TEST TO DETERMINE  Contract for the acquisition of

APPLICABILITY OF PIERCING THE unissued stock

VEIL  Pre-incorporation subscription –
irrevocable for a period of 6 months
 Fraud Test
from the date of subscription
 Alter-ego or Instrumentality Test
unless:
(Conduit Test)
 All other subscriber consents
 Public Convenience Test
 Corporation fails to
 Equity Cases/ Test
incorporate in the same or
DOMESTIC VS. FOREIGN stated period
 No pre-incorporation may be
 Incorporation Test – under what revoked after the AOI is submitted
laws the corporation is organized to the SEC
 Control Test – Nationality of the
corporation depends on the PRE-INCORPORATION
nationality of the stockholders SUBSCRIPTION AGREEMENTS
 Grand-Father Rule – applies
if the 60/40 Filipino
ownership is in doubt or the
industry is under the
negative list under the
Foreign Investment Act
INCORPORATION AND
ORGANIZATION
 Promoter
 Bring together persons
interested in the business
venture
 Enter into contract either in
their own names or the
proposed corporations
 Personally liable for
contracts made by him for
the benefit of the corporation CONSIDERATION FOR STOCKS
 Liability continues even after  Actual cash paid to the corporation
formation of the corporation  Property (tangible or intangible
unless there is novation or such as patents or copyrights)
agreement releasing him  Said property must actually
from liability be received by the
 Not an agent of the corporation; and
corporation  Necessary or convenient for
SUBSCRIPTION CONTRACT the use and lawful purposes
of the corporations
 Labor performed for or services  Place and Date of Execution of the
actually rendered to the corporation First AOI
 Amounts transferred from
CORPORATE NAME; IMITATIONS
unrestricted retained earnings to
ON USE OF CORPORATE NAME
stated capital
 Outstanding shares exchanged for  Reservation of name before
stocks in the event of submission of AOI
reclassification or conversion  Corporate name shall not be
 Shares of stock in another allowed if it is not distinguishable
corporation; and/or from that already reserved or
 Other generally accepted form registered or if such name is already
consideration protected by law, rules and
 Note: No shares of stock are issued regulations
in exchanged for promissory notes  Not distinguishable even if it
or future service contains:
 The word corporation,
ARTICLES OF INCORPORATION
company, etc. or ay
 Name abbreviation thereof
 Purpose – Principal and Secondary  Punctuation, articles,
 Place of Principal Office conjunctions, spacing, etc
 Corporate Term EFFECTS OF VIOLATIONS ON
 Names, Nationalities and Residence CORPORATE NAME
Address of the Incorporators
 Number of Directors (Maximum of  Cease and desist order from using
15), Trustees may be more than 15 such name
 Names of Initial Director or  Removal of signages,
Trustees advertisements, marks, and other
 Stock – Authorized Capital Stock, effects bearing such corporate name
Number of Shares Divided, Names  Contempt, administrative, civil, or
and Nationalities of Subscribers, criminal liability
Amounts Subscribed and Paid  Revocation of registration
 Non-Stock – Amount of Capital, REGISTRATION, INCORPORATION
Names, Nationalities, and AND COMMENCEMENT OF
Residences of Contributors, and CORPORATE EXISTENCE
Amount Contributed
 Such other matters consistent with  Reservation of corporate name
law that are deemed necessary and  Submission of AOI and By Laws
convenient  Issuance of certificate of
incorporation (COI) – Upon full
NON-AMENABLE ITEMS OF AOI
compliance
 Names of Incorporators ELECTION OF DIRECTORS OR
 First Set of Directors and TRUSTEES
Subscribers
 Initial Treasurer  Founder’s shares – limited to 5
 Original Subscription years
  Each stockholder or member has N – Total number of directors to be elected
right to vote any director or trustees
BYLAWS
 For election to be effective – there
must be quorum  Rules and ordinances made by
 Majority of the outstanding corporation for its own government
capital stock or members  Adoption of Bylaws – affirmative
must be present – in person, vote of majority of OCS or Members
thru a representative (written  Kept in the principal office, subject
proxy), or remote to inspection during regular hours
communication (if  Filed before or after incorporation
authorized by the law by laws or together with the Articles of
or majority of directors – Incorporation
