Académique Documents
Professionnel Documents
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or designation.
4 Onerous contributions in the
PARTNERSHIP form of either money, property
and/or industry must be made.
Art. 1767. By the contract of partnership 5 Commutative the undertaking
two or more persons bind themselves to of each partner is considered as
contribute money, property, or industry to a the equivalent of that of the
common fund with the intention of dividing others.
the profits among themselves. 6 Principal its existence or
validity does not depend on
Definition some other contract.
Partnership is a contract whereby two or
more persons bind themselves to contribute Principle of Delectus Personae
money, property or industry to a common (choice of persons) a person has
fund with the intention of dividing profits the right to select persons with
among themselves. whom he wants to be associated
with in partnership.
Elements
! Art. 1768. The partnership has a
$%18/ juridical personality separate and
234 distinct from that of each of the
7 89 partners even in case of
<=>
AB Intention to form a
contract of partnership
!
$%19/
234
7 89
<=>
AB Participation in
both profits and losses
!
$%20/
234
7 89
<=>
AB Community of
interests
Basic Features
0 Voluntary agreement
1 Association for profit
2 Mutual contribution to a common
fund
3 Lawful purpose or object
4 Mutual agency of partners
5 Articles must not be kept secret
6 Separate juridical personality
Characteristics
0 Consensual perfected by mere
consent.
1 Bilateral formed by two or more
persons creating reciprocal rights and
obligations.
2 Preparatory - entered into as a means
to an end.
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23 The sharing of gross returns does not of partnership, they become subject to
itself establish a partnership, whether liabilities of partners (doctrine of
or not the persons sharing them have a estoppel).Whether or not the parties call
joint or common right or interest in any their relationship or believe it to be a
property from which the returns are partnership is immaterial. Thus, with the
derived. exception of partnership by estoppel, a
partnership cannot exist as to third persons
24 The receipt by a person of a share of the if no contract of partnership has been
profits of a business is prima facie entered into between the parties
evidence that he is a partner in the themselves.
business, but no such inference shall be
drawn if such profits were received in Co-ownership or co-possession
payment: There is co-ownership whenever the
ownership of an undivided thing or right
23 As a debt by installments or belongs to different persons.
otherwise.
Clear intent to derive profits from
24 As wages of an employee or rent to operation of business
a landlord. Co-ownership does not of itself establish
the existence of a partnership, although it is
25 As an annuity to a widow or one of its essential elements. This is true
representative of a deceased even if profits are derived from the joint
partner. ownership. The profits must be derived
from the operation of business by
26 As interest on a loan, though the the members of the association and
amount of payment vary with the not merely from property ownership. The
profits of the business. law does not imply a partnership between
co-owners because of the fact that they
27 As the consideration for the sale of develop or operate a common property,
a goodwill of a business or other since they may rightfully do this by virtue of
property by installments or their respective titles. There must be a clear
otherwise. intent to form a partnership.
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Reason for the rule asserting its termination. One who alleges
Partner interested in both failures and partnership cannot prove it merely by
successes; it is the chance of loss or gain evidence of an agreement using the term
that characterizes a business. Where the partner. Non-use of the term, however, is
contract requires a given portion of gross entitled to weight. The question of whether
returns to be paid over, the portion is paid a partnership exists is not always dependent
over as commission, wages, rent, etc. upon the personal arrangement or
understanding of the parties. Parties
Where there is evidence of mutual intending to do a thing which in law
management constitutes partnership are partners.
Where there is further evidence of mutual
management and control, partnership may Legal intention is the crux of partnership.
result. Parties may call themselves partners but
their contract may be adjudged something
Receipt of share in the profits strong quite different. Conversely, parties may
presumptive evidence of partnership expressly state that theirs in not a
An agreement to share both profits and partnership yet the law may determine
losses tends strongly to establish the otherwise on the basis of legal intent.
existence of a partnership. It is not However, courts will be influenced to some
conclusive, however, just prima facie and extent by what the parties call their
may be rebutted by other circumstances. contract.
23 Both can only act through its agents; Right to return of contribution where
24 Both are organizations composed of an partnership is unlawful
aggregate of individuals; Partners must be reimbursed the amount of
25 Both distribute profits to those who their respective contributions. The partner
contribute capital to the business; who limits himself to demanding only the
26 Both can only be organized where there amount contributed by him need not resort
is a law authorizing is organization; to the partnership contract on which to
6. Partnerships are taxable base his claim or action. Since the purpose
as corporations. for which the contribution was made has
not come into existence, the manager or
Art. 1770. A partnership must have a lawful administrator must return it, and he who
object or purpose, and must be established has paid his share is entitled to recover it.
for the common benefit or interest of the
Right to receive profits where partnership
partners. When an unlawful partnership is
is unlawful
dissolved by a judicial decree, the profits
Law does not permit action for obtaining
shall be confiscated in favor of the earnings from an unlawful partnership
State, without prejudice to the provisions because for that purpose, the partner will
of the Penal Code governing the have to base his action upon the
confiscation of the instruments and effects partnership contract, which is null and
of a crime. Object or purpose of partnership without legal existence by reason of its
unlawful object; and it is self-evident that
what does not exist cannot be a cause of
The provision of the 1st paragraph
reiterates 2 essential elements of a action. Profits earned do not constitute or
contract of partnership: represent the partners contribution. He
23 Legality of the object; and must base his claim on the contract which is
void. It would be immoral and unjust for the
24 Community of benefit or interest of the
law to permit a profit from an industry
partners. The parties possess absolute
prohibited by it. T he courts will refuse to
freedom to choose the transaction or
recognize its existence, and will not lend
transactions they must engage in. The
their aid to assist either of the parties
only limitation is that the object must
thereto in an action against each other.
be lawful and for the common benefit
Therefore, there cannot be no accounting
of the members. The illegality of the
demanded of a partner for the profits which
object will not be presumed; it must
may be in his hands, nor can recovery be
appear to be of the essence of the
relationship. had.
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Art. 1773. A contract of partnership is void, Since partnership has juridical personality of
whenever immovable property is its own, it may acquire immovable property
contributed thereto, if an inventory of said in its own name. Title so acquired can be
conveyed only in the partnership name.
property is not made, signed by the parties,
and attached to the public instrument.
Partnership with contribution of immovable Art. 1775. Associations and societies, whose
property articles are kept secret among the
members, and wherein any one of the
members may contract in his own name
Where immovable property contributed,
failure to comply w/ the following with third persons, shall have no juridical
requisites will render the partnership personality, and shall be governed by the
contract void: provisions relating to co-ownership. Secret
partnerships without juridical personality
23 The contract must be in a public
instrument;
24 An inventory of the property Partnership relation is created only by the
contributed must be made, signed by voluntary agreement of the partners. It is
the parties, and attached to the public essential that the partners are fully
informed not only of the agreement but of
instrument. Art. 1773 is intended
all matters affecting the partnership. Secret
primarily to protect 3rd persons. W/ partnerships are not by nature partnerships.
regard to 3rdpersons, a de facto Secret partnerships shall be governed by
partnership or partnership by estoppel the provisions relating to co-ownership.
may exist. There is nothing to prevent
the court from considering the
partnership agreement an ordinary Importance of giving publicity to articles of
partnership
contract from which the parties rights
and obligations to each other may be It is essential that the arts of partnership be
inferred and enforced. given publicity for the protection not only of
the members themselves but also 3rd
When inventory is not required persons from fraud and deceit. A member
who transacts business for the secret
An inventory is required only whenever
partnership in his own name becomes
immovable property is contributed. If not
contributed or if personal property, no personally bound to 3rd persons unaware of
inventory required. the existence of such association.
Partnership liability may still result,
however, in cases of estoppel.
Importance of making inventory of real
property in a p a r t n e r s h i p
An inventory is very important in a Art. 1776. As to its object, a partnership is
partnership to how much is due from each either universal or particular. As regards the
partner to complete his share in the liability of the partners, a partnership may
common fund and how much is due to each be general or limited. Classifications of
of them in case of liquidation. The execution partnership
of a public instrument of partnership would
be useless if there is no
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As to extent of its subject matter not avowed or made known to the public by
23 Universal partnership. (Art. 1777) any of the partners.
23 Universal partnership of all present Open or notorious partnership: one whose
property. (Art. 1778) existence is avowed or made known to the
24 Universal partnership of profits. public by the members of the firm.
(Art. 1780)
24 Particular partnership. (Art. 1783) As to purpose
Commercial or trading partnership: one
As to liability of the partners formed or the transaction of business.
General partnership: one consisting of
general partners who are liable pro rata and Professional or non-trading partnership:
subsidiary and sometimes solidarily w/ their one formed for the exercise of a profession.
separate property for partnership debts.
Kinds of partners
Limited partnership: one formed by two or Under the Civil Code
more persons having as members one or 23 Capitalist partner: one who contributes
more general partners and one or more money or property to the common
limited partners, the latter not being fund.
personally liable for the obligations of the 24 Industrial partner: one who contributes
partnership. only his industry or personal service.
25 General partner: one whose liability to
As to duration 3rd persons extends to his separate
Partnership at will: one in w/c no time is property.
specified and is not formed for a particular 26 Limited partner: one whose liability to
undertaking or venture and w/c may be 3rd persons is limited to his capital
terminated at any time by mutual contribution.
agreement of the partners, or by the will of 27 Managing partner: one who manages
any one partner alone; or one for a fixed the entity.
term or particular undertaking w/c is 28 Liquidating partner: one who takes
continued after the end of the term or charge of the winding up of partnership
undertaking w/o express agreement. affairs upon dissolution.
Partnership with a fixed term: one w/c the 29 Partner by estoppel: one who is not
term for w/c the partnership is to exist is really a partner but is liable as a partner
fixed or agreed upon or one formed for a for the protection of innocent 3rd
particular undertaking. persons. He is one represented as being
a partner but who is not so between
As to the legality of its existence the partners themselves.
De jure partnership: one w/c has complied 30 Continuing partner: one who continues
w/ all the legal requirements for its the business of a partnership after it has
establishment. been dissolved by reason of the
De facto partnership: one w/c has failed to admission of a new partner, or the
comply w/ all the legal requirements for its retirement, death or expulsion of one or
establishment. more partners.
31 Surviving partner: one who remains
As to representation to others after a partnership has been dissolved
Ordinary or real partnership: one w/c by the death of any partner.
actually exists among the partners and also 10. Subpartner: one who, not being a
as to 3rd persons. member of the partnership, contracts
Ostensible partnership or partnership or w/ a partner w/reference to the latters
partnership by estoppel: one w/c in reality share in the partnership.
is not a partnership, but is considered a
partnership only in relation to those who, Other classifications
by their conduct or admission, are 23 Ostensible partner: one who takes
precluded to deny or disprove its existence. active part and known to the public as a
partner.
As to publicity 24 Secret partner: one who takes active
Secret partnership: one wherein the part in the business but is not known to
existence of certain persons as partners is be a partner by outside parties nor held
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out as a partner by the other partners. Property w/c belonged to each of them at
He is an actual partner. the time of the constitution of the
23 Silent partner: one who does not take partnership;
any active part in the business although Profits w/c they may acquire from the
he may be known to be a partner. property contributed.
24 Dormant partner: one who does not
take active part in the business and is Contribution of future property
not known or held out as a partner. He General rule: future properties cannot be
would be both a silent and a secret contributed. The very essence of the
partner. contract of partnership that the properties
25 Original partner: one who is a member contributed be included in the partnership
of the partnership from the time of its requires the contribution of things
organization. determinate. The position of a partner is
26 Incoming partner: a person lately, or like that of a donor, and donations cannot
about to be, taken into an existing comprehend future property. Thus,
partnership as a member. property subsequently acquired by
27 Retiring partner: one withdrawn from 1.inheritance; 2. Legacy; or 3. Donation
the partnership; a withdrawing partner. cannot be included by stipulation except the
Art. 1777. A universal partnership may fruits thereof. Hence, any stipulation
refer to all the present property or to all including property so acquired is void.
the profits. Profits from other sources (not from
properties contributed) will become
Art. 1778. A partnership of all present common property only is theres a
property is that in which the partners stipulation.
contribute all the property which actually
belongs to them to a common fund, with Art. 1780. A universal partnership of profits
the intention of dividing the same among comprises all that the partners may acquire
themselves, as well as all the profits they by their industry or work during the
may acquire therewith. existence of the partnership. Movable or
immovable property which each of the
Art. 1779. In a universal partnership of all partners may possess at the time of the
present property, the property which celebration of the contract shall continue to
belongs to each of the partners at the time pertain exclusively to each, only the
of the constitution of the partnership usufruct passing to the partnership.
becomes the common property of all the
partners, as well as all the profits which Universal partnership of profits explained
they may acquire there with. A stipulation A universal partnership of profits is one w/c
for the common enjoyment of any other comprises all that the partners may acquire
profits may also be made; but the property by their industry or work during the
which the partners may acquire existence of the partnership and the
subsequently by inheritance, legacy or usufruct of movable or immovable property
donation cannot be included in such w/c each of the partners may possess at the
stipulation, except the fruits thereof. time of the celebration of the contract.
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Art. 1782. Persons who are prohibited from Business of partnership need not be
giving each other any donation or continuing in nature
advantage cannot enter into a universal The carrying on of a business of a
partnership. Limitations upon the right to continuing nature is not essential to
form a partnership constitute a partnership. An agreement to
undertake a particular piece of work or a
Persons who are prohibited by law to give single transaction or a limited number of
donations cannot enter into a universal transactions and immediately divide the
partnership for the reason that each of the resulting profits would seemt o fall w/in the
partners virtually makes a donation. To meaning of the term partnership as used
allow it would be permitting them to do in the law.
indirectly what the law expressly prohibits.
A partnership formed in violation of this Rule under American law
article is null and void. Consequently, no The above is not true under the Uniform
legal personality is acquired. A husband and Partnership Act w/c does not include joint
wife, however, may enter into a particular ventures w/c exists for a single transaction
partnership or be members thereof. or a limited number of transactions.
Relevant provisions:
Joint venture
Art. 87: Donations between spouses during While a joint venture is not a formal
marriage void, except moderate gifts on partnership in the legal or technical sense,
occasion of family rejoicing. Also applies to both are governed, subject to certain
those living together as husband and wife qualifications, practically by the same rules
w/o valid marriage. or principles of partnership. This is logical
Art. 739: The following donations are void: since in a joint venture, like in a partnership,
Those made between persons who are there is a community of interest in the
guilty of adultery or concubinage at the business and a mutual right of control and
time of the donation (no need for an agreement to share jointly in profits and
conviction; preponderance of evidence only losses.
required);
Those made between persons found guilty Corporation as a partner
of the same criminal offense, While under the Philippine Civil Code, a
inconsideration thereof; joint venture is a form of partnership w/ a
c.)Those made to a public officer or his wife, legal personality separate and distinct from
descendants and ascendants, by reason of the parties composing it, and should thus
his office. be governed by the law of partnership, the
Supreme Court has recognized the
distinction between these two business
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forms, and has held that although a have contributed it up to actual delivery
corporation cannot enter into a partnership without necessity of any demand;
contract, it may, however, engage in a joint Shall preserve said properties with the
venture if the nature of the venture is diligence of a good father of a family
authorized by its charter. pending their delivery to the
partnership;
Art. 1784. A partnership begins from the And shall indemnify the partnership for any
moment of the execution of the contract, damage caused it by the retention of
unless it is otherwise stipulated. (1679) said properties or by the delay in their
contribution.
Art. 1785. When a contract for a fixed term
or particular undertaking is continued after Art. 1787. When the capital or part thereof
the termination of such term or particular which a partner is bound to contribute
undertaking without any express consists of goods, their appraisal must be
agreement, the rights and duties of the made in the manner prescribed in the
partners remains the same as they were at contract of partnership, and in the absence
such termination, so far as is consistent with of stipulation, it shall be made by experts
a partnership at will. chosen by the partners, and according to
current prices, the subsequent changes
A continuation of the business by the thereof being for the account of the
partners or such of them as habitually acted partnership.
therein during the term, without any
settlement or liquidation of the partnership Art. 1788. A partner who has undertaken to
affairs, is prima facie evidence of a contribute a sum of money and fails to do
continuation of the partnership. so becomes a debtor for the interest and
damages from the time he should have
Partnership at will is one in which no term complied with his obligation.
of existence has been fixed and which may
be terminated at the will of any partners. The same rule applies to any amount he
may have taken from the partnership
Art. 1786. Every partner is a debtor of the coffers, and his liability shall begin from the
partnership for whatever he may have time he converted the amount to is own
promised to contribute thereto. use.
He shall also be bound for warranty in case Liability of partner for estafa
of eviction with regard to specific and Failure to return the money taken, there is
determinate things which he may have the element of fraudulent appropriation of
contributed to the partnership, in the same the money delivered to a partner with
cases and in the same manner as the specific instructions for the use of the
vendor is bound with respect to the vendee. partnership, then estafa is committed under
He shall also be liable for the fruits thereof the Revised Penal Code.
from the time they should have been
delivered, without the need of any demand. Art. 1789. An industrial partner cannot
engage in any business for himself, UNLESS
Obligations of partners to contribute: the partnership expressly permits him to do
Shall deliver at the beginning of the so; and if he should do so, the capitalist
partnership or, if a different date has partners may either exclude him from the
been agreed upon, at the stipulated firm or avail themselves of the benefits
time the properties he agreed to which he may have obtained in violation of
contribute; this provision, with a right to damages in
Shall answer for eviction, in case the either case.
partnership is deprived of the
ownership of any specific property he Industrial partner is one who contributes
contributed; his industry or labor in the partnership.
Shall answer to the partnership for the
fruits of the properties whose delivery Industrial partner barred from engaging in
he delayed from the date he should business
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To prevent any conflict of interest between compensate them with the profits and
the industrial and the partnership, and to benefits which he may have earned for the
insure faithful compliance by said partner partnership by his industry. However, the
with his prestation. courts may equitably lessen this
responsibility if through the partners
Art. 1790. Unless there is a stipulation to the extraordinary efforts in other activities of the
contrary, the partners shall contribute equal partnership, unusual profits have been
shares to the capital of the partnership. realized.
Art. 1791. If there is no agreement to the Partner liable for damages caused the
contrary, in case of an imminent loss of the partnership
business of the partnership, any partner who Art. 1794 follows the general rule of
refuses to contribute an additional share to contracts that where a person is at fault in
the capital, except an industrial partner, to the fulfillment of his obligations he shall be
save the venture, shall be obliged to sell his liable for the payment of damages. The
interest to the other partners. partners fault, however, must be
determined in accordance with the
Art. 1792. If a partner authorized to manage circumstances of person, time and place.
collects a demandable sum, which was owed
to him in his own name, from a person who Liquidation necessary to ascertain damages
owned the partnership another sum also It is first necessary that a liquidation of the
demandable, the sum thus collected shall be business thereof be made to the end that
applied to the two credits in proportion to the profits and losses may be known and the
their amounts, even though he may have causes of the latter and the responsibility of
given a receipt for his own credit only; but the defendant as well as the damages which
should he have given it for the account of each partner may have suffered, may be
the partnership credit, the amount shall be determined.
fully applied to the latter.
Art. 1795. The risk of specific and
The provisions of this article are understood determinate things, which are not fungible,
to be without prejudice to the right granted contributed to the partnership so that only
to the debtor by Art. 1252, but only if the their use and fruits may be for the common
personal credit of the partner should be benefit, shall be borne by the partner who
more onerous to him. owns them.
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(perishable) like wine, oil, etc., even if they also receive a share in the profits in
are contributed only for the use of the proportion to his capital.
partnership, the risk of loss shall be for the
account of the partnership for the latter Rules in profit sharing:
cannot make use of them without their The partners share the profits in accordance
getting consumed or presumed. with the ratio established by their
contract.
Things contributed to be sold If there is no such stipulation in the
If the things contributed are to be sold, the partnership contract, then:
partnership bears the risk of loss, for If all are capitalist partners they have
obviously the partnership is the intended the profits in proportion to their
owner; otherwise, the firm cannot make the capital contributions;
sale. If there are capitalist as well as
industrial partners, the industrial
Things brought and appraised in inventory partner get a share each that is just
The partnership bears the risk of loss of and equitable while the capitalist
things brought and appraised in the partners divide the remainder in
inventory as this has the effect of an implied proportion to their capital
sale thus making the partnership the owner contributions; and
of said things. If there is a capitalist-industrial partner,
he gets a share in the profits as an
Art. 1796. The partnership shall be industrial partner and an additional
responsible to every partner for the share in proportion to his capital
amounts he may have disbursed on behalf contribution to be determined as in
of the partnership and for the (b), above.
corresponding interest, from the time the
expenses are made; it shall also answer to Rules in loss sharing:
each partner for the obligations he may The stipulation in the partnership
have contracted in good faith in the interest agreement regarding loss sharing must
of the partnership business, and for the risk be followed.
inconsequence of its management. If there is no such agreement, but the
contract provides for a profit sharing
Responsibility of the partnership to a ration, the profit sharing ratio shall also
partner be the loss sharing ration.
If a partner has advanced funds for the In the absence of loss sharing and profit
partnership, he is entitled to recover the sharing stipulations in the contract,
amounts advanced by him with interest. then the loss shall be borne by the
This must be so for the reason that a partners in proportion to their capital
partner is a mere agent of the partnership contributions; but a purely industrial
and under the rules of agency, an agent partner is exempted from participation
who advances funds for his principal may in the loss.
recover the same interest.
