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Sec. 2. Corporation defined. - A corporation is an artificial being created by operation of law, having the

right of succession and the powers, attributes and properties expressly authorized by law or incident to its

existence.

Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes

or series of shares, or both, any of which classes or series of shares may have such rights, privileges or

restrictions as may be stated in the articles of incorporation: Provided, That no share may be deprived of

voting rights except those classified and issued as "preferred" or "redeemable" shares, unless otherwise

provided in this Code: Provided, further, That there shall always be a class or series of shares which have

complete voting rights. Any or all of the shares or series of shares may have a par value or have no par

value as may be provided for in the articles of incorporation: Provided, however, That banks, trust

companies, insurance companies, public utilities, and building and loan associations shall not be

permitted to issue no-par value shares of stock.

Preferred shares of stock issued by any corporation may be given preference in the distribution of the

assets of the corporation in case of liquidation and in the distribution of dividends, or such other

preferences as may be stated in the articles of incorporation which are not violative of the provisions of

this Code: Provided, That preferred shares of stock may be issued only with a stated par value. The board

of directors, where authorized in the articles of incorporation, may fix the terms and conditions of

preferred shares of stock or any series thereof: Provided, That such terms and conditions shall be effective

upon the filing of a certificate thereof with the Securities and Exchange Commission.

Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the

holder of such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided;

That shares without par value may not be issued for a consideration less than the value of five (P5.00)pesos per share: Provided, further, That the entire consideration received by the corporation for its no-par

value shares shall be treated as capital and shall not be available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with

constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each

share shall be equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the

holders of such shares shall nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all

of the corporate property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

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6. Merger or consolidation of the corporation with another corporation or other

corporations;

7. Investment of corporate funds in another corporation or business in accordance withthis Code; and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular

corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights.

Rules regarding shares:

1) no share may be deprived of voting rights except those classified and issued as "preferred" or"redeemable" shares, unless otherwise provided in this Code.

2) That there shall always be a class or series of shares which have complete voting rights.3) Any or all of the shares or series of shares may have a par value or have no par value as may be

provided for in the articles of incorporation except:

a. Banksb. trust companiesc. insurance companiesd. public utilitiese. building and loan associations

4) preferred shares of stock may be issued only with a stated par value.5)

The board of directors, where authorized in the articles of incorporation, may fix the terms andconditions of preferred shares of stock or any series thereof: Provided, That such terms and

conditions shall be effective upon the filing of a certificate thereof with the Securities and

Exchange Commission.

6) Except as otherwise provided in the articles of incorporation and stated in the certificate of stock,each share shall be equal in all respects to every other share

7) Shares with par value when sold above their actual amount or at a premium, the excess does notbecome part of the capital

8) No-par value shares when issued are considered paid and shall form part of the capital of thecorporation and shall not be distributed as dividends

9) No par value shares can only be issued when the consideration thereof has been fully paid10)Where the articles of incorporation provide for non-voting shares in the cases allowed by this

Code, the holders of such shares shall nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all

of the corporate property;

4. Incurring, creating or increasing bonded indebtedness;

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5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or other

corporations;

7. Investment of corporate funds in another corporation or business in accordance with

this Code; and

8. Dissolution of the corporation

Series of shares

Refers to a subdivision of a class of shares

Doctrine of equality of shares

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock,

each share shall be equal in all respects to every other share

Capital Stock

Is the amount fixed in the AOI to be subscribed and paid in or agreed to be paid in by the SH of a

corporation, in money, property, services or other means at the organization of the corporation or

afterwards and upon which it is to conduct its business. It limits the maximum amount or numberof each shares that may be issued by the corporation without any formal amendment of the AOI

Authorized capital stock

Refers to the amount of capital stock specified in the AOI

Subscribed Capital stock

Is the amount of capital stock subscribed, whether fully paid or not.

Outstanding capital stock

Is the portion of the capital stock which is issued and held by persons other than the issuing

corporation itself

Paid up capital stock

Is that portion of the subscribed or outstanding capital stock that is actually paid

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Legal Capital

Is the amount equal to the aggregate par value and/or issued value of the outstanding capital stock

Certificate of stock

Is a written acknowledgment by the corporation of the interest, rights and participation of a

person in the management, profits and assets of a corporation. It is a formal written evidence of

the holders ownership of one or more shares and is a convenient instrument for the transfer of

title

The situs of the SS is the place where the issuing corporation is domiciled (place of the principal place of

business of the corporation), it being an intangible personal property, whereas the situs of COS is where it

is located since it is a tangible property and serves only as evidence of the existence of the SS of a SH

Situs of SS for certain pupose:

a) For purposes of execution, attachment or garnishment, domicile of the issuing corporationb) For taxation purposes the domicile or residence of the owner SH

Watered stock

Are SS which are issued less than par value

Statutory restrictions on issuing no-par value shares:

1) banks, trust companies, insurance companies, public utilities, and building and loan associationsshall not be permitted to issue no-par value shares of stock

2) preferred SS can only be issued with par value3) Shares of capital stock issued without par value shall be deemed fully paid and non-assessable

and the holder of such shares shall not be liable to the corporation or to its creditors in respect

thereto. (only means that the holder shall not be liable beyond the issued price notwithstanding a

change of their value

4) That shares without par value may not be issued for a consideration less than the value of five(P5.00) pesos per share

5) That the entire consideration received by the corporation for its no-par value shares shall betreated as capital and shall not be available for distribution as dividends

2 types of preferred SS

1) Preferred SS as to assets2) Preferred SS as to dividends

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SS cannot be issued with a fixed interest since it would transform the contract of subscription into a

contract of loan. Further a contract of subscription is an investment without any guarantee of payment

unless the venture is successful or in case of dissolution, to the remainder of the corporate assets only

after payment of corporate liabilities

effect guaranteed SS, does not render the SH a creditor of the corporation but has the effect only of

making the dividends cumulative, in the sense that once dividends are declared, the SH is paid the

dividends plus the the dividends he should have received in arrears.

Participating preferred Share

Gives the holder thereof the right to receive dividends ahead of the holders of common shares,

however the former has the right to receive a pro rata portion of the of the remaining profits after

all the holders of common shares are paid their dividends.

in the absence of an agreement, express or implied, dividends should be deemed non-cumulative and

non-participating in accordance with the presumption that all shares are equal in all respects

Sec. 7. Founders' shares. - Founders' shares classified as such in the articles of incorporation may be

given certain rights and privileges not enjoyed by the owners of other stocks, provided that where the

exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited

period not to exceed five (5) years subject to the approval of the Securities and Exchange Commission.

The five-year period shall commence from the date of the aforesaid approval by the Securities and

Exchange Commission.

Sec. 8. Redeemable shares. - Redeemable shares may be issued by the corporation when expressly so

provided in the articles of incorporation. They may be purchased or taken up by the corporation upon theexpiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of

the corporation, and upon such other terms and conditions as may be stated in the articles of

incorporation, which terms and conditions must also be stated in the certificate of stock representing said

shares.

Redeemable shares may be redeemed by the corporation even if there are no unrestricted retained

earnings however the corporation cannot redeem the said shares when it is insolvent or would render itself

insolvent since to allow the contrary would violate the trust fund doctrine

redemption of RSS is not obligatory nor mandatory on the part of the corporation but is entirely

discretionary upon it

redeemed shares are considered as retired and no longer issuable, unless otherwise provided in the AOI.

