COMMERCIAL LAW REVIEW /ATTY. MINDA GAPUZ,...

COMMERCIAL LAW REVIEW /ATTY. MINDA GAPUZ, CPA-LAWYER BY: ROXANNE S. URQUICO

CAVEAT: (1) THIS REVIEWER FOCUSES THE HIGHLIGHTS GIVEN BY ATTY. GAPUZ DURING CLASS DISCUSSION; (2) PLEASE READ IN CONJUNCTION WITH THE RELEVANT LAWS AND OTHER REFERENCE MATERIALS.

Negotiable Instruments Law

Elements of NI under Sec. 1: S-U-D-O-R

1. It must be Signed and written and by maker or drawer.

2. It must contain an Unconditional order or promise to pay sum certain in money.

3. It must be payable on Demand or at a fixed determinable future time.

4. It must be payable to Order or to bearer.

5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated

therein with Reasonable certainty.

It is a bearer instrument when:

1. The name of the payee does not purport to be the name of any person.

2. When the only and the last indorsement is in blank.

Liabilities of Different Parties:

1. Maker for Promissory Notes

2. Drawer/ Drawee for Bills of Exchange

Note: Unless there is a clearance, Drawee-bank is not liable.

3. Indorser- warrants the genuineness of the signature of the party prior to him.

Notes:

1. The New Civil Code provides that obligations shall be paid in Philippine currency and no

person can be compelled to accept a Negotiable Instrument.

2. Valuable consideration is always presumed.



3. Problem: X has a gambling debt in favor of Y, amounting to 1 Million Php. Y, Arellano law

student, knew that the check issued to him by X has no fund, issued the same to Z to purchase

a car. Who is liable to pay Z? Should X pay Y?

Answer: X, the issuer is liable to Z, a holder in due course. Z received the check for a valuable

consideration and in good faith, not knowledgeable of any infirmity or defect. Hence, he may

proceed against X, the issuer of the check given to him as payment of the car.

X should not pay Y because the consideration was illegal. Therefore, he has no liability

arising therefrom.

4. Forgery

One is precluded to claim forgery as a defense if:

1. He is estopped.

2. He has no authority to collect.

3. He waived his right.

-applies only to signature but with respect to other matters, that is alteration.

-only the signature is “wholly inoperative”.

-use the phrase “wholly inoperative” instead of saying “he is not liable”.

5. Cut-off Rule- the drawer whose signature is forged is not liable including the payee and all

parties prior to him.

6. Difference between Payable to Bearer and Payable to Order

Problem: Mary left a check payable to the order of “cash” on her desk. Joan, her secretary stole

it and indorsed the same to C. Is Mary liable?

Answer: Yes. The instrument is a bearer instrument. No indorsement from her is necessary.

The answer would be otherwise if it was an order instrument.



7. The collecting bank is generally liable to the drawee bank. The former shall suffer the loss.

8. If you paid to somebody, thinking he was the payee, but in fact he is not, you are still liable to

whom you are obligated to pay.

9. Reiterated: Problem: X has a gambling debt in favor of Y, amounting to 1 Million Php. Y,

Arellano law student, knew that the check issued to him by X has no fund, issued the same to

Z to purchase a car. Who is liable to pay Z? Should X pay Y?

Answer: X, the issuer is liable to Z, a holder in due course. Z received the check for a valuable

consideration and in good faith, not knowledgeable of any infirmity or defect. Hence, he may

proceed against X, the issuer of the check given to him as payment of the car.

X should not pay Y because the consideration was illegal. Therefore, he has no liability

arising therefrom.

10. BP 22 vs Estafa

In Estafa, it has to be proven that the receipt of the check was prior or simultaneous

to the receipt of the consideration. (Kailangan kaliwaan.) Otherwise, the remedy can only be

BP22.

11. Notice of Dishonor

-must be addressed to and received by the wrongdoer. If he refuses to receive, the remedy is

to publish it in a newspaper of general circulation.

12. Presentment for Acceptance/ Presentment for Payment

-If the check requires acceptance, present it for acceptance.



Problem: Lucio Tan issued a check which is payable 100 days after acceptance or sight. Before

the acceptance or sight, the bank closed. Can you collect from Lucio Tan?

Answer: No. You cannot hold the drawer liable. The instrument required Presentment for

Acceptance, hence, such must be made before payment is to be made. The liability of the

banks for deposits and all other obligations as of closure shall cease upon closure by the

Monetary Board.

(Read PDIC)

13. Discharge

Modes: Sec. 119 and Prescription (but the obligation will not be discharged and it will remain).

If the Accommodated Party pays, the instrument is discharged.

If the Accommodation Party pays, the instrument is not discharged because he can still use

the same instrument against the accommodated party.

14. Renunciation of Right

-this partakes the nature of Donation. Hence, it must be written and acceptance has to be made.

15. A check becomes stale after the lapse of 6 months while the other Negotiable Instruments

lapse in 10 years.

General Banking Law and Other Related Laws:

Banks- are entities engaged in the lending of funds obtained in the form of deposit from the public.

(Sec.3.1, GBL)

Sec. 3.2. Banks shall be classified into:

1. Universal banks- banks that have the powers of an investment house and the power to invest

in a non-allied enterprises.



2. Commercial banks- banks that are given all such power necessary to engage in commercial

banking in addition to general corporate powers.

3. Thrift banks- include savings and mortgage banks, private development banks and stock

savings and loan associations.

4. Rural banks- banks that are created to make needed credit available and readily accessible in

the rural areas for the purpose of promoting comprehensive rural development.

5. Cooperative banks- banks that primarily provide financial, banking and credit services to

cooperative organizations and their members.

6. Islamic banks

7. Other classifications of banks as determined by the Monetary Board of the Bangko Sentral ng

Pilipinas.

Nature of Business: A bank has a vital role in providing an environment conducive to the sustained

national economy. Banking is fiduciary in nature that requires high standards of integrity and

performance. (Sec. 2, GBL)

Basic Functions:

1. Deposit Function (Savings, Time, Demand)

2. Loan Function

Depositors:

1. Minors-they can open bank accounts in their own right provided that:

a. They are at least 7 years of age;

b. They are able to read and write and have sufficient discretion;

c. They are not otherwise disqualified by any other capacity

d. It should only be savings or time deposits.

2. Married Women- they are allowed to open bank account without the assistance of their

husbands.



• What is NOW (NEGOTIABLE ORDER OF WITHDRAWAL ACCOUNTS) Deposit- interest-bearing

deposit accounts that combine the payable on demand feature of checks and investment

feature of savings account.

CLOSE-NOW-HEAR-LATER RULE

No prior hearing is necessary in appointing a receiver and closing the bank. It is enough that

subsequent judicial review is provided for. Indeed, to require such previous hearing would not only

be impractical but would defeat the very purpose of the law when it invested the Monetary Board with

such authority. (Rural Bank of Lucena vs. Arca)

Effect of Receivership and Liquidation

1. No Rehabilitation. SEC. 12. (a) Whenever a bank is ordered closed by the Monetary Board, the

Corporation shall be designated as receiver and it shall proceed with the takeover and

liquidation of the closed bank in accordance with this Act. For this purpose, banks closed by

the Monetary Board shall no longer be rehabilitated.”

