CORPORATIONS 4.

In taxation, the income of the corporation is

not the income of the stockholders who may
General Provisions still be required to pay taxes on the dividends
they may derive from such income.
Law on corporations

The law governing private corporations in the

Philippines is the Revised Corporation Code of the Doctrine of piercing the veil of corporate entity
Philippines (Republic Act No. 11232) which took effect
on February 23, 2019. It repealed the Corporation 1.Doctrine concept
Code of the Philippines (Batas Pambansa Blg. 68)
which was in effect from May 1, 1980 until the new law This is the doctrine to the effect that the
came into effect. separate personality of a corporation will be
disregarded if such entity is used to:
Corporation; statutory definition and attributes
a. Defeat public convenience, justify a wrong,
A corporation is an artificial being created by protect fraud or defend crime (Koppel vs.
operation of law, having the right of succession and the Yatco, 77 Phil 496); or
powers, attributes and properties expressly authorized b. Where a corporation serves as a mere alter
by law or incidental to its existence. (See Revised ego or conduit of a person or an
Corporation Code (RCC)) (Note: Unless otherwise instrumentality, agency or adjunct of another
stated, all sections of law pertain to provisions of the corporation (San Juan Structural and Steel
Revised Corporation Code of the Philippines.) Fabricators, Inc. vs. CA, 296 SCRA 631); or
c. where the corporate fiction is used to evade
Attributes of a corporation: contracts and obligations, (Reynoso vs. CA,
345 SCRA 335); or
1. It is an artificial being. d. confuse legitimate legal or judicial issues (R. F.
Sugay & Co. vs. Reyes, 120 Phil 1497).
2. It is created by operation of law.
2. Application of the doctrine
3. It has the right of succession.
4. It has only the powers, attributes, and The doctrine may apply to corporations as well
properties expressly authorized by law or as natural persons involved with the corporation
incidental to its existence. (I/AME vs. Litton and Company, G.R. No. 191525,
December 13, 2017).
Corporation as an artificial being or person
3. Primary consequence of piercing the veil
There are two kinds of persons under the law:
natural persons or human beings, and artificial The primary consequence of piercing the veil
persons. A corporation falls under the second kind. A is to hold the stockholders directly liable for corporate
corporation is a juridical entity with a legal personality acts or obligations. Where the separate personality of
separate and distinct from the people comprising it the corporation is disregarded, the corporation will be
(Situs Development Corporation vs. Asiatrust Bank, treated merely as an association of persons and the
G.R. No. 180036, July 25, 2012), whether stockholders stockholders or members will be considered as the
(or members, in the case of nonstock corporations) corporation, i.e., liability will attach personally or
and which juridical personality commences upon the directly to the officers and stockholders (Yao, Sr. vs.
issuance of the certificate of incorporation by the People, G.R. No. 168306, June 19, 2007).
Securities and Exchange Commission (SEC).
4. Summary of application of the doctrine
As a juridical entity, a corporation is separated
by law by a dividing line from its stockholders (or The doctrine of piercing the corporate veil
members, in case of nonstock corporations). Prof. applies only in three areas:
Ballantine has these to say as the consequences of
such separate juridical personality: a. Defeat of public convenience as when the
corporate fiction is used as a vehicle for the
1. The debts of the corporation are not the debts of evasion of existing obligation;
its stockholders, nor are the debts of the b. Fraud cases or when the corporate entity is
stockholders the debts of the corporation. used to justify a wrong, protect fraud, or
defend a crime; and
2. The stockholders are not the owners of the assets c. Alter ego cases, where a corporation is merely
of the corporation but have only an indirect a farce since it is a mere alter ego or business
interest therein. conduit of a person, or where the corporation
3. In connection with corporate property or affairs, is so organized and controlled and its affairs
stockholders cannot maintain actions in their own are so conducted as to make it merely an
name and they have no right to recover instrumentally, agency, conduit or adjunct of
possession of property belonging to the another corporation. (Sarona vs. National
corporation or to recover damages for injury Labor Relations Commission, G.R. No.
thereto. 185280, January 18, 2012),
 Piercing the corporate veil based on the All the evidence thus justifies piercing of the veil of
alter ego theory requires the concurrence of three corporate fiction.
elements:
Corporation is created by operation of law
1. Control of the corporation by the
stockholder or parent corporation; Unlike partnerships, corporations do not come
into existence by the mere agreement of the parties.
2. Fraud or fundamental unfairness imposed They require special authority from the sovereign
on the plaintiff; and power. Such authority may be granted either through a
3. Harm or damage caused to the plaintiff by general law providing the guidelines for the
the fraudulent or unfair act of the corporation. incorporation of private corporations, which under our
(Philippine National Bank vs. Hydro Resources jurisdiction is the Revised Corporation Code of the
Contractors Corp., G.R. No. 167530, March Philippines, or by a special law which by itself confers
13, 2013; See also WPM International Trading, juridical status upon the corporation, whether public
Inc., et al. vs. Fe Corazon Labayen, G.R. No. (such as in the case of local governments) or private
182270, September 17, 2014) (such as in the case of government-owned or
-controlled corporations, like the Philippine Postal
5. Case Corporation).

Roberto C. Sicam and Agencia de R. C. Sicam, Inc. Corporation has the right of succession
vs. Lulu Jorge and Cesar Jorge
G.R. No. 159617, August 8, 2007 A corporation continues to exist perpetually or
for the period for which of the changes in which it
Facts: Lulu Jorge pawned several pieces of formed its membership. Its existence is the death,
jewelry with Agencia de R. C. Sicam to secure a loan insolvency, or incapacity of the individual members.
in the total amount of P59,500.00 on different dates This means the existence of a corporation is
from September to October 1987. The pawnshop independent from the existence of the stockholders or
receipts issued to Lulu Jorge bear the words "Agencia members.
de R. C. Sicam," thus indicating that the pawnshop
was owned by Roberto C. Sicam. On October 19, Corporation has the powers, attributes and
1987, two armed men entered the pawnshop and took properties expressly authorized by law or
whatever cash and jewelry that were found in the incidental to its existence.
pawnshop vault. On being informed of the loss of the
A corporation, being a mere creation of the
jewelry, Lulu V. Jorge requested Roberto Sicam to
law, operates under the doctrine of limited capacity.
prepare the pawned jewelry for withdrawal but the
Hence, it can only perform acts within the powers
former failed to return the jewelry. Thus, Lulu Jorge
expressly granted to it by its charter, those implied
and her husband Cesar filed a complaint against
from such powers expressly conferred, and those that
Sicam seeking, among other reliefs, indemnification for
are incidental to its existence Any act performed
the loss of the pawned jewelry. In his answer, Sicam
beyond the range of such powers is considered ultra
alleged, among other defenses, that he was not the
vires. (See Sec. 44, RCC)
real-party-in-interest, as the pawnshop was
incorporated on April 20, 1987, or about four months Similarities and distinctions between partnership
before the incident and that being so, he was not liable and corporation
as the corporation had a separate personality of its
own. 1. Similarities
Issue: Whether or not the corporate veil may
be pierced. a. Both have a separate juridical personality.

Held: Yes, the veil of corporate fiction may be b. Both are artificial persons, i.e., they have_no
pierced when used as a shield to perpetrate fraud bodily existence, and can only act through
and/or confuse legitimate issues. The theory of agents.
corporate entity was not meant to promote unfair c. Both are composed of a group of persons (with
objectives or otherwise shield them. The pawnshop the exception of a corporation sole and One
receipts issued to Lulu Jorge all bear the words Person Corporation (OPC).
"Agencia de R. C. Sicam," notwithstanding that the
pawnshop was allegedly incorporated in April 1987. d. A partnership, with the exception of a general
The receipts issued after such alleged incorporation professional partnership, is taxed as a
were still in the name of "Agencia de R. C. Sicam," corporation.
thus inevitably misleading, or at the very least, creating
the wrong impression to the Spouses Jorge and the 2. Distinctions
public as well, that the pawnshop was owned solely by
Sicam and not by a corporation. Even Sicam’s a. Manner of creation - A corporation is created
counsel, in his letter dated October 15, 1987 by operation of law, while a partnership is created
addressed to the Central Bank, expressly referred to by the mere agreement of the partners. (Sec. 18,
Sicam as the proprietor of the pawnshop Art. 1767)
notwithstanding the alleged incorporation in April 1987.
 b. Number of organizers - A corporation may be dividends or allotments of surplus profits on the
formed singly or jointly with others, but the basis of the shares held. (Sec. 3, RCC)
number should not exceed 15. A partnership may
be formed by two or more persons. (Sec. 10; Art. b. Nonstock corporation - One no part of the
1767) income of which is distributable as dividends to its
members, trustees or officers. (Sec. 87, Ibid.)
c. Right of succession - A corporation has the
right of succession, while a partnership has no 2. As to the state or country under whose laws it
such right. (Sec. 2, Art. 1828) was created

