REVISED CORPORATION CODE

Section 1
Act 1459 (4/1/06) Corporation Law
BP 68 (5/1/90) Corporation Code
RA 11232 – (2/25/19) Revised Corporation Code
Section 2 – CORPORATION (defined)
It is an artificial being created by operation of law having the right of
succession the powers, attributes, and properties, expressly authorized by
law, or incident to its existence
Artificial being – A juridical person

 Private Juridical Person

 Partnership
 Corporation
 Public Juridical Person
 Municipality
 Provinces
 Barangay
Operation of law – File Articles of Incorporation, SEC must issue Certificate
of Incorporation
Right of succession – Powers/Attributes, continuous to exist even if a person
is deceased
Advantages v. Disadvantages

Important points/ topics

 Doctrine/Principle/Theories
 Voting requirements
 Period
 Percentage/Limitations
 Requisite/Requirements

Trust Fund Doctrine – liable up to the extent of their unpaid subscription

General Rule - Doctrine of Corporate Fiction – separate and distinct
personality
Exception – Doctrine of Piercing the Veil of Corporate Fiction
 - Separate and distinct personality will be disregarded. Why?
It was used for illegal purposes
TEST applied if it can be pierced – Alter Ego Doctrine or Instrumentality
Rule
Doctrine of Limited Capacity (Section 35)
3 powers of corporation
 Express power
 Implied power
 Inherent power or incidental

Nationality of Corporation (determining the nationality of corporation)

1. Incorporation Test
- Place of incorporation
2. Control Test
- Majority of stockholder’s citizenship
3. Business Domicile or Center of Management Rule
- Incorporated in the Philippines but operates in foreign countries
4. Grandfather Rule
Section 3 – Classes of Corporation
Stock v. Non-stock
2 types of Corporation

 Public Corporation
 Private Corporation
 Created in RA 11232
 Government owned and controlled corporation (majority of owners
are government)
 Quasi-public
2 types of one incorporator
- Corporation Sole
- One Person Coporation

(1) As to number of persons who compose them:

- Corporation aggregate – more than one corporator
- Corporation sole – one corporator only (RELIGIOUS)

(2) As to whether they are for religious purpose or not:

- Ecclesiastical corporation – for religious purpose
- Lay corporation – other than religion
(3) As to whether they are for charitable purpose or not:
- Eleemosynary corporation – for charitable purpose
- Civil Corporation – for business or profit

(4) As to state or country where they have been created:

- Domestic corporation – created under RA 11232
- Foreign corporation – other than the laws of the Philippines

(5) As to their legal right to corporate existence:

- De jure – existing in fact and in law
- De facto – existing in fact but not in law

(6) As to whether they are open to the public or not:

- Close corporation – limited to members of the family
- Open corporation – open to any person

(7) As to their relation to another corporation:

- Parent or Holding corporation
- Subsidiary corporation

(8) As to whether they are for public or notL

- Public corporation – formed for the government of a portion of
the State
- Private corporation – formed for some private purpose, benefit
or end

(9) Ordinary v. One Person Corporation (OPC)

Other classifications
Quasi-public v. Quasi-corporation
Quasi-public
- Franchise/content
- Public duties for profit
Quasi-corporation
- No legislative grant
- Not a corporation in full service
Section 4 – Corporation created by Special Law
General Incorporation Law – RA 11232
Special Incorporation Law – Congress
What quorums it?
Primarily – Law creating it
Suppletorily – RA 11232
Section 5 – Components of Corporation
1. Corporator
2. Incorporators
3. Stockholders
4. Members
5. Promoters
6. Subscribers
7. Underwriters
Section 6 – Classification of Shares
Doctrine of Equality of Shares
Authorized Capital Stock – issued by SEC
Subscribed Capital Stock – 25% of Authorized Capital Stock
Preferred Capital Stock – 25% of Subscribed Share Capital
Unsubscribed Capital Stock – portion not yet issued
Outstanding Capital Stock

