R.A 11232 - REVISED CORPORATION CODE 2.
If the proceeds of the sale or other disposition of such property and assets
Increase/decrease of Capital Stock; incur, create, increase bonded
indebtedness (Sec. 37 RCCP)
Ways of increasing/decreasing capital stock:
1. By increasing/decreasing the number of shares and retaining the par value.
2. By increasing/decreasing the par value of existing shares without
increasing/decreasing the number of shares, or
3. By increasing/decreasing the number of shares and increasing/decreasing
the par value.
Requirements for the increase/decrease of capital stock:
1. Prior written notice to each stockholder
2. Approval by the majority vote of the Board.
3. Ratification by stockholders representing 2/3 of the outstanding capital
stock.
4. A certificate must be signed by a majority of the directors of the corporation
and countersigned by the chairperson and secretary of the stockholders’
meeting.
5. Filing with the SEC
6. Approval by the SEC
1. Treasurer’s affidavit is required when there is an increased in capital stock.
2. Filing with the SEC shall be made within 6 months from the date of approval by the
board and stockholders, it can be extended for justifiable reason.
3. Approval of Philippine Competition Commission is required in some cases.
4. Decrease of capital stock is not authorized if it shall prejudice the rights of corporate
creditors.
5. Non-stock Corporation cannot decrease; they can increase provided they amend
their Articles of Incorporation.
Bonded indebtedness
 It is a loan secured by a mortgage on corporate property.
 Corporation (stock or non-stock) may incur, create, or increase bonded
indebtedness.
 SAME REQUIREMENTS with the increase/decrease of capital stock.
Sale of all or Substantially all properties. (Sec. 39 RCCP)
Requirements:
1. Must comply with the requirements of Philippine Competition Act (RA
10667), and other related laws.
2. There must be written notice of the proposed action and of the time and
place of the meeting. (served personally, or by electronic means)
3. Approval by majority vote of the Board.
4. Approval of Stockholders representing 2/3 of outstanding capital, or 2/3 of
members.
When ratification of stockholders NOT required?
1. If it is necessary in the usual and regular course of business;
be appropriated for the conduct of the remaining business. (last paragraph
of Sec. 39 RCCP)
3. If the transaction does not cover all or substantially all of the assets.
When is the disposition deemed to cover Substantially all of corporate
assets?
If the corporation would be incapable of:
1. continuing the business, or
2. accomplishing the purpose for which it was incorporated.
The determination of whether or not the sale involves all or substantially all of the
corporation’s properties and assets must be computed based on its net asset value,
as shown in its latest financial statements.
Effect of sale or transfer of assets
GR: The sale or transfer of the assets of one corporation to another does not ipso
facto include the debts and liabilities of the transferor. (Nell Doctrine)
XPTs:
1. Express or implied assumption of liabilities.
2. Merger or consolidation
3. if the purchase was in fraud of creditors.
4. if the purchaser becomes a continuation of the seller.
Nell Company vs Pacific Farms Inc. (1986)
Investment in another business or corporation. (Sec. 41 RCCP)
GR: Investment of a corporation in a business which is in line with its primary purpose
requires only the approval of the board.
XPN: Where the corporation undertakes to invest in another corporation or business
other than a primary purpose, it has to comply with the statutory requirements before
it can do so.
Requirements:
1. Prior written notice of the proposed investment and the time and place of
the meeting addressed to each stockholder/member.
2. Approval by majority vote of the Board.
3. Ratification by 2/3 of the OCS or Membership in the meeting duly called for
such purpose.
Doctrine of Centralized Management
GR: all corporate powers, transaction of business and control of the corporate
properties are exercised by the Board of Directors/Trustees.
