Corpo Law Memory Aid Reviewer

San Beda College of Law
85
MEMORY AID IN COMMERCIAL LAW
CORPORATION CODE
(B.P. Blg. 68, effective May 1, 1980
I. !ENERA" PRO#I$ION$
CORPORATION
An artificial being created by
operation of law having the right of
succession, and the powers, attributes
and properties expressly authorized by
law and incident to its existence. (Sec.
2)
ATTRIB%TE$ O& A CORPORATION
1. t is an artificial being.
2. t is created by operation of law.
!. t en"oys the right of succession.
#. t has the powers, attributes and
properties expressly authorized by
law or incident to its existence.
T'EORIE$ ON T'E &ORMATION O& A
CORPORATION(
1. Concession Theory ) espouses that a
corporation is an artificial creature
without any existence until it has
received the i$pri$atur of the state
acting according to law, through the
S%&. ('ayag vs. (enguet &onsolidated,
nc., 2) S&*A 2#2)
2. Theory of corporate enterprise or
economic unit ) espouses that the
corporation is not $erely an artificial
being, but $ore of an aggregation of
persons doing business, or an underlying
business unit. (Philippine Corporate
Law, Cesar Villanueva, 2001 ed.
!. !enossenschaft Theory " treats a
corporation as + the reality of the group
as a social and legal entity, independent
of state recognition and concession,.
('ayag vs. (enguet &onsolidated, nc.,
2) S&*A 2#2)
DOCTRINE O& $EPARATE PER$ONA"IT*
A corporation has a "uridical
personality separate and distinct fro$
that of its stoc-holders or $e$bers.
.sed for purposes of convenience and
to subserve the ends of "ustice.
Conse#uences$si%nificance&
1. /iability for acts or contracts 0
obligations incurred by a
corporation, acting through its
authorized agents are its sole
liabilities. (&reese vs. &A, 1!
S&*A #2!)
2. *ight to bring actions 0 $ay
bring civil and cri$inal actions in
its own na$e in the sa$e
$anner as natural persons. (Art.
#), &ivil &ode)
!. *ight to ac3uire and possess
property 0 property conveyed to
or ac3uired by the corporation is
in law the property of the
corporation itself as a distinct
legal entity and not that of the
stoc-holders or $e$bers. (Art.
##(!), &ivil &ode)
#. Ac3uisition of court of
"urisdiction 0 service of su$$ons
$ay be $ade on the president,
general $anager, corporate
secretary, treasurer or in4house
counsel. (Sec. 11, *ule 1#, *ules
of &ourt).
5. &hanges in individual
$e$bership 0 re$ains
unchanged and unaffected in its
identity by changes in its
individual $e$bership. (The
Corporation Code of the
Philippines 'nnotated, (ector
de Leon, 2002 ed.
). %ntitle$ent to constitutional
guaranties6
a. 7ue process (Albert vs.
.niversity 8ublishing, 1!
S&*A 2#)
b. %3ual protection of the law
(S$ith, (ell 9 &o. vs.
:atividad, #; 8hil. 1!))
c. 8rotection against
unreasonable searches and
seizures. (Stonehill vs.
7io-no, 2; S&*A !2!)
A corporation is not
entitled to invo-e the right
against self4incri$ination.
((ataan Shipyard vs. 8&<<)
=./iability for torts 0 a corporation
is liable whenever a tortuous act
is co$$itted by an officer or
agent under the express
direction or authority of the
stoc-holders or $e$bers acting
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON: Jayson OS Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario (Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel Ga!.ula (an3ing
La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
86 2005 CENTRALIZED BAR OPERATIONS

as a body, or, generally, fro$
the directors as the governing
body. (8:( vs. &A, 2! S&*A 2!=)
2. A corporation is not entitled to
$oral da$ages because it has no
feelings, no e$otions, no senses.
(A(S4&(: vs. &ourt of Appeals)
1. /iability for &ri$es 0 since a
corporation is a $ere legal
fiction, it cannot be held liable
for a cri$e co$$itted by its
officers, since it does not have
the essential ele$ent of $alice>
in such case the responsible
officers would be cri$inally
liable. (8eople vs. 'an (oon
?ong, 5# 8hil.);=)
DOCTRINE O& PIERCIN! T'E #EI" O&
CORPORATE ENTIT*
*e3uires the court to see through the
protective shroud which exe$pts its
stoc-holders fro$ liabilities that they
ordinarily would be sub"ect to, or
distinguishes a corporation fro$ a
see$ingly separate one, were it not for
the existing corporate fiction. (/i$ vs.
&A, !2! S&*A 1;2)
)ules& (Philippine Corporate Law,
Cesar Villanueva, 2001 ed.
1. has only a res "udicata effect
2. to prevent wrong or fraud and
not available for other purposes
!. "udicial prerogative only
#. $ust be with necessary and
with factual basis
@hen directors and officers are
unable to co$pensate a party for a
personal obligation, it is far4fetched to
allege that a corporation is perpetuating
fraud or pro$oting in"ustice, and
thereby could be held liable therefor by
piercing the corporate veil. (Arancisco
Botors, nc. vs. &A, <.*. :o. 1;;212,
Cune 25, 1111)
+ C"A$$E$ O& PIERCIN! (Philippine
Corporate Law, Cesar Villanueva, 2001
ed.
1. &,a-. Ca/e/ 0 when a corporation is
used as a cloa- to cover fraud, or to
do wrong.
)ules&
a. 'here $ust have been
fraud or evil $otive in
the affected transaction
and the $ere proof of
control of the
corporation by itself
would not authorize
piercing.
b. 'he $ain action should
see- for the
enforce$ent of
pecuniary clai$s
pertaining to the
corporation against
corporate officers or
stoc-holders.
2. Alte, Eg0 Ca/e/ 0 when the
corporate entity is $erely a farce
since the corporation is an alter ego,
business conduit or instru$entality
of a person or another corporation.
)ules&
a. t applies because of the
direct violation of a central
corporate law principle of
separating ownership fro$
$anage$ent.
b. f the stoc-holders do not
respect the separate entity,
others cannot also be
expected to be bound by the
separate "uridical entity.
c. Applies even when there are
no $onetary clai$s sought
to be enforced.
!. E1-ity ca/e/ 0 when piercing the
corporate fiction is necessary to
achieve "ustice or e3uity.
IN$TR%MENTA"IT* 2 A"TER E!O R%"E
@here one corporation is so organized
and controlled and its affairs are
conducted so that it is, in fact, a $ere
instru$entality or ad"unct of the other,
the fiction of the corporate entity of the
+instru$entality, $ay be disregarded.
Re1-i/ite/(
1. 'here $ust be control, not $ere
$a"ority or co$plete stoc-
control, but co$plete
do$ination, not only of finances,
but of policy, and business
practice in respect to the
transaction attac-ed so that the
corporate entity as to this
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT
CHAIRPERSONS
Mari!" A#ar!$%&' (O/er4all C&air0erson+1 R&$a"( Ja")a$*ar (O/er4all 'i%e C&air+1 Y&"a$(a T&"!$%i$&('C4A%a.s+1
J!$$i+!r A$,('C4 Se%re!aria!+1 J&- I$(.%i/& ('C4-inan%e+1 E"ai$! Ma'.0a% ('C4EDP+1 A$$a Mar,ari%a Er!' ('C4
Logis!i%s+ J&$a%1a$
Ma$,.$(a-a& (Poli!i%al La*+1 2ra$i' B!$!(i% R!&%.%ar (La)or La*+1 R&).a"( Pa(i""a (Ci/il La*+1 C1ar)ai$! T&rr!'
(Ta"a!ion La*+1 Mar0 Da/i( Mar%i$!* (Criminal La*+1 3ar$- L.i'a A"!,r! (Commer%ial La*+1 Ji$0- A$$ U- (Reme.ial La*+1
Ja0i! L&. Ba.%i'%a (Legal E!&i%s+
84
transaction had, at that ti$e, no
separate $ind, will or existence
of its own (control>
2. Such control $ust have been
used by the defendant to co$$it
fraud or wrong, to perpetrate
the violation of a statutory or
other positive duty, or dishonest
and un"ust act in contravention
of plaintiffDs legal rights (*reach
of duty> and
!. Such control and breach of duty
$ust proxi$ately cause the
in"ury to the plaintiff. (&oncept
(uilders, nc. vs. :/*&, 25=
S&*A, 1#1)
Pa,t3e,/4i5 C0,50,ati03
1. Creation
&reated by $ere
agree$ent of the
parties
&reated by law or
by operation of law
2. Number of incorporators
Bay be organized by
at least two persons
*e3uires at least
five incorporators
(except a
corporation sole)
3. Commencement of juridical
personality
Ac3uires "uridical
personality fro$ the
$o$ent of execution
of the contract of
partnership
Ac3uires "uridical
personality fro$
the date of
issuance of the
certificate of
incorporation by
the Securities and
%xchange
&o$$ission
4. Powers
8artnership
$ay exercise any
power authorized by
the partners
(provided it is not
contrary to law,
$orals, good
custo$s, public
order, public policy)
&orporation can
exercise only the
powers expressly
granted by law or
i$plied fro$ those
granted or incident
to its existence
5. Management
@hen $anage$ent is
not agreed upon,
every partner is an
agent of the
partnership
'he power to do
business and
$anage its affairs
is vested in the
board of directors
or trustees
. !ffect of mismanagement
A partner as such can 'he suit against a
sue a co4partner who
$is$anages
$e$ber of the
board of directors
or trustees who
$is$anages $ust
be in the na$e of
the corporation
". #ig$t of succession
8artnership has no
right of succession
&orporation has
right of succession
%. !&tent of liability to t$ird persons
8artners are liable
personally and
subsidiarily
(so$eti$es
solidarily) for
partnership debts to
third persons
Stoc-holders are
liable only to the
extent of the
shares subscribed
by the$
'. (ransferability of interest
8artner cannot
transfer his interest
in the partnership so
as to $a-e the
transferee a partner
without the
unani$ous consent of
all the existing
partners because the
partnership is based
on the principle of
delectus personarum
Stoc-holder has
generally the right
to transfer his
shares without
prior consent of
the other
stoc-holders
because
corporation is not
based on this
principle
1). (erm of e&istence
partnership $ay be
established for any
period of ti$e
stipulated by the
partners
corporation $ay
not be for$ed for a
ter$ in excess of
5; years extendible
to not $ore than
5; years in any one
instance
11. *irm name
/i$ited partnership
is re3uired by law to
add the word +/td.,
'o its na$e
corporation $ay
adopt any na$e
provided it is not
the sa$e as or
si$ilar to any
registered fir$
na$e
12. +issolution
$ay be dissolved at
any ti$e by any or all
of the partners
can only be
dissolved with the
consent of the
State
13. ,o-erning .aw
governed by the &ivil
&ode
governed by the
&orporation &ode

AD#ANTA!E$ #I$676#I$
DI$AD#ANTA!E$ O& A B%$INE$$
CORPORATION (The Corporation Code
of the Philippines 'nnotated, (ector de
Leon, 2002 ed.
AD#ANTA!E$ DI$AD#ANTA!E$
1. has a legal
capacity to act and
contract as a distinct
unit in its own na$e
2. continuity of
existence
!. its credit is
strengthened by its
continuity of existence
#. centralized
$anage$ent in the
board of directors.
5. its creation,
$anage$ent,
organization and
dissolution are
standardized as they
are governed under
one general
incorporation law.
). li$ited
liability
=. shareholders
are not the general
agents of the business
2. transferability of
shares
1. co$plica4
ted in for$ation
and $anage$ent
2. high cost
of for$ation and
operations
!. its credit is
wea-ened by the
li$ited liability
feature
#. lac- of
personal ele$ent.
5. greater
degree of
govern$ental
supervision
). $anage4
$ent and control
are separated fro$
ownership.
=. Stoc-hol4
ders have little
voice in the conduct
of the business.
&RANC'I$E$ O& CORPORATION
1. Primary or corporate
franchise$!eneral +ranchise
'he right or privilege granted by the
State to individuals to exist and act as a
corporation after its incorporation.
2. ,econdary or special franchise
'he special right or privilege conferred
upon an existing corporation to the
business for which it was created.
%xa$ple, use of the streets of a
$unicipality to lay pipes or trac-s, or
operation of a $essenger and express
delivery service.
8*BA*E S%&F:7A*E
*efers to the
franchise of being or
existing as a
corporation
*efers to the exercise
of rights. %xa$ple6
right of e$inent
do$ain
Gested in the
individuals who
co$pose the
corporation
Gested in the
corporation after its
incorporation and not
upon the individuals
who co$pose the
corporation.
&annot be sold or
transferred because
it is inseparable
fro$ the corporation
itself.
Bay be sold or
transferred> sub"ect
to sale on execution,
sub"ect to levy.
C"A$$E$ O& CORPORATION
1. AS 'F F*<A:H%*S
a. 5-8lic 0 by State only> and
b.5,ivate 0 by private persons alone
or with the State.
2. AS 'F A.:&'F:S
a. 5-8lic 0 govern$ent of a portion
of the territory> and
b. 5,ivate 0 usually for profit4
$a-ing
!. AS 'F <FG%*::< /A@
a. 5-8lic 0 Special /aws> and
b. 5,ivate 0 /aw on 8rivate
&orporations
#. AS 'F /%<A/ S'A'.S
a. De 9-,e c0,50,ati03 0 organized
in accordance with the
re3uire$ents of law.
b. De fact0 c0,50,ati03 0 organized
with a colorable co$pliance with
the re3uire$ents of a valid law.
ts existence cannot be in3uired
collaterally. Such in3uiry $ay be
$ade by the Solicitor <eneral in
a #uo warranto proceeding.
($ec. :0
*e3uisites6
1. 'he existence of a vali. la;
under which it $ay be
incorporated>
2. A bona fide atte$pt in g00.
fait4 to incorporate under
such law>
!. Actual use or e<e,ci/e i3
g00. fait4 of corporate
powers> and
#. I//-a3ce 0f a ce,tificate 0f
i3c0,50,ati03 by the S%& as
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
85
a $ini$u$ re3uire$ent of
continued good faith.
The only difference
*etween a de facto
corporation and a de -ure
corporation is that a de -ure
corporation can successfully
resist a suit *y a state
*rou%ht to challen%e its
e.istence/ a de facto
corporation cannot sustain
its ri%ht to e.ist.
c. C0,50,ati03 8y e/t055el 0 group
of persons that assu$es to act as
a corporation -nowing it to be
without authority to do so, and
enters into a transaction with a
third person on the strength of
such appearance. t cannot be
per$itted to deny its existence
in an action under said
transaction. (Sec. 21) 0t is
neither de -ure nor de facto.
d. C0,50,ati03 8y 5,e/c,i5ti03 0
one which has exercised
corporate powers for an
indefinite period without
interference on the part of the
sovereign power, e.g. *o$an
&atholic &hurch.
5. AS 'F %IS'%:&% FA SJA*%S FA
S'F&?
a. $t0c= c0,50,ati03 0 a corporation
(1) whose capital stoc- is divided
into shares and (2) which is
authorized to distribute to
shareholders dividends or
allot$ents of the surplus profits
on the basis of the shares held.
(Sec. !)
b. N036/t0c= c0,50,ati03 0 does not
issue stoc-s nor distribute
dividends to their $e$bers.
). AS 'F *%/A'F:SJ8 FA
BA:A<%B%:' A:7 &F:'*F/
a. '0l.i3g C0,50,ati03 4 it is one
which controls another as a
subsidiary by the power to elect
$anage$ent. t is one that holds
stoc-s in other co$panies for
purposes of control rather than
for $ere invest$ent.
b. $-8/i.ia,y C0,50,ati03 4 one
which is so related to another
corporation that the $a"ority of
its directors can be elected
directly or indirectly by such
other corporation. (The
Corporation Code of the
Philippines 'nnotated, (ector
de Leon, 2002 ed.
c. Affiliate/ 4 co$pany which is
sub"ect to co$$on control of a
$other holding co$pany and
operated as part of the syste$.
d. Pa,e3t a3. $-8/i.ia,y
C0,50,ati03 4 separate entities
with power to contract with
each other. 'he board of
directors of the parent co$pany
deter$ines its representatives to
attend and vote in the
stoc-holderDs $eeting of its
subsidiary. 'he stoc-holders of
the parent co$pany de$and
representation in the board
$eetings of its subsidiary.
=. AS 'F 8/A&% FA :&F*8F*A'F:
a. D0>e/tic c0,50,ati034 a
corporation for$ed, organized,
or existing under 8hilippine laws.
b. &0,eig3 c0,50,ati03 0 a
corporation for$ed, organized,
or existing under any laws other
than those of the 8hilippines.
(Sec. 12!)
ONE6MAN CORPORATION
A corporation wherein all or
substantially all of the stoc-s is held
directly or indirectly by one person.
Jowever, it should still follow the
for$al re3uire$ents of a
corporation (e.g. nu$ber of
incorporators, board of directors
co$posed of stoc-holders owning
shares in a no$inal capacity) in
order to validly en"oy the attributes
of the corporation, so as to avoid
the application of the doctrine of
piercing the veil of corporate
entity.
TE$T$ TO DETERMINE NATIONA"IT* O&
CORPORATION$
1. :&F*8F*A'F: '%S' 0 deter$ined
by the state of incorporation, regardless
of the nationality of the stoc-holders.
2. 7FB&/% '%S' 0 deter$ined by the
state where it is do$iciled.
'he do$icile of a corporation is the
place fixed by the law creating or

