Batas Pambansa Bilang 68 Section 6. Classification of shares.

– The shares of
stock of stock corporations may be divided into
THE CORPORATION CODE OF THE classes or series of shares, or both, any of which
PHILIPPINES classes or series of shares may have such rights,
privileges or restrictions as may be stated in the
Be it enacted by the Batasang Pambansa in session articles of incorporation: Provided, That no share
assembled: may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable"
TITLE I shares, unless otherwise provided in this Code:
GENERAL PROVISIONS Provided, further, That there shall always be a class
DEFINITIONS AND CLASSIFICATIONS or series of shares which have complete voting rights.
Any or all of the shares or series of shares may have a
Section 1. Title of the Code. – This Code shall be par value or have no par value as may be provided for
known as "The Corporation Code of the Philippines." in the articles of incorporation: Provided, however,
(n) That banks, trust companies, insurance companies,
public utilities, and building and loan associations
Section 2. Corporation defined. – A corporation is an shall not be permitted to issue no-par value shares of
artificial being created by operation of law, having stock.
the right of succession and the powers, attributes and
properties expressly authorized by law or incident to Preferred shares of stock issued by any corporation
its existence. (2) may be given preference in the distribution of the
assets of the corporation in case of liquidation and in
Section 3. Classes of corporations. – Corporations the distribution of dividends, or such other
formed or organized under this Code may be stock or preferences as may be stated in the articles of
non-stock corporations. Corporations which have incorporation which are not violative of the
capital stock divided into shares and are authorized to provisions of this Code: Provided, That preferred
distribute to the holders of such shares dividends or shares of stock may be issued only with a stated par
allotments of the surplus profits on the basis of the value. The board of directors, where authorized in the
shares held are stock corporations. All other articles of incorporation, may fix the terms and
corporations are non-stock corporations. (3a) conditions of preferred shares of stock or any series
thereof: Provided, That such terms and conditions
Section 4. Corporations created by special laws or shall be effective upon the filing of a certificate
charters. – Corporations created by special laws or thereof with the Securities and Exchange
charters shall be governed primarily by the provisions Commission.
of the special law or charter creating them or
applicable to them, supplemented by the provisions Shares of capital stock issued without par value shall
of this Code, insofar as they are applicable. (n) be deemed fully paid and non-assessable and the
holder of such shares shall not be liable to the
Section 5. Corporators and incorporators, corporation or to its creditors in respect thereto:
stockholders and members. – Corporators are those Provided; That shares without par value may not be
who compose a corporation, whether as stockholders issued for a consideration less than the value of five
or as members. Incorporators are those stockholders (P5.00) pesos per share: Provided, further, That the
or members mentioned in the articles of incorporation entire consideration received by the corporation for
as originally forming and composing the corporation its no-par value shares shall be treated as capital and
and who are signatories thereof. shall not be available for distribution as dividends.

Corporators in a stock corporation are called A corporation may, furthermore, classify its shares
stockholders or shareholders. Corporators in a non- for the purpose of insuring compliance with
stock corporation are called members. (4a) constitutional or legal requirements.

1
Except as otherwise provided in the articles of may be issued by the corporation when expressly so
incorporation and stated in the certificate of stock, provided in the articles of incorporation. They may
each share shall be equal in all respects to every other be purchased or taken up by the corporation upon the
share. expiration of a fixed period, regardless of the
existence of unrestricted retained earnings in the
Where the articles of incorporation provide for non- books of the corporation, and upon such other terms
voting shares in the cases allowed by this Code, the and conditions as may be stated in the articles of
holders of such shares shall nevertheless be entitled incorporation, which terms and conditions must also
to vote on the following matters: be stated in the certificate of stock representing said
shares. (n)
1. Amendment of the articles of incorporation;
Section 9. Treasury shares. – Treasury shares are
2. Adoption and amendment of by-laws; shares of stock which have been issued and fully paid
for, but subsequently reacquired by the issuing
3. Sale, lease, exchange, mortgage, pledge or corporation by purchase, redemption, donation or
other disposition of all or substantially all of the through some other lawful means. Such shares may
corporate property; again be disposed of for a reasonable price fixed by
the board of directors. (n)
4. Incurring, creating or increasing bonded
indebtedness; TITLE II
INCORPORATION AND ORGANIZATION OF
5. Increase or decrease of capital stock; PRIVATE CORPORATIONS

6. Merger or consolidation of the corporation Section 10. Number and qualifications of

with another corporation or other corporations; incorporators. – Any number of natural persons not
less than five (5) but not more than fifteen (15), all of
7. Investment of corporate funds in another legal age and a majority of whom are residents of the
corporation or business in accordance with this Philippines, may form a private corporation for any
Code; and lawful purpose or purposes. Each of the incorporators
of s stock corporation must own or be a subscriber to
8. Dissolution of the corporation. at least one (1) share of the capital stock of the
corporation. (6a)
Except as provided in the immediately preceding
paragraph, the vote necessary to approve a particular Section 11. Corporate term. – A corporation shall
corporate act as provided in this Code shall be exist for a period not exceeding fifty (50) years from
deemed to refer only to stocks with voting rights. (5a) the date of incorporation unless sooner dissolved or
unless said period is extended. The corporate term as
Section 7. Founders’ shares. – Founders’ shares originally stated in the articles of incorporation may
classified as such in the articles of incorporation may be extended for periods not exceeding fifty (50) years
be given certain rights and privileges not enjoyed by in any single instance by an amendment of the
the owners of other stocks, provided that where the articles of incorporation, in accordance with this
exclusive right to vote and be voted for in the election Code; Provided, That no extension can be made
of directors is granted, it must be for a limited period earlier than five (5) years prior to the original or
not to exceed five (5) years subject to the approval of subsequent expiry date(s) unless there are justifiable
the Securities and Exchange Commission. The five- reasons for an earlier extension as may be determined
year period shall commence from the date of the by the Securities and Exchange Commission. (6)
aforesaid approval by the Securities and Exchange
Commission. (n) Section 12. Minimum capital stock required of stock
corporations. – Stock corporations incorporated
Section 8. Redeemable shares. – Redeemable shares under this Code shall not be required to have any
2
minimum authorized capital stock except as fifteen (15);
otherwise specifically provided for by special law,
and subject to the provisions of the following section. 7. The names, nationalities and residences of
persons who shall act as directors or trustees
Section 13. Amount of capital stock to be subscribed until the first regular directors or trustees are
and paid for the purposes of incorporation. – At least duly elected and qualified in accordance with this
twenty-five percent (25%) of the authorized capital Code;
stock as stated in the articles of incorporation must be
subscribed at the time of incorporation, and at least 8. If it be a stock corporation, the amount of its
twenty-five (25%) per cent of the total subscription authorized capital stock in lawful money of the
must be paid upon subscription, the balance to be Philippines, the number of shares into which it is
payable on a date or dates fixed in the contract of divided, and in case the share are par value
subscription without need of call, or in the absence of shares, the par value of each, the names,
a fixed date or dates, upon call for payment by the nationalities and residences of the original
board of directors: Provided, however, That in no subscribers, and the amount subscribed and paid
case shall the paid-up capital be less than five by each on his subscription, and if some or all of
Thousand (P5,000.00) pesos. (n) the shares are without par value, such fact must
be stated;
Section 14. Contents of the articles of incorporation.
– All corporations organized under this code shall file 9. If it be a non-stock corporation, the amount of
with the Securities and Exchange Commission its capital, the names, nationalities and
articles of incorporation in any of the official residences of the contributors and the amount
languages duly signed and acknowledged by all of contributed by each; and
the incorporators, containing substantially the
following matters, except as otherwise prescribed by 10. Such other matters as are not inconsistent
this Code or by special law: with law and which the incorporators may deem
necessary and convenient.
1. The name of the corporation;
The Securities and Exchange Commission shall not
2. The specific purpose or purposes for which the accept the articles of incorporation of any stock
corporation is being incorporated. Where a corporation unless accompanied by a sworn statement
corporation has more than one stated purpose, of the Treasurer elected by the subscribers showing
the articles of incorporation shall state which is that at least twenty-five (25%) percent of the
the primary purpose and which is/are the authorized capital stock of the corporation has been
secondary purpose or purposes: Provided, That a subscribed, and at least twenty-five (25%) of the total
non-stock corporation may not include a purpose subscription has been fully paid to him in actual cash
which would change or contradict its nature as and/or in property the fair valuation of which is equal
such; to at least twenty-five (25%) percent of the said
subscription, such paid-up capital being not less than
3. The place where the principal office of the five thousand (P5,000.00) pesos.
corporation is to be located, which must be
within the Philippines; Section 15. Forms of Articles of Incorporation. –
Unless otherwise prescribed by special law, articles
4. The term for which the corporation is to exist; of incorporation of all domestic corporations shall
comply substantially with the following form:
5. The names, nationalities and residences of the
incorporators; ARTICLES OF INCORPORATION
OF
6. The number of directors or trustees, which
shall not be less than five (5) nor more than __________________________
3
 (Name of Corporation) ___________________ ___________________ _______________
___________________
KNOW ALL MEN BY THESE PRESENTS: ___________________ _______________
___________________ ___________________ _______________
The undersigned incorporators, all of legal age and a
___________________
majority of whom are residents of the Philippines, ___________________ _______________
have this day voluntarily agreed to form___________________
a (stock) ___________________ _______________
(non-stock) corporation under the laws of the
Republic of the Philippines;
SEVENTH: That the authorized capital stock of the
AND WE HEREBY CERTIFY: corporation is ______________________
(P___________) PESOS in lawful money of the
FIRST: That the name of said corporation shall be Philippines, divided into __________ shares with the
"_____________________, INC. or par value of ____________________
CORPORATION"; (P_____________) Pesos per share.

SECOND: That the purpose or purposes for which (In case all the share are without par value):
such corporation is incorporated are: (If there is more
than one purpose, indicate primary and secondary That the capital stock of the corporation is
purposes); ______________ shares without par value. (In case
some shares have par value and some are without par
THIRD: That the principal office of the corporation is value): That the capital stock of said corporation
located in the City/Municipality of consists of _____________ shares of which
________________________, Province of ______________ shares are of the par value of
_______________________, Philippines; _________________ (P____________) PESOS each,
and of which _________________ shares are without
FOURTH: That the term for which said corporation is par value.
to exist is _____________ years from and after the
date of issuance of the certificate of incorporation; EIGHTH: That at least twenty five (25%) per cent of
the authorized capital stock above stated has been
FIFTH: That the names, nationalities and residences subscribed as follows:
of the incorporators of the corporation are as follows:
No. of Shares Amount
Nationality
NATIONALITY RESIDENCE Subscribed Subscribed

__________ ___________________ _________________ _________________

___________________ _________________ _________
__ __ __
__________ ___________________ ___________________
_________________ _________________ _________________ _________
__________ ___________________ ___________________
__ __ __
__________ ___________________ ___________________
_________________ _________________ _________________ _________
__________ ___________________ __
___________________ __ __
_________________ _________________ _________________ _________
SIXTH: That the number of directors or trustees of __ __ __
the corporation shall be _______; and the names,
_________________ _________________ _________________ _________
nationalities and residences of the first directors or __ __ __
trustees of the corporation are as follows:
_________________ _________________ _________________ _________
NATIONALITY RESIDENCE __ __ __

4
 NINTH: That the above-named subscribers have paid Province of ________________________, Republic
at least twenty-five (25%) percent of the total of the Philippines.
subscription as follows:
___________________ ___________________
Total
Amount Subscribed ___________________ ___________________
Paid-In
__________ ___________________ ___________________
________________________________
__________ ___________________ ___________________
(Names and signatures of the incorporators)
__________ ___________________ ___________________
__________ ___________________ SIGNED IN THE PRESENCE OF:
___________________
__________ ___________________ ___________________
___________________ ___________________

(Modify Nos. 8 and 9 if shares are with no par value. (Notarial Acknowledgment)
In case the corporation is non-stock, Nos. 7, 8 and 9
of the above articles may be modified accordingly,
TREASURER’S AFFIDAVIT
and it is sufficient if the articles state the amount of
capital or money contributed or donated by specified
REPUBLIC OF THE PHILIPPINES)
persons, stating the names, nationalities and
residences of the contributors or donors and the
CITY/MUNICIPALITY OF ) S.S.
respective amount given by each.)
PROVINCE OF )
TENTH: That _____________________ has been
elected by the subscribers as Treasurer of the
I, ____________________, being duly sworn, depose
Corporation to act as such until his successor is duly
and say:
elected and qualified in accordance with the by-laws,
and that as such Treasurer, he has been authorized to
That I have been elected by the subscribers of the
receive for and in the name and for the benefit of the
corporation as Treasurer thereof, to act as such until
corporation, all subscription (or fees) or contributions
my successor has been duly elected and qualified in
or donations paid or given by the subscribers or
accordance with the by-laws of the corporation, and
members.
that as such Treasurer, I hereby certify under oath that
at least 25% of the authorized capital stock of the
ELEVENTH: (Corporations which will engage in any
corporation has been subscribed and at least 25% of
business or activity reserved for Filipino citizens
the total subscription has been paid, and received by
shall provide the following):
me, in cash or property, in the amount of not less than
P5,000.00, in accordance with the Corporation Code.
"No transfer of stock or interest which shall reduce
the ownership of Filipino citizens to less than the
____________________
required percentage of the capital stock as provided
by existing laws shall be allowed or permitted to be
(Signature of Treasurer)
recorded in the proper books of the corporation and
this restriction shall be indicated in all stock
SUBSCRIBED AND SWORN to before me, a
certificates issued by the corporation."
Notary Public, for and in the City/Municipality
of___________________Province of
IN WITNESS WHEREOF, we have hereunto signed
_____________________, this _______ day of
these Articles of Incorporation, this __________ day
___________, 19 _____; by __________________
of ________________, 19 ______ in the
with Res. Cert. No. ___________ issued at
City/Municipality of ____________________,
5
_______________________ on ____________, 19 articles of incorporation or disapprove any
______ amendment thereto if the same is not in compliance
with the requirements of this Code: Provided, That
NOTARY PUBLIC the Commission shall give the incorporators a
reasonable time within which to correct or modify the
My commission expires on _________, 19 _____ objectionable portions of the articles or amendment.
The following are grounds for such rejection or
Doc. No. _________; disapproval:

Page No. _________; 1. That the articles of incorporation or any

amendment thereto is not substantially in
Book No. ________; accordance with the form prescribed herein;

Series of 19____ (7a) 2. That the purpose or purposes of the

corporation are patently unconstitutional, illegal,
Section 16. Amendment of Articles of Incorporation. immoral, or contrary to government rules and
– Unless otherwise prescribed by this Code or by regulations;
special law, and for legitimate purposes, any
provision or matter stated in the articles of 3. That the Treasurer’s Affidavit concerning the
incorporation may be amended by a majority vote of amount of capital stock subscribed and/or paid is
the board of directors or trustees and the vote or false;
written assent of the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock, 4. That the percentage of ownership of the capital
without prejudice to the appraisal right of dissenting stock to be owned by citizens of the Philippines
stockholders in accordance with the provisions of this has not been complied with as required by
Code, or the vote or written assent of at least two- existing laws or the Constitution.
thirds (2/3) of the members if it be a non-stock
corporation. No articles of incorporation or amendment to articles
of incorporation of banks, banking and quasi-banking
The original and amended articles together shall institutions, building and loan associations, trust
contain all provisions required by law to be set out in companies and other financial intermediaries,
the articles of incorporation. Such articles, as insurance companies, public utilities, educational
amended shall be indicated by underscoring the institutions, and other corporations governed by
change or changes made, and a copy thereof duly special laws shall be accepted or approved by the
certified under oath by the corporate secretary and a Commission unless accompanied by a favorable
majority of the directors or trustees stating the fact recommendation of the appropriate government
that said amendment or amendments have been duly agency to the effect that such articles or amendment
approved by the required vote of the stockholders or is in accordance with law. (n)
members, shall be submitted to the Securities and
Exchange Commission. Section 18. Corporate name. – No corporate name
may be allowed by the Securities and Exchange
The amendments shall take effect upon their approval Commission if the proposed name is identical or
by the Securities and Exchange Commission or from deceptively or confusingly similar to that of any
the date of filing with the said Commission if not existing corporation or to any other name already
acted upon within six (6) months from the date of protected by law or is patently deceptive, confusing
filing for a cause not attributable to the corporation. or contrary to existing laws. When a change in the
corporate name is approved, the Commission shall
Section 17. Grounds when articles of incorporation issue an amended certificate of incorporation under
or amendment may be rejected or disapproved. – The the amended name. (n)
Securities and Exchange Commission may reject the
6
Section 19. Commencement of corporate existence. – certificate of incorporation. (19a)
A private corporation formed or organized under this
Code commences to have corporate existence and This provision shall not apply if the failure to
juridical personality and is deemed incorporated from organize, commence the transaction of its businesses
the date the Securities and Exchange Commission or the construction of its works, or to continuously
issues a certificate of incorporation under its official operate is due to causes beyond the control of the
seal; and thereupon the incorporators, corporation as may be determined by the Securities
stockholders/members and their successors shall and Exchange Commission.
constitute a body politic and corporate under the
name stated in the articles of incorporation for the TITLE III
period of time mentioned therein, unless said period BOARD OF DIRECTORS/TRUSTEES AND
is extended or the corporation is sooner dissolved in OFFICERS
accordance with law. (n)
Section 23. The board of directors or trustees. –
Section 20. De facto corporations. – The due Unless otherwise provided in this Code, the corporate
incorporation of any corporation claiming in good powers of all corporations formed under this Code
faith to be a corporation under this Code, and its right shall be exercised, all business conducted and all
to exercise corporate powers, shall not be inquired property of such corporations controlled and held by
into collaterally in any private suit to which such the board of directors or trustees to be elected from
corporation may be a party. Such inquiry may be among the holders of stocks, or where there is no
made by the Solicitor General in a quo warranto stock, from among the members of the corporation,
proceeding. (n) who shall hold office for one (1) year until their
successors are elected and qualified. (28a)
Section 21. Corporation by estoppel. – All persons
who assume to act as a corporation knowing it to be Every director must own at least one (1) share of the
without authority to do so shall be liable as general capital stock of the corporation of which he is a
partners for all debts, liabilities and damages incurred director, which share shall stand in his name on the
or arising as a result thereof: Provided, however, That books of the corporation. Any director who ceases to
when any such ostensible corporation is sued on any be the owner of at least one (1) share of the capital
transaction entered by it as a corporation or on any stock of the corporation of which he is a director shall
tort committed by it as such, it shall not be allowed to thereby cease to be a director. Trustees of non-stock
use as a defense its lack of corporate personality. corporations must be members thereof. A majority of
the directors or trustees of all corporations organized
On who assumes an obligation to an ostensible under this Code must be residents of the Philippines.
corporation as such, cannot resist performance
thereof on the ground that there was in fact no Section 24. Election of directors or trustees. – At all
corporation. (n) elections of directors or trustees, there must be
present, either in person or by representative
Section 22. Effects on non-use of corporate charter authorized to act by written proxy, the owners of a
and continuous inoperation of a corporation. – If a majority of the outstanding capital stock, or if there
corporation does not formally organize and be no capital stock, a majority of the members
commence the transaction of its business or the entitled to vote. The election must be by ballot if
construction of its works within two (2) years from requested by any voting stockholder or member. In
the date of its incorporation, its corporate powers stock corporations, every stockholder entitled to vote
cease and the corporation shall be deemed dissolved. shall have the right to vote in person or by proxy the
However, if a corporation has commenced the number of shares of stock standing, at the time fixed
transaction of its business but subsequently becomes in the by-laws, in his own name on the stock books of
continuously inoperative for a period of at least five the corporation, or where the by-laws are silent, at the
(5) years, the same shall be a ground for the time of the election; and said stockholder may vote
suspension or revocation of its corporate franchise or such number of shares for as many persons as there
7
are directors to be elected or he may cumulate said board.
shares and give one candidate as many votes as the
number of directors to be elected multiplied by the Directors or trustees cannot attend or vote by proxy at
number of his shares shall equal, or he may distribute board meetings. (33a)
them on the same principle among as many
candidates as he shall see fit: Provided, That the total Section 26. Report of election of directors, trustees
number of votes cast by him shall not exceed the and officers. – Within thirty (30) days after the
number of shares owned by him as shown in the election of the directors, trustees and officers of the
books of the corporation multiplied by the whole corporation, the secretary, or any other officer of the
number of directors to be elected: Provided, however, corporation, shall submit to the Securities and
That no delinquent stock shall be voted. Unless Exchange Commission, the names, nationalities and
otherwise provided in the articles of incorporation or residences of the directors, trustees, and officers
in the by-laws, members of corporations which have elected. Should a director, trustee or officer die,
no capital stock may cast as many votes as there are resign or in any manner cease to hold office, his heirs
trustees to be elected but may not cast more than one in case of his death, the secretary, or any other officer
vote for one candidate. Candidates receiving the of the corporation, or the director, trustee or officer
highest number of votes shall be declared elected. himself, shall immediately report such fact to the
Any meeting of the stockholders or members called Securities and Exchange Commission. (n)
for an election may adjourn from day to day or from
time to time but not sine die or indefinitely if, for any Section 27. Disqualification of directors, trustees or
reason, no election is held, or if there are not present officers. – No person convicted by final judgment of
or represented by proxy, at the meeting, the owners of an offense punishable by imprisonment for a period
a majority of the outstanding capital stock, or if there exceeding six (6) years, or a violation of this Code
be no capital stock, a majority of the members committed within five (5) years prior to the date of
entitled to vote. (31a) his election or appointment, shall qualify as a
director, trustee or officer of any corporation. (n)
Section 25. Corporate officers, quorum. –
Immediately after their election, the directors of a Section 28. Removal of directors or trustees. – Any
corporation must formally organize by the election of director or trustee of a corporation may be removed
a president, who shall be a director, a treasurer who from office by a vote of the stockholders holding or
may or may not be a director, a secretary who shall be representing at least two-thirds (2/3) of the
a resident and citizen of the Philippines, and such outstanding capital stock, or if the corporation be a
other officers as may be provided for in the by-laws. non-stock corporation, by a vote of at least two-thirds
Any two (2) or more positions may be held (2/3) of the members entitled to vote: Provided, That
concurrently by the same person, except that no one such removal shall take place either at a regular
shall act as president and secretary or as president and meeting of the corporation or at a special meeting
treasurer at the same time. called for the purpose, and in either case, after
previous notice to stockholders or members of the
The directors or trustees and officers to be elected corporation of the intention to propose such removal
shall perform the duties enjoined on them by law and at the meeting. A special meeting of the stockholders
the by-laws of the corporation. Unless the articles of or members of a corporation for the purpose of
incorporation or the by-laws provide for a greater removal of directors or trustees, or any of them, must
majority, a majority of the number of directors or be called by the secretary on order of the president or
trustees as fixed in the articles of incorporation shall on the written demand of the stockholders
constitute a quorum for the transaction of corporate representing or holding at least a majority of the
business, and every decision of at least a majority of outstanding capital stock, or, if it be a non-stock
the directors or trustees present at a meeting at which corporation, on the written demand of a majority of
there is a quorum shall be valid as a corporate act, the members entitled to vote. Should the secretary
except for the election of officers which shall require fail or refuse to call the special meeting upon such
the vote of a majority of all the members of the demand or fail or refuse to give the notice, or if there
8
is no secretary, the call for the meeting may be of the corporation or who are guilty of gross
addressed directly to the stockholders or members by negligence or bad faith in directing the affairs of the
any stockholder or member of the corporation signing corporation or acquire any personal or pecuniary
the demand. Notice of the time and place of such interest in conflict with their duty as such directors or
meeting, as well as of the intention to propose such trustees shall be liable jointly and severally for all
removal, must be given by publication or by written damages resulting therefrom suffered by the
notice prescribed in this Code. Removal may be with corporation, its stockholders or members and other
or without cause: Provided, That removal without persons.
cause may not be used to deprive minority
stockholders or members of the right of When a director, trustee or officer attempts to acquire
representation to which they may be entitled under or acquire, in violation of his duty, any interest
Section 24 of this Code. (n) adverse to the corporation in respect of any matter
which has been reposed in him in confidence, as to
Section 29. Vacancies in the office of director or which equity imposes a disability upon him to deal in
trustee. – Any vacancy occurring in the board of his own behalf, he shall be liable as a trustee for the
directors or trustees other than by removal by the corporation and must account for the profits which
stockholders or members or by expiration of term, otherwise would have accrued to the corporation. (n)
may be filled by the vote of at least a majority of the
remaining directors or trustees, if still constituting a Section 32. Dealings of directors, trustees or officers
quorum; otherwise, said vacancies must be filled by with the corporation. – A contract of the corporation
the stockholders in a regular or special meeting called with one or more of its directors or trustees or
for that purpose. A director or trustee so elected to fill officers is voidable, at the option of such corporation,
a vacancy shall be elected only or the unexpired term unless all the following conditions are present:
of his predecessor in office.
1. That the presence of such director or trustee in
Any directorship or trusteeship to be filled by reason the board meeting in which the contract was
of an increase in the number of directors or trustees approved was not necessary to constitute a
shall be filled only by an election at a regular or at a quorum for such meeting;
special meeting of stockholders or members duly
called for the purpose, or in the same meeting 2. That the vote of such director or trustee was
authorizing the increase of directors or trustees if so not necessary for the approval of the contract;
stated in the notice of the meeting. (n)
3. That the contract is fair and reasonable under
Section 30. Compensation of directors. – In the the circumstances; and
absence of any provision in the by-laws fixing their
compensation, the directors shall not receive any 4. That in case of an officer, the contract has
compensation, as such directors, except for been previously authorized by the board of
reasonable per diems: Provided, however, That any directors.
such compensation other than per diems may be
granted to directors by the vote of the stockholders Where any of the first two conditions set forth in
representing at least a majority of the outstanding the preceding paragraph is absent, in the case of
capital stock at a regular or special stockholders’ a contract with a director or trustee, such contract
meeting. In no case shall the total yearly may be ratified by the vote of the stockholders
compensation of directors, as such directors, exceed representing at least two-thirds (2/3) of the
ten (10%) percent of the net income before income outstanding capital stock or of at least two-thirds
tax of the corporation during the preceding year. (n) (2/3) of the members in a meeting called for the
purpose: Provided, That full disclosure of the
Section 31. Liability of directors, trustees or adverse interest of the directors or trustees
officers.- Directors or trustees who willfully and involved is made at such meeting: Provided,
knowingly vote for or assent to patently unlawful acts however, That the contract is fair and reasonable
9
 under the circumstances. (n) Section 36. Corporate powers and capacity. – Every
corporation incorporated under this Code has the
Section 33. Contracts between corporations with power and capacity:
interlocking directors. – Except in cases of fraud, and
provided the contract is fair and reasonable under the 1. To sue and be sued in its corporate name;
circumstances, a contract between two or more
corporations having interlocking directors shall not 2. Of succession by its corporate name for the
be invalidated on that ground alone: Provided, That if period of time stated in the articles of
the interest of the interlocking director in one incorporation and the certificate of incorporation;
corporation is substantial and his interest in the other
corporation or corporations is merely nominal, he 3. To adopt and use a corporate seal;
shall be subject to the provisions of the preceding
section insofar as the latter corporation or 4. To amend its articles of incorporation in
corporations are concerned. accordance with the provisions of this Code;

Stockholdings exceeding twenty (20%) percent of the 5. To adopt by-laws, not contrary to law, morals,
outstanding capital stock shall be considered or public policy, and to amend or repeal the same
substantial for purposes of interlocking directors. (n) in accordance with this Code;