Capital Capital Stock

Actual property Abstact
Fluctuates Fixed amount
Belongs to corporation When issued it belongs to stockholders
Real/Personal Personal property

Share of Stock – definition Management/Profit/Asset

Characteristic of Share of Stock
- Personal property
- Intangible property
- It does not constitute an indebtedness of the part of the
corporation
 Shares of Stock Certificate of Stock
Constitute to Interest Written evidence
Intangible Tangible
Can be issued even if not fully paid Must be fully paid (Doctrine of
Individuality of Subscription)

Classes of Share
1. Par value v. No par value
2. Voting v. Non-Voting Shares (Exceptions – AASIIMID)
- Amendment of the articles
- Amendment of by laws
- Sales, lease, exchange, mortgage
- Incurring, creating or increasing indebtedness
- Merger of consolidation
- Increase of decrease of capital stock
- Dissolution of the corporation
3. Common v. Preferred
4. Promotion v. Founder
5. Share in Escrow/Escrow Stock – in trust
6. Convertible
7. Redeemable v. Treasury
8. Watered Stock - VOID
9. Over-issued/Spurious stock
10. Original/ Formative
11. Increased

Statutory of restrictions regarding the issuance of no-par shares

1. Entities not allowed (7)
- Banks
- Trust companies
- Insurance companies
- Building
- Loan associations
- Preened companies
- Other corporations authorized to obtain or access funds from the
public

2. Preferred shares – stated par value

3. No par – deemed fully paid, non-assessable, not liable
4. No par – P5.00 minimum
5. Entire consideration for no par shares treated as capital
Advantages and Disadvantages
 Par value No par value
ADVANTAGES
Easy to sold (Creditor is protected Fully paid
because par value is stated in the
certificate)
Non-assessable
Not liable for corporate creditors
DISADVANTAGES
They promote the issuance of watered
stock because there is no stated par
value

Limitations of regarding issuance of Preferred Shares

1. They can vote under AASIIMID
2. They are always issued by a stated par value
3. The BOD fixes thereof
Shares with no voting rights
1. Redeemable shares
2. Preferred shares
3. Treasury shares
4. Delinquent shares
Section 7 – Founder’s Share
- Exclusive right to be voted and be voted for
- 5 years limitation of rights to share
- Approval of SEC is required

Redeemable Treasury
Stipulation needed? YES NO
Unrestricted retained earnings needed? NO YES

Section 8 – Redeemable shares

- no voting rights/no need for unrestricted retained earnings
Section 9 – Treasury Shares
- no voting rights/not entitled to dividends
- not part of outstanding/do not revert to unissued shares
- it may be resold at a lesser price (exception to watered stocks)
General Rule – nit distributable as dividend (Exception – Property dividend)
- Moment it is resold – it is entitled to all rights and dividends
Section 10 – Number and Qualification of Incorporators

Corporators Incorporators

Generic – refers to stockholders/ Specific – Persons who signed the

members of incorporators Articles of Incorporations
When you lose your status of shares Does not cease
– ceases to be such
No limit to number 1-15 members

Who can be incorporators?

- ANY person, partnership, corporation, or association, singly or
jointly.
Qualifications (Before REVISED CORPORATION CODE – 5)
Natural Person
- Legal Capacity
- Must own 1 share
Juridical Person
- Own 1 share

Section 11 – Corporate Term

1. Prospective
General Rule – Perpetual
Exception – Fixed (If you want to extend? - 3 years)
Can it be extended earlier prior to your fixed date - YES?
Exception – justifiable reasons
2. Retroactive
General Rule – Perpetual
Exception – Fixed (Chosen to be fixed)
Choosing fixed term requires voting – Majority of the OCS (Period to
decide – 2 years)
3. Revival of corporations – corporations which are already dissolved
General Rule – Perpetual
Exception – Fixed
 They need to obtain Certificate of Revival of Corporate Existence – SEC
Favorable recommendation of appropriate government agency (8 entites)
No applications of CRCE
- Banks
- Preneed
- Insurance
- Trust company
- Non-stock saving
- Loans associations
- NSSLAs
- Pawnshops
- Corporation engaging in money service
- Other financial intermediaries

