Business Laws and Regulations

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TITLE I Philippines, Inc. v. Treasurer of the City of A corporation has no power except those
General Provisions Manila, G.R. No. 181277 (2013)] expressly conferred on it by the Revised
Corporation Code and by its articles of
Definition and Classification
A corporation, upon coming into incorporation, those which may be incidental to
existence, is invested by law with a personality such conferred powers, those that are implied
Section 2. Corporation Defined. - A separate and distinct from those persons from its existence, and those reasonably
corporation is an artificial being created by composing it as well as from any other legal necessary to accomplish its purposes. In turn, a
operation of law, having the right of entity to which it may be related. [Yutivo Sons corporation exercises said powers through its
succession and the powers, attributes, and Hardware v. CTA, G.R. No. L-13203 (1961)] BODs and/or its duly authorized officers and
properties expressly authorized by law or agents. [Monfort Hermanos Agricultural Dev.
incidental to its existence. b. Created by operation of law Corp. v. Monfort III, G.R. No. 152542 (2004)]
Mere consent of the parties to form a
Being a creature of the law, its powers
Definition of Corporation corporation is not sufficient. The State must give
are limited by:
its consent either through a special law (in case
A corporation is an artificial being
of government corporations) or a general law  The law (see Sec. 35 for general
created by operation of law, having the right of
(i.e., Revised Corporation Code in case of powers and Secs. 36 to 43 for
succession and the powers, attributes, and
private corporations). specific powers);
properties expressly authorized by law or
incidental to its existence. By the express terms of its AOI as
A corporation comes into existence upon 
the issuance of the certificate of well those essential or necessary to
Note: The definition of a corporation carry out its purpose or purposes
incorporation. Then, and only then, will it
contains its attributes. under such Articles (see Sec. 35,
acquire juridical personality to sue and be sued,
enter into contracts, hold or convey property or last par.); and
Attributes of a Corporation perform any legal act in its own name.
 By those necessary or incidental to
c. Has the right of succession
a. An artificial being its powers so conferred (see Sec.
Since one of the attributes of a 44).
A corporation is a juridical entity that corporation is that it is an artificial being with a
exists apart from its stockholders. It has its own distinct personality, the corporation’s existence Corporate Juridical Personality
set of rights and obligations as provided for by is unaffected by a change in the composition of
law. Technically, it has no physical existence stockholders. Its existence is limited only by the Corporate existence and juridical
although it occupies a principal place of personality commences from the date the SEC
Articles of Incorporation (AOI), may be subject
business. issues a certificate of incorporation under its
to Quo Warranto proceedings (Rule 66 of the
official seal. Persons desiring to incorporate
Rules of Court), and may be shortened by must submit to the SEC:
Being only a juridical entity, the dissolution (Title XIV).
physical acts of the corporation, like the signing
1. The intended corporate name for
of documents, can be performed only by natural
d. Has the powers, attributes and properties verification; and
persons duly authorized for such purpose by
corporate by-laws or by a special act of the expressly authorized by law or incidental to 2. The articles of incorporation and
Board of Directors (BODs). [Swedish Match its existence by-laws. [Sec. 18]
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Property Note: Since a corporation as a person is
Note: One person corporations are not required a mere legal fiction, it cannot be proceeded
Corporate property is owned by the
to submit and file by-laws. [Sec. 119] against criminally because it cannot commit a
corporation as a juridical person, and the
crime in which personal violence or malicious
stockholders have no claim on corporate
Doctrine of Separate Juridical Personality intent is required. Criminal action is limited to
property as owners. The latter only have a mere
the corporate agents guilty of an act
A corporation has a personality separate expectancy or inchoate right to the same upon
amounting to a crime and never against the
and distinct from that of its stockholders and dissolution of the corporation and after all
corporation itself.
members and is not affected by the personal corporate creditors have been paid. Such right is
rights, obligations, and transactions of the latter. limited only to their equity interest (doctrine of
limited liability). Recovery of Damages
General Rule: Due the corporation’s separate
A corporation, being an artificial person,
juridical personality, a stockholder may not be Although a stockholder’s interest in the
has no feelings, emotions nor senses; therefore,
made to answer for acts or liabilities of said corporation may be attached by his personal
it cannot experience physical suffering and
corporation, and vice-versa. [Land Bank of the creditor, corporate property cannot be used to
mental anguish, which are the grounds for the
Philippines v. CA, G.R. No. 127181 (2001)] satisfy his claim.
award of moral damages under Art. 2217 of
Civil Code. [Manila Electric Co. v. Nordec
Exceptions: The corporation’s separate juridical Corporations are entitled to due process
Philippines, 861 SCRA 515 (2018)]
personality cannot be invoked to escape liability and equal protection, but subject to the police
when: power of the state, insofar as their properties are
Nevertheless, a corporation can recover
concerned. They are also entitled to protection
moral damages under Art 2219(7), if it was the
1. This legal fiction is used for ends against unreasonable searches and seizures.
victim of defamation. [Filipinas Broadcasting
subversive to the policy and purpose They are not, however, entitled to the privilege
Network v. Ago Medical and Educational
intended by law (i.e. to defeat public against self-incrimination.
Center, G.R. No. 141994 (2005)]
convenience, justify wrong, protect
fraud, defend crime, confuse legitimate Liability for Tort and Crime
legal or judicial issues, used as a vehicle Doctrine of Piercing the Corporate Veil of
for the evasion of an existing obligation, Being an entity with a separate juridical
Corporate Fiction
perpetrate deception or otherwise personality, a corporation can be held liable for
circumvent the law). torts committed by its officers under express A corporation will be looked upon as a
direction from the stockholders or directors, legal entity as a general rule, but when the
2. The corporate entity is a mere alter ego, acting as a body. [PNB v. CA, G.R. No. L-27155, notion of legal entity is used to defeat public
adjunct, or business conduit for the sole (1978)] convenience, justify wrong, protect fraud or
benefit of the stockholders or of another defend crime, the law will regard the
corporate entity. The corporation is The corporation itself cannot be arrested corporation merely as an association of
merely a farce, as it is so organized and and imprisoned; thus, it cannot be penalized for persons.
controlled, and its affairs are so a crime punishable by imprisonment. However,
conducted, as to make it merely an a corporation may be charged and prosecuted for Piercing the veil of corporate entity is
instrumentality, agency, conduit or a crime if the imposable penalty is a fine. an equitable remedy developed to address
adjunct of another corporation. [Lanuza [Ching v. Secretary of Justice, G.R. No. 164317 situations where the separate corporate
v. BF Corporation, G.R. No. 174938 (2006)] personality of a corporation is abused or used for
(2014)] wrongful purposes. [PNB v. Ritratto Group,
G.R. No. 142616 (2001)]
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Note: Aside from this general guideline, no b. Such control must have been used by
hard and fast rule can be laid down to cover all the defendant to commit fraud or
Effect of Piercing the Corporate Veil
cases where the corporate entity theory cannot wrong, to perpetuate the violation of a
The corporation will be considered as a be availed of, and each case will have to be
statutory or other positive legal duty, or
mere association of persons. Thus, the liability considered on its merits.
will directly attach to the stockholders or to the dishonest and unjust act in
other officers of the corporation. [China contravention of plaintiffs’ legal rights;
Test in Determining Applicability and
Banking v. Dyne-Sem, G.R. No. 149237 (2006)]
For the juridical personality of a The doctrine has been applied in the following
corporation to be disregarded, the wrongdoing c. The aforesaid control and breach of
contexts:
must be clearly and convincingly established, duty must be the proximate cause of
and cannot be presumed. [Del Rosario v. NLRC, 1. When the liability belongs to the
the injury or unjust loss complained of.
G.R. No. 85416 (1990)] corporations but the plaintiff seeks to hold
the individual liable. Mere controlling interest
is not enough. There must be a clear showing Circumstances rendering a subsidiary an
Grounds for Application of the Doctrine
that the corporate fiction is used to defeat public instrumentality
The veil of separate corporate personality may convenience, justify wrong, protect fraud or
defend crime. a. the parent corporation owns all or most
be lifted/pierced: of the subsidiary’s capital stock;
1. When such personality is used to defeat b. the parent and subsidiary corporations
2. Where the liability is personal to
public convenience, to justify wrong, to the individual and he seeks to evade it by have common directors or officers;
protect fraud or defend crime, or as a hiding behind a corporate vehicle. The veil of c. the parent corporation finances the
shield to confuse the legitimate issues; corporate fiction must be pierced where the main subsidiary;
2. When the corporation is merely an purpose in forming the corporation was to evade d. the parent corporation subscribes to all
adjunct, a business conduit or an alter the incorporator’s subsidiary civil liability the capital stock of the subsidiary or
ego of another corporation; or resulting from the conviction of one of his otherwise causes its incorporation;
employees. [Palacio v. Fely Transportation,
3. Where the corporation is so organized e. the subsidiary has grossly inadequate
G.R. No. L-15121 (1962)]
and controlled and its affairs are so capital;
conducted as to make it merely an 3. The instrumentality or alter ego f. the parent corporation pays the salaries
instrumentality, agency, conduit or rule. The elements of this modality are: and other expenses or losses of the
adjunct of another corporation; or a. Control, not mere majority or complete subsidiary;
4. When the corporation is used as a cloak stock control, but complete domination, g. the subsidiary has substantially no
or cover for fraud or illegality, or to not only of finances but of policy and business except with the parent
work injustice, or business practice in respect to the corporation or no assets except those
5. Where necessary to achieve equity or for transaction attacked so that the conveyed to or by the parent
the protection of the creditors. [China corporate entity as to this transaction corporation;
Banking v. Dyne-Sem, G.R. No. 149237, had at the time no separate mind, will h. in the papers of the parent corporation or
(2006)] or existence of its own; in the statements of its officers, the
subsidiary is described as a department
or division of the parent corporation or
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its business or financial responsibility is Non-stock corporations – One where no
referred to as the parent corporation’s Section 5. Corporators and Incorporators, part of the income is distributable as dividends
own; Stockholders and Members. - Corporators are to its members, trustees, or officers, subject to
those who compose a corporation, whether as the provisions of the Code on dissolution. [Sec.
i. the parent corporation uses the property
stockholders or shareholders in a stock 86] It is not organized for profit.
of the subsidiary as its own; corporation or as a members in a non-stock
j. the directors or executives of the corporations. Incorporators are those
subsidiary do not act independently in Its governing body is usually the Board
stockholders or members mentioned in the
of Trustees (BoT). However, non-stock
the interest of the subsidiary but take articles of incorporation as originally forming
and composing the corporation and who are corporations may, through their Articles of
their orders from the parent corporation
signatories thereof. Incorporation or their by-laws, designate their
in the latter’s interest; and
governing boards by any name other than as
k. the formal ledger requirements of the Board of Trustees. [Sec. 174]
subsidiary are not observed. [PNB v. Classes of Corporations
Ritratto Group, G.R. No. 142616,
STOCK NON-STOCK
(2001)] A. Stock Corporation Have capital stock No part of income is
divided into shares distributable as
Stock corporations – corporations which
4. Successor corporation rule - where a [Sec. 3] dividends to its
have capital stock divided into shares AND are
corporation feigns dissolution or cessation but members or trustees
authorized to distribute to the holders of such [Sec. 86]
really continues in existence organized under
another name. The application of the rule figures shares dividends or allotments of the surplus Authorized to Any profit obtained
prominently in labor cases where the prior entity profits on the basis of shares held. [Sec. 3] It is distribute shares, as an incident to its
seeks to evade its obligations to its laborers. organized for profit. dividends or operations shall,
Section 3. Classes of Corporations. - allotments of surplus when necessary or
Corporations formed or organized under this The governing body of a stock profits to the holders proper, be used for
Code may be stock or non-stock corporations. corporation is usually the BOD (except in of such on the basis the furtherance of its
Stock corporations are those which have certain instances, e.g. one person corporations, of the shares held purpose or purposes
capital stock divided into shares and are close corporations). [Sec. 3] [Sec. 86]
authorized to distribute to the holders of such Composed of Composed of
Note: A corporation is deemed to have stockholders members
shares, dividends, or allotments of the surplus
the power to declare dividends. So long as the Organized for profit Not for profit [Sec.
profits on the basis of the shares held. All
87]
other corporations are non-stock corporation has capital stock and there is no
Maximum of 15 May be more than 15
corporations. prohibition in its Articles of Incorporation or in
directors except in BoTs [Sec. 91]
its by-laws for it to declare dividends, such merger or
Section 4. Corporations Create by Special corporation is a stock corporation. [Sec. 42] consolidation of
Laws or Charters. - Corporations created by banks [Sec. 13]
special laws or charters shall be governed Term of director is 1 Maximum term of a
B. Non-Stock Corporation
primarily by the provisions of the special law year [Sec. 22] trustee is 3 years
or charter creating them or applicable to All other corporations are non-stock [Sec. 91]
them, supplemented by the provisions of this corporations. [Sec. 3] May always vote by Vote by proxy can be
Code, insofar as they are applicable. proxy [Sec. 57] denied in the AOI or
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BL [Sec. 88] 1. Public Corporation - one formed or Notwithstanding the foregoing, a

organized for the government or a portion of the corporation shall not be deemed a close
state. Its purpose is for the general good and corporation when at least 2/3 of its voting stock
c. One Person Corporations (OPCs) welfare. [Sec. 3, Act 1456] or voting rights is owned or controlled by
another corporation which is not a close
A corporation with a single stockholder.
These corporations are treated by law as corporation. [Sec. 95]
Only a natural person, trust, or an estate may agencies or instrumentalities of the government
form a One Person Corporation. Banks and which are not subject to the tests of ownership Any corporation may be incorporated as
quasi-banks, pre-need, trust, insurance, public or control and economic viability but to
and publicly-listed companies, and non- a close incorporation, except:
different criteria relating to their public
chartered government-owned and controlled purposes/interests or constitutional policies 1. Mining or oil companies;
corporations may not incorporate as One Person and objectives and their administrative 2. Stock exchanges;
Corporations. relationship to the government or any of its 3. Banks;
Departments or Offices. [Boy Scouts of the 4. Insurance companies;
A natural person who is licensed to Philippines v. COA, G.R. No. 177131 (2011)]
5. Public utilities;
exercise a profession may not organize as a One
2. Private Corporation – One formed for some 6. Educational institutions; and
Person Corporation for the purpose of exercising
private purpose, benefit, aim or end [Sec. 3, Act 7. Corporations declared to be vested
such profession except as otherwise provided
1456]; it may be either stock or non-stock. with public interest. [Sec. 95]
under special laws. [Sec. 116]
4. Educational Corporation - One organized
The test to determine whether a
The single stockholder shall be the sole corporation is a GOCC or private corporation: if for educational purposes. [Sec. 105]
director and president of the One Person a corporation is created by its own charter for If organized as a non-stock corporation
Corporation. [Sec. 121] Within fifteen (15) days the exercise of a public function, then it is a
from the issuance of its certificate of GOCC; if by incorporation under the general Trustees of educational institutions
incorporation, the One Person Corporation shall corporation law, then it is a private corporation. organized as non-stock corporations shall not be
appoint a treasurer, corporate secretary, and [Baluyot v. Holganza, G.R. No. 136374 (2000)] less than five (5) nor more than fifteen (15).
Provided, however, that the number of trustees
other officers as it may deem necessary, and
shall be in multiples of five (5). They shall
notify the Commission thereof within five (5) 3. Close Corporation – One whose articles of classify themselves in such a way that the term
days from appointment. The single stockholder incorporation provide that: of 1/5 of them expires every year. [Sec. 106]
may not be appointed as the corporate secretary.
[Sec. 122] a. All issued stocks, exclusive of
If organized as a stock corporation
treasury shares, shall be held by
persons not exceeding twenty (20); For institutions organized as stock
Note: A One Person Corporation is not
b. All issued stocks shall be subject to corporations, the number and term of directors
required to submit and file corporate by-laws one or more specified restrictions on shall be governed by the provisions on stock
and shall not be required to have a minimum transfer; and corporations. [Sec. 106]
authorized capital stock except as otherwise c. The corporation shall not list in any
provided by special law. [Secs. 117 & 119] It stock exchange or make any public
shall indicate the letters "OPC" either below or 5. Religious Corporation
offering of any of its stock of any
at the end of its corporate name. [Sec. 120] class. (i) Corporation Sole – incorporated by
Other Corporations one person for the purpose of administering and

