PARTNERSHIP 2.

Co-ownership or co-pos
partnership, whether su
Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or or do not share any prof
industry to a common fund with the intention of dividing the profits among themselves.

Definition 3. The sharing of gross re

Partnership is a contract whereby two or more persons bind themselves to contribute money, property or industry partnership, whether or
to a common fund with the intention of dividing profits among themselves. joint or common right or
returns are derived.
Elements
1. Intention to form a contract of partnership 4. The receipt by a person
2. Participation in both profits and losses prima facie evidence tha
3. Community of interests such inference shall be d
payment:
Basic Features
1. Voluntary agreement a. As a debt by installment
2. Association for profit
3. Mutual contribution to a common fund b. As wages of an employee o
4. Lawful purpose or object
5. Mutual agency of partners c. As an annuity to a wid
6. Articles must not be kept secret partner.
7. Separate juridicalpersonality
d. As interest on a loan, tho
Characteristics the profits of the busines
1. Consensual – perfected by mere consent.
2. Bilateral – formed by two or more persons creating reciprocal rights and obligations. e. As the consideration for
3. Preparatory - entered into as a means to an end. other property by install
4. Nominate – has a special name or designation.
5. Onerous – contributions in the form of either money, property and/or industry must be made. In general, to establish t
essential features or ch
6. Commutative – the undertaking of each partner is considered as the equivalent of that of the others.
present. In case of doub
7. Principal – its existence or validity does not depend on some other contract.
to exclude from the categ
enumerated herein whic
Principle of Delectus Personae (choice of persons) – a person has the right to select persons with whom he wants to be
the existence of a partne
associated with in partnership.
Persons not partners as
Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners even in partners as between the
case of failure to comply with the requirements of Article 1772, first paragraph. Generally, the converse i
themselves, they cannot
Partnership, a juridical person Partnership is a matter o
As an independent juridical person, a partnership may enter into contracts, acquire and possess property of all kinds consent to become a pa
in its name, as well as incur obligations and bring civil or criminal actions. Thus, a partnership may be declared exists between the parti
insolvent even if the partners are not. It may enter into contracts and may sue and be sued in its firm name or by its declare they are not partn
duly authorized representative. It is sufficient that service of summons be served on any partner. between them. But
third persons into believ
Partners cannot be held liable for the obligations of the partnership unless it is shown that the legal fiction of a in a non-e
different juridical personality is being used for a fraudulent, unfair or illegal purpose.

Effect of failure to comply with statutory requirements

Under Art 1772
Partnership still acquires personality despite failure to comply with the requirements of execution of public instrument
and registration of name in SEC.

Under Arts 1773 and 1775

Partnership with immovable property contributed, if without requisite inventory, signed and attached to public
instrument, shall not acquire any juridical personality because the contract itself is void. This is also true for secret
associations or societies.

To organize a partnership not anabsolute right

It is but a privilege which may be enjoyed only under such terms as the State may deem necessary to impose.

Art. 1769. In determining whether a partnership exists,theserulesshallapply:

1. Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third
persons.
partnership, they become subject to liabilities of partners (doctrine of estoppel).Whether or not the parties call asserting its termination
their relationship or believe it to be a partnership is immaterial. Thus, with the exception of partnership by prove it merely by evid
estoppel, a partnership cannot exist as to third persons if no contract of partnership has been entered into between “partner”. Non-use of th
the parties themselves. The question of wheth
dependent upon the pers
Co-ownership or co-possession the parties. Parties int
There is co-ownership whenever the ownership of an undivided thing or right belongs to different persons. constitutes partnership a

Clear intent to derive profits from operation of business Legal intention is the
Co-ownership does not of itself establish the existence of a partnership, although it is one of its essential elements. themselves partners b
This is true even if profits are derived from the joint ownership. The profits must be derived from the operation something quite differe
of business by the members of the association and not merely from property ownership. The law does not imply state that theirs in n
a partnership between co-owners because of the fact that they develop or operate a common property, since they determine otherwise o
may rightfully do this by virtue of theirrespectivetitles.Theremustbeaclear intent to form a partnership. courts will be influenced t
their contract.
Existence of fiduciary relationship
Tests and incidents of p
Partners have a well-defined fiduciary relationship between them. Co-owners do not. Should there be dispute; the In determining whether
remedy of partners is an action for dissolution, termination and accounting. For co-owners it would be one, for distinguish between t
instance, for non- performance of contract. People can become co-owners without a contract but they cannot partnership. Only those
become partners without one. parties have reached an
or impliedly, may afford
Persons living together without benefit of marriage nature of the contract.
Property acquired governed by rules on co- ownership. partnership are:
1. The partners share in prof
Sharing of gross returns not even presumptive evidence of partnership 2. They have equal rights in
The mere sharing of gross returns alone does not even constitute prima facie evidence of partnership, since in a business.
partnership, thepartnersshare profitsafter satisfying allof the partnership’s liabilities. 3. Every partner is an age
bind the others by his a
partnership obligations.
4. All partners are perso
partnership with their s
partners are not bou
Reason for the rule investment.
Partner interested in both failures and successes; it is the chance of loss or gain that characterizes a business. 5. A fiduciary relation exist
Where the contract requires a given portion of gross returns to be paid over, the portion is paid over as commission,
6. On dissolution, the p
wages,rent,etc. continues until the wind
incidents may be modifie
Where there is evidence of mutual management
Where there is further evidence of mutual management and control, partnership may result. Similarities between a pa
1. Both have juridical person
Receipt of share in the profits strong presumptive evidence of partnership the individuals composin
An agreement to share both profits and losses tends strongly to establish the existence of a partnership. It is not
conclusive, however, just prima facie and mayberebutted by other circumstances.

When no such inference willbe drawn Under par. 4 of art. 1769, sharing of profits isnotprima facieevidenceof
partnership in the cases enumerated under subsections (a)
– (e). In these cases, the profits are not shared as partner but in some other respects or purpose. The basic test
of partnership is whether the business is carried on in behalf of the person sought to be held liable.

Sharing of profits as owner

It is not merely the sharing of profits, but the sharing of them as co-owner of the business or undertaking that
makes one partner. Test: Does the recipient have an equal voice as proprietor in the conduct and control of the
business? Does he own a share of the profits as proprietor of the business producing them? One must have an
interest with another in the profits of a business as profits.

Burden of proof and presumption

The burden of proving the existence of a partnership rests on the party having the affirmative of that issue. The
existence of a partnership must be proved and will not be presumed. The law presumes that those acting as partners
have entered into a contract of partnership. Where the law presumes the existence of partnership, the burden of
proof is on the party denying its existence. When a partnership is shown to exist, the presumption is that it continues
and the burden of proof is on the person
2. Both can only act through its agents; Right to return of contri
3. Both are organizations composed of an aggregate of individuals; Partners must be reimb
4. Both distribute profits to those who contribute capital to the business; contributions. The partn
5. Both can only be organized where there is a law authorizing is organization; only the amount contr
6. Partnerships are taxable as corporations. partnership contract on
the purpose for which
Art. 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or come into existence,
return it, and he who ha
interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the profits shall be
confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation
Right to receive profits wh
of the instruments and effects ofacrime.Objectorpurposeofpartnership Law does not permit a
unlawful partnership be
The provision of the 1st paragraph reiterates 2 essential elements of a contract of partnership: have to base his action u
1. Legality of the object; and null and without legal
2. Community of benefit or interest of the partners. The parties possess absolute freedom to choose the transaction or object; and it is self-evid
transactions they must engage in. The only limitation is that the object must be lawful and for the common benefit a cause of action. Profit
of the members. The illegality of the object will not be presumed; it must appear to be of the essence of the the partner’s contributio
relationship. which is void. It would
permit a profit from an
Effects of an unlawful partnership will refuse to recognize
1. The contract is void and the partnership never existed in the eyes of the law; to assist either of the pa
2. The profits shall be confiscated in favor of the government; other. Therefore, there c
3. The instruments or tools and proceeds of the crime shall also be forfeited in favor of the government; partner for the profits
4. The contributions of the partners shall not be confiscated unless they fall under #3. recovery be had.

A partnership is dissolved by operation of law upon the happening of an event which makes it unlawful. A judicial Effect of partial illegality
decree is not necessary to dissolve an unlawful partnership. However, advisable that judicial decree be secured. 3rd Where a part of the b
persons who deal w/ partnership w/o knowledge of illegal purpose are protected. account of that which
knowledge or participatio
lawful business has be
innocent partners are
partners from recovering

Effect of subsequent ille

Contract will not be nu
the partnership is form
entered into, but afterw
be had as to the busines
Community of interest between the partners for business purposes is in writing or at l
The salient features of an ordinary partnership are a community of interest in profits and losses, a community of memorandum.
interest in the capital employed, and a community of power in administration. This community of interest is the basis
of the partnership relation. However, although every partnership is founded on a community of interest, e very Partnership implied from
community of interest does not necessarily constitute a partnership. Property used in the business may belong to one Binding effect
or more partners, so that there is no joint property, other than joint earnings. To state that partners are co-owners Existence of partnersh
of a business is to state that they have the power if ultimate control. But partners may agree upon concentration of conduct of the parties, a
management, leaving some of their members entirely inactive or dormant. Only one of these features, profit- such implied contract w
sharing, seems to be absolutely essential. But a mere sharing of profits of itself does not of necessity constitute a express contract.
partnership. The court must consider all the essential elements in light of the facts of the particular case before
deciding whether a partnership exists. Ascertainment of intent
In determining whether
Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are partnership, as between
contributed thereto, in which case a public instrument shall be necessary .Form of partnership contract by the entire transactio
from the language emp
General rule conduct, should be ascert
No special form required for validity or existence of the contract of partnership. Contract maybe made orally or in
writing regardlessofthevalueofthecontributions. Conflict between intent
If the parties intend a g
Where immovable property or real rights are contributed partners although their
Execution of public instrument necessary for validity of contract of partnership. To affect 3 rd persons, the transfer a relation.
of real property to the partnership must be duly registered in the Registry of Property.
Art. 1772. Every contrac
When partnership agreement covered by the Statute of Frauds thousand pesos or more
An agreement to enter in a partnership at a future time, which by its terms is not to be performed w/in a year from the public instrument, whic
making thereof is covered by the Statute of Frauds. Such agreement is unenforceable unless it Securities and Exchange
requirements of the pr
liability of the partnersh
persons. Registration of p

Partnership with capita

Requirements:
1. The contract must appea
2. It must be recorded or
to comply w/ the above
formation of the partne
the partners to 3rd perso
bylaw to compel each o
instrument.

Purpose of registration
Registration is necessar
licenses to engage in bu
liabilities of big partner
can determine more
 accurately their membership and capital before dealing with them. inventory of immovable
description and designat
When partnership considered registered The objective of the law is to make the recorded instrument open to all and to to inscription in t
give notice thereof to interested parties. This objective is achieved from the date the partnership papers are contribution cannot pre
presented to and leftforrecordintheCommission. Thisisthe effective date of registration. If the
certificate of recording is issued on a subsequent date, its effectively retroacts to date of presentation. Art. 1774. Any immovab
be acquired in the part
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of conveyed only in the
said property is not made, signed by the parties, and attached to the public instrument. Partnership with contribution
conveyance of property
of immovable property

Where immovable property contributed, failure to comply w/ the following requisites will render the partnership Since partnership has jurid
contract void: immovable property in i
conveyed only inthe partn
1. The contract must be in a public instrument;
2. An inventory of the property contributed must be made, signed by the parties, and attached to the public
Art.1775. Associations and
instrument. Art. 1773 is intended primarily to protect 3rd persons. W/ regard to 3rdpersons, a de facto partnership
among the members, a
or partnership by estoppel may exist. There is nothing to prevent the court from considering the partnership
may contract in his own
agreement an ordinary contract from which the parties’ rights and obligations to each other may be inferred and
no juridical personality,
enforced.
relating to co-ownership
personality
When inventory is not required
An inventory is required only whenever immovable property is contributed. If not contributed or if personal
Partnership relation is cr
property, no inventory required.
of the partners. It is
informed not only of the
Importance of making inventory of real property in a p a r t n e r s h i p
the partnership. Secret
An inventory is very important in a partnership to how much is due from each partner to complete his share in
partnerships. Secret pa
the common fund and how much is due to each of them in case of liquidation. The execution of a public instrument of
provisions relating to co-
partnership would be useless if there is no
Importance of giving pub
It is essential that the arts
protection not only of t
persons from fraud an
business for the secret
personally bound to 3rd pe
association. Partnership
however, in cases of esto

Art. 1776. As to its obje

particular. As regards the
may be general or limite
 As to extent of its subject matter not avowed or made know
1. Universal partnership. (Art. 1777) Open or notorious partne
a. Universal partnership of all present property. (Art. 1778) made known to the publi
b. Universal partnership of profits. (Art. 1780)
2. Particular partnership. (Art. 1783) As to purpose
Commercial or trading par
As to liability of the partners of business.
General partnership: one consisting of general partners who are liable prorata and subsidiary and sometimes solidarily
w/ their separate property for partnership debts. Professional or non-trad
exerciseofaprofession.
Limited partnership: one formed by two or more persons having as members one or more general partners and one or
more limited partners, the latter not being personally liable for the obligations of the partnership. Kinds of partners
Under the Civil Code
As to duration 1. Capitalist partner: one w
Partnership at will: one in w/c no time is specified and is not formed for a particular undertaking or venture and w/c the common fund.
may be terminated at any time by mutual agreement of the partners, or by the will of any one partner alone; or one 2. Industrial partner: one
for a fixed term or particular undertaking w/c is continued after the end of the term or undertaking w/o express personal service.
agreement. 3. General partner: one wh
Partnership with a fixed term: one w/c the term for w/c the partnership is to exist is fixed or agreed upon or one his separate property.
formed for a particular undertaking. 4. Limited partner: one wh
his capital contribution.
As to the legality of its existence 5. Managing partner: one w
De jure partnership: one w/c has complied w/ all the legal requirements for its establishment. 6. Liquidating partner: one
De facto partnership: one w/c has failed to comply w/ all the legal requirements for its establishment. partnership affairs upon
7. Partner by estoppel: on
As to representation to others as a partner for the prote
Ordinary or real partnership: one w/c actually exists among the partners and also as to 3rdpersons. represented as being a p
Ostensible partnership or partnership or partnership by estoppel: one w/c in reality is not a partnership, but is partners themselves.
considered a partnership only in relation to those who, by their conduct or admission, are precluded to deny or8. Continuing partner: one
disprove its existence. partnership after it ha
admission of a new p
As to publicity expulsion of one or mor
Secret partnership: one wherein the existence ofcertain persons as partners is
9. Surviving partner: one
been dissolved by the de
10. Subpartner: one w
partnership, contracts w
share in the partnership.

Other classifications
1. Ostensible partner: one
public as a partner.
2. Secret partner: one who
not known to be a partne
 out as a partner by the other partners. He is an actual partner. Property w/c belonged
3. Silent partner: one who does not take any active part in the business although he may be known to be a partner. constitution of the partn
4. Dormant partner: one who does not take active part in the business and is not known or held out as a partner. He Profits w/c they may acq
would be both a silent and a secret partner.
5. Original partner: one who is a member of the partnership from the time of its organization. Contribution of future p
6. Incoming partner: a person lately, or about to be, taken into an existing partnership as a member. General rule: future pr
7. Retiring partner: one withdrawn from the partnership; a withdrawing partner. Art. 1777. A universal partnership may very essence of the con
refer to all the present property or to all the profits. contributed be include
contribution of things de
Art. 1778. A partnership of all present property is that in which the partners contribute all the property which like that of a donor, an
actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as property. Thus, prop
all the profits they may acquire therewith. 1.inheritance; 2. Legacy
stipulation except the
Art. 1779. In a universal partnership of all present property, the property which belongs to each of the partners at the including property so
time of the constitution of the partnership becomes the common property of all the partners, as well as all the sources (not from p
profits which they may acquire there with. A stipulation for the common enjoyment of any other profits may also be common property only i
made; but the property which the partners may acquire subsequently by inheritance, legacy or donation cannot be
included in such stipulation, except the fruits thereof. Art. 1780. A universal par
partners may acquire by
Universal partnership of all present property explained existence of the partner
A universal partnership of profits is one w/c comprises all that the partners may acquire by their industry or work during which each of the part
the existence of the partnership and the usufruct of movable or immovable property w/c each of the partners may celebration of the contrac
possess at the time of the celebration of the contract. In this kind of partnership, the following become the each, only the usufruct p
common property of all the partners:
Universal partnership of pro
profits is one w/c compri
their industry
of t
ofmovableorimmovable
possessatthe time of the

Ownershipofpresent andf
their ownership over the
passes to the partnership
usufructofthesame. Con

is returned to the partne

Profits acquired through

Since the law only spe
acquire by their industr
chance are not included.
 Art. 1783. A particu
Fruits of property subsequently acquired Fruits of property subsequently acquired by the partners do not determinate things, t
belong to the partnership. Such profits, however, may be included by express stipulation. undertaking, or the exer

Art. 1781. Articles of universal partnership, entered into without specification of its nature, only constitute a universal Particular partnership e
partnership of profits. A particular partnershi
partnership of present p
Presumption in favor of universal partnership of profits profits. The fundamen
Reason for presumption: universal partnership of profits imposes less obligations on the partners, since they partnership and a parti
preserve the ownership of their separate property. their subject matter or
vague and indefinite, co
Art. 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into a degree of continuity, wh
universal partnership. Limitations upon the right to form a partnership defined, being confined
temporary, or ad hoc nat
Persons who are prohibited by law to give donations cannot enter into a universal partnership for the reason that
each of the partners virtually makes a donation. To allow it would be permitting them to do indirectly what the law Business of partnership
expressly prohibits. A partnership formed in violation of this article is null and void. Consequently, no legal The carrying on of a b
personality is acquired. A husband and wife, however, may enter into a particular partnership or be members thereof. essential to constitute
Relevant provisions: undertake a particular p
a limited number of tra
Art. 87: Donations between spouses during marriage void, except moderate gifts on occasion of family rejoicing. Also resulting profits would se
applies to those living together as husband and wife w/o valid marriage. “partnership” as used in
Art. 739: The following donations are void: Those made between persons who are guilty of adultery or concubinage
at the time of the donation (no need for conviction; preponderance of evidence only required); Rule under American la
Those made between persons found guilty of the same criminal offense, inconsideration thereof; The above is not true u
c.)Thosemadetoapublicofficerorhiswife, descendants and ascendants, by reason of his office. does not include joint ve
or a limited number of tra

Joint venture
While a joint venture is
technical sense, both
qualifications, practically
partnership. This is logic
in a partnership, there
business and a mutual ri
jointly in profits andloss

Corporation as a partne
While under the Philipp
of partnership w/ a lega
the parties composing i
law of partnership, the
distinction between thes
 forms, and has held that although a corporation cannot enter into a partnership contract, it may, however, engage in a have contributed it up to a
joint venture if the nature of the venture is authorized by its charter. demand;
4. Shall preserve said prope
Art. 1784. A partnership begins from the moment of the execution of the contract, unless it is otherwise of a family pending their
stipulated. (1679) 5. And shall indemnify the p
the retention of said
Art. 1785. When a contract for a fixed term or particular undertaking is continued after the termination of such term or contribution.
particular undertaking without any express agreement, the rights and duties of the partners remains the same as
they were at such termination, so far as is consistent with a partnership at will. Art. 1787. When the cap
bound to contribute co
A continuation of the business by the partners or such of them as habitually acted therein during the term, without made in the manner pr
any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership. and in the absence of st
chosen by the partners
Partnership at will is one in which no term of existence has been fixed and which may be terminated at the will of any subsequent changes th
partners. partnership.

Art. 1786. Every partner is a debtor of the partnership for whatever he may have promised to contributethereto. Art. 1788. A partner who
money and fails to do so
He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may damages from the tim
have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to obligation.
the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the
needofanydemand. The same rule applies to
the partnership coffers,
Obligations of partners to contribute: he converted the amoun
1. Shall deliver at the beginning of the partnership or, if a different date has been agreed upon, at the stipulated time
the properties he agreed to contribute; Liability of partner for e
2. Shall answer for eviction, in case the partnership is deprived of the ownership of any specific property he Failure to return the m
contributed; fraudulent appropriation
3. Shall answer to the partnership for the fruits of the properties whose delivery he delayed from the date he should with specific instruction
estafa is committed under

Art. 1789. An industrial

himself, UNLESS the part
and if he should do s
exclude him from the fir
which he may have obtai
right to damages in eithe

Industrial partner is one

the partnership.

Industrial partner barred f

 To prevent any conflict of interest between the industrial and the partnership, and to insure faithful compliance by said partner with his prestatio

Art. 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership.

Art. 1791. If there is no agreement to the contrary, in case of an imminent loss of the business of the partnership, any partner who refuses to con

Art. 1792. If a partner authorized to manage collects a demandable sum, which was owed to him in his own name, from a person who owned th
partnership credit, the amount shall be fully applied to the latter.

The provisions of this article are understood to be without prejudice to the right granted to the debtor by Art. 1252, but only if the personal credit o

Requisites:
1. Two existing debts
2. Both debts must be demandable
3. The one who collected the debt is a partner who is authorized to manage and is actually managing the partnership

Art. 1793. A partner who has received, in whole or in part, his share of a partnership credit, when the other partners have not collected theirs, sh

Art. 1794. Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot
(perishable) like wine, oil, etc., even if they are contributed only for the use of the partnership, the risk of loss shall be for the account of the partne

Things contributed to be sold

If the things contributed are to be sold, the partnership bears the risk of loss, for obviously the partnership is the intended owner;otherwise, thef

Things brought and appraised in inventory The partnership bears the risk of loss of things brought and appraised in the inven

Art. 1796. The partnership shall be responsible to every partner for the amounts he may have disbursed on behalf of the partnership and for the

Responsibility of the partnership to a partner

If a partner has advanced funds for the partnership, he is entitled to recover the amounts advanced by him with interest. This must be so for th

Art. 1797. The profits and losses shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agr
In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the in
the share of each one in the profits and losses, such designation may be impugned only when it is manifestly inequitable. In no case may a partner w

The designation of profits and losses cannot be entrusted to one of the partners.

Reason for the provision

Admittedly, the designation of profits and losses cannot be entrusted to one of the partners as the fulfillment of a contract cannot be left to on

Art. 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void.

Stipulation to exclude a partner from profits and losses is void

The law does not allow a provision in the contract of partnership excluding one or more partners from sharing in the profits and losses. The reas

Reason for exclusion of industrial partner An industrial partner is not liable for losses because if the partnership fails to realize any profits, the indus

Art. 1800. The partner who has been appointed manager in the articles of the partnership may execute all acts of the administration despite
granted after the partnership has constituted may revoked at any time. Each partner has a right to an equal voice in the conduct of the partnershi
 nothing to prevent the partners to enter into a collateral verbal agreement to that effect.
EXCEPTIONS: In proper cases, the law may imply a contract for compensation;
1. A partner engaged by his co-partners to perform services not required of him in fulfilment of the duties and in capacity other than that of a partner.
2. When there is extraordinary neglect on the part of one partner to perform his duties, imposing entire burden on remaining partner.
3. One partner may employ the other to do work for him outside of and independent of the co-partnership.
4. Partners exempted by terms of partnership from rendering services may demand pay for services rendered.
5. Where one partner is entrusted with management and devotes his whole time and devotion at the instance of the other partners who are attend

Art. 1801. If two or more partners have been intrusted with the management of the partnership without the specification of their respective duti
prevail. In the case of tie the partners owning the controlling interest shall decide the matter. Where respective duties of two or more managing p

Each one may separately perform acts of administration

1. Ifoneormoreofthemanaging partners shallopposetheactsoftheothers,then the decision of the majority of the managing partners shall prevail. Righ
2. Incaseoftie,mattershallbedecidedby the vote of the partners owning the controlling interest.

REQUISITES FOR APPLICATION OF RULE

1. Two or more partners have been appointed as managers;
2. There is no specification of their
Rules when manner of the management that has not agreed upon all partners considered as managers and agents
All partners shall have equal rights in the mgmt. and conduct of partnership affairs. All of them shall considered mgrs. and agents and whatever

Unanimous consent required for alteration of immovable property

The consent need not be express. It may presume from the fact of knowledge of the alteration without interposing any objection. Prohibitio
prejudicial to the interest of the partnership, court intervention maybe sought. Consent may presume from silence (lack of opposition despite kno

Art. 1804. Every partner may associate another person with him in his share, but the associates shall not admitted into the partnership without

The partnership formed between a member of a partnership and a third Person fora division oftheprofitscomingto him from
It is a partnership within a partnership and is distinct and separate from the main or principal partnership.