Share of industrial partner in profits and
Art. 1797. The profits and losses shall be losses
distributed in conformity with the Unless agreed upon, the industrial partner
agreement. If only the share of each partner shall receive such share in the profits as
in the profits has been agreed upon, the may be just and equitable under the
share of each in the losses shall be in the circumstances. As for the losses, the
same proportion. industrial partner is not liable. However,
In the absence of stipulation, the share of under Art. 1816, if the partnership has a
each partner in the profits and losses shall contractual debt and it cannot pay, the
be in proportion to what he may have industrial partner equally with the capitalist
contributed, but the industrial partner shall partners, can be compelled by the creditor
not be liable for the losses. As for the to pay his pro rata share out of his own
profits, the industrial partner shall receive property or assets.
such share as may be just and equitable
under the circumstances. If besides his Art. 1798. If the partners have agreed to
services he has contributed capital, he shall entrust to a third person the designation of
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the share of each one in the profits and partners capital contribution.
losses, such designation may be impugned
only when it is manifestly inequitable. In no Appointed as manager after the
case may a partner who has begun to constitution of the partnership
execute the decision of the third person, or Partner appointed in arts of partnership
who has not impugned the same within a may execute all acts of administration
period of three months from the time he notwithstanding the opposition of the other
had knowledge thereof, complain of such partners, unless he should act in bad faith.
decision. His power is revocable only upon just and
lawful cause and upon the vote of the
The designation of profits and losses cannot partners representing the controlling
be entrusted to one of the partners. interest.
Reason: revocation represents change in
Reason for the provision terms of contract.
Admittedly, the designation of profits and In case of mismanagement: Usual remedies
losses cannot be entrusted to one of the allowed by law including dissolution.
partners as the fulfillment of a contract
cannot be left to one of the contracting Appointment as manager after the
parties. It may, however, be entrusted to a constitution of the partnership
third person by common interest. Appointment may be revoked at any time
for any cause what so ever.
Art. 1799. A stipulation which excludes one
or more partners from any share in the Reason: revocation not founded on a
profits or losses is void. change of will on the part of the partners.
Appointment not condition of contract. It is
Stipulation to exclude a partner from merely a simple contract of agency, which
profits and losses is void may be revoking at any time. It is believe
The law does not allow a provision in the that the vote for revocation must also
contract of partnership excluding one or represent the controlling interest.
more partners from sharing in the profits
and losses. The reason is that a partnership Scope of the power of the managing
is organized for the common benefit or partner
interest of the partners. General rule: partner appointed as manager
has all the powers of a general agent as well
Reason for exclusion of industrial partner as all the incidental powers necessary to carry
An industrial partner is not liable for losses out the object of the partnership in the
because if the partnership fails to realize transaction of its business.
any profits, the industrial partner would Exception: When powers of manager is
have contributed his labor in vain. specifically restricted. A managing partner
Furthermore, the industrial partner cannot may not bind the partnership by contract
withdraw the work already done by him for foreign to its business.
the partnership.
Compensation for service rendered Partner
Art. 1800. The partner who has been Generally not entitle to compensation, In
appointed manager in the articles of the the absence of an agreement to the
partnership may execute all acts of the contrary, each member of the partnership
administration despite the opposition of his assumes the duty to give his time, attention,
partners, unless he should act in Bad faith., and skill to the management of its affairs, as
and his powers is irrevocable without the may be reasonably necessary to the success
just or lawful cause. The vote of the of the common enterprise; and for this
partners representing the controlling service a share of the profits is his only
interest shall be necessary for such compensation. In managing partnership
revocation of power. A power granted after affairs, a partner is practically taking care of
the partnership has constituted may his own interest or managing his own
revoked at any time. Each partner has a business. In the absence of any prohibition
right to an equal voice in the conduct of the in the arts. Of partnership for the payment
partnership business. This right is not of salaries to general partners, there is
dependent on the amount or size of the
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Rules when manner of the management not become a member of the partnership,
that has not agreed upon all partners even if the other partners know about the
considered as managers and agents agreement. Not being a member of
All partners shall have equal rights in the the partnership, he does not acquire
mgmt. and conduct of partnership affairs. the rights of a partner nor is he liable
All of them shall considered mgrs. and for its debts.
agents and whatever any one of them may
do alone shall bind the partnership. If there Reason for the rule
is timely opposition, however, the matter Partnership is based on mutual trust and
shall decided by majority vote. In case of confidence among the partners. Inclusion of
tie, vote of partners representing controlling new partner would be a modification of the
interest. original contract of partnership requiring
unanimous consent of all the partners.
Unanimous consent required for alteration Prohibition applies even if person
of immovable property associated is already a partner.
The consent need not be express. It may
presume from the fact of knowledge of the Art. 1805. The partnership books shall be
alteration without interposing any kept, subject to any agreement between the
objection. Prohibition only applies partners, at the principal place of the
to immovable property because of the business of the partnership, and every
greater importance of this kind of property, partner shall at any reasonable hour have
and the alteration thereof must be access to and may inspect and copy any of
important. This would be an act of strict them.
dominion. If refusal to give consent is
manifestly prejudicial to the interest of the Keeping of partnership books
partnership, court intervention maybe Partner with duty to keep partnership
sought. Consent may presume from silence books
(lack of opposition despite knowledge).If The duty to keep true and correct books
alteration is necessary for preservation of showing the firms accounts, such books
the property, consent of the other partners being at all times open to inspection of all
not required. members of the firm, primarily rests on the
managing or active partner. It is presume
Art. 1804. Every partner may associate that the partners have knowledge of the
another person with him in his share, but contents of the partnership books and that
the associates shall not admitted into the said books state accurately the state of
partnership without the consent of all other accounts, but errors can corrected.
partners, even of the partner having an
associate should be a manager of Rights with the respect to partnership
subpartnership nature books
Books should kept at the principal place of
The partnership formed between a business as each partner has the right to
member of a partnership and a third free access to them and to inspect or copy
Person for a division of the profits coming to any of them at any reasonable time, even
him from the partnership enterprise is after dissolution. Inspection rights not
termed subpartnership. absolute can restrained from using info for
It is a partnership within a partnership and other than partnership purpose.
is distinct and separate from the main or
principal partnership. Access to partnership books
Rights can exercise at any reasonable hour.
This means reasonable hours on business
Right of the person associated with the
partnerships share days throughout the year and not merely
during some arbitrary period of a few days
Subpartnership agreements do not affect
chosen by the managing partners.
the composition, existence, or operations of
the firm. The subpartners are partners
interest, Art. 1806. Partners shall render on demand
true and full information of all things
affecting the partnership to any partner or
However, in the absence of the mutual
the legal representative of any deceased
assent of all the parties, a subpartner does
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partner or of any partner under legal i.e. the winding up of partnership affairs is
disability. Duty to render information, there completed.
must be no concealment between partners
in all matters affecting the partnership. Duty to account for secret and similar
Information must use only for partnership profits
purpose. Not just on demand but partner The duty of a partner to account as a
also has duty of voluntary disclosure. fiduciary operates to prevent from making a
However, duty to render info does notarise secret profit out of the operation of the
with respect to matters appearing in partnership and from carrying on the
partnership books since each partner has business for his private advantage or a
the right to inspect those. Good faith not business in competition w/ the firm w/o
only requires that a partner should not consent of other partners. Violation may be
make a false statement but also that he ground for dissolution.
should abstain from any false concealment.
Duty to account for earnings accruing even
Art. 1807. Every partner must account the after termination of partnership
partnership for any benefit, and hold as If a partner uses info obtained by him from
trustee for it any profits derived from him the partnership for his own account w/o the
without the consent of the partners from consent of the other partners, he is liable to
any transaction connected with the account for any benefit he might obtain.
formation, conduct, or liquidation of the
partnership or from any use by him of his Duty to make full disclosure of information
property. belonging to partnership
A partner is also subject to the fiduciary
The relation between the partners is duty of undivided loyalty and complete
essentially fiduciary involving trust and disclosure of info of all things affecting the
confidence, each partner considered in law, partnership. By Information is meant
as he is, in fact, the confidential agent of the information, which can be used for the
others. The duties of a partner are purposes of the partnership. Info cannot
analogous to those of a trustee. use for a partners private gain even if
after termination.
Duty to act for common benefit
Cannot use and apply exclusively to own Duty not to acquire interest or right
individual benefit partnership assets or adverse to partnership
results of knowledge and info gained in If partner does, he holds it in trust for the
character of partner. Managing partners benefit of the partnership and must account
particularly owe a fiduciary duty to inactive to the firm for the profits of the transaction,
partners. unless it appears that the others consented
Duty begins during the formation of Art. 1808. The Capitalist partners cannot
partnership engage for their own account in any
Principle of good faith applies not only operation, which is of the kind of business
during partnership but during the in which the partnership is engaged, unless
negotiations leading to the formation of the there is a stipulation to the contrary. Any
partnership. Also, a person who agreed w/ capitalist partner violating this prohibition
another to form a partnership has the shall bring to the common funds any profit
obligation to account for commissions and accruing to him from his transactions, and
discounts received in acquiring property for shall personally bear all the losses.
the future partnership.
Prohibition against partner engaging the
Duty continues even after the dissolution business
of the partnership Prohibition relative Prohibition against
Duty of partner to act w/ utmost good faith capitalist partner to engage in business is
towards his co-partners continues relative, unlike the industrial partner who is
throughout the entire life of the partnership absolutely prohibited from engaging in any
even after dissolution for whatever reason business for himself. Capitalist partner is
or whatever means, until the relationship is only prohibited from engaging for his own
terminated, account in any operation which is the same
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unanimous partners;
consent of
the partners. A partners right in specific partnership
Assets Includes not The property is not assignable except in
Included only the aggregate connection with the assignment of rights of
original of the all the partners in the same property;
capital individual
contributions, contributions A partners right in specific partnership
but also all made by the property is not subject to attachment or
property partners in execution, except on a claim against the
subsequently establishing partnership;
acquired or continuing
because of the A partners right in specific partnership
the partnership. property is not subject to legal support
partnership under art. 291 nature of a partners right in
or w/ specific partnership property
partnership
funds, Art. 1811 contemplates tangible property
including but not intangible things. A partner is a co-
partnership owner w/ his partners of specific
name and partnership property, but the rules on co-
goodwill. ownership do not necessarily apply. The
legal incidents of this tenancy in partnership
Ownership of certain property are distinctively characteristic of the
partnership relation. They are as follows:
Property use by the partnership Where
there is no express agreement that property
used by a partnership constitutes Equal rights of possession - Ordinarily, a
partnership property, such use does not partner has an equal right to possess
make it partnership property, and whether specific partnership property for
it is so depends on the intention of the partnership purposes. None of the partner
parties, w/c may be shown by proving an scan possesses and uses the specific
express agreement or acts of particular partnership property other than for
conduct. The intent of the parties is the partnership purposes w/o the consent of
controlling factor. the other partners. Should any of them use
Property acquired by a partner with the property for his own benefit, he must
partnership funds Unless a contrary account, like a stranger, to the others for the
intention appears, property acquired by a profits derived there from or the value of
partner in his own name w/ partnership his wrongful possession or occupation. A
funds is partnership property. However, if partner wrongfully excluded from
the property was acquired after dissolution possession of partnership property by a co-
but before the winding up of the partner has a right to formal account and
partnership affairs, it would be his separate may even apply for a judicial decree of
property but he would be liable to account dissolution. On the death of a partner, his
to the partnership for the funds used in its right in specific partnership property vests
acquisition. in the surviving partners. By agreement, the
right to possess specific partnership
Art. 1811. A partner is co-owner with his property may surrender. In the absence of
partners of specific partnership property. special agreement, however, neither
The incidents of this co-ownership are such partner separately owns, or has the
that; exclusive right of possession of any
partnership property or any proportional
A partner, subject to the provision of this part thereof. Each has dominion over the
title and any agreement between the entire partnership property. The possession
partner, has an equal right with his partners of partnership property by one partner is
to possess specific partnership property for the possession of all until his possession
partnership purposes; but he has no right to becomes adverse. A partner cannot initiate
possess such property for any other title by adverse possession until and unless
purpose without the consent of his he makes an adverse claim.
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Right limited to share of what remains after Art.1813. A conveyance by a partner by his
partnership debts has been paid Strictly whole interest in the partnership does not of
speaking, no particular partnership property itself dissolve the partnership, or, against the
or any specific or an aliquot part thereof can other partners in the absence of agreement,
be considered the separate or individual entitle the assignee, during the continuance
property of any partner. The whole of of the partnership, to interfere in the
partnership property belongs to the management or administration of the
partnership considered as a juridical person, partnership business or affairs, or to require
and a partner has no interest in it but his any information or account of the
share of what remains after all partnership partnership transactions, or to inspect the
debts are paid. Consequently, specific partnership books; however it merely
partnership property is not subject to entitles the assignee to receive the
attachment, execution, garnishment, or accordance with his contract, the profits to
injunction, w/o the consent of all the which the assigning partner would
partners except on a claim against the otherwise be entitled.
partnership. For the same reason that the
property belongs to the partnership, the In case of fraud in the management of the
partners cannot claim any right under the partnership, the assignee may avail himself
homestead or exemption laws when it is of the usual remedies. In case of dissolution
attached for partnership debts. However, a of the partnership, the assignee is entitle to
judgment creditor may levy upon a partners receive his assignors interest and may
interest in the partnership itself because it is require an account from the date only of the
actually his property, by means of a last account agreed to by all partners. Effect
charging order. The right of the partners to of assignment of partners whole interest in
specific partnership property is not subject partnership.
to legal support since the property belongs
to the partners right in specific partnership
property is not assignable but he may assign
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his interest in the partnership to any of his preferred rights of the partnership creditors
co-partners or to a third Person irrespective on due application to a competent court by
of the consent of the other partners, in the any judgement creditor of the partner, the
absence of agreement to the contrary. court which entered the interest of the
debtor partner with payment of the
Rights withheld from assignee unsatisfied amount of such judgement debt
To interfere in the management. with the interest thereon; and may then or
To require any information or account. later appoint a receiver of his share of the
To inspect any of the partnership books. profits, and of any other money due or to
fall due to him in respect of the partnership,
No one can be compelled to be partners w/ and make all other orders, directions and
someone else. The assignment does not accounts and inquiries which the debtor
divest the assignor of his status and rights partner might have made, or which
as a partner nor operate as dissolution. circumstances of the case may require. The
The law, however, provides the non- interest charged may redeem at any time
assigning collaborates w/ a ground before foreclosure, or in any case of a sale
for dissolving the partnership if they being directed by the court, may be
so desire. purchase without thereby causing
dissolution:
Remedy of other partners
Dissolution of partnership not intended With separate property, by any one or more
Many partnership agreements are made of the partners;
merely as security for loans, the assigning
partner never intending to destroy the With partnership property, by any one or
partnership relation. If the assigning partner more of the partners with the consent
neglects his duties after assignment, the of all the partners a whose interest are
other partners may dissolve the partnership not so charged or sold, nothing in this
under art. 1830. title shall be held to deprive a partner
Dissolution of partnership intended A of his right, if any, under the exemption
partners conveyance of his interest in the laws, as regards his interest in the
partnership operates as dissolution of the partnership.
partnership only when it is clear that the
parties contemplated and intended the Application for a charging order after
entire withdrawal from the partnership of securing judgement on his credit
such partner and the termination of the While a separate creditor of a partner
partnership as between the partners. cannot attach or levy upon specific
partnership property for the satisfaction of
Rights of assignee of partners interest his credit because partnership assets are
To receive in accordance w/ his contract the reserved for partnership creditors, he can
profits accruing to the assigning secure a judgment on his credit and then
partner; apply to the proper court for a charging
To avail himself of the usual remedies order, subjecting the interest of the debtor
provided by law in the event of fraud in partner in the partnership w/ the payment
the management; of the unsatisfied amount of such judgment
To receive the assignors interest in case of w/ interest thereon w/ the least
dissolution; interference w/ the partnership business
To require an account of partnership affairs, and the rights of the other partners. By
but only in case the partnership is virtue of the charging order, any amount or
dissolved, and such account shall cover portion thereof w/c the partnership would
the period from the date only of the last otherwise pay to the debtor-partner should
account agreed to by all partners. The instead be given to the judgment creditor.
purchaser of a partners interest may This remedy, however, is w/o prejudice to
apply to the court for dissolution after the preferred rights of partnership creditors
the termination of the specified term or whose claims should be satisfied first.
undertaking or at any time if the
partnership is one at will.
Availability of other remedies
Art. 1814. Without prejudice Art. 1814 have made this an exclusive
to the
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remedy so that a writ of execution will not synonymous with company, house, and
be proper. However, if the judgment debt concern.
remains unsatisfied, the court may resort to
other courses of action notwithstanding the Importance of having a firm name
issuance of the charging order. A partnership must have a firm name under
which it will operate. A firm name is
Redemption or purchase of interest necessary to distinguish the partnership,
charged which has a distinct and separate juridical
Redemptioner The interest of the debtor- personality from the individuals composing
partner so charged may be redeemed or the partnership and from other
purchased w/ the separate property of any partnerships and entities.
one or more of the partners, or w/
partnership property but w/ the consent of Right of the partners to choose firm name
all the partners whose interests are not so The partners enjoy the utmost freedom in
charged or sold. the selection of the partnership name.
As a general rule, they may adopt any firm
Redemption Price The value of the name desired.
partners interest in the partnership has no
bearing on the redemption price w/c is Use of misleading name The partners
likely to be lower since it will be dependent cannot use a name that is identical or
on the amount of the unsatisfied judgment deceptively confusingly similar to that of
debt. any existing partnership or corporation or to
any other name already protected by law or
Right of redeeming non-debtor partner is patently deceptive, confusing or contrary
There deeming non-debtor partner does to existing laws, as to mislead the public by
not acquire absolute ownership over the passing itself off as another partnership or
debtor-partners interest but holds it in corporation, or its goods or services as
trust for him consistent w/ principles of those of such other company.
fiduciary relationship.
Liability inclusion of name in the firm name
Rights of partner under exemption laws Persons who, not being partners, include
A partner cannot claim any right under the their names in the firm name do not acquire
homestead laws or exemption laws when the rights of a partner but shall be subject
specific partnership property is attached for to the liability of a partner insofar as 3 rd
partnership debt. W/ respect, however, to Persons without notice are concerned. Such
the partners interest in the partnership as persons become partners by estoppel. Art.
distinguished from his interest in specific 1815 does not cover the case of a limited
partnership property, the partner may avail partner who allows his name to be included
himself of the exemption laws after in the firm name, orof a person continuing
partnership debts have been paid. A the business of a partnership after
partners interest or share in the dissolution, who uses the name of the
partnership property is really his property. dissolved partnership or the name of a
deceased partner as part thereof.
Art. 1815. Every partnership shall operate
under a firm name, which may or may not Art. 1816. All partners, including industrial
include the name of one or more of the ones, shall be liable pro rata with all their
partners, those who, not being members of property and after all the partnership assets
the partnership, include their names in the have been exhausted, for the contracts
firm name, shall be subject to liability of a which may be entered into in the name and
partner for the account of the partnership, under its
signature and by a person authorized to act
Requirement of the firm name for the partnership. However, any partner
Meaning of word firm The name, title, may enter into a separate obligation to
or style under which a company transacts perform a partnership contract.
business; a partnership of two or more
persons; a commercial house. In its Article 1816 distinguished from article
common acceptation, the term implies a 1787
partnership. The term is also used as
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Article 1816 applies in cases where third Art. 1818. Every partner is an agent of the
party creditors are concerned as it falls partnership for the purpose of its business,
under the heading of section 3. Obligations and the act of every partner, including the
of the Partners with Regard to Third execution in the partnership name of any
Persons. Article 1797 applies only where instrument, for apparently carrying on in
the issue is among the partners as it falls the usual way the business of the
under the heading of Section 1, Chapter 2, partnership of which he is a member binds
which states: Obligations of the Partners the partnership, unless the partner so
Among Themselves. The pro rata liability of acting has in fact no authority to act for the
partners to third persons under Article 1816 partnership in the particular matter, and the
being a clear mandate of the law, any person with whom he is dealing has
stipulation changing or modifying such knowledge of the fact that he has no such
liability is void except as among the liability.
partners.
An act of a partner which is not apparently
Refers to partnership obligations for the carrying on of business of the
Article 1816 which refers to the payment of partnership in the usual way does not bind
partnership obligations arising from the partnership unless authorized by the
contracts clearly imposes subsidiary and other partners.
joint (pro rata) liability for contractual debts
owing to third persons upon all the Except when authorized by the other
partners, including industrial partners who partners or unless they have abandoned the
ordinarily are not liable for losses. The business, one or more but less than all the
liability is subsidiary because the partners partners have no authority to:
cannot be made answerable with their
separate property unless the partnership Assign the partnership property in trust for
property has first been exhausted. creditors or on the assignees promise
to pay the debts of the partnership.
Pro rata liability Literally, pro rata liability
means proportionate distribution of liability. Dispose of the goodwill of the business.
In the law of obligations, the concurrence of
two or more debtors in one and the same Do any other act which would make it
obligation makes it prima facie a joint (pro impossible to carry on the ordinary
rata) obligation, and the debts is presumed business of a partnership.
divided into as many equal shares as there
are debtors and each one of them is bound Confess a judgment.
to pay only his share.
Enter into a compromise concerning a
Art. 1817. Any stipulation against the partnership claim or liability.
liability laid down in the preceding article
shall be void, except as among the partners.
Submit a partnership claim or liability to
arbitration.
Industrial partner cannot exempt himself
from liability to third persons
Renounce a claim of the partnership.
