REVIEW NOTES

Corporation - is an artificial being created by jurisdiction unless it has obtained a license

operation of law, having the right of succession or authority from the foreign state.
and the powers, attributes and properties 3. The shareholders’ limited liability tends to
expressly authorized by law or incident to its limit the credit available to the corporation
existence. as a separate legal entity.
4. Transfers of share may result to uniting
Attributes of a Corporation incompatible and conflicting interests.
1. It is an artificial being 5. Minority shareholders have practically no
2. It is created by operation of law say in the conduct of corporate affairs.
3. It has the right of succession 6. Stockholders voting rights may become
4. It has the powers, attributes and properties merely fictitious and theoretical because of
expressly authorized by law or incident to its disinterest in management, wide scale
existence ownership and inaccessible place of
meeting.
Advantages of Corporate Form of Business 7. Double taxation may be imposed on
1. Capacity to act as a single unit. corporate income.
2. Limited shareholders liability. 8. Corporations are subject to governmental
3. Continuity of existence regulations, supervision and control
4. Transferability of shares including submission of reportorial
5. Centralized management. requirements not otherwise in other
6. Standardized method of organization, business form.
management and finance.
Classification of corporations
Disadvantages of the Corporate Form of 1. As to whether shares of stock are issued or
Business not
1. To have a valid and binding corporate act, a. Stock corporation – a corporation in
formal proceedings, such as board meetings which capital stock is divided into
are required. shares and is authorized to distribute to
2. The business transactions of a corporation holders thereof of such shares
are limited to the State of its incorporation dividends or allotment of the surplus
and may not act as such corporation in other profits on the basis of the shares held.

b. Non-stock corporation – a corporation Filipino citizens and corporation to do

which does not issue stocks and does business in its own country or state.
not distribute dividends to their 3. As to number of persons composing them
members. a. Corporation aggregate
2. As to the state or country under whose laws b. Corporation sole
it was created 4. As to whether its purpose is public or private
a. Domestic corporation – a corporation a. Public corporation - geographical
formed, organized or existing under the subdivisions or political subdivisions of
laws of the Philippines. the state. (Ex: Municipality, City,
b. Foreign corporation - is a corporation Province)
which is formed, organized or existing b. Private corporation – this is a
under any laws other than those of the corporation where the main purpose of
Philippines and whose laws allow which is for profit
5. As to whether its purpose is religious or not
a. Ecclesiastical or religious corporation Share of stock - is one of the units into which the
b. Lay Corporation capital stock of the corporation is divided.
6. As to whether its purpose is charitable or not
a. Eleemosynary corporation Stock certificate - is the written acknowledgment
b. Civil corporation by the corporation of the stockholder’s interest in
7. As to their legal right to corporate existence the corporation and its property.
a. De Jure Corporation – one created in
strict or substantial conformity with the Classification of Shares
statutory requirements for 1. Preferred shares - issued by any corporation
incorporation. Cannot be attacked may be given preference in the distribution
directly or collateraly. of the assets of the corporation in case of
De facto corporation – a corporation where liquidation and in the distribution of
there exists a flaw in its incorporation. Can be dividends, or such other preferences as may
attacked by the state in a proper proceeding be stated in the articles of incorporation
which are not violative of the provisions of
(Qou Warranto).
this Code
What are the requisites? 2. Redeemable shares - may be issued by the
8. As to their relation to another corporation or corporation when expressly so provided in
other corporations the articles of incorporation. They may be
a. Parent or Holding Corporation - One purchased or taken up by the corporation
which owns the shares of another upon the expiration of a fixed period,
corporation and having power, directly regardless of the existence of unrestricted
or indirectly, over the latter includes the retained earnings in the books of the
election of the directors thereof. corporation, and upon such other terms and
b. Subsidiary Corporation - One whose conditions as may be stated in the articles of
shares of stock are owned by another incorporation, which terms and conditions
corporation, called the parent must also be stated in the certificate of stock
corporation, which has the power to representing said shares.
elect its directors. 3. Founders’ shares- classified as such in the
9. As to whether its shares may be held by the articles of incorporation may be given
public or not certain rights and privileges not enjoyed by
a. Close corporation the owners of other stocks, provided that
b. Open corporation where the exclusive right to vote and be
10. Other classifications voted for in the election of directors is
1. Corporation by prescription granted, it must be for a limited period not
2. Corporation by estoppel – group of to exceed five (5) years subject to the
persons which holds itself out as a approval of the Securities and Exchange
corporation and enters into a contract Commission. The five-year period shall
with a third person on the strength of commence from the date of the aforesaid
such appearance cannot be permitted approval by the Securities and Exchange
to deny its existence in an action under Commission.
said contract. Not actually a real 4. Treasury shares- are shares of stock which
corporation. have been issued and fully paid for, but
 subsequently reacquired by the issuing 2. The purpose or purposes of the
corporation by purchase, redemption, corporation
donation or through some other lawful 3. The place of the principal office which
means. Such shares may again be disposed must be in the Philippines.
of for a reasonable price fixed by the board 4. The term of existence
of directors. 5. Names, nationalities and residencies of
5. Watered stock – those issued without the incorporators
consideration or with no adequate 6. Number and qualifications of
consideration. incorporators
6. Par Value Shares 7. Number, names, nationalities and
7. No Par Value Shares residences of the directors or trustees.
8. Voting shares – those entitled to vote in the 8. The amount of authorized capital stock
meetings of the corporation. in lawful money of the Philippines, if the
9. Non-voting shares – those without voting number of shares are without par value,
rights, except in certain cases. the number of authorized shares and
the fact that they are without par value
 Where the articles of incorporation must be stated.
provide for non-voting shares in the 9. The names of the subscribers,
cases allowed by this Code, the holders nationalities, number of shares
of such shares shall nevertheless be subscribed, amount subscribed,
entitled to vote on the following amount subscribed, and amount paid-in
matters: 10. Other matters not inconsistent with law
and which the incorporators may deem
1. Amendment of the articles of 11. necessary or convenient.
incorporation; 12. The name of the temporary treasurer
2. Adoption and amendment of by-laws; elected (treasurer-in-trust).
3. Sale, lease, exchange, mortgage, pledge 13. Notarial acknowledgment.
or other disposition of all or 14. Treasurer’s affidavit.
substantially all of the corporate
property; Amendment of the articles of incorporation
4. Incurring, creating or increasing bonded 1. Purpose
indebtedness; It must be for a legitimate purpose or
5. Increase or decrease of capital stock; purposes.
6. Merger or consolidation of the 2. Procedure:
corporation with another corporation Majority vote of the Directors, and the vote
or other corporations; or written assent of 2/3 of the outstanding
7. Investment of corporate funds in capital stock for stock corporation or 2/3 of
another corporation or business in the members for non-stock corporation.
accordance with this Code; and 3. When effective:
8. Dissolution of the corporation. Upon approval of SEC or if not acted upon by
SEC within six (6) months from the date of
Contents of the articles of Incorporation filing provided that delay cannot be
1. The name of the corporation. attributed to the corporation.
Effect of non-use of corporate charter for 2  Term of office of directors or trustees – one
years? (1) year and until their successors are
elected and qualified.
