CORPORATION CODE debased resulting in social humiliation is
an OBITER DICTUM (ABS-CBN vs CA)
Artificial Being
 An artificial being, invisible, intangible, and
existing only in contemplation of law.
 The law treats it as though it were a person by
process of fiction, or by regarding it as an
artificial person distinct and separate from its
individual stockholders.
 Entitled to immunity against
unreasonable searches and seizures
 Entitled to the protection afforded by
the due process of law and equal
protection of law clause in the Bill of
Rights
 The right against self-incrimination has no
application to juridical persons (Bataan Shipyard
& Engineering Co., Inc vs PCGG)
Moral Damages
 A corporation – being an artificial person which
has no feelings, emotions or senses, and which
cannot experience physical suffering or mental
anguish – is not entitled to moral damages (Solid
Homes vs CA)
 Being an artificial person and having an existence
only in legal contemplation, it has no feelings, no
emotions, no senses. It cannot, therefore,
experience physical suffering and mental
anguish, which can be experienced only by one
having a nervous system (ABS-CBN v CA)
 A corporation has no reputation in the sense that
an individual has, and besides, it is inherently
impossible for a corporation to suffer mental
anguish (NPC vs Philipp Brothers)
Moral Damages & the Corporation
 A corporation may have a good reputation
which, if besmirched, may also be a ground for
moral damages (Mambulao Lumber vs PNB)
 The statement in People v. Manero and
Mambulao Lumber v. PNB that a
corporation may recover moral damages
if it has a good reputation that is
 A corporation may claim damages if it falls under
item 7 of Article 2219 of the Civil Code. This
provision expressly authorizes the recovery of
moral damages in cases of libel, slander or any
other form of defamation. Article 2219(7) does
not qualify whether the plaintiff is a natural or
juridical person. (Filipinas Broadcasting Network
Inc. vs Ago Medical)
Criminal Action against a Corporation
 Since a corporation is a mere legal fiction, no
criminal action can lie against a corporation
whether such corporation be a resident or non-
resident (Time Inc vs Reyes)
 The rule is only natural persons are criminally
liable. Juridical persons like a corporation are not
liable (West Coast Life Ins vs Hurd)
 A corporation is a mere legal fiction; it does not
have the essential element of malice (People vs
Tan Boon Kong)
 It is basic that only corporate officers
shown to have participated in the
alleged anomalous acts may be held
criminally liable (Cruzvale vs Eduque)
 There are instances where the law
specifies the officers who shall be
criminally liable/responsible for acts
done in behalf of the corporation
and violative of such law, like PD
1612 (the Anti-Fencing Law) and BP
22 (Bouncing Checks Law), or that an
officer of the corporation can be
held criminally liable for acts or
omissions done in behalf of a
corporation (Sia v. People)
It is created by operation of law
 It cannot be created by mere agreement like a
partnership.
 A corporation is a creature without any existence
until it has received the imprimatur of the state
 acting according to law (Tayag vs Benguet
Consolidated)
 A private corporation can only be formed in
accordance with a general law on the subject
such as the Corporation Code. A private
corporation created pursuant to a special law is
a nullity, and such special law is unconstitutional
for being violative of the constitutional provision
(NDC vs Phil. Veterans Bank)
 CONCESSION THEORY: The corporation
cannot exist without concession, i.e., the
consent or approval of the state.
 THEORY OF BUSINESS ENTERPRISE:
There can be no corporate existence
without persons to compose it; there
can be no association without
associates.
The theory draws its vitality from the
fact that it is not legal fiction alone that
creates a corporate entity but also the
consent of those who will form the
corporation to engage in a common
venture or business for profit.
DOCTRINE OF CORPORATE ENTITY
 A corporation comes into existence upon the
issuance of the certificate of incorporation (Sec.
19). Then and only then will it acquire a juridical
personality to sue and be sued, enter into
contracts, hold or convey property or perform
any legal act, in its own name (Corporation Code
of the Philippines, Ruben C. Ladia)
 Corporations cannot come into existence by
mere agreement of the parties as in the case of
business partnerships. They require special
authority or grant from the State. This power is
exercised by the State through the legislature,
either by a special incorporation law or charter
which directly creates the corporation or by
means of a general corporation law under which
individuals desiring to be and act as a
corporation law under which individuals desiring
to be and act as a corporation may incorporate.
(The Corporation Code of the Philippines, Hector
S. De Leon & Hector M. De Leon Jr. 2006 Ed)
Has right of succession
 A corporation continues to exist irrespective of
the change in the composition of the
members/stockholders either by death,
withdrawal, incapacity, insolvency or regardless
of the transfer of interest of shares of stock.
 Sometimes called the “right of immortality”
because the corporate existences goes on
unhampered whatever happens to its
stockholders as long as its life is extended before
it expires in the manner provided for by law.
Has power, attribute and properties expressly
authorized by law and incident to its existence
 A corporation has no power except those
expressly conferred on it by the Corporation
Code and those that are implied or incidents to
its existence.
 Doctrine of limited or special capacity
A corporation has only such powers as
are expressly granted and those that are
necessarily implied from those expressly
granted or those which are incidental to
its existence
 Ultra Vires Acts – “beyond the
powers”/”mischievous doctrine”
- One committed outside the
object for which a corporation is
created as defined by the law of
its organization and therefore
beyond the power conferred
upon it by law.
- is merely voidable which may be
enforced by performance,
ratification, or estoppel, while
the latter is void and cannot be
validated (Atrium vs CA)
Nationality/citizenship of a corporation
 Control Test - the nationality of a corporation is
determined by the controlling stockholders
 Place of incorporation test – a corporation is a
national of the country under whose law the
corporation was organized
  Place of principal business test – the
corporation is a national of the place where its PRIMARY/GENERAL SECONDARY/SPECIAL
principal office or center of management is FRANCHISE FRANCHISE
located. The right or privilege The special right or
 Grandfather rule: It is a method of determining granted by the State to privilege conferred upon
the nationality of a corporation which in turn is individuals to exist and an existing corporation to
owned by another corporation by breaking down act as a corporation after the business for which it
the equity structure of the shareholders of the its incorporation was created. e.g., use of
corporation. The percentage of shares held by the streets of a
municipality to lay pipes
the second corporation in the first is multiplied
or tracks, or operation of
by the latter’s own Filipino equity, and the a public utility or a
product of these percentages is determined to messenger and express
be the ultimate Filipino ownership of the delivery service.
subsidiary corporation. This applies only if the
Filipino equity is less than 60% of the
outstanding capital of a corporation that owns
Vested in the individuals Vested in the corporation
shares in a partly nationalized enterprise – at who compose the after its incorporation and
least 60% must be owned by Philippine corporation not upon the individuals
nationals. (Aquino, Philippine Corporate who compose the
Compedium). corporation

Residence of a corporation Cannot be sold or May be sold or

transferred, in the transferred under a
 A corporation has no residence in the same absence of legislative general power granted to
authority to do so. This is a corporation to a
sense in which this term is applied to a natural
because it is inseparable corporation to dispose of
person. But for practical purposes, a corporation from the corporation its properties; may also be
is in a metaphysical sense a resident of the place itself. subject to sale on
where its principal office is located as stated in execution or levy
the articles of incorporation (Young Auto Supply
vs CA)
Separate Corporate Personality of the Corporation
 The principal business or office of the
corporation is its residence for purposes of  A corporation is an entity separate and distinct
venue of suit or action (Sy vs Tyson) from its stockholders and from other
corporations to which it may be connected.