Section – 12 – Minimum capital stock requirements - none (General Rule)

Exception – if required by special law
Percentage Requirements of ownership
100% Filipino Ownership – Mass media
70% (Filipino) /30% (Foreign) - Advertising industry
60% (Filipino)/40% (Foreign) – Public utilities, educational
institutions, exploration of national resources
Section 13 – Contents of Article of Incorporation – mandatory can add others
1. Name of Corporation
2. Primary purpose (Express power)
Secondary purpose (Express power)
If withing the power – INTRAVIRES act
If outside the power – ULTAVIRES act
Remedy (RATIFY) if its ULTAVIRES – 2/3 of the OCS vote
3. Principal office is located
4. Term of corporation
5. Stock requirements
- Par. 7-8 of Section 14
6. Arbitration requirements
7. Non-stock requirements
- Arbitration agreement
- Electronic filling is allowed
Section 14 – Form of Articles of Incorporation
Provisions
First – In, Corporation, OPC
Fifth – Incorporators
- name, nationality, residence
Sixth – Incorporating directors
Seventh – Authorized Capital Stock requirements
Eight – No. of shares of Authorized Capital Stock
Ninth – Certification of Treasurer
Truth – Undertaking to change the name

VOTING REQUIREMENTS
Stockholders
- M of OCS
- 2/3 of OCS
Board of Directors
- M of BOD
- M of Quorum of BOD
*Unanimous consent of remaining BOI
*Self-dealing director

Section 15 – Amendment of Articles of Incorporation

Amendment of AOI – M + 2/3
Amendment of By-Laws – M + M
Amendment of Close Corporation – 2/3 of OCS
Amendment in Cooperative – 2/3 of Members
Anendment of Plan of Merger or Consolidation – [M + 2/3] [M + 2/3]
Amendment of foreign corporations – file within 60 days M + 2/3

Effectivity of AOI – General Rule – Upon approval of SEC, issuance of amended

Certificate of Incorporation
(Exception) from the date of filling, if not approved or acted upon within 6
months.
Appraisal rights
*Concurring – VOTES YES
*Dissenting – VOTES NO
Non-amendable provisions
General Rule – meeting is required
(Exceptions) – Written assents of Stockholders
Favorable recommendation of appropriate government agency (7)
1. Banks
2. Banking and quasi-banking
3. Preneed
4. Insurance
5. Trust companies
6. Pawnshop
7. Other financial intermediaries
Section 16 – Grounds when AOI or amendment thereto may be disapproved
a. Not in prescribed form (Sec. 14)
b. Illegal purpose (Sec. 13)
c. Certification is false (Sec. 14)
d. Percentage requirement not complied (Sec. 14)
e. No favorable recommendation
PD 902 – A – Suspension or Revocation of Certification of Incorporation
(FraSeReCoFaFa)
- Fraud in procuring the certificate of incorporation
- Serious misrepresentation as what the corporation can do
- Refusal to comply with the lawful order of the court
- Continuous in operation for a period of 5 years
- Failure to file by-laws
- Failure to file reports

Section 17 – Corporate Name

Vote required to change name – M + 2/3
Effect of change name – same corporation
NAME shall NOT be allowed if – NOT distinguishable
1. Already reserved or registered
2. Already protected by law
 3. Or when it is contrary to existing law, rules or regulation
ex. A. Corp/Company/Incorporated
b. punctuations, conjunctions, preposition, abbreviations,
numbers