2. There will be no preference even if the claimant-depositor obtained a writ of preliminary

attachment. After the declaration of insolvency, the remedy of the depositors is to intervene

in the liquidation proceedings. (Provident Savings Bank vs. CA)

3. On the corporate franchise or existence. Upon placement by the Monetary Board of a bank

under liquidation, it shall continue as a body corporate until the termination of the winding-

up period.

i. Such continuation as a body corporate shall only be for the purpose of liquidating,

settling and closing its affairs and for the disposal, conveyance or distribution of its

assets. (2007 and 2009 Bar)

ii. The receiver shall represent the closed bank in all cases by or against the closed bank

and prosecute and defend suits by or against it. In no case shall the bank be reopened

and permitted to resume banking business after being placed under liquidation. (Sec.

13 , RA No. 3591 as amended)



Conservatorship

New Central Bank Act: Section 29. Appointment of Conservator. — Whenever, on the basis of a

report submitted by the appropriate supervising or examining department, the Monetary

Board finds that a bank or a quasi-bank is in a state of continuing inability or unwillingness to

maintain a condition of liquidity deemed adequate to protect the interest of depositors and

creditors, the Monetary Board may appoint a conservator with such powers as the Monetary

Board shall deem necessary to take charge of the assets, liabilities, and the management

thereof, reorganize the management, collect all monies and debts due said institution, and

exercise all powers necessary to restore its viability. The conservator shall report and be

responsible to the Monetary Board and shall have the power to overrule or revoke the actions

of the previous management and board of directors of the bank or quasi-bank.

The conservator should be competent and knowledgeable in bank operations and management. The

conservatorship shall not exceed one (1) year.

xxx

Grounds For Receivership and Liquidation:

Section 30. Proceedings in Receivership and Liquidation. — Whenever, upon report of the head of

the supervising or examining department, the Monetary Board finds that a bank or quasi-bank:

(a) is unable to pay its liabilities as they become due in the ordinary course of business:

Provided, That this shall not include inability to pay caused by extraordinary demands induced

by financial panic in the banking community;

(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its

liabilities; or

(c) cannot continue in business without involving probable losses to its depositors or creditors;

or



(d) has willfully violated a cease and desist order under Section 37 that has become final,

involving acts or transactions which amount to fraud or a dissipation of the assets of the

institution; in which cases, the Monetary Board may summarily and without need for prior

hearing forbid the institution from doing business in the Philippines and designate the

Philippine Deposit Insurance Corporation as receiver of the banking institution.

PDIC as added by RA 10846:

SEC. 12. (a) Whenever a bank is ordered closed by the Monetary Board, the Corporation shall be

designated as receiver and it shall proceed with the takeover and liquidation of the closed bank in

accordance with this Act. For this purpose, banks closed by the Monetary Board shall no longer be

rehabilitated.”

Prohibited Act: Banks are prohibited from engaging in insurance business.

3 Most Important Laws to Remember:

1. Bank Secrecy Law/ RA 1405- involves: bonds, investments and money markets.

All deposits of whatever nature with banks or banking institutions in the Philippines including

investments in bonds issued by the Government of the Philippines, its political subdivisions and its

instrumentalities, are hereby considered as of an absolutely confidential nature and may not be

examined, inquired or looked into by any person, government official, bureau or office.

Exceptions:

1. Upon written permission of the depositor;

2. or in cases of impeachment;

3. or upon order of a competent court in cases of bribery or dereliction of duty of public officials;

4. or in cases where the money deposited or invested is the subject matter of the litigation;



5. Or in cases where the BIR needs to inquire into the deposit to determine the estate of a person

or for purposes of entering into compromise.

2. Anti-Money Laundering Act of 2001/ RA 10168

Money Laundering- a crime committed by any person who knowing that any monetary instrument or

property represents, involves or relates to the proceeds of unlawful activity:

1. Transacts said monetary instrument or property;

2. Converts, transfers, disposes of, moves, acquires, possesses or uses said monetary

instrument or property;

3. Conceals or disguises the true nature, source or location, disposition, movement or ownership

of or rights with respect to said instrument or property;

4. Attempts or conspires to commit money laundering offenses referred to in 1,2, or 3;

5. Aids, abets, assists in or counsels the commission of the money laundering offenses referred

to in 1,2,3;

6. Performs or fails to perform any act as a result of which he facilitates the offense of money

laundering referred to in 1,2 or 3;

7. By failure to report to the Anti-Money Laundering Council (AMLC) by any covered person

knowing that a covered or suspicious transaction required under the Anti-Money Laundering

Law to be reported thereto.

Covered Transaction

A transaction in cash or other equivalent monetary instrument involving a total amount in excess

of P500,000.00 within one banking day; for casinos that are now covered under Section 3 (a)(8), a

single casino transaction involving an amount in excess of P5M or its equivalent in any other

currency. (RA No. 9160, as amended by RA No. 10927)

Suspicious Transaction, in general



Any circumstances relating to the transaction which is observed to deviate from the profile of the

client and/or the client’s past transactions with the covered institution.

No Court Order shall be required shall be required for the examination of bank deposits by ALMC

in cases involving:

1. Kidnapping;

2. Comprehensive Dangerous Drugs Act;

3. Hijacking;

4. Felonies;

5. Terrorism and Conspiracy to Commit Terrorism

3. Unclaimed Balances Law Act No. 3936 as amended by PD 679

a. Deposits that have become dormant for a period of 10 years may be escheated in favor of the

government.

b. Initially, there should be notice to the depositor of the unclaimed balance. Thereafter, the

bank and loan associations and trust companies is required to report and sworn statement to

the Treasurer of the Philippines the existence of such deposits. The Treasurer will in turn

inform the Solicitor General who will then initiate the proper escheat proceedings in Court.

c. Publication of a list unclaimed balances is also required in order to safeguard the rights of the

depositors, the heirs and successors in interest to due process.

PDIC’s Power of after Closure (EXERCISE OF POLICE POWER)

There is no more 90-day receivership period and the PDIC can proceed directly to liquidation when a

bank is ordered and closed.

Foreclosure of Mortgage

a. Redemption Period for Natural Persons



-shall have one year after the sale of the real estate, to redeem the property. The one-year

redemption period should be counted from the date of registration of the certificate of sale

with the RD.

b. Redemption Period for Juridical Persons

• shall have three months after the foreclosure but corporations have five years to repurchase.

And/Or Accounts

• only valid during the lifetime of the parties.

BP Circular No. 799-2013

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate

allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six

percent (6%) per annum.

