F.

CAPITAL STRUCTURE

1. SHARES OF STOCK
a. Nature of Shares of Stock
- Shares of stock are intangible personal property with an intrinsic pecuniary
value. They represent aliquot parts of the corporation’s capital and are
symbolized by a stock certificate. They do not represent proprietary rights of
shareholders to the assets or properties of the corporation.

b. Consideration for Shares of Stock (Sec. 61)

- Stocks shall not be issued for a consideration less than the par or issued price
thereof.

Consideration for the issuance of stock may be:

(a) Actual cash paid to the corporation
(b) Property, tangible or intangible, actually received by the corporation and
necessary or convenient for its use and lawful purposes at a fair valuation equal
to the par or issued value of the stock issued;
(c) Labor performed for or services actually rendered to the corporation;
- Note: This refers to service already performed since a value can be assigned to
such service. It cannot be future services.
(d) Previously incurred indebtedness of the corporation;
(e) Amounts transferred from unrestricted retained earnings to stated capital;
(f) Outstanding shares exchanged for stocks in the event of reclassification or
conversion;
(g) Shares of stock in another corporation; and/or
(h) Other generally accepted form of consideration.

- If the consideration is other than actual cash, or consists of intangible property

such as patents or copyrights, the valuation thereof shall initially be
determined by the stockholders or the board of directors, subject to the
approval of the Commission.
- Shares of stock shall not be issued in exchange for promissory notes or future
service. The same considerations provided in this section, insofar as applicable,
may be used for the issuance of bonds by the corporation.
- The issued price of no-par value shares may be fixed in the articles of
incorporation or by the board of directors pursuant to authority conferred by
the articles of incorporation or the bylaws, or if not so fixed, by the stockholders
representing at least a majority of the outstanding capital stock at a meeting
duly called for the purpose.

c. Watered Stock
- Watered stocks are issued for less than the par value or issued value or for a
consideration other than cash, valued in excess of its fair value.
Liability of Directors for Watered Stocks
- The issuance of watered stocks is prohibited. When a director or officer of a
corporation either (a) consents or (b) having knowledge of the insufficient
 consideration, does not file a written objection with the corporate secretary,
they shall be liable to the corporation or its creditors, solidarily with the
stockholder concerned for the difference between the value received at the time
of issuance of the stock and the par or issued value of the same.

d. Situs of the Shares of Stock

- Situs of shares is the domicile of the corporation that issued them.

e. Classes of Shares of Stock (Sec. 6)

- The classification of shares, their corresponding rights, privileges, or
restrictions, and their stated par value, if any, must be indicated in the articles
of incorporation.

1. Common and Preferred shares

• Common shares are also called ordinary shares and they share in profits pro-rata
• Preferred shares may be preferred (a) as to dividends, or (b) as to distribution of
assets during liquidation, or (c) as to any other manner stated in the Articles, not
violative of the Corp Code. If authorized by Articles, Board may fix terms. It is
ALWAYS with a stated par value.

2. Par Value and No-Par Value

• Par value shares - with a pre-stated amount or denomination
• Non- par value - no pre-stated value
- Non-par value shares are deemed fully paid and non-assessable so holders of
such are not liable to the corporation or its creditors.
- The consideration received is treated as capital and cannot be declared as
dividends.
- Note: Because they are vested with public interest, the following types of
corporations may only issue par value shares:
a. Banks
b. Trust Companies
c. Insurance Companies
d. Public Utilities
e. Building and Loan Associations.

3. Voting and Non- Voting Shares

• Voting share with complete voting rights
• Non - voting shares are preferred or redeemable shares that have limited voting
rights.

- Note: Non-Voting Shares Have Voting Rights In The Following Matters:

a. Amendment of Articles
b. Adoption/ Amendment of By- Laws
c. Sale, lease, exchange, mortgage, pledge or dispose of all or
substantially all of corporate property
d. Incur, create, increase bonded indebtedness
e. Increase, decrease capital stock
 f. Merger/ consolidation with another corporation
g. Investment of funds in another corporation
h. Dissolution of corporation

Other Classes of Shares: (Secs. 7, 8, 9)

4. Founder’s shares – Given rights and privileges not enjoyed by owners of other
stocks; exclusive right to vote/be voted in the election of directors shall not
exceed 5 years.
NOTE: such exclusive right shall not be allowed if its exercise will violate
the “Anti-Dummy Law”; the “Foreign Investments Act of 1991”; and other
pertinent laws.
Since Section 7 makes no distinction (and is found under General
Provisions), then it must mean that founders’ shares may be applied to both
stock and nonstock corporations. Although [Section 88 of the Revised
Corporation Code] allows in a nonstock corporation to limit, broaden or deny
the right of members of any class, the specific provision of Section 7 to founders’
share must prevail, and that the nonstock corporation can lawfully suspend or
define the voting rights of its members, but with respect to founders’ share, the
exclusive right to vote and be voted for of the founders’ share should expire
after five years from the approval of the SEC.
5. Redeemable shares – Expressly provided in articles; may be purchased/taken
up upon expiration of the period of said shares purchased whether or not there
are unrestricted retained earnings; may be deprived of voting rights.
6. Treasury stocks – stocks previously issued and fully paid for and reacquired
by the corporation through lawful means (purchase, donation, etc.); not
entitled to vote and no dividends could be declared thereon as corporations
cannot declare dividends to itself.
7. Escrow shares – those held by a third person to be released only upon the
performance of a condition or the happening of a certain event contained in the
agreement.
8. Preferred cumulative participating share of stock - Share entitling its holder
to preference in the payment of dividends ahead of common stockholders and
to be paid the dividends due for prior years and to participate further with
common stockholders in dividend declarations.
9. Over-Issued Stock – Stock issued in excess of authorized capital stock; null
and void.

2. CERTIFICATE OF STOCK
a. Nature of the Certificate (Sec. 62)

- A stock certificate is a written instrument signed by the proper corporate

officers stating or acknowledging that the person named in the document is the
owner of a designated number of shares of its stock.

- A stock certificate is not necessary to render one a shareholder in a corporation;

nevertheless, it is the paper representative or tangible evidence of the share
itself and the various interests therein. The stock certificate expresses the
 contract between the corporation and the shareholder, but it is not essential to
the existence of a share in or the creation of the relationship with the
shareholder.

- A stock certificate could not be considered issued in contemplation of law

unless signed by the president or vice-president and countersigned by the
secretary or assistance secretary.

- Certificates of stock are not the actual shares of stock in the corporation and
merely expresses the contract between the corporation and the shareholder.
Therefore, when a buyer of shares gives notice to original seller for the latter’s
exercise of his right of first refusal and the original seller failed to respond,
there was already the valid offer by the buyer that triggered the running of the
period for the exercise of the right of first refusal in spite of the fact that no
certificate of stock had been issued yet in the name of the buyer.

- The shares evidenced by said certificates, meanwhile, are regarded as property

and the owner of such shares may, as a general rule, dispose of them as he sees
fit, unless the corporation has been dissolved, or unless the right to do so is
properly restricted, or the owner's privilege of disposing of his shares has been
hampered by his own action.

b. Uncertified Shares (Sec 62)

- The Commission may require corporations whose securities are traded in

trading markets, and which can reasonably demonstrate their capability to do
so to issue their securities or shares of stocks in uncertificated or scripless form
in accordance with the rules of the Commission.

c. Negotiability; Requirements for Valid Transfer of Stocks

• Quasi-Negotiable Character of Certificate of Stock

- A stock certificate is merely a quasi-negotiable instrument in the sense that it
may be transferred by endorsement, coupled with delivery; but it is not
negotiable because the holder thereof takes it without prejudice to such rights
or defenses as the registered owners or transferor’s creditors may have under
the law, except only insofar as such rights or defenses are subject to the
limitations imposed by the principles governing estoppel.
- The rule is that the endorsement of the stock certificate by the owner or his
attorney-in-fact or any other person legally authorized to make the transfer
shall be sufficient to effect the transfer of shares only if the same is coupled
with delivery. The delivery of the stock certificate duly endorsed by the owner
is the operative act of transfer of shares from the lawful owner to the new
transferee. But to be valid against third parties, the transfer must be recorded
in the corporate books.
- Since physical delivery of stock certificates is one of the essential requisites for
the transfer of ownership of the stocks purchased, then the failure of the seller-
 registered owner to deliver the stock certificates would constitute a material
breach that warrants the rescission of the sale of the shares upon the option of
the buyer.

d. Issuance (Sec. 63)

- No certificate of stock shall be issued to a subscriber until the full amount of

the subscription together with interest and expenses (in case of delinquent
shares), if any is due, has been paid.

e. Lost or Destroyed Certificates (Sec. 72)

- The following procedure shall be followed by a corporation in issuing new

certificates of stock in lieu of those which have been lost, stolen or destroyed:

a. The registered owner of a certificate of stock in a corporation or such

person’s legal representative shall file with the corporation an affidavit in
triplicate setting forth, if possible:
i. The circumstances as to how the certificate was lost, stolen or
destroyed,
ii. The number of shares represented by such certificate,
iii. The serial number of the certificate and the name of the
corporation which issued the same.
iv. The owner of such certificate of stock shall also submit such other
information and evidence as may be deemed necessary; and
b. After verifying the affidavit and other information and evidence with the
books of the corporation, the corporation shall publish a notice in a
newspaper of general circulation in the place where the corporation has its
principal office, once a week for three (3) consecutive weeks at the expense
of the registered owner of the certificate of stock which has been lost, stolen
or destroyed.

c. The notice shall state the name of the corporation, the name of the registered
owner, the serial number of the certificate, the number of shares
represented by such certificate, and shall state that after the expiration of
one (1) year from the date of the last publication, if no contest has been
presented to the corporation regarding the certificate of stock, the right to
make such contest shall be barred and the corporation shall cancel the lost,
destroyed or stolen certificate of stock in its books.

d. In lieu thereof, the corporation shall issue a new certificate of stock, unless
the registered owner files a bond or other security as may be required,
effective for a period of one (1) year, for such amount and in such form and
with such sureties as may be satisfactory to the board of directors, in which
case a new certificate may be issued even before the expiration of the one
(1) year period provided herein.
 e. If a contest has been presented to the corporation or if an action is pending
in court regarding the ownership of the certificate of stock which has been
lost, stolen or destroyed, the issuance of the new certificate of stock in lieu
thereof shall be suspended until the court renders a final decision regarding
the ownership of the certificate of stock which has been lost, stolen or
destroyed.

