SECTION 1
The Corporation Code of the
Philippines
Batas Pambansa Blg. 68
May 1, 1980
- to establish a new concept of
business corporations so that they
are not merely entities established
for private gain but effective
partners of the National
Government
SCOPE OF THE CODE:
1) provides for the incorporation,
organization, and regulation of private
corporations, both stock and non-
stock, including educational and
religious corporations
2) defines their powers and provides for
their dissolution
3) fixes the duties and liabilities of
directors or trustees and other officers
thereof;
4) declares the rights and liabilities of
stockholdeers or members;
5) prescribes the conditions under which
corporations including foreign corps
may transact business;
6) provides penalties for violations of the
code;
7) repeals all laws and parts of laws in
conflict and inconsistent with the code
SECTION 2
- refers to private corporations or to
corporations organized under the
corporation law
ATTRIBUTES OF A CORPORATION:
1) It is an artificial being
A corporation is a legal or juridical
person with a personality separate
and apart from its individual
members or stockholders who, as
natural persons, are merged in the
corporate body.
The law treats it as though it is a
person
As a consequence of this legal concept:
A corp is not liable for the debts of
its stockholders and not
individually liable for the corps
debts. Can lose no more than their
investment
May acquire and possess property
of all kinds, as well as incur
obligations and bring civil and
criminal actions in its own name in
the same manner as a natural
person
Property conveyed to or acquired
by the corp is in law the property of
the corp itself as a distinct legal
entity.
All contracts entered into in its
name by its regular appointed
officers and agents are the
contracts of the corp not the
members or stockholders.
A tax exemption granted to a corp
cannot be extended to include the
dividends paid to stockholders
It has no personality to bring an
action for and in behalf of its
stockholders for the purpose of
recovering property of
stockholders.
A corporation remains unchanged
and unaffected in its identity by
changes in its indivual
membership. It has continuous
existence since it would exist even
if all the stockholders die.
DOCTRINE OF PIERCING THE VEIL OF
CORPORATE ENTITY
- doctrine of disregarding the
fiction of corporate entity
- doctrine of Corporate alter ego
- it is the non recognition or
disregard of the separate corporate
personality, when it is being used
as a cloak or cover for fraud or
illegality
- the individuals composing it will be
treated as identical to the corp
- when there are two corps, they will
be considered as oone, the one
being merely regarded as part or
instrumentality of the other
- OBJECTIVE:
- To make the stockholders liable for
the debts and obligations of the
corporation, and not the other way
around.
INSTANCES WHERE FICTION
DISREGARDED:
a) Where a corporation functions for
the benefit of a single person who
has complete control over the
funds and the said person is the
sole owner thereof. (Alter Ego Test)
b) Where the corporation is a mere
instrumentality of the individual
stockholders.
c) Where a domestic or Philippine
corporation is controlled by aliens,
its nationality shall be deemed that
of the controlling stockholders
(Control Test)
d) Where a corporation is organized
by an insolvent debtor to defraud
his creditors
e) Where a subsidiary company is
created by a parent company
merely as an agency of the latter,
esp. if the stockholders or officers
of the two corps. are substantially
the same and their system of
operations is unified.
 f) Where a DIFFERENC Partnership Corporation Pri
corporation is ES va
formed by a 1. Manner Mere Created by law or te
person for of creation agreement of by operation of
the purpose parties law
of evading his 2. No. of May be At least 5
individual incorporator organized by incorporators
contract s two persons
g) Where a 3. From the From the date of
corporation is Commence moment of issuance of
dissolved and ment of execution of Certificate of
its assets are juridical contract of Incorporation
transferred to personality Partnership
another 4. Powers Any power Only powers
corporation authorized by expressly granted
to avoid a the partners as by law and
financial long as not incident to its
liability of the unlawful existence
first 5. When Management
corporation Manageme management vested in Board of
to its nt not agreed Directors/Trustees
employees, upon, all
both being partners are
owned and managers
controlled by 6. Effect of A partner can Suit against
the same Mismanage sue a co- director who
persons. It is ment partner who mismanage must
deemed that mismanages be in the name of
the second the corporation
corporation is
a 7. Rights of No right of Has a right of
continuation Succession succession succession
of the first
corp. 8. Extent of Partners are Stockholders are
liability to liable liable only to the
CORPORATION AS third personally for extent of their
A CREATION OF persons partnership investments or
LAW: debts to 3rd shares
It implies that person
a corporation (except:
cannot come limited
into existence partner)
without the
special 9. A partner A stockholder has
authority Transferabili cannot the right to
granted by ty of transfer his transfer his shares
law. interest interest without prior
Legislative without the consent of other
grant or consent of all stockholders
authority is other partners. Up to 50 years
necessary for Any period of extendible to not
the creation time stipulated more than 50
of a by partners years in any one
corporation: instance
11. Firm Limited Inc. or
name Partnership is Corporation
required by
law to add the
word Ltd.
12. May be Can only be
Dissolution dissolved at dissolved with the
any time by consent of the
the will of any State
or all of the
partners

13. Laws Civil Code of Corporation Code

which the Philippines of the Philippines
govern
 Corporations Corporation
Code of the Philippines
Public Corporations created
by special laws
EXCEPTION: Corporation by Prescription
(Roman Catholic Church)
RIGHTS OF SUCCESSION OF A
CORPORATION:
A corporation has a capacity of
continuous existence irrespective
of the death, withdrawal,
insolvency or incapacity of its
individual members or stockholders
and regardless of the transfer of
their interest or shares of stock.