Freeze Order-AMLA

SEC. 10. Authority to Freeze. — Upon determination that probable cause exists that any deposit or

similar account is in any way related to an unlawful activity, the AMLC may issue a freeze order, which

shall be effective immediately, on the account for a period not exceeding fifteen (15) days. Notice to

the depositor that his account has been frozen shall be issued simultaneously with the issuance of

the freeze order. The depositor shall have seventy-two (72) hours upon receipt of the notice to explain

why the freeze order should be lifted. The AMLC has seventy-two (72) hours to dispose of the

depositor’s explanation. If it fails to act within seventy-two (72) hours from receipt of the depositor’s

explanation, the freeze order shall automatically be dissolved. The fifteen (15)-day freeze order of the

AMLC may be extended upon order of the court, provided that the fifteen (15)-day period shall be

tolled pending the court’s decision to extend the period.

No court shall issue a temporary restraining order or writ of injunction against any freeze order issued

by the AMLC except the Court of Appeals or the Supreme Court.



Revised Corporation Code

• Preferred and Redeemable Shares (regardless of whether there is URE or not, the Corporation

can buy back the shares.)

• Holders of these shares cannot participate in the election of officers. However, they are still

entitled to vote on the following matters:

(a) Amendment of the articles of incorporation;

(b) Adoption and amendment of bylaws;

(c) Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the

corporate property;

(d) Incurring, creating, or increasing bonded indebtedness;

(e) Increase or decrease of authorized capital stock;

(f) Merger or consolidation of the corporation with another corporation or other corporations;

(g) Investment of corporate funds in another corporation or business in accordance with this

Code; and

(h) Dissolution of the corporation. (Sec.6, RCC)

Full Beneficial Use vs. Full Beneficial Ownership

Beneficial Owner – refers to any natural person who:

1. Ultimately owns or controls the customer and/or on whose behalf a transaction or activity is being

conducted; or

2. Has ultimate effective control over a legal person or arrangement. (AMLC REGULATORY ISSUANCE

(ARI)

Beneficial User- is a legal term describing a person having right to enjoy the benefits of

specific property, especially a view or access to light, air, or water, even though title to that property

is held by another person.



Gamboa vs Teves

Indisputably, construing the term capital in Section 11, Article XII of the Constitution to include

both voting and non-voting shares will result in the abject surrender of our telecommunications

industry to foreigners, amounting to a clear abdication of the States constitutional duty to limit control

of public utilities to Filipino citizens. Such an interpretation certainly runs counter to the constitutional

provision reserving certain areas of investment to Filipino citizens, such as the exploitation of natural

resources as well as the ownership of land, educational institutions and advertising businesses. The

Court should never open to foreign control what the Constitution has expressly reserved to Filipinos

for that would be a betrayal of the Constitution and of the national interest. The Court must perform

its solemn duty to defend and uphold the intent and letter of the Constitution to ensure, in the words

of the Constitution, a self-reliant and independent national economy effectively controlled by Filipinos.

Sec. 2, Art. XII of the Constitution:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all

forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural

resources are owned by the State. With the exception of agricultural lands, all other natural

resources shall not be alienated. The exploration, development, and utilization of natural

resources shall be under the full control and supervision of the State. The State may directly

undertake such activities, or it may enter into co-production, joint venture, or production-

sharing agreements with Filipino citizens, or corporations or associations at least sixty per

centum of whose capital is owned by such citizens. Such agreements may be for a period not

exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms

and conditions as may be provided by law. In cases of water rights for irrigation, water supply fisheries,

or industrial uses other than the development of water power, beneficial use may be the measure

and limit of the grant.

Formation vs. Organization



Formation-is the process of putting up the skeleton of the institution. Can only be done by

natural persons.

Organization-is the process of putting something into a working order. Can be done by

artificial persons.

Piercing the Veil of Corporate Entity- Variations of the Doctrine:

1. Instrumentality

2. Alter-ego

3. Apparent Authority

4. Business Judgment Rule

Independent Director- Sec. 22

xxx The board of the following corporations vested with public interest shall have independent

directors constituting at least twenty percent (20%) of such board. Xxx

An independent director is a person who, apart from shareholdings and fees received from

the corporation, is independent of management and free from any business or other relationship

Page 12 of 73 which could, or could reasonably be perceived to materially interfere with the exercise

of independent judgment in carrying out the responsibilities as a director. Independent directors must

be elected by the shareholders present or entitled to vote in absentia during the election of directors.

Independent directors shall be subject to rules and regulations governing their qualifications,

disqualifications, voting requirements, duration of term and term limit, maximum number of board

memberships and other requirements that the Commission will prescribe to strengthen their

independence and align with international best practices.

• Member of the Board can be removed anytime even without cause.



Compliance Officer

SEC. 24. Corporate Officers. – Immediately after their election, the directors of a corporation must

formally organize and elect: (a) a president, who must be a director; (b) a treasurer, who must be a

resident; (c) a secretary, who must be a citizen and resident of the Philippines; and (d) such other

officers as may be provided in the bylaws. If the corporation is vested with public interest, the

board shall also elect a compliance officer. The same person may hold two (2) or more positions

concurrently, except that no one shall act as president and secretary or as president and

treasurer at the same time, unless otherwise allowed in this Code. The officers shall manage the

corporation and perform such duties as may be provided in the bylaws and/or as resolved by the

board of directors.

Relationship of Stockholder and Corporation: Creditor and Debtor

Intra-Corporate Dispute Tests

1.Relationship Test

1) between the corporation, partnership, or association and the public;

(2) between the corporation, partnership, or association and the State insofar as its franchise, permit,

or license to operate is concerned;

(3) between the corporation, partnership, or association and its stockholders, partners, members, or

officers; and

(4) among the stockholders, partners, or associates themselves.

2.Nature of the Controversy Test

"the controversy must not only be rooted in the existence of an intra-corporate relationship, but must

as well pertain to the enforcement of the parties’ correlative rights and obligations under the

Corporation Code and the internal and intra-corporate regulatory rules of the corporation. (Medical

Plaza Makati Condominium Corporation vs. Cullen).



Take Note: A case that involves collection is not an intra-corporate dispute.

Trust Fund Doctrine- considers this subscribed capital as a trust fund for the payment of the debts of

the corporation, to which the creditors may look for satisfaction. Until the liquidation of the

corporation, no part of the subscribed capital may be returned or released to the stockholder (except

in the redemption of redeemable shares) without violating this principle. Thus, dividends must never

impair the subscribed capital; subscription commitments cannot be condoned or remitted; nor can

the corporation buy its own shares using the subscribed capital as the considerations therefor. (PLDT

vs. NTC)

Perpetual Existence

SEC. 11. Corporate Term. – A corporation shall have perpetual existence unless its articles of

incorporation provides otherwise.

xxx

A corporate term for a specific period may be extended or shortened by amending the articles of

incorporation: Provided, That no extension may be made earlier than three (3) years prior to the

original or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as

may be determined by the Commission: Provided, further, That such extension of the corporate term

shall take effect only on the day following the original or subsequent expiry date(s).

Note: In two cases decided by the Supreme Court, it was ruled that shortening the corporate term by

way of amendment of the AI for the purpose of dissolving the corporation is proscribed. The same is

a means to shortcut the RCC which provides that petition for dissolution should be filed.

