CORPORATION CODE

I General Provisions
1. Title of the Code. - The Corporation Code of the Philippines.

2. Corporation - an artificial being created by operation of law, with the right of succession, and its powers,
attributes and properties are expressly authorized by law or incident to its existence.

3. Classes of corporations. - corporations organized under this Code which may be stock or non-stock.
Stock corporations - corporations with capital stock divided into shares and are authorized to be distributed to
the stockholders as dividends or surplus profits.
Non-stock corporations - all other corporations.

4. Corporations created by special laws or charters. – Such corporations shall be primarily governed by the
special law or charter creating them and this Code shall be applied in suppletory manner.

5. Corporators and incorporators, stockholders and members.

Corporators - stockholders or members composing a corporation.
Incorporators - stockholders or members stated in the articles of incorporation originally forming and
composing the corporation.
Corporators - stockholders or shareholders in a stock corporation.
Corporators - members in a non-stock corporation.

6. Classification of shares. - The shares of stock of a corporation may be divided into classes which may have
such rights, privileges or restrictions under its articles of incorporation: Shares have voting rights except
preferred or redeemable shares. Shares may have a par value or no par value. However, banks, trust
companies, insurance companies, public utilities, and building and loan associations shall always issue par
value shares.
Preferred Shares – preferred in the distribution of the assets of the corporation in case of liquidation,
distribution of dividends, or other preferences under its articles of incorporation. Preferred shares always have
par value. The board of directors may fix the T/C of such shares.
No Par Value Share - The holder of such shares shall not be liable to the corporation or to its creditors;
deemed fully paid and non-assessable; may not be issued for less than the P5/ share, the consideration
received for it shall be treated as capital and shall not be distributed as dividends.

A corporation may classify its shares furthermore. Each share shall be equal except when the articles of
incorporation or certificate of stock provide otherwise. Non-voting shares may nevertheless vote on the ff:
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 corporate assets.
4. Incurring or increasing indebtedness.
5. Increase or decrease of capital stock.
6. Merger or consolidation with another corporation.
7. Investment of corporate funds in accordance with this Code.
8. Dissolution of the corporation.

The vote necessary to approve a particular corporate act refer only to stocks with voting rights.
7. Founders' shares. - May be given rights and privileges not enjoyed by the other stockholders but the
exclusive right to vote and be voted must be for 5 years only which shall commence from the date of the
approval of the SEC.

8. Redeemable shares. - Shares expressly provided as such in the articles of incorporation. They may be
purchased by the corporation upon the expiration of a term regardless of the existence of unrestricted
retained earnings and upon other T/C stated in the articles of incorporation or certificate of stocks.

9. Treasury shares. - issued and fully paid but reacquired by the issuing corporation and may again be disposed
of.

II Incorporators and Organization of Private Corporations

10. Number and qualifications of incorporators. - Natural persons not less than 5 but not more than 15, of
legal age and majority of whom are residents of the Philippines may form a private corporation for lawful
purposes. Each of the incorporators of a stock corporation must be a subscriber of at least 1 share.

11. Corporate term. - Not exceeding 50 years from the date of incorporation unless sooner dissolved or
extended for another 50 years by amendment of the articles of incorporation. No extension can be made
earlier than 5 years prior to the expiry date.

12. Minimum capital stock required of stock corporations. - Shall not be required to have a minimum
authorized capital stock except when a special law provides otherwise.

13. Amount of capital stock to be subscribed and paid for the purposes of incorporation. - At least 25% of the
authorized capital stock must be subscribed at the time of incorporation and at least 25% per cent of the total
subscription must be paid, the balance to be paid on a fixed date without need. The paid-up capital shall not
be less than P5,000.

14. Contents of the articles of incorporation. – All corporations shall file with the SEC articles of incorporation
in any language signed by all incorporators containing ff matters:
1. Name of the corporation.
2. Purpose for which the corporation is incorporated. If it has more than 1 purpose, state the primary and
secondary purposes. A non-stock corporation may not include a purpose which would contradict its nature.
3. Address of principal office which must be in the Philippines.
4. Term of the corporation.
5. Names, nationalities and residences of the incorporators.
6. Number of directors or trustees, which shall not be less than 5 or more than 15.
7. The names, nationalities and residences of persons who shall act as first directors or trustees until election.
8. Amount of authorized capital stock in pesos in the stock corporation, the number of shares, par value/
shares, the names, nationalities and residences of the original subscribers and the amount subscribed by
them, and the fact that non-par value shares are issued.
9. Amount of capital in the non-stock corporation, the names, nationalities, residences and the amount
contributed by of the contributors.
10. Other matters the incorporators may deem necessary and convenient.

The articles of incorporation of a stock corporation shall be accompanied by a sworn statement of the
Treasurer elected by the subscribers stating that at least 25% percent of the authorized capital stock of the
corporation was subscribed and at least 25% of the total subscription was fully paid to him in actual cash or
property with value equal to 25% of the paid subscription and the paid-up capital is not less than P5,000.

15. Forms of Articles of Incorporation. - All domestic corporations shall substantially comply with the ff 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 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 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.....…..
16. Amendment of Articles of Incorporation. - The articles of incorporation may be amended by a majority
vote of the board of directors or trustees and the vote of the stockholders representing at least 2/3 of the
outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders, or the vote of at
least 2/3 of the members of a non-stock corporation.

The amended articles shall indicate by underscoring the changes made and a copy shall be submitted to the
SEC. It shall be certified under oath by the corporate secretary and a majority of the directors or trustees
stating that such have been approved by the required vote of the stockholders or members. The amendments
shall take effect if the SEC did not act upon it within 6 months.

17. Grounds when articles of incorporation or amendment may be rejected or disapproved. - The SEC may
reject the articles of incorporation or amendment for non-compliance with the Code. The ff are grounds for
disapproval:
1. Not substantially in accordance with the prescribed form.
2. Purpose of the corporation is patently unconstitutional, illegal, or immoral.
3. False Treasurer's Affidavit concerning the amount of capital stock subscribed or paid.
4. Filipino ownership of the capital stock was not complied with as required by the Constitution.

The articles of incorporation or amendment thereto of banks, quasi-banks, loan associations, trust companies,
insurance companies, public utilities, educational institutions, and other corporations governed by special laws
shall be approved by the Commission if accompanied by a favorable recommendation from the government
agency regulating them that such articles or amendment is in accordance with law.

18. Corporate name. - The proposed name shall not be identical to an existing corporation that might deceive
or confuse the public.

19. Commencement of corporate existence. – The corporation is deemed incorporated from the date of
issuance by the SEC of its certificate of incorporation under its official seal and the incorporators,
stockholders/members shall constitute a body politic under the name stated in the articles of incorporation
until its term, unless extended or sooner dissolved.

20. De facto corporations. – A private suit to inquire upon the right of a corporation to exercise corporate
powers shall not be inquired into collaterally but may be made by the Solicitor General in a quo warranto
proceeding.

21. Corporation by estoppel. - Persons acting as a corporation knowing it to be without authority to do so shall
be liable as general partners for all debts, liabilities and damages arising thereof. The ostensible corporation
sued on a transaction entered by it as a corporation or on a tort committed by it shall not use as a defense its
lack of corporate personality and resist performance.

22. Effects on non-use of corporate charter and continuous inoperation of a corporation.- The corporate
powers of a corporation shall cease and is deemed dissolved if it does not commence its business transaction
within 2 years from the date of incorporation. The certificate of incorporation shall be revoked if it has
commenced transaction but subsequently becomes continuously inoperative for 5 years. This provision shall
not apply if the failure to commence business transaction or to continuously operate is due to causes beyond
the control of the corporation as determined by the SEC.

III Board of Directors /Trustees/Officers

23. The board of directors or trustees. - The board of directors or trustees elected by the
stockholders/members shall hold and control all corporate powers on business conducted and corporate
property. They shall hold office for 1 year until their successors are elected. A director must own at least 1
share of the capital stock of the corporation in which he is a director. He shall cease to be a director if he
ceases to own 1 share. Trustees of non-stock corporations must be members thereof.

24. Election of directors or trustees. - The owners of the majority of the outstanding capital stock/ majority of
the members entitled to vote must be present in person or by written proxy in the election of directors or
trustees. The election must be by ballot. A stockholder is entitled to vote the number of shares under his name
in the stock books of the corporation. He may vote such number of shares for as many directors to be elected
or he may cumulate his shares and give one candidate votes as the number of directors to be elected
multiplied by the number of his shares, or he may distribute them on the candidates he sees fit. Provided, the
total number of votes cast by him shall not exceed the number of shares owned by him multiplied by the
whole number of directors to be elected. A delinquent stock shall not vote. Members of corporations may cast
as many votes as there are trustees to be elected but may cast one vote per candidate. Candidates receiving
the highest number of votes shall be declared elected. A meeting of the stockholders or members called for an
election may adjourn from time to time but not sine die or indefinitely if no election is held.

