CORPORATION CODE OF THE PHILIPPINES otherwise deal with such real and personal  Express powers – those expressly

 Express powers – those expressly provided by the

FINALS REVIEWER property, including securities and bonds of Corporation Code, special laws, administrative
Personal Reviewer by Kelvin Jaluag Culajara, CPA other corporations, as the transaction of regulations, and articles of incorporation. Note:
the lawful business of the corporation may The powers provided for in the Corporation Code
TITLE IV: POWERS OF CORPORATIONS reasonably and necessarily require, subject are deemed part of the Articles of Incorporation
to the limitations prescribed by law and the even if such powers are not enumerated therein.
(Sec. 36) Corporate powers and capacity Constitution;  Implied powers - such other powers as may be
1. To sue and be sued in its corporate name; 8. To enter into merger or consolidation with essential or necessary to carry out its purpose or
2. Of succession by its corporate name for the other corporations as provided in this purposes as stated in the articles of incorporation.
period of time stated in the articles of Code; Note: Under the Revised Code: “To enter Note: This refers to one that is directly and
incorporation and the certificate of into a partnership, joint venture, merger, immediately appropriate for the execution of
incorporation; Note: Under the Revised consolidation, or any other commercial agreement specific powers; and not one that has slight,
Corporation Code (R.A. No. 11232, or the with natural and juridical persons”. indirect or remote relation to the specific
“Revised Code” for brevity), corporations shall 9. To make reasonable donations, including purposes.
have perpetual existence unless the certificate of those for the public welfare or for hospital, o In one case, the Supreme Court held that
incorporation provides otherwise. charitable, cultural, scientific, civic or a seller, dealer or importer of goods does
3. To adopt and use a corporate seal; similar purposes: Provided, That no not automatically classify one as
4. To amend its articles of incorporation in corporation, domestic or foreign, shall give manufacturer because manufacturing is
accordance with the provisions of the donations in aid of any political party or not fairly and reasonably necessary or
Code; candidate or for purposes of partisan incidental to the business of selling.
5. To adopt by-laws not contrary to law, political activity; Note: Under the Revised  However, a manufacturing
morals, or public policy, and to amend or Code, to “Provided” clause states: “Provided, That corporation has an implied
repeal the same in accordance with this no foreign corporation shall give donations in aid power to sell what it
Code; of any political party or candidate or for purposes manufactures.
of partisan political activity.” Hence, domestic  Incidental powers – these are powers that are
6. Note:
corporations are now allowed by law to give deemed conferred on the corporation because they
o In case of stock corporations – to
donations in aid of partisan political activity. are incidental to the existence of the corporation,
issue or sell stocks to subscribers
and to sell treasury stocks in 10. To establish pension, retirement, and other such as:
accordance with the provisions of plans for the benefit of its directors, o Right to succession;
this Code; trustees, officers, and employees; and o Right to have a corporate name;
o In case of non-stock corporation – 11. To exercise such other powers as may be o Right to make by-laws for its
to admit members to the essential or necessary to carry out its government;
corporation. purpose or purposes as stated in the o Right to sue and be sued; and
7. To purchase, receive, take or grant, hold, articles of incorporation. o Right to acquire and hold properties for
convey, sell, lease, pledge, mortgage and the purposes authorized by the charter.
Kinds of corporate powers
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To sue and be sued in its corporate name Power to adopt and use corporate seal To acquire, sell, lease or otherwise deal with real or personal
 The Supreme Court now requires corporations to  A seal is not indispensable for the transactions or property
attach a copy of the Board Resolution authorizing contracts of the corporation. There are two (2) basic requirements in order that a
the filing of the complaint or petition.  A document may be considered valid and binding corporation can deal with real or personal property, which
 If no power of attorney, secretary’s certificate, or even in the absence of a seal. requirements are as follows:
board resolution is attached to the petition or  A seal may be necessary with respect to a  It must be reasonably and necessarily required by
complaint, the pleading is not properly verified and certificate of stock as provided for under Section the transaction of the lawful business of the
should be treated as an unsigned pleading. A 63. corporation.
person, including the counsel of the corporation,  It is subject to limitations prescribed by law and
who alleges that he is duly authorized to file an Power to amend articles of incorporation the Constitution.
action must present a resolution issued by the This is self-explanatory.
Board that specifically authorized him to institute Note: In the absence of any provision in the By-laws as to
the action and execute the certification against Power to adopt by-laws the number of votes required, the vote of stockholders
forum shopping. Only then would his actions be  It is implicit that a corporation may exist even representing the majority of the outstanding capital stock is
binding on the corporation. without the by-laws. sufficient to approve the sale.
o However, the Supreme Court has since
 By-laws are meant to regulate the manner of
relaxed the rule by ruling that in Temporary lease of properties even if a corporation is not
conducting the internal affairs of the corporation
exceptional cases, certain officers have engaged in the business of leasing properties may be allowed
implied authority to sign the certification provided the following SEC requirements are followed:
Powers regarding shares and membership
against non-forum shopping to which the  The property is not presently used by the
requirement of submission of a Board  Stock corporation
corporation and leasing of the property is not made
resolution was dispensed. o To issue unsubscribed shares;
on a regular basis.
o To sell treasury stocks;
o To sell delinquent shares;  Leasing the property will make it productive
A corporation generally cannot sue for moral damages. But instead of allowing them to remain idle.
at the point in which there is defamation upon goodwill of o To acquire its own shares in proper cases;
o To redeem redeemable shares;  There are no express restrictions in the articles of
corporate name, there can be a suit for moral damages
o To increase or decrease par value of incorporation and by-laws.
involving the corporation.
shares;  The leasing of property is not used to prejudice
Power of succession o To resort to stock split. corporate creditors or result in the infringement of
This is self-explanatory.  Non-stock corporation the trust fund doctrine.
o To admit members of the corporation.
However, under the Revised Corporation Code (R.A. No. Note: The corporation may prescribe the To enter into merger or consolidation
11232, or the “Revised Code” for brevity), corporations qualifications of members and may  Merger occurs when two or more corporations
shall have perpetual existence unless the certificate of provide for grounds for their merge into a single corporation which shall be one
incorporation provides otherwise. disqualification. of the constituent corporations.

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  Consolidation happens when two or more agents and officers. Note: And also, doing so may do so to secure the obligation of a
corporations form a new single corporation. would improperly allow corporate property to subsidiary.
become subject to risks not contemplated by the
Under the Revised Code, corporations now have the power stockholders when they originally invested in the Exceptionally, SEC opined that the corporation can
to enter into a partnership, joint venture, merger, corporation. mortgage its properties for the obligations of another
consolidation, or any other commercial agreement with corporation which is not its subsidiary provided the
natural and juridical persons. By way of exception, the SEC allows a corporation to be a following requirements are present:
partner if the following conditions are present:  There is no express restriction in articles of
To make reasonable donations  The authority to enter into a partnership relation is incorporation and by laws;
Donations may be allowed provided the following requisites expressly conferred by the charter or articles of  The purpose of mortgage is not illegal;
are complied: incorporation of the corporation, and the nature of  The consent of all corporate creditors and
 The donation must be reasonable; the business venture to be undertaken by the stockholders must be secured;
 The donation must be for valid purposes including partnership is in line with the business authorized
 The transaction is not used as a scheme to defraud
public welfare for hospital, charitable, cultural, by the charter or articles of incorporation of the
or prejudice corporate directors or result in the
scientific, civic or similar purposes; corporation involved.
infringement of the Trust Fund Doctrine;
 The donation must not be in aid of any political  The partnership must be a limited partnership and
 The mortgage will not hamper the continuous
party or candidate or for purposes of partisan the corporation must be a limited partner.
business operation of the corporation; and
political activity.  If it is a foreign corporation, it must obtain a
 The accommodated third party is financially
license to transact business in the country.
solvent and capable of paying its obligation.
Under the Revised Code, to “Provided” clause states:
“Provided, That no foreign corporation shall give donations A corporation can enter into a joint venture. A joint venture
Generally, a corporation cannot practice any profession
in aid of any political party or candidate or for purposes of is an organization formed for some temporary purpose. It is
pursuant to a public policy that the ethics of any profession
partisan political activity.” Hence, domestic corporations akin to a partnership since their elements are similar –
is based upon individual responsibility, personal
are now allowed by law to give donations in aid of partisan community of interest in the business, sharing profits and
accountability, and independence.
political activity. Said prohibition applies only to foreign losses, and mutual right of control.
 An exception to this rule is that architects can
corporations.
organize a corporation for the practice of their
 The power to borrow money is auxiliary to the
profession. (Section 37, R.A. No. 9266)
Other powers primary purposes of the corporation. Note: To act
 To hire employees, engage the services of as surety or guarantor, in the absence of an express
(Sec. 37) Power to extend or shorten corporate
contracts, open bank accounts, and other matters power, is not a necessary or incidental power.
term, how exercised
necessary for its operations. However it may be allowed when reasonably
necessary or proper in the conduct of business.  When approved by a majority vote of the
 A corporation cannot enter into a contract of board of directors or trustees
partnership, pursuant to public policy that a o Note further: The corporation cannot
mortgage its properties to secure the  Ratified at a meeting by
corporation will be bound by the acts of persons
obligation of third persons. However, it o Stock corporation – at least 2/3 of
who are not its duly appointed and authorized
the outstanding capital stock
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 o Non-stock corporation – at least  Written notice of the proposed increase or  The names, nationalities
2/3 of the members. diminution of the capital stock or of the and residences of the
 Written notice of the proposed action and incurring, creating, or increasing of any persons subscribing;
of the time and place of the meeting shall bonded indebtedness and of the time and  The amount of capital stock
be addressed to each stockholder or place of the stockholder’s meeting must be or number of no-par stock
member at his residence as shown on the addressed to each stockholder at his place subscribed by each
books of the corporation and deposited to of residence as shown on the books of the subscriber;
the addressee in the post office with corporation and deposited to the addressee  The amount paid by each
postage prepaid, or served personally; in the post office with postage prepaid, or on his subscription in cash
o Provided that in case of extension served personally. or property;
of corporate term any dissenting  A certificate in duplicate must be signed by  The amount of capital stock
stockholder may exercise his a majority of the directors of the or number of shares of no-
appraisal right. Note: Section 81 corporation and countersigned by the par stock allotted to each
provides that an appraisal right is available chairman and the secretary of the stockholder if such increase
even in the shortening of the corporate stockholder’s meeting. is for the purpose of making
term.  Any increase or decrease in the capital effective stock dividend
 A copy of the amended articles of incorporation stock or the incurring, creating or therefor authorized;
shall be submitted to the SEC for its approval. increasing of any bonded indebtedness  Any bonded indebtedness to be incurred,
Note: If there is no express approval, the shall require prior approval of the created or increased;
amendment is deemed approved upon the inaction Securities and Exchange Commission.  The actual indebtedness of the corporation
of the SEC for 6 months after submission due not on the day of the meeting;
to the fault of the corporation. Contents of the certificate in duplicate  The amount of stock represented at the
 That the requirements of Section 38 has meeting; and
(Sec. 38) Power to increase or decrease capital been complied with;
stock; incur, create or increase bonded  The vote authorizing the increase or
 The amount of the increase or diminution diminution of the capital stock, or the
indebtedness, how exercised
of the capital stock; incurring, creating or increasing of any
 There must be approval by a majority vote
 Note: bonded indebtedness.
of the board of directors;
o If an increase of the capital stock
 Favored by 2/3 of the outstanding capital  The amount of capital Other matters
stock shall favor the increase or diminution stock; or  One of the duplicate certificates shall be
of the capital stock, or the incurring,
 The number of shares of no- kept on file in the office of the corporation
creating or increasing of any bonded and the other shall be filed with the SEC
par stock thereof actually
indebtedness in a stockholder’s meeting and attached to the original articles of
subscribed;
duly called for the purpose; incorporation.

