld from the
delinquent stockholder until his unpaid subscription is
fully paid:
Provided, further, That no stock dividend shall be issued
without the approval of stockholders representing not less
than two-thirds (2/3) of the outstanding capital stock at a
regular or special meeting duly called for the purpose. (16a)
Stock corporations are prohibited from retaining surplus profits
in excess 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; or
2. when the corporation is prohibited under any loan
agreement with any financial institution or creditor,
whether local or foreign, from declaring dividends
without its/his consent, and such consent has not yet
been secured; or
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. (n)
 Board of Directors has the discretion to declare dividends.
It should be noted that the decision of the board alone is
necessary to declare cash or property dividends
o In the case of stock dividends, the decision of the
Board is subject to the approval of the
stockholders representing at least 2/3 of the
Outstanding Capital Stock of the corporation
o Nevertheless, the directors’ discretion is
maintained even if the dividends to be declared
are stock dividends. It is still up to the board to
declare stock dividends
 Kinds of dividends:
1) Cash – requires board approval only (quorum)
2) Property – considered as cash, thus requires board
approval only (e.g., treasury shares)
3) Stocks – taken from the original, unissued portion, or
increase of capital stock, thus requires both board
and stockholders’ approval
22 | P LATON
 CASH STOCK  Dividends cannot be declared outside the total
Approved by the BOD by majority Approved by the BOD by majority subscription of the corporation because it will violate the
of the quorum of the quorum and by the SH trust fund doctrine. It can only be taken from the excess of
representing at least 2/3 of the liabilities and total subscription
OCS
Payable in cash Payable in shares
Formula:
Applied against unpaid If there is unpaid subscription, it
Assets
subscription price shall be withheld until full
payment of the subscription -Liabilities
There is cash outlay No cash outlay. Surplus profits is -Total Subscription
transferred to capital, once
reclassified, it is no longer Unrestricted Retained
available for dividend distribution Earnings
Determined by the number of Two step process: Declare cash
outstanding shares dividends but instead of
distributing, the corporation will  SEC Opinion, September 23, 1986: Retained earnings
use it to subscribe to shares at par mean the accumulated profits realized out of normal and
value9 continuous operations of the business after deducting
Cannot be revoked once May be revoked even after actual therefrom distribution of stockholders or transfers to
declared. The declaration creates declaration but before actual capital stock or other accounts.
a creditor-debtor relationship issuance to the SH
If received by a natural, subject to Not subject to tax whether
 Unrestricted retained earnings is defined as the
tax; if by corporation, not subject received by a natural person or a
undistributed earnings of the corporation which have not
to tax corporation
been allocated for any managerial, contractual, or legal
purposes and which are free for distribution to the
 Basic conditions to enable the corporation to declare
stockholders as dividends
dividends:
o Unrestricted means there must be no
1) Unrestricted retained earnings (surplus profits)
encumbrance, limitation, restriction in the
2) Resolution of the board
declaration of dividends
3) If stock dividends are declared, there must be
resolution of the board with the concurrence of the
 What is included in retained earnings?
stockholders representing at least 2/3 of the
Kinds of surpluses:
outstanding capital stock
1) Operation/Profit surplus – earned in the course of
operation; it can be a basis of dividend declaration
 SEC rules provide that the property to be distributed as
dividends shall consist only of property which are no
2) Revaluation (Reappraisal) surplus – if there is an
longer intended to be used in the operation of the
increase in the value of assets. Generally they cannot
business of the corporation and which are practicable to
be declared as dividends because they cannot be
be distributed as dividends
considered earnings of the corporation. They are by
o In addition, the issuance of the property
nature subject to fluctuations
dividends shall not result in an inequitable
distribution of property to the stockholders in
Exception: The SEC allows distribution of the portion of the
terms of the book value and market value, if any, increase in the value of fixed assets as a result of revaluation
of the property distributed thereof after the assets are depreciated and the
depreciation is charged against the operation provided the
 When stock dividends are declared, the earnings are following conditions are complied with:
distributed to the stockholders in the form of shares of 1) The company has sufficient income from the
stock. It involves the conversion of surplus or undivided operations from which the depreciation on the
profits into capital appraisal increase is charged;
2) The company has no deficit at the time the
depreciation on the reappraisal increase was
 Dividends cannot be declared out of the capital. The charged to operations; and
exception is with respect to “wasting assets corporations” 3) Such depreciation on the appraisal increase
which are corporations solely or principally engaged in the previously charged to operations is not erased or
exploitation of “wasting assets.” They are allowed to impaired by subsequent losses, otherwise, only
distribute the net proceeds derived from exploitation of that portion not impaired by subsequent losses is
their holdings such as mines, oil wells, patents and available for dividend
leaseholds, without allowance or deduction for depletion
Discussion: If not sold for an amount higher than the
 The trust fund doctrine will be violated if dividends are acquisition cost, it cannot be a basis for dividend
declared out of capital except only in two instances: (1) declaration because it is only a paper gain
liquidating dividends and (2) dividends from investments
in Wasting Assets Corporation 3) Paid-in surplus – cannot be declared as dividends
because they are part of capital. Paid-in surplus is the
difference between the par value and the issued
9
If the unissued portion of the capital stock is not enough to value or selling price of the shares and are not
accommodate the shares brought about by the stock dividend therefore considered profits earned in the conduct of
declaration, the corporation will increase the capital stock to be able to the business of the corporation
accommodate the issuance of shares
23 | P LATON
 Exception: The SEC allows the distribution of paid-in
surplus in exceptional cases when the following are
present:
a. That they be declared only as stock
dividends and not as cash dividends;
b. Not creditor shall be prejudiced therefrom;
and
c. There is no resulting impairment of capital
4) Reduction Surplus – where surplus arises from the
reduction of the par value of the issued shares of
stocks. They are available for dividend declaration
provided the following are met:
a. They are declared as stock dividends;
b. No creditor is prejudiced; and
c. There is no resulting impairment of capital
after declaration of dividends
Discussion: It is brought about by the reduction of
capital stock. It will be distributed to the stockholders
with the consent of the creditors
 Who is entitled to dividends?
Stockholders are entitled to dividends pro rata based on
the total number of shares and not on the amount paid for
the shares
1) Stockholders as of the date fixed by the by-laws
2) If the by-laws is silent, fixed by the board
3) If both are silent, whoever is the stockholder of
record at the time of declaration (Record date)
 SEC Opinion, June 19, 1991, August 6, 1990 & June 5,
1974: A record date is the future date specified in the
resolution declaring dividend that the dividend shall be
payable to those who are stockholders of record on such
specified future date or as of the date of the meeting
declaring said dividends.
 Even unpaid subscribers are entitled to dividends (see
Sections 71 and 72, subject to Section 43)
 Can a corporation be compelled by way of mandamus to
declare dividends?
GR: No because it is discretionary on the part of the
corporation
XPN: Stock corporations are prohibited from retaining
surplus profits in excess of one hundred (100%)
percent of their paid-in (not subscribed) capital stock
XPN to XPN: Section 43, last paragraph. (3)
 Subscription agreement may provide that also non-
delinquent stocks may be subject to Section 43.
Section 44. Power to enter into management contract. –
No corporation shall conclude a management contract with
another corporation unless such contract shall have been
1) approved by the board of directors (quorum) and
2) by stockholders owning at least the majority of the
outstanding capital stock, or by at least a majority of
the members in the case of a non-stock corporation,
of BOTH the managing and the managed
corporation, at a meeting duly called for the purpose:
Provided, That
1. 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; or
2. 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,
then the management contract must be approved by the
stockholders of the managed corporation owning at least two-
thirds (2/3) of the total outstanding capital stock entitled to
vote, or by at least two-thirds (2/3) of the members in the case
of a non-stock corporation.
No management contract shall be entered into for a period
longer than five years for any one term.
The provisions of the next preceding paragraph shall apply to
any contract whereby a corporation undertakes to manage or
operate all or substantially all of the business of another
corporation, whether such contracts are called service
contracts, operating agreements or otherwise:
Provided, however, That such service contracts or operating
agreements which relate to the 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. (n)
 A management contract is an agreement whereby a
corporation undertakes to manage or operate all or
substantially all of the business of another corporation,
whether such contracts are called service contracts,
operating agreements or otherwise
 Section 44 applies to situations where the contract is
between two corporations. It does not normally apply to a
contract with natural person who will be appointed as
manager because the same is covered by general powers
of the corporation. The contract with the natural person is
more appropriately called employment contract rather
than management contract
o Since partnership and private individuals are not
mentioned in Section 44, any management
contract between them shall not be subject to
the requirements thereof
 Interlocking directors – if 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 stockholders - 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
24 | P LATON
Section 45. Ultra vires acts of corporations. –
No corporation under this Code shall possess or exercise any
corporate powers except those conferred
1) by this Code or
2) by its articles of incorporation
and except such as are necessary or incidental to the exercise
of the powers so conferred. (n)
 Ultra vires acts are those powers that are not conferred to
the corporation by law, by its articles of incorporation and
those that are not implied or necessary or incidental to the
exercise of the powers so conferred
o It is one committed outside the object for which
a corporation is created as defined by the law of
its organization and therefore beyond the
powers conferred upon it by law
o The concept can also include those acts that may
ostensibly be within such powers but are, by
general or special laws, either proscribed or
declared illegal
o Discussion: They are not binding or enforceable
against the corporation
o Discussion: An ultra vires act is not necessarily an
illegal act but an illegal act is necessarily an ultra
vires act
ULTRA VIRES ACT ILLEGAL ACT
Simply an act not consistent with An act that is contrary to law,
the express, implied or incidental public morals and public policy
to the express powers of the
corporation
Can be ratified by estoppel Cannot be ratified
 Remedy: INJUNCTION to stop the corporation from
performing an ultra vires act
 Effects of ultra vires acts:
1) A corporation that is engaged in ultra vires
business is liable for torts committed by its
agents within their authority in the course of
that business
2) Where the contract is fully executed on both
sides, the contract is effective and will stand as a
foundation of rights acquired under it
3) When the contract is executory on one side and
has been fully performed in the other, the party
who has received benefits from the performance
is estopped in claiming that the contract is ultra
vires
4) When both contracts are wholly executory on
both sides, neither party can maintain an action.
The rule is justified since the only injustice that
will be caused is loss of prospective profits but
the protection of the stockholders may be
sufficient ground to enjoin the performance of
the act
 Discussion: If an act has been performed by one party or
both parties then the doctrine of ultra vires will not apply
because the other party is now estopped from invoking it.
Thus, the doctrine applies only to purely executory
contracts. Remedy: Derivative suit in behalf of the
corporation to set aside the act
 Ultra vires act of an officer of the corporation:
1) No authority under the by-laws
2) No authority under the board
3) His acts were not ratified by the corporation
4) Doctrine of Apparent Authority
 N.B. If any of the following are present, i.e. authority
under the by-laws, authority from the board, ratification,
apparent authority, the corporation is bound by the act of
the officer
TITLE V - BY LAWS
Section 46. Adoption of by-laws. –
Every corporation formed under this Code must,
 within one (1) month after receipt of official notice of
the issuance of its certificate of incorporation by the
Securities and Exchange Commission,
adopt a code of by-laws for its government not inconsistent
with this Code.
For the adoption of by-laws by the corporation
1) the affirmative vote of the stockholders representing
AT LEAST A MAJORITY OF THE OUTSTANDING
CAPITAL STOCK, or of at least a majority of the
members in case of non-stock corporations, shall be
necessary.
2) The by-laws shall be signed by the stockholders or
members voting for them and shall be kept in the
principal office of the corporation, subject to the
inspection of the stockholders or members during
office hours.
3) A copy thereof, duly certified to by a majority of the
directors or trustees countersigned by the secretary
of the corporation, shall be filed with the Securities
and Exchange Commission
a. which shall be attached to the original
articles of incorporation.
 Notwithstanding the provisions of the preceding
paragraph, by-laws may be adopted and filed prior to
incorporation;
o in such case, such by-laws shall be approved
and signed by all the incorporators and
o submitted to the Securities and Exchange
Commission,
o together with the articles of incorporation.
In all cases, by-laws shall be effective only upon the issuance by
the Securities and Exchange Commission of a certification that
the by-laws are not inconsistent with this Code.
The Securities and Exchange Commission shall not accept for
filing the by-laws or any amendment thereto of any
1) bank,
2) banking institution,
3) building and loan association,
4) trust company,
5) insurance company,
6) public utility,
7) educational institution or
8) other special corporations governed by special laws,
unless accompanied by a certificate of the appropriate
government agency to the effect that such by-laws or
amendments are in accordance with law. (20a)
25 | P LATON
 Articles of incorporation – constitution of the corporation
 By-Laws – the rules and regulations or private laws
enacted by the corporation to regulate, govern and control
its own actions, affairs and concerns and of its
stockholders or members and directors and officers in
relation thereto and among themselves in their relation to
it
o By-laws are relatively permanent and continuing
rules of action adopted by the corporation for its
own government and that of the individuals
composing it and those having the direction,
management and control, in whole or in part, of
its affairs and activities
 Modes of adopting the by-laws of the corporation:
1) Pre-Incorporation. Submit together with the articles
of incorporation (all incorporators must sign) thus you
get two approvals:
a. Certificate of filling of AOI
b. Certificate of filling of by-laws
2) Post-Incorporation. Submit to the SEC within 1
month from approval or issuance by the SEC of a
certificate of incorporation (must be signed by
stockholders representing at least majority of the
OCS and certified by majority of the board and the
corporate secretary)
 If the corporation fails to submit the by-laws within one
month from incorporation, it does not result in the
automatic dissolution of the corporation. At the very least,
it is a de facto corporation.
 Requisites:
1) It must be consistent with the Corporation Code,
other pertinent laws and regulations;
2) It must be consistent with the Articles of
Incorporation;
3) It must not be contrary to morals or public
policy;
4) It must not disturb vested rights, impair contract
or property rights of stockholders or members or
create obligations not sanctioned by law
 The provisions of the by-laws are binding not only upon
the corporation but also on its stockholders, members and
those having direction, management and control of its
affairs
o However, the provisions of the by-laws are not
binding on subordinate employees having no
actual knowledge of the provisions thereof
o As to third persons, the by-laws provisions are
also not binding unless there is actual knowledge
A provision in the by-laws that the corporation has a first lien on
the share for the unpaid dues and assessments is not complete
unless complemented by an accessory contract like a pledge or
chattel mortgage agreement where the shares will stand as
security for the payment of the dues and assessment. (Carag v.
Valle Verde Golf and Country Club)
Section 47. Contents of by-laws. –
Subject to the provisions of
 the Constitution,
 this Code,
 other special laws, and
 the articles of incorporation,
a private corporation may provide in its by-laws for:
1. The time, place and manner of calling and conducting
regular or special meetings of the directors or
trustees;
2. The time and manner of calling and conducting
regular or special meetings of the stockholders or
members;
 Why is there no “place”? Because Section 51
provides the place: In the city or municipality
where the principal office is located or in the
latter if practicable
3. The required quorum in meetings of stockholders or
members and the manner of voting therein;
 Exclude the non-voting shares in determining the
majority of the outstanding capital stock
 Quorum is determined not by the number of
persons present but by the number of shares
represented
4. The form for proxies of stockholders and members
and the manner of voting them;
5. The qualifications, duties and compensation of
directors or trustees, officers and employees;
 The basic qualifications are spelled out in Section
23
6. The time for holding the annual election of directors
of trustees and the mode or manner of giving notice
thereof;
 The best manner or mode of giving notice is by
publication (Affidavit of publisher as proof of
compliance)
7. The manner of election or appointment and the term
of office of all officers other than directors or
trustees;
 Important to include the qualifications, duties and
term of office of officers other than the directors
because it will determine which committee has
jurisdiction in case of issues surrounding the
appointment, removal or termination (RTC or
Labor Court?)
8. The penalties for violation of the by-laws;
 Must be consistent with the law
9. In the case of stock corporations, the manner of
issuing stock certificates; and
10. Such other matters as may be necessary for the
proper or convenient transaction of its corporate
business and affairs. (21a)
 By-laws must contain the corporate seal of the
corporation. It must also contain the principal place of
corporation
Section 48. Amendments to by-laws. –
1) The board of directors or trustees, by a majority vote
thereof,
2) and the owners of AT LEAST A MAJORITY OF THE
OUTSTANDING CAPITAL STOCK, or at least a majority
of the members of a non-stock corporation,
3) at a regular or special meeting duly called for the
purpose,
may amend or repeal any by-laws or adopt new by-laws.
The owners of two-thirds (2/3) of the outstanding capital stock
or two-thirds (2/3) of the members in a non-stock corporation
may delegate to the board of directors or trustees the power to
amend or repeal any by-laws or adopt new by-laws:
26 | P LATON
  Provided, That any power delegated to the board of
directors or trustees to amend or repeal any by-laws
or adopt new by-laws shall be considered as revoked
o whenever stockholders owning or
representing a majority of the outstanding
capital stock or a majority of the members
in non-stock corporations, shall so vote at a
regular or special meeting.
Whenever any amendment or new by-laws are adopted, such
amendment or new by-laws shall be
 attached to the original by-laws in the office of the
corporation, and
 a copy thereof, duly certified under oath by the
corporate secretary and a majority of the directors or
trustees,
o shall be filed with the Securities and
Exchange Commission the
o same to be attached to the original articles
of incorporation and original by-laws.
The amended or new by-laws shall only be effective upon the
issuance by the Securities and Exchange Commission of a
certification that the same are not inconsistent with this Code.
(22a and 23a)
 How do you amend the by-laws of the corporation?
1) Approval of the board of directors by a majority vote
AND stockholders representing at least majority of
the outstanding capital stock may amend
2) Approval of stockholders representing at least 2/3 of
the outstanding capital stock delegating to the board
the power to amend
a. May be revoked by stockholders
representing a majority of the outstanding
capital stock
 Discussion: Open issue: According to the SEC, delegation
must be contained in a separate stockholders’ resolution.
According to Dean Divina, a separate stockholders’
resolution is not necessary because the by-laws is more
compelling and more persuasive than a stockholders’
resolution. By-laws are more permanent
TITLE VI – MEETINGS
Section 49. Kinds of meetings. - Meetings of directors,
trustees, stockholders, or members may be
1) regular or
2) special. (n)
Section 50. Regular and special meetings of stockholders or
members. –
1) Regular meetings of stockholders or members shall
be
a. held annually
i. on a date fixed in the by-laws, or
ii. if not so fixed, on any date (SEC:
must be specific) in April of every
year as determined by the board
of directors or trustees:
b. Provided, That written notice of regular
meetings shall be sent to all stockholders or
members of record at least two (2) weeks
prior to the meeting, unless a different
period is required by the by-laws.
2) Special meetings of stockholders or members shall be
a. held at any time deemed necessary or as
provided in the by-laws:
b. Provided, however, That at least one (1)
week written notice shall be sent to all
stockholders or members, unless otherwise
provided in the by-laws.
Notice of any meeting may be waived, expressly or impliedly,
by any stockholder or member.
Whenever, for any cause, there is no person authorized to call a
meeting, the Securities and Exchange Commission,
1) upon petition of a stockholder or member
2) on a showing of good cause therefor,
may issue an order to the petitioning stockholder or member
directing him to call a meeting of the corporation by giving
proper notice required by this Code or by the by-laws.
The petitioning stockholder or member shall preside thereat
until at least a majority of the stockholders or members present
have chosen one of their number as presiding officer. (24, 26)
Section 51. Place and time of meetings of stockholders of
members. –
Stockholder's or member's meetings, whether regular or
special,
 shall be held in the city or municipality where the
principal office of the corporation is located, and
 if practicable in the principal office of the
corporation:
 Provided, That Metro Manila shall, for purposes of
this section, be considered a city or municipality.
(SEC, 2004 regulation)
Notice of meetings shall be in writing, and the time and place
thereof stated therein.
All proceedings had and any business transacted at any meeting
of the stockholders or members, if within the powers or
authority of the corporation, shall be valid even if the meeting
be improperly held or called,
 provided all the stockholders or members of the
corporation are present or duly represented at the
meeting. (24 and 25)
Section 52. Quorum in meetings. –
Unless otherwise provided for
1) in this Code or
2) in the by-laws,
a quorum shall consist of the stockholders representing a
majority of the outstanding capital stock or a majority of the
members in the case of non-stock corporations. (n)
Section 53. Regular and special meetings of directors or
trustees. –
1) Regular meetings of the board of directors or trustees
of every corporation shall be
a. held monthly, unless the by-laws provide
otherwise.
27 | P LATON
 2) Special meetings of the board of directors or trustees  The pledgor or mortgagor does not part with the
may be ownership of the shares, they are just encumbered; unless
a. held at any time upon the call of the the pledge or mortgage agreement provides otherwise
president or as provided in the by-laws.
 Is the corporation bound by the agreement?
Meetings of directors or trustees of corporations If it is registered, all that the pledgee/mortgagee has
 may be held anywhere in or outside of the to do is to give a copy of the agreement to the corporate
Philippines, unless the by-laws provide otherwise. secretary

