7. C.

is dissolved and its assets are transferred to another corpo to avoid a

TITLE I financial liab of first corpo
GENERAL PROVISIONS
Definitions and Classifications
Section 1. Title of the Code. - This Code shall be known as "The Corporation Code of 2. Created by operation of law
the Philippines".cralaw Cant exist by agreement
History: Requires SPECIAL AUTHORITY or GRANT BY STATE(legislative dep)
Replaced present Corpo Law Act No. 1459 either by:
Batas Pambansa Blg 68 May 1, 1980 o SPECIAL incorporation law- directly creates corp; private
SEEKS: to establish a new concept of business corporations so that they corps controlled by gov or any subdivision/instrumentality
are not merely entitires for private gain but effective partners of National o GENERAL incorporation law- CCP
Gov in spreading the benefits of capitalism for the social and economic EXCEPTION: CORPORATION BY PRESCRIPTION - to necessary
development of the nation. legislative grant/authority are. roman catholic church
Congress shall not, except by general law, provide formation, org,
regulation of private corporations. Government owned or controlled corpos 3.Has right of succession
may be created or established by special charters in the interest of the CONTINOUS EXISTENCE irrespective of DEATH, WITHDRAWAL,
common good and subject to the test of viability. INSOLVENCY, INCAPACITY of individual members or stockholders and
Scope of the Code: regardless of transfer of interest or shares of stock
1. Provides for the incorporation, organization and regulation of private Distinctions Partnership Corporation
corporations, both stocks and non stock, including educational and
religious corporations
1. Manner of creation Agreement Law/operation of law

2. Defines powers and and provides their dissolution 2. Number of Atleast two Atleast five(except corpo
3. Fixes the duties and liabilities of directors or trustees and other officers incorporators sole)
thereof
4. Declares rights and liabilities of stockholders or members 3. Commencement of From date of execution of From date of issuance of
juridical personality contract incorporation by SEC
5. Prescribed conditions under which corpos including foreign corpos may
transact business 4. Powers Any not contrary to law, Expressly granted by law
6. Provides penalties for violations of code morals, good customs, or implied from granted or
7. Repeals all laws and part of laws in conflict and inconsistent with the Code public order, public policy incidental to existence

5. Management When not agreed, every Vested in Board of
Sec. 2. Corporation defined. - A corporation is an artificial being created by partner is agent of director or Trustees
operation of law, having the right of succession and the powers, attributes and partnership
properties expressly authorized by law or incident to its existence.
Refers only to private corpos or corporations under law 6. Effect of Can sue copartner Suit against member of
mismanagement BOD or trustees who
ATTRIBUTES OF A CORPORATION mismanages must be in
1. Artificial being the name of corporation
7. Right of succession None Has
o Legal theory for:
Convenience
8. Extent of liability to Yes, personally and Liable only to extent of
3rd person subsidiarily (sometime investment as
Promote ends of justice (cant be within reason) solidarily) except limited represented by shares
o Lawful purpose, not fraud or illegality.
partners subscribed by them
o In case unlawful, individual = corporations. (identical/no
separate corporate existence) 9. Transferability of Consent of all partners bc Right to transfer share
interest delectus personarum without prior consent of
Doctrine of piercing the veil fo corporate entity
other
Disregarding the fiction of corporate entity
Doctrine of alter ego 10. Term of existence any Not more than 50 years

11. Firm name Limited partnership is Any as long as not

CONSEQUENCES OF THIS LEGAL CONCEPT OF CORPORATE ENTITY required to add Ltd idenitical, contrary to
a. Corpo not liable for debts of stockholders; stockholders not existing laws, not
individually liable for corpos debts. Can lose no more than deceptively similar
their investment.
b. May acquire and posses property of all kinds, incur 12. dissolution Anytime by will of any/all Only by consent of State
obligations, bring civil and criminal actions in its own name 13. Laws which govern Civil Code Corporation Code
c. Property conveyed/acquired by the corpo = corpos prop Corpo is NOT IMMORTAL
d. Ccontracts by appointed officers = contracts of corpo
Life is LIMITED to not exceeding 50 YEARS from date of incorporation
e. Tax exempt cant be extended to dividends paid by
unless sooner dissolved/extended
corporations to stockholders (unless stated)
f. Corpo has no personality to bring an action FOR and IN Corpos created by SPECIAL LAWS have RIGHT OF SUCCESSION for
BEHALF of its stockholders or members for the purpose of terms provided in laws creating them
recovering property of s/h
g. Unchanged and unaffected by change in individual 4. Only powers, attributes, and properties expressly authorized by law
membership. Will exist even if all stockholders ide. or incident to its existence
EXERCISE only such POWERS GRANTED BY LAW (may be implied
Q: What are the instances where fiction is disregarded? from express grant by law) and those INCIDENTAL OR ESSENTAL l to
A: Courts have pierced the veil of corporate entity considering the corporation as an CORPORATIONS EXISTENCE may be exercised
association persons or where two corporations are considered as one, being part or a. Railroad corp has incidental power to build railroads bec
instrumentality of other: power is necessary
1. C. functions for benefit of one person (controlling individuals benefit) b. Agricultural corpo has implied authority to buy agricultural
2. C. is an instrumentality of individual sh (not to disregard artificial being, but lands bc reasonably appropriate to express authority
outside purposes of legal entity ex. s/h must answer corpo debt) c. No necessary connection with the corpos legit business = no
