CORPORATION

CORPORATION
An artificial being created by operation of
law having the right of succession, and the
powers,
attributes
and
properties
expressly authorized by law and incident
to its existence.

CORPORATION
II. ATTRIBUTES OF A CORPORATION
1. It is an artificial being with separate and
distinct personality.
2. It is created by operation of law.
3. It enjoys the right of succession.
4. It has the powers, attributes and
properties expressly authorized by law or
incident to its existence.

problems...
1. Are stockholders allowed to intervene in
a litigation involving corporate property?

answer...
No. The stockholders are not allowed to intervene
ina case involving corporate property. While a
share of stock represents a proportionate or
aliquot interest in the property of the corporation,
it does not vest the owner thereof with any legal
right or title to any of the property, his interest in
the corporate property being equitable or
beneficial in nature. Shareholders are in no legal
sense the owners of corporate property, which is
owned by the corporation as a distinct legal
personality.

2. Are stockholders entitled to the

possession or ownership of properties
belonging to the corporation?

answer...
No. Properties registered in the name of
the corporation are owned by it as an
entity separate and distinct from its
members.

3. May the president of a corporation be

made personally liable for contracts he
entered into in behalf of the corporation?

answer...
As a general rule, the president of the
corporation cannot be made personally
liable for the contracts he entered into in
behalf of the corporation because a
corporation has a separate and distinct
personality from the persons composing it.

problem...
Pinoy was the General Manager and owner
of the one half of the shareholdings in a
corporation. The services of several
employees of the corporation were
terminated by Pinoy. There was however,
no evidence that Pinoy acted maliciously or
in bad faith in terminating the services of
the employees. May Pinoy be made
personally liable by the terminated
employees for backwages?

Doctrine of piercing the veil of

corporate fiction
Piercing the veil of corporate fiction means
that while a corporation cannot generally
be made liable for acts or liabilities of its
stockholders or members, and vice versa
because a corporation has a personality
separate and distinct from its stockholders
or members, however, the corporate
existence is disregarded under this doctine
where the corporation is formed or used
for

illiegitimate purposes or justify a wrong or

evade a just and valid obligation. In such
case, the corporation and the stockholders
shall be considered as one and the same.

illustrations...
1. The employees of Prince Transport, Inc.
(PTI) were holding meetings to form a
union. PTI caused the transfer of all union
members and symphatizers to Lubas
Transport,
a
single
proprietorship
belonging to the majority stockholder of
PTI. Despite the transfer, the schedule of
drivers and conductors were made by PTI.

When the employees made a claim for

wages against PTI, the latter denied the
claim on the ground that they were no
longer its employees since they have been
trnsferred to Lubas. May PTI and Lubas
be treated as one and the same?

answer...
Lubas is a mere agent, conduit or adjunct
of PTI. It is true that Lubas is a single
proprietorship and not a corporation,
however, PTI's attempt to isolate itself
from and behind the supposed separate
personality of Lubas so as to evade its
liabilities is precisely what the classical
doctrine of piercing the veil of corporate
entity seeks to preent and remedy.

2. A driver of a jeepney was convicted of

physical
injuries
through
reckless
imprudence and adjedged civilly liable.
Thereafter, the owner of the jeepney sold
the same to a corporation that was
organized by him, his wife and children.
may the jeepney owner and the
corporation be made liable for the ivil
liability arising from the conviction of his
driver?

answer...
Yes. The corporation cannot claim that it
has a personality separate and distinct
from ts members because it is obvious
that the organization of the corporation
was for the purpose of evading the
subsidiary liability. To allow the corporation
to invoke of the fiction of corporate entity
as a shield to further an end subversive of
justice.

3. Claparols Steel and Nail Plant owned by E.

Claparols had obligations to its employees. It
stopped its operations and was immediately
succeeded on the next day by, and all its assets
were transferred to, Claparols Steel Corporation.
E. Claparols owned 90% of the subscribed
capital stock of Claparols Steel Corporation. Is
Claparols Steel Corporation liable for the
obligations of Claparols Steel and Nail Plant to
its employees.

answer...
The protective shield of a corporate
fiction being claimed by Claparols Steel
Corporation should be pierced as it was
deliberately and maliciously designed to
evade a financial obligation the employees
of Claparols Steel and Nail Plant.

Claparols Steel and Nail Plant was

owned by the same person who now
owned the absolute majority stocks of the
Claparols Steel Corporation. When the
notion of legal entity is used to justify
wrong or protect fraud, the law will merge
the two corporations into one.

CORPORATION
WHEN CLASSIFICATION
MAY BE MADE

OF

SHARES

1. By the incorporators The classes

and number of shares which a corporation
shall issue are first determined by the
incorporators as stated in the articles of
incorporation filed with the SEC.

CORPORATION
2. By the Board of Directors and the
Stockholders
After the corporations comes into
existence, they may be altered by the
board of directors and the stockholders by
amending the articles of incorporation
pursuant to Sec. 16.

CORPORATION
A corporation may issue such classes
or series of shares as the prospects and
needs of its business may require.
Furthermore, it may classify its shares for
the purpose of insuring compliance with
constitutional or legal requirements

CORPORATION
DOCTRINE OF EQUALITY OF SHARES Where the articles of incorporation do not
provide for any distinction of the shares of
stock, all shares issued by the corporation
are presumed to be equal and enjoy the
same rights and privileges and are also
subject to the same liabilities

CORPORATION
DEFINITION OF TERMS
1. Capital Stock or Legal Stock or Stated
Capital - The amount fixed in the corporate
charter to be subscribed and paid in cash,
kind or property at the organization of the
corporation or afterwards and upon which
the corporation is to conduct its operation.

CORPORATION

2. Capital The value of the actual

property or estate of the corporation
whether in money or property. Its net
worth (or stockholders equity) is its assets
less its liabilities.

CORPORATION
3. Authorized Capital Stock - The capital
stock divided into shares.

CORPORATION
4. Subscribed Capital Stock- The total
amount of the capital stock subscribed
whether fully paid or not.