Notice of regular or special meetings (need not be in writing
unless the by-laws provides otherwise) stating the date, time
and place of the meeting must be sent to every director or
trustee at least one (1) day prior to the scheduled meeting,
unless otherwise provided by the by-laws. A director or trustee
may waive this requirement, either expressly or impliedly. (n)
 The quorum is the same even if there is a vacancy in the
board. If the required quorum cannot be satisfied because
of the vacancy, the remedy is for the stockholders to fill
the vacancy
 If approved by the court, an executor or administrator may
attend and vote
Section 56. Voting in case of joint ownership of stock. –
In case of shares of stock owned jointly by two or more
persons, in order to vote the same,
 the consent of all the co-owners shall be necessary,
 unless there is a written proxy,
o signed by all the co-owners,
o authorizing one or some of them or any
other person to vote such share or shares:

Stockholders meeting Board meeting Provided, That when the shares are owned in an "and/or"
Regular Special Regular Special capacity by the holders thereof,
How often Once a year Anytime Once a Anytime
 any one of the joint owners can vote said shares or
month
appoint a proxy therefor. (n)
Purpose Voting the directors
Where in the city or municipality Anywhere Anywhere
where the principal office  “AND” – both or all of them must consent, unless one is
of the corporation is authorized by the other(s)
located; and if practicable “AND/OR” – one of them can vote
in the principal office of “OR” – then with more reason one of them can vote
the corporation
When On the date Any date  Requisites for a valid meeting:
convened stated in
1) Proper notice must be given to the stockholders or to
the by-laws;
if silent any
the board as the case may be
day of April a. Given in accordance with the requirements
Notice 2 weeks 1 week 1 day 1 day of the by-laws
b. Issued, called, and presided by the one
 Why April? Because by that time, the corporation shall specified in the by-laws
have known already the results of its corporation or the c. Must contain the date, time and place
audited financial statements 2) There must be a quorum
a. SH: stockholders representing a majority of
the outstanding capital stock unless the law
Section 54. Who shall preside at meetings. –
or by-laws provide otherwise
The president (in practice: Chairman) shall preside at all
b. BOD: majority of the number of directors as
meetings of the directors or trustee as well as of the
fixed in the AOI unless the law or by-laws
stockholders or members, unless the by-laws provide
provide otherwise
otherwise. (n)
c. Proxy voting is allowed in stockholders
meeting but never in board meeting
Section 55. Right to vote of pledgors, mortgagors, and
administrators. –  Can a representative of the director attend, but without
In case of pledged or mortgaged shares in stock corporations, the right to vote?
the pledgor or mortgagor No, only board of directors can attend the directors’
1) shall have the right to attend and vote at meetings of meeting. However, if the board of directors meets because
stockholders, they are hostile directors, then you need to get approval
2) unless the pledgee or mortgagee is expressly given by from the board. So the board has authorized you to assist
the pledgor or mortgagor such right in writing which the board during deliberation (?)
is recorded on the appropriate corporate books. (n)
 Once the corporate secretary has certified that there is a
Executors, administrators, receivers, and other legal quorum, it continues all throughout the proceedings. So if
representatives duly appointed by the court some stockholders walked out and some stockholders are
1) may attend and vote in behalf of the stockholders or still present, the meeting can continue.
members Remedy: Motion to adjourn. It takes precedence over
2) without need of any written proxy. (27a) all other motions, except motion to declare you out
of order.

28 | P LATON
Section 57. Voting right for treasury shares. - Treasury shares
shall have no voting right as long as such shares remain in the
Treasury. (n)
 Treasury shares are not part of the outstanding capital
 But once they are resold by the corporation, they become
outstanding again and, thus, can vote
Section 58. Proxies. - Stockholders and members may vote
1) in person or
2) by proxy
in all meetings of stockholders or members.
Proxies shall
1) in writing,
2) signed by the stockholder or member and
3) filed before the scheduled meeting with the
corporate secretary.
Unless otherwise provided in the proxy, it shall be valid only for
the meeting for which it is intended.
No proxy shall be valid and effective for a period longer than
five (5) years at any one time. (n)
 The right to vote at a stockholder’s meeting depends upon
the ownership of the stock as disclosed by the stock and
transfer book of the corporation and a registered
stockholder must be allowed to vote irrespective of any
question of bona fides
o Importance: Proxy is a way by which a
stockholder may participate and exercise the
right of management even though he may not
be physically present during the stockholders
meeting
 Proxy refers either to the instrument evidencing the
authority to vote or it may refer to the proxy holder
 Formalities of a proxy under the law:
1) In writing
2) Signed by the stockholder
3) Filed with the corporate secretary before the
meeting
4) If it is a specific proxy, it is valid only for the
meeting intended
a. If it is general and continuing in nature,
it may be extended but not to exceed 5
years
 It need not be notarized. Documentary stamp need not be
affixed, although it will not be admissible in evidence
o SRC: A proxy statement must be submitted with
the SEC
 The corporation has to fix a period to validate proxies. So
that the aggrieved party can take the appropriate remedy
in case the proxy forms are rejected
o For public companies, the SEC requires that the
proxy forms be submitted at least five days
before the stockholders meeting. The by-laws
may provide for a longer period but not shorter
 SEC Opinion, September 9, 1991: The power to appoint a
proxy is purely personal. The right to vote is inseparable
from the right of ownership of stock. Therefore, to be
valid, a proxy must have been given by the person who is
the legal owner of the stock and is entitled to vote
 Discussion: Can a proxy appoint a proxy (sub-proxy)?
Yes, unless otherwise prohibited by the proxy form
 SEC Opinion, September 8, 1995: The by-laws may impose
restrictions as to the person who can be proxies and the
manner of voting them. In the absence of such provision,
anybody can be appointed as proxy without limitation as
to the number of members to be represented
o SEC Opinion, March 12, 2002: A proxy can be
given to two or more persons jointly
o SEC Opinion, October 28, 1991: When two or
more persons are given separate proxies but
they are not intended to be joint proxies, the
giving of the last proxy is to be deemed a
revocation of all former proxies
 A proxy is governed by the law on agency. Thus, death of
the stockholder terminates the proxy (instrument)
 When does SEC/RTC acquire jurisdiction when it comes to
violation of proxies? If it involves an election contest or
intra-corporate dispute, it is the RTC that has jurisdiction.
When it deals with administrative supervision, it is the SEC
 Discussion: Cease and Desist Order
1) Can it be issued ex parte? Yes
2) Can it be signed by only one commissioner? No, the
law requires that at least majority of the members of
the SEC commission must sign
Section 59. Voting trusts. –
One or more stockholders of a stock corporation may create a
voting trust for the purpose of conferring upon a trustee or
trustees
1) the right to vote
2) and other rights pertaining to the shares
3) for a period not exceeding five (5) years at any time:
Provided, That in the case of a voting trust specifically required
as a condition in a loan agreement, said voting trust
1) may be for a period exceeding five (5) years
2) but shall automatically expire upon full payment of
the loan.
A voting trust agreement must be
1) in writing and
2) notarized, and
3) shall specify the terms and conditions thereof.
4) A certified copy of such agreement shall be filed with
the corporation and with the Securities and Exchange
Commission; otherwise, said agreement is ineffective
and unenforceable.
The certificate or certificates of stock covered by the voting
trust agreement shall be cancelled and new ones shall be issued
in the name of the trustee or trustees stating that they are
issued pursuant to said agreement.
29 | P LATON
In the books of the corporation, it shall be noted that the  Who has the right to receive dividends? Stockholder,
transfer in the name of the trustee or trustees is made unless otherwise stipulated under the terms of the VTA
pursuant to said voting trust agreement.  The stockholder gets a voting trust certificate from the
trustee, while the latter gets the stock certificate. Both can
The trustee or trustees shall execute and deliver to the be assigned
transferors voting trust certificates,
 which shall be transferable in the same manner and  Once the VTA expires, the shares issued to the trustee will
with the same effect as certificates of stock. be cancelled and a new one issued again in favor of the
stockholder-trustor
The voting trust agreement filed with the corporation shall be
subject to examination by any stockholder of the corporation in TITLE VII - STOCKS AND STOCKHOLDERS
the same manner as any other corporate book or record:
 Provided, That both the transferor and the trustee or Section 60. Subscription contract. –
trustees may exercise the right of inspection of all Any contract for the acquisition of unissued stock
corporate books and records in accordance with the  in an existing corporation or
provisions of this Code.  a corporation still to be formed
shall be deemed a subscription within the meaning of this Title,
Any other stockholder may transfer his shares to the same notwithstanding the fact that the parties refer to it as a
trustee or trustees upon the terms and conditions stated in the purchase or some other contract. (n)
voting trust agreement, and thereupon shall be bound by all
the provisions of said agreement.  A person may become a stockholder in a corporation by
acquiring a share. Acquisition of the share can be by (1)
No voting trust agreement shall be entered into for the purpose purchase or (2) through subscription. Purchase may be
of circumventing the law against monopolies and illegal from the corporation itself or from the shareholders
combinations in restraint of trade or used for purposes of
fraud. SUBSCRIPTION PURCHASE
Not governed by the Statute of Governed by the Statute of
Unless expressly renewed, all rights granted in a voting trust Frauds Frauds, thus, must be in writing if
agreement shall automatically expire at the end of the agreed the amount is in excess of P500,
period, and the voting trust certificates as well as the otherwise, it is unenforceable
certificates of stock in the name of the trustee or trustees shall Applies to corporation to be Limited to acquisition of shares of
formed or already in existence a corporation already formed
thereby be deemed cancelled and new certificates of stock shall
Subscriber acquires and can Buyer cannot exercise all the
be reissued in the name of the transferors.
exercise all the rights pertaining rights pertaining to the shares
to his shares even though not unless he as complied with the
The voting trustee or trustees may vote by proxy unless the fully paid terms and conditions of the
agreement provides otherwise. (36a) purchase
Corporate creditor can enforce Corporate creditors cannot
PROXY VTA payment of the subscription if the enforce payment on the purchase
As to form In writing, signed by the In writing, notarized, assets of the corporation are not price because there is no privity
stockholder, and filed and filed with the enough, even though they have of contract
with the corporate corporate secretary and no privity of contract
secretary the SEC
As to period Valid only for the Valid for all meetings  Treasury shares, being existing shares, are purchased not
meeting intended, but not to exceed 5 subscribed
unless it is general and years, unless it is made
continuing in nature but pursuant to a loan
 A subscriber cannot be released from his obligation to pay
not to exceed 5 years agreement in which
case the VTA is co- the balance of the subscription – as it will violate the trust
terminus with the loan fund doctrine
As regards title No legal title is Legal title is transferred, o XPN: if all the stockholders consent & no
conveyed transferred to the proxy thus, he is qualified to creditors prejudiced
holder, thus, he has no be elected as director
right to vote and be  The Trust Fund Doctrine is violated in the following instances:
voted 1) When the corporation releases or condones payment
As to rights Only the right to vote Not only the right to of the unpaid subscription and the stockholder has no
acquired vote but also all other right to demand the refund of his investment;
rights pertaining to the 2) When there is payment of dividends without
shares (e.g. to inspect, unrestricted retained earnings;
to obtain copies, etc) 3) When properties are transferred in fraud of creditors;
As to law Law on Agency Law on Trust and and
governing it Corporation Code 4) When properties are disposed or undue preference is
Effect of Proxy loses authority Presence does not given to some creditors even if the corporation is
presence of SH revoke authority insolvent

