Professional Documents
Culture Documents
TITLE I
GENERAL PROVISIONS
Section 1. Title of the Code. – This Code shall be known as "The Corporation Code of the
Philippines." (n)
Section 3. Classes of corporations. – Corporations formed or organized under this Code may be
stock or non-stock corporations. Corporations which have capital stock divided into shares and
are authorized to distribute to the holders of such shares dividends or allotments of the
surplus profits on the basis of the shares held are stock corporations. All other corporations
are non-stock corporations. (3a)
Section 5. Corporators and incorporators, stockholders and members. – Corporators are those
who compose a corporation, whether as stockholders or as members. Incorporators are those
stockholders or members mentioned in the articles of incorporation as originally forming and
composing the corporation and who are signatories thereof.
Section 6. Classification of shares. – The shares of stock of stock corporations may be divided
into classes or series of shares, or both, any of which classes or series of shares may have such
rights, privileges or restrictions as may be stated in the articles of incorporation: Provided,
That no share may be deprived of voting rights except those classified and issued as
"preferred" or "redeemable" shares, unless otherwise provided in this Code: Provided, further,
That there shall always be a class or series of shares which have complete voting rights. Any or
all of the shares or series of shares may have a par value or have no par value as may be
provided for in the articles of incorporation: Provided, however, That banks, trust companies,
insurance companies, public utilities, and building and loan associations shall not be permitted
to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the
distribution of the assets of the corporation in case of liquidation and in the distribution of
dividends, or such other preferences as may be stated in the articles of incorporation which
are not violative of the provisions of this Code: Provided, That preferred shares of stock may
be issued only with a stated par value. The board of directors, where authorized in the articles
of incorporation, may fix the terms and conditions of preferred shares of stock or any series
thereof: Provided, That such terms and conditions shall be effective upon the filing of a
certificate thereof with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-assessable
and the holder of such shares shall not be liable to the corporation or to its creditors in respect
thereto: Provided; That shares without par value may not be issued for a consideration less
than the value of five (P5.00) pesos per share: Provided, further, That the entire consideration
received by the corporation for its no-par value shares shall be treated as capital and shall not
be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring compliance with
constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the certificate of
stock, each share shall be equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases allowed by this
Code, the holders of such shares shall nevertheless be entitled to vote on the following
matters:
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all
of the corporate property;
Except as provided in the immediately preceding paragraph, the vote necessary to approve a
particular corporate act as provided in this Code shall be deemed to refer only to stocks with
voting rights. (5a)
Section 8. Redeemable shares. – Redeemable shares may be issued by the corporation when
expressly so provided in the articles of incorporation. They may be purchased or taken up by
the corporation upon the expiration of a fixed period, regardless of the existence of
unrestricted retained earnings in the books of the corporation, and upon such other terms and
conditions as may be stated in the articles of incorporation, which terms and conditions must
also be stated in the certificate of stock representing said shares. (n)
Section 9. Treasury shares. – Treasury shares are shares of stock which have been issued and
fully paid for, but subsequently reacquired by the issuing corporation by purchase,
redemption, donation or through some other lawful means. Such shares may again be
disposed of for a reasonable price fixed by the board of directors. (n)
TITLE II
INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS
Section 10. Number and qualifications of incorporators. – Any number of natural persons not
less than five (5) but not more than fifteen (15), all of legal age and a majority of whom are
residents of the Philippines, may form a private corporation for any lawful purpose or
purposes. Each of the incorporators of s stock corporation must own or be a subscriber to at
least one (1) share of the capital stock of the corporation. (6a)
Section 11. Corporate term. – A corporation shall exist for a period not exceeding fifty (50)
years from the date of incorporation unless sooner dissolved or unless said period is extended.
The corporate term as originally stated in the articles of incorporation may be extended for
periods not exceeding fifty (50) years in any single instance by an amendment of the articles of
incorporation, in accordance with this Code; Provided, That no extension can be made earlier
than five (5) years prior to the original or subsequent expiry date(s) unless there are justifiable
reasons for an earlier extension as may be determined by the Securities and Exchange
Commission. (6)
Section 13. Amount of capital stock to be subscribed and paid for the purposes of
incorporation. – At least twenty-five percent (25%) of the authorized capital stock as stated in
the articles of incorporation must be subscribed at the time of incorporation, and at least
twenty-five (25%) per cent of the total subscription must be paid upon subscription, the
balance to be payable on a date or dates fixed in the contract of subscription without need of
call, or in the absence of a fixed date or dates, upon call for payment by the board of directors:
Provided, however, That in no case shall the paid-up capital be less than five Thousand
(P5,000.00) pesos. (n)
Section 14. Contents of the articles of incorporation. – All corporations organized under this
code shall file with the Securities and Exchange Commission articles of incorporation in any of
the official languages duly signed and acknowledged by all of the incorporators, containing
substantially the following matters, except as otherwise prescribed by this Code or by special
law:
2. The specific purpose or purposes for which the corporation is being incorporated.
Where a corporation has more than one stated purpose, the articles of incorporation
shall state which is the primary purpose and which is/are the secondary purpose or
purposes: Provided, That a non-stock corporation may not include a purpose which
would change or contradict its nature as such;
3. The place where the principal office of the corporation is to be located, which must
be within the Philippines;
6. The number of directors or trustees, which shall not be less than five (5) nor more
than fifteen (15);
7. The names, nationalities and residences of persons who shall act as directors or
trustees until the first regular directors or trustees are duly elected and qualified in
accordance with this Code;
8. If it be a stock corporation, the amount of its authorized capital stock in lawful money
of the Philippines, the number of shares into which it is divided, and in case the share
are par value shares, the par value of each, the names, nationalities and residences of
the original subscribers, and the amount subscribed and paid by each on his
subscription, and if some or all of the shares are without par value, such fact must be
stated;
9. If it be a non-stock corporation, the amount of its capital, the names, nationalities and
residences of the contributors and the amount contributed by each; and
10. Such other matters as are not inconsistent with law and which the incorporators
may deem necessary and convenient.
The Securities and Exchange Commission shall not accept the articles of incorporation of any
stock corporation unless accompanied by a sworn statement of the Treasurer elected by the
subscribers showing that at least twenty-five (25%) percent of the authorized capital stock of
the corporation has been subscribed, and at least twenty-five (25%) of the total subscription
has been fully paid to him in actual cash and/or in property the fair valuation of which is equal
to at least twenty-five (25%) percent of the said subscription, such paid-up capital being not
less than five thousand (P5,000.00) pesos.
ARTICLES OF INCORPORATION
OF
__________________________
(Name of Corporation)
The undersigned incorporators, all of legal age and a majority of whom are residents of the
Philippines, have this day voluntarily agreed to form a (stock) (non-stock) corporation under
the laws of the Republic of the Philippines;
SECOND: That the purpose or purposes for which such corporation is incorporated are: (If
there is more than one purpose, indicate primary and secondary purposes);
THIRD: That the principal office of the corporation is located in the City/Municipality of
________________________, Province of _______________________, Philippines;
FOURTH: That the term for which said corporation is to exist is _____________ years from and
after the date of issuance of the certificate of incorporation;
FIFTH: That the names, nationalities and residences of the incorporators of the corporation are
as follows:
NAME NATIONALITY RESIDENCE
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
SIXTH: That the number of directors or trustees of the corporation shall be _______; and the
names, nationalities and residences of the first directors or trustees of the corporation are as
follows:
NAME NATIONALITY RESIDENCE
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
EIGHTH: That at least twenty five (25%) per cent of the authorized capital stock above stated
has been subscribed as follows:
Name of Nationality No. of Shares Amount
Subscriber Subscribed Subscribed
_______________ _______________ _______________ _______________
____ ____ ____ ____
_______________ _______________ _______________ _______________
____ ____ ____ ____
_______________ _______________ _______________ _______________
____ ____ ____ ____
_______________ _______________ _______________ _______________
____ ____ ____ ____
_______________ _______________ _______________ _______________
____ ____ ____ ____
_______________ _______________ _______________ _______________
____ ____ ____ ____
NINTH: That the above-named subscribers have paid at least twenty-five (25%) percent of the
total subscription as follows:
Name of Amount Subscribed Total
Subscriber Paid-In
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
(Modify Nos. 8 and 9 if shares are with no par value. In case the corporation is non-stock, Nos.
7, 8 and 9 of the above articles may be modified accordingly, and it is sufficient if the articles
state the amount of capital or money contributed or donated by specified persons, stating the
names, nationalities and residences of the contributors or donors and the respective amount
given by each.)
TENTH: That _____________________ has been elected by the subscribers as Treasurer of the
Corporation to act as such until his successor is duly elected and qualified in accordance with
the by-laws, and that as such Treasurer, he has been authorized to receive for and in the name
and for the benefit of the corporation, all subscription (or fees) or contributions or donations
paid or given by the subscribers or members.
ELEVENTH: (Corporations which will engage in any business or activity reserved for Filipino
citizens shall provide the following):
"No transfer of stock or interest which shall reduce the ownership of Filipino citizens to less
than the required percentage of the capital stock as provided by existing laws shall be allowed
or permitted to be recorded in the proper books of the corporation and this restriction shall be
indicated in all stock certificates issued by the corporation."
________________________________
(Notarial Acknowledgment)
TREASURER’S AFFIDAVIT
CITY/MUNICIPALITY OF ) S.S.
PROVINCE OF )
____________________
(Signature of Treasurer)
SUBSCRIBED AND SWORN to before me, a Notary Public, for and in the City/Municipality
of___________________Province of _____________________, this _______ day of
___________, 19 _____; by __________________ with Res. Cert. No. ___________ issued at
_______________________ on ____________, 19 ______
NOTARY PUBLIC
The original and amended articles together shall contain all provisions required by law to be
set out in the articles of incorporation. Such articles, as amended shall be indicated by
underscoring the change or changes made, and a copy thereof duly certified under oath by the
corporate secretary and a majority of the directors or trustees stating the fact that said
amendment or amendments have been duly approved by the required vote of the
stockholders or members, shall be submitted to the Securities and Exchange Commission.
The amendments shall take effect upon their approval by the Securities and Exchange
Commission or from the date of filing with the said Commission if not acted upon within six (6)
months from the date of filing for a cause not attributable to the corporation.
2. That the purpose or purposes of the corporation are patently unconstitutional, illegal,
immoral, or contrary to government rules and regulations;
3. That the Treasurer’s Affidavit concerning the amount of capital stock subscribed
and/or paid is false;
4. That the 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.
Section 18. Corporate name. – No corporate name may be allowed by the Securities and
Exchange Commission if the proposed name is identical or deceptively or confusingly similar to
that of any existing corporation or to any other name already protected by law or is patently
deceptive, confusing or contrary to existing laws. When a change in the corporate name is
approved, the Commission shall issue an amended certificate of incorporation under the
amended name. (n)
Section 20. De facto corporations. – The due incorporation of any corporation claiming in good
faith to be a corporation under this Code, and its right to exercise corporate powers, shall not
be inquired into collaterally in any private suit to which such corporation may be a party. Such
inquiry may be made by the Solicitor General in a quo warranto proceeding. (n)
Section 21. Corporation by estoppel. – All persons who assume to act as a corporation knowing
it to be without authority to do so shall be liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof: Provided, however, That when any such
ostensible corporation is sued on any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a defense its lack of corporate
personality.
This provision shall not apply if the failure to organize, commence the transaction of its
businesses or the construction of its works, or to continuously operate is due to causes beyond
the control of the corporation as may be determined by the Securities and Exchange
Commission.
TITLE III
BOARD OF DIRECTORS/TRUSTEES AND OFFICERS
Section 23. The board of directors or trustees. – Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors
or trustees to be elected from among the holders of stocks, or where there is no stock, from
among the members of the corporation, who shall hold office for one (1) year until their
successors are elected and qualified. (28a)
Every director must own at least one (1) share of the capital stock of the corporation of which
he is a director, which share shall stand in his name on the books of the corporation. Any
director who ceases to be the owner of at least one (1) share of the capital stock of the
corporation of which he is a director shall thereby cease to be a director. Trustees of non-stock
corporations must be members thereof. A majority of the directors or trustees of all
corporations organized under this Code must be residents of the Philippines.
Section 25. Corporate officers, quorum. – Immediately after their election, the directors of a
corporation must formally organize by the election of a president, who shall be a director, a
treasurer who may or may not be a director, a secretary who shall be a resident and citizen of
the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or
more positions may be held concurrently by the same person, except that no one shall act as
president and secretary or as president and treasurer at the same time.
The directors or trustees and officers to be elected shall perform the duties enjoined on them
by law and the by-laws of the corporation. Unless the articles of incorporation or the by-laws
provide for a greater majority, a majority of the number of directors or trustees as fixed in the
articles of incorporation shall constitute a quorum for the transaction of corporate business,
and every decision of at least a majority of the directors or trustees present at a meeting at
which there is a quorum shall be valid as a corporate act, except for the election of officers
which shall require the vote of a majority of all the members of the board.
Section 26. Report of election of directors, trustees and officers. – Within thirty (30) days after
the election of the directors, trustees and officers of the corporation, the secretary, or any
other officer of the corporation, shall submit to the Securities and Exchange Commission, the
names, nationalities and residences of the directors, trustees, and officers elected. Should a
director, trustee or officer die, resign or in any manner cease to hold office, his heirs in case of
his death, the secretary, or any other officer of the corporation, or the director, trustee or
officer himself, shall immediately report such fact to the Securities and Exchange Commission.
(n)
Section 29. Vacancies in the office of director or trustee. – Any vacancy occurring in the board
of directors or trustees other than by removal by the stockholders or members or by
expiration of term, may be filled by the vote of at least a majority of the remaining directors or
trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the
stockholders in a regular or special meeting called for that purpose. A director or trustee so
elected to fill a vacancy shall be elected only or the unexpired term of his predecessor in
office.
Section 30. Compensation of directors. – In the absence of any provision in the by-laws fixing
their compensation, the directors shall not receive any compensation, as such directors,
except for reasonable per diems: Provided, however, That any such compensation other than
per diems may be granted to directors by the vote of the stockholders representing at least a
majority of the outstanding capital stock at a regular or special stockholders’ meeting. In no
case shall the total yearly compensation of directors, as such directors, exceed ten (10%)
percent of the net income before income tax of the corporation during the preceding year. (n)
Section 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation or acquire any personal
or pecuniary interest in conflict with their duty as such directors or trustees shall be liable
jointly and severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquire, in violation of his duty, any
interest adverse to the corporation in respect of any matter which has been reposed in him in
confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall
be liable as a trustee for the corporation and must account for the profits which otherwise
would have accrued to the corporation. (n)
Section 32. Dealings of directors, trustees or officers with the corporation. – A contract of the
corporation with one or more of its directors or trustees or officers is voidable, at the option of
such corporation, unless all the following conditions are present:
1. That the presence of such director or trustee in the board meeting in which the
contract was approved was not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the
contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the board of
directors.
Where any of the first two conditions set forth in the preceding paragraph is absent, in
the case of a contract with a director or trustee, such contract may be ratified by the
vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital
stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose:
Provided, That full disclosure of the adverse interest of the directors or trustees
involved is made at such meeting: Provided, however, That the contract is fair and
reasonable under the circumstances. (n)
Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be
considered substantial for purposes of interlocking directors. (n)
Section 34. Disloyalty of a director. – Where a director, by virtue of his office, acquires for
himself a business opportunity which should belong to the corporation, thereby obtaining
profits to the prejudice of such corporation, he must account to the latter for all such profits
by refunding the same, unless his act has been ratified by a vote of the stockholders owning or
representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall be
applicable, notwithstanding the fact that the director risked his own funds in the venture. (n)
TITLE IV
POWERS OF CORPORATIONS
Section 36. Corporate powers and capacity. – Every corporation incorporated under this Code
has the power and capacity:
2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate of incorporation;
4. To amend its articles of incorporation in accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or
repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to
subscribers and to sell treasury stocks in accordance with the provisions of this Code;
and to admit members to the corporation if it be a non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of
other corporations, as the transaction of the lawful business of the corporation may
reasonably and necessarily require, subject to the limitations prescribed by law and the
Constitution;
9. To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation,
domestic or foreign, shall give donations in aid of any political party or candidate or for
purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its directors,
trustees, officers and employees; and
11. To exercise such other powers as may be essential or necessary to carry out its
purpose or purposes as stated in the articles of incorporation. (13a)
Section 37. Power to extend or shorten corporate term. – A private corporation may extend or
shorten its term as stated in the articles of incorporation when approved by a majority vote of
the board of directors or trustees and ratified at a meeting by the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the
members in case of non-stock corporations. Written notice of the proposed action and of the
time and place of the meeting shall be addressed to each stockholder or member at his place
of residence as shown on the books of the corporation and deposited to the addressee in the
post office with postage prepaid, or served personally: Provided, That in case of extension of
corporate term, any dissenting stockholder may exercise his appraisal right under the
conditions provided in this code. (n)
Section 38. Power to increase or decrease capital stock; incur, create or increase bonded
indebtedness. – No corporation shall increase or decrease its capital stock or incur, create or
increase any bonded indebtedness unless approved by a majority vote of the board of
directors and, at a stockholder’s meeting duly called for the purpose, two-thirds (2/3) of the
outstanding capital stock shall favor the increase or diminution of the capital stock, or the
incurring, creating or increasing of any bonded indebtedness. Written notice of the proposed
increase or diminution of the capital stock or of the incurring, creating, or increasing of any
bonded indebtedness and of the time and place of the stockholder’s meeting at which the
proposed increase or diminution of the capital stock or the incurring or increasing of any
bonded indebtedness is to be considered, must be addressed to each stockholder at his place
of residence as shown on the books of the corporation and deposited to the addressee in the
post office with postage prepaid, or served personally.
A certificate in duplicate must be signed by a majority of the directors of the corporation and
countersigned by the chairman and the secretary of the stockholders’ meeting, setting forth:
(1) That the requirements of this section have been complied with;
(3) If an increase of the capital stock, the amount of capital stock or number of shares of
no-par stock thereof actually subscribed, the names, nationalities and residences of the
persons subscribing, the amount of capital stock or number of no-par stock subscribed
by each, and the amount paid by each on his subscription in cash or property, or the
amount of capital stock or number of shares of no-par stock allotted to each stock-
holder if such increase is for the purpose of making effective stock dividend therefor
authorized;
(5) The actual indebtedness of the corporation on the day of the meeting;
(7) The vote authorizing the increase or diminution of the capital stock, or the incurring,
creating or increasing of any bonded indebtedness.
Any increase or decrease in the capital stock or the incurring, creating or increasing of
any bonded indebtedness shall require prior approval of the Securities and Exchange
Commission.
One of the duplicate certificates shall be kept on file in the office of the corporation and
the other shall be filed with the Securities and Exchange Commission and attached to
the original articles of incorporation. From and after approval by the Securities and
Exchange Commission and the issuance by the Commission of its certificate of filing, the
capital stock shall stand increased or decreased and the incurring, creating or increasing
of any bonded indebtedness authorized, as the certificate of filing may declare:
Provided, That the Securities and Exchange Commission shall not accept for filing any
certificate of increase of capital stock unless accompanied by the sworn statement of
the treasurer of the corporation lawfully holding office at the time of the filing of the
certificate, showing that at least twenty-five (25%) percent of such increased capital
stock has been subscribed and that at least twenty-five (25%) percent of the amount
subscribed has been paid either in actual cash to the corporation or that there has been
transferred to the corporation property the valuation of which is equal to twenty-five
(25%) percent of the subscription: Provided, further, That no decrease of the capital
stock shall be approved by the Commission if its effect shall prejudice the rights of
corporate creditors.
Non-stock corporations may incur or create bonded indebtedness, or increase the same,
with the approval by a majority vote of the board of trustees and of at least two-thirds
(2/3) of the members in a meeting duly called for the purpose.
Bonds issued by a corporation shall be registered with the Securities and Exchange
Commission, which shall have the authority to determine the sufficiency of the terms
thereof. (17a)
Section 39. Power to deny pre-emptive right. – All stockholders of a stock corporation shall
enjoy pre-emptive right to subscribe to all issues or disposition of shares of any class, in
proportion to their respective shareholdings, unless such right is denied by the articles of
incorporation or an amendment thereto: Provided, That such pre-emptive right shall not
extend to shares to be issued in compliance with laws requiring stock offerings or minimum
stock ownership by the public; or to shares to be issued in good faith with the approval of the
stockholders representing two-thirds (2/3) of the outstanding capital stock, in exchange for
property needed for corporate purposes or in payment of a previously contracted debt.
Section 40. Sale or other disposition of assets. – Subject to the provisions of existing laws on
illegal combinations and monopolies, a corporation may, by a majority vote of its board of
directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or
substantially all of its property and assets, including its goodwill, upon such terms and
conditions and for such consideration, which may be money, stocks, bonds or other
instruments for the payment of money or other property or consideration, as its board of
directors or trustees may deem expedient, when authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, or in case of non-stock
corporation, by the vote of at least to two-thirds (2/3) of the members, in a stockholder’s or
member’s meeting duly called for the purpose. Written notice of the proposed action and of
the time and place of the meeting shall be addressed to each stockholder or member at his
place of residence as shown on the books of the corporation and deposited to the addressee
in the post office with postage prepaid, or served personally: Provided, That any dissenting
stockholder may exercise his appraisal right under the conditions provided in this Code.
A sale or other disposition shall be deemed to cover substantially all the corporate property
and assets if thereby the corporation would be rendered incapable of continuing the business
or accomplishing the purpose for which it was incorporated.
After such authorization or approval by the stockholders or members, the board of directors or
trustees may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage,
pledge or other disposition of property and assets, subject to the rights of third parties under
any contract relating thereto, without further action or approval by the stockholders or
members.
Nothing in this section is intended to restrict the power of any corporation, without the
authorization by the stockholders or members, to sell, lease, exchange, mortgage, pledge or
otherwise dispose of any of its property and assets if the same is necessary in the usual and
regular course of business of said corporation or if the proceeds of the sale or other
disposition of such property and assets be appropriated for the conduct of its remaining
business.
In non-stock corporations where there are no members with voting rights, the vote of at least
a majority of the trustees in office will be sufficient authorization for the corporation to enter
into any transaction authorized by this section.