25. Corporate officers, Quorum. - The elected directors must immediately organize the election of a president,
who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and
citizen of the Philippines, and other officers. A director may hold 2 or more positions concurrently but he shall
not act as president and secretary or as president and treasurer at the same time.

A majority of the directors or trustees present in a meeting shall constitute a quorum for the transaction of
corporate business. The decision of the quorum is a valid corporate act, except for the election of officers
requiring the vote of a majority of all the members of the board. Directors or trustees cannot attend or vote by
proxy at board meetings.

26. Report of election of directors, trustees and officers. - The secretary or another officer of the corporation
shall submit to the SEC, the names, nationalities and residences of the directors, trustees, and officers elected
within 30 days from election. If one dies or resigns, 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 the fact to the
SEC.

27. Disqualification of directors, trustees or officers. – The person convicted by final judgment of an offense
punishable by 6 years or more imprisonment within 5 years before his election or appointment shall not be
qualified as director, trustee or officer of a corporation.

28. Removal of directors or trustees. - A director or trustee may be removed by a vote of the stockholders
holding at least 2/3 of the outstanding capital stock or by a vote of at least 2/3 of the members entitled to vote
in a regular or special meeting called for the purpose after notice. It shall be called by the secretary upon order
of the president or on the written demand of the stockholders holding the majority of the outstanding capital
stock or on the written demand of a majority of the members. If the secretary fails to call the special meeting,
refuse to give notice, or if there is no secretary, the call may be addressed directly to the stockholders or
members signing the demand. Notice of the time, place, and propose of removal must be given by publication
or by written notice. Removal may be with or without cause. The removal without cause shall not be used to
deprive the minority stockholders/members of their right of representation.

29. Vacancies in the office of director or trustee. - A vacancy in the board of directors or trustees other than
by removal or by expiration of term may be filled by the vote of the majority of the remaining directors or
trustees if still constituting a quorum. If there is no quorum, the vacancies must be filled by the stockholders
in a regular or special meeting called for that purpose. The elected officer shall hold office only for the
unexpired term of his predecessor. A directorship or trusteeship to be filled by reason of an increase in the
such officers shall be filled only by an election at a regular or at a special meeting of stockholders or members
duly called for the purpose or in the same meeting authorizing the increase of directors or trustees if so stated
in the notice of the meeting.

30. Compensation of directors. - The directors shall not receive any compensation except for reasonable per
diems in the absence of a provision in the by-laws fixing their compensation. The compensation may be
granted to directors by the vote of the stockholders representing the majority of the outstanding capital stock
at a regular or special meeting. Their yearly compensation shall not exceed 10% percent of the net income
before income tax of the corporation the previous year.

31. Liability of directors, trustees or officers. - Directors or trustees who vote for patently unlawful acts, for
officers guilty of gross negligence or bad faith, or who acquire interest in conflict with their duty shall be jointly
and severally liable for damages suffered by the corporation, its stockholders or members and other persons.
The officer shall be liable as a trustee and must account the profits which would have accrued to the
corporation when he acquires an interest adverse to the corporation.

32. Dealings of directors, trustees or officers with the corporation. - A contract of the corporation with its
director, trustees or officer is valid until annulled under the ff conditions:
1. The presence of such director in the board meeting where the contract was approved was not necessary to
constitute a quorum.
2. The vote of such director was not necessary for the approval of the contract.
3. The contract is fair and reasonable under the circumstances.
4. The contract was previously authorized by the board of directors.

If # 1 or 2 is absent, the contract may be ratified by the vote of the stockholders representing at 2/3 of the
outstanding capital stock or of 2/3 of the members in a meeting called for the purpose. The contract should
fair and reasonable under the circumstances.

33. Contracts between corporations with interlocking directors. - The contract between 2+ corporations with
interlocking directors shall not be invalidated on that ground alone, except in case of fraud. The above section
shall apply if the interest of the interlocking director in one corporation is substantial and in the other
corporation is merely nominal. Stockholdings exceeding 20% percent of the outstanding capital stock is
considered substantial for purposes of interlocking directors.

34. Disloyalty of a director. - When a director acquires a business opportunity for himself that should belong
to the corporation, he must account and refund the profits unless his act was ratified by a vote of the
stockholders owning 2/3 of the outstanding capital stock. This provision shall apply notwithstanding the fact
that the director risked his own funds in the venture.

35. Executive committee. - An executive committee may be formed and composed of 3 members of the board
to be appointed by the board. The committee may act by majority vote of all members on matters within the
competence of the board except on:
1. Approval of action for which shareholders' approval is also required.
2. Filling of vacancies in the board.
3. Amendment, repeal or adoption of by-laws.
4. Amendment or repeal a resolution of the board which is not so amendable or repealable under the by-laws.
5. Distribution of cash dividends to the shareholders.

IV Powers of Corporations
36. Corporate powers and capacity. – The corporation has the power and capacity:
1. To sue and be sued in its corporate name.
2. Corporate name succession during its term as stated in the AOI and certificate of incorporation.
3. To adopt and use a corporate seal.
4. To amend its articles of incorporation in accordance with the provisions of this Code.
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in
accordance with this Code.
6. To issue stocks and sell treasury stocks to subscribers in accordance with the provisions of this Code in case
of stock corporations and to admit members in case of a non-stock corporation.
7. To purchase, receive, grant, hold, convey, sell, lease, or mortgage real and personal property, including
securities and bonds of other corporations subject to the limitations under the Constitution or laws.
8. To enter into merger or consolidation with other corporations as provided in this Code.
9. To make reasonable donations but not aid to a political party for purposes of partisan political activity.
10. To establish pension or retirement plans for the benefit of its directors, trustees, officers and employees.
11. To exercise other powers necessary to carry out its purpose under the articles of incorporation.

37. Power to extend or shorten corporate term. - A private corporation may extend or shorten its term as
when approved by a majority vote of the board of directors or trustees and ratified at a meeting by the
stockholders representing 2/3 of the outstanding capital stock or by 2/3 of the members in case of non-stock
corporations. Personal service or written notice of the proposed action, time and place of the meeting shall be
given to each stockholder or member at his residence as shown in the books with postage prepaid. Dissenting
stockholders regarding the extension may exercise their appraisal right.

38. Power to increase or decrease capital stock; incur, create or increase bonded indebtedness. - The
approval by a majority vote of the board of directors and2/3 of the outstanding capital stock shall favor the
increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness
at a stockholder's meeting duly called for the purpose. Personal service or written notice, time and place of
the stockholder's meeting must be addressed to each stockholder at his residence as shown in the books with
postage prepaid. A certificate must be signed by a majority of the directors and countersigned by the chairman
and the secretary of the stockholders' meeting, setting forth:
1. That the requirements of this section have been complied with.
2. The amount of the increase or diminution of the capital stock.
3. For an increase of the capital stock to effect diviends, the amount of capital stock or number of no-par
shares of stock subscribed, the names, nationalities and residences of the persons subscribing, the amount of
capital stock or number of no-par stock subscribed by each, and the amount paid in cash or property, or the
amount of capital stock or number of shares of no-par stock allotted to each stock-holder.
4. The bonded indebtedness to be created or increased.
5. The actual indebtedness of the corporation on the day of the meeting.
6. The amount of stock represented at the meeting.
7. The vote authorizing the increase or diminution of the capital stock, or the incurring, creating or increasing
of any bonded indebtedness.

Such action shall require prior approval of the SEC. One of the duplicate certificates shall be kept on file in the
office of the corporation and the other shall be filed with the SEC to be attached to the original articles of
incorporation. The capital stock shall stand increased or decreased and the incurring, creating or increasing of
any bonded indebtedness is authorized after approval by the SEC and the issuance by the Commission of its
certificate of filing accompanied by the sworn statement of the treasurer of the corporation showing that at
least 25% of such increased capital stock has been subscribed and that 25% of the amount subscribed has
been paid either in actual cash or property the value of which is equal to 25% percent of the subscription. The
decrease of the capital stock shall not be approved by the Commission if its effect shall prejudice the rights of
corporate creditors.
Non-stock corporations may incur or create bonded indebtedness, or increase the same, with the approval by
a majority vote of the board of trustees and of 2/3 of the members in a meeting duly called for the purpose.
Bonds issued by a corporation shall be registered with the SEC.

39. Power to deny pre-emptive right. - Stockholders shall enjoy pre-emptive right to subscribe to all issues or
disposition of shares in proportion to their respective shareholdings, unless denied by the articles of
incorporation or an amendment thereto. The right is not applicable to shares required by law to be owned by
the public or to shares issued in exchange for property needed by the corporation or in payment of a debt with
the approval of the stockholders representing 2/3 of the outstanding capital stock.

