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THE CORPORATION CODE BP 68
BASIS:
Art. 46 Juridical persons may acquire and possess
property of all kinds as well as incur obligations and
bring civil or criminal actions, in conformity with the
laws and regulations of their organization.
- Corporations are NOT LIABLE but itsofficers may be held criminally responsible;
except when the employees violate Article
103 of RPC, and the corporate charter may be
subject to FORFEITURE.
Section 1: WHAT IS A CORPORATION:
/ATTRIBUTES OF A CORPORATION: (P-A-C-E)
1. has Powers, attributes and properties expressly
authorized by law or incident to its existence;
2. Artificial being;
3. Created by law;
4. Enjoys the right of succession;
Doctrine of Piercing the Corporate Entity
- Separate personality of the corporation maybe disregarded if the same was availed to
defeat public convenience, justify a wrong,
protect fraud or defend a crime.
CONSEQUENCES of the SEPARATE JURIDICAL
PERSONALITY of A CORPORATION:
1. Corporate debt is NOT the debt of the
stockholder
NOR is the stockholders debt that of the
corporation;
2. Stockholders are NOT OWNERS , but only have
INDIRECT INTEREST over corporate assets.
3. Shareholders have no right to recover possession
of property belonging to the corporation or to
recover damages for its injury;
4. In taxation, the income of the corporation is NOT
that of the shareholders , who may still be taxed on
dividends, that may be derived from such income.
ADVANTAGES OF A CORPORATION may be
summarized as follow (FE-LI-CON CAP-CENTS_
1. Feasibility of greater and bigger undertaking;
2. Limited shareholders liability;
3. Continuity of Existence;
4. Capacity to act as a Legal unit;
5. Transferability of shares;
6. Centralized management;
7. Standardized Method;
DISADVANTAGES of CORPORATION:
1. Credit is limited in view of the shareholders
limited liability;
2. Unity of incompatible and conflicting elements in
view of transferability of shares;
3 Minority stockholders usually become subservient
to majority stockholders.
4. Stockholders right to vote merely becomes
theoretical in view of the widespread of ownership,
disinterest in management, inertia and inaccessible
meeting places;
5. Management or control has been separated from
ownership as in large corporation.
6. Corporations are subject to many legal controls and
restrictions;
7. Corporate form involves double taxation on
corporate income.
CORPORATION vs. PARTNERSHIP
Corporation-created by law;
-shares are transferrable even without the
consent of other shareholders;
-managed by BOD;
-death of a SH does not dissolve a
corporation;
-SH is not liable to corporate creditors with
his separate property;
-may exist for 50 years subject to extension;-governed by the corporation code;
Partnership:-created by AGREEMENT of the parties;
-cannot transfer shares/interest without the
Consent of the other partners;
-managed by ALL of the parties except when
They appointed a Managing Partner;
-death of a GENERAL partner DISSOLVES
The partnership;-general partners are liable for Debts of the
Partnership BEYOND his capital investment;
-may exist indefinitely, beyond fifty years;
-governed by the CIVIL CODE;
SECTION 3: CLASSES OF CORPORATION:
General Classification:
a. STOCK CORPORATIONS with stocks divided into
shares;
-authorized to distribute to the stockholdersdividends or allotments of the surplus for profits on
the basis of the shares held.
b. NON-STOCK CORPORATIONS no stocks to be
divided; no dividends or allotments to be distributed;
Other classification:
a. Open or Close Corporations;
b. De Jure or De Facto;
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c. By estoppels or by Prescription;
d. Foreign or Domestic;
e. Lay/Regligious/Eleemosynary;
DE FACTO CORPORATION
-can be attacked only by a quo warranto proceeding;
-may exist under the following conditions: (L-A-A-C)
1. valid LAW under which it was incorporated2.ATTEMPT to incorporate;
3.Assumption of corporate powers;
4.Certificate of Incorporation was issued
Despite defect in its incorporation.
SECTION 4: CORPORATIONS CREATED by
SPECIAL LAWS or CHARTERS:
-governed primarily by the provisions of the Special
Law or charter creating them or applicable to them,
supplemented by the provisions of the CorporationCode, insofar as they are applicable.
SECTION 5: CORPORATORS and
INCORPORATORS STOCKHOLDERS and MEMBERS
-Corporators those who come to the corporation
whether as stockholders or member.
Incorporators stockholders or members mentioned
in the articles of incorporation as finally forming and
composing the corporation and who are signatoriesthereof.
Corporators in a STOCK CORPORATION arecalled STOCKHOLDERS/SHAREHOLDERS;
-all incorporators in a STOCK
CORPORATION must now subscribe to or
own a stock in such corporation;
Corporators in a NON-STOCK CORP arecalled MEMBERS.
GENERAL RULE: - only capacitated NATURALPERSONS may be incorporators UNLESS
JURIDICAL PERSONS are otherwise
permitted.
Sunset View vs. Campos non-payment of the full
price of a condo unit is NOT as stockholder of a
condominium corporation, and thus will not give rise
to an intra-corporate conflict cognizable by the
Corporation Code.
SECTION 6: CLASSIFICATION OF SHARES:
GR shares may be divided into such classes
possessing rights, privileges or restrictions as the
articles of incorporation may provided, subject to
legal limitations;
LEGAL LIMITATIONS on CLASSIFICATION OF
SHARES:
1.Shares shall not be deprived of voting, except
PREFERRED or REDEEMABLE SHARES;
-non-voting shares must still be entitled to
vote on matters specified in the last paragraph of
the provision such as amendment of the AOI and
dissolution of the corporation.
2. There must always be a class or series of shares
with complete voting rights where non-voting shares
are provided for,
3. Non-issuance of no-par value shares for banks,
trust companies, insurance companies, Public utilities
and building, and loan associations.
4. PREFERRED stocks must be issued with stated Par
Value.
5. Terms and conditions of PREFERRED shares may
be fixed by the BOD only when so authorized and is
effectivity shall take place only upon filling with the
SEC;
6. No par value shares shall not be issued for a
consideration of less than 5.00;
7. Rights, Privileges or restrictions on the shares of
the SH must be stated in the AOI and in the
Certificate of Stock unless otherwise provided bylaw.
SITUS OF SHARES of STOCK generally at the
domicile of the owner.
-or at the DOMICILE of the CORPORATION for
purposes of Attachment, Garnishment or Execution;
-or at the PROVINCE in which the ciporation has its
principal place of business for purposes of registering
a chattel mortgage over shares of stock.
-or at the DOMICILE of the Corporation generallycontrolling for purposes of Taxation.
Shares of stock maybe pledged in accordancewith Art. 2095 of the New Civil Code which
provides:
Incorporeal rights, evidenced by
negotiable instruments, bills of lading, shares of
stock, bonds, warehouse receipts and similar
documents may also be pledged. The instrument
proving the right pledged shall be delivered to the
creditor, and if negotiable must be indorsed.
1. Merger or consolidation of the corporation with
another corporation or other corporation.
2. Amendment of the Articles of Incorporation;
3. Adoption and Amendment of by-laws;
4. Incurring, creating or increasing bonded
indebtedness;
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5. Investment of Corporate funds with another
corporation;
6. Increase or decrease of capital stocks;
7. Dissolution of the corporation;
8. Sale, lease, exchange mortgage, pledge or other
disposition of all or substantially all of the corporate
property.
SECTION 7: FOUNDERs SHARES
-may give certain rights and privileges not enjoyed by
other owners of stock;
-may be given preference not only as to voting rights
but also to dividend payments;
-if the exclusive privilege is to vote and be voted for
as directors, this must be for a period of NOT
EXCEEDING 5 years subject to the approval of the
SEC.
SECTION 8: REDEEMABLE SHARES
-may be issued by the corporation when expressly so
provided in the AOI;
-may be PURCHASED or TAKEN UP by the
corporation upon the expiration of the fixed period,
REGARDLESS of the existence of unrestricted
retained earnings in the stocks of the corporation,
and upon such terms and conditions in the AOI, which
must also be stated in the Certificate of Stockrepresenting the said shares;
-Upon MATURITY of Redeemable Shares, they
should be PAID by the corporation, even if the latter
has no unrestricted retained earnings.
SECTION 9: TREASURY SHARES:
-are shares of stock which have been issued and fully
paid for, subsequently REACQUIRED by the issuing
corporation by PURCHASE, REDEMPTION,
DOATION or through some other Lawful means.
-some may be again disposed for reasonable price
fixed by the BOD;
-if the price is LOWER, there will be a
violation of the law, and the stockholder can
complain;
-cannot be VOTED upon;
-not entitled to dividends for it is absurd for a
corporation to pay dividends to itself.
INCORPORATION and ORGANIZATION OF
PRIVATE CORPORATIONS
Section 10: NUMBER and QUALIFICATIONS of
INCORPORATION:
-only NATURAL PERSONS can incorporate;
-not less than 5 nor more than 15 natural persons may
incorporate unless otherwise permitted by law.
-incorporators must own at least one share of the
corporations capital stock; therefore, a member can
no longer exist as incorporator in a stock corporation.
JURIDICAL PERSONS cannot be
incorporators, but can be CORPORATORS.
