THE CORPORATION CODE OF THE PHILIPPINES

Batas Pambansa Blng. 68

Title 1
General Provisions
Fun Fact:
Ferdinand Marcos is the official head of the
government when the code was passed.
Philippines was not a Republic but a Parliament
that is why it is called a Batas Pambansa and not
RA.
Section 1. Title of the Code- This code shall be
known as The Corporation Code of the
Philippines.
The law that governs private corporations in
the Philippines.

Took effect on May 1, 1980

Replaced the Corporation Law which was

enacted on March 1, 1906 during the American
Regime through the Philippine Commission.

Aims corporations to become effective

partners of the national government

Section 2. Corporation defined. A Corporation is

an artificial being created by operation of law,
having the right of succession and the powers,
attributes, and properties expressly authorized by
law or incident to its existence.
I. ATTRIBUTES OF A CORPORATION
1. It is an artificial being with separate and distinct
personality. (Doctrine of Separate Personality)
- a juridical person capable of having rights and
obligations, w/ a personality separate and distinct
from its members or stockholders hence,
stockholders are not personally liable for corp.
obligations and cannot be held liable to third persons
who have claims against the corp. beyond their
agreed contribution to the corporate capital.
2. It is created by operation of law.
- mere consent of the parties to form a corp.is not
sufficient: the State must give its consent either
through a special law (in the case of a govt corp.) or
a general law (for a private corp.) the general law
under w/c a private corp. may be formed or organized
is the Corporation Code

3. It enjoys the right of succession.

- its continued existence during the term stated in its
articles of incorp. cannot be affected by any change in
the members or stockholders nor is it affected by the
transfer of shares by a stockholder to a 3rd person
4. It has the powers, attributes and properties
expressly authorized by law or incident to its
existence.
- is a mere creature of the law, it can exercise only
such powers as the law may choose to grant it, either
expressly or impliedly
Advantages of the Corporate Organizations
1. Separate juridical personality
2. Limited liability to investors
General rule: Where a corporation buys all the shares
of another corporation, this will not operate to dissolve
the other corporation and as the two corporations still
maintain their separate corporate entities, one will not
answer for the debts of the other. [Nell v Pacific
Farms (15 SCRA 415), Nov. 23, 1965]
Exceptions:
o If there is an express assumption of liabilities;
o There is a consolidation or merger;
o If the purchase was in fraud of creditors;
o If the purchaser becomes a continuation of the
seller;
o If there are unpaid subscriptions (stockholder is
liable for the unpaid balance).
From a legal point of view, a merger is a legal
consolidation of two companies into one entity,
whereas an acquisition occurs when one company
takes over another and completely establishes itself
as the new owner (in which case the target company
still exists as an independent legal entity controlled by
the acquirer). Either structure can result in the
economic and financial consolidation of the two
entities. In practice, a deal that is an acquisition for
legal purposes may be called a "merger of equals" if
both CEOs agree that joining together is in the best
interest of both of their companies, while when the
deal is unfriendly (that is, when the target company
does not want to be purchased) it is almost always
regarded as an "acquisition".

3 stockholders hold their shares as personal property

with rights to dispose, assign or encumber them as
they may desire (63)
4. all corporate powers are exercised by the board of
directors (23)
Partnership vs. Corporation
Both have a separate juridical personality.
Both are artificial persons ie. They have no
bodily existence, and can only act through
agents
Both are composed of a group of persons with
the exception of a corporate sole.
A partnership, with the exception of a general
professional partnership, is taxed as a
corporation.
Partnership

Corporation

partners are
personally liable
for the debts of
the partnership

Stockholders
cannot be
made to
personally
answer to
corporate
creditors

Creation

Mere agreement
of the partners

Created by
the operation
of law

Number of
Organizer

mere
agreement of
the parties, w/c
can be
composed of
just 2 persons,

Formed by 5
or more
persons but
not exceeding
15

In most
cases, all the
owners actively
participate in
management,
w/ capacity to
bind it by any
usual contract

management
is centralized
in the board
of directors
w/c has
exclusive
power to bind
the corp

Right of
Succession

No right

Has right

Nature of
Relationship

based on
mutual trust and
confidence

Has more
stability as it
enjoys the

Extent of
Liability

Management

(delectus
personae) so
that its
existence is
precarious
because of the
facility w/ which
it can be
dissolved (i.e.
through the
death or
unilateral act of
a partner);

right of
succession
and is not
affected by
the death

Powers

May exercise
any power
provided it is
authorized by
partners and is
not contrary to
law, morals,
good customs,
public order or
public policy.

Can exercise
only the
powers
expressly
authorized by
law or
incident to its
existence

Commencemen
t of existence

upon the
execution of the
partnership
contract unless
a different date
is set by the
partners.

On the date of
the issuance
of its
certificate of
incorporation

Transferability
of interest

A partner cannot
transfer his
shares to
another person
without partners
consent

Can transfer
his shares to
another
person
without the
consent of
other

or insolvency
of a
stockholder;
also,
dissolution
before a
corp.s term
requires
a2/3rds vote
of the stock


stockholders

Term of
existence

Dissolution

May be formed
for an indefinite
period

May be
dissolved by a
partner

May exist for

a period not
exceeding 50
years

Cannot be
dissolved
without the
consent of the
state

Sec. 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.
Stock corporation

One which has a capital stock divided into

shares and is authorized to distribute to the
holders of such shares dividends or allotments
of the surplus profits (i.e., retained earnings on
the basis of the shares
held It is organized for profit.
The governing body of a stock corporation is
usually the Board of Directors (Except in
certain instances for close corporations)

Non-stock corporation

All other corporations are non-stock

corporations
One where no part of the income is
distributable as dividends to its members,
trustees, or officers, subject to the provisions
of the Code on dissolution.
Not organized for profit.

Its governing body is usually the Board of

Trustees.

Other kinds of Organization that was not used as

a classification in the code
1. Public corporation - One formed or organized for
the government or a particular state. Its purpose is for
the general good and welfare.
2. Private corporation - One formed for some
private purpose, benefit, aim or end
The true test is the purpose of corporation. If
corporation is created for political or public purpose
connected with the administration of government,
then it is a public corporation.
If not, it is a private corporations although the whole
or substantially the whole interest in the corporation
belongs to the state.
In the Philippines, public corporations are the
Provinces, cities, municipalities, and barangays.
They are also called Municipal corporations or local
government.
The code eliminated the classification of corporations
into public or private obviously for the reason that it
applies only to private corporations.
Private corporations include:
a. Government- owned or controlled corporations
(GOCC) or those directly created by Special law (Sec
4) or if organized under the general corporation law
(B.P. Blg. 68)
These corporations are private not public corporations
because they are not established for the government
of a portion of the state.
b. Quasi- public corporations or those which have
accepted from the state the grant of a franchise or
contract involving the rendition or performance of
some public duties or service but which are organized
for profit.
(1) As to number of persons who compose them:

a. Corporation Aggregate- corporation

consisting of more than one member or
corporator
b. Corporation sole or religious corporationconsists of one member or corporator only
and his successors, such as bishop
4. Educational corporation (106) Those corporations
which are organized for educational purposes. This
type of corporation is governed by Section 106 of the
Corporation Code.
Sec. 4. Corporations created by special laws or
charters. - 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.
Corporations created by special laws shall be owned
or controlled by the government. All because:
1. To give everyone equal opportunity to access
the special privilege granted.
2. To prevent bribery and corruption of the
legislature.
Sec. 5. Corporators and incorporators,
stockholders and members. Corporators- those
who compose a corporation, whether as
stockholders or as members.
Incorporators- those stockholders or members
mentioned in the articles of incorporation as originally
forming and composing the corporation and who are
signatories of such document.
Note: Ones name may be mentioned in the articles of
incorporation as a subscriber or a member, but if he is
not a signatory thereto, he is a mere stockholder or a
member, not incorporator.
Stockholders- the corporators of a stock corporation.
Members- the corporators of a non- stock
corporation.
Promoters- persons who bring about or cause to
bring about the formation and organization of a

corporation by bringing together the incorporators or

the persons interested in the enterprise .
They lay the groundwork for corporate existence.
Subscribers- persons who have agreed to take and
pay for original, unissued shares of a corporation
formed or to be formed.
Sec. 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
betreated 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:
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 with or other corporation.
7. Investment of corporate funds in another
corporation or business.
8. Dissolution of the corporation
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.