 The stockholder has beneficial title while the trustee has  With respect to subscribed capital, the same can be
legal title increased by the corporation
1) By issuing the remaining balance of the
authorized capital stock or
30 | P LATON
 2) By increasing the authorized capital stock which
necessarily involves additional subscription
In both cases, additional capital in the form of shareholder’s
investments is likewise infused to the corporation through post-
incorporation subscription. It should be noted in this connection
that issuance of shares out of the unsubscribed shares of the
authorized capital stock does not need stockholder’s approval.
What is necessary is only a resolution of the Board of Directors
approving the same
 What are the rights of a stockholder?
1) Proprietary
a. To receive dividends (43)
b. To approve stock dividends (43)
c. Appraisal right (81)
d. To assets in case of dissolution and
liquidation (122)
2) Management
a. To vote on certain corporate acts (84)
3) Remedial
a. Preemptive right (39)
b. Issuance of stock certificates (63, 64)
c. To inspect (74)
d. To obtain copies of the financial statements
(75)
e. To file a derivative suit (not in the Code)
 Requisites of a derivative suit (must be alleged)
1) Can only be filed by a stockholder
a. Must be a stockholder at the time the
cause of action accrued
b. Usually filed the minority because the
majority refuses to take action
2) Must be suing in behalf of the corporation
a. Cause of action must not be personal
to the stockholder (e.g. violation of
preemptive right, issuance of stock
certificate)
3) Must exhaust all administrative and intra-
corporate remedies except if the ones who are
guilty are the BOD themselves, in which the
requirement of exhaustion may be waived
4) Appraisal right is not available
Must be filed with the RTC in the city where the principal office
is located.
CASE: The action for annulment of mortgage is only incidental
to the principal cause of action filed which is the derivative suit,
thus, it must be initiated in the city where the principal office is
located not in the city where the property is situated. (High
Yield Realty v. CA)
N.B. Approval of the board is not necessary; otherwise, it will
defeat the purpose of such suit
Section 61. Pre-incorporation subscription. –
A subscription for shares of stock of a corporation still to be
formed
 shall be irrevocable for a period of at least six (6)
months from the date of subscription,
1) unless all of the other subscribers consent
to the revocation, or
2) unless the incorporation of said corporation
fails to materialize within said period or
within a longer period as may be stipulated
in the contract of subscription:
Provided, That no pre-incorporation subscription may be
revoked after the submission of the articles of incorporation to
the Securities and Exchange Commission. (n)
 If the corporation did not materialize, the treasurer must
remit or return everything to the subscribers otherwise, he
is liable for estafa
Section 62. Consideration for stocks. –
Stocks shall not be issued for a consideration less than the par
or issued price thereof.
Consideration for the issuance of stock may be any or a
combination of any two or more of the following:
1. Actual cash paid to the corporation;
2. 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;
3. Labor performed for or services actually rendered to
the corporation;
4. Previously incurred indebtedness of the corporation;
5. Amounts transferred from unrestricted retained
earnings to stated capital; and
6. Outstanding shares exchanged for stocks in the event
of reclassification or conversion.
Where the consideration is other than actual cash, or consists
of intangible property such as patents of copyrights, the
valuation thereof shall initially be determined by the
incorporators or the board of directors, subject to approval by
the Securities and Exchange Commission.
Shares of stock shall not be issued in exchange for promissory
notes or future service.
The same considerations provided for in this section, insofar as
they may be applicable, may be used for the issuance of bonds
by the corporation.
The issued price of no-par value shares may be fixed
1) in the articles of incorporation or
2) by the board of directors pursuant to authority
conferred upon it by the articles of incorporation or
the by-laws, or
3) in the absence thereof, by the stockholders
representing at least a majority of the outstanding
capital stock at a meeting duly called for the purpose.
(5 and 16)
 Actual cash paid to the corporation
 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
o Initial valuation determined by the
incorporators or by the board
o Subject to the approval of the SEC.
Reason: To insure non-issuance of watered
shares.
31 | P LATON

 Labor performed for or services actually rendered to the
corporation
Case: See Nielson v Lepanto (not subject to preemptive right)
 Previously incurred indebtedness of the corporation;
 Amounts transferred from unrestricted retained earnings
to stated capital (stock dividends)
 Outstanding shares exchanged for stocks in the event of
reclassification or conversion
SITUATION:
A contract where the subscription will be paid by the dividends
declared. Valid?
Contract is valid but condition is void because
dividends may or may not be declared.
SEC: If the corporation is insolvent or is in imminent danger of
insolvency, 25% of the subscription must be paid
Distinguish with the 25%-25% requirement upon
incorporation (the authorized capital stock,
subscribed and paid up) or increase in capital stock
(the increase, subscribed and paid up)
Section 63. Certificate of stock and transfer of shares. –
The capital stock of stock corporations shall be divided into
shares for which certificates
1) signed by the president or vice president,
2) countersigned by the secretary or assistant secretary,
and
3) sealed with the seal of the corporation shall be
4) issued in accordance with the by-laws.
a. If paid in full
Shares of stock so issued are personal property and may be
transferred (requisites)
1) by delivery of the certificate or certificates
2) indorsed by
a. the owner or
b. his attorney-in-fact or
c. other person legally authorized to make the
transfer.
3) No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in
the books of the corporation showing
a. the names of the parties to the transaction,
b. the date of the transfer,
c. the number of the certificate or certificates
and
d. the number of shares transferred.
N.B. If not recorded, not binding against the corporation.
Also, taxes must also be paid before the recording of such
transfer otherwise, the corporate secretary may go to jail by
virtue of Revenue Regulation 2-82.
No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the
corporation. (35)
 Stock certificates are non-negotiable instruments under
the Negotiable Instruments Law. The requirements of
Section 1 of the Negotiable Instruments Law are not
present because there is, in the first place, no promise or
order to pay money. However, it has been said that stock
certificates are quasi-negotiable because they can be
transferred by indorsement coupled with delivery
SHARES OF STOCK STOCK CERTIFICATE
Intangible property Evidence of ownership of the
shares
 How do you sell shares, not yet fully paid and not
evidenced by a stock certificate?
Deed of assignment – consent of the corporation is
required because it will result to novation (change in
the person of the debtor) (?)
There must be a special power of attorney executed by the
registered owner of the share authorizing the transferee to
demand the transfer in the stock and transfer books. It is
believed however that this authority may be included in the
deed of assignment or document of transfer itself
Compare with:
Transfer of shares, fully paid and evidenced with a stock
certificate?
Endorsement by the stockholder, delivery to the
transferee, payment of taxes and recording in the
books – consent of the corporation no longer
necessary
See also Sec. 98 – the corporation cannot impose a condition
more onerous than the right of first refusal
 If the requirements under Section 63 with respect to
transfers of shares are not complied with, the corporation
is not bound to recognize the right of the buyer. The
buyer-transferee has no right or standing in so far as the
corporation is concerned.
o Only XPN: If under the circumstances, it is
considered endorsed by reason of equitable
considerations. (Tan v. CA)
 If there is no indorsement in favor of the transferee, the
transferee may file an action to compel the transferor to
make such indorsement. However, the same cannot be
considered as an intra-corporate controversy because the
transferee is not yet a shareholder (Aquilino Rivera v. Hon.
Florendo, 144 SCRA 643, 657)
 Who can file a petition for mandamus if the requirements
are not complied with?
The seller-transferor, unless the buyer-transferee is
authorized by the former to cause the transfer of shares in
the latter’s name in the books of the corporation
See GARCIA v ____
 UNPAID CLAIM – refers to unpaid subscription and not to
any other obligation by the stockholder to the corporation
The provisions in the by-laws are not binding against third
persons because by-laws are binding only against
stockholders except when the third person has actual
knowledge of the contents thereof
o For shares to be considered as security for the
payment of an obligation, there must be an
32 | P LATON
 actual chattel mortgage or pledge agreement,
not just a provision in the by-laws authorizing
the corporation to sell the shares for non-
payment of dues and assessments
o (CLEMENTE v CA & CHINABANK v CA & CARAG v
VALLEY GOLF)
Section 64. Issuance of stock certificates. –
No certificate of stock shall be issued to a subscriber
1) until the full amount of his subscription
2) together with interest and expenses (in case of
delinquent shares), if any is due,
has been paid. (37)
 Requisites for the issuance of the stock certificate
1) The certificate must be signed by the president or
vice president, countersigned by the secretary or
assistant secretary;
2) The certificate must be sealed with the seal of the
corporation;
3) The certificate must be delivered;
4) The par value, as to par value shares or full
subscription as to no par value shares must first be
fully paid; and
5) The original certificate must be surrendered where
the person requesting the issuance of a certificate is a
transferee from a stockholder
 Can the corporation issue stock certificates even if the
subscription price is not fully paid? Is the requirement
waivable?
Yes. The provision is for the benefit of the
corporation, not for the stockholder, thus, the former can
waive it.
Section 65. Liability of directors for watered stocks. –
Any director or officer of a corporation
1) consenting to the issuance of stocks
a. for a consideration less than its par (for par)
or issued value (for no-par)or
b. for a consideration in any form other than
cash, valued in excess of its fair value,
2) or who, having knowledge thereof, does not
forthwith express his objection
a. in writing and
b. file the same with the corporate secretary,
shall be solidarily, liable with the stockholder concerned to the
corporation and its creditors for the difference
 between the fair value received at the time of
issuance of the stock and the par or issued value of
the same. (n)
 The issued price of no-par value shares may be fixed
1) in the articles of incorporation or
2) by the board of directors pursuant to authority
conferred upon it by the articles of incorporation
or the by-laws, or
3) in the absence thereof, by the stockholders
representing at least a majority of the
outstanding capital stock at a meeting duly
called for the purpose. (Section 62)
N.B. See Sec. 6, it must not be less than P5.00
Section 66. Interest on unpaid subscriptions. –
Subscribers for stock shall pay to the corporation
 interest on all unpaid subscriptions
 from the date of subscription, if so required by,
 and at the rate of interest fixed in the by-laws.
o If no rate of interest is fixed in the by-laws,
such rate shall be deemed to be the legal
rate. (37)
Section 67. Payment of balance of subscription. –
Subject to the provisions of the contract of subscription,
 the board of directors of any stock corporation
o may at any time declare due and payable to
the corporation unpaid subscriptions to the
capital stock and
o may collect the same or such percentage
thereof, in either case with accrued
interest, if any, as it may deem necessary.
Payment of any unpaid subscription or any percentage thereof,
together with the interest accrued, if any,
 shall be made on the date specified in the contract of
subscription
 or on the date stated in the call made by the board.
Failure to pay on such date
 shall render the entire balance due and payable and
 shall make the stockholder liable for interest at the
legal rate on such balance,
o unless a different rate of interest is
provided in the by-laws,
o computed from such date until full
payment.
If within thirty (30) days from the said date no payment is
made,
 ALL STOCKS COVERED by said subscription
o shall thereupon become delinquent
o and shall be subject to sale as hereinafter
provided, unless the board of directors
orders otherwise. (38)
Section 68. Delinquency sale. –
The board of directors may, by resolution,
 order the sale of delinquent stock and
 shall specifically state
1) the amount due on each subscription plus
all accrued interest, and
2) the date, time and place of the sale which
shall not be less than thirty (30) days nor
more than sixty (60) days from the date the
stocks become delinquent.
Notice of said sale, with a copy of the resolution,
1) shall be sent to every delinquent stockholder either
personally or by registered mail.
2) The same shall furthermore be published once a
week for two (2) consecutive weeks in a newspaper
of general circulation in the province or city where
the principal office of the corporation is located.
Unless the delinquent stockholder pays to the corporation, on
or before the date specified for the sale of the delinquent
stock,
 the balance due on his subscription,
 plus accrued interest,
33 | P LATON
  costs of advertisement and
 expenses of sale, or
unless the board of directors otherwise orders,
said delinquent stock shall be sold at public auction to such
bidder who shall offer 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.
The stock so purchased shall be transferred to such purchaser
in the books of the corporation and a certificate for such stock
shall be issued in his favor.
 The remaining shares, if any, shall be credited in favor
of the delinquent stockholder who shall likewise be
entitled to the issuance of a certificate of stock
covering such shares.
Should there be no bidder at the public auction 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,
 the corporation may, subject to the provisions of this
Code, bid for the same, and the total amount due
shall be credited as paid in full in the books of the
corporation.
 Title to all the shares of stock covered by the
subscription shall be vested in the corporation as
treasury shares and may be disposed of by said
corporation in accordance with the provisions of this
Code. (39a-46a)
 The steps to be taken in a delinquency sale may be
outlined in this wise:
1) Resolution. The board of directors shall issue
resolution ordering the sale of delinquent stock;
2) Notice. Notice of said sale, with a copy of the
resolution, shall be sent to every delinquent
stockholder either personally or by registered
mail;
3) Publication. The notice shall furthermore be
published once a week for two consecutive
weeks in a newspaper of general circulation in
the province or city where the principal officer of
the corporation is located;
4) Sale. The delinquent stock shall be sold at public
auction to be held not less than 30 days nor
more than 60 days from the date the stocks
become delinquent;
5) Transfer. The stock so purchased shall be
transferred to such purchaser in the books of the
corporation and a certificate for such stock shall
be issued in his favor; and
6) Credit of Remainder. The remaining shares, if
any, shall be credited in favor of the delinquent
stockholder who shall likewise be entitled to the
issuance of a certificate of stock covering the
same
 Remedies of the corporation to enforce payment of the
subscription
o Extrajudicial – to cause the sale of the
delinquent shares based on the procedures and
formalities provided
o Judicial – file an action for collection to recover
the subscription
 Due date
o The date indicated in the contract of
subscription OR
o Call on the part of the directors, if there is no
due date specified
o An exception to the rule that a call is necessary
to make the unpaid subscription price due and
payable is in case of insolvency (Velasco v.
Poizat, 37 Phil. 802)
 A corporation cannot deduct from any amount due to an
employee, the latter’s unpaid subscription of shares. There
can be no set-off if there is no notice or call for the
payment of unpaid subscription. In the absence of a notice
or call for payment, the subscription price is not
demandable (APOCADA V NLRC)
 Non-payment of the subscription price on the due date
does not make the shares delinquent
o It becomes delinquent if payment has not been
made within the 30-day grace period
o The entire subscription becomes delinquent
because the contract of subscription is indivisible
 If the shares become delinquent, the BOD will pass a
resolution to order the sale of the delinquent shares which
should be not earlier than 30 days but not more than 60
days from delinquency date
o Notice will be given to the stockholder
o Published for once a week for two consecutive
weeks in a newspaper of general circulation
 In the sale of delinquent shares, the winning bidder offers
the full amount of subscription for the smallest number of
shares or fraction of a share
o The bid price is the full amount of the balance on
the subscription + accrued interest + cost of
advertisement and expenses of sale
o The shares so bidded shall be issued in favor of
the winning bidder and the remaining shares, if
any, shall be credited in favor of the erstwhile
delinquent stockholder
 If there is no participant in the bidding, the corporation
can bid and acquire the shares if the corporation has
surplus profit
o The shares so acquired will be considered
treasury shares and will be disposed of again
upon the approval of the board
 From the day of subscription up to the day before
delinquency sale, all the rights may be exercised
 From delinquency date until the auction sale, all rights are
suspended except the right to receive dividends in
accordance with law
o If cash dividends are declared, it should be
applied against the unpaid subscription
o If stock dividends are declared, it shall be
withheld until full payment of the subscription
34 | P LATON
 The delinquent stockholder may actually stop the
delinquent sale if he pays to the corporation, on or before
the date specified for the sale of the delinquent stock, the
balance due on his subscription, plus accrued interest,
costs of advertisement and expenses of sale. Payment
made by the delinquent shareholder automatically stops
the sale
o However, the sale may also be stayed upon the
order of the board of directors
 2 kinds of INTEREST contemplated:
o Moratory – interest from the subscription date
 Under Section 66
 There must be a stipulation
 If the rate is silent, it is the legal rate
(6%)
o Compensatory – interest from the delinquency
date
 Under Sections 67 & 68
 By reason of default, thus due with or
without a stipulation
Section 69. When sale may be questioned. –
No action to recover delinquent stock sold can be sustained
upon the ground of
 irregularity or defect
1) in the notice of sale, or
2) n the sale itself of the delinquent stock,
unless the party seeking to maintain such action
 first pays or tenders to the party holding the stock
the sum for which the same was sold,
 with interest from the date of sale at the legal rate;
and no such action shall be maintained
 unless it is commenced by the filing of a complaint
within six (6) months from the date of sale. (47a)
 The 6-month period does not apply to sale of shares of a
non-stock corporation. The period will be base on the
grounds provided for in the By-Laws (?)
Section 70. Court action to recover unpaid subscription. –
Nothing in this Code shall prevent the corporation from
collecting
 by action in a court of proper jurisdiction
o the amount due on any unpaid subscription,
o with accrued interest,
o costs and
o expenses. (49a)
Section 71. Effect of delinquency. –
No delinquent stock shall
1) be voted for or
2) be entitled to vote or
3) to representation
at any stockholder's meeting,
nor shall the holder thereof be entitled
4) to any of the rights of a stockholder
a. except the right to dividends in accordance
with the provisions of this Code,
until and unless he pays the amount due on his subscription
with accrued interest, and the costs and expenses of
advertisement, if any. (50a)
Section 72. Rights of unpaid shares. –
Holders of subscribed shares not fully paid which are not
delinquent shall have
 ALL the rights of a stockholder. (n)
Section 73. Lost or destroyed certificates. –
The following procedure shall be followed for the issuance by a
corporation of new certificates of stock in lieu of those which
have been lost, stolen or destroyed:
1. The registered owner of a certificate of stock in a
corporation or his legal representative shall file with
the corporation an affidavit in triplicate setting forth,
if possible,
a. the circumstances as to how the certificate
was lost, stolen or destroyed,
b. the number of shares represented by such
certificate,
c. the serial number of the certificate and
d. the name of the corporation which issued
the same.
He shall also submit such other information and
evidence which he may deem necessary;
2. After verifying the affidavit and other information
and evidence with the books of the corporation, said
corporation
a. shall publish a notice in a newspaper of
general circulation published in the place
where the corporation has its principal
office, once a week for three (3)
consecutive weeks
b. at the expense of the registered owner of
the certificate of stock which has been lost,
stolen or destroyed.
c. The notice shall state
i. the name of said corporation,
ii. the name of the registered owner
and
iii. the serial number of said
certificate, and
iv. the number of shares represented
by such certificate, and
d. that after the expiration of one (1) year
from the date of the last publication,
if no contest has been presented to said
corporation regarding said certificate of
stock,
i. the right to make such contest
shall be barred and
ii. said corporation shall cancel in its
books the certificate of stock
which has been lost, stolen or
destroyed and issue in lieu
thereof new certificate of stock,
UNLESS the registered owner files a bond or other
security in lieu thereof as may be required,
a. effective for a period of one (1) year,
b. for such amount and
c. in such form and
d. with such sureties as may be satisfactory to
the board of directors,
35 | P LATON
 in which case a new certificate may be issued even
before the expiration of the one (1) year period
provided herein:
e. Provided, That if a contest has been
presented to said corporation or if an action
is pending in court regarding the ownership
of said certificate of stock which has been
lost, stolen or destroyed,
i. the issuance of the new certificate
of stock in lieu thereof shall be
suspended until the final decision
by the court regarding the
ownership of said certificate of
stock which has been lost, stolen
or destroyed.
Except in case of
1. fraud,
2. bad faith, or
3. negligence on the part of the corporation and its
officers,
no action may be brought against any corporation which shall
have issued certificate of stock in lieu of those lost, stolen or
destroyed pursuant to the procedure above-described. (R.A.
201a)
 The procedure under Section 73 may be summarized in
this wise:
1) Affidavit. The registered owner shall execute and
file an affidavit regarding the share and the
circumstances regarding its loss;
2) Verification. The corporation shall verify the
affidavit and other information and evidence
with the books of the corporation;
3) Publication. The corporation shall publish a
notice in a newspaper of general circulation
published in the place where the corporation has
its principal office, once a week for three (3)
consecutive weeks at the expense of the
registered owner of the certificate of stock
which has been lost, stolen or destroyed;
4) One Year Waiting Period. There shall be a
waiting period of 1 year from the date of the last
publication during which a contest can be
interposed;
5) Contest. If a contest has been presented to said
corporation or if an action is pending in court
regarding the ownership of said certificate of
stock which has been lost, stolen or destroyed,
the issuance of the new certificate of stock in
lieu thereof shall be suspended until the final
decision by the court regarding the ownership of
said certificate of stock which has been lost,
stolen or destroyed; and
6) Replacement. If there is no contest within the 1
year period, the corporation shall then replace
the certificate. The replacement of shares can
only be made before the expiration of the 1 year
period if a bond is posted
 If there is a claim within the 1 year period
o The issuance of the replacement should be
deemed suspended and
o The corporation may file an action for
interpleader to compel two conflicting claimants
to litigate and prove who has the better right
over the shares
 If the claim is presented only after the expiration of the 1
year period and a replacement was already issued
o Insofar as the corporation is concerned, it is not
liable for the issuance of replacement if made
after the expiration of the 1 year period and if
there is no fraud, bad faith or negligence on its
part
o The stockholder who misrepresented shall be
the one liable – estafa
 Who has better rights? (see Marx Notes for Dean’s
example)
o If the pledge or mortgage on the original
certificate is not in a public instrument, then the
transferee of the replacement stock certificate
has a better right because such certificate should
be given same faith and credit as the original
stock certificate
o If the pledge or mortgage on the original
certificate is in a public instrument which binds
the whole world, then the transferee of the
original stock certificate has a better right
TITLE VIII - CORPORATE BOOKS AND RECORDS
Section 74. Books to be kept; stock transfer agent. –
Every corporation
 shall keep and carefully preserve
 at its principal office
1. a record of all business transactions and
2. minutes of all meetings of stockholders or
members, or of the board of directors or
trustees, in which shall be set forth in detail
a. the time and place of holding the
meeting,
b. how authorized,
c. the notice given,
d. whether the meeting was regular or
special, if special
i. its object,
ii. those present and absent,
and
iii. every act done or ordered
done at the meeting.
e. Upon the demand of any director,
trustee, stockholder or member,
i. the time when any director,
trustee, stockholder or
member entered or left the
meeting must be noted in
the minutes; and
f. on a similar demand,
i. the yeas and nays must be
taken on any motion or
proposition, and a record
thereof carefully made.
ii. The protest of any director,
trustee, stockholder or
member on any action or
proposed action must be
recorded in full on his
demand.
36 | P LATON