3. Domestic C. is controlled by aliens(control test of nationality) power (cement corpo buy agricultural lands)
4. C. is organized by insolvent debtor to defraud his creditors (itatago prop sa c.)
5. Subsidiary company is created by a parent company merely as an agency of the Partnership vs. Corporation
latter (substantially the same s/h or officers or same system of operation)
6. C. is formed by a person to evade individual contract Similarities of Partnership and Corporation
 1. Juridical personality b. Subsidiary one which which is related to another corp that the
2. Can act only through agents majority of its directors can be elected either directly or indirectly by
3. Composed of aggregate of individuals (except corpo sole) such other corp (binoboto)
4. Distributes profit to those who contribute capital (although industrial 8. Whether true sense or limited sense
shares too) - True corporation exist by statutory authority
5. Can be organized only when theres a law authorizing its org - Quasi corporation exist without formal legislative grant, an
6. Taxable exception to the general rule that corp exist only by authority
a. Corporation by prescription - exercised corporate
Advantages and Disadvantages of Business Corporation powers for an indefinite period without interference on
Advantages Disadvantages the part of the sovereign power and which by fiction of
1. Legal capacity to act as legal Complicated formation and management law is given status of corp (RomanCathChurch)
unit b. Corporation by estoppel- either de jure or de facto,
2. Continuity of existence bc of High cost of formation and operation in reality not a corpo, but considered a corporation in
non dependence on lives of relation to those who by reason of their acts or
admissions are precluded from asserting that it is not a
those who compose corporation
3. Centralized management by Credit is weakened by limited liability 9. Public or private
BOD a. Public government
4. Credit is strengthened by Lack of personal element in b. Private private purpose, benefit, end it may be ether a
continuity of existence transferability of shares sotck or non stock corpo, government owned or controlled
5. Standardized creation, or, Greater degree of governmental control corpo or quasi public corp
management, dissolution as and supervision than any business org
they are governed under
Test for distinction for public and private is:
Gen Incorpo Law
Purpose
6. Makes feasible gigantic Stockholders voting rights have become
a. Public political or public purpose connected with the admin of gov
financial enterprise since theoretical particularly in large corpos provinces, cities, municapitalites, barangays
many individuals invest their bec of the use of proxies and widespread *code got eliminated and became solely for private
separate funds to enterprise ownership b. Private- whole or substantially whole interest may belong to the state
7. Limited liability of Stockholders have little voice in conduct a. Governments owned/ controlled corporation
shareholders of business - special law or general corpo law
8. Not general agents In large corporations, management and - owned or controlled by the gov directly thru a parent
control are separate from ownership corp or subsidiary to the extent of atleast a majority of
9. Stocks can be transferred its outstanding capital stock or of its outstanding voting
capital stock.
without consent
- may be stock or non stock and performing
governmental or proprietary functions. (Not gov
portion of state)
Sec. 3 Classes of corporations. - Corporations formed or organized under this Ex. GSIS, NPC, PNR, PCSO
Code may be stock or non-stock corporations. Corporations which have capital b. Quasi public corporation
stock divided into shares and are authorized to distribute to the holders of such - Accepted from the state the grant of a franchise or
shares dividends or allotments of the surplus profits on the basis of the shares contract involving the rendition or performance of some
held are stock corporations. All other corporations are non-stock corporations. public duties or service but which are organized for
profit.
Classifications of corporations Ex. Public utilities or public service corp (water electricity tel)
Private corporations are:
1. Stock corporation ordinary business operated for profit which may be
distributed in the form of dividends to stockholders on the basis of Sec. 4. Corporations created by special laws or charters. - Corporations created
invested capital ( 2 elements necessary) by special laws or charters shall be governed primarily by the provisions of the
2. Non stock corporation do not issue stock, not for profit, but for public special law or charter creating them or applicable to them, supplemented by the
good and welfare (religious, social, literary, scientific civic and pol org. no provisions of this Code, IN SO FAR AS THEY ARE APPLICABLE.
capital stock. Capital is from contributions and donations
NOTE:
Other classifications:
Authorizes the creation of private corps by special laws or charters,
1. As to number of persons
A. Corporation aggregate more than 1 member or corporator Enactment is subject to constitutional limitation that such corpo shall be
B. Corporation sole religious corp which consists of one member or owned or controlled by government or any subdivision or
corporator only and his successors such as bishop instrumentality thereof
2. Religious purpose or not
a. Ecclesiastical corpo religious purpose Reason for restriction:
b. Lay corporation other than religious, eleemosynary or civil 1. To prevent the granting of special privileges to one body of
3. Charitable purpose: men without giving all others the right to obtain them in the
a. Eleemonsynary charitable purpose same conditions
b. Civil corpo business/profit 2. Partly to prevent bribery and corruption of the legislature
4. As to state under law
a. Domestic corpo law of Ph In so far as they are applicable either bec they are not inconsistent with
b. Foreign corpo exist under any law aside Ph or are expressly made applicable by special law
5. Legal right to corporate existence
a. De jure exist in fact and in law
b. De facto exist in fact but not in law Sec. 5. Corporators and incorporators, stockholders and members. -
6. Open to public or not Corporators are those who compose a corporation, whether as stockholders or
a. Close corpo limited to selected persons or members of family as members. Incorporators are those stockholders or members mentioned in the
b. Open corpo one which is open to any person who may wish to articles of incorporation as originally forming and composing the corporation
become a stockholder or member thereto and who are signatories thereof.
7. Relation to another copo Corporators in a stock corporation are called stockholders or shareholders.
a. Parent or Holding Corporation related to another corp that it Corporators in a non-stock corporation are called members.
has power either directly or indirectly to elect the majority of the
directors of such other corp (boboto) Components of a corporation
 1. Corporators- composes the corporation whether stockholders members
or incorporators
2. Incorporators mentioned in AOI originally forming and composing the
corpo and who executed and signed the AOI as such. All incorporators are
corporators but a corporator is not necessariy a incorporator; ONLY
NATURAL PERSON
Function: to incorporate the corporation and to enable it to become a body
politic and corporate under law
3. Stockholders - owners of shares of stocks, owners of corpom
shareholders, corporators in stock corpo. MAY BE NATURAL OR
JURIDICAL PERSON
4. Members or corporators w/o stock no capital stock, composed of
stockholders and members and latter referring to incorporators who dont
own shares of stock. Not required that corporator be a subscriber as long
as min capital req are complied. BUT NOW CODE ELIMINATES THIS
RULE. ALL INCORPORATORS IN A STOCK CORPO MUST OWN OR
ATLEAST BE A SUBSCRIBER to atleast ONE SHARE OF CAPITAL
STOCK.
3 other classes
a. Promoter-persons who bring about or cause to formation and org of a
corporation y bringing together incorpo or persons interested in enterprise,
procuring subscriptions or capital for the corporation and setting in motion
the machinery wc leads to the incorporation of the corporation itself.
Groundwork for coporate existence
b. Subscriber- agreed to take and pay for orig unissued shares of corpo
formed or to be formed, subscribers may not be stockholders. They
become stockholders from the time their subscription are accepted.
c. Underwriter a person usually an investment banker who
a) has agreed alone or with others to buy at stated terms
an entire issue of securities or a sustantital part thereof
b) guaranteed the sle of an issue by agreement to buy
from the issuing party any unsold portion of stated price
c) agreed to use his best efforts to market all or part of
an issue
d) has offered for sale stock he has purchased from a
controlling stockholder
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 be treated as capital
and shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring
compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the
certificate of stock, each share shall be equal in all respects to every other
share.
Where the articles of incorporation provide for non-voting shares in the cases
allowed by this Code, the holders of such shares shall nevertheless be entitled
to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation or business in
accordance with this Code; and
8. Dissolution of the corporation.
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.
POWER TO CLASSIFY SHARES
Shares 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 are may be stated in the articles of incorporation
UNLESS RESTRICTED by the law or the provisions of its charter a corporation may
therefore issue such classes or series of shares as the prospects and needs of its
business may require.
Series refers to a subdivision of a class of shares.
A corporation however MAY ISSUE ONLY CLASS OF SHARE.