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 From and after approval by the SEC and the  Bonds issued by a corporation shall be o With respect to the increase of capital
issuance of its certificate of filing, the registered with the SEC, which shall have stock, the application filed with the SEC
capital stock shall stand increased or the authority to determine the sufficiency shall be accompanied by the sworn
decreased and the incurring, creating or of the terms thereof. statement of the treasurer of the
increasing of any bonded indebtedness corporation showing the compliance with
authorized – Increase or decrease of capital stock the 25%-25% rule. Note: The required
o Provided that the SEC shall not The exercise of the power to increase or decrease the 25% subscription shall be based on the
accept for filing any certificate of authorized capital stock of the corporation results in the additional amount by which the capital
increase of capital stock unless amendment of the articles of incorporation. This should be stock is increased and not on the total
accompanied by a sworn statement distinguished from mere increase of subscribed capital stock capital stock as increased.
of the treasurer, showing that – or paid-up capital which does not necessarily require  Any increase or decrease in the capital stock shall
 at least 25% of the capital amendment of the articles of incorporation. require prior approval of the Securities and
stock has been subscribed; Exchange Commission.
and Other matters
 that at least 25% of the  Increase or decrease of capital will not necessarily Other matters
amount subscribed has been result if there is a stock split.  The exercise of the power to decrease capital stock
paid either in actual cash to is management prerogative, as long as the rights of
the corporation; or Requirements the creditors are not affected. Note: Consent of
 that there has been  There must be approval by a majority vote of the creditors must be secured if the authorized capital
transferred to the board of directors; is decreased.
corporation property the  Favored by 2/3 of the outstanding capital stock  The financial statements are additional
valuation of which is equal shall favor the increase or diminution of the capital documentary requirements because the SEC will
to 25% of the subscription. stock; allow decrease in capital stock only if the capital of
o Provided, further, that no decrease  Written notice of the proposed increase or the corporation will not be impaired.
of the capital stock shall be diminution of the capital stock must be addressed  Approval by the SEC is essential. There is no
approved by the Commission if its to each stockholder at his place of residence as increase in the authorized capital stock even if the
effect shall prejudice the rights of shown on the books of the corporation and stockholders already paid the additional
corporate creditors. deposited to the addressee in the post office with subscription without SEC approval. Any payment
 Non-stock corporations may incur or postage prepaid, or served personally. by the shareholder of the subscription shall be
create bonded indebtedness, or increase  A certificate in duplicate must be signed by a considered as deposits only on future
the same, with the approval by a majority majority of the directors of the corporation and subscriptions.
vote of the board of trustees and of at least countersigned by the chairman and the secretary of
2/3 of the members in a meeting duly the stockholder’s meeting; (See previous paragraph Bonded indebtedness
called for the purpose. for the contents of the certificate)  Section 38 does not cover all kinds of indebtedness
because a corporation has an implied power to

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 borrow money when necessary to carry out the to all issues or disposition of shares of any by him, it does not follow that said shares should
purposes of its organization. class, in proportion to their respective be offered on a pro-rata basis to stockholders who
 In the exercise of such implied power, a shareholdings, unless such right is denied took advantage of their pre-emptive rights. Thus,
corporation may execute notes or other customary by the articles of incorporation or an the shares may be offered to non-stockholders of
evidences of indebtedness. amendment thereto; record on a first-come first-serve basis.
o Provided that such pre-emptive  Pre-emptive right is not available when shares are
Bonded indebtedness refers to secured indebtedness or right shall not extend to shares to issued in exchange for shares in another
those secured by real or personal property. The following be issued in compliance with laws corporation if the same is the result of a merger to
are the requirements: requiring stock offerings or which the corporations are parties.
 There must be approval by a majority vote of the minimum stock ownership by the  Pre-emptive right may be waived. Waiver is a
board of directors; public; or personal right.
o Shares to be issued in good faith
 Favored by 2/3 of the outstanding capital stock  Pre-emptive right may be exercised within the
with the approval of 2/3 of the
shall favor the incurring, creating or increasing of time prescribed by the Board, or in accordance
outstanding capital stock, in
any bonded indebtedness in a stockholder’s with the articles of incorporation or the by-laws.
exchange for property needed for
meeting duly called for the purpose;
corporate purposes or in payment
 Written notice of the proposed incurring, creating, of a previously contracted debt.
Instances when pre-emptive right is not available
or increasing of any bonded indebtedness and of  When the right is denied in the Articles of
the time and place of the stockholder’s meeting Pre-emptive right is the right of shareholders to subscribe to Incorporation;
must be addressed to each stockholder at his place all issues or disposition of shares of any class in proportion  When shares are issued in compliance with laws
of residence as shown on the books of the to their shareholdings. requiring stock offerings or minimum stock
corporation and deposited to the addressee in the ownership by the public; and
post office with postage prepaid, or served The foundation or underlying basis of this right is to  When shares are issued in good faith with the
personally. maintain the relative and proportionate voting strength and approval of stockholders representing 2/3 of the
 A certificate in duplicate must be signed by a control of existing shareholders. outstanding capital stock, in exchange for property
majority of the directors of the corporation and needed for corporate purposes or in payment of a
countersigned by the chairman and the secretary of Instances when pre-emptive right may be exercised previously contracted debt.
the stockholder’s meeting.  Technically, all issues and disposition of shares
 Any increase or decrease in the capital stock or the (including treasury shares). If the pre-emptive right is denied, the remedy of the
incurring, creating or increasing of any bonded  Issues and disposition of unsubscribed shares which offended stockholder is to avail of his appraisal right.
indebtedness shall require prior approval of the are part of the original capital stock and the
Securities and Exchange Commission. increase of capital stock. Note that appraisal right normally applies in amendments of
articles of incorporation. If the denial of pre-emptive right is
(Sec. 39) Power to deny pre-emptive right Other matters in the articles of incorporation in itself, the stockholder may
 In a stock corporation, all stockholders  The SEC has ruled that if the shares corresponding
no longer avail of appraisal rights.
shall enjoy pre-emptive right to subscribe to one stockholder are not subscribed or purchased
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(Sec. 40) Sale or other disposition of assets, how Other matters o There is a consolidation or merger or a de
made  A sale or other disposition shall be deemed facto merger;
 There must be a majority vote of the board to cover substantially all the corporate o If the purchase was in fraud of creditors;
of directors or trustees to sell, lease, property and assets if the corporation and
exchange, mortgage, pledge or dispose of would be rendered incapable of continuing o If the purchaser becomes a continuation
all or substantially all of its property and the business or accomplishing the purpose of the seller.
assets including its goodwill; for which it was incorporated. Note: If the  If the creditors did not consent to the transfer, the
 The disposition must be for consideration transaction does not cover all or substantially all of only way the transfer can proceed without
which may be money, stocks, bonds or the assets, the decision of the board is sufficient prejudice to the creditors is to hold the assignee
other instruments for the payment of and it is not necessary to get the approval of the liable for the obligations of the assignor.
money or other property or consideration; stockholders.
 In a meeting duly called for the purpose,  After such authorization or approval by the Badges of fraud
such disposition has to be authorized by – stockholders or members, the board of 1. The fact that the consideration of the conveyance is
o Stock corporation – 2/3 of the directors or trustees may nevertheless fictitious or inadequate;
outstanding capital stock; abandon such disposition subject to the 2. A transfer made by a debtor after suit has been
o Non-stock corporation – 2/3 of the rights of third parties under any contract begun and while it is pending against him;
members. Note: Where there are no relating thereto, without further action or 3. A sale upon credit by an insolvent debtor;
members with voting rights, the approval by the stockholders or members. 4. Evidence of large indebtedness or complete
vote of at least a majority of the  Nothing in this section is intended to insolvency;
trustees will suffice as restrict the power of any corporation, 5. The transfer of all or nearly all of his property by a
authorization for the corporation without the authorization by the debtor, especially when he is insolvent or greatly
to enter into any transaction stockholders or members to dispose of any embarrassed financially;
authorized by this section. of its property and assets if the same is 6. The fact that the transfer is made between father
necessary in the usual and regular course of and son, when there are present other of the above
 Written notice of the proposed action and
business of said corporation or if the circumstances;
of the time and place of the meeting shall
proceeds of the sale or other disposition be 7. The failure of the vendee to take exclusive
be addressed to each stockholder or
appropriated for the conduct of its possession of all property.
member at his place of residence as shown
on the books of the corporation and remaining business.
The Bulk Sales Law
deposited to the addressee in the post
Effect on creditors When there is a sale in bulk – when there is sale, transfer,
office with postage prepaid, or served
mortgage or assignment of:
personally;  The transferee-corporation of all or substantially
o Provided that any dissenting all of the assets (or even shares) of the transferor-  Stock of goods, wares, merchandise, provisions or
stockholder may exercise his corporation will not be liable for the debts of said materials otherwise in the ordinary course of trade
appraisal right. transferor-corporation, except: and the regular prosecution of business of the
o If there is an express or implied vendor, mortgagor, transferor or assignor;
assumption of liabilities;
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  The trade or business conducted by the vendor, wholesale business. Section 40 of the Code provides that The corporation must have unrestricted retained
mortgagor, transferor or assignor; and nothing in the law is intended to restrict the power of any earnings in its books to cover the shares to be
 All or substantially all of the fixtures and corporation, without authorization by the stockholders or purchased or acquired.
equipment used in and about the business of the members, to sell or dispose any of its property and assets if
vendor, mortgagor, transferor or assignor. the same is necessary in the usual and regular course of Requirements for acquisitions
business or if the proceeds of the sale or other disposition of  It is for a legitimate and proper corporate purpose;
It shall be the duty of every seller, mortgagor, transferor, or such property and assets be appropriated for the conduct of  There shall be an unrestricted retained earnings to
assignor, before receiving from the vendee, mortgagee or its remaining business. purchase the same and its capital is not thereby
his agent or representative any part of the purchase price, or impaired;
any promissory note, memorandum or other evidence Case B
 The corporation acts in good faith and without
therefor, to deliver such vendee, mortgagee or agent (or to X Corporation is engaged in the business of milling of rice.
prejudice to the rights of creditors and
the president, vice-president, treasurer, secretary or Around 60% of its assets consists of cash in the bank, 30%
stockholders; and
manager if such vendee, mortgagee or agent is a rice milling machine, and 10% are office equipment and
supplies. X Corporation sold its machine. Can it be  The conditions of corporate affairs warrant it.
corporation; or to a member, if such vendee, mortgagee or
agent is a partnership) – considered sale of substantially all of the assets of the
corporation? Rationale
 The names and addresses of all creditors to whom  In the absence of statutory authority, the
vendor or mortgagor may be indebted; corporation cannot acquire its own shares. This
Suggested answer: Yes. It cannot continue its business
 The amount of indebtedness due or owing; without the machine. There is sale of all or substantially all rationale is based on the following reasons:
 Such statement shall be verified by an oath. of the assets if it would be rendered incapable in continuing o The corporation cannot increase or
its printing business. The fact that it is only 30% of the total diminish its capital without the sanction of
Any sale in violation of the Bulk Sales Law is considered assets of the corporation is immaterial. the legislature;
fraudulent and void. o The transaction is a fraud upon creditors;
(Sec. 41.) Power to acquire own shares for and
Case A: legitimate corporate purpose(s) including but not o It is foreign to the purposes for which the
B Corporation is engaged in selling canned goods on limited to the following: corporation is created.
wholesale basis. It is merely renting a bodega and 95% of its 1. To eliminate fractional shares arising out of o The purchase of shares can be considered
assets consist of stocks of goods. On a given day, Mr. X, a stock dividends; a violation of the Trust Fund doctrine
regular customer, purchased all the stocks of B 2. To collect or compromise an indebtedness because portion of the capital is taken to
Corporation. Is the transaction a sale of substantially all of to the corporation, arising out of unpaid the prejudice of creditors.
the assets of the corporation requiring concurrence of subscription, in a delinquency sale, and to  Note: The power to acquire its own shares is now
stockholders representing 2/3 of the outstanding capital purchase delinquent shares sold during an express power.
stock? said sale; and
3. To pay dissenting or withdrawing (Sec. 42) Power to invest corporate funds in
Suggested answer: No. The sale is pursuant to regular stockholders entitled to payment for their another corporation or business or for any other
course of business because B Corporation is engaged in shares under the provisions of this Code.