Domicile Test
However, this separate and distinct personality
 Determined by the State where it is domiciled. of a corporation is merely a fiction created by
The domicile of a corporation is the place fixed law for convenience and to promote justice
by the law creating or recognizing it; in the (Heirs of Pajarillo vs CA)
absence thereof, it shall be understood to be the  Principle of limited liability
place where its legal representation is As a consequence of its status as a distinct legal
established or where it exercise its principal entity, a corporation incurs its own liabilities and
functions (Art. 51) is legally responsible for payment of its
obligations. In other words, by virtue of the
separate juridical personality of a corporation,
FRANCHISE OF A CORPORATION the corporate debt or credit is not the debt or
 credit of the stockholder (PNB vs Hydro
Resources Contractors Corp)
 Section 31 of the Corporation Code makes a
director personally liable for corporate debts if
he wilfully and knowingly votes or assents to
patently unlawful acts of the corporation. It also
makes a director personally liable if he is guilty
of gross negligence or bad faith in directing the
affairs of the corporation. (Park Hotel vs
Soriano)
Doctrine of Apparent Authority/Ostensible
Agency/Holding Out Theory
 A corporation like the United Cocounit Planters
Bank (UCPB) is liable to third persons where it
knowingly permits its officer, or any other
agent, to perform acts within the scope of his
general or apparent authority, holding him out
to the public as possessing power to do these
acts (UCPB vs Planters Products, Inc)
 Apparent authority, or what is sometimes
referred to as the “holding out” theory, or the
doctrine of ostensible agency, imposes liability,
not as the result of the reality of a contractual
relationship, but rather because of the actions of
a principal or an employer in somehow
misleading the public into believing that the
relationship or the authority exists (Megan
Sugar Corp vs RTC of Iloilo)
 Apparent authority is determined by the acts of
the principal and not by the acts of the agent
(Banate vs Philippine Countryside Rural Bank)
Piercing the veil of corporate entity/fiction
 This is an equitable doctrine developed to
address situations where the separate corporate
personality of a corporation is abused or used
for wrongful purposes. (PNB vs Ritrotto). This is
the doctrine to the effect that the separate
personality of a corporation may be disregarded
is such entity is used to defeat public
convenience, justify a wrong, protect fraud, or
defend a crime. (Koppel vs Yatco), defeat labor
laws (Alert Security and Investigation Agency, Inc
vs Pasawilan)
 This cannot be availed by one who is not a victim
of fraud or wrong (Traders Royal Bank vs CA)
 This cannot be availed by one who is not a victim
of fraud or wrong (Traders Royal Bank vs CA)
 In order to justify piercing the veil of corporate
fiction, the wrongdoing must be clear and
convincing. It cannot be presumed (Matugina
Wood Products vs CA)
 The doctrine of piercing the veil of
corporation fiction does not apply to
service of summons.
Equity Cases
 When piercing the corporate fiction is necessary
to achieve justice or equity
 The “dumping ground” where no fraud or alter
ego circumstances can be culled to warrant
piercing.
Liability when corporate fiction is pierced
When a corporate veil is pierced, the
corporation’s liability becomes personal to the person
directly responsible for and who acted in bad faith in
committing the illegal dismissal or any act violative of the
Labor Code (Jose Emmanuel Guillermo vs Cresanto Uson)
When the separate personality of the
corporation is disregarded, the corporation will be
treated merely as an association of persons and the
stockholders or members will be considered as the
corporation, i.e., liability will attach personally or directly
to the officers and stockholders (Yao Sr. v. People)
Separate personality of a subsidiary
The mere fact that a corporation owns all of the
stocks of another corporation, taken alone, is not
sufficient to justify their being treated as one entity – if
used to perform legitimate functions, a subsidiary’s
separate existence shall be respected, and the liability of
the parent corporation as well as the subsidiary of the
parent corporation as well as the subsidiary will be
confined to those arising in their respective businesses.
(Pantranco Employees Association vs NLRC)
 Mere ownership by a single stockholder or by
another corporation of all or newly all of the capital
stocks of a corporation is not by itself sufficient ground
to disregard the separate corporate personality
(Martinez vs CA)
The Instrumentality Rule or the Alter Ego Rule
 Under this rule, corporate existence will be
disregarded where a corporation (subsidiary) is
so organized and controlled and its affairs so
conducted as to make it only an adjunct and
instrumentality of another corporation (parent
corporation), and parent corporation will be
responsible for the obligations of its subsidiary.
(Black’s Law Dictionary, 6th ed; Concept Builders
vs NLRC)
 The so-called “instrumentality” or “alter-ego”
rule states that when a corporation is so
dominated by another corporation that the
subservient corporation becomes a mere
instrument and is really indistinct from
controlling corporation, then the corporate veil
of dominated corporation will be disregarded, if
to retain its results in injustice. (Black’s Law
Dictionary. 6th ed)
o The control necessary to invoke the rule
is not majority or even complete stock
control but such domination of
instances, policies and practices that the
controlled corporation has, so to speak,
no separate mind, will or existence of
its own, and it but a conduit for its
principal (concept Builders v NLRC)
Alter Ego Cases (or Conduit Cases)
 Fraud is not an element in the cases but that the
stockholders or those who compose the
corporation did not treat the corporation as a
separate entity but also as part of the property
or business of an individual or group of
individuals or another corporation
 Probative factors
a. Stock ownership by one or common ownership
of both corporations;
b. Identity of directors and officers;
c. The manner of keeping corporate books and
records; and
d. Methods of conducting the business (Concept
Builders Inc vs NLRC)
When a corporation maybe regarded as an association
 While a corporation may exist for any lawful
purpose, the law will regard it as an association
of persons or, in case of two corporations, merge
them into one, when its corporate legal entity is
used as a cloak for fraud or illegality (Park Hotel
vs Soriano)
CLASSIFICATIONS OF CORPORATIONS
De Facto Corporation
The filing of articles of incorporation and the
issuance of the certificate of incorporation and the
issuance of the certificate of incorporation are essential
for the existence of a de facto corporation. An
organization not registered with the Securities and
Exchange Commission (SEC) cannot be considered a
corporation in any concept, not even as a corporation
de facto. (Seventh Day Adventist Conference v
Northeastern Mindanao Mission of Seventh Day
Adventists)
 Corporation by estoppels
A third party who, knowing an association to be
unincorporated, nonetheless treated it as a
corporation and received benefits from it may be
barred from denying its corporate existence in a
suit brought against the alleged corporation (Lim
Tong Lim vs Phil. Fishing Gear)
Corporation by estoppel is founded on
principles of equity and is designed to prevent
injustice and unfairness. It applies when persons
assume to form a corporation and exercise
corporate functions and enter into business
relations with third persons. Where there is no
third person involved and the conflict arises only
among those assuming the form of a
corporation, who therefore know that it has not
been registered, there is no corporation by
estoppels (Lozano vs de los Santos)
De Jure & De Facto Corporation
DE JURE:
- A corporation created in strict or substantial
conformity with the mandatory statutory
requirements for incorporation and the right of
which to exist as a corporation cannot be
successfully attacked or questioned by any party
even in a direct proceeding for that purpose by
the state.
DE FACTO:
- Organized with a colourable compliance with the
requirements of a valid law and its existence
cannot be inquired collaterally but such inquiry
may be made by the Solicitor General in a quo
warranto proceeding (Sec. 20)
- The only difference between a de facto
corporation and a de jure corporation is that a de
jure corporation can successfully resist a suit
brought by the State challenging its existence; a
de facto corporation cannot sustain its right to
exist as against the State.
