Santiago City, Philippines
COLLEGE OF ACCOUNTANCY & BUSINESS ADMINISTRATION
LAW ON BUSINESS ORGANIZATIONS
REVISED CORPORATION CODE (R.A. No. 11232)
I. CORPORATION
a. Definition
i. An artificial being created by operation of
law, having the right of succession and the
powers, attributes, and properties expressly
authorized by law and incident to its existence
(Sec. 2).
b. Constitutional Basis
i. Article XII Section 16 of the 1987
Constitution: “The Congress shall not, except by
general law, provide for the formation,
organization, or regulation of private
corporations. Government-owned or controlled
corporations may be created or established by
special charters in the interest of the common
good and subject to the test of economic
viability.”
** Congress has limited powers in the formation,
creation and regulation of a private corporation.
Purposes:
1. Uniformity and
2. To avoid corruption
General Rule: Congress is prohibited to enact a
law directly forming a private corporation.
Exception: GOCC may be created by special
charter.
*GOCC is a private corporation with regard to
function and in the meantime a public corporation
with regard to ownership.
Twin conditions that must be present in forming a
GOCC:
1. Interest in the common good
2. Subject to the test of economic viability
(Means can survive alone in the market; can
generate income which they can use for their
operating expenses.)
c. Attributes of a corporation
1. It is an artificial being with separate and
distinct personality.
2. It is created by operation of law.
3. It enjoys the right of succession.
4. It has the powers, attributes and properties
expressly authorized by law or incident to its
existence.
1. Artificial being with separate
personality - corporation is an artificial creature
without any existence until it has received the
imprimatur of the state acting according to law,
through the Security and Exchange Commission
(Tayag vs. Benguet Consolidated, Inc., 26 SCRA
242).
Consequences:
A. Property – It is entitled to own properties in
its own name and its properties are not the
properties of its stockholders, directors and
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officers (Wise v. Man Sung Lung, 69 Phil 309).
The interest of the stockholders over the
properties of the corporation is merely inchoate
(Saw v. CA, 195 SCRA, 740).
*** Inchoate is a legal right or entitlement
that is in progress and is neither ripen, vested nor
perfected. In reference to a claim in law, or an
entitlement, that has not yet vested.
B. Obligations. It can incur obligations and its
obligations are not the obligation of its
stockholders, directors and officers (Vasquez v.
De Borja, 74 Phil. 560)
C. Rights. Rights belonging to the corporation
cannot be invoked by the stockholders even if the
latter owns substantial majority of the shares in
that corporation (Stonehill v. Diokno, GR No.
19550, June 19, 1967)
D. Constitutional rights. Corporations are
entitled to certain constitutional rights. It is also
considered a person under the due process clause
(Art. III, Sec. 1, Constitution). However, it is not
entitled to certain constitutional right not only
because it is an artificial being but also because it
is a mere creature of law. E.g Rights against self-
incrimination and freedom to travel.
E. Torts. It is liable for tort. It is liable when the
act was committed by the officer or agent under
express direction or authority from the
stockholders or members acting as a body or
generally from the directors as the governing
body.
F. Nationality. Generally, the corporation is
considered a national of the country where it was
incorporated (Place of incorporation test)
Exceptions:
1. In times of war, the nationality of a
corporation is determined by the nationality of the
controlling stockholders (Control Test);
2. Under the Foreign Investment Act of 1991
(R.A. No. 7042 as amended). Philippine National
is a corporation organized under Philippine laws of
which 60% of the capital stock outstanding and
entitled to vote is owned and held by Filipino
citizens; and a corporation organized abroad and
registered as doing business in the Philippines
under the Corporation Code of which 100% of the
capital stocks entitled to vote belong to Filipinos.
However, it provides that where a corporation
and its non-Filipino stockholders own stocks in a
SEC-registered enterprise, at least 60% of the
capital stock outstanding and entitled to vote of
both corporations and at least 60% of the
members of the board of directors of both
corporations must be Filipino citizens (double
60% rule)
Grandfather Rule is a method of determining the
nationality of a corporation which in turn is owned
by another corporation by breaking down the
equity structure of the shareholders of the
corporation. The percentage of share held by the
second corporation in the first is multiplied by the
latter’s own Filipino equity, and the product of
these percentage is determined to be the ultimate
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Filipino ownership of the subsidiary corporation.
This applies only if the Filipino equity is less than
60% of the outstanding capital of a corporation
that owns shares in a partly nationalized
enterprise at least 60% must be owned by the
Philippine nationals.
G. Exempt from criminal liability.
Corporations are incapable of intent, hence, they
cannot commit felonies that are punishable under
the Revised Penal Code. They cannot commit
crimes that are punishable under special laws
because crimes are personal in nature requiring
personal performance of overt acts. In addition,
the penalty of imprisonment cannot be imposed
because corporation cannot be incarcerated.
*Criminal liability falls upon to responsible
officers. Responsible officers cannot invoke the
doctrine of separate personality.
H. Unentitled to Moral Damages. Moral
damages cannot be awarded in favor of
corporations because they do not have feelings
and mental state. Corporations can claim only
other damages such as actual, compensatory,
exemplary, loss of earning capacity.
General Rule: Corporation cannot claim moral
damages. Exception: If the corporation has a
good reputation and such reputation was
destroyed (Coastal Pacific Trading v Southern
Rolling Mills, Co)
**In Filipinas Broadcasting Network Inc. v.
Ago Medical and Educational Center, the SC ruled
that a corporation can recover moral damages
under Article 2219(7) if it was the victim of
defamation.
Doctrine of piercing the veil of corporate
entity
The doctrine of corporate entity states that a
corporation is a legal entity distinct from the
persons composing. It is a theory introduced for
purposes of convenience and to serve the ends of
justice. But when the veil of corporate fiction is
used as a shield to defeat public convenience,
justify wrong, protect fraud, or defend a crime,
this fiction shall be disregarded and the
individuals composing it will be treated identically
(Cruz vs. Dalisay, 152 SCRA 487 [1987]).
The doctrine requires the court to see through
the protective covering which exempts its
stockholders from liabilities that they ordinarily
would be subject to, or distinguishes a
corporation from a seemingly separate one, were
it not for the existing corporate fiction (Lim vs.
CA, 323 SCRA 102).
In any cases where the separate corporate
identity is disregarded, the corporation will be
treated merely as an association of persons and
the stockholders or members will be considered
as the corporation, that is, liability will attach
personally or directly to the officers and
stockholders. However, mere ownership by a
single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is
not of itself sufficient ground for disregarding the
separate corporate personality (Umali vs. Court
of Appeals, 189 SCRA 529 [1990]).
Purpose: The doctrine aims to protect the
interest of innocent third person dealing with the
corporation.
Effects:
1. Stockholders, officers and corporation are
in effect jointly liable;
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2. In case of two corporations, they will be
treated as one wherein they will be solidarily
liable (Instrumentality Rule).