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managing as trustee, the affairs, property and 10. Subsidiary Corporation – One in which An association of persons cannot claim to be
temporalities of any religious denomination, control, in the form of ownership of majority of a corporation if it has not been issued a
sect, or church, by the chief archbishop, bishop, its shares, is in another corporation (the parent certificate of incorporation since that fact belies
priest, rabbi, or other presiding elder of such corporation). the claim of good faith compliance with the
religious denomination, sect or church. [Sec. requirements of the law. [Hall v. Piccio, G.R.
108] 11. Parent Corporation – Its control lies in its No. L-2598 (1950)]
power, directly or indirectly, to elect the
A corporation sole has no nationality but subsidiary’s directors thus, controlling its General Rule: The defect in the juridical
for the purpose of applying nationalization laws, management policies. personality of a corporation cannot be inquired
nationality is determined not by the nationality into by private individuals, much less used as a
of its presiding elder but by the nationality of its (i.) Holding company – a parent defense to avoid claims.
members constituting the sect in the Philippines. company which has no other business aside from
Thus, the Roman Catholic Church can acquire the holding of the shares of its subsidiaries, Exception: In quo warranto proceedings
lands in the Philippines even if it is headed by which it controls. brought on behalf of the State where the main
the Pope. [Roman Catholic Apostolic, etc v. action is to question the validity or existence of
Register of Deeds of Davao City, G.R. No. L- (ii.) Investment company – a company such juridical personality. [Sec. 19]
8451 (1957)] which holds shares in other corporations not for
the purpose of controlling them, but merely to
invest therein. 14. Corporation By Estoppel – Where a group
(ii) Religious Societies (Corporation of persons misrepresent themselves as a
Aggregate) – incorporated by more than one corporation, they are subsequently estopped
person. [Sec. 107] 12. Corporation De Jure – A corporation
organized in accordance with the requirements from claiming lack of corporate life in order to
of the law. If the Commission finds that the avoid liability. Also, a third party who had dealt
6. Eleemosynary Corporation - One organized submitted documents and information are fully with an unincorporated association as a
for a charitable purpose. complaint with the regulations of the RCC, other corporation is precluded from denying its
laws, rules and regulations, the Commission corporate existence on a suit brought by the
7. Domestic Corporation – One formed, shall issue the certificate of incorporation. [Sec. alleged corporation on the contract.
organized, or existing under the laws of the 18]
Philippines. Effects of Corporation by Estoppel
13. De facto Corporation – A corporation
8. Foreign Corporation – One formed, where there exists a flaw in its incorporation. As to liability
organized or existing under any laws other than All persons who assume to act as a
those of the Philippines and whose law allows Requisites: corporation knowing it to be without authority
Filipino citizens and corporations to do business to do so shall be liable as general partners
in its own country and state. [Sec. 140] 1. There is an apparently valid statute for all debts, liabilities and damages incurred
under which the corporation may be or arising as a result thereof. [Sec. 20]
9. Corporation Created by Special Laws or formed;
Charter - Corporations which are governed 2. There has been colorable compliance As to the defense of lack of corporate
primarily by the provisions of the special law or with the legal requirements in good personality
charter creating them. Corporation Code has faith; and
When such ostensible corporation is sued, it
only a suppletory application. [Sec. 4] 3. There has been user of corporate
shall not be allowed to use its lack of
powers, i.e. the transaction of business
corporate personality as a defense. [Sec. 20]
as if it were a corporation.

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As to third party (a) Amendment of the Articles of of stock may be issued only with a stated par
Anyone who assumes an obligation to an Incorporation; value. The board of directors, where
ostensible corporation as such cannot resist (b) Adoption and amendment of by-laws; authorized in the Articles of Incorporation,
performance thereof on the ground that there (c) Sale, lease, exchange, mortgage, may fix the terms and conditions of preferred
was in fact no corporation. [Sec. 20] pledge, or other disposition of all or shares of stock or any series
The doctrine of estoppel applies to a third substantially all of the corporate thereof: Provided, further, That such terms
party only when he tries to escape liability on property; and conditions shall be effective upon filing of
a contract from which he has benefited on the
(d) Incurring, creating, or increasing a certificate thereof with the Securities and
ground of defective incorporation. It does not
bonded indebtedness; Exchange Commission, hereinafter referred
apply to a third party who is not trying to
escape liability from the contract, but rather is (e) Increase or decrease of authorized to as the "Commission".
the one claiming from the contract. capital stock;
[International Express Travel v. CA, G.R. No. (f) Merger or consolidation of the Shares of capital stock issued without par
119002 (2000)] corporation with another corporation value shall be deemed fully paid and non-
or other corporations; assessable and the holder of such shares shall
(g) Investment of corporate funds in not be liable to the corporation or to its
another corporation or business in creditors in respect thereto: Provided, That
Section 6. Classification of Shares. - The
classification of shares, their corresponding accordance with this Code; and no-par value shares must be issued for a
(h) Dissolution of the corporation. consideration of at least Five pesos (₱5.00)
rights, privileges, restrictions, and their stated
par value, if any, must be indicated in the per share: Provided, further, That the entire
Except as provided in the immediately consideration received by the corporation for
articles of incorporations. Each share shall be
equal in all respects to every other share, preceding paragraph, the vote required under its no-par value shares shall be treated as
this Code to approve a particular corporate capital and shall not be available for
except as otherwise provided in the articles of
incorporation. Each share shall be equal in all act shall be deemed to refer only to stocks distribution as dividends.
with voting rights.
respects to every other share, except as
otherwise provided in the articles of A corporation may further classify its shares
The shares or series of shares may or may not for the purpose of ensuring compliance with
incorporation and in the certificate of stock.
have a par value: Provided, That banks, trust, constitutional or legal requirements.
insurance, and pre-need companies, public
The share stock corporations may be divided
into classes or series of shares, or both. No utilities, building and loan associations, and Nature of Shares of Stock
other corporations authorized to obtain or Shares of stock are units into which the
share may be deprived of voting rights except
those classified and issued as "preferred" or access funds from the public whether publicly capital stock is divided. A share of stock
listed or not, shall not be permitted to issue represents interest of the holder thereof to
"redeemable" shares, unless otherwise
provided in this Code: Provided, That there no-par value shares of stock. participate in the management of the
shall be a class or series of shares with corporation, to share proportionally in the profits
complete voting rights. Preferred shares of stock issued by a of the business and, upon liquidation, to obtain
corporation may be given preference in the an aliquot part of corporate assets after all
Holders of non-voting shares shall
nevertheless be entitled to vote on the distribution of dividends and in the corporate debts have been paid.
distribution of corporate assets in case of
following matters;
liquidation, or such other
preferences: Provided, That preferred shares Doctrine of Equality of Shares
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Each share shall be EQUAL in ALL 4. Such other preferences as may be share to the extent agreed upon before
respects to every other share, except as stated in the Articles of any dividends at all are paid to the
otherwise provided in the Articles of Incorporation which do not violate holders of common stock.
Incorporation and stated in the certificate of the Corporation Code. 2. Cumulative vs. Non-Cumulative
stock. [Sec. 6]
In the absence of any express stipulation,
Note: Preferred shares may be issued only with a
preferred stocks are deemed cumulative.
Classification of Shares stated par value. [Sec. 6]
Unless the right to vote is clearly
The shares in stock corporations may be a. Cumulative - regardless of lack of
withheld, a preferred stockholder would have
divided into classes or series of shares, or both. profits in any given year, and lack of
such right as it is an incident to stock ownership.
The rights, privileges, or restrictions, and the declaration of dividends, the arrears
The Board of Directors may fix the terms and
stated par value of the class or series of shares for such year have to be paid to the
conditions only when so authorized by the
must be indicated in the Articles of preferred stocks in a subsequent year
Articles of Incorporation and such terms and
Incorporation. [Sec. 6] (once profits are made) before any
conditions shall be effective upon filing a
dividends can be paid to the common
certificate thereof with the SEC. [Sec. 6]
General Rule: No share may be deprived of stocks.
voting rights. [Sec. 6]
B. Common shares b. Non-Cumulative – entitlement to
Exceptions: receipt of dividends essentially
A common stock represents the residual
 Preferred non-voting shares ownership interest in the corporation. It is a depends on declaration of such; types:
 Redeemable shares, basic class of stock ordinarily and usually issued (i) Discretionary – right to
 Provided by the Code (e.g. treasury without extraordinary rights or privileges and dividends in a particular year
shares) entitles the shareholder to a pro rata division of depends on the discretion of
profits.” [CIR v. CA, 301 SCRA 152 (1999)] the board, even if the
There shall always be a class/series of shares corporation has profits.
The owners thereof are entitled to management
which have COMPLETE VOTING RIGHTS.
(via exclusive right to vote) of the corporation (ii) Mandatory – a positive duty is
[Sec. 6] and to equal pro-rata division of profits.
imposed to declare preferred
Kinds of Preferred Shares dividends every year that
Preferred Shares vs. Common Shares
profits are earned.
A. Preferred Shares 1. Preferred Shares as to Assets vs. Preferred
Stocks which are given, by the issuing Shares as to Dividends (iii) Earned cumulative or dividend
corporation: credit – The Board has
a. Preferred shares as to assets –gives
1. Preference in dividends; discretion not to declare
the holder preference in the
2. Preference in the distribution of dividends, even if there were
distribution of the assets of the
assets of the corporation in case of profits in a certain year;
corporation in case of liquidation.
liquidation; however, once the board
3. Preference in both dividends and decides that dividends will be
b. Preferred shares as to dividends –
distribution; or declared, the preferred
entitled to receive dividends on said
stockholders have a right to
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arrears in dividends for the 1. Amendment of the Articles of 1. Cannot have an issue price of less than
years when there were profits Incorporation; P5.00 per share;
but no dividend was declared. 2. Adoption and amendment of by-laws; 2. Once issued, they shall be deemed fully
3. Sale, lease, exchange, other disposition paid and non-assessable, and the holders
3. Participating vs. Non-participating of all or substantially all of the of such shares shall not be liable to the
Unless otherwise provided, preferred stocks corporate property; corporation or to its creditors in respect
4. Incurring, creating or increasing thereto;
are non-participating. bonded indebtedness;
3. Entire consideration received by the
a. Participating - those which, after 5. Increase or decrease of capital stock;
corporation shall be treated as capital
getting their fixed dividend preference, 6. Merger and consolidation;
and shall not be available for
share with common stocks the 7. Investment of corporate funds in
another corporation or business; distribution as dividends;
remaining dividends.
8. Dissolution of the corporation. 4. The AOI must state the fact that the
corporation issues no-par shares and the
b. Non-participating - those which, after
getting their fixed dividend preference, number of shares;
Par Value Shares vs. No-Par Value Shares
have no more right to share in the 5. Cannot be issued as preferred stock; and
remaining dividends with the common 6. Cannot be issued by banks, insurance
A. Par value shares
stocks. companies, public utilities, building and
These are shares with a stated or fixed loan associations and by all
value set out in the Articles of Incorporation, corporations authorized to obtain or
Scope of Voting Rights Subject to which remains the same regardless of the
access funds from the public whether
Classification profitability of the corporation. This gives rise to
publicly listed or not.
financial stability, and is the reason why banks,
Only preferred and redeemable shares
trust corporations, insurance companies and
may be deprived of the right to vote, except as Note: A new addition in the Revised
building and loan associations must always be
otherwise provided in the Revised Corporation Corporation Code is the prohibition on the
organized with par value shares.
Code. [Sec. 6] issuance of no-par shares being imposed on all
corporations authorized to obtain or access funds
Par value is minimum issue price of
General Rule: Non-voting shares are not from the “public.” This prohibition is not
such share in the Articles of Incorporation which
entitled to vote. The law only authorizes the anymore limited to banks, insurance companies,
must be stated in the certificate. [Sec 61]
denial of voting rights in the case of redeemable public utilities, building and loan associations.
shares and preferred shares, provided that there
shall always be a class or series of shares which B. No par value shares
Section 7. Founders' Shares. - Founders'
have complete voting rights. [Sec. 6] These are shares without a stated value shares may be given certain rights and
in the AOI. They are without nominal value. privileges not enjoyed by the owners of other
Exception: These redeemable and preferred They may be issued for the amount stipulated in stock. Where the exclusive right to vote and
shares, when such voting rights are denied, shall the AOI, or fixed by the Board. [Sec 61] be voted for in the election of directors is
nevertheless be entitled to vote on the following granted, it must be for a limited period not to
fundamental matters: exceed five (5) years from the date of
Limitations on no par value shares [Sec. 6]
incorporation: Provided, That such exclusive
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right shall not be allowed if its exercise will 6. Redemption cannot be made if such
violate Commonwealth Act No. 108, otherwise Redeemable Shares redemption will result in insolvency or
known as the "Anti-Dummy Law"; Republic inability of the corporation to meet its
Act No. 7042, otherwise known as the These are shares which may be
obligations. [SEC Opinion, 24 Aug 1987]
"Foreign Investments Act of 1991"; and purchased by the corporation from the
Kinds of redeemable shares
otherwise known as "Foreign Investments Act holders thereof upon the expiration of a fixed
of 1991"; and other pertinent laws. period, regardless of the existence of 1. Compulsory - the corporation is required
unrestricted retained earnings in the books of the to redeem the shares.
corporation. The RCC made the redemption
Founders’ Shares subject to the rules and regulations that may be 2. Optional - the corporation is not
These are shares classified as such in the issued by SEC, in addition to what may be mandated to redeem the shares.
AOI, which are given certain rights and stipulated in the AOI and Certificate of Stock.
privileges not enjoyed by the owners of other [Sec. 8] Section 9. Treasury Shares. - Treasury shares
stocks. These may be given special preference in are shares of stock which have been issued
voting rights and dividend payments. Founder’s and fully paid for, but subsequently
shares which are given the exclusive right to reacquired by the issuing corporation
vote and be voted for are not allowed to exercise Limitations on Redeemable Shares through purchase, redemption, donation, or
that right in violation of the Anti-Dummy Law 1. Redeemable shares may be issued only some other lawful means. Such shares may
and the Foreign Investment Act. when expressly provided for in the AOI. again be disposed of for a reasonable price
[Sec. 8] fixed by the Board of Directors.
Where the exclusive right to vote and be
voted for in the election of directors is granted, 2. The terms and conditions affecting said Treasury Shares
such right must be for a limited period not to shares must be stated both in the AOI and
exceed 5 years from the date of incorporation. These are shares which have been issued
in the certificate of stock. [Sec. 8]
[Sec. 7] and fully paid for, but subsequently reacquired
3. Redeemable shares may be deprived of by the issuing corporation by purchase,
voting rights in the AOI. [Sec. 6] redemption, donation or through some other
Section 8. Redeemable Shares. - Redeemable 4. The redeemable shares are deemed lawful means. Such shares may again be
shares may be issued by the corporation when retired upon redemption, unless otherwise disposed of for a reasonable price fixed by the
expressly provided in the Articles of provided in the AOI (i.e., if the AOI BODs. [Sec. 9]
Incorporation. They are shares which may be allows for reissuance of such shares).
purchased by the corporation from the [SEC Rules Governing Redeemable and Shares may be reacquired without
holders of such shares upon the expiration of
Treasury Shares, 26 April 1982] impairing the corporate trust fund. Reacquisition
a fixed period, regardless of the existence of
5. Unrestricted retained earnings are NOT of shares is allowed, provided the corporation
unrestricted retained earnings in the books of
necessary before shares can be redeemed, will use assets up to the extent of its unrestricted
the corporation, and upon such other terms
but there must be sufficient assets to pay retained earnings. [SEC Rules Governing
and conditions stated in the Articles of
the creditors and to answer for the Redeemable and Treasury Shares, Sec 3, par (1)
Incorporation and the certificate of stock
corporate operations. [Republic Planters (a)]
representing the shares, subject to rules and
regulations issued by the Commission. Banks v. Agana, G.R. No. 51765 (1997)]

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It should be recalled that corporate
earnings are not part of the corporate trust fund. Treasury shares distributed by way of
They are excluded from the definition of
outstanding capital stock. Delinquent stocks, dividends
which are stocks that have not been fully paid, Treasury shares may also be distributed
may become treasury stocks upon bid of the as property dividends. In order for treasury
corporation in absence of other bidders. [Sec.67] shares to be distributed as property dividends,
the amount of the retained earnings previously
Limitations on Treasury Shares used to support their acquisition must not have
been impaired by losses. [SEC Opinion No. 12-
1. They may be re-issued or sold again as 06, dated April 20, 2012]
long as it is for a reasonable price fixed
by the BODs. Note: Treasury shares are treated as
2. Cannot participate in the distribution of assets of the corporation. Since a treasury share
dividends. is a fully-paid share reacquired by the
3. It has no voting right as long as such corporation, it is not outstanding and may be re-
shares remain in the Treasury. [Sec. 56] issued and resold. It cannot receive dividends
4. It cannot be represented during before the resale, because the corporation cannot
stockholder’s meetings. grant dividends to itself.
5. The amount of URE equivalent to the
cost of treasury shares being held shall  END 
be restricted from being declared and
issued as dividends.