recognizing it> in the absence thereof, it
shall be understood to be the place
where its legal representation is
established or where it exercise its
principal functions. (Art. 51, :&&)
!. &F:'*F/ '%S' 0 deter$ined by the
nationality of the controlling
stoc-holders or $e$bers. 'his test is
applied in ti$es of war. Also -nown as
the @A*'B% '%S'.
?P'I"IPPINE NATIONA"@ %NDER T'E
&OREI!N IN#E$TMENT ACT O& 1991
(R.A. N0. A0B:(
1. A corporation organized under the
laws of the 8hilippines of which at least
);K of the outstanding capital stoc-
entitled to vote is owned and held by
Ailipino citizens>
2. A foreign corporation licensed as
doing business in the 8hilippines of
which 1;;K of the outstanding capital
stoc- entitled to vote is wholly owned by
Ailipinos> and
Jowever, it provides that where a
corporation and its non4Ailipino
stoc-holders own stoc-s in a S%&4
registered enterprise, at least );K of the
capital stoc- outstanding and entitled to
vote of *oth corporations and at least
);K of the $e$bers of the board of
directors of *oth corporations $ust be
Ailipino citizens (double );K rule).
NOTE( The law applies the control test
*oth with respect to the ownership of
shares entitled to vote and the
mem*ership in the *oard of directors.
COMPONENT$ O& A CORPORATION
a. &orporators 0 those who co$pose a
corporation, whether as stoc-holders or
$e$bers
b. ncorporators 4 'hey are those
$entioned in the Articles of
ncorporation as originally for$ing and
co$posing the corporation, having
signed the Articles and ac-nowledged
the sa$e before a notary public. 'hey
have no powers beyond those vested in
the$ by the statute.
1ualifications&
1. natural person>
2. not less than 5 but not $ore
than 15>
!. of legal age>
#. $a"ority $ust be residents of
the 8hilippines> and
5. each $ust own or subscribe to at
least one share. ($ec. 10
!232)'L )4L2& Fnly natural persons
can be incorporators.
25C2PT063& @hen otherwise allowed
by law, e.g., *ural (an-s Act of 1112,
where incorporated cooperatives are
allowed to be incorporators of rural
ban-s. 3ote& (owever, it is undenia*le
that corporations can *e corporators.
c. Stoc-holders 0 owners of shares of
stoc- in a stoc- corporation
d. Be$bers 0 corporators of a
corporation which has no capital stoc-
INCORPORATOR$ CORPORATOR$
signatory to the
Articles of
ncorporation
stoc-holder (stoc-
corporation) or
$e$ber (non4stoc-
corporation)
fait acco$pli>
acco$plished fact
(the Articles of
ncorporation cannot
be a$ended to
replace the$)
they $ay cease to
be such if they
subse3uently lose
their 3ualifications
nu$ber is li$ited to
5415
no restriction as to
nu$ber
$ust have contractual
capacity
$ay be such
through a guardian
OT'ER COMPONENT$
a. 8ro$oter 4 A person who, acting alone
or with others, ta-es initiative in
founding and organizing the business or
enterprise of the issuer and receives
consideration therefor.
Je is an agent of the incorporators but
not of the corporation.
&ontracts by the pro$oter for and in
behalf of a proposed corporation
generally bind only hi$, sub"ect to and
to the extent of his representations, and
not the corporation, unless and until
after these contracts are ratified,
expressly or i$pliedly, by its (oard of
7irectorsL'rustees.
b. Subscriber 0 persons who have agreed
to ta-e and pay for original, unissued
shares of a corporation for$ed or to be
for$ed.
c. .nderwriter 0 a person who
guarantees on a fir$ co$$it$ent andL
or declared best effort basis the
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
56
distribution and sale of securities of any
-ing by another co$pany. (Sec. ! *.A.
2=11)
C"A$$I&ICATION O& $'ARE$
1. &FBBF: SJA*%S
'he basic class of stoc- ordinarily and
usually issued without extraordinary
rights and privileges, and the owners
thereof are entitled to a pro rata share
in the profits of the corporation and in
its assets upon dissolution and, li-ewise,
in the $anage$ent of its affairs without
preference or advantage whatsoever.
2. 8*%A%**%7 SJA*%S
'hose issued with par value, and
preferences either with respect to (a)
assets after dissolution, (b) distribution
of dividends, or both, and other
preferences.
Limitations&
a. f deprived of voting rights, it shall
still be entitled to vote on $atters
enu$erated in Section ) paragraph ).
b. 8reference $ust not be violative of
the &ode.
c. Bay be issued only with a stated par
value.
d. 'he board of directors $ay fix the
ter$s and conditions only when so
authorized by the articles of
incorporation and such ter$s and
conditions shall be effective upon filing
a certificate thereof with the S%&.
!. *%7%%BA(/% SJA*%S
'hose which per$it the issuing
corporation to redee$ or purchase its
own shares.
Limitations&
a. *edee$able shares $ay be issued
only when expressly provided for in
the articles of incorporation>
b. 'he ter$s and conditions
affecting said shares $ust be stated
both in the articles of incorporation
and in the certificates of stoc-
representing such shares>
c. *edee$able shares $ay be
deprived of voting rights in the
articles of incorporation, unless
otherwise provided in the &ode.
*edee$able shares $ay be redee$ed,
regardless of the existence of
unrestricted retained earnings (Sec. 2),
provided that the corporation has, after
such rede$ption, sufficient assets in its
boo-s to cover debts and liabilities
inclusive of capital stoc-.
#. '*%AS.*E SJA*%S
Shares that have been earlier issued as
fully paid and have thereafter been
ac3uired by the corporation by purchase,
donation, and rede$ption or through
so$e lawful $eans. (Sec. 1)
0f purchased from stoc7holders& 'he
transaction in effect is a return to the
stoc-holders of the value of their
invest$ent in the co$pany and a
reversion of the shares to the
corporation. 'he corporation $ust have
surplus profits with which to buy the
shares so that the transaction will not
cause an i$pair$ent of the capital.
0f ac#uired *y donation from the
stoc7holders& 'he act would a$ount to a
surrender of their stoc- without getting
bac- their invest$ents that are instead,
voluntarily given to the corporation.
'reasury shares need not be sold at
par or issued value but $ay be sold at
the best price obtainable, provided it is
reasonable. @hen treasury shares are
sold below its par or issued value, there
can be no watering of stoc- because
such watering conte$plates an original
issuance of shares.
'reasury shares have no voting rights
as long as they re$ain in treasury
(uncalled and sub"ect to reissue).
)eason& A corporation cannot in any
proper sense be a stoc-holder in itself
and e3ual distribution of voting rights
will be effectively lost.
:either are treasury shares entitled to
dividends or assets because dividends
cannot be declared by a corporation to
itself.
5. AF.:7%*SM SJA*%
Shares issued to organizers and
pro$oters of a corporation in
consideration of so$e supposed right or
property.
Shares classified as such in the articles
of incorporation which $ay be given
special preference in voting rights and
dividend pay$ents. (ut if an exclusive
right to vote and be voted for as director
is granted, this privilege is sub"ect to
approval by the S%&, and cannot exceed
5 years fro$ the date of approval.

). GF':< SJA*%S
Shares with a right to vote.
=. :F:4GF':< SJA*%S
Shares without right to vote.
'he law only authorizes the denial of
voting rights in the case of redee$able
shares and preferred shares, provided
that there shall always be a class or
series of shares which have co$plete
voting rights.
'hese redee$able and preferred
shares, when such voting rights are
denied, shall nevertheless be entitled to
vote on the following funda$ental
$atters6 ?ey( A
2
S
2
B7
a. a $end$ent of Articles of
ncorporation
b. a doption and a$end$ent of
by4laws>
c. s ale or disposition of all or
substantially all of corporate
property>
d. incurring, creating or
increasing bonded
indebtedness>
e. increase or decrease of capital
stoc-
f. $ erger or consolidation of
capital stoc-
g. invest$ents of corporate funds
in another corporation or
another business purpose> and
h. c orporate dissolution
2. %S&*F@ S'F&?
7eposited with a third person to be
delivered to a stoc-holder or his assign
after co$plying with certain conditions,
usually pay$ent of full subscription
price.
1. FG%*4SS.%7 S'F&?
Stoc- issued in excess of the
authorized capital stoc-. t is also -nown
as spurious stoc7. ts issuance is
considered null and void.
1;. @A'%*%7 S'F&?
A stoc- issued not in exchange for its
e3uivalent either in cash, property,
share, stoc- dividends, or services.
+@ater, in the stoc- represents the
difference between the fair $ar-et
value at the ti$e of the issuance of the
stoc- and the par or issued value of said
stoc-. (oth par and no par stoc-s can
thus be watered stoc-s.
t includes stoc-s6
a. ssued without consideration.
b. ssued as fully paid when the
corporation has received a lesser su$ of
$oney than its par or issued value.
c. ssued for a consideration other than
actual cash, the fair valuation of which
is less than its par or issued value.
d. ssued as stoc- dividend when there
are no sufficient retained earnings to
"ustify it.
11. 8A* GA/.% SJA*%S
Shares with a value fixed in the
certificates of stoc- and the articles of
incorporation.
12. :F 8A* GA/.% SJA*%S
Shares having no par value but have
issued value stated in the certificate or
articles of incorporation.
Limitations&
a. :o par value shares cannot have
an issued price of less than 85.;;>
b. 'he entire consideration for its
issuance constitutes capital so that no
part of it should be distributed as
dividends>
c. 'hey cannot be issued as
preferred stoc-s>
d. 'hey cannot be issued by ban-s,
trust co$panies, insurance
co$panies, public utilities and
building and loan association>
e. 'he articles of incorporation
$ust state the fact that it issued no
par value shares as well as the
nu$ber of said shares>
f. Fnce issued, they are dee$ed
fully paid and non4assessable. (Sec.
))
1!. S'*%%' &%*'A&A'%
A stoc- certificate endorsed by the
registered holder in blan- and transferee
can co$$and its transfer to his na$e
fro$ the issuing corporation.
1#. &F:G%*'(/% SJA*%
A share that is changeable by the
stoc-holder fro$ one class to another at
a certain price and within a certain
period.
15. A*A&'F:A/ SJA*%
A share with a value of less than one
full share.
DOCTRINE O& EC%A"IT* O& $'ARE$
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
57
@here the articles of incorporation do
not provide for any distinction of the
shares of stoc-, all shares issued by the
corporation are presu$ed to be e3ual
and en"oy the sa$e rights and privileges
and are also sub"ect to the sa$e
liabilities. (Sec. ))
DE&INITION O& TERM$(
1. &A8'A/ S'F&? F* /%<A/ S'F&? F*
S'A'%7 &A8'A/ 4 'he a$ount fixed in
the corporate charter to be subscribed
and paid in cash, -ind or property at the
organization of the corporation or
afterwards and upon which the
corporation is to conduct its operation.
2. &A8'A/ 0 'he value of the actual
property or estate of the corporation
whether in $oney or property. ts net
worth (or stoc-holderDs e3uity) is its
assets less liabilities.
!. A.'JF*H%7 &A8'A/ S'F&? 4 'he
capital stoc- divided into shares with par
values. 8ar value stoc-s are re3uired in
the case of corporations issuing
preferred shares, as well as in the case
of ban-s, trust co$panies, insurance
co$panies, building and loan
associations, and public utilities. t is the
total a$ount in the charter, which $ay
be raised by the corporation for its
operations.
#. S.(S&*(%7 &A8'A/ S'F&? 4 'he
total a$ount of the capital stoc-
subscribed whether fully paid or not.
5. F.'S'A:7:< &A8'A/ S'F&? 4 'he
portion of the capital stoc- issued to
subscribers except treasury stoc-s.
). S'A'%7 &A8'A/ 0 'he capital stoc-
divided into no par value shares.
=. 8A74.8 &A8'A/ 0 'he a$ount paid
by the stoc-holders on subscriptions
fro$ unissued shares of the corporation.
II. INCORPORATION AND OR!ANIDATION
$TEP$ IN T'E CREATION O& A
CORPORATION
a. 8*FBF'F: 0 a nu$ber of business
operations peculiar to the co$$ercial
world by which a co$pany is generally
brought into existence. (18 'm. 9ur. 2d
:;<, cited in de Leon p. 11:
b. :&F*8F*A'F:
,teps&
1. 7rafting and execution of Articles of
ncorporation by the incorporators and
other docu$ents re3uired for
registration of the corporation
2. Ailing with the S%& of the articles of
incorporation
!. 8ay$ent of filing and publication fees
#. ssuance by the S%& of the certificate
of incorporation
c. AF*BA/ F*<A:HA'F: A:7
&FBB%:&%B%:' FA 'J% '*A:SA&'F:
FA (.S:%SS
'hese are conditions subse3uent,
which $ay be satisfied by substantial
co$pliance in order that a corporation
$ay legally continue as such.
Aor$al organization6
1. Adoption of (y4/aws and filing of the
sa$e with the S%&>
2. %lection of board of
directorsLtrustees, and officers>
!. %stablish$ent of principal office>
#. 8roviding for subscription and
pay$ent of capital stoc-.
TERM O& CORPORATE EEI$TENCE
Limitations&
a. 'he ter$ shall not exceed 5; years in
any one instance.
b. 'he a$end$ent is effected before
the expiration of corporate ter$, for
after dissolution by expiration of the
corporate ter$ there is no $ore
corporate life to extend.
c. 'he extension cannot be $ade earlier
than 5 years prior to the expiration date
unless there are "ustifiable reasons as
deter$ined by the S%&.
CAPITA" $TOCF REC%IREMENT
!eneral )ule& :o $ini$u$ authorized
capital stoc- as long as the paid4up
capital is not less than 85,;;;.;;
2.cept&
a. as provided for by special law
1. 7o$estic nsurance
&orporations 4 85;;' capital
stoc-> 5;K subscribed and the
balance payable in 12 $onths.
2. 8rivate 7evelop$ent (an-s
4 8#B for class A
4 82B for class (
4 81B for class &
!. nvest$ent &o$panies 0 paid up
at least 85;;'

#. Savings and /oan &orporation 0
to be fixed by the Bonetary
(oard, but not less than 81;;'
5. Ainancing &o$panies
8aid up6 4 82B for Betro Banila
4 81B for &ities
4 85;;' for others
b. provided that at least 25K of the
authorized capital stoc- has been
subscribed and at least 25K of the total
subscription $ust be paid4up
&I"IPINO PERCENTA!E OGNER$'IP
REC%IREMENT
NO &OREI!N EC%IT*
1. Bass Bedia except recording (Art.
IG, Sec. 11 of the &onstitution>
8residential Be$orandu$ dated ;#
Bay 111#)
2. 8ractice of all professions
a) %ngineering
b) Bedicine and Allied 8rofessions
c) Accountancy
d) Architecture
e) &ri$inology
f) &he$istry
g) &usto$s (ro-erage
h) %nviron$ental 8lanning
i) Aorestry
") <eology
-) nterior 7esign
l) /andscape Architecture
$) /aw
n) /ibrarianship
o) Barine 7ec- Ffficers
p) Barine %ngine Ffficers
3) Baster 8lu$bing
r) Sugar 'echnology
s) Social @or-
t) 'eaching
u) Agriculture
v) Aisheries
!. *etail trade enterprises with paid4up
capital of less than
.SN2,5;;,;;;(Sec. 5 of *A 2=)2)
#. &ooperatives (&h. , Art. 2) of *A
)1!2)
5. 8rivate Security Agencies (Sec. # of
*A 5#2=)
). S$all4scale Bining (Sec. ! of *A
=;=))
=. .tilization of Barine *esources in
archipelagic waters, territorial sea,
and exclusive econo$ic zone as well
as s$all4scale utilization of natural
resources in rivers, la-es, bays, and
lagoons (Art. I, Sec. 2 of the
&onstitution)
2. Fwnership, operation and
$anage$ent of coc-pits (Sec. 5 of
87 ##1)
1. Banufacture, repair, stoc-piling
andLor distribution of nuclear
weapons (Art. , Sec. 2 of the
&onstitution)
1;. Banufacture, repair, stoc-piling
andLor distribution of biological,
che$ical and radiological weapons
and anti4personnel $ines (Garious
treaties to which the 8hilippines is a
signatory and conventions supported
by the 8hilippines)
11. Banufacture of firecrac-ers and
other pyrotechnic devices (Sec. 5 of
*A =12!)
%5 t0 T;e3ty Pe,ce3t (:0H &0,eig3
E1-ity
12. 8rivate radio co$$unications
networ- (*A !2#))
%5 t0 T;e3ty6&ive Pe,ce3t (:IH
&0,eig3 E1-ity
1!. 8rivate recruit$ent, whether for
local or overseas e$ploy$ent (Art.
2= of 87 ##2)
1#. &ontracts for the construction and
repair of locally4funded public wor-s
(Sec. 1 of &A 5#1, /F )!;) except6
a) infrastructureLdevelop$ent
pro"ects covered in *A ==12> and
b) pro"ects which are foreign
funded or assisted and re3uired
to undergo international
co$petitive bidding (Sec. 2a of
*A ==12)
15. &ontracts for the construction of
defense4related structures (Sec. 1 of
&A 5#1)
%5 t0 T4i,ty Pe,ce3t (+0H &0,eig3
E1-ity
1). Advertising (Art. IG, Sec. 11 of the
&onstitution)
%5 t0 &0,ty Pe,ce3t (B0H &0,eig3
E1-ity
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
55
1=. %xploration, develop$ent and
utilization of natural resources (Art.
I, Sec. 2 of the &onstitution)
12. Fwnership of private lands (Art. I,
Sec. = of the &onstitution> &h. 5,
Sec. 22 of &A 1#1> Sec. # of *A 1122)
11. Fperation and $anage$ent of public
utilities (Art. I, Sec. 11 of the
&onstitution> Sec. 1) of &A 1#))
2;. FwnershipLestablish$ent and
ad$inistration of educational
institutions (Art. IG, Sec. # of the
&onstitution)
21. &ulture, production, $illing,
processing, trading excepting
retailing, of rice and corn and
ac3uiring, by barter, purchase or
otherwise, rice and corn and the by4
products thereof (Sec. 5 of 87
11#>Sec. 15 of *A 2=)2
22. &ontracts for the supply of $aterials,
goods and co$$odities to
govern$ent4owned or controlled
corporation, co$pany, agency or
$unicipal corporation (Sec. 1 of *A
512!)
2!. 8ro"ect 8roponent and Aacility
Fperator of a (F' pro"ect re3uiring a
public utilities franchise (Art. I,
Sec. 11 of the &onstitution> Sec. 2a
of *A ==12)
2#. Fperation of deep sea co$$ercial
fishing vessels (Sec. 2= of *A 255;)
25. Ad"ust$ent &o$panies (Sec. !2! of
87 )12 as a$ended by 87 121#)
2). Fwnership of condo$iniu$ units
where the co$$on areas in the
condo$iniu$ pro"ect are co4owned
by the owners of the separate units
or owned by a corporation (Sec. 5 of
*A #=2))
%5 t0 $i<ty Pe,ce3t (60H &0,eig3
E1-ity
2=. Ainancing co$panies regulated by
the Securities and %xchange
&o$$ission (Sec. ) of *A 512; as
a$ended by *A 255))
22. nvest$ent houses regulated by the
S%& (Sec. 5 of 87 121 as a$ended by
*A 2!)))
ARTIC"E$ O& INCORPORATION (AI
'he docu$ent prepared by the persons
establishing a corporation and filed with
the S%& containing the $atters re3uired
by the &ode.
$ig3ifica3ce(
1. 'he issuance of a certificate of
incorporation signals the birth of the
corporationDs "uridical personality>
2. t is an essential re3uire$ent for
the existence of a corporation, even
a de facto one.
C03te3t/( (Sec. 1#)
1. na$e of corporation>
2. purposeLs, indicating the
pri$ary and secondary purposes>
!. place of principal office>
#. ter$ of existence>
5. na$es, citizenship and
residences of incorporators>
). nu$ber, na$es, citizenship and
residences of directors or trustees>
=. na$es, nationalities, and
residences of the persons who shall
act as directors or trustees until the
first regular ones are elected and
3ualified>
2. if a stoc- corporation, the
a$ount of its authorized capital
stoc-, nu$ber of shares and in case
the shares are par value shares, the
par value of each share>
1. na$es, residences, nu$ber of
shares, and the a$ounts subscribed
and paid by each of the original
subscribers which shall not be less
than 25K of authorized capital stoc->
1;. if non4stoc-, the a$ount of
capital, the na$es, residences, and
a$ount paid by each contributor,
which shall not be less than 25K of
total subscription>
11. na$e of treasurer elected by
subscribers> and
12. if the corporation engages in a
nationalized industry, a state$ent
that no transfer of stoc- will be
allowed if it will reduce the stoc-
ownership of Ailipinos to a
percentage below the re3uired legal
$ini$u$.
AMENDMENT O& ARTIC"E$ O&
INCORPORATION
Limitations&
1. 'he a$end$ent of any provision or
$atters stated in the articles of

