What is a corporation?

4. What is trust fund doctrine?

A corporation is an artificial being created The subscribed capital stock of the

by operation of law, having the right of
succession and the powers, attributes and
properties expressly authorized by law or
incident to its existence.
1. Common shares can be
differentiated from preferred shares
in the following:
a. Common shares have voting rights
while preferred shares are generally not
entitled to vote save in certain exemptions
provided by law;
b. Common shares are the holders of
residual interest in the corporation while
preferred shares enjoys preference in the
distribution of dividends or distribution of
assets in case of liquidation;
c. Preferred shares can only be issued
with par value while common shares may
be issued without par value;
corporation is a trust fund for the
payment of debts of the
corporation which the creditors
have the right to look up to satisfy
their credits and which the
corporation may not dissipate. The
creditors may sue the stock holders
directly from the latter’s unpaid
subscription.
5. What is a treasury share?
SEC. 9. Treasury shares. – Treasury
shares are shares of stock which have
been issued and fully paid for, but
subsequently reacquired by the issuing
corporation through purchase,
redemption, donation, or some other
lawful means. Such shares may again
be disposed of for a reasonable price
fixed by the board of directors.

2. Preferred shares are allowed to SEC. 56. Voting Right for Treasury
vote in the following; Shares. – Treasury shares shall have
no voting right as long as such shares
a) Amendment of the articles of remain in the Treasury.
incorporation;
b) Adoption and amendment of Comm. Vs. Maning – a corporation
bylaws; cannot in any proper sense be a
c) Sale, lease, exchange, mortgage, stockholder in itself and shares of its
pledge, or other disposition of all or own stock, therefore held by it cannot
substantially all of the corporate property; be voted or be entitled to vote for
d) Incurring, creating, or increasing otherwise the directors could be able
bonded indebtedness; to perpetuate control of the
e) Increase or decrease of authorized corporation.
capital stock;
f) Merger or consolidation of the 6. What is a corporation de facto
corporation with another corporation or and its element?
other corporations;
g) Investment of corporate funds in A corporation de factor is one which
another corporation or business in actually exists for all practical
accordance with this Code; and purposes as a corporation but which
h) Dissolution of the corporation. has no legal right to corporate
existence as against the estate.
3. Par value shares can be
distinguished from no par value The following are the elements of a de
shares in the following: facto corporation:

a. Par value shares have a fixed value a. Organized under a valid law;
stated in the articles of incorporation and b. Attempt in good faith to form a
in stock certificate while the value of no corporation according to the requirements
par shares is not fixed; of the law; and
b. Par value shares can be issued c. Use of corporate powers.
even if it is only partially paid while no par
value shares are deemed fully paid; 7. Can the existence of a de facto
c. Par value shares cannot be issued corporation be attacked collaterally?
at less than par while no par shares may
be issued for consideration not less than No, it cannot be attack collaterally.
P5.00; The Revised Corporation Code
d. Preferred shares can only be issued provides that the existence of a de
with par value. facto corporation may be inquired by
 the Solicitor General in a quo warranto
proceeding.
RCC: SEC. 19. De facto Corporations.
– The due incorporation of any
corporation claiming in good faith to
be a corporation under this Code, and
its right to exercise corporate powers,
shall not be inquired into collaterally in
any private suit to which such
corporation may be a party. Such
inquiry may be made by the
Solicitor General in a quo warranto
proceeding.
8. Case; ABCDE acting like a
corporation even without the actual
existence of such. They claimed they
cannot be liable because they are not
a corporation?
No, their defense will not prosper
because they are estopped from
claiming that they are not a board of directors.
corporation. A, B, C, D and E are
solidary liable to X as they are
considered as general partners. In
such case their separate properties
may be liable to X.
SEC. 20. Corporation by Estoppel. – All
persons who assume to act as a
corporation knowing it to be without
authority to do so shall be liable as
general partners for all debts, liabilities
and damages incurred or arising as a
result thereof: Provided, however,
That when any such ostensible
corporation is sued on any transaction
entered by it as a corporation or on
any tort committed by it as such, it
shall not be allowed to use its lack of
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 in fact no
corporation.
9. The rule regarding self-dealing
director applies in this case. The contract
is voidable unless it is shown that the
following is present:
a. That the presence of Mr. Reyes
was not required to constitute quourum in
the meeting when the contract was
approved;
b. The vote of Mr. Reyes was not
required to approve the contract; and
c. The contract is fair and reasonable
under the circumstances.
Section 31. It is a contract of the
corporation with one or more of its
directors or trustees or officers. It is
voidable at the option of the corporation
unless all the following conditions are
present:
a) The presence of such director or
trustee in the board meeting in which the
contract was approved was not necessary
to constitute a quorum for such meeting;
a. The vote of such director or trustee
was not necessary for the approval of
the contract;
b. The contract is fair and reasonable
under the circumstances;
c. In case of corporations vested with
public interest, material contracts are
approved by at least two-thirds (2/3)
of the entire membership of the board,
with at least a majority of the
independent directors voting to
approve the material contract; and
d. In case of an officer, the contract
has been previously authorized by the
Where any of the first three (3)
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 and the contract is fair and
reasonable under the circumstances.
10. The shipping contract is voidable.
The interest of Mr. Reyes in Stanfilco is
nominal while his interest in said shipping
is substantial. Absence in showing that all
the requirements of the rule regarding
self-dealing directors have been complied,
the shipping contract shall be considered
voidable.
A contract between corporations or
two or more corporations having
interlocking directors shall not be
invalidated on that ground alone,
provided:
a. The contract is not fraudulent;
b. Contract is affair and reasonable
under the circumstances;
c. If the interest of the interlocking
director in one corporation does not
exceed 20% of the outstanding capital
stock, or is nominal, he shall be subject to
the provisions of Sec. 31 of the Revised
Corporation Code insofar as the latter SEC. 56. Voting Right for Treasury
corporation or corporations are concerned. Shares. – Treasury shares shall have
no voting right as long as such shares
11. Advantages of a corporation: remain in the Treasury.

a. Capacity to act as a legal unit; 16. Who can be incorporators?