Treasury Shares are not retired shares

Treasury shares do not revert to the
unissued shares of the corporation, but are
regarded as property acquired by the
corporation, which may be reissued or resold at
a price to be fixed by the BODs. [SEC Rules
Governing Redeemable and Treasury Shares]

Note: Under the SEC Rules, the

redemption of redeemable shares does not
necessarily make them as treasury shares.
Instead, it leads to their automatic retirement or
cancellation, unless the contrary is specifically
stipulated.
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A. Number: Not more than fifteen (15) Note: The RCC removed the Philippine
residency requirement for the majority of the
 The Revised Corporation Code
incorporators.
removed the prescribed minimum
number of incorporators. Previously,
the incorporators must be not less than Section 11. Corporate Term. - A corporation
five (5) except for special shall have perpetual existence unless its
corporations. articles of incorporation provides otherwise.
Corporations with certificates of
 A corporation with a single stockholder incorporation issued prior to the effectivity of
is considered a One Person Corporation. this Code, and which continue to exist, shall
TITLE II have perpetual existence, unless the
INCORPORATION AND ORGANIZATION B. Qualifications corporation, upon a vote of its stockholders
OF PRIVATE CORPORATIONS representing a majority of its outstanding
1. Any person, natural or juridical, may capital stock, notifies the Commission that it
organize a corporation. elects to retain its specific corporate term
Section 10. Number and Qualifications of
Incorporators. - Any person, partnership, pursuant to its articles of
association or corporation, singly or jointly incorporation: Provided, That any change in
 Juridical entities (partnership,
with others but not more than fifteen (15) in the corporate term under this section is
association or corporation, singly or
number, may organize a corporation for any without prejudice to the appraisal right of
jointly with others) are now permitted
lawful purpose or purposes: Provided, That dissenting stockholders in accordance with
to be incorporators, and not merely
natural persons who are licensed to practice a the provisions of this Code.
initial subscribers under the Old Code.
profession, and partnerships or associations A corporate term for a specific period may be
organized for the purpose of practicing a extended or shortened by amending the
profession, shall not be allowed to organize as articles of incorporation: Provided, That no
a corporation unless otherwise provided  The following are NOT allowed to extension may be made earlier than three (3)
under special laws. Incorporators who are organize as a corporation, except as years prior to the original or subsequent
natural persons must be of legal age. provided under special laws: expiry date(s) unless there are justifiable
a. Natural persons who are licensed reasons for an earlier extension as may be
Each incorporator of a stock corporation to practice a profession;
determined by the Commission: Provided,
must own or be a subscriber to at least one (1) b. Partnerships or associations
further, That such extension of the corporate
share of the capital stock. organized for the purpose of
term shall take effect only on the day
practicing a profession.
following the original or subsequent expiry
A corporation with a single stockholder is date(s).
considered a One Person Corporation as 2. Incorporators must be of legal age; and
described in Title XIII, Chapter III of this A corporation whose term has expired may
Code. 3. Each incorporator must subscribe to at apply for revival of its corporate existence,
least one share of the capital stock. together with all the rights and privileges
under its certificate of incorporation and
Number and Qualification of Incorporators
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subject to all of its duties, debts and liabilities capital stock, without prejudice to the appraisal Revival of Corporate Existence
existing prior to its revival. Upon approval by right of dissenting stockholders.
Corporations with an expired term upon
the Commission, the corporation shall be the effectivity of the RCC may apply with the
deemed revived and a certificate of revival of Outstanding capital stock is the total
SEC for revival of its corporate existence. Upon
corporate existence shall be issued, giving it shares of stock issued under binding subscription
approval by the SEC, it will then issue a
perpetual existence, unless its application for contracts to subscribers or stockholders, whether
certificate of revival giving the corporation a
fully or partially paid, except treasury shares.
revival provides otherwise. perpetual existence, with all its rights and
[Sec. 173]
privileges, and subject to all its duties, debts and
No application for revival of certificate of liabilities prior to revival, unless it requests for a
incorporation of banks, banking and quasi- Appraisal right is the right of a
limited term. [Sec. 11]
banking institutions, pre-need, insurance and stockholder of a corporation to dissent and
trust companies, non-stock savings and loan demand payment of the fair value of his shares
This benefit does not extend to
in certain instances provided by law. [Sec. 81]
associations (NSSLAs), pawnshops, corporations whose dissolution was decreed by
corporations engaged in money service the SEC or the courts.
business, and other financial intermediaries Summary of changes under the RCC
Extending or shortening the corporate term
shall be approved by the Commission unless
accompanied by a favorable recommendation General Rule: If a corporation wishes to extend For newly GR: Automatic perpetual
of the appropriate government agency. its corporate term, it may amend its AOI at least established term
3 years prior to the expiration of its term. [Sec. corporations XPN: AOI provides a
11] Previously, such change should be made at specific corporate term
Corporate Term least 5 years prior to the expiration.

General Rule: The Revised Corporation Code For existing GR: AOI shall be deemed
Exception: When there exists justifiable reasons corporations amended to reflect a
provides that a corporation shall have perpetual for an earlier extension, as may be determined
existence. Thus, it is presumed that shareholders, perpetual term.
by the SEC. XPN: The corporation elects
when they incorporated, assented to the
perpetual character of their contract. to retain their existing term;
Requisites: A private corporation may extend or Requires majority vote of
shorten its term as stated in the articles of shareholders/members and
The AOIs of existing corporations shall incorporation when:
be deemed amended to reflect their perpetual notice to SEC.
term. 1. Approved by a majority vote of the board
of directors or trustees; and
Exception: When the AOIs of corporations For GR: May apply with the
2. Ratified at a meeting by the stockholders corporations SEC for the revival of the
created under the effectivity of this Code
or members representing at least two- with expired corporation. Upon approval,
provide for a specific period. [Sec 11]
thirds (2/3) of the outstanding capital terms they will have a perpetual
stock. term.
A corporation already existing upon the
effectivity of the RCC may elect to retain its XPN: Their application
Note: In case of extension of corporate term, a indicates a fixed term.
specific corporate term pursuant to its articles of
dissenting stockholder may exercise the right of
incorporation by notifying the Commission and
appraisal. [Sec. 36]
obtaining the vote of its stockholders
representing majority of the outstanding For GR: May file an application
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corporations for extension of such term at Nature of Subscription Contracts indicate the primary purpose and the
with a least 3 years prior to the secondary purpose or
A subscription contract is indivisible.
limited term expiration of the term purposes: Provided, That a non-stock
Consequently, where stocks were subscribed and
XPN: There are justifiable corporation may not include a
part of the subscription contract price was not
reasons for an earlier purpose which would change or
paid, the whole subscription shall be considered
extension as determined by contradict its nature as such;
delinquent and not only the shares which
the SEC.
correspond to the amount not paid.
Nevertheless, holders of subscribed shares not (c) The place where the principal office
fully paid and which are not yet delinquent, shall of the corporation is to be located,
Section 12. Minimum Capital Stock Not have all the rights of a stockholder. [Sec. 71] which must be within the
Required of Stock Corporations. - Stock Philippines;
corporations shall not be required to have
(d) The term for which the corporation
minimum capital stock, except as otherwise Interest on Unpaid Subscription is to exist, if the corporation has not
specially provided by special law.
General Rule: A stockholder is NOT liable to elected perpetual existence;
pay interest on his unpaid subscription. He is not
No minimum capital requirement considered a corporate debtor for the unpaid (e) The names, nationalities, and
amount of his subscription. residence addresses of the
Under the Old Corporation Code, at incorporators;
least 25% of the authorized capital stock as Exception: If expressly stipulated in the
stated in the AOI must be subscribed at the time (f) The number of directors, which shall
subscription contract. [Sec 65]
of incorporation, and at least 25% of the total not be more than fifteen (15) or the
subscription must be paid upon subscription. number of trustees which may be
[Sec 13, CC] more than fifteen (15);
Section 13. Contents of the Articles of
Incorporation. - All corporations shall file
Section 13 has been removed in the
with the Commission articles of incorporation (g) The names, nationalities, and
Revised Corporation Code, thus removing such
minimum capital requirements. However, the in any of the official languages, duly signed residence addresses of persons who
increase in capital stock remains subject to the and acknowledged or authenticated, in such shall act as directors or trustees until
25% subscription and 25% payment of form and manner as may be allowed by the the first regular directors or trustees
subscription rule. [Sec. 37] Commission, containing substantially the are duly elected and qualified in
following matters, except as otherwise accordance with this Code;
Subscription Agreements prescribed by this Code or by special law:
(h) If it be a stock corporation, the
Any contract for the acquisition of (a) The name of corporation; amount of its authorized capital
unissued stock in an existing corporation or a stock, number of shares into which it
corporation still to be formed shall be deemed a (b) The specific purpose or purposes for is divided, the par value of each,
subscription contract. This is notwithstanding names, nationalities, and subscribers,
which the corporation is being
the fact that the parties may refer to it as a amount subscribed and paid by each
formed. Where a corporation has
purchase or some other contract. [Sec. 59] on the subscription, and a statement
more than one stated purpose, the
articles of incorporation shall
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that some or all of the shares are (a) The corporate Name; minimum of two (2) directors, since
without par value, if applicable; only OPCs can have one (1) director.
(b) The specific purpose or purposes for
(i) If it be a non-stock corporation, the which the corporation is being formed; (g) The names, nationalities, and residence
amount of its capital, the names, addresses of persons who shall act as
nationalities, and residence addresses  Where a corporation has more than one
directors or trustees until the first
of the contributors, and amount stated purpose, the articles of
regular directors or trustees are duly
contributed by each; and incorporation shall indicate the
elected and qualified in accordance with
primary purpose and the secondary
(j) Such other matters consistent with this Code;
purpose or purposes;
law and which the incorporators may
deem necessary and convenient.  Treasurer who has been chosen by the
 A non-stock corporation may not
Articles of Incorporation (AOI) pre-incorporation subscribers or members
include a purpose which would change
to receive, on behalf of the corporation, all
The AOI is a basic contract document, or contradict its nature as such.
defining the charter of the corporation, and subscriptions /contributions paid by them.
serves as the basis by which to judge whether it [SEC Memorandum Circular No. 26, s.
 Corporation may not be formed for the
exists for legal purposes. 2019]
purpose of practicing a profession like
The charter of the corporation is a law, medicine or accountancy.
(h) For stock corporations:
contract between 3 parties:
1. The authorized capital stock,
a. Between the State and the (c) The principal place of the business of 2. Number of shares into which it
corporation; the corporation which must be within is divided,
the Philippines; 3. The par value of each share,
b. Between the stockholders and the
4. Names, nationalities, and
State; residence addresses of the
c. Between the corporation and its (d) The corporate term, if the corporation
original subscribers,
stockholders; has not elected perpetual existence; 5. Amount subscribed and paid by
d. Among the stockholders themselves. each on the subscription, and
(e) The names, nationalities, and residence 6. A statement that some or all of
The AOI must be filed with the SEC for addresses of the incorporators; the shares are without par value,
the issuance of the Certificate of Incorporation. if applicable;
The AOI and its amendments can be filed (f) The number of directors, which shall
electronically in accordance with the (i) For non-stock corporations:
not be more than fifteen (15), or the
Commission's rule and regulations on electronic number of trustees which may be more
filing. [Sec. 13] 1. Amount of its capital,
than fifteen (15); 2. The names, nationalities, and
3. Residence addresses of the
Contents of AOI  The minimum number of contributors, and
directors/trustees has been repealed. 4. Amount contributed by each.
The Articles of Incorporation must contain: Ordinary corporations can have a
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(j) Such other matters consistent with law filing for a cause not attributable to the (a) Requirements imposed by the Code or by
and which the incorporators may deem corporation. special laws;
necessary and convenient, like
arbitration agreements and transfer (b) Must be for a legitimate purpose;
Amendment of Articles of Incorporation
restrictions.
(c) Must be approved by the directors/trustees
The following items are amendable
and the stockholders/members through the
under Sec. 15: vote requirement;
Section 15. Amendment of Articles of
Incorporation. - Unless otherwise prescribed 1. Change of name of the corporation or
(d) Appraisal Right (in specified cases);
by this Code or by special law, and for
adding business name;
legitimate purposes, any provision or matter
(e) Both the original and the amended articles
stated in the articles of incorporation may be 2. Adding to or changing the purpose/s;
together must contain all the provisions
amended by a majority vote of the board of
3. Change of principal office; required by law to be set out in the AOI;
directors or trustees and the vote or written
assent of the stockholders representing at 4. Change in the number of directors or
least two-thirds (2/3) of the outstanding (f) If the corporation is governed by a special
trustees;
capital stock, without prejudice to the law, the amended articles must be
appraisal right of dissenting stockholders in 5. Increase or decrease in authorized accompanied by a favorable
accordance with the provisions of this Code. recommendation of the appropriate
capital stock [subject to Sec. 37]; re-
The articles of incorporation of a non-stock government agency to the effect that such
corporation may be amended by the vote or classifying shares in the authorized amendment is in accordance with law.
written assent of majority of the trustees and
capital stock;
at least two-thirds (2/3) of the members. (g) Will take effect only:
6. Adding or revising transfer
The original and amended articles together i. Upon their approval by the SEC
restrictions.
shall contain all provisions required by law to through the issuance of a certificate of
be set out in the articles of incorporation. the amended AOI; OR
Amendments to the articles shall be indicated
Requisites for amendment
by underscoring the change or changes made, ii. From the date of filing with the SEC if
and a copy thereof duly certified under oath a. Majority vote of the BODs or BOTs; and not acted upon within 6 months from
by the corporate secretary and a majority of the date of filing for a cause not
b.The vote or written assent of
the directors or trustees, with a statement attributable to the corporation.
that the amendments have been duly i. 2/3 of the outstanding capital stock,
approved by the required vote of the without prejudice to the appraisal right
stockholders or members, shall be submitted of dissenting stockholders in accordance Section 16. Grounds When Articles of
to the Commission. with the provisions of the RCC, in case Incorporation or Amendment May be
of stock corporations; Disapproved. The Commission may
The amendments shall take effect upon their ii. 2/3 of the members if it be a non-stock disapprove the articles of incorporation or
approval by the Commission or from the date corporation, unless the AOI provides for any amendment thereto if the same is not
of filing with the said Commission if not acted higher voting requirements. compliant with the requirements of this
upon within six (6) months from the date of Code: Provided, That the Commission shall
Limitations on amendments give the incorporators, directors, trustees, or
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officers a reasonable time from receipt of the in accordance with the form prescribed
disapproval within which to modify the under the RCC; a. The word "corporation", "company",
objectionable portions of the articles or incorporated", "limited", "limited
amendment. The following are ground for (b) The purpose/s of the corporation are liability", or an abbreviation ofone if
such disapproval: patently unconstitutional, illegal, such words; and
immoral or contrary to government rules
(a) The articles of incorporation or any and regulations; b. Punctuations, articles, conjunctions,
amendment thereto is not contractions, prepositions,
substantially in accordance with the (c) The certification concerning the amount abbreviations, different tenses,
form prescribed herein; of capital stock subscribed and/or paid is spacing, or number of the same word
false; and or phrase.
(b) The purpose or purposes of the
corporation are patently (d) The required percentage of Filipino The Commission upon determination that the
unconstitutional, illegal, immoral or ownership of the capital stock under corporate name is: (1) not distinguishable
contrary to government rules and existing laws or the Constitution has not from a name already reserved or registered
regulations; been complied with. for the use of another corporation; (2) already
protected by law; or (3) contrary to law, rules
(c) The certification concerning the and regulations, may summarily order the
Note: The Commission shall give the
amount of capital stock subscribed corporation to immediately cease and desist
corporation a reasonable time from receipt of the
and/or paid is false; and from using such name and require the
disapproval within which to modify the
corporation to register a new one. The
objectionable portions of the articles or
(d) The required percentage of Filipino Commission shall also cause the removal of
amendment.
ownership of the capital stock under all visible signages, marks, advertisements,
existing laws or the Constitution has labels prints and other effects bearing such
The AOI or any amendments thereto of
not been complied with. corporate name. Upon the approval of the
banks, banking and quasi-banking institutions,
new corporate name, the Commission shall
preneed, insurance and trust companies,
No articles of incorporation or amendment to issue a certificate of incorporation under the
NSSLAs, pawnshops and other financial
articles of incorporation of banks, banking amended name.
intermediaries shall be approved by the
and quasi-banking institutions, preneed,
Commission only if accompanied by a favorable
insurance and trust companies, NSSLAs, If the corporation fails to comply with the
recommendation of the appropriate government
pawnshops and other financial intermediaries Commission's order, the Commission may
agency to the effect that such articles or
shall be approved by the Commission unless hold the corporation and its responsible
amendment is in accordance with law.
accompanied by a favorable recommendation directors or officers in contempt and/or hold
of the appropriate government agency to the them administratively, civilly and/or
effect that such articles or amendment is in Section 17. Corporate Name. - No corporate criminally liable under this Code and other
accordance with law. name shall be allowed by the Commission if it applicable laws and/or revoke the registration
is not distinguishable from that already of the corporation.
reserved or registered for the use if another
Grounds when articles of incorporation or
corporation, or if such name is already
amendment may be disapproved Criteria for allowable corporate names
protected by law, rules and regulations.
(a) The articles of incorporation or any A name is not distinguishable even if it Under present law, no corporate name
amendment thereto is not substantially contains one or more of the following: shall be allowed by the Commission if it is:
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a. Not distinguishable from that already verification. If the Commission finds that the the Solicitor General in a quo
reserved or registered for the use of name is distinguishable from a name already warranto proceeding.
another corporation, or reserved or registered for the use of another
b. Already protected by law, or corporation, not protected by law and is not (See discussion in Module 6)
c. Used contrary to existing law, rules contrary to law, rules and regulation, the
and regulations. [Sec. 17] name shall be reserved in favor of the
incorporators. The incorporators shall then Section 20. Corporation by Estoppel. - All
submit their articles of incorporation and by- persons who assume to act as a corporation
laws to the Commission. knowing it to be without the authority to do
so shall be liable as general partners for all
If the SEC determines that a If the Commission finds that the submitted debts, liabilities and damages incurred or
corporation’s name is not allowed, it may: documents and information are fully arising as a result thereof: Provided,
compliant with the requirements of this Code, however, That when any such ostensible
a. Summarily order the corporation to other relevant laws, rules and regulations, the corporation is sued on any transaction
immediately cease and desist from using a Commission shall issue the certificate of entered by its as a corporation or on any tort
non-distinguishable name and require it to incorporation. committed by it as such, it shall not be
register a new one; allowed to use on any its lack of corporate
A private corporation organized under this personality as a defense. Anyone who assumes
b. Cause the removal of all visible signages, Code commences its corporate existence and an obligation to an ostensible corporation as
marks, advertisements, labels, prints and juridical personality from the date the such cannot resist performance thereof on the
other effects bearing such corporate name. Commission issues the certificate of ground that there was in fact no corporation.
[Sec. 17] incorporation under its official seal thereupon
the incorporators, stockholders/members and (See discussion in Module 6)
SEC Memorandum Circular No. 13 s. 2019 their successors shall constitute a body
corporate under the name stated in the Section 21. Effects of Non-Use of Corporate
a. The corporate name shall contain the Charter and Continous Inoperation. - If a
articles of incorporation for the period of
word "Corporation" or "Incorporated," corporation does not formally organize and
time mentioned therein, unless said period is
or the abbreviations "Corp." or "Inc." commence its business within five (5) year
extended or the corporation is sooner
respectively; from the date of its incorporation, its
dissolved in accordance with law.
certificate of incorporation shall be deemed
b. In the case of a One Person revoked as of the day following the end of the
(See discussion in Module 6)
Corporation, the corporate name shall five (5)-year period.
contain the word "OPC" either below or
at the end of its corporate name. Section 19. De facto Corporations. - The due
incorporation of any corporation claiming in However, if a corporation has commence its
good faith to be a corporation under this business but subsequently becomes
Section 18. Registration, Incorporation and Code, and its right to exercise corporate inoperative for a period of at least five (5)
Commencement of Corporation Existence. - A powers, shall not be required into collaterally consecutive years, the Commission may, after
person or group of persons desiring to in any private suit to which such corporation due notice and hearing, place the corporation
incorporate shall submit the intended may be a party. Such inquiry may be made by under delinquent status.
corporate name to the Commission for
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A delinquent corporation shall have a period trustee who ceases to be a member of the
of two (2) years to resume operations and corporation shall cease to be such.
 Upon the compliance by the corporation,
comply with all requirements that the
the Commission shall issue an order lifting The board of the following corporations vested
Commission shall prescribed. Upon the
the delinquent status. Failure to comply with public interest shall have independent
compliance by the corporation, the
with the requirements and resume directors constituting at least twenty percent
Commission shall issue an order lifting the (20%) of such board:
operations within the period given by the
delinquent status. Failure to comply with the
Commission shall cause the revocation of
requirements and resume operations within (a) Corporations covered by Section 17.2 of
the corporation's certificate of
the period given by the Commission shall Republic Act No. 8799, otherwise
incorporation.
cause the revocation of the corporation's known as "The Securities Regulation
certificate of incorporation. Code", namely those whose securities
The Commission shall give reasonable notice  The Commission shall give reasonable are registered with the Commission,
corporations listed with an exchange or
to, and coordinate with the appropriate notice to, and coordinate with the
with assets of at least Fifty million pesos
regulatory agency prior to the suspension or appropriate regulatory agency prior to the (50,000,000.00) and having two hundred
revocation of the certificate of incorporation suspension or revocation of the certificate (200) or more holders of shares, each
of companies under their special regulatory of incorporation of companies under their holding at least one hundred (100)
jurisdiction. special regulatory jurisdiction. shares of a class of its equity shares;