d. Powers - A corporation can exercise only the a. Domestic corporation - One incorporated
powers expressly authorized by law, those under Philippine laws (or one operating within the
implied from the exercise. of such express country under whose laws it was incorporated).
powers, and those incidental to its existence. A
partnership may exercise any power. provided it b. Foreign corporation -One formed, organized
is authorized by the partners and it is not contrary and existing under any laws other than those of
to law, morals good customs, public order or the Philippines and whose laws allow Filipino
public policy. (Sec. 2, Art. 1306) citizens and corporations to do business in its
own country or State. (Sec. 140, Ibid.)
e. Management - A corporation acts through its
board of directors, while a partnership acts Tests to determine nationality of a
through all the general partners each one of corporation
whom is considered an agent of the partnership,
1) Incorporation-test - The nationality of a
unless otherwise agreed. (Sec. 23, Art. 1803)
corporation follows that of the country under
f. Liability of members for debts - The whose laws it was incorporated. This is the
stockholders or members are not liable for the test applied in our jurisdiction as can be
obligations of the corporation, while the general determined from the definition of a foreign
partners of a partnership are liable with their corporation under Sec. 140. Thus, a
separate property for partnership debts. (Sec. 2, corporation formed under the laws of Japan
Art. 1816) is a Japanese corporation or a corporation
formed under the laws of the Philippines is a
g. Commencement of existence - A corporation Philippine corporation.
commences to have juridical personality on the
date of the issuance of its certificate of 2) Control-test - The nationality of a
incorporation. A partnership, on the other hand, corporation follows that of the stockholders
commences to have juridical personality upon the owning the controlling interest. This is
execution of the partnership contract unless a applied during wartime for the purpose of the
different date is set by the partners. (Sec. 18, Art. security of the State. Thus, although a
1784) corporation has been formed under
Philippine laws but the controlling shares are
h. Transferability of interest - In a corporation, a owned by the citizens of X country with
stockholder can transfer his shares to another which the Philippines is at war, its nationality
person without the consent of the other is that of the citizens of X country.
stockholders. (Sec. 62) In a partnership, a partner Consequently, the corporation is considered
cannot transfer his interest to a third person for an enemy corporation and its assets may be
the purpose of making the latter a partner without confiscated to prevent its being used against
the consent of the other partners (Art. 1813), by our country. (See Filipinas Compania de
reason of the element of delectus personae which Seguros vs. Christern, Huenefeld & Co.,
is inherent in a partnership contract. Inc., 89 Phíl 54.)
i. Dissolution - A corporation cannot be 3) Business domiciliary test - The
dissolved without the consent of the State, while a nationality of a corporation is that of the
partnership may be dissolved by the partners. country where its principal business is
(Sec. 117-122, Art. 1830) conducted. Thus, under this test, a
corporation organized under the Iaws of the
United States of America shall be
(Note: Sections and articles pertain to provisions considered a Philippine corporation if its
of the Revised Corporation Code of the principal business is conducted in the
Philippines and the Civil Code of the Philippines, Philippines.
respectively.) (Note: As previously stated, the Philippines
applies the incorporation test, but the control
Classes of corporations
test may be applied.in times of war.)
1. In general Application of the "Grandfather Rule" to
determine nationality of a corporation for
a. Stock-corporation - One that has capital stock purposes of registration
divided into shares and is authorized to distribute
 The "Grandfather Rule" is a method by control test or liberal rule. On the other hand, the
which the percentage of Filipino equity in second part of the DOJ
corporations engaged in nationalized and/or
partly nationalized areas of activities, Opinion which provides that "if the percentage of the
provided for under the Philippine Filipino ownership in the corporation or partnership is
Constitution and other nationalization laws, less than 60%, only the number of shares
is accurately computed, and the diminution corresponding to such percentage shall be counted as
of such equity prevented. (SEC Opinion, Philippine nationality" pertains to the stricter, more
1977), The presence of corporate stringent grandfather rule. (Italics supplied.)
stockholders with alien stockholding would 3. As to number of persons composing them
as a result diminish effective control of
Filipinos, if this were not applied. (Integrated
a. Corporation aggregate - One that is
Bar of the Philippines Journal, FQ 1989)
composed of more than one corporator.
The rule applies with respect to the
b. Corporation sole - One composed of only one
registration of the subsidiary if the capital
person, like a bishop or a rabbi, or a "One Person
structure of both the parent corporation and
Corporation".
its subsidiary does not comply with the
60%:40% Filipino to foreign ownership ratio 4. As to whether its purpose is public or private
(i.e., not less than 60% for Filipinos) as in
the illustration (Figure 1) where the foreign a. Public corporation - One that is organized for
ownership in the investing corporation the government of a portion of the State, like
exceeds 40%. In the illustration, a Philippine provinces, cities, municipalities and barangays.
corporation (owned 55% by Filipinos and
45% by foreigners) invests in 70% of the "The true criterion to determine whether a corporation
capital stock of a new corporation is public or private is found in the totality of the
(subsidiary). with foreign investors investing relation of the corporation to the State. If the
the balance of 30%. Thus, when the corporation is created by the State as the latter's own
subsidiary applies for registration, such agency or instrumentality to help it in carrying out its
application will not be given due course governmental functions, then that corporation is
because the Filipino equity will be considered public: otherwise, it is private. Applying the
diminished to as low as 38.5%. above test, provinces, chartered cities, and barangays
can best exemplify public corporations. They are
If both the parent and the subsidiary created by the State as its own device and agency for
corporations comply with the 60%:40% ratio, the accomplishment of parts of its own public works."
the "Grandfather Rule" will not be applied as (Philippine Society for the Prevention of Cruelty to
the parent corporation will be considered Animals vs. Commission on Audit, G.R. No. 169752,
100% Filipino. Thus, the application of the September 25, 2007)
subsidiary for registration will be given due
course. b. Private corporation - One that is formed for a
private purpose or end, like San Miguel
Figure 1 Corporation.
Filipino equity in new corporation Private corporations include the following:
(55%x70%) 38.5% 1) Government-owned or controlled
Foreign equity in new corporation corporations - These refer to corporations
From Philippine corporation created by special law (Sec. 4, RCC) other
(45%x70%) 31.5% than those for the government of a portion of
the State, such as the Land Bank,
From foreign investors 30.0% Government Service Insurance System,
Philippine Postal Corporation, etc., and
Total foreign equity in new corporation 61.5% those formed under the Revised Corporation
Code, where the government owns at least a
Total equity 100.0%
majority of its outstanding voting capital
Case stock. They may be performing
governmental or proprietary function.
Narra Nickel Mining and Development Corp.
2) Quasi-public corporations - Those
vs. Redmont Consolidated Mines Corp. organized for profit which are granted a
franchise by the State to perform public
G.R. No. 195580, April 21, 2014 service, such as Meralco.
Held: The first part of paragraph 7, DOJ Opinion No. "The fact that a certain juridical entity is
020, Series of 2005, stating that "shares belonging to impressed with public interest does not, by
corporations or partnerships at least 60% of the capital that circumstance alone, make the entity a
of which is owned by Filipino citizens shall be public corporation, inasmuch as a
considered as of Philippine nationality, " pertains to the corporation may be private although its
 charter contains provisions of a public the parent corporation, which has the power to
character, incorporated solely for the public elect its directors.
good. This class of corporations may be
considered quasi-public corporations, which 9. As to whether its shares may be held by the
are corporations that render public service, public or not
supply public wants, or pursue
eleemosynary objectives. While purposely a. Close corporation - One whose articles of
organized for the gain or benefit of its incorporation provide that its shares are limited to
members, they are required by law to a few, restricted as to their transfer, and not listed
discharge functions for the public benefit. in any stock exchange. (See Sec. 95, RCC.)
Examples of these corporations are utility,
b. Open corporation - One whose shares are
railroad, warehouse, telephone, telegraph,
open to the public, such as those whose shares
water supply corporations and transportation
are listed in the stock exchanges.
companies. A quasi-public corporation is a
species of private corporations, but the 10. Other classifications
qualifying factor is the type of service that
the former renders to the public: if it a. Corporation by prescription - One which has
performs a public service, then it becomes a exercised corporate powers for such a length of
quasi- public corporation". (Emphasis time without interference from the State and
supplied.) which, by fiction of law, is given the status of a
(Philippine Society for the Prevention of corporation, such as the Roman Catholic Church.
Cruelty to Animals vs. Commission on Audit, b. Corporation by estoppel - One which is not in
supra) reality a corporation but is considered as one with
5. As to whether its purpose is religious or not respect to those who are precluded by their
admission or conduct from denying its existence.
(See Sec. 20, RCC.)
a. Ecclesiastical or religious corporation - One
formed for a religious purpose. Components of a corporation
b. Lay corporation - One formed for a purpose
other than ecclesiastical or religious. 1. Corporators - Those who compose a
corporation, whether as stockholders or
6. As to whether its purpose is charitable or not members.
2. Stockholders - Corporators of a stock
a. Eleemosynary corporation charity. One
corporation.
organized for public
3. Members - Corporators of a non-stock
b. Civil corporation - One organized for
corporation.
business or profit.
4. Incorporators - Those stockholders or
7. As to their legal right to corporate existence
members mentioned in the articles of
incorporation as originally forming and composing
a. De jure corporation - One that has been the corporation and are signatories of such
created in strict compliance with all the legal document.
requirements and whose right to exist as a
corporation cannot be successfully attacked in a One's name may be mentioned in the articles
direct proceeding for that purpose by the State. of încorporation, but if he is not identified as an
incorporator and is not a signatory thereto, he is mere
b. De facto corporation - One that is defectively subscriber or member. Or an individual may be a
created but there is an actual exercise of signatory to the articles of incorporation but is not an
corporate rights and franchise resulting from an incorporator if he is merely signing the articles to
attempt in good faith to incorporate on the part of represent an incorporator which is not a natural
the members. It has all the powers of a de jure person.
corporation but its due existence can be attacked
directly in a quo warranto proceeding. Promoter
8. As to their relation to another corporation or
1. Concept
other corporations
● A promoter is a person, natural or juridical, who
a. Parent or holding corporation - One which
usually discovers a prospective business and
owns the shares of another corporation and
brings persons interested to invest in it through
having the power, directly or indirectly, over the
the formation of a corporation. Although the law
latter including the election of the directors
does not require the services of a promoter as a
thereof.
precondition to incorporation, a promoter
b. Subsidiary corporation - One whose shares facilitates the creation of the corporation by
of stock are owned by another corporation, called negotiating contracts for its initial operations
including subscriptions to its capital stock,
 incorporating the business, and helping e. Unissued capital stock - That part of the
management start operations. capital stock which is not issued or subscribed.
2. Promoter's liability on contracts 2. Legal capital