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purpose, provided the following conditions are  Investment of a corporation in a business which is  A corporation can invest its idle funds in
met: in line with its primary purpose requires only the corporation notes, pursuant to Section 36 of the
 Approval by the majority of the board of approval of the board. Corporation Code which empowers corporations
directors and trustees;  The requirement in Section 42 would only apply if to deal with real and personal properties including
 Ratification in a meeting duly called for the the corporation will pursue its secondary purpose. securities and bonds of other corporations as the
purpose by –  Investment of funds includes not only investment transaction of lawful business of the corporation
o If stock corporation – 2/3 of of money but also investment of property of the may reasonably and necessarily require. Note: The
stockholders representing the corporation. requirements under Section 42 shall be
outstanding capital stock; complied with if the investment is not pursuant
o If non-stock corporation – 2/3 of If the business of a corporation is such as to render it to the primary purpose of the corporation.
the members. necessary for it to own a certain kind of property, and at
 Written notice of the proposed investment times such property is not necessary to its business, it may (Sec. 43) Power to declare cash, property, or stock
and the time and place of the meeting shall employ the property in a business or for a purpose which is dividends out of the unrestricted retained earnings
be addressed to each stockholder or not strictly within the primary purpose in order to prevent and on the basis of outstanding stock held by
member at his place of residence as shown the same from remaining idle and unprofitable. (SEC stockholders, provided –
on the books of the corporation and Opinion, dated November 9, 1994)  That any cash dividends due on delinquent
deposited to the addressee in the post stock shall first be applied to the unpaid
office with postage prepaid, or served The SEC imposes the following requirements (SEC balance on the subscription plus costs and
personally; Opinion, ibid.) expenses; Note: The decision of the Board
o Provided that any dissenting  The property is not presently used by the alone is necessary to declare cash or property
stockholder shall have appraisal corporation and leasing of the property is not made dividends.
right as provided in the Code; on a regular basis.  While stock dividends shall be withheld
 Provided further that  Leasing the property will make it productive from the delinquent stockholder until his
where the investment by instead of allowing them to remain idle. unpaid subscription is fully paid;
the corporation is o Provided further that no stock
 There are no express restrictions in the articles of
reasonably necessary to dividend shall be issued without
incorporation or by-laws.
accomplish its primary the approval of stockholders
 The leasing of property is not used to prejudice representing not less than 2/3 of
purpose as stated in the
corporate creditors or result in the infringement of the outstanding capital stock at a
articles of incorporation,
the trust fund doctrine. regular or special meeting called
the approval of the
stockholders or members  There must be compliance with the requisites of for the purpose. Note: The decision of
shall not be necessary. Sec. 42. the Board is subject to approval by the
stockhlders.
Other matters Other matters
 Passive investment in shares is not covered by
Section 42.
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Stock corporations are prohibited from retaining  The issuance of the property dividends shall not corporations” which are corporations solely or
surplus profits in excess of 100% of their paid-in result in an equitable distribution of property to principally engaged in the exploitation of wasting
capital stock, except: the stockholders in terms of the book values and assets (i.e. mines, oil wells, patents and leaseholds,
1. When justified by definite corporate market values, if any, of the property distributed. etc.)
expansion projects or programs approved  Generally, revaluation surpluses cannot be
by the board of directors; or Stock dividends declared as dividends because they are not earnings
2. When the corporation is prohibited under  The earnings distributed to stockholders are in the of the corporation, except:
any loan agreement with any financial form of shares of stock. It involves the conversion o The company has sufficient income from
institution or creditor, whether local or of surplus or undivided profits into capital. the operations from which the
foreign, from declaring dividends without depreciation on the appraisal increase is
its/his consent, and such consent has not Definition of terms (pursuant to SEC Memorandum charged;
yet been secured; or Circular No. 11 Series of 2009, dated December 5, 2008) o The company has no deficit at the time
3. When it can be clearly shown that such the depreciation on the reappraisal
 Retained earnings – the accumulated profits
retention is necessary under special increase was charged to operations; and
realized out of normal and continuous operations
circumstances obtaining in the o Such depreciation on the appraisal
of the business after deducting therefrom
corporation, such as when there is need for increase previously charged to operations
distributions to stockholders and transfers to
special reserve for probable contingencies. is not erased or impaired by subsequent
capital stock or other accounts.
losses, otherwise, only that portion not
Property dividends  Unrestricted retained earnings – the amount of
impaired by subsequent losses is available
accumulated profits and gains realized out of the
 These are dividends that are paid in property for dividend.
normal and continuous operations of the company
instead of cash where the surplus is in that form  Share premiums or paid-in surpluses cannot also be
and which is:
and it is practicable to so distribute them among declared as dividends because they are part of
o Not appropriated by the Board of
the shareholders. capital, and not retained earnings.
Directors for corporate expansion
 The notice of the declaration and/or issuance of projects or programs;  Gain from sale of real properties are available for
the property dividends shall show, in scheduled o Not covered by a restriction for dividend dividend declaration because they are part of
form, the nature of property declared as dividends, declaration under a loan agreement; and retained earnings.
their individual book values and market values, if o Not required to be retained under special  Treasury shares cannot be declared as stock
any, and the manner in which such property are circumstances obtaining in the dividends or cash dividends because they are not
distributed to the stockholders. corporation such as when there is a need considered part of earned or surplus profits.
 SEC rules provide that the property to be for a special reserve for probable
distributed as dividends shall consist only of contingencies. Interim profits
property which is no longer intended to be used in With respect to interim income, the presence of
the operation of the business of the corporation Other matters unrestricted retained earnings can be determined only at the
and which are practicable to be distributed as  Dividends cannot be declared out of capital. The end of the fiscal year. The corporation will not be able to
dividends. exception is with respect to “wasting assets know if there are earnings until the end of the year. Thus,

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there can be no dividend declaration for profits in a fiscal the dividend does not, therefore, give them vested The management contract must be
year that has not yet expired. right. approved by the stockholders of the
 The right to dividend accrues even if there is no managed corporation owning at least –
By way of exception, as long as the following conditions are SEC approval. However, the Rules Governing the o Stock corporation – 2/3 of total
present: Distribution of Excess Profits of Corporations outstanding capital stock entitled
 The amount of dividends involved would not be provides that a declaration of dividend whether to vote; or
impaired by losses during the remaining period of cash or stock shall be reported to the SEC within o Non-stock corporation – 2/3 of the
the year; 15 days from the date of declaration. members.
 The projected income for the remaining period  No management contract shall be entered
shall be submitted to the SEC; and (Sec. 44) Power to enter into management contract, into for a period longer than 5 years for any
 Should the company sustain losses during the requirements one term.
remaining period, the dividends should be  In a meeting duly called for the purpose,  The aforementioned requirements applies
refunded. such contract shall have been approved by to any contract whereby a corporation
the board of directors and by stockholders undertakes to manage or operate all or
Who are entitled to dividends owning at least the majority of the substantially all of the business of another
 Stockholders of record at the time of declaration. outstanding capital stock; corporation, whether such contracts are
o Or by a least a majority of the called service contracts, operating
 Even unpaid subscribers are entitled to dividends.
members in the case of a non-stock agreements, or otherwise
Even if the shares are delinquent, the delinquent
corporation. o Provided, however, that such
shareholders are also entitled to dividends.
However, any cash dividends shall first be applied  Provided, that – service contracts or operating
o Where a stockholder/s agreements which relate to the
to the unpaid balance on the subscription plus cost
representing the same interest of exploration, development,
and expenses while stock dividends shall be
both the managing and the exploitation or utilization of
withheld from the delinquent shareholder until his
managed corporation own or natural resources may be entered
unpaid subscription is fully paid.
control more than 1/3 of the total into for such periods as may be
outstanding capital stock entitled provided by the pertinent laws.
Vesting
to vote of the managing
 The right of the stockholders to be paid dividends Other matters
corporation; or
accrues as soon as the declaration is made. From
o Where a majority of the members of  Management contracts are agreements whereby
that time, the stockholder can already demand
the board of directors of the one undertakes to manage or operate all or
payment thereof.
managing corporation also substantially all of the business of another, whether
 However, in the case of stock dividends, all constitute a majority of the such contracts are called service contracts,
formalities necessary to a valid increase of stock members of the board of directors operating agreements or otherwise.
must be complied with before the stockholders are of the managed corporation
entitled to anything, and the mere declaration of

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  Any management contract between a natural  If a corporation acted outside its authority in taking o Stock corporation – at least a
person or a partnership and a corporation are not or holding title to property, the validity of the majority of the outstanding capital
covered by the requirements of Section 44. Torrens Certificate of Title cannot be questioned stock;
 The maximum term of 5 years may be renewed. on the ground that the corporation was without o Non-stock corporation – at least a
authority or exceeded its authority in taking or majority of the members.
(Sec. 45) Ultra vires acts of corporations – No holding the property.  The by-laws shall be signed by the
corporation under this Code shall possess or  When the contract is fully executed on both sides, stockholders or members voting for them.
exercise any corporate powers except those the contract is effective and will stand as a  The by-laws shall be kept in the principal
conferred by this Code or by its articles of foundation of rights acquired under it. office of the corporation, subject to the
incorporation and except such as are necessary or  When the contract is executory on one side and inspection of the stockholders or members
incidental to the exercise of the powers so has been fully performed on the other, the party during office hours.
conferred. who has received benefits from the performance is  A copy thereof, duly certified to by a
estopped in claiming that the contract is ultra vires. majority of the directors or trustees
Ultra vires distinguished from other acts  When both contracts are wholly executory on both countersigned by the secretary of the
 Corporate transactions which are illegal because sides, neither party can maintain an action. corporation, shall be filed with the SEC
prohibited by statute or against public policy are  However, estoppel cannot be invoked against the which shall be attached to the original
ordinarily void and unenforceable regardless of State. Hence, the certificate of incorporation may articles of incorporation.
performance, ratification, or estoppel. Hence, said be revoked by the SEC if the concerned  By-laws may also adopted and filed prior to
acts are not susceptible to ratification. corporation performs ultra vires acts. Performance incorporation, in such case such by-laws
 A transaction within corporate powers but of ultra vires acts is a violation of the contract shall be approved and signed by all the
executed in an irregular or unauthorized manner is between the State and the corporation. incorporators and submitted to the SEC
voidable only, and may become unenforceable by together with the articles of incorporation.
reason of ratification or express or implied assent TITLE V: BY-LAWS  In all cases, by-laws shall be effective only
by the stockholders or by reason of estoppel of the upon the issuance by SEC of a certification
corporation or other party to the transaction to (Sec. 46) Adoption of by-laws that the by-laws are not inconsistent with
raise the objection, particularly where the benefits  Every corporation formed under this Code this Code.
are retained. must, within 1 month after receipt of  The SEC shall not accept for filing the by-
official notice of the issuance of its laws or any amendment thereto of any
Effects of ultra vires acts certificate of incorporation by the SEC, o Bank
 If the act is ultra vires not because it is illegal but adopt a code of by-laws for its government o Banking institution
because it is not an express, implied, or incidental not inconsistent with this Code. o Building and loan association
power, the same may be enforced.  For the adoption of by-laws by the o Trust company
 A corporation that is engaged in ultra vires business corporation, the following affirmative vote o Insurance company
is liable for torts committed by its agents within vote must be obtained – o Public utility
their authority in the course of that business. o Educational institution