Section 41. Power to acquire own shares. – A stock corporation shall have the power to
purchase or acquire its own shares for a legitimate corporate purpose or purposes, including
but not limited to the following cases: Provided, That the corporation has unrestricted
retained earnings in its books to cover the shares to be purchased or acquired:
Section 42. Power to invest corporate funds in another corporation or business or for any other
purpose. – Subject to the provisions of this Code, a private corporation may invest its funds in
any other corporation or business or for any purpose other than the primary purpose for
which it was organized when approved by a majority of the board of directors or trustees and
ratified by the stockholders representing at least two-thirds (2/3) of the outstanding capital
stock, or by at least two thirds (2/3) of the members in the case of non-stock corporations, at a
stockholder’s or member’s meeting duly called for the purpose. Written notice of the
proposed investment and the time and place of the meeting shall be addressed to each
stockholder or member at his place of residence as shown on the books of the corporation and
deposited to the addressee in the post office with postage prepaid, or served personally:
Provided, That any dissenting stockholder shall have appraisal right as provided in this Code:
Provided, however, That where the investment by the corporation is reasonably necessary to
accomplish its primary purpose as stated in the articles of incorporation, the approval of the
stockholders or members shall not be necessary. (17 1/2a)
Section 43. Power to declare dividends. - The board of directors of a stock corporation may
declare dividends out of the unrestricted retained earnings which shall be payable in cash, in
property, or in stock to all stockholders on the basis of outstanding stock held by them:
Provided, That any cash dividends due on delinquent stock shall first be applied to the unpaid
balance on the subscription plus costs and expenses, while stock dividends shall be withheld
from the delinquent stockholder until his unpaid subscription is fully paid: Provided, further,
That no stock dividend shall be issued without the approval of stockholders representing not
less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly
called for the purpose. (16a)
Stock corporations are prohibited from retaining surplus profits in excess of one hundred
(100%) percent of their paid-in capital stock, except: (1) when justified by definite corporate
expansion projects or programs approved by the board of directors; or (2) when the
corporation is prohibited under any loan agreement with any financial institution or creditor,
whether local or foreign, from declaring dividends without its/his consent, and such consent
has not yet been secured; or (3) when it can be clearly shown that such retention is necessary
under special circumstances obtaining in the corporation, such as when there is need for
special reserve for probable contingencies. (n)
The provisions of the next preceding paragraph shall apply to any contract whereby a
corporation undertakes to manage or operate all or substantially all of the business of another
corporation, whether such contracts are called service contracts, operating agreements or
otherwise: Provided, however, That such service contracts or operating agreements which
relate to the exploration, development, exploitation or utilization of natural resources may be
entered into for such periods as may be provided by the pertinent laws or regulations. (n)
Section 45. Ultra vires acts of corporations. – No corporation under this Code shall possess or
exercise any corporate powers except those conferred by this Code or by its articles of
incorporation and except such as are necessary or incidental to the exercise of the powers so
conferred. (n)
TITLE V
BY LAWS
Section 46. Adoption of by-laws. – Every corporation formed under this Code must, within one
(1) month after receipt of official notice of the issuance of its certificate of incorporation by the
Securities and Exchange Commission, adopt a code of by-laws for its government not
inconsistent with this Code. For the adoption of by-laws by the corporation the affirmative
vote of the stockholders representing at least a majority of the outstanding capital stock, or of
at least a majority of the members in case of non-stock corporations, shall be necessary. The
by-laws shall be signed by the stockholders or members voting for them and shall be kept in
the principal office of the corporation, subject to the inspection of the stockholders or
members during office hours. A copy thereof, duly certified to by a majority of the directors or
trustees countersigned by the secretary of the corporation, shall be filed with the Securities
and Exchange Commission which shall be attached to the original articles of incorporation.
Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed
prior to incorporation; in such case, such by-laws shall be approved and signed by all the
incorporators and submitted to the Securities and Exchange Commission, together with the
articles of incorporation.
In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange
Commission of a certification that the by-laws are not inconsistent with this Code.
The Securities and Exchange Commission shall not accept for filing the by-laws or any
amendment thereto of any bank, banking institution, building and loan association, trust
company, insurance company, public utility, educational institution or other special
corporations governed by special laws, unless accompanied by a certificate of the appropriate
government agency to the effect that such by-laws or amendments are in accordance with
law. (20a)
Section 47. Contents of by-laws. – Subject to the provisions of the Constitution, this Code,
other special laws, and the articles of incorporation, a private corporation may provide in its
by-laws for:
1. The time, place and manner of calling and conducting regular or special meetings of
the directors or trustees;
2. The time and manner of calling and conducting regular or special meetings of the
stockholders or members;
4. The form for proxies of stockholders and members and the manner of voting them;
6. The time for holding the annual election of directors of trustees and the mode or
manner of giving notice thereof;
7. The manner of election or appointment and the term of office of all officers other
than directors or trustees;
9. In the case of stock corporations, the manner of issuing stock certificates; and
10. Such other matters as may be necessary for the proper or convenient transaction of
its corporate business and affairs. (21a)
Whenever any amendment or new by-laws are adopted, such amendment or new by-laws
shall be attached to the original by-laws in the office of the corporation, and a copy thereof,
duly certified under oath by the corporate secretary and a majority of the directors or
trustees, shall be filed with the Securities and Exchange Commission the same to be attached
to the original articles of incorporation and original by-laws.
The amended or new by-laws shall only be effective upon the issuance by the Securities and
Exchange Commission of a certification that the same are not inconsistent with this Code. (22a
and 23a)
TITLE VI
MEETINGS
Special meetings of stockholders or members shall be held at any time deemed necessary or
as provided in the by-laws: Provided, however, That at least one (1) week written notice shall
be sent to all stockholders or members, unless otherwise provided in the by-laws.
Notice of any meeting may be waived, expressly or impliedly, by any stockholder or member.
Whenever, for any cause, there is no person authorized to call a meeting, the Securities and
Exchange Commission, upon petition of a stockholder or member on a showing of good cause
therefor, may issue an order to the petitioning stockholder or member directing him to call a
meeting of the corporation by giving proper notice required by this Code or by the by-laws.
The petitioning stockholder or member shall preside thereat until at least a majority of the
stockholders or members present have chosen one of their number as presiding officer. (24,
26)
Notice of meetings shall be in writing, and the time and place thereof stated therein.
All proceedings had and any business transacted at any meeting of the stockholders or
members, if within the powers or authority of the corporation, shall be valid even if the
meeting be improperly held or called, provided all the stockholders or members of the
corporation are present or duly represented at the meeting. (24 and 25)
Section 52. Quorum in meetings. – Unless otherwise provided for in this Code or in the by-
laws, a quorum shall consist of the stockholders representing a majority of the outstanding
capital stock or a majority of the members in the case of non-stock corporations. (n)
Section 53. Regular and special meetings of directors or trustees. – Regular meetings of the
board of directors or trustees of every corporation shall be held monthly, unless the by-laws
provide otherwise.
Special meetings of the board of directors or trustees may be held at any time upon the call of
the president or as provided in the by-laws.
Section 54. Who shall preside at meetings. – The president shall preside at all meetings of the
directors or trustee as well as of the stockholders or members, unless the by-laws provide
otherwise. (n)
Section 56. Voting in case of joint ownership of stock. – In case of shares of stock owned jointly
by two or more persons, in order to vote the same, the consent of all the co-owners shall be
necessary, unless there is a written proxy, signed by all the co-owners, authorizing one or
some of them or any other person to vote such share or shares: Provided, That when the
shares are owned in an "and/or" capacity by the holders thereof, any one of the joint owners
can vote said shares or appoint a proxy therefor. (n)
Section 57. Voting right for treasury shares. – Treasury shares shall have no voting right as long
as such shares remain in the Treasury. (n)
Section 58. Proxies. – Stockholders and members may vote in person or by proxy in all
meetings of stockholders or members. Proxies shall in writing, signed by the stockholder or
member and filed before the scheduled meeting with the corporate secretary. Unless
otherwise provided in the proxy, it shall be valid only for the meeting for which it is intended.
No proxy shall be valid and effective for a period longer than five (5) years at any one time. (n)
Section 59. Voting trusts. – One or more stockholders 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 five (5) years at any time:
Provided, That in the case of a voting trust specifically required as a condition in a loan
agreement, said voting trust may be for a period exceeding five (5) years but shall
automatically expire upon full payment of the loan. A voting trust agreement must be in
writing and notarized, and shall specify the terms and conditions thereof. A certified copy of
such agreement shall be filed with the corporation and with the Securities and Exchange
Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or
certificates of stock covered by the voting trust agreement shall be cancelled and new ones
shall be issued in the name of the trustee or trustees stating that they are issued pursuant to
said agreement. In the books of the corporation, it shall be noted that the transfer in the name
of the trustee or trustees is made pursuant to said voting trust agreement.
The trustee or trustees shall execute and deliver to the transferors voting trust certificates,
which shall be transferable in the same manner and with the same effect as certificates of
stock.
The voting trust agreement filed with the corporation shall be subject to examination by any
stockholder of the corporation in the same manner as any other corporate book or record:
Provided, That both the transferor and the trustee or trustees may exercise the right of
inspection of all corporate books and records in accordance with the provisions of this Code.
Any other stockholder may transfer his shares to the same trustee or trustees upon the terms
and conditions stated in the voting trust agreement, and thereupon shall be bound by all the
provisions of said agreement.
No voting trust agreement shall be entered into for the purpose of circumventing the law
against monopolies and illegal combinations in restraint of trade or used for purposes of fraud.
Unless expressly renewed, all rights granted in a voting trust agreement shall automatically
expire at the end of the agreed period, and the voting trust certificates as well as the
certificates of stock in the name of the trustee or trustees shall thereby be deemed cancelled
and new certificates of stock shall be reissued in the name of the transferors.
The voting trustee or trustees may vote by proxy unless the agreement provides otherwise.
(36a)
TITLE VII
STOCKS AND STOCKHOLDERS
Section 60. 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. (n)
Section 62. Consideration for stocks. – Stocks shall not be issued for a consideration less than
the par or issued price thereof. Consideration for the issuance of stock may be any or a
combination of any two or more of the following:
Where the consideration is other than actual cash, or consists of intangible property
such as patents of copyrights, the valuation thereof shall initially be determined by the
incorporators or the board of directors, subject to approval by the Securities and
Exchange Commission.
Shares of stock shall not be issued in exchange for promissory notes or future service.
The same considerations provided for in this section, insofar as they may be applicable,
may be used for the issuance of bonds by the corporation.
The issued price of no-par value shares may be fixed in the articles of incorporation or
by the board of directors pursuant to authority conferred upon it by the articles of
incorporation or the by-laws, or in the absence thereof, by the stockholders
representing at least a majority of the outstanding capital stock at a meeting duly called
for the purpose. (5 and 16)
Section 63. Certificate of stock and transfer of shares. – The capital stock of stock corporations
shall be divided into shares for which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the certificate or certificates indorsed
by the owner or his attorney-in-fact or other person legally authorized to make the transfer.
No transfer, however, shall be valid, except as between the parties, until the transfer is
recorded in the books of the corporation showing the names of the parties to the transaction,
the date of the transfer, the number of the certificate or certificates and the number of shares
transferred.
No shares of stock against which the corporation holds any unpaid claim shall be transferable
in the books of the corporation. (35)
Section 65. Liability of directors for watered stocks. – Any director or officer of a corporation
consenting to the issuance of stocks for a consideration less than its par or issued value or for
a consideration in any form other than cash, valued in excess of its fair value, or who, having
knowledge thereof, does not forthwith express his objection in writing and file the same with
the corporate secretary, shall be solidarily, liable with the stockholder concerned to the
corporation and its creditors for the difference between the fair value received at the time of
issuance of the stock and the par or issued value of the same. (n)
Section 66. Interest on unpaid subscriptions. – Subscribers for stock shall pay to the
corporation interest on all unpaid subscriptions from the date of subscription, if so required
by, and at the rate of interest fixed in the by-laws. If no rate of interest is fixed in the by-laws,
such rate shall be deemed to be the legal rate. (37)
Payment of any unpaid subscription or any percentage thereof, together with the interest
accrued, if any, shall be made on the date specified in the contract of subscription or on the
date stated in the call made by the board. Failure to pay on such date shall render the entire
balance due and payable and shall make the stockholder liable for interest at the legal rate on
such balance, unless a different rate of interest is provided in the by-laws, computed from
such date until full payment. If within thirty (30) days from the said date no payment is made,
all stocks covered by said subscription shall thereupon become delinquent and shall be subject
to sale as hereinafter provided, unless the board of directors orders otherwise. (38)
Section 68. Delinquency sale. – The board of directors may, by resolution, order the sale of
delinquent stock and shall specifically state the amount due on each subscription plus all
accrued interest, and the date, time and place of the sale which shall not be less than thirty
(30) days nor more than sixty (60) days from the date the stocks become delinquent.
Notice of said sale, with a copy of the resolution, shall be sent to every delinquent stockholder
either personally or by registered mail. The same shall furthermore be published once a week
for two (2) consecutive weeks in a newspaper of general circulation in the province or city
where the principal office of the corporation is located.
Unless the delinquent stockholder pays to the corporation, on or before the date specified for
the sale of the delinquent stock, the balance due on his subscription, plus accrued interest,
costs of advertisement and expenses of sale, or unless the board of directors otherwise orders,
said delinquent stock shall be sold at public auction to such bidder who shall offer to pay the
full amount of the balance on the subscription together with accrued interest, costs of
advertisement and expenses of sale, for the smallest number of shares or fraction of a share.
The stock so purchased shall be transferred to such purchaser in the books of the corporation
and a certificate for such stock shall be issued in his favor. The remaining shares, if any, shall
be credited in favor of the delinquent stockholder who shall likewise be entitled to the
issuance of a certificate of stock covering such shares.
Should there be no bidder at the public auction who offers to pay the full amount of the
balance on the subscription together with accrued interest, costs of advertisement and
expenses of sale, for the smallest number of shares or fraction of a share, the corporation
may, subject to the provisions of this Code, bid for the same, and the total amount due shall
be credited as paid in full in the books of the corporation. Title to all the shares of stock
covered by the subscription shall be vested in the corporation as treasury shares and may be
disposed of by said corporation in accordance with the provisions of this Code. (39a-46a)
Section 69. When sale may be questioned. – No action to recover delinquent stock sold can be
sustained upon the ground of irregularity or defect in the notice of sale, or in the sale itself of
the delinquent stock, unless the party seeking to maintain such action first pays or tenders to
the party holding the stock the sum for which the same was sold, with interest from the date
of sale at the legal rate; and no such action shall be maintained unless it is commenced by the
filing of a complaint within six (6) months from the date of sale. (47a)
Section 70. Court action to recover unpaid subscription. – Nothing in this Code shall prevent
the corporation from collecting by action in a court of proper jurisdiction the amount due on
any unpaid subscription, with accrued interest, costs and expenses. (49a)
Section 72. Rights of unpaid shares. – Holders of subscribed shares not fully paid which are not
delinquent shall have all the rights of a stockholder. (n)
Section 73. Lost or destroyed certificates. – The following procedure shall be followed for the
issuance by a corporation of new certificates of stock in lieu of those which have been lost,
stolen or destroyed:
Except in case of fraud, bad faith, or negligence on the part of the corporation and its
officers, no action may be brought against any corporation which shall have issued
certificate of stock in lieu of those lost, stolen or destroyed pursuant to the procedure
above-described. (R.A. 201a)
TITLE VIII
CORPORATE BOOKS AND RECORDS
Section 74. Books to be kept; stock transfer agent. – Every corporation shall keep and carefully
preserve at its principal office a record of all business transactions and minutes of all meetings
of stockholders or members, or of the board of directors or trustees, in which shall be set forth
in detail the time and place of holding the meeting, how authorized, the notice given, whether
the meeting was regular or special, if special its object, those present and absent, and every
act done or ordered done at the meeting. Upon the demand of any director, trustee,
stockholder or member, the time when any director, trustee, stockholder or member entered
or left the meeting must be noted in the minutes; and on a similar demand, the yeas and nays
must be taken on any motion or proposition, and a record thereof carefully made. The protest
of any director, trustee, stockholder or member on any action or proposed action must be
recorded in full on his demand.
The records of all business transactions of the corporation and the minutes of any meetings
shall be open to inspection by any director, trustee, stockholder or member of the corporation
at reasonable hours on business days and he may demand, in writing, for a copy of excerpts
from said records or minutes, at his expense.
Any officer or agent of the corporation who shall refuse to allow any director, trustees,
stockholder or member of the corporation to examine and copy excerpts from its records or
minutes, in accordance with the provisions of this Code, shall be liable to such director,
trustee, stockholder or member for damages, and in addition, shall be guilty of an offense
which shall be punishable under Section 144 of this Code: Provided, That if such refusal is
made pursuant to a resolution or order of the board of directors or trustees, the liability under
this section for such action shall be imposed upon the directors or trustees who voted for such
refusal: and Provided, further, That it shall be a defense to any action under this section that
the person demanding to examine and copy excerpts from the corporation’s records and
minutes has improperly used any information secured through any prior examination of the
records or minutes of such corporation or of any other corporation, or was not acting in good
faith or for a legitimate purpose in making his demand.
Stock corporations must also keep a book to be known as the "stock and transfer book", in
which must be kept a record of all stocks in the names of the stockholders alphabetically
arranged; the installments paid and unpaid on all stock for which subscription has been made,
and the date of payment of any installment; a statement of every alienation, sale or transfer of
stock made, the date thereof, and by and to whom made; and such other entries as the by-
laws may prescribe. The stock and transfer book shall be kept in the principal office of the
corporation or in the office of its stock transfer agent and shall be open for inspection by any
director or stockholder of the corporation at reasonable hours on business days.
No stock transfer agent or one engaged principally in the business of registering transfers of
stocks in behalf of a stock corporation shall be allowed to operate in the Philippines unless he
secures a license from the Securities and Exchange Commission and pays a fee as may be fixed
by the Commission, which shall be renewable annually: Provided, That a stock corporation is
not precluded from performing or making transfer of its own stocks, in which case all the rules
and regulations imposed on stock transfer agents, except the payment of a license fee herein
provided, shall be applicable. (51a and 32a; P.B. No. 268.)
Section 75. Right to financial statements. – Within ten (10) days from receipt of a written
request of any stockholder or member, the corporation shall furnish to him its most recent
financial statement, which shall include a balance sheet as of the end of the last taxable year
and a profit or loss statement for said taxable year, showing in reasonable detail its assets and
liabilities and the result of its operations.
At the regular meeting of stockholders or members, the board of directors or trustees shall
present to such stockholders or members a financial report of the operations of the
corporation for the preceding year, which shall include financial statements, duly signed and
certified by an independent certified public accountant.
However, if the paid-up capital of the corporation is less than P50,000.00, the financial
statements may be certified under oath by the treasurer or any responsible officer of the
corporation. (n)
TITLE IX
MERGER AND CONSOLIDATION
Section 76. Plan or merger of consolidation. – Two or more corporations may merge into a
single corporation which shall be one of the constituent corporations or may consolidate into a
new single corporation which shall be the consolidated corporation.
The board of directors or trustees of each corporation, party to the merger or consolidation,
shall approve a plan of merger or consolidation setting forth the following:
2. The terms of the merger or consolidation and the mode of carrying the same into
effect;
4. Such other provisions with respect to the proposed merger or consolidation as are
deemed necessary or desirable. (n)
Any amendment to the plan of merger or consolidation may be made, provided such
amendment is approved by majority vote of the respective boards of directors or trustees of
all the constituent corporations and ratified by the affirmative vote of stockholders
representing at least two-thirds (2/3) of the outstanding capital stock or of two-thirds (2/3) of
the members of each of the constituent corporations. Such plan, together with any
amendment, shall be considered as the agreement of merger or consolidation. (n)
3. As to each corporation, the number of shares or members voting for and against such
plan, respectively. (n)
If, upon investigation, the Securities and Exchange Commission has reason to believe that the
proposed merger or consolidation is contrary to or inconsistent with the provisions of this
Code or existing laws, it shall set a hearing to give the corporations concerned the opportunity
to be heard. Written notice of the date, time and place of hearing shall be given to each
constituent corporation at least two (2) weeks before said hearing. The Commission shall
thereafter proceed as provided in this Code. (n)
Section 80. Effects of merger or consolidation. – The merger or consolidation shall have the
following effects:
2. The separate existence of the constituent corporations shall cease, except that of the
surviving or the consolidated corporation;
3. The surviving or the consolidated corporation shall possess all the rights, privileges,
immunities and powers and shall be subject to all the duties and liabilities of a
corporation organized under this Code;
4. The surviving or the consolidated corporation shall thereupon and thereafter possess
all the rights, privileges, immunities and franchises of each of the constituent
corporations; and all property, real or personal, and all receivables due on whatever
account, including subscriptions to shares and other choses in action, and all and every
other interest of, or belonging to, or due to each constituent corporation, shall be
deemed transferred to and vested in such surviving or consolidated corporation without
further act or deed; and
5. The surviving or consolidated corporation shall be responsible and liable for all the
liabilities and obligations of each of the constituent corporations in the same manner as
if such surviving or consolidated corporation had itself incurred such liabilities or
obligations; and any pending claim, action or proceeding brought by or against any of
such constituent corporations may be prosecuted by or against the surviving or
consolidated corporation. The rights of creditors or liens upon the property of any of
such constituent corporations shall not be impaired by such merger or consolidation. (n)
TITLE X
APPRAISAL RIGHT
Section 81. Instances of appraisal right. – Any stockholder of a corporation shall have the right
to dissent and demand payment of the fair value of his shares in the following instances:
1. In case any amendment to the articles of incorporation has the effect of changing or
restricting the rights of any stockholder or class of shares, or of authorizing preferences
in any respect superior to those of outstanding shares of any class, or of extending or
shortening the term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all
or substantially all of the corporate property and assets as provided in the Code; and
Section 82. How right is exercised. – The appraisal right may be exercised by any stockholder
who shall have voted against the proposed corporate action, by making a written demand on
the corporation within thirty (30) days after the date on which the vote was taken for payment
of the fair value of his shares: Provided, That failure to make the demand within such period
shall be deemed a waiver of the appraisal right. If the proposed corporate action is
implemented or affected, the corporation shall pay to such stockholder, upon surrender of the
certificate or certificates of stock representing his shares, the fair value thereof as of the day
prior to the date on which the vote was taken, excluding any appreciation or depreciation in
anticipation of such corporate action.
If within a period of sixty (60) days from the date the corporate action was approved by the
stockholders, the withdrawing stockholder and the corporation cannot agree on the fair value
of the shares, it shall be determined and appraised by three (3) disinterested persons, one of
whom shall be named by the stockholder, another by the corporation, and the third by the
two thus chosen. The findings of the majority of the appraisers shall be final, and their award
shall be paid by the corporation within thirty (30) days after such award is made: Provided,
That no payment shall be made to any dissenting stockholder unless the corporation has
unrestricted retained earnings in its books to cover such payment: and Provided, further, That
upon payment by the corporation of the agreed or awarded price, the stockholder shall
forthwith transfer his shares to the corporation. (n)
Section 83. Effect of demand and termination of right. – From the time of demand for payment
of the fair value of a stockholder’s shares until either the abandonment of the corporate
action involved or the purchase of the said shares by the corporation, all rights accruing to
such shares, including voting and dividend rights, shall be suspended in accordance with the
provisions of this Code, except the right of such stockholder to receive payment of the fair
value thereof: Provided, That if the dissenting stockholder is not paid the value of his shares
within 30 days after the award, his voting and dividend rights shall immediately be restored.
(n)
Section 84. When right to payment ceases. – No demand for payment under this Title may be
withdrawn unless the corporation consents thereto. If, however, such demand for payment is
withdrawn with the consent of the corporation, or if the proposed corporate action is
abandoned or rescinded by the corporation or disapproved by the Securities and Exchange
Commission where such approval is necessary, or if the Securities and Exchange Commission
determines that such stockholder is not entitled to the appraisal right, then the right of said
stockholder to be paid the fair value of his shares shall cease, his status as a stockholder shall
thereupon be restored, and all dividend distributions which would have accrued on his shares
shall be paid to him. (n)
Section 85. Who bears costs of appraisal. – The costs and expenses of appraisal shall be borne
by the corporation, unless the fair value ascertained by the appraisers is approximately the
same as the price which the corporation may have offered to pay the stockholder, in which
case they shall be borne by the latter. In the case of an action to recover such fair value, all
costs and expenses shall be assessed against the corporation, unless the refusal of the
stockholder to receive payment was unjustified. (n)
Section 86. Notation on certificates; rights of transferee. – Within ten (10) days after
demanding payment for his shares, a dissenting stockholder shall submit the certificates of
stock representing his shares to the corporation for notation thereon that such shares are
dissenting shares. His failure to do so shall, at the option of the corporation, terminate his
rights under this Title. If shares represented by the certificates bearing such notation are
transferred, and the certificates consequently cancelled, the rights of the transferor as a
dissenting stockholder under this Title shall cease and the transferee shall have all the rights of
a regular stockholder; and all dividend distributions which would have accrued on such shares
shall be paid to the transferee. (n)
TITLE XI
NON-STOCK CORPORATIONS
Section 87. Definition. – For the purposes of this Code, 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.