SECTION 11: CORPORATE TERM:
-shall exist for a period not exceeding 50 years from
the date of incorporation UNLESS sooner dissolved,
or unless such period is EXTENDED.
-extension of period can be made in any single
instance by Amendment of the Articles of
Incorporation, in accordance with the Code;
-no extension can be made EARLIER than 5 years
prior to the original or subsequent expiry date unless
there are justifiable reasons for an earlier extension
as may be determined by the SEC.
-no extension can be done AFTER EXPIRATION of
the corporate life because there is no life to be
extended in such case.
SECTION 12 MINIMUM CAPITAL STOCKREQUIRED OF STOCKS 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;
-as long as the paid-up capital should NOT BE LESS
than 5,000.00
SECTION 13 AMOUNT OF CAPITAL STOCK tobe SUBSCRIBED and PAID for purposes of
INCORPORATION
-at least 25% of the authorized capital stock (deemedto be the total capital stock in case of several shares with
different par values, or the total number of shares in the case
of no Par value shares)SHALL BE SUBSCRIBED
-at LEAST 25% of the subscribed ACS shall be paid
Upon subscription, the balance to be payable on the
dates fixed in the contract of subscription,WITHOUT NEED of CALL;
-in the absence thereof, upon CALL for payment by
the BOD;
-paid-up capital SHALL NOT be less than 5,000.00;
-Special Laws may provide for bigger paid-up capital.
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ARTICLE 14 CONTENTS of ARTICLES of
INCORPORATION
-ALL Corporations organized under the Corporation
Code shall file with the SEC articles of
Incorporation, in any of the official language, signed
and acknowledged by all of the incorporators,containing the following, except as otherwise
prescribed by the Code or Special Law;
a. Name of the Corporation
b. Specific Purpose
-if there be more than one purpose, it shall
be indicated as primary, secondary
-non-stock corporation shall not include a
purpose which would contradict to its nature
as such;c. Place where the principal office of the Operation
is to be located, which must be within the
Philippines;
d. Term of Existence of the Corporation;
e. Names, nationalities and residences of the
incorporators;
f. Number of directors and trustees which MUST
NOT be less 5 nor more than 15 ;
g. names, nationalities, and residents of the person
who shall act as directors or trustees until the first
regular directors and trustees are duly elected andqualified in accordance with this Code;
h. If STOCK CORPORATION:
-amount of ACS in lawful Phil. Money;
-number of shares into w/c it was divided;
-in case of par value shares, the par value of
each;
-names and nationalities of the subscribers
and the amount subscribed and paid by each;
-if some of the shares are without par value,
it must be stated;
If NON-STOCK CORPORATION:
-amount of its capital;
-names, nationalities and residences of the
contributors and the amount contributed by
each;
i. other matters not inconsistent with law, and which
the incorporators may deem Necessary and
Convenient;
SEC shall not accept the AOI of any stockcorporation unless accompanied by a SS of the
Treasurer elected by the subscribers showing that at
least 25% of the ACS of the corporation has been
subscribed and the at least 25% of the total
subscription has been paid in actual cash or in
property, the fair valuation of which is equal to at
least 25% of the said subscription , where such paid-
up capital is NOT less than P5,000.00
SECTION 15: FORM OF ARTICLES OF
INCORPORATION
-substantial compliance is sufficient
SECTION 16: AMENDMENT OF THE ARTICLES
OF INCORPORATION
*When AMENDMENT can be done?
-unless otherwise provided by the Code;
-for legitimate purposes only;
*How AMENDMENT is DONE?
-by a Majority Vote of the BOD and Trustees
And the vote or written ASSENT of the stockholders
representing at least 2/3 of the outstanding capital
stock, without prejudice to the appraisal right of
dissenting stockholders in accordance with the
providsions of this Code;
-by the VOTE or written ASSENT of 2/3 of the
MEMBERS if it be a NON-STOCK CORPORATION.
*How to Identity the Amended Articles?
-indicated by UNDERSCORING the changes made;
-copy of the Amended AOI shall be certified under
oath by the Corp. Secretary and the majority of the
Directors and Trustee stating the fact that the said
amendment have been duly approved by the required
vote of the stockholders and members and shall besubmitted to the SEC.
*WHEN AMENDMENT shall take Effect?
-upon approval of the SEC ; With the Treasurers Affidavit; Accompanied by a Favorable recommendation from
the appropriate government agency to the effect
that the such AOI or the amendment thereof are in
accordance with law.
-from the date of filing with the SEC if NOT ACTED
upon within 6 months from the date of the filing for
a cause not attributable to the Corporation.
SECTION 17: GROUNDS for REJECTION or
DISAPPROVAL OF AOI: (R-A-P-A)
1. Required percentage of ownership of the capital
stock to be owned by the Citizens of the Phils. Has
not been complied;
2. Amendment is NOT SUBSTANTIALLY in
accordance with the prescribed form;
3. Patently unconstitutional, illegal and immoral
purpose;
4. Affidavit of the Treasurer concerning the amount
of the CS subscribed and/or paid is FALSE.
SEC- shall give incorporators reasonable time within
which to CORRECT or MODIFY the objectionable
portions of the Articles or Amendment.
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Incorporators shall be given NOTICE of thegrounds or causes for rejection or disapproval;
SECTION 18: The CORPORATE NAME
-must not be Confusing, illegal, identical or similar to
an existing business or corporate name;
-done by amendment in compliance with Section 16;-when approved the Commission must issue an
AMENDED Certificate of Incorporation indicating
the Amended Name.
SECTION 19 COMMENCE OF COPORATE
EXISTENCE
-corporate or juridical existence
COMMENCES/BEGINS from the date of issuance of
the Certificate of Incorporation;
-from that time, the Corporation can exercisecorporate powers authorized by law or incident to its
existence;
-thereupon, the incorporators, stockholders and
members shall constitute a body politic and corporate
under the name stated in the AOI.
SECTION 20 DE FACTO CORPORATION
DE FACTO CORPORATION
-can be attacked only by a quo warranto proceeding;-may exist under the following conditions: (L-A-A-C)
1. valid LAW under which it was incorporated
2.ATTEMPT to incorporate;
3.Assumption of corporate powers;
4.Certificate of Incorporation was issued
Despite defect in its incorporation.
-shall NOT be inquired into COLLATERALLY in any
private suit to which such corporation may be a party.
-inquiry may be made by the SOLGEN in a QuoWarranto proceeding;
SECTION 21: CORPORATION by ESTOPPEL
-composed of persons who assume to act as a
corporation knowing it to be without authority to do
so;
-liability of incorporators of a CBE shall be that of
GENERAL PARTNERS, so that their separate
properties shall be answerable for valid claims
against them.
-defense on ground that no such corporation existed
is not a valid defense by the one who assumes such
ostensible corporation.
SECTION 22 EFFECTS OF NON-USE of
CORPORATE CHARTER and CONTINUOUS
INOPERATION of the CORPORATION
-failure to formally organize (elect new board of
directors, trustees or corporate officers) and commence
transaction of business or construction of corporate
works (purchase or sale of properties to be used as business
of the corporation and other preparatory acts) within 2
years from the date of incorporation will result to
the AUTOMATIC DISSOLUTION of the
CORPORATION.
-if corporation has commenced transaction of its
business, but subsequently becomes continuously
inoperative for a period of at
least 5 years, the same
shall be a ground for the SUSPENSION, or
REVOCATION Of its corporate franchise or
Certificate of Incorporation.
-not applicable if the failure to transact or operate is
due to causes beyond the control of the Corporation
as may be determined by the SEC.
BOARD OF DIRECTORS/TRUSTEES/ OFFICERS
SECTION 23 BOD/TRUSTEES:
-are the one who managed the corporation;
-BOD represents the corporate body, and the
DIRECTORS are the Executive Representative of the
Corporation;
-to be elected from the holders of stocks, or if there
is no stock, from among the members of the
corporation;
-shall hold office for 1 year and until their
successors are elected and qualified.
-must own at least one share of the capital stock of
the corporation of which he is the director;
-trustees of a non-stock corporation must be
members thereof.
-majority of the directors or trustees of all
corporations organized under this Code must be
residents of the Philippines.
NATURE of the POWERS OF THE BOD
-original and undelegated;
-not conferred by the stockholders, nor can be
revoked or be sterilized;
-exercised by the BOD according to their best
judgment ;
-stockholders DO NOT HAVE the management and
control of the affairs of the corporation as they are
deemed to have consented thereto.
-the Board may appoint an Executive Committee to
conduct ordinary business of the corporation which
must be members of the board;
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-A director or officer of the corporation will not be
permitted to make private or secret profit out of his
official position;
-A director is NOT LIABLE for the acts or
omissions of co-directors or other officers
UNLESS:
a. he connives at or participate therein;b. he is NEGLIGENT in not discovering or
acting to prevent it;
QUALIFICATIONS OF A DIRECTOR: (O-R-M)
1. Owns at least one share of the capital stock of
the corporation in his name;
2. Residents of the Phils.
3. Must not have been convicted by final judgment
of an offense carrying an imprisonment exceeding
6 years, or an offense constituting a violation of
the Corporation Code.