There must ATLEAST ONE CLASS OF STOCK
Corporation must have ATLEAST ONE CLASS OF STOCK WITH VOTING RIGHTS
Primary classification:
a. Common
b. Preferred
Shares of stock usually DIFFER with respect to voting rights, dividend rights, and in
case of liquidation, rights to corporate assets.
WHEN CLASSIFICATION OF SHARES MAY BE MADE
a. By the incorporators- CLASSES and NUMBER OF SHARES a corpo shall
issue as stated in articles of inco filed in SEC
b. By the board of directors and the stock holders AFTER EXISTENCE, Bod
and stockholders may ALTER and AMEND Articles of inco pursuant to sec 16.
*If amendment RESTRICTS the rights of any class of shares or authorizes
preferences in any SUPERIOR than those outstanding shares of any class,
stockholders shall have the RIGHT TO DISSENT and DEMAND PAYMENT of
FV of shares (sec 81)
CLASSIFICATION TO COMPLY WITH CONSTITUIONAL OR LEGAL
REQUIREMENTS
PURPOSE: Insuring compliance with constitutional or legal requirements
Ex. Prescribed min % of capital stock by fil citizens in corpo
Max limits of stockholdings in corpo declared by law to be vested with public interest
DOCTRINE OF EQUALITY OF SHARES without provision in articles of inco and
cert of stock to the contrary, all stocks enjoy equal rights and privileges (kung ano
meron isa, dapat meron lahat)
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.
CAPITAL STOCK AND CAPITAL DEFINED
1.Capital Stock or Legal Stock or Stated Capital The amount fixed in AOI charter
to be subscribed and paid in cash, kind or property, labor or servicet the organization
of the corporation or afterwards and upon which the corporation is to conduct its
operation. EQUITY OF STOCKHODLERS IN CORPO ASSETS
- LIMITS max number of each class that may be issued by corpo when no further
amendment of AOI
- REMAINS THE SAME even actual value of shares as determined by assets of corpo
is diminished, or increased unaffected by P/L
2. Capital The value of the actual property or estate of the corporation whether in
money or property. Portion of net assets (or stockholders equity) paid by sh. Assets
less its
Liabilities/ inv + undistributed earnings - expenses - loss; entire property or assets of
corpo
3. Authorized Capital Stock shares with par value
4. Subscribed Capital Stock- The total amount of the capital stock subscribed Shares of stock
whether fully paid or not. 1. Par value w specific money value in AOI and appearing in COS for each
5. Outstanding Capital Stock - The total shares of stocks issued by ppl other than share of stock of the same issue
corpo (to subscribers), whether fully paid or partially paid (as long as there is a binding - Primary purpose of par value: to fix the min issue price of shares
subscription contract) except treasury stocks (Sec. 137). thus assuring creditos that the corpo would receive a min amount
6. Unissued Capital Stock not issued nor subscribed. It does not vote and draws no for its stock
dividends. - Not usually price at which investors buy and sell stock
7. Legal Capital - The amount equal to the aggregate par value and/or issued value of No par value w/o stated value appearing in COS, no money it
the outstanding capital stock. represents
*when par value are issued above premium= excess not considered as legal capital - always have issued value
*no par value entire legal capital, not available for distribution for dividends - can be no par only, or together with par value shares
8. Stated Capital The capital stock divided into no par value shares. - no par value stockholders have the same rights as holders of par
9. Paid-up Capital Portion of the subscribed or outstanding capital stock that is paid value stock
- no par value share doesnt represent any proportionate interest in
the capital stock measured by value but only on aliquot part of the
whole numbers of such shares of issuing corpo
CAPITAL and CAPITAL STOCK - capital stock of a corpo issuing only no par value shares is not set
CAPITAL CAPITAL STOCK forth by a stated amount of money but instead is expressed to be
Actual corporate property, concrete Amount, abstract divided into a stated number of shares such as 100000 shares.
Fluctuates or varies day to day as P/L or Fixed in articles of inco, unaffected by Thus a shareholder of 1000 shares is an aliquot sharer in the assets
appreciation/dep of corpo assets P/L of the corpo, no matter what value they may have, to the extent of
Belongs to corporation, real or personal Belong to stockholders, always personal 1000/100000 or 1/100.
prop -
2. Voting share
- Right to vote to the common stock and to withhold it from the
CAPITAL STOCK vs LEGAL CAPITAL preferred
- Under the code, whenever vote is necessary to approve a particular
Legal capital amount and remains unchanged except as
corporate act, such vote refers only to stocks with voting rights
outstanding shares are increased or decreased in number or
except in certain cases when even non voting shares may also voite
amount; sets amount of min corpo assets wc protects creditors
- The rule is not one stockholder on vote but ONE SHARE ONE
Capital stock limits max amount or # of shares may be issued
VOTE bc representation is commensurate to extent of ownership
w/o formal amendment of articles of inco, Non voting share
- Originally voting stock cant be deprived of the right (unless
STOCK/ SHARE OF STOCK w/consent)
One of the units into wc capital stock is divided - Under the code, no share may be deprived of voting rights except
Represents interest or RIGHTS SUCH AS: PREFERRED/REDEEMABLE unless otherwise provided in code.
a) Management of corporation in wc he has voting rights (if admitted Proviso refers to fundamental matters enumerated in section 6 on
for that class of stock) which holders of nonvoting shares shall nevertheless be entitled to
b) Portion of corpo earnings, if in form of dividends vote
c) Upon dissolution and winding up, in the property and assets thereof - Note that enumeration in sec 6 doesnt include the election of
remaining after payment of corpo debts and liabilities to creditors directors or trustees as one of the matters on which nonvoting
shares may vote
Stock/share of stock stock in hands of stockholder - Where nonvoting shares are provided, the code requires that there
Capital stock- whole body of shares of stock in the corporation shall always be a class or series of shares which have complete
voting rights
NATURE OF SHARES OF STOCK
a) Distinct undivided share or interest in the common 3. Common or preferred and preferred shares may be voting convertible
property of corporation, shareholder isnt an owner of or redeemable. They may be:
any property or assets of the corpo nor is he entitled to the a. Preferred as to assets in case of liquidation
possession of any definite portion b. Preferred as to dividends which may be either:
b) Property distinct from capital or tangible prop of the i. Cumulative or non cumulative
corpo and belong to diff owners, incorporeal in nature, ii. Participating or non participating
shares are personal property Common share holder has prorata division of profits if there are any w/o preference
c) Do not constitute an indebtedness of the corporation to or advantage in that respect over other stockholder or class of stockholder.