 END  (b) Banks and quasi-banks, NSSLAs,

Effects of non-use of corporate charter and pawnshops, corporations engaged in
continous inoperation money service business, pre-need, trust
and insurance companies and other
 If a corporation does not formally organize financial intermediaries; and
TITLE III
and commence its business within five (5) BOARD OF DIRECTORS/TRUSTEE AND
year from the date of its incorporation, its (c) Other corporations engaged in
OFFICERS
certificate of incorporation shall be businesses vested with public interest
similar to the above, as may be
deemed revoked as of the day following
Section 22. The Board of Directors or Trustees of a determined by the Commission, after
the end of the five (5)-year period.
Corporation; Qualification and Term. - Unless taking into account relevant factors
otherwise provided in this Code, the Board of which are germane to the objective and
 If a corporation has commence its purpose of requiring the election of an
Directors or Trustees shall exercise the corporate
business but subsequently becomes powers, conduct all business, and control all independent director, such as the extent
inoperative for a period of at least five (5) properties of the corporation. of minority ownership, type of financial
consecutive years, the Commission may, products or securities issued or offered
after due notice and hearing, place the Directors shall be elected for a term of one (1) year to investors, public interest involved in
corporation under delinquent status. from among the holders of stocks registered in the the nature of business operations, and
corporation's book while trustees shall be elected other analogous factors.
for a term not exceeding three (3) years from
 A delinquent corporation shall have two among the members of the corporation. Each An independent director is a person who, apart
(2) years to resume operations and comply director and trustee shall hold office until the from shareholdings and fees received from the
with all requirements as prescribed by the successor is elected and qualified. A director who corporation, is independent of management and
free from any business or other relationship which
SEC. ceases to own at least one (1) share of stock or a
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could, or could reasonably be perceived to The power to purchase real property is vested in the  Directors – Term of 1 year from among the
materially interfere with the exercise of BOD or trustees. While a corporation may appoint holders of stocks registered in the
independent judgment in carrying out the agents to negotiate for the purchase of real property corporation’s books. [Sec. 22]
responsibilities as a director. needed by the corporation, the final say will have to
be with the board, whose approval will finalize the  Trustees – Term not exceeding 3 years
Independent directors must be elected by the transaction. [Spouses Firme v. Bukal Enterprises and from among the members of the corporation.
Devt. Corp., G.R. No. 146608 (2003)] [Sec. 22]
shareholders present or entitled to vote in
absentia during the election of directors.
Indisputably, one of the rights of a stockholder is the
Independent directors shall be subject to rules and right to participate in the control or management of Holdover Principle
regulations governing their qualifications, the corporation. This is exercised through his vote in
disqualifications, voting requirements, duration of Each director and trustee shall hold office until the
the election of directors because it is the BOD that successor is elected and qualified. [Sec. 22]
term and term limit, maximum number of board controls or manages the corporation. [Gamboa v.
membership and other requirements that the Teves, G.R. No. 176579 (2011)] Upon failure of a quorum at any meeting of the
Commission will prescribe to strengthen their stockholders or members called for an election, the
independence and align with international best directorate naturally holds over and continues to
Limitations on the powers of the BOD/BOT
practices. function until another directorate is chosen and
(1) Limitations imposed by the Constitution, qualified.
Repository of Corporate Powers statutes, articles of incorporation or by-laws;
The failure to elect does not terminate the terms of
Doctrine of Centralized Management incumbent officers nor dissolve the corporation.
(2) Certain acts of the corporation that require Qualifications
General Rule: Unless otherwise provided in this joint action of the stockholders and BOD:
Code, the Board of Directors or Trustees shall a. Director: Must own at least one (1) share of
a. Removal of director [Sec. 27]
exercise the corporate powers, conduct all business, stock.
b. Amendments of Articles of Incorporation
and control all properties of the corporation. [Sec. [Sec. 15]
22] Trustee: Must be a member of the
c. Fundamental changes [Sec. 37]
corporation.
d. Declaration of stock dividends [Sec. 42]
It is well-established in corporation law that the e. Entering into management contracts [Sec.
corporation can act only through its Board of Note: In order to be eligible as a
43]
Directors or Board of Trustees. director, what is material is the legal title
f. Fixing of consideration of no-par shares
to, not beneficial ownership of, the stock
[Sec. 61]
as appearing on the books of the
Exceptions: g. Fixing of compensation of directors [Sec.
corporation. [Lee v. CA, G.R. No. 93695
29]
1. In case of an Executive Committee duly (1992)]
authorized in the by-laws; (3) Cannot exercise powers not possessed by the
b. Must be a natural person, of legal age,
corporation.
2. In case of a contracted manager which may possess full legal capacity;
be an individual, a partnership, or another Note: Under Sec. 22 of the RCC, the power and the
corporation; c. Must not be convicted by final judgment of
responsibility to decide whether the corporation
an offense punishable by imprisonment for a
should enter into a contract that will bind the
3. In case of close corporations, the period exceeding 6 years; [Sec. 26]
corporation is lodged in the Board, subject to the
stockholders may manage the business of articles of incorporation, by-laws, or relevant
the corporation rather than by a BOD, if the d. Other qualifications as may be prescribed in
provisions of law.
Articles of Incorporation so provide. the by-laws of the corporation. [Sec. 46]