XPN’s:
1. In case of delegation to the Executive Committee duly authorized in the by-
laws; (Sec. 34 RCCP)
2. Authorization pursuant to a contracted manager which may be an individual,
a partnership, or another corporation; (Sec.43 RCCP) and
3. In case of close corporations, the stockholders may manage the business of
the corporation instead of a board of directors, if the articles of incorporation
so provide. (Sec. 96 RCCP)
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Qualification of Directors/Trustees
1. As director, at least 1 share of capital stock acquired in his own right. While
as a Trustee, he must be a member in good standing.
2. Natural Person of Legal Age possessed of full legal capacity.
3. He must not be disqualified under Sec.26 of RCCP.
Possessed other qualification as may be prescribed by law and in the By-Laws of
the Corporation.
Disqualification under Sec. 26 RCCP
Convicted by final judgment:
1. Of an offense punishable by imprisonment for a period exceeding six (6)
years;
2. For violating this Code; and
3. For violating Republic Act No. 8799 otherwise known as “The Securities
Regulation Code”;
4. Found administratively liable for any offense involving fraudulent acts; and
5. By a foreign court or equivalent foreign regulatory authority for acts,
violations or misconduct similar to those enumerated in paragraphs (a) and
(b) above.
Term of office of a Director is only for 1 year, while a Trustee was extended to a
maximum term of 3 years
 Residency Requirement for Board Members are ABOLISHED/Deleted.
Independent Director
is a person who, apart from shareholdings and fees received from the corporation, is
independent of management and free from any business or other relationship which
could, or could reasonably be perceived to materially interfere with the exercise of
independent judgment in carrying out the responsibilities as a director. (Sec.22 RCCP)
Cases where independent directors are required: (Sec. 22 RCCP)
1. Corporation registered with SEC, with a capital stock of at least 50M; having
200 or more shareholders; each shareholder holding at least 100 shares of
a class of its equity shares. (Sec. 17.2 of SRC)
2. Banks, quasi-banks, preneed, insurance and trust companies, nonstock
savings and loan associations, pawnshops, corporations engaged in money
service business and other financial intermediaries; and
3. Other corporations engaged in business vested with public interest similar to
the above, as may be determined by the Commission.
Business Judgment Rule
Questions of policy or management are left solely to the honest decision of officers
and directors of a corporation and the courts are without authority to substitute their
judgment for the judgment of the board of directors; the board is the business
manager of the corporation and so long as it acts in good faith, its orders are not
reviewable by the courts or the SEC.
Requirement for the Business Judgment Rule to apply:
1. Presence of a business decision including decisions on policy management
and administration;
2. The decision must be intra vires and must comply with the procedural and
substantive requirements of law;
3. Good faith
4. Due care in making the decision;
5. The director must not have personal interest nor self-dealing or otherwise
on breach of the duty of loyalty.
Election of Directors/Trustees (Sec. 23 RCCP)
Methods of Voting:
1. Straight Voting
2. Cumulative Voting for one candidate
3. Cumulative Voting by distribution
In non-stock corporation, they may cast as many votes as there are trustees to
be elected but may not cast more than one vote for one candidate.
 At all elections of directors or trustees, majority of stockholders/members
entitled to vote shall constitute quorum.
 All shareholders holding voting shares have the right to vote.
 Stockholders may vote: 1) Personally, 2) by proxy, or 3) through remote
communication or in absentia.
1. If allowed in their AOI or By-laws
2. Authorized by Majority of Directors.
3. In cases of corporation vested with public interest
The election must be by ballot if requested by any voting stockholder or member.