Each one of the industrial partners is liable
to third persons for the debts of the firm
and if he has paid such debts out of his No act of a partner in contravention of a
private property during the life of the restriction on authority shall bind the
partnership, when its affairs are settled he is partnership to persons having knowledge of
entitled to credit for the amount so paid, the restriction.
and if its results that there is not enough
property in the partnership to pay him, then Art. 1819. Where title to real property is in
the capitalist partners must pay him. Our the partnership name, any partner may
conclusion is that neither on principle nor convey title to such property by a
on authority can the industrial partner be conveyance executed in the partnership
relieved from liability to third persons for name; but the partnership may recover
the debts of the partnership. such property unless the partner's act binds
the partnership under the provisions of the
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first paragraph of article 1818, or unless partnership, except in the case of fraud on
such property has been conveyed by the the partnership, committed by or with the
grantee or a person claiming through such consent of that partner.
grantee to a holder for value without
knowledge that the partner, in making the Notice to partner is notice to partnership
conveyance, has exceeded his authority. Clearly a third person desiring to give notice
to a partnership of some matter pertaining
Where title to real property is in the name to the partnership business need not
of the partnership, a conveyance executed communicate with all of the partners. If
by a partner, in his own name, passes the notice is delivered to a partner, that is an
equitable interest of the partnership, effective communication to the partnership.
provided the act is one within the authority
of the partner under the provisions of the Knowledge before becoming partner
first paragraph of Article 1818. Where the knowledge or notice had been
received by the partner before he became a
Where title to real property is in the name partner, and his partners are ignorant of
of one or more but not all the partners, and this, and he is not the partner acting in the
the record does not disclose the right of the particular matter, there is no doubt that
partnership, the partners in whose name there has been neither knowledge of nor
the title stands may convey title to such notice to the partnership.
property, but the partnership may recover
such property if the partners act does not Art. 1822. Where, by any wrongful act or
bind the partnership under the provisions of omission of any partner acting in the
the first paragraph of Article 1818, unless ordinary course of the business of the
the purchaser or his assignee, is a holder for partnership or with the authority of co-
value, without knowledge. partners, loss or injury is caused to any
person, not being a partner in the
Where the title to real property is in the partnership, or any penalty is incurred, the
name of one or more or all the partners, or partnership is liable therefor to the same
in a third person in trust for the partnership, extent as the partner so acting or omitting
a conveyance executed by a partner in the to act.
partnership name, or in his own name,
passes the equitable interest of the Partner liable for wrongful act of a partner
partnership, provided the act is one within The partners are liable for the negligent
the authority of the partner under the operation of a vehicle by a partner, acting in
provisions of the first paragraph of Article the course of business, which results in a
1818. traffic accident.
Art. 1821. Notice to any partner of any Art. 1823. The partnership is bound to make
matter relating to partnership affairs, and good the loss:
the knowledge of the partner acting in the
particular matter, acquired while a partner Where one partner acting within the scope
or then present to his mind, and the of his apparent authority receives
knowledge of any other partner who money or property of a third person
reasonably could and should have and misapplies it.
communicated it to the acting partner,
operate as notice to or knowledge of the
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Where the partnership in the course of its and if he has made such representation or
business receives money or property of consented to its being made in a public
a third person and the money or manner he is liable to such person, whether
property so received is misapplied by the representation has or has not been
any partner while it is in the custody of made or communicated to such person so
the partnership. giving credit by or with the knowledge of
the apparent partner making the
Partnership bound by partners breach of representation or consenting to its being
trust made:
The partnership is liable for the conversion
(misappropriation) of money or property When a partnership liability results, he is
entrusted to the partnership by a third liable as though he were an actual
person. The effect under Article 1824 is the member of the partnership.
same whether by the partnership and
subsequently misappropriated by a partner. When no partnership liability results, he is
liable pro rata with the other persons, if
Art. 1824. All partners are liable solidarily any, so consenting to the contract or
with the partnership for everything representation as to incur liability,
chargeable to the partnership under Articles otherwise separately.
1822 and 1823.
When a person has been thus represented
Law imposes solidary liability to be a partner in an existing partnership, or
The law imposes solidary liability upon the with one or more persons not actual
partners and the partnership in cases of partners, he is an agent of the persons
torts and acts of conversion by a partner as consenting to such representation to bind
provided in Art. 1824. It may be stated that them to the same extent and in the same
the liability of a partner for a debt of the manner as though he were a partner in fact,
partnership depends upon whether the with respect to persons who rely upon the
debts is contractual or it arises from tort or representation. When all the members of
conversion. If it arises from contract, the the existing partnership consent to the
liability is subsidiary and pro rata; if it arises representation, a partnership act or
from tort or conversion, the liability is obligation results; but in all other cases it is
solidary. the joint act or obligation of the person
acting and the persons consenting to the
Business partners solidarily liable representation.
Arts. 1711 and 1712 of the New Civil Code
and Sec. 2 of the Workmens Compensation Estoppel A preclusion, in law, which
Act reasonably indicate that in prevents a man from alleging or denying a
compensation cases, the liability of business fact, in consequence of his own previous
partners should be merely joint and not act, allegation, or denial of a contrary tenor.
solidary, and one of them happens to be
insolvent, the amount awarded to the Person bound by his representation
dependents of the deceased employee A person who hold himself out as a partner
would only be partially satisfied, which is in a business, or consents to his being so
evidently contrary to the intent and purpose held out, is liable on contracts made with
of the law to give full protection to the third persons who deal with the persons
employee. carrying on the business on the faith of the
representation. He is stopped to deny the
Art. 1825. When a person, by words spoken apparent agency.
or written or by conduct, represents
himself, or consents to another Art. 1826. A person admitted as a partner
representing him to anyone, as a partner in into an existing partnership is liable for all
an existing partnership or with one or more the obligations of the partnership arising
persons not actual partners, he is liable to before his admission as though he had been
any such persons to whom such a partner when such obligations were
representation has been made, who has, on incurred, except that this liability shall be
the faith of such representation, given satisfied only out of partnership property,
credit to the actual or apparent partnership, unless there is a stipulation to the contrary.
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Incoming partner liable for existing By the express will of any partner, who
obligations must act in good faith, when no
A newly admitted partner is liable for definite term or particular is
obligations of the partnership at the time of specified.
his admission. The obligation of the
incoming partner shall be satisfied only out By the express will of all the partners
of partnership property. This is not a harsh who have not assigned their
rule because the incoming partner interests or suffered them to be
partakes of the benefit of the partnership charged for their separate debts,
property, and an established business. He either before or after the
has every means of obtaining full termination of any specified term or
knowledge of protecting himself, because particular undertaking.
he may insist on the liquidation or
settlement of existing partnership debts. On
By the expulsion of any partner from
the other hand, the creditors have no
the business bona fide in
means of protecting themselves.
accordance with such a power
conferred by the agreement
Art. 1827. The creditors of the partnership between the partners
shall be preferred to those of each partner
as regards the partnership property. In contravention of the agreement between
Without prejudice to this right, the private the partners, where the circumstances
creditors of each partner may ask the do not permit a dissolution under any
attachment and public sale of the share of other provision of this article, by the
the latter in the partnership assets. express will of any partner at any time.
Art. 1828. The dissolution of a partnership By any event which makes it unlawful for
is the change in the relation of the partners the business of the partnership to be
caused by any partner ceasing to be carried on or for the members to carry
associated in the carrying on as it on in partnership.
distinguished from the winding up of the
business.
When a specific thing which a partner had
promised to contribute to the
Art. 1829. On dissolution the partnership is
partnership, perishes before the
not terminated, but continues until the
delivery; in any case by the loss of the
winding up of partnership affairs is
thing, when the partner who
completed.
contributed it having reserved the
ownership thereof, has only transferred
Dissolution, Winding up, and to the partnership the use or enjoyment
Termination explained
of the same; but the partnership shall
Dissolution, winding up, and termination not be dissolved by the loss of the thing
should not be confused because they are when it occurs after the partnership has
distinct terms in law. Dissolution designates acquired the ownership thereof.
the point in time when the partners cease
to carry on the business together:
termination is the point in time when all By the death of any partner.
partnership affairs are wound up; winding
up is the process of settling partnership By the insolvency of any partner or of the
affairs after dissolution. partnership.
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Art. 1831. On application by or for a partner When the dissolution is not by the act,
the court shall decree a dissolution insolvency or death of a partner.
whenever:
When the dissolution is by such act,
A partner has been declared insane in any insolvency or death of a partner, in
judicial proceeding or is shown to be of cases where article 1833 so
unsound mind. requires.
A partner becomes in any other way With respect to persons not partners, as
incapable of performing his part of the declared in article 1834.
partnership contract.
General Rule
A partner has been guilty of such conduct as If the cause of dissolution is not by act,
tends to affect prejudicially the carrying death, or insolvency of a partner, the
on of the business. authority ceases immediately.
Exception
A partner willfully or persistently commits a For the purposes of winding-up partnership
breach of the partnership affairs.
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The dissolution being by the death or So far unknown and inactive in partnership
insolvency of a partner, the partner affairs that the business reputation of
acting for the partnership had the partnership could not be said to
knowledge or notice of the death or have been in any degree due to his
insolvency. connection with it.
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A partner who has caused the dissolution Art. 1838. Where a partnership contract is
wrongfully shall have: rescinded on the ground of the fraud or
misrepresentation of one of the parties
If the business is not continued under thereto, the party entitled to rescind is,
the provisions of the second without prejudice to any other right,
paragraph, No. 2, all the rights of a entitled:
partner under the first paragraph,
subject to liability for damages in To a lien on, or right of retention of, the
the second paragraph, No. 1 (b), of surplus of the partnership property
this article. after satisfying the partnership liabilities
to third persons for any sum of money
If the business is continued under the paid by him for the purchase of an
second paragraph, No. 2, of this interest in the partnership and for any
article, the right as against his co- capital or advances contributed by him.
partners and all claiming through
them in respect of their interests in To stand, after all liabilities to third persons
the partnership, to have the value have been satisfied, in the place of the
of his interest in the partnership, creditors of the partnership for any
less any damage caused to his co- payments made by him in respect of the
partners by the dissolution, partnership liabilities.
ascertained and paid to him in cash,
or the payment secured by a bond To be indemnified by the person guilty of
approved by the court, and to be the fraud or making the representation
released from all existing liabilities against all debts and liabilities of the
of the partnership; but in partnership.
ascertaining the value of the
partner's interest the value of the Right of partner to rescind contract of
good-will of the business shall not partnership
be considered. If one is induced by fraud or
misrepresentation to become a partner, the
Rights of partners upon dissolution contract is voidable. If the contract is
Dissolution is caused without violation of annulled, the injured party is entitled to
the agreement. restitution. Here, the fraud or
In contravention of the agreement. misrepresentation vitiates consent.
However, until the partnership contract is
If partnership is dissolved without violation annulled by a proper action in court, the
of the agreement partnership relations exist and the
All partners may have the property sold for defrauded partner is liable for all obligations
payment of partnership liabilities. to third persons.
If there is surplus, after paying the liabilities Right of injured partner where partnership
of the firm, it shall be given in cash to contract rescinded
the partners.
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The assets of the partnership are: Where a partner has become insolvent or
his estate is insolvent, the claims against
The partnership property. his separate property shall rank in the
following order:
The contributions of the partners
necessary for the payment of all the Those owing to separate creditors.
liabilities specified in No. 2.
Those owing to partnership creditors.
The liabilities of the partnership shall rank in
order of payment, as follows: Those owing to partners by way of
contribution.
Those owing to creditors other than
partners. Rules for settling accounts between the
partners
Those owing to partners other than for The assets of the partnership
capital and profits. Liabilities of the partnership
Application of assets
Those owing to partners in respect of Contribution by the partners
capital.
Assets of the partnership
Those owing to partners in respect of Partnership property
profits. The contributions of the partners necessary
for the payment of all liabilities
The assets shall be applied in the order of
their declaration in No. 1 of this article Order of application of the assets
to the satisfaction of the liabilities. Those owing to partnership creditors
Those owing to partners other than for
The partners shall contribute, as provided capital and profits such as loans given
by article 1797, the amount necessary by the partners or advances for
to satisfy the liabilities. business expenses
Those owing for the return of the capital
An assignee for the benefit of creditors or contributed by the partners
any person appointed by the court shall The share of the profits, if any, due to each
have the right to enforce the partner
contributions specified in the preceding
number. Order of application of partner who
become insolvent or his estate his
Any partner or his legal representative shall insolvent, the claims against his separate
have the right to enforce the property
contributions specified in No. 4, to the Those owing to separate creditors
extent of the amount which he has paid Those owing to partnership creditors
in excess of his share of the liability. Those owing to partners by way of
contribution
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without new partners, the old creditors are person or partnership continuing the
creditors of the person or partnership that business, at the date of dissolution, in the
is continuing the business. absence of any agreement to the contrary.
Art. 1841. When any partner retires or dies, Right to demand an accounting of
and the business is continued under any of partnership affairs must be directed
the conditions set forth in the preceding against
article, or in article 1837, second paragraph, Winding-up partners
No. 2, without any settlement of accounts Surviving partners
as between him or his estate and the The person the partnership continuing the
person or partnership continuing the business
business, unless otherwise agreed, he or his
legal representative as against such person Art. 1843. A limited partnership is one
or partnership may have the value of his formed by two or more persons under the
interest at the date of dissolution provisions of the following article, having as
ascertained, and shall receive as an ordinary members one or more general partners and
creditor an amount equal to the value of his one or more limited partners. The limited
interest in the dissolved partnership with partners as such shall not be bound by the
interest, or, at his option or at the option of obligations of the partnership.
his legal representative, in lieu of interest,
the profits attributable to the use of his General partner Limited partner
right in the property of the dissolved Personally liable for Liability extends
partnership; Provided, That the creditors of partnership only to his capital
the dissolved partnership as against the obligations contribution.
separate creditors, or the representative of Have equal right in No share in
the retired or deceased partner, shall have management of management of
priority on any claim arising under this partnership partnership.
article, as provided article 1840, third May contribute May contribute
paragraph. money, property or money and property
industry
Rights of retiring of properties of Proper party to Not proper party to
deceased, partner when business proceedings proceedings
continued Interest cannot be Interest is assignable
To have the value of the interest of the assigned to make with assignee
retiring partner or deceased partner in the new partner acquiring all rights of
partnership determined as of the date of the limited partner
dissolution. His name may Name not included
appear in the firm in firm name
To receive thereafter, as an ordinary name
creditor, an amount equal to the value of his Prohibited from No prohibition
share in the dissolved partnership with engaging in a
interest, or, at his option, in place of business like
interest, the profits attributable to the use partnerships
of his right.
His retirement, His retirement,
insolvency and insolvency and
General Rule death dissolves the death does not
When partner retires from the partnership, partnership dissolve the
he is entitled to the payment of what may partnership
be due to him after liquidation.
Exception
Characteristics of limited partnership
No liquidation needed when there is
Must be formed in accordance with the
settlement as to what retiring partner shall requirements of the law.
receive.
There must be one or more general
partners who control the management
Art. 1842. The right to an account of his of the business.
interest shall accrue to any partner, or his
There must be one or more limited partners
legal representative as against the winding
contributing to the capital and
up partners or the surviving partners or the
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sharing in the profits but have nothing The right, if given, of one or more of the
to do with the management. limited partners to priority over
Obligations of the partnership must be paid other limited partners, as to
out of common fund and in the contributions or as to compensation
separate properties of the general by way of income, and the nature of
partners. such priority.
Art. 1844. Two or more persons desiring to The right, if given, of the remaining
form a limited partnership shall: general partner or partners to
continue the business on the death,
Sign and swear to a certificate, which shall retirement, civil interdiction,
state insanity or insolvency of a general
partner.
The name of the partnership, adding
thereto the word "Limited". The right, if given, of a limited partner
to demand and receive property
The character of the business. other than cash in return for his
contribution.
The location of the principal place of
business. File for record the certificate in the Office of
the Securities and Exchange
The name and place of residence of Commission.
each member, general and limited
partners being respectively A limited partnership is formed if there has
designated. been substantial compliance in good faith
with the foregoing requirements.
The term for which the partnership is to
exist. Qualifications of limited partnership
The amount of cash and a description of The partners must sign and swear to a
and the agreed value of the other certificate of limited partnership
property contributed by each Must file for record the certificate in the
limited partner. office of the Securities and Exchange
Commission
The additional contributions, if any, to
be made by each limited partner Art. 1845. The contributions of a limited
and the times at which or events on partner may be cash or property, but not
the happening of which they shall services.
be made.
Limited partners can only contribute money
The time, if agreed upon, when the and property and cannot contribute
contribution of each limited partner services to the partnership to protect
is to be returned. persons dealing with the firms with frauds.
The share of the profits or the other Art. 1846. The surname of a limited partner
compensation by way of income shall not appear in the partnership name
which each limited partner shall unless:
receive by reason of his
contribution. It is also the surname of a general partner.
The right, if given, of a limited partner Prior to the time when the limited partner
to substitute an assignee as became such, the business has been
contributor in his place, and the carried on under a name in which his
terms and conditions of the surname appeared.
substitution.
A limited partner whose surname appears
The right, if given, of the partners to in a partnership name contrary to the
admit additional limited partners. provisions of the first paragraph is liable as
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ART. 1855. Where there are several limited the return of the contribution or for the
partners the members may agree that one dissolution of the partnership.
or more of the limited partners shall have a
priority over other limited partners as to the In the absence of any statement in the
return of their contributions, as to their certificate to the contrary or the consent of
compensation by way of income, or as to all members, a limited partner, irrespective
any other matter. If such an agreement is of the nature of his contribution, has only
made it shall be states in the certificate, and the right to demand and receive cash in
in the absence of such a statement all the return for his contribution.
limited partners shall stand upon equal
footing. A limited partner may have the partnership
dissolved and its affairs wound up when:
ART. 1856. A limited partner may receive
from the partnership the share of the He rightfully but unsuccessfully demands
profits or the compensation by way of the return of his contribution.
income stipulated for in the certificate;
provided, that after such payment is made, The other liabilities of the partnership have
whether from the property of the not been paid, or the partnership
partnership or that of a general partner, the property is insufficient for their
partnership assets are in excess of all payment as required by the first
liabilities of the partnership except liabilities paragraph, No. 1, and the limited
to limited partners on account of their partner would otherwise be entitled to
contributions and to general partners. the return of his contribution.
ART. 1857. A limited partner shall not Conditions of a limited partner entitled to
receive from a general partner or out of return of his contribution
partnership property any part of his All liabilities of the partnership have been
contributions until: paid or there are assets sufficient to pay
partnership liabilities.
All liabilities of the partnership, except The consent of all the partners is obtained.
liabilities to general partners and to The certificate is cancelled or so amended
limited partners on account of their as to set forth the withdrawal or
contributions, have been paid or there reduction of the contribution.
remains property of the partnership
sufficient to pay them. When limited partner may demand return
The partnership is dissolved
The consent of all members is had, unless The date specified for its return has arrived
the return of the contribution may be If no term is specified, after six months
rightfully demanded under the notice in writing to all other partners.
provisions of the second paragraph.
Limited partner to receive cash
The certificate is cancelled or so amended It will be noted that the limited partner has
as to set forth the withdrawal or a right to demand and receive cash only in
reduction. return for his contribution even when he
contributed property.
Subject to the provisions of the first
paragraph, a limited partner may rightfully ART. 1858. A limited partner is liable to the
demand the return of his contribution: partnership:
future at the time and on the return of his contribution, to which his
conditions stated in the certificate. assignor would otherwise be entitled.
A limited partner holds a trustee for the An assignee shall have the right to become
partnership: a substituted partner if all the members
Specific property stated in the certificate as consent thereto or if the assignor, being
contributed by him, but which was not thereunto empowered by the certificate,
contributed or which has been gives the assignee that right.
wrongfully returned.
An assignee becomes a substituted limited
Money or other property wrongfully paid or partner when the certificate is appropriately
conveyed to him on account of his amended in accordance with Article 1865.
contribution.
The substituted limited partner has all the
The liabilities of a limited partners as set rights and powers, and is subject to all the
forth in this article can be waived or restrictions and liabilities of his assignor,
compromised only by the consent of all except those liabilities of which he was
members; but a waiver or compromise shall ignorant at the time he became a limited
not affect the right of a creditor of a partner and which could not be ascertained
partnership who extended credit or whose for the certificate.
claim arose after the filling and before a
cancellation or amendment of the The substitution of the assignee as a limited
certificate, to enforce such liabilities. partner does not release the assignor from
liability to the partnership, under article
When a contributor has rightfully received 1847 and 1858.
the return in whole or in part of the capital
of his contribution, he is nevertheless liable Limited partners interest assignable
to the partnership for any sum, not in A limited partners interest in the
excess of such return with interest, partnership is assignable. The assignee,
necessary to discharge its liabilities to all
creditors who extended credit or whose however, of a limited partners interest
claims arose before such return. does not necessarily become a substituted
limited partner.
Limited partner liable to partnership for
sum returned ART. 1860. The retirement, death,
A limited partner whose contribution has insolvency, insanity or civil interdiction of a
been rightfully returned is still liable to the general partner dissolves the partnership,
partnership for an amount not in excess of unless the business is continued by the
the sum returned plus interest as may be remaining general partners:
necessary to pay the claims of persons who
extended credit or whose claims arose Under a right so to do stated in the
before the return. certificate.
ART. 1859. A limited partners interest is With the consent of all members.
assignable.
It must be observed that the death, etc., of
A substitute limited partner is a person a general partner dissolves the partnership
admitted to all the rights of a limited while the death of a limited partner does
partner who has died or has assigned his not cause the dissolution of the firm, unless
interest in a partnership. there is only one limited partner.
An assignee, who does not become a ART. 1861. On the death of a limited
substituted limited partner, has no right to partner his executor or administrator shall
require any information or account of the have all the rights of a limited partner for
partnership transactions or to inspect the the purpose of settling his estate, and such
partnership books; he is only entitled to power as the deceased had to constitute his
receive the share of the profits or other assignee a substituted limited partner.
compensation by way of income, or the
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The interest may be redeemed with the An additional limited partner is admitted.
separate property of any general partner,
but may not be redeemed with partnership A person is admitted as a general partner.
property.