Right of the person associated with the partnership’s share

Subpartnership agreements do not affect the composition, existence, or operations of the firm. The subpartners are partners interest,

However, in the absence of the mutual assent of all the parties, a subpartner does
partner or of any partner under legal disability. Duty to render information, there must be no concealment between partners in all matters affectin
in partnership books since each partner has the right to inspect those. Good faith not only requires that a partner should not make a false stateme

Art. 1807. Every partner must account the partnership for any benefit, and hold as trustee for it any profits derived from him without the consen

The relation between the partners is essentially fiduciary involving trust and confidence, each partner considered in law, as he is, in fact, the con

Duty to act for common benefit

Cannot use and apply exclusively to own individual benefit partnership assets or results of knowledge and info gained in character of partner. M

Duty begins during the formation of partnership

Principle of good faith applies not only during partnership but during the negotiations leading to the formation of the partnership. Also, a person w

Duty continues even after the dissolution of the partnership

Duty of partner to act w/ utmost good faith towards his co-partners continues throughout the entire life of the partnership even after dissolution fo
 as or similar to the business in which the partnership is engaged and which is competitive w/ said business
VIOLATION – Obligation to bring to common fund any profits derived and in case of losses, he shall bear them alone. Partners, however, by st
Prohibition still applies because of fiduciary position imposing duties of utmost good faith. He may not carry on any other business in rivalry w/ the

Reason for prohibition

Fiduciary nature of relationship imposes obligation of utmost good faith. Rule prevents use of info obtained in course of transaction of partner

Art. 1809. Any partner shall have the right to a formal account as partnership affairs:

1. If he is wrongfully excluded from the partnership business or possession of its property by his co-partner;

2. If the right exists under the terms of any agreement;

3. Provided by article 1807;

4. Whenever other circumstances render it just and reasonable, Right of the partner to a formal account.

General rule: During existence of partnership, a partner is not entitled to a formal account of partnership affairs. Reason: rights of partner amply

Exception: In the special and unusual situations enumerated under art. 1809. Right of partner to demand an accounting w/o bringing about
partners; unanimous
consent of
2. the partners. A partner’s right in specific partnership property is not assignable
except in connection with
Assets the assignment of rights
Includes not The of all the partners in the same property;
Included only the aggregate
3. original of the A partner’s right in specific partnership property is not subject to
attachment or execution, except on a claim
capital against the partnership;
individual
contributions, contributions
4. but also all made by theA partner’s right in specific partnership property is not subject to
legal support under art. 291 nature of a partner’s right in specific partnership property
property partners in
subsequently establishing
acquired or continuing
because of the
the partnership.
partnership
or w/
partnership
Ownership of certain property
funds,
Property use by the partnership – Where there is no express agreement that property used by a partnership constitutes partnership property, suc
including
parties is the controlling factor.
partnership
Property acquired by a partner with partnership funds – Unless a contrary intention appears, property acquired by a partner in his own name
name and
account to the partnership for the funds used in its acquisition.
goodwill.
Art. 1811. A partner is co-owner with his partners of specific partnership property. The incidents of this co-ownership are such that;

1. A partner, subject to the provision of this title and any agreement between the partner, has an equal right with his partners to possess specific part
 Right not assignable - A partner cannot separately assign his right to specific partnership property but all of them can assign their rights in the sa

Reasons for non-assignability:

1. It prevents interference by outsiders in partnership affairs;
2. It protects the right of other partners and partnership creditors to have partnership assets applied to firm debts;
3. It is often impossible to determine the extent of a partner’s beneficial interest in a particular partnership asset. Reason for impossibility: Each partn
partner of his right in specific partnership property is void, but it may be regarded as a valid assignment of the partner’s interest in the partnership

Right limited to share of what remains after partnership debts has been paid Strictly speaking, no particular partnership property or any specifi
partner has no interest in it but his share of what remains after all partnership debts are paid. Consequently, specific partnership property is not su
partnership, the partners cannot claim any right under the homestead or exemption laws when it is attached for partnership debts. However, a ju
order.” The right of the partners to specific partnership property is not subject to legal support sin
 his interest in the partnership to any of his co-partners or to a third Person irrespective of the consent of the other partners, in the absence of agreem

Rights withheld from assignee

1. To interfere in the management.
2. Torequire any information or account.
3. To inspect any of the partnership books.

No one can be compelled to be partners w/ someone else. The assignment does not divest the assignor of his status and rights as a partner nor ope

Remedy of other partners

Dissolution of partnership not intended – Many partnership agreements are made merely as security for loans, the assigning partner never intendin
Dissolution of partnership intended – A partner’s conveyance of his interest in the partnership operates as dissolution of the partnership only whe

Rights of assignee of partner’s interest

1. To receive in accordance w/ his contract the profits accruing to the assigning partner;
2. To avail himself of the usual remedies provided by law in the event of fraud in the management;
3. Toreceive the assignor’s interest in case of dissolution;
4. To require an account of partnership affairs, but only in case the partnership is dissolved, and such account shall cover the period from the date
time if the partnership is one at will.

Art. 1814. Without prejudice to the

remedy so that a writ of execution will not be proper. However, if the judgment debt remains unsatisfied, thecourtmayresortto other courses of a

Redemption or purchase of interest charged

Redemptioner – The interest of the debtor- partner so charged may be redeemed or purchased w/ the separate property of any one or more of the

Redemption Price – The value of the partner’s interest in the partnership has no bearing on the redemption price w/c is likely to be lower since i

Right of redeeming non-debtor partner – There deeming non-debtor partner does not acquire absolute ownership over the debtor-partner’s inte

Rights of partner under exemption laws

A partner cannot claim any right under the homestead laws or exemption laws when specific partnership property is attached for partnership deb
after partnership debts have been paid. A partner’s interest or share in the partnership property is really his property.

Art. 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners, those who,

Requirement of the firm name

Meaning of word “firm” – The name, title, or style under which a company transacts business; a partnership of two or more persons; a commercia
Article 1816 applies in cases where third party creditors are concerned as it falls under the heading of section 3. “Obligations of the Partners wi
Partners Among Themselves.” The pro rata liability of partners to third persons under Article 1816 being a clear mandate of the law, any stipulatio

Refers to partnership obligations

Article 1816 which refers to the payment of partnership obligations arising from contracts clearly imposes subsidiary and joint (pro rata) liability fo
cannot be made answerable with their separate property unless the partnership property has first been exhausted.

Pro rata liability – Literally, pro rata liability means proportionate distribution of liability. In the law of obligations, the concurrence of two or mo
each one of them is bound to pay only his share.

Art. 1817. Any stipulation against the liability laid down in the preceding article shall be void, except as among the partners.

Industrial partner cannot exempt himself from liability to third persons

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 private property du
him, then the capitalist partners must pay him. Our conclusion is that neither on principle nor on authority can the industrial partner be relieve

Art. 1819. Where title to real property is in

the partnership name, any partner may
convey title to such property by a
conveyance executed in the partnership
name; but the partnership may recover
such property unless the partner's act binds
the partnership under the provisions of the
partnership, except in the
first case of fraud
paragraph ofonarticle
the partnership,
1818, orcommitted
unless by or with the consent of thatpartner.
such property has been conveyed by the
Notice to partner is grantee
notice to partnership
or a personClearly a third person
claiming throughdesiring
suchto give notice to a partnership of some matter pertaining to the
partnership business grantee to a holder for value without If notice is delivered to a partner, that is an effective
need not communicate with all of the partners.
communication to knowledge
the partnership.
that the partner, in making the
Where title to has
conveyance, realexceeded
property ishis
in authority.
the name
of the partnership, a conveyance executed
by a partner, in his own name, passes the
equitable interest of the partnership,
Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, the p
provided the act is one within the authority
under the provisions ofthefirstparagraphofArticle1818,unless the purchaser or his assignee, is a holder for value, without knowledge.
of the partner under the provisions of the
first paragraph of Article 1818.
Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyanc
partner under the provisions of the first paragraph of Article 1818.

Where the title to real property is in the name of all the partners a conveyance executed by all the partners passes all their rights in suchproperty.

Art. 1820. An admission or representation made by any partner concerning partnership affairs within the scope of his authority in accordance wi

Art. 1821. Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matte
partner, operate as notice to or knowledge of the
2. Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misappli

Partnership bound by partner’s breach of trust

The partnership is liable for the conversion (misappropriation) of money or property entrusted to the partnership by a third person. The effect und

Art. 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 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 partners and the partnership in cases withofone
torts and
or acts
more of conversion
personsbynot a partner as provided
actual
in Art. 1824. It may be stated that the liability of a partner for a debt of the partnership depends upon whether
partners, he is an agent of the persons the debts is contractual
or it arises from tort or conversion. If it arises from contract, the liability is subsidiary and pro rata; if it arises from
consenting to such representation to bindtort or conversion, the
liability is solidary. them to the same extent and in the same
manner as though he were a partner in fact,
Business partners solidarily liable with respect to persons who rely upon the
Arts. 1711 and 1712 of the New Civil Code and Sec. 2 of the Workmen’s Compensation Act reasonably
representation. indicate
When thatmembers
all the in compensation
of cases, the liabili
deceased employee would only be partially satisfied, which is evidently contrary to the intent and purpose
the existing partnership consent of the law to give
thefull protection to th
representation, a partnership act or
Art. 1825. When a person, by words spoken obligation results; but in all other cases it is
or written or by conduct, represents the joint act or obligation of the person
himself, or consents to another acting and the persons consenting to the
representing him to anyone, as a partner in representation.
an existing partnership or with one or more
persons not actual partners, he is liable to
any such persons to whom such
representation has been made, who has, on
the faith of such representation, given
credit to the actual or apparent partnership,
 Incoming partner liable for existing obligations
A newly admitted partner is liable for obligations of the partnership at the time of his admission. The obligation of the incoming partner shall be sa
an established business. He has every means of obtaining full knowledge of protecting himself, because he may insist on the liquidation or settlem

Art. 1827. The creditors of the partnership shall be preferred to those of each partner as regards the partnership property. Without prejudice to th

Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carryin

Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed.

“Dissolution,” “Winding up,” and

“Termination” explained
Dissolution, winding up, and termination should not be confused because they are distinct terms in law. Dissolution “designates the point in tim
is the process of settling partnership affairs after dissolution.”

Art. 1830. Dissolution is caused:

1. Without violation of the agreement between the partners:

a. By the termination of the definite term or particular undertaking specified in the agreement.

When a specific thing which a partner

had promised to contribute to the
partnership, perishes before the
delivery; in any case by the loss of the
thing, when the partner who
contributed it having reserved the
ownership thereof, has only transferred
to the partnership the use or enjoyment
of the same; but the partnership shall
not be dissolved by the loss of the thing
when it occurs after the partnership has
acquired the ownership thereof.

Generally, a partnership may be dissolved

by causes: (1) without violation of the
 agreement between the partners; or (2) in contravention of the agreement. Other specific causes are; (3) an event which makes the business o
(6) the insolvency of any partner or of the partnership itself; (7) civil interdiction of any partner; and lastly (8) by judicial decree.

On the applicationPartnership
of the purchaser of a partner's
ceased upon interest underof
expiration Article 1813 or 1814:
term; no more juridical personality
A partnership
1. After the termination having
of the specified termceased to exist
or particular since
undertaking.
1959, the partnership has no more juridical
2. At any time if the personality nor acapacity
partnership was to sue
partnership and
at will be sued.
when the interest was assigned or when the charging order was issued.
(Reynolds Philippine Corporation
Effect of Withdrawal before expiration vs. Court
of
Who may petitionof appeals,
for
the G.R.
dissolution
term No. 36187,
Dissolution Jan. 17, 1989)
of a partnership may be decreed by the court on application either (1) by a partner or, in
case he has assigned his interest,
Under Article(2)1830,
by his assignee.
even if there is a
specified term, one partners cause its
Art. 1832. Except dissolution
so far as maybybeexpressly
necessary withdrawing
to wind up partnership
eve n affairs or to complete transactions begun but not then finished,
dissolution terminates
before the expiration of the period, with partnership:
all authority of any partner to act for the or
without justifiable cause. Of course, if the
1. With respect tocause
the partners
is not justified or no cause was given,
the withdrawing partner is liable for
damages but in no case can he be
Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:
compelled to remain in the firm. With his
1. A partner has beenwithdrawal,
declared insane the number
in any judicial of members
proceeding is
or is shown to be of unsoundmind.
decreased, hence, the dissolution. And in
2. A partner becomeswhatever
in any otherway waywe view the
incapable situation,histhe
of performing part of the partnership contract.
conclusion is inevitable that the partners
3. A partner has beenwere
guiltytoofbe guided
such conductinasthe liquidation
tends of the
to affect prejudicially the carrying on of the business.
partnership by the provisions of its duly
4. registered
A partnerarticleswillfully
of partnership. (Roxas vs.
or persistently
Maglana, G.R. L-30616, Dec.
commits a breach of the partnership 10, 1990)
 Art. 1833. Where the dissolution is caused by the act, death or insolvency of a partner, each partner is liable to his co-partners for his share of any liab

1. The dissolution being by act of any partner, the partner acting for the partnership had knowledge of the dissolution.

2. The dissolution being by the death or insolvency of a partner, the partner acting for the partnership had knowledge or notice of the death or in

General Rule
If the cause of dissolution is the death, act, or insolvency of a partner, authority of a partner to bind ceases upon the knowledge of the dissolution.

If dissolution is caused by act of one of parties, co-partners are also liable to contribute towards a liability as if no dissolution has happened, pr

Art. 1834. After dissolution, a partner can bind the partnership, except as provided in the third paragraph of this article:

1. By any act appropriate for winding up partnership affairs or completing transactionsunfinishedatdissolution.

2. By any transaction which would bind the partnership if dissolution had not taken place, provided the other party to the transaction:

a. Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution.

b. Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and, having no knowledge or notice of disso
Exceptions
Any act appropriate for winding-up partnership affairs or completing transactions unfinished at dissolution

If third persons that transacted had no actual knowledge of the dissolution.

*Persons extending credit prior to dissolution are entitled to notice of dissolution. If they had no notice or knowledge of dissolution, they may

Art. 1835. The dissolution of the partnership does not of itself discharge the existing liability of any partner.

A partner is discharged from any existing liability upon dissolution of the partnership by an agreement to that effect between himself, the partne
course of dealing between the creditor having knowledge of the dissolution and the person or partnership continuing the business.

The individual property of a deceased partner shall be liable for all obligations of the partnership incurred while he was a partner, but subject to

General Rule
Dissolution of a partnership does not itself discharge the existing liability of any partner.
Exception
A partner can be discharged from any existing liability upon dissolution of the partnership provided that there is an agreement between the pa
*Individual properties of the deceased partner shall be liable to all obligations of the partnership made while he was a partner.

Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal representative of the last surviv
legal representative or his
 to continue the business in the same name either by themselves or jointly with others, may do so, during the agreed term for the partners
approved by the court, or pay any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolutio
him against all presentorfuture partnership liabilities.

3. A partner who has caused the dissolution wrongfully shall have:

a. If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of a partner under the first paragraph, subject t

b. If the business is continued under the second paragraph, No. 2, of this article, the right as against his co- partners and all claiming through them
damage caused to his co- partners by the dissolution, ascertained and paid to him in cash, or the payment secured by a bond approved by the court
interest the value of the good-will of the business shall not be considered.

Rights of partners upon dissolution

1. Dissolution is caused without violation of the agreement.
2. In contravention of the agreement.

If partnership is dissolved without violation of the agreement

1. All partners may havethe property sold for payment of partnership liabilities.
2. If there is surplus, after paying the liabilities of the firm, it shall be given in cash to thepartners.
2. Right of retention of partnership property
3. Right to be subrogated in place of creditors of partnership
4. Right to be indemnified by the guilty partner against all liabilities of the partnership.

Art. 1839. In settlingaccounts between the partners after dissolution, the following rules shall be observed, subject to any agreement to the cont

1. The assets of the partnership are:

a. The partnership property.

b. The contributions of the partners necessary forthepaymentofallthe liabilities specified in No. 2.

2. The liabilities of the partnership shall rank in order of payment, as follows:

a. Thoseowingtocreditorsotherthan partners.

b. Those owing to partners other than for capital and profits.

c. Those owing to partners in respect of capital.

d. Those owing to partners in respect of profits.

3. The assets shall be applied in the order of their declaration in No. 1 of this article to the satisfaction of the liabilities.

4. The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities.

5. An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in the prec

6. Any partner or his legal representative shall have the right to enforce the contributions specified in No. 4, to the extent of the amount which he has
 Liability of deceased partner’s individual property
The individual property of a deceased partner shall be liable for his share of the contributions necessary to satisfy the liabilities of the partnersh

Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business:

1. When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the deceased p
more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs.

2. When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remai
or with others.

3. When any partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and 2 of this article, with the
assignment of his right in partnership property.

4. When all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay the d

5. When any partner wrongfully causes a dissolution and the remaining partners continue the business under the provisions of article 1837, second pa
without new partners, the old creditors are creditors of the person or partnership that is continuing the business.

Art.1841. When anypartnerretires ordies, and the business is continued under any of the conditions set forth in the preceding article, or in article 18
estate and the person or partnership continuing the business, unless otherwise agreed, he or his legal representative as against such person or partne
receive as an ordinary creditor an amount equal to the value of his interest in the dissolved partnership with interest, or, at his option or at the optio
right in the property of the dissolved partnership; Provided, That the creditors of the dissolved partnership as against the separate creditors, o
arising under this article, as provided article 1840, third paragraph.

Rights of retiring of properties of deceased, partner when business continued

To have the value of the interest of the retiring partner or deceased partner in the partnership determined as of the date of dissolution.

To receive thereafter, as an ordinary creditor, an amount equal to the value of his share in the dissolved partnership with interest, or, at his opti

General Rule
When partner retires from the partnership, he is entitled to the payment of what may be due to him after liquidation.
Exception
No liquidation needed when there is settlement as to what retiring partner shall receive.

Art. 1842. The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the su
 sharing in the profits but have nothing to do with the management.
4. Obligations of the partnership must be paid out of common fund and in the separate properties of the general partners.

Art. 1844. Two or more persons desiring to form a limited partnership shall:

1. Sign and swear to a certificate, which shall state —

a. The name of the partnership, adding thereto the word "Limited".

b. The character of the business.

c. The location of the principal place of business.

d. The name and place of residence of each member, general and limited partners being respectively designated.

e. The term for which the partnership is to exist.

f. The amount of cash and a description of and the agreed value of the other property contributed by each limited partner.

g. Theadditionalcontributions,if any, to be made by each limited partner and the times at which or events on the happening of which they shall be ma

h. The time, if agreed upon, when the contribution of each limited partner is to bereturned.

i. The share of the profits or the other compensation by way of income which each limited partner shall receive by reason of his contribution.

j. The right, if given, of a limited partner to substitute an assignee as contributor in his place, and the terms and conditions of the substitution.

k. The right, if given, of the partners to admit additional limited partners.

 a general partner to partnership creditors who extend credit to the partnership without actual knowledge that he is not a general partner.

Limited partner’s surname is not included in the firm name provided these circumstances
1. If the surname of general partner is the same with limited partner’s
2. If the limited partner’s surname was included and was carried on the new partnership
*If the limited partner’s surname was included in the firm name, he is liable as a general partner.

Art. 1847. If the certificate contains a false statement, one who suffers loss by reliance on such statement may hold liable any party to the certificat

1. At the time he signed the certificate.

2. Subsequently, but within a sufficient time before the statement was relied upon to enable him to cancel or amend the certificate, or to file a petiti

Liability for false statement in certificate Under this provision, any partner to thecertificate containing a false statement i
1. He knew the statement to be false at the time he signed the certificate, or subsequently, but having sufficient time to cancel or amend it or fi
2. The person seeking to enforce liability has relied upon the false statement in transacting business with the partnership.
3. The person suffered loss as a result of reliance upon such false statement.

ART. 1848. A limited partner shall become liable as a general partner unless, in addition to the exercise of his rights and powers as a limited partne
Limited partner has no control in business
 Powers of general partner in limited partnership
The general partner shall have all the right and powers and be subject to all the restrictions and liabilities of a partner in a partnership without lim

ART. 1851. A limited partner shall have the same rights as a general partner to:

1. Have the partnership books kept at the principal place of business of the partnership, and at a reasonable hour to inspect and copy any of them.

2. Have on demand true and full information of all things affecting the partnership, and a formal account of partnership affairs whenever circums

3. Have dissolution and winding up by decree of court.

A limited partner shall have the right to receive a share of the profit or other compensation by way of income and to the return of his contributio

Rights of limited partner

It has lesser rights than a general partner. It may exercise rights similar to a general partner.

ART. 1852. Without prejudice to the provisions of Article 1848, a person who has contributed to the capital of a business conducted by a person
partner in a limited partnership, is not, by reason of his exercise of the rights of a limited partner, a general partner with the person or in the partn
person or partnership; provided that on ascertaining the mistake he promptly renounces his interest in the profits of the business, or other comp

Conditions for exemption from liability

1. Prompt renunciation of interest and/ or income upon ascertaining the mistake.
2. Non-inclusion of limited partner’s name in the firmname.
 ART. 1855. Where there are several limited partners the members may agree that one or more of the limited partners shall have a priority over othe
as to their compensation by way of income, or as to any other matter. If such an agreement is made it shall be states in the certificate, and in the a
stand upon equal footing.

ART. 1856. A limited partner may receive from the partnership the share of the profits or the compensation by way of income stipulated for in
whether from the property of the partnership or that of a general partner, the partnership assets are in excess of all liabilities of the partnership
contributions and to general partners.

ART. 1857. A limited partner shall not receive from a general partner or out of partnership property any part of his contributions until:

1. All liabilities of the partnership, except liabilities to general partners and to limited partners on account of their contributions, have been paid o
paythem.

2. The consent of all members is had, unless the return of the contribution may be rightfully demanded under the provisions of the second paragrap

3. The certificate is cancelled or so amended as to set forth the withdrawal or reduction.

Subject to the provisions of the first paragraph, a limited partner may rightfully demand the return of his contribution:

1. On the dissolution of a partnership.

2. When the date specified in the certificate for its return has arrived.

3. After he has given six months’ notice in writing to all other members, if no time is specified in the certificate, either for
 future at the time and on the conditions stated in the certificate.

A limited partner holds a trustee for the partnership:

1. Specific property stated in the certificate as contributed by him, but which was not contributed or which has been wrongfully returned.

2. Money or other property wrongfully paid or conveyed to him on account of his contribution.

The liabilities of a limited partners as set forth in this article can be waived or compromised only by the consent of all members; but a waiver or
of a partnership who extended credit or whose claim arose after the filling and before a cancellation or amendment of the certificate, to enforce

When a contributor has rightfully received the return in whole or in part of the capital of his contribution, he is nevertheless liable to the partnersh
interest, necessary to discharge its liabilities to all creditors who extended credit or whose claims arose before such return.

Limited partner liable to partnership for sum returned

A limited partner whose contribution has been rightfully returned is still liable to the partnership for an amount not in excess of the sum retur
claims of persons who extended credit or whose claims arose before the return.

ART. 1859. A limited partner’s interest is assignable.

A substitute limited partner is a person admitted to all the rights of a limited partner who has died or has assigned his interest in apartnership.

An assignee, who does not become a substituted limited partner, has no right to require any information or account of the partnership transa
only entitled to receive the share of the profits or other compensation by way of income, or the
 The estate of a deceased limited partner shall be liable for all his liabilities as a limited partner.

ART. 1862. On due application to a court of competent jurisdiction by any creditor of a limited partner, the court may charge the interest of the i
the unsatisfied amount of such claim, and may appoint a receiver, and make all other orders, directions, and inquiries which the circumstances of t

The interest may be redeemed with the separate property of any general partner, but may not be redeemed with partnership property.

The remedies conferred by the first paragraph shall not be deemed exclusive of others which may exist.

ART. 1863. In settling accounts after dissolution the liabilities of the partnership shall be entitled to payment in the following order:
1. Those to creditors, in the order of priority as provided by law, except those to limited partners on account of their contributions, and to general

2. Those to limited partners in respect to their share of the profits and other compensation by way of income on their contributions.

3. Those to limited partners in respect to the capital of their contributions.

4. Those to general partners other than for capital andprofits.

5. Those to general partners in respect to profits.

6. Those to general partners in respect to capital.

Subject to any statement in the certificate or to subsequent agreement, limited partners share in the partnership assets in respect to their claims
for profit or for compensation by way of income on their
 limited partner or adding a limited or general partner shall be signed also by the member to be substituted or added, and when a limited
amendment shall also be signed by the assigning limited partner.

The writing to cancel a certificate shall be signed by all members.

A person desiring the cancellation or amendment of a certificate, if any person designated in the first and second paragraphs as a person who m
do so, may petition the court to order a cancellation or amendment thereof.

If the court finds that the petitioner has a right to have the writing executed by a person who refuses to do so, it shall order the Office of the Sec
where the certificate is recorded, to record the cancellation or amendment of the certificate; and when the certificate is to be amended, the
record in said office a certified copy of its decree setting forth the amendment.

A certificate is amended or cancelled when there is filed for record in the Office of the Securities and Exchange Commission, where the certificate isreco

1. A writing in accordance with the provisions of the first or second paragraph.

2. A certified copy of the order of the court in accordance with the provisions of the fourthparagraph.

3. After the certificate is duly amended in accordance with this article, the amended certified shall thereafter be for all purposes the certificate provi

A certificate is considered cancelled or amended when there is filed for record

1. A writing to amend the certificate; or
2. A certified copy of the order of the court in the event of an unjustified refusal of a partner to sign the writing.
4. It has only the powers, attributes and properties expressly authorized by law or incident to its existence.

Similarities between a partnership and a corporation

1. Juridical personality separate and distinct from the individuals composing it.
2. Act only through its agents.
3. Composed of an aggregate of individuals.
4. Distribute profits to those who contribute to capital.
5. May be organized only when there is a law authorizing it.
6. Subject to incometax.

Distinctions between a partnership and a corporation

Point of
Partnership Corporation
Comparison
Manner of By mere By law or
Creation agreement of operation of law
the
parties
Number of By a Requires at least
Parties minimum of five (5)
two (2) incorporators
persons
Commence- Generally from From the date of
ment of the the
Juridical moment of issuance of
Personality execution of the certificate of
the contract incorporation of
the
Securities and
Exchange
Commission
(SEC)
Powers May exercise Can exercise
powers only the
authorized by powers expressly
partners granted by
provided the law or
same are incident to its
not contrary to existence.
law,
morals, good
customs, public
policy or public
order.

Management When it is not It is vested in the

agreed upon, board of
each partner is directors or
an trustees.
agent of the
3. Continuity of existence in spite of death or changes of members.
4. Transferability of shares.
5. Centralized management under a board of directors.
6. Standardized methods of organization, management and finance for the protection of shareholders and creditors under statutory regulations.

Disadvantages of a corporate form of business organizations

1. The limited liability of the stockholders serves to limit the credit available to the corporation.
2. The transferability of shares permits the uniting of incompatible and conflicting interests in one enterprise.
3. The minority stockholders are usually subservient to the wishes of the majority.
4. In big corporations, the stockholders’ voting rights have become largely theoretical because of widespread ownership, lukewarmness
management, inertia, and inaccessible meetingplaces.
5. In large corporations, management and control has been separated from ownership.
6. By and large corporations are subject to governmental restrictions, controls, and report requirements not imposed on otherformsofbusinessorganiza
7. Corporatesphereof activity islimitedin the transaction of its business to the state of the organization.
8. The corporate form involves “double taxation” on corporation income.

Sec. 3. Classes of corporations. – Corporations formed or organized under this Code may be stock or non-stock corporations. Corporations
stock divided into shares and are authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis
stock corporations. All other corporations are non-stock corporations.

Other kinds of corporations

1. Quasi-corporations – from the word “quasi”, meaning “as if”, are entities that are not absolutely corporations but are considered as if they were
created by law
 attackedeveninadirectproceedingfor that purpose by the State.

Sec. 4. Corporations created by special laws or charters. – Corporations created by special laws or charters shall be governed primarily by the provis
special law or charter creating them or applicable to them, supplemented bythe provisionsof this Code, insofar as they are applicable.