Section 34. Disloyalty of a director. – Where a 6. In case of stock corporations, to issue or sell
director, by virtue of his office, acquires for himself a stocks to subscribers and to sell stocks to
business opportunity which should belong to the subscribers and to sell treasury stocks in
corporation, thereby obtaining profits to the prejudice accordance with the provisions of this Code; and
of such corporation, he must account to the latter for to admit members to the corporation if it be a
all such profits by refunding the same, unless his act non-stock corporation;
has been ratified by a vote of the stockholders
owning or representing at least two-thirds (2/3) of the 7. To purchase, receive, take or grant, hold,
outstanding capital stock. This provision shall be convey, sell, lease, pledge, mortgage and
applicable, notwithstanding the fact that the director otherwise deal with such real and personal
risked his own funds in the venture. (n) property, including securities and bonds of other
corporations, as the transaction of the lawful
Section 35. Executive committee. – The by-laws of a business of the corporation may reasonably and
corporation may create an executive committee, necessarily require, subject to the limitations
composed of not less than three members of the prescribed by law and the Constitution;
board, to be appointed by the board. Said committee
may act, by majority vote of all its members, on such 8. To enter into merger or consolidation with
specific matters within the competence of the board, other corporations as provided in this Code;
as may be delegated to it in the by-laws or on a
majority vote of the board, except with respect to: (1) 9. To make reasonable donations, including those
approval of any action for which shareholders’ for the public welfare or for hospital, charitable,
approval is also required; (2) the filing of vacancies cultural, scientific, civic, or similar purposes:
in the board; (3) the amendment or repeal of by-laws Provided, That no corporation, domestic or
or the adoption of new by-laws; (4) the amendment foreign, shall give donations in aid of any
or repeal of any resolution of the board which by its political party or candidate or for purposes of
express terms is not so amendable or repealable; and partisan political activity;
(5) a distribution of cash dividends to the
shareholders. 10. To establish pension, retirement, and other
plans for the benefit of its directors, trustees,
TITLE IV officers and employees; and
POWERS OF CORPORATIONS
10
 11. To exercise such other powers as may be (1) That the requirements of this section have
essential or necessary to carry out its purpose or been complied with;
purposes as stated in the articles of incorporation.
(13a) (2) The amount of the increase or diminution of
the capital stock;
Section 37. Power to extend or shorten corporate
term. – A private corporation may extend or shorten (3) If an increase of the capital stock, the amount
its term as stated in the articles of incorporation when of capital stock or number of shares of no-par
approved by a majority vote of the board of directors stock thereof actually subscribed, the names,
or trustees and ratified at a meeting by the nationalities and residences of the persons
stockholders representing at least two-thirds (2/3) of subscribing, the amount of capital stock or
the outstanding capital stock or by at least two-thirds number of no-par stock subscribed by each, and
(2/3) of the members in case of non-stock the amount paid by each on his subscription in
corporations. Written notice of the proposed action cash or property, or the amount of capital stock
and of the time and place of the meeting shall be or number of shares of no-par stock allotted to
addressed to each stockholder or member at his place each stock-holder if such increase is for the
of residence as shown on the books of the corporation purpose of making effective stock dividend
and deposited to the addressee in the post office with therefor authorized;
postage prepaid, or served personally: Provided, That
in case of extension of corporate term, any dissenting (4) Any bonded indebtedness to be incurred,
stockholder may exercise his appraisal right under the created or increased;
conditions provided in this code. (n)
(5) The actual indebtedness of the corporation on
Section 38. Power to increase or decrease capital the day of the meeting;
stock; incur, create or increase bonded indebtedness.
– No corporation shall increase or decrease its capital (6) The amount of stock represented at the
stock or incur, create or increase any bonded meeting; and
indebtedness unless approved by a majority vote of
the board of directors and, at a stockholder’s meeting (7) The vote authorizing the increase or
duly called for the purpose, two-thirds (2/3) of the diminution of the capital stock, or the incurring,
outstanding capital stock shall favor the increase or creating or increasing of any bonded
diminution of the capital stock, or the incurring, indebtedness.
creating or increasing of any bonded indebtedness.
Written notice of the proposed increase or diminution Any increase or decrease in the capital stock or
of the capital stock or of the incurring, creating, or the incurring, creating or increasing of any
increasing of any bonded indebtedness and of the bonded indebtedness shall require prior approval
time and place of the stockholder’s meeting at which of the Securities and Exchange Commission.
the proposed increase or diminution of the capital
stock or the incurring or increasing of any bonded One of the duplicate certificates shall be kept on
indebtedness is to be considered, must be addressed file in the office of the corporation and the other
to each stockholder at his place of residence as shown shall be filed with the Securities and Exchange
on the books of the corporation and deposited to the Commission and attached to the original articles
addressee in the post office with postage prepaid, or of incorporation. From and after approval by the
served personally. Securities and Exchange Commission and the
issuance by the Commission of its certificate of
A certificate in duplicate must be signed by a filing, the capital stock shall stand increased or
majority of the directors of the corporation and decreased and the incurring, creating or
countersigned by the chairman and the secretary of increasing of any bonded indebtedness
the stockholders’ meeting, setting forth: authorized, as the certificate of filing may
declare: Provided, That the Securities and
11
 Exchange Commission shall not accept for filing sell, lease, exchange, mortgage, pledge or otherwise
any certificate of increase of capital stock unless dispose of all or substantially all of its property and
accompanied by the sworn statement of the assets, including its goodwill, upon such terms and
treasurer of the corporation lawfully holding conditions and for such consideration, which may be
office at the time of the filing of the certificate, money, stocks, bonds or other instruments for the
showing that at least twenty-five (25%) percent payment of money or other property or consideration,
of such increased capital stock has been as its board of directors or trustees may deem
subscribed and that at least twenty-five (25%) expedient, when authorized by the vote of the
percent of the amount subscribed has been paid stockholders representing at least two-thirds (2/3) of
either in actual cash to the corporation or that the outstanding capital stock, or in case of non-stock
there has been transferred to the corporation corporation, by the vote of at least to two-thirds (2/3)
property the valuation of which is equal to of the members, in a stockholder’s or member’s
twenty-five (25%) percent of the subscription: meeting duly called for the purpose. Written notice of
Provided, further, That no decrease of the capital the proposed action and of the time and place of the
stock shall be approved by the Commission if its meeting shall be addressed to each stockholder or
effect shall prejudice the rights of corporate member at his place of residence as shown on the
creditors. books of the corporation and deposited to the
addressee in the post office with postage prepaid, or
Non-stock corporations may incur or create served personally: Provided, That any dissenting
bonded indebtedness, or increase the same, with stockholder may exercise his appraisal right under the
the approval by a majority vote of the board of conditions provided in this Code.
trustees and of at least two-thirds (2/3) of the
members in a meeting duly called for the A sale or other disposition shall be deemed to cover
purpose. substantially all the corporate property and assets if
thereby the corporation would be rendered incapable
Bonds issued by a corporation shall be registered of continuing the business or accomplishing the
with the Securities and Exchange Commission, purpose for which it was incorporated.
which shall have the authority to determine the
sufficiency of the terms thereof. (17a) After such authorization or approval by the
stockholders or members, the board of directors or
Section 39. Power to deny pre-emptive right. – All trustees may, nevertheless, in its discretion, abandon
stockholders of a stock corporation shall enjoy pre- such sale, lease, exchange, mortgage, pledge or other
emptive right to subscribe to all issues or disposition disposition of property and assets, subject to the
of shares of any class, in proportion to their rights of third parties under any contract relating
respective shareholdings, unless such right is denied thereto, without further action or approval by the
by the articles of incorporation or an amendment stockholders or members.
thereto: Provided, That such pre-emptive right shall
not extend to shares to be issued in compliance with Nothing in this section is intended to restrict the
laws requiring stock offerings or minimum stock power of any corporation, without the authorization
ownership by the public; or to shares to be issued in by the stockholders or members, to sell, lease,
good faith with the approval of the stockholders exchange, mortgage, pledge or otherwise dispose of
representing two-thirds (2/3) of the outstanding any of its property and assets if the same is necessary
capital stock, in exchange for property needed for in the usual and regular course of business of said
corporate purposes or in payment of a previously corporation or if the proceeds of the sale or other
contracted debt. disposition of such property and assets be
appropriated for the conduct of its remaining
Section 40. Sale or other disposition of assets. – business.
Subject to the provisions of existing laws on illegal
combinations and monopolies, a corporation may, by In non-stock corporations where there are no
a majority vote of its board of directors or trustees, members with voting rights, the vote of at least a
12
majority of the trustees in office will be sufficient Section 43. Power to declare dividends.- The board
authorization for the corporation to enter into any of directors of a stock corporation may declare
transaction authorized by this section. dividends out of the unrestricted retained earnings
which shall be payable in cash, in property, or in
Section 41. Power to acquire own shares. – A stock stock to all stockholders on the basis of outstanding
corporation shall have the power to purchase or stock held by them: Provided, That any cash
acquire its own shares for a legitimate corporate dividends due on delinquent stock shall first be
purpose or purposes, including but not limited to the applied to the unpaid balance on the subscription plus
following cases: Provided, That the corporation has costs and expenses, while stock dividends shall be
unrestricted retained earnings in its books to cover withheld from the delinquent stockholder until his
the shares to be purchased or acquired: unpaid subscription is fully paid: Provided, further,
That no stock dividend shall be issued without the
1. To eliminate fractional shares arising out of approval of stockholders representing not less than
stock dividends; two-thirds (2/3) of the outstanding capital stock at a
regular or special meeting duly called for the
2. To collect or compromise an indebtedness to purpose. (16a)
the corporation, arising out of unpaid
subscription, in a delinquency sale, and to Stock corporations are prohibited from retaining
purchase delinquent shares sold during said sale; surplus profits in excess of one hundred (100%)
and percent of their paid-in capital stock, except: (1)
when justified by definite corporate expansion
3. To pay dissenting or withdrawing stockholders projects or programs approved by the board of
entitled to payment for their shares under the directors; or (2) when the corporation is prohibited
provisions of this Code. (a) under any loan agreement with any financial
institution or creditor, whether local or foreign, from
Section 42. Power to invest corporate funds in declaring dividends without its/his consent, and such
another corporation or business or for any other consent has not yet been secured; or (3) when it can
purpose. – Subject to the provisions of this Code, a be clearly shown that such retention is necessary
private corporation may invest its funds in any other under special circumstances obtaining in the
corporation or business or for any purpose other than corporation, such as when there is need for special
the primary purpose for which it was organized when reserve for probable contingencies. (n)
approved by a majority of the board of directors or
trustees and ratified by the stockholders representing Section 44. Power to enter into management
at least two-thirds (2/3) of the outstanding capital contract. – No corporation shall conclude a
stock, or by at least two thirds (2/3) of the members management contract with another corporation unless
in the case of non-stock corporations, at a such contract shall have been approved by the board
stockholder’s or member’s meeting duly called for of directors and by stockholders owning at least the
the purpose. Written notice of the proposed majority of the outstanding capital stock, or by at
investment and the time and place of the meeting least a majority of the members in the case of a non-
shall be addressed to each stockholder or member at stock corporation, of both the managing and the
his place of residence as shown on the books of the managed corporation, at a meeting duly called for the
corporation and deposited to the addressee in the post purpose: Provided, That (1) where a stockholder or
office with postage prepaid, or served personally: stockholders representing the same interest of both
Provided, That any dissenting stockholder shall have the managing and the managed corporations own or
appraisal right as provided in this Code: Provided, control more than one-third (1/3) of the total
however, That where the investment by the outstanding capital stock entitled to vote of the
corporation is reasonably necessary to accomplish its managing corporation; or (2) where a majority of the
primary purpose as stated in the articles of members of the board of directors of the managing
incorporation, the approval of the stockholders or corporation also constitute a majority of the members
members shall not be necessary. (17 1/2a) of the board of directors of the managed corporation,
13
then the management contract must be approved by original articles of incorporation.
the stockholders of the managed corporation owning
at least two-thirds (2/3) of the total outstanding Notwithstanding the provisions of the preceding
capital stock entitled to vote, or by at least two-thirds paragraph, by-laws may be adopted and filed prior to
(2/3) of the members in the case of a non-stock incorporation; in such case, such by-laws shall be
corporation. No management contract shall be approved and signed by all the incorporators and
entered into for a period longer than five years for submitted to the Securities and Exchange
any one term. Commission, together with the articles of
incorporation.
The provisions of the next preceding paragraph shall
apply to any contract whereby a corporation In all cases, by-laws shall be effective only upon the
undertakes to manage or operate all or substantially issuance by the Securities and Exchange Commission
all of the business of another corporation, whether of a certification that the by-laws are not inconsistent
such contracts are called service contracts, operating with this Code.
agreements or otherwise: Provided, however, That
such service contracts or operating agreements which The Securities and Exchange Commission shall not
relate to the exploration, development, exploitation or accept for filing the by-laws or any amendment
utilization of natural resources may be entered into thereto of any bank, banking institution, building and
for such periods as may be provided by the pertinent loan association, trust company, insurance company,
laws or regulations. (n) public utility, educational institution or other special
corporations governed by special laws, unless
Section 45. Ultra vires acts of corporations. – No accompanied by a certificate of the appropriate
corporation under this Code shall possess or exercise government agency to the effect that such by-laws or
any corporate powers except those conferred by this amendments are in accordance with law. (20a)
Code or by its articles of incorporation and except
such as are necessary or incidental to the exercise of Section 47. Contents of by-laws. – Subject to the
the powers so conferred. (n) provisions of the Constitution, this Code, other
special laws, and the articles of incorporation, a
TITLE V private corporation may provide in its by-laws for:
BY LAWS
1. The time, place and manner of calling and
Section 46. Adoption of by-laws. – Every corporation conducting regular or special meetings of the
formed under this Code must, within one (1) month directors or trustees;
after receipt of official notice of the issuance of its
certificate of incorporation by the Securities and 2. The time and manner of calling and
Exchange Commission, adopt a code of by-laws for conducting regular or special meetings of the
its government not inconsistent with this Code. For stockholders or members;
the adoption of by-laws by the corporation the
affirmative vote of the stockholders representing at 3. The required quorum in meetings of
least a majority of the outstanding capital stock, or of stockholders or members and the manner of
at least a majority of the members in case of non- voting therein;
stock corporations, shall be necessary. The by-laws
shall be signed by the stockholders or members 4. The form for proxies of stockholders and
voting for them and shall be kept in the principal members and the manner of voting them;
office of the corporation, subject to the inspection of
the stockholders or members during office hours. A 5. The qualifications, duties and compensation of
copy thereof, duly certified to by a majority of the directors or trustees, officers and employees;
directors or trustees countersigned by the secretary of
the corporation, shall be filed with the Securities and 6. The time for holding the annual election of
Exchange Commission which shall be attached to the directors of trustees and the mode or manner of
14
 giving notice thereof; TITLE VI
MEETINGS
7. The manner of election or appointment and the
term of office of all officers other than directors Section 49. Kinds of meetings. – Meetings of
or trustees; directors, trustees, stockholders, or members may be
regular or special. (n)
8. The penalties for violation of the by-laws;
Section 50. Regular and special meetings of
9. In the case of stock corporations, the manner stockholders or members.- Regular meetings of
of issuing stock certificates; and stockholders or members shall be held annually on a
date fixed in the by-laws, or if not so fixed, on any
10. Such other matters as may be necessary for date in April of every year as determined by the board
the proper or convenient transaction of its of directors or trustees: Provided, That written notice
corporate business and affairs. (21a) of regular meetings shall be sent to all stockholders
or members of record at least two (2) weeks prior to
Section 48. Amendments to by-laws. – The board of the meeting, unless a different period is required by
directors or trustees, by a majority vote thereof, and the by-laws.
the owners of at least a majority of the outstanding
capital stock, or at least a majority of the members of Special meetings of stockholders or members shall be
a non-stock corporation, at a regular or special held at any time deemed necessary or as provided in
meeting duly called for the purpose, may amend or the by-laws: Provided, however, That at least one (1)
repeal any by-laws or adopt new by-laws. The owners week written notice shall be sent to all stockholders
of two-thirds (2/3) of the outstanding capital stock or or members, unless otherwise provided in the by-
two-thirds (2/3) of the members in a non-stock laws.
corporation may delegate to the board of directors or
trustees the power to amend or repeal any by-laws or Notice of any meeting may be waived, expressly or
adopt new by-laws: Provided, That any power impliedly, by any stockholder or member.
delegated to the board of directors or trustees to
amend or repeal any by-laws or adopt new by-laws Whenever, for any cause, there is no person
shall be considered as revoked whenever authorized to call a meeting, the Securities and
stockholders owning or representing a majority of the Exchange Commission, upon petition of a
outstanding capital stock or a majority of the stockholder or member on a showing of good cause
members in non-stock corporations, shall so vote at a therefor, may issue an order to the petitioning
regular or special meeting. stockholder or member directing him to call a
meeting of the corporation by giving proper notice
Whenever any amendment or new by-laws are required by this Code or by the by-laws. The
adopted, such amendment or new by-laws shall be petitioning stockholder or member shall preside
attached to the original by-laws in the office of the thereat until at least a majority of the stockholders or
corporation, and a copy thereof, duly certified under members present have chosen one of their number as
oath by the corporate secretary and a majority of the presiding officer. (24, 26)
directors or trustees, shall be filed with the Securities
and Exchange Commission the same to be attached to Section 51. Place and time of meetings of
the original articles of incorporation and original by- stockholders of members. – Stockholder’s or
laws. member’s meetings, whether regular or special, shall
be held in the city or municipality where the principal
The amended or new by-laws shall only be effective office of the corporation is located, and if practicable
upon the issuance by the Securities and Exchange in the principal office of the corporation: Provided,
Commission of a certification that the same are not That Metro Manila shall, for purposes of this section,
inconsistent with this Code. (22a and 23a) be considered a city or municipality.

15
Notice of meetings shall be in writing, and the time Executors, administrators, receivers, and other legal
and place thereof stated therein. representatives duly appointed by the court may
attend and vote in behalf of the stockholders or
All proceedings had and any business transacted at members without need of any written proxy. (27a)
any meeting of the stockholders or members, if
within the powers or authority of the corporation, Section 56. Voting in case of joint ownership of
shall be valid even if the meeting be improperly held stock. – In case of shares of stock owned jointly by
or called, provided all the stockholders or members two or more persons, in order to vote the same, the
of the corporation are present or duly represented at consent of all the co-owners shall be necessary,
the meeting. (24 and 25) unless there is a written proxy, signed by all the co-
owners, authorizing one or some of them or any other
Section 52. Quorum in meetings. – Unless otherwise person to vote such share or shares: Provided, That
provided for in this Code or in the by-laws, a quorum when the shares are owned in an "and/or" capacity by
shall consist of the stockholders representing a the holders thereof, any one of the joint owners can
majority of the outstanding capital stock or a majority vote said shares or appoint a proxy therefor. (n)
of the members in the case of non-stock corporations.
(n) Section 57. Voting right for treasury shares. –
Treasury shares shall have no voting right as long as
Section 53. Regular and special meetings of such shares remain in the Treasury. (n)
directors or trustees. – Regular meetings of the board
of directors or trustees of every corporation shall be Section 58. Proxies. – Stockholders and members
held monthly, unless the by-laws provide otherwise. may vote in person or by proxy in all meetings of
stockholders or members. Proxies shall in writing,
Special meetings of the board of directors or trustees signed by the stockholder or member and filed before
may be held at any time upon the call of the president the scheduled meeting with the corporate secretary.
or as provided in the by-laws. Unless otherwise provided in the proxy, it shall be
valid only for the meeting for which it is intended.
Meetings of directors or trustees of corporations may No proxy shall be valid and effective for a period
be held anywhere in or outside of the Philippines, longer than five (5) years at any one time. (n)
unless the by-laws provide otherwise. Notice of
regular or special meetings stating the date, time and Section 59. Voting trusts. – One or more stockholders
place of the meeting must be sent to every director or of a stock corporation may create a voting trust for
trustee at least one (1) day prior to the scheduled the purpose of conferring upon a trustee or trustees
meeting, unless otherwise provided by the by-laws. A the right to vote and other rights pertaining to the
director or trustee may waive this requirement, either shares for a period not exceeding five (5) years at any
expressly or impliedly. (n) time: Provided, That in the case of a voting trust
specifically required as a condition in a loan
Section 54. Who shall preside at meetings. – The agreement, said voting trust may be for a period
president shall preside at all meetings of the directors exceeding five (5) years but shall automatically
or trustee as well as of the stockholders or members, expire upon full payment of the loan. A voting trust
unless the by-laws provide otherwise. (n) agreement must be in writing and notarized, and shall
specify the terms and conditions thereof. A certified
Section 55. Right to vote of pledgors, mortgagors, copy of such agreement shall be filed with the
and administrators. – In case of pledged or corporation and with the Securities and Exchange
mortgaged shares in stock corporations, the pledgor Commission; otherwise, said agreement is ineffective
or mortgagor shall have the right to attend and vote at and unenforceable. The certificate or certificates of
meetings of stockholders, unless the pledgee or stock covered by the voting trust agreement shall be
mortgagee is expressly given by the pledgor or cancelled and new ones shall be issued in the name of
mortgagor such right in writing which is recorded on the trustee or trustees stating that they are issued
the appropriate corporate books. (n) pursuant to said agreement. In the books of the
16
corporation, it shall be noted that the transfer in the subscription for shares of stock of a corporation still
name of the trustee or trustees is made pursuant to to be formed shall be irrevocable for a period of at
said voting trust agreement. least six (6) months from the date of subscription,
unless all of the other subscribers consent to the
The trustee or trustees shall execute and deliver to the revocation, or unless the incorporation of said
transferors voting trust certificates, which shall be corporation fails to materialize within said period or
transferable in the same manner and with the same within a longer period as may be stipulated in the
effect as certificates of stock. contract of subscription: Provided, That no pre-
incorporation subscription may be revoked after the
The voting trust agreement filed with the corporation submission of the articles of incorporation to the
shall be subject to examination by any stockholder of Securities and Exchange Commission. (n)
the corporation in the same manner as any other
corporate book or record: Provided, That both the Section 62. Consideration for stocks. – Stocks shall
transferor and the trustee or trustees may exercise the not be issued for a consideration less than the par or
right of inspection of all corporate books and records issued price thereof. Consideration for the issuance of
in accordance with the provisions of this Code. stock may be any or a combination of any two or
more of the following:
Any other stockholder may transfer his shares to the
same trustee or trustees upon the terms and 1. Actual cash paid to the corporation;
conditions stated in the voting trust agreement, and
thereupon shall be bound by all the provisions of said 2. Property, tangible or intangible, actually
agreement. received by the corporation and necessary or
convenient for its use and lawful purposes at a
No voting trust agreement shall be entered into for fair valuation equal to the par or issued value of
the purpose of circumventing the law against the stock issued;
monopolies and illegal combinations in restraint of
trade or used for purposes of fraud. 3. Labor performed for or services actually
rendered to the corporation;
Unless expressly renewed, all rights granted in a
voting trust agreement shall automatically expire at 4. Previously incurred indebtedness of the
the end of the agreed period, and the voting trust corporation;
certificates as well as the certificates of stock in the
name of the trustee or trustees shall thereby be 5. Amounts transferred from unrestricted retained
deemed cancelled and new certificates of stock shall earnings to stated capital; and
be reissued in the name of the transferors.
6. Outstanding shares exchanged for stocks in the
The voting trustee or trustees may vote by proxy event of reclassification or conversion.
unless the agreement provides otherwise. (36a)
Where the consideration is other than actual
TITLE VII cash, or consists of intangible property such as
STOCKS AND STOCKHOLDERS patents of copyrights, the valuation thereof shall
initially be determined by the incorporators or
Section 60. Subscription contract. – Any contract for the board of directors, subject to approval by the
the acquisition of unissued stock in an existing Securities and Exchange Commission.
corporation or a corporation still to be formed shall
be deemed a subscription within the meaning of this Shares of stock shall not be issued in exchange
Title, notwithstanding the fact that the parties refer to for promissory notes or future service.
it as a purchase or some other contract. (n)
The same considerations provided for in this
Section 61. Pre-incorporation subscription. – A section, insofar as they may be applicable, may
17
 be used for the issuance of bonds by the issuance of the stock and the par or issued value of
corporation. the same. (n)

The issued price of no-par value shares may be Section 66. Interest on unpaid subscriptions. –
fixed in the articles of incorporation or by the Subscribers for stock shall pay to the corporation
board of directors pursuant to authority conferred interest on all unpaid subscriptions from the date of
upon it by the articles of incorporation or the by- subscription, if so required by, and at the rate of
laws, or in the absence thereof, by the interest fixed in the by-laws. If no rate of interest is
stockholders representing at least a majority of fixed in the by-laws, such rate shall be deemed to be
the outstanding capital stock at a meeting duly the legal rate. (37)
called for the purpose. (5 and 16)
Section 67. Payment of balance of subscription. –
Section 63. Certificate of stock and transfer of Subject to the provisions of the contract of
shares. – The capital stock of stock corporations shall subscription, the board of directors of any stock
be divided into shares for which certificates signed by corporation may at any time declare due and payable
the president or vice president, countersigned by the to the corporation unpaid subscriptions to the capital
secretary or assistant secretary, and sealed with the stock and may collect the same or such percentage
seal of the corporation shall be issued in accordance thereof, in either case with accrued interest, if any, as
with the by-laws. Shares of stock so issued are it may deem necessary.
personal property and may be transferred by delivery
of the certificate or certificates indorsed by the owner Payment of any unpaid subscription or any
or his attorney-in-fact or other person legally percentage thereof, together with the interest accrued,
authorized to make the transfer. No transfer, however, if any, shall be made on the date specified in the
shall be valid, except as between the parties, until the contract of subscription or on the date stated in the
transfer is recorded in the books of the corporation call made by the board. Failure to pay on such date
showing the names of the parties to the transaction, shall render the entire balance due and payable and
the date of the transfer, the number of the certificate shall make the stockholder liable for interest at the
or certificates and the number of shares transferred. legal rate on such balance, unless a different rate of
interest is provided in the by-laws, computed from
No shares of stock against which the corporation such date until full payment. If within thirty (30) days
holds any unpaid claim shall be transferable in the from the said date no payment is made, all stocks
books of the corporation. (35) covered by said subscription shall thereupon become
delinquent and shall be subject to sale as hereinafter
Section 64. Issuance of stock certificates. – No provided, unless the board of directors orders
certificate of stock shall be issued to a subscriber otherwise. (38)
until the full amount of his subscription together with
interest and expenses (in case of delinquent shares), if Section 68. Delinquency sale. – The board of
any is due, has been paid. (37) directors may, by resolution, order the sale of
delinquent stock and shall specifically state the
Section 65. Liability of directors for watered stocks. amount due on each subscription plus all accrued
– Any director or officer of a corporation consenting interest, and the date, time and place of the sale
to the issuance of stocks for a consideration less than which shall not be less than thirty (30) days nor more
its par or issued value or for a consideration in any than sixty (60) days from the date the stocks become
form other than cash, valued in excess of its fair delinquent.
value, or who, having knowledge thereof, does not
forthwith express his objection in writing and file the Notice of said sale, with a copy of the resolution,
same with the corporate secretary, shall be solidarily, shall be sent to every delinquent stockholder either
liable with the stockholder concerned to the personally or by registered mail. The same shall
corporation and its creditors for the difference furthermore be published once a week for two (2)
between the fair value received at the time of consecutive weeks in a newspaper of general
18
circulation in the province or city where the principal corporation from collecting by action in a court of
office of the corporation is located. proper jurisdiction the amount due on any unpaid
subscription, with accrued interest, costs and
Unless the delinquent stockholder pays to the expenses. (49a)
corporation, on or before the date specified for the
sale of the delinquent stock, the balance due on his Section 71. Effect of delinquency. – No delinquent
subscription, plus accrued interest, costs of stock shall be voted for or be entitled to vote or to
advertisement and expenses of sale, or unless the representation at any stockholder’s meeting, nor shall
board of directors otherwise orders, said delinquent the holder thereof be entitled to any of the rights of a
stock shall be sold at public auction to such bidder stockholder except the right to dividends in
who shall offer to pay the full amount of the balance accordance with the provisions of this Code, until and
on the subscription together with accrued interest, unless he pays the amount due on his subscription
costs of advertisement and expenses of sale, for the with accrued interest, and the costs and expenses of
smallest number of shares or fraction of a share. The advertisement, if any. (50a)
stock so purchased shall be transferred to such
purchaser in the books of the corporation and a Section 72. Rights of unpaid shares. – Holders of
certificate for such stock shall be issued in his favor. subscribed shares not fully paid which are not
The remaining shares, if any, shall be credited in delinquent shall have all the rights of a stockholder.
favor of the delinquent stockholder who shall (n)
likewise be entitled to the issuance of a certificate of
stock covering such shares. Section 73. Lost or destroyed certificates. – The
following procedure shall be followed for the
Should there be no bidder at the public auction who issuance by a corporation of new certificates of stock
offers to pay the full amount of the balance on the in lieu of those which have been lost, stolen or
subscription together with accrued interest, costs of destroyed:
advertisement and expenses of sale, for the smallest
number of shares or fraction of a share, the 1. The registered owner of a certificate of stock
corporation may, subject to the provisions of this in a corporation or his legal representative shall
Code, bid for the same, and the total amount due shall file with the corporation an affidavit in triplicate
be credited as paid in full in the books of the setting forth, if possible, the circumstances as to
corporation. Title to all the shares of stock covered by how the certificate was lost, stolen or destroyed,
the subscription shall be vested in the corporation as the number of shares represented by such
treasury shares and may be disposed of by said certificate, the serial number of the certificate
corporation in accordance with the provisions of this and the name of the corporation which issued the
Code. (39a-46a) same. He shall also submit such other
information and evidence which he may deem
Section 69. When sale may be questioned. – No necessary;
action to recover delinquent stock sold can be
sustained upon the ground of irregularity or defect in 2. After verifying the affidavit and other
the notice of sale, or in the sale itself of the information and evidence with the books of the
delinquent stock, unless the party seeking to maintain corporation, said corporation shall publish a
such action first pays or tenders to the party holding notice in a newspaper of general circulation
the stock the sum for which the same was sold, with published in the place where the corporation has
interest from the date of sale at the legal rate; and no its principal office, once a week for three (3)
such action shall be maintained unless it is consecutive weeks at the expense of the
commenced by the filing of a complaint within six registered owner of the certificate of stock which
(6) months from the date of sale. (47a) has been lost, stolen or destroyed. The notice
shall state the name of said corporation, the name
Section 70. Court action to recover unpaid of the registered owner and the serial number of
subscription. – Nothing in this Code shall prevent the said certificate, and the number of shares
19
 represented by such certificate, and that after the similar demand, the yeas and nays must be taken on
expiration of one (1) year from the date of the any motion or proposition, and a record thereof
last publication, if no contest has been presented carefully made. The protest of any director, trustee,
to said corporation regarding said certificate of stockholder or member on any action or proposed
stock, the right to make such contest shall be action must be recorded in full on his demand.
barred and said corporation shall cancel in its
books the certificate of stock which has been The records of all business transactions of the
lost, stolen or destroyed and issue in lieu thereof corporation and the minutes of any meetings shall be
new certificate of stock, unless the registered open to inspection by any director, trustee,
owner files a bond or other security in lieu stockholder or member of the corporation at
thereof as may be required, effective for a period reasonable hours on business days and he may
of one (1) year, for such amount and in such form demand, in writing, for a copy of excerpts from said
and with such sureties as may be satisfactory to records or minutes, at his expense.
the board of directors, in which case a new
certificate may be issued even before the Any officer or agent of the corporation who shall
expiration of the one (1) year period provided refuse to allow any director, trustees, stockholder or
herein: Provided, That if a contest has been member of the corporation to examine and copy
presented to said corporation or if an action is excerpts from its records or minutes, in accordance
pending in court regarding the ownership of said with the provisions of this Code, shall be liable to
certificate of stock which has been lost, stolen or such director, trustee, stockholder or member for
destroyed, the issuance of the new certificate of damages, and in addition, shall be guilty of an
stock in lieu thereof shall be suspended until the offense which shall be punishable under Section 144
final decision by the court regarding the of this Code: Provided, That if such refusal is made
ownership of said certificate of stock which has pursuant to a resolution or order of the board of
been lost, stolen or destroyed. directors or trustees, the liability under this section
for such action shall be imposed upon the directors or
Except in case of fraud, bad faith, or negligence trustees who voted for such refusal: and Provided,
on the part of the corporation and its officers, no further, That it shall be a defense to any action under
action may be brought against any corporation this section that the person demanding to examine
which shall have issued certificate of stock in and copy excerpts from the corporation’s records and
lieu of those lost, stolen or destroyed pursuant to minutes has improperly used any information secured
the procedure above-described. (R.A. 201a) through any prior examination of the records or
minutes of such corporation or of any other
TITLE VIII corporation, or was not acting in good faith or for a
CORPORATE BOOKS AND RECORDS legitimate purpose in making his demand.

Section 74. Books to be kept; stock transfer agent. – Stock corporations must also keep a book to be
Every corporation shall keep and carefully preserve at known as the "stock and transfer book", in which
its principal office a record of all business must be kept a record of all stocks in the names of the
transactions and minutes of all meetings of stockholders alphabetically arranged; the installments
stockholders or members, or of the board of directors paid and unpaid on all stock for which subscription
or trustees, in which shall be set forth in detail the has been made, and the date of payment of any
time and place of holding the meeting, how installment; a statement of every alienation, sale or
authorized, the notice given, whether the meeting was transfer of stock made, the date thereof, and by and to
regular or special, if special its object, those present whom made; and such other entries as the by-laws
and absent, and every act done or ordered done at the may prescribe. The stock and transfer book shall be
meeting. Upon the demand of any director, trustee, kept in the principal office of the corporation or in the
stockholder or member, the time when any director, office of its stock transfer agent and shall be open for
trustee, stockholder or member entered or left the inspection by any director or stockholder of the
meeting must be noted in the minutes; and on a corporation at reasonable hours on business days.
20
No stock transfer agent or one engaged principally in 1. The names of the corporations proposing to
the business of registering transfers of stocks in merge or consolidate, hereinafter referred to as
behalf of a stock corporation shall be allowed to the constituent corporations;
operate in the Philippines unless he secures a license
from the Securities and Exchange Commission and 2. The terms of the merger or consolidation and
pays a fee as may be fixed by the Commission, which the mode of carrying the same into effect;
shall be renewable annually: Provided, That a stock
corporation is not precluded from performing or 3. A statement of the changes, if any, in the
making transfer of its own stocks, in which case all articles of incorporation of the surviving
the rules and regulations imposed on stock transfer corporation in case of merger; and, with respect
agents, except the payment of a license fee herein to the consolidated corporation in case of
provided, shall be applicable. (51a and 32a; P.B. No. consolidation, all the statements required to be
268.) set forth in the articles of incorporation for
corporations organized under this Code; and
Section 75. Right to financial statements. – Within
ten (10) days from receipt of a written request of any 4. Such other provisions with respect to the
stockholder or member, the corporation shall furnish proposed merger or consolidation as are deemed
to him its most recent financial statement, which shall necessary or desirable. (n)
include a balance sheet as of the end of the last
taxable year and a profit or loss statement for said Section 77. Stockholder’s or member’s approval. –
taxable year, showing in reasonable detail its assets Upon approval by majority vote of each of the board
and liabilities and the result of its operations. of directors or trustees of the constituent corporations
of the plan of merger or consolidation, the same shall
At the regular meeting of stockholders or members, be submitted for approval by the stockholders or
the board of directors or trustees shall present to such members of each of such corporations at separate
stockholders or members a financial report of the corporate meetings duly called for the purpose.
operations of the corporation for the preceding year, Notice of such meetings shall be given to all
which shall include financial statements, duly signed stockholders or members of the respective
and certified by an independent certified public corporations, at least two (2) weeks prior to the date
accountant. of the meeting, either personally or by registered
mail. Said notice shall state the purpose of the
However, if the paid-up capital of the corporation is meeting and shall include a copy or a summary of the
less than P50,000.00, the financial statements may be plan of merger or consolidation. The affirmative vote
certified under oath by the treasurer or any of stockholders representing at least two-thirds (2/3)
responsible officer of the corporation. (n) of the outstanding capital stock of each corporation in
the case of stock corporations or at least two-thirds
TITLE IX (2/3) of the members in the case of non-stock
MERGER AND CONSOLIDATION corporations shall be necessary for the approval of
such plan. Any dissenting stockholder in stock
Section 76. Plan or merger of consolidation. – Two corporations may exercise his appraisal right in
or more corporations may merge into a single accordance with the Code: Provided, That if after the
corporation which shall be one of the constituent approval by the stockholders of such plan, the board
corporations or may consolidate into a new single of directors decides to abandon the plan, the appraisal
corporation which shall be the consolidated right shall be extinguished.
corporation.
Any amendment to the plan of merger or
The board of directors or trustees of each corporation, consolidation may be made, provided such
party to the merger or consolidation, shall approve a amendment is approved by majority vote of the
plan of merger or consolidation setting forth the respective boards of directors or trustees of all the
following: constituent corporations and ratified by the
21
affirmative vote of stockholders representing at least shall set a hearing to give the corporations concerned
two-thirds (2/3) of the outstanding capital stock or of the opportunity to be heard. Written notice of the
two-thirds (2/3) of the members of each of the date, time and place of hearing shall be given to each
constituent corporations. Such plan, together with any constituent corporation at least two (2) weeks before
amendment, shall be considered as the agreement of said hearing. The Commission shall thereafter
merger or consolidation. (n) proceed as provided in this Code. (n)