incorporation is not allowed when it will
be contrary to the provisions or
re3uire$ent prescribed by the &ode or
by special law or changes any provision
in the articles of incorporation stating an
acco$plished fact
2. t $ust be for legiti$ate purposes
!. t $ust be approved by the re3uired
vote of the board of directors or trustees
and the stoc-holders or $e$bers
#. 'he original articles and a$ended
articles together $ust contain all
provisions re3uired by law to be set out
in the articles of incorporation
5. Such articles, as a$ended, $ust be
indicated by underscoring the changes
$ade, and a copy thereof duly certified
under oath by the corporate secretary
and a $a"ority of the directors or
trustees stating that the a$end$ents
have been duly approved by the re3uired
vote of the stoc-holders or $e$bers
$ust be sub$itted to the S%&
). 'he a$end$ents shall ta-e effect
only upon their approval by the S%&
=. f the corporation is governed by
special law, the a$end$ents $ust be
acco$panied by a favorable
reco$$endation of the appropriate
govern$ent agency.
NON6AMENDAB"E &ACT$ IN T'E
ARTIC"E$ O& INCORPORATION
'hose $atters referring to facts
existing as of the date of the
incorporation such as6
1. :a$es of incorporators>
2. :a$es of original subscribers to
the capital stoc- of the
corporation and their subscribed
and paid up capital>
!. 'reasurer elected by the original
subscribers>
#. Be$bers who contributed to the
initial capital of a non4stoc-
corporation>
5. 7ate and place of execution of
the articles of incorporation>
). @itnesses to the signing and
ac-nowledg$ent of the articles.
!RO%ND$ &OR REJECTION O& ARTIC"E$
O& INCORPORATION OR AMENDMENT
T'ERETO
1. 'he articles or its a$end$ent is not
substantially in accordance with the
for$ prescribed
2. 'he purposes of the corporation are
patently unconstitutional, illegal,
i$$oral, or contrary to govern$ent
rules and regulations
!. 'he 'reasurerDs Affidavit concerning
the a$ount of capital stoc- subscribed
andLor paid is false
#. 'he re3uired percentage of ownership
of the capital stoc- to be owned by
Ailipino citizens has not been co$plied
with
!RO%ND$ &OR $%$PEN$ION OR
RE#OCATION O& CERTI&ICATE O&
RE!I$TRATION (8res. 7ecree :o. 1;24A)
1. Araud in procuring its certificate of
incorporation
2. Serious $isrepresentation as to what
the corporation can do or is doing to the
great pre"udice of, or da$age to, the
general public
!. *efusal to co$ply with or defiance of
a lawful order of the S%& restraining the
co$$ission of acts which would a$ount
to a grave violation of its franchise
#. &ontinuous inoperation for a period of
at least 5 years
5. Aailure to file the by4laws within the
re3uired period
). Aailure to file re3uired reports
III. BOARD O& DIRECTOR$2TR%$TEE$
C-alificati03/(
1. Aor a stoc7 corporation, ownership of
at least 1 share capital stoc- of the
corporation in his own na$e, and if he
ceases to own at least one share in his
own na$e, he auto$atically ceases to
be a director. (Sec. 2!) Aor a non=stoc7
corporation, only $e$bers of the
corporation can be elected to seat in the
(oard of 'rustees.
n order to be eligible as a director,
what is $aterial is the legal title to, not
beneficial ownership of the stoc-s
appearing on the boo-s of the
corporation
2. A $a"ority of the directorsLtrustees
$ust be residents of the 8hilippines.
(Sec. 2!)
!. Je $ust not have been convicted by
final "udg$ent of an offense punishable
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
54
by i$prison$ent for a period exceeding
) years or a violation of the &orporation
&ode, co$$itted within five years fro$
the date of his election. (Sec. 2=)
#. Fnly natural persons can be elected
directorsLtrustees.
n case of corporate stoc-holders or
$e$bers, their representation in the
board can be achieved by $a-ing their
individual representatives trustees of the
shares or $e$bership to $a-e the$
stoc-holdersL$e$bers of record.
5. Fther 3ualifications as $ay be
prescribed in the by4laws of the
corporation.
). Bust be of legal age
CORPORATE O&&ICER$
1. 8resident 0 $ust be a director>
2. 'reasurer 0 $ay or $ay not be a
director> as a $atter of sound corporate
practice, $ust be a resident
!. Secretary 0 need not be a director
unless re3uired by the by4laws> $ust be
a resident and citizen of the 8hilippines>
and
#. Such other officers as $ay be
provided in the by4laws.
CORPORATE
O&&ICER
CORPORATE
EMP"O*EE
8osition is provided
for in the by4laws or
under the
&orporation &ode
%$ployed by the
action of the
$anaging officer of
the corporation
*'& has "urisdiction
in case of labor
dispute
:/*& has "urisdiction
in case of labor
disputes
BOARD O& DIRECTOR$2TR%$TEE$ A$
REPO$ITOR* O& CORPORATE POGER$
!232)'L )4L2& 'he corporate powers
of the corporation shall be exercised, all
business conducted and all property of
such corporation controlled and held by
the board of directors or trustees. (Sec.
2!)
25C2PT063,&
1. n case of an %xecutive
&o$$ittee duly authorized in the
by4laws>
2. n case of a contracted $anager
which $ay be an individual, a
partnership, or another corporation.
:ote6 n case the contracted
$anager is another corporation, the
special rule in Sec. ## applies.
!. n case of close corporations, the
stoc-holders $ay $anage the
business of the corporation instead
by a board of directors, if the
articles of incorporation so provide.
'he power to purchase real property
is vested in the board of directors or
trustees. @hile a corporation $ay
appoint agents to negotiate for the
purchase of real property needed by
the corporation, the final say will
have to be with the board, whose
approval will finalize the
transaction. A corporation can only
exercise its powers and transact its
business through its board of
directors and through its officers and
agents when authorized by a board
resolution or by its by4laws. (Spouses
&onstantine Air$e vs. (u-al
%nterprises and 7evelop$ent
&orporation, <.*. :o. 1#));2,
Fctober, 2!, 2;;!)
"IMITATION$ ON POGER$ O& BOARD OR
DIRECTOR$2TR%$TEE$
1. /i$itations i$posed by the
&onstitution, statutes, articles of
incorporation or by4laws.
2. &annot perfor$ constituent or those
involving funda$ental changes in the
corporation re3uiring the approval of
stoc-holders or $e$bers.
!. &annot exercise powers not possessed
by the corporation. (The Corporation
Code of the Philippines 'nnotated,
(ector de Leon, 2002 ed.
NAT%RE O& POGER$ O& BOARD O&
DIRECTOR$2TR%$TEE$ (The Corporation
Code of the Philippines 'nnotated,
(ector de Leon, 2002 ed.
a. .nder the 'heory of Friginal 8ower,
the powers of the board of directors or
trustees are F*<:A/ and
.:7%/%<A'%7. 'he stoc-holders or
$e$bers do not confer, nor can they
revo-e those powers.
b. 'hey are 7%*GA'G% only in the sense
of being received fro$ the State in the
act of incorporation.
B%$INE$$ J%D!MENT R%"E

A resolution or transaction pursued
within the corporate powers and
business operations of the corporation,
and passed in good faith by the board of
directors, is valid and binding, and
generally the courts have no authority to
review the sa$e and substitute their
own "udg$ent, even when the exercise
of such power $ay cause losses to the
corporation or decrease the profits of a
depart$ent. (Philippine Corporate Law,
Conse#uences&
a. *esolutions and transactions entered
into by the (oard within the powers of
the corporation cannot be reversed by
the courts not even on the behest of the
stoc-holders.
b. 7irectors and officers acting within
such business "udg$ent cannot be held
personally liable for such acts.
(Philippine Corporate Law, Cesar
Villanueva, 2001 ed.
T'REE6&O"D D%TIE$ O& DIRECTOR$(
1. 7uty of Fbedience
'o direct the affairs of the corporation
only in accordance with the purposes for
which it was organized.
/egal (asis6 'he directors or trustees
and officers to be elected shall perfor$
the duties en"oined on the$ by law and
the by4laws (Sec. 25)
2. 7uty of 7iligence
/egal (asis6 7irectors or trustees who
willfully and -nowingly vote for or assent
to patently unlawful acts of the
corporation or who are guilty of gross
negligence or bad faith in directing the
affairs of the corporation shall be liable
"ointly and severally for all da$ages
resulting therefro$ suffered by the
corporation, its stoc-holders or $e$bers
and other persons (Sec. !1)
!. 7uty of /oyalty
/egal (asis6 7irectors or trustees who
ac3uire any pecuniary or personal
interest in conflict with their duty as
such directors or trustees shall be liable
"ointly and severally for all da$ages
resulting therefro$. (Sec. !1)
@hen a director or trustee
atte$pts to ac3uire or ac3uires in
violation of his duty, any interest
adverse to the corporation in respect of
any $atter which has been reposed in
hi$ in confidence as to which e3uity
i$poses a liability upon hi$ to deal in
his own behalf, he shall be liable as
trustee for the corporation and $ust
account for all the profits which
otherwise would have accrued to the
corporation (Sec. !1, 2nd par.)
@here a director, by virtue of
his office, ac3uires for hi$self a business
opportunity which should belong to the
corporation, thereby obtaining profits
which should belong to the corporation,
he $ust account to the latter for all such
profits by refunding the sa$e (Sec. !#)
E"ECTION O& DIRECTOR$2TR%$TEE$
Limitations&
a. At any $eeting of stoc-holder or
$e$bers called for the election of
directors or trustees, there $ust be
present either in person or by
representative authorized to act by
written proxy, the owners of the
$a"ority of the outstanding capital stoc-
or $a"ority of the $e$bers entitled to
vote.
b. 'he election $ust be by ballot if
re3uested by any voting $e$ber or
stoc-holder.
c. A stoc-holder cannot be deprived in
the articles of incorporation or in the by4
laws of his statutory right to use any of
the $ethods of voting in the election of
directors.
d. :o delin3uent stoc- shall be voted.
e. 'he candidates receiving the highest
nu$ber of votes shall be declared
elected.
MET'OD$ O& #OTIN!
a. Straight Goting 0 every stoc-holder
$ay vote such nu$ber of shares for as
$any persons as there are directors to
be elected.
b. &u$ulative voting for one candidate 0
a stoc-holder is allowed to concentrate
his votes and give one candidate, as
$any votes as the nu$ber of directors to
be elected $ultiplied by the nu$ber of
his shares shall e3ual.
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
55
c. &u$ulative voting by distribution 4 a
stoc-holder $ay cu$ulate his shares by
$ultiplying the nu$ber of his shares by
the nu$ber of directors to be elected
and distribute the sa$e a$ong as $any
candidates as he shall see fit.
"IMITATION$ ON T'E $TOCF'O"DERK$
RI!'T TO #OTE
1. @here the articles of incorporation
provides for classification of shares
pursuant to Sec. ), non4voting shares are
not entitled to vote except as provided
for in the last paragraph of Sec. ).
2. 8referred or redee$able shares $ay
be deprived of the right to vote unless
otherwise provided in the &ode.
!. Aractional shares of stoc- cannot be
voted.
#. 'reasury shares have no voting rights
as long as they re$ain in the treasury.
5. Jolders of stoc- declared delin3uent
by the board of directors for unpaid
subscription are not entitled to vote or
to a representation at any stoc-holderDs
$eeting.
). A transferee of stoc- cannot vote if
his transfer is not registered in the stoc-
and transfer boo- of the corporation.
REMO#A" O& DIRECTOR$2TR%$TEE$
Limitations&
a. Gote of the stoc-holders representing
at least 2L! of the outstanding capital
stoc- 2L! of the $e$bers entitled to
vote
b. At a regular or special $eeting after
proper notice is given
c. *e$oval $ay be with or without
cause.
d. A $inority director elected through
cu$ulative voting cannot be re$oved
without cause. (Sec. 22)
EETENT O& POGER$ OR A%T'ORIT* O&
CORPORATE O&&ICER$
1. 'he authority which he has by virtue
of his office>
2. 'he authority which is expressly
conferred upon hi$ or is incidental to
the effectualness of such express
authority>
!. As to third persons dealing with hi$
without notice of any restriction
thereof, the authority which the
corporation holds the officer out as
possessing or is estopped to deny.
#. 'he nature of the corporate business
$ust also be ta-en into consideration>
and
5. 'he nature act of an officer though
originally unauthorized, $ay beco$e
upon the corporation by a subse3uent
ratification. (The Corporation Code of
the Philippines 'nnotated, (ector de
Leon, 2002 ed.
t is a fa$iliar doctrine that if a
corporation -nowingly per$its one of it
officers, or any other agent, to act
within the scope of an apparent
authority, it holds hi$ out to the public
as possessing the power to do those acts>
and thus, the corporation will, as against
anyone who has in good faith dealt with
it through such agent, be estopped fro$
denying the agentDs authority. (/apu/apu
Aoundation nc., vs. &ourt of Appeals, et
al., <.*. :o. 12);;), Canuary 21, 2;;#,
&alle"o, C.)
PER$ONA" "IABI"IT* O& DIRECTOR$
1. @illfully and -nowingly voting for
and assenting to patently unlawful
acts of the corporation> (Sec. !1)
2. <ross negligence or bad faith in
directing the affairs of the
corporation> (Sec. !1)
!. Ac3uiring any personal or pecuniary
interest in conflict of duty> (Sec. !1)
#. &onsenting to the issuance of
watered stoc-s, or, having
-nowledge thereof, failing to file
ob"ections with the secretary>(Sec.
)5)
5. Agreeing or stipulating in a contract
to hold hi$self liable with the
corporation> or
). (y virtue of a specific provision of
law
DOCTRINE O&
"IMITED "IABI"IT*
DOCTRINE O&
IMM%NIT*
Shields the
corporators fro$
corporate liability
beyond their agreed
contribution to the
capital or shareholding
in the corporation.
8rotects a person
acting for and in
behalf of the
corporation fro$
being hi$self
personally liable for
his authorized

actions
REMEDIE$ IN CA$E O& MI$MANA!EMENT
1. *eceivership>
2. n"unction, if the act has not yet
been done>
!. 7issolution if the abuse a$ounts to a
ground for #uo warranto but the
Solicitor <eneral refuses to act> and
#. 7erivative suit or co$plaint filed
with S%&.
$PECIA" R%"E$ ON CONTRACT$
ENTERED INTO B*
DIRECTOR$2TR%$TEE$ OR O&&ICER$(
1. +octrine of Corporate /pportunity
.nless his act is ratified, a director
shall refund to the corporation all the
profits he realizes on a business
opportunity which6
1. 'he corporation is financially able to
underta-e>
2. Aro$ its nature, is in line with
corporations business and is of
practical advantage to it> and
!. 'he corporation has an interest or a
reasonable expectancy.
'he rule shall be applied
notwithstanding the fact that the
director ris-ed his own funds in the
venture. (Sec. !#)
:. Contracts of self0dealing directors
&ontracts which are entered into by
the corporation with one or $ore of its
own directorsLtrustees, or officers. (Sec.
!2)
'hey are voidable, unless6
a) 'he presence of such
directorLtrustee in the board
$eeting approving the contract was
not necessary to constitute a 3uoru$
for such $eeting>
b) 'he vote of such directorLtrustee in
the board $eeting approving the
contract was not necessary for the
approval of the contract>
c) 'he contract is fair and reasonable
under the circu$stances>
d) n the case of an officer, there was
previous authorization by the board
of directors.
Although not all said conditions are
present, the corporation $ay elect not
to attac- or 3uestion the validity of the
contract, without pre"udice, however, to
the liability of the directorLtrustee for
da$ages under Sec. !1.
@here any of the first two conditions
is absent, said contract $ust be ratified
by the vote of the stoc-holders
representing at least 2L! of the
outstanding capital stoc- or 2L! of the
$e$bers in a $eeting called for the
purpose, provided that full disclosure of
the adverse interest of the directorL
trustee involved is $ade at such
$eeting. (Sec. !2)
+. Contracts of interloc1ing directors
&ontracts entered into between
corporations with interloc-ing directors
(interest of said directors is
+substantial,, i.e. exceeding 2;K of the
outstanding capital stoc-).
'hey are valid, provided that6
a. 'he contract is not fraudulent>
and
b. 'he contract is fair and
reasonable under the circu$stances.
f the interloc-ing directorDs interest
in one corporation or corporations is
+no$inal, (not exceeding 2;K of the
outstanding capital stoc-), then all the
conditions prescribed in Sec. !2 on self4
dealing directors $ust be present with
respect to the corporation in which he
has no$inal interest. (Sec. !!)
COMPEN$ATION O& DIRECTOR$ OR
TR%$TEE$
<eneral *ule6 'hey shall be entitled to
reasonable per die$s only
%xcept6
a. when their co$pensation is fixed in
the by4laws
b. when granted by the vote of
stoc-holders representing at least a
$a"ority of the outstanding capital stoc-
at a regular or special $eeting
c. when they are also officers of the
corporation
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
606
EEEC%TI#E COMMITTEE
A body created by the by4laws and
co$posed of so$e $e$bers of the board
which, sub"ect to the statutory
li$itations, has all the authority of the
board to the extent provided in the
board resolution or by4laws. (The
Corporation Code of the Philippines
'nnotated, (ector de Leon, 2002 ed.
Bust be provided for in the by laws
and co$posed of not less than !
$e$bers of the board appointed by the
board.
Bay act by a $a"ority vote of all of its
$e$bers.
"i>itati03/ 03 t4e P0;e,/ 0f t4e
E<ec-tive C0>>ittee ($ec. +I
t cannot act on the following6
1. Batters needing stoc-holder
approval>
2. Ailling up of board vacancies>
!. A$end$ent, repeal or adoption of
by4laws>
#. A$end$ent or repeal of any
resolution of the (oard which by its
express ter$s is not a$endable or
repealable> and
5. &ash dividend declaration.
I#. POGER$ O& T'E CORPORATION
1. E<5,e// P0;e,/ 4 granted by law,
&orporation &ode, and its Articles of
ncorporation or &harter
:. I34e,e3t2I3ci.e3tal P0;e,/ 0 not
expressly stated but are dee$ed to be
within the capacity of corporate entities
+. I>5lie.2Nece//a,y P0;e,/ 0 exists
as a necessary conse3uence of the
exercise of the express powers of the
corporation or the pursuit of its purposes
as provided for in the &harter
Classification&
1. Acts in the usual course of business
2. Acts to protect debts owing to the
corporation
!. Acts which involve e$bar-ing in a
different business usually to collect
debts out of profits
#. Acts to protect or aid e$ployees
5. Acts to increase business (The
!ENERA" POGER$ AND CAPACIT* ($ec.
+6
1. 'o sue and be sued>
2. Ff succession>
!. 'o adopt and use of corporate seal>
#. 'o a$end its Articles of
ncorporation>
5. 'o adopt its by4laws>
). Aor stoc- corporations6 issue and sell
stoc-s to subscribers and treasury
stoc-s> for non4stoc- corporations6
ad$it $e$bers>
=. 'o purchase, receive, ta-e or grant,
hold, convey, sell, lease, pledge,
$ortgage and deal with real and
personal property, securities and
bonds
2. 'o enter into $erger or
consolidation>
1. 'o $a-e reasonable donations for
public welfare, hospital, charitable,
cultural, scientific, civic or si$ilar
purposes, provided that no donation
is given to any (i) political party, (ii)
candidate and (iii) partisan political
activity.
1;. 'o establish pension, retire$ent,
and other plans for the benefit of its
directors, trustees, officers and
e$ployees.
11. 'o exercise other powers essential or
necessary to carry out its purposes.
$PECIA"2$PECI&IC POGER$ ($ec/. +A6
BB
1. 8ower to extend or shorten
corporate ter$>
2. ncrease or decrease corporate
stoc->
!. ncur, create, or increase bonded
indebtedness>
#. Sell, dispose, lease, encu$ber all or
substantially all of corporate assets>
5. 8urchase or ac3uire own shares
provided6
a.there is an unrestricted
retained earnings, and
b. it is for a legiti$ate purpose.
). nvest corporate funds in another
corporation or business for other
purpose other than pri$ary purpose>