Sec. 5. Corporators and incorporators, stockholders, and members. – Corporators are those who compose a corporation, whether as stock
members. Incorporators are those stockholders or members mentioned in the articles of incorporation as originally forming and com
corporation and who are signatories thereof.

Corporators in a stock corporation are called stock-holders or shareholders. Corporators in a non-stock corporation are called members.

Components of a Corporation
1. Corporators – are those who composed a corporation, whether as stockholders of members. The term includes incorporators, stockholders or mem
2. Incorporators – are those stockholders or members mentioned in the articles of incorporation as originally forming and composing the corpo
who are signatories thereof.
3. Stockholders or shareholders – are those corporators in a stock corporation.
4. Members – are those corporators in a non-stock corporation.
5. Promoters – is a self-constituted organizer who finds an enterprise or venture and helps to attract investors, form a corporation and launch it i
all with a view to promotion profits.

Promotion – is the act of procuring the initial finances and the making of all preparations necessary to launch a corporation.

Activities of a promoter
1. The discovery and investigation of a promising businessopportunity.
 conditions of preferred shares of stock or any series thereof: Provided, That such terms and conditions shall be effective upon the filing o
certificate thereofwith the Securities and Exchange Commission.

Shares of capital stock issued without par value shall be deemed fully paid and non- assessable and the holder of such shares shall not be liable
the corporation or to its creditors in respect thereto: Provided; That shares without par value may not be issued for a consideration less than
value of five (P5.00) pesos per share: Provided, further, That the entire consideration received by the corporation for its no-par value shares shal
treated as capital and shall not be available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respects to ev
other share.
Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall nevertheles
entitled tovote on the following matters:

1. Amendment of the articles of incorporation.

2. Adoption and amendment of by-laws.

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property.

4. Incurring, creating or increasing bonded indebtedness.

5. Increase or decrease of capital stock.

6. Merger or consolidation of the corporation with another corporation or other corporations.

7. Investment of corporate funds in another corporation or business in accordance with this Code.
7. Unless otherwise provided by law the rights, privileges or restrictions on classes or series of shares must be stated in the articles of
4. In
incorporation and in the stock certificates. 5. In
6. M
Classes or series of shares c
1. Voting and Non-Voting Shares; 7. In
General rule: Every member of a non- stock corporation and every legal owner of shares in a stock corporation, has a right to be present and b
vote at all corporate meetings. 8. D
Exception to the rule: Unless there is a stipulation in contrary.
2. Par Value and No-Par Value Shares S
Par value is the given fixed or definite value of a share in the articles of incorporation. a
3. Common and Preferred Shares. Preferred shares of stock may be: (a) preferred as to assets; (b) preferred as to dividends. Preferred as to p
dividends may either be cumulative or non- cumulative, or participating or non- participating th
4. Promotion Shares – are such stocks issued to those who may originally own the mining ground or valuable rights connected therewith, in e
consideration of their deeding the same to the mining company when the company is incorporated, or it may mean such stock as is issued to to
promoters. a
5. Shares of Escrow – are shares subject to an escrow agreement, that is, an agreement under which the shares are deposited by the grantor or his fr
agent with a third person, to be delivered by the depositary to the vendee or subscriber only upon the happening of certain conditions. E
6. Founder’s Shares;
7. Redeemable “Callable” Shares; D
8. Treasury Shares; F
fo
9. Other shares classified to comply with constitutional or legal requirements.
e
Instances when non-voting shares may vote
S
1. Amendment of the articles of incorporation;
th
2. Adoption and amendment of by-laws;
in
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property; c
th
th
m
c
r

D
R
p
o
d
p

S
c
n
 redeemable shares of specified dates in the future. extensio
Exchange
Sec. 9. Treasury shares. - Treasury shares are shares of stock which have been issued and fully paid for, but subsequently reacquired by
the issuing corporation by purchase, redemption, donation or through some other lawful means. Such shares may again be disposed of Sec. 12. M
for a reasonable price fixed by the board of directors. (n) Stock cor
required
Definition as other
Treasury shares are owned by the corporation having been reacquired by the issuing corporation by “purchase, redemption, to the pr
donation or through some other lawful means.” It has no voting rights or rights as to dividends or distributions.
Sec.13. A
TITLE II - INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS purpose
Definition of the a
Incorporation is the act of creating a corporation. incorpor
and at le
Sec. 10. Number and qualifications of incorporators. – Any number of natural persons not less than five (5) but not more than must be
fifteen (15), all of legal age and a majority of whom are residents of the Philippines, may form a private corporation for any lawful a date or
purposeorpurposes.Each of the incorporators of s stock corporation must own or be a subscriber to at least one of call, o
(1) share of the capital stock of the corporation. payment
case shal
Qualifications of incorporators pesos.
1. Must be a natural person.
2. Must be of legal age. Amount t

Sec. 11. Corporate term. – A corporation shall exist for a period not exceeding fifty divided in
(50) years from the date of incorporation unless sooner dissolved or unless said period is extended. The corporate term as originally must be
stated in the articles of incorporation may be extended for periods not exceeding fifty (50) years in any single instance by an authorize
amendment of the articles of incorporation, in accordance with this Code; Provided, That no extension can be made earlier than five (5) subscript
years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an earlier subscript
subscribe
the othe
2,000 no
par value
is on the n

complianc
come to
corporat
hidden o
purporte
capital
 stock is required, the abuse of the privileges of a corporation would be minimized. the Philippines,
the capital of w
Capital stock requirements under the special laws Philippines, shall
1. In case of mining and agricultural incorporation, or corporation organized for the purpose of the disposition , exploitation, business.
development or utilization of natural resources of the Philippines, as well as corporation organized for the operations of public
7. Only vessels of d
utilities, the Constitution provides that at least 60 % of the capital stock of such corporation must be owned by citizens of the
Philippines. coastwise shippi
domestic owner
2. The Insurance Code provide that “no domestic insurance company shall, if a stock corporation, engage in business in the or more of the f
Philippines unless posses of a paid up capital stock equal to at least two million pesos”. Where the insurance company is to corporation or an
engage in insurance business it must have a “paid-up capital stock of at least five million pesos” to be invested in securities Philippines;
specified by law, which securities are to be deposited with the Insurance Commissioner. (3) any corporati
Philippines, prov
3. The Financing Company Act requires that “at least sixty per centum of the capital of financing companies must be owned by or of any intere
citizens of the Philippines and shall have a paid-up capital of not less than five hundred thousand pesos”. citizens of the Ph

4. Commercial banks are required to have a paid-up capital of 100 million pesos. When a commercial bank having licence to operate Sec.14. Conten
an expanded foreign currency deposit system it must have a paid-up capital of at least 150 million pesos and when a corporation organ
commercial bank is authorized to engage in universal banking it must have a paid up capital of at least 500 million pesos. and Exchange C
the official lang
5. The New Constitution provides that: “The ownership and management of mass media shall be limited to citizens of the the incorporat
Philippines or to corporations or association wholly-owned and manage by such citizen”. matters, except
special laws:
6. Under the Retail Trade Nationalization law “no person who is not a citizen of
1. The name of the

2. The specific pur

being incorpora
one stated purp
which the prima
or purposes: Pr
include a purpos
such.

3. The place where

located, which m

4. The term for whic

5. The names, nation

6. The number of directors or trustees which shall not be less than five (5) nor more than fifteen(15). Incorporators may cho
strange, uneuphonious, o
7. The names, nationalities and residences of the person who shall act as directors or trustees until the first regular directors one not identical with o
or trustees are duly elected and qualified accordance with this Code. has previously been ad
corporation as its corpo
8. If it be a stock corporation, the amount of its authorized capital stock in lawful money of the Philippines, the number
of shares which it is divided, and in case the shares are par value shares, the par value of each, the names, nationalities and Change of Corporate na
residences of the original subscriber, and the amount subscribed and paid by each on his subscription, and if some or The change of the
all of the shares are without par value, such fact must be stated. corporation, nor the su
the same corporation w
9. If it be a non-stock corporation, the amount of its capital, the names, nationalities and residences of the with no respect change.
contributors and the amount, contributed by each. responsible in its new na
previously contracted or
10. Such other matters are not inconsistent with law and which the incorporators may deem necessary and convenient.
2. Specific purpose or purp
The Securities and Exchange Commission shall not accept the articles of incorporation of any stock corporation unless The statement of the
accompanied by a sworn statement of the Treasurer elected by the subscriber showing that at least 25% of the affirmative authorizatio
authorized capital stock of the corporation has been subscribed, and at least 25% of the total subscription has been those contracts and
fully paid to him in actual cash and/or in property the fair valuation of which are equal to at least 25% of the said considered as incidenta
subscription , such paid up capital being not less than five-thousand pesos (P5,000). imposes implied limitat
lines of activity which are
Sec.15. Forms of Articles of Incorporation.
– Unless otherwise prescribed by special law, articles of incorporation of all domestic corporations shall supply 3. Principal office
substantially the following requirements in the form as provided for by the SEC: The principal office of
Philippines. It is where
1. The name of the corporation. and its officers usually
managing the affairs an
corporation.

4. TermsofExiste
shall exist for a period no
date of incorporation un
period is extended.

5. Names, Nationalities and

The names, nationalitie
must be stated in the
purpose of complying w
the incorporators mus
complying with the stat
and in other instances w

6. Number of dir
 The number of the director and trustees must not be less than five (5) nor more than fifteen (15). Property as subscription paym
tangible properties are accepta
7. Names, nationalities and residences of directors. subscription provided that the
A majority of the directors or trustees of all corporation organized under this Code must be a residents citizens of determination are complied with
the Philippines. valuable, subject to certain res
law.
8. Amount of authorized capital stock.
A stock corporation must state the “amount of its authorized capital stock in lawful money of the Philippines, SEC adopted the polic
the number of shares into which it is divided, and in case the shares are par value shares, the par value of of intangible assets as goodw
each, the names, nationalities, and residences of the original subscribers, and the amount subscribed and paid by concession rights, payment of
each on his subscription, and if some or all the shares are without par value, such fact must be stated”. real estate properties and navi
incorporation subscription, increa
9. Non-stock Corporation. for additional issuance of share
The Corporation Code requires the articles of the non-stock corporation to states: the amount of its capital, the providedthat:
names, nationalities and residences of its contributors and the amount contributed by each. A non-stock 1. There has been a proof of valid
corporation may have capital but it has no authorized capital stock. 2. All taxes due from the propertie
3. Such properties have been reas
10. Inclusion of other matters.
The articles of incorporation “may include other matters that is not inconsistent with law and which the Papers to accompany articles wi
incorporators may deem necessary and convenient”. The SEC requires the following pa
the articles of incorporation:
Sworn Statement of the Treasurer 1. A verification slip executed by
The Securities and Exchange Commission shall not accept the articles of incorporation of any stock corporation states that the proposed nam
unless accompanied by a sworn statement of the Treasurer elected by the subscribers showing that at least: verified and found to be distin
already existing corporation or
1. 25%of theauthorized capital stock has been subscribed. 2. Written undertaking to change
a person, firm or entity with a p
2. 25% of the subscription has been fully paid in actual cash or property. or one similar to it.
3. Sworn statement of assets and
3. The paid-up capital being not less than P5,000.00. oath by the corporate treasur
P50.00 to defray publication exp
SEC Policy 4. Bank certificate of deposit, is
manager or any authorized ban
of the stated amount represen
corporation either in the name
corporation or in the name of t
5. Written authority to verify bank deposit signed by the corporate treasurer empowering the SEC and Law reserves the rights to modify the
/or the Central bank to check and inspect the existence of the bank deposit of the corporate paid-up The constitution and the Corporation Co
capital. amend the charter of a private corpo
6. Taxpayer account number of the incorporators pursuant to Executive order No. 213. provides that “no franchise or right b
7. Registration Data Sheet, a statement in statistical data form, signed by an authorized representative the condition that it shall be subject to
of the corporation regarding important information about the corporate seal, corporate name, or repeal by the National Assembly w
principal office, capital structure, their subscription and TAN (SEC Bulletin, Oct. 1982). requires.

Sec. 16. Amendment of Articles of Incorporation. – Unless otherwise prescribed by this Code or by Amendment of Articles of Incorporation
special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended for legit
incorporation may be amended by a majority vote of the board of directors or trustees and the vote refer to any matter stated in the article
or written assent of the stockholders representing at least two- thirds (2/3) of the outstanding capital may refer to:
stock, without prejudice to the appraisal rights of dissenting stockholders in accordance with the 1. Change of corporate name;
2.
provision of this Code, or the vote or written assent of two-thirds (2/3) of the members if it be a non- Extension of term of corporation;
stock corporation. 3. Change in classes or series of shares;
4. Change in rights, p
The original and amended articles altogether shall contain all provision required by law to be set out restrictions in share ownership;
in the articles of incorporation. Such articles, as amended shall be indicated by underscoring the change
5. Increase or decrease in the number of di
or changes made, and the copy thereof duly certified under oath by the corporate secretary and the 6. Change in purpose or purposes and oth
majority of the directors or trustees stating the fact that said amendments have been duly approved by
the required vote of the stockholders or members, shall be submitted to the Securities and Exchange Vote or recent assent required in am
Commission. incorporation shall be as follows:
Stock Corporation – A majority vote of
The amendment shall take effect upon its approval by the Securities and Exchange Commission or and the vote or written assent of the stoc
from the date of filing with the said Commission if not acted upon within six (6) months from the date least two- thirds (2/3) of the outstand
of filing for a cause not attributable to the corporation. section 81 of the Code, a dissenting stoc
appraisal right if he is against the amen
demand payment of the fair value of his s

Non-stock Corporation – A majority vo

and the vote or written assent of 2/3 of

The amendments to the articles of i

effect upon its approval by the S
Commission or from the filing with the
acted upon within six months from the
not attributable to the corporation.

Sec. 17. Grounds when articles

amendment may be rejected or disap
and Exchange Commission may reject the
or disapproved any amendment theret
compliance with the requirements of t
 Code: Provided, That the Commission shall give the incorporators a reasonable time within by which the corporation can be identified a
which to correct or modify the objectionable portions of the articles or amendment. The from other corporation, firms or entities.
following are grounds for such amendment or disapproval:
Change of corporate name
1. That the articles of incorporation or any amendment thereto is not substantially in accordance A corporation may change its name by mer
with the form prescribed herein. charter in the manner prescribed by law. The ch
the corporation does not result in dissolution
2. That the purpose or purposes of the corporation are patently unconstitutional, the name of a corporation is no more th
illegal, immoral, or contrary to government rules and regulation. corporation than the changing of the name of a n

3. That the Treasurer’s Affidavit concerning the amount of capital stock subscribed and/or paid is Restriction in use in certain names of words
false. There are special laws prohibiting the use of certa
words. Thus, under the General Banking Ac
4. That the required percentage of ownership of the capital stock to be owned by citizens of the entity not conducting the business of commer
Philippines has not been complied with as required by existing laws of the constitution. use the words “bank”, “banking”, “banker”, “b
association”, “trust corporation”, etc. or w
No articles of incorporation or amendment to articles of incorporation of banks, banking and import. The word “National” under Act 2612 m
quasi-banking institutions, building and loan association, trust companies, public utilities, those doing business as bankers, broke
educational institution, and other corporations governed by special laws shall be accepted or institutions. “United Nations” both in its full
approved by the Commission unless accompanied by a favourable recommendation of the forms, for commercial and business purposes
appropriate government agency to the effect that such articles or amendment is in accordance names or words which pursuant to other spec
with law. be used.

Sec. 18. Corporate name. – No corporate name may be allowed by the Securities and Exchange Sec. 19. Commencement of Corporate Existe
Commission if the proposed name is identical or deceptively or confusingly similar to that of any corporation formed or organized under this Co
existing corporation or to any other name already protected by law or its patently deceptive, have corporate existence and juridical pe
confusing or contrary to existing laws. When the change in a corporate name is approved, the deemed incorporated from the date the Securit
commission shall issue an amended certificate of incorporation under the amended name. Commission issues a certificate of incorpor
official seal; and thereupon the in
Necessity of Corporate name stockholders/members, and their successors s
It is necessary that a corporation should have a name because that is the only way body politic and corporate under the name stat
of incorporation for the period of time me
unless said period is extended or the corpo
dissolved in accordance with law.