A share of Stock represents the intangible interest

or right which an owner has in the management,
profits and assets of the corporation. It is a property
subject to conversion.
one of units in which the capital stock of the
corporation is divided.
- Incorporeal or intangible property
- Represents the right or interest of a person in
a corporation
- May be issued even if the subscription is not
fully paid except in no par shares
stock certificate- the written acknowledgement by
the corporation of the stockholders interest in the
corporation and its property.
- Formal written evidence of ownership

tangible
Written evidence of that right
may not be issued unless subscription is fully
paid
Not essential to ownership

Classification of Stocks
1. Common Stock- The ordinary stock of a
corporation entitles the holder to a pro rata
division of the dividends
- without any preference or advantage over
other stockholders
2. Preferred Stock- Entitles the holder to certain
preferences over the shareholders.
a. Preferred stock as to asset- entitles the
holder to preference in the distribution of assets
over over common stock upon the liquidation of
the corporation
b. Preferred as to dividends- entitles the holder
to preference in the distribution of dividends over
common stock
3. Par Value Stock- The nominal value that
appears on the stock certificate
- Capital stock that has been assigned a value
per share in the corporate charter.
- Its primary purpose is to fix the minimum issue
price of the shares
4. No- Par Value Stock-One without nominal value
that appears on the stock certificate
- Capital stock that has not been assigned a
value in the corporate charter
- Always has issued value
- A corporation may issue no par value shares
only or with par value
- Does not represent any proportionate interest
in the capital stock
Power of a corporation to classify its own shares
& Limitations thereto:
1. classification of corporation may include the
following:
a. Voting and non voting shares
b. Common and preferred shares
c. Par Value and no par value shares

d. Classification to insure compliance with

constitutional or legal requirements
2. Any of which classes or series of shares may have
such rights, privileges or restrictions as may be stated
in the articles of incorporation.
3. Each share shall be equal in all respects to every
other share (Except as otherwise provided in the
articles of incorporation and stated in the certificate of
stocks).
4. Limitations when shares are deprived of the voting
right:
a.
Only those classified as redeemable or
preferred, otherwise provided by this code
b.
There shall always be a series of or class of
shares that have complete voting rights (So that
not all the shares may be deprived of the voting
rights).
c.
Non- voting shares may nevertheless vote on
the following matters previously mentioned from
this section.
5. Limitations when no- par shares are issued.
a. Subscribers to no- par
b. Preferred shares may be issued only with a
stated par value
Sec. 7. Founders' shares. - Founders' shares
classified as such in the articles of incorporation
may be given certain rights and privileges not
enjoyed by the owners of other stocks, provided
that where the exclusive right to vote and be
voted for in the election of directors is granted, it
must be for a limited period not to exceed five (5)
years subject to the approval of the Securities
and Exchange Commission. The five-year period
shall commence from the date of the aforesaid
approval by the Securities and Exchange
Commission.

Founders Share- Those that grant to the founders

certain rights and privileges not enjoyed by others
shares.
Provides an exception to the rule in sec 6, par
1 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.
Rules on Founders shares

a. Must be classified as such in the articles of

corporation
b. Certain rights and privileges subject to the ff.
limitations:
- if the exclusive right to vote and be voted for
the election of director is granted, it must be for a
limited period not exceeding 5 years subject to
approval of SEC
- the five- year period begins at the said
approval
Sec. 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.
Redeemable Shares- Those which grant the issuing
corporation the power to redeem or purchase them
after a certain period
Rules on Redeemable shares
a. They may be issued by the corporation only if
expressly provided in the articles of
incorporation
b. They may be deprived of their voting rights
c. 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
corporation/
d. The terms and conditions for their redemption
must be stated in the articles of incorporation
and the stock certificate representing the said
shares.
Sec. 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.

Treasury Shares- is a corporations own stock that it

has issued and subsequently reacquired from
shareholder (Principles of Accounting, Kieso). A
corporation may acquire treasury stock for various
reasons:
1. To reissue the shares to officers and employees
under bonus and stock compensation plans.
2. To signal to the stock market that management
believes the stock is under priced, in the hope of
enhancing its market value.
3. To have additional shares available for use in the
acquisition of other companies.
4. To reduce the number of shares outstanding and
thereby increase earnings per share.
Another infrequent reason for purchasing shares is
that management may want to eliminate hostile
shareholders by buying them out.
Sec. 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.
Sec. 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.
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.
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.
Sec. 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:
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 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;
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;
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.
Sec. 15. Forms of Articles of Incorporation. Unless otherwise prescribed by special law, articles of
incorporation of all domestic corporations shall
comply substantially with the following form
Sec. 16. Amendment of Articles of Incorporation. Unless otherwise prescribed by this Code or by
special law, and for legitimate purposes, any provision
or matter stated in the articles of incorporation may be
amended by a majority vote of the board of directors
or trustees and the vote or written assent of the
stockholders representing at least two-thirds (2/3) of
the outstanding capital stock, without prejudice to the
appraisal right of dissenting stockholders in
accordance with the provisions of this Code, or the
vote or written assent of at least two-thirds (2/3) of the
members if it be a non-stock corporation.
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
Sec. 17. Grounds when articles of incorporation
or amendment may be rejected or disapproved. The Securities and Exchange Commission may reject
the articles of incorporation or disapprove any
amendment thereto 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.
The following are grounds for such rejection or
disapproval:

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.
Sec. 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.
Sec. 19. 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.
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.
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
Sec. 22. 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.
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.

corporation separately as directors/ trustees. (Must

act as a body) The corporation can act only through
its Board of Directors. The number of directors must
not be less than 5 and not more than 15. In a
corporation sole there is no BOD since it consists of
1 corporator only.
The stockholders may have all the profits but shall
turn over to directors the exclusive authority to
manage and control the transaction of its business
and the use of its assets. The power to bind
corporation by contracts can be delegated. The
discretionary powers (election of corporate officers)
cannot be delegated to subordinate officers.
Principal functions:
(a) To exercise corporate powers
(b) To conduct all corporate business
(c) To control and hold corporate property
Sec 24 Election of Directors or Trustees

Title III: Board of Directors/Trustees/Officers

Sec. 23 The Board of Directors or Trustees

The corporate powers of all corporations formed

under this code shall be exercised, all business
conducted and all property of such corporations
Shall hold office for 1 year and until their
successors are elected and qualified (Hold-over
Principle)
Must own at least one share of the capital stock
of the corporation which he is a director which
share shall stand in his name on the books of the
corporation
Any director who ceases to be owner of at least
1 share shall cease to be director
Majority of the directors/trustees must be
residents of the Philippines
He must not have been convicted of an offense
punishable by imprisonment for a period
exceeding 6 years

Board of Directors is the governing body in a stock

corporation while Board of Trustees is the governing
body in a non-stock corporation. They cannot bind the

There must be present owners of the majority of

the outstanding capital stock, or if there is no
capital stock, a majority of the members entitled to
vote
Must be by ballot
There must be present in person or by authorized
representative the owners of the majority of the
capital stock or a majority of the members
No delinquent stock shall be voted
If a quorum is present, the candidates receiving
the highest number of votes shall declared elected
The meeting may be adjourned
Requisite notice must be given

Methods of Voting:
In a stock corporation: Straight voting

Total votes will be distributed

among candidates. (100 shares x 11 directors to
be elected) 100 votes per candidate
Cumulative voting for 1 candidate

Total votes shall be cast in

favor of one candidate. (100 shares x 11 directors
to be elected) 1100 votes for 1 candidate ONLY
Cumulative voting by distribution

The stockholder may distribute

partitions of the votes to as many candidates as he
wishes. (100 shares x 11 directors) 600 votes for A,

100 votes for B, 150 votes for C, and 250 votes for
D

D= [A x B] / [C+1] + 1 = [20,000 x 3]/[11+1]

+1= 5001 shares

Within thirty days after the election of the directors,

trustees and officers of the corporation, the secretary
or any officer of the corporation, shall submit to the
SEC, the names, nationalities and residences of the
directors, trustees 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 to the SEC

5001 x 11 directors = 55,011 votes can be

distributed equally to 3 candidates

Sec 27 Disqualification of Directors, Trustees or

Officers

Sec 25 Corporation officers, quorum

Persons disqualified: Persons convicted by final

judgment of an offense punishable by imprisonment
for a period of 6 years and persons guilty of violating
the Corporation Code.

If there are 20,000 outstanding shares, and 11

directors are to be elected. The minority stockholders
wish to elect 3 directors.

President: A director of the corporation. The only

officer required by law to be a member of the BOD.
The President is given general supervision and
control of the business as Chief Executive Officer.
He shall preside at all meetings of the directors or
trustees
Vice-President: Inherent power is to act in the
absence of or vacancy of the president. No authority
to enter into contracts in behalf of the corporation by
virtue of his office alone.
Secretary: Need not be a director unless required by
the by-laws. The duty of the secretary is to make and
keep its records and to make proper entries of the
votes, resolutions and proceedings of the
shareholders and directors in the management of the
corporation
Treasurer: Has the authority to receive and keep
the money of the corporation and to disburse them
as he may be authorized. May not hold at the same
time the position of president
General Manager: Entrusted to the management of a
general manager or managing officer who has power
to bind the corporation by acts within the scope of his
apparent authority
There must be a quorum to have a board meeting.
Quorum: Is such number of the membership of a
collective body as is competent to transact its
business or do any other corporate act. Majority of
directors are present. Proxy is not allowed.
Example: The by-laws provide that there shall be 11
directors for X Corp. 9 directors were elected. 5
directors were present in the meeting (no quorum).
Quorum is the majority of the entire board.