CORPORATION
5. Outstanding Capital Stock - The portion of
the capital stock issued to subscribers,
whether fully paid or partially paid (as long
as there is a binding subscription contract)
except treasury stocks

CORPORATION
6. Unissued Capital Stock The portion of
the capital stock that is not issued or
subscribed. It does not vote and draws no
dividends.

CORPORATION
7. Legal Capital - The amount equal to the
aggregate par value and/or issued value
of the outstanding capital stock.

CORPORATION
8. Stated Capital The capital stock divided
into no par value shares.

CORPORATION
9. Paid-up Capital The amount paid by
the stockholders on subscriptions from
unissued shares of the corporation.

CORPORATION
Illustration:
The articles of incorporation of Paramount
Corporation provide for an authorized
captital stock of P1,000,000.00 divided
into 10,000 shares each having a par
value of P100.00. At the time of
incorporation, 25% of the authorized
capital stock was subscribed of which 25%
was paid.

CORPORATION
In its first year of operations, the
corporation
obtained
a
loan
of
P300,000.00 which it used to buy
equipment of the same amount. During
the same period, the corporation posted a
net profit of P100,000.00

CORPORATION
Autorized capital stock
Subscribed Capital stock(1,000,000.00x25%)
Outstanding capital stock
Unissued Capital stock (P1M - 250,000.00)
Paid-Up capital stock (P250,000.00x25%)
Capital (P250,000+300,000+100,000)
Legal Capital

- P1,000,000.00
- P250,000.00
- P250,000.00
- P750,000.00
- P62,500.00
- P650,000.00
- P250,000.00

CORPORATION
VI. FORMATION AND ORGANIZATION OF
PRIVATE CORPORATION
STEPS IN THE CREATION OF A
CORPORATION
1. Promotion A promoter is a person who,
acting alone or with others, takes initiative
in founding and organizing the business or
enterprise of the issuer and receives
consideration therefor

CORPORATION
2. Incorporation
Steps:
1. Drafting and execution of Articles of Incorporation by
the incorporators and other documents required for
registration of the corporation
2. Filing with the SEC of the articles of incorporation
3. Payment of filing and publication fees
4. Issuance by the SEC of the certificate of incorporation

CORPORATION
3.

Formal
Organization
and
Commencement of the Transaction of
Business
These are conditions subsequent,
which may be satisfied by substantial
compliance in order that a corporation
may legally continue as such.

CORPORATION
Formal organization:
1. Adoption of By-Laws and filing of the same with the
SEC;
2. Election of board of directors/trustees, and officers;
3. Establishment of principal office;
4. Providing for subscription and payment of capital
stock.

CORPORATION
VII. ARTICLES OF INCORPORATION (AI)
The document prepared by the persons
establishing a corporation and filed with the SEC
containing the matters required by the Code.
The Articles of Incorporation have been described
as one that defines the charter of the corporation,
and the contractual relationships between the
State and the corporation, the stockholder and the
State, and between the corporation and its
stockholders.

CORPORATION
Significance:
1.

The issuance of a certificate of

incorporation signals the birth of the
corporations juridical personality;

2. It is an essential requirement for the

existence of a corporation, even a de facto
one.

CORPORATION
CONTENTS
OF
INCORPORATION

ARTICLES

OF

1. Name of corporation;
2. Purpose/s, indicating the primary and
secondary purposes;
3. Place of principal office;

CORPORATION
4. Term which shall not be more than 50
years;
5. Names, citizenship and residences of
incorporators;
6.

Number, names, citizenships

residences of directors;

and

CORPORATION
7. If stock corporation, amount of authorized
capital stock, number of shares;
8. In par value stock corporations, the par
value of each share;
9. Number of shares and amounts of
subscription of subscribers which shall not
be less than 25% of authorized capital
stock;

CORPORATION
10. Amount paid by each subscriber on their
subscription, which shall not be less than 25% of
subscribed capital and shall not be less than
P5,000.00;
11. Name of treasurer elected by subscribers; and
12. If the corporation engages in a nationalized
industry, a statement that no transfer of stock will
be allowed if it will reduce the stock ownership of
Filipinos to a percentage below the required legal
minimum.

CORPORATION
illustration...
a.
Authorized
Capital
Stock,
P1,000,000.00 divided into 10,000
shares at P100 par value per share:
1. minimum subscription - P1Mx25% =
P250,000.00
2. Minimum Paid Up - P250K x 25% =
P62,500.00

CORPORATION
illustration...
Authorized capital stock - P50K divided
into 5,000 shares at P10.00 par value per
share.
1. Minimum subscription - P50K x 25%
= P12,500.00
2. Minimum Paid Up - P5,000.00
(since 25% of P12,500 is only
P3,500.00)

CORPORATION
COMMENCEMENT
EXISTENCE

OF

CORPORATE

A corporation commences to have

juridical personality and legal existence
only from the moment the SEC issues to
the
incorporators
a
certificate
of
incorporation under its official seal.

CORPORATION
WHEN A CORPORATE NAME CANNOT BE
USED
1. Names which are identical, deceptively or
confusingly similar to that of any existing
corporation including internationally known
foreign corporation through not used in the
Philippines;
2. Name already protected by law;
3. Name which is contrary to law, morals or public
policy.

CORPORATION
Grounds for Suspension or Revocation of
Certificate of Registration (Pres. Decree No.
902-A)
1. Fraud in procuring its certificate of incorporation
2. Serious misrepresentation as to what the
corporation can do or is doing to the great
prejudice of, or damage to, the general public

CORPORATION
3. That the Treasurers Affidavit concerning
the amount of capital stock subscribed
and/or paid is false;
4.

That the required percentage of

ownership of the capital stock to be owned
by citizens of the Philippines has not been
complied with as required by existing laws
or the constitution.