By-Laws may validly provide that directors
must own at least five or more shares of the
Capital Stock;
By-Laws may validly provide that stockholder
is ineligible to be director is he be also a
director of a company who is in competition
with that of the other corporation.
SECTION 24: ELECTION OF DIRECTORS or
TRUSTEES-presence of the owners or their representatives or
proxy, of the majority of the outstanding capital
stock is required at all elections of directors or
trustees;
-if non-stock, presence of the members entitled to
vote;
-election is done by BALLOT, if requested;
-
FOR STOCK CORPORATIONS:
-every SH shall have the right to vote in person or byproxy according to the number of shares of stock
standing, at the time fixed in the by-laws, in his own
name, or at the time of the election;
-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 may distribute them among as many candidates as
he may deem fit;-shall not exceed the number of his shares as shown
in the books of the corporation;
-NO DELINQUENT stock shall be voted.
NON-STOCK CORPORATIONS: - may cast as many
votes as there are trustees to be elected BUT MAY
NOT CAST MORE THAN ONE vote for one
candidate, unless otherwise provided in the AOI or
by-laws;
CUMULATIVE VOTING allowed only for
Stock Corporations, except if the AOI or by-
laws of non-stock corporations provide
otherwise.
-mandatory for stock corporation
and cannot be dispense with in the
by-laws;-SH cannot be deprived of
CUMULATIVE VOTING is being a
statutory right.
SECTION 25: CORPORATE OFFICERS/ QUOROM
-President
-Director
-Treasurer/may or may not be a Director;
-Secretary-such other officers as may be provided for in the
by-laws;
Any two or more positions may be held
concurrently by the same person, except that
no one shall act as a President and a
Secretary or as President-Treasurer at the
same time.
WHAT CONSTITUTES QUORUM?
-a majority of the number of directors or trustees as
fixed in the AOI shall constitute a quorum for the
transaction of corporate business and
-every decision of at least a majority of the
directors or trustees at a meeting at which there is
quorum shall be a valid 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.
De Tavera vs. Phil Tuberculosis Society
-an appointment which does not contain a term, it was
held that the implication is that the appointee held an
appointment at the pleasure of the appointing
authority, which in essence is TEMPORARY in
NATURE, hence co-extensive with the desire of the
BOD.
-replacement of an incumbent appointed without a
term is not a REMOVAL but simply an EXPIRATION
of the term, which requires no prior notice , due
hearing or sufficient grounds before the incumbent
can be separated from office.
REQUISITES for a BOARD MEETING: (M-E-D)
1. Meeting of the Board duly assembled;
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2. Existence of a quorum;
3.Decision of the majority of the quorum duly
assembled;
Directors are NOT ENTITLED tocompensation except:
a. when Authorized by the by-laws or
stockholders resolution before services arerendered
b.when the Directors render extraordinary or
unusual service to the corporation.
SECTION 26 REPORT OF ELECTION OF
DIRECTORS, TRUSTEES and OFFICERS
-to be submitted by the Secretary or any other
officer of the corporation within 30 days after the
election to the SEC;-death, resignation or cessation in the office of the
Directors, Trustees and Officers must likewise be
reported to the SEC.
SECTION 27 DISQUALIFICATION of
DIRECTORS, TRUSTEES or OFFICERS
GROUNDS:
1. Conviction by final judgment of an offense
punishable by imprisonment for a period exceeding 6years;
2. Violation of the Corporation Code committed within
5 years prior to the date of his election or
appointment;
It is the COMMISSION (not the conviction)
that must take place within 5 years prior to
the election or appointment under this
provision.
SECTION 28 REMOVAL of DIRECTORS orTRUSTEES:
*HOW:
-by a vote of the SH holding or representing
2/3 of the OCS;
-if non-stock corporation, by a vote of 2/3
of the members entitled to vote;
-shall take place either at a regular meeting
of the corporation or at a special meeting
called for such purpose;-after notice to the SH or members of the
corporation of the intention to propose such
removal at the meeting;
-special meeting shall be called by the
SECRETARY on :
order of the President written demand of the SHrepresenting or holding at least a
majority of the OCS;
if a non-stock corporation, onwritten DEMAND of the members
entitled to vote;
-should the Secretary fail or refuse to give
notice, the call of the meeting may be
addressed directly to the SH or members by
any SH or member of the corporation signingthe demand.
-removal may be with or without cause,
provided it will not be used to deprive
minority SH or members of the right of
representation to which they may be entitled
, otherwise, the REMOVAL is INVALID.
-Notice must be given by PUBLICATION or
by written notice as may be provided in this
Code.
*Effects of REMOVAL
-vacancy may be filled by election at the same
meeting without further notice or at any special
meeting called for such purpose, after giving notice
as provided in this Code.
SECTION 29 VACANCIES in the OFFICE OF
DIRECTOR or TRUSTEE
-Vacancies that may be filled by the remainingmembers of the Board if still constituting a quorum,
and only for the unexpired term of the predecessor:
1. death of a BOD
2. resignation
3. disqualification
-Vacancies due to the increase in the number of the
Directors or Trustees shall be filled only by an
election at a regular or special meeting called for
such purpose, or in the same meeting authorizing the
increase of directors or trustees.
-Vacancies to be filled by a vote of the SH or
members: (V-E-R-N)
1. Removal of a member of the BOD or
trustees;
2. No quorum as to the remaining Directors
and Trustees, and the vacancy was
created by the death, resignation or
disqualification of a director or a trustee;
3. Expiration of the term of the director;
4. Vacancy was created due to the increase
in the number of the BOD at any time of theyear.
SECTION 30 COMPENSATION OF DIRECTORS:
-no compensation, except reasonable per diems,
unless otherwise provided in the by-laws;
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*When per diems are allowed?
1. when authorized by the by-laws;
2. by a vote of the SH representing at least
a majority of the OCS;
-total yearly compensation of the directors
shall not exceed 10% of the net incomebefore the income tax of the corporation
during the preceding year.
SECTION 31 LIABILITY of DIRECTORS,
TRUSTEES, or OFFICERS
*GROUNDS: (G-A-B-A)
1. Gross Negligence
2.Assenting to patently unlawful acts of the
corporation;
3. Bad faith;4. Acquire any personal or pecuniary interest in
conflict with their duty;
5. Tax evasion perpetrated through illegal
manipulation of devices or practices;
*Liability : joint and several for all damages resulting
therefrom;
SECTION 32 DEALINGS of DIRECTORS,
TRUSTEES, or OFFICERS with the Corporation-contract of corporation with one or more of its
directors or trustees is VOIDABLE at the option of
such corporation UNLESS ALL of the following
conditions are present:
1. Presence of such director or trustee in
the board meeting in which the contract was
approved was not Necessary to constitute a
quorum;
2. vote of such director or trustee was not
necessary for the approval of the contract;
3. contract is FAIR and REASONABLE underthe circumstances;
4. in case of an officer, the contract with
the officer has been previously authorized
by the BOD;
*That if the first two conditions are absent, such
contract can be ratified by the vote of the SH
representing at least 2/3 of the OCS or 2/3 of the
members in the meeting called for the purpose.
SECTION 33 CONTRACTS betweenCORPORATIONS with interlocking Directors:
-contracts between corporations with interlocking
directorates are valid as long as there is no FRAUD
and the contract is fair and reasonable, under the
existing facts.
-provided that if the interest of the interlocking
director in one corporation is merely NOMINAL;
-stockholdings exceeding 20% of the OCS shall be
considered substantial for the purpose of
interlocking director;
SECTION 34 DISLOYALTY of a DIRECTOR
-when director of a corporation competes in thebusiness in which his corporation is engage;
HOW?
-acquiring for himself business opportunity
which should belong to the corporation;
-obtain profits to the prejudice of the
corporation;
-must be accounted and refunded, unless
such acts have been ratified by at least 2/3 of the
outstanding capital stock.
-applicable notwithstanding the fact that the
director risked his own funds in the venture;
SECTION 35 EXECUTIVE COMMITTEE
-compose of not less than 3 members of the Board to
be appointed by Board;
-may act by majority vote of all its members on
specific matters within the competence of the Board
as may be delegated to it in the by-laws or on
majority vote of the board , except: (F-A-R-A-D)
Filling vacancies in the Board; Approval of any action which also requires the
approval of SH;
Repeal, or amendment of by-laws or theadoption of new by-laws;
Amendment of repeal of any resolution of theBoard which by express terms not so
amendable or repealable;
Distribution of cash dividends to theshareholders.
WHAT is the CONCEPT OF MODERN DAY
CORPORATION?
-the Board creates and delegates corporate
powers to an Executive Committee to meet immediate
problems and give prompt solutions, unfettered by
the need for directors meetings where some
directors could not be easily contacted.
EXECUTIVE COMMITTEE POWERS:
(P-E-A-A-A)
1. Protect debts owing to the Corporation;2.Embarking on different business for the
Corporation;
3. Acts in the usual course of business;
4. Acts designed partially or wholly to protect or aid
the employees;
5. Acts to increase the business;
ULTRA VIRES ACTS of a CORPORATION
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-when it commits acts outside its express, incidental
or implied powers, but can be ratified under certain
conditions;
Corporations are now authorized to merge or
consolidate with other corporations, or to
make reasonable donations except for
political or partisan purposes.