- Except in case of fraud, bad faith, or negligence on the part of the corporation
and its officers, no action may be brought against any corporation which shall
have issued certificate of stock in lieu of those lost, stolen or destroyed
pursuant to the procedure above-described.

Exception (SEC Opinion 28 Jan. 1999)

While Sec. 72 of RCC appears to be mandatory, the same admits exceptions, such
that a corporation may voluntarily issue a new certificate in lieu of the original stock
certificate which has been lost without complying with the requirements under said
section. It would be an internal matter for the corporation to find measures in ascertaining
who are the real owners of shares for purposes of liquidation. It is well-settled that unless
proven otherwise, the “stock and transfer book” is the best evidence to establish stock
ownership.

3. DISPOSITION AND ENCUMBRANCE OF SHARES

a. Sale of Shares

- General Rule: Shares are not owned or are the assets of the corporation—they
are owned by the shareholders of record. Based on the Doctrine of Free
Transferability of Shares, the sale of shares may be made by shareholders as
this is their property right.

- Exception: Right of First Refusal

Under Sec. 62 of RCC, certain minimum requisites must be complied with for
there to be a valid transfer of stocks:
(a) there must be delivery of the stock certificate;
(b) the certificate must have been endorsed by the owner or his attorney-in-
fact or other persons legally authorized to make the transfer; and to be valid
against third parties, the transfer must be recorded in the corporate books.
- No transfer, however, shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation showing the names of the
parties to the transaction, the date of the transfer, the number of the certificate
or certificates, and the number of shares transferred. (Sec. 62)
- No shares of stock against which the corporation holds any unpaid claim shall
be transferable in the books of the corporation. (Sec. 62)

b. Allowable restrictions on the sale of shares

The following are allowable restrictions on the sale of shares:
(a) Pledge or Mortgage
- Shares for which no stock certificate has been issued may validly be mortgaged
in whole (and not just with respect to the portion paid-up) and the corporation
receiving notice thereof is bound to respect the security arrangement. The
“unpaid claims” under Sec. 62 of RCC refers to any unpaid subscription, and
not to any indebtedness which a shareholder may owe the corporation arising
from any other transactions, like unpaid monthly dues.

(b) Equitable Mortgage Assignment

- The assignment of voting shares as security for a loan operates to give the
assignee not only the right to vote on the shares, but would also treat the
assignee as the owner of the shares (not just an equitable mortgage).

(c) Attachments and Executions

- Attachments of shares are not included in the term “transfer” as provided in
Sec. 62 of RCC. Both the Revised Rules of Court and RCC do not require
annotation in the stock and transfer book for the attachment of shares to be
valid and binding on the corporation and third parties.

(d) Other Encumbrances on Shares

- The process of registering lis pendens is inapplicable to shares which are
personal properties; however, formal notice given to the Corporate Secretary
of claims to the shall be deemed equivalent of registration of an encumbrance
or assignment of the shares on the corporate books; and that by virtue of such
registration through notice to the corporation, pending litigation, third parties,
or potential transferees pendente lite, may therefore be charged with
constructive notice of claimants lien/title over the subject shares and the
pending litigation involving the same. (

c. Requisites of a Valid Transfer

- Under Sec. 62 of RCC, certain minimum requisites must be complied with for
there to be a valid transfer of stocks:
(a) there must be delivery of the stock certificate;
(b) the certificate must have been endorsed by the owner or his attorney-in-
fact or other persons legally authorized to make the transfer; and to be
valid against third parties, the transfer must be recorded in the
corporate books.
- No transfer, however, shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation showing the names of the
parties to the transaction, the date of the transfer, the number of the certificate
or certificates, and the number of shares transferred. (Sec. 62)

d. Involuntary Dealings
As between two contending judgment creditors:
- The first to have the writ served upon the proper officer of the corporation
would be preferred.
 As between an attaching/levying creditor where there has been proper service
of the writ to the proper corporate officer (even when not registered in the stock
and transfer book) and the buyer/assignee of the shares:
- If writ was properly served upon the corporate officer ahead of the registration
of the sale/assignment in the stock and transfer book (even when the sale or
assignment was perfected and consummated ahead of the pledge or mortgage),
the pledge/mortgage would still be preferred because the registration of the
sale/assignment would still be preferred because the registration of the
sale/assignment in the stock and transfer book is a necessary ingredient to
make the sale/assignment binding on third parties, including the
pledgee/mortgage.

- NOTE: A bona fide transfer of shares, not registered in the corporate books, is
not valid as against a subsequent lawful attachment of said shares, regardless
of whether the attaching creditor had actual notice of said transfer or not. All
transfers not so entered on the corporate books are absolutely void; not because
they are without notice or fraudulent in law or fact, but because they are made
so void by statute.

G. DISSOLUTION AND LIQUIDATION

Dissolution
- Extinguishment of the franchise of a corporation and the initiation of the
termination of its corporate existence
- However, the corporation shall nevertheless be continued as a body corporate
for three (3) years after the time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or against it and enabling it to
settle and close its affairs, to dispose of and convey its property and to
distribute its assets, but not for the purpose of continuing the business for
which it was established. (Sec. 122)

1. MODES OF DISSOLUTION:
A. Voluntary

a. WHERE NO CREDITORS ARE AFFECTED

- Procedure where no creditors are affected by the dissolution of the corporation:
1. A meeting must be held on the call of directors or trustees;
2. Notice of the meeting should be given to the stockholders by personal delivery or
registered mail at least twenty (20) days prior to the meeting;
3. The notice of meeting should also be published for once in a newspaper published
in the principal place of business, otherwise, in a newspaper of general circulation
4. The resolution to dissolve must be approved by the majority of the
directors/trustees and approved by the stockholders representing at least majority
of the outstanding capital stock or majority of members;
5. A verified request for dissolution is then filed with the SEC stating:
a. the reason for dissolution
b. the form, manner and time when the notices were given
 c. names of the stockholders and directors or members and trustees who
approved the dissolution
d. the date, place, and time of the meeting in which the vote was made; and
e. details of publication
6. In addition, the following shall be submitted to the SEC:
a. Copy of the resolution authorizing the dissolution, certified by a majority
of the board and countersigned by the secretary;
b. Proof of publication
c. Favorable recommendation from the appropriate regulatory agency, when
necessary.
7. The SEC shall, within 15 days from the receipt of the verified request for
dissolution, and in the absence of any withdrawal within said period, approve the
request and issue the certificate of dissolution, upon which the dissolution will
take effect. (Sec. 134)

b. WHERE CREDITORS ARE AFFECTED

- Procedure where the dissolution of the corporation may prejudice the rights of any
creditor:
1. A verified petition for dissolution shall be filed with the SEC.
2. The petition shall be:
a. signed by a majority of the corporation’s board of directors or trustees
b. verified by its president or secretary or one of its directors or trustees
c. shall set forth all claims and demands against it
d. that its dissolution was resolved upon by the affirmative vote of the
stockholders representing at least two-thirds (2/3) of the outstanding capital
stock or at least two-thirds (2/3) of the members at a meeting of its stockholders
or members called for that purpose.
3. The petition shall likewise state:
a. the reason for the dissolution;
b. the form, manner, and time when the notices were given;
c. the date, place, and time of the meeting in which the vote was made.
4. The corporation shall submit to the SEC the following:
a. a copy of the resolution authorizing the dissolution, certified by a majority of
the board of directors or trustees and countersigned by the secretary of the
corporation; and
b. list of all its creditors.
5. By an order reciting the purpose of the petition, the SEC shall fix a deadline for
filing objections to the petition (shall not be less than thirty (30) days nor more than
sixty (60) days after the entry of the order).
6. Publication: Before such the deadline, a copy of the order shall be published at
least once a week for three (3) consecutive weeks in a newspaper of general
circulation published in the municipality or city where the principal office of the
corporation is situated, otherwise, in a newspaper of general circulation in the
Philippines
7. Posting: A similar copy shall be posted for three (3) consecutive weeks in three (3)
public places in such municipality or city.
 8. After the expiration of the time to file objections, a hearing shall be conducted upon
prior five (5) day notice to hear the objections;
9. Judgment shall be rendered dissolving the corporation and directing the
disposition of assets; the judgment may include appointment of a receiver.
10. The dissolution shall take effect only upon issuance by the SEC of a certificate of
dissolution* (Sec. 135)

c. BY SHORTENING CORPORATE TERM

- Procedure on voluntary dissolution by shortening of the corporate term (Sec. 36):
1. A private corporation may extend or shorten its term by amending the articles
of incorporation when approved by a majority vote of the board of directors or
trustees, and ratified at a meeting by the stockholders or members representing
at least two-thirds (2/3) of the outstanding capital stock or of its members.
2. Written notice of the proposed action and the time and place of the meeting
shall be sent to stockholders or members
3. In case of extension of corporate term, a dissenting stockholder may exercise the
right of appraisal under the conditions provided in this Code. (Sec. 137)

- NOTE: Under Sec. 11, the RCC now allows the revival of a the corporate existence of an
Expired Corporation.

