Corpo San Beda

San Beda College of Law
85
MEMORY AID IN COMMERCIAL LAW
CORPORATION CODE
(B.P. Blg. 68, effective May 1, 1980)
I. GENERAL PROVISIONS its sole liabilities. (Creese vs.

CORPORATION CA, 93 SCRA 483)
An artificial being created by 2. Right to
operation of law having the right of bring actions – may bring civil
succession, and the powers, attributes and criminal actions in its own
and properties expressly authorized by name in the same manner as
law and incident to its existence. (Sec. natural persons. (Art. 46, Civil
2) Code)
3. Right to acquire and possess
ATTRIBUTES OF A CORPORATION property – property conveyed to
5888 It is an artificial being. or acquired by the corporation is
5889 It is created by operation of law. in law the property of the
5890 It enjoys the right of succession. corporation itself as a distinct
5891 It has the powers, attributes legal entity and not that of the
and properties expressly authorized stockholders or members. (Art.
by law or incident to its existence. 44(3), Civil Code)
THEORIES ON THE FORMATION OF A 4. Acquisition of court of

CORPORATION: jurisdiction – service of summons
23 Concession Theory – espouses that a may be made on the president,
corporation is an artificial creature general manager, corporate
without any existence until it has secretary, treasurer or in-house
received the imprimatur of the state counsel. (Sec. 11, Rule 14, Rules
acting according to law, through the of Court).
SEC. (Tayag vs. Benguet 5. Changes in individual
Consolidated, Inc., 26 SCRA 242) membership – remains unchanged
23 Theory of corporate enterprise or and unaffected in its identity by
economic unit – espouses that the changes in its
corporation is not merely an individual membership. (The
artificial being, but more of an Corporation Code of the
aggregation of persons doing Philippines Annotated, Hector
business, or an underlying business de Leon, 2002 ed.)
unit. (Philippine Corporate Law, 6. Entitlement
Cesar Villanueva, 2001 ed.) to constitutional guaranties:
24 Genossenschaft Theory – treats a a. Due process (Albert vs.
corporation as “ the reality of the University Publishing, 13
group as a social and legal entity, SCRA 84)
independent of state recognition and 0 Equal protection of the law
concession”. (Tayag vs. Benguet (Smith, Bell & Co. vs.
Consolidated, Inc., 26 SCRA 242) Natividad, 40 Phil. 136)
1 Protection against
DOCTRINE OF SEPARATE PERSONALITY unreasonable searches and
A corporation has a juridical seizures. (Stonehill vs.
personality separate and distinct from Diokno, 20 SCRA 383)
that of its stockholders or members. A corporation is not
Used for purposes of convenience and entitled to invoke the right
to subserve the ends of justice. against self-incrimination.
Consequences/significance: (Bataan Shipyard vs. PCGG)
1. Liability for acts or contracts – 7.Liability for torts – a corporation
obligations incurred by a is liable whenever a tortuous act is
corporation, acting through its committed by an officer or
authorized agents are agent under the express
COMMERCIAL LAW COMMITTEE

CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT HEADS: Marichelle De
Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula
(Banking Laws); Robespierre CU (Law on Intellectual Property)
86 2005 CENTRALIZED BAR OPERATIONS
direction or authority of the Rules:

stockholders or members acting 0
There must have been
as a body, or, generally, from fraud or evil motive in
the directors as the governing the affected transaction
body. (PNB vs. CA, 83 SCRA 237) and the mere proof of
23 A corporation is not entitled to control of the
moral damages because it has no corporation by itself
feelings, no emotions, no senses. would not authorize
(ABS-CBN vs. Court of Appeals) piercing.
24 Liability for Crimes – since a 1 The main action should
corporation is a mere legal seekforthe
fiction, it cannot be held liable enforcementof
for a crime committed by its pecuniaryclaims
officers, since it does not have pertainingtothe
the essential element of malice; corporation against
in such case the responsible corporate officers or
officers would be criminally stockholders.
liable. (People vs. Tan Boon 0 Alter Ego Cases – when the
Kong, 54 Phil.607) corporate entity is merely a farce
since the corporation is an alter ego,
DOCTRINE OF PIERCING THE VEIL OF business conduit or instrumentality
CORPORATE ENTITY of a person or another corporation.
Requires the court to see through the Rules:
protective shroud which exempts its 0 It applies because of the
stockholders from liabilities that they direct violation of a central
ordinarily would be subject to, or corporate law principle of
distinguishes a corporation from a separating ownership from
seemingly separate one, were it not for management.
the existing corporate fiction. (Lim vs. 1 If the stockholders do not
CA, 323 SCRA 102) respect the separate entity,
Rules: (Philippine Corporate Law, others cannot also be
Cesar Villanueva, 2001 ed.) expected to be bound by the
23 has only a res judicata effect separate juridical entity.
24 to prevent wrong or fraud and 2 Applies even when there are
not available for other purposes no monetary claims sought to
25 judicial prerogative only be enforced.
26 must be with necessary and with 0 Equity cases – when piercing the
factual basis corporate fiction is necessary to
When directors and officers are achieve justice or equity.
unable to compensate a party for a
personal obligation, it is far-fetched to INSTRUMENTALITY / ALTER EGO RULE
allege that a corporation is perpetuating Where one corporation is so organized
fraud or promoting injustice, and and controlled and its affairs are
thereby could be held liable therefor by conducted so that it is, in fact, a mere
piercing the corporate veil. (Francisco instrumentality or adjunct of the other,
Motors, Inc. vs. CA, G.R. No. 100812, the fiction of the corporate entity of the
June 25, 1999) “instrumentality” may be disregarded.
Requisites:
3 CLASSES OF PIERCING (Philippine 23 There must be control,
Corporate Law, Cesar Villanueva, 2001 not mere majority or complete
ed.) stock control, but complete
domination, not only of finances,
0 Fraud Cases – when a corporation is but of policy, and business
used as a cloak to cover fraud, or to practice in respect to the
do wrong. transaction attacked so that the
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT
CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino(VC-Acads), J
ennifer Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-
Logistics) Jonathan
Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law), Charmaine Torres
(Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law),
Jackie Lou Bautista (Legal Ethics)
87
corporate entity as to this A partner as such can The suit against a

transaction had, at that time, no sue a co-partner who member of the
separate mind, will or existence mismanages board of directors
of its own (control); or trustees who
mismanages must
23 Such control must
be in the name of
have been used by the defendant the corporation
to commit fraud or wrong, to
perpetrate the violation of a 7. Right of succession
statutory or other positive duty, Partnership has no Corporation has
or dishonest and unjust act in right of succession right of succession
contravention of plaintiff’s legal
rights (breach of duty); and 0 Extent of liability to third persons
24 Such control and Partners are liable Stockholders are
breach of duty must proximately personally and liable only to the
cause the injury to the plaintiff. subsidiarily extent of the
(Concept Builders, Inc. vs. NLRC, (sometimes shares subscribed
solidarily) for by them
23 SCRA, 149)
partnership debts to
third persons
Partnership Corporation 9. Transferability of interest
1. Creation Partner cannot Stockholder has
Created by mere Created by law or transfer his interest generally the right
agreement of the by operation of law in the partnership so to transfer his
parties as to make the shares without
2. Number of incorporators transferee a partner prior consent of
May be organized by Requires at least at without the the other
least two persons five incorporators unanimous consent of stockholders
(except a all the existing because
corporation sole) partners because the corporation is not
partnership is based based on this
23 Commencement of on the principle of principle
juridical personality delectus personarum
Acquires juridical Acquires juridical
personality from the personality from 10. Term of existence
moment of execution the date of partnership may be corporation may
of the contract of issuance of the established for any not be formed for a
partnership certificate of period of time term in excess of
incorporation by stipulated by the 50 years extendible
the Securities and partners to not more than
Exchange 50 years in any one
Commission instance
4. Powers 11. Firm name
Partnership Corporation can Limited partnership corporation may
may exercise any exercise only the is required by law to adopt any name
power authorized by powers expressly add the word “Ltd.” provided it is not
the partners granted by law or To its name the same as or
(provided it is not implied from those similar to any
contrary to law, granted or incident registered firm
morals, good to its existence name
customs, public 12. Dissolution
order, public policy) may be dissolved at can only be
5. Management any time by any or all dissolved with the
When management is The power to do of the partners consent of the
not agreed upon, business and State
every partner is an manage its affairs
agent of the is vested in the 13. Governing Law
partnership board of directors governed by the Civil governed by the
or trustees Code Corporation Code
6. Effect of mismanagement

The special right or privilege

conferred upon an existing corporation
to the business for which it was created.
Example, use of the streets of a
municipality to lay pipes or tracks, or
ADVANTAGES VIS-À-VIS DISADVANTAGES operation of a messenger and express
OF A BUSINESS CORPORATION (The delivery service.
Corporation Code of the Philippines
Annotated, Hector de Leon, 2002 ed.) PRIMARY SECONDARY
Refers to the Refers to the exercise
ADVANTAGES DISADVANTAGES franchise of being or of rights. Example:
1. has a legal 1. complica- existing as a right of eminent
capacity to ted in corporation domain
act and formation Vested in the Vested in the
contract as a and individuals who corporation after its
distinct unit manageme compose the incorporation and not
in its own nt corporation upon the individuals
name 2. high cost who compose the
2. continuity of of corporation.
existence formation Cannot be sold or May be sold or
3. its credit is and transferred because transferred; subject
strengthened operations it is inseparable to sale on execution,
by its 3. its credit is from the corporation subject to levy.
continuity of weakened itself.
existence by the
4. centralized limited
CLASSES OF CORPORATION
management liability
in the board feature 0AS TO ORGANIZERS
of directors. 4. lack of a. public – by State only; and
5. its creation, personal b.private – by private persons alone
management, element. or with the State.
organization 5. greater 5888 AS TO FUNCTIONS
and degree of 5888 public – government of a
dissolution governmen portion of the territory; and
are tal 5889 private – usually for
standardized supervision
profit-making
as they are 6. manage-
governed ment and
5889 AS TO GOVERNING LAW
under one control are 5888 public – Special Laws;
general separated and
incorporation from 5889 private – Law on Private
law. ownership. Corporations
6. limited 7. Stockhol- 5890 AS TO LEGAL STATUS
liability ders have 5888 De jure corporation –
7. shareholders little voice organized in accordance with the
are not the in the
requirements of law.
general conduct of
agents of the the
b. De facto corporation – organized
business business. with a colorable compliance with
0 transferability of the requirements of a valid law.
shares Its existence cannot be inquired
collaterally. Such inquiry may be
FRANCHISES OF CORPORATION made by the Solicitor General in
1. Primary or corporate a quo warranto proceeding.
franchise/General Franchise (Sec. 20)
The right or privilege granted by the Requisites:
State to individuals to exist and act as a 23 The existence of a valid
corporation after its incorporation. law under which it may be
2. Secondary or special franchise incorporated;
CHAIRPERSONS
Logistics) Jonathan
89
256 A bona fide attempt in management. It is one that holds

good faith to incorporate stocks in other companies for
under such law; purposes of control rather than
257 Actual use or exercise in for mere investment.
good faith of corporate 0 Subsidiary Corporation - one
powers; and which is so related to another
258 Issuance of a certificate corporation that the majority of
of incorporation by the SEC its directors can be elected
as a minimum requirement directly or indirectly by such
of continued good faith. other corporation. (The
The only difference Corporation Code of the
between a de facto Philippines Annotated, Hector
corporation and a de jure de Leon, 2002 ed.)
corporation is that a de jure c. Affiliates - company which is
corporation can successfully subject to common control of a
resist a suit by a state mother holding company and
brought to challenge its operated as part of the system.
existence; a de facto d. Parent and Subsidiary
corporation cannot sustain Corporation - separate entities
its right to exist. with power to contract with each
256 Corporation by estoppel – group other. The board of directors of
of persons that assumes to act as the parent company determines
a corporation knowing it to be its representatives to attend and
without authority to do so, and vote in the stockholder’s meeting
enters into a transaction with a of its subsidiary. The
third person on the strength of stockholders of the parent
such appearance. It cannot be company demand representation
permitted to deny its existence in the board meetings of its
in an action under said subsidiary.
transaction. (Sec. 21) It is 0 AS TO PLACE OF INCORPORATION
neither de jure nor de facto. 0 Domestic corporation- a
257 Corporation by prescription – corporation formed, organized,
one which has exercised or existing under Philippine laws.
corporate powers for an 1 Foreign corporation – a
indefinite period without corporation formed, organized,
interference on the part of the or existing under any laws other
sovereign power, e.g. Roman than those of the Philippines.
Catholic Church. (Sec. 123)
0 AS TO EXISTENCE OF SHARES OF
STOCK ONE-MAN CORPORATION
0.0 Stock corporation – a corporation A corporation wherein all or
0.0.0whose capital stock is divided substantially all of the stocks is held
into shares and (2) which is directly or indirectly by one person.
authorized to distribute to However, it should still follow the
shareholders dividends or formal requirements of a
allotments of the surplus profits corporation (e.g. number of
on the basis of the shares held. incorporators, board of directors
(Sec. 3) composed of stockholders owning
0.1 Non-stock corporation – does not shares in a nominal capacity) in
issue stocks nor distribute order to validly enjoy the attributes
dividends to their members. of the corporation, so as to avoid
1 AS TO RELATIONSHIP OF the application of the doctrine of
MANAGEMENT AND CONTROL piercing the veil of corporate entity.
1.0 Holding Corporation - it is one
which controls another as a
subsidiary by the power to elect

TESTS TO DETERMINE NATIONALITY OF signed the Articles and acknowledged the

CORPORATIONS same before a notary public. They have
23 INCORPORATION TEST – determined no powers beyond those vested in them
by the state of incorporation, regardless by the statute.
of the nationality of the stockholders. Qualifications:
24 DOMICILE TEST – determined by the 23 natural person;
state where it is domiciled. 24 not less than 5 but not
The domicile of a corporation is the more than 15;
place fixed by the law creating or 25 of legal age;
recognizing it; in the absence thereof, it 26 majority must be
shall be understood to be the place residents of the Philippines; and
where its legal representation is 27 each must own or
established or where it exercise its subscribe to at least one share.
principal functions. (Art. 51, NCC) (Sec. 10)
25 CONTROL TEST – determined by the GENERAL RULE: Only natural persons
nationality of the controlling can be incorporators.
stockholders or members. This test is EXCEPTION: When otherwise allowed
applied in times of war. Also known as by law, e.g., Rural Banks Act of 1992,
the WARTIME TEST. where incorporated cooperatives are
allowed to be incorporators of rural
“PHILIPPINE NATIONAL” UNDER THE banks. Note: However, it is undeniable
FOREIGN INVESTMENT ACT OF 1991 that corporations can be corporators.
(R.A. No. 7042): c. Stockholders – owners of shares of
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀ ĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ stock in a stock corporation
ĀᜀĀᜀĀ0 A corporation organized d. Members – corporators of a
under the laws of the Philippines of corporation which has no capital stock
which at least 60% of the outstanding
capital stock entitled to vote is owned INCORPORATORS CORPORATORS
and held by Filipino citizens; signatory to the stockholder (stock
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀ ĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ Articles of corporation) or
ĀᜀĀᜀĀ1 A foreign corporation licensed Incorporation member (non-stock
as doing business in the Philippines of corporation)
which 100% of the outstanding capital fait accompli; they may cease to
stock entitled to vote is wholly owned by accomplished fact be such if they
Filipinos; and (the Articles of subsequently lose
Incorporation cannot their qualifications
However, it provides that where a
be amended to
corporation and its non-Filipino replace them)
stockholders own stocks in a SEC- number is limited to no restriction as to
registered enterprise, at least 60% of the 5-15 number
capital stock outstanding and entitled to
must have contractual may be such
vote of both corporations and at least capacity through a guardian
60% of the members of the board of
directors of both corporations must be
OTHER COMPONENTS
Filipino citizens (double 60% rule).
a. Promoter - A person who, acting alone
NOTE: The law applies the control test
or with others, takes initiative in
both with respect to the ownership of
founding and organizing the business or
shares entitled to vote and the
enterprise of the issuer and receives
membership in the board of directors.
consideration therefor.
He is an agent of the incorporators but
COMPONENTS OF A CORPORATION
not of the corporation.
a. Corporators – those who compose a
corporation, whether as stockholders or Contracts by the promoter for and in
members behalf of a proposed corporation
b. Incorporators - They are those generally bind only him, subject to and
mentioned in the Articles of to the extent of his representations, and
Incorporation as originally forming and not the corporation, unless and until
composing the corporation, having
CHAIRPERSONS
Logistics) Jonathan
91
after these contracts are ratified, and in the certificates of stock

