RA 11232 – ACT PROVIDING FOR RCC GOCC/SPECIAL CORPORATION – govern and

SEC 1. TITLE OF THE CODE created through special laws otherwise known as
SEC 2. CORPORATION DEFINITION charter (e.g. GSIS through RA 8291)
CHARACTERISTICS OF CORPORATION - Creation of such corporation lies within the
1. Artificial being Congress
2. Created by law *provisions from special law shall prevail over
3. Has right of succession general law
4. Has power attributes and properties SEC 5. COMPONENTS OF CORPORATIONS
authorized by law and incidental to its 1. Corporators – those who compose a
power corporation
GOCC
2. Incorporators – Stockholders/Member
1. Either non stock/stock corporation
2. vested with function relating to public which being mention at Articles as to
needs formation and signatories thereof.
3. In case of stock, Gov’t owned at least 51% 3. Stockholders – owners of shares
of stocks
4. Members – corporators of non-stock
PEIRCING OF CORPORATION VEIL
FACTORS corporation
1. Stock ownership by one or common 5. BOD/BOT – governing body of
ownership of both corporation corporations
2. Identity of directors and officers
6. Corporate officers – those officers of which
3. The manner of keeping corporate books
and records duly elected by the board
4. Methods of conducting the business 7. Subscriber – paid partial agreed amount of
ELEMENTS unissued shares
1. Control – total domination
8. Underwriter – person who guarantees sale
2. Such control used by the defendant to
commit fraud or wrong of newly issued securities by purchasing all
3. Such control proximately caused the or part of the shares to the public (e.g.
injury or unjust loss investment banker)
SEC 3. CLASSES OF CORPORATION
9. Promoter - self-constituted organizer who
1. STOCK CORPORATIONS
Requisites: finds an enterprise or venture and helps to
 Have capital stock divided into shares attract investors, forms a corporation and
 Authorized to distribute dividends and launches it in business, all with a view to
allotments of surplus and profits to its promotion profits
stockholders
SEC 6. Classification of Shares
2. NON-STOCK *Par 1. Each share shall be equal in respect w/
Requisites: other shares except if otherwise provided in the
 No part of its income is distributable as article and certificate of stock (Doctrine of
dividends equality of shares)
 Derived income is only incidental to its *Par 2. No share shall be deprived of voting rights
operations and be used for purposes of which except those classified as preferred or redeemable
the corporation is organized. share
SEC 4. Corporations created by Special Exceptions:
Law or Charter Where the articles of incorporation provide for
non‐voting shares in the cases allowed by this
 Shall be governed by primarily the provision of
Code, the holders of such shares shall nevertheless
special law (e.g. Republic Acts)
be entitled to vote on the following matters:
 Supplemented by the provisions of the RCC
• 1.Amendment of the articles of incorporation
• 2. Adoption and amendment of by‐laws;
Private Corporation –govern and made by
general law (RCC)
• 3. Sale, lease, exchange, mortgage, pledge or  Maybe given certain rights and privileges (e.g.
other disposition of all or substantially all of the dividend payment) not enjoy by other
corporate property; stockholder
• 4. Incurring, creating or increasing bonded Limitation:
indebtedness;  Limited to 5 years
• 5.Increase or decrease of capital stock;  Prohibited if it will violates Anti-Dummy Law
Merger or consolidation of the corporation with and Foreign Investment Act
another corporation or other corporations;