The records of all business transactions of the corporation and
the minutes of any meetings
 shall be open to inspection by any director, trustee,
stockholder or member of the corporation
 at reasonable hours
 on business days and
he may demand, in writing, for a copy of excerpts from said
records or minutes, at his expense.
Any officer or agent of the corporation who shall refuse to
allow any director, trustees, stockholder or member of the
corporation
 to examine and copy excerpts from its records or
minutes,
 in accordance with the provisions of this Code,
shall be liable to such director, trustee, stockholder or member
1) for damages, and
2) in addition, shall be guilty of an offense which shall be
punishable under Section 144 of this Code:
Provided, That 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: and
Provided, further, That it shall be a defense to any action under
this section
1) that the person demanding to examine and copy
excerpts from the corporation's records and minutes
has improperly used any information secured through
any prior examination of the records or minutes of
such corporation or of any other corporation
2) or was not acting
a. in good faith
b. or for a legitimate purpose in making his
demand.
Stock corporations must also keep a book to be known as the
"stock and transfer book", in which must be kept a record of
1) all stocks in the names of the stockholders
alphabetically arranged;
2) the installments paid and unpaid on all stock for
which subscription has been made, and the date of
payment of any installment;
3) a statement of every alienation, sale or transfer of
stock made, the date thereof, and by and to whom
made; and
4) such other entries as the by-laws may prescribe.
The stock and transfer book shall be kept
 in the principal office of the corporation
 or in the office of its stock transfer agent
 and shall be open for inspection by any director or
stockholder of the corporation
o at reasonable hours
o on business days.
No stock transfer agent or one engaged principally in the
business of registering transfers of stocks in behalf of a stock
corporation shall be allowed to operate in the Philippines
unless
 he secures a license from the Securities and Exchange
Commission and
 pays a fee as may be fixed by the Commission,
o which shall be renewable annually:
Provided, That a stock corporation is not precluded from
performing or making transfer of its own stocks, in which case
 all the rules and regulations imposed on stock
transfer agents,
o except the payment of a license fee herein
provided,
shall be applicable. (51a and 32a; P.B. No. 268.)
 “Record of all business transactions and minutes of all
meeting” – is there a retention period? None in the
Philippines
 The minutes have persuasive effect once certified by the
corporate secretary. It is prima facie proof of what
transpired during the meeting. (not conclusive)
PEOPLE v DUMLAO
 Under Section 63, the transfers must be recorded in the
“books” of the corporation to make the transfer binding to
the corporation. The book referred to is the Stock and
Transfer Book
o Conveyances or transfers such as sale, donation,
and succession must be recorded
o Note: Pledge and chattel mortgage are not
transfers, not conveyances, therefore not
required to be recorded in the books of the
corporation
 Right to inspection; Limitations:
1) Must be exercised any time during reasonable
hours on business day
2) Must be exercised in a manner or in the
procedure provided for by the by-laws
a. Provided it is not tantamount to a
denial of the right to inspection
3) Must not extend to trade secrets
4) Must be exercised for a purpose germane to his
interest as a stockholder
5) May be denied if the stockholder improperly
used the information secured in the previous
examination or examination was made in bad
faith
6) Subject to special laws
 SEC has “visitorial rights” – right to inspect books and
documents of a corporation (regulatory power)
 Liability for refusal to allow inspection – damages and
penalty provided for under Section 144 (criminal offense)
o Corporate secretary, officer or agent
o BOD who voted for the adoption a board
resolution disallowing such right
 File a petition for declaratory relief to pre-empt the filing
of a criminal complaint for violation of Section 74
Section 75. Right to financial statements. –
1) Within ten (10) days from receipt of a written request of
any stockholder or member,
 the corporation shall furnish to him its most recent
financial statement, which shall include
37 | P LATON
 a) a balance sheet as of the end of the last taxable
year and
b) a profit or loss statement for said taxable year,
showing in reasonable detail its
a. assets and
b. liabilities and
c. the result of its operations.
2) At the regular meeting of stockholders or members,
 the board of directors or trustees shall present to
such stockholders or members
 a financial report of the operations of the corporation
for the preceding year, which shall include
o financial statements, duly signed and
certified by an independent certified public
accountant.
However, if the paid-up capital of the corporation is less than
P50,000.00, the financial statements may be certified under
oath by the
a) treasurer
b) or any responsible officer of the corporation. (n)
Read CASE OUTLINE in Marx, pages 120-124
TITLE IX - MERGER AND CONSOLIDATION
 A buyer does not assume the obligations of the seller
unless:
1) The buyer is a continuation of the personality of
the seller
2) The legal personality is supposed to be pierced
3) In cases of merger
4) In cases of consolidation
 Merger is one where a corporation absorbs another
corporation and remains in existence while the other is
dissolved
o Although there is dissolution of the absorbed
corporations, there is no winding up of their
affairs or liquidation of their assets because the
surviving corporation automatically acquires all
their rights, privileges and powers as well as
their liabilities. Upon the effectivity date, the
merged or absorbed corporation ceases to exist
and its rights, privileges, properties as well as
liabilities pass on to the surviving corporation
(ASSOCIATED BANK V CA)
 Consolidation is one where a new corporation is created,
and consolidating corporations are extinguished
Section 76. Plan or merger of consolidation. –
1) Two or more corporations may merge into a single
corporation which shall be one of the constituent
corporations or
2) may consolidate into a new single corporation which
shall be the consolidated corporation.
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:
1. The names of the corporations proposing to merge or
consolidate, hereinafter referred to as the constituent
corporations;
2. The terms of the merger or consolidation and the
mode of carrying the same into effect;
3. A statement of the changes, if any, in the articles of
incorporation of the surviving corporation in case of
merger; and, with respect to the consolidated
corporation in case of consolidation, all the
statements required to be set forth in the articles of
incorporation for corporations organized under this
Code; and
4. Such other provisions with respect to the proposed
merger or consolidation as are deemed necessary or
desirable. (n)
Section 77. Stockholder's or member's approval. –
1) Upon approval by majority vote of each of the board
of directors or trustees of the constituent
corporations of the plan of merger or consolidation,
2) the same shall be submitted for approval by the
stockholders or members of each of such
corporations at separate corporate meetings duly
called for the purpose.
3) Notice of such meetings shall be given to all
stockholders or members of the respective
corporations, at least two (2) weeks prior to the date
of the meeting, either personally or by registered
mail.
a. Said notice shall state the purpose of the
meeting and shall include a copy or a
summary of the plan of merger or
consolidation.
4) 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 non-stock corporations shall be necessary for
the approval of such plan.
a. Any dissenting stockholder in stock
corporations may exercise his appraisal
right in accordance with the Code:
b. Provided, That if after the approval by the
stockholders of such plan, the board of
directors decides to abandon the plan, the
appraisal right shall be extinguished.
Any amendment to the plan of merger or consolidation may be
made, provided such amendment is
1) approved by 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. (n)
Section 78. Articles of merger or consolidation. –
After the approval by the stockholders or members as required
by the preceding section,
 articles of merger or articles of consolidation shall be
executed by each of the constituent corporations,
o to be signed by the president or vice-president
and
o certified by the secretary or assistant secretary
of each corporation setting forth:
38 | P LATON
 1. The plan of the merger or the plan of consolidation;
2. As to stock corporations, the number of shares
outstanding, or in the case of non-stock corporations,
the number of members; and
3. As to each corporation, the number of shares or
members voting for and against such plan,
respectively. (n)
Section 79. Effectivity of merger or consolidation. –
The articles of merger or of consolidation, signed and certified
as herein above required, shall be submitted to the Securities
and Exchange Commission in quadruplicate for its approval:
 Provided, That in the case of merger or consolidation of
banks or banking institutions, building and 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.
1) If the Commission is satisfied that the merger or
consolidation of the corporations concerned is not
inconsistent with the provisions of this Code and
existing laws,
a. it shall issue a certificate of merger or of
consolidation, at which time the merger or
consolidation shall be effective.
2) If, upon investigation, the Securities and Exchange
Commission has reason to believe that the proposed
merger or consolidation is contrary to or inconsistent
with the provisions of this Code or existing laws,
a. it shall set a hearing to give the
corporations concerned the opportunity to
be heard.
b. Written notice of the date, time and place
of hearing shall be given to each constituent
corporation at least two (2) weeks before
said hearing.
c. The Commission shall thereafter proceed as
provided in this Code. (n)
 PROCEDURE:
1) Preparation (not in the Corporation Code) of plan of
merger or consolidation. Contents of the plan:
a. Names of the constituent corporations
b. Terms of merger or consolidation and mode
of carrying the same into effect
i. Who will be the surviving
corporation?
ii. Exchange & Swap Ratio
c. In case of merger, statement of the changes
in the articles of incorporation of the
surviving corporation; and, in case of
consolidation, all the statements required
to be set forth in the articles of
incorporation
d. Other matters
2) Submission of the plan for approval by majority vote
of each of the board of directors or trustees
a. of each constituent corporations
b. in separate meetings
3) Notice to stockholders
a. at least two (2) weeks prior to the date of
the meeting, either personally or by
registered mail
b. stating the purpose of the meeting
c. include a copy or a summary of the plan
4) Affirmative vote of stockholders representing at least
two-thirds (2/3) of the outstanding capital stock
5) Execution of the Articles of Merger or Consolidation
by each of the constituent corporations
a. be signed by their respective presidents or
vice-presidents and
b. certified by their respective secretary or
assistant secretary
c. See Section 78 for contents
6) Amendment to the plan of merger or consolidation
may still be made before filing with the SEC provided
a. approved by majority vote of the respective
boards of directors of all the constituent
corporations and
b. ratified by the affirmative vote of
stockholders representing at least two-
thirds (2/3) of the outstanding capital stock
of each of the constituent corporations
7) In the cases of special corporations governed by
special laws, the favorable recommendation of the
appropriate government agency shall first be
obtained
8) Issuance of a certificate of merger or of consolidation
if not inconsistent with the provisions of this Code
and existing laws
a. If contrary to or inconsistent, SEC will set a
hearing to give the corporations concerned
the opportunity to be heard
CASE: 2010 Decision: In cases of special corporations governed
by special laws, like Banks, the effectivity of the merger or
consolidation commences upon the approval of the SEC not
upon approval of the BSP.
Section 80. Effects of merger or consolidation. –
The merger or consolidation shall have the following effects:
1. The constituent corporations shall become a single
corporation which, in case of merger, shall be the
surviving corporation designated in the plan of
merger; and, in case of consolidation, shall be the
consolidated corporation designated in the plan 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 all the rights, privileges, immunities and
powers and shall be subject to all the duties and
liabilities of a corporation organized under this Code;
4. The surviving or the consolidated corporation shall
thereupon and thereafter possess all the rights,
privileges, immunities and franchises of each of the
constituent corporations; and all property, real or
personal, and all receivables due on whatever
account, including subscriptions to shares and other
choses in action, and all and every other interest of,
or 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; and
39 | P LATON
 5. The surviving or consolidated corporation shall be
responsible and liable for all the liabilities and
obligations of each of the constituent corporations in
the same manner as if such surviving or consolidated
corporation had itself incurred such liabilities or
obligations; and any pending claim, action or
proceeding brought by or against any of such
constituent corporations may be prosecuted by or
against the surviving or consolidated corporation.
The rights of creditors or liens upon the property of any of such
constituent corporations shall not be impaired by such merger
or consolidation. (n)
 The surviving corporation is bound to honor the Collective
Bargaining Agreement of the absorbed corporation.
o This means that there will be 2 CBAs
CASE: BPI DAVAO UNION v. BPI, 2010: Human beings are not
corporate assets. The law refers to property rights. Therefore,
the surviving corporation is not bound to absorb the employees
of the absorbed corporation.
 Novation is not a valid defense because it is settled that in
the merger or consolidation of two existing corporations,
one of the corporations survives and continues the
business, while the other corporation is dissolved and all
its rights, properties and liabilities are acquired by the
surviving corporation
 Consent of creditors not necessary because they are
protected by express provision of law. See last paragraph
of Section 80
CASE: ASSOCIATED BANK v CA: Receivables, during or after
execution of the merger or effectivity thereof, are deemed
acquired by the surviving corporation. The law refers to all
assets and liabilities without qualifications
 Transfers of property from the absorbed corporation to
the surviving corporation are not subject to tax.
TITLE X - APPRAISAL RIGHT
Section 81. Instances of appraisal right. –
Any stockholder of a corporation shall have the right to dissent
and demand payment of the fair value of his shares in the
following instances:
1. In case any amendment to the articles of
incorporation has the effect
a. of changing or restricting the rights of any
stockholder or class of shares, or
b. of authorizing preferences in any respect
superior to those of outstanding shares of
any class, or
c. of extending or shortening the term of
corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage,
pledge or other disposition
a. of all or substantially all of the corporate
property and assets as provided in the
Code; and (See test under Section 40)
3. In case of merger or consolidation. (n)
Section 82. How right is exercised. –
The appraisal right may be exercised by any stockholder who
shall have voted against the proposed corporate action,
 by making a written demand on the corporation
 within thirty (30) days after the date on which the vote
was taken for payment of the fair value of his shares:
o Provided, That failure to make the demand
within such period shall be deemed a waiver of
the appraisal right.
If the proposed corporate action is implemented or affected,
the corporation
 shall pay to such stockholder,
o upon surrender of the certificate or
certificates of stock representing his shares,
 the fair value thereof as of the day prior to the date
on which the vote was taken,
o excluding any appreciation or depreciation
in anticipation of such corporate action.
If within a period of sixty (60) days from the date the corporate
action was approved by the stockholders, the withdrawing
stockholder and the corporation cannot agree on the fair value
of the shares,
 it shall be determined and appraised by three (3)
disinterested persons,
o one of whom shall be named by the
stockholder,
o another by the corporation,
o and the third by the two thus chosen.
 The findings of the majority of the appraisers shall be
final, and their award shall be paid by the corporation
within thirty (30) days after such award is made:
Provided, That no payment shall be made to any dissenting
stockholder unless the corporation has unrestricted retained
earnings in its books to cover such payment: and
Provided, further, That upon payment by the corporation of the
agreed or awarded price, the stockholder shall forthwith
transfer his shares to the corporation. (n)
 Appraisal right is the right of the stockholder to demand
payment of the fair value of his share after dissenting from
a proposed corporate act involving fundamental changes
in the corporation in the case specified by law
o Statutory right
o Proprietary right of a stockholder
o Limited by law
 REQUISITES:
1) The right can only be exercise in the cases
provided by law
a. Section 81
b. Section 42, investment of corporate
funds in another business or secondary
purpose
c. Section 105, in a close corporation, for
any reason
2) The stockholder must have been present during
the stockholders’ meeting and he must dissent
to the proposed corporate act
3) Written demand within thirty (30) days after the
date on which the vote was taken for payment
of the fair value of his shares
40 | P LATON
 a. The fair value thereof as of the day
prior to the date on which the vote
was taken
i. excluding any appreciation or
depreciation in anticipation
of such corporate action
b. If the withdrawing stockholder and the
corporation cannot agree within a
period of sixty (60) days from the date
the corporate action was approved by
the stockholders,
i. Fair value is determined and
appraised by three (3)
disinterested persons
(appraiser)
ii. The award shall be paid by
the corporation within thirty
(30) days after such award is
made
4) Submit the certificates of stock representing his
shares to the corporation for notation thereon
that such shares are dissenting shares within ten
(10) days after demand
5) The corporation has unrestricted retained
earnings in its books to cover such payment
6) Upon payment by the corporation of the agreed
or awarded price, the stockholder shall forthwith
transfer his shares to the corporation (shares
shall become treasury shares)
7) Implementation of the proposed corporate act
 SEC Opinion, October 1, 2001: If the corporation
unjustifiably refuses to pay the dissenting stockholder
despite full compliance with all the requirements for the
valid exercise of appraisal right and despite the fact that
the corporation has sufficient unrestricted retained
earnings, the aggrieved stockholder may file the
appropriate action before the proper Regional Trial Court
to compel the corporation to allow him to exercise his
appraisal right
Section 83. Effect of demand and termination of right. –
From the time of demand for payment of the fair value of a
stockholder's shares until either
1) the abandonment of the corporate action involved or
2) the purchase of the said shares by the corporation,
all rights accruing to such shares, including voting and dividend
rights, shall be suspended in accordance with the provisions of
this Code,
 EXCEPT the right of such stockholder to receive
payment of the fair value thereof:
Provided, That if the dissenting stockholder is not paid the
value of his shares within 30 days after the award, his voting
and dividend rights shall immediately be restored. (n)
Section 84. When right to payment ceases. –
No demand for payment under this Title may be withdrawn
unless the corporation consents thereto.
1) If, however, such demand for payment is withdrawn
with the consent of the corporation,
2) or if the proposed corporate action is
a. abandoned or rescinded by the corporation
or
b. disapproved by the Securities and Exchange
Commission where such approval is
necessary,
3) or if the Securities and Exchange Commission
determines that such stockholder is not entitled to
the appraisal right,
then the right of said stockholder to be paid the fair value of his
shares shall cease, his status as a stockholder shall thereupon
be restored, and all dividend distributions which would have
accrued on his shares shall be paid to him. (n)
 Corporate actions where approval of SEC is necessary
1) In case any amendment to the articles of
incorporation…
2) In case of merger or consolidation
 Corporate actions where approval of SEC is not necessary
1) In case of sale, lease, exchange, transfer,
mortgage, pledge or other disposition…
2) Investment of corporate funds in another
business or secondary purpose
 A transferee cannot demand the payment of the fair value
of the shares because once the shares are sold then it
ceases to be subject to appraisal right. So the buyer
acquires all the rights of a regular stockholder. The law
even says that the right to receive dividends which would
have accrued from the shares had there been no appraisal
right would likewise inure to the benefit of the buyer.
Section 85. Who bears costs of appraisal. –
The costs and expenses of appraisal shall be borne by the
corporation,
 UNLESS the fair value ascertained by the appraisers is
approximately the same as the price which the
corporation may have offered to pay the stockholder,
o in which case they shall be borne by the
latter.
In the case of an action to recover such fair value, all costs and
expenses shall be assessed against the corporation,
 unless the refusal of the stockholder to receive
payment was unjustified. (n)
 Summary:
1) Corporation bears the cost if
a. Price that the corporation is willing to
pay is lower than the value as
determined by the appraisers
b. In an action to recover the cost of
appraisal in case the refusal by the
stockholder is justified
2) Stockholder bears the cost if
a. Price that the corporation is willing to
pay is approximately the same as
determined by the appraisers
b. In an action to recover the cost of
appraisal in case the refusal by the
stockholder is unjustified
Section 86. Notation on certificates; rights of transferee. –
Within ten (10) days after demanding payment for his shares, a
dissenting stockholder shall
41 | P LATON
  submit the certificates of stock representing his Election or Stockholders elect the Members may directly
shares to the corporation for notation thereon that appointment of board; the board elects elect their corporate
such shares are dissenting shares. corporate or appoints the officers See Section 92
officers corporate officers (tri-
o His failure to do so shall, at the option of
level hierarchy) see
the corporation, terminate his rights under Section 25
this Title. Meetings Conducted in the city or Anywhere for as long as
If shares represented by the certificates bearing such notation municipality where the it is within the
are transferred, and the certificates consequently cancelled, principal office is Philippines
 the rights of the transferor as a dissenting located, preferably in
stockholder under this Title shall cease and the principal office itself
 the transferee shall have all the rights of a regular Dissolution Sections 117-122 Sections 94-95
stockholder;
o and all dividend distributions which would  The nationality of a non-stock corporation is computed on
have accrued on such shares shall be paid the basis of the nationality of its members and not
to the transferee. (n) premised on the membership contribution