Corporation by Prescription
 One which has exercised corporate powers for
an indefinite period without interference on the
part of the sovereign power, e.g., Roman
Catholic Church
Public & Private Corporations
 The true criterion to determine whether a
corporation is public or private is found in the
totality of the relation of the corporation to the
State. If the corporation is create by the State as
the latter’s own agency or instrumentality to
help in carrying out its governmental functions,
then that corporation is considered public;
otherwise, it is private. Applying the above test,
provinces, chartered cities, and barangays can
best exemplify public corporations. They are
created by the State as its own device and
agency for the accomplishment of parts of its
own public works (Phil. Society for the Prevention
of Cruelty to Animals vs COA)
 The Boys Scout of the Philippines is a public
corporation
As presently constituted, the Boy Scouts of the
Philippines still remains an instrumentality of the
national government. It is a public corporation
created by law for a public purpose, attached to
the DECS pursuant to its Charter and the
Administrative Code of 1987. It is not a private
corporation which is required to be owned or
controlled by the government and be
economically viable to justify its existence under
a special law. Thus, the test of economic viability
clearly does not apply to public corporations
dealing with governmental functions, to which
the category of the BSP belongs (BSP vs COA)
Private Corporations
 PNCC is a private corporation
Although the majority or controlling shares of
the Philippine National Construction
Corporation (PNCC) belonged to the
Government, the PNCC was essentially a private
corporation due to its having been created in
accordance with the Corporation Code, the
general corporation state (Hermanos Oil Mfg. &
Sugar Corp vs Toll Regulatory Board, 742 SCRA
395)
 Corporations incorporated under the
Corporation Code, not covered by the Civil
Service Law
Clark Development Corporation, a government-
owned or controlled corporation without an
original charter, was incorporated under the
Corporation Code. Pursuant to Article IX-B, Sec.
2(1), the civil service embraces only those
government-owned or controlled corporations
with original charter. As such, respondent Clark
Development Corporation and its employees are
covered by the Labor Code and not by the Civil
Service Law (Salenga vs CA)
Private corporations
 Two requisites must concur before one may be
classified as stock corporation, namely:
 1) That it has capital stock divided into
shares; and
2) That it is, authorized to distributed
dividends and allotments of surplus and
profits to its stockholders (Republic vs
City of Paranaque)
 Many government instrumentalities are vested
with corporate powers but they do not become
stock or non-stock corporations, which is
necessary condition before an agency or
instrumentality is deemed a Government-
Owned and Controlled Corporations (GOCC):
These government instrumentalities are
sometimes loosely called corporate entities
(Republic vs City of Paranaque)
Juridical Persons under Art. 44, Civil Code
1) The State and its political subdivisions;
2) Other corporations, institutions and entities for
public interest or purposes, created by law;
3) Corporations, partnerships and associations for
private interest or purpose
COMPONENTS OF A CORPORATION
1. Corporators – those who compose a
corporation, whether as stockholders or
members
2. Incorporators – those mentioned in the Articles
of Incorporation as originally forming and
composing the corporation, having signed the
Articles and acknowledged the same before a
notary public. They have no powers beyond
those vested in them by the statute.
There is only one set of incorporators, hence,
they will remain to be such incorporators up to
the termination of the life of the corporation.
Qualifications
a. Natural person
b. Not less than 5 but not more than 15
c. At legal age
d. Majority must be residents of the
Philippines; and
e. Each must own or subscribe to at least
one share (Sec. 10)
GENERAL RULE: Only natural persons can be
incorporators.
EXCEPTION: When otherwise allowed by law, e.g., Rural
Banks Act of 1992, where incorporated cooperatives are
allowed to be incorporators of rural banks.
Note: However, it is undeniable that corporations can be
corporators.
3. Stockholders – owners of shares of stock in a
stock corporation
4. Members – corporators of a corporation which
as no capital stock
OTHER COMPONENTS
1) Promoter – A person who, acting or with others,
takes initiative in founding an organizing the
business or enterprise of the issuer and receives
consideration therefore (Sec. 3, R.A. 8799)
- He is an agent of the incorporators but not of
the corporation
- Contracts by the promoter for and in behalf of
a proposed corporation generally bind only
him, subject to and to the extent of his
representations, and not the corporation,
unless and until after these contracts are
ratified, expressly or impliedly, by its Board of
Directors/Trustees (Cagayan Fishing
Development vs Sandiko)
2) Subscriber – a person who has agreed and pay
for original and unissued shares of a corporation
formed or to be formed.
3) Underwriter – a person who guarantees on a
firm commitment and/or declared best effort
basis the distribution and sale of securities of any
kind by another company (Sec. 3, RA 8799)
CLASSIFICATION OF SHARES
Common Shares
The basic class of stock ordinarily and usually
issued without extraordinary rights and privileges, and
the owners thereof are entitled to a pro rate share in the
profits of the corporation and its assets upon dissolution
and likewise, in the management of its affairs without
preference or advantage whatsoever.
Common shares or stocks represent the residual
ownership interest in the corporation.
Common shares have complete voting rights.
They cannot be deprived of said rights except as
provided by law.
Doctrine of Equality of Shares (Sec. 6)
 Except as otherwise provided by the Articles of
Incorporation (AI) and stated in the certificate of
stock, each share shall in all respects equal to
each other share.
 In the presence of any provision in the AI and in
the certificate of stock to the contrary, all stocks,
regardless of their class, nomenclature, enjoy
the same rights and privileges and subject to
same liabilities.
Preferred shares
 Shares with a stated par value which entitled the
holder thereof to certain preferences over the
holders of common stock. The preference may
be (a) to asset; or (b) as to dividends; or (c) as
may be determined by the board of directors
when so authorized to do so.
Preferred stockholders are not creditors of the
corporation. They are merely given certain
preferences over common stockholders in case
of liquidation but not the rights of a creditor.
Redeemable Shares
 Share of stocks issued by the corporation which
said corporation can purchase or take up form
their holders as expressly provided for in the
articles of incorporation and certificate of stock
representing said shares at a fixed date or at the
option of the issuing corporation or the
stockholder or both at a certain redemption
price.
 Redeemable shares may be redeemed
regardless of the existence of unrestricted
retained earnings (Sec. 8, CCP) subject to the
condition that the corporation has, after such
redemption, assets in its books to cover debts
and liabilities inclusive of capital stock.
 Hence, redemption may not be made where the
corporation is insolvent or will cause insolvency.
Non-voting shares
 Shares without right to vote
 The law only authorizes the denial of voting
rights in the case of redeemable shares and
preferred shares, provided that there shall
always be a class or series of shares which have
complete voting rights.
 These redeemable and preferred shares, when
such voting rights are denied, shall nevertheless
be entitled to vote on the following fundamental
matters: (ABISIMID/slempo)
a. Amendment of Article of Incorporation
b. Adoption and amendment of by-laws
c. Sale, lease, exchange, mortgage, pledge or
disposition of all or substantially all of
corporate property;
d. Merger or consolidation of capital stock
e. Incurring, creating or increasing of bonded
indebtedness;
f. Increase or decrease of capital stock
g. Investments of corporate funds in another
corporation or another business purpose;
h. Corporate dissolution
Over-issued stock & watered stock
Over-issued stock: Stock issued in excess of the
authorized capital stock. It is also known as spurious
stock. Its issuance is considered null and void.
Watered stock: A stock issued not in exchange for its
equivalent value either in cash, property, share, stock
dividends, or services
“Water” in the stock represents the difference
between the fair market value at the time of the issuance
of the stock and the par or issued value of said stock.
Both par and no par stocks can thus be watered stocks.
 It includes stocks:
a. Issued without consideration (bonus share)
b. Issued as fully paid when the corporation has
received a lesser sum of money than its par or
issued value (discount share)
c. Issued for a consideration other than actual cash
such as property or services, the fair valuation of
which is less than its par or issued value
d. Issued as stock dividend when there are no
sufficient retained earnings to justify it.
Formal Organization
a. Adoption of By-laws and filing of the same with
the SEC
b. Election of board of directors/trustees, and
officers;
c. Establishment of principal office;
d. Providing for subscription and payment of
capital stock
ARTICLES OF INCORPORATION (AI)
 The document prepared by the persons
establishing a corporation and filed with the SEC
containing the matters required by the Code.
 The Articles of Incorporation have been
described as one that defines the charter of the
corporation, and the contractual relationships
between the State and the corporation, the
stockholder and the State and between the
corporation and its stockholders (Lanuza vs CA)
 Significance:
1. The issuance of a certificate of incorporation
signals the birth of the corporation’s juridical
personality;
2. It is an essential requirement for the existence of
a corporation, even a de facto one.