Sec 26 Report of Election of Directors, Trustees

and Officers

Time of commission of the offense: The offense must

have committed within 5 years prior to the date of
election of appointment.
Sec 28 Removal of Directors or Trustees

Removal must take place in a regular meeting

of the corporation or in a special meeting called
for the purpose
Previous notice of the intention to propose
such removal must have been given to the
stockholders or members
The removal may be with or without cause.
Based on the rationale that the stockholders
should have the power to judge the fitness of
directors at any time
Removal without cause may not be used to
deprive minority stockholders or members of the
right of representation in the board of directors or
trustees

Causes of Vacancies: Removal, Expiration of Term,

Increase in the Number of Directors, Resignation,
Death, Abandonment, Disqualification
Resignation: A director cannot resign as part of a
fraudulent scheme. If a director quits which
occasioned a loss of profits to the corporation, he has
the right to repair such loss
Abandonment: Absented himself from all meetings for
nearly a year and announced his refusal to act as an
officer and stockholder
The following must be obtained:
Stock corporation representing at least 2/3 of
the outstanding capital stock
Non-stock corporation 2/3 of members entitled
to vote

Sec 29 Vacancies in the Office of Director or

Trustee

was not necessary to constitute a quorum for such

meeting;

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.

2. That the vote of such director or trustee was not

necessary for the approval of the contract;

Example: If 4 of 9 directors died, the remaining 5 still

constitute a quorum. The 5 may fill the 4 vacancies.
BUT if 5 died, the remaining is 4 directors. The
stockholders will fill the vacancy during a regular or
special meeting.

4. That in case of an officer, the contract has been

previously authorized by the board of directors.

3. That the contract is fair and reasonable under the

circumstances; and

Sec 30 Compensation of Directors

Directors are not entitled to compensation as such
directors
Directors are entitled to compensation in the ff.:

When fixed by the by-laws

When the giving of compensation is

approved by the stockholders representing at
least the majority

When the compensation refers to

reasonable per diems

Sec 33 Contracts Between Corporations with

Interlocking Directors

The total yearly compensation shall not exceed 10%

of the net income before income tax of the
corporation during the preceding year.

Sec 31 Liability of Directors, Trustees or Officers

Grounds for liability:

By willing and knowingly voting for or assenting

to patently unlawful acts of the corporation
By being guilty of gross negligence or bad faith
in directing the affairs of the corporation
By acquiring any personal or pecuniary interest in
conflict with their duty

Nature of liability: Joint and several

To whom liable: To the corporation, its stockholders
or members or other persons who suffer damages
resulting from the acts aformentioned
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 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

Where any of the first two conditions set forth in

the preceding paragraph is absent 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

Except in cases of fraud, and provided the

contract is fair and reasonable under the
circumstances, a contract between two or
more corporations having interlocking
directors shall not be invalidated on that
ground alone
Contract between 2 corporations with interlocking
directors is VALID as long as there is no fraud
and the contract is fair and reasonable
Stockholdings exceeding twenty (20%) percent
of the outstanding capital stock shall be
considered substantial for purposes of
interlocking directors.

Sec 34 Disloyalty of a Director

Where a director 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.
Sec 35 Executive Committee

For immediate action on important matters

(Emergencies)

Is a small group within a corporation

composed of not less than 3 members of the
board the creation of which is provided in the bylaws

The following functions may not be delegated:

Approval of any action for which shareholders

approval is required
The filling of vacancies in the board
The amendment or repeal of by-laws or the
adoption of new by-laws
The amendment or repeal of any resolution of the
board which by its express terms is not
amendable
The distribution of cash dividends to shareholders

- Power to acquire, hold or dispose property as its

business may reasonably require
- Power to adopt and amend its by-laws
3. Implied Powers- necessary to carry into effect
powers which are expressly granted, and which must
therefore be presumed to have been the intention in
the grant of the franchise.

Section 36: Corporate Powers and Capacity

Powers of Corporation
- right or capacity of a corporation to perform all acts
or things, except only those forbidden by law and its
articles of incorporation in furtherance of its purpose.

Acts in the usual course of business

Acts to protect debts due to the corporation

Every corporation incorporated under this Code

has the power and capacity to have:

Acts which involve embarking on a different

line of business

1. Express Powers- expressly

corporation by its charter

Acts designed to protect aid employees

Acts to increase
corporation

granted

to

Power to extend or shorten corporate terms

Power to increase or decrease capital stock

Power to incur, create, or increase bonded

indebtness

Power to deny pre-emptive right

Power to sell, lease, exchange, mortgage,

pledge, or otherwise dispose all or
substantially all of its property

Power to acquire its own shares

Power to invest corporate funds in another

corporation or business for any other purpose

Power to declare dividends

Power to enter into management contract

2. Incidental or inherent Powers- powers that a

corporation may exercise by reason of its very
existence as a corporation.
- Power of succession
- Power to have a corporate name
- Power to adopt a corporate seal

the

business

of

the

Sec. 37. Power to extend or shorten corporate

term
1. A corporation extending of shortening its
corporation term must comply with the following
requisites:
a. vote required- the act must be approved by
a:
1. Majority vote of the board of
directors or trustees, and
2. 2/3 of the outstanding capital stock;
or 2/3 of the members in a meeting called
for the purpose.
b. The articles of incorporation are amended
to effect such extension or shortening of
corporate term.
2. Exercise appraisal of right
Any stockholder who dissents from the act to
extend or shorten the corporate term may
exercise his appraisal right of the fair value of
his shares when he dissents from certain
corporate acts.

Sec. 38. Power to increase or decrease capital

stock; incur, create or increase bonded
indebtedness
Requisites:
1. vote required- majority vote of the board of
directors and 2/3 of the outstanding capital stock in a
meeting called for the purpose.
2. The increase or decrease of capital stock must be
certified to in a certificate duly signed by a majority of
the directors and counter signed by the chairman
and the secretary of stockholders meeting and
setting forth among other information, the increase or
decrease in capital stock, and in case of increase,
the names of the subscribers, nationalities,
residences, etc. The vote obtained.
3. Subscription and paid-in capital requirements in
case of increase, the treasurer must execute a sworn
statement attesting to the fact that at least 25% of
the increase in the capital stock has been subscribed
and that atleast 25% of such subscription has been
paid.

Sec. 39. Power to deny pre-emptive right

-this refers to the right of existing stockholders to
purchase or subscribe to all issuances or disposition
of shares of any class, in proportion to their
respective stockholdings, before such shares are
offered to the public. This will enable the
stockholders to maintain their proportionate control
of the corporation.
Shares covered by the exercise of the pre-emptive
right
a. shares issued as a result of increase in capital
stock
b. shares issued out of the unsubscribed portion of
the authorized capital stock
c. Other shares that may be disposed by the
corporation including treasury shares

Sec. 40. Power to sell, lease, exchange mortgage,

pledge, or otherwise dispose of all
substantially all of corporate property
including goodwill.
Abandonment of the action- the board of directors or
trustees may abandon such sale or other disposition
of all or substantially all of the corporate property
without further action or approval from the
stockholders or members, subject to the rights of third
persons under any contract relating thereto.
-

the sale or other disposition shall be deemed

to cover substantially all of the corporate
property if thereby the corporation would be
rendered incapable of continuing the business
or accomplishing the purpose for which it was
incorporated.

Sec. 41. Requisites for the exercise of power

The acquisition must be for a legitimate purpose
such as but not limited to:
1. to eliminate fractional shares arising out of stock
dividens
2. to collect or compromise an indebtness to the
corporation arising out of unpaid subscription
3. to pay stockholders who are entitled to the
appraisal right when they dissent from certain
corporate acts.
4. to purchase or take up redeemable shares
5. when the SEC orders a close corporation to
purchase the shares of stockholders incase of
deadlock in the management.
Sec. 42. Power to invest corporate funds in
another corporation or business or for any other
purpose.
-Approval of the stockholders or members shall not
be necessary if the investment by the corporation is
reasonably necessary to accomplish its primary
purpose.
-Any stockholder who dissents from the act may
exercise his appraisal act.
Sec. 43. Power to declare dividends
Dividend- is a portion of the accumulated profits of a
corporation which is set aside by the directors for
distribution to stockholders.