Effect of continuous non-operation for 5 years?
 Number of directors or trustees
Grounds when articles of incorporation or 1. In stock corporations : Not less than 5
amendment may be rejected or disapproved. nor more than 15 directors.
The Securities and Exchange Commission may 2. Non-stock corporations: Not less than 5
reject the articles of incorporation or disapprove nor more than 15 trustees with the term
any amendment thereto if the same is not in of office of 1/3 of their number shall
compliance with the requirements of this Code. expire every year.
3. Close corporations : the articles of
Provided: That the Commission shall give the incorporation may provide that the
incorporators a reasonable time within which to business of the corporation shall be
correct or modify the objectionable portions of managed by its stockholders rather by a
the articles or amendment. board of directors, in which case no
meeting of stockholders need not be
The following are grounds for such rejection or held to elect directors.
disapproval: 4. Trustees of non-stock educational
1. That the articles of incorporation or any corporations: Not less than 5 nor more
amendment thereto is not substantially than 15, provided that the number shall
in accordance with the form prescribed be in multiples of 5, with the term of
herein; office of 1/5 of their number expiring
2. That the purpose or purposes of the every year.
corporation are patently 5. Corporation sole: no board of directors
unconstitutional, illegal, immoral, or or trustees because it only consists of
contrary to government rules and one member or corporator only.
regulations; 6. Religious societies: Not less than 5 nor
3. That the Treasurer's Affidavit more than 15.
concerning the amount of capital stock
subscribed and/or paid if false;  Qualifications of directors or trustees::
4. That the percentage of ownership of 1. Stock corporations :
the capital stock to be owned by citizens a. Every director must own at least
of the Philippines has not been one share of the capital stock.
complied with as required by existing b. The share of stock must be
laws or the Constitution. registered in his name on the books
of the corporation.
Board of Directors, Trustees and Officers c. Every director must continuously
 Governing body of the corporation - the own at least a share of stock during
corporate powers of all corporations formed his term, otherwise, he shall
under the Corporation Code shall be automatically cease to be a
exercised, all business conducted and all director.
property of such corporations controlled and d. Majority of the directors must be
held by the board of directors or trustess. residents of the Philippines
 2. Non-stock corporations – trustees of  Secretary – must be a resident and citizen of
non-stock corporations must be the Philippines. Need not be a director
members thereof and like in stock unless required by the by-laws.
corporations, a majority of them must  Other officers as may be provided in the by-
be residents of the Philippines. laws.

Election of directors or trustees What are the requisites of board meeting?

1. They are elected at a meeting called for the  Quorum - is the number of directors or
purpose. trustees sufficient to transact business.
2. There must be present in person or by - Quorum in meeting of directors or
representative authorized by written proxy: trustees:
a. The owners of the majority of the General rule: Majority of the number of
outstanding capital stock, if a stock directors or trustees fixed in the articles of
corporation. incorporation.
b. The majority of the members, if a non- Exception: If the articles of incorporation or
stock corporation. by-laws provide for a for a greater number
3. The election must be by ballot if requested
by any voting stockholder or member.  Vote required to have a valid corporate act
4. No delinquent stock shall be voted.  Majority of those present provided there is a
5. Methods of voting. quorum except in the election of officers
a. Stock corporation which requires a majority vote or all
1. Straight voting members of the board.
2. Cummulative voting for one (1)  Directors or trustees cannot attend or vote
candidate by proxy at board meetings.
3. Cummulative voting by
distribution. Report of election of directors, trustees and
b. Non-stock corporation officers.
A member may cast as many votes as  Within thirty (30) days after the election of
there are trustees to be elected but the directors, trustees and officers of the
may not cast more than one vote for corporation, the secretary, or any other
one candidate. officer of the corporation, shall submit to the
Securities and Exchange Commission, the
Corporate officers names, nationalities and residences of the
Immediately after their election, the directors directors, trustees, and officers elected.
must formally organize by the election of the  Should a director, trustee or officer die,
following officers: resign or in any manner cease to hold office,
 President – Must be a director but cannot his heirs in case of his death, the secretary,
act as president and secretary or president or any other officer of the corporation, or
and treasurer at the same time. The powers the director, trustee or officer himself, shall
of the president of the corporation are such immediately report such fact to the
only as are conferred upon him by the board Securities and Exchange Commission.
of directors or trustees or vested in him by
the by-laws. Disqualification of directors, trustees or officers?
 Treasurer – may be a director or not.
Removal of directors of trustees death, resignation,
Requisites abandonment, or
a. The removal must take place in a disqualification, if the
regular meeting of the corporation or in remaining directors or
a special meeting called for the trustees do not constitute a
purpose. quorum for the purpose of
b. Previous notice of the intention to filling the vacancy.
propose such removal must have been III. If the vacancy may be filled by
given to the stockholders or members. the remaining directors or
c. The following vote must been obtained trustees but the board refers
to effect the removal: the matter to the stockholders
1) Stock corporation- by the or members.
stockholders representing at least IV. If the vacancy is created by
2/3 of the outstanding at least 2/3 reason of an increase in the
of the outstanding capital stock number of directors or
entitled to vote. trustees.
2) Non-stock corporation- 2/3 of the
members entitled to vote. 2. By the board of directors or
trustees
 Vacancies in the office of director or If the cause of vacancy is other than
trustee removal, expiration of term or
1. Removal increase in the number of
2. Expiration of term directors, and the remaining
3. Increase in the number of directors directors or trustees still
4. Resignation constitutes a quorum.
5. Death
6. Abandonment Compensation of directors
7. Disqualification General rule: Directors are not entitled to
compensation as such as directors.
 Filling of vacancy Exception: Directors are entitled to
A vacancy in the office of the board of compensation in the following cases:
directors or trustees may be filled as 1. Fixed in the by-laws.
follows: 2. Giving of compensation is approved by
the stockholders representing at least a
1. By the stockholders or members majority of the outstanding capital
If the cause of vacancy is any of the stock.
following: 3. The compensation refers to reasonable
I. If the vacancy results from the per diems
removal by the stockholders 4. If the director is also a corporate officer.
or members or the expiration
off term. Limitation on compensation
II. If the vacancy occurs other The total yearly compensation (excluding per
than by removal or by diems) of directors, as such directors must not
expiration of term, such as
exceed 10% of the net income before income tax
of the corporation during the preceding year.