Corporate Name (Sec. 18)
 A corporation’s right to use its corporate and
trade name is a property right, a right in rem
which it may assert or protect against the whole
world in the same manner as it may protect its
tangible property against trespass or conversion
(Philips Export vs CA)
 Statutory limitation: The proposed name must
not be:
a. Identical
b. Deceptively or confusingly similar to that
of any existing corporation or to any
other name already protected by law
c. Patently deceptive, confusing or
contrary to law
d. Contrary to existing laws
Corporate name
 Section 3 of the Revised Guidelines in the
Approval of Corporate and Partnership Names
states that if there be identical, misleading or
confusingly similar name to one already
registered by another corporation or partnership
with the Securities and Exchange Commission
(SEC), the proposed name must contain at least
one (1) distinctive word different from the name
of the company already registered (GSIS Family
Bank vs BPI Family Bank)
Effect of change of corporate name
 The change of name by a corporation has no
more effect upon the identity of the corporation
than a change in name by a natural person has
upon the identity of such person
 It is the same corporation with a different name
(Republic Planters Bank vs CA)
Doctrine of Secondary Meaning
 In the law of trademark, the doctrine is to the
effect that a word or phrase originally incapable
of exclusive appropriation with reference to an
article on the market, be geographically or
otherwise descriptive, might nevertheless have
been used so long as so exclusively by one
produces with reference to his article that, in
that trade and to that branch of purchasing
public, the word or phrase has come to mean
that the article was his product phrase has come
to mean that the article was his product (Phil
Nut Industry v Standards Inc)
COMMENCEMENT OF CORPORATE EXISTENCE
  A corporation commences to have juridical
personality and legal existence only from the
moment of the SEC issues to the incorporators
a certificate of incorporation under its official
seal.
 It is the certificate of incorporation that gives
juridical personality to a corporation and placed
it under the jurisdiction of the commission.
 In the case of religious corporations, the Code
does not require the SEC to issue a certificate of
incorporation. In fact, Sec. 112 clearly states
that form and after the filing with the
Commission of the articles of incorporation, the
chief archibishop shall become a corporation
sole.
 The issuance of the articles calls the corporation
into being but it is not really ready to do
business until it is organized. The corporation
must formally organized and commence the
transaction of its business or the construction of
its works within two years from the date of its
incorporation or, otherwise, its corporate
powers shall cease and it shall be deemed
dissolved (Sec. 22)
Amendment of AI
 Facts not subject to amendments:
1. Names of incorporators;
2. Names of original subscribers to the
capital stock of the corporation and their
subscribed and paid up capital;
3. Treasurer elected by the original
subscribers;
4. Members who contributed to the initial
capital of a non-stock corporation;
5. Date and place of execution of the
articles of incorporation
6. Witnesses to the signing and
acknowledgment of the articles
Grounds for Suspension or Revocation of Certificate of
Registration (Pres. Decree No. 902-A)
1. Fraud in procuring its certificate of incorporation
2. Serious misrepresentation as to what the
corporation can do or is doing to the great
prejudice of, or damage to, the general public
3. Refusal to comply with or defiance of a lawful
order of the SEC restraining the commission of
acts which would amount to a grave violation of
its franchise
4. Continuous inoperation for a period of at least 5
years
5. Failure to file the by-laws within the required
period
6. Failure to file required reports
Effects of Non-Use of Corporate Charter (Sec. 22)
 If a corporation does not formally organize and
commence the transaction of its business or the
construction of its works within 2 years from the
date of incorporation, its corporate powers
cease and the corporation shall be deemed
dissolved
 If a corporation has commenced transaction of
its business but subsequently becomes
continuously inoperative for a period of at least
5 years, the same shall be a ground for the
suspension or revocation of its corporate
franchise or certificate of incorporation.
 If the non-use of corporate charter or continuous
inoperation of a corporation is due to causes
beyond its control as found by the Commission,
the effects mentioned shall not take place.
BOARD OF DIRECTORS AND TRUSTEES
 Qualifications:
1. For a stock corporation, ownership of at
least 1 share capital stock of the
corporation in his own name, and if he
ceases to own at least one share in his
own name, he automatically ceases to
be a director (Sec. 23)
For a non-stock corporation, only
members of the corporation can be
elected to the Board of Trustees.
In order to be eligible as a director, what
is material is the legal title to, not
beneficial ownership of the stocks
appearing on the books of the
corporation.
A person who does not own a stock at
time of his election or appointment does
 not disqualify him as a director if he
becomes a shareholder before assuming
the duties of his office.
A person who is not a stockholder
cannot be a director, but he can be an ex
officio member without voting rights in
the board (Grace Christian High School
vs CA)
2. A majority of the directors/trustees
must be residents of the Philippines (Sec.
23)
3. He must not have been convicted by
final judgment of an offense punishable
by imprisonment for a period exceeding
6 years or a violation of the Corporation
Code, committed within five years from
the date of his election (Sec. 27)
4. Only natural persons can be elected
directors/trustees.
In case of corporate stockholders or
members, their representation in the
board can be achieved by making their
individual representatives trustees of
the shares or membership to make them
stockholders/members of record
5. Other qualifications as may be
prescribed in the bylaws of the
corporation.
6. Must be of legal age
Methods of Voting (Sec. 24)
1. Straight Voting - every stockholder may vote
such number of votes for as many persons as
there are directors to be elected
2. Cumulative Voting for One Candidate – a
stockholder is allowed to concentrate his votes
and give one candidate as many votes as the
number of directors to be elected multiplied by
the number of his shares shall equal.
3. Cumulative Voting by Distribution – by this
method, a stockholder may cumulate his shares
by multiplying also the number of his shares by
the number of directors to be elected and
distribute the same among as many candidates
as he shall see fit.
 Cumulative voting being a statutory right, a
corporation is without power to deprive the
stockholders of its use or even restrict the right
to vote to only one way or method. A
stockholder may or may not exercise the right as
he shall see fit (SEC Opinion, Oct. 20, 1964)
Term of Office (Sec. 23)
 The directors or trustees shall serve for a term of
one year and until their successors are elected
and qualified. If no election is conducted or no
qualified candidate is elected, they shall
continue to act as such in a hold-over capacity
until an election is held and a qualified candidate
is so elected (HOLD-OVER PRINCIPLE)
[Corporation Code of the Philippines, Ruben C.
Ladia, 2001 Ed]
Board of Trustees
The second paragraph of Section 108 of the
Corporation Code, although setting the term of the
members of the Board of Trustees at five years, contains
a proviso expressly subjecting the duration to what is
otherwise provided in the articles of incorporation or by-
laws of the educational corporation – that contrary
provision controls on the term of office (Barayuga vs
Adventist University of the Philippines)
On occupying an office in a hold-over capacity
could be removed at any time, without cause, upon the
election or appointment of his successor. (Barayuga vs
Adventist University of the Philippines)
Removal of Directors or Trustees
 The law does not specify cases for removal of a
director or trustee nor even require that removal
should be for sufficient cause or reason.
However, the incumbent directors or trustees
cannot be removed merely by replacing a new
set of directors or trustees.
 Causes of removal:
General Rule: the removal maybe with or
without cause. This is based on the rationale
that the stockholders should have the power to
judge the fitness of directors at any time.
 Exception: Removal without cause may not be Who shall be declared elected?
used to deprive minority stockholders or
members of the right of representation in the  The candidate receiving the highest number of
board. votes shall be declared elected.
However, if it is the minority  What is required is only PLURALITY not majority.
shareholders who will remove their DEADLOCK?
representative, the removal maybe with or
without cause. May be decided by drawing of lots among the candidates
in the absence of any provision in the by-laws. If they do
not agree, another vote will be made.