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 o Other special corporation govern and control its own actions, affairs and concerns and
Unless accompanied by a certificate of the of its stockholders or members and directors and officers in Other matters
appropriate government agency to the relation thereto and among themselves in their relation to  Any action to have a provision of the by-laws
effect that such by-laws or amendments are the corporation. declared null and void for being contrary to law is
in accordance with law. imprescriptible. Amendment of by-laws is an
Where the resolution of the directors is inconsistent with available remedy to correct void provisions of the
(Sec. 47) Contents of by-laws the by-laws, the by-laws will prevail. by-laws.
1. The time, place and manner of calling and  By-laws cannot specify powers that are not
conducting regular or special meetings of Effect of non-adoption of by-laws expressly provided for or implied from the articles
the directors or trustees;  The corporation is not automatically dissolved if no of incorporation.
2. The time and manner of calling and by-laws are adopted within such period.  The by-laws bind the corporation, its stockholders
conducting regular or special meetings of  By-laws are not necessary either to the existence of or members, and those having direction,
the stockholders or members; a corporation or to the valid exercise of the powers management and control of its affairs. Note: The
3. The required quorum in meetings of conferred upon it. provisions of the by-laws are not binding on
stockholders or members and the manner
 However, non-adoption of by-laws only gives the subordinate employees who have no actual
of voting therein;
SEC the power to suspend or revoke, after proper knowledge of the provisions thereof.
4. The form of proxies of stockholders and
notice and hearing, the franchise or certificate of  Third persons are also not bound to the provisions
members and the manner of voting them;
registration of corporations. (Sec. 6, P.D. 902-A) of by-laws unless there is actual knowledge.
5. The qualifications, duties and
o At the very least, a corporation that failed
compensation of directors or trustees,
to submit the by-laws may be considered (Sec. 48) Amendments to by-laws, how made
officers and employees;
a de facto corporation whose right to  The board of directors or trustees, by a
6. The time for holding the annual election of
exercise corporate powers may not be majority vote thereof; and
directors or trustees and the mode or
inquired into collaterally in any private
manner of giving notice thereof;  The owners of at least –
suit to which such corporation may be a
7. The manner of election or appointment o Stock corporation – at least a
party.
and the term of office of all officers other majority of the outstanding capital
than directors or trustees; stock;
Requisites for the validity of by-laws
8. The penalties for violation of the by-laws; o Non-stock corporation – at least a
9. In the case of stock corporations, the  It must be consistent with Corporation Code, majority of the members.
manner of issuing stock certificates; and other pertinent laws and regulations; In a regular or special meeting called for
10. Such other matters as may be necessary for  It must be consistent with the Articles of the purpose.
the proper or convenient transaction of its Incorporation;  The following may delegate to the board of
corporate business and affairs.  It must not be contrary to morals or public policy; directors or trustees the power to amend or
 It must not disturb vested rights, impair contract repeal any by-laws or adopt new by-laws:
The by-laws of a corporation are the rules and regulations or property rights of stockholders or members or o Stock corporation – 2/3 of the
or private laws enacted by the corporation to regulate, create obligations not sanctioned by law. outstanding capital stock;
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 o Non-stock corporation – 2/3 of the person can, at all responsible times, inspect the records of o If date is not fixed, on any date in
members the Commission relating to corporations. The public is April of every year as determined
Provided, that any power delegated to the rightly entitled to a fair and full disclosure of corporate by the board of directors or
board of directors or trustees to amend or matters affecting, or likely to affect, its interest. trustees; Note: Under the Revised
repeal any by-laws or adopt new by-laws Code, if not so fixed by the by-laws, on
shall be considered as revoked whenever The by-laws may provide for disqualification of any any date after April 15 of every year as
stockholders owning or representing a stockholder who is also a stockholder and director of a determined by the board of directors or
majority of the outstanding capital stock or competitor from being elected to its Board of Directors. trustees.
a majority of the members in non-stock This prohibition is valid. This doctrine is based on the o Provided that written notice of
corporations, shall so vote at a regular or principle that a director cannot serve two masters so to regular meeting shall be sent to all
special meeting. speak because there is a danger that the director will give stockholders or members of record
 Whenever any amendment or new by-laws preference to one corporation. The disqualification is only a at least 2 weeks prior to the
are adopted, such amendment or new by- measure of self-protection against directors who may betray meeting, unless a different period is
laws shall be attached to the original by- the corporation by giving preference to the other. required by the by-laws. Note:
laws in the office of the corporation, and a (Gokongwei Jr. v. SEC) Under the Revised Code, written notice
copy thereof, duly certified under oath by shall be sent to all stockholders or
the corporate secretary and a majority of However, amendments to the by-laws cannot impair the members of record at least 21 days prior
directors or trustees, shall be filed with the obligation of existing contract of any vested right. Hence, an to the meeting, unless a different period is
Securities and Exchange Commission the employee who is a regular employee and who is entitled to required in the by-laws, law or
same to be attached to the original articles security of tenure, may only be terminated for causes regulation.
of incorporation and original by-laws. provided by law. Such security of tenure cannot be  Note further: That written
 The amended or new by-laws shall only be adversely affected by any amendment in the by-laws by notice of regular meetings may
effective upon the issuance by the making his position co-terminous. (Salafranca v. Philamlife be sent to all stockholders or
Securities and Exchange Commission of a Village Homeowners Association, Inc.) members of record through
certification that the same are not electronic mail or such other
inconsistent with this Code. TITLE VI: MEETINGS manner as the SEC shall allow
under its guidelines.
Two ways to amend the by-laws (Sec. 49) Kinds of meetings of directors, trustees,
1. Amendment by the stockholders together with the stockholders, or members At each regular meeting of stockholders or members, the
Board;  Regular; or board of directors or trustees shall endeavor to present to
2. Amendment only by the Board after due delegation  Special stockholders or members the following:
by the stockholders.  The minutes of the most recent regular meeting
(Sec. 50) Regular meetings of stockholders which shall include, among others:
Note: In requiring the filing with SEC, this is in keeping  Shall be held annually on a date fixed in the o A description of the voting and vote
with the policy of making the by-laws along with the articles by-laws tabulation procedures used in the
of incorporation, a matter of public record so that any previous meeting;
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 o A description of the opportunity given to relevant experience, length of service in the or member. Note: Provided, that general waivers
stockholders or members to ask questions corporation, trainings and continuing education of notice in the articles of incorporation or by-laws
and a record of the questions asked and attended, and their board representations in other shall not be allowed.
answers given; corporations; o Provided further, that attendance at a
o The matters discussed and resolutions  A director or trustee attendance report, indicating meeting shall constitute a waiver of notice
reached; the attendance of each director or trustee at each of such meeting, except when the person
o A record of the voting results for each of the meetings of the board and its committees attends a meeting for the express purpose
agenda item; and in regular or special stockholder meetings; of objecting to the transaction of any
o A list of the directors or trustees, officers  Appraisals and performance reports for the board business because the meeting is not
and stockholders or members who and the criteria and procedure for assessment; lawfully called or convened.
attended the meeting; and
 A director or trustee compensation report  Whenever for any cause there is no person
o Such other items that the Commission prepared in accordance with this Code and the authorized to call a meeting, the SEC, upon
may require in the interest of good rules the Commission may prescribe; petition of a stockholder or member on a
corporate governance and the protection showing of good cause therefor, may issue
of minority stockholders.  Director disclosures on self-dealings and related
an order directing the petitioning
party transactions; and/or
 A members’ list for nonstick corporations and, for stockholder to call a meeting of the
stock corporations, material information on the  The profiles of directors nominated or seeking corporation by giving proper notice
current stockholders and their voting rights; election or reelection. required by this Code or by the by-laws.
 A detailed, descriptive, balanced and o The petitioning stockholder or
A director, trustee, stockholder, or member may propose member shall preside thereat until
comprehensible assessment of the corporation’s any other matter for inclusion in the agenda at any regular
performance, which shall include information on at least a majority of the
meeting of stockholders or members. stockholders or members present
any material change in the corporation’s business,
strategy, and other affairs; have been chose one of their
Special meetings of stockholders members as presiding officer.
 A financial report for the preceding year, which  Shall be held any time deemed necessary or
shall include financial statements duly signed and o Note: The Revised Code adds – “Unless
as provided in the by-laws; the by-laws provide for a longer period,
certified in accordance with this Code and the rules
the Commission may prescribe, a statement on the  Provided that at least 1 week written notice the stock and transfer book or
adequacy of the corporation’s internal controls or shall be sent to all stockholders or membership book shall be closed at least
risk management systems, and a statement of all members, unless otherwise provided in the 20 days for regular meetings and 7 days
external audit and non-audit fees; by-laws. Note: Under the Revised Code, unless for special meetings before the scheduled
otherwise provided in the by-laws, law, or date of the meeting.
 An explanation of the dividend policy and the fact regulation. o In case of postponement of stockholders’
of payment of dividends or the reasons for
or members’ regular meetings, written
nonpayment thereof; Other matters under Sec. 50 notice thereowf and the reason therefor
 Director or trustee profiles which shall include,  Notice of any meeting may be waived, shall be sent to all stockholders or
among others, their qualifications and their expressly or impliedly, by any stockholder members of record at least 2 weks prior
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 to the date of the meeting, unless a and other Metropolitan areas shall, for the transaction of any business because the meeting
different period is required under the by- purposes of this section, be considered a is not lawfully called or convened.)
laws, law or regulation. city or municipality.
o The right to vote of stockholders or  Notice of meetings shall be in writing (Note: Requisites for a valid stockholder’s meeting
members may be exercised in person, Under the Revised Code, notices shall be sent  It must be held on the proper date which is the
through a proxy, or when so authorized in through the means of communication provided in date fixed in the by-laws, or in the absence of a
the by-laws, through remote the by-laws) and the time and place thereof provision therein, on any date in April of every
communication or in absentia. The SEC stated therein. year as determined by the board of directors or
shall issue the rules and regulations  Under the Revised Code, each notice shall further trustees; Note: The Revised Code provides that
governing the participation and voting be accompanied by the following: regular or special meetings shall be held in the
through remote communication or in o Agenda for the meeting; principal office of the corporation (as set forth in
absentia, taking into account the o A proxy form which shall be submitted to the articles of incorporation), or if not practicable
company’s scale, number of shareholders the corporate secretary within a in the city or municipality where the principal
or members, structure, and other factors reasonable time prior to the meeting; office of the corporation is located.
consistent with the protection and o When attendance, participation, and o Note: Under the Revised Code, for
promotion of the shareholders’ or voting are allowed by remote purposes of regular meetings, if not so
members’ meetings. communication or in absentia, the fixed by the by-laws, on any date after
requirements and procedures to be April 15 of every year as determined by
(Sec. 51) Place and time of meetings of followed when a stockholder or member the board of directors or trustees.
stockholders or members elects either option; and  There must be previous notice; Note: Published
 Shall be held in the city or municipality o When the meeting is for the election of notice is insufficient because the law requires
where the principal office of the directors or trustees, the requirements written notice to each stockholder.
corporation is located, and if practicable in and procedure for nomination and o Note: Under the Revised Code, notices
the principal office of the corporation; election. shall be sent through the means of
Note: The Revised Code provides that regular or  All proceedings had and any business communication provided in the by-laws.
special meetings shall be held in the principal office transacted at any meeting of the  It must be called by the proper person;
of the corporation (as set forth in the articles of stockholders or members, if within the  It must be held in the proper place; and
incorporation), or if not practicable in the city or powers or authority of the corporation,
municipality where the principal office of the  There must be a quorum.
shall be valid even if the meeting be
corporation is located. improperly held or called, provided all the
o Provided, that Metro Manila shall Other matters
stockholders or members of the
be considered a city or  All the stockholders and members have the right to
corporation are present or duly
municipality for purposes of this attend the special and regular meetings. With
represented at the meeting (Note: Under the
section. Note: The Revised Code respect to stockholders, the best evidence in
Revised Code, and also that none of them
provides that any city or municipality in determining who the stockholders can attend the
expressly states at the beginning of the meeting
Metro Manila, Metro Cebu, Metro Davao meeting is the Stock and Transfer Book. Mere
that the purpose of their attendance is to object to
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 inclusion of a person in the General Information  May be held any time upon the call of the
Sheet (GIS) submitted to the SEC is insufficient (Sec. 53) Regular meetings of directors or trustees president or as provided in the by-laws.
proof the same person is a shareholder. As  Note: Under the Revised Code, unless the by-laws  Meetings may be held anywhere in or
between the GIS and the stock and transfer book, provides for a greater majority, a majority of the outside the Philippines, unless the by-laws
the latter is controlling. directors or trustees shall constitute a quorum to provide otherwise.
 A delinquent stockholder within the purview of transact corporate business, and every decision  Notice of special meeting stating the date,
Section 68 of the Corporation Code cannot attend reached by at least a majority of the said quorum time and place of meeting must be sent to
the stockholder’s meeting. Similarly, a member (except for the election of officers which shall every director or trustee at least 1 day prior
who is suspended or who is otherwise validly require the vote of a majority of all the members of to the scheduled meeting, unless otherwise
declared delinquent or not in good standing cannot the board) shall be valid as a corporate act. provided by the by-laws. Note: Under the
likewise attend the meeting of the members.  Shall be held monthly, unless the by-laws Revised Code, notices shall be given at least 2 days
However, the Articles of Incorporation or By-Laws provide otherwise. prior to the scheduled meeting, unless a longer
of the non-stock corporation must provide that  Meetings may be held anywhere in or time is provided in the by-laws.
delinquent members are not entitled to attend and outside the Philippines, unless the by-laws  A director or trustee may waive this
vote. provide otherwise. requirement expressly or impliedly.
 Hosting of joint meetings of different corporations  Notice of regular meeting stating the date,  Note: Under the Revised Code, a director or
is permissible. time and place of meeting must be sent to trustee who cannot physically attend or vote at
every director or trustee at least 1 day prior board meetings can participate and vote through
(Sec. 52) Quorum in meetings – Unless otherwise to the scheduled meeting, unless otherwise remote communication such as videoconferencing,
provided for in this Code or in the by-laws, a provided by the by-laws. Note: Under the teleconferencing, or other alternative modes of
quorum shall consist of the stockholders Revised Code, notices shall be given at least 2 days communication that allow them reasonable
representing a majority of the outstanding capital prior to the scheduled meeting, unless a longer opportunities to participate. Directors or trustees
stock or a majority of the members in the case of time is provided in the by-laws. cannot attend or vote by proxy at board meetings.
non-stock corporations.
 A director or trustee may waive this
requirement expressly or impliedly. Other matters
Other matters
 Note: Under the Revised Code, a director or  A director cannot participate in a meeting by proxy
 The meeting is void if there is no quorum.
trustee who cannot physically attend or vote at or any representative or alternate.
 Imposition of registration fees as precondition for board meetings can participate and vote through  Unless an extraordinary measure shall be passed
the exercise of the right to attend the meeting remote communication such as videoconferencing, during the regular meeting, the notice need not
unduly restricts such right. teleconferencing, or other alternative modes of indicate the agenda. However, the agenda should
 Consistently delinquent shareholders or members communication that allow them reasonable be included in the notice of special meeting.
should not be included in determining the opportunities to participate. Directors or trustees  Teleconferencing is permitted. However, the
existence of the required quorum. cannot attend or vote by proxy at board meetings. electronic meeting allowed under the present rules
 Non-voting shares shall not be included in the contemplates a meeting where the directors still
determination of a quorum. Special meetings of directors or trustees participate or is capable of participating in the
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 deliberations. Hence, voting by e-mail is not right to attend and vote at meetings of stockholders, unless  The corporation shall establish the appropriate
allowed. the secured creditor is expressly given by the stockholder- requirements and procedures for voting through
grantor such right in writing which is recorded in the remote communication and in absentia, taking into
(Sec. 54) Who shall preside at meetings – The appropriate corporate books. (Section 54 of the Revised account the company’s scale, number of
president shall preside at all meetings of the Code) shareholders or members, structure and other
directors or trustees as well as the stockholders or factors consistent with the basic right of corporate
members, unless the by-laws provide otherwise. (Sec. 56) Voting in case of joint ownership of stock suffrage.
Note: Under the Revised Code, it is the chairman, or in his  The consent of all the co-owners shall be  Proxies shall be in writing, signed by the
absence, the president who shall preside at all meetings of necessary, unless there is a written proxy, stockholder or member and filed before
the directors or trustees as well as of the stockholders or signed by all the co-owners, authorizing the scheduled meeting with the corporate
members, unless the by-laws provide otherwise. one or some of them or any other person to secretary.
vote such share or shares;  Unless otherwise provided in the proxy, it
The president is also a member of the board. Hence, it o Provided that when the shares are shall be valid only for the meeting for
cannot be provided in the by-laws or a board resolution that owned in an “and/or” capacity by which it is intended.
he can only vote in case of a tie in the board meeting. the holders thereof, any one of the
(Sec. 55) Right to vote of pledgers, mortgagors, and  No proxy shall be valid and effective for a
joint owners can vote said shares or
administrators – In case of pledged or mortgaged period longer than 5 years at any one time.
appoint a proxy therefor.
shares in stock corporations
A proxy is a written authorization given by one person to
 The pledger or mortgagor shall have the (Sec. 57) Treasury shares shall have no voting right
another so that the second person can act for the first such
right to attend and vote at meetings of as long as such shares remain in the Treasury.
as that given by the shareholder to someone else to
stockholders;
represent him and vote his shares at a shareholders’
o Unless the pledgee or mortgagee is (Sec. 58) Proxies –
meeting.
expressly given by the pledger or  Stockholders and members may vote in
mortgagor such right in writing person or by proxy in all meetings of Requisites for proxies
which is recorded on the stockholders or members.
appropriate corporate books.  Proxies shall be in writing;
 Note: The Revised Code also adds that when so
 Executors, administrators, receivers, and  It shall be signed by the stockholder or member;
authorized in the by-laws or by a majority of the
other legal representatives duly appointed board of directors, the stockholders or members of  The proxy shall be filed within a reasonable time
by the court may attend and vote in behalf corporations may also vote through remote before the schedule meeting with the corporate
of the stockholders or members without communication or in absentia, provided that the secretary;
need of any written proxy. votes are received before the corporation finishes  Unless otherwise provided in the proxy, it shall be
the tally of the votes. valid only for the meeting for which it is intended;
Note: Under the Revised Code, it recognizes the right to  A stockholder or member who participates and
vote of secured creditors and administrators. In case a through remote communication or in absentia shall  No proxy shall be valid and effective for a period
stockholder grants security interest in his or her shares in be deemed present for purposes of quorum. longer than 5 years at any one time.
stock corporations, the stockholder-grantor shall have the
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The power of proxies is merely to vote. They do not have  The certificate/s of stock covered by the combinations in restraint of trade or used
legal title over the shares. Hence, proxies cannot be elected voting trust agreement shall be cancelled for purposes of fraud. Note: Under the Revised
as directors. and new ones shall be issued in the name of Code, it was stated that no voting trust agreement
the trustee/s stating that they are issued shall be entered in to for the purposes of
Duration of proxy pursuant to said agreement. Note: In the circumventing the laws against anti-competitive
 Specific proxy – where the authority granted is books of the corporation, it shall be noted agreements, abuse of dominant position, anti-
merely for a particular meeting on a specific date. that the transfer in the name of the trustee competitive mergers and acquisitions, violation of
 Continuing proxy – that which continues for a or trustees is made pursuant to said voting nationality and capital requirements, or for the
certain period not more than 5 years at one time. trust agreement. perpetration of fraud.
 The trustee or trustees shall execute and  Unless expressly renewed, all rights
Other matters deliver to the transferors voting trust granted in a voting trust agreement shall
 Voting by mail is now allowed, pursuant to SEC certificates, which shall be transferable in automatically expire at the end of the
Memorandum Circular No. 4, Series of 2004 the same manner and with the same effect agreed period, and the voting trust
issued on March 17, 2004. as certificates of stock. certificates as well as the certificates of
 The voting trust agreement filed with the stock in the name of the trustee/s shall
(Sec. 59) Voting trusts – One or more stockholders corporation shall be subject to examination thereby be deemed canceled and new
of a corporation may create a voting trust for the by any stockholder of the corporation in certificates of stock shall be reissued in the
purpose of conferring upon a trustee or trustees the same manner as any other corporate name of the transferors.
the right to vote and other rights pertaining to the book or record:  The voting trustee/s may vote by proxy
shares for a period not exceeding 5 years at any o Provided that both the transferor unless the agreement provides otherwise.
time; (Note: Under the Revised Code, it was
 Provided that in case of a voting trust termed as ‘trustor’) and the trustee/s A voting trust is an agreement whereby a stockholder
specifically required as a condition in a may exercise the right of inspection of a stock corporation confers upon a trustee(s) the
loan agreement, said voting trust may be of all corporate books and records right to vote and other rights pertaining to the shares
for a period exceeding 5 years but shall in accordance with the provisions for a period not exceeding 5 years at any time.
automatically expire upon full payment of of this Code.
the loan.  Any other stockholder may transfer his Procedural requirements
 A voting trust must be in writing and shares to the same trustee or trustees upon  It must not exceed the period of 5 years at any
notarized, and shall specify the terms and the terms and conditions stated in the time;
conditions thereof. voting trust agreement, and thereupon  In the case of a voting trust specifically required as
 A certified copy of such agreement shall be shall be bound by all the provisions of the a condition in a loan agreement, said voting trust
filed with the corporation and with the said agreement. may be for a period exceeding 5 years but shall
Securities and Exchange Commission;  No voting trust agreement shall be entered automatically expire upon full payment of the loan;
otherwise, said agreement is ineffective and in to for the purpose of circumventing the  It must be in writing and notarized;
unenforceable. law against monopolies and illegal  It shall specify the terms and conditions thereof;