They may be considered as treasury shares only if provided in the AOI that they may be re-issued.

Sec. 9. Treasury shares. - Treasury shares are shares of stock which have been issued and fully paid for,

but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through

some other lawful means. Such shares may again be disposed of for a reasonable price fixed by the board

of directors.

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Treasury shares may be sold for less than par value or issue value without being considered as watered

stock since the corporation has already received their full value upon their initial issuance provided that

the such price is reasonable under the circumstances

treasury shares may only be recovered by the corporation using its URE

Sec. 10.Number and qualifications of incorporators. - Any number of natural persons not less than five

(5) but not more than fifteen (15), all of legal age and a majority of whom are residents of the Philippines,

may form a private corporation for any lawful purpose or purposes. Each of the incorporators of s stock

corporation must own or be a subscriber to at least one (1) share of the capital stock of the corporation.

Requisites of incorporation.incorporators:

1) Incorporators must be natural persons2)

not less than five (5) but not more than fifteen (15)

3) all of legal age4) a majority of whom are residents of the Philippines,5) may form a private corporation for any lawful purpose or purposes.6) Each of the incorporators of s stock corporation must own or be a subscriber to at least one (1)

share of the capital stock of the corporation

3 Steps in creation of a corporation:

1) Promotion2) Incorporation3) Formal organization and commencement of business operations

as a general rule, in the absence of a character or statutory provisions a corporation is not liable to the

promoters in respect for any payment in services rendered or expenses incurred before its incorporation in

promoting it. Unless after its incorporation it expressly agrees to make such payments or from other facts

the court can infer a new contract to reimburse

Contracts or obligations entered into by promoters does not ipso facto bind the corporation upon the

latters incorporation since when the obligation was contracted the corporation was not in existence yet.

However the corporation can be bound by such contracts provided that upon the latters incorporation it

expressly or impliedly adopts or ratifies the same. Further the contracts entered into by the promoter must

be within the powers or competence of the corporation in the sense that it may on its own accord enter

into such contract. Thus it cannot adopt or ratify contracts which are by its very nature ultra vires.

Underwriting

The act or process of guaranteeing the distribution and sale of any kind of securities issued by

another corporation.

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Types of underwriting agreement:

1) Members of the underwriter makes a firm commitment under which the member severally but not jointly agree to purchase the whole issue outright at a particular price for resale at a pricedifferential to the public, or to dealers who sell at another differential to the public

2) The underwrite makes an all or nothing commitment which they agree to accept liability for thepurchase of an issue for a given price only if the entire issue is not sold

3) Making a standby commitment or rights offering under which it will purchase and distribute atpredetermined prices to the public any amount of the issue not taken by the SH in the exercise of

the latters pre-emptive rights

4)

The underwriter may make a best effort commitment to distribute the issue to the public.

Steps in incorporating:

1) Drafting and the execution of the AOI and all other documents required for registration of thecorp

2) Filling of the AOI with the SEC together with the following docs:a. Treasurers affidavit in the form prescribed by the code, showing atleast 25% of the

entire authorized capital stock has been subscribed and at least 25% of the cubscription

has been paid in cash and/or property to the corporation

3) Payment of the filing and publication fees4) With respect to corporations which special laws governs over, compliance with the requirements

of that special law.

5) Issuance of the SEC of the Certificate of IncorporationWhere the formation of a corporation is not governed by special laws, the same may be

incorporated when it has substantially complied with requirements of the law. Where there is

substantial compliance with the legal requirements, the registration of the proposed corporation

becomes a matter of right.

If the number of incorporators exceed 15, the excess are not considered as incorporators

Exception to the rule that only natural persons may create or incorporate a corporation is foun inthe section 4 of RA 7353 (Rural Bank Act of 1992) provides that duly established cooperatives

and corporation primarily organized to hold equities in rural banks may organized rural banks

and/or subscrib to the SS of any rural bank

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The minimum number of incorporators may be lessened only after the corporation has been

incorporated provided that there is no reason to pierce the veil of corporate existence

Sec. 11. Corporate term. - A corporation shall exist for a period not exceeding fifty (50) years from the

date of incorporation unless sooner dissolved or unless said period is extended. The corporate term as

originally stated in the articles of incorporation may be extended for periods not exceeding fifty (50) years

in any single instance by an amendment of the articles of incorporation, in accordance with this Code;

Provided, That no extension can be made earlier than five (5) 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

Securities and Exchange Commission.

Sec. 12.Minimum capital stock required of stock corporations. - Stock corporations incorporated under

this Code shall not be required to have any minimum authorized capital stock except as otherwise

specifically provided for by special law, and subject to the provisions of the following section.

Filipino percentage ownership requirement:

1) Corporation for exploration, development and utilization of natural resourcesa. Atleast 60% of outstanding capital stock

2) Public service corporationa. Atleast 60% of outstanding capital stockb. All executive and managing officers of such corporation must be Filipino citizens

3) Educational corporationa. Atleast 60% of outstanding capital stockb. The control and administration of educational institution shall be vested in Filipinos

4)

Banking corporationsa. Atleast 60% of outstanding capital stock

5) Corporation engaged in retail tradea. Wholly owned by Filipinos

6) Rural banksa. Wholly owned by filipinos

7) Corporations engaged in mass media and advertising industrya. Mass media= wholly ownedb. Advertising 70%c. All executive and managing officers of such corporation must be Filipino citizens

8) Corporations engaged in coastwise shippinga. Atleast 60% of outstanding capital stock

9) Financing corporationsa. Atleast 60% of outstanding capital stock

10)Pawnshopsa. 70%

11)Corp engaged in the recruitment and placement of workers locally or overseasa. 75%

12)Corp engaged in the operation of private detective, watchman or security guards agenciesa. 100%

13)Under the flag law

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a. In the purchase of articles for the GOVt, preference shall be given to materials andsupplies produced, made or manufactured in the Philippines and to domestic corporations

(75%)

Sec. 13.Amount of capital stock to be subscribed and paid for the purposes of incorporation. - At least

twenty-five percent (25%) of the authorized capital stock as stated in the articles of incorporation must be

subscribed at the time of incorporation, and at least twenty-five (25%) per cent of the total subscription

must be paid upon subscription, the balance to be payable on a date or dates fixed in the contract of

subscription without need of call, or in the absence of a fixed date or dates, upon call for payment by the

board of directors: Provided, however, That in no case shall the paid-up capital be less than five Thousand

(P5,000.00) pesos.