● A promoter is personally liable for contracts ● Refers to the total par value of all issued par
made for the benefit of the proposed corporation. value Legal capital - shares, or the total cash or
If the incorporation of the corporation does not consideration received for all issued no- par
materialize, the promoter remains personally value shares.
liable. If the corporation is formed, he remains
liable until the corporation ratifies or adopts such 3. Stated capital
contracts, or releases him from liability. The third
person must also agree to absolve him from ● The capital with which the corporation issuing
liability. shares without par value begins business,
increased by any additions thereto, or
3. Corporation's liability on contracts entered into diminished by any deductions therefrom.
by a promoter

● A newly-formed corporation is not automatically 4. Capital

liable for pre-incorporation contracts entered into
by a promoter in its behalf. It will become liable
● Refers to the actual property of the corporation
only by its adoption, ratification or novation of
in money and other property.
such contracts. The adoption or ratification of the
contract is similar to the agency concept of Illustration:
ratification.
The articles of incorporation of Paramount
Capital stock and other terms, concept Corporation provide for an authorized capital stock of
P1,000,000.00 divided into 10,000 shares each
1. Capital stock having a par value of P100.00. At the time of
incorporation, 25% of the authorized capital stock
● The amount specified in the articles of had been subscribed of which 25% was paid. In its
incorporation paid in, or procured to be paid in first year of operations, the corporation obtained a
for the carrying on of the business of the loan of P300,000.00 which it used to acquire a
corporation. machinery of the same amount. During the same
period, the corporation posted a net profit of
a. Authorized capital stock - The total P100,000.00.
amount of shares which a corporation is
allowed to issue if the shares have par value. Capital stock
If the shares do not have par value, the P1,000,000.00
corporation does not have an authorized
capital stock which is an amount. What it has Subscribed capital stock
is the authorized number of no- par shares (P1,000,000.00 x 25%)
that it may issue. Once issued, the corporation 250,000.00
shall have a capital stock with the
corresponding amount, but not an authorized Outstanding capital stock
capital stock. 250,000.00
b. Subscribed capital stock - This is the part Unissued capital stock
of the capital stock which is subscribed,
whether paid or unpaid. (P1,000,000.00-250,000.00)
750,000.00
For legal purposes, all shares
subscribed whether or not fully or partially paid Paid-up capital stock
are already considered issued. This is evident
(P250,000.00 x 25%)
from the definition of outstanding capital stock
in Sec. 173. Capital (P250,000.00 + 300,000.00 +
62,500.00
c. Outstanding capital stock - This refers to
the total shares of stock issued to subscribers P100,000.00)
or stockholders, whether fully or partially paid 650,000.00
(as long as there is a binding subscription
contract), except treasury shares. (Sec. 173, Legal capital
RCC) 250,000.00

d. Paid-up capital stock - The part of the (Note: The Revised Corporation Code
subscribed capital stock paid to the removed the minimum subscription and paid-in
corporation. capital requirements at the time of incorporation.
The above percentages on subscription and
payment are given only for purposes of
 illustration. However, the subscription and paid-in 3) Participating preferred stock - Those
capital requirements of 25%:25% apply in case of that entitle the holder to participate with the
increase in capital stock.) holders of common shares in the surplus
profits after the amount stipulated has been
Share of stock paid to the holders of preferred shares.

1. Concept 4) Non-participating preferred stock -

Those that entitle the holders only to the
● A share of stock is one of the units into which the stipulated preferred dividend.
capital stock is divided. It represents the
3. Par value stock
intangible interest or right which an owner has in
the management, profits, and assets of the ● One the nominal value of which appears on the
corporation. It is property subject to conversion. stock certificate.
(Shurdut Investment Corp. vs. Bataan Pulp,
44752-R, March 13, 1975) 4. No-par value stock
● One without any nominal or par value appearing
2. Distinguished from stock certificate
on the stock certificate.
a. Share of stock represents the rights and interest 5. Redeemable shares
of a stockholder in a corporation. Stock
● Those that grant the issuing corporation the
certificate is the written evidence of such rights
power to redeem or purchase them after a
and interest.
certain period.
b. Share of stock is intangible personal property,
while stock certificate is tangible personal
property.
c. Share of stock may be issued even if not fully
paid, except shares without par value which are
deemed fully paid and non-assessable upon The following are the characteristics of
issuance. Stock certificate is issued only if the redeemable shares:
subscription is fully paid. a. They may be issued by the corporation only
when expressly provided in the articles of
Classes of stock incorporation. (Sec. 8, RCC)
1. Common stock b. They may be deprived of the voting right.
● The ordinary stock of a corporation that entitles (Sec. 6, Ibid.)
the holder to a pro rata division of the dividends,
C. They may be purchased by the corporation
without any preference or advantage over other
upon the expiration of a fixed period,
stockholders.
regardless of the existence of unrestricted
2. Preferred stock retained earnings in the books of the
corporation. (Sec. 8, Ibid.)
● One that entitles the holder to certain
preferences over other stockholders. Such Thus, the requirement that the corporation
preferences may be as follows: must have unrestricted retained earnings
when it acquires its own shares under Sec. 41
a. Preferred stock as to asset - One that is not applicable to redeemable shares.
entitles the holder to preference in the Nonetheless, the SEC's Rules Governing
distribution of assets over common stock upon Redeemable and Treasury Shares provide that
liquidation of the corporation. where the purchase of the redeemable shares
is optional, the corporation, after such
b. Preferred stock as to dividends - One that
redemption, must have sufficient assets in its
entitles the holder to preference in the
books to cover the debts and liabilities
distribution of dividends over common stock.
inclusive of capital stock.
The following are the kinds of preferred stock
as to dividends: d. The terms and conditions for their purchase
must be stated in the articles of incorporation
1) Cumulative preferred stock - Those
and in the stock certificate representing the
which entitle the holder to payment not only
said shares. (Sec. 8, Ibid.)
of current dividends but also those in
arrears, when dividends are declared, to the e. They shall be considered as treasury shares
extent stipulated, before holders of common unless retired or again disposed of by the
shares are paid. corporation. (See Sec. 9, Ibid.)
2) Non-cumulative preferred stock - 6. Founders shares
Those that entitle the holder to payment of
current dividends but not those in arrears, ● shares issued by a corporation, classified as
before holders of common shares are paid. such in the articles of incorporation and which
grant the holders thereof certain rights and
privileges not enjoyed by other shares such as
 the exclusive right to vote and be voted for in the 10. Nonvoting stock
election of directors or preference in the ● Those without voting rights, except in certain
distribution of dividends. (Sec. 7, RCC) They are cases.
issued to those who established the corporation.
The following are the limitations on the Power of a corporation to classify its own shares
issuance of founders' shares.
1. A corporation may divide its shares into classes
a. They must be classified as such in the or series of shares, or both. Such classification
articles of incorporation. may include the following:

b. If the exclusive right to vote and be voted for a. Voting and nonvoting shares.
in the election of directors is granted, it must
be for a limited period not to exceed (5) years b. Common and preferred shares.
from the date of incorporation. However, such
exclusive right shall not be allowed if its c. Par value and no-par value shares.
exercise will violate the "Anti-Dummy Law", the d. Classification to ensure compliance with
"Foreign Investments Act of 1991", and other constitutional or legal requirements.
pertinent laws.
Thus, a corporation may classify its shares into
c. The grant of such exclusive right to vote and Series "A", which can be subscribed only by
be voted for in the election of directors to the Filipinos, and Series "B", which can be
holders of founder’s shares will thus deprive subscribed by both Filipinos and foreigners. This
the other shares the right to vote in the classification may be resorted to in order that
election of directors during the term provided foreign stock ownership would not exceed the
for its exercise, although such other shares maximum, say 40%, as provided by law, for
may not be classified as "preferred" or certain corporations.
"redeemable". (See Sec. 6.)
2. The classification of shares, their corresponding
7. Treasury shares rights, privileges, or restriction, and their stated
● Those that have been issued and fully paid for, par value, if any, must be included in the articles of
but subsequently reacquired by the issuing incorporation.
corporation by purchase, redemption, donation
or through some other lawful means. (Sec. 9) 3. Except as otherwise provided in the articles of
incorporation and stated in the stock certificate,
Treasury shares have the following each share shall be equal in all respects to every
characteristics: other share. (This is referred to as the "doctrine of
equality of shares".)
a. They shall have no voting rights as long
as they remain in the treasury. (Sec. 56, 4. Limitations on the issuance of non voting
Ibid.) shares

b. Although they are part of the subscribed a. Only those classified as "preferred" or
capital stock, they are not considered as "redeemable" shares may be deprived of the
outstanding shares. (Sec. 173, Ibid.) voting right, unless otherwise provided in the
c. Since they are not outstanding for being Revised Corporation Code.
owned by the corporation, they are not An instance when shares may be deprived of the
entitled to dividends. (Sec. 42. Ibid) voting right although they are not classified as
d. They may again be disposed of for a "preferred" or "redeemable" is when founders’
reasonable price fixed by the board of shares are issued where the holders thereof are
directors. (Sec. 9, Ibid.) given the exclusive right to vote and be voted for
in the election of directors for a period of five (5)
The price may be less than the par value years.
or the issued price in case of no-par
shares provided it is reasonable. By b. There shall always be a series or class of
reason of this provision, the shares are not shares that have complete voting rights.
considered as watered stock. In other words, not all the shares may be
8. Watered stock deprived of the voting right.