Liability of directors or trustees for damages Dealings of directors, trustees or officers with
 Directors or trustees who willfully and the corporation.
knowingly vote for or assent to patently A contract of the corporation with one or more of
unlawful acts of the corporation or who are its directors or trustees or officers is voidable, at
guilty of gross negligence or bad faith in the option of such corporation, unless all the
directing the affairs of the corporation or following conditions are present:
acquire any personal or pecuniary interest in 1. That the presence of such director or trustee
conflict with their duty as such directors or in the board meeting in which the contract
trustees shall be liable jointly and severally was approved was not necessary to
(Solidary) for all damages resulting constitute a quorum for such meeting;
therefrom suffered by the corporation, its 2. That the vote of such director or trustee was
stockholders or members and other persons. nor necessary for the approval of the
 When a director, trustee or officer attempts contract;
to acquire or acquires, in violation of his 3. That the contract is fair and reasonable
duty, any interest adverse to the under the circumstances; and
corporation in respect of any matter which 4. That in case of an officer, the contract has
has been reposed in him in confidence, as to been previously authorized by the board of
which equity imposes a disability upon him directors.
to deal in his own behalf, he shall be liable as
a trustee for the corporation and must Where any of the first two conditions set forth in
account for the profits which otherwise the preceding paragraph is absent, in the case of
would have accrued to the corporation. a contract with a director or trustee, such
contract may be ratified by the vote of the
In what instances the director, trustee is stockholders representing at least two-thirds
therefore liable for damages? (2/3) of the outstanding capital stock or of at least
two-thirds (2/3) of the members in a meeting
 The director, trustee or officer would be called for the purpose.
held accountable to the corporation,
stockholders or members for the secret Provided, That full disclosure of the adverse
profits which would have accrued to the interest of the directors or trustees involved is
corporation. made at such meeting: Provided, however, That
 Nature of directors/trustees position the contract is fair and reasonable under the
1. They are agents of the corporation circumstances.
2. They are personally liable to the  The contract shall be valid if all the
corporation for any loss or injury arising conditions enumerated above are present.
from gross negligence or unauthorized  If the first or the second condition is absent,
acts or violation of their duties. the contract may still be valid if ratified to by
3. They are not liable for business losses the stockholders holding at least 2/3 of the
because of honest bad judgment. outstanding capital stock or at least 2/3 of
the members
 In addition:
 The contract must be fair and Executive committee
reasonable.  The by-laws of a corporation may create an
 There must be a meeting duly called for executive committee, composed of not less
that purpose. than three members of the board, to be
appointed by the board.
Contracts between corporations with  The executive committee may act, by
interlocking directors. majority vote of all its members, on such
 Contract between two or more corporations specific matters within the competence of
having interlocking directors shall not be the board, as may be delegated to it in the
invalidated on that ground alone. by-laws or on a majority vote of the board.
 Provided, That if the interest of the  The executive committee has no power to
interlocking director in one corporation is act on the following:
substantial and his interest in the other 1. Approval of any action for which
corporation or corporations is merely shareholders' approval is also required.
nominal, he shall be subject to the 2. The filing of vacancies in the board.
provisions of the dealings of directors, 3. The amendment or repeal of by-laws or
trustees or officers insofar as the latter the adoption of new by-laws.
corporation or corporations are concerned. 4. The amendment or repeal of any
 The latter corporation stated by the law resolution of the board which by its
refers to the corporation where the express terms is not so amendable or
interlocking director has a nomimal repealable.
interest. The rule in the dealings of 5. A distribution of cash dividends to the
directors, trustees or officers shall be shareholders.
applicable.
 This rule in contracts between Powers of Corporation
corporations with interlocking directors
shall not be applicable in cases of fraud, Kinds of powers
and provided the contract is fair and 1. Express powers- powers expressly
reasonable under the circumstances. authorized by the Corporation Code and
 Stockholdings exceeding twenty (20%) other laws, and its Articles of Incorporation
percent of the outstanding capital stock shall or charter.
be considered substantial for purposes of 2. Implied powers- those that can be inferred
interlocking directors. from or necessary for the exercise of the
express powers.
Disloyalty of a director. 3. Incidental or inherent powers-by reason of
 Where a director, by virtue of his office, its very existence as a corporation.
acquires for himself a business opportunity
which should belong to the corporation, Express Powers
thereby obtaining profits to the prejudice of General Powers
such corporation, the director must account 1. To sue and be sued in its corporate name.
to the corporation for all such profits by 2. Of succession by its corporate name for the
refunding the same. period of time stated in the articles of
 incorporation and the certificate of A private corporation may extend or shorten
incorporation. its term as stated in the articles of
3. To adopt and use a corporate seal. incorporation when approved by:
4. To amend its articles of incorporation in I. a majority vote of the board of
accordance with the provisions of this Code. directors or trustees and ratified at a
5. To adopt by-laws, not contrary to law, meeting by the stockholders
morals, or public policy, and to amend or representing at least two-thirds (2/3)
repeal the same in accordance with this of the outstanding capital stock
Code. II. or by at least two-thirds (2/3) of the
6. In case of stock corporations, to issue or sell members in case of non-stock
stocks to subscribers and to sell stocks to corporations.
subscribers and to sell treasury stocks in  Written notice of the proposed
accordance with the provisions of this Code; action and of the time and place
and to admit members to the corporation if of the meeting shall be
it be a non-stock corporation. addressed to each stockholder
7. To purchase, receive, take or grant, hold, or member at his place of
convey, sell, lease, pledge, mortgage and residence as shown on the books
otherwise deal with such real and personal of the corporation and deposited
property, including securities and bonds of to the addressee in the post
other corporations, as the transaction of the office with postage prepaid, or
lawful business of the corporation may served personally.
reasonably and necessarily require, subject  Provided, That in case of
to the limitations prescribed by law and the extension of corporate term,
Constitution. any dissenting stockholder may
8. To enter into merger or consolidation with exercise his appraisal right
other corporations as provided in this Code. under the conditions provided
9. To make reasonable donations, including in this code.
those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar b. Power to increase or decrease capital stock;
purposes: Provided, That no corporation, incur, create or increase bonded
domestic or foreign, shall give donations in indebtedness.
aid of any political party or candidate or for No corporation shall increase or decrease its
purposes of partisan political activity. capital stock or incur, create or increase any
10. To establish pension, retirement, and other bonded indebtedness unless:
plans for the benefit of its directors,  approved by a majority vote of the
trustees, officers and employees. board of directors and, at a
11. To exercise such other powers as may be stockholder's meeting duly called for
essential or necessary to carry out its the purpose, two-thirds (2/3) of the
purpose or purposes as stated in the articles outstanding capital stock shall favor
of incorporation. the increase or diminution of the capital
stock, or the incurring, creating or
Specific Powers increasing of any bonded indebtedness.
a. Power to extend or shorten corporate term.  Written notice of the proposed increase
or diminution of the capital stock or of
the incurring, creating, or increasing of 6. The amount of stock represented
any bonded indebtedness and of the at the meeting; and
time and place of the stockholder's 7. The vote authorizing the increase
meeting at which the proposed increase or diminution of the capital stock,
or diminution of the capital stock or the or the incurring, creating or
incurring or increasing of any bonded increasing of any bonded
indebtedness is to be considered, must indebtedness.
be addressed to each stockholder at his
place of residence as shown on the Trust Fund Doctrine - Under this
books of the corporation and deposited doctrine, the capital stock and
to the addressee in the post office with assets of the corporation are held
postage prepaid, or served personally. in trust for creditors. Accordingly,
there shall be no distribution of
A certificate in duplicate must be signed assets to shareholders until the
by a majority of the directors of the claims of creditors have been paid
corporation and countersigned by the or appropriations of such assets
chairman and the secretary of the have been made for the payment
stockholders' meeting, setting forth: of such claims.