Sec. 14. Contents of the articles of incorporation. - All corporations organized under this code shall filewith the Securities and Exchange Commission articles of incorporation in any of the official languages

duly signed and acknowledged by all of the incorporators, containing substantially the following matters,

except as otherwise prescribed by this Code or by special law:

1. The name of the corporation;

2. The specific purpose or purposes for which the corporation is being incorporated.Where a corporation has more than one stated purpose, the articles of incorporation shall

state which is the primary purpose and which is/are he secondary purpose or purposes:

Provided, That a non-stock corporation may not include a purpose which would change

or contradict its nature as such;

3. The place where the principal office of the corporation is to be located, which must be

within the Philippines;

4. The term for which the corporation is to exist;

5. The names, nationalities and residences of the incorporators;

6. The number of directors or trustees, which shall not be less than five (5) nor more than

fifteen (15);

7. The names, nationalities and residences of persons who shall act as directors or trusteesuntil the first regular directors or trustees are duly elected and qualified in accordance

with this Code;

8. If it be a stock corporation, the amount of its authorized capital stock in lawful money

of the Philippines, the number of shares into which it is divided, and in case the share are

par value shares, the par value of each, the names, nationalities and residences of the

original subscribers, and the amount subscribed and paid by each on his subscription, and

if some or all of the shares are without par value, such fact must be stated;

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9. If it be a non-stock corporation, the amount of its capital, the names, nationalities and

residences of the contributors and the amount contributed by each; and

10. Such other matters as are not inconsistent with law and which the incorporators maydeem necessary and convenient.

The Securities and Exchange Commission shall not accept the articles of incorporation of any stock

corporation unless accompanied by a sworn statement of the Treasurer elected by the subscribers showing

that at least twenty-five (25%) percent of the authorized capital stock of the corporation has been

subscribed, and at least twenty-five (25%) of the total subscription has been fully paid to him in actual

cash and/or in property the fair valuation of which is equal to at least twenty-five (25%) percent of the

said subscription, such paid-up capital being not less than five thousand (P5,000.00) pesos.

Sec. 16. Amendment of Articles of Incorporation. - Unless otherwise prescribed by this Code or by

special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation

may be amended by a majority vote of the board of directors or trustees and the vote or written assent of

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

to the appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the

vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation.

The original and amended articles together shall contain all provisions required by law to be set out in the

articles of incorporation. Such articles, as amended shall be indicated by underscoring the change or

changes made, and a copy thereof duly certified under oath by the corporate secretary and a majority of

the directors or trustees stating the fact that said amendment or amendments have been duly approved by

the required vote of the stockholders or members, shall be submitted to the Securities and Exchange

Commission.

The amendments shall take effect upon their approval by the Securities and Exchange Commission or

from the date of filing with the said Commission if not acted upon within six (6) months from the date of

filing for a cause not attributable to the corporation.

Nature of a corporate Charter:

1) A contract between the State and the Corp2) A contract between the Corp and the SH3) Contract between the SH enter se

Generally a meeting need not be called for the purpose of voting for the proposed amendments since

a written assent of 2/3 of the OCS is sufficient however amendments extending, shortening the

corporate term and the increase or decrease of the capital stock requires the meeting of the SH for that

purpose is necessary

Limitations on the power to amend:

1) Amendments of any provision stated in the AOI of incorporation is not allowed when it will becontrary to any provision of law and must not alter facts which are fait accomplii

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2) The proposed amendment must be for a legitimate purpose3) It must be approved by the required vote of the BOD and the SH/members4) The proposed amendments must be indicated by underscoring the change or changes made and a

copy of which is duly certified under oath by the corporate secretary and majority of the BOD,

stating that the amendments or amendments have been duly approved by the required votes of the

SH/Members and filed with the SEC and all filing fees must be paid

5) Amendments shall take effect only upon approval by the SEC. The proposed amendments aredeemed approved if not acted upon by the SEC within 6 months from the date of filing for a

cause not attributable to the corporation, assuming the amendments are not illegal

6) The AOI and the amended AOI must contain all the provisions or matters required by law to becontained in the AOI

7) If the corporation is governed by special laws, the amendments must be accompanied by thefavourable recommendation of the appropriate government agency to the effect that such

amendments are in accordance with law. (sec 17)

Sec. 17. Grounds when articles of incorporation or amendment may be rejected or disapproved. - The

Securities and Exchange Commission may reject the articles of incorporation or disapprove any

amendment thereto if the same is not in compliance with the requirements of this Code: Provided, That

the Commission shall give the incorporators a reasonable time within which to correct or modify the

objectionable portions of the articles or amendment. The following are grounds for such rejection or

disapproval:

1. That the articles of incorporation or any amendment thereto is not substantially in

accordance with the form prescribed herein;

2. That the purpose or purposes of the corporation are patently unconstitutional, illegal,immoral, or contrary to government rules and regulations;

3. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or

paid if false;

4. That the percentage of ownership of the capital stock to be owned by citizens of the

Philippines has not been complied with as required by existing laws or the Constitution.

No articles of incorporation or amendment to articles of incorporation of banks, banking and quasi-

banking institutions, building and loan associations, trust companies and other financial intermediaries,

insurance companies, public utilities, educational institutions, and other corporations governed by special

laws shall be accepted or approved by the Commission unless accompanied by a favorable

recommendation of the appropriate government agency to the effect that such articles or amendment is in

accordance with law.

Grounds for suspension or revocation of certificate of registration under PD 902-A

1) Fraud in procirring its certificate of incorporations2) Serious misrepresentation as to what the corporation can do or is doing to the great prejudice of,

or damage to, the general public

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3) Refusal to comply or defiance to a lawful order of the SEC restraining the commission of actswhich would amount to a grave violation of its franchise.

4) Continous inoperation for a period of at least 5 years (sec 22)5) Failure to file by-laws within the required period6) Failure to file required reports in appropriate forms as determined by the SEC within the

prescribed period

Sec. 18. Corporate name. - No corporate name may be allowed by the Securities and Exchange

Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing

corporation or to any other name already protected by law or is patently deceptive, confusing or contrary

to existing laws. When a change in the corporate name is approved, the Commission shall issue an

amended certificate of incorporation under the amended name.

Test of infringement

Whether the similarity of such names as to mislead a person using ordinary care and

discrimination and the courts must look into the records as well as the names themselves? Proof

of actual confusion is not required.

Doctrine of secondary meaning

A word or phrase originally incapable of exclusive appropriation with reference to an article on

the market, because of geographically or otherwise descriptive, might nevertheless have been

used so long and so exclusively by one producer with reference to his article that, in that trade

and to that branch of the purchasing public, the word or phrase has come to mean that the article

was his product

Remedies of a corporation for infringement:

1) Injuction2) Deregistration

An abandoned name cannot be appropriated or used by another corporation for a period of fice

years to avoid confusion and to protect the goodwill of the former corporation, where the saidname continuous to be associated with the corporation.

Names of the merged or consolidated corporation, the corporate names of the corporations

involved may not be used by another corporation without the consent of the surviving corporation

despite the fact of dissolution of the merged or consolidated corporation

When the abandonment of the corporate name results from the dissolution of the corporation

through the expiration of its corporate term, the said abandoned name may be used by another

corporation

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Sec. 19. Commencement of corporate existence. - A private corporation formed or organized

under this Code commences to have corporate existence and juridical personality and is deemed

incorporated from the date the Securities and Exchange Commission issues a certificate of

incorporation under its official seal; and thereupon the incorporators, stockholders/members and

their successors shall constitute a body politic and corporate under the name stated in the articles

of incorporation for the period of time mentioned therein, unless said period is extended or the

corporation is sooner dissolved in accordance with law.

A cooperative acquires juridical personality upon registration with the cooperatives development

authority (RA 6938 sec 16)

Sec. 20.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.

De Jure Corporation

Is one created in strict and substantial conformity with the mandatory statutory requirements for

its incorporation and the right of which to exist as a corporation cannot be successfully attacked

or questioned by any party even in a direct proceeding by the State.