40. Sale or other disposition of assets. – A corporation may sell, lease, exchange, mortgage, pledge or dispose
all or substantially all its assets and goodwill for consideration in money, stocks, bonds, or property when the
majority vote of its board of directors or trustees are authorized by the vote of the stockholders representing
at least 2/3 of the outstanding capital stock, or in case of non-stock corporation, by the vote of at least 2/3 of
the members, in a stockholder's or member's meeting duly called for the purpose. Personal service or written
notice of the proposed action, time and place of the meeting shall be given to each stockholder or member at
his residence as shown in the books with postage prepaid. Dissenting stockholders regarding the disposition
may exercise their appraisal right. Disposition is deemed substantially all the corporate property if it is
incapable of continuing the business for which it was incorporated.

The board of directors or trustees may nevertheless abandon the disposition of corporate assets after
stockholders or members approval if such action would affect the rights of third parties under a contract,
without further action or approval by the stockholders or members. The authorization by the stockholders or
members to dispose assets is not necessary in the usual and regular course of business of the corporation.

41. Power to acquire own shares. - A stock corporation shall have the power to purchase or acquire its own
shares if it has unrestricted retained earnings for purposes including but not limited to the ff:
1. To eliminate fractional shares arising out of stock dividends.
2. To collect or compromise indebtedness to the corporation from unpaid subscription in a delinquency sale.
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares.

42. Power to invest corporate funds in another corporation or business or for any other purpose. - A private
corporation may invest its funds in another corporation or business other than the primary purpose by a
majority of the board of directors or trustees and ratified by the stockholders representing at least 2/3 of the
outstanding capital stock, or by at least 2/3 of the members in the case of non-stock corporations, at a
stockholder's or member's meeting duly called for the purpose. Personal service or written notice of the
proposed action, time and place of the meeting shall be given to each stockholder or member at his residence
as shown in the books with postage prepaid. Dissenting stockholders regarding the investment may exercise
their appraisal right. Investments to accomplish its primary purpose do not require the approval of the
stockholders or members.

43. Power to declare dividends. - The board of directors of a stock corporation may declare dividends out of
the unrestricted retained earnings to be payable in cash, property, or stock to all stockholders on the basis of
outstanding stock held by them. Dividends on delinquent stock shall first be applied to the unpaid balance plus
costs and expenses. Stock dividends shall be withheld from the delinquent stockholder until fully paid. Stock
dividends shall be issued upon the approval of stockholders representing at least 2/3 of the outstanding
capital stock at a regular or special meeting duly called for the purpose. Stock corporations are prohibited
from retaining surplus profits in excess of 100% of its paid-in capital stock, except:

1. When justified by corporate expansion projects or programs approved by the board of directors.
2. When the corporation is prohibited by its creditor from declaring dividends without its consent.
3. When retention is necessary under special circumstances such as need for special reserve for contingencies.
44. Power to enter into management contract. – The corporation shall conclude a management contract with
another corporation when such contract is approved by the board of directors and by stockholders owning at
least the majority of the outstanding capital stock, or by at least a majority of the members in the case of a
non-stock corporation, of both the managing and the managed corporation, at a meeting duly called for the
purpose under the ff:
1. The stockholders representing the same interest of both the managing and the managed corporations
control more than 1/3 of the total outstanding capital stock entitled to vote of the managing corporation.
2. The management contract must be approved by the stockholders of the managed corporation owning at
least 2/3 of the total outstanding capital stock entitled to vote, or by at least 2/3 of the members in the case of
a non-stock corporation when a majority of the members of the board of directors of the managing
corporation also constitute a majority of the members of the board of directors of the managed corporation.
Management contracts shall be entered for five years only in managing all or substantially all of the business
of another corporation. Contracts on the exploration and exploitation of natural resources may be entered in
periods provided by pertinent laws.

45. Ultra vires acts of corporations. – The corporation under this Code shall possess or exercise corporate
powers conferred by this Code or by its articles of incorporation and are necessary or incidental to its powers.

V By Laws
46. Adoption of by-laws. – The corporation receiving its certificate of incorporation from the SEC shall adopt a
code of by-laws for its government within 1 month. The adoption of by-laws shall be approved by the vote of
the stockholders representing at least a majority of the outstanding capital stock or of at least a majority of the
members in a non-stock corporations. The by-laws shall be signed by the stockholders or members voting for
them and shall be kept in the principal office of the corporation, subject to the inspection of the stockholders
or members during office hours. A certified copy signed by the majority of the directors or trustees and
secretary of the corporation shall be filed with the SEC to be attached to the original articles of incorporation.
By-laws may be adopted and filed prior to incorporation provided it is approved and signed by all the
incorporators and submitted to the SEC along with the articles of incorporation. The SEC shall not accept the
filing of by-laws of a bank, banking institution, building and loan association, trust company, insurance
company, public utility, educational institution or other special corporations governed by special laws.

47. Contents of by-laws.

1. The time, place and manner of calling regular or special meetings of the directors or trustees.
2. The time and manner of calling and conducting regular or special meetings of the stockholders or members.
3. The required quorum in meetings of stockholders or members and the manner of voting therein.
4. The form for proxies of stockholders and members and the manner of voting them.
5. The qualifications, duties and compensation of directors or trustees, officers and employees.
6. The time for holding the annual election of directors of trustees and the manner of giving notice thereof.
7. The manner of election or appointment and the term of office of all officers other than directors or trustees.
8. The penalties for violation of the by-laws.
9. The manner of issuing stock certificates in of stock corporations.
10. Other matters necessary for corporate business and affairs.

48. Amendments to by-laws. - The amendment, repeal or adoption of by-laws may be effected by the majority
vote of the board of directors or trustees and the owners of at least a majority of the outstanding capital
stock, or at least a majority of the members of a non-stock corporation at a regular or special meeting called
for the purpose. The owners of 2/3 of the outstanding capital stock or 2/3 of the members in a non-stock
corporation may delegate to the board of directors or trustees the power to amend, repeal or adopt by-laws
but shall be considered revoked when the stockholders owning a majority of the outstanding capital stock or a
majority of the members in non-stock corporations so vote at a regular or special meeting.

The new by-laws shall be attached to the original by-laws in the office of the corporation and a certified copy
under oath by the corporate secretary and a majority of the directors or trustees shall be filed with the SEC to
be attached to the original articles of incorporation and original by-laws. They shall be effective upon issuance
of a certification by the SEC.

VI Meetings
49. Kinds of meetings. - Meetings of directors, trustees, stockholders, or members may be regular or special.

50. Regular and special meetings of stockholders or members.

Regular meetings of stockholders or members shall be held annually on a fixed date in the by-laws or yearly
on any date in April determined by the board of directors or trustees. The written notice of regular meetings
shall be sent to all stockholders or members of record at least 2 weeks prior to the meeting.
Special meetings of stockholders or members shall be held any time necessary or as provided in the by-laws
but at least 1 week written notice shall be sent to all stockholders or members. Notice of any meeting may be
waived by a stockholder or member, expressly or impliedly.

The SEC may issue an order to the petitioning stockholder or member to call a meeting by giving notice
required by this Code when there is no person authorized to call a meeting. The petitioning stockholder or
member shall preside the meeting until at least a majority of the stockholders or members present have
chosen a presiding officer.

51. Place and time of meetings of stockholders or members. – The regular or special meetings shall be held in
the principal office of the corporation or in the city or municipality where the principal office is located. Metro
Manila shall be considered a city or municipality. Notice of meetings shall be in writing, and the time and place
thereof stated therein. The business transacted within the powers of the corporation at a meeting shall be
valid even if the meeting is improperly held or called, provided all the stockholders or members of the
corporation are present or duly represented at the meeting.

52. Quorum in meetings. - a quorum shall consist of stockholders representing a majority of the outstanding
capital stock or a majority of the members in the case of non-stock corporations.

53. Regular and special meetings of directors or trustees. - Regular meetings of the board of directors or
trustees shall be held monthly. Special meetings of the board of directors or trustees may be held any time
upon the call of the president. Their meetings may be held anywhere in or outside of the Philippines. Notice
stating the date, time and place of the meeting must be sent to every director or trustee at least 1 day prior to
the meeting. A director or trustee may waive this requirement, either expressly or impliedly.

54. Who shall preside at meetings. - The president shall preside at all meetings of the directors or trustee as
well as of the stockholders or members, unless the by-laws provide otherwise.

55. Right to vote of pledgors, mortgagors, and administrators. - The pledgor or mortgagor of shares 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, or receivers appointed by the court may attend and vote in behalf of the
stockholders or members without need of any written proxy.