CORPORATION
AMENDMENT OF ARTICLES OF INCORPORATION
Grounds for Rejection of the Articles of Incorporation or
Amendment thereto (Sec. 17)
1. That the articles of incorporation or any amendment
thereto is not substantially in accordance with the form
prescribed therein;
2. That the purpose or purposes of the corporation are
patently unconstitutional, illegal, immoral, or contrary to
government rules and regulations;

CORPORATION
3. Refusal to comply with or defiance of a lawful order of
the SEC restraining the commission of acts which would
amount to a grave violation of its franchise
4. Continuous inoperation for a period of at least 5 years
5. Failure to file the by-laws within the required period
6. Failure to file required reports

CORPORATION
EFFECTS OF
CHARTER

NON-USE

OF

CORPORATE

If a corporation does not formally organize

and commence the transaction of its business or
the construction of its works within 2 years from
the date of incorporation, its corporate powers
cease and the corporation shall be deemed
dissolved.

CORPORATION
If a corporation has commenced
transaction
of
its
business
but
subsequently
becomes
continuously
inoperative for a period of at least 5 years,
the same shall be a ground for the
suspension or revocation of its corporate
franchise or certificate of incorporation.

CORPORATION

VIII. BOARD OF DIRECTORS AND

TRUSTEES

CORPORATION
Qualifications:
1. For a stock corporation, ownership of at least 1
share capital stock of the corporation in his own
name, and if he ceases to own at least one
share in his own name, he automatically ceases
to be a director (Sec. 23). For a non-stock
corporation, only members of the corporation
can be elected to the Board of Trustees.

CORPORATION
2. A majority of the directors/trustees must
be residents of the Philippines

CORPORATION
3. He must not have been convicted by final
judgment of an offense punishable by
imprisonment for a period exceeding 6
years or a violation of the Corporation
Code, committed within five years from the
date of his election

CORPORATION
4. Only natural persons can be elected
directors/trustees.

CORPORATION
5. Other qualifications as may be prescribed
in the by-laws of the corporation.

CORPORATION
6. Must be of legal age

Election of Board Members

STOCK CORPORATION

Owners of a majority
of the outstanding capital
stock, in person or by
their authorized as such
by written proxy, must be
present at the election of
the directors.

NON-STOCK
CORPORATION
A majority of the
members entitled to vote
in person, or by proxy, if
allowed in its article of
incorporation or by-laws,
must be present in the
election.

Election of Board Members

STOCK CORPORATION

NON-STOCK
CORPORATION

Cumulative voting Cumulative voting is

is
mandatory;
a
generally
not
available
unless
matter of right granted
allowed by the articles
by law to each
of incorporation or the
stockholder
with
by-laws, since each
voting rights
member is entitled
only to one vote.

CORPORATION
Methods of Voting (Sec. 24)
1. Straight Voting every stockholder may
vote such number of shares for as many
persons as there are directors to be
elected.

CORPORATION
2. Cumulative Voting for One Candidate
a stockholder is allowed to concentrate his
votes and give one candidate as many
votes as the number of directors to be
elected multiplied by the number of his
shares shall equal.

CORPORATION
3. Cumulative Voting by Distribution by
this method, a stockholder may cumulate
his shares by multiplying also the number
of his shares by the number of directors to
be elected and distribute the same among
as many candidates as he shall see fit.

CORPORATION
Limitations on the Stockholders Right to
Vote
1. Where the articles of incorporation
provides for classification of shares
pursuant to Sec. 6, non-voting shares are
not entitled to vote except as provided for
in the last paragraph of Sec. 6.

CORPORATION
2. Preferred or redeemable shares may be
deprived of the right to vote unless
otherwise provided in the Code.
3. Fractional shares of stock cannot be
voted.
4. Treasury shares have no voting rights as
long as they remain in the treasury.

CORPORATION
5. Holders of stock declared delinquent by
the board of directors for unpaid
subscription are not entitled to vote or to
representation at any stockholders
meeting.
6. A transferee of stock cannot vote if his
transfer is not registered in the stock and
transfer book of the corporation.

CORPORATION
Term of Office
The directors or trustees shall serve for a
term of one year and until their successors are
elected and qualified. If no election is conducted
or no qualified candidate is elected, they shall
continue to act as such in a hold-over capacity
until an election is held and a qualified candidate
is so elected (HOLD-OVER PRINCIPLE)

CORPORATION
Removal of Directors or Trustees (Sec. 28)
The law does not specify cases for
removal of a director or trustee nor even
require that removal should be for
sufficient cause or reason. However, the
incumbent directors or trustees cannot be
removed merely by replacing a new set of
directors or trustees.

CORPORATION
Requisites:
1. The removal should take place at a
regular or special meeting duly called for
the purpose;
2. The director or trustee can only be
removed by at least 2/3 of the outstanding
capital stock or of the members entitled to
vote;

CORPORATION
3. There must be a previous notice to
stockholders
or
members
of
the
corporation of the intention to propose
such removal at the meeting.
4. The removal without cause may not be
used to deprive minority stockholders or
members of the right to representation to
which they may be entitled under Sec. 24
of the Code.

CORPORATION
Vacancies in the Board (Sec. 29)
A vacancy in the office of director or
trustee other than by removal or by
expiration of term may be filled as follows:

CORPORATION
1. By the stockholders or members:
a. If the vacancy results from the removal by the
stockholders or members or the expiration of
term;
b. If the vacancy occurs other than by removal or
by expiration of term, such as death, resignation,
abandonment, or disqualification, if the remaining
directors or trustees do not constitute a quorum
for the purpose of filling the vacancy;

CORPORATION
c. If the vacancy may be filled by the
remaining directors or trustees but the
board refers the matter to stockholders or
members; or
d. If the vacancy is created by reason
of an increase in the number of directors
or trustees.

CORPORATION
2. By the members of the Board
if still constituting a quorum, at least a
majority of them are empowered to fill any
vacancy occurring in the board other than
by removal by the stockholders or
members or by expiration of term.

CORPORATION
Compensation of Board Members (Sec. 30)
GENERAL RULE:
Directors are not entitled to receive any
compensation except for reasonable per
diems.

CORPORATION
EXCEPTIONS:
1. When their compensation is fixed in the
by-laws
2. When granted by the vote of stockholders
representing at least a majority of the
outstanding capital stock at a regular or
special meeting

CORPORATION
3. When they are also officers of the
corporation
The only limitation in the granting
of compensation is that the amount to be
given shall not exceed 10% of the net
income before income tax of the
corporation during the preceding year.