De Facto Corporation

It is one which has not complied with all the requirements necessary to be a de jure corporation

but has complied sufficiently to be accorded corporate status as against third parties although not

against the State.

Requisites of a De Facto Corporation

1) A valid law under which a corporation with powers assumed might be incorporated2) Bona fide attempt to organize a corporation under such law3) Actual use or exercise in good faith of corporate powers conferred upon it by law in good faith

Effect of De facto Corporations is that the SH of the said De Facto corporation enjoy the same

exemption from personal liability for corporate obligations as do SH of De jure Corporation

Examples which precludes the creation of even a de facto corporations:

1) Absence of AOI2) Failure to file AOI with the SEC3) Lack of COI from the SEC

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Situations which results to the creation of a De Facto Corporation:

a) The AOI fails to state all the matters required by law to be stated, or they stated incorrectlyb) The name of the corporation closely resembles that of a pre-existing corporation that it will tend

to deceive the public

c) The incorporators or a certain number of them are not residents of the Philippinesd) The acknowledgment of the AOI or COI is insufficient or defective in form, or it was

acknowledge before the wrong officer

e) The percentage of Filipino ownership of the capital stock required for the business is less thanthat prescribed by law

f) The minimum paid-up capital stock has not been paid to and received by the corporate treasurercontrary to his affidavit

g) Failure to submit its by-laws on timeThe existence of a de facto corporation can only be attacked directly by a quo warranto suit instituted by

the Government through its sol gen

Sec. 21. 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 as a defense its lack of corporate personality.

On who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on

the ground that there was in fact no corporation.

In order for a third party to be estopped from denying the existence of a corporation, such third person

must have transacted with the latter as a corporation, except in cases where the third person was induced

to enter into the same contract through the fraud employed by the corporation by handing itself out as a de

facto or de jure corporation

The SH of a corporation by estoppel are as a general rule not liable as partners to another even if he has

obtain benefits therein, unless he had knowledge of the facts informing him that the said corporation was

in fact non-existent

Sec. 22.Effects on non-use of corporate charter and continuous inoperation of a corporation.- If a

corporation does not formally organize and commence the transaction of its business or the constructionof its works within two (2) years from the date of its incorporation, its corporate powers cease and the

corporation shall be deemed dissolved. However, if a corporation has commenced the transaction of its

business but subsequently becomes continuously inoperative for a period of at least five (5) years, the

same shall be a ground for the suspension or revocation of its corporate franchise or certificate of

incorporation.

This provision shall not apply if the failure to organize, commence the transaction of its businesses or the

construction of its works, or to continuously operate is due to causes beyond the control of the

corporation as may be determined by the Securities and Exchange Commission.

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The dissolution contemplated under section, as opined by the SEC, is not automatic but requires

a lawful declaration of revocation by the SEC in order to comply with paragraph 2 of Section 22

A corporation shall be considered to have commenced the transaction of its business when it hasperformed preparatory acts geared toward the fulfilment of the purpose for which it was

established

Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the corporate

powers of all corporations formed under this Code shall be exercised, all business conducted and all

property of such corporations controlled and held by the board of directors or trustees to be elected from

among the holders of stocks, or where there is no stock, from among the members of the corporation, who

shall hold office for one (1) year until their successors are elected and qualified.

Every director must own at least one (1) share of the capital stock of the corporation of which he is a

director, which share shall stand in his name on the books of the corporation. Any director who ceases tobe the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall

thereby cease to be a director. Trustees of non-stock corporations must be members thereof. a majority of

the directors or trustees of all corporations organized under this Code must be residents of the Philippines.

Only acts approved or directed by the BOD can bind the corporation as it is the governing body. Thus a

resolution adopted by SH at a meeting repudiating or refusing to recognize a corporate contract effected

with the approval or direction of the BOD is without legal effect. Nonetheless SH have other remedies

provided by law, assuming all conditions are present, such as to institute a derivative suit.

Business Judgment Rule

Courts cannot undertake to control the discretion of the BOD about administrative matters as to

which they have legitimate power of action, and contracts intra vires entered into by the BOD are

binding upon the corporation and courts will not interfere unless such contracts are so

unconscionable and oppressive as to amount to a wanton destruction of the rights of the minority

In a close corporation it may be stipulated that the management of the business shall be entrusted to the

SHs

The powers or authority of the BOD are not delegated by the SH but are conferred by statute as such the

formers acts, if made within the competence of a corporation, cannot be challenged by SHs except incases where approval by the SHs are required by law or in cases where a derivative suit is justified

Limitations on the powers of the BOD:

1) Limitations or restrictions imposed by the constitution, laws, statutes, the AOI and its by laws2) It cannot perform constituent acts, that is, acts involving fundamental change in the corporation

which require the approval or ratification by the SH or MR

3) The BOD cannot exercise powers not possessed by the corporation

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The BOD in order to binf the corporation must act as a body in a meeting with sufficient quorum except

in:

1) When the directors are the sole SH2) Contracts entered into by a corporate officer such as the general manager, authorized by the BOD

either expressly or impliedly, to bind it by contract. Implied authorization may be implied from

the fact that previous approval was given by the BOD over matters which are of common practice

or done in the ordinary course of their business

3) Those contracts which are subsequent express or implied ratification of the BOD. Such authorityretroacts to the execution of the contract concerned and is therefore considered as an original

authorization

4) The corporation is bound by the acts of one of its directors or agents when they were held out tothe public as possessing such powers to bind the corporation by means of estoppels

5)

By means of an executive committee created by the Bu-laws6) In cases where the management of the corporate affairs has been delegated to another corporationprovided all the conditions required by Section 44 has been complied with

7) In cases of close corporations, any actions by the directors without a meeting or at a meetingimproperly held, shall unless the by-laws otherwise provides, be deemed valid or ratified in the

cases mentioned in section 101

Limitations on the power of the BOD to delegate its powers:

1) Discretionary powers which by provision of law or by-laws or by the vote of the SH, are vestedexclusively with the BOF or are especially delegated to them cannot be delegated to subordinate

officers and agents

2) The BOD cannot delegate all its powers of supervision or control to another, this is anchoredunder the logic that it is the necessities of business which authorizes the BOD to delegate its

powers since it is both unnecessary and contrary to usage. Further it is contrary to section 23 of

the CC which requires that all powers shall be exercised by the BOD

Qualifications of a directors

1) Every director must own at least one SS2) The SS must be registered in his name on the books of the corporation3) Every director must continuously own at least 1 SS during his term; otherwise he shall

automatically ceased to be a director

4) Majority of the BOD must be residents of the PhilippinesOnly Natural person may become a director. Except when a member/SH corporation via a board

resolution designate a representative to sit in anothers board

Holder of legal title vs beneficial owner

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Ownership over a SS is deemed complied with so long as the director concerned has legal title over the

said SS in the sense that he is the owner of the SS in the cooks of the corporation even though the

beneficial owner of the said stock be a different person

The controlling point to determine whether a director has complied with the ownership requirement is

that he must own the legal title of a SS before he enters the duties of his office