expressly or impliedly, by its Board of representing such shares;
Directors/Trustees. c. Redeemable shares may be
b. Subscriber – persons who have agreed deprived of voting rights in the
to take and pay for original, unissued articles of incorporation, unless
shares of a corporation formed or to be otherwise provided in the Code.
formed. Redeemable shares may be
c. Underwriter – a person who redeemed, regardless of the existence of
guarantees on a firm commitment and/ unrestricted retained earnings (Sec. 8),
or declared best effort basis the provided that the corporation has, after
distribution and sale of securities of any such redemption, sufficient assets in its
king by another company. (Sec. 3 R.A. books to cover debts and liabilities
8799) inclusive of capital stock.
4. TREASURY SHARES
CLASSIFICATION OF Shares that have been earlier issued
SHARES 1. COMMON SHARES as fully paid and have thereafter been
The basic class of stock ordinarily and acquired by the corporation by purchase,
usually issued without extraordinary donation, and redemption or through
rights and privileges, and the owners some lawful means. (Sec. 9)
thereof are entitled to a pro rata share If purchased from stockholders: The
in the profits of the corporation and in transaction in effect is a return to the
its assets upon dissolution and, likewise, stockholders of the value of their
in the management of its affairs without investment in the company and a
preference or advantage whatsoever. reversion of the shares to the
2. PREFERRED SHARES corporation. The corporation must have
Those issued with par value, and surplus profits with which to buy the
preferences either with respect to (a) shares so that the transaction will not
assets after dissolution, (b) distribution cause an impairment of the capital.
of dividends, or both, and other If acquired by donation from the
preferences. stockholders: The act would amount to a
Limitations: surrender of their stock without getting
a. If deprived of voting rights, it shall back their investments that are instead,
still be entitled to vote on matters voluntarily given to the corporation.
enumerated in Section 6 paragraph 6. b. Treasury shares need not be sold at
Preference must not be violative of the par or issued value but may be sold at
Code. the best price obtainable, provided it is
c. May be issued only with a stated par reasonable. When treasury shares are
value. sold below its par or issued value, there
d. The board of directors may fix the can be no watering of stock because such
terms and conditions only when so watering contemplates an original
authorized by the articles of issuance of shares.
incorporation and such terms and Treasury shares have no voting rights
conditions shall be effective upon filing as long as they remain in treasury
a certificate thereof with the SEC. (uncalled and subject to reissue).
3. REDEEMABLE SHARES Reason: A corporation cannot in any
Those which permit the issuing proper sense be a stockholder in itself
corporation to redeem or purchase its and equal distribution of voting rights
own shares. will be effectively lost.
Limitations: Neither are treasury shares entitled to
5888 Redeemable shares may be dividends or assets because dividends
issued only when expressly provided cannot be declared by a corporation to
for in the articles of incorporation; itself.
5889 The terms and conditions 5. FOUNDERS' SHARE
affecting said shares must be stated Shares issued to organizers and
both in the articles of incorporation promoters of a corporation in

consideration of some supposed right or as spurious stock. Its issuance is

property. considered null and void.
Shares classified as such in the WATERED STOCK
articles of incorporation which may be A stock issued not in exchange for its
given special preference in voting rights equivalent either in cash, property,
and dividend payments. But if an share, stock dividends, or services.
exclusive right to vote and be voted for “Water” in the stock represents the
as director is granted, this privilege is difference between the fair market value
subject to approval by the SEC, and at the time of the issuance of the stock
cannot exceed 5 years from the date of and the par or issued value of said stock.
approval. Both par and no par stocks can thus be
6. VOTING SHARES watered stocks.
Shares with a right to vote. It includes stocks:
7. NON-VOTING SHARES a. Issued without consideration.
Shares without right to vote. b. Issued as fully paid when the
The law only authorizes the denial of corporation has received a lesser sum of
voting rights in the case of redeemable money than its par or issued value.
shares and preferred shares, provided c. Issued for a consideration other than
that there shall always be a class or actual cash, the fair valuation of which is
series of shares which have complete less than its par or issued value.
voting rights. d. Issued as stock dividend when there
These redeemable and preferred are no sufficient retained earnings to
shares, when such voting rights are justify it.
denied, shall nevertheless be entitled to 11. PAR VALUE SHARES
vote on the following fundamental Shares with a value fixed in the
matters: Key: A2 SI2 MID certificates of stock and the articles of
0.0 amendmentof incorporation.
Articles of Incorporation 12. NO PAR VALUE SHARES
0.1 adoptionand Shares having no par value but have
amendment of by-laws; issued value stated in the certificate or
0.2 sale or disposition of articles of incorporation.
all or substantially all of Limitations:
corporate property; No par value shares cannot have an
0 i ncurring, creating or issued price of less than P5.00;
increasing bonded The entire consideration for its
indebtedness; issuance constitutes capital so that no
1 i ncrease or decrease part of it should be distributed as
of capital stock dividends;
2 merger or They cannot be issued as preferred
consolidation of capital stock stocks;
3 i nvestments of They cannot be issued by banks,
corporate funds in another trust companies, insurance
corporation or another companies, public utilities and
business purpose; and building and loan association;
4 corporate dissolution The articles of incorporation must
state the fact that it issued no par
0 ESCROW STOCK value shares as well as the number of
Deposited with a third person to be said shares;
delivered to a stockholder or his assign Once issued, they are deemed
after complying with certain conditions, fully paid and non-assessable. (Sec.
usually payment of full subscription 6)
price. 13. STREET CERTIFICATE
0 OVER-ISSUED STOCK A stock certificate endorsed by the
Stock issued in excess of the registered holder in blank and transferee
authorized capital stock. It is also known
CHAIRPERSONS
Logistics) Jonathan
93
can command its transfer to his name II. INCORPORATION AND ORGANIZATION
from the issuing corporation.
14. CONVERTIBLE SHARE STEPS IN THE CREATION OF A
A share that is changeable by the CORPORATION
stockholder from one class to another at a. PROMOTION – a number of business
a certain price and within a certain operations peculiar to the commercial
period. world by which a company is generally
15. FRACTIONAL SHARE brought into existence. (18 Am. Jur. 2d
A share with a value of less than one 647, cited in de Leon p. 116)
full share. INCORPORATION
Steps:
DOCTRINE OF EQUALITY OF SHARES 1. Drafting and execution of Articles of
Where the articles of incorporation do Incorporation by the incorporators and
not provide for any distinction of the other documents required for
shares of stock, all shares issued by the registration of the corporation
corporation are presumed to be equal Filing with the SEC of the articles of
and enjoy the same rights and privileges incorporation
and are also subject to the same Payment of filing and publication fees
liabilities. (Sec. 6) Issuance by the SEC of the certificate of
incorporation
DEFINITION OF TERMS: c. FORMAL ORGANIZATION AND
CAPITAL STOCK OR LEGAL STOCK OR COMMENCEMENT OF THE TRANSACTION
STATED CAPITAL - The amount fixed in OF BUSINESS
the corporate charter to be subscribed These are conditions subsequent,
and paid in cash, kind or property at the which may be satisfied by substantial
organization of the corporation or compliance in order that a corporation
afterwards and upon which the may legally continue as such.
corporation is to conduct its operation. Formal organization:
CAPITAL – The value of the actual Adoption of By-Laws and filing of the
property or estate of the corporation same with the SEC;
whether in money or property. Its net Election of board of directors/trustees,
worth (or stockholder’s equity) is its and officers;
assets less liabilities. Establishment of principal office;
AUTHORIZED CAPITAL STOCK - The Providing for subscription and payment
capital stock divided into shares with par of capital stock.
values. Par value stocks are required in
the case of corporations issuing TERM OF CORPORATE EXISTENCE
preferred shares, as well as in the case Limitations:
of banks, trust companies, insurance a. The term shall not exceed 50 years in
companies, building and loan any one instance.
associations, and public utilities. It is the b. The amendment is effected before the
total amount in the charter, which may expiration of corporate term, for after
be raised by the corporation for its dissolution by expiration of the corporate
operations. term there is no more corporate life to
SUBSCRIBED CAPITAL STOCK - The total extend.
amount of the capital stock subscribed c. The extension cannot be made earlier
whether fully paid or not. than 5 years prior to the expiration date
OUTSTANDING CAPITAL STOCK - The unless there are justifiable reasons as
portion of the capital stock issued to determined by the SEC.
subscribers except treasury stocks.
STATED CAPITAL – The capital stock CAPITAL STOCK REQUIREMENT
divided into no par value shares. General Rule: No minimum authorized
PAID-UP CAPITAL – The amount paid by capital stock as long as the paid-up
the stockholders on subscriptions from capital is not less than P5,000.00 Except:
unissued shares of the corporation.
a. as provided for by special law

Domestic Insurance Corporations Teaching

- P500T capital stock; 50% Agriculture
subscribed and the balance Fisheries
payable in 12 months. Retail trade enterprises with paid-up
PrivateDevelopment capital of less than
Banks US$2,500,000(Sec. 5 of RA 8762)
- P4M for class A Cooperatives (Ch. III, Art. 26 of RA 6938)
- P2M for class B Private Security Agencies (Sec. 4 of
- P1M for class C RA 5487)
Investment Companies – paid up Small-scale Mining (Sec. 3 of RA 7076)
at least P500T Utilization of Marine Resources in
Savings and Loan Corporation – archipelagic waters, territorial sea,
to be fixed by the Monetary and exclusive economic zone as well
Board, but not less than P100T as small-scale utilization of natural
Financing Companies Paid up: - resources in rivers, lakes, bays, and
P2M for Metro Manila lagoons (Art. XII, Sec. 2 of the
P1M for Cities Constitution)
P500T for others Ownership, operation and management
b. provided that at least 25% of the of cockpits (Sec. 5 of PD 449)
authorized capital stock has been Manufacture, repair, stockpiling and/or
subscribed and at least 25% of the total distribution of nuclear weapons (Art.
subscription must be paid-up II, Sec. 8 of the Constitution)
Manufacture, repair, stockpiling and/or
FILIPINO PERCENTAGE OWNERSHIP distribution of biological, chemical
REQUIREMENT and radiological weapons and anti-
personnel mines (Various treaties to
NO FOREIGN EQUITY which the Philippines is a signatory
and conventions supported by the
1. Mass Media except recording (Art. Philippines)
XVI, Sec. 11 of the Constitution; Manufacture of firecrackers and
Presidential Memorandum dated 04 other pyrotechnic devices (Sec. 5 of
May 1994) RA 7183)
Practice of all
professions Up to Twenty Percent (20%) Foreign
Engineering Equity
Medicine and Allied Professions
Accountancy Private radio communications
Architecture network (RA 3846)
Criminology
Chemistry Up to Twenty-Five Percent (25%)
Customs Brokerage Foreign Equity
Environmental Planning
Forestry Private recruitment, whether for local or
Geology overseas employment (Art. 27 of PD
Interior Design 442)
Landscape Architecture Contracts for the construction and repair
Law of locally-funded public works (Sec.
Librarianship 1 of CA 541, LOI 630) except:
Marine Deck Officers infrastructure/development
Marine Engine Officers projects covered in RA 7718;
Master Plumbing and
Sugar Technology
Social Work
CHAIRPERSONS
Logistics) Jonathan
95
projects which are foreign by the owners of the separate units or

funded or assisted and owned by a corporation (Sec. 5 of RA
requiredtoundergo 4726)
international competitive
bidding (Sec. 2a of RA 7718) Up to Sixty Percent (60%) Foreign
Contracts for the construction of Equity
defense-related structures (Sec. 1 of
CA 541) Financing companies regulated by the
Securities and Exchange Commission
Up to Thirty Percent (30%) Foreign (Sec. 6 of RA 5980 as amended by RA
Equity 8556)
Investment houses regulated by the SEC
Advertising (Art. XVI, Sec. 11 of the (Sec. 5 of PD 129 as amended by RA
Constitution) 8366)
Up to Forty Percent (40%) Foreign ARTICLES OF INCORPORATION (AI)
Equity The document prepared by the
17. Exploration, development and persons establishing a corporation and
utilization of natural resources (Art. filed with the SEC containing the matters
XII, Sec. 2 of the Constitution) required by the Code.
18. Ownership of private lands (Art. XII, Significance:
Sec. 7 of the Constitution; Ch. 5, The issuance of a certificate of
Sec. 22 of CA 141; Sec. 4 of RA 9182) incorporation signals the birth of the
Operation and management of public
corporation’s juridical personality;
utilities (Art. XII, Sec. 11 of the
It is an essential requirement for the
Constitution; Sec. 16 of CA 146)
existence of a corporation, even a de
Ownership/establishmentand facto one.
administration of educational
institutions (Art. XIV, Sec. 4 of the
Constitution)
Contents: (Sec. 14)
Culture,production,milling,
name of corporation;
processing, trading excepting
purpose/s, indicating the primary and
retailing, of rice and corn and
secondary purposes;
acquiring, by barter, purchase or
place of principal office;
otherwise, rice and corn and the by-
term of existence;
products thereof (Sec. 5 of PD
names, citizenship and residences of
194;Sec. 15 of RA 8762
incorporators;
Contracts for the supply of materials,
number, names, citizenship and
goods and commodities to
residences of directors or trustees;
government-owned or controlled
names, nationalities, and residences of
corporation, company, agency or
the persons who shall act as directors
municipal corporation (Sec. 1 of RA
or trustees until the first regular
5183)
ones are elected and qualified;
Project Proponent and Facility
if a stock corporation, the amount of its
Operator of a BOT project requiring a
authorized capital stock, number of
public utilities franchise (Art. XII,
shares and in case the shares are par
Sec. 11 of the Constitution; Sec. 2a
value shares, the par value of each
of RA 7718)
share;
Operation of deep sea commercial
names, residences, number of shares,
fishing vessels (Sec. 27 of RA 8550)
and the amounts subscribed and paid
Adjustment Companies (Sec. 323 of
by each of the original subscribers
PD 612 as amended by PD 1814)
which shall not be less than 25% of
Ownership of condominium units
authorized capital stock;
where the common areas in the
if non-stock, the amount of capital, the
condominium project are co-owned
names, residences, and amount