56. Voting in case of joint ownership of stock. – To vote the shares of stock owned jointly by 2+ persons
requires the consent of all co-owners, unless when there is a written proxy authorizing another to vote such
shares. Shares owned in an "and/or" capacity are deemed to be voted on by any of the joint owners.
57. Voting right for treasury shares. - Treasury shares shall have no voting right as long as such shares remain
in the Treasury.

58. Proxies. - Stockholders and members may vote in person or by proxy in the meetings. Proxies shall in
writing, signed by the stockholder or member and filed before the scheduled meeting with the corporate
secretary. It shall be valid only for the meeting intended. A proxy shall not be valid and effective for more than
5 years.

Sec. 59. Voting trusts. - Stockholders may create a voting trust to confer on a trustee for 5 years the right to
vote and other rights pertaining to the shares. If the voting trust is a condition in a loan agreement, the trust
may exceed 5 years but shall automatically expire upon full payment of the loan. A voting trust agreement
must be in writing and notarized, and the T/C specified. A certified copy of the trust agreement shall be filed
with the corporation and with the SEC; otherwise, said agreement is ineffective and unenforceable. The
certificate of stock covered by the trust shall be canceled and a new one shall be issued in the name of the
trustee stating that they are issued pursuant to said agreement. In the books of the corporation, the transfer
shall note that it was pursuant to a voting trust agreement. The trustee shall deliver the voting trust certificate
to the transferors, which shall be transferable in the same manner as certificates of stock.

The voting trust agreement shall be subject to examination by any stockholder in the same manner as other
corporate book or record. The transferor and the trustee may exercise the right of inspection of all corporate
books and records. A stockholder may transfer his shares to the same trustee pursuant to the T/C of the voting
trust agreement. Voting trust agreements shall not be used to circumvent the law against monopolies and
illegal combinations or used for fraud.

All rights granted in a voting trust agreement shall automatically expire at the end of the period. The voting
trust certificates and the certificates of stock in the name of the trustee are canceled and new certificates of
stock shall be reissued in the name of the transferors. The voting trustee may vote by proxy.

VII Stocks and Stockholders

60. Subscription contract. - Subscription is a contract for the acquisition of stock in an existing corporation or a
corporation still to be formed even though the parties refer to it as a purchase or some other contract.

61. Pre-incorporation subscription. - A pre- incorporation subscription for shares of stock shall be irrevocable
for 6 months from the date of subscription, unless all of the other subscribers consent to the revocation, or
the corporation fails to materialize. The pre-incorporation subscription may not be revoked after the
submission of the articles of incorporation to the SEC.

62. Consideration for stocks. - Stocks shall not be issued for a consideration less than par or its issued price.
Consideration may be the ff:
1. Actual cash paid to the corporation.
2. Property, tangible or intangible, actually received by the corporation necessary for its purpose at a fair
valuation equal to the par or issued value of the stock issued.
3. Labor performed for or services actually rendered to the corporation.
4. Previously incurred indebtedness of the corporation.
5. Amounts transferred from unrestricted retained earnings to stated capital.
6. Outstanding shares exchanged for stocks in the event of reclassification or conversion.

The consideration in intangible property such as patents of copyrights shall be determined by the
incorporators or the board of directors, subject to approval by the SEC. Shares of stock shall not be issued in
exchange for promissory notes or future service. Bonds issued by the corporation may be paid in consideration
as those for stocks.
The issued price of no-par value shares may be fixed in the articles of incorporation, by the board of directors,
or by the stockholders representing at least a majority of the outstanding capital stock at a meeting called for
the purpose.

63. Certificate of stock and transfer of shares. - The certificates shall be signed by the president or vice
president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation.
Shares of stock are personal property and transferred by the delivery of the certificate endorsed by the owner.
The transfer, to be valid must be recorded in the books of the corporation showing the parties to the
transaction, date of the transfer, the certificate number, and the number of shares transferred.

64. Issuance of stock certificates. – The certificate of stock shall be issued upon full payment of the
subscription with interest and expenses.

65. Liability of directors for watered stocks. – The officer of a corporation consenting to the issuance of stocks
for a consideration less than its par value or in excess of its fair value shall be solidarily liable with the
stockholder concerned to the corporation and its creditors for the difference between the value received and
the par or issued value.

66. Interest on unpaid subscriptions. – The subscribers shall pay interest on unpaid subscriptions at the
interest rate fixed in the by-laws or the legal rate if no rate of interest is so fixed.

67. Payment of balance of subscription. - The board of directors may at any time declare due and payable
unpaid subscriptions and collect the same with accrued interest. Payment shall be made on the date specified
in the contract of subscription or on the date stated in the call made by the board. Failure to pay shall render
the entire balance due and payable. If no payment is made within 30 days, the stocks become delinquent and
shall be subject to sale.

68. Delinquency sale. - The board of directors through a resolution may order the public auction sale of the
delinquent stock within 30 - 60 days from the date of delinquency. The date, time, place, and amount due on
each subscription plus all accrued interest shall be specifically stated. Notice of said sale with a copy of the
resolution shall be sent to the delinquent stockholder either personally or by registered mail. It shall be
published once a week for 2 consecutive weeks in a NPGC in the province or city where the principal office of
the corporation is located.

The bidder who offers to pay the balance on the subscription with accrued interest, costs of advertisement
and expenses of sale for the smallest number of shares shall win the bid. The stock so purchased shall be
transferred to him in the books of the corporation and a certificate of stock shall be issued in his favor. The
remaining shares, if any, shall be credited in favor of the delinquent stockholder who is likewise entitled to the
issuance of a certificate of stock. Should there be no such bidder, the corporation may bid and the total
amount due shall be credited as fully paid in the books of the corporation. Title to shares covered by the
subscription are considered treasury shares and may be disposed of by the corporation.

69. When sale may be questioned. – The action to recover delinquent stock sold cannot be sustained on the
ground of defect in the notice of sale or the sale itself unless the petitioner tenders to the party holding the
stock the sum for which it was sold with interest at the legal rate within 6 months from the date of sale.

70. Court action to recover unpaid subscription. – The corporation may collect by court action the amount
due on unpaid subscriptions with accrued interest, costs and expenses.

71. Effect of delinquency. – The delinquent stock shall not be voted, entitled to vote, or to be represented at a
stockholder's meeting. The holder of such stock is not entitled to the rights of a stockholder except the right to
dividends unless he pays the full amount due on his subscription with accrued interest, costs and expenses of
advertisement, if any.
72. Rights of unpaid shares. - Holders of subscribed shares not fully paid which are not delinquent shall have
all the rights of a stockholder.

73. Lost or destroyed certificates. - The ff procedure shall be followed:

1. The registered owner of a certificate of stock or his legal representative shall file an affidavit in triplicate
setting forth the circumstances as to how the certificate was lost, stolen or destroyed, the number of shares,
the serial number of the certificate and the name of the corporation which issued the same. He shall also
submit other information and evidence.
2. After verification of the affidavit and evidence, the corporation shall publish a notice once a week for 3
consecutive weeks in a NPGC in the place where the corporation has its principal office, at the expense of the
registered owner. The notice shall state the name of the corporation, the registered owner, serial number of
the certificate, and the number of shares. If there is no contest after 1 year from the last publication, the right
to contest shall be barred and the corporation shall cancel the certificate of stock and issue a new one. A new
certificate may be issued even before the expiration of 1 year if the registered owner files a bond that is
satisfactory to the board of directors. If there is contest or a court action is pending regarding the ownership of
the certificate of stock, the issuance of the new certificate shall be suspended until final judgment. An action
may not be brought against a corporation that issued new certificate of stock in lieu of those lost, stolen or
destroyed except in fraud, bad faith, or negligence of its officers.

VIII Corporate Books and Records

74. Books to be kept; stock transfer agent. – The corporation shall keep at its principal office a record of all
business transactions and minutes of all meetings of stockholders or members, or of the board of directors or
trustees. It shall be open to inspection by any director, trustee, stockholder or member of the corporation at
reasonable hours on business days and he may request in writing for a copy of excerpts or minutes at his
expense. The officer or agent of the corporation who refuses the examination of excerpts, records, or minutes
shall be liable for damages and shall be guilty of an offense under Sec. 144 of this Code. If refusal is made
pursuant to a board resolution or order, the directors or trustees voting against the demand shall be liable.
The records or minutes used in bad faith or illegitimate purpose shall be a defense to an action.

The ff actions in meetings shall be recorded:

1. Time and place of holding the meeting
2. How the meeting is authorized.
3. Notice given.
4. Whether a regular or special meeting. The object, those present and absent, and all acts done thereat.
5. Time when a director, trustee, stockholder or member entered or left the meeting.
6. Minutes.
7. Yeas and nays on a motion or proposition.
8. Protest of a director, trustee, stockholder or member on an action.