- If a corporation’s term has expired, it may apply for a revival of its corporate existence,
together with all the rights and privileges under its certificate of incorporation and subject
to all of its duties, debts and liabilities existing prior to its revival. Upon approval by the
SEC, the corporation shall be deemed revived and a certificate of revival of corporate
existence shall be issued, giving it perpetual existence, unless its application for revival
provides otherwise. (Sec. 11)

d. WITHDRAWAL OF DISSOLUTION

Procedure on Withdrawal of Request for Dissolution:

1. Withdrawal of Request of Dissolution: Not later than 15 days from the receipt by
SEC of the request for dissolution, the withdrawal thereof shall be made in writing,
duly verified by any incorporator, director, trustee, shareholder, or member and
signed by the same number of incorporators, directors, trustees, shareholders, or
members necessary to request for dissolution.
2. Upon receipt of a withdrawal of request for dissolution, the SEC shall withhold
action on the request for dissolution and shall, after investigation:
a. Make a pronouncement that the request for dissolution is deemed withdrawn;
b. Direct a joint meeting of the board of directors or trustees and the stockholders
or members for the purpose of ascertaining whether to proceed with
dissolution; or
c. Issue such other orders as it may deem appropriate. (Sec. 137)

Procedure on Withdrawal of Petition for Dissolution

- A withdrawal of the petition for dissolution shall be in the form of a motion
and similar in substance to a withdrawal of request for dissolution but shall be
 verified and filed prior to publication of the order setting the deadline for filing
objections to the petition. (Sec. 137
B. Involuntary
- A corporation may be dissolved by the SEC motu proprio or upon filing of a
verified complaint by any interested party. (Sec. 138)

Grounds for dissolution of the corporation:

a. Non-use of corporate charter as provided under Section 21 of this Code;
b. Continuous inoperation of a corporation as provided under Section 21 of this Code;
c. Upon receipt of a lawful court order dissolving the corporation;
d. Upon finding by final judgment that the corporation procured its incorporation
through fraud;
e. Upon finding by final judgment that the corporation:
1. Was created for the purpose of committing, concealing or aiding the SEC of
securities violations, smuggling, tax evasion, money laundering, or graft and
corrupt practices;
2. Committed or aided in the SEC of securities violations, smuggling, tax
evasion, money laundering, or graft and corrupt practices, and its
stockholders knew of the same; and
3. Repeatedly and knowingly tolerated the SEC of graft and corrupt practices
or other fraudulent or illegal acts by its directors, trustees, officers, or
employees. (Sec. 138)
- If the corporation is ordered dissolved by final judgment pursuant to the
grounds set forth in subparagraph (e) hereof, its assets, after payment of its
liabilities, shall, upon petition of the SEC with the appropriate court, be
forfeited in favor of the national government. Such forfeiture shall be without
prejudice to the rights of innocent stockholders and employees for services
rendered, and to the application of other penalty or sanction under this Code
or other laws. (Sec. 138)
- The SEC shall give reasonable notice to, and coordinate with, the appropriate
regulatory agency prior to the involuntary dissolution of companies under
their special regulatory jurisdiction.(Sec. 138)

Non-use of corporate charter (Sec. 21)

- If a corporation does not formally organize and commence its business within
5 years

- Effect: certificate of incorporation shall be deemed revoked following the end

of the 5-year period

Continuous Inoperation (Sec. 21)

- If a corporation has commenced its business but subsequently becomes
inoperative for a period of at least 5 consecutive years
● Effect: after due notice and hearing, the corporation will be put on delinquent status
● Remedy: it shall have a period of 2 years to resume operations. Otherwise, certificate of
incorporation will likewise be revoked.
“Organization” under SEC Rules
 • Adoption of the by-laws and the filing and approval of the same with and by the
SEC if the same were not adopted and filed simultaneously with the articles of
incorporation;
• Election of the Board of Directors or Trustees and of the officers;
• Establishment of the principal office; and
• Providing for the subscription and payment of the capital stock and the taking of
such steps as are necessary to endow the legal entity with capacity to transact the
legitimate business for which it was created

“Commenced Business” under SEC Rules

- When the corporation has performed preparatory acts geared towards the
fulfillment of the purposes for which it was established such as but not limited
to the following:
• Entering into contracts or negotiations for lease or sale of properties to be
used as business or factory site;
• Making plans for and the construction of the factory; and
• Taking steps to expedite the construction of the company’s working
equipment
- In the event of failure to file for an extension if a corporation’s term has expired,
it may apply for a revival of its corporate existence, together with all the rights
and privileges under its certificate of incorporation and subject to all of its
duties, debts and liabilities existing prior to its revival. Upon approval by the
SEC, the corporation shall be deemed revived and a certificate of revival of
corporate existence shall be issued, giving it perpetual existence, unless its
application for revival provides otherwise.

Demands of Minority for Dissolution

- Corporate dissolution due to mismanagement of majority stockholder is too
drastic a remedy, especially when the situation can be remedied such as giving
minority stockholders a veto power to any decision

Effects of Dissolution
(a) Vesting of legal title to the corporate property in the stockholders, who become
co-owners thereof
(b) The corporation ceases to be a body corporate to continue the business for
which it was established.

- The termination of the life of a juridical entity does not by itself cause the
extinction or diminution of the rights and liability of such entity, since it is
allowed to continue as a juridical entity for three (3) years for the purpose of
prosecuting and defending suits by or against it and enabling it to settle and
close its affairs, to dispose of and convey its property, and to distribute its
assets

- A board resolution to dissolve the corporation does not operate to so dissolve

the juridical entity. For dissolution to be effective “the requirements mandated
by the Corporation Code should have been strictly complied with”
 - When the period of corporate life expires, the corporation ceases to be a body
corporate for the purpose of continuing the business for which it was organized

- A party’s stockholding in a corporation, whether existing or dissolved, is a

property right which he may vindicate against another party who has deprived
him thereof.

- Stockholders may convey their respective shareholdings toward the creation

of a new corporation to continue the business of the old or they may
reincorporate by filing new articles of incorporation and by-laws.

LIQUIDATION

- Process by which all the assets of the corporation are converted into liquid
assets in order to facilitate the payment of obligations to creditors, and the
remaining balance if any is to be distributed to the stockholders.

NOTE: There is no time limit within which the trustees must complete a liquidation
placed in their hands

2. METHODS OF LIQUIDATION

a. Through Board of Directors or Trustees – normal method of procedure

- Even if no trustee is appointed or designated during the three-year period of

the liquidation of the corporation, the Court has held that the Board of
Directors may be permitted to complete the corporate liquidation by
continuing as trustees by legal implication

NOTE: This only concerns the matters/actions that are initiated during the 3 year grace
period. The Board cannot be considered as trustees for matters initiated after the 3-year
period.

b. Through Trustee – at any time during the three years of liquidation, a

corporation is authorized and empowered to convey all of its property to
trustees for the benefit of stockholders, members, creditors, and other persons
in interest. The three (3)-year limitation will not apply provided the
designation of the trustee is made within said period.

c. Through Receiver – created by means of judicial or quasi-judicial appointment

of the receiver. The receiver is actually an officer of the court and must
therefore be accountable to the court.

NOTE: If there is no Board of Directors or Trustees, those having pecuniary interest in

the assets, including not only the shareholders but likewise the creditors of the
corporation, acting for and in its behalf, may liquidate.
Liquidation after Three Years
- If full liquidation can only be effected after the 3-year period and there is no
trustee, the directors may be permitted to complete the liquidation by
continuing as trustees by legal implication
- The trustee may continue to prosecute a case commenced by the corporation
within three years from its dissolution until rendition of the final judgment,
even if such judgment is rendered beyond the three-year period allowed by
Section [139].
- However, an already defunct corporation cannot initiate a suit after the lapse
of the three-year period.

NOTE: When a corporation threatened by bankruptcy is taken over by a receiver, all the
creditors shall stand on equal footing. Not one of them should be given preference by
paying one or some of them ahead of the others.
- The Civil Code provisions on concurrence and preference of credits are
applicable to the liquidation proceedings.

- A corporation in the process of liquidation has no legal authority to engage in

any new business, even if the same is in accordance with the primary purpose
stated in its articles of incorporation.

When a Corporation Must Wind Up (Sec. 139)

If it is dissolved by:
a. By expiry of term or
b. Is annulled by forfeiture, or otherwise, or
c. Is terminated In any other manner

Effects of Winding Up of Affairs: (Sec. 139)

a. Continues as a corporate body for 3 years to prosecute and defend suits against it,
close its affairs, dispose and convey its property and distribute assets
b. Cannot continue business for which it was established
c. Can convey property to trustees for the benefit of the stockholders/members,
creditors and other persons in interest
i. Legal interest vests in business
ii. Beneficial interest remains with stockholders/ members, creditors

d. Assets distributable to unknown creditors, stockholders/ members, persons in

interest or those who cannot be found shall be escheated to the city or municipality
where the assets are located.
e. Distribution of assets only upon lawful dissolution and payment of all debts and
liabilities.
Exceptions:
a. Decrease of capital stock
b. As otherwise allowed in the Corporation Code
 H. OTHER CORPORATIONS

1. CLOSE CORPORATIONS

I. Characteristics of a close corporation

- A close corporation, within the meaning of the Corporation Code, is one whose articles
of incorporation provides that:

1. All the corporation's issued stock of all classes, exclusive of treasury shares, shall
be held of record by not more than a specified number of persons, not exceeding
twenty (20).
3. All the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title.
4. The corporation shall not list in any stock exchange or make any public offering of
any of its stock of any class.