Tenure
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While additional qualifications may be prescribed, Independent directors must be elected by the the number of directors to be elected multiplied by
this cannot be in conflict with the requirements as set shareholders present or entitled to vote in absentia the number of shares owned; or (c) distribute
by the RCC. during the election of directors. [Sec. 22] them on the same principle among as many
candidates as may be seen fit: Provided, That the
Independent Directors Section 23. Election of Directors or Trustees. - total number of votes cast shall not exceed the
Except when the exclusive right is reserved for number of shares owned by the stockholders as
An independent director is a person who, apart from shown in the books of the corporation multiplied
holders of founders' shares under Section 7 of this
shareholdings and fees received from the corporation, by the whole number of directors to be
Code, each stockholder or member shall have the
is independent of management and free from any elected: Provided, however, That no delinquent
business or other relationship which could, or could right to nominate any director or trustee who
possesses all of the qualifications and none of the stock shall be voted. Unless otherwise provided in
reasonably be perceived to materially interfere with the articles of incorporation or in the by-laws,
the exercise of independent judgment in carrying out disqualifications set forth in this Code.
members of non-stock corporations may cast as
the responsibilities as a director. [Sec. 22]
At all elections of directors or trustees, there must many votes as there are trustees to be elected by
be present, either in person or through a may not cast more than one (1) vote for one (1)
Requirement for Independent Directors representative authorized to act by written proxy, candidate. Nominees for directors or trustees
the owners of majority of the outstanding capital receiving the highest number of votes shall be
These corporations include:
stock, or if there be no capital stock, a majority of declared elected.
(1) Corporations covered by the Securities the members entitled to vote. When so authorized
Regulation Code, namely: in the by-laws or by a majority of the board of If no election is held, or the owners of majority of
directors, the stockholders or members may also the outstanding capital stock or majority of the
i. Those whose securities are registered members entitled to vote are not present in
vote through remote communication or in
with the Commission; person, by proxy, or through remote
absentia: Provided, That the right to vote through
such modes may be exercised in corporations communication or not voting in absentia at the
ii. Corporations listed with an exchange meeting, such meeting may be adjourned and the
or with assets of at least Fifty million vested with public interest, notwithstanding the
absence of a provision in the by-laws of such corporation shall proceed in accordance with
pesos (P50,000,000.00); and
corporations. Section 25 of this Code.
iii. Having two hundred (200) or more
holders of shares, each holding at least A stockholder or member who participates The directors or trustees elected shall perform
one hundred (100) shares of a class of through remote communication or in absentia, their duties as prescribed by law, rules of good
its equity shares; shall be deemed present for purposes of quorum. corporate governance, and by-laws of the
corporation.
(2) Banks and quasi-banks, NSSLAs, The election must be by ballot if requested by any
pawnshops, corporations engaged in money Section 25. Report of Election of Directors, Trustees
voting stockholder or member.
service business, pre-need, trust and and Officers, Non-holding of Election and
insurance companies, and other financial Cessation from Office. - Within thirty (30) days
In stock corporations, stockholders entitled to vote after the election of the directors, trustees and
intermediaries;
shall have the right to vote the number of shares of officers of the corporation, the secretary, or any
(3) Other corporations engaged in business stock standing in their own names in the stock other officer of the corporation, the secretary, or
vested with public interest, constituting at books of the corporation at the time fixed in the any other officer of the corporation, shall submit
least 20% of the Board or as may be by-laws or where the by-laws are silent, at the time to the Commission, the names, nationalities,
determined by the Commission. [Sec. 22] of the election. The said stockholder may: (a) vote shareholdings, and residence addresses of the
such number of shares for as many persons as directors, trustees and officers elected.
there are directors to be elected; (b) cumulate said
Manner of Election The non-holding of elections and the reasons
shares and give one (1) candidate as many votes as
therefor shall be reported to the Commission
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within thirty (30) days from the date of the At all elections of directors or trustees, there must be If there are 5 directors to be elected and Pedro,
scheduled election. The report shall specify a new present, either in person or through a representative as shareholder, has 100 shares, Pedro can give
date for the election, which shall not be later than authorized to act by written proxy: 500 (5 x 100 shares) votes to just one candidate.
sixty (60) days from the scheduled date.
(1) Stock Corporations: The owners of majority of b. Cumulative Voting By Distribution
If no new date has been designated, or if the the outstanding capital stock; A stockholder may cumulate his shares by
rescheduled election is likewise not held, the multiplying the number of his shares by the
Commission may, upon the application of a (2) Non-Stock Corporations: A majority of the number of directors to be elected and distribute
stockholder, member, director or trustee, and after members entitled to vote. [Sec. 23] the same among as many candidates as he shall
verification of the unjustifiable non-holding of the see fit. [Sec. 23]
election, summarily order that an election be held. It is necessary that there be a quorum. An election
The Commission shall have the power to issue without quorum is invalid. Illustration:
such orders as may be appropriate, including Voting via Remote Communication/In Absentia In the illustration above, Pedro instead may
other directing the issuance of a notice stating the choose to give 100 votes to candidate 1, 100
time and place of the election, designated Notwithstanding the absence of a provision in the by- votes to candidate 2, 100 votes to candidate 3,
presiding officer, and the record date or dates for laws of the corporation, the stockholders or members 150 votes to candidate 4, and 50 votes to
the determination of stockholders or members may also vote through remote communication or in candidate 5.
entitled to vote. absentia by a resolution of the majority of the
Board of Directors; Provided, that the resolution Nominees for directors receiving the highest number
Notwithstanding any provision of the articles of shall only be applicable for a particular meeting. of votes shall be declared elected. They shall perform
incorporation or by laws to the contrary, the their duties as prescribed by law, rules of good
shares of stock or membership represented at such A stockholder or member who participates through corporate governance, and by-laws of the
meeting and entitled to vote shall constitute a remote communication or in absentia, shall be corporation. [Sec. 23]
quorum for purposes of conducting an election deemed present for purposes of quorum. The
under this section. election must be by ballot if requested by any voting
stockholder or member. Voting in Non-Stock Corporations
Should a director, trustee or officer die, resign or General Rule: Members of non-stock corporations
in any manner case to hold office, the secretary or may cast as many votes as there are trustees to be
the director, trustee or officer of the corporation, Methods of Voting in Stock Corporations
elected but may not cast more than one (1) vote for
shall, within seven (7) days form knowledge one (1) candidate.
(1) Straight Voting
thereof, report in writing such fact to the
Commission. Every stockholder may vote such number of Exception: Unless otherwise provided in the articles
shares for as many persons as there are directors of incorporation or in the by-laws. [Sec. 23]
to be elected. [Sec. 23]
Nomination
Nominees for trustees receiving the highest number
General Rule: Each stockholder or member shall (2) Cumulative Voting of votes shall be declared elected. They shall perform
have the right to nominate any director or trustee who their duties as prescribed by law, rules of good
a. Cumulative Voting For One Candidate
possesses all of the qualifications and none of the corporate governance, and by-laws of the
A stockholder is allowed to concentrate his
disqualifications set forth in this Code. corporation. [Sec. 23]
votes and give one candidate as many votes as
the number of directors to be elected multiplied
Exception: When the exclusive right to nominate by the number of his shares shall equal. [Sec.
directors or trustees is reserved for holders of Report to the SEC
23]
founders’ shares under Section 7 of the RCC. [Sec. Within thirty (30) days after the election, the
23] Illustration: secretary, or any other officer of the corporation, shall
submit to the Commission, the elected trustees’ and
Quorum
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officers’ names, nationalities, shareholdings, and corporate officers. They are tasked to carry out the (b) Found administratively liable for any offense
residence addresses. [Sec. 25] policies laid down by the Board, the AOI and the by- involving fraudulent acts; and
laws. [Sec. 24]
(c) By a foreign court or equivalent foreign
Adjournment of meeting
Corporate officers regulatory authority for acts, violations or
The meeting may be adjourned if: misconduct similar to those enumerated in
a. President – must be a director; paragraphs (a) and (b) above.
(a) If no election is held; or
b. Treasurer – may or may not be a director;
The foregoing is without prejudice to
(b) The owners of majority of the outstanding must be a resident of the Philippines; qualifications or other disqualifications, which the
capital stock or majority of the members
c. Secretary – need not be a director unless Commission, the primary regulatory agency, or
entitled to vote are not present in person, by
proxy, or through remote communication or required in the by-laws; must be a citizen Philippine Competition Commission may impose
not voting in absentia at the meeting. and resident of the Philippines; and in its promotion of good corporate governance or
as a sanction in its administrative proceedings.
After such adjournment, the non-holding of elections d. Compliance officer – only for corporations
and the reasons therefor shall be reported to the vested with public interest.
Commission within thirty (30) days from the date of Disqualification of Directors, Trustees and
the scheduled election. [Sec. 25] e. Other officers as may be provided in the by- Officers
laws. [Sec. 24]
A person shall be disqualified from being a director,
The report shall specify a new date for the election,
Note: Any 2 or more positions may be held trustee, or officer of any corporation if, within five
which shall not be later than sixty (60) days from the
scheduled date. concurrently by the same person, EXCEPT that no (5) years prior to the election or appointment as such,
one shall act as president and secretary or as president the person was:
and treasurer at the same time, unless otherwise
allowed in the Code. [Sec 24] (a) Convicted by final judgment:
Section 24. Corporate Officers. - Immediately after
their election, the directors of a corporation must
formally organize and elect: (a) a president, who Additional qualifications of officers may be provided (1) Of an offense punishable by
must be a director; (b) a treasurer, who must be a for in the by-laws. [Sec. 46(f)] imprisonment for a period
resident of the Philippines; and (c) such other exceeding six (6) years;
officers as may be provided in the by-laws. If the (2) For violating this Code; and
Section 26. Disqualification of Directors, Trustees
corporation is vested with public interest, the (3) For violating Republic Act No.
or Officers. - A person shall be disqualified from
board shall also elect a compliance officer. The 8799, otherwise known as “The
being a director, trustee or officer of any
same person may hold two (2) or more positions Securities Regulation Code”;
corporation if, within five (5) years prior to the
concurrently, except that no one shall act as
president and secretary or as president and election or appointment as such, the person was:
(b) Found administratively liable for any offense
treasurer at the same time, unless otherwise involving fraudulent acts; and
allowed in this Code. (a) Convicted by final judgment:
(c) By a foreign court or equivalent foreign
The officers shall manage the corporation and (1) Of an offense punishable by regulatory authority for acts, violations or
perform such duties as may be provided in the by- imprisonment for a period exceeding misconduct similar to those enumerated in
laws and/or as resolved by the Board of Directors. six (6) years; paragraphs (a) and (b) above. [Sec. 26]
(2) For violating this Code; and
Election of officers (3) For violating Republic Act No. 8799, Note: The foregoing is without prejudice to the
Immediately after the election of directors, the otherwise known as "The Securities qualifications or other disqualifications, which the
directors must formally organize by electing the Regulation Code";
Commission, the primary regulatory agency, or the
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Philippine Competition Commission may impose in hearing, order the removal of a director or trustee holding at least a MAJORITY of
its promotion of good corporate governance or as a elected despite the disqualification, or whose the capital stock or a MAJORITY
sanction in its administrative proceedings. disqualification arose or is discovered subsequent of the members entitled to vote;
to an election. The removal of a disqualified
director shall be without prejudice to other (3) There must be previous notice to the
Section 27. Removal of Director or Trustees. - Any sanctions that the Commission may impose on the stockholders or members of the intention
director or trustee of a corporation may be board of directors or trustees who, with to remove a director; and
removed from office by vote of the stockholders knowledge of the disqualification, failed to remove
holding or representing at least two-thirds (2/3) of such director or trustee. (4) There must be a vote of the stockholders
the outstanding capital stock, or in a non-stock representing 2/3 of outstanding capital
corporation, by a vote of at least two-thirds (2/3) stock or in case of a non-stock
of the member entitled to vote: Provided, That corporation, 2/3 of members entitled to
such removal shall take place either at a regular vote.
meeting of the corporation or at a special meeting New Power of the SEC under the Revised
called for the purpose, and in either case, after Removal Corporation Code
previous notice to stockholders or members of the
corporation of the intention to propose such General Rule: Any Director or Trustee of a The Commission shall, motu proprio or upon verified
removal at the meeting. A special meeting of the corporation may be removed from office, with or complaint, and after due notice and hearing, order the
stockholders or members for the purpose of without cause. [Sec. 27] removal of a director or trustee elected despite the
removing any director or trustee must be called by disqualification, or whose disqualification arose or is
the secretary on order of the president, or upon Exception: If the director was elected by the discovered subsequent to an election.
written demand of stockholders representing or minority, there must be cause for removal because the
holding at least a majority of the outstanding minority may not be deprived of the right to The removal of a disqualified director shall be
capital stock, or a majority of the members representation to which they may be entitled to under without prejudice to other sanctions that the
entitled to vote. If there is no secretary, or the Sec. 23 of the Code. [Sec. 27] Commission may impose on the Board of Directors
secretary, despite demand, fails or refuses to call or Trustees who, with knowledge of the
the special meeting or to give notice thereof, the Note: The right to representation refers to the right to disqualification, failed to remove such director or
stockholder or member of the corporation signing cumulative voting for one candidate. trustee. [Sec. 27]
the demand may call the special meeting or to give
notice thereof, the stockholder or member of the
Requisites for removal Section 28. Vacancies in the Office of Director or
corporation signing the demand may call for the
Trustee; Emergency Board. - Any vacancy
meeting by directly addressing the stockholders or (1) It must take place either at a regular occurring in the board of directors or trustees
members. Notice of the time and place of such meeting or special meeting of the other that by removal or expiration of term may
meeting, as well as of the intention to propose such stockholders or members called for the be filled by the vote of at least a majority of the
removal, must be given by publication or by purpose; remaining directors or trustees, if still
written notice prescribed in this Code. Removal
constituting a quorum; otherwise, said vacancies
may be with or without cause: Provided, That (2) A special meeting for the purpose of must be filled by the stockholders or members in a
removal without cause may not be used to deprive removing directors or trustees must be regular or special meeting called for that purpose.
minority stockholders or members of the right called by:
representation to which they may be entitled
When the vacancy is due to term expiration, the
under Section 23 of this Code. a. The secretary, on order of the election shall be held no later than the day of such
president; or expiration at a meeting called for that purpose.
The Commission shall, motu propio or upon b. The secretary, upon written demand When the vacancy arises as a result of removal by
verified complaint, and after due notice and of the stockholders representing or the stockholders or members, the election may be
Page 24 of 41
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held on the same day of the meeting authorizing arose. A director or trustee elected to fill vacancy
the removal and this fact must be so stated in the shall be referred to as replacement director or
agenda and notice of said meeting. In all other trustee elected to fill a vacancy shall be referred to
cases, the election must be held no later than as replacement director or trustee and shall serve
forty-five (45) days from the time the vacancy only for the unexpired term of the predecessor in
office.
Cause of Vacancy Procedure
Filling of Vacancies
However, when the vacancy prevents the
Expiration of term The election by
remaining directors from constituting a quorum
stockholders shall be held
no later than the day of and emergency action is required to prevent
such expiration at a grave, substantial, and irreparable loss or damage Designation of director or trustee
meeting called for that to the corporation, the vacancy may be
A vacancy may be temporarily filled from among the
purpose. temporarily filled from among the officers of the
officers of the corporation by unanimous vote of the
Removal The election may be held corporation by unanimous vote of the remaining
remaining directors or trustees when:
on the same day of the directors or trustees. The action by the designated
meeting authorizing the director or trustee shall be limited to the (1) The vacancy prevents the remaining
removal and this fact must emergency action necessary, and the term shall directors from constituting a quorum; and
be so stated in the agenda cease within a reasonable time form the
and notice of said meeting termination of the emergency or upon election of (2) Emergency action is required to prevent
Other grounds, but The election must be held the replacement director or trustee, whichever grave, substantial, and irreparable loss or
the remaining not later than forty-five comes earlier. The corporation must notify the damage to the corporation.
directors can (45) days from the time
Commission within three (3) days from the
constitute a quorum the vacancy occur.
creation of the emergency board, stating therein The action by the designated director or trustee shall
Other grounds, but a. The vacancy must be the reason for its creation. be limited to the emergency action necessary. [Sec.
the remaining filled by the stockholders 28]
directors CANNOT or members in a regular or Any directorship or trusteeship to be filled by a
constitute a quorum special reason of an increase in the number of directors or
meeting for that purpose; trustees shall be filled only by an election at a Term of designated director or trustee
or regular or at a special meeting of stockholders or The term of the designated director or trustee shall
members duly called for the purpose, or in the cease:
b. In case of the necessity same meeting authorizing the increase of directors
of emergency action, the or trustees if so stated in the notice of the meeting. (1) Within a reasonable time from the
vacancy may be termination of the emergency; or
temporarily filled from In all elections to fill vacancies under this section,
among the officers of the
the procedure set forth in Section 23 and 25 of this (2) Upon election of the replacement director or
corporation by unanimous
Code shall apply. trustee, whichever comes earlier. [Sec. 28]
vote of the remaining
directors or trustees.
Section 29. Compensation of Directors or
By reason of an Shall be filled only by an Trustees. - In the absence of any provision in the
increase in the election at a regular or at a
by-laws fixing their compensation, the directors
number of directors special meeting of
or trustees shall not receive any compensation in
or trustees stockholders duly called
for the purpose, or in the their capacity as such, except for reasonable per
same meeting authorizing diems: Provided, however, That the stockholders
the increase of directors or Page 25 of 41
trustees if so stated in the
notice of the meeting.
 Business Laws and Regulations
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representing at least a majority of the (b) The directors or trustees shall NOT orders are not reviewable by the courts or the SEC.
outstanding capital stock or majority of the participate in the determination of their [Phil. Stock Exchange, Inc. v. CA, G.R. No. 125469,
members may grant directors or trustees with own per diems or compensation. (1997)]
compensation and approve the amount thereof at
a regular or special meeting. (c) Corporations vested with public interest
shall submit to their shareholders and the Exceptions:
In no case shall the total yearly compensation of Commission, an annual report of the total a. If the acts are so unconscionable and
directors exceed ten percent (10%) of the net compensation of each of their directors or oppressive as to amount to a wanton
income before income tax of the corporation trustees. [Sec. 29] destruction of the rights of the minority;
during the preceding year.
b. If they violate their duties under Sec. 30
Section 30. Liability of Directors, Trustees or (willfully and knowingly assents to patently
Directors or trustees shall not participate in the
Officers. - Directors or trustees who willfully and unlawful acts of the corporation, or are guilty
determination of their own per diems or
knowingly vote for or assent to patently unlawful of gross negligence or bad faith); and
compensation.
acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of c. If they violate Sec. 33 (disloyalty of a director
Corporations vested with public interest shall
the corporation or acquire any personal or who acquires for himself business opportunity
submit to their shareholders and the
pecuniary interest in conflict with their duty as that should have belonged to the corporation,
Commission, an annual report of the total
such directors or trustees shall be liable jointly unless his act is ratified by a 2/3 vote of
compensation of each of their directors or
and severally for all damages resulting therefrom stockholders).
trustees.
suffered by the corporation, its stockholders or
members and other persons.
Consequences of the Business Judgment Rule
Compensation of directors or trustees
A director, trustee or officer shall not attempt to a. The resolution, contracts and transactions
General Rule: Directors or trustees are only entitled acquire, or any interest adverse to the of the board cannot be reversed or set
to reasonable per diems. They are not entitled to corporation in respect of any matter which has aside by the Courts, under the principle
compensation as directors or trustees. [Sec. 29] been reposed in them in confidence, and upon that the business of the corporation has
which, equity imposes a disability upon been left to the hands of the Board.
Exceptions: Compensation other than per diems themselves to deal in their own behalf; otherwise,
may also be granted to directors: the said director, trustee or officer shall be liable b. Directors and duly authorized officer
as a trustee for the corporation and must account cannot be held personally liable for acts
(a) When Articles of Incorporation, by-laws, or
for the profits which otherwise would have done, or contracts entered under the
an advance contract so provides;
accrued to the corporation. exercise of their business judgment.
(b) By the vote of stockholders representing at
least a majority of the outstanding capital Solidary liability for damages
Business Judgment Rule
stock or majority of the members (1) Willfully and knowingly voting for and
General Rule: Questions of policy or management assenting to patently unlawful acts of the
are left solely to the honest decision of officers and corporation; [Sec. 30]
Limitations to compensation under the RCC directors of a corporation and the courts are without (2) Gross negligence or bad faith in directing
(a) The total yearly compensation of directors authority to substitute the judgment of the Board of the affairs of the corporation; [Sec. 30]
shall not exceed 10% of the net income Directors. (3) Acquiring any personal or pecuniary interest
before income tax of the corporation during in conflict of duty; [Sec. 30]
the preceding year. The board is the business manager of the
corporation and so long as it acts in good faith, its
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(4) Consenting to the issuance of watered within the fourth civil degree of consanguinity or degree of consanguinity or affinity is voidable, at
stocks, or, having knowledge thereof, fails to affinity is voidable, at the option of such the option of such corporation. [Sec. 31]
file objections with secretary; [Sec. 64] corporation, unless all the following conditions are
(5) Agreeing or stipulating in a contract to hold present: Exception: Such contract is valid if all of the
himself liable with the corporation; or (a) The presence of such director or trustee in the following conditions are present:
(6) By virtue of a specific provision of law. board meeting in which the contract was
approved was not necessary to constitute a (a) The presence of such director or trustee in
quorum for such meeting; the board meeting in which the contract
Liability for watered stocks was approved was not necessary to
constitute a quorum for such meeting;
Watered Stocks – stocks issued for a consideration (b) The vote of such director or trustee was not
(b) The vote of such director or trustee was not
less than its par value or for a consideration in any necessary for the approval of the contract;
necessary for the approval of the contract;
form other than cash, valued in excess of its fair (c) The contract is fair and reasonable under
value. (c) The contract is fair and reasonable under the
the circumstances; and
circumstances;
(d) In case of corporations vested with public
Any director or officer of a corporation shall be interest: Material contracts are approved by
solidarily liable with the stockholder concerned to (d) In case of corporations vested with public
at least two-thirds (2/3) of the entire
the corporation and its creditors for the difference in interest, material contracts are approved by at
membership of the Board, with at least a
value for: least a majority of the independent directors majority of the independent directors
voting to approved the material contract; and voting to approve the material contract; and
(1) Consenting to the issuance of watered stocks (e) In case of an officer: The contract has been
or; (e) In case of an officer, the contract has been previously authorized by the BOD. [Sec.
previously authorized by the board of directors. 31]
(2) Failing express his objection in writing and
file the same with the corporate secretary Where any of the first three (3) conditions set
despite having knowledge thereof of such forth in the preceding paragraph is absent, in the Ratification
issuance [Sec. 64]. case of a contract with a director or trustee, such
contract may be ratified by the vote of the In case of absence of the first three* conditions
Personal liabilities
above, contract may be ratified:
stockholders representing at least two-thirds (2/3)
General rule: Members of the Board, who acted in of the outstanding capital stock or of at least two- a. By a vote of stockholders representing at
good faith for and on behalf of the corporation thirds (2/3) of the members in a meeting called least 2/3 of the outstanding capital stock or
within the lawful scope of their authority, are not for the purpose: Provided, That full disclosure of at least 2/3 of the members in a meeting
liable for the consequences of their acts. Such acts the adverse interest of the directors or trustees called for the purpose;
are attributed to the corporation alone and no involved is made at such meeting and the
personal liability is incurred by the Board. [Price contract is fair and reasonable under the b. There is full disclosure of the adverse
v. Innodata Phils., Inc., G.R. No. 178505 (2008)]. circumstances. interest of the concerned directors or
trustees made at such meeting; AND
Exception: When sufficient proof exists on record
that the officers acted fraudulently, beyond his Contracts of Self-Dealing Directors with the
c. The contract is fair and reasonable under
authority or when the officer agrees to be personally corporation
the circumstances. [Sec. 31]
liable on behalf of the corporation.
General Rule: A contract of the corporation with
Section 31. Dealings of Directors, Trustees or
(1) one or more of its directors, trustees, officers or
Officers with the Corporation. - A contract of the Section 32. Contracts Between Corporations
their spouses and relatives within the fourth civil
corporation with one (1) or more of its directors, with Interlocking Directors. - Except in cases of
trustees, officers or their spouses and relatives fraud, and provided the contract is fair and
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reasonable under the circumstances a contract a vote of the stockholders owning or By embracing the opportunity, the self-interest of
between two (2) or more corporations having representing at least two-thirds (2/3) of the the officer or director will be brought into conflict
interlocking directors shall not be invalidated outstanding capital stock. This provision shall with that of his corporation. Hence, the law does
on that ground alone: Provided, That if the be applicable, notwithstanding the fact that the not permit him to seize the opportunity even if he
interest of the interlocking director in one (1) director risked one's own funds in the venture. will use his own funds in the venture.
corporation is substantial and the interest in
the other corporation or corporations is merely A director, trustee, or officer shall be liable as a
nominal, the contract shall be subject to the Three-fold duties of Directors and Trustees trustee for the corporation and must account for
provisions of the preceding section insofar as the profits which otherwise would have accrued to
(1) Duty of Obedience - shall direct the
the latter corporation or corporations are the corporation. [Sec. 30]
affairs of the corporation only in
concerned.
accordance with the purposes for which
it was organized; Note: Differences between Sec. 30 and Sec. 33:
Stockholding exceeding twenty percent (20%)
of the outstanding capital stock shall be  First, while both involve the same subject
(2) Duty of Diligence - shall not willfully matter (business opportunity) they concern
considered substantial for purposes of and knowingly vote for or assent to
interlocking directors. different personalities; Sec. 33 is applicable
patently unlawful acts of the corporation only to directors and not to officers, whereas
or act in bad faith or with gross Sec. 30 applies to directors, trustees and
Interlocking directors, characterized negligence in directing the affairs of the officers.
corporation; and
Interlocking directors are persons who serve as  Second, Sec. 33 allows a ratification of a
member of the Board of Directors of two or more (3) Duty of Loyalty - shall not acquire any transaction by a self-dealing director by vote
competing corporations or corporations engaged personal or pecuniary interest in conflict of stockholders representing at least 2/3 of
in practically the same kind of business. with their duty as such directors or the outstanding capital stock.
trustees. [Strategic Alliance
Contracts between corporations with Development Corp v. Radstock Securities
interlocking directors Ltd., G.R. No. 178158 (2009)] Section 34. Executive Management, and Other
Special Committees. - If the bylaws so provide,
General Rule: A contract between two or more the board may create an executive committee
corporations having interlocking directors shall Doctrine of Corporate Opportunity composed of at least three (3) directors. Said
NOT be invalidated on that ground alone. [Sec. committee may act, by majority of vote of all
Unless his act is ratified, a director shall refund to
32] its members, on such specific matters within
the corporation all the profits he realizes on a
business opportunity which: the competence of the board, as may be
Exception: If contract is fraudulent or not fair and delegated to it in the bylaws or by majority
reasonable under the circumstances, such contract vote of the board, except with respect to the:
i. The corporation is financially able to
is invalid. [Sec. 32] (a) approval of any action for which
undertake;
ii. From its nature, is in line with shareholders' approval is also required; (b)
corporation’s business and is of practical filing of vacancies in the board; (c) amendment
Section 33. Disloyalty of a Director. - Where a
advantage to it; and or repeal of bylaws or the adoption of new
director, by virtue of such office, acquires a
iii. One in which the corporation has an bylaws; (d) amendment or term is not
business opportunity which should belong to
interest or a reasonable expectancy. amendable or repealable; and (e) distribution
the corporation, thereby obtaining profits to
The rule shall be applied notwithstanding the fact of cash dividends to the shareholders.
the prejudice of such corporation, the director
must account for and refund to the latter all that the director risked his own funds in the
venture. [Sec. 33] The board of directors may create special
such profits, unless the act has been ratified by
committees of temporary or permanent nature
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and determine the members' term, (i) To make reasonable donations,
composition, compensation, powers, and Section 35. Corporate Powers and Capacity. - Every including those for the public welfare
responsibilities. corporation incorporated under this Code has the or for hospital, charitable, cultural,
power and capacity: scientific, civic, or similar
purposes: Provided, That no foreign
Creation of Executive Committee (a) To sue and be sued in its corporate corporation shall give donations in
name; aid of any political party or candidate
The by-laws may provide for the creation of an or for purpose s of partisan political
executive committee, composed of not less than 3 (b) To have perpetual existence unless the activity;
members of the Board, to be appointed by the certificate of incorporation provides
Board. otherwise; (j) To establish pension, retirement, and
other plans for the benefit of its
Said committee may act, by majority vote of all its (c) To adopt and use a corporate seal; directors, trustees, officers, and
members, on such specific matters within the employees; and
competence of the Board, as may be delegated to (d) To amend its articles of incorporation
it in the by-laws or on a majority vote of the in accordance with the provisions of (k) To exercise such other powers as may
this Code; be essential or necessary to carry out
Board. [Sec. 34]
its purpose or purposes as stated in
Special Committees the articles of incorporation.
(e) To adopt by-laws, not contrary to law,
The Board of Directors may create special morals or public policy, and to amend
committees of temporary or permanent nature and or repeal the same in accordance with
this Code; Corporate Powers
to determine the members’ term, composition,
compensation, powers, and responsibilities. i. Express Powers – such powers as are
(f) In case of stock corporations, to issue
or sell stocks to subscribers and to sell expressly granted by law and its articles of
treasury stocks in accordance with incorporation;
Limitations on Its Power
the provisions of this Code; and to
admit members to the corporation if ii. Implied Powers – those reasonably
The following CANNOT be delegated to the
it be a non-stock corporation; necessary to accomplish its purposes, as
Executive Committee: stated in its articles of incorporation; and
a. Matters needing stockholder approval [Sec. (g) To purchase, receive, take or grant,
hold, convey, sell, lease, pledge, iii. Incidental Powers – those which may be
34];
mortgage, and otherwise deal with incident to its existence as a juridical entity.
b. Filling up of Board vacancies [Sec. 34];
c. Amendment, repeal or adoption of new by- such real and personal property,
including securities and bonds of Theory of General Capacity
laws [Sec. 34];
d. Amendment or repeal of any resolution of other corporations, as the transaction
of the lawful business of the The Theory of General Capacity states that a
the Board which by its express terms is not corporation is said to hold such powers as are not
amendable or repealable [Sec. 34]; corporation may reasonably and
necessarily require, subject to the prohibited or withheld from it by general law.
e. Cash dividend distribution [Sec. 34]; and
limitations prescribed by law and the
f. Acts which would render the BOD General Powers of Corporations
constitution;
powerless and free from all responsibilities
imposed on it by law. (h) To enter into a partnership, joint (a) To sue and be sued in its corporate name;
venture, merger, consolidation, or any
 END  other commercial agreement with (b) To have perpetual existence, unless the
TITLE IV natural and juridical persons; certificate of incorporation provides
POWERS OF THE CORPORATION otherwise;