CORPORATION
CORPORATE OFFICERS
1. President must be a director and he may not be
concurrently the treasurer or secretary
2. Treasurer may or may not be a director; as a matter of
sound corporate practice, must be a resident
3. Secretary need not be a director unless required by the
by-laws; must be a resident and citizen of the
Philippines; and
4. Such other officers as may be provided in the by-laws

CORPORATION
Authority of Officers is generally derived from:
1. Law
2. By-laws
3. Authorization from the Board, either expressly
or impliedly by habit, custom or acquiescence in
the general course of business

CORPORATION
Extent of Powers or Authority of Corporate
Officers
1. The authority which he has by virtue of his
office;
2. The authority which is expressly conferred
upon him or is incidental to the
effectualness of such express authority;

CORPORATION
3. As to third persons dealing with him
without notice of any restriction thereof,
the authority which the corporation holds
the officer out as possessing or is
estopped to deny.

CORPORATION
4. The nature of the corporate business
must also be taken into consideration; and
5. The nature act of an officer though
originally unauthorized may become
binding upon the corporation by a
subsequent ratification

CORPORATION
DOCTRINE OF APPARENT AUTHORITY
If a corporation, knowingly permits one of its
officers, or any other agent, to act within the
scope of an apparent authority, it holds him out
to the public as in possession of the power to do
those acts, and thus, the corporation will, as
against anyone who has in good faith dealt with
it through such agent, be estopped from denying
the agents authority.

CORPORATION
Apparent authority is derived not merely
from practice. Its existence may be
ascertained through:
1. the general manager in which the
corporation holds out an officer or agent
as having the power to act or, in other
words the apparent authority to act in
general, with which it clothes him; or

CORPORATION
2. the acquiescence in his acts of a
particular
nature,
with
actual
or
constructive knowledge thereof, within or
beyond the scope of his ordinary powers

CORPORATION
BOARD OF DIRECTORS/TRUSTEES AS
REPOSITORY
OF
CORPORATE
POWERS
GENERAL RULE: The corporate powers
of the corporation shall be exercised, all
business conducted and all property of
such corporation controlled and held by
the board of directors or trustees

CORPORATION
EXCEPTIONS:
1. In case of an Executive Committee duly
authorized in the by-laws;

CORPORATION
2. In case of a contracted manager which
may be an individual, a partnership, or
another corporation.
Note: In case the contracted manager
is another corporation, the special rule
in Sec. 44 applies.

CORPORATION
3. In case of close corporations, the
stockholders may directly manage the
business of the corporation instead, if the
articles of incorporation so provide.

CORPORATION
Limitations
on
Powers
Directors/Trustees:
1.

of

Board

of

Limitations imposed by the Constitution,

statutes, articles of incorporation or by-laws.
2. It cannot perform constituent or those acts
which involve fundamental changes in the
corporation which require the approval of its
stockholders or members.
3. It cannot exercise powers not possessed by the
corporation

CORPORATION
BUSINESS JUDGMENT RULE
Courts cannot undertake to control the discretion
of the board of directors about administrative
matters as to which they have the legitimate
power of action, and contracts intra vires entered
into by the board of directors are binding upon
the corporation and courts will not interfere
unless such contracts are so unconscionable
and oppressive as to amount to a wanton
destruction of the rights of the minority

CORPORATION
LIABILITY OF DIRECTORS, TRUSTEES
AND OFFICERS Three -fold Duties of
Directors
1. Duty of Obedience
To direct the affairs of the corporation only
in accordance with the purposes for which
it was organized.

CORPORATION
2. Duty of Diligence
Directors and officers are required to exercise
due care in
the performance of their
functions.
3. Duty of Loyalty
The director or officer owes loyalty and
allegiance to the
corporationa loyalty that
is undivided and an allegiance
that is
influenced by no consideration other than the
welfare of the corporation.

CORPORATION
Personal Liability of Directors
GENERAL RULE:
Directors and officers are not solidarily
liable with the corporation.

CORPORATION
EXCEPTIONS:
In the following cases, personal liability
may be incurred by directors and trustees,
or in appropriate cases, the officers of the
corporation, when they

CORPORATION
1. Willfully and knowingly vote for and
assent to patently unlawful acts of the
corporation; (Sec. 31)

CORPORATION
2. Are guilty of gross negligence or bad faith
in directing the affairs of the corporation;
(Sec. 31)

CORPORATION
3. Acquire any personal or pecuniary
interest in conflict of their duty; (Sec. 31)

CORPORATION
4. Consent to the issuance of watered
stocks, or, having knowledge thereof, fails
to file objections with the secretary; (Sec.
65)

CORPORATION
5. Agree or stipulate in a contract to hold
himself personally liable with the
corporation; or

CORPORATION
6. By virtue of a specific provision of law

CORPORATION
A director is not liable for misconduct of
co-directors or other officers unless (1) he
connives or participates in it; or (2) he is
negligent in not discovering or acting to
prevent it.

CORPORATION
DOCTRINE OF APPARENT AUTHORITY

If a corporation knowingly permits one of its

officers, or any other agent, to act within the
scope of an apparent authority, it holds him out
to the public possessing the power to so do
those acts; and thus, the corporation will, as
against anyone who has in good faith dealt with
it through such agent, be estopped from denying
the agents authority.

CORPORATION
EXECUTIVE COMMITTEE (Sec. 35)
A body created by the by-laws and
composed of some members of the board
which, subject to the statutory limitations,
has all the authority of the board to the
extent provided in the board resolution or
by-laws

CORPORATION
Limitations on the Powers of the Executive
Committee
It cannot act on the following:
1. Matters needing stockholder approval;
2. Filling up of board vacancies;

CORPORATION
3. Amendment, repeal or adoption of bylaws;
4. Amendment or repeal of any resolution of
the Board which by its express terms is
not amendable or repealable; and
5. Cash dividend declaration.