- Notwithstanding the foregoing, a corporation shall not be deemed a close

corporation when at least two-thirds (2/3) of its voting stock or voting rights
is owned or controlled by another corporation which is not a close corporation
within the meaning of the Corporation Code. (Sec. 95)

Suppletory Effect
The provisions of other Titles of the Corporation Code shall apply suppletorily except
insofar as Title of Close Corporation otherwise provides. (Sec. 95)

Management of a close corporation

- The articles of incorporation of a close corporation may provide that the
business of the corporation shall be managed by the stockholders of the
corporation rather than by a board of directors.
a. When they manage, stockholders are liable as directors;
b. There is no need to call a meeting to elect directors;
c. To the extent that the stockholders are actively engaged in the management, said
stockholders shall be liable for corporate torts unless the corporation has obtained
reasonably adequate liability insurance.

Companies That Cannot Be Close Corporations (MIPES-BOO)

a. Mining companies;
b. Insurance companies;
c. Public utilities;
d. Educational institutions;
e. Stock exchanges;
f. Banks;
g. Oil companies;
h. Other corporations declared to be vested with public interest.

II. Validity Of Restrictions On Transfers Of Shares (Sec 97)

Restrictions on the right to transfer shares must appear in:
 1. The articles of incorporation;
2. The by-laws; and
3. In the certificate of stock

- Otherwise, the same shall not be binding on any purchaser thereof in good
faith.
- Said restrictions shall not be more onerous than granting the existing
stockholders or the corporation the option to purchase the shares of the
transferring stockholder with such reasonable terms, conditions or period
stated therein.

- If upon the expiration of said period, the existing stockholders or the

corporation fails to exercise the option to purchase, the transferring
stockholder may sell his shares to any third person.

III. Effects of Issuance or Transfer of Stock

in Breach of Qualifying Conditions. –

(a) If shares of stock of a close corporation are issued or transferred to any person
who is not eligible to be a holder thereof under any provision of the articles
of incorporation, and if the certificate for such stock conspicuously shows the
qualifications of the persons entitled to be holders of record thereof, such
person is conclusively presumed to have notice of the fact of the ineligibility
to be a stockholder.
(b) If the articles of incorporation of a close corporation states the number of
persons, not exceeding twenty (20), who are entitled to be stockholders of
record, and if the certificate for such stock conspicuously states such number,
and the issuance or transfer of stock to any person would cause the stock to
be held by more than such number of persons, the person to whom such stock
is issued or transferred is conclusively presumed to have notice of this fact.
(c) If a stock certificate of a close corporation conspicuously shows a restriction
on transfer of the corporation’s stock and the transferee acquires the stock in
violation of such restriction, the transferee is conclusively presumed to have
notice of the fact that the stock was acquired in violation of the restriction.
(d) Whenever a person to whom stock of a close corporation has been issued or
transferred has or is conclusively presumed under this section to have notice
of:
(i) the person’s ineligibility to be a stockholder of the corporation;
(ii) that the transfer of stock would cause the stock of the corporation to
be held by more than the number of persons permitted under its articles
of incorporation; or
(iii) that the transfer violates a restriction on transfer of stock, and the
corporation may, at its option, refuse to register the transfer in the name
of the transferee.
(e) The provisions of subsection (d) shall not be applicable if the transfer of stock,
though contrary to subsections (a), (b) or (c), has been consented to by all the
 stockholders of the close corporation, or if the close corporation has amended
its articles of incorporation in accordance with this Title.
(f) The term “transfer”, as used in this section, is not limited to a transfer for
value.
(g) The provisions of this section shall not impair any right which the transferee
may have to either rescind the transfer or recover the stock under any express
or implied warranty. (Sec. 98)

- NOTE: Even if the transfer of shares is made in violation of the restrictions

enumerated under [Sec. 98 of RCC], such transfer is still valid if it has been
consented to by all the shareholders of the close corporation and the
corporation cannot refuse to register the transfer of shares in the name of the
transferee.

- Need for factual determination of close corporation to apply

- Before courts can allow the operation of Section 98 to a case, there must first be
a factual determination that the corporation is indeed a close corporation
- There needs to be a presentation of evidence on the relevant restrictions in the
articles of incorporation and by-laws of the corporation.

IV. When board meeting is unnecessary or improperly held (Sec. 100)

General Rule:
Any action taken by the directors without a board meeting shall be deemed INVALID.

Exception: The following shall nonetheless be valid despite the lack of a valid board
meeting, unless the by-laws provide otherwise
1. Before or after such action is taken, a written consent thereto is signed by all the
directors; or
2. All the stockholders have actual or implied knowledge of the action and make
no prompt objection in writing; or
3. The directors are accustomed to take informal action with the express or implied
acquiescence of all the stockholders; or
4. All the directors have express or implied knowledge of the action in question
and none of them makes a prompt objection in writing.

- An action within the corporate powers taken at a meeting held without proper call or
notice, is deemed ratified by a director who failed to attend, unless after having
knowledge thereof, the director promptly files his written objection with the secretary of
the corporation.

V. Pre-Emptive Rights Of Stockholders In Close Corporations (Sec 101)

General Rule:
It shall extend to all stock to be issued, including reissuance of treasury shares, whether
for money, property or personal services, or in payment of corporate debts
Exception:
Unless the articles of incorporation provide otherwise.

VII. Amendment of the articles of incorporation (Sec. 102)

- Any amendment to the articles of incorporation which seeks to delete or
remove any provision required by this Title or to reduce a quorum or voting
requirement stated in said articles of incorporation shall require the affirmative
vote of at least two- thirds (2/3) of the outstanding capital stock, whether with
or without voting rights, or of such greater proportion of shares as may be
specifically provided in the articles of incorporation for amending, deleting or
removing any of the aforesaid provisions, at a meeting duly called for the
purpose.

VII. Deadlocks (Sec. 103)

Power To Buy-Back Shares Of Close Corporations v. Appraisal Right In Stock

Corporations

CLOSE CORP (Sec. CLOSE CORP (Sec. STOCK CORP

103 – Deadlocks) 104 – Withdrawal)
Exercised by the Exercised by the Exercised by the
corporation stockholder stockholder
Exercisable only in a Exercisable for any reason There are certain instances
deadlock situation where appraisal rights can
be exercised

Can be directed either Available only against the Available only against the
against the corporation or corporation corporation
any other stockholder
Available even without Limited only in a situation Unrestricted retained
unrestricted retained when the corporation has earnings are required for
earnings and not subject to sufficient assets in its books buyback to happen,
any formula generally

Compelling Dissolution In Close Corporations v. Stock Corporations

CLOSE CORP (Sec. CLOSE CORP (Sec. STOCK CORP

103 – Deadlocks) 104 – Withdrawal)
SEC is given express A stockholder must make a Majority of the Board plus
power to dissolve a written petition to the 2/3 stockholder
close corporation when dissolution vote is required for
there is a deadlock dissolution
situation

2. NON-STOCK CORPORATIONS
I. Definition
 - A non-stock corporation is one where no part of its income is distributable as
dividends to its members, trustees, or officers, subject to the provisions of the
Corporation Code on dissolution

- Any profit which a non-stock corporation may obtain as an incident to its

operations shall, whenever necessary or proper, be used for the furtherance of
the purpose or purposes for which the corporation was organized, subject to
the provisions of this Title. (Sec. 86)

Requisites:
1. Does not have a capital stock divided into share
2. No part of its income is distributable as dividends to its member
3. They must be formed or organized for purposes specified in Sec. 87

Conversion between Stock and Non-Stock Corporation

- A non-stock corporation cannot be converted into a stock corporation through
mere amendment of its Articles of Incorporation as this would be in violation
of Section 87 which prohibits distribution of income as dividends to members.
(SEC Opinion, 20 March 1995) However, a non-stock corporation can be
converted into a stock corporation only if the members dissolve it first and then
organize a stock corporation. The result is a new corporation. (SEC Opinion, 13
May 1992)

- On the other hand, a stock corporation may be converted into a non-stock

corporation by mere amendment provided all the requirements are complied
with. Its rights and liabilities will remain.

Theory on Non-Stock Corporations

- A non-stock corporation may only be formed or organized for charitable,
religious, educational, professional, cultural, fraternal, literary, scientific, social,
civic or other similar purposes. It may not engage in undertakings such as the
investment business where profit is the main or underlying purpose. Although
the non-stock corporation may obtain profits as an incident to its operation
such profits are not to be distributed among its members but must be used for
the furtherance of its purposes

- The incurring of profit or losses does not determine whether an activity is for
profit or non-profit, and the courts will consider whether dividends have been
declared or its members or that is property, effects or profit was ever used for
personal or individual gain, and not for the purpose of carrying out the
objectives of the enterprise

- In a mutual life insurance corporation, organized as a non-stock nonprofit

corporation, the so-called “dividend” that is received by members-
policyholders is not a portion of profits set aside for distribution to the
stockholders in proportion to their subscription to the capital stock of a
corporation. One, a mutual company has no capital stock to which subscription
 is necessary; there are no stockholders to speak of, but only members. And,
two, the amount they receive does not partake of the nature of a profit or
income. The quasi-appearance of profit will not change its character; it remains
an overpayment, a benefit to which the member- policyholder is equitably
entitled

Delinquency in Membership Dues of Non-Stock Corporations

- A non-stock corporation may seize and dispose of the membership share of a
fully-paid member on account of his unpaid monthly dues, when such
corporation is authorized to do so under the by-laws, even when no provision
on the matter appears in the articles of incorporation, and in spite of the fact
that Sec. 67 of Corporation Code on delinquency sale pertains to payment of
shares subscription.