No Minimum Capital Stock

SEC. 12. Minimum Capital Stock Not Required of Stock Corporations. – Stock corporations shall not be

required to have a minimum capital stock, except as otherwise specifically provided by special law.

De Jure, De Facto, By Estoppel



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. 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.

Effects of Non-Use of Corporate Charter and Continuous Inoperation

SEC. 21. Effects of Non-Use of Corporate Charter and Continuous Inoperation. – If a corporation does

not formally organize and commence its business within five (5) years from the date of its

incorporation, its certificate of incorporation shall be deemed revoked as of the day following the end

of the five (5)-year period. However, if a corporation has commenced its business but subsequently

becomes inoperative for a period of at least five (5) consecutive years, the Commission may, after due

notice and hearing, place the corporation under delinquent status.

A delinquent corporation shall have a period of two (2) years to resume operations and comply with

all requirements that the Commission shall prescribe. Upon compliance by the corporation, the

Commission shall issue an order lifting the delinquent status. Failure to comply with the requirements

and resume operations within the period given by the Commission shall cause the revocation of the

corporation’s certificate of incorporation.

The Commission shall give reasonable notice to, and coordinate with the appropriate regulatory

agency prior to the suspension or revocation of the certificate of incorporation of companies under

their special regulatory jurisdiction.



BOARD OF DIRECTORS/TRUSTEES AND OFFICERS

SEC. 22. The Board of Directors or Trustees of a Corporation; Qualification and Term. – Unless

otherwise provided in this Code, the board of directors or trustees shall exercise the corporate

powers, conduct all business, and control all properties of the corporation. Directors shall be elected

for a term of one (1) year from among the holders of stocks registered in the corporation’s books,

while trustees shall be elected for a term not exceeding three (3) years from among the members of

the corporation. Each director and trustee shall hold office until the successor is elected and qualified.

A director who ceases to own at least one (1) share of stock or a trustee who ceases to be a member

of the corporation shall cease to be such.

xxx

Vested with Public Interest

xxx

The board of the following corporations vested with public interest shall have independent directors

constituting at least twenty percent (20%) of such board:

a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as “The Securities

Regulation Code”, namely those whose securities are registered with the Commission, corporations

listed with an exchange or with assets of at least Fifty million pesos (P50,000,000.00) and having

two hundred (200) or more holders of shares, each holding at least one hundred (100) shares of

a class of its equity shares;

b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business,

pre-need, trust and insurance companies, and other financial intermediaries; and

c) Other corporations engaged in business vested with public interest similar to the above, as may

be determined by the Commission, after taking into account relevant factors which are germane to

the objective and purpose of requiring the election of an independent director, such as the extent of



minority ownership, type of financial products or securities issued or offered to investors, public

interest involved in the nature of business operations, and other analogous factors.xxx

Vacancies in the Office of Director or Trustee; Emergency Board

SEC. 28. Vacancies in the Office of Director or Trustee; Emergency Board. – Any vacancy occurring in

the board of directors or trustees other than by removal or by expiration of term may be filled by the

vote of at least a majority of the remaining directors or trustees, if still constituting a quorum;

otherwise, said vacancies must be filled by the stockholders or members in a regular or special

meeting called for that purpose. Page 15 of 73 When the vacancy is due to term expiration, the election

shall be held no later than the day of such expiration at a meeting called for that purpose. When the

vacancy arises as a result of removal by the stockholders or members, the election may be held on

the same day of the meeting authorizing the removal and this fact must be so stated in the agenda

and notice of said meeting. In all other cases, the election must be held no later than forty-five (45)

days from the time the vacancy arose. A director or trustee elected to fill a vacancy shall be referred

to as replacement director or trustee and shall serve only for the unexpired term of the predecessor

in office. However, when the vacancy prevents the remaining directors from constituting a quorum

and emergency action is required to prevent grave, substantial, and irreparable loss or damage to the

corporation, the vacancy may be temporarily filled from among the officers of the corporation by

unanimous vote of the remaining directors or trustees. The action by the designated director or

trustee shall be limited to the emergency action necessary, and the term shall cease within a

reasonable time from the termination of the emergency or upon election of the replacement director

or trustee, whichever comes earlier. The corporation must notify the Commission within three (3) days

from the creation of the emergency board, stating therein the reason for its creation. Any directorship

or trusteeship to be filled by reason of an increase in the number of directors or trustees shall be filled

only by an election at a regular or at a special meeting of stockholders or members duly called for the

purpose, or in the same meeting authorizing the increase of directors or trustees if so stated in the

notice of the meeting. In all elections to fill vacancies under this section, the procedure set forth in

Sections 23 and 25 of this Code shall apply.



Remedies of Distressed Corporation:

1. Voluntary Dissolution

-2/3 votes of the SH

- no creditors will be affected

2. Involuntary Dissolution which can be filed by the creditors

- at least 25% of the Outstanding Capital Stock is affected.

3. Merger/ Consolidation

Merger- two or more corporation will be joined.

Consolidation- will create new corporation to represent the dissolved corporation.

- no need to get the consent of the creditors because the new corporation is merely the

continuance of the transferor.

4. Transfer of Assets

- transferee will assume all the assets and liabilities of the transferor. Again, merely a continuation.

Bulk Sales Law: The Transfer of all or substantially all the assets shall depend on the intention of the

parties. If done in good faith, valid. If otherwise, not valid.

5. FRIA (Financial Rehabilitation and Insolvency Act)

Purposes:

1. rehabilitation, whose purpose is to restore the financial health of insolvent debtors. 2. liquidation, which provides for the orderly liquidation of the debtor’s assets and liabilities,

once it has been determined that operations can no longer be successfully restored.

3. cross-border insolvency, which is patterned after the UNCitral Model Law, whose purpose is to address insolvency-related matters involving foreign companies with Philippine-based

assets or foreign-based assets of Philippine companies.



- To allow the corporation to regain a new life.

- All creditors are in equal footing.

Stay or Suspension Order which shall:

(1) suspend all actions or proceedings, in court or otherwise, for the enforcement of claims

against the debtor;

(2) suspend all actions to enforce any judgment, attachment or other provisional remedies

against the debtor;

(3) prohibit the debtor from selling, encumbering, transferring or disposing in any manner any

of its properties except in the ordinary course of business; and

(4) prohibit the debtor from making any payment of its liabilities outstanding as of the

commencement date except as may be provided herein.

Notes: Security (of the creditors) can only be used in liquidation.

SEC. 38. Power to Deny Preemptive Right. – All stockholders of a stock corporation shall enjoy

preemptive right to subscribe to all issues or disposition of shares of any class, in proportion to their

respective shareholdings, unless such right is denied by the articles of incorporation or an

amendment thereto: Provided, That such preemptive right shall not extend to shares issued in

compliance with laws requiring stock offerings or minimum stock ownership by the public; or to Page

20 of 73 shares issued in good faith with the approval of the stockholders representing two-thirds

(2/3) of the outstanding capital stock, in exchange for property needed for corporate purposes or in

payment of a previously contracted debt.