Removal of Directors/Trustees (Sec. 27 RCCP)
Requisites for removal:
1. Must take place at a regular/special meeting of stockholders/members duly
called for the purpose.
2. Prior notice to stockholders/members of the intention to remove.
3. 2/3 vote of stockholders/members.
4. The removal may be with or without cause unless he was elected by the
minority, in which case, it is required that there is cause for removal.
The Commission shall, motu proprio or upon verified complaint, and after due
notice and hearing, order the removal of a director or trustee elected despite the
disqualification, or whose disqualification arose or is discovered subsequent to an
election. The removal of a disqualified director shall be without prejudice to other
sanctions that the Commission may impose on the board of directors or trustees who,
with knowledge of the disqualification, failed to remove such director or trustee.
Vacancies in the Board (Sec.28 RCCP)
1. It happens due to: a) Removal, b) Expiration of term, c) Death, resignation,
abandonment, and d) increase of number of Director/Trustee.
2. In case of vacancy but still constitute a quorum, at least a majority of the
members are empowered to fill any vacancy occurring in the board.
3. If no quorum or the vacancy was due to removal, or expiration of term, there
must be an election from and among the stockholders to fill the vacancy.
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Emergency Board (Sec. 28 RCCP)
1. When the vacancy prevents the remaining directors from constituting a
quorum and emergency action is required to prevent grave, substantial, and
irreparable loss or damage to the corporation.
2. Any corporate officer may temporarily fill the vacancy by a UNANIMOUS vote
of the remaining directors or trustees.
3. Notice must be given to the SEC within 3 days from the creation of an
emergency Board.
Doctrine of Corporate Opportunity
1. This happen when a director undertakes a business opportunity that belongs
to the corporation.
2. The self-interest of the director is in conflict with the interest of the
corporation. Hence, the law does not permit him to seize the opportunity
even if he will use his own funds in the venture.(Sec. 33 RCCP)
GR: Director who seized that business opportunity, shall account and refund to the
corporation all the profits.
Exception: The contract or act may be ratified by a vote of the stockholders
representing at least 2/3 of the outstanding capital stock.
Self-Dealing directors (Sec. 31 RCCP)
It is a transaction/contract between a corporation and
1. Director or Trustee
2. Officers
3. Their spouses
4. And relatives within the fourth civil degree of consanguinity or affinity.
GR: It is a voidable contract at the option of the corporation.
Xpns:
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;
4. In case of corporations vested with public interest, material contracts are
approved by at least 2/3 of the entire membership of the board, with at least
a majority of the independent directors voting to approve the material
contract;
5. That in the case of an officer, the contract with the officer has been
previously authorized by the board of directors
Interlocking Director (Sec. 32 RCCP)
If the interest of the interlocking director is substantial (exceeding 20% of the
outstanding capital stock) in both corporation.
GR: it is valid contract.
Xpt: Voidable at the option of corporation if the contract is fraudulent or not fair or
reasonable.
If the interest of the interlocking director is nominal in one and substantial in the
other.
GR: It is voidable at the option of the corporation to which the interlocking director
has nominal interest.
Xpt: it will be valid if it complies with Sec. 31 RCCP
Corporate Officers (Sec. 24 RCCP)
Who are the corporate officers?
1. President (who shall be a director)
2. Treasurer (may or may not be a director but must be a resident)
3. Corporate Secretary (must be a citizen and a resident)
4. Compliance Officer (for corporation vested with public interest)
5. Such other officers as may be provided in the By-Laws.
NOTE:
 There is no Nationality Requirement as to Treasurer (he can be an alien or a
citizen), but the Secretary must be a citizen and a resident of the Philippines.
 The same person may hold 2 or more position concurrently. However,
President-Secretary, and President-Treasurer is NOT allowed. (Sec. 24
RCCP)
 In One Person Corporation, a single stockholder may not be appointed as
the Corporate Secretary BUT he/she can be the Treasurer subject to the
giving of a bond to the SEC (Sec. 122 RCCP)
 Other Officers under the By-Laws must be EXPRESSLY mentioned.
Liability of Directors/Trustees and Officers (Sec. 30 RCCP)
GR: They are NOT solidary liable with the corporation they represent.
XPT:
1. When the Director/Trustee or its Officers:
a) Vote or assent to patently unlawful acts of the corporation.
b) Act in bad faith or with gross negligence in directing the affairs of the
corporation.
c) Acquire any personal or pecuniary interest in conflict with their duty.
2. By virtue of a Specific provision of law
3. When a director or who has knowledge of the sale of watered stocks,
consented or fails to object thereto.
4. Agreement or stipulation in a contract to hold himself personally liable with
the corporation.
Meetings of the Board (Sec. 52 RCCP)
2 Kinds:
1. Regular (Monthly, unless otherwise specified in the By-Laws)
2. Special (Anytime, upon the call of the President or as provided in the By-
laws)
Notice – must be given at least 2 days before the scheduled meeting, unless a longer
period is provided in the by-laws
Quorum – Majority of Directors/Trustees shall constitute a quorum, unless the AOI or
the by-laws provides for a greater majority.
Proxy is not allowed.
Meetings of the Board (Sec. 52 RCCP)
Who preside: If there is a Chairman, he/she shall preside in all meetings. In the
absence of chairman, the President can preside. Unless the by-law provides for a
presiding officer. (Sec. 53)
Venue: Anywhere in or out of the Philippines, unless the by-laws provides otherwise
(Sec. 52)
Teleconferencing or Video Conference – is allowed provided the proceeding was
recorded and stored by the Corporate Secretary.
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Votes required to approve resolution – majority of Directors/Trustees present or
constituting a quorum. Unless the law requires that majority vote of ALL members of
the board.
Trust Fund Doctrine
The trust fund doctrine means that the capital stock, properties and other assets of a
corporation are regarded as equity in trust for the payment of corporate creditors.
Stated simply, the trust fund doctrine states that all funds received by the corporation
in payment of the shares of stock shall be held in trust for the corporate creditors and
other stockholders of the corporation. Under such doctrine, no fund shall be used to
buy back the issued shares of stock except only in instances specifically allowed by
the Corporation Code.
Cases where there is violation of this doctrine
1. When the corporation releases or condones payment of the unpaid
subscription.
2. When there is payment of dividend without unrestricted retained earnings.
3. When properties are transferred in fraud of creditors.
4. Issuance of watered stocks.
Distribution of Corporate Asset
For a corporation to distribute their assets without violating Trust Fund Doctrine, there
must be procedure to be followed:
1. Amendment of the AOI to reduce the authorized capital stock
2. Purchase of redeemable shares by the corporation, regardless of the
existence of unrestricted/retained earnings
3. Dissolution and eventual liquidation of the corporation.
4. Procedure in sec. 40 as regards to purchase of shares by the corporation.
Subscription Contract (Sec. 59 RCCP)
Any contract for the acquisition of unissued stock in an existing corporation or a
corporation still to be formed.
How does a person becomes a shareholder?
1. Enters into a subscription contract with an existing corporation (he becomes
a stockholder upon acceptance of the corporation of his offer to subscribe).
2. Purchase treasury shares from the corporation.
3. Acquires shares from existing shareholders by sale or any other contract or