TITLE XI - NON-STOCK CORPORATIONS Section 87. Definition. –

For the purposes of this Code, a non-stock corporation is one
STOCK NON-STOCK where no part of its income is distributable as dividends to its
Existence of Has capital stock divided Has no authorized members, trustees, or officers, subject to the provisions of this
capital stock into shares capital stock Code on dissolution:
 Provided, That any profit which a non-stock
Increase in capital stock Increase in the capital of
requires approval of non-stock corporation
corporation may obtain as an incident to its
board and stockholders does not require operations shall,
consent of the members o whenever necessary or proper,
Profit Organized for profit Not organized for profit o be used for the furtherance of the purpose
Distribution of Distributed thru Not distributable thus, or purposes for which the corporation was
profits dividends to the no dividends; must be organized,
stockholders used in furtherance of o subject to the provisions of this Title.
the purpose for which it
is organized
The provisions governing stock corporation, when pertinent,
Note: Distribution is shall be applicable to non-stock corporations,
allowed if it is by reason  except as may be covered by specific provisions of
of dissolution this Title. (n)
Right to vote Cumulative method of The right to vote may be
voting is a statutory broaden, denied, or Section 88. Purposes. –
right; it cannot be limited as provided in
Non-stock corporations may be formed or organized for
denied in the AOI the AOI; voting by
district is a form of
1) charitable,
limitation 2) religious,
Membership Not personal, hence Personal and non- 3) educational,
transferable; consent of transferable, unless the 4) professional,
the corporation is not AOI or by-laws 5) cultural,
required; they can sell otherwise provide 6) fraternal,
freely and voluntarily 7) literary,
unless there is a right of 8) scientific,
restriction in the AOI
9) social,
Grounds for A stockholder cannot The grounds for
expulsion forfeit his share; the expulsion or
10) civic service, or
corporation cannot termination may be 11) similar purposes, like
forfeit his shares provided for in the AOI a. trade,
because such shares are or by-laws b. industry,
owned by the c. agricultural and
stockholder even in case d. like chambers, or
of violation of the AOI or 12) any combination thereof,
by-laws; otherwise it will
a. subject to the special provisions of this Title
amount to confiscation
without due process
governing particular classes of non-stock
Term limit 1 year until successor is Staggered term corporations. (n)
elected or qualified
In case of vacancy, apply CHAPTER I
Section 29 MEMBERS
Number of Not less than 5 not more Not less than 5 may be
directors than 15 more than 15 Section 89. Right to vote. –
XPN: in case of merger XPN: in case of non-
or consolidation, up to stock educational The right of the members of any class or classes to vote may be
21; or in case of corporation, not more 1) limited,
corporation sole than 15 2) broadened or
3) denied to the extent specified in
42 | P LATON
 a. the articles of incorporation or
b. the by-laws.
UNLESS so limited, broadened or denied, each member,
regardless of class, shall be entitled to one vote.
Unless otherwise provided in the articles of incorporation or
the by-laws, a member may vote by proxy in accordance with
the provisions of this Code. (n)
Voting by mail or other similar means by members of non-
stock corporations
1) may be authorized by the by-laws of non-stock
corporations
2) with the approval of, and under such conditions
which may be prescribed by, the Securities and
Exchange Commission.
Section 90. Non-transferability of membership. –
Membership in a non-stock corporation and all rights arising
therefrom are
1) personal and
2) non-transferable,
UNLESS the articles of incorporation or the by-laws otherwise
provide. (n)
Section 91. Termination of membership. –
Membership shall be terminated in the manner and for the
causes provided in the articles of incorporation or the by-laws.
 Termination of membership shall have the effect of
EXTINGUISHING all rights of a member in the
corporation or in its property,
o unless otherwise provided in the articles of
incorporation or the by-laws. (n)
CHAPTER II
TRUSTEES AND OFFICES
Section 92. Election and term of trustees. –
Unless otherwise provided in the articles of incorporation or
the by-laws,
 the board of trustees of non-stock corporations,
o which may be more than fifteen (15) in
number as may be fixed in their articles of
incorporation or by-laws,
 shall, as soon as organized, so classify themselves that
the term of office of one-third (1/3) of their number
shall expire every year;
o and subsequent elections of trustees
comprising one-third (1/3) of the board of
trustees shall be held annually
o and trustees so elected shall have a term of
three (3) years.
 Trustees thereafter elected to fill vacancies occurring
before the expiration of a particular term shall hold
office only for the unexpired period.
No person shall be elected as trustee unless he is a member of
the corporation.
Unless otherwise provided in the articles of incorporation or
the by-laws, officers of a non-stock corporation may be directly
elected by the members. (n)
Section 93. Place of meetings. –
The by-laws may provide that the members of a non-stock
corporation may hold their regular or special meetings
 at any place even outside the place where the
principal office of the corporation is located:
o Provided, That proper notice is sent to all
members indicating the date, time and
place of the meeting: and
o Provided, further, That the place of meeting
shall be within the Philippines. (n)
CHAPTER III
DISTRIBUTION OF ASSETS IN NON-STOCK CORPORATIONS
Section 94. Rules of distribution. –
In case dissolution of a non-stock corporation in accordance
with the provisions of this Code, its assets shall be applied and
distributed as follows:
1. All liabilities and obligations of the corporation shall
be paid, satisfied and discharged, or adequate
provision shall be made therefore;
2. Assets held by the corporation upon a condition
requiring return, transfer or conveyance, and which
condition occurs by reason of the dissolution, shall be
returned, transferred or conveyed in accordance with
such requirements;
3. Assets received and held by the corporation subject
to limitations permitting their use only for
charitable, religious, benevolent, educational or
similar purposes, but not held upon a condition
requiring return, transfer or conveyance by reason of
the dissolution, shall be transferred or conveyed to
one or more corporations, societies or organizations
engaged in activities in the Philippines substantially
similar to those of the dissolving corporation
according to a plan of distribution adopted pursuant
to this Chapter;
4. Assets other than those mentioned in the preceding
paragraphs, if any, shall be distributed in accordance
with the provisions of the articles of incorporation or
the by-laws, to the extent that the articles of
incorporation or the by-laws, determine the
distributive rights of members, or any class or classes
of members, or provide for distribution; and
5. In any other case, assets may be distributed to such
persons, societies, organizations or corporations,
whether or not organized for profit, as may be
specified in a plan of distribution adopted pursuant
to this Chapter. (n)
Section 95. Plan of distribution of assets. –
A plan providing for the distribution of assets, not inconsistent
with the provisions of this Title, may be adopted by a non-stock
corporation in the process of dissolution in the following
manner:
1) The board of trustees shall, by majority vote, adopt a
resolution recommending a plan of distribution and
directing the submission thereof to a vote at a regular
or special meeting of members having voting rights.
2) Written notice setting forth the proposed plan of
distribution or a summary thereof and the date, time
and place of such meeting shall be given to each
member entitled to vote, within the time and in the
43 | P LATON
 manner provided in this Code for the giving of notice shares in payment issuance of shares
of meetings to members. of a debt or in whether for
3) Such plan of distribution shall be adopted upon exchange of payment of a debt
approval of at least two-thirds (2/3) of the members property unless or exchange of
having voting rights present or represented by proxy ratified by the property
at such meeting. (n) stockholders
representing at
 A stock corporation may be converted to a non-stock least 2/3 of the
corporation by mere amendment of the AOI outstanding
capital stock
 A non-stock corporation cannot be converted to a stock
corporation by mere amendment of the AOI. Extends to Extends to treasury
o Remedy: Dissolution treasury shares by shares by explicit
way of SEC provision of law
 Can we merge a stock corporation with a non-stock Opinion
corporation? Yes Appraisal right Can only be It can be exercised
exercised in cases for any reason or
 The provisions for stock corporations can be applied to provided for by for no reason at all
non-stock corporations suppletorily. law;
o In case of conflict, the provisions of non-stock Can be exercised if Can be exercised
corporation shall prevail. there is regardless of
unrestricted existence of
TITLE XII - CLOSE CORPORATIONS retained earnings unrestricted
retained earnings
OPEN CLOSE for as long as it will
Number of No limit on the Not exceeding 20 not result to the
stockholders number insolvency of the
Stocks listed in the May be listed Cannot be listed corporation
stock exchange SEC interference Business Judgment In case of deadlock
Management by BOD exercises Stockholders may Rule; SEC cannot in the management
stockholders corporate powers actively participate interfere of the corporation,
and performs acts in the management SEC may intervene
of management of the corporation and can do certain
acts See Section
Stockholders – no Thus, they should 105
management be subject to the Dissolution In case of Any stockholder
powers (those same liabilities as voluntary who thinks there is
reserved to them members of the dissolution, the mismanagement or
do not pertain to BOD approval of fraud in the
the management majority of the corporation may
of the corporation) They can be made board and petition with the
liable for corporate stockholders SEC to dissolve the
tort unless the representing at corporation
corporation obtain least 2/3 of the
adequate liability outstanding
insurance coverage capital stock
Meetings There is a meeting Formalities are
in which the dispensed with; an A stockholder may
resolution is taken action may be file a Derivative
up and adopted by implemented by Suit
the BOD the corporation
sans prior or after Section 96. Definition and applicability of Title. –
board meeting for A close corporation, within the meaning of this Code, is one
as long as the whose articles of incorporation provide that:
stockholders are 1. All the corporation's issued stock of all classes,
accustomed in exclusive of treasury shares, shall be held of record by
doing it in such not more than a specified number of persons, not
manner or no exceeding twenty (20);
objection from 2. all the issued stock of all classes shall be subject to
them or the one or more specified restrictions on transfer
directors consent permitted by this Title; and
before or after the 3. The corporation shall not list in any stock exchange
meeting or make any public offering of any of its stock of any
Preemptive right Does not extend Absolute! Extends class.
to issuance of to any or all
44 | P LATON
Notwithstanding the foregoing, a corporation shall not be
deemed a close corporation when at least two-thirds (2/3) of its
voting stock or voting rights is owned or controlled by another
corporation which is not a close corporation within the
meaning of this Code.
Any corporation may be incorporated as a close corporation,
EXCEPT
1) mining or
2) oil companies,
3) stock exchanges,
4) banks,
5) insurance companies,
6) public utilities,
7) educational institutions and
8) corporations declared to be vested with public
interest in accordance with the provisions of this
Code.
The provisions of this Title shall primarily govern close
corporations:
 Provided, That the provisions of other Titles of this
Code shall apply suppletorily except insofar as this
Title otherwise provides.
 In case of death of one of the shareholders, the close
corporation is still subject to the same restriction even if
the deceased has two or more heirs whose presence will
result in the presence of more than 20 shareholders. In
which case, the heirs have two options, namely:
1) The shares of the deceased may be placed in the
name of one of the heirs who will be the
nominee or representative of the heirs; or
2) A corporation can be organized to hold all the
shares (Proceedings Batasan Pambansa,
February 14, 1980)
Section 97. Articles of incorporation. - The articles of
incorporation of a close corporation may provide:
1. For a classification of shares or rights and the
qualifications for owning or holding the same and
restrictions on their transfers as may be stated
therein, subject to the provisions of the following
section;
2. For a classification of directors into one or more
classes, each of whom may be voted for and elected
solely by a particular class of stock; and
3. For a greater quorum or voting requirements in
meetings of stockholders or directors than those
provided in this Code.
The articles of incorporation of a close corporation may provide
that the business of the corporation shall be managed by the
stockholders of the corporation rather than by a board of
directors. So long as this provision continues in effect:
1. No meeting of stockholders need be called to elect
directors;
2. Unless the context clearly requires otherwise, the
stockholders of the corporation shall be deemed to
be directors for the purpose of applying the
provisions of this Code; and
3. The stockholders of the corporation shall be subject
to all liabilities of directors.
The articles of incorporation may likewise provide that all
officers or employees or that specified officers or employees
shall be elected or appointed by the stockholders, instead of by
the board of directors.
Section 98. Validity of restrictions on transfer of shares. –
Restrictions on the right to transfer shares must appear
1) in the articles of incorporation and
2) in the by-laws as well as
3) in the certificate of stock;
a. otherwise, the same shall not be binding on
any purchaser thereof in good faith.
Said restrictions shall not be more onerous than granting the
existing stockholders or the corporation the option to purchase
the shares of the transferring stockholder with such reasonable
terms, conditions or period stated therein.
 If upon the expiration of said period, the existing
stockholders or the corporation fails to exercise the
option to purchase, the transferring stockholder may
sell his shares to any third person.
Section 99. Effects of issuance or transfer of stock in breach
of qualifying conditions. –
1. If stock of a close corporation is issued or transferred
to any person who is not entitled under any provision
of the articles of incorporation to be a holder of
record of its stock, and if the certificate for such stock
conspicuously shows the qualifications of the persons
entitled to be holders of record thereof, such person
is conclusively presumed to have notice of the fact
of his ineligibility to be a stockholder.
2. If the articles of incorporation of a close corporation
states the number of persons, not exceeding twenty
(20), who are entitled to be holders of record of its
stock, and if the certificate for such stock
conspicuously states such number, and if the issuance
or transfer of stock to any person would cause the
stock to be held by more than such number of
persons, the person to whom such stock is issued or
transferred is conclusively presumed to have notice
of this fact.
3. If a stock certificate of any close corporation
conspicuously shows a restriction on transfer of stock
of the corporation, the transferee of the stock is
conclusively presumed to have notice of the fact that
he has acquired stock in violation of the restriction, if
such acquisition violates the restriction.
4. Whenever any person to whom stock of a close
corporation has been issued or transferred has, or is
conclusively presumed under this section to have,
notice either
a. that he is a person not eligible to be a
holder of stock of the corporation, or
b. that transfer of stock to him would cause
the stock of the corporation to be held by
more than the number of persons
permitted by its articles of incorporation to
hold stock of the corporation, or
c. that the transfer of stock is in violation of a
restriction on transfer of stock,
the corporation may, at its option, refuse to register
the transfer of stock in the name of the transferee.
45 | P LATON
 5. The provisions of subsection (4) SHALL NOT BE
APPLICABLE IF the transfer of stock, though contrary
to subsections (1), (2) or (3),
a. has been consented to by all the
stockholders of the close corporation, or
b. if the close corporation has amended its
articles of incorporation in accordance with
this Title.
6. The term "transfer", as used in this section, is not
limited to a transfer for value.
7. The provisions of this section shall not impair any
right which the transferee may have
a. to rescind the transfer or
b. to recover under any applicable warranty,
express or implied.
 Good faith is not a defense
Section 100. Agreements by stockholders. –
1. Agreements by and among stockholders executed
before the formation and organization of a close
corporation,
a. signed by all stockholders,
i. shall survive the incorporation of
such corporation and
ii. shall continue to be valid and
binding between and among such
stockholders,
1. if such be their intent,
2. to the extent that such
agreements are not
inconsistent with the
articles of
incorporation,
3. irrespective of where
the provisions of such
agreements are
contained,
4. except those required
by this Title to be
embodied in said
articles of
incorporation.
2. An agreement between two or more stockholders, if
a. in writing and
b. signed by the parties thereto,
i. may provide that in exercising any
voting rights, the shares held by
them shall be voted as therein
provided,
ii. or as they may agree,
iii. or as determined in accordance
with a procedure agreed upon by
them.
3. No provision in any written agreement signed by the
stockholders, relating to any phase of the corporate
affairs, shall be invalidated as between the parties
a. on the ground that its effect is to make
them partners among themselves.
4. A written agreement among some or all of the
stockholders in a close corporation shall not be
invalidated
a. on the ground that it so relates to the
conduct of the business and affairs of the
corporation
i. as to restrict or interfere with the
discretion or powers of the board
of directors:
Provided, That such agreement shall impose on the
stockholders who are parties thereto the liabilities for
managerial acts imposed by this Code on directors.
5. To the extent that the stockholders are actively
engaged in the management or operation of the
business and affairs of a close corporation,
a. the stockholders shall be held to strict
fiduciary duties to each other and among
themselves.
b. Said stockholders shall be personally liable
for corporate torts
i. unless the corporation has
obtained reasonably adequate
liability insurance.
Section 101. When board meeting is unnecessary or
improperly held. –
Unless the by-laws provide otherwise, any action by the
directors of a close corporation without a meeting shall
nevertheless be deemed valid if:
1. Before or after such action is taken, written consent
thereto is signed by all the directors; or
2. All the stockholders have actual or implied
knowledge of the action and make no prompt
objection thereto in writing; or
3. The directors are accustomed to take informal action
with the express or implied acquiescence of all the
stockholders; or
4. All the directors have express or implied knowledge
of the action in question and none of them makes
prompt objection thereto in writing.
If a director's meeting is held without proper call or notice, an
action taken therein within the corporate powers is deemed
ratified by a director who failed to attend,
 unless he promptly files his written objection with the
secretary of the corporation after having knowledge
thereof.
Section 102. Pre-emptive right in close corporations. –
The pre-emptive right of stockholders in close corporations
shall extend to all stock to be issued, including reissuance of
treasury shares, whether for money, property or personal
services, or in payment of corporate debts,
 unless the articles of incorporation provide
otherwise.
Section 103. Amendment of articles of incorporation. –
Any amendment to the articles of incorporation which seeks
1) to delete or remove any provision required by this
Title to be contained in the articles of incorporation
or
2) to reduce a quorum or voting requirement stated in
said articles of incorporation
shall not be valid or effective UNLESS approved by the
affirmative vote
 of at least two-thirds (2/3) of the outstanding capital
stock, whether with or without voting rights,
 or of such greater proportion of shares as may be
specifically provided in the articles of incorporation
for amending, deleting or removing any of the
46 | P LATON
 aforesaid provisions, at a meeting duly called for the
purpose.
Section 104. Deadlocks. –
Notwithstanding any contrary provision in the articles of
incorporation or by-laws or agreement of stockholders of a
close corporation,
if the directors or stockholders are so divided
 respecting the management of the corporation's
business and affairs
 that the votes required for any corporate action
cannot be obtained,
 with the consequence that the business and affairs of
the corporation can no longer be conducted to the
advantage of the stockholders generally,
the Securities and Exchange Commission, upon written petition
by any stockholder, shall have the power to arbitrate the
dispute. In the exercise of such power, the Commission shall
have authority to make such order as it deems appropriate,
including an order:
1. cancelling or altering any provision contained in the
articles of incorporation, by-laws, or any
stockholder's agreement;
2. cancelling, altering or enjoining any resolution or act
of the corporation or its board of directors,
stockholders, or officers;
3. directing or prohibiting any act of the corporation or
its board of directors, stockholders, officers, or other
persons party to the action;
4. requiring the purchase at their fair value of shares of
any stockholder, either by the corporation regardless
of the availability of unrestricted retained earnings in
its books, or by the other stockholders;
5. appointing a provisional director;
6. dissolving the corporation; or
7. granting such other relief as the circumstances may
warrant.
A provisional director shall be
1) an impartial person who is
a. neither a stockholder
b. nor a creditor
i. of the corporation or
ii. of any subsidiary or affiliate of the
corporation,
c. and whose further qualifications, if any,
may be determined by the Commission.
2) A provisional director is
a. not a receiver of the corporation and
b. does not have the title and powers of a
custodian or receiver.
3) A provisional director shall have
a. all the rights and powers of a duly elected
director of the corporation,
i. including the right to notice of
and to vote at meetings of
directors,
ii. until such time as he shall be
removed
1. by order of the
Commission or
2. by all the stockholders.
4) His compensation shall be determined by agreement
between him and the corporation
a. subject to approval of the Commission,
which may fix his compensation
i. in the absence of agreement or
ii. in the event of disagreement
between the provisional director
and the corporation.
 This covers not only cases where the votes of two
contending groups are equal but also cases when the
required vote cannot be obtained because of the division
in the corporation
Section 105. Withdrawal of stockholder or dissolution of
corporation. –
In addition and without prejudice to other rights and remedies
available to a stockholder under this Title,
 any stockholder of a close corporation may, for any
reason,
o compel the said corporation to purchase his
shares at their fair value, which shall not be
less than their par or issued value, when the
corporation has sufficient assets in its
books to cover its debts and liabilities
exclusive of capital stock:
 Provided, That any stockholder of a close corporation
may, by written petition to the Securities and
Exchange Commission,
o compel the dissolution of such corporation
whenever any of acts of the directors,