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(h) Power to enter into management contract
(c) To adopt and use a corporate seal; - Provided, That no foreign [Sec. 43]
corporation shall give donations in
(d) To amend its articles of incorporation in aid of any political party or (i) Power to amend AOI [Sec. 15]
accordance with the provisions of the Code; candidate or for purposes of
partisan political activity.
(e) To adopt by-laws, and to amend or repeal Section 36. Power to Extend or Shorten Corporate
the same in accordance with the Code; (j) To establish pension, retirement, and Term. - A private corporation may extend or
other plans for the benefit of its directors, shorten its term as stated in the articles of
(f) In case of stock corporations: To issue or trustees, officers, and employees; and incorporation when approved by a majority vote
sell stocks to subscribers and to sell treasury of the board of directors or trustees, and ratified
stocks in accordance with the provisions of (k) To exercise such other powers as may be at a meeting by the stockholders or members
the Code; and essential or necessary to carry out its representing at least two-thirds (2/3) of the
purpose or purposes as stated in the articles outstanding capital stock or of its members.
(g) In case of non-stock corporations: To admit of incorporation. [Sec. 35] Written notice of the proposed action and the time
members to the corporation; and place of the meeting shall be sent to the
(h) To purchase, receive, take or grant, hold, stockholders or members at their respective place
convey, sell, lease, pledge, mortgage, and Theory of Specific Capacity of residence as shown in the books of the
otherwise deal with such real and personal corporation, and must be deposited to the
property, including securities and bonds of The Theory of Specific Capacity states that the addressee in the post office with postage prepaid,
other corporations; corporation cannot exercise powers except those served personally, or when allowed in the bylaws
expressly/impliedly given. or done with the consent of the stockholder, sent
- As the transaction of the lawful electronically in accordance with the rules and
business of the corporation may regulations of the Commission on the use of
reasonably and necessarily require, Specific Powers of Corporations electronic data messages. In case of extension of
and corporate term, a dissenting stockholder may
(a) Power to extend or shorten corporate term exercise the right of appraisal under the
- Subject to the limitations prescribed [Sec. 36] conditions provided in this Code.
by law and the Constitution.
(b) Power to increase or decrease capital stock, Power to Extend or Shorten the Corporate Term
(i) To enter, with natural and juridical persons, or incur, create, increase bonded
into a: indebtedness [Sec. 37] A private corporation may extend or shorten its term
as stated in the articles of incorporation. The AOIs
i. Partnership, (Note: New in the (c) Power to deny pre-emptive rights [Sec. 38] shall be deemed amended to reflect its perpetual
RCC) term, unless the corporation elects to retain its limited
ii. Joint venture, (Note: New in the (d) Power to sell or dispose corporate assets term. [Sec. 36]
RCC) [Sec. 39]
iii. Merger,
iv. Consolidation, or (e) Power to acquire own shares [Sec. 40]
v. Any other commercial When Exercised
agreement (f) Power to invest corporate funds in another Period to extend the corporate term has been reduced
corporation or business, or for any other by the RCC to three years before expiration. When
- To make reasonable donations, purpose [Sec. 41] the term expires, it is not ipso facto dissolved but may
including those for the public apply for a revival of its corporate existence.
welfare or for hospital, charitable, (g) Power to declare dividends [Sec. 42] Requirements
cultural, scientific, civic, or similar
purposes;
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i. Approval by majority vote of the board of the chairperson and secretary of the stockholders' Commission and attached to the original articles
directors or trustees; and meeting, setting forth: of incorporation. After approval by the
Commission and the issuance by the Commission
ii. Ratification at a meeting by the stockholders or (a) That the requirements of this section have been of its certificate of filing may
members representing at least two-thirds (2/3) complied with; declare: Provided, That the Commission shall not
of the outstanding capital stock or of its accept for filing any certificate of increase of
members; (b) The amount of the increase or decrease of the capital stock unless accompanied by a sworn
capital stock; statement of the treasurer of the corporation
iii. Notice Requirement – Written notice of the accompanied by a sworn statement of the
proposed action and the time and place of the (c) In case of an increase of the capital stock, the treasurer of the corporation lawfully holding
meeting sent to stockholders or members. amount of capital stock or number of shares of no- office at the time of the filing of the certificate,
par stock thereof actually subscribed, the names showing that at least twenty-five percent (25%) of
nationalities and addresses of the persons the increase in capital stock has been subscribed
Exercise of Appraisal Right subscribing, the amount of capital stock or and that at least twenty-five percent (25%) of the
number of no-par stock subscribed, the names, amount subscribed has been paid in actual cash to
In case of extension of corporate term, a dissenting nationalities and addresses of the persons the corporation or that property, the valuation of
stockholder may exercise the right of appraisal under subscribing, the amount of capital stock or which is equal to twenty-five percent (25%) of the
the conditions provided in this Code. [Sec. 36] number of no-par stock subscribed by each, and subscription, has been transferred to the
the amount paid by each on the subscription in corporation: Provided, further, That no decrease in
Shortening the corporate term DOES NOT trigger the cash or property, or the amount of capital stock or capital stock shall be approved by the Commission
right of appraisal because there would be no number of shares of no-par stock allotted to each if its effect shall prejudice the rights of corporate
violation of the original contractual intent, since stockholder if such increase is for the purpose of creditors.
shortening would mean the early realization of the making effective stock dividend therefor
value of the shares of a dissenting stockholder with authorized; Non-stock corporations may incur, create or
the dissolution of the corporation. increase bonded indebtedness when approved by a
(d) Any bonded indebtedness to be incurred, majority of the board of trustees and of at least
created or increased; two-thirds (2/3) of the members in a meeting duly
Section 37. Power to increase or Decrease Capital called for the purpose.
Stock; Incur, Create or Increase Bonded (e) The amount of stock represented at the Bonds issued by a corporation shall be registered
Indebtedness. - No corporation shall increase or meeting; and with the Commission, which shall have the
decrease its capital stock or incur, create or authority to determine the sufficiency of the terms
increase any bonded indebtedness unless approved (f) The vote authorizing the increase or decrease of thereof.
by a majority vote of the board of directors and by capital stock, or incurring, creating or increasing
two-thirds (2/3) of the outstanding capital stock at of bonded indebtedness.
a stockholders' meeting duly called for the Power to Increase or Decrease Capital Stock
purpose. Written notice of the time and place of Any increase or decrease in the capital stock or the
the stockholders' meeting and the purpose for said incurring, creating or increasing of any bonded An increase or decrease of the capital stock amends
meeting must be sent to the stockholders at their indebtedness shall require prior approval of the the underlying contractual relationships between and
places of residence as shown in the books of the Commission and where appropriate, of the among members of the corporation.
corporation served on the stockholders personally, Philippine Competition Commission. The
or through electronic means recognized in the application with the Commission shall be made Power to Incur, Create, or Increase Bonded
corporation's bylaws and/or the Commission's within six (6) months from the date of approval of Indebtedness
rules as a valid mode for service of notices. the board of directors and stockholders, which
period may be extended for justifiable reasons. “Bonded indebtedness” are long term debts of the
A certificate must be signed by a majority of the corporation, secured by mortgage on real or personal
directors of the corporation and countersigned by Copies of the certificate shall be kept on file in the property of the corporation.
office of the corporation and filed with the
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Requirements would result in returning part of the investments of Exception: If such right is denied by the AOI or an
the stockholders, including dissenting stockholders. amendment thereto. [Sec. 38]
(1) Approval by a majority vote of the board
of directors or trustees; In Cases of Incurring, Creating or Increasing Bonded
Indebtedness Requirements
(2) Approval by two-thirds (2/3) of the
outstanding capital stock or at least two- The appraisal right CANNOT be exercised by i. Approval by majority vote of the board of
thirds (2/3) of the members at a dissenting stockholders when the corporation validly directors; and
stockholders’ meeting duly called for the incurs, creates, or increases bonded indebtedness.
purpose; ii. Ratification at a meeting by the stockholders or
To allow them to do so would drain the financial members representing at least two-thirds (2/3)
(3) Notice Requirement – Written notice of the resources of the corporation, which is contrary to the of the outstanding capital stock;
time and place of the stockholders’ meeting; purpose for which the power is exercised, which is to
raise funds for corporate affairs. iii. Notice Requirement – Written notice of the
(4) Certification Requirement – A certificate proposed action and the time and place of the
signed by a majority of the directors and meeting sent to stockholders.
setting forth that the requirements of Section Section 38. Power to Deny Pre-emptive Right. - All
37 have been complied with; stockholders of a stock corporation shall enjoy
pre-emptive right to subscribe to all issues or Exercise of Appraisal Right
(5) In case of an increase in the capital stock, a disposition of shares of any class, in proportion to
treasurer’s affidavit stating that 25% of the their respective shareholdings, unless such right is Such amendment to the AOI to deny pre-emptive
increased capital stock has been subscribed denied by the articles of incorporation or an right may trigger the exercise of a dissenting
and 25% thereof has been paid; amendment thereto: Provided, That such pre- stockholder of his appraisal right. This is because
emptive right shall not extend to shares issued in such amendment prevents the dissenting stockholder
(6) Prior SEC Approval – The application with compliance with laws requiring stock offerings or from maintaining his equity interest in the
the Commission shall be made within six (6) minimum stock ownership by the public; or to corporation.
months from the date of approval of the shares issued in good faith with the approval of
board of directors and stockholders, which the stockholders representing two-thirds (2/3) of
may be extended for justifiable reasons; the outstanding capital stock in exchange for Section 39. Sale or Other Disposition of Assets. -
property needed for corporate purposes or in Subject to the provisions of Republic Act No.
(7) Prior PCC Approval – Where appropriate payment of previously contracted debt. 10667, otherwise known as the "Philippine
in certain circumstances; Competition Act", and other related laws a
corporation may, by a majority vote of its board of
Pre-emptive Right
(8) SEC Registration – Applicable only to directors or trustees, sell, lease, exchange,
bonds issued by a corporation. mortgage, pledge, or otherwise dispose of its
The preferential right of shareholders to subscribe to
property and assets, upon such terms and
all issues or disposition of shares of any class in
Exercise of Appraisal Right conditions and for such consideration, which may
proportion to their present shareholdings. [Sec 38]
In Cases of Increase or Decrease of Capital Stock be money, stock, bonds, or other instruments for
the payment of money or other property or
The purpose of pre-emptive right is to enable the
The right of appraisal can be exercised in cases of consideration, as its board of directors or trustees
shareholder to retain his proportionate control in the
increase of capital stock because it has the potential may deem expedient.
corporation and to retain his equity in the surplus.
effect of diluting the proportionate interest of a
stockholder in the corporation. A sale of all or substantially all of the
General Rule: All shareholders of a stock
corporation's properties and assets, including its
corporation have the pre-emptive right to subscribe to
The right of appraisal CANNOT be exercised in goodwill, must be authorized by the vote of
all issues or disposition of shares of any class, in
cases of decrease in capital stock since the decrease stockholders representing at least two-thirds (2/3)
proportion to their respective shareholdings.
of the outstanding capital stock, or at least two-
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thirds (2/3) of the members, meeting duly called proceeds of the sale or other disposition of such i. If the sale or disposition is necessary in the
for the purpose. property and assets shall be appropriated for the usual and regular course of business of the
conduct of its remaining business. corporation; or
In non-stock corporations where there are no
members with voting rights, the vote of at least a ii. If the proceeds of the sale will be
majority of the trustees in office will be sufficient Power to Sell or Dispose Corporate Assets appropriated for the conduct of its
authorization for the corporation to enter into any remaining business; or
transaction authorized by this section. A corporation may sell, lease, exchange, mortgage,
pledge, or otherwise dispose of its property and iii. If the transaction does not cover all or
The determination of whether or not the sale assets: substantially all of the assets. [Sec. 39]
involves all or substantially all of the corporation's
properties and assets must be computed based on (1) For such consideration as its board of
its net asset value, as shown in its latest financial directors or trustees may deem expedient, Exercise of Appraisal Right
statements. A sale or other disposition shall be which may be:
deemed to cover substantially all the corporate Any stockholder who disagrees from the sale, lease,
property and assets if thereby the corporation a. Money exchange, mortgage, pledge and any other disposition
would be rendered incapable of continuing the b. Stocks may exercise his appraisal right. [Sec. 39]
business or accomplishing the purpose of which it c. Bonds, or
was incorporated. d. Other instruments for the payment
of money or Section 40. Power to Acquire Own
Written notice of the proposed action and of the e. Other property or consideration; Shares. - Provided, That the corporation has
time and place for the meeting shall be addressed unrestricted retained earnings in its books to cover
to stockholders or members at their places of (2) Subject to the provisions of Republic Act the shares to be purchased or acquired, a stock
residence as shown in the books of the corporation No. 10667, otherwise known as “Philippine corporation shall have the power to purchased or
and deposited to the addressee in the post office Competition Act”, and other related laws. acquired, a stock corporation shall have the power
with postage prepaid, served personally, or when Requirements to purchase or acquire its own shares for a
allowed by the bylaws or done with the consent of legitimate corporate purpose or purposes,
the stockholder, sent electronically: Provided, That (1) Vote of at least a majority of the directors including the following cases:
any dissenting stockholder may exercise the right or trustees;
of appraisal under the conditions provided in this (a) To eliminate fractional shares arising out of
Code. (2) Vote of the stockholders representing at stock dividends;
least two- thirds (2/3) of the outstanding
After such authorization or approval by the capital stock, or at least two-thirds (2/3) of (b) To collect or compromise an indebtedness to
stockholders or members, the board of directors the members, in a stockholders’ or the corporation, arising out of unpaid
or trustees may, nevertheless, in its discretion, members’ meeting duly called for the subscription, in a delinquency sale, and to
abandon such sale, lease, exchange, mortgage, purpose; purchase delinquent shares sold during said sale;
pledge, or other disposition of property and assets, and
subject to the rights of third parties under any (3) Notice Requirement – Written notice of the
contract relating thereto, without further action or proposed action and of the time and place (c) To pay dissenting or withdrawing stockholders
approval by the stockholders or members. for the meeting shall be addressed to entitled to payment for their shares under the
Nothing in this section is intended to restrict the stockholders or members. provisions of this Code.
power of any corporation, without the
authorization by the stockholders or members, to
sell, lease, exchange, mortgage, pledge, or Where only the approval of a quorum of the Power to Acquire Its Own Shares
otherwise dispose of any of its property and assets BOD/T is required
if the same is necessary in the usual and regular A stock corporation shall have the power to purchase
course of business of the corporation or if the or acquire its own shares for a legitimate corporate
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purpose/s. This corporate power does not need c. In a Close corporation, a stockholder may Exception: The purpose will be amended to include
shareholder’s approval. Discretion solely rests on demand the payment of the fair value of shares the desired business activity among its secondary
the board, subject to the existence of unrestricted regardless of existence of retained earnings for purpose.
retained earnings (“URE”) and for a legitimate as long as it will not result to the insolvency of
corporate purpose/s. [Sec. 40] the corporation.
Rules in case a corporation wants to invest in an
undertaking
Unrestricted Retained Earnings Section 41. Power to Invest Corporate Funds in
Another Corporation or Business or for Any Other  Investment of a corporation in a business
This is defined as the amount which is: Purpose. - Subject to the provisions of this Code, a which is in line with its primary purpose
private corporation may invest its funds in any requires only the approval of the board.
(1) The accumulated profits and gains realized other corporation, business, or for any purpose
out of the normal and continuous operations other than the primary purpose for which it was  Investment of assets for any of its secondary
of the company AFTER deducting organized, when approved by a majority of the purposes requires the prior approval of its
therefrom: board of directors or trustees and ratified by the shareholders/members.
stockholders representing at least two-thirds (2/3)
a. Distributions to stockholders and of the outstanding capital stock, or by at least two-
b. Transfers to capital stock or other thirds (2/3) of the outstanding capital stock, or by
accounts, and at least two-thirds (2/3) of the members in the case  If the investment is outside the purpose/s for
of non-stock corporations at a meeting duly called which the corporation was organized,
(2) NOT appropriated by its Board of Directors for the purpose. Notice of the proposed investment Articles of Incorporation must be
for corporate expansion projects or and the time place of residence as shown in the amended first, otherwise it will be an Ultra
programs; books of the corporation and deposited to the Vires act.
addressee in the post office with the postage
(3) NOT covered by a restriction for dividend prepaid. Served personally, or sent electronically
declaration under a loan agreement; and in accordance with the rules and regulations of the Requirements
Commission on the use of electronic data message,
(4) NOT required to be retained under special when allowed by the bylaws or done with the i. Approval by majority vote of the board of
circumstances obtaining in the corporation consent of the stockholders: Provided, That any directors or trustees; and
such as when there is a need for a special dissenting stockholder shall have appraisal right
reserve for probable contingencies. [SEC as provided in this Code: Provided, however, That ii. Ratification at a meeting by the stockholders or
Memorandum Circular No. 11-08, where the investment by the corporation is members representing at least two-thirds (2/3)
(December 5, 2008)] reasonably necessary to accomplish its primary of the outstanding capital stock or of its
purpose as stated in the articles of incorporation, members;
General Rule: The corporation may only acquire its the approval of the stockholders or members shall
own stocks in the presence of URE. [Sec. 40] not be necessary. iii. Notice Requirement – Written notice of the
proposed action and the time and place of the
meeting sent to stockholders or members.
Power to Invest Corporate Funds in Another
Exceptions: Corporation or Business
Exercise of Appraisal Right
a. Redeemable shares may be acquired even General Rule: The corporation is not allowed to
without surplus profit for as long as it will not engage in a business different from those enumerated Any stockholder who disagrees from the investment
result to the insolvency of the corporation; in its AOI. of corporate funds in another corporation or business
may exercise his appraisal right.
b. In cases that the corporation conveys its stocks
in payment of a debt;
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Section 42. Power to Declare Dividends. - The Approval of the 2/3 shareholders representing the cannot be issued to a person who is not a
board of directors of a stock corporation may outstanding capital stock at a regular/special meeting stockholder in payment of services rendered.
declare dividends out of the unrestricted retained called for that purpose
earnings which shall be payable in cash, property, iii. Property - Stockholders are entitled to
or in stock to all stockholders on the basis of dividends pro-rata based on the total number
outstanding stock held by them: Provided, That Prohibition imposed by law on UREs of a stock of shares and not on the amount paid on
any cash dividends due on delinquent stock shall corporation shares.
be first be applied to the unpaid balance on the
subscription plus costs and expenses, while stock General Rule: Stock corporations are prohibited
holders until their unpaid subscription is fully from retaining surplus profits in excess of 100% of Section 43. Power to Enter into Management
paid: Provided, further, That no stock dividend their paid-in capital stock. Contract. - No corporation shall conclude a
shall be issued without the approval of management contract with another corporation
stockholders representing at least two-thirds Exceptions: unless such contract is approved by the board of
(2/3)of the outstanding capital stock at a regular directors and by the stockholders owning at least
or special meeting duly called for the purpose. a. When justified by definite corporate expansion the majority of the outstanding capital stock, or by
projects or programs approved by the BOD; at least a majority of the members in the case of a
Stock corporations are prohibited from non-stock corporation, or both the managing and
restraining surplus profits in excess of one b. When allowed under any loan agreement with the managed corporation, at a meeting duly called
hundred percent (100%} of their paid-in capital any financial institution or creditor from for the purpose: Provided, That (a) where a
stock, except: (a) when justified by the definite declaring dividends provided there is consent stockholder or stockholders representing the same
corporate expansion projects or programs by the latter; or interest of both the managing and the managed
approved by the board of directors; or (b) when corporations own or control more than one-third
the corporation is prohibited under any loan c. When it can be clearly shown that such (1/3) of the total outstanding capital stock entitled
agreement with financial institutions or creditors, retention is necessary under special to vote of the managing corporation; or (b) where
whether local or foreign, from declaring dividends circumstances. a majority if the members of the board of
without their consent, and such consent has not directors of the managing corporation also
yet been secured; or (c) when it can be clearly Note: In case a corporation unjustifiably retains constitute a majority of the members of the board
shown that such retention is necessary under surplus profits in excess of one hundred of directors of the managed corporation, then the
special circumstances obtaining in the (100%) percent of the paid-in accumulated capital, it management contract must be approved by the
corporation, such as when there is need for special will be liable for Improperly Accumulated Earnings stockholders of the managed corporation owning
reserve for probable contingencies. Tax (IAET) equal to 10% of the improperly at least two-thirds (2/3) of the total outstanding
Power to Declare Dividends accumulated taxable income. [Sec. 29 (A), NIRC] capital stock entitled to vote, or by at least two-
thirds (2/3) of the members in the case of a non-
Requirements Moreover, it will also be liable to pay a penalty stock corporation.
imposed by the SEC. [SEC Memo. Circ. No. 6, s.
i. Must be distributed out of URE; 2005] These shall apply to any contract whereby a
corporation undertakes to manage or operate all
ii. Payable in cash, in property, or in stock to all Forms of Dividends or substantially all of the called services contracts,
shareholders on the basis of outstanding stock operating agreements or otherwise: Provided,
held by them; and i. Cash - Any cash dividend due on delinquent however, That such service contracts or operating
stock shall first be applied to the unpaid agreements which relate to the exploration,
iii. Resolution by the Board. balance on the subscription plus cost and development exploitation or utilization of natural
expenses. [Sec. 42] resources may entered into such periods as may be
Additional requirement for stock dividend provided by the pertinent laws or regulations.
ii. Stock - Stock dividends shall be withheld from
the delinquent stockholder until his unpaid No management contracts shall be entered into for
subscription is fully paid; Stock dividends period longer that five (5) years for any one term.
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i. Stockholders representing the same a. Acts done beyond the powers of the
interest of both the managing and corporation as provided in the law or its
Management Contract
managed corporations own more than articles of incorporation;
1/3 of the total outstanding capital
Any contract whereby a corporation undertakes to
stock entitled to vote of the managing b. Ultra Vires acts of officers and not of the
manage or operate all or substantially all of the
corporation (Interlocking corporation;
business of another corporation, whether such
stockholders); or
contracts are called service contracts, operating
c. Acts or contracts, which are per se illegal as
agreements or otherwise.
ii. A majority of the members of the being contrary to law.
BOD of the managing corporation also
This refers only to a management contract with
constitute a majority of the BOD of the
another corporation and does not apply to
managed corporation (Interlocking Consequences of Ultra Vires Acts
management contracts entered into by a corporation
directors).
with natural persons. Corollary to this, management
contract with a natural person need not comply with Ultra vires acts, which are per se illegal are generally
For the managed corporation: There is a need for
the requisites of Sec. 43. void.
such ratification as such contract is a deviation from
the principle that corporate affairs shall be managed
by the BOD. While ultra vires acts which are not illegal but are
Period of every management contract within the scope of the articles of incorporation, are
For the managing corporation: There is a need for merely voidable and may become binding and
General Rule: No management contract shall be enforceable when ratified by stockholders.
such ratification as such contract is a deviation from
entered into for a period longer than 5 years for any
the principle that the BOD would devote their time
one term.
and resources for the affairs of the corporation.
Exception: Service contracts or operating agreements
which relate to exploration, development, Consequences of Ultra Vires Acts with respect to
Section 44. Ultra Vires Acts of the Corporations. -
exploitation or utilization of natural resources may be contracts
No corporation shall possess or exercise corporate
entered into for such periods as may be provided in
powers other than those conferred by this Code or
the pertinent laws and regulations. a. Executed contract – courts will not set
by its articles of incorporation and except as
necessary or incidental to the exercise of the aside or interfere with such contracts;
Requirements
powers conferred.
b. Executory contracts – no enforcement
(1) Approval by majority vote of the BOD of even at the suit of either party (void and
both the managing and the managed unenforceable);
Ultra Vires Acts
corporation;
Those acts which a corporation is not empowered to c. Partly executed and partly executory –
(2) Approval by shareholders owning at least principle of “no unjust enrichment at the
do or perform because they are outside or beyond the
the majority of the outstanding capital expense of another” shall apply;
express and implied powers conferred by its Articles
stock or at least a majority of the members
of Incorporation or by the Revised Corporation Code,
of both the managing and the managed d. Executory contracts apparently
or not necessary or incidental to the exercise of the
corporation; authorized but Ultra Vires – the principle
powers so conferred. [Sec. 44]
of estoppel shall apply.
Note: However, the contract must be
approved by 2/3 of stockholders owning
Types of Ultra Vires Acts
outstanding capital stock/members of the Remedies in case of Ultra Vires Acts
managed corporation when:
A. State