Causes of Vacancy
I – Increase in the D - Death Effect when a stockholder executes a Voting Trust
number of the board Agreement
R - Removal R - Resignation
E – Expiration of Term A - Abandonment A voting trust agreement results in the separation of the
D - Disqualification voting rights of a stockholder from his other rights such
as the right to receive dividends, the right to inspect the
books of a corporation, the right to sell interests in the
FILLING OF VACANCY
assets of the corporation and other rights to which a
BY THE STOCKHOLDERS BY THE BOARD
or MEMBERS stockholder may be entitled until the liquidation of the
1. If the cause of vacancy 1. If the cause of removal corporation.
is by is
A voting trust agreement is an agreement in writing
IRE: increase, removal or DRAD: Death, whereby one or more stockholders of a corporation
expiration of term resignation, consent to transfer his or their shares to a trustee in
abandonment, or order to vest in the latter voting or other rights
disqualification pertaining to said shares for a period not exceeding five
2. If the vacancy is other 2. The remaining board years upon the fulfilment of statutory conditions and
than by IRE but the that still constitutes a
such other terms and conditions specified in the
remaining board does not quorum. If not, the
constitute a quorum shareholders. agreement. (Lee vs CA)

BOARD OF DIRECTORS/TRUSTEES AS REPOSITORY OF

How should a vacancy be filled up due to the CORPORATE POWERS
resignation of a director during his hold-over capacity?
The corporate powers of the corporation shall be
It should be filled up by the stockholders in a exercised, all business conducted and all property of such
meeting called for the purpose. The separation is not be corporation controlled and held by the board of directors
resignation but by the expiration of the term. The or trustees. (Sec. 23)
holdover period is not part of the term of office of a
Section 23 of the Corporation Code expressly provides
member of the board of directors. The holdover period
that all corporate powers shall be exercised by the
is NOT part of the director’s original term of office, nor is
board. Just as natural person may authorize another to
it another term; the holdover period, however,
do certain acts in its behalf, so may the board validly
constitutes part of his tenure. Corollary, when an
delegate some of its functions to individual officer or
incumbent member of the board of directors continue to
agents. Absent such valid delegation, the rule is that the
serve in a holdover capacity, it implies that the office has
declarations of an individual director relating to the
a fixed term, which has expire, and the incumbent is
affairs of the corporation, but not in the course of, or
holding the succeeding term (Valle Verde Country Club vs
connected with the performance of authorized duties of
Africa)
such director, are held not binding on the corporation
(AF Realty & Dev’t vs Dieselman Freight Services)
The BOARD: the seat of power
 The general rule is that, in the absence of
authority from the board of directors, no person,
not even its officers, can validly bind a
corporation (Cebu Mactan Members Center sv
Tsukuhara)
The members of the board of directors have a three-fold
duty: duty of obedience, duty of diligence, and duty of
loyalty (Alliance Dev’t Corp vs Rodstock Securities)
Where a director, by virtue of his office, acquires
for himself a business opportunity which should belong
to the corporation, thereby obtaining profits which
should belong to the corporation, he must account to the
latter for all such profits by refunding the same (Sec. 34)
(DOCTRINE OF CORPORATE OPPORTUNITY)
Doctrine of Centralized Management
The concentration of powers on the board is a
reflection of the “centralized management” concept. The
Stockholders do not manage the corporation. By
becoming stockholders of a corporation, which the law
mandates should have a board, the stockholders are
deemed to have consented to the management and
control of the corporation by the board.
The concentration in the board of the powers of
control of corporate business and appointment of
corporate officers and managers is necessary for
efficiency in any large organization. Stockholders are too
numerous, scattered and unfamiliar with the business of
a corporation to conduct its business directly. And so the
plan of corporate organization is for the stockholders to
choose the directors who shall control and supervise the
conduct of corporate business (Filipinas Port Services vs
Go)
Theory of delegated power
The board of directors is the directing and
controlling body of the corporation. It is a creation of the
stockholders and derives its powers to control and direct
the affairs of the corporation from them. The board of
directors, in drawing to themselves the powers of the
corporation, occupies a position of trusteeship in relation
to the stockholders, in the sense that the board should
exercise not only care and diligence, but utmost good
faith in the management of corporate affairs (Valle Verde
Country Club vs Africa)
The theory of delegated power of the board of
directors similarly explains why, under Section 29 of the
CCP, in cases where the vacancy in the corporation’s
board of directors is caused not by the expiration of a
member’s term, the successor “so elected to fill in a
vacancy shall be elected only for the unexpired term of
his predecessor in office.” The law has authorized the
remaining members of the board to fill in a vacancy only
in specified instances, so as not to retard or impair the
corporation’s operations, yet in recognition of the
stockholder’s right to elect the members of the board, it
limited the period during which the successor shall serve
only to the “unexpired term of his predecessor in office”
Special fact doctrine
Directors owe no fiduciary duty to stockholders but they
may deal with them at arm’s length. No duty to disclose
facts known to the directors or officer. Conceding the
absence of a fiduciary relationship in the ordinary case,
courts nevertheless hold that where special
circumstances of facts are present which make it
inequitable for the director to withhold information from
the stockholder, the duty to disclose arises and
concealment is fraud. This is known as the special facts
doctrine (Strong vs Repide)
Doctrine of Apparent Authority/Ostensible
Agency/Holding Out Theory
 A corporation like the United Cocounit Planters
Bank (UCPB) is liable to third persons where it
knowingly permits its officer, or any other
agent, to perform acts within the scope of his
general or apparent authority, holding him out
to the public as possessing power to do these
acts (UCPB vs Planters Products, Inc)
  Apparent authority, or what is sometimes
referred to as the “holding out” theory, or the
doctrine of ostensible agency, imposes liability,
not as the result of the reality of a contractual
relationship, but rather because of the actions of
a principal or an employer in somehow
misleading the public into believing that the
relationship or the authority exists (Megan
Sugar Corp vs RTC of Iloilo)
 Apparent authority is determined by the acts of
the principal and not by the acts of the agent
(Banate vs Philippine Countryside Rural Bank)
Business Judgment Rule
 Question of policy and management are left to
the honest decision of the officers and directors
of a corporation, and the courts are without
authority to substitute their judgment for the
judgment of the board of directors. The board is
the business manager of the corporation, and so
long as it acts in good faith, its orders are not
reviewable by the courts (PSE vs CA)
Ratification of unauthorized acts
The law allows a corporation to ratify the unauthorized
acts of its corporate officer. With the ratification by
petitioner NYK Fil of Raneses accomplishing the
verification and certification of non-forum shopping
which accompanied petitioner’s petition for certiorari
before the Court of Appeals, said petitioner had
substantially complied with the requirements of the law.
Any defect in the signing of the verification and
certification of non-forum shopping, or even excused the
non-compliance therewith, this Court a fortiori should
allow the timely submission of such requirements, albeit
the proof of the authority of the signatory was put
forward only after (Nky Fil Shop Management vs
Talavera)
CORPORATE OFFICERS
1. President – must be a director and he may not
be concurrently the treasurer or secretary
2. Treasurer – may or may not be a director as a
matter of sound corporate practice, must be a
resident
3. Secretary – need not be a director unless
required by the by-laws; must be a resident and
citizen of the Philippines; and
4. Such other officers as may be provided in the by-
laws.
Creation of an office in the by-laws
 The creation of an office pursuant to or under a
by-law enabling provision is not enough to make
a position a corporate office.
 The statement in Tabang , to the effect that
offices not expressly mentioned in the By-laws,
but were created pursuant to a By-law enabling
provision were also considered corporate
officers was plainly obiter dictum
 The power to elect the corporate officers was
discretionary power that the law exclusively
vested in the Board of Directors, and could not
be delegated to subordinate, officers or agents
(Matlin Industrial and Commercial Corp vs Coros)
 Though the Board of Directors may create
appointive positions other than the positions of
corporate officers, the persons occupying such
positions cannot be viewed as corporate officers
under Section 25 of the Corporation Code.