unless corporation vested  Effective upon the issuance by the
with public interest) SEC of a certification that the
VOTING bylaws are in accordance with the
Revised Corporation Code
 Must be made through ballot if
requested by a stockholder or CONTENTS OF BYLAWS
member  The time, place and manner of
 Manner of voting calling and conducting regular or
 Non-Stock = 1 member = 1 special meetings of the directors or
vote trustees
 Stock  The time and manner of calling and
 Amount of vote = conducting regular or special
Stocks Owned * meetings and mode of notifying the
Directors to be elected stockholders or members thereof;
 Straight  The required quorum (majority
 Cumulative vote) in meetings of stockholders or
 1 Candidate members and the manner of voting
 Distributed therein;
 The modes by which a stockholder,
VOTING ILLUSTRATION
member, director or trustees may
Mr. A owns 5,000 shares out of 15,000 attend meetings and cast their votes
outstanding shares of XYZ Corporation.  The form for proxies of stockholders
The AOI provides for 12 directors. and members and the manner of
voting them
How many shares are needed to elect 2
 The directors’ or trustees’
directors?
qualifications, duties and
OS∗n responsibilities, the guidelines for
Shares needed ¿ elect n directors= +1
N +1 setting the compensation of
directors or trustees and officers,
Where:
and the maximum number of other
OS – Outstanding shares board representations that an
independent director or trustee may
n – Desired number of directors to be have which shall, in no case, be
elected
 more than the number prescribed operation within 2 years and
by the Commission comply with SEC
requirements
BINDING EFFECT OF BYLAWS
 Lifting of delinquent status
 As to member and the corporation – or revocation of COI
have the force and effect of a
NUMBER AND QUALIFICATIONS
contract
OF INCORPORATORS
 As to third persons – they will only
be bound if they know the bylaws.  Natural or Artificial Persons
Knowledge is not presumed.  Not more than 15
AMENDMENT OF BYLAWS  Cannot organize for the practice of
profession
 Majority of Board of Directors /  Legal Age
Board of Trustees AND Majority of  Holder or Subscriber of at least 1
OCS/Members stock
 Majority of BOD/BOT only (but
authority must be delegated by 2/3 SUBSCRIPTION REQUIREMENTS
OCS/Members)  Initial subscription was removed
 Authority to amend may be  Unless otherwise provided by
revoked by majority vote of special law
the OCS/Members  https://www.sec.gov.ph/wp-
 Filed to the SEC (certified and content/uploads/2019/12/20
signed by the Corp. Sec. and 15PR_MinimumPaidUpCapit
Majority of the Board al.pdf
 Effective upon the issuance by the  Link contains minimum paid
SEC of a certification that the up capital based on industry
bylaws are in accordance with the and based on equity
Revised Corp Code
CORPORATE TERM
EFFECT OF NON-USE OF THE
CORPORATION CHARTER  Perpetual existence
 Except: 1) AOI or 2) Majority
 Not formally organize and vote of OCS to retain specific
commence its business (non-use) term
within 5 years from incorporation –  Extension or shortening of
COI is deemed revoked as of the day term – by amendment of AOI
following the end of the 5-year  Extension can only be
period made within 3 years
 Commenced business but before expiration
subsequently becomes inoperative  Effectivity will start
for a period of at least 5 years – from the end of the
after due notice and hearing, SEC original expiration
may place the corporation under
 Application for revival – Certificate
delinquent status
of revival of corporate existence
 Delinquent Status –
 Favorable recommendation from
opportunity to resume
AGA
  Banks, banking and quasi- SCOPE OF VOTING RIGHTS
banking institutions, SUBJECT TO CLASSIFICATION
preneed, insurance and trust
 Only preferred and redeemable
companies, non-stock
shares may be deprived of voting
savings and loan associations
rights
(NSSLAs), pawnshops,
corporations engaged in  Holders of nonvoting shares
money service busines, and nevertheless be entitled to vote on
other financial the following matters (AASIMID)
intermediaries  Amendment of the articles of
incorporation
CLASSIFICATION OF SHARES  Adoption and amendment of
 Preferred shares vs. Common bylaws
shares  Sale, lease, exchange,
 Scope of voting rights subject to mortgage, pledge, or other
classification disposition of all or
substantially all of the
 Founder’s shares
corporate property