BUT, the life of a corporation is
limited to 50 years from date on
incorporation, subject to extension
or renewal.
POWERS, ATTRIBUTES AND
PROPERTIES OF A CORPORATION
A corporation, being created by
law, may only exercise such
powers granted by law.
It has express powers, as provided
for by the Corp. Code.
It also has implied powers, which
are incidental to the corporations
existence.
EX:
- a railroad corporation has the
incidental power to build railroads
because such power is necessary for
the accomplishment of the purpose
for which the corp is created
SIMILARITIES:
Both has juridical personality
separate and distinct from that of
the individuals composing it
Both can act only through agents;
Both distributes profit to those who
contributed capital;
Both organization compose of an
aggregate of individuals;
Both can be organized only where
there is a law authorizing its
organization
Both are taxable like corporations,
subject to income tax.
CLASSES OF CORPORATIONS:
I. As to whether their membership
is represented by shares of stock
a. STOCK C. 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.
b. NON-STOCK C. do not issue stocks
and are not created for profit. Their
capital are sourced from contributions
and donations
II. As to the number of persons who
compose them
a. CORPORATION AGGREGATE
corporation consisting of more than
one member or corporator.
b. CORPORATION SOLE a religious
corporation which consists of one
member or corporator only and his
successors, such as a bishop
III. As to whether they are for
religious purpose or not
a. ECCLESIASTICAL organized for
religious purposes
b. LAY organized for a purpose other
than religion. May be either:
Eleemosynary for charitable
purposes
Civil for business or profit
IV. As to state under or by whose
laws they have been created
a. DOMESTIC C. one incorporated
under the laws of the Philippines
b. FOREIGN C. on formed, organized or
existing under any laws other than
Philippine laws.
V. As to their legal right to corporate
existence
a. DE JURE C. corporation existing in
fact an in law
b. DE FACTO C. corporation existing in
fact but not in law
VI. As to whether they are open to
the public or not
a. CLOSE C. one limited to selected
persons or members of a family
b. OPEN C. open to any person who
may wish to become a stockholder or
member thereto
VII. As to their relation to another
corporation
a. PARENT/HOLDING C. one which is so
related to another corporation that it
has the power to elect majority of the
directors of such other corporation
b. SUBSIDIARY C. majority of its
directors can be elected by such other
corporation
VIII. As to whether they are
corporations in a true sense or only
in a limited sense
a. TRUE C. exists by statutory
authority
b. QUASI-CORPORATION exists
without formal legislative
grant. It is an exception to the
general rule that a
corporation can exist only by
authority of law
 Kinds of Quasi- Corporations
CORPORATION BY PRESCRIPTION
one which has exercised
corporate powers for an
indefinite period without
interference on the part of the
sovereign power and which, by
fiction of law, is given the status
of a corporation
CORPORATION BY ESTOPPEL
one which in reality is not a
corporation, either de jure or de
facto, because it is so
defectively performed, but is
considered a corporation in
relation to those who, by reason
of their acts, are precluded from
asserting that it is not a
corporation.
IX. As to whether they are for public
(government) or private purpose
a. PUBLIC C. formed or organized for
the administration of government of a
portion of the State (ex. Provinces,
cities, municipalities, barangay)
b. PRIVATE C. formed for some private
purpose, benefit or end. (Ex. GOCCs,
Quasi-public corps.)
SECTION 4
Corporations created by special laws or
charters shall be governed primarily by
the provisions of the special law or
charter creating them or applicable to
them, supplemented by the provisions of
this Code, insofar as they are applicable
SECTION 5
COMPONENTS OF A CORPORATION:
1. Corporators- persons who compose
the corporation whether as
stockholders or members.
- Forms part of a corporation either
as a stockholder or members but
necessarily a signatory in the AOI
- A corporator is not always an
incorporator
- No limit (EXCEPTION: for close
corp. 20 only)
- May be a juridical or natural person
2. Incorporators- Stockholders or
members mentioned in the Articles
of Incorporation as originally
forming and composing the
corporation and who are
signatories thereof.
- An incorporator is always a
corporator
- Not less than 5 but not more than
15
- An incorporator must be a natural
person
- Majority must be Philippine
residents
3. Stockholders- Owners of shares of
stock in a stock corporation. They
are the owners of the corporation
and also called as SHAREHOLDERS.
- Stockholders may be natural or
juridical persons but only natural
persons can be incorporators.
4. Members- corporators of a
corporation which has no capital
stock
all incorporators must now own or
at least be a subscriber to at least
one share of the capital stock of a
corporation
THREE OTHER CLASSES OF
PERSONS:
1. Promoters- Persons who bring
about or cause to bring about the
formation and organization of a
corporation
- not necessary
2. Subscribers- Persons who have
agreed to take and pay for original,
unissued shares of a corporation
formed or to be formed
- they may not be stockholders
- they become stockholders from the
time their subscriptions are
accepted by the corp
3. Underwriter- A person, usually an
investment banker who buy stocks,
guarantees its sale, agreed to
market all or part of an issue.
