REVISED CORPORATION CODE

RA 11232
Rocille S. Aquino-Tambasacan
Presiding Judge, RTC Imus City, Cavite Branch 21 (Commercial Court)
Former Senior Assistant City Prosecutor of Manila
Law Professor
National Bar Reviewer
Law Books Author
Corporation, defined

• A corporation is an artificial being created by operation of law, having the right

of succession and the powers, attributes and properties expressly authorized by
law or incident to its existence.
Attributes
First, is an artificial being.

Second, it is created by operation of law.

Third, it has the right of succession.

Fourth, it has the powers, attributes and properties expressly authorized
by law or incident to its existence.
Corporation as an artificial being (2013, 2012
Bar)
• The Doctrine of Separate Juridical Personality provides that a corporation has a
legal personality separate and distinct from that of people comprising it.
Stockholders enjoy the Principle of Limited Liability: the corporate debt is not
the debt of the stockholder.
• As the corporation is considered separate from the stockholders, the
stockholders merely possess inchoate interest over corporate assets
Corporation as an artificial being (2013, 2012
Bar)
Bar illustrations:
• BIR liability
• Loan taken by President
Corporation as an artificial being (2013, 2012
Bar)
• Doctrine of Separate Juridical Personality admits of an exception – the
Doctrine of Piercing the Veil of Corporate Fiction
• Corporations are likewise entitled to constitutional guarantees such as the right
to due process; however it cannot invoke the right against self-incrimination.
• Failure to implead corporation for recovery of ill-gotten wealth against
stockholder? Palm Avenue vs. Sandiganbayan, 732 SCRA 156
• Production of corporate books? Bataan Shipyard vs. PCGG, 150 SCRA 181
Corporation as an artificial being (2013, 2012
Bar)
• Cannot be entitled to moral damages. Exceptions on award of damages, if any,
only apply pro hac vice. The grant is not automatic. The claimant must still
prove the factual basis of the damage and the causal relation to the defendant's
acts.
• Mambulao Lumber vs. PNB, 130 Phil 366; Noel Whessoe vs. Independent Testing Consultants, November 7,
2018
Corporation being created by operation of law –
2008 Bar
• Consent?
• GOCCs may be created or established by special charters while the
general law that provides for the formation, organization, and
regulation of private corporations refer to the Revised Corporation
Code.
• Art XII, Sec. 16
Corporation being created by operation of law –
2008 Bar

• GOCCs are stock or non-stock corporations vested with functions

relating to public needs that are owned by the government directly or
through its instrumentalities.
• Three attributes make an entity a GOCC: first, its organization as stock
or non-stock corporation; second, the public character of its function;
and third, government ownership over the same
• Funa vs. Manila Economic and Cultural Office et al., G.R. No. 193462, February
4, 2014.
Corporation being created by operation of
law – 2008 Bar
• Life of a corporation is not affected by the death of the stockholders
comprising it. It can continue to exist perpetually.
• Since a corporation is a creature of the state, it has no power, except
those expressly conferred on it by the Corporation Code and those
that are implied or incidental to its existence.
Piercing the veil of corporate fiction – 2019, 2018,
2014, 2012, 2011, 2006 Bar
• How to pierce?
• When to pierce?
• When such corporate fiction is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, or when it is made as a
shield to confuse the legitimate issues, or where a corporation is the
mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation.
Piercing the veil of corporate fiction – 2019,
2018, 2014, 2012, 2011, 2006 Bar
• Mere ownership of a subsidiary does not justify the imposition of liability on the
parent company.
• Elements:
1. Control — not mere stock control, but complete domination — not only of
finances, but of policy and business practice in respect to the transaction attacked,
must have been such that the corporate entity as to this transaction had at the
time no separate mind, will or existence of its own;
2. Control must have been used by the defendant to commit a fraud or a
wrong, to perpetuate the violation of a statutory or other positive legal duty, or a
dishonest and an unjust act in contravention of plaintiff’s legal right; and
3. The said control and breach of duty must have proximately caused the
injury or unjust loss complained of
Piercing the veil of corporate fiction – 2019,
2018, 2014, 2012, 2011, 2006 Bar
• First prong - "instrumentality" or "control" test; subsidiary be
completely under the control and domination of the parent.
• Probative factors of identity:
1. Stock ownership by one or common ownership of both
corporations
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.
Piercing the veil of corporate fiction – 2019,
2018, 2014, 2012, 2011, 2006 Bar
• Expanded factors (PNB vs. Ritratto Group, 362 SCRA 216)
1. The parent owns all or most of the capital stock of the subsidiary;
2. The parent and subsidiary corporations have common directors or
officers;
3. The parent finances the subsidiary;
4. The parent subscribes to all the capital stock of the subsidiary or
otherwise causes its incorporation;
5. The subsidiary has grossly inadequate capital;
6. The parent pays the salaries and other expenses or losses of the
subsidiary;
Piercing the veil of corporate fiction – 2019,
2018, 2014, 2012, 2011, 2006 Bar
• Expanded factors:
7. The subsidiary has substantially no business except with the parent
corporation or no assets except those conveyed to or by the parent;
8. In the papers of the parent or in the statements of its officers, the
subsidiary is described as a department or division of the parent, or its
business or financial responsibility is referred to as the parent corporation's
own;
9. The parent uses the property of the subsidiary as its own;
10. The directors or executives of the subsidiary do not act independently
in the interest of the subsidiary but take their orders from the parent; and
11. The formal legal requirements of the subsidiary are not observed.
Piercing the veil of corporate fiction – 2019,
2018, 2014, 2012, 2011, 2006 Bar
• Second prong - "fraud" test; parent corporation's conduct in using the
subsidiary corporation be unjust, fraudulent or wrongful.
• "Totality of Circumstances Test" may be considered:
Piercing the veil of corporate fiction – 2019,
2018, 2014, 2012, 2011, 2006 Bar
• "Totality of Circumstances Test" may be considered:
1. Commingling of funds and other assets of the corporation with
those of the individual shareholders;
2. Diversion of the corporation's funds or assets to personal uses;
3. Failure to maintain the corporate formalities necessary for the
issuance of or subscription to the corporation's stock, such as formal
approval of the stock issue by the BoD;
4. An individual shareholder representing to persons outside the
corporation that he or she is personally liable for the debts or other
obligations of the corporation;
Piercing the veil of corporate fiction – 2019,
2018, 2014, 2012, 2011, 2006 Bar
5. Failure to maintain corporate minutes or adequate corporate
records;
6. Identical equitable ownership in two entities;
7. Identity of the directors and officers of two entities who are
responsible for supervision and management;
8. Failure to adequately capitalize a corporation for the
reasonable risks of the corporate undertaking;
Piercing the veil of corporate fiction – 2019,
2018, 2014, 2012, 2011, 2006 Bar
9. Absence of separately held corporate assets;
10. Use of a corporation as a mere shell or conduit to operate a
single venture of the business of an individual or another corporation;
11. Sole ownership of all the stock by one individual or members of
a single family;
Piercing the veil of corporate fiction – 2019,
2018, 2014, 2012, 2011, 2006 Bar
12. Use of the same office or business location by the corporation
and its individual shareholders;
13. Employment of the same employees or attorney by the
corporation and its shareholders;
14. Concealment or misrepresentation of the identity of the
ownership, management or financial interests in the corporation, and
concealment of personal business activities of the shareholders;
Piercing the veil of corporate fiction – 2019,
2018, 2014, 2012, 2011, 2006 Bar
15. Disregard of legal formalities and failure to maintain proper
arm's length relationships among related entities;
16. Use of a corporate entity as a conduit to procure labor, services
or merchandise for another person or entity;
17. Diversion of corporate assets from the corporation by or to a
stockholder or other person to the detriment of creditors, or the
manipulation of assets and liabilities between entities to concentrate
the assets in one and the liabilities in another;
Piercing the veil of corporate fiction – 2019,
2018, 2014, 2012, 2011, 2006 Bar
18. Contracting by the corporation with another person with the
intent to avoid the risk of non-performance by use of the corporate
entity; or the use of a corporation as a subterfuge for illegal
transactions; and
19. The formation and use of the corporation to assume the
existing liabilities of another person or entity.
Piercing the veil of corporate fiction – 2019,
2018, 2014, 2012, 2011, 2006 Bar
• Third prong - "harm" test; plaintiff to show that the defendant's
control, exerted in a fraudulent, illegal or otherwise unfair manner
toward it, caused the harm suffered.
• WPM International Trading, Inc., et al. v. Labayen, 735 SCRA 297 : the
control necessary to invoke the instrumentality or alter ego rule is not
majority or even complete stock control but such domination of
finances, policies and practices that the controlled corporation has, so
to speak, no separate mind, will or existence of its own, and is but a
conduit for its principal.
Maricalum Mining Corp. vs. Florentino, G.R. Nos. 221813 and 222723, July 23, 2018