● Those issued without consideration or for an c. Non Voting shares may nevertheless vote in
inadequate consideration. the following cases:

9. Voting stock 1) Amendment of the articles of incorporation.

● Those entitled to vote in meetings of the 2) Adoption and amendment of bylaws.
corporation.
 3) Sale, lease, exchange, mortgage, pledge Thus, there can be no no-par
or other disposition of all or substantially all of preferred stock.
the corporate property.
c. The board of directors, where authorized in
4) Incurring, creating indebtedness. or the articles of incorporation, may fix the terms
increasing bonded and conditions of preferred shares or any
series thereof.
5) Increase or decrease of authorized capital
stock. d. Such terms and conditions shall be effective
upon the filing of a certificate thereof with the
6) Merger or consolidation of the corporation SEC.
with another corporation or other
corporations. Incorporation and Organization of Private
Corporations
7) Investment of corporate funds in another
corporation or business. Steps in incorporation
8) Dissolution of the corporation. (Sec. 6,
Ibid.) 1. Verification with the SEC of the name to be
used. This may be done online or with the SEC
5. Limitations on the issuance of no-par shares Name Verification Unit.

a. Subscriptions to no-par shares shall be This is to ensure that the name adopted by a
deemed fully paid and non-assessable and the corporation is distinguishable from that already
holder of such shares shall not be liable to the reserved or registered for the use of another
corporation or to its creditors in respect thereto. corporation, or is not one already protected by
law or which is contrary to existing law, rules and
Thus, there should be no "subscription regulations. (See Sec. 17, RCC.)
receivable" in the corporate books for no-par
shares subscribed. 2. Drafting and execution of the articles of
incorporation signed by the incorporators.
b. Shares without par value must be issued for a The articles of incorporation must comply with the
consideration of at least P5.00 per share. requirements provided for in Sections 13 and 14.
For par value shares, they may be issued for a 3. Filing of the articles of incorporation with
consideration lower than P5.00 per share, as in the SEC. together with the following documents:
the case of some mining shares which have a par
value of as low as one centavo (P0.01) per share. a. Verification Slip/Certificate authorizing the
use of the corporate name obtained in No. I
c. The entire consideration received for no-par above.
shares shall be treated as capital and shall not be
available for distribution as dividends. b. Treasurer's Affidavit to the effect that the
paid-up portion of the subscription in cash
Thus, when no-par shares are subscribed at a and/or property for the benefit and credit of the
price above the "issued price" (the minimum price corporation has been duly received.
at which no- par shares may be issued as
provided in Sec. 61 of the RCC), the amount in c. Joint Affidavit of two incorporators to change
excess thereof shall likewise be treated as corporate name unless the undertaking to
capital. It is different in the case of par value change the corporate name is already stated
shares because any consideration received in in the articles of incorporation.
excess of the par value may be distributed as d. Endorsement/clearance from a department
stock dividends. (SEC Opinion) of the SEC or other government agencies, if
d. Banks, trust, insurance, and preneed applicable.
companies, public utilities, building and loan e. Payment of the filing, legal research and
associations, and other corporations authorized to other fees.
obtain or access funds from the public, whether
publicly listed or not, shall not be permitted to d. Issuance of the certificate of incorporation
issue no-par value shares of stock. by the SEC.
6. Limitations on the issuance of preferred shares This is the operative act that will confer
juridical personality on the corporation. A
a. Preferences in the distribution of dividends corporation commences its existence and
and in the distribution of corporate assets in juridical personality from the date stated in the
case of liquidation, or such other preferences certificate, which is actually the date of issue.
must be indicated in the articles of (See Sec. 18, RCC.)
incorporation.
(Note: Under Section 13 of the Revised
b. Preferred shares may be issued only with a Corporation Code, the articles of incorporation
stated par value. and applications for amendments thereto may
be filed with the SEC in the form of an
 electronic document, in accordance with the 3. Incorporators who are natural persons must be of
SEC's rules and regulations on electronic legal age, and must sign the articles of
filing.) incorporation/bylaws. (Sec. 3, Ibid.)

Kinds of franchise Partnerships as incorporators

1. Primary franchise If an SEC-recorded partnership is made an

incorporator, the application for registration must be
It is also known as corporate franchise. It accompanied by a Partners Affidavit, duly executed by
refers to the right and privilege granted by the all the partners, to the effect that they have authorized
State to exist as a corporation and to do such the partnership to invest in the corporation about to be
things as are authorized by the charter of the formed and that they have designated one of the
corporation. The primary franchise of a partners to become a signatory to the incorporation
corporation is vested in the individuals who documents.
compose the corporation and not in the
corporation itself. (JRS Business Corporation vs. Partnerships under "dissolved" or "expired"
Imperial Assurance, G.R. No. L- 19891, July 31, status with the SEC shall not be authorized to become
1964) It is conferred through the issuance of the an incorporator. (Sec. 4, Ibid.)
certificate of incorporation.
Domestic corporations or associations as
2. Secondary franchise incorporators

This refers to different rights, privileges If an SEC-registered domestic corporation is

and powers which are obtained by the made an incorporator, its investment in the new
corporation, which are not a prerequisite to corporation must be approved by a majority of the
corporate existence such as the right to occupy board of directors or trustees and ratified by the
and use public places for the operation of a stockholders representing at least two-thirds (2/3) of
system of water, gas works, electricity lighting the outstanding capital stock, or by at least two-thirds
plants, railroad, etc., (Words and Phrases, 570) or (2/3) of the members in the case of nonstock
to operate a messenger and express delivery corporations, at a meeting duly called for the purpose.
service. (JRS Business Corporation vs. Imperial A Directors/Trustees Certificate or a
Assurance, Inc., supra). Secretary's Certificate, indicating the necessary
approvals, as well as the authorized signatory to the
incorporation documents, shall be executed under oath
Who may be incorporators and submitted by the applicant.
Domestic corporations under "delinquent",
a. Natural person.
"suspended", "revoked", or "expired", status with the
b. Partnership. SEC shall not be authorized to become an
incorporator. (Sec. 5, Ibid.)
c. Association.
Foreign corporations as incorporators
d. Corporation.
If a foreign corporation is made an
Number of incorporators incorporator, the application for registration must be
accompanied by a copy of the document (i.e., Board
1. For an ordinary corporation, two (2) or more Resolution, Directors' Certificate, Secretary's
persons, but not more than fifteen (15), may organize Certificate, or its equivalent), duly authenticated by a
themselves and form a corporation. Philippine Consulate or which an apostille is affixed
2. For a One Person Corporation (OPC), only one thereto, authorizing the foreign corporation to invest in
incorporator is required who is also the single the corporation being formed and specifically naming
stockholder and sole director. (See Sec. 1, SEC the designated signatory on behalf of the foreign
Memorandum Circular No. 16. Series of 2019.) corporation. (Sec. 6, Ibid.) [Note: An Apostille is a
certificate that authenticates the origin of a public
Qualifications of incorporators document. It is issued by a country that is party to the
Apostille Convention to be used in another country
1. For a stock corporation, each incorporator must which is also a party to the Convention. (Per
own, or be a subscriber to at least one (1) share of Department of Foreign Affairs, Office of Consular
capital stock. For a nonstock corporation, each Affairs Website.)]
incorporator must be a member of the corporation.
Signatories of the articles of incorporation
2. The incorporators may be composed of any
combination of natural person/s, SEC-registered Each individual signing the articles of
partnership/s, SEC-registered domestic corporation/s incorporation/bylaws must indicate the capacity which
or association/s, as well as foreign corporation/s. he/she is affixing his/her signature thereto, (i.e.,
Incorporator or Representative of XYZ Corp.)
 An individual designated to sign the articles of of incorporation, shall require the vote of a
incorporation/by laws on behalf of an incorporator, majority of the Board of Directors or Trustees and
which is not a natural person, must also indicate the the vote of the stockholders representing
corporate or partnership name of the entity being two-thirds (2/3) of its outstanding capital stock, or
represented and for whom he/she is executing the two-thirds (2/3) of the members, in case of a
articles of incorporation/bylaws. (Sec. 7. Ibid.) nonstock corporation. [Sec. 2, par. (a) SEC
Memorandum Circular No. 22, Series of 2020]
Designation of incorporators as directors b. If any of such corporations elects to continue with
its present corporate term pursuant to the articles
An individual who signs the articles of of incorporation, it shall notify the SEC by filing a
incorporation on behalf of an incorporator, which is not Notice with attached Directors Certificate,
a natural person, may not be named as a director or certifying that the decision to retain the specific
trustee in the same articles of incorporation, unless the corporate term as specified in the articles of
said individual is also the owner of at least one (1) incorporation was approved in a meeting duly
share of stock, or is also a member, of the corporation held for the purpose by a majority vote of the
being formed. (Sec. 8, Ibid.) Board of Directors or Trustees and by the vote of
the stockholders representing a majority of the
Foreign nationals in the articles of incorporation outstanding capital stock, including the non voting
shares, or a majority of the members, in case of a
The inclusion of foreign nationals in the nonstock corporation. [Sec. 2, par. (b), Ibid.]
articles of incorporation shall be subject to the
applicable constitutional, statutory and regulatory The Notice to be submitted to the SEC must
restrictions, as well as conditions, with respect to be signed by at least a majority of the members of
foreign participation in certain investment areas or the Board of Directors or Trustees, and attested
activities. (Sec. 9, Ibid.) by the Corporate Secretary. [Sec. 2, par. (c), Ibid.]
The Notice must be submitted to the SEC within a
Additional requirements for certain corporations period of two (2) years from February 23, 2019, or
until February 23, 2021, pursuant to Sec. 185 of
No articles of incorporation of banks, banking the Revised Corporation Code. A Certificate of
and quasi-banking institutions, preneed, insurance and Filing of Notice to Retain Specific Corporate Term
trust companies, nonstock savings and loan shall be issued to the corporation. [Sec. 2, par.
associations (NSSLAs), pawnshops, and other (d), Ibid.] The corporate term shall be deemed
financial intermediaries shall be approved unless perpetual if the corporation fails to comply with
accompanied by a favorable recommendation of the required notification after the lapse of the
appropriate government agency to the effect that the two-year period. [Sec. 2, par. (e), Ibid.)
articles of incorporation are in accordance with law.
(Sec. 10, Ibid.) 3. Amendment to extend or shorten corporate term