SECTION 37 POWER TO EXTEND or SHORTEN
CORPORATE TERM
-when approved by the majority vote of the BOD or
trustees and ratified at a meeting of the SH
representing at least 2/3 of the OCS or by at least
2/3 of the members of a non-stock corporation.
-each SH or member must be notified;
-any dissenting SH may exercise his appraisal rightunder the conditions provided in this Code, although
written assent is NOT NECESSARY.
SECTION 38 POWER TO INCREASE OR
DECREASE CAPITAL STOCK; INCUR, CREATE or
INCREASE BONDED INDEBTEDNESS
-must be approved by a majority vote of the BOD,
and favored by 2/3 of the OCS;
-notice to all SH or members is necessary;
-there must be certification in duplicate to be signedby the majority of the BOD, countersigned by the
Chairman and Secretary, accompanied by sworn
statement from the Treasurer showing that at least
25 % of the increased CS has been subscribed and at
least 25% has been paid in actual cash or transferred
property equal to 25%;
-requires PRIOR APPROVAL from the SEC;
-no DECREASE of the capital stock shall be approved
by the SEC if it will prejudice the rights of the
corporate creditors.
FOR NON-STOCK CORPORATION:
-requires majority vote of the BOT and of at least
2/3 of the members in a meeting duly called for such
purpose.
-Bonds issued by a corporation shall be registered
with the SEC which shall have the authority to
determine the sufficiency of the terms thereof.
SECTION 39 POWER TO DENY PRE-EMPTIVE
RIGHT
-PRE-EMPTIVE RIGHT is the SH right to
subscribe to all issues or disposition of shares of any
class in proportion to their present stockholding, to
enable the SH to retain his proportionate control in
the corporation and to retain his equity in the
surplus.
-is a property right, that is, transferrable or
assignable ;
-enjoyed by all SH unless denied by the AOI,
-NOT AVAILABLE TO:
to shares to be issued in compliancewith the laws requiring stock offering
or minimum stock ownership by the
public;
to shares to be issued in good faithwith the approval of the SHrepresenting 2/3 of the OCS in
exchange of the property needed for
corporate purposes or ;
in payment of a previously contracteddebt.
To shares issued to obtain loans or toobtain the services of technical men;
SECTION 40 SALE OR OTHER DISPOSITION
OF ASSETS>(P-L-E-M-S)
How Pledge, Lease, Exchange, Mortgage,Sell
-shall be deemed to cover substantially allthe corporate property and assets if
thereby the corporation would be rendered
incapable of continuing the business or
accomplishing the purpose to which it was
established.
BOD/BOT may abandon such dispositionsubject to the rights of third parties,without further action or approval from the
SH or members.
When NO authorization of theSH/Members is necessary? (for stock
corporation)a. if the property or assets is
necessary in the usual and regular
course of business of the corporation;
b. if the proceeds of the disposition
be appropriated for the conduct
of the remaining business of the
corporation.;
for non-stock corporation:
-if there are no members with voting
rights, the vote of at least majority
of the trustees in office will be
sufficient;
-done by majority vote of the BOD/BOT;
-upon terms and conditions and for such
consideration which may be money, stocks, bonds or
other instruments for the payment of money or otherproperty or consideration as its BOD/BOT may deem
expedient;
-authorized by the vote of SH representing at least
2/3 of the OCS for stock corporation;
-for non-stock corporation, by the vote of at least
2/3 of the members in a meeting duly called for such
purpose.
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-notice is necessary;
-any dissenting SH may exercise his right of
appraisal;
SECTION 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, subject to the condition that
there be unrestricted retained earnings to cover the
shares purchased or acquired, such as: (P-E-C)
1. Pay dissenting/withdrawing SH entitled to
payment for their shares under the Code;
2. Eliminate fractional shares arising out of
stock dividends;
3. Collect or compromise indebtedness to the
corporation arising out of the unpaid subscriptionin a delinquency sale, and to purchase delinquent
shares sold during the sale.
SECTION 42 POWER TO INVEST CORPORATE
FUNDS in another CORPORATION or BUSINESS
or for any other purpose.
-when approved by the majority of the BOD/BOT and
ratified by the SH representing at least 2/3 of the
OCS, or by at least 2/3 of the members in case of anon-stock corporation.
-there must be notice of investment to the SH or
members;
-any dissenting SH shall have the appraisal right as
provided in this Code;
-where the investment is reasonably necessary to
accomplish the primary purpose, Board action or
majority vote of the BOD/BOT is still necessary,
even without ratification by the SH or members.
SECTION 43: POWER TO DECLARE DIVIDENDS
-the BOD of Stock Corporation may declare dividends
out of the UNRESTRITED RETAINED EARNINGS;
-may be payable in cash, in property or in stocks to all
SH on the basis of the OCS held by them;
-Cash dividend is declared by the BOARD only; while
STOCK DIVIDEND is declared by the BOARD and
approved by the SH representing not less than 2/3 of
the OCS at a regular or special meeting called forsuch purpose.
-stock corporations are prohibited from retaining
surplus profits in excess of 100% of their paid-in
capital stock except: (J-A-R)
1. justified by a definite corporate expansion
projects approved by the BOD;
2.agreements on loans made with any
financial institutions prohibits the
corporation to do so without their consent;
3. retention is necessary under special
circumstances obtaining in the
corporation, as when there is a need for a
special reserve for probable
contingencies;
NOTES:
No dividends can be issued to Non-stock
corporation even for services rendered;
No dividends can be declared out of capital
except liquidating dividends and the so-called
dividends from investment in a wasting asset
corporation;
Cash dividends are REVOCABLE before
announcement to the SH;
Stock Dividends declaration may be REVOKEDprior to actual issuance ;
SEC may compel the corporation to declare
dividends of its SH if the same retains
surplus profits in excess of 100% of its paid-
up capital.
SECTION 44 POWER TO ENTER into
MANAGEMENT CONTRACT;
-must have been approved by the BOD and the SH
owning at least the majority of the OCS, or majorityof the members in a non-stock corporation, of both
the managing or the managed corporation, at a
meeting duly called for the purpose provided:
1.SH owning more than 1/3 of the total OCS
is entitled to vote of the managing
corporation;
2. Approval of the Management Contract by
the SH of the Managed Corporation owning at
least 2/3 of the total OCS, or at least 2/3
of the members in a non-stockcorporation, when majority of the BOD of the
Managing Corporation also constitutes
majority of the members of the BOD of the
Managed Corporation.
*No Management Contract shall be entered into for a
period longer than 5 years for any one term.
-provision is applicable to :
any contract whereby corporation
undertakes to manage or operate all orsubstantially all of the business of another
corporation, whether such contracts are
called service contracts, operating
agreements or otherwise;
SECTION 45 ULTRA VIRES ACTS of
CORPORATIONS
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-Ultra Vires Act is an act which although NOT
PROHIBITED by law, the corporation cannot
perform because it is NOT WITHIN its
express, incidental or implied powers;
-not necessarily illegal although an
illegal act is always ultra vires;
*REQUISITES FOR THE RATIFICATION OF ANULTRA VIRES ACT: (C I C-A)
1. Consummated act; not executor;
2. Involved no public rights or of the State;
3. Creditors are NOT prejudiced or all of them have
given their consent;
4. All of the SH give their consent;
*Courts must be CAUTIOUS in dissolving a
corporation by quo warranto proceedings for doing
ultra vires acts except in two cases:
1. Willful or fraudulent violation by the
Corporation ;
2. Acts adversely affect public Interest.
*Well-settled RULES on the Effects of Ultra Vires
Acts:
1. A wholly executory contract which is Ultra Vires
cannot be enforced not can damages be recovered
for its breach, except on Principle of Unjust
Enrichment;2. A wholly executed ultra vires contract or act shall
NOT BE INTERFERRED with as between the
parties or persons whose rights are derived
therefrom; but the STATE can always question
such contract or act;
3. When Ultra vires act is executed on one side, but
executory on the other who received benefits
therefrom, RECOVERY can be had by the
FORMER.
4.The title of a corporation to property cannot be
questioned on the ground that it acquired theproperty through an Ultra Vires contract of
transfer.
TITLE V BY LAWS
SECTION 46 Adoption of by-laws
-must be done within one month after receipt of
official notice of its Certificate of Incorporation by
the SEC, consistent with the Code.
-may be filed and adopted PRIOR TO
INCORPORATION but shall be approved and signedby ALL INCORPORATORS and submitted to the SEC,
together with the AOI;
-affirmative vote of the SH representing the
majority of the OCS, or at least majority of the
members in a non-stock corporation shall be
necessary.
-shall be signed by the SH/members , kept in the
principal office of the corporation , subject to the
inspection of the SH/members during office hours,;
-certified copy thereof by the majority of the
directors or trustees, countersigned by the
secretary shall be filed with the SEC, which shall be
attached to the original AOI;
*When By-Laws are effective?