Stock corporations must also keep in its principal office a Stock and Transfer Book - a record of all stocks in the
names of the stockholders alphabetically arranged; installments paid and unpaid on the subscriptions, date of
payment; a statement of every alienation, sale or transfer of stock, the date thereof, and by and to whom
made. The book shall be open for inspection by any director or stockholder at reasonable hours on business
days. The stock transfer agent engaged principally in the business of registering transfers of stocks in behalf of
a stock corporation shall secure a license from the SEC, renewable annually. A stock corporation may transfer
of its own stocks.

75. Right to financial statements. - The corporation shall furnish the stockholder or member the recent
financial statement showing in detail its assets and liabilities and the result of its operations within 10 days
from receipt of written request. The FS shall include a balance sheet and a profit or loss statement as of the
end of the previous taxable year.

The board of directors or trustees at a regular meeting shall present to the stockholders or members a
financial report of the operations of the corporation for the preceding year. The report shall include financial
statements, signed and certified by an independent CPA. If the paid-up capital of the corporation is less than
P50,000, the FS may be certified under oath by the treasurer or any officer of the corporation.

IX Merger and Consolidation

76. Plan or merger of consolidation. – 2+ corporations may merge into a single corporation which shall be
one of the constituent corporations or may consolidate into a new single corporation which shall be the
consolidated corporation. The board of directors or trustees of each corporation shall approve the plan of
merger or consolidation setting forth the ff:
1. The names of the corporations proposing to merge or consolidate or called the constituent corporations.
2. The terms and mode of the merger or consolidation.
3. A statement of changes in the articles of incorporation of the constituent corporations.
4. Other provisions necessary to the proposed merger or consolidation.

77. Stockholder's or member's approval. - Upon approval by majority vote of each of the board of directors or
trustees, the plan shall be submitted for approval by the stockholders or members of each of such
corporations at separate corporate meetings duly called for the purpose. Notice shall be given to all
stockholders or members at least 2 weeks before the meeting, either personally or by registered mail. The
notice shall state the purpose and include a copy of the plan. The affirmative vote of stockholders representing
at least 2/3 of the outstanding capital stock or at least 2/3 of the members in the non-stock corporation is
necessary for the approval of the plan. The dissenting stockholder may exercise his appraisal right except
when the plan is abandoned. The plan may be amended upon approval by majority vote of the boards of
directors or trustees of all the constituent corporations and ratified by the affirmative vote of stockholders
representing at least 2/3 of the outstanding capital stock or of 2/3 of the members. The plan shall be
considered as the agreement of merger or consolidation.

78. Articles of merger or consolidation. - The articles of merger or articles of consolidation shall be executed
by the constituent corporations, to be signed by their president or vice-president and certified by the secretary
or assistant secretary after the approval by the stockholders or members setting forth:
1. The plan of the merger or the plan of consolidation.
2. The number of shares outstanding or the number of members.
3. The number of shares or members voting for and against such plan.

79. Effectivity of merger or consolidation. - The articles of merger or articles of consolidation shall be
submitted to the SEC in quadruplicate for its approval. The recommendation of the appropriate government
agency shall first be obtained in the merger or consolidation of banks, banking institutions, building and loan
associations, trust companies, insurance companies, public utilities, educational institutions and other special
corporations governed by special laws. If the Commission is satisfied about the compliance with this Code, it
shall issue a certificate of merger or of consolidation. If the SEC has reason to believe that the plan is contrary
to this Code, it shall set a hearing to give the corporations the opportunity to be heard. Written notice of the
date, time and place of hearing shall be given to each constituent corporation at least 2 weeks before the
hearing.

80. Effects or merger or consolidation.

1. The constituent corporations shall become a single corporation. In case of merger, the surviving corporation
and in case of consolidation, the consolidated corporation.
2. The separate existence of the constituent corporations shall cease.
3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and powers
of a corporation organized under this Code.
4. The property, receivables, subscriptions, choses in action and other interest belonging to each constituent
corporation are deemed transferred to the surviving or consolidated corporation without further act or deed.
5. The surviving or consolidated corporation shall be responsible and liable for all the liabilities and obligations
of each of the constituent corporations. The rights of creditors or liens on the property of the constituent
corporations shall not be impaired by the merger or consolidation.

X Appraisal Rights
81. Instances of appraisal right.- A stockholder shall have the right to demand payment of his shares at the
fair value in the ff instances:
1. Upon the amendment to the articles of incorporation restricts the rights of stockholder or shares, authorizes
preferences of shares, or extends/shortens the term of corporate existence.
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of
the corporate property and assets.
3. In case of merger or consolidation.

82. How right is exercised. - Appraisal right may be exercised by the opposing stockholder of a corporate
action by making a written demand on the corporation for payment of the fair value of his shares within 30
days after the vote. Failure to make the demand within the period is deemed a waiver of the appraisal right. If
the corporate action is implemented, the corporation shall pay the stockholder the fair value on the day prior
the vote, excluding appreciation or depreciation in anticipation of such corporate action. The stockholder shall
surrender the certificate of stock representing his shares.

If the withdrawing stockholder and the corporation cannot agree on the fair value of the shares within 60 days
from approval by the stockholders, 3 disinterested persons shall appraise the value, one of whom shall be
named by the stockholder, another by the corporation, and the third by the two chosen. The findings of the
majority of the appraisers shall be final. The corporation shall pay the dissenting stockholder within 30 days
after the award if the corporation has unrestricted retained earnings. The stockholder shall forthwith transfer
his shares to the corporation.

83. Effect of demand and termination of right. - All voting and dividend rights accruing to the shares of the
withdrawing stockholder shall be suspended, except the right to receive payment for fair value thereof from
the time of demand for payment until abandonment of the corporate action involved or purchase. His voting
and dividend rights shall immediately be restored if he is not paid within 30 days after the award.

84. When right to payment ceases. - Appraisal right shall cease, his status as a stockholder shall be restored,
and dividends shall accrue on his shares if the demand for payment is withdrawn upon the consent of the
corporation, the proposed corporate action is abandoned or disapproved by the SEC, or if the SEC determines
that such stockholder is not entitled to the right.

85. Who bears costs of appraisal. - The costs and expenses of appraisal shall be borne by the corporation
except when the fair value appraised is approximately the same as that of the corporation’s. The costs and
expenses of the action to recover fair value shall be assessed against the corporation except when the
stockholder refuses to receive payment without justification.

86. Notation on certificates; rights of transferee. - The dissenting stockholder shall submit the certificates of
stock representing his shares to the corporation for notation that such shares are dissenting shares within 10
days from demand. Failure to do so shall terminate his appraisal rights. If the shares bearing such notation are
transferred, the rights of the transferor as a dissenting stockholder shall cease and the transferee shall have
the rights of a regular stockholder. The accrued dividends on such shares shall be paid to the transferee.

XI Non-Stock Corporations
87. Non-stock Corporation - No part of its income is distributable as dividends to its members, trustees, or
officers on dissolution. Profits obtained as an incident to its operations shall be used for the furtherance of the
purpose for which the corporation was organized. The provisions governing stock corporations shall be
applicable to non-stock corporations, except when covered by this Title.

88. Purposes. - Non-stock corporations may be formed for charitable, religious, educational, professional,
cultural, fraternal, literary, scientific, social, civic service, or similar purposes, like trade, industry, agricultural
chambers.

1. Members
89. Right to vote. - The right of the members to vote may be limited, broadened or denied to the as specified
in the articles of incorporation or the by-laws. Each member regardless of class shall be entitled to one vote if
the right is not limited. A member may vote by proxy. Voting by mail or other similar means may be authorized
by the by-laws with the approval of the SEC.

90. Non-transferability of membership. – The rights and membership in a non-stock corporation are personal
and non-transferable, unless the articles of incorporation or the by-laws provide otherwise.

91. Termination of membership. - Membership shall be terminated in the manner and for causes provided in
the articles of incorporation or the by-laws. Termination shall have the effect of extinguishing the rights of a
member in the corporation or in its property.

2. Trustees and Officers

92. Election and term of trustees. - The board of trustees of non-stock corporations may be more than 15 as
stated in the articles of incorporation or by-laws. The term of office of 1/3 of them shall expire every year. The
subsequent elections of 1/3 of the board of trustees shall be held annually and they shall have a term of 3
years. Trustees elected to fill vacancies before the expiration of a term shall hold office only for the unexpired
term. The trustee should be a member of the corporation. Officers of a non-stock corporation may be directly
elected by the members.

93. Place of meetings. - The by-laws may provide that the members of a non-stock corporation may hold their
regular or special meetings at any place even outside the place where the principal office of the corporation is
located: Provided, That proper notice is sent to all members indicating the date, time and place of the
meeting: and Provided, further, That the place of meeting shall be within the Philippines.