A general partner retires, dies, becomes
The remedies conferred by the first insolvent or insane, or is sentenced to
paragraph shall not be deemed exclusive of civil interdiction and the business is
others which may exist. continued under article 1860.
ART. 1863. In settling accounts after There is a change in the character of the
dissolution the liabilities of the partnership business of the partnership.
shall be entitled to payment in the following
order:
There is a false or erroneous statement in
Those to creditors, in the order of priority as the certificate.
provided by law, except those to limited
partners on account of their
There is a change in the time as stated in
contributions, and to general partners. the certificate for the dissolution of the
partnership or for the return of a
Those to limited partners in respect to their contribution.
share of the profits and other
compensation by way of income on A time is fixed for the dissolution of the
their contributions. partnership, or the return of a
contribution, no time having been
Those to limited partners in respect to the specified in the certificate.
capital of their contributions.
The members desire to make a change in
Those to general partners other than for any other statement in the certificate in
capital and profits. order that it shall accurately represent
the agreement among them.
Those to general partners in respect to
profits.
Art. 1865. The writing to amend a
certificate shall:
Those to general partners in respect to
capital.
Conform to the requirements of article 1844
as far as necessary to set forth clearly
Subject to any statement in the certificate the change in the certificate which it is
or to subsequent agreement, limited desired to make.
partners share in the partnership assets in
respect to their claims for capital, and in Be signed and sworn to by all members, and
respect to their claims for profit or for an amendment substituting a
compensation by way of income on their
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attacked even in a direct proceeding for The formulation of business and financial
that purpose by the State. plans.
Assembling the enterprise by negotiations
Sec. 4. Corporations created by special laws and obtaining some control over the
or charters. Corporations created by subject matter by option or contracts
special laws or charters shall be governed made on behalf of the proposed
primarily by the provisions of the special law corporation or on his own credit.
or charter creating them or applicable to The making of arrangements for financing
them, supplemented by the provisions of the enterprise and the floatation of
this Code, insofar as they are applicable. securities.
Arrange tactful and painless methods for
Sec. 5. Corporators and incorporators, getting his own reward for the task of
stockholders, and members. Corporators promotion out of the prospective
are those who compose a corporation, investors and for reimbursement for his
whether as stockholders or members. expenses, contracts, and services
Incorporators are those stockholders or without frightening away those who are
members mentioned in the articles of expected to provide the funds.
incorporation as originally forming and
composing the corporation and who are General rule: A corporation is not bound by
signatories thereof. any agreement made by a promoter.
Exception to the rule: Unless and until the
Corporators in a stock corporation are called corporation approves the agreement.
stock-holders or shareholders. Corporators
in a non-stock corporation are called Sec. 6. Classification of shares. The shares
members. of stock of stock corporations may be
divided into classes or series of shares, or
Components of a Corporation both, any of which classes or series of shares
Corporators are those who composed a may have such rights, privileges or
corporation, whether as stockholders of restrictions as may be stated in the articles
members. The term includes of incorporation: Provided, That no share
incorporators, stockholders or members. may be deprived of voting rights except
Incorporators are those stockholders or those classified and issued as preferred or
members mentioned in the articles of redeemable shares, unless otherwise
incorporation as originally forming and provided in this Code: Provided, further, That
composing the corporation and who are there shall always be a class or series of
signatories thereof. shares which have complete voting rights.
Stockholders or shareholders are those Any or all of the shares or series of shares
corporators in a stock corporation. may have a par value or have no par value as
Members are those corporators in a non- may be provided for in the articles of
stock corporation. incorporation: Provided, however, That
Promoters is a self-constituted organizer banks, trust companies, insurance
who finds an enterprise or venture and companies, public utilities, and building and
helps to attract investors, form a loan associations shall not be permitted to
corporation and launch it in business, all issue no-par value shares of stock.
with a view to promotion profits.
Preferred shares of stock issued by any
Promotion is the act of procuring the corporation may be given preference in the
initial finances and the making of all distribution of the assets of the corporation
preparations necessary to launch a in case of liquidation and in the distribution
corporation. of dividends, or such other preferences as
may be stated in the articles of incorporation
Activities of a promoter which are not violative of the provisions of
The discovery and investigation of a this Code: Provided, That preferred shares of
promising business opportunity. stock may be issued only with a stated par
value. The board of directors, where
authorized in the articles of incorporation,
may fix the terms and
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Unless otherwise provided by law the rights, Incurring, creating or increasing bonded
privileges or restrictions on classes or indebtedness;
series of shares must be stated in the Increase or decrease of capital stock;
articles of incorporation and in the stock Merger or consolidation of the corporation
certificates. with another corporation or other
corporations;
Classes or series of shares Investment of corporate funds in another
Voting and Non-Voting Shares; corporation of business in accordance
General rule: Every member of a non- with the Corporation Code; and
stock corporation and every legal owner Dissolution of the corporation.
of shares in a stock corporation, has a
right to be present and vote at all Sec. 7. Founders shares. Founders' shares
corporate meetings. classified as such in the articles of
Exception to the rule: Unless there is a incorporation may be given certain rights
stipulation in contrary. and privileges not enjoyed by the owners of
Par Value and No-Par Value Shares other stocks, provided that where the
Par value is the given fixed or definite exclusive right to vote and be voted for in
value of a share in the articles of the election of directors is granted, it must
incorporation. be for a limited period not to exceed five (5)
Common and Preferred Shares. Preferred years subject to the approval of the
shares of stock may be: (a) preferred as Securities and Exchange Commission. The
to assets; (b) preferred as to dividends. five-year period shall commence from the
Preferred as to dividends may either be date of the aforesaid approval by the
cumulative or non-cumulative, or Securities and Exchange Commission.
participating or non-participating
Promotion Shares are such stocks issued to Definition
those who may originally own the Founders shares, generally common stock,
mining ground or valuable rights are given to the founders or promoters of a
connected therewith, in consideration of corporation in payment of money expended
their deeding the same to the mining or services rendered in the promotion of it.
company when the company is
incorporated, or it may mean such stock Sec. 8. Redeemable shares. Redeemable
as is issued to promoters. shares may be issued by the corporation
Shares of Escrow are shares subject to an when expressly so provided in the articles of
escrow agreement, that is, an incorporation. They may be purchased or
agreement under which the shares are taken up by the corporation upon the
deposited by the grantor or his agent expiration of a fixed period, regardless of the
with a third person, to be delivered by existence of unrestricted retained earnings
the depositary to the vendee or in the books of the corporation, and upon
subscriber only upon the happening of such other terms and conditions as may be
certain conditions. stated in the articles of incorporation, which
Founders Shares; terms and conditions must also be stated in
Redeemable Callable Shares; the certificate of stock representing said
Treasury Shares; shares.
Other shares classified to comply with
constitutional or legal requirements. Definition
Redeemable (Callable) shares of stock
Instances when non-voting shares may vote which are usually preferred are frequently
Amendment of the articles of incorporation; issued subject to redemption at the option
Adoption and amendment of by-laws; of either the corporation, the stockholder, or
Sale, lease, exchange, mortgage, pledge or both, at a definite price representing
other disposition of all or substantially premium above the amount originally paid.
all of the corporate property;
Sinking fund refers to a fund set-up by the
corporation where cash is gradually set aside
in order to accumulate the amount
necessary to meet the redemption price of
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Sec. 9. Treasury shares. - Treasury shares Sec. 12. Minimum capital stock required of
are shares of stock which have been issued stock corporations. Stock corporations
and fully paid for, but subsequently incorporated under this Code shall not be
reacquired by the issuing corporation by required to have any minimum authorized
purchase, redemption, donation or through capital stock except as otherwise specifically
some other lawful means. Such shares may provided for by special law, and subject to
again be disposed of for a reasonable price the provisions of the following section.
fixed by the board of directors. (n)
Sec.13. Amount of capital stock to be
Definition subscribed and paid for purpose of
Treasury shares are owned by the incorporation. At least twenty-five
corporation having been reacquired by the percent (25%) of the authorized capital
issuing corporation by purchase, stock as stated in the articles of
redemption, donation or through some incorporation must be subscribed at the
other lawful means. It has no voting rights time of incorporation, and at least twenty-
or rights as to dividends or distributions. five percent (25%) of the total subscription
must be paid upon subscription, the
TITLE II - INCORPORATION balance to be payable on a date or dates
AND fixed in the contract of subscription without
ORGANIZATION OF PRIVATE need of call, or in the absence of fixed date
CORPORATIONS or dates, upon call for payment by the
Definition board of directors: Provided, however, that
Incorporation is the act of creating a in no case shall the paid-up capital be less
corporation. than five thousand (P5,0000) pesos.
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stock is required, the abuse of the privileges the Philippines, and no association,
of a corporation would be minimized. partnership, or corporation the capital of
which is not wholly owned by citizens of
Capital stock requirements under the the Philippines, shall engage directly or
special laws indirectly in the retail trade business.
In case of mining and agricultural
incorporation, or corporation organized Only vessels of domestic ownership are
for the purpose of the disposition , authorized to engage in coastwise
exploitation, development or utilization shipping in the Philippines. Vessels are
of natural resources of the Philippines, considered of domestic ownership when
as well as corporation organized for the such ownership is vested in some one or
operations of public utilities, the more of the following: (1) Citizens of the
Constitution provides that at least 60 % Philippines; (2) any corporation or any
of the capital stock of such corporation company composed wholly of the
must be owned by citizens of the citizens of the Philippines;
Philippines. (3) any corporation or company created
under the laws of the Philippines,
The Insurance Code provide that no provided at least 75% of the capital stock
domestic insurance company shall, if a thereof or of any interested in said
stock corporation, engage in business in capital is wholly owned by the citizens of
the Philippines unless posses of a paid the Philippines.
up capital stock equal to at least two
million pesos. Where the insurance Sec.14. Contents of articles of the
company is to engage in insurance incorporations. All corporation organized
business it must have a paid-up capital under this Code shall file with the Securities
stock of at least five million pesos to be and Exchange Commission articles of
invested in securities specified by law, incorporation in any of the official languages,
which securities are to be deposited duly signed and acknowledged by all of the
with the Insurance Commissioner. incorporators containing substantially the
following matters, except as otherwise
The Financing Company Act requires that at prescribed by this Code or by special laws:
least sixty per centum of the capital of
financing companies must be owned by The name of the corporation.
citizens of the Philippines and shall have
a paid-up capital of not less than five The specific purpose or purposes for which
hundred thousand pesos. the corporation is being incorporated.
Where the corporation have more than
Commercial banks are required to have a one stated purpose, the article of
paid-up capital of 100 million pesos. incorporation shall state which the
When a commercial bank having licence primary is and which is/are the
to operate an expanded foreign currency secondary purpose or purposes:
deposit system it must have a paid-up Provided, That a non-stock corporation
capital of at least 150 million pesos and may not include a purpose which would
when a commercial bank is authorized change or contradict its nature as such.
to engage in universal banking it must
have a paid up capital of at least 500 The place where the principal office of the
million pesos. corporation is to be located, which must
be within the Philippines.
The New Constitution provides that:
The ownership and management of The term for which the corporation is to
mass media shall be limited to citizens of exist.
the Philippines or to corporations or
association wholly-owned and manage The names, nationalities and residences of
by such citizen. the incorporators.
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The number of directors or trustees which Incorporators may choose any name they
shall not be less than five (5) nor more see fit , however strange, uneuphonious, or
than fifteen (15). unrhetorical it may be , provided it is one
not identical with or prejudicially similar to a
The names, nationalities and residences of name which has previously been adopted by
the person who shall act as directors or and is being use by another corporation as
trustees until the first regular directors its corporate name
or trustees are duly elected and
qualified accordance with this Code. Change of Corporate name
The change of the corporate name
If it be a stock corporation, the amount of its doesnt mean a new corporation, nor the
authorized capital stock in lawful money successor of the original corporation. It is
of the Philippines, the number of shares the same corporation with a different name
which it is divided, and in case the having its character with no respect change.
shares are par value shares, the par The corporation continues, as before,
value of each, the names, nationalities responsible in its new name for all debts or
and residences of the original subscriber, other liabilities it had previously contracted
and the amount subscribed and paid by or incurred.
each on his subscription, and if some or
all of the shares are without par value, Specific purpose or purposes.
such fact must be stated. The statement of the purpose has its
principal function the affirmative
If it be a non-stock corporation, the amount authorization of the management to enter
of its capital, the names, nationalities into those contracts and business
and residences of the contributors and transactions which may be considered as
the amount, contributed by each. incidental to its attainment of the purposes.
It also imposes implied limitations of their
Such other matters are not inconsistent with authority by the exclusion of lines of activity
law and which the incorporators may which are not covered.
deem necessary and convenient.
3. Principal office of the Corporation.
The Securities and Exchange Commission The principal office of the corporation must
shall not accept the articles of incorporation be within the Philippines. It is where the
of any stock corporation unless accompanied books of the corporation are kept and its
by a sworn statement of the Treasurer officers usually and ordinarily meet for the
elected by the subscriber showing that at purpose of managing the affairs and
least 25% of the authorized capital stock of transactions of the business of the
the corporation has been subscribed, and at corporation.
least 25% of the total subscription has been
fully paid to him in actual cash and/or in Terms of Existence of the Corporation. The
property the fair valuation of which are corporation shall exist for a period not
equal to at least 25% of the said subscription exceeding fifty (50) years from the date of
, such paid up capital being not less than incorporation unless sooner dissolved or
five-thousand pesos (P5,000). unless said period is extended.
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SEC Policy
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5. Written authority to verify bank Law reserves the rights to modify the
deposit signed by the corporate charter
treasurer empowering the SEC The constitution and the Corporation Code
and /or the Central bank to check reserved the right to amend the charter of a
and inspect the existence of the private corporation. The constitution
bank deposit of the corporate paid- provides that no franchise or right be
up capital. granted except under the condition that it
Taxpayer account number of the shall be subject to amendment, alteration,
incorporators pursuant to Executive or repeal by the National Assembly when
order No. 213. public interest so requires.
Registration Data Sheet, a statement in
statistical data form, signed by an Amendment of Articles of Incorporation
authorized representative of the The articles of incorporation may be
corporation regarding important amended for legitimate purposes that refer
information about the corporate to any matter stated in the articles of
seal, corporate name, principal incorporation. It may refer to:
office, capital structure, their Change of corporate name;
subscription and TAN (SEC Bulletin, Extension of term of corporation;
Oct. 1982). Change in classes or series of shares;
Change in rights, privileges or restrictions in
Sec. 16. Amendment of Articles of share ownership;
Incorporation. Unless otherwise Increase or decrease in the number of
prescribed by this Code or by special law, directors; and
and for legitimate purposes, any provision Change in purpose or purposes and other
or matter stated in the articles of necessary changes.
incorporation may be amended by a
majority vote of the board of directors or Vote or recent assent required in
trustees and the vote or written assent of amendment of the articles of incorporation
the stockholders representing at least two- shall be as follows:
thirds (2/3) of the outstanding capital stock, Stock Corporation A majority vote of the
without prejudice to the appraisal rights of directors or trustees and the vote or written
dissenting stockholders in accordance with assent of the stockholders representing at
the provision of this Code, or the vote or least two- thirds (2/3) of the outstanding
written assent of two-thirds (2/3) of the capital stock. Under section 81 of the Code,
members if it be a non-stock corporation. a dissenting stockholder may exercise his
appraisal right if he is against the
The original and amended articles amendment to be made and demand
altogether shall contain all provision payment of the fair value of his shares.
required by law to be set out in the articles
of incorporation. Such articles, as amended Non-stock Corporation A majority vote of
shall be indicated by underscoring the board of directors and the vote or written
change or changes made, and the copy assent of 2/3 of the members.
thereof duly certified under oath by the
corporate secretary and the majority of the The amendments to the articles of
directors or trustees stating the fact that incorporation shall take effect upon its
said amendments have been duly approved approval by the Securities and Exchange
by the required vote of the stockholders or Commission or from the filing with the said
members, shall be submitted to the Commission if not acted upon within six
Securities and Exchange Commission. months from the date of filing for a cause
not attributable to the corporation.
The amendment shall take effect upon its
approval by the Securities and Exchange Sec. 17. Grounds when articles of
Commission or from the date of filing with incorporation or amendment may be
the said Commission if not acted upon rejected or disapproved. The Securities
within six (6) months from the date of filing and Exchange Commission may reject the
for a cause not attributable to the articles of incorporation or disapproved any
corporation. amendment thereto if the same is not in
compliance with the requirements of this
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Code: Provided, That the Commission shall by which the corporation can be identified
give the incorporators a reasonable time and distinguished from other corporation,
within which to correct or modify the firms or entities.
objectionable portions of the articles or
amendment. The following are grounds for Change of corporate name
such amendment or disapproval: A corporation may change its name by
merely amending its charter in the manner
That the articles of incorporation or any prescribed by law. The change of name of
amendment thereto is not substantially the corporation does not result in
in accordance with the form prescribed dissolution. The changing of the name of a
herein. corporation is no more the creation of a
corporation than the changing of the name
That the purpose or purposes of the of a natural person.
corporation are patently
unconstitutional, illegal, immoral, or Restriction in use in certain names of
contrary to government rules and words
regulation. There are special laws prohibiting the use of
certain names and/or words. Thus, under
That the Treasurers Affidavit concerning the the General Banking Act, no person or
amount of capital stock subscribed entity not conducting the business of
and/or paid is false. commercial banking shall use the words
bank, banking, banker, building and
That the required percentage of ownership loan association, trust corporation, etc.
of the capital stock to be owned by or words of similar import. The word
citizens of the Philippines has not been National under Act 2612 may not be use
complied with as required by existing by those doing business as bankers, brokers,
laws of the constitution. or savings institutions. United Nations
both in its full and abbreviated forms, for
No articles of incorporation or amendment commercial and business purposes. There
to articles of incorporation of banks, are other names or words which pursuant
banking and quasi-banking institutions, to other special laws may not be used.
building and loan association, trust
companies, public utilities, educational Sec. 19. Commencement of Corporate
institution, and other corporations Existence. A private corporation formed or
governed by special laws shall be accepted organized under this Code commences to
or approved by the Commission unless have corporate existence and juridical
accompanied by a favourable personality and is deemed incorporated
recommendation of the appropriate from the date the Securities and Exchange
government agency to the effect that such Commission issues a certificate of
articles or amendment is in accordance with incorporation under its official seal; and
law. thereupon the incorporators,
stockholders/members, and their
Sec. 18. Corporate name. No corporate successors shall constitute a body politic
name may be allowed by the Securities and and corporate under the name stated in the
Exchange Commission if the proposed name articles of incorporation for the period of
is identical or deceptively or confusingly time mentioned therein, unless said period
similar to that of any existing corporation or is extended or the corporation is sooner
to any other name already protected by law dissolved in accordance with law.
or its patently deceptive, confusing or
contrary to existing laws. When the change Sec. 20. De Facto corporation. The due
in a corporate name is approved, the incorporation any corporation claiming in
commission shall issue an amended good faith to be a corporation under this
certificate of incorporation under the Code, and its right to exercise corporate
amended name. powers, shall not be inquired into
collaterally in any private suit to which such
Necessity of Corporate name corporation may be a party. Such inquiry
It is necessary that a corporation should
have a name because that is the only way
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may be made by the Solicitor General in a of a contrary tenor. The object of the
quo warranto proceeding. principle of estoppel is to prevent injustice
to an otherwise innocent person.
De facto corporation generally refer to
organizations exercising corporate power Sec. 22. Effect of non-use of corporate
under colour of a more or less legally charter and continuous in operation of a
constituted corporation. corporation. If a corporation does not
formally organize and commence the
Elements of De facto corporation transaction of its business or the
Existence of a valid law under which a construction of its works within two (2) years
corporation can be organized. from the date of its incorporation, its
An attempt in good faith to incorporate. corporate powers cease and the corporation
Actual exercise of incorporate powers. shall be deemed dissolved. However, if a
corporation has commenced the transaction
Quo warranto an inquiry made into the of its business but subsequently becomes
right of a corporation to conduct business. continuously inoperative for a period of at
least five (5) years, the same shall be ground
Illustration for the suspension or revocation of its
Seven competent individual organized a corporate franchise or certificate of
corporation by filing the articles of incorporation.
incorporation and securing a certificate of
incorporation with the SEC. However, the This provision shall not apply if the failure to
addresses of two of the original subscribers organize, commence the transactions of its
were omitted in the articles of incorporation. businesses or the construction of its works,
In suit filed by X, a creditor, against the or to continuously operate is due to causes
corporation he alleged that the corporation beyond the control of the corporation as
has no valid existence and sought to hold the may be determined by the Securities and
seven incorporators (also directors) liable Exchange Commission.
personally on the obligation. Xs allegation
that the corporation had no valid existence Organization
would constitute a collateral (side) attack in The idea of organization in reference to
a private suit. Only the Solicitor General as corporations means executive structure,
government lawyer may raise the question election of officers, providing for
by quo warranto proceeding. (Literally by subscription and payment of capital,
what right). adoption of by-laws, and other steps
necessary to endow the legal entity with
Sec. 21. Corporation by estoppel. All capacity to transact business for which it was
persons who assume to act as a corporation created.
knowing it to be without authority to do so
shall be liable as general partners for all The Grant of corporate existence, conferred
debts, liabilities and damages incurred or by the issuance of certificate of
arising as a result thereof: Provided, incorporation, is subject to two subsequent
however, That when any such ostensible conditions, to wit:
corporation is sued on any transaction The corporation must formally organize.
entered by it as a corporation or on any tort The corporation must actually begin the
committed by it as such, it shall not be transaction of its business.
allowed to use as a defense its lack of
corporate personality. Failure to comply with either or both of
these conditions within two (2) years from
One who assumes an obligation to an the date of its incorporation, its corporate
ostensible corporation as such cannot resist power cease and the corporation must be
performance thereof on the ground that deemed dissolved.
there was in fact no corporation.