TRI-LEVEL HIERARCHY OF
AUTHORITY IN A CORPORATION:
Stockholder
Group of persons who elect the
board of directors
Board of Directors
Exercises corporate powers for
the corporation
Corporate Officer
Implements policies laid down
by the BOD
Tests to Determine the Nationality of
the Corporation:
Incorporation Test place of
incorporation
Control Test nationality of the
stockholders of the corporation
We use the Control Test for
nationalized corporations.
Nationalized Corporations/Activities:
Mass Media 100% reserved for
Filipinos
Retail Trade 100% Filipinos unless
the capital exceeds $2.5M
Rice and Corn 100% Filipinos
Security, watchman or detective
agency 100%
Advertising 70%
 Exploration of Natural Resources
60%
Public Utility 60^
Educational 60%
Banks 60%
Realty and Investment House
60%
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.
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.
RULES:
No share may be deprived of voting
rights except those classified and
issued as "preferred" or
"redeemable" shares
That there shall always be a class
or series of shares which have
complete voting rights
Banks, trust companies, insurance
companies, public utilities, and
building and loan associations shall
not be permitted to issue no-par
value shares of stock
DOCTRINE OF EQUALITY OF SHARES
- Shares are presumed to be equal in all
respects.
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.
CLASSIFICATION OF SHARES
CAPITAL STOCK
It is the amount fixed in the AOI, to
be subscribed and paid in by the
shareholders of a corporation. It
represents the equity of the stockholders
in the corporate assets.
It limits the maximum amount of
number of each class or shares that may
be issued by the corporation.
It remains the same even though
the actual value of the shares as
determined by the assets of the
corporation is diminished or increased,
unaffected by profits and losses.
a) Authorized capital stock-
synonymous with capital stock
where the shares of a corporation
have par value. If the shares have
no par value, the corp. has no
authorized capital stock, but it has
capital stock
b) Subscribed capital stock-
Amount of the capital stock
subscribed whether fully paid or
not. It connotes an original
subscription contract for the
acquisition by a subscriber of
unissued shares in a corporation.
c) Outstanding capital stock-
Portion of the capital stock which is
issued and held by persons other
than the corporation itself.
- broader than subscribed capital
stock
d) Paid-up capital stock- Portion of
the subscribed or outstanding
capital stock that is paid.
e) Unissued capital stock- Portion
of the capital stock that is not
issued or subscribed. It does not
vote and draws no dividends.
f) Legal capital- The amount equal
to the aggregate par value and/or
issued value of the outstanding
capital stock.
- When par value shares are issued
above par, the premium or excess
is not to be considered as part of
the legal capital.
- In case of no par value shares, the
entire consideration received forms
part of legal capital and shall not
be available for distribution as
dividends.
CAPITAL vs CAPITAL STOCK
CAPITAL
Is the actual corporate property.
(concrete) It may be real or
personal property.
Fluctuates or varies from day to
day accordingly as there are profits
an losses or appreciation or
depreciation of corporate assets.
Belongs to the corporation
CAPITAL STOCK
Is an amount. (abstract)
It is always personal property.
Amount fixed in that AOI and is
unaffected by profits and losses.
Belongs to the stockholders
when issued
CAPITAL STOCK vs LEGAL CAPITAL
CAPITAL STOCK
Limits the maximum amount or
number of shares that may be
issued without formal amendment
of the articles of incorporation
LEGAL CAPITAL
Sets the minimum amount of the
corporate assets which for the
protection of corporate creditors,
may not lawfully distributed to
stockholders.
STOCK or SHARES OF STOCK
- one of the units into which the
capital stock is divided.
It represents a distinct undivided
share or interest in the common
property of the corporation or the
right to share in its proceeds
(dividends)
It is a personal property distinct
from the capital or tangible
property of the corporation and
belong to different owners
It does not constitute an
indebtedness of the corporation to
the shareholder.
CERTIFICATE OF STOCK
It is a written
acknowledgment by the
corporation of the interest, right,
and participation of a person in the
management, profits and assets of
a corporation.
It is a formal written
evidence of the holders ownership
of one or more shares.
PAR VALUE SHARE
A share with a specific money
value fixed in that AOI and
appearing in the Certificate of
Stock
Subscribers are liable to corporate
creditors for their unpaid
subscription
Primary Purpose of Par Value:
To fix the minimum issue price of the
shares thus assuring creditors that the
corporation would receive a minimum
amount for its stock.
NO PAR VALUE SHARE
A share without any stated or par
value appearing on the face of the
certificate of stock.
It has no par value but it has an
ISSUED VALUE the consideration
fixed by the corporation for its
issuance.
Minimum Issued Value
P5.00/sharE
Banks, trust companies, insurance
companies and building & loan
associations shall not be permitted
to issue no par shares
Shares issued w/o par value shall
be deemed fully paid and non-
assessable and the holder of such
shares shall not be liable to the
corp. or its creditors
The entire consideration received
by the corporation for is no par
value shares shall be treated as
capital and shall not be available
for distribution as dividends.
VOTING SHARE
A share with a right to vote
Whenever a vote is necessary to
approve a particular act, the
Corporation Code only refers to
stocks with voting rights except in
certain cases when even non-
voting shares may also vote.*
One Share = One Vote
NON VOTING SHARE
A share without right to vote.