Effects of violation (not distinguishable) SEC will summarily order

1. Cease and desist order
2. Removal of all visible signages
3. Fails to comply – CONTEMPT
4. Administratively/Civilly or Criminally liable
5. Revoke the COI
Section 18 – Registration, Incorporation, and commencement of corporate
existence
Name verification is required – First document to be submitted in SEC
If distinguishable, SEC requires the submission of AOI
If compliant – SEC issues COI

Effect of issuance of COI

Right to exist – YES
Right to operate – NO (elect the BOD, elect the officers, file the by-laws)
Issuance of COI – start of corporation

Effect of non-issuance of COI – MANDAMUS (compel the issuance/performance of

an act)

Discretionary Act v. Ministerial Act

-optional -mandatory

Section 19 – De Facto Corporation

De Jure v. De Facto
Requisite of De Facto Corp
1. Valid law – RA11232
2. Attempt to incorporate/organize
3. Actual user of Corporate power
 4. Issuance of COI despite of non-compliance of the legal requirements
Ex. Corporate name resembles, forgery in AOI, citizenship requirement

Remedy against de facto – QUO WARRANTO SOL GEN

- Questioning the legal existence
Direct Attack v. Collateral Attack
-questioning - creditors is not paying a loan since it’s a de facto corp

Section 20 – Corporation by Estoppel

De Jure v. De Facto v. Estoppel
Effect – liable as a general partners
Ostensible Corporation/Estoppel – NOT allowed to use it as a defense
NO AOI, NO COI

Section 21 – Non Use of Corporate Charter – Continuous inoperation

OLD REVISED COOPERATIVE

2 years 5 years 2 years
5 years 5 years 2 years

Effect of Non-Use – deemed revoked

Effect of Continuous inoperation – placed under delinquent status for 2 years
If compliant – order is lifted
If NOT compliant – revocation of COI

MANDAMUS – compelling the Quo Warranto – questioning the legal

performance of an act existence of the corporation (direct
attack)
Non-Use of Corporate Charter – 5 Continuous inoperation – 5 years
years
Sec. 16 – grounds when AOI when may PD 902 – A (FraSeReCoFaFa) grounds
be disapproved (5) to revoke the COI

Section 22 – SH - BOD  officers

Stockholders – indirect control
BOD – governing body (lays the policies)
Officers – manage the day-to-day affairs (executes it)
General Rule – BOD decides
(Exceptions)
1. Close corporation – Stockholders
2. Executive Committee
3. Management Contract
Term of office
1 year – BOD
2 years – COOPERATIVE
3 years – Non-Stock coporation
5 years Non-stock educational coporation
General Rule – 1-15
(Exceptions)
1. Corporation Sole
2. OPC
3. Non-stock – more than 15
4. Close corporation – not exceed 20
5. Non-Stock Educational Corporation

Qualifications of BOD
1. He must own one share
2. Share must be registered in his name
3. It must be continuously registered in his name

Requirements of Corporations with public interest

(Pneumonic) SBO
- Atleast 20% of BOD
- Independent directors
Section 23
Doctrine of Hold-Over – they will continue to function as such until a new
set of BOD is elected
Limitations/Conditions for elections
 1. Presence in person by written proxy or remote communication or absentee
voting
2. Election by ballot, of requested (if not – VIVA VOCE)
3. No delinquents stock shall be voted
4. Plurality of votes v. Majority
5. Required notice must be given
6. Quorum
- M of OCS - Stock
- M of M’s – Non-Stock
7. Only voting shares can vote
Unpaid shares can vote provided not delinquent
Methods of Voting v. Manner of Voting.