• Maricalum Mining's assets were transferred in favor of G Holdings as part of

an official measure to dispose of the government's non-performing assets.
Years later, some of Maricalum Mining's workers were dismissed and filed a
suit against G Holdings in an apparent attempt to pierce the veil of corporate
fiction.
• Is the latter possible?
Maricalum Mining Corp. vs. Florentino, G.R. Nos. 221813 and 222723, July 23, 2018

• Maricalum Mining's assets were transferred in favor of G Holdings as part of

an official measure to dispose of the government's non-performing assets.
Years later, some of Maricalum Mining's workers were dismissed and filed a
suit against G Holdings in an apparent attempt to pierce the veil of corporate
fiction.
• Is the latter possible?
• No. It was not proven that the transfer was done to evade monetary obligations
to the complainants as some of the assets were sold to G Holdings long before
the monetary claims existed.
Gesolgon vs. CyberOne PH., Inc., G.R. No. 210741, October 14, 2020, J. Hernando

• Petitioners Gesolgon and Santos were hired by Mikrut as part-time home-based remote
Customer Service Representatives of CyberOne Pty. Ltd. (CyberOne AU). Thereafter, they
became full time and permanent employees of CyberOne AU and were eventually promoted as
Supervisors. Mikrut, the CEO of both CyberOne AU and CyberOne PH, asked petitioners,
together with Juson, to become dummy directors and/or incorporators of CyberOne PH to which
petitioners agreed. As a result, petitioners were promoted as Managers and were given increases
in their salaries. The salary increases were made to appear as paid for by CyberOne PH.
However, Mikrut later reduced petitioners' salaries from P50K to P36K, of which P26K was
paid by CyberOne AU while the remaining P10K was paid by CyberOne PH. Aside from the
decrease in their salaries, petitioners were only given P20K each as 13th month pay for the
year 2010. The petitioners were later on dismissed.
Gesolgon vs. CyberOne PH., Inc., G.R. No. 210741, October 14, 2020, J. Hernando

• Petitioners filed an illegal case against CyberOne AU, CyberOne PH, Mikrut and Juson but it was
argued that no employer-employee relationship existed between petitioners and CyberOne PH.
• The Labor Arbiter however considered the two entities as one and the same, applying piercing the
veil of corporate fiction.
• Is it correct?
Gesolgon vs. CyberOne PH., Inc., G.R. No. 210741, October 14, 2020, J. Hernando

No. While it is true that CyberOne AU owns majority of the shares of CyberOne PH, this,
nonetheless, does not warrant the conclusion that CyberOne PH is a mere conduit of CyberOne
AU. |||

First, no evidence was presented to prove that CyberOne PH was organized for the purpose of
defeating public convenience or evading an existing obligation.
Second, petitioners failed to allege any fraudulent acts committed by CyberOne PH in order to
justify a wrong, protect a fraud, or defend a crime.
Lastly, the mere fact that CyberOne PH's major stockholders are CyberOne AU and respondent
Mikrut does not prove that CyberOne PH was organized and controlled and its affairs conducted
in a manner that made it merely an instrumentality, agency, conduit or adjunct of CyberOne AU.
In order to disregard the separate corporate personality of a corporation, the wrongdoing must be
clearly and convincingly established.|||
Gesolgon vs. CyberOne PH., Inc., G.R. No. 210741, October 14, 2020, J. Hernando

• Moreover, petitioners failed to prove that CyberOne AU and Mikrut, acting as the Managing
Director of both corporations, had absolute control over CyberOne PH.
• Even granting that CyberOne AU and Mikrut exercised a certain degree of control over the
finances, policies and practices of CyberOne PH, such control does not necessarily warrant
piercing the veil of corporate fiction since there was not a single proof that CyberOne PH was
formed to defraud petitioners or that CyberOne PH was guilty of bad faith or fraud.
Linden Suites, Inc. vs. Meridien Far East Properties, Inc., G.R. No. 211969, October 4, 2021

Petitioner Linden Suites moved to examine the officers of judgment debtor respondent Meridien,
Inc. to determine their income and assets to satisfy the liability of Meridien.

Can this be done?

•
Linden Suites, Inc. vs. Meridien Far East Properties, Inc., G.R. No. 211969, October 4, 2021

Petitioner Linden Suites moved to examine the officers of judgment debtor respondent Meridien,
Inc. to determine their income and assets to satisfy the liability of Meridien.

Can this be done?

•
• No. The petitioner wanted the officers to be examined not for the purpose of passing unto them
the liability of respondent as its judgment obligor. It never averred in the motion any intention to
make the officers liable for respondent's obligation due to the latter's purported attempts to evade
the execution of the final judgment. The sole objective of the examination of the officers was to
ascertain the properties and income of respondent which can be subjected for execution in order to
satisfy the final judgment and nothing else.
Reverse piercing (BAGO!)
• In a reverse piercing action, the plaintiff seeks to reach the assets of a
corporation to satisfy claims against a corporate insider. Reverse-
piercing makes the corporation liable for the debt of the
shareholders.
Reverse piercing
• It has two (2) types: outsider reverse piercing and insider reverse
piercing.
• Outsider reverse piercing occurs when a party with a claim against an
individual or corporation attempts to be repaid with assets of a
corporation owned or substantially controlled by the defendant.
Reverse piercing
• It has two (2) types: outsider reverse piercing and insider reverse
piercing.
• Outsider reverse piercing occurs when a party with a claim against an
individual or corporation attempts to be repaid with assets of a
corporation owned or substantially controlled by the defendant.
• In insider reverse piercing, the controlling members will attempt to
ignore the corporate fiction in order to take advantage of a benefit
available to the corporation, such as an interest in a lawsuit or
protection of personal assets.
Reverse piercing

• International Academy of Management and Economics Incorporated (I/AME)

vs. Litton and Co., Inc., G.R. No. 191525, December 13, 2017 – judgment
creditor pierced the veil of I/AME to make its property answer for judgment
against Santos who owns and controls I/AME
Corporation vs Partnership vs Sole Proprietorship
– 2010 Bar
Corporation Partnership Sole Proprietorship
Separate juridical personality hence Separate juridical personality but all No separate juridical
doctrine of limited liability applies partners, including industrial ones, personality hence unlimited
shall be liable pro rata with all their liability
property and after all the partnership
assets have been exhausted, for the
contracts which may be entered into
in the name and for the account of the
partnership, under its signature and
by a person authorized to act for the
partnership.
Death of stockholder has no effect on Death of partner dissolves partnership Death of sole proprietor
the corporation, having the right of dissolves the sole
succession hence more stable as an proprietorship
entity
Corporation vs Partnership vs Sole Proprietorship
– 2010 Bar
Corporation Partnership Sole Proprietorship
Formalities are required to create a Simpler as it is created by mere One-man team
corporation hence expensive agreement of the parties
Management is centralized with Partners participate in the One-man team
the Board hence professionalized management
but cumbersome; stockholders can
vote only on certain corporate
actions
The income of the corporation is Only the partner's distributive Not applicable as there is no
taxed, as well as the dividends share in the net income of a separate entity to speak of
distributed to the stockholders general professional partnership is
taxed
Classes of Corporation – 2013 Bar
1. Stock vs. non-stock

Stock corporations - capital stock divided into shares and are

authorized to distribute to the holders of such shares, dividends, or
allotments of the surplus profits on the basis of the shares held.

Non-stock corporation - no part of its income is distributable as

dividends to its members, trustees, or officers.
Classes of Corporation – 2013 Bar
2.Public vs. private vs. quasi-public

Public corporations - created by the State as the latter's own agency or instrumentality
to help it in carrying out its governmental functions; otherwise, it is private.

Quasi-public corporations - private corporations that render public service, supply

public wants, or pursue other eleemosynary objectives; e.g. utility, railroad, warehouse,
telegraph, telephone, water supply corporations and transportation companies. A
quasi-public corporation is a species of private corporations, but the qualifying factor is
the type of service the former renders to the public: if it performs a public service, then
it becomes a quasi-public corporation. Funa vs. Manila Economic and Cultural Office, et
al., G.R. No. 193462, February 4, 2014.
Classes of Corporation – 2013 Bar
• The true criterion to determine whether a corporation is public or
private is found in the totality of the relation of the corporation to the
State.
• If the corporation is created by the State as the latter's own agency or
instrumentality to help it in carrying out its governmental functions,
then that corporation is considered public; otherwise, it is private.
Classes of Corporation – 2013 Bar
3. Domestic vs. foreign

Foreign corporation - one formed, organized or existing under laws

other than those of the Philippines’ and whose laws allow Filipino
citizens and corporations to do business in its own country or State.

Domestic corporation - one formed, organized or existing under

Philippine laws.
Classes of Corporation – 2013 Bar
4. De jure vs. de facto

De jure corporation - one which exists by reason of full compliance by

incorporators with requirements of an existing law permitting organization
of such corporation.