through other modes of acquiring ownership.
Two kinds of Subscription contract
1. Pre-incorporation subscription (Sec. 60)
GR: It is irrevocable for a period of 6 months from the date of subscription
Xpt: Subscribers consent to the revocation or the corporation failed to incorporate
within the period.
(Note: if AOI is already filed, Pre-incorporation subscription cannot be revoked even
if it is filed prior to 6 months expiration)
2. Post-incorporation subscription
Consideration for Stocks (Sec.61 RCCP)
Note:
 Shares of stock and generally accepted form of consideration (par. g
and h) are added by the RCCP.
 Promissory notes or future services are not valid considerations.
 The corporation cannot set-off the unpaid subscription with the unpaid
salaries of the shareholder-employee.
 The consideration provided under Sec.61 RCCP may be used for the
issuance of bonds by the corporation.
Shares of Stock
interest or right which an owner has in the management of the corporation, and its
surplus profits, and, on dissolution, in all of its assets remaining after the payment of
its debt. The Stockholder may own the share even if he is not holding a certificate of
stock.
Classification of shares (Sec. 6 RCCP)
1. Common Shares - a share which enjoy no preference.
2. Preferred Shares - shares which has preference in the distribution of
dividends, distribution of corporate assets in case of liquidation, or such
other preference as stated in the AOI.
3. Par value and no par value shares – The former has nominal value in the
certificate of stock, while the latter has no nominal value.
4. Voting and non-voting shares
5. Founder’s Share – these are shares given certain rights and privileges not
enjoyed by any other stock.
6. Redeemable shares – shares issued by the corporation which said
corporation CAN purchase or take up from their holders at a fixed date at a
certain redemption price.
7. Treasury Shares - shares that have been issued and fully paid for and have
thereafter been REACQUIRED by the issuing corporation by purchase,
donation, redemption or some other lawful means.
8. Escrow Shares - Shares subjected to an agreement by virtue of which the
shares are deposited by the grantor or his agent with a third person to be
held by the latter until the performance of a certain condition.
Doctrine of Equality of Shares
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.
Watered stocks
 Those issued not in exchange for its equivalent either in cash, property,
share, stock dividends, or services; thus, the issuance of such stocks is
prohibited.
 Director/Trustees and Stockholders are solidary liable for the difference of
the value received and the par value of each share.
How is it committed?
1. Consents to the issuance of stock for a consideration less than its par or
issued value.
2. Consent to the issuance of stocks for a consideration other than cash
(property, service), valued in excess of its fair value.
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 3. Having knowledge of insufficiency, he/she failed to report or object with the d) proportionate participation in the distribution of assets in liquidation
corporate secretary. (Sec. 139 RCCP)
e) right to transfer of stocks in corporate books (Sec. 62 RCCP)
What is Certificate of Stocks? f) pre-emptive right (Sec. 38 RCCP)
It is a written evidence of the shares of stock but it is not the share itself. 5. right to inspect books and records (Sec. 73 RCCP)
6. right to be furnished with the most recent financial statement/report. (sec.
Doctrine of Indivisibility of Subscription Contract 74 RCCP)
A certificate of stock is one, entire, and indivisible contract. It cannot be divided into 7. right to recover stocks unlawfully sold for delinquent payment of subscription
portions, so that the stockholder shall not be entitle to a certificate until he has 8. right to the issuance of new certificates in lieu of lost, stolen or destroyed
remitted the full payment of his subscription together with any interest or expenses, certificates (Sec. 71 RCCP)
if any is due. 9. right to file individual suit, representative and derivative suit.