Section 78. Articles of merger or consolidation. – Section 80. Effects of merger or consolidation. – The
After the approval by the stockholders or members as merger or consolidation shall have the following
required by the preceding section, articles of merger effects:
or articles of consolidation shall be executed by each
of the constituent corporations, to be signed by the 1. The constituent corporations shall become a
president or vice-president and certified by the single corporation which, in case of merger, shall
secretary or assistant secretary of each corporation be the surviving corporation designated in the
setting forth: plan of merger; and, in case of consolidation,
shall be the consolidated corporation designated
1. The plan of the merger or the plan of in the plan of consolidation;
consolidation;
2. The separate existence of the constituent
2. As to stock corporations, the number of shares corporations shall cease, except that of the
outstanding, or in the case of non-stock surviving or the consolidated corporation;
corporations, the number of members; and
3. The surviving or the consolidated corporation
3. As to each corporation, the number of shares shall possess all the rights, privileges, immunities
or members voting for and against such plan, and powers and shall be subject to all the duties
respectively. (n) and liabilities of a corporation organized under
this Code;
Section 79. Effectivity of merger or consolidation. –
The articles of merger or of consolidation, signed and 4. The surviving or the consolidated corporation
certified as herein above required, shall be submitted shall thereupon and thereafter possess all the
to the Securities and Exchange Commission in rights, privileges, immunities and franchises of
quadruplicate for its approval: Provided, That in the each of the constituent corporations; and all
case of merger or consolidation of banks or banking property, real or personal, and all receivables due
institutions, building and loan associations, trust on whatever account, including subscriptions to
companies, insurance companies, public utilities, shares and other choses in action, and all and
educational institutions and other special corporations every other interest of, or belonging to, or due to
governed by special laws, the favorable each constituent corporation, shall be deemed
recommendation of the appropriate government transferred to and vested in such surviving or
agency shall first be obtained. If the Commission is consolidated corporation without further act or
satisfied that the merger or consolidation of the deed; and
corporations concerned is not inconsistent with the
provisions of this Code and existing laws, it shall 5. The surviving or consolidated corporation
issue a certificate of merger or of consolidation, at shall be responsible and liable for all the
which time the merger or consolidation shall be liabilities and obligations of each of the
effective. constituent corporations in the same manner as if
such surviving or consolidated corporation had
If, upon investigation, the Securities and Exchange itself incurred such liabilities or obligations; and
Commission has reason to believe that the proposed any pending claim, action or proceeding brought
merger or consolidation is contrary to or inconsistent by or against any of such constituent
with the provisions of this Code or existing laws, it corporations may be prosecuted by or against the
22
 surviving or consolidated corporation. The rights stockholder, another by the corporation, and the third
of creditors or liens upon the property of any of by the two thus chosen. The findings of the majority
such constituent corporations shall not be of the appraisers shall be final, and their award shall
impaired by such merger or consolidation. (n) be paid by the corporation within thirty (30) days
after such award is made: Provided, That no payment
TITLE X shall be made to any dissenting stockholder unless
APPRAISAL RIGHT the corporation has unrestricted retained earnings in
its books to cover such payment: and Provided,
Section 81. Instances of appraisal right. – Any further, That upon payment by the corporation of the
stockholder of a corporation shall have the right to agreed or awarded price, the stockholder shall
dissent and demand payment of the fair value of his forthwith transfer his shares to the corporation. (n)
shares in the following instances:
Section 83. Effect of demand and termination of
1. In case any amendment to the articles of right. – From the time of demand for payment of the
incorporation has the effect of changing or fair value of a stockholder’s shares until either the
restricting the rights of any stockholder or class abandonment of the corporate action involved or the
of shares, or of authorizing preferences in any purchase of the said shares by the corporation, all
respect superior to those of outstanding shares of rights accruing to such shares, including voting and
any class, or of extending or shortening the term dividend rights, shall be suspended in accordance
of corporate existence; with the provisions of this Code, except the right of
such stockholder to receive payment of the fair value
2. In case of sale, lease, exchange, transfer, thereof: Provided, That if the dissenting stockholder
mortgage, pledge or other disposition of all or is not paid the value of his shares within 30 days after
substantially all of the corporate property and the award, his voting and dividend rights shall
assets as provided in the Code; and immediately be restored. (n)

3. In case of merger or consolidation. (n) Section 84. When right to payment ceases. – No
demand for payment under this Title may be
Section 82. How right is exercised. – The appraisal withdrawn unless the corporation consents thereto. If,
right may be exercised by any stockholder who shall however, such demand for payment is withdrawn
have voted against the proposed corporate action, by with the consent of the corporation, or if the proposed
making a written demand on the corporation within corporate action is abandoned or rescinded by the
thirty (30) days after the date on which the vote was corporation or disapproved by the Securities and
taken for payment of the fair value of his shares: Exchange Commission where such approval is
Provided, That failure to make the demand within necessary, or if the Securities and Exchange
such period shall be deemed a waiver of the appraisal Commission determines that such stockholder is not
right. If the proposed corporate action is implemented entitled to the appraisal right, then the right of said
or affected, the corporation shall pay to such stockholder to be paid the fair value of his shares
stockholder, upon surrender of the certificate or shall cease, his status as a stockholder shall thereupon
certificates of stock representing his shares, the fair be restored, and all dividend distributions which
value thereof as of the day prior to the date on which would have accrued on his shares shall be paid to
the vote was taken, excluding any appreciation or him. (n)
depreciation in anticipation of such corporate action.
Section 85. Who bears costs of appraisal. – The costs
If within a period of sixty (60) days from the date the and expenses of appraisal shall be borne by the
corporate action was approved by the stockholders, corporation, unless the fair value ascertained by the
the withdrawing stockholder and the corporation appraisers is approximately the same as the price
cannot agree on the fair value of the shares, it shall be which the corporation may have offered to pay the
determined and appraised by three (3) disinterested stockholder, in which case they shall be borne by the
persons, one of whom shall be named by the latter. In the case of an action to recover such fair
23
value, all costs and expenses shall be assessed against Section 89. Right to vote. – The right of the members
the corporation, unless the refusal of the stockholder of any class or classes to vote may be limited,
to receive payment was unjustified. (n) broadened or denied to the extent specified in the
articles of incorporation or the by-laws. Unless so
Section 86. Notation on certificates; rights of limited, broadened or denied, each member,
transferee. – Within ten (10) days after demanding regardless of class, shall be entitled to one vote.
payment for his shares, a dissenting stockholder shall
submit the certificates of stock representing his Unless otherwise provided in the articles of
shares to the corporation for notation thereon that incorporation or the by-laws, a member may vote by
such shares are dissenting shares. His failure to do so proxy in accordance with the provisions of this Code.
shall, at the option of the corporation, terminate his (n)
rights under this Title. If shares represented by the
certificates bearing such notation are transferred, and Voting by mail or other similar means by members of
the certificates consequently cancelled, the rights of non-stock corporations may be authorized by the by-
the transferor as a dissenting stockholder under this laws of non-stock corporations with the approval of,
Title shall cease and the transferee shall have all the and under such conditions which may be prescribed
rights of a regular stockholder; and all dividend by, the Securities and Exchange Commission.
distributions which would have accrued on such
shares shall be paid to the transferee. (n) Section 90. Non-transferability of membership. –
Membership in a non-stock corporation and all rights
TITLE XI arising therefrom are personal and non-transferable,
NON-STOCK CORPORATIONS unless the articles of incorporation or the by-laws
otherwise provide. (n)
Section 87. Definition. – For the purposes of this
Code, a non-stock corporation is one where no part of Section 91. Termination of membership. –
its income is distributable as dividends to its Membership shall be terminated in the manner and
members, trustees, or officers, subject to the for the causes provided in the articles of
provisions of this Code on dissolution: Provided, incorporation or the by-laws. Termination of
That any profit which a non-stock corporation may membership shall have the effect of extinguishing all
obtain as an incident to its operations shall, whenever rights of a member in the corporation or in its
necessary or proper, be used for the furtherance of the property, unless otherwise provided in the articles of
purpose or purposes for which the corporation was incorporation or the by-laws. (n)
organized, subject to the provisions of this Title.
CHAPTER II
The provisions governing stock corporation, when TRUSTEES AND OFFICES
pertinent, shall be applicable to non-stock
corporations, except as may be covered by specific Section 92. Election and term of trustees. – Unless
provisions of this Title. (n) otherwise provided in the articles of incorporation or
the by-laws, the board of trustees of non-stock
Section 88. Purposes. – Non-stock corporations may corporations, which may be more than fifteen (15) in
be formed or organized for charitable, religious, number as may be fixed in their articles of
educational, professional, cultural, fraternal, literary, incorporation or by-laws, shall, as soon as organized,
scientific, social, civic service, or similar purposes, so classify themselves that the term of office of one-
like trade, industry, agricultural and like chambers, or third (1/3) of their number shall expire every year;
any combination thereof, subject to the special and subsequent elections of trustees comprising one-
provisions of this Title governing particular classes of third (1/3) of the board of trustees shall be held
non-stock corporations. (n) annually and trustees so elected shall have a term of
three (3) years. Trustees thereafter elected to fill
CHAPTER I vacancies occurring before the expiration of a
MEMBERS particular term shall hold office only for the
24
unexpired period. similar to those of the dissolving corporation
according to a plan of distribution adopted
No person shall be elected as trustee unless he is a pursuant to this Chapter;
member of the corporation.
4. Assets other than those mentioned in the
Unless otherwise provided in the articles of preceding paragraphs, if any, shall be distributed
incorporation or the by-laws, officers of a non-stock in accordance with the provisions of the articles
corporation may be directly elected by the members. of incorporation or the by-laws, to the extent that
(n) the articles of incorporation or the by-laws,
determine the distributive rights of members, or
Section 93. Place of meetings. – The by-laws may any class or classes of members, or provide for
provide that the members of a non-stock corporation distribution; and
may hold their regular or special meetings at any
place even outside the place where the principal 5. In any other case, assets may be distributed to
office of the corporation is located: Provided, That such persons, societies, organizations or
proper notice is sent to all members indicating the corporations, whether or not organized for profit,
date, time and place of the meeting: and Provided, as may be specified in a plan of distribution
further, That the place of meeting shall be within the adopted pursuant to this Chapter. (n)
Philippines. (n)
Section 95. Plan of distribution of assets. – A plan
CHAPTER III providing for the distribution of assets, not
DISTRIBUTION OF ASSETS IN NON-STOCK inconsistent with the provisions of this Title, may be
CORPORATIONS adopted by a non-stock corporation in the process of
dissolution in the following manner:
Section 94. Rules of distribution. – In case
dissolution of a non-stock corporation in accordance The board of trustees shall, by majority vote, adopt a
with the provisions of this Code, its assets shall be resolution recommending a plan of distribution and
applied and distributed as follows: directing the submission thereof to a vote at a regular
or special meeting of members having voting rights.
1. All liabilities and obligations of the Written notice setting forth the proposed plan of
corporation shall be paid, satisfied and distribution or a summary thereof and the date, time
discharged, or adequate provision shall be made and place of such meeting shall be given to each
therefore; member entitled to vote, within the time and in the
manner provided in this Code for the giving of notice
2. Assets held by the corporation upon a of meetings to members. Such plan of distribution
condition requiring return, transfer or shall be adopted upon approval of at least two-thirds
conveyance, and which condition occurs by (2/3) of the members having voting rights present or
reason of the dissolution, shall be returned, represented by proxy at such meeting. (n)
transferred or conveyed in accordance with such
requirements; TITLE XII
CLOSE CORPORATIONS
3. Assets received and held by the corporation
subject to limitations permitting their use only Section 96. Definition and applicability of Title.- A
for charitable, religious, benevolent, educational close corporation, within the meaning of this Code, is
or similar purposes, but not held upon a one whose articles of incorporation provide that: (1)
condition requiring return, transfer or All the corporation’s issued stock of all classes,
conveyance by reason of the dissolution, shall be exclusive of treasury shares, shall be held of record
transferred or conveyed to one or more by not more than a specified number of persons, not
corporations, societies or organizations engaged exceeding twenty (20); (2) all the issued stock of all
in activities in the Philippines substantially classes shall be subject to one or more specified
25
restrictions on transfer permitted by this Title; and (3) the stockholders of the corporation shall be
The corporation shall not list in any stock exchange deemed to be directors for the purpose of
or make any public offering of any of its stock of any applying the provisions of this Code; and
class. Notwithstanding the foregoing, a corporation
shall not be deemed a close corporation when at least 3. The stockholders of the corporation shall be
two-thirds (2/3) of its voting stock or voting rights is subject to all liabilities of directors.
owned or controlled by another corporation which is
not a close corporation within the meaning of this The articles of incorporation may likewise provide
Code. that all officers or employees or that specified
officers or employees shall be elected or appointed by
Any corporation may be incorporated as a close the stockholders, instead of by the board of directors.
corporation, except mining or oil companies, stock
exchanges, banks, insurance companies, public Section 98. Validity of restrictions on transfer of
utilities, educational institutions and corporations shares. – Restrictions on the right to transfer shares
declared to be vested with public interest in must appear in the articles of incorporation and in the
accordance with the provisions of this Code. by-laws as well as in the certificate of stock;
otherwise, the same shall not be binding on any
The provisions of this Title shall primarily govern purchaser thereof in good faith. Said restrictions shall
close corporations: Provided, That the provisions of not be more onerous than granting the existing
other Titles of this Code shall apply suppletorily stockholders or the corporation the option to purchase
except insofar as this Title otherwise provides. the shares of the transferring stockholder with such
reasonable terms, conditions or period stated therein.
Section 97. Articles of incorporation. – The articles If upon the expiration of said period, the existing
of incorporation of a close corporation may provide: stockholders or the corporation fails to exercise the
option to purchase, the transferring stockholder may
1. For a classification of shares or rights and the sell his shares to any third person.
qualifications for owning or holding the same
and restrictions on their transfers as may be Section 99. Effects of issuance or transfer of stock in
stated therein, subject to the provisions of the breach of qualifying conditions. -
following section;
1. If stock of a close corporation is issued or
2. For a classification of directors into one or transferred to any person who is not entitled
more classes, each of whom may be voted for under any provision of the articles of
and elected solely by a particular class of stock; incorporation to be a holder of record of its
and stock, and if the certificate for such stock
conspicuously shows the qualifications of the
3. For a greater quorum or voting requirements in persons entitled to be holders of record thereof,
meetings of stockholders or directors than those such person is conclusively presumed to have
provided in this Code. notice of the fact of his ineligibility to be a
stockholder.
The articles of incorporation of a close corporation
may provide that the business of the corporation shall 2. If the articles of incorporation of a close
be managed by the stockholders of the corporation corporation states the number of persons, not
rather than by a board of directors. So long as this exceeding twenty (20), who are entitled to be
provision continues in effect: holders of record of its stock, and if the
certificate for such stock conspicuously states
1. No meeting of stockholders need be called to such number, and if the issuance or transfer of
elect directors; stock to any person would cause the stock to be
held by more than such number of persons, the
2. Unless the context clearly requires otherwise, person to whom such stock is issued or
26
 transferred is conclusively presumed to have such be their intent, to the extent that such
notice of this fact. agreements are not inconsistent with the articles
of incorporation, irrespective of where the
3. If a stock certificate of any close corporation provisions of such agreements are contained,
conspicuously shows a restriction on transfer of except those required by this Title to be
stock of the corporation, the transferee of the embodied in said articles of incorporation.
stock is conclusively presumed to have notice of
the fact that he has acquired stock in violation of 2. An agreement between two or more
the restriction, if such acquisition violates the stockholders, if in writing and signed by the
restriction. parties thereto, may provide that in exercising
any voting rights, the shares held by them shall
4. Whenever any person to whom stock of a be voted as therein provided, or as they may
close corporation has been issued or transferred agree, or as determined in accordance with a
has, or is conclusively presumed under this procedure agreed upon by them.
section to have, notice either (a) that he is a
person not eligible to be a holder of stock of the 3. No provision in any written agreement signed
corporation, or (b) that transfer of stock to him by the stockholders, relating to any phase of the
would cause the stock of the corporation to be corporate affairs, shall be invalidated as between
held by more than the number of persons the parties on the ground that its effect is to make
permitted by its articles of incorporation to hold them partners among themselves.
stock of the corporation, or (c) that the transfer of
stock is in violation of a restriction on transfer of 4. A written agreement among some or all of the
stock, the corporation may, at its option, refuse to stockholders in a close corporation shall not be
register the transfer of stock in the name of the invalidated on the ground that it so relates to the
transferee. conduct of the business and affairs of the
corporation as to restrict or interfere with the
5. The provisions of subsection (4) shall not be discretion or powers of the board of directors:
applicable if the transfer of stock, though Provided, That such agreement shall impose on
contrary to subsections (1), (2) or (3), has been the stockholders who are parties thereto the
consented to by all the stockholders of the close liabilities for managerial acts imposed by this
corporation, or if the close corporation has Code on directors.
amended its articles of incorporation in
accordance with this Title. 5. To the extent that the stockholders are actively
engaged in the management or operation of the
6. The term "transfer", as used in this section, is business and affairs of a close corporation, the
not limited to a transfer for value. stockholders shall be held to strict fiduciary
duties to each other and among themselves. Said
7. The provisions of this section shall not impair stockholders shall be personally liable for
any right which the transferee may have to corporate torts unless the corporation has
rescind the transfer or to recover under any obtained reasonably adequate liability insurance.
applicable warranty, express or implied.
Section 101. When board meeting is unnecessary or
Section 100. Agreements by stockholders. - improperly held.- Unless the by-laws provide
otherwise, any action by the directors of a close
1. Agreements by and among stockholders corporation without a meeting shall nevertheless be
executed before the formation and organization deemed valid if:
of a close corporation, signed by all stockholders,
shall survive the incorporation of such 1. Before or after such action is taken, written
corporation and shall continue to be valid and consent thereto is signed by all the directors; or
binding between and among such stockholders, if
27
 2. All the stockholders have actual or implied the corporation can no longer be conducted to the
knowledge of the action and make no prompt advantage of the stockholders generally, the
objection thereto in writing; or Securities and Exchange Commission, upon written
petition by any stockholder, shall have the power to
3. The directors are accustomed to take informal arbitrate the dispute. In the exercise of such power,
action with the express or implied acquiescence the Commission shall have authority to make such
of all the stockholders; or order as it deems appropriate, including an order: (1)
cancelling or altering any provision contained in the
4. All the directors have express or implied articles of incorporation, by-laws, or any
knowledge of the action in question and none of stockholder’s agreement; (2) cancelling, altering or
them makes prompt objection thereto in writing. enjoining any resolution or act of the corporation or
its board of directors, stockholders, or officers; (3)
If a director’s meeting is held without proper call or directing or prohibiting any act of the corporation or
notice, an action taken therein within the corporate its board of directors, stockholders, officers, or other
powers is deemed ratified by a director who failed to persons party to the action; (4) requiring the purchase
attend, unless he promptly files his written objection at their fair value of shares of any stockholder, either
with the secretary of the corporation after having by the corporation regardless of the availability of
knowledge thereof. unrestricted retained earnings in its books, or by the
other stockholders; (5) appointing a provisional
Section 102. Pre-emptive right in close corporations. director; (6) dissolving the corporation; or (7)
– The pre-emptive right of stockholders in close granting such other relief as the circumstances may
corporations shall extend to all stock to be issued, warrant.
including reissuance of treasury shares, whether for
money, property or personal services, or in payment A provisional director shall be an impartial person
of corporate debts, unless the articles of incorporation who is neither a stockholder nor a creditor of the
provide otherwise. corporation or of any subsidiary or affiliate of the
corporation, and whose further qualifications, if any,
Section 103. Amendment of articles of incorporation. may be determined by the Commission. A provisional
– Any amendment to the articles of incorporation director is not a receiver of the corporation and does
which seeks to delete or remove any provision not have the title and powers of a custodian or
required by this Title to be contained in the articles of receiver. A provisional director shall have all the
incorporation or to reduce a quorum or voting rights and powers of a duly elected director of the
requirement stated in said articles of incorporation corporation, including the right to notice of and to
shall not be valid or effective unless approved by the vote at meetings of directors, until such time as he
affirmative vote of at least two-thirds (2/3) of the shall be removed by order of the Commission or by
outstanding capital stock, whether with or without all the stockholders. His compensation shall be
voting rights, or of such greater proportion of shares determined by agreement between him and the
as may be specifically provided in the articles of corporation subject to approval of the Commission,
incorporation for amending, deleting or removing any which may fix his compensation in the absence of
of the aforesaid provisions, at a meeting duly called agreement or in the event of disagreement between
for the purpose. the provisional director and the corporation.

Section 104. Deadlocks. – Notwithstanding any Section 105. Withdrawal of stockholder or

contrary provision in the articles of incorporation or dissolution of corporation. – In addition and without
by-laws or agreement of stockholders of a close prejudice to other rights and remedies available to a
corporation, if the directors or stockholders are so stockholder under this Title, any stockholder of a
divided respecting the management of the close corporation may, for any reason, compel the
corporation’s business and affairs that the votes said corporation to purchase his shares at their fair
required for any corporate action cannot be obtained, value, which shall not be less than their par or issued
with the consequence that the business and affairs of value, when the corporation has sufficient assets in its
28
books to cover its debts and liabilities exclusive of the provisions on stock corporations. (169a)
capital stock: Provided, That any stockholder of a
close corporation may, by written petition to the CHAPTER II
Securities and Exchange Commission, compel the RELIGIOUS CORPORATIONS
dissolution of such corporation whenever any of acts
of the directors, officers or those in control of the Section 109. Classes of religious corporations. –
corporation is illegal, or fraudulent, or dishonest, or Religious corporations may be incorporated by one or
oppressive or unfairly prejudicial to the corporation more persons. Such corporations may be classified
or any stockholder, or whenever corporate assets are into corporations sole and religious societies.
being misapplied or wasted.
Religious corporations shall be governed by this
TITLE XIII Chapter and by the general provisions on non-stock
SPECIAL CORPORATIONS corporations insofar as they may be applicable. (n)
CHAPTER I - EDUCATIONAL
CORPORATIONS Section 110. Corporation sole. – For the purpose of
administering and managing, as trustee, the affairs,
Section 106. Incorporation. – Educational property and temporalities of any religious
corporations shall be governed by special laws and by denomination, sect or church, a corporation sole may
the general provisions of this Code. (n) be formed by the chief archbishop, bishop, priest,
minister, rabbi or other presiding elder of such
Section 107. Pre-requisites to incorporation. – religious denomination, sect or church. (154a)
Except upon favorable recommendation of the
Ministry of Education and Culture, the Securities and Section 111. Articles of incorporation. – In order to
Exchange Commission shall not accept or approve become a corporation sole, the chief archbishop,
the articles of incorporation and by-laws of any bishop, priest, minister, rabbi or presiding elder of
educational institution. (168a) any religious denomination, sect or church must file
with the Securities and Exchange Commission
Section 108. Board of trustees. – Trustees of articles of incorporation setting forth the following:
educational institutions organized as non-stock
corporations shall not be less than five (5) nor more 1. That he is the chief archbishop, bishop, priest,
than fifteen (15): Provided, however, That the minister, rabbi or presiding elder of his religious
number of trustees shall be in multiples of five (5). denomination, sect or church and that he desires
to become a corporation sole;
Unless otherwise provided in the articles of
incorporation on the by-laws, the board of trustees of 2. That the rules, regulations and discipline of his
incorporated schools, colleges, or other institutions of religious denomination, sect or church are not
learning shall, as soon as organized, so classify inconsistent with his becoming a corporation sole
themselves that the term of office of one-fifth (1/5) of and do not forbid it;
their number shall expire every year. Trustees
thereafter elected to fill vacancies, occurring before 3. That as such chief archbishop, bishop, priest,
the expiration of a particular term, shall hold office minister, rabbi or presiding elder, he is charged
only for the unexpired period. Trustees elected with the administration of the temporalities and
thereafter to fill vacancies caused by expiration of the management of the affairs, estate and
term shall hold office for five (5) years. A majority of properties of his religious denomination, sect or
the trustees shall constitute a quorum for the church within his territorial jurisdiction,
transaction of business. The powers and authority of describing such territorial jurisdiction;
trustees shall be defined in the by-laws.
4. The manner in which any vacancy occurring in
For institutions organized as stock corporations, the the office of chief archbishop, bishop, priest,
number and term of directors shall be governed by minister, rabbi of presiding elder is required to be
29
 filled, according to the rules, regulations or have directed, and that it is to the interest of the
discipline of the religious denomination, sect or corporation that leave to sell or mortgage should be
church to which he belongs; and granted. The application for leave to sell or mortgage
must be made by petition, duly verified, by the chief
5. The place where the principal office of the archbishop, bishop, priest, minister, rabbi or
corporation sole is to be established and located, presiding elder acting as corporation sole, and may be
which place must be within the Philippines. opposed by any member of the religious
denomination, sect or church represented by the
The articles of incorporation may include any corporation sole: Provided, That in cases where the
other provision not contrary to law for the rules, regulations and discipline of the religious
regulation of the affairs of the corporation. (n) denomination, sect or church, religious society or
order concerned represented by such corporation sole
Section 112. Submission of the articles of regulate the method of acquiring, holding, selling and
incorporation. – The articles of incorporation must be mortgaging real estate and personal property, such
verified, before filing, by affidavit or affirmation of rules, regulations and discipline shall control, and the
the chief archbishop, bishop, priest, minister, rabbi or intervention of the courts shall not be necessary.
presiding elder, as the case may be, and accompanied (159a)
by a copy of the commission, certificate of election or
letter of appointment of such chief archbishop, Section 114. Filling of vacancies. – The successors in
bishop, priest, minister, rabbi or presiding elder, duly office of any chief archbishop, bishop, priest,
certified to be correct by any notary public. minister, rabbi or presiding elder in a corporation sole
shall become the corporation sole on their accession
From and after the filing with the Securities and to office and shall be permitted to transact business as
Exchange Commission of the said articles of such on the filing with the Securities and Exchange
incorporation, verified by affidavit or affirmation, and Commission of a copy of their commission,
accompanied by the documents mentioned in the certificate of election, or letters of appointment, duly
preceding paragraph, such chief archbishop, bishop, certified by any notary public.
priest, minister, rabbi or presiding elder shall become
a corporation sole and all temporalities, estate and During any vacancy in the office of chief archbishop,
properties of the religious denomination, sect or bishop, priest, minister, rabbi or presiding elder of
church theretofore administered or managed by him any religious denomination, sect or church
as such chief archbishop, bishop, priest, minister, incorporated as a corporation sole, the person or
rabbi or presiding elder shall be held in trust by him persons authorized and empowered by the rules,
as a corporation sole, for the use, purpose, behalf and regulations or discipline of the religious
sole benefit of his religious denomination, sect or denomination, sect or church represented by the
church, including hospitals, schools, colleges, orphan corporation sole to administer the temporalities and
asylums, parsonages and cemeteries thereof. (n) manage the affairs, estate and properties of the
corporation sole during the vacancy shall exercise all
Section 113. Acquisition and alienation of property. – the powers and authority of the corporation sole
Any corporation sole may purchase and hold real during such vacancy. (158a)
estate and personal property for its church, charitable,
benevolent or educational purposes, and may receive Section 115. Dissolution. – A corporation sole may
bequests or gifts for such purposes. Such corporation be dissolved and its affairs settled voluntarily by
may sell or mortgage real property held by it by submitting to the Securities and Exchange
obtaining an order for that purpose from the Court of Commission a verified declaration of dissolution.
First Instance of the province where the property is
situated upon proof made to the satisfaction of the The declaration of dissolution shall set forth:
court that notice of the application for leave to sell or
mortgage has been given by publication or otherwise 1. The name of the corporation;
in such manner and for such time as said court may
30
 2. The reason for dissolution and winding up; the religious denomination, sect, or church of
which it forms a part;
3. The authorization for the dissolution of the
corporation by the particular religious 4. That the religious society or religious order, or
denomination, sect or church; diocese, synod, or district organization desires to
incorporate for the administration of its affairs,
4. The names and addresses of the persons who properties and estate;
are to supervise the winding up of the affairs of
the corporation. 5. The place where the principal office of the
corporation is to be established and located,
Upon approval of such declaration of dissolution which place must be within the Philippines; and
by the Securities and Exchange Commission, the
corporation shall cease to carry on its operations 6. The names, nationalities, and residences of the
except for the purpose of winding up its affairs. trustees elected by the religious society or
(n) religious order, or the diocese, synod, or district
organization to serve for the first year or such
Section 116. Religious societies. – Any religious other period as may be prescribed by the laws of
society or religious order, or any diocese, synod, or the religious society or religious order, or of the
district organization of any religious denomination, diocese, synod, or district organization, the board
sect or church, unless forbidden by the constitution, of trustees to be not less than five (5) nor more
rules, regulations, or discipline of the religious than fifteen (15). (160a)
denomination, sect or church of which it is a part, or
by competent authority, may, upon written consent TITLE XIV
and/or by an affirmative vote at a meeting called for DISSOLUTION
the purpose of at least two-thirds (2/3) of its
membership, incorporate for the administration of its Section 117. Methods of dissolution. – A corporation
temporalities or for the management of its affairs, formed or organized under the provisions of this
properties and estate by filing with the Securities and Code may be dissolved voluntarily or involuntarily.
Exchange Commission, articles of incorporation (n)
verified by the affidavit of the presiding elder,
secretary, or clerk or other member of such religious Section 118. Voluntary dissolution where no creditors
society or religious order, or diocese, synod, or are affected. – If dissolution of a corporation does not
district organization of the religious denomination, prejudice the rights of any creditor having a claim
sect or church, setting forth the following: against it, the dissolution may be effected by majority
vote of the board of directors or trustees, and by a
1. That the religious society or religious order, or resolution duly adopted by the affirmative vote of the
diocese, synod, or district organization is a stockholders owning at least two-thirds (2/3) of the
religious organization of a religious outstanding capital stock or of at least two-thirds
denomination, sect or church; (2/3) of the members of a meeting to be held upon
call of the directors or trustees after publication of the
2. That at least two-thirds (2/3) of its notice of time, place and object of the meeting for
membership have given their written consent or three (3) consecutive weeks in a newspaper published
have voted to incorporate, at a duly convened in the place where the principal office of said
meeting of the body; corporation is located; and if no newspaper is
published in such place, then in a newspaper of
3. That the incorporation of the religious society general circulation in the Philippines, after sending
or religious order, or diocese, synod, or district such notice to each stockholder or member either by
organization desiring to incorporate is not registered mail or by personal delivery at least thirty
forbidden by competent authority or by the (30) days prior to said meeting. A copy of the
constitution, rules, regulations or discipline of resolution authorizing the dissolution shall be
31
certified by a majority of the board of directors or Section 120. Dissolution by shortening corporate
trustees and countersigned by the secretary of the term. – A voluntary dissolution may be effected by
corporation. The Securities and Exchange amending the articles of incorporation to shorten the
Commission shall thereupon issue the certificate of corporate term pursuant to the provisions of this
dissolution. (62a) Code. A copy of the amended articles of
incorporation shall be submitted to the Securities and
Section 119. Voluntary dissolution where creditors Exchange Commission in accordance with this Code.
are affected. – Where the dissolution of a corporation Upon approval of the amended articles of
may prejudice the rights of any creditor, the petition incorporation of the expiration of the shortened term,
for dissolution shall be filed with the Securities and as the case may be, the corporation shall be deemed
Exchange Commission. The petition shall be signed dissolved without any further proceedings, subject to
by a majority of its board of directors or trustees or the provisions of this Code on liquidation. (n)
other officers having the management of its affairs,
verified by its president or secretary or one of its Section 121. Involuntary dissolution. – A corporation
directors or trustees, and shall set forth all claims and may be dissolved by the Securities and Exchange
demands against it, and that its dissolution was Commission upon filing of a verified complaint and
resolved upon by the affirmative vote of the after proper notice and hearing on the grounds
stockholders representing at least two-thirds (2/3) of provided by existing laws, rules and regulations. (n)
the outstanding capital stock or by at least two-thirds
(2/3) of the members at a meeting of its stockholders Section 122. Corporate liquidation. – Every
or members called for that purpose. corporation whose charter expires by its own
limitation or is annulled by forfeiture or otherwise, or
If the petition is sufficient in form and substance, the whose corporate existence for other purposes is
Commission shall, by an order reciting the purpose of terminated in any other manner, shall nevertheless be
the petition, fix a date on or before which objections continued as a body corporate for three (3) years after
thereto may be filed by any person, which date shall the time when it would have been so dissolved, for
not be less than thirty (30) days nor more than sixty the purpose of prosecuting and defending suits by or
(60) days after the entry of the order. Before such against it and enabling it to settle and close its affairs,
date, a copy of the order shall be published at least to dispose of and convey its property and to distribute
once a week for three (3) consecutive weeks in a its assets, but not for the purpose of continuing the
newspaper of general circulation published in the business for which it was established.
municipality or city where the principal office of the
corporation is situated, or if there be no such At any time during said three (3) years, the
newspaper, then in a newspaper of general circulation corporation is authorized and empowered to convey
in the Philippines, and a similar copy shall be posted all of its property to trustees for the benefit of
for three (3) consecutive weeks in three (3) public stockholders, members, creditors, and other persons
places in such municipality or city. in interest. From and after any such conveyance by
the corporation of its property in trust for the benefit
Upon five (5) day’s notice, given after the date on of its stockholders, members, creditors and others in
which the right to file objections as fixed in the order interest, all interest which the corporation had in the
has expired, the Commission shall proceed to hear property terminates, the legal interest vests in the
the petition and try any issue made by the objections trustees, and the beneficial interest in the
filed; and if no such objection is sufficient, and the stockholders, members, creditors or other persons in
material allegations of the petition are true, it shall interest.
render judgment dissolving the corporation and
directing such disposition of its assets as justice Upon the winding up of the corporate affairs, any
requires, and may appoint a receiver to collect such asset distributable to any creditor or stockholder or
assets and pay the debts of the corporation. (Rule member who is unknown or cannot be found shall be
104, RCa) escheated to the city or municipality where such
assets are located.
32
Except by decrease of capital stock and as otherwise of a local office, all notices affecting the
allowed by this Code, no corporation shall distribute corporation;
any of its assets or property except upon lawful
dissolution and after payment of all its debts and 4. The place in the Philippines where the
liabilities. (77a, 89a, 16a) corporation intends to operate;