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  Execution and notarization of the voting trust Irrevocable. Generally revocable.  Subscription can be entered into before or after
agreement stating the terms and conditions Legal title is transferred No transfer of title. incorporation; purchase is made only after
thereof; to the trustee. incorporation.
 A certified copy of the such agreement shall be The share certificate shall No cancellation of the  If there is no agreement as to the time of payment,
filed with the corporation and with SEC; be cancelled and certificate shall be made. the subscriber in a subscription agreement need
otherwise, said agreement is ineffective and transferred to the not pay unless there is a call while in purchase, the
unenforceable; trustee. purchaser under a deed of absolute assignment or
 The certificate of stock covered by the voting trust It must be notarized. It need not be notarized. sale must fully pay the purchase price at the time
agreement shall be canceled ; The trustor-shareholder The shareholder retains the shares are transferred.
cannot vote. his right to vote. 
 A new certificate shall be issued in the name of the The subscriber cannot be released from his
trustee(s) stating that they are issued pursuant to It cannot be for a specific
It can be for a specific obligation to pay the subscription price while a
the voting trust agreement; meeting. meeting. stockholder who sells his shares can condone the
The trustee can vote by The proxy cannot further obligation to pay.
 The transfer shall be noted in the books of the
proxy. delegate his authority to  The Statute of Frauds does not apply to
corporation, that it is made pursuant to said voting
vote and must therefore subscription contracts while the same apply to
trust agreement; and
vote in person. purchase if the price is not less than P500.
 The trustee or trustees shall execute and deliver to The trustees vote in his The proxy is the agent of
the transferor voting trust certificates, which shall own right as holder of the shareholder.
be transferable in the same manner and with the Other matters
legal title.
same effect as certificates of stock.  Stock options and warrants are different from
The trustee can be The proxy, as such,
subscription contracts.
elected as a director. cannot be elected as a
Rights of trustee o A stock option is a privilege granted to a
director.
 The right to vote and other rights pertaining to the party to subscribe to a certain portion of
shares; the unissued capital stock of a corporation
TITLE VII: STOCKS AND STOCKHOLDERS within a specified period and under the
 The right of inspection of all corporate books and
terms and conditions of the grant,
records; This Title applies only to stock corporations. exercisable by the grantee at any time
 May vote by proxy unless the agreement provides within the period granted.
otherwise; (Sec. 60) Subscription contract – Any contract for o A warrant is a type of security which
 He has legal title, hence he can be elected as the acquisition of unissued check in an existing entitles the holder to the right to
director. The trustor (stockholder) does not have corporation or a corporation still to be formed subscribe to the unissued capital stock of a
such right during the life of the voting trust shall be deemed a subscription within the meaning corporation or to purchase issued shares
agreement of this Title, notwithstanding the fact that the in the future, evidenced by a warrant
Voting trust agreements and proxy, distinguished parties refer to it as a purchase or some other
certificate, whether detachable or not,
VOTING TRUST PROXY contract. which may be sold or offered for sale to
AGREEMENT the public but does not apply to a right
Subscription and purchase, distinguished
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 granted under an option plan duly However, when treasury shares are re-issued, the o Unless all of the other subscribers
approved by the SEC for the benefit of the shareholders are entitled to exercise their pre- consent to the revocation; or
employees, officers and/or directors of emptive right. o Unless the incorporation of said
the issuing corporation. The period to  The issuance of unsubscribed shares of the corporation fails to materialize
subscribe is not less than 1 year but not authorized capital stock does not need within said period or within a
more than 5 years. stockholder’s approval, but only a board resolution longer period as may be stipulated
 The parties in a subscription contract are the approving the same. in the contract of subscription.
subscriber and the corporation itself.  No pre-incorporation subscription may be
 There is no law or rule requiring a form of Ways of violating the Trust Fund Doctrine revoked after the submission of the articles
subscription to capital stock as a requisite for its 1. When the corporation condones payment of the of incorporation to the SEC.
validity; hence, the same need not be in writing. unpaid subscription and the stockholder has no
 Kinds of subscription contract – either pre- right to demand the refund of his investment. Despite the non-existence of the corporation, the
incorporation subscription contract or a post- 2. When there is payment of dividends without subscription contract before incorporation is valid and
incorporation subscription contract. unrestricted retained earnings. binding for a period of 6 months.
3. When properties are transferred in fraud of
 Pursuant to the Trust Fund Doctrine, the
creditors. In addition, even if the 6-month period had already expired,
corporation may not dissipate this and the creditors
4. When properties are disposed of or undue the pre-incorporation subscription contract is also
may sue stockholders directly for the unpaid
preference is given to some creditors even if the irrevocable after the filing of the articles of incorporation
subscription. Note: money received for
corporation is insolvent. with the SEC, or when the Certificate of Incorporation had
subscription of increase of authorized capital is not
5. When the capital stock is decreased which has the already been issued by the SEC. Subscription agreements
covered by the Trust Fund Doctrine prior to the
effect of relieving the stockholders of the are already covered by the Trust Fund Doctrine after
approval of such increase by the SEC.
obligation to pay their respective subscription. incorporation.
o Pursuant to the Doctrine, a stockholder
has no right to demand for the return of
Creditors Manners of valid revocation of pre-incorporation
his investment. His investment is “locked-
in” until the liquidation of the  Commercial creditors – these are normally short- subscription agreement
corporation, or unless consented by term creditors, including banks and other  If all the other subscribers consent to the
stockholders. institutional lenders, who extend revolving lines of revocation before the expiration of the 6-month
 Note further that even when short-term credit. period; and
consented by all stockholders,  Investment creditors – these are those who acquire  Upon the expiration of the 6-month period (but
but the demand may be bonds or debentures issued by the corporation. before the filing of the articles with the SEC) even
disallowed if there is prejudice to without the consent of the other subscribers or
creditors. (Sec. 61) Pre-incorporation subscription – within a longer period as may be stipulated in the
 Treasury shares are not subject to subscription  A subscription for shares of stock of a subscription agreement.
contracts because Section 60 of the Corporation corporation still to be formed shall be
Code covers only acquisition of unissued shares. irrevocable for a period of at least 6 months
from the date of subscription
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(Sec. 62) Consideration for stocks – Stocks shall not  The issued price of no-par value shares may approval by the SEC. The approval of the SEC is necessary
be issued for a consideration less than the par or be fixed in the articles of incorporation or in order to prevent the watering of stocks.
issued price thereof. Consideration may be: by the board of directors pursuant to
1. Actual cash paid to the corporation authority conferred upon it by the articles If intellectual property will sere as consideration (i.e.
2. Property, tangible or intangible, actually of incorporation or the by-laws, or in the copyrights or patents), the corporation must submit to the
received by the corporation and necessary absence thereof, by the stockholders SEC a copy of the Certificate of Registration of the
or convenient for its use and lawful representing at least a majority of the intellectual property right together with an appraisal report
purposes at a fair valuation equal to the par outstanding capital stock at a meeting duly by an accredited appraisal company which is not more than
or issued value of the stock issued. called for the purpose. 6 months old and a Deed of Assignment in favor of the
3. Labor performed for or services actually corporation.
rendered to the corporation Cash
4. Previously incurred indebtedness of the With respect to pre-incorporation subscription involving Undivided interest in real property
corporation cash payments, the SEC requires the submission of a Bank This is also an acceptable consideration for the subscription
5. Amounts transferred from unrestricted Certificate of deposit of paid up capital notarized in the of shares. The following conditions must concur:
retained earnings to stated capital place where executed. Proof of inward remittance is  The property must be something which the
6. Outstanding shares exchanged for stocks in required but only with respect to those corporations with corporation may acquire and hold in carrying out
the event of reclassification or conversion. foreign subscribers who want to register their investments its purpose or reasonably necessary or convenient
with the Bangko Sentral ng Pilipinas. in the pursuit of business;
Note: The Revised Code added  The interest in the co-ownership must have a
7. Shares of stock in another corporation; and/or Tangible or intangible property pecuniary value capable of ascertainment (at fair
8. Other generally accepted form of consideration. The following are the requirements: valuation equal to the par or issued value of the
 The property is actually received by the stock issued);
Other matters corporation.  The right over the property must actually be
 Where the consideration is other than  The property is necessary or convenient for its use transferred to the corporation and no creditors of
actual cash, or consists of intangible and lawful purposes. the property held in common shall be prejudiced
property such as patents or copyrights, the
 It must be subject to a fair valuation equal to the by the transfer; and
valuation thereof shall initially be
par or issued value of the stock issued.  The transfer must be subject to a waiver of rights
determined by the incorporators or the
board of directors, subject to the approval  The valuation thereof shall initially be determined signed by all co-owners stating that they waive
by the incorporators or the board of directors. their right of redemption or pre-emption in
by the SEC.
 The valuation is subject to approval by the SEC. relation transfer.
 Shares of stock shall not be issued in
exchange for promissory notes or future Labor and services performed
service. The same considerations provided The incorporators or the board of directors shall initially
approve the valuation of the property that is used as a Labor performed for or services actually rendered to the
in this section, insofar as applicable, may be corporation are acceptable forms of consideration. Note:
used for the issuance of bonds by the consideration for the shares. The valuation is subject to the
Future services are not acceptable.
corporation.
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Previously incurred indebtedness  The person making the deposit on subscription  Note: The Revised Code adds: “The Commission
Previously incurred indebtedness of the corporation may does not have the standing of a stockholder and he may require corporations whose securities are
also be used as a consideration. However, even is not entitled to dividends, voting rights or other traded in trading markets and which can reasonably
indebtedness is subject to the confirmation of the SEC. prerogatives and attributes of a stockholder. demonstrate their capability to do so to issue their
securities or shares of stocks in certificated or
Other matters (Sec. 63) Certificate of stock and transfer of shares scripless form in accordance with the rules of the
 Amounts transferred from unrestricted retained – Commission.”
earnings to stated capital are also acceptable  The capital stock of stock corporations
consideration. This happens when there is a shall be divided into shares for which How to transfer is made
declaration of stock dividends. certificates signed by the president or vice  There must be delivery of the certificate;
 Conversion includes conversion of a single president;  The share must be indorsed by the owner or his
proprietorship or partnership into a corporation or o Countersigned by the secretary or agent; and
a spin-off of one or more division of the company. assistant secretary; and  To be valid to the corporation and third parties,
The consideration in these cases is actually the net o Sealed with he seal of the the transfer must be recorded in the books of the
assets of those enterprises or units. corporation shall be issued in corporation. Note: The transfer of shares of stock
 Watered stocks are stocks that are issued for a accordance with the by-laws. not recorded in the Stock and Transfer Book of the
consideration less than the par or issued price  Shares of stock so issued are personal corporation is non-existent as far as the
thereof. property and may be transferred by corporation is concerned.
 Issued price is necessary to be fixed for no-par delivery of the certificates endorsed by the
shares. Said price may be fixed in either of the owner or his attorney-in-fact or other Other matters
following: person legally authorized to make the  If there is no indorsement in favor of the
o In the articles of incorporation; or transfer. transferee, the transferee may file an action to
o In a resolution issued by the board of  No transfer, however, shall be valid, except compel the transferor to make such indorsement.
directors pursuant to authority conferred as between the parties, until the transfer is However, the same cannot be considered as an
upon it by the Articles of Incorporation or recorded in the books of the corporation intra-corporate controversy because the transferee
the by-laws. showing – is not yet a shareholder.
 In the absence of provisions in o The names of the parties to the  Third persons will not be affected by an
the Articles or if the power is transaction; unregistered transfer. For instance, an attachment
not delegated to the board, the o The date of the transfer; lien prevails over a prior unregistered stock
stockholders representing at o The number of the certificates; and transfer.
least a majority of the o The number of shares transferred.
outstanding capital stock at a  No shares of stock against which the Rationale of registration in transfer books
meeting duly called for the corporation holds any unpaid claim shall  To enable the corporation to know at all times
purpose will fix the issued value. be transferrable in the books of the who its actual stockholders are, because mutual
corporation.