Sec. 20. De Facto corporation. – The due in

corporation claiming in good faith to be a co
this Code, and its right to exercise corporate p
be inquired into collaterally in any private su
corporation may be a party. Such inquiry
 may be made by the Solicitor General in a
quo warranto proceeding.
De facto corporation – generally refer to organizations exercising corporate power
under colour of a more or less legally constituted corporation.
Elements of De facto corporation
1. Existence of a valid law under which a corporation can be organized.
2. An attempt in good faith to incorporate.
3. Actualexerciseofincorporatepowers.
Quo warranto – an inquiry made into the right of a corporation to conduct business.
Illustration
Seven competent individual organized a corporation by filing the articles of
incorporation and securing a certificate of incorporation with the SEC. However, the
addresses of two of the original subscribers were omitted in the articles of
incorporation. In suit filed by X, a creditor, against the corporation he alleged that the
corporation has no valid existence and sought to hold the seven incorporators (also
directors) liable personally on the obligation. X’s allegation that the corporation had
no valid existence would constitute a collateral (side) attack in a private suit. Only the
Solicitor General as government lawyer may raise the question by quo warranto
proceeding. (Literally by “what right”).
Sec. 21. Corporation by estoppel. – All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided,
however, That when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such cannot resist
performance thereof on the ground that there was in fact no corporation.
Estoppel – It is preclusion, which prevent a man from denying a fact in consequences of his business”.
own previous act, allegations, or denial
of a contrary tenor. The object of the principle of esto
prevent injustice to an otherwise innocent person.
Sec. 22. Effect of non-use of corporate charter and con
operation of a corporation. – If a corporation does not
organize and commence the transaction of its busine
construction of its works within two (2) years from th
its incorporation, its corporate powers cease
corporation shall be deemed dissolved. Howev
corporation has commenced the transaction of its bus
subsequently becomes continuously inoperative for a
at least five (5) years, the same shall be ground
suspension or revocation of its corporate fran
certificate of incorporation.
This provision shall not apply if the failure to
commence the transactions of its businesses or the con
of its works, or to continuously operate is due to cause
the control of the corporation as may be determine
Securities and Exchange Commission.
Organization
The idea of organization in reference to corporation
executive structure, election of officers, provi
subscription and payment of capital, adoption of by-
other steps necessary to endow the legal entity with
to transact business for which it was created.
The Grant of corporate existence, conferred by the iss
certificate of incorporation, is subject to two su
conditions, to wit:
1. The corporation must “formally
organize”.
2. The corporation must actually begin the “transaction of it
Failure to comply with either or both of these conditio
two (2) years from the date of its incorporation, its c
power cease and the corporation must be deemed diss
Sec. 23. The board of directors or trustees.
– Unless otherwise provided in this Code, the c
powers of all corporation formed under this Code
exercised ,
 all business conducted and all property of such corporations controlled and 3. Domestic air carrier, the directing head or 2/3 of the board o
held by the board of directors or trustees to be elected from among the directors and other managing officers shall be citizens of th
holders of stock, or where there is no stock, from among the members of the Philippines.
corporation, who shall hold office for one (1) year and until their successors
4. Registered investments companies, the directors thereof must b
are elected and qualified. Filipino citizen.
5. Private development banks, all the members of the board o
Every director must own at least one (1) share of the capital stock of the directors shall be citizen of the Philippines.
corporation of which he is a director, which share shall stand in his name on the
6. In case of financing corporation, at least 2/3 of all members of th
books of the corporation. Any director who ceases to be the owner of at least board of directors shall be citizen of the Philippines.
one (1) share of the capital stock of the corporation of which he is the director
shall thereby cease to be a director. Trustees of non-stock corporations must be Sec. 24. Election of directors or trustees. – At all elections o
members thereof. A majority of the directors or trustees of all corporations directors or trustees, there must be present, either in person o
organized under this Code must be residents of the Philippines. by representative authorized to act by written proxy, th
owners of the majority of the outstanding capital stock, or if ther
Qualifications of directors be no capital stock, a majority of the members entitled to vot
1. He must own at least one (1) share of the capital stock of the corporation in The election must be by ballot if requested by any votin
his name. stockholder or member. In stock corporations, eve
2. Majority of the directors must be a resident citizen of the Philippines. stockholder entitled to vote shall have the right to vote
3. A director must not have been convicted by final judgement of an offense person or by proxy the number of shares of stock standing,
punishable by imprisonment exceeding six (6) years or a violation of the the time fixed in the by-laws, in his own name on the stock book
provisions of the Corporation Code committed within five (5) years prior to the of the corporation, or where the by-laws are silent, at the tim
date of election or appointment. of the election; and said shareholder may vote such number o
shares for as many persons as there are directors to be electe
The directors, once elected, become the representatives of the corporation or he may cumulate said shares and give one candidate as man
itself, not its stockholders. The directors of a non- stock corporation are required votes as the number of directors to be elected multiplied b
to be members thereof and like stock corporations “majority of the directors the number of his shares shall equal, or he may distribut
and trustees of all corporations organized under the Corporation Code must be them on the same principle among as many candidate as he sha
residents citizen of the Philippines”. There are some special corporation not see fit; Provided, That the total number of votes cast by him sha
organized with the Corporation Code where directors are required to be not exceed the numbers of shares owned by him as shown
citizens of the Philippines. They are asfollows: the books of the corporation multiplied by the whole numb
1. Bank and banking institution, at least 2/3 of the members of the board of of directors to be elected: Provided, however, that no delinquen
directors shall be citizen of the Philippines. stocks shall be voted. Unless otherwise provided in the article
2. Rural banks, every member of the board of directors shall be citizens of the of incorporation, or in the by- laws, members of corporatio
Philippines. which have no capital stock may cast as many votes as ther
are trustees to be elected but may not cast more than on
vote for one candidate. Candidates receiving the highest numbe
of votes shall be declared elected. Any meeting of th
stockholders or members called for an election may adjour
from day to day or from time to
 time but not sine die or definitely if, for any reason, no election is held, Sec. 25. Corporate officers, quorum. – Immediately after their
or if there are not present or represented by proxy, at the meeting, the election, the directors of a corporation must formally
owners of the majority of the outstanding capital stock, or if there be no organized by the election of a president, who shall be a
capital stock, a majority of the members entitled to vote. director, a treasurer who may or may not be a director, a
secretary who shall be a resident citizen of the Philippines, and
Methods of voting such other officers as may be provided for in the by-laws. Any two
The voting methods which may be resorted to by a voting stockholder are (2) or more positions may be held concurrently by the same
as follows: person, except that no one shall act as president and secretary
1. Straight voting. or as president and treasurer at the same time.
2. Cumulative voting for one candidate.
3. Cumulative voting by distribution. The directors or trustees and officers to be elected shall perform
the duties enjoined on them by law and by the by-laws of the
Example of Straight Voting corporation. Unless the articles of incorporation or the by-laws
A owns 100 shares of stock in X corporation. During the meeting for the provide form a greater majority, a majority of the number of
purpose of electing five directors, he may cast his vote by giving each of directors or trustees as fixed in the articles of incorporation
the five candidates 100 votes, hence, he distribute equally his vote shall constitute a quorum for the transaction of corporate
without preference or discrimination. business, and every decision of at least a majority of the
directors or trustees present at a meeting at which there is a
Example of Cumulative voting for one candidate quorum shall be valid as a corporate act , except for the election
In the preceding illustration, if A owns 100 voting shares and there are of the officers which shall require the vote of a majority of all
five directors to be elected, A is entitled to 500 votes which he may the members ofthe board.
“cumulate” by giving it to candidate Z alone. Qualification of corporate officer
Example of Cumulative voting by distribution 1. President. He must be a director.
As in the same example above, if A owns 2. Treasurer. He may or may not be a director.
100 voting shares, and there are five directors to be elected, A is 3. Secretary. He must be a resident and citizen of the Philippines
entitled to 500 votes which he may distribute to candidate Y and Z giving
4. Other officers provided for in the by- laws.
the former 300 and the latter
200 provided that the total number of votes cast by him does not Three levels of corporate control
exceed 500 votes. 1. The board of director which is responsible for the corporate
policies and the general management of the business affairs of
Voting of sequestered shares of stock the corporation.
It has been held that the “Presidential Commission on Good 2. The officers, who in theory execute the policies lay down by the
Government may properly exercise the prerogative to vote board , but in practice often have wide latitude in determining
sequestered stock of corporation, granted to it by the President of the the course of business operations.
Philippines xxx pending the outcome of proceeding to determine the 3. Stockholders who like amendments of the articles of
ownership of sequestered shares of stock. xxx Substitution of incorporation.
directors is not be done without reason or rhyme, and undertaken only
when essential to prevent disappearance or wastage of corporate Teleconferencing of Board Members
property, and always under such circumstance as assure that In the Philippines, teleconferencing and videoconferencing of
replacements are truly processed of competence, experience and members of board of directors of private corporation is a reality,
probity. in light of the Republic Act No. 8792.The Securities and Exchange
Commission issued
SEC Memorandum Circular No. 15, on November 30, 2001,
providing the guidelines to be complied with related to such
conferences. Thus, the court agrees with the RTC that persons in
the Philippines may have a teleconference with a group of
persons in South Korea relating to business transactions or
corporate governance.
Directors and officers distinguished
The officers of a corporation, unlike the directors, are true
agent of the corporation. Each officer may bind the corporation by
his individual acts within the actual or apparent scope of
authority. On the other hand, a director has no authority to
act for the corporation.
Authority of corporate officers
The corporation transact its business through its officers or
agents. An officer’s power as an agent of the corporation must
be sought from the statute, charter, and the by-laws or in a
delegation of authority to such officers, from the acts of board
of directors, formally expressed or implied from a habit or
custom of doing business.
Chairman of the Board
A chairman of the board of directors must himself director be a
director of the corporation. His duty as presiding officer is not an
executive one. It has been suggested that he well be given
advisory duties in determining executive salaries, bonus plans and
pensions, determining dividend policy, selecting auditors, and
dealing questions with labor and company policy.
President
The president must be a director of the corporation. The
powers of the president of a corporation are vested in him by
law or the by-laws; otherwise, he has no power over the
corporate property and business than has any other director.
However, he may be given actual authority to make particular
contracts, or to execute conveyances, borrow money, execute
mortgages, and do other acts, by the charter, the by-laws,
resolutions of directors or their informal acquiescence.
Vice- President
In the absence of the president, or if the office of the president
becomes vacant, as a rule, the vice president elected and
appointed by the shareholders or directors
has authority to act in his stead, and to perform the duties of
the office.
Secretary
A secretary must be a resident citizen of the Philippines. It is
generally its duty to make and keep corporate records; to make
proper entries of the votes, resolution and proceedings of the
shareholders and directors in the management of the
corporation, and of all other matters required to be entered in
the records. The secretary is the ministerial officer who cannot
bind the corporation unless he is authorized to do so.
Treasurer
The treasurer of the corporation “may or may not be a
director”. He is the proper officer and the only proper officer
in the absence of express provision to the contrary, to receive
and keep the money of the corporation and to disburse them as he
may be authorized.
Other officers
The by-laws of the corporation may provide for such other
officers and agent as may be necessary and convenient
considering the nature and needs of the business. Their
compensation is provided for by the by-laws and the board of
directors in a suitable manner.
Quorum – signifies the number of persons belonging to a
corporation required to transact business.
Section 25 of the Corporation Code requires more people than
a simple majority to form a quorum. If no such defining number
is determined, a quorum is a simple majority.
Directors cannot vote by proxy
The directors cannot vote by proxy but must personally
present, and act by themselves.
Sec. 26. Report of election of directors, trustees and officers. –
Within thirty (30) days after the election of the officers,
trustees and directors of the corporation, the secretary, or any
other officer of the corporation shall submit to the Securities
and Exchange Commission, the names, nationalities and
residences of the directors, trustees and officers elected.
Should a director, trustee or officer die, resign or in
any manner cease to hold office, his heirs in case of his
death, the secretary or any other officer of the
corporation, or the director, trustee or officer himself,
shall immediately report such fact to the Securities and
Exchange Commission.
Sec. 27. Disqualification of directors, trustees or
officers. – No person convicted by final judgement of an
offense punishable by imprisonment for a period
exceeding six
(6) years, or a violation of this Code, committed within
five (5) years prior to the date of his election or
appointment, shall qualify as a director, trustee or
officer of any corporation.
Sec. 27 of the Corporation Code is an additional
safeguard that only upright and honest individuals be
entrusted with management of the corporate affairs.
A director of a cooperative who is subsequently
elected as member of the Sangguniang Panglungsod
(City Council) becomes automatically disqualified from
continuing as such director by virtue of the clear
mandate of PD No. 269 providing that except for “barrio
captains and councillors” elective officials are ineligible
to become officers and/or directors of any cooperative.
The SEC ruled that firms engage in wholly or partially
nationalized activities, aliens are banned from being
appointed to management position such as president,
vice-president, treasurer, auditor, secretary, etc. of said
companies. However, they can be elected directors in
preparation to their allowable participation or share in
the capital of such activities, in accordance with the
Commonwealth Act No. 108, as amended by PD 715,
otherwise known as the Anti- DummyLaw.
Sec. 28. Removal of director or trustees. – Any director or
trustee of the corporation may be removed from office
by a vote of the stockholders holding or representing at
least two- thirds (2/3) of the outstanding capital stock,
or if the corporation be a non- stock corporation , by a vote
of at least two- thirds (2/3) of the members entitled to
vote: Provided, That such removal shall take place either at
a regular meeting of the corporation or at the special
meeting called
for the purpose, and in either case, after previous notice to
stockholders or members of the corporation of the intention to
propose such removal at the meeting. A special meeting of the
stockholders or members of the corporation for the purpose of
removal of directors or trustees, or any of them, must be called
by the secretary on order of the president or on the written
demand of the stockholders representing or holding at least a
majority of the outstanding capital stock, or, if it be a non-stock
corporation, on the written demand of a majority of the
members entitled to vote. Should the secretary failed to refuse
to call the special meeting upon such demand, or fail or refuse
to give the notice, or if there is no secretary, the call for the
meeting may be addressed directly to the stockholders or
members of any by any stockholder or member of the
corporation signing the demand. Notice of the time and place of
such meeting, as well as the intention to propose such removal,
must be given by publication or by written notice as prescribed
in this Code. The vacancy resulting from removal pursuant to this
section may be filled by election at the same meeting without
further notice, or at any regular or at any special meeting called
for the purpose after giving notice as prescribed in this Code.
Removal may be with or without cause: Provided, That removal
without cause may not be used to deprived minority stockholders
or members of the right of representation to which they may be
entitled under Section 24 of this Code.
Directors or trustee may be removed even without cause
The legislative policy is that the shareholders shall be the
ultimate masters, not the directors. The shareholders should be
clothed with the power of judging the competency and fitness of
the directors and of choosing a board that will carry out of their
business policy.
Directors representing minority may not be removed without
cause. The power to removed director or trustee even without
cause given to shareholders or members may not be used to
deprived minority shareholders or members of the right of
representation to which they may be entitled under Section 24
of the Corporation Code. Cumulative voting of
directors in a stock corporation is mandatory
and cannot be dispensed with in the by-laws.
Being a statutory right, the stockholders cannot
be deprived of the use of cumulative voting.
May the result of the duly held election of
directors be altered by mere agreement of the
directors?
The Securities and Exchange Commission ruled
that: “An agreement by which director is
reposed in any body except majority of
stockholders is in violation of ‘public policy’ and
‘enforceable’ ”.
The Securities and Exchange Commission has
jurisdiction or authority to “hear and decide
cases” involving controversies in the election or
appointments of directors, trustees, officers or
managers of such corporations, partnerships or
associations. Controversy concerning removal
of directors or trustees may also be heard by the
SEC.
Sec. 29. Vacancies in the office of director or
trustee. – Any vacancy occurring in the board of
directors or trustees other than by removal by the
stockholders or members or by expiration of
term, may be filled by the vote of at least a
majority of the remaining directors or trustees,
if still constituting a quorum; otherwise, said
vacancies must be filled by the stockholders in a
regular or special meeting called for that
purpose. A director or trustee so elected to fill
the vacancy shall be elected only for the
unexpired term of his predecessor in office.
Any directorship or trusteeship to be filled by
reason of an increase in the number of directors
or trustees shall be filled only by an election at a
regular or at a special meeting of stockholders
or members duly called for the purpose, or in
the same meeting authorizing the increase of 1.
directors or trustees if so stated in the notice of
themeeting.
Sec. 30. Compensation of directors. – In the absence
of any provision in the by-laws fixing their
compensation, the directors shall not receive any
compensation, as such directors, except for
reasonable per diems: Provided, however, That
any such compensation (other than pier diems)
may be granted to directors by the vote of the
stockholders representing at least a
majority of the outstanding capital stock at a regular or special
stockholders’ meeting. In no case shall the total yearly
compensation of directors, as such directors, exceed ten
percent (10%) of the net income before income tax of the
corporation during the preceding year.
Sec. 31. Liability of directors, trustees or officers. – Directors or
trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors, or trustees shall be
liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and
other persons.
When a director, trustee or officer attempts to acquire or
acquires, in violation of his duty, any interest adverse to the
corporation in respect of any matter which has been reposed in
him in confidence, as to which equity imposes a disability upon
him to deal in his own behalf, he shall be liable as a trustee for
the corporation and must account for the profits which
otherwise would have accrued to the corporation.
Directors are trustees
It is well-stated rule in corporate law that directors of
corporations are trustees and are required to act in the utmost
good faith.
Liability of corporate directors and officers for illegal dismissal of
employees
In cases of illegal dismissal, corporate directors and officers are
solidarily liable with the corporation, where terminations of
employment are done with malice or in bad faith. (Acesite Corp.
vs. NLRC, G.R. No. 152308, January 26, 2005, 449 SCRA 360)
Sec. 32. Dealings of directors, trustees or officers with the
corporation. – A contract of the corporation with one or more of
its directors or trustees or officers is voidable, at the option of such
corporation, unless all the conditions are present:
That the presence of such director or trustee in the board meeting
in which the contract was approved was not
 necessary to constitute a quorum for such
meeting.
2. That the vote of such director or
trustee was not necessary for the
approval of the contract.
3. That the contract is fair and reasonable
under the circumstances.
4. That in the case of an officer, the
contract with the officer has been
previously authorized by the Board of
Directors.
Where any of the first two conditions set
forth in the preceding paragraph is absent,
in the case of a contract with a director or
trustee, such contract may be ratified by
the vote of the stockholders representing
at least two-thirds (2/3) of the outstanding
capital stock or of two-thirds (2/3) of the
members in a meeting called for the
purpose: Provided, That full disclosure of
the adverse interest of the directors or
trustees involved is made at such meeting:
Provided, however, That the contract is fair
and reasonable under the circumstances.
Director disqualified to vote if he has
personal interest
A director is disqualified to vote at a
meeting of the board if he has any personal
interest in a matter before the board; in
such case, his vote cannot be counted in
making up aquorum.
Disclosureofadverseinterestbydirector
It has been held that in dealing with
their corporation the directors must
make full disclosure of all relevant facts
or the transaction is voidable. The
failure of a director to inform his fellow
directors of his adverse bargaining
position and other material
circumstances should be seriously
considered and inspected by the courts as
manner on the fairness and good faith
of the transaction and whether it is just
and reasonable as to the corporation.
Exceptions in Signing contract without
authority of Board of Directors is void
If a private corporation intentionally or
negligently clothed its officers or agents
with apparent power to perform acts of
it, the corporation will be estopped to
deny that such apparent authority is
real, as to innocent third persons dealing
in good faith
with such officers or agents. (Yao Ka Sin Trading vs. Court of
Appeals, G.R. No. 53820, June 15, 1992, citing Francisco vs.
GSIS, 7 SCRA 577)
Corporate president presumed to have authority
As a strict rule, the corporate president has no inherent power to
act for the corporation, slowly giving way to realization that such
officer has certain limited powers in the transaction of the usual
and ordinary business of the corporation. In the absence of
agreement or by law provision to the contrary, the president is
presumed to have the authority to act within the domain of the
general of his or her usual duties. (People’s Aircargo, and
Warehousing Co., Inc. vs. Court of Appeals, G.R. No. 117847, Oct.
7, 1998)
Sec. 33. Contracts between corporations with interlocking
directors. – Except in cases of fraud, and provided the contract is
fair and reasonable under the circumstances, a contract
between two or more corporations having interlocking
directors shall not be invalidated on that ground alone;
Provided, That if the interest of the interlocking director in one
corporation or corporations is merely nominal, he shall be
subject to the provisions of the preceding section insofar as the
lattercorporationorcorporationsare concerned.
Stockholdings exceeding twenty percent (20%) of the
outstanding capital stock shall be considered substantial for
purposes of interlocking directors.
Interlocking directors – Interlocking directors are persons who
serve as member of the board of directors of two or more
competing corporations or corporations engaged in practically
the same kind of business.
Effect of Corporate contracts with interlocking directors
Interlocking directors of corporations does not make a contract
between or among the corporations void and of no effect
provided there in no fraud and reasonable under the
circumstances.
Sec. 34. Disloyalty of a director. – Where a director, by virtue of his
office, acquires for himself a business opportunity which
should belong to the The by- laws of a corporation may create an executive
corporation, thereby obtaining committee, composed of not less than three members of the
profits to the prejudice of such board, to be appointed by the board. Said committee may act,
corporation, he must account to by majority vote of all its members, on such specific matters
the latter for all such profits by within the competence of the board, as may be delegated to it
refunding the same, unless his in the by-laws or on a
act has been ratified by a vote of
the stockholders owning or
representing at least two-thirds
(2/3) of the outstanding capital
stock. This provision shall be
applicable notwithstanding the
fact that the director risked his
own fundsinthe venture.

Duties of directors
Directors owe a three-fold duty
to the corporation. First, they
must be obedient; they owe a
duty to keep within the powers
of the corporation as well as
within those of the board of
directors. Second, they must be
diligent; they owe a duty to
exercise reasonable care and
prudence. The third duty owing
by directors is that of individual
loyalty.

Concept of “corporate or
business opportunity.”
The doctrine of “corporate
opportunity” is but one phase of
the cardinal rule of undivided
loyalty on the part of the
fiduciaries. If there is a
presented to a corporate officer
or director a business
opportunity which the
corporation is financially able to
undertake, is from its nature, in
the line of the corporation’s
business and is of practical
advantage to it, is one in which
the corporation will be brought
into conflict with that of his
corporation, the law will not
permit him to seize the
opportunity for himself.

Director is a fiduciary.
He who is in such fiduciary
position cannot serve himself
first and his cestuis (beneficiary)
second. He cannot manipulate the
affairs of his corporation to their
disadvantage and in disregard of
the standards of common
decency. He cannot by the
intervention of a corporate
entity violate the ancient
principle against serving two
masters.

Sec. 35. Executive Committee. –

 majority vote of the board, 9. To make reasonable donations, including those for the public
except with respect to: (1) welfare or
approval of any action for which
shareholders’ approval is also
required; (2) the filling of
vacancies in the board; (3) the
amendment or repeal of by- laws
or the adoption of new by-laws; (4)
the amendment or repeal of any
resolution of the board which by
it express terms is not so
amenable or repealable; and (5)
a distribution of cash dividends
to the shareholders.
Sec. 36. Corporate
powers and capacity. – Every
corporation incorporated under
this Code has the power and
capacity:

1. To sue and be sued in its

corporation name.

2. Of succession by its corporate

name for the period of time
stated in the articles of
incorporation and the certificate
of incorporation.

3. To adopt and use a corporate

seal.

4. To amend its articles of

incorporation in accordance with
the provisions of this code.
5. To adopt by-laws, not contrary
to law, morals, or public policy,
and to amend or repeal the same
in accordance with this Code.

6. In case of stock corporations, to

issue or sell stocks to subscribers
and to sell treasury stocks in
accordance with the provisions
of this code; and to admit
members to the corporation if it
be a non-stock corporation.

7. To purchase, receive, take or

grant, hold, convey, sell, lease,
pledge, mortgage and otherwise
deal with such real and personal
property, including securities
and bonds of other
corporations, as the transaction
of the lawful business of the
corporation may be reasonably
and necessarily require, subject to
the limitations prescribed by law
and the Constitution.

8. To enter into with other

corporations merger or
consolidation as provided in this
code.
 for hospital, charitable, 4. Powertosell or dispose assets (Sec. 40).
5.
cultural, scientific, civic, Power to acquire own shares (Sec. 41).
or similar purposes: 6. Power to invest corporate funds in another corporation or
Provided, That no business or for any other purpose (Sec. 42).
corporation, domestic or 7. Power to declare dividends (Sec. 43).
foreign, shall give
8. Power to enter into management contracts (Sec. 44).
donations in aid of any
political party or Sec. 37. Power to extend or shorten corporate term. – A
candidate or for private corporation may extend or shorten its terms as stated in
purposes of partisan the articles of incorporation when improved by a majority vote of
political activity. the board of directors

10. To establish pension,

retirement, and other
plans for the benefit of
its directors, trustees,
officers and employees.

11. To exercise such other

powers as may be
essential or necessary to
carry out its purpose or
purposes as stated in its
articles of incorporation.

Powers of a corporation
A corporation has such
powers, and such powers
only, as are conferred
upon it by law or by its
agreement. Powers may
be conferred upon a
corporation:
1. Expressly.
2. Impliedly, because they
are incidental to
corporate existence.
3. Impliedly, because they
are necessary or proper
in order to exercise the
powers expressly
conferred.

General express powers

Section 36 of the
Corporation Code
enumerates the general
and express powers of
corporations.

Other corporate powers

The Corporation Code
enumerates other
express powers of
corporations as follows:
1. Power to extend or
shorten corporate term
(Sec. 37).
2. Power to increase or
decrease capital stock;
incur, create or increase
bonded indebtedness
(Sec.38).
3. Power to deny pre-
emptive right (Sec. 39).
or trustees and ratified at No corporation shall increase or decrease its capital stock or
a meeting by the incur, create or increase any bonded indebtedness unless
stockholders approved by a majority vote of the board of directors and, at a
representing at least stockholders’ meeting duly called for the purpose, two-thirds
two- thirds (2/3) of the (2/3) of the outstanding capital stock shall favor the increase or
outstanding capital stock diminution of the capital stock, or the incurring, creating or
or by at least two-thirds increasing of and bonded indebtedness. Written notice of the
(2/3) of the members in proposed increase or diminution of the capital stock or of the
case of non-stock incurring, creating, or increasing of any bonded indebtedness
corporations. Written and of the time and place of the stockholders’ meeting at which
notice of proposed the proposed increase or diminution of the capital stock or the
action and of the time incurring or increasing of any bonded indebtedness is to be
and place of the meeting considered, must be addressed to each stockholder at his
shall be addressed to place of residence as
each stockholder or
member at his place of
residence as shown on
the books of the
corporation and
deposited to the
addressee in the post
office with postage
prepaid, or served
personally: Provided,
That in case of extension
of corporate term, any
dissenting stockholder
may exercise his
appraisal right under the
conditions provided in
this Code.

Extension of corporate
term limited to 50 years
The corporate term may
be extended for periods
not exceeding 50 years in
any single instance as
provided by section 11
of the Corporation Code.
No extension can be
made earlier than 5
years prior to the original
or subsequent expiry
date(s) unless there are
justifiable reasons for an
earlier extension as
determined by the SEC.

Corporation cannot
extend expired term.
A corporation cannot
extend its life by
amendment of its articles
of incorporation effected
during the three-year
statutory period for
liquidation when its
original term of existence
had already expired.

Sec. 38. Power to

increase or decrease
capital stock; incur,
create or increase
bonded indebtedness. –
 shown on the of making effective stock dividend therefor authorized.
books of the
corporation and 4. Any bonded indebtedness to be incurred, created, or increased.
deposited to the
addressee in the 5. The actual indebtedness of the corporation on the day of the
post office with meeting.
postage prepaid,
or 6.
served Theamount ofthestock represented at the meeting.
personally.
7. The vote authorizing the increase or diminution of the capital
A certificate in stock, or the incurring, creating or increasing of any bonded
duplicate must be indebtedness.
signed by a
majority of the Any increase or decrease in the capital stock or the incurring,
directors of the creating or increasing of any bonded indebtedness shall require
corporation and prior approval of the Securities and Exchange Commission.
countersigned by
the chairman and One of the duplicate certificate shall be kept on file in the office
secretary of the of the corporation and the other shall be filed with the
stockholders’ Securities and Exchange Commission and attached to the
meeting, setting original articles of
forth:

1. That the
requirements of
this section have
been complied
with.

2. The amount of
the increase or
diminution of the
capital stock.

3. If an increase of
the capital stock,
the amount of
capital stock or
number of shares
of no-par stock
thereof actually
subscribed, the
names,
nationalities and
residences of the
persons
subscribing, the
amount of capital
stock or number
of shares of no-
par stock
subscribed by
each, and the
amount paid by
each on his
subscription in
cash or property,
or the amount of
capital stock or
number of shares
of no-par stock
allotted to each
stockholder if
such increase is
for the purpose
incorporation. of the capital stock shall be approved by the Commission, if its
From and after effect shall prejudice the rise of corporate creditors.
approval by the Non-stock corporations may incur or create bonded
Securities and indebtedness, or increase the same, with the approval by a
Exchange majority vote of the board of trustees and of at least two- thirds
Commission and (2/3) of the members in a meeting duly called for the purpose.
the issuance by
the Commission Bonds issued by a corporation shall be registered with the
of its certificate Securities and Exchange Commission, which shall have the
of filing, the authority to determine the sufficiency of the terms thereof.
capital stock shall
stand increased Bonds – Bonds are in form and effect similar to promissory notes,
or decreased and secured by mortgage or trust deed upon specified property of the
the incurring, debtor corporation.
creating or
increasing of any Properties to a bond
bonded Every bond issue usually involve three parties: (1) the debtor –
indebtedness corporation; (2) the creditor – bondholder; and (3) the trustee.
authorized, as
the certificate of Bonds classified
filing may Bonds are classified into: coupon or registered bonds,
declare: mortgage bonds, debentures, convertible bonds, participating
Provided, That bonds, collateral trust bands, and guaranteed bonds.
the Securities
and Exchange
Commission shall
not accept for
filing any
certificate of
increase of capital
stock unless
accompanied by
the sworn
statement of the
Treasurer of the
corporation
lawfully holding
office at the time
of the filing of the
certificate,
showing that at
least twenty-five
percent (25%) of
such increased
capital stock has
been subscribed
and that at least
twenty-five
percent (25%) of
the amount
subscribed has
been paid either
in actual cash to
the corporation
or that there has
been transferred
to the
corporation
property the
valuation of
which is equal to
twenty-five
percent (25%) of
the subscription:
Provided, further,
That no decrease
Coupon the bond to convert the bond into a specified number of
or shares of stock of the corporation at his option within a period
registered fixed therein.
bonds
Coupon Participating bonds
bonds are The owners or holders of participating bonds entitle them to
payable participate in earnings of the corporation above the specified
to bearer rates of interest fixed.
or to the
order of a Collateral trust bonds
person, Collateral trust bonds are secured by a lien on securities
and have deposited with a named trustee constituting the collateral.
attached
to them Guaranteed bonds
coupon Guaranteed bonds are guaranteed or secured by another
notes for corporation other than the issuing corporation.
each
instalmen Sec. 39. Power to deny pre-emptive right. – All stockholders of a
t of stock corporation shall enjoy pre-emptive right to subscribe to all
interest issues or disposition of shares of any class, in proportion to their
as it falls respective shareholdings, unless such right is denied by the
due. articles of incorporation or an amendment thereto: Provided,
That such pre-emptive right shall not extend to shares to be
Mortgage issued in compliance with laws requiring stock offerings or
bond minimum stock ownership by the public; or to shares to be issued
A in good faith with the approval of the stockholders representing
mortgage two-thirds (2/3) of the outstanding capital stock, in exchange for
bond is property needed for corporate purposes or in payment of a
one previously contracted debt.
secured
by a
mortgage
on
corporate
property.

Debentur
e bonds
Debentur
e bonds
are not
secured
by specific
corporate
property
but rather
solely on
the
issuer’s
ability to
pay the
indebted
ness.

Convertibl
e bonds
Convertibl
e bonds
are those
which
includes a
provision
which
permits
the
holder of
 ally all of its property and assets, including its goodwill, upon
Pre- such terms and conditions and for such consideration, which
emptive may be money, stocks, bonds or other instruments for the
right – It payment of money or other property or consideration, as its
means board of directors or trustees may deem expedient, when
literally authorized by the vote of the stockholders representing at least
to two-thirds (2/3) of the outstanding capital stock; or in case of non-
establish stock corporation, by the vote of at least two-thirds (2/3) of
a prior the members, in a stockholders’ or members’ meeting duly
right. A called for the purpose. Written notice of the proposed action and
stockhold of the time and place of the meeting shall be addressed to each
er’s pre- stockholder or member at his place of residence as shown on
emptive the books of the corporation and deposited to the addressee in
right is the post office with the postage prepaid, or served personally:
his right Provided, That any dissenting stockholder may exercise his
to appraisal right under the conditions provided in this Code.
subscribe
to new A sale or other disposition shall be deemed to cover
shares of substantially all the corporate property and assets if thereby
stock in the corporation would be rendered incapable of continuing
proportio the business or accomplishing the purpose for which it was
n to his incorporated.
existing
stockhold After such authorization or approval by the
ings, stockholders or members, the board of directors or trustees
before may, nevertheless, in its discretion, abandon such sale, lease,
the new exchange, mortgage, pledge or other disposition of property and
shares are assets, subject to the rights of third parties under any contract
issued to relating thereto, without further action or approval by the
others. stockholders or members.