Number of Trustees
- A non-stock corporation may OR may not have more than 15 trustees.

- NOTE: However, SEC has adopted a policy of requiring registrant

corporations to submit an explanation if its articles or by-laws provide for more
than 15 members of the Board. (Sec. 91)

Term
- Trustees shall hold office for a period of three (3) years until their successors
are elected and qualified (Sec. 91)

Qualifications of Trustees
- Only ONE qualification under Sec. 92: Membership in the corporation.
Nonetheless, the member who may be elected as trustee may just be a nominee.
A trustee who ceases to be a member of the corporation can no longer act as a
trustee.

- NOTE: An independent trustee of a non-stock corporation vested with public

interest need not be a member of such non-stock corporation (Sec. 91)

- For stock corporations, the "quorum" referred to in Section 52 of the

Corporation Code is based on the number of outstanding voting stocks. For
nonstock corporations, only those who are actual, living members with voting
rights shall be counted in determining the existence of a quorum during
members' meetings. Dead members shall not be counted.
II. Purposes
- A non-stock corporation may be formed or organized for the following purposes:
a. Charitable,
b. Religious,
c. Educational,
d. Professional,
e. Cultural,
f. Recreation,
 g. Fraternal,
h. Literary,
i. Scientific,
j. Social,
k. Civic Service,
l. Similar purposes, like trade, industry, agriculture and like chambers, or
m. Any combination of thereof (Sec. 87)
- In the Articles of Incorporation, a non-stock corporation may not include a
purpose which would change or contradict its nature as such.

III. Treatment Of Profits

- Non-stock non-profit corporations may actually earn profits incidentally from
its operations, provided that the profits are devoted to their purpose.

- The mere fact that a non-stock corporation may earn profit does not make it a
profit-making corporation, where such profit is used to carry out the purposes
set forth in the Articles of Incorporation and is not distributed to its
incorporators, members, trustees, or officers.

NOTE:
- Despite its nomenclature, the essence of a non- stock non-profit corporation is
not the non-existence of shares of stock to cover its capital (it is legally possible
for a corporation having capital stock to still be considered a non-stock
corporation), but that:
a. Its primary purpose should be any of those under Sec. 88 of the Corporation Code,
and
b. There is a prohibition in the articles of incorporation and by-laws that no part of
the income or any form of dividend is distributable to the members, trustees, and
officers of the corporation
i. Even though the corporation may incidentally earn profits from its
operations.

IV. Plan and Distribution of Assets upon Dissolution

Rules of Distribution of Assets upon Dissolution

- The assets of a nonstock corporation undergoing the process of dissolution for

reasons other than those set forth in Section 139 of the RCC (every corporation
whose charter expires pursuant to its articles of incorporation, is annulled by
forfeiture, or whose corporate existence is terminated in any other manner)
shall be applied and distributed as follows:

1. All liabilities and obligations of the corporation shall be paid, satisfied and
discharged, or adequate provision shall be made therefore;
2. Assets held by the corporation upon a condition requiring return, transfer or
conveyance, and which condition occurs by reason of the dissolution, shall be
returned, transferred or conveyed in accordance with such requirements;
 3. Assets received and held by the corporation subject to limitations permitting their
use only for charitable, religious, benevolent, educational or similar purposes, but
not held upon a condition requiring return, transfer or conveyance by reason of
the dissolution, shall be transferred or conveyed to one or more corporations,
societies or organizations engaged in activities in the Philippines substantially
similar to those of the dissolving corporation according to a plan of distribution
adopted
4. Assets other than those mentioned in the preceding paragraphs, if any, shall be
distributed in accordance with the provisions of the articles of incorporation or the
by-laws, to the extent that the articles of incorporation or the by-laws, determine
the distributive rights of members, or any class or classes of members, or provide
for distribution; and
5. In any other case, assets may be distributed to such persons, societies,
organizations or corporations, whether or not organized for profit, as may be
specified in a plan of distribution adopted pursuant to this Chapter.(Sec. 93)

Plan of Distribution of Assets

- A non-stock corporation in the process of dissolution may adopt a plan
providing for the distribution of assets, not inconsistent with the RCC, in the
following manner:
1. The board of trustees shall, by majority vote, adopt a resolution recommending a
plan of distribution and directing the submission thereof to a vote at a regular or
special meeting of members having voting rights;
2. Each member entitled to vote shall be given a written notice setting forth the
proposed plan of distribution or a summary thereof and the date, time and place
of such meeting within the time and in the manner provided in this Code for the
giving of notice of meetings; and
3. Such plan of distribution shall be adopted upon approval of at least two-thirds
(2/3) of the members having voting rights present or represented by proxy at such
meeting.

NOTE:
- Although a non-stock corporation cannot distribute incidental profits or
dividends to its members, trustees and officers during its corporate term, in the
event of dissolution, after the payment of all liabilities and return of assets
received subject to limitations permitting their use, the remaining assets may
be distributed to the members, as provided for in the articles of incorporation
of by-laws.

- In the absence of distribution rules, the remaining assets may be distributed to

such persons, societies, organizations, or corporations, whether or not
organized for profit, as may be specified in a plan of distribution as adopted
by the Board of Trustees and ratified by the members.

- In a regular non-stock corporation it is possible for its net assets and

accumulated “earnings” from its operations, to inure to the benefit of private
 individuals (e.g., its own members) or entities, but only as a consequence of
dissolution.

Suppletory Effect
- The provisions governing stock corporation, when pertinent, shall be
applicable to non-stock corporations, except as may be covered by specific
provisions of this Title.

3. FOREIGN CORPORATIONS
- A corporation formed, organized or existing under any law other than those of the
Philippines, and whose laws allow Filipino citizens and corporations to do business in its
own country or state. (Sec. 140)
- A foreign corporation is one which owes its existence to the laws of another state, and
generally, has no legal existence within the state in which it is foreign
- A fundamental rule of international jurisdiction is that no state can by its laws, and no
court which is only a creature of the state, can by its judgments and decrees, directly bind
or affect property or persons beyond the limits of that state

Bases of Authority over Foreign Corporations

1. Consent - It is the voluntary surrender of jurisdiction over its person in a pending suit
before the host state
2. “Doing Business” with regard to Foreign Corporations

- Continuity of commercial dealings incident to prosecution of purpose and

object of the organization. Isolated, occasional or casual transactions do not
amount to engaging in business.

- But where the isolated act is not incidental/casual but indicates the foreign
corporation’s intention to do other business, said single act constitutes
engaging in business in the Philippines.

a. What constitutes “Doing Business”

a. Isolated Transactions Test:

- where a foreign corporation needs to obtain a license and fails to do so, whether
it should be denied legal standing to obtain remedies from local courts and
administrative agencies or not, depends therefore on the issue whether it will
engage in business in the Philippines. Not every activity undertaken in the
Philippines amounts to doing business as to require a foreign corporation to
obtain such license.
- Single or isolated acts, contracts, or transactions of foreign corporations are not
regarded as a doing or carrying on of business. Typical examples of these are
the making of a single contract, sale, sale with the taking of a note and mortgage
in the state to secure payment thereof, purchase, or note, or the mere
commission of a tort. In these instances, there is no purpose to do any other
business within the country.
 - However, where a single act or transaction is not merely incidental or casual
but indicates the foreign corporation's intention to do other business in the
Philippines, said single act or transaction constitutes doing business
Need to Allege:
- The fact that a foreign corporation is not doing business in the Philippines must
be alleged, if a foreign corporation desires to sue in Philippines courts under
the “isolated transactions rule”; if not alleged, it can be dismissed for lack of
capacity to sue by the plaintiff

b. Twin Characterization Test

Substance Test:
- Consider the body or substance of the business or the enterprise for which it
was ORGANIZED or whether it has substantially retired from it and turned it
over to another.

Continuity Test:
- That doing business implies a continuity of commercial dealings and
arrangements and contemplates, to that extent, the performance of acts or
works or the exercise of some of the functions normally incidental to, and in
progressive prosecution of, the purpose and object of its organization.

- Taken together, “Doing Business In The Philippines” must cover transactions

and series of transactions in pursuit of the main business goals of the
corporation and done with the intent to continue the same in the Philippines.

c. Contract Test:
- if the salient points of a contract do not find themselves in the Philippines
- Philippine authorities have no business subjecting the parties to local
registration and licensing requirements

“Doing Business” Under The Foreign Investment Act and IRR

“Doing Business” in the Philippines - Includes:

a. Soliciting orders, service contracts, opening offices, whether called “liaison”
offices or branches;
b. Appointing representatives or distributors domiciled in the Philippines;
NOTE: Includes “appointing representatives or distributors in the Philippines”
but not when the representative or distributor “transacts business in its name
and for its own account”
c. Participating in the management, supervision, or control of any domestic
business, firm, entity, or corporation in the Philippines; and
d. Any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works,
or the exercise of some of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of the business
organization
Does Not Include:
a. Mere investment as a shareholder by a foreign entity in domestic corporations
duly registered to do business, and/or the exercise of rights as such investor;
b. Having a nominee director or officer to represent its interests in such corporation;
c. Appointing a representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account;
d. The publication of a general advertisement through any print or broadcast media;
e. Maintaining a stock of goods in the Philippines solely for the purpose of having
the same processed by another entity in the Philippines;
f. Consignment by a foreign entity of equipment with a local company to be used in
the processing of products for export;
g. Collecting information in the Philippines; and
h. Performing services auxiliary to an existing isolated contract of sale which are not
on a continuing basis, such as Installing in the Philippine machinery it has
manufactured or exported to the Philippines, servicing the same, training
domestic workers to operate it, and similar incidental services.