the shareholder, not credits, no action can be maintained - Its so called bc its the stock wc private corpo ORDINARILY ISSUE
against the corpo for the return of contributions of the - RESIDUAL OWNERS of corpo (leftover assets in case of liquidation
shareholders as long as the corporation needs them is not after all other securities holders are paid)
under dissolution - Corpo may issue more than 1 class of common stock class a b
d) A share of stock represents an undivided corporations c
property, or right to share in proceeds when distributed Preferred SOS
- Preference in DIVIDEND or distribution of ASSETS of a corpo in
Certificate of stock written acknowledgement by the corporation of the interest, case of dissolution or other preference as ANY STATED IN AOI that
right, and participation of a person in the management profits and assets of a are not contrary to law
corporation. Formal written evidence of the holders ownership of one or more shares - Each share shall be in all respects equal to every other share
and is a convenient instrument for the transfer of title except as otherwise provided in AOI and stated in COS
- RARELY GIVEN VOTING PRIVILEGES
Share of stock vs Certificate of stock - MORE THAN 1 CLASS of preferred shares MAY BE ISSUED,
Share of stock Certificate of stock usually designated FIRST preferred SECOND preferred etc
Incorporeal, intangible Tangible
Right or interest of person in corpo Evidence of right/interest 4. Promotion share issued to promoters or those on some way interested
Issued even if subscription not fully paid GR: Not issued unless subscription is in the company FOR INCORPORATING THE COMPANY or for services
except in no par shares fully paid rendered in launching or PROMOTE WELFARE OF COMPANYy, such as
advancing the fees for incorporating, advertising, attorneys fees,
*Possession of certificate of stock isnt essential to ownership of stock bc right to stock surveying
may exist independently of the certificate.
5. Share in escrow subject to an AGREEMENT t by virtue of which the
Classes of shares in general SHARE IS DEPOSITED BY GRANTOR/AGENT WITH A 3RD PERSON to
 be KEPT BY the DEPOSITORY UNTIL the PERFORMANCE OF PREFERRED SHARES AS TO DIVIDENDS receive div at fixed rates
CONDITION or the happening of a certain event contained in agreement before any dividend are paid to common stockholders; no guarantee of
receipt of dividend; needs declaration of BOD
- Escrow deposit makes the depository a trustee under express trust
- Issuance of shares is subject to suspensive action
- Bef fulfillment of condition, the grantee is not yet the owner of
shares and consequently he is not entitled to the rights belonging to
a regular stockholder VIII.

6. Convertible stock changeable by stockholder to one class t another
(preferred to common, conversion ratio price at which common is to be
valued as against preferred)
- EXCEPT when restricted by AOI, stockholder may demand
conversion AT PLEASURE
- the conversion ratio is the price at which common is to be valued as
preferred
7. Founders share
8. Redeemable share
9. Treasury share
Par value- indicated in COS rep AMOUNT of money or prop
CONTRIBUTED BY SHAREHOLDER to CAPITAL STOCK (assets of
corpo is not always equal to par value of outstanding stock due to
fluctuation) (not always the true value)
Book value true value or actual value ; net value of total corpo assets:
(capital + surplus) divided by number of shares issued/outstanding
Market value price at which a WILLING seller would sell and willing
buyer would buy (no pressure, affected by law of supply and demand)
NO PAR VALUE RESTRICTIONS:
- Banks/trust co/insurance co/building and loan assoc cant issue no
par
- Preferred shares may be issued only with stated par value
- Holder not liable beyond issue price. Shares issued w/o par value
shall be deemed fully paid and non assessable and the holder of
such shares shall not be liable to the corpo or to its creditors in
respect thereto.
- No par cant be issued less than 5 pesos
- Entire Consideration received in no par value =treated as capital,
not available for dividends
- NPV = allowed bec stock fluctuates and doesnt represent anymore
par value
- May be issued from time to time at diff prices/values although
holders equally share in distribution of profits and assets
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.
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.
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.
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.
Q: Can the right to be an act as corporation belong to any person?
A: No, ONLY SPECIAL GRANT to group of persons by the STATE whether SPECIAL
ACT or GENERAL LAW. Else, no corporation exists.

Q: Can the corporation be dissolved at any time by legislative enactment?

A: Yes since it is merely a creation of law, but subject to limitations.
PAR VALUE ADV PAR VALUE NO PAR VAL NO PAR VAL
DISADVANTAGES ADVANTAGES DISADVANTAGES
STEPS IN THE CREATION OF CORPORATION
Easily sold (more Subscribers are liable Fully paid and non Legalize large issues 1. Promotion
attractive) for unpaid assessable of sock for prop 2. Incorporation
subscriptions 3. Formal organization and commencement of business operations
Greater protection for Stated face value not Flexible Conceal money or
creditors accurately true value prop represented by Promotion business term, a number if business operations peculiar to the
shares business world by which a company is generally brought to existence.
Unlikelihood of sale Low priced stocks; Promote issuance of
1. Formation and organization is by PROMOTERS The activity
of subsequently wider distribution watered stock
of such persons is NOT, strictly speaking, FORMAL PART the
issued shares at a organization of a corp, inasmuch theyre not agents of the
lower price corpo before it comes into existence. There cant be agency
Unlikelihood of the No lie in value of Lesser protection of unless theres principal.
distribution of stockholders cont creditors 2. Upon incorporation, the practice is for the BOD to pass a
dividends that are RESOLUTION RATIFYING the contracts entered into the
only ostensible profits corporators with the promoters. In such case, they BECOME
Simplified accounting AGENTS of the corpo.
3. Corporation can be formed by incorporators WITHOUT
bc stock dividends
PROMOTERS.
are easily issued
STEPS IN INCORPORATION
PREFERRED SHARES AS TO DISTRIBUTION OF ASSETS 1. DRAFTING AND EXECUTION of the articles of inco by
incorporators. Temporary treasurer to pending incorporation must
liquidation cases
execute:
a. Affidavit regarding capital subscribed and paid up
2. FILING with SEC of articles of inco with the ff:
 a. Treasurers affidavit showing atleast 25% of the entire
authorized shares has been subscribed and 25% of wc
is paid in cash or prop
b. Corpo by special law (educ institute) a FAVORABLE
RECOMMENDATION of appropriate agency that such
articles is in accordance with law
3. PAYMENT of the filing and publication fees
4. ISSUANCE by SEC of CERTIFICATE of incorporation if all the
papers filed after verification and examination are found in order.
There are rules under special laws to be complied in organizing specific
business and to endow the corporation with capacity to transact business
for which it was created.