=. 8ower to declare dividends out of
unrestricted retained earnings>
2. %nter into $anage$ent contract
with another corporation (not with
an individual or a partnership4within
general powers) whereby one
corporation underta-es to $anage
all or substantially all of the business
of the other corporation for a period
not longer than 5 years for any one
ter$.
CORPORATE ACT$ (see A::%I for
procedure and re3uisites
1. 8ower to extend or shorten corporate
ter$
Bay be used as $eans to voluntarily
dissolve a corporation
2. 8ower to increase or decrease capital
stoc-
@AES FA :&*%AS:<L7%&*%AS:< 'J%
&A8'A/ S'F&?
a. (y increasingLdecreasing the nu$ber
of shares and retaining the par value>
b. (y increasingLdecreasing the par
value of existing shares without
increasingLdecreasing the nu$ber of
shares>
c. (y increasingLdecreasing the nu$ber
of shares and increasingLdecreasing the
par value.
'FF/S AGA/A(/% 'F 'J%
S'F&?JF/7%*S 'F *%8/%:SJ &A8'A/
a. Additional subscription to shares of
stoc- of the corporation by stoc-holders
or by investors>
b. Advances by the stoc-holders to the
corporation>
c. 8ay$ent of unpaid subscription by the
stoc-holders> and
d. /oans fro$ third persons.
!.ncur, create or increase bonded
indebtedness
&orporate bond 0 an obligation to pay
a definite su$ of $oney at a future ti$e
at fixed rate of interest
BONDED
INDEBTEDNE$$
DEBENT%RE
Secured by a
$ortgage on
corporate property. .
(Philippine
Corporate Law,
Cesar Villanueva,
Serial obligations
or notes issued on
the basis of the
general credit of the
corporation. Jence,
they are not bonded
2001 ed. indebtedness
#. Sell, dispose, lease, encu$ber all or
substantially all of corporate assets>
:o ratificatory vote needed6
a. f it is necessary in the usual and
regular course of business
b. if the proceeds of the sale or other
disposition of such property and assets
be appropriated for the conduct of the
re$aining business
5. 8ower to ac3uire own shares
nstances6
a. 'o eli$inate fractional shares out of
stoc- dividends
b. 'o collect or co$pro$ise an
indebtedness to the corporation, arising
out of unpaid subscription, in a
delin3uency sale and to purchase
delin3uent shares sold during said sale
c. 'o pay dissenting stoc-holders
d. 'o ac3uire treasury shares
e. *edee$able shares regardless of
existence of retained earnings
f. 'o effect a decrease of capital stoc-
g. n close corporations, when there is a
deadloc- in the $anage$ent of the
business
N0te( n letters a4c, there $ust be
unrestricted retained earnings
). nvest corporate funds in another
corporation or business for other purpose
other than pri$ary purpose
'he other purposes for which the funds
$ay be invested $ust be a$ong those
enu$erated as secondary purposes and
$ust further co$ply with the
re3uire$ents of Section #2.
=. 8ower to declare dividends out of
unrestricted retained earnings
*%'A:%7 %A*::<S O ASS%'S 0
/A(/'%S A:7 /%<A/ &A8'A/
+.:*%S'*&'%7, 0 if the retained
earnings have not been reserved or set
aside by the board of directors for so$e
corporate purpose
7G7%:7S
&orporate profits set aside, declared,
and ordered to be paid by the directors
for distribution a$ong shareholders at a
fixed ti$e.
+orms&
a. &ash
b. 8roperty
c. Stoc-
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
607
@hile cash dividends due on
delin3uent shares can be applied to the
pay$ent of the unpaid balance, stoc-
dividends cannot be applied as pay$ent
for unpaid subscription.
'he right to dividends is based on duly
recorded stoc-holdings>
accordingly, the corporation is
prohibited fro$ entitling thereto
anyone else.
!eneral )ule& Stoc- corporations are
prohibited fro$ retaining surplus profits
in excess of 1;;K of their paid4in capital
stoc-
2.cept&
a. @hen "ustified by definite corporate
expansion pro"ects approved by the
board of directors
b. @hen the corporation is prohibited
under any loan agree$ent with any
financial institution or creditor fro$
declaring dividends without itsLhis
consent and such consent has not yet
been secured
c. @hen it can be clearly shown that
such retention is necessary under special
circu$stances obtaining in the
corporation, such as when there is a
need for special reserve for probable
contingencies.
Sources of dividends6
!232)'L )4L2& 7ividends can only be
declared and paid out of actual and bona
fide unrestricted retained earnings.
,P2C0'L )4L2,&
a. @here a corporation sold its real
property, which is not being used for
business, at a gain, the inco$e derived
therefro$ $ay be availed of for
dividend distribution.
b. ncrease in the value of a fixed asset
as a result of its revaluation is not
retained earning. Jowever, increase in
the value of fixed assets as a result of
revaluation (>)evaluation surplus?
$ay be declared as cash or stoc-
dividends provided that the co$pany6
(i) Jas sufficient inco$e fro$
operations fro$ which the
depreciation on the appraisal increase
was charged
(ii) Jas no deficit at the ti$e the
depreciation on the appraisal increase
was charged to operations> and
(iii) Such depreciation on appraisal
increase previously charged to
operations has not been i$paired by
losses.
c. 7ividends can be declared out of the
a$ount received in excess of the par
value of shares (>paid=in surplus?
when6
(i) 'hat they be declared only as
stoc- dividends and not cash>
(ii) :o creditors are pre"udiced> and
(iii) 'here is no i$pair$ent of
capital.
:ote that unli-e par value shares,
when no par value shares are sold
at a pre$iu$, the entire
consideration paid is considered
capital> hence the sa$e cannot be
declared as dividends.
d. *eduction surplus can be a source of
dividends. *ule on paid4in surplus is
applicable.
e. :o dividends can be declared out of
capital except only in two instances6
1) li3uidating dividends> and 2)
dividends fro$ invest$ents in wasting
asset corporation.
0t permits corporations solely or
principally en%a%ed in the e.ploitation
of >wastin% assets? to distri*ute the
net proceeds derived from
e.ploitation of their holdin%s such as
mines, oil wells, patents and
leaseholds, without allowance or
deduction for depletion.
f. 8rofits realized fro$ sale of treasury
shares are part of capital and cannot
be declared as cash or stoc- dividend
as purchase and sale of such shares are
regarded as contractions and
expansions of paid4in capital.
g. Boney cannot be borrowed for the
pay$ent of dividends because
indebtedness is not a retained earning
of the corporation.
h. &orporate earnings which have not yet
been received even though they
consist in $oney which is due, cannot
be included in the profits out of which
dividends $ay be paid.
CA$' DI#IDEND$ $TOCF
DI#IDEND$
1. nvolves a
disburse$ent to the
stoc-holders of
1. 7oes not involve
any disburse$ent

accu$ulated earnings
2. @hen declared and
paid beco$es the
absolute property of
the stoc-holder and
cannot be reached by
creditors of the
corporation in the
absence of fraud
2. Since it is still
part of corporate
property, $ay be
reached by
corporate creditors
!. 7eclared only by
the board of directors
at its discretion
!. 7eclared by the
board with the
concurrence of the
stoc-holders
representing at
least 2L! of the
outstanding capital
stoc- at a
regularLspecial
$eeting
#. 7oes not increase
the corporate capital
#. &orporate
capital is increased
5. ts declaration
creates a debt fro$
the corporation to
each of its
stoc-holders
5. :o debt is
created by its
declaration
TR%$T &%ND DOCTRINE (T&D
'he subscribed capital stoc- of the
corporation is a trust fund for the
pay$ent of debts of the corporation
which the creditors have the right to
loo- up to satisfy their credits, and
which the corporation $ay not dissipate.
'he creditors $ay sue the stoc-holders
directly for the latterDs unpaid
subscription.
'pplication of the T+@&
1. @here the corporation has
distributed its capital a$ong the
stoc-holders without providing for
the pay$ent of creditors>
2. @here it had released the
subscribers to the capital stoc- fro$
their subscriptions>
!. @here it has transferred the
corporate property in fraud of its
creditors> and
#. @here the corporation is insolvent.
Covera%e of the T+@&
1. f the corporation is solvent, the 'A7
extends to the capital stoc- represented
by the corporationDs legal capital.
2. f the corporation is insolvent, the
'A7 extends to the capital stoc- of the
corporation as well as all of its property
and assets.
2.ceptions to the T+@&
1. *ede$ption of redee$able shares
(Sec. 2)
2. n close corporation, when there
should be a deadloc- and the S%& orders
the pay$ent of the appraised value of
the stoc-holderDs share. (Sec. 1;#)
2. 8ower to enter into $anage$ent
contract
EEEC%TI#E
COMMITTEE
MANA!EMENT
CONTRACT
1. ts creation $ust
be provided for in
the by4laws
1. %xpress power of
a corporation
2. A governing body
which functions as
the board itself.
(The Corporation
Code of the
Philippines
'nnotated, (ector
de Leon, 2002 ed.
2. Banage$ent
co$pany $ust
always be sub"ect to
the superior power
of the board to give
specific directions
fro$ ti$e to ti$e or
to recall the
delegation of
$anagerial power.
(The Corporation
Code of the
Philippines
'nnotated, (ector
de Leon, 2002 ed.
%"TRA #IRE$ (?8ey03. 50;e,/@ ACT
An act which is beyond the conferred
powers of a corporation or the purposes
or ob"ects for which it is created as
defined by the law of its organization.
(*epublic vs. Aco"e Bining &o., nc. =
S&*AS !)1)
An act done by a corporation outside
of the express and i$plied powers
vested in it by its charter and by the
law. (Aar )eview Baterials in
Commercial Law, 9or%e Biravite, 2002
ed.
Ty5e/( (Philippine Corporate Law,
1. Acts done beyond the powers of
the corporation as provided
in the law or its articles of
incorporation>
2. Acts or contracts entered into in
behalf of a corporation by
persons who have no corporate
authority (3ote& This is
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
605
technically ultra vires acts of
officers and not of the
corporation)> and
!. Acts or contracts, which are per
se illegal as being contrary to
law.
An ultra vires act $ay be that of6
a. 'he corporation>
b. 'he (oard of 7irectors> and
c. 'he corporate officers.
%ffects of ultra vires act on6
a. 2.ecuted contract 0 courts will
not set aside or interfere with such
contracts>
*. 2.ecutory contracts 0 no
enforce$ent even at the suit of
either party (void and
unenforceable)>
c. Part e.ecuted and part e.ecutory
0 principle of +no un"ust enrich$ent
at expense of another, shall apply>
and
d. 2.ecutory contracts apparently
authoriCed *ut ultra vires 0 the
principle of estoppel shall apply.
%"TRA #IRE$ ACT$ AND I""E!A" ACT$
.ltra vires (+beyond powers,) refers
only to an act outside or beyond
corporate powers, including those that
$ay ostensibly be within such powers
but are, by general or special laws,
either prohibited or declared illegal. 0t
is in this conte.t that the Code has used
the term.
%"TRA #IRE$ ACT$ I""E!A" ACT$
:ot necessarily
unlawful, but outside
the powers of the
corporation
.nlawful> against
law, $orals, public
policy, and public
order
&an be ratified &annot be ratified
&an bind the parties
if wholly or partly
executed
&annot bind the
parties
TE$T ;4et4e, 0, 30t a c0,50,ati03
>ay 5e,f0,> a3 act2 consider the
logical and necessary relation between
the act 3uestioned and the corporate
purpose expressed by law or in the
charter. f the act is lawful in itself and
not prohibited, and is done for the
purpose of serving corporate ends, and
reasonably contributes to the pro$otion
of those ends in a substantial and not in
a re$ote and fanciful sense.
(Bontelibano vs. (acolod4Burcia Billing
&o., nc., 5 S&*A !))
REMEDIE$ IN CA$E O& %"TRA #IRE$
ACT$
1. State
a. Fbtain a "udg$ent of forfeiture> or
b. 'he S%& $ay suspend or revo-e the
certificate of registration
2. Stoc-holders
a. n"unction> or
b. 7erivative suit
!. &reditors
a. :ullification of contract in fraud of
creditors
#. B*6"AG$
*ules of action adopted by a
corporation for its internal govern$ent
and for the regulation of conduct and
prescribe the rights and duties of its
stoc-holders or $e$bers towards itself
and a$ong the$selves in reference to
the $anage$ent of its affairs.
Aunctions6
a. Supple$ent the articles of
incorporation
b. 8rovide for details not i$portant
enough to be stated in the articles of
incorporation
c. &ontinuing rule for the govern$ent of
the corporation and the individuals
co$posing it
d. 7efine the rights and duties of
corporate officers and directorsLtrustees
and of stoc-holdersL$e$bers towards
the corporation and a$ong the$selves
e. Source of authority for corporate
officers and agents of the corporation
*e3uisites for validity6
a. Bust not be contrary to law nor
with the &orporation &ode
b. Bust not be contrary to $orals
and public policy>
c. Bust not i$pair obligations and
contracts>
d. Bust be general and unifor$>
e. Bust be consistent with the
charter or articles of incorporation>
and
f. Bust be reasonable, not arbitrary
or oppressive.
(inding effect6
a. 's to mem*ers and corporation

'hey have the force of contract
between the $e$bers the$selves.
'hey are binding only upon the
corporation and on its $e$bers and
those having direction, $anage$ent and
control of its affairs.
b. 's to third persons
'hey are not bound to -now the by4
laws which are $erely provisions for the
govern$ent of a corporation and notice
to the$ will not be presu$ed.
*eason6 (y4laws have no extra4
corporate force and are not in the
nature of legislative enact$ents so far
as third persons are concerned.
CONTENT$ O& B*6"AG$
a. 'i$e, place and $anner of calling and
conducting regular or special $eetings of
directors or trustees
b. 'i$e and $anner of calling and
conducting regular or special $eetings of
the stoc-holder or $e$bers
c. 'he re3uired 3uoru$ in $eeting of
stoc-holders or $e$bers and the
$anner of voting therein
d. 'he for$ for proxies of stoc-holders
and $e$bers and the $anner of voting
the$
e. 'he 3ualification, duties and
co$pensation of directors or trustees,
officers and e$ployees
f. 'i$e for holding the annual election
of directors or trustees and the $ode or
$anner of giving notice thereof
g. Banner of election or appoint$ent
and the ter$ of office of all officers
other than directors or trustees
h. 8enalties for violation of the by4laws
i. n case of stoc- corporations, the
$anner of issuing certificates
". Such other $atters as $ay be
necessary for the proper or convenient
transaction of its corporate business and
affairs
ARTIC"E$ O&
INCORPORATION
B*6"AG$
&ondition precedent in
the ac3uisition of
corporate existence>
&ondition
subse3uent> its
absence $erely
furnishes a ground
for the revocation of
the franchise
%ssentially a contract
between the
corporation and the
stoc-holdersL
$e$bers> between
the stoc-holdersL
$e$ber inter se, and
between the
corporation and the
State>
Aor the internal
govern$ent of the
corporation but has
the force of a
contract between
the corporation and
the stoc-holdersL
$e$bers, and
between the
stoc-holders and
$e$bers>
%xecuted before
incorporation
Bay be executed
after incorporation.
Sec. #) allows the
filing of the by4laws
si$ultaneously with
the Articles of
ncorporation
A$ended by a
$a"ority of the
directorsL trustees
and stoc-holders
representing 2L! of
the outstanding
capital stoc-, or 2L!
of the $e$bers in
case of non4stoc-
corporations
Bay be a$ended by
a $a"ority vote of
the (F7 and
$a"ority vote of
outstanding capital
stoc- or a $a"ority
of the $e$ber in
non4stoc-
corporation
8ower to
a$endLrepeal articles
cannot be delegated
by the stoc-holdersL
$e$bers to the board
of directorsL trustees
8ower to a$end or
repeal by4laws or
adopt new by4laws
$ay be delegated
by the 2L! of the
outstanding capital
stoc- or 2L! of the
$e$bers in the
case of non4stoc-
corporation
#I. MEETIN!$
$TOCF'O"DER$2MEMBER$ MEETIN!
D(23&
1. *%<./A* 4 held on the date fixed
in the by4laws or if not fixed on any
date in April>and
2. S8%&A/ 4 held at any ti$e
dee$ed necessary or as so provided
in the by4laws.
D(2)2&
n the city or $unicipality where the
principal office of the corporation is
located, and if practicable, in the
principal office of the corporation.
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
604
Jowever, in the case of non4stoc-
corporations, the by4laws $ay
provide that $eetings $ay be held
at any place even outside the
principal place of the corporation.
(Sec. 1!)