SEC. 42. Power to Declare Dividends. – The board of directors of a stock corporation may declare

dividends out of the unrestricted retained earnings which shall be payable in cash, property, or in

stock to all stockholders on the basis of outstanding stock held by them: Provided, That any cash

dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription

plus costs and expenses, while stock dividends shall be withheld from the delinquent stockholders



until their unpaid subscription is fully paid: Provided, further, That no stock dividend shall be issued

without the approval of stockholders representing at least two-thirds (2/3) of the outstanding capital

stock at a regular or special meeting duly called for the purpose. Stock corporations are prohibited

from retaining surplus profits in excess of one hundred percent (100%) of their paid-in capital stock,

except:

(a) when justified by definite corporate expansion projects or programs approved by the board of

directors; or

(b) when the corporation is prohibited under any loan agreement with financial institutions or

creditors, whether local or foreign, from declaring dividends without their consent, and such consent

has not yet been secured; or

(c) when it can be clearly shown that such retention is necessary under special circumstances

obtaining in the corporation, such as when there is need for special reserve for probable

contingencies. BARDHAL DOCTRINE

Discussion on Revised Corporation Code Continued and Additional Points

1. PREFERRED AND REDEEMABLE SHARES ARE DENIED OF THE RIGHTS TO VOTE THE MEMBERS

OF THE BOARD (BECAUSE THE LATTER ARE THE ONES WHO EXERCISE THE POWERS OF THE

CORPORATION).

2. WHEN A CORPORATION LEASES ITS PROPERTY, OR WHEN THE CORPORATION DISPOSES ITS

PROPERTIES, TRANSFER TO THE OTHER CORPORATION, THE SAME MUST BE APPROVED BY 2/3

OF THE STOCKHOLDERS.

3. THE BOARD EXERCISES CORPORATE POWERS UNLESS THEY DELEGATE SOME OF ITS POWERS

TO ITS PRESIDENT.

4. IF YOU ARE ALREADY THE OWNER AS RECORDED IN THE CORPORATE BOOKS, YOU CAN

TRANSFER BY ENTERING INTO VOTING TRUST AGREEMENT UNDER SECTION 58.

SEC. 58. Voting Trusts. – One or more stockholders of a stock corporation may create a voting trust for

the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the



shares for a period not exceeding five (5) years at any time: Provided, That in the case of a voting trust

specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding

five (5) years but shall automatically expire upon full payment of the loan. A voting trust agreement

must be in writing and notarized, and shall specify the terms and conditions thereof. A certified copy of

such agreement shall be filed with the corporation and with the Commission; otherwise, the agreement

is ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust

agreement shall be cancelled and new ones shall be issued in the name of the trustee or trustees, stating

that they are issued pursuant to said agreement. The books of the corporation shall state that the

transfer in the name of the trustee or trustees is made pursuant to the voting trust agreement.

The trustee or trustees shall execute and deliver to the transferors, voting trust certificates, which shall

be transferable in the same manner and with the same effect as certificates of stock.

The voting trust agreement filed with the corporation shall be subject to examination by any stockholder

of the corporation in the same manner as any other corporate book or record: Provided, That both the

trustor and the trustee or trustees may exercise the right of inspection of all corporate books and records

in accordance with the provisions of this Code.

Any other stockholder may transfer the shares to the same trustee or trustees upon the terms and

conditions stated in the voting trust agreement, and thereupon shall be bound by all the provisions of

said agreement.

No voting trust agreement shall be entered into for purposes of circumventing the laws against anti-

competitive agreements, abuse of dominant position, anti-competitive mergers and acquisitions,

violation of nationality and capital requirements, or for the perpetuation of fraud.

Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at

the end of the agreed period. The voting trust certificates as well as the certificates of stock in the name

of the trustee or trustees shall thereby be deemed cancelled and new certificates of stock shall be

reissued in the name of the trustors.

The voting trustee or trustees may vote by proxy or in any manner authorized under the bylaws unless

the agreement provides otherwise.



5. The Board must approve before the President can implement a particular action.

6. Full Beneficial Use vs. Full Beneficial Ownership

-if you are the owner of redeemable or preferred shares, you can transfer your rights including your

right to vote except the right to vote the members of the Board and the right to vote with respect to

a corporate action relating to Exploration. Development and Utilization (EDU) of Philippine resources.

HERBOSA CASE:

Issue: Whether the SEC's issuance of SEC-MC No. 8 which states that:

Section 2. All covered corporations shall, at all times, observe the constitutional or statutory

ownership requirement. For purposes of determining compliance therewith, the required

percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding

shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding

shares of stock, whether or not entitled to vote in the election of directors.78

is tainted with grave abuse of discretion.

Held: No. The ratio in the Gamboa Decision and Gamboa Resolution.

x x x The term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock

entitled to vote in the election of directors, and thus in the present case only to common shares, and

not to the total outstanding capital stock comprising both common and non voting preferred shares.

x x x x

Considering that common shares have voting rights which translate to control, as opposed to

preferred shares which usually have no voting rights, the term "capital" in Section 11, Article XII of



the Constitution refers only to common shares. However, if the preferred shares also have the right

to vote in the election of directors, then the term "capital" shall include such preferred shares

because the right to participate in the control or management of the corporation is exercised

through the right to vote in the election of directors. In short, the term "capital" in Section 11,

Article XII of the Constitution refers only to shares of stock that can vote in the election of

directors.65

The Court adopted the foregoing definition of the term "capital" in Section 11, Article XII of the 1987

Constitution in furtherance of "the intent and letter of the Constitution that the 'State shall develop

a self-reliant and independent national economy effectively controlled by Filipinos' [because a]

broad definition unjustifiably disregards who owns the all-important voting stock, which necessarily

equates to control of the public utility."67 The Court, recognizing that the provision is an express

recognition of the sensitive and vital position of public utilities both in the national economy

and for national security, also pronounced that the evident purpose of the citizenship

requirement is to prevent aliens from assuming control of public utilities, which may be

inimical to the national interest.68 Further, the Court noted that the foregoing interpretation is

consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens

the control and management of public utilities; and, as revealed in the deliberations of the

Constitutional Commission, "capital" refers to the voting stock or controlling interest of a

corporation.69

Article XII, Section 2, of the Constitution states:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces

of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are

owned by the State. With the exception of agricultural lands, all other natural resources shall not be

alienated. The exploration, development, and utilization of natural resources shall be under the full control

and supervision of the State. The State may directly undertake such activities, or it may enter into co-

production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or



associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be

for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such

terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply

fisheries, or industrial uses other than the development of water power, beneficial use may be the measure

and limit of the grant.

The State shall protect the nation’s marine wealth in its archipelagic waters, territorial sea, and exclusive

economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.

The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as

cooperative fish farming, with priority to subsistence fishermen and fishworkers in rivers, lakes, bays, and

lagoons.