paid by each contributor, which shall 2. Names of original subscribers

not be less than 25% of total to the capital stock of the
subscription; corporation and their subscribed
name of treasurer elected by and paid up capital;
subscribers; and Treasurer elected by the original
if the corporation engages in a subscribers;
nationalized industry, a statement Members who contributed to the
that no transfer of stock will be initial capital of a non-stock
allowed if it will reduce the stock corporation;
ownership of Filipinos to a Date and place of execution of
percentage below the required legal the articles of incorporation;
minimum. Witnesses to the signing and
acknowledgment of the articles.
AMENDMENT OF ARTICLES OF
INCORPORATION GROUNDS FOR REJECTION OF ARTICLES
Limitations: OF INCORPORATION OR AMENDMENT
The amendment of any provision or THERETO
matters stated in the articles of The articles or its amendment is not
incorporation is not allowed when it will substantially in accordance with the form
be contrary to the provisions or prescribed
requirement prescribed by the Code or The purposes of the corporation are
by special law or changes any provision patently unconstitutional, illegal,
in the articles of incorporation stating an immoral, or contrary to government rules
accomplished fact and regulations
It must be for legitimate purposes The Treasurer’s Affidavit concerning the
It must be approved by the required vote amount of capital stock subscribed
of the board of directors or trustees and and/or paid is false
the stockholders or members The required percentage of ownership of
The original articles and amended the capital stock to be owned by Filipino
articles together must contain all citizens has not been complied with
provisions required by law to be set out
in the articles of incorporation GROUNDS FOR SUSPENSION OR
Such articles, as amended, must be REVOCATION OF CERTIFICATE OF
indicated by underscoring the changes REGISTRATION (Pres. Decree No. 902-A)
made, and a copy thereof duly certified Fraud in procuring its certificate of
under oath by the corporate secretary incorporation
and a majority of the directors or Serious misrepresentation as to what the
trustees stating that the amendments corporation can do or is doing to the
have been duly approved by the required great prejudice of, or damage to, the
vote of the stockholders or members general public
must be submitted to the SEC Refusal to comply with or defiance of a
The amendments shall take effect only lawful order of the SEC restraining the
upon their approval by the SEC commission of acts which would amount
If the corporation is governed by special to a grave violation of its franchise
law, the amendments must be Continuous inoperation for a period of at
accompanied by a favorable least 5 years
recommendation of the appropriate Failure to file the by-laws within the
government agency. required period
Failure to file required reports
NON-AMENDABLE FACTS IN THE
ARTICLES OF INCORPORATION BOARD OF DIRECTORS/TRUSTEES
Those matters referring to facts Qualifications:
existing as of the date of the
incorporation such as:
Names of incorporators;
CHAIRPERSONS
Logistics) Jonathan
97
For a stock corporation, ownership of at in case of labor in case of labor

least 1 share capital stock of the dispute disputes
corporation in his own name, and if he
ceases to own at least one share in his BOARD OF DIRECTORS/TRUSTEES AS
own name, he automatically ceases to REPOSITORY OF CORPORATE POWERS
be a director. (Sec. 23) For a non-stock GENERAL RULE: The corporate powers
corporation, only members of the of the corporation shall be exercised, all
corporation can be elected to seat in the business conducted and all property of
Board of Trustees. such corporation controlled and held by
In order to be eligible as a director, the board of directors or trustees. (Sec.
what is material is the legal title to, not 23)
beneficial ownership of the stocks EXCEPTIONS:
appearing on the books of the In case of an Executive Committee
corporation duly authorized in the by-laws;
A majority of the directors/trustees In case of a contracted manager
must be residents of the Philippines. which may be an individual, a
(Sec. 23) partnership, or another corporation.
He must not have been convicted by Note: In case the contracted
final judgment of an offense punishable manager is another corporation, the
by imprisonment for a period exceeding special rule in Sec. 44 applies.
6 years or a violation of the Corporation In case of close corporations, the
Code, committed within five years from stockholders may manage the
the date of his election. (Sec. 27) business of the corporation instead
Only natural persons can be elected by a board of directors, if the
directors/trustees. articles of incorporation so provide.
In case of corporate stockholders or
members, their representation in the The power to purchase real property
board can be achieved by making their is vested in the board of directors or
individual representatives trustees of the trustees. While a corporation may
shares or membership to make them appoint agents to negotiate for the
stockholders/members of record. purchase of real property needed by
Other qualifications as may be the corporation, the final say will
prescribed in the by-laws of the have to be with the board, whose
corporation. approval will finalize the
Must be of legal age transaction. A corporation can only
exercise its powers and transact its
CORPORATE OFFICERS business through its board of
President – must be a director; directors and through its officers and
Treasurer – may or may not be a agents when authorized by a board
director; as a matter of sound resolution or by its by-laws. (Spouses
corporate practice, must be a Constantine Firme vs. Bukal
resident Enterprises and Development
Secretary – need not be a director unless Corporation, G.R. No. 146608,
required by the by-laws; must be a October, 23, 2003)
resident and citizen of the
Philippines; and LIMITATIONS ON POWERS OF BOARD OR
Such other officers as may be provided in DIRECTORS/TRUSTEES
the by-laws. 1. Limitations imposed by the
Constitution, statutes, articles of
CORPORATE CORPORATE incorporation or by-laws.
OFFICER EMPLOYEE Cannot perform constituent or those
Position is provided Employed by the involving fundamental changes in the
for in the by-laws or action of the corporation requiring the approval of
under the managing officer of
stockholders or members.
Corporation Code the corporation
RTC has jurisdiction NLRC has jurisdiction

Cannot exercise powers not possessed by the duties enjoined on them by law and
the corporation. (The Corporation Code the by-laws (Sec. 25)
of the Philippines Annotated, Hector de 2. Duty of Diligence
Leon, 2002 ed.) Legal Basis: Directors or trustees who
willfully and knowingly vote for or assent
NATURE OF POWERS OF BOARD OF to patently unlawful acts of the
DIRECTORS/TRUSTEES (The Corporation corporation or who are guilty of gross
Code of the Philippines Annotated, negligence or bad faith in directing the
Hector de Leon, 2002 ed.) affairs of the corporation shall be liable
a. Under the Theory of Original Power, jointly and severally for all damages
the powers of the board of directors or resulting therefrom suffered by the
trustees are ORIGINAL and corporation, its stockholders or members
UNDELEGATED. The stockholders or and other persons (Sec. 31)
members do not confer, nor can they 3. Duty of Loyalty
revoke those powers. Legal Basis: Directors or trustees who
b. They are DERIVATIVE only in the sense acquire any pecuniary or personal
of being received from the State in the interest in conflict with their duty as
act of incorporation. such directors or trustees shall be liable
jointly and severally for all damages
BUSINESS JUDGMENT RULE resulting therefrom. (Sec. 31)
A resolution or transaction pursued When a director or trustee
within the corporate powers and attempts to acquire or acquires in
business operations of the corporation, violation of his duty, any interest
and passed in good faith by the board of adverse to the corporation in respect of
directors, is valid and binding, and any matter which has been reposed in
generally the courts have no authority to him in confidence as to which equity
review the same and substitute their imposes a liability upon him to deal in his
own judgment, even when the exercise own behalf, he shall be liable as trustee
of such power may cause losses to the for the corporation and must account for
corporation or decrease the profits of a all the profits which otherwise would
department. (Philippine Corporate Law, have accrued to the corporation (Sec.
Cesar Villanueva, 2001 ed.) 31, 2nd par.)
Where a director, by virtue of his
Consequences: office, acquires for himself a business
a. Resolutions and transactions entered opportunity which should belong to the
into by the Board within the powers of corporation, thereby obtaining profits
the corporation cannot be reversed by which should belong to the corporation,
the courts not even on the behest of the he must account to the latter for all such
stockholders. profits by refunding the same (Sec. 34)
b. Directors and officers acting within
such business judgment cannot be held ELECTION OF DIRECTORS/TRUSTEES
personally liable for such acts. Limitations:
(Philippine Corporate Law, Cesar a. At any meeting of stockholder or
Villanueva, 2001 ed.) members called for the election of
directors or trustees, there must be
THREE-FOLD DUTIES OF DIRECTORS: present either in person or by
(Philippine Corporate Law, Cesar representative authorized to act by
Villanueva, 2001 ed.) written proxy, the owners of the
Duty of Obedience majority of the outstanding capital stock
To direct the affairs of the or majority of the members entitled to
corporation only in accordance with the vote.
purposes for which it was organized. b. The election must be by ballot if
Legal Basis: The directors or trustees requested by any voting member or
and officers to be elected shall perform stockholder.

CHAIRPERSONS
Logistics) Jonathan
99
c. A stockholder cannot be deprived in transfer book of the

the articles of incorporation or in the by- corporation.
laws of his statutory right to use any of
the methods of voting in the election of REMOVAL OF DIRECTORS/TRUSTEES
directors. Limitations:
d. No delinquent stock shall be voted. a. Vote of the stockholders representing
e. The candidates receiving the highest at least 2/3 of the outstanding capital
number of votes shall be declared stock 2/3 of the members entitled to
elected. vote
b. At a regular or special meeting after
METHODS OF VOTING proper notice is given
a. Straight Voting – every stockholder c. Removal may be with or without
may vote such number of shares for as cause.
many persons as there are directors to d. A minority director elected through
be elected. cumulative voting cannot be removed
b. Cumulative voting for one candidate – without cause. (Sec. 28)
a stockholder is allowed to concentrate
his votes and give one candidate, as EXTENT OF POWERS OR AUTHORITY OF
many votes as the number of directors to CORPORATE OFFICERS
be elected multiplied by the number of The authority which he has by virtue of
his shares shall equal. his office;
c. Cumulative voting by distribution - a The authority which is expressly
stockholder may cumulate his shares by conferred upon him or is incidental to
multiplying the number of his shares by the effectualness of such express
the number of directors to be elected authority;
and distribute the same among as many As to third persons dealing with him
candidates as he shall see fit. without notice of any restriction thereof,
the authority which the corporation
LIMITATIONS ON THE STOCKHOLDER’S holds the officer out as possessing or is
RIGHT TO VOTE estopped to deny.
1. Where the articles of The nature of the corporate business
incorporation provides for must also be taken into consideration;
classification of shares and
pursuant to Sec. 6, non-voting The nature act of an officer though
shares are not entitled to originally unauthorized, may become
vote except as provided for in upon the corporation by a subsequent
the last paragraph of Sec. 6. ratification. (The Corporation Code of
2. Preferred or redeemable the Philippines Annotated, Hector de
shares may be deprived of the Leon, 2002 ed.)
right to vote unless otherwise
provided in the Code. It is a familiar doctrine that if a
Fractional shares of stock cannot corporation knowingly permits one of it
be voted. officers, or any other agent, to act
Treasury shares have no voting within the scope of an apparent
rights as long as they remain authority, it holds him out to the public
in the treasury. as possessing the power to do those acts;
Holders of stock declared and thus, the corporation will, as against
delinquent by the board of anyone who has in good faith dealt with
directors for unpaid it through such agent, be estopped from
subscription are not entitled denying the agent’s authority. (LapuLapu
to vote or to a representation Foundation Inc., vs. Court of Appeals, et
at any stockholder’s meeting. al., G.R. No. 126006, January 29, 2004,
A transferee of stock cannot vote Callejo, J.)
if his transfer is not registered
in the stock and PERSONAL LIABILITY OF DIRECTORS

Willfully and knowingly voting for and The corporation has an interest or a
assenting to patently unlawful acts reasonable expectancy.
of the corporation; (Sec. 31) The rule shall be applied
Gross negligence or bad faith in directing notwithstanding the fact that the
the affairs of the corporation; (Sec. director risked his own funds in the
31) venture. (Sec. 34)
Acquiring any personal or pecuniary
interest in conflict of duty; (Sec. 31) Contracts of self-dealing directors
Consenting to the issuance of watered Contracts which are entered into by
stocks, or, having knowledge the corporation with one or more of its
thereof, failing to file objections own directors/trustees, or officers. (Sec.
with the secretary;(Sec. 65) 32)
Agreeing or stipulating in a contract to They are voidable, unless:
hold himself liable with the a) The presence of such
corporation; or director/trustee in the board
By virtue of a specific provision of meeting approving the contract was
law not necessary to constitute a quorum
for such meeting;
DOCTRINE OF DOCTRINE OF The vote of such director/trustee in
LIMITED LIABILITY IMMUNITY the board meeting approving the
contract was not necessary for the
Shields the Protects a approval of the contract;
corporators from person acting for The contract is fair and reasonable under
corporate liability and in behalf of the the circumstances;
beyond their agreed corporation from
In the case of an officer, there was
contribution to the being himself
capital or shareholding personally liable for previous authorization by the board
in the corporation. his authorized of directors.
actions Although not all said conditions are
present, the corporation may elect not
REMEDIES IN CASE OF MISMANAGEMENT to attack or question the validity of the
Receivership; contract, without prejudice, however, to
Injunction, if the act has not yet been the liability of the director/trustee for
done; damages under Sec. 31.
Dissolution if the abuse amounts to a Where any of the first two conditions
ground for quo warranto but the is absent, said contract must be ratified
Solicitor General refuses to act; and by the vote of the stockholders
Derivative suit or complaint filed with representing at least 2/3 of the
SEC. outstanding capital stock or 2/3 of the
members in a meeting called for the
purpose, provided that full disclosure of
SPECIAL RULES ON CONTRACTS the adverse interest of the director/
ENTERED INTO BY trustee involved is made at such
DIRECTORS/TRUSTEES OR OFFICERS: meeting. (Sec. 32)
Doctrine of Corporate Opportunity 3. Contracts of interlocking directors
Unless his act is ratified, a director Contracts entered into between
shall refund to the corporation all the corporations with interlocking directors
profits he realizes on a business (interest of said directors is
opportunity which: “substantial”, i.e. exceeding 20% of the
The corporation is financially able to outstanding capital stock).
undertake; They are valid, provided that:
From its nature, is in line with The contract is not fraudulent; and
corporations business and is of The contract is fair and reasonable
practical advantage to it; and under the circumstances.

CHAIRPERSONS
Logistics) Jonathan
101
If the interlocking director’s interest

in one corporation or corporations is IV. POWERS OF THE CORPORATION
“nominal” (not exceeding 20% of the Express Powers - granted by
outstanding capital stock), then all the law, Corporation Code, and its
conditions prescribed in Sec. 32 on self- Articles of Incorporation or
dealing directors must be present with Charter
respect to the corporation in which he Inherent/Incidental Powers – not
has nominal interest. (Sec. 33) expressly stated but are deemed
to be within the capacity of
COMPENSATION OF DIRECTORS OR corporate entities
TRUSTEES Implied/Necessary Powers –
General Rule: They shall be entitled to exists as a necessary
reasonable per diems only Except: consequence of the exercise of
the express powers of the
a. when their compensation is fixed in corporation or the pursuit of its
the by-laws purposes as provided for in the
b. when granted by the vote of Charter
stockholders representing at least a Classification:
majority of the outstanding capital stock Acts in the usual course of business
at a regular or special meeting Acts to protect debts owing to the
c. when they are also officers of the corporation
corporation Acts which involve embarking in a
different business usually to collect
EXECUTIVE COMMITTEE debts out of profits
A body created by the by-laws and Acts to protect or aid employees
composed of some members of the board Acts to increase business (The
which, subject to the statutory Corporation Code of the Philippines
limitations, has all the authority of the Annotated, Hector de Leon, 2002 ed.)
board to the extent provided in the
board resolution or by-laws. (The GENERAL POWERS AND CAPACITY (Sec.
Corporation Code of the Philippines 36)
Annotated, Hector de Leon, 2002 ed.) To sue and be sued;
Must be provided for in the by laws Of succession;
and composed of not less than 3 To adopt and use of corporate seal;
members of the board appointed by the To amend its Articles of Incorporation;
board. To adopt its by-laws;
May act by a majority vote of all of its For stock corporations: issue and sell
members. stocks to subscribers and treasury
stocks; for non-stock corporations:
admit members;
To purchase, receive, take or grant,
hold, convey, sell, lease, pledge,
mortgage and deal with real and
Limitations on the Powers of the personal property, securities and
Executive Committee (Sec. 35) bonds
It cannot act on the following: To enter into merger or consolidation;
1. Matters needing stockholder To make reasonable donations for public
approval; welfare, hospital, charitable,
Filling up of board vacancies; cultural, scientific, civic or similar
Amendment, repeal or adoption of by- purposes, provided that no donation
laws; is given to any (i) political party, (ii)
Amendment or repeal of any resolution candidate and (iii) partisan political
of the Board which by its express activity.
terms is not amendable or
repealable; and
Cash dividend declaration.