TITLE XV 5. The specific purpose or purposes which the

FOREIGN CORPORATIONS corporation intends to pursue in the transaction
of its business in the Philippines: Provided, That
Section 123. Definition and rights of foreign said purpose or purposes are those specifically
corporations. – For the purposes of this Code, a stated in the certificate of authority issued by the
foreign corporation is one formed, organized or appropriate government agency;
existing under any laws other than those of the
Philippines and whose laws allow Filipino citizens 6. The names and addresses of the present
and corporations to do business in its own country or directors and officers of the corporation;
state. It shall have the right to transact business in the
Philippines after it shall have obtained a license to 7. A statement of its authorized capital stock and
transact business in this country in accordance with the aggregate number of shares which the
this Code and a certificate of authority from the corporation has authority to issue, itemized by
appropriate government agency. (n) classes, par value of shares, shares without par
value, and series, if any;
Section 124. Application to existing foreign
corporations. – Every foreign corporation which on 8. A statement of its outstanding capital stock
the date of the effectivity of this Code is authorized to and the aggregate number of shares which the
do business in the Philippines under a license corporation has issued, itemized by classes, par
therefore issued to it, shall continue to have such value of shares, shares without par value, and
authority under the terms and condition of its license, series, if any;
subject to the provisions of this Code and other
special laws. (n) 9. A statement of the amount actually paid in;
and
Section 125. Application for a license. – A foreign
corporation applying for a license to transact business 10. Such additional information as may be
in the Philippines shall submit to the Securities and necessary or appropriate in order to enable the
Exchange Commission a copy of its articles of Securities and Exchange Commission to
incorporation and by-laws, certified in accordance determine whether such corporation is entitled to
with law, and their translation to an official language a license to transact business in the Philippines,
of the Philippines, if necessary. The application shall and to determine and assess the fees payable.
be under oath and, unless already stated in its articles
of incorporation, shall specifically set forth the Attached to the application for license shall be a
following: duly executed certificate under oath by the
authorized official or officials of the jurisdiction
1. The date and term of incorporation; of its incorporation, attesting to the fact that the
laws of the country or state of the applicant allow
2. The address, including the street number, of Filipino citizens and corporations to do business
the principal office of the corporation in the therein, and that the applicant is an existing
country or state of incorporation; corporation in good standing. If such certificate
is in a foreign language, a translation thereof in
3. The name and address of its resident agent English under oath of the translator shall be
authorized to accept summons and process in all attached thereto.
legal proceedings and, pending the establishment
33
 The application for a license to transact business government-owned or controlled corporations and
in the Philippines shall likewise be accompanied entities, shares of stock in "registered enterprises" as
by a statement under oath of the president or any this term is defined in Republic Act No. 5186, shares
other person authorized by the corporation, of stock in domestic corporations registered in the
showing to the satisfaction of the Securities and stock exchange, or shares of stock in domestic
Exchange Commission and other governmental insurance companies and banks, or any combination
agency in the proper cases that the applicant is of these kinds of securities, with an actual market
solvent and in sound financial condition, and value of at least one hundred thousand (P100,000.)
setting forth the assets and liabilities of the pesos; Provided, however, That within six (6) months
corporation as of the date not exceeding one (1) after each fiscal year of the licensee, the Securities
year immediately prior to the filing of the and Exchange Commission shall require the licensee
application. to deposit additional securities equivalent in actual
market value to two (2%) percent of the amount by
Foreign banking, financial and insurance which the licensee’s gross income for that fiscal year
corporations shall, in addition to the above exceeds five million (P5,000,000.00) pesos. The
requirements, comply with the provisions of Securities and Exchange Commission shall also
existing laws applicable to them. In the case of require deposit of additional securities if the actual
all other foreign corporations, no application for market value of the securities on deposit has
license to transact business in the Philippines decreased by at least ten (10%) percent of their actual
shall be accepted by the Securities and Exchange market value at the time they were deposited. The
Commission without previous authority from the Securities and Exchange Commission may at its
appropriate government agency, whenever discretion release part of the additional securities
required by law. (68a) deposited with it if the gross income of the licensee
has decreased, or if the actual market value of the
Section 126. Issuance of a license. – If the Securities total securities on deposit has increased, by more than
and Exchange Commission is satisfied that the ten (10%) percent of the actual market value of the
applicant has complied with all the requirements of securities at the time they were deposited. The
this Code and other special laws, rules and Securities and Exchange Commission may, from time
regulations, the Commission shall issue a license to to time, allow the licensee to substitute other
the applicant to transact business in the Philippines securities for those already on deposit as long as the
for the purpose or purposes specified in such license. licensee is solvent. Such licensee shall be entitled to
Upon issuance of the license, such foreign collect the interest or dividends on the securities
corporation may commence to transact business in deposited. In the event the licensee ceases to do
the Philippines and continue to do so for as long as it business in the Philippines, the securities deposited as
retains its authority to act as a corporation under the aforesaid shall be returned, upon the licensee’s
laws of the country or state of its incorporation, application therefor and upon proof to the satisfaction
unless such license is sooner surrendered, revoked, of the Securities and Exchange Commission that the
suspended or annulled in accordance with this Code licensee has no liability to Philippine residents,
or other special laws. including the Government of the Republic of the
Philippines. (n)
Within sixty (60) days after the issuance of the
license to transact business in the Philippines, the Section 127. Who may be a resident agent. – A
license, except foreign banking or insurance resident agent may be either an individual residing in
corporation, shall deposit with the Securities and the Philippines or a domestic corporation lawfully
Exchange Commission for the benefit of present and transacting business in the Philippines: Provided,
future creditors of the licensee in the Philippines, That in the case of an individual, he must be of good
securities satisfactory to the Securities and Exchange moral character and of sound financial standing. (n)
Commission, consisting of bonds or other evidence of
indebtedness of the Government of the Philippines, Section 128. Resident agent; service of process. –
its political subdivisions and instrumentalities, or of The Securities and Exchange Commission shall
34
require as a condition precedent to the issuance of the the new address. (72a; and n)
license to transact business in the Philippines by any
foreign corporation that such corporation file with the Section 129. Law applicable. – Any foreign
Securities and Exchange Commission a written corporation lawfully doing business in the
power of attorney designating some person who must Philippines shall be bound by all laws, rules and
be a resident of the Philippines, on whom any regulations applicable to domestic corporations of the
summons and other legal processes may be served in same class, except such only as provide for the
all actions or other legal proceedings against such creation, formation, organization or dissolution of
corporation, and consenting that service upon such corporations or those which fix the relations,
resident agent shall be admitted and held as valid as if liabilities, responsibilities, or duties of stockholders,
served upon the duly authorized officers of the members, or officers of corporations to each other or
foreign corporation at its home office. Any such to the corporation. (73a)
foreign corporation shall likewise execute and file
with the Securities and Exchange Commission an Section 130. Amendments to articles of
agreement or stipulation, executed by the proper incorporation or by-laws of foreign corporations. –
authorities of said corporation, in form and substance Whenever the articles of incorporation or by-laws of
as follows: a foreign corporation authorized to transact business
in the Philippines are amended, such foreign
"The (name of foreign corporation) does hereby corporation shall, within sixty (60) days after the
stipulate and agree, in consideration of its being amendment becomes effective, file with the
granted by the Securities and Exchange Commission Securities and Exchange Commission, and in the
a license to transact business in the Philippines, that if proper cases with the appropriate government agency,
at any time said corporation shall cease to transact a duly authenticated copy of the articles of
business in the Philippines, or shall be without any incorporation or by-laws, as amended, indicating
resident agent in the Philippines on whom any clearly in capital letters or by underscoring the
summons or other legal processes may be served, change or changes made, duly certified by the
then in any action or proceeding arising out of any authorized official or officials of the country or state
business or transaction which occurred in the of incorporation. The filing thereof shall not of itself
Philippines, service of any summons or other legal enlarge or alter the purpose or purposes for which
process may be made upon the Securities and such corporation is authorized to transact business in
Exchange Commission and that such service shall the Philippines. (n)
have the same force and effect as if made upon the
duly-authorized officers of the corporation at its Section 131. Amended license. – A foreign
home office." corporation authorized to transact business in the
Philippines shall obtain an amended license in the
Whenever such service of summons or other process event it changes its corporate name, or desires to
shall be made upon the Securities and Exchange pursue in the Philippines other or additional
Commission, the Commission shall, within ten (10) purposes, by submitting an application therefor to the
days thereafter, transmit by mail a copy of such Securities and Exchange Commission, favorably
summons or other legal process to the corporation at endorsed by the appropriate government agency in
its home or principal office. The sending of such copy the proper cases. (n)
by the Commission shall be necessary part of and
shall complete such service. All expenses incurred by Section 132. Merger or consolidation involving a
the Commission for such service shall be paid in foreign corporation licensed in the Philippines. –
advance by the party at whose instance the service is One or more foreign corporations authorized to
made. transact business in the Philippines may merge or
consolidate with any domestic corporation or
In case of a change of address of the resident agent, it corporations if such is permitted under Philippine
shall be his or its duty to immediately notify in laws and by the law of its incorporation: Provided,
writing the Securities and Exchange Commission of That the requirements on merger or consolidation as
35
provided in this Code are followed. any amendment to its articles of incorporation or
by-laws or of any articles of merger or
Whenever a foreign corporation authorized to consolidation within the time prescribed by this
transact business in the Philippines shall be a party to Title;
a merger or consolidation in its home country or state
as permitted by the law of its incorporation, such 5. A misrepresentation of any material matter in
foreign corporation shall, within sixty (60) days after any application, report, affidavit or other
such merger or consolidation becomes effective, file document submitted by such corporation
with the Securities and Exchange Commission, and in pursuant to this Title;
proper cases with the appropriate government agency,
a copy of the articles of merger or consolidation duly 6. Failure to pay any and all taxes, imposts,
authenticated by the proper official or officials of the assessments or penalties, if any, lawfully due to
country or state under the laws of which merger or the Philippine Government or any of its agencies
consolidation was effected: Provided, however, That or political subdivisions;
if the absorbed corporation is the foreign corporation
doing business in the Philippines, the latter shall at 7. Transacting business in the Philippines outside
the same time file a petition for withdrawal of its of the purpose or purposes for which such
license in accordance with this Title. (n) corporation is authorized under its license;

Section 133. Doing business without a license. – No 8. Transacting business in the Philippines as
foreign corporation transacting business in the agent of or acting for and in behalf of any foreign
Philippines without a license, or its successors or corporation or entity not duly licensed to do
assigns, shall be permitted to maintain or intervene in business in the Philippines; or
any action, suit or proceeding in any court or
administrative agency of the Philippines; but such 9. Any other ground as would render it unfit to
corporation may be sued or proceeded against before transact business in the Philippines. (n)
Philippine courts or administrative tribunals on any
valid cause of action recognized under Philippine Section 135. Issuance of certificate of revocation. –
laws. (69a) Upon the revocation of any such license to transact
business in the Philippines, the Securities and
Section 134. Revocation of license. – Without Exchange Commission shall issue a corresponding
prejudice to other grounds provided by special laws, certificate of revocation, furnishing a copy thereof to
the license of a foreign corporation to transact the appropriate government agency in the proper
business in the Philippines may be revoked or cases.
suspended by the Securities and Exchange
Commission upon any of the following grounds: The Securities and Exchange Commission shall also
mail to the corporation at its registered office in the
1. Failure to file its annual report or pay any fees Philippines a notice of such revocation accompanied
as required by this Code; by a copy of the certificate of revocation. (n)

2. Failure to appoint and maintain a resident Section 136. Withdrawal of foreign corporations. –
agent in the Philippines as required by this Title; Subject to existing laws and regulations, a foreign
corporation licensed to transact business in the
3. Failure, after change of its resident agent or of Philippines may be allowed to withdraw from the
his address, to submit to the Securities and Philippines by filing a petition for withdrawal of
Exchange Commission a statement of such license. No certificate of withdrawal shall be issued
change as required by this Title; by the Securities and Exchange Commission unless
all the following requirements are met;
4. Failure to submit to the Securities and
Exchange Commission an authenticated copy of 1. All claims which have accrued in the
36
 Philippines have been paid, compromised or Pambansa for stockholdings in corporations declared
settled; by it to be vested with a public interest pursuant to
the provisions of this section, belonging to
2. All taxes, imposts, assessments, and penalties, individuals or groups of individuals related to each
if any, lawfully due to the Philippine Government other by consanguinity or affinity or by close
or any of its agencies or political subdivisions business interests, or whenever it is necessary to
have been paid; and achieve national objectives, prevent illegal
monopolies or combinations in restraint or trade, or
3. The petition for withdrawal of license has been to implement national economic policies declared in
published once a week for three (3) consecutive laws, rules and regulations designed to promote the
weeks in a newspaper of general circulation in general welfare and foster economic development.
the Philippines.
In recommending to the Batasang Pambansa
TITLE XVI corporations, businesses or industries to be declared
MISCELLANEOUS PROVISIONS vested with a public interest and in formulating
proposals for limitations on stock ownership, the
Section 137. Outstanding capital stock defined. – The National Economic and Development Authority shall
term "outstanding capital stock", as used in this Code, consider the type and nature of the industry, the size
means the total shares of stock issued under binding of the enterprise, the economies of scale, the
subscription agreements to subscribers or geographic location, the extent of Filipino ownership,
stockholders, whether or not fully or partially paid, the labor intensity of the activity, the export potential,
except treasury shares. (n) as well as other factors which are germane to the
realization and promotion of business and industry.
Section 138. Designation of governing boards. – The
provisions of specific provisions of this Code to the Section 141. Annual report or corporations. – Every
contrary notwithstanding, non-stock or special corporation, domestic or foreign, lawfully doing
corporations may, through their articles of business in the Philippines shall submit to the
incorporation or their by-laws, designate their Securities and Exchange Commission an annual
governing boards by any name other than as board of report of its operations, together with a financial
trustees. (n) statement of its assets and liabilities, certified by any
independent certified public accountant in
Section 139. Incorporation and other fees. – The appropriate cases, covering the preceding fiscal year
Securities and Exchange Commission is hereby and such other requirements as the Securities and
authorized to collect and receive fees as authorized Exchange Commission may require. Such report shall
by law or by rules and regulations promulgated by be submitted within such period as may be prescribed
the Commission.1âwphi1 (n) by the Securities and Exchange Commission. (n)

Section 140. Stock ownership in certain Section 142. Confidential nature of examination
corporations. – Pursuant to the duties specified by results. – All interrogatories propounded by the
Article XIV of the Constitution, the National Securities and Exchange Commission and the
Economic and Development Authority shall, from answers thereto, as well as the results of any
time to time, make a determination of whether the examination made by the Commission or by any
corporate vehicle has been used by any corporation or other official authorized by law to make an
by business or industry to frustrate the provisions examination of the operations, books and records of
thereof or of applicable laws, and shall submit to the any corporation, shall be kept strictly confidential,
Batasang Pambansa, whenever deemed necessary, a except insofar as the law may require the same to be
report of its findings, including recommendations for made public or where such interrogatories, answers
their prevention or correction. or results are necessary to be presented as evidence
before any court. (n)
Maximum limits may be set by the Batasang
37
Section 143. Rule-making power of the Securities All corporations lawfully existing and doing business
and Exchange Commission. – The Securities and in the Philippines on the date of the effectivity of this
Exchange Commission shall have the power and Code and heretofore authorized, licensed or
authority to implement the provisions of this Code, registered by the Securities and Exchange
and to promulgate rules and regulations reasonably Commission, shall be deemed to have been
necessary to enable it to perform its duties hereunder, authorized, licensed or registered under the
particularly in the prevention of fraud and abuses on provisions of this Code, subject to the terms and
the part of the controlling stockholders, members, conditions of its license, and shall be governed by the
directors, trustees or officers. (n) provisions hereof: Provided, That if any such
corporation is affected by the new requirements of
Section 144. Violations of the Code. – Violations of this Code, said corporation shall, unless otherwise
any of the provisions of this Code or its amendments herein provided, be given a period of not more than
not otherwise specifically penalized therein shall be two (2) years from the effectivity of this Code within
punished by a fine of not less than one thousand which to comply with the same. (n)
(P1,000.00) pesos but not more than ten thousand
(P10,000.00) pesos or by imprisonment for not less Section 149. Effectivity. – This Code shall take effect
than thirty (30) days but not more than five (5) years, immediately upon its approval.
or both, in the discretion of the court. If the violation
is committed by a corporation, the same may, after Approved, May 1, 1980
notice and hearing, be dissolved in appropriate
proceedings before the Securities and Exchange
Commission: Provided, That such dissolution shall
not preclude the institution of appropriate action
against the director, trustee or officer of the
corporation responsible for said violation: Provided, INTERIM RULES OF PROCEDURE FOR
further, That nothing in this section shall be construed INTRA-CORPORATE CONTROVERSIES
to repeal the other causes for dissolution of a
corporation provided in this Code. (190 1/2 a)

Section 145. Amendment or repeal. – No right or Rule I

remedy in favor of or against any corporation, its
stockholders, members, directors, trustees, or GENERAL PROVISIONS
officers, nor any liability incurred by any such
corporation, stockholders, members, directors, Section 1. (a) Cases covered. - These Rules shall
trustees, or officers, shall be removed or impaired govern the procedure to be observed in civil cases
either by the subsequent dissolution of said involving the following:
corporation or by any subsequent amendment or
repeal of this Code or of any part thereof. (n) (1) Devices or schemes employed by, or any act
of, the board of directors, business associates,
Section 146. Repealing clause. – Except as expressly officers or partners, amounting to fraud or
provided by this Code, all laws or parts thereof misrepresentation which may be detrimental to
inconsistent with any provision of this Code shall be the interest of the public and/or of the
deemed repealed. (n) stockholders, partners, or members of any
corporation, partnership, or association;
Section 147. Separability of provisions. – Should any
provision of this Code or any part thereof be declared (2) Controversies arising out of intra-corporate,
invalid or unconstitutional, the other provisions, so partnership, or association relations, between and
far as they are separable, shall remain in force. (n) among stockholders, members, or associates; and
between, any or all of them and the corporation,
Section 148. Applicability to existing corporations. – partnership, or association of which they are
38
 stockholders, members, or associates, implementation of the decision or order, unless
respectively; restrained by an appellate court. Interlocutory orders
shall not be subject to appeal.
(3) Controversies in the election or appointment
of directors, trustees, officers, or managers of Sec. 5. Venue. - All actions covered by these Rules
corporations, partnerships, or associations; shall be commenced and tried in the Regional Trial
Court which has jurisdiction over the principal office
(4) Derivative suits; and cralaw of the corporation, partnership, or association
concerned. Where the principal office of the
(5) Inspection of corporate books.cralaw corporation, partnership or association is registered in
the Securities and Exchange Commission as Metro
(b) Prohibition against nuisance and harassment Manila, the action must be filed in the city or
suits. - Nuisance and harassment suits are prohibited. municipality where the head office is located.
In determining whether a suit is a nuisance or
harassment suit, the court shall consider, among Sec. 6. Service of pleadings. - When so authorized
others, the following:chanroblesvirtuallawlibrary by the court, any pleading and/or document required
by these Rules may be filed with the court and/or
(1) The extent of the shareholding or interest of served upon the other parties by facsimile
the initiating stockholder or member; transmission (fax) or electronic mail (e-mail). In such
cases, the date of transmission shall be deemed to be
(2) Subject matter of the suit; prima facie the date of service.cralaw

(3) Legal and factual basis of the complaint; Sec. 7. Signing of pleadings, motions and other
papers. - Every pleading, motion, and other paper of
(4) Availability of appraisal rights for the act or a party represented by an attorney shall be signed by
acts complained of; and cralaw at least one attorney of record in the attorney's
individual name, whose address shall be stated. A
(5) Prejudice or damage to the corporation, party who is not represented by an attorney shall sign
partnership, or association in relation to the relief the pleading, motion, or other paper and state his
sought.cralaw address.cralaw

In case of nuisance or harassment suits, the court The signature of an attorney or party constitutes a
may, motu proprio or upon motion, forthwith dismiss certification by the signer that he ha read the
the case. pleading, motion, or other paper; that to the best of
his knowledge, information, and belief formed after
Sec. 2. Suppletory application of the Rules of Court. reasonable inquiry, it is well grounded in fact and is
- The Rules of Court, in so far as they may be warranted by existing law or a good faith argument
applicable and are not inconsistent with these Rules, for the extension, modification, or reversal of existing
are hereby adopted to form an integral part of these jurisprudence; and that it is not interposed for any
Rules. improper purpose, such as to harass or to cause
unnecessary delay or needless increase in the cost of
Sec. 3. Construction. - These Rules shall be liberally litigation.cralaw
construed in order to promote their objective of
securing a just, summary, speedy and inexpensive If a pleading, motion, or other paper is not signed, it
determination of every action or proceeding. shall be stricken off the record unless it is promptly
signed by the pleader or movant, after he is notified
Sec. 4. Executory nature of decisions and orders. - of the omission.cralaw
All decisions and orders issued under these Rules
shall immediately be executory. No appeal or petition Sec. 8. Prohibited pleadings. - The following
taken therefrom shall stay the enforcement or pleadings are prohibited:chanroblesvirtuallawlibrary
39
 (1) Motion to dismiss; Sec. 4. Complaint. - The complaint shall state or
contain:chanroblesvirtuallawlibrary
(2) Motion for a bill of particulars;
(1) the names, addresses, and other relevant
(3) Motion for new trial, or for reconsideration personal or judicial circumstances of the parties;
of judgment or order, or for re-opening of trial;
(2) all facts material and relevant to the
(4) Motion for extension of time to file plaintiff's cause or causes of action, which shall
pleadings, affidavits or any other paper, except be supported by affidavits of the plaintiff or his
those filed due to clearly compelling reasons. witnesses and copies of documentary and other
Such motion must be verified and under oath; evidence supportive of such cause or causes of
and cralaw action;

(5) Motion for postponement and other motions (3) the law, rule, or regulation relied upon,
of similar intent, except those filed due to clearly violated, or sought to be enforced;
compelling reasons. Such motion must be
verified and under oath.cralaw (4) a certification that (a) the plaintiff has not
therefore commenced any action or filed any
Sec. 9. Assignment of cases. - All cases filed under claim involving the same issues in any court,
these Rules shall be tried by judges designated by the tribunal or quasi-judicial agency, and, to the best
Supreme Court to hear and decide cases transferred of his knowledge, no such other action or claim
from the Securities and Exchange Commission to the is pending therein; (b) if there is such other
Regional Trial Courts and filed directly with said action or claim, a complete statement of the
courts pursuant to Republic Act No. 8799, otherwise present status thereof; and (c) if he should
known as the Securities Regulation Code. thereafter learn that the same or similar action or
claim has been filed or is pending, he shall report
that fact within five (5) days therefrom to the
Rule 2 court; and cralaw

COMMENCEMENT OF ACTION AND (5) the relief sought.cralaw

PLEADINGS
Sec. 5. Summons. - The summons and the complaint
shall be served together not later than five (5) days
Section 1. Commencement of action. - An action from the date of filing of the complaint.
under these Rules is commenced by the filing of a
verified complaint with the proper Regional Trial (a) Service upon domestic private juridical
Court. entities. - If the defendant is a domestic
corporation, service shall be deemed adequate is
Sec. 2. Pleadings allowed. - The only pleadings made upon any of the statutory or corporate
allowed to be filed under these Rules are the officers as fixed by the by-laws or their
complaint, answer, compulsory counterclaims or respective secretaries. If the defendant is a
cross-claims pleaded in the answer, and the answer to partnership, service shall be deemed adequate if
the counterclaims or cross-claims.cralaw made upon any of the managing or general
partners or upon their respective secretaries. If
Sec. 3. Verification. - The complaint and the answer the defendant is an association service shall be
shall be verified by an affidavit stating that the affiant deemed adequate if made upon any of its officers
has read the pleading and the allegations therein are or their respective secretaries.
true and correct based on his own personal
knowledge or on authentic records.cralaw (b) Service upon foreign private juridical entity.
- When the defendant is a foreign private
40
 juridical entity which is transacting or has Sec. 7. Effect of failure to answer. - If the defendant
transacted business in the Philippines, service fails to answer within the period above provided, he
may be made on its resident agent designated in shall be considered in default. Upon motion or motu
accordance with law for that purpose, or, if there proprio, the court shall render judgment either
be no such agent, on the government official dismissing the complaint or granting the relief prayed
designated by law to that effect, or on any of its for as the records may warrant. In no case shall the
officers or agents within the Philippines.cralaw court award a relief beyond or different from that
prayed for.cralaw
Sec. 6. Answer. - The defendant shall file his answer
to the complaint, serving a copy thereof on the Sec. 8. Affidavits, documentary and other evidence. -
plaintiff, within fifteen (15) days from service of Affidavits shall be based on personal knowledge,
summons. shall set forth such facts as would be admissible in
In the answer, the defendant evidence, and shall show affirmatively that the affiant
shall:chanroblesvirtuallawlibrary is competent to testify on the matters stated therein.
The affidavits shall be in question and answer form,
(1) Specify each material allegation of fact the and shall comply with the rules on admissibility of
truth of which he admits; evidence.cralaw

(2) Specify each material allegation of fact the Affidavits of witnesses as well as documentary and
truth of which he does not admit. Where the other evidence shall be attached to the appropriate
defendant desires to deny only a part of an pleading: Provided, however, that affidavits,
averment, he shall specify so much of it as true documentary and other evidence not so submitted
and material and shall deny only the remainder; may be attached to the pre-trial brief required under
these Rules. Affidavits and other evidence not so
(3) Specify each material allegation of facts as to submitted shall not be admitted in evidence, except in
which truth he has no knowledge or information the following cases:chanroblesvirtuallawlibrary
sufficient to form a belief, and this shall have the
effect of a denial; (1) Testimony of unwilling, hostile, or adverse
party witnesses. A witness is presumed prima
(4) State the defenses, including grounds for a facie hostile if he fails or refuses to execute an
motion to dismiss under the Rules of Court; affidavit after a written request therefor;

(5) State the law, rule, or regulation relied upon; (2) If the failure to submit the evidence is for
meritorious and compelling reasons; and cralaw
(6) Address each of the causes of action stated in
the complaint; (3) Newly discovered evidence.cralaw

(7) State the facts upon which he relied for his In case of (2) and (3) above, the affidavit and
defense, including affidavits of witnesses and evidence must be submitted not later than five (5)
copies of documentary and other evidence days prior to its introduction in evidence.
supportive of such cause or causes of action;
Rule 3
(8) State any compulsory counterclaim/s and
cross-claim/s; and cralaw MODES OF DISCOVERY

(9) State the relief sought.cralaw

Section 1.In general. - A party can only avail of any
The answer to counterclaims or cross-claims shall be of the modes of discovery not later than fifteen (15)
filed within ten (10) days from service of the answer days from the joinder of issues.
in which they are pleaded.
41
 Sec. 2. Objections. - Any mode of discovery such as (2) Allegations expressly admitted by either or
interrogatories, request for admission, production or both parties;
inspection of documents or things, may be objected
to within ten (10) days from receipt of the discovery (3) Allegations deemed admittedly by either or
device and only on the ground that the matter both parties;
requested is patently incompetent, immaterial,
irrelevant or privileged in nature. The court shall rule (4) Documents not specifically denied under
on the objections not later than fifteen (15) days from oath by either or both parties;
the filing thereof.cralaw
(5) Amendments to the pleadings;
Sec. 3. Compliance. - Compliance with any mode of
discovery shall be made within ten (10) days from (6) Statement of the issues, which shall
receipt of the discovery device, or if there are separately summarize the factual and legal issues
objections, from receipt of the ruling of the involved in the case;
court.cralaw
(7) Names of witnesses to be presented and the
Sec. 4. Sanctions. - The sanctions prescribed in the summary of their testimony as contained in their
Rules of Court for failure to avail of, or refusal to affidavits supporting their positions on each of
comply with, the modes of discovery shall apply. In the issues;
addition, the court may, upon motion, declare a party
non-suited or as in default, as the case may be, if the (8) All other pieces of evidence, whether
refusal to comply with a mode of discovery is documentary of otherwise and their respective
patently unjustified. purposes;

(9) Specific proposals for an amicable

Rule 4 settlement;

PRE-TRIAL (10) Possibility of referral to mediation or other

alternative modes of dispute resolution;

Section 1. Pre-trial conference; mandatory nature. - (11) Proposed schedule of hearings; and cralaw
Within five (5) days after the period for availment of,
and compliance with, the modes of discovery (12) Such other matters as may aid in the just
prescribed in Rule 3 hereof, whichever comes later, and speedy disposition of the case.cralaw
the court shall issue and serve an order immediately
setting the case for pre-trial conference and directing Sec. 2. Nature and purpose of pre-trial conference. -
the parties to submit their respective pre-trial briefs. During the pre-trial conference, the court shall, with
The parties shall file with the court and furnish each its active participation, ensure that the parties
other copies of their respective pre-trial brief in such consider in detail all of the
manner as to ensure its receipt by the court and the following:chanroblesvirtuallawlibrary
other party at least five (5) days before the date set
for the pre-trial. (1) The possibility of an amicable settlement;

The parties shall set forth in their pre-trial briefs, (2) Referral of the dispute to mediation or other
among other matters, the forms of dispute resolution;
following:chanroblesvirtuallawlibrary
(3) Facts that need not be proven, either because
(1) Brief statement of the nature of the case, they are matters of judicial notice or expressly or
which shall summarize the theory or theories of deemed admitted;
the party in clear and concise language;
42
 (4) Amendments to the pleadings; evidence, including any affidavit or any part thereof.
Should the action proceed to trial, the order shall
(5) The possibility of obtaining stipulations and explicit define and limit the issues to be tried and
admission of facts and documents; shall strictly follow the form set forth in Annex
"A"of these Rules.cralaw
(6) Objections to the admissibility of
testimonial, documentary and other evidence; The contents of the order shall control the
subsequent course of the action, unless modified
(7) Objections to the form or substance of any before trial to prevent manifest injustice.cralaw
affidavit, or part thereof;
After the pre-trial, the court may render judgment,
(8) Simplification of the issues; either full or partial, as the evidence presented during
the pre-trial may warrant.
(9) The possibility of submitting the case for
decision on the basis of position papers,
affidavits, documentary and real evidence; Rule 5

(10) A complete schedule of hearing dates; and TRIAL

cralaw

(11) Such other matters as may aid in the speedy Section 1. Witnesses. - If the court deems necessary
and summary disposition of the case.cralaw to hold hearings to determine specific factual matters
before rendering judgment, it shall, in the pre-trial
Sec. 3. Termination. - The preliminary conference order set the case for trial on the dates agreed upon
shall be terminated not later than ten (10) days after by the parties.
its commencement, whether or not the parties have
agreed to settle amicably. Only persons whose affidavits were submitted may
be presented as witnesses, except in cases specified in
Sec. 4. Judgment before pre-trial. - If, after Section 8, Rule 2 of these Rules. The affidavits of the
submission of the pre-trial briefs, the court witnesses shall serve as their direct testimonies,
determines that, upon consideration of the pleadings, subject to cross-examination in accordance with
the affidavits and other evidence submitted by the existing rules on evidence.cralaw
parties, a judgment may be rendered, the court may
order the parties to file simultaneously their Sec. 2. Trial schedule. - Unless judgment is rendered
respective memoranda within a non-extendible period pursuant to Rule 4 of these Rules, the initial hearing
of twenty (20) days from receipt of the order. shall be held not later than thirty (30) days from the
Thereafter, the court shall render judgment, either full date of the pre-trial order. The hearings shall be
or otherwise, not later than ninety (90) days from the completed not later than sixty (60) days from the date
expiration of the period to file the memoranda.cralaw of the initial hearing, thirty (30) days of which shall
be allotted to the plaintiffs and thirty (30) days to the
Sec. 5. Pre-trial order; judgment after pre-trial. - defendants in the manner prescribed in the pre-trial
The proceedings in the pre-trial shall be recorded. order. The failure of a party to present a witness on a
Within ten (10) days after the termination of the pre- scheduled hearing date shall be deemed a waiver of
trial, the court shall issue an order which shall recite such hearing date. However, a party may present such
in detail the matters taken up in the conference, the witness or witnesses within his remaining allotted
actions taken thereon, the amendments allowed in the hearing dates.cralaw
pleadings, and the agreements or admissions made by
the parties as to any of the matters considered. The Sec. 3. Written offer of evidence. - Evidence not
court shall rule on all objections to or comments on otherwise admitted by the parties or ruled upon by
the admissibility of any documentary or other the court during the pre-trial conference shall be
43
offered in writing not later than five (5) days from the Section 1. Cases covered. - The provisions of this
completion of the presentation of evidence of the rule shall apply to election contests in stock and non-
party concerned. The opposing party shall have five stock corporations.
(5) days from receipt of the offer to file his comments
or objections. The court shall make its ruling on the Sec. 2. Definition. - An election contests refers to
offer within five (5) days from the expiration of the any controversy or dispute involving title or claim to
period to file comments or objections.cralaw any elective office in a stock or non-stock
corporation, the validation of proxies, the manner and
Sec. 4. Memoranda. - Immediately after ruling on validity of elections, and the qualifications of
the last offer of evidence, the court shall order the candidates, including the proclamation of winners, to
parties to simultaneously file, within thirty (30) days the office of director, trustee or other officer directly
from receipt of the order, their respective elected by the stockholders in a close corporation or
memoranda. The memoranda shall contain the by members of a non-stock corporation where the
following:chanroblesvirtuallawlibrary article of incorporation or by-laws so provide.cralaw