Classification of facts on which corporate entity
may be disregarded:
1. Avoidance of redress of fraud;
2. Prevention of evasion of statute or law;
3. Prevention of evasion of contract;
4. Internal corporate dealings disregarding
corporate entity where third persons are
not involved;
5. Corporation agencies or instrumentalities
of undisclosed principals
Note: These enumerations are not exclusive and
sometimes two or more of these elements concur.
Nature and Consequences of Piercing
Doctrine
(Philippine Corporate Law, Cesar Villanueva, 2001
ed.):
1. Has only res judicata effect;
2. To prevent fraud or wrong and not
available for other purposes;
* The doctrine could not be employed
by a corporation to complete its claims
against another corporation and cannot
therefore be employed by the claimant
who does not appear to be the victim of
any wrong or fraud (Traders Royal Bank
vs. CA 269 SCRA 601 [1997]).
3. Essentially a judicial prerogative only
* To pierce the veil of corporate
fiction being a power belonging to the
courts, a sheriff who has ministerial duty
to enforce a final and executory decision
cannot pierce the veil of corporate fiction
by enforcing the decision against the
stockholders who are not parties to the
action (Cruz vs. Dalisay, 152 SCRA 487
[1987])
4. Must be shown to be necessary and with
factual basis
* To disregard the separate juridical
personality of a corporation, the
wrongdoing must be clearly and
convincingly established, it cannot be
presumed (Luxuria Homes, Inc. v. CA,
302 SCRA 315 [1999]).
Note: When directors and officers are unable to
compensate a party for a personal obligation, it is
improbable to allege that a corporation is
perpetuating fraud or promoting injustice, and
thereby could be held liable for the personal
obligations of its directors and officers by piercing
the corporate veil (Francisco Motors, Inc. vs. CA,
G.R. No. 100812, June 25, 1999).
Classifications:
1. Fraud Cases
When the corporate identity is used to justify
wrong, to commit fraud, or to defend a crime.
There is always an element of malice or evil
motive in fraud cases.
Elements:
a. There must have been fraud or evil
motive in the affected transaction and the
mere proof of control of the corporation
by itself would not authorize piercing.
b. The main action should seek for the
enforcement of pecuniary claims
pertaining to the corporation against
corporate officers or stockholders, or vice-
versa; and
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 c. The corporate entity has been used in the
perpetration of the fraud or in justification
of wrong, or to escape personal liability.
2. Alter Ego Cases (or Conduit Cases)
Fraud is not an element in these cases but
that the stockholders or those who compose the
corporation did not treat the corporation as a
separate entity but only as part of the property or
business of an individual or group of individuals or
another corporation.
Probative factors:
a. Stock ownership by one or common
ownership of both corporations;
b. Identity of directors and officers;
c. The manner of keeping corporate books
and records; and
d. Methods of conducting the business
(Concept Builders, Inc. v. NLRC, 257
SCRA 149 [1996]).
Four Policy Bases in Piercing:
a. Even when the controlling stockholder or
managing officer intends consciously to
do no evil, the use of the corporation as
an alter ego is in direct violation of a
central corporate law principle of treating
the corporation as a separate juridical
entity from its members and
stockholders;
b. If the stockholders do not respect the
separate entity, others cannot also be
expected to be bound by the separate
juridical entity;
c. Applies even when there are no monetary
claims sought to be enforced against the
stockholders or officers of the
corporation; and
d. When the underlying business enterprise
does not really change and only the
medium by which that business
enterprise is changed.
Instrumentality or Alter Ego Rule
When one corporation is so organized and
controlled and its affairs are conducted so that it
is in fact a mere instrumentality or adjunct of the
other, the fiction of the
corporate entity to the instrumentality may be
disregarded (Concept Builders Inc. vs. NLRC, 257
SCRA 149 [1996]).
Test of determining the controlling
interest:
a. Control, not mere majority or complete
stock control, but complete dominion, not
only of finances but of policy and
business in respect to the transaction
attacked so that the corporate entity as
to this transaction had at the time no
separate mind, will, or existence of its
own;
b. Such control must have been used by the
defendant to commit fraud or wrong in
contravention of plaintiff’s legal rights;
and
c. The aforesaid control and breach of duty
must proximately cause the injury or
unjust loss complained of (Concept
Builders Inc. vs. NLRC, 257 SCRA 149
[1996]).
3. Equity cases
When piercing the corporate fiction is
necessary to achieve justice or equity. The
“dumping ground” where no fraud or alter ego
circumstances can be culled to warrant piercing.
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2. It is created by operation of law
A corporation comes into existence upon the
issuance of the certificate of incorporation (Sec.
18 of the RCC). Then and only then will it acquire
a juridical personality to sue and be sued, enter
into contracts, hold or convey property or perform
any legal act, in its own name. Corporations
cannot come into existence by mere agreement of
the parties as in the case of business
partnerships. They require special authority or
grant from the State. This power is exercised by
the State through the legislature, either by a
special incorporation law or charter which directly
creates the corporation or by means of a general
corporation law under which individuals desiring
to be and act as a corporation may incorporate
FRANCHISES OF CORPORATION
a. Primary or corporate franchise/General
franchise
**The right or privilege granted by
the State to individuals to exist and act
as a corporation after its incorporation.
b. Secondary or special franchise
**The special right or privilege
conferred upon an existing corporation to
the business for which it was created.
e.g. use of the streets of a municipality to
lay pipes or tracks, or operation of a
public utility or a messenger and express
delivery service.
3. It enjoys the right of succession.
It is the capacity to have continuity of
existence despite the changes on the persons who
compose it. Thus, the personality continues
despite the change of stockholder, members,
board members or officers.
Reason: To make the corporation more
stable
4. It has the powers, attributes and
properties expressly authorized by law or
incident to its existence.
Doctrine of Limited Capacity – No
corporation under the Corporation Code, shall
possess or exercise any corporate powers, except
those conferred by law, its Articles of
Incorporation, those implied from express powers
and those as are necessary or incidental to the
exercise of the powers so conferred. The
corporation’s capacity is limited to such express,
implied and incidental powers.
*Corporation may be restrained from
engaging a particular transaction because it is
beyond their powers.
General Capacity – a corporation can perform
any act for as long as it is lawful, moral and not
contrary to public policy or order.
Ultra Vires Doctrine – Even if the act is lawful,
moral and not contrary to public order or policy
but such act is not within the express, implied
and incidental powers of the corporation such act
shall be void for being ultra vires.
*These doctrines are based on Section 2 and
Section 44 of the Revised Corporation Code.
d. Classes of Private Corporation
Sec. 3. Classes of Corporations. –
Corporations formed or organized under this Code
may be stock or nonstock corporations. Stock
corporations are those which have capital stock
divided into shares and are authorized to
distribute to the holders of such shares,
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dividends, or allotments of the surplus profits on
the basis of the shares held. All other
corporations are non-stock corporations.
1. As to existence of Stocks:
Stock Corporation – Corporations which have
capital stock divided into shares and are
authorized to distribute to the holders of such
shares dividends or allotments of the surplus
profits on the basis of the shares held.