Sec. 23. The board of directors or trustees.
Estoppel It is preclusion, which prevent a Unless otherwise provided in this Code,
man from denying a fact in consequences of the corporate powers of all corporation
his own previous act, allegations, or denial formed under this Code shall be exercised ,
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all business conducted and all property of Domestic air carrier, the directing head or
such corporations controlled and held by 2/3 of the board of directors and other
the board of directors or trustees to be managing officers shall be citizens of
elected from among the holders of stock, or the Philippines.
where there is no stock, from among the Registered investments companies, the
members of the corporation, who shall hold directors thereof must be Filipino
office for one (1) year and until their citizen.
successors are elected and qualified. Private development banks, all the
members of the board of directors shall
Every director must own at least one (1) be citizen of the Philippines.
share of the capital stock of the corporation In case of financing corporation, at least 2/3
of which he is a director, which share shall of all members of the board of directors
stand in his name on the books of the shall be citizen of the Philippines.
corporation. Any director who ceases to be
the owner of at least one (1) share of the Sec. 24. Election of directors or trustees. At
capital stock of the corporation of which he all elections of directors or trustees, there
is the director shall thereby cease to be a must be present, either in person or by
director. Trustees of non-stock corporations representative authorized to act by written
must be members thereof. A majority of the proxy, the owners of the majority of the
directors or trustees of all corporations outstanding capital stock, or if there be no
organized under this Code must be capital stock, a majority of the members
residents of the Philippines. entitled to vote. The election must be by
ballot if requested by any voting stockholder
Qualifications of directors or member. In stock corporations, every
He must own at least one (1) share of the stockholder entitled to vote shall have the
capital stock of the corporation in his right to vote in person or by proxy the number
name. of shares of stock standing, at the time fixed
Majority of the directors must be a resident in the by-laws, in his own name on the stock
citizen of the Philippines. books of the corporation, or where the by-
A director must not have been convicted by laws are silent, at the time of the election;
final judgement of an offense and said shareholder may vote such number
punishable by imprisonment exceeding of shares for as many persons as there are
six (6) years or a violation of the directors to be elected or he may cumulate
provisions of the Corporation Code said shares and give one candidate as many
committed within five (5) years prior to votes as the number of directors to be elected
the date of election or appointment. multiplied by the number of his shares shall
equal, or he may distribute them on the same
The directors, once elected, become the principle among as many candidate as he shall
representatives of the corporation itself, not see fit; Provided, That the total number of
its stockholders. The directors of a non- votes cast by him shall not exceed the
stock corporation are required to be numbers of shares owned by him as shown in
members thereof and like stock the books of the corporation multiplied by the
corporations majority of the directors and whole number of directors to be elected:
trustees of all corporations organized under Provided, however, that no delinquent stocks
the Corporation Code must be residents shall be voted. Unless otherwise provided in
citizen of the Philippines. There are some the articles of incorporation, or in the by-
special corporation not organized with the laws, members of corporation which have no
Corporation Code where directors are capital stock may cast as many votes as there
required to be citizens of the Philippines. are trustees to be elected but may not cast
They are as follows: more than one vote for one candidate.
Bank and banking institution, at least 2/3 of Candidates receiving the highest number of
the members of the board of directors votes shall be declared elected. Any meeting
shall be citizen of the Philippines. of the stockholders or members called for an
Rural banks, every member of the board of election may adjourn from day to day or from
directors shall be citizens of the time to
Philippines.
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time but not sine die or definitely if, for any Sec. 25. Corporate officers, quorum.
reason, no election is held, or if there are Immediately after their election, the
not present or represented by proxy, at the directors of a corporation must formally
meeting, the owners of the majority of the organized by the election of a president,
outstanding capital stock, or if there be no who shall be a director, a treasurer who
capital stock, a majority of the members may or may not be a director, a secretary
entitled to vote. who shall be a resident citizen of the
Philippines, and such other officers as may
Methods of voting be provided for in the by-laws. Any two (2)
The voting methods which may be resorted or more positions may be held concurrently
to by a voting stockholder are as follows: by the same person, except that no one
Straight voting. shall act as president and secretary or as
Cumulative voting for one candidate. president and treasurer at the same time.
Cumulative voting by distribution.
The directors or trustees and officers to be
Example of Straight Voting elected shall perform the duties enjoined
A owns 100 shares of stock in X corporation. on them by law and by the by-laws of the
During the meeting for the purpose of corporation. Unless the articles of
electing five directors, he may cast his vote incorporation or the by-laws provide form a
by giving each of the five candidates 100 greater majority, a majority of the number
votes, hence, he distribute equally his vote of directors or trustees as fixed in the
without preference or discrimination. articles of incorporation shall constitute a
quorum for the transaction of corporate
Example of Cumulative voting for one business, and every decision of at least a
candidate majority of the directors or trustees present
In the preceding illustration, if A owns 100 at a meeting at which there is a quorum
voting shares and there are five directors to shall be valid as a corporate act , except for
be elected, A is entitled to 500 votes which the election of the officers which shall
he may cumulate by giving it to candidate require the vote of a majority of all the
Z alone. members of the board.
Example of Cumulative voting by Qualification of corporate officer
distribution President. He must be a director.
As in the same example above, if A owns Treasurer. He may or may not be a director.
100 voting shares, and there are five Secretary. He must be a resident and citizen
directors to be elected, A is entitled to 500 of the Philippines
votes which he may distribute to candidate Other officers provided for in the by-laws.
Y and Z giving the former 300 and the latter
200 provided that the total number of votes Three levels of corporate control
cast by him does not exceed 500 votes. The board of director which is responsible
for the corporate policies and the
general management of the business
Voting of sequestered shares of stock affairs of the corporation.
It has been held that the Presidential The officers, who in theory execute the
Commission on Good Government may policies lay down by the board , but in
properly exercise the prerogative to vote practice often have wide latitude in
sequestered stock of corporation, granted determining the course of business
to it by the President of the Philippines xxx operations.
pending the outcome of proceeding to Stockholders who like amendments of the
determine the ownership of sequestered articles of incorporation.
shares of stock. xxx Substitution of directors
is not be done without reason or rhyme, Teleconferencing of Board Members
and undertaken only when essential to In the Philippines, teleconferencing and
prevent disappearance or wastage of videoconferencing of members of board of
corporate property, and always under such directors of private corporation is a reality,
circumstance as assure that replacements in light of the Republic Act No. 8792.The
are truly processed of competence, Securities and Exchange Commission issued
experience and probity.
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SEC Memorandum Circular No. 15, on has authority to act in his stead, and to
November 30, 2001, providing the guidelines perform the duties of the office.
to be complied with related to such
conferences. Thus, the court agrees with the Secretary
RTC that persons in the Philippines may have A secretary must be a resident citizen of the
a teleconference with a group of persons in Philippines. It is generally its duty to make
South Korea relating to business transactions and keep corporate records; to make proper
or corporate governance. entries of the votes, resolution and
proceedings of the shareholders and
Directors and officers distinguished directors in the management of the
The officers of a corporation, unlike the corporation, and of all other matters
directors, are true agent of the corporation. required to be entered in the records. The
Each officer may bind the corporation by his secretary is the ministerial officer who
individual acts within the actual or apparent cannot bind the corporation unless he is
scope of authority. On the other hand, a authorized to do so.
director has no authority to act for the
corporation. Treasurer
The treasurer of the corporation may or
Authority of corporate officers may not be a director. He is the proper
The corporation transact its business officer and the only proper officer in the
through its officers or agents. An officers absence of express provision to the contrary,
power as an agent of the corporation must to receive and keep the money of the
be sought from the statute, charter, and the corporation and to disburse them as he may
by-laws or in a delegation of authority to be authorized.
such officers, from the acts of board of
directors, formally expressed or implied from Other officers
a habit or custom of doing business. The by-laws of the corporation may provide
for such other officers and agent as may be
Chairman of the Board necessary and convenient considering the
A chairman of the board of directors must nature and needs of the business. Their
himself director be a director of the compensation is provided for by the by-laws
corporation. His duty as presiding officer is and the board of directors in a suitable
not an executive one. It has been suggested manner.
that he well be given advisory duties in
determining executive salaries, bonus plans Quorum signifies the number of persons
and pensions, determining dividend policy, belonging to a corporation required to
selecting auditors, and dealing questions transact business.
with labor and company policy.
Section 25 of the Corporation Code requires
President more people than a simple majority to form
The president must be a director of the a quorum. If no such defining number is
corporation. The powers of the president of determined, a quorum is a simple majority.
a corporation are vested in him by law or the
by-laws; otherwise, he has no power over
the corporate property and business than Directors cannot vote by proxy
has any other director. However, he may be The directors cannot vote by proxy but must
given actual authority to make particular personally present, and act by themselves.
contracts, or to execute conveyances,
borrow money, execute mortgages, and do Sec. 26. Report of election of directors,
other acts, by the charter, the by-laws, trustees and officers. Within thirty (30)
resolutions of directors or their informal days after the election of the officers,
acquiescence. trustees and directors of the corporation,
the secretary, or any other officer of the
Vice- President corporation shall submit to the Securities
In the absence of the president, or if the and Exchange Commission, the names,
office of the president becomes vacant, as a nationalities and residences of the directors,
rule, the vice president elected and trustees and officers elected.
appointed by the shareholders or directors
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Should a director, trustee or officer die, for the purpose, and in either case, after
resign or in any manner cease to hold office, previous notice to stockholders or members
his heirs in case of his death, the secretary of the corporation of the intention to
or any other officer of the corporation, or propose such removal at the meeting. A
the director, trustee or officer himself, shall special meeting of the stockholders or
immediately report such fact to the members of the corporation for the
Securities and Exchange Commission. purpose of removal of directors or trustees,
or any of them, must be called by the
Sec. 27. Disqualification of directors, secretary on order of the president or on
trustees or officers. No person convicted the written demand of the stockholders
by final judgement of an offense punishable representing or holding at least a majority
by imprisonment for a period exceeding six of the outstanding capital stock, or, if it be a
years, or a violation of this Code, committed non-stock corporation, on the written
within five (5) years prior to the date of his demand of a majority of the members
election or appointment, shall qualify as a entitled to vote. Should the secretary failed
director, trustee or officer of any to refuse to call the special meeting upon
corporation. such demand, or fail or refuse to give the
notice, or if there is no secretary, the call for
Sec. 27 of the Corporation Code is an the meeting may be addressed directly to
additional safeguard that only upright and the stockholders or members of any by any
honest individuals be entrusted with stockholder or member of the corporation
management of the corporate affairs. signing the demand. Notice of the time and
place of such meeting, as well as the
A director of a cooperative who is intention to propose such removal, must be
subsequently elected as member of the given by publication or by written notice as
Sangguniang Panglungsod (City Council) prescribed in this Code. The vacancy
becomes automatically disqualified from resulting from removal pursuant to this
continuing as such director by virtue of the section may be filled by election at the
clear mandate of PD No. 269 providing that same meeting without further notice, or at
except for barrio captains and councillors any regular or at any special meeting called
elective officials are ineligible to become for the purpose after giving notice as
officers and/or directors of any cooperative. prescribed in this Code. Removal may be
with or without cause: Provided, That
The SEC ruled that firms engage in wholly or removal without cause may not be used to
partially nationalized activities, aliens are deprived minority stockholders or members
banned from being appointed to of the right of representation to which they
management position such as president, may be entitled under Section 24 of this
vice-president, treasurer, auditor, secretary, Code.
etc. of said companies. However, they can
be elected directors in preparation to their Directors or trustee may be removed even
allowable participation or share in the without cause
capital of such activities, in accordance with The legislative policy is that the
the Commonwealth Act No. 108, as shareholders shall be the ultimate masters,
amended by PD 715, otherwise known as not the directors. The shareholders should
the Anti- Dummy Law. be clothed with the power of judging the
competency and fitness of the directors and
Sec. 28. Removal of director or trustees. of choosing a board that will carry out of
Any director or trustee of the corporation their business policy.
may be removed from office by a vote of
the stockholders holding or representing at Directors representing minority may not be
least two- thirds (2/3) of the outstanding removed without cause. The power to
capital stock, or if the corporation be a non- removed director or trustee even without
stock corporation , by a vote of at least two- cause given to shareholders or members
thirds (2/3) of the members entitled to may not be used to deprived minority
vote: Provided, That such removal shall take shareholders or members of the right of
place either at a regular meeting of the representation to which they may be
corporation or at the special meeting called entitled under Section 24 of the
Corporation Code. Cumulative voting of
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Sec. 30. Compensation of directors. In the Sec. 32. Dealings of directors, trustees or
absence of any provision in the by-laws officers with the corporation. A contract
fixing their compensation, the directors of the corporation with one or more of its
shall not receive any compensation, as such directors or trustees or officers is voidable,
directors, except for reasonable per diems: at the option of such corporation, unless
Provided, however, That any such all the conditions are present:
compensation (other than pier diems) may
be granted to directors by the vote of the That the presence of such director or
stockholders representing at least a trustee in the board meeting in which
the contract was approved was not
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necessary to constitute a quorum for with such officers or agents. (Yao Ka Sin
such meeting. Trading vs. Court of Appeals, G.R. No.
53820, June 15, 1992, citing Francisco vs.
That the vote of such director or trustee GSIS, 7 SCRA 577)
was not necessary for the approval of
the contract. Corporate president presumed to have
authority
That the contract is fair and reasonable As a strict rule, the corporate president has
under the circumstances. no inherent power to act for the
corporation, slowly giving way to realization
That in the case of an officer, the contract that such officer has certain limited powers
with the officer has been previously in the transaction of the usual and ordinary
authorized by the Board of Directors. business of the corporation. In the absence
of agreement or by law provision to the
Where any of the first two conditions set contrary, the president is presumed to have
forth in the preceding paragraph is absent, the authority to act within the domain of
in the case of a contract with a director or the general of his or her usual duties.
trustee, such contract may be ratified by (Peoples Aircargo, and Warehousing Co.,
the vote of the stockholders representing Inc. vs. Court of Appeals, G.R. No. 117847,
at least two-thirds (2/3) of the outstanding Oct. 7, 1998)
capital stock or of two-thirds (2/3) of the
members in a meeting called for the Sec. 33. Contracts between corporations
purpose: Provided, That full disclosure of with interlocking directors. Except in
the adverse interest of the directors or cases of fraud, and provided the contract is
trustees involved is made at such meeting: fair and reasonable under the
Provided, however, That the contract is fair circumstances, a contract between two or
and reasonable under the circumstances. more corporations having interlocking
directors shall not be invalidated on that
Director disqualified to vote if he has ground alone; Provided, That if the interest
personal interest of the interlocking director in one
A director is disqualified to vote at a corporation or corporations is merely
meeting of the board if he has any personal nominal, he shall be subject to the
interest in a matter before the board; in provisions of the preceding section insofar
such case, his vote cannot be counted in as the latter corporation or corporations are
making up a quorum. concerned.
Stockholdings exceeding twenty
Disclosure of adverse interest by director It percent (20%) of the outstanding capital
has been held that in dealing with their stock shall be considered substantial for
corporation the directors must make full purposes of interlocking directors.
disclosure of all relevant facts or the
transaction is voidable. The failure of a Interlocking directors Interlocking
director to inform his fellow directors of his directors are persons who serve as member
adverse bargaining position and other of the board of directors of two or more
material circumstances should be seriously competing corporations or corporations
considered and inspected by the courts as engaged in practically the same kind of
manner on the fairness and good faith of business.
the transaction and whether it is just and
reasonable as to the corporation. Effect of Corporate contracts with
interlocking directors
Exceptions in Signing contract without Interlocking directors of corporations does
authority of Board of Directors is void not make a contract between or among the
If a private corporation intentionally or corporations void and of no effect provided
negligently clothed its officers or agents there in no fraud and reasonable under the
with apparent power to perform acts of it, circumstances.
the corporation will be estopped to deny
that such apparent authority is real, as to Sec. 34. Disloyalty of a director. Where a
innocent third persons dealing in good faith director, by virtue of his office, acquires for
himself a business opportunity which
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should belong to the corporation, thereby majority vote of the board, except with
obtaining profits to the prejudice of such respect to: (1) approval of any action for
corporation, he must account to the latter which shareholders approval is also
for all such profits by refunding the same, required; (2) the filling of vacancies in the
unless his act has been ratified by a vote of board; (3) the amendment or repeal of by-
the stockholders owning or representing at laws or the adoption of new by-laws; (4) the
least two-thirds (2/3) of the outstanding amendment or repeal of any resolution of
capital stock. This provision shall be the board which by it express terms is not
applicable notwithstanding the fact that the so amenable or repealable; and (5) a
director risked his own funds in the venture. distribution of cash dividends to the
shareholders.
Duties of directors Sec. 36. Corporate powers and
Directors owe a three-fold duty to the capacity. Every corporation incorporated
corporation. First, they must be obedient; under this Code has the power and
they owe a duty to keep within the powers capacity:
of the corporation as well as within those of
the board of directors. Second, they must be To sue and be sued in its corporation name.
diligent; they owe a duty to exercise
reasonable care and prudence. The third Of succession by its corporate name for the
duty owing by directors is that of individual period of time stated in the articles of
loyalty. incorporation and the certificate of
incorporation.
Concept of corporate or business
opportunity. To adopt and use a corporate seal.
The doctrine of corporate opportunity is
but one phase of the cardinal rule of To amend its articles of incorporation in
undivided loyalty on the part of the accordance with the provisions of this
fiduciaries. If there is a presented to a code.
corporate officer or director a business To adopt by-laws, not contrary to law,
opportunity which the corporation is morals, or public policy, and to amend
financially able to undertake, is from its or repeal the same in accordance with
nature, in the line of the corporations this Code.
business and is of practical advantage to it,
is one in which the corporation will be In case of stock corporations, to issue or sell
brought into conflict with that of his stocks to subscribers and to sell
corporation, the law will not permit him to treasury stocks in accordance with the
seize the opportunity for himself. provisions of this code; and to admit
members to the corporation if it be a
Director is a fiduciary. non-stock corporation.
He who is in such fiduciary position cannot
serve himself first and his cestuis To purchase, receive, take or grant, hold,
(beneficiary) second. He cannot manipulate convey, sell, lease, pledge, mortgage
the affairs of his corporation to their and otherwise deal with such real and
disadvantage and in disregard of the personal property, including securities
standards of common decency. He cannot and bonds of other corporations, as the
by the intervention of a corporate entity transaction of the lawful business of the
violate the ancient principle against serving corporation may be reasonably and
two masters. necessarily require, subject to the
limitations prescribed by law and the
Sec. 35. Executive Committee. The by- Constitution.
laws of a corporation may create an
executive committee, composed of not less To enter into with other corporations
than three members of the board, to be merger or consolidation as provided in
appointed by the board. Said committee this code.
may act, by majority vote of all its members,
on such specific matters within the To make reasonable donations, including
competence of the board, as may be those for the public welfare or
delegated to it in the by-laws or on a
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shown on the books of the corporation and incorporation. From and after approval by
deposited to the addressee in the post office the Securities and Exchange Commission and
with postage prepaid, or served personally. the issuance by the Commission of its
certificate of filing, the capital stock shall
A certificate in duplicate must be signed by a stand increased or decreased and the
majority of the directors of the corporation incurring, creating or increasing of any
and countersigned by the chairman and bonded indebtedness authorized, as the
secretary of the stockholders meeting, certificate of filing may declare: Provided,
setting forth: That the Securities and Exchange
Commission shall not accept for filing any
That the requirements of this section have certificate of increase of capital stock unless
been complied with. accompanied by the sworn statement of the
Treasurer of the corporation lawfully holding
The amount of the increase or diminution of office at the time of the filing of the
the capital stock. certificate, showing that at least twenty-five
percent (25%) of such increased capital stock
If an increase of the capital stock, the has been subscribed and that at least
amount of capital stock or number of twenty-five percent (25%) of the amount
shares of no-par stock thereof actually subscribed has been paid either in actual
subscribed, the names, nationalities and cash to the corporation or that there has
residences of the persons subscribing, been transferred to the corporation property
the amount of capital stock or number the valuation of which is equal to twenty-five
of shares of no-par stock subscribed by percent (25%) of the subscription: Provided,
each, and the amount paid by each on further, That no decrease of the capital stock
his subscription in cash or property, or shall be approved by the Commission, if its
the amount of capital stock or number effect shall prejudice the rise of corporate
of shares of no-par stock allotted to each creditors.
stockholder if such increase is for the Non-stock corporations may incur or create
purpose of making effective stock bonded indebtedness, or increase the same,
dividend therefor authorized. with the approval by a majority vote of the
board of trustees and of at least two-thirds
Any bonded indebtedness to be incurred, (2/3) of the members in a meeting duly
created, or increased. called for the purpose.
The vote authorizing the increase or Bonds Bonds are in form and effect similar
diminution of the capital stock, or the to promissory notes, secured by mortgage or
incurring, creating or increasing of any trust deed upon specified property of the
bonded indebtedness. debtor corporation.