1. That the requirements of this  Non-stock corporations may
section have been complied with. incur or create bonded
2. The amount of the increase or indebtedness, or increase the
diminution of the capital stock. same, with the approval by a
3. If an increase of the capital stock, majority vote of the board of
the amount of capital stock or trustees and of at least two-
number of shares of no-par stock thirds (2/3) of the members in
thereof actually subscribed, the a meeting duly called for the
names, nationalities and purpose.
residences of the persons  Bonds issued by a corporation
subscribing, the amount of capital shall be registered with the
stock or number of no-par stock Securities and Exchange
subscribed by each, and the Commission, which shall have
amount paid by each on his the authority to determine the
subscription in cash or property, or sufficiency of the terms
the amount of capital stock or thereof.
number of shares of no-par stock
allotted to each stock-holder if c. Power to deny pre-emptive right.
such increase is for the purpose of All stockholders of a stock corporation shall
making effective stock dividend enjoy pre-emptive right to subscribe to all
therefor authorized. issues or disposition of shares of any class, in
4. Any bonded indebtedness to be proportion to their respective
incurred, created or increased. shareholdings.
5. The actual indebtedness of the The power of pre-emptive right may be
corporation on the day of the denied in the following instances?
meeting.
d. Sale or other disposition of assets. –
Subject to the provisions of existing laws on  In non-stock corporations where
illegal combinations and monopolies, a there are no members with
corporation may sell, lease, exchange, voting rights, the vote of at least
mortgage, pledge or otherwise dispose of all a majority of the trustees in
or substantially all of its property and assets, office will be sufficient
including its goodwill, upon such terms and authorization for the
conditions and for such consideration, which corporation to enter into any
may be money, stocks, bonds or other transaction authorized by this
instruments for the payment of money or section.
other property or consideration, by:
I. a majority vote of its board of e. Power to acquire own shares.
directors or trustees and when A stock corporation shall have the power to
authorized by the vote of the purchase or acquire its own shares for a
stockholders representing at least legitimate corporate purpose or purposes,
two-thirds (2/3) of the outstanding including but not limited to the following
capital stock, or in case of non-stock cases: Provided, That the corporation has
corporation, by the vote of at least to unrestricted retained earnings in its books
two-thirds (2/3) of the members, in to cover the shares to be purchased or
a stockholder's or member's meeting acquired.
duly called for the purpose.
Purposes why the corporation has the power
 Written notice of the proposed to acquire own shares?
action and of the time and place
of the meeting shall be f. Power to invest corporate funds in another
addressed to each stockholder corporation or business or for any other
or member at his place of purpose.
residence as shown on the books Subject to the provisions of this Code, a
of the corporation and deposited private corporation may invest its funds in
to the addressee in the post any other corporation or business or for any
office with postage prepaid, or purpose other than the primary purpose for
served personally. which it was organized when approved by:
II. Provided, That any dissenting I. a majority of the board of directors or
stockholder may exercise his trustees and ratified by the
appraisal right under the conditions stockholders representing at least
provided in this Code. two-thirds (2/3) of the outstanding
III. A sale or other disposition shall be capital stock, or by at least two thirds
deemed to cover substantially all the (2/3) of the members in the case of
corporate property and assets if non-stock corporations, at a
thereby the corporation would be stockholder's or member's meeting
rendered incapable of continuing the duly called for the purpose.
business or accomplishing the II. Written notice of the proposed
purpose for which it was investment and the time and place of
incorporated. the meeting shall be addressed to
 each stockholder or member at his  As a general rule: No corporation shall
place of residence as shown on the conclude a management contract with
books of the corporation and another corporation unless such
deposited to the addressee in the contract shall have been approved by
post office with postage prepaid, or the board of directors and by
served personally: stockholders owning at least the
III. Provided, That any dissenting majority of the outstanding capital
stockholder shall have appraisal stock, or by at least a majority of the
right as provided in this Code. members in the case of a non-stock
IV. Provided, however, That where the corporation, of both the managing and
investment by the corporation is the managed corporation, at a meeting
reasonably necessary to accomplish duly called for the purpose.
its primary purpose as stated in the  Exception: The management contract
articles of incorporation, the must be approved by the stockholders
approval of the stockholders or of the managed corporation owning at
members shall not be necessary. least two-thirds (2/3) of the total
outstanding capital stock entitled to
g. Power to declare dividends. vote, or by at least two-thirds (2/3) of
The board of directors of a stock the members in the case of a non-stock
corporation may declare dividends out of corporation in the following instances:
the unrestricted retained earnings which I. where a stockholder or
shall be payable in cash, in property, or in stockholders representing the
stock to all stockholders on the basis of same interest of both the
outstanding stock held by them. managing and the managed
 Provided, That any cash dividends due corporations own or control more
on delinquent stock shall first be than one-third (1/3) of the total
applied to the unpaid balance on the outstanding capital stock entitled
subscription plus costs and expenses, to vote of the managing
while stock dividends shall be withheld corporation; or
from the delinquent stockholder until II. where a majority of the members
his unpaid subscription is fully paid. of the board of directors of the
 Provided, further, That no stock managing corporation also
dividend shall be issued without the constitute a majority of the
approval of stockholders representing members of the board of directors
not less than two-thirds (2/3) of the of the managed corporation, then
outstanding capital stock at a regular or the.
special meeting duly called for the Ultra vires acts of corporations.
purpose. No corporation under this Code shall possess or
 Stock corporations are prohibited from exercise any corporate powers except those
retaining surplus profits in excess of one conferred by this Code or by its articles of
hundred (100%) percent of their paid-in incorporation and except such as are necessary
capital stock, what are the exception? or incidental to the exercise of the powers so
conferred.
h. Power to enter into management contract.
By-Laws a. Stockholders together with the Board :
Relatively permanent and continuing rules of Majority of Board plus Majority of
action adopted by the corporation for its own outstanding capital stock.
government and that of the individuals b. Board only:
composing it and those having the direction, Delegation of power to amend or repeal
management and control of its affairs, in whole by-laws or adopt new by-laws to board
or in part, in the management and control of its of directors or trustees
affairs and activities. a. Delegation of the power
The owners of 2/3 of the
Requisites: outstanding capital stock or 2/3 of
1. must be consistent with the Corporation the members may delegate to the
Code, other pertinent laws and regulations. board of directors or trustees the
2. It must be consistent with the Articles of power to amend or repeal by-laws
Incorporation. or adopt new by-laws. In such a
3. It must be reasonable and not arbitrary or case, the board of directors or
oppressive. trustees may amend or repeal the
4. It must not disturb vested rights, impair by-laws or adopt new by-laws by a
contract or property rights of stockholders majority vote of those present
or members or create obligations unknown provided there is a quorum.
to law. b. Revocation of the power
The owners of the majority of the
Adoption of By-laws outstanding capital stock or
1. Prior to incorporation majority of the members may
a. Submitted together with the articles of revoke the power previously
incorporation, to the SEC and delegated to the board.
b. Approved and signed by all the
incorporators. 2. When amendment or new by-laws effective
Upon the issuance by the SEC of a
2. After incorporation certification that the amended or new by-
a. Submitted within 1 month after the laws are not inconsistent with the
receipt of the official notice of the Corporation Code.
issuance of certificate of the
incorporation, and. Meetings
b. Approved by the stockholders Kinds of meeting
representing at least a majority of the
outstanding capital stock, or by a 1. Meetings of directors or trustees
majority of the members. a. Regular meetings of the board of
directors or trustees of every
When effective : Upon the issuance of the SEC of corporation shall be held monthly,
certification that the by-laws are not inconsistent unless the by-laws provide otherwise.
with the Corporation Code. b. Special meetings of the board of
directors or trustees may be held at any
Amendment: time upon the call of the president or as
1. May be made by the provided in the by-laws.
  Notice of regular or special meetings  They shall be held in the city or municipality
stating the date, time and place of the where the principal office of the corporation
meeting must be sent to every director or is located, and if practicable in the principal
trustee at least one (1) day prior to the office of the corporation. For this purpose,
scheduled meeting, unless otherwise Metro Manila shall be considered a city or
provided by the by-laws municipality.