BOARD MEETIN! ($ec. I+
D(23&
1. *%<./A* 4 held $onthly, unless
otherwise provided in the by4laws>
and
2. S8%&A/ 4 held at any ti$e upon
the call of the president.
D(2)2&
Bay be held anywhere in or outside of
the 8hilippines.
PROE*
Limitations&
a. t $ust be in writing and signed by
the stoc-holder or $e$ber (as principal)
and filed before the scheduled $eeting
with the corporate secretary, and given
to another person (as agent) authorizing
such person to exercise the voting rights
of the for$er.
b. .nless otherwise provided in the
proxy, it shall be valid only for the
$eeting for which it is intended.
c. :o proxy shall be valid and effective
for a longer period than five years at any
one ti$e. (Sec. 52)
'he right to vote by proxy $ay be
exercised in any of the following
instances6
1. %lection of the board of directors or
trustees>
2. Goting in case of "oint ownership of
stoc->
!. Goting by trustee under voting trust
agree$ent>
#. 8ledge or $ortgage of shares>
5. As provided for in its by4laws.
:ote6 Stoc-holders or $e$bers $ay
attend and vote in their $eetings by
proxy (Sec. 52)> directors cannot do so.
7irectors $ust always act in person.
(Sec. 25).
25T23T 6+ '4T(6)0TE
a. <%:%*A/ 8*FIE 0 confers a general
discretionary power to attend and vote
at annual $eeting.
b. /B'%7 8*FIE 0 restrict the authority
to vote to specified $atters only and
$ay direct the $anner in which the vote
shall be cast
#OTIN! TR%$T
An agree$ent whereby one or $ore
stoc-holders transfer their shares of
stoc-s to a trustee, who thereby
ac3uires for a period of ti$e the voting
rights (andLor any other rights) over such
shares> and in return, trust certificates
are given to the stoc-holderLs, which
are transferable li-e stoc- certificates,
sub"ect, however, to the trust
agree$ent.
Limitations&
a. &annot be entered into for a period
exceeding 5 years at any one ti$e
except when it is a condition in a loan
agree$ent or for the purpose of
circu$venting the law against
$onopolies and illegal co$binations
b. 'he agree$ent $ust not be used for
purposes of fraud
c. t $ust be in writing and notarized
and specify the ter$s and conditions
thereof
d. A certified copy of the agree$ent
$ust be filed with the corporation and
with the S%&
e. 'he agree$ent shall be sub"ect to
exa$ination by any stoc-holder of the
corporation
f. .nless expressly renewed, all rights
granted in the agree$ent shall
auto$atically expire at the end of the
agreed period
#OTIN! TR%$T$ PROE*
'he trustee votes as
owner rather than as
$ere agent
'he proxy holder
votes as agent
'he trust $ay vote in
person or by proxy
unless the agree$ent
provides otherwise
'he proxy $ust vote
in person
'rustee ac3uires
legal title to the
shares of the
transferring
stoc-holder
8roxy has no legal
title to the shares of
the principal
'he agree$ent $ust
be notarized
8roxy need not be
notarized
'he agree$ent is
irrevocable
*evocable anyti$e
except one with
interest

'rustee is not li$ited
to act at any
particular $eeting
8roxy can only act at
a specified
stoc-holderDs
$eeting (if not
continuing)
A trustee can vote
and exercise all the
rights of the
stoc-holder even
when the latter is
present
A proxy can only vote
in the absence of the
owners of the stoc-
An agree$ent $ust
not exceed 5 years at
any one ti$e except
when the sa$e is
$ade a condition of
a loan.
A proxy is usually of
shorter duration
although under Sec.
52 it cannot exceed 5
years at any one ti$e
'he voting right is
divorced fro$ the
ownership of stoc-s
'he right to vote is
inherent in or
inseparable fro$ the
right to ownership of
stoc-
#II. $TOCF$ AND $TOCF'O"DER$
$%B$CRIPTION CONTRACT 6 any
contract for the ac3uisition of unissued
stoc- in an existing corporation or a
corporation still to be for$ed shall be
dee$ed a subscription. (Sec. );)
'he subscribed shares need not be
paid in full in order that the subscription
$ay be valid. 'he subscription contract
is a consensual contract that is
perfected upon the $eeting of the $inds
of the parties. 'he na$e of the
subscriber is recorded in the stoc- and
transfer boo-, and fro$ that ti$e, such
subscriber beco$es a stoc7holder of
record entitled to all the rights of a
stoc-holder. .ntil the stoc-s are fully
paid, it continues to be a subsisting
liability that is legally enforceable.
n Fng Eong, et.al, vs. 7avid 'iu, the
&ourt did not allow the rescission of the
8re4Subscription agree$ent since the
action was filed by the 'ius in their
personal capacities. t ruled that it was
the corporation who had the legal
personality to file the suit, it being the
real party in interest.
%NDERGRITIN! A!REEMENT
An agree$ent between a corporation
and a third person, ter$ed the
+underwriter,, by which the latter
agrees, for a certain co$pensation, to
ta-e a stipulated a$ount of stoc-s or
bonds, specified in the underwriting
agree$ent, if such securities are not
ta-en by those to who$ they are first
offered.
%NDERGRITIN!
A!REEMENT
$TOCF
$%B$CRIPTION
A!REEMENT
'he signers obligate
the$selves to ta-e
the shares of stoc-
which cannot be
sold.
'he obligation of the
signer to the
purchasers and to
the public is
absolute.
.nderwriters are
given co$$ission.
'here is no
co$$ission.
'he signer can
refuse to beco$e a
stoc-holderL
$e$ber of the
co$pany.
Je beco$es a
stoc-holder of the
co$pany and is liable
to pay the a$ount
due on the stoc-.
$TOCF OPTION
A privilege granted to a party to
subscribe to a certain portion of the
unissued capital stoc- of a corporation
within a certain period and under the
ter$s and conditions of the grant
exercisable by the grantee at any ti$e
within the period granted.
GARRANT
A type of security which entitles the
holder the right to subscribe to, the
unissued capital stoc- of a corporation
or to purchase issued shares in the
future, evidenced by a @arrant
&ertificate, whether detachable or not,
which $ay be sold or offered for sale to
the public.
PRE6INCORPORATION $%B$CRIPTION
A!REEMENT$ (PI$A
Subscription of shares of stoc- of a
corporation still to be for$ed shall be
irrevocable for a period of at least )
$onths fro$ date of subscription,
unless6
1. All of the other subscribers
consent to the revocation>
2. 'he incorporation of said
corporation fails to $aterialize
with said period or within a
longer period as $ay be
stipulated in the contract of
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
605
subscription> provided that no
pre4incorporation subscription
$ay be revo-ed after the
sub$ission of the articles of
incorporation to the S%&. (Sec.
)1)
MODE$ O& I$$%ANCE O& $'ARE$
a. (y subscription before and after
incorporation to original, unissued stoc-
b. (y sale of treasury stoc- after
incorporation for $oney, property or
service
c. (y subscription to new issues of stoc-
in case of an increase in the capital
stoc-
d. (y $a-ing a stoc- dividend
#A"ID CON$IDERATION$ IN
$%B$CRIPTION A!REEMENT ($ec. 6:
1. & ash actually received>
2. 8 roperty, tangible or intangible,
actually received A:7 necessary or
convenient for its use and lawful
purposes>
)e#uisites/
a. :ecessary or proper in
carrying on the
corporate business
b. Ascertainable pecuniary
value
c. &apable of being
transferred and applied
to pay$ent of debts
!. / abor or services actually rendered
to the corporation>
#. 8 reviously incurred corporate
indebtedness>
5. A $ounts transferred fro$
unrestricted retained earning to
stated capital,
). F utstanding shares in exchange for
stoc-s in the event of reclassification
or conversion.
N0te( Shares of stoc- shall not be issued
in exchange for pro$issory notes or
future services. 3ote that there is no
prohi*ition on the use of chec7s, *ills or
notes in payment of the >cash?
consideration.
$'ARE$ O& $TOCF
nterest or right which owner has in
the $anage$ent of the corporation, and
its surplus profits, and, on dissolution, in
all of its assets re$aining after the
pay$ent of its debt.
CERTI&ICATE O& $TOCF
'he docu$ent evidencing the
ownership of shares of stoc-s by a
stoc-holder and the full pay$ent of its
issue or subscription price.
t is not essential to the ownership
andLor existence of the share of stoc-.
@here the certificate of stoc- reflects
a greater volu$e of shares than the
actual nu$ber of shares issued or to be
issued, the following rules $ay be
considered6
1. 'o the extent that there is an
overissue, the excess issuance (over
the authorized capital stoc- or the
stated capital) shall be void as being
ultra vires.
2. f there is no overissue, but no
pay$ent has been $ade to cover the
par or stated value of the excess
shares, the latter would constitute
+watered, stoc-s.
!. f there is no overissue and
watering of stoc-s, the corporation
$ay be bound to honor the certificate
(if duly signed and released by its
authorized officers) in the hands of a
holder in good faith, reserving a right
of recourse that an aggrieved party
$ay pursue against the culpable or
un"ustly enriched party.
CAPITA" $TOCF $'ARE$ O& $TOCF
A$ount paid in or
secured to be paid
in by the
stoc-holders upon
which the
corporation is to
conduct its
operation. t is the
property of the
corporation itself
($onetary value).
nterest or right
which the
stoc-holder has in
the $anage$ent of
the corporation, and
its surplus profits,
and upon a
dissolution, in all of
its assets re$aining
after pay$ent of
corporate debts.
$'ARE$ O& $TOCF CERTI&ICATE O&
$TOCF
.nit of interest in a
corporation
%vidence of the
holderDs ownership
of the stoc- and of
his right as a
shareholder

ncorporeal or
intangible property
&oncrete and
tangible
Bay be issued by the
corporation even if
the subscription is
not fully paid.
Bay be issued only if
the subscription is
fully paid.
REC%IREMENT$ &OR TRAN$&ER O&
$TOCF
a. n case of shares covered by a
certificate, the indorse$ent of the
owner or his agent coupled with delivery
is essential
b. @here no certificate has been issued
or for so$e reason it is not in the
possession of the stoc-holder, it $ay be
transferred by $eans of a deed of
assign$ent duly recorded in the boo-s of
the corporation
c. 'o be valid against the corporation
and third persons, the transfer $ust be
recorded in the stoc- and transfer boo-
d. 'he transferee $ust present the
indorsed certificate to the corporate
secretary who shall effect the transfer in
the corporate boo-s, issue a new stoc-
certificate in favor of the transferee and
cancel the for$er certificate.
Fnly absolute transfers need be
registered. 'he pledge or $ortgage itself
need not be recorded in the stoc- and
transfer boo-, but a chattel $ortgage
$ust co$ply with the &hattel Bortgage
/aw, and a pledge would re3uire the
shares to be placed in the possession of
the creditorLpledgee. 'he agree$ent
$ust appear in a public instru$ent to
ta-e effect against third persons.
(&he$phil vs. &A, 251 S&*A 25=)
E&&ECT$ O& %NRE!I$TERED TRAN$&ER
O& $'ARE$
a. t is valid and binding as between the
transferor and the transferee
b. t is invalid as to the corporation
except when notice is given to the
corporation for purposes of registration
c. t is invalid as against corporate
creditors and the transferor is still liable
to the corporation
d. t is invalid as to the attaching or
executing creditors of the transferor, as
well as subse3uent purchasers in good
faith without notice of the transfer.
I$$%ANCE O& CERTI&ICATE O& $TOCF
:o certificate of stoc- shall be issued
until the full a$ount of the subscription
is paid. Aasis& @octrine of 0ndividuality
of ,u*scription that espouses that the
subscription is one, entire, indivisible,
and whole contract, which cannot be
divided into portions. (S%& Fpinion)
CO""ECTION O& %NPAID $%B$CRIPTION
1. Goluntary pay$ent
a. .pon the date specified in the
subscription contract
b. .pon call by the (oard of
7irectors
2. nvoluntary pay$ent
a. %xtra4"udicial
i. 7elin3uency sale
ii. Application of dividends
b. Cudicial action
N0te( 'he prescriptive period in case of
subscription of shares begins to run only
fro$ the ti$e the board of directors
declares that the balance are due and
payable. t does not begin to run fro$
the date of the subscription. (<arcia vs.
Suarez, )= 8hil. ##1)
DE"INC%ENC*
1. f the subscription contract fixes the
date for pay$ent, failure to pay on
such date shall render the entire
balance due and payable with
interest. 'hirty days therefro$, if
still unpaid, the shares beco$e
delin3uent, as of the due date, and
sub"ect to sale, unless the board
declares otherwise.
2. f no date is fixed in the subscription
contract, the board of directors can
$a-e the call for pay$ent, and
specify the due date. The notice of
call is mandatory. 'he failure to pay
on such date shall render the entire
balance due and payable with
interest. 'hirty days therefro$, if
still unpaid, the shares beco$e
delin3uent, as of the date of call,
and sub"ect to sale, unless the board
declares otherwise. (Sec. )=)
%ffect6
'. 4pon the stoc7holder
1. Accelerates the entire a$ount of
the unpaid subscription>
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
666
2. Sub"ects the shares to interest,
expenses and costs>
!. 7isenfranchises the shares fro$
any right that inheres to a
shareholder, except the right to
dividends (but which shall be
applied to any a$ount due on
said shares or, in the case of
stoc- dividends, to be withheld
by the corporation until full
pay$ent of the delin3uent
shares. (Sec. #!)
A. 4pon the director ownin% delin#uent
shares
1. Je can continue serving in that
capacity unless and until said shares are
totally bidded away, he continues to be
the owner thereof and in the interi$ he
is not dis3ualified.
2. A delin3uent stoc-holder see-ing to
be elected as director $ay not be a
candidate for, nor be duly elected to,
the board.
:o delin3uency stoc- shall be voted
for or be entitled to vote or
representation at any stoc-holders
$eeting, nor shall the holder be entitled
to any of the rights of a stoc-holder
except the right to dividends in
accordance with the provisions of this
&ode until and unless he pays the
a$ount due on his subscription with
accrued interest, and the cost and
expenses of advertise$ent, if any. (Sec.
=1)
PROCED%RE &OR T'E $A"E O&
DE"INC%ENT $TOCF$ ($ec. 68
1. &all by resolution de$anding
pay$ent of the balance. Jowever, if
the contract of subscription
prescribes the date of pay$ent, no
call is necessary.
2. :otice of the board resolution given
to the stoc-holders by the corporate
secretary, either personally or by
registered $ail. 8ublication of
notice of call is not re3uired.
!. Aailure of the stoc-holder to pay
within a grace period of !; days
fro$ the date specified in the
contract of subscription or in the
call, the stoc-s shall be declared
delin3uent and shall be sub"ect to
sale.
#. :otice of delin3uency served on the
subscribers either personally or
registered $ail and publication in a
newspaper of general circulation in
the province or the city where
principal office is located for once a
wee- for 2 consecutive wee-s.
:otice shall state the a$ount due on
each subscription plus accrued
interest, and the date, ti$e and
place of the sale which shall not be
less than !; days nor $ore than );
days fro$ the date the stoc-s
beco$e delin3uent.
5. Sale of the delin3uent shares at
public auction.
'I!'E$T BIDDER IN A DE"INC%ENC*
$A"E
a. The person participating in the
delinquency sale who offers to pay the full
amount of the balance of the subscription
together with the accrued interest, costs
of advertisement and expenses of sale,
for the smallest number of shares. In
other words, the amount of the bid does
not vary but only the number of shares to
be bought changes and determines the
highest bidder.
b. f there is no bidder as $entioned
above, the corporation $ay bid for the
sa$e, and the total a$ount due shall be
credited as paid in full in the boo-s of
the corporation. Such shares shall be
considered as treasury shares.
PROCED%RE &OR I$$%ANCE O& NEG
CERTI&ICATE O& $TOCF IN "IE% O&
"O$T, $TO"EN OR DE$TRO*ED ONE$
($ec. A+
1. Ailing with the corporation an
affidavit in triplicate by the registered
owner setting forth the circu$stances as
to how the certificate was lost, stolen or
destroyed, the nu$ber of shares, serial
nu$ber of the certificate and the na$e
of the corporation that issued the sa$e.
2. 8ublication of notice of loss by the
corporation in a newspaper of general
circulation in the place of the principal
office, once a wee- for ! consecutive
wee-s.
!. After the lapse of 1 year fro$ the
date of the last publication, if no