Corporate term a. Corporations incorporated under the Revised

Corporation Code and existing corporations
1. Perpetual existence as the default in corporate incorporated before the effectivity of the Code
term that opted to retain their specific corporate term,
may file an amendment of the articles of
● A corporation shall have perpetual existence incorporation to extend or shorten the specific
unless its articles of incorporation provide for a corporate term pursuant to Section 11, par. 3, of
specific corporate term. the Code. The amendment must be approved by
the vote or written assent of majority of the Board
2. Corporate terms of corporations with certificates
of Directors or Trustees and the vote or written
of incorporation issued prior to the effectivity of
assent of the stockholders representing at least
the Revised Corporation Code
two-thirds (2/3) of the outstanding capital stock of
the corporation. [Sec. 3, par. (a), Ibid.] (Note: The
a. The corporate term of corporations with
author respectfully submits that in case of
certificates of incorporation issued prior to the
nonstock corporations, the amendment must be
effectivity of the Code, i.e., February 23, 2019,
voted upon or assented to in writing by at least
and which continue to exist, shall be deemed
two-thirds (2/3) of the members, although this is
perpetual effective on such date, without any
not mentioned in the Memorandum Circular.)
further action on the part of the corporation. The
b. In no case shall the extension be made earlier
corporation, subject to the payment of filing fees,
than three (3) years prior to the original or
may amend Article Four to reflect is perpetual
subsequent expiration date of the corporate term,
corporate term in its articles of incorporation, by a
unless there are justifiable reasons for extension
vote of majority of its Board of Directors or
as may be determined by the SEC. [Sec. 3, par.
Trustees, and by a vote of its stockholders
(b), Ibid.]
representing a majority of its outstanding capital
c. Extension of the corporate term shall take effect
stock including the nonvoting shares, or a
only on the day following the original or
majority of its members, in case of a nonstock
subsequent expiry date(s). [Sec. 3, par. (c), Ibid.]
corporation. However, all other provisions to be
amended in one and the same amended articles
4. Amendment to change specific corporate term accordance with the provisions of the Code. (Sec.
to perpetual corporate term 6, Ihid.) (Note: Appraisal right is the right of
dissenting stockholders to demand payment of
● Corporations incorporated under the Revised the fair value of their shares in case they dissent
Corporation Code whose articles of incorporation from specific corporate acts under Sec. 80 of the
provide for a specific term of existence and Code.)
existing corporations incorporated before the
effectivity of the Code that notified the SEC of the 7. Revival of corporate existence when corporate
decision to retain the specific corporate term, may term has expired
subsequently amend its specific corporate term to
perpetual term of existence. The amendment a. Corporations that may apply for revival
must be approved by vote or written assent of The following corporations may file a Petition
majority of the Board of Directors or Trustees and for Revival of Corporate Existence:
vote or written assent of the stockholders
representing at least two thirds (2/3) of the 1) Generally, a corporation whose term has
outstanding capital stock of the corporation. (Sec. expired;
4, Ibid.) (Note: The author respectfully submits
that in case of nonstock corporations, the 2) An Expired Corporation whose Certificate of
amendment must be voted upon or assented to in Registration has been revoked for non-filing of
writing by at least two-thirds (2/3) of the members reports (e.g., General Information Sheet, and
although this is not mentioned in the Audited Financial Statements), provided that it
Memorandum Circular.) amendment must be shall file the proper Petition to Lift its Revoked
approved by the vote or written assent of majority Status, which may be incorporated in its
of the Board of Directors or Trustees and the vote Petition to Revive, and must settle the
or written assent of the stockholders representing corresponding penalties thereof;
at least two-thirds (2/3) of the outstanding capital
3) An Expired Corporation whose Certificate of
stock of the corporation. [Sec. 3, par. (a), Ibid.]
Registration has been suspended, provided
(Note: The author respectfully submits that in
that it shall file the proper Petition to Lift its
case of nonstock corporations, the amendment
Suspended Status, which may be incorporated
must be voted upon or assented to in writing by at
in its Petition to Revive, and must settle the
least two-thirds (2/3) of the members, although
corresponding penalties thereof; or
this is not mentioned in the Memorandum
Circular.) 4) An Expired Corporation whose corporate
name has already been validly re-used, and is
5. Amendment to change perpetual corporate term
currently being used, by another existing
to specific corporate term
corporation duly registered with the SEC,
provided that the former shall change its
● Corporations incorporated under the Revised corporate name within thirty (30) days from the
Corporation Code whose articles of incorporation issuance of its Certificate of Revival of
provide for perpetual term of existence, Corporate Existence. (Sec. 2, SEC
corporations incorporated before and existing at Memorandum Circular No. 23, Series of 2019)
the time of the effectivity of the Code whose
corporate terms were treated perpetual for failure b. Who may not apply for revival
to comply with the notification under Section 2 of
the Memorandum Circular, as well as The following are not allowed to file a Petition
corporations that amended their articles of for Revival of Corporate Existence:
incorporation to reflect their perpetual term of
1) An Expired Corporation which has
existence, may subsequently amend their
completed the liquidation of its assets;
perpetual term of existence to specific corporate
term. 2) A corporation whose Certificate of
● The amendment must be approved by the vote or Registration has been revoked for reasons
written assent of the majority of the Board of other than non-filing of reports (e.g., General
Directors or Trustees and vote or written assent Information Sheet, and Audited Financial
of the stockholders representing at least two Statements);
thirds (2/3) of the outstanding capital stock of the
corporation. (Sec. 5. Ibid.) (Note: The author 3) A corporation dissolved by virtue of
respectfully submits that in case of nonstock Sections (c) and 6(d) of Presidential Decree
corporations, the amendment must be voted upon No. 902-A, as amended by Presidential
or assented to in writing by at least two-thirds Decree No. 1799; or
(2/3) of the members although this is not
mentioned in the Memorandum Circular.) 4) An Expired Corporation which had already
availed itself of re-registration, in accordance
6. Appraisal right of dissenting stockholders with Memorandum Circular No. 13, Series of
2019 (Amended Guidelines and Procedure on
● Any change in the corporate term pursuant to the Use of Corporate and Partnership Names),
Section 11 of the Code shall be without prejudice or other memorandum circulars issued by the
to the appraisal right of dissenting stockholders in SEC pertaining to re-registration, except when:
 a) The re-registered corporation has given Break Bulk Agent P 250,000.00
its consent to the Petitioner to use its Cargo Consolidator P 400,000.00
corporate name, and has undertaken to
Financing Company - Main
undergo voluntary dissolution immediately
after the issuance of the Petitioner's First class cities P 10,000,000.00
Certificate of Revival; or Other cities P 5,000,000.00
Municipalities P 250,000,000.00
b) The re-registered corporation has given
its consent to the Petitioner to use its Financing Company - Branch
corporate name, and has undertaken to First class cities P 1,000,000.00
change its corporate name immediately Other cities P 500,000.00
after the issuance of the Petitioner's Municipalities P 250,000.00
Certificate of Revival. (Sec. 2, Ibid.)
Freight Forwarders
c. When corporation deemed revived Domestic P 250,000.00
International P 2,000,000.00
If the SEC finds that the Petition is meritorious,
it shall grant the Petition and issue a Certificate of Health Maintenance P 10,000,000.00
Revival of Corporate Existence, which shall be Organization
evidence of Petitioner's revival, together with all Insurance
the rights and privileges under its Certificate of Insurance Broker P 20,000,000.00
Incorporation and subject to all duties, debts and
liabilities existing prior to the revival of its Reinsurance Broker P 20,000,000.00
corporate term. [Sec. 6, par. (i), Ibid.] Insurance Broker and P 50,000,000.00
Reinsurance Broker
d. Favorable recommendation for revival by
Life Insurance Company P
appropriate government agency required on
certain corporations 1,000,000,000.00
Non-Life Insurance Company P
No application for revival of certificate of 1,000,000,000.00
incorporation shall be approved by the SEC
Reinsurance Company P
unless it is accompanied by a favorable
recommendation of the appropriate government 2,000,000,000.00
agency with respect to the following corporations: Investment Adviser/Manager P 10,000,000.00
Investment Company P 50,000,000.00
1) Banks.
Investment House P 300,000,000.00
2) Banking and quasi-banking institutions. Lending Company - Main P 1,000,000.00
3) Preneed, insurance and trust companies. Lending Company - Branch
First class cities P 300,000.00
4) Nonstock savings and loan associations Other cities P 150,000.00
(NSSLAS).
Municipalities P 750,000.00
5) Pawnshops. Mining
6) Corporations engaged in money service Authorized Capital Stock P 100,000,000.00
business. Paid-up Capital Stock P 6,250,000.00
Non-Vessel Operating P 4,000,000.00
7) Other financial intermediaries. (Sec. 8, Ibid.)
Common Carrier
e. Exercise of appraisal right Pawnshop P 100,000.00
Pre-Need Plan Issuer P 100,000,000.00
Any change in the corporate term shall
be without prejudice to the exercise by Pre-Need Plan Agent P 5,000,000.00
dissenting stockholders of their appraisal right. Recruitment for Local
Employment
Paid-in capital stock
Corporation P 500,000.00
1. Minimum capital stock not required Partnership P 200,000.00
Recruitment for Overseas
● Stock corporations shall not be required to have a Employment P 5,000,000.00
minimum capital stock, except as otherwise Retail Trade with Foreign US$ 2,500,000.00
provided by law. Equity
2. Minimum paid-up capital as regards certain School (for stock corporations)
corporations (Per SEC Website) (Legend: Elementary Education P 1,000,000.00
P-Philippine Peso, US $ - US Dollar) Elementary and Secondary
Education P 2,500,000.00
a. Based on Industry
Elementary, Secondary and
 Tertiary Education P 5,000,000.00 2) The purpose or purposes must be
Security Agency P 500,000.00 definitely stated.
Securities Broker/Dealer 3) If the corporation has more than one
(New/ P 100,000,000.00 purpose, the primary purpose should be
SRO-Member) stated separately from the secondary
Securities Broker/Dealer purpose or purposes.
(Existing/ SRO-Member) P 10,000,000.00 4) The purposes, if there are several, must
Securities Broker/Dealer in be capable of being lawfully combined.
Proprietary Shares
c. The place of principal office which must be in
(Non-SRO- P 5,000,000.00 the Philippines.
Member
Special Purpose Vehicle P 31,250,000.00 d. The term of existence of the corporation.
Special Purpose Corporation P 5,000,000.00 e. Names, nationalities and residence addresses
Transfer Agent P 1,000,000.00 of the incorporators.