Unless and until the corporation’s by-laws is
amended for the inclusion of General Manager
in the list of its corporate officers, such position
cannot be considered as a corporate office
within the realm of Section 26 of the Corporation
Code (March II Marketing Inc vs Joson)
De Facto Officer
 On who is elected by persons not entitled to vote
are deemed as de facto officers. De facto officers
who in good faith assumed their duties and
responsibilities as duly elected members of the
board are legally entitled to the emoluments of
the office including salary, fees and other
compensation attached to the office until they
vacate the same.
 The acts of a de facto officer are valid and
binding as between the corporation and its
 stockholders or members. They are also valid
and binding as to third persons dealing with
them in ignorance of their want of legal right to
the office. (Cojuangco vs Roxas)
Teleconference now legally possible
In this age of modern technology, the courts may take
judicial notice that business transactions may be made
by individuals through teleconferencing. In the
Philippines, teleconferencing and videoconferencing of
members of the board of directors of private
corporations is a reality, in light of Republic Act No. 8792.
The Securities and Exchange Commission issued SEC
Memorandum No. 15, on November 30, 2011, providing
the guidelines to be complied with related to such
conferences (Expertravel & Tours Inc vs CA)
By laws
 In order to be bound, the third party must have
acquired knowledge of the pertinent by-laws at
the time the transaction or agreement between
said third party and the shareholder was entered
into (China Bank vs CA)
 There can be no automatic corporate dissolution
simply because the incorporators failed to abide
by the requested filing of the by-laws embodied
in Section 46 of the Corporation Code.
There is no outright “demise” of corporate
existence, it is however, a ground for dissolution
after due notice and hearing. The SEC may also
suspend or revoke, after due notice and hearing,
the franchise of certificate of registration.
(Loyola Grand Villas vs CA)
Trust Fund Doctrine
 Under the trust fund doctrine, the capital stock,
property and other assets of a corporation are
regarded as equity in trust for the payment of
corporate creditors, who are preferred in
distribution of corporate assets (Turner vs
Lorenzo Shipping Corp)
 The trust fund doctrine is not limited to reaching
the stockholder’s unpaid subscriptions. The
scope of the doctrine when the corporation is
insolvent encompasses not only the capital
stock, but also other property and assets
generally regarded in equity as a trust fund for
the payment of corporate debts. All assets and
property belonging to the corporation held in
trust for the benefit of creditors that were
distributed or in the possession of the
stockholders, regardless of full payment of their
subscriptions, may be reached by the creditor in
satisfaction of its claim. (Donnina Haley vs
Printwell Inc)
Meeting: quorum –basis of computation
 The Articles of Incorporation (AI) and not the
stock and transfer book (STB) should be the
basis of the quorum. The STB cannot be used as
a sole basis for determining the quorum as it
does not reflect the totality of shares which have
been subscribe, more so when the AI show a
significantly larger amount of shares issued and
outstanding as compared to that listed in the
STB.
 Quorum is based on the totality of the shares of
which have been subscribed and issued whether
it be founders’ shares or common shares.
 One who is actually a stockholder cannot be
denied his right to vote by the corporation
merely because the corporate officers failed to
keep its records accurately. A corporation’s
records are not the only evidence of the
ownership of stock in a corporation.
 In fact, the acts and conduct of the parties may
even constitute sufficient evidence of one’s
status as a shareholder or member (Lanuza vs
CA)
Shares of Stock
Consideration for stocks:
Any or a combination of the following:
a) Actual cash paid to the corporation
b) Property, tangible or intangible, which must be:
1. Actually received by the corporation
2. Necessary or convenient for its use and
lawful purposes at a fair valuation equal
 to the par or issued value of the stock
issued
c) Labor performed for or services actually
rendered to the corporation
d) Previously incurred indebtedness by the
corporation
e) Amounts transferred from unrestricted retained
earnings to stated capitals
f) Outstanding shares exchanged for stocks in the
event of reclassification or conversion.
Prohibited consideration for stocks
a) Promissory notes
b) Future services
 CHECKS may be accepted by the corporation for
the subscriptions. However, the shares shall not
be considered paid until the checks have been
cashed. (Art. 1249, Civil Code)
Certificate of Stock
A stock certificate is prima facie evidence that
the holder is a shareholder of the corporation, but the
possession of the certificate is not the sole determining
factor one’s stock ownership. A certificate of stock is
merely: - xxx the paper representative or tangible
evidence of the stock itself and of the various interests
therein. The certificate is not stock in the corporation
but is merely evidence of the holder’s interest and
status in the corporation, his ownership of the share
represented thereby, but is not in law the equivalent of
such ownership. It expresses the contract between the
corporation and the stockholder, but it is not essential to
the existence of a share in stock or the creation of the
relation of shareholder to the corporation. (Grace
Borgona vs Abra Valley Colleges)
Transfer of shares
Section 63. Certificate of stock and transfer of
shares. – xxx Shares of stock so issued are personal
property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or his
attorney-in-fact or other person legally authorized to
make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is
recorded in the books of the corporation showing the
names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and
the number of shares transferred.
No shares of stock against which the corporation
holds any unpaid claim shall be transferable in the books
of the corporation.
Recording in the STB
Only absolute transfers of shares of stock are required
to be recorded in the corporation’s stock and transfer
book in order to have force and effect as against third
persons. Hence, the attachment lien is not required to be
registered in the books of the corporation to be valid and
effective against the corporation and third party
(Chemphil vs CA)
Effect of transfer not recorded in the STB
All transfer of share of stock must be registered in the
corporate books in order to be binding on the
corporation (F&S Velasco Company Inc vs Madrid)
A transfer of a share of stock not recorded in the stock
and transfer book is non-existent as far as the
corporation is concerned. From the corporation’s point
of view, the transfer is not effective until it is recorded
(VC Ponce vs Cement)
Sale of Shares of Stock
In a sale of shares of stock, physical delivery of a stock
certificate is one of the essential requisites for the
transfer of ownership of the stocks purchased (PI-Estate
Gold and Dev’t Inc vs Vertex Sales and Trading Inc)
Restrictions on transfer of stock not allowed. It is a
personal and private property; the owner has the right to
dispose off his stock in any manner he/she wishes. The
transfer, however, maybe regulated.
Collection of unpaid subscription
Unpaid claim-meaning
The term “unpaid claim” refers to “any unpaid
claim arising from unpaid subscription, and not to any
indebtedness which a subscriber or stockholder may owe
the corporation arising from any transaction (Chinabank
vs CA)
Notice of Call
If a stockholder in a stock corporation subscribes
to a certain number of shares of stock, and makes partial
payments for which he is issued a certificate of stock, he
is entitled to vote the latter notwithstanding the fact that
he has not paid the balance of his subscription which has
been called for payment or declared delinquent.
If the entire subscribed shares of stock are not
paid, the paid shares of stock may not be deprived of the
right to vote, until the entire subscribed shares of stock
are fully paid, including interest (Baltazar vs Lingayen)
Delinquent and unpaid shares
 Failure to pay subscription on due date or in case
of notice of call, shall render ALL stocks covered
by the subscription delinquent (Sect. 6_)
 Effect of delinquency:
1) The delinquent share shall not be voted
2) It shall not be entitled to vote or to
representation at any stockholders
meeting
3) The holder shall not be entitled to any
rights of stockholder, except the right to
dividends
 Delinquent shares may sold an auction sale
(delinquency sale)
 Highest bidder – the one who offers to
pay the full amount of the balance of the
subscription, accrued interest, cost of
advertisement and expenses for the
smallest number of shares
 RIGHTS OF UNPAID SHARES: Holders of shares
not fully paid which are not delinquent shall have
all the rights of a stockholder (Sec. __) except the
right to a stock certificate (Sec. 64)
Capital and common shares and foreign ownership
The term “capital” in Section 11; Article XII of the
Constitution refers only to shares of stocks entitled
to vote in the election of directors, and thus in the
present case only to common shares, and not the
total outstanding capital stock, comprising both of
common and non-voting preferred shares (Gamboa
vs Teves, 2011)
The Constitution expressly declares as State
policy the development of an economy “effectively
controlled” by Filipinos. Consistent with such State
policy, the Constitution explicitly reserves the
ownership and operation of public utilities to
Philippine nationals, who are defined in the Foreign
Investments Act of 1991 as Filipino citizens, or
corporations or associations at least 60 percent of
whose capital with voting rights belongs to Filipinos.