If a stock is originally issued as
voting stock, it cannot be deprived
of the right, without the consent of
the holder.
2 kinds of share which may be
deprived of voting rights:
1)preferred; and 2) redeemable
MATTERS WHERE NON VOTING
SHARES ARE ALLOWED TO VOTE:
1. Amendment of the articles of
incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage,
pledge or other disposition of all or
substantially all of the corporate
property;
4. Incurring, creating or increasing
bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the
corporation with another corporation or
other corporations;
7. Investment of corporate funds in
another corporation or business in
accordance with this Code; and
8. Dissolution of the corporation.
COMMON SHARE
A share which entitles the holder
thereof to pro rate division of the
profits, without preference or
advantage to any other stockholder
or class of SH.
PREFERRED SHARE
A share which entitles the holder
thereof certain preferences over
the holders of common stock.
Preference may be as to:
a. Assets
b. Dividends
c. Both assets or dividends
Preferred shares may be issued
only with a stated par value
Preferred SH are not creditors of
the corporation.
The board of directors may fix the
terms and conditions of preferred
shares of stock only when so
 authorized by the AOI and such
terms and conditions shall be
effective upon filing a certificate
thereof with the SEC.
Kinds of Preferred Shares as to
Dividends
a. Cumulative Preferred entitles
the holder payment, not only of
current dividends but also to
dividends in arrears.
b. Non-Cumulative Preferred
entitles the holder thereof to
payment of current dividend only in
preference to common SH.
c. Participating Preferred entitles
the holder to participate with
common shares in the remaining
profits pro rate after the common
shares have been paid the amount
of the stipulated dividend at the
same preferred rate.
d. Non- Participating entitles the
holder to receive the stipulated
preferred dividends and no more.
The balance, if any, is given
entirely to common stocks.
e. Cumulative Participating
FOUNDERS SHARE
Shares given certain rights and
privileges not enjoyed by the
owners of other stocks.
Usually issued to organizers and
promoters of a corporation in
consideration of some supposed
right or property
It must be clearly specified in the
AOI
Exclusive Right to Vote and be Voted for
in the Board of Directors:
It must be for a limited period only
not to exceed five (5) years subject
to the approval of the SEC.
- 5 year period commences from
date of approval of SEC.
REDEEMABLE SHARE
Shares, expressly classified as
redeemable shares in the AOI
which the corporation may
purchase or take up upon:
a. expiration of a certain period,
regardless of the existence of
unrestricted restrained earnings in
the books of the corporation; and
b. upon such terms and conditions
stated in the AOI and certificate of
stock
c. Also called as Callable Share
d. Usually preferred shares
e. Redeemable at the option of
issuing corporation unless
stockholder expressly authorized to
compel or refuse redemption of
stock.
f. May be deprived of voting rights.
regardless of the existence of
UNRESTRICTED RETAINED EARNINGS
Surplus profits
- As long as the redemption will not result
to the insolvency of the corporation
SINKING FUND
SEC issued a regulation that any
corp. issuing a redeemable share
must set up a sinking fund. The
corporation must allocate or
segregate certain funds to be able
to meet the costs of redemption.
Once redeemed, it may not be
issued, unless expressly authorized
by the AOI
TREASURY SHARES
- 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.
REQUIREMENTS TO REAQUIRE:
1. Through some legal
purpose/condition
a) Purchase
b) Redemption
c) Donation
d) Through some other lawful
means (Section 41)
2. Availability of Unrestricted Retained
Earnings or Surplus Profit
RESALE: Treasury shares are not retired
shares. They do not revert back to the
unissued shares of the corporation but
regarded as property acquired by the
corporation which may be reissued or
resold by the corporation at a price to be
fixed by the board of directors.
Treasure shares are issued shares
but being in treasury, they do not
have the status of outstanding
shares.
Have no voting rights and not
entitled to dividends
PROMOTION SHARE shares issued to
promoters, for incorporating the
company or for services rendered in
launching or promotion the welfare of the
company.
SHARE IN ESCROW - a share subject to
an agreement by virtue of which the
share is deposited by the grantor or his
agent with a third person to be kept by
the depositary until the performance of a
certain condition or happening of an
event contained in the agreement.
CONVERTIBLE STOCK stock which is
convertible or changeable by the
stockholder from one class to another
class, at the conversion ratio the price
at which the common is to be valued as
against preferred.