INCORPORATORS: number and qualifications
1. Natural person
Corpo cannot be an incorporator of another
corpo
EXP: duly established cooperatives may
organize rural banks and/or subscribe to share of
stock of any rural bank;
If corporation is COOPERATIVE it may become
an INCORPORATOR of rural bank
In any case, corporation may subscribe to the
stocks of another corpo
2. Capacity to contract
Articles of incorporation must be acknowledged
by the incorporators before a notary public
(must be under oath)
Purpose: to guard against possibility of fictitious
name being subscribed to the articles and to
assure that the signatures appearing are
genuine
Married women need NO CONSENT of
husband to be an incorporator, unless valid
serious moral grounds
3. Residents of PH
MAJORITY must be resident of Ph
The rest may be neither residents nor citizen of
Ph
Enemy aliens cant be incorporator (cannot
lawfully contract country at war)
Residence requirement is mandatory
4. Citizens of PH
Necessary qualification for incorporators
Certain % of capital stock is necessarily owned
by Fil citizen
Foreign shareholders may debarred from certain
activities wc are exclusive for Filipinos
5. Owners of or subscribers to atleast one share
Required
REQUIREMENT OF MIN NUMBER PF INCORPORATORS MANDATORY
Corpo cannot be formed with less than prescribed number EXCEPT corporation sole
Educational corporations, their incorporation shall be governed by SPECIAL LAWS
and GENERAL PROVISIONS of the Code
1. Reduction of stockholders or members to less than minimum:
# of stockholders AFTER the corporation is organized may become
less than the min number rwquired for incorporation without
affecting corpo existence unless valid grounds exist for piercing or
lifting the corporate veil
2. Beneficial ownership in one individual:
# of incorporators
Since law permits a scheme by wc all shares are owned by a single
individual, latter may INCORPORATE provided he associates with
him atleast NOMINALLY the number of [erspms required by law
3. Subsequent accumulation of shares
Nor is the existence of the corporation originally formed by the
required number of incorporation originally formed by the required
number of incorporators affected by the subsequent accumulation
of all the shares in the hands of one individual, unless, as previously
said, circumstances exist to justify the piercing of the veil of
corporation entity.
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.
- Exist not exceeding 50 yrs unless legally dissolved, or unless its
registration is revoked upon any of the grounds provided by law
- Corporation life can be REDUCED or EXTENDED by AMENDMENT of
articles of incorporation
LIMITATIONS
1. Not more than 50 yrs
- Amendment: should be effected BEFORE EXPIRATION of corporate term
of existence for another,
- AFTER DISSOLUTION BY EXPIRATION, theres no more extension
- Extension CANNOT be done at 3 yr period of liqidition
- Expiration doesnt necessarily mean immediate dissolution for all
purposes
- Extension cant be made EARLIER THAN FIVE YEARS prior to expiration
date unless theres JUSTIFIABLE REAOSN DETERMINED BY SEC
2. Effect of extension/expiration
- Extension doesnt mean creation of new corpo
- Expiration of period in articles of inco in absence of compliance with legal
requisites for extension is DECEASED and DISSOLVED IPSO FACTO
3. Automatic extension
- Automatic extension by amendment of articles of incorporation within 5
year period before expiration date during which SEX may look if
nexessary into the financia structure of corpo and its past operations or
actuations
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.
NO MIN AUTHORIZED CAPITAL except special law as long as PAID UP CAPITAL
NOT LESS THAN P5,000
SPECIAL LAWS require HIGHER PAID UP CAPITAL: commercial banks, insurance
company, investment house
FILIPINO PERCENTAGE OWNERSHIP REGARDING CORPORATE CAPITAL
a. Corporations for exploration, development and utilization of
natural resources- atleast 60% capital (aka capital stock) is
OWNED BY FILIPINO CITIZENS
b. Public services corpos 60%
c. Educational corpos other than those established by religious
and mission boards 60%
d. Banking corpos 60% of capital stock of any bank or banking
institution may be established after the approval of general banking
act
e. Corpos engaged in retail trade- wholly owned by Filipino citizen
f. Rural banks 60%
g. Corpos engaged in coastwise shipping - atleast 50% of capital
stock or of any interest
h. Corpos engaged in pawnshop business atleast 70% of voting
capital stock shall be owned by fil citizen
i. Under the flag law in the purchase of articles for the government,
preference shall be given to materials and supplies produced made
or manufactured in the Ph and to domestic entities. The term
domestic entities means any citizen of the Philippines or any
corporate body or commercial company atleast 75% of the capital of
which is owned by Filipino citizen
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.
MINIMUM SUBSCRIPTION AND PAID UP CAPITAL
1. PRE INCORPORATION
25% is subscribed and 25% of wc is paid
Spccial laws require higher
2. POST INCORPORATION
Required not only in incorporation period but also in case of
increase in authorized capital stock
a. For assurance to the investing public dealing with
corpo that is financially and actually able to
operate and undertake business and meet its
obligations as they rise from the start of its
operations
b. 25% min paid up capital is not applied to
subsequent subscriptions to the unsubscribed
shares of the corpo since evil risks of insolvency
against wc the law inteads to safeguard the
public no longer exist
c. Call by BOD for payment of balance of
subscriptions is required ONLY WHEN there is
NO FIXED DATE FOR PAYMENT
COMPUTATION OF THE 25% SUSCRIPTION REQUIREMENT
a. PAR VALUE 25% of authorized capital stock/aggregate value of
all shares of stock corpo is allowed to issue
b. NO PAR VALUE 25% of entire number of authorized shares
(issued price need not be fixed in articles of inco)
c. If par value and no par value 25% indicate as amount or number
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 he secondary purpose or purposes: Provided, That a non-stock
corporation may not include a purpose which would change or contradict its
nature as such;
3. The place where the principal office of the corporation is to be located, which
must be within the Philippines;
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.
The Securities and Exchange Commission shall not accept the articles of
incorporation of any stock corporation unless accompanied by a sworn
statement of the Treasurer elected by the subscribers showing that at least
twenty-five (25%) percent of the authorized capital stock of the corporation has
been subscribed, and at least twenty-five (25%) of the total subscription has
been fully paid to him in actual cash and/or in property the fair valuation of
which is equal to at least twenty-five (25%) percent of the said subscription,
such paid-up capital being not less than five thousand (P5,000.00) pesos.
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:
ARTICLES OF INCORPORATION
OF
__________________________
(Name of Corporation)
KNOW ALL MEN BY THESE PRESENTS:
The undersigned incorporators, all of legal age and a majority of whom are
residents of the Philippines, have this day voluntarily agreed to form a (stock)
(non-stock) corporation under the laws of the Republic of the Philippines;
AND WE HEREBY CERTIFY:
FIRST: That the name of said corporation shall be
".............................................., INC. or CORPORATION";
SECOND: That the purpose or purposes for which such corporation is
incorporated are: (If there is more than one purpose, indicate primary and
secondary purposes);
THIRD: That the principal office of the corporation is located in the
City/Municipality of ............................................., Province
of .................................................., Philippines;
FOURTH: That the term for which said corporation is to exist is ................ years
from and after the date of issuance of the certificate of incorporation;
FIFTH: That the names, nationalities and residences of the incorporators of the
corporation are as follows:
NAME NATIONALITY RESIDENCE
..................................... ..................................... .....................................