contest has been presented, the
corporation shall cancel in its boo-s the
certificate of stoc-, which has been lost,
stolen or destroyed, and issue in lieu
thereof a new certificate of stoc-.
Jowever, if the registered owner
files a bond or other securities as $ay be
necessary to the board, the new
certificate of stoc- $ay be issued even
before the expiration of one (1) year
period.
'he prescribed procedure does not
apply to a case where the certificates
are in the co$panyDs possession when
$islaid which thereby obligates the
corporation, not the stoc-holder, to
suffer the conse3uences. (S%& Fpinion)
RI!'T$ O& $TOCF'O"DER$ (Pandect of
Commercial Law and
9urisprudence, 9ustice 9ose Vitu%,
1FF< ed.
1. MANA!ERIA" RI!'T$
a. Goting rights> and
b. *ight to re$ove directors
:. PROPRIETAR* RI!'T$
a. *ight to dividends>
b. *ight to issuance of stoc-
certificate for fully paid shares>
c. 8roportionate participation in
the distribution of assets in
li3uidation>
d. *ight to transfer of stoc-s in
corporate boo-s>
e. *ight to recover stoc-s
unlawfully sold for delin3uent
pay$ent of subscription
f. 8ree$ptive right
PREEMPTI#E RI!'T O& $TOCF'O"DER$
t is the shareholdersD preferential
right to subscribe to all issues or
dispositions of shares of any class in
proportion to their present
stoc-holdings.
Purpose6 to enable the shareholder to
retain his proportionate control in the
corporation and to retain his e3uity in
the surplus.
%xtends to treasury shares in case of
their reissuance.
f the shares preferentially offered to
a stoc-holder are not subscribed or
purchased by hi$, it does not follow
that said shares shall again be re4offered
on a pro rata basis to stoc-holders who
already exercised their pree$ptive
rights. 'here is no pree$ptive right with
respect to the share to be re4offered.
n case additional issues of originally
authorized shares6
!232)'L )4L2& 'here is no
pree$ptive right. 'his is on the theory
that when a corporation at its inception
offers its first shares, it is presu$ed to
have offered all of those which it is
authorized to issue.
25C2PT063& @hen a corporation at its
inception offers only a specified portion
of its authorized capital stoc- for
subscription. f subse3uently, it offers
the re$aining unsubscribed portion,
there would be pree$ptive right as to
the re$aining portion thus offered for
subscription.
@hen pre4e$ptive right not available6
a. @hen denied by the article of
incorporation
b. Shares re3uiring stoc- offering or
$ini$u$ stoc- ownership by the public
c. Shares to be issued in good faith with
the approval of the stoc-holders
representing 2L! of the outstanding
capital stoc-, in exchange for property
needed for corporate purposes or in
pay$ent of a previously contracted debt
PRE6EMPTI#E RI!'T vi/6L6vi/ RI!'T O&
&IR$T RE&%$A" (Philippine Corporate
Law, Cesar Villanueva, 2001 ed.
PRE6EMPTI#E
RI!'T
RI!'T O& &IR$T
RE&%$A"
Bay be exercised
even when there is
no express provision
of law
Arises only by virtue
of contractual
stipulations but is
also granted under
the provisions on
&lose &orporation
8ertains to
unsubscribed
portion of the
authorized capital
stoc-. A right that
$ay be clai$ed
against the
corporation
%xercisable against
another stoc-holder
of the corporation of
his shares of stoc-
+. REMEDIA" RI!'T$
a. ndividual suit 0 a suit instituted
by a shareholder for his own
behalf against the corporation>
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
667
b. *epresentative suit 0 a suit filed
by a shareholder in his behalf
and in behalf li-ewise of other
stoc-holders si$ilarly situated
and with a co$$on cause
against the corporation> and
c. 7erivative suit 0 a suit filed in
behalf of the corporation by its
shareholders (not creditors
whose re$edies are $erely
subsidiary such as accion
su*ro%atoria and accion
pauliana) upon a cause of action
belonging to the corporation,
but not duly pursued by it,
against any person or against the
directors, officers andLor
controlling shareholders of the
corporation.
)e#uisites&
(i) An existing cause of action in
favor of the corporation
(ii) 'he stoc-holderL$e$ber
$ust first $a-e a de$and upon
the corporation or the
$anage$ent to sue unless such a
de$and would be futile
(iii) 'he stoc-holderL$e$ber
$ust be such at the ti$e of the
ob"ectionable acts or
transactions unless the
transactions are continuously
in"urious
(iv) 'he action $ust be brought
in the na$e of the corporation
'he nu$ber of shares of the
stoc-holder is i$$aterial since
he is not suing in his own behalf
N0te( 'he $ere trustee of
shares registered in his na$e
cannot file a derivative suit for
he is not a stoc-holder in his own
right. ((itong vs. &A, 212 S&*A
!;#)
"IABI"ITIE$ O& $TOCF'O"DER$
a. /iability to the corporation for unpaid
subscription
b. /iability to the corporation for
interest on unpaid subscription
c. /iability to creditors of the
corporation on the unpaid subscription
d. /iability for watered stoc-
e. /iability for dividends unlawfully paid
f. /iability for failure to create
corporation
#III. CORPORATE BOOF$ AND RECORD$
IN$PECTION RI!'T$
Limitations&
a. 'he right $ust be exercised
during reasonable hours on
business days>
b. 'he person de$anding the right
has not i$properly used nay
infor$ation obtained through
any previous exa$ination of the
boo-s and records of the
corporation> and
c. 'he de$and is $ade in good
faith or for a legiti$ate purpose.
(Sec. =#)
'he right extends, in consonance with
e3uity, good faith, and fair dealing, to a
foreign subsidiary wholly4owned by the
corporation.
(oo-s re3uired to be -ept by the
corporation6
1. (oo- of Binutes
a. $inutes of stoc-holder or
$e$bers $eetings> and
b. $inutes of board $eetings.
2. (oo- of all business transactions>
!. Stoc- and transfer boo-, in case
of stoc- corporations.
&orporate records re3uired by the S%&
to be -ept andLor registered6
1. (oo-s of Account>
2. /ist of Stoc-holders or Be$bers>
and
!. Ainancial *ecords.
IE. MER!ER AND CON$O"IDATION
MER!ER CON$O"IDATION
A union whereby
one or $ore existing
corporations are
absorbed by another
corporation which
survives and
continues the
co$bined business.
'he union of two or
$ore existing
corporations to for$
a new corporation
called the
consolidated
corporation.
PROCED%RE(
a. 'he board of directors or trustees of
each corporation shall approve a plan of
$erger or consolidation
b. 'he plan shall be sub$itted for
approval by the stoc-holders or $e$bers
of each of such corporation at separate

corporate $eetings duly called for the
purpose
c. 'he articles of $erger or
consolidation shall be executed by each
of the constituent corporations
d. Sub$ission to the S%& for approval
e. 'he S%& $ay or $ay not conduct a
hearing
f. ssuance of certificate of $erger or
consolidation by the S%&
E&&ECT$ O& MER!ER OR
CON$O"IDATION ($ec. 80
1. 'he constituent corporations shall
beco$e a single corporation which, in
case of $erger shall be the surviving
corporation and, in the case of
consolidation, shall be the consolidated
corporation>
2. 'he separate existence of the
constituent corporation shall cease,
except that of the surviving corporation>
!. 'he surviving or consolidated
corporation shall possess all rights,
privileges, i$$unities and powers and
sub"ect to all the duties and liabilities of
a corporation>
#. 'he surviving or consolidated
corporation shall thereafter possess all
the rights, privileges, i$$unities and
franchises of each of the constituent
corporations>
5. All property, real or personal, and all
receivables due to, and all other interest
of each constituent corporation, shall be
dee$ed transferred to and vested in
such surviving or consolidated
corporation without further act or deed>
). 'he surviving or consolidated
corporation shall be responsible for all
the liabilities and obligations of each of
the constituent corporations>
=. Any clai$, action or proceeding
pending by or against any of the
constituent corporations $ay be
prosecuted by or against the surviving or
consolidated corporations> and
2. 'he rights of the creditors or lien
upon the property of any of each
constituent corporation shall not be
i$paired by such $erger or
consolidation.
!232)'L )4L2& @hen one corporation
buys all the shares of another
corporation, this will not operate to
dissolve the other corporation and as the
two corporations still $aintaining their
separate corporate entities, one will not
answer for the debts of the other.
25C2PT063, ', T6 363=',,4BPT063
6+ L0'A0L0T02,&
1. f there is an express assu$ption of
liabilities>
2. f there is a consolidation or $erger>
!. f the purchase was in fraud of
creditors> and
#. f the purchaser is $erely a
continuation of the seller.
DE &ACTO MER!ER
Fne corporation ac3uiring all or
substantially all of the properties of
another corporation in exchange for
shares of stoc- of the ac3uiring
corporation. 'he ac3uiring corporation
would end4up with the business
enterprise of the selling corporation
whereas the latter would end up with
basically its re$aining assets being the
shares of stoc- of the ac3uiring
corporation and $ay then distribute it as
li3uidating dividend to its stoc-holders.
1. Sale of assets is
always involved
1.$ergerLconsolidati
on is not always
involved
2. 'here is auto$atic
assu$ption of
liabilities
2. 8urchasing
corporation is not
generally liable for
the debts and
liabilities of the
selling corporation
!. 'here is
continuance of the
enterprise and of the
stoc-holders
!. 'he selling
corporation ordinarily
conte$plates a
li3uidation of the
enterprise
#. 'itle to the assets
are transferred by
operation of law
#. 'ransfer of title is
by virtue of contract
5. 'he constituent
corporations are
auto$atically
dissolved
5. 'he selling
corporation is not
dissolved by the
$ere transfer of all
its property
T*PE$ O& ACC%I$ITION$ (Philippine
ed.
a. +ASS%'S4F:/E, /%G%/
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
665
'he purchaser is interested only in the
raw assets and properties of the
business. Je is not interested in the
entity of the corporate owner of the
assets nor of the goodwill and other
factors relating to the business itself.
'he transferee would not be liable for
the debts and liabilities of his transferor
since there is no privity of contract over
debt obligations between the transferee
and the transferorDs creditors
b. +(.S:%SS4%:'%*8*S%, /%G%/
'he transferee $erely continues the
sa$e business of the transferor since he
obtains the earning capability of the
venture
'he transferee is liable for the debts
and liabilities of the transferor
c. +%P.'E, /%G%/
'he purchaser ta-es control and
ownership of the business by purchasing
the shareholdings of the corporate
owner. @hat the purchaser actually
purchased is the ability to elect the
$e$bers of the board of the corporation
who run the business.
E. APPRAI$A" RI!'T
APPRAI$A" RI!'T$
'he right to withdraw fro$ the
corporation and de$and pay$ent of the
fair value of his shares after dissenting
fro$ certain corporate acts involving
funda$ental changes in corporate
structure, na$ely6 ?ey( ASB
1. An a$end$ent to the articles
that has the effect of a)
changing or restricting the rights
of shareholders or of authorizing
preferences over those of
outstanding shares, or b)
changing the ter$ of corporate
existence>
2. S ale, encu$brance or other
dispositions of all or
substantially all of the corporate
property or assets. (Sec. 21)
!. B erger or consolidations> and
#. nvest$ent of corporate funds in
another corporation or in a
purpose other than the pri$ary
purpose> (Sec. #2)
Fther instances when right available6
5. @hen a corporation invest its funds
in another corporation or business
for any purpose other than its
pri$ary purpose
). n a close corporation, a
stoc-holder for any reason
co$pel the corporation to
purchase his shares when the
corporation has sufficient assets
in its boo-s to cover its debts
and liabilities exclusive of
capital stoc-
PROCED%RE
a. 'he dissenting stoc-holder shall $a-e
a written de$and on the corporation
within !; days after the date on which
the vote was ta-en for the pay$ent of
the fair value of his shares. Aailure to do
so, shall be dee$ed a waiver of his a
waiver of his appraisal right
b. f the proposed corporate action is
i$ple$ented or effected, the
corporation shall pay to such
stoc-holder, upon surrender of the
corresponding certificate of stoc- within
1; days after de$anding pay$ent of his
shares
c. .pon pay$ent of the agreed or
awarded price, the stoc-holder shall
transfer his shares to the corporation
"IMITATION$ ON T'E EEERCI$E O&
APPRAI$A" RI!'T
1. Any of the instances provided for by
law for the exercise of the right $ust
be present.
2. 'he dissenting stoc-holder $ust have
voted against the proposed corporate
action.
!. 'he stoc-holder $ust $a-e a written
de$and within !; days fro$ the date
that the vote was ta-en.
#. 'he price $ust be based on the fair
value of the shares as of the day prior
to the date in which the vote was
ta-en.
5. 8ay$ent of the shares $ust be $ade
only out of the unrestricted retained
earnings of the corporation.
). .pon pay$ent, the stoc-holder $ust
transfer his shares to the corporation.
Effect 0f t4e E<e,ci/e 0f t4e Rig4t(
a. All rights accruing to the such shares
shall be suspended

b. 'he dissenting stoc-holder shall be
entitled to receive pay$ent of the
fair value of his shares as agreed upon
between hi$ and the corporation or
as deter$ined by the appraisers
chosen by the$.
!232)'L )4L2& A dissenting
stoc-holder who de$ands pay$ent of his
shares is no longer allowed to withdraw
fro$ his decision
2.cept when6
1. 'he corporation consents to the
withdrawal
2. 'he proposed corporate action is
abandoned or rescinded by the
corporation
!. 'he proposed corporate action is
disapproved by the S%& where its
approval is necessary
#. 'he &o$$ission deter$ines that such
stoc-holder is not entitled to
appraisal right.
EI. NON6$TOCF CORPORATION
A corporation organized for an
elee$osynary purpose, and no part of
whose inco$e is, during its existence,
distributable as dividends to its
$e$bers, trustees, or officers, sub"ect
to the provisions of the &orporation &ode
on dissolution. (Sec. 2=)
Any profit which it $ay obtain as an
incident to its operations shall,
whenever necessary or proper, be used
for the furtherance of the purpose or
purposes for which it was organized.
Elee>0/y3a,y 5-,50/e/( charitable,
religious, educational, professional,
cultural, recreational, fraternal,
literary, scientific, social, civic service,
or si$ilar purposes, li-e trade, industry,
agricultural. (Sec. 22)
'hey are governed by the sa$e rules
established for stoc- corporations,
whenever pertinent, sub"ect, however,
to a nu$ber of special features.
R%"E$ ON CON#ER$ION ($EC O5i3i03
1. ,toc7 to non=stoc7 corporation
&onversion $ay be $ade by $ere
a$end$ent of the articles of
incorporation.
2. 3on=stoc7 to stoc7 corporation
'he corporation $ust first be
dissolved> $ere a$end$ent of the
articles of incorporation would not
suffice because the conversion would
change the corporate nature fro$ non4
profit to $onetary gain.
'he conversion without dissolving it
first would be tanta$ount to distribution
of its assets or inco$e to its $e$bers
inas$uch as after its conversion, the
asset of the non4stoc- corporation would
now be treated as pay$ent to the
subscriptions of the $e$bers who will
now beco$e stoc-holders of the
corporation.
RI!'T$ O& MEMBER$
1. 'o be entitled to 1 vote unless
otherwise provided in the
articles or by4laws
2. 'o vote by proxy unless
otherwise provided in the
articles or by4laws
!. 'o transfer $e$bership if
allowed by the articles or by4
laws
#. 'o be elected as trustee
$TOCF NON6$TOCF
Jas capital stoc-
divided into shares
and with authority to
distribute dividends
to its stoc-holders
7oes not have shares
and $ay not
distribute profits to
its $e$bers
Stoc-holders $ay
transfer their shares
Be$bers cannot
transfer their
$e$bership unless
allowed by the
articles or by4laws
&u$ulative voting is
available in the
election of directors
&u$ulative voting
not available unless
otherwise provided in
the articles or by4
laws
7irectors cannot
exceed 15 in nu$ber
'rustees $ay exceed
15 in nu$ber
'he ter$ of a
director is 1 year
'he ter$ of a trustee
is ! years> 1L! of the
(oard shall be
elected annually
Stoc-holders $ay
vote by proxy
Be$bers $ay be
deprived of the right
to vote by proxy in
the articles or by4
laws
Ffficers are elected Ffficers $ay be
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
664
by the (oard of
7irectors
directly elected by
the $e$bers unless
otherwise provided in
the articles or by4
laws
Stoc-holders and
directors $ust act in
a $eeting, except
where a $ere
written assent is
sufficient or a for$al
$eeting unnecessary
Be$bers $ay be
allowed by the by4
laws to vote by $ail
or other si$ilar
$eans
R%"E$ &OR DI$TRIB%TION O& A$$ET$ IN
CA$E O& DI$$O"%TION ($EC. 9B
1. All liabilities and obligations of the
corporation shall be paid, satisfied and
discharged or ade3uate provision shall
be $ade therefor
2. Assets held by the corporation upon a
condition re3uiring return, transfer or
conveyance, and which condition occurs
by reason of dissolution, shall be
returned, transferred or conveyed in
accordance with such re3uire$ents
!. Assets received and held by the
corporation sub"ect to li$itations
per$itting their use only for charitable,
religious, benevolent, educational or
si$ilar purposes but not held upon a
condition re3uiring return, transfer or
conveyance by reason of dissolution,
shall be transferred or conveyed to one
or $ore corporations, societies or
organizations engaged in activities in the
8hilippines substantially si$ilar to those
of the dissolving corporation pursuant to
a plan of distribution
#. Fther assets, if any, shall be
distributed in accordance with the
provisions of the articles of
incorporation or the by4laws
5. n any other case, assets $ay be
distributed to such persons, societies,
organizations or corporations, whether
or not organized for profit, as $ay be
specified in a plan of distribution.
'he plan of distribution shall be
approved by a $a"ority vote of the
board of trustees and by 2L! of the
$e$bers having voting rights at a
$eeting
EII. C"O$E CORPORATION
A special -ind of stoc- corporation6
1. whose articles of incorporation
should provide that6
a.the nu$ber of stoc-holders
shall not exceed 2;>
b. issued stoc-s are
sub"ect to transfer restrictions,
with a right of pree$ption in
favor of the stoc-holders or the
corporation> and
c.the corporation shall not be
listed in the stoc- exchange or
its stoc-s should not be publicly
offered> A:7
2. whose at least 2L! of the voting
stoc-s or voting rights should not be
owned or controlled by another
corporation which is not a close
corporation. (Sec. 1))
&haracteristics6
1. Stoc-holders $ay act as
directors without need of
election and therefore are liable
as directors>
2. Stoc-holders who are involved in
the $anage$ent of the
corporation are liable in the
sa$e $anner as directors are.
!. Puoru$ $ay be greater than
$ere $a"ority>
#. 'ransfers of stoc-s to others,
which would increase the
nu$ber of stoc-holders to $ore
than the $axi$u$ are invalid>
5. &orporate actuations $ay be
binding even without a for$al
board $eeting, if the
stoc-holder had -nowledge or
ratified the infor$al action of
the others>
). 8ree$ptive right extends to all
stoc- issues>
=. 7eadloc-s in board are settled
by the S%&, on the written
petition by any stoc-holder> and
2. Stoc-holder $ay withdraw and
avail of his right of appraisal.
N0te( Special rules are provided for
close corporations because it is
essentially an incorporated partnership.
(The Corporation Code of the
Philippines 'nnotated, (ector de Leon,
2002 ed.
'he following cannot be a close
corporation6
a. $ining co$panies>
b. oil co$panies>
c. stoc- exchanges>