De Facto corporation - one existing under color of law and in pursuance of

an effort made in good faith to organize a corporation under the statute.
Its due incorporation and its right to exercise corporate powers, shall not be
inquired into collaterally; inquiry may be made by the Solicitor General in a
quo warranto proceeding.
Classes of Corporation – 2013 Bar
Requirements before one can qualify as a de facto corporation:
a. the existence of a valid law under which it may be incorporated;
b. an attempt in good faith to incorporate; and
c. assumption of corporate powers.

The filing of articles of incorporation and the issuance of the certificate

of incorporation are essential for the existence of a de facto
corporation. An organization not registered with the SEC cannot be
considered a corporation, not even as a corporation de facto.
Classes of Corporation – 2013 Bar
5. Corporation by estoppel vs. prescription

The doctrine of corporation by estoppel applies when a non-existent

corporation enters into contracts or dealings with third persons. The
person who has contracted or otherwise dealt with the non-existent
corporation is estopped to deny the latter's legal existence in any
action leading out of or involving such contract or dealing.
Classes of Corporation – 2013 Bar
5. Corporation by estoppel vs. prescription

The doctrine of corporation by estoppel applies when a non-existent corporation

enters into contracts or dealings with third persons. The person who has
contracted or otherwise dealt with the non-existent corporation is estopped to
deny the latter's legal existence in any action leading out of or involving such
contract or dealing.

All persons who assume to act as a corporation knowing it to be without

authority to do so shall be liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof. Where there is no third person
involved there is no corporation by estoppel.
Classes of Corporation – 2013 Bar
5. Corporation by estoppel vs. prescription
Corporation by prescription - body which though not lawfully
organized as a corporation, has been recognized by immemorial usage
as a corporation, with rights and duties maintainable at law
e.g. Roman Catholic Archbishop of Manila
Classes of Corporation – 2013 Bar
6. Holding/parent vs. affiliate/subsidiary

A parent or holding company - a corporation which owns or is organized to own a

substantial portion of another company's voting shares of stock enough to control
or influence the latter's management, policies or affairs thru election of the
latter’s BoD. It is organized and is conducting its business by investing
substantially in the equity securities of another company for the purposes of
controlling their policies and holding them in a conglomerate or umbrella
structure along with other subsidiaries.

An affiliate or subsidiary company - a corporation that is controlled by another,

i.e., parent or holding company.
Nationality of Corporation – 2017 Bar
Why / when material?
1. Place of Incorporation Test
The place of incorporation test determines whether a
corporation is domestic or foreign.
2. Control Test vs. Grandfather Rule
Nationality of Corporation – 2017 Bar
2. Control Test vs. Grandfather Rule
Narra Nickel Mining and Development Corporation vs. Redmont
Consolidated Mines, Corp., G.R. No. 195580, April 21, 2014, shares belonging
to corporations or partnerships at least 60% of the capital of which is owned
by Filipino citizens shall be considered as of Philippine nationality. The
"control test" is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit of Sec. 2, Art. XII of
the 1987 Constitution, entitled to undertake the exploration, development
and utilization of the natural resources of the Philippines. When there is
doubt, based on the attendant facts and circumstances of the case, in the
60-40 Filipino equity ownership in the corporation, then the "grandfather
rule" may be applied.
Nationality of Corporation – 2017 Bar
• The Grandfather Rule - method by which the percentage of Filipino
equity in a corporation engaged in nationalized and/or partly
nationalized areas of activities, provided for under the Constitution
and other nationalization laws, is computed, in cases where corporate
shareholders are present, by attributing the nationality of the second
or even subsequent tier of ownership to determine the nationality of
the corporate shareholder. Thus, to arrive at the actual Filipino
ownership and control in a corporation, both the direct and indirect
shareholdings in the corporation are determined.
Nationality of Corporation – 2017 Bar
• Corporation that complies with the 60-40 Filipino to foreign equity
requirement can be considered a Filipino corporation if there is no
doubt as to who has the beneficial ownership and control of the
corporation. There is no need for a dissection or further inquiry on
the ownership of the corporate shareholders in both the investing and
investee corporation or the application of the Grandfather Rule. But
even if the 60-40 Filipino to foreign equity ratio is met, a resort to the
Grandfather Rule is necessary if doubt exists as to the locus of the
beneficial ownership and control.
• Redmont took interest in mining and exploring certain areas of the province of
Palawan. After inquiring with the DENR, it learned that the areas where it
wanted to undertake exploration and mining activities were already covered by
Mineral Production Sharing Agreement (MPSA) applications of petitioners
Narra, Tesoro and McArthur. The three turned out to be owned and controlled
by MBMI Resources, Inc., a 100% Canadian corporation.
Nationality of Corporation – 2017 Bar
• “Doubt" refers to various indicia that the beneficial ownership and
control of the corporation do not in fact reside in Filipino shareholders
but in foreign stakeholders. These indicators are:
a. That the foreign investors provide practically all the funds for
the joint investment undertaken by these Filipino businessmen and
their foreign partner;
b. That the foreign investors undertake to provide practically all
the technological support for the joint venture;
c. That the foreign investors, while being minority stockholders,
manage the company and prepare all economic viability studies.
Classification of shares (2013, 2012 Bar)
• Doctrine of Equality of Shares - each share shall be equal in all
respects to every other share, except as otherwise provided in the
articles of incorporation and in the certificate of stock.
Classification of shares (2013, 2012 Bar)
1. Voting vs. Non-Voting

Voting shares are those granted voting rights while non-voting shares
are those deprived of voting rights.

No share may be deprived of voting rights except those classified and

issued as “preferred” or “redeemable” shares, unless otherwise
provided in this Code, provided that there will always be a class or
series of shares with complete voting rights.
Classification of shares (2013, 2012 Bar)
Holders of nonvoting shares shall nevertheless be entitled to vote on: A2SI2MID
a. Amendment of the articles of incorporation;
b. Adoption and amendment of bylaws;
c. Sale, lease, exchange, mortgage, pledge (SLEMP) or other disposition of
all or substantially all of the corporate property;
d. Incurring, creating, or increasing bonded indebtedness;
e. Increase or decrease of authorized capital stock;
f. Merger or consolidation of the corporation or business;
g. Investment of corporate funds in another corporation or business; and
h. Dissolution of the corporation.
Classification of shares (2013, 2012 Bar)
2. Common vs. Preferred

Common stock - represents the residual ownership interest in the

corporation. It is a basic class of stock ordinarily and usually issued without
extraordinary rights or privileges and entitles the shareholder to a pro rata
division of profits.
Preferred stocks - entitle the shareholder to some priority on dividends and
asset distribution. Preferred shares of stock may be issued only with a stated
par value.
Classification of shares (2013, 2012 Bar)
Preferred stocks can either be participating and non-participating.
Participating preferred stocks - after getting their fixed dividend preference, share
with the common stocks the rest of the dividends. Non-participating preferred do
not share with the common.

Preferred stocks can further be categorized into cumulative and non-cumulative.

Cumulative - in any given year or years no dividends are declared, the arrears for
such year or years have to be made up in the subsequent years before any
dividends can be paid to the common stocks. Whatever the reason for the failure,
once profits are made and dividends declared in the subsequent year, all arrears
must be paid to the preferred stocks before the common stocks can receive any
share in the profits.
Classification of shares (2013, 2012 Bar)
3. Par vs. No-par value

Par value - face value of a share of stock. Those without any value on its face are called no-par
value. A no-par value share does not purport to represent any stated proportionate interest in the
capital stock measured by value, but only an aliquot part of the whole number of such shares of
the issuing corporation.
Under Section 6, the following shall not be permitted to issue no-par value shares of stock:
a. banks
b. trust
c. insurance
d. preneed companies (NEW)
e. public utilities
f. building and loan associations
g. and other corporations authorized to obtain or access funds from the public, whether
publicly listed or not (NEW)
Classification of shares (2013, 2012 Bar)
• Shares of capital stock issued without par value shall be deemed fully
paid and non-assessable and the holder of such shares shall not be
liable to the corporation or to its creditors in respect thereto provided
that:
a. No-par value shares must be issued for a consideration of at
least P5.00 per share; and
b. The entire consideration received by the corporation for its no-
par value shares shall be treated as capital and shall not be available
for distribution as dividends.
Classification of shares (2013, 2012 Bar)
4. Founders' shares

Founders' shares may be given certain rights and privileges not

enjoyed by the owners of other stocks. Where the exclusive right to
vote and be voted for in the election of directors is granted, it must be
for a limited period not to exceed 5 years from the date of
incorporation;
Such exclusive right shall not be allowed if its exercise will violate CA
No. 108 (Anti- Dummy Law); RA No. 7042 (Foreign Investments Act of
1991); and other pertinent laws (NEW).
Classification of shares (2013, 2012 Bar)
5. Redeemable shares

Redeemable shares may be issued by the corporation when expressly

provided in the AoI. They are shares which may be purchased by the
corporation from the holders of such shares upon the expiration of a
fixed period, regardless of the existence of unrestricted retained
earnings in the books of the corporation, and upon such other terms
and conditions stated in the AoI and the certificate of stock
representing the shares.
Classification of shares (2013, 2012 Bar)
6. Treasury shares

Treasury shares - shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation by purchase, redemption,
donation or some other lawful means. Such shares may again be disposed of for a
reasonable price fixed by the BoD.