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. (n)
CHAPTER I
MEMBERS
Section 89. Right to vote. – The right of the members of any class or classes to vote may be
limited, broadened or denied to the extent specified in the articles of incorporation or the by-
laws. Unless so limited, broadened or denied, each member, regardless of class, shall be
entitled to one vote.
Unless otherwise provided in the articles of incorporation or the by-laws, a member may vote
by proxy in accordance with the provisions of this Code. (n)
CHAPTER II
TRUSTEES AND OFFICES
Section 92. Election and term of trustees. – Unless otherwise provided in the articles of
incorporation or the by-laws, the board of trustees of non-stock corporations, which may be
more than fifteen (15) in number as may be fixed in their articles of incorporation or by-laws,
shall, as soon as organized, so classify themselves that the term of office of one-third (1/3) of
their number shall expire every year; and subsequent elections of trustees comprising one-
third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a
term of three (3) years. Trustees thereafter elected to fill vacancies occurring before the
expiration of a particular term shall hold office only for the unexpired period.
Unless otherwise provided in the articles of incorporation or the by-laws, officers of a non-
stock corporation may be directly elected by the members. (n)
Section 93. Place of meetings. – The by-laws may provide that the members of a non-stock
corporation may hold their regular or special meetings at any place even outside the place
where the principal office of the corporation is located: Provided, That proper notice is sent to
all members indicating the date, time and place of the meeting: and Provided, further, That
the place of meeting shall be within the Philippines. (n)
CHAPTER III
DISTRIBUTION OF ASSETS IN NON-STOCK CORPORATIONS
1. All liabilities and obligations of the corporation shall be paid, satisfied and discharged,
or adequate provision shall be made therefore;
3. Assets received and held by the corporation subject to limitations permitting their use
only for charitable, religious, benevolent, educational or similar purposes, but not held
upon a condition requiring return, transfer or conveyance by reason of the dissolution,
shall be transferred or conveyed to one or more corporations, societies or organizations
engaged in activities in the Philippines substantially similar to those of the dissolving
corporation according to a plan of distribution adopted pursuant to this Chapter;
4. Assets other than those mentioned in the preceding paragraphs, if any, shall be
distributed in accordance with the provisions of the articles of incorporation or the by-
laws, to the extent that the articles of incorporation or the by-laws, determine the
distributive rights of members, or any class or classes of members, or provide for
distribution; and
5. In any other case, assets may be distributed to such persons, societies, organizations
or corporations, whether or not organized for profit, as may be specified in a plan of
distribution adopted pursuant to this Chapter. (n)
Section 95. Plan of distribution of assets. – A plan providing for the distribution of assets, not
inconsistent with the provisions of this Title, may be adopted by a non-stock corporation in the
process of dissolution in the following manner:
The board of trustees shall, by majority vote, adopt a resolution recommending a plan of
distribution and directing the submission thereof to a vote at a regular or special meeting of
members having voting rights. Written notice setting forth the proposed plan of distribution or
a summary thereof and the date, time and place of such meeting shall be given to each
member entitled to vote, within the time and in the manner provided in this Code for the
giving of notice of meetings to members. Such plan of distribution shall be adopted upon
approval of at least two-thirds (2/3) of the members having voting rights present or
represented by proxy at such meeting. (n)
TITLE XII
CLOSE CORPORATIONS
Section 96. Definition and applicability of Title. - 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); (2) all the issued stock of all classes
shall be subject to one or more specified restrictions on transfer permitted by this Title; and
(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.
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.
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.
1. For a classification of shares or rights and the qualifications for owning or holding the
same and restrictions on their transfers as may be stated therein, subject to the
provisions of the following section;
2. For a classification of directors into one or more classes, each of whom may be voted
for and elected solely by a particular class of stock; and
The articles of incorporation of a close corporation may provide that the business of the
corporation shall be managed by the stockholders of the corporation rather than by a board of
directors. So long as this provision continues in effect:
The articles of incorporation may likewise provide that all officers or employees or that
specified officers or employees shall be elected or appointed by the stockholders, instead of by
the board of directors.
4. Whenever any person to whom stock of a close corporation has been issued or
transferred has, or is conclusively presumed under this section to have, notice either (a)
that he is a person not eligible to be a holder of stock of the corporation, or (b) that
transfer of stock to him would cause the stock of the corporation to be held by more
than the number of persons permitted by its articles of incorporation to hold stock of
the corporation, or (c) that the transfer of stock is in violation of a restriction on transfer
of stock, the corporation may, at its option, refuse to register the transfer of stock in the
name of the transferee.
5. The provisions of subsection (4) shall not be applicable if the transfer of stock, though
contrary to subsections (1), (2) or (3), has been consented to by all the stockholders of
the close corporation, or if the close corporation has amended its articles of
incorporation in accordance with this Title.
6. The term "transfer", as used in this section, is not limited to a transfer for value.
7. The provisions of this section shall not impair any right which the transferee may have
to rescind the transfer or to recover under any applicable warranty, express or implied.
5. To the extent that the stockholders are actively engaged in the management or
operation of the business and affairs of a close corporation, the stockholders shall be
held to strict fiduciary duties to each other and among themselves. Said stockholders
shall be personally liable for corporate torts unless the corporation has obtained
reasonably adequate liability insurance.
Section 101. When board meeting is unnecessary or improperly held. - Unless the by-laws
provide otherwise, any action by the directors of a close corporation without a meeting shall
nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto is signed by all the
directors; or
2. All the stockholders have actual or implied knowledge of the action and make no
prompt objection thereto in writing; or
3. The directors are accustomed to take informal action with the express or implied
acquiescence of all the stockholders; or
4. All the directors have express or implied knowledge of the action in question and
none of them makes prompt objection thereto in writing.
If a director’s meeting is held without proper call or notice, an action taken therein within the
corporate powers is deemed ratified by a director who failed to attend, unless he promptly
files his written objection with the secretary of the corporation after having knowledge
thereof.
A provisional director shall be an impartial person who is neither a stockholder nor a creditor
of the corporation or of any subsidiary or affiliate of the corporation, and whose further
qualifications, if any, may be determined by the Commission. A provisional director is not a
receiver of the corporation and does not have the title and powers of a custodian or receiver.
A provisional director shall have all the rights and powers of a duly elected director of the
corporation, including the right to notice of and to vote at meetings of directors, until such
time as he shall be removed by order of the Commission or by all the stockholders. His
compensation shall be determined by agreement between him and the corporation subject to
approval of the Commission, which may fix his compensation in the absence of agreement or
in the event of disagreement between the provisional director and the corporation.
TITLE XIII
SPECIAL CORPORATIONS
CHAPTER I - EDUCATIONAL CORPORATIONS
Unless otherwise provided in the articles of incorporation on the by-laws, the board of
trustees of incorporated schools, colleges, or other institutions of learning shall, as soon as
organized, so classify themselves that the term of office of one-fifth (1/5) of their number shall
expire every year. Trustees thereafter elected to fill vacancies, occurring before the expiration
of a particular term, shall hold office only for the unexpired period. Trustees elected thereafter
to fill vacancies caused by expiration of term shall hold office for five (5) years. A majority of
the trustees shall constitute a quorum for the transaction of business. The powers and
authority of trustees shall be defined in the by-laws.
For institutions organized as stock corporations, the number and term of directors shall be
governed by the provisions on stock corporations. (169a)
CHAPTER II
RELIGIOUS CORPORATIONS
Religious corporations shall be governed by this Chapter and by the general provisions on non-
stock corporations insofar as they may be applicable. (n)
Section 110. Corporation sole. – For the purpose of administering and managing, as trustee,
the affairs, property and temporalities of any religious denomination, sect or church, a
corporation sole may be formed by the chief archbishop, bishop, priest, minister, rabbi or
other presiding elder of such religious denomination, sect or church. (154a)
1. That he is the chief archbishop, bishop, priest, minister, rabbi or presiding elder of his
religious denomination, sect or church and that he desires to become a corporation
sole;
2. That the rules, regulations and discipline of his religious denomination, sect or church
are not inconsistent with his becoming a corporation sole and do not forbid it;
3. That as such chief archbishop, bishop, priest, minister, rabbi or presiding elder, he is
charged with the administration of the temporalities and the management of the affairs,
estate and properties of his religious denomination, sect or church within his territorial
jurisdiction, describing such territorial jurisdiction;
4. The manner in which any vacancy occurring in the office of chief archbishop, bishop,
priest, minister, rabbi of presiding elder is required to be filled, according to the rules,
regulations or discipline of the religious denomination, sect or church to which he
belongs; and
5. The place where the principal office of the corporation sole is to be established and
located, which place must be within the Philippines.
The articles of incorporation may include any other provision not contrary to law for the
regulation of the affairs of the corporation. (n)
From and after the filing with the Securities and Exchange Commission of the said articles of
incorporation, verified by affidavit or affirmation, and accompanied by the documents
mentioned in the preceding paragraph, such chief archbishop, bishop, priest, minister, rabbi or
presiding elder shall become a corporation sole and all temporalities, estate and properties of
the religious denomination, sect or church theretofore administered or managed by him as
such chief archbishop, bishop, priest, minister, rabbi or presiding elder shall be held in trust by
him as a corporation sole, for the use, purpose, behalf and sole benefit of his religious
denomination, sect or church, including hospitals, schools, colleges, orphan asylums,
parsonages and cemeteries thereof. (n)
Section 113. Acquisition and alienation of property. – Any corporation sole may purchase and
hold real estate and personal property for its church, charitable, benevolent or educational
purposes, and may receive bequests or gifts for such purposes. Such corporation may sell or
mortgage real property held by it by obtaining an order for that purpose from the Court of
First Instance of the province where the property is situated upon proof made to the
satisfaction of the court that notice of the application for leave to sell or mortgage has been
given by publication or otherwise in such manner and for such time as said court may have
directed, and that it is to the interest of the corporation that leave to sell or mortgage should
be granted. The application for leave to sell or mortgage must be made by petition, duly
verified, by the chief archbishop, bishop, priest, minister, rabbi or presiding elder acting as
corporation sole, and may be opposed by any member of the religious denomination, sect or
church represented by the corporation sole: Provided, That in cases where the rules,
regulations and discipline of the religious denomination, sect or church, religious society or
order concerned represented by such corporation sole regulate the method of acquiring,
holding, selling and mortgaging real estate and personal property, such rules, regulations and
discipline shall control, and the intervention of the courts shall not be necessary. (159a)
Section 114. Filling of vacancies. – The successors in office of any chief archbishop, bishop,
priest, minister, rabbi or presiding elder in a corporation sole shall become the corporation
sole on their accession to office and shall be permitted to transact business as such on the
filing with the Securities and Exchange Commission of a copy of their commission, certificate
of election, or letters of appointment, duly certified by any notary public.
During any vacancy in the office of chief archbishop, bishop, priest, minister, rabbi or presiding
elder of any religious denomination, sect or church incorporated as a corporation sole, the
person or persons authorized and empowered by the rules, regulations or discipline of the
religious denomination, sect or church represented by the corporation sole to administer the
temporalities and manage the affairs, estate and properties of the corporation sole during the
vacancy shall exercise all the powers and authority of the corporation sole during such
vacancy. (158a)
Section 115. Dissolution. – A corporation sole may be dissolved and its affairs settled
voluntarily by submitting to the Securities and Exchange Commission a verified declaration of
dissolution.
3. The authorization for the dissolution of the corporation by the particular religious
denomination, sect or church;
4. The names and addresses of the persons who are to supervise the winding up of the
affairs of the corporation.
1. That the religious society or religious order, or diocese, synod, or district organization
is a religious organization of a religious denomination, sect or church;
2. That at least two-thirds (2/3) of its membership have given their written consent or
have voted to incorporate, at a duly convened meeting of the body;
3. That the incorporation of the religious society or religious order, or diocese, synod, or
district organization desiring to incorporate is not forbidden by competent authority or
by the constitution, rules, regulations or discipline of the religious denomination, sect,
or church of which it forms a part;
4. That the religious society or religious order, or diocese, synod, or district organization
desires to incorporate for the administration of its affairs, properties and estate;
5. The place where the principal office of the corporation is to be established and
located, which place must be within the Philippines; and
6. The names, nationalities, and residences of the trustees elected by the religious
society or religious order, or the diocese, synod, or district organization to serve for the
first year or such other period as may be prescribed by the laws of the religious society
or religious order, or of the diocese, synod, or district organization, the board of trustees
to be not less than five (5) nor more than fifteen (15). (160a)
TITLE XIV
DISSOLUTION
Section 119. Voluntary dissolution where creditors are affected. – Where the dissolution of a
corporation may prejudice the rights of any creditor, the petition for dissolution shall be filed
with the Securities and Exchange Commission. The petition shall be signed by a majority of its
board of directors or trustees or other officers having the management of its affairs, verified
by its president or secretary or one of its directors or trustees, and shall set forth all claims and
demands against it, and that its dissolution was resolved upon by the affirmative vote of the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at
least two-thirds (2/3) of the members at a meeting of its stockholders or members called for
that purpose.
If the petition is sufficient in form and substance, the Commission shall, by an order reciting
the purpose of the petition, fix a date on or before which objections thereto may be filed by
any person, which date shall not be less than thirty (30) days nor more than sixty (60) days
after the entry of the order. Before such date, a copy of the order shall be published at least
once a week for three (3) consecutive weeks in a newspaper of general circulation published in
the municipality or city where the principal office of the corporation is situated, or if there be
no such newspaper, then in a newspaper of general circulation in the Philippines, and a similar
copy shall be posted for three (3) consecutive weeks in three (3) public places in such
municipality or city.
Upon five (5) day’s notice, given after the date on which the right to file objections as fixed in
the order has expired, the Commission shall proceed to hear the petition and try any issue
made by the objections filed; and if no such objection is sufficient, and the material allegations
of the petition are true, it shall render judgment dissolving the corporation and directing such
disposition of its assets as justice requires, and may appoint a receiver to collect such assets
and pay the debts of the corporation. (Rule 104, RCa)
Section 122. Corporate liquidation. – Every corporation whose charter expires by its own
limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other
purposes is terminated in any other manner, shall nevertheless be continued as a body
corporate for three (3) years after the time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or against it and enabling it to settle and close
its affairs, to dispose of and convey its property and to distribute its assets, but not for the
purpose of continuing the business for which it was established.
At any time during said three (3) years, the corporation is authorized and empowered to
convey all of its property to trustees for the benefit of stockholders, members, creditors, and
other persons in interest. From and after any such conveyance by the corporation of its
property in trust for the benefit of its stockholders, members, creditors and others in interest,
all interest which the corporation had in the property terminates, the legal interest vests in the
trustees, and the beneficial interest in the stockholders, members, creditors or other persons
in interest.
Upon the winding up of the corporate affairs, any asset distributable to any creditor or
stockholder or member who is unknown or cannot be found shall be escheated to the city or
municipality where such assets are located.
Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall
distribute any of its assets or property except upon lawful dissolution and after payment of all
its debts and liabilities. (77a, 89a, 16a)
TITLE XV
FOREIGN CORPORATIONS
Section 123. Definition and rights of foreign corporations. – For the purposes of this Code, a
foreign corporation is one formed, organized or existing under any laws other than those of
the Philippines and whose laws allow Filipino citizens and corporations to do business in its
own country or state. It shall have the right to transact business in the Philippines after it shall
have obtained a license to transact business in this country in accordance with this Code and a
certificate of authority from the appropriate government agency. (n)
Section 124. Application to existing foreign corporations. – Every foreign corporation which on
the date of the effectivity of this Code is authorized to do business in the Philippines under a
license therefore issued to it, shall continue to have such authority under the terms and
condition of its license, subject to the provisions of this Code and other special laws. (n)
Section 125. Application for a license. – A foreign corporation applying for a license to transact
business in the Philippines shall submit to the Securities and Exchange Commission a copy of
its articles of incorporation and by-laws, certified in accordance with law, and their translation
to an official language of the Philippines, if necessary. The application shall be under oath and,
unless already stated in its articles of incorporation, shall specifically set forth the following:
2. The address, including the street number, of the principal office of the corporation in
the country or state of incorporation;
3. The name and address of its resident agent authorized to accept summons and
process in all legal proceedings and, pending the establishment of a local office, all
notices affecting the corporation;
5. The specific purpose or purposes which the corporation intends to pursue in the
transaction of its business in the Philippines: Provided, That said purpose or purposes
are those specifically stated in the certificate of authority issued by the appropriate
government agency;
6. The names and addresses of the present directors and officers of the corporation;
7. A statement of its authorized capital stock and the aggregate number of shares which
the corporation has authority to issue, itemized by classes, par value of shares, shares
without par value, and series, if any;
8. A statement of its outstanding capital stock and the aggregate number of shares
which the corporation has issued, itemized by classes, par value of shares, shares
without par value, and series, if any;
The application for a license to transact business in the Philippines shall likewise be
accompanied by a statement under oath of the president or any other person
authorized by the corporation, showing to the satisfaction of the Securities and
Exchange Commission and other governmental agency in the proper cases that the
applicant is solvent and in sound financial condition, and setting forth the assets and
liabilities of the corporation as of the date not exceeding one (1) year immediately prior
to the filing of the application.
Foreign banking, financial and insurance corporations shall, in addition to the above
requirements, comply with the provisions of existing laws applicable to them. In the
case of all other foreign corporations, no application for license to transact business in
the Philippines shall be accepted by the Securities and Exchange Commission without
previous authority from the appropriate government agency, whenever required by law.
(68a)
Section 126. Issuance of a license. – If the Securities and Exchange Commission is satisfied that
the applicant has complied with all the requirements of this Code and other special laws, rules
and regulations, the Commission shall issue a license to the applicant to transact business in
the Philippines for the purpose or purposes specified in such license. Upon issuance of the
license, such foreign corporation may commence to transact business in the Philippines and
continue to do so for as long as it retains its authority to act as a corporation under the laws of
the country or state of its incorporation, unless such license is sooner surrendered, revoked,
suspended or annulled in accordance with this Code or other special laws.
Within sixty (60) days after the issuance of the license to transact business in the Philippines,
the license, except foreign banking or insurance corporation, shall deposit with the Securities
and Exchange Commission for the benefit of present and future creditors of the licensee in the
Philippines, securities satisfactory to the Securities and Exchange Commission, consisting of
bonds or other evidence of indebtedness of the Government of the Philippines, its political
subdivisions and instrumentalities, or of government-owned or controlled corporations and
entities, shares of stock in "registered enterprises" as this term is defined in Republic Act No.
5186, shares of stock in domestic corporations registered in the stock exchange, or shares of
stock in domestic insurance companies and banks, or any combination of these kinds of
securities, with an actual market value of at least one hundred thousand (P100,000.) pesos;
Provided, however, That within six (6) months after each fiscal year of the licensee, the
Securities and Exchange Commission shall require the licensee to deposit additional securities
equivalent in actual market value to two (2%) percent of the amount by which the licensee’s
gross income for that fiscal year exceeds five million (P5,000,000.00) pesos. The Securities and
Exchange Commission shall also require deposit of additional securities if the actual market
value of the securities on deposit has decreased by at least ten (10%) percent of their actual
market value at the time they were deposited. The Securities and Exchange Commission may
at its discretion release part of the additional securities deposited with it if the gross income of
the licensee has decreased, or if the actual market value of the total securities on deposit has
increased, by more than ten (10%) percent of the actual market value of the securities at the
time they were deposited. The Securities and Exchange Commission may, from time to time,
allow the licensee to substitute other securities for those already on deposit as long as the
licensee is solvent. Such licensee shall be entitled to collect the interest or dividends on the
securities deposited. In the event the licensee ceases to do business in the Philippines, the
securities deposited as aforesaid shall be returned, upon the licensee’s application therefor
and upon proof to the satisfaction of the Securities and Exchange Commission that the
licensee has no liability to Philippine residents, including the Government of the Republic of
the Philippines. (n)
Section 127. Who may be a resident agent. – A resident agent may be either an individual
residing in the Philippines or a domestic corporation lawfully transacting business in the
Philippines: Provided, That in the case of an individual, he must be of good moral character
and of sound financial standing. (n)
Section 128. Resident agent; service of process. – The Securities and Exchange Commission
shall require as a condition precedent to the issuance of the license to transact business in the
Philippines by any foreign corporation that such corporation file with the Securities and
Exchange Commission a written power of attorney designating some person who must be a
resident of the Philippines, on whom any summons and other legal processes may be served in
all actions or other legal proceedings against such corporation, and consenting that service
upon such resident agent shall be admitted and held as valid as if served upon the duly
authorized officers of the foreign corporation at its home office. Any such foreign corporation
shall likewise execute and file with the Securities and Exchange Commission an agreement or
stipulation, executed by the proper authorities of said corporation, in form and substance as
follows:
"The (name of foreign corporation) does hereby stipulate and agree, in consideration of its
being granted by the Securities and Exchange Commission a license to transact business in the
Philippines, that if at any time said corporation shall cease to transact business in the
Philippines, or shall be without any resident agent in the Philippines on whom any summons
or other legal processes may be served, then in any action or proceeding arising out of any
business or transaction which occurred in the Philippines, service of any summons or other
legal process may be made upon the Securities and Exchange Commission and that such
service shall have the same force and effect as if made upon the duly-authorized officers of the
corporation at its home office."
Whenever such service of summons or other process shall be made upon the Securities and
Exchange Commission, the Commission shall, within ten (10) days thereafter, transmit by mail
a copy of such summons or other legal process to the corporation at its home or principal
office. The sending of such copy by the Commission shall be necessary part of and shall
complete such service. All expenses incurred by the Commission for such service shall be paid
in advance by the party at whose instance the service is made.
In case of a change of address of the resident agent, it shall be his or its duty to immediately
notify in writing the Securities and Exchange Commission of the new address. (72a; and n)
Section 129. Law applicable. – Any foreign corporation lawfully doing business in the
Philippines shall be bound by all laws, rules and regulations applicable to domestic
corporations of the same class, except such only as provide for the creation, formation,
organization or dissolution of corporations or those which fix the relations, liabilities,
responsibilities, or duties of stockholders, members, or officers of corporations to each other
or to the corporation. (73a)
1. Failure to file its annual report or pay any fees as required by this Code;
2. Failure to appoint and maintain a resident agent in the Philippines as required by this
Title;
3. Failure, after change of its resident agent or of his address, to submit to the Securities
and Exchange Commission a statement of such change as required by this Title;
6. Failure to pay any and all taxes, imposts, assessments or penalties, if any, lawfully due
to the Philippine Government or any of its agencies or political subdivisions;
7. Transacting business in the Philippines outside of the purpose or purposes for which
such corporation is authorized under its license;
8. Transacting business in the Philippines as agent of or acting for and in behalf of any
foreign corporation or entity not duly licensed to do business in the Philippines; or
9. Any other ground as would render it unfit to transact business in the Philippines. (n)
Section 135. Issuance of certificate of revocation. – Upon the revocation of any such license to
transact business in the Philippines, the Securities and Exchange Commission shall issue a
corresponding certificate of revocation, furnishing a copy thereof to the appropriate
government agency in the proper cases.