INCORPORATION AND
ORGANIZATION OF PRIVATE
CORPORATIONS
does not belong to any person as a
natural and civil right, but as a
special privilege conferred upon a
group of persons by the sovereign
power of the state
can be dissolved at any time by
legislative enactment, subject to
limitations
STEPS IN THE CREATION OF A
CORPORATION
1. Promotion
not a legal but a business term
brought about generally at the
instance and unders the
supervision of one or more so-
called promoters
not a formal part of the
organization of a corporation
promoters are not the agents of the
corporation before it comes into
existence
there cannot be an agency unless
there is a principal
2. Incorporation
pass resolution ratifying the
contracts entered into by
incorporators with the promoters
in such case, they become agents
3. Formal organization and
commencement of business
operations
may be formed without getting
services from promoters
STEPS IN INCORPORATION
1. drafting and execution of AOI by
incorporators (choses temporary
treasurer)
a. Affidavit regarding the capital
subscribed and paid up
2. Filing with the SEC of AOI with:
a. Treasurers affidavit showing
25% of entire authorized
shares has been subscribed
and at least 25% of the
subscription has been paid in
cash
b. If governed by special laws,
recommendation of the
appropriate government
agency
3. Payment of filing and publication
4. Issuance by the SEC of COI
NUMBER & QUALIFICATIONS OF
INCORPORATORS
QUALIFICATIONS OF AN INCORPORATOR:
1. Must be a natural person
- corporation cannot be an
incorporator of another corporation
[EXCEPTION: A cooperative may be
an incorporator of a Rural Bank]
2. With capacity to contract/ of legal
age
AOI must be acknowledged by the
incorporators before a notary
public (must be under oath)
Guard against possibility of
fictitious name being subscribed to
the articles and to assure
signatures are genuine
3. Subscribed to at least 1 share of
the capital stock of the corporation
4. Not less than 5 but not more than
15
5. Majority must be residents of the
Philippines*
*Citizenship requirement is only required
for nationalized corporations
CORPORATE TERM
A corporation shall exist for the
term specified in the AOI but 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;
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
No extension after the expiration of
the corporate term because there
is nothing more to extend
CAPITAL STOCK REQUIREMENT
Sec. 12. Minimum capital stock
required of stock corporations. -
Stock corporations incorporated under
this Code shall not be required to have
any minimum authorized capital stock
except as otherwise specifically provided
for by special law, and subject to the
provisions of the following section.
CAPITAL STOCK REQUIREMENT
Sec. 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.
CAPITAL STOCK REQUIREMENT
MINIMUM SUBSCRIPTION: 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
MINIMUM PAID-UP CAPITAL: At least
twenty-five (25%) per cent of the total
subscription must be paid upon
subscription. Provided, however, That in
no case shall the paid-up capital be less
than five Thousand (P5,000.00) pesos.
CONTENTS OF ARTICLES OF
INCORPORATION
(It must be in official languages duly
signed and acknowledged by all of
the incorporators)
1. The name of the corporation;
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
he 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;
CONTENTS OF ARTICLES OF
INCORPORATION
4. The term for which the corporation is
to exist;
5. The names, nationalities and
residences of the incorporators;
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;
CONTENTS OF ARTICLES OF
INCORPORATION
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.
ARTICLES OF INCORPORATION
Articles of Incorporation document
prepared by the persons establishing a
corporation filed with the SEC containing
matters required by law.
A copy of the AOI filed and returned with
Certificate of Incorporation issued by SEC
under its official seal becomes its
corporate charter enabling the
corporation to exist and function as such.
AMENDMENT OF ARTICLES OF
INCORPORATION
VOTE REQUIREMENTS:
o BOARD OF DIRECTORS/TRUSTEES
majority vote
o STOCKHOLDERS vote or written
assent representing at least 2/3 of
the outstanding capital stock.
AMENDMENT OF ARTICLES OF
INCORPORATION
LIMITATIONS ON POWER OF
CORPORATION TO AMEND:
1. Not allowed when it will be contrary
to any provision of the Corporation
Code
2. It must be for a legitimate purpose
3. It must be approved by the
required vote of the BOD & SH
4. The original articles and amended
articles together shall contain all
provisions required by law
AMENDMENT OF ARTICLES OF
INCORPORATION
LIMITATIONS ON POWER OF
CORPORATION TO AMEND:
5. The amendment shall be indicated
by underscoring the change/s
made, and a copy thereof duly
certified by the corporate secretary
to be with the required vote
6. If the corporation is governed by a
special law, amendments must be
accompanied by a favorable
 recommendation from the
appropriate government agency
7. The amendments shall take effect
only upon their approval by the
SEC.
AMENDMENT OF ARTICLES OF
INCORPORATION
LIMITATIONS ON POWER OF
CORPORATION TO AMEND:
Amendment deemed approved by
SEC from the date of filing if not
acted upon within 6 months from
filing, for a cause not attributable
to the corporation, assuming the
amendments made are in
accordance with the law.
AMENDMENT OF ARTICLES OF
INCORPORATION
without prejudice to the appraisal
right of dissenting stockholders in
accordance with the provisions of this
Code
APPRAISAL RIGHT right of a
stockholder to demand payment of the
fair value of his shares, after dissenting
from a proposed corporate action
involving a fundamental change in the
AOI. (Art. 81)
GROUNDS WHEN AOI or
AMENDMENT may be rejected
Generally, SEC will disapprove or reject if
the same is not in compliance with the
requirements of this Code: Provided, That
the Commission shall give the
incorporators a reasonable time within
which to correct or modify the
objectionable portions of the articles or
amendment.
GROUNDS WHEN AOI or
AMENDMENT may be rejected
1. That the articles of incorporation or
any amendment thereto is not
substantially in accordance with
the form prescribed herein;
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 if
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
5. If without the favorable
recommendation of the appropriate
government agency to the effect
that such AOI or amendment is in
accordance with the law.