• 7. Investment of corporate funds in another SEC 8. REDEEMABLE SHARES
corporation or business in accordance with this  Shares usually preferred which by their terms
Code; and are redeemable at a fixed date or at the option
• 8. Dissolution of the corporation. of the issued or the holder of such shares at a
• Except as provided in the immediately certain redemption price.
preceding paragraph, the vote necessary to LIMITATIONS:
approve a particular corporate act as  It must be expressly provided and stated in
provided in this Code shall be deemed to Articles and terms shall be stated in certificate
refer only to stocks with voting rights. of stocks.
*Par 4. Shares may or may not have a par value
 Redemption is allowed even if there are no
*Par 5. Term of preference of such share shall be
unrestricted retained earnings.
effective upon filling a certificate with SEC
 Such redemption is prohibited if it will cause
- Preference as to asset and as to
insolvency or inability of the corporation to
dividends
meet maturing debts.
*Such share may be issued only at par
Retained Earnings – Accumulation of income
RULES ON NO PAR
after distributing dividends. (Earned surplus,
 Shall be deemed fully paid and non-assessable
undistributed profits)
and the holder of such share are not liable to the
creditors of corporations
KINDS OF REDEEMABLE SHARES
 No share shall be issued below P5.00 1. Compulsory – issuer is required to redeem
 Consideration received shall be part of share the shares
capital and not be available and use for 2. Optional – not mandated to redeem the
distribution of dividends shares.
 Cannot be issued as preferred shares
 Cannot be used by banks, trust and etc. *Redeemable shares are retired once redeemed
unless reissuance is expressly allowed in the article
Voting Rights Trust Fund Doctrine
 Those stock actually issued and outstanding  A fund (share capital) which the creditors have
 Only those are actual member with voting a right to look for the satisfaction of their
rights claims.
REQUISITES FOR DISTRIBUTION OF
Promotional Share – shares issued to promoters SHARE CAPITAL:
in launching or promoting the welfare of company. 1. Amendments in the Article of Inc.
Share in Escrow – shares kept by the depositary 2. Redemption of Redeemable Shares
until performance of certain event contained in the 3. Dissolution and eventual liquidation of the
agreement. corporation
Fractional Share – share less than one full share.
Over-issued Share – Issuance in excess of
authorized stocks. (Void Ab Initio) SEC 9. TREASURY SHARES
Convertible Share – convertible from one class to  Issued shares subsequently reacquired by the
another with certain price and within a certain issuing corporation through purchase,
period. redemption, donation and some other lawful
means
SEC 7. FOUNDER’S SHARE RIGHTS DENIED TO SUCH SHARES
1. Right to vote
 2. Right to dividends PAR 3. No extension shall be filled earlier than 3
Watered Stocks years subsequent to expiry date unless, due to
 Originally issued stocks at a lower justifiable reasons determined by SEC
consideration.
*treasury shares issued below par are not Par 4. Expired corporation term may apply for
considered as watered stocks. revival of corporate existence.
 Upon revival a certificate of revival of corporate
TITLE II existence shall be issued giving it perpetual
INCORPORATION AND ORGANIZATION existence, unless provided for a specific period
OF PRIVATE CORPORATION in AOI.
*An expired termed corporation is dissolved ipso
SEC 10. NUMBER OF QUALIFICATIONS defacto in the absence of compliance with the legal
OF INCORPORATORS requisites of extension of period.

