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SECTION 22

1. What is the effect of non-use of corporate charter of a corporation? Sec. 22

Non-use of corporate charter of a corporation within 2 years from the date of its incorporation , the effect
is that its corporate powers cease and the corporation shall be deemed dissolved.

Exception: this rule shall not apply if the failure to organize or commence the transaction, is due to causes
beyond the control of the corporation as may be determined by SEC.

2. What is the effect of continuous inoperation of a corporation? Sec 22

Continuous inoperation of a corporation for a period of at least five 5 years, the effect is that it shall be a
ground for the suspension or revocation of its corporate franchise or certificate of incorporation.

Exception: this rule shall not apply if the failure to continuously operate, is due to causes beyond the
control of the corporation as may be determined by SEC.

3. What are the 2 violations of conditions subsequent to incorporation?

a. Failure to organize and commence business within 2 years from incorporation

b. Becoming continuously inoperative for a period of at least 5 years

4. When would the 2 and 5 year period commence?

The 2 year period is counted from incorporation, while the 5 year period may commence thereafter. So, even if
the corporation has been operating for some period of time, there is a ground to revoke the franchise if it
ceased to operate continuously thereafter for at least 5 years.

5. What is ORGANIZATION as used in reference to corporation?

Organization in corporation means,

a. election of officers
b. providing for the subscription and payment of capital stock
c. adoption of by-laws and such other similar steps

SECTION 21

1. In what instance the doctrine of corporation by estoppel applicable? Sec. 21

The doctrine of corporation by estoppel is applicable both to the ALLEGED CORPORATION and the THIRD
PARTY.

In the instance of unincorporated association, which represented itself to be a corporation, will be estopped
from denying its corporate capacity in a suit against it by such third person. It cannot allege lack of capacity to
be sued to evade responsibility on a contract it had entered into. On the other hand, a third party who, knowing
an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may
be barred from denying its corporate existence in a suit brought against the alleged corporation.

2. Discuss the Liability of a corporation by estoppel.

The liability of those who assume to act as a corporation knowing it to be without authority, shall be liable as
general partner. Therefore, they are liable even beyond their investment. As a result, their personal properties
may be made to answer for what is purportedly a corporate debt of the non-existent corporation.

Note: a stock holder or member cannot be held personally liable for any financial obligation of the corporation
in excess of his unpaid subscription. But this rule applies only to registered corporation.
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3. Discuss the liability of a person who purports to act on behalf of a corporation which has no valid existence.

A person acting or purporting to act on behalf of a corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for contracts entered into.

SECTION 20

1. What are the requisites of de facto corporation?

a. A valid law under which the corporation is organized

b. An attempt in good faith to incorporate
c. An assumption of corporate powers

2. Explain each requisites briefly.

Valid Law. No de facto corporation will result if there is no law under which the corporation is organized.
How about if the law under which it is founded is unconstitutional? There are 2 views. The orthodox view
as expressed in Art 7 NCC – the state declares law void since it is inconsistent with the constitution. As a
result, there is no de facto corporation.

On one hand, the other view declares unconstitutional law as an “operative fact”, that for a period of time
the law is actually in existence.

Good faith. There must be a colorable compliance with the law.

Assumption of powers. A corporation must have exercised its franchise to be a corporation by doing
business under it. There must be some corporate acts in attempted execution of the powers conferred by
the articles of incorporation.

3. A group of employees continued the operations of a dissolved corporation whose registration has been
revoked. Could they acquire the status of a de facto corporation?

No. if the charter of the corporation is forfeited and its legal existence terminated, it is no longer a corporation
either de jure or de facto.

4. Define Collateral attack?

When a separate and new lawsuit is filed to challenge some aspect of an earlier and separate case, it is called a
collateral attack on the earlier case. This is different than an appeal, which is a challenge to some aspect of a
decision made in the same case.

Example: Sam obtains a divorce in Nevada without properly notifying his wife, Laurie. Laurie files a later
lawsuit seeking to set aside the divorce and start the divorce proceedings over. Laurie's case is a collateral
attack on the divorce.

The law wants judgments to be final whenever possible, and thus collateral attacks are discouraged. Many are
filed, but usually only succeed when an obvious injustice or unconstitutional treatment occurred in the earlier
case.

SECTION 19
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1. Discuss the actual point in time of the commencement of corporate existence.

A corporation commences to have corporate existence and juridical personality 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.

2. In what instance, when there is no need for a CERTIFICATE OF INCORPORATION?

A certificate of incorporation is not necessary if the corporation is created through special law. Corporate
existence commences as soon as the law takes effect.

SECTION 18

1. Discuss the names which are prohibited under the corporation code.

a. The name is Identical, deceptively or confusingly similar to that of any existing corporation including
internationally known foreign corporation though not used in the Philippines
b. the name is already protected by law
c. the name is contrary to law, morals, public policy or is patently deceptive or confusing

2. What is the purpose of the prohibitions in names as stated above?

a. Avoidance of fraud upon the public

b. Evasion of legal obligations and duties
c. Reduction of difficulties of administration and supervision over corporations

3. Define Dominancy Test.

The name cannot be used if the name indicated in the AOI adopts the dominant feature of an existing corporate
name or even a trademark belonging to another.

4. Define Doctrine of Secondary Meaning.

The doctrine of secondary meaning means that a word or phrase originally incapable of exclusive appropriation
with reference to an article in the market has, through its long and exclusive use by one entity has effectively
been distinguished and identified as that representing the user and its products.

5. Can the corporation change its name? what is its effect to the personality of the corporation?

Yes. It can change its name if there is no express prohibition. The effect is that, upon the change of its name,
the corporation is still the same corporation with a different name, and its charter is in no respect changed.