 Meetings of directors or trustees of  Majority of the outstanding capital stock or
corporations may be held anywhere in or majority of the members shall constitute a
outside of the Philippines, unless the by- quorum, unless a greater majority is provided
laws provide otherwise. for in the Corporation Code or in the by-laws.
 A director or trustee may waive this  The president, shall preside at all meetings of
requirement, either expressly or impliedly stockholders or members, unless the by-laws
 Quorum in meetings - Majority of the provide otherwise.
number of directors or trustees stated in
the articles of incorporation, unless such  Manner of voting
articles or the by-laws provide for a a. Stockholders vote by shares. Members
greater majority. vote on the per head basis unless the
 The president shall preside at all meetings by-laws provide otherwise.
of the directors or trustees, unless the by- b. Right to vote
laws provide otherwise. 1) Directly or personally by the
 Directors or trustees vote during stockholders or member
meetings per head. Directors or trustees 2) Through representative voting
cannot attend or vote by proxy at board a) By means of proxy
meetings.
Proxy (3 DEFINITIONS)
2. Meetings of stockholders or members (1) The formal authority
 Regular meeting - This is held annually given by the shareholder
on a date fixed in the by-laws, or if not or member to another
so fixed, on any date in April every year person to exercise the
as determined by the board of directors voting right.
or trustees (2) The person given the
 Notice of regular meeting should authority by the
be sent at least 2 weeks prior to the stockholder or member
meeting, unless a different period for the exercise the
is required by the by-laws voting right.
(3) The written instruments
 Special meeting shall be held at any evidencing the authority
time deemed necessary or as provided given by the stockholder
in the by-laws. or member for the
 Notice of special meeting should exercise of the voting
be sent at least 1 week prior to the right.
meeting, unless a different period b) By means of a voting trust
is required by the by-laws agreement
 The trustee under the  Treasury shares shall have no voting right as
voting trust agreement long as such shares remain in the Treasury.
shall exercise the voting
right. Voting trusts
c) Through legal representatives  One or more stockholders of a stock
Executors administrators, corporation may create a voting trust for the
receivers and other legal purpose of conferring upon a trustee or
representatives duly trustees the right to vote and other rights
appointed by the court pertaining to the shares for a period not
may-attend and vote in exceeding five (5) years at any time.
behalf of the stockholder  Provided, That in the case of a voting trust
or members without need specifically required as a condition in a loan
of any written proxy. agreement, said voting trust may be for a
period exceeding five (5) years but shall
Right to vote of pledgors, mortgagors, and automatically expire upon full payment of
administrators. the loan.
 In case of pledged or mortgaged shares in  A voting trust agreement must be in writing
stock corporations, the pledgor or and notarized, and shall specify the terms
mortgagor shall have the right to attend and and conditions thereof. A certified copy of
vote at meetings of stockholders, unless the such agreement shall be filed with the
pledgee or mortgagee is expressly given by corporation and with the Securities and
the pledgor or mortgagor such right in Exchange Commission; otherwise, said
writing which is recorded on the agreement is ineffective and unenforceable.
appropriate corporate books.  The certificate or certificates of stock
 Executors, administrators, receivers, and covered by the voting trust agreement shall
other legal representatives duly appointed be canceled and new ones shall be issued in
by the court may attend and vote in behalf the name of the trustee or trustees stating
of the stockholders or members without that they are issued pursuant to said
need of any written proxy. agreement. In the books of the corporation,
it shall be noted that the transfer in the
Voting in case of joint ownership of stock. name of the trustee or trustees is made
 In case of shares of stock owned jointly by pursuant to said voting trust agreement.
two or more persons, in order to vote the
same, the consent of all the co-owners shall Subscription contract
be necessary, unless there is a written proxy,  Any contract for the acquisition of unissued
signed by all the co-owners, authorizing one stock in an existing corporation or a
or some of them or any other person to vote corporation still to be formed shall be
such share or shares. deemed a subscription within the meaning
 Provided, That when the shares are owned of this Title, notwithstanding the fact that
in an "and/or" capacity by the holders the parties refer to it as a purchase or some
thereof, any one of the joint owners can vote other contract.
said shares or appoint a proxy therefor.
Pre-incorporation subscription
Voting right for treasury shares
 A subscription for shares of stock of a subject to approval by the Securities and
corporation still to be formed shall be Exchange Commission.
irrevocable for a period of at least six (6)  The issued price of no-par value shares may
months from the date of subscription, be fixed in the articles of incorporation or by
unless all of the other subscribers consent the board of directors pursuant to authority
to the revocation, or unless the conferred upon it by the articles of
incorporation of said corporation fails to incorporation or the by-laws, or in the
materialize within said period or within a absence thereof, by the stockholders
longer period as may be stipulated in the representing at least a majority of the
contract of subscription. outstanding capital stock at a meeting duly
 Provided, That no pre-incorporation called for the purpose.
subscription may be revoked after the
submission of the articles of incorporation to Certificate of stock and transfer of shares
the Securities and Exchange Commission.  The capital stock of stock corporations shall
be divided into shares for which certificates
Consideration for stocks signed by the president or vice president,
 Stocks shall not be issued for a consideration countersigned by the secretary or assistant
less than the par or issued price thereof. secretary, and sealed with the seal of the
Consideration for the issuance of stock may corporation shall be issued in accordance
be any or a combination of any two or more with the by-laws.
of the following:  Shares of stock so issued are personal
1. Actual cash paid to the corporation; property and may be transferred by delivery
2. Property, tangible or intangible, actually of the certificate or certificates endorsed by
received by the corporation and the owner or his attorney-in-fact or other
necessary or convenient for its use and person legally authorized to make the
lawful purposes at a fair valuation equal transfer.
to the par or issued value of the stock
issued; Issuance of stock certificate
3. Labor performed for or services  No certificate of stock shall be issued to a
actually rendered to the corporation; subscriber until the full amount of his
4. Previously incurred indebtedness of subscription together with interest and
the corporation; expenses (in case of delinquent shares), if
5. Amounts transferred from unrestricted any is due, has been paid.
retained earnings to stated capital; and
6. Outstanding shares exchanged for Liability of directors for watered stocks
stocks in the event of reclassification or  Watered stock – issuance of stocks for a
conversion. consideration less than its par or issued
value or for a consideration in any form
 Where the consideration is other than actual other than cash, valued in excess of its fair
cash, or consists of intangible property such value.