Par 1. Any persons, partnership, association or Note: Institution that falls under jurisdiction of
corporation, singly or jointly BUT NOT MORE BSP require recommendation from such
THAN (15) in number, may organize a government agency before the SEC.
corporation for any lawful purpose
Exception: SEC 12. MINIMUM CAPITAL STOCK NOT
1. Natural persons, partnerships and REQUIRED OF STOCK CORPORATIONS
association organized for the purpose to
practice profession shall not allowed to General Rule:
organize corporation unless provided by  No minimum stocks required
special laws. Exception:
Par 2. Each incorporators shall at least owned or  If provided by special law
subscribed 1 share of capital stock.
SEC 15. AMENDMENTS OF AOI
ONE PERSON CORPORATION
 Only a natural person, trust or an estate shall Requisites:
form such kind of corporation. 1. Majority votes of BOD or BOT
STEPS IN CREATION OF A CORPORATION 2. 2/3 of representation from total
1. Promotion outstanding share capital or 2/3 of the
2. Incorporation member in case of non-stock.
a. Execution of AOI 3. Amended and original articles shall contain
b. Filing of AOI w/ SEC together with provisions required by law
treasurer’s affidavit and to favorable 4. Amendment shall be indicated by
recommendation if appropriate underscoring change or changes made
government agencies. 5. A copy thereof duly certified by the
3. Formal Organization And corporate secretary and majority of the
Commencement Of The Business directors
Transactions 6. Statement that amendments have duly
a. Adoption of by-laws approved by the required number of votes
b. Election of BOD and officers of stockholder / members
c. Payment of shares 7. Approval of necessary and concerning
government agencies
SEC 11. CORPORATE TERM
Par 1. Corporations with certificate of Par 4. Amendments shall take effect upon
incorporation issued prior to the effectivity of this approval of SEC or upon 6 months from the
Code which continue to exist shall have perpetual date of filling for not attributable to the
existence. corporation.
Exception:
If the AOI provides otherwise or if it provides for SEC 16. GROUNDS WHEN AOI or
specific period. AMENDMENTS MAY BE DISAPPROVED
 1. AOI amendments is not substantially in Note: Filing of AOI is essential for its existence. SC
accordance with the form prescribed ruled that an organization not registered with SEC
2. The purposes of the corporation are cannot be considered as an organization at all not
patently unconstitutional, illegal, immoral even de facto.
or contrary to gov’t rules and regulations  Inquiry of due incorporation can only be made
3. The certification concerning the amount by Solicitor General in a quo warranto
of capital subscribed and/ or paid is proceeding.
false *de facto doctrine exist to protect the public
4. The required Filipino ownership of the dealings made with the de facto corporation and
capital stock under any provision of Law is not to favor such entity.
not complied with.
SEC 20. CORPORATION BY ESTOPPEL
SEC 17. CORPORATE NAME Par 1. All persons who assume to act as a
corporation knowing it to be without authority to
Requisites: do shall be liable as general partners for all debts,
1. Distinguishable from existing or registered liabilities and damages incurred as result thereof.
name of another corporation, or  Such lack of corporate personality cannot use
2. If such name is already protected by law or as a defense and cannot be used to resist
3. Contrary to existing Gov’t R&R performance.
Effects of using Undistinguishable Name
1. Receiving of Cease and Desist Order SEC 21. EFFECTS OF NON-USE of
to use such corporate name from SEC. CORPORATE CHARTER and CONTINOUS
2. SEC shall cause removal of all visible INOPERATION
signages, marks, advertisements, labels,
prints and other effect bearing such Par 1.
corporate name. *Non-commencement of business within five (5)
3. In case of failure to comply, SEC may hold years from the date of incorporation, therefore,
the corporation and responsible directors or COI is deemed revoked.
officers in contempt or held them Par 2.
administratively, civilly and *Business has commenced but subsequently
criminally liable. become inoperative for a period of at least 5 years,
therefore, corporation is placed under
SEC 18. REGISTRATION, delinquent status after due notice and hearing.
INCORPORATION AND COMMENCEMENT Par 3.
OF CORP EXISTENCE *Delinquent corporation shall have (2) years to
1. Submit the intended corporate name to resume operations and comply with all
SEC then, requirements the SEC prescribe. Non-
IF APPROVED, compliance will result to revocation of COI.
2. Incorporators shall submit AOI and by- Par 4.
laws to SEC SEC shall give reasonable notice to and coordinate
IF APPROVED, with other concerned gov’t agencies prior to
3. SEC will issue Certificate of suspension or revocation of COI.
Incorporation.
Note: the certificate of incorporation gives juridical
personality to corporation and commences its
corporate existence.