SECTION 17

1. What are the grounds when articles of incorporation or amendment may be rejected or disapproved? Sec 17

The articles of incorporation and the amendment may be rejected and disapprove on the following grounds:

a. That the articles of incorporation or any amendment thereto is not substantially in accordance with the
form prescribed herein
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b. That the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary
to government rules and regulations
c. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or paid is false
d. 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.

2. Is it the duty of the SEC to approve an application for registration of AOI, as well as the approval of the
amendment thereto?

Yes. It is a ministerial duty of SEC to approve an application for registration, provided that all the requirements
of law are complied with. The SEC must approve the AOI if the applicant has substantially complied with the
requirements of Corporation Code.

3. Give examples of corporation built for illegal or immoral purpose.

a. The purpose is to promote and enhance the incorporation of the Philippines as an American state
b. The purpose is to engage in illegal gambling
c. Purpose is to provide a “mail-order-bride” service
d. The purpose is to practice a profession

SECTION 16

1. What are the rules in amending the articles of incorporation? Sec. 16

Any provision or matter stated in the articles of incorporation may be amended by a majority vote of the
board of directors or trustees and the vote or written assent of the stockholders representing at least two-
thirds (2/3) of the outstanding capital stock; or the vote or written assent of at least two-thirds (2/3) of
the members if it be a non-stock corporation.

a. The original and amended articles together shall contain all provisions required by law to be set out in the
articles of incorporation.

b. Such articles, as amended shall be indicated by underscoring the change or changes made

c. and a copy shall be submitted to the Securities and Exchange Commission. (Note: The copy must be
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)

d. The amendment must be approved by the SEC

2. When does the amendment shall take effect?

It shall take effect:

a. Upon their approval by the SEC or;

b. From the date of filing with the SEC, if not acted upon within six (6) months from the date of filing for a
cause not attributable to the corporation

3. Give example of the provisions in the AOI which can be amended, and those which cannot be amended.

The provisions which cannot be amended are: Corporate name; increase in the authorized capital stock; and
other similar changes.

The provision which cannot be amended are the following: Names of the incorporators; the number of the
incorporators; names of the original directors. (they cannot be amended since they are ACCOMPLISHED FACTS)
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Several amendments cannot likewise be allowed if they go against the nature of the corporation. Ex. From non-
stock corporation to stock corporation, with members as shareholders.

4. Are the silence and failure to object by the stockholder constitute as approval?

No. The law requires the express approval of the stockholders through an affirmative vote or assent that is in
writing. Written assent solicited by the board even without a meeting is sufficient.

Section 15

1. What is the form required in articles of incorporation? Sec 15 (refer to the book)

SECTION 14

1. What are the contents of articles of incorporation? Sec. 14

The contents are the following:

a. The name of the corporation

b. The specific purpose or purposes for which the corporation is being incorporated. 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: Provided, that a non-stock corporation may not include a
purpose which would change or contradict its nature as such
c. The place where the principal office of the corporation is to be located, which must be within the
Philippines
d. The term for which the corporation is to exist
e. The names, nationalities and residences of the incorporators
f. The number of directors or trustees, which shall not be less than five (5) nor more than fifteen (15)
g. 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
h. If it be a stock corporation, the amount of its authorized capital stock in lawful money of the Philippines,
the number of shares into which it is divided, and 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 if some or all of the shares are without par value, such fact must be
stated
i. If it be a non-stock corporation, the amount of its capital, the names, nationalities and residences of the
contributors and the amount contributed by each; and
j. Such other matters as are not inconsistent with law and which the incorporators may deem necessary and
convenient.

Note: Articles of Incorporation shall be filed with the SEC in ANY of the official languages duly signed and
acknowledged by all of the incorporators.

2. What is “Articles of Incorporation”?

It is one that defines the charter of the corporation, and the contractual relationships between the state and
the corporation, the stockholders and the state, and between the corporation and its stockholders.

3. What are the 2 kinds of purposes in AOI?

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Primary and secondary purpose. The primary purpose must be only one, while the secondary purpose may be
several.

As a general rule, the primary purpose determines the classification of a corporation. Ex. A corporation is a
mining corporation, if mining is its primary purpose.

4. Does the disclosure of the principal place of business, “metro manila” allowed?

No. it must include, if feasible, the street number, street name, barangay, city or municipality, and the specific
address of the incorporator, directors, or trustee.

5. What is the place of residence of the corporation?

It is the principal office of the corporation.

6. How long is the term of existence of a corporation?

Must not exceed 50 years from and after the date of incorporation. However, it may exceed if proper extension
of the term is made within the manner prescribed by the code.

7. What is the remedy in case the corporation will not be able to extend its corporate term?

The remedy is to file new AOI and secure a new term.

8. What is a PAID-UP CAPITAL?

It is the portion of the authorized capital stock that has been subscribed and paid.

SECTION 12 & 13

1. What is the amount of capital stock to be subscribed and paid for purposes of incorporation? Sec 13

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

at least twenty-five (25%) percent of the total subscription must be paid upon subscription, the balance to
be payable on a date or dates fixed in the contract of subscription without need of call, or in the absence of
a fixed date or dates, upon call for payment by the board of directors:

Note: Provided, however, that in no case shall the paid-up capital be less than five Thousand (P5,000.00)
pesos.

2. What is the minimum capital stock required of stock corporation? Sec 12

Stock corporations incorporated under this Code shall not be required to have any minimum authorized
capital stock except as otherwise specifically provided for by special law. However, if the minimum paid up
capital of P5k prescribed under section 14 is considered, it is clear that the INITIAL AUTHORIZED CAPITAL
cannot be less than the same amount.