officers or those in control of the
corporation is
1) illegal, or
2) fraudulent, or
3) dishonest, or
4) oppressive or
5) unfairly prejudicial to the corporation
or any stockholder, or
6) whenever corporate assets are being
misapplied or wasted.
 Some of the provisions under close corporation are
applicable to open corporations:
1) Restriction on transfers
2) Classification of shares
3) Qualifications of directors
4) Pulling of shares and manner of voting
TITLE XIII - SPECIAL CORPORATIONS
CHAPTER I
EDUCATIONAL CORPORATIONS
Section 106. Incorporation. –
Educational corporations shall be governed
1) by special laws and
2) by the general provisions of this Code. (n)
Section 107. Pre-requisites to incorporation. –
Except upon favorable recommendation of the Ministry of
Education and Culture,
47 | P LATON
  the Securities and Exchange Commission shall not
accept or approve the articles of incorporation and
by-laws of any educational institution. (168a)
Section 108. Board of trustees. –
Trustees of educational institutions organized as non-stock
corporations shall not be less than five (5) nor more than
fifteen (15):
 Provided, however, That the number of trustees shall
be in multiples of five (5).
Unless otherwise provided in the articles of incorporation on
the by-laws,
1) 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.
a. Trustees thereafter elected to fill vacancies,
occurring before the expiration of a
particular term, shall hold office only for the
unexpired period.
b. Trustees elected thereafter to fill vacancies
caused by expiration of term shall hold
office for five (5) years.
2) A majority of the trustees shall constitute a quorum
for the transaction of business.
3) The powers and authority of trustees shall be defined
in the by-laws.
For institutions organized as stock corporations, the number
and term of directors shall be governed by the provisions on
stock corporations. (169a)
 Educational corporations – organized for the purpose of
providing facilities for instruction and learning.
o They are governed by the “Education Act of
1982” and the provisions of the Corporation
Code in a suppletory basis
 An educational corporation may be organized as a
o Educational stock corporation
 Number of directors – not less than 5
not more than 15
 Term of office – 1 year until the
successors are elected and qualified
o Educational non-stock corporation
 Number of directors – not less than 5
not more than 15 (multiples of 5)
 Term of office – staggered, 1/5 will be
replaced every year
 Whether stock or non-stock educational corporation, it
cannot be organized without the favorable endorsement
of the appropriate government agency
o CHED
o DEPED
CHAPTER II
RELIGIOUS CORPORATIONS
Section 109. Classes of religious corporations. –
Religious corporations may be incorporated by one or more
persons.
 Such corporations may be classified into
o corporations sole and
o religious societies.
Religious corporations shall be governed by this Chapter and by
the general provisions on non-stock corporations insofar as
they may be applicable. (n)
 Kinds:
1) Corporation sole under Sections 110;
a. Consists of one person only
b. Not required to file by-laws
c. Governed by the rules, regulations and
discipline of its religious denomination,
sect or church
d. May be allowed to exist perpetually
i. AOI may however fix a term
2) Corporation aggregate/religious society under
Section 116;
3) Ordinary non-stock religious corporation under
Section 88
Section 110. Corporation sole. –
For the purpose of administering and managing, as trustee, the
affairs, property and temporalities of any religious
denomination, sect or church, a corporation sole may be
formed by the
1) chief archbishop,
2) bishop,
3) priest,
4) minister,
5) rabbi or
6) other presiding elder of such religious denomination,
sect or church. (154a)
 It is very important to make a fine distinction between the
natural character and juridical character in terms of
capacity to acquire private lands in the Philippines
o If at least 60% of the members of the religious
sect or denomination are Filipinos, the
corporation sole regardless of the nationality of
the presiding elder or bishop may acquire
private lands in he Philippines
o He is only acting as trustee for his religious sect
or denomination. He is not acting in his personal
capacity
Section 111. Articles of incorporation. –
In order to become a corporation sole, the chief archbishop,
bishop, priest, minister, rabbi or presiding elder of any religious
denomination, sect or church
 must file with the Securities and Exchange
Commission articles of incorporation setting forth the
following:
1. That he is the chief archbishop, bishop, priest, minister,
rabbi or presiding elder of his religious denomination, sect
or church
a. and that he desires to become a corporation
sole;
2. That the rules, regulations and discipline of his religious
denomination, sect or church are not inconsistent with his
becoming a corporation sole and do not forbid it;
3. That as such chief archbishop, bishop, priest, minister,
rabbi or presiding elder,
48 | P LATON
 a. he is charged with the administration of the i. that notice of the application for
temporalities and the management of the leave to sell or mortgage has been
affairs, estate and properties of his religious given by publication or otherwise
denomination, sect or church within his in such manner and for such time
territorial jurisdiction, as said court may have directed,
b. describing such territorial jurisdiction; and
4. The manner in which any vacancy occurring in the office of ii. that it is to the interest of the
chief archbishop, bishop, priest, minister, rabbi of corporation that leave to sell or
presiding elder is required to be filled, according to the mortgage should be granted.
rules, regulations or discipline of the religious 1. The application for
denomination, sect or church to which he belongs; and leave to sell or
5. The place where the principal office of the corporation mortgage must be made
sole is to be established and located, by petition, duly
a. which place must be within the Philippines. verified, by the chief
archbishop, bishop,
The articles of incorporation may include any other provision priest, minister, rabbi or
not contrary to law for the regulation of the affairs of the presiding elder acting as
corporation. (n) corporation sole,
2. and may be opposed by
Section 112. Submission of the articles of incorporation. – any member of the
1) The articles of incorporation must be verified, before religious denomination,
filing, by affidavit or affirmation of the chief sect or church
archbishop, bishop, priest, minister, rabbi or presiding represented by the
elder, as the case may be, and corporation sole:
2) accompanied by a copy of the commission, certificate c. Provided, That in cases where the rules,
of election or letter of appointment of such chief regulations and discipline of the religious
archbishop, bishop, priest, minister, rabbi or presiding denomination, sect or church, religious
elder, society or order concerned represented by
a. duly certified to be correct by any notary such corporation sole regulate the method
public. of acquiring, holding, selling and
mortgaging real estate and personal
From and after the filing with the Securities and Exchange property, such rules, regulations and
Commission of the said discipline shall control, and the intervention
1) articles of incorporation, of the courts shall not be necessary. (159a)
2) verified by affidavit or affirmation, and
3) accompanied by the documents mentioned in the  A corporation sole may acquire properties, through
preceding paragraph, purchase, donation and other lawful means, without court
such chief archbishop, bishop, priest, minister, rabbi or intervention
presiding elder shall become a corporation sole and all
temporalities, estate and properties of the religious  A corporation sole may sell, convey, encumber, pledge or
denomination, sect or church theretofore administered or mortgage properties
managed by him as such chief archbishop, bishop, priest, o With court intervention – by filing a petition for
minister, rabbi or presiding elder shall be held in trust by him as leave of court upon proof of compliance with the
a corporation sole, for the use, purpose, behalf and sole benefit requirements under Section 113
of his religious denomination, sect or church, including o Without court intervention – where the rules,
hospitals, schools, colleges, orphan asylums, parsonages and regulations and discipline of the religious
cemeteries thereof. (n) denomination, sect or church, religious society
or order concerned represented by such
 From the very moment the articles of incorporation are corporation sole regulate the method of
filed with the SEC he is transformed into a corporation sole acquiring, holding, selling and mortgaging real
o It does not require the issuance by the SEC of the estate and personal property
certificate of incorporation
Section 114. Filling of vacancies. –
Section 113. Acquisition and alienation of property. – The successors in office of any chief archbishop, bishop, priest,
1) Any corporation sole may purchase and hold real minister, rabbi or presiding elder in a corporation sole
estate and personal property for its church,  shall become the corporation sole on their accession
charitable, benevolent or educational purposes, and to office
may receive bequests or gifts for such purposes.  and shall be permitted to transact business as such
2) Such corporation may sell or mortgage real property o on the filing with the Securities and
held by it Exchange Commission of a copy of their
a. by obtaining an order for that purpose from commission, certificate of election, or
the Court of First Instance of the province letters of appointment, duly certified by any
where the property is situated notary public.
b. upon proof made to the satisfaction of the
court
49 | P LATON
During any vacancy in the office of chief archbishop, bishop,
priest, minister, rabbi or presiding elder of any religious
denomination, sect or church incorporated as a corporation
sole,
 the person or persons authorized and empowered by
the rules, regulations or discipline of the religious
denomination, sect or church represented by the
corporation sole to administer the temporalities and
manage the affairs, estate and properties of the
corporation sole during the vacancy shall exercise all
the powers and authority of the corporation sole
during such vacancy. (158a)
Section 115. Dissolution. –
A corporation sole may be dissolved and its affairs settled
voluntarily by submitting to the Securities and Exchange
Commission a verified declaration of dissolution.
The declaration of dissolution shall set forth:
1. The name of the corporation;
2. The reason for dissolution and winding up;
3. The authorization for the dissolution of the
corporation by the particular religious denomination,
sect or church;
4. The names and addresses of the persons who are to
supervise the winding up of the affairs of the
corporation.
Upon approval of such declaration of dissolution by the
Securities and Exchange Commission, the corporation shall
cease to carry on its operations except for the purpose of
winding up its affairs. (n)
 How do you dissolve a corporation sole?
o By filing a verified affidavit of dissolution of the
corporation sole, the reason why the
corporation is being dissolved, and how the
dissolution shall be carried out
 Registration not mandatory
 Does the corporation sole have a term?
o None. It can exist forever. The successor of the
presiding elder will have to simply submit to the
SEC his proof of appointment, his commission,
etc.
Section 116. Religious societies. –
Any religious society or religious order, or any diocese, synod,
or district organization of any religious denomination, sect or
church, unless forbidden
 The religious society can be converted/transformed into a
1) by the constitution, rules, regulations, or discipline of
the religious denomination, sect or church of which it
is a part,
2) or by competent authority,
may, upon written consent and/or by an affirmative vote at a
meeting called for the purpose of at least two-thirds (2/3) of its
membership, incorporate for the administration of its
temporalities or for the management of its affairs, properties
 Dissolution is the extinguishment of corporate franchise of
and estate
 by filing with the Securities and Exchange
Commission,
o articles of incorporation
 If a corporation is dissolved then it ceases to exist and
o verified by the affidavit of the presiding
elder, secretary, or clerk or other member
of such religious society or religious order,
or diocese, synod, or district organization of
the religious denomination, sect or church,
setting forth the following:
1. That the religious society or religious order, or
diocese, synod, or district organization is a religious
organization of a religious denomination, sect or
church;
2. That at least two-thirds (2/3) of its membership have
given their written consent or have voted to
incorporate,
a. at a duly convened meeting of the body;
3. That the incorporation of the religious society or
religious order, or diocese, synod, or district
organization desiring to incorporate is not forbidden
a. by competent authority or
b. by the constitution, rules, regulations or
discipline of the religious denomination,
sect, or church of which it forms a part;
4. That the religious society or religious order, or
diocese, synod, or district organization desires to
incorporate
a. for the administration of its affairs,
properties and estate;
5. The place where the principal office of the
corporation is to be established and located,
a. which place must be within the Philippines;
and
6. The names, nationalities, and residences of the
trustees elected by the religious society or religious
order, or the diocese, synod, or district organization
to serve for the first year or such other period as may
be prescribed by the laws of the religious society or
religious order, or of the diocese, synod, or district
organization,
a. the board of trustees to be not less than
five (5) nor more than fifteen (15). (160a)
o SEC Opinion, June 15, 1998: However, an
unregistered religious group does not acquire all
the rights and attributes of a juridical person if
not registered. For instance, since the status of
an unincorporated religious group is merely an
organization which has no legal personality, the
members themselves, not the organization may
be sued and be held personally liable for their
acts
corporation and therefore can acquire properties and
therefore have all the powers of a corporation as long as
there is approval of at least 2/3 of the total members and
the rules and regulations of the religious society do not
forbid creation/formation of a religious corporation
TITLE XIV – DISSOLUTION
a corporation and the termination of its corporate
existence
cannot continue with its business; it cannot enter into new
50 | P LATON
 business; it cannot undertake any activity meant to
promote the purpose for which it was organized
 If a corporation is dissolved, whether voluntarily or
involuntarily (expiration of term, annulment or forfeiture
of its franchise, or any other modes), the corporation
exists only for one thing – to liquidate and wind up its
corporate affairs
 Rehabilitation contemplates a continuance of corporate
life and activities in an effort to restore and reinstate the
corporation to its former position of successful operation
and solvency
Section 117. Methods of dissolution. –
A corporation formed or organized under the provisions of this
Code may be dissolved
1) voluntarily or
2) involuntarily. (n)
 Modes of dissolution
1) Voluntary
a. By petition of the corporation where
creditors are not affected
b. By petition of the corporation where
creditors are affected
c. Shortening the corporate term
d. In case of corporation sole – by filing
an affidavit of dissolution
e. Merger and consolidation
2) Involuntary
3) By court order through a quo warranto
proceeding
 De jure dissolution is one that is “adjudged and
determined by judicial sentence, or brought about by an
act of or with the consent of the sovereign power, or
which results from expiration of the charter period of
corporate life
 De facto dissolution is one which takes place in substance
and in fact when the corporation by reason of insolvency,
cessation of business or otherwise, suspends all operations
and, it may be, goes into liquidation still retaining its
primary franchise to be a corporation
Section 118. Voluntary dissolution where no creditors are
affected. –
If dissolution of a corporation does not prejudice the rights of
any creditor having a claim against it, the dissolution may be
effected
1) by majority vote of the board of directors or trustees,
and
2) by a resolution duly adopted by the affirmative vote
of the stockholders owning at least two-thirds (2/3)
of the outstanding capital stock or of at least two-
thirds (2/3) of the members of
3) a meeting to be held
a. upon call of the directors or trustees
b. after publication of the notice of time, place
and object of the meeting for three (3)
consecutive weeks
i. in a newspaper published in the
place where the principal office of
said corporation is located;
ii. and if no newspaper is published
in such place, then in a
newspaper of general circulation
in the Philippines, after sending
such notice to each stockholder or
member either by registered mail
or by personal delivery at least
thirty (30) days prior to said
meeting.
4) A copy of the RESOLUTION authorizing the dissolution
shall be certified by a majority of the board of
directors or trustees and countersigned by the
secretary of the corporation.
5) The Securities and Exchange Commission shall
thereupon issue the certificate of dissolution. (62a)
 Even if creditors are not affected, it is still subject to the
approval of the SEC
Section 119. Voluntary dissolution where creditors are
affected. –
Where the dissolution of a corporation may prejudice the
rights of any creditor, the PETITION FOR DISSOLUTION shall be
filed with the Securities and Exchange Commission.
The petition
1) shall be signed by a majority of its board of directors
or trustees or other officers having the management
of its affairs, verified by its president or secretary or
one of its directors or trustees, and
2) shall set forth all claims and demands against it, and
3) that its dissolution was resolved upon by the
affirmative vote of 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
a. at a meeting of its stockholders or members
called for that purpose.
If the petition is sufficient in form and substance, the
Commission shall, by an order reciting the purpose of the
petition, fix a date on or before which objections thereto may
be filed by any person,
 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
o in a newspaper of general circulation
published in the municipality or city where
the principal office of the corporation is
situated,
o 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.
Upon five (5) day's 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
made by the objections filed; and
 if no such objection is sufficient, and the material
allegations of the petition are true,
51 | P LATON
 o it shall render judgment dissolving the
corporation and directing such disposition
of its assets as justice requires,
o and may appoint a receiver to collect such
assets and pay the debts of the corporation.
(Rule 104, RCa)
 If the creditors are affected the SEC must conduct a
hearing to determine the claims of the various creditors
 Is the consent of the creditors necessary to dissolve the
corporation? No because there is a proceeding where their
interest will be protected (liquidation of corporate
properties)
Section 120. Dissolution by shortening corporate term. –
A voluntary dissolution may be effected by AMENDING THE
ARTICLES OF INCORPORATION to shorten the corporate term
pursuant to the provisions of this Code.
1) A copy of the amended articles of incorporation shall
be submitted to the Securities and Exchange
Commission in accordance with this Code.
2) Upon approval of the amended articles of
incorporation of the expiration of the shortened
term, as the case may be,
a. the corporation shall be deemed dissolved
without any further proceedings,
b. subject to the provisions of this Code on
liquidation. (n)
 Shortening of corporate term entails amendment of the
articles of incorporation
o approval of majority of the board
o approval of stockholders representing at least
2/3 of the outstanding capital stock or 2/3 of the
members
o favorable endorsement of the public agency
concerned if the corporation is a bank, insurance
company, public utility, educational, or other
corporations governed by special laws
 Resolution must show the provisions sought to be
amended in the AOI (corporate term)
 This is akin to filing of petition where creditors are affected
o Thus SEC will conduct a hearing to determine the
claims against the corporation
 In merger or consolidation, there is no liquidation
procedure because the properties or assets of the
absorbed corporation are transferred to or assumed by
operation of law by the surviving corporation or the new
corporation
Section 121. Involuntary dissolution. –
A corporation may be dissolved by the Securities and Exchange
Commission
1) upon filing of A VERIFIED COMPLAINT and
2) after proper notice and hearing on the grounds
provided by existing laws, rules and regulations. (n)
 Involuntary modes
1) Failure to commence business within 2 years
from incorporation (Section 22)
a. Not automatic, this requires the
approval of the SEC
b. “Not organized” means no officers are
elected or not a single business activity
is transacted
2) Continuous inoperation for a period of 5 years
(Section 22)
3) Fraud or misrepresentation in procuring the
articles of incorporation
4) Refusal to comply or violation of laws, rules and
regulation implemented by the SEC
5) Failure to submit reports required by law and
the SEC
a. For ordinary corporations
i. General Information Sheet
ii. Audited financial statements
every year
b. For public company – many
requirements
6) Failure to submit by-laws within one month from
incorporation
 BIR clearance (payment of taxes)
o If voluntary, it is required
o If involuntary, it is not required
 Quo Warranto Proceeding
o It is the government through the OSG that can
initiate quo warranto proceedings
o A stockholder cannot file a petition with the SEC
to dissolve a corporation except in cases of close
corporations
Section 122. Corporate liquidation. –
Every corporation whose charter
1) expires by its own limitation
2) or is annulled by forfeiture or otherwise,
3) or whose corporate existence for other purposes is
terminated in any other manner,
shall nevertheless be continued as a body corporate for three
(3) years after the time when it would have been so dissolved,
 for the purpose of prosecuting and defending suits by
or against it
 and enabling it to settle and close its affairs,
 to dispose of and convey its property and
 to distribute its assets,
 BUT NOT for the purpose of continuing the business
for which it was established.
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.
 From and after any such conveyance by the
corporation of its property in trust for the benefit of
its stockholders, members, creditors and others in
interest, all interest which the corporation had in the
property terminates, the legal interest vests in the
trustees, and the beneficial interest in the
stockholders, members, creditors or other persons in
interest.
Upon the winding up of the corporate affairs, any asset
distributable to any creditor or stockholder or member who is
unknown or cannot be found
52 | P LATON
  shall be escheated to the city or municipality where
such assets are located.
Except by decrease of capital stock and as otherwise allowed by
this Code,
 no corporation shall distribute any of its assets or
property except
o upon lawful dissolution and
o after payment of all its debts and liabilities.
(77a, 89a, 16a)
 Modes of liquidation.
Liquidation may be done by –
1) Receiver
a. Appointed by the court upon petition
of the corporation
b. Operates to suspend the authority of a
corporation and its directors and
officers over its properties and effects
2) Trustee
a. Appointed by the corporation
b. The trustee will be the one who shall
have the legal title over the properties
and assets of the corporation
c. GILLANO V CA
3) Board of Directors
 3 YEARS
o If a suit is filed during the lifetime of the
corporation (before dissolution) there is no
reason why it cannot proceed and continue even
beyond the 3-year liquidation period, because
under Section 145 of the Corporation Code, no
rights of the corporation shall be impaired on
account of the subsequent dissolution of the
corporation. So dissolution cannot extinguish,
impair rights belonging to the corporation
(KNECHT V UNITED CIGARETTE CORP)