-upon issuance by the SEC of a certification
that the by-laws are not inconsistent with the Code,
which must be accompanied by a certificate of an
appropriate government agency to the effect that
such by-laws or amendments are in accordance with
law.
*REQUISITES OF A VALID BY-LAWS:
(C-U-R-I)1. Consistent with Law, AOI, charter, or
public policy;
2. Uniform and general;
3. Reasonable[
4. Impairs no vested rights;
SECTION 47 CONTENTS of the BY-LAWS
1. Time, place and manner of calling and
conducting regular or special meetings of thedirector or trustees;
2. Time and manner of calling or holding
special meeting; (no place because the
regular meeting is in the place of the principal
office of the corporation);
3. Required quorum and the manner of voting
therein;
4. Form for proxies of SH and members and
the manner of voting them;
5. Qualifications, duties, ad compensation of
directors, trustees, officers andemployees;
6. Time of holding annual election of
directors or trustees, and the mode or
manner of giving notice thereof;
7. The manner of election or appointment
and the term of office of all officers other than
directors or trustees;
8. the Penalties for violation of the by-laws;
9. Manner of issuing certificates for stock
corporations;
10. other matters as may be necessary forthe proper or convenient transaction of its
corporate business and affairs.
*The remedy of MANDAMUS is generally available to
compel officers of a corporation to perform duties
imposed on them by the by-laws;
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*Corporations have the power to waive provisions of
their by-laws introduced for the protection of the
company, expressly or impliedly;
*Corporate by-laws may be waived by a continued
disregard thereof, by the parties for whose benefit
they were enacted.
SECTION 48 AMENDMENTS to by BY-LAWS
-BOD/BOT may amend , repeal or adopt new by-laws
by a majority vote thereof, and that of the owners of
at least a majority of the OCS, or at least a majority
of the members if a non-stock corporation.
-power to amend or repeal may be delegated to the
BOD/BOT by the owners of 2/3 of the OCS, or 2/3
if the members of a non-stock corporation;
-delegated power may be REVOKED by the SH
representing majority of the OCS, or majority of the
members of the non-stock corporation;
-the vote for the delegation (2/3) is greater than the
vote for revocation which, in the case of stock
corporation, is now based on shareholding, not merely
a numeral majority, which the old Corporation Law
indicated.
-amended or new by-laws shall be attached to theoriginal by-laws in the office of the corporation;
- and a copy thereof, duly certified under oath by the
Corporate secretary and a majority of the directors
or trustees, shall be filed with the SEC;
-amended by-laws shall be effective only upon the
issuance of the SEC that it is not inconsistent with
the Corporation Code.
*The power to adopt the first ORIGINAL by-laws
cannot be delegated to the BOD/BOT;
SECTION 49 KINDS OF MEETINGS
a. REGULAR fixed in the by-laws; generally no notice
is required;
b. SPECIAL called specially other than the regular
meeting; notice is required.
SECTION 50 REGULAR or SPECIAL MEETINGS of
STOCKHOLDERS or MEMBERS
a. STOCKHOLDERS
-shall be held annually on the date fixed in the by-
laws, or if not fixed, on any date of April of every
year as determined by the BOD/BOT;
-notice: 2 weeks prior to the meeting, unless the
different period is required by the by-laws;
SPECIAL MEETINGS of SH shall be held at any time
deemed necessary or as provided in the by-laws,
provided that at least one week written notice shall
be sent to all SH or members , unless otherwise
provided in the by-laws;
-notice of any meeting may be waived expressly, or
impliedly, by any SH or members;
-for a GOOD CAUSE, a meeting may be called on by
order of the SEC upon petition by any SH or member,
and will be presided by the latter until at least a
majority of the SH or members present, have chosen
one of their members as presiding officer.
SECTION51 PLACE ANDTIME OF MEETINGS
OF SH or MEMBERS:
-shall be held where the PRINCIPAL OFFICEwhere the corporation is located whether it is
Regular of Special; or if practicable , in the principal
office of the corporation.
-notice of meetings shall be in WRITING;
-all proceedings or business transacted in
ANY meeting of the SH or members, within the
powers and authority of the corporation, SHALL BE
VALID even if the meetings is IMPROPERLY CALLED,
provided all SH or members have been properlynotified, present or properly represented, and that
the business transacted is not ULTRA VIRES.
SECTION 52 : QUORUM in the MEETINGS:
-shall consists of the SH representing the
majority of the OCS(2/3) or majority of the
members in case of non-stock corporation, unless
otherwise provided in this Code or the by-laws;
-for BOD, shall be majority of the ALL
members of the BOD/BOT;
SECTION 53 REGULAR and SPECIAL MEETINGS
OF THE DIRECTORS and TRUSTEES (no proxy
allowed; personal presence is necessary)
-shall be held MONTHLY unless the by-laws
provides otherwise.
-SPECIAL MEETINGS may be held ANYTIME upon the call of the president or as
provided in the by-laws;
-PLACE: -anywhere in or outside the
Philippines unless the by-laws provide
otherwise.
-NOTICES: - must be sent to every director
or trustee at least one(1) day prior to the
scheduled meeting, unless otherwise
provided by the by-laws.
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-can be waived by the
Director or trustee expressly
or impliedly.
SECTION 54 WHO SHALL PRESIDE at
MEETINGS
-the PRESIDENT or the CHAIRMAN of theBOD/BOT unless otherwise provided in the by-laws.
SECTION 55 RIGHT TO VOTE OF PLEDGORS,
MORTGAGORS and ADMINISTRATORS:
-. Right to Attend and vote at the meetings,
unless the pledgee/mortgagee is given the right in
writing;
-Executors, Administrators or Receivers and
other legal representatives duly appointed by the
Court may ATTEND and VOTE in behalf of the SHor Members WITHOUT NEED OF ANY WRITTEN
PROXY.
SECTION 56: VOTING IN THE CASE OF JOINT
OWNERSHIP of STOCK
-consent of ALL the co-owners shall be
NECESSARY unless there is a WRITTEN PROXY
signed by all the co-owners authorizing one or
some of them or any other person to vote suchshare or shares;
-Shares owned by and/or can be voted by
anyone of the co-owners and anyone of them may
appoint a proxy for said shares so owned.
SECTION 57 VOTING RIGHTS for TREASURY
SHARES:
-NO voting rights as long as the treasury
shares remain in the treasury, for to ruleotherwise would be to enable the directors or the
trustees to perpetuate themselves in the office.
SECTION 58 PROXIES:
-voting of SH or members may be in
PERSON or by PROXY;
-proxies must be in writing and signed by
the SH or member and filed before the
scheduled meeting with the Corporate
Secretary.-proxies are valid only for the meeting for
which it is intended;
-not valid for period longer than five(5)
years at any time.
NOTE: But, Board Meetings of BOD or BOT,
cannot be voted by PROXIES.
SECTION 59 VOTING TRUSTS
-may be created by one or more of the
SH/Members;
-PURPOSE: to confer upon the trustee the
right to vote and other rights pertaining to
the shares for a period NOT EXCEEDING
five(5) years at any one time.
-EXCEPT: if the VOTING TRUST is made asa CONDITION in a loan agreement, Voting Trust may
be for a period exceeding five(5) years but shall
AUTOMATICALLY expire upon full payment of the
loan.
VTA must be in writing; notarized and
shall specify the terms and
conditions thereof.
-certified copy must be filed with the
Corporation and the SEC,
otherwise,it is INEFFECTIVE and
UNENFORCEABLE.
-designed to enable SH to dispose
their shares and still retain control
of the corporation.
EFFECT OF VTA:
-Certificates or shares of stocks
covered by the VTA shall be CANCELLED
and new ones shall be issued in the name
of the Trustee/Trustees stating that theyare issued pursuant to said agreement
in the books of the Corporation.
VTA shall be subject to examination by any SH
provided that both the transferor and trustee may
exercise the RIGHT of INSPECTION of all
corporate books and records in accordance with the
provisions of the Code.
-Unless expressly renewed, ALL rights
granted in a VTA shall automatically expire at theend of the agreed period.
*LIMITATIONS OF VOTING TRUSTS:
1. Period is only for five(5) years except if made as a
condition for a loan agreement.
2. Must be in writing and duly notarized;
3. Must not be entered into to circumvent laws
against monopolies and restraints of trade, nor
shall it be used for purposes of fraud.4. Certified true copy must be filed with the
Corporation and the SEC.
STOCKS and STOCKHOLDERS
SECTION 60 SUBSCRIPTION CONTRACT
-contract for the acquisition of unissued
stock in an existing corporation or a corporation that
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still to be formed, even if the parties denominate the
same as a sale or purchase;
*WHAT is CONSIDERED as a SALE:
Disposal for consideration of treasury
shares is sale by the corporation;
Transfer of fully paid shares by onesubscriber to a third person
*Assignment by a subscriber of his UNPAID
SUBSCRIBED STOCK to another is equivalent to a
release from subscription and therefore, requisites
for a valid release from subscription must be
COMPLIED WITH.
SECTION 61 PRE-INCORPORATION
SUBSCRIPTION
-is a contract that must be complied with
in good faith and therefore, withdrawal by a
SUBSCRIBER or REVOCATION of his subscription
can be done only UNDER the conditions set forth
in this provision.
