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CORPORATION LAW

Course Outline
A. GENERAL PRINCIPLES
a-1. Definition artificial being created by operation of law, having the right of succession and the powers,
attributes and properties expressly authorized by law or incident to its existence. [Section 2]
a-2. Kinds of Businesses
1. As to Organization
1-a. Sole Proprietorship [Bar, 1949; Anita Mangila v. CA, G.R. No. 125027, August 12, 2002]
1-b. Partnership [Article 1767, New Civil Code]
1-c. Joint Account or Cuentas en Participation
1-d. Business Trust
1-e. Joint Venture categorized as a form of limited partnership since its period [Kohler, Dictionary
for Accountants, 1975, p. 243; see J.M. Tuason & Co. vs. Bolanos, L-4935,
28 May 1954; Bar, 1987; Bar 1995]
1-f. Cooperative
1-g. Corporation
2. As to Activity
2-a. Merchandising
2-b. Manufacturing
2-c. Service-concerned
a-3. Attributes of a Corporation
1. Artificial Being
1-a. Separate entity concept [Bar, 1996]
1. Liability for Torts [PNB vs. Court of Appeals, 83 SCRA 237]
2. Liability for Damages [Bar, 1955]
3. Liability for Crimes [Sia vs. People, 121 scra 655; People vs. Conception, 44 Phil.
126; Section 144]
4. Constitutional rights a. Due process [Albert vs. University Publication Co., 13 SCRA 84]
b. Equal protection [Smith Bell & Co., vs. Natividad, 40 Phil. 136]
c. Unreasonable search and seizures [Stonehill vs. Diokno, 20 SCRA 383]
5. Theory of Concession [Tayag vs. Benguet Consolidated, Inc., 26 SCRA 242]
1-b. Piercing the Veil of Corporate Entity
1. Definition corporate fiction disregarded where the entity is formed or used for nonlegitimate purposes [Bar, 1978; Bar 1985; Bar 1991]
2. Reasons: When corporation is used to
a. Defeat public convenience
b. Justify wrong
c. Protect fraud
d. Defend crime
e. As mere alter ego [Umali vs. Court of Appeals, 189 SCRA 529]
3. Cases
a. Claparols vs. CIR [65 SCRA 613]
b. Cruz vs. Dalisay [152 SCRA 482]
c. Tan Boon Bee and Co. vs. Jarencio [163 SCRA 205]
d. CIR vs. Norton & Harrison Company [11 SCRA 714]
e. Philippine Veterans Investment Development Corporation vs. Court of
Appeals [181 SCRA 669]
f. Telephone Engineering and Service Co., Inc. vs. Workmens Compensation
Commission [104 SCRA 354]
4. Theory of Corporate Enterprise [Rationale: there can be no association without
associates, Villanueva, p. 266]

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2.

Created by Operation of Law


2-a. Creation under the Corporation Code
2-b. Creation under a Special Law
1. Governed primarily by Charter creating it
2. Corporation Code applies only on a suppletory manner. [Section 4]
2-c. De Facto Corporation [Section 20; Bar, 1989]
1. Definition a corporation that actually exists as a corporate body, but which, because of
failure to comply with some provisions of the law, has no legal right to corporate
existence as against the state. Certificate of incorporation must be issued. This
is distinguished with Corporation de Jure.
2. Only the state can question the personality of the corporation. Right usurped is that of the
sovereign, then it is the sovereign alone can question it through a Quo Warranto
proceedings represented by the Solicitor General.
3. Requisites
a. Law authorizing incorporation
b. Bona fide attempt to organize
c. Assumption of corporate powers
3-d. Corporation by Estoppel [Section 21]
1. Defined applies to persons assuming to act as a corporation without authority to do so
with respect to third persons who were prejudiced on the basis of their misrepresentations
2. How Action Commenced Sued under the name by which they are generally or commonly
known [Section 15, Rule 3, Revised Rules of Court]
3. Liability liable as general partners
4. Coverage
a. Debts
b. Liabilities
c. Damages
3. Perpetual Succession
3-a. Concept not immortality, but continuity of corporate life
3-b. Corporate Term [Section 11]
1. Duration not exceeding 50 years
2. Renewable for another 50 years within 5 years prior to expiration
[Alhambra Cigar vs. Securities and Exchange Commission, 24 SCRA 269]
3-c. Extension or Shortening of Term [Section 37; Bar, 1988]
3-d. Doctrine of Relation Delay in the approval of the application for extension of corporate term
attributable to circumstances beyond the control of corporation would
make the new charter related back to the day the corporation is entitled
to have the charter issued [Vitug, p. 379]
4. Powers, Attributes and Property Rights
4-a. Express Powers
1. Section 36 of the Corporation Code and
2. Purpose of corporation as stated in the Charter
4-b. Implied Powers which are necessary in order to attain or execute the express powers
4-c. Incidental Powers which can be exercised by the mere fact of its being a corporation
a-4. Classes of Corporations [Bar, 1954]
1. Statutory
1-a. Stock Corporation [Sections 3 and 63] one where the ownership of the interest or equity is
represented in the form of shares of stock
1-b. Non-Stock Corporation [Sections 87-95] one where the interest or equity is in the form of
membership
1-c. Close Corporation [Sections 76-105]
1-d. Foreign Corporation [Sections 123-136]
1-e. Educational Corporation [Sections 106-107]
1-f. Religious Corporation [Sections 109, 116]
2. As to Number
2-a. Corporation Sole [Sections 110-115; Bar, 1954]
2-b. Corporation Aggregate

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3.

As to Purpose
3-a. Ecclesiastical
3-b. Eleemosynary [Bar, 1967]
3-c. Lay
3-d. Public
1. Defined one formed or organized for the government of a portion of a State for the
purpose of promoting the general good and welfare [Section 3, Act. No. 1456]
2. Constitutional Prohibition - The Congress shall not, except by general law, provide for the
formation, organization or regulation of private corporations. Government owned or
controlled corporations may be created or established by special charters in the interest of
the common good and subject to the test of economic viability [Section 16, Article XII,
1987 Constitution]
3. Corporation Code applies on a suppletory manner [Section 4]
4. Quasi-Public corporation refers to a private corporation that is franchised or licensed by
the government to render services involving performance of public utilities
5. Public-Quasi corporation refers to a public corporation engaged in the performance of
public or governmental function but not being the State or its political corporation
4. As to Nationality
4-a. Tests of Nationality [Bar, 1957]
1. Incorporation Test
2. Control Test [see Filipinas de Seguros vs. Christern, Huenefeld & Co., Inc. G.R. L2294, 25 May 1951]
3. Residence Test
a. Generally fixed by law creating them
b. Place where legal representation is established or where principal functions are
exercised
4-b. Classes
1. Domestic Corporation those organized in accordance with B.P. 68
2. Foreign Corporation those organized under a foreign law that allows Filipino citizens and
corporations to do business in their state or country [Section 123]
4-c. Grandfather Rule [SEC Opinion, 4 May 1987]
5. As to Existence
5-a. De Jure
5-b. De Facto [Section 20; Bar, 1955; Bar, 1959]
5-c. Corporation by Estoppel [Section 21; Bar, 1955; Bar, 1973]
6. As to Membership
6-a. Open Corporation
6-b. Close Corporation one whose Charter provides
1. All corporate stocks issued must be held of record by not more than 20 persons
2. All corporate stocks issued are subject to certain restrictions on transfer
3. Stocks are not listed in any stock exchange [Section 96]
7. As to Relation with Other Corporations
7-a. Parent
7-b. Subsidiary
a-5. Four Basic Advantages of a Corporation [Bar, 1953]
1. Separate juridical personality
2. Limited liability of investors
3. Free transferability of units of ownership
4. Centralized management
a-6. Components of a Corporation
1. Incorporators [Bar, 1952]
1-a. Definition those stockholders or members mentioned in the Articles of Incorporation as
originally forming the corporation [Section 5]
1-b. Qualifications [Section 10]
1. Majority are Philippine residents
2. Natural persons
3. Of legal ages

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4. Not less than 5 not more than 15
5. Owner or subscriber of at least 1 share of stock
2. Corporators
2-a. Definition those composing the corporation, whether stock or non-stock.
[Section 126; Bar, 1952]
2-b. Kinds
1. Stockholders corporators of stock corporations
2. Members corporators of non-stock corporations
a-7. Capital Structure
1. Terminologies
1-a. Capital Stock amount subscribed and paid in by the stockholders or secured to be paid in
upon which the corporation is to conduct its operations [Bar, 1957; Bar, 1964]
1.b. Authorized Capital Stock total amount of the capital stock which it can raise [Bar, 1964]
1-c. Subscribed Capital Stock amount of authorized capital which has already been subscribed
[Bar, 1964]
1-d. Stated Capital
1-e. Legal Capital refers to the amount of funds received by the corporation in payment of the
shares of stocks. This shall be held in trust for the creditors of the corporation under the
Trust Fund Doctrine.
1-f. Paid-up Capital amount of subscription that has already been paid [Bar, 1964]
2. Legal Requirement
2-a. Pre-Incorporation [Sections 12-13]
1. 25% of authorized capital stock subscribed
2. 25% of subscribed capital stock paid
3. In no case less than P5,000 [Section 13]
2-b. Post-Incorporation [Section 38]
1. Applies to increases in capitalization
2. 25% of increase capital stock subscribed
3. 25% of subscribed capital stock paid
4. Treasurers Affidavit
3. Classifications of Shares [Section 6]
3-a. Preferred shares those which entitles the owner certain preferences [Bar, 1949]
1. As to Dividends
2. As to Liquidation
3-b. Common shares those ordinary stocks of a corporation which entitles the owner to pro rata
dividend without any priority or preference over any other stockholders [Bar, 1949]
3-c. Par Value shares those whose value is fixed in the Articles of Incorporation [Bar, 1950]
3-d. No-Par Value shares [Bar, 1958; 1970; Bar, 1984]
1. Types
a. With stated value
b. Without stated value
2. Valuation of Shares of Stocks [Section 62]
a. Articles of Incorporation
b. Board of directors pursuant to an authority conferred by the Charter or by the By-Laws
c. Majority vote of the stockholders
3. Corporations Prohibited to Issue No-Par Value Shares [Bar, 1958,Bar, 1959]
a. Banks
b. Insurance companies
c. Trust companies
d. Building & trust associations
e. Public utilities
3-e. Voting shares [Bar, 1984]
3-f. Non-Voting shares
1. Treasury shares [Section 9]
2. Preferred shares [Section 6]
3. Redeemable shares [Ibid]

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3-g. Redeemable shares refer to shares that may be purchased or taken up by the corporation
upon the expiration of a fixed period regardless of the existence of unrestricted retained
earnings. [Section 8]
3-h. Convertible shares those which give the holder the option to convert the same into another
class of shares
3-i. Shares in escrow shares deposited with a third person to be delivered to the stockholder
upon compliance with certain conditions
3-j. Treasury shares [Bar, 1992]
1. Definition shares issued and fully paid but subsequently reacquired by the issuing
corporation [Sections 9]
2. When Necessary [Bar, 1949]
a. Elimination of fractional shares
b. Collection or compromise of unpaid subscriptions
c. Payment to dissenting/withdrawing stockholders [Section 41]
3-k. Delinquent shares those which were declared as such
3-l. Founders shares [Section 7]
1. Definition - shares of stocks classified as such in the Articles of Incorporation given to the
founding stockholders
2. They enjoy certain rights and privileges not available to other classes of stocks
3. If privilege consists of the exclusive right to vote and be voted upon as Director, it must be
for a period not exceeding five (5) years
3-m. Outstanding shares shares fully paid and already in the hands of the stockholders
3-n. Issued shares [Section 137]
3-o. Watered shares shares issued for no or less than their par or stated value [Bar, 1993]
4. Issuance of Stock Certificates [Section 64]
4-a. Ways of issuance
1. Subscription refers to any contract for the acquisition of unissued stock in an existing
corporation or corporation still to be formed [Section 60]
a. Pre-Incorporation subscription of stocks in a corporation still to be formed irrevocable for
a period of 6 months from date of subscription [Section 61; Bar, 1979]
b. Post-Incorporation subscription of stocks in a corporation after its formation
2. Exchange or other onerous transfers
3. No promissory notes, no future services
4. Issued only upon full payment [Bar, 1976; Bar, 1975; Bar 1979;Bar, 1988]
5. Cannot be set-off against unpaid salary [Apodaco vs. NLRC, 172 SCRA 442; Article 102,
Labor Code of the Philippines; Bar, 1988]
4-b. Consideration for Issuance [Section 62]
1. Cash
2. Property, whether tangible or intangible
3. Labor performed or services actually rendered [Bar, 1952]
4. Previously incurred indebtedness
5. Amounts transferred from unrestricted retained earnings to stated capital
6. Reclassification or conversion
4-c. Collecting Subscriptions
1. Determination of Due Date [Section 67]
a. Subscription contract
b. In the absence, at any time from the date specified in the call by the Board of Directors
2. Effect of Non-Payment on Due Date
a. Entire balance becomes due and payable
b. After the lapse of 30 days from due date, stocks become delinquent. As such, holder lose
all rights due as a stockholder except the right to dividends [Section 71]
3. Modes of Collection [Bar, 1988]
a. Judicial remedy ordinary suit for collection of sum of money [Section 70]
b. Extrajudicial remedy - Delinquency sale [Section 68; Bar, 1969; Bar, 1997]
1. Resolution
2. Notice of Delinquency Sale
3. Publication

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4. Public Auction
5. Sale to highest bidder or treasury shares
c. Minimum Amount Due
1. Balance on subscription
2. Accrued interest, if any
3. Advertisement costs
4. Expenses of sale
d. Application of Dividends [Section 71]
4. Interests on Unpaid Subscriptions [Section 66]
a. General Rule: No interest payable
b. Exception
0. By-Laws provision
1. At the rate prescribed in the By-Laws
2. In the absence of the rate prescribed therein, legal rate
4-d. Right of Pre-Emption [Bar, 1982; Bar, 1983; Bar 1984]
1. Definition right of the stockholder to subscribe additional shares of stocks before the same
can be offered to the public in proportion to their respective shareholdings
2. When Right Deniable [Section 39]
a. Denial by the Charter
b. Shares issued to comply with legal Filipino ownership requirements
c. Shares issued in exchange for property needed or in payment of previously contracted
indebtedness in accordance with the approval of 2/3 of stockholders or members
3. Coverage
a. Only shares originally offered for sale to the public
b. Does not include
1. Shares previously offered but not sold
2. Treasury shares
4-e. Issuance of New Certificates [Section 73]
1. Coverage
a. Lost
b. Destroyed
c. Stolen
2. Procedures [Bar, 1969]
a. Affidavit of loss of stockholder
b. Verification by the corporation
c. Publication of Notice of Loss
1. If no bond filed by stockholder, wait until lapse of one year from last publication
2. If bond is filed by stockholder, new certificates may be issued even prior to the one
year period
d. If Contested
1. Case is filed without, wait for final decision
2. If no case filed, file an action for Interpleader
5. Transfer of Shares of Stocks [Bar, 1981; Bar, 1994; Bar, 1995]
5-a. Synopsis
1. Open corporation
2. Close corporation
5-b. Manner of Transfer
5-c. Assignment
5-d. Pledge
1. Pledgor entitled to the rights
2. If registered in corporate books without any reservation in writing, pledgee entitled to the
rights [Section 55]
5-e. Mortgage
1. Mortgagor entitled to the rights
2. If registered in corporate books without any reservation in writing, mortgagor entitled to the
rights [Ibid]

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B. INCORPORATION AND ORGANIZATION
b-1. Definition
1. Incorporation covers all steps and processes from the time of the application for incorporation
until the issuance of the Certificate of Incorporation
2. Organization
2-a. Definition refers to the acts of starting the operations of the corporation as a going
concern and the establishment of machineries to run its operations
2-b. Steps
1. Adoption of By-Laws
a. Pre-incorporation
b. Post-incorporation one month from issuance of Certificate [Section 46]
2. Election of corporate Directors
3. Election of corporate Officers
b-2. Terminologies
1. Promotion the initial and pre-incorporation steps until the actual formation of the corporation
[Bar, 1949]
2. Primary franchise
2-a. Definition - refers to the right to exist as a corporation
2-b. Characteristics
1. Vested in the individuals who compose the corporation and not in the corporation itself
2. Incapable of being transferred
3. Secondary franchise
3-a. Definition - refers to the right to conduct the business of the corporation
3-b. Characteristics
1. Vested in the corporation itself
2. Capable of being transferred
4. Concession theory Registration and issuance of the Certificate of Incorporation signals the birth
of the corporations personality [Vitug, p. 391]
5. Articles of Incorporation basic document for the registration of a corporation
6. Corporation By-Laws set of rules or guidelines for the internal operation of the corporation
7. Certificate of Incorporation
b-3. Steps in Incorporation
1. Promotion
1-a. Definition - the conduct of a project or feasibility study that interests prospective investors
to set-up a corporation business.
1-b. Who Undertakes - This is undertaken by a person called the promoter for a fee or
consideration
1-c. Effect binding only between the promoter and the parties and prospective investors who
signed and executed the promotion contract. This is binding only upon the corporation if,
after its creation, the promotion contract was adopted by the corporation by virtue of a
Board Resolution
2. Drafting and Execution in compliance with the compliance with the requirements [Sections 13,
14, 15, 61, 139-141]
3. Issuance of Certificate of Incorporation [Section 19]
b-4. Articles of Incorporation [Bar, 1990]
1. Definition charter of the corporation
2. Contents [Sections 14, 15]
2-a. Name of corporation [Section 18; Republic Planters Bank vs. Court of Appeals, 216
SCRA 738; Bar, 1976]
2-b. Purpose/purposes [Bar, 1976; Bar, 1977]
2-c. Principal place of business
2-d. Term of existence [Section 11]
2-e. Incorporators [Section 10]
2-f. Number of Directors/Trustees
2-g. Acting or Temporary Directors/Trustees
2-h. Stock Corporation data [Bar, 1984]

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2-i. Non-stock corporation data
2-j. Other matters
3. Attachments
3-a. Treasurers Affidavit
3-b. Favorable recommendation of appropriate government agency
3-c. Amendments of Articles [Section 16]
1. By vote
2. By written assent
4. Purpose of Charter
4-a. Contract between State and the corporation
4-b. Contract between the corporation and corporators
4-c. Contract between State and the corporators [Government of the Philippine Islands vs.
Manila Railroad Co., 52 Phil. 699]
5. Other Documents
5-a. Verification slip contains the corporate name duly verified and certified to by the records
section of the Securities and Exchange Commission
5-b. Letter-Undertaking contains the undertaking of the corporate secretary or treasurer of the
corporation to change the corporate name in the event that the same has already been
used or appropriated by another corporation, person or firm
5-c. Bank Certificate shows the amount of the paid-up capital in the name of the Treasurer in
trust for the corporation which is in the process of incorporation
5-d. Letter-Authority contains the express authority given by the treasurer of the corporation
in favor of the Central Bank and/or Securities and Exchange Commission to examine the
account involving the paid-up capital
5-e. Treasurers Affidavit
5-f. Statement of Assets showing the assets of the corporation in the form of the amount of
subscription, the paid-up capital and the balance on account of the subscription
5-g. Registration Sheet contains details concerning the names of incorporators, the kind and
nature of corporation, names and addresses of directors and officers, as well as data of
stock capitalization
6. Grounds for Disapproval
6-a. Non-conformity with the prescribed form
6-b. Patently illegal or immoral purpose
6-c. False Treasurers Affidavit
6-d. Non-compliance with required Filipino ownership
6-e. Non-submission of required favorable recommendation of appropriate government agency
b-5. Corporate By-Laws
1. Definition set of rules or guidelines for the internal operation of the corporation
2. Adoption of By-Laws [Section 46]
2-a. When adopted
1. Pre-incorporation
2. Post incorporation within 1 month from issuance of Certificate of Incorporation
2-b. How adopted affirmative vote of majority of the corporators
3. Purposes defines the
3-a. Relation between the stockholders and the corporation
3-b. Relation between the stockholders interse
3-c. Relation between the Board of Directors/Trustees and Officers and the corporation
3-d. Relation between the Board of Directors/Trustees and Officers and the stockholders
3-e. Particulars for stockholders and Board of Directors/Trustees meetings
3-f. Other internal operations of the corporation
4. Elements of Valid By-Laws
4-a. Consistent with general laws
4-b. Consistent with public policy and public welfare
4-c. Reasonable
4-d. Consonance with the Charter and the nature, purposes and objects of the corporation
5. Contents [Section 47]

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5-a. Time, place and manner of calling and conducting regular or special meetings of directors
and trustees
5-b. Time and manner of calling and conducting regular or special meetings of stockholders or
members
5-c. Required quorum in meetings of stockholders or members and the manner of voting therein
5-d. Form for proxies of stockholders and members and the manner of voting them
5-e. Qualifications, duties and compensation of directors or trustees, officers and employees;
5-f. Time for holding annual election of directors or trustees and the mode or manner of giving
notice thereof
5-g. Manner of election or appointment and the term of office of all officers other than directors
or trustees
5-h. Penalties for violation of by-laws
5-i. Manner of issuing stock certificates
5-j. Other matters necessary for the proper or convenient transaction of corporate business and
affairs
6. Amendments [Section 48]
6-a. Who can exercise
1. Majority of the board of directors or trustees and majority of the corporators
2. May be delegated to the board of directors or trustees by 2/3 votes of the corporators.
Power delegated may be revoked by majority votes of the corporators
6-b. Procedures
1. Attach amended By-Laws to original and Articles of Incorporation
2. Copy of amended By-Laws certified under oath by corporate secretary and majority of
board of directors or trustees filed with the Securities and Exchange Commission
b-6. Effects of
1. Non-Organization [Section 22]
1-a. Coverage failure to organize within two (2) years counted from the issuance of the
Certificate of Incorporation for causes within its control
1-b. Effect corporate powers ipso facto cease to exist [Bar, 1979]
2. Continuous Inoperation [Section 22]
2-a. Coverage continuous inoperation for five (5) years for causes within its control
2-b. Effect ground for the suspension or revocation of its corporate franchise
C. CORPORATE MANAGEMENT
c-1. Levels of Control in Corporate Heirarchy [Citibank NA vs. Chua, G.R. No. 102300, 17 March
1993]
1. Board of Directors/Trustees
2. Corporate Officers
3. Stockholders
c-2. Board of Directors/Trustees [Section 23; Bar, 1975]
1. Definition repository of corporate powers [Ramirez vs. Orientalist Company, 38 Phil.
634; Bar, 1975]
2. Number [Section 14]
3. Qualifications [Section 23; Bar, 1946; Bar, 1965]
3-a. Natural persons
3-b. Legal age
3-c. Not disqualified by law
3-d. Owner of at least one share of stock [Bar, 1984; Bar, 1987]
3-e. Majority are residents
4. Disqualifications [Section 27]
4-a. Convicted by final judgment of an offense punishable by an imprisonment for a period
exceeding six (6) years
4-b. Convicted by final judgment of an offense for violation of the Corporation Code committed
within five (5) years prior to his election or appointment
5. Elections [Section 24]
5-a. Manner

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1. Viva voce
2. By ballot when requested by any voting shareholder
3. In person or by proxy
5-b. Requirements
1. Proper notice
2. Attended by majority of stockholders
5-c. Voting
1. Cumulative [Bar, 1951]
a. Purpose to secure representation of minority stockholders in the Board of
Directors/Trustees
b. How Made Number of votes is to be determined by multiplying the number of
directors to be voted upon and the number of shares
2. Individual
6. Removal [Section 28]
6-a. Instances
1. For cause
2. Without cause
6-b. Requirements
1. Vote of stockholders representing 2/3 of the outstanding capital stock or 2/3 votes of
the members entitled to vote
2. Removal without cause should not deprive minority stockholders or members of the right
of representation [Bar, 1983; Bar, 1991]
7. Vacancies
7-a. Causes
1. Removal [Section 28]
2. Expiration of term
3. Increase in number
4. Other causes such as death, resignation, retirement
7-b. How Filled Up [Section 29]
1. By Board if still constituting quorum in vacancies resulting from causes other than
removal, expiration of term or increase in number
2. By stockholders in an election called for such purpose if vacancy is due to:
a. Removal
b. Expiration of term
c. Increase in number
3. Remaining members of the Board no longer constitute quorum
8. Meetings
8-a. Requisites of Valid Board Meetings
1. Proper Notice [Bar, 1990]
2. Meeting of Board duly assembled
3. Existence of a quorum
4. Decision of the majority of the quorum
8-b. Quorum [Bar, 1970]
1. By Laws provision
2. Majority of the number of directors or trustees as fixed by the Articles of Incorporation
8-c. Particulars [Section 53]
1. General Rules By-Laws provision
2. Regular Meetings
a. Frequency monthly
b. Place in or outside the Philippines [Bar, 1987]
c. Notice at least one day prior to the schedule
3. Special Meetings
a. Frequency as the need arises
b. Place in or outside the Philippines
c. Notice at least one day prior to the schedule
8-d. Cases
1. Calica vs. Labatique, 55 OG 647

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2. Ingersoll vs. Malabon Sugar Company, 53 Phil. 745
9. Compensation [Section 30; Bar, 1987]
9-a. General Rule : Only reasonable per diems
9-b. Exception
1. By-Laws
2. Vote of stockholders representing at least a majority of the outstanding capital stock or a
majority of the members
9-c. Limitation not to exceed ten percent (10%) of the net income before income tax of the
corporation during the preceding year [Bar, 1991]
c-3. Corporate Officers [Bar, 1995]
1. Types
1-a. Statutory
1. President [Bar, 1948; Bar, 1950; Bar, 1960; Bar, 1971; Bar, 1993]
a. Must be a director
b. Not a secretary nor treasurer at the same time
2. Secretary
a. Must be a citizen
b. Must be a resident of the Philippines
3. Treasurer
1-b. Non-Statutory
1. Rule other officers may be provided in the By-Laws
2. Cases
a. General Manager function is only to supervise and conduct the ordinary business of
the corporation [see Liboro vs. Rogers, L-11046, 30 October 1959]
b. Board of Liquidators vs. Kalaw, 20 SCRA 989]
2. How Elected majority of all the members of the Board of Directors or Trustees
3. Compensation
3-a. Directors [Section 30]
3-b. Officer-Director
c-4. Executive Committee [Section 35]
1. Creation by virtue of By-Laws provision
2. Composition not less than 3 members of the Board of Directors/Trustees
3. Delegable Acts all acts or matters within the competence of the Board of Directors/Trustees
except when explicitly prohibited by the Corporation Code or the By-Laws
4. Non-delegable Acts
4-a. Approval of any action requiring stockholders approval
4-b. Filling-up of vacancies in the Board of Directors or Trustees
4-c. Amendment or repeal of any resolution of the board which by its express terms is not so
amendable or repealable
4-d. Distribution of cash dividends to stockholders
c-5. Management Contracts [Section 44]
1. Creation
1-a. Resolution signed by majority of the Board
1-b. Majority vote of stockholders or members
2. Requirements
2-a. Votes representing 2/3 of the outstanding capital stock or 2/3 of the members
2-b. In case of
1. Interlocking stockholders owns 1/3 interest of the managing corporation
2. Interlocking directors 3. Limitations
c-6. Ultra Vires Corporate Acts [Section 45]
1. Definition
2. Kinds of Ultra Vires Acts
3. Effects
c-7. Corporate Reports

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D. CORPORATE POWERS
d-1. Classification
1. Express 2. Implied
3. Incidental
d-2. Voting Requirements
1. 2/3 of Stockholders and Majority of Board of Directors
1-a. Extension or shortening of corporate term [Section 37; Bar, 1953]
1-b. Increase or decrease of capital stock [Section 38; Bar, 1947; Bar, 1982; Bar, 1987]
1-c. Increase, incur or create bonded indebtedness [Section 38; Bar, 1956]
1-d. Sale, barter, exchange or other disposition of all or substantially all corporate assets
[Section 40]
1-e. Investment of corporate funds to another corporation [Section 42;Bar, 1947]
1-f. Investment of corporate funds to other ventures [Section 42; Bar, 1982; Bar, 1996]
1-g. Declaration of stock dividends [Section 43; Bar, 1982; Bar, 1990]
1-h. Enter into management contracts [Section 44; Bar, 1974]
1-i. Ratification of contracts with self-dealing directors [Section 32]
1-j. Ratification of contracts with inter-locking directors [Section 33]
1-k. Merger or consolidation [Section 77]
1-l. Voluntary dissolution of corporations [Section 118]
2. Majority of the Stockholders
2-a. Fixing value of no-par shares [Section 62]
2-b. Adoption, amendment and repeal of by-laws [Section 46]
2-c. Fixing compensation of the board of directors [Section 30; Bar, 1987; Bar, 1991]
d-3. Instances where Non-Voting Shares can Vote
1. Amendment of Articles [Section 16]
2. Adoption and amendment of By-Laws [Bar, 1981]
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all corporate
assets [Section 40; Bar, 1980; Bar, 1988]
4. Incurring, creating or increasing bonded indebtedness [Section 38]
5. Increase or decrease of capital stock [Section 38]
6. Merger or consolidation [Sections 76-80]
7. Investment of corporate funds [Section 42]
d-4. Appraisal Right
1. Definition
2. When Exercisable
3. Manner of Exercise

E. CORPORATE LIABILITY
e-1. Kinds of Liability
1. Corporate liability
2. Officers liability [Bar, 1989; Bar, 1995]
3. Directors liability
e-2. Corporate Liability
1. Usual and normal transactions
2. Torts
3. Crimes
e-3. Liability of Director/Trustee
1. Personal Liability [Section 21; Bar, 1996]
1-a. Business opportunity theory [Section 34; Bar, 1985; Bar, 1991]
1. When Applicable a director or trustee acquires for himself a business opportunity
belonging to the corporation whereby he obtained profits to the prejudice of the
corporation
2. Effects

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a. Account for the profits to the corporation
b. Personally bear the losses
3. Exception: Act is ratified by 2/3 of the stockholders or members
1-b. Inter-locking Directors [Section 33]
1. Where applicable contracts entered into between two corporations having the same
director/s or trustee/s
1-c. Self-Dealing Director [Section 32; Bar, 1995]
1. Coverage
2. When Contract is Valid
a. Presence of director or trustee not necessary to constitute quorum
b. Vote of the director or trustee not necessary to approve the contract
c. Contract is fair and reasonable
d. If he is an officer at the same time, the contract has been previously authorized by
the Board of Directors or Trustees
3. Effects on Contracts
a. As a rule, voidable at the option of the corporation
b. If presence of director or trustee helped in constituting quorum or his vote helped in
the approval of the contract, the same is voidable subject to ratification by 2/3 of
stockholders or members
2. Solidary Liability
2-a. Coverage [Section 31]
1. Patently unlawful acts of the corporation
2. Gross negligence or bad faith in directing affairs of the corporation [Bar, 1968]
3. Acquisition of personal or pecuniary interest in conflict with duty as director
4. Watered stocks [Section 65]
2-b. To Whom Liable
1. Corporation
2. Stockholders or members
3. Other persons
2-c. Persons Liable Directors/Trustees
1. Who willfully and knowingly voted or assented
2. Who committed gross negligence
3. Who were guilty of bad faith
3. Inter-locking Directors [Section 33; Bar, 1950]
3-a. Definition directors of one corporation who are at the same time directors of another
corporation
3-b. Coverage
3-c. Effect on Contracts
3-d. When Contract Valid [Bar, 1995]
1. Corporation where Inter-locking Director has Substantial Interest
a. No fraud involved
b. Fair and reasonable
c. Quorum and required votes; otherwise there is a need for ratification
2. Corporation where Inter-locking Director has Nominal Interest
a. Presence in BOD meeting is not necessary to constitute quorum
b. Vote unnecessary for approval of the corporate act
c. Fair and reasonable
4. Doctrines
4-a. Doctrine of Limited Liability shields the corporators from corporate liability beyond their
agreed contribution to the capital or shareholding
4-b. Doctrine of Immunity protects a person acting for and in behalf of the corporation from
being personally liable for his authorized acts [Bar, 1988], This is otherwise known as the
business judgment rule [Bar, 1986].

F. RIGHTS OF STOCKHOLDERS
f-1. Classification of Rights [Bar, 1995]

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1. Managerial rights
2. Proprietary rights
3. Remedial rights
4. Appraisal rights
f-2. Managerial Rights
1. Definition
2. Stockholders Meeting [Section 50]
2-a. Kinds of Meeting [Section 49]
2-b. Time of Meeting [Section 51]
2-c. Place of Meeting [Sections 51, 93]
2-d. Notice of Meeting
2-e. Quorum [Sections 25, 52]
3. Kinds of Voting
3-a. Personal
3-b. Representative or Proxy Voting [Section 58]
1. Definition voting through an agent
2. Revocable at will of the grantor [see Alejandrino vs. De Leon, L-49043, 29 December
1943]
2-c. Special Rules
1. Voting Trust Agreement [Section 59; Bar, 1976; Bar, 1985; Bar, 1992]
a. Definition an arrangement whereby the stockholders transfer their shares to
a trustee who acquires the right to vote said shares
b. Limitations
1. Not exceeding 5 years
2. If created by virtue of a loan agreement, not exceeding 5 years but ipso
facto terminated upon full payment of the loan
3. Must be in writing, notarized and filed with the SEC
2. Joint Ownership [Section 56]
a. Co-ownership
b. Consent of all co-owners or joint owners are necessary
3. Pledgors, Mortgagors [Section 55]
4. Executors, Administrators, Receivers and other Legal Representations [Section
55]
a. If appointed by the court, they can vote the shares
b. Without need of any written proxy
f-3. Proprietary Rights
1. Definition right as owner of the corporation [Bar, 1995]
2. Coverage
2-a. Right to dividend
2-b. Right to liquidation
2-c. Right of pre-emption [Section 39]
1. Definition preferential right to subscribe additional shares of stocks proportionate to
stockholding
2. When Denied
2.aTo comply with Filipino ownership requirements
d. To acquire property needed for corporate purposes
e. To pay previously contracted debt
3. Dividends [Section 43; Bar, 1987]
3-a. Definition distribution of the earnings of the corporation to the stockholders
3-b. Kinds
1. Cash [Bar, 1987; Bar, 1989]
2. Property
3. Scrip
4. Stock [Bar, 1991]
5. Liquidating
3-c. Retention of Surplus Profits
3-d. Entitlement to Dividends

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1. Unpaid subscriptions [Sections 43, 72]
2. Delinquent shares [Section 71]
3. Treasury shares
3-e. Determination of Dividends
1. Cumulative
2. Participating
3. Cumulative and participating
4. Liquidation
4-a. Steps
1. Dissolution
2. Winding-up
3. Termination
4-b. Liquidating dividends
4-c. Preferences of Preferred Stockholders
f-4. Remedial Rights [Bar, 1993]
1. Individual Suit suit instituted by a stockholder for his own benefit against the corporation
2. Representative Suit suit filed by a stockholder in his behalf and in behalf of other stockholders
similarly situated with a common cause of action against the corporation
3. Derivative Suit suit filed in behalf of the corporation by its stockholders upon a cause of action
belonging to the corporation [Bar, 1960; Bar, 1975]
4. Right to Inspection [Sections 74-75; Bar, 1976; Bar, 1988]
4-a. Coverage [Section 74]
1. Records of business transactions
2. Minutes of Meetings
3. Stock and Transfer book
4-b. Requisites
1. Exercised during reasonable hours on business day
2. Person demanding right has not improperly used any information obtained through any
previous examination of the books and records
3. Demand is made in good faith or for a legitimate purpose [Africa vs. PCGG, 205 SCRA
39]
5. Appraisal Right [Bar, 1976; Bar, 1983; Bar, 1987]
5-a. Definition
5-b. Instances
1. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all the
corporate property [Section 40]
2. Incurring, creating or increasing bonded indebtedness [Section 38]
3. Increase or decrease of capital stock [Section 81]
4. Merger or consolidation
5. Investment of corporate funds in another corporation [Section 42]
6. Extension or shortening of corporate term [Section 37]
5-c. Procedures [Sections 82]
1. Written demand within 30 days after dissenting vote, otherwise waived
2. If price is agreed upon
a. Corporation shall pay the value of the interest after corporate action is implemented or
effected
b. Stockholder surrenders the shares
3. If price cannot be agreed upon
a. Within 60 days from approval of corporate action, appraisal follows
b. 3 Members of appraisal team whose findings/award are final
c. Within 30 days after award, payment shall be made by the corporation
4. Payment shall be made only from the unrestricted retained earnings
5-d. When Ineffective [Section 84]
1. Withdrawal of demand
2. Abandonment or rescission by the corporation of the proposed corporate action
3. Disapproval by SEC of proposed corporate action
4. Resolution by SEC on the non-entitlement of appraisal right

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G. DISSOLUTION AND WINDING-UP


g-1. Terminologies
1. Dissolution [Bar, 1981]
2. Winding up or Liquidation [Section 122]
3. Termination
g-2. Causes of Corporate Dissolution [Section 117]
1. Voluntary [Sections 118-120; Bar, 1963; Bar, 1968]
1-a. Vote and resolution of majority of Board of Directors/Trustees and 2/3 of stockholders or
members when no prejudice to creditors [Section 118]
1-b. Judgment by the SEC after hearing on the Petition for Voluntary Dissolution where
creditors are affected [Section 119]
1-c. Amendment of Articles of Incorporation shortening corporate term [Section 120]
2. Involuntary [Section 121]
2-a. Expiration of corporate term [Section 11]
2-b. Legislative enactment [Section 145]
2-c. Failure to organize and commence business operations within 2 years from incorporation
[Section 22]
2-d. Judicial decree of Forfeiture [Sections 20, 134; Rule 66, Revised Rules of Court]
2-e. Order of SEC [Section 121]
H. FOREIGN CORPORATION
h-1. Definitions
1. Foreign corporation organized in a foreign country, provided that said foreign country allows
Filipinos and domestic corporations to do business therein [Section 123]
2. Doing business covers:
2-a. Soliciting orders
2-b. Service contracts
2-c. Opening offices, whether called liaison offices or branches
2-d. Appointing representatives or distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period totaling 180 days or more
2-e. Participating in the management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines
2-f. Any other act or acts that imply a continuity of commercial dealings or arrangements and
contemplate to that extent performance normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of the business organization
[Section 3(d), R.A. 7042, Foreign Investment Act of 1991], PROVIDED, that the following
shall not be deemed doing business:
1. Mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business and/or the exercise of rights as such investor;
2. Having a nominee director or officer to represent its interest in such corporation;
3. Appointing a representative or distributor domiciled in the Philippines which transact
business in its own name and for its own account
h-2. Suability of Foreign Corporations
1. Doing Business in the Philippines
1-a. With license may sue and be sued in the Philippines
1-b. Without license cannot sue but may be sued in the Philippines [Section 133]
2. Not Doing Business in the Philippines only on isolated transactions
2-a. May sue
2-b. May be sued [Facilities vs. de la Osa, 89SCRA 131]
h-3. License
1. Requirements
1-a. Appointment of Resident Agent, either a Filipino or domestic corporation; and power of
attorney to SEC to receive processes

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1-b. Must prove that the foreign corporations country grants reciprocal rights to Filipinos and
Philippine corporation;
1-c. Establish an office in the Philippines;
1-d. Bring in its assets;
2. In the event of insolvency, an undertaking the Filipino creditors will be preferred;
3. Notice of six months should it desire to terminate operations;
4. Franchise and patents must remain in the Philippines if possible;
5. Must file a bond of P100,000.00, that within 6 months after each fiscal year, the SEC shall
require the deposit of additional securities equivalent to 2% of the amount in excess of P5million
of the gross income
h-4. Grounds for Revocation of License
1. Failure to file annual reports required by the Code
2. Failure to appoint or maintain a resident agent
3. Failure to inform SEC of change of resident agent or the latters change of address
4. Failure to submit copy of amended articles or by-laws or articles of merger or consolidation
5. Failure to pay taxes, impost or assessments
6. Engaged in business not authorized by SEC
7. Acting as dummy of a foreign corporation not licensed to do business in the Philippines

I. NON-STOCK CORPORATION
i-1. Definition one where no part of its income is distributable as dividends to its members, trustees or
officers, subject to the provisions of the Corporation Code on dissolution.
i-2. Particulars
a. Purposes
a-1. Charitable
a-2. Educational
a-3. Religious
a-4. Professional
a-5. Cultural
a-6. Recreational
a-7. Fraternal
a-8. Literary
a-9. Scientific
a-10. Social
a-11. Civic service
b. Right to Vote
b-1. Right may be limited, broadened or denied to the extent specified in the Articles of
Incorporation or by the By-Laws
b-2. Unless otherwise specified, each member regardless of class shall be entitled to one vote
b-3. Voting by mail or other similar means by members of non-stock corporations may be
authorized by its By-Laws
i-3. Non-Transferability of Membership
a. Membership and all rights arising therefrom are personal and non-transferable
b. Except when authorized by the Articles of Incorporation or by the By-Laws
i-4. Election and Term of Trustees
a. May be more than 15 in number
b. Classified in such manner that the term of office of 1/3 of their number shall expire every year
c. Subsequent elections of trustees shall be held annually and trustees so elected shall have a term
of 3 years
i-5. Place of Meetings
a. May be held in a place outside the place where the principal place of the corporation is located
b. Must be within the Philippines [Section 93]

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J. CLOSE CORPORATIONS
j-1. Definition j-2. Particulars
a. Requirements
a-1. Number of stockholders not to exceed 20
a-2. Restriction: pre-emption in favor of the stockholders or corporation
a-3. Stocks cannot be listed in the stock exchange or be publicly offered
b. Prohibitions
b-1. Mining companies
b-2. Oil companies
b-3. Stock exchanges
b-4. Banks
b-5. Insurance companies
b-6. Public utility
b-7. Educational institution
b-8. Other corporations declared to be vested with public interest
j-3. Restrictions on Transfer
a. Must appear
a-1. In the Articles of Incorporation
a-2. In the By-Laws
a-3. On the Stock Certificate
b. Pre-emptive right extends not only to unissued shares but also to treasury stocks [Section 102]

ATTY. MELTINO JAUJAN SIBULAN, BS MATH


Professorial Lecturer