 Take note: No new business during the 3-year liquidation
period. It is only for the purpose of liquidating and winding
up the corporate affairs
TITLE XV - FOREIGN CORPORATIONS
Section 123. Definition and rights of foreign corporations. –
For the purposes of this Code, a foreign corporation is one
1) formed, organized or existing under any laws other
than those of the Philippines and (incorporation test)
2) whose laws allow Filipino citizens and corporations to
do business in its own country or state. (principle of
reciprocity)
It shall have the right to transact business in the Philippines
after it shall have obtained
1) a license to transact business in this country in
accordance with this Code and
2) a certificate of authority from the appropriate
government agency. (n)
 It is possible that a foreign corporation be composed of
Filipinos for as long as it is formed, organized, and existing
under foreign laws
Section 124. Application to existing foreign corporations. –
Every foreign corporation which on the date of the effectivity
of this Code is authorized to do business in the Philippines
under a license therefore issued to it,
 shall continue to have such authority under the terms
and condition of its license,
o subject to the provisions of this Code and
other special laws. (n)
Section 125. Application for a license. –
A foreign corporation applying for a license to transact business
in the Philippines shall submit to the Securities and Exchange
Commission
 a copy of its articles of incorporation and by-laws,
o certified in accordance with law, and
o their translation to an official language of
the Philippines, if necessary.
 The application shall be under oath and, unless
already stated in its articles of incorporation, shall
specifically set forth the following:
1. The date and term of incorporation;
2. The address, including the street number, of the
principal office of the corporation in the country or
state of incorporation;
3. The name and address of its resident agent
authorized to accept summons and process in all legal
proceedings and, pending the establishment of a local
office, all notices affecting the corporation;
4. The place in the Philippines where the corporation
intends to operate;
5. The specific purpose or purposes which the
corporation intends to pursue in the transaction of its
business in the Philippines:
a. Provided, That said purpose or purposes are
those specifically stated in the certificate
of authority issued by the appropriate
government agency;
6. The names and addresses of the present directors
and officers of the corporation;
7. A statement of its authorized capital stock and the
aggregate number of shares which the corporation
has authority to issue, itemized by classes, par value
of shares, shares without par value, and series, if any;
8. A statement of its outstanding capital stock and the
aggregate number of shares which the corporation
has issued, itemized by classes, par value of shares,
shares without par value, and series, if any;
9. A statement of the amount actually paid in; and
10. Such additional information as may be necessary or
appropriate in order to enable the Securities and
Exchange Commission
a. to determine whether such corporation is
entitled to a license to transact business in
the Philippines, and
b. to determine and assess the fees payable.
Attached to the application for license shall be a duly executed
certificate under oath by the authorized official or officials of
the jurisdiction of its incorporation, attesting to the fact
1) that the laws of the country or state of the applicant
allow Filipino citizens and corporations to do business
therein,
2) and that the applicant is an existing corporation in
good standing.
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If such certificate is in a foreign language, a translation thereof
in English under oath of the translator shall be attached
thereto.
The application for a license to transact business in the
Philippines shall likewise be accompanied by a statement under
oath of the president or any other person authorized by the
corporation, showing to the satisfaction of the Securities and
Exchange Commission and other governmental agency in the
proper cases
1) that the applicant is solvent and in sound financial
condition,
2) and setting forth the assets and liabilities of the
corporation as of the date not exceeding one (1) year
immediately prior to the filing of the application.
Foreign banking, financial and insurance corporations shall, in
addition to the above requirements, comply with the provisions
of existing laws applicable to them.
In the case of all other foreign corporations, no application for
license to transact business in the Philippines shall be accepted
by the Securities and Exchange Commission
 without previous authority from the appropriate
government agency, whenever required by law. (68a)
Section 126. Issuance of a license. –
If the Securities and Exchange Commission is satisfied that the
applicant has complied with all the requirements of this Code
and other special laws, rules and regulations, the Commission
shall issue a license to the applicant to transact business in the
Philippines for the purpose or purposes specified in such
license.
 Upon issuance of the license, such foreign
corporation
o may commence to transact business in the
Philippines
o and continue to do so for as long as it
retains its authority to act as a corporation
under the laws of the country or state of its
incorporation,
o unless such license is sooner surrendered,
revoked, suspended or annulled in
accordance with this Code or other special
laws.
Within sixty (60) days after the issuance of the license to
transact business in the Philippines, the licensee, except foreign
banking or insurance corporation, shall deposit with the
Securities and Exchange Commission for the benefit of present
and future creditors of the licensee in the Philippines, securities
 satisfactory to the Securities and Exchange
Commission, consisting of
1) bonds or other evidence of indebtedness of
the Government of the Philippines, its
political subdivisions and instrumentalities,
or of government-owned or controlled
corporations and entities,
2) shares of stock in "registered enterprises"
as this term is defined in Republic Act No.
5186,
3) shares of stock in domestic corporations
registered in the stock exchange, or
4) shares of stock in domestic insurance
companies and banks, or
5) any combination of these kinds of
securities, with an actual market value of
at least one hundred thousand
(P100,000.00) pesos;
Provided, however, That within six (6) months after each fiscal
year of the licensee, the Securities and Exchange Commission
shall require the licensee to deposit additional securities
 equivalent in actual market value to two (2%) percent
of the amount by which the licensee's gross income
for that fiscal year exceeds five million
(P5,000,000.00) pesos.
The Securities and Exchange Commission shall also require
deposit of additional securities if the actual market value of
the securities on deposit has decreased by at least ten (10%)
percent of their actual market value at the time they were
deposited.
The Securities and Exchange Commission may at its discretion
release part of the additional securities deposited with it
1) if the gross income of the licensee has decreased,
2) or if the actual market value of the total securities on
deposit has increased, by more than ten (10%)
percent of the actual market value of the securities at
the time they were deposited.
The Securities and Exchange Commission may, from time to
time, allow the licensee to substitute other securities for those
already on deposit as long as the licensee is solvent.
Such licensee shall be entitled to collect the interest or
dividends on the securities deposited.
In the event the licensee ceases to do business in the
Philippines,
 the securities deposited as aforesaid shall be
returned,
o upon the licensee's application therefor and
o upon proof to the satisfaction of the
Securities and Exchange Commission that
the licensee has no liability to Philippine
residents, including the Government of the
Republic of the Philippines. (n)
 BASIC RULES
1) It must obtain a license from the SEC
2) To obtain a license, it has to submit
a. Articles of Incorporation
b. By-Laws as approved by the country
where it was incorporated
c. Deposit securities with the SEC
i. Intended to answer for any
possible violation of laws,
rules and regulations, and
conditions to be imposed by
the SEC
ii. The amounts indicated under
the Corporation Code are no
longer relevant. They have
been updated by the SEC
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Section 127. Who may be a resident agent. – proceedings against the foreign corporation doing
A resident agent may be either business in the Philippines
1) an individual residing in the Philippines or o The power of a resident agent is limited to
2) a domestic corporation lawfully transacting business receive, for and in behalf of the corporation,
in the Philippines: services and other legal processes in all actions
and other legal proceedings against the foreign
Provided, That in the case of an individual, he must be of good corporation. He is not the attorney-in-fact of the
moral character and of sound financial standing. (n) corporation. Thus, a resident agent cannot eve
sign the certificate on non-forum shopping that
Section 128. Resident agent; service of process. – is a requirement in filing an initiatory pleading in
court
The Securities and Exchange Commission shall require as a
o Discussion: The resident agent may be
condition precedent to the issuance of the license to transact
authorized to certify against non-forum shopping
business in the Philippines by any foreign corporation that such
through a separate authority from the foreign
corporation file with the Securities and Exchange Commission
corporation
1) a written power of attorney designating some person
who must be a resident of the Philippines,
 Who can be a resident agent?
a. on whom any summons and other legal
1) An individual who is
processes may be served in all actions or
a. Residing in the Philippines
other legal proceedings against such
b. Of good moral character and
corporation,
c. Of sound financial standing
b. and consenting that service upon such
2) A domestic corporation lawfully transacting
resident agent shall be admitted and held
business in the Philippines
as valid as if served upon the duly
authorized officers of the foreign
 If there is no one authorized to receive summons for the
corporation at its home office.
corporation, then it can avoid service and thereby impugn
2) Any such foreign corporation shall likewise execute
the jurisdiction of local courts
and file with the Securities and Exchange Commission
an agreement or stipulation, executed by the proper
 Consequences if a foreign corporation transact within the
authorities of said corporation, in form and substance
Philippines without license
as follows:
1) It cannot intervene or maintain any action or suit
in any court or administrative agencies
"The (name of foreign corporation) does hereby
2) It can be sued for any cause of action recognized
stipulate and agree, in consideration of its being
under Philippine laws
granted by the Securities and Exchange Commission a
a. Lack of license is not a bar to the filing
license to transact business in the Philippines, that if
of a case against a foreign corporation
at any time said corporation shall cease to transact
but it is a bar for a foreign corporation
business in the Philippines, or shall be without any
to file a case in the Philippines,
resident agent in the Philippines on whom any
because it has no legal capacity, unless
summons or other legal processes may be served,
it obtains a license to do business here
then in any action or proceeding arising out of any
business or transaction which occurred in the
 Cases where a foreign corporation may sue in the
Philippines, service of any summons or other legal
Philippines despite lack of license to do business in the
process may be made upon the Securities and
Philippines
Exchange Commission and that such service shall
1) Isolated or casual transaction (e.g. unloading of
have the same force and effect as if made upon the
cargo in the Philippines; reinsurance LORENZO
duly-authorized officers of the corporation at its
SHIPPING V CHUBB AND SONS)
home office."
2) If the foreign corporation had no license at the
time of the transaction was consummated but
Whenever such service of summons or other process shall be
subsequently obtains a license to engage in
made upon the Securities and Exchange Commission, the
business before filing the case in the Philippines
Commission shall, within ten (10) days thereafter, transmit by
a. The act of obtaining license
mail a copy of such summons or other legal process to the
subsequent to the action retroacts to
corporation at its home or principal office.
the date of the transaction and confers
 The sending of such copy by the Commission shall be
upon the corporation the legal capacity
necessary part of and shall complete such service.
to sue in the Philippines (HOME
 All expenses incurred by the Commission for such
INSURANCE V EASTERN SHIPPING
service shall be paid in advance by the party at whose
LINES)
instance the service is made.
3) An action to enforce intellectual property rights
a. PHILIP MORRIS V CA
In case of a change of address of the resident agent, it shall be
b. COLUMBIA PICTURES V CA
his or its duty to immediately notify in writing the Securities
4) If the foreign corporation is a co-plaintiff with a
and Exchange Commission of the new address. (72a; and n)
domestic corporation and latter filed a suit here
in the Philippines
 A resident agent is one on whom any summons and other
a. To avoid multiplicity of suits
legal processes may be served in all actions or other legal
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 5) If by stipulation the venue shall be laid in the
Philippine courts
6) In case of estoppel
a. MERRIL LYNCH FEATURES V CA
b. COMART V CA
 Twin Characterization Test:
1) Substance Test
2) Continuity Test
 Each case must be judged in the light of its own peculiar
environmental circumstances
 “Doing business” includes any 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 the progressive prosecution of
commercial gain or of the purpose and object of the
business organization
o Discussion: Continuity of dealings or transactions
with the end view of achieving the purpose for
which the corporation was organized, if there is
no continuity of activity or undertaking, then it is
an isolated or casual transaction
 Mere participation in a public bidding
is tantamount to doing business
(HUTCHISON V SBMA)
 Other cases wherein a foreign
corporation is doing business in the
Philippines
When a foreign corporation –
1) Appoints a local representative in
the Philippines
2) Appoints a distributor
3) Has headquarters in the
Philippines
4) Extends credit (ERIK PTE V CA)
 Take note: The act of not obtaining a license or failure to
obtain a license to do business in the Philippines is a
criminal offense under Section 144 of the Corporation
Code
Section 129. Law applicable. –
Any foreign corporation lawfully doing business in the
Philippines shall be bound by all laws, rules and regulations
applicable to domestic corporations of the same class,
 except such only as provide for the creation,
formation, organization or dissolution of corporations
or those which fix the relations, liabilities,
responsibilities, or duties of stockholders, members,
or officers of corporations to each other or to the
corporation. (73a)
Section 130. Amendments to articles of incorporation or by-
laws of foreign corporations. –
Whenever the articles of incorporation or by-laws of a foreign
corporation authorized to transact business in the Philippines
are amended, such foreign corporation shall, within sixty (60)
days after the amendment becomes effective,
1) file with the Securities and Exchange Commission,
2) and in the proper cases with the appropriate
government agency,
a duly authenticated copy of the articles of incorporation or
by-laws, as amended, indicating clearly in capital letters or by
underscoring the change or changes made,
 duly certified by the authorized official or officials of
the country or state of incorporation.
The filing thereof shall not of itself enlarge or alter the purpose
or purposes for which such corporation is authorized to
transact business in the Philippines. (n)
Section 131. Amended license. –
A foreign corporation authorized to transact business in the
Philippines shall obtain an amended license in the event it
changes its corporate name, or desires to pursue in the
Philippines other or additional purposes,
 by submitting an application therefor to the Securities
and Exchange Commission,
 favorably endorsed by the appropriate government
agency in the proper cases. (n)
Section 132. Merger or consolidation involving a foreign
corporation licensed in the Philippines. –
One or more foreign corporations authorized to transact
business in the Philippines may merge or consolidate with any
domestic corporation or corporations if such is permitted under
Philippine laws and by the law of its incorporation:
 Provided, That the requirements on merger or
consolidation as provided in this Code are followed.
Whenever a foreign corporation authorized to transact
business in the Philippines shall be a party to a merger or
consolidation in its home country or state as permitted by the
law of its incorporation, such foreign corporation shall,
1) within sixty (60) days after such merger or
consolidation becomes effective,
2) file with the Securities and Exchange Commission,
and in proper cases with the appropriate government
agency,
a. a copy of the articles of merger or
consolidation
b. duly authenticated by the proper official or
officials of the country or state under the
laws of which merger or consolidation was
effected:
3) Provided, however, That if the absorbed corporation
is the foreign corporation doing business in the
Philippines,
a. the latter shall at the same time file a
petition for withdrawal of its license in
accordance with this Title. (n)
Section 133. Doing business without a license. –
No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns,
 shall 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. (69a)
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Section 134. Revocation of license. –
Without prejudice to other grounds provided by special laws,
the license of a foreign corporation to transact business in the
Philippines may be revoked or suspended by the Securities and
Exchange 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 of his
address, to submit to the Securities and Exchange
Commission a statement of such change as required
by this Title;
4. Failure to submit to the Securities and Exchange
Commission an authenticated copy of any
amendment to its articles of incorporation or by-laws
or of any articles of merger or consolidation within
the time prescribed by this Title;
5. A 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 for and in 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. (n)
 Basically a violation of the conditions imposed by the SEC
for the issuance of the license
Section 135. Issuance of certificate of revocation. –
Upon the revocation of any such license to transact business in
the Philippines, the Securities and Exchange Commission
 shall issue a corresponding certificate of revocation,
furnishing a copy thereof to the appropriate
government agency in the proper cases.
 The Securities and Exchange Commission shall also
mail to the corporation at its registered office in the
Philippines a notice of such revocation
o accompanied by a copy of the certificate of
revocation. (n)
Section 136. Withdrawal of foreign corporations. –
Subject to existing laws and regulations, a foreign corporation
licensed to transact business in the Philippines may be allowed
to withdraw from the Philippines by filing a PETITION FOR
WITHDRAWAL OF LICENSE.
No certificate of withdrawal shall be issued by the Securities
and Exchange Commission unless all the following
requirements are met;
1. All claims which have accrued in the Philippines have
been paid, compromised or settled;
2. All taxes, imposts, assessments, and penalties, if any,
lawfully due to the Philippine Government or any of
its agencies or political subdivisions have been paid;
and
3. The petition for withdrawal of license has been
published once a week for three (3) consecutive
weeks in a newspaper of general circulation in the
Philippines.
TITLE XVI - MISCELLANEOUS PROVISIONS
Section 137. Outstanding capital stock defined. - The term
"outstanding capital stock", as used in this Code, means the
total shares of stock issued under binding subscription
agreements to subscribers or stockholders, whether or not fully
or partially paid, except treasury shares. (n)
Section 138. Designation of governing boards. - The
provisions of specific provisions of this Code to the contrary
notwithstanding, non-stock or special corporations may,
through their articles of incorporation or their by-laws,
designate their governing boards by any name other than as
board of trustees. (n)
Section 139. Incorporation and other fees. - The Securities
and Exchange Commission is hereby authorized to collect and
receive fees as authorized by law or by rules and regulations
promulgated by the Commission. (n)
Section 140. Stock ownership in certain corporations. -
Pursuant to the duties specified by Article XIV of the
Constitution, the National Economic and Development
Authority shall, from time to time, make a determination of
whether the corporate vehicle has been used by any
corporation or by business or industry to frustrate the
provisions thereof or of applicable laws, and shall submit to the
Batasang Pambansa, whenever deemed necessary, a report of
its findings, including recommendations for their prevention or
correction.
Maximum limits may be set by the Batasang Pambansa for
stockholdings in corporations declared by it to be vested with a
public interest pursuant to the provisions of this section,
belonging to individuals or groups of individuals related to each
other by consanguinity or affinity or by close business interests,
or whenever it is necessary to achieve national objectives,
prevent illegal monopolies or combinations in restraint or
trade, or to implement national economic policies declared in
laws, rules and regulations designed to promote the general
welfare and foster economic development.
In recommending to the Batasang Pambansa corporations,
businesses or industries to be declared vested with a public
interest and in formulating proposals for limitations on stock
ownership, the National Economic and Development Authority
shall consider the type and nature of the industry, the size of
the enterprise, the economies of scale, the geographic location,
the extent of Filipino ownership, the labor intensity of the
activity, the export potential, as well as other factors which are
germane to the realization and promotion of business and
industry.
Section 141. Annual report or corporations. - Every
corporation, domestic or foreign, lawfully doing business in the
Philippines shall submit to the Securities and Exchange
Commission an annual report of its operations, together with a
financial statement of its assets and liabilities, certified by any
independent certified public accountant in appropriate cases,
57 | P LATON
covering the preceding fiscal year and such other requirements
as the Securities and Exchange Commission may require. Such
report shall be submitted within such period as may be
prescribed by the Securities and Exchange Commission. (n)
Section 142. Confidential nature of examination results. - All
interrogatories propounded by the Securities and Exchange
Commission and the answers thereto, as well as the results of
any examination made by the Commission or by any other
official authorized by law to make an examination of the
operations, books and records of any corporation, shall be kept
strictly confidential, except insofar as the law may require the
same to be made public or where such interrogatories, answers
or results are necessary to be presented as evidence before any
court. (n)
and Exchange Commission, shall be deemed to have been
authorized, licensed or registered under the provisions of this
Code, subject to the terms and conditions of its license, and
shall be governed by the provisions hereof: Provided, That if
any such corporation is affected by the new requirements of
this Code, said corporation shall, unless otherwise herein
provided, be given a period of not more than two (2) years
from the effectivity of this Code within which to comply with
the same. (n)
Section 149. Effectivity. - This Code shall take effect
immediately upon its approval.
Approved, May 1, 1980