(1) A "Statement of the Case," which is a clear Sec. 3. Complaint. - In addition to the requirements
and concise statement of the nature of the action in Section 4, Rule 2 of these Rules, the complaint in
and a summary of the proceedings; an election contests must state the
following:chanroblesvirtuallawlibrary
(2) A "Statement of the Facts," which is a clear
and concise statement in narrative form of the (1) The case was filed fifteen (15) days from the
established facts, with reference to the date of the election if the by-laws of the
testimonial, documentary or other evidence in corporation do not provide for a procedure for
support thereof; resolution of the controversy, or within fifteen
(15) days from the resolution of the controversy
(3) A "Statement of the Issues,"which is a clear by the corporation as provided in its by-laws; and
and concise statement of the issues presented to
the court for resolution; (2) The plaintiff has exhausted all intra-
corporate remedies in election cases as provided
(4) The "Arguments," which is a clear and for in the by-laws of the corporation.cralaw
concise presentation of the argument in support
of each issue; and cralaw Sec. 4. Duty of the court upon the filing of the
complaint. - Within two (2) days from the filing of
(5) The "Relief," which is a specification of the the complaint, the court, upon a consideration of the
order or judgment which the party seeks to allegations thereof, may dismiss the complaint
obtain.cralaw outright if it is not sufficient in form and substance,
or, if it is sufficient, order the issuance of summons
No reply memorandum shall be allowed. which shall be served, together with a copy of the
complaint, on the defendant within two (2) days from
Sec. 5. Decision after trial. - The court shall render a its issuance.
decision not later than (90) days from the lapse of the
period to file the memoranda, with or without said Sec. 5. Answer. - The defendant shall file his answer
pleading having been filed. to the complaint, serving a copy thereof on the
plaintiff, within ten (10) days from service of
summons and the complaint. The answer shall
Rule 6 contain the matters required in Section 6, Rule 2 of
these Rules.cralaw
ELECTION CONTESTS
Sec. 6. Affidavits, documentary and other evidence. -
The parties shall attach to the complaint and answer
44
the affidavits of witnesses, documentary and other financial statements of a corporation, under Sections
evidence in support thereof, if any.cralaw 74 and 75 of Batas Pambansa Blg. 68, otherwise
known as the Corporation Code of the Philippines.
Sec. 7. Effect of failure to answer. - If the defendants
fails to file an answer within the period above, the Sec. 2. Complaint. - In addition to the requirements
court shall, within ten (10) days from the lapse of in section 4, Rule 2 of these Rules, the complaint
said period, motu proprio or on motion, render must state the following:chanroblesvirtuallawlibrary
judgments as may be warranted by the allegations of
the complaint, as well as the affidavits, documentary (1) The case is for the enforcement of plaintiff's
and other evidence on record. In no case shall the right of inspection of corporate orders or records
court award a relief beyond or different from that and/or to be furnished with financial statements
prayed for.cralaw under Sections 74 and 75 of the Corporation
Code of the Philippines;
Sec. 8. Trial. - If the court deems it necessary to hold
a hearing to clarify specific factual matters before (2) A demand for inspection and copying of
rendering judgment, it shall, within ten (10) days books and records and/or to be furnished with
from the filling of the last pleading, issue an order financial statements made by the plaintiff upon
setting the case for hearing for the purpose. The order defendant;
shall, in clear and concise terms, specify the factual
matters the court desires to be clarified and the (3) The refusal of defendant to grant the
witnesses, whose affidavits have been submitted, who demands of the plaintiff and the reasons given
will give the necessary clarification.cralaw for such refusals, if any; and cralaw

The hearing shall be set on a date not later than ten (4) The reasons why the refusal of defendant to
(10) days from the date of the order, and shall be grant the demands of the plaintiff is unjustified
completed not later than fifteen (15) days from the and illegal, stating the law and jurisprudence in
date of the first hearing. The affidavit of a witness support thereof.cralaw
who fails to appear for clarificatory questions of the
court shall be ordered stricken off the record.cralaw Sec. 3. Duty of the court upon the filing of the
complaint. - Within two (2) days from the filing of
Sec. 9. Decision. - The Court shall render a decision the complaint, the court, upon a consideration of the
with fifteen (15) days from receipt of the last allegations thereof, may dismiss the complaint
pleading, or from the date of the last hearing as the outright if it is not sufficient in form and substance,
case may be. The decision shall be based on the or, if it is sufficient, order the issuance of summons
pleadings, affidavits, documentary and other evidence which shall be served, together with a copy of the
attached thereto and the answers of the witnesses to complaint, on the defendant within two (2) days from
the clarificatory questions of the court given during its issuance.
the hearings.
Sec. 4. Answer. - The defendant shall file his answer
to the complaint, serving a copy thereof on the
Rule 7 plaintiff, within ten (10) days from the service of
summons and the complaint. In addition to the
INSPECTION OF CORPORATE BOOKS AND requirements in Section 6, Rule 2 of these Rules, the
RECORDS answer must state the
following:chanroblesvirtuallawlibrary

Section 1. Cases covered. - The provisions of this (1) The grounds for the refusal of defendant to
Rule shall apply to disputes exclusively involving the grant the demands of the plaintiff, stating the law
rights of stockholders or members to inspect the and jurisprudence in support thereof;
books and records and/or to be furnished with the
45
 (2) The conditions or limitations on the exercise (2) He exerted all reasonable efforts, and alleges
of the right to inspect which should be imposed the same with particularity in the complaint, to
by the court; and cralaw exhaust all remedies available under the articles
of incorporation, by-laws, laws or rules
(3) The cost of inspection, including manpower governing the corporation or partnership to
and photocopying expenses, if the right to obtain the relief he desires;
inspect is granted.cralaw
(3) No appraisal rights are available for the acts
Sec. 5. Affidavits, documentary and other evidence. - or acts complained of; and cralaw
The parties shall attach to the complaint and answer
the affidavits of witnesses, documentary and other (4) The suits is not a nuisance or harassment
evidence in support thereof, if any. suit.cralaw

Sec. 6. Effect of failure to answer. - If the defendants In case of nuisance of harassment suit, the court shall
fails to file an answer within the period above forthwith dismiss the case.
provided, the court, within ten (10) days from the
lapse of the said period, motu proprio or upon Sec. 2. Discontinuance. - A derivative action shall
motion, shall render judgment as warranted by the not be discontinued, compromised or settled without
allegations of the complaint, as well as the affidavits, approval of the court. During the pendency of the
documentary and other evidence on record. In no case action, any sale of shares of the complaining
shall the court award a relief beyond or different from stockholders shall be approved by the court. If the
that prayed for.cralaw court determines that the interest of the stockholders
or members will be substantially affected by the
Sec. 7. Decision. - The court shall render a decision discontinuance, compromise or settlement, the court
based on the pleadings, affidavits and documentary may direct that notice, by publication or otherwise, be
and other evidence attached thereto within fifteen given to the stockholders or members whose interest
(15) days from receipt of the last pleading. A decision it determines will be so affected.
ordering defendants to allow the inspection of books
and records and/or to furnish copies thereof shall also
order the plaintiff to deposit the estimated cost of the Rule 9
manpower necessary to produce the books and
records and the cost of copying, and state, in clear MANAGEMENT COMMITTEE
and categorical terms, the limitations and conditions
to the exercise of the right allowed or enforced.
Section 1. Creation of a management committee. -
As an incident to any of the cases filed under these
Rule 8 Rules or the Interim Rules Corporate Rehabilitation,
a party may apply for the appointment of a
DERIVATIVE SUITS management committee for the corporation,
partnership or association, when there is imminent
danger of:chanroblesvirtuallawlibrary
Section 1. Derivative action. — A stockholder or
member may bring an action in the name of a (1) Dissipation, loss, wastage or destruction of
corporation or association, as the case may be, assets or other properties; and
provided, that:chanroblesvirtuallawlibrary
(2) Paralyzation of its business operations which
(1) He was a stockholder or member at the time may be prejudicial to the interest of the minority
the acts or transactions subject of the action stockholders, parties-litigants or the general
occurred and the time the action was filed; public.cralaw

46
 Sec. 2. Receiver. -- In the event the court finds the amount as may be determined by the
application to be sufficient in form and substance, the court.cralaw
court shall issue an order; (a) appointing a receiver of
known probity, integrity and competence and without Without limiting the generality of the following, a
any conflict of interest as hereunder defined to member of a management committee may be deemed
immediately take over the corporation, partnership or to have a conflict of interest
association, specifying such powers as it may deem if:chanroblesvirtuallawlibrary
appropriate under the circumstances, including any of
the powers specified in Section 5 of this Rule; (b) (1) He is engaged in a line of business which
fixing the bond of the receiver; (c) directing the completes with the corporation, association or
receiver to make a report as to the affairs of the entity partnership sought to be placed under
under receivership and on other relevant matters management;
within sixty (60) days from the time he assumes
office; (d) prohibiting the incumbent management of (2) He is a director, officer or stockholder
the company, partnership or association from selling, charged with mismanagement, dissipation or
encumbering, transferring or disposing in any manner wastage of the properties of the entity under
any of its properties except in the ordinary course of management; or
business; and (e) directing the payment in full of all
administrative expenses incurred after the issuance of (3) He is related by consanguinity or affinity
the order. within the fourth civil degree to any director,
officer or stockholder charged with
Sec. 3. Receiver and management committee as mismanagement, dissipation or wastage of the
officers of the court. - The receiver and the members properties of the entity under
of the management committee in the exercise of their management.cralaw
powers and performance of their duties are
considered officers of the court and shall be under its Sec. 5. Powers and functions of the management
control and supervision.cralaw committee. - Upon assumption to office of the
management committee, the receiver shall
Sec. 4. Composition of the management committee. - immediately render a report and turn over the
After due notice and hearing, the court may appoint a management and control of the entity under his
management committee composed of three (3) receivership to the management committee.
members chosen by the court. In the appointment of
the members of the management committee, the The management committee shall have the power to
following qualifications shall be taken into take custody of and control all assets and properties
consideration by the court.cralaw owned or possessed by the entity under management.
It shall take the place of the management and board
(1) Expertise and acumen to manage and operate of directors of the entity under management, assume
a business similar in size and completely as that their rights and responsibilities, and preserve the
the corporation, association or partnership sought entity's assets and properties in its possession.
to be put under management committee;
Without limiting the generality of the foregoing, the
(2) Knowledge in management and finance; management committee shall exercise the following
powers and functions:chanroblesvirtuallawlibrary
(3) Good moral character, independence and
integrity; (1) To investigate the acts, conduct, properties,
liabilities, and financial condition of the
(4) A lack of a conflict of interest as defined in corporation, association or partnership under
these Rules; and cralaw management;

(5) Willingness and ability to file a bond in such (2) To examine under oath the directors and
47
offices of the entity and any other witnesses that object or operation thereon;
it may deem appropriate;
(13) To bring to the attention of the court any
(3) To report to the court any fact ascertained by material change affecting the entity's ability to
it pertaining to the causes of the problems, fraud, meet its obligations;
misconduct, mismanagement and irregularities
committed by the stockholders, directors, (14) To revoke resolutions passed by the
management or any other person; Executive Committee or Board of
Directors/Trustees or any governing body of the
(4) To employ such person or persons such as entity under management and pass resolution in
lawyers, accountants, auditors, appraisers and substitution of the same to enable it to more
staff as are necessary in performing its functions effectively exercise its powers and functions;
and duties as management committee;
(15) To modify, nullify or revoke transactions
(5) To report to the court any material adverse coming to its knowledge which it deems
change in the business of the corporation, detrimental or prejudicial to the interest of the
association or partnership under management; entity under management;

(6) To evaluate the existing assets and liabilities, (16) To recommend the termination of the
earnings and operations of the corporation, proceedings and the dissolution of the entity if
association or partnership under management; determines that the continuance in business of
such entry is no longer feasible or profitable or
(7) To determine and recommended to the court no longer works to the best interest of the
the best way to salvage and protect the interest of stockholders, parties-litigants, creditors or the
the creditors, stockholders and the general general public;
public, including the rehabilitation of the
corporation, association or partnership under (17) To apply to the court for any order or
management; directive that it may deem necessary or desirable
to aid it in the exercise of its powers and
(8) To prohibit and report to the court any performance of its duties and functions; and
encumbrance, transfer, or disposition of the cralaw
debtor's property outside of the ordinary course
of business or what is allowed by the court; (18) To exercise such other powers as may, from
time to time, be conferred upon it by the
(9) To prohibit and report to the court any court.cralaw
payments made outside of the ordinary course of
business; Sec. 6. Action by management committee. - A
majority of its members shall be necessary for the
(10) To have unlimited access to the employees, management committee to act or make a decision.
premises, books, records and financial The chairman of the management committee shall be
documents during business hours; chosen by the members from among themselves. The
committee may delegate its management functions as
(11) To inspect, copy, photocopy or photograph may be necessary to operate the business of the entity
any document, paper, book, account or letter, under management and preserve its assets.
whether in the possession of the corporation,
association or partnership or other persons; Sec. 7. Transactions deemed to be in bad faith. - All
transactions made by the previous management and
(12) To gain entry into any property for the directors shall be deemed fraudulent and are
purposes of inspecting, measuring, surveying, or rescissible if made within thirty (30) days prior to the
photographing it or any designated relevant appointment of the receiver or management
48
committee or during their incumbency as receiver or committee shall submit its final report and render
management committee.cralaw accounting of its management within such reasonable
time as the court may allow.
Sec. 8. Fees and expenses. - The receiver or the
management committee and the persons hired by it
shall be entitled to reasonable professionals fees Rule 10
reimbursement of expenses which shall be considered
as administrative expenses.cralaw PROVISIONAL REMEDIES

Sec. 9. Immunity from suit. - The receiver and

members of the management committee and the Section 1. Provisional remedies. - A party may apply
persons employed by them shall not be subject to any for any of the provisional remedies provided in the
action, claim or demand in connection with any act Rules of Court as may be available for the purposes.
done or omitted by them in good faith in the exercise However, no temporary restraining order or status
of their functions and powers. All official acts and quo order shall be issued save in exceptional cases
transactions of the receiver or management and only after hearing the parties and the posting of
committee duly approved or ratified by the court shall bond.
render them immune from any suit in connection with
such act or transaction.cralaw
Rule 11
Sec. 10. Reports. - Within a period of sixty (60) days
from the appointment of its members, the SANCTIONS
management committee shall make a report to the
court on the state of the corporation, partnership or
association under management. Thereafter, the Section 1. Sanctions of the parties or counsel. - In
management committee shall report every three (3) any of the following cases, the court may, upon
months to the court or as often as the court may motion motu proprio, impose appropriate
require on the general condition of the entity under sanctions:chanroblesvirtuallawlibrary
management.cralaw
(1) In case the court determines in the course of
Sec. 11. Removal and replacement of a member of the proceeding that the action is a nuisance or
the management committee. - A member of the harassment suit;
management is deemed removed upon appointment
by the court of his replacement chosen in accordance (2) In case a pleading, motion or other paper is
with Section 4 of this Rule.cralaw filed in violation of Section 7, Rule 1 of these
Rules;
Sec. 12. Discharge of the management committee. -
The management committee shall be discharged and (3) In case a party omits or violates the
dissolved under the following certification required under Section 4, Rule 2 of
circumstances:chanroblesvirtuallawlibrary these Rules;

(1) Whenever the court, on motion of motu (4) In case or unwarranted denials in the answer
proprio, has determined that the necessity for the to the complaint;
management committee no longer exist;
(5) In case of willful concealment or non-
(2) By agreement of the parties; and cralaw disclosure of material facts or evidence;

(3) Upon termination of the proceedings.cralaw The sanctions may include an order to pay the other
party of parties the amount of the reasonable
Upon its discharge and dissolution, the management expenses incurred because of the act complained of,
49
including reasonable attorney's fees.

Sec. 2. Disciplinary sanctions on the judge. - The

presiding judge may, upon a verified complaint filed
with the Office of the Court Administrator, be subject
to disciplinary action under any of the following
cases;

(1) Failure to observe this special summary

procedures prescribed in these Rules; or

(2) Failure to issue a pre-trial order in form

prescribed in these Rules.cralaw

Rule 12

FINAL PROVISIONS

Section. 1. Severability. - If any provision or section

of these Rules is held invalid, the remaining
provisions or sections shall not be affected thereby.

Sec. 2. Effectivity. - These Rules shall take effect on

1 April 2001 following its publication in two (2) REPUBLIC ACT NO. 8799
newspapers of general circulation in the Philippines.
THE SECURITIES REGULATION CODE

Be it enacted by the Senate and the House of Representative of

the Philippines in the Congress assembled:

CHAPTER I
TITLE AND DEFINITIONS

Section 1. Title. - This shall be known as "The Securities

Regulation Code"

Section 2. Declaration of State Policy. – The State shall

establish a socially conscious, free market that regulates itself,
encourage the widest participation of ownership in enterprises,
enhance the democratization of wealth, promote the
development of the capital market, protect investors, ensure full
and fair disclosure about securities, minimize if not totally
eliminate insider trading and other fraudulent or manipulative
devices and practices which create distortions in the free market.
To achieve these ends, this Securities Regulation Code is hereby
enacted.

Section 3. Definition of Terms.- 3.1. "Securities" are shares,

participation or interests in a corporation or in a commercial
enterprise or profit-making venture and evidenced by a
certificate, contract, instruments, whether written or electronic
50
in character. It includes: 3.9. "Pre-need plans" are contracts which provide for the
performance of future services of or the payment of future
(a) Shares of stocks, bonds, debentures, notes evidences of monetary considerations at the time actual need, for which plan
indebtedness, asset-backed securities; holders pay in cash or installment at stated prices, with or
without interest or insurance coverage and includes life,
(b) Investment contracts, certificates of interest or pension, education, interment, and other plans which the
participation in a profit sharing agreement, certifies of Commission may from time to time approve.
deposit for a future subscription;
3.10. "Promoter" is a person who, acting alone or with others,
(c) Fractional undivided interests in oil, gas or other takes initiative in founding and organizing the business or
mineral rights; enterprise of the issuer and receives consideration therefor.

(d) Derivatives like option and warrants; 3.11. "Prospectus" is the document made by or an behalf of an
issuer, underwriter or dealer to sell or offer securities for sale to
the public through registration statement filed with the
(e) Certificates of assignments, certificates of participation, Commission.
trust certificates, voting trust certificates or similar
instruments
3.12. "Registration statement" is the application for the
registration of securities required to be filed with the
(f) Proprietary or nonproprietary membership certificates Commission.
in corporations; and
3.13. "Salesman" is a natural person, employed as such as an
(g) Other instruments as may in the future be determined agent, by a dealer, issuer or broker to buy and sell securities.
by the Commission.
3.14. "Uncertificated security" is a security evidenced by
3.2. "Issuer" is the originator, maker, obligor, or creator of the electronic or similar records.
security.
3.15. "Underwriter" is a person who guarantees on a firm
3.3. "Broker" is a person engaged in the business of buying and commitment and/or declared best effort basis the distribution
selling securities for the account of others. and sale of securities of any kind by another company.

3.4. "Dealer" means many person who buys sells securities for CHAPTER II
his/her own account in the ordinary course of business. SECURITIES AND EXCHANGE COMMISSION

3.5. "Associated person of a broker or dealer" is an employee Section 4. Administrative Agency. – 4.1. This Code shall be
therefor whom, directly exercises control of supervisory administered by the Security and Exchange Commission
authority, but does not include a salesman, or an agent or a (hereinafter referred to as the "Commission") as a Collegial
person whose functions are solely clerical or ministerial. body, composed of a chairperson and (4) Commissioners,
appointed by the President for a term of (7) seven years each
3.6. "Clearing Agency" is any person who acts as intermediary and who shall serves as such until their successor shall have
in making deliveries upon payment effect settlement in been appointed and qualified. A Commissioner appointed to fill
securities transactions. a vacancy occurring prior to the expiration of the term for which
his/her predecessor was appointed, shall serve only for the
3.7. "Exchange" is an organized market place or facility that unexpired portion of their terms under Presidential Decree No.
brings together buyers and sellers and executes trade of 902-A. Unless the context indicates otherwise, the term
securities and/or commodities. "Commissioner" includes the Chairperson.

3.8. "Insider" means (a) the issuer; (b) a director or officer (or 4.2. The Commissioners must be natural-born citizens of the
any person performing similar functions) of, or a person Philippines, at least forty (40) years of age for the Chairperson
controlling the issuer; gives or gave him access to material and at least thirty-five (35) years of age for the Commissioners,
information about the issuer or the security that is not generally of good moral character, or unquestionable integrity, of known
available to the public; (d) A government employee, director, or probity and patriotism, and with recognized competence in
officer of an exchange, clearing agency and/or self-regulatory social and economic disciplines: Provided, That the majority of
organization who has access to material information about an Commissioners, including the Chairperson, shall be members of
issuer or a security that is not generally available to the public; the Philippine Bar.
or (e) a person who learns such information by a communication
from any forgoing insiders. 4.3. The chairperson is chief executive officer of the
Commission. The Chairperson shall execute and administer the
51
policies, decisions, orders and resolutions approved by the of exchanges, clearing agencies and other SROs;
Commission and shall have the general executive direction and
supervision of the work and operation of the Commission and (f) Impose sanctions for the violation of laws and rules,
it’s members, bodies, boards, offices, personnel and all its regulations and orders, and issued pursuant thereto;
administrative business.
(g) Prepare, approve, amend or repeal rules, regulations
4.4. The salary of the Chairperson and the Commissioners shall and orders, and issue opinions and provide guidance on
be fixed by the President of the Philippines based on the and supervise compliance with such rules, regulation and
objective classification system, at a sum comparable to the orders;
members of the Monetary Board and commensurate importance
and responsibilities attached to the position. (h) Enlist the aid and support of and/or deputized any and
all enforcement agencies of the Government, civil or
4.5. The Commission shall hold meetings at least once a week military as well as any private institution, corporation,
for the conduct of business or as often as may be necessary upon firm, association or person in the implementation of its
the call of the Chairperson or upon the request of (3) powers and function under its Code;
Commissioners. The notice of the meeting shall be given to all
Commissioners and the presence of three (3) Commissioners (i) Issue cease and desist orders to prevent fraud or injury
shall constitute a quorum. In the absence of the Chairperson, the to the investing public;
most senior Commissioner shall act as presiding officer of the
meeting.
(j) Punish for the contempt of the Commission, both direct
and indirect, in accordance with the pertinent provisions of
4.6. The Commission may, for purposes of efficiency, delegate and penalties prescribed by the Rules of Court;
any of its functions to any department of office of the
Commission, an individual Commissioner or staff member of
the Commission except its review or appellate authority and its (k) Compel the officers of any registered corporation or
power to adopt, alter and supplement any rule or regulation. association to call meetings of stockholders or members
thereof under its supervision;
The commission may review upon its own initiative or upon the
petition of any interested party any action of any department or (l) Issue subpoena duces tecum and summon witnesses to
office, individual Commissioner, or staff member of the appear in any proceedings of the Commission and in
Commission. appropriate cases, order the examination, search and
seizure of all documents, papers, files and records, tax
returns and books of accounts of any entity or person under
Section 5. Powers and Functions of the Commission.– 5.1. The investigation as may be necessary for the proper
commission shall act with transparency and shall have the disposition of the cases before it, subject to the provisions
powers and functions provided by this code, Presidential Decree of existing laws;
No. 902-A, the Corporation Code, the Investment Houses law,
the Financing Company Act and other existing laws. Pursuant
thereto the Commission shall have, among others, the following (m) Suspend, or revoke, after proper notice and hearing the
powers and functions: franchise or certificate of registration of corporations,
partnership or associations, upon any of the grounds
provided by law; and
(a) Have jurisdiction and supervision over all corporations,
partnership or associations who are the grantees of primary
franchises and/or a license or a permit issued by the (n) Exercise such other powers as may be provided by law
Government; as well as those which may be implied from, or which are
necessary or incidental to the carrying out of, the express
powers granted the Commission to achieve the objectives
(b) Formulate policies and recommendations on issues and purposes of these laws.
concerning the securities market, advise Congress and
other government agencies on all aspect of the securities
market and propose legislation and amendments thereto; 5.2. The Commission’s jurisdiction over all cases enumerated
under section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the
(c) Approve, reject, suspend, revoke or require appropriate Regional Trial Court: Provided, That the Supreme
amendments to registration statements, and registration and Court in the exercise of its authority may designate the Regional
licensing applications; Trial Court branches that shall exercise jurisdiction over the
cases. The Commission shall retain jurisdiction over pending
(d) Regulate, investigate or supervise the activities of cases involving intra-corporate disputes submitted for final
persons to ensure compliance; resolution which should be resolved within one (1) year from
the enactment of this Code. The Commission shall retain
(e) Supervise, monitor, suspend or take over the activities jurisdiction over pending suspension of payment/rehabilitation
52
cases filed as of 30 June 2000 until finally disposed. prejudice to yearly merit review or increases based on
productivity and efficiency. The Commission shall, therefore, be
Section 6. Indemnification and Responsibilities of exempt from laws, rules, and regulations on compensation,
Commissioners.– 6.1. The Commission shall indemnify each position classification and qualifications standards. The
Commissioner and other officials of the Commission, including Commission shall, however, endeavor to make its system
personnel performing supervision and examination functions for conform as closely as possible with the principles under the
all cost and expenses reasonably incurred by such persons in Compensation and Position Classification Act of 1989 (Republic
connection with any civil or criminal actions, suits or Act. 6758, as amended).
proceedings to be liable for gross negligence or misconduct. In
the event of settlement or compromise, indemnification shall be CHAPTER III
provided only in connection with such matters covered by the REGISTRATION OF SECURITIES
settlement as to which the Commission is advised by external
counsel that the persons to be indemnified did not commit any Section 8. Requirement of Registration of Securities.– 8.1.
gross negligence or misconduct. The costs and expenses Securities shall not be sold or offered for sale or distribution
incurred in defending the aforementioned action, suit or within the Philippines, without a registration statement duly
proceeding may be paid by the Commission in advance of the filed with and approved by the Commission. Prior to such sale,
final disposition of such action, suit or proceeding upon receipt information on the securities, in such form and with such
of an undertaking by or on behalf of the Commissioner, officer substance as the Commission may prescribe, shall be made
or employee to repay the amount advanced should it ultimately available to each prospective purchaser.
be determined by the Commission that he/she is not entitled to
be indemnified as provided in this subsection. 8.2. The Commission may conditionally approve the registration
statement under such terms as it may deem necessary.
6.2. The Commissioners, officers and employees of the
Commission who willfully violate this Code or who are guilty of 8.3. The Commission may specify the terms and conditions
negligence, abuse or acts of malfeasance or fail to exercise under which any written communication, including any
extraordinary diligence in the performance of their duties shall summary prospectus, shall be deemed not to constitute an offer
be held liable for any loss or injury suffered by the Commission for sale under this Section.
or other institutions such as a result of such violation,
negligence, abuse, or malfeasance, or failure to exercise
extraordinary diligence. Similar responsibility shall apply to the 8.4. A record of the registration of securities shall be kept in
Commissioners, officers and employees of the Commission for Register Securities in which shall be recorded orders entered by
(1) the disclosure of any information, discussion or resolution of the Commission with respect such securities. Such register and
the Commission of a confidential nature, or about the all documents or information with the respect to the securities
confidential operations of the Commission unless the disclosure registered therein shall be open to public inspection at
is in connection with the performance of official functions with reasonable hours on business days.
the Commission or prior authorization of the Commissioners; or
(2) the use of such information for personal gain or to the 8.5. The Commission may audit the financial statements, assets
detriment of the government, the Commission or third parties: and other information of firm applying for registration of its
Provided, however, That any data or information required to be securities whenever it deems the same necessary to insure full
submitted to the President and/or Congress or its appropriate disclosure or to protect the interest of the investors and the
committee, or to be published under the provisions of this Code public in general.
shall not be considered confidential.
Section 9. Exempt Securities. – 9.1. The requirement of
Section 7. Reorganization. – 7.1. To achieve the goals of this registration under Subsection 8.1 shall not as a general rule
Code, consistent with the Civil Service laws, the Commission is apply to any of the following classes of securities:
hereby authorized to provide for its reorganization, to streamline
its structure and operations, upgrade its human resource (a) Any security issued or guaranteed by the Government
component and enable it to more efficiently and effectively of the Philippines, or by any political subdivision or
perform its functions and exercise its power under this Code. agency thereof, or by any person controlled or supervised
by, and acting as an instrumentality of said Government.
7.2. All positions of the Commissions shall be governed by a
compensation and position classification system and (b) Any security issued or guaranteed by the government of
qualification standards approved by the Commission based on any country with which the Philippines maintains
comprehensive job analysis and audit of actual duties and diplomatic relations, or by any state, province or political
personal responsibilities. The compensation plan shall be subdivision thereof on the basis of reciprocity: Provided,
comparable with the prevailing compensation plan in the That the Commission may require compliance with the
Bangko Sentral ng Pilipinas and other government financial form and content for disclosures the Commission may
institutions and shall be subject to periodic review by the prescribe.
Commission no more than once every two (2) years without
53
 (c) Certificates issued by a receiver or by a trustee in (g) The issue and delivery of any security in exchange for
bankruptcy duly approved by the proper adjudicatory body. any other security of the same issuer pursuant to a right of
conversion entitling the holder of the security surrendered
(d) Any security or its derivatives the sale or transfer of in exchange to make such conversion: Provided, That the
which, by law, is under the supervision and regulation of security so surrendered has been registered under this Code
the Office of the Insurance Commission, Housing and or was, when sold, exempt from the provision of this Code,
Land Use Rule Regulatory Board, or the Bureau of Internal and that the security issued and delivered in exchange, if
Revenue. sold at the conversion price, would at the time of such
conversion fall within the class of securities entitled to
(e) Any security issued by a bank except its own shares of registration under this Code. Upon such conversion the par
stock. value of the security surrendered in such exchange shall be
deemed the price at which the securities issued and
delivered in such exchange are sold.
9.2. The Commission may, by rule or regulation after public
hearing, add to the foregoing any class of securities if it finds
that the enforcement of this Code with respect to such securities (h) Broker’s transaction, executed upon customer’s orders,
is not necessary in the public interest and for the protection of on any registered Exchange or other trading market.
investors.
(i) Subscriptions for shares of the capitals stocks of a
Section 10. Exempt Transactions. – 10.1. The requirement of corporation prior to the incorporation thereof or in
registration under Subsection 8.1 shall not apply to the sale of pursuance of an increase in its authorized capital stocks
any security in any of the following transactions: under the Corporation Code, when no expense is incurred,
or no commission, compensation or remuneration is paid
or given in connection with the sale or disposition of such
(a) At any judicial sale, or sale by an executor, securities, and only when the purpose for soliciting, giving
administrator, guardian or receiver or trustee in insolvency or taking of such subscription is to comply with the
or bankruptcy. requirements of such law as to the percentage of the capital
stock of a corporation which should be subscribed before it
(b) By or for the account of a pledge holder, or mortgagee can be registered and duly incorporated, or its authorized,
or any of a pledge lien holder selling of offering for sale or capital increase.
delivery in the ordinary course of business and not for the
purpose of avoiding the provision of this Code, to liquidate (j) The exchange of securities by the issuer with the
a bonafide debt, a security pledged in good faith as security existing security holders exclusively, where no commission
for such debt. or other remuneration is paid or given directly or indirectly
for soliciting such exchange.
(c) An isolated transaction in which any security is sold,
offered for sale, subscription or delivery by the owner (k) The sale of securities by an issuer to fewer than twenty
therefore, or by his representative for the owner’s account, (20) persons in the Philippines during any twelve-month
such sale or offer for sale or offer for sale, subscription or period.
delivery not being made in the course of repeated and
successive transaction of a like character by such owner, or
on his account by such representative and such owner or (l) The sale of securities to any number of the following
representative not being the underwriter of such security. qualified buyers:

(d) The distribution by a corporation actively engaged in (i) Bank;

the business authorized by its articles of incorporation, of
securities to its stockholders or other security holders as a (ii) Registered investment house;
stock dividend or other distribution out of surplus.
(iii) Insurance company;
(e) The sale of capital stock of a corporation to its own
stockholders exclusively, where no commission or other (iv) Pension fund or retirement plan maintained by
remuneration is paid or given directly or indirectly in the Government of the Philippines or any political
connection with the sale of such capital stock. subdivision thereof or manage by a bank or other
persons authorized by the Bangko Sentral to engage
(f) The issuance of bonds or notes secured by mortgage in trust functions;
upon real estate or tangible personal property, when the
entire mortgage together with all the bonds or notes (v) Investment company or;
secured thereby are sold to a single purchaser at a single
sale. (vi) Such other person as the Commission may rule
by determine as qualified buyers, on the basis of such
54
 factors as financial sophistication, net worth, by selling shareholders, a written certification by such selling
knowledge, and experience in financial and business shareholders as to the accuracy of any part of the registration
matters, or amount of assets under management. statement contributed to by such selling shareholders shall be
filed.
10.2. The Commission may exempt other transactions, if it finds
that the requirements of registration under this Code is not 12.5. (a) Upon filing of the registration statement, the issuer
necessary in the public interest or for the protection of the shall pay to the Commission a fee of not more than one-tenth
investors such as by the reason of the small amount involved or (1/10) of one per centum (1%) of the maximum aggregate price
the limited character of the public offering. at which such securities are proposed to be offered. The
Commission shall prescribe by the rule diminishing fees in
10.3. Any person applying for an exemption under this Section, inverse proportion the value of the aggregate price of the
shall file with the Commission a notice identifying the offering.
exemption relied upon on such form and at such time as the
Commission by the rule may prescribe and with such notice (b) Notice of the filing of the registration statement shall
shall pay to the Commission fee equivalent to one-tenth (1/10) be immediately published by the issuer, at its own expense,
of one percent (1%) of the maximum value aggregate price or in two (2) newspapers of general circulation in the
issued value of the securities. Philippines, once a week for two (2) consecutive weeks, or
in such other manner as the Commission by the rule shall
Section 11. Commodity Futures Contracts. - No person shall prescribe, reciting that a registration statement for the sale
offer, sell or enter into commodity futures contracts except in of such securities has been filed, and that aforesaid
accordance with the rules, regulations and orders the registration statement, as well as the papers attached
Commission may prescribe in the public interest. The thereto are open to inspection at the Commission during
Commission shall promulgate rules and regulations involving business hours, and copies thereof, photostatic or
commodity futures contracts to protect investors to ensure the otherwise, shall be furnished to interested parties at such
development of a fair and transparent commodities market. reasonable charge as the Commission may prescribe.