The Securities and Exchange Commission shall also mail to the corporation at its registered
office in the Philippines a notice of such revocation accompanied by a copy of the certificate of
revocation. (n)
1. All claims which have accrued in the Philippines have been paid, compromised or
settled;
2. All taxes, imposts, assessments, and penalties, if any, lawfully due to the Philippine
Government or any of its agencies or political subdivisions have been paid; and
3. The petition for withdrawal of license has been published once a week for three (3)
consecutive weeks in a newspaper of general circulation in the Philippines.
TITLE XVI
MISCELLANEOUS PROVISIONS
Section 137. Outstanding capital stock defined. – The term "outstanding capital stock", as used
in this Code, means the total shares of stock issued under binding subscription agreements to
subscribers or stockholders, whether or not fully or partially paid, except treasury shares. (n)
Section 139. Incorporation and other fees. – The Securities and Exchange Commission is
hereby authorized to collect and receive fees as authorized by law or by rules and regulations
promulgated by the Commission.1âwphi1 (n)
Section 140. Stock ownership in certain corporations. – Pursuant to the duties specified by
Article XIV of the Constitution, the National Economic and Development Authority shall, from
time to time, make a determination of whether the corporate vehicle has been used by any
corporation or by business or industry to frustrate the provisions thereof or of applicable laws,
and shall submit to the Batasang Pambansa, whenever deemed necessary, a report of its
findings, including recommendations for their prevention or correction.
Maximum limits may be set by the Batasang Pambansa for stockholdings in corporations
declared by it to be vested with a public interest pursuant to the provisions of this section,
belonging to individuals or groups of individuals related to each other by consanguinity or
affinity or by close business interests, or whenever it is necessary to achieve national
objectives, prevent illegal monopolies or combinations in restraint or trade, or to implement
national economic policies declared in laws, rules and regulations designed to promote the
general welfare and foster economic development.
Section 143. Rule-making power of the Securities and Exchange Commission. – The Securities
and Exchange Commission shall have the power and authority to implement the provisions of
this Code, and to promulgate rules and regulations reasonably necessary to enable it to
perform its duties hereunder, particularly in the prevention of fraud and abuses on the part of
the controlling stockholders, members, directors, trustees or officers. (n)
Section 144. Violations of the Code. – Violations of any of the provisions of this Code or its
amendments not otherwise specifically penalized therein shall be punished by a fine of not
less than one thousand (P1,000.00) pesos but not more than ten thousand (P10,000.00) pesos
or by imprisonment for not less than thirty (30) days but not more than five (5) years, or both,
in the discretion of the court. If the violation is committed by a corporation, the same may,
after notice and hearing, be dissolved in appropriate proceedings before the Securities and
Exchange Commission: Provided, That such dissolution shall not preclude the institution of
appropriate action against the director, trustee or officer of the corporation responsible for
said violation: Provided, further, That nothing in this section shall be construed to repeal the
other causes for dissolution of a corporation provided in this Code. (190 1/2 a)
Section 146. Repealing clause. – Except as expressly provided by this Code, all laws or parts
thereof inconsistent with any provision of this Code shall be deemed repealed. (n)
Section 147. Separability of provisions. – Should any provision of this Code or any part thereof
be declared invalid or unconstitutional, the other provisions, so far as they are separable, shall
remain in force. (n)
Section 149. Effectivity. – This Code shall take effect immediately upon its approval.
Eighth Congress
Section 1. Title. - This Act shall be known as the, "Foreign Investments Act of 1991".
Section 2. Declaration of Policy. - It is the policy of the State to attract, promote and welcome
productive investments from foreign individuals, partnerships, corporations, and
governments, including their political subdivisions, in activities which significantly contribute
to national industrialization and socioeconomic development to the extent that foreign
investment is allowed in such activity by the Constitution and relevant laws. Foreign
investments shall be encouraged in enterprises that significantly expand livelihood and
employment opportunities for Filipinos; enhance economic value of farm products; promote
the welfare of Filipino consumers; expand the scope, quality and volume of exports and their
access to foreign markets; and/or transfer relevant technologies in agriculture, industry and
support services. Foreign investments shall be welcome as a supplement to Filipino capital and
technology in those enterprises serving mainly the domestic market.
a) The term "Philippine national" shall mean a citizen of the Philippines or a domestic
partnership or association wholly owned by citizens of the Philippines; or a corporation
organized under the laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at least sixty (60%) of
the fund will accrue to the benefit of the Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stocks
outstanding and entitled to vote of both corporations must be owned and held by
citizens of the Philippines and at least sixty percent (60%) of the members of the Board
of Directors of both corporations must be citizens of the Philippines, in order that the
corporations shall be considered a Philippine national;
b) The term "investment" shall mean equity participation in any enterprise organized or
existing under the laws of the Philippines;
c) The term "foreign investment" shall mean as equity investment made by a non-
Philippine national in the form of foreign exchange and/or other assets actually
transferred to the Philippines and duly registered with the Central Bank which shall
assess and appraise the value of such assets other than foreign exchange;
d) The praise "doing business" shall include soliciting orders, service contracts, opening
offices, whether called "liaison" offices or branches; appointing representatives or
distributors domiciled in the Philippines or who in any calendar year stay in the country
for a period or periods totalling one hundred eighty (180) days or more; participating in
the management, supervision or control of any domestic business, firm, entity or
corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the performance
of acts or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the
business organization: Provided, however, That the phrase "doing business: shall not be
deemed to include 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; nor having a nominee director or officer to represent its interests in such
corporation; nor appointing a representative or distributor domiciled in the Philippines
which transacts business in its own name and for its own account;
e) The term "export enterprise" shall mean an enterprise which produces goods for sale,
or renders services to the domestic market entirely or if exporting a portion of its output
fails to consistently export at least sixty percent (60%) thereof; and
g) The term "Foreign Investments Negative List" or "Negative List" shall mean a list of
areas of economic activity whose foreign ownership is limited to a maximum of forty
ownership is limited to a maximum of forty percent (40%) of the equity capital of the
enterprise engaged therein.
Section 4. Scope. - This Act shall not apply to banking and other financial institutions which are
governed and regulated by the General Banking Act and other laws under the supervision of
the Central Bank.
which shall process such application for registration in accordance with the criteria for
evaluation prescribed in said Code: Provided, finally, That a non-Philippine national intending
to engage in the same line of business as an existing joint venture in his application for
registration with SEC. During the transitory period as provided in
Section 15 hereof, SEC shall disallow registration of the applying non-Philippine national if the
existing joint venture enterprise, particularly the Filipino partners therein, can reasonably
prove they are capable to make the investment needed for they are competing applicant.
Upon effectivity of this Act, SEC shall effect registration of any enterprise applying under this
Act within fifteen (15) days upon submission of completed requirements.
Export enterprises which are non-Philippine nationals shall register with BOI and submit the
reports that may be required to ensure continuing compliance of the export enterprise with its
export requirement. BOI shall advise SEC or BTRCP, as the case may be, of any export
enterprise that fails to meet the export ratio requirement. The SEC or BTRCP shall thereupon
order the non-complying export enterprise to reduce its sales to the domestic market to not
more than forty percent (40%) of its total production; failure to comply with such SEC or
BTRCP order, without justifiable reason, shall subject the enterprise to cancellation of SEC or
BTRCP registration, and/or the penalties provided in Section 14 hereof.
A domestic market enterprise may change its status to export enterprise if over a three (3)
year period it consistently exports in each year thereof sixty per cent (60%) or more of its
output.
b) List B shall contain the areas of activities and enterprises pursuant to law:
2) Which have implications on public health and morals, such as the manufacture
and distribution of dangerous drugs; all forms of gambling; nightclubs, bars,
beerhouses, dance halls; sauna and steambath houses and massage clinics.
Small and medium-sized domestic market enterprises with paid-in equity capital
less than the equivalent of five hundred thousand US dollars (US$500,000) are
reserved to Philippine nationals, unless they involve advanced technology as
determined by the Department of Science and Technology. Export enterprises
which utilize raw materials from depleting natural resources, with paid-in equity
capital of less than the equivalent of five hundred thousand US dollars
(US$500,000) are likewise reserved to Philippine nationals.
c) List C shall contain the areas of investment in which existing enterprises already serve
adequately the needs of the economy and the consumer and do not require further
foreign investments, as determined by NEDA applying the criteria provided in Section 9
of this Act, approved by the President and promulgated in a Presidential Proclamation.
The Transitory Foreign Investment Negative List established in Sec. 15 hereof shall be
replaced at the end of the transitory period by the first Regular Negative List to the
formulated and recommended by the NEDA, following the process and criteria provided
in Section 8 and 9 of this Act. The first Regular Negative List shall be published not later
than sixty (60) days before the end of the transitory period provided in said section, and
shall become immediately effective at the end of the transitory period. Subsequent
Foreign Investment Negative Lists shall become effective fifteen (15) days after
publication in two (2) newspapers of general circulation in the Philippines: Provided,
however, That each Foreign Investment Negative List shall be prospective in operation
and shall in no way affect foreign investments existing on the date of its publication.
Amendments to List B and C after promulgation and publication of the first Regular
Foreign Investment Negative List at the end of the transitory period shall not be made
more often than once every two (2) years.
a) The industry is controlled by firms owned at least sixty percent (60%) by Filipinos;
d) Industry products comply with Philippine standards of health and safety or, in the
absence of such, with international standards, and are reasonably competitive in quality
with similar products in the same price range imported into the country;
f) The leading firms of the industry substantially comply with environmental standards;
and
Section 10. Strategic Industries. - Within eighteen (18) months after the effectivity of this Act,
the NEDA Board shall formulate and publish a list of industries strategic to the development of
the economy. The list shall specify, as a matter of policy and not as a legal requirement, the
desired equity participation by Government and/or private Filipino investors in each strategic
industry. Said list of strategic industries, as well as the corresponding desired equity
participation of government and/or private Filipino investors, may be amended by NEDA to
reflect changes in economic needs and policy directions of Government. The amended list of
strategic industries shall be published concurrently with publication of the Foreign Investment
Negative List.
The term "strategic industries" shall mean industries that are characterized by all of the
following:
d) Characterized by strong backward and forward linkages with most industries existing
in the country, and
Section 13. Implementing Rules and Regulations. - NEDA, in consultation with BOI, SEC and
other government agencies concerned, shall issue the rules and regulations to implement this
Act within one hundred and twenty (120) days after its effectivity. A copy of such rules and
regulations shall be furnished the Congress of the Republic of the Philippines.
Section 14. Administrative Sanctions. - A person who violates any provision of this Act or of
the terms and conditions of registration or of the rules and regulations issued pursuant
thereto, or aids or abets in any manner any violation shall be subject to a fine not exceeding
One hundred thousand pesos (P100,000).
If the offense is committed by a juridical entity, it shall be subject to a fine in an amount not
exceeding ½ of 1% of total paid-in capital but not more than Five million pesos (P5,000,000).
The president and/or officials responsible therefor shall also be subject to a fine not exceeding
Two hundred thousand pesos (P200,000).
In addition to the foregoing, any person, firm or juridical entity involved shall be subject to
forfeiture of all benefits granted under this Act.
SEC shall have the power to impose administrative sanctions as provided herein for any
violation of this Act or its implementing rules and regulations.
During the initial transitory period of thirty-six (36) months after issuance of the Rules and
Regulations to implement this Act, the Transitory Foreign Investment Negative List shall
consist of the following:
A. List A:
B. List B:
3. Small and medium-size domestic market enterprises with paid-in equity capital
or less than the equivalent of US$500,000, unless they involve advanced
technology as determined by the Department of Science and Technology, and
4. Export enterprises which utilize raw materials from depleting natural resources,
and with paid-in equity capital of less than the equivalent US$500,000.
C. List C:
3. Enterprises owned in the majority by a foreign licensor and/or its affiliates for
the assembly, processing or manufacture of goods for the domestic market which
are being produced by a Philippine national as of the date of effectivity of this Act
under a technology, know-how and/or brand name license from such licensor
during the term of the license agreement: Provided, That, the license is duly
registered with the Central Bank and/or the Technology Transfer Board and is
operatively in force as of the date of effectivity of this Act.
NEDA shall make the enumeration as appropriate of the areas of the investment covered in
this Transitory Foreign Investment Negative List and publish the Negative List in full at the
same time as, or prior to, the publication of the rules and regulations to implement this Act.
The areas of investment contained in List C above shall be reserved to Philippine nationals only
during the transitory period. The inclusion of any of them in the regular Negative List will
require determination by NEDA after due public hearings that such inclusion is warranted
under the criteria set forth in Section 8 and 9 hereof.
Section 16. Repealing Clause. - Articles forty-four (44) to fifty-six (56) of Book II of Executive
Order No. 226 are hereby repealed.
All other laws or parts of laws inconsistent with the provisions of this Act are hereby repealed
or modified accordingly.
Section 17. Separability. - If any part or section of this Act is declared unconstitutional for any
reason whatsoever, such declaration shall not in any way affect the other parts or sections of
this Act.
Section 18. Effectivity. - This Act shall take effect fifteen (15) days after approval and
publication in two (2) newspaper of general circulation in the Philippines.
CHAPTER I
Section 2. Declaration of State Policy. – The State shall establish a socially conscious, free
market that regulates itself, encourage the widest participation of ownership in enterprises,
enhance the democratization of wealth, promote the development of the capital market,
protect investors, ensure full and fair disclosure about securities, minimize if not totally
eliminate insider trading and other fraudulent or manipulative devices and practices which
create distortions in the free market. To achieve these ends, this Securities Regulation Code is
hereby enacted.
3.3. "Broker" is a person engaged in the business of buying and selling securities for the
account of others.
3.4. "Dealer" means many person who buys sells securities for his/her own account in the
ordinary course of business.
3.6. "Clearing Agency" is any person who acts as intermediary in making deliveries upon
payment effect settlement in securities transactions.
3.7. "Exchange" is an organized market place or facility that brings together buyers and sellers
and executes trade of securities and/or commodities.
3.8. "Insider" means (a) the issuer; (b) a director or officer (or any person performing similar
functions) of, or a person controlling the issuer; gives or gave him access to material
information about the issuer or the security that is not generally available to the public; (d) A
government employee, director, or officer of an exchange, clearing agency and/or self-
regulatory organization who has access to material information about an issuer or a security
that is not generally available to the public; or (e) a person who learns such information by a
communication from any forgoing insiders.
3.9. "Pre-need plans" are contracts which provide for the performance of future services of or
the payment of future monetary considerations at the time actual need, for which plan
holders pay in cash or installment at stated prices, with or without interest or insurance
coverage and includes life, pension, education, interment, and other plans which the
Commission may from time to time approve.
3.10. "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.
3.12. "Registration statement" is the application for the registration of securities required to
be filed with the Commission.
3.15. "Underwriter" is a person who guarantees on a firm commitment and/or declared best
effort basis the distribution and sale of securities of any kind by another company.
CHAPTER II
SECURITIES AND EXCHANGE COMMISSION
Section 4. Administrative Agency. – 4.1. This Code shall be administered by the Security and
Exchange Commission (hereinafter referred to as the "Commission") as a Collegial body,
composed of a chairperson and (4) Commissioners, appointed by the President for a term of
(7) seven years each and who shall serves as such until their successor shall have been
appointed and qualified. A Commissioner appointed to fill a vacancy occurring prior to the
expiration of the term for which his/her predecessor was appointed, shall serve only for the
unexpired portion of their terms under Presidential Decree No. 902-A. Unless the context
indicates otherwise, the term "Commissioner" includes the Chairperson.
4.2. The Commissioners must be natural-born citizens of the Philippines, at least forty (40)
years of age for the Chairperson and at least thirty-five (35) years of age for the
Commissioners, of good moral character, or unquestionable integrity, of known probity and
patriotism, and with recognized competence in social and economic disciplines: Provided, That
the majority of Commissioners, including the Chairperson, shall be members of the Philippine
Bar.
4.3. The chairperson is chief executive officer of the Commission. The Chairperson shall
execute and administer the policies, decisions, orders and resolutions approved by the
Commission and shall have the general executive direction and supervision of the work and
operation of the Commission and it’s members, bodies, boards, offices, personnel and all its
administrative business.
4.4. The salary of the Chairperson and the Commissioners shall be fixed by the President of the
Philippines based on the objective classification system, at a sum comparable to the members
of the Monetary Board and commensurate importance and responsibilities attached to the
position.
4.5. The Commission shall hold meetings at least once a week for the conduct of business or as
often as may be necessary upon the call of the Chairperson or upon the request of (3)
Commissioners. The notice of the meeting shall be given to all Commissioners and the
presence of three (3) Commissioners shall constitute a quorum. In the absence of the
Chairperson, the most senior Commissioner shall act as presiding officer of the meeting.
4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any
department of office of the Commission, an individual Commissioner or staff member of the
Commission except its review or appellate authority and its power to adopt, alter and
supplement any rule or regulation.
The commission may review upon its own initiative or upon the petition of any interested
party any action of any department or office, individual Commissioner, or staff member of the
Commission.
Section 5. Powers and Functions of the Commission.– 5.1. The commission shall act with
transparency and shall have the powers and functions provided by this code, Presidential
Decree No. 902-A, the Corporation Code, the Investment Houses law, the Financing Company
Act and other existing laws. Pursuant thereto the Commission shall have, among others, the
following powers and functions:
(a) Have jurisdiction and supervision over all corporations, partnership or associations
who are the grantees of primary franchises and/or a license or a permit issued by the
Government;
(b) Formulate policies and recommendations on issues concerning the securities market,
advise Congress and other government agencies on all aspect of the securities market
and propose legislation and amendments thereto;
(e) Supervise, monitor, suspend or take over the activities of exchanges, clearing
agencies and other SROs;
(f) Impose sanctions for the violation of laws and rules, regulations and orders, and
issued pursuant thereto;
(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions
and provide guidance on and supervise compliance with such rules, regulation and
orders;
(h) Enlist the aid and support of and/or deputized any and all enforcement agencies of
the Government, civil or military as well as any private institution, corporation, firm,
association or person in the implementation of its powers and function under its Code;
(i) Issue cease and desist orders to prevent fraud or injury to the investing public;
(j) Punish for the contempt of the Commission, both direct and indirect, in accordance
with the pertinent provisions of and penalties prescribed by the Rules of Court;
(k) Compel the officers of any registered corporation or association to call meetings of
stockholders or members thereof under its supervision;
(l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of
the Commission and in appropriate cases, order the examination, search and seizure of
all documents, papers, files and records, tax returns and books of accounts of any entity
or person under investigation as may be necessary for the proper disposition of the
cases before it, subject to the provisions of existing laws;
(m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of
registration of corporations, partnership or associations, upon any of the grounds
provided by law; and
(n) Exercise such other powers as may be provided by law as well as those which may be
implied from, or which are necessary or incidental to the carrying out of, the express
powers granted the Commission to achieve the objectives and purposes of these laws.
5.2. The Commission’s jurisdiction over all cases enumerated under section 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may
designate the Regional Trial Court branches that shall exercise jurisdiction over the cases. The
Commission shall retain jurisdiction over pending cases involving intra-corporate disputes
submitted for final resolution which should be resolved within one (1) year from the
enactment of this Code. The Commission shall retain jurisdiction over pending suspension of
payment/rehabilitation cases filed as of 30 June 2000 until finally disposed.
6.2. The Commissioners, officers and employees of the Commission who willfully violate this
Code or who are guilty of negligence, abuse or acts of malfeasance or fail to exercise
extraordinary diligence in the performance of their duties shall be held liable for any loss or
injury suffered by the Commission or other institutions such as a result of such violation,
negligence, abuse, or malfeasance, or failure to exercise extraordinary diligence. Similar
responsibility shall apply to the Commissioners, officers and employees of the Commission for
(1) the disclosure of any information, discussion or resolution of the Commission of a
confidential nature, or about the confidential operations of the Commission unless the
disclosure is in connection with the performance of official functions with the Commission or
prior authorization of the Commissioners; or (2) the use of such information for personal gain
or to the detriment of the government, the Commission or third parties: Provided, however,
That any data or information required to be submitted to the President and/or Congress or its
appropriate committee, or to be published under the provisions of this Code shall not be
considered confidential.
Section 7. Reorganization. – 7.1. To achieve the goals of this Code, consistent with the Civil
Service laws, the Commission is hereby authorized to provide for its reorganization, to
streamline its structure and operations, upgrade its human resource component and enable it
to more efficiently and effectively perform its functions and exercise its power under this
Code.
7.2. All positions of the Commissions shall be governed by a compensation and position
classification system and qualification standards approved by the Commission based on
comprehensive job analysis and audit of actual duties and personal responsibilities. The
compensation plan shall be comparable with the prevailing compensation plan in the Bangko
Sentral ng Pilipinas and other government financial institutions and shall be subject to periodic
review by the Commission no more than once every two (2) years without prejudice to yearly
merit review or increases based on productivity and efficiency. The Commission shall,
therefore, be exempt from laws, rules, and regulations on compensation, position
classification and qualifications standards. The Commission shall, however, endeavor to make
its system conform as closely as possible with the principles under the Compensation and
Position Classification Act of 1989 (Republic Act. 6758, as amended).
CHAPTER III
REGISTRATION OF SECURITIES
8.2. The Commission may conditionally approve the registration statement under such terms
as it may deem necessary.
8.3. The Commission may specify the terms and conditions under which any written
communication, including any summary prospectus, shall be deemed not to constitute an offer
for sale under this Section.
8.4. A record of the registration of securities shall be kept in Register Securities in which shall
be recorded orders entered by the Commission with respect such securities. Such register and
all documents or information with the respect to the securities registered therein shall be
open to public inspection at reasonable hours on business days.
8.5. The Commission may audit the financial statements, assets and other information of firm
applying for registration of its securities whenever it deems the same necessary to insure full
disclosure or to protect the interest of the investors and the public in general.
Section 9. Exempt Securities. – 9.1. The requirement of registration under Subsection 8.1 shall
not as a general rule apply to any of the following classes of securities:
(a) Any security issued or guaranteed by the Government of the Philippines, or by any
political subdivision or agency thereof, or by any person controlled or supervised by,
and acting as an instrumentality of said Government.
(b) Any security issued or guaranteed by the government of any country with which the
Philippines maintains diplomatic relations, or by any state, province or political
subdivision thereof on the basis of reciprocity: Provided, That the Commission may
require compliance with the form and content for disclosures the Commission may
prescribe.
(d) Any security or its derivatives the sale or transfer of which, by law, is under the
supervision and regulation of the Office of the Insurance Commission, Housing and Land
Use Rule Regulatory Board, or the Bureau of Internal Revenue.
(e) Any security issued by a bank except its own shares of stock.
9.2. The Commission may, by rule or regulation after public hearing, add to the foregoing any
class of securities if it finds that the enforcement of this Code with respect to such securities is
not necessary in the public interest and for the protection of investors.
Section 10. Exempt Transactions. – 10.1. The requirement of registration under Subsection 8.1
shall not apply to the sale of any security in any of the following transactions:
(b) By or for the account of a pledge holder, or mortgagee or any of a pledge lien holder
selling of offering for sale or delivery in the ordinary course of business and not for the
purpose of avoiding the provision of this Code, to liquidate a bonafide debt, a security
pledged in good faith as security for such debt.