Requisites for the exercise of the power to

declare dividends
1. Stock dividends
a. Mojority vote of the directors present
provided there is a quorum
b. 2/3 of the outstanding capital stock entitled
to vote in a meeting called ofr the purpose
2. Cash Dividends- the declaration thereof requires
only the majority votes of the Directors present
provided there is a quorum
Prohibition on retention of surplus profits
Stock corporations are prohibited from retaining
surplus profits in excess of 100% of the Paid-in
capital stock, except in the following cases:
a. when justified by definite corporate
expansion projects or programs approved by
the board of directors.
b. when the corporation is prohibited under
any loan agreement with any financial
institution or creditor, from declaring dividends
without its consent and such consent has not
been secured.
c. when it can be clearly shown that such
retention is necessary under special
crcumstances obtaining in the corporation,
such as when there is a need for special
reserve for probable contingencies.
Sec. 44. Power to enter into a Management
Contract
Management contract- is a contract whereby a
corporation delegates the management or operation
of its business to another corporation. It is also called
service contract or operating agreement.
Voting Requirement: the management contract must
be approved by a:
a. majority vote of the board of directors or
trsutees present provided there is a quorum
b. majority of the outstanding capital stock or
majority of the members entitled to vote in a
meeting called for the purpose

General Rule: the period of the management contract

shall not exceed 5 years for any one term.
Exceptions:
service
contracts
or
operating
agreements which relate to exploration, development,
exploitation or utilization of natural resources may be
entered into for such periods as may be provided by
pertinent rules and regulations.

Sec.45. Ultra-vires acts

An ultra-vires act is an act or contract which is
beyond the powers that a corporation can lawfully
exercise. In other words, it is an act performed
outside the express, implied, and incidental powers of
a corporation.
Requisites for ratification of ultra-vires act which
is not illegal:
a. the act must be consummated
b. the creditors are not prejudiced or all of
them have given their consent thereto.
c. the rights of the public or of the state are not
inlvolved
d. All stockholders must give their consent.
Title VI
MEETINGS
Section.49. Kinds of meetings- Meetings of
directors, trustees, stockholders, or members
may be regular or special.
Section.50. Regular and special meetings of
stockholders or members.Kinds of meetings
1) Meetings of stockholders or members.- It may
be:
a.) REGULAR or those held annually on a
date fixed in the by-laws, or if not fixed, on
any date in April of every year as
determined by the board of directors or
trustees; or
b.) SPECIAL or those held at any time
deemed necessary or as provided in the
by-laws.

2) Meetings of directors or trustees- It may be:

a.) REGULAR or those held by the board
monthly, unless the by-laws provide
otherwise;or
b.) SPECIAL or those held by the board at
any time upon the call of the president or
as provided in the by-laws.
Necessity of meetings.
The corporate powers are vested in the board of
directors or trustees and/ or the stockholders or
members as a body and NOT as individuals.
Requisites for a valid meeting of stockholders or
members.
1.) It must be held at the proper place.
2.) It must be held at the stated date and at
the appointed time or at a reasonable time
thereafter.
3.) It must be called by the proper person.
4.) There must be a previous notice.
5.) There must be a quorum.
Section 51. Place and time of meetings of
stockholders or members- Stockholders or members
meetings, whether regular or special, shall be held in
the CITY or MUNICIPALITY where the principal office
of the corporation is located.

4) It must be sent at a certain time before the

scheduled meeting as fixed by law, unless a
different period is required by the by-laws.
5) It must state the business to be transacted
thereat.
6) Further, the notice must comply with any other
requirements prescribed by the law or by-laws
of the cooperation.
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.
Section 53. Regular and special meetings of directors
or trustees.
Place and time of meetings of directors or trustees.
1) Regular or special meetings of directors or
trustees may be held anywhere in or outside
the Philppines, unless the by-laws provide
otherwise.
2) Regular meetings shall be held monthly,
unless the by-laws provide otherwise, while
special meetings 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.

Proper person to call meeting.

The words call and notice need to be
distinguished.
THE CALL FOR A MEETING is exercised by the
person who has the power to call the meeting.
NOTICE- is the WRITING informing the
stockholders or members of the meeting.
Requisites of notice of meetings.
1) It must be issued by one who has authority to
issue it;
2) It must be in writing.
3) It must state the date, time, and place of the
meeting, unless otherwise provided in the bylaws

1) President/Chairman/Vice-Chairman
2) Stockholder or member in a temporary
capacity
3) Stockholder or member chosen.
Section 55. Right to vote of pledgers, mortgagors,
and administrators.-In case of pledged or
mortgaged shares in stock corporations, the
pledgor or mortgagor shall have the right to
attend and vote at meetings of stockholders,
unless the pledgee or mortgagee is expressly
given by the pledgor or mortgagor such right in
writing which is recorded on the appropriate
corporate books.

Executors, administrators, receivers, and other

legal representatives duly appointed by the court

may attend and vote in behalf of the stockholders

or members without need of any written proxy.

Manner of voting.
A stockholder or member may vote:
1.) Directly or
2.) Indirectly, through a representative
a.) By means of a proxy
b.) By a trustee under a voting trust
agreement
c.) By executors, administrators, receivers or
other legal representatives appointed by
the court. Voting may be either straight or
cumulative.
d.)
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.

Section 57. Voting right for treasury shares. Treasury shares shall have no voting right as
long as such shares remain in the Treasury.
Section 57 expressly denies any voting rights to
treasury shares as long as such shares remain in the
treasury.
Section 58. Proxies.
Meaning of proxy.

1) A proxy, as the term is used, designates the

formal written authority given by the owner or
holder of the stock, who has the right to vote
it, or by a member, as principal, to another
person, as agent, to exercise the voting rights
of the former.
2) It is also used to apply to the holder of the
authority or the person authorized by an
absent stockholder or member to vote for him
at a stockholders or members meeting.
3) The term is also applied to refer to the
instrument which evidences the authority of
the agent.
Section 59. Voting trusts.
Voting under a voting trust agreement.
Sometimes it is desired to place the control of all or
part of the stick in the hands of one person or of a few
persons. This may be done through a voting trust
agreement. It may be defined as an agreement in
writing whereby one or more stockholders of a stock
corporation transfer his or their shares to any person
or persons or to a corporation having authority to act
as a trustee for the purpose of vesting in such
person/s or corporation as trustee or trustees voting
or other rights pertaining to the shares for a certain
period not exceeding that fixed by the Code and upon
the terms and conditions stated in the agreement.
Proxy and voting trust distinguished.
1) The proxy has no legal title to the shares of
the stockholder giving the agency, while the
trustee acquires legal title to the shares of the
transferring stockholder;
2) A proxy, unless coupled with interest, is
revocable at any time, while a voting trust
agreement, if validly executed, is irrevocable.
3) A proxy can only act at the specified
stockholders or members meeting while a
trustee is not limited to any particular meeting.
4) A proxy votes only in the absence of the
owner of the stock, while a trustee can vote
and exercise all the rights of the transferring
stockholder even when the latter is present;
5) A proxy is usually of shorter duration than a
voting trust agreement, although under the law
the maximum duration of both cannot exceed
five years at any one time.
6) A proxy need not be notarized nor a copy file
with the Securities and Exchange

Commission, while a voting trust must be

notarized and a certified copy files with the
Commission.
7) A proxy does not have right of inspection of
corporate books, while a trustee has such a
right.

surplus assets to permanent account forming

part of the corporations capital stock

a
b
c

TITLE VII: STOCKS AND STOCKHOLDERS

Sec. 60. Subscription contract.
One can join in a stock corporation
through:
1 A subscription contract for the acquisition of
unissued stocks
2 By purchase of the corporations treasury
shares
3
Transfer of outstanding shares by previous
shareholders
In non-stock corporations, one can join
through a contract with the corporation,
depending on its charter and by-laws
Sec. 61. Pre-incorporation subscription.
Pre-incorporation
subscriptions
are
mandatory since the SEC will not accept the
articles of incorporation unless atleast 25% of
the authorized stock has been subscribed and
atleast 25% of the subscription has been fully
paid. After the submission of the articles of
incorporation,
no
pre-incorporation
subscription may be revoked even the period
of six (6) months already elapsed. Both the
subscribers and incorporators become
shareholders upon incorporation.
Sec. 62. Consideration for stocks.
Sources of corporate capital:
1 Funds furnished by shareholders- the
capital of the corporation is derived principally
from the consideration for the issuance of
stocks
2 Borrowings-through
the
issuance
of
corporate bonds, a written promise by a
corporation to pay definite sum of money at a
future date, at fixed interest rate. The debt of a
corporation represented by a bond issued is
called funded debt which could either be
secured or unsecured
3 Profits and stock dividends- a corporation
could also get its capital from profits or
earnings which are reinvested in the business.
Sometimes, the corporation issues stock
dividends by which it retains part of the
corporate earnings. This is done by converting

Different Modes by Which Shares may be

Issued:
By subscription before or after incorporation,
to original, unissued stock
By sale of treasury stock after incorporation
for money, property, or service
By subscription to new stocks, when all the
original stocks have been issued and the
amount of the capital stock increased; and
By making a stock dividend