as patents of copyrights, the valuation  Any director or officer of a corporation
thereof shall initially be determined by the consenting to the watered stock, or who,
incorporators or the board of directors, having knowledge thereof, does not
forthwith express his objection in writing
 and file the same with the corporate  The board of directors may, by resolution,
secretary. order the sale of delinquent stock and shall
 What is the nature of the liability? specifically state the amount due on each
subscription plus all accrued interest, and
Interest on unpaid subscriptions the date, time and place of the sale which
 Subscribers for stock shall pay to the shall not be less than thirty (30) days nor
corporation interest on all unpaid more than sixty (60) days from the date the
subscriptions from the date of subscription, stocks become delinquent.
if so required by, and at the rate of interest  Notice of said sale, with a copy of the
fixed in the by-laws. If no rate of interest is resolution, shall be sent to every delinquent
fixed in the by-laws, such rate shall be stockholder either personally or by
deemed to be the legal rate. registered mail. The same shall furthermore
be published once a week for two (2)
Payment of balance of subscription consecutive weeks in a newspaper of
 Subject to the provisions of the contract of general circulation in the province or city
subscription, the board of directors of any where the principal office of the corporation
stock corporation may at any time declare is located.
due and payable to the corporation unpaid  Unless the delinquent stockholder pays to
subscriptions to the capital stock and may the corporation, on or before the date
collect the same or such percentage thereof, specified for the sale of the delinquent stock,
in either case with accrued interest, if any, as the balance due on his subscription, plus
it may deem necessary. accrued interest, costs of advertisement and
 Payment of any unpaid subscription or any expenses of sale, or unless the board of
percentage thereof, together with the directors otherwise orders, said delinquent
interest accrued, if any, shall be made on the stock shall be sold at public auction to such
date specified in the contract of bidder who shall offer to pay the full
subscription or on the date stated in the call amount of the balance on the subscription
made by the board. together with accrued interest, costs of
 Failure to pay on such date shall render the advertisement and expenses of sale, for the
entire balance due and payable and shall smallest number of shares or fraction of a
make the stockholder liable for interest at share.
the legal rate on such balance, unless a  The stock so purchased shall be transferred
different rate of interest is provided in the to such purchaser in the books of the
by-laws, computed from such date until full corporation and a certificate for such stock
payment. shall be issued in his favor.
 If within thirty (30) days from the said date
no payment is made, all stocks covered by  Should there be no bidder at the public
said subscription shall thereupon become auction who offers to pay the full amount
delinquent and shall be subject to sale as of the balance on the subscription
hereinafter provided, unless the board of together with accrued interest, costs of
directors orders otherwise. advertisement and expenses of sale, for
 Effect : DELINQUENT STOCK the smallest number of shares or fraction
of a share, the corporation may, subject
Delinquency sale to the provisions of this Code, bid for the
 same, and the total amount due shall be 3. A statement of the changes, if any, in
credited as paid in full in the books of the articles of incorporation of the
the corporation. surviving corporation in case of merger;
 Nothing in this Code shall prevent the and, with respect to the consolidated
corporation from collecting by action in corporation in case of consolidation, all
a court of proper jurisdiction the the statements required to be set forth
amount due on any unpaid subscription, in the articles of incorporation for
with accrued interest, costs and corporations organized under this
expenses. Code; and
4. Such other provisions with respect to
Effect of delinquency the proposed merger or consolidation
 No delinquent stock shall be voted for be as are deemed necessary or desirable.
entitled to vote or to representation at any
stockholder's meeting, nor shall the holder Stockholder's or member's approval
thereof be entitled to any of the rights of a  Upon approval by majority vote of each of
stockholder the board of directors or trustees of the
 EXCEPT: the right to dividends in constituent corporations of the plan of
accordance with the provisions of this Code, merger or consolidation, the same shall be
until and unless he pays the amount due on submitted for approval by the stockholders
his subscription with accrued interest, and or members of each of such corporations at
the costs and expenses of advertisement, if separate corporate meetings duly called for
any. the purpose.
 Holders of subscribed shares not fully paid  Notice of such meetings shall be given to all
which are not delinquent shall have all the stockholders or members of the respective
rights of a stockholder. corporations, at least two (2) weeks prior to
the date of the meeting, either personally or
Merger or consolidation by registered mail. Said notice shall state the
 Two or more corporations may merge into a purpose of the meeting and shall include a
single corporation which shall be one of the copy or a summary of the plan of merger or
constituent corporations or may consolidate consolidation.
into a new single corporation which shall be  The affirmative vote of stockholders
the consolidated corporation. representing at least two-thirds (2/3) of the
 The board of directors or trustees of each outstanding capital stock of each
corporation, party to the merger or corporation in the case of stock
consolidation, shall approve a plan of merger corporations or at least two-thirds (2/3) of
or consolidation setting forth the following: the members in the case of non-stock
1. The names of the corporations corporations shall be necessary for the
proposing to merge or consolidate, approval of such plan.
hereinafter referred to as the  Any dissenting stockholder in stock
constituent corporations; corporations may exercise his appraisal right
2. The terms of the merger or in accordance with the Code: Provided, That
consolidation and the mode of carrying if after the approval by the stockholders of
the same into effect; such plan, the board of directors decides to
 abandon the plan, the appraisal right shall be public utilities, educational institutions and
extinguished. other special corporations governed by
 Any amendment to the plan of merger or special laws, the favorable recommendation
consolidation may be made, provided such of the appropriate government agency shall
amendment is approved by majority vote of first be obtained. If the Commission is
the respective boards of directors or satisfied that the merger or consolidation of
trustees of all the constituent corporations the corporations concerned is not
and ratified by the affirmative vote of inconsistent with the provisions of this
stockholders representing at least two- Code and existing laws, it shall issue a
thirds (2/3) of the outstanding capital stock certificate of merger or of consolidation, at
or of two-thirds (2/3) of the members of which time the merger or consolidation
each of the constituent corporations. Such shall be effective.
plan, together with any amendment, shall be  If, upon investigation, the Securities and
considered as the agreement of merger or Exchange Commission has reason to believe
consolidation. that the proposed merger or consolidation
is contrary to or inconsistent with the
Articles of merger or consolidation provisions of this Code or existing laws, it
 After the approval by the stockholders or shall set a hearing to give the corporations
members as required by the preceding concerned the opportunity to be heard.
section, articles of merger or articles of Written notice of the date, time and place of
consolidation shall be executed by each of hearing shall be given to each constituent
the constituent corporations, to be signed by corporation at least two (2) weeks before
the president or vice-president and certified said hearing.