To establish pension, retirement, and b. By increasing/decreasing the par value

other plans for the benefit of its of existing shares without
directors, trustees, officers and increasing/decreasing the number of
employees. shares;
To exercise other powers essential or c. By increasing/decreasing the number
necessary to carry out its purposes. of shares and increasing/decreasing the
par value.
SPECIAL/SPECIFIC POWERS (Secs. 37- TOOLS AVAILABLE TO THE
44) STOCKHOLDERS TO REPLENISH CAPITAL
1. Power to extend a. Additional subscription to shares of
or shorten corporate term; stock of the corporation by stockholders
2. Increase or or by investors;
decrease corporate stock; b. Advances by the stockholders to the
3. Incur, create, or corporation;
increase bonded indebtedness; c. Payment of unpaid subscription by the
4. Sell, dispose, stockholders; and
lease, encumber all or substantially d. Loans from third persons.
all of corporate assets; 3.Incur, create or increase bonded
5. Purchase or indebtedness
acquire own shares provided: Corporate bond – an obligation to pay
a.there is an unrestricted a definite sum of money at a future time
retained earnings, and at fixed rate of interest
b. it is for a legitimate purpose.
6. Invest corporate BONDED DEBENTURE
funds in another corporation or INDEBTEDNESS
business for other purpose other Secured by aSerial obligations
than primary purpose; mortgage on or notes issued on
7. Power to declare corporate property. . the basis of the
dividends out of unrestricted (Philippine general credit of the
retained earnings; Corporate Law, corporation. Hence,
8. Enter into Cesar Villanueva, they are not bonded
management contract with another 2001 ed.) indebtedness
corporation (not with an individual
Sell, dispose, lease, encumber all or
or a partnership-within general
substantially all of corporate assets;
powers) whereby one corporation
No ratificatory vote needed:
undertakes to manage all or
a. If it is necessary in the usual and
substantially all of the business of
regular course of business
the other corporation for a period
b. if the proceeds of the sale or other
not longer than 5 years for any one
disposition of such property and assets
term.
be appropriated for the conduct of the
remaining business
CORPORATE ACTS (see ANNEX for
Power to acquire own shares
procedure and requisites)
Instances:
Power to extend or shorten corporate
a. To eliminate fractional shares out of
term
stock dividends
May be used as means to voluntarily
b. To collect or compromise an
dissolve a corporation
indebtedness to the corporation, arising
Power to increase or decrease capital
out of unpaid subscription, in a
stock delinquency sale and to purchase
delinquent shares sold during said sale c.
WAYS OF INCREASING/DECREASING To pay dissenting stockholders d. To
THE CAPITAL STOCK acquire treasury shares
a. By increasing/decreasing the number e. Redeemable shares regardless of
of shares and retaining the par value; existence of retained earnings
f. To effect a decrease of capital stock
CHAIRPERSONS
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103
g. In close corporations, when there is a c. When it can be clearly shown that

deadlock in the management of the such retention is necessary under special
business circumstances obtaining in the
Note: In letters a- c, there must be corporation, such as when there is a
unrestricted retained earnings need for special reserve for probable
Invest corporate funds in another contingencies.
corporation or business for other purpose Sources of dividends:
other than primary purpose GENERAL RULE: Dividends can only be
The other purposes for which the declared and paid out of actual and bona
funds may be invested must be among fide unrestricted retained earnings.
those enumerated as secondary purposes SPECIAL RULES:
and must further comply with the a. Where a corporation sold its real
requirements of Section 42. property, which is not being used for
Power to declare dividends out of business, at a gain, the income derived
unrestricted retained earnings therefrom may be availed of for
RETAINED EARNINGS = ASSETS – dividend distribution.
LIABILITIES AND LEGAL CAPITAL b. Increase in the value of a fixed asset
“UNRESTRICTED” – if the retained as a result of its revaluation is not
earnings have not been reserved or set retained earning. However, increase in
aside by the board of directors for some the value of fixed assets as a result of
corporate purpose revaluation (“Revaluation surplus”)
DIVIDENDS may be declared as cash or stock
Corporate profits set aside, declared, dividends provided that the company:
and ordered to be paid by the directors Has sufficient income from
for distribution among shareholders at a operations from which the
fixed time. depreciation on the appraisal increase
Forms: was charged
Cash Has no deficit at the time the
Property depreciation on the appraisal increase
Stock was charged to operations; and
While cash dividends due on Such depreciation on appraisal
delinquent shares can be applied to the increase previously charged to
payment of the unpaid balance, stock operations has not been impaired by
dividends cannot be applied as payment losses.
for unpaid subscription. Dividends can be declared out of the
The right to dividends is based on duly amount received in excess of the par
recorded stockholdings; accordingly, value of shares (“paid-in surplus”)
the corporation is prohibited from when:
That they be declared only as stock
entitling thereto anyone else.
dividends and not cash;
No creditors are prejudiced; and
General Rule: Stock corporations are
prohibited from retaining surplus profits There is no impairment of capital.
in excess of 100% of their paid-in capital Note that unlike par value
stock shares, when no par value shares
are sold at a premium, the entire
Except:
consideration paid is considered
a. When justified by definite corporate
capital; hence the same cannot be
expansion projects approved by the
declared as dividends.
board of directors
Reduction surplus can be a source of
b. When the corporation is prohibited
dividends. Rule on paid-in surplus is
under any loan agreement with any
applicable.
financial institution or creditor from
No dividends can be declared out of
declaring dividends without its/his
capital except only in two instances: 1)
consent and such consent has not yet
liquidating dividends; and 2) dividends
been secured

from investments in wasting asset TRUST FUND DOCTRINE (TFD)

corporation. The subscribed capital stock of the
It permits corporations solely or corporation is a trust fund for the
principally engaged in the exploitation payment of debts of the corporation
of “wasting assets” to distribute the which the creditors have the right to
net proceeds derived from look up to satisfy their credits, and
exploitation of their holdings such as which the corporation may not dissipate.
mines, oil wells, patents and The creditors may sue the stockholders
leaseholds, without allowance or directly for the latter’s unpaid
deduction for depletion. subscription.
Profits realized from sale of treasury Application of the TFD:
shares are part of capital and cannot Where the corporation has distributed its
be declared as cash or stock dividend capital among the stockholders
as purchase and sale of such shares are without providing for the payment of
regarded as contractions and creditors;
expansions of paid-in capital. Where it had released the subscribers to
Money cannot be borrowed for the the capital stock from their
payment of dividends because subscriptions;
indebtedness is not a retained earning Where it has transferred the corporate
of the corporation. property in fraud of its creditors; and
Corporate earnings which have not yet Where the corporation is insolvent.
been received even though they Coverage of the TFD:
consist in money which is due, cannot If the corporation is solvent, the TFD
be included in the profits out of which extends to the capital stock represented
dividends may be paid. by the corporation’s legal capital.
If the corporation is insolvent, the TFD
CASH DIVIDENDS STOCK extends to the capital stock of the
DIVIDENDS corporation as well as all of its property
1. Involves a 1. Does not involve and assets.
disbursement to the any disbursement Exceptions to the TFD:
stockholders of
accumulated earnings
Redemption of redeemable shares (Sec.
When declared and 2. Since it is still paid 8)
becomes the part of corporate absolute In close corporation, when there should
property of property, may be be a deadlock and the SEC orders the
the stockholder and reached by payment of the appraised value of the
cannot be reached by corporate creditors stockholder’s share. (Sec. 104)
creditors of the
corporation in the Power to enter into management
absence of fraud contract
3. Declared only by 3. Declared by the
the board of directors board with the
EXECUTIVE MANAGEMENT
at its discretion concurrence of the
stockholders COMMITTEE CONTRACT
representing at
least 2/3 of the 1. Its creation must 1. Express power of
outstanding capital be provided for in a corporation
stock at a the by-laws
regular/special 2. A governing body 2. Management
meeting
4. Does not increase 4. Corporate which functions as company must
the corporate capital capital is increased the board itself. always be subject to
(The Corporation the superior power
Its declaration 5. No debt is
Code of the of the board to give
creates a debt from created by its
Philippines specific directions
the corporation to declaration
Annotated, Hector from time to time or
each of its
de Leon, 2002 ed.) to recall the
stockholders

CHAIRPERSONS
Logistics) Jonathan
105
delegation of d. Executory contracts apparently

managerial power. authorized but ultra vires – the
(The Corporation principle of estoppel shall apply.
Code of the ULTRA VIRES ACTS AND ILLEGAL ACTS
Philippines
Ultra vires (“beyond powers”) refers
Annotated, Hector
de Leon, 2002 ed.) only to an act outside or beyond
corporate powers, including those that
may ostensibly be within such powers but
ULTRA VIRES (“beyond powers”) ACT are, by general or special laws, either
An act which is beyond the conferred prohibited or declared illegal. It is in
powers of a corporation or the purposes this context that the Code has used the
or objects for which it is created as term.
defined by the law of its organization.
(Republic vs. Acoje Mining Co., Inc. 7 ULTRA VIRES ACTS ILLEGAL ACTS
SCRAS 361) Not necessarily Unlawful; against
unlawful, but outside law, morals, public
An act done by a corporation outside
the powers of the policy, and public
of the express and implied powers corporation order
vested in it by its charter and by the Can be ratified Cannot be ratified
law. (Bar Review Materials in Can bind the parties Cannot bind the
Commercial Law, Jorge Miravite, 2002 if wholly or partly parties
ed.) executed
Types: (Philippine Corporate Law,
Cesar Villanueva, 2001 ed.) TEST whether or not a corporation
Acts done beyond the powers of may perform an act: consider the logical
the corporation as provided in and necessary relation between the act
the law or its articles of questioned and the corporate purpose
incorporation; expressed by law or in the charter. If the
Acts or contracts entered into in act is lawful in itself and not prohibited,
behalf of a corporation by and is done for the purpose of serving
persons who have no corporate corporate ends, and reasonably
authority (Note: This is contributes to the promotion of those
technically ultra vires acts of ends in a substantial and not in a remote
officers and not of the and fanciful sense. (Montelibano vs.
corporation); and Bacolod-Murcia Milling Co., Inc., 5 SCRA
Acts or contracts, which are per se 36)
illegal as being contrary to law.
An ultra vires act may be that of: REMEDIES IN CASE OF ULTRA VIRES
The corporation; ACTS
The Board of Directors; and State
The corporate officers. a. Obtain a judgment of forfeiture; or
Effects of ultra vires act on: b. The SEC may suspend or revoke the
Executed contract – courts will not certificate of registration
set aside or interfere with such Stockholders a.
contracts; Injunction; or b.
Executory contracts – no Derivative suit
enforcement even at the suit of Creditors
either party (void and a. Nullification of contract in fraud of
unenforceable); creditors
Part executed and part executory
– principle of “no unjust enrichment V. BY-LAWS
at expense of another” shall apply; Rules of action adopted by a
and corporation for its internal government
and for the regulation of conduct and
prescribe the rights and duties of its
stockholders or members towards itself

and among themselves in reference to b. Time and manner of calling and

the management of its affairs. conducting regular or special meetings of
the stockholder or members
Functions: c. The required quorum in meeting of
a. Supplement the articles of stockholders or members and the manner
incorporation of voting therein
b. Provide for details not important d. The form for proxies of stockholders
enough to be stated in the articles of and members and the manner of voting
incorporation them
c. Continuing rule for the government of e. The qualification, duties and
the corporation and the individuals compensation of directors or trustees,
composing it officers and employees
d. Define the rights and duties of f. Time for holding the annual election of
corporate officers and directors/trustees directors or trustees and the mode or
and of stockholders/members towards manner of giving notice thereof
the corporation and among themselves g. Manner of election or appointment
e. Source of authority for corporate and the term of office of all officers
officers and agents of the corporation other than directors or trustees
Requisites for validity: h. Penalties for violation of the by-laws
Must not be contrary to law nor with i. In case of stock corporations, the
the Corporation Code manner of issuing certificates
Must not be contrary to morals and j. Such other matters as may be
public policy; necessary for the proper or convenient
Must not impair obligations and transaction of its corporate business and
contracts; affairs
Must be general and uniform;
Must be consistent with the charter ARTICLES OF BY-LAWS
or articles of incorporation; and INCORPORATION
Must be reasonable, not arbitrary or Condition precedent in Condition
oppressive. the acquisition of subsequent; its
corporate existence; absence merely
Binding effect:
furnishes a ground
a. As to members and corporation for the revocation of
They have the force of contract the franchise
between the members themselves. Essentially a contract For the internal
They are binding only upon the between the government of the
corporation and on its members and corporation and the corporation but has
those having direction, management and stockholders/ the force of a
control of its affairs. members; between contract between
b. As to third persons the stockholders/ the corporation and
member inter se, and the stockholders/
They are not bound to know the by- between the members, and
laws which are merely provisions for the corporation and the between the
government of a corporation and notice State; stockholders and
to them will not be presumed. members;
Reason: By-laws have no extra- Executed before May be executed
corporate force and are not in the incorporation after incorporation.
nature of legislative enactments so far Sec. 46 allows the
as third persons are concerned. filing of the by-laws
simultaneously with
the Articles of
CONTENTS OF BY-LAWS
Incorporation
a. Time, place and manner of calling and Amended by a May be amended by
conducting regular or special meetings majority of the a majority vote of
of directors or trustees directors/ trustees the BOD and
and stockholders majority vote of
representing 2/3 of outstanding capital
the outstanding stock or a majority
CHAIRPERSONS
Logistics) Jonathan
107
capital stock, or 2/3 of the member in such person to exercise the voting rights
of the members in non-stock of the former.
case of non-stock corporation Unless otherwise provided in the proxy,
corporations it shall be valid only for the meeting for
Power to Power to amend or which it is intended.
amend/repeal articles repeal by-laws or
cannot be delegated adopt new by-laws
No proxy shall be valid and effective for
by the stockholders/ may be delegated a longer period than five years at any
members to the board by the 2/3 of the one time. (Sec. 58)
of directors/ trustees outstanding capital The right to vote by proxy may be
stock or 2/3 of the exercised in any of the following
members in the instances:
case of non-stock Election of the board of directors or
corporation trustees;
Voting in case of joint ownership of
VI. MEETINGS stock;
Voting by trustee under voting trust
STOCKHOLDERS/MEMBERS MEETING agreement;
Pledge or mortgage of shares;
WHEN: As provided for in its by-laws.
REGULAR - held on the date fixed in Note: Stockholders or members may
the by-laws or if not fixed on any attend and vote in their meetings by
date in April;and proxy (Sec. 58); directors cannot do so.
SPECIAL - held at any time deemed Directors must always act in person.
necessary or as so provided in the (Sec. 25).
by-laws. EXTENT OF AUTHORITY
WHERE: a. GENERAL PROXY – confers a general
In the city or municipality where the discretionary power to attend and vote
principal office of the corporation is at annual meeting.
located, and if practicable, in the b. LIMITED PROXY – restrict the authority
principal office of the corporation. to vote to specified matters only and
However, in the case of non-stock may direct the manner in which the vote
corporations, the by-laws may shall be cast
provide that meetings may be held
at any place even outside the VOTING TRUST
principal place of the corporation. An agreement whereby one or more
(Sec. 93) stockholders transfer their shares of
stocks to a trustee, who thereby acquires
BOARD MEETING (Sec. 53) for a period of time the voting rights
WHEN: (and/or any other rights) over such
REGULAR - held monthly, unless shares; and in return, trust certificates
otherwise provided in the by-laws; are given to the stockholder/s, which are
and transferable like stock certificates,
SPECIAL - held at any time upon the subject, however, to the trust
call of the president. agreement.
WHERE: Limitations:
May be held anywhere in or outside of a. Cannot be entered into for a period
the Philippines. exceeding 5 years at any one time
except when it is a condition in a loan
PROXY agreement or for the purpose of
Limitations: circumventing the law against
It must be in writing and signed by the monopolies and illegal combinations
stockholder or member (as principal) and b. The agreement must not be used for
filed before the scheduled meeting with purposes of fraud
the corporate secretary, and given to c. It must be in writing and notarized and
another person (as agent) authorizing specify the terms and conditions thereof