SUSPENSION OR REVOCATION
OF THE CERTIFICATE OF
REGISTRATION
1. Fraud in procuring Certificate of
Incorporation
2. Serious misrepresentation as to
what the corporation is doing to the
great prejudice or damage of the
public
3. Refusal to comply with or defiance
of a lawful order of the SEC
4. Continuous inoperation for a period
of at lease 5 years.
5. Failure to file by-laws within the
required period
6. Failure to file required reports
within the prescribed period.
CORPORATE NAME
Limitations in the Use of Corporate
Name:
1. If it is identical with existing
corporate name
2. If it is confusingly or deceptively
similar with existing corporate
name
3. If it is confusing or contrary to laws.
CORPORATE NAME
Change of Corporate Name
Comply with the rules on
amendments of AOI
The same must be approved by the
SEC and it shall issue an amended
Certificate of Incorporation under
the amended name.
COMMENCEMENT OF
CORPORATE EXISTENCE
A private corporation formed or
organized under this Code commences to
have corporate existence and juridical
personality and is deemed incorporated
from the date the Securities and
Exchange Commission issues a
certificate of incorporation under its
official seal; and thereupon the
incorporators, stockholders/members and
their successors shall constitute a body
politic and corporate under the name
stated in the articles of incorporation for
the period of time mentioned therein,
unless said period is extended or the
corporation is sooner dissolved in
accordance with law.
DE FACTO CORPORATIONS
De Facto Corporation one which
actually exists for all practical purposes
as a corporation but which has no legal
right to corporate existence as against
the State.
It is a corporation from the fact of
its acting as such, though not in law.
It is a corporation which had not
complied with all the requirements
necessary to be a de jure corporation but
has complied sufficiently to be accorded
corporate status as against third persons,
but not against the State.
REQUIREMENTS OF A DE FACTO
CORP.
 1. A valid law under which a
corporation with powers assumed
might be incorporated
2. A bona fide attempt to organize a
corporation under such law; and
3. Actual exercise in good faith of
corporate powers conferred upon it
by law.
DE FACTO CORPORATION
REQUIREMENTS OF A DE FACTO
CORPORATION
1. Existence of a Valid Law
Hence, there cannot be a corporation de
facto when there cannot be a corporation
de jure
a. There cannot be a corp. de facto
under an unconstitutional statute
b. When the purpose of the
corporation is prohibited by law
DE FACTO CORPORATION
REQUIREMENTS OF A DE FACTO
CORPORATION
2. Bona Fide Attempt to
Incorporate
Defects which will preclude the creation
of a de facto corp:
a. Absence of AOI
b. Failure to filed AOI with SEC
c. Lack of Certificate of Incorporation
DE FACTO CORPORATION
REQUIREMENTS OF A DE FACTO
CORPORATION
2. Bona Fide Attempt to
Incorporate
Examples of defects which creates a De
Facto Corp.
a. Name of the corp. closely
resembles a pre-existing corp.
b. Majority of incorporators not
residents of the Philippines
c. Acknowledgement of AOI is
defective in form
DE FACTO CORPORATION
REQUIREMENTS OF A DE FACTO
CORPORATION
3. User or exercise of powers in
good faith
- Includes duty to correct defect if
discovered
DE FACTO CORPORATION
LIABILITY OF STOCKHOLDERS:
Stockholders of a de facto corporation
enjoys exemption from personal liability
for corporate obligations as do
stockholders of a de jure corporation.
DE FACTO CORPORATION
Sec. 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.
DE FACTO CORPORATION
Collateral Attack one whereby
corporate existence is questioned in
some incidental proceeding not provided
by law for the express purpose of
attacking the corporate existence.
CORPORATION BY ESTOPPEL
Sec. 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.
On who assumes an obligation to an
ostensible corporation as such,
cannot resist performance thereof
on the ground that there was in fact
no corporation.
CORPORATION BY ESTOPPEL
CORPORATION BY ESTOPPEL has no real
existence.
It is neither de jure nor de facto
corporation.
It exist only between the persons
who misrepresented their status
and the parties who relied on the
misrepresentation.
It may be attacked or questioned
by any third party except when the
attacking party is estopped.
EFFECTS ON NON-USE OF
CORPORATE CHARTER AND
CONTINUOUS INOPERATION OF
A CORPORATION
If a corporation does not formally
organize and commence the transaction
of its business or the construction of its
works within two (2) years from the date
of its incorporation, its corporate powers
cease and the corporation shall be
deemed dissolved. However, if a
corporation has commenced the
transaction of its business but
subsequently becomes continuously
inoperative for a period of at least five
(5) years, the same shall be a ground for
the suspension or revocation of its
corporate franchise or certificate of
incorporation.
EFFECTS ON NON-USE OF
CORPORATE CHARTER AND
CONTINUOUS INOPERATION OF
A CORPORATION
If a corporation does not formally
organize and commence the transaction
of its business or the construction of its
works within two (2) years from the
date of its incorporation, its corporate
powers cease and the corporation shall
be deemed dissolved.
However, if a corporation has
commenced the transaction of its
business but subsequently becomes
continuously inoperative for a period
of at least five (5) years, the same
shall be a ground for the suspension or
revocation of its corporate franchise or
certificate of incorporation.
EFFECTS ON NON-USE OF
CORPORATE CHARTER AND
CONTINUOUS INOPERATION OF
A CORPORATION
Failure to formally organize and
commence business within 2 years
from incorporation is a ground to
revoke or suspension of corporate
franchise.