b. Based on Equity f. Number, names, nationalities and residences of

directors or trustees.
Domestic Corporation with more than 40% foreign
g. The amount of authorized capital stock, the
equity
number of shares into which it is divided and the
-Domestic Market Enterprise US$ 200,000.00
par value of each share.
-Export Market Enterprise P 5,000.00
Foreign Branch Office h. The names of the subscribers, nationalities,
-Domestic Market Enterprise US$ 200,000.00 number of shares subscribed, amount
-Export Market Enterprise P 5,000.00 subscribed, and amount paid-in.
Partnership with foreign partner
i. Other matters not inconsistent with law and
-Domestic Market Enterprise US$ 200,000.00
which the incorporators may deem necessary or
-Export Market Enterprise P 3,000.00 convenient.
Foreign Representative Office US$ 30,000.00
Regional Area Headquarters j. The name of the temporary treasurer elected
(RHQ) US$ 50,000.00 (treasurer-in- trust).
Regional Operating
Headquarters US$ 200,000.00
(ROHQ)

Amendment of the articles of incorporation

1. Requirements for amendment of articles of

Articles of incorporation
incorporation
1. Concept
a. The amendment must be for a legitimate purpose
or purposes.
The basic governing document of a private
b. The following vote must be obtained:
corporation is the articles of incorporation. The articles
are, in effect, the application of the incorporators with 1) Majority vote of the board of directors or
the government through the SEC to give them the trustees, and
privilege to exist as a corporation. They must contain
substantially the matters enumerated under Section 2) The vote or written assent of two-thirds (2/3)
14. As part of the charter of a corporation, they partake of the outstanding capital stock in the case of a
of the nature of a contract among the stock corporation, or two-thirds (2/3) of the
stockholders/members themselves, between the members in the case of a nonstock corporation.
corporation and the stockholders/members, between
the corporation and the State, and between the c. The original and the amended articles shall
stockholders/members and the State. contain all provisions required by law to be set out
in the articles of incorporation.
2. Contents of the articles of incorporation d. The amendment shall be indicated by
underscoring the change or changes made, and a
a. The name of the corporation copy thereof duly certified under oath by the
corporate secretary and majority of the directors
b. The purpose or purposes of the corporation or trustees, with a statement that the
amendments have been duly approved by the
The purpose or purposes of a corporation
required vote of the stockholders or members,
must comply with the following requisites:
shall be submitted to the SEC.
1) The purpose or purposes must be lawful.
2. Effectivity of amendments Corporate name

a. Upon approval by the SEC, or 1. What corporate name may be used

b. From the date of filing with the SEC if not acted
upon within six (6) months from the date of filing a. The name should be distinguishable from that
for a cause not attributable to the corporation. already reserved or registered for the use of
another corporation. A name is not
3. Grounds for rejection or disapproval of the distinguishable even if it contains one or more of
articles of incorporation or any amendment thereto the following:
a. No substantial compliance with the required form. 1)The word "corporation", "company",
b. Purpose or purposes are patently "incorporated", "limited liability", or an
unconstitutional, illegal, immoral, or contrary to abbreviation of one of such words, and
government rules and regulations.
c. Falsity in the certification concerning the amount 2) Punctuations, articles, conjunctions,
of capital stock subscribed and/or paid. contractions, prepositions, abbreviations,
d. Non-compliance with the required percentage of different tenses, spacing, or number of the
ownership of the capital stock by Filipinos under same word or phrase.
existing laws or the Constitution. b. The name should not be one that is already
e. Absence of favorable recommendation from the protected by law.
appropriate government agency to the effect that
such articles or amendment is in accordance with c. The use of the name should not be contrary to
law in the case of the following corporations: existing law, rules and regulations. (Sec. 17,
RCC)
1) Banks,
2. Consequence on the use of corporate name that
2) Banking and quasi-banking institutions, is not allowed
3) Preneed, insurance and trust companies,
The SEC, upon determination that the
4) NSSLAS, corporate name is not distinguishable from that already
reserved or registered for the use of another
5) Pawnshops, and corporation, already protected by law, or contrary to
6) Other financial intermediaries. law, rules and regulations:

4. Correction or modification of objectionable a. May summarily order the corporation to

portions immediately cease and desist from using such
name and require the corporate name to
The SEC shall give the incorporators or the register a new one.
corporation a reasonable time within which to If the corporation fails to comply with the
correct or modify objectionable portions of the order of the SEC, the latter may hold the
articles or amendment. (Sec. 16, RCC) corporation and its responsible directors of
5. Non-amendable provisions in the articles of officers in contempt and/or hold them
incorporation Except to correct errors, the administratively, civilly and/or criminally liable
following matters which refer to accomplished under the Code and other applicable laws
facts, may not be amended: and/or revoke the registration of the
corporation.
a. The names of the incorporators. b. Shall cause the removal of all visible
signages, marks, advertisements, labels, prints,
b. The names of the original subscribers to the
and other effects bearing such corporate name.
capital stock and their subscribed and paid-up
(Ibid.)
capital.
3. How new name is changed
c. The names of the original directors.
d. The treasurer elected by the original A corporation may change its name, either on
subscribers. its own, or in compliance with the order of the SEC to
register a new one, by amending the articles of
e. The witnesses to the execution of the articles incorporation. Upon approval of the new corporate
of incorporation and the acknowledgment made name, the SEC shall issue a certificate of incorporation
by the incorporators on the due execution of the under the amended name.
articles.
4. Guidelines and Procedures on the Use of
f. The members who contributed to the initial Corporate and Partnership Names
capital of the nonstock corporation.
Per SEC Memorandum Circular No. 13, Series
of 2019, the following are the guidelines and
procedures in the registration of corporate and d. Business or trade name which is different from
partnership names: the corporate or partnership name shall be
indicated in the articles of incorporation or
a. 1) The corporate name shall contain the word partnership. A company may have more than one
"Corporation" or "Incorporated," or the business or trade name.
abbreviations "Corp." or "Inc.", respectively; e. A trade name or trademark registered with the
2) In the case of a One Person Corporation, the Intellectual Property Office may be used as part
corporate name shall contain the word "OPC" of the corporate or partnership name or a party
either below or at the end of the corporate other than its owner if the latter gives its consent
name; to such use.

3) The partnership name shall bear the word 1) The full name or surname of a person may
"Company" or "Co." and if it is a limited be used in a corporate or partnership name if
partnership, the word "Limited" or "Ltd." A he or she is a stockholder, member or partner
professional partnership name may bear the of the said entity and has consented to such
word "Company," "Associates," or "Partners," or use, if the person is already deceased, the
other similar descriptions; consent shall be given by his or her estate;

4) The corporate name of a foundation shall 2) A single stockholder of a One Person