Limitations of the Consideration for Issue

of Stocks:
1 Shares of stock shall not be issued for a
consideration less than the par or issued price
thereof, except treasury shares so long as the
price is reasonable. The corporation may
receive more than par or issued value;
2 They shall not be issued in exchange for
promissory notes or future services;
3 When it is a property, tangible or intangible,
the value thereof shall be initially determined
by the incorporators or the board of directors,
subject to approval by the SEC; and
The issued price of no par value shares must be
fixed (last par. Sec. 62)
Negotiable instruments other than promissory
notes such as checks may be issued in payment
of stocks but they shall produce the effect of
payment only when they have been converted to
cash, or through the fault of the creditor that they
have been impaired. (art. 1249, Civil Code)
In the case of no par stocks, if the price is
not fixed by the articles of incorporation, the board
of directors can fix the price only when they are
authorized by the articles of incorporation or its
by-laws to do so. In the absence thereof, the
stockholders will determine the price of the no par
value stocks. Thus, the price of these stocks may
vary from time to time and usually fixed on the
basis of their book value. But, they may not be
issued for a consideration less than Php. 5.00 per
share.
Sec. 63. Certificate of stock and transfer of
shares.
Nature of Certificate of Stock:

A certificate of stock is a written instrument signed

by the proper officer of a corporation stating or
acknowledging that the person named therein is
the owner of a designated number of shares of its
stocks.

2
3

It indicates the name of the holder, the number,

kind and class of shares represented, and the
date of issuance.
The certificate is not stock in the corporation but is
merely evidence of the holders interest in the
corporation, his ownership of the share
represented thereby.
It is not essential to make one a stockholder in a
corporation.
Every stockholder has a right to have a proper
certificate issued to him as soon as he has
complied with the conditions which enable him to
one as by payment for his shares or the like.
A corporation cannot issue stocks more
than the authorized number of stocks in its
articles of incorporation. An over issued stock
is absolutely void. The possessor of the
certificate regardless of his good faith does
not become a stockholder.
Restrictions on Transfer of Stock:
1

3
4

A by-law that prohibits a transfer of stock

without the consent or approval of all the
stockholders or the president or the board of
directors is illegal and constituting undue
limitation on the right of ownership and in
restraint of trade.
A provision in the certificate that it is
transferable only to some person first
approved by the board of directors
unreasonably restricts the right of the
stockholder to dispose of his shares
The condition saying non-transferable that
appears on the certificates of stock is null and
void.
Corporations which will engage in any
business or activity that is reserved for Filipino
citizens are required to indicate in the articles
of incorporation and in all the certificates the
restriction against the transfer of stocks that
would reduce the ownership of Filipino to less
than the required percentage of capital stocks.

Effects of an Unregistered Transfer of

Shares:
1 It is valid and binding as between the
transferor and transferee
2 It is invalid in so far as the corporation is
concerned except when notice is given to
the corporation for purposes of registration
a A transferor has the right to vote and be voted
for, and has the right to participate in any
meeting
b The transferor has the right to dividends as
against the corporation but the transferor, as

the nominal owner of the share, is the trustee

for the benefit of the real owner
3

It is invalid as against corporate creditors, and

the transferor is still liable to the corporation.
The transfer of stock by a shareholder does
not relieve him from liability to creditors of the
corporation for unpaid subscription until the
transfer is consummated by being registered
in the books of the corporation; and
It is invalid as against the creditors of the
transferor without notice of the transfer.

Sec. 64. Issuance of stock certificates.

This section prohibits the issuance of
certificate of stocks to subscriber who have not yet
paid in full amount (with interest and expenses for
those who have delinquent shares)
CASE: Assume that A subscribes to 1000 shares at
par value of Php.20 each share of San Miguel
Corporation or a total subscription of Php.20,000. A
made an initial payment of Php. 500.
With this case, the board of directors of San
Miguel Corporation, at its option, may either apply the
Php.500 as full payment f0r 25 shares and issue a
stock certificate for the 25 shares, or as pro-rate
payment for the entire 1000 shares so that each
share is paid 50centavos in which case no certificate
of stock shall be issued until the balance of Php.
19,500 is fully paid. Basically, the first option cannot
be adopted if it is prohibited by the corporations bylaws.
In the case of stocks without par value, the
stockholder would not be entitled to the issuance of
the certificate until the full amount of his subscription
has been paid by him to the corporation.
Even holders of shares not fully paid, provided
they are not delinquent, shall have all the rights of a
stockholder, including the right to vote and to receive
dividends.
Liabilities of stockholder:
1 Liability to the corporation for unpaid
subscription;
2 Liability to the corporation for interest on
unpaid subscription;
3 Liability to creditors of the corporation on
unpaid subscription;
4 Liability for watered stocks;
5 Liability for dividends unlawfully paid; and
6 Liability for failure to create corporation.
Sec. 65. Liability of directors for watered stocks.
Where the par value or par value shares or
the issued value of no par value shares is Php. 100
and only Php. 80 is paid to the corporation but the

share is issued as fully paid, the share is considered

watered or fictitiously paid up to the extent of Php.
20 which is the difference between the consideration
paid and the par value or issued value of the shares
taken. In this case, the subscriber is liable for the
difference of Php. 20. The issue itself is not void, but
the agreement that the share shall be paid for less
than its par or issued value is void and illegal and
cannot be enforced.
Sec. 66. Interest on unpaid subscriptions.
The rate of interest for unpaid or delinquent
subscription shall be fixed by the by-laws of the
corporation. If no rate of interest is fixed in the bylaws, then the legal rate shall be applied, which, by
virtue of Central Bank Circular No. 416 issued on July
29, 1974, is equal to 12% per annum.
Sec. 67. Payment of balance of subscription.
Remedies to enforce payment of stock
subscription:
1 Extra-judicial sale at public auction- permitting
the corporation to put up unpaid stock for sale
and dispose of it for the account of the
delinquent subscribers. In this case, the
provisions of Section 67 to 69 are applicable
and should be followed.
2 Judicial Action- a remedy by court action
under section 70; and
3 Collection
from
cash
dividends
and
withholding of stock dividends- Authorized by
Sec. 43, paragraph 1.
Sec. 68. Delinquency sale.
CASE: Suppose L subscribed for 10 shares of stock
with a par value of Php. 10 each, paying Php. 50 as
initial payment. The balance of Php. 50 was called in
and L failed to pay and his stock was declared
delinquent. The interest expenses and the cost of
sale amounted to Php. 10, thereby making a total of
Php. 60. X and Y are the bidders.
X offers to pay Php.60 for 5 shares and Y,
Php.60 for 6 shares. In this case, X is the highest
bidder; L retains 5 shares and X will own 5 shares. All
the 10 shares will be deemed fully paid. X is entitled
to issuance of the certificate of stock for his 5 shares
after payment of his bid and L for the remaining 5
shares.
But if the bid is as follows: X, Php. 50 for 4
shares and Y, Php. 60 for 8 shares, then Y is the
highest bidder. L retains his 2 shares. Y is still the
highest bidder if his bid is Php. 60 for 10 shares
because he is the only one who offers to pay in full
amount due. In this case, all payments made by L on
his subscription are deemed forfeited.
Sec. 69. When sale may be questioned.

Grounds for the recovery of stock unlawfully sold

for delinquency:
1 Irregularity or defect in the notice of sale; and
2 Irregularity or defect in the sale itself of the
delinquent stock.
Sec. 70. Court action to recover unpaid
subscription.
As a general rule, a corporation may not
maintain a suit for the enforcement of unpaid
subscription without first making a call as provided by
law. (sec. 67)
The judicial remedy is limited to the amount
due on any unpaid subscription with accrued interest,
costs and expenses; therefore, the corporation cannot
recover any other claim against the subscriber.
Sec. 71. Effect of delinquency.
Stock delinquency does not deprive the holder
of all his rights as a shareholder except the right to be
voted for or be entitled to representation at any
stockholders meeting and as provided above and in
Sec. 24. He shall still be entitled to receive dividends
subject to the provisions of Sec. 43. But delinquent
stocks shall be subject to delinquency sale as
provided by Sec. 68
Sec. 72. Rights of unpaid shares.
Before unpaid shares become delinquent, the
holder is not considered to have violated any contract
with the corporation and, therefore, has all the rights
of a stockholder which rights include the right to vote.
Sec. 73. Lost or destroyed certificates.
Sec. 73 prescribes the procedure to be
followed for the issuance by a corporation of new
certificate(s) in lieu of those which have been stolen,
lost or destroyed. The corporation is not liable to any
person prejudiced by the issuance of new
certificate(s) of stock pursuant to the procedure
described except in the case of fraud, bad faith, or
negligence on the part of the corporation and its
officers.
Appraisal Right
(Sections 81-86)
Sec. 81. Instances of appraisal right.
Appraisal right of a stockholder - refers to his right to
demand payment of the fair value of his shares, after
dissenting from a proposed corporate action, in cases
provided by law.
The appraisal right can also be exercised by a
dissenting stockholder in case the corporation

decides to invest its funds in another corporation or

business or for any purpose other than its primary
purpose.