d. ban-s>
e. insurance co$panies>
f. public utilities>
g. education institutions>
h. other corporations declared to be
vested with public interest. (Sec.
1))
ORDINAR* $TOCF
CORPORATION
C"O$E
CORPORATION
ts articles of
incorporation need
only contain the
general $atters
enu$erated in Sec.
1# of the &ode.
ts articles $ust
contain the special
$atters prescribed by
Sec. 1=, aside fro$
the general $atters
in Sec. 1#. Aailure to
do so precludes a de
"ure close corporation
status.
ts status as an
ordinary stoc-
corporation is not
affected by the
ownership of its
voting stoc- or
voting rights.
2L! of its voting stoc-
or voting rights $ust
not be owned or
controlled by another
corporation which is
not a close
corporation.
ts articles cannot
classify its directors.
ts articles $ay
classify its directors.
(usiness of the
corporation is
$anaged by the
board of directors.
(usiness of the
corporation $ay be
$anaged by the
stoc-holders if the
articles so provide,
but they are liable as
directors.
'he corporate
officers and
e$ployees are
elected by a
$a"ority vote of all
the $e$bers of the
board of directors.
ts articles $ay
provide that any or
all of the corporate
officers or e$ployees
$ay be elected or
appointed by the
stoc-holders.
'he pre4e$ptive
right is sub"ect to
the exceptions found
in Sec. !1.
'he pre4e$ptive right
is sub"ect to no
exceptions unless
denied in the articles
'he appraisal right $ay
be exercised by a
stoc-holder only in the
cases provided in Secs.
21 and #2 of the &ode.
'he appraisal right $ay
be exercised and
co$pelled against the
corporation by a
stoc-holder for any
reason.
%xcept as regards
redee$able shares,
the purchase by the
corporation of its
own stoc- $ust
always be $ade fro$
the unrestricted
retained earnings.
n case of an
arbitration of an
intra4corporate
deadloc- by the S%&,
the corporation $ay
be ordered to
purchase its own
shares fro$ the
stoc-holders
regardless of the
availability of
unrestricted retained
earnings.
Arbitration of intra4
corporate deadloc-
by the S%& is not a
re$edy in case the
directors or
stoc-holders are so
divided respecting
the $anage$ent of
the corporation.
Arbitration of intra4
corporate deadloc-
by the S%& is an
available re$edy in
case the directors or
stoc-holders are so
divided respecting
the $anage$ent of
the corporation.
POGER$ O& T'E $EC IN CA$E O&
DEAD"OCF IN C"O$E CORPORATION$
1. &ancel or alter any provision in the
articles of incorporation or bylaws
2. &ancel, alter or en"oin any
resolution of the corporation
!. 7irect or prohibit any act of the
corporation
#. *e3uire the purchase at their fair
value of shares of any stoc-holder
either by any stoc-holder or by the
corporation regardless of the
availability of unrestricted retained
earnings.
5. Appoint a provisional director
). 7issolve the corporation
=. <ranting such other relief as the
circu$stances $ay warrant.
EIII. $PECIA" CORPORATION$
1. ED%CATIONA" CORPORATION
A stoc- or non4stoc- corporation
organized to provide facilities for
teaching or instruction.
A favorable reco$$endation of the
7%&S is essential for the approval of its
articles and by4laws.
t is pri$arily governed by special laws
and suppletorily by the provisions of the
&ode.
NON6$TOCF
ED%CATIONA"
CORPORATION
ED%CATIONA"
CORPORATION
A non4stoc-
corporation
A special corporation
which $ay a stoc- or
non4stoc-
<overned by the
provisions on non4
stoc- corporations
and suppletorily by
the provisions on
<overned by special
laws and by the
general provisions of
the &orporation &ode
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
665
stoc- corporations
'he nu$ber of board
of trustees $ay be
$ore than 15
'he nu$ber of the
board of trustees
should not be less
than 5 but not $ore
than 15.
'he ter$ of office of
the board of trustees
shall be ! years
'he ter$ of office of
the board of trustees
shall be 5 years
:. RE"I!IO%$ CORPORATION
A corporation co$posed entirely of
spiritual persons and which is organized
for the furtherance of a religion or for
perpetuating the rights of the church or
for the ad$inistration of church or
religious wor- or property. t is different
fro$ an ordinary non4stoc- corporation
organized for religious purposes.
?inds6
A) &F*8F*A'F: SF/%
4 A special for$ of corporation,
usually associated with the clergy,
consisting of one person only and his
successors, who is incorporated by
law to give so$e legal capacities and
advantages> and
() *%/<F.S SF&%'%S
4 A non4stoc- corporation
governed by a board but with religious
purposes. t is incorporated by an
aggregate of persons, e.g. religious
order, diocese, synod, sect, etc.
EI#. DI$$O"%TION AND GINDIN! %P
("IC%IDATION
DI$$O"%TION
%xtinguish$ent of the franchise of a
corporation and the ter$ination of its
corporate existence.
Bodes6
1. Goluntary
a) Application for dissolution with the
S%&
i. @here no creditors are
affected
ii. @here creditors are affected
b) Shortening of the corporate ter$
by a$ending the articles of
incorporation.
2. nvoluntary
a) %xpiration of the corporate ter$>
b) Aailure to organize and co$$ence
business within 2 years fro$ the date
of issuance of the certificate of
incorporation (3ote& (owever, the
,2C has opined that the dissolution in
this case is not automatic. The
corporation continues to e.ist as
such, notwithstandin% its non=
operational status until the ,2C
orders its dissolution after notice and
hearin%.
c) /egislative dissolution>
d) 1uo warranto suit against a de
facto corporation>
e) Binority stoc-holdersD suit for
dissolution on "ustifiable grounds> or
f) S%& dissolution, upon co$plaint
and after notice and hearing, on the
following grounds6
i. 'he corporation was illegally
organized>
ii. &ontinuous inactivity
(subse3uent to incorporation,
organization and
co$$ence$ent of business)
for at least 5 years>
iii. Serious dissension in the
corporation> or
iv. &o$$ission by the
corporation of illegal or ultra
vires acts or violations of the
&ode.
E&&ECT$ O& DI$$O"%TION
a. 'ransfer of legal title to corporate
property to the stoc-holders who
beco$e co4owners thereof
b. &ontinuation of corporate business
$erely as an association without
"uridical personality
c. &onveyance by the stoc-holders of
their respective shareholdings toward
the creation of a new corporation to
continue the business of the old
d. *eincorporation of the dissolved
corporation by refilling new articles of
incorporation and by4laws
e. 'he corporation continues as a body
corporate for ! years for purposes of
winding up

f. &essation of corporate existence for
all purposes upon the expiration of the
winding up period of ! years. (The
"IC%IDATION
'he process by which all the assets of
the corporation are converted into li3uid
assets (cash) in order to facilitate the
pay$ent of obligations to creditors, and
the re$aining balance, if any, is to be
distributed to the stoc-holders or
$e$bers.
Met40./(
1. (y the corporation itself through its
board of directorsLtrustees>
2. (y a trustee to who$ the corporate
assets have been conveyed> and
!. (y a $anage$ent co$$ittee or
rehabilitation receiver appointed by the
S%&.
N0te6 'he !4year period of li3uidation
does not apply to Bethods 2 and ! as
long as the trustee or the receiver is
appointed within the said period.
'he ter$ination of the life of a
"uridical entity does not by itself cause
the extinction or di$inution of the rights
and liabilities of such entity nor those of
its owners and creditors ali-e (see Sec.
1#5).
'he word +trustee, as sued in the
corporation statute $ust be understood
in its general concept which could
include the counsel to who$ was
entrusted the prosecution of the suit
filed by the corporation. (Spouses
<elano vs. &A)
"IC%IDATION RE'ABI"ITATION
&onnotes a winding
up or settling with
creditors and debtors
&onnotes a reopening
or reorganization
@inding up process
so that assets $ay be
distributed to those
entitled
&onte$plates a
continuance of
corporate life in an
effort to restore the
corporation to its
for$er successful
operation
E#. &OREI!N CORPORATION
A corporation for$ed, organized or
existing under any law other than those
of the 8hilippines, and whose laws allow
Ailipino citizens and corporations to do
business in its own country or state.
(Sec. 12!)
'he definition espouses the
incorporation test and the reciprocity
rule and is significant for licensin%
purposes.
t is not per$itted to +transact or do
business in the 8hilippines, until it has
secured a license for that purpose fro$
the S%& and a certificate of authority
fro$ the appropriate govern$ent
agency.
RE$IDENT A!ENT
An individual, who $ust be of good
$oral character and of sound financial
standing, residing in the 8hilippines, or a
domestic corporation lawfully
transacting business in the 8hilippines,
designated in a written power of
attorney by a foreign corporation
authorized to do business in the
8hilippines, on who$ any su$$ons and
other legal processes $ay be served in
all actions or other legal proceedings
against the foreign corporation. (Sec.
12=4122)
CONTENT$ &OR APP"ICATION O&
"ICEN$E
1. 7ate and ter$ of incorporation
2. 'he address of the principal office in
the country of incorporation
!. 'he na$e and address of resident
agent
#. 'he place in the 8hilippines where
it intends to operate
5. 'he specific purpose or purposes
). 'he na$es and addresses of the
present directors and officers of the
corporation
=. A state$ent of its authorized
capital stoc-
2. A state$ent of its outstanding
capital stoc-
1. A state$ent of the a$ount actually
paid in
1;. Such additional infor$ation as $ay
be necessary to enable the S%& to
deter$ine whether such corporation
is entitled to license
CHAIRPERSONS
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626
!RO%ND$ &OR RE#OCATION O&
"ICEN$E
1. Aailure to file annual reports
re3uired by the &ode>
2. Aailure to appoint and $aintain a
resident agent>
!. Aailure to infor$ the S%& of the
change of residence of the resident
agent>
#. Aailure to sub$it copy of a$ended
articles or by4laws or articles of $erger
or consolidation>
5. A $isrepresentation in $aterial
$atters in reports>
). Aailure to pay taxes, i$posts and
assess$ents>
=. %ngage in business unauthorized by
S%&>
2. Acting as du$$y of a foreign
corporation> and
1. :ot licensed to do business in the
8hilippines. (Sec. 1!#)
TE$T O& ?DOIN! OR TRAN$ACTIN!
B%$INE$$ IN T'E P'I"IPPINE$@(
'he &orporation &ode does not define
the phrase +doing or transacting
business.,
A. 9urisprudential Tests (Philippine
ed.
1. T;i3 c4a,acte,iMati03 te/t
a) @hether the foreign corporation is
$aintaining or continuing in the
8hilippines the body or substance of
the business for which it was
organized or whether it has
substantially retired fro$ it and
turned it over another (,u*stance
Test> and
b) @hether there is continuity of
co$$ercial dealings and
arrange$ents, conte$plating to
so$e extent the perfor$ance of acts
or wor-s or the exercise of so$e
functions nor$ally incident to and in
progressive prosecution of, the
purpose and ob"ect of its
organization (Continuity Test.
2. C03t,act Te/t
@hether the contracts entered
into by the foreign corporation, or
by an agent acting under the control
and direction of the foreign
corporation, are consu$$ated in the
8hilippines.
(. ,tatutory Tests
1. &0,eig3 I3ve/t>e3t Act 0f 1991
(R.A. N0. A0B:
Acts constituting +doing business,6
a) Soliciting orders, service
contracts, opening offices,
whether called +liaison, offices
or branches>
b) Appointing representatives or
distributors do$iciled in the
8hilippines or who in any
calendar year stay in the country
for a period or periods totaling
12; days or $ore>
c) 8articipating in the
$anage$ent, supervision or
control of any do$estic business,
fir$ or entity or corporation in
the 8hilippines> and
d) Any other act or acts that i$ply
a continuity of co$$ercial
dealings or arrange$ents, and
conte$plate to that extent the
perfor$ance of acts or wor-s, or
the exercise of so$e of the
functions nor$ally incident to,
and in progressive prosecution
of, co$$ercial gain or of the
purpose of the business
organization.
2. I>5le>e3ti3g R-le/ 0f R.A. N0. A0B:
Acts not constituting +doing business,6
a) Bere invest$ent as a
shareholder in a do$estic
corporation andLor the exercise
of rights as such investor>
b) Appointing a representative or
distributor do$iciled in the
8hilippines which transacts
business in its own na$e and for
its own account>
c) 8ublication of a general
advertise$ent through any print
or broadcast $edia>
d) Baintaining a stoc- of goods in
the 8hilippines solely for the
purpose of having the sa$e
processed by another entity in
the 8hilippines>
e) &onsign$ent by the foreign
corporation of e3uip$ent with a
local co$pany to be used in the
processing of products for
export>

f) &ollecting infor$ation in the
8hilippines> and
g) 8erfor$ing services auxiliary to
an existing isolated contract of
sale which are not on a
continuing basis.
C. 9urisprudential )ules
1. D0ct,i3e 0f I/0late. T,a3/acti03/
Aoreign corporations, even unlicensed
ones, can sue or be sued on a
transaction or series of transactions set
apart fro$ their co$$on business in the
sense that there is no intention to
engage in a progressive pursuit of the
purpose and ob"ect of business
transaction. (%ri-s 8te./td vs. &A, 2)=
S&*A 5)=)
2. I3 Pa,i Delict0 R-le
n the case of 'op4@eld Banufacturing
vs. %&%7, S.A., the &ourt denied the
relief prayed for by petitioner when it
ruled that the very purpose of the law
was circu$vented and evaded when the
petitioner entered into the said
agree$ents despite the prohibition
contained in the 3uestioned law. 'he
parties were considered as being in pari
delicto because they e3ually violated
*.A. 5#55
!. E/t055el R-le
A party is estopped fro$ 3uestioning
the capacity of a foreign corporation to
institute an action in our courts where it
had obtained benefits fro$ its dealings
with such foreign corporations and
thereafter co$$itted a breach or sought
to renege on its obligations. (%uropean
*esources vs. ngnieburo)
E&&ECT$ O& "ACF O& "ICEN$E
A. O3 /-it/
1. Aoreign corporation doing business in
the 8hilippines6
a) $ay not sue or intervene in any
action in any court or
ad$inistrative agency of the
8hilippines> but
b) $ay be sued on any valid cause of
action recognized in the
8hilippines (under the doctrine of
#uasi=estoppel *y acceptance of
*enefits. (Sec. 1!!)
2. Aoreign corporation not doing business
in the 8hilippines6
a) <enerally, it $ay not sue and be
sued in any court or
ad$inistrative agency of the
8hilippines>
b) Jowever, it $ay sue and be sued
for isolated transactions, as well
as for those which are casual or
incidental thereto.
B. O3 c03t,act/
'he contracts conte$plated are those
that satisfy the +contract test, or those
that $a-e a foreign corporation as one
+doing business in the 8hilippines.,
!232)'L )4L2& 'he contracts are
unenforceable. 'hey are enforceable
only upon securing a license.
25C2PT063& Jowever, the contracts
are null and void if they are contrary to
law, $orals, good custo$s, public order
and public policy.
IN$TANCE$ G'EN A &OREI!N
CORPORATION MA* $%E IN T'E
P'I"IPPINE$ G'ET'ER OR NOT
"ICEN$ED TO DO B%$INE$$ T'EREAT
1. 'o see- redress for an isolated
business transaction>
2. 'o protect its corporate reputation,
na$e, and goodwill>
!. 'o enforce a right not arising out of a
business transaction, e.g. tort that
occurred in the 8hilippines>
#. @hen the parties have contractually
stipulated that 8hilippines is the venue
of actions> and
5. @hen the party sued is barred by the
principle of estoppel andLor principle of
un"ust enrich$ent fro$ 3uestioning the
capacity of the foreign corporation.
$EC%RITIE$ AND EEC'AN!E
COMMI$$ION
REOR!ANIDATION
DECREE (P.D. N0. 90:6
A
ORI!INA" AND EEC"%$I#E
J%RI$DICTION O& T'E RTC ($ec. I i3
,elati03 t0 $ec. I.: O& RA 8A99(
1. Araudulent devices and sche$es
e$ployed by directors detri$ental
to the public interest and to other
fir$s>
CHAIRPERSONS
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627
2. ntra4corporate disputes>
!. 7isputes with the state in relation to
their franchise and right to exist as
such>
#. &ontroversies in election,
appoint$ent of directors or trustees>
5. 8etition to be declared in a state of
suspension of pay$ents>
). 8etition for rehabilitation> and
=. Appoint$ent of rehabilitation
receiver or $anage$ent co$$ittee
(provisional re$edies).
:ote6 A corporate officerDs dis$issal is
always a corporate act andLor an intra4
corporate controversy. Jowever, the
corporate officers conte$plated are
those whose offices are created by the
&orporation &ode or the by4laws.
INTRA6CORPORATE DI$P%TE
Ele>e3t/(
1. Status or relationship of the parties 0
controversy $ust be between and
a$ong corporators, between
corporators and the corporation
2. :ature of the 3uestion 0 intrinsic
connection with the regulation or
the internal affairs of the
corporation
E<a>5le/(
1. Action by a corporate officer to
recover co$pensation fro$ the
corporation
2. Action by a stoc-holder to co$pel
issuance of certificate of stoc-s
!. Action for recovery of corporate
funds
N0te( Allegations in the co$plaint
deter$ines "urisdiction.
!RO%ND$ &OR $%$PEN$ION OR
CANCE""ATION O& CERTI&ICATE O&
RE!I$TRATION ($EC. 6N"O
1. fraud in procuring registration>
2. serious $isrepresentation as to
ob"ectives of corporation>
!. refusal to co$ply with lawful order
of S%&>
#. continuous inoperation for at least 5
years>
5. failure to file by4laws within
re3uired period>
). failure to file reports> and
=. Fthers si$ilar grounds.
INTERIM R%"E$ O& PROCED%RE ON
CORPORATE RE'ABI"ITATION (effective
Dece>8e, 1I, :000
CORPORATE RE'ABI"ITATION
A process to try to conserve and
ad$inister the corporationDs assets in
the hope that it $ay eventually be able
to return fro$ financial stress to
solvency.
Nat-,e( in rem, su$$ary, and non4
adversarial
A55lica8ility( 'hese *ules apply to
petitions for rehabilitation filed by
corporations, partnerships and
associations pursuant to 8.7. 1;24A
$te5/(
1. Ailing verified petition with the
appropriate *'& by6
a. corporate de*tor who foresees
the i$possibility of $eeting its
debts when they respectively fall
due> or
b. creditors holding at least 25K of
the debtorDs total liabilities>
2. 'he following shall be annexed to the
petition6
a. audited financial state$ents at
end of its last fiscal year>
b. interi$ financial
state$ent>
c. schedule of debts and
liabilities>
d. inventory of assets>
e. rehabilitation plan>
f. schedule of pay$ents
and disposition of assets effected
within ! $onths preceding the
filing of the petition>
g. schedule of cash flow for
the last ! $onthsD
h. state$ent of possible
clai$s>
i. affidavit of general
financial condition>
". at least ! no$inations
for rehabilitation receiver>
-. certificate under oath
that directors and stoc-holders
have irrevocably approvedL
consented to all actionsL$atters
necessary under the rehabilitation
plan.