ACTS CONSITUTING FORMAL
ORGANIZATION:
a. Adoption of by laws
b. Election of BOD and Corporate
Officers
c. Taking other steps necessary to
enable the corporation to transact
the legitimate business
EFFECTS ON NON-USE OF
CORPORATE CHARTER AND
CONTINUOUS INOPERATION OF
A CORPORATION
Subsequent failure to continuously
inoperate for a period of at least 5
years. (after organization and
commencement of transaction of
business) is a ground for suspension
or revocation of corporate franchise.
However, notice and hearing is required
before suspension or forfeiture.
EFFECTS ON NON-USE OF
CORPORATE CHARTER AND
CONTINUOUS INOPERATION OF
A CORPORATION
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.
Board of directors/trustees/officers
Atty. Kathrina mishael c. sadsad
Board of directors and trustees
BOARD OF DIRECTORS is the body
that exercises and controls corporate
powers, all business operations and
properties of the corporation.
It is the BOD who has the sole authority
to conduct ordinary business of the
corporation, unless it falls within certain
exceptions, stockholders cannot
substitute their judgment over the BOD.
Board of directors and trustees
POWERS EXERCISED BY BOD/BOT AS
A BOARD
- BOD must act together at a meeting at
which there is a quorum.
- Issuance of a Board Resolution
Board of directors and trustees
GR: The BOD must act as a body and
personally to bind the corporation
Exceptions to the rule:
1. If the directors happened to be the
sole stockholders
2. If the corporate officer is
authorized by the BOD to bind the
corp. in a particular contract
3. If subsequently ratified
4. If there is an Executive Committee
with authority to act on specific
matters within the competence of
the BOD
5. Corp. is under management
contract
6. In a close corporation.
Board of directors and trustees
BUSINESS JUDGMENT RULE
It is a well-known rule of law that
questions of policy or of management are
left solely to the honest decision of
officers and directors of a corporation
and the courts are without authority to
substitute their judgment for the
judgment of the board of director; the
board is the business manager of the
corporation and so long as it acts in good
faith its orders are not reviewable by the
courts.
PURPOSE: Business Judgment Rule
shields the director or officer from
liability for errors of judgment that
resulted in the allegedly negligent
act or omission provided they acted
in good faith in a matter of business
policy or business judgment.
Board of directors and trustees
LIMITATION ON THE POWERS OF
BOD/BOT:
1. It must observe the limitations
imposed by law, AOI and By-law.
2. It cannot perform constituent acts
acts involving fundamental
changes in the corp.
3. It cannot exercise powers not
possessed by the corporation.
Board of directors and trustees
TERM OF OFFICE OF THE BOD/BOT:
one year and until all their successors
are elected and qualified
In case the stockholders failed to elect a
new director, the director naturally holds
over and continues to function until
another director is chosen or qualified.
(Hold-over capacity)
QUALIFICATIONS OF THE Board of
directors/ trustees
1. Natural person
2. Legal age
3. Ownership of at least one (1) share
of stock registered in his name in
the books of the corporation
4. Not less than 5, not more than 15
5. Majority must be Philippine
residents
*Any additional qualifications in the by-
laws.
DISQUALIFICATIONS OF THE Board
of directors/ trustees
1. A person convicted by final
judgment of an offense
punishable by imprisonment for a
period exceeding six (6) years
2. A person who violated of the
Corporation Code committed within
five (5) years prior to the date of
his election or appointment
Election of directors/trustees
Every corporation conducts a
regular or general stockholders meeting
for the purpose of electing directors.
Written notice must be sent 2 weeks
prior to the meeting
1. Owners of majority of the
outstanding capital stock must be
present. (QUORUM)
2. Stockholders may be present
personally or by proxy
3. Viva voce voting (raising of hands)
unless requested to be by ballot
Election of directors/trustees
4. Voting is based on the number of
shares registered in his name in the
books of the corporation at the
time of election. In case of non-
stock, members may cast as many
votes as there are trustees to be
elected, but may not cast more
than one vote for one candidate.
5. A stockholder cannot be deprived
in the AOI or by-laws of his
statutory right to use any of the
methods of voting.
Election of directors/trustees
6. If a quorum is present, the
candidates receiving the highest
number of votes shall be declared
elected.
7. In case of failure to hold an election
for any reason, the meeting may
be adjourned from day to day or
from time to time but it cannot be
adjourned indefinitely.
Election of directors/trustees
Election of directors/trustees
CorporatE officers
PRESIDENT - must be a director
TREASURER - may or may not be a
director
SECRETARY - must be a resident
and citizen of the Philippines
Any other officers as provided for
by 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.
CorporatE officers
Election entrusted to BOD except
in a close corporation
Compensation & Term of office
entrusted to the BOD/By-laws
Authority of Corp. Officers-
responsible for the day-to-day
running of the corporation
Requisites of a board meeting
1. Meeting of the directors or trustees
duly assembled as a board
2. Presence of a Quorum
3. Decision of the majority of the
quorum or in other cases, majority
of the entire board
4. Meeting at the place, time, and in
the manner provided in the by-
laws.
quorum
Such number of membership of a
collective body as is competent to
transact its business or do any other
corporate act.
quorum
NO. REQUIRED FOR PRESENCE OF
QUORUM:
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.