Section 24 – Requisite for Board Meeting

1. Meeting of BOD/BOT duly assembled
2. Presence of Quorum
3. Decision of the Majority of Quorum
4. Meeting of the time, place, manner, provided in the By-Laws

Quorum v. Majority of Quorum

Quorum (50% + 1) Majority of Quorom (50% + 1)

To hold the meeting To decide in the meeting (Valid
corporate act)

Classic board exam question:

15 members BOD
5 died
What is the Qourum? 8 - It is still 8 because you will still be based on 15
members, what happens to the those who died? (Filling of vacancy)

Stockholders Board of Directors

Proxy Voting Allowed Not Allowed
Telecom/Teleconferencin Allowed Allowed
g

Section 25 – Report of Election of BOD/Officers

Reporting – 30 days after the election
Non-Holding – within 30 days from the date of scheduled election
New date of election not later than 60 days from the scheduled date
Effect if no election held – SEC cam
If Directors, Trustees, Officers dies – report within 7 days from knowledge
45 days to fill out the vacancy if DTO dies, resigns

Section 26 – Disqualification of Directors, Trustees, and Officers

If within 5 years prior to the election - FFF (Pneumonic)

A. Convicted by FINAL judgment
1. Offense exceeding 6 years
2. Violating Corporation Code
3. Violation RA 8799 (Securities Regulation Code)
B. Found administratively liable for any offense involving FRADULENT acts
C. Foreign Court (of Violation of A & B)
Evidence required
Criminal – Proof beyond reasonable doubt
Civil – Preponderance of evidence
Administrative – Substantial evidence
*SEC and PCC can impose other qualifications/disqualifications

Section 27 – Removal of Directors

Vote for election -M of the OCS

Meeting for removal – M of OCS
Removal of BOD - 2/3 of OCS
General Rule – Inherent power of AMOTION
- BOD removable of or without valid reason (why?) Because they
under the pleasure of Stockholders
(Exceptions)
- If elected by minority through cumulative voting – VALID GROUND
SEC can now remove another BOD
BOD cannot remove another BOD

Section 28 – Vacancy in BOD

Stockholders:
1. Expiration of term
2. Removal of BOD
3. Increase in number of BOD
4. No Quorum
5. Quorum + Delegation
When can BOD, fill out the vacancy
1. Quorum + no delecation
2. Emergency board
Period to fill out the vacancy
a. Term expires – not later than the day of expiration
b. Removal – same day
c. Other grounds – within 45 days

Effects? / Removes? / Fills Out

SH’s SH’s SH’s or BOD
EMERGENCY BORD
Vote – unanimous consent of ALL remaining directors/trustees
Ground – no quorum + vote required
- Limited emergency action
- Shall cease within reasonable time
- From officers
- Notification within 3 days

Section 29 – Compensation of Directors

General Rule – not entitled
(Exceptions) – By-Laws provide or vote of SH’s
Vote – M of OCS
Directors cannot grant compensation to themselves
Limitation – 10% rule
Annual report requirement for corporations vested of public interest

Section 30 – Liability of Directors Trustees or Officers (DTO)

3 Fold Duty of Duty (OLD)
Obedient
Loyal
Diligent
General Rule – Business Judgment Rule
– BOD’s are not liable
(Exceptions) – if 3-fold duty is violated (OLD)
1st Par – Violation of OLD (D/T)
1. Unwilfully knowingly vote or assent to potently unlawful acts – (O)
2. Guilty of gross negligence of bad faith in directing the affairs of
corporation – (D)
3. Acquire any personal or pecuniary interest in conflict with his duty –
(L)
Liable – SOLIDARILY liable for damages
2nd Par Special Fact Doctrine (DTO)
- Director take advantage of ANY acquired virtue of his office tot
the disadvantage of the corporation
Effects
1. Liable as a trustee
2. He must account for the profits
3 instances of SOLIDARILY liability 30/64/130
2 instances of SOLIDARILY liability in Partnership 1822, 1823

Section 31 – Dealing of Directors, Trustees or Officer of the Corporation

“Self-Dealing Directors”
Now – Spouses/Relatives within the 4th civil degree of consanguinity or
affinity is included
General Rule – deciding is valid provided all the 4 or 5 requisite are
present
(d) Corps vested of public interest - approved at least 2/3 of the ENTIRE
membership of the board + M of independent directors
if any of the 3 conditions are absent – VOIDABLE
Remedy – Ratification by 2/3 of OCS + full disclosure of the adverse interest
Vote of BOD
- M of BOD
- M of Quorum of BOD

