a.
The presence of such
Section 32. Dealings of directors, trustees
or officers with the corporation. – A
contract of the corporation with one or
more of its directors or trustees or officers
is voidable, at the option of such
corporation, unless all the following
conditions are present:
1. That the presence of such
director or trustee in the board
meeting in which the contract
was approved was not
necessary to constitute a reasonable
quorum for such meeting;
2. That the vote of such director or
trustee was not necessary for
the approval of the contract;
3. That the contract is fair and
reasonable under the
circumstances; and
4. That in case of an officer, the
contract has been previously
authorized by the board of
directors.
Where any of the first two
conditions set forth in the preceding
paragraph is absent, in the case of
a contract with a director or trustee,
such contract may be ratified by the
vote of the stockholders
representing at least two-thirds
(2/3) of the outstanding capital
stock or of at least two-thirds (2/3)
of the members in a meeting called
for the purpose: Provided, That full
disclosure of the adverse interest of
the directors or trustees involved is
made at such meeting: Provided,
however, That the contract is fair
and reasonable under the
circumstances.
SELF DEALING DIRECTORS,
TRUSTEES, OR OFFICERS - are those
who personally contract with the
corporation in which they are directors,
trustees or officers.
Status of the Contract between the self-
dealing directors, trustees or officers with
the corporation is VOIDABLE. ★
Q. WHEN IS IT VALID? ★
A. YES, it is valid when the
following requirements for tis
validity are present:
director/trustee in the board
meeting approving the contract was
not necessary to constitute a
quorum for such meeting; ★
b. The vote of such director/trustee
in the board meeting approving the
contract was not necessary for the
approval of the contract; ★
c. The contract is fair and
under the
circumstances; ★
d. In the case of an officer, there
was previous authorization by the
board of directors. ★
Q. CAN IT BE RATIFIED EVEN IF
ALL THE REQUIREMENTS ARE
NOT MET?
A. YES, it can be ratified by a vote
of:
a. stockholders representing at
least 2/3 of Outstanding Capital
Stock; or
b. by the vote of at least 2/3 of the
members in a meeting called for
the purpose.
In order that ratification may be
considered valid and effective, it is
however necessary that the
following conditions are present: ★
a. There must be full
disclosure of the adverse
interest of the director
/trustees involved is
made at such meeting;
and
b. The contract is fair and
reasonable under the
circumstance. ★
Section 33. Contracts between a. The presence of the interlocking
corporations with interlocking directors. – director/trustee in the board
Except in cases of fraud, and provided the meeting (of where his interest is
contract is fair and reasonable under the merely nominal) in which the
circumstances, a contract between two or contract was approved was not
more corporations having interlocking necessary to constitute a
directors shall not be invalidated on that quorum for such meeting;
ground alone: Provided, That if the interest
of the interlocking director in one b. That the vote of such
corporation is substantial and his interest director/trustee was not
in the other corporation or corporations is necessary for the approval of
merely nominal, he shall be subject to the the contract;
provisions of the preceding section insofar
as the latter corporation or corporations c. That the contract is fair and
are concerned. reasonable under
circumstances.
Stockholdings exceeding twenty (20%)
percent of the outstanding capital stock RATIFICATION (RULE)
shall be considered substantial for
purposes of interlocking directors. 1. If the contract is not fair and
reasonable under the
INTERLOCKING DIRECTORSHIP – there circumstance, IT IS VOID
is an interlocking director in a corporation THUS, CANNOT BE RATIFIED.
when one (or some all) of the directors in
one corporation is (or are) director(s) in 2. If it is fair and reasonable,
another corporation. ★ however the presence of the
interlocking director/trustee in
Q. WHAT IS THE EFFECT OF the board meeting in which the
INTERLOCKING DIRECTORSHIP? contract was approved was not
necessary to constitute a
A. It is not itself prohibited under the quorum for such meeting or that
Corporation Code. the vote of such director/trustee
was not necessary for the
The by-laws may contain provisions that approval of the contract, it
disallow interlocking directorship in certain MAKES THE CONTRACT
cases. VOIDABLE THUS CAPABLE
OF RATIFICATION.
A contract between two or more
corporations having interlocking directors 3. Ratification requires a vote of
shall not be invalidated on that ground the stockholders representing at
alone. least 2/3 of Outstanding
Capital Stock or at least 2/3
Q. WHEN IS THE INTEREST OF AN of the members in a meeting
INTERLOCKING DIRECTOR IN THE called for the purpose so long
CORPORATION SUBSTANTIAL AND the following requisites are
WHEN IS IT NOMINAL? present: ★

A. SUBSTANTIAL - if his a. There must be full disclosure

stockholdings exceed 20% of the of the adverse interest of the
outstanding capital Stock. directors/trustees involved
at such meeting; ★
NOMINAL – if his equity is 20% or
less of the outstanding capital stock b. The contract must be fair
and reasonable under
Q. WHAT IS THE EFFECT ON THE circumstances★
CONTRACTS IF THE INTEREST OF THE
INTEREST OF THE INTERLOCKING Q. WHEN DOES SECTION 33
DIRECTOR IN ONE OF THE APPLIES?
CORPORATION IS NOMINAL IN ONE
AND SUBSTANTIAL IN THE OTHER? ★ A. The rules regarding transactions
between corporations with
A. It shall be valid if the following interlocking directors applies if the
conditions are present: contract results in prejudice to
one of the corporations.
 Q. DOES THE RULE APPLY IF THE
CORPORATIONS ALLEGEDLY
PREJUDICED IS A THIRD
PERSON?
A. NO, it does not apply if one
corporation is not one with
interlocking directors.
Section 34. Disloyalty of a director. –
Where a director, by virtue of his office,
acquires for himself a business opportunity
which should belong to the corporation,
thereby obtaining profits to the prejudice of
such corporation, he must account to the
latter for all such profits by refunding the
same, unless his act has been ratified by a
vote of the stockholders owning or
representing at least two-thirds (2/3) of
the outstanding capital stock. This
provision shall be applicable,
notwithstanding the fact that the director
risked his own funds in the venture.
DOCTRINE OF CORPORATE
OPPORTUNITY
- this is consistent with the duty of
loyalty of a director
- mandates that he should not give
preference to his own amelioration
by taking the opportunity of the
corporation.
Q. WHEN DOES SECTION 34
APPLIES? ★
A. Unless his act is ratified; a director
shall refund to the corporation all the
profits he realizes on a business
opportunity which: ★
1. the corporation is financially
able to undertake; ★
2. from its nature, is in line with
corporation’s business and is of
practical advantage to it; and★
3. the corporation has an interest
or a reasonable expectancy. ★
TEST
1. INTEREST OR EXPECTANCY
TEST – precludes acquisition by
corporate officers of the
property of a business
opportunity in which the
corporation has a “beachhead”
in the sense of a legal or
equitable interest or expectancy
growing out of pre-existing right
or relationship.
2. LINE OF BUSINESS TEST –
characterizes an opportunity as
corporate whenever a managing
officers becomes involved in an
activity intimately or closely
associated with the existing or
perspective activities of the
corporation.
3. FAIRNESS TEST – which
determines the existence of a
corporate opportunity by
applying ethical standards of
what is fair and equitable under
the circumstances.
4. MIXED TEST – apply two or all
the test. The threshold question
to be answered is whether the
business opportunity is of
sufficient importance and is so
closely related to the existing or
prospective activity of the
corporation as to warrant
judicial sanctions against it
personal acquisition by a
managing officer or director of
the corporation.
BURDEN OF PROOF – The burden
of proof on the questions of good
faith, fair dealing and loyalty of the
officer to the corporation should
rest upon the officer who
appropriated the business
opportunity for his own advantage.
PROFITS – a director who, by
virtue of his office, acquires for
himself a business opportunity
which should belong to the
corporation, thereby obtaining
profits to the prejudice of such
corporation, must account to the
latter for all such profits by
refunding the same.
RATIFICATION – the corporation
may choose to ratify the acts of the
deliver.
o This requires a vote of 2/3 of
the outstanding capital
stock.
Section 42. Power to invest corporate
funds in another corporation or business or
for any other purpose. – Subject to the
provisions of this Code, a private
corporation may invest its funds in any
other corporation or business or for any
purpose other than the primary purpose for
which it was organized when approved by
a majority of the board of directors or
trustees and ratified by the stockholders
representing at least two-thirds (2/3) of
the outstanding capital stock, or by at least
two thirds (2/3) of the members in the case
of non-stock corporations, at a Q. WHAT IS INVESTMENT?
stockholder’s or member’s meeting duly
called for the purpose. Written notice of the
proposed investment and the time and
place of the meeting shall be addressed to
each stockholder or member at his place of
residence as shown on the books of the
corporation and deposited to the addressee
in the post office with postage prepaid, or
served personally: Provided, That any
dissenting stockholder shall have appraisal
right as provided in this Code: Provided,
however, That where the investment by the
corporation is reasonably necessary to
accomplish its primary purpose as stated in
the articles of incorporation, the approval
of the stockholders or members shall not
be necessary.
PURSUING PRIMARY PURPOSE –
Investment of a corporation in a business
which is in line with its primary purpose
requires only the approval of the Board
PURSUING SECONDARY PURPOSE – if
the corporation will pursue its secondary
purpose, it is required under Section 42
that the following must concur:
1. There must be approval by a
majority of the board of directors
or trustees;
2. The approval of the board must be
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 corporation at a
stockholder or member’s meeting
duly called for the purpose;
3. In calling the stockholder’s meeting,
written note of the proposed
investment and the time and place
of the meeting shall be addressed to
each stockholder or member at his
place of residence as shown on the
books of the corporation and
deposited to the addressed in the
post office with postage prepaid, or
served personal.
Q. WHAT IS APPRAISAL RIGHT?
A. whenever the corporation decides to
pursue secondary corporate business
the dissenting stock holder is given the
right of appraisal. ★★★★★
A. Investment of funds means not only
investment of money but also
investment of property of the
corporation.
TITLE IX - MERGER AND
CONSOLIDATION
Section 76. Plan or merger of
consolidation. – Two or more 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, party to the merger or
consolidation, shall approve a plan of
merger or consolidation setting forth the
following:
1. The names of the corporations
proposing to merge or
consolidate, hereinafter referred
to as the constituent
corporations;
2. The terms of the merger or
consolidation and the mode of
carrying the same into effect;
3. A statement of the changes, if
any, in the articles of
incorporation of the surviving
corporation in case of merger;
and, with respect to the
consolidated corporation in case
of consolidation, all the
statements required to be set
forth in the articles of
incorporation for corporations
organized under this Code; and
4. Such other provisions with
respect to the proposed merger
or consolidation as are deemed
necessary or desirable.
MERGER – on where a corporation absorbs NON-STOCK CORPORATION – one
another corporation and remains in where no part of its income is distributable
existence while the other is dissolved. as dividends to its members.

CONSOLIDATION – is on where a new ESSENTIAL REQUISITES OF A NON-

corporation is created, and consolidating STOCK CORPORATION:
corporation are extinguished.
- It does not have a capital stock
Q: What are the distinctions dividend into shares;
between merger and - No part of its income is
consolidation? distribuatable as dividens to its
members; and
MERGER CONSOLIDATION - Non-stock corporation must be
All of the All consolidated formed or organized for Charitable,
constituent corporations are Literary, Scientific, Social, Civic
corporations dissolved without service, Or similar purposes, like
involved are exception trade, industry, agricultural and like
dissolved except chamber or any combination
one thereof.
No new A single new
corporation is corporation
TITLE XII - CLOSE CORPORATION
created emerges
The surviving All assets,
corporation liabilities, and
(WHAT IS A CLOSED CORPORATION?)
acquires all the capital stock of all
Section 96. Definition and applicability of
assets, consolidated
Title. - A close corporation, within the
liabilities, and corporations are
meaning of this Code, is one whose articles
capital stock of transferred to the
of incorporation provide that: (1) All the
all constituent new corporation
corporation’s issued stock of all classes,
corporations
exclusive of treasury shares, shall be held
of record by not more than a specified
TITLE XI - NON-STOCK
number of persons, not exceeding twenty
CORPORATIONS
(20); (2) all the issued stock of all classes
Section 87. Definition. – For the purposes
shall be subject to one or more specified
of this Code, a non-stock corporation is one
restrictions on transfer permitted by this
where no part of its income is distributable
Title; and (3) The corporation shall not list
as dividends to its members, trustees, or
in any stock exchange or make any public
officers, subject to the provisions of this
offering of any of its stock of any class.
Code on dissolution: Provided, That any
Notwithstanding the foregoing, a
profit which a non-stock corporation may
corporation shall not be deemed a close
obtain as an incident to its operations shall,
corporation when at least two-thirds (2/3)
whenever necessary or proper, be used for
of its voting stock or voting rights is owned
the furtherance of the purpose or purposes
or controlled by another corporation which
for which the corporation was organized,
is not a close corporation within the
subject to the provisions of this Title.
meaning of this Code.
The provisions governing stock
(WHAT CANNOT BE A CLOSED
corporation, when pertinent, shall be
CORPORATION?) - Any corporation may
applicable to non-stock corporations,
be incorporated as a close corporation,
except as may be covered by specific
except mining or oil companies, stock
provisions of this Title. (n)
exchanges, banks, insurance companies,
public utilities, educational institutions and
Section 88. Purposes. – Non-stock
corporations declared to be vested with
corporations may be formed or organized
public interest in accordance with the
for charitable, religious, educational,
provisions of this Code.
professional, cultural, fraternal, literary,
scientific, social, civic service, or similar
The provisions of this Title shall primarily
purposes, like trade, industry, agricultural
govern close corporations: Provided, That
and like chambers, or any combination
the provisions of other Titles of this Code
thereof, subject to the special provisions of
shall apply suppletorily except insofar as
this Title governing particular classes of
this Title otherwise provides.
non-stock corporations.
REQUISITES FOR A STOCK board meeting, if the
CORPORATION TO BE CONSIDERED A stockholder had knowledge or
CLOSE CORPORATION: ratified the informal action of
the others
1. All the corporation’s issued
stock of all classes, exclusive of 6. Pre‐emptive right extends to all
treasury shares, shall be held of
stock issues
record by not more than a
specified number of persons,
not exceeding twenty (20); 7. Deadlock in board are settled by
the SEC, on the written petition
2. All the issued stock of all classes by any stockholder
shall be subjected to one or
more specified restrictions on 8. Stockholder may withdraw and
transfer permitted by Title XII of avail of his right of appraisal
the Corporation Code;
CLOSE ORDINARY
3. The corporation shall not list in CORPORATION CORPORATION
any stock exchange or make any There is limitation on There is no limit as to
public offering of any of its stock the number of the number of
of any class. stockholders to a shareholder.
maximum of 20
There must be a A restriction need not
restriction on the be provided for.
Jurisprudence: transfer of shares
Specific qualifications Qualifications of
A narrow distribution of ownership to be eligible as stockholders are not
does not, by itself, make a close stockholder are normally prescribed
corporation. usually provided for.
Public offering of Public offering of
Mere ownership by a single shares is prohibited share is not
stockholder of all or nearly all of the prohibited
capital stock of a corporation does May be managed It is managed by the
directly by board of directors and
not make one a close corporation if
stockholders not the stockholders
the requirements are not stated in
the Article of Incorporation.
Q. WHAT CANNOT BE CLOSE
CORPORATIONS?
Q: WHAT ARE THE
CHARACTERISTICS OF A CLOSE
A. The following corporations cannot be
CORPORATION?
close corporation:
A:
1. When at least 2/3 of its voting
1. Stockholders may act as
stock or voting rights is owner or
directors without need of
controlled by another
election and therefore are liable
corporation; and
as directors
2. Mining or oil companies, stock
2. Stockholders who are involved
exchanges, banks, insurance
in the management of the
companies, public utilities,
corporation are liable in the
educational institution and
same manner as directors are
corporations declared to be
vested with public interest.
3. Quorum may be greater than
mere majority
Q. IS THE NUMERICAL LIMIT OF
MAXIMUM OF 20 INCORPORATORS
4. Transfer of stocks to others,
ABSOLUTE?
which would increase the
number of stockholders to more
A. YES, it is mandatory!
than the maximum are invalid

5. Corporate actuations may be

binding even without a formal
Q. IS THE CORPORATION STILL
SUBJECT TO THE SAME LIMITATION
DESPITE THE DEATH OF ONE OF THE
SHAREHOLDERS?
A. YES, IN WHICH CASE THE HERS HAVE
TWO OPTIONS:
1. The shares of the deceased may
be placed in the name of one of
the heirs who will be the
nominee or representative of
the heirs; or
2. A corporation can be organized
to hold all the shares.
CLOSELY HELD CORPORATION – has
been held corporation has been defined as
a corporation the shares of which are
owned by a relatively limited number of
stockholders.
Section 127. Who may be a resident
agent. – A resident agent may be either an
individual residing in the Philippines or a
domestic corporation lawfully transacting
business in the Philippines: Provided, That
in the case of an individual, he must be of
good moral character and of sound
financial standing. ★
Q. WHO CAN BE A RESIDENT
AGENT? ★
A. A resident agent may be either of
the following: ★
a. An INDIVIDUAL who is
residing in the
Philippines, of good
moral character, and of
sound financial standing
b. A DOMESTIC
CORPORATION lawfully
transacting business in
the Philippines. ★
Q: WHAT IS THE PURPOSE OF
APPOINTING A RESIDENT
AGENT?
A. The appointment of a resident
agent is required for the purpose
of accepting and receiving, on
behalf of the foreign
corporation: a) notice affecting
the corporation pending the
establishment of its local office
and b) summons and other legal
processes in all proceedings for
or against the corporation.
Q: CAN A RESIDENT AGENT
SIGN THE CERTIFICATE OF NON‐
FORUM SHOPPING?
A. No, while a resident agent may
be aware of the actions filed
against the principal, he may
not be aware of the actions
initiated by the principal,
therefore he cannot sign the
certificate of non‐ forum
shopping that is a requirement
for filing of an initiatory pleading
in court.
TITLE XV - FOREIGN CORPORATIONS
Section 123. Definition and rights of
foreign corporations. – For the purposes of
this Code, a foreign corporation is one
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. It shall have the right to
transact business in the Philippines after it
shall have obtained a license to transact
business in this country in accordance with
this Code and a certificate of authority from
the appropriate government agency.
FOREIGN CORPORATION - It is a
corporation formed, organized or existing
under any law other than those of the
Philippines, and whose laws allow Filipino
citizens and corporation to do business in
its own country or state.
TWO REQUISITES OF FOREIGN
CORPORATION:
1. The corporation must be formed,
organized or existing under any
laws other than those of the
Philippines;
2. The laws of the country where the
corporation was organized allow
Filipino citizens and corporations to
do business in its own country or
state;
Q: WHAT ARE THE BASES OF Q: WHAT ARE THE CONSIDERED
AUTHORITY OVER FOREIGN AS “DOING OR TRANSACTING
CORPORATION? BUSINESS” IN THE
PHILIPPINES FOR FOREIGN
A: CORPORATIONS?
1. Consent
2. Doing business in the Philippines A:
1. Soliciting orders,
Q: WHAT ARE THE 2. Entering into service contracts,
JURISDICTIONAL TESTS OF 3. Opening offices, whether called
“DOING OR TRANSACTING liaison offices or branches
BUSINESS” IN THE PHILIPPINES 4. Appointing representatives,
FOR FOREIGN CORPORATIONS? distributors domiciled in the
Philippines or who stay for a
A: period or periods totaling 180
days or more
1. TWIN CHARACTERIZATION 5. Participating in the
TEST management, supervision or
control of any domestic
A. CONTINUITY TEST – doing business, firm, entity, or
business implies a continuity of corporation in the Philippines.
commercial dealings and 6. Any act or acts that imply a
arrangements, and contemplates to continuity of commercial
some extent the performance of dealings or arrangements, and
acts or works or the exercise of contemplate to some extent the
some functions normally incident to performance of acts or works or
and in progressive prosecution of, the exercise of some functions
the purpose and object of its normally incident to and in
organization. progressive prosecution of, the
purpose and object of its
B. SUBSEQUENT TEST – a foreign organization.
corporation is doing business in the
country if it is continuing the body Q. WHAT ARE CONSIDERED AS
or substance of the enterprise of NOT DOING BUSINESS:
business for which it was organized.
A.
2. CONTRACT TEST
1. Mere investment as a
Whether the contracts entered into shareholder by a foreign entity
by the foreign corporation, or by an or domestic corporation duly
agent acting under the control and registered to do business and/or
direction of the foreign corporation, exercise of rights as such
are consummated in the investor;
Philippines. 2. Having a nominee director or
officer to represent its interest in
To be “doing or transacting such corporation
business in the Philippines” for the 3. Appointing a representative or
purposes of Sec. 133 of the distributor domiciled in the
Corporation Code, the foreign Philippines that transacts
corporation must actually transact business in the representative’s
business in the Philippines, that is, or distributor’s own name and
perform specific business account;
transactions within the Philippines 4. The publication of a general
territory on a continuing basis, in advertisement through any print
its own name or for its own or broadcast media;
account. 5. Maintaining a stock of goods in
the Philippines solely for the
purpose of having the same
processed but another entity in
the Philippines;
6. Consignment by a foreign entity
of equipment with a local
company to be used in the
processing of products for
export;
7. Collecting information in the
Philippines; and
8. Performing services auxiliary to
an existing isolated contract of
sale which are not on a
continuing basis.

Q. WHAT ARE THE ESSENTIAL

CONDITION TO BE CONSIDERED
AS “DOING BUSINESS” IN THE
PHILIPPINES UNDER SECTION
3 OF THE FOREIGN INVESTMENT
ACT OF 1991 ARE:

A.

1. The actual performance of

specific commercial act
2. It must be within the territory of
the Philippines
3. Must be for the plain reason that
the Philippines has no
jurisdiction over commercial
acts performed in foreign
territories.