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Sec. 39. Power to deny pre-emptive right. A sale or other disposition shall be
All stockholders of a stock corporation shall deemed to cover substantially all the
enjoy pre-emptive right to subscribe to all corporate property and assets if thereby the
issues or disposition of shares of any class, corporation would be rendered incapable of
in proportion to their respective continuing the business or accomplishing
shareholdings, unless such right is denied by the purpose for which it was incorporated.
the articles of incorporation or an
amendment thereto: Provided, That such After such authorization or approval
pre-emptive right shall not extend to shares by the stockholders or members, the board
to be issued in compliance with laws of directors or trustees may, nevertheless,
requiring stock offerings or minimum stock in its discretion, abandon such sale, lease,
ownership by the public; or to shares to be exchange, mortgage, pledge or other
issued in good faith with the approval of the disposition of property and assets, subject
stockholders representing two-thirds (2/3) to the rights of third parties under any
of the outstanding capital stock, in exchange contract relating thereto, without further
for property needed for corporate purposes action or approval by the stockholders or
or in payment of a previously contracted members.
debt.
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natural resources may be entered into for deprive either the corporation or the other
such periods as may be provided by the part of money or property acquired under
pertinent laws or regulations. the contract. On the other hand, the great
weight of authority is to consider executor
Concept of management contract
contracts as unenforceable.
A management contract is an agreement
under which the board of directors of a
corporation delegates the powers of Ultra vires contracts accepted doctrines
management to another person or If the contract is fully executed on both
corporation for a period of time provided for sides, the contract is effective and the
in the agreement.
courts will not interfere to deprive either
part of what has been acquired under it.
Effects of Management contracts Contracts
by which the board of directors delegates If the contract is executor on both sides, as a
the power of supervision and management rule either party can maintain an action
to another person or corporation for a for its non-performance.
specified period are invalid if they involve a Where the contract is executor on side only,
surrender by the board of its power and duty and has been fully performed on the
of supervision and control. other, the courts differ as whether an
action will lie on the contract against the
Management prerogatives party who has received benefits of
An owner of a business enterprise is given performance under it. Majority of the
considerable margin in managing his courts hold that the party who has
business because it is deemed important to received benefits from the performance
society as a whole that he should succeed. is stopped to set up that the contract us
ultra vires to defeat an action on the
Sec. 45. Ultra vires acts of corporations. contract. There is, however, a rule which
No corporation under this Code shall possess
is widely recognized by the courts that
or exercise any corporate powers except
ultra vires. Should not be allowed to
those conferred by this Code or by its
prevail, when involved for or against the
articles of incorporation and except such as
corporation, where it will defeat the
are necessary or incidental to the exercise of
ends of justice or work a legal wrong.
the powers so conferred.
which is defective from a purported failure the appropriate government agency to the
to observe in its execution the requirement effect that such by-laws or amendments are
in accordance with law.
of the law that the investment must be
authorized by the affirmative vote of the
Necessity of by-laws
stockholders holding 2/3 of the voting
The corporation must adopt the code of by-
power. laws for its internal government.
Sec. 46. by-laws Adoption. Every Corporation has inherent power to adopt
corporation formed under this code, must, by-laws
within one month after receipt of official One of its legal incidents and is usually
notice of the issuance of its certificate of expressly granted by law of the charter
incorporation by the Securities and subject to such limitations as may be
Exchange Commission, adopt a new code of contained in the statute or the charter,
by-laws for its government not inconsistent subject to such limitations as may be
with this code. For the adoption of by-laws contained in the statute or charter, and the
by the corporation the affirmative vote of general requirements of validity. If a
the stockholders representing at least a corporation fails to file its by-laws within the
majority of the outstanding capital stock, or period required by law its certificate of
of at least a majority of the outstanding incorporation may be suspended or even
capital stock, or of at least a majority of the revoked.
members, in the case of non-stick
corporations, shall be necessary. The by- Section 46 allows the adoption and filing of
laws shall be signed by the stockholders or the by-laws before incorporation provided
members voting for them and shall be kept the same is approved by all the
in the principal office of the corporation, incorporators and submitted to the
subject to the inspection of the Securities and Exchange Commission
stockholders or members during office together with the articles of incorporation.
hours; and a copy thereof, duly certified to
by a majority of the directors or trustees By-laws cannot provide for unreasonable
and countersigned by the secretary of the restriction
corporation, shall be filed with the Restriction upon the traffic in stock must
Securities and Exchange Commission which have their source in legislative enactment,
shall be attached to the original articles of as the corporation itself cannot create such
incorporation. impediments. By-laws are created for
protection and not for restriction.
Notwithstanding the provisions of the
preceding paragraph, by-laws may be Elements of valid by-laws
adopted and filed prior to incorporation; in Must not be inconsistent with the general
such case, such by-laws shall be approved law and the Corporation Code.
and signed by all the incorporators and Must not be inconsistent with public policy.
submitted to the Securities and Exchange Must be general in application and not
Commission, together with the articles of directed against particular individuals.
incorporation. Must not be inconsistent with the articles of
incorporation.
In all cases, by-laws shall be effective only Must not impair obligations and contracts.
upon the issuance by the Securities and Must not be in restraint of trade.
Exchange Commission of a certification that Must not restrict religious freedom.
the by-laws are not inconsistent with the
Code. By-laws validity
As a rule, the by-laws of a corporation are
The Securities and Exchange Commission valid if they are reasonable and calculated
shall not accept for filing the by-laws or any to carry into effect the objects of the
amendment thereto of any bank, banking corporation, and are not contradictory to
institution, building and loan association, the general policy of the laws of the land.
trust company, insurance company, public
utility, educational institution or other
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The qualifications, duties and compensation Whenever any amendment or new by-laws
of directors or trustees, officer and are adopted, such amendment or new by-
employees. laws shall be attached to the original by-laws
in the office of the corporation, and a copy
The time for holding the annual election of thereof, duly certified under oath by the
directors or trustees and the mode or corporate secretary and a majority of the
manner of giving notice thereof. directors or trustees, shall be filed with the
Securities and Exchange Commission, the
The manner of election or appointment and same to be attached to the original articles
the term of office of all offices other of incorporation and original by-laws.
than directors or trustees.
Amender or new by-laws shall only be
The penalties for violation of the by-laws. effective upon the issuance by the SEC of a
certification that the same are not
In the case of stick corporations, the manner inconsistent with this code.
of issuing stock certificates.
The authority to make or adopt the original
Such other matter as may be necessary for by-laws of a corporation cannot be given to
the proper or convenient the board of directors or trustees. The
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Sec. 53. Regular of special meetings of A person who appears on the books of a
directors or trustees. The meetings shall corporation or otherwise as the absolute
be held monthly, unless the by-laws provide owner of stock clearly has the right to vote,
otherwise. although in face he may hold it as trustee.
Special meetings of the board of directors Executor and administrator has the right, to
or trustees may be held at any time upon vote shares belonging to the estate of his
the call of the president or as provided in decedent, and it can make no difference
the by-laws that the share stand on the books of the
corporation in the name of the decedent.
Meetings of directors or trustees of
corporations may be held anywhere in or Sec. 56. Voting in case of joint ownership
outside of the Philippines, unless the by- of stock. In case of share of stock owned
laws provide otherwise. Notice of regular or jointly by 2 or more persons, in order to
special meetings stating the date, time and vote the same, the consent of all the co-
place of the meeting must be sent to every owners shall be necessary, unless there is a
director or trustee at least 1 day prior to the written proxy, signed by all the co-owners.
scheduled meeting, unless otherwise Authorizing one or some of them or any
provided in the by-laws. A director or other person to vote such share or shares:
trustee may waive this requirement, either provided, that when the shares are owned
expressly or impliedly.
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in an capacity by the holders therof, any one of a voting trust specifically required as a
of the joint owner can vote said shares or condition in a loan agreement, said voting
appoint a proxy therfor. trust may be for a period exceeding 5 years
but shall automatically expire upon full
If share are owned by 2 or more persons payment of the loan. A voting trust
jointly, the right to vote is in them jointly, agreement must be in writing and
and , in order that the shares may be voted, notarized, and shall specify the terms and
they must agree upon the vote. This rule of conditions thereof. A certified copy of such
joint action applies to shares held by several agreement shall be filed with the
executors or trustees, in the absence of corporation and with the SEC: otherwise,
provision for a majority vote if the said agreement is ineffective and
fiduciaries disagree. unenforceable. The certificate or of stock
covered by the voting trust agreement shall
Sec. 57. Voting right for treasury share. be cancelled and new one shall be issued in
Treasury shares shall have no voting right as the name of the trustee or trustees stating
long as such stock remains in the treasury. that they are issued pursuant to said
agreement. In the books of the corporation,
Treasury shares have no voting rights. it shall be noted that the transfer in the
name of the trustee or trustees is made
Sec. 58. Proxies. Stockholders and pursuant to said voting trust agreement.
members may vote in person or by proxy in
all meetings of stock holders or members. The Trustee or trustees shall be execute and
Proxies shall be in writing, signed by the deliver to the transferors voting trust
stock holder or member and filed before certificates, which shall be transferable in
the scheduled meeting with the corporate the same manner and with the same effect
secretary. Unless otherwise provided in the as certificates of stock.
proxy, it shall be valid only for the meeting
for which it is intended. No proxy shall be The voting trust agreement filed with the
valid and effective for a period longer than corporation shall be subject to examination
five years at any one time. by any stockholder of the corporation in the
same manner as any other corporate book
Proxy In corporate law, is a person who or record: Provided, That both the
votes for and this represents the transferor and the trustee or trustees may
stockholders or members. exercise the right of inspection of all
corporate books and records in accordance
Voting by proxy with the provisions of this code.
Ordinarily the right to vote shall be
exercised by the stockholders themselves or Any other stock holder may transfer his
by their duly authorized representatives. shares to the same trustee or trustees upon
Proxy to be valid must be: the terms and conditions stated in the
In writing, signed by the stockholder or voting trust agreement, and there upon
member giving it. shall be bound by all the provisions of said
Filed with the corporate secretary agreement.
before the scheduled meeting.
It is valid only for the meeting for which it is No voting trust agreement shall be entered
intended unless otherwise stipulated. into for the purpose of circumventing the
Even if the proxy is a continuing one it law against monopolies and illegal
shall not be longer than 5 year at any combinations in restraint of trade or used
one time. for purposes of fraud.
Sec 59. Voting trusts. One or more Unless expressly renewed, all rights granted
stockholders of a stock corporation may be in a voting trust agreement shall
create a voting trust for the purpose of automatically expire at the end of the
conferring upon a trustee or trustees the agreed period, and the voting trust
right to vote and other rights pertaining to certificates as well as the certificates of stick
the share for a period not exceeding 5 years in the name of the trustee or trustees shall
at any one time: Provided, that in the case thereby be deemed cancelled and new
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Absolute Subscription one not subject to Sec. 62. Considering for stocks. Stocks
any condition or happening of certain shall not be issued for a consideration less
unknown events. than the par or issued price thereof.
Conditional Subscription its fulfillment Consideration for the issuance of stock may
depends upon the happening of be any or a combination of any two or more
uncertain events of contingencies. It of the following:
does not make the subscriber a
stockholder or render him liable to pay Actual cash paid to the corporation.
the amount of the subscription, until
performance or fulfillment of the Property, tangible or intangible, actually
condition. received by the corporation and
Subscription upon special terms where necessary or convenient for its use and
the corporation agreed, as an lawful purposes at a fair valuation equal
independent element, to do a certain to the par or issued value of the stock
thing or things, but not as condition to issued.
the accrual of liability of the subscriber
or the acquisition of the rights of a Labor performed for or services actually
stockholder. rendered to the corporation.
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Trust Fund Theory involves an implied Denying a stockholder delinquent for unpaid
promise to the corporation to pay the par subscription the right to vote (under
value of the shares in money or its section 71)
equivalent, supplementing it by a legal Collection from cash dividends and
restriction against release or fictitious withholding stock dividends (under
payment of this obligation to the prejudice Section 43)
of creditors.
Sanctions on stock delinquent
Sec. 66. Interest on unpaid subscriptions. Rights denied to stockholder shall not be
Subscribers for stock shall pay to the voted or be entitled to vote or
corporation interest on all unpaid representation at any stockholders'
subscriptions from the date of subscription, meeting, nor entitled the holder thereof
if so required by, and at the rate of interest to any of the rights of a stockholder
fixed in the by-laws. If no rate of interest is except the right to dividends.
fixed in the by-laws, such rate shall be Right given to the corporation.
deemed to be the legal rate. The corporation has the right to apply cash
dividends due on delinquent stock to the
Sec. 67. Payment of balance of unpaid balance on the subscription plus
subscription. Subject to the provisions of cost and expenses.
the contract of subscription, the board of
directors of any stock corporation may at any While stock dividends, corporation to
time declare due and payable to the withhold the same from the delinquent
corporation unpaid subscriptions to the stockholder until his unpaid subscription is
capital stock and may collect the same or fully paid.
such percentage thereof, in either case with
accrued interest, if any, as it may deem When is the balance of subscription
necessary. payable?
On the date specified in the contract of
Payment of any unpaid subscription or any subscription.
percentage thereof, together with the In the absence of any specified date in the
interest accrued, if any, shall be made on the contract of subscription, on the date
date specified in the contract of subscription stated in the call made by the board of
or on the date stated in the call made by the directors.
board. Failure to pay on such date shall
render the entire balance due and payable When does the stock become delinquent? A
and shall make the stockholder liable for stock becomes delinquent upon failure of
interest at the legal rate on such balance, the holder to pay the unpaid subscription or
unless a different rate of interest is provided balance thereof within 30 days from the
in the by-laws, computed from such date date specified in the contract of subscription
until full payment. If within thirty or on the date stated in the call.
days from the said date no payment is made,
all stocks covered by said subscription shall Call a declaration officially made by a
thereupon become delinquent and shall be corporation usually expressed in the form of
subject to sale as hereinafter provided, a resolution of the board of directors
unless the board of directors orders requiring payment of all or a certain
otherwise. prescribed portion of a subscriber's stock
subscription.
Remedies to enforce payment of stock
subscription Requisites for a valid call
Extra-judicial sale at public auction Permits It must be made in the manner prescribed
the corporation to put up unpaid stock by law.
for sale and dispose of it for the account It must be made by the board of directors.
of the delinquent subscribers (governed It must operate uniformly upon all shares.
by sections 67-69 of the Corporation
Code of the Philippines).
Judicial action by court action (provided
under Section 70)
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action in a court of proper jurisdiction the SEC. 72 Before unpaid shares become
amount due on any unpaid subscription, delinquent, the holder thereof is not
with accrued interest, costs and expenses. considered to have violated any contract
with the corporation, and, therefore, he has
As a general rule, a corporation may not all the rights of a stockholder which rights
maintain a suit for the enforcement of include the right to vote.
unpaid subscription without first making a
call. Sec. 73. Lost or destroyed certificates.
The following procedure shall be followed
Judicial remedy is limited to the amount for the issuance by a corporation of new
due on any unpaid subscription with certificates of stock in lieu of those which
accrued interest, costs and expenses have been lost, stolen or destroyed:
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form and with such sureties as may be every act done or ordered done at the
satisfactory to the board of directors, in meeting. Upon the demand of any director,
which case a new certificate may be trustee, stockholder or member, the time
issued even before the expiration of the when any director, trustee, stockholder or
one (1) year period provided herein: member entered or left the meeting must
Provided, That if a contest has been be noted in the minutes; and on a similar
presented to said corporation or if an demand, the yeas and nays must be taken
action is pending in court regarding the on any motion or proposition, and a record
ownership of said certificate of stock thereof carefully made. The protest of any
which has been lost, stolen or director, trustee, stockholder or member on
destroyed, the issuance of the new any action or proposed action must be
certificate of stock in lieu thereof shall recorded in full on his demand. The records
be suspended until the final decision by of all business transactions of the
the court regarding the ownership of corporation and the minutes of any
said certificate of stock which has been meetings shall be open to inspection by any
lost, stolen or destroyed. director, trustee, stockholder or member of
the corporation at reasonable hours on
Except in case of fraud, bad faith, or business days and he may demand, writing,
negligence on the part of the corporation for a copy of excerpts from said records or
and its officers, no action may be brought minutes, at his expense.
against any corporation which shall have
issued certificate of stock in lieu of those Any officer or agent of the corporation who
lost, stolen or destroyed pursuant to the shall refuse to allow any director, trustees,
procedure above-described. stockholder or member of the corporation
to examine and copy excerpts from its
SEC. 73 The registered owner of certificates records or minutes, in accordance with the
of stock in a corporation or his legal provisions of this Code, shall be liable to
representative shall file with the such director, trustee, stockholder or
corporation an affidavit setting forth how member for damages, and in addition, shall
certificate were lost, stolen or destroyed, be guilty of an offense which shall be
the number of shares represented by each punishable under Section 144 of this Code:
certificate, the serial numbers of the Provided, That if such refusal is made
certificate and name of the corporation pursuant to a resolution or order of the
which issued the same. board of directors or trustees, the liability
under this section for such action shall be
The affidavit shall be verified imposed upon the directors or trustees who
Corporation shall publish a notice in a voted for such refusal: and Provided,
newspaper in general circulation published further, That it shall be a defense to any
in the place where the corporation has its action under this section that the person
principal office for 3 consecutive weeks. demanding to examine and copy excerpts
from the corporation's records and minutes
After 1 year from the date of the last has improperly used any information
publication, if no contest presented to the secured through any prior examination of
corporation, corporation shall cancel in the the records or minutes of such corporation
books the lost certificates and issue new or of any other corporation, or was not
certificates. acting in good faith or for a legitimate
purpose in making his demand.
Sec. 74. Books to be kept; stock transfer
agent. Every corporation shall keep and Stock corporations must also keep a book to
carefully preserve at its principal office a be known as the "stock and transfer book",
record of all business transactions and in which must be kept a record of all stocks
minutes of all meetings of stockholders or in the names of the stockholders
members, or of the board of directors or alphabetically arranged; the installments
trustees, in which shall be set forth in detail paid and unpaid on all stock for which
the time and place of holding the meeting, subscription has been made, and the date
how authorized, the notice given, whether of payment of any installment; a statement
the meeting was regular or special, if special of every alienation, sale or transfer of stock
its object, those present and absent, and made, the date thereof, and by and to
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whom made; and such other entries as the 1. Certificated changing the
by-laws may prescribe. The stock and composition of the board of
transfer book shall be kept in the principal directors and officers
office of the corporation or in the office of Certificates changing the ownership of
its stock transfer agent and shall be open for the controlling interest in the
inspection by any director or stockholder of corporation
the corporation at reasonable hours on
business days. Management contracts duly approved by
the stockholders.
No stock transfer agent or one engaged
principally in the business of registering Sec. 75. Right to financial statements.
transfers of stocks in behalf of a stock Within ten (10) days from receipt of a
corporation shall be allowed to operate in written request of any stockholder or
the Philippines unless he secures a license member, the corporation shall furnish to
from the Securities and Exchange him its most recent financial statement,
Commission and pays a fee as may be fixed which shall include a balance sheet as of the
by the Commission, which shall be end of the last taxable year and a profit or
renewable annually: Provided, That a stock loss statement for said taxable year,
corporation is not precluded from showing in reasonable detail its assets and
performing or making transfer of its own liabilities and the result of its operations.
stocks, in which case all the rules and
regulations imposed on stock transfer At the regular meeting of stockholders or
agents, except the payment of a license fee members, the board of directors or trustees
herein provided, shall be applicable. shall present to such stockholders or
members a financial report of the
Books and records to be kept by operations of the corporation for the
Corporation preceding year, which shall include financial
Record of all business transactions statements, duly signed and certified by an
Minutes of all meetings of stockholders or independent certified public accountant.
members, or of board of directors or
trustees However, if the paid-up capital of the
Stock and transfer books corporation is less than P50,000.00, the
Optional records and supplementary books financial statements may be certified under
as many be necessary or required by oath by the treasurer or any responsible
special laws officer of the corporation.
SEC Rules requiring filing of documents. The Stockholders rights to financial statements
SEC requires all corporations whose and reports
securities are listed in any stock exchange or Balance sheet as of the end of the last
with permits to sell shares to the public or taxable year.
with twenty or more stockholders shall A profit and loss statement for said taxable
hereafter submit to this Commission within year.
thirty (30) days after approval of the The board of directors or trustees shall
corporate action, certified true copies of the present a financial report to
following documents evidencing the same, stockholders or members.
to wit:
Minute of meetings SEC REPORTORIAL REQUIREMENTS
Calling for payment of unpaid Period Requirements
subscriptions Within 30 days from a) Set up books of
Increasing or decreasing the capital registration of accounts duly
stock articles onaf registered with the
Changing the nomenclature of shares of incorporation BIR wherein receipts
stock or certificates of indebtedness and disbursements
Authorizing the borrowing of material made are
sums of money immediately
Other documents, such as: recorded.
b) Set up and
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Minutes of
The board of directors or trustees of each
meeting of corporation, party to the merger or
stockholders/memb consolidation, shall approve a plan of
ers electing the BoD merger or consolidation setting forth the
certified by the following:
Secretaryand
subscribed and The names of the corporations proposing to
sworn to before a merge or consolidate, hereinafter
notary public. referred to as the constituent
corporations.
Minutes of meeting
of BoD electing the The terms of the merger or consolidation
officers, certified by and the mode of carrying the same into
the effect.
secretaryand
subscribed and A statement of the changes. If any, in the
sworn to before a articles of incorporation of the surviving
notary public Submit corporation in case of merger; and, with
Within 5 days from list of respect to the consolidated corporation
stockholders/memb stockholders/memb in case of consolidation, all the
ers meeting ers as of the date of statements required to be set forth in
annual or special the articles of incorporation for
stockholders/memb corporations organized under this Code.
ersmeeting,
showing:
Name of the
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Such other provisions with respect to the combination by consolidation or merger are
proposed merger or consolidation as called the constituent corporations.
are deemed necessary or desirable.