The President may enter into agreements with foreign-owned corporations involving either technical or

financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and

other mineral oils according to the general terms and conditions provided by law, based on real

contributions to the economic growth and general welfare of the country. In such agreements, the State

shall promote the development and use of local scientific and technical resources.

The President shall notify the Congress of every contract entered into in accordance with this provision,

within thirty days from its execution.

-the holders of redeemable and preferred shares cannot transfer rights to vote with respect to the

Exploration, Development and Utilization because the transferee who is only a full beneficial user has

no better right that his transferor.

-Operation of public utilities shall be limited to Filipino voting shares so as not to subject the same to

foreign control.

-If you mortgage your rights as a holder of preferred or redeemable shares, the same rule applies,

that: you cannot transfer rights to vote with respect to the Exploration, Development and Utilization

because the transferee who is only a full beneficial user has no better right that his transferor.



7. INTRA-CORPORATE DISPUTES

Two Tests:

1. Relationship Test

2. Nature of Controversy Test

Problem:

There were groups namely the TAN group and the GOKONGWEI group. They wanted to form one

corporation so they distributed the important corporate positions equally. Later, the set-up

changed and the more important positions were given mostly to the TAN group. The GOKONGWEI

group complained. In response, the TAN group convinced the GOKONGWEI group to withdraw

their shares and separate with it, on the premise that they will return the money that the G group

invested.

Is the proposal of the Tan group valid?

Held: No. The rights of the G Group cannot simply be rescinded because it will result to

unauthorized use of the corporate assets. This, in effect, will violate the Trust Fund Doctrine.

Under this doctrine, all assets of the corporation, including receivables are to be held in trust

for the corporate creditors who are preferred over the stockholders.

BELO MEDICAL GROUP v. JOSE SANTOS

FACTS: Belo Medical Group received a request from Jose Santos for the inspection of

corporate records. Belo objected to this request and wrote Belo Medical Group to repudiate Santos

co-ownership of her shares and his interest in the corporation, claiming that the 25 shares in his

name were merely in trust for her, as she, and not Santos, paid for these shares.Thus, Belo Medical

Group filed a Complaint for Interpleader to compel [Belo and Santos] to interplead and litigate their

conflicting claims and for declaratory relief, praying that Santos be perpetually barred from

inspecting its books. Said complaints were raffled to the special commercial court, thus classifying

them as intra-corporate. Belo prayed that the case be tried as a civil case and not as an intra-



corporate controversy, arguing that intra-corporate controversies did not include special civil

actions for interpleader and declaratory relief, and clarified that the issue of ownership of the

shares of stock must first be resolved before the issue on inspection could even be considered ripe

for determination.Instead of filing an answer, Santos filed a Motion to Dismiss.Though a motion to

dismiss is a prohibited pleading under the Interim Rules of Procedure Governing Intra-Corporate

Controversies, the trial court ruled that according to the Rules of Court, motions to dismiss are

allowed in interpleader cases, while the complaint for Declaratory Relief was struck down as

improper.Belo filed her Petition for Review before the CA. Belo Medical Group, on the other hand,

directly filed its Petition for Review with this Court. CA dismissed Belo’s Petition.

ISSUE: Whether or not the present controversy is intra-corporate.

RULING: Belo Medical Group filed a case for interpleader, the proceedings of which are covered by

the Rules of Court. At its core, however, it is an intra-corporate controversy. To determine whether

an intra-corporate dispute exists and whether this case requires the application of the rules of

procedure, this Court evaluated the relationship of the parties. The types of intra-corporate

relationships were reviewed in Union Glass & Container Corporation v. SEC:

[a] between the corporation, partnership or association and the public;

[b] between the corporation, partnership or association and its stockholders, partners, members,

or officers;

[c] between the corporation, partnership or association and the state in so far as its franchise,

permit or license to operate is concerned; and

[d] among the stockholders, partners or associates themselves.

For as long as any of these intra-corporate relationships exist between the parties, the controversy

would be characterized as intra-corporate. This is known as the “relationship test.”



DMRC Enterprises v. Este del Sol Mountain Reserve, Inc. employed what would later be called as the

“nature of controversy test.”

In said case, this Court held that it was not just the relationship of the parties that mattered but

also the conflict between them.This Court now uses both the relationship test and the nature of the

controversy test to determine if an intra-corporate controversy is present. Applying the relationship

test, this Court notes that both Belo and Santos are named shareholders in Belo Medical Group’s

Articles of Incorporation and General Information Sheet for 2007. The conflict is clearly intra-

corporate as it involves two shareholders although the ownership of stocks of one stockholder is

questioned. Applying the nature of the controversy test, this is still an intra-corporate dispute. In the

interpleader case, Belo Medical Group sought his disqualification from inspecting the corporate

books based on bad faith. Therefore, the controversy shifts from a mere question of ownership over

movable property to the exercise of a registered stockholder’s proprietary right to inspect corporate

books. The circumstances of the case and the aims of the parties must not be taken in isolation

from one another.As an intra-corporate dispute, Santos should not have been allowed to file a

Motion to Dismiss. The trial court should have continued on with the case as an intra-corporate

dispute considering that it called for the judgments on the relationship between a corporation and

its two warring stockholders and the relationship of these two stockholders with each other.

- It is important to determine if the case involves an intra-corporate dispute to know which

court has jurisdiction. Special Commercial Courts or Ordinary Trial Courts.

Problem: One of the members of the Board of SM is also one of its contractors. SM paid its

contractual obligations initially, however, it failed to fulfill its obligations later. Hence, the said

director/contractor filed a case.

Where should it be filed?

Held: Before the regular court because it is not an intra-corporate dispute but a simple

collection case.



8. MERGER AND CONSOLIDATION

What is the effect if there is no recommendation/approval from the Philippine Competition

Commission?

The said MERGER AND CONSOLIDATION is not valid until the recommendation/approval from

the Philippine Competition Commission had been issued as well as the Articles of MERGER

AND CONSOLIDATION coming from the SEC.

9. APPRAISAL RIGHT

Problem: You are the dissenter who disagreed for perpetual existence. Hence, you want to

exercise your appraisal right and consequently, you want to be paid for the amount of your

stockholdings. However, no fund is available. Will you wait forever?

Answer: You are given 30 days to decide, if you are still not paid for the reason above stated

within 30 days, your status and your right as stockholder remains.

10. CORPORATIONS VESTED WITH PUBLIC INTEREST

SEC. 22. The Board of Directors or Trustees of a Corporation; Qualification and Term. – Unless

otherwise provided in this Code, the board of directors or trustees shall exercise the corporate powers,

conduct all business, and control all properties of the corporation.

Directors shall be elected for a term of one (1) year from among the holders of stocks registered in

the corporation’s books, while trustees shall be elected for a term not exceeding three (3) years from

among the members of the corporation. Each director and trustee shall hold office until the successor

is elected and qualified. A director who ceases to own at least one (1) share of stock or a trustee who

ceases to be a member of the corporation shall cease to be such.