- No foreign corporation transacting business in the Philippines without a

license, or its successors or assigns, shall be permitted to maintain or intervene
in any action, suit or proceeding in any court or administrative agency of the
Philippines; but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws

b. Necessity of a License to Do Business

1. To place foreign corporations under the jurisdiction of the courts

2. To place foreign corporations in the same footing as domestic corporations
3. Protection for the public in dealing with said corporations.

c. Requisites for Issuance of License

- A foreign corporation applying for a license to transact business in the Philippines shall
submit to the SEC the following:

1. A copy of its articles of incorporation and bylaws, certified in accordance with law and
their translation to an official language of the Philippines, if necessary.
2. The application shall be under oath and shall specifically set forth the following:
a. The date and term of incorporation;
b. The address, including the street number, of the principal office of the
corporation in the country or State of incorporation;
c. The name and address of its resident agent authorized to accept summons
and process in all legal proceedings and all notices affecting the corporation,
pending the establishment of a local office;
d. The place in the Philippines where the corporation intends to operate;
e. The specific purpose or purposes which the corporation intends to pursue
in the transaction of its business in the Philippines: Provided, That said
 purpose or purposes are those specifically stated in the certificate of
authority issued by the appropriate government agency;
f. The names and addresses of the present directors and officers of the
corporation;
g. A statement of its authorized capital stock and the aggregate number of
shares which the corporation has authority to issue, itemized by class, par
value of shares, shares without par value, and series, if any;
h. A statement of its outstanding capital stock and the aggregate number of
shares which the corporation has issued, itemized by class, par value of
shares, shares without par value, and series, if any;
i. A statement of the amount actually paid in; and
j. Such additional information as may be necessary or appropriate in order to
enable the Commission to determine whether such corporation is entitled
to a license to transact business in the Philippines, and to determine and
assess the fees payable.
3. The application shall be accompanied by the following:
a. A certificate under oath duly executed by the authorized official or officials
of the jurisdiction of its incorporation, attesting to the fact that the laws of
the country or State of the applicant allow Filipino citizens and corporations
to do business therein, and that the applicant is an existing corporation in
good standing. If the certificate is in a foreign language, a translation thereof
in English under oath of the translator shall be attached to the application.
b. A statement under oath of the president or any other person authorized by
the corporation, showing to the satisfaction of the Commission and when
appropriate, other governmental agencies that the applicant is solvent and
in sound financial condition, setting forth the assets and liabilities of the
corporation as of the date not exceeding one (1) year immediately prior to
the filing of the application.

4. Foreign banking, financial, and insurance corporations shall, in addition to the above
requirements, comply with the provisions of existing laws applicable to them.
5. In the case of all other foreign corporations, no application for license to transact
business in the Philippines shall be accepted by the Commission without previous
authority from the appropriate government agency, whenever required by law. (Sec. 142)

d. Resident Agent

Who may be a Resident Agent

a. Individual residing in the Philippines of good moral character and of sound financial
standing
b. Domestic corporation lawfully transacting business in the Philippines, with a sound
financial standing and must show proof that it is in good standing as certified by the SEC
(Sec. 144)

Service of Process upon a Foreign Corporation

Through A Resident Agent
- Before a foreign corporation can be issued a license to transact business in the
Philippines, such corporation must first file with the SEC

1. A written power of attorney designating some person who must be a resident of

the Philippines, on whom any summons and other legal processes may be served
in all actions or other legal proceedings against such corporation;
2. Consent that service upon such resident agent shall be admitted and held as valid
as if served upon the duly authorized officers of the foreign corporation at its
home office.
a. Whenever such service of summons or other process is made upon the SEC,
it must, within 10 days thereafter, transmit by mail a copy of such summons
or other legal process to the corporation at its home or principal office.
When SEC sends such copy, it shall constitute a necessary part of and shall
complete such service
b. In case of a change of address of the resident agent, it shall be his or its duty
to immediately notify the SEC in writing. (Sec. 145)
3. Amendment of license (Sec. 148)
a. A foreign corporation authorized to transact business in the Philippines
shall obtain an amended license in the event it changes its corporate name,
or desires to pursue other or additional purposes in the Philippines, by
submitting an application with the Commission, favorably endorsed by the
appropriate government agency in the proper cases.

Amendment of the Articles of Incorporation or By-laws of Foreign Corporations

- Sixty (60) days after the effectivity of the amendment of the articles of
incorporation or bylaws of a foreign corporation authorized to transact
business in the Philippines, such foreign corporation shall, file with the
Commission, and in the proper cases, with the appropriate government agency,
a duly authenticated copy of the amended articles of incorporation or bylaws,
indicating clearly in capital letters or underscoring the change or changes made,
duly certified by the authorized official or officials of the country or State of
incorporation.

- Such filing shall not in itself enlarge or alter the purpose or purposes for which
such corporation is authorized to transact business in the Philippines. (Sec. 147)

e. Personality to Sue and Suability

- Section 35 of the RCC enumerates the express powers of a corporation, which

includes the corporation’s ability to sue and be sued.
- The power of the corporation to sue and be sued in any court is lodged with
the board of directors that exercises its corporate powers.

Suability of Foreign Corporations

Every foreign corporation
a. Doing business in the Philippines with a license may sue and can be sued in
the Philippines
 b. Doing business in the Philippines without a license cannot sue, but may be
sued in the Philippines
c. Not doing business in the Philippines, or on isolated transactions may sue and
can be sued (if jurisdiction can be acquired)

Instances When Unlicensed Foreign Corporations May Be Allowed To Sue:

a. Isolated transactions;
b. Action to protect good name, goodwill, and reputation of a foreign corporation;
c. The subject contracts provide that Philippine Courts will be venue to
controversies;
d. A license subsequently granted enables the foreign corporation to sue on
contracts executed before the grant of the license
e. Recovery of misdelivered property;
f. Where the defendant is estopped.
- The Intellectual Property Code provides that any foreign corporation not engaged in
business in the Philippines and a national of a country which is a party to any convention,
treaty or agreement relating to intellectual property rights or the repression of unfair
competition, to which the Philippines is also a party or extends reciprocal rights, may sue
in trademark or service mark enforcement action

Rules Regarding A Foreign Corporation’s Right to Bring Suit in the Philippines

FOREIGN CORP STATUS CAN FC SUE IN PH

Doing business in Philippines without a Cannot sue before Philippine courts
license

Not doing business in the Philippines Can sue before Philippine courts on an
isolated transaction or on a cause of action
entirely independent of any business
transaction
Doing business in the Philippines without Can sue before Philippine courts due to
a license, but Philippine citizen or entity estoppel
has contracted with said corporation or
derived benefits from the Foreign Can sue before Philippine courts on any
Corporation Doing business in the transaction
Philippines and has the required license

Capability to Sue and Suability of Foreign Corporations W/N Doing Business

DOING BUSINESS IN THE PHILIPPINES NOT DOING BUSINESS IN

THE PHILIPPINES

LICENSED UNLICENSED ISOLATED TRANSACTIONS

YES, can sue NO, cannot sue; Yes, can sue;

EXC:
 estoppel EXC: if transactions exhibits
intent to do business, Foreign
Corporation needs license to
sue
YES, can be sued YES, can be sued
Qualifier: as long as
summons were
properly served (to
acquire jurisdiction)

5. Grounds for Revocation of License

- Section 151 provides that the SEC may cancel the certificate or license of a foreign
corporation on any of the following grounds:

a. Failure to file its annual report or pay any fees as required by Code;
b. Failure to appoint and maintain a resident agent;
c. Failure to inform SEC of the change of resident agent or the latter’s change of
address;
d. Failure to submit a copy of amended articles of incorporation or by- laws; or
articles of merger or consolidation;
e. A misrepresentation of any material matters in reports;
f. Failure to pay any and all taxes, imposts, assessments or penalties;
g. Engaged in a business not authorized by SEC;
h. Acting as a dummy of a foreign corporation not licensed to do business in the
Philippines; or
i. Any other ground as would render it unfit to transact business in the
Philippines.

Law applicable to Foreign Corporations (Sec. 146)

General Rule:
2. A foreign corporation lawfully doing business in the Philippines shall be bound
by all laws, rules and regulations applicable to domestic corporations of the same
class
Exceptions:
1. Those which provide for the creation, formation, organization or dissolution of
corporations or
2. Those which fix the relations, liabilities, responsibilities, or duties of stockholders,
members, or officers of corporations to each other or to the corporation.

4. ONE PERSON CORPORATIONS

I. Excepted Corporations
- The following are not allowed to incorporate as OPC:
a. Banks,
b. Non-bank financial institutions,
c. Quasi-banks,
d. Pre-need,
e. Trust,
 f. Insurance public and publicly listed companies,
g. Non-chartered GOCCs; and
h. Natural person who is licensed to exercise a profession may not organize an OPC
for the purpose of exercising such a profession. EXC: unless otherwise provided
by special laws. (Sec. 116)

II. Capital stock requirement (Sec. 117)

General Rule:
3. A One Person Corporation is not required to have a minimum authorized capital
stock.
Exception:
4. As otherwise provided by special law.