b. Easy capital generation;
c. Limitation or exception of the SEC. 10. Number and Qualifications of
liability of the shareholders; Incorporators. – Any person,
d. Continuity of existence; and partnership, association or
e. Transferability of shares. corporation, singly or jointly with
others but not more than fifteen
12. The disadvantages of a (15) in number, may organize a
corporation: corporation for any lawful purpose
or purposes: Provided, That natural
a. Prone to double taxation; persons who are licensed to practice a
b. Subject to greater governmental profession, and partnerships or
regulation and control; associations organized for the purpose
c. Harder to maintain and control; of practicing a profession, shall not be
d. Harder to organize; allowed to organize as a corporation
e. Credit is weakened by the limited unless otherwise provided under
liability of shareholders. special laws. Incorporators who are
natural persons must be of legal age.
13. Each incorporator of a stock
corporation must own or be a
Industry Filipino Foreign subscriber to at least one (1) share of
Mining 100% 0% the capital stock.
Mass media 100% 0%
Public utility 60% 40% 17. Can a corporation be an
Retail Trade 100% 0% incorporator?
Banking 60% 40%
Sauna Bath 60% 40% Yes, please refer to number 17.
Employment and 75% 25%
Recruitment 18. What is a Doctrine of Equity of
Financial 40% 60% shares?
Corporation
Doctrine of Equity of shares is
Cockpits 100% 0%
enunciated under Sec. 6 of the RCC
Security agency 100% 0%
which states that:
14. Yes, Freddie Roach is entitled to
Except as otherwise provided by the
dividends based on his subscription of 100
articles of incorporation and in the
shares. It is immaterial that he paid only
certificate of stocks, each share shall
half of what he is supposed to pay. If it is
be equal in all respects to every other
a cash dividend and Roach is a delinquent
shares.
stockholder, the dividend shall first be
applied to his unpaid balance on plus costs
19. The Grand Father Rule – It is a test
and expenses. He is therefore still
of determining the nationality of a
considered to be entitled to such
corporation. Its purpose is to ensure
dividends.
compliance with the constitutional
limitations of corporation engaging
Under the law shareholders are
nationalized activities.
entitled to dividends. Furthermore, the
Section 42 of the RCC states that any
Nationality of a corporation must be
cash dividends due on delinquent stock
determined by ascertaining if 60% of
shall first be applied to the unpaid
the investing corporation’s outstanding
balance on the subscription plus costs
stock is owned by Filipino citizens or
and expenses.
as interpreted by natural or individual
15. No, the corporation cannot vote on
Filipino citizens.
the 50 shares in the election of the Board
of Directors. What shares are involved in
20. SEC. 13. Contents of the Articles
this case are treasury shares because they
of Incorporation. – All corporations shall
were previously issued and reacquired by
file with the Commission articles of
the corporation.
incorporation in any of the official
languages, duly signed and acknowledged
or authenticated, in such form and
manner as may be allowed by the
Commission, containing substantially the
following matters, except as otherwise
prescribed by this Code or by special law:
a. The name of the corporation;
b. The specific purpose or purposes
for which the corporation is being
formed. Where a corporation has more
than one stated purpose, the articles
of incorporation shall indicate the
primary purpose and the secondary
purpose or purposes: Provided, That a
nonstock corporation may not include
a purpose which would change or
contradict its nature as such;
c. The place where the principal office
of the corporation is to be located,
which must be within the Philippines;
d. The term for which the corporation
is to exist, if the corporation has not
elected perpetual existence;
e. The names, nationalities, and
residence addresses of the
incorporators;
f. The number of directors, which
shall not be more than fifteen (15) or
the number of trustees which may be
more than fifteen (15);
g. The names, nationalities, and
residence addresses of persons who
shall act as directors or trustees until
the first regular directors or trustees
are duly elected and qualified in
accordance with this Code;
h. If it be a stock corporation, the
amount of its authorized capital stock,
number of shares into which it is
divided, the par value of each, names,
nationalities, and residence addresses
of the original subscribers, amount
subscribed and paid by each on the
subscription, and a statement that
some or all of the shares are without
par value, if applicable;
i. If it be a nonstock corporation, the
amount of its capital, the names,
nationalities, and residence addresses
of the contributors, and amount
contributed by each; and
j. Such other matters consistent with
law and which the incorporators may
deem necessary and convenient.
An arbitration agreement may be
provided in the articles of
incorporation pursuant to Section 181
of this Code. Page 6 of 73 The articles
of incorporation and applications for
amendments thereto may be filed with
the Commission in the form of an
electronic document, in accordance
with the Commission’s rules and
regulations on electronic filing.
21. Procedure for the amendment of
the Articles:
1. The amendment must be for
legitimate purposes and must
not be contrary to other
provisions of the CC and special
laws
2. Approved by majority of
BOD/BOT
3. Vote or written assent of
stockholders representing 2/3
of the outstanding capital stock
or 2/3 of members
4. The original and amended
articles together shall contain
all provisions required by law to
be set out in the AOI. Such
articles, as amended, shall be
indicated by underscoring the
change/s made
5. Certification under oath by
corporate secretary and a
majority of the BOD/BOT
stating the fact that said
amendment/s have been duly
approved by the required vote
of the stockholders or
members, shall be submitted to
the SEC
6. Must be approved by SEC (Sec.
16, CC)
7. Must be accompanied by a
favourable recommendation of
the appropriate government
agency in cases of:
a. Banks
b. Banking and quasi-banking
institutions
c. Building and loan
associations
d. Trust companies and other
financial intermediaries
e. Insurance companies
f. Public utilities
g. Educational institutions
h. Other corporations
governed by special laws
(Sec. 17 [2], CC)