SEC 19. DE FACTO CORPORATIONS

Requisites:
1. Existence of a valid law under which it may SEC 22. THE BOD/BOT QUALIFICATIONS
be incorporated AND TERMS
2. An attempt in good faith to incorporate
3. Assumption of corporate powers Par 1. BOD or BOT shall exercise the
corporate powers provided by the Code,
conduct all business and control all powers. There are also powers incidental to
properties of the corporation, unless express powered conferred, this is called implied
otherwise provided in the Code. powers.

Par 2. SEC 23. ELECTION OF DIRECTORS OR

BOD, among holders of stocks registered in the TRUSTEES
corporation’s book = 1 year term
*At least ceases to own one (1) share of stock Par 1. Except for Founder’s Shares Right,
BOT, among the members = shall not exceed a any stockholder or member has equal right
term of 3 years to nominate any director or trustee who
*ceases to be a member possesses all qualification provided by the
Note: Such incumbent board shall hold office until Code.
the successor is elected and qualified
Par 2. There must be presence of majority of
PAR 3. holders of stock or members, either in person or
Board of the ff. should have an independent through representatives authorized to act by
director constituting at least (20%) of such written proxy in all elections of directors or
board: trustees.
In case of remote voting, it may be
1. Corporations listed with an asset of at authorized in by-laws or by majority of the board.
least fifty million pesos (P50 000 A stockholder voting remotely or in absentia shall
000) and having two hundred (200) or be deemed present for the purposes of quorum.
more holders of shares, each holding
at least one hundred (100) shares of a Election must be by ballot if requested
class of equity shares. by the voting stockholder or member.
2. Banks and Quasi Banks, Non-Stock savings
and associations, pawnshops, corporations Par 5. Stockholders are entitled to vote shall have
engage in money service business, preneed, the right to vote the number of shares of stock
trust and IC and other financial standing in their own names in the stock book at
intermediaries. the fixed time in the by-laws or at the time of
3. Other corporation vested with public election.
interest. a. Vote such number of shares for as many
Par 4. Independent director shall be persons as there are directors to be elected.
independent of management and free from any b. Cumulate said shares and give to one
business relationship which could, or reasonably candidate
perceived to materially interfere with the exercise c. Distribute them among as many candidate
of independency. as may be seen fit.
SEC 24. Corporate Officers
THREE LEVELS OF CONTROL  After election of board, corporation must
1. BOD – corporate policies and general formally organize and elect:
management of business affairs a. President (must be a director)
2. Officers – execution of policies laid down b. Secretary (Filipino, Resident)
by the board c. Treasurer (Resident only)
3. Stockholders – residual power over d. Compliance officer if corp. is vested
fundamental changes (e.g. amendments) with public interest.
e. Other officers as provided in the by-
General Rule: In the absence of authority of the laws
board, no person, not even its officers, can validly Note: A person can hold multiple positions except
bind the corporation. president and secretary or president and treasurer.
Exceptions:
Corporate powers may be directly conferred SEC 25. REPORT OF ELECTION
upon corporate officers or agents by statute, the DIRECTORS, TRUSTEES and OFFICERS.
AOI, the by-laws, or by the resolution or the act of NON- HOLDING OF ELECTION AND
the board of directors, this refers to the express CESSATION FROM OFFICE
 misconduct similar to those enumerated
PAR 1. Within 30 days after the election of board in paragraphs (a) and (b).
and officers, the corporation shall submit to the
SEC: SEC 27. REMOVAL OF DIRECTORS,
a. Names TRUSTEES or OFFICERS
b. Nationalities
c. Shareholdings  Via 2/3 of vote representing total outstanding
d. Residence addresses of the duly elected capital or 2/3 of the members in case of non-
board and officers stock at either regular meeting or special
meeting duly called for purpose.
PAR 2. The reason of non-holdings of the election  Special meeting must be called by the
shall be reported to the SEC within 30 days from Secretary upon order of the President, if
the schedule election. Specification of the new date there is no secretary however if the secretary
shall not be later than 60 days from the scheduled fails or refuses to call despite demand, the
date. stockholders or member may call
meeting directly addressing the others.
PAR 3. If new date has been designated, and still General rule:
the election is being non-held, the SEC shall verify Removal of directors or trustees may be with or
the unjustified non-holding of elections. SEC without cause.
have the power to issue orders as may be