Section 12. Procedure of Registration Securities. - 12.1. All 12.6. Within forty-five (45) days after the date of filing of the
securities required to be registered under Subsection 8. I shall be registration statement, or by such later date to which the issuer
registered through the filing by the issuer in the main office of has consented, the Commission shall declare the registration
the Commission, of a sworn registration statement with the statement effective or rejected, unless the applicant is allowed to
respect to such securities, in such form and containing such amend the registration statement as provided in Section 14
information and document as the Commission prescribe. The hereof. The Commission shall enter an order declaring the
registration statement shall include any prospectus required or registration statement to be effective if it finds that the
permitted to be delivered under Subsections 8.2, 8.3, and 8.4. registration statement together with all the other papers and
documents attached thereto, is on its face complete and that the
12.2. In promulgating rules governing the content of any requirements have been complied with. The Commission may
registration statement (including any prospectus made a part impose such terms and conditions as may be necessary or
thereof or annex thereto), the Commission may require the appropriate for the protection of the investors.
registration statement to contain such information or documents
as it may, by rule, prescribe. It may dispense with any such 12.7. Upon affectivity of the registration statement, the issuer
requirements, or may require additional information or shall state under oath in every prospectus that all registration
documents, including written information from an expert, requirements have been met and that all information are true and
depending on the necessity thereof or their applicability to the correct as represented by the issuer or the one making the
class of securities sought to be registered. statement. Any untrue statement of fact or omission to state a
material fact required to be stated herein or necessary to make
12.3. The information required for the registration of any kind, the statement therein not misleading shall constitute fraud.
and all securities, shall include, among others, the effect of the
securities issue on ownership, on the mix of ownership, Section 13. Rejection and Revocation of Registration of
especially foreign and local ownership. Securities. – 13.1. The Commission may reject a registration
statement and refuse registration of the security there-under, or
12.4. The registration statement shall be signed by the issuer’s revoke the affectivity of a registration statement and the
executive officer, its principal operating officer, its principal registration of the security there-under after the due notice and
financial officer, its comptroller, its principal accounting officer, hearing by issuing an order to such effect, setting forth its
its corporate secretary, or persons performing similar functions finding in respect thereto, if it finds that:
accompanied by a duly verified resolution of the board of
directors of the issuer corporation. The written consent of the (a) The issuer:
expert named as having certified any part of the registration
statement or any document used in connection therewith shall (i) Has been judicially declared insolvent;
also be filed. Where the registration statement shares to be sold
55
 (ii) Has violated any of the provision of this Code, the 13.6. A registration statement may be withdrawn by the issuer
rules promulgate pursuant thereto, or any order of the only with the consent of the Commission.
Commission of which the issuer has notice in
connection with the offering for which a registration Section 14. Amendment to the Registration Statement. – 14.1. If
statement has been filed a registration statement is on its face incomplete or inaccurate in
any material respect, the Commission shall issue an order
(iii) Has been or is engaged or is about to engage in directing the amendment of the registration statement. Upon
fraudulent transactions; compliance with such order, the amended registration statement
shall become effective in accordance with the procedure
(iv) Has made any false or misleading representation mentioned in Subsection 12.6 hereof.
of material facts in any prospectus concerning the
issuer or its securities; 14.2. An amendment filed prior to the effective date of the
registration statement shall recommence the forty-five (45) day
(v) Has failed to comply with any requirements that period within which the Commission shall act on a registration
the Commission may impose as a condition for statement. An amendment filed after the effective date of the
registration of the security for which the registration registration statement shall become effective only upon such
statement has been filed; or date as determined by the Commission.

(b) The registration statement is on its face incomplete or 14.3. If any change occurs in the facts set forth in a registration
inaccurate in any material respect or includes any untrue statement, the issuer shall file an amendment thereto setting
statements of a material fact required to be stated therein or forth the change.
necessary to make the statement therein not misleading; or
14.4. If, at any time, the Commission finds that the registration
(c) The issuer, any officer, director or controlling person statement contains any false statement or omits to state any fact
performing similar functions, or any under writer has been required to be stated therein or necessary to make the statements
convicted, by a competent judicial or administrative body, therein not misleading, the Commission may conduct an
upon plea of guilty, or otherwise, of an offense involving examination, and, after due notice and hearing, issue an order
moral turpitude and /or fraud or is enjoined or restrained by suspending the affectivity registration statement. If the statement
the Commission or other competent or administrative body is duly amended, the suspension order may be lifted.
for violations of securities, commodities, and other related
laws. 14.5. In making such examination the Commission or any
officer or officers designated by it may administer oaths and
For the purposes of this subsection, the term "competent judicial affirmations and shall have access to, and may demand the
or administrative body" shall include a foreign court of production of, any books, records or documents relevant to the
competent jurisdiction as provided for under Rules of Court. examination. Failure of the issuer, underwriter, or any other
person to cooperate, or his obstruction or refusal to undergo an
13.2. The Commission may compel the production of all the examination, shall be a ground for the issuance of a suspension
books and papers of such issuer, and may administer oaths to, order.
and examine the officers of such the issuer or any other person
connected therewith as to its business and affairs. Section 15. Suspension of Registration.- 15.1. If at any time, the
information contained in the registration statement filed is or has
13.3. If any issuer shall refuse to permit an examination to be become misleading, incorrect, inadequate or incomplete in any
made by the Commission, its refusal shall be ground for the material respect, or the sale or offering for sale of the security
refusal or revocation of the registration of its securities. registered thereunder may work or tend to work a fraud, the
Commission may require from the issuer such further
information as may in its judgement be necessary to enable the
13.4. If the Commission deems its necessary, it may issue an Commission to ascertain whether the registration of such
order suspending the offer and sale of the securities pending any security should be revoked on any ground specified in this
investigation. The order shall state the grounds for taking such Code. The Commission may also suspend the right to sell and
action, but such order of suspension although binding upon the offer for the sale such security pending further investigation, by
persons notified thereof, shall be deemed confidential, and shall entering an order specifying the grounds for such action, and by
not be published. Upon the issuance of the suspension order, no notifying the issuer, underwriter, dealer or broker known as
further offer or sale of such security shall be made until the participating in such offering.
same is lifted or set aside by the Commission. Otherwise, such
sale shall be void.
15.2. The refusal to furnish information required by the
Commission may be a ground for the issuance of an order of
13.5. Notice of issuance of such order shall be given to the suspension pursuant to Subsection 15.1. Upon the issuance of
issuer and every dealer and broker who shall have notified the any such order and notification to the issuer, underwriter, dealer
Commission of an intention to sell such security. or broken know as participating in such offering, no further
56
offer or sale of any such security shall be made until the same is (a) An issuer which has sold a class of its securities
lifted or set aside by the Commission. Otherwise such sale shall pursuant to a registration under section 12 hereof:
be void. Provided however,That the obligation of such issuer to file
reports shall be suspended for any fiscal year after the year
15.3. Upon issuance of an order of suspension, the Commission such registration became effective if such issuer, as of the
shall conduct a hearing. If the Commission determines that the first day of any such fiscal year, has less than one hundred
sale of any security should be revoked is shall issue an order (100) holder of such class securities or such other number
prohibiting sale of such security. as the Commission shall prescribe and it notifies the
Commission of such;
15.4. Until the issuance of a final order, the suspension of the
right to sell, though binding upon the persons notified there of, (b) An issuer with a class of securities listed for trading on
shall be deemed confidential, and shall not be published, unless an Exchange; and
it shall appear that the order of suspension has been violated
after notice. If, however, the Commission finds that the sale of (c) An issuer with assets of at least Fifty million pesos
the security will neither be fraudulent nor result in fraud, it shall (50,000,000.00) or such other amount as the Commission
forthwith issue an order revoking the order of suspension, and shall prescribe, and having two hundred (200) or more
such security shall be restored to its status as a registered holder each holding at least one hundred (100) share of a
security as of the date of such order of suspension. class of its equity securities: Provided, however, That the
obligation of such issuer to file report shall be terminate
CHAPTER IV ninety (90) days after notification to the Commission by
REGULATION OF PRE-NEED PLANS the issuer that the number of its holders holding at least
one hundred (100) share reduced to less than one hundred
Section 16. Pre-Need Plans.– No person shall sell or offer for (100).
sale to the public any pre-need plan except in accordance with
rules and regulations which the Commission shall prescribe. 17.3. Every issuer of a security listed for trading on an
Such rules shall regulate the sale of pre-need plans by, among Exchange a copy of any report filed with the Commission under
other things, requiring the registration of pre-need plans, Subsection 17.1. hereof.
licensing persons involved in the sale of pre- need plans,
requiring disclosures to prospective plan holders, prescribing 17.4. All reports (including financial statements) required to be
advertising guidelines, providing for uniform accounting filed with the Commission pursuant to Subsection 17.1 hereof
system, reports and recording keeping with respect to such shall be in such form, contain such information and be filed at
plans, imposing capital, bonding and other financial such times as the Commission shall prescribe, and shall be in
responsibility, and establishing trust funds for the payment of lieu of any periodical or current reports or financial statements
benefits under such plans. otherwise required to be filed under the Commission shall
prescribe.
CHAPTER V
REPORTORIAL REQUIREMENTS 17.5. Every issuer which has a class of equity securities
satisfying any of the requirements in Subsection 17.2 shall
Section 17. Periodic and Other Reports of Issuer. 17.1. Every furnish to each holder of such equity security an annual report in
issuer satisfying the requirements in Subsection 17.2 hereof such form and containing such information as the Commission
shall file with the Commission: shall prescribe.

(a) Within one hundred thirty-five (135) days, after the end 17.6. Within such period as the Commission may prescribe
of the issuer’s fiscal year, or such other time as the preceding the annual meeting of the holders of any equity
Commission may prescribe, an annual report which shall security of a class entitled to vote at such meeting , the issuer
include, among others, a balance sheet, profit and loss shall transmit to such holders an annual report in conformity
statement and statement of cash flows, for such last fiscal with subsection 17.5.
year, certified public accountant, an a management
discussion and analysis of results of operation; and Section 18. Reports by five per centum (5%) Holders of Equity
Securities.– 18.1. In every case in which an issuer satisfies the
(b) Such other periodical reports for interim fiscal periods requirements of Subsection 17.2 hereof any person who acquires
and current reports on significant developments of the directly or indirectly the beneficial ownership of more than five
issuer as the Commission may prescribe as necessary to of per centum (5%) of such class or in excess of such lesser per
keep current information on the operation of the business centum as the Commission by rule may prescribe, shall, within
and financial condition of the issuer. ten (10) days after such acquisition or such reasonable time as
fixed by the Commission, submit to the issuer of the securities,
17.2. The reportorial requirements of Subsection 17.1 shall to the Exchange where the security is traded, and to the
apply to the following: Commission a sworn statement containing the following
information and such order information as the Commission may
57
require in the public interest or for the protection of investors. tender offer to stockholders by filling with the Commission a
declaration to that effect; and furnish the issuer, a statement
(a) The personal background, identity, residence, and containing such of the information required in Section 17 of this
citizenship of, and the nature of such beneficial ownership Code as the Commission may prescribe. Such person or group
by, such person and all other person by whom or on whose of persons shall publish all request or invitations or tender offer
behalf the purchases are effected; in the event the or requesting such tender offers subsequent to the initial
beneficial owner is a juridical person, the of business of the solicitation or request shall contain such information as the
beneficial owner shall also be reported; Commission may prescribe, and shall be filed with the
Commission and sent to the issuer not alter than the time copies
(b) If the purpose of the purchases or prospective of such materials are first published or sent or given to security
purchases is to acquire control of the business of the issuer holders.
of the securities, any plans or proposals which such
persons may have that will effect a major change in its (a) Any solicitation or recommendation to the holders of
business or corporate structure; such a security to accept or reject a tender offer or request
or invitation for tenders shall be made in accordance with
(c) The number of shares of such security which are such rules and regulations as may be prescribe.
beneficially owned, and the number of shares concerning
which there is a right to acquire, directly or indirectly, by; (b) Securities deposited pursuant to a tender offer or
(i) such person, and (ii) each associate of such person, request or invitation for tenders may be withdrawn by or
giving the background, identity, residence, and citizenship on behalf of the depositor at any time throughout the
of each such associate; and period that tender offer remains open and if the securities
deposited have not been previously accepted for payment,
(d) Information as to any contracts, arrangements, or and at any time after sixty (60) days from the date of the
understanding with any person with respect to any original tender offer to request or invitation, except as the
securities of the issuer including but not limited to transfer, Commission may otherwise prescribe.
joint ventures, loan or option arrangements, puts or call
guarantees or division of losses or profits, or proxies (c) Where the securities offered exceed that which person
naming the persons with whom such contracts, or group of persons is bound or willing to take up and pay
arrangements, or understanding have been entered into, for, the securities that are subject of the tender offers shall
and giving the details thereof. be taken up us nearly as may be pro data, disregarding
fractions, according to the number of securities deposited
18.2. If any change occurs in the facts set forth in the to each depositor. The provision of this subject shall also
statements, an amendment shall be transmitted to the issuer, the apply to securities deposited within ten (10) days after
Exchange and the Commission. notice of increase in the consideration offered to security
holders, as described in paragraph (e) of this subsection, is
first published or sent or given to security holders.
18.3. The Commission, may permit any person to file in lieu of
the statement required by subsection 17.1 hereof, a notice
stating the name of such person, the shares of any equity (d) Where any person varies the terms of a tender offer or
securities subject to Subsection 17.1 which are owned by him, request or invitation for tenders before the expiration
the date of their acquisition and such other information as the thereof by increasing the consideration offered to holders
commission may specify, if it appears to the commission that of such securities, such person shall pay the increased
such securities were acquired by such person in the ordinary consideration to each security holder whose securities are
course of his business and were not acquired for the purpose of taken up and paid for whether or not such securities have
and do not have the effect of changing or influencing the control been taken up by such person before the variation of the
of the issuer nor in connection with any transaction having such tender offer or request or invitation.
purpose or effect.
19.2. It shall be lawful for any person to make any untrue
CHAPTER VI statement of a material fact or omit to state any material fact
PROTECTION OF SHAREHOLDERS INTERESTS necessary in order to make the statements made in the light of
the circumstances under which they are made, not mis-leading,
or to engaged to any fraudulent, deceptive or manipulative acts
Section 19. Tender Offers. – Any person or group of persons or practices, in connection with any tender offer or request or
acting in concert who intends to acquire at least 15% of any invitation for tenders, or any solicitation for any security holders
class of any equity security of a listed corporation of any class in opposition to or in favor of any such favor of any such offer,
of any equity security of a corporation with assets of at least request, or invitation. The Commission shall, for the purposes of
fifty million pesos (50,000,000.00) and having two this subsection, define and prescribe means reasonably designed
hundred(200) or more stockholders at least one hundred shares to prevent, such acts and practices as are fraudulent, deceptive
each or who intends to acquire at least thirty percent(30%) of and manipulative.
such equity over a period of twelve months(12) shall make a

58
Section 20. Proxy solicitations. - 20.1. Proxies must be issued are compared with existing assets at reasonable intervals and
and proxy solicitation must be made in accordance with rules differences are reconciled.
and regulations to be issued by the Commission;
Section 23. Transactions of Directors officers and Principal
20.2. Proxies must be in writing, signed by the stockholder or Stockholders. – 23.1. Every person who is directly or indirectly
his duly authorized representative and file before the scheduled the beneficial owner of more than ten per centum (10%) of any
meeting with the corporate secretary. class of any equity security which satisfies the requirements of
subsection 17.2, or who is a director or an officer of the issuer of
20.3. Unless otherwise provided in the proxy, it shall be valid such security, shall file, at the time either such requirement is
only for the meeting for which it is intended. No proxy shall be first satisfied or after ten days after he becomes such a beneficial
valid only for the meting for which it is intended. No proxy shall owner, director, or officer, a statement form the Commission
be valid and effective for a period longer than five (5) years at and, if such security is listed for trading on an exchange, also
one time. with the exchange of the amount of all the equity security of
such issuer of which he is the beneficial owner, and within ten
20.4. No broker or dealer shall give any proxy, consent or any days after the close of each calendar month thereafter, if there
authorization, in respect of any security carried for the account has been a change in such ownership at the close of the calendar
of the customer, to a person other than the customer, without month and such changes in his ownership as have occurred
written authorization of such customer. during such calendar month.

20.5. A broker or dealer who holds or acquire the proxy for at 23.2. For the purpose of preventing the unfair use of information
least ten percent (10%) or such percentage as the commission which may have been obtained by such beneficial owner,
may prescribe of the outstanding share of such issuer, shall director or officer by reason of his relationship to the issuer, any
submit a report identifying the beneficial owner of ten days after profit realized by him from any purchase or sale, or any sale or
such acquisition, for its own account or customer, to the issuer purchase, of any equity security of such issuer within any period
of security, to the exchange where the security is traded and to of less than (6) months unless such security was acquired in
the Commission. good faith in connection with a debt previously contracted, shall
inure to and be recoverable by the issuer, irrespective of any
intention of holding the security purchased or of not
Section 21. Fees of Tender Offers and Certain Proxy repurchasing the security sold for a period exceeding six (6)
Solicitations. – At the time of filling with the Commission of months. Suit to recover such profit may be instituted before the
any statement required under Section 19 for any tender offer or Regional Trial Court by the issuer, or by the owner of any
Section 72.2 for issuer purchases, or Section 20 for proxy or security of the issuer in the name and in behalf of the issuer if
consent solicitation, The Commission may require that the the issuer shall fail or refuse to bring such suit within sixty (60)
person making such filing pay a fee of not more than one-tenth days after request or shall fail diligently to prosecute the same
(1/10)(1%) of; thereafter, but not such shall be brought more than two years
after the date such profit was realized. This Subsection shall not
21.1. The propose aggregate purchase price in the case of a be construed to cover any transaction were such beneficial
transaction under Section 20 or 72.2; or owner was not such both time of the owner or the sale, or the
sale of purchase, of the security involved, or any transaction or
21.2. The proposed payment in cash, and ion value of any transactions which the Commission by rules and regulations
securities or property to be transferred in the acquisition, merger may exempt as not comprehended within the purpose of this
or consolidating, or the cash and value of any securities subsection.
proposed to be received upon the sale disposition of such assets
in the case of a solicitation under Section 20. The Commission 23.3. It shall be unlawful for any such beneficial owner, director
shall prescribe by rule diminishing fees in inverse proportion to or officer, directly or indirectly, to sell any equity security of
the value of the aggregate price of the offering. such issuer if the person selling the principal: (a) Does not own
the security sold: or (b) If owning the security, does not deliver
Section 22. Internal Record Keeping and Accounting Control. - not deliver it against such sale within 20 days thereafter, or does
Every issuer which has a class of securities that satisfies the not within five days after such sale deposit in the mails or the
requirements of Subsection 17.2 shall: unusual channels of transportation; but no person shall be
deemed to have violated this subsection if he proves not
22.1. Device and maintain a system of internal accounting withstanding the exercise of good faith he was unable to make
controls sufficient to provide reasonable assurance that: (a) such delivery in such time, or that to do so would cause undue
Transactions and access to assets are pursuant to management inconvenience or expense.
authorization; (b) Financial statements are provided in
conformity with generally accepted accounting principles that 23.4. The provisions of subsection 23.2 shall not apply to any
are adopted by the Accounting standards council and the rules purchase and sale, or sale and purchase, and the provisions of
promulgated by the Commission with the regard to the Subsection 23.3 shall not apply to any sale, of an equity security
preparation of the financial statements; and (c) Recorded assets not then or thereafter held by him and an investment account, by
59
a dealer in the ordinary course of his business and incident to the inducing the purchase or sale of any security listed or
establishment or maintenance by him of a primary or secondary traded in an Exchange.
market, otherwise than on an Exchange, for such security. The
Commission may, by such rules and regulations as it deems (e) To effect, either alone or others, any series of
necessary or appropriate in the public interest, define and transactions for the purchase and/or sale of any security
prescribe terms and conditions with respect to securities held in traded in an Exchange for the purpose of pegging, fixing or
an investment account and transactions made in the ordinary stabilizing the price of such security; unless otherwise
course of business and incident to the establishment or allowed by this Code or by rules of the Commission.
maintenance of a primary or secondary market.
24.2. No person shall use or employ, in connection with the
CHAPTER VII purchase or sale of any security any manipulative or deceptive
PROHIBITIONS AND FRAUD, MANIPULATION AND device or contrivance. Neither shall any short sale be effected
INSIDER TRADING nor any stop-loss order be executed in connection with the
purchase or sale of any security except in accordance with such
Section 24. Manipulation of Security Prices; Devices and rules and regulations as the Commission may prescribe as
Practices. – 24.1 It shall be unlawful for any person acting for necessary or appropriate in the public interest for the protection
himself or through a dealer or broker, directly or indirectly: of investors.

(a) To create a false or misleading appearance of active 24.3. The foregoing provisions notwithstanding, the
trading in any listed security traded in an Exchange of any Commission, having due regard to the public interest and the
other trading market (hereafter referred to purposes of this protection of investors, may, by rules and regulations, allow
Chapter as "Exchange"): certain acts or transactions that may otherwise be prohibited
under this Section.
(i) By effecting any transaction in such security which
involves no change in the beneficial ownership Section 25. Regulation of Option Trading.– No member of an
thereof; Exchange shall, directly or indirectly endorse or guarantee the
performance of any put, call, straddle, option or privilege in
(ii) By entering an order or orders for the purchase or relation to any security registered on a securities exchange. The
sale of such security with the knowledge that a terms "put", "call", "straddle", "option", or "privilege" shall not
simultaneous order or orders of substantially the same include any registered warrant, right or convertible security.
size, time and price, for the sale or purchase of any
such security, has or will be entered by or for the Section 26. Fraudulent Transactions. – It shall be unlawful for
same or different parties; or any person, directly or indirectly, in connection with the
purchase or sale of any securities to:
(iii) By performing similar act where there is no
change in beneficial ownership. 26.1. Employ any device, scheme, or artifice to defraud;

(b) To affect, alone or with others, a securities or 26.2. Obtain money or property by means of any untrue
transactions in securities that: (I) Raises their price to statement of a material fact of any omission to state a material
induce the purchase of a security, whether of the same or a fact necessary in order to make the statements made, in the light
different class of the same issuer or of controlling, of the circumstances under which they were made, not
controlled, or commonly controlled company by others; or misleading; or
(iii) Creates active trading to induce such a purchase or
sale through manipulative devices such as marking the 26.3. Engage in any act, transaction, practice or course of
close, painting the tape, squeezing the float, hype and business which operates or would operate as a fraud or deceit
dump, boiler room operations and such other similar upon any person.
devices.
Section 27. Insider’s Duty to Disclose When Trading. – 27.1. It
(c) To circulate or disseminate information that the price of shall be unlawful for an insider to sell or buy a security of the
any security listed in an Exchange will or is likely to rise or issuer, while in possession of material information with respect
fall because of manipulative market operations of any one to the issuer or the security that is not generally available to the
or more persons conducted for the purpose of raising or public, unless: (a) The insider proves that the information was
depressing the price of the security for the purpose of not gained from such relationship; or (b) If the other party
inducing the purpose of sale of such security. selling to or buying from the insider (or his agent) is identified,
the insider proves: (I) that he disclosed the information to the
(d) To make false or misleading statement with respect to other party, or (ii) that he had reason to believe that the other
any material fact, which he knew or had reasonable ground party otherwise is also in possession of the information. A
to believe was so false or misleading, for the purpose of purchase or sale of a security of the issuer made by an insider
60
defined in Subsection 3.8, or such insider’s spouse or relatives Section 28. Registration of Brokers, Dealers, Salesmen and
by affinity or consanguinity within the second degree, legitimate Associated Persons. – 28.1. No person shall engage in the
or common-law, shall be presumed to have been effected while business of buying or selling securities in the Philippine as a
in possession of material nonpublic information if transacted broker or dealer, or act as a salesman, or an associated person of
after such information came into existence but prior to any broker or dealer unless registered as such with the
dissemination of such information to the public and the lapse of Commission.
a reasonable time for market to absorb such information:
Provided, however, That this presumption shall be rebutted upon 28.2. No registered broker or dealer shall employ any salesman
a showing by the purchaser or seller that he was aware of the or any associated person, and no issuer shall employ any
material nonpublic information at the time of the purchase or salesman, who is not registered as such with the Commission.
sale.
28.3. The Commission, by rule or order, may conditionally or
27.2. For purposes of this Section, information is "material unconditionally exempt from subsection 28.1 and 28.2 any
nonpublic" if: (a) It has not been generally disclosed to the broker, dealer, salesman, associated person of any broker or
public and would likely affect the market price of the security dealer, or any class of the foregoing, as it deems consistent with
after being disseminated to the public and the lapse of a the public interest and the protection of investors.
reasonable time for the market to absorb the information; or (b)
would be considered by a reasonable person important under the 28.4. The Commission shall promulgate rules and regulation
circumstances in determining his course of action whether to prescribing the qualifications for registration of each category of
buy, sell or hold a security. applicant, which shall, among other things, require as a
condition for registration that:
27.3. It shall be unlawful for any insider to communicate
material nonpublic information about the issuer or the security (a) If a natural person, the applicant satisfactorily pass a
to any person who, by virtue of the communication, becomes an written examination as to his proficiency and knowledge in
insider as defined in Subsection 3.8, where the insider the area of activity for which registration is sought;
communicating the information knows or has reason to believe
that such person will likely buy or sell a security of the issuer
whole in possession of such information. (b) In the case of a broker or dealer, the applicant satisfy a
minimum net capital as prescribed by the Commission, and
provide a bond or other security as the Commission may
27.4. (a) It shall be unlawful where a tender offer has prescribe to secure compliance with the provisions of this
commenced or is about to commence for: Code; and

(i) Any person (other than the tender offeror) who is in (c) If located outside of the Philippines, the applicant files
possession of material nonpublic information relating to a written consent to service of process upon the
such tender offer, to buy or sell the securities of the issuer Commission pursuant to Section 65 hereof.
that are sought or to be sought by such tender offer if such
person knows or has reason to believe that the information
is nonpublic and has been acquired directly or indirectly 28.5. A broker or dealer may apply for registration by filing with
from the tender offeror, those acting on its behalf, the the Commission a written application in such forms and
issuer of the securities sought or to be sought by such containing such information and documents concerning such
tender offer, or any insider of such issuer; and broker or dealer as the Commission by rule shall prescribe.

(ii) Any tender offeror, those acting on its behalf, the issuer 28.6. Registration of a salesman or of an associated person of a
of the securities sought or to be sought by such tender registered broker or dealer may be made upon written
offer, and any insider of such issuer to communicate application filed with the Commission by such salesman or
material nonpublic information relating to the tender offer associated person. The application shall be separately signed
to any other person where such communication is likely to and certified by the registered broker or dealer to which such
result in a violation of Subsection 27.4 (a)(I). salesman or associated person is to become affiliated, or by the
issuer in the case of a salesman employed appointed or
authorized solely by such issuer. The application shall be in such
(b) For purposes of this subsection the term "securities of the form and contain such information and documents concerning
issuer sought or to be sought by such tender offer" shall include the salesman or associated person as the Commission by rule
any securities convertible or exchangeable into such securities shall prescribe. For purposes of this Section, a salesman shall
or any options or rights in any of the foregoing securities. not include any employee of an issuer whose compensation is
not determined directly or indirectly on sales of securities if the
CHAPTER VIII issuer.
REGULATION OF SECURITIES MARKET
PROFESSIONALS 28.7. Applications filed pursuant to Subsections 28.5 and 28.6
shall be accompanied by a registration fee in such reasonable
61
amount prescribed by the Commission. any material fact that is required to be stated therein;

28.8. Within thirty (30) days after the filing of any application (c) Has failed to satisfy the qualifications or requirements
under this Section, the Commission shall by order: (a) Grant for registration prescribed under Section 28 and the rules
registrations if it determines that the requirements of this and regulations of the Commission promulgated
Section and the qualifications for registrations set forth in its thereunder;
rules and regulations have been satisfied ; or (b) Deny said
registration. (d) Has been convicted, by a competent judicial or
administrative body of an offense involving moral
28.9. The names and addresses of all persons approved for the turpitude, fraud, embezzlement, counterfeiting, theft,
registration as brokers, dealers, associated persons or salesman estafa, misappropriation, forgery, bribery, false oath, or
and all orders of the Commission with respect thereto shall be perjury, or of a violation of securities, commodities,
recorded in a Register of Securities Market Professionals kept in banking, real state or insurance laws;
the office of the Commission which shall be open to public
inspection. (e) Is enjoined or restrained by a competent judicial or
administrative body from engaging in securities,
28.10. Every person registered pursuant to this Section shall file commodities, banking, real state or insurance activities or
with the Commission, in such form as the Commission shall from willfully violating laws governing such activities;
prescribe, information necessary to keep the application for
registration current and accurate, including in the case of a (f) Is subject to an order of a competent judicial or
broker or dealer changes in salesmen, associated persons and administrative body refusing, revoking or suspending any
owners thereof. registration, licensed or other permit under this Code, the
rules and regulations promulgated thereunder, any other
28.11. Every person registered pursuant to this Selection shall law administered by the Commission;
pay to the Commission an annual fee at such time and in such
reasonable amount as the Commission shall prescribe. Upon (g) Is subject to an order of a self-regulatory organization
notice by the Commission that such annual fee has not been paid suspending or expelling him from membership or
as required, the registration of such person shall be suspended participating therein or from association with a member or
until payment has been made. participant thereof;

28.12. The registration of a salesman or associated person shall (h) Has been found by a competent judicial or
be automatically terminated upon the cessation of his affiliation administrative body to have willfully violated any
with said registered broker or dealer or with an issuer in the case provisions of securities, commodities, banking, real state
of a salesman employed, appointed or authorized by such issuer. or insurance laws, or has willfully aided, abetted,
Promptly following any such cessation of affiliation, the counseled, commanded, induced or procured such
registered broker or dealer, issuer as the case may be, shall file violation; or
with the Commission a notice of separation of such salesman or
associated person. (i) Has been judicially declared insolvent.