The board of the following corporations vested with public interest shall have independent directors

constituting at least twenty percent (20%) of such board:

a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as “The

Securities Regulation Code”, namely those whose securities are registered with the

Commission, corporations listed with an exchange or with assets of at least Fifty million

pesos (P50,000,000.00) and having two hundred (200) or more holders of shares, each holding

at least one hundred (100) shares of a class of its equity shares;

b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service

business, pre-need, trust and insurance companies, and other financial intermediaries; and

c) Other corporations engaged in business vested with public interest similar to the above,

as may be determined by the Commission, after taking into account relevant factors which

are germane to the objective and purpose of requiring the election of an independent

director, such as the extent of minority ownership, type of financial products or securities

issued or offered to investors, public interest involved in the nature of business operations,

and other analogous factors.

-Schools are not considered as corporations vested with public interest.

11. DIVIDENDS

Can a corporation, regardless of Unrestricted Retained Earnings, by reason of custom, not

declare dividends? NO. When the URE exceeds 100% of the paid-up capital, it is mandatory to

declare dividends. The BIR will go after that corporation for not declaring dividends because

the latter is taxable.

Exception:

Sec. 42: xxx

Stock corporations are prohibited from retaining surplus profits in excess of one hundred percent

(100%) of their paid-in capital stock, except: (a) when justified by definite corporate expansion



projects or programs approved by the board of directors; or (b) when the corporation is prohibited

under any loan agreement with financial institutions or creditors, whether local or foreign, from

declaring dividends without their consent, and such consent has not yet been secured; or (c) when

it can be clearly shown that such retention is necessary under special circumstances obtaining in

the corporation, such as when there is need for special reserve for probable contingencies.

Problem: Your client is a corporation engaged in fishing. It did not declare dividends for the

reason that it will put up a Cannery. Is this valid?

Answer: Yes. It falls under the first exception under Section 42 of the RCC: (a) when justified

by definite corporate expansion projects or programs approved by the board of directors.

Cannery is incidental to the business of a fishing corporation.

12. INDEPENDENT DIRECTORS

An independent director is a person who, apart from shareholdings and fees received from the

corporation, is independent of management and free from any business or other relationship which

could, or could reasonably be perceived to materially interfere with the exercise of independent

judgment in carrying out the responsibilities as a director.

Independent directors must be elected by the shareholders present or entitled to vote in absentia

during the election of directors. Independent directors shall be subject to rules and regulations

governing their qualifications, disqualifications, voting requirements, duration of term and term

limit, maximum number of board memberships and other requirements that the Commission will

prescribe to strengthen their independence and align with international best practices.

13. MEETINGS

SEC. 52. Regular and Special Meetings of Directors or Trustees; Quorum. – Unless the articles of

incorporation or the bylaws provides for a greater majority, a majority of the directors or trustees

as stated in the articles of incorporation shall constitute a quorum to transact corporate business,

and every decision reached by at least a majority of the directors or trustees constituting a quorum,

except for the election of officers which shall require the vote of a majority of all the members of

the board, shall be valid as a corporate act.



Regular meetings of the board of directors or trustees of every corporation shall be held monthly,

unless the bylaws provide otherwise.

Special meetings of the board of directors or trustees may be held at any time upon the call of the

president or as provided in the bylaws.

Meetings of directors or trustees of corporations may be held anywhere in or outside of the

Philippines, unless the bylaws provide otherwise. Notice of regular or special meetings stating the

date, time and place of the meeting must be sent to every director or trustee at least two (2) days

prior to the scheduled meeting, unless a longer time is provided in the bylaws. A director or trustee

may waive this requirement, either expressly or impliedly.

Directors or trustees who cannot physically attend or vote at board meetings can participate

and vote through remote communication such as videoconferencing, teleconferencing, or

other alternative modes of communication that allow them reasonable opportunities to

participate. Directors or trustees cannot attend or vote by proxy at board meetings.

A director or trustee who has a potential interest in any related party transaction must recuse from

voting on the approval of the related party transaction without prejudice to compliance with the

requirements of Section 31 of this Code.

14. CLOSE CORPORATIONS

SEC. 95. Definition and Applicability of Title. – A close corporation, within the meaning of this Code,

is one whose articles of incorporation provides that: (a) 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 exceeding twenty (20); (b) all the issued stock of all classes shall be subject to one or

more specified restrictions on transfer permitted by this Title; and (c) the corporation shall not list

in any stock exchange or make any public offering of its stocks of any class. Notwithstanding the

foregoing, a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of

its voting stock or voting rights is owned or controlled by another corporation which is not a close

corporation within the meaning of this Code.



Any corporation may be incorporated as a close corporation, except mining or oil companies, stock

exchanges, banks, insurance companies, public utilities, educational institutions and corporations

declared to be vested with public interest in accordance with the provisions of this Code.

The provisions of this Title shall primarily govern close corporations: Provided, That other Titles in

this Code shall apply suppletorily, except as otherwise provided under this Title.

-all of the stockholders in a close corporation are subject to the same liabilities of Directors.

15. ONE PERSON CORPORATION

ONE PERSON CORPORATIONS

SEC. 115. Applicability of Provisions to One Person Corporations. – The provisions of this Title shall primarily

apply to One Person Corporations. Other provisions of this Code apply suppletorily, except as otherwise

provided in this Title.

SEC. 116. One Person Corporation. – A One Person Corporation is a corporation with a single stockholder:

Provided, That only a natural person, trust, or an estate may form a One Person Corporation.

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:

Provided, further, 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.

SEC. 117. Minimum Capital Stock Required for One Person Corporation. – A One Person Corporation shall

not be required to have a minimum authorized capital stock except as otherwise provided by special law.

SEC. 118. Articles of Incorporation. – A One Person Corporation shall file articles of incorporation in

accordance with the requirements under Section 14 of this Code. It shall likewise substantially contain the

following:



(a) If the single stockholder is a trust or an estate, the name, nationality, and residence of the trustee,

administrator, executor, guardian, conservator, custodian, or other person exercising fiduciary duties

together with the proof of such authority to act on behalf of the trust or estate; and

(b) Name, nationality, residence of the nominee and alternate nominee, and the extent, coverage and

limitation of the authority.

SEC. 119. Bylaws. – The One Person Corporation is not required to submit and file corporate bylaws.

SEC. 120. Display of Corporate Name. – A One Person Corporation shall indicate the letters “OPC” either

below or at the end of its corporate name.

SEC. 121. Single Stockholder as Director, President. – The single stockholder shall be the sole director and

president of the One Person Corporation.

SEC. 122. Treasurer, Corporate Secretary, and Other Officers. – Within fifteen (15) days from the issuance of

its certificate of incorporation, the One Person Corporation shall appoint a treasurer, corporate secretary,

and other officers as it may deem necessary, and notify the

Commission thereof within five (5) days from appointment.

The single stockholder may not be appointed as the corporate secretary.