appropriate, directing the issuance stating Exception:
the time and place of the election, designated Removal without cause may not be used to
presiding officer and the record date or dates for deprive minority or members of the right of
the determination of stockholders or members representation.
entitled to vote.
SEC 28. VACANCIES IN THE OFFICE OF
PAR 5. If a director, trustee or officer die, resign DIRECTOR OR TRUSTEE; EMERGENCY
or in any manner cease to hold office, the BOARD
secretary or the director, trustee or officer of
corporation shall, within 7 days from the VACANCY REMEDIES
knowledge thereof, report in writing such fact to If vacancy is resulted May be filled by the
SEC. from the majority vote of the
circumstances remaining directors, if
Reason behind this section: To provide public other than removal still constitutes
information under sanction oath of responsible or expiration of quorum.
officers, of the nature of business, financial term
condition and operational status of the company If not, must be filled by
with information on its key officers. stockholder or
member during
SEC 26. DISQUALIFICATION OF regular or special
DIRECTORS, TRUSTEES or OFFICERS meeting.
Due to expired term Election shall be held
Par 1. Disqualified if five (5) years prior to the no later than the day of
elections the person was: such expiration
a. Convicted by final judgment Due to removal The same day of the
 By an offense punishable by more than 6 meeting authorizing
years of imprisonment (e.g. cases filed @ such removal and the
RTC) fact must be so stated
 For violating the Revised Corpo. Code in the agenda and
 For violating Securities Regulation Code notice of the said
b. Found administratively liable for any meeting
offense involving fraudulent acts
c. By a foreign court or equivalent  Such filling of vacancy be referred to the
regulatory authority for violations or replacement director or trustees shall serve
 only for the unexpired term of the c. Are guilty of conflict of interest to the
predecessor in office. prejudice of the corporation its stockholders
or member and other officers.
 In all other cases, election shall be held no d. Director or officer has consented to the
later than 45 days from the time of issuance of watered down stocks and
vacancy. did not forth wile file with the corporate
secretary his written objection thereto.
EMERGENCY BOARD OF DIRECTOR e. If the director or trustee contractually
1. Vacancy prevents the remaining agreed or stipulated his personal
directors from constituting quorum liability thereto
2. Emergency action is required to prevent f. When the director , trustee or officers is
grave, substantial and irreparable held liable by specific provision of law
loss or damage to the corporation
3. Temporary filled from among the officers of ANY CONFLICT WITH THEIR DUTY AS SUCH
the corporation by unanimous vote of DIRECTORS AND TRUSTEES SHALL BE LIABLE
remaining directors or trustees such JOINTLY AND SEVERALLY FOR DAMAGES
designation is limited to emergency action. RESULTED THEREFROM.
4. The term shall ceased upon election for
replacement of director or trustees. SEC 31. DEALINGS OF DIRECTORS,
TRUSTEES or OFFICERS of
SEC 29. COMPENSATION OF DIRECTORS CORPORATION.
or TRUSTEES
General Rule:
Par 2. In no case, compensation of directors shall A contract of the corporation with one or
not exceed 10% of net income before tax of more of its director or trustees or officers or their
preceding year. spouses and relatives within fourth civil degree of
consanguinity or affinity is voidable, at the
General Rule: option of the corporation.
Directors and Trustees shall not receive any
compensation, as such directors or trustees, except Exceptions:
for reasonable diems. Directors and trustees 1. The presence of such director or trustee in
shall not participate in determining their the meeting of the board of which contract
own diems or compensation. is approved was not necessary to
constitute quorum.
Exception: 2. The vote of such D/T is not necessary for
1. When it is fixed by corporation’s by- the approval of the contract.
laws and 3. The contract is fair and reasonable
2. When the stockholders, representing at 4. If vested w/ public interest, materials
least majority of the outstanding capital contract shall be approved by 2/3 vote of
stock, or majority of the member, vote to membership and with at least a majority
grant the same. of the independent directors.
5. If in case of officer, the contract shall be
previously authorized by the board.
SEC 30. LIABILITY OF DIRECTORS,
TRUSTEES or OFFICER
SEC 32. CONTACTS BETWEEN
When: CORPORATIONN W/ INTERLOCKING
a. Directors or Trustees who willfully and DIRECTORS
knowingly vote or assent to patently
unlawful acts of the corporation Interlocking Directors – members of the board in
b. Act in bad faith or w/ gross negligence a certain corporation who are also director in
in directing corporate affairs. another corporation.