Additional requirements or qualifications maybe required by the by-laws provided that the said

additional qualifications are not in conflict with the requirements of law

Sec. 24.Election of directors or trustees. - At all elections of directors or trustees, there must be present,

either in person or by representative authorized to act by written proxy, the owners of a majority of the

outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote.The election must be by ballot if requested by any voting stockholder or member. In stock corporations,

every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares

of stock standing, at the time fixed in the by-laws, in his own name on the stock books of the corporation,

or where the by-laws are silent, at the time of the election; and said stockholder may vote such number of

shares for as many persons as there are directors to be elected or he may cumulate said shares and give

one candidate as many votes as the number of directors to be elected multiplied by the number of his

shares shall equal, or he may distribute them on the same principle among as many candidates as he shall

see fit: Provided, That the total number of votes cast by him shall not exceed the number of shares owned

by him as shown in the books of the corporation multiplied by the whole number of directors to be

elected: Provided, however, That no delinquent stock shall be voted. Unless otherwise provided in the

articles of incorporation or in the by-laws, members of corporations which have no capital stock may cast

as many votes as there are trustees to be elected but may not cast more than one vote for one

candidate. Candidates receiving the highest number of votes shall be declared elected. Any meeting of

the stockholders or members called for an election may adjourn from day to day or from time to time but

not sine die or indefinitely if, for any reason, no election is held, or if there not present or represented by

proxy, at the meeting, the owners of a majority of the outstanding capital stock, or if there be no capital

stock, a majority of the member entitled to vote.

In determining whether the majority of the OCS are present, all stocks are counted including those which

have no right to vote, and majority of which shall be sufficient, although the non-voting stock shall not be

voted for (section 137)

Delinquent stock is not included in determining the existence of the required quorum

Notice as required by section 50 must be complied with

Actual election of the directors is mandatory mere designation of the directors held at a meeting by the

SH is not sufficient

Sec. 25. Corporate officers, quorum. - Immediately after their election, the directors of a corporation

must formally organize by the election of a president, who shall be a director, a treasurer who may or may

not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers

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as may be provided for in the by-laws. Any two (2) or more positions may be held concurrently by the

same person, except that no one shall act as president and secretary or as president and treasurer at the

same time.

The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and

the by-laws of the corporation. Unless the articles of incorporation or the by-laws provide for a greater

majority, a majority of the number of directors or trustees as fixed in the articles of incorporation shall

constitute a quorum for the transaction of corporate business, and every decision of at least a majority of

the directors or trustees present at a meeting at which there is a quorum shall be valid as a corporate act,

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

board.

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

Corporate officers are those officers considered as such by the corporation code or by the by-laws. The

By-laws may empower the board to create such other corporate position as may be necessary for it to

conduct its business

In the absence of a provision in the AOI or BL, the term of corporate officers is one year this is implied

by section 25 when it provided the first sentence of the said section. However section 47 (7) allows the

corporation to provide in its BL the term of its corporate officers which may be longer than 1 year. If no

term is provided a corporate office may be removed from office with or without cause at the pleasure of

the bBOD however such removal must not be exercised in bad faith or in such a manner as to work

injustice. On the other hand if the term is specified or if there is an employment contract the corporate

officer concerned must be re-elected by the BOD concerned until the expiration of the term, otherwise the

corporation maybe held liable for damages

Positions which are prohibited to concurrently held:

1) President and treasurer2) President and corporate secretary

Election or appointment as a corporate officer must be accepted by the latter. No other requirements are

demanded from a corporate officer aside from those provided by law unless the by-laws provides for

otherwise

Since the president is required by law to be a director, the moment that he ceases to be a director he

automatically ceases to be president due to lack of qualification

Requisites of a board Meeting:

1) The meeting of the BOD or BOT duly assembled as a board2) Presence of the required quorum3) Decision of the majority of the quorum or in some instance of the entire board

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4) Meeting at the place, time and manner provided in the by-laws.Quorum

Is the majority of the number of directors provided in the AOI of BL.

Directors or member of BOT cannot act through proxy since they are elected presumably because of

their personal qualifications

Section 26. Report of election of directors, trustees and officers.- Within thirty (30) days after the

election of the directors, trustees and officers of the corporation, the secretary, or any other officer of the

corporation, shall submit to the Securities and Exchange Commission, the names, nationalities and

residences of the directors, trustees, and officers elected. Should a director, trustee or officer die, resign or

in any manner cease to hold office, his heirs in case of his death, the secretary, or any other officer of the

corporation, or the director, trustee or officer himself, shall immediately report such fact to the Securitiesand Exchange Commission.

Sec. 27.Disqualification of directors, trustees or officers. - No person convicted by final judgment of an

offense punishable by imprisonment for a period exceeding six (6) years, or a violation of this Code

committed within five (5) years prior to the date of his election or appointment, shall qualify as a

director, trustee or officer of any corporation.

Sec. 28.Removal of directors or trustees. - Any director or trustee of a corporation may be removed from

office by a vote of the stockholders holding or representing at least two-thirds (2/3) of the outstanding

capital stock, or if the corporation be a non-stock corporation, by a vote of at least two-thirds (2/3) of the

members entitled to vote: Provided, That such removal shall take place either at a regular meeting of the

corporation or at a special meeting called for the purpose, and in either case, after previous notice to

stockholders or members of the corporation of the intention to propose such removal at the meeting. A

special meeting of the stockholders or members of a corporation for the purpose of removal of directors

or trustees, or any of them, must be called by the secretary on order of the president or on the written

demand of the stockholders representing or holding at least a majority of the outstanding capital stock, or,

if it be a non-stock corporation, on the written demand of a majority of the members entitled to vote.

Should the secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give

the notice, or if there is no secretary, the call for the meeting may be addressed directly to the

stockholders or members by any stockholder or member of the corporation signing the demand. Notice of

the time and place of such meeting, as well as of the intention to propose such removal, must be given by

publication or by written notice prescribed in this Code. Removal may be with or without cause:Provided, That removal without cause may not be used to deprive minority stockholders or members of

the right of representation to which they may be entitled under Section 24 of this Code.

The removal of a director who was elected via cumulative voting or who is the representative of the

minority SH cannot be effected without cause. The above stated rule is not applicable when it is the

minority SH who initiated the removal process

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3 Requisites for removal of a director:

1) The removal must take place either at a regular meeting of the Corp or at a special meeting calledfor the purpose

2) There must be previous notice to the stockholders or members of the corporation of the intentionto propose such removal at the meeting

3) The removal must be by vote of the SH representing 2/3 of the OCS, or if the Corporation be anon-stock corporation, by a vote of 2/3 of the members entitled to vote.

Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board of

directors or trustees other than by removal by the stockholders or members 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 in a regular or

special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be

elected only or the unexpired term of his predecessor in office.

A 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.

The following vacancies must be filled by SH:

1) If the vacancy results from the removal by the SH/MR or upon expiration of the term2) If vacancies occurs other than by removal or expiration of the term provided the remaining

members of the BOD or BOT is insufficient to constitute a quorum

3) When the BOD or BOT can fill the vacancy but they referred the matter to the SH/MR4) If the vacancy resulted from the increase in the number of directors

The provision allowing the remaining members of the BOT or BOD to fill in vacancies is merely

permissive and may overruled by a provision in the BL requiring that such vacancies be filled in by the

SH

Sec. 30. Compensation of directors. - In the absence of any provision in the by-laws fixing theircompensation, the directors shall not receive any compensation, as such directors, except for reasonable

pre diems: Provided, however, That any such compensation other than per diems may be granted to

directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at

a regular or special stockholders' meeting. In no case shall the total yearly compensation of directors, as

such directors, exceed ten (10%) percent of the net income before income tax of the corporation during

the preceding year.