A treasury share or stock, which may be common or preferred, may be used for a
variety of corporate purposes, such as for a stock bonus plan for management and
employees or for acquiring another company. It may be held indefinitely, resold or
retired. While held in the company's treasury, the stock earns no dividends and
has no vote in company affairs.
INCORPORATION AND ORGANIZATION
OF PRIVATE CORPORATIONS
Number and qualifications of incorporators –
2006 Bar
• Incorporators are those stockholders or members mentioned in the AoI as
originally forming and composing the corporation and who are signatories
thereof. Under Section 10, the incorporators and their qualifications are:
1. Any person, partnership, association or corporation, singly or jointly
with others
2. Not more than fifteen (15) in number; a corporation with a single
stockholder is considered a One Person Corporation (OPC)
3. Incorporators who are natural persons must be of legal age
4. Each incorporator of a stock corporation must own or be a subscriber
to at least one (1) share of the capital stock.
Number and qualifications of incorporators –
2006 Bar
• Natural persons who are licensed to practice a profession,
partnerships or associations organized for the purpose of practicing a
profession, shall not be allowed to organize as a corporation unless
otherwise provided under special laws.
• The new law deleted the requirement of natural persons, the
minimum number of 5 incorporators as well as Philippine residency of
the majority of the incorporators.
Corporate term – 2011 Bar
• Under Section 11, a corporation shall have perpetual existence unless its
AoI provide otherwise.
• Pre-existing ones = perpetual existence, unless the corporation, upon a
vote of its stockholders representing a majority of its OCS, notifies the SEC
that it elects to retain its specific corporation term pursuant to its AoI.
However, dissenting stockholders can exercise their appraisal right.
• A corporate term for a specific period may be extended or shortened by
amending the AoI but no extension may be made earlier than 3 years prior
to the original or subsequent expiry dates unless there are justifiable
reasons for an earlier extension. Extension of the corporate term shall take
effect only on the day following the original or subsequent expiry dates.
Corporate term – 2011 Bar
• A corporation whose term has expired may apply for a revival of its corporate
existence, together with all the rights and privileges under its certificate of
incorporation and subject to all of its duties, debts and liabilities existing prior
to its revival. Upon approval of the SEC, the corporation shall be deemed
revived and a certificate of revival of corporate existence shall be issued, giving
it perpetual existence, unless its application for revival provides otherwise.
• No application for revival of certificate of incorporation of banks, banking and
quasi-banking institutions, preneed, insurance and trust companies, non-stock
savings and loan associations, pawnshops, corporations engage in money
service business, and other financial intermediaries shall be approved unless
accompanied by a favorable recommendation of the appropriate government
agency.
Corporate term – 2011 Bar
• SEC Memorandum Circular No. 23 s.2019 or the Guidelines on Revival
of Expired Corporations however provides that (a) an expired
corporation which has completed the liquidation of its assets; (b) a
corporation whose certificate of registration has been revoked for
reasons other than non-filing of reports; (c) a corporation dissolved by
virtue of Sections 6(c)(d) of PD No. 902-A; or (d) an expired
corporation which already availed of re-registration per circular, could
no longer file a Petition for Revival of Corporate Existence.
• Voting requirement for revival = majority vote of the BoD and the
vote of at least majority of the OCS in stock corporations or majority
of the members in non-stock corporation.
Minimum Capital Stock of Stock Corporations
• Stock corporations shall not be required to have a minimum capital
stock, except as otherwise specifically provided by special law.
• The new law deleted the old provision regarding minimum authorized
capital stock to be subscribed and paid-up. There are however special
laws requiring minimum capitalization for certain businesses, such as
banks and insurance companies.
Contents of the Articles of Incorporation
• All corporations shall file with the SEC AoI in any of the official languages, duly signed and acknowledged
or authenticated, in such form and manner as may be allowed by the SEC, containing substantially the
following matters:
1. The name of the corporation;
2. The specific purpose or purposes for which the corporation is being incorporated. Where a
corporation has more than one stated purpose, the AoI shall indicate the primary purpose and the
secondary purpose
A non-stock corporation may not include a purpose which would change or contradict its nature as such;
3. The place where the principal office of the corporation is to be located, which must be within the
Phils;
4. The term for which the corporation is to exist, if the corporation has not elected perpetual
existence;
5. The names, nationalities and residence addresses of the incorporators;
6. The number of directors and trustees, which shall not be more than 15;
Contents of the Articles of Incorporation
7. The names, nationalities and residence addresses of persons who shall act as directors
or trustees until the first regular directors or trustees are duly elected and qualified;
8. If it be a stock corporation, the amount of its authorized capital stock, number of
shares into which it is divided, the par value of each, names, nationalities and residence
addresses of the original subscribers, amount subscribed and paid by each on the
subscription, and a statement that some or all of the shares are without par value, if
applicable;
9. If it be a non-stock corporation, the amount of its capital, the names, nationalities and
residence addresses of the contributors, and amount contributed by each; and
10. Such other matters
• An arbitration agreement may be provided in the AoI pursuant to Section 181 of this Code.
• The AoI and applications for amendments thereto may be filed electronically. The new law
included the addition of an arbitration agreement and allowed electronic filing.
Amendment of Articles of Incorporation
• The voting requirement is majority vote of the BoD or BoT and the
vote or written assent of the stockholders representing at least 2/3 of
the OCS. Dissenting stockholders can exercise their appraisal right.
The AoI of a non-stock corporation may be amended by the vote or
written assent of majority of the trustees and at least 2/3 of the
members.
• The amendments shall take effect upon their approval by the SEC or
from the date of filing with the SEC if not acted upon within 6 months
from the date of filing for a cause not attributable to the corporation.
Grounds when articles of incorporation or
amendments may be disapproved
• The SEC may disapprove the AoI or any amendment thereto if the same is not
compliant with the requirements of this Code. Nonetheless, the SEC shall give the
incorporators, directors, trustees, or officers a reasonable time from receipt of the
disapproval within which to modify the objectionable portions of the articles or
amendment. The following are ground for such disapproval:
• The AoI is not substantially in accordance with the form prescribed herein;
• The purpose or purposes of the corporation are patently unconstitutional, illegal,
immoral, or contrary to government rules and regulations;
• The certification concerning the amount of capital stock subscribed and/or paid is
false; and
• The required percentage of Filipino ownership of the capital stock under existing
laws or the Constitution has not been complied with.
Grounds when articles of incorporation or
amendments may be disapproved