!. 'he court shall issue the stay order
not later than 5 days fro$ the filing of
the petition, which a$ong others, shall6
a. appoint a rehabilitation receiver>
b. stay all actions for clai$s against
the debtor, which shall cover
both secured and unsecured
creditors>
c. set an initial hearing for the
petition (not earlier than #5 days
but not later than ); days fro$
filing of the petition)> and
d. direct the creditors to file their
verified co$$ent or opposition
not later than 1; days before the
initial hearing> their failure to do
so would bar the$ fro$ any
participating in the proceedings.
#. 8ublication of the stay order in a
newspaper of general circulation once a
wee- for 2 consecutive wee-s>
5. *eferral of rehabilitation plan to
rehabilitation receiver>
). Beetings between corporate debtor
with creditors. 7iscussions on the
rehabilitation plan>
=. Sub$ission of final rehabilitation plan
to the *'& for approval>
2. 'he petition shall be dis$issed (which
results into the auto$atic lifting of the
stay order unless *'& ordered otherwise)
if no rehabilitation plan is approved
after 12; days fro$ initial hearing>
1. Approval or disapproval of the
rehabilitation plan by *'&.
RE'ABI"ITATION RECEI#ER
A person appointed by the *'&, in
behalf of all the parties for the purpose
of preserving and conserving the
property and preventing its possible
destruction or dissipation, if it were left
in the possession of any of the parties.
Je acts in a fiduciary capacity and
with i$partiality towards all interested.
Je does not ta-e over the
$anage$ent and control of the debtor,
but shall closely oversee and $onitor the
operations of the debtor during the
pendency of the proceedings. (Aar
)eview Baterials in Commercial Law,
9or%e Biravite, 2002 ed.
POGER$ AND &%NCTION$ O&
MANA!EMENT COMMITTEE OR
RE'ABI"ITATION RECEI#ER ($ec. 6N.O,
P.D. 90:6A
1. 'o ta-e
custody of, and control over, all the
existing assets and property of such
entities under $anage$ent>
2. 'o evaluate the existing assets and
liabilities, earnings and operations of
such corporations, partnerships or
other associations>
!. 'o deter$ine the best way to
salvage and protect the interest of
the investors and creditors>
#. 'o study, review and evaluate the
feasibility of continuing operations
and structure and rehabilitate such
entities if deter$ined to be feasible
by the *'&>
5. 'o report and be responsible to the
*'& until dissolved> and
). Bay overrule or revo-e the actions of
the previous $anage$ent and board
of directors of the entity under
$anage$ent, notwithstanding any
provision of law, articles of
incorporation or by4laws to the
contrary.
Bere disagree$ent a$ong
stoc-holders as to the affairs of the
corporation would not in itself suffice as
a ground for the appoint$ent of a
$anage$ent co$$ittee. At least where
there is no i$$inent danger of loss of
corporate property or of any other in"ury
to stoc-holders, $anage$ent of
corporate business should not be
wrested away fro$ duly elected officers,
who are pri$a facie entitled to
ad$inister the affairs of the corporation,
and placed in the hands of the
$anage$ent co$$ittee. Jowever,
where the dissension a$ong stoc-holders
is such that the corporation cannot
successfully carry on its corporate
functions the appoint$ent of a
$anage$ent co$$ittee beco$es
i$perative. (*a$on Cacinto and Cai$e
&olayco vs. Airst @o$enDs &redit
&orporation, <.*. :o. 15#;#1, August
22, 2;;!)
*A 2=11 effectively a$ended Sec. 5 of
87 1;24A, "urisdiction over intra4
corporate disputes is now vested in the
CHAIRPERSONS
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625
*'&s. Jowever, while Sec. 5 was
a$ended, there is no repeal of Sec. )
thereof declaring that the fraudulent
acts or sche$es, which the S%& shall
exclusively investigate and prosecute,
are those in violation of any law or rules
and regulations ad$inistered and
enforced by the S%& alone. 'he filing of
civilLintra4corporate case before S%&
does not preclude the si$ultaneous and
conco$itant filing of a cri$inal action
before the regular courts> such that a
fraudulent act $ay give rise to liability
for violation of the rules and regulations
of the S%& cognizable by the S%& itself,
as well as cri$inal liability for violation
of the *evised 8enal &ode cognizable by
the regular courts, both charges to be
filed and proceeded independently, and
$ay be si$ultaneously with the other.
(Aabia vs. &A, <.*.:o. 1!2)2#.
Septe$ber 11, 2;;2.)
A-t0>atic $tay
%ffect of appoint$ent of a
$anage$ent co$$ittee or rehabilitation
receiver
All actions for clai$s against the
corporation shall be suspended
accordingly.
8urposeL"ustification6 'o enable the
$anage$ent co$$ittee or the
rehabilitation receiver to effectively
exercise its powers free fro$ any
"udicial or extra"udicial interference
that $ight unduly hinder or prevent the
rescue of the debtor co$pany.
(*ubberworld v. :/*&)
:o definite duration> dee$ed to apply
during the entire period that the
corporate debtor is under $anage$ent
co$$ittee or the rehabilitation
receiver. ((A Jo$es v. &A)
$EC%RITIE$ RE!%"ATION CODE ($RC
(R.A. N0. 8A99
P%RPO$E$(
1. 'o establish a socially conscious,
free $ar-et that regulates itself
2. 'o encourage the widest
participation of ownership in
enterprises
!. 'o enhance the de$ocratization
of wealth
#. 'o pro$ote the develop$ent of
the capital $ar-et
5. 'o protect investors
). 'o ensure full and fair disclosure
about securities
=. 'o $ini$ize if not totally
eli$inate insider trading and
other fraudulent or $anipulative
devices and practices which
create distortions in the free
$ar-et. (Sec. 2)

&EAT%RE$ G'IC' ARE INTENDED TO
PROTECT T'E IN#E$TIN! P%B"IC
1. All securities are re3uired to be
registered before they can be sold to
the public (Section 2)>
2. *e"ection and revocation of
registration of securities (Section
1!)>
!. *egulation of pre4need plans.
(Section 1))>
#. 8rotection of shareholder interests
(Section 11)>
5. 8rohibition on fraud, $anipulation
and insider trading (Sections 2#, 25,
2) and 2=)>
). *egulations of Securities Bar-et
8rofessionals (Section 22)>
=. *evocation, refusal or suspension of
registration of bro-ers, dealers and
sales$en and associated persons
(Section 21)>
2. *estrictions on +over4the4counter,
$ar-ets (Section !2)>
1. Self4regulation of associations of
securities bro-ers, dealers and other
securities related organizations
(Section 21)>
1;. *egistration of clearing agencies
(Section #2)>
11. /i$itations on $argin trading or the
a$ount of credit that $ay be
extended on any security (Section
#1)
12. &ivil liabilities arising fro$ false
state$ent in the registration
state$ent (Section 5))
1!. &ivil liabilities arising fro$ false
state$ents or o$issions in the

prospectus, co$$unications and
reports (Section 5=)
1#. 8rotection against $anipulation of
security prices, $anipulative and
deceptive devices (Section 51), fraud
in pre4need plans and co$$odities
futures contracts (Section );),
fraudulent transactions (Section 52),
and insider trading (Section )1)>
15. %stablish$ent of trust funds to
co$pensate investors for
extraordinary losses or da$age they
$ay suffer due to business failure or
fraud or $is$anage$ent of the
persons with who$ they transact
(Section !).5QaR).
POGER$ AND &%NCTION$ O& T'E $EC
1. Supervision over corporations,
partnerships, and grantees of pri$ary
franchise>
2. Approve, re"ect registration
state$entsLlicensing applications>
!. Suspend, revo-e, after notice and
hearing pri$ary franchise on grounds>
#. *egulateLsupervise activities of
persons to ensure co$pliance>
5. Supervise $onitor, suspend or ta-e
over, exchanges, clearing agencies and
S*Fs>
). *eco$$end policies, advise,
propose legislation to &ongress on
securities $ar-et>
=. 8repare, approve, a$end or repeal
rules, regulations, issue opinions
2. %nlist the aid and support of andLor
deputize any and all enforce$ent
agencies of the <overn$ent as well as
any private institution, corporation,
fir$, association or person in the
i$ple$entation of its powers>
1. ssue cease and desist orders to
prevent fraud or in"ury>
1;. 8unish for conte$pt of the
&o$$ission>
11. &o$pel the officers of any
registered corporation or association to
call $eetings of stoc-holders or
$e$bers>
12. ssue subpoena duces tecu$ and
su$$on witnesses to appear in any
proceedings of the &o$$ission> and
1!. %xercise such other powers as $ay
be provided by law which are necessary
or incidental to the carrying out its
express powers. (Sec. 5)
$EC%RITIE$
Shares, participation or interest in a
corporation or in a co$$ercial
enterprise or profit4$a-ing ventures and
evidenced by a certificate, contract,
instru$ent whether written or electronic
in character. (Sec. !)
Fi3./(
1. Shares of stoc-s, bonds, debentures,
notes, evidence of indebtedness,
asset4bac-ed securities>
2. nvest$ent contracts, certificates of
interest or participation in a profit4
sharing agree$ent, certificates of
deposit for a future subscription
!. Aractional undivided interests in oil,
gas, or other $ineral rights>
#. 7erivatives li-e options and warrants>
5. &ertificates of assign$ents and
participation, trust certificates,
voting trust certificates or si$ilar
instru$ents>
). 8roprietary or non4proprietary
$e$bership certificates in
corporations>
=. Fther instru$ents as $ay in the
future be deter$ined by the S%&.
(Sec. !)
Cla//e/(
1. %xe$pt securities and securities
covered by exe$pt transactions> and
2. Securities that are not exe$pt or the
sale of which is not an exe$pt
transaction.
DERI#ATI#E
A financial instru$ent, including
options and warrants, whose value
depends on the interest in or
perfor$ance of an underlying security,
but which does not re3uire any
invest$ent of principal in the underlying
security.
Fi3./(
1. F8'F:S 0 contracts that give the
buyer the right, but not the
obligation, to buy or sell an
underlying security at a
predeter$ined price, called the
exercise or stri-e price, on or before
a predeter$ined date, called the
expiry date, which can only be
extended in accordance with
%xchange rules.
CHAIRPERSONS
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624
2. @A**A:'S 0 rights to subscribe or
purchase new shares or existing
shares in a co$pany, on or before a
predeter$ined date, called the
expiry date, which can only be
extended in accordance with
%xchange rules. @arrants generally
have a longer exercise period than
options. (S*& *ule !.141)
RE!I$TRATION O& $EC%RITIE$
!232)'L )4L2& A registration
state$ent duly filed and approved by
the S%& is necessary before securities
$ay be sold and offered for sale or
distribution within the 8hilippines. 8rior
to any sale, infor$ation on the
securities, in such for$ and substance
prescribed by the S%&, shall be $ade
available to each prospective purchaser.
(Sec. 2)
25C2PT063,&
1. %xe$pt securities> and
2. %xe$pt transactions.
EEEMPT $EC%RITIE$ ($ec. 9
1. Any security issued or guaranteed by
the <overn$ent of the 8hilippines, or
by any political subdivision or agency
thereof, or by any person controlled
by and acting as an instru$entality of
said <overn$ent.
2. Any security issued or guaranteed by
the govern$ent of any country with
which the 8hilippines $aintains
diplo$atic relations, or by any state,
province or political subdivision or
agency thereof on the basis of
reciprocity.
!. &ertificates issued by a receiver or by
a trustee in ban-ruptcy duly approved
by the proper ad"udicatory body.
#. Any security or its derivatives the sale
or transfer of which, by law, is under
the supervision and regulation of the
Fffice of the nsurance &o$$ission,
Jousing and land .se *egulatory
(oard, or the (ureau of nternal
*evenue.
5. Any security issued by a ban- except
its own shares of stoc-.
). Any securities added by the S%& by
rule or regulation after public
hearing.
EEEMPT TRAN$ACTION$ ($ec. 10
1. Cudicial sale by executor,
ad$inistrator, guardianLreceiver in
insolvency or ban-ruptcy.
2. Sale of pledged or $ortgaged security
to li3uidate a bona fide debt.
!. Sale on isolated transactions by
owner.
#. 7istribution of stoc- dividends.
5. Sale of capital stoc- exclusively to
stoc-holders where no co$$ission is
paid.
). 'he issuance of bonds or notes
secured by $ortgage upon real estate
or tangible personal property, where
the entire $ortgage are sold to a
single purchaser at a single sale.
=. ssuance of security in exchange of
any security fro$ sa$e issuer
pursuant to right of conversion.
2. (ro-erDs transactions
1. 8re4incorporation subscription and
subscription pursuant to an increase
of the A&S.
1;. %xchange of securities by issuer with
existing security holders exclusively
11. Sale to less than 2; persons during
any 124 $onth period
12. Sale of securities to ban-s,
registered invest$ent house,
insurance co$panies, pension fund or
retire$ent plan $aintained by the
govern$ent or other persons
authorized by the (S8 to engage in
trust functions.
TENDER O&&ER
A publicly announced intention by a
person acting alone or in concert with
other persons to ac3uire e3uity
securities of a +public co$pany.,
t is mandatory to $a-e a tender offer
for e3uity shares of a public co$pany in
an a$ount e3ual to the nu$ber of shares
that the person intends to ac3uire in the
following circu$stances6
a. 'he person intends to ac3uire 15K or
$ore of the e3uity shares of a public
co$pany pursuant to an agree$ent
$ade between or a$ong the person
and one or $ore sellers>
b. 'he person intends to ac3uire !;K or
$ore of the e3uity shares of a public
co$pany within a period of 12
$onths> or
c. 'he person intends to ac3uire shares
that would result in ownership of

$ore than 5;K of the e3uity shares of
a public co$pany. (S*& *ule 11)
'ender offer is $ade6
1. (y filing with the S%& a declaration
to $a-e a tender offer>
2. (y furnishing the issuer or the
originator of the security a
state$ent containing such
infor$ation re3uired under Sec. 1=
of the S*&6
i. Annual *eport (includes balance
sheet, profit and loss state$ent)>
and
ii. 8eriodical reports for interi$ fiscal
periods> and
!. (y publishing all re3uests or
invitations for tender, or $aterials,
$a-ing a tender offer or re3uesting
or inviting letters of such a security.
P%B"IC COMPAN*
1. Any corporation with a class of e3uity
securities listed on an %xchange> or
2. Any corporation with assets in excess
of 85;B and having 2;; or $ore holders,
at least 2;; of which are holding at least
1;; shares of a class of its e3uity
securities.
%N"AG&%" ACT$
1. Aor any beneficial owner, director, or
officer to sell any security if the
seller or his principal does not own or
does not deliver it within 2; days
fro$ sale. (Sec. 2!.!)
2. Banipulation of security prices. (Sec.
2#.1)
!. %$ploy$ent of $anipulative or
deceptive device or contrivance in
connection with purchase and sale of
authorities. %xecution of +short sale,,
+stop4loss order, not in accordance
with S%& rules. (Sec. 2#.2)
#. Aor any $e$ber of %xchange directly
or indirectly endorse or guarantee the
perfor$ance of any +put,, +call,,
+straddle,, +option, or +privilege, in
relation to any security registered.
(Sec. 25)
5. Araudulent transactions in the sale of
securities. (Sec.2))
). nsider trading (Sec. 2=)
=. Aor an insider to co$$unicate
$aterial non4public infor$ation about
the issuer or security. (Sec. 2=.!)
2. .nlawful 'ender Fffer. (Sec 2=.#)
1. .se of %xtensive &redit. (Sec #2.1)
DE&INITION O& TERM$(
1. SJF*' SA/% 0 A contract for sale of
shares of stoc- which the seller does not
own, or certificates which are not within
his control, so as to be available for
delivery at the ti$e when delivery $ust
be $ade.
2. S'F84/FSS F*7%* 0 'he direction by a
custo$er to his bro-er that if the
co$$odity touches the price na$ed, the
bro-er shall close the trade at the best
available price.
!. 8.' 0 An option that, in consideration
of a pre$iu$ paid, gives the purchaser
the right to $a-e the seller ta-e fro$
hi$ a given nu$ber of shares of a na$ed
stoc- between a given ti$e at a
stipulated price which is usually *elow
the prevailing $ar-et price of the stoc-
at the ti$e the +put, is purchased.
#. &A// 4 An option that, in
consideration of a pre$iu$ paid,
entitles the buyer the right to co$pel
the seller to deliver to hi$ a certain
nu$ber of shares within a given ti$e at
a stipulated price which is usually hi%her
than the prevailing $ar-et price at the
ti$e the +call, is bought. +&all, is the
reverse of +put.,
5. S'*A77/% 0 'he double privilege of a
+put, and a +call,, and secures to the
holder the right to de$and of the seller
at a certain price within a certain ti$e a
certain nu$ber of shares of specified
stoc-, or to re3uire hi$ to ta-e, at the
price within the sa$e ti$e, the sa$e
shares of stoc-.
). @ASJ SA/% 0 'he operation of
si$ultaneously buying and selling the
sa$e stoc-. t is any transaction in any
security which involves no change in the
beneficial ownership thereof. t is the
reverse of +BA'&J%7 F*7%*S, wherein
there is a change in the ownership of the
securities.
=. SJF*' S@:< '*A:SA&'F: 4 Fne
where a person buys securities and sells
the sa$e within a period of six $onths.
2. A/FF* '*A7%* 4 A professional
trader in securities who acts for hi$self
and not for the account of others,
hence, receives no co$$ission at all.
1. JE8% A:7 7.B8 0%ngaging in buying
activity at increasingly higher prices and
CHAIRPERSONS
Logis!i%s+ J&$a%1a$
625
then selling securities in the $ar-et at
higher securities.
1;. (F/%* *FFB SA/%S 0'he use of
high4pressure sales tactics to pro$ote
purchases and sales of securities.
11. +FG%* 'J% &F.:'%* '*A:SA&'F:,
'ransactions which are not $ade at the
stoc- exchange, but directly between
the bro-er and the custo$er.
12. +FG%*4'J%4&F.:'%*, BA*?%'
A $ar-et created other than a
registered stoc- exchange for both the
purchase and sale of any security.
IN$IDER TRADIN!
'he selling or buying of a security by
an insider while in possession of $aterial
non4public infor$ation with respect to
the issuer or the security. t is
considered unlawful unless6
1. 'he insider proves that the
infor$ation was not gained fro$ such
relationship, or
2. f the other party selling to or buying
fro$ the insider (or his agent) is
identified, the insider proves6
a. that he disclosed the infor$ation
to the other party, or
b. that he had reason to believe
that the other party otherwise is
also in possession of the
infor$ation. (Sec. 2=.1)
IN$IDER
A person who, with respect to a
particular security, $ay be any of the
following6
1. 'he issuer>
2. 'he director or officer of, or a person
controlling the issuer>
!. A person whose relationship or for$er
relationship to the issuer gives hi$
access to $aterial infor$ation about the
issuer or the security that is not
generally available to the public>
#. A govern$ent e$ployee, or director,
or officer of an exchange, clearing
agency andLor self4regulatory
organization who has access to $aterial
infor$ation about an issuer or a security
that is not generally available to the
public> or
5. A person who learns such infor$ation
by a co$$unication fro$ any of the
foregoing insiders. (Sec. !.2)
MATERIA" NON6P%B"IC IN&ORMATION
(f0,>e,ly &act 0f $5ecial $ig3ifica3ce
a. nfor$ation about the issuer or the
security which has not been generally
disclosed to the public and would
li-ely affect the $ar-et price of the
security after being disse$inated to
the public and the lapse of a
reasonable ti$e for the $ar-et to
absorb the infor$ation> or
b. nfor$ation about the issuer or the
security which would be considered
by a reasonable person i$portant
under the circu$stances in
deter$ining his course of action to
buy, sell or hold security. (Sec. 2=.2)
MAR!IN TRADIN!
A -ind of trading that allows a bro-er
to advance for the custo$erLinvestor
part of the purchase price of a security
and to -eep it as a collateral for such
advance.
'he credit extended $ust be for an
a$ount not greater than whichever is
higher of6
1. )5K of current $ar-et price of
the security
2. 1;;K of the lowest $ar-et price
of security during the preceding
!) calendar $onths, but not

greater than =5K of the current
$ar-et price. (Sec. #2)
Ma,gi3
Su$ of $oney, or its e3uivalent,
placed in the hands of a bro-er by
principal or persons on whose account
the purchase is to be $ade, as a security
to the for$er against losses to which he
$ay be exposed by a subse3uent
depression in the $ar-et value of the
stoc-.
Ma,gi3 Call
7e$and $ade by the bro-er on the
investor to deposit $oney or securities
with the bro-er when a purchase is $ade
or when the investorDs e3uity in a $argin
account falls below a $ini$u$ standard
set by the exchange or bro-er.

CHAIRPERSONS
Logis!i%s+ J&$a%1a$

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