CORPORATION
REQUISITES OF REMOVAL FROM THE BOARD
1. It must take place either at a regular meeting or
special meeting of the stockholders or members
called for the purpose;
2.

There must be previous notice to the

stockholders or members of the intention to
remove;

CORPORATION
3. The removal must be by a vote of the
stockholders representing 2/3 of the
outstanding capital stock or 2/3 of the
members, as the case may be;
4. The director may be removed with or
without cause unless he was elected by
the minority, in which case, it is required
that there is cause for removal.

CORPORATION
FILLING OF VACANCIES IN THE BOARD
1. By stockholders or members if vacancy
results because of:
a. Removal
b. Expiration of term
c. The ground is other than removal or
expiration of term where the remaining
directors do not constitute a quorum
d. Increase in the number of directors.

CORPORATION
2. By board if remaining directors constitute
quorum cases not reserved to
stockholders or members

CORPORATION
CORPORATE POWERS
Kinds:
1. Express those expressly authorized by
the Corporation Code and other laws, and
its Articles of Incorporation or Charter.
2. Incidental those that are incidental to the
existence of the corporation.

CORPORATION
3. Implied those that can be inferred from or
necessary for the exercise of the express powers.
Classification of Implied Powers:
1. Acts in the usual course of business
2. Acts to protect debts owing to the corporation
3. Acts which involve embarking in a different
business usually to collect debts out of
profits
4. Acts to protect or aid employees
5. Acts to increase business

CORPORATION
General Powers and Capacity (Sec. 36)
1. To sue and be sued;
2. Of succession;
3. To adopt and use of corporate seal;
4. To amend its Articles of Incorporation;
5. To adopt its by-laws;

CORPORATION
6. For stock corporations: issue and sell stocks to
subscribers and treasury stocks; for non-stock
corporations: admit members;
7. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and deal
with real and personal property, securities and
bonds
8. To enter into merger or consolidation;

CORPORATION
9. To make reasonable donations for public welfare,
hospital, charitable, cultural, scientific, civic or
similar purposes, provided that no donation is
given to any (i) political party, (ii) candidate and
(iii) partisan political activity.
10. To establish pension, retirement, and other plans
for the benefit of its directors, trustees, officers
and employees.
11. To exercise other powers essential or necessary
to carry out its purposes.

CORPORATION
Other Powers:
1. Extension /Shortening of Corporate Term
2. Power to Increase or Decrease Capital
Stock
3. Power to Incur, Create or Increase Bonded
Indebtedness
4. Sell, dispose, lease, encumber all or
substantially all of corporate assets
5. Power to acquire own shares

CORPORATION
6.

Invest corporate funds in another

corporation or business engaged in
purpose other than primary purpose
7. Power to declare dividends out of
unrestricted retained earnings
8. Power to enter into management contract
9. Power to deny pre-emptive right
10. Power to amend Articles of Incorporation

CORPORATION
INSTANCES WHEN THE CONCURRENCE
OF STOCKHOLDERS IS NECESSARY
FOR THE EXERCISE OF CORPORATE
POWERS:

CORPORATION
1. Concurrence of 2/3 of the outstanding
capital stock
a. Power to extend or shorten
corporate term;
b. Increase/Decrease Corporate Stock;
c. Incur, Create Bonded Indebtedness;
d. To deny pre-emptive right;

CORPORATION
e. Sell, dispose, lease, encumber all or
substantially all of corporate assets;
f. To invest in another corporation,
business other than the primary purpose;
g. To declare stock dividends

CORPORATION
h. To enter into management contract if (1) a
stockholder or stockholders representing the
same interest of both the managing and the
managed corporations own or control more than
1/3 of the total outstanding capital entitled to
vote of the managing corporation; or (2) a
majority of the members of the board of directors
of the managing corporation also constitute a
majority of the members of the board of the
managed corporation;
i. To amend the articles of incorporation.

CORPORATION
2.

Concurrence of majority
outstanding capital stock

of

the

a. To enter into management contract if

any of the two instances stated above are
absent;
b. To adopt, amend or repeal the bylaws.

CORPORATION
3. Without board resolution
a. 2/3 of outstanding capital stock
Delegate to the board the power to amend
the by-laws;
b. Majority of outstanding capital stock
Reovke the power of the board to
amend the by-laws which was previously
delegated.

CORPORATION
BY-LAWS
Relatively permanent and continuing
rules of action adopted by the corporation
for its own government and that of the
individuals composing it and those having
direction, management and control of its
affairs, in whole or in part, in the
management and control of its affairs and
activities.

CORPORATION
REQUISITES OF VALID BY-LAWS:
1. It must be consistent with the
Corporation Code, other pertinent laws
and regulations.
2. It must be consistent with the Articles of
Incorporation. In case of conflict, the
Articles of Incorporation prevails.

CORPORATION
3. It must be reasonable and not arbitrary or
oppressive.
4. It must not disturb vested rights, impair
contract or property rights of stockholders
or members or create obligations unknown
to law.

CORPORATION
BINDING EFFECT OF PROVISIONS OF
BY-LAWS:
As to the Corporation and its components
Binding not only upon the corporation
but also on its stockholder, members and
those having direction, management and
control of its affairs.

CORPORATION
As to Third Persons

Not binding unless there is actual knowledge.

Third persons are not even bound to investigate
the content because they are not bound to
investigate the content because they are not
bound to know the by-laws which are merely
provisions for the government of a corporation
and notice to them will not be presumed.

CORPORATION
STOCKS AND STOCKHOLDERS
Subscription contract Any contract for
the acquisition of unissued stock in an
existing corporation or a corporation still to
be formed shall be deemed a subscription
within the meaning of this Title,
notwithstanding the fact that the parties
refer to it as a purchase or some other
contract.

CORPORATION
KINDS OS SUBSCRIPTION CONTRACTS:
1. Pre-incorporation subscription entered
into before the incorporation and
irrevocable for a period of six (6) months
from the date of subscription unless all
other subscribers consent or it the
corporation failed to materialize. It cannot
also be revoked after filing the Articles of
Incorporation with the SEC.