22. Define a merchant under the Code
of Commerce?
A merchant is a natural person or
juridical person with legal capacity
who habitually engage in the business
of selling goods and services for profit.
23.Article XII, Section 16. 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.
24.What is piercing the veil of
Corporate Fiction?
The doctrine of piercing the corporate
veil is the doctrine that allows the
State to disregard, for certain
justifiable reasons, the notion that a
corporation has a personality separate
and distinct from the persons
composing it.
Where it appears that business
enterprises are owned, conducted and
controlled by the same parties, law
and equity will disregard the legal
fiction that these corporations are
distinct entities and shall treat them as
one. This is in order to protect the
rights of third persons
25.The NLRC cannot apply the doctrine of
piercing the veil of corporation fiction.
It is the regular courts who have the
license to exercise such power.
26.No, the claim for payment of interest
is invalid. The denial for payment to a
stockholder is not binding on the
corporation unless the stockholder is a
director or officer of the corporation.
One of the attributes of a corporation
is that it is a legal person having
separate and distinct personality.
27.St. Joseph Hospital’s contention is
incorrect since the procurement of the
services of Dr. Danghag is considered
to be incidental to the existence of an
hospital. They may procure services of
resident physician because of the
nature of the services they provide.
Furthermore, hospital businesses are
imbued with public interest and are
required to observe extra-ordinary
diligence.
Section 2 of the RCC provides that a
corporation powers, attributes, and
properties expressly authorized by law
or incidental to its existence.
28.What is a par value share?
Is one with a specific money value
fixed in the articles of incorporation
and appearing in the certificate of
stock for each share of stock of the
same issue.
29.What is a no par value share?
It is one without any stated or par
value appearing on the face of the
certificate of stocks. In other word, it
is a stock which does not state how
much money it represents.
30.What corporations are not allowed to
issue a no par value share?
i. Banking companies
ii. Trust companies
iii. Insurance companies
iv. Preeneed companies
v. Public utilities
vi. Building and loan associations
vii. Other corporation authorized to
obtain or access funds from the
public, wheter publicly listed or
not.
31.Is a one man corporation possible?
Yes, a one man corporation is possible.
Section 10 of the RCC does not require
a minimum number of incorporators. It
only provides for a maximum of 15
incorporators. Furthermore, it states
that a corporation with a single
stockholder is considered a One Person
Corporation.
Requirements: (not sure if mao ni pero
basaha nalang base ni sa codal)
1. Only a natural person, trust, or an
estate may form a One Person
Corporation.
2. Banks and quasi-banks, pre-need,
trust, insurance, public and
publicly-listed companies, and non-
chartered government-owned and
-controlled corporations may not
 incorporate as One Person
Corporations:
3. That a natural person who is
licensed to exercise a profession
may not organize as a One Person
Corporation for the purpose of
exercising such profession except
as otherwise provided under
special laws.
4. It is not be required to have a
minimum authorized capital stock
except as otherwise provided by
special law.
5. It shall file articles of incorporation
in accordance with the
requirements under Section 14 of
this Code.
6. It is not required to submit and file
corporate bylaws.
7. A One Person Corporation shall
indicate the letters “OPC” either
below or at the end of its corporate
name.
8. The single stockholder shall be the
sole director and president of the
One Person Corporation.
9. Within fifteen (15) days from the
issuance of its certificate of
incorporation, the One Person
Corporation shall appoint a not a shareholder of Ace corporation.
treasurer, corporate secretary, and
other officers as it may deem
necessary, and notify the
Commission thereof within five (5)
days from appointment.
10. The single stockholder may not be
appointed as the corporate
secretary.
11. A single stockholder who is likewise
the self-appointed treasurer of the
corporation shall give a bond to the
Commission in such a sum as may
be required.
32.It is based on 1000 shares. Mr. Santos
subscribed to such number of shares
in Petroleum corporation payable in 5
years. He paid 500 shares already,
which is an indication that he will pay.
Furthermore, he is not considered as a
delinquent because the shares are
payable in 5 years.
Dividends when declared by a
corporation is proportioned to the
number of shares subscribed by the
stockholders, even though not fully
paid provided not declared as
delinquent.
SEC. 71. Rights of Unpaid Shares,
Nondelinquent. – Holders of subscribed
shares not fully paid which are not
delinquent shall have all the rights of a
stockholder.
33.No, he has no legal right to demand
issuance of certificate of stock for the
amount he has paid. Mr. Fernandez
cannot demand from the corporation
the issuance of certificate of stock
equivalent to 500 shares that are
equal to the amount he has paid
because the law is clear that the
number of subscribed shares must be
paid in full or in this case 1,000 shares
shall be paid before he can be issued
the certificate of stock. The obligation
is indivisible as provided by the law,
hence he must pay the whole value of
his subscribed shares before he can
demand the issuance of the certificate
of stock.
SEC. 63. Issuance of Stock
Certificates. – No certificate of stock
shall be issued to a subscriber until the
full amount of the subscription
together with interest and expenses
(in case of delinquent shares), if any is
due, has been paid.
34.No, the derivative suit against Mr.
Dalisay will not prosper because he is
He must be a stockholder not only at
the time the cause of action arose but
also at the time the action was filed.
A derivative suit is one brought by one
or more stockholders or members in
the name and on behalf of the
corporation to redress wrongs
committed against it or to protect or
vindicate corporate rights, whenever
the officials of the corporation refuse
to sue or are the ones to be sued or
hold control of the corporation.
Notes for last year exam
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 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 A. YES, it can be ratified by a vote
circumstances; and of:

4. That in case of an officer, the a. stockholders representing at

contract has been previously least 2/3 of Outstanding Capital
authorized by the board of Stock; or
directors.
b. by the vote of at least 2/3
Where any of the first two of the members in a meeting called
conditions set forth in the for the purpose.
preceding paragraph is absent, in
the case of a contract with a In order that ratification may be
director or trustee, such contract considered valid and effective, it is
may be ratified by the vote of the however necessary that the
stockholders representing at least following conditions are present: ★
two-thirds (2/3) of the outstanding
capital stock or of at least two- a. There must be full
thirds (2/3) of the members in a disclosure of the adverse interest
meeting called for the purpose: of the director /trustees involved is
Provided, That full disclosure of the made at such meeting; and
adverse interest of the directors or b. The contract is fair and
trustees involved is made at such reasonable under the
meeting: Provided, however, That circumstance. ★
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:

a. The presence of such

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

reasonable 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?
Section 33. Contracts between
corporations with interlocking directors. –
Except in cases of fraud, and provided the
contract is fair and reasonable under the
circumstances, a contract between two or
more corporations having interlocking
directors shall not be invalidated on that
ground alone: Provided, That if the
interest of the interlocking director in one
corporation is substantial and his interest
in the other corporation or corporations is
merely nominal, he shall be subject to the
provisions of the preceding section insofar
as the latter corporation or corporations
are concerned.
Stockholdings exceeding twenty (20%)
percent of the outstanding capital stock
shall be considered substantial for
purposes of interlocking directors.
INTERLOCKING DIRECTORSHIP – the
there is an interlocking director in a
corporation when one (or some all) of the
directors in one corporation is (or are)
director(s) in another corporation. ★
Q. WHAT IS THE EFFECT OF
INTERLOCKING DIRECTORSHIP?
A. It is not itself prohibited under the
Corporation Code.
The by-laws may contain provisions that
disallow interlocking directorship in certain
cases.
A contract between two or more
corporations having interlocking directors
shall not be invalidated on that ground
alone.
Q. WHEN IS THE INTEREST OF AN
INTERLOCKING DIRECTOR IN THE
CORPORATION SUBSTANTIAL AND
WHEN IS IT NOMINAL?
A. SUBSTANTIAL - if his
stockholdings exceed 20% of the
outstanding capital Stock.
NOMINAL – if his equity is 20%
or less of the outstanding capital
stock
Q. WHAT IS THE EFFECT ON THE
CONTRACTS IF THE INTEREST OF THE
INTEREST OF THE INTERLOCKING
DIRECTOR IN ONE OF THE
CORPORATION IS NOMINAL IN ONE
AND SUBSTANTIAL IN THE OTHER? ★
A. It shall be valid if the following
conditions are present:
a. The presence of the interlocking
director/trustee in the board meeting (of
where his interest is merely nominal) in
which the contract was approved was not
necessary to constitute a quorum for such
meeting;
b. That the vote of such
director/trustee was not necessary for the
approval of the contract;
c. That the contract is fair and
reasonable under circumstances.
RATIFICATION (RULE)
1. If the contract is not fair and
reasonable under the circumstance, IT IS
VOID THUS, CANNOT BE RATIFIED.
2. If it is fair and reasonable, however
presence of the interlocking
director/trustee in the board meeting in
which the contract was approved was not
necessary to constitute a quorum for such
meeting or that the vote of such
director/trustee was not necessary for the
approval of the contract, it MAKES THE
CONTRACT VOIDABLE THUS CAPABLE
OF RATIFICATION.
3. Ratification requires a vote of the
stockholders representing at least 2/3 of
Outstanding Capital Stock or at least
2/3 of the members in a meeting
called for the purpose so long the
following requisites are present: ★
a. There must be full disclosure of the
adverse interest of the directors/trustees
involved at such meeting; ★
b. The contract must be fair and
reasonable under circumstances★
Q. WHEN DOES SECTION 33
APPLIES?
A. The rules regarding transactions
between corporations with
interlocking directors applies if the
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? ★
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.

