VOLCANOTES 2020 | BUSINESS ORGANIZATION II
h. Directors/Trustees
ü Sec. 13 (f) of the Code requires the articles of
incorporation to indicate the number of directors or
trustees, directors shall not be more than 15 or the
trustees which may be more than 15.
ü Sec. 13 (g) of the Code also requires the:
o Names
o Nationalities, and
o Residence address
Of persons who shall act as directors or trustees until
the first regular directors or trustees are duly elected
and qualified in accordance with Code.
ü “Directors” – used to designate the governing board in
stock corporations
ü “Trustees” – used to designate governing board in
non-stock corporations.
ü By laws of a corporation – may provide for additional
qualifications and disqualifications of its members of
the board of directors or trustees.
o However, it may not do away with the
minimum disqualifications laid down by the
Code. (Sec. 22, 2nd par)
“A director who ceases to own at
least one (1) share of stock or a
trustee who ceases to be a member
of the corporation shall cease to be
such.”
ü The Code requires mere residency, majority of them,
in order to qualify to the office of the director.
o Such being the case, even aliens, may be
elected as directors provided that the
residency requirement [majority are PH
residents] is met.
o Aliens – may not qualify or elected as such, in
any activity or business undertaking
exclusively reserved to Filipino citizens, like
he management of educational institutions
(Art. XIV, Constitution) and those governed by
Retail Trade Law.
 IF the business undertaking is only
partially nationalized, aliens can be
elected as directors, but their
number shall only be in proportion
to their equity
ü Disqualifications of Directors, Trustees or Officers –
Sec. 26. Disqualification of Directors,
Trustees or Officers – A person shall be
disqualified from being a director, trustee, or
officer of any corporation if, within 5 years
prior to the election or appointment as such,
the person was:
a) Convicted by final judgment:
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1. Of an offense punishable by
imprisonment for a period
exceeding 6 years;
2. For violating this Code; and
3. For violating Republic Act No.
8799 otherwise known as
“The Securities Regulation
Code”;
b) Found administratively liable for any
offense involving fraudulent acts;
and
c) By a foreign court or equivalent
foreign regulatory authority for acts,
violations or misconduct similar to
those enumerated in paragraphs (a)
and (b) above.
The foregoing is without prejudice to
qualifications or other disqualifications,
which the Commission, the primary
regulatory agency, or the Philippine
Competition Commission may impose in
its promotion of good corporate
governance or as a sanction in its
administrative proceedings.
i. Capitalization
ü Sec. 13 (h) requires all domestic corporations
proposing to organize under PH laws to provide in its
articles of incorporation its:
o Authorized capital stock,
o The number of shares and /or kind of shares
into which the authorized capital is divided,
o The par value of each share, if there be any
o Names, nationalities, and residences of the
original subscribers, and the amount
subscribed and paid by each on his
subscription.
ü Authorized capital – the maximum amount fixed in
the articles to be subscribed and paid-in or secured to
be paid by the subscribers.
o May also refer to the maximum number of
shares that the corporation can issue.
ü Subscribed capital stock – total number of shares and
its total value for which there are contracts for their
acquisition or subscription.
o Stockholder’s equity account showing that
part of the authorized capital stock which has
been paid or promised to be paid, or that
portion of the authorized capital stock which
has been subscribed by the subscribers or
stockholders.
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ü Paid up Capital Stock – also known as “paid-in
capital”, the actual amount or value which has been
actually contributed or paid to the corporation in
consideration of the subscriptions made thereon.
o May either be in cash, property or in the form
of services actually rendered to the
corporation.
o Consideration for Stocks –
Sec. 61. Consideration for Stocks – Stocks
shall not eb issued for a consideration less
than the par or issued price thereof.
Consideration for the issuance of stock may
be:
a) Actual cash paid in the
corporation;
b) Property, tangible or intangible,
actually received by the
corporation and necessary or
convenient for its use and lawful
purposes at a fair valuation equal
to the par or issued value of the
stock issued;
c) Labor performed for or services
actually rendered to the
corporation;
d) Previously incurred indebtedness
of the corporation;
e) Amounts transferred form
unrestricted retained earnings to
stated capital;
f) Outstanding shares exchanged
for stocks in the event of
reclassification or conversion;
g) Shares of stock in another
corporation; and/or
h) Other generally accepted form of
consideration
Where the consideration is other than actual
cash or consists of intangible property such as
patents or copyrights, the valuation thereof
shall initially be determined by the
stockholders or the board of directors,
subject to the approval of the Commission.
Shares of stock shall not be issued in
exchange for promissory notes or future
service. The same considerations provided in
this section, insofar as applicable, may be
used for the issuance of bonds by the
corporation.
The issued price or no-par value shares may
be fixed in the articles of incorporation or by
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the board of directors pursuant to authority
conferred by the articles of incorporation or
the bylaws, or if not so fixed, by the
stockholders representing at least a majority
of the outstanding capital stock at a meeting
duly called for the purpose.
 Payment to subscription to the capital
stock of a corporation may be in varied
forms.
 It may be one, or a combination of two
or more forms provided therein, so
long as they are capable of valuation,
fairly valued.
i. Shares of Stock and Classification
ü Sec. 13 (h) and 14 (7) requires a stock corporation to
provide for the number of shares into which the
authorized capital stock is divided and in case the
shares are with par value, 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.
ü Shares of stock – designate the units into which the
proprietary interest in a corporation is divided.
The interest or right which the
owner, called the stockholders or
shareholder, has in the
management of the corporation,
and in the surplus profits and, in
case of dissolution, in all of its
assets remaining after the
payment of its debts.
ü Certificate of stock or stock certificate – a document
or instrument evidencing the interest of a stockholder
in the corporation.
o Documentary evidence of the holders’
ownership of shares and a convenient
instrument for the transfer of shares.
ü Sec. 6 Classification of Shares –
o The classification of shares, their
corresponding rights privileges, or
restrictions, and their stated par value – must
be indicate din the AOI.
o NO share may be deprived of voting rights
EXCEPT those classified as “preferred” or
“redeemable” shares unless otherwise
provided.
o There shall always be a class or series of
shares with complete voting rights.
o Holders of nonvoting shares shall
nevertheless be entitled to vote on the
following matters:
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a) Amendment of the AOI;