• However, for banks, banking and quasi-banking institutions, preneed,

insurance and trust companies, non-stock savings and loan
associations (NSSLAs), pawnshops, and other financial intermediaries,
their AoI shall be accompanied by a favorable recommendation of the
appropriate government agency to the effect that such articles or
amendment is in accordance with law.
• The new law included pre-need, non-stock savings and loan
associations (NSSLAs) and pawnshops in the enumeration.
Corporate name – 2011 Bar
• Under Section 17, no corporate name shall be allowed if it is not
distinguishable from that already reserved or registered for the use of
another corporation, or if such name is already protected by law, or
when its use is contrary to existing law, rules and regulations.
• A name is not distinguishable even if it contains one or more of the
following:
a. The word “corporation,” “company,” “incorporated,” “limited,”
“limited liability,” or an abbreviation of such words; and
b. Punctuations, articles, conjunctions contraction prepositions,
abbreviations, different tenses, spacing, or number of the same word or
phrase. The new law provided guidelines for distinction.
Corporate name – 2011 Bar
• The SEC, upon determination that the corporate name is:
a. not distinguishable from a name already reserved, or registered for the use of
another corporation;
b. already protected by law; or
c. contrary to law, rules and regulations
may summarily order the corporation to immediately cease and desist from using such
name and require the corporation to register a new one. It shall also cause the removal of
all visible signages, marks, advertisements, labels, prints and other effects bearing such
corporate name. Upon the approval of the new corporate name, the SEC shall issue a
certificate of incorporation under the amended name.
• If the corporation fails to comply with the SEC’s order = SEC may hold the corporation and
its responsible directors/officers in contempt and/or hold them administratively, civilly
and/or criminally liable and/or revoke the registration of the corporation.
Corporate name – 2011 Bar
• Why is name so important? Philips Export B.V. vs. Court of Appeals,
206 SCRA 457 held that a name is necessary to the very existence of a
corporation. Its name is one of its attributes, an element of its
existence, and essential to its identity. Each corporation must have a
name by which it is to sue and be sued and do all legal acts. The name
of a corporation designates the corporation in the same manner as
the name of an individual designates the person; and the right to use
its corporate name is as much a part of the corporate franchise as any
other privilege granted.
Corporate name – 2011 Bar
• The SC disallowed the use of the following corporate names, as the name
chosen is either not distinguishable from a name registered in favour of
another corporation or is already protected by law (trademark):
1. Paperone Inc., as Asia Pacific has trademark over “Paper One”;
Asia Pacific Resources International Holdings, Ltd. vs.Paperone, Inc., G.R. No.
213365-66, December 10, 2018.
2. De La Salle Montessori International Malolos, Inc., was required to
change its name due to the complaint from De La Salle Brothers, Inc., De La
Salle University, Inc., La Salle Academy, Inc., De La Salle-Santiago Zobel School,
Inc. and De La Salle Canlubang, Inc.; De La Salle Montessori International
Malolos, Inc., vs. De La Salle Brothers, Inc., G.R. No. 205548, February 7, 2018.
Corporate name – 2011 Bar
• The SC disallowed the use of the following corporate names, as the name chosen is either not
distinguishable from a name registered in favour of another corporation or is already protected
by law (trademark):
3. "Indian Chamber of Commerce Phils., Inc.", when Filipino-Indian Chamber of
Commerce of the Philippines, Inc. has right of priority; Indian Chamber of Commerce Phils., Inc. vs.
Filipino-Indian Chamber of Commerce of the Philippines, Inc., G.R. No. 184008, August 3, 2016.
4. The use of “Family Bank” by GSIS Family Bank upon complaint of BPI Family Bank;
GSIS Family Bank-Thrift Bank [formerly Comsavings Bank, Inc.] vs. BPI Family Bank, 771 SCRA 284.
5. Eli Soriano’s “Ang Mga Kaanib sa Iglesia ng Dios Kay KristoHesus, H.S.K, sa Bansang
Pilipinas”, with the acronym "H.S.K." for Haligi at Saligan ng Katotohanan vs. Iglesia ni Cristo’s
“Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan” Ang mga Kaanib sa Iglesia ng
Dios Kay Kristo Hesus, H.S.K. sa Bansang Pilipinas, Inc. vs. Iglesia ng Dios Kay Cristo Jesus, Haligi at
Suhay ng Katotohanan, 372 SCRA 171.
Corporate name – 2011 Bar
• What is the effect of a change in corporate name? A change in the
corporate name does not make a new corporation, whether effected by
a special act or under a general law. It has no effect on the identity of
the corporation, or on its property, rights, or liabilities. The corporation,
upon the change in its name, is in no sense a new corporation, nor the
successor of the original corporation. It is the same corporation with a
different name, and its character is in no respect changed.
• In Zuellig Freight and Cargo Systems vs. NLRC, 701 SCRA 561 -
amendments of the AoI of Zeta to change the corporate name to Zuellig
Freight and Cargo Systems, Inc. did not produce the dissolution of the
former as a corporation.
Registration, incorporation and commencement of
corporate existence – 2014, 2012 Bar
• The first step to be performed is submission of the intended corporate name to the
SEC for verification. If the name is distinguishable from a name already reserved or
registered for the use of another corporation, not protected by law and is not
contrary to law, rules and regulations, the name shall be reserved in favor of
incorporators. The incorporators shall then submit their AoI and bylaws to the SEC.
• It is only when the submitted documents and information are fully compliant with
the requirements would the SEC issue a certificate of incorporation.
• A private corporation organized under this Code commences its corporate existence
and juridical personality from the date the SEC issues the certificate of
incorporation.
• The provision on name verification is a new provision, but this is actually the one
being done in practice even under the old law.
Effect of non-use of corporate charter and
continuous inoperation
• If a corporation does not formally organize and commence its business within 5 years from the date of its
incorporation, its certificate of incorporation shall be deemed revoked as of the day following the end of
the 5 year period.
• However, if a corporation has commenced its business but subsequently becomes inoperative for a
period of at least 5 consecutive years, the SEC may, after due notice and hearing, place the corporation
under delinquent status.
• A delinquent corporation shall have 2 years to resume operations and comply with all requirements that
the SEC shall prescribe. Upon compliance by the corporation, the SEC shall issue an order lifting the
delinquent status. Failure to comply with the requirements and resume operations within the period shall
cause the revocation of the corporation’s certificate of incorporation.
• The SEC shall give reasonable notice to, and coordinate with the appropriate regulatory agency prior to
the suspension or revocation of the certificate of incorporation of companies under their special
regulatory jurisdiction. Under the old law, the period is only 2 years for the corporation to be deemed
dissolved.
• Under the old law, this is a ground for the suspension or revocation of its corporate franchise or
certificate of incorporation. The concept of delinquent corporation is new.
BOARD OF DIRECTORS/TRUSTEES
AND OFFICERS
Qualification and term of the BOD/BOT – 2011,
2006 Bar
• The BoD/BoT shall exercise the corporate powers, conduct all business, and control all properties of
the corporation.
• Directors shall be elected for a term of 1 year from among the holders of stocks registered in the
corporation’s books, while trustees shall be elected for a term not exceeding 3 years from among the
members of the corporation. Each director and trustee shall hold office until the successor is elected
and qualified. A director who ceases to own at least one (1) share of stock or a trustee who ceases to
be a member of the corporation shall cease to be such.
• Under the old law, the term of the members of the BoT is 1 year only.
• The Holdover Doctrine has, to be sure, a purpose which is at once legal as it is practical. It accords
validity to what would otherwise be deemed as dubious corporate acts and gives continuity to a
corporate enterprise in its relation to outsiders. Señeres vs. Commission on Elections, 585 SCRA 557.
• Note however that in order to be eligible as a director, what is material is the legal title to, not
beneficial ownership of, the stock as appearing on the books of the corporation. Lee vs. Court of
Appeals, G.R. No. 93695, February 4, 1992.
Independent directors
• The law also requires the presence of independent directors in
corporations vested with public interest, to constitute at least 20% of
the said board. The concept of independent directors is not that
novel, as this was also provided in the SRC.
• An independent director is a person who, apart from shareholdings
and fees received from the corporation, is independent of
management and free from any business or other relationship which
could, or could reasonably be perceived to materially interfere with
the exercise of independent judgment in carrying out the
responsibilities as a director.
Independent directors
• These corporations are:
1. Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known
as “The Securities Regulation Code”, namely those whose securities are registered with the
SEC, corporations listed with an exchange or with assets of at least P50M and having 200 or
more holders of shares, each holding at least 100 shares of a class of its equity shares;
2. Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money
service business, preneed, trust and insurance companies, and other financial intermediaries;
and
3. Other corporations engaged in businesses vested with public interest similar to
the above, as may be determined by the SEC, after taking into account relevant factors which
are germane to the objective and purpose of requiring the election of an independent
director, such as the extent of minority ownership, type of financial products or securities
issued or offered to investors, public interest involved in the nature of business operations,
and other analogous factors.
Independent directors
• Independent directors must be elected by the shareholders present or entitled to
vote in absentia during the election of directors. Independent directors shall be
subject to rules and regulations governing their qualifications, disqualifications,
voting requirements, duration of term and term limit, maximum number of board
memberships and other requirements that the SEC will prescribe to strengthen
their independence and align with international best practices.
• SEC Memorandum Circular No. 19-16 dated November 22, 2016 which covers the
Code of Corporate Governance for Publicly-Listed Companies said that the
presence of independent directors in the Board is to ensure the exercise of
independent judgment on corporate affairs and proper oversight of managerial
performance, including prevention of conflict of interests and balancing of
competing demands of the corporation.
Independent directors
• Independent directors need to possess a good general understanding of the
industry they are in. Independence and competence should go hand-in-hand.
It is therefore important that the non-executive directors, including
independent directors, possess the qualifications and stature that would
enable them to effectively and objectively participate in the deliberations of
the Board.
• The concept of independent directors is a new provision.
• Corporate governance is a system of direction, feedback and control using
regulations, performance standards and ethical guidelines to hold the Board
and senior management accountable for ensuring ethical behavior —
reconciling long-term customer satisfaction with shareholder value — to the
benefit of all stakeholders and society.
Independent directors
• An Independent Director refers to a person who, ideally:
a. Is not, or has not been a senior officer or employee of the covered
company unless there has been a change in the controlling ownership of the company;
b. Is not, and has not been in the 3 years immediately preceding the election,
a director of the covered company; a director, officer, employee of the covered
company's subsidiaries, associates, affiliates or related companies; or a director, officer,
employee of the covered company's substantial shareholders and its related companies;