5. NOTE: Unless required by applicable laws or regulations, no portion of the

authorized capital is required to be paid up at the time of incorporation.(SEC
Circular No. 7, Series of 2019)

III. Articles of incorporation and by-laws

Requirements for filing the Articles of Incorporation:
i. In accordance with Sec. 14 of the RCC.
ii. If the single stockholder is a trust or an estate - the name, nationality, and
residence of the trustee, administrator, executor, guardian, conservator,
custodian, or other person exercising fiduciary duties together with the
proof of such authority to act on behalf of the trust or estate
iii. Name, nationality, residence of the nominee and alternate nominee, and the
extent, coverage and limitation of the authority. (Sec. 118)
6. NOTE: OPCs are NOT required to file their corporate bylaws. (Sec. 119)

IV. Corporate name

- It should Indicate the letters “OPC” either below or at the end of their corporate name.
(Sec. 120)

V. Corporate structure and officers

- A corporation with a single stockholder

Who may form?

1. Natural person – must be of legal age
2. Undertake in writing to faithfully administer the One Person Corporation’s funds
to be received as treasurer
3. To disburse and invest the same according to the articles of incorporation as
approved by the SEC

g. Natural Person
- A foreign natural person may put up an OPC subject to applicable capital
requirement and constitutional and statutory restrictions on foreign
participation in certain investment areas or activities (SEC Memorandum 7-
2019)
 b. Trust
- does not refer to a trust entity, but the subject being managed by a trustee. If the
single stockholder is a trustee, administrator, executor, guardian, conservator,
custodian, or other person exercising fiduciary duties
*Proof of authority to act on behalf of the trust or estate must be submitted at
the time of incorporation (SEC Memorandum 7-2019)
c. Estate

Who may NOT form?

1. Banks and quasi-banks, non-bank financial institutions (SEC Memorandum 7-
2019)
2. Pre-need, trust, insurance, public and publicly-listed companies
3. Non-chartered government-owned and - controlled
4. Natural person who is licensed to exercise a profession to form an OPC for the
purpose of exercising such profession
Exception: as provided under special laws

- The single stockholder shall be the sole director and president of the One
Person Corporation. (Sec. 121)

When to appoint officers? (Sec. 122)

Within fifteen (15) days from the issuance of its certificate of incorporation

Who to appoint?
a. Treasurer
b. Corporate secretary
c. Other officers as may be deemed necessary

Who and when to notify?

Securities and Exchange Commission (SEC)
h. within five (5) days from appointment
i. using the Appointment Form as may be prescribed by the SEC (SEC Memorandum
7-2019)
Single stockholder allowed?
a. Corporate secretary – NO
b. Treasurer – YES

Conditions: Give bond to the SEC in such a sum as may be required BOND
REQUIREMENT as per SEC Memorandum 7-2019:
ACS SURETY BOND COVERAGE
1 to 1,000,000 1,000,000
1,000,001 to 2,000,000 2,000,000
2,000,001 to 3,000,000 3,000,000
3,000,001 to 4,000,000 4,000,000
4,000,001 to 5,000,000 5,000,000
5,000,001 and above Equal to the OPC’s ACS
• Bond shall be renewed every two (2) years or as often as may be required, upon review
of the Audited Financial Statements/ Financial Statements certified under oath by the
company’s President/Treasurer
• Bond is a continuing requirement as long as the single stockholder is the self-appointed
Treasurer of the OPC
• Bond may be cancelled upon proof of appointment of another person as the Treasurer
and Filing of Amended Form for Appointment of Officers

Special Functions of the Corporate Secretary(Sec. 123)

- In addition to the functions designated by the One Person Corporation, the
corporate secretary shall:
1. Be responsible for maintaining the minutes book and/or records of the
corporation
2. Notify the nominee or alternate nominee of the death or incapacity of the single
stockholder
a. Notice shall be given no later than five (5) days from such occurrence
3. Notify the SEC of the death of the single stockholder
a. Within five (5) days from such occurrence !!
b. State the names, residence addresses, and contact details of all known legal
heirs
4. Call the nominee or alternate nominee and the known legal heirs to a meeting and
advise the legal heirs with regard to:
a. The election of a new director
b. Amendment of the articles of incorporation
c. Other ancillary and/or consequential matters

VI. Nominee
1. Designated by a single stockholder
2. In the event of the single stockholder’s death or incapacity, nominee takes the
place of the single stockholder as director and shall manage the corporation’s
affairs
3. Written consent of both nominee and alternate nominee (SEC Memorandum 7-
2019) – to be attached in the application of incorporation
a. May be withdrawn in writing any time before the death or incapacity of the
single stockholder
4. May be changed at any time
a. By submitting to the SEC the names of the new nominees and their
corresponding written consent
b. Articles of Incorporation need NOT be amended (SEC Memorandum 7-
2019)

What shall be contained in articles of incorporation with regard to the nominee and
alternate nominee?
a. Names of Nominees and Alternate Nominees
b. Residence addresses
c. Contact details
 d. Extent and limitations of their authority in managing the affairs of the One
Person Corporation.

Term of Nominee and Alternate Nominee (Sec. 125)

- Incapacity of the single stockholder

TEMPORARY
- Until the stockholder, by self- determination, regains the capacity to assume
such duties

DEATH OR PERMANENT
- Until the legal heirs of the single stockholder have been lawfully determined,
and the heirs have designated one of them or have agreed that the estate shall
be the single stockholder of the One Person Corporation

Alternate Nominee
a. Shall sit as director and manage the One Person Corporation in case of the
nominee’s inability, incapacity, death, or refusal to discharge the functions as
director and manager of the corporation
b. For the same term and under the same conditions applicable to the nominee

Minimum Capital Stock Required for One Person Corporation (Sec. 117)
General rule: No minimum authorized capital stock
Exception: As otherwise provided by special law

Required Paid Up Capital (SEC Memorandum 7- 2019)

General rule: No portion of authorized capital stock is required to be paid up at the time
of incorporation
Exception: As otherwise required by applicable laws or regulations

VII. Minutes and records

- A One Person Corporation shall maintain a minutes book which shall contain
all actions, decisions, and resolutions taken by the One Person Corporation.
(Sec. 127)

- When action is needed on any matter, it shall be sufficient to prepare a written

resolution, signed and dated by the single stockholder, and recorded in the
minutes book of the One Person Corporation. The date of recording in the
minutes book shall be deemed to be the date of the meeting for all purposes
under this Code. (Sec. 128)

VIII. Liability (Sec. 130)

- A sole shareholder claiming limited liability has the burden of affirmatively
showing that:
1. The corporation was adequately financed.
2. The property of the One Person Corporation is independent of the stockholder’s
personal property.
 - The principles of piercing the corporate veil applies with equal force to One
Person Corporations as with other corporations

IX. Conversion of corporation to OPC and vice- versa

Conversion from an Ordinary Corporation to a OPC (Sec. 131)

- When a single stockholder acquires all the stocks of an ordinary stock

corporation, the latter may apply for conversion into a OPC, subject to the
submission of such documents as the SEC may require. If the application for
conversion is approved, the SEC shall issue certificate of filing of amended
articles of incorporation reflecting the conversion. Conversion from an OPC to
an Ordinary Stock Corporation (Sec. 132)
- A One Person Corporation may be converted into an ordinary stock
corporation after due notice to the SEC of such fact and of the circumstances
leading to the conversion, and after compliance with all other requirements for
stock corporations under this Code and applicable rules. Such notice shall be
filed with the SEC within sixty (60) days from the occurrence of the
circumstances leading to the conversion into an ordinary stock corporation. If
all requirements have been complied with, the SEC shall issue an amended
certificate of incorporation reflecting the conversion.
- In case of death of the single stockholder, the nominee or alternate nominee
shall transfer the shares to the duly designated legal heir or estate within seven
(7) days from receipt of either an affidavit of heirship or self- adjudication
executed by a sole heir, or any other legal document declaring the legal heirs
of the single stockholder and notify the SEC of the transfer. Within sixty (60)
days from the transfer of the shares, the legal heirs shall notify the SEC of their
decision to either wind up and dissolve the One Person Corporation or convert
it into an ordinary stock corporation.

NOTE: The Converted Corporations shall succeed the former corporation and be legally
responsible for all the latter’s outstanding liabilities as of the date of conversion.

I.MERGERS AND CONSOLIDATIONS

1. CONCEPT
Merger
- A union whereby one or more existing corporations are absorbed by another
corporation that survives and continues the combined business
Consolidation
- The union of two or more existing corporations. A new corporation is created,
and consolidating corporations are extinguished.

Differentiating Merger from Consolidation

MERGER CONSOLIDATION
 A corporation ABSORBS another A NEW corporation is created, and
corporation and REMAINS IN constituent corporations are
EXISTENCE while the other is EXTINGUISHED.
DISSOLVED

- The power to merge or consolidate is not within the inherent powers of the
corporation. Therefore, it must be expressly granted by law.

- Merger or consolidation does not become effective by mere agreement of the

constituent corporations. The approval of the SEC is required

Mere Acquisition/Transfer (3 Levels)

MERGER/CONSOLIDATION TRANSFER OF PROPERTY

Loss of separate existence by the absorbed A NEW corporation is created, and
corporation (in mergers) or the constituent constituent corporations are
corporations (in consolidation) EXTINGUISHED.

1) ASSETS-ONLY LEVEL
General Rule:
- A corporation that purchases the assets of another will not be liable for the
debts and liabilities of the selling corporation provided the former acted in
good faith.
Except, when the following circumstances are present:
1. where the purchasers expressly or impliedly agrees to assume the debts
2. where the selling corporation fraudulently enters into the transactions to escape
liability for those debts
3. where the purchasing corporation is merely a continuation of the selling
corporation
4. where the transaction amounts to a consolidation or merger of the corporations

2) BUSINESS ENTERPRISE LEVEL

- Purchase of substantially all the assets of the corporation extending to its
“going concern” (ability to do business and make money, goodwill, clientele,
stock-in-trade, etc). There is case law, based on equity, that holds the transferee
liable for the debts and liabilities of the transferor. A “free and harmless clause”
holding the transferee free from the liabilities of the transferor is binding only
between them and cannot prejudice creditors who are not parties thereto.
- NOTE: The sale under [Sec. 39] does not contemplate an ordinary sale of all
corporate assets; the transfer must be of such degree that the transferor
corporation is rendered incapable of continuing its business or its corporate
purpose.
- However, not every transfer of the entire corporate assets would qualify under
Section [39]. It does not apply:
1. If the sale of the entire property and assets is necessary in the usual and
regular course of business of corporation, or
 2. If the proceeds of the sale or other disposition of such property and assets
will be appropriated for the conduct of its remaining business.
- Thus, the litmus test to determine the applicability of Section [39] would be the
capacity of the corporation to continue its business after the sale of all or
substantially all its assets.