Payment of shares.

Sec. 82. How right is exercised.

This section provides a procedure on how the
dissenting stockholder can exercise his or her
appraisal right.

A written demand on the corporation should be

written by the dissenting stockholder within 30
days after the date on which the vote was taken
for payment of the fair value of his shares.
If the proposed corporate action is realized, the
corporation shall pay the stockholder the fair value
of his shares given that the corresponding
certificate(s) of stock is surrendered within 10
days after the stockholder demands payment of
his shares.
The stockholder shall transfer his shares to the
corporation upon payment of the agreed awarded
price.

Sec. 84. When right to payment ceases.

The stockholder shall not be paid the value of
his shares, his status as a stockholder shall be
restored, and all dividend distributions which would
have accrued on his shares shall be paid to him if any
of the following cases arises:

Failure to make a demand within the 30-day

period shall be deemed a waiver of the stockholders
appraisal right.

Determination of fair value of shares.

If the fair value of the shares is not agreed by

the withdrawing stockholder and the
corporation, it shall be determined by
arbitration.
Fair value of shares of the dissenting
stockholder determined as of the day before
the date the vote was taken
Payment made only if the corporation has
unrestricted retained earnings in its books to
cover it

Sec. 83. Effect of demand and termination of right.

Effects of exercise of right.
Once the dissenting stockholder demands
payment of the fair value of his shares

The stockholders voting and dividend rights

shall restored if he is not paid the amount
equivalent to his shares within 30 days after
reward.
His rights as a stockholder will be terminated if
he receives the payment.
If the proposed corporate action is
abandoned, his rights and status as a
stockholder shall thereupon be permanently
restored.

The stockholder withdraws his demand for

payment and the corporation consents it
The corporation abandoned or rescinded the
proposed corporate action
The Securities and Exchange Commission
disapproved the proposed corporate action
(in cases where its approval is necessary)
The Commission determines that such
stockholder is not entitled to appraisal right

Sec. 85. Who bears cost of appraisal.

They shall be borne as follows:
1. By the corporation
Provided that
the price offered by the corporation to pay the
stockholder is lower than the fair value
determined by the appraisers; or
the action is filed by the dissenting stockholder
to recover the fair value of his shares and his
refusal to receive payment is found justified by
the court
2. By the dissenting stockholder.
Provided that

All his rights accruing to such shares including

voting and dividend rights shall be suspended;
and
The stockholder shall be entitled to receive
payment of the fair value of his shares.

the price offered by the corporation is just

about the same as the fair value determined
by the appraisers; or

the same action is filed by the dissenting

stockholder and his refusal to accept payment
is found unjustified by the court

Sec. 86. Notation on certificate(s); right of

transferee.
Notation on certificate(s) of dissenting shares.

The dissenting stockholder is required to submit

the corresponding certificate(s) of stock to the
corporation within ten (10) days after demanding
payment for his shares. this is to note that such
shares are dissenting shares.
All the rights of the dissenting stockholder,
including voting and dividend rights, shall be
suspended except as provided in Sections 83 and
84.

Sec 97. Articles of Incorporation

Articles of incorporation may provide:

Transfer of dissenting shares.

The dissenting stockholder can transfer or sell
the shares represented by the certificate(s) bearing
such notation. In such case:

The transferee shall become a regular

stockholder.
He shall have the right to receive all dividend
distributions which would have accrued to
such shares.
By transferring his shares, the transferor
ceases to be a stock. This means that his right
as a dissenting stockholder to be paid the fair
value of the shares cease.
Title XII
Close Corporations

Sec. 96. Definition and Applicability of Title

Requisites of a close corporation:

(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 20 (2) All
the issued stock of all classes shall be subject
to one or more specified restrictions
on transfers (3) The corporation shall not list in
any stock exchange or make any public
offering of any of its stock of any class.

A Corporation shall not be deemed a close

corporation when at least two-thirds (2/3) of its

voting stock is owned or controlled by another

corporation which is not a close corporation
Corporations that cannot be incorporated as a
close corporation: Mining, oil companies,
stock exchanges, banks, insurance
companies, public utilities, educational
institutions, and corporations declared to be
vested with public interest.

(1) Classification of shares or rights and the

qualifications of owning or holding the same and
restrictions on transferring (2) classification of
directors into one or more classes, each of whom
may be voted for and elected solely by a
particular class of stock (3) a greater quorum or
voting requirements in meetings of stockholders
and directors.
May provide that the business be managed by
stockholders rather than a board of directors.

Sec 98.Validity of restrictions on transfer of shares

Section 98 imposes two conditions for the validity of
restrictions on the right to transfer shares, namely:
(1) Such restrictions must appear in the
articles of incorporation and in the by-laws, as
well as the certificate of stock, otherwise, they
shall not be binding on any purchaser thereof
in good faith; and (2) They shall not be
onerous than granting the existing
stockholders or the corporation the right of first
refusal or option to purchase the shares of the
transferring stockholders with reasonable
terms, conditions or period stated herein.
Sec 99. Effects of issuance or transfer of stock of a
close corporation in breach of qualifying conditions

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.

This shall not be applicable if the transfer of stock

has been consented by all the stockholders of the
close corporation, or if the close corporation has
amended its articles of incorporation.

Sec. 100. Agreements by stockholders. 1. Agreements by and among stockholders executed

before the formation and organization of a close
corporation, signed by all stockholders, shall survive
the incorporation of such corporation and shall
continue to be valid and binding between and among
such stockholders, if such be their intent, to the extent
that such agreements are not inconsistent with the
articles of incorporation, irrespective of where the
provisions of such agreements are contained.
2. An agreement between two or more stockholders
may provide that in exercising any voting rights, the
shares held by them shall be voted as therein
provided, or as they may agree, or as determined in
accordance with a procedure agreed upon by them.
3. No provision in any written agreement signed by
the stockholders, relating to any phase of the
corporate affairs, shall be invalidated as between the
parties on the ground that its effect is to make them
partners among themselves.
4. A written agreement among some or all of the
stockholders in a close corporation shall not be
invalidated on the ground that it so relates to the
conduct of the business and affairs of the corporation
as to restrict or interfere with the discretion or powers
of the board of directors.
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.
Sec. 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

2. All the stockholders have actual or implied

knowledge of the action and make no prompt
objection thereto in writing
3. The directors are accustomed to take informal
action with the express or implied acquiescence of
all the stockholders
4. All the directors have express or implied
knowledge of the action in question and none of
them makes prompt objection thereto in writing.
Ratification cannot take place where the action
taken at the meeting held without proper call or
notice beyond the corporate powers of the
corporation
Sec. 102. Pre-emptive right in close corporations.
The pre-emptive right of stockholders in close
corporations shall extend to all stock to be issued,
including reissuance of treasury shares, whether
for money, property or personal services, or in
payment of corporate debts, unless the articles of
incorporation provide otherwise.
Sec. 103. Amendment of articles of incorporation.
Any amendment to the articles of incorporation
which seeks to delete or remove any provision
shall not be valid or effective unless approved by
the affirmative vote of at least two-thirds (2/3) of
the outstanding capital stock, whether with or
without voting rights, or of such greater proportion
of shares as may be specifically provided in the
articles of incorporation for amending, deleting or
removing any of the aforesaid provisions, at a
meeting duly called for the purpose.
Sec. 104. Deadlocks. - If the directors or
stockholders are so divided respecting the
management of the corporation's business and
affairs that the votes required for any corporate
action cannot be obtained, with the consequence
that the business and affairs of the corporation
can no longer be conducted to the advantage of
the stockholders generally, the Securities and
Exchange Commission, upon written petition by
any stockholder, shall have the power to arbitrate
the dispute.
In the exercise of such power, the Commission
shall have authority to make such order as it
deems appropriate, including an order: (1)
canceling or altering any provision contained in
the articles of incorporation, by-laws, or any
stockholder's agreement; (2) canceling, altering or
enjoining any resolution or act of the corporation

or its board of directors, stockholders, or officers;

(3) directing or prohibiting any act of the
corporation or its board of directors, stockholders,
officers, or other persons party to the action; (4)
requiring the purchase at their fair value of shares
of any stockholder, either by the corporation
regardless of the availability of unrestricted
retained earnings in its books, or by the other
stockholders; (5) appointing a provisional director;
(6) dissolving the corporation; or (7) granting such
other relief as the circumstances may warrant.
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.
Sec. 105. Withdrawal of stockholder or dissolution
of corporation.
Any stockholder of a close corporation may, for
any reason, compel the said corporation to
purchase his shares at their fair value, which shall
not be less than their par or issued value, when
the corporation has sufficient assets in its books
to cover its debts and liabilities exclusive of capital
stock.
Provided, That any stockholder of a close
corporation may, by written petition to the
Securities and Exchange Commission, compel the
dissolution of such corporation whenever any of
acts of the directors, officers or those in control of
the corporation is illegal, or fraudulent, or
dishonest, or oppressive or unfairly prejudicial to
the corporation or any stockholder, or whenever
corporate assets are being misapplied or wasted.