A. Unless his act is ratified; a director RATIFICATION – the corporation

shall refund to the corporation all the
profits he realizes on a business
opportunity which: ★
1. the corporation is financially able
to undertake; ★
may choose to ratify the acts of the
deliver.
o This requires a vote of 2/3
of the outstanding capital stock.

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
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
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. ★★★★★
Q. WHAT IS INVESTMENT?
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 another corporation and remains
in existence while the other is dissolved.
CONSOLIDATION – is on where a new
corporation is created, and consolidating
corporation are extinguished.
 Q: What are the distinctions - It does not have a capital
between merger and stock dividend into shares;
consolidation? - No part of its income is
distribuatable as dividens to its
MERGER CONSOLIDATION members; and
All of the All consolidated - Non-stock corporation must
constituent corporations are be formed or organized for
corporations dissolved without Charitable, Literary, Scientific,
involved are exception Social, Civic service, Or similar
dissolved except purposes, like trade, industry,
one agricultural and like chamber or
No new A single new any combination thereof.
corporation is corporation
created emerges TITLE XII - CLOSE CORPORATION
The surviving All assets,
corporation liabilities, and
acquires all the capital stock of all (WHAT IS A CLOSED CORPORATION?)
assets, consolidated Section 96. Definition and applicability of
liabilities, and corporations are Title. - A close corporation, within the
capital stock of transferred to the meaning of this Code, is one whose
all constituent new corporation articles of incorporation provide that: (1)
corporations All the corporation’s issued stock of all
classes, exclusive of treasury shares, shall
TITLE XI - NON-STOCK be held of record by not more than a
CORPORATIONS specified number of persons, not
Section 87. Definition. – For the exceeding twenty (20); (2) all the issued
purposes of this Code, a non-stock stock of all classes shall be subject to one
corporation is one where no part of its or more specified restrictions on transfer
income is distributable as dividends to its permitted by this Title; and (3) The
members, trustees, or officers, subject to corporation shall not list in any stock
the provisions of this Code on dissolution: exchange or make any public offering of
Provided, That any profit which a non- any of its stock of any class.
stock corporation may obtain as an Notwithstanding the foregoing, a
incident to its operations shall, whenever corporation shall not be deemed a close
necessary or proper, be used for the corporation when at least two-thirds (2/3)
furtherance of the purpose or purposes for of its voting stock or voting rights is
which the corporation was organized, owned or controlled by another
subject to the provisions of this Title. corporation which is not a close
corporation within the meaning of this
The provisions governing stock Code.
corporation, when pertinent, shall be
applicable to non-stock corporations, (WHAT CANNOT BE A CLOSED
except as may be covered by specific CORPORATION?) - Any corporation may
provisions of this Title. (n) be incorporated as a close corporation,
except mining or oil companies, stock
Section 88. Purposes. – Non-stock exchanges, banks, insurance companies,
corporations may be formed or organized public utilities, educational institutions and
for charitable, religious, educational, corporations declared to be vested with
professional, cultural, fraternal, literary, public interest in accordance with the
scientific, social, civic service, or similar provisions of this Code.
purposes, like trade, industry, agricultural
and like chambers, or any combination The provisions of this Title shall primarily
thereof, subject to the special provisions govern close corporations: Provided, That
of this Title governing particular classes of the provisions of other Titles of this Code
non-stock corporations. shall apply suppletorily except insofar as
this Title otherwise provides.
NON-STOCK CORPORATION – one
where no part of its income is REQUISITES FOR A STOCK
distributable as dividends to its members. CORPORATION TO BE CONSIDERED A
CLOSE CORPORATION:
ESSENTIAL REQUISITES OF A NON-
STOCK CORPORATION: 1. All the corporation’s issued stock of
all classes, exclusive of treasury shares,
shall be held of record by not more than a
specified number of persons, not 8. Stockholder may withdraw
exceeding twenty (20); and avail of his right of appraisal