The FIA’s implementing rules explain that “for stocks
to be deemed owned and held by Philippine citizens
or Philippine nationals, mere legal title is not enough
to meet the required Filipino equity. Full beneficial
ownership of the stocks, coupled with appropriate
voting rights is essential.” In effect, the FIA clarifies,
reiterates and confirms the interpretation that the
term “capital” in Section 11, Article XII of the 1987
Constitution refers to shares with voting rights, as
well as with full beneficial ownership. This is
precisely because the right to vote in the election of
directors, coupled with full beneficial ownership of
stocks, translates to effective control of a
corporation (Gamboa vs Teves, 2012).
Derivative Suit
 A derivative suit “is an action filed by
stockholders to enforce a corporate action.” A
derivative suit, therefore, concerns “a wrong to
the corporation itself.” The real party in interest
is the corporation, not the stockholders filing
the suit. The stockholders are technically
nominal parties but are nonetheless the active
persons who pursue the action for and on behalf
of the corporation (Florete Jr. vs Florete Sr)
 In derivative suits, the corporation concerned
must be impleaded as party
 For a derivative suit to prosper, it is required that
the minority stockholder suing for and in behalf
of the corporation must allege in his complaint
that he is suing on a derivative cause of action on
behalf of the corporation and all other
stockholders similarly situated who may wish to
 join him in the suit (Go vs D_____ Properties
Dev’t)
Status or Relationship Test in intra-corporate
controversy
In the relationship test, it is one which pertains to any of
the following relationships:
a) Between the corporation, partnership or
association and the public
b) Between the corporation, partnership or
association and its stockholders, partners,
members or officers
c) Between the corporation, partnership or
association and the State insofar as its franchise,
permit or license to operate is concerned
d) Among the stockholders, partners or associates
themselves.
As the definition is broad enough to cover all kinds of
controversies between the stockholders and
corporations, the traditional interpretation was to the
effect that the relationship test brooked no distinction,
qualification or any exemption whatsoever (Go vs _____
Properties Dev’t)
Controversy Test in Intra-Corporate Controversy
Under that nature of the controversy test, the dispute
must not only be rooted in the existence of intra-
corporate relationship, but must also refer to the
enforcement of the parties’ correlative rights and
obligations under the Corporation Code as well as the
internal and intra-corporate regulatory rules of the
corporation. The combined application of the
relationship test and the nature of the controversy test,
consequently, become the norm in determining whether
a case is an intra-corporate controversy or is purely civil
in character (Strategic Alliance Dev’t Corp vs Star
Infrastructure Dev’t Corp)
Cases on intra-corporate controversy
 Dispute as to the validity of the assessment of
condominium dues/fees is an intra-corporate
dispute (Medical Plaza vs C___)
 A corporate officer’s dismissal is always a
corporate act or an intra-corporate controversy
(Okol vs Slimmer’s World)
 An accounting demand by a stockholder of
association dues from a condominium is intra-
corporate in nature (Chateu de Boie vs Moreno)
 A complaint by a condominium unit owner
against the condominium corporation for
violation of the master deed of restrictions of the
condominium and for alleged misrepresentation
in their circulated flyers and brochures as to the
facilities or amenities that would be available to
the condominium is an intra-corporate
controversy (Go vs ___ Properties)
Suits
Where a stockholder or member is denied the
right of inspection, his suit would be individual because
the wrong is done to him personally and not to the other
stockholders or the corporation. Where the wrong is
done to a group of stockholders, as where preferred
stockholder’s rights are violated, a class or
representative suit will be proper for the protection of
all stockholders belonging to the same group. But where
the acts complained of constitute a wrong to the
corporation itself, the cause of action belongs to the
corporation and not to the individual stockholder or
member.
Nuisance or harassment suit
In determining whether a suit is a nuisance or
harassment suit, the court shall consider, among others,
the following:
1) The extent of the shareholding or interest of the
initiating stockholder or member
2) Subject matter of the suit
3) Legal and factual basis of the complaint
4) Availability of appraisal rights for the act or acts
complained of
5) Prejudice or damage to the corporation,
partnership, or association in relation to the
relief sought (Ang vs Ang)
Merger and Consolidation
  In the merger of two existing corporations, one
of the corporations survives and continue the
business, while the other is dissolved and all its
rights, properties and liabilities are acquired by
the surciviving corporation (Babel(?) vs CA)
Human beings are not embraced in the term “assets and
liabilities”; Surviving corporations are not mandated to
absorb employees of the non-surviving corporation
 In legal parlance, human beings are never
embraced in the terms “assets and liabilities”
 The Corporation Code does not mandate the
absorption of the employees of the non-
surviving corporation by the surviving
corporation in the case of merger (BPI vs BPI
Employees)
Sale is NOT merger or consolidation
A corporation that purchase the assets of
another will not be liable for the debts of a selling
corporation provided the former acted in good faith and
paid adequate consideration for such assets, except
when any of the following circumstances is present:
1) Where the purchaser expressly or impliedly
agrees to assume the debts;
2) Where the transaction amounts to merger or
consolidation
3) Where the purchasing corporation is merely a
continuation of the selling corporation
4) Where the transaction is fraudulently entered
into to escape liability. (PNB vs Andrada)
YI Leisure Phils vs James Yu
Sometimes in 1997, Mt. Arayat Dev’t Co Inc., (Madci),
a real estate development company, sold shares of a
golf and country club to the public. James Yu bought
and fully paid 500 golf and 150 country club shares for
P650,000.00. Three years later, James found out that
the supposed site of the club was non-existent. He
demanded for the return of his money from Madci.
Due to the failure to pay, James sued Madci, he
included Y-I Lesiure Phil, Yats Int’l and Y-I Clubs and
Resorts in his complaint because, in 1999, Madci sold
substantially all of its assets consisting of 120 hectares
of land in Pampanga, to them.
By selling the 120 hectares of land, which all that
Madci had for purposes of accomplishing its objective
to operate a golf and country club, to YIL, Madci
rendered itself incapable or unable to continue the
business for which it was incorporated. YIL, which was
in the business of developing real estate properties for
leisure and tourism purposes, continued the business
of Madci and undertook the development of the golf
course. Thus, YIL inherited the liabilities of Madci
because it acquired all of the assets of the latter.
YIL was held jointly and severally liable with Madci in
satisfying Yu’s demand for payment.
Nell Doctrine
 The Nell Doctrine states the general rule that the
transfer of all assets of a corporation to another
shall not render the latter liable to the liabilities
of the transferor.
 The exception of the Nell Doctrine, which finds
its legal basis under Section 40, provides that the
transferee corporation assumes the debts and
liabilities of the transferor corporation because
it is merely a continuation of the latter’s
business.
 The first exception under the Nell Doctrine,
where the transferee corporation expressly or
impliedly agrees to assume the transferor’s
debts, is provided under Aritlce 2407 of the Civil
Code.
 The second exception under the Nell Doctrine, as
to the merger and consolidation of corporations,
is well-established under Sections 76 to 80, Title
X of the Corporation Cod. If the transfer of assets
of one (1) corporation to another amounts to a
merger or consolidation, then the transferee
corporation must take over the liabilities of the
transferor (Y-I Leisure Phil vs James Yu)
Business-enterprise transfer rule
In a business-enterprise transfer, the transferee is liable
for the debts and liabilities of his transferor arising from
the business enterprise conveyed (Y-I Leisure Phil vs
James Yu)
Whoever acquires in bad faith the things alienated in
fraud of creditors, shall indemnify the latter for damages
suffered (Y-I Leisure Phil vs James Yu)
Appraisal Right
 A stockholder who dissents from certain
corporate actions has the right to demand
payment of the fair value of his or her shares.