(c) An isolated transaction in which any security is sold, offered for sale, subscription or
delivery by the owner therefore, or by his representative for the owner’s account, such
sale or offer for sale or offer for sale, subscription or delivery not being made in the
course of repeated and successive transaction of a like character by such owner, or on
his account by such representative and such owner or representative not being the
underwriter of such security.
(d) The distribution by a corporation actively engaged in the business authorized by its
articles of incorporation, of securities to its stockholders or other security holders as a
stock dividend or other distribution out of surplus.
(e) The sale of capital stock of a corporation to its own stockholders exclusively, where
no commission or other remuneration is paid or given directly or indirectly in
connection with the sale of such capital stock.
(f) The issuance of bonds or notes secured by mortgage upon real estate or tangible
personal property, when the entire mortgage together with all the bonds or notes
secured thereby are sold to a single purchaser at a single sale.
(g) The issue and delivery of any security in exchange for any other security of the same
issuer pursuant to a right of conversion entitling the holder of the security surrendered
in exchange to make such conversion:Provided, That the security so surrendered has
been registered under this Code or was, when sold, exempt from the provision of this
Code, and that the security issued and delivered in exchange, if sold at the conversion
price, would at the time of such conversion fall within the class of securities entitled to
registration under this Code. Upon such conversion the par value of the security
surrendered in such exchange shall be deemed the price at which the securities issued
and delivered in such exchange are sold.
(h) Broker’s transaction, executed upon customer’s orders, on any registered Exchange
or other trading market.
(i) Subscriptions for shares of the capitals stocks of a corporation prior to the
incorporation thereof or in pursuance of an increase in its authorized capital stocks
under the Corporation Code, when no expense is incurred, or no commission,
compensation or remuneration is paid or given in connection with the sale or
disposition of such securities, and only when the purpose for soliciting, giving or taking
of such subscription is to comply with the requirements of such law as to the percentage
of the capital stock of a corporation which should be subscribed before it can be
registered and duly incorporated, or its authorized, capital increase.
(j) The exchange of securities by the issuer with the existing security holders exclusively,
where no commission or other remuneration is paid or given directly or indirectly for
soliciting such exchange.
(k) The sale of securities by an issuer to fewer than twenty (20) persons in the
Philippines during any twelve-month period.
(l) The sale of securities to any number of the following qualified buyers:
(i) Bank;
(vi) Such other person as the Commission may rule by determine as qualified
buyers, on the basis of such factors as financial sophistication, net worth,
knowledge, and experience in financial and business matters, or amount of assets
under management.
10.2. The Commission may exempt other transactions, if it finds that the requirements of
registration under this Code is not necessary in the public interest or for the protection of the
investors such as by the reason of the small amount involved or the limited character of the
public offering.
10.3. Any person applying for an exemption under this Section, shall file with the Commission
a notice identifying the exemption relied upon on such form and at such time as the
Commission by the rule may prescribe and with such notice shall pay to the Commission fee
equivalent to one-tenth (1/10) of one percent (1%) of the maximum value aggregate price or
issued value of the securities.
Section 11. Commodity Futures Contracts. - No person shall offer, sell or enter into commodity
futures contracts except in accordance with the rules, regulations and orders the Commission
may prescribe in the public interest. The Commission shall promulgate rules and regulations
involving commodity futures contracts to protect investors to ensure the development of a fair
and transparent commodities market.
Section 12. Procedure of Registration Securities. - 12.1. All securities required to be registered
under Subsection 8. I shall be registered through the filing by the issuer in the main office of
the Commission, of a sworn registration statement with the respect to such securities, in such
form and containing such information and document as the Commission prescribe. The
registration statement shall include any prospectus required or permitted to be delivered
under Subsections 8.2, 8.3, and 8.4.
12.2. In promulgating rules governing the content of any registration statement (including any
prospectus made a part thereof or annex thereto), the Commission may require the
registration statement to contain such information or documents as it may, by rule, prescribe.
It may dispense with any such requirements, or may require additional information or
documents, including written information from an expert, depending on the necessity thereof
or their applicability to the class of securities sought to be registered.
12.3. The information required for the registration of any kind, and all securities, shall include,
among others, the effect of the securities issue on ownership, on the mix of ownership,
especially foreign and local ownership.
12.4. The registration statement shall be signed by the issuer’s executive officer, its principal
operating officer, its principal financial officer, its comptroller, its principal accounting officer,
its corporate secretary, or persons performing similar functions accompanied by a duly verified
resolution of the board of directors of the issuer corporation. The written consent of the
expert named as having certified any part of the registration statement or any document used
in connection therewith shall also be filed. Where the registration statement shares to be sold
by selling shareholders, a written certification by such selling shareholders as to the accuracy
of any part of the registration statement contributed to by such selling shareholders shall be
filed.
12.5. (a) Upon filing of the registration statement, the issuer shall pay to the Commission a fee
of not more than one-tenth (1/10) of one per centum (1%) of the maximum aggregate price at
which such securities are proposed to be offered. The Commission shall prescribe by the rule
diminishing fees in inverse proportion the value of the aggregate price of the offering.
(b) Notice of the filing of the registration statement shall be immediately published by
the issuer, at its own expense, in two (2) newspapers of general circulation in the
Philippines, once a week for two (2) consecutive weeks, or in such other manner as the
Commission by the rule shall prescribe, reciting that a registration statement for the sale
of such securities has been filed, and that aforesaid registration statement, as well as
the papers attached thereto are open to inspection at the Commission during business
hours, and copies thereof, photostatic or otherwise, shall be furnished to interested
parties at such reasonable charge as the Commission may prescribe.
12.6. Within forty-five (45) days after the date of filing of the registration statement, or by
such later date to which the issuer has consented, the Commission shall declare the
registration statement effective or rejected, unless the applicant is allowed to amend the
registration statement as provided in Section 14 hereof. The Commission shall enter an order
declaring the registration statement to be effective if it finds that the registration statement
together with all the other papers and documents attached thereto, is on its face complete
and that the requirements have been complied with. The Commission may impose such terms
and conditions as may be necessary or appropriate for the protection of the investors.
12.7. Upon affectivity of the registration statement, the issuer shall state under oath in every
prospectus that all registration requirements have been met and that all information are true
and correct as represented by the issuer or the one making the statement. Any untrue
statement of fact or omission to state a material fact required to be stated herein or necessary
to make the statement therein not misleading shall constitute fraud.
Section 13. Rejection and Revocation of Registration of Securities. – 13.1. The Commission may
reject a registration statement and refuse registration of the security there-under, or revoke
the affectivity of a registration statement and the registration of the security there-under after
the due notice and hearing by issuing an order to such effect, setting forth its finding in respect
thereto, if it finds that:
(ii) Has violated any of the provision of this Code, the rules promulgate pursuant
thereto, or any order of the Commission of which the issuer has notice in
connection with the offering for which a registration statement has been filed
(iv) Has made any false or misleading representation of material facts in any
prospectus concerning the issuer or its securities;
(v) Has failed to comply with any requirements that the Commission may impose
as a condition for registration of the security for which the registration statement
has been filed; or
(b) The registration statement is on its face incomplete or inaccurate in any material
respect or includes any untrue statements of a material fact required to be stated
therein or necessary to make the statement therein not misleading; or
(c) The issuer, any officer, director or controlling person performing similar functions, or
any under writer has been convicted, by a competent judicial or administrative body,
upon plea of guilty, or otherwise, of an offense involving moral turpitude and /or fraud
or is enjoined or restrained by the Commission or other competent or administrative
body for violations of securities, commodities, and other related laws.
For the purposes of this subsection, the term "competent judicial or administrative body" shall
include a foreign court of competent jurisdiction as provided for under Rules of Court.
13.2. The Commission may compel the production of all the books and papers of such issuer,
and may administer oaths to, and examine the officers of such the issuer or any other person
connected therewith as to its business and affairs.
13.3. If any issuer shall refuse to permit an examination to be made by the Commission, its
refusal shall be ground for the refusal or revocation of the registration of its securities.
13.4. If the Commission deems its necessary, it may issue an order suspending the offer and
sale of the securities pending any investigation. The order shall state the grounds for taking
such action, but such order of suspension although binding upon the persons notified thereof,
shall be deemed confidential, and shall not be published. Upon the issuance of the suspension
order, no further offer or sale of such security shall be made until the same is lifted or set aside
by the Commission. Otherwise, such sale shall be void.
13.5. Notice of issuance of such order shall be given to the issuer and every dealer and broker
who shall have notified the Commission of an intention to sell such security.
13.6. A registration statement may be withdrawn by the issuer only with the consent of the
Commission.
14.2. An amendment filed prior to the effective date of the registration statement shall
recommence the forty-five (45) day period within which the Commission shall act on a
registration statement. An amendment filed after the effective date of the registration
statement shall become effective only upon such date as determined by the Commission.
14.3. If any change occurs in the facts set forth in a registration statement, the issuer shall file
an amendment thereto setting forth the change.
14.4. If, at any time, the Commission finds that the registration statement contains any false
statement or omits to state any fact required to be stated therein or necessary to make the
statements therein not misleading, the Commission may conduct an examination, and, after
due notice and hearing, issue an order suspending the affectivity registration statement. If the
statement is duly amended, the suspension order may be lifted.
14.5. In making such examination the Commission or any officer or officers designated by it
may administer oaths and affirmations and shall have access to, and may demand the
production of, any books, records or documents relevant to the examination. Failure of the
issuer, underwriter, or any other person to cooperate, or his obstruction or refusal to undergo
an examination, shall be a ground for the issuance of a suspension order.
Section 15. Suspension of Registration. - 15.1. If at any time, the information contained in the
registration statement filed is or has become misleading, incorrect, inadequate or incomplete
in any material respect, or the sale or offering for sale of the security registered thereunder
may work or tend to work a fraud, the Commission may require from the issuer such further
information as may in its judgement be necessary to enable the Commission to ascertain
whether the registration of such security should be revoked on any ground specified in this
Code. The Commission may also suspend the right to sell and offer for the sale such security
pending further investigation, by entering an order specifying the grounds for such action, and
by notifying the issuer, underwriter, dealer or broker known as participating in such offering.
15.2. The refusal to furnish information required by the Commission may be a ground for the
issuance of an order of suspension pursuant to Subsection 15.1. Upon the issuance of any such
order and notification to the issuer, underwriter, dealer or broken know as participating in
such offering, no further offer or sale of any such security shall be made until the same is lifted
or set aside by the Commission. Otherwise such sale shall be void.
15.3. Upon issuance of an order of suspension, the Commission shall conduct a hearing. If the
Commission determines that the sale of any security should be revoked is shall issue an order
prohibiting sale of such security.
15.4. Until the issuance of a final order, the suspension of the right to sell, though binding
upon the persons notified there of, shall be deemed confidential, and shall not be published,
unless it shall appear that the order of suspension has been violated after notice. If, however,
the Commission finds that the sale of the security will neither be fraudulent nor result in fraud,
it shall forthwith issue an order revoking the order of suspension, and such security shall be
restored to its status as a registered security as of the date of such order of suspension.
CHAPTER IV
REGULATION OF PRE-NEED PLANS
Section 16. Pre-Need Plans. – No person shall sell or offer for sale to the public any pre-need
plan except in accordance with rules and regulations which the Commission shall prescribe.
Such rules shall regulate the sale of pre-need plans by, among other things, requiring the
registration of pre-need plans, licensing persons involved in the sale of pre- need plans,
requiring disclosures to prospective plan holders, prescribing advertising guidelines, providing
for uniform accounting system, reports and recording keeping with respect to such plans,
imposing capital, bonding and other financial responsibility, and establishing trust funds for
the payment of benefits under such plans.
CHAPTER V
REPORTORIAL REQUIREMENTS
Section 17. Periodic and Other Reports of Issuer. 17.1. Every issuer satisfying the requirements
in Subsection 17.2 hereof shall file with the Commission:
(a) Within one hundred thirty-five (135) days, after the end of the issuer’s fiscal year, or
such other time as the Commission may prescribe, an annual report which shall include,
among others, a balance sheet, profit and loss statement and statement of cash flows,
for such last fiscal year, certified public accountant, an a management discussion and
analysis of results of operation; and
(b) Such other periodical reports for interim fiscal periods and current reports on
significant developments of the issuer as the Commission may prescribe as necessary to
keep current information on the operation of the business and financial condition of the
issuer.
17.2. The reportorial requirements of Subsection 17.1 shall apply to the following:
(a) An issuer which has sold a class of its securities pursuant to a registration under
section 12 hereof:Provided however, That the obligation of such issuer to file reports
shall be suspended for any fiscal year after the year such registration became effective if
such issuer, as of the first day of any such fiscal year, has less than one hundred (100)
holder of such class securities or such other number as the Commission shall prescribe
and it notifies the Commission of such;
(b) An issuer with a class of securities listed for trading on an Exchange; and
(c) An issuer with assets of at least Fifty million pesos (50,000,000.00) or such other
amount as the Commission shall prescribe, and having two hundred (200) or more
holder each holding at least one hundred (100) share of a class of its equity
securities: Provided, however, That the obligation of such issuer to file report shall be
terminate ninety (90) days after notification to the Commission by the issuer that the
number of its holders holding at least one hundred (100) share reduced to less than one
hundred (100).
17.3. Every issuer of a security listed for trading on an Exchange a copy of any report filed with
the Commission under Subsection 17.1. hereof.
17.4. All reports (including financial statements) required to be filed with the Commission
pursuant to Subsection 17.1 hereof shall be in such form, contain such information and be
filed at such times as the Commission shall prescribe, and shall be in lieu of any periodical or
current reports or financial statements otherwise required to be filed under the Commission
shall prescribe.
17.5. Every issuer which has a class of equity securities satisfying any of the requirements in
Subsection 17.2 shall furnish to each holder of such equity security an annual report in such
form and containing such information as the Commission shall prescribe.
17.6. Within such period as the Commission may prescribe preceding the annual meeting of
the holders of any equity security of a class entitled to vote at such meeting , the issuer shall
transmit to such holders an annual report in conformity with subsection 17.5.
Section 18. Reports by five per centum (5%) Holders of Equity Securities. – 18.1. In every case
in which an issuer satisfies the requirements of Subsection 17.2 hereof any person who
acquires directly or indirectly the beneficial ownership of more than five of per centum (5%) of
such class or in excess of such lesser per centum as the Commission by rule may prescribe,
shall, within ten (10) days after such acquisition or such reasonable time as fixed by the
Commission, submit to the issuer of the securities, to the Exchange where the security is
traded, and to the Commission a sworn statement containing the following information and
such order information as the Commission may require in the public interest or for the
protection of investors.
(a) The personal background, identity, residence, and citizenship of, and the nature of
such beneficial ownership by, such person and all other person by whom or on whose
behalf the purchases are effected; in the event the beneficial owner is a juridical person,
the of business of the beneficial owner shall also be reported;
(b) If the purpose of the purchases or prospective purchases is to acquire control of the
business of the issuer of the securities, any plans or proposals which such persons may
have that will effect a major change in its business or corporate structure;
(c) The number of shares of such security which are beneficially owned, and the number
of shares concerning which there is a right to acquire, directly or indirectly, by; (i) such
person, and (ii) each associate of such person, giving the background, identity,
residence, and citizenship of each such associate; and
(d) Information as to any contracts, arrangements, or understanding with any person
with respect to any securities of the issuer including but not limited to transfer, joint
ventures, loan or option arrangements, puts or call guarantees or division of losses or
profits, or proxies naming the persons with whom such contracts, arrangements, or
understanding have been entered into, and giving the details thereof.
18.2. If any change occurs in the facts set forth in the statements, an amendment shall be
transmitted to the issuer, the Exchange and the Commission.
18.3. The Commission, may permit any person to file in lieu of the statement required by
subsection 17.1 hereof, a notice stating the name of such person, the shares of any equity
securities subject to Subsection 17.1 which are owned by him, the date of their acquisition and
such other information as the commission may specify, if it appears to the commission that
such securities were acquired by such person in the ordinary course of his business and were
not acquired for the purpose of and do not have the effect of changing or influencing the
control of the issuer nor in connection with any transaction having such purpose or effect.
CHAPTER VI
PROTECTION OF SHAREHOLDERS INTERESTS
Section 19. Tender Offers. – Any person or group of persons acting in concert who intends to
acquire at least 15% of any class of any equity security of a listed corporation of any class of
any equity security of a corporation with assets of at least fifty million pesos (50,000,000.00)
and having two hundred(200) or more stockholders at least one hundred shares each or who
intends to acquire at least thirty percent(30%) of such equity over a period of twelve
months(12) shall make a tender offer to stockholders by filling with the Commission a
declaration to that effect; and furnish the issuer, a statement containing such of the
information required in Section 17 of this Code as the Commission may prescribe. Such person
or group of persons shall publish all request or invitations or tender offer or requesting such
tender offers subsequent to the initial solicitation or request shall contain such information as
the Commission may prescribe, and shall be filed with the Commission and sent to the issuer
not alter than the time copies of such materials are first published or sent or given to security
holders.
(b) Securities deposited pursuant to a tender offer or request or invitation for tenders
may be withdrawn by or on behalf of the depositor at any time throughout the period
that tender offer remains open and if the securities deposited have not been previously
accepted for payment, and at any time after sixty (60) days from the date of the original
tender offer to request or invitation, except as the Commission may otherwise
prescribe.
(c) Where the securities offered exceed that which person or group of persons is bound
or willing to take up and pay for, the securities that are subject of the tender offers shall
be taken up us nearly as may be pro data, disregarding fractions, according to the
number of securities deposited to each depositor. The provision of this subject shall also
apply to securities deposited within ten (10) days after notice of increase in the
consideration offered to security holders, as described in paragraph (e) of this
subsection, is first published or sent or given to security holders.
(d) Where any person varies the terms of a tender offer or request or invitation for
tenders before the expiration thereof by increasing the consideration offered to holders
of such securities, such person shall pay the increased consideration to each security
holder whose securities are taken up and paid for whether or not such securities have
been taken up by such person before the variation of the tender offer or request or
invitation.
19.2. It shall be lawful for any person to make any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made in the light of the
circumstances under which they are made, not mis-leading, or to engaged to any fraudulent,
deceptive or manipulative acts or practices, in connection with any tender offer or request or
invitation for tenders, or any solicitation for any security holders in opposition to or in favor of
any such favor of any such offer, request, or invitation. The Commission shall, for the purposes
of this subsection, define and prescribe means reasonably designed to prevent, such acts and
practices as are fraudulent, deceptive and manipulative.
Section 20. Proxy solicitations. - 20.1. Proxies must be issued and proxy solicitation must be
made in accordance with rules and regulations to be issued by the Commission;
20.2. Proxies must be in writing, signed by the stockholder or his duly authorized
representative and file before the scheduled meeting with the corporate secretary.
20.3. Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it
is intended. No proxy shall be valid only for the meting for which it is intended. No proxy shall
be valid and effective for a period longer than five (5) years at one time.
20.4. No broker or dealer shall give any proxy, consent or any authorization, in respect of any
security carried for the account of the customer, to a person other than the customer, without
written authorization of such customer.
20.5. A broker or dealer who holds or acquire the proxy for at least ten percent (10%) or such
percentage as the commission may prescribe of the outstanding share of such issuer, shall
submit a report identifying the beneficial owner of ten days after such acquisition, for its own
account or customer, to the issuer of security, to the exchange where the security is traded
and to the Commission.
Section 21. Fees of Tender Offers and Certain Proxy Solicitations. – At the time of filling with
the Commission of any statement required under Section 19 for any tender offer or Section
72.2 for issuer purchases, or Section 20 for proxy or consent solicitation, The Commission may
require that the person making such filing pay a fee of not more than one-tenth (1/10)(1%) of;
21.1. The propose aggregate purchase price in the case of a transaction under Section 20 or
72.2; or
21.2. The proposed payment in cash, and ion value of any securities or property to be
transferred in the acquisition, merger or consolidating, or the cash and value of any securities
proposed to be received upon the sale disposition of such assets in the case of a solicitation
under Section 20. The Commission shall prescribe by rule diminishing fees in inverse
proportion to the value of the aggregate price of the offering.
Section 22. Internal Record Keeping and Accounting Control. - Every issuer which has a class of
securities that satisfies the requirements of Subsection 17.2 shall:
22.1. Device and maintain a system of internal accounting controls sufficient to provide
reasonable assurance that: (a) Transactions and access to assets are pursuant to management
authorization; (b) Financial statements are provided in conformity with generally accepted
accounting principles that are adopted by the Accounting standards council and the rules
promulgated by the Commission with the regard to the preparation of the financial
statements; and (c) Recorded assets are compared with existing assets at reasonable intervals
and differences are reconciled.
Section 23. Transactions of Directors officers and Principal Stockholders. – 23.1. Every person
who is directly or indirectly the beneficial owner of more than ten per centum (10%) of any
class of any equity security which satisfies the requirements of subsection 17.2, or who is a
director or an officer of the issuer of such security, shall file, at the time either such
requirement is first satisfied or after ten days after he becomes such a beneficial owner,
director, or officer, a statement form the Commission and, if such security is listed for trading
on an exchange, also with the exchange of the amount of all the equity security of such issuer
of which he is the beneficial owner, and within ten days after the close of each calendar month
thereafter, if there has been a change in such ownership at the close of the calendar month
and such changes in his ownership as have occurred during such calendar month.
23.2. For the purpose of preventing the unfair use of information which may have been
obtained by such beneficial owner, director or officer by reason of his relationship to the
issuer, any profit realized by him from any purchase or sale, or any sale or purchase, of any
equity security of such issuer within any period of less than (6) months unless such security
was acquired in good faith in connection with a debt previously contracted, shall inure to and
be recoverable by the issuer, irrespective of any intention of holding the security purchased or
of not repurchasing the security sold for a period exceeding six (6) months. Suit to recover
such profit may be instituted before the Regional Trial Court by the issuer, or by the owner of
any security of the issuer in the name and in behalf of the issuer if the issuer shall fail or refuse
to bring such suit within sixty (60) days after request or shall fail diligently to prosecute the
same thereafter, but not such shall be brought more than two years after the date such profit
was realized. This Subsection shall not be construed to cover any transaction were such
beneficial owner was not such both time of the owner or the sale, or the sale of purchase, of
the security involved, or any transaction or transactions which the Commission by rules and
regulations may exempt as not comprehended within the purpose of this subsection.
23.3. It shall be unlawful for any such beneficial owner, director or officer, directly or
indirectly, to sell any equity security of such issuer if the person selling the principal: (a) Does
not own the security sold: or (b) If owning the security, does not deliver not deliver it against
such sale within 20 days thereafter, or does not within five days after such sale deposit in the
mails or the unusual channels of transportation; but no person shall be deemed to have
violated this subsection if he proves not withstanding the exercise of good faith he was unable
to make such delivery in such time, or that to do so would cause undue inconvenience or
expense.
23.4. The provisions of subsection 23.2 shall not apply to any purchase and sale, or sale and
purchase, and the provisions of Subsection 23.3 shall not apply to any sale, of an equity
security not then or thereafter held by him and an investment account, by a dealer in the
ordinary course of his business and incident to the establishment or maintenance by him of a
primary or secondary market, otherwise than on an Exchange, for such security. The
Commission may, by such rules and regulations as it deems necessary or appropriate in the
public interest, define and prescribe terms and conditions with respect to securities held in an
investment account and transactions made in the ordinary course of business and incident to
the establishment or maintenance of a primary or secondary market.