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 rights and obligations exists between the  The corporation may regulate the transfer of its  The certificate must be signed by the president or
corporation and its stockholders. stocks by providing certain formalities and vice-president, countersigned by the secretary or
 To afford to the corporation an opportunity to procedure in the by-laws. However, the authority assistant secretary;
object or refuse its consent to the transfer in case it granted to a corporation to regulate the transfer of  The certificate must be sealed with the seal of the
has any claim against the stock sought to be its stock does not empower it to restrict the right corporation;
transferred or for any other valid reasons. of a stockholder to transfer his shares.  The certificate must be delivered;
 To avoid fictitious or fraudulent transfers.  For instance, the corporation may not put a stamp  The par value as to par value shares or full
on the certificates that the same are non- subscription as to no par value shares, must first be
Matters of succession transferable since it constitutes unreasonable fully paid; and
 Upon the death of a shareholder, the heirs do not limitation on the right of ownership and is in
 The original certificate must be surrendered where
automatically become stockholders of the restraint of trade.
the person requesting the issuance of a certificate is
corporation and acquire the rights and privileges of a transferee from a stockholder.
the deceased as shareholders of the corporation. Other matters
The stocks must be distributed first to the heirs in  If the transfer in the books is not duly made upon If the stockholder has not paid the full amount of his
estate proceedings, and the transfer of the stocks request, he has the remedy to compel it to be subscription, he cannot transfer part of it in view of the
must be recorded in the books of the corporation. made. indivisible nature of subscription contract. It is only upon
o During the interim period from the time  Mandamus will lie against the corporate officers full payment of the whole subscription that a stockholder
of the stockholder’s death, the heirs stand who unduly bar the registration of the transfer. can transfer the same to several transferees.
as the equitable owners of the stocks and  The Articles of Incorporation may provide a right
the executors or administrators is vested of first refusal to stockholders as a limitation on Remedies of a shareholder for non-issuance
with legal title to the stocks. For the time transfer. For example, said articles may provide  Action for specific performance;
being, the executors or administrators are that any stockholder who intends to sell his share
entitled to exercise the rights of the  Action for damages if specific performance is not
must first offer the same to the other stockholders available’
deceased stockholder. Note: Said who are given a period of fifteen (15) days to
executor or administrator need not obtain  Petition for mandamus for the issuance of the
purchase the share.
written proxy to attend stockholders’ certificate; and
meeting and vote. (Sec. 64) Issuance of stock certificates – No  Rescind the subscription agreement with he
o Consequently, an heir of the deceased certificate of stock shall be issued to a subscriber consequent mutual restitution.
stockholder has no right to inspect the until the full amount of his subscription together
books of the corporation until the transfer with interest and expenses (in case of delinquent Note: A forged certificate is a void certificate. If the
to the heirs is recorded in the books of the shares), if any is due, has been paid. certificate is not signed by the officers (i.e. president or vice
corporation. president, secretary or assistant secretary) or if the
 An heir is also not entitled for Requisites for issuance of certificates signatures of the same officers are forged, the certificate is
file for a derivative action. not valid even if the present holder is a holder in good faith
and for value.
Regulation of transfer
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(Sec. 65) Liability of directors for watered stocks declare due and payable to the  A stock subscription is a subsisting liability from
 Any director or officer of a corporation corporation unpaid subscriptions the time the subscription is made. The subscriber is
consenting to – to the capital stock; and as much bound to pay his subscription as he would
o The issuance of stocks for a o May collect the same or such be to pay any other debt. The right of the
consideration less than its par or percentage thereof; corporation to demand payment is no less
issued value; or o In either case with accrued interest, incontestable.
o For a consideration in any other if any, as it may deem necessary.  A “call” is the resolution or formal declaration of
form other than cash, valued in  Payment of any unpaid subscription or any the board that the unpaid subscriptions are due and
excess of its fair value; or percentage thereof, together with the payable. Note: The unpaid subscription is not due
o Who, having knowledge of interest accrued, if any, shall be made on and payable without the call.
insufficient consideration, does not the date specified in the contract of o A corporation cannot file an action to
forthwith express his objection in subscription or on the date stated in the recover the unpaid price if the action is
writing and file the same with the call made by the board. not preceded by a call. Until a call is
corporate secretary,  Failure to pay on such date shall render the made, no cause of action accrues.
Shall be solidarily liable with the entire balance due and payable and shall  No set-off. A corporation cannot deduct from any
stockholder concerned to the corporation make the stockholder liable for interest at amount due to an employee, the latter’s unpaid
and its creditors for the difference between the legal rate on such balance, subscription of shares.
the fair value received at the time of o Unless a different rate of interest is o The prohibition applies regardless a call is
issuance of the stock and the par or issued provided in the by-laws, computed made or not. Hence, a corporation cannot
value of the same. from such date until full payment. withhold its employees salaries to apply
Note: The Revised Code provides that with the latter’s unpaid subscriptions
(Sec. 66) Interest on unpaid subscriptions “unless a different rate is provided in the whether the corporation made a call or
 Subscribers shall pay to the corporation subscription contract”. The interest shall not. This is a violation of the prevailing
interest on all unpaid subscriptions from be computed from the date specified until labor laws. (Apocada v. NLRC)
the date of subscription full payment of the subscription/
o If so required by, and at the rate of o If within thirty (30) days from the Instances when a call is unnecessary
interest fixed in the by-laws. said date no payment is made, all  When the date of payment is specified in the
 If no rate is fixed in the by-laws, such rate stocks covered by said subscription subscription agreement; and
shall be deemed to be the legal rate. shall thereupon become delinquent
 When the corporation becomes insolvent. Note:
and shall be subject to sale as
When the court assumes jurisdiction to wind up an
(Sec. 67) Payment of balance of subscription hereinafter provided, unless the
insolvent corporation, all unpaid stock
 Subject to the provisions of the contract of board of directors orders
subscriptions become payable on demand and are
subscription – otherwise.
at once recoverable in action instituted by the
o The board of directors of any stock assignee or receiver appointed by the court.
corporation may at any time Preliminary matters

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(Sec. 68) Delinquency sale – books of the corporation and a by the filing of a complaint within
 The board of directors may, by resolution, certificate for such stock shall be six (6) months from the date of sale.
order the sale of delinquent stock and shall issued in his favor.
specifically state the amount due on each o The remaining shares, if any, shall (Sec. 70) Court action to recover unpaid
subscription plus all accrued interest, and be credited in favor of the subscription –
the date, time and place of the sale which delinquent stockholder who shall  Nothing in this Code shall prevent the
shall not be less than thirty (30) days nor likewise be entitled to the issuance corporation from collecting by action in a
more than sixty (60) days from the date the of a certificate of stock covering court of proper jurisdiction the amount
stocks become delinquent. such shares. due on any unpaid subscription, with
 Notice of said sale, with a copy of the accrued interest, costs and expenses.
resolution, shall be sent to every Procedure if there is no bidder for the full amount
delinquent stockholder either personally  The corporation may, subject to the Steps to be taken in a delinquency sale
or by registered mail Note: The Revised Code provisions of this Code, bid for the same,  Resolution – the board of directors shall issue a
adds: “or through any means provided in the by- and the total amount due shall be credited resolution ordering the sale of delinquent stock.
laws”. The same shall furthermore be as paid in full in the books of the  Notice – notice of said sale, with a copy of the
published once a week for two (2) corporation. resolution, shall be sent to every delinquent
consecutive weeks in a newspaper of  Title to all the shares of stock covered by stockholder either personally or by registered mail.
general circulation in the province or city the subscription shall be vested in the  Publication – notice shall furthermore be published
where the principal office of the corporation as treasury shares and may be once a week for 2 consecutive weeks in a
corporation is located. disposed of by said corporation in newspaper of general circulation in the province or
 Unless the delinquent stockholder pays to accordance with the provisions of this city where the principal office of the corporation is
the corporation, on or before the date Code. located.
specified for the sale of the delinquent  Sale – the delinquent stock shall be sold at public
stock, the balance due on his subscription, (Sec. 69) When sale may be questioned –
auction to be held not less than 30 days nor more
plus accrued interest, costs of  No action to recover delinquent stock sold than 60 days from the date the stocks become
advertisement and expenses of sale, or can be sustained upon the ground of delinquent.
unless the board of directors otherwise irregularity or defect in the notice of sale,
 Transfer – the stock so purchased shall be
orders, said delinquent stock shall be sold or in the sale itself of the delinquent stock,
transferred to such purchaser in the books of the
at public auction to such bidder who shall o Unless the party seeking to
corporation and a certificate for such stock shall be
offer to pay the full amount of the balance maintain such action first pays or
issued in his favor.
on the subscription together with accrued tenders to the party holding the
interest, costs of advertisement and stock the sum for which the same  Credit of remainder – the remaining shares, if any,
expenses of sale, for the smallest number of was sold, with interest from the shall be credited in favor of the delinquent
shares or fraction of a share. date of sale at the legal rate; stockholder who shall likewise be entitled to the
o The stock so purchased shall be o And no such action shall be issuance of a certificate of stock covering the same.
transferred to such purchaser in the maintained unless it is commenced
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Contents of resolution  No delinquent stock shall be voted for be  Right to issuance of stock certificate for fully paid
 The amount due on each subscription; entitled to vote; or shares. Note: This right is unavailable for unpaid
 All accrued interest; and  To representation at any stockholder's shares.
 The date, time and place of sale. meeting;  Proportionate participation in the distribution of
 Nor shall the holder thereof be entitled to assets in liquidation.
Winning bidder any of the rights of a stockholder except –  Right to transfer of stocks in corporate books.
 The one who offers to pay the full amount of the o The right to dividends in Note: This right is unavailable for unpaid shares.
balance on the subscription together with the accordance with the provisions of  Pre-emptive right.
accrued interest, costs of advertisement and this Code, until and unless he pays  Right to inspect books and records.
expenses of sale; the amount due on his subscription
 Right to be furnished of the most recent financial
 For the smallest number of shares or fraction of a with accrued interest, and the costs
statement/financial report.
share. and expenses of advertisement, if
any.  Right to recover stocks unlawfully sold for
delinquent payment of subscription.
Other matters
Other matters  Right to file individual suit, representative suit,
 Payment made by the delinquent shareholder on or and derivative suit.
before the date specified for the sale automatically  If cash dividends are declared, the dividends shall
stops the sale be applied to the subscription price that is due to
the corporation. Obligations of shareholders
 After the delinquent sale, the delinquent  Liability to the corporation for unpaid
shareholder may file an action to recover the  Delinquent stockholders shall not be included in
determining existence of a quorum. subscription;
delinquent stocks which were sold if the following
 Liability to the corporation for interest on unpaid
requirements are complied with:
(Sec. 72) Rights of unpaid shares, nondelinquent – subscription if so required by the by-laws;
o The action is filed on the ground of
irregularity or defect in the notice of sale, Holders of subscribed shares not fully paid which  Liability to the creditor of the corporation for
or in the sale itself of the delinquent are not delinquent shall have all the rights of a unpaid subscription;
stock; stockholder.  Liability for watered stocks
o The party seeking to maintain such action  Liability for dividends unlawfully paid.
first pays or tenders to the party holding One right which is not available if the shares are not fully
the stock the sum for which the same was paid, is the right to secure a stock certificate or to have any Derivative suits
sold, with interest from the date of sale at subsequent transfer registered in the books of the These are suits brought by one or more
the legal rate; and corporation. The transfer is effective only between parties. stockholders/members in the name and on behalf of the
o The complaint is filed within 6 months corporation to redress wrongs committed against it, or to
from the date of sale. Rights of shareholders protect or vindicate corporate rights whenever the officials
 Voting rights of the corporation refuse to sue, or the ones to be sued, or
Sec. 71. Effect of delinquency –  Right to remove directors has control of the corporation. The suing stockholder is
 Appraisal rights regarded as the “nominal party” while the corporation as the