3) EQUITY LEVEL
- Purchaser takes control of the business by purchasing the shareholdings.
Purchasing corporation is still protected by the limited liability feature but the
same can be pierced.

- In order to transfer ownership of shares of stock not traded in the Stock

Exchange, it is necessary to secure a Certificate of Authorizing Registration
(CAR) pursuant to the process laid down in RMO No. 15-03. The receipts of the
payment of the tax should also be filed with and recorded by the secretary of
the corporation pursuant to Section 11 of RR. No. 06-08.

a. Constituent and consolidated corporations

CONSTITUENT CORPORATION CONSOLIDATED CORPORATION

The corporations that shall cease to exist The corporation formed after the
after joining together through consolidation of two constituent
consolidation names of the corporations corporations
proposing to merge or consolidate,
hereinafter referred to as the constituent
corporations

- The constituent corporations shall become a single corporation which, in case

of merger, shall be the surviving corporation designated in the plan of merger;
and, in case of consolidation, shall be the consolidated corporation designated
in the plan of consolidation

b. Plan of Merger or Consolidation (Sec. 75)

- The plan of merger or consolidation shall set forth the ff:
1. The names of the constituent corporations;
2. The terms of the merger or consolidation and the mode of carrying the same into
effect;
3. A statement of the changes, if any, in the articles of incorporation of the surviving
corporation in case of merger; and, in case of consolidation, all the statements
required to be set forth in the articles of incorporation for corporations organized
under this Code; and
4. Such other provisions with respect to the proposed merger or consolidation as are
deemed necessary or desirable.

NOTE: The plan of merger has to be approved by majority of the board of each
constituent corporation; it has to be approved by affirmative vote of stockholders
representing 2⁄3 of the outstanding capital stock or 2⁄3 of the members in case of a non-
stock corporation.

c. Articles of Merger or Consolidation (Sec. 78)

- The articles must be signed by the president or vice president and certified by
the secretary or assistant secretary setting forth:
i. The plan of the merger or the plan of consolidation;
ii. As to stock corporations, the number of shares outstanding, or in the
case of non-stock corporations, the number of members;
iii. As to each corporation, the number of shares or members voting for
or against such plan, respectively;
iv. The carrying amounts and fair values of the assets and liabilities of
the respective companies as of the agreed cut-off date;
v. The method to be used in the merger or consolidation of accounts of
the companies;
vi. The provisional or pro-forma values, as merged or consolidated,
using the accounting method; and
vii. Such other information as may be prescribed by the SEC.

d. Procedure of Consolidation or Merger

STEP 1: Drawing up of the Plan of Merger or Consolidation (Sec. 75)

- The board of constituent corporations shall draw up a plan of merger or
consolidation. It shall contain the following:
a. The names of the constituent corporations;
b. The terms of the merger or consolidation and the mode of carrying the same
into effect;
c. A statement of the changes, if any, in the articles of incorporation of the
surviving corporation in case of merger; and, in case of consolidation, all
the statements required to be set forth in the articles of incorporation for
corporations organized under this Code; and
d. Such other provisions with respect to the proposed merger or consolidation
as are deemed necessary or desirable.

STEP 2: Board Approval (Sec. 75)

- The plan of merger or consolidation shall be approved by majority vote of each
of the boards of the corporations involved at separate meetings;

STEP 3: Stockholders’ or Members’ Approval (Sec. 76)

1. Notice of such meeting should be given to all stockholders or members at least 1
week before the meeting.
2. The plan has to be approved by a vote of stockholders representing 2⁄3 of the
outstanding capital stock, if a stock corporation, or 2⁄3 of the members of the non-
stock corporation.
3. Dissenting stockholders may exercise their right of appraisal. However, if the
board abandons the plan, such right is extinguished.
 4. Any amendment to the plan must be approved by the same votes of the board
members or trustees and stockholders or members required for the original plan.

STEP 4: Articles of Merger or Consolidation (Sec. 77)

- Once the required number of stockholders or members approved of the plan,
Articles of Merger or Articles of Consolidation shall be executed by each of the
constituent corporations, to be signed by the president or vice-president and
certified by the secretary or assistant secretary of each corporation, setting forth:
a. The plan of the merger or the plan of consolidation;
b. As to stock corporations, the number of shares outstanding, or in the case of non-
stock corporations, the number of members;
c. As to each corporation, the number of shares or members voting for or against
such plan, respectively;
d. The carrying amounts and fair values of the assets and liabilities of the respective
companies as of the agreed cut-off date;
e. The method to be used in the merger or consolidation of accounts of the companies;
f. The provisional or pro-forma values, as merged or consolidated, using the
accounting method; and
g. Such other information as may be prescribed by the SEC.

STEP 5: Approval by the SEC

- The Articles of Merger or Articles of Consolidation shall be submitted to the
SEC for approval.
- However, in the case of special corporations, like banks, insurance companies,
building and loan associations, etc., the favorable recommendation of the
appropriate government agency shall first be obtained.
1. If the SEC is satisfied that the merger or consolidation of the corporations
concerned is legal, it shall issue a certificate of merger or of consolidation, at which
time the merger or consolidation shall be effective.
2. If the SEC is not satisfied, it shall set a hearing to give the corporations concerned
the opportunity to be heard. Written notice of the date, time and place of hearing
shall be given to each constituent corporation at least two (2) weeks before said
hearing.

e. Effectivity of Merger or Consolidation

- A merger does not become effective upon the mere agreement of the constituent
corporations, but open approval of the articles of merger by the SEC issuing the certificate
of merger as required by Section 79 of the Corporation Code

2. EFFECTS AND LIMITATIONS OF MERGER AND CONSOLIDATION

Effects of Merger or Consolidation
1. Constituent corporations become a single corporation
a. Merger: surviving corporation
b. Consolidation: consolidated corporation under the plan of consolidation

2. Separate existence of constituent corporations cease EXCEPT that of the surviving or

consolidated corporation
3. Surviving or consolidated corporation possesses the rights privileges immunities; and
powers and is subject to all duties and liabilities of a corporation organized under this
Code
4. ALL of the following are deemed transferred to and vested in such surviving or
consolidated corporation:
(BY OPERATION OF LAW)
a. Rights
b. Privileges
c. Immunities
d. Franchises of each constituent corporation
e. Real or personal property
f. Receivables due on whatever account (hence surviving/consolidated corp
has the power to file an action for recovery) including:
• subscriptions to shares and other choses in action
• and every other interest of, belonging to, or due to each constituent
corporation

5. Regarding liabilities and pending claims:

a. Liabilities and obligations of each constituent corporation:
- Surviving or consolidated corporation shall be responsible
b. Pending claim, action or proceeding brought by or against any constituent
corporation
- may be prosecuted by or against the surviving or consolidated corporation
c. The rights of creditors or liens upon the property of such constituent
corporations are not impaired
d. Employee contracts

Limitations of Merger or Consolidation

- Under the Philippine Competition Act (R.A. no. 10667), the Philippine
Competition Commission can review the mergers and acquisitions of a
corporation/s based on the factors it deems to be relevant. (Sec. 16 of R.A. no.
10667)

- Parties to a merger or acquisition agreement without complying with the

thresholds are prohibited from consummating their agreement until thirty (30)
days after providing notification to the Commission in the form and containing
the information specified in the regulations issued by the Commission. A
transaction that meets the thresholds and does not comply with the notification
requirements and waiting periods set out in Section 5 shall be considered void
and will subject the parties to an administrative fine of one percent (1%) to five
percent (5%) of the value of the transaction. (Sec. 17 of R.A. no. 10667; PCA
Rule 4, as amended by PCC Resolution No. 02-2020)

Thresholds for compulsory notification

- M&A transactions whose definitive agreements are executed on or after 1
March 2020 will be subject to mandatory notification to the PCC if they meet
the ff. thresholds:
SIZE OF PARTY
(i) the aggregate annual gross revenues in, into or from the Philippines, or
(ii) the value of the assets in the Philippines of the ultimate parent entity (UPE) of either
the acquiring or acquired entities exceeds PhP 6 billion

SIZE OF TRANSACTION
The size of transaction will be met if the transaction value, as determined below, exceeds
PhP 2.4 billion.

- Merger or acquisition agreements that substantially prevent, restrict or lessen

competition in the relevant market or in the market for goods or services as
may be determined by the Commission shall be prohibited. (Sec. 20 of R.A. no.
10667)
Exemptions:
- Notwithstanding such prohibition, the PCC would allow such merger or acquisition
provided the parties prove the following:
(a) The concentration has brought about or is likely to bring about gains in efficiencies
that are greater than the effects of any limitation on competition that result or
likely to result from the merger or acquisition agreement; or

(b) A party to the merger or acquisition agreement is faced with actual or imminent
financial failure, and the agreement represents the least anti-competitive
arrangement among the known alternative uses for the failing entity’s assets.(Sec.
21 of R.A. no. 10667)