d. A certified copy of the agreement still to be formed shall be deemed a

must be filed with the corporation and subscription. (Sec. 60)
with the SEC The subscribed shares need not be
e. The agreement shall be subject to paid in full in order that the subscription
examination by any stockholder of the may be valid. The subscription contract
corporation is a consensual contract that is perfected
f. Unless expressly renewed, all rights upon the meeting of the minds of the
granted in the agreement shall parties. The name of the subscriber is
automatically expire at the end of the recorded in the stock and transfer book,
agreed period and from that time, such subscriber
becomes a stockholder of record entitled
VOTING TRUSTS PROXY to all the rights of a stockholder. Until
The trustee votes as The proxy holder the stocks are fully paid, it continues to
owner rather than as votes as agent be a subsisting liability that is legally
mere agent enforceable.
The trust may vote in The proxy must vote
person or by proxy in person
unless the agreement In Ong Yong, et.al, vs. David Tiu, the
provides otherwise Court did not allow the rescission of the
Pre-Subscription agreement since the
Trustee acquires Proxy has no legal
action was filed by the Tius in their
legal title to the title to the shares of
shares of the the principal personal capacities. It ruled that it was
transferring the corporation who had the legal
stockholder personality to file the suit, it being the
The agreement must Proxy need not be real party in interest.
be notarized notarized
The agreement is Revocable anytime UNDERWRITING AGREEMENT
irrevocable except one with An agreement between a corporation
interest and a third person, termed the
Trustee is not limited Proxy can only act at “underwriter”, by which the latter
to act at any a specified
agrees, for a certain compensation, to
particular meeting stockholder’s
meeting (if not
take a stipulated amount of stocks or
continuing) bonds, specified in the underwriting
A trustee can vote A proxy can only vote agreement, if such securities are not
and exercise all the in the absence of the taken by those to whom they are first
rights of the owners of the stock offered.
stockholder even
when the latter is UNDERWRITING STOCK
present AGREEMENT SUBSCRIPTION
An agreement must A proxy is usually of AGREEMENT
not exceed 5 years at shorter duration
The signers obligate The obligation of the
any one time except although under Sec.
themselves to take signer to the
when the same is 58 it cannot exceed 5
the shares of stock purchasers and to
made a condition of years at any one time
which cannot be the public is
a loan.
sold. absolute.
The voting right is The right to vote is
Underwriters are There is no
divorced from the inherent in or
given commission. commission.
ownership of stocks inseparable from the
The signer can He becomes a
right to ownership of
refuse to become a stockholder of the
stock
stockholder/ company and is liable
member of the to pay the amount
VII. STOCKS AND STOCKHOLDERS company. due on the stock.
SUBSCRIPTION CONTRACT - any contract

for the acquisition of unissued stock in an STOCK OPTION
existing corporation or a corporation A privilege granted to a party to
subscribe to a certain portion of the
CHAIRPERSONS
Logistics) Jonathan
109
unissued capital stock of a corporation a. Necessary or proper in

within a certain period and under the carrying on the
terms and conditions of the grant corporate business
exercisable by the grantee at any time b. Ascertainable pecuniary
within the period granted. value
WARRANT c. Capable of being
A type of security which entitles the transferred and applied
holder the right to subscribe to, the to payment of debts
unissued capital stock of a corporation or Labor or services actually rendered to
to purchase issued shares in the future, the corporation;
evidenced by a Warrant Certificate, Previously incurred corporate
whether detachable or not, which may be indebtedness;
sold or offered for sale to the public. Amounts transferred from unrestricted
retained earning to stated capital,
PRE-INCORPORATION SUBSCRIPTION Outstanding shares in exchange for
AGREEMENTS (PISA) stocks in the event of reclassification
Subscription of shares of stock of a or conversion.
corporation still to be formed shall be Note: Shares of stock shall not be issued
irrevocable for a period of at least 6 in exchange for promissory notes or
months from date of subscription, future services. Note that there is no
unless: prohibition on the use of checks, bills or
All of the other subscribers notes in payment of the “cash”
consent to the revocation; consideration.
The incorporation of said
corporation fails to materialize SHARES OF STOCK
with said period or within a Interest or right which owner has in
longer period as may be the management of the corporation, and
stipulated in the contract of its surplus profits, and, on dissolution, in
subscription; provided that no all of its assets remaining after the
pre-incorporation subscription payment of its debt.
may be revoked after the
submission of the articles of CERTIFICATE OF STOCK
incorporation to the SEC. (Sec. The document evidencing the
61) ownership of shares of stocks by a
stockholder and the full payment of its
MODES OF ISSUANCE OF SHARES issue or subscription price.
a. By subscription before and after It is not essential to the ownership
incorporation to original, unissued stock and/or existence of the share of stock.
b. By sale of treasury stock after Where the certificate of stock reflects a
incorporation for money, property or greater volume of shares than the actual
service number of shares issued or to be issued,
c. By subscription to new issues of stock the following rules may be considered:
in case of an increase in the capital
stock To the extent that there is an
d. By making a stock dividend overissue, the excess issuance (over
the authorized capital stock or the
VALID CONSIDERATIONS IN stated capital) shall be void as being
SUBSCRIPTION AGREEMENT (Sec. 62) ultra vires.
Cash actually received; If there is no overissue, but no
Property, tangible or intangible, actually payment has been made to cover the
received AND necessary or par or stated value of the excess
convenient for its use and lawful shares, the latter would constitute
purposes; “watered” stocks.
Requisites; If there is no overissue and watering
of stocks, the corporation

may be bound to honor the certificate certificate in favor of the transferee and
(if duly signed and released by its cancel the former certificate.
authorized officers) in the hands of a Only absolute transfers need be
holder in good faith, reserving a right registered. The pledge or mortgage itself
of recourse that an aggrieved party need not be recorded in the stock and
may pursue against the culpable or transfer book, but a chattel mortgage
unjustly enriched party. must comply with the Chattel Mortgage
Law, and a pledge would require the
shares to be placed in the possession of
the creditor/pledgee. The agreement
CAPITAL STOCK SHARES OF STOCK must appear in a public instrument to
Amount paid in or Interest or right take effect against third persons.
secured to be paid which the (Chemphil vs. CA, 251 SCRA 257)
in by the stockholder has in
stockholders upon the management of EFFECTS OF UNREGISTERED TRANSFER
which the the corporation, and
OF SHARES
corporation is to its surplus profits,
conduct its and upon a a. It is valid and binding as between the
operation. It is the dissolution, in all of transferor and the transferee
property of the its assets remaining b. It is invalid as to the corporation
corporation itself after payment of except when notice is given to the
(monetary value). corporate debts. corporation for purposes of registration
c. It is invalid as against corporate
SHARES OF STOCK CERTIFICATE OF creditors and the transferor is still liable
STOCK to the corporation
Unit of interest in a Evidence of the d. It is invalid as to the attaching or
corporation holder’s ownership executing creditors of the transferor, as
of the stock and of well as subsequent purchasers in good
his right as a faith without notice of the transfer.
shareholder
Incorporeal or Concrete and ISSUANCE OF CERTIFICATE OF STOCK
intangible property tangible
No certificate of stock shall be issued
May be issued by the May be issued only if
corporation even if the subscription is
until the full amount of the subscription
the subscription is fully paid. is paid. Basis: Doctrine of Individuality
not fully paid. of Subscription that espouses that the
subscription is one, entire, indivisible,
and whole contract, which cannot be
REQUIREMENTS FOR TRANSFER OF divided into portions. (SEC Opinion)
STOCK
a. In case of shares covered by a COLLECTION OF UNPAID SUBSCRIPTION
certificate, the indorsement of the Voluntary payment
owner or his agent coupled with delivery Upon the date specified in the
is essential subscription contract
b. Where no certificate has been issued Upon call by the Board of Directors
or for some reason it is not in the Involuntary payment
possession of the stockholder, it may be Extra-judicial
transferred by means of a deed of Delinquency sale
assignment duly recorded in the books of Application of dividends
the corporation Judicial action
c. To be valid against the corporation Note: The prescriptive period in case of
and third persons, the transfer must be subscription of shares begins to run only
recorded in the stock and transfer book from the time the board of directors
d. The transferee must present the declares that the balance are due and
indorsed certificate to the corporate payable. It does not begin to run from
secretary who shall effect the transfer in
the corporate books, issue a new stock

CHAIRPERSONS
Logistics) Jonathan
111
the date of the subscription. (Garcia vs. No delinquency stock shall be voted
Suarez, 67 Phil. 441) for or be entitled to vote or
representation at any stockholders
DELINQUENCY meeting, nor shall the holder be entitled
If the subscription contract fixes the to any of the rights of a stockholder
date for payment, failure to pay on except the right to dividends in
such date shall render the entire accordance with the provisions of this
balance due and payable with Code until and unless he pays the
interest. Thirty days therefrom, if amount due on his subscription with
still unpaid, the shares become accrued interest, and the cost and
delinquent, as of the due date, and expenses of advertisement, if any. (Sec.
subject to sale, unless the board 71)
declares otherwise.
If no date is fixed in the subscription
contract, the board of directors can
make the call for payment, and PROCEDURE FOR THE SALE OF
specify the due date. The notice of DELINQUENT STOCKS (Sec. 68)
call is mandatory. The failure to pay 1. Call by resolution demanding
on such date shall render the entire payment of the balance. However, if
balance due and payable with the contract of subscription
interest. Thirty days therefrom, if prescribes the date of payment, no
still unpaid, the shares become call is necessary.
delinquent, as of the date of call, Notice of the board resolution given to
and subject to sale, unless the board the stockholders by the corporate
declares otherwise. (Sec. 67) secretary, either personally or by
registered mail. Publication of notice
Effect: of call is not required.
A. Upon the stockholder Failure of the stockholder to pay within a
Accelerates the entire amount of grace period of 30 days from the
the unpaid subscription; date specified in the contract of
Subjects the shares to interest, subscription or in the call, the stocks
expenses and costs; shall be declared delinquent and
Disenfranchises shall be subject to sale.
the shares from any right that Notice of delinquency served on the
inheres to a shareholder, except subscribers either personally or
the right to dividends (but which registered mail and publication in a
shall be applied to any amount newspaper of general circulation in
due on said shares or, in the the province or the city where
case of stock dividends, to be principal office is located for once a
withheld by the corporation until week for 2 consecutive weeks.
full payment of the delinquent Notice shall state the amount due on
shares. (Sec. 43) each subscription plus accrued
Upon the director owning delinquent interest, and the date, time and
shares place of the sale which shall not be
He can continue serving in that capacity less than 30 days nor more than 60
unless and until said shares are totally days from the date the stocks
bidded away, he continues to be the become delinquent.
owner thereof and in the interim he is Sale of the delinquent shares at public
not disqualified. auction.
A delinquent stockholder seeking to be
elected as director may not be a HIGHEST BIDDER IN A DELINQUENCY
candidate for, nor be duly elected to, SALE
the board. a. The person participating in the
delinquency sale who offers to pay the full
amount of the balance of the subscription
together with the accrued interest, costs

of advertisement and expenses of sale, Right to remove directors

for the smallest number of shares. In PROPRIETARY RIGHTS
other words, the amount of the bid does Right to dividends;
not vary but only the number of shares to Right to issuance of stock certificate
be bought changes and determines the for fully paid shares;
highest bidder. Proportionate participation in the
b. If there is no bidder as mentioned distribution of assets in
above, the corporation may bid for the liquidation;
same, and the total amount due shall be Right to transfer of stocks in
credited as paid in full in the books of corporate books;
the corporation. Such shares shall be Right to recover stocks unlawfully
considered as treasury shares. sold for delinquent payment of
subscription
PROCEDURE FOR ISSUANCE OF NEW Preemptive right
CERTIFICATE OF STOCK IN LIEU OF PREEMPTIVE RIGHT OF STOCKHOLDERS
LOST, STOLEN OR DESTROYED ONES It is the shareholders’ preferential
(Sec. 73) right to subscribe to all issues or
Filing with the corporation an affidavit in dispositions of shares of any class in
triplicate by the registered owner proportion to their present
setting forth the circumstances as to stockholdings.
how the certificate was lost, stolen or Purpose: to enable the shareholder to
destroyed, the number of shares, serial retain his proportionate control in the
number of the certificate and the name corporation and to retain his equity in
of the corporation that issued the same. the surplus.
Publication of notice of loss by the Extends to treasury shares in case of
corporation in a newspaper of general their reissuance.
circulation in the place of the principal If the shares preferentially offered to
office, once a week for 3 consecutive a stockholder are not subscribed or
weeks. purchased by him, it does not follow that
After the lapse of 1 year from the date said shares shall again be re-offered on a
of the last publication, if no contest has pro rata basis to stockholders who
been presented, the corporation shall already exercised their preemptive
cancel in its books the certificate of rights. There is no preemptive right with
stock, which has been lost, stolen or respect to the share to be re-offered.
destroyed, and issue in lieu thereof a
In case additional issues of originally
new certificate of stock.
authorized shares:
However, if the registered owner
GENERAL RULE: There is no
files a bond or other securities as may be
preemptive right. This is on the theory
necessary to the board, the new
that when a corporation at its inception
certificate of stock may be issued even
offers its first shares, it is presumed to
before the expiration of one (1) year
have offered all of those which it is
period.
authorized to issue.
The prescribed procedure does not
EXCEPTION: When a corporation at its
apply to a case where the
inception offers only a specified portion
certificates are in the company’s
of its authorized capital stock for
possession when mislaid which
subscription. If subsequently, it offers
thereby obligates the corporation,
the remaining unsubscribed portion,
not the stockholder, to suffer the
there would be preemptive right as to
consequences. (SEC Opinion)
the remaining portion thus offered for
subscription.
RIGHTS OF STOCKHOLDERS (Pandect of
When pre-emptive right not available:
Commercial Law and
a. When denied by the article of
Jurisprudence, Justice Jose Vitug,
incorporation
1997 ed.)
b. Shares requiring stock offering or
MANAGERIAL RIGHTS a.
minimum stock ownership by the public
Voting rights; and
CHAIRPERSONS
Logistics) Jonathan
113
c. Shares to be issued in good faith with management to sue unless such a

the approval of the stockholders demand would be futile
representing 2/3 of the outstanding The stockholder/member must
capital stock, in exchange for property be such at the time of the
needed for corporate purposes or in objectionableactsor
payment of a previously contracted debt transactions unless the
transactions are continuously
PRE-EMPTIVE RIGHT vis-à-vis RIGHT OF injurious
FIRST REFUSAL (Philippine Corporate The action must be brought in
Law, Cesar Villanueva, 2001 ed.) the name of the corporation The
PRE-EMPTIVE RIGHT OF FIRST number of shares of the
RIGHT REFUSAL stockholder is immaterial since
May be exercised Arises only by virtue he is not suing in his own behalf
even when there is of contractual Note: The mere trustee of shares
no express provision stipulations but is registered in his name cannot file
of law also granted under a derivative suit for he is not a
the provisions on stockholder in his own right.
Close Corporation
(Bitong vs. CA, 292 SCRA 304)
Pertains to Exercisable against
unsubscribed another stockholder
portion of the of the corporation of
authorized capital his shares of stock LIABILITIES OF STOCKHOLDERS
stock. A right that a. Liability to the corporation for unpaid
may be claimed subscription
against the Liability to the corporation for interest
corporation on unpaid subscription
Liability to creditors of the corporation
REMEDIAL RIGHTS on the unpaid subscription
Individual suit – a suit instituted by a Liability for watered stock
shareholder for his own behalf Liability for dividends unlawfully paid
against the corporation; Liability for failure to create corporation
Representative suit – a suit filed by a
shareholder in his behalf and in VIII. CORPORATE BOOKS AND RECORDS
behalf likewise of other INSPECTION RIGHTS
stockholders similarly situated Limitations:
and with a common cause The right must be exercised
against the corporation; and during reasonable hours on
Derivative suit – a suit filed in behalf business days;
of the corporation by its The person demanding the right
shareholders (not creditors has not improperly used
whose remedies are merely nayinformationobtained
subsidiary such as accion through any previous
subrogatoria and accion examination of the books and
pauliana) upon a cause of action records of the corporation; and
belonging to the corporation, The demand is made in good
but not duly pursued by it, faith or for a legitimate purpose.
against any person or against the (Sec. 74)
directors, officers and/or The right extends, in consonance with
controlling shareholders of the equity, good faith, and fair dealing, to a
corporation. foreign subsidiary wholly-owned by the
Requisites: corporation.
An existing cause of action in Books required to be kept by the
favor of the corporation corporation:
The stockholder/member must Book of Minutes
first make a demand upon the minutes of stockholder or members
corporation or the meetings; and