use the word "Foundation." Corporation (OPC) may use his/her name;
provided, that said name shall be accompanied
5) The corporate name of all non-stock, with descriptive words aside from the suffix
non-profit corporations, including OPC.
non-governmental organizations and
foundations, engaging in microfinance activities The single stockholder may also use the name
shall use the word "Microfinance" or of another person provided that consent was
"Microfinancing"; provided that said given by the said person or if deceased, his
corporations shall state in the purpose clause of estate. Provided, that the name shall be
their articles of incorporation that they shall accompanied by the descriptive words other
conduct microfinance operations pursuant to than the suffix OPC.
Republic Act No 8425 or the Social Reform and 3) The Commission may require a registrant to
Poverty Alleviation Act. explain to its satisfaction the reason for the use
b. A term that describes the business of a of a person's name.
corporation in its name should refer to its 4) The meaning of initials used in a name shall
primary purpose. If there are two such terms, be stated by the registrant in the Articles of
the first should refer to the primary purpose and Incorporation, Articles of Partnership or in a
the second to the secondary purpose. separate document signed by an incorporator,
c. 1) The name shall be distinguishable from other director or partner, as the case may be.
corporate or partnership name registered with
the Commission, or with the Department of f. The name of an internationally known foreign
Trade and Industry, in the case of sole corporation, or something similar to it, cannot be
proprietorships; used by a domestic corporation unless it is a
subsidiary and the parent corporation has
2) If the name applied for is similar to that of a consented to such use.
registered corporation or partnership, the
applicant shall add one or more distinctive However, a name written in a foreign language,
words to the proposed name to remove the even if registered in another country, shall not be
similarity or differentiate it from the registered registered if the name violates good morals,
name; public order or public policy, or has an offensive
or indecorous meaning in any of the country's
However, the addition of one or more distinctive official languages or major dialects.
words shall not be allowed if the registered
name is coined or unique unless the board of g. The name of a local geographical unit, site or
directors or majority of the partners of the location cannot be used as corporate or
subject corporation or partnership gives its partnership name unless it is accompanied by a
consent to the applied name. descriptive word or phrase, e.g., Pasay Food
Store, Inc.
3) Punctuation marks, spaces, signs, symbols, h. Pursuant to existing laws, the following words and
and other similar characters, regardless of their phrases can be used as corporate or partnership
form or arrangement, shall not be acceptable name only in the manner provided:
as distinguishing words for purposes of
differentiating a proposed name from a 1) "Finance Company," "Financing Company,"
registered name. "Finance and Leasing Company," "Investment
Company," and "Investment House" by entities
4) A name that consists solely of special engaged in the financing or investment house
symbols, punctuation marks or specially business (R.A. 8556 and P.D. 129)
designed characters shall not be registered.
 2) "Lending Company" and "Lending Investor" 4) "National." "Bureau," "Commission," "State,"
by lending companies (R.A. 9474); or and other words, acronyms, abbreviations that
"Pawnshop" by entities authorized to operate have gained wide acceptance in the Philippines
pawnshops (P.D. 114) by entities that perform governmental functions.
3) "Bank," "Banking," "Banker," "Savings and 5) "Association" and "Organization" or similar
Loan Association," (R.A. 8367); "Trust words which pertain to nonstock corporations
Corporation," "Trust Company," or words of by entities primarily engaged in nonprofit
similar meaning by entities engaged in the activities
banking or trust business (R.A. 8791)
6) "Stock Exchange/Futures
4) "United Nations," "UN," in full or abbreviated Exchange/Derivatives Exchange," "Stock
form exclusively by the United Nations and its Broker/ Securities Broker/ Derivatives Broker,"
attached agencies (R.A. 226) "Commodity/Financial Futures
Merchant/Broker," "Securities Clearing
5) "Bonded" by entities with licensed Agency/Stock Clearing Agency." "Plans," or any
warehouses (R.A. 247) similar words or phrases by entities organized
6) "SPV-AMC" by corporations authorized to as an exchange, broker dealer, commodity
act as special purpose vehicle (R.A. 9182) futures broker, clearing agency, or preneed
company under the Securities Regulation
7) The name of an international government Code. (R.A. 8799)
organization, such as "International Criminal
Police Organization" (INTERPOL), k. Pursuant to Republic Act 10530, or the "The Act
"International Monetary Fund" (IMF), and Defining The Use and Protection of The Red
"International Labour Organization" (ILO) may Cross, Red Crescent and Red Crystal Emblems",
not be used as part of a corporate or the use of the words "red cross", "red crescent",
partnership name unless duly authorized or or "red crystal" or their translation in any official
allowed by the Commission; and language and dialect cannot be used or
registered as part of a corporate or partnership
8) ASEAN (protected under Article 6 of the name, unless with the consent of the Philippine
Paris Convention for the Protection of Red Cross.
Industrial Property. adopted in 1883 and l. The name of a corporation or partnership that has
revised in Stockholm in 1967) been dissolved or whose registration has been
revoked shall not be used by another corporation
i. The practice of a profession regulated by a or partnership within five (5) years from the
special law which, among other things, provides approval of dissolution or for five (5) years from
for the permissible use of the profession's name the date of revocation, unless its use has been
in a firm, partnership or association, shall govern allowed at the time of dissolution or revocation by
the use of the name, eg "Engineer" or the stockholders, members or partners who
"Engineering" (R.A. 1582), "Architect" (R.A. No. represent a majority of the outstanding capital
9266), or "Geodetic Engineer" (R.A. 8560) stock or membership of the dissolved corporation
or partnership, as the case may be.
Notwithstanding the limitations mentioned above,
m. A corporate or partnership name, which was
any association registered by entities engaged in
previously used but became the subject of
the listed activities may use the profession's
amendment, shall not be re- registered or used by
name, e.g., Association of Engineers of the
another corporation or partnership for a period of
Philippines, Inc."
three (3) years from the date of the approval of
j. Unless otherwise authorized by the Commission, the adoption of the new corporate or partnership
the words and phrases enumerated below can be name
used only by the entities mentioned: n. Names of absorbed/constituent corporation may
not be used unless it is the surviving corporation
1) "Investment(s)" or "Capital" by entities intending to use the said absorbed/constituent
organized as investment house or investment corporate name: Provided, however, that another
company; corporation may use the names or
absorbed/constituent corporation if consent of the
2) "Capital" by entities organized as investment surviving corporation is obtained.
house, investment company or holding
company; 5. Case
3) "Asset/ Investment/ Fund/Financial
Industrial Refractories Corp. of the Philippines
Management," or
"Asset/Investment/Fund/Financial Adviser," or vs. Court of Appeals
any similar words or phrases by entities
organized as investment company adviser or G.R. No. 122174, October 3, 2002
holders of investment management activities
(IMA) license from the Bangko Sentral ng Facts: Refractories Corporation of the
Pilipinas; Philippines (RCP) was incorporated in 1976 and
since then had been using such name.
 Meanwhile, another corporation. Synclaire politic and corporate under the name stated in the
Manufacturing Corporation, which was articles of incorporation for the period specified
incorporated in 1979, amended its articles of therein.
incorporation in 1985, to change its name to
"Industrial Refractories Corporation of the 4. Effect of issuance of certificate of incorporation
Philippines (IRCP)." RCP, upon discovery of the
use of such name, now filed a petition with the The issuance of the certificate of
Securities and Exchange Commission to compel incorporation by the SEC is the operative act that
IRCP to change its corporate name on the ground will confer corporate existence and juridical
that it was confusingly similar to RCP's name. personality upon the corporation commencing on
the date stated in the certificate.
Issue: Whether or not IRCP may use its
new name. The existence of the following
corporations is, however, recognized although
Held: No, IRCP may not use its new there is no certificate of incorporation issued by
name. The names are patently similar. The only the SEC:
word that distinguishes the two names is the word
"Industrial" which merely identifies a corporation's a. In the case of a corporation sole under Sec.
general field of activities. Both companies cater to 110, par. 2 of the Code which provides that
the same clientele, the steel industry, and in fact "(F)rom and after the filing with the Commission
there were instances when different steel of the said articles of incorporation, verified by
companies were actually confused between the affidavit or affirmation, and accompanied by
two. Even without proof of actual confusion, it documents mentioned in the preceding
suffices that confusion is likely to occur. While the paragraph, such chief archbishop, bishop,
word "refractories" is a generic term, its usage is priest, minister, rabbi or presiding elder, as the
not widespread and is limited to the industry/trade case, may be, shall become a corporation sole
in which it is used, and its continuous use by RCP ." (Emphasis supplied.)
for a considerable period has made the term so
b. In the case of a corporation by prescription,
closely identified with it. Accordingly, IRCP was
which is given the status of a corporation by
directed to amend its articles of incorporation by
fiction of law by reason of its exercise of
deleting "Refractories Corporation of the
corporate powers for such a length of time
Philippines," in its name.
without interference by the State, and whose
Registration, incorporation and commencement of existence may even precede that of the State.
corporate existence
De jure and de facto corporation
1. Application for use of corporate name
1. De jure corporation and de facto corporation,
concept
A person or group of persons desiring to
incorporate shall submit the intended corporate
A de jure corporation is one that has been
name to the SEC for verification. If the SEC finds
created in strict compliance with the general
that the name is distinguishable from a name
corporation statute in accordance with the
already reserved or registered for the use of
procedure provided therein. A de jure corporation
another corporation, not protected by law and is
is entitled to exist and operate perpetually or for
not contrary to law, rules and regulations, the
the period stated in its articles of incorporation, if
name shall be reserved in favor of the
so provided therein, and such existence may not
incorporators. (Sec. 18, RCC)
be challenged by anyone including the State in a
2. Submission of the articles of incorporation direct proceeding for this purpose. (De jure
means "by right in law") It is a corporation that
Upon approval of the corporate name to has complied substantially with the mandatory
be used, the incorporators shall then submit their provisions of the law precedent to its
articles of incorporation and bylaws to the SEC incorporation.
reflecting such approved corporate name. (Ibid.) A de facto corporation, on the other hand, is
3. Issuance of certificate of incorporation one that is defectively created but there is a
franchise resulting from an attempt in good faith
If the SEC finds that the submitted to incorporate and an exercise of corporate
documents and information are fully compliant powers on the part of its members. It has all the
with the requirements of the Code, other relevant powers of a de jure corporation but its due
laws, rules and regulations, it shall then issue the existence can be attacked directly in a quo
certificate of incorporation. (Ibid.) warranto proceeding. (De facto means "in fact".) It
exists when it fails in some material respect to
The certificate of incorporation is the comply with all the mandatory provisions of the
document issued by the SEC under its official law for incorporation. It is considered as a
seal giving the incorporators, corporation against either an attack by third
stockholders/members and their successors the persons or an attempt on its part to deny
authority to constitute themselves as a body corporate existence.
2. Requisites of a de facto corporation b. No, the court was not right in dismissing the
complaint of Superior because the de facto
a. There must be a valid law under which it is existence of a corporation cannot be inquired into
incorporated. collaterally in any private suit to which such
corporation may be a party. Such attack or inquiry
b. There must be a bona fide attempt to comply can only be made directly by the Solicitor General
with that law and to organize a corporation in a quo warranto proceeding. In other words.
thereunder. Purcero cannot question the due existence of
Superior in the same case brought against him.
c. There must be an actual exercise of corporate
What he should have done was to file a complaint
powers in the belief that a corporation has been
with the Office of the Solicitor Genera which
created.
would then initiate the quo warranto proceeding to
d. A certificate of incorporation is issued despite a purposely question the due existence of Superior
defect in its incorporation. if it can be established by proof that Superior is
without legal authority to act. (See Rule 66,
3. Some defects not precluding the creation of a de Sections 1 and 2. Rules of Court) (Emphasis
facto corporation supplied.)