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“real party in interest”. If a corporation has a defense to an  The registered owner of a certificate of regarding said certificate of stock,
action against it and is not asserting it, a stockholder may stock in a corporation or his legal the right to make such contest shall
intervene and defend on behalf of the corporation. representative shall file with the be barred and said corporation
corporation an affidavit in triplicate setting shall cancel in its books the
Requisites for derivative suits (R.A. No. 8799) forth, if possible – certificate of stock which has been
 That the one suing is a stockholder/member at the o The circumstances as to how the lost, stolen or destroyed and issue
time the acts or transactions subject of the action certificate was lost, stolen or in lieu thereof new certificate of
occurred and the time the action was filed; destroyed; stock –
 He exerted all reasonable efforts, and alleges the o The number of shares represented  Unless the registered owner
same with particularity in the complaint, to by such certificate; files a bond or other
exhaust all remedies available under the Articles of o The serial number of the certificate; security in lieu thereof as
Incorporation, by-laws, laws or rules governing and may be required, in which
the corporation or partnership to obtain the relief o The name of the corporation which case a new certificate may
he desires; Note: The allegation of exhaustion of issued the same. be issued even before the
intra-corporate remedies must be alleged with o He shall also submit such other expiration of the one (1)
particularity. A general allegation in the complaint information and evidence which he year period provided
is not sufficient. (Reyes v. RTC) may deem necessary; herein:
 No appraisal rights are available for the acts  The corporation shall publish a notice in a  Provided, That if a
complained of; and newspaper of general circulation published contest has been
 The suit is not a nuisance or harassment suit. in the place where the corporation has its presented to said
principal office, once a week for three (3) corporation; or
Individual suits consecutive weeks at the expense of the  If an action is
These are actions brought by the shareholder in his own registered owner of the certificate of stock pending in court
name against the corporation when a wrong is directly which has been lost, stolen or destroyed. regarding the
inflicted against him. The cause of action pertains to him o The notice shall state the name of ownership of said
and the action is meant directly to protect his interest. said corporation; certificate of stock
o The name of the registered owner; which has been lost,
Representative suits and stolen or destroyed,
These are actions brought by the stockholder in behalf of o The serial number of said the issuance of the
himself and all other stockholders similarly situated when a certificate; and new certificate of
wrong is committed against a group of stockholders. o The number of shares represented stock in lieu thereof
by such certificate; and shall be suspended
(Sec. 73) Procedure for lost or destroyed o That after the expiration of one (1) until the final
certificates – year from the date of the last decision by the
publication, if no contest has been court regarding the
presented to said corporation ownership of said
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 certificate of stock which has been lost, stolen or destroyed, the stockholder or member, the
which has been lost, issuance of the new certificate of stock in lieu time when any director,
stolen or destroyed. thereof shall be suspended until the final decision trustee, stockholder or
 Except in case of fraud, bad faith, or by the court regarding the ownership of said member entered or left the
negligence on the part of the corporation certificate of stock which has been lost, stolen, or meeting must be noted in
and its officers, no action may be brought destroyed; and the minutes;
against any corporation which shall have  Replacement – If there is no contest within the  And on a similar demand,
issued certificate of stock in lieu of those one-year period, the corporation shall then replace the yeas and nays must be
lost, stolen or destroyed pursuant to the the certificate. taken on any motion or
procedure above-described. o The replacement can only be made before proposition, and a record
the expiration of the one-year period if a thereof carefully made.
This section does not apply where the certificates are just bond is posted.  The protest of any director,
worn out, or when the certificate was never issued to the trustee, stockholder or
shareholder because it was not delivered by the corporation. Note: The requirements under Section 73 are mandatory in member on any action or
nature. However, substantial compliance is acceptable. proposed action must be
Outlines of procedure recorded in full on his
 Affidavit – The registered owner shall execute and TITLE VIII: CORPORATE BOOKS AND RECORDS demand.
file an affidavit regarding share and the o The records of all business
circumstances regarding its loss; (Sec. 74) Books to be kept; stock transfer agent – transactions of the corporation and
 Verification – The corporation shall verify the Every corporation shall keep and carefully the minutes of any meetings shall
affidavit and other information and evidence with preserve at its principal office – be open to inspection by any
the books of the corporation;  A record of all business transactions and director, trustee, stockholder or
minutes of all meetings of stockholders or member of the corporation at
 Publication – The corporation shall publish a
members, or of the board of directors or reasonable hours on business days
notice in a newspaper of general circulation
trustees, and he may demand, in writing, for
published in the place where the corporation has its
o In which shall be set forth in detail a copy of excerpts from said
principal office, once a week for 3 consecutive
the time and place of holding the records or minutes, at his expense.
weeks at the expense of the registered owner of
meeting, how authorized, the o Any officer or agent of the
the certificate of stock which has been lost, stolen
notice given, whether the meeting corporation who shall refuse to
or destroyed.
was regular or special, allow any director, trustees,
 One-Year waiting period – There shall be a period stockholder or member of the
of 1 year from the date of the last publication  If special its object, those
present and absent, and corporation to examine and copy
during which a contest can be interposed. excerpts from its records or
every act done or ordered
 Contest – If a contest has been presented to said minutes, in accordance with the
done at the meeting.
corporation or if an action is pending in court provisions of this Code, shall be
 Upon the demand of any
regarding the ownership of said certificate of stock liable to such director, trustee,
director, trustee,
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 stockholder or member for o A record of all stocks in the names of a license fee herein provided,
damages, and in addition, shall be of the stockholders alphabetically shall be applicable.
guilty of an offense which shall be arranged;
punishable under Section 144 of o The installments paid and unpaid Note: (Kelvin’s comment: I included the entire provision
this Code: on all stock for which subscription under the Revised Code since the departure/change with
 Provided, That if such has been made, and the date of the old provision is substantial and significant.)
refusal is made pursuant to payment of any installment;
a resolution or order of the o A statement of every alienation, sale The Revised Code provides that every corporation shall
board of directors or or transfer of stock made, the date keep and carefully preserve at its principal office all
trustees, the liability under thereof, and by and to whom made; information relating to the corporation including, but not
this section for such action and limited to:
shall be imposed upon the o Such other entries as the by-laws  The articles of incorporation and by-laws of the
directors or trustees who may prescribe. corporation and all their amendments;
voted for such refusal: and The stock and transfer book shall be  The current ownership structure and voting rights
 Provided, further, That it kept in the principal office of the of the corporation, including lists of stockholders
shall be a defense to any corporation or in the office of its stock or members, group structures, intra-group
action under this section transfer agent and shall be open for relations, ownership data, and beneficial
that the person demanding inspection by any director or ownership;
to examine and copy stockholder of the corporation at
 The names and addresses of all the members of the
excerpts from the reasonable hours on business days.
board of directors or trustees and the executive
corporation’s records and  No stock transfer agent or one engaged officers;
minutes has improperly principally in the business of registering
 A record of all business transactions;
used any information transfers of stocks in behalf of a stock
secured through any prior corporation shall be allowed to operate in  A record of the resolutions of board of directors or
examination of the records the Philippines unless he secures a license trustees and of the stockholders or members;
or minutes of such from the Securities and Exchange  Copies of the latest reportorial requirements
corporation or of any other Commission and pays a fee as may be fixed submitted to the SEC; and
corporation, or was not by the Commission, which shall be  The minutes of all meetings of stockholders or
acting in good faith or for a renewable annually: members, or of the board of directors or trustees,
legitimate purpose in o Provided, That a stock corporation o In which shall be set forth in detail the
making his demand. is not precluded from performing time and place of holding the meeting,
 Stock corporations must also keep a book or making transfer of its own how authorized, the notice given, the
to be known as the "stock and transfer stocks, in which case all the rules agenda therefor, whether the meeting was
book", in which must be kept – and regulations imposed on stock regular or special, those present or
transfer agents, except the payment absent, and every act done or ordered
done at the meeting.
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  Upon the demand of any  Data Privacy Act of 212 (R.A. No. 10173) Stock corporations must also keep a book to be known as
director, trustee, stockholder or the "stock and transfer book", in which must be kept –
member, the time when any Any officer or agent of the corporation who shall refuse to  A record of all stocks in the names of the
director, trustee, stockholder or allow any director, trustees, stockholder or member of the stockholders alphabetically arranged;
member entered or left the corporation to examine and copy excerpts from its records  The installments paid and unpaid on all stock for
meeting must be noted in the or minutes, in accordance with the provisions of this Code, which subscription has been made, and the date of
minutes; shall be liable to such director, trustee, stockholder or payment of any installment;
 And on a similar demand, the member for damages, and in addition, shall be guilty of an  A statement of every alienation, sale or transfer of
yeas and nays must be taken on offense which shall be punishable under Section 161 of this stock made, the date thereof, and by and to whom
any motion or proposition, and a Code: made; and
record thereof carefully made.  Provided, That if such refusal is made pursuant to a  Such other entries as the by-laws may prescribe.
 The protest of any director, resolution or order of the board of directors or The stock and transfer book shall be kept in the principal
trustee, stockholder or member trustees, the liability under this section for such office of the corporation or in the office of its stock transfer
on any action or proposed action action shall be imposed upon the directors or agent and shall be open for inspection by any director or
must be recorded in full on his trustees who voted for such refusal: and stockholder of the corporation at reasonable hours on
demand.  Provided, further, That it shall be a defense to any business days.
Note: The Revised Code further provides that the action under this section that the person
inspecting or reproducing party shall remain bound by demanding to examine and copy excerpts from the A stock transfer agent or one engaged principally in the
confidentiality rules under prevailing laws, such as corporation’s records and minutes has improperly business of registering transfers of stocks in behalf of a stock
 The rules on trade secrets or processes under used any information secured through any prior corporation shall be allowed to operate in the Philippines
Intellectual Property Code (R.A. No. 8293, as examination of the records or minutes of such upon securing a license from the SEC and the payment of a
amended) corporation or of any other corporation, or was fee to be fixed by the SEC, which shall be renewable
 The Data Privacy Act of 2012 (R.A. No. 10173); not acting in good faith or for a legitimate purpose annually:
 The Securities Regulation Code (R.A. No. 8799) in making his demand, or is a competitor, director,  Provided, that a stock corporation is not precluded
officer, controlling stockholder or otherwise from performing or making transfers of its own
A requesting party who is not a stockholder or member of represents the interests of a competitor. stocks, in which case all the rules and regulations
record, or is a competitor, director, officer, controlling imposed on stock transfer agents, except the
stockholder or otherwise represents the interests of a If the corporation denies or does not act on a demand for payment of a license fee herein provided, shall be
competitor shall have no right to inspect or demand inspection and/or reproduction, the aggrieved party may applicable.
reproduction of corporate records. report such denial or inaction to the SEC.
 Provided, further, that the SEC may require stock
 Within 5 days from receipt of such report, the SEC corporations which transfer and/or trade stocks in
Any stockholder who shall abuse the rights granted under shall conduct a summary investigation and issue an secondary markets to have an independent transfer
this section shall be penalized under – order directing the inspection or reproduction of agent.
 Section 158 of this Code; without prejudice to the requested records.
 Intellectual Property Code (R.A. No. 8293);