 Redeemable shares
 Incurring, creating, or
 Treasury shares
increasing bonded
SHARES indebtedness
 Increase or decrease of
 Common authorized capital stocks
 Preferred  Merger or consolidation of
 Voting the corporation with another
 Non-voting or other corporations
 Par Value  Investment of corporate
 No Par Value funds in another corporation
 Founder’s or business in accordance
 Redeemable with this Code; and
 Treasury  Dissolution of the
corporation
COMMON SHARES
FOUNDER’S SHARES
 Ordinary shares entitled to vote
 No preference  Exclusive right to vote and be voted
for as director
PREFFERED SHARES  Limited to 5 years from the date of
 May be deprived of voting rights incorporation
 May have benefits or preference not  Not exercisable if it will
enjoyed by common shares violate the Anti Dummy Law
o Dividends distribution and the Foreign Investment
o Distribution of assets in case Act
of liquidation REDEEMABLE SHARES
 Can only be issued with par value
  Share that may be purchased by the  Power to acquire, hold or dispose
corporation – withing a mandatory property as its business may
period regardless of the existence of reasonably require
unrestricted retained earnings  Power to adopt and amend its
 Not treated as a capital but more of bylaws
a liability
GENERAL POWERS
 Must be expressly provided in the
AOI  To sue and be sued in its corporate
name;
TREASURY SHARES
 To have perpetual existence unless
 Shares which have been issued and the certificate of incorporation
fully paid for provides otherwise;
 Reacquired by the corporation  To adopt and use a corporate seal;
through purchase, redemption,  To amend its articles of
donation or some other lawful incorporation in accordance with
means the provisions of this Code;
 There must be unrestricted retained  To adopt bylaws, not contrary to law
earnings morals or public policy, and to
amend or repeal the same in
POWERS OF THE CORPORATION
accordance with this Code;
 Express – granted by law, AOI,  In case of stock corporations, to
RCC, Admin. Regulation issue or sell stocks to subscribers
o General Powers (Sec. 35) and to sell treasury stocks in
o Specific Powers (Sec 36-43) accordance with the provisions of
 Implied – necessary consequence of this Code; and to admit members to
the express powers the corporation if it be a nonstock
 Incidental/Inherent – deemed to be corporation;
within the capacity of corporate  To purchase, receive, take or grant,
entity hold, convey, sell, lease, pledge,
mortgage, and otherwise deal with
IMPLIED such real and personal property,
 Acts in the usual course of business including securities and bonds of
other corporations, as the
 Acts to protect debts of the
transaction of the lawful business of
corporation
the corporation may reasonably and
 Acts designed to protect or aid
necessarily require, subject to the
employees
limitations prescribed by law and
 Acts to increase the business of the the constitution;
corporation
 To enter into a partnership, joint
INCIDENTAL/INHERENT venture, merger, consolidation, or
any other commercial agreement
 Power of succession with natural and juridical persons;
 Power to have a corporate name  To make reasonable donations,
 Power to adopt a corporate seal including those for the public
welfare or for hospital, charitable,
 cultural, scientific, civic, or similar respective shareholdings unless
purposes: Provided, That no foreign such right is denied by the articles
corporation shall give donations in of incorporation or an amendment
aid of any political party or thereto.
candidate or for purposes of  Purpose - maintain proportionate
partisan political activity; control and equity participation
 To establish pension, retirement,  Also applies reissuance of Treasury
and other plans for the benefit of its shares
directors, trustees, officers, and  Not extend to shares issued in
employees; and compliance with laws requiring
 To exercise such other powers as stock offerings or minimum stock
may be essential or necessary to ownership by the public; or
carry out its purpose or purposes as  Shares issued in good faith with the
stated in the articles of approval of the stockholders
incorporation. representing two-thirds (2/3) of the
POWER TO EXTEND OR SHORTEN outstanding capital stock in
CORPORATE TERM exchange for property needed for
corporate purposes or in payment of
 Majority vote of Board of previously contracted debt.