CHAPTER VII
PROHIBITIONS AND FRAUD, MANIPULATION AND INSIDER TRADING
Section 24. Manipulation of Security Prices; Devices and Practices. – 24.1 It shall be unlawful
for any person acting for himself or through a dealer or broker, directly or indirectly:
(a) To create a false or misleading appearance of active trading in any listed security
traded in an Exchange of any other trading market (hereafter referred to purposes of
this Chapter as "Exchange"):
(i) By effecting any transaction in such security which involves no change in the
beneficial ownership thereof;
(ii) By entering an order or orders for the purchase or sale of such security with
the knowledge that a simultaneous order or orders of substantially the same size,
time and price, for the sale or purchase of any such security, has or will be
entered by or for the same or different parties; or
(b) To affect, alone or with others, a securities or transactions in securities that: (I)
Raises their price to induce the purchase of a security, whether of the same or a
different class of the same issuer or of controlling, controlled, or commonly controlled
company by others; or (iii) Creates active trading to induce such a purchase or sale
through manipulative devices such as marking the close, painting the tape, squeezing
the float, hype and dump, boiler room operations and such other similar devices.
(c) To circulate or disseminate information that the price of any security listed in an
Exchange will or is likely to rise or fall because of manipulative market operations of any
one or more persons conducted for the purpose of raising or depressing the price of the
security for the purpose of inducing the purpose of sale of such security.
(d) To make false or misleading statement with respect to any material fact, which he
knew or had reasonable ground to believe was so false or misleading, for the purpose of
inducing the purchase or sale of any security listed or traded in an Exchange.
(e) To effect, either alone or others, any series of transactions for the purchase and/or
sale of any security traded in an Exchange for the purpose of pegging, fixing or
stabilizing the price of such security; unless otherwise allowed by this Code or by rules
of the Commission.
24.2. No person shall use or employ, in connection with the purchase or sale of any security
any manipulative or deceptive device or contrivance. Neither shall any short sale be effected
nor any stop-loss order be executed in connection with the purchase or sale of any security
except in accordance with such rules and regulations as the Commission may prescribe as
necessary or appropriate in the public interest for the protection of investors.
24.3. The foregoing provisions notwithstanding, the Commission, having due regard to the
public interest and the protection of investors, may, by rules and regulations, allow certain
acts or transactions that may otherwise be prohibited under this Section.
Section 26. Fraudulent Transactions. – It shall be unlawful for any person, directly or indirectly,
in connection with the purchase or sale of any securities to:
26.2. Obtain money or property by means of any untrue statement of a material fact of any
omission to state a material fact necessary in order to make the statements made, in the light
of the circumstances under which they were made, not misleading; or
26.3. Engage in any act, transaction, practice or course of business which operates or would
operate as a fraud or deceit upon any person.
Section 27. Insider’s Duty to Disclose When Trading. – 27.1. It shall be unlawful for an insider
to sell or buy a security of the issuer, while in possession of material information with respect
to the issuer or the security that is not generally available to the public, unless: (a) The insider
proves that the information was not gained from such relationship; or (b) If the other party
selling to or buying from the insider (or his agent) is identified, the insider proves: (I) that he
disclosed the information to the other party, or (ii) that he had reason to believe that the
other party otherwise is also in possession of the information. A purchase or sale of a security
of the issuer made by an insider defined in Subsection 3.8, or such insider’s spouse or relatives
by affinity or consanguinity within the second degree, legitimate or common-law, shall be
presumed to have been effected while in possession of material nonpublic information if
transacted after such information came into existence but prior to dissemination of such
information to the public and the lapse of a reasonable time for market to absorb such
information:Provided, however, That this presumption shall be rebutted upon a showing by
the purchaser or seller that he was aware of the material nonpublic information at the time of
the purchase or sale.
27.2. For purposes of this Section, information is "material nonpublic" if: (a) It has not been
generally disclosed to the public and would likely affect the market price of the security after
being disseminated to the public and the lapse of a reasonable time for the market to absorb
the information; or (b) would be considered by a reasonable person important under the
circumstances in determining his course of action whether to buy, sell or hold a security.
27.3. It shall be unlawful for any insider to communicate material nonpublic information about
the issuer or the security to any person who, by virtue of the communication, becomes an
insider as defined in Subsection 3.8, where the insider communicating the information knows
or has reason to believe that such person will likely buy or sell a security of the issuer whole in
possession of such information.
27.4. (a) It shall be unlawful where a tender offer has commenced or is about to commence
for:
(i) Any person (other than the tender offeror) who is in possession of material nonpublic
information relating to such tender offer, to buy or sell the securities of the issuer that
are sought or to be sought by such tender offer if such person knows or has reason to
believe that the information is nonpublic and has been acquired directly or indirectly
from the tender offeror, those acting on its behalf, the issuer of the securities sought or
to be sought by such tender offer, or any insider of such issuer; and
(ii) Any tender offeror, those acting on its behalf, the issuer of the securities sought or to
be sought by such tender offer, and any insider of such issuer to communicate material
nonpublic information relating to the tender offer to any other person where such
communication is likely to result in a violation of Subsection 27.4 (a)(I).
(b) For purposes of this subsection the term "securities of the issuer sought or to be sought by
such tender offer" shall include any securities convertible or exchangeable into such securities
or any options or rights in any of the foregoing securities.
CHAPTER VIII
REGULATION OF SECURITIES MARKET PROFESSIONALS
28.2. No registered broker or dealer shall employ any salesman or any associated person, and
no issuer shall employ any salesman, who is not registered as such with the Commission.
28.3. The Commission, by rule or order, may conditionally or unconditionally exempt from
subsection 28.1 and 28.2 any broker, dealer, salesman, associated person of any broker or
dealer, or any class of the foregoing, as it deems consistent with the public interest and the
protection of investors.
28.4. The Commission shall promulgate rules and regulation prescribing the qualifications for
registration of each category of applicant, which shall, among other things, require as a
condition for registration that:
(a) If a natural person, the applicant satisfactorily pass a written examination as to his
proficiency and knowledge in the area of activity for which registration is sought;
(b) In the case of a broker or dealer, the applicant satisfy a minimum net capital as
prescribed by the Commission, and provide a bond or other security as the Commission
may prescribe to secure compliance with the provisions of this Code; and
(c) If located outside of the Philippines, the applicant files a written consent to service of
process upon the Commission pursuant to Section 65 hereof.
28.5. A broker or dealer may apply for registration by filing with the Commission a written
application in such forms and containing such information and documents concerning such
broker or dealer as the Commission by rule shall prescribe.
28.7. Applications filed pursuant to Subsections 28.5 and 28.6 shall be accompanied by a
registration fee in such reasonable amount prescribed by the Commission.
28.8. Within thirty (30) days after the filing of any application under this Section, the
Commission shall by order: (a) Grant registrations if it determines that the requirements of
this Section and the qualifications for registrations set forth in its rules and regulations have
been satisfied ; or (b) Deny said registration.
28.9. The names and addresses of all persons approved for the registration as brokers, dealers,
associated persons or salesman and all orders of the Commission with respect thereto shall be
recorded in a Register of Securities Market Professionals kept in the office of the Commission
which shall be open to public inspection.
28.10. Every person registered pursuant to this Section shall file with the Commission, in such
form as the Commission shall prescribe, information necessary to keep the application for
registration current and accurate, including in the case of a broker or dealer changes in
salesmen, associated persons and owners thereof.
28.11. Every person registered pursuant to this Selection shall pay to the Commission an
annual fee at such time and in such reasonable amount as the Commission shall prescribe.
Upon notice by the Commission that such annual fee has not been paid as required, the
registration of such person shall be suspended until payment has been made.
28.12. The registration of a salesman or associated person shall be automatically terminated
upon the cessation of his affiliation with said registered broker or dealer or with an issuer in
the case of a salesman employed, appointed or authorized by such issuer. Promptly following
any such cessation of affiliation, the registered broker or dealer, issuer as the case may be,
shall file with the Commission a notice of separation of such salesman or associated person.
(a) Has willfully violated any provision of this Code, any rule, regulation or order made
hereunder, or any other law administered by the Commission, or in the case of a
registered broker, dealer or associated persons has failed to supervise, with a view to
preventing such violation, another person who commits such violation;
(b) Has willfully made or caused to be made a materially false or misleading statement
in any application for registration or report filed with the Commission or a self-
regulatory organization, or has willfully omitted to state any material fact that is
required to be stated therein;
(c) Has failed to satisfy the qualifications or requirements for registration prescribed
under Section 28 and the rules and regulations of the Commission promulgated
thereunder;
For purposes of this subsection, the term "competent judicial or administrative body" shall
include a foreign court of competent jurisdiction and a foreign financial regulator.
29.2. (a) In case of charges against a salesman or associated person, notice thereof shall also
be given the broker, dealer or issuer employing such salesman or associated person.
(b) Pending the hearing, the Commission shall have the power to order the suspensions
of such broker’s, dealers, associated person’s or salesman’s registration: Provided, That
such order shall state the cause for such suspension. Until the entry of a final order, the
suspension of such registration, though binding upon the persons notified thereof, shall
be deemed confidential, and shall not be published, unless it shall appear that the order
of suspension has been violated after notice.
29.3. The orders of the Commission refusing, revoking, suspending or placing limitations on a
registration as herein above provided, together with its findings, shall be entered in the
Register of Securities Market Professionals. The suspension or revocation of the registration of
a dealer or broker shall also automatically suspend the registration of all salesmen and
associated persons affiliated with such broker or dealer. The order of the Commission refusing,
revoking, suspending or placing limitations on a registration as herein above provided,
together with its findings, shall be entered in the Register of Securities Market Professionals.
The suspension or revocation of the registration of a dealer or broker shall also automatically
suspend the registration of a dealer or broker shall also automatically suspend the registration
of all salesmen and associated persons affiliated with such broker or dealer.
29.4. It shall be sufficient cause for refusal, revocation or suspension of a broker’s or dealer’s
registrations, if any associated person thereof or any juridical entity controlled by such
associated person has committed any act or omission or is subject to any disability
enumerated in paragraphs (a) through (i) of Subsection 29. I hereof.
Section 30. Transactions and Responsibility of Brokers and Dealers. – 30.1 No brokers or dealer
shall deal in or otherwise buy or sell, for its own account or for its own account or for the
account of customers, securities listed on an Exchange issued by any corporation where any
stockholders, director, associated person or salesman, or authorized clerk of said broker or
dealer and all the relatives of the foregoing within the fourth civil degree of consanguinity or
affinity, is at the same time holding office in said issuer corporation as a director, president,
vice-president, manager, treasurer, comptroller, secretary or any office trust and
responsibility, or is a controlling of the issuer.
30.2. No broker or dealer shall effect any transaction in securities or induce or attempt to
induce the purchase or sale of any security except in compliance with such rules and
regulations as the Commission shall prescribe to ensure fair and honest dealings in securities
and provide financial safeguards and other standards for the operations of brokers and
dealers, including the establishments of minimum net capital requirements, the acceptance of
custody and use of securities of customers, and the carrying and use of deposits and credit
balances of customers.
CHAPTER IX
EXCHANGES AND OTHER SECURITIES TRADING MARKETS
32.2. (a) No broker, dealer, salesman or associated person of a broker or dealer, singly or in
concert with any other person, shall make, create or operate, or enable another to make,
create or operate, any trading market, otherwise than on a registered Exchange, for the
buying and selling of any security, except in accordance with rules and regulations the
Commission may prescribe.
(b) The Commission may promulgate rules and regulations governing transactions by
brokers, dealers, salesmen or associated persons of a broker or dealer, over any
facilities of such trading market and may require such market to be administered by a
self-regulatory organization determined by the Commission as capable of insuring the
protection of investors comparable to that provided in the case of a registered
Exchange. Such self-regulatory organization must provide a centralized marketplace for
trading and must satisfy requirements comparable to those prescribed for registration
of Exchanges in Section 33 of this Code.
Section 33. Registration of Exchanges. – 33.1. Any Exchange may be registered as such with
the Commission under the terms and conditions hereinafter provided in this Section and
Section 40 hereof, by filing an application for registration in such form and containing such
information and supporting documents as the Commission by rule shall prescribe, including
the following:
(a) An undertaking to comply and enforce by its members with the provisions of this
Code, its implementing rules and regulations and the rules of the Exchange;
(b) The organizational charts of the Exchange, rules of procedure, and a list of its officers
and members;
(d) An undertaking that in the event a member firm becomes insolvent or when the
Exchange shall have found that the financial condition of its member firm has so
deteriorated that it cannot readily meet the demands of its customers for the delivery of
securities and/or payment of sales proceeds, the Exchange shall, upon order of the
Commission, take over the operation of the insolvent member firm and immediately
proceed to settle the member firm’s liabilities to its customers.
33.2. Registrations of an Exchange shall be granted upon compliance with the following
provisions:
(a) That the applicant is organized as a stock corporation: Provided, That any registered
Exchange existing prior to the effectivity of this Code shall within one (1) year reorganize
as a stock corporation pursuant to a demutualization plan approved by the Commission;
(c) Where the Exchange is organized as a stock corporation, that no person may
beneficially own or control, directly or indirectly, more than five percent (5%) of the
voting rights of the Exchange and no industry or business group may beneficially own or
control, directly or indirectly, more than twenty percent (20%) of the voting rights of the
Exchange: Provided, however, That the Commission may adopt rules, regulations or
issue an order, upon application from this prohibition where it finds that such
ownership or control will not negatively impact on the exchange’s ability to effectively
operate in the public interest.
(d) The expulsion, suspension, or disciplining of a member and persons associated with a
member for conduct or proceeding inconsistent with just and equitable principles of fair
trade, and for violations of provisions of this Code, or any other Act administered by the
Commission, the rules, regulations and orders thereunder, or the rules of the Exchange;’
(e) A fair procedure for the disciplining of members and persons associated with
members, the denial of membership to any person seeking to be a member, the barring
of any person from association with a member, and the prohibition or limitation of any
person from association with member, and the prohibition or limitation of any person
from access to services offered by the Exchange;
(f) That the brokers in the board of the Exchange shall comprise of not more than forty-
nine percent (49%) of such board and shall proportionately represent the Exchange
membership in terms of volume/value or trade and paid up capital, and that any natural
person associated with a juridical entity that is a member for this purpose; Provide, That
any registered Exchange existing prior to the affectivity of this Code shall immediately
comply with this requirement;
(g) For the board of the Exchange to include in its composition (1) the president of the
Exchange, and (ii) no less than fifty one percent (51%) of the remaining members of the
board to be comprised of three (3) independent directors and persons who represent
the interests of issuers, investors, and other market participants, who are not associated
with any broker or dealer or member of the Exchange for a period of two (2) years prior
to his/her appointment. No officer or employee of a member, its subsidiaries or
affiliates or related interests shall become an independent director:
Provided, however, That the Commission may by rule, regulation, or order upon
application, permit the exchange organized as a stock corporation to use a different
governance structure: Provided, further, That the Commission is satisfied that the
Exchange is acting in the public interest and is able to effectively operate as a self-
regulatory organization under this Code: Provided, finally, That any registered exchange
existing prior to the affectivity of this Code shall immediately comply with this
requirement.
(h) The president and other management of the Exchange to consist only of persons
who are not members and are not associated in any capacity, directly or indirectly with
any broker or dealer or member or listed company of the Exchange: Provided, That the
Exchange may only appoint, and a person may only serve, as an officer of the exchange
if such person has not been a member or affiliated with any broker, dealer, or member
of the Exchange for a period of at least two (2) years prior to such appointment;
(k) Prevention of fraudulent and manipulative acts and practices, promotion of just and
equitable principles of trade, and, in general, protection of investors and the public
interest; and
(l) The transparent, prompt and accurate clearance and settlement of transactions
effected on the Exchange.
33.3. If the Commission finds that the applicant Exchange is capable of complying and
enforcing compliance by its members, and persons associated with such members, with the
provisions of this Code, and the rules of the Exchange, and that the rules of Exchange are fair,
just and adequate, the Commission shall cause such Exchange to be registered. If, after notice
due and hearing, the Commission finds otherwise, the application shall be denied.
33.4. Within ninety (90) days after the filing of the application the Commission may issue an
order either granting or denying registration as an Exchange, unless the Exchange applying for
registration shall withdraw its application or shall consent to the Commission’s deferring
action on its application for a stated longer period after the date of filing. The filing with the
Commission of an application for registration by an Exchange shall be deemed to have taken
place upon the receipt thereof. Amendments to an application may be made upon such terms
as the Commission may prescribe.
33.5. Upon the registration of an Exchange, it is shall pay a fee in such amount and within such
period as the Commission may fix.
33.6. Upon appropriate application in accordance with the rules and regulations of the
Commission and upon such terms as the Commission may deemed necessary for the
protection of investors, an exchange may withdraw its registration or suspend its operations
or resume the same.
Section 34. Segregation and Limitation of functions of Members, Broker and Dealers. - 34.1. It
shall be unlawful for any member-broker of an Exchange to effect any transaction on such
Exchange for its own account, the account of an associated person, or an account with the
respect to which it or an associated person thereof exercises the investment
discretion: Provided, however, That this Section shall not make unlawful-
(d) Any other transaction of a similar nature as may be defined by the Commission.
34.2. In all instances where the member-broker effects a transaction on an Exchange for its
own account or the account of an associated person or an account with the respect to which it
exercises investment discretion, it shall disclose to such customer at or before the completion
of the transaction it is acting for its own account: Provided, further, That this fact shall be
reflected in the order ticket and the confirmation slip.
34.3. Any member-broker who violates the provisions of this Section shall be subject to the
administrative sanctions provided in Section 54 of this Code.
Section 36. Powers with Respect to Exchanges and Other Trading Market. – 36.1. The
Commission is authorized, if in its opinion such action is necessary or appropriate for the
protection of investors and the public interest so requires, summarily to suspend trading in
any listed security on any Exchange or other trading market for a period not exceeding thirty
(30) days but not exceeding ninety (90) days: Provided, however, That the Commission
promptly following the issuance of the order of suspension, shall notify the affected issuer of
the reasons for such suspension and provide such issuer with an opportunity for hearing to
determine whether the suspension should be lifted.
36.2. Wherever two (2) or more Exchanges or other trading markets exist, the Commission
may require and enforce uniformity of trading regulations in and/or between or among said
Exchanges or other trading markets.
36.3. In addition to the existing Philippine Stock Exchange, the Commission shall have the
authority to determine the number, size and location of stock Exchanges, other trading
markets and commodity Exchanges and other similar organizations in the light of national or
regional requirements for such activities with the view to promote, enhance, protect, conserve
or rationalize investment.
36.4. The Commission, having due regard to the public interest, the protection of investors,
the safeguarding of securities and funds, and maintenance of fair competition among brokers,
dealers, clearing agencies, and transfer agents, shall promulgate rules and regulations for the
prompt and accurate clearance and settlement of securities transactions.
36.5. (a) The Commission may establish or facilitate the establishment of trust funds which
shall be contributed by Exchanges, brokers, dealers, underwriters, transfer agents, salesmen
and other persons transacting in securities, as the Commission may require, for the purpose of
compensating investors for the extraordinary losses or damage they may suffer due to
business failure or fraud or mismanagement of the persons with whom they transact, under
such rules and regulations as the Commission may from time to time prescribe or approve in
the public interest.
(b) The Commission may, having due regard to the public interest or the protection of
investors, regulate, supervise, examine, suspend or otherwise discontinue such and
other similar funds under such rules and regulations which the Commission may
promulgate, and which may include taking custody and management of the fund itself
as well as investments in and disbursements from the funds under such forms of control
and supervision by the Commission as it may from time to time require. The authority
granted to the Commission under this subsection shall also apply to all funds established
for the protection of investors, whether established by the Commission or otherwise.
Section 37. Registration of Innovative and Other Trading Markets. – The Commission, having
due regard for national economic development, shall encourage competitiveness in the
market by promulgating within six (6) months upon the enactment of this Code, rules for the
registration and licensing of innovative and other trading markets or Exchanges covering, but
not limited to, the issuance and trading of innovative securities, securities of small, medium,
growth and venture enterprises, and technology-based ventures pursuant to Section 33 of this
Code.
Section 38. Independent Directors. – Any corporation with a class of equity securities listed for
trading on an Exchange or with assets in excess of Fifty million pesos (P50,000,000.00) and
having two hundred (200) or more holders, at least of two hundred (200) of which are holding
at least one hundred (100) shares of a class of its equity securities or which has sold a class of
equity securities to the public pursuant to an effective registration statement in compliance
with Section 12 hereof shall have at least two (2) independent directors or such independent
directors shall constitute at least twenty percent (20%) of the members of such board
whichever is the lesser. For this purpose, an "independent director" shall mean a person other
than an officer or employee of the corporation, its parent or subsidiaries, or any other
individual having a relationship with the corporation, which would interfere with the exercise
of independent judgement in carrying out the responsibilities of a director.
CHAPTER X
REGISTRATION, RESPONSIBILITIES AND OVERSIGHT OF SELF-REGULATORY ORGANIZATIONS
Section 39. Associations of Securities Brokers, and Dealers, and Other Securities Related
Organizations. – 39.1. The Commission shall have the power to register as a self-regulatory
organization, or otherwise grant licenses, and to regulate, supervise, examine, suspend or
otherwise discontinue, as a condition for the operation of organizations whose operations are
related to or connected with the securities market such as but not limited to associations of
brokers and dealers, transfer agents, custodians, fiscal and paying agents, computer services,
news disseminating services, proxy solicitors, statistical agencies, securities rating agencies,
and securities information processor which are engaged in business of: (a) Collecting,
processing, or preparing for distribution or publication, or assisting, participating in, or
coordinating the distribution or publication of, information with respect to transactions in or
quotations for any security; or (b) Distributing or publishing, whether by means of a ticker
tape, a communications network, a terminal display device, or otherwise, on a current and
continuing basis, information with respect to such transactions or quotations. The Commission
may prescribe rules and regulations which are necessary or appropriate in the public interest
or for the protection of investors to govern self-regulatory organizations and other
organizations licensed or regulated pursuant to the authority granted in Subsection 39.1
including the requirement of cooperation within and among, and electronic integration of the
records of, all participants in the securities market to ensure transparency and facilitate
exchange of information.
39.3. An association of brokers and dealers shall not be registered as a securities association
unless the Commission determines that:
(a) The association is so organized and has the capacity to be able to carry out the
purposes of this Code and to comply with, and to enforce compliance by its members
and persons associated with its members, with the provisions of this Code, the rules and
regulations thereunder, and the rules of the association.
(b) The rules of the association, notwithstanding anything in the Corporation Code to
the contrary, provide that:
(i) Any registered broker or dealer may become a member of the association;
(ii) There exist a fair representation of its members to serve on the Board of
Directors of the association and in the administration of its affairs, and that may
any natural person associated with a juridical entity that is a member shall himself
be deemed to be a member for this purpose;
(iii) The Board of Directors of the association includes in its composition:
(b) Person who represent the interests of the issuer and public investors
and are not associated with any broker or dealer or member of the
association; that the president and other management of the association
not be a member or associated with any broker, dealer or member of the
association;
(iv) For the equitable allocation of reasonable dues, fees, and other charges
among member and issuers and other persons using any facility or system which
the association operates or controls;
(v) For the prevention of fraudulent and manipulative acts and practices, the
promotion of just and equitable principles of trade, and, in general, the protection
of investors and the public interest;
(vi) That its members and persons associated with its members shall be
appropriately disciplined for violation of any provision of this Code, the rules and
regulations thereunder, or the rules of the association;
(vii) That a fair procedure for the disciplining of members and persons associated
with members, the denial of membership to any person seeking membership
therein, the barring of any person from becoming associated with a member
thereof, and the prohibition or limitation by the association of any person with
respect to access to services offered by the association or a member thereof.