c. Has not been appointed in the covered company, its subsidiaries,

associates, affiliates or related companies as Chairman "Emeritus," "Ex-Officio"
Directors/Officers or Members of any Advisory Board, or otherwise appointed in a
capacity to assist the Board in the performance of its duties and responsibilities within
three years immediately preceding his election;
Independent directors
• An Independent Director refers to a person who, ideally:
d. Is not an owner of more than 2% of the outstanding shares
of the covered company, its subsidiaries, associates, affiliates or related
companies;
e. Is not a relative of a director, officer, or substantial
shareholder of the covered company or any of its related companies or
of any of its substantial shareholders. Relatives include spouse, parent,
child, brother, sister and the spouse of such child, brother or sister;
f. Is not acting as a nominee or representative of any
director of the covered company or any of its related companies;
Independent directors
• An Independent Director refers to a person who, ideally:
g. Is not a securities broker-dealer of listed companies and registered
issuers of securities. "Securities broker-dealer" - any person holding any office
of trust and responsibility in a broker-dealer firm, which includes, among
others, a director, officer, principal stockholder, nominee of the firm to the
Exchange, an associated person or salesman, and an authorized clerk of the
broker or dealer;
h. Is not retained, either in his personal capacity or through a firm, as
a professional adviser, auditor, consultant, agent or counsel of the covered
company, any of its related companies or substantial shareholder, or is
otherwise independent of Management and free from any business or other
relationship within 3 years immediately preceding the date of his election;
Independent directors
• An Independent Director refers to a person who, ideally:
i. Does not engage or has not engaged, whether by himself or with
other persons or through a firm of which he is a partner, director or substantial
shareholder, in any transaction with the covered company or any of its related
companies or substantial shareholders, other than such transactions that are
conducted at arm's length and could not materially interfere with or influence the
exercise of his independent judgment;
j. Is not affiliated with any non-profit organization that receives
significant funding from the covered company or any of its related companies or
substantial shareholders; and
k. Is not employed as an executive officer of another company where
any of the covered company's executives serve as directors.
Independent directors
• The Board's independent directors should serve for a maximum cumulative
term of 9 years. After which, the independent director should be
perpetually barred from re-election as such in the same company, but may
continue to qualify for nomination and election as a non-independent
director. In the instance that a company wants to retain an independent
director who has served for 9 years, the Board should provide meritorious
justification/s and seek shareholders' approval during the annual
shareholders' meeting.
• Service in a board for a long duration may impair a director's ability to act
independently and objectively. Reckoning of the cumulative nine-year term
is from 2012, in connection with SEC Memorandum Circular No. 9, Series of
2011.
Election of BOD/BOT – 2012 Bar
• Under Section 23, each stockholder or member shall have the right to nominate any
director or trustee who possesses all of the qualifications and none of the disqualifications
set forth in this Code, except when the exclusive right is reserved for holders of founders’
shares.
• During the elections of directors or trustees, the owners of majority of the OCS, or if there
be no capital stock, a majority of the members entitled to vote must be present, in person
or thru a representative authorized per written proxy. Voting then could be in person, via
written proxy or remote communication or in absentia.
• In stock corporations, stockholders entitled to vote shall have the right to vote the number
of shares of stock standing in their own names in the stock books of the corporation at the
time fixed in the bylaws or where the bylaws are silent, at the time of the election.
• This provision is new, as well as the provision on election via remote communication and
in absentia.
Cumulative voting – 2012, 2011 Bar
• A viva voce or hand raising vote would be sufficient unless a vote by ballot is requested by
a stockholder or member.
• In stock corporations, cumulative voting in the election of directors is mandatory. A
stockholder would have such number of votes equal to the number of shares owned by
the stockholders as shown in the books of the corporation multiplied by the whole
number of directors to be elected. The said stockholder may: (a) vote such number of
shares for as many persons as there are directors to be elected; (b) cumulate said shares
and give 1 candidate as many votes as the number of directors to be elected multiplied by
the number of the shares owned; or (c) distribute them on the same principle among as
many candidates as may be seen fit. No delinquent stock shall be voted.
• Now, for non-stock corporations, unless otherwise provided in the articles of incorporation
or in the bylaws, members may cast as many votes as there are trustees to be elected but
may not cast more than 1 vote for 1 candidate. Nominees for directors or trustees
receiving the highest number of votes shall be declared elected.
Cumulative voting – 2012, 2011 Bar
• You have 1 common share.
• There are 3 vacant seats in the board.
• There are 5 candidates (Bulma, Piccolo, Vegeta, Trunks, Chi-chi) .
• How many votes can you cast and to whom will you give it?
Cumulative voting – 2012, 2011 Bar
• If no election is held, or the owners of majority of the outstanding capital stock or
majority of the members entitled to vote are not present in person, by proxy, or
through remote communication or not voting in absentia at the meeting, such
meeting may be adjourned and the corporation shall proceed in accordance with
Section 25.
• The non-holding of elections and the reasons therefor shall be reported to the SEC
within 30 days from the date of the scheduled election. The report shall specify a
new date for the election, which shall not be later than 60 days from the scheduled
date.
• If no new date has been designated, or if the rescheduled election is likewise not
held, the SEC may, upon the application of a stockholder, member, director or
trustee, and after verification of the unjustified non-holding of the election,
summarily order that an election be held.
Cumulative voting – 2012, 2011 Bar
• Notwithstanding any provision of the AoI or bylaws to the contrary, the shares of
stock or membership represented at such meeting and entitled to vote shall
constitute a quorum for purposes of conducting an election under this section.
• Should a director, trustee or officer die, resign or in any manner cease to hold
office, the secretary, or the director, trustee or officer of the corporation, shall,
within 7 days from knowledge thereof, report in writing such fact to the SEC.
• In the alternative, should the election pushes through, within 30 days after the
election of the directors, trustees and officers of the corporation, the secretary,
or any other officer of the corporation, shall submit to the SEC, the names,
nationalities, shareholdings, and residence addresses of the directors, trustees,
and officers elected.
• The provisions regarding non-holding of elections are new.
Corporate officers – 2010 Bar
• The officers shall manage the corporation and perform such duties as
may be provided in the bylaws and/or as resolved by the board of
directors. The minimum officers provided for are:
a. a president, who must be a director;
b. a treasurer, who must be a resident;
c. a secretary, who must be a citizen and resident of the
Philippines; and
d. such other officers as may be provided in the bylaws
e. a compliance officer, if the corporation is vested with public
interest
Corporate officers – 2010 Bar
• Treasurer - tasked with safekeeping of the corporate funds.
• Secretary - proper custodian of the books, minutes and official records of a
corporation is usually the corporate secretary. Being the custodian of
corporate records, the corporate secretary has the duty to record and
prepare the minutes of the meeting. The signature of the corporate
secretary gives the minutes of the meeting probative value and credibility.
Lopez Realty vs. Tanjangco, G.R. No. 154291, November 12, 2014.
• The new law requires the treasurer to be a resident, as well as the creation
of a compliance officer. The prohibition on dual positions on the part of
the president is in order to prevent possible abuse of power.
Corporate officers – 2010 Bar
• The same person may hold 2 or more positions concurrently, except that no
one shall act as president and secretary or as president and treasurer at the
same time, unless otherwise allowed in this Code.
• A position must be expressly mentioned in the by-laws in order to be
considered as a corporate office. Thus, the creation of an office pursuant to
or under a by-law enabling provision is not enough to make a position a
corporate office. The only officers of a corporation were those given that
character either by the Corporation Code or by the by-laws so much so that
the rest of the corporate officers could be considered only as employees or
subordinate officials.
• The mere designation as a high-ranking employee, however, is not enough to
consider one as a corporate officer.
Corporate officers – 2010 Bar
• The president, vice-president, secretary and treasurer are commonly regarded as
the principal or executive officers of a corporation. However, other offices are
sometimes created by the charter or by-laws of a corporation, or the BoD may be
empowered under the by-laws of a corporation to create additional offices as may
be necessary.
• An "office" is created by the charter of the corporation and the officer is elected by
the directors or stockholders. An "employee" usually occupies no office and
generally is employed not by action of the directors or stockholders but by the
managing officer of the corporation who also determines the compensation to be
paid to such employee.
• To be considered a corporate officer, first, the office must be created by the charter
of the corporation, and second, the officer must be elected by the board of
directors or by the stockholders.
Compliance officer
• Compliance Officer is a member of the company's management team in charge of the compliance function. He is primarily
liable to the corporation and its shareholders, and not to the Chairman or President of the company. His primary
responsibilities are:
a. Ensures proper on boarding of new directors (i.e., orientation on the company's business, charter, AoI and by-laws,
etc);
b. Monitors, reviews, evaluates and ensures the compliance by the corporation, its officers and directors with the
relevant laws, this Code, rules and regulations and all governance issuances of regulatory agencies;
c. Reports the matter to the Board if violations are found and recommends the imposition of appropriate disciplinary
action;
d. Ensures the integrity and accuracy of all documentary submissions to regulators;
e. Appears before the SEC when summoned in relation to compliance with this Code
f. Collaborates with other departments to properly address compliance issues, which may be subject to
investigation;
g. Identifies possible areas of compliance issues and works towards the resolution of the same;
h. Ensures the attendance of board members and key officers to relevant trainings; and
i. Performs such other duties and responsibilities as may be provided by the SEC.
The doctrine of apparent authority – 2015 Bar