CORPORATION
2. Post-incorporation subscription entered
into after incorporation.

CORPORATION
VALID
CONSIDERATIONS
SUBSCRIPTION AGREEMENTS:

FOR

1. Cash;
2. Property;
3. Labor or services actually rendered to
the corporation;

CORPORATION
4. Prior corporate obligations;
5. Amounts transferred from unrestricted
retained earning to stated capital (in case
of declaration of stock dividends);
5. Outstanding shares in exchange for
stocks in the event of reclassification or
conversion.

CORPORATION
UNDERWRITING AGREEMENT
An agreement between a corporation
and a third person, termed the
underwriter, by which the latter agrees,
for a certain compensation, to take a
stipulated amount of stocks or bonds,
specified in the underwriting agreement, if
such securities are not taken by those to
whom they are first offered.

CORPORATION
SHARES OF STOCK
This is the interest or right which an
owner has in the management of the
corporation, and its surplus profits, and, on
dissolution, in all of its assets remaining
after the payment of its debt. The
stockholder may own the share even if he
is not holding a certificate of stock.

CORPORATION
Issuance of stock certificates
No certificate of stock shall be issued
to a subscriber until the full amount of his
subscription together with interest and
expense (in case of delinquent shares), if
any is due, has been paid

CORPORATION
The certificate of stock must be signed by
the President or Vice-President and
countersigned by the Corporate Secretary
or the Assistant Secretary otherwise it is
not deemed issued.

CORPORATION
TRANSFER OF SHARES:
1. If represented by a certificate, the following must
be strictly complied with:
a. Delivery of the certificate;
b.
Indorsement by the owner or his agent;
c.
To be valid to third parties, the transfer
must be recorded in the books of the
corporation.

CORPORATION
2.If NOT represented by the certificate (such
as when the certificate has not yet been
issued or where for some reason is not in
the possession of the stockholder):
a. By means of deed of assignment,
and
b. Such is duly recorded in the books
of the corporation

CORPORATION
TRUST FUND DOCTRINE
- the subscribed capital stock of the
corporation is a trust fund for the payment
of debts of the corporation which the
creditors have the right to look up to
satisfy their credits. Corporations may not
dissipate this and the creditors may sue
the stockholders directly for their unpaid
subscriptions.

CORPORATION
RIGHTS OF STOCKHOLDERS:
1.

Direct or indirect participation

management;
2. Voting rights;
3. Right to remove directors;

in

CORPORATION
4. Proprietary rights;
a. Right to dividends;
b. Appraisal right;
c. Right to issuance of stock certificate for
fully paid shares;
d. Proportionate participation in the
distribution of assets in liquidation;
e. Right to transfer of stocks in corporate
books;
d. Pre-emptive right.

CORPORATION
5. Right to inspect books and records;
6. Right to be furnished with the most recent
financial statement/financial report;
7. Right to recover stocks unlawfully sold for
delinquent payment of subscription;
8. Right to file individual suit, representative
suit and derivative suits.

CORPORATION
OBLIGATIONS OF STOCKHOLDERS:
1.

Liability to
subscription;

the

corporation

for

unpaid

2. Liability to the corporation for interest on unpaid

subscription if so required by the by-laws;
3. Liability to the creditors o the corporation for
unpaid subscription;

CORPORATION
4. Liability for watered stock;
5. Liability for dividends unlawfully paid;
6. Liability for failure to create corporation.

CORPORATION
SUITS BY STOCKHOLDERS/MEMBERS:
1. Derivative Suits those brought by one
or more stockholders/members in the
name and on behalf of the corporation to
redress wrongs committed against it, or
protect/vindicate
corporate
rights
whenever the officials of the corporation
refuse to sue, or the ones to be sued, or
has control of the corporation.

CORPORATION
2. Individual Actions those brought by the
shareholder in his own name against the
corporation when a wrong is directly
inflicted against him.
3. Representative Actions those brought
by the stockholder in behalf of himself and
all other stockholders similarly situated
when a wrong is committed against a
group of stockholders.

CORPORATION
REQUISITES OF DERIVATIVE ACTIONS:
1. The party bringing the suit should be a
shareholder as of the time of the act or
transaction complained of;
2. He has exhausted intra-corporate remedies; and
3. The cause of action actually devolved on the
corporation, the wrongdoings or harm having
been caused to the corporation and not to the
particular stockholder bringing the suit.

CORPORATION
PRE-EMPTIVE RIGHT
A pre-emptive right is the shareholders
right to subscribe to all issues or
dispositions of shares of any class in
proportion to his present stockholdings,
the purpose being to enable the
shareholder to retain his proportionate
control in the corporation and to retain his
equity in the surplus.

CORPORATION
INSTANCES WHEN PRE-EMPTIVE RIGHT
IS NOT AVAILABLE:
1. Shares to be issued to comply with laws
requiring stock offering or minimum stock
ownership by the public;
2. Shares issued in good faith in exchange
for property needed for corporate
purposes;

CORPORATION
3. Shares issued in payment of previously
contracted debts;
4. In case the right s denied in the Articles of
Incorporation;
5. It does not apply to shares that are being
reoffered by the corporation after they
were initially offered together with all the
shares.

CORPORATION
VOTING TRUST
One or more stockholder of a stock
corporation may create a voting trust for the
purpose of conferring upon a trustee or trustees
the right to vote and other rights pertaining to the
shares for a period not exceeding 5 years at any
one time. However, if the voting trust was a
requirement for a loan agreement, period may
exceed 5 years but shall automatically expire
upon full payment of the loan.

CORPORATION
LIMITATIONS ON THE RIGHT TO VOTE;
1. Where the Articles of Incorporation
provides for classification of shares
pursuant to Sec. 6, non-voting shares are
not entitled to vote except as other
provided in the said section.

CORPORATION
2. Preferred or redeemable shares may be
deprived of the right to vote unless
otherwise provided.
3. Fractional shares of stock cannot be
voted unless they constitute at least one
full share.

CORPORATION
4. Treasury shares have no voting rights as
long as they remain in treasury.
5. Holders of stock declared delinquent by
the board for unpaid subscription.

CORPORATION
6. A transferee of stock if his stock transfer
is not registered in the stock and transfer
book of the corporation.
7. A stockholder who mortgages or pledges
his shares and gives authority for creditor
to vote

CORPORATION
BOOKS
BOOKS REQUIRED TO BE MAINTAINED:
1. Book of minutes of stockholders meetings;
2. Book of minutes of board meetings;
3. Record or Book of all business transactions;
4. Stock and transfer book

CORPORATION
MERGER AND CONSOLIDATION
MERGER
A corporation absorbs the other and remains in
existence while the others are dissolved.
CONSOLIDATION
A new corporation is created, and consolidating
corporations are extinguished.

CORPORATION
EFFECTS
OF
CONSOLIDATION:

MERGER

OR

1. The constituent corporations shall become

a single corporation.
2. The separate existence of the constituents
shall cease except that of the surviving
corporation (in merger) or the consolidated
corporation (in consolidation).

CORPORATION
3.

The surviving or the consolidated

corporation shall possess all the rights,
privileges, immunities and powers and
shall be subject to all duties and liabilities
of a corporation.

CORPORATION
4.

The surviving or the consolidated

corporation shall possess all rights,
privileges, immunities and franchises of
each constituent corporation and the
properties shall be deemed transferred to
the surviving or the consolidated
corporation.

CORPORATION
5. All liabilities of the constituents shall
pertain to the surviving or the consolidated
corporation.

CORPORATION
APPRAISAL RIGHT
The right to withdraw from the
corporation and demand payment of the
fair value of his shares after dissenting
from certain corporate acts involving
fundamental
changes
in
corporate
structure.

CORPORATION
INSTANCES WHEREIN APPRAISAL RIGHT
MAY BE EXERCISED:
1. Extension or reduction of corporate
term;
2. Change in the rights of stockholders,
authorize preferences superior to those
stockholders, or restrict the right of any
stockholder;

CORPORATION
3. Corporation authorized the board to
invest corporate funds in another business
or purpose;
4. Corporation decides to sell or dispose
of all or substantially all assets of
corporation;
5. Merger or consolidation.

CORPORATION
EXERCISE OF APPRAISAL RIGHT:

1. The stockholder must be a dissenting

stockholder;

CORPORATION
2. The stockholder must made a written
demand on the corporation within 30 days
after the vote was taken;
3. The proposed action is any one of the
instances supra;
4. The price to be paid is the fair value of the
shares on the date the vote was taken;

CORPORATION
5. The fair value shall be agreed upon but in
case there is no agreement within 60 days
from the date the vote was taken, the fair
value shall be determined by a majority of
the 3 distinguished persons one of whom
shall be named by the stockholder another
by the corporation and the third by the two
who were chosen;

CORPORATION
6. The right of appraisal is extinguished
when:
a. He withdraws the demand with the
corporations consent;
b. The proposed action is abandoned;
c. The SEC disapproves the action.

CORPORATION
NON-STOCK CORPORATIONS
A non-stock corporation is one where no part
of its income is distributable as dividends to its
members, trustees, or officers, subject to the
provisions of this Code on dissolution: Provided,
That any profit which a non-stock corporation
may obtain as an incident to its operations shall,
whenever necessary or proper, be used for the
furtherance of the purpose or purposes for which
the corporation was organized, subject to the
provisions of this Title.

CORPORATION
The provisions governing stock
corporation, when pertinent, shall be
applicable to non-stock corporations,
except as may be covered by specific
provisions of this Title.

CORPORATION
A non-stock corporation cannot be
converted into a stock corporation through
mere amendment of its Articles of
Incorporation as this would be in violation
of Section 87 which prohibits distribution
of income as dividends to members.
However, a non-stock corporation can be
converted into a stock corporation only if
the members dissolve it first and then
organize a stock corporation. The result is
a new corporation.

CORPORATION
On the other hand, a stock corporation
may be converted into a non-stock
corporation by mere amendment provided
all the requirements are complied with. Its
rights and liabilities will remain.

CORPORATION
CLOSE CORPORATIONS
A close corporation, within the meaning of
this Code, is one whose articles of incorporation
provide that:
(1) All the corporation's issued stock of all
classes, exclusive of treasury shares, shall be
held of record by not more than a specified
number of persons, not exceeding twenty (20);

CORPORATION
(2) all the issued stock of all classes shall
be subject to one or more specified
restrictions on transfer permitted by this
Title;

CORPORATION
(3) The corporation shall not list in any
stock exchange or make any public
offering of any of its stock of any class.
Notwithstanding
the
foregoing,
a
corporation shall not be deemed a close
corporation when at least two-thirds (2/3)
of its voting stock or voting rights is owned
or controlled by another corporation which
is not a close corporation within the
meaning of this Code.

CORPORATION
Any corporation may be incorporated as a
close corporation, except mining or oil
companies, stock exchanges, banks,
insurance companies, public utilities,
educational institutions and corporations
declared to be vested with public interest
in accordance with the provisions of this
Code.

CORPORATION
The provisions of this Title shall
primarily govern close corporations:
Provided, That the provisions of other
Titles of this Code shall apply suppletorily
except insofar as this Title otherwise
provides.

CORPORATION
CHARACTERISTICS:
1. The stockholders themselves can directly
manage the corporation and perform the
functions of directors without need of election:
(a) When they manage, stockholders are
liable as directors;
(b) There is no need to call a meeting to
elect directors;
(c) The stockholders are liable for tort.

CORPORATION
2.Despite the presence of the requisites, the
corporation shall not be deemed a close
corporation if at least 2/3 of the voting
stocks or voting rights belong to a
corporation which is not a close
corporation.

CORPORATION
REQUIREMENTS FOR CLOSE CORPORATIONS:

1. The Articles of Incorporation must state that the

number of stockholders shall not exceed 20;
2. The Articles of Incorporation must contain
restriction on the transfer of issued stocks;
3. The stocks cannot be listed in the stock
exchange nor be publicly offered.

CORPORATION
COMPANIES THAT CANNOT BE CLOSE
CORPORATIONS:
1. Mining companies;
2. Oil companies;
3. Stock exchanges;
4. Banks;

CORPORATION
5. Insurance companies;
6. Public utilities;
7. Educational institutions;
8. Other corporations declared to be vested
with public interest.

CORPORATION
SPECIAL CORPORATIONS
KINDS:
1. Educational Corporations
2. Religious Corporations
a. Corporation Sole
b. Religious Societies

CORPORATION
CORPORATION SOLE
Special form of corporation, usually
associated with the clergy and consists of
one person only and his successors, who
are incorporated by law to give some legal
capacities and advantages.

CORPORATION
RELIGIOUS SOCIETIES
Non-stock corporation formed by a
religious society, group, diocese, synod or
district of any religious denomination, sect
or church after getting the approval 2/3 of
its members.

CORPORATION
DISSOLUTION
Extinguishment of the franchise of a
corporation and the termination of its
corporate existence.

CORPORATION
MODES OF DISSOLUTION:
1. Voluntary dissolution where no creditors are
affected:
a. A meeting must be held on the call of
directors or trustees;
b. Notice of the meeting should be given to
the stockholders by personal delivery or
registered mail at least 30 days prior to the
meeting;

CORPORATION
c. The notice of meeting should also be
published for 3 consecutive weeks in a
newspaper published in the place;
d. The resolution to dissolve must be
approved by the majority of the
directors/trustees and approved by the
stockholders representing at least 2/3 of
the outstanding capital stock or 2/3 of
members;

CORPORATION
e. A copy of the resolution shall be certified
by the majority of the directors or trustees
and countersigned by the secretary;
f. The signed and countersigned copy will be
filed with the SEC and the latter will issue
the certificate of dissolution.

CORPORATION
2. Voluntary dissolution where creditors are
affected:
a. Approval of the stockholders
representing at least 2/3 of the
outstanding capital stock or 2/3 of
members in a meeting called for that
purpose;

CORPORATION
b. Filing a Petition with the SEC signed by
majority of directors or trustees or other officers
having the management of its affairs verified by
President or Secretary or Director. Claims and
demands must be stated in the petition;
c. If Petition is sufficient in form and
substance, the SEC shall issue an Order fixing a
hearing date for objections;

CORPORATION
d. A copy of the Order shall be published at
least once a week for 3 consecutive weeks in a
newspaper of general circulation or if there is no
newspaper in the municipality or city of the
principal office, posting for 3 consecutive weeks
in 3 public places is sufficient;
e. Objections must be filed no less than 30
days nor more than 60 days after the entry of the
Order;

CORPORATION
f. After the expiration of the time to file
objections, a hearing shall be conducted
upon prior 5 day notice to hear the
objections;
g. Judgment shall be rendered
dissolving the corporation and directing
the disposition of assets; the judgment
may include appointment of a receiver.

CORPORATION
3. Dissolution by shortening corporate term
This is done by amending the Articles of
Incorporation.

CORPORATION
4. Involuntary dissolution By filing a verified
complaint with the SEC based on any
ground provided by law or rules, including:
a. Failure to organize and commence
business within 2 years from incorporation;
b. Continuously inoperative for 5 years;

CORPORATION
c. Failure to file by-laws within 30 days
from issue of certificate of incorporation;
d. Continuance of business not feasible
as found by Management Committee or
Rehabilitation Receiver;

CORPORATION
e. Fraud in procuring Certificate of
Registration;
f. Serious Misrepresentation; and
g. Failure to file required reports.

CORPORATION
EFFECTS OF DISSOLUTION:
1. Transfer of Legal Title to Corporate Property
2. On Continuation of Corporate Business
3. Creation of a New Corporation
4. Reincorporation of Dissolved Corporation
5. Continuation of a Body Corporation
6. Cessation of Corporate Existence for all
Purposes

CORPORATION
LIQUIDATION
Process by which all the assets of the
corporation are converted into liquid
assets in order to facilitate the payment of
obligations to creditors, and the remaining
balance if any is to be distributed to the
stockholders.

CORPORATION
FOREIGN CORPORATION
A corporation formed, organized
or existing under any law other than those
of the Philippines, and whose laws allow
Filipino citizens and corporations to do
business in its own country or state.

CORPORATION
DOING BUSINESS with regard to FOREIGN
CORPORATIONS
Continuity of commercial dealings incident to
prosecution of purpose and object of the
organization. Isolated, occasional or casual
transactions do not amount to engaging in
business. But where the isolated act is not
incidental/casual but indicates the foreign
corporations intention to do other business, said
single act constitutes engaging in business in
the Philippines.

CORPORATION
DOING
BUSINESS
UNDER
FOREIGN INVESTMENT ACT:

THE

1. Doing Business
a. Soliciting orders, service contracts,
opening offices

CORPORATION
b.
Appointing
representatives,
distributors domiciled in the Philippines or
who stay for a period or periods totaling
180 days or more;
c. Participating in the management,
supervision or control of any domestic
business, firm, entity, or corporation in the
Philippines;

CORPORATION
d.
Any act or acts that imply a
continuity of commercial dealings or
arrangements, and contemplate to some
extent the performance of acts or works or
the exercise of some functions normally
incident to and in progressive prosecution
of, the purpose and object of its
organization.

CORPORATION
2. Not Doing Business
a. Mere investment as shareholder and
exercise of rights as investor;
b. Having a nominee director or officer
to represent its interest in the corporation;
c. Appointing a representative or
distributor which transact business in its
own name and for its own account.

CORPORATION
INSTANCES WHEN UNLICENSED FOREIGN
CORPORATIONS SUE:

1. Isolated transactions;
2. Action to protect good name, goodwill,
and reputation of a foreign corporation;

CORPORATION
3. The subject contracts provide that Phil.
Courts will be venue to controversies;
4. A license subsequently granted enables
the foreign corporation to sue on contracts
executed before the grant of the license;

CORPORATION
5. Recovery of misdelivered property;
6. Where the unlicensed foreign corporation
has a domestic corporation.