Sec. 31.Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly

vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad

faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict

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with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting

therefrom suffered by the corporation, its stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interestadverse to the corporation in respect of any matter which has been reposed in him in confidence, as to

which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the

corporation and must account for the profits which otherwise would have accrued to the corporation.

Instances where the directors or trustees are personally liable for official acts:

1) When they exceeded their authority2) When he wilfully and knowingly votes or assents to patently unlawful acts of the corporation3) He is guilty of gross negligence or bad faith in directing the affairs of the corporation4) He acquires any personal or pecuniary interest in conflict with his duty as such D/TIn the above instances the erring D/T is liable jointly and severally for all damages resulting

therefrom suffered by the Corp, its SH/MR or other persons (sec 65)

5) When he consents to the issuance of watered stock or who, having knowledge thereof, does notforthwith file his written objection thereto

6) When he is made by a specific provision of law to personally answer for his corporate actions7) When he agrees to hold himself personally and solidarily liable with the corporation.

Sec. 32.Dealings of directors, trustees or officers with the corporation. - A contract of the corporationwith one or more of its directors or trustees or officers is voidable, at the option of such corporation,

unless all the following conditions are present:

1. That the presence of such director or trustee in the board meeting in which the contract was approved

was not necessary to constitute a quorum for such meeting;

2. That the vote of such director or trustee was not necessary for the approval of the contract;

3. That the contract is fair and reasonable under the circumstances; and

4. That in case of an officer, the contract has been previously authorized by the board of directors.

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a

contract with a director or trustee, such contract may be ratified by the vote of the stockholders

representing at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the

members in a meeting called for the purpose: Provided, That full disclosure of the adverse interest of

the directors or trustees involved is made at such meeting: Provided, however, That the contract is

fair and reasonable under the circumstances.

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Exceptions on the voidability of contracts in self dealing D.T or officers

1) All the requisites mentioned in section 32 are present2) When the BOD does not question the validity of the contract, subject to the liability of the self

dealing D/T/O and further subject of to the right of a SH to institute a derivative suit

3) When the contract is fair and reasonable and it has been duly ratified by a 2/3 vote of the OCS orof the members in a meeting called for that purpose. As an additional requirement, in the case of

self dealing officers, the contract with the officer has been previously authorized by the BOD or

BOT

Sec. 33. Contracts between corporations with interlocking directors. - Except in cases of fraud, and

provided the contract is fair and reasonable under the circumstances, a contract between two or more

corporations having interlocking directors shall not be invalidated on that ground alone: Provided, That ifthe interest of the interlocking director in one corporation is substantial and his interest in the other

corporation or corporations is merely nominal, he shall be subject to the provisions of the preceding

section insofar as the latter corporation or corporations are concerned.

Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered

substantial for purposes of interlocking directors.

Requisites of a valid contract between Corporations with interlocking D/T

1) There is no fraud2)

That the contract is fair and reasonable under the circumstances

Requisites in order the rules on self dealing D/T apply to contracts between corporations having

interlocking directors:

1) The D/T has substantial interest in one of the corporations (more than 20% of the OCS)2) That the said D/T has a nominal interest in the other corporation

Sec. 34. Disloyalty of a director.- Where a director, by virtue of his office, acquires for himself a

business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of

such corporation, he must account to the latter for all such profits by refunding the same, unless his act

has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of theoutstanding capital stock. This provision shall be applicable, notwithstanding the fact that the director

risked his own funds in the venture.

Corporate Opportunity Doctrine

Where a director, by virtue of his office, acquires for himself a business opportunity which should

belong to the corporation, thereby obtaining profits to the prejudice of such corporation, he

must account to the latter for all such profits by refunding the same, unless his act has been

ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the

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outstanding capital stock. This provision shall be applicable, notwithstanding the fact that the

director risked his own funds in the venture.

Sec. 35. Executive committee.- The by-laws of a corporation may create an executive committee,composed of not less than three members of the board, to be appointed by the board. Said committee may

act, by majority vote of all its members, on such specific matters within the competence of the board, as

may be delegated to it in the by-laws or on a majority vote of the board, except with respect to: (1)

approval of any action for which shareholders' approval is also required; (2) the filing of vacancies in the

board; (3) the amendment or repeal of by-laws or the adoption of new by-laws; (4) the amendment or

repeal of any resolution of the board which by its express terms is not so amendable or repealable; and (5)

a distribution of cash dividends to the shareholders.

The authority to create an executive committee must expressly be provided in the by-laws otherwise the

created committee is at best considered as de facto officers

Non members of the BOD or BOT maybe appointed as members of the executive committee provided

that atleast 3 members of the EC are D/T

Sec. 36. Corporate powers and capacity. - Every corporation incorporated under this Code has the power

and capacity:

1. To sue and be sued in its corporate name;

2. Of succession by its corporate name for the period of time stated in the articles of

incorporation and the certificate of incorporation;

3. To adopt and use a corporate seal;

4. To amend its articles of incorporation in accordance with the provisions of this Code;

5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal

the same in accordance with this Code;

6. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to

subscribers and to sell treasury stocks in accordance with the provisions of this Code; and

to admit members to the corporation if it be a non-stock corporation;

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage andotherwise deal with such real and personal property, including securities and bonds of

other corporations, as the transaction of the lawful business of the corporation may

reasonably and necessarily require, subject to the limitations prescribed by law and the

Constitution;

8. To enter into merger or consolidation with other corporations as provided in this Code;

9. To make reasonable donations, including those for the public welfare or for hospital,charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation,

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domestic or foreign, shall give donations in aid of any political party or candidate or for

purposes of partisan political activity;

10. To establish pension, retirement, and other plans for the benefit of its directors,trustees, officers and employees; and

11. To exercise such other powers as may be essential or necessary to carry out its

purpose or purposes as stated in the articles of incorporation.

Doctrine of limited capacity:

A corporation has only such powers as are expressly granted or those which are incidental to its existence,

3 classes of corporate powers:

1) Those expressly granted or authorized by law2) Those that are necessary to the exercise of the express or incidental powers3) Those incidental/inherent to its existence

Classification of implied powers:

1) Acts in the usual course of business2) Acts to protect debts owing to a corporation3)

Embarking in different business

4) Acts in part or wholly to protect or aid employees5) Acts to increase business

Test whether the power exercised is implied or ultra vires

Whether the power exercised are fairly incidental to the former and reasonably necessary to carry

lawful objective of the corporation.

Incidental/inherent Powers

Are powers which a corporation can exercise by the mere fact of its being a corporation or

powers which are necessary to corporate existence.

In construing charters to determine powers of corporation, it is well settled, as in other cases of

legislative grants, are construed strictly agains

The requirement of use of corporate seal on COS is merely directory

property obtained by a corporation which is foreign to the purposes for which it was organized is an

unlawful acquisition

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When a corporation subscribes to a share in another corporation it is required to pay its subscription in

full.