Sec. 40.
Sale or
other
dispositio
n of
assets.
– Subject
to the
provision
s of
existing
laws on
illegal
combinati
ons and
monopoli
es, a
corporati
on may,
by a
majority
vote of its
board of
directors
or
trustees,
sell, lease,
exchange
,
mortgage
, pledge
or
otherwise
dispose
of all or
substanti
 to sell, lease, exchange, mortgage, pledge or otherwise dispose
N of its property and assets if the same is necessary in the
of any
ot usual and regular course of business of said corporation or if
hi the proceeds of the sale or other disposition of such property
ng and assets be appropriated for the conduct of its remaining
in business.
th
is In non-stock corporations, where there are no
se members with voting rights, the vote of at least a majority of
cti the trustees in office will be sufficient authorization for the
o corporation to enter into any transaction authorized by this
n section.
is
in Sec. 41. Power to acquire own shares. – A stock corporation shall
te have the power to purchase or acquire its own shares for a
n legitimate corporate purpose or purposes, including but not
de limited to the following cases: Provided, That the corporation
d has unrestricted retained earnings in its books to cover the
to shares to be purchased or acquired:
re
st1. To eliminate fractional shares arising out of stockdividends.
ric
t 2. To collect or compromise an indebtedness to the corporation,
th arising out of unpaid subscription, in a delinquency sale, and to
e purchase delinquent shares sold during said sale.
p
o3. To pay dissenting or withdrawing stockholders entitled to
w payment for their sharesunder theprovisionsofthis Code.
er
of Sec. 42. Power to invest corporate funds in another corporation or
an business or for any other purpose. – Subject to the provisions of
y this code, a private corporation may invest its funds in any
co other corporation or business or for any purpose other than the
rp primary purpose for which it was organized when approved by a
or majority of the board of directors or trustees and ratified by the
at stockholders representing at least two- thirds (2/3) of the
io outstanding capital stock, or by at least two-thirds (2/3) of the
n,
wi
th
o
ut
th
e
au
th
or
iz
at
io
n
by
th
e
st
oc
kh
ol
de
rs
or
m
e
m
be
rs,
m the proposed investment and the time and place of the
e meeting shall be addressed to each stockholder or member at
m his place of residence as shown on the books of the
be corporation and deposited to the addressee in the post office with
rs postage prepaid, or served personally; Provided, That any
in dissenting stockholder shall have appraisal right as provided in
th this Code: Provided, however, That were the investment by the
e corporation is reasonably necessary to accomplish its primary
ca purpose as stated in the articles of incorporation, the approval
se ofthestockholdersormembersshallnotbe necessary.
of
n Sec. 43. Power to declare dividends. – The board of directors of a
o stock corporation may declare dividends out of the
n- unrestricted retained earnings which shall be payable in cash, in
st property, or in stock to all stockholders on the basis of
oc outstanding stock held by them: Provided, That any cash
k dividends due on delinquent stock shall first be applied to the
co unpaid balance on the subscription plus costs and expenses,
rp while stock dividends shall be withheld from the delinquent
or stockholder until his unpaid subscription is fully paid: Provided,
at further, That no stock dividend shall be issued without the
io approval of stockholders representing not less than two-thirds
ns (2/3) of the outstanding capital stock at a regular or special
, meetingduly called for the purposes.
at
a Stock corporation are prohibited from retaining surplus profits
st in excess of one hundred percent (100%) of their paid-in
oc capital stock, except: (1) when justified approved by the Board
kh of Directors; or (2) when the corporation is prohibited under
ol any loan agreement with any financial institution or creditor,
de whether local or foreign, from declaring dividends without
rs’ its/his consent, and such consent has not yet been secured; or
or (3) when it can be clearly shown that such retention is
m necessary under special circumstance obtaining in the
e corporation, such as when there is a need for special reserve
m for probable contingencies.
be
rs’ Concept of dividends
m
ee
ti
ng
d
ul
y
ca
lle
d
fo
r
th
e
p
ur
p
os
e.
W
rit
te
n
n
ot
ic
e
of
A dividend is a corporate profit set aside, declared and ordered by the directors to be paid to the stockholders on
demand or at a fixed time. Scrip dividend
Scrip dividend is a w
Dividends distinguished from profits stockholder entitling him
“Dividends” means the profits or that portion of the profits of the corporation which its board of directors, by at some future time ina
proper resolution, sets apart for rotable distribution among the stockholders. It is distinguished from “profits” for scrip dividends are decla
the profits in the hands of a corporation do not become dividends until they have been set apart, or at least declared,
as dividends and transferred to the separate property of the individual stockholders. Liquidating dividend
Liquidating dividend in
Surplus profits – Surplus or net profits of a corporation is the difference between the total present value of its assets, corporation to its stockho
after deducting losses and liabilities, and the amount of its capital stock. (11 Fletcher, Sec. 5335)
Sec. 44. Power to ente
Basis of dividend declaration corporation shall conclud
The board of directors of a stock corporation may declare dividends on the basis of outstanding stock held by the corporation unless such
stockholders. The basis therefore is the stockholder’s total subscription and not on the amount paid by him on the the Board of Directors a
subscription. This is for the reason that his entire subscription represents his holding in the corporation for which he pays majority of the outstandi
interests on any unpaid portion. (SEC Opinion, Dec. 17, 1973) of the members in the c
the managing and the m
Classes of dividends called for the purpose:
Dividends which a corporation may declare and distribute to its stockholders may be classified into: cash dividend, or stockholders repres
stock dividend, property dividend, scrip dividend, and liquidating dividend. managing and the mana
than one-third (1/3) o
Cash dividend entitled to vote of the m
Cash dividend is one payable in money. majority of the memb
managing corporation als
Stock dividend of the Board of Director
Stock dividend is a dividend payable in stock instead of cash or property. management contract m
of the managed corpora
Property dividend of the total outstanding
The directors in their discretion may authorize distributions in bonds or in property, such as warehouse receipts for least two-thirds (2/3) o
whiskey or shares of stock of a subsidiary corporation. corporation. No manag
for aperiod longer than f

The provisions of the ne

any contract whereby a
operate all or substanti
corporation, whether
contracts, operating a
however, That such ser
which relate to the exp
utilization of
natural resources may be entered into for such periods as may be provided by the pertinent laws or regulations. deprive either the corpo
property acquired unde
Concept of management contract great weight of authori
A management contract is an agreement under which the board of directors of a corporation delegates the powers
unenforceable.
of management to another person or corporation for a period of time provided for in the agreement.

Effects of Management contracts Ultra vires contracts acc

Contracts by which the board of directors delegates the power of supervision and management to another person 1. If the contract is fully e
or corporation for a specified period are invalid if they involve a surrender by the board of its power and duty of effective and the courts
supervision and control. of what has been acquire
2. If the contract is executor
Management prerogatives
maintain an action for its
An owner of a business enterprise is given considerable margin in managing his business because it is deemed
important to societyasa wholethatheshould succeed. 3. Where the contract is ex
performed on the other
Sec. 45. Ultra vires acts of corporations. – No corporation under this Code shall possess or exercise any corporate powers will lie on the contract
except those conferred by this Code or by its articles of incorporation and except such as are necessary or incidental to benefits of performance
the exercise of the powers so conferred. that the party who has r
stopped” to set up that
Intra vires – The acts of a corporation within its express or implied powers. action on the contract. T
Ultra vires – The acts of a corporation outside its express or implied powers. recognized by the cou
allowed to prevail, when
It denotes some act or transaction on the part of a corporation which, although not unlawful or contrary to public
where it will defeat the
policy of executed by an individual, is yet beyond the legitimate powers of the corporation as they are defined by the
statute under which it is formed, or which are applicable to it, or by its charter or incorporation papers. Acts which are ultra vire
order that such ultra vire
Admittedly, if the contract is executed on both sides neither party can maintain an action to set aside the
1. The act was consummate
transaction or to recover what has been parted with. The courts will not interfere in such a case to
2. No creditors are prejudice
thereto.
3. The right of the public or t
4. All of the stockholders co

A corporation, like an ind

binding upon it the or
other agents. This is tru
is neither contrary to law
is a corporate transact
corporate powers but
which is defective from a purported failure to observe in its execution the requirement of the law that the investment the appropriate governm
must be authorized by the affirmative vote of the stockholders holding 2/3 of the voting power. laws or amendments are i

Sec. 46. by-laws Adoption. – Every corporation formed under this code, must, within one month after receipt of Necessity of by-laws
official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission, adopt a The corporation must ad
new code of by-laws for its government not inconsistent with this code. For the adoption of by-laws by the corporation government.
the affirmative vote of the stockholders representing at least a majority of the outstanding capital stock, or of at least
a majority of the outstanding capital stock, or of at least a majority of the members, in the case of non-stick Corporation has inherent
corporations, shall be necessary. The by- laws shall be signed by the stockholders or members voting for them and shall One of its legal inciden
be kept in the principal office of the corporation, subject to the inspection of the stockholders or members during law of the charter su
office hours; and a copy thereof, duly certified to by a majority of the directors or trustees and countersigned by the contained in the statu
secretary of the corporation, shall be filed with the Securities and Exchange Commission which shall be attached to the limitations as may be co
original articles of incorporation. general requirements of
by-laws within the per
Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to incorporation may be su
incorporation; in such case, such by-laws shall be approved and signed by all the incorporators and submitted to the
Securities and Exchange Commission, together with the articles of incorporation. Section 46 allows the ad
incorporation provided
In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a incorporators and subm
certification that the by-laws are not inconsistent with the Code. Commission together wi

The Securities and Exchange Commission shall not accept for filing the by-laws or any amendment thereto of any bank, By-laws cannot provide fo
banking institution, building and loan association, trust company, insurance company, public utility, educational Restriction upon the tra
institution or other special corporations governed by special laws, unless accompanied by a certificate of legislative enactment, as
impediments. By-laws a
restriction.

Elements of valid by-law

1. Must not be inconsisten
CorporationCode.
2. Must not be inconsisten
3. Must be general in applic
individuals.
4. Must not be inconsisten
5. Must not impai
contracts.
6. Must not be in restraint o
7. Must not restrict religiou

By-laws validity
As a rule, the by-laws
reasonable and calculate
corporation, and are no
the laws of the land.
 Binding effect of by-laws transaction of its corpor
By-laws when valid, substantially the same force and effect as laws of the corporation as have the provisions of its charter
in so far as the corporation, the persons within it is concerned. They are in effect written into the charter and in this The enumerations of co
sense; they become part of the fundamental law of the corporation. And the corporation, and its directors and neither does the provisi
officers are bound by and must comply with them. Strangers, however, are not bound to know by-laws which are appear in the by-laws.
merely provisions for the government of a corporation and notice of them will not be presumed.
The By-laws must not vi
Sec 47. Contents of by-laws. – Subject to the provisions of the Constitution, this Code, other special laws, and the Code, other special laws
articles of incorporation, a private corporation may provide in its by-laws for:
A corporation which has
1. The time, place and manner of calling and conducting regular or special meetings of the directors or trustees. prescribed period does no

2. The time and manner of calling and conducting regular or special meetings of the stockholders or members. Sec. 48. Amendments t
trustees, by a majority vo
3. The required quorum in meetings of stockholders or members and the manner of voting therein. majority of the outstandi
the members of a non- st
4. The form for proxies of stockholders and membersandthe manner ofvoting them. meeting duly called for
by-laws or adopt new
5. The qualifications, duties and compensation of directors or trustees, officer and employees. outstanding capital stoc
corporation may delega
6. Thetimeforholdingtheannualelection of directors or trustees and the mode or manner of giving notice thereof. by-laws: provided, that
directors or trustees sha
7. The manner of election or appointment and the term of office of all offices other than directors or trustees. stockholders owning
outstanding capital stoc
8. The penalties for violation of the by- laws. stock corporations, shall s

Whenever any amendm

9. In the case of stick corporations, the manner of issuing stock certificates.
amendment or new by-
by- laws in the office o
10. Such other matter as may be necessary for the proper or convenient
duly certified under oa
majority of the directo
Securities and Exchange C
the original articles of in

Amender or new by-la

issuance by the SEC of a
inconsistent with thiscod

The authority to make

corporation cannot be
trustees. The
stockholders of a stock corporation or the members of the non-stick corporation adopt or make the original by-laws. Notice of any meeting m
by any stockholder or me
An amendment of by-law renders stockholder ineligible as director
It is well-settled xxx that corporations have the power to make by-laws declaring a person employed in the service of Whenever, for any cause
a rival company to be ineligible for the corporation’s Board of Directors. An amendment which renders ineligible, meeting, the SEC, upon
or if elected, subjects to removal, a director if he be also a director in a corporation whose business is in competition and on the showing of
with or is antagonistic to the other corporation is valid. This is based upon the principle that where the director is so order to the petitioning
employed in the service of a rival company, he cannot serve both, but must betray one or the other. Such an call a meeting of the
amendment advances the benefit of the corporation and is good. required by this Code
stockholder or member
Meetings Necessity majority of the stockhol
A majority of the stockholders or members can bind the corporation only at a meeting regularly held and conducted. To one of their numbers as p
constitute a legal meeting, so as to render the acts and vote of the majority binding the meeting must be regularly
called by one having authority. In the absence of provision to the contrary such authority exists in the directors or Corporate decisions; ration
managing agents. shareholders or member
corporation as to matter
Sec. 49. Kinds of Meeting. – Meetings of directors, trustees, stockholders, or members may be regular or special. authority, except at a me
law. Written or oral cons
Sec. 50. Regular and special meetings of stock holders or members. – Regular meetings of stockholders or members shareholders or membe
shall be held annually on a date fixed in the by- laws, or if not so fixed, on any date in April of every year as determined may agree, is not binding
by the board of directors or trustees: Provided, that written notice of regular meetings shall be sent to all stockholders
or members of record at least 2 weeks prior to the meeting, unless a different period is required by the by-laws. When there is no person au
A stockholder or membe
Special meetings of stockholders or members shall be held at any time deemed necessary or as provided in the by- good cause, to call a m
laws: Provided, however, that at least 1 week written notice shall be sent to all stock holders or members, unless (stockholder or membe
otherwise provided in theby-laws. and the by-laws. The pe
preside at such meeti
stockholders or memb
numbers as presiding off

Sec. 51. Place and time

– Stockholders’ or mem
special, shall be held i
principal office of the co
the principal office of t
Manila shall, for the purp
municipality

Notice of meetings shal

thereof stated therein.
All proceedings had a
meeting of the stockhold
 powers or authority of the corporation, shall be valid even of the meeting be improperly held or called, provided all
the stockholders or members of the corporation are present or duly represented at the meeting. Sec. 54. Who shall pres
preside at all meeting of
Place of meetings the stockholders or m
(Regular or special) meetings shall be held in the city or municipality where the principal office of the corp. is located. otherwise.

If the meeting be improperly held or called (as when there was a defective notice) the same shall still be valid provided The meetings of directo
that the by-laws. Notice of re
1. The act done was within the powers of the corporation. trustees must be sent to t
2. All the stockholders or members were present or duly represented. meeting, unless the by-la

Sec 52. Quorum in meetings. – Unless otherwise provided for in this Code or in the by-laws, a quorum shall consist of Sec. 55. Right to v
the stockholders representing a majority of the outstanding capital stock or a majority of the members in the case of administrators. – In case o
non-stock corporations. corporations, the pledgo
attend and vote at meet
Quorum – Signifies the number of persons belonging to a corporation required to transact business. Within the mortgagee is expressly
meaning of section 52 above, a quorum shall consist of the stockholders representing a majority of the outstanding recorded on the approp
capital stock or a majority of the members in the case of non-stock corporations. mortgagor.

Sec. 53. Regular of special meetings of directors or trustees. – The meetings shall be held monthly, unless the by-laws Executors, administra
provide otherwise. representatives duly ap
vote in behalf of the sto
Special meetings of the board of directors or trustees may be held at any time upon the call of the president or as any written proxy.
provided in the by-laws
The pledgor or mortgagor
Meetings of directors or trustees of corporations may be held anywhere in or outside of the Philippines, unless the to the contrary, if the sh
by- laws provide otherwise. Notice of regular or special meetings stating the date, time and place of the meeting must be the corporation has the
sent to every director or trustee at least 1 day prior to the scheduled meeting, unless otherwise provided in the by- stockholders.
laws. A director or trustee may waive this requirement, either expressly or impliedly.
A person who appears on
as the absolute owner o
although in face he may

Executorand administrat
to the estate of his dec
that the share stand o
name of the decedent.

Sec. 56. Voting in case of j

of stock owned jointly b
the same, the consent
unless there is a writte
Authorizing one or som
such share or shares: pro
 in an capacity by the holders therof, any one of the joint owner can vote said shares or appoint a proxy therfor. of a voting trust specifi
agreement, said voting t
If share are owned by 2 or more persons jointly, the right to vote is in them jointly, and , in order that the shares may be but shall automatically e
voted, they must agree upon the vote. This rule of joint action applies to shares held by several executors or trustees, in voting trust agreement
the absence of provision for a majority vote if the fiduciaries disagree. shall specify the terms an
such agreement shall b
Sec. 57. Voting right for treasury share. – Treasury shares shall have no voting right as long as such stock remains in the the SEC: otherwise,
treasury. unenforceable. The cert
trust agreement shall be
Treasury shares have no voting rights. the name of the trustee
pursuant to said agreem
Sec. 58. Proxies. – Stockholders and members may vote in person or by proxy in all meetings of stock holders or shall be noted that the
members. Proxies shall be in writing, signed by the stock holder or member and filed before the scheduled meeting trustees is made pursua
with the corporate secretary. Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is
intended. No proxy shallbe valid and effective for a period longer than five years at any one time. The Trustee or trustees
transferors voting trust
Proxy – In corporate law, is a person who votes for and this represents the stockholders or members. in the same manner and
stock.
Voting by proxy
Ordinarily the right to vote shall be exercised by the stockholders themselves or by their duly authorized The voting trust agreem
representatives. Proxy to be valid must be: subject to examination b
1. Inwriting,signedbythestockholderor member giving it. the same manner as a
2. Filed with the corporate secretary before the scheduled meeting. Provided, That both the
3. It is valid only for the meeting for which it is intended unless otherwise stipulated. may exercise the right o
4. Even if the proxy is a continuingone it shall not be longer than 5 year at any one time. records in accordance wit

Sec 59. Voting trusts. – One or more stockholders of a stock corporation may be create a voting trust for the purpose Any other stock holder
of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period not trustee or trustees upon
exceeding5years at any one time: Provided, that in the case voting trust agreement,
the provisions of said agr

No voting trust agreemen

of circumventing the
combinations in restrai
fraud.

Unless expressly renewe

agreement shall automa
period, and the votin
certificates of stick in th
thereby be deemed cance
 certificates of stock shall be reissued in the name of the transferors. No person can become a
of a subscription for s
The voting trustee or trustees may vote by proxy unless the agreement provides otherswise. between him and the
subscription for stock in
Concept of voting trusts between the subscriber o
A voting trust is an agreement by which stockholders surrender their voting power and place it irrevocably in the its formation and valid
hands of others for a definite period of time. In exchange for the certificates of stock the trustee delivers to the substantially as any oth
stockholder voting trust certificates. principles may be render
statutory provisions. No
Limitations on voting trust agreement make the subscriber liab
1. It shall be for a period not exceeding 5 years but if required under a loan agreement, the period may be for more than
5 years but shall automatically cease upon full payment of the loan. No form required of su
2. It must be in writing and notarized. required by law. Thus, a
3. It shall not be entered into to circumvent laws on monopolies and restraint of trade, nor shall it be entered into stock from a corporati
purposes of fraud. participating in stockhol
4. It shall be filed with the corporation and with SEC otherwise it shall be ineffective and unenforceable. otherwise, thereby beco
5. It shall be subject to examinations by any stockholder in the same manner as any other corporate book or record. not only to creditors, b
6. Parties to the voting trust agreement shall be bound by all the provisions of said agreement. there may have no expre

Sec. 60. Subscription contract. – Any contract for the acquisition of unissued stock in an existing corporation or a Sale of Shares of Stock N
corporation still to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the requires that before a
fact that the parties refer to it as a purchase or some other contract. bank, corporation assoc
for sale in the Philippine
How can a person become a shareholder in a stock corporation? stocks or bonds, it mu
1. By subscription contract with an existing corporation for the acquisition of unissued shares. permit from the SEC for
form of an exemption f
2. By purchase from the corporation of treasury shares.
and licensing, and is issue
3. By transfer from a previous stockholder of the outstanding shares or existing subscription to shares.
Power to issue shares i
Binding effect of subscription
no stockholders’ meeti
additional issuance of sh
the stockholders. The “B
corporation and shall p
stock of corporation.”

Kinds of Subscription:
Pre-incorporation – is on
of the proposed corpora
Post-incorporation Sub
incorporation or formati
2. Absolute Subscription – one not subject to any condition or happening of certain unknown events. Sec. 62. Considering for s
3. Conditional Subscription – its fulfillment depends upon the happening of uncertain events of contingencies. It does consideration less than
not make the subscriber a stockholder or render him liable to pay the amount of the subscription, until performance Consideration for the
or fulfillment of the condition. combination of any two o
4. Subscription upon special terms – where “the corporation agreed, as an independent element, to do a certain thing or
things, but not as condition to the accrual of liability of the subscriber or the acquisition of the rights of 1. a Actual cash paid to the co
stockholder.
2. Property, tangible or
Sec. 61. Pre-incorporation subscription. – A subscription for shares of stock of a corporation still to be formed shall be corporation and necess
irrevocable for a period of at least six (6) months from the date of subscription, unless all of the other subscribers purposes atafair valuatio
consent to the revocation, or unless the incorporation of said corporation fails to materialize within said period or stock issued.
within a longer period as may be stipulated in the contract of subscription: Provided, That no pre-incorporation
3. Labor performed for o
subscription may be revoked after the submission of the articles of incorporation to the Securities and Exchange
Commission. corporation.

SEC. 61 Pre-incorporation subscription is mandatory (Sec. 13 & 14) at least 25% of the authorized capital stock has 4. Previously incurred indebt
been subscribed and at least 25% of the total subscription has been fully paid.
5. Amounts transferred fr
Subscription for shares of stock of a corporation still to be formed shall be irrevocable for a period of at least 6 months stated capital.
from the date of subscription, unless:
1. All subscribers consent to its revocation. 6. Outstanding shares ex
2. The incorporation fails to materialize within 6 months or a longer period as agreed upon. reclassification or conver

The irrevocability of pre-incorporation prevents a subscriber from speculating on the stocks of the proposed Where the consideratio
corporation and protects the corporation from financially irresponsible subscribers. of intangible property
valuation thereof sha
incorporators or the boa
the Securities and Exchang

Shares of stock shall no

notes or future service.
this section, insofar as t
the issuance of bonds by
par value shares may be
by the board of directors
it by the articles of in
absence thereof, by the
majority of the outstand
for the purpose.

Consideration for issuance

of any two or more of th
1. Cash
2. Property – tangible or int
3. Labor performed or serv
 rendered fact or other person leg
4. Previously incurred indebtedness by the corporation No transfer, however, s
5. Amounts transferred from unrestricted retained earnings to stated capital parties, until the trans
6. Outstanding shares exchanged for stock in the event of reclassification or conversion corporation showing the
the date of the transf
Sources of corporate capital certificates and the numb
1. Funds furnished by shareholders
2. Borrowings No shares of stock aga
unpaid claim shall be
3. Profits and stock dividends
corporation.
Different modes by which a corporation may issue shares of stock
SEC. 63 The capital stoc
1. By subscription before and after incorporation, to original, unissued stocks.
into shares Certificate of
2. By sale of treasury stock after incorporation for money property, or service.
3. By subscription to new stocks, when all the original stocks have been issued and the amount of the capital stock Nature of a certificate o
increased.
1. It is a written instrume
4. By making a stock dividend. corporation stating or a
therein is the owner of a
Limitations in the issuance of stocks
2. It indicates the name of
1. Shall not be issued for a consideration less than the par or issued price thereof except treasury shares so long as the
of shares represented,an
price is reasonable.
3. It i merely the eviden
2. Shall not be issued in exchange of promissory notes or future services.
corporation, his ownersh
3. When the consideration is other than actual cash or consists of intangible property, the value thereof shall be
4. It is not essential to mak
initially determined by the incorporators or the board of directors, subject to the approval of the SEC.
4. The issued price of no par value shares must be fixed as provided in Sec. 62.
 Every stockholder has a
 issued price may vary from time to time but value may not be less than P5.
to him as soon as he ha
entitle him to one.
Sec. 63. Certificate of stock and transfer of shares. – The capital stock of stock corporations shall be divided into shares for

which certificates signed by the president or vice president, countersigned by the secretary or assistant secretary, and A corporation cannot is
sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are authorized in its AOI.
personal property and may be transferred by delivery of the certificate or certificates endorsed by the owner or his  An over issued stock is
attorney-in- good faith.
 Shares can be transferr
endorsement by the ow
transferee.

Restrictions on transfer
1. A by-law prohibits a tra
approval of all stockho
directors is ILLEGAL.
2. A provision in the certificate that is transferable only to some person first approved by the board of directors dividends as against the
unlawfully restricts the right of the stockholder. nominal owner of the s
3. The condition “non-transferable” appearing on certificates of stock is VOID. the real owner.
4. corporations which will engage in any business reserved for Filipino citizens are required to indicate in AOI and all
3. It is invalid as against co
certificates. still liable to the corp
shareholder does not re
Two requirements to effect transfer of stocks of the corporation for u
Endorsement and delivery of stock certificate consummated by being r
-the usual practice is for the stockholder to sign the form on the back of the stock certificate. 4. It is invalid as against cr
-if the holder of the certificate desires to assume the legal right of the stockholder he fills up the blank in the form of the transfer.
inserting his name as transferee.
-then he delivers the certificate to the secretary of the corporation so that the transfer may be entered in the Shares of stock agains
books. unpaid claim shall not
unpaid claims against th
Other modes of transfer  no unpaid subscriptions
1. Assignment thru a separate instrument.
2. Judicial or extra-judicial settlement of the estate. Sec. 64. Issuance of stock c
be issued to a subsc
Validity of stock transfer subscription together w
1. As between parties delinquent shares), if any
-merely the delivery of the certificate indorsed by the owner or his attorney- in-fact or other person legally
authorized to make the transfer. SEC. 64 It is prohibited
2. As against third persons subscriber who has not
-the transfer of shares must be entered and noted upon the books of the corporation together with interest an
-only absolute transfer are recorded
Derivative suit – one br
Effects of unregistered shares members in the name and
1. It is valid and binding as between the transferor and transferee. wrongs committed ag
2. It is invalid insofar as the corporation is concerned except when notice is given to the corporation for purposes of corporate rights.
registration.
a) the transferor has the right to vote and to be voted for, and has the right to participate in any meeting Individual suit – one bro
b) the transferor has the right to against the corporation
rights such as right to vo

Representative suit – a
suit against the corporat
against a group of stockho

Certificate of Stock – a w
corporate officers, and ev
named is the registered
described.
 Nature and Functions of Certificates 2. By delivering
It represents the number of shares which the corporation acknowledges that the holder of the certificate is entitled accompanied by a separate
to and is a solemn and continuing affirmation by the corporation that the person to whom it was issued is entitled to all
3. Where stock is levied on
the rights and subject to all the liabilities of a stockholder in the company in respect of the number of shares named, the certificate coupled w
and that the company will respect his rights and the rights of anyone to whim he may transfer such shares, by conducted the levy.
refusing to admit any new transferee to the rights of a stockholder except upon the surrender of the certificate. 4. Transfer by sale of delinq

Issuance of Stock Certificate. It requires: Liabilities of a stockholders

1. sign by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal
1. Liability to the corporati
of the corporation, and issued in accordance with the law. 2. Liability to the corporati
2. The certificate must be delivered or mailed to the subscriber, with the documentary stamps required by law 3. Liability to creditors of th
affirmed thereon. 4. Liability for wateredstoc
3. The par value with respect to shares with par value, or the full subscriptions, as to no-par value shares must be fully
5. Liability for dividends unl
paid. 6. Liability for fai
4. Where it involves transfer of outstanding shares, the original certificate must be retained. corporation

Purpose of Registration of Transfer Sec. 65. Liability of direc

1. To enable the corporation to know at all times who its actual shareholders are, because mutual rights and obligations or officer of a corporati
exist between the corporation and its stockholders. for a consideration less
2. To afford to the corporation an opportunity to object or refuse its consent to the transfer in case it has any claim consideration in any form
against the stock sought to be transferred or for any other valid reason. fair value, or who, h
3. To avoid fraudulent or fictitious transfer. forthwith express his o
4. It is intended also for the benefit and protection of persons who may deal with the corporation and become with the corporate secre
creditors, so that they know who are the stockholders, and as such liable to its creditors. stockholder concerned t
the difference between
Right to Transfer shares of stock issuance of the stock and
1. By delivering the certificate, duly indorsed on the back.
SEC. 65 watered stocks –
value less than its equ
stock dividends, or serv
watered stocks (only ref
1. To protect persons who
become the creditors o
outstanding capital stoc
2. To secure equality
discrimination against t
issued value.