..................................... ..................................... .....................................
..................................... ..................................... .....................................
..................................... ..................................... .....................................
..................................... ..................................... .....................................
SIXTH: That the number of directors or trustees of the corporation shall
be .............; and the names, nationalities and residences of the first directors or
trustees of the corporation are as follows:
NAME NATIONALITY RESIDENCE
..................................... ..................................... .....................................
..................................... ..................................... .....................................
..................................... ..................................... .....................................
..................................... ..................................... .....................................
..................................... ..................................... .....................................
SEVENTH: That the authorized capital stock of the corporation
is ................................................. (P......................) PESOS in lawful money of the
Philippines, divided into ............... shares with the par value
of ................................... (P.......................) Pesos per share.
(In case all the share are without par value):
That the capital stock of the corporation is ........................... shares without par
value. (In case some shares have par value and some are without par value):
That the capital stock of said corporation consists of ........................ shares of
which ....................... shares are of the par value of ..............................
(P.....................) PESOS each, and of which ................................ shares are without
par value.
EIGHTH: That at least twenty five (25%) per cent of the authorized capital stock
above stated has been subscribed as follows:
Name of Subscriber Nationality No of Shares Amount
Subscribed Subscribed
.................................. .................... ........................ .......................
.................................. .................... ........................ .......................
.................................. .................... ........................ .......................
.................................. .................... ........................ .......................
.................................. .................... ........................ .......................
NINTH: That the above-named subscribers have paid at least twenty-five (25%)
percent of the total subscription as follows:
Name of Subscriber Amount Subscribed Total Paid-In
................................... ...................................... ...............................
................................... ...................................... ...............................
................................... ...................................... ...............................
................................... ...................................... ...............................
................................... ...................................... ...............................
(Modify Nos. 8 and 9 if shares are with no par value. In case the corporation is
non-stock, Nos. 7, 8 and 9 of the above articles may be modified accordingly,
and it is sufficient if the articles state the amount of capital or money
contributed or donated by specified persons, stating the names, nationalities
and residences of the contributors or donors and the respective amount given
by each.)
TENTH: That ....................................... has been elected by the subscribers as
Treasurer of the Corporation to act as such until his successor is duly elected
and qualified in accordance with the by-laws, and that as such Treasurer, he has
been authorized to receive for and in the name and for the benefit of the
corporation, all subscription (or fees) or contributions or donations paid or
given by the subscribers or members.
ELEVENTH: (Corporations which will engage in any business or activity
reserved for Filipino citizens shall provide the following):
"No transfer of stock or interest which shall reduce the ownership of Filipino
citizens to less than the required percentage of the capital stock as provided by
existing laws shall be allowed or permitted to recorded in the proper books of
the corporation and this restriction shall be indicated in all stock certificates
issued by the corporation."
IN WITNESS WHEREOF, we have hereunto signed these Articles of
Incorporation, this ................... day of .............................., 19 ........... in the
City/Municipality of ........................................, Province
of ................................................., Republic of the Philippines.
............................................ .............................................
............................................ .............................................
................................................
(Names and signatures of the incorporators)
SIGNED IN THE PRESENCE OF:
............................................ .............................................
(Notarial Acknowledgment)
TREASURER'S AFFIDAVIT
REPUBLIC OF THE PHILIPPINES )
CITY/MUNICIPALITY OF ) S.S.
PROVINCE OF )
I, ...................................., being duly sworn, depose and say:
That I have been elected by the subscribers of the corporation as Treasurer
thereof, to act as such until my successor has been duly elected and qualified in
accordance with the by-laws of the corporation, and that as such Treasurer, I
hereby certify under oath that at least 25% of the authorized capital stock of the
corporation has been subscribed and at least 25% of the total subscription has
been paid, and received by me, in cash or property, in the amount of not less
than P5,000.00, in accordance with the Corporation Code.
.......................................
(Signature of Treasurer)
SUBSCRIBED AND SWORN to before me, a Notary Public, for and in the
City/Municipality of .................................. Province of ..........................................,
this ............. day of ........................., 19 ........; by ............................................ with
Res. Cert. No. ..................... issued at ................. on ......................, 19 ..........
NOTARY PUBLIC
My commission expires on ..........................., 19 ........
Doc. No. ...............;
Page No. ...............;
Book No. ..............;
Series of 19..... (7a)
Articles of incorporation document prepared by persons establishing a corporation
and filed with SEC
Copy of articles filed wc is returned with the certificate of incorporation issues by
Commission under its official seal becomes its corporate charter enabling the
corporation to exist and function as such
Corpo by special law NO ARTICLES OF INCO
CONTENT AND FORM OF ARTICLES OF INCORPORATION
1. Sec 14 enumerates the matters that must be stated in articles of inco of
domestic corpo except as otherwise prescribed by code or law.
a. Incorporators may include such other matters not inconsistent with
law and which they may deem necessary and convenient such as
classes of shares which the corporation may issue provision on
preemptive right
b. Last par: SEC shall not accept articles of inco of any stock corpo
unless accompanied by a sworn statement of the treasurer elected
by the subscribers showing compliance with the requirement as to
the min amount of subscribed and paid capital stock
c. Articles of inco may provide other matters or items as long as they
arent contrary to code or law
2. Sec15 provides form of the articles of inco of all domestic corpos unless
otherwise prescribed by special law
a. Must include the affidavit of the treasurer of the corpo
concerning the amount of capital stock subscribed and paid.
SEC may reject the articles of inco or any amendment if not
substantially in accordance with the forms prescribed above.
b. The articles of inco must be written in any of the official
language duly signed and acknowledged by all of the
incorporators
NAME OF THE CORPORATION
1. Importance aquires juridical personality under the name stated in cert of
inco.