Section 29. Revocation, Refusal or Suspension of Registration For purposes of this subsection, the term "competent judicial or
of Brokers, Dealers, Salesmen and Associated Persons. – 29.1. administrative body" shall include a foreign court of competent
Registration under Section 28 of this Code may be refused , or jurisdiction and a foreign financial regulator.
any registration granted thereunder may be revoked, suspended,
or limitations placed thereon, by the Commission if, after due
notice and hearing the Commission determines the application 29.2. (a) In case of charges against a salesman or associated
or registrant. person, notice thereof shall also be given the broker, dealer or
issuer employing such salesman or associated person.
(a) Has willfully violated any provision of this Code, any
rule, regulation or order made hereunder, or any other law (b) Pending the hearing, the Commission shall have the
administered by the Commission, or in the case of a power to order the suspensions of such broker’s, dealers,
registered broker, dealer or associated persons has failed to associated person’s or salesman’s registration: Provided,
supervise, with a view to preventing such violation, That such order shall state the cause for such suspension.
another person who commits such violation; Until the entry of a final order, the suspension of such
registration, though binding upon the persons notified
thereof, shall be deemed confidential, and shall not be
(b) Has willfully made or caused to be made a materially published, unless it shall appear that the order of
false or misleading statement in any application for suspension has been violated after notice.
registration or report filed with the Commission or a self-
regulatory organization, or has willfully omitted to state
29.3. The orders of the Commission refusing, revoking,
62
suspending or placing limitations on a registration as herein Section 32. Prohibition on Use of Unregistered Exchange;
above provided, together with its findings, shall be entered in Regulation of Over-the-Counter Markets.–32.1. No broker,
the Register of Securities Market Professionals. The suspension dealer, salesman, associated person of a broker or dealer, or
or revocation of the registration of a dealer or broker shall also Exchange, directly or indirectly shall make use of any facility of
automatically suspend the registration of all salesmen and an Exchange in the Philippines to effect any transaction in a
associated persons affiliated with such broker or dealer. The security, or to report such transaction, unless such Exchange is
order of the Commission refusing, revoking, suspending or registered as such under Section 33 of this Code.
placing limitations on a registration as herein above provided,
together with its findings, shall be entered in the Register of 32.2. (a) No broker, dealer, salesman or associated person of a
Securities Market Professionals. The suspension or revocation broker or dealer, singly or in concert with any other person,
of the registration of a dealer or broker shall also automatically shall make, create or operate, or enable another to make, create
suspend the registration of a dealer or broker shall also or operate, any trading market, otherwise than on a registered
automatically suspend the registration of all salesmen and Exchange, for the buying and selling of any security, except in
associated persons affiliated with such broker or dealer. accordance with rules and regulations the Commission may
prescribe.
29.4. It shall be sufficient cause for refusal, revocation or
suspension of a broker’s or dealer’s registrations, if any (b) The Commission may promulgate rules and regulations
associated person thereof or any juridical entity controlled by governing transactions by brokers, dealers, salesmen or
such associated person has committed any act or omission or is associated persons of a broker or dealer, over any facilities
subject to any disability enumerated in paragraphs (a) through of such trading market and may require such market to be
(i) of Subsection 29. I hereof. administered by a self-regulatory organization determined
by the Commission as capable of insuring the protection of
Section 30. Transactions and Responsibility of Brokers and investors comparable to that provided in the case of a
Dealers. – 30.1 No brokers or dealer shall deal in or otherwise registered Exchange. Such self-regulatory organization
buy or sell, for its own account or for its own account or for the must provide a centralized marketplace for trading and
account of customers, securities listed on an Exchange issued by must satisfy requirements comparable to those prescribed
any corporation where any stockholders, director, associated for registration of Exchanges in Section 33 of this Code.
person or salesman, or authorized clerk of said broker or dealer
and all the relatives of the foregoing within the fourth civil Section 33. Registration of Exchanges. – 33.1. Any Exchange
degree of consanguinity or affinity, is at the same time holding may be registered as such with the Commission under the terms
office in said issuer corporation as a director, president, vice- and conditions hereinafter provided in this Section and Section
president, manager, treasurer, comptroller, secretary or any 40 hereof, by filing an application for registration in such form
office trust and responsibility, or is a controlling of the issuer. and containing such information and supporting documents as
the Commission by rule shall prescribe, including the following:
30.2. No broker or dealer shall effect any transaction in
securities or induce or attempt to induce the purchase or sale of (a) An undertaking to comply and enforce by its members
any security except in compliance with such rules and with the provisions of this Code, its implementing rules
regulations as the Commission shall prescribe to ensure fair and and regulations and the rules of the Exchange;
honest dealings in securities and provide financial safeguards
and other standards for the operations of brokers and dealers, (b) The organizational charts of the Exchange, rules of
including the establishments of minimum net capital procedure, and a list of its officers and members;
requirements, the acceptance of custody and use of securities of
customers, and the carrying and use of deposits and credit
balances of customers. (c) Copies of the rules of the Exchange; and

Section 31. Development of Securities Market Professionals. – (d) An undertaking that in the event a member firm
The Commission in joint undertaking with self regulatory becomes insolvent or when the Exchange shall have found
organizations, organizations and associations of finance that the financial condition of its member firm has so
professionals as well as private educational and research deteriorated that it cannot readily meet the demands of its
institute shall undertake or facilitate/organize continuing customers for the delivery of securities and/or payment of
training, conferences/seminars, updating programs, research and sales proceeds, the Exchange shall, upon order of the
developments as well as technology transfer at the latest and Commission, take over the operation of the insolvent
advance trends in issuance and trading of securities, derivatives, member firm and immediately proceed to settle the
commodity trades and other financial instruments, as well as member firm’s liabilities to its customers.
securities markets of other countries.
33.2. Registrations of an Exchange shall be granted upon
CHAPTER IX compliance with the following provisions:
EXCHANGES AND OTHER SECURITIES TRADING
MARKETS (a) That the applicant is organized as a stock corporation:
63
Provided, That any registered Exchange existing prior to years prior to his/her appointment. No officer or employee
the effectivity of this Code shall within one (1) year of a member, its subsidiaries or affiliates or related
reorganize as a stock corporation pursuant to a interests shall become an independent director: Provided,
demutualization plan approved by the Commission; however,That the Commission may by rule, regulation, or
order upon application, permit the exchange organized as a
(b) That the applicant is engaged solely in the business of stock corporation to use a different governance structure:
operating an exchange: Provided, however, That the Provided, further, That the Commission is satisfied that the
Commission may adopt rules, regulations or issue an order, Exchange is acting in the public interest and is able to
upon application, exempting an Exchange organized as a effectively operate as a self-regulatory organization under
stock corporation and owned and controlled by another this Code: Provided, finally, That any registered exchange
juridical person from the restriction. existing prior to the affectivity of this Code shall
immediately comply with this requirement.
(c) Where the Exchange is organized as a stock
corporation, that no person may beneficially own or (h) The president and other management of the Exchange
control, directly or indirectly, more than five percent (5%) to consist only of persons who are not members and are not
of the voting rights of the Exchange and no industry or associated in any capacity, directly or indirectly with any
business group may beneficially own or control, directly or broker or dealer or member or listed company of the
indirectly, more than twenty percent (20%) of the voting Exchange: Provided, That the Exchange may only appoint,
rights of the Exchange: Provided, however, That the and a person may only serve, as an officer of the exchange
Commission may adopt rules, regulations or issue an order, if such person has not been a member or affiliated with any
upon application from this prohibition where it finds that broker, dealer, or member of the Exchange for a period of
such ownership or control will not negatively impact on at least two (2) years prior to such appointment;
the exchange’s ability to effectively operate in the public
interest. (i) The transparency of transactions on the Exchange;

(d) The expulsion, suspension, or disciplining of a member (j) The equitable allocation of reasonable dues, fees, and
and persons associated with a member for conduct or other charges among members and issuers and other
proceeding inconsistent with just and equitable principles persons using any facility or system which the Exchange
of fair trade, and for violations of provisions of this Code, operates or controls;
or any other Act administered by the Commission, the
rules, regulations and orders thereunder, or the rules of the (k) Prevention of fraudulent and manipulative acts and
Exchange;’ practices, promotion of just and equitable principles of
trade, and, in general, protection of investors and the
(e) A fair procedure for the disciplining of members and public interest; and
persons associated with members, the denial of
membership to any person seeking to be a member, the (l) The transparent, prompt and accurate clearance and
barring of any person from association with a member, and settlement of transactions effected on the Exchange.
the prohibition or limitation of any person from association
with member, and the prohibition or limitation of any 33.3. If the Commission finds that the applicant Exchange is
person from access to services offered by the Exchange; capable of complying and enforcing compliance by its members,
and persons associated with such members, with the provisions
(f) That the brokers in the board of the Exchange shall of this Code, and the rules of the Exchange, and that the rules of
comprise of not more than forty-nine percent (49%) of Exchange are fair, just and adequate, the Commission shall
such board and shall proportionately represent the cause such Exchange to be registered. If, after notice due and
Exchange membership in terms of volume/value or trade hearing, the Commission finds otherwise, the application shall
and paid up capital, and that any natural person associated be denied.
with a juridical entity that is a member for this purpose;
Provide,That any registered Exchange existing prior to the 33.4. Within ninety (90) days after the filing of the application
affectivity of this Code shall immediately comply with this the Commission may issue an order either granting or denying
requirement; registration as an Exchange, unless the Exchange applying for
registration shall withdraw its application or shall consent to the
(g) For the board of the Exchange to include in its Commission’s deferring action on its application for a stated
composition (1) the president of the Exchange, and (ii) no longer period after the date of filing. The filing with the
less than fifty one percent (51%) of the remaining Commission of an application for registration by an Exchange
members of the board to be comprised of three (3) shall be deemed to have taken place upon the receipt thereof.
independent directors and persons who represent the Amendments to an application may be made upon such terms as
interests of issuers, investors, and other market the Commission may prescribe.
participants, who are not associated with any broker or
dealer or member of the Exchange for a period of two (2)
64
33.5. Upon the registration of an Exchange, it is shall pay a fee Exchange or other trading market for a period not exceeding
in such amount and within such period as the Commission may thirty (30) days but not exceeding ninety (90) days: Provided,
fix. however, That the Commission promptly following the issuance
of the order of suspension, shall notify the affected issuer of the
33.6. Upon appropriate application in accordance with the rules reasons for such suspension and provide such issuer with an
and regulations of the Commission and upon such terms as the opportunity for hearing to determine whether the suspension
Commission may deemed necessary for the protection of should be lifted.
investors, an exchange may withdraw its registration or suspend
its operations or resume the same. 36.2. Wherever two (2) or more Exchanges or other trading
markets exist, the Commission may require and enforce
Section 34. Segregation and Limitation of functions of uniformity of trading regulations in and/or between or among
Members, Broker and Dealers. -34.1. It shall be unlawful for said Exchanges or other trading markets.
any member-broker of an Exchange to effect any transaction on
such Exchange for its own account, the account of an associated 36.3. In addition to the existing Philippine Stock Exchange, the
person, or an account with the respect to which it or an Commission shall have the authority to determine the number,
associated person thereof exercises the investment discretion: size and location of stock Exchanges, other trading markets and
Provided, however,That this Section shall not make unlawful- commodity Exchanges and other similar organizations in the
light of national or regional requirements for such activities with
(a) Any transaction by a member-broker acting in the the view to promote, enhance, protect, conserve or rationalize
capacity of a market maker; investment.

(b) Any transaction reasonably necessary to carry on an 36.4. The Commission, having due regard to the public interest,
odd-lot transactions; the protection of investors, the safeguarding of securities and
funds, and maintenance of fair competition among brokers,
(c) Any transaction to offset a transaction made in error; dealers, clearing agencies, and transfer agents, shall promulgate
and rules and regulations for the prompt and accurate clearance and
settlement of securities transactions.
(d) Any other transaction of a similar nature as may be
defined by the Commission. 36.5. (a) The Commission may establish or facilitate the
establishment of trust funds which shall be contributed by
Exchanges, brokers, dealers, underwriters, transfer agents,
34.2. In all instances where the member-broker effects a salesmen and other persons transacting in securities, as the
transaction on an Exchange for its own account or the account Commission may require, for the purpose of compensating
of an associated person or an account with the respect to which investors for the extraordinary losses or damage they may suffer
it exercises investment discretion, it shall disclose to such due to business failure or fraud or mismanagement of the
customer at or before the completion of the transaction it is persons with whom they transact, under such rules and
acting for its own account: Provided, further,That this fact shall regulations as the Commission may from time to time prescribe
be reflected in the order ticket and the confirmation slip. or approve in the public interest.

34.3. Any member-broker who violates the provisions of this (b) The Commission may, having due regard to the public
Section shall be subject to the administrative sanctions provided interest or the protection of investors, regulate, supervise,
in Section 54 of this Code. examine, suspend or otherwise discontinue such and other
similar funds under such rules and regulations which the
Section 35. Additional Fees of Exchanges. – In addition to the Commission may promulgate, and which may include
registration fee prescribed in Section 33 of this Code, every taking custody and management of the fund itself as well
Exchange shall pay to the Commission, on a semestral basis on as investments in and disbursements from the funds under
or before the tenth day of the end of the end of every semester of such forms of control and supervision by the Commission
the calendar year, a fee in such an amount as the Commission as it may from time to time require. The authority granted
shall prescribe, but not more than one-hundredth of one per to the Commission under this subsection shall also apply to
centum (1%) of the aggregate amount of the sales of securities all funds established for the protection of investors,
transacted on such Exchange during the preceding calendar year whether established by the Commission or otherwise.
for the privilege of doing business, during the preceding
calendar year or any part thereof. Section 37. Registration of Innovative and Other Trading
Markets. – The Commission, having due regard for national
Section 36. Powers with Respect to Exchanges and Other economic development, shall encourage competitiveness in the
Trading Market. – 36.1. The Commission is authorized, if in its market by promulgating within six (6) months upon the
opinion such action is necessary or appropriate for the enactment of this Code, rules for the registration and licensing
protection of investors and the public interest so requires, of innovative and other trading markets or Exchanges covering,
summarily to suspend trading in any listed security on any but not limited to, the issuance and trading of innovative
65
securities, securities of small, medium, growth and venture form as the Commission, by rule, may prescribe containing the
enterprises, and technology-based ventures pursuant to Section rules of the association and such other information and
33 of this Code. documents as the Commission, by rule, may prescribe as
necessary or appropriate in the public interest or for the
Section 38. Independent Directors. – Any corporation with a protection of investors.
class of equity securities listed for trading on an Exchange or
with assets in excess of Fifty million pesos (P50,000,000.00) 39.3. An association of brokers and dealers shall not be
and having two hundred (200) or more holders, at least of two registered as a securities association unless the Commission
hundred (200) of which are holding at least one hundred (100) determines that:
shares of a class of its equity securities or which has sold a class
of equity securities to the public pursuant to an effective (a) The association is so organized and has the capacity to
registration statement in compliance with Section 12 hereof be able to carry out the purposes of this Code and to
shall have at least two (2) independent directors or such comply with, and to enforce compliance by its members
independent directors shall constitute at least twenty percent and persons associated with its members, with the
(20%) of the members of such board whichever is the lesser. For provisions of this Code, the rules and regulations
this purpose, an "independent director" shall mean a person thereunder, and the rules of the association.
other than an officer or employee of the corporation, its parent
or subsidiaries, or any other individual having a relationship (b) The rules of the association, notwithstanding anything
with the corporation, which would interfere with the exercise of in the Corporation Code to the contrary, provide that:
independent judgement in carrying out the responsibilities of a
director.
(i) Any registered broker or dealer may become a
member of the association;
CHAPTER X
REGISTRATION, RESPONSIBILITIES AND
OVERSIGHT OF SELF-REGULATORY (ii) There exist a fair representation of its members to
ORGANIZATIONS serve on the Board of Directors of the association and
in the administration of its affairs, and that may any
natural person associated with a juridical entity that is
Section 39. Associations of Securities Brokers, and Dealers, a member shall himself be deemed to be a member
and Other Securities Related Organizations. – 39.1. The for this purpose;
Commission shall have the power to register as a self-regulatory
organization, or otherwise grant licenses, and to regulate,
supervise, examine, suspend or otherwise discontinue, as a (iii) The Board of Directors of the association
condition for the operation of organizations whose operations includes in its composition:
are related to or connected with the securities market such as but
not limited to associations of brokers and dealers, transfer (a) The president of the association and
agents, custodians, fiscal and paying agents, computer services,
news disseminating services, proxy solicitors, statistical (b) Person who represent the interests of the
agencies, securities rating agencies, and securities information issuer and public investors and are not
processor which are engaged in business of: (a) Collecting, associated with any broker or dealer or member
processing, or preparing for distribution or publication, or of the association; that the president and other
assisting, participating in, or coordinating the distribution or management of the association not be a member
publication of, information with respect to transactions in or or associated with any broker, dealer or member
quotations for any security; or (b) Distributing or publishing, of the association;
whether by means of a ticker tape, a communications network, a
terminal display device, or otherwise, on a current and (iv) For the equitable allocation of reasonable dues,
continuing basis, information with respect to such transactions fees, and other charges among member and issuers
or quotations. The Commission may prescribe rules and and other persons using any facility or system which
regulations which are necessary or appropriate in the public the association operates or controls;
interest or for the protection of investors to govern self-
regulatory organizations and other organizations licensed or
(v) For the prevention of fraudulent and manipulative
regulated pursuant to the authority granted in Subsection 39.1
acts and practices, the promotion of just and equitable
including the requirement of cooperation within and among, and
principles of trade, and, in general, the protection of
electronic integration of the records of, all participants in the
investors and the public interest;
securities market to ensure transparency and facilitate exchange
of information.
(vi) That its members and persons associated with its
members shall be appropriately disciplined for
39.2. An association of brokers and dealers may be registered as
violation of any provision of this Code, the rules and
a securities association pursuant to Subsection 39.3 by filing
regulations thereunder, or the rules of the association;
with the Commission an application for registration in such
66
 (vii) That a fair procedure for the disciplining of association in accordance with the procedures prescribed in the
members and persons associated with members, the rules of the association.
denial of membership to any person seeking
membership therein, the barring of any person from 39.5. In any proceeding by a registered securities association to
becoming associated with a member thereof, and the determine whether a person shall be denied membership, or
prohibition or limitation by the association of any barred from association with a member, the association shall
person with respect to access to services offered by provide notice to the person under review of the specific
the association or a member thereof. grounds being considered for denial, afford him an opportunity
to defend against the allegations, and keep a record of the
39.4. (a) A registered securities association shall deny proceedings. A determination by the association to deny
membership to any person who is not a registered broker or membership shall be supported by a statement setting forth the
dealer. specific grounds on which the denial is based.

(b) A registered securities association may deny Section 40. Powers with Respect to Self-Regulatory
membership to, or condition the membership of, a Organizations. - 40.1. Upon the filing of an application for
registered broker or dealer if such broker or dealer: registration as an Exchange under Section 33, a registered
securities association under Section 39, a registered clearing
(i) Does not meet the standards of financial agency under Section 42, or other self-regulatory organization
responsibility, operational capability, training, under this Section, the Commission shall have ninety (90) days
experience or competence that are prescribe by the within which to either grant registration should be denied. In the
rules of the association; or event proceedings are instituted, the Commission shall have two
hundred seventy (270) days within which to conclude such
(ii) Has engaged, and there is a reasonable likelihood proceedings at which time it shall, by order, grant or deny such
it will again engage, in acts or practices inconsistent registration.
with just and equitable principles of fair trade.
40.2. Every self-regulatory organization shall comply with the
(c) A registered securities association may deny provision of this Code, the rules and regulations thereunder, and
membership to a registered broker or dealer not engage in a its own rules, and enforce compliance therewith,
type of business in which the rules of the association notwithstanding any provisions of the Corporation Code to the
require members to be engaged: Provided, however, That contrary, by its members, persons associated with its members
no registered securities association may deny membership of its participants.
to a registered broker or dealer by reason of the amount of
business done by the broker or dealer. 40.3. (a) Each self-regulatory organization shall submit to the
Commission for prior approval any proposed rule or amendment
A registered securities association may examine and verify thereto, together with a concise statement of the reason and
the qualifications of an applicant to become a member in effect of the proposed amendment
accordance with procedure established by the rules of the
association. (b) Within sixty (60) days after submission of a proposed
amendment, the Commission shall, by order, approve the
(d) A registered securities association may bar a salesman proposed amendment. Otherwise, the same may be made
or person associated with a broker or dealer from being effective by the self-regulatory organization.
employed by a member or set conditions for the
employment of a salesman or associated if such person: (c) In the event of an emergency requiring action for the
protection of investors, the maintenance of fair and orderly
(i) Does not meet the standards of training, markets, or the safeguarding of securities and funds, a self-
experience, or competence that are prescribe by the regulatory organization may put a proposed amendment
rules of the association; or into effect summarily; Provided however,That the copy of
the same shall be immediately submitted to the
Commission.
(ii) Has engage, and there is a reasonable likelihood
he will again engage, in acts or practices inconsistent
with just and equitable principles of fair trade. 40.4. The Commission is further authorized, if after making
appropriate request in writing to a self-regulatory organization
that such organization effect on its own behalf specified changes
A registered securities association may examine and verify the in its rules and practices and, after due to notice and hearing it
qualifications of an applicant to become a salesman or determines that such changes have not been effected, and that
associated person employed by a member in accordance with such changes are not necessary, by the rule or regulation or by
the procedures establish by the rules of the association. A order, may alter, abrogate or supplement the rules of such self-
registered association also may require a salesman or associated regulatory organization in so far as necessary or appropriate to
person employed by a member to be registered with the effect such changes in respect of such matters as:
67
 (a) Safeguards in respect of the financial responsibility of of such transaction any of such provisions; and
members and adequate provision against the evasion of
financial responsibility through the use of corporate forms (c) To remove from the office or censure any officer or
or special partnerships; director of a self-regulatory organization if it finds that
such officer or director has violated any provision of this
(b) The supervision of trading practices; Code, any other law administered by the Commission, the
rules or regulations thereunder, or the rules of such self-
(c) The listing or striking from listing of any security; regulatory organization, abused his authority, without
reasonable justification or excuse has failed to enforce
(d) Hours of trading; compliance with any of such provisions.

(e) The manner, methods, and place of soliciting business; 40.6. (a) A self-regulatory organization is authorized to
discipline a member of or participant in such self-regulatory
organization, or any person associated with a member, including
(f) Fictitious accounts; the suspension or expulsion of such member or participant, and
the suspension or bar from being associated with a member, if
(g) The time and method of making settlements, payments, such person has engage in acts or practices inconsistent with just
and deliveries, and of closing accounts; and equitable principles of fair trade or in willful violation of
any provision of the Code, any other law administered by the
(h) The transparency of securities transactions and prices; Commission, the rules or regulations thereunder, or the rules of
the self-regulatory organization. In any disciplinary proceeding
(i) The fixing of reasonable rates of fees, interest, listing by a self-regulatory organization (other than a summary
and other charges, but not rates of commission; proceeding pursuant to paragraph (b) of this subsection) the self-
regulatory organization shall bring specific charges, provide
notice to the person charged, afford the person charged with an
(j) Minimum units of trading;
opportunity to defend against the charges, and keep a record of
the proceedings. A determination to impose a disciplinary
(k) Odd-lot purchases and sales; sanction shall be supported by a written statement of the
offenses, a summary of the evidence presented and a statement
(l) Minimum deposits on margin accounts; and of the sanction imposed.

(m) The supervision, auditing and disciplining of members (b) A self-regulatory organization may summarily: (I)
or participants. Suspend a member, participant or person associated with a
member who has been or is expelled or suspended from
40.5. The Commission, after due notice and hearing, is any other self-regulatory organization; or (ii) Suspend a
authorized, in the public interest and to protect investors: member who the self-regulatory organization finds to be in
such financial or operating difficulty that the member or
(a) To suspend for a period not exceeding twelve (12) participant cannot be permitted to continue to do business
months or to revoke the registration of a self-regulatory as a member with safety to investors, creditors, other
organization, or to censure or impose limitations on the members, participants or the self-regulatory organization:
activities, functions, and operations of such self- Provided,That the self-regulatory organization immediately
organization, if the Commission finds that such a self- notifies the Commission of the action taken. Any person
regulatory organization has willfully violated or is unable aggrieved by a summary action pursuant to this paragraph
to comply with any provision of this Code or of the rules shall be promptly afforded an opportunity for a hearing by
and regulations thereunder, or its own or has failed to the association in accordance with the provisions of
enforce compliance therewith by a member of, person paragraph (a) of this subsection. The Commission, by
associated with a member, or a participant in such self- order, may stay a summary action on its own motion or
regulatory organization; upon application by any person aggrieved thereby, if the
Commission determines summarily or after due notice and
hearing (which hearing may consist solely of the
(b) To expel from a self-regulatory organization any
submission of affidavits or presentation of oral arguments)
member thereof or any participant therein who is subject to
that a stay is consistent with the public interest and the
an order of the Commission under Section 29 of this Code
protection of investors.
or is found to have willfully violated any provision of this
Code or suspend for a period not exceeding twelve (12)
months for violation of any provision of this Code or any 40.7. A self-regulatory organization shall promptly notify the
other laws administered by the Commission, or rules and Commission of any disciplinary sanction on any member
regulations thereunder, or effected, directly or indirectly, thereof or participant therein, any denial of membership or
any transaction for any person who, such member or participation in such organization, or the imposition of any
participant had reason to believe, was violating in respect disciplinary sanction on a person associated with a member or a
68
bar of such person from becoming so associated. Within thirty (b) The organizational charts of the Exchange, its rules of
(30) days after such notice, any aggrieved person may appeal to procedure, and list of its officers and participants;
the Commission from, or the Commission from, or the
Commission on its own motion within such period, may institute (c) Copies of the clearing agency’s rules.
review of, the decision of the self-regulatory organization, at the
conclusion of which, after due notice and hearing (which may 42.2. No registration of a clearing agency shall be granted
consist solely of review of the record before the self-regulatory unless the rules of the clearing agency include provision for:
organization), the Commission shall affirm, modify or set aside
the sanction. In such proceeding the Commission shall
determine whether the aggrieved person has engaged or omitted (a) The expulsions, suspension, or disciplining of a
to engage in the acts and practices as found by the self- participant for violations of this Code, or any other Act
regulatory organization, whether such acts and practices administered by the Commission, the rules, regulations,
constitute willful violations of this Code, any other law and orders thereunder, or the clearing agency’s rules;
administered by the Commission, the rules or regulations
thereunder, or the rules of the self-regulatory organization as (b) A fair procedure for the disciplining of participants, the
specified by such organization, whether such provisions were denial of participation rights to any person seeking to be a
applied in a manner consistent with the purposes of this Code, participant, and the prohibition or limitation of any person
and whether, with due regard for the public interest and the from access to services offered by the clearing agency;
protection of investors the sanction is excessive or oppressive.
(c) The equitable allocation of reasonable dues, fees, and
40.8. The powers of the Commission under this Section shall other charges among participants;
apply to organized exchanges and registered clearing agencies.
(d) Prevention of fraudulent and manipulative acts and
CHAPTER XI practices, promotion of just and equitable principles of
ACQUISITION AND TRANSFER OF SECURITIES AND trade, and, in general, protection of investors and the
SETTLEMENT OF TRANSACTION IN SECURITIES public interest;

Section 41. Prohibition on Use of Unregistered Clearing (e) The transparent, prompt and accurate clearance and
Agency. – It shall be unlawful for any broker, dealer, salesman, settlement of transactions in securities handled by the
associated person of a broker or dealer, or clearing agency, clearing agency; and
directly or indirectly, to make use of any facility of a clearing
agency in Philippines to make deliveries in connection with (f) The establishment and oversight of a fund to guarantee
transaction in securities or to reduce the number of settlements the prompt and accurate clearance and settlement of
of securities transactions or to allocate securities settlement transaction executed on an exchange, including a
responsibilities or to provide for the central handling of requirement that members each contribute an amount
securities so that transfers, loans and pledges and similar based on their and a relevant percentage of the daily
transaction can be made by bookkeeping entry or otherwise to exposure of the (4) largest trading brokers which
facilitate the settlement of securities transactions without adequately reflects trading risks undertaken or pursuant to
physical delivery of securities certificates, unless such clearing another formula set forth in Commission rules or
agency is registered as such under Section 42 of this Code or is regulations or order, upon application: Provided, however,
exempted from such registration upon application by the That a clearing agency engaged in the business of
clearing agency because, in the opinion of the Commission, by securities depository shall be exempt from this
reason of the limited volume of transactions which are settled requirement.
using the clearing agency, it is not practicable and not necessary
or appropriate in the public interest or for the protection of 42.3. In the case of an application filed pursuant to this section,
investors to require such registration. the Commission shall grant registration if it is finds That the
requirements of this code and the rules and regulations
Section 42. Registration of Clearing Agencies.- 42.1. Any thereunder with respect to the applicant have been satisfied, and
clearing agency may be registered as such with the Commission shall deny registration if it does not make such finding.
under the terms and conditions hereinafter provided in this
Section, by filing an application for registration in such form 42.4. Upon appropriate application in accordance with the rules
and containing such information and supporting documents as and regulations of the Commission and upon such terms as the
the Commission by rule shall prescribe, including the following: Commission may deem necessary for the protection of
investors, a clearing agency may withdraw its registration or
(a) An undertaking to comply and enforce compliance by suspend its operation or resume the same.
its participants with the provisions of this Code, and any
amendments thereto, and the implementing rules or Section 43. Uncertificated Securities. – Notwithstanding
regulations made or to be made thereunder, and the Section 63 of the Corporation Code of the Philippines: 43.1. A
clearing agency’s rules; corporation whose securities are registered pursuant to this Code
69
or listed on securities exchange may: delivered to the creditor under Articles 2093 and 2095 of the
Civil Code if a securities intermediary indicates by book entry
(a) If so resolved by its Board of Directors and agreed by a that such security has been credited to a specially designated
shareholder, investor or securities intermediary, issue pledge account in favor of the pledgee. A pledge under this
shares to, or record the transfer of some or all its shares subsection has the effect of the delivery of a security in bearer
into the name of said shareholders, investors or, securities form or duly indorsed in blank representing the quantity or
intermediary in the form of uncertified securities. The use amount of such security or right pledged. In the case of a
of uncertified securities in these circumstances shall be registered clearing agency, the procedures by which, and the
without prejudice to the rights of the securities exact time at which, such book-entries are created shall be
intermediary subsequently to require the corporation to governed by the registered clearing agency’s rules. However, the
issue a certificate in respect of any shares recorded in its corporation shall not be bound by the foregoing transactions
name; and unless the corporate secretary is duly notified in such manner as
the Commission may provide.
(b) If so provided in its articles of incorporation and by-
laws, issue all of the shares of a particular class in the form Section 46. Issuer’s Responsibility for Wrongful Transfer to
of Uncertificated securities and subject to a condition that Registered Clearing Agency. - The registration of a transfer of a
investors may not require the corporation to issue a security into the name of and by a registered clearing agency or
certificate in respect of any shares recorded in their name. its name of or by a registered clearing agency or its nominee
shall be final and conclusive unless the clearing agency had
43.2. The Commission by rule may allow other corporations to notice of an adverse claim before the registration was made. The
provide in their articles of incorporation and by-laws for the use above provisions which the claimant may have against the issuer
of uncertificated securities. for wrongful registration in such circumstances.

43.3. Transfers of securities, including an uncertificated Section 47. Power of the Commission With Respect to Securities
securities, may be validly made and consummated by Ownership. – The Commission is authorize, having due regard
appropriate book-entries in the securities intermediaries, or in to the public interest and the protection of investors, to
the stock and transfer book held by the corporation or the stock promulgate rules and regulations which:
transfer agent and such bookkeeping entries shall be binding on
the parties to the transfer. A transfer under this subsection has 47.1. Validate the transfer of securities by book-entries rather
the effect of the delivery of a security in bearer form or duly than the delivery of physical certificates;
indorsed in blank representing the quantity or amount of
security or right transferred, including the unrestricted 47.2. Establish when a person acquires a security or an interest
negotiability of that security by reason of such delivery. therein and when delivery of a security to a purchaser occurs;
However, transfer of uncertificated shares shall only be valid, so
far as the corporation is concerned, when a transfer is recorded 47.3. Establish which records constitute the best evidence of a
in the books of the corporation so as to show the names of the person’s interests in a security and the effect of any errors in
parties to the transfer and the number of shares transferred. electronic records of ownership;

However, nothing in this Code shall compliance by banking and 47.4. Codify the rights of investors who choose to hold their
other institutions under the supervision of the Bangko Sentral ng securities indirectly through a registered clearing agency and/ or
Pilipinas and their stockholders with the applicable ceilings on other securities intermediaries;
shareholding prescribed under pertinent banking laws and
regulations. 47.5. Codify the duties of securities intermediaries (including
clearing agencies) who hold securities on behalf of investors;
Section 44. Evidentiary Value of Clearing Agency Record. – The and
official records and book entries of a clearing agency shall
constitute the best evidence of such transactions between 47.6 Give first priority to any claims of a registered clearing
clearing agency shall constitute the best between clearing agency against a participant arising from a failure by the
agency and its participants’ or members’ clients to prove their participant to meet its obligations under the clearing agency’s
rights, title and entitlement with respect to the book-entry rules in respect of the clearing and settlement of transactions in
security holdings of the participants or members held on behalf securities, in a dissolution of the participant, and any such rules
of the clients. However, the corporation shall not be bound by and regulation shall bind the issuers of the securities, investors
the foregoing transactions unless the corporate secretary is duly in the securities, any third parties with interests in the securities,
notified in such manner as the Commission may provide. and the creditors of a participant of a registered clearing agency.