Who are liable for wate

Both consenting direc
concerned for the whole
 Trust Fund Theory – involves an implied promise to the corporation to pay the par value of the shares in money or 3. Denying a stockholder d
its equivalent, supplementing it by a legal restriction against release or fictitious payment of this obligation to the right to vote (under sect
prejudice of creditors. 4. Collection from cash
dividends (under Section
Sec. 66. Interest on unpaid subscriptions. – Subscribers for stock shall pay to the corporation interest on all unpaid
subscriptions from the date of subscription, if so required by, and at the rate of interest fixed in the by-laws. If no rate of Sanctions on stock delinq
interest is fixed in the by-laws, such rate shall be deemed to be the legal rate. 1. Rights denied to stockho
to vote or representati
Sec. 67. Payment of balance of subscription. – Subject to the provisions of the contract of subscription, the board of entitled the holder there
directors of any stock corporation may at any time declare due and payable to the corporation unpaid except the right to divide
subscriptions to the capital stock and may collect the same or such percentage thereof, in either case with accrued 2. Right given to the corpor
interest, if any, as it may deem necessary. 3. The corporation has th
delinquent stock to the u
Payment of any unpaid subscription or any percentage thereof, together with the interest accrued, if any, shall be costand expenses.
made on the date specified in the contract of subscription or on the date stated in the call made by the board. Failure to
pay on such date shall render the entire balance due and payable and shall make the stockholder liable for interest at While stock dividends, c
the legal rate on such balance, unless a different rate of interest is provided in the by-laws, computed from such date the delinquent stockhol
until full payment. If within thirty paid.
(30) days from the said date no payment is made, all stocks covered by said subscription shall thereupon become
delinquent and shall be subject to sale as hereinafter provided, unless the board of directors orders otherwise. When is the balance of su
1. On the date specified in th
Remedies to enforce payment of stock subscription
2. In the absence of any
1. Extra-judicial sale at public auction – Permits the corporation to put up unpaid stock for sale and dispose of it for subscription, on the dat
the account of the delinquent subscribers (governed by sections 67-69 of the Corporation Code of the Philippines). of directors.
2. Judicial action by court action (provided under Section 70)
When does the stock beco
delinquent upon failureo
subscription or balance t
specified
subscription or on the d

Call – a declaration off

expressed in the form o
requiring payment of a
subscriber's stock subscr

Requisites for a valid ca

1. It must be made in the m
2. It must be made by the b
3. It must operate uniform
Sec. 68. Delinquency sale. – The board of directors may, by resolution, order the sale of delinquent stock and shall
specifically state the amount due on each subscription plus all accrued interest, and the date, time and place of the sale Procedure:
which shall not be less than thirty (30) days nor more than sixty 1. The board of directors p
(60) days from the date the stocks become delinquent. whole or certain percen
the date fixed for paym
Notice of said sale, with a copy of the resolution, shall be sent to every delinquent stockholder either personally or by in the contract of subscrip
registered mail. The same shall furthermore be published once a week for two (2) consecutive weeks in a newspaper 2. The stockholders are gi
of general circulation in the province or city where the principal office of the corporation is located. secretary of the corpo
within 30 days from
Unless the delinquent stockholder pays to the corporation, on or before the date specified for the sale of the delinquent.
delinquent stock, the balance due on his subscription, plus accrued interest, costs of advertisement and expenses of 3. the board of directors
sale, or unless the board of directors otherwise orders, said delinquent stock shall be sold at public auction to such delinquent stocks, statin
bidder who shall offer to pay the full amount of the balance on the subscription together with accrued interest, costs and place of sale with
of advertisement and expenses of sale, for the smallest number of shares or fraction of a share. The stock so purchased which notice shall be pub
shall be transferred to such purchaser in the books of the corporation and a certificate for such stock shall be issued 4. On the date of sale, w
in his favor. The remaining shares, if any, shall be credited in favor of the delinquent stockholder who shall likewise be bidderforcash.
entitled to the issuance of a certificate of stock covering such shares.
Highest bidder – the per
Should there be no bidder at the public auction who offers to pay the full amount of the balance on the subscription amount of the balanc
together with accrued interest, costs of advertisement and expenses of sale, for the smallest number of shares or accrued interest, cost of
fraction of a share, the corporation may, subject to the provisions of this Code, bid for the same, and the total the smallest number of sh
amount due shall be credited as paid in full in the books of the corporation. Title to all the shares of stock covered by
the subscription shall be vested in the corporation as treasury shares and may be disposed of by said corporation in In the absence of bidders
accordance with the provisions of this Code. purchase for itself the de

Sec. 69. When sale may

delinquent stock sold c
irregularity or defect in t
the delinquent stock, un
action first pays or tend
sum for which the same
sale at the legal rate; and
it is commenced by the
months from the date of

Grounds for the reco

delinquency are:
1. Irregularity or defect in t
2. Irregularity or defect in th

Sec. 70. Court action to

in this Code shall prevent
 action in a court of proper jurisdiction the amount due on any unpaid subscription, with accrued interest, costs and SEC. 72 Before unpaid s
expenses. thereof is not considere
the corporation, and, t
As a general rule, a corporation may not maintain a suit for the enforcement of unpaid subscription without first stockholder which rights
making a call.
Sec. 73. Lost or destroyed
Judicial remedy is limited to the amount due on any unpaid subscription with accrued interest, costs and expenses shall be followed for th
certificates of stock in lie
Sec. 71. Effect of delinquency. – No delinquent stock shall be voted for be entitled to vote or to representation at or destroyed:
any stockholder's meeting, nor shall the holder thereof be entitled to any of the rights of a stockholder except the right
to dividends in accordance with the provisions of this Code, until and unless he pays the amount due on his subscription 1. The registered owner of a
with accrued interest, and the costs and expenses of advertisement, if any. his legal representative
affidavit in triplicate
SEC. 71 Stock delinquency does not deprive the holder of all his rights as a stockholder except the right to be voted for or circumstances as to ho
be entitled to representation at any stockholders' meeting. He shall still receive dividends. But delinquent stocks shall destroyed, the number o
be subject to delinquency sale. the serial number of
corporation which issued
Effects of Stocks declared delinquent: information and evidenc
1. Cannot be voted for or be entitled to vote in corporate meetings or be represented by proxy at any stockholders’
meeting. 2. After verifying the af
2. The holder of delinquent stock is not entitled to exercise the rights of a stockholder (i.e. to inspect books and evidence with the book
records, etc.). shall publish a notice i
3. The holder of delinquent stocks is entitled to dividends. Section 43 provides however, that “ any cash dividends due published in the place
on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expense, while office, once a week for thr
stock dividends shall be withheld from the delinquent stockholder until his unpaid subscription is fully paid”. of the registered owner
been lost, stolen or dest
Sec. 72. Rights of unpaid shares. – Holders of subscribed shares not fully paid which are not delinquent shall have all the of said corporation, the
rights of a stockholder. serial number of said c
represented by such cer
one (1) year from the da
has been presented to sa
of stock, the right to m
said corporation shall ca
which has been lost, stol
new certificate of stock
bond or other security
effective for a period of
(1) year, for such amount an
form and with such sureties as may be satisfactory to the board of directors, in which case a new certificate may be every act done or ord
issued even before the expiration of the one (1) year period provided herein: Provided, That if a contest has been demand of any director,
presented to said corporation or if an action is pending in court regarding the ownership of said certificate of stock time when any direct
which has been lost, stolen or destroyed, the issuance of the new certificate of stock in lieu thereof shall be entered or left the meet
suspended until the final decision by the court regarding the ownership of said certificate of stock which has been lost, on a similar demand, th
stolen or destroyed. motion or proposition, a
protest of any director,
Except in case of fraud, bad faith, or negligence on the part of the corporation and its officers, no action may be action or proposed ac
brought against any corporation which shall have issued certificate of stock in lieu of those lost, stolen or demand. The records
destroyed pursuant to the procedure above-described. corporation and the mi
inspection by any directo
SEC. 73 The registered owner of certificates of stock in a corporation or his legal representative shall file with the corporation at reasonab
corporation an affidavit setting forth how certificate were lost, stolen or destroyed, the number of shares demand, writing, for a c
represented by each certificate, the serial numbers of the certificate and name of the corporation which issued the minutes, at his expense.
same.
Any officer or agent of th
The affidavit shall be verified any director, trustees
Corporation shall publish a notice in a newspaper in general circulation published in the place where the corporation corporation to examine
has its principal office for 3 consecutive weeks. minutes, in accordance w
liable to such director,
After 1 year from the date of the last publication, if no contest presented to the corporation, corporation shall cancel damages, and in addition
in the books the lost certificates and issue new certificates. shall be punishable und
That if such refusal is m
Sec. 74. Books to be kept; stock transfer agent. – Every corporation shall keep and carefully preserve at its principal of the board of directo
office a record of all business transactions and minutes of all meetings of stockholders or members, or of the board section for such action
of directors or trustees, in which shall be set forth in detail the time and place of holding the meeting, how authorized, trustees who voted for
the notice given, whether the meeting was regular or special, if special its object, those present and absent, and That it shall be a defens
the person demanding t
corporation's records an
information secured th
records or minutes of
corporation, or was not
purpose in making his de

Stock corporations must a

and transfer book", in wh
the names of the stoc
installments paid and
subscription has been m
installment; a statement
stock made, the date the
 whom made; and such other entries as the by-laws may prescribe. The stock and transfer book shall be kept in the 1. Certificated changing the
principal office of the corporation or in the office of its stock transfer agent and shall be open for inspection by any and officers
director or stockholder of the corporation at reasonable hours on business days. 2. Certificates changing the o
the corporation
No stock transfer agent or one engaged principally in the business of registering transfers of stocks in behalf of a
stock corporation shall be allowed to operate in the Philippines unless he secures a license from the Securities and Management contracts d
Exchange Commission and pays a fee as may be fixed by the Commission, which shall be renewable annually: Provided,
That astock corporation is not precluded from performing or making transfer of its own stocks, in which case all the Sec. 75. Right to financia
rules and regulations imposed on stock transfer agents, except the payment of a license fee herein provided, shall be from receipt of a written
applicable. the corporation shall fur
statement, which shall inc
Books and records to be kept by Corporation last taxable year and a pr
1. Record of all business transactions year, showing in reasonab
2. Minutes of all meetings of stockholders or members, or of board of directors or trustees result of its operations.
3. Stock and transfer books
4. Optional records and supplementary books as many be necessary or required by special laws At the regular meeting of
directors or trustees sh
SEC Rules requiring filing of documents. The SEC requires all corporations whose securities are listed in any stock members a financial repo
exchange or with permits to sell shares to the public or with twenty or more stockholders shall hereafter submit to for the preceding year, w
this Commission within thirty (30) days after approval of the corporate action, certified true copies of the following duly signed and certified
documents evidencing the same, to wit: accountant.
a. Minute of meetings
1. Calling for payment of unpaid subscriptions However, if the paid-up
P50,000.00, the financial
2. Increasing or decreasing the capital stock
by the treasurer or any re
3. Changing the nomenclature of shares of stock or certificates of indebtedness
4. Authorizing the borrowing of material sums of money
Stockholder’srightstofinanc
b. Other documents, such as:
1. Balance sheet as of the end
2. A profit and loss statemen
3. The board of directors o
report” to stockholders o

SEC REPORTORIAL REQUIREM

Period Requirements
Within 30 days from a) Set up books of
registration of accounts duly
articles onaf registered with the
incorporation BIR wherein receipts
and disbursements
made are
immediately
recorded.

b) Set up and
 stockholder
 Address
register with the SEC  Nationality
its stock and
 No. of shares
transfer book. subscribed
 Amt. subscribed by each
c) File its by-laws
Shall be made for
with the
inspection.
Commission.
Within 15 days from Submit a statementWithin 5 days Submit list of
end of 3 months of sources and
before the date of stockholders/memb
from registration application of funds
annual meeting ers entitled to vote
certified by an
as of a date prior to
independent CPA.
the meeting.
a) Within 105 days i) If paid-up capital >
after the end of its P50,000, file a copy
The SEC must be notified of any:
fiscal year of BS and P&L
1. Change or transfer of address. statement.
2. Any investment of corporate funds in any of the secondary purposes of the corporation by filing a copy of the resolution approved by
2/3 of the subscribed capital stock entitled to ii)
voteIfauthorizing the BoD to invest in any of the secondary purposes.
paid-up capital
< P50,000, same as
Sec. 76. Plan of merger or consolidation. – Two(i)or more
andcorporations
certifiedmay merge into a single corporation which shall be one constituent
corporations or may consolidate into a newunder single corporation
oath by which
the shall be consolidated corporation.
Treasurer or any
The board of directors or trustees of each corporation, party to the merger or consolidation, shall approve a plan of merger or
responsible officer.
consolidation setting forth the following:
b) Within 45 days Certified under oath
by the Treasurer or
1. The names of the corporations proposing to merge or consolidate, hereinafter referred to as the constituent corporations.
any responsible
officer.
2. The terms of the merger or consolidation and the mode of carrying the same intoeffect.
Within 30 days from Submit:
the date of annual 1) General
3. A statement of the changes. If any, in the articles of incorporation of the surviving corporation in case of merger; and, with respect to
meeting information sheet
the consolidated corporation in case of consolidation, all the statements required to be set forth in the articles of incorporation for
corporations organized under this Code.
for the fiscal year.

2) Minutes of
meeting of
stockholders/memb
ers electing the BoD
certified by the
Secretary and
subscribed and
sworn to before a
notary public.

3) Minutes of
meeting of BoD
electing the officers,
certified by the
secretary and
subscribed and
sworn to before a
notary public
Within 5 days from Submit list of
stockholders/memb stockholders/memb
ers meeting ers as of the date of
annual or special
stockholders/memb
ers’ meeting,
showing:
 Name of the
4. Such other provisions with respect to the proposed merger orconsolidation as are deemed necessary or desirable. combination by conso
“constituent” corporatio
Sec. 77. Stockholders’ or members’ approval. – Upon approval by majority vote of each of the board of directors or
trustees of the constituent corporations of the plan of merger or consolidation, the same shall be submitted for Sec.78.Articlesofmerger
approval by the stockholders or members of each of such corporations at separate corporate meetings duly called – After the approval by th
for stockholders or members of the respective corporations, at least two (2) weeks prior to the date of meeting, by the preceding secti
either personally or by registered mail. Said notice shall state the purpose of the meeting and shall include a copy or a consolidation shall be
summary of the plan of merger or consolidation as the case may be. The affirmative vote of stockholders corporations, to be sign
representing at least two-thirds (2/3) of the outstanding capital stock of each corporations in case of stock and certified by the se
corporations or at least two-thirds of the members in case of non-stock corporations, shall be necessary for the corporation settingforth
approval of such plan. Any dissenting stockholder in stock corporations may exercise his appraisal right in accordance with
this Code; Provided, That if after the approval by the stockholders of such plan, the board of directors should decide 1. The plan of the merger o
to abandon the plan, the appraisal right shall be extinguished.
2. As to stock corporations,
Any amendment to the plan of merger or consolidation may be made, provided such amendment is approved by case of non- stock corpo
majority vote of the respective boards of directors or trustees of all the constituent corporations and ratified by the
affirmative vote of stockholders representing at least two- thirds (2/3) of the members of each of the constituent 3. As to each corporation
corporations. Such plan, together with any amendment, shall be considered as the agreement of merger or voting for and against su
consolidation.
Sec. 79. Securities and
Definition effictivity of merger or c
Consolidation – the uniting or amalgamation of two or more existing corporations to form a new corporation. The of consolidation signed
united concern resulting from the union is called the consolidated corporation. shall be submitted to th
Merger – a union effected by the absorbing of one or more existing corporations by another which survives and in quadruplicate for its
continues the combined business. The parties to a merger or consolidation o
and loan associations, tr
public utilities, educat
corporations governed
recommendation of the a
be obtained. Where the C
consolidation of the corp
with the provisions of thi
certificate of merger or
which time the merger o

If, upon investigation, t

has reason to believe that
contrary to or inconsist
existing laws, it shall s
concerned the opportun
date, time and place of s
 constituent corporation at least two (2) weeks before said hearing. The Commission shall thereafter proceed as provided corporation, as the case
in this Code. nor any lien upon the
corporations shall be
Sec. 80. Effects of merger or consolidation. consolidation.
– The merger or consolidation, as provided in the preceding sections shall have the following effects:
Steps to achieve merger
1. The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving
1. The BoD of each corpora
corporation designated in the plan of merger; and, in case of consolidation, shall be the consolidated corporation consolidation.
designated in the plan of consolidation. 2. A plan must be submitt
approval. The vote or two
2. The separate existence of the constituent corporations shall cease, except that of the surviving or the outstanding capital stoc
consolidated corporation. 3. There has to be a form
M/C by the officers of ea
3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and powers and shall4. The articles of M/C must
be subject to all the duties and liabilities of a corporation organized under this Code. 5. The SEC shall if it deems ne
corporations concerned.
4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights, privileges, 6. The SEC issues the ce
immunities and franchises of each of the constituent corporations; and all property, real or personal, and all effective upon the issua
receivables due on whatever account, including subscriptions to shares and other chooses in action, and all and every
other interest of, or belonging to,ordue to each constituent corporation, shall be taken and deemed to be transferred to Remedy of creditors of
and vested in such surviving or consolidated corporation without further act or dead. The only remedy is eithe
pursue the assets of the
5. The surviving or consolidated corporation shall be responsible and liable for all the liabilities and obligations of of fraudulent conveyanc
each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself
incurred such liabilities or obligations; and any claim, action or proceeding pending by or against any of such Sec. 81. Instances of ap
constituent corporations may be prosecuted by or against the surviving or consolidated corporation shall have th
the fair value of his shar

1. In case any amendment

effect of changing or res
class of shares, or of
superior to those of ou
extending or shortening

2. In case of sale, lease, ex

other disposition of all
property and assets as p
3. In case of merger or consolidation.
Exercising the appraisal r
Sec. 81, not exclusive. By one who has voted aga
making a written deman
Such appraisal right may also be exercised when a stockholder dissents when a corporation or business or for a (30) days after the
purpose other than its main purpose. (Sec. 42) payment of the fair valu
and present abstained t
When a stockholder of a close corporation may for any reason compel the corporation to purchase his shares from the right.
par or issued value, when the corporation has sufficient assets in its books to cover its debts and liabilities,
exclusive of capital stock. (Sec. 105) Sec. 83. Effect of demand
time of demand for pay
Sec. 82. How right is exercised. – The appraisal right may be exercised by any stockholder who shall have voted shares until either the a
against the proposed corporate action, by making a written demand on the corporation within thirty (30) days after involved or the purchase
the date on which the vote was taken for payment of the fair value of his shares: Provided, That failure to make the all rights accruing to suc
demand within such period shall be deemed a waiver of the appraisal right. If the proposed corporate action is rights, shall be suspende
implemented or effected, the corporation shall pay to such stockholder, upon surrender of the certificate(s) of this Code, except the
stock representing his shares, the fair value thereof as of the day prior to the date on which the vote was taken, payment of the fair v
excluding any appreciation or depreciation in anticipation of such corporate action. dissenting stockholder is
days after the award, hi
If within a period of sixty (60) days from the date the corporate action was approved by the stockholders, the immediately be restored
withdrawing stockholder and the corporation cannot agree on the fair value of the shares, it shall be determined and
appraised by three (3) disinterested persons, one of whom shall be named by the stockholder, another by the corporate Sec. 84. When right to
and the third by the two (2) thus chosen. The findings of the majority of the appraisers shall be final, and their award payment under this T
shall be paid by the corporation within thirty (30) days after such award is made: Provided, That no payment shall be corporation consents t
made to any dissenting stockholder unless the corporation has unrestricted retain earnings in its books to cover such payment is withdrawn w
payment: and Provided, further, That upon payment by the corporation of the agreed or awarded price, the the proposed corporate
stockholder shall forthwith transfer his shares to the corporation. corporation or disappr
Commission where such
Securities and Exchang
stockholder is not entitl
said stockholder to be p
cease, his status as a sto
and all dividend distribu
shares shall be paid to him

Effect of refusal of corp

If... Then...
FV of the shares Restore all his rights
within thirty (30) automatically.
days from the award
Insufficiency of the Restore by
unrestricted RE reacquiring his
former status as a
stockholder.
Abandoned;
 The rate ofdividendsRescinded;
 The regularity withUnsecured approval
which they have been paid
 of the SEC;
The management and reputation of the company
 Stockholder
Its prospects for the future is not Same effects as
 entitled;
All other circumstances which will aid them above.
in estimating the future course of the stock in the market
Withdrawal
(dissenting
Sec. 85. Who bears costs of appraisal. – The costs and expenses of appraisal shall be borne by the corporation, unless the The important thing to
stockholder with
fair value ascertained by the appraisers is approximately the same as the price which the corporation may have value is whether the
consent of the corp)
offered to pay the stockholder, in which case they shall be borne by the latter. In case of an action to recover such fair reasonable to all parties c
value, all costs and expenses shall be assessed against the corporation, unless the refusal of the stockholder to
receive payment was unjustified. Other instances when app
1. Amendment of “any pro
Consideration of the costs of appraisal incorporation.”
Expenses of appraisal: 2. When the corporate term
 Appraisers’ fees 3. Any purpose other than
 Attorneys’ fees 4. Close corporation – a sto
 Expert accountants’ fees purchase FV “for any rea
 Witnesses before the appraisers’ fees Exercise of ap
Thus, clarifies an otherwise delicate aspect of appraisal proceeding. compensatory alternati
extending to corporate p
Sec. 86. Notation on certificate(s); right of transferee. – Within ten (10) days after demanding payment for his shares, would seem to be of limi
a dissenting stockholder shall submit the certificate(s) of stock representing his shares to the corporation for
notation thereon that such shares are dissenting shares. His failure to do so shall, at the option of the corporation, Appraisal rights cannot ch
terminate his rights under this Title. If shares represented by the certificate(s) bearing such notation are transferred, a compensatory alterna
and the certificate(s) consequently cancelled, the rights of the transferor as a dissenting stockholder under this Title existing stock rights and
shall cease and the transferee shall have all the rights of a regular stockholder; and all dividend distributions which would
have accrued on such shares shall be paid to the transferee. When right of stockhold
1. The demand for paymen
Valuation of shares of dissenting shareholders corporation.
Appraisers should consider the elements that tend to affect market quotations: 2. The proposed corporate
the corporation.
3. Proposed action is disap
necessary.
4. Such stockholder is not e

Sec. 87. Definition. – For

corporation is one where
dividends to its membe
provisions of this Code
profit which a non-stock
to its operation shall, wh
the furtherance of the purpose or purposes for which the corporation was organized, subject to the provisions of this under such conditions
Title. Securities and Exchange C

The provisions governing stock corporations, when pertinent, shall be applicable to non-stock corporations, except Voting by proxy may be de
as may be covered by specific provisions of this Title. The law makes voting b
non-stock corporations
Definition incorporation or by-laws
Non-stock corporation – one where no part of its income is distributable as dividends to its members, trustees, or officers.
If proxy voting may be d
Sec. 88. Purposes. – Non-stock corporations may be formed or organized for charitable, religious, educational, professional, laws of non-stock corp
cultural, fraternal, literary, scientific, social, civic service, or similar purposes, like trade, industry, agricultural and like qualifications or limita
chambers, or any combination thereof, subject to the special provisions of this Title governing particular classes of proxies may also be mad
non-stock corporations.
Sec.90. Non-transferabili
Distinction between a stock corporation and a non-stock corporation – Membership in a non
Point of Stock Non-Stock therefrom are personal a
Comparison Corporation Corporation of incorporation or the b
Membership Ownership of Consent of
stock the Sec.91. Termination of
associates terminated in the man
articles of incorporati
Solicitation of gifts, donations or contributions by non-stock corporations membership shall have t
A certificate of registration must be secured from the Insurance Commissioner otherwise the articles of incorporation member in the corporat
cannot be filed. provided in the articles o

Sec. 89. Right to vote. – The right of the members of any class or classes to vote may be limited, broadened or denied to Sec.92. Election and te
the extent specified in the articles of incorporation or the by-laws. Unless so limited, broadened or denied, each provided in the articles
member, regardless of class, shall be entitled to one vote. board of trustees of non
than fifteen (15) in numb
Unless otherwise provided by the articles of incorporation or the by-laws, a member may vote by proxy in accordance incorporation or by-laws
with the provisions of this Code. themselves that the ter
number shall expire ev
Voting by mail or other similar means by members of non-stock corporations may be authorized by the by-laws of trustees comprising one-t
non-stock corporations with the approval of, and held annually and trus
three (3) years. Truste
occurring before the ex
office only for the unexpi

No person shall be elected

corporation.
 Unless otherwise provided in the articles of incorporation or the by-laws, officers of a non-stock corporation may be “RESOLVED, that the cor
directly elected by the members. the S.E.C. REQUIREMENTS
CORPORATION dated May
Three-year term for trustees in non-stock corporation 4. LIST OF MEMBERS of th
The term of trustees in non-stock corporation is three (3) years except educational corporations where the term is signature and atteste
five (5) years. incorporators are the pre
writing and further stat
Elections of directors by regions in non- stock corporations not allowed who will be admitted i
The Securities and Exchange Commission in an opinion stated that the “Election of members of the Board of Directors of a association shall e subm
non stock corporation by zones or regions would violate the law which requires that at all elections of directors, there time. (3 Copies)
must be present a majority of the members entitled to vote. ”
Sec. 94. Rules of distrib
Sec.93. Place of meetings. – The by-laws may provide that the members of a non- stock corporation may hold their stock corporation in acc
regular or special meetings at any place even outside the place where the principal office ofthe corporation is located: its assets shall be applied a
Provided, That proper notice is sent to all members indicating the date, time and place of the meeting: and
Provided, further, That the place of meeting shall be within the Philippines. 1. All liabilities and obliga
satisfied and discharged
Supporting papers required to be submitted to the Securities and Exchange Commission: therefore.
1. LETTER OF UNDERTAKING addressed to the Commission signed by at least a majority of the incorporators or by a duly
authorized representative, to the effect that the association will change its corporate name in the event another 2. Assets held by the cor
person, firm or entity has acquired a prior right to use the same name or similar to it. (3 copies) return, transfer or conv
2. MODUS OPERANDI or a detailed explanation as to how the association shall carry out its objectives signed by atleast reason of the dissoluti
a majority of the incorporators or by a duly authorized representative. (3 Copies) conveyed in accordance
3. RESOLUTION of the Board signed by atleast a majority of the Directors or certified under oath by the Secretary in the
following tenor to wit: (3 Copies) 3. Assets received and h
limitations permitting t
benevolent, educationa
upon a condition requir
reason of the dissolutio
one or more corporation
activities in the Philippin
dissolving corporation
adopted pursuant to thi

4. Assets other than t

paragraphs, if any, shall
provisions of the article
the extent that the article
 or the by-laws, determine the distributive rights of members, or any class or classes of members, or provide for shall be held of record
distribution. persons,not exceeding t

5. In any other case, assets may be distributed to such persons, societies, organizations or corporations, whether or not
2. All the issued stock of all c
organized for profit, as may be specified in a plan of distribution adopted pursuant to this Chapter. specified restrictions on

Sec. 95. Plan of distribution of assets. – A plan providing for the distribution of assets, not inconsistent with the provisions
3. The corporation shall n
of this Title, may be adopted by a non-stock corporation in the process of dissolution in the following manner: any public offering o
Notwithstanding the f
The board of trustees shall, by majority vote, adopt a resolution recommending a plan of distribution and directing deemed a close corporati
the submission thereof to a vote at a regular or special meeting of members having voting rights. Written notice setting voting stock or voting rig
forth the proposed plan of distribution or a summary thereof and the date, time and place of such meeting shall be corporation which is
given to each member entitled to vote, within the time and in the manner provided in this Code for the giving of meaning ofthis Code.
notice of meetings to members. Such plan of distribution shall be adopted upon approval of at least two- thirds (2/3)
of the members havingvoting rights present or represented by proxy at such meeting. Any corporation may be
except mining or oil
Distribution of assets of non-stock corporations to the members on dissolution is not forbidden, unless it holds its insurance companies, p
assets upon some trust, public or private, in which case the claims of the state, the beneficiaries, or of the founder and corporations decla
and his successors may have to be considered. accordance with the provi
A non-stock (non-profit) corporation may not ordinarily organize as a stock corporation, authorized to issue shares Title shall primarily gove
of stock, but may issue membership certificates which do not entitle to the holder to dividends. provisions of other Title
except insofar as this Tit
Sec. 96. Definition and applicability of Title. – A close corporation, within the meaning of this Code, is one whose
articles of incorporation providethat: Sec. 97. Articles of incorp
of a close corporation m
1. All the corporation's issued stock of all classes, exclusive of treasuryshares,
1. For a classification of sh
owning or holding the s
as may be stated there
following section.