-irrevocable for a period of at least 6
months from the date of subscription, if the
corporation is still be formed:
a. UNLESS all of the other
subscribers consent to therevocation, or
b. UNLESS the incorporation of
said corporation fails to
materialize within said period.
-revocation of Pre-Incorporation
Subscription cannot be revoked after the
submission of the AOI to the SEC.
SECTION 62 CONSIDERATION for STOCKS-shall NOT be less than the PAR (face
value of the stock in the corporation) or issued price
thereof.
*WHAT can be USED as
CONSIDERATION? (A-P-L-A-P-O)
1. Actual Cash
2.Property Tangible or Intangible, actually
received by the Corporation and necessary or
convenient for its use and lawful purposes at a
fair valuation equal to the par or issued value of
the stock issued;3.Labor Performed for or services actually
rendered to the Corporation.
4. Amounts transferred from unrestricted
retained earnings to stated capital;
5. Previously incurred indebtedness by the
corporation;
6. Outstanding shares exchanged for
stocks in the event of reclassification or
conversion.
**If Consideration is INTANGIBLE PROPERTY
(patents, copyright)
-valuation shall be initially determined by the
incorporators of the BOD subject to the approval of
the SEC.
**Issued price or no-par value shares may beFIXED in the AOI, or by the BOD as
conferred to them by in the AOI or the by-
laws; In the absence thereof, in a meeting
duly held for the purpose representing the
majority of the OCS.
PROMISSORY NOTES even if negotiable
CANNOT be used for paying SHARESexcept
when used to pay STOCKS subject to the
rules that they shall produce the effect of
payment only when they have been cashed.
SECTION 63 Certificate of Stock and Transfer
of shares:
-divided into shares;
-certificates are signed by the president or the VP,
countersigned by the secretary or the asst.
secretary, and sealed with the seal of the
corporation.
-are PERSONAL PROPERTY; transferred only by
delivery of the Certificates indorsed by the owner,
his atty-in-fact or other legally authorized person.
-TRANSFER is valid only when recorded in the Books
of the Corporation, except as between the parties;
-No shares of stock against which the corporation
holds any unpaid claim shall be transferrable in the
Books of the Corporation.
SECTION 64 ISSUANCE of STOCK
CERTIFICATES:
-COSS shall be issued only until full payment
of the amount of subscription together with the
interest and expenses, if any is due, has been paid.
SECTION 65 LIABILITY of DIRECTORS in
WATERED STOCKS;
-shall be SOLIDARILY LIABLE with the SHand its credits for the difference between the fair
value received at the time of its issuance of the
stock and the par or issued value of the stock;
WATERED STOCK
-consideration paid is less than the par or
issued value thereof;
-or the consideration is in any form other
than cash valued in excess of its fair value , which
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was not objected to in writing by the Directors, and
filed the same with the Corporate Secretary.
-referred to the difference between the fair
market value at the time of the issuance of the stock
(NOT AT THE TIME OF DISCOVERY OF THE
INADEQUATE CONSIDERATION or AT THE TIME
PAYMENT IS DEMANDED), and the par or the
issued value of the said stock.
SECTION 66 INTEREST on UNPAID
SUBSCRIPTION
-payment of interest is from the date of
subscription, if so required and at the rate of
interest fixed in the by-laws; if NOT indicated,
interest shall be deemed in the legal rate (12%).
-may be waived if no creditors will be
prejudiced or in the absence of fraud.
SECTION 67 PAYMENT OF BALANCE OF
SUBSCRIPTION
-declared to be due and payable by the BOD
in the Stock Corporation and may collect the same or
such percentage thereof, in either case with interest
accrued , or if it may deem necessary;
-payment shall be made on the date specified
in the contract of subscription, or on the date stated
in the call made by the Board.
-failure to pay renders the entire balance dueand payable, with interest in the legal rate on such
balance, unless a different interest rate is provided
in the by-laws;
NOTE: Non-payment within 30 days shall make the
whole stocks covered by such subscription, become
DELINQUENT , and shall be subject to sale as
hereinafter provided, unless the BOD orders
otherwise.
SECTION 68 DELIQUENCY SALE
*HOW MADE?
-may be ordered by the BOD, which shall specifically
state the amount due on each subscription, plus
accrued interest, and the date, time and place;
-sale shall be made not less than 30 days nor more
than 60 days from the date the stock become
delinquent;
-can no longer be voted; but can still receive dividend;
-NOTICE of SALE will be sent to every delinquent
SH, either personally or by registered mail, which
shall be PUBLISHED once a week for two consecutive
weeks in a newspaper of general circulation in the
province or city where the principal office of the
corporation is located.
**The HIGHEST bidder is the one who pays the
subscription plus interest, cost and expenses for the
smallest number of shares;
**The remaining shares shall be credited in favor of
the DSH, who shall likewise be entitled to the
issuance of the CS covering such shares.
**NO BIDDER for the DS the Corporation may bid
for the same and the total amount due shall be
credited as paid in full in the books of the
corporation.; and title shall be vested in the
corporation as TREASURY SHARES and may be
disposed of by said corporation in accordance with
the provisions in this Code.
SECTION 69 WHEN SALE MAY BE
QUESTIONED
-when the party seeking such action first pays or
tenders to the party holding the stock the sum for
which it was sold, with interest from the date of sale
at the legal rate, within 6 months from the date of
the sale, otherwise, action can no longer be
maintained.
-POSSIBLE GROUNDS:
a. Irregularity or Defect in the Notice of
Sale or
b. in the sale of the Delinquent Stock itself;
SECTION 70 COURT ACTION TO RECOVER
UNPAID SUBSCRIPTION
*REMEDIES for the ENFORCEMENT of STOCK
SUBSCRIPTION:
1. Judicial Action- Collection of Sum of
Money;
2. by Call
3. Denying the Stock the right to Vote or to
be represented in meetings;
SECTION 71 EFFECT OF DELINQUENCY
-declared delinquent stock shall be deprived of:
-right to vote;
-right to be represented;
-right to examine books;
-pre-emptive right or any other right.
EXCEPTION: -right to dividends UNLESS he pays
the amount due on subscription and in such manner as
may be provided by law..
SECTION 72 RIGHTS of UNPAID SHARES
-unpaid shares but NOT DECLARED
delinquent shall have the right of a SH for the
subscriber did not violate any agreement with the
corporation, and he is expected to pay the unpaid
shares with interest at maturity or upon call.
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SECTION 73 LOST/DESTROYED
CERTIFICATES
*Procedure:
1. Submission in triplicate of Affidavit stating
the circumstances of loss, destruction or stolen;
2. Publication of the affidavit afterVerification, in a newspaper of general circulation in
the place where the corporation has its principal
office, once a week for 3 consecutive weeks, at the
expense of the registered owners of the Cert. of
Stock which have been stolen, lost or destroyed.
-no contest within 1 year after the
last publication, the right to do so will be
barred and said corporation shall cancel the
same in the books of the corporation.
3. Issuance of new Cert. of Stock ;
-new CS can be issued even before one year if
the SH filed a bond or other security in lieu
thereof;
-if a CONTEST has been presented, or an
action is filed in Court, issuance of CS shall
be suspended until the final decision by the
Court regarding the ownership of such CS.
-No action can be filed against the issuing
corporation for the lost, stolen or destroyed
CS, except in case of FRAUD, BAD FAITH or
NEGLIGENCE.
CORPORATE BOOKS and RECORDS
SECTION 74 BOOKS TO BE KEPT; STOCK
TRANSFER AGENT
1. Records of ALL business transactions;
2. Minutes of ALL meetings;
3. Stock and Transfer Book (for stock corp)
-shall be kept in the Principal Office
-shall be open for Inspection to any
SH or director at reasonable hours on
business days
-shall be open to inspection of any director, trustee,
SH or member of the corporation at reasonable hoursof business;
-may demand copy of excerpts from said records in
Minutes at his expense.
-refusal to do so shall be punishable under Sec. 144
of this Code; compellable by MANDAMUS.
-if refusal is by Board Resolution, the liability shall
be imposed upon the Directors and Trustees who
voted for such refusal.
-DEFENSE: that the person demanding excerpts has
improperly used any information , or was not acting in
GOOD FAITH or has no LEGITIMATE PURPOSE in
making his demand.
STOCK TRANSFER AGENT
-engaged principally in the business of registering
transfer of stocks in behalf of stock corporation;
-must secure license with the SEC to be allowed to
operate which shall be renewed annually.
Provided, that a stock corporation shall not be
PRECLUDED from performing or making a transfer of
its own stock in which case, all the rules and
regulations imposed on STOCK TRANSFER AGENTS,except the payment for license fee shall be
applicable.
*Philpotts vs. PMC the right to inspect cannot
extend ot a formula or process not generally known
which has proved of utility to the corporation.
-it cannot extend to purely private communications
or correspondence of corporate directors or
officers.
SECTION 75 RIGHT TO FINANCIAL
STATEMENT
-shall be furnish within 10 days from receipt of a
written request of the SH, which shall include the
Balance Sheet, and the profit or loss statement,
assets and liabilities, and the result of operations.