Section 32 – Contracts between corporations with Interlocking Directors

(defined)
General Rule – valid
(Exceptions) – It can be invalidated if
a. In case of fraud
b. Contract is not fair and reasonable
TEST
If minimal share – NOT violated
If SUBSTANTIAL – stockholdings exceeding 20% of the OCS shall be consider as
substantial
Vote to Ratify – 2/3 of OCS

Section 33 – Disloyalty of Director Seizing Corporate Opportunity

Section 30 Section 33
Covers DTO Director only
Any interest Business opportunity
No vote to ratify 2/3 of OCS

Director acquires a business opportunity which should belong to the

corporation thereby obtaining profits to the prejudice of corp
Effect of VIOLATION
1. Must account for the profits
2. Refund ALL the profits of the corporation
Provision is applicable not withstanding that the director risked his own
fund
Section 34 – Executive Management and Other Special Committees
ExCom – smaller BOD (reasons: to have a lesser quorum)
Requisite:
1. By-Laws must provide for it
2. Composed of not more than 3 member of BOD
3. Must be directors of Corp
4. BOD create ExCom
Vote to create v. Vote to decide
- Majority of ALL its members
5 instances when ExCom cannot vote (check LAW)
BOD can also create special committees (permanent/temporary)

POWERS OF CORPORATION
Section 35 – Corporate Powers and Capacity
Doctrine of Limited Capacity
- Express
- Implied
- Inherent
Theory of General Capacity
Theory of Special Capacity
3 Kinds/Classes of Power
1. Express – stated in RA 11232/AOI
2. Implied – reasonably necessary
3. Inherent/Incidental – automatically given to the corporation
Eg. Succession, be sued, create by-laws
Express powers – Section 35
a. Sued and be sued
- Not registered
- Moral damages - General Rule – NO
(Exceptions) – Ruining the good name – YES, it can sue. (Besmirch
reputation)
- Foreign corporation
b. Power to acquire properties
- Private lands – YES they can acquire
- Public lands – NO, but they can lease up to 1000 hectares for the
period of 25 years
c. Acquire shares
 - Own – YES. Under 2 requisites.
Presence of unrestricted retained earnings
Presence of legitimate purpose
- Shares of another corporation – If it is the primary purpose,
yes. If not, you need the vote of stockholders and the BOD to
exercise the power.
d. Contributed Charity/Political Party
e. Such other powers as may be necessary (Implied)

Doctrine of Corporate Immunity – Corporation is held liable even if third

person since it is authorized.

Section 36 – Power to extend or shorter corporate term (FIXED)

Electronic sending of notice
Vote – M + 2/3 of OCS
Appraisal right – in case of extension of corporate term

Section 37 – Power to increase or decrease Capital Stock

Power to increase Bonded Indebtedness
Limitations:
Over-issue stock – Increase of Capital Stock
Trust Fund Doctrine – Decrease of Capital Stock
How to increase Capital stock?
1. By increasing the number of shares
2. By increasing the par value of shares
3. By increasing both par and number of shares

Vote required – M + 2/3

Increase/Decrease
Bonded Indebtedness

Prior approval of SEC and PCC if necessary

Application in SEC
General Rule – 6 months from date of approval
(Exceptions) – Justifiable reasons
Requirement for

 increase 25% 25%

 Bonds must be registered in SEC

Section 39 – Sale or other disposition of stock

General Rule – if necessary, in the regular and usual course of business – M
of BOD
(Exceptions) – If not – M + 2/3
(Exceptions) to (Exceptions) – vote to abandon – M of BOD

When is it a sale of all or substantially all? (TEST)

If it will render incapable? – M + 2/3
They can exercise the appraisal right if they are going to sell.