Report of election of
directors/trustees/officers
1. The Secretary or any other officer
of the Corp. must submit to the
SEC. the names, nationalities and
residences of the
director/trustees/officers elected
within 30 days after the meeting in
which they were elected.
2. Death, resignation, cessation in any
manner of holding office.
Removal of directors/trustees
The power to remove directors
belongs solely to the STOCKHOLDERS.
This is to show the INDIRECT CONTROL
that stockholders have over the
directors.
__________________
GR: A director may be removed even
without cause as long as prescribed vote
is present.
XCP: removal without cause may not be
used to deprive minority stockholders or
members of the right of representation
(those who united in cumulative voting to
elect such director)
Requisites for Removal of
directors/trustees
1. Meeting called for that purpose.
2. Notice given to the stockholders of
the meeting and the intention to
propose removal at the meeting
3. Vote of stockholders representing
at least 2/3 of the outstanding
capital stock or 2/3 of the members
Resignation of directors/trustees or
abandonment of office
A director may resign at any time,
provided that he cannot resign as part of
fraudulent scheme to prejudice the
corporation or its stockholders and make
profit to his own advantage.
Vacancies in the office of the
director/trustees
BY STOCKHOLDERS/MEMBERS: If the
vacancy results from -
a. removal by the SH or members
b. Expiration of the term
c. Increase in the number of board
seats
d. For other causes but the Remaining
directors does not constitute a
quorum or the board refers the
matter to the stockholders
Vacancies in the office of the
director/trustees
BY BOARD OF DICTORS: If the vacancy
results from -
a. Death
b. Resignation
c. Abandonment
d. disqualification
Compensation of directors
GR: Directors are not entitled to
compensation because they are
presumed to render services gratuitously.
The presumption is the return of their
investment is enough compensation.
Compensation of directors
EXCEPTIONS:
1. If the by-laws fixed the
compensation of the director
2. If it was granted by the vote of
majority of the stockholders
representing at least a majority of
the outstanding capital stock.
3. If payment is for services other
than as such directors.
Compensation of directors
LIMIT OF COMPENSATION:
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.
Compensation of directors
PER DIEM OF DIRECTORS
- usually given for the attendance
during meetings.
- the per diems should not be
included in their total yearly
compensation for purposes of 10%
limitation.
Liability of directors, trustees or
officers
INSTANCES WHEN A
DIRECTOR/TRUSTEE/OFFICER ARE
HELD TO BE PERSONALLY LIABLE:
1. Directors or trustees who willfully
and knowingly vote for or assent to
patently unlawful acts of the
corporation
2. Directors or trustees who are guilty
of gross negligence or bad faith in
directing the affairs of the
corporation
3. Directors or trustees who acquire
any personal or pecuniary interest
in conflict with their duty as such
directors or trustees (profits)
Liability of directors, trustees or
officers
4. When a director has consented to
the issuance of watered stocks,
who, having knowledge thereof did
not forthwith file with the corp.
secretary his written objection
thereto
5. When a director, trustee, or officer
is made by specific provisions of
law personally liable for his
corporate actions
6. When a director, trustee, or officer
has contractually agreed or
stipulated to hold himself
personally and solidarily liable with
the corporation.
Dealings of directors, trustees or
officers of the corporation
Sec. 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 nor 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.
Dealings of directors, trustees or
officers of the corporation
CONTRACTS INVOLVING DEALINGS OF
D/T/O WITH THE CORPORATION ARE
VALID IN THE FOLLOWING CASES:
1. All the conditions enumerated in
Section 32 are present
2. Any of the first two conditions are
not present but the corporation
ratified such contract by a vote of
2/3 SH or members
3. Any of the first two conditions are
not present but the corporation
(through the board) elects not to
question the validity of the contract
w/o prejudice to the liability of the
drector for damages.
Contracts between corporations
and interlocking directors
GR: Contracts between two or more
corporations which have interlocking
directors is VALID, as long as no fraud
and the contract is fair and reasonable
under circumstances.
XCP If the interest of the interlocking
directors in one corporation is substantial
and on the other nominal, the rules on
Section 32 on self-dealing corporations
shall apply on the latter corporation.
Disloyalty of a director
THE CORPORATE OPPORTUNITY
DOCTRINE
Under this doctrine, a director who,
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, is guilty of disloyalty and
should, therefore, account to the latter
for all such profits by refunding the same,
notwithstanding that he risked his funds
in the venture.
Disloyalty of a director
HOW MAY BE THE DIRECTOR EXEMPTED
FROM LIABILITY?
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.
Executive committee
It must be expressly provided
for in the by-laws.
It is composed of not less
than three (3) members of the
board to be appointed by the
board.
Said committee may act, by
majority vote of all its members, on
such specific matters within the
competence of the board, as may
be delegated to it in the by-laws or
on a majority vote of the board
Restriction on the powers of the
executive committee
(1)approval of any action for which
shareholders' approval is also
required;
(2)the filing of vacancies in the board;
(3)the amendment or repeal of by-
laws or the adoption of new by-
laws;
(4) the amendment or repeal of any
resolution of the board which by its
express terms is not so amendable
or repealable; and
(5)a distribution of cash dividends to
the shareholders