-financial statement shall be duly signed and
certified by an independent CPA; if less than 50K
capital paid-up, can be certified by the CorporateTreasurer.
MERGER AND CONSOLIDATION
SECTION 76 - Plan of Merger or Consolidation
-initiated by the BOD/BOT
MERGER two or more corporations merged
into a single corporation which shall be one of
the constituent corporation;
CONSOLIDATION two or more
corporations will consolidate into a new
corporation
SECTION 77 STOCKHOLDERs or MEMBERs
APPROVAL
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-requires notice to all SH/members, at least two
weeks prior to the date of the meeting, either
personal or registered mail.
-requires 2/3 votes of the majority of the
SH/members for approval. (same with Amendment)
-dissenting SH/member shall the right ofAPPRAISAL which will be extinguished should the
BOD/BOT abandon the plan.
SECTION 78 ARTICLES OF MERGER or
CONSOLIDATION
-executed by EACH of the constituent corporation,
to be signed by the President, or vice-President and
Certified by the Secretary or Asst. Secretary of
each corporation, setting forth:
a. Plan of Merger/Consolidation;b. Number of Shares outstanding/number of
members;
c. Number of shares, or members voting for
and against such plan;
SECTION 79 SEC APPROVAL and EFFECTIVITY
OF MERGER and CONSOLIDATION
-submission of AOM/AOC in quadruplicate to the
SEC;
-special corporations governed by Special Laws shallbe required to first obtain favorable recommendation
of appropriate government agency;
-upon satisfaction of SEC as to the compliance,
Certificate of Merger or of Consolidation shall be
issued, at which time the MERGER or
CONSOLIDATION shall be effective.
-if the merger or consolidation is inconsistent, SEC
shall set a hearing to give corporations opportunity to
be heard.;
-written notice is required at least two weeksbefore the said hearing;
Section 80 EFFECTS of
MERGER/CONSOLIDATION
#. Merger/Consolidation
a. Become a single corporation which shall
become the SURVIVING CORPORATION,
designated in the plan of merger;
b. Separate existence shall cease, exceptthat of the surviving corporation or
consolidated corporation;
c. Possession of rights, privileges immunities
and powers subject to the duties and
liabilities of a corporation under this Code;
d. Interests belonging to, or due to each
constituent corporations shall be deemed
transferred or vested in such surviving or
consolidated corporation
e. Claims or actions against Constituent
Corporation may be prosecuted against the
surviving corporation as the case may be.
f. Non-impairment of the rights of creditorsor any lien upon the property of any of each
of the constituent corporation.
Difference between Merger and Consolidation
-In Merger one of the CC survives, and is
referred as the Surviving Corporation; while in
Consolidation, the CC shall Disappear or is dissolved,
and a new corporation emerged and is known as
Consolidated Corporation.
APPRAISAL RIGHT
SECTION 81 INSTANCES of APPRAISAL
RIGHT
-is consist of the right to dissent and demand
payment of the fair value of his shares because of a
substantial change in organizational set-up of the
corporation, not contemplated by him, during the time
he made his investment in the corporation.
Availed in the following instances:a. Amendment of the AI which changes or
restricts the right of the SH;
b. In case of Sale, Lease, Exchange, Transfer,
Mortgage, Pledge or Disposition of corporate
property and assets;
c. Merger or Consolidation;
d. Investing funds with other corporations.
SECTION 82 HOW RIGHT OF APPRAISAL IS
EXERCISED:
-by a written demand, within 30 days after
the date on which the vote was taken for payment of
the fair market value of his shares.
*What is the Effect of the Failure to
Make a Demand?
-shall be deemed as a waiver of his appraisal
right;
*What is the DUTY of the Corporation ifthe Proposed corporate action is effected?
-pays the SH;
-upon surrender of the CS;
-w/c shall be based on the fair value
as of the day prior to the date on
which the vote was taken;
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*What if the corporation and the SH cannot agree
to the fair value of the shares?
-shall be determined and appraised by 3
disinterested person, whose finding shall be
final;
-award shall be paid by the corporation w/in
30 days after such award was made;
-no payment shall be made, unless thecorporation has UNRESTRICTED RETAINED
EARNINGS to cover such payment;
-transfer shall be made upon payment of the
agreed price;
*What are the conditions for a Valid exercise of
Appraisal Right? (D-M-A-P-T)
1.Demand for Payment must arise;
2. made in writing by the Dissenting SH within
30 days from the date the vote is taken;3. appraised value is determined ;
4. payment of shares;
5. Transfer of Shares to the Corporation.
SECTION 83 EFFECT OF DEMAND and
TERMINATION OF RIGHT
-all rights accruing to the SH shares, including voting
and dividends rights shall be SUSPENDED, except
the right of the SH to receive payment of the fair
value thereof.
-if dissenting SH is not paid within 30 days after the
award, his voting and dividend rights shall be
immediately RESTORED;
SECTION 84 WHEN RIGHT OF PAYMENT
CEASES: D-A-D
1. demand for payment is withdrawn with the
consent of the corporation;
2. abandonment, rescission, or disapproval ofthe proposed Corporate action;
3. Determined by the SEC
SECTIOn 85 WHO BEARS THE COST OF
APPRAISAL
1. By the Corporation if the value determined by
the appraisers is HIGHER than what was offered by
the Corporation to the dissenting Stock Holder;
-and, if action to recover the fair value is
filed and the refusal of the SH to receivepayment is Justified.
2. By the Dissenting SH if the value offered by
the appraisers is APPROXIMATELY the same as the
price offered by the Corporation;
-and if an action to recover shares is filed
and the refusal of the SH to receive payment
is Unjustified;
SECTION 86 NOTATION on CERTIFICATE(s);
RIGHT OF THE TRANSFEREE;
-CS of the Dissenting SH shall be submitted for
Notation within 10 days after Demanding payment of
his shares;
-failure to do so shall TERMINATE his rights at theoption of the Corporation;
RIGHT OF TRANSFEREE becomes a regular SH and
the appraisal right of the Dissenting SH shall legally
CEASE>
NON-STOCK CORPORATION
SECTION 87: What is a NON-STOCK
CORPORATION?
-one where no part of its income is DISTRIBUTABLE
to the members , trustees, or officers subject to the
Provisions of this Code, on Dissolution.
-profits obtained shall be used for the
FURTHERANCE of the purposes upon which it was
organized.
SECTION 88 PURPOSES
-may be for Charitable, Religious, Educational,Professional, Cultural, Recreational, Fraternal,
Literary, Scientific, Social, Civic Service, or similar
purposes, like Trade, Industry, Agriculture, or any
combination thereof.
SECTION 89 RIGHT TO VOTE
-may be limited, broadened, or denied to the extent
specified in the articles of Incorporation or the by-
laws, otherwise, each member is entitled only to ONE
VOTE>
-VOTING By MAIL may be authorized under the
AOI or the By-Laws subject to the approval and
under the conditions prescribed by the SEC;
-Unless otherwise provided in the AOI/By-laws, a
member may vote by PROXY in accordance with the
provisions of this Code.
-CUMULATIVE VOTING if there are seven
trustees to be voted, a Member is entitled to Seven
Votes and he may cumulate the seven votes for OneCandidate or divide the same among several
Candidates.
SECTION 90 NON-TRANSFERABILITY of
MEMBERSHIP
-membership in NSCorp is a personal right and non-
transferable, Unless the AOI or the by-laws provide
otherwise.
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SECTION 91 TERMINATION OF MEMBERSHIP
-in the manner and causes provided in the By-laws or
AOI;
-shall have the EFFECT of EXTINGUISHING all
rights of the member unless otherwise provided in
the AOI or the by-laws.
TRUSTEES and OFFICERS
SECTION 92 Election and Term of Trustees
-BOT of Non-stock Corporation may be more than 15
in number, as may be fixed in the AOI/By-laws;
-shall classify themselves that the term of office of
1/3 of the number of the BOT shall expire every
year;
-election shall be held annually and the term of the
trustees so elected will be 3 years;
-trustees thereafter elected to fill vacancies before
the expiration of the period shall hold office only for
the unexpired term.
-non-member of the corporation shall not be elected
as trustee;
-may be directly elected by the members unlessotherwise provided in the by-laws or in the AOI;
SECTION 93 Place of Meetings
-regular or special meetings may be held at any place
even outside the place where the principal office of
the corporation is Located;
-requires proper notice to all members and provided
that the meeting be within the Philippines;
DISTRIBUTION of ASSETS in a NON-STOCKCORPORATION
Section 94 RULES for the DISTRIBUTION
1. Liabilities and obligation shall be paid, satisfied and
discharged;
2. Assets held by the Corporation under a condition
of returning, transferring or conveying upon
dissolution shall be returned, transferred or
conveyed.
3. Assets received and held by the Corporation with
the use limited for purposes of charitable, religious,educational, or similar purposes, but not held upon a
condition requiring return, transfer or conveyance
upon dissolution, SHALL be TRANSFERRED OR
CONVEYED to one or more corporations, engaged in
similar activities in the Philippines;
4. Other assets shall be distributed in accordance
with the provisions of the AOI or the By-laws;
5. Other assets may be distributed to persons,
societies , organizations, or corporations whether or
not organized for profit as may be specified in a plan
of distribution as provided in the Code.