2. For a classification of dire

whom may be voted for
of stock.

3. For a greater quorum o

stockholders or director

The articles of incorpora

that the business of the c
 stockholders of the corporation rather than by a board of directors. So long as this provision continues in effect: identity and personality o
associates, so that altho
1. No meeting of stockholders need be called to electdirectors. corporation in their d
themselves the stockhol
2. Unless the context clearly requires otherwise, the stockholders of the corporation shall be deemed to be directors
for the purpose of applying the provisions of this Code. Entities which may not b
 Mining or oil companies
3. The stockholders of the corporation shall be subject to all liabilities of directors.  Stock exchanges
 Banks
The articles of incorporation may likewise provide that all officers or employees or that specified officers or employees
 Insurance companies
shall be elected or appointed by the stockholders, instead of by the board of directors.
 Public utilities
 Educational institutions
Requisites of Close Corporation
Within the meaning of a close corporation under the Corporation Code the following are its attributes:  Corporations declared to
1. Its stockholders are limited not exceeding 20 persons.
Stockholders authorized to
2. Its shares of stock are subject to one or more restrictions on transfer.
As a rule, management o
3. Its shares of stock are not listed in any stock exchange. board of directors or tru
provides: “The articles o
Salient Feature of Close Corporations
may provide that the
1. It has only a few stockholders, who if not related by blood or marriage, know each other well and are aware of each managed by the stockho
other’s business skills.
a board of directors.” A
2. All or more of them are active in the corporate business, either as directors, officersoraskey meninmanagement. likewise provide that all
3. The stocks of the corporation are not listed on the exchange nor is there trading in them outside the stock market. officers or employees
*It would seem that base on these features many corporations in the Philippines would be close corporations. stockholders, instead of by

Reasons for formation of close corporations Sec. 98. Validity of restrict

“The existence of close corporations can be attributed to the desire of intimate groups of business associates to obtain on the right to transfe
the advantages of a corporate organization, like that of limited liability. However, the incorporation and in the
stock; otherwise, the sam
thereof in good faith. Said
than granting the exist
option to purchase the
with such reasonable
therein. If upon the ex
stockholders or the corp
purchase, the transferrin
third person.

Sec. 99. Effects of issuance

conditions. –
1. If stock of a close corpo
person who is not entitle
 articles of incorporation to be a holder of record of its stock, and if the certificate for such stock conspicuously shows
6. The term "transfer", as
the qualifications of the persons entitled to be holders of record thereof, such person is conclusively presumed to have transfer for value.
notice of the fact of his ineligibility to be astockholder.
7. The provisions of this se
2. If the articles of incorporation of a close corporation states the number of persons, not exceeding twenty (20), who the transferee may hav
are entitled to be holders of record of its stock, and if the certificate for such stock conspicuously states such number, under any applicable war
and if the issuance or transfer of stock to any person would cause the stock to be held by more than such number of
persons, the person to whom such stock is issued or transferred is conclusively presumed to have notice of this fact. Restrictions on transfer of s
provide in its articles of in
3. If a stock certificate of any close corporation conspicuously shows a restriction on transfer of stock of the the certificate of stock r
corporation, the transferee of the stock is conclusively presumed to have notice of the fact that he has acquired stock in to transfer their shares of
violation of the restriction, if such acquisition violates the restriction. same “shall not be binding
Charter restrictions on th
4. Whenever any person to whom stock of a close corporation has been issued or transferred has, or is conclusively who become shareholder
presumed under this section to have, notice either (a) that he is a person not eligible to be a holder of stock of the contract and take their s
corporation, or (b) that transfer of stock to him would cause the stock of the corporation to be held by more than the latitude allowe
number of persons permitted by its articles of incorporation to hold stock of the corporation, or (c) that the transfer of in impos
stock is in violation of a restriction on transfer of stock, the corporation may, at its option, refuse to register the articles of incorporation
transfer of stock in the name of the transferee. against public
unreasonable under the c
5. The provisions of subsection (4) shall not applicable if the transfer of stock, though contrary to subsections (1), (2) of
(3), has been consented to by all the stockholders of the close corporation, or if the close corporation has amended its “Stock in the corporatio
articles of incorporation in accordance with this Title. personal relation analo
partnership. There seem
the right of choosing on
firm.”

Reasons for restriction on sh

identity of the other stoc
incorporators have c
which they may not hav
incorporators may feel th
depends upon
personnel who formed i
under
want outsiders to learn.
desire of he father to pas
interference from other
factors may induce the in
transfer of stock.

Effect of the transfer of sto

 Unless “consented to by all the stockholders or if the close corporation has amended its articles of incorporation,” a operation of the busines
transfer of shares of stock in breach of qualifying conditions would justify the corporation through the corporate stockholders shall be he
secretary to refuse to register the transfer of stock. Such transfer need not be for value, hence it may be the result and among themselves.
of a donation. liable for corporate tort
reasonably adequate lia
Sec. 100. Agreements by stockholders. –
1. Agreements by and among stockholders executed before the formation and organization of a close corporation, signed Effect of the Stockholde
by all stockholders, shall survive the incorporation of such corporation and shall continue to be valid and binding formation of corporation
between and among such stockholders, if such be their intent, to the extent that such agreements are not after formation and
inconsistent with the articles of incorporation, irrespective of where the provisions of such agreements are corporation survive incor
contained, except those required by this Title to be embodied in said articles of incorporation. for as long as they are not
of incorpora
2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that in incorporation requ
exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as performance. There mu
determined in accordance with a procedure agreed upon by them. Given such relation, the
3. No provision in any written agreement signed by the stockholders, relating to any phase of the corporate affairs, shall may arrange agreement
be invalidated as between the parties on the ground that its effect is to make them partners among themselves.
Sec. 101. When board
4. A written agreement among some or all of the stockholders in a close corporation shall not be invalidated on the held. – Unless the by-law
ground that it so relates to the conduct of the business and affairs of the corporation as to restrict or interfere with directors of a close c
the discretion or powers of the board of directors: Provided, That such agreement shall impose on the stockholders nevertheless be deemed
who are parties thereto the liabilities for managerial acts imposed by this Code on directors.
1. Before or after such act
5. To the extent that the stockholders are actively engaged in the management or signed by all the director

2. All the stockholders hav

action and make no prom

3. The directors are accust

express or implied acqui

4. All the directors have expr

question and none of th
writing.

If a director's meeting is
action taken therein wi
ratified by a director wh
files his written objection
after having knowledge
Sec. 102. Pre-emptive right in close corporations. - The pre-emptive right of stockholders in close corporations unnecessary or even if
shall extend to all stock to be issued, including reissuance of treasury shares, whether for money, property or personal laws, however, may pro
services, or in payment of corporate debts, unless the articles of incorporation provide otherwise. file his written objection
the action taken by the d
Exceptions in Section 39, not applicable
It is submitted that in a close corporation, the exceptions provided in Sec 39 are not applicable. The first exception Pre-emptive right in close
mentioned therein regarding the shares issued in compliance with laws requiring stock offerings or minimum stock A stockholder in a close
ownership by the public cannot by its very nature refer to a close corporation. The pre-emptive right of shareholders in pro rata share of the n
close corporation is thus broadened to include all issues without any exception, unless of course, restricted by the violated he can sue the
articles of incorporation and printed in the stock certificates. It may be mentioned however, that any prior waiver of stock issue, obtain an ord
pre- emptive right must be expressly provided for in the articles of incorporation and not in an ordinary agreement cancellation of the issu
executed by the parties. This rule however, would not militate against the unanimous agreement of all the pre-emptive right is pres
stockholders. protective devise for th
because the lack of a m
Sec. 103. Amendment of articles of incorporation. – Any amendment to the articles of incorporation which seeks alternatives of investing
to delete or remove any provision required by this Title to be contained in the articles of incorporation or to reduce a stock diluted.
quorum or voting requirement stated in said articles of incorporation shall not be valid or effective unless approved by
the affirmative vote of at least two-thirds (2/3) of the outstanding capital stock, whether with or without voting Sec. 104. Deadlocks. - No
rights, or of such greater proportion of shares as may be specifically provided in the articles of incorporation for the articles of incorpo
amending, deleting or removing any of the aforesaid provisions, at a meeting duly called for the purpose. stockholders of a clo
stockholders are so divid
Rule and Exceptions when board meeting unnecessary corporation's business a
General Rule: the directors of a corporation cannot act individually or separately in order to bind the corporation. any corporate action ca
They must act as a board at a meeting duly called for the purpose. that the business and af
Exception: Section 101. It enumerates the instances when a board at a meeting is conducted to the advan
Securities and Exchange
any stockholder, shall h
In the exercise of such po
to make such order as it de

1. Canceling or altering an
incorporation, by-laws, o

2. Canceling, altering or e
corporation or its board

3. Directing or prohibiting
of directors, stockholder
action.
4. Requiring the purchase at their fair value of shares of any stockholder, either by the corporation regardless of the provided either for di
availability of unrestricted retained earnings in its books, or by the other stockholders. disputes. Although t
arbitration proceedings
5. Appointing a provisional director. arbitration, in saving b
seem to outweigh the dis
6. Dissolving the corporation.
Provisional director and SE
7. Granting such other relief as the circumstances may warrant. In accordance with Se
deadlocks in the clos
A provisional director shall be an impartial person who is neither a stockholder nor a creditor of the corporation or of director. “A provisional d
any subsidiary or affiliate of the corporation, and whose further qualifications, if any, may be determined by the neither a stock-holder
Commission. A provisional director is not a receiver of the corporation and does not have the title and powers of a whose other qualification
custodian or receiver. A provisional director shall have all the rights and powers of a duly elected director of the
corporation, including the right to notice of and to vote at meetings of directors, until such time as he shall be Under Section 2 (Pres Dec
removed by order of the Commission or by all the stockholders. His compensation shall be determined by create and appoint a ma
agreement between him and the corporation subject to approval of the Commission, which may fix his undertake the manage
compensation in the absence of agreement or in the event of disagreement between the provisional director and the other associations in
corporation. imminent danger or dis
of assets or other pr
Deadlock – Deadlock signifies a standstill in the management of the corporate affairs resulting from the evenly divide operations of such corp
action of directors or stockholders in a close corporation. interest of the minority,

In the event of deadlocks SEC may arbitrate Sec. 105. Withdrawal

In the event of a deadlock in a close corporation, the SEC has the power to arbitrate the deadlock “upon written corporation. – In additio
petition of any stockholder.” In close corporations that are subject to a checks and balances system because of and remedies available
control devices there are bound to be deadlocks, and some steps must be taken to cope with them. Many of the stockholder of a close co
problems that arise can be settled by arbitration, Arbitration (the determination of a matter of difference between the said corporation to
contending parties) may be which shall not be less t
corporation has sufficient
liabilities exclusive of
stockholder of a close co
the Securities and E
dissolution of such cor
directors, officers or those
or fraudulent, or dishon
to the corporation or an
assets are being misapplie

• Appraisal rights
the dissenting stockh
fundamental
change in the corporate structure or operations is involved, whereas a stockholder of a close corporation may, for or other institutions of
any reason, compel the said coporation to purchase his shares at their par value, when the corporation has sufficient classify themselves that
assets in its books to cover his debts and liabilities exclusive of capital stock. ( In Appraisal right, fair value of shares their number shall expir
is given but in Withdrawal Right, the fair value cannot be less than the par or issued value of the shares; In Appraisal to fill vacancies, occurrin
right, there must be present unrestricted retained earnings in the books of the corporation) term, shall hold office o
elected thereafter to f
• The corporation is not a close corporation even if the shares belong to less than twenty if not all the requisites term shall hold office for
are present. San Juan Structural and Steel Fabricators v. CA (1998) (5) years. A majority of
for the transaction of b
EDUCATIONAL CORPORATIONS trustees shall be defined i
For Educational corporations, where the trustees should be divided into multiples of five. So you should have five, ten
or fifteen trustees if they are organized as non-stock corporation. And unless otherwise provided in the articles of For institutions organize
incorporation or by-laws, the terms of the trustees should be five years, and every year only one fifth (1/5) is elected, and term of directors s
again to provide for continuity in policies. But you can provide that they will be all elected instead for a term of one stock corporations.
year, everybody has to be elected.

Sec. 106. Incorporation. – Educational corporations shall be governed by special laws and by the general provisions
of this Code.

Sec. 107. Pre-requisites to incorporation. – Except upon favourable recommendation of the Ministry of Education and
Culture, the Securities and Exchange Commission shall not accept or approve the articles of incorporation and by-laws
of any educational institution.

Sec. 108. Board of trustees. – Trustees of educational institutions organized as non- stock corporations shall not be
less than five (5) nor more than fifteen (15): Provided, however, That the number of trustees shall be in multiples of
five (5).

Unless otherwise provided in the articles of incorporation on the by-laws, the board of trustees of incorporated schools,
colleges,
**
There are three (3) ways by which a
religious organization can provide for the
administration of its properties:
1. by forming a non-stock corporation
2. by corporation sole
3. by religious aggregate or society

Corporation sole may constitute of one

person only so the head of a religious sect
would incorporate himself for the purpose
of administering the properties of a
religious sect. To incorporate what you will
file with the SEC is an affidavit. The affidavit
will state that the affiant is the head of a
religious denomination or sect and would
want to become a corporation sole. and the
rules of his religion allow him to incorporate
as a corporation sole and that he is charged
with the administration of its properties
and in fact he will be required to submit an
inventory and the manner in which the
successor will be chosen and the place
where he will hold his office.
The Roman Catholic Archbishop of Manila is
a corporation sole so if Cardinal Sin dies the
new archbishop will simply submit his
appointment and he need not incorporate
again because the corporation is different
from the occupant of the position. The
Iglesia ni Kristo is incorporated as a
corporation sole.
The court has held in Roman Catholic
Apostolic Adm. of Davao, Inc. v. Land
Registration Commission that although the
Bishop was a foreigner, he could register a
parcel of land in his name because he is a
mere administrator the property really
 belongs to the faithful and since they are
Who may form and for whatthey
Filipinos purpose?
could register the land in the
administrator’s
Sec. 110. Corporation sole. – For the purpose of administering and managing, as trustee, the affairs, property and temporalities of any
name.
religious denomination, sect or church, a corporationsole
Under the law if a corporation solewants
may betoformed by the chief archbishop, bishop, priest, minister, rabbi or
other presiding elder of suchofreligious
dispose denomination,
or mortgage sect or church.
real property, he (154a)
has to get authorization from the Regional
How formed? Trial Court unless the rules of the religious
Sec. 111. Articles sect
of incorporation.
allow him to – Indispose
order to of
become a corporation sole, the chief archbishop, bishop, priest, minister, rabbi or
or mortgage
presiding elder ofreal
anyproperty
religiousanddenomination,
that is usually the case. must file with the Securities and Exchange Commission articles of
sect or church
incorporation setting
Theforth
lasttheisfollowing:
the religious aggregate or
religious society. It can incorporate for the
purpose of managing its properties and the 1. That he is the chief archb
RELIGIOUS CORPORATIONS presiding elder of his re
articles would indicate that the members
Sec. 109. Classes of religious corporations. and that he desires to beco
constitute a religious order or society and
– Religious corporations may be incorporated by one or more persons. Such corporations
that at least 2/3 of the members have
may be classified into corporations sole and religious societies. Religious corporations shall2. That the rules, regula
agreed to incorporate, that the rules allow
be governed by this Chapter and by the general provisions on non-stock corporations insofar as they may be applicable.
them to incorporate they desire to denomination, sect or
incorporate to manage their properties in becoming a corporation s
a) Corporation Sole
 Corporation sole isthe place form
a special where located. The
of corporation recollects
usually arewith the clergy and consists of one person only and
associated 3. That as such chief archbi
incorporated to manage their properties,
his successors, who are incorporated by law to give some legal capacities andadvantages. presiding elder, he is c
they are the single biggest bloc of
 Nationality. A corporation sole does not have any nationality but for purposes of applying our nationalization laws, temporalities and the m
stockholder of San Miguel Corporation.
nationality is determined not by the nationality of its head but by the nationality of the members constituting the properties of his religio
sect in the Philippines even if it is headed by the Pope. (Roman Catholic Apostolic Church v. LRC, 1957) his territorial jurisd
 Effect of Separation of Members. Members of the sect who left and who formed a separate religious group are not jurisdiction.
entitled to any right to vote over the properties of their former sect. (Canete v. CA, 1989)
 Dissolution. By filing a verified declaration of dissolution. (JRS at 323) 4. The manner in which a
chief archbishop, bisho
elder is required to be fi
or discipline of the relig
which he belongs.

5. The place where the prin

be established and loca
Philippines.
 The articles of incorporation may include any other provision not contrary to law for the regulation of the affairs of as said court may have d
the corporation. the corporation that lea
The application for leave
Sec. 112. Submission of the articles of incorporation. – The articles of incorporation must be verified, before filing, petition, duly verified, b
by affidavit or affirmation of the chief archbishop, bishop, priest, minister, rabbi or presiding elder, as the case may be, minister, rabbi or presidi
and accompanied by a copy of the commission, certificate of election or letter of appointment of such chief may be opposed by any
archbishop, bishop, priest, minister, rabbi or presiding elder, duly certified to be correct by any notary public. sect or church represen
That in cases where the
From and after the filing with the Securities and Exchange Commission of the said articles of incorporation, verified religious denomination,
by affidavit or affirmation, and accompanied by the documents mentioned in the preceding paragraph, such chief concerned represented
archbishop, bishop, priest, minister, rabbi or presiding elder shall become a corporation sole and all temporalities, method of acquiring, h
estate and properties of the religious denomination, sect or church theretofore administered or managed by him as estate and personal p
such chief archbishop, bishop, priest, minister, rabbi or presiding elder shall be held in trust by him as a corporation discipline shall control, a
sole, for the use, purpose, behalf and sole benefit of his religious denomination, sect or church, including hospitals, not be necessary.
schools, colleges, orphan asylums, parsonages and cemeteries thereof.
Filling of vacancies
Need for by-laws Sec. 114. Filling of vaca
 No need for by-laws since the business is conducted by only one man. chief archbishop, bishop
elder in a corporation so
Powertoacquireandalienateproperty Sec. 113. Acquisition and alienation of property. – Any corporation sole may their accession to office a
purchase and hold real estate and personal property for its church, charitable, benevolent or as such on the filing with t
educational purposes, and may receive bequests or gifts for such purposes. Such corporation may sell or mortgage of a copy of their comm
real property held by it by obtaining an order for that purpose from the Court of First Instance of the province of appointment, duly cert
where the property is situated uponproof made to the satisfaction of the court that notice of the application for
leave to sell or mortgage has been given by publication or otherwiseinsuch mannerandforsuchtime During any vacancy in t
priest, minister, rabbi
denomination, sect or ch
the person or persons au
regulations or discipline
church represented by t
temporalities and mana
the corporation sole d
powers and authority
vacancy.

Dissolution
Sec. 115. Dissolution. – A
its affairs settled volunta
Exchange Commission a
 The declaration of dissolution shall set forth: at a duly convened mee

1. The name of the corporation. 3. That the incorporation

order, or diocese, syno
2. The reason for dissolution and winding up. incorporate is not forbid
constitution, rules, reg
3. The authorization for the dissolution of the corporation by the particular religious denomination, sect or church. denomination, sect, or ch

4. The names and addresses of the persons who are to supervise the winding up of the affairs of the corporation. 4. That the religious societ
or district organizatio
Upon approval of such declaration of dissolution by the Securities and Exchange Commission, the corporation shall administration of its affa
cease to carry on its operations except for the purpose of winding up its affairs.
5. The place where the pri
Religious societies or corporations aggregate established and locate
Sec. 116. Religious societies. – Any religious society or religious order, or any diocese, synod, or district organization of Philippines.
any religious denomination, sect or church, unless forbidden by the constitution, rules, regulations, or discipline of
the religious denomination, sect or church of which it is a part, or by competent authority, may, upon written consent 6. The names, nationaliti
and/or by an affirmative vote at a meeting called for the purpose of at least two-thirds (2/3) of its membership, elected by the religiou
incorporate for the administration of its temporalities or for the management of its affairs, properties and estate by diocese, synod, or distr
filing with the Securities and Exchange Commission, articles of incorporation verified by the affidavit of the presiding year or such other perio
elder, secretary, or clerk or other member of such religious society or religious order, or diocese, synod, or district the religious society or r
organization of the religious denomination, sect or church, setting forth the following: or district organization, th
five (5) nor more than fifte
1. That the religious society or religious order, or diocese, synod, or district organization is a religious organization of a
Case
Long v. Basa (2001)
•
SEC Since No.in04-45,
Opinion matters purely
(Nov. 28, 2004)
ecclesiastical
Re: Term oftheExistence
decisions of the proper
Religious
church tribunals are conclusive upon the
Corporations
civil tribunals,
Section thenwell
116 (as a church member
as Sec. 160 who is
of the
expelled from the membership
former Corporation Law) does not provide by the
church
for authorities,
a term or a priestofor religious
of existence minister
who is by them
corporations, deprived
whether of hisassacred
classified a
office, is without remedy in the civil courts.
Long v. Basa, 366 SCRA 113 (2001).
Additional Material: SEC Opinion No. 04-45,
Nov.28, 2004 to Ferrer and Ferrer Law
Office re term of existence of religious
corporation.
religious denomination, sect or church.

2. That at least two-thirds (2/3) of its membership have given their written consent or have voted to incorporate,
 dissolve the juridical e
corporation sole or a corporation “[t]he requirements m
aggregate. As such, the law intends that should have been stric
religious organizations may exist Appeals, 371 SCRA 509, 516
perpetually (SEC Opinion dated Dec. 10,  A corporation cannot
1981). Moreover, where the Articles of articles of incorporatio
Incorporation does not provide for a term statutory period for l
of existence, it shall be understood that the existence had already e
intention is for the corporation to exist for new business. Alhamb
an indefinite period (SEC Opinion dated Oct. Company, Inc. v. SEC, 24
23, 1995)  When the period of c
ceases to be a body corp
DISSOLUTION business for which it was
Dissolution of a corporation is the extinguishment of the franchise of a corporation and termination of its Rizal, Pasig, Br. XXI, 209 S
corporate existence.

Modes of Dissolution:
1. Voluntary Dissolution
2. Involuntary Dissolution
3. Shortening of term
4. Expiration of term (JRS at 311)
5. Failure to organize and commence businesswithintwoyearsfromthedate of issuance of certificate of incorporation
6. Legislative Dissolution (CLV’s CLR at 936)

Effects of Dissolution:
1. Transfer of Legal title to corporate property.
2. The corporation ceases as a body corporate to continue the business for which it was established.
3. Continuation of a body corporation (the corporation continues as a body corporate for 3 years for purposes of
winding up or liquidation).
4. After the expiration of the 3 year winding up period, the corporation ceases to exist for all purposes. (JRS at 314).