Sec. 78. Articles of merger or
Sec. 77. Stockholders or members consolidation.
approval. Upon approval by majority vote After the approval by the stockholders or
of each of the board of directors or trustees members as required by the preceding
of the constituent corporations of the plan section, articles of merger or articles of
of merger or consolidation, the same shall consolidation shall be executed by each of
be submitted for approval by the the constituent corporations, to be signed
stockholders or members of each of such by the president or vice-president and
corporations at separate corporate certified by the secretary or assistant
meetings duly called for stockholders or secretary of each corporation setting forth:
members of the respective corporations, at
least two (2) weeks prior to the date of The plan of the merger or the plan of the
meeting, either personally or by registered consolidation.
mail. Said notice shall state the purpose of
the meeting and shall include a copy or a As to stock corporations, the number of
summary of the plan of merger or shares outstanding, or in case of non-
consolidation as the case may be. The stock corporations, the number of
affirmative vote of stockholders members.
representing at least two-thirds (2/3) of the
outstanding capital stock of each As to each corporation, the number of
corporations in case of stock corporations or shares or members voting for and
at least two-thirds of the members in case against such plan, respectively.
of non-stock corporations, shall be
necessary for the approval of such plan. Any Sec. 79. Securities and Exchange
dissenting stockholder in stock corporations Commissions approval and effictivity of
may exercise his appraisal right in merger or consolidation. The articles of
accordance with this Code; Provided, That if merger or of consolidation signed and
after the approval by the stockholders of certified as hereinabove required, shall be
such plan, the board of directors should submitted to the Securities and Exchange
decide to abandon the plan, the appraisal Commission in quadruplicate for its
right shall be extinguished. approval: Provided, That in the case of
merger or consolidation of banks or banking
Any amendment to the plan of merger or institutions, building and loan associations,
consolidation may be made, provided such trust companies, insurance companies,
amendment is approved by majority vote of public utilities, educational institutions and
the respective boards of directors or other special corporations governed by
trustees of all the constituent corporations special laws, the favorable recommendation
and ratified by the affirmative vote of of the appropriate government agency shall
stockholders representing at least two- first be obtained. Where the Commission is
thirds (2/3) of the members of each of the satisfied that the merger or consolidation of
constituent corporations. Such plan, the corporations concerned is not
together with any amendment, shall be inconsistent with the provisions of this Code
considered as the agreement of merger or and existing laws, it shall issue a certificate
consolidation. of merger or consolidation, as the case may
be, at which time the merger or
Definition consolidation shall be effective.
Consolidation the uniting or
amalgamation of two or more existing If, upon investigation, the Securities and
corporations to form a new corporation. Exchange Commission has reason to believe
The united concern resulting from the union that the proposed merger or consolidation
is called the consolidated corporation. is contrary to or inconsistent with the
Merger a union effected by the absorbing provisions of this Code or existing laws, it
of one or more existing corporations by shall set a hearing to give the corporations
another which survives and continues the concerned the opportunity to be heard.
combined business. The parties to a Written notice of the date, time and place
of said hearing shall be given to each
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constituent corporation at least two (2) corporation, as the case may be.
weeks before said hearing. The Commission Neither the rights of creditors nor any
shall thereafter proceed as provided in this lien upon the property of any of such
Code. constituent corporations shall be
impaired by such merger or
Sec. 80. Effects of merger or consolidation. consolidation.
The merger or consolidation, as provided
in the preceding sections shall have the Steps to achieve merger or consolidation
following effects: The BoD of each corporation must draw up
a plan of merger or consolidation.
The constituent corporations shall become a A plan must be submitted to the S/M of
single corporation which, in case of each corporation for approval. The vote
merger, shall be the surviving or two-thirds (members) or two-thirds
corporation designated in the plan of of the outstanding capital stock
merger; and, in case of consolidation, (stockholders) would be required.
shall be the consolidated corporation There has to be a formal agreement known
designated in the plan of consolidation. as the articles of M/C by the officers of
each of the constituent corporations.
The separate existence of the constituent The articles of M/C must be submitted to
corporations shall cease, except that of the SEC for approval.
the surviving or the consolidated The SEC shall if it deems necessary set a
corporation. hearing giving notice to all corporations
concerned.
The surviving or the consolidated The SEC issues the certificate of M/C. The
corporation shall possess all the rights, M/C becomes effective upon the
privileges, immunities and powers and issuance of the corresponding
shall be subject to all the duties and certificate.
liabilities of a corporation organized
under this Code. Remedy of creditors of constituent
corporations
The surviving or the consolidated The only remedy is either against the united
corporation shall thereupon and corporation, or to pursue the assets of the
thereafter possess all the rights, constituents into its hands on the ground of
privileges, immunities and franchises of fraudulent conveyance.
each of the constituent corporations;
and all property, real or personal, and Sec. 81. Instances of appraisal right. Any
all receivables due on whatever stockholder of a corporation shall have the
account, including subscriptions to right to dissent and demand payment of the
shares and other chooses in action, and fair value of his shares in the following
all and every other interest of, or instances:
belonging to, or due to each constituent
corporation, shall be taken and deemed In case any amendment to the articles of
to be transferred to and vested in such incorporation has the effect of changing
surviving or consolidated corporation or restricting the rights of any
without further act or dead. stockholders or class of shares, or of
authorizing preferences in any respect
The surviving or consolidated corporation superior to those of outstanding shares
shall be responsible and liable for all the of any class, or of extending or
liabilities and obligations of each of the shortening the term of corporate
constituent corporations in the same existence.
manner as if such surviving or
consolidated corporation had itself In case of sale, lease, exchange, transfer,
incurred such liabilities or obligations; mortgage, pledge or other disposition
and any claim, action or proceeding of all or substantially all of the
pending by or against any of such corporate property and assets as
constituent corporations may be provided in this Code.
prosecuted by or against the surviving
or consolidated
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Sec. 85. Who bears costs of appraisal. The important thing to consider in arriving
The costs and expenses of appraisal shall be at the appraisal value is whether the
borne by the corporation, unless the fair valuation arrived at is fair, just and
value ascertained by the appraisers is reasonable to all parties concerned.
approximately the same as the price which
the corporation may have offered to pay the Other instances when appraisal right may
stockholder, in which case they shall be be granted
borne by the latter. In case of an action to Amendment of any provision or matter
recover such fair value, all costs and stated in the articles of incorporation.
expenses shall be assessed against the When the corporate term is extended.
corporation, unless the refusal of the Any purpose other than the primary
stockholder to receive payment was purpose.
unjustified. Close corporation a stockholder may
compel the corporation to purchase FV
Consideration of the costs of appraisal for any reasons.
Expenses of appraisal: Exercise of appraisal right provided
Appraisers fees compensatory alternative to investor
Attorneys fees Appraisal statutes extending to corporate
Expert accountants fees purpose or duration amendments would
Witnesses before the appraisers fees seem to be of limited value.
Thus, clarifies an otherwise delicate aspect
of appraisal proceeding. Appraisal rights cannot challenge this power
but they can provide a compensatory
Sec. 86. Notation on certificate(s); right of alternative to an investor faced with a loss
transferee. Within ten (10) days after of existing stock rights and should be so
demanding payment for his shares, a employed.
dissenting stockholder shall submit the
certificate(s) of stock representing his When right of stockholder to payment
shares to the corporation for notation ceases
thereon that such shares are dissenting The demand for payment is withdrawn with
shares. His failure to do so shall, at the the consent of the corporation.
option of the corporation, terminate his The proposed corporate action is
rights under this Title. If shares represented abandoned or rescinded by the
by the certificate(s) bearing such notation corporation.
are transferred, and the certificate(s) Proposed action is disapproved by the SEC
consequently cancelled, the rights of the where such approval is necessary.
transferor as a dissenting stockholder under Such stockholder is not entitled to exercise
this Title shall cease and the transferee shall his appraisal right.
have all the rights of a regular stockholder;
and all dividend distributions which would Sec. 87. Definition. For the purposes of
have accrued on such shares shall be paid to this Code, a non-stock corporation is one
the transferee. where no part of its income is distributable
as dividends to its members, trustees, or
Valuation of shares of dissenting officers, subject to the provisions of this
shareholders Code on dissolution: Provided, That, any
Appraisers should consider the elements profit which a non-stock corporation may
that tend to affect market quotations: obtain as an incident to its operation shall,
whenever necessary or proper, be used for
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the furtherance of the purpose or purposes under such conditions which may be,
for which the corporation was organized, prescribed by, the Securities and Exchange
subject to the provisions of this Title. Commission.
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Sec.93. Place of meetings. The by-laws All liabilities and obligations of the
may provide that the members of a non- corporation shall be paid, satisfied and
stock corporation may hold their regular or discharged, or adequate provision shall
special meetings at any place even outside be made therefore.
the place where the principal office of the
corporation is located: Provided, That Assets held by the corporation upon a
proper notice is sent to all members condition requiring return, transfer or
indicating the date, time and place of the conveyance, and which condition occurs
meeting: and Provided, further, That the by reason of the dissolution, shall be
place of meeting shall be within the returned, transferred or conveyed in
Philippines. accordance with such requirements.
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or the by-laws, determine the shall be held of record by not more than
distributive rights of members, or any a specified number of persons, not
class or classes of members, or provide exceeding twenty (20).
for distribution.
All the issued stock of all classes shall be
In any other case, assets may be distributed subject to one or more specified
to such persons, societies, organizations restrictions on transfer permitted by
or corporations, whether or not this Title.
organized for profit, as may be specified
in a plan of distribution adopted The corporation shall not list in any stock
pursuant to this Chapter. exchange or make any public offering of
any of its stock of any class.
Sec. 95. Plan of distribution of assets. A Notwithstanding the foregoing, a
plan providing for the distribution of assets, corporation shall not be deemed a close
not inconsistent with the provisions of this corporation when at least two-thirds
Title, may be adopted by a non-stock (2/3) of its voting stock or voting rights
corporation in the process of dissolution in is owned or controlled by another
the following manner: corporation which is not a close
corporation within the meaning of this
The board of trustees shall, by majority Code.
vote, adopt a resolution recommending a
plan of distribution and directing the Any corporation may be incorporated as a
submission thereof to a vote at a regular or close corporation, except mining or oil
special meeting of members having voting companies, stock exchanges, banks,
rights. Written notice setting forth the insurance companies, public utilities,
proposed plan of distribution or a summary educational institutions and corporations
thereof and the date, time and place of declared to be vested with public interest in
such meeting shall be given to each accordance with the provisions of this Code.
member entitled to vote, within the time The provisions of this Title shall primarily
and in the manner provided in this Code for govern close corporations: Provided, That
the giving of notice of meetings to the provisions of other Titles of this Code
members. Such plan of distribution shall be shall apply suppletorily except insofar as
adopted upon approval of at least two- this Title otherwise provides.
thirds (2/3) of the members having voting
rights present or represented by proxy at Sec. 97. Articles of incorporation. The
such meeting. articles of incorporation of a close
corporation may provide:
Distribution of assets of non-stock
corporations to the members on dissolution For a classification of shares or rights and
is not forbidden, unless it holds its assets the qualifications for owning or holding
upon some trust, public or private, in which the same and restrictions on their
case the claims of the state, the transfers as may be stated therein,
beneficiaries, or of the founder and his subject to the provisions of the
successors may have to be considered. following section.
non-stock (non-profit) corporation may not
ordinarily organize as a stock corporation, For a classification of directors into one or
authorized to issue shares of stock, but may more classes, each of whom may be
issue membership certificates which do not voted for and elected solely by a
entitle to the holder to dividends. particular class of stock.
All the corporation's issued stock of all The articles of incorporation of a close
classes, exclusive of treasury shares, corporation may provide that the business
of the corporation shall be managed by the
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stockholders of the corporation rather than identity and personality of each shareholder
by a board of directors. So long as this are important to his associates, so that
provision continues in effect: although they may consider their business
as corporation in their dealings with third
No meeting of stockholders need be called persons, among themselves the
to elect directors. stockholders act and feel as partners.
Unless the context clearly requires Entities which may not be organized as
otherwise, the stockholders of the close corporations
corporation shall be deemed to be Mining or oil companies
directors for the purpose of applying Stock exchanges
the provisions of this Code. Banks
Insurance companies
The stockholders of the corporation shall be Public utilities
subject to all liabilities of directors. Educational institutions
Corporations declared to be vested with
The articles of incorporation may likewise public interest
provide that all officers or employees or
that specified officers or employees shall be Stockholders authorized to manage close
elected or appointed by the stockholders, corporations
instead of by the board of directors. As a rule, management of stock corporation
is normally given to board of directors or
Requisites of Close Corporation trustees. However, the Corporation Code
Within the meaning of a close corporation provides: The articles of incorporation of a
under the Corporation Code the following close corporation may provide that the
are its attributes: business of the corporation shall be
Its stockholders are limited not exceeding managed by the stockholders of the
20 persons. corporation rather than by a board of
Its shares of stock are subject to one or directors. Also, The articles of
more restrictions on transfer. incorporation may likewise provide that all
Its shares of stock are not listed in any stock officers or employees or that specified
exchange. officers or employees shall be elected or
appointed by the stockholders, instead of by
Salient Feature of Close Corporations the board of directors.
It has only a few stockholders, who if not
related by blood or marriage, know Sec. 98. Validity of restrictions on transfer
each other well and are aware of each of shares. Restrictions on the right to
others business skills. transfer shares must appear in the articles
All or more of them are active in the of incorporation and in the by-laws as well
corporate business, either as directors, as in the certificate of stock; otherwise, the
officers or as key men in management. same shall not be binding on any purchaser
The stocks of the corporation are not listed thereof in good faith. Said restrictions shall
on the exchange nor is there trading in not be more onerous than granting the
them outside the stock market. existing stockholders or the corporation the
*It would seem that base on these option to purchase the shares of the
features many corporations in the transferring stockholder with such
Philippines would be close corporations. reasonable terms, conditions or period
stated therein. If upon the expiration of said
Reasons for formation of close period, the existing stockholders or the
corporations corporation fails to exercise the option to
purchase, the transferring stockholder may
The existence of close corporations can be
sell his shares to any third person.
attributed to the desire of intimate groups
of business associates to obtain the
advantages of a corporate organization, like Sec. 99. Effects of issuance or transfer of
that of limited liability. However, the stock in breach of qualifying conditions.
If stock of a close corporation is issued or
transferred to any person who is not
entitled under any provision of the
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Unless consented to by all the stockholders operation of the business and affairs of
or if the close corporation has amended its a close corporation, the stockholders
articles of incorporation, a transfer of shall be held to strict fiduciary duties to
shares of stock in breach of qualifying each other and among themselves. Said
conditions would justify the corporation stockholders shall be personally liable
through the corporate secretary to refuse to for corporate torts unless the
register the transfer of stock. Such transfer corporation has obtained reasonably
need not be for value, hence it may be the adequate liability insurance.
result of a donation.
Effect of the Stockholders agreement
Sec. 100. Agreements by stockholders. before and after formation of corporation
Agreements by and among stockholders Stockholders agreements before and after
executed before the formation and formation and organization of the
organization of a close corporation, corporation survive incorporation and shall
signed by all stockholders, shall survive be valid and binding for as long as they are
the incorporation of such corporation not inconsistent with the articles of
and shall continue to be valid and incorporation. Agreements made prior to
binding between and among such incorporation require fairly literal
stockholders, if such be their intent, to performance. There must be an actual
the extent that such agreements are not contractual relation. Given such relation,
inconsistent with the articles of the pre-incorporators are promoters and
incorporation, irrespective of where the may arrange agreements to form and
provisions of such agreements are manage the corporation.
contained, except those required by this
Title to be embodied in said articles of Sec. 101. When board meeting is
incorporation. unnecessary or improperly held. Unless
the by-laws provide otherwise, any action
An agreement between two or more by the directors of a close corporation
stockholders, if in writing and signed by without a meeting shall nevertheless be
the parties thereto, may provide that in deemed valid if:
exercising any voting rights, the shares
held by them shall be voted as therein Before or after such action is taken, written
provided, or as they may agree, or as consent thereto is signed by all the
determined in accordance with a directors.
procedure agreed upon by them.
No provision in any written agreement All the stockholders have actual or implied
signed by the stockholders, relating to knowledge of the action and make no
any phase of the corporate affairs, shall prompt objection thereto in writing.
be invalidated as between the parties
on the ground that its effect is to make The directors are accustomed to take
them partners among themselves. informal action with the express or
implied acquiescence of all the
A written agreement among some or all of stockholders.
the stockholders in a close corporation
shall not be invalidated on the ground All the directors have express or implied
that it so relates to the conduct of the knowledge of the action in question and
business and affairs of the corporation none of them makes prompt objection
as to restrict or interfere with the thereto in writing.
discretion or powers of the board of
directors: Provided, That such If a director's meeting is held without
agreement shall impose on the proper call or notice, an action taken
stockholders who are parties thereto therein within the corporate powers is
the liabilities for managerial acts deemed ratified by a director who failed to
imposed by this Code on directors. attend, unless he promptly files his written
objection with the secretary of the
To the extent that the stockholders are corporation after having knowledge thereof.
actively engaged in the management or
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Rule and Exceptions when board meeting Canceling, altering or enjoining any
unnecessary resolution or act of the corporation or
General Rule: the directors of a corporation its board of directors, stockholders, or
cannot act individually or separately in officers.
order to bind the corporation. They must
act as a board at a meeting duly called for Directing or prohibiting any act of the
the purpose. corporation or its board of directors,
Exception: Section 101. It enumerates the stockholders, officers, or other persons
instances when a board at a meeting is party to the action.
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Requiring the purchase at their fair value of provided either for directorial disputes or
shares of any stockholder, either by the for stockholder disputes. Although there are
corporation regardless of the availability some disadvantages of arbitration
of unrestricted retained earnings in its proceedings, nevertheless, the advantages
books, or by the other stockholders. of arbitration, in saving both money and
hard feelings, would seem to outweigh the
Appointing a provisional director. disadvantages in most cases.
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The articles of incorporation may include as said court may have directed, and that it
any other provision not contrary to law for is to the interest of the corporation that
the regulation of the affairs of the leave to sell or mortgage should be granted.
corporation. The application for leave to sell or mortgage
must be made by petition, duly verified, by
Sec. 112. Submission of the articles of the chief archbishop, bishop, priest,
incorporation. The articles of minister, rabbi or presiding elder acting as
incorporation must be verified, before filing, corporation sole, and may be opposed by
by affidavit or affirmation of the chief any member of the religious denomination,
archbishop, bishop, priest, minister, rabbi or sect or church represented by the
presiding elder, as the case may be, and corporation sole: Provided, That in cases
accompanied by a copy of the commission, where the rules, regulations and discipline
certificate of election or letter of of the religious denomination, sect or
appointment of such chief archbishop, church, religious society or order concerned
bishop, priest, minister, rabbi or presiding represented by such corporation sole
elder, duly certified to be correct by any regulate the method of acquiring, holding,
notary public. selling and mortgaging real estate and
personal property, such rules, regulations
From and after the filing with the Securities and discipline shall control, and the
and Exchange Commission of the said intervention of the courts shall not be
articles of incorporation, verified by affidavit necessary.
or affirmation, and accompanied by the
documents mentioned in the preceding Filling of vacancies
paragraph, such chief archbishop, bishop, Sec. 114. Filling of vacancies. The
priest, minister, rabbi or presiding elder successors in office of any chief archbishop,
shall become a corporation sole and all bishop, priest, minister, rabbi or presiding
temporalities, estate and properties of the elder in a corporation sole shall become the
religious denomination, sect or church corporation sole on their accession to office
theretofore administered or managed by and shall be permitted to transact business
him as such chief archbishop, bishop, priest, as such on the filing with the Securities and
minister, rabbi or presiding elder shall be Exchange Commission of a copy of their
held in trust by him as a corporation sole, commission, certificate of election, or
for the use, purpose, behalf and sole benefit letters of appointment, duly certified by any
of his religious denomination, sect or notary public.
church, including hospitals, schools,
colleges, orphan asylums, parsonages and During any vacancy in the office of chief
cemeteries thereof. archbishop, bishop, priest, minister, rabbi or
presiding elder of any religious
Need for by-laws denomination, sect or church incorporated
No need for by-laws since the business is as a corporation sole, the person or persons
conducted by only one man. authorized and empowered by the rules,
regulations or discipline of the religious
Power to acquire and alienate property denomination, sect or church represented
Sec. 113. Acquisition and alienation of by the corporation sole to administer the
property. Any corporation sole may temporalities and manage the affairs, estate
purchase and hold real estate and personal and properties of the corporation sole
property for its church, charitable, during the vacancy shall exercise all the
benevolent or educational purposes, and powers and authority of the corporation
may receive bequests or gifts for such sole during such vacancy.
purposes. Such corporation may sell or
mortgage real property held by it by Dissolution
obtaining an order for that purpose from Sec. 115. Dissolution. A corporation sole
the Court of First Instance of the province may be dissolved and its affairs settled
where the property is situated upon proof voluntarily by submitting to the Securities
made to the satisfaction of the court that and Exchange Commission a verified
notice of the application for leave to sell or declaration of dissolution.
mortgage has been given by publication or
otherwise in such manner and for such time
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The declaration of dissolution shall set at a duly convened meeting of the body.
forth:
That the incorporation of the religious
The name of the corporation. society or religious order, or diocese,
synod, or district organization desiring
The reason for dissolution and winding up. to incorporate is not forbidden by
competent authority or by the
The authorization for the dissolution of the constitution, rules, regulations or
corporation by the particular religious discipline of the religious denomination,
denomination, sect or church. sect, or church of which it forms a part.
The names and addresses of the persons That the religious society or religious order,
who are to supervise the winding up of or diocese, synod, or district
the affairs of the corporation. organization desires to incorporate for
the administration of its affairs,
Upon approval of such declaration of properties and estate.
dissolution by the Securities and Exchange
Commission, the corporation shall cease to The place where the principal office of the
carry on its operations except for the corporation is to be established and
purpose of winding up its affairs. located, which place must be within the
Philippines.