 a. Has power of succession by corpo name - REQUIRED BY SEC: all corpos and partnership
b. Identifies and distinguished corpos or entities - Specific address of principal office wc include if feasible, street
c. Peculiarly essential to existence number, name, bgy, city or municipality
2. Nature corpo name is regarded as of the nature of a trademark even tho - Specific residence address of each incorporator, stockholder,
composed of individual names, and its simulation may be restrained After director, trustee, partner
adoption, it follows the corporation. 2. PLACE OFPRINCIPAL OFFICE = MEANS = Place where corporate books are
Corporations right to use its corporate and trade name is a property right, ordinarily kept and its officers meetaffairs and transacting business of corpo
right in em meaning it may assert and protect such right against - For purpose of managing th
anybody in the same manner it may protect its tangible property against 3. Change of address
trespass or conversion. Cannot be impaired or defeated by subsequent - Amendment of articles of inco filed in SEC
appropriation by another corporation in the same field. - If same city or municipality, no corporate document is required to be
3. Part of name customary tc use as part of the name of the word filed in SEC except a notice about change of address
CORPORATION or INCORPORATED or an abbreviation of either of INCORPORATING DIRECTORS OR TRUSTEES
them to distinguish it from a partnership and other business orgs. 1. Matters to be specified in articles of inco
Character of corpo is not necessarily determined by its name. a. Names
b. Nationalities
PURPOSE c. Residences of incorporators
1. Must be lawful otherwise inexistent even if other purpose are lawful. d. Majority of incorporators are residents of Ph
- Unconstitutional, illegal, immoral, contrary to gov rules and reg * Statement of the nationalities of the incorporators will enable the SEC to
grounds for rejection by SEC of articles of inco determine PRIMA FACIE compliance with constitutional or legal requirements
- Gamblingo or prostitution illegal regarding ownership by Fil citizens of certain % of the capital stock of certain
- Corpo cannot be formed for practicle of law, medicine or toher Fil
profession in absence of express authority in the corpo law
- Practice of business is nto a business and is open only to persons 2. Number
with the necessary qualifications a. Number of incorporating directors or trustees is determined by
- Profit motive is principal purpose incorporators
- Partnership for exercise of profession b. Must not be less than 5 and more than 15 provided by law
2. Purpose must not be indefinitely stated 3. Term of office
- Purpose stated n art of inco need not set out with particularity the a. Incorporators or trustees hold office until successors are elected and
multitutde of activities in wc corpo may engage qualified
- Purpose stated in broad general terms should not be stated b. Intended to be replaced by regularly elected directors or trustees who
indefinitely, otherwise articles of inco is rejected hold office for ONE YEAR when the corpo is organized by the adoption
- Ex. Carry on business not contrary to law or distinct purpose + of by laws at the first meeting of stockholders or members
other purpose as future agreed = BOTH REJECTED
3. Primary purpose must be stated 4. Subsribers to stock
- Purpose for which a corpo is organized where it has more than one a. Every director shall have ATLEAST ONE SHARE OF CAPITAL STOCK
stated purpose shall state which is the primary or main purpose and of the corporation of which he is a director
which are secondary or subsidiary purpose ^applies to directors elected after incorporation as well as to
- Main purpose shall be specified incorporating directors who must be a subscriber to atleast one share
- Corpo is prohibited from investing for any purpose other than the of capital stock of the corporation
primary purpose for which it was organized unless it is approved by b. One stock corporation, there must be atleast FIVE STOCKHOLDERS
both BOD or trustees and its stockholders or members.
- Non stock corpo should include purpose in contrary to nature
4. Purpose must be capable of being lawfully combined Capital stock/capital and subscribers/contributors
- Although sec 10 allows for any lawful purpose of formation 1. Stock corporation- must state
- PurposeS must be lawfully combined a. Amount of its authorized capital stock in pesos
- Banks wc are governed by General banking law are prohibited b. Number of shares into which is divided
directly from engaging in non banking activities such as insurance c. Par value in pesos of each share
as the insurer. d. Names nationalities and residences of orig subscribers
- Insurance co are governed by insurance code not allowed to e. Amount of capital stock subscribed and paid by each on his
engage in banking operations. subscription
f. If some or all of the shares are without par value, such fact
2. Non stock corporation
a. Amount of its capital or money contributed or donated by
specified persons
b. Names nationalities and residences of the donors or
contributors
c. The respective amount contributed by each

Where shares with par value (PESOS)

REASONS FOR STATEMENT OF PURPOSE
1. Person who intends to invest money in businesscorpo will know where and in
what kind of business or activity his money will be activity
2. Directors and offiners will know within what scope of business they are
authorized to act
3. 3rd person who has dealings with corporation may know by perusal of the articles
whether the transaction or dealing he has with the corporation is within the
authority or not
TO DETERMINE WHETHER ACTS PERFORMED BY THE CORPORATION ARE
AUTHORIZED OR BEYOND ITS POWERS. Latter case, will be known as ULTRA VIRES
PRINCIPAL OFFICE OF THE CORPORATION
1. City or municipality within the Ph
- Place where principal office of corpo is to be established/located wc
MUST BE WITHIN PH
A. Shares issued with one par value
Authorized capital stock = # of shares [times] par value
B. Shares with diff classes of shares with diff par values
Authorized capital stock = TOTAL of the products of the # of shares in EACH class *
par value of such class
When shares without par value (NUMBER)
- Only STATE fact in articles of incorporation with NUMBER of shares
into which said capital stock is divided
- PRICE of no par may VARY from time to time
Where shares with par value and without par value
In case some of the shares of capital stock have par value and no par value, articles
of incorporation MUST STATE
A. FACT (capital stock with par and no par)
 B. NUMBER OF SHARES INTO WC CAPITAL STOCK IS DIVIDED
C. NUMBER OF SHARES WITH PAR VALUE AND PAR VALUE
D. NUMBER OF SHARES WITHOUT PAR VALUE
Where business corporation reserved for Filipino citizens
Corporations which will engage in business or activity for Fil citizens shall provide in
articles of inco the restriction against
transfer of stock or interest which will reduce the ownership of Filipino citizens to less
than the required percentage of the capital stock as provided by existing laws x x x
If REQUIRED PERCENTAGE of OWNERSHIP has NOT BEEN COMPLIED with,
articles of inco WILL NOT BE ACCEPTED by SEC
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.
Power of stockholders or members to amend articles of incorporation
The authority of stockholders or members to amend the articles of inco forms part of
the corporate charter section 16, 37, 38
AMENDMENT must be APPROED by a MAJORITY of BOD/TRUSTEES
Necessity of stockholder or members meeting for amendment
Sec16- amendment may also be effected by the written assent of the stockholders
representing at least 2/3 of the OUTSTANDING CAPITAL STOCK of the corpo or 2/3
of its MEMBERS, meaning ACTION NEED NOT be taken at MEETING AND VOTE
1. If amendment consists in extending or shortening corporate term, meeting
of the stockholders or members is necessary
2. In a close corporation, if the amendment of the articles of incorporation
refers to any of the matters mentioned in sec 103, the same shall not be
valid or effective unless approved by required vote of stockholders at a
meeting dully called for the purpose. A mere written assent would also not
be sufficient.