DISTINGUISH CLOSE CORPORATIONS

FROM REGULAR CORPORATIONS.

No.
of
stock
holde
rs
Mana
geme
nt

Meeti
ngs

Quor
um
and
Votin
g

Preempti
ve
right

Buyback

Close
Corporati
on

Not more
than 20
(Sec. 96)

Can be
managed
by the
stockhold
ers (Sec.
97)

May be
dispensed
with (Sec.
101)

Greater
quorum
and voting
requireme
nts
allowed.
(Sec. 97)
Extends to
all stock,
including
treasury
shares
(Sec. 102)

Must be >
par value

of
share
s
"Re
gula
r"
Cor
pora
tion

Resol
ution
of
deadl
ocks

No
limit

Man
aged
by
Boar
d of
Dire
ctors
Actu
al
meet
ings
are
requi
red.

(Sec. 105)

Doe
s not
exte
nd to
treas
ury
shar
es.
May
be <

Disso
lution

par
valu
e

SEC has
the power
to
arbitrate
disputes
in case of
deadlocks
, upon
written
petition by
any
stockhold
er. (Sec.
104) This
includes
the power
to appoint
a
provisiona
l director,
as well as
to dissolve
the
corporatio
n.

May be
petitioned
by any
stockhold
er
whenever
any of the
acts of the
directors
or officers
or those in
control of
the
corporatio
n is illegal,
fraudulent,
dishonest,
oppressiv
e or
unfairly
prejudicial
to the

Gen
erall
y
requi
res a
2/3
vote
of
the
stoc
khol
ders
and
a
majo
rity
vote
of
the
BOD
.
24

corporatio
n or any
stockhold
er, or
whenever
corporate
assets are
being
misapplie
d or
wasted.
(Sec. 105)

Title XIII
Special Corporations
Chapter I. Educational Corporations

Sec. 106. Incorporation.

(Not
e
how
ever
that
in
case
of
invol
untar
y
diss
oluti
on
unde
r
Sec.
121,
a
corp
orati
on
may
be
diss
olve
d by
the
SEC
upon
filing
of a
verifi
ed
com
plain
t and
after
prop
er
notic
e
and
heari
ng.)

Educational corporations shall

be governed by special laws and by the
general provisions of this code.

Educational Corporation
- A stock or non-stock corporation organized
to provide facilities for teaching or
instruction.
- Normally maintain (1) a regular faculty and
curriculum and (2) a regular organized
body of pupils or students, or attendance at
the place where the educational activities
are carried on.
Law Application

Education Corporations
Special corporations governed by
special laws, and by the general provisions of
the Corporation Code.
Organized as stock corporations
governed by the provisions on Stock
Corporation as to number and term of
directors.

Sec. 107. Pre-requisites to Incorporation.

Except
upon
favourable
recommendation of the Ministry of Education
and Culture (Department of Education, Culture
and Sports), the securities and Exchange
Commission shall not accept or approve the
articles of incorporation and by-laws of any
educational institution.

Incorporation
- Shall be governed by the provisions of the
Code.

Sec. 108. Board of Trustees.

Trustees
of
educational
institutions
organized
as
non-stock
corporations.

Rules:
1 For non-stock educational corporations.
Number of trustees shall not be less than
five (5) nor more than fifteen (15);
It shall be in multiples of five (5);
Unless otherwise provided by-laws, the term
of office of the trustees shall be staggered
with one (1) year interval;
Trustees subsequently elected shall have a
term of five (5) years;
25

 Trustees elected to fill vacancies occurring

before expiration of term shall hold office
only for the unexpired period;
Majority of the trustees shall constitute a
quorum for the transaction of business; and
Powers and authority of trustees shall be
defined by-laws.

2
3
4

For institutions organized as Stock

Corporations, the number and term of
directions shall be governed by the
provisions on Stock Corporation.

Educational corporations may, through articles

of incorporation or by-law, designate their
governing boards by any name than as board
of trustees.
Chapter II. Religious Corporations
Sec. 9. Classes of Religious Corporation.
- Religious
corporations
may
be
incorporated by one or more persons.
Such corporations may be classified into
corporations sole and religious society.
- Religious corporations shall be governed
by this Chapter and by the general
provisions on non-stock corporations
insofar as they may be applicable.
Sec. 10. Corporation Sole.

For
the
purpose
of
administering and managing, as trustees, 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.
Sec. 11. Articles of Incorporation.

In
order
to
become
a
corporation sole, the chief archbishop, bishop,
priest, minister, rabbi or presiding elder of any
religious denomination, sect or church must file
with the Securities and Exchange Commission
articles of incorporation setting forth the
following:
That he is the chief archbishop, bishop, priest,
minister or rabbi or presiding elder of his
religious denomination, sect or church and that
he desires to become a corporation sole;

That the rules, regulations and disciplines are

not inconsistent with his becoming a
corporation sole and do not forbid it;
That he is charged with the administration of
the temporalities and the management of the
affairs, estate and properties;
The manner in which any vacancy occurring in
the office is required to filled, according to the
rules, regulations or discipline to which he
belongs; and
The place where the principal office of the
corporation sole is to be established and
located, which place must be within the
Philippines.

Articles of Incorporation may include any other

provision not contrary to law for the regulation
of the affairs of the corporation.
Sec. 112. Submission of the articles of
incorporation.
Must be verified, before filing, by affidavit or
affirmation of the chief archbishop, bishop,
priest, minister, rabbi or presiding elder and
accompanied by a copy of the commission,
certificate of election or letter of appointment of
such chief archbishop, bishop, priest, minister,
rabbi or presiding elder, duly certified to be
corrected by any notary public.

From and after the filing with the Securities

and Exchange Commission of the said articles
of incorporation, 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 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 thereto).

Sec. 113. Acquisition and alienation of

property.

Any corporation sole:

26

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.

- May mortgage or sell real property held by it

upon obtaining an order for the purpose from
the Court of First Instance (Regional Trial
Court) of the province where the property is
situated.

Application for leave to mortgage or sell must

be made by petition, duly verified, by the
archbishop, bishop, priest, minister, rabbi or
presiding elder acting as corporation sole.

May be opposed by any member of the

religious denominations, sect or church
represented by the corporation sole: Provided,
that in cases where the rules, regulations and
discipline regulate the method of acquiring,
holding, selling and mortgaging real estate and
personal property, such shall control and the
intervention of the courts shall not be
necessary.

Sec. 114. Filling of vacancies.

The successors in office of any chief

archbishop, bishop, priest, minister, rabbi or
presiding elder in a corporation shall become
the corporation sole on their accession to
office.

- 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(s) authorized and empowered by the rules,
regulations or discipline of the religious
denomination, sect or church presented by the
corporation sole to administer the temporalities
and manage the affairs, estate and properties of
the corporation sole, shall exercise all the powers
and authority of the corporation sole.

1
2
3
4

Sec. 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.

Declaration of dissolution shall set forth the:

Name of the corporation;
Reason for dissolution and winding up;
Authorization for the dissolution of the corporation
by the particular religious denomination, sect or
church;
Names and addresses of the persons who are to
supervise the winding up of the affairs of the
corporation.

Upon approval of such declaration of

dissolution, the corporation shall cease to carry
on its operations except for the purpose of
winding up its affairs.

Sec. 116. Religious societies.

Any religious society or religious order, or any

diocese, synod, or district organization of any
religious denomination, sect or church, unless
forbidden by the constitution, rules, regulations or
discipline of the religious denomination, sect or
church of which it is a part, or by competent
authority may, upon written consent and/or by an
affirmative vote at a meeting called for the purpose
of two-thirds (2/3) of its temporalities or for the
management of its affairs, properties and estate by
filing with Securities and Exchange Commission,
articles of incorporation verified by the affidavit of
the presiding elder, secretary, or clerk or other
member of such religious society or religious
order, or diocese, synod, or district organization of
the religious denomination, sect or church, setting
forth that:

1 The it is a religious organization of some

religious denomination, sect or church;
2 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 The incorporation of the it desiring to
incorporate is not forbidden by competent
authority or by the institution, rules,
regulations or discipline of the religious
27

4
5
6

denomination, sect or church of which it

forms a part;
It desires to incorporate for the
administration of its affairs, properties and
estate;
The place where the principal office of the
corporation is to be established and
located must be within the Philippines; and
The names, nationalities and residences of
the trustees elected by them to serve the
first year or such other period as may be
prescribed by the laws of it, the board of
trustees to be not less than five (5) nor
more than fifteen (15).