• The doctrine of apparent authority "holding out" theory, or the doctrine of ostensible
agency provides that a corporation will be estopped from denying the agent's authority
if it knowingly permits one of its officers or any other agent to act within the scope of
an apparent authority, and it holds him out to the public as possessing the power to do
those acts.
• Apparent authority is derived not merely from practice. Its existence may be
ascertained through:
1. the general manner in which the corporation holds out an officer or agent as
having the power to act or, in other words, the apparent authority to act in general, with
which it clothes him; or
2. the acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, whether within or beyond the scope of his ordinary powers.
The doctrine of apparent authority – 2015 Bar

• It requires presentation of evidence of similar acts executed either in

its favor or in favor of other parties. It is not the quantity of similar
acts which establishes apparent authority, but the vesting of a
corporate officer with the power to bind the corporation. The
doctrine does not apply, however, if the principal did not commit any
act or conduct which a third party knew and relied upon in good faith
as a result of the exercise of reasonable prudence. Sargasso
Construction & Development Corporation/Pick & Shovel, Inc./Atlantic
Erectors, Inc. (Joint Venture) vs. Philippine Ports Authority, 623 SCRA
260.
The doctrine of apparent authority – 2015
Bar
• Illustrations:
1. Contract entered into by the corporation's officer without a board resolution held to be binding
upon the corporation because it previously allowed the officer to contract on its behalf despite the lack of
board resolution; People's Aircargo and Warehousing Co., Inc. vs. Court of Appeals, G.R. No. 181068, May
10, 2010
2. Francisco's proposal for redemption of property was accepted by and binding upon the GSIS,
notwithstanding the fact that it was the Board Secretary and not the General Manager who sent
Francisco the acceptance telegram. The GSIS’ failure to disown the telegram sent by the Board Secretary
and its silence while it accepted all payments made by Francisco for the redemption of property estopped
it from denying the lack of authority; Francisco vs. GSIS, 117 Phil. 586.
3. Loan contract entered into by the former president of Ricarcen which was not supported by any
board resolution, is a valid loan. The broad authority given to the former president can be seen with how
the corporate secretary entrusted her with blank yet signed sheets of paper to be used at her discretion.
She also had possession of the owner's duplicate copy of the land title covering the property mortgaged
to Calubad, further proving her authority from Ricarcen. Calubad vs. Ricarcen Development Corp., G.R.
No. 202364, August 30, 2017.
The doctrine of apparent authority – 2015
Bar
4. The corporation is liable for the unpaid airline tickets taken by Sr. Medalle for the
Grand Chorale and Dance Company which she formed. She had been giving financial
support to the Group, in her capacity as President of Holy Trinity College. The BOT never
questioned the existence and activities of the Group. Georg vs. Holy Trinity College, Inc.,
G.R. No. 190408, July 20, 2016.
5. Arma Traders is liable to pay the loans even when there is no board resolution
authorizing Tan and Uy to obtain the loans. Arma Traders’ AOI provides that the
corporation may borrow or raise money to meet the financial requirements of its
business by the issuance of bonds, promissory notes and other evidence of
indebtedness. Tan and Uy are not just ordinary corporate officers and authorized bank
signatories because they are also Arma Traders' incorporators. Furthermore, the sole
management of Arma Traders was left to Tan and Uy and the other officers never dealt
with the business and management of Arma Traders for 14 years. Advance Paper
Corporation vs. Arma Traders Corporation, 712 SCRA 313.
Allied Banking Corp. vs. Spouses Macam, G.R. No. 200635, February 1, 2021, J. Hernando

Caña, Branch Manager of Allied Bank Las Piñas, told the teller to expect a P46M deposit from Helen, a valued
client. However, even before the deposit came, the Branch Manager approved the fund transfer to five different
accounts, including that to Valerio for P10M.
Valerio withdrew and deposited P1.59M to Macam. Macam then used the money in opening an account at
Allied Bank Pasong Tamo and withdrew some amounts, leaving P1.1M.
Unfortunately, the P46M deposit was cancelled, and the bank tried to recover the amounts transferred to the
different accounts, including Macam’s. The latter’s account was closed, allegedly due to the dubious source of
the amount.
The Macams however claimed lack of knowledge over it, as Macam’s transaction was with Valerio.
Should the bank then be held liable for the actuations of its manager?
Allied Banking Corp. vs. Spouses Macam, G.R. No. 200635, February 1, 2021, J. Hernando

• Yes. The authority of a corporate officer or agent in dealing with third persons may be actual or
apparent.
• The apparent authority to act for and to bind a corporation may be presumed from acts of
recognition in other instances, wherein the power was exercised without any objection from its
board or shareholders.
• Caña's act of approving the P46M fund transfer and the subsequent transfers to different accounts
in various branches of Allied Bank leading to the P1,59M transfer to the account of the Spouses
Mario Macam all appear to have been clothed with authority. The trial court found that in
previous instances, Caña had extended Helen the same credit arrangement via a temporary
overdraft line.
Agro Food and Processing Corp. vs. Vitarich Corp., G.R. No. 217454, January 11, 2021, J.
Hernando

Agro and Vitarich simultaneously executed two agreements: first, a Memorandum of Agreement (MOA) under
which Vitarich offered to buy Agro's chicken dressing plant located in Bulacan; and second, a Toll Agreement
under which Agro agreed to dress the chickens supplied by Vitarich for a toll fee.
Pursuant to the MOA, Vitarich paid P20M as deposit to Agro and was given a period of 45 days within which to
evaluate the dressing plant facilities. At the end of the period, Vitarich formally made its offer to purchase, but
Agro did not accept the offer. Thus, Agro needed to return the P20M deposit.
Since Vitarich was obligated to pay toll fees to Agro pursuant to the Toll Agreement, the parties agreed that the
manner of returning the P20M deposit shall be through deductions of 15% of the gross receipts on the weekly
billings of the toll fees. During that period, Vitarich also sold on credit live broiler chickens to Agro.
Agro Food and Processing Corp. vs. Vitarich Corp., G.R. No. 217454, January 11, 2021, J.
Hernando

More than 2 years later, Vitarich filed a complaint for sum of money with damages against Agro
before the RTC alleging that Agro was liable among others, for the balance from the P20M deposit
based not only on the toll fees reflected on the original Toll Agreement, but also on
the verbal amendments to the toll fees made and implemented by the parties thrice from 1996 to
1997.
Agro argued that the amount was inaccurate as it was based on the alleged verbal amendments to the
toll fees, which amendments were not binding on Agro as they were entered into by Vitarich and
Agro's Finance Manager which allegedly had no authority to amend the original Toll Agreement
from Agro's board of directors.
Is Agro liable for the acts of its manager?
Agro Food and Processing Corp. vs. Vitarich Corp., G.R. No. 217454, January 11, 2021, J.
Hernando

Yes. The conduct by which Agro clothed del Castillo with authority is evident on
the following:
first, in over a span of 2 years, with over 89 billings and 3 instances of
amendments, Agro never contested the amended toll fees;
second, even after receipt of several demand letters from Vitarich, Agro never
made an issue of the amended toll fees, and only raised the same in its Answer;
and
third, Agro accepted the benefits arising from the amendments through the
extension of the period for its payment of the P20M deposit (brought about by the
decrease in the percentage of billings to be deducted from the P20M deposit), not
to mention Agro's corresponding increase in profits due to the increase or
amendment in the price of gallantina (type of chicken supplied by Agro) in the
third amendment.
Agro Food and Processing Corp. vs. Vitarich Corp., G.R. No. 217454, January 11, 2021, J.
Hernando

The existence of apparent authority may be ascertained not only through the general manner in
which the corporation holds out an officer or agent as having the apparent authority to act in
general, but also through the corporation's acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary
powers.
Agro, appearing to have knowledge of the amendments, acquiesced to the same. Agro never
contested nor protested the amendments; it even accepted the benefits arising therefrom.
When a corporation intentionally or negligently clothes its officer with apparent authority to act in
its behalf, it is estopped from denying its officer's apparent authority as to innocent third parties
who dealt with this officer in good faith.
Disqualification of DTO – 2011 Bar
• Under Section 26, a person shall be disqualified from being a director, trustee or
officer of any corporation if, within 5 years prior to the election or appointment as
such, the person was:
a. Convicted by final judgment:
1. Of an offense punishable by imprisonment for a period exceeding six (6)
years;
2. For violating this Code; and
3. For violating RA No. 8799 (Securities Regulation Code);
b. Found administratively liable for any offense involving fraudulent acts; and
c. By a foreign court or equivalent foreign regulatory authority for acts, violations
or misconduct similar to those enumerated in paragraphs (a) and (b) above.
Disqualification of DTO – 2011 Bar
• This is without prejudice to qualifications or other disqualifications,
which the SEC or the PCC may impose in its promotion of good
corporate governance or as a sanction in its administrative
proceedings.
• The new law added as disqualification violation of the SRC,
administrative liability for fraudulent acts and violation of similar acts
as found by a foreign court.
Disqualification of DTO – 2011 Bar
• In Gokongwei vs. SEC, 97 SCRA 78, the amendment of the by-laws which
renders a stockholder ineligible to be director, if he be also director in a
corporation whose business is in competition with that of the other
corporation, has been sustained as valid.
• CFC-Robina group, owned by Gokongwei, was in direct competition on
product lines of San Miguel Corporation. Access by a competitor to
confidential information regarding marketing strategies and pricing policies
of San Miguel Corporation would subject the latter to a competitive
disadvantage and unjustly enrich the competitor, for advance knowledge by
the competitor of the strategies for the development of existing or new
markets of existing or new products could enable said competitor to utilize
such knowledge to his advantage.
Removal of BOD/BOT – 2017 Bar
• Under Section 27, any director or trustee of a corporation may be removed
from office provided the following are present:
1. by a vote of the SH holding or representing at least 2/3 of the OCS, or in
a non-stock corporation, by a vote of at least 2/3 of the members entitled to
vote
2. removal shall take place either at a regular meeting of the corporation or
at a special meeting called for the purpose
3. previous notice to SH or members of the corporation of the intention to
propose such removal at the meeting. The meeting must be called by the
secretary on order of the president, or upon written demand of the SH
representing or holding at least a majority of the OCS, or a majority of the
members entitled to vote.
Removal of BOD/BOT – 2017 Bar