Directors/Trustees  Waivable
 Ratified by 2/3 vote of Outstanding  Transferable unless restricted by
Capital Stock/ Members AOI
 Non-voting shares can vote
SALE OR OTHER DISPOSITION OF
POWER TO INCREASE OR ASSETS
DECREASE CAPITAL STOCK;
INCUR, CREATE OR INCREASE  Majority vote of BOT/BOD
BONDED INDEBTEDNESS  Ratified by 2/3 vote of
OCS/members
 Majority vote of Board of Directors/  Non-voting shares can vote
Trustees  All or substantially all
 Ratified by 2/3 vote of Outstanding
Capital Stock/ Members POWER TO ACQUIRE OWN SHARES
 Non-voting shares can vote  Purposes:
 25% 25% rule (25% of issued shares  To eliminate fractional
must be subscribed and 25% of shares arising out of stock
subscribed must be paid) on dividends;
increase of Capital Stock  To collect or compromise an
 No decrease of Capital Stock if it is indebtedness to the
prejudiced to the corporation corporation, arising out of
POWER TO DENY PRE-EMPTIVE unpaid subscription, in a
RIGHT delinquency sale, and to
purchase delinquent shares
 Preferential right to subscribe to all sold during said sale;
issues or disposition of shares of  To pay dissenting or
any class, in proportion to their withdrawing stockholders
 entitled to payment for their  Liquidating Dividend
shares under the provisions
of this Code.
CONDITION IN ORDER TO
ACQUIRE OWN SHARES
 Its capital is not impaired
 Legitimate and proper objective is
advanced
 Condition of corporate affairs POWER TO ENTER INTO
warrants it MANAGEMENT CONTRACT
 Designed and carried out in good
faith  Managing Corporation and
 There must be unrestricted retained Managed corporation
earnings  Double majority of both
 Except: - 2/3 votes of
POWER TO INVEST CORPORATE OCS/members will be
FUNDS IN ANOTHER required
CORPORATION OR BUSINESS OR
 A stockholder owns at
FOR ANY OTHER PURPOSE
least 1/3 of the OCS of
 Majority vote of BOT/BOD both corp.; or
 Ratified by 2/3 vote of  Majority of the BOD of
OCS/members the managing corp.
 Even if other business is not related also constitute
to the Corp.’s purposes majority of the BOD of
the managed corp.
POWER TO DECLARE DIVIDENDS  Cannot be longer than 5-years for
 When to declare – Board of any 1 term
Directors has discretion ULTRA VIRES ACTS
 Provided that they have unrestricted
retained earnings  Acts beyond the powers of the
 Prohibited to retain surplus profits corporation
exceeding 100% of their paid-in CS  Not illegal – voidable
– liable for IAET.  Illegal – void
 Except: STOCKHOLDERS AND
 Corporate expansion MEMBERS
projects approved by
BOD  Corporators – SH or M
 Loan agreement  Incorporators - those who started
 Special reserve for the creation of the corporation and
probable signed the AOI as such.
contingencies RIGHTS OF A STOCKHOLDER
 Sources:
 URE  Participate in the management of
 Wasting Asset corp. corporate affairs
  Enter into a voting trust agreement
 Receive dividends
 Transfer shares of stock
 Be issued a certificate of stock
 Exercise pre-emptive right
 Exercise appraisal right
 Institute a derivative suit
 Recover shares of stock unlawfully
sold for delinquency
 Inspect the books of the corporation
 Be furnished by the most recent FS
 To have the corporation dissolved
 Participate in the distribution of
assets
https://drive.google.com/file/d/1GyUQbD
DJO46uhkeJkWBuZh2mgoIipbgW/view