3. Distribution of Assets in Non-stock Corporations

94. Rules of distribution. – The assets shall be distributed as follows in case dissolution:
1. All liabilities and obligations of the corporation shall be paid.
2. Assets held by the corporation on a condition of return, transfer or conveyance shall be returned,
transferred or conveyed.
3. Assets held by the corporation permitting their use only for charitable, religious, benevolent, educational or
similar purposes, but not required to be returned, transferred or conveyance by reason of the dissolution, shall
be transferred or conveyed to other corporations, societies or organizations engaged in similar activities to
those of the dissolving corporation.
4. All other assets shall be distributed in accordance with the articles of incorporation or the by-laws where
distributive rights of members are provided.
5. Assets may be distributed according to the plan of distribution to persons, societies, organizations or
corporations, whether or not organized for profit.

95. Plan of distribution of assets. - The plan for the distribution of assets which is not inconsistent with this
Title may be adopted by a non-stock corporation. The board of trustees shall adopt a resolution
recommending the plan in a regular or special meeting of members having voting rights. Written notice, the
date, time and place of the meeting shall be given to each member entitled to vote. The plan of distribution
shall be adopted upon approval of at least 2/3 of the members present or represented by proxy at such
meeting.

XII Close Corporations

96. Definition and applicability of Title. - A close corporation is one whose articles of incorporation provide:
1. All of the corporation's issued stock shall be held by not more than 20 persons, excluding treasury shares.
2. All the issued stock shall be subject to restrictions on transfer permitted by this Title.
3. The corporation shall not list in a stock exchange or make a public offering of its stock. The corporation
whose at least 2/3 of its voting stock is owned or controlled by another corporation which is not a close
corporation shall not be deemed a close corporation.

A corporation may be incorporated as a close corporation, except mining, oil companies, stock exchanges,
banks, insurance companies, public utilities, educational institutions, and corporations vested with public
interest.

97. Articles of incorporation. - The articles of incorporation of a close corporation may provide:
1. For a classification of shares or rights, qualifications for holding, and restrictions on transfers.
2. For a classification of directors who may be elected solely by a particular class of stock.
3. For a greater quorum or voting requirements in meetings.

The articles of incorporation of a close corporation may provide that the business of the corporation shall be
managed by the stockholders of the corporation rather than by a board of directors provided:
1. No need to call a meeting of stockholders to elect directors.
2. The stockholders shall be deemed to be directors.
3. The stockholders of the corporation shall be subject to all liabilities of directors.

The articles of incorporation may likewise provide that officers or employees shall be elected or appointed by
the stockholders, instead of by the board of directors.

98. Validity of restrictions on transfer of shares. - Restrictions on the transfer of shares must appear in the
articles of incorporation and in the by-laws as well as in the certificate of stock. If not, the transfer shall not be
binding even on a purchaser in good faith. The restrictions shall not be more onerous than granting the
stockholders or the corporation the option to purchase such shares within a period. The transferring
stockholder may sell his shares to any third person after the existing stockholders or the corporation fails to
exercise the option to purchase within the period.

99. Effects of issuance or transfer of stock in breach of qualifying conditions. -

1. A person is conclusively presumed to have notice of ineligibility to be a stockholder if the stock of a close
corporation is issued or transferred to him where the articles of incorporation state the ineligible holders and
the certificate conspicuously shows the qualifications of the holders.
2. A person is conclusively presumed to have notice of ineligibility to be a stockholder if the articles of
incorporation of a close corporation states the number of persons not exceeding twenty 20, who are the only
entitled holders and the certificate conspicuously states such number hence the issuance or transfer of stock
would cause the stock to be held by more than such number of persons.
3. The transferee of a stock of a close corporation is conclusively presumed to have acquired it in violation of
the restriction on transfer if the stock certificate conspicuously shows such restriction on transfer.
4. The corporation may refuse to register the transfer of stock in the name of the transferee when he is
conclusively presumed to have notice on the ff:
i. That he is ineligible to be a holder of stock of the corporation.
ii. That transfer to him would cause the stock of the corporation to be held by more persons than permitted by
its articles of incorporation.
iii. That the transfer is in violation of a restriction on transfer.
5. #4 shall not applicable if the transfer of stock was consented to by all the stockholders of the close
corporation or if its articles of incorporation are amended.
6. Transfer - not limited to a transfer for value.
7. The transferee has the right to rescind the transfer or to recover under a warranty.

100. Agreements by stockholders.

1. The agreements of stockholders before the formation and organization of a close corporation and signed by
all of them shall continue to be valid and binding between them as long as such agreements are not
inconsistent with the articles of incorporation.
2. The stockholders may agree on the exercise of voting rights, the shares held by them, or the procedure
agreed upon in writing and signed by them.
3. The written agreement regarding the phase of corporate affairs signed by the stockholders shall not be
invalidated on the ground that it makes them partners among themselves.
4. The written agreement of the stockholders in a close corporation shall not be invalidated on the ground that
the conduct of business interferes with the powers of the board of directors. The agreement shall impose
liabilities for the managerial acts of stockholders who are parties thereto.
5. The stockholders engaged in the management of the business of a close corporation shall be under strict
fiduciary duty to each other. They shall be personally liable for corporate torts except when the corporation
obtained a liability insurance.

101. When board meeting is unnecessary or improperly held. – The action of the directors without a meeting
shall nevertheless be deemed valid if:
1. Written consent is signed by all the directors before or after the action.
2. All the stockholders have knowledge of the action and did not object in writing.
3. The directors are accustomed to take informal action with the acquiescence of all the stockholders.
4. The directors have knowledge of the action and did not object in writing.

The action within corporate powers taken in a director's meeting that was held without a proper call or notice
is deemed ratified by a director who failed to attend except when he files his written objection with the
corporate secretary after knowledge thereof.

102. Pre-emptive right in close corporations. - The pre-emptive right of stockholders in close corporations
shall extend to all stock to be issued and reissuance of treasury shares in payment of corporate debts for
money, property or personal services except when the articles of incorporation provide otherwise.

103. Amendment of articles of incorporation. – The amendment of the articles of incorporation seeking to
delete a provision required by this Title or to reduce a quorum or voting requirement shall not be valid unless
approved by the affirmative vote of at least 2/3 of the outstanding capital stock, with or without voting rights,
or a greater proportion of shares provided in the articles of incorporation for amending or deleting a provision,
at a meeting duly called for the purpose.

104. Deadlocks. - The SEC shall have the power to arbitrate the dispute of directors or stockholders on the
management of the corporation's business and affairs such that business can no longer be conducted, upon
written petition by a stockholder. The Commission shall have authority to order the ff:
1. Canceling or altering a provision in the articles of incorporation, by-laws, or stockholder's agreement.
2. Canceling or altering a resolution or act of the corporation/ board of directors/ stockholders/ officers.
3. Directing or prohibiting an act of the corporation/board of directors/ stockholders/officers, or other parties.
4. Requiring the purchase of shares of a stockholder at fair value regardless of unrestricted retained earnings.
5. Appointing a provisional director.
6. Dissolving the corporation.
7. Granting other relief as the circumstances may warrant.

Provisional Director - an impartial person who is not a stockholder or a creditor of the corporation or its
subsidiaries and affiliates. His qualifications may be determined by the SEC. He is not a receiver but he has the
rights and powers of a director. He has the right to notice and to vote at meetings of directors until removed
by the SEC or by all the stockholders. His compensation shall be determined by agreement between him and
the corporation subject to approval of the Commission. The SEC may determine his compensation in the
absence of agreement or due to disagreement between the provisional director and the corporation.

105. Withdrawal of stockholder or dissolution of corporation. – The stockholder of a close corporation may
compel it to purchase his shares at 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 excluding capital stock. A
stockholder may compel the dissolution of the corporation by written petition to the SEC when the acts of the
directors or officers are fraudulent or when corporate assets are misapplied.

XIII Special Corporations

1. Educational Corporations
106. Incorporation. - Educational corporations shall be governed by special laws and by the general provisions
of this Code.

107. Pre-requisites to incorporation. - The SEC shall accept or approve the articles of incorporation and by-
laws of an educational institution upon favorable recommendation of the DECS.

108. Board of trustees. - Trustees of educational institutions organized as non-stock corporations shall not be
less than 5 nor more than 15. The number of trustees shall be in multiples of 5. The board of trustees of
incorporated schools or colleges shall so classify themselves that the term of office of 1/5 of their number shall
expire every year. Trustees elected to fill vacancies before the expiration of a particular term shall hold office
only for the unexpired term. Trustees elected to fill vacancies caused by expiration of term shall hold office for
5 years. A majority of the trustees shall constitute a quorum for the transaction of business. The powers and
authority of trustees shall be defined in the by-laws. For educational institutions organized as stock
corporations, the number and term of directors shall be governed by the provisions on stock corporations.