 The termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and
liability of such entity, since it is allowed to continue as a juridical entity for 3 years for the purpose of prosecuting
and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its
property, and to distribute its assets. Republic v. Tancinco, 394 SCRA 386 (2002).
 A board resolution to dissolve the corporation does not operate to so
DISSOLUTION **
There are different ways to dissolve a
corporation one is voluntarily and the other
involuntarily, under the law there are three
provisions governing voluntary dissolution.
The first one is if no creditors are affected.
In all the methods of voluntary dissolution,
you need a resolution approved by a
majority of directors and a resolution
approved by at least 2/3 of the stockholders
In Section 118, where no creditors are
affected the directors and the stockholders
pass the resolution dissolving the
corporation and that will be filed in the SEC
for approval. In a case where a suit was filed
and the corporation said, we have already
been dissolved and they submitted a board
resolution, the SC held that it is not enough
to dissolve a corporation.
The Second one, is under Section 119 where
creditors are affected. Here the board and
the stockholders will approve the
dissolution but a petition will be filed signed
by the majority of the directors and verified
by the president, secretary or one of the
directors which will indicate the claims of
creditors. That will be set for hearing and
not less than thirty (30) days nor more than
sixty (60) days after the entry of the
issuance of the order and a copy of the
order will be published once a week for
three consecutive weeks in a newspaper of
general circulation and that will also be
posted for three weeks in three public
places like the bulletin board of a municipal hall, post office, the plaza and then the SEC will set that for hearing and determine w/n the
corporation should be dissolved.
The third one you will just shorten the corporate life and this is the simplestcorporation
and fastest wayfor every infraction,
of dissolving the corporation thevoluntarily
infraction must be serious, because
like when Ford Philippines decided to close its subsidiary they simply amended the articles of corporation that the corporation will
exist until December 31, 1978. dissolution is imposing the death penalty
The SEC will require getting a tax clearance from the BIR and the stockholders upon therequired
will be corporation.
to sign an undertaking that they will
answer for the claim of the creditors to the extent of the liquidating dividends they will receive. the employees of a railroad
The Court said
Then you can have an involuntary dissolution. This could be done by filing aare quorequired to under
warranto case wearrule uniform
66 of theindicating
ROC on the ground
their positions in their
mentioned there or a corporation can be dissolved for certain violation of the corporation code as mentioned in nameplate, now
the tell
Corporation
Code or PD 902-A and also a minority stockholder may file a petition to dissolve me theif corporation
one employee wheredidthe not have
majority such a
is mismanaging the
assets of the corporation, dissipating its assets, and fraudulently disposing of nameplate
its propertiesyouand aare going
receiver maytobe dissolve
appointed inaan action
for involuntary dissolution. corporation because that is a legal
The SC held in the leading case of El Hogar Filipino, 50 Phil. 399(1927) the firstrequirement?
corporation organized under the Corporation Act, the
government filed a case to dissolve that corporation and invoked 17 grounds, It has
the SC todenied
be a serious violation! But in one
the petition.
Building and loans association like banks are required to dispose of within 5 years
case, of any
the properties
SC dissolved they foreclosed
a corporation they which
disposed of the
properties after 6 years but they exerted their best efforts, they hired realwas estate engaging
brokers, they in advertised
banking without but they
in newspapers
just could not find buyers, they acquired this land and building, the SC held that it is not illegal,
authorization thatthe
from theymonetary
leased the board,
space that
it they did
not need for their office, that is not illegal they are maximizing their property, that they deposits
was accepting provide a from
provision in the by-laws
the public, the that
stockholders can be compelled to surrender their shares, to be bought out wellcourtthe court said that that is void but that
considered that as a serious violation. is not sufficient
ground to dissolve the corporation. In other words the court is saying that When you do anot dissolvestockholder
minority a files a case
and asks to dissolve the corporation, the
court said that that is a harsh remedy unless
the situation is really beyond redemption
you should not impose that remedy.
The corporation has three years after it
should have been dissolved for the purpose
of winding up its affairs. The SEC has said
the three year period should be counted
from the time the dissolution was approved
by the SEC even if the directors and
stockholders pass a resolution dissolving
the corporation that is not effective until it
has been approved by the SEC.
For three years, the corporation will
continue to exist it will no longer be a going
concern but only for the purpose of winding
up that is why the SC has said that the
corporation cannot for example renew its
contract of lease because it is no longer a
going concern.
During the three year period, it should
devote its time prosecuting and defending
law suits, winding up its affairs disposing its
properties so they can be used to pay off its
creditors and to distribute balance to the
stockholders.
There are two ways of providing for the
winding up of its affairs under the law. This
is voluntary either the directors themselves
may take care of winding up the affairs of
the corporation or they may appoint a
trustee like when Ford Philippines decided
to close its subsidiary here one of the last
acts of the BOD was to pass a resolution
appointing Ricardo Romulo as trustee
vesting upon him legal title to all the assets
of Ford Philippines to be used to pay off its
creditors and to dispose of its properties of
Ford Philippines. to distribute the balance
as liquidating dividends.
 object of the meeting for three
Supposed (3) this
to be, consecutive
was theweeks in a newspaper
rule before if published in the place where the principal office of said
corporation is located; and if no newspaper is published
any case is not finished within the three in such place, then in a newspaper of general circulation in the Philippines, after
sending such noticeyear
to each stockholder or member
period, the case will be abated either by registered mail or by personal delivery at least thirty (30) days prior to
said meeting. A copy of the resolution authorizing the
whether the corporation is plaintiff or dissolution shall be certified by a majority of the board of directors or trustees
and countersignedwhether
by the secretary
it is ofdefendant
the corporation.
butTherecent
Securities and Exchange Commission shall thereupon issue the certificate
of dissolution. jurisprudence has rendered that
obsolete. That rule is applicable if it is
 When a corporation theisdirectors
contemplating dissolution,
winding up theit must submit tax return on the income earned by it from the beginning of the year
corporation.
up to the date of its dissolution and pay the corresponding
if the corporation is under receivership, tax due.itBPI v. Court of Appeals, 363 SCRA 840 (2001).
is the receiver who may wind up the affair
of the corporation. But if it is the trustee Requirements where cred
that will not apply, the trust will subsist dissolution where cre
until the affairs of the corporation are dissolution of a corpora
wound up and until any creditor can sue creditor, the petition
Securities and Exchang
the trustee provided that the applicable
signed by a majority of it
prescriptive period has not yet lapsed. So
officers having the man
if his cause of action is based on a written
president or secretary or
contract he has ten (10) years to sue the
What are the various methods of dissolving corporations? set forth all claims and de
trustee.
Sec. 117. Methods of dissolution. – A corporation formedthere
or organized under the provisions of this Code may be was resolved upon by th
The Court has said that the remedy if representing at least
dissolved voluntarily or involuntarily.
the three years will end and there are still capital stock or by at lea
pending cases, is for the board to appoint a meetingofitsstockholder
Voluntary
trustee but more recent jurisprudence has
Requirements where no creditors are affected.
fashioned a practicable solution to that the If the petition is suf
lawyer handling the cases may be Commission shall, by a
Sec. 118. Voluntary dissolution where no creditors are affected. – If dissolution of a corporation does not prejudice the
considered as trustee of the corporation
rights of any creditor having a claim against it, the dissolution may be effected by majority vote of the board of petition, fix a date on o
andand
directors or trustees, therefore the cases
by a resolution dulywill not beby
adopted abated
the affirmative vote of the stockholders owning at least be filed by any person, w
two-thirds (2/3) ofbut
theshould continue.
outstanding capital stock or of at least two-thirds (2/3) of the members of a meeting to be (30) days nor more tha
In one
held upon call of the case,
directors orthe SC held
trustees after that the directors
publication of the notice of time, place and order. Before such date,
may be considered as trustees after three least once a week for thr
years so that they can continue to wind up of general circulation pub
the affairs of the corporation and in effect the
the three year period has become
ineffectual.
 principal office of the corporation is situated, or if there be no such newspaper, then in a newspaper of general 6. Affidavit of stockh
circulation in the Philippines, and a similar copy shall be posted for three (3) consecutive weeks in three (3) public regarding any valid claim
places in such municipality or city. 7. Latest balance sheet wh
meeting of the stockhol
Upon five (5) days’ notice, given after the date on which the right to file objections as fixed in the order has expired, articles of incorporation
the Commission shall proceed to hear the petition and try any issue made by the objections filed; and if no such 8. Notice of dissolution.
objection is sufficient, and the material allegations of the petition are true, it shall render judgment dissolving the9. Tax clearance from the B
corporation and directing such disposition of its assets as justice requires, and may appoint a receiver to collect such
10. Affidavit of the publishe
assets and pay the debts of the corporation. the dissolution once a w
two (2) newspapers of ge
Sec. 120. Dissolution by shortening corporate term. – A voluntary dissolution maybeeffectedbyamendingthearticles
of incorporation to shorten the corporate term pursuant to the provisions of this Code. A copy of the amended The SEC may appoint a r
articles of incorporation shall be submitted to the Securities and Exchange Commission in accordance with this the debts of the corpora
Code. Upon approval of the amended articles of incorporation of the expiration of the shortened term, as the case may It has been held that w
be, the corporation shall be deemed dissolved without any further proceedings, subject to the provisions of this breach of trust and intra
Code onliquidation. stockholders may resor
and, incidentally, as for
SEC requirements on shortening corporate term protection of theirrights
1. Amended article of incorporation shortening its corporate term in accordance with Section 16 of the Code.
2. A director’s certificate signed by at least a majority of the directors/trustees and attested by the secretary, certified Section 121. Involuntary
under oath, stating that the amended articles of incorporation is a true and correct copy as amended by the dissolved by the Securit
stockholders representing at least 2/3 of the outstanding capital stock or at least 2/3 of the members in case of of a verified complaint a
non-stock corporations. the grounds provided by
3. A certification that no creditor shall be prejudiced by the dissolution.
4. A list of creditors, if any. Rules of Court provides
5. Consent of the creditors with regard to the dissolution. be brought against a cor
1. When it has offended
creation or renewal.
2. When it has forfeited its p
3. When it has committed
surrender of its corporat
4. When it has misused a
upon it by law, or whe
franchise incontraventio

Section 122. Corporate l

charter expires by its
forfeiture or otherwise, o
 for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three 5. Dissolution and liquidatio
(3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits
by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its A corporation that has a
assets, but not for the purpose of continuing the business for which it was established. terminated within the
authorized to convey all
At any time during said three (3) years, the corporation is authorized and empowered to convey all of its property to prosecute and defend
trustees for the benefit of stockholders, members, creditors, and other persons in interest. From and after any such beyond the three-year pe
conveyance by the corporation of its property in trust for the benefit of its stockholders, members, creditors and
others in interest, all interest which the corporation had in the property terminates, the legal interest vests in the Distribution of Assets
trustees, and the beneficial interest in the stockholders, members, creditors or other persons in interest. Distribution among the sh
formal or informal may
Upon the winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member creditors and after all deb
who is unknown or cannot be found shall be escheated to the city or municipality where such assets are located. is sometimes expressed

Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its
assets or property except upon lawful dissolution and after payment of all its debts and liabilities.

Methods of Liquidation
Liquidation Rehabilitation
1. Liquidation by the directors themselves.
- Connotes a winding - Connotes a
2. Liquidation by a duly appointed receiver.
up or setting with reopening of
3. Liquidation by trustees to whom the board of directors had conveyed the corporate assets.
creditors and reorganization
debtors. .
Rules of corporate recovery
The SEC approved the Rules of Procedure on Corporate recovery effective on January 15, 2000.
- It is a winding up of - Contemplates
1. It governs the rules on definition of terms
a corporation so a continuance
2. Common provisions
that assets are of corporate
3. Suspension of payments
distributed to those life and
4. Rehabilitation
entitled to receive activities in an
them. effort to
restore and
- It is the process of reinstate the
reducing assets to corporation in
cash, discharging its former
liabilities and position of
dividing surplus or successful Section 123. Definition
loss. operationtheand
purposes of this Code
solvency.organized or existing u
Philippines and whose
corporations to do busin
have the right to transac
have obtained a license
accordance with this Cod
appropriate government

Definition
Foreign Corporation is o
any laws other than thos
 laws allow Filipino citizens and corporations to do business in its own country or state. 3. The name and address
accept summons and pro
Section 124. Application to existing foreign corporations. – Every foreign corporation which on the date of the effectivity the establishment of a
of this Code is authorized to do business in the Philippines under a license therefore issued to it, shall continue to have corporation.
such authority under the terms and condition of its license, subject to the provisions of this Code and other special
laws. 4. The place in the Philipp
operate.
A foreign corporation can have no legal existence beyond the bounds of the state or sovereignty by which it is created.
It exists only in contemplation of law and by force of the law, and where that law ceases to operate, the corporation 5. The specific purpose or pu
can have no existence. It must dwell in the place of its creation, and cannot migrate to another sovereignty. pursue in the transactio
Provided, That said purpos
Foreign corporations may do business in the Philippines either by directly entering into transactions with resident in the certificate of a
persons, firms or corporations or by creating a domestic subsidiary corporation which would have its own distinct government agency.
personality.
6. The names and addresse
Licensed foreign corporations is authorized to do business in the Philippines shall continue to have such authority of the corporation.
under the termsandconditionofitslicense, subjectto the provisions of the Code and other special laws.
7. A statement of its auth
Section 125. Application for a license. – A foreign corporation applying for a license to transact business in the Philippines number of shares which
shall submit to the Securities and Exchange Commission a copy of its articles of incorporation and by-laws, itemized by classes, par v
certified in accordance with law, and their translation to an official language of the Philippines, if necessary. The and series, if any.
application shall be under oath and, unless already stated in its articles of incorporation, shall specifically set forth
thefollowing: 8. A statement of its outst
number of shares which
1. The date and term of incorporation. classes, par value of share
if any.
2. The address, including the street number, of the principal office of the corporation in the country or state of
incorporation. 9. A statement of the amou

10. Such additional informat

in order to enable the S
determine whether such
transact business in the Ph
the fees payable.

Attached to the applicat

certificate under oath by
the jurisdiction of its inco
laws of the country o
citizens and corporation
applicant is an existing
certificate is in a foreign
translation thereof in English under oath of the translator shall be attached thereto. Securities and Exchange
other evidence of inde
The application for a license to transact business in the Philippines shall likewise be accompanied by a statement under Philippines, its political s
oath of the president or any other person authorized by the corporation, showing to the satisfaction of the government-owned or
Securities and Exchange Commission and other governmental agency in the proper cases that the applicant is shares of stock in “registe
solvent and in sound financial condition, and setting forth the assetsandliabilitiesofthecorporationasof the date not in Republic Act No.
exceeding one (1) year immediately prior to the filing of the application. corporations registered
stock in domestic insu
Foreign banking, financial and insurance corporations shall, in addition to the above requirements, comply with the combination of these ki
provisions of existing laws applicable to them. In the case of all other foreign corporations, no application for license to value of at least one h
transact business in the Philippines shall be accepted by the Securities and Exchange Commission without previous Provided, however, Tha
authority from the appropriate government agency, whenever required by law. year of the licensee, the
shall require the licen
equivalent in actual ma
Section 126. Issuance of a license. – If the Securities and Exchange Commission is satisfied that the applicant has amount by which the l
complied with all the requirements of this Code and other special laws, rules and regulations, the Commission shall year exceeds five million
issue a license to the applicant to transact business in the Philippines for the purpose or purposes specified in such and Exchange Commissio
license. Upon issuance of the license, such foreign corporation may commence to transact business in the Philippines securities if the actual m
andcontinuetodosoforaslong as it retains its authority to act as a corporation under the laws of the country or state has decreased by at le
of its incorporation, unless such license is sooner surrendered, revoked, suspended or annulled in accordance with market value at the tim
this Code or other special laws. and Exchange Commission
additional securities dep
Within sixty (60) days after the issuance of the license to transact business in the Philippines, the license, except licensee has decreased, o
foreign banking or insurance corporation, shall deposit with the Securities and Exchange Commission for the benefit securities on deposit h
of present and future creditors of the licensee in the Philippines, securities satisfactory to the percent of the actual ma
they were deposited. Th
may, from time to time
securities for those alre
solvent. Such licensee sha
dividends on the securiti
ceases to do business in
as aforesaid shall be ret
therefor and upon proo
and Exchange Commissio
Philippine residents, inc
of the Philippines.

Definition
Transacting business mea
the corporation, or
 some portion of them, in the usual and regular course of the prosecution of the corporate enterprise for profit. 1. That the operation or
Investment Priorities Pla
The Corporation Code outlines the procedural requirements for the application and issuance of a license before 2. a That the business or ec
foreign corporation may transact business in the Philippines. Except in the case of foreign banking, financial and sound and balanced dev
insurance corporations and other subject to special laws, rules and regulations, if the applicant foreign corporation self-sustaining basis.
has complied with all the requirements of issuance of a license, the SEC shall issue such license and thereafter the3. That the activity will n
foreign corporation may transact business in the Philippines. laws of the Philippines.
4. That the nosiness or econ
Republic Act No. 5455. Regulates the entry of foreign investments whenever foreign equity participation exceeds 30 exploited by Philippine N
percent of the capital stock.
5. That the entry of the app
danger of promoting mo
Under Republic Act no. 5455 “doing business includes”:
trade.
a. Soliciting orders, purchases, service contracts, opening offices whether called liaison offices or branches.
b. Appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in Presidential Decree No. 1
the Philippines for a period or periods totalling one hundred eighty days or more. corporations which hav
c. Participating in the management, supervision, or control of any domestic business firm, entity, or corporation in the which or any other law
Philippines. financial, technical, man
d. Any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplates to that with any foreign person
extent the performance of acts or works, or the exercise of some of the function normally incident to, and in contracts are vital to a
progressive prosecution of, commercial gain or of the purpose and object of the business organization. exploration, developme
lands owned, held or con
The Board of Investments requires license not only of corporations organized abroad but also of domestic
corporations, if more than 40% of its voting shares are owned and held by aliens or more than 30% of its total Section 127. Who may b
capitalization is in the hands of aliens. – A resident age
in the Philippines or
Guidelines for issuance of certificate of authority to do business under BOI (Rep. Act No.5455) transacting business in th
of an individual, he must
financial standing.

Section 128. Resident ag

and Exchange Commi
precedent to the issuanc
the Philippines by any for
file with the Securities
power of attorney desi
resident of the Philippin
legal processes may be
proceedings against such
upon such resident agen
served upon the duly
corporation at its home
shall
likewise execute and file with the Securities and Exchange Commission an agreement or stipulation, executed by the Section 129. Law applica
proper authorities of said corporation, in form and substance as follows: doing business in the Ph
and regulations applicab
“The (name of foreign corporation) does hereby stipulate and agree, in consideration of its being granted by the class, except such only a
Securities and Exchange Commission a license to transact business in the Philippines, that if at any time said corporation organization or dissoluti
shall cease to transact business in the Philippines, or shall be without any resident agent in the Philippines on whom the relations, liabilit
any summons or other legal processes may be served, then in any action or proceeding arising out of any business or stockholders, members
transaction which occurred in the Philippines, service of any summons or other legal process may be made upon the other or to the corporatio
Securities and Exchange Commission and that such service shall have the same force and effect as if made upon the
duly- authorized officers of the corporation at its home office.” Licensed foreign corpor
Philippines shall be sub
Whenever such service of summons or other process shall be made upon the Securities and Exchange Commission, corporations of thesame
the Commission shall, within ten (10) days thereafter, transmit by mail a copy of such summons or other legal
process to the corporation at its home or principal office. The sending of such copy by the Commission shall be Philippine laws will not
necessary part of and shall complete such service. All expenses incurred by the Commission for such service shall be paid formation, organization
in advance by the party at whose instance the service is made. as fux the relations, li
In case of a change of address of the resident agent, it shall be his or its duty to immediately notify in writing the stockholders, members, o
Securities and Exchange Commission of the new address. or to the corporation.

The SEC shall require as a condition precedent to the issuance of the license to transact business in the Philippines by Section 130. Amendmen
any foreign corporation that such corporation file with the SEC, a written power of attorney designating some laws of foreign corpo
person who must be a resident of the Philippines, on whom any summons and other legal processes may be served incorporation or by-law
in all actions or other legal proceedings against such corporation. transact business in the
corporation shall, within
becomes effective, file
Commission, and in th
government agency, a d
of incorporation or by-
capital letters or by unde
duly certified by the
country or state of inco
itself enlarge or alter th
corporation is author
Philippines.

Section 131. Amended lic

to transact business in th
license in the event it cha
pursue in the Philippi
submitting an applicat
Exchange Commission, f
government agency in the
 Section 132. Merger or consolidation involving a foreign corporation licensed in the Philippines. – One or more Section 133. Doing bus
foreign corporations authorized to transact business in the Philippines may merge or consolidate with any domestic corporation transacting
corporation or corporations if such is permitted under Philippine laws and by the law of its incorporation: Provided, license, or its successo
That the requirements on merger or consolidation as provided in this Code are followed. maintain or intervene in
court or administrative
Whenever a foreign corporation authorized to transact business in the Philippines shall be a party to a merger or corporation may be sue
consolidation in its home country or state as permitted by the law of its incorporation, such foreign corporation courts or administrative
shall, within sixty (60) days after such merger or consolidation becomes effective, file with the Securities and Exchange recognized under Philipp
Commission, and in proper cases with the appropriate government agency, a copy of the articles of merger or
consolidation duly authenticated by the proper official or officials of the country or state under the laws of which Unlicensed foreign corp
merger or consolidation was effected: Provided, however, That if the absorbed corporation is the foreign corporation do not have the capacity t
doing business in the Philippines, the latter shall at the same time file a petition for withdrawal of it license in established.
accordance with this Title.
A foreign corporation w
Section 132 covers two legal situations: therein can maintain an ac
1. The merger of a licensed foreign corporation with a domestic corporation. the purpose of protecti
 Must be accomplished by complying with the provisions of the Corporation Code. goodwill.
2. The merger of a licensed foreign corporation withanothercorporation in its country of origin which is not doing
business in the Philippines. A foreign corporation do
license may maintain sui
 If the licensed foreign corporation is absorbed by merger or consolidation, it must withdraw its license to do business
in the Philippines. corporation or person
domestic corporation o
 Nevertheless, if the foreign absorbing corporation desire to continue the business of the absorbed corporation in
challenging the persona
the Philippines, it has to file an application for a license to do business pursuant to the requirements of Philippines
law on the matter.
Section 134. Revocatio
other grounds provided
corporation to transact
revoked or suspende
Commission upon any o

1. Failure to file its annua

this Code.

2. Failure to appoint and

Philippines as required b

3. Failure, after change of

submit to the Securities a
such change as required

4. Failure to submit to the

authenticated copy of any
 incorporation or by-laws or of any articles of merger or consolidation within the time prescribed by this Title. 1. All claims which have
paid, compromised or se
5. A misrepresentation of any material matter in any application, report, affidavit or other document submitted by
such corporation pursuant to this Title. 2. All taxes, imposts, asses
due to the Philippine G
6. Failure to pay any and all taxes, imposts, assessments or penalties, if any, lawfully due to the Philippine political subdivisions have
Government or any of its agencies or political subdivisions.
3. The petition for withdra
7. Transacting business in the Philippines outside of the purpose or purposes for which such corporation is authorized a week for three (3) c
under its license. general circulation in the

8. Transacting business in the Philippines as agent of or acting for and in behalf of any foreign corporation or entity not Sec. 137. Outstanding
duly licensed to do business in the Philippines. "outstanding capital sto
shares of stock issued un
9. Any other ground as would render it unfit to transact business in the Philippines. subscribers or stockhold
paid, except treasury sha
Sec. 135. Issuance of certificate of revocation. – Upon the revocation of any such license to transact business in the
Philippines, the Securities and Exchange Commission shall issue a corresponding certificate of revocation, furnishing Sec. 138. Designation of
a copy thereof to the appropriate government agency in the proper cases. The Securities and Exchange Commission – The provisions of s
shall also mail to the corporation at its registered office in the Philippines a notice of such revocation accompanied by a contrarynotwithstanding
copy of the certificate of revocation. may, through their articl
designate their governin
Sec. 136. Withdrawal of foreign corporations. – Subject to existing laws and regulations, a foreign corporation licensed of trustees.
to transact business in the Philippines may be allowed to withdraw from the Philippines by filing a petition for
withdrawal of license. No certificate of withdrawal shall be issued by the Securities and Exchange Commission unless Sec. 139. Incorporation
all the following requirements are met: Exchange Commission is h
fees as authorized by
promulgated by the Com

Sec. 140. Stock ownersh

to the duties specified
National Economic and
time to time, make a de
vehicle has been used b
industry to frustrate the
and shall submit to the
necessary, a report of its
for their prevention or co
Maximum limits may b
stockholdings in corporati
public interest pursuan
belonging to individuals o
of individuals related to each other by consanguinity or affinity or by close business interests, or whenever it is Sec. 143. Rule making
necessary to achieve national objectives, prevent illegal monopolies or combinations in restraint or trade, or to Commission. – The Securit
implement national economic policies declared in laws, rules and regulations designed to promote the general welfare the power and authorit
and foster economic development. Code, and to promulg
necessary to enable
In recommending to the Batasang Pambansa corporations, business or industries to be declared vested with a particularly in the preven
public interest and in formulating proposals for limitations on stock ownership, the National Economic and the controlling stockho
Development Authority shall consider the type and nature of the industry, the size of the enterprise, the economies of officers.
scale, the geographic location, the extent of Filipino ownership, the labor intensity of the activity, the export
potential, as well as other factors which are germane to the realization and promotion of business and industry. Sec. 144. Violations of t
provisions of this Code o
Sec. 141. Annual report or corporations. – Every corporation, domestic or foreign, lawfully doing business in the specifically penalized
Philippines shall submit to the Securities and Exchange Commission an annual report fine of not less than one
of its operations, together with a financial statement of its assets and more than ten thousand (
liabilities, certified by any independent certified public accountant in appropriate cases, covering the preceding fiscal for not less than thirty (3
year and such other requirements as the Securities and Exchange Commission may require. Such report shall be years, or both, in the dis
submitted within such period as may be prescribed by the Securities and Exchange Commission. committed by a corporati
hearing, be dissolved in a
Sec. 142. Confidential nature of examination results. – All interrogatories propounded by the Securities and Exchange Securities and Exchange C
Commission and the answers thereto, as well as the results of any examination made by the Commission or by any dissolution shall not pre
other official authorized by law to make an examination of the operations, books and records of any corporation, shall action against the direct
be kept strictly confidential, except insofar as the law may require the same to be made public or where such corporation responsible
interrogatories, answers or results are necessary to be presented as evidence before any court. That nothing
repeal the other causes fo
in this Code.

Sec. 145. Amendment or

or against any corpo
directors, trustees, or of
such corporation, stockh
officers, shall be remove
dissolution of said co
amendment or repeal of t

Sec. 146. Repealing claus

Code, all laws or parts the
this Code shall be deem

Sec. 147. Separability o

this Code or any pa
unconstitutional, the oth
far as they are separable, shall remain in force.

Sec. 148. Applicability to existing corporations. – All

corporations lawfully existing and doing business in the
Philippines on the date of the effectivity of this Code and
heretofore authorized, licensed or registered by the Securities
and Exchange Commission, shall be deemed to have been
authorized, licensed or registered under the provisions of
this Code, subject to the terms and conditions of its license, and
shall be governed by the provisions hereof: Provided, That if
any such corporation is affected by the new requirements of
this Code, said corporation shall, unless otherwise herein
provided, be given a period of not more than two (2) years
from the effectivity of this Code within which to comply with
the same.

Sec. 149. Effectivity. – This Code shall take effect immediately

upon its approval. Approved: May 1, 1980