Section 45. Pledging a Security or Interest Therein. – In CHAPTER XII

addition to other methods recognized by law, a pledge of, MARGIN AND CREDIT
including an uncertificated security, is properly constituted and
the instrument proving the right pledged shall be considered
70
Section 48. Margin Requirements. – 48.1. For the purpose of any security, only in accordance with such rules and regulations
preventing the excessive use of credit for the purchase or as the Commission shall prescribe to prevent the excessive use
carrying of securities, the Commission, in accordance with the of credit for the purchasing or carrying of or trading in securities
credit and monetary policies that may be promulgated from time in circumvention of the other provisions of this Section.. Such
to time by the Monetary Board of the Bangko Sentral ng rules and regulations may impose upon all loans made for the
Pilipinas, shall prescribed rules and regulations with respect to purpose of purchasing or carrying securities limitations similar
the amount of credit that may be extended on any security. For to those imposed upon members, brokers, or dealers by
the extension of credit, such rules and regulations shall be based Subsection 48.2 and the rules and regulations thereunder. This
upon the following standard: subsection and the rules and regulations thereunder shall not
apply:
An amount not greater than the whichever is the higher of –
(a) To a credit extension made by a person not in the
(a) Sixty-five per centum (65%) of the current market price ordinary course of business; (b) to a loan to a dealer to aid
of the security, or in the financing of the distribution of securities to
customers not through the medium of an Exchange; or (c)
(b) One hundred per centum (100%) of the lowest market To such other credit extension as the Commission shall
price of the security during the preceding thirty-six (36) exempt from the operation of this subsection and the rules
calendar months, but not more than seventy-five per and regulations thereunder upon specified terms and
centum (75%) of the current market price. conditions for stated period.

However, the Monetary Board may increase or decrease the Section 49. Restrictions on Borrowings by Members, Brokers,
above percentages, in order to achieve the objectives of the and Dealers. – It shall be unlawful for any registered broker or
Government with due regard for promotion of the economy and dealer, or member of an Exchange, directly or indirectly;
prevention of the use of excessive credit.
49.1. To permit in the ordinary course of business as a broker or
Such rules and regulations may make appropriate provision with dealer his aggregate indebtedness including customers’ credit
respect to the carrying of undermargined accounts for limited balances, to exceed such percentage of the net capital (exclusive
periods and under specified conditions; the withdrawal of funds of fixed assets and value of Exchange membership) employed in
or securities; the transfer of accounts from one lender to another; the business, but not exceeding in any case to thousand
special or different margin requirements for delayed deliveries, percentum (2,000%), as the Commission may be rules and
short sales, arbitrage transactions, and securities to which letter regulations prescribe as necessary or appropriate in the public
(b) of the second paragraph of this subsection does not apply; interest or for the protection of investors.
the methods to be used in calculating loans, and margins and
market prices; and similar administrative adjustments and 49.2. To pledge, mortgage, or otherwise encumber or arrange for
details. the pledge, mortgage, or encumbrance of any security carried
for the account of any customer under circumstances: (a) That
48.2. No member of an Exchange or broker or dealer shall, will permit the commingling of his securities, without his
directly or indirectly, extend or maintain credit is extended and written consent, with the securities of any customer; (b) That
maintain credit or arrange for the extension or maintenance of will permit such securities to be commingled with the securities
credit to or for any customer: of any person other than a bona fide customer; or (c) that will
permit such securities to be pledged, mortgaged or encumbered,
or subjected to any lien or claim of the pledgee, for a sum in
(a) On any security unless such credit is extended and excess of the aggregate indebtedness of such customers in
maintained in accordance with the rules and regulations respect of such securities. However, the Commission, having
which the Commission shall prescribe under this Section due regard to the protection of investors, may, by rules and
including rules setting credit in relation to net capital of regulations, allow certain transactions that may otherwise be
such member, broker or dealer; and prohibited under this subsection.

(b) Without collateral or any collateral other than 49.3. To lend or arrange for the lending of any security carried
securities, except (I) to maintain a credit initially extended for the account of any customer without the written consent of
in conformity with rules and regulations of the such customer or in contravention of such rules and regulations
Commission and (ii) in cases where the extension or as the Commission shall prescribe.
maintenance of credit is not for the purpose of purchasing
or carrying securities or of evading or circumventing the
provisions of paragraph (a) of this subsection. Section 50. Enforcement of Margin Requirement and
Restrictions on Borrowing. – To prevent indirect violations of
the margin requirements under Section 48, the broker or dealer
48.3 Any person not subject to Subsection 48.2 hereof shall shall require the customer in non-margin transactions to pay the
extend or maintain credit or arrange for the extension or price of the security purchased for his account within such
maintenance of credit for the purpose of purchasing or carrying period as the Commission may prescribe, which shall in no case
71
exceed the prescribed settlement date. Otherwise, the broker Exchanges, members, and Others. – 52.1. Every registered
shall sell the security purchased starting on the next trading day Exchange, broker or dealer, transfer agent, clearing agency,
but not beyond ten (10) trading days following the last day for securities association, and other self-regulatory organization,
the customer to pay such purchase price, unless such sale cannot and every other person required to register under this Code,
be effected within said period for justifiable reasons. The sale shall make, keep and preserve for such periods, records, furnish
shall be without prejudice to the right of the broker or dealer to such copies thereof, and make such reports, as the Commission
recover any deficiency from the customer. To prevent indirect by its rules and regulations may prescribe. Such accounts,
violation of the restrictions on borrowing under Section 49, the correspondence, memoranda, papers, books, and other records
broker shall, unless otherwise directed by the customer, pay the shall be subject at any time to such reasonable periodic, special
net sales price of the securities sold for a customer within the or other examinations by representatives of the Commission as
same period as above prescribed by the Commission: Provided, the Commission may deem necessary or appropriate in the
That the customer shall be required to deliver the instruments public interest of for the protection of investors.
evidencing the securities as a condition for such payment upon
demand by the broker. 52.2. Any brother, dealer or other person extending credit, who
is subject to the rules and regulations prescribed by the
CHAPTER XIII Commission pursuant to this Code, shall make such reports to
GENERAL PROVISIONS the Commission as may be necessary or appropriate to enable it
to perform the functions conferred upon it by this Code.
Section 51. Liabilities of Controlling Persons, Aider and
Abettor and Other Secondary Liability. 51.1. Every person who, 52.3. For purposes of this Section, the term "records refers to
by or through stock ownership, agency, or otherwise, or in accounts, correspondence, memoranda, tapes, discs, papers,
connection with an agreement or understanding with one or books and other documents or transcribed information of any
more other persons, controls any person liable under this Code type, whether written or electronic in character.
or the rules or regulations of the Commission thereunder, shall
also be liable jointly and severally with and to the same extent Section 53. Investigations, Injunctions and Prosecution of
as such controlled persons to any person to whom such Offenses. 53.1. The Commission may, in its discretion, make
controlled person is liable, unless the controlling person proves such investigations as it deems necessary to determine whether
that, despite the exercise of due diligence on his part, he has no any person has violated or is about to violate any provision of
knowledge of the existence of the facts by reason of which the this Code, any rule, regulation or order thereunder, or any rule
liability of the controlled person is alleged to exist. of an Exchange, registered securities association, clearing
agency, other self-regulatory organization, and may require or
51.2. It shall be unlawful for any person, directly, or indirectly, permit any person to file with it a statement in writing, under
to do any act or thing which it would be unlawful for such oath or otherwise, as the Commission shall determine, as to all
person to do under the provisions of this Code or any rule or facts and circumstances concerning the matter to be
regulation thereunder. investigated. The Commission may publish information
concerning any such violations, and to investigate any fact,
51.2. It shall be unlawful for any director or officer of, or any condition, practice or matter which it may deem necessary or
owner of any securities issued by, any issuer required to file any proper to aid in the enforcement of the provisions of this Code,
document, report or other information under this Code or any in the prescribing of rules and regulations thereunder, or in
rule or regulation of the Commission thereunder, without just securing information to serve as a basis for recommending
cause, to hinder, delay or obstruct the making or filing of any further legislation concerning the matters to which this Code
such document, report, or information. relates: Provided, however, That any person requested or
subpoenaed to produce documents or testify in any investigation
51.3. It shall be unlawful for any person to aid, abet, counsel, shall simultaneously be notified in writing of the purpose of
command, induce or procure any violation of this Code, or any such investigation: Provided, further, That all criminal
rule, regulation or order of the Commission thereunder. complaints for violations of this Code, and the implementing
rules and regulations enforced or administered by the
Commission shall be referred to the Department of Justice for
52.4. Every person who substantially assists the act or omission preliminary investigation and prosecution before the proper
of any person primarily liable under Sections 57, 58, 59 and 60 court: Provided, furthermore, That in instances where the law
of this Code, with knowledge or in reckless disregard that such allows independent civil or criminal proceedings of violations
act or omission is wrongful, shall be jointly and severally liable arising from the same act, the Commission shall take
as an aider and abettor for damages resulting from the conduct appropriate action to implement the same: provided, finally,
of the person primarily liable: Provided, however, That an aider That the investigation, prosecution, and trial of such cases shall
and abettor shall be liable only to the extent of his relative be given priority.
contribution in causing such damages in comparison to that of
the person primarily liable, or the extent to which the aider and
abettor was unjustly enriched thereby, whichever is greater. 53.2. For the purpose of any such investigation, or any other
proceeding under this Code, the Commission or any officer
designated by it is empowered to administer oaths and
Section 52. Accounts and Records, Reports, Examination of
72
affirmations, subpoena witnesses, compel attendance, take prescribed, impose any or all of the following sanctions as may
evidence, require the production of any book, paper, be appropriate in light of the facts and circumstances:
correspondence, memorandum, or other record which the
Commission deems relevant or material to the inquiry, and to (i) Suspension, or revocation of any registration for the
perform such other acts necessary in the conduct of such offering of securities;
investigation or proceedings.
(ii) A fine of no less than Ten thousand pesos (P10,000.00)
53.3. Whenever it shall appear to the Commission that any nor more than One million pesos (P1,000,000.00) plus not
person has engaged or is about to engage in any act or practice more than Two thousand pesos (P2,000.00) for each day of
constituting a violation of any provision of this Code, any rule, continuing violation;
regulation or order thereunder, or any rule of an Exchange,
registered securities association, clearing agency or other self- (iii) In the case of a violation of Sections 19.2, 20, 24, 26
regulatory organization, it may issue an order to such person to and 27, disqualification from being an officer, member of
desist from committing such act or practice: Provided, however, the Board of Directors, or person performing similar
That the Commission shall not charge any person with violation functions, of an issuer required to file reports under
of the rules of an Exchange or other self-regulatory organization Section 17 of this Code or any other act, rule or regulation
unless it appears to the Commission that such Exchange or other administered by the Commission;
self-regulatory organization is unable or unwilling to take action
against such person. After finding that such person has engaged
in any such act or practice and that there is a reasonable (iv) In the case of a violation of Section 34, a fine of no
likelihood of continuing, further or future violations by such more than three (3) times the profit gained or loss avoided
person, the Commission may issue ex-parte a cease and desist as result of the purchase, sale or communication proscribed
order for a maximum period of ten (10) days, enjoining the by such Section, and
violation and compelling compliance with such provision. The
Commission may transmit such evidence as may be available (v) Other penalties within the power of the Commission to
concerning any violation of any provision of this Code, or any impose.
rule, regulation or order thereunder, to the Department of
Justice, which may institute the appropriate criminal 54.2. The imposition of the foregoing administrative sanctions
proceedings under this Code. shall be without prejudice to the filing of criminal charges
against the individuals responsible for the violation.
53.4. Any person who, within his power but without cause, fails
or refuses to comply with any lawful order, decision or 54.3. The Commission shall have the power to issue writs of
subpoena issued by the Commission under Subsection 53.2 or execution to enforce the provisions of the Section and to enforce
Subsection 53.3 or Section 64 of this Code, shall after due payment of the fees and other dues collectible under this Code.
notice and hearing, be guilty of contempt of the Commission.
Such person shall be fined in such reasonable amount as the Section 55. Settlement Offers. – 55.1. At any time, during an
Commission may determine, or when such failure or refusal is a investigation or proceeding under this Code, parties being
clear and open defiance of the Commission’s order, decision or investigated and/or charged may propose in writing an offer of
subpoena,shall be detained under an arrest order issued by the settlement with the Commission.
Commission, until such order, decision or subpoena is complied
with.
55.2. Upon receipt of such offer of settlement, the Commission
may consider the offer based on timing, the nature of the
Section 54. Administrative Sanctions. – 54.1. If, after due notice investigation or proceeding, and the public interest.
and hearing, the Commission finds that: (a) There is a violation
of this Code, its rule, or its orders; (b) Any registered broker or
55.3. The Commission may only agree to a settlement offer
dealer, associated person thereof has failed reasonably to
based on its findings that such settlement is in the public
supervise, with a view to preventing violations, another person
interest. Any agreement to settle shall have no legal effect until
subject to supervision who commits any such violation; (c) Any
publicly disclosed. Such decision may be made without a
registrant or other person has, in a registration statement or in
determination of guilt on the part of the person making the offer.
other reports, applications, accounts, records or documents
required by law or rules to be filed with the Commission, made
any untrue statement of a material fact, or omitted to state any 55.4. The Commission shall adopt rules and procedures
material fact required to be stated their or necessary to make the governing the filing, review, withdrawal, form of rejection and
statements therein not misleading; or, in the case of an acceptance of such offers.
underwriter, has failed to conduct an inquiry with reasonable
diligence to insure that a registration statement is accurate and Section 56. Civil Liabilities on Account of False Registration
complete in all material respects; or (d) Any person has refused Statement. 56.1. Any person acquiring a security, the registration
to permit any lawful examinations into its affairs, it shall, in its statement of which or any part thereof contains on its effectivity
discretion, and subject only to the limitations hereinafter an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make such
73
statements not misleading, and who suffers damage, may sue (b) Offers to sell or sells a security, whether or not
and recover damages from the following enumerated persons, exempted by the provisions of this Code, by the use of any
unless it is proved that at the time of such acquisition he knew means or instruments of transportation or communication,
of such untrue statement or omission: by means of a prospectus or other written or oral
communication, which includes an untrue statement of a
(a) The issuer and every person who signed the registration material fact or omits to state a material fact necessary in
statement: order to make the statements, in the light of the
circumstances under which they were made, not
(b) Every person who was a director of, or any other misleading (the purchaser not knowing of such untruth or
person performing similar functions, or a partner in, the omission), and who shall fail in the burden of proof that he
issuer at the time of the filing of the registration statement did not know, and in the exercise of reasonable care could
or any part, supplement or amendment thereof with respect not have known, of such untruth or omission, shall be
to which his liability is asserted; liable to the person purchasing such security from him,
who may sue to recover the consideration paid for such
security with interest thereon, less the amount of any
(c) Every person who is named in the registration income received thereon, upon the tender of such security,
statement as being or about to become a director of, or a or for damages if he no longer owns the security.
person performing similar functions, or a partner in, the
issuer and whose written consent thereto is filed with the
registration statement; 57.2. Any person who shall make or cause to be made any
statement in any report, or document filed pursuant to this Code
or any rule or regulation thereunder, which statement as at the
(d) Every auditor or auditing firm named as having time and in the light of the circumstances under which it was
certified any financial statements used in connection with made false or misleading with respect to any material fact, shall
the registration statement or prospectus. be liable to any person who, not knowing that such statement
was false or misleading, and relying upon such statement shall
(e) Every person who, with his written consent, which shall have purchased or sold a security at a price which was affected
be filed with the registration statement, has been named as by such statement, for damages caused by such reliance, unless
having prepared or certified any part of the registration the person sued shall prove that he acted in good faith and had
statement, or as having prepared or certified any report or no knowledge that such statement was false or misleading.
valuation which is used in connection with the registration
statement, with respect to the statement, report, or Section 58. Civil Liability of Fraud in Connection with
valuation, which purports to have been prepared or Securities Transactions. – Any person who engages in any act or
certified by him. transaction in violation of Sections 19.2, 20 or 26, or any rule or
regulation of the Commission thereunder, shall be liable to any
(f) Every selling shareholder who contributed to and other person who purchases or sells any security, grants or
certified as to the accuracy of a portion of the registration refuses to grant any proxy, consent or authorization, or accepts
statement, with respect to that portion of the registration or declines an invitation for tender of a security, as the case may
statement which purports to have been contributed by him. be, for the damages sustained by such other person as a result of
such act or transaction.
(g) Every underwriter with respect to such security.
Section 59. Civil Liability for Manipulation of Security Prices. –
56.2. If the person who acquired the security did so after the Any person who willfully participates in any act or transaction
issuer has made generally available to its security holders an in violation of Section 24 shall be liable to any person who shall
income statement covering a period of at least twelve (12) purchase or sell any security at a price which was affected by
months beginning from the effective date of the registration such act or transaction, and the person so injured may sue to
statement, then the right of recovery under this subsection shall recover the damages sustained as a result of such act or
be conditioned on proof that such person acquired the security transaction.
relying upon such untrue statement in the registration statement
or relying upon the registration statement and not knowing of Section 60. Civil Liability with Respect to Commodity Futures
such income statement, but such reliance may be established Contracts and Pre-need Plans. – 60.1. Any person who engages
without proof of the reading of the registration statement by in any act or transactions in willful violation of any rule or
such person. regulation promulgated by the Commission under Section 11 or
16, which the Commission denominates at the time of issuance
Section 57. Civil Liabilities Arising in Connection With as intended to prohibit fraud in the offer and sale of pre-need
Prospectus, Communications and Reports. 57.1. Any person plans or to prohibit fraud, manipulation, fictitious transactions,
who: undue speculation, or other unfair or abusive practices with
respect to commodity future contracts, shall be liable to any
(a) Offers to sell or sells a security in violation of Chapter other person sustaining damages as a result of such act or
III, or transaction.
74
60.2. As to each such rule or regulation so denominated, the 63.2. The persons specified in Sections 56, 57, 58, 59, 60 and 61
Commission by rule shall prescribe the elements of proof hereof shall be jointly and severally liable for the payment of
required for recovery and any limitations on the amount of damages. However, any person who becomes liable for the
damages that may be imposed. payment of such damages may recover contribution from any
other person who, if sued separately, would have been liable to
Section 61. Civil Liability on Account of Insider Trading. – make the same payment, unless the former was guilty of
61.1. Any insider who violates Subsection 27.1 and any person fraudulent representation and the latter was not.
in the case of a tender offer who violates Subsection 27.4 (a)(I),
or any rule or regulation thereunder, by purchasing or selling a 63.3. Notwithstanding any provision of law to the contrary, all
security while in possession of material information not persons, including the issuer, held liable under the provisions of
generally available to the public, shall be liable in a suit brought Sections 56, 57, 58, 59, 60 and 61 shall contribute equally to the
by any investor who, contemporaneously with the purchase or total liability adjudged herein. In no case shall the principal
sale of securities that is the subject of the violation, purchased or stockholders, directors and other officers of the issuer or persons
sold securities of the same class unless such insider, or such occupying similar positions therein, recover their contribution to
person in the case of a tender offer, proves that such investor the liability from the issuer. However, the right of the issuer to
knew the information or would have purchased or sold at the recover from the guilty parties the amount it has contributed
same price regardless of disclosure of the information to him. under this Section shall not be prejudiced.

61.2. An insider who violates Subsection 27.3 or any person in Section 64. Cease and Desist Order. – 64.1. The Commission,
the case of a tender offer who violates Subsection 27.4 (a), or after proper investigation or verification, motu proprio or upon
any rule or regulation thereunder, by communicating material verified complaint by any aggrieved party, may issue a cease
nonpublic information, shall be jointly and severally liable and desist order without the necessity of a prior hearing if in its
under Subsection 61.1 with, and to the same extent as, the judgment the act or practice, unless restrained, will operate as a
insider, or person in the case of a tender offer, to whom the fraud on investors or is otherwise likely to cause grave or
communication was directed and who is liable under Subsection irreparable injury or prejudice to the investing public.
61.1 by reason of his purchase or sale of a security.
64.2. Until the Commission issue a cease and desist order, the
Section 62. Limitation of Actions. – 62.1. No action shall be fact that an investigation has been initiated or that a complaint
maintained to enforce any liability created under Section 56 or has been filed, including the contents of the complaint, shall be
57 of this Code unless brought within two (2) years after the confidential. Upon issuance of a cease and desist order, the
discovery of the untrue statement or the omission, or, if the Commission shall make public such order and a copy thereof
action is to enforce a liability created under Subsection 57.1 (a), shall be immediately furnished to each person subject to the
unless, brought within two (2) yeas after the violation upon order.
which it is based. In no event shall an such action be brought to
enforce a liability created under Section 56 or Subsection 57.1 64.3. Any person against whom a cease and desist order was
(a) more than five (5) years after the security was bona fide issued may, within five (5) days from receipt of the order, file a
offered to the public, or under Subsection 57.1 (b0 more than formal request for a lifting thereof. Said request shall be set for
five (5) years after the sale. hearing by the Commission not later than fifteen (15) days from
its filing and the resolution thereof shall be made not later than
62.2. No action shall be maintained to enforce any liability ten (10) days from the termination of the hearing. If the
created under any other provision of this Code unless brought Commission fails to resolve the request within the time herein
within two (20 years after the discovery of the facts constituting prescribed, the cease and desist order shall automatically be
the cause of action and within five (5) years after such cause of lifted.
action accrued.
Section 65. Substituted Service Upon the Commission. – Service
Section 63. Amount of Damages to be Awarded. – 63.1. All suits of summons or other process shall be made upon the
to recover damages pursuant to Sections 56, 57, 58, 59, 60 and Commission in actions or legal proceedings against an issuer or
61 shall be brought before the Regional Trial Court, which shall any person liable under this Code who is not domiciled in the
have exclusive jurisdiction to hear and decide such suits. The Philippines. Upon receipt by the Commission of such summons,
Court is hereby authorized to award damages in an amount not the Commission shall within ten (10) days thereafter, transmit
exceeding triple the amount of the transaction plus actual by registered mail a copy of such summons and the complaint or
damages. other legal process to such issuer or person at his last known
address or principal office. The sending thereof by the
Exemplary damages may also be awarded in cases of bad faith, Commission, the expenses for which shall be advanced by the
fraud, malevolence or wantonness in the violation of this Code party at whose instance it is made, shall complete such service.
or the rules and regulations promulgated thereunder.
Section 66. Revelation of Information Filed with the
The Court is also authorized to award attorney’s fees not Commission. – 66.1. All information filed with the commission
exceeding thirty percentum (30%) of the award. in compliance with the requirements of this Code shall be made
75
available to any member of the general public, upon request, in 67.2. Nothing contained in Subsection 67.1 shall, however, be
the premises and during regular office hours of the Commission, construed as an exemption from liability of an employee or
except as set forth in this Section. officer of the Commission for any nonfeasance, misfeasance or
malfeasance in the discharge of his official duties.
66.2. Nothing in this Code shall be construed to require, or to
authorize the Commission to require, the revealing of trade Section 68. Special Accounting Rules. – The Commission shall
secrets or processes in any application, report, or document filed have the authority to make, amend, and rescind such accounting
with the Commission. rules and regulations as may be necessary to carry out the
provisions of this Code, including rules and regulations as may
66.3. Any person filing any such application, report or document be necessary to carry out the provisions of this Code, including
may make written objection to the public disclosure of rules and regulations governing registration statements and
information contained therein, stating the grounds for such prospectuses for various classes of securities and issuers, and
objection, and the Commission may hear objections as it deems defining accounting, technical and trade terms used in this Code.
necessary. The Commission may, in such cases, make available Among other things, the Commission may prescribe the form or
to the public the information contained in any such application, forms in which required information shall be set forth, the items
report, or document only when a disclosure of such information or details to be shown in the balance sheet and income
is required in the public interest or for the protection of statement, and the methods to be followed in the preparation of
investors; and copies of information so made available may be accounts, appraisal or valuation of assets and liabilities,
furnished to any person having a legitimate interest therein at determination of depreciation and depletion, differentiation of
such reasonable charge and under such reasonable limitations as recurring and non-recurring income, differentiation of
the Commission may prescribe. investment and operating income, and in the preparation, where
the Commission deems it necessary or desirable of consolidated
66.4. It shall be unlawful for any member, officer, or employee balance sheets or income accounts of any person directly or
of the Commission to disclose to any person other than a indirectly controlling or controlled by the issuer, or any person
member, officer or employee of the Commission or to use for under direct or indirect common control with the issuer.
personal benefit, any information contained in any application,
report, or document filed with the Commission which is not Section 69. Effect on Existing Law. – The rights and remedies
made available to the public pursuant to Subsection 66.3. provided by this Code shall be in addition to any and all order
rights and remedies that may now exist. However, except as
66.5. Notwithstanding anything in Subsection 66.4 to the provided in Section 56 and 63 hereof, no person permitted to
contrary, on request from a foreign enforcement authority of any maintain a suit for damages under the provisions of this Code
country whose laws grant reciprocal assistance as herein shall recover, through satisfaction of judgment in one or more
provided, the Commission may provide assistance in accordance actions, a total amount in excess of his actual damages on
with this subsection, including the disclosure of any information account of the act complained of: Provided, That exemplary
filed with or transmitted to the Commission. If the requesting damages may be awarded in cases of bad faith, fraud,
authority states that it is conducting an investigation which it malevolence or wantonness in the violation of this Code or the
deems necessary to determine whether any person has violated, rules and regulations promulgated thereunder.
is violating, or is about to violate any laws relating to securities
or commodities matters that the requesting authority administers Section 70. Judicial Review of Commission Orders. – Any
or enforces. Such assistance may be provided without regard to person aggrieved by an order of the Commission may appeal the
whether the facts stated in the request would also constitute a order to the Court of Appeals by petition for review in
violation of law of the Philippines. accordance with the pertinent provisions of the Rules of Court.

Section 67. Effect of action of Commission and Unlawful Section 71. Validity of Contracts. – 71.1. Any condition,
Representations with Respect Thereto. – 67.1. No action or stipulation, provision binding any person to waive compliance
failure to act by the Commission in the administration of this with any provision of this Code or of any rule or regulation
Code shall be construed to mean that the Commission has in any thereunder, or of any rule of an Exchange required thereby, as
way passed upon the merits of or given approval to any security well as the waiver itself, shall be void.
or any transactions or transactions therein, nor shall such action
or failure to act with regard to any statement or report filed with 71.2. Every contract made in violation of any provision of this
or examined by the Commission pursuant to this Code or the Code or of any rule or regulation thereunder, and every contract,
rules and regulations thereunder to be deemed a finding by the including any contract for listing a security or an Exchange
Commission that such statements or report is true and accurate heretofore or hereafter made, the performance of which involves
on its face or that it is not false or misleading. It shall be the violation of, or the continuance of any relationship or
unlawful to make, or cause to be made, to any prospective practice in violation of, any provision of this Code, or any rule
purchaser or seller or a security any representation that any such or regulation thereunder, shall be void:
action or failure to act by the Commission is to be so construed
or has such effect. (a) As regards the rights of any person who, in violation of
any such provision, rule or regulation, shall have made or
76
 engaged in the performance of any such contract, and purchase and such additional information as the Commission
deems necessary or appropriate in the public interest or for the
(b) As regards the rights of any person who, not being a protection of investors, or which the Commission deems to be
party to such contract, shall have acquired any right material to a determination by holders whether such security
thereunder with actual knowledge of the facts by reason of should be sold.
which the making or performance of such contract was in
violation of any such provision, rule or regulation. 72.3. For the purpose of Subsection 72.2, a purchase by or for
the issuer or any person controlling, controlled by, or under
71.3. Nothing in this Code shall be construed: common control with the issuer, or a purchase subject to the
control of the issuer or any such person, shall be deemed to be a
(a) To affect the validity of any loan or extension of credit purchased by the issuer. The commission shall have the power
made or of any lien created prior or subsequent to the to make rules and regulations implementing this subsection,
effectivity of this Code, unless at the time of the making of including exemptive rules and regulations covering situations in
such loan or extension of credit or the creating of such lien, which the Commission deems it unnecessary or inappropriate
the person making such loan or extension of credit or that a purchase of the type described in this subsection shall be
acquiring such lien shall have actual knowledge of the facts deemed to be a purchase by the issuer for the purpose of some
by reason of which the making of such loan or extension of or all of the provisions of Subsection 72.2.
credit or the acquisition of such lien is a violation of the
provisions of this Code or any rules or regulations 72.4. The rules and regulations promulgated by the Commission
thereunder, or shall be published in two (20 newspapers or general circulation
in the Philippines, and unless otherwise prescribed by the
(b) To afford a defense to the collection of any debt, Commission, the same shall be effective fifteen (15) days after
obligation or the enforcement of any lien by any person the date of the last publication.
who shall have acquired such debt, obligation or lien in
good faith for value and without actual knowledge of the Section 73. Penalties. – Any person who violates any of the
violation of any provision of this Code or any rule or provisions of this Code, or the rules and regulations
regulation thereunder affecting the legality of such debt, promulgated by the Commission under authority thereof, or any
obligation or lien. person who, in a registration statement filed under this Code,
makes any untrue statement of a material fact or omits to state
Section 72. Rules and Regulations; Effectivity. – 72.1. This any material fact required to be stated therein or necessary to
Code shall be self-executory. To effect the provisions and make the statements therein not misleading, shall, upon
purposes of this Code, the Commission may issue, amend, and conviction, suffer a fine of not less than Fifty thousand pesos
rescind such rules and regulations and orders necessary or (P50,000.00) nor more than Five million pesos (P5,000,000.00)
appropriate, including rules and regulations defining accounting, or imprisonment of not less than seven (7) years nor more than
technical, and trade terms used in this Code, and prescribing the twenty-one (21) years, or both in the discretion of the court. If
form or forms in which information required in registration the offender is a corporation, partnership or association or other
statements, applications, and reports to the Commission shall be juridical entity, the penalty may in the discretion of the court be
set forth. For purposes of its rules or regulations, the imposed upon such juridical entity and upon the officer or
Commission may classify persons, securities, and other matters officers of the corporation, partnership, association or entity
within its jurisdiction, prescribe different requirements for responsible for the violation, and if such officer is an alien, he
different classes of persons, securities, or matters, and by rule or shall in addition to the penalties prescribed, be deported without
order, conditionally or unconditionally exempt any person, further proceedings after service of sentence.
security, or transaction, or class or classes of persons, securities
or transactions, from any or all provisions of this Code. Section 74. Transitory Provisions. – The Commission, as
organized under existing laws, shall continue to exist and
Failure on the part of the Commission to issue rules and exercise its powers, functions and duties under such laws and
regulations shall not in any manner affect the self-executory this Code: Provided, That until otherwise mandated by a
nature of this Code. subsequent law, the Commission shall continue to regulate and
supervise commodity futures contracts as provided in Section 11
and pre-need plans and the pre-need industry as provided in
72.2. The Commission shall promulgate rules and regulations Section 16 of this Code.
providing for reporting, disclosure and the prevention of
fraudulent, deceptive or manipulative practices in connection
with the purchase by an issuer, by tender offer or otherwise, of All further requirements herein shall be complied with upon
and equity security of a class issued by it that satisfies the approval of this Code: Provided, however, That compliance may
requirements of Subsection 17.2. such rules and regulations may be deferred for such reasonable time as the Commission may
require such issuer to provide holders of equity securities of determine but not to exceed one (1) year from approval of this
such dates with such information relating to the reasons for such Code: Provided, further, That securities which are being offered
purchase, the source of funds, the number of shares to be at the time of effectivity of this Code pursuant to an effective
purchased, the price to be paid for such securities, the method of registration and permit, may continue to be offered and sold in
77
accordance with the provisions of the Revised Securities Act in
effect immediately prior to approval of this Code.

All unexpended funds for the calendar year, properties,

equipment and records of the Securities and Exchange
Commission are hereby retained by the Commission as
reorganized under this Code and the amount of Two hundred
million pesos (P200,000,000.00) or such amount necessary to
carry out the reorganization provided in this Code is hereby
appropriated.

All employees of the Commission who voluntarily retire or are

separated from the service with the Commission and whose
retirement or separation has been approved by the Commission,
shall be paid retirement or separation benefits and other
entitlement granted under existing laws.

Section 75. Partial Use of Income. – To carry out the purposes

of this Code, the Commission is hereby authorized, in addition
to its annual budget, to retain and utilize an amount equal to One
hundred million pesos (P100,000,000.00) from its income.

The use of such additional amount shall be subject to the

auditing requirements, standards and procedures under existing
laws.

Section 76. Repealing Clause. – The Revised Securities Act

(Batas Pambansa Blg. 178), as amended, are hereby repealed.
All other laws, orders, rules and regulations, or parts thereof,
inconsistent with any provision of this Code are hereby repealed
or modified accordingly.

Section 77. Separability Clause. – if any portion or provision of

this Code is declared unconstitutional or invalid, the other
portions or provisions hereof, which are not affected thereby
shall continue in full force and effect.

Section 78. Effectivity. – This Code shall take effect fifteen (15)
days after its publication in the Official Gazette or in two (2)
newspapers of general circulation.

Approved: July 19, 2000

(Sgd.)JOSEPH E. ESTRADA
President of the Philippines

78