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At least twenty (20) days prior to the meeting, notice
i. Dissolution of the corporation thru a 1. Voluntary surrender of its 1. Upon receipt of a shall be given to each shareholder or member of record
quo warranto proceeding; charter by the vote of the lawful court order personally, by registered mail, or by any means
ii. Injunction; BOD/T and the dissolving the authorized under its bylaws, whether or not entitled to
stockholders/members corporation; vote at the meeting, in the manner provided in Section
iii. Suspension or revocation of the
where no creditors are 50 of this Code and shall state that the purpose of the
certificate of registration by the SEC. affected [Sec 134] meeting is to vote on the dissolution of the corporation.
Notice of the time, place and object of the meeting shall
B. Stockholders 2. By the judgment of the 2. By legislative be published once prior to the date of the meeting in a
SEC after hearing of enactment newspaper published in the place where the principal
i. Injunction; petition for voluntary office of said corporation is located, or if general
ii. Derivative suit; dissolution, where creditors circulation in the Philippines.
iii. Ratification. (except when a 3rd party is are affected
prejudiced or the act is illegal) A verified request for dissolution shall be filed with the
3. Amending the AOI to 3. Failure to organize Commission stating: (a) the reason for the dissolution;
shorten its term [Sec 136] and commence business (b) the form, manner, and time when the notices were
C. Creditors - Nullification of contract in fraud of given; (c) names of the stockholders and directors or
within 5 years from
creditors. members and trustees who approved the dissolution; (d)
incorporation [Sec 21]
the date, place, and time of the meeting in which the
TITLE XIV vote was made; and (e) details of publication.
4. In case of a corporation 4. Cessation of business
DISSOLUTION sole, by submitting to the for 5 years [Sec 21]
SEC a verified declaration The corporation shall submit the following to the
of the dissolution for Commission: (1) a copy of the resolution authorizing the
Section 133. Methods of Dissolution. - A corporation approval dissolution, certified by a majority of the board of
formed or organized under the provisions of this Code directors or trustees and countersigned by the secretary
may be dissolved voluntarily or involuntarily. 5. By merger or 5. By order of the SEC of the corporation; (2) proof of publication; and (3)
consolidation on grounds under favorable recommendation form the appropriate
existing laws [Sec 138] regulatory agency, when necessary.
Dissolution of a Corporation
5. By order of the Courts Within fifteen (15) days from receipt of the verified
The extinguishment of its franchise and the termination of following a quo request for dissolution, and in the absence of any
its corporate existence or business purpose. warranto proceeding, a withdrawal within said period, the Commission shall
proceeding involving a approved the request and issue the certificate of
However, for the purpose only of winding up its affairs and financially-distressed dissolution. The dissolution shall take effect only upon
liquidating its assets, its corporate existence continues for a corporation, or for the issuance by the Commission of certificate of
period of 3 years from such dissolution [Sec. 139]. grounds under existing dissolution.
laws.
Upon dissolution, the corporation ceases to be a juridical No application for dissolution of banks, banking and
person and consequently can no longer continue transacting quasi-banking institutions, preneed, insurance and trust
its business. companies, NSSLAs, pawnshops, and other financial
intermediaries shall be approved by the Commission
unless accompanied by a favorable recommendation of
Modes of Dissolution the appropriate government agency.
Section 134. Voluntarily Dissolution Where No Creditors
are Affected. - If dissolution of a corporation does not Section 135. Voluntary Dissolution Where Creditors are
Based on jurisprudence, the methods of effecting prejudice the rights of any creditor having a claim
dissolution as prescribed by law are exclusive, and a Affected; Procedure and Contents of Petition. - Where
against it, the dissolution may be effected by majority the dissolution of a corporation may prejudice the rights
corporation cannot be dissolved except in the manner vote of the board of directors or trustees, and by a
prescribed by law. of any creditor; a verified petition for dissolution shall
resolution adopted by the affirmative vote of the be filed with the Commission. The petition shall be
stockholders owning at least majority of the outstanding signed by a majority of the corporation's board of
Dissolution may be voluntary or involuntary: capital stock or majority of the members for a meeting directors or trustees, verified by its president or
to be held upon the call of the directors or trustees. secretary or one of its director or trustees, and shall set
VOLUNTARY INVOLUNTARY
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forth all claims and demands against it, and that its (1) Notice of the meeting should be given to the (b) Where creditors are affected [Sec. 135]
dissolution was resolved upon by the affirmative vote of stockholders or members at least 20 days
the stockholders representing at least two-thirds (2/3) of prior to the meeting; This covers a case where the corporation petitions for its
the outstanding capital stock or at least two-thirds (2/3) dissolution which may prejudice the rights of creditors, or
of the member at a meeting of its stockholder or (2) The notice of meeting should also be are not consented by all of them. Here, the corporation is
members called for that purpose. The petition shall published once prior to the meeting; not under financial distress or in a state of insolvency. In
likewise state: (a) the reason for the dissolution; (b) the those cases, the corporation must file a petition for
form, manner, and time when the notices were given; (3) The resolution to dissolve must be approved rehabilitation or liquidation in court.
and (c) the date, place and time of the meeting in which by the majority of the BOD/T and approved
vote was made. The corporation shall submit to the by at least majority of the Outstanding 1. A petition shall be filed with the SEC containing
Commission the following: (1) a copy of the resolution Capital Stock or majority of the members. the following:
authorizing the dissolution, certified by a majority of
the board of directors or trustees and countersigned by (4) The corporation must submit the following o (a) signature by a majority of its BOD/T or other officers
the secretary of the corporation; and (2) a list of all its the SEC: having management of its affairs;
creditors. (b) verified by its president, or secretary or one of its
a. A verified request for dissolution; director or trustees;
If the petition is sufficient in form and substance, the (c) all claims and demands against the corporation; and
Commission shall by an order reciting the purpose of b.A copy of the resolution certified by the (d) resolved upon by affirmative vote of the stockholders
the petition, fix a deadline for filing objections to the majority of the BOD/T and countersigned by representing at least 2/3 of the Outstanding Capital
petition which date shall not be less than thirty (30) the secretary; Stock or 2/3 of members;
days nor more than sixty (60) days after the entry of the
order. Before such date, a copy of the order shall be c. Proof of publication; 2. The corporation must submit the following to the
published at lease one week for three (3) consecutive SEC:
weeks in a newspaper of general circulation published d.Favorable recommendation from the
in the municipality or city where the principal office of appropriate regulatory agency, when (a) The petition for dissolution;
the corporation is situated, or if there be no such necessary; (b) A copy of the resolution authorizing the
newspaper, then in a newspaper of general circulation in dissolution, certified by the majority of the
the Philippines, and a similar copy shall be posted for BOD/T and countersigned by the secretary;
three (3) consecutive weeks in three (3) public places in No application of dissolution will be approved without and
such municipality or city. the favorable recommendation of the appropriate (c) A list of all its creditors.
government agency for banks, banking and quasi-
Upon five (5) days' notice given after the date on which banking institutions, pre-need, insurance and trust 3. If the petition is sufficient in form and
the right to file objections as fixed in the order has companies, non-stock savings and loans associations substance, the SEC shall issue an order
expired, the Commission shall proceed to hear the (NSSLA), pawnshops, and other financial fixing the date when objections to the petition may be filed
petition and try any issue raised in the objections filed; intermediaries. which shall not be less than 30 days nor] more than 60 days
and if no such objection is sufficient, and the material after the entry of the order.
allegations of the petition are true, it shall render Note: The signed and countersigned copy will
judgment dissolving the corporation and directing such be filed with the SEC and the latter will issue 4. A copy of the order shall be published at least
disposition of its assets as justice requires, and may the certificate of dissolution. once a week for 3 consecutive weeks in a
appoint a receiver to collect such assets and pay the newspaper of general circulation;
debts of the corporation. Withdrawal of the Request
The dissolution shall take effect only upon the issuance 5. A hearing of any issue or objections raised shall
by the Commission of a certificate of dissolution. The corporation may withdraw its verified request be conducted 5 days after the expiration of the
Voluntary Dissolution for dissolution within 15 days from receipt by time to file objections;
the SEC. Otherwise, the SEC shall approve the
(a) Where no creditors are affected [Sec. 134] request and issue the certificate of dissolution.
6. If the objections are insufficient or the material
This type of dissolution is initiated by the corporation. It Effectivity of Dissolution facts in the petition are true, judgment shall be
does not prejudice, or is not consented by creditors. rendered dissolving the corporation and
Dissolution shall take effect upon the issuance of directing the disposition of assets. The judgment
Procedure the certificate of dissolution by the SEC. may include appointment of a receiver.