b. minutes of board meetings. subject to all the duties and liabilities of

Book of all business transactions; a corporation;
3. Stock and transfer book, in The surviving or consolidated corporation
case of stock corporations. shall thereafter possess all the rights,
Corporate records required by the SEC privileges, immunities and franchises of
to be kept and/or registered: each of the constituent corporations;
Books of Account; All property, real or personal, and all
List of Stockholders or Members; receivables due to, and all other interest
and of each constituent corporation, shall be
Financial Records. deemed transferred to and vested in
such surviving or consolidated
IX. MERGER AND CONSOLIDATION corporation without further act or deed;
MERGER CONSOLIDATION The surviving or consolidated corporation
A union wherebyThe union of two shall be responsible for all the liabilities
one or more existing or more existing and obligations of each of the
corporations are corporations to form constituent corporations;
absorbed by another a new corporation Any claim, action or proceeding pending
corporation which called the by or against any of the constituent
survives and consolidated corporations may be prosecuted by or
continues the corporation. against the surviving or consolidated
combined business. corporations; and
The rights of the creditors or lien upon
the property of any of each constituent
PROCEDURE: corporation shall not be impaired by such
a. The board of directors or trustees of merger or consolidation.
each corporation shall approve a plan of
merger or consolidation GENERAL RULE: When one corporation
b. The plan shall be submitted for
buys all the shares of another
approval by the stockholders or members
corporation, this will not operate to
of each of such corporation at separate
dissolve the other corporation and as the
corporate meetings duly called for the
two corporations still maintaining their
purpose
separate corporate entities, one will not
c. The articles of merger or
answer for the debts of the other.
consolidation shall be executed by each
EXCEPTIONS AS TO NON-ASSUMPTION
of the constituent corporations
OF LIABILITIES:
d. Submission to the SEC for approval
If there is an express assumption of
e. The SEC may or may not conduct a
liabilities;
hearing
If there is a consolidation or merger;
f. Issuance of certificate of merger or
If the purchase was in fraud of creditors;
consolidation by the SEC
and
If the purchaser is merely a continuation
EFFECTS OF MERGER OR
CONSOLIDATION (Sec. 80) of the seller.
The constituent corporations shall
DE FACTO MERGER
become a single corporation which, in
case of merger shall be the surviving One corporation acquiring all or
corporation and, in the case of substantially all of the properties of
consolidation, shall be the consolidated another corporation in exchange for
corporation; shares of stock of the acquiring
The separate existence of the corporation. The acquiring corporation
constituent corporation shall cease, would end-up with the business
except that of the surviving corporation; enterprise of the selling corporation
The surviving or consolidated corporation whereas the latter would end up with
shall possess all rights, privileges, basically its remaining assets being the
immunities and powers and
CHAIRPERSONS
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115
shares of stock of the acquiring owner. What the purchaser actually

corporation and may then distribute it as purchased is the ability to elect the
liquidating dividend to its stockholders. members of the board of the corporation
(Philippine Corporate Law, Cesar who run the business.
Villanueva, 2001 ed.)
X. APPRAISAL RIGHT
MERGER and SALE OF ASSETS
CONSOLIDATION APPRAISAL RIGHTS
1. Sale of assets is 1.merger/consolidati The right to withdraw from the
always involved on is not always corporation and demand payment of the
involved fair value of his shares after dissenting
2. There is automatic 2. Purchasing from certain corporate acts involving
assumption of corporation is not fundamental changes in corporate
liabilities generally liable for structure, namely: Key: ASIM
the debts and An amendment to the articles
liabilities of the
that has the effect of a) changing
selling corporation
3. There is 3. The selling
or restricting the rights of
continuance of the corporation ordinarily shareholders or of authorizing
enterprise and of the contemplates a preferences over those of
stockholders liquidation of the outstanding shares, or b)
enterprise changing the term of corporate
4. Title to the assets 4. Transfer of title is existence;
are transferred by by virtue of contract Sale, encumbrance or other
operation of law dispositions of all or substantially
5. The constituent 5. The selling all of the corporate property or
corporations are corporation is not assets. (Sec. 81)
automatically dissolved by the
Merger or consolidations;
dissolved mere transfer of all
its property
and
I nvestment of corporate funds in
TYPES OF ACQUISITIONS (Philippine another corporation or in a
Corporate Law, Cesar Villanueva, 2001 purpose other than the primary
ed.) purpose; (Sec. 42)
“ASSETS-ONLY” LEVEL Other instances when right available:
When a corporation invest its funds in
The purchaser is interested only in
another corporation or business for
the raw assets and properties of the
any purpose other than its primary
business. He is not interested in the
purpose
entity of the corporate owner of the
In a close corporation, a
assets nor of the goodwill and other
stockholder for any reason
factors relating to the business itself.
compel the corporation to
The transferee would not be liable for
purchase his shares when the
the debts and liabilities of his transferor
corporation has sufficient assets
since there is no privity of contract over
in its books to cover its debts
debt obligations between the transferee
and the transferor’s creditors and liabilities exclusive of capital
stock
b. “BUSINESS-ENTERPRISE” LEVEL
The transferee merely continues the
PROCEDURE
same business of the transferor since he
a. The dissenting stockholder shall make
obtains the earning capability of the
a written demand on the corporation
venture
within 30 days after the date on which
The transferee is liable for the debts the vote was taken for the payment of
and liabilities of the transferor the fair value of his shares. Failure to do
c. “EQUITY” LEVEL so, shall be deemed a waiver of his a
The purchaser takes control and waiver of his appraisal right
ownership of the business by purchasing b. If the proposed corporate action is
the shareholdings of the corporate implemented or effected, the

corporation shall pay to such The Commission determines that such

stockholder, upon surrender of the stockholder is not entitled to
corresponding certificate of stock within appraisal right.
10 days after demanding payment of his
shares XI. NON-STOCK CORPORATION
c. Upon payment of the agreed or A corporation organized for an
awarded price, the stockholder shall eleemosynary purpose, and no part of
transfer his shares to the corporation whose income is, during its existence,
distributable as dividends to its
LIMITATIONS ON THE EXERCISE OF members, trustees, or officers, subject
APPRAISAL RIGHT to the provisions of the Corporation Code
Any of the instances provided for by law on dissolution. (Sec. 87)
for the exercise of the right must be Any profit which it may obtain as an
present. incident to its operations shall, whenever
The dissenting stockholder must have necessary or proper, be used for the
voted against the proposed corporate furtherance of the purpose or purposes
action. for which it was organized.
The stockholder must make a written
demand within 30 days from the date
that the vote was taken. Eleemosynary purposes: charitable,
The price must be based on the fair value religious, educational, professional,
of the shares as of the day prior to cultural, recreational, fraternal, literary,
the date in which the vote was taken. scientific, social, civic service, or similar
Payment of the shares must be made only purposes, like trade, industry,
out of the unrestricted retained agricultural. (Sec. 88)
earnings of the corporation. They are governed by the same rules
Upon payment, the stockholder must established for stock corporations,
transfer his shares to the corporation. whenever pertinent, subject, however,
to a number of special features.
Effect of the Exercise of the Right:
All rights accruing to the such shares shall RULES ON CONVERSION (SEC Opinion)
be suspended 1. Stock to non-stock corporation
The dissenting stockholder shall be Conversion may be made by mere
entitled to receive payment of the amendment of the articles of
fair value of his shares as agreed upon incorporation.
between him and the corporation or
Non-stock to stock corporation
as determined by the appraisers
The corporation must first be
chosen by them.
dissolved; mere amendment of the
articles of incorporation would not
GENERAL RULE: A dissenting
suffice because the conversion would
stockholder who demands payment of his
change the corporate nature from non-
shares is no longer allowed to withdraw
profit to monetary gain.
from his decision
The conversion without dissolving it
Except when:
first would be tantamount to distribution
The corporation consents to the
of its assets or income to its members
withdrawal
inasmuch as after its conversion, the
The proposed corporate action is
asset of the non-stock corporation would
abandoned or rescinded by the
corporation now be treated as payment to the
subscriptions of the members who will
The proposed corporate action is
now become stockholders of the
disapproved by the SEC where its
corporation.
approval is necessary
RIGHTS OF MEMBERS

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117
To be entitled to 1 vote unless Assets held by the corporation upon a

otherwise provided in the condition requiring return, transfer or
articles or by-laws conveyance, and which condition occurs
To vote by proxy unless otherwise by reason of dissolution, shall be
provided in the articles or by- returned, transferred or conveyed in
laws accordance with such requirements
To transfer membership if allowed Assets received and held by the
by the articles or by-laws corporation subject to limitations
To be elected as trustee permitting their use only for charitable,
religious, benevolent, educational or
similar purposes but not held upon a
STOCK NON-STOCK condition requiring return, transfer or
Has capital stock Does not have shares conveyance by reason of dissolution,
divided into shares and may not shall be transferred or conveyed to one
and with authority to distribute profits to or more corporations, societies or
distribute dividends its members organizations engaged in activities in the
to its stockholders Philippines substantially similar to those
Stockholders may Members cannot of the dissolving corporation pursuant to
transfer their shares transfer their a plan of distribution
membership unless
allowed by the
Other assets, if any, shall be distributed
articles or by-laws in accordance with the provisions of the
Cumulative voting is Cumulative voting articles of incorporation or the by-laws
available in the not available unless In any other case, assets may be
election of directors otherwise provided in distributed to such persons, societies,
the articles or by- organizations or corporations, whether or
laws not organized for profit, as may be
Directors cannot Trustees may exceed specified in a plan of distribution.
exceed 15 in number 15 in number The plan of distribution shall be
The term of a The term of a trustee approved by a majority vote of the
director is 1 year is 3 years; 1/3 of the
board of trustees and by 2/3 of the
Board shall be
elected annually members having voting rights at a
Stockholders may Members may be meeting
vote by proxy deprived of the right
to vote by proxy in XII. CLOSE CORPORATION
the articles or by- A special kind of stock corporation:
laws whose articles of incorporation
Officers are elected Officers may be should provide that:
by the Board of directly elected by a.the number of stockholders
Directors the members unless shall not exceed 20;
otherwise provided in
issued stocks are subject to
the articles or by-
laws transfer restrictions, with a right
Stockholders and Members may be of preemption in favor of the
directors must act in allowed by the by- stockholders or the corporation;
meeting, except laws to vote by mail and
where a mere or other similar written assent the corporation shall not be
is means listed in the stock exchange or
sufficient or a formal its stocks should not be publicly
meeting unnecessary offered; AND
whose at least 2/3 of the voting
RULES FOR DISTRIBUTION OF ASSETS IN stocks or voting rights should not be
CASE OF DISSOLUTION (SEC. 94) owned or controlled by another
All liabilities and obligations of the corporation which is not a close
corporation shall be paid, satisfied and corporation. (Sec. 96)
discharged or adequate provision shall Characteristics:
be made therefor

Stockholders may act as Its articles of Its articles must

directors without need of incorporation need contain the special
election and therefore are liable only contain the matters prescribed by
as directors; general matters Sec. 97, aside from
enumerated in Sec. the general matters
Stockholders who are involved in
14 of the Code. in Sec. 14. Failure to
the management of the do so precludes a de
corporation are liable in the jure close corporation
same manner as directors are. status.
Quorum may be greater than Its status as an 2/3 of its voting stock
mere majority; ordinary stock or voting rights must
Transfers of stocks to others, corporation is not not be owned or
which would increase the affected by the controlled by another
number of stockholders to more ownership of its corporation which is
than the maximum are invalid; voting stock or not a close
Corporate actuations may be voting rights. corporation.
Its articles cannot Its articles may
binding even without a formal
classify its directors. classify its directors.
board meeting, if the
Business of the Business of the
stockholder had knowledge or corporation is corporation may be
ratified the informal action of managed by the managed by the
the others; board of directors. stockholders if the
Preemptive right extends to all articles so provide,
stock issues; but they are liable as
Deadlocks in board are settled directors.
by the SEC, on the written The corporate Its articles may
petition by any stockholder; and officers and provide that any or
Stockholder may withdraw and employees are all of the corporate
avail of his right of appraisal. elected by a officers or employees
majority vote of all may be elected or
Note: Special rules are provided for the members of the appointed by the
close corporations because it is board of directors. stockholders.
essentially an incorporated partnership.
(The Corporation Code of the The pre-emptive The pre-emptive right
Philippines Annotated, Hector de Leon, right is subject to is subject to no
2002 ed.) the exceptions found exceptions unless
in Sec. 39. denied in the articles
The appraisal right may The appraisal right may
be exercised by a be exercised and
The following cannot be a close stockholder only in the compelled against the
corporation: cases provided in Secs. corporation by a
mining companies; 81 and 42 of the Code. stockholder for any
oil companies; reason.
stock exchanges; Except as regards In case of an
redeemable shares, arbitration of an
banks;
the purchase by the intra-corporate
insurance companies; corporation of its deadlock by the SEC,
public utilities; own stock must the corporation may
education institutions; always be made from be ordered to
other corporations declared to be the unrestricted purchase its own
vested with public interest. (Sec. retained earnings. shares from the
96) stockholders
regardless of the
ORDINARY STOCK CLOSE availability of
unrestricted retained
CORPORATION CORPORATION
earnings.
Arbitration of intra- Arbitration of intra-
corporate deadlock corporate deadlock
by the SEC is not a by the SEC is an
remedy in case the available remedy in
directors or case the directors or
stockholders are so stockholders are so
CHAIRPERSONS
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119
divided respecting divided respecting 2. RELIGIOUS CORPORATION

the management of the management of A corporation composed entirely of
the corporation. the corporation. spiritual persons and which is organized
for the furtherance of a religion or for
POWERS OF THE SEC IN CASE OF perpetuating the rights of the church or
DEADLOCK IN CLOSE CORPORATIONS for the administration of church or
Cancel or alter any provision in the religious work or property. It is different
articles of incorporation or bylaws from an ordinary non-stock corporation
Cancel, alter or enjoin any resolution of organized for religious purposes.
the corporation Kinds:
Direct or prohibit any act of the
CORPORATION SOLE
corporation A special form of corporation,
Require the purchase at their fair value usually associated with the clergy,
of shares of any stockholder either consisting of one person only and his
by any stockholder or by the successors, who is incorporated by
corporation regardless of the law to give some legal capacities and
availability of unrestricted retained advantages; and
earnings.
RELIGIOUS SOCIETIES
Appoint a provisional director
A non-stock corporation
Dissolve the corporation
governed by a board but with religious
Granting such other relief as the
purposes. It is incorporated by an
circumstances may warrant. aggregate of persons, e.g. religious
order, diocese, synod, sect, etc.
XIII. SPECIAL CORPORATIONS
1. EDUCATIONAL CORPORATION
A stock or non-stock corporation
organized to provide facilities for
teaching or instruction.
A favorable recommendation of the XIV. DISSOLUTION AND WINDING UP
DECS is essential for the approval of its (LIQUIDATION)
articles and by-laws.
It is primarily governed by special DISSOLUTION
laws and suppletorily by the provisions of Extinguishment of the franchise of a
the Code. corporation and the termination of its
corporate existence.
NON-STOCK EDUCATIONAL
EDUCATIONAL CORPORATION Modes:
CORPORATION Voluntary
A non-stock A special corporation Application for dissolution with the
corporation which may a stock or
SEC
non-stock
Governed by the Governed by special
Where no creditors are affected
provisions on non- laws and by the Where creditors are affected
stock corporations general provisions of Shortening of the corporate term by
and suppletorily by the Corporation Code amending the articles of
the provisions on incorporation.
stock corporations Involuntary
The number of board The number of the Expiration of the corporate term;
of trustees may be board of trustees Failure to organize and commence
more than 15 should not be less business within 2 years from the date
than 5 but not more
of issuance of the certificate of
than 15.
incorporation (Note: However, the
The term of office of The term of office of
the board of trustees the board of trustees SEC has opined that the dissolution in
shall be 3 years shall be 5 years this case is not automatic. The
corporation continues to exist as
such, notwithstanding its non-