by the secretary or assistant secretary of
each corporation setting forth: Effects of merger or consolidationT
1. The plan of the merger or the plan of  The merger or consolidation shall have the
consolidation; following effects:
2. As to stock corporations, the number of 1. The constituent corporations shall
shares outstanding, or in the case of become a single corporation which, in
non-stock corporations, the number of case of merger, shall be the surviving
members; and corporation designated in the plan of
3. As to each corporation, the number of merger; and, in case of consolidation,
shares or members voting for and shall be the consolidated corporation
against such plan, respectively. designated in the plan of consolidation;
2. The separate existence of the
Effectivity of merger or consolidation constituent corporations shall cease,
 The articles of merger or of consolidation, except that of the surviving or the
signed and certified as herein above consolidated corporation;
required, shall be submitted to the Securities 3. The surviving or the consolidated
and Exchange Commission in quadruplicate corporation shall possess all the rights,
for its approval: Provided, That in the case of privileges, immunities and powers and
merger or consolidation of banks or banking shall be subject to all the duties and
institutions, building and loan associations, liabilities of a corporation organized
trust companies, insurance companies, under this Code;
 4. The surviving or the consolidated of any class, or of extending or
corporation shall thereupon and shortening the term of corporate
thereafter possess all the rights, existence;
privileges, immunities and franchises of 2. In case of sale, lease, exchange,
each of the constituent corporations; transfer, mortgage, pledge or other
and all property, real or personal, and disposition of all or substantially all of
all receivables due on whatever the corporate property and assets as
account, including subscriptions to provided in the Code; and
shares and other choses in action, and 3. In case of merger or consolidation.
all and every other interest of, or
belonging to, or due to each constituent How right is exercised
corporation, shall be deemed  The appraisal right may be exercised by any
transferred to and vested in such stockholder who shall have voted against
surviving or consolidated corporation the proposed corporate action, by making a
without further act or deed; and written demand on the corporation within
5. The surviving or consolidated thirty (30) days after the date on which the
corporation shall be responsible and vote was taken for payment of the fair
liable for all the liabilities and value of his shares.
obligations of each of the constituent  Provided, That failure to make the demand
corporations in the same manner as if within such period shall be deemed a waiver
such surviving or consolidated of the appraisal right.
corporation had itself incurred such  If the proposed corporate action is
liabilities or obligations; and any implemented or affected, the corporation
pending claim, action or proceeding shall pay to such stockholder, upon
brought by or against any of such surrender of the certificate or certificates of
constituent corporations may be stock representing his shares, the fair value
prosecuted by or against the surviving thereof as of the day prior to the date on
or consolidated corporation. The rights which the vote was taken, excluding any
of creditors or liens upon the property appreciation or depreciation in anticipation
of any of such constituent corporations of such corporate action.
shall not be impaired by such merger or  If within a period of sixty (60) days from the
consolidation. date the corporate action was approved by
the stockholders, the withdrawing
APPRAISAL RIGHT stockholder and the corporation cannot
 Any stockholder of a corporation shall have agree on the fair value of the shares, it shall
the right to dissent and demand payment of be determined and appraised by three (3)
the fair value of his shares in the following disinterested persons, one of whom shall be
instances: named by the stockholder, another by the
1. In case any amendment to the articles corporation, and the third by the two thus
of incorporation has the effect of chosen.
changing or restricting the rights of any
stockholder or class of shares, or of Non-Stock Corporations
authorizing preferences in any respect  is one where no part of its income is
superior to those of outstanding shares distributable as dividends to its members,
 trustees, or officers, subject to the  Membership shall be terminated in the
provisions of this Code on dissolution manner and for the causes provided in the
 Provided, That any profit which a non-stock articles of incorporation or the by-laws.
corporation may obtain as an incident to its Termination of membership shall have the
operations shall, whenever necessary or effect of extinguishing all rights of a member
proper, be used for the furtherance of the in the corporation or in its property, unless
purpose or purposes for which the otherwise provided in the articles of
corporation was organized, subject to the incorporation or the by-laws.
provisions of this Title.
 Non-stock corporations may be formed or TRUSTEES AND OFFICERS
organized for charitable, religious, 1. Number of trustees
educational, professional, cultural, fraternal, It may be more than 15 in number as may be
literary, scientific, social, civic service, or fixed in the articles of incorporation or the
similar purposes, like trade, industry, by-laws. However, the number should not be
agricultural and like chambers, or any less than 5.
combination thereof, subject to the special 2. Qualifications of trustees
provisions of this Title governing particular a. Trustees must be members of the
classes of non-stock corporations corporation
Right to vote b. Majority of them must be residents of
1. The right of the members of any class or the Philippines
classes to vote may be limited, broadened or 3. Term of office of trustees- unless otherwise
denied to the extent specified in the articles provided in the articles of incorporation or
of incorporation or the by-laws. Unless so by-laws, the term of office shall be as
limited, broadened or denied, each member, follows:
regardless of class, shall be entitled to one a. The term of office of trustees shall be 3
vote. (In person) years.
2. Unless otherwise provided in the articles of b. Trustees first elected shall so classify
incorporation or the by-laws, a member may themselves so that the term of office of
vote by proxy in accordance with the 1/3 of their number shall expire every
provisions of this Code. year. Trustees thereafter elected to fill
3. Voting by mail or other similar means by vacancies shall serve only for the
members of non-stock corporations may be unexpired term of the person they
authorized by the by-laws of non-stock replace.
corporations with the approval of, and under
such conditions which may be prescribed by, CLOSE CORPORATIONS
the Securities and Exchange Commission.  is a corporation whose articles of
incorporation provide the following:
Non-transferability of membership 1. All of the corporations issued stock of all
 Membership in a non-stock corporation and classes, excluding treasury shares, shall
all rights arising therefrom are personal and be held of record by not more than a
non-transferable, unless the articles of specified number of persons, not
incorporation or the by-laws otherwise exceeding 20.
provide.
 2. All of the issued stock of all classes shall 2. Unless the context clearly requires
be subject to one or more restrictions otherwise, the stockholders of the
on transfer. corporation shall be deemed to be
3. The corporation shall not list in any directors for the purpose of applying
stock exchange or make any public the provisions of this Code; and
offering of any of its stock of any class. 3. The stockholders of the corporation
shall be subject to all liabilities of
What may not be incorporated as a close directors.
corporation
1. Mining corporations  The articles of incorporation may
2. Oil companies likewise provide that all officers or
3. Stock exchanges employees or that specified officers or
4. Banks employees shall be elected or
5. Insurance companies appointed by the stockholders, instead
6. Public utilities of by the board of directors.
7. Educational Institutions
8. Corporations vested with public interest When board meeting is unnecessary or
improperly held
Articles of incorporation  Unless the by-laws provide otherwise, any
 The articles of incorporation of a close action by the directors of a close corporation
corporation may provide: without a meeting shall nevertheless be
1. For a classification of shares or rights deemed valid if:
and the qualifications for owning or 1. Before or after such action is taken,
holding the same and restrictions on written consent thereto is signed by all
their transfers as may be stated therein, the directors; or
subject to the provisions of the 2. All the stockholders have actual or
following section; implied knowledge of the action and
2. For a classification of directors into one make no prompt objection thereto in
or more classes, each of whom may be writing; or
voted for and elected solely by a 3. The directors are accustomed to take
particular class of stock; and informal action with the express or
3. For a greater quorum or voting implied acquiescence of all the
requirements in meetings of stockholders; or
stockholders or directors than those 4. All the directors have express or implied
provided in this Code. knowledge of the action in question and
 The articles of incorporation of a close none of them makes prompt objection
corporation may provide that the business of thereto in writing.