2. Religious Corporations
109. Classes of religious corporations. - Religious corporations may be incorporated by one or more persons
called corporations sole and religious societies. Religious corporations shall be governed by this Chapter and
by the general provisions on non-stock corporations.
110. Corporation sole. - 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.

111. Articles of incorporation. – He must file with the SEC articles of incorporation setting forth the ff:
1. That he is the chief archbishop, bishop, priest, minister, rabbi or presiding elder of his religious
denomination, sect or church and that he desires to become a corporation sole.
2. The rules, regulations and discipline of his religious denomination, sect or church are consistent with his
becoming a corporation sole and do not forbid it.
3. The chief archbishop, bishop, priest, minister, rabbi or presiding elder is charged with the administration
and management of the affairs and properties of his religious denomination within his territorial jurisdiction.
4. The manner of filling vacancy in the office of chief archbishop, bishop, priest, minister, rabbi of presiding
elder shall be done according to the RR of the religious denomination, sect or church to which he belongs.
5. The principal office of the corporation sole to be established and located within the Philippines.

112. Submission of the articles of incorporation. - The articles of incorporation must be verified by affidavit of
the chief archbishop, bishop, priest, minister, rabbi or presiding elder and accompanied by a notarized copy of
his commission or certificate of election. After the filing with the SEC, he shall become a corporation sole and
all properties of the religious denomination administered or managed by him shall be held in trust for the
benefit of his religious denomination, sect or church, including hospitals, schools, colleges, orphan asylums,
parsonages and cemeteries.

113. Acquisition and alienation of property. – The corporation sole may purchase and hold real estate and
personal property. It may sell or mortgage real property by obtaining an order from the RTC of the province
where the property is situated upon by publication. Such may be opposed by any member of the religious
denomination. When the corporation has its own RR on acquiring, holding, selling and mortgaging real estate
and personal property, the intervention of the courts shall not be necessary.

114. Filling of vacancies. - The successor of the chief archbishop, bishop, priest, minister, rabbi or presiding
elder in a corporation sole shall become the corporation sole on his accession. He shall be permitted to
transact business upon filing with the SEC of a notarized copy of his commission or certificate of election. The
person authorized by the RR of the religious denomination to administer and manage the affairs and
properties of the corporation sole during the vacancy shall exercise the powers and authority of the
corporation sole.

115. Dissolution. - A corporation sole may be dissolved and its affairs settled voluntarily by submitting to the
SEC a verified declaration of dissolution setting forth the ff:
1. The name of the corporation.
2. The reason for dissolution and winding up.
3. The authorization for the dissolution of the corporation by the particular religious denomination.
4. Names and addresses of the persons who shall supervise the winding up of the affairs of such corporation.
The corporation shall cease to carry on its operations except its winding up affairs upon approval of the
declaration of dissolution by the SEC.

116. Religious societies. – The religious society, religious order, diocese, synod, or district organization of a
religious denomination, sect or church may incorporate for the administration and management of its affairs
and properties by filing with the SEC its articles of incorporation verified by the affidavit of the presiding elder,
secretary, or clerk or other member of such religious society upon written consent or by an affirmative vote at
a meeting called for the purpose of at least 2/3 of its members, unless forbidden by the religious
denomination shall setting forth the ff:
1. That the religious society is a religious organization of a religious denomination.
2. That at least 2/3 of its membership gave their written consent or voted to incorporate in a meeting.
3. That the incorporation of the religious society is not forbidden by the RR of the religious denomination.
4. That the religious society desires to incorporate for the administration of its affairs and properties.
5. The principal office of the corporation is to be established and located within the Philippines.
6. The names, nationalities, and residences of the board of trustees elected not less than 5 or more than 15.

XIV Dissssolution
117. Methods of dissolution. - A corporation formed or organized under the provisions of this Code may be
dissolved voluntarily or involuntarily.

118. Voluntary dissolution where no creditors are affected. - The dissolution may be effected by majority vote
of the board of directors or trustees and by a resolution adopted by the affirmative vote of the stockholders
owning at least 2/3 of the outstanding capital stock or of at least 2/3 of the members in a meeting to be called
for that purpose after publication of the notice of time, place and object of the meeting for 3 consecutive
weeks in a newspaper published in the place of its principal office; if no newspaper is published, then in a
NPGC in the Philippines. Notice must be sent to each stockholder or member either by registered mail or by
personal delivery at least 30 days before the meeting. A copy of the resolution authorizing the dissolution shall
be certified by a majority of the board of directors or trustees and countersigned by the secretary of the
corporation. The SEC shall thereupon issue the certificate of dissolution, if dissolution of a corporation does not
prejudice the rights of a creditor having a claim against it.

119. Voluntary dissolution where creditors are affected. - The petition for dissolution shall be filed with the
SEC which shall be signed by a majority of its board of directors or trustees and verified by its president or
secretary setting forth all claims and demands against it and that 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 at a meeting of its stockholders or members called for that purpose. If the petition is sufficient
in form and substance, the Commission shall fix a date when objections may be filed within 30-60 days after
the entry of order. A copy of the order shall be published at least once a week for 3 consecutive weeks in a
NPGC in the place of principal office of the corporation; if there is no such newspaper, then in a NPGC in the
Philippines. A copy shall be posted for 3 consecutive weeks in 3 public places in the municipality or city. 5 days
after the expiration to file objections, the Commission shall hear the petition and decide on the objections. If
the objection is not sufficient and the allegations of the petition are true, it shall render judgment dissolving
the corporation. It may appoint a receiver to collect the assets and pay the debts of the corporation, if the
dissolution of a corporation may prejudice the rights of a creditor.

120. Dissolution by shortening corporate term. - A voluntary dissolution may be effected by amending the
articles of incorporation to shorten the corporate term. A copy of the amended articles of incorporation shall
be submitted to the SEC. The corporation is deemed dissolved without further proceedings upon expiration of
the shortened term.

121. Involuntary dissolution. - A corporation may be dissolved by the SEC upon filing of a verified complaint
and after proper notice and hearing on the grounds provided by existing laws, rules and regulations.

122. Corporate liquidation. – The terminated corporation shall nevertheless be continued as a body corporate
for 3 years after dissolution to settle and close its affairs, to prosecute or defend suits by or against it, to
dispose its property, and to distribute its assets but not for the purpose of continuing the business for which it
was established. The corporation is authorized to convey its property to trustees for the benefit of
stockholders, members, creditors, and other persons in interest during the said 3 years. All property interest of
the corporation terminates and the legal interest vests in the trustees. Assets distributable to an unknown or
absent creditor, stockholder or member shall be escheated to the city or municipality where such assets are
located. A corporation shall not distribute its assets or property except upon lawful dissolution and after
payment of all its debts and liabilities, except by the decrease of capital stock.
XV Foreign Corporations
123. Definition and rights of foreign corporations.
Foreign corporation - is one formed, organized or existing under laws other than those of the Philippines and
whose laws allow Filipino citizens and corporations to do business in its own country or state. It can transact
business in the Philippines after complying with this Code and obtaining a license from the SEC.

124. Application to existing foreign corporations. – The foreign corporation with a license to do business in
the Philippines upon the effectivity of this Code shall continue to have such authority.

125. Application for a license. - A foreign corporation applying for a license shall submit to the SEC a copy of
its articles of incorporation and by-laws certified in accordance with law and their translation to Filipino, if
necessary. The application shall be under oath and shall specifically the ff:
1. The date and term of incorporation.
2. The address of the principal office of the corporation in the country incorporation.
3. The name and address of its resident agent authorized to accept summons and notices.
4. The place in the Philippines where the corporation intends to operate.
5. The purpose the corporation in the transaction of its business in the Philippines.
6. The names and addresses of the directors and officers of the corporation.
7. A statement of its authorized capital stock and the aggregate number of shares which the corporation has
authority to issue, itemized by classes, par value of shares, shares without par value, and series, if any.
8. A statement of its outstanding capital stock and the aggregate number of shares which the corporation has
issued, itemized by classes, par value of shares, shares without par value, and series, if any.
9. A statement of the amount actually paid in.
10. Other information necessary to enable the SEC to determine W/N the corporation is entitled to a license.

Attached to the application for license is a certificate under oath by the authorized official of the jurisdiction of
its incorporation, attesting to the fact that their laws allow Filipino citizens and corporations to do business
therein and the applicant corporation is in good standing. The certificate must be translated in English if it is in
a foreign language. The oath of the translator shall be attached thereto. Attached to the application for a
license is a statement under oath of the president or an authorized person that the corporation is solvent and
in sound financial condition by setting forth the assets and liabilities of the corporation in the prior year to the
application.