a. When the name of the corporation is similar to [Note: Quo warranto is a proceeding to
that of an existing corporation or one that is determine the right to the use or exercise of a
protected by law. franchise or office and to oust the holder from its
enjoyment, if his claim is not well-founded or if he
b. When an incorporator is incapable of giving has forfeited his right to enjoy the privilege.
consent. (Castro vs. Del Rosario, 19 SCRA 200)]
4. Some defects precluding the existence of a de Corporation by estoppel
facto corporation
1. Concept
a. Absence of articles of incorporation.
A corporation by estoppel is one which is not
b. Failure to file the articles of incorporation. in reality a corporation but is considered as one
c. Non-issuance of a certificate of incorporation with respect to those who are precluded by their
by the SEC. admission or conduct from denying its existence.
This holds true with respect to both the persons
d. A corporation formed for the exercise of a holding themselves as representing a corporation
profession which, under the law, is not allowed. or believing themselves to be dealing with a
corporation.
5. Illustration of de facto corporation
2. Liability of persons who assume to act as a
Alonzo, Benitez, Cabrera, Dominguez corporation
and Elcano are the incorporators of Superior
Corporation (Superior) whose certificate of All persons who hold themselves as
incorporation was issued by the Securities and representing a corporation knowing it to be
Exchange Commission on November 10, 2020. without authority to do so shall be liable as
On February 1, 2021, Superior granted a credit general partners for all debts, liabilities and
sale to Parcero. When Parcero failed to pay damages incurred or arising as a result thereof.
despite repeated demands, Superior filed a (Sec. 20, RCC)
complaint for collection against him. Parcero
alleged as a defense that Superior had no 3. Lack of corporate personality of ostensible
personality to sue claiming that it was a de facto corporation not a defense in suit
corporation because Alonzo, one of the CORPORATIONS
incorporators, was not of legal age at the time of
incorporation, as evidenced by the birth certificate When such ostensible corporation is sued on
of Alonzo which was presented to the court. The any transaction entered by it as a corporation or
trial court, on finding that Parcero's allegation was on any tort committed by it as such, it shall not be
true, dismissed the complaint against him. allowed to use as a defense its lack of corporate
personality. (Sec. 20, Ibid.)
a. Is Superior a de facto corporation?
4. Third persons contracting with ostensible
b. Was the court right in dismissing the complaint corporation
of Superior against Parcero?
Third persons believing themselves to be
Answers:
dealing with a corporation cannot resist
a. Yes, because all the requirements for the de performance of their obligation on the ground that
facto existence of Superior including the issuance there was in fact no corporation. (Sec. 20, Ibid.)
of a certificate of incorporation by the Securities
and Exchange Commission are present.
5. Examples acts preparatory to the fulfillment of its purpose, such
a. A, B, C, D and E distributed calling cards as entering into a contract of lease for its business site
identifying themselves as directors of "Summit and negotiating with prospective customers.
Corporation", to several individuals during a
Effects of continuous nonoperation for at least five
business conference. In reality, however, no such
(5) years after the corporation has commenced
corporation is registered with the Securities and
operations
Exchange Commission. X, who received a calling
card from A, granted a credit sale of goods If a corporation has commenced its business
amounting to P100,000.00 to "Summit but subsequently becomes inoperative for a period of
Corporation" believing that such a corporation at least five (5) consecutive years. the SEC may, after
really existed. When the supposed corporation due notice and hearing, place the corporation under
was unable to pay, X brought a court action delinquent status.
against it. "Summit Corporation" moved to have
the case dismissed against it on the ground that it A delinquent corporation shall have a period of
had no corporate personality. At that time two (2) years to resume operations and comply with all
"Summit Corporation" had assets of P40,000.00. requirements that the SEC shall prescribe. Upon
compliance by the corporation, the SEC shall issue an
1) Is "Summit Corporation" correct? order lifting the delinquent status. Failure to comply
2) Who, if any, will be liable for the debt? with the requirements and resume operations within
the period given by the SEC shall cause the revocation
Answers: of the corporation's certificate of incorporation. (Sec.
21, second and third paragraphs, RCC)
1) No, "Summit Corporation" is not correct. The
act of A, B, C, D and E of holding themselves as Notice to appropriate government agency prior to
a corporation although none existed estops them suspension or revocation of certificate of
from using as a defense its lack of corporate incorporation
personality to escape liability.
The SEC shall give reasonable notice to, and
2) The assets of "Summit Corporation" amounting coordinate with the appropriate regulatory agency prior
to P40.000.00 shall first be exhausted. Thereafter, to the suspension or revocation of the certificate of
A. B C. D and E. being liable as general partners, incorporation of companies their special regulatory
shall answer for the balance of P60,000.00 at jurisdiction. (Sec. 21, third paragraph, Ibid.)
P12,000.00 each from their respective separate
properties.
b. Refer to the same example. Assume that it was X Board of Directors/Trustees and Officers
who made a charge purchase from "Summit
Corporation". Later, X was unable to pay. As a Board of directors or trustees for a corporation
consequence, he was sued by "Summit
Corporation". X refused to pay on the ground that 1. Board of directors or trustees for a corporation,
"Summit Corporation" had no personality to sue. concept
Is X correct?
The board of directors or trustees is the top
Answer: governing body of a corporation. Although a
No, X is not correct. One who assumes an corporation is a person in contemplation of law, it can
obligation to an ostensible corporation as such, only act through human agents or individuals elected
cannot resist performance thereof on the ground by the stockholders or members. These human agents
that there was in fact no corporation. (Sec. 20. are known as directors or trustees. The directors or
Ibid.) trustees may manage the corporation only when they
are convened as a body The law emphasizes the
Effects of non-use of corporate charter value of decision-making at only after considering the
collective and personal the directors or trustees. For
If a corporation does not formally organize and this reason, a director or trustee cannot bind the
commence its business within five (5) years from the corporation in his individual capacity by virtue of his
date of its incorporation, its certificate of incorporation mere being a director or (rustee. A director, even if he
shall be deemed revoked as of the day following the owns substantially all the stocks of the corporation, or
end of the five-year period. (Sec. 21, first par., RCC) a trustee, canv act for the corporation or bind it in a
Here, the revocation is automatic, no hearing is contract, unless he is granted an authority to act
required. individually by the articles of incorporation, the bylaws,
or a resolution of the board of directors or trustees.
Formal organization includes the adoption of arrived judgments
the bylaws and filing the same with the SEC (if none
had been filed at the time of incorporation), election of 2. Powers of the board of directors, extent
directors, organizational meeting of directors to elect
the president, treasurer, secretary and other officers The board of directors of a corporation has the
provided in the bylaws. Commencement of the following powers:
transaction of its business includes the performance of
 a. To exercise corporate powers. or misconduct similar to the those enumerated
in two foregoing paragraphs.
b. To conduct all business of the corporation.
The foregoing is without prejudice to
c. To control and hold corporate property. qualifications or other disqualifications, which
The board of directors must act in good faith and the SEC, the primary regulatory agency. ог the
exercise reasonable care and judgement in the Philippine Competition Commission, may
discharge of its functions. Generally, the board of impose in its promotion of good corporate
directors may perform any act to promote the governance or as a sanction in its
business for which the corporation was formed. administrative proceedings. (Sec. 26, Ibid.)
This authority, however, may be limited by the c. Other qualifications as may be provided in the
Revised Corporation Code itself or other statutes, by-laws. (Sec. 46, Ibid.), such as the prohibition of
the corporation's articles of incorporation or a stockholder whose business competes with the
bylaws, such as in the exercise of acts that corporation from running for seat in the board.
require ratification by the stockholders. (See Gokongwei, Jr. vs. Securities and Exchange
3. Qualifications of directors or trustees Commission, 89 SCRA 336.)
4. Number of directors or trustees
a. For stock corporations, a director must be the
owner of at least one (1) share of stock which For stock corporations, the number should not
share shall stand in his naine in the books of the be more than fifteen (15), while for nonstock
corporation while he is a director. corporations, the number may or may be more than
The bylaws, however, may validly provide for a fifteen (15), except with respect to nonstock
larger number of shares, such as fifty (50) shares educational corporations where the number of trustees
of stock, that one must own before he can qualify must not be less than five (5) nor more than fifteen
as director. [See Sec. 46, par. (f), RCC; (15), provided that the number shall be in multiples of
Government vs. El Hogar Filipino, 50 Phil 399.] A five (5), i.e., either five (5), ten (10), or fifteen (15).
director who ceases to be the owner of at least 5. Term of office of directors or trustees
one (1) share of stock or such higher minimum
number of shares as may be provided in the For stock corporations, directors shall be
bylaws for one to qualify as director, shall also elected for a term of one (1) year, while for nonstock
cease to be a director. corporations, trustees, in general, shall be elected for a
For nonstock corporations, a trustee must be a term not exceeding three (3) years. Each director or
member thereof, except with respect to trustee shall hold office until his successor is elected
independent trustees of nonstock corporations and qualified.
vested with public interest who may not be For nonstock educational corporations,
members of the corporation. (See Sec. 91, RCC) however, the trustees shall be elected for a term of five
Just like a director of a stock corporation being (5) years, with the first trustees so classifying
required to be a stockholder thereof, a trustee themselves that the term of one-fifth (1/5) of their
must also be a member of the corporation during number shall be expire every year, i.e., their terms are
his term. Accordingly. he ceases to be a trustee staggered.
when his membership in the corporation is
terminated by resignation or for any other cause
provided in the articles of incorporation or the
bylaws. (Sec. 91, RCC)
b. A director or trustee, within five (5) years prior
to his election or appointment, must not have
been:
1) convicted by final judgment:
a) of an offense punishable by imprisonment
for a period exceeding six (6) years; or
b) for violation of the Revised Corporation
Code; or
c) for violation of Republic Act No. 8799,
otherwise known as "The Securities
Regulation Code"; or
2) found administratively liable for any offense
involving fraudulent acts; or
3) found liable by foreign court or equivalent
foreign regulatory authority for acts, violations