Non-stock Corporation – A corporation where
no part of its income is distributable as dividends
to its members, trustees, or officers, subject to
the provisions of this Code on dissolution.
2. As to function/organizers:
Public Corporation – for public purpose and
organized by the State.
Private Corporation – for profit making
functions and organized by private persons alone
or with the State
3. As to laws of Incorporation (Place of
Incorporation) :
Domestic Corporation – corporation formed,
organized or existing under the Philippine Laws.
Foreign Corporation – corporation formed,
organized or existing under any laws other than
those of the Philippines and whose laws allow
Filipino citizens and corporations to do business in
its own country or state.
** License is necessary for: 1. Regulation
purposes and 2. Access to local courts.
4. As to legal status:
A. De Jure Corporation – corporation created in
strict or substantial compliance with the
mandatory requirements for incorporation and the
right of which to exist as a corporation cannot be
successfully attacked or questioned by any party
even in a direct proceeding for that purpose by
the state.
B. De Facto Corporation – The due
incorporation of any corporation claiming in good
faith to be a corporation under the Corporation
Code, and its right to exercise corporate powers,
shall not be inquired into collaterally in any
private suit to which such corporation may be a
party. Such inquiry may be made by Solicitor
General in a quo warranto proceeding (Sec. 19 of
the RCC).
- organized with a colorable compliance with the
requirements of a valid law and its existence
cannot be inquired collaterally.
- There is an irregularity or defect in the
constitution or organization.
*The filing of the Articles of Incorporation and
the issuance of the certificate of registration are
the essential requisites for the existence of a de
facto corporation.
Requisites:
1. The existence of a valid law under which
it may be incorporated;
2. An attempt in good faith to incorporate;
3. Use of corporate powers;
3. Filing of the Articles of Incorporation;
4. Subsequent compliance with the
requirement of law.
Note: In both corporations, there must be a
certificate of registration issued.
C. Corporation by Estoppel – All persons who
assume to act as a corporation knowing it to be
without authority to do so shall be liable as
general partners for all debts, liabilities and
damages incurred or arising as an result thereof:
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Provided, however, that when any such ostensible
corporation is sued on any transaction entered
into by it as a corporation or on any tort
committed by it as such, it shall not be allowed to
use its lack or corporate personality as a defense.
Anyone who assumes an obligation to an
ostensible corporation as such cannot resist
performance thereof on the ground that there
was if fact no corporation (Sec. 20 of the RCC).
- Group of persons which holds itself out as a
corporation and enters into a contract with a third
person on the strength of such appearance
cannot be permitted to deny its existence in an
action under said contract.
Case: Lim Tong Lim v CA
**Lim is estopped because he benefited from
the transaction.
Remedy: To ran after those persons responsible
for the representations
Essence: They are precluded from denying their
existence by their previous act or conduct
D. corporation by prescription – one which has
exercised corporate powers for an indefinite
period without interference on the part of the
sovereign power, e.g. Roman Catholic Church
5. As to whether they are open to the public or
not:
A. Open – one which is open to any person who
may wish to become a stockholder or member
thereto; or
B. Close - those whose shares of stock are held
by limited number of persons like the family or
other closely-knit group.
6. As to relationship of management and control:
A. Holding corporation - it is one which controls
another as a subsidiary by the power to elect
management. It is one that holds stocks in other
companies for purposes of control rather than for
mere investment.
B. Subsidiary corporation – one which is so
related to another corporation that the majority of
its directors can be elected either directly or
indirectly by such other corporation. It is always
controlled; or
C. Affiliate – one related to another by owning
or being owned by common management or by a
long-term lease of its properties or other control
device. It may be the controlled or controlling
corporation, or under common control; or
D. Parent and subsidiary corporation – When a
corporation has a controlling financial interest in
one or more corporations , the one having control
is the parent corporation, and the others are the
subsidiary corporations (Philippine Corporate
Law, Cesar Villanueva, 2001 ed.).
7. As to number of persons who compose them:
A. Aggregate corporation – a corporation
consisting of more than one person or member;
or
B. Corporation sole – a corporation consisting of
only one person or member; a special form of
corporation usually associated with the clergy.
8. As to whether they are for religious purposes
or not:
A. Ecclesiastical corporation – one organized for
religious purposes; or
B. Lay corporation–one organized for a purpose
other than for religion.
9. As to whether they are for charitable purposes
or not:
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 A. Eleemosynary corporation – one established
for or devoted to charitable purposes or those
supported by charity; or
B. Civil corporation – one established for
business or profit.
CONCEPT OF GOING PUBLIC AND GOING
PRIVATE
A corporation is deemed to be “going public”
when it decides to list its shares in the stock
exchange. These include corporations that will
make initial public offering of its shares. A
corporation is said to be “ going private” when it
would restrict the shareholders to a certain group.
In a sense, these also include closed and closely
held corporation. (Philippine Corporate Law
Compendium, Timoteo Aquino, 2006 ed.)
II. INCORPORATION AND ORGANIZATION
OF PRIVATE CORPORATIONS
A. Submission of Articles of Incorporation;
contractual significance
*The life of a corporation commences from
the issuance of the Certificate of Registration by
the SEC upon filing of the Articles of Incorporation
and other documents.
Article of Incorporation – is the charter of the
corporation, and the contractual relationships
between the State and the corporation, the
stockholder and the State, and between the
corporation and its stockholders.
Contractual Significance:
1. The issuance of a certificate of incorporation
signals the birth of the corporation’s juridical
personality;
2. It is an essential requirement for the
existence of a corporation, even a de facto one.
B. Contents and Form of the Articles of
Incorporation (Secs. 13 and 14 of the RCC)
Contents of Articles of Incorporation:
1. Corporate Name;
2. Purpose Clause;
3. Principal office;
4. Term of existence;
5. Incorporators;
6. Directors or trustees;
7. Capitalization;
8. Shares of stock;
1. Corporate Name
SEC. 17. Corporate name. – No corporate
name shall be allowed by the Commission if it is
not distinguishable from that already reserved or
registered for the use of another corporation, or if
such name is already protected by law, or when
its use is contrary to existing law, rules and
regulations.
A name is not distinguishable even if it contains
one or more of the following:
(a) The word “corporation”, “company”,
“incorporated”, “limited”, “limited liability”, or an
abbreviation of one of such words; and
(b) Punctuations, articles, conjunctions,
contractions, prepositions, abbreviations, different
tenses, spacing, or number of the same word or
phrase.
The Commission, upon determination that the
corporate name is: (1) not distinguishable from a
name already reserved or registered for the use
of another corporation; (2) already protected by
law; or (3) contrary to law, rules and regulations,
may summarily order the corporation to
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immediately cease and desist from using such
name and require the corporation to register a
new one. The Commission shall also cause the
removal of all visible signages, marks,
advertisements, labels, prints and other effects
bearing such corporate name. Upon the approval
of the new corporate name, the Commission shall
issue a certificate of incorporation under the
amended name.
If the corporation fails to comply with the
Commission’s order, the Commission may hold
the corporation and its responsible directors or
officers in contempt and/or hold them
administratively, civilly and/or criminally liable
under this Code and other applicable laws and/or
revoke the registration of the corporation.
Notes: The corporation acquires juridical
personality under the name stated in the
certificate of incorporation. It is the name of the
corporation which identifies and distinguishes it
from other corporations, firms or entities.
A corporation’s right to use its corporate and
trade name is a property right, a right in rem
which it may assert or protect against the whole
world in the same manner as it may protect its
tangible property against trespass or conversion
(Philips Export B.V. vs. CA, 206 SCRA 457).
Statutory limitation:
The proposed name must be:
1. Distinguishable from a name already
reserved or registered for the use of
another corporation;
2. Distinguishable from a name already
protected by law; or
3. Not contrary to law, rules and
regulations.
The Commission is empowered to summarily
order the corporation to immediately cease and
desist from using such name and require the
corporation to register a new one.
2. Purpose Clause
Significance:
a. A person who intends to invest his money
in the business corporation will know where and
in what kind of business or activity his money
will be invested;
b. The directors and the officers of the
corporation will know within what scope of
business they are authorized to act; and
c. A third person who has dealings with the
corporation may know by perusal of the articles
whether the transaction or dealing he has with
the corporation is within the authority of the
corporation or not.
Limitations:
a. Purpose or purposes must be lawful;
b. Purpose or purposes must be stated with
sufficient clarity;
c. If there is more than one purpose, the
primary as well as the secondary purpose
must be specified; and
d. Purposes must be capable of being
lawfully combined.
A corporation the primary object of which is
without statutory authority can have no lawful
existence, even though some of its declared
purposes may be lawful.
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3. Principal Office
The articles of incorporation must state the place
where the principal office of the corporation is to
be established or located, which place must be
within the Philippine (Sec. 13 [3]).
Purpose: To fix the residence of the corporation
in a definite place, instead of allowing it to be
ambulatory (Young Auto Supply Co. vs. CA, 223
SCRA 670).
It is now required by the SEC that all corporations
and partnerships applying for registration should
state in their Articles of Incorporation the specific
address of their principal office, which shall
include, if feasible, the strict number; street
name; barangay; city or municipality; and specific
residence address of each incorporator,
stockholder, director or trustee in line with the full
disclosure requirement of existing laws (SEC Circ.
No. 3, Series of 2006).
4. Terms of Existence
SEC. 11. Corporate Term. – A corporation shall
have perpetual existence unless its articles of
incorporation provides otherwise.
Corporations with certificates of
incorporation issued prior to the effectivity of this
Code, and which continue to exist shall have
perpetual existence, unless the corporation, upon
a vote of its stockholders representing a majority
of its outstanding capital stock, notifies the
Commission that it elects to retain its specific
corporate term pursuant to its articles of
incorporation: Provided, that any change in the
corporate term under this section is without
prejudice to the appraisal right of dissenting
stockholders in accordance with the provisions of
this Code.
A corporate term for a specific period
may be extended or shortened by amending the
articles of incorporation: Provided, That no
extension may be made earlier than three (3)
years prior to the original or subsequent expiry
date(s) unless there are justifiable reasons for an
earlier extension as may be determined by the
Commission: Provided, further, That such
extension of the corporate term shall take effect
only on the day following the original or
subsequent expiry date(s).
A corporation whose term has expired
may, at any time, apply for a revival of its
corporate existence, together with all the rights
and privileges under its certificate of incorporation
and subject to all of its duties, debts and liabilities
existing prior to revival. Upon approval by the
Commission, the corporation shall be deemed
revived and a certificate of revival of corporate
existence shall be issued, giving it perpetual
existence, unless its application for revival
provides otherwise.
No application for revival of certificate of
incorporation of banks, banking and quasi-
banking institutions, preneed, insurance and trust
companies, non-stock savings and loan
associations (NSSLAs), pawnshops, corporations
engaged in money service business, and other
financial intermediaries shall be approved by the
Commission unless accompanied by a favorable
recommendation of the appropriate government
agency.
Note: This is one of the major provisions revised
under the Revised Corporation Code. The
limitation as to the term of existence of
Corporation does no longer exist. As stated, a
corporation shall have perpetual existence unless
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its articles of incorporation provides otherwise. It
means the incorporators have a freedom to set
the term of the corporation’s existence.
Under the previous Corporation Code, As a rule,
after the term has expired, no more extensions
be allowed or entertained by the Security and
Exchange Commission.
Reason: No more period to extend.
Exception: Doctrine of Relation – The filing
and recording of a certificate of extension after
the term cannot relate back to the date of the
passage of the resolution of the stockholders to
extend the life of the corporation. However, the
doctrine of relations applies if the failure to file
the application for existence within the term of
the corporation is due to neglect of the officer
with whom the certificate is required to be filed or
to wrongful refusal on is part to receive it.
*The delay in submitting the application for
extension is justifiable.
Keywords:
1. Excusable delay;
2. Beyond the control of the corporation
(insuperable intervening causes)
This doctrine is no longer applicable under the
Revised Corporation Code because Section 11 (4)
thereof provides that a Corporation whose term
has expired may, at any time, apply for a revival
of its corporate existence, together with all the
rights and privileges under its certificate of
incorporation and subject to all of its duties,
debts and liabilities existing prior to revival.
5. Incorporators
SEC. 10. Number and Qualifications of
Incorporators. – Any person, partnership,
association or corporation, singly or jointly with
others but not more than fifteen (15) in number,
may organize a corporation for any lawful
purpose or purposes: Provided, That natural
persons who are licensed to practice a profession,
and partnerships or associations organized for the
purpose of practicing a profession, shall not be
allowed to organize as a corporation unless
otherwise provided under special laws.
Incorporators who are natural persons must be of
legal age.
Each incorporator of a stock corporation must
own or be a subscriber to at least one (1) share
of the capital stock.
A corporation with a single stockholder is
considered a One Person Corporation as described
in Title XIII, Chapter III of this Code.
Note: This is likewise one of the major provisions
revised under the Revised Corporation Code. One
person and juridical person can create another
juridical person.
One Person Corporation is a corporation
wherein all or substantially all of the stocks are
held directly or indirectly by one person. The
provision for a one person corporation should
encourage the formation of more businesses in
the country by making it easier for entrepreneurs
to start a limited liability company
Is the doctrine of piercing the veil of corporate
entity applies in One Person Corporation?
The numbers of incorporator are limited to 15
persons except for One Person Corporation which
requires only single stockholder.
VJ De Leon
Fait Accompli – Once an incorporator always an
incorporator (accomplished fact which cannot be
altered)
6. Directors and Trustees
The Board of Directors is the governing body in a
stock corporation while Board of Trustees is the
governing body in a non -stock corporation. They
exercise the powers of the corporation.
Matters required to be stated in the Articles of
Incorporation:
1. a statement of the names, nationalities
and residences of the incorporating
directors or the persons who shall act as
such until the first regular directors or
trustees are duly elected and qualified in
accordance with the law
2. the number of directors or trustees,
which shall not be more than fifteen (15).
Exceptions:
1. Educational corporations registered as
non-stock corporation whose number of
trustees though not less than five and not
more than fifteen should be divisible by
five; and
2. In close corporation where all the
stockholders are considered as members
of the board of directors thereby
effectively allowing twenty members in
the board (Corporation Code of the
Philippines,Ruben C. Ladia, 2001 ed.).
7. Capitalization
The following are the matters required to be
stated in the Article of Incorporation under Sec.
13(h) (i) of the RCC:
 If stock corporation
1. The amount of its authorized capital
stock in lawful money of the Philippines;
2. The number of shares and kind of shares
into which it is divided;
3. In case the shares are par value shares,
the par value of each;
4. The names, nationalities and residences
of the original subscribers
5. The amount subscribed and paid by each
on his subscription; and
6. A statement that some or all of the
shares are without par value, if
applicable.
 If non-stock corporation
1. The amount of its capital
2. The names, nationalities and residence
address of the contributors and amount
contributed by each.
Note: The 25% 25% rule is now deleted in the
RCC. The arbitration agreement may be provided
in the articles of incorporation pursuant to Section
181 of this Code and the articles of incorporation
and applications for amendment thereto may be
file with the Commission in the form of an
electronic document, in accordance with the
Commission’s rules and regulations on electronic
filing.
Authorized Capital Stock – the amount fixed in
the articles of incorporation to be subscribed and
paid by the stockholders of the corporation.
Subscribed Capital – that portion of the
authorized capital stock that is covered by
subscription agreements whether fully paid or
not.
Paid-Up Capital – the portion of the authorized
capital stock which has been subscribed and
actually paid.
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Outstanding Capital Stock – the total shares of
stock issued to subscribers or stockholders,
whether or not fully or partially paid except
treasury shares so long as there is a binding
subscription agreement.
FILIPINO PERCENTAGE OWNERSHIP
REQUIREMENT
A. NO FOREIGN EQUITY
1. Mass Media except recording (Art. XVI, Sec.
11 of the Constitution; Presidential Memorandum
dated 04 May 1994)
2. Practice of all professions
3. Retail trade enterprises with paid-up capital
of less than US$2,500,000(Sec. 5 of RA 8762)
4. Cooperatives (Ch. III, Art. 26 of RA 6938)
5. Private Security Agencies (Sec. 4 of RA 5487)
6. Small-scale Mining (Sec. 3 of RA 7076)
7. Utilization of Marine Resources in archipelagic
waters, territorial sea, and exclusive economic
zone as well as small-scale utilization of natural
resources in rivers, lakes, bays, and lagoons (Art.
XII, Sec. 2 of the Constitution)
8. Ownership, operation and management of
cockpits
(Sec. 5 of PD 449)
9. Manufacture, repair, stockpiling and/or
distribution of nuclear weapons (Art. II, Sec. 8 of
the Constitution)
10. Manufacture, repair, stockpiling and/or
distribution of biological, chemical and radiological
weapons and anti-personnel mines (Various
treaties to which the Philippines is a signatory
and conventions supported by the Philippines)
11. Manufacture of firecrackers and other
pyrotechnic devices (Sec. 5 of RA 7183)
B. Up to Twenty Percent (20%) Foreign
Equity
1. Private radio communications network (RA
3846)
C. Up to Twenty-Five Percent (25%) Foreign
Equity
1. Private recruitment, whether for local or
overseas employment (Art. 27 of PD 442)
2. Contracts for the construction and repair of
locally-funded public works (Sec. 1 of CA 541,
LOI 630) except:
a. infrastructure/development projects
covered in RA 7718; and
b. projects which are foreign funded or
assisted and required to undergo international
competitive bidding (Sec. 2a of RA 7718)
3. Contracts for the construction of defense-
related structures (Sec. 1 of CA 541)
D. Up to Thirty Percent (30%) Foreign
Equity
1. Advertising (Art. XVI, Sec. 11 of the
Constitution)
E. Up to Forty Percent (40%) Foreign Equity
1. Exploration, development and utilization of
natural resources (Art. XII, Sec. 2 of the
Constitution)
2. Ownership of private lands (Art. XII, Sec. 7 of
the Constitution; Ch. 5, Sec. 22 of CA 141; Sec. 4
of RA 9182)
3. Operation and management of public utilities
(Art. XII, Sec. 11 of the Constitution; Sec. 16 of
CA 146)
4. Ownership/establishment and administration
of educational institutions (Art. XIV, Sec. 4 of the
Constitution)
VJ De Leon
 5. Culture, production, milling, processing,
trading excepting retailing, of rice and corn and
acquiring, by barter, purchase or otherwise, rice
and corn and the by-products thereof (Sec. 5 of
PD 194;Sec. 15 of RA 8762)
6. Contracts for the supply of materials, goods
and commodities to government-owned or
controlled corporation, company, agency or
municipal corporation (Sec. 1 of RA 5183)
7. Project Proponent and Facility Operator of a
BOT project requiring a public utilities franchise
(Art. XII, Sec. 11 of the Constitution; Sec. 2a of
RA 7718)
8. Operation of deep sea commercial fishing
vessels (Sec. 27 of RA 8550)
9. Adjustment Companies (Sec. 323 of PD 612
as amended by PD 1814)
10. Ownership of condominium units where the
common areas in the condominium project are
co-owned by the owners of the separate units or
owned by a corporation (Sec. 5 of RA 4726)
F. Up to Sixty Percent (60%) Foreign Equity
1. Financing companies regulated by the
Securities and Exchange Commission (Sec. 6 of
RA 5980 as amended by RA 8556)
2. Investment houses regulated by the SEC
(Sec. 5 of PD 129 as amended by RA 8366)
8. Shares of stock;
SEC. 12 of the RCC. Minimum Capital Stock
Not Required of Stock Corporations. – Stock
corporations shall not be required to have a
minimum capital stock, except as otherwise
specifically provided by special law.
Economic Value:
1. Expectancy on the share in the profits
2. Expectancy on the share of assets in case of
dissolution/liquidation.
Political Value:
1. vote
2. control in the management of the
corporation.
Doctrine of Equality of Shares – “Except as
otherwise provided in the articles of incorporation
and stated in the certificate of stock, each share
shall be equal in all respects to every other
share.”
Note: Provides that where the Article of
Incorporation do not provide for any distinction of
the shares of stock, all shares issued by the
corporation are presumed to be equal and enjoy
the same rights and privileges and are also
subject to the same liabilities.
C. Grounds for disapproval of the Articles of
Incorporation and its amendments
The following are the grounds for disapproval
of the Articles of Incorporation or Amendment
thereto (Sec. 16 of the RCC):
(a)The articles of incorporation or any
amendment thereto is not substantially in
accordance with the form prescribed herein;
(b)The purpose or purposes of the corporation
are patently unconstitutional, illegal, immoral or
contrary to government rules and regulations;
(c)The certification concerning the amount of
capital stock subscribed and/or paid is false; and
8 | Page
(d)The required percentage of Filipino
ownership of the capital stock under existing laws
or the Constitution has not been complied with.
** These grounds are not exclusive.
Before disapproving the Articles of Incorporation
or its amendments, the Commission should give
the incorporators, directors, trustees, or officer
reasonable time within which to correct or modify
the objectionable portions of the articles or
amendments.
Any decision of the Commission rejecting the
articles of incorporation or disapproving any
amendment thereto is appealable by petition for
review to the Court of Appeals (Rule 43) in
accordance with the pertinent provisions of the
Rules of Court.
All the grounds enumerated in Section 17 can be
determined on the basis of the Articles of
incorporation itself and the other required
documents. Generally, if the Articles of
Incorporation and its supporting documents are in
order, the SEC has no recourse but to issue the
Certificate of Incorporation (Philippine Corporate
Law Compedium, Timoteo Aquino, 2006 ed.).
Please bear in mind under the “Dual Franchise
Requirement”: No articles of incorporation or
amendment to articles of incorporation of banks,
banking and quasi-banking institutions, preneed,
insurance and trust companies, NSSLAS,
pawnshops, and other financial
intermediaries shall be approved by the
Commission unless accompanied by a favorable
recommendation of the appropriate government
agency to the effect that such articles or
amendment is in accordance with law (Sec. 16 of
the RCC).
D. Commencement of Corporate Existence
SEC. 18 (RCC) Registration, Incorporation and
Commencement of Corporate Existence. – A
person or group of persons desiring to incorporate
shall submit the intended corporate name to the
Commission for verification. If the Commission
finds that the name is distinguishable from a
name already reserved or registered for the use
of another corporation, not protected by law and
not contrary to law, rules and regulations, the
name shall be reserved in favor of the
incorporators. The incorporators shall then submit
their articles of incorporation and bylaws to the
Commission.
If the Commission finds that the submitted
documents and information are fully compliant
with the requirements of this Code, other relevant
laws, rules and regulations, the Commission shall
issue the certificate of incorporation.
A private corporation organized under this
Code commences its corporate existence and
juridical personality from the date the
Commission issues the certificate of
incorporation under its official seal and
thereupon the incorporators,
stockholders/members and their successors shall
constitute a body corporate under the name
stated in the articles of incorporation for the
period of time mentioned therein, unless said
period is extended or the corporation is sooner
dissolved in accordance with law.
A corporation commences to have juridical
personality and legal existence only from the
moment the SEC issues to the incorporators a
certificate of incorporation under its official seal.
VJ De Leon

It is the certificate of incorporation that gives
juridical personality to a corporation and placed it
under the jurisdiction of the commission.
In the case of religious corporations, the Code
does not require the SEC to issue a certificate of
incorporation. In fact, Sec. 112 clearly states that
from and after the filing with the Commission of
the articles of incorporation, the chief archbishop
shall become a corporation sole.
E. Amendment of Article of Incorporation
Procedure (Section 15 of the Revised Corporation
Code):
1. Resolution by at least a majority of the
board of directors or trustees;
2. Vote or written assent of the stockholders
representing at least 2/3 of the
outstanding capital stock s or 2/3 of the
members in case of non-stock
corporations;
3. Submission and filing with the SEC of:
a. The original and amended articles
together containing all the provisions
required by law to be set out in the
articles of incorporation. Such articles, as
amended, shall be indicated by
underscoring the change or changes
made; and
b. A copy thereof, duly certified under
oath by the corporate secretary and a
majority of the directors or trustees
stating the fact that such amendments
have been duly approved by the required
vote of the stockholders or members;
and
c. A favorable recommendation of the
appropriate government agency
concerned if required by law.
Limitations:
1. The amendment of any provision or matters
stated in the articles of incorporation is not
allowed when it will be contrary to the provisions
or requirement prescribed by the Code or by
special law or changes any provision in the
articles of incorporation stating an accomplished
fact;
2. It must be for legitimate purposes;
3. It must be approved by the required vote of
the board of directors or trustees and the
stockholders or members;
4. The original articles and amended articles
together must contain all provisions required by
law to be set out in the articles of incorporation;
5. Such articles, as amended, must be
indicated by underscoring the changes made, and
a copy thereof duly certified under oath by the
corporate secretary and a majority of the
directors or trustees stating that the amendments
have been duly approved by the required vote of
the stockholders or members must be submitted
to the SEC;
6. The amendments shall take effect only upon
their approval by the SEC. However, express
approval is not indispensable. This is because the
amendment shall also take effect from the date of
filing with the said Commission if it is not acted
upon by the Commission within 6 months from
the date of filing for a cause not attributable to
the corporation;
7. If the corporation is governed by special
law, the amendments must be accompanied by a
favorable recommendation of the appropriate
government agency;
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8. No right or remedy in favor of or against
any corporation, its stockholders, members,
directors, trustees, or officers, nor any liability
incurred by any such corporation, stockholders,
members, directors, trustees, or officers, shall be
removed or impaired either by the subsequent
dissolution of said corporation or by any
subsequent amendment or repeal of this Code or
of any part thereof (Section 184 of the Revised
Corporation Code)
F. Effects of Non-Use of Corporate Charter
SEC. 21 of the RCC. Effects of Non-Use of
Corporate Charter and Continuous Inoperation. –
If a corporation does not formally organize and
commence its business within five (5) years from
the date of its incorporation, its certificate of
incorporation shall be deemed revoked as of the
day following the end of the five-year period.
However, if a corporation has commenced its
business but subsequently becomes inoperative
for a period of at least five (5) consecutive years,
the Commission may, after due notice and
hearing, place the corporation under delinquent
status.
A delinquent corporation shall have a period of
two (2) years to resume operations and comply
with all requirements that the Commission shall
prescribe. Upon compliance by the corporation,
the Commission shall issue an order lifting the
delinquent status. Failure to comply with the
requirements and resume operations within the
period given by the Commission shall cause the
revocation of the corporation’s certificate of
incorporation.
The Commission shall give reasonable notice
to, and coordinate with the appropriate regulatory
agency prior to the suspension or revocation of
the certificate of incorporation of companies
under their special regulatory jurisdiction.
Note: The issuance of the articles calls the
corporation into being but it is not really ready to
do business until it is organized. The corporation
must formally organized and commence the
transaction of its business or the construction of
its works within five (5) years from the date of its
incorporation or, otherwise, its corporate powers
shall cease and it shall be deemed revoked as of
the day following the end of five-year period
(Sec. 21 of the RCC.)
However, if a corporation has commenced its
business but subsequently becomes inoperative
for a period of at least five (5) consecutive years,
the Commission may, after due notice and
hearing, place the corporation under delinquent
status.
A delinquent corporation shall have a period of
two (2) years to resume operations and comply
with all requirements that the Commission shall
prescribe. Upon compliance by the corporation,
the Commission shall issue an order lifting the
delinquent status. Failure to comply with the
requirements and resume operations within the
period given by the Commission shall cause the
revocation of the corporation’s certificate of
incorporation.
The Commission shall give reasonable notice to,
and coordinate with the appropriate regulatory
agency prior to the suspension or revocation of
the certificate of incorporation of companies
under their special regulatory jurisdiction (Sec. 21
of the RCC).
VJ De Leon
III. BOARD OF DIRECTORS/TRUSTEES AND
OFFICERS
SEC. 22 of the RCC. The Board of Directors or
Trustees of a Corporation; Qualification and
Term. – Unless otherwise provided in this Code,
the board of directors or trustees shall exercise
the corporate powers, conduct all business, and
control all properties of the corporation.
Directors shall be elected for a term of one (1)
year from among the holders of stocks registered
in the corporation’s books, while trustees shall be
elected for a term not exceeding three (3) years
from among the members of the corporation.
Each director and trustee shall hold office until
the successor is elected and qualified. A director
who ceases to own at least one (1) share of stock
or a trustee who ceases to be a member of the
corporation shall cease to be such.
The board of the following corporations vested
with public interest shall have independent
directors constituting at least twenty percent
(20%) of such board:
a. Corporations covered by Section 17.2 of
Republic Act No. 8799, otherwise known as “The
Securities Regulation Code,” namely those whose
securities are registered with the Commission,
corporations listed with an exchange or with
assets of at least Fifty million pesos
(P50,000,000.00) and having two hundred (200)
or more holders of shares, with at least one
hundred (100) shares of a class of its equity
shares;
b. Banks and quasi-banks, NSSLAs, pawnshops,
corporations engaged in money service business,
pre-need, trust and insurance companies, and
other financial intermediaries; and
c. Other corporations engaged in business vested
with public interest similar to the above, as may
be determined by the Commission, after taking
into account relevant factors which are germane
to the objective and purpose of requiring the
election of an independent director, such as the
extent of minority ownership, type of financial
products or securities issued or offered to
investors, public interest involved in the nature of
business operations, and other analogous factors.
An independent director is a person who, apart
from shareholdings and fees received from the
corporation, is independent of management and
free from any business or other relationship which
could, or could reasonably be perceived to
materially interfere with the exercise of
independent judgment in carrying out the
responsibilities as a director.
Independent directors must be elected by the
shareholders present or entitled to vote in
absentia during the election of directors.
Independent directors shall be subject to rules
and regulations governing their qualifications,
disqualifications, voting requirements, duration of
term and term limit, maximum number of board
memberships and other requirements that the
Commission will prescribe to strengthen their
independence and align with international best
practices.
Levels of Corporate Control
1. By Stockholders/Shareholders;
2. By Corporate Officers;
3. By Directors/Trustees.
Powers of the Board of Directors:
1. Corporate Powers;
2. Manage the Corporation; and
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3. Control over and hold the properties of the
Corporation.
Board of Directors/Trustees is the statutory
representative of the corporation.
General Rule: All corporate powers emanate
from the Board of Directors/Trustees.
Exception: Unless otherwise provided in this
Code (Limiting Clause).
*** The limiting clause means that there are
certain corporate matters that cannot be done by
the Board by reason that such matters fall upon
the shareholders; or corporate matters that
cannot be resolved by the Board alone, i.e., it
must be done with the approval of the
shareholders.
Doctrine of Centralized Management
As can be gleaned from Sec. 22 of Revised
Corporation Code “It is the board of directors or
trustees which exercises almost all the corporate
powers in a corporation.” Firme v. Bukal
Enterprises and Dev. Corp., 414 SCRA 190
(2003).
The exercise of the corporate powers of the
corporation rest in the Board of Directors except
in those instances where the Corporation Code
requires stockholders’ approval for certain specific
acts [Great Asian Sales Center Corp. v. Court of
Appeals, 381 SCRA 557 (2002)].
Business Judgment Rule – questions of policy
or management are left solely to the honest
decision of officers and directors of a corporation
and the courts are without authority to substitute
their judgment for the judgment of the board of
directors; the board is the business manager of
the corporation and so long as it acts in good
faith its orders are not reviewable by the courts
or the SEC.
- A resolution or transaction pursued within the
corporate powers and business operations of the
corporation, and passed in good faith by the
board of directors/trustee, is valid and binding,
and generally the courts have no authority to
review the same and substitute their own
judgment, even when the exercise of such power
may cause losses to the corporation or decrease
the profits of a department.
*Great respect is accorded to the decisions of
the Board of Directors/Trustees.
*The directors are not liable to the
stockholders in performing such acts.
Term of Office
Directors shall be elected for a term of one
(1) year from among the holders of stocks
registered in the corporation’s books, while
trustees shall be elected for a term not
exceeding three (3) years from among the
members of the corporation. Each director and
trustee shall hold office until the successor is
elected and qualified. Hence, they shall continue
to act as such in a hold-over capacity until an
election is held and a qualified candidate is so
elected (HOLD-OVER PRINCIPLE)
Qualification of the Board Members
“Every director must have at least one share of
the capital stock of the corporation of which he is
a director, which share shall stand in his name on
the books of the corporation. Any director who
ceases to be the owner of at least one share of
the capital stock of the corporation of which he is
a director shall thereby cease to be a director.
VJ De
Trustees of non-stock corporations must be
members thereof”.
Note: The previous requirements that a majority
of the directors or trustees of all corporations
must be residents of the Philippines and they
must all natural persons have been deleted in the
Revised Corporation Code. However, he must
possess other qualifications as may be prescribed
in the by-laws of the corporation and under
Section 26 of the RCC.
SEC. 26. Disqualification of Directors, Trustees or
Officers. – A person shall be disqualified from
being a director, trustee, or officer of any
corporation if, within five (5) years prior to
the election or appointment as such, the
person was:
(a) Convicted by final judgment:
(1) Of an offense punishable by
imprisonment for a period exceeding six (6)
years;
(2) For violating this Code; and (3) For
violating Republic Act No. 8799, otherwise
known as “The Securities Regulation Code”;
(b) Found administratively liable for any
offense involving fraud acts; and
(c) By a foreign court or equivalent foreign
regulatory authority for acts, violations or
misconduct similar to those enumerated in
paragraphs (a) and (b) above.
The foregoing is without prejudice to
qualifications or other disqualifications,
which the Commission, the primary
regulatory agency, or the Philippine
Competition Commission may impose in its
promotion of good corporate governance or
as a sanction in its administrative
proceedings.
Note: The by-laws may provide additional
qualifications and disqualifications.
SEC. 23. Election of Directors or Trustees. –
Except when the exclusive right is reserved
for holders of founders’ shares under
Section 7 of this Code, each stockholder or
member shall have the right to nominate any
director or trustee who possesses all of the
qualifications and none of the
disqualifications set forth in this Code.
At all elections of directors or trustees, there
must be present, either in person or through a
representative authorized to act by written proxy,
the owners of majority of the outstanding capital
stock, or if there be no capital stock, a majority of
the members entitled to vote. When so
authorized in the by-laws or by a majority of the
board of directors, the stockholders or members
may also vote through remote communication or
in absentia: Provided, That the right to vote
through such modes may be exercised in
corporations vested with public interest,
notwithstanding the absence of a provision in the
by-laws of such corporations. A stockholder or
member who participates through remote
communication or in absentia, shall be
deemed present for purposes of quorum.
The election must be by ballot if requested by any
voting stockholder or member.
In stock corporations, stockholders
entitled to vote shall have the right to vote
the number of shares of stock standing in
their own names in the stock books of the
corporation at the time fixed in the bylaws
or where the bylaws are silent, at the time
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of the election. The said stockholder may:
(a) vote such number of shares for as many
persons as there are directors to be elected;
(b) cumulate said shares and give one (1)
candidate as many votes as the number of
directors to be elected multiplied by the
number of the shares owned; or (c)
distribute them on the same principle among
as many candidates as may be seen fit:
Provided, That the total number of votes
cast shall not exceed the number of shares
owned by the stockholders as shown in the
books of the corporation multiplied by the
whole number of directors to be elected:
Provided, however, That no delinquent stock
shall be voted. Unless otherwise provided in
the articles of incorporation or in the
bylaws, members of non-stock corporations
may cast as many votes as there are
trustees to be elected but may not cast more
than one (1) vote for one (1) candidate.
Nominees for directors or trustees receiving
the highest number of votes shall be
declared elected.
If no election is held, or the owners of
majority of the outstanding capital stock or
majority of the members entitled to vote are
not present in person, by proxy, or through
remote communication or not voting in
absentia at the meeting, such meeting may
be adjourned and the corporation shall
proceed in accordance with Section 25 of
this Code.
The directors or trustees elected shall
perform their duties as prescribed by law,
rules of good corporate governance, and by-
laws of the corporation.
*The election must be by ballot if requested by
any voting member or stockholder.
*A stockholder cannot be deprived in the articles
of incorporation or in the by-laws of his statutory
right to use any of the methods of voting in the
election of directors.
*No delinquent stock shall be voted.
*It is not required that the candidate received
the majority vote, what the law provides is only
plurality of votes.
Methods of Voting:
1. Straight Voting – every stockholder may vote
such number of shares for as many persons as
there are directors to be elected.
2. Cumulative Voting for One Candidate – a
stockholder is allowed to concentrate his votes
and give one candidate as many votes as the
number of directors to be elected multiplied by
the number of his shares shall equal.
*Example: X has 10 shares in his name; there
are 5 numbers of directors to be elected. X has
50 votes (10x5) available to him. X may opt to
concentrate all his 50 votes to a particular
candidate.
3. Cumulative Voting by Distribution – a
stockholder may cumulate his shares by
multiplying also the number of his shares by the
number of directors to be elected and distribute
the same among as many candidates as he shall
see fit.
*Example: X has 10 shares in his name; there
are 5 numbers of directors to be elected. X has
50 votes available to him. X may opt to distribute
the votes to as many candidates as there are
provided that the total number of votes does not
exceed 50.
VJ De
Purpose of cumulative voting: To protect the The commission shall have the power to issue orders
minority stockholders. summarily directing the issuance of a notice stating
* The elected officer must act as a body. the time and place of the election, designated
* In a stock corporation, cumulative voting is a presiding officer, and the record date or dates for the
statutory right whereas in a non-stock determination of stockholders or members entitled to
corporation, cumulative voting is applicable if it is vote if no new date has been designated or if the
rescheduled election is likewise not held.
provided in the Article of Incorporation or in the
by-laws.
Is Quorum Requirement in Board Meetings
Note: If no election is held, or the owners of still exist?
majority of the outstanding capital stock or SEC. 24. Corporate Officers. – Immediately
majority of the members entitled to vote are not after their election, the directors of a corporation
present in person, by proxy, or through remote must formally organize and elect: (a) a president,
communication or not voting in absentia at the who must be a director; (b) a treasurer, who
meeting, such meeting may be adjourned and the must be a resident; (c) a secretary, who must be
corporation shall proceed in accordance with a citizen and resident of the Philippines; and (d)
Section 25 of this Revised Corporation Code. such other officers as may be provided in the
bylaws. If the corporation is vested with public
SEC. 25. Report of Election of Directors, Trustees interest, the board shall also elect a compliance
and Officers, Non-holding of Election and Cessation officer. The same person may hold two (2) or
from Office. – Within thirty (30) days after the more positions concurrently, except that no one
election of the directors, trustees and officers of the shall act as president and secretary or as
corporation, the secretary, or any other officer of the president and treasurer at the same time, unless
corporation, shall submit to the Commission, the otherwise allowed in this Code.
names, nationalities, shareholdings, and residence The officers shall manage the corporation and
addresses of the directors, trustees, and officers perform such duties as may be provided in the
elected. bylaws and/or as resolved by the board of
The non-holding of elections and the reasons directors.
therefor shall be reported to the Commission
within thirty (30) days from the date of the Note: There is no such thing as quorum
scheduled election. The report shall specify a requirement under the Revised Corporation Code.
new date for the election, which shall not be
The Officers shall manage the corporation and
later than sixty (60) days from the scheduled
perform duties as may be provided in the by-law
date.
and/or as resolved by the board of directors.
If no new date has been designated, or if the
rescheduled election is likewise not held, the Hence, the validity of the Corporate’s officers is
Commission may, upon the application of a determine by the by-law and/or as resolved by
stockholder, member, director or trustee, and the board of directors.
after verification of the unjustified non-holding
of the election, summarily order that an
election be held. The Commission shall have
the power to issue such orders as may be
appropriate, including orders directing the
issuance of a notice stating the time and place
of the election, designated presiding officer,
and the record date or dates for the
determination of stockholders or members
entitled to vote.
Notwithstanding any provision of the articles
of incorporation or bylaws to the contrary, the
shares of stock or membership represented at
such meeting and entitled to vote shall
constitute a quorum for purposes of conducting
an election under this section.
Should a director, trustee or officer die,
resign or in any manner cease to hold office,
the secretary, or the director, trustee or officer
of the corporation, or in case of death, the
officer’s heirs shall, within seven (7) days from
knowledge thereof, report in writing such fact
to the Commission.

The following are the obligations of the secretary

or any other officers of the corporation as
provided in Section 25 of the RCC:
1. Submit to the Commission, the names,
nationalities, shareholdings, and residence addresses
of the directors, trustees, and officers elected within
30 days after the election;
2. Submit to the Commission the reasons why the
election was not held within thirty (30) days from
the date of the scheduled election. The report shall
specify a new date for the election, which shall not
be later than sixty (60) days from the scheduled
date; and
3. Report to the Commission the death,
resignation, or any reasons of cessation of office
within seven (7) days from the knowledge thereof.

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