b) Adoption and amendment of bylaws;
c) Sale, lease, exchange, mortgage,
pledge, or other disposition of all or
substantially all of the corporate
property;
d) Incurring, creating, or increasing
bonded indebtedness;
e) Increase or decrease authorized
capital stock;
f)Megers or consoled

Cagayan Fishing v. Sandiko

FACTS: Manuel Tabora is the registered owner of 4 parcels of
land. Tabora sold the land to the plaintiff company, said to be
under process of incorporation. A deed of sale was executed by
the terms of which the plaintiff sold and transferred to the
defendant all the rights, titles and interest over the land. He
eecuted a promissory note that he shall pay 25, 300 after a year
with interest. Unfortunately, Sandiko failed to pay, thus the
action for payment. The Court held the deed of sale was
invalid.

ISSUE: W/N Cagayan Fisihng has juridical capacity to enter into

a contract.

HELD: NO. The transfer made by Tabora to Cagayan Fishing was

only effected on May 31, 1930, and the actual incorporation of
it was effected on October 22, 1930. In other words, the
transfer was at most 5 months before the incorporation of the
company. Until organized, it does not possess the powers of
the corporation, one of which is entering into contracts.

Capital Stock vs Shares of Stock vs Certificate of Stock

Stock vs Shares
Stockholder vs Shareholder
Capital vs Stated Capital vs Legal Capital
working capital vs circulating capital
Voting vs. Non-voting shares
Cumulative v Non-cumulative preferred shares