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Contents of book of minutes Code provides that if the total assets or total
 The date and time of meeting; Remedy of a stockholder improperly deprived of right to liabilities of the corporation are less than
 The place of holding the meeting; inspect P600,000, or such other amount as may be
 How the meeting was authorized;  To file a complaint under Rule 7 of the Interim determined appropriate by the Department of
Rule for Intra-Corporate Controversies. Finance, the financial statements may be certified
 The fact that notice was given; under oath by the treasurer and the president.
 Whether the meeting was regular or special; (Sec. 75) Right to financial statements –
 If the meeting is special, its object must be stated;  Within ten (10) days from receipt of a A stockholder’s right to inspect does not cover inspection of
 Those present and absent; and written request of any stockholder or bank accounts. The Secrecy of Bank Deposits Law makes all
 Every act done or ordered done at the meeting. member, the corporation shall furnish to bank deposits of whatever nature absolutely confidential in
him its most recent financial statement, nature and the same may not be inquired into by any person
Contents of the stock and transfer book which shall include except under specified circumstances. The shareholder has a
personality separate and distinct from the corporation
 All stocks in the name of the stockholders o A balance sheet as of the end of the
last taxable year; and hence, only the corporation can give the consent to inquire
alphabetically arranged;
o A profit or loss statement for said on its deposits. Independent of the foregoing, the purpose
 Amount paid and unpaid on all stocks and the date of the inspection is likewise not acceptable because it is alien
of payment of any installment; taxable year, showing in reasonable
detail its assets and liabilities and to all other rights of the shareholder. (1983 Bar Exam)
 Alienation, sale or transfer of stocks; and
the result of its operations.
 Other entries as the by-laws may prescribe. The right of a stockholder to inspect the books and records
 At the regular meeting of stockholders or
of a corporation extends to a subsidiary wholly owned by
members, the board of directors or trustees
Only the corporate secretary is duly authorized to make that corporation. It is in consonance with equity, good faith
shall present to such stockholders or
entries on the stock and transfer book. and fair dealing if the right of the shareholder will be so
members a financial report of the
extended. (1988 Bar Exam)
Requisites for exercise of right of inspection operations of the corporation for the
preceding year, which shall include
 It must be exercised at reasonable hours on financial statements, duly signed and
TITLE IX: MERGER AND CONSOLIDATION
business days; certified by an independent certified
 The stockholder has not improperly used any (Sec. 76) Plan of merger or consolidation –
public accountant. Note: The Revised Code
information he secured through any previous The board of directors or trustees of each
provides that the financial statements be duly
examination; and corporation, party to the merger or consolidation,
signed and certified in accordance with the Code,
 Demand is made in good faith or for a legitimate shall approve a plan of merger or consolidation
and the rules that the SEC may prescribe.
purpose. setting forth the following:
 However, if the paid-up capital of the
 The names of the corporations proposing
corporation is less than P50,000.00, the
There are matters that are not covered by the right to to merge or consolidate, hereinafter
financial statements may be certified under
inspect. For instance, a corporation engaged in referred to as the constituent corporations;
oath by the treasurer or any responsible
manufacturing goods can keep secret the formula or process officer of the corporation. Note: The Revised
which is not generally well known.
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  The terms of the merger or consolidation corporations, at least two (2) weeks prior section, articles of merger or articles of
and the mode of carrying the same into to the date of the meeting, either consolidation shall be –
effect; personally or by registered mail. Note: The o Executed by each of the constituent
 A statement of the changes, if any, in the Revised Code allows sending through electronic corporations;
articles of incorporation of the surviving mail or such other manner as the SEC shall allow o To be signed by the president or
corporation in case of merger; and under its guidelines. vice-president; and
o With respect to the consolidated o Said notice shall state the purpose o Certified by the secretary or
corporation in case of of the meeting and shall include a assistant secretary of each
consolidation, all the statements copy or a summary of the plan of corporation setting forth:
required to be set forth in the merger or consolidation.  The plan of the merger or
articles of incorporation for  Any dissenting stockholder in stock the plan of consolidation;
corporations organized under this corporations may exercise his appraisal  As to stock corporations,
Code; and right in accordance with the Code: the number of shares
 Such other provisions with respect to the o Provided, That if after the approval outstanding, or in the case
proposed merger or consolidation as are by the stockholders of such plan, of non-stock corporations,
deemed necessary or desirable. the board of directors decides to the number of members;
abandon the plan, the appraisal and
(Sec. 77) Stockholder’s or member’s approval – right shall be extinguished.  As to each corporation, the
 Upon approval by majority vote of each of  Any amendment to the plan of merger or number of shares or
the board of directors or trustees of the consolidation may be made, provided such members voting for and
constituent corporations; amendment is approved by majority vote of against such plan,
the respective boards of directors or respectively;
 Approval by the stockholders or members
trustees of all the constituent corporations  Note: The Revised Code adds:
of each of such corporations at separate
and ratified by the affirmative vote of The carrying amounts and fair
corporate meetings duly called for the
stockholders representing at least two- values of the assets and liabilities
purpose.
thirds (2/3) of the outstanding capital of the respective companies as of
o If stock corporation – the
stock or of two-thirds (2/3) of the members the agreed cut-off date;
affirmative vote of 2/3 of the
of each of the constituent corporations.  The method to be used in the
outstanding capital stock of each
o Such plan, together with any merger or consolidation of
corporation.
amendment, shall be considered as accounts of the companies;
o If non-stock corporation – the
the agreement of merger or  The provisional or pro-forma
affirmative vote of 2/3 of the
consolidation. values, as merged or
members of each corporation.
o consolidated, using the
(Sec. 78) Articles of merger or consolidation – accounting method; and
 Notice of such meetings shall be given to all
 After the approval by the stockholders or  Such other information as may
stockholders or members of the respective
members as required by the preceding be prescribed by the SEC.
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 o The Commission shall thereafter constituent corporation, shall be
(Sec. 79) Effectivity of merger or consolidation – proceed as provided in this Code. deemed transferred to and vested
The articles of merger or of consolidation, signed in such surviving or consolidated
and certified as herein above required, shall be (Sec. 80) Effects of merger or consolidation – The corporation without further act or
submitted to the Securities and Exchange merger or consolidation shall have the following deed; and
Commission in quadruplicate for its approval: effects:  The surviving or consolidated corporation
 Provided, That in the case of merger or  The constituent corporations shall become shall be responsible and liable for all the
consolidation of banks or banking a single corporation which, liabilities and obligations of each of the
institutions, building and loan associations, o In case of merger, shall be the constituent corporations in the same
trust companies, insurance companies, surviving corporation designated manner as if such surviving or consolidated
public utilities, educational institutions in the plan of merger; and corporation had itself incurred such
and other special corporations governed o In case of consolidation, shall be liabilities or obligations; and any pending
by special laws, the favorable the consolidated corporation claim, action or proceeding brought by or
recommendation of the appropriate designated in the plan of against any of such constituent
government agency shall first be obtained. consolidation. corporations may be prosecuted by or
o If the Commission is satisfied that  The separate existence of the constituent against the surviving or consolidated
the merger or consolidation of the corporations shall cease, except that of the corporation. The rights of creditors or liens
corporations concerned is not surviving or the consolidated corporation; upon the property of any of such
inconsistent with the provisions of  The surviving or the consolidated constituent corporations shall not be
this Code and existing laws, it shall corporation shall possess all the rights, impaired by such merger or consolidation.
issue a certificate of merger or of privileges, immunities and powers and
consolidation, at which time the shall be subject to all the duties and Merger is one where two or more corporations merge into
merger or consolidation shall be liabilities of a corporation organized under a single corporation which shall be one of the constituent
effective. this Code; corporations. In short, a corporation absorbs another
 If, upon investigation, the Securities and corporation and the former remains in existence while the
 The surviving or the consolidated
Exchange Commission has reason to believe other is dissolved.
corporation shall thereupon and thereafter
that the proposed merger or consolidation possess all the rights, privileges, immunities
is contrary to or inconsistent with the Consolidation is one where into a new single corporation
and franchises of each of the constituent
provisions of this Code or existing laws, it which shall be the consolidated corporation is created,
corporations; and
shall set a hearing to give the corporations extinguishing the constituent corporations.
o All property, real or personal, and
concerned the opportunity to be heard. all receivables due on whatever
o Written notice of the date, time and Other matters
account, including subscriptions to
place of hearing shall be given to shares and other choses in action,  A “triangular merger” is a type of merger where
each constituent corporation at and all and every other interest of, the purchasing corporation creates a subsidiary
least two (2) weeks before said or belonging to, or due to each corporation and transfers to the subsidiary shares in
hearing. the parent company which will be used for the
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 share exchange that will be provided for in the redundancy or labor-saving devices or to  Note: The Revised Code adds that appraisal right
merger plan. prevent losses, are done in good faith, may also be exercised in case of investment of
o The “subsidiary” is sometimes referred to they would be valid. Note: However, corporate funds for any purpose other than the
as ‘phantom’ corporation because it may authors believe that this ruling is not primary purpose of the corporation.
exist only long enough to consummate consistent with law. The framework in
the merger. the dissenting opinions of Justice Brion An appraisal right is the right of a shareholder to dissent and
o The actual merger is not between the and Justice Carpio, and their demand payment of the fair value of his shares in the
acquiring corporation and the target consideration of the social justice instances provided for under the Corporation Code. The
corporation, but rather between the provision, is deemed more in conformity Code only allows the exercise of the appraisal right for any
newly formed subsidiary and target with Corporate Law. reason provided only that the corporation has sufficient
corporation.  A religious corporation may be merged with assets to cover its debts and liabilities, exclusive of capital.
 Acquisition of assets of another corporation is another religious corporation. howe
neither merger nor consolidation. Instances when appraisal right may be exercised
 A “combination” is used to designate an alliance or  In case any amendment to the articles of
confederation or sale or other transaction between TITLE X: APPRAISAL RIGHT incorporation has the effect of changing or
two or more corporations, by virtue of which will restricting the rights of any stockholder or class of
not necessarily result in the loss of the separate (Sec. 81) Instances of appraisal right – Any shares;
existence of the corporations. Although stockholder of a corporation shall have the right to  In case of any amendment to the articles of
combinations include merger and consolidation. dissent and demand payment of the fair value of his incorporation authorizing preferences in any
 The employees of the dissolved corporation shall shares in the following instances: respect superior to those of outstanding shares of
be assumed by the surviving or consolidated  In case any amendment to the articles of any class;
corporation. Hence, any retirement benefit should incorporation has the effect of changing or  In case of amendment to the articles of
be computed on the basis of their employment restricting the rights of any stockholder or incorporation extending the corporate term;
starting from their employment with the dissolved class of shares, or of authorizing
 In case of amendment to the articles of
or constituent corporations as the case may be. preferences in any respect superior to
incorporation shortening the corporate existence;
(Filipinas Port Services, Inc. v. NLRC, 1991 case) those of outstanding shares of any class, or
of extending or shortening the term of  In case of sale, lease, exchange, transfer, mortgage,
o In Bank of the Philippine Islands v. BPI
corporate existence; pledge or other disposition of all or substantially all
(2010 case) Employees Union, the
of the corporate property and assets as provided in
Supreme Court observed that there is  In case of sale, lease, exchange, transfer,
the Code;
nothing in the Corporation Law and the mortgage, pledge or other disposition of all
merger agreement mandating automatic or substantially all of the corporate  In case of merger or consolidation;
employment as regular employees by the property and assets as provided in the  If the corporation will invest its funds in another
surviving corporation in the merger. The Code; and corporation or for any purpose other than its
employees are not assets and liabilities  In case of merger or consolidation. primary purpose;
that are considered absorbed. If  In a close corporation under Section 105 of the
terminations, for instance due to Corporation Code.
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 o Provided, That no payment shall be o Such demand for payment is
(Sec. 82) How right is exercised – made to any dissenting stockholder withdrawn with the consent of the
 The appraisal right may be exercised by unless the corporation has corporation, or
any stockholder who shall have voted unrestricted retained earnings in its o If the proposed corporate action is
against the proposed corporate action, by books to cover such payment: and abandoned or rescinded by the
making a written demand on the o Provided, further, That upon corporation or disapproved by the
corporation within thirty (30) days after payment by the corporation of the Securities and Exchange
the date on which the vote was taken for agreed or awarded price, the Commission where such approval is
payment of the fair value of his shares: stockholder shall forthwith transfer necessary, or
o Provided, That failure to make the his shares to the corporation. o If the Securities and Exchange
demand within such period shall be Commission determines that such
deemed a waiver of the appraisal (Sec. 83) Effect of demand and termination of right stockholder is not entitled to the
right.  From the time of demand for payment of appraisal right,
 If the proposed corporate action is the fair value of a stockholder’s shares until Then the right of said stockholder to be
implemented or affected, the corporation either the abandonment of the corporate paid the fair value of his shares shall cease,
shall pay to such stockholder, upon action involved or the purchase of the said his status as a stockholder shall thereupon
surrender of the certificate or certificates shares by the corporation, all rights be restored, and all dividend distributions
of stock representing his shares, the fair accruing to such shares, including voting which would have accrued on his shares
value thereof as of the day prior to the date and dividend rights, shall be suspended in shall be paid to him.
on which the vote was taken, excluding accordance with the provisions of this
any appreciation or depreciation in Code, except the right of such stockholder (Sec. 85) Who bears costs of appraisal
anticipation of such corporate action. to receive payment of the fair value  The costs and expenses of appraisal shall be
 If within a period of sixty (60) days from thereof: borne by the corporation, unless the fair
the date the corporate action was approved o Provided, That if the dissenting value ascertained by the appraisers is
by the stockholders, the withdrawing stockholder is not paid the value of approximately the same as the price which
stockholder and the corporation cannot his shares within 30 days after the the corporation may have offered to pay
agree on the fair value of the shares, it shall award, his voting and dividend the stockholder, in which case they shall be
be determined and appraised by three (3) rights shall immediately be borne by the latter.
disinterested persons, one of whom shall be restored.  In the case of an action to recover such fair
named by the stockholder, another by the (Sec. 84) When right to payment ceases value, all costs and expenses shall be
corporation, and the third by the two thus  No demand for payment under this Title assessed against the corporation, unless the
chosen. may be withdrawn unless the corporation refusal of the stockholder to receive
 The findings of the majority of the consents thereto. payment was unjustified.
appraisers shall be final, and their award  If, however,
shall be paid by the corporation within (Sec, 86) Notation on certificates; rights of
thirty (30) days after such award is made: transferee
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  Within ten (10) days after demanding
payment for his shares, a dissenting
stockholder shall submit the certificates of
stock representing his shares to the
corporation for notation thereon that such
shares are dissenting shares.
 His failure to do so shall, at the option of
the corporation, terminate his rights under
this Title.
 If shares represented by the certificates
bearing such notation are transferred, and
the certificates consequently cancelled, the
rights of the transferor as a dissenting
stockholder under this Title shall cease and
the transferee shall have all the rights of a
regular stockholder; and
o All dividend distributions which
would have accrued on such shares
shall be paid to the transferee.

If the corporation unjustifiably refuses to pay the dissenting

stockholder despite the full compliance with all the
requirements for the valid exercise of appraisal right and
despite the fact that the corporation has sufficient
unrestricted retained earnings, the aggrieved stockholder
may file the appropriate action before the Regional Trial
Court to compel the corporation to allow him to exercise
his appraisal right.

CULAJARA CORPORATION LAW REVIEWER

37 | P a g e