This right, known as the right of appraisal, is
expressly recognized in Section 81 of the
Corporation Code.
 The right of appraisal may be exercised when
there is a fundamental change in the charter or
articles of incorporation substantially
prejudicing the rights of the stockholders. It does
not vest unless objectionable corporation action
is taken. It serves the purpose of enabling the
dissenting stockholder to have his interests
purchased and to retire from the corporation.
 No payment shall be made to any dissenting
stockholder unless the corporation has
unrestricted retained earnings in its books to
cover the payment. In case the corporation has
no available unrestricted earnings in its, Section
83 of the Corporation Code provides that if the
dissenting stockholder is not paid the value of
his shares within 30 days after the award, his
voting and dividend rights shall immediately be
restored. (Turner vs Lorenzo Shipping Corp)
Non-stock corporations
 Voting Rights
The provision in Section 89 of the CCP is explicit
on the right of a member to vote by mail. Voting
by mail must be clearly set forth in the by-laws
subject to SEC Approval and such terms and
conditions that may be imposed by the
Commission before it can be exercised by the
members (SEC Opinion No. 04-50 dated 2-17-04)
 Limitations in voting rights of members
Section 89 of the Corporation Code pertaining to
non-stock corporations provides that “the right of the
members of any class or classes (of a non-stock
corporation) to vote may be limited, broadened or
denied to the extent specified in the articles of
incorporation or the by-laws.” This is an exception to
Section 6 of the same code where it is provided that “no
share may be deprived of voting rights except those
classified and issued as preferred or redeemable shares,
unless otherwise provided in this Code (Luis __ vs CA)
Religious corporations
Section 116 of the Corp. Code (as well as Sec. 160
of the former Corporation Law) does not provide for a
term of existence of religious corporations whether
classified as a corporation sole or corporation aggregate.
As such, the law intends that religious organizations may
exist perpetually (SEC Opinion dated 10 Dec. 1981).
Moreover, where the articles of incorporation does not
provide for a term of existence, it shall be understood
that the intention is for the corporation to exist for an
indefinite period (SEC Opinion dated 23 oct. 1991; SEC
Opinion No. 45 dated 2_ Nov. 2004)
Corporation Sole
A corporation sole does not have nationality. But for the
purposes of applying our nationalization laws, nationality
is determined not by the nationality of its head but by
the nationality of the members of the sect in the
Philippines (Roman Catholic vs LRC)
Close Corporations
In a close corporation, a board resolution
authorizing the sale or mortgage of a property is not
necessary to bind the corporation for the action of its
president. At any rate, a corporate action taken at a
board meeting without proper call or notice in a close
corporation is deemed ratified by the absent director
unless the later promptly files his written objection with
the secretary of the corporation after having knowledge
of the meeting (_____ vs CA)
A stockholder who actively engaged in the
management or operations of the business and affairs of
a close corporation shall be personally liable for
corporate torts unless the corporation has obtained a
reasonable adequate liability insurance.
Corporate tort
“Tort” consist in the violation of a right given or
the omission of a duty imposed by law. Simply stated,
tort is a breach of a legal duty. Article 283 of the Labor
Code mandates the employer to grant separation pay to
employees in case of closure or cessation of operations
of establishment or undertaking not due to serious
business losses or financial reverses.
Dissolution
The power of the SEC
Under Sec 5(m) of the Securities Regulation
Code, the SEC is vested with the power and function to
suspend or revoke, after proper notice and hearing, the
franchise or certificate of registration of corporations,
partnerships or associations, upon any of the grounds
provided for by law (Gamboa vs Teves, 2011)
Effect of Non-filing of by-laws within the prescribed
period
 There can be no automatic corporate dissolution
simply because the incorporators failed to abide
by the required filing of the by-laws embodied in
Section 46 of the Corporation Code.
 There is no outright “demise” of corporate
existence. It is, however, a ground for dissolution
after due notice and hearing. The SEC may also
suspend or revoke, after due notice and hearing,
the franchise of certificate of registration (Loyola
Grand Villas vs CA)
At the very least, the corporation may be
considered a de facto corporation who right to
exist maynot be inquired into a collateral
manner (Sawa___ vs CA)
Liquidation in insolvency
If the court finds the petition sufficient in form
and substance, it shall issue a liquidation order declaring
the debtor insolvent which shall have the following
effects: the debtor shall be deemed dissolve, and its
corporate or juridical existence terminated, legal title to
the assets of the debtor shall be deemed vested in the
liquidator, and all contracts of the debtor are deemed
terminated, no foreclosure proceedings shall be allowed
for a period of one hundred eighty (180) days. (Sec. 113,
FRIA)
Sec. 144, Corporation Code.
If violation of the Corporation Code is committed by a
corporation, the same may, after notice and hearing, be
dissolved in an appropriate proceeding by the Securities
and Exchange Commission (SEC).
3-year winding up
Under Section 122 of the Corporation Code, a
corporation whose corporate existence is terminated in
any manner continues to be a body corporate for three
(3) years after its dissolution for purposes of prosecuting
and defending suits by and against it and to enable it to
settle and close its affairs, culminating in the disposition
and distribution of its remaining assets. It may, during
the three-year term, appoint a trustee or a receiver who
may act beyond that period (Pepsi Cola vs CA)
A corporation’s board of directors is not rendered
functus officio by its dissolution
A corporations’ board of directors is not
rendered functus officio by its dissolution. Since Section
122 allows a corporation to continue its existence for a
limited purpose, necessarily there must be a board of
that will continue acting for and on behalf of the
dissolved corporation for that purpose (Aguirre vs ___)
Foreign Corporations
The purpose of the law in requiring that foreign
corporation doing business in the country be licensed to
do so, is to subject the foreign corporations to the
jurisdiction of our courts (Continental Micronesia Inc vs
__)
Principles regarding the right of a foreign corporation to  Appointment of distributor in the Philippines is
bring suit in Philippine courts: not doing business (Steelcase vs Design
International Selections)
1) If a foreign corporation (FC) does business in the  Soliciting purchases does not constitute doing
Philippines, it needs no license to sue before
business (Corgil Inc vs Intra Strata)
Philippine Courts  Participating in a bidding for a modern marine
2) If a FC is not doing business in the Philippines, it container terminal constitute “doing business”
needs no license to sue before Philippine Courts (European Resources and Technologies vs
on an isolated transaction or on a cause of action
Ingeniusburo________)
entirely independent of any business
transaction.
3) If a FC does business in the Philippines without a
license, a Philippine citizen or entity which has
contracted with said corporation may be
stopped form challenging the FC’s corporate
personality in a suit before Philippine courts and
4) If a FC does business in the Philippines with the
required license, it can sue on Philippine courts
or any transaction (Agilent Tech Singapore vs
Integrated Silicon Tech)

DOING BUSINESS

It implies a continuity of commercial dealings and

arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of
the functions normally incident to or in progressive
prosecution of the purpose and subject of its
organization. To constitute “doing business”, the activity
to be undertaken in the Philippines is one that is for
profit-making.

 Two tests to determine whether a FC is doing

business in the country:
1) SUBSTANTIVE TEST: Whether the FC is
continuing the body of the business or enterprise
for which it was organized or whether it was
substantially retired from it and turned it over to
another
2) CONTINUITY TEST: it implies a continuity of
commercial dealings and arrangements, and
contemplates, to that extent, the performance
of acts or works or the exercise of some of the
functions normally incident to, and in the
progressive prosecution of, the purpose and
object of its organization.

“Doing Business”