General Rule:
 Contract between two or more corporations SEC 36. POWER TO SHORTEN OR EXTEND
having interlocking director cannot be CORPORATE TERM
invalidated on that ground only.
Requisites:
Requisites: 1. Vote of the majority of the board
1. Contract is not fraudulent. 2. Ratify by the vote of 2/3 representing
2. Contract is fair and reasonable under the outstanding capital stock or all of its member
circumstances. in case of non-stock.
3. Written notice of the propose action and time
Exception: and place of the meeting shall be sent to the
If the interest of the interlocking director in one of stockholders.
the corporation is substantial and nominal to
another, he shall be subject to the provision of SEC Note: Dissenting stockholder can exercise his
31 insofar as latter corporation is concerned. appraisal right.

Substantial Interest = more than 20% SEC 37. POWER RO INCREASE or

shareholdings. DECREASE CAPITAL STOCK; INCUR,
CREATE or INCREASE BONDED
SEC 33. DISLOYALTY OF THE DIRECTOR INDEBTEDNESS

 If a director acquires for himself the business DECREASE OF CAPITAL STOCK

opportunity for which belongs to the Requisites:
corporation he should account to the latter 1. Vote of the majority of the board
the profits he obtain thereto. 2. Ratify by the vote of 2/3 representing
outstanding capital stock or all of its member in
*Act of the director can be ratified by the case of non-stock.
shareholders owning 2/3 of the outstanding 3. Written notice of the propose action and time
capital. and place of the meeting shall be sent to the
stockholders personally or electronically.
SEC 34. EXECUTIVE, MANAGEMENT, AND 4. No decrease of capital stock shall be
OTHER SPECIAL COMMITTEES approved if its effect shall prejudice the right
of the creditor.
Executive Committee – created by the by-laws 5. Certificate must be signed by majority of the
and compost of at least three (3) directors as it directors and countersigned by the chairperson
member. It has all the authority provided by the and secretary of the stockholder’s meeting.
by-laws but subject to statutory limitations. 6. Approval of the SEC
7. Treasurer’s Affidavit 25% of such increase is
Committee may act by majority vote of all its paid and 25% of the amount subscribed has
members. been paid.

LIMITATIONS:
1. Approval or action by which shareholder’s
approval is required SEC 38. POWER TO DENY PREEMPTIVE
2. Amendment or repeal of by-laws or RIGHT
adoption of new by-laws
3. Filling of vacancies of the board Pre-emptive Right
4. Amendment or repeal of resolution made by Right of all stockholders to subscribed to all
the board of terms is not amendable and issues or disposition of shares in any class, in
repealable. proportion to their respective holdings.
5. Distribution of dividends
Purpose:
TITLE IV To enable the shareholder retain its proportionate
POWERS OF THE CORPORATION control in the corporation.
PRE-EMPTIVE RIGHT IS NOT AVAILABLE 2. To collect or compromise indebtedness
1. If law requires stock offerings or minimum from unpaid subscription or to purchase
stock ownership by the public delinquency shares
2. Share to be issued in good faith w/ approval 3. To pay dissenting or withdrawing
of 2/3 of the outstanding capital stock, in shareholder
exchange for property needed for corporate 4. To acquire treasury share
purposes. 5. To redeem redeemable shares regardless
of RE
SEC 39. SALE OR DISPOSITION OF 6. To decrease capital stock
ASSETS 7. Upon order of SEC in close corporation, in
case of deadlock management of the
*Subject to provisions of Philippine Competition business.
Act
SEC 41. POWER TO INVEST CORPORATE
SALE OF ALL OR SUBSTANTIALLY ALL FUNDS IN ANOTHER CORPORATION
THE CORPORATE PROPERTIES
Purpose Requisites
Requisites: 1. To accomplish 1. Approval of the
1. Vote of the majority of the board its primary majority of the
2. Ratify by the vote of 2/3 representing purpose board of directors
outstanding capital stock or all of its member in or trustees
case of non-stock. 2. Other than 1. Vote of the majority
3. Written notice of the propose action and time primary of the board
and place of the meeting shall be sent to the purpose 2. Ratify by the vote of
stockholders personally or electronically. 2/3 representing
4. Any dissenting stockholder may exercise his outstanding capital
appraisal right. stock or all of its
*Such transfer should not prejudice the member in case of
creditors of the assignor. non-stock.
3. Written notice of
Ratification is not required: the propose action and
1. If the same is necessary in the usual time and place of the
and regular course of business. meeting shall be sent
2. If the proceeds of the sale or other to the stockholders
disposition of such property be personally or
appropriated for conduct of its electronically.
remaining business. 4. Any dissenting
stockholder may
SEC 40. POWER TO ACQUIRE OWN exercise his appraisal
SHARES right.
5. Ratification must be
Par 1. Provided that the corporation has made at stockholders
unrestricted retained earnings in its book to meeting duly called
cover the shares to be purchased or acquired. purpose

Exception:
In cases no. 5 and 7 of the concluding paragraph.