Religious Corporation defined.

A corporation composed entirely of spiritual

persons and which is erected for the furtherance
of a religion or for perpetuating the rights of the
church or for the administration of the church or
religious work or property.

Applicable provisions.

Classified by the Code as special corporations

and are not to be confused with an ordinary nonstock corporation organized for religious purpose.
Primarily governed by Sections 109 to 116 and by
the general provisions of Title XI on non-stock
corporations insofar as they may be applicable.

Summary
Classes of Religious Corporation
1 Corporation Sole
a Filing articles of incorporation and other
documents.
b Effect of filing.
c Acquisition and alienation of property.
d Filling of vacancies.
e Term of existence.
f Dissolution.
2 Religious Society

* Roman Catholic Church is not

registered like other religious societies or
churches in the Philippines because it has
been recognized as a juridical person since
time immemorial.

Title XIV

Sec. 117. Methods of dissolution. A

corporation formed or organized under the
provisions of this Code may be dissolved
voluntarily or involuntarily.

Dissolution as applied to corporation;

signifies the extinguishment of its franchise to
be a corporation and the termination of its
corporate existence.

A corporation may come to an end and its life

extinguished only by the act or with the
consent of the State by which it was
established.

Two legal steps in corporate dissolution:

The termination of the corporate existence at

least as far as the right to go on doing ordinary
business is concerned.
The winding-up of its affairs, the payments of
its debts, and the distribution of its assets
among the shareholders or members and
other persons in interest.

Methods or causes of corporate

dissolution:

Voluntary- may be effected:

a By the vote of the board of directors/
trustees and the stockholders/members,
where no creditors are affected.
b By judgment of the Securities and
Exchange Commission after hearing of
petition for voluntary dissolution, where
creditors are affected.
c By amending the articles of incorporation
to shorten the corporate term.
d In the case of the corporate sole, by
submitting to the Securities and Exchange
Commission a verified declaration of
dissolution for approval.
Involuntarily may be effected:
a By expiration term provided for in the
original articles of incorporation.
b By legislative enactment
c By failure to formally organize and
commence the transaction of its business

DISSOLUTION
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within two (2) years from date of

incorporation
d By order of the Securities and Exchange
Commission.
The change of name of a corporation does not
result in its dissolution.

Dissolution by expiration of term

Sec. 118. Voluntary dissolution where no

creditors are affected

Voluntary dissolution where no creditors

affected

How effected
A private corporation may be dissolved
voluntarily without the necessity of going to the
Securities and Exchange Commission or the
court in case the dissolution does not affect the
rights of any creditor against such corporation.
Issuance of certificate of dissolution
The Securities and Exchange Commission is
now required to issue a certificate of
dissolution.

How effected a corporation is dissolved

upon the expiration of the period as fixed in
the original articles of incorporation, unless
said period is extended by an amendment
of the articles of incorporation.
Extension of corporate existence from
corporation Upon dissolution of a
corporation by expiration of corporate term
provided for in the original or amended
articles of incorporation, it ceases to exist
de facto or de jure except only for
purposes connected with winding-up or
liquidation. Its corporate existence or
juridical personality may no loger be
extended.

Sec. 119. Voluntary dissolution where

creditors affected - Where the dissolution of a
corporation may prejudice the rights of any
creditor, a 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 its dissolution was
resolved upon by the affirmative vote of the
stockholders representing at least 2/3 of the
outstanding capital stock or by at least 2/3 of the
members called for that purpose.

Dissolution by shortening the terms

1 How effected A voluntary dissolution is effected if
the articles of incorporation is amended to shorten
the corporate term.
2 Publication of notice of dissolution An affidavit of
publication of notice of dissolution of the
corporation must be executed by the publisher of
the print medium.

Dissolution by legislative enactment

Reserved power of Congress to dissolve

corporations any or all corporation may be
dissolved by legislative enactment.
Limitations on the power
a Under the constitution, the amendment,
alteration, pr repeal of the corporate franchise
of a public utility shall be made only when the
common good so requires.
no right or remedy in favor of or accrued against
any corporation, its stockholders, members,
directors, trustees, or officers nor any liability
incurred by any such corporation, its stockholders,
members, directors, trustees, or officers, shall be
removed or impaired either by the subsequent
amendment or repeal of this code or any part or
portion thereof.

Dissolution by failure to formally

organize

It a corporation does not

formally organize and commence the
transaction of its business or the construction
of its works within two years from the date of
its incorporation, its corporate powers cease
and the corporation shall be deemed
dissolved, except when such failure is due to
causes beyond its control. A complete
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organization from the very beginning is

necessary in order to give it a legal existence.

Collateral attack of a dissolved

corporation

Dissolution by order of the Securities and

Exchange Commission

1
2
3
4

Effect of insolvency or bankruptcy

on corporate existence

Violations by a corporation
Deadlocks in a close corporation
Mismanagement of a close corporation
Suspension or revocation of certificate of
registration of an corporation, upon grounds
provided by law, including the following:
Fraud in procuring its certificate of registration
Serious misrepresentation as to what the
corporation can do or is doing to the great
prejudice of, or damage to, the general public;
Refusal to comply or defiance of any lawful
order of the Commission restraining
commission of acts which would to a grave
violation of its franchise
Continuous inoperation for a period of at least
5 years
Failure to file by-laws within the required
period
Failure to required reports in appropriate forms
as determined by the Commission within the
prescribed period.
A corporation sole may be dissolved and its
affairs settled voluntarily by submitting to the
Securities and Exchange Commission a
verified declaration of dissolution. Upon
approval of such declaration by the
Commission, the corporation shall cease to
carry on its operation except for the purpose of
winding-up its affairs.

Bankruptcy it means that condition

of an individual or organization where the total
liabilities exceed the total assets available for
their settlement.
While the possession of assets is necessary to
the creation of a stock corporation, the loss of
all its property does not affect its existence.
However, the inability to exercise its corporate
powers by reason of insolvency might
constitute such non-user as to warrant a
decree of dissolution.

Effect of want of officers on

corporate existence

The want of officers by reason of failure

to elect or by reason of death does not in itself
work dissolution of the corporation or operate
as a surrender of the corporate franchise.

A corporation which had duly

organized itself, but failed to exercise its
corporate rights and franchise within 5 years
from the date of incorporation is not
automatically dissolved. The continuous in
operation of a corporation for a period of at
least 5 years after it has commenced the
transaction of its business; however, is a
ground for the suspension or revocation of its
registration by the Securities and Exchange
Commission.

Insolvency is the inability or failure to

pay debts as they become due.

proper notice and hearing on grounds

provided by existing laws, rules and
regulations.

Sec. 121. Involuntary dissolution a

corporation may be dissolved by the
Securities and Exchange Commission
upon filing of a verified complaint and after

a
b

d
e
f

Effects of dissolution

1. The corporation ceases as a body

corporate to continue the business for which it
was established.

2. The corporation continues as a body

corporate for 3 years for purposes of windingup or liquidation.
30


3. Upon the expiration of the windingup period of 3 years, the corporation ceases to
exist for all purposes and as a general rule; it
can no longer sue and be sued as such.

for the payment of the debts of the corporation,

to which the creditors look fir satisfaction. Until
the liquidation of the corporation, no part of the
subscribed capital may be returned or released
to the stockholders without violating this
principle.

A dissolved corporation thus continues to exist

thus continues to exist but only for a limited
purpose and for a limited time

Sec. 122. Corporate liquidation

Liquidation - as applied to a corporation

means the winding-up of the affairs of the
corporation, by reducing its assets into money,
settling with creditors and debtors, and
apportioning the amount of profit and loss.

Methods of corporate liquidation

1. Liquidation by the corporation itself.

1. When the corporation is insolvent,

the creditors of the corporation are entitled to
have all its assets distributed first among them
according to their rights and priorities.

2. Stockholders/ members, directors/

trustees, or officers of the corporation who are
also its creditors as a result of a legitimate or
proper loan or claim must be paid next.

3. The remaining assets are to be

distributed among the stockholders or
members in proportion to their shareholdings
or interests in the absence of any provision to
the contrary.

2. Liquidation by a duly appointed

receiver.

3. Liquidation by trustees to whom the

board of directors ir trustees had conveyed the
corporate assets.

Distribution of corporate assets

1. General rule or exception

No corporation shall distribute

any of its assets or property except upon lawful
dissolution and after payment of all its debts
and liabilities.

2. Trust fund doctrine

The "trust fund" doctrine

considers the subscribed capital as a trust fund

Priority of application of assets

4. Upon 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.

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