Limitations on the power of a Corp to donate

1) The amount donated must be reasonable2) The donation must not be in aid of any political party or candidate or for purposes of partisan

political activity.

Sec. 37.Power to extend or shorten corporate term. - A private corporation may extend or shorten its

term as stated in the articles of incorporation when approved by a majority vote of the board of directors

or trustees and ratified at a meeting by the stockholders representing at least two-thirds (2/3) of the

outstanding capital stock or by at least two-thirds (2/3) of the members in case of non-stock corporations.

Written notice of the proposed action and of the time and place of the meeting shall be addressed to each

stockholder or member at his place of residence as shown on the books of the corporation and depositedto the addressee in the post office with postage prepaid, or served personally: Provided, That in case of

extension of corporate term, any dissenting stockholder may exercise his appraisal right under the

conditions provided in this code. (n)

The appraisal right is also available to a dissenting SH to the proposition of shortening the corporate

term

Sec. 38.Power to increase or decrease capital stock; incur, create or increase bonded indebtedness. -

No corporation shall increase or decrease its capital stock or incur, create or increase any bonded

indebtedness unless approved by a majority vote of the board of directors and, at a stockholder's meeting

duly called for the purpose, two-thirds (2/3) of the outstanding capital stock shall favor the increase ordiminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness.

Written notice of the proposed increase or diminution of the capital stock or of the incurring, creating, or

increasing of any bonded indebtedness and of the time and place of the stockholder's meeting at which the

proposed increase or diminution of the capital stock or the incurring or increasing of any bonded

indebtedness is to be considered, must be addressed to each stockholder at his place of residence as shown

on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or

served personally.

A certificate in duplicate must be signed by a majority of the directors of the corporation and

countersigned by the chairman and the secretary of the stockholders' meeting, setting forth:

(1) That the requirements of this section have been complied with;

(2) The amount of the increase or diminution of the capital stock;

(3) If an increase of the capital stock, the amount of capital stock or number of shares of

no-par stock thereof actually subscribed, the names, nationalities and residences of the

persons subscribing, the amount of capital stock or number of no-par stock subscribed by

each, and the amount paid by each on his subscription in cash or property, or the amount

of capital stock or number of shares of no-par stock allotted to each stock-holder if such

increase is for the purpose of making effective stock dividend therefor authorized;

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(4) Any bonded indebtedness to be incurred, created or increased;

(5) The actual indebtedness of the corporation on the day of the meeting;

(6) The amount of stock represented at the meeting; and

(7) The vote authorizing the increase or diminution of the capital stock, or the incurring,

creating or increasing of any bonded indebtedness.

Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded

indebtedness shall require prior approval of the Securities and Exchange Commission.

One of the duplicate certificates shall be kept on file in the office of the corporation and the other shall be

filed with the Securities and Exchange Commission and attached to the original articles of incorporation.

From and after approval by the Securities and Exchange Commission and the issuance by the

Commission of its certificate of filing, the capital stock shall stand increased or decreased and the

incurring, creating or increasing of any bonded indebtedness authorized, as the certificate of filing maydeclare: Provided, That the Securities and Exchange Commission shall not accept for filing any certificate

of increase of capital stock unless accompanied by the sworn statement of the treasurer of the corporation

lawfully holding office at the time of the filing of the certificate, showing that at least twenty-five (25%)

percent of such increased capital stock has been subscribed and that at least twenty-five (25%) percent of

the amount subscribed has been paid either in actual cash to the corporation or that there has been

transferred to the corporation property the valuation of which is equal to twenty-five (25%) percent of the

subscription: Provided, further, That no decrease of the capital stock shall be approved by the

Commission if its effect shall prejudice the rights of corporate creditors.

Non-stock corporations may incur or create bonded indebtedness, or increase the same, with the approval

by a majority vote of the board of trustees and of at least two-thirds (2/3) of the members in a meeting

duly called for the purpose.

Bonds issued by a corporation shall be registered with the Securities and Exchange Commission, which

shall have the authority to determine the sufficiency of the terms thereof. (17a)

Limitations on the power to decrease/increase capital stock:

1) A corporation cannot lawfully decrease its capital stock if such decrease will have the effect ofrelieving existing subscribers from the obligation of paying for their unpaid subscription w/o

valuable consideration for such release, in violating of the trust fund doctrine. The corporation

mus submit proof to the SEC that such decrease will not prejudice the rights of creditors.

2) A corporation cannot issue stock in excess of the amount limited by its AOI; such issue is ultravires and the stock so issued is void even in the hands of a bonafide purchaser for value

Spurious stock

Refers to over-issued stock

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Bonded indebtedness

Is an obligation to pay a definite sum of money at a future time at fixed rate of interest

Sec. 39. Power to deny pre-emptive right. - All stockholders of a stock corporation shall enjoy pre-

emptive 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 pre-emptive right shall not extend to shares to be issued in compliance with

laws requiring stock offerings or minimum stock ownership by the public; or to shares to be 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

Pre-emptive right

Whenever the capital stock is increased and new SS are issued, the new issue must first be offered

to the SH who are such at the time the increase was made in proportion to their existing

Shareholdings. The right extends to the unissued and unsubscribed portion of the capital stock

and even to treasury shares.

A SH whose pre-emptive right is violated may maintain an action to compel the corporation to give him

that right. If the denial is by an amendment of the AOI, he may exercise hhis appraisal right.

Sec. 40. Sale or other disposition of assets. - Subject to the provisions of existing laws on illegal

combinations and monopolies, a corporation may, by a majority vote of its board of directors or trustees,

sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and

assets, including its goodwill, upon such terms and conditions and for such consideration, which may be

money, stocks, bonds or other instruments for the payment of money or other property or consideration,

as its board of directors or trustees may deem expedient, when authorized by the vote of the stockholders

representing at least two-thirds (2/3) of the outstanding capital stock, or in case of non-stock corporation,

by the vote of at least to two-thirds (2/3) of the members, in a stockholder's or member's meeting duly

called for the purpose. Written notice of the proposed action and of the time and place of the meeting

shall be addressed to each stockholder or member at his place of residence as shown on the books of the

corporation and deposited to the addressee in the post office with postage prepaid, or served personally:

Provided, That any dissenting stockholder may exercise his appraisal right under the conditions provided

in this Code.

A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if

thereby the corporation would be rendered incapable of continuing the business or accomplishing the

purpose for which it was incorporated.

After such authorization or approval by the stockholders or members, the board of directors or trustees

may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge or other

disposition of property and assets, subject to the rights of third parties under any contract relating thereto,

without further action or approval by the stockholders or members.

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Nothing in this section is intended to restrict the power of any corporation, without the authorization by

the stockholders or members, to sell, lease, exchange, mortgage, pledge or otherwise dispose of any of its

property and assets if the same is necessary in the usual and regular course of business of said corporation

or if the proceeds of the sale or other disposition of such property and assets be appropriated for theconduct of its remaining business.