• If there is no secretary, or if the secretary, despite demand, fails or refuses to

call the special meeting or to give notice thereof, the SH or member of the
corporation signing the demand may call for the meeting by directly
addressing the SH or members. Notice of the time and place of such meeting,
as well as of the intention to propose such removal, must be given by
publication or by written notice prescribed in this Code.
Removal of BOD/BOT – 2017 Bar
• Removal may be with or without cause: Provided, That removal
without cause may not be used to deprive minority SH or members of
the right of representation to which they may be entitled under
Section 23 of this Code.
• The SEC shall, motu proprio or upon verified complaint, and after due
notice and hearing, order the removal of a director or trustee elected
despite the disqualification, or whose disqualification arose or is
discovered subsequent to an election. The removal of a disqualified
director shall be without prejudice to other sanctions that the SEC
may impose on the BOD/BOT, with knowledge of the disqualification,
failed to remove such director or trustee. (NEW)
Removal of BOD/BOT – 2017 Bar
• In Bernas vs. Cinco, G.R. Nos. 163356-57, 163368-69, July 1, 2015, a Special
Stockholders' Meeting was called by the Makati Sports Club Oversight
Committee. This resulted to the removal of the Bernas Group, as well as the
election of the Cinco Group.
• This is void, as nowhere in the Corporation Code or in the by-laws can it be
gathered that the Oversight Committee is authorized to step in wherever there is
breach of fiduciary duty and call a special meeting for the purpose of removing
the existing officers and electing their replacements even if such call was made
upon the request of shareholders. The Oversight Committee is neither
empowered by law nor by-laws to call a meeting and the subsequent ratification
made by the SH did not cure the substantive infirmity, the defect having set in at
the time the void act was done. The defect goes into the very authority of the
persons who made the call for the meeting.
Removal of BOD/BOT – 2017 Bar
• Removal of a director or trustee before his term is over is one way by
which the SH or members may protect themselves from fraud,
incompetence or abuse of those in charge of management.
• The law allows removal with or without cause. But if there is no
cause, the power to remove cannot be used to render nugatory the
right of representation of the minority through the use of cumulative
voting. Removal must be for cause.
Vacancies in the office of BOD/BOT
• Who can fill-up the vacancies? Under Section 28, the following are the rules:
1. Maybe filled by the vote of at least a majority of the remaining directors or trustees, if still
constituting a quorum - if the cause of the vacancy in the board is for causes other than removal
or by expiration of term (e.g. RIP)
2. SH/members in a regular/special meeting called for that purpose – if the cause of the
vacancy in the board is for causes other than removal or by expiration of term and there is no
quorum on the remaining directors or trustees
3. SH/members in a regular/special meeting called for that purpose – if the cause is removal
or by expiration of term
When the vacancy arises as a result of removal by the SH or members, the election may be held
on the same day of the meeting authorizing the removal and this fact must be so stated in the
agenda and notice of said meeting.
4. SH/members in a regular/special meeting called for that purpose – if the filling-up is by
reason of an increase in the number of directors or trustees
Vacancies in the office of BOD/BOT
• Scenarios:
1. There are 5 BODs, 1 resigned/migrated, 1 RIP. Who can fill-up 2
vacancies?
2. There are 5 BODs. 2 were removed for disloyalty. Who can fill-up
the vacancies?
Vacancies in the office of BOD/BOT
• In all other cases, the election must be held no later than 45 days from the time
the vacancy arose. (NEW) A director or trustee elected to fill a vacancy shall be
referred to as replacement director or trustee and shall serve only for the
unexpired term of the predecessor in office.
• Trustees may fill vacancies in the board, provided that those remaining still
constitute a quorum.
• The phrase "may be filled" shows that the filling of vacancies in the board by the
remaining directors or trustees constituting a quorum is merely permissive, not
mandatory.
• Corporations may choose how vacancies in their respective boards may be filled
up — either by the remaining directors constituting a quorum, or by the SH or
members in a regular or special meeting called for the purpose.
Vacancies in the office of BOD/BOT
• However, the remaining directors of the board, though still constituting a
quorum, cannot elect another director to fill in a vacancy caused by the
resignation of a hold-over director.
• The holdover period is not part of the term of office of a member of the BOD.
The term of office is not affected by the holdover. The term is fixed by statute
and it does not change simply because the office may have become vacant, nor
because the incumbent holds over in office beyond the end of the term due to
the fact that a successor has not been elected and has failed to qualify.
• Term is distinguished from tenure in that an officer's "tenure" represents the
term during which the incumbent actually holds office. The tenure may be
shorter (or, in case of holdover, longer) than the term for reasons within or
beyond the power of the incumbent.
Emergency Board
• When the vacancy prevents the remaining directors from constituting a
quorum and emergency action is required to prevent grave, substantial, and
irreparable loss or damage to the corporation, the vacancy may be
temporarily filled from among the officers of the corporation by unanimous
vote of the remaining directors or trustees.
• The action by the designated director or trustee shall be limited to the
emergency action necessary, and the term shall cease within a reasonable
time from the termination of the emergency or upon election of the
replacement director or trustee, whichever comes earlier. The corporation
must notify the SEC within 3 days from the creation of the emergency board,
stating therein the reason for its creation.
• This provision on emergency board is new.
The Executive Committee – 2014 Bar
• If the by-laws so provide, the board may create an executive committee composed of at least 3
directors. The said committee may act, by majority vote of all its members, on such specific
matters within the competence of the board, as may be delegated to it in the bylaws or by
majority vote of the board, except with respect to the following: AFA2D
1. approval of any action for which shareholders’ approval is also required;
2. filling of vacancies in the board;
3. amendment or repeal of bylaws or the adoption of new bylaws;
4. amendment or repeal of any resolution of the board which by its express terms is not
amendable or repealable; and
5. distribution of cash dividends to the shareholders
• The BOD may create special committees of temporary or permanent nature and determine
the members’ term, composition, compensation, powers, and responsibilities.
• The provision on special committees is new.
Compensation of BOD/BOT
• The directors of a corporation shall not receive any compensation for being
members of the BOD, except for reasonable per diems. The instances where the
directors are to be entitled to compensation shall be:
1. when it is fixed by the corporation's by-laws or
2. when the SH, representing at least a majority of the OCS, vote to grant the
same at a regular or special stockholder's meeting
• Subject to the qualification that, in any of the two situations:
1. the total yearly compensation of directors, as such directors, shall in no case
exceed 10% percent of the NIBIT of the corporation during the preceding year
2. directors or trustees shall not participate in the determination of their own
per diems or compensation.
Compensation of BOD/BOT
• Corporations vested with public interest shall submit to their shareholders and the
SEC, an annual report of the total compensation of each of their directors or trustees.
• Directors or trustees are not entitled to salary or other compensation when they
perform nothing more than the usual and ordinary duties of their office.
• This rule is founded upon a presumption that directors/trustees render service
gratuitously, and that the return upon their shares adequately furnishes the motives
for service, without compensation.
• But when they render services to the corporation in a capacity other than as
directors/trustees by being officers of the corporation (Chairman, Vice-Chairman,
Treasurer and Secretary), they may receive compensation, in addition to reasonable
per diems.
• The provision on prohibition as well as reporting to the SEC is new.
Liability of BOD/BOT, officers – 2012, 2011,
2005 Bar
• DTO shall be liable jointly and severally for all damages resulting therefrom suffered
by the corporation, its SH or members and other persons in any of the following
instances:
1. willfully and knowingly vote for or assent to patently unlawful acts of the
corporation
2. guilty of gross negligence or bad faith in directing the affairs of the corporation