SECTION 95 PLAN OF DISTRIBUTION of
ASSETS
*Manner of Adopting the Plan of Distribution of
Assets:
1. Recommended by the majority of the BOT
through a resolution;
2. To be voted by the members in a regular or
special meeting;
3. Written Notice is required and given to
each member entitled to vote.
4. Adoption of the PDA upon approval of at
least 2/3 of the members having votingrights present or represented by proxy
in a meeting called for the purpose.
CLOSE CORPORATIONS
SECTION 96 DEFINITION and APPLICABILITY
of TITLE
-are those whose AOI provides that:
1. Issued stocks shall be held of record by
not more than 20 members;2. Stocks are subject to specified
restrictions on transfer;
3. No public offering of stocks;
*When at least 2/3 of the Voting Stock/Right is
owned or controlled by another corporation which is
NOT a close corporation, it shall be deemed to be
NOT a CLOSE CORPORATION>
*Any corporation may be incorporated as CLOSE
CORPORATION, except: (M-E-P-S-B-I-C)a. Mining/oil Companies;
b. Educational Institutions;
c. Public Utilities
c. Stock Exchanges;
d. Banks;
e. Insurance Companies;
f. Corporations declared vested with Public
Interest
SECTION 97 ARTICLES OF INCORPORATION
-shall provide:a. Classification of Shares or rights and the
Qualifications of owning or holding the
same;
b. Classifications of Directors into one or
more classes,; may be voted for and elected
solely by a particular class of stock;
c. Greater Quorum or voting requirements in
meetings of SH or directors;
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d. May provide that the SH may elect or
appoint officers or employees instead of
the BOD;
-may provide that business of the
Corporation may be managed by the SH
rather than the BOD, with the following
provisions:
1. No meeting of SH need be called toelect directors;
2. SH shall be deemed to be
DIRECTORS unless the context
requires otherwise.
3.SH shall be subject to all liabilities
of Directors;
SECTION 98 VALIDITY of RESTRICTION on
TRANSFER of SHARES
-restriction on the right to transfer shares MUSTAPPEAR in the AOI, otherwise shall not be binding
for any purpose in GOOD FAITH.
-shall not be more ONEROUS than granting the
existing SH the option to purchase;
-if upon the expiration of a period, the Existing SH
or the corporation fails to exercise the option to
purchase, the Transferring SH may sell the his
shares to ANY THIRD PERSON>
SECTION 99 ISSUANCE OR TRANSFER OF
STOCK OF A CLOSE CORPORATION in BREACH
OF QUALIFYING CONDITION
1. If issued to a person NOT ENTITLED:
-is conclusively PRESUMED to be notified of
the fact of his ineligibility to be a SH;
2. If the AOI states that the Corporation should not
exceed 20 members:
-person is conclusively presumed to beNOTIFIED of such fact;
3. If Restriction of Share Transfer is shown:
-the transferee is conclusively presumed that
his acquisition of stock is in violation of the
restriction;
4. By reason of the above-mentioned, the
Corporation
may REFUSE to REGISTER the
transfer of the stock in the name of the
transferee.
-except if the causes are CONSENTED To by
all of the Stockholders of the Close
Corporation or if the Close Corp. has
amended the AOI in accordance with this
Title.
*Transfer is NOT LIMITED to a transfer for Value;
*Right of Transferee to rescind the transaction or to
recover under applicable warranty, express or implied
shall not be IMPAIRED>
SECTION 100 AGREEMENTS by the
STOCKHOLDERS
1. Agreements before the Formation/Organization of
a Close Corporation:
-survives the incorporation of the CCorp;
-continues to be valid and binding if such be
their intent, provided it is not inconsistent with the
AOI;
2. Agreements may be made by two or more SH in
writing and signed by the parties;
3. The following agreements cannot be
INVALIDATED:a. Written agreements to the effect that the
parties will make each other partners among
themselves;
b. agreements which relate to the conduct or
affairs of the corporation as to restrict or
interfere with the discretion of the BOD;
4. SH shall be held to strict FIDUCIARY DUTIES
among each other in the management of the business
of the Corporation;
-shall be personally liable for corporate tortsunless the corporation has obtained
reasonably adequate liability insurance.
SECTION 101 WHEN BOARD MEETING IS
UNNECESSARY or IMPROPERLY HELD?
(B-A-A-D)
1. Before or after such action is taken, written
consent is signed by all of the BOD;
2. Actual or implied knowledge by all of the SH and noprompt objection was interposed;
3. Accustomation of the BOD of informal action with
express or implied acquiescence of all of the SH;
4. Directors have express or implied knowledge of
the action questioned but did not make any prompt
objection thereto;
*IN CASE of ABSENCE OF PROPER NOTICE OR
CALL:
-actions are deemed RATIFIED by the
absent DIRECTOR, unless he promptly filed anobjection with the secretary of the Corporation
after having knowledge thereof.
SECTION 102 PRE-EMPTIVE RIGHT In CLOSE
CORPORATION
-shall extend to ALL STOCKS issued , including the
reissuance of treasury shares whether for money,
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property or personal services or in payment of
corporate debts, unless the AOI provides otherwise.
SECTION 103 AMENDMENT OF THE AOI
-purposes:
1. delete or remove any provision;
2. to reduce the quorum or votingrequirement;
-AMENDING requires the approval of at least 2/3
of the OCS, with or without voting rights; OR of
such greater proportion of shares as may be
specifically provided in the AOI, in the meeting
called for such purpose.
SECTION 104 DEADLOCK
-business and affairs of the corporation can no longerbe conducted to the advantage of the SH;
-SEC shall have the power to arbitrate upon
written petition by any SH, and may order to:
(C-A-R-D-D-A-G)
a. Cancel/Alter the provisions in the AOI;
b. Altering/Cancelling or Enjoining any
Resolutions;
c. Requiring the purchase at the fair value of
shares of any SH either by the Corporationor other SH, regardless of the availability
of the unrestricted retained earnings
d. Directing or Prohibiting any act of the corp
e. Dissolving the Corporation;;
f. Appointing a Provisional Directorg. Granting such other relief as the
circumstances may warrant.
PROVISIONAL DIRECTOR:
-an impartial person who is neither a SH or acreditor of the corporation, and whose other
qualifications may be determined by the SEC;
-not a RECEIVER;
-shall have all the RIGHTS and POWERS of a
duly elected director of the Corporation,
until such time he shall be removed by the
SEC or by all of the SH.
SECTION 105 WITHDRAWAL OF THE
STOCKHOLDER OR DISSOLUTION OF THECORPORATION:of a close corporation!
*Withdrawal of the SH:
-by COMPELLING the corporation to
purchase his shares at their Fair Value, which shall
not be less than their par or issued value, and when
the Corporation has SUFFICIENT assets in its books
to cover its debts and liabilities Exclusive of the
Capital Stock.
*Dissolution of the Corporation
-may be compelled by any SH by a written
petition to the SEC, when:
a. the acts of the Directors, et.al, who
controlled the corporations is illegal,
Fraudulent, Dishonest, oppressive orUnfairly Prejudicial to the Corporation or
the SH;
b. the corporate assets are misapplied or
wasted.
SPECIAL CORPORATIONS
SECTION 106 EDUCATIONAL CORPORATIONS
Incorporation governed by Special Laws (EducationAct of 1982, BP 232) and the Corporation Code.
SECTION 107 PRE-REQUISITES to
INCORPORATION
-Favorable Recommendation of the Secretary of
Education;
SECTION 108 BOARD of TRUSTEES
Educational Corporation
-shall not be less than five(5) , nor more than 15 ;
provided that the number of trustees
shall be in
MULTIPLES of five.
-shall classify themselves that the term of office of
1/5 of their number shall expire every year.
-term of office is five(5) years;
-A majority of the trustees shall CONSTITUTE a
quorum for the transaction of business.
SECTION 109 RELIGIOUS CORPORATION
KINDS:
-sole
-religious societies governed by the Chapter II
Sec. 109 of the Corporation Code.
-formed by religious society, group or any
religious denominations, sect or church after getting
an approval of 2/3 of its members.
-must be composed of 60% religious flock, if
the incorporator is an alien, he being a mere
administrator of the temporalities of the church.
SECTION 110 Corporation Sole
-usually associated with the clergy, consists
of one person ONLY and his successors, incorporated
by law to give some legal capacities and advantages.
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-may be formed by the Archbishop, Bishop, or
priest of other presiding elder to administer or
manage the affairs, property and temporalities of the
church.
-NATIONALITY OF CORPORATION SOLE:
-determine by the Nationality of itsmembers constituting the Sect.
-can acquire land if its members are
60% Filipinos.
*Effect of Separation of Members:
-not entitled to any right over the properties;
*HOW CONVERSION be MADE
-by amending its AOI, with the concurrence
of 2/3 of the members of the corporation sole;
*DISSOLUTION?
-by filing
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