Religious societies or corporations
aggregate The names, nationalities, and residences of
Sec. 116. Religious societies. Any religious the trustees elected by the religious
society or religious order, or any diocese, society or religious order, or the
synod, or district organization of any diocese, synod, or district organization
religious denomination, sect or church, to serve for the first year or such other
unless forbidden by the constitution, rules, period as may be prescribed by the laws
regulations, or discipline of the religious of the religious society or religious
denomination, sect or church of which it is a order, or of the diocese, synod, or
part, or by competent authority, may, upon district organization, the board of
written consent and/or by an affirmative trustees to be not less than five (5) nor
vote at a meeting called for the purpose of more than fifteen (15).
at least two-thirds (2/3) of its membership,
incorporate for the administration of its Case
temporalities or for the management of its Long v. Basa (2001)
affairs, properties and estate by filing with Since in matters purely ecclesiastical the
the Securities and Exchange Commission, decisions of the proper church tribunals are
articles of incorporation verified by the conclusive upon the civil tribunals, then a
affidavit of the presiding elder, secretary, or church member who is expelled from the
clerk or other member of such religious membership by the church authorities, or a
society or religious order, or diocese, synod, priest or minister who is by them deprived
or district organization of the religious of his sacred office, is without remedy in the
denomination, sect or church, setting forth civil courts. Long v. Basa, 366 SCRA 113
the following: (2001).
Additional Material: SEC Opinion No. 04-45,
That the religious society or religious order, Nov.28, 2004 to Ferrer and Ferrer Law Office
or diocese, synod, or district re term of existence of religious
organization is a religious organization corporation.
of a religious denomination, sect or
church. SEC Opinion No. 04-45, (Nov. 28, 2004)
Re: Term of Existence of Religious
That at least two-thirds (2/3) of its Corporations
membership have given their written Section 116 (as well as Sec. 160 of the
consent or have voted to incorporate, former Corporation Law) does not provide
for a term of existence of religious
corporations, whether classified as a
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places like the bulletin board of a municipal corporation for every infraction, the
hall, post office, the plaza and then the SEC infraction must be serious, because
will set that for hearing and determine w/n dissolution is imposing the death penalty
the corporation should be dissolved. upon the corporation.
The third one you will just shorten the The Court said the employees of a railroad
corporate life and this is the simplest and are required to wear uniform indicating
fastest way of dissolving the corporation their positions in their nameplate, now tell
voluntarily like when Ford Philippines me if one employee did not have such a
decided to close its subsidiary they simply nameplate you are going to dissolve a
amended the articles of corporation that corporation because that is a legal
the corporation will exist until December requirement?
31, 1978. It has to be a serious violation! But in one
The SEC will require getting a tax clearance case, the SC dissolved a corporation which
from the BIR and the stockholders will be was engaging in banking without
required to sign an undertaking that they authorization from the monetary board, it
will answer for the claim of the creditors to was accepting deposits from the public, the
the extent of the liquidating dividends they court considered that as a serious violation.
will receive. When a minority stockholder files a case
Then you can have an involuntary and asks to dissolve the corporation, the
dissolution. This could be done by filing a court said that that is a harsh remedy unless
quo warranto case under rule 66 of the ROC the situation is really beyond redemption
on the ground mentioned there or a you should not impose that remedy.
corporation can be dissolved for certain The corporation has three years after it
violation of the corporation code as should have been dissolved for the purpose
mentioned in the Corporation Code or PD of winding up its affairs. The SEC has said
902-A and also a minority stockholder may the three year period should be counted
file a petition to dissolve the corporation from the time the dissolution was approved
where the majority is mismanaging the by the SEC even if the directors and
assets of the corporation, dissipating its stockholders pass a resolution dissolving the
assets, and fraudulently disposing of its corporation that is not effective until it has
properties and a receiver may be appointed been approved by the SEC.
in an action for involuntary dissolution. For three years, the corporation will
The SC held in the leading case of El Hogar continue to exist it will no longer be a going
Filipino, 50 Phil. 399(1927) the first concern but only for the purpose of winding
corporation organized under the up that is why the SC has said that the
Corporation Act, the government filed a corporation cannot for example renew its
case to dissolve that corporation and contract of lease because it is no longer a
invoked 17 grounds, the SC denied the going concern.
petition. During the three year period, it should
Building and loans association like banks are devote its time prosecuting and defending
required to dispose of within 5 years of any law suits, winding up its affairs disposing its
properties they foreclosed they disposed of properties so they can be used to pay off its
the properties after 6 years but they exerted creditors and to distribute balance to the
their best efforts, they hired real estate stockholders.
brokers, they advertised in newspapers but There are two ways of providing for the
they just could not find buyers, they winding up of its affairs under the law. This
acquired this land and building, the SC held is voluntary either the directors themselves
that it is not illegal, that they leased the may take care of winding up the affairs of
space that they did not need for their office, the corporation or they may appoint a
that is not illegal they are maximizing their trustee like when Ford Philippines decided
property, that they provide a provision in to close its subsidiary here one of the last
the by-laws that stockholders can be acts of the BOD was to pass a resolution
compelled to surrender their shares, to be appointing Ricardo Romulo as trustee
bought out well the court said that that is vesting upon him legal title to all the assets
void but that is not sufficient ground to of Ford Philippines to be used to pay off its
dissolve the corporation. In other words the creditors and to dispose of its properties of
court is saying that you do not dissolve a Ford Philippines. to distribute the balance
as liquidating dividends.
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Supposed to be, this was the rule before if object of the meeting for three (3)
any case is not finished within the three consecutive weeks in a newspaper
year period, the case will be abated published in the place where the principal
whether the corporation is plaintiff or office of said corporation is located; and if
whether it is defendant but recent no newspaper is published in such place,
jurisprudence has rendered that obsolete. then in a newspaper of general circulation
That rule is applicable if it is the directors in the Philippines, after sending such notice
winding up the corporation. if the to each stockholder or member either by
corporation is under receivership, it is the registered mail or by personal delivery at
receiver who may wind up the affair of the least thirty (30) days prior to said meeting.
corporation. But if it is the trustee that will A copy of the resolution authorizing the
not apply, the trust will subsist until the dissolution shall be certified by a majority of
affairs of the corporation are wound up and the board of directors or trustees and
until any creditor can sue the trustee countersigned by the secretary of the
provided that the applicable prescriptive corporation. The Securities and Exchange
period has not yet lapsed. So if his cause of Commission shall thereupon issue the
action is based on a written contract he has certificate of dissolution.
ten (10) years to sue the trustee.
The Court has said that the remedy there if When a corporation is contemplating
the three years will end and there are still dissolution, it must submit tax return on
pending cases, is for the board to appoint a the income earned by it from the
trustee but more recent jurisprudence has beginning of the year up to the date of
fashioned a practicable solution to that the its dissolution and pay the
lawyer handling the cases may be corresponding tax due. BPI v. Court of
considered as trustee of the corporation Appeals, 363 SCRA 840 (2001).
and therefore the cases will not be abated
but should continue. Requirements where creditors are affected
In one case, the SC held that the directors Sec. 119. Voluntary dissolution where
may be considered as trustees after three creditors are affected. Where the
years so that they can continue to wind up dissolution of a corporation may prejudice the
the affairs of the corporation and in effect rights of any creditor, the petition for
the three year period has become dissolution shall be filed with the Securities
ineffectual. and Exchange Commission. The petition shall
be signed by a majority of its board of
What are the various methods of dissolving directors or trustees or other officers having
corporations? the management of its affairs, verified by its
Sec. 117. Methods of dissolution. A president or secretary or one of its directors
corporation formed or organized under the or trustees, and shall set forth all claims and
provisions of this Code may be dissolved demands against it, and that its dissolution
voluntarily or involuntarily. was resolved upon by the affirmative vote of
the stockholders representing at least two-
Voluntary thirds (2/3) of the outstanding capital stock or
by at least two-thirds (2/3) of the members at
Requirements where no creditors are
affected. a meeting of its stockholders or members
called for that purpose.
Sec. 118. Voluntary dissolution where no
creditors are affected. If dissolution of a If the petition is sufficient in form and
corporation does not prejudice the rights of substance, the Commission shall, by an
any creditor having a claim against it, the order reciting the purpose of the petition,
dissolution may be effected by majority fix a date on or before which objections
vote of the board of directors or trustees, thereto may be filed by any person, which
and by a resolution duly adopted by the date shall not be less than thirty (30) days
affirmative vote of the stockholders owning nor more than sixty (60) days after the entry
at least two-thirds (2/3) of the outstanding of the order. Before such date, a copy of the
capital stock or of at least two-thirds (2/3) order shall be published at least once a
of the members of a meeting to be held week for three (3) consecutive weeks in a
upon call of the directors or trustees after newspaper of general circulation published
publication of the notice of time, place and in the municipality or city where the
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laws allow Filipino citizens and corporations The name and address of its resident agent
to do business in its own country or state. authorized to accept summons and
process in all legal proceedings and,
Section 124. Application to existing foreign pending the establishment of a local
corporations. Every foreign corporation office, all notices affecting the
which on the date of the effectivity of this corporation.
Code is authorized to do business in the
Philippines under a license therefore issued The place in the Philippines where the
to it, shall continue to have such authority corporation intends to operate.
under the terms and condition of its license,
subject to the provisions of this Code and The specific purpose or purposes which the
other special laws. corporation intends to pursue in the
transaction of its business in the
A foreign corporation can have no legal Philippines: Provided, That said purpose
existence beyond the bounds of the state or or purposes are those specifically stated
sovereignty by which it is created. It exists in the certificate of authority issued by
only in contemplation of law and by force of the appropriate government agency.
the law, and where that law ceases to
operate, the corporation can have no The names and addresses of the present
existence. It must dwell in the place of its directors and officers of the
creation, and cannot migrate to another corporation.
sovereignty.
A statement of its authorized capital stock
Foreign corporations may do business in the and the aggregate number of shares
Philippines either by directly entering into which the corporation has authority to
transactions with resident persons, firms or issue, itemized by classes, par value of
corporations or by creating a domestic shares, shares without par value, and
subsidiary corporation which would have its series, if any.
own distinct personality.
A statement of its outstanding capital stock
Licensed foreign corporations is authorized and the aggregate number of shares
to do business in the Philippines shall which the corporation has issued,
continue to have such authority under the itemized by classes, par value of shares,
terms and condition of its license, subject to shares without par value, and series, if
the provisions of the Code and other special any.
laws.
A statement of the amount actually paid in.
Section 125. Application for a license. A
foreign corporation applying for a license to Such additional information as may be
transact business in the Philippines shall necessary or appropriate in order to
submit to the Securities and Exchange enable the Securities and Exchange
Commission a copy of its articles of Commission to determine whether such
incorporation and by-laws, certified in corporation is entitled to a license to
accordance with law, and their translation transact business in the Philippines, and
to an official language of the Philippines, if to determine and assess the fees
necessary. The application shall be under payable.
oath and, unless already stated in its articles
of incorporation, shall specifically set forth Attached to the application for license shall
the following: be a duly executed certificate under oath by
the authorized official or officials of the
The date and term of incorporation. jurisdiction of its incorporation, attesting to
the fact that the laws of the country or state
The address, including the street number, of of the applicant allow Filipino citizens and
the principal office of the corporation in corporations to do business therein, and
the country or state of incorporation. that the applicant is an existing corporation
in good standing. If such certificate is in a
foreign language, a
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some portion of them, in the usual and That the operation or activity is not
regular course of the prosecution of the inconsistent with the Investment
corporate enterprise for profit. Priorities Plan.
That the business or economic activity will
The Corporation Code outlines the contribute to the sound and balanced
procedural requirements for the application development of the national economy
and issuance of a license before a foreign on a self-sustaining basis.
corporation may transact business in the That the activity will not conflict with the
Philippines. Except in the case of foreign Constitution and laws of the Philippines.
banking, financial and insurance That the nosiness or economic activity is
corporations and other subject to special not one (1) adequately exploited by
laws, rules and regulations, if the applicant Philippine Nationals.
foreign corporation has complied with all That the entry of the applicant will not pose
the requirements of issuance of a license, a clear and present danger of
the SEC shall issue such license and promoting monopolies or combination
thereafter the foreign corporation may in restraint of trade.
transact business in the Philippines.
Presidential Decree No. 151 allows citizens
Republic Act No. 5455. Regulates the entry of the Philippines or corporations which
of foreign investments whenever foreign have acquired lands of the public domain or
equity participation exceeds 30 percent of which or any other law, to enter into service
the capital stock. contracts for financial, technical,
management or other forms of assistance
Under Republic Act no. 5455 doing with any foreign person or entity whenever
business includes: and wherever such contracts are vital to
Soliciting orders, purchases, service achieve sound and more expeditious
contracts, opening offices whether exploration, development, exploitation or
called liaison offices or branches. utilization of such lands owned, held or
Appointing representatives or distributors controlled by such citizens or corporations.
who are domiciled in the Philippines or
who in any calendar year stay in the Section 127. Who may be a resident agent.
Philippines for a period or periods A resident agent may be either an
totalling one hundred eighty days or individual residing in the Philippines or a
more. domestic corporation lawfully transacting
Participating in the management, business in the Philippines: Provided, That
supervision, or control of any domestic in the case of an individual, he must be of
business firm, entity, or corporation in good moral character and of sound financial
the Philippines. standing.
Any other act or acts that imply a continuity
of commercial dealings or Section 128. Resident agent; service of
arrangements, and contemplates to process. The Securities and Exchange
that extent the performance of acts or Commission shall require as a condition
works, or the exercise of some of the precedent to the issuance of the license to
function normally incident to, and in transact business in the Philippines by any
progressive prosecution of, commercial foreign corporation that such corporation
gain or of the purpose and object of the file with the Securities and Exchange
business organization. Commission a written power of attorney
designating some person who must be a
The Board of Investments requires license resident of the Philippines, on whom any
not only of corporations organized abroad summons and other legal processes may be
but also of domestic corporations, if more served in all actions or other legal
than 40% of its voting shares are owned and proceedings against such corporation, and
held by aliens or more than 30% of its total consenting that service upon such resident
capitalization is in the hands of aliens. agent shall be admitted and held as valid as
if served upon the duly authorized officers
Guidelines for issuance of certificate of of the foreign corporation at its home
authority to do business under BOI (Rep. office. Any such foreign corporation shall
Act No.5455)
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likewise execute and file with the Securities Section 129. Law applicable. Any foreign
and Exchange Commission an agreement or corporation lawfully doing business in the
stipulation, executed by the proper Philippines shall be bound by all laws, rules
authorities of said corporation, in form and and regulations applicable to domestic
substance as follows: corporations of the same class, except such
only as provide for the creation, formation,
The (name of foreign corporation) does organization or dissolution of corporations
hereby stipulate and agree, in consideration or those which fix the relations, liabilities,
of its being granted by the Securities and responsibilities, or duties of stockholders,
Exchange Commission a license to transact members, or officers of corporations to
business in the Philippines, that if at any each other or to the corporation.
time said corporation shall cease to transact
business in the Philippines, or shall be Licensed foreign corporations lawfully doing
without any resident agent in the business in the Philippines shall be subject
Philippines on whom any summons or other to our laws just like domestic corporations
legal processes may be served, then in any of the same class.
action or proceeding arising out of any
business or transaction which occurred in Philippine laws will not apply when it refers
the Philippines, service of any summons or to the creation, formation, organization or
other legal process may be made upon the dissolution of corporations or such as fux
Securities and Exchange Commission and the relations, liabilities, responsibilities, or
that such service shall have the same force duties of stockholders, members, or officers
and effect as if made upon the duly- of corporations to each other or to the
authorized officers of the corporation at its corporation.
home office.
Section 130. Amendments to articles of
Whenever such service of summons or incorporation or by-laws of foreign
other process shall be made upon the corporations. Whenever the articles of
Securities and Exchange Commission, the incorporation or by-laws of a foreign
Commission shall, within ten (10) days corporation authorized to transact business
thereafter, transmit by mail a copy of such in the Philippines are amended, such
summons or other legal process to the foreign corporation shall, within sixty (60)
corporation at its home or principal office. days after the amendment becomes
The sending of such copy by the effective, file with the Securities and
Commission shall be necessary part of and Exchange Commission, and in the proper
shall complete such service. All expenses cases with the appropriate government
incurred by the Commission for such service agency, a duly authenticated copy of the
shall be paid in advance by the party at articles of incorporation or by-laws, as
whose instance the service is made. amended, indicating clearly in capital letters
In case of a change of address of the or by underscoring the change or changes
resident agent, it shall be his or its duty to made, duly certified by the authorized
immediately notify in writing the Securities official or officials of the country or state of
and Exchange Commission of the new incorporation. The filing thereof shall not of
address. itself enlarge or alter the purpose or
purposes for which such corporation is
The SEC shall require as a condition authorized to transact business in the
precedent to the issuance of the license to Philippines.
transact business in the Philippines by any
foreign corporation that such corporation Section 131. Amended license. A foreign
file with the SEC, a written power of corporation authorized to transact business
attorney designating some person who in the Philippines shall obtain an amended
must be a resident of the Philippines, on license in the event it changes its corporate
whom any summons and other legal name, or desires to pursue in the
processes may be served in all actions or Philippines other or additional purposes, by
other legal proceedings against such submitting an application therefor to the
corporation. Securities and Exchange Commission,
favorably endorsed by the appropriate
government agency in the proper cases.
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Section 132 covers two legal situations: Section 134. Revocation of license.
The merger of a licensed foreign Without prejudice to other grounds
corporation with a domestic provided by special laws, the license of a
corporation. foreign corporation to transact business in
Must be accomplished by complying the Philippines may be revoked or
with the provisions of the suspended by the Securities and Exchange
Corporation Code. Commission upon any of the following
The merger of a licensed foreign grounds:
corporation with another corporation in
its country of origin which is not doing Failure to file its annual report or pay any
business in the Philippines. fees as required by this Code.
If the licensed foreign corporation is
absorbed by merger or Failure to appoint and maintain a resident
consolidation, it must withdraw its agent in the Philippines as required by
license to do business in the this Title.
Philippines.
Nevertheless, if the foreign absorbing Failure, after change of its resident agent or
corporation desire to continue the of his address, to submit to the
business of the absorbed Securities and Exchange Commission a
corporation in the Philippines, it statement of such change as required
has to file an application for a by this Title.
license to do business pursuant to
the requirements of Philippines Failure to submit to the Securities and
law on the matter. Exchange Commission an authenticated
copy of any amendment to its articles of
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of individuals related to each other by Sec. 143. Rule making power of the
consanguinity or affinity or by close Securities and Exchange Commission. The
business interests, or whenever it is Securities and Exchange Commission shall
necessary to achieve national objectives, have the power and authority to implement
prevent illegal monopolies or combinations the provisions of this Code, and to
in restraint or trade, or to implement promulgate rules and regulations
national economic policies declared in laws, reasonably necessary to enable it to
rules and regulations designed to promote perform its duties hereunder, particularly in
the general welfare and foster economic the prevention of fraud and abuses on the
development. part of the controlling stockholders,
members, directors, trustees or officers.
In recommending to the Batasang
Pambansa corporations, business or Sec. 144. Violations of the Code.
industries to be declared vested with a Violations of any of the provisions of this
public interest and in formulating proposals Code or its amendments not otherwise
for limitations on stock ownership, the specifically penalized therein shall be
National Economic and Development punished by a fine of not less than one
Authority shall consider the type and nature thousand (P1,000.00) pesos but not more
of the industry, the size of the enterprise, than ten thousand (P10,000.00) pesos or by
the economies of scale, the geographic imprisonment for not less than thirty (30)
location, the extent of Filipino ownership, days but not more than five (5) years, or
the labor intensity of the activity, the export both, in the discretion of the court. If the
potential, as well as other factors which are violation is committed by a corporation, the
germane to the realization and promotion same may, after notice and hearing, be
of business and industry. dissolved in appropriate proceedings before
the Securities and Exchange Commission:
Sec. 141. Annual report or corporations. Provided, That such dissolution shall not
Every corporation, domestic or foreign, preclude the institution of appropriate
lawfully doing business in the Philippines action against the director, trustee or officer
shall submit to the Securities and Exchange of the corporation responsible for said
Commission an annual report of its violation: Provided, further, That nothing in
operations, together with a financial this section shall be construed to repeal the
statement of its assets and liabilities, other causes for dissolution of a corporation
certified by any independent certified public provided in this Code.
accountant in appropriate cases, covering
the preceding fiscal year and such other Sec. 145. Amendment or repeal. No right
requirements as the Securities and or remedy in favor of or against any
Exchange Commission may require. Such corporation, its stockholders, members,
report shall be submitted within such period directors, trustees, or officers, nor any
as may be prescribed by the Securities and liability incurred by any such corporation,
Exchange Commission. stockholders, members, directors, trustees,
or officers, shall be removed or impaired
Sec. 142. Confidential nature of either by the subsequent dissolution of said
examination results. All interrogatories corporation or by any subsequent
propounded by the Securities and Exchange amendment or repeal of this Code or of any
Commission and the answers thereto, as part thereof.
well as the results of any examination made
by the Commission or by any other official Sec. 146. Repealing clause. Except as
authorized by law to make an examination expressly provided by this Code, all laws or
of the operations, books and records of any parts thereof inconsistent with any
corporation, shall be kept strictly provision of this Code shall be deemed
confidential, except insofar as the law may repealed.
require the same to be made public or
where such interrogatories, answers or Sec. 147. Separability of provisions.
results are necessary to be presented as Should any provision of this Code or any
evidence before any court. part thereof be declared invalid or
unconstitutional, the other provisions, so
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