Section 143. Rule-making power of the Securities and

Exchange Commission. - The Securities and Exchange
Commission shall have the power and authority to implement
the provisions of this Code, and to promulgate rules and
regulations reasonably necessary to enable it to perform its
duties hereunder, particularly in the prevention of fraud and
abuses on the part of the controlling stockholders, members,
directors, trustees or officers. (n)

Section 144. Violations of the Code. - Violations of any of the

provisions of this Code or its amendments not otherwise
specifically penalized therein shall be punished by a fine of not
less than one thousand (P1,000.00) pesos but not more than
ten thousand (P10,000.00) pesos or by imprisonment for not
less than thirty (30) days but not more than five (5) years, or
both, in the discretion of the court. If the violation is committed
by a corporation, the same may, after notice and hearing, be
dissolved in appropriate proceedings before the Securities and
Exchange Commission: Provided, That such dissolution shall not
preclude the institution of appropriate action against the
director, trustee or officer of the corporation responsible for
said violation: Provided, further, That nothing in this section
shall be construed to repeal the other causes for dissolution of
a corporation provided in this Code. (190 1/2 a)

Section 145. Amendment or repeal. - 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. (n)

Section 146. Repealing clause. - Except as expressly provided

by this Code, all laws or parts thereof inconsistent with any
provision of this Code shall be deemed repealed. (n)

Section 147. Separability of provisions. - Should any

provision of this Code or any part thereof be declared invalid or
unconstitutional, the other provisions, so far as they are
separable, shall remain in force. (n)

Section 148. Applicability to existing corporations. - All

corporations lawfully existing and doing business in the
Philippines on the date of the effectivity of this Code and
heretofore authorized, licensed or registered by the Securities

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