Cases when a corporation may acquire its

own share
1. To eliminate fractional share arising from
stock dividends
SEC 42. POWER TO DECLARE corporation own and control more than
DIVIDENDS (1/3) of the total capital stock of the
managing corporation.
REQUIREMENTS FOR DECLARATION b. Majority of the members of the board
1. Existence of unrestricted RE constitute a majority member of the board
2. Board Resolution of directors both managed and managing
3. For stock dividends corporation.
a. Vote representing 2/3 of outstanding
capital
b. A corporation must have sufficient THEREFORE,
number of authorized unissued share
for distribution. Requirements:
1. Approval by the majority of the board
LIMITATION ON DIVIDENDS representing quorum.
1. Right to dividend is based on duly 2. Ratification of the stockholder
recorded stockholding representing majority of the
2. Dividend must be pro rata to contribution outstanding capital stock or by at least
w/0 discrimination majority of its members by both
3. Such right accrues even there is no managing and managed
approval of SEC corporations.
4. Declaration is discretionary on the 3. Approval of 2/3 representing
board outstanding capital stock or all of its
5. Cannot be declared out of paid in member in case of non-stock of the
capital and revaluation surplus managed corporations.
6. Treasury share cannot receive dividends 4. No management contract shall be entered
for a period longer than 5 years for any
General Rule:
one term. Unless, service contracts or
A corporation prohibited to retain surplus
operating agreements which relate to
profit in excess of 100% paid in capital.
exploration, development and utilization of
Exception: natural resources.
1. Justified corporate expansion projects SEC 44. Ultra Vires Act of Corporations
2. Corporation is prohibited under loan
agreement
General Rule:
3. Retention is necessary under special
circumstances No corporation shall possess or exercise
corporate power other than conferred by this
SEC 43. POWER TO ENTER INTO Code or by AOI
MANAGEMENT CONTRACT Exception:
Incidental powers to exercise of powers
General rule:
conferred.
No corporation shall conclude a
management contract with another corporation. Ultra Vires – an act beyond corporate power

Exception: TITLE V
If such contract is approved by the board of BY LAWS
the directors and by stockholders owning at least
the majority of the stock or majority of the
members in case of non-stock. SEC 45. ADOPTION OF BY-LAWS

Par 1.
If in cases of:
a. The stockholder/s representing the same  Adoption of by-laws requires the affirmative
interest both managing and managed vote of stockholders representing majority of
 the outstanding stock or at least majority
of member in case of non-stock.
 Signed by the stockholders or members voting
for them
 Shall be kept in principle office of the
corporation and subject to inspection of the
shareholders and member during office hours.
 Copy thereof, duly certified by S/M
countersigned by Secretary shall be filed with
SEC and attached to original AOI.
Par 4.
Some institutions regulated and supervised
by other appropriate government agency, should
attach certification from said gov’t agency that the
by-laws or its amendments are in accordance with
law before filing to SEC.
Note: Substantial compliance with conditions
subsequent (e.g. filing of by-laws) will suffice to
perfect corporate personality.
Note: In case of conflict between AOI v By-Laws,
the former shall prevail.
Note: By-laws may not be essential to corporate
birth but certainly, these are required by law for an
orderly governance and management of
corporation.
ADOPTION OF BY-LAWS
I. Before Incorporation
- Must be signed and approved by all
of the incorporators filed w/ SEC
attached to AOI
II. After Incorporation
- Affirmative vote of majority of
stocks outstanding or members.
Shall be signed of who voted for
them.