the corporation shall be managed by the
stockholders of the corporation rather than Pre-emptive right in close corporations
by a board of directors. So long as this  The pre-emptive right of stockholders in
provision continues in effect: close corporations shall extend to all stock to
1. No meeting of stockholders need be be issued, including reissuance of treasury
called to elect directors; shares, whether for money, property or
personal services, or in payment of
 corporate debts, unless the articles of incorporation, by-laws, or any
incorporation provide otherwise. stockholder's agreement;
2. canceling, altering or enjoining any
Amendment of articles of incorporation resolution or act of the corporation or
 Any amendment to the articles of its board of directors, stockholders, or
incorporation which seeks to delete or officers;
remove any provision required by this Title 3. directing or prohibiting any act of the
to be contained in the articles of corporation or its board of directors,
incorporation or to reduce a quorum or stockholders, officers, or other persons
voting requirement stated in said articles of party to the action;
incorporation shall not be valid or effective 4. requiring the purchase at their fair value
unless approved by the affirmative vote of of shares of any stockholder, either by
at least two-thirds (2/3) of the outstanding the corporation regardless of the
capital stock, whether with or without availability of unrestricted retained
voting rights, or of such greater proportion earnings in its books, or by the other
of shares as may be specifically provided in stockholders;
the articles of incorporation for amending, 5. appointing a provisional director;
deleting or removing any of the aforesaid 6. dissolving the corporation; or
provisions, at a meeting duly called for the 7. granting such other relief as the
purpose. circumstances may warrant.

Deadlocks  Who is a Provisional director?

 Notwithstanding any contrary provision in
the articles of incorporation or by-laws or Special Corporations
agreement of stockholders of a close
corporation, if the directors or stockholders Educational Corporations
are so divided respecting the management 1. Laws applicable
of the corporation's business and affairs that a. Special laws governing them
the votes required for any corporate action b. General provisions of the Corporation
cannot be obtained, with the consequence Code
that the business and affairs of the 2. Indorsement from the Department of
corporation can no longer be conducted to Education (DepEd) or Commision on Higher
the advantage of the stockholders generally, Education
the Securities and Exchange Commission, 3. Board of Trustees
upon written petition by any stockholder, a. Number and term of office
shall have the power to arbitrate the 1) Stock educational corporation
dispute. The number and term of directors
 In the exercise of such power, the shall be governed by the provision
Commission shall have authority to make on stock corporations.
such order as it deems appropriate, 2) Non-stock educational
including an order: corporations
1. canceling or altering any provision a) The number shall not be less
contained in the articles of than 5 nor more than 15 but
 the number should be in 1. The name of the corporation;
multiples of 5 (i.e., 5, 10, 15 ). 2. The reason for dissolution and
b) Unless provided in the articles winding up;
or by-laws, the trustees shall 3. The authorization for the
so classify themselves so that dissolution of the corporation by
the term of office of 1/5 of the particular religious
their number shall expire denomination, sect or church;
every year. 4. The names and addresses of the
3) Quorom - A majority of the persons who are to supervise the
trustees shall constitute a quorum. winding up of the affairs of the
corporation.
Religious corporations
1. Corporation sole  Upon approval of such declaration of
 It is incorporated by one person and dissolution by the Securities and
consists of one member such as the Exchange Commission, the corporation
chief archbishop, bishop, priest, shall cease to carry on its operations
minister or rabbi or other presiding except for the purpose of winding up its
elder. affairs.
 Purpose: To administer and manage as 2. Religious Society
trustee the affairs, property and  It is incorporated by an aggregate of
temporalities of any religious persons consisting district organization
denomination, sect or church. of any religious denomination the
 Filling of vacancies purpose of which is to administer or
 The successors in office of any chief manage its temporalities, affairs and
archbishop, bishop, priest, minister, property.
rabbi or presiding elder in a corporation  It must file verified articles of
sole shall become the corporation sole incorporation with the SEC.
on their accession to office and shall be  Any religious society or religious order,
permitted to transact business as such or any diocese, synod, or district
on the filing with the Securities and organization of any religious
Exchange Commission of a copy of their denomination, sect or church, unless
commission, certificate of election, or forbidden by the constitution, rules,
letters of appointment, duly certified by regulations, or discipline of the religious
any notary public. denomination, sect or church of which
it is a part, or by competent authority,
 Dissolution may, upon written consent and/or by an
 A corporation sole may be dissolved and affirmative vote at a meeting called for
its affairs settled voluntarily by the purpose of at least two-thirds (2/3)
submitting to the Securities and of its membership, incorporate for the
Exchange Commission a verified administration of its temporalities or for
declaration of dissolution. the management of its affairs,
properties and estate by filing with the
The declaration of dissolution shall set Securities and Exchange Commission,
forth:
 articles of incorporation verified by the 2. Voluntary dissolution where creditors are
affidavit of the presiding elder, affected
secretary, or clerk or other member of  Where the dissolution of a corporation
such religious society or religious order, may prejudice the rights of any creditor,
or diocese, synod, or district the petition for dissolution shall be
organization of the religious filed with the Securities and Exchange
denomination, sect or church, setting Commission.
forth the following:  The petition shall be signed by a
1. That the religious society or majority of its board of directors or
religious order, or diocese, synod, trustees or other officers having the
or district organization is a religious management of its affairs, verified by its
organization of a religious president or secretary or one of its
denomination, sect or church; directors or trustees, and shall set forth
2. That at least two-thirds (2/3) of its all claims and demands against it, and
membership have given their that its dissolution was resolved upon
written consent or have voted to by the affirmative vote of the
incorporate, at a duly convened stockholders representing at least two-
meeting of the body; thirds (2/3) of the outstanding capital
stock or by at least two-thirds (2/3) of
Dissolution Stock or Non-Stock Corporation the members at a meeting of its
 is the termination of the existence of a stockholders or members called for
corporation. that purpose.
Kinds of Dissolution 3. Dissolution by shortening corporate term
1. Voluntary dissolution where no creditors  A voluntary dissolution may be effected
are affected by amending the articles of
 If dissolution of a corporation does not incorporation to shorten the corporate
prejudice the rights of any creditor term pursuant to the provisions of this
having a claim against it, the dissolution Code. A copy of the amended articles of
may be effected by majority vote of the incorporation shall be submitted to the
board of directors or trustees, and by a Securities and Exchange Commission in
resolution duly adopted by the accordance with this Code. Upon
affirmative vote of the stockholders approval of the amended articles of
owning at least two-thirds (2/3) of the incorporation of the expiration of the
outstanding capital stock or of at least shortened term, as the case may be, the
two-thirds (2/3) of the members of a corporation shall be deemed dissolved
meeting to be held upon call of the without any further proceedings,
directors or trustees after publication of subject to the provisions of this Code on
the notice of time, place and object of liquidation.
the meeting for three (3) consecutive
weeks in a newspaper published in the 4. Involuntary dissolution
place where the principal office of said  A corporation may be dissolved by the
corporation is located; Securities and Exchange Commission
upon filing of a verified complaint and
 after proper notice and hearing on the 2. Who may effect liquidation
grounds provided by existing laws, rules a. By the corporation itself through the
and regulations. board of directors or trustees or by the
stockholders or members who have the
Corporate liquidation power to liquidate.
1. Concept; corporation to exist for 3years b. By receivership.
after dissolution (winding period)