operational status until the SEC distributed to the stockholders or

orders its dissolution after notice members.
and hearing.) Methods:
Legislative dissolution; By the corporation itself through its
Quo warranto suit against a de facto board of directors/trustees;
corporation; By a trustee to whom the corporate
Minority stockholders’ suit for assets have been conveyed; and
dissolution on justifiable grounds; or By a management committee or
SEC dissolution, upon complaint and rehabilitation receiver appointed
after notice and hearing, on the by the SEC.
following grounds: Note : The 3-year period of liquidation
The corporation was illegally does not apply to Methods 2 and 3 as
organized; long as the trustee or the receiver is
Continuous inactivity appointed within the said period.
(subsequent to incorporation, The termination of the life of a
organization and juridical entity does not by itself
commencement of business) cause the extinction or diminution of
for at least 5 years; the rights and liabilities of such
Serious dissension in the entity nor those of its owners and
corporation; or creditors alike (see Sec. 145).
Commission by the corporation
The word “trustee” as sued in the
of illegal or ultra vires acts or
corporation statute must be
violations of the Code.
understood in its general concept
EFFECTS OF DISSOLUTION which could include the counsel to
a. Transfer of legal title to corporate whom was entrusted the prosecution
property to the stockholders who of the suit filed by the corporation.
become co-owners thereof (Spouses Gelano vs. CA)
b. Continuation of corporate business LIQUIDATION REHABILITATION
merely as an association without Connotes a winding Connotes a reopening
juridical personality up or settling with or reorganization
c. Conveyance by the stockholders of creditors and debtors
Winding up process Contemplates a
their respective shareholdings toward so that assets may be continuance of
the creation of a new corporation to distributed to those corporate life in an
continue the business of the old entitled effort to restore the
d. Reincorporation of the dissolved corporation to its
former successful
corporation by refilling new articles of operation
incorporation and by-laws
e. The corporation continues as a body XV. FOREIGN CORPORATION
corporate for 3 years for purposes of
A corporation formed, organized or
winding up
existing under any law other than those
f. Cessation of corporate existence for
of the Philippines, and whose laws allow
all purposes upon the expiration of the
Filipino citizens and corporations to do
winding up period of 3 years. (The
business in its own country or state.
Corporation Code of the Philippines
(Sec. 123)
Annotated, Hector de Leon, 2002 ed.
The definition espouses the
LIQUIDATION incorporation test and the reciprocity
rule and is significant for licensing
The process by which all the assets of
purposes.
the corporation are converted into liquid
It is not permitted to “transact or do
assets (cash) in order to facilitate the
business in the Philippines” until it has
payment of obligations to creditors, and
secured a license for that purpose from
the remaining balance, if any, is to be
the SEC and a certificate of authority

CHAIRPERSONS
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from the appropriate government Failure to pay taxes, imposts and

agency. assessments;
Engage in business unauthorized by SEC;
RESIDENT AGENT Acting as dummy of a foreign
An individual, who must be of good corporation; and
moral character and of sound financial Not licensed to do business in the
standing, residing in the Philippines, or a Philippines. (Sec. 134)
domestic corporation lawfully
transacting business in the Philippines, TEST OF “DOING OR TRANSACTING
designated in a written power of BUSINESS IN THE PHILIPPINES”:
attorney by a foreign corporation The Corporation Code does not define
authorized to do business in the the phrase “doing or transacting
Philippines, on whom any summons and business.”
other legal processes may be served in A. Jurisprudential Tests (Philippine
all actions or other legal proceedings Corporate Law, Cesar Villanueva, 2001
against the foreign corporation. (Sec. ed.)
127-128) Twin characterization test
Whether the foreign corporation is
CONTENTS FOR APPLICATION OF maintaining or continuing in the
LICENSE Philippines the body or substance of
the business for which it was
Date and term of incorporation organized or whether it has
The address of the principal office in the substantially retired from it and
country of incorporation turned it over another (Substance
The name and address of resident agent Test); and
The place in the Philippines where it Whether there is continuity of
intends to operate commercial dealings and
The specific purpose or purposes arrangements, contemplating to
The names and addresses of the present some extent the performance of acts
directors and officers of the or works or the exercise of some
corporation functions normally incident to and in
A statement of its authorized capital progressive prosecution of, the
stock purpose and object of its
A statement of its outstanding capital organization (Continuity Test).
stock Contract Test
A statement of the amount actually paid Whether the contracts entered
in into by the foreign corporation, or by
Such additional information as may be an agent acting under the control
necessary to enable the SEC to and direction of the foreign
determine whether such corporation corporation, are consummated in the
is entitled to license Philippines.
GROUNDS FOR REVOCATION OF B. Statutory Tests

LICENSE Foreign Investment Act of 1991 (R.A.
Failure to file annual reports required by No. 7042)
the Code; Acts constituting “doing business”:
Failure to appoint and maintain a Soliciting orders, service contracts,
resident agent; opening offices, whether called
Failure to inform the SEC of the change “liaison” offices or branches;
of residence of the resident agent; Appointing representatives or
Failure to submit copy of amended distributors domiciled in the
articles or by-laws or articles of Philippines or who in any
merger or consolidation; calendar year stay in the country
A misrepresentation in material matters
in reports;

for a period or periods totaling apart from their common business in the
180 days or more; sense that there is no intention to
c) Participating in the engage in a progressive pursuit of the
management, supervision or purpose and object of business
control of any domestic business, transaction. (Eriks Pte.Ltd vs. CA, 267
firm or entity or corporation in SCRA 567)
the Philippines; and In Pari Delicto Rule
Any other act or acts that imply a In the case of Top-Weld Manufacturing
continuity of commercial vs. ECED, S.A., the Court denied the
dealings or arrangements, and relief prayed for by petitioner when it
contemplate to that extent the ruled that the very purpose of the law
performance of acts or works, or was circumvented and evaded when the
the exercise of some of the petitioner entered into the said
functions normally incident to, agreements despite the prohibition
and in progressive prosecution contained in the questioned law. The
of, commercial gain or of the parties were considered as being in pari
purpose of the business delicto because they equally violated
organization. R.A. 5455
Implementing Rules of R.A. No. 7042 Estoppel Rule
Acts not constituting “doing A party is estopped from questioning
business”: the capacity of a foreign corporation to
Mere investment as a shareholder in institute an action in our courts where it
a domestic corporation and/or had obtained benefits from its dealings
the exercise of rights as such with such foreign corporations and
investor; thereafter committed a breach or sought
Appointing a representative or to renege on its obligations. (European
distributor domiciled in the Resources vs. Ingnieburo)
Philippines which transacts
business in its own name and for
its own account; EFFECTS OF LACK OF LICENSE
Publication of a general A. On suits
advertisement through any print Foreign corporation doing business in the
or broadcast media; Philippines:
Maintaining a stock of goods in the may not sue or intervene in any
Philippines solely for the purpose action in any court or
of having the same processed by administrative agency of the
another entity in the Philippines; Philippines; but
Consignment by the foreign may be sued on any valid cause of
corporation of equipment with a action recognized in the
local company to be used in the Philippines (under the doctrine of
processing of products for quasi-estoppel by acceptance of
export; benefits). (Sec. 133)
Collecting information in the Foreign corporation not doing business in
Philippines; and the Philippines:
Performing services auxiliary to an Generally, it may not sue and be
existing isolated contract of sale sued in any court or
which are not on a continuing administrative agency of the
basis. Philippines;
However, it may sue and be sued for
C. Jurisprudential Rules isolated transactions, as well
Doctrine of Isolated Transactions as for those which are casual or
Foreign corporations, even incidental thereto.
unlicensed ones, can sue or be sued on a B. On contracts
transaction or series of transactions set The contracts contemplated are those
that satisfy the “contract test” or those
CHAIRPERSONS
Logistics) Jonathan
123
that make a foreign corporation as one Note: A corporate officer’s dismissal is

“doing business in the Philippines.” always a corporate act and/or an intra-
GENERAL RULE: The contracts are corporate controversy. However, the
unenforceable. They are enforceable corporate officers contemplated are
only upon securing a license. those whose offices are created by the
EXCEPTION: However, the contracts Corporation Code or the by-laws.
are null and void if they are contrary to
law, morals, good customs, public order INTRA-CORPORATE DISPUTE
and public policy. Elements:
Status or relationship of the parties –
INSTANCES WHEN A FOREIGN controversy must be between and
CORPORATION MAY SUE IN THE among corporators, between
PHILIPPINES WHETHER OR NOT corporators and the corporation
LICENSED TO DO BUSINESS THEREAT Nature of the question – intrinsic
To seek redress for an isolated business connection with the regulation or the
transaction; internal affairs of the corporation
To protect its corporate reputation,
name, and goodwill; Examples:
To enforce a right not arising out of a Action by a corporate officer to recover
business transaction, e.g. tort that compensation from the corporation
occurred in the Philippines; Action by a stockholder to compel
When the parties have contractually issuance of certificate of stocks
stipulated that Philippines is the venue Action for recovery of corporate
of actions; and funds
When the party sued is barred by the Note: Allegations in the complaint
principle of estoppel and/or principle of determines jurisdiction.
unjust enrichment from questioning the
capacity of the foreign corporation.
SECURITIES AND EXCHANGE GROUNDS FOR SUSPENSION OR

COMMISSION CANCELLATION OF CERTIFICATE OF
REORGANIZATION REGISTRATION (SEC. 6[L])
DECREE (P.D. No. 902- fraud in procuring registration;
A) serious misrepresentation as to
objectives of corporation;
ORIGINAL AND EXCLUSIVE refusal to comply with lawful order of
JURISDICTION OF THE RTC (Sec. 5 in SEC;
relation to Sec. 5.2 OF RA 8799): continuous inoperation for at least 5
Fraudulent devices and schemes years;
employed by directors detrimental failure to file by-laws within required
to the public interest and to other period;
firms; failure to file reports; and
Intra-corporate disputes; Others similar grounds.
Disputes with the state in relation to
their franchise and right to exist as INTERIM RULES OF PROCEDURE ON
such; CORPORATE REHABILITATION (effective
Controversies in election, appointment December 15, 2000)
of directors or trustees;
Petition to be declared in a state of CORPORATE REHABILITATION
suspension of payments; A process to try to conserve and
Petition for rehabilitation; and administer the corporation’s assets in
Appointment of rehabilitation receiver or the hope that it may eventually be able
management committee (provisional to return from financial stress to
remedies). solvency.

Nature: in rem, summary, and non- d. direct the creditors to file their
adversarial verified comment or opposition
Applicability: These Rules apply to not later than 10 days before the
petitions for rehabilitation filed by initial hearing; their failure to do
corporations, partnerships and so would bar them from any
associations pursuant to P.D. 902-A participating in the proceedings.
Steps: Publication of the stay order in a
Filing verified petition with the newspaper of general circulation once a
appropriate RTC by: week for 2 consecutive weeks;
corporate debtor who foresees the Referral of rehabilitation plan to
impossibility of meeting its debts rehabilitation receiver;
when they respectively fall due; Meetings between corporate debtor with
or creditors. Discussions on the
creditors holding at least 25% of the rehabilitation plan;
debtor’s total liabilities; Submission of final rehabilitation plan to
The following shall be annexed to the the RTC for approval;
petition: The petition shall be dismissed (which
audited financial statements at end results into the automatic lifting of the
of its last fiscal year; stay order unless RTC ordered otherwise)
interim financial statement; if no rehabilitation plan is approved after
schedule of debts and liabilities; 180 days from initial hearing;
inventory of assets; Approval or disapproval of the
rehabilitation plan; rehabilitation plan by RTC.
schedule of payments and disposition
of assets effected within 3 REHABILITATION RECEIVER
months preceding the filing of the A person appointed by the RTC, in
petition; behalf of all the parties for the purpose
schedule of cash flow for the last 3 of preserving and conserving the
months’ property and preventing its possible
statement of possible destruction or dissipation, if it were left
claims; in the possession of any of the parties.
affidavit of general financial He acts in a fiduciary capacity and
condition; with impartiality towards all interested.
at least 3 nominations for He does not take over the management
rehabilitation receiver; and control of the debtor, but shall
certificate under oath that directors closely oversee and monitor the
and stockholders have irrevocably operations of the debtor during the
approved/ consented to all pendency of the proceedings. (Bar
actions/matters necessary under Review Materials in Commercial Law,
the rehabilitation plan. Jorge Miravite, 2002 ed.)
The court shall issue the stay order not
later than 5 days from the filing of the POWERS AND FUNCTIONS OF
petition, which among others, shall: MANAGEMENT COMMITTEE OR
appoint a rehabilitation receiver; REHABILITATION RECEIVER (Sec. 6[d],
stay all actions for claims against the P.D. 902-A)
debtor, which shall cover both 1. To take
secured and unsecured creditors; custody of, and control over, all the
set an initial hearing for the petition existing assets and property of such
(not earlier than 45 days but not entities under management;
later than 60 days from filing of 2. To evaluate the existing assets
the petition); and and liabilities, earnings and
operations of such corporations,
partnerships or other associations;
CHAIRPERSONS
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125
3. To determine the best way to civil/intra-corporate case before SEC

salvage and protect the interest of does not preclude the simultaneous and
the investors and creditors; concomitant filing of a criminal action
before the regular courts; such that a
4. To study, review and evaluate the fraudulent act may give rise to liability
feasibility of continuing operations for violation of the rules and regulations
and structure and rehabilitate such of the SEC cognizable by the SEC itself,
entities if determined to be feasible as well as criminal liability for violation
by the RTC; of the Revised Penal Code cognizable by
the regular courts, both charges to be
5. To report and be responsible to filed and proceeded independently, and
the RTC until dissolved; and may be simultaneously with the other.
(Fabia vs. CA, G.R.No. 132684.
6. May overrule or revoke the actions September 11, 2002.)
of the previous management and
board of directors of the entity Automatic Stay
under management, notwithstanding Effect of appointment of a
any provision of law, articles of management committee or rehabilitation
incorporation or by-laws to the receiver
contrary. All actions for claims against the
corporation shall be suspended
accordingly.
Mere disagreement among Purpose/justification: To enable the
stockholders as to the affairs of the management committee or the
corporation would not in itself suffice as a rehabilitation receiver to effectively
ground for the appointment of a exercise its powers free from any judicial
management committee. At least where or extrajudicial interference that might
there is no imminent danger of loss of unduly hinder or prevent the rescue of
corporate property or of any other injury the debtor company. (Rubberworld v.
to stockholders, management of corporate NLRC)
business should not be wrested away from No definite duration; deemed to apply
duly elected officers, who are prima facie during the entire period that the
entitled to administer the affairs of the corporate debtor is under management
corporation, and placed in the hands of the committee or the rehabilitation receiver.
management committee. However, where (BF Homes v. CA)
the dissension among stockholders is such
that the corporation cannot successfully
carry on its corporate functions the
appointment of a management committee
becomes imperative. (Ramon Jacinto and
Jaime Colayco vs. First Women’s Credit
Corporation, G.R. No. 154049, August 28,
2003) SECURITIES REGULATION CODE (SRC)
(R.A. No. 8799)
RA 8799 effectively amended Sec. 5 of PURPOSES:

PD 902-A, jurisdiction over intra- 1. To establish a socially
corporate disputes is now vested in the conscious, free market that
RTCs. However, while Sec. 5 was regulates itself
amended, there is no repeal of Sec. 6 2. To
thereof declaring that the fraudulent encourage the widest
acts or schemes, which the SEC shall participation of ownership in
exclusively investigate and prosecute, enterprises
are those in violation of any law or rules 3. To enhance the
and regulations administered and democratization of wealth
enforced by the SEC alone. The filing of

4. To promote the development prospectus, communications and

of the capital market reports (Section 57)
Protection against manipulation of
5. To security prices, manipulative and
protect investors deceptive devices (Section 59), fraud
6. To ensure full and fair in pre-need plans and commodities
disclosure about securities futures contracts (Section 60),
fraudulent transactions (Section 58),
7. To minimize if not totally and insider trading (Section 61);
eliminate insider trading and Establishment of trust funds to
other fraudulent or manipulative compensate investors for
devices and practices which extraordinary losses or damage they
create distortions in the free may suffer due to business failure or
market. (Sec. 2) fraud or mismanagement of the
persons with whom they transact
(Section 36.5[a]).
FEATURES WHICH ARE INTENDED TO
PROTECT THE INVESTING PUBLIC POWERS AND FUNCTIONS OF THE SEC
All securities are required to be 1. Supervision over
registered before they can be sold to corporations, partnerships,
the public (Section 8); and grantees of primary
Rejection and revocation of franchise;
registration of securities (Section Approve, reject registration
13); statements/licensing
Regulation of pre-need plans. applications;
(Section 16); Suspend, revoke, after notice and
Protection of shareholder interests hearing primary franchise
(Section 19); on grounds;
Prohibition on fraud, manipulation Regulate/supervise activities of
and insider trading (Sections 24, 25, persons to ensure
26 and 27); compliance;
Regulations of Securities Market Supervise monitor, suspend or take
Professionals (Section 28); over, exchanges, clearing
Revocation, refusal or suspension of agencies and SROs;
registration of brokers, dealers and Recommend policies, advise, propose
salesmen and associated persons legislation to Congress on
(Section 29); securities market;
Restrictions on “over-the-counter” Prepare, approve, amend or repeal
markets (Section 32); rules, regulations, issue
Self-regulation of associations of opinions
securities brokers, dealers and other Enlist the aid and support of and/or
securities related organizations deputize any and all
(Section 29); enforcement agencies of
Registration of clearing agencies the Government as well as
(Section 42); any private institution,
Limitations on margin trading or the corporation, firm,
amount of credit that may be association or person in the
extended on any security (Section implementation of its
49) powers;
Civil liabilities arising from false Issue cease and desist orders to
statement in the registration prevent fraud or injury;
statement (Section 56) Punish for contempt of the
Civil liabilities arising from false Commission;
statements or omissions in the
CHAIRPERSONS
Logistics) Jonathan
127
Compel the officers of any registered investment of principal in the underlying

corporation or association security.
to call meetings Kinds:
of stockholders or OPTIONS – contracts that give the
members; buyer the right, but not the
Issue subpoena duces tecum and obligation, to buy or sell an
summon witnesses to underlying security at a
appear in any proceedings predetermined price, called the
of the Commission; and exercise or strike price, on or before
Exercise such other powers as may a predetermined date, called the
be provided by law which expiry date, which can only be
are necessary or incidental extended in accordance with
to the carrying out its Exchange rules.
express powers. WARRANTS – rights to subscribe or
(Sec. 5) purchase new shares or existing
SECURITIES shares in a company, on or before a
Shares, participation or interest in a predetermined date, called the
corporation or in a commercial expiry date, which can only be
enterprise or profit-making ventures and extended in accordance with
evidenced by a certificate, contract, Exchange rules. Warrants generally
instrument whether written or electronic have a longer exercise period than
in character. (Sec. 3) options. (SRC Rule 3.1-1)
Kinds:
Shares of stocks, bonds, debentures, REGISTRATION OF SECURITIES
notes, evidence of indebtedness, GENERAL RULE: A registration
asset-backed securities; statement duly filed and approved by the
Investment contracts, certificates of SEC is necessary before securities may be
interest or participation in a profit- sold and offered for sale or distribution
sharing agreement, certificates of within the Philippines. Prior to any sale,
deposit for a future subscription information on the securities, in such
Fractional undivided interests in oil, gas, form and substance prescribed by the
or other mineral rights; SEC, shall be made available to each
Derivatives like options and warrants; prospective purchaser. (Sec. 8)
Certificates of assignments and
participation, trust certificates, EXCEPTIONS:
voting trust certificates or similar Exempt securities; and
instruments; Exempt transactions.
Proprietary or non-proprietary
membership certificates in EXEMPT SECURITIES (Sec. 9)
corporations; Any security issued or guaranteed by the
Other instruments as may in the future Government of the Philippines, or by
be determined by the SEC. (Sec. 3) any political subdivision or agency
Classes: thereof, or by any person controlled
Exempt securities and securities covered by and acting as an instrumentality of
by exempt transactions; and said Government.
Securities that are not exempt or the Any security issued or guaranteed by the
sale of which is not an exempt government of any country with which
transaction. the Philippines maintains diplomatic
relations, or by any state, province or
DERIVATIVE political subdivision or agency thereof
A financial instrument, including on the basis of reciprocity.
options and warrants, whose value Certificates issued by a receiver or by a
depends on the interest in or trustee in bankruptcy duly approved
performance of an underlying security, by the proper adjudicatory body.
but which does not require any

Any security or its derivatives the sale or It is mandatory to make a tender

transfer of which, by law, is under offer for equity shares of a public
the supervision and regulation of the company in an amount equal to the
Office of the Insurance Commission, number of shares that the person intends
Housing and land Use Regulatory to acquire in the following
Board, or the Bureau of Internal circumstances:
Revenue. a. The person intends to acquire 15% or
Any security issued by a bank except its more of the equity shares of a public
own shares of stock. company pursuant to an agreement
Any securities added by the SEC by rule made between or among the person
or regulation after public hearing. and one or more sellers;
b. The person intends to acquire 30% or
EXEMPT TRANSACTIONS (Sec. 10) more of the equity shares of a public
1. Judicial sale by executor, company within a period of 12
administrator, guardian/receiver in months; or
insolvency or bankruptcy. c. The person intends to acquire shares
Sale of pledged or mortgaged security to that would result in ownership of
liquidate a bona fide debt. more than 50% of the equity shares of
Sale on isolated transactions by owner. a public company. (SRC Rule 19)
Distribution of stock dividends. Tender offer is made:
Sale of capital stock exclusively to By filing with the SEC a declaration to
stockholders where no commission is make a tender offer;
paid. By furnishing the issuer or the originator
The issuance of bonds or notes secured of the security a
by mortgage upon real estate or statement containing such
tangible personal property, where the information required under Sec. 17
entire mortgage are sold to a single of the SRC:
purchaser at a single sale. i. Annual Report (includes balance
Issuance of security in exchange of any sheet, profit and loss statement);
security from same issuer pursuant to and
right of conversion. Periodical reports for interim fiscal
Broker’s transactions periods; and
Pre-incorporation subscription and By publishing all requests or invitations
subscription pursuant to an increase for tender, or materials, making a
of the ACS. tender offer or requesting or inviting
Exchange of securities by issuer with letters of such a security.
existing security holders exclusively
Sale to less than 20 persons during any PUBLIC COMPANY
12- month period Any corporation with a class of equity
Sale of securities to banks, securities listed on an Exchange; or
registered investment house, Any corporation with assets in excess of
insurance companies, pension fund or P50M and having 200 or more holders, at
retirement plan maintained by the least 200 of which are holding at least
government or other persons shares of a class of its equity securities.
authorized by the BSP to engage in
trust functions. UNLAWFUL ACTS
For any beneficial owner, director, or
TENDER OFFER officer to sell any security if the seller
A publicly announced intention by a or his principal does not own or does
person acting alone or in concert with not deliver it within 20 days from
other persons to acquire equity sale. (Sec. 23.3)
securities of a “public company.” Manipulation of security prices. (Sec.
24.1)

CHAIRPERSONS
Logistics) Jonathan
129
Employment of manipulative or price within the same time, the same

deceptive device or contrivance in shares of stock.
connection with purchase and sale of WASH SALE – The operation of
authorities. Execution of “short sale”, simultaneously buying and selling the
“stop-loss order” not in accordance same stock. It is any transaction in any
with SEC rules. (Sec. 24.2) security which involves no change in the
For any member of Exchange directly or beneficial ownership thereof. It is the
indirectly endorse or guarantee the reverse of “MATCHED ORDERS” wherein
performance of any “put”, “call”, there is a change in the ownership of the
“straddle”, “option” or “privilege” in securities.
relation to any security registered. SHORT SWING TRANSACTION - One where
(Sec. 25) a person buys securities and sells the
Fraudulent transactions in the sale of same within a period of six months.
securities. (Sec.26) FLOOR TRADER - A professional trader in
Insider trading (Sec. 27) securities who acts for himself and
For an insider to communicate material not for the account of others, hence,
non-public information about the receives no commission at all.
issuer or security. (Sec. 27.3) HYPE AND DUMP –Engaging in buying
Unlawful Tender Offer. (Sec 27.4) activity at increasingly higher prices
Use of Extensive Credit. (Sec 48.1) and then selling securities in the
market at higher securities.
DEFINITION OF TERMS: BOILER ROOM SALES –The use of high-
SHORT SALE – A contract for sale of pressure sales tactics to promote
shares of stock which the seller does not purchases and sales of securities.
own, or certificates which are not within
his control, so as to be available for “OVER THE COUNTER TRANSACTION”
delivery at the time when delivery must Transactions which are not made at the
be made. stock exchange, but directly between
STOP-LOSS ORDER – The direction by a the broker and the customer.
customer to his broker that if the “OVER-THE-COUNTER” MARKET
commodity touches the price named, the A market created other than a
broker shall close the trade at the best registered stock exchange for both the
available price. purchase and sale of any security.
PUT – An option that, in consideration of
a premium paid, gives the purchaser the INSIDER TRADING
right to make the seller take from him a The selling or buying of a security by
given number of shares of a named stock an insider while in possession of material
between a given time at a stipulated non-public information with respect to
price which is usually below the the issuer or the security. It is
prevailing market price of the stock at considered unlawful unless:
the time the “put” is purchased. The insider proves that the information
CALL - An option that, in consideration was not gained from such
of a premium paid, entitles the buyer relationship, or
the right to compel the seller to deliver If the other party selling to or buying
to him a certain number of shares within from the insider (or his agent) is
a given time at a stipulated price which identified, the insider proves:
is usually higher than the prevailing that he disclosed the information to
market price at the time the “call” is the other party, or
bought. “Call” is the reverse of “put.” that he had reason to believe that
STRADDLE – The double privilege of a the other party otherwise is also in
“put” and a “call,” and secures to the possession of the information. (Sec.
holder the right to demand of the seller 27.1)
at a certain price within a certain time a
certain number of shares of specified
stock, or to require him to take, at the

INSIDER
A person who, with respect to a
particular security, may be any of the
following:
The issuer;
The director or officer of, or a person
controlling the issuer;
A person whose relationship or former
relationship to the issuer gives him
access to material information about the
issuer or the security that is not
generally available to the public;
A government employee, or director, or
officer of an exchange, clearing
agency and/or self-regulatory
organization who has access to material The credit extended must be for an
information about an issuer or a security amount not greater than whichever is
that is not generally available to the higher of:
public; or 1. 65% of current market price of
A person who learns such information by the
a communication from any of the security
foregoing insiders. (Sec. 3.8) 2. 100% of
the lowest market price of
MATERIAL NON-PUBLIC INFORMATION security during the preceding 36
(formerly Fact of Special Significance) calendar months, but not greater
a. Information about the issuer or the than 75% of the current market
security which has not been generally price. (Sec. 48)
disclosed to the public and would
likely affect the market price of the Margin
security after being disseminated to Sum of money, or its equivalent,
the public and the lapse of a placed in the hands of a broker by
reasonable time for the market to principal or persons on whose account
absorb the information; or the purchase is to be made, as a security
b. Information about the issuer or the to the former against losses to which he
security which would be considered may be exposed by a subsequent
by a reasonable person important depression in the market value of the
under the circumstances in stock.
determining his course of action to
buy, sell or hold security. (Sec. 27.2) Margin Call
Demand made by the broker on the
MARGIN TRADING investor to deposit money or securities
A kind of trading that allows a broker with the broker when a purchase is made
to advance for the customer/investor or when the investor’s equity in a margin
part of the purchase price of a security account falls below a minimum standard
and to keep it as a collateral for such set by the exchange or broker.
advance.

CHAIRPERSONS
Logistics) Jonathan

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San Beda College of Law

I. GENERAL PROVISIONS its sole liabilities. (Creese vs.

THEORIES ON THE FORMATION OF A 4. Acquisition of court of

COMMERCIAL LAW COMMITTEE

direction or authority of the Rules:

corporate entity as to this A partner as such can The suit against a

COMMERCIAL LAW COMMITTEE

The special right or privilege

256 A bona fide attempt in management. It is one that holds

COMMERCIAL LAW COMMITTEE

TESTS TO DETERMINE NATIONALITY OF signed the Articles and acknowledged the

after these contracts are ratified, and in the certificates of stock

COMMERCIAL LAW COMMITTEE

consideration of some supposed right or as spurious stock. Its issuance is

COMMERCIAL LAW COMMITTEE

Domestic Insurance Corporations Teaching

projects which are foreign by the owners of the separate units or

COMMERCIAL LAW COMMITTEE

paid by each contributor, which shall 2. Names of original subscribers

For a stock corporation, ownership of at in case of labor in case of labor

COMMERCIAL LAW COMMITTEE

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT

c. A stockholder cannot be deprived in transfer book of the

COMMERCIAL LAW COMMITTEE

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT

If the interlocking director’s interest

COMMERCIAL LAW COMMITTEE

To establish pension, retirement, and b. By increasing/decreasing the par value

g. In close corporations, when there is a c. When it can be clearly shown that

COMMERCIAL LAW COMMITTEE

from investments in wasting asset TRUST FUND DOCTRINE (TFD)

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT

delegation of d. Executory contracts apparently

COMMERCIAL LAW COMMITTEE

and among themselves in reference to b. Time and manner of calling and

COMMERCIAL LAW COMMITTEE

d. A certified copy of the agreement still to be formed shall be deemed a

SUBSCRIPTION CONTRACT - any contract

unissued capital stock of a corporation a. Necessary or proper in

COMMERCIAL LAW COMMITTEE

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT

COMMERCIAL LAW COMMITTEE

of advertisement and expenses of sale, Right to remove directors

c. Shares to be issued in good faith with management to sue unless such a

COMMERCIAL LAW COMMITTEE

b. minutes of board meetings. subject to all the duties and liabilities of

shares of stock of the acquiring owner. What the purchaser actually

COMMERCIAL LAW COMMITTEE

corporation shall pay to such The Commission determines that such

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT

To be entitled to 1 vote unless Assets held by the corporation upon a

COMMERCIAL LAW COMMITTEE

Stockholders may act as Its articles of Its articles must

divided respecting divided respecting 2. RELIGIOUS CORPORATION

COMMERCIAL LAW COMMITTEE

operational status until the SEC distributed to the stockholders or

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT

from the appropriate government Failure to pay taxes, imposts and

GROUNDS FOR REVOCATION OF B. Statutory Tests

COMMERCIAL LAW COMMITTEE

that make a foreign corporation as one Note: A corporate officer’s dismissal is

SECURITIES AND EXCHANGE GROUNDS FOR SUSPENSION OR