39.4. (a) A registered securities association shall deny membership to any person who is not a
registered broker or dealer.
(b) A registered securities association may deny membership to, or condition the
membership of, a registered broker or dealer if such broker or dealer:
(i) Does not meet the standards of financial responsibility, operational capability,
training, experience or competence that are prescribe by the rules of the
association; or
(ii) Has engaged, and there is a reasonable likelihood it will again engage, in acts
or practices inconsistent with just and equitable principles of fair trade.
(d) A registered securities association may bar a salesman or person associated with a
broker or dealer from being employed by a member or set conditions for the
employment of a salesman or associated if such person:
(i) Does not meet the standards of training, experience, or competence that are
prescribe by the rules of the association; or
(ii) Has engage, and there is a reasonable likelihood he will again engage, in acts
or practices inconsistent with just and equitable principles of fair trade.
A registered securities association may examine and verify the qualifications of an applicant to
become a salesman or associated person employed by a member in accordance with the
procedures establish by the rules of the association. A registered association also may require
a salesman or associated person employed by a member to be registered with the association
in accordance with the procedures prescribed in the rules of the association.
Section 40. Powers with Respect to Self-Regulatory Organizations. - 40.1. Upon the filing of an
application for registration as an Exchange under Section 33, a registered securities association
under Section 39, a registered clearing agency under Section 42, or other self-regulatory
organization under this Section, the Commission shall have ninety (90) days within which to
either grant registration should be denied. In the event proceedings are instituted, the
Commission shall have two hundred seventy (270) days within which to conclude such
proceedings at which time it shall, by order, grant or deny such registration.
40.2. Every self-regulatory organization shall comply with the provision of this Code, the rules
and regulations thereunder, and its own rules, and enforce compliance therewith,
notwithstanding any provisions of the Corporation Code to the contrary, by its members,
persons associated with its members of its participants.
40.3. (a) Each self-regulatory organization shall submit to the Commission for prior approval
any proposed rule or amendment thereto, together with a concise statement of the reason
and effect of the proposed amendment
(b) Within sixty (60) days after submission of a proposed amendment, the Commission
shall, by order, approve the proposed amendment. Otherwise, the same may be made
effective by the self-regulatory organization.
(c) In the event of an emergency requiring action for the protection of investors, the
maintenance of fair and orderly markets, or the safeguarding of securities and funds, a
self-regulatory organization may put a proposed amendment into effect
summarily; Provided however, That the copy of the same shall be immediately
submitted to the Commission.
40.4. The Commission is further authorized, if after making appropriate request in writing to a
self-regulatory organization that such organization effect on its own behalf specified changes
in its rules and practices and, after due to notice and hearing it determines that such changes
have not been effected, and that such changes are not necessary, by the rule or regulation or
by order, may alter, abrogate or supplement the rules of such self-regulatory organization in
so far as necessary or appropriate to effect such changes in respect of such matters as:
(g) The time and method of making settlements, payments, and deliveries, and of
closing accounts;
(i) The fixing of reasonable rates of fees, interest, listing and other charges, but not rates
of commission;
40.5. The Commission, after due notice and hearing, is authorized, in the public interest and to
protect investors:
(a) To suspend for a period not exceeding twelve (12) months or to revoke the
registration of a self-regulatory organization, or to censure or impose limitations on the
activities, functions, and operations of such self-organization, if the Commission finds
that such a self-regulatory organization has willfully violated or is unable to comply with
any provision of this Code or of the rules and regulations thereunder, or its own or has
failed to enforce compliance therewith by a member of, person associated with a
member, or a participant in such self-regulatory organization;
(b) To expel from a self-regulatory organization any member thereof or any participant
therein who is subject to an order of the Commission under Section 29 of this Code or is
found to have willfully violated any provision of this Code or suspend for a period not
exceeding twelve (12) months for violation of any provision of this Code or any other
laws administered by the Commission, or rules and regulations thereunder, or effected,
directly or indirectly, any transaction for any person who, such member or participant
had reason to believe, was violating in respect of such transaction any of such
provisions; and
(c) To remove from the office or censure any officer or director of a self-regulatory
organization if it finds that such officer or director has violated any provision of this
Code, any other law administered by the Commission, the rules or regulations
thereunder, or the rules of such self-regulatory organization, abused his authority,
without reasonable justification or excuse has failed to enforce compliance with any of
such provisions.
40.7. A self-regulatory organization shall promptly notify the Commission of any disciplinary
sanction on any member thereof or participant therein, any denial of membership or
participation in such organization, or the imposition of any disciplinary sanction on a person
associated with a member or a bar of such person from becoming so associated. Within thirty
(30) days after such notice, any aggrieved person may appeal to the Commission from, or the
Commission from, or the Commission on its own motion within such period, may institute
review of, the decision of the self-regulatory organization, at the conclusion of which, after
due notice and hearing (which may consist solely of review of the record before the self-
regulatory organization), the Commission shall affirm, modify or set aside the sanction. In such
proceeding the Commission shall determine whether the aggrieved person has engaged or
omitted to engage in the acts and practices as found by the self-regulatory organization,
whether such acts and practices constitute willful violations of this Code, any other law
administered by the Commission, the rules or regulations thereunder, or the rules of the self-
regulatory organization as specified by such organization, whether such provisions were
applied in a manner consistent with the purposes of this Code, and whether, with due regard
for the public interest and the protection of investors the sanction is excessive or oppressive.
40.8. The powers of the Commission under this Section shall apply to organized exchanges and
registered clearing agencies.
CHAPTER XI
ACQUISITION AND TRANSFER OF SECURITIES AND SETTLEMENT OF TRANSACTION IN
SECURITIES
Section 41. Prohibition on Use of Unregistered Clearing Agency. – It shall be unlawful for any
broker, dealer, salesman, associated person of a broker or dealer, or clearing agency, directly
or indirectly, to make use of any facility of a clearing agency in Philippines to make deliveries in
connection with transaction in securities or to reduce the number of settlements of securities
transactions or to allocate securities settlement responsibilities or to provide for the central
handling of securities so that transfers, loans and pledges and similar transaction can be made
by bookkeeping entry or otherwise to facilitate the settlement of securities transactions
without physical delivery of securities certificates, unless such clearing agency is registered as
such under Section 42 of this Code or is exempted from such registration upon application by
the clearing agency because, in the opinion of the Commission, by reason of the limited
volume of transactions which are settled using the clearing agency, it is not practicable and not
necessary or appropriate in the public interest or for the protection of investors to require
such registration.
Section 42. Registration of Clearing Agencies. - 42.1. Any clearing agency may be registered as
such with the Commission under the terms and conditions hereinafter provided in this Section,
by filing an application for registration in such form and containing such information and
supporting documents as the Commission by rule shall prescribe, including the following:
(a) An undertaking to comply and enforce compliance by its participants with the
provisions of this Code, and any amendments thereto, and the implementing rules or
regulations made or to be made thereunder, and the clearing agency’s rules;
(b) The organizational charts of the Exchange, its rules of procedure, and list of its
officers and participants;
42.2. No registration of a clearing agency shall be granted unless the rules of the clearing
agency include provision for:
(a) The expulsions, suspension, or disciplining of a participant for violations of this Code,
or any other Act administered by the Commission, the rules, regulations, and orders
thereunder, or the clearing agency’s rules;
(b) A fair procedure for the disciplining of participants, the denial of participation rights
to any person seeking to be a participant, and the prohibition or limitation of any person
from access to services offered by the clearing agency;
(c) The equitable allocation of reasonable dues, fees, and other charges among
participants;
(d) Prevention of fraudulent and manipulative acts and practices, promotion of just and
equitable principles of trade, and, in general, protection of investors and the public
interest;
(e) The transparent, prompt and accurate clearance and settlement of transactions in
securities handled by the clearing agency; and
(f) The establishment and oversight of a fund to guarantee the prompt and accurate
clearance and settlement of transaction executed on an exchange, including a
requirement that members each contribute an amount based on their and a relevant
percentage of the daily exposure of the (4) largest trading brokers which adequately
reflects trading risks undertaken or pursuant to another formula set forth in
Commission rules or regulations or order, upon application: Provided, however, That a
clearing agency engaged in the business of securities depository shall be exempt from
this requirement.
42.3. In the case of an application filed pursuant to this section, the Commission shall grant
registration if it is finds That the requirements of this code and the rules and regulations
thereunder with respect to the applicant have been satisfied, and shall deny registration if it
does not make such finding.
42.4. Upon appropriate application in accordance with the rules and regulations of the
Commission and upon such terms as the Commission may deem necessary for the protection
of investors, a clearing agency may withdraw its registration or suspend its operation or
resume the same.
(b) If so provided in its articles of incorporation and by-laws, issue all of the shares of a
particular class in the form of Uncertificated securities and subject to a condition that
investors may not require the corporation to issue a certificate in respect of any shares
recorded in their name.
43.2. The Commission by rule may allow other corporations to provide in their articles of
incorporation and by-laws for the use of uncertificated securities.
43.3. Transfers of securities, including an uncertificated securities, may be validly made and
consummated by appropriate book-entries in the securities intermediaries, or in the stock and
transfer book held by the corporation or the stock transfer agent and such bookkeeping
entries shall be binding on the parties to the transfer. A transfer under this subsection has the
effect of the delivery of a security in bearer form or duly indorsed in blank representing the
quantity or amount of security or right transferred, including the unrestricted negotiability of
that security by reason of such delivery. However, transfer of uncertificated shares shall only
be valid, so far as the corporation is concerned, when a transfer is recorded in the books of the
corporation so as to show the names of the parties to the transfer and the number of shares
transferred.
However, nothing in this Code shall compliance by banking and other institutions under the
supervision of the Bangko Sentral ng Pilipinas and their stockholders with the applicable
ceilings on shareholding prescribed under pertinent banking laws and regulations.
Section 44. Evidentiary Value of Clearing Agency Record. – The official records and book
entries of a clearing agency shall constitute the best evidence of such transactions between
clearing agency shall constitute the best between clearing agency and its participants’ or
members’ clients to prove their rights, title and entitlement with respect to the book-entry
security holdings of the participants or members held on behalf of the clients. However, the
corporation shall not be bound by the foregoing transactions unless the corporate secretary is
duly notified in such manner as the Commission may provide.
Section 46. Issuer’s Responsibility for Wrongful Transfer to Registered Clearing Agency. - The
registration of a transfer of a security into the name of and by a registered clearing agency or
its name of or by a registered clearing agency or its nominee shall be final and conclusive
unless the clearing agency had notice of an adverse claim before the registration was made.
The above provisions which the claimant may have against the issuer for wrongful registration
in such circumstances.
Section 47. Power of the Commission With Respect to Securities Ownership. – The Commission
is authorize, having due regard to the public interest and the protection of investors, to
promulgate rules and regulations which:
47.1. Validate the transfer of securities by book-entries rather than the delivery of physical
certificates;
47.2. Establish when a person acquires a security or an interest therein and when delivery of a
security to a purchaser occurs;
47.3. Establish which records constitute the best evidence of a person’s interests in a security
and the effect of any errors in electronic records of ownership;
47.4. Codify the rights of investors who choose to hold their securities indirectly through a
registered clearing agency and/ or other securities intermediaries;
47.5. Codify the duties of securities intermediaries (including clearing agencies) who hold
securities on behalf of investors; and
47.6 Give first priority to any claims of a registered clearing agency against a participant arising
from a failure by the participant to meet its obligations under the clearing agency’s rules in
respect of the clearing and settlement of transactions in securities, in a dissolution of the
participant, and any such rules and regulation shall bind the issuers of the securities, investors
in the securities, any third parties with interests in the securities, and the creditors of a
participant of a registered clearing agency.
CHAPTER XII
MARGIN AND CREDIT
Section 48. Margin Requirements. – 48.1. For the purpose of preventing the excessive use of
credit for the purchase or carrying of securities, the Commission, in accordance with the credit
and monetary policies that may be promulgated from time to time by the Monetary Board of
the Bangko Sentral ng Pilipinas, shall prescribed rules and regulations with respect to the
amount of credit that may be extended on any security. For the extension of credit, such rules
and regulations shall be based upon the following standard:
However, the Monetary Board may increase or decrease the above percentages, in order to
achieve the objectives of the Government with due regard for promotion of the economy and
prevention of the use of excessive credit.
Such rules and regulations may make appropriate provision with respect to the carrying of
undermargined accounts for limited periods and under specified conditions; the withdrawal of
funds or securities; the transfer of accounts from one lender to another; special or different
margin requirements for delayed deliveries, short sales, arbitrage transactions, and securities
to which letter (b) of the second paragraph of this subsection does not apply; the methods to
be used in calculating loans, and margins and market prices; and similar administrative
adjustments and details.
(a) On any security unless such credit is extended and maintained in accordance with
the rules and regulations which the Commission shall prescribe under this Section
including rules setting credit in relation to net capital of such member, broker or dealer;
and
(b) Without collateral or any collateral other than securities, except (I) to maintain a
credit initially extended in conformity with rules and regulations of the Commission and
(ii) in cases where the extension or maintenance of credit is not for the purpose of
purchasing or carrying securities or of evading or circumventing the provisions of
paragraph (a) of this subsection.
48.3 Any person not subject to Subsection 48.2 hereof shall extend or maintain credit or
arrange for the extension or maintenance of credit for the purpose of purchasing or carrying
any security, only in accordance with such rules and regulations as the Commission shall
prescribe to prevent the excessive use of credit for the purchasing or carrying of or trading in
securities in circumvention of the other provisions of this Section.. Such rules and regulations
may impose upon all loans made for the purpose of purchasing or carrying securities
limitations similar to those imposed upon members, brokers, or dealers by Subsection 48.2
and the rules and regulations thereunder. This subsection and the rules and regulations
thereunder shall not apply:
(a) To a credit extension made by a person not in the ordinary course of business; (b) to
a loan to a dealer to aid in the financing of the distribution of securities to customers
not through the medium of an Exchange; or (c) To such other credit extension as the
Commission shall exempt from the operation of this subsection and the rules and
regulations thereunder upon specified terms and conditions for stated period.
49.1. To permit in the ordinary course of business as a broker or dealer his aggregate
indebtedness including customers’ credit balances, to exceed such percentage of the net
capital (exclusive of fixed assets and value of Exchange membership) employed in the
business, but not exceeding in any case to thousand percentum(2,000%), as the Commission
may be rules and regulations prescribe as necessary or appropriate in the public interest or for
the protection of investors.
49.2. To pledge, mortgage, or otherwise encumber or arrange for the pledge, mortgage, or
encumbrance of any security carried for the account of any customer under circumstances: (a)
That will permit the commingling of his securities, without his written consent, with the
securities of any customer; (b) That will permit such securities to be commingled with the
securities of any person other than a bona fide customer; or (c) that will permit such securities
to be pledged, mortgaged or encumbered, or subjected to any lien or claim of the pledgee, for
a sum in excess of the aggregate indebtedness of such customers in respect of such securities.
However, the Commission, having due regard to the protection of investors, may, by rules and
regulations, allow certain transactions that may otherwise be prohibited under this
subsection.
49.3. To lend or arrange for the lending of any security carried for the account of any customer
without the written consent of such customer or in contravention of such rules and regulations
as the Commission shall prescribe.
Section 51. Liabilities of Controlling Persons, Aider and Abettor and Other Secondary Liability.
51.1. Every person who, by or through stock ownership, agency, or otherwise, or in connection
with an agreement or understanding with one or more other persons, controls any person
liable under this Code or the rules or regulations of the Commission thereunder, shall also be
liable jointly and severally with and to the same extent as such controlled persons to any
person to whom such controlled person is liable, unless the controlling person proves that,
despite the exercise of due diligence on his part, he has no knowledge of the existence of the
facts by reason of which the liability of the controlled person is alleged to exist.
51.2. It shall be unlawful for any person, directly, or indirectly, to do any act or thing which it
would be unlawful for such person to do under the provisions of this Code or any rule or
regulation thereunder.
51.2. It shall be unlawful for any director or officer of, or any owner of any securities issued by,
any issuer required to file any document, report or other information under this Code or any
rule or regulation of the Commission thereunder, without just cause, to hinder, delay or
obstruct the making or filing of any such document, report, or information.
51.3. It shall be unlawful for any person to aid, abet, counsel, command, induce or procure any
violation of this Code, or any rule, regulation or order of the Commission thereunder.
52.4. Every person who substantially assists the act or omission of any person primarily liable
under Sections 57, 58, 59 and 60 of this Code, with knowledge or in reckless disregard that
such act or omission is wrongful, shall be jointly and severally liable as an aider and abettor for
damages resulting from the conduct of the person primarily liable: Provided, however, That an
aider and abettor shall be liable only to the extent of his relative contribution in causing such
damages in comparison to that of the person primarily liable, or the extent to which the aider
and abettor was unjustly enriched thereby, whichever is greater.
Section 52. Accounts and Records, Reports, Examination of Exchanges, members, and Others. –
52.1. Every registered Exchange, broker or dealer, transfer agent, clearing agency, securities
association, and other self-regulatory organization, and every other person required to
register under this Code, shall make, keep and preserve for such periods, records, furnish such
copies thereof, and make such reports, as the Commission by its rules and regulations may
prescribe. Such accounts, correspondence, memoranda, papers, books, and other records shall
be subject at any time to such reasonable periodic, special or other examinations by
representatives of the Commission as the Commission may deem necessary or appropriate in
the public interest of for the protection of investors.
52.2. Any brother, dealer or other person extending credit, who is subject to the rules and
regulations prescribed by the Commission pursuant to this Code, shall make such reports to
the Commission as may be necessary or appropriate to enable it to perform the functions
conferred upon it by this Code.
52.3. For purposes of this Section, the term "records refers to accounts, correspondence,
memoranda, tapes, discs, papers, books and other documents or transcribed information of
any type, whether written or electronic in character.
Section 53. Investigations, Injunctions and Prosecution of Offenses. 53.1. The Commission may,
in its discretion, make such investigations as it deems necessary to determine whether any
person has violated or is about to violate any provision of this Code, any rule, regulation or
order thereunder, or any rule of an Exchange, registered securities association, clearing
agency, other self-regulatory organization, and may require or permit any person to file with it
a statement in writing, under oath or otherwise, as the Commission shall determine, as to all
facts and circumstances concerning the matter to be investigated. The Commission may
publish information concerning any such violations, and to investigate any fact, condition,
practice or matter which it may deem necessary or proper to aid in the enforcement of the
provisions of this Code, in the prescribing of rules and regulations thereunder, or in securing
information to serve as a basis for recommending further legislation concerning the matters to
which this Code relates: Provided, however, That any person requested or subpoenaed to
produce documents or testify in any investigation shall simultaneously be notified in writing of
the purpose of such investigation: Provided, further, That all criminal complaints for violations
of this Code, and the implementing rules and regulations enforced or administered by the
Commission shall be referred to the Department of Justice for preliminary investigation and
prosecution before the proper court: Provided, furthermore, That in instances where the law
allows independent civil or criminal proceedings of violations arising from the same act, the
Commission shall take appropriate action to implement the same: provided, finally, That the
investigation, prosecution, and trial of such cases shall be given priority.
53.2. For the purpose of any such investigation, or any other proceeding under this Code, the
Commission or any officer designated by it is empowered to administer oaths and
affirmations, subpoena witnesses, compel attendance, take evidence, require the production
of any book, paper, correspondence, memorandum, or other record which the Commission
deems relevant or material to the inquiry, and to perform such other acts necessary in the
conduct of such investigation or proceedings.
53.3. Whenever it shall appear to the Commission that any person has engaged or is about to
engage in any act or practice constituting a violation of any provision of this Code, any rule,
regulation or order thereunder, or any rule of an Exchange, registered securities association,
clearing agency or other self-regulatory organization, it may issue an order to such person to
desist from committing such act or practice: Provided, however, That the Commission shall not
charge any person with violation of the rules of an Exchange or other self-regulatory
organization unless it appears to the Commission that such Exchange or other self-regulatory
organization is unable or unwilling to take action against such person. After finding that such
person has engaged in any such act or practice and that there is a reasonable likelihood of
continuing, further or future violations by such person, the Commission may issue ex-parte a
cease and desist order for a maximum period of ten (10) days, enjoining the violation and
compelling compliance with such provision. The Commission may transmit such evidence as
may be available concerning any violation of any provision of this Code, or any rule, regulation
or order thereunder, to the Department of Justice, which may institute the appropriate
criminal proceedings under this Code.
53.4. Any person who, within his power but without cause, fails or refuses to comply with any
lawful order, decision or subpoena issued by the Commission under Subsection 53.2 or
Subsection 53.3 or Section 64 of this Code, shall after due notice and hearing, be guilty of
contempt of the Commission. Such person shall be fined in such reasonable amount as the
Commission may determine, or when such failure or refusal is a clear and open defiance of the
Commission’s order, decision or subpoena, shall be detained under an arrest order issued by
the Commission, until such order, decision or subpoena is complied with.
Section 54. Administrative Sanctions. – 54.1. If, after due notice and hearing, the Commission
finds that: (a) There is a violation of this Code, its rule, or its orders; (b) Any registered broker
or dealer, associated person thereof has failed reasonably to supervise, with a view to
preventing violations, another person subject to supervision who commits any such violation;
(c) Any registrant or other person has, in a registration statement or in other reports,
applications, accounts, records or documents required by law or rules to be filed with the
Commission, made any untrue statement of a material fact, or omitted to state any material
fact required to be stated their or necessary to make the statements therein not misleading;
or, in the case of an underwriter, has failed to conduct an inquiry with reasonable diligence to
insure that a registration statement is accurate and complete in all material respects; or (d)
Any person has refused to permit any lawful examinations into its affairs, it shall, in its
discretion, and subject only to the limitations hereinafter prescribed, impose any or all of the
following sanctions as may be appropriate in light of the facts and circumstances:
(ii) A fine of no less than Ten thousand pesos (P10,000.00) nor more than One million
pesos (P1,000,000.00) plus not more than Two thousand pesos (P2,000.00) for each day
of continuing violation;
(iii) In the case of a violation of Sections 19.2, 20, 24, 26 and 27, disqualification from
being an officer, member of the Board of Directors, or person performing similar
functions, of an issuer required to file reports under Section 17 of this Code or any other
act, rule or regulation administered by the Commission;
(iv) In the case of a violation of Section 34, a fine of no more than three (3) times the
profit gained or loss avoided as result of the purchase, sale or communication
proscribed by such Section, and
54.2. The imposition of the foregoing administrative sanctions shall be without prejudice to
the filing of criminal charges against the individuals responsible for the violation.
54.3. The Commission shall have the power to issue writs of execution to enforce the
provisions of the Section and to enforce payment of the fees and other dues collectible under
this Code.
Section 55. Settlement Offers. – 55.1. At any time, during an investigation or proceeding under
this Code, parties being investigated and/or charged may propose in writing an offer of
settlement with the Commission.
55.2. Upon receipt of such offer of settlement, the Commission may consider the offer based
on timing, the nature of the investigation or proceeding, and the public interest.
55.3. The Commission may only agree to a settlement offer based on its findings that such
settlement is in the public interest. Any agreement to settle shall have no legal effect until
publicly disclosed. Such decision may be made without a determination of guilt on the part of
the person making the offer.
55.4. The Commission shall adopt rules and procedures governing the filing, review,
withdrawal, form of rejection and acceptance of such offers.