Limitations on power of corporation to amend
1. Amendment of any provision or matters stated in articles of incorporation
is not allowed WHEN CONTRARY TO ANY PROVISION or
REQUIREMENT PRESCRIBED or BY LAW
2. Legitimate purpose
3. Approved by required vote of board and the stockholders or members
4. Orig articles and amended articles together shall contain all provisions
required by law to be set out in the articles of incorporation
5. 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 that
the amendment or amendments have been duly approved by the required
vote of the stockholders or members shall be submitted to the SEC
6. The amendments shall TAKE EFFECT only upon their APPROVAL by
SEC. They are deemed approved by Commission from date of filing if not
acted upon within SIX MOTNHS from said date for a cause not
attributable to corporation, assuming amendments arent illegal
7. If the corporation is governed by special law such as banks. Banking, and
quasi banking institutions, insurance companies, etc, amendments must
be accompanied by a FAVORABLE RECOMMENDATION of the
APPROPRIATE GOV AGENCYto that effect that such amendments are in
accordance with law
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.
No articles of incorporation or amendment to articles of incorporation of banks,
banking and quasi-banking institutions, building and loan associations, trust
companies and other financial intermediaries, insurance companies, public
utilities, educational institutions, and other corporations governed by special
laws shall be accepted or approved by the Commission unless accompanied by
a favorable recommendation of the appropriate government agency to the effect
that such articles or amendment is in accordance with law.
Grounds for rejection
1. SEC is REQUIRED to give incorporators REASONABLE TIME within
which to MODIFY the OBJECTIONABLE portions of the articles of
incorporation or AMENDMENT when same is REJECTED or disapproved
for noncompliance with requirements
2. Corpos by special laws such as banks, insurance companies, and educ
institutions, ARTICLES OF INCO or AMENDMENT shall NOT BE
ACCEPTED/APPROVED by SEC
- UNLESS accompanied by a FAVORABLE RECOMMENDATION by
appropriate gov agency
- Ex. Monetary board of central bank with respect to banking
institutions
3. SEC shall NOT ACCEPT articles of incorporation of any stock corporation
UNLESS ACCOMPANIED BY SWORN STATEMENT OF TREASURER
elected by subscribers showing the amount of capital stock subscribed
and paid
Suspension/revocation of certificate of reg of corporations
SEC may suspend, revoke, after proper notice and hearing the franchise
or certificate of registration of corpos, partnerships, or associations upon
any of grounds provided by law, including the ff:
a. Fraud in procuring cert of incorporation
(making it appear that it jas cash paid up
capital when actually has none, money being
in fact merely borrowed and returned to lender
after incorpo)
b. Serious misinterpret as to what the
corporation can do or is doing to the great
prejudice of or damage to the gen public
c. Refusal to comply with or defiance of a lawful
order of commission restraining the
commission of acts which would amount to a
grave violation of its franchise
 d. Continuous in operation for a period of atleast
5 yrs
e. Failure to file by-laws within the required
period
f. Failure to file the required reports in
appropriate forms as determined by
commission within prescribed period
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.
Change of corporate name
1. Requirements
Corporation can change the name originally selected by it after complying
the formalities prescribed by law, to wit: amendment of the articles of
incorporation and filing of amendment with SEC. Mere approval by
stockholder of amendment of articles of incorporation changing the
corporate name doesnt automatically change the name of the corporation
as that of date.
When change of name is approved, it is required that the Commission
must issue an amended certificate of incorporation under the amended
name
2. Effect
Authorized change in the name of the corporation has no more effect
upon its identity as a corporation than a change of name of a natural
person upon his identity. It doesnt affect rights of the corporation or lessn
or add its obligations. After corporation has effected a change in its name,
it should sue and be sued in its new name.
Limitations upon use of corporate name
- Not identical or similar to a name previously adopted and wc is
being used by another corpo or unincorporated assoc or a natural
person as trade name or contrary to existing law
- If any corpo could adopt at pleasure the name of another corpo,
practice would cause confusion and unfair and fraudulent
competitions.
- It would also create difficulties in the admin and supervision by gov
of corporations
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.
Acquisition of juridical personality
1. Issuance of certificate of incorporation
A corpo commences to have juridical personality and legal existence only from
the moment the SEC issues to the incorporator a cert of incorporation under its
official seal
a. Such certificate is a final determination of the
corporations right to do business or to enter
into contracts in its name
b. Once issued, the certificate becomes the
charter or corporate franchise from which the
uthority of the corporation to operate as such
flows
c. The issuance of the certificate calls the
corporation into being but it is not ready to do
business until organized. The corporation
must formally organize and commence the
transaction of its business of its business or
the construction of its works within TWO
YEARS from date of incorporation; otherwise
corporate powers shall decease and shall be
dissolved.
2. Filing of articles of incorporation
Religious corpos, Code doesnt require SEC to issue cer if incorpo.
Sec112 from and filing with the Commission of the articles of
incorporation, chief archibishop shall become a corporation sole.
3. Registration of cooperative
A cooperative acquires juridical personality upon registration with the
cooperatives development authority
No need to register at SEC
SEC21
Corporation by estoppels - neither de jure/de facto; exists only between
persons who misrepresented
- ALL PERSONS(kahit di stockholders or members) aware of corpo
without authority LIABLE AS GENERAL PARTNERS (debts
liabilities damages from result)
- When OSTENSIBLE IS SUED on transaction/tort corpo cant
use defense as lack of corpo personality
- When 3rd PERSON OWES ostensible corpo 3rd person cant use
as excuse lack of corpo personality
- Corpo existence by E may be ATTACKED except when attacking
party is ESTOPPED
- If nto all associates participated or consented to the representations
to them, doctrine of estoppels will not apply.
- If a group of persons does nto qualify as a corpo whether de
jure/facto or by estoppels, there is no corporation and stockholders
are individually liable
SEC 22:
Effects of non use of corporate charter and continuous in operation of a corporation
- Non formal operation(adoption of by laws election transactions) and
commencement(any contract) TWO YEARS from date of
incorporation dissolved and ceased (
- Commenced but continuously inoperative FIVE YEARS GROUND
for suspension/revocation of franchise or cert of inco
- When cause is BEYOND CONTROL OF CORPO (determined by
SEC) not applicable
- Mandatory provision noncompliance doesnt create JURE
CPRPO (to protect public)
- Directory prov - non compliane no consequence
- Strict compliance even with the mandatory provisions wc are
cpnditions precedent to corpo existence is not required- only
substantial compliance is necessary
- Condition precedent noncompliance prevents legal existence (req
of inco)
- Condition subsequent to legally continue (sec 22) (sec 74) non
compliance with mandatory cs doesnt affect corpo existence
SEC23
Corpo powers are exercised , controlled and held by BOD/TRUSTEES (governing
body) holds office for 1 year until successors are elected and qualified (unless
otherwise provided)
Director own atleast ONE SHARE of corpo wc he is a director (no share, kick
director)
Majority of directors/trustees must be residents of ph
- Directors arent agents-(acts not binding) only determines policy
and conduct ordinary business of the corpo of those matters that
doesnt need consent or approval of stockholders
- Corpo acts thru BOD - Refusal of BOD no effect
-