Foreign banking, financial and insurance corporations shall comply with the laws applicable to them. In case of
other foreign corporations, their application for license shall be accepted by the SEC upon the authority from
the appropriate government agency.

126. Issuance of a license. - The SEC shall issue a license to the applicant to transact business in the Philippines
for the purpose specified in such license when it is satisfied that the applicant complied with all the
requirements of this Code and other special laws, RR. The foreign corporation may start to transact business in
the Philippines for as long as it retains its authority to act as such under the state of its incorporation, except
when the license is sooner surrendered, suspended or annulled in accordance with this Code or other laws.

The foreign corporation shall deposit with the SEC securities satisfactory to the SEC such as bonds or other
evidence of indebtedness of the government, shares of stock in registered enterprises, domestic corporations
registered in the stock exchange, shares of stock in domestic insurance companies and banks, or a
combination of these securities with an actual market value of at least P100,000, within 60 days after the
issuance of its license for the benefit of its creditors. Such is not required on foreign banking or insurance
corporations. Within 6 months after each fiscal year of the licensee, the SEC shall require additional securities
equivalent in actual market value of 2% percent of its gross income exceeding P5M for that fiscal year. The SEC
shall require the deposit of additional securities if value of the deposited securities decreased by at least 10%.
It may release part of the additional securities deposited if the gross income decreased or if the value of the
securities increased by more than 10% of the actual market value of the securities. The foreign corporation
may substitute deposited securities as long as it is solvent. It is entitled to collect the interest or dividends on
the securities. Such shall be returned if the corporation ceases to do business in the Philippines when the SEC
is satisfied that the licensee has no liabilities.

127. Who may be a resident agent. - A resident agent may be either an individual residing in the Philippines or
a domestic corporation. The individual must be of good moral character and of sound financial standing.

128. Resident agent; service of process. – The foreign corporation shall file with the SEC a power of attorney
designating a person who must be a resident of the Philippines, on whom summons and other legal processes
may be served in actions or legal proceedings against it. The resident agent shall immediately notify the SEC of
his new address in case of a change. It shall also consent that service on the resident agent shall be valid as if
served on its officers at its home office. An agreement between the foreign corporation and the SEC shall be
executed as follows:

"The (name of foreign corporation) does hereby stipulate and agree, in consideration of its being granted by
the SEC a license to transact business in the Philippines, that if at any time it shall cease to transact business or
shall be without any resident agent on whom summons or other legal processes may be served in an action or
proceeding arising out of transactions in the Philippines, service of summons or other legal process may be
made upon the SEC and such service shall have the same force and effect as if made on the duly-authorized
officers of the corporation at its home office."

The SEC shall mail a copy of such summons or other legal process to the corporation at its home office within
10 days from service to it. The sending shall be a necessary part and shall complete such service.

129. Law applicable. – The foreign corporation lawfully doing business in the Philippines shall be bound by the
laws and RR applicable to domestic corporations of the same class, except laws on their formation,
organization, dissolution, or the duties and responsibilities of stockholders/members/ officers.

130. Amendments to articles of incorporation or by-laws of foreign corporations. - The foreign corporation
may amend its articles of incorporation or by-laws. It shall file with the SEC the amended AOI/BL, indicating
clearly in capital letters or by underscoring the changes made, duly certified by the officials of the country of
incorporation within 60 days from effectivity. The filing shall not alter the purposes for which the corporation
is authorized to transact business in the Philippines.

131. Amended license. – The foreign corporation may amend its license on changes in its corporate name or
purposes by submitting an application to the SEC.

132. Merger or consolidation involving a foreign corporation licensed in the Philippines. - Foreign
corporations authorized to transact business in the Philippines may merge or consolidate with domestic
corporations if permitted under Philippine laws and their by- laws. The requirements on merger or
consolidation under this Code are followed.

The foreign corporation that is a party to a merger or consolidation in its home country shall file with the SEC a
copy of the articles of merger or consolidation duly authenticated by the proper officials of the country under
the laws where it was effected within 60 days of effectivity. If the absorbed corporation is the foreign
corporation doing business in the Philippines, it shall file a petition for withdrawal of it license.

133. Doing business without a license. – The foreign corporation transacting business in the Philippines
without a license shall not be permitted to maintain or intervene in any action, suit or proceeding in court or
administrative agency but it may be sued on a valid cause of action recognized under Philippine laws.
134. Revocation of license. - The license of a foreign corporation may be revoked or suspended under the ff:
1. Failure to file its annual report or pay fees as required by this Code.
2. Failure to appoint and maintain a resident agent in the Philippines.
3. Failure to submit to the SEC a statement of change of its resident agent or of his address.
4. Failure to submit to the SEC a copy of the amendment to its articles of incorporation or by-laws or articles of
merger or consolidation.
5. Misrepresentation of material matter in its application, report, affidavit or other documents.
6. Failure to pay taxes, imposts, assessments or penalties due to the government.
7. Transacting business in the Philippines outside of the purposes for which it is authorized under its license.
8. Transacting business in the Philippines as agent of or acting for and in behalf of any foreign corporation or
entity not duly licensed to do business in the Philippines.
9. Any other ground as would render it unfit to transact business in the Philippines.

135. Issuance of certificate of revocation. - The SEC shall issue the certificate of revocation to transact
business in the Philippines. It shall furnish a copy to the appropriate government agency and to the
corporation a certificate of revocation.

136. Withdrawal of foreign corporations. – The foreign corporation may withdraw from the Philippines by
filing a petition for withdrawal of license. The certificate of withdrawal shall be issued by the SEC under the ff:
1. All claims in the Philippines have been paid, compromised or settled.
2. All taxes, imposts, assessments, and penalties due to the government.
3. Such petition for withdrawal was published once a week for 3 consecutive weeks in a NPGC.

XVI Miscellaneous Provisions

137. Outstanding capital stock - total shares of stock issued under subscription agreements to subscribers or
stockholders whether or not fully paid, except treasury shares.

138. Designation of governing boards. - non-stock or special corporations may designate their governing
boards by any name other than as board of trustees.

139. Incorporation and other fees. - The SEC is authorized to collect and receive fees under RR promulgated by
the Commission.

140. Stock ownership in certain corporations. - The NEDA shall make a determination of whether the
corporate vehicle has been used by a business or industry to frustrate applicable laws and shall submit to the
Congress a report of its findings and recommendations for their prevention or correction. Stockholdings in
corporations belonging to individuals related to each other by consanguinity, affinity or by close business
interests may be limited by Congress when it is necessary to achieve national objectives, prevent illegal
monopolies or combinations in restraint or trade, promote general welfare, and foster economic
development. The NEDA shall recommend to the Congress corporations or industries vested with public
interest in formulating proposals for limitations on stock ownership. It shall consider the nature of the
industry, size of the enterprise, economies of scale, geographic location, Filipino ownership, labor intensity,
export potential, and other factors in the promotion of business and industry.

141. Annual report or corporations. – All corporations doing business in the Philippines shall submit to the SEC
an annual report of its operations and FS, certified by an independent CPA covering the preceding fiscal year
and other requirements SEC may require.

142. Confidential nature of examination results. – The interrogatories propounded by the SEC, answers
thereto, results of examination made on operations or books shall be kept strictly confidential, except when
the law requires the same to be made public or when presented as evidence before a court.
143. Rule-making power of the SEC. - The SEC shall have the power and authority to implement the provisions
of this Code and to promulgate RR necessary to perform its duties particularly in the prevention of fraud and
abuses of the controlling stockholders, members, directors, trustees or officers.

144. Violations of the Code. - Violations of this Code or its amendments not specifically penalized therein shall
be punished by P1,000- P10,000 fine or by 30 days - 5 years imprisonment, or both. A violating corporation
may be dissolved in appropriate proceedings before the SEC, after notice and hearing. The director, trustee or
officer responsible for the violation shall be dealt with by law.

145. Amendment or repeal. - The dissolution of a corporation or the amendment or repeal of this Code shall
not impair the rights of a corporation, its stockholders, members, directors, trustees, or officers. It shall not
remove the liability of such corporation, stockholders, members, directors, trustees, or officers.

146. Repealing clause. - Laws inconsistent with this Code shall be deemed repealed.

147. Separability of provisions. – When a part of this Code is declared unconstitutional, the other provisions
shall remain in force.

148. Applicability to existing corporations. - All corporations doing business in the Philippines on the
effectivity of this Code and authorized, licensed or registered by the SEC shall be deemed to be authorized,
licensed or registered under this Code. The corporation affected by the new requirements of this Code shall be
given 2 years from the effectivity of this Code to comply with the same.

149. Effectivity. - This Code shall take effect immediately upon its approval.