How shares of stock is transferred? (Sec. 62 RCCP) Obligation of stockholders

If there is Certificate of Stock 1. Liability to the corporation for unpaid subscription (Sec. 66 to 69 RCCP)
1. Delivery of the certificate 2. Liability to the corporation for interest on unpaid subscription if so required
2. Indorsement by the owner or his agent by the By-Law (Sec. 65 & 66 RCCP)
3. Must be recorded in the books of the corporation. 3. Liability to the creditors of the corporation for unpaid subscription subject to
If no Certificate of Stock issued the Limited Liability Rule;
1. by means of a deed of assignment, and 4. Liability for watered stock (Sec. 64 RCCP)
2. such is duly recorded in the books of the corporation. 5. Liability for dividends unlawfully paid (Sec. 42 RCCP)
6. Administrative, civil and criminal liability of a stockholder responsible for
Negotiability of Cert. of Stocks violation of the RCCP (Sec. 171 RCCP)
 Although sometimes it is regarded quasi-negotiable because it can be
transferred by indorsement coupled with delivery, it is well-settled that a Suits by stockholders/members
certificate of stock is non-negotiable, because the holder thereof takes it Derivative Suit – one filed by stockholders/members in behalf of the corporation
without prejudice to such rights or defenses as the registered owner’s or Requisites:
transferor’s creditor may have under the law. 1. He was a stockholder/member at the time the acts or transactions subject
 Except when there is estoppel, or the stock certificate is endorsed in blank of the action occurred and at the time the action was filed;
by the owner thereof (street certificate). 2. He exerted all reasonable efforts to exhaust all remedies available under
AOI, by-laws, or the law.
Registration of transfer of shares 3. No appraisal rights are available for the act/s complained of;
 Generally it must be registered with the books of the corporation so that it 4. The suit is not a nuisance or harassment suit
has binding effect upon the corporation and the transferee or any third 5. The corporation is impleaded as a plaintiff
person.
 Need not be registered if there is no ABSOLUTE transfer yet. (e.g. the Individual Actions - those brought by the shareholder in his own name against the
certificate of stock is merely pledged or mortgaged unless it is foreclosed in corporation when a wrong is directly inflicted against him.
accordance with law)
 Presentation and surrender of endorsed stock certificate not necessary to Representative Actions - those brought by the stockholder in behalf of himself and all
effect registration. other stockholders similarly situated when a wrong is committed against a group of
 Availability of Mandamus to compel registration. stockholders.
 Registration of transfer of shares does not prescribe.
Pre-emptive right (Sec. 38 RCCP)
Basic rights of Shareholder  it is the shareholder's right to subscribe to all issues or disposition of shares
1. Direct or indirect participation in management of any class (including sale or re-issuance of treasury shares) in proportion
2. Voting rights (Sec 6 and 57 RCCP) to their stockholdings.
3. Right to remove directors (Sec. 27 RCCP)  It is granted to all stockholders, unless such right is denied by the articles of
4. propriety rights: incorporation or an amendment thereto.
a) right to dividends;  The By-laws alone cannot deny pre-emptive right. However, it may fix
b) Appraisal right (Sec.80 RCCP) reasonable procedure for the exercise of the pre-emptive right.
c) right to issuance of stock certificate for fully paid share. (Sec. 63
RCCP)
Pre-emptive right shall not be exercise in the following:

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 1. shares issued in compliance with laws requiring stock offerings or minimum
stock ownership by the public; or
2. to shares issued in good faith with the approval of the stockholders
representing 2/3 of the outstanding capital stock, in exchange for property
needed for corporate purposes
3. or in payment of a previously contracted debt.
4. If the right is denied by the AOI or an amendment thereto. (Sec. 38 RCCP)
5. Waiver of the right by the stockholder.

Voting rights of stockholder

NOTE: in the removal of Directors/Trustees, the call must be made by the Corporate
Secretary upon:
 Order of the President, or
 Written demand by majority stockholders/members. (Sec. 27 RCCP)

 Place of Meeting = principal office but if not practicable, in the city or municipality
where the principal office is located. (Sec. 50 RCCP)
 Proxy voting by stockholder is allowed. Provided it is made in writing, in any
form authorized by the by-laws, received by corporate secretary within
reasonable time, period of validity shall not exceed 5 years.
 Attendance/vote through Remote Communication is allowed provided it is made
before the corporation finishes the tally of votes.

Voting Trust Agreement (Sec. 58 RCCP)

One or more stockholder/s of a stock corporation may create a voting trust for the
purpose of conferring upon a trustee/s the right to vote and other rights pertaining to
the shares for a period not exceeding 5 years at any one time.

Appraisal Right (Sec. 80 RCCP)

Right of a dissenting stockholder to withdraw from the corporation and demand
payment of the fair value of his/her shares, which right is exercised after dissenting
from or voting against proposed corporate acts involving fundamental changes in the
corporate structure.

When is this right lost or extinguished?

1. The shareholder withdraws the demand with the corporation's consent. (sec
83 RCCP)
2. The proposed action is abandoned or rescinded by the corporation (Sec. 83
RCCP)
3. The SEC disapprove the action (Sec 83 RCCP)
4. The dissenting stockholder fails to make a demand within 30 day period
required in Sec. 81
5. There is transfer of the shares by the dissenting shareholder (Sec 85 RCC)
6. Dissenting shareholder fails to submit his/her stock certificate within 10 days
from demand of payment. (Sec. 85 RCC)