In non-stock corporations where there are no members with voting rights, the vote of at least a

majority of the trustees in office will be sufficient authorization for the corporation to enter into

any transaction authorized by this section. (28 1/2a)

Validity of sale, lease, mortgage, pledge or exchange substantially all of its assets

1) The sale etch must be approved by the BOD or BOT2) The action of the BOD or BOT must be authorized by the vote of SH representing 2/3 of the OCS

or 2/3 MR

3) The authorization must be done in a meeting dully called for that purpose after written notice4) The said transactions shall be subject to provisions of existing laws on illegal combinations and

monopolies

Substantially all of its assets

The sale, etc. Is deemed a sale, etc of substantially all of its assets if thereby the corporation

would be rendered incapable of continuing the business or accomplishing the purpose for which it

was incorporated

As a general rule when all of the corporate assets of one corporation is sold to another, the latter is not

liable for the debts and liabilities of the transferor, except:

1) When the purchaser expressly or impliedly agrees to assume such debts2) There the transaction amounts to consolidation or merger of the corporation3) Where the purchasing corporation is merely a continuation of the selling corporation4) Where the transaction is entered into fraudulently in order to escape liability for such debts5) When the requirements of the bulk sales law have not been complied with both the selling and

buying corporations may be held solidarily liable to the creditor of the selling corporation

Sec. 41.Power to acquire own shares. - A stock corporation shall have the power to purchase or acquire

its own shares for a legitimate corporate purpose or purposes, including but not limited to the following

cases: Provided, That the corporation has unrestricted retained earnings in its books to cover the shares to

be purchased or acquired:

1. To eliminate fractional shares arising out of stock dividends;

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2. To collect or compromise an indebtedness to the corporation, arising out of unpaid

subscription, in a delinquency sale, and to purchase delinquent shares sold during said

sale; and

3. To pay dissenting or withdrawing stockholders entitled to payment for their shares

under the provisions of this Code. (n)

Instances where a corporation may acquire its own shares:

1) To eliminate fractional shares arising out of stock dividends2) To collect or compromise an indebtedness to the corporation, arising out of unpaid

subscription, in a delinquency sale, and to purchase delinquent shares sold during said

sale

3) To pay dissenting or withdrawing stockholders entitled to payment for their shares underthe provisions of this Code. (n)

4) In case of treasury shares5) With respect to redeemable shares, they may be purchased by the corporation regardless

of the existence of unrestricted retained earnings in the books of the corporation

6) Shares may also be reacquired to effect a decrease in the capital stock of a corporation7) In close corporation where there is a deadlock in respect to the management of its

business the SEC may require the the purchase at their fair value of any share of any SH

regardless of the availability of unrestricted retained earnings in its books.

Limitations of the power of the corporation to reacquire its own shares:

1) The capital is not thereby impaired2) That it be for a proper and legitimate corporate purpose3) That there shall be unrestricted retained earnings to purchase the same and its capital is not

thereby impaired

4) The Corp acts in good faith and without prejudice to the rights of creditors and SH5) That the conditions of corporate affairs warrant it.

Trust fund Doctrine

The assets if the corporation as represented by its capital stock are trust funds to be maintained

unimpaired and to be used to pay corporate creditors in the sense that there can be no distribution

of such assets amount the SH without provision being first made for the payments of corporate

debts and that any such disposition of it is a fraud on the creditors of the Corporation and

therefore void

Sec. 42.Power to invest corporate funds in another corporation or business or for any other purpose. -

Subject to the provisions of this Code, a private corporation may invest its funds in any other corporation

or business or for any purpose other than the primary purpose for which it was organized when approved

by a majority of the board of directors or trustees and ratified by the stockholders representing at least

two-thirds (2/3) of the outstanding capital stock, or by at least two thirds (2/3) of the members in the case

of non-stock corporations, at a stockholder's or member's meeting duly called for the purpose. Written

notice of the proposed investment and the time and place of the meeting shall be addressed to each

stockholder or member at his place of residence as shown on the books of the corporation and deposited

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to the addressee in the post office with postage prepaid, or served personally: Provided, That any

dissenting stockholder shall have appraisal right as provided in this Code: Provided, however, That where

the investment by the corporation is reasonably necessary to accomplish its primary purpose as stated in

the articles of incorporation, the approval of the stockholders or members shall not be necessary. (17 1/2a)

Mere Ultra veris acts not because of its illegality but are simply outside the scope of its AOI are merely

voidable and susceptible to ratification.

Sec. 44. Power to enter into management contract.- No corporation shall conclude a management

contract with another corporation unless such contract shall have been approved by the board of directors

and by stockholders owning at least the majority of the outstanding capital stock, or by at least a majority

of the members in the case of a non-stock corporation, of both the managing and the managed

corporation, at a meeting duly called for the purpose: Provided, That (1) where a stockholder or

stockholders representing the same interest of both the managing and the managed corporations own or

control more than one-third (1/3) of the total outstanding capital stock entitled to vote of the managing

corporation; or (2) where a majority of the members of the board of directors of the managing corporationalso constitute a majority of the members of the board of directors of the managed corporation, then the

management contract must be approved by the stockholders of the managed corporation owning at least

two-thirds (2/3) of the total outstanding capital stock entitled to vote, or by at least two-thirds (2/3) of the

members in the case of a non-stock corporation. No management contract shall be entered into for a

period longer than five years for any one term.

The provisions of the next preceding paragraph shall apply to any contract whereby a corporation

undertakes to manage or operate all or substantially all of the business of another corporation, whether

such contracts are called service contracts, operating agreements or otherwise: Provided, however, That

such service contracts or operating agreements which relate to the exploration, development, exploitation

or utilization of natural resources may be entered into for such periods as may be provided by the

pertinent laws or regulations. (n)

Dividends are paid to the registered owners of stock as of the record date.

Record Date

Is the date fixed in the resolution declaring dividends

Wasting assets doctrine

A wasting assets corporation, the capital of which is necessarily exhausted in the carrying on of

its operations, may rightfully declare dividends out of the net income without making up for theloss of its capital which is this being constantly diminished.

A SH may file an action to compel the BOD to declare dividends when there is sufficient net profits

provided that the complaining SH has made application to the Directors for the relief sought, where

however the directors of the corporation have wantonly violated their duty, and that an application by a

SH to them for relief would be inefficacious, such application need not be made

The controlling point in time in determination of surplus profit warranting the declaration of dividends is

at time when the dividends was declared, whether there was in fact unrestricted retain earnings then.

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SEC opinion: when dividends were declared before the end of the fiscal year during which the

corporation has URE and within the same fiscal year the corporation suffered losses, the cash dividends

distributed to the SH of record must correspondingly refunded to the corporation

Cash dividends may only be applied on the unpaid subscription of a SH in two situations:

1) With respect to his delinquent stock2) With respect to his unpaid subscription which is NOT delinquent, with the SH consent

Distribution of treasury shares are not considered as stock dividends but is more properly termed as

property dividend since no increase of COS and the re-issued stock is considered as corporate assets

Sec. 44. Power to enter into management contract.- No corporation shall conclude a management

contract with another corporation unless such contract shall have been approved by the board of directors

and by stockholders owning at least the majority of the outstanding capital stock, or by at least a majority

of the members in the case of a non-stock corporation, of both the managing and the managed

corporation, at a meeting duly called for the purpose: Provided, That (1) where a stockholder or

stockholders representing the same interest of both the managing and the managed corporations own or

control more than one-third (1/3) of the total outstanding capital stock entitled to vote of the managing

corporation; or (2) where a majority of the members of the board of directors of the managing corporati