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: Provided, That the said stockholder/treasurer shall

undertake in writing to faithfully administer the One Person Corporation’s funds to be received as treasurer,

and to disburse and invest the same according to the articles of incorporation as approved by the

Commission. The bond shall be renewed every two (2) years or as often as may be required.

SEC. 123. Special Functions of the Corporate Secretary. – In addition to the functions designated by the One

Person Corporation, the corporate secretary shall:



(a) Be responsible for maintaining the minutes book and/or records of the corporation;

(b) Notify the nominee or alternate nominee of the death or incapacity of the single stockholder, which

notice shall be given no later than five (5) days from such occurrence;

(c) Notify the Commission of the death of the single stockholder within five (5) days from such occurrence

and stating in such notice the names, residence addresses, and contact details of

all known legal heirs; and

(d) Call the nominee or alternate nominee and the known legal heirs to a meeting and advise the legal heirs

with regard to, among others, the election of a new director, amendment of the articles of incorporation,

and other ancillary and/or consequential matters.

SEC. 124. Nominee and Alternate Nominee. – The single stockholder shall designate a nominee and an

alternate nominee who shall, in the event of the single stockholder’s death or incapacity, take the place of

the single stockholder as director and shall manage the corporation’s affairs.

The articles of incorporation shall state the names, residence addresses and contact details of the nominee

and alternate nominee, as well as the extent and limitations of their authority in managing the affairs of

the One Person Corporation.

The written consent of the nominee and alternate nominee shall be attached to the application for

incorporation. Such consent may be withdrawn in writing any time before the death or incapacity of the

single stockholder.

SEC. 125. Term of Nominee and Alternate Nominee. – When the incapacity of the single stockholder is

temporary, the nominee shall sit as director and manage the affairs of the One Person Corporation until

the stockholder, by self determination, regains the capacity to assume such duties.

In case of death or permanent incapacity of the single stockholder, the nominee shall sit as

director and manage the affairs of the One Person Corporation until the legal heirs of the single stockholder

have been lawfully determined, and the heirs have designated one of them or have agreed that the estate

shall be the single stockholder of the One Person Corporation.



The alternate nominee shall sit as director and manage the One Person Corporation in case of the nominee’s

inability, incapacity, death, or refusal to discharge the functions as director and manager of the corporation,

and only for the same term and under the same conditions applicable to the nominee.

SEC. 126. Change of Nominee or Alternate Nominee. – The single stockholder may, at any time, change its

nominee and alternate nominee by submitting to the Commission the names of the new nominees and their

corresponding written consent. For this purpose, the articles of incorporation need not be amended.

SEC. 127. Minutes Book. – A One Person Corporation shall maintain a minutes book which shall contain all

actions, decisions, and resolutions taken by the One Person Corporation.

SEC. 128. Records in Lieu of Meetings. – When action is needed on any matter, it shall be sufficient to prepare

a written resolution, signed and dated by the single stockholder, and recorded in the minutes book of the

One Person Corporation. The date of recording in the minutes book shall be deemed to be the date of the

meeting for all purposes under this Code.

SEC. 129. Reportorial Requirements. – The One Person Corporation shall submit the following within such

period as the Commission may prescribe:

(a) Annual financial statements audited by an independent certified public accountant: Provided, That if the

total assets or total liabilities of the corporation are less than Six Hundred Thousand Pesos (P600,000.00),

the financial statements shall be certified under oath by the corporation’s treasurer and president.

(b) A report containing explanations or comments by the president on every qualification, reservation, or

adverse remark or disclaimer made by the auditor in the latter’s report;

(c) A disclosure of all self-dealings and related party transactions entered into between the One Person

Corporation and the single stockholder; and

(d) Other reports as the Commission may require.



For purposes of this provision, the fiscal year of a One Person Corporation shall be that set forth in its

articles of incorporation or, in the absence thereof, the calendar year.

The Commission may place the corporation under delinquent status should the corporation fail to submit

the reportorial requirements three (3) times, consecutively or intermittently, within a period of five (5) years.

SEC. 130. Liability of Single Shareholder. – A sole shareholder claiming limited liability

has the burden of affirmatively showing that the corporation was adequately financed.

Where the single stockholder cannot prove that the property of the One Person Corporation is independent

of the stockholder’s personal property, the stockholder shall be jointly and severally liable for the debts and

other liabilities of the One Person Corporation.

The principles of piercing the corporate veil applies with equal force to One Person Corporations as with

other corporations.

SEC. 131. Conversion from an Ordinary Corporation to a One Person Corporation. – When a single

stockholder acquires all the stocks of an ordinary stock corporation, the latter may apply for conversion

into a One Person Corporation, subject to the submission of such documents as the Commission may

require. If the application for conversion is approved, the Commission shall issue a certificate of filing of

amended articles of incorporation reflecting the conversion. The One Person Corporation converted from

an ordinary stock corporation shall succeed the latter and be legally responsible for all the latter’s

outstanding liabilities as of the date of conversion.

SEC. 132. Conversion from a One Person Corporation to an Ordinary Stock Corporation. – A One Person

Corporation may be converted into an ordinary stock corporation after due notice to the Commission of

such fact and of the circumstances leading to the conversion, and after compliance with all other

requirements for stock corporations under this Code and

applicable rules. Such notice shall be filed with the Commission within sixty (60) days from the occurrence

of the circumstances leading to the conversion into an ordinary stock corporation. If all requirements have



been complied with, the Commission shall issue a certificate of filing of amended articles of incorporation

reflecting the conversion.

In case of death of the single stockholder, the nominee or alternate nominee shall transfer the shares to the

duly designated legal heir or estate within seven (7) days from receipt of either an affidavit of heirship or

self-adjudication executed by a sole heir, or any other legal document declaring the legal heirs of the single

stockholder and notify the Commission of the transfer. Within sixty (60) days from the transfer of the shares,

the legal heirs shall notify the Commission of their decision to either wind up and dissolve the One Person

Corporation or convert it into an ordinary stock corporation.

The ordinary stock corporation converted from a One Person Corporation shall succeed the latter and be

legally responsible for all the latter’s outstanding liabilities as of the date of conversion.

“ READ AND REREAD THE RCC FOR THE BAR. ONCE YOU TAKE THE BAR, WALA PANG SC

RULINGS ON THE RCC SO BETTER USE THE CODE.” -ATTY. GAPUZ

LAW ON TRANSPORTATION AND PUBLIC UTILITIES

Public Utilities include:

1. Telecommunications

2. Water



3. Railroads, Airports, Shipyards

4. Warehouses

5. Media

-The operation and management of which should only be granted to corporations or associations with

at least 60% Filipino shareholdings; 40% foreign.

Art. XII (National Economy and Patrimony), Sec. 11 of the Constitution provides that:

SECTION 11. No franchise, certificate, or any other form of authorization for the operation of a public

utility shall be granted except to citizens of the Philippines or to corporations or associations

organized under the laws of the Philippines at least sixty per centum of whose capital is owned by

such citizens, nor shall such franchise, certificate, or authorizati

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