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Section 136. Dissolution by Shortening Corporation and signed by the same number of incorporators, Upon receipt of a withdrawal of request for dissolution, the
Term. - A voluntary dissolution may be effected by directors, trustees, shareholder, or member and signed Commission shall withhold action on the request for
amending the articles of incorporation to shorten the by the same number of incorporators, directors, dissolution and shall, after investigation:
corporate term pursuant to the provisions of this Code. trustees, shareholders, or members necessary to request
A copy of the amended articles of incorporation shall be for dissolution as set forth in the foregoing sections. The (a) Make a pronouncement that the request for
submitted to the Commission in accordance with this withdrawal shall be submitted no later than fifteen (15) dissolution is deemed withdrawn;
Code. days from receipt by the Commission of the request for
dissolution, the Commission shall withhold action on the (b) Direct a joint meeting of the board of directors or
Upon the expiration of the shortened term, as stated in request for dissolution and shall, after investigation: (a) trustees and the stockholders or members for the
the approved amended articles of incorporation, the make a pronouncement that the request for dissolution purpose of ascertaining whether to proceed with
corporation shall be deemed dissolve without any is deemed withdrawn; (b) direct joint meeting of the dissolution; or
further proceedings, subject to the provisions of this board of directors or trustees and the stockholders or
Code on liquidation. members for the purpose of ascertaining whether to (c) Issue such other orders as it may deem
proceed with dissolution; or (c) issue such other orders appropriate.
In the case of expiration of corporate term, dissolution as it may deem appropriate.
shall automatically take effect on the day of the
following the last day of the corporate term stated in the A withdrawal of the petition for dissolution shall be in Section 138. Involuntary Dissolution. - A corporation
articles of incorporation without the need for the the form of a motion and similar in substance to a may be dissolved by the Commission motu propio or
issuance by the Commission of a certificate of withdrawal of request for dissolution but shall be upon filing of a verified complaint by any interested
dissolution. verified and filed prior to publication of the order party. The following may be grounds for dissolution of
setting the deadline for filing objections to the petition. the corporation:

Voluntary Dissolution by Shortening of Corporate Term (a) Non-use of corporate charter as provided
Withdrawal of Request and Petition for Dissolution under Section 21 of his Code;
A voluntary dissolution may be effected by amending the
AOI to shorten the corporate term under Sec 136. To be valid, a withdrawal of the request for dissolution (b) Continuous inoperation of a corporation as
Ipso Facto Dissolution shall be: provided under Section 21 of this Code;

Upon approval of the expired shortened term, the a. Made in writing; (c) Upon receipt of a lawful court order
corporation shall be deemed dissolved without any further dissolving the corporation;
proceedings, such dissolution taking effect on the day b. Duly verified by any incorporator, director,
following the last day of the corporate term. trustee, shareholder, or member; (d) Upon finding by the final judgment that the
corporation procured its incorporation
Shortening vs. Expiration c. Signed by the same number of incorporators, through fraud;
directors, trustees, shareholders, or members
Shortening of the Expiration of the necessary to request for dissolution as set forth in (e) Upon finding by final judgment that the
Corporate Term Original Term Secs. 133-136; corporation:

Has the effect of Where a corporation d. Submitted not later than fifteen (15) days from (1) Was created for the purpose of
dissolving the elects to retain its receipt by the SEC of the request for dissolution. committing, concealing or aiding the
corporation ipso facto, corporate term, and commission of securities violation,
once the shortened term such term has expired, A withdrawal of the petition for dissolution shall be in the smuggling, tax evasion, money
has arrived the corporation may form of a motion and similar in substance to a withdrawal laundering, or graft and corrupt
file a petition for of request for dissolution. The same shall be verified and practices;
revival of corporate filed prior to publication of the order setting the deadline
existence. for filing objections to the petition. (2) Committed or aided in the
commission of securities violations,
smuggling, tax evasion, money
Section 137. Withdrawal of Request and Petition for SEC Action laundering, or graft and corrupt
Dissolution. - A withdrawal of the request for dissolution practices, and its stockholders knew
shall be made in writing, duly verified by any of the same; and
incorporator, director, trustees, shareholder, or member
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(3) Repeatedly and knowingly tolerated For instance, the SEC may also suspend or revoke, after
the commission of graft and corrupt The delinquent corporation is given 2 years to proper notice and hearing, the certificate of registration of
practices or other fraudulent or resume operations and comply with all the private corporations under any of the following grounds:
illegal acts by its directors, trustees, requirements that the SEC shall prescribe.
officers, or employees. Otherwise, the SEC will prescribe its dissolution. (a) Fraud in procuring its certificate of incorporation;
(b) Serious misrepresentation as to what the
If the corporation is ordered dissolved by final (3) Upon receipt of a lawful court order corporation can do or is doing to the great
judgment pursuant to the grounds set forth in dissolving the corporation; prejudice of, or damage to, the general public;
subparagraph (e) hereof, its assets, after payment of its
liabilities, shall upon petition of the Commission with This ground may involve or arise from a quo (c) Refusal to comply or defiance of any lawful order
the appropriate court, be forfeited in favor of the warranto proceeding involving a de facto of the SEC restraining commission of acts which
national government. Such forfeiture shall be without corporation (Sec 19, RCC) or a liquidation amount to a grave violation of its franchise;
prejudice to the rights of innocent stockholders and proceeding involving an insolvent debtor under
employees for services rendered, and to the application FRIA. (d) Failure to file bylaws;
for other penalty or sanction under this Code or other
laws. (4) Upon finding by final judgment that the (e) Failure to file required reports in appropriate
corporation procured its incorporation forms as determined by the SEC within the
The Commission shall give reasonable notice to, and through fraud; prescribed period (PD No.902-A, Sec 6(i)).
coordinate with, the appropriate regulatory agency
prior to the involuntary dissolution of companies under This ground constitutes cases where a
their special regulatory jurisdiction. corporation misrepresented its purpose of Section 139. Corporate Liquidation. - Except for banks,
incorporation, or when the incorporators used which shall be covered by the applicable provisions of
fictitious names, there was then fraud in the Republic Act No. 7653, otherwise known as "The New
Involuntary Dissolution procurement of the certificate. Central Bank Act", as amended, and Republic Act No.
3591, otherwise known as the Philippine Deposit
A. Legislative Dissolution (5) Upon finding by final judgment that the Insurance Corporation Charter, as amended, every
corporation was created for an unlawful corporation whose charter expires pursuant to its article
The inherent power of Congress to make laws carries with purpose; of incorporation is annulled by forfeiture, or whose
it the power to amend or repeal them. Involuntary corporate corporate existence is terminated in any other manner,
dissolution may be effected through the amendment or This ground is a new provision. Here, a shall nevertheless remain as a body corporate for three
repeal of the Revised Corporation Code. corporation found by final judgment to have (3) years after the effective date of dissolution, for the
been created for the purpose of committing, purpose of prosecuting and defending suits by or
B. Dissolution by the SEC on grounds under the Code concealing, or aiding the commission of against it and enabling it to settle and close its affairs,
and other existing laws securities violations, smuggling, tax evasion, dispose of and convey its property, and distribute its
money laundering or graft and corrupt practices, assets, but not for the purpose of continuing the
Grounds under the Code: may be subjected to involuntary dissolution by business for which it was established.
the SEC, motu proprio or upon filing of a verified At any time during said three (3) years, the corporation
(1) Non-use of corporate charter; complaint by any interested party. is authorized and empowered to convey all of its
property to trustees for the benefit of stockholders,
If a corporation fails to formally organize and In addition, the corporate assets after payment of members, creditors, and other persons in interest. After
commence the transaction of its business or its liabilities shall be forfeited in any such conveyance by the corporation of its property
construction of its works within 5 years, its favor of the government upon petition of the SEC in trust for the benefit of its stockholders, members,
certificate of incorporation shall be deemed with the appropriate court. creditors and others in interest, all interest which the
revoked, its corporate powers shall cease and the corporation had in the property terminates, the legal
corporation shall be deemed dissolved [Sec. 21]. interest vests in the trustees, and the beneficial interest
Grounds under other existing laws in the stockholders, members, creditors or other
(2) Continuous inoperation of a corporation; persons-in-interest.
The grounds enumerated above are not exclusive. There
If a corporation commenced its business but fails are other grounds to dissolve the corporation upon order of Except as otherwise provided for in Section 93 and 94 of
to continue operations after least 5 consecutive the SEC which may be found in other laws. this Code, upon the winding up of corporate affairs, any
years, the corporation is first placed on asset distributable to any creditor or stockholder or
delinquent status, after due notice and hearing.
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member who is unknown or cannot be found shall be Note: A corporation in the process of liquidation has (FRIA) of 2010, whenever necessary in order to
escheated in favor of the national government. no legal authority to engage in any new business, preserve the rights of the parties-litigants and/or
even if the same is in accordance with the primary protect the interest of the investing public and
Except by decrease of capital stock and as otherwise purpose stated in its article of incorporation. creditors.
allowed by this Code, no corporation shall distribute
any of its assets or property except upon lawful  It may not acquire new rights or incur new Management Committee - The body appointed by
dissolution and after payment of all its debts and obligations.
the court who shall take the place of the
liabilities.
management and the governing body of the debtor
 Pending actions against the corporation may still be
prosecuted against the corporation even beyond the corporation and assume their rights and
3-year period. responsibilities.

 It may only have rights as may be required by the A management committee may be appointed in the
Corporate Liquidation
process of liquidation. following cases:
Methods of Liquidation
Liquidation is the process by which all the assets of the
corporation are converted into liquid assets (cash) in order i. Actual or imminent danger of dissipation,
(1) By the corporation itself or its board of directors loss, wastage or destruction of the debtor’s
to facilitate the payment of obligations to creditors, and the or trustees (Sec. 139[1], RCC)
remaining balance if any is to be distributed to the assets or other properties;
stockholders.
The liquidation and distribution of the assets of a ii. Paralyzation of the business operations of
The end of corporate relations does not result in the dissolved corporation is a matter of internal concern the debtor; or
immediate termination of corporate of the corporation and falls within the power of the iii. Gross mismanagement or gross or willful
existence. A corporation shall have the extended term of 3 directors and stockholders or duly appointed violation of the law committed by existing
years to wind up its corporate affairs and liquidate its liquidation trustee [SEC Opinion, July 23, 1996]. management of the debtor, director, officer
assets. or representative/s in management of the
(2) By conveyance to a trustee within a three-year debtor. [Sec. 36, FRIA]
The RCC provides that any distributable asset to an period (Sec. 139[2], RCC)
unknown creditor or corporator shall be escheated in favor
of the national government. Liquidation may also be placed in the hands of a (4) By liquidation after three years
trustee or assignee. All the corporate assets are
conveyed to such trustee or assignee by a resolution Under Sec. 139, after the expiration of the 3-year winding-
Winding Up of Corporate Affairs of stockholders at any time during the 3-year period. up period, pending actions by or against the corporation are
[Sec. 139] abated.
General Rule: Under Sec. 139 of the RCC, a corporation
loses its juridical personality and can no longer enter into It should not, however, be construed as to prevent a
In this method, the 3-year limitation DOES NOT
transactions that have the effect of continuing its business. corporation from pursuing activities which would
apply, provided that the designation of the trustees
complete the final liquidation of a dissolved
Exception: The only exception to this is the “winding-up” is made within the period. corporation.
period which takes place for 3 years after the loss of the
corporation’s juridical personality. (3) By a management committee or rehabilitation
receiver appointed by the SEC (Sec. 119, RCC) ☼☼ END ☼☼
 It continues to be a body corporate for purposes of
prosecuting and defending suits by and against it and In the SEC’s judgment dissolving the corporation
to enable it to settle and close its affairs, culminating and directing disposition of its assets as justice
in the disposition and distribution of its remaining requires, it may appoint a receiver to collect such
assets. assets and pay the debts of the corporation. [Sec.
135]
 It may, during the 3-year term, appoint a trustee or a
receiver who may act beyond that period. Rehabilitation Receiver - A natural or juridical
person appointed by the court pursuant to RA 10142
or the Financial Rehabilitation and Insolvency Act
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