2. All the issued stock of all classes CLOSE ORDINARY

shall be subjected to one or more CORPORATION CORPORATION
specified restrictions on transfer permitted There is limitation on There is no limit as to
by Title XII of the Corporation Code; the number of the number of
stockholders to a shareholder.
3. The corporation shall not list in any maximum of 20
stock exchange or make any public There must be a A restriction need not
offering of any of its stock of any class. restriction on the be provided for.
transfer of shares
Specific qualifications Qualifications of
to be eligible as stockholders are not
Jurisprudence: stockholder are normally prescribed
  usually provided for.
A narrow distribution of ownership Public offering of Public offering of
does not, by itself, make a close shares is prohibited share is not
corporation. prohibited
May be managed It is managed by the
Mere ownership by a single directly by board of directors
stockholder of all or nearly all of stockholders and not the
the capital stock of a corporation stockholders
does not make one a close
corporation if the requirements are Q. WHAT CANNOT BE CLOSE
not stated in the Article of CORPORATIONS?
Incorporation.
A. The following corporations cannot be
Q: WHAT ARE THE close corporation:
CHARACTERISTICS OF A CLOSE
CORPORATION? 1. When at least 2/3 of its
A:   voting stock or voting rights is
owner or controlled by another
1. Stockholders may act as corporation; and
directors without need of election
and therefore are liable as 2. Mining or oil companies,
directors stock exchanges, banks, insurance
companies, public utilities,
2. Stockholders who are educational institution and
involved in the management of the corporations declared to be vested
corporation are liable in the same with public interest.
manner as directors are
Q. IS THE NUMERICAL LIMIT OF
3. Quorum may be greater MAXIMUM OF 20 INCORPORATORS
than mere majority ABSOLUTE?
1. SEC. 116. One Person
4. Transfer of stocks to others, Corporation. – A One Person
which would increase the number Corporation is a corporation with a
of stockholders to more than the single stockholder: Provided, That
maximum are invalid only a natural person, trust, or an
estate may form a One Person
5. Corporate actuations may Corporation. Banks and quasi-
be binding even without a formal banks, pre-need, trust, insurance,
board meeting, if the stockholder public and publicly-listed
had knowledge or ratified the companies, and non-chartered
informal action of the   others government-owned and -controlled
corporations may not incorporate
6. Pre‐emptive right extends to as One Person Corporations:
all stock issues Provided, further, That a natural
person who is licensed to exercise
7. Deadlock in board are a profession may not organize as a
settled by the SEC, on the written One Person Corporation for the
petition by any stockholder purpose of exercising such
profession except as otherwise
provided under special laws. 2. It must be within the
management, supervision or territory of the Philippines
control of any domestic business, 3. Must be for the plain reason
firm, entity, or corporation in the that the Philippines has no
Philippines. jurisdiction over commercial acts
2. Any act or acts that imply a performed in foreign territories.
continuity of commercial dealings 4.
or arrangements, and contemplate 5.
to some extent the performance of
acts or works or the exercise of
some functions normally incident to
and in progressive prosecution of,
the purpose and object of its
organization.

Q. WHAT ARE CONSIDERED AS

NOT DOING BUSINESS:

A.

1. Mere investment as a
shareholder by a foreign entity or
domestic corporation duly
registered to do business and/or
exercise of rights as such investor;
2. Having a nominee director
or officer to represent its interest
in such corporation
3. Appointing a representative
or distributor domiciled in the
Philippines that transacts business
in the representative’s or
distributor’s own name and
account;
4. The publication of a general
advertisement through any print or
broadcast media;
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