(a) The issuer and every person who signed the registration statement:
(b) Every person who was a director of, or any other person performing similar
functions, or a partner in, the issuer at the time of the filing of the registration
statement or any part, supplement or amendment thereof with respect to which his
liability is asserted;
(c) Every person who is named in the registration statement as being or about to
become a director of, or a person performing similar functions, or a partner in, the
issuer and whose written consent thereto is filed with the registration statement;
(d) Every auditor or auditing firm named as having certified any financial statements
used in connection with the registration statement or prospectus.
(e) Every person who, with his written consent, which shall be filed with the registration
statement, has been named as having prepared or certified any part of the registration
statement, or as having prepared or certified any report or valuation which is used in
connection with the registration statement, with respect to the statement, report, or
valuation, which purports to have been prepared or certified by him.
(f) Every selling shareholder who contributed to and certified as to the accuracy of a
portion of the registration statement, with respect to that portion of the registration
statement which purports to have been contributed by him.
56.2. If the person who acquired the security did so after the issuer has made generally
available to its security holders an income statement covering a period of at least twelve (12)
months beginning from the effective date of the registration statement, then the right of
recovery under this subsection shall be conditioned on proof that such person acquired the
security relying upon such untrue statement in the registration statement or relying upon the
registration statement and not knowing of such income statement, but such reliance may be
established without proof of the reading of the registration statement by such person.
(b) Offers to sell or sells a security, whether or not exempted by the provisions of this
Code, by the use of any means or instruments of transportation or communication, by
means of a prospectus or other written or oral communication, which includes an
untrue statement of a material fact or omits to state a material fact necessary in order
to make the statements, in the light of the circumstances under which they were made,
not misleading (the purchaser not knowing of such untruth or omission), and who shall
fail in the burden of proof that he did not know, and in the exercise of reasonable care
could not have known, of such untruth or omission, shall be liable to the person
purchasing such security from him, who may sue to recover the consideration paid for
such security with interest thereon, less the amount of any income received thereon,
upon the tender of such security, or for damages if he no longer owns the security.
57.2. Any person who shall make or cause to be made any statement in any report, or
document filed pursuant to this Code or any rule or regulation thereunder, which statement as
at the time and in the light of the circumstances under which it was made false or misleading
with respect to any material fact, shall be liable to any person who, not knowing that such
statement was false or misleading, and relying upon such statement shall have purchased or
sold a security at a price which was affected by such statement, for damages caused by such
reliance, unless the person sued shall prove that he acted in good faith and had no knowledge
that such statement was false or misleading.
Section 58. Civil Liability of Fraud in Connection with Securities Transactions. – Any person who
engages in any act or transaction in violation of Sections 19.2, 20 or 26, or any rule or
regulation of the Commission thereunder, shall be liable to any other person who purchases or
sells any security, grants or refuses to grant any proxy, consent or authorization, or accepts or
declines an invitation for tender of a security, as the case may be, for the damages sustained
by such other person as a result of such act or transaction.
Section 59. Civil Liability for Manipulation of Security Prices. – Any person who willfully
participates in any act or transaction in violation of Section 24 shall be liable to any person
who shall purchase or sell any security at a price which was affected by such act or transaction,
and the person so injured may sue to recover the damages sustained as a result of such act or
transaction.
Section 60. Civil Liability with Respect to Commodity Futures Contracts and Pre-need Plans. –
60.1. Any person who engages in any act or transactions in willful violation of any rule or
regulation promulgated by the Commission under Section 11 or 16, which the Commission
denominates at the time of issuance as intended to prohibit fraud in the offer and sale of pre-
need plans or to prohibit fraud, manipulation, fictitious transactions, undue speculation, or
other unfair or abusive practices with respect to commodity future contracts, shall be liable to
any other person sustaining damages as a result of such act or transaction.
60.2. As to each such rule or regulation so denominated, the Commission by rule shall
prescribe the elements of proof required for recovery and any limitations on the amount of
damages that may be imposed.
Section 61. Civil Liability on Account of Insider Trading. – 61.1. Any insider who violates
Subsection 27.1 and any person in the case of a tender offer who violates Subsection 27.4 (a)
(I), or any rule or regulation thereunder, by purchasing or selling a security while in possession
of material information not generally available to the public, shall be liable in a suit brought by
any investor who, contemporaneously with the purchase or sale of securities that is the
subject of the violation, purchased or sold securities of the same class unless such insider, or
such person in the case of a tender offer, proves that such investor knew the information or
would have purchased or sold at the same price regardless of disclosure of the information to
him.
61.2. An insider who violates Subsection 27.3 or any person in the case of a tender offer who
violates Subsection 27.4 (a), or any rule or regulation thereunder, by communicating material
nonpublic information, shall be jointly and severally liable under Subsection 61.1 with, and to
the same extent as, the insider, or person in the case of a tender offer, to whom the
communication was directed and who is liable under Subsection 61.1 by reason of his
purchase or sale of a security.
Section 62. Limitation of Actions. – 62.1. No action shall be maintained to enforce any liability
created under Section 56 or 57 of this Code unless brought within two (2) years after the
discovery of the untrue statement or the omission, or, if the action is to enforce a liability
created under Subsection 57.1 (a), unless, brought within two (2) yeas after the violation upon
which it is based. In no event shall an such action be brought to enforce a liability created
under Section 56 or Subsection 57.1 (a) more than five (5) years after the security was bona
fide offered to the public, or under Subsection 57.1 (b0 more than five (5) years after the sale.
62.2. No action shall be maintained to enforce any liability created under any other provision
of this Code unless brought within two (20 years after the discovery of the facts constituting
the cause of action and within five (5) years after such cause of action accrued.
Section 63. Amount of Damages to be Awarded. – 63.1. All suits to recover damages pursuant
to Sections 56, 57, 58, 59, 60 and 61 shall be brought before the Regional Trial Court, which
shall have exclusive jurisdiction to hear and decide such suits. The Court is hereby authorized
to award damages in an amount not exceeding triple the amount of the transaction plus actual
damages.
Exemplary damages may also be awarded in cases of bad faith, fraud, malevolence or
wantonness in the violation of this Code or the rules and regulations promulgated thereunder.
The Court is also authorized to award attorney’s fees not exceeding thirty percentum (30%) of
the award.
63.2. The persons specified in Sections 56, 57, 58, 59, 60 and 61 hereof shall be jointly and
severally liable for the payment of damages. However, any person who becomes liable for the
payment of such damages may recover contribution from any other person who, if sued
separately, would have been liable to make the same payment, unless the former was guilty of
fraudulent representation and the latter was not.
63.3. Notwithstanding any provision of law to the contrary, all persons, including the issuer,
held liable under the provisions of Sections 56, 57, 58, 59, 60 and 61 shall contribute equally to
the total liability adjudged herein. In no case shall the principal stockholders, directors and
other officers of the issuer or persons occupying similar positions therein, recover their
contribution to the liability from the issuer. However, the right of the issuer to recover from
the guilty parties the amount it has contributed under this Section shall not be prejudiced.
Section 64. Cease and Desist Order. – 64.1. The Commission, after proper investigation or
verification, motu proprio or upon verified complaint by any aggrieved party, may issue a cease
and desist order without the necessity of a prior hearing if in its judgment the act or practice,
unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or
irreparable injury or prejudice to the investing public.
64.2. Until the Commission issue a cease and desist order, the fact that an investigation has
been initiated or that a complaint has been filed, including the contents of the complaint, shall
be confidential. Upon issuance of a cease and desist order, the Commission shall make public
such order and a copy thereof shall be immediately furnished to each person subject to the
order.
64.3. Any person against whom a cease and desist order was issued may, within five (5) days
from receipt of the order, file a formal request for a lifting thereof. Said request shall be set for
hearing by the Commission not later than fifteen (15) days from its filing and the resolution
thereof shall be made not later than ten (10) days from the termination of the hearing. If the
Commission fails to resolve the request within the time herein prescribed, the cease and desist
order shall automatically be lifted.
Section 65. Substituted Service Upon the Commission. – Service of summons or other process
shall be made upon the Commission in actions or legal proceedings against an issuer or any
person liable under this Code who is not domiciled in the Philippines. Upon receipt by the
Commission of such summons, the Commission shall within ten (10) days thereafter, transmit
by registered mail a copy of such summons and the complaint or other legal process to such
issuer or person at his last known address or principal office. The sending thereof by the
Commission, the expenses for which shall be advanced by the party at whose instance it is
made, shall complete such service.
Section 66. Revelation of Information Filed with the Commission. – 66.1. All information filed
with the commission in compliance with the requirements of this Code shall be made available
to any member of the general public, upon request, in the premises and during regular office
hours of the Commission, except as set forth in this Section.
66.2. Nothing in this Code shall be construed to require, or to authorize the Commission to
require, the revealing of trade secrets or processes in any application, report, or document
filed with the Commission.
66.3. Any person filing any such application, report or document may make written objection
to the public disclosure of information contained therein, stating the grounds for such
objection, and the Commission may hear objections as it deems necessary. The Commission
may, in such cases, make available to the public the information contained in any such
application, report, or document only when a disclosure of such information is required in the
public interest or for the protection of investors; and copies of information so made available
may be furnished to any person having a legitimate interest therein at such reasonable charge
and under such reasonable limitations as the Commission may prescribe.
66.4. It shall be unlawful for any member, officer, or employee of the Commission to disclose
to any person other than a member, officer or employee of the Commission or to use for
personal benefit, any information contained in any application, report, or document filed with
the Commission which is not made available to the public pursuant to Subsection 66.3.
66.5. Notwithstanding anything in Subsection 66.4 to the contrary, on request from a foreign
enforcement authority of any country whose laws grant reciprocal assistance as herein
provided, the Commission may provide assistance in accordance with this subsection,
including the disclosure of any information filed with or transmitted to the Commission. If the
requesting authority states that it is conducting an investigation which it deems necessary to
determine whether any person has violated, is violating, or is about to violate any laws relating
to securities or commodities matters that the requesting authority administers or enforces.
Such assistance may be provided without regard to whether the facts stated in the request
would also constitute a violation of law of the Philippines.
Section 67. Effect of action of Commission and Unlawful Representations with Respect Thereto.
– 67.1. No action or failure to act by the Commission in the administration of this Code shall be
construed to mean that the Commission has in any way passed upon the merits of or given
approval to any security or any transactions or transactions therein, nor shall such action or
failure to act with regard to any statement or report filed with or examined by the Commission
pursuant to this Code or the rules and regulations thereunder to be deemed a finding by the
Commission that such statements or report is true and accurate on its face or that it is not
false or misleading. It shall be unlawful to make, or cause to be made, to any prospective
purchaser or seller or a security any representation that any such action or failure to act by the
Commission is to be so construed or has such effect.
67.2. Nothing contained in Subsection 67.1 shall, however, be construed as an exemption from
liability of an employee or officer of the Commission for any nonfeasance, misfeasance or
malfeasance in the discharge of his official duties.
Section 68. Special Accounting Rules. – The Commission shall have the authority to make,
amend, and rescind such accounting rules and regulations as may be necessary to carry out
the provisions of this Code, including rules and regulations as may be necessary to carry out
the provisions of this Code, including rules and regulations governing registration statements
and prospectuses for various classes of securities and issuers, and defining accounting,
technical and trade terms used in this Code. Among other things, the Commission may
prescribe the form or forms in which required information shall be set forth, the items or
details to be shown in the balance sheet and income statement, and the methods to be
followed in the preparation of accounts, appraisal or valuation of assets and liabilities,
determination of depreciation and depletion, differentiation of recurring and non-recurring
income, differentiation of investment and operating income, and in the preparation, where
the Commission deems it necessary or desirable of consolidated balance sheets or income
accounts of any person directly or indirectly controlling or controlled by the issuer, or any
person under direct or indirect common control with the issuer.
Section 69. Effect on Existing Law. – The rights and remedies provided by this Code shall be in
addition to any and all order rights and remedies that may now exist. However, except as
provided in Section 56 and 63 hereof, no person permitted to maintain a suit for damages
under the provisions of this Code shall recover, through satisfaction of judgment in one or
more actions, a total amount in excess of his actual damages on account of the act complained
of: Provided, That exemplary damages may be awarded in cases of bad faith, fraud,
malevolence or wantonness in the violation of this Code or the rules and regulations
promulgated thereunder.
Section 70. Judicial Review of Commission Orders. – Any person aggrieved by an order of the
Commission may appeal the order to the Court of Appeals by petition for review in accordance
with the pertinent provisions of the Rules of Court.
Section 71. Validity of Contracts. – 71.1. Any condition, stipulation, provision binding any
person to waive compliance with any provision of this Code or of any rule or regulation
thereunder, or of any rule of an Exchange required thereby, as well as the waiver itself, shall
be void.
71.2. Every contract made in violation of any provision of this Code or of any rule or regulation
thereunder, and every contract, including any contract for listing a security or an Exchange
heretofore or hereafter made, the performance of which involves the violation of, or the
continuance of any relationship or practice in violation of, any provision of this Code, or any
rule or regulation thereunder, shall be void:
(a) As regards the rights of any person who, in violation of any such provision, rule or
regulation, shall have made or engaged in the performance of any such contract, and
(b) As regards the rights of any person who, not being a party to such contract, shall
have acquired any right thereunder with actual knowledge of the facts by reason of
which the making or performance of such contract was in violation of any such
provision, rule or regulation.
(a) To affect the validity of any loan or extension of credit made or of any lien created
prior or subsequent to the effectivity of this Code, unless at the time of the making of
such loan or extension of credit or the creating of such lien, the person making such
loan or extension of credit or acquiring such lien shall have actual knowledge of the
facts by reason of which the making of such loan or extension of credit or the
acquisition of such lien is a violation of the provisions of this Code or any rules or
regulations thereunder, or
(b) To afford a defense to the collection of any debt, obligation or the enforcement of
any lien by any person who shall have acquired such debt, obligation or lien in good
faith for value and without actual knowledge of the violation of any provision of this
Code or any rule or regulation thereunder affecting the legality of such debt, obligation
or lien.
Section 72. Rules and Regulations; Effectivity. – 72.1. This Code shall be self-executory. To
effect the provisions and purposes of this Code, the Commission may issue, amend, and
rescind such rules and regulations and orders necessary or appropriate, including rules and
regulations defining accounting, technical, and trade terms used in this Code, and prescribing
the form or forms in which information required in registration statements, applications, and
reports to the Commission shall be set forth. For purposes of its rules or regulations, the
Commission may classify persons, securities, and other matters within its jurisdiction,
prescribe different requirements for different classes of persons, securities, or matters, and by
rule or order, conditionally or unconditionally exempt any person, security, or transaction, or
class or classes of persons, securities or transactions, from any or all provisions of this Code.
Failure on the part of the Commission to issue rules and regulations shall not in any manner
affect the self-executory nature of this Code.
72.2. The Commission shall promulgate rules and regulations providing for reporting,
disclosure and the prevention of fraudulent, deceptive or manipulative practices in connection
with the purchase by an issuer, by tender offer or otherwise, of and equity security of a class
issued by it that satisfies the requirements of Subsection 17.2. such rules and regulations may
require such issuer to provide holders of equity securities of such dates with such information
relating to the reasons for such purchase, the source of funds, the number of shares to be
purchased, the price to be paid for such securities, the method of purchase and such
additional information as the Commission deems necessary or appropriate in the public
interest or for the protection of investors, or which the Commission deems to be material to a
determination by holders whether such security should be sold.
72.3. For the purpose of Subsection 72.2, a purchase by or for the issuer or any person
controlling, controlled by, or under common control with the issuer, or a purchase subject to
the control of the issuer or any such person, shall be deemed to be a purchased by the issuer.
The commission shall have the power to make rules and regulations implementing this
subsection, including exemptive rules and regulations covering situations in which the
Commission deems it unnecessary or inappropriate that a purchase of the type described in
this subsection shall be deemed to be a purchase by the issuer for the purpose of some or all
of the provisions of Subsection 72.2.
72.4. The rules and regulations promulgated by the Commission shall be published in two (20
newspapers or general circulation in the Philippines, and unless otherwise prescribed by the
Commission, the same shall be effective fifteen (15) days after the date of the last publication.
Section 73. Penalties. – Any person who violates any of the provisions of this Code, or the rules
and regulations promulgated by the Commission under authority thereof, or any person who,
in a registration statement filed under this Code, makes any untrue statement of a material
fact or omits to state any material fact required to be stated therein or necessary to make the
statements therein not misleading, shall, upon conviction, suffer a fine of not less than Fifty
thousand pesos (P50,000.00) nor more than Five million pesos (P5,000,000.00) or
imprisonment of not less than seven (7) years nor more than twenty-one (21) years, or both in
the discretion of the court. If the offender is a corporation, partnership or association or other
juridical entity, the penalty may in the discretion of the court be imposed upon such juridical
entity and upon the officer or officers of the corporation, partnership, association or entity
responsible for the violation, and if such officer is an alien, he shall in addition to the penalties
prescribed, be deported without further proceedings after service of sentence.
Section 74. Transitory Provisions. – The Commission, as organized under existing laws, shall
continue to exist and exercise its powers, functions and duties under such laws and this
Code: Provided, That until otherwise mandated by a subsequent law, the Commission shall
continue to regulate and supervise commodity futures contracts as provided in Section 11 and
pre-need plans and the pre-need industry as provided in Section 16 of this Code.
All further requirements herein shall be complied with upon approval of this Code: Provided,
however, That compliance may be deferred for such reasonable time as the Commission may
determine but not to exceed one (1) year from approval of this Code: Provided, further, That
securities which are being offered at the time of effectivity of this Code pursuant to an
effective registration and permit, may continue to be offered and sold in accordance with the
provisions of the Revised Securities Act in effect immediately prior to approval of this Code.
All unexpended funds for the calendar year, properties, equipment and records of the
Securities and Exchange Commission are hereby retained by the Commission as reorganized
under this Code and the amount of Two hundred million pesos (P200,000,000.00) or such
amount necessary to carry out the reorganization provided in this Code is hereby
appropriated.
All employees of the Commission who voluntarily retire or are separated from the service with
the Commission and whose retirement or separation has been approved by the Commission,
shall be paid retirement or separation benefits and other entitlement granted under existing
laws.
Section 75. Partial Use of Income. – To carry out the purposes of this Code, the Commission is
hereby authorized, in addition to its annual budget, to retain and utilize an amount equal to
One hundred million pesos (P100,000,000.00) from its income.
The use of such additional amount shall be subject to the auditing requirements, standards
and procedures under existing laws.
Section 76. Repealing Clause. – The Revised Securities Act (Batas Pambansa Blg. 178), as
amended, are hereby repealed. All other laws, orders, rules and regulations, or parts thereof,
inconsistent with any provision of this Code are hereby repealed or modified accordingly.
Section 78. Effectivity. – This Code shall take effect fifteen (15) days after its publication in
the Official Gazette or in two (2) newspapers of general circulation.
Section 1. Penalty — In all cases in which any constitutional or legal provisions requires
Philippine or any other specific citizenship as a requisite for the exercise or enjoyment of a
right, franchise or privilege, any citizen of the Philippines or of any other specific country who
allows his name or citizenship to be used for the purpose of evading such provision, and any
alien or foreigner profiting thereby, shall be punished by imprisonment for not less than five
nor more than fifteen years, and by a fine of not less than the value of the right franchise or
privilege, which is enjoyed or acquired in violation of the provisions hereof but in no case less
than five thousand pesos.
The fact that the citizen of the Philippines or of any specific country charged with a violation of
this Act had, at the time of the acquisition of his holdings in the corporations or associations
referred to in section two of this Act, no real or personal property, credit or other assets the
value of which shall at least be equivalent to said holdings, shall be evidence of a violation of
this Act.1
Section 2. Simulation of minimum capital stock — In all cases in which a constitutional or legal
provision requires that, in order that a corporation or association may exercise or enjoy a
right, franchise or privilege, not less than a certain per centum of its capital must be owned by
citizens of the Philippines or of any other specific country, it shall be unlawful to falsely
simulate the existence of such minimum stock or capital as owned by such citizens, for the
purpose of evading said provision. The president or managers and directors or trustees of
corporations or associations convicted of a violation of this section shall be punished by
imprisonment of not less than five nor more than fifteen years, and by a fine not less than the
value of the right, franchise or privilege, enjoyed or acquired in violation of the provisions
hereof but in no case less than five thousand pesos.2
Section 2-B. Any violation of the provisions of this Act by the spouse of any public official, if
both live together, shall be cause for the dismissal of such public official. 4itc@lawphil
Section 3. Any corporation or association violating any of the provisions of this Act shall, upon
proper court proceedings, be dissolved.
Section 3-A. Reward to informer. — In case of conviction under the provisions of this Act,
twenty-five per centum of any fine imposed shall accrue to the benefit of the informer who
furnishes to the Government original information leading to said conviction and who shall be
ascertained and named in the judgment of the court. If the informer is a dummy, who shall
voluntarily take the initiative of reporting to the proper authorities any violation of the
provisions of this Act and assist in the prosecution, resulting in the conviction of any person or
corporation profiting thereby or involved therein, he shall be entitled to the reward hereof in
the sum equivalent to twenty-five per centum of the fine actually paid to or received by the
Government, and shall be exempted from the penal liabilities provided for in this Act. 6
Section 4. This Act shall take effect upon its approval.
MALACAÑANG
Manila
WHEREAS, it is fair and equitable and in line with the constitutional policy expressed in Article
XIV, Section 5 of the Constitution, that foreign investors be allowed limited representation in
the governing board or body of corporations or associations in proportion to their allowable
participation in the equity of the said entities;
Section 1. Section 2-A of Commonwealth Act No. 108, as amended, is hereby further amended
to read as follows:
"Section 2-A. Any person, corporation, or association, which, having in its name or under its
control, a right, franchise, privilege, property or business, the exercise or enjoyment of which
is expressly reserved by the Constitution or the laws to citizens of the Philippines or of any
other specific country, or to corporations or associations at least sixty per centum of the
capital of which is owned by such citizens, permits or allows the use, exploitation or
enjoyment thereof by a person, corporation or association not possessing the requisites
prescribed by the Constitution or the laws of the Philippines; or leases, or in any other way,
transfers or conveys said right, franchise, privilege, property or business to a person,
corporation or association not otherwise qualified under the Constitution, or the provisions of
the existing laws; or in any manner permits or allows any person, not possessing the
qualifications required by the Constitution, or existing laws to acquire, use, exploit or enjoy a
right, franchise, privilege, property or business, the exercise and enjoyment of which are
expressly reserved by the Constitution or existing laws to citizens of the Philippines or of any
other specific country, to intervene in the management, operation, administration or control
thereof, whether as an officer, employee or laborer therein with or without remuneration
except technical personnel whose employment may be specifically authorized by the Secretary
of Justice, and any person who knowingly aids, assists, or abets in the planning, consummation
or perpetration of any of the acts herein above enumerated shall be punished by
imprisonment for not less than five nor more than fifteen years and by a fine of not less than
the value of the right, franchise or privilege enjoyed or acquired in violation of the provisions
hereof but in no case less than five thousand pesos: Provided, however, that the president,
managers or persons in violating the provisions of this section shall be criminally liable in lieu
thereof: Provided, further, That any person, corporation or association shall, in addition to the
penalty imposed herein, forfeit such right, franchise, privilege and the property provisions of
this Act; and Provided, finally, That the election of aliens as members of the board of directors
or governing body of corporations or associations engaging in partially nationalized activities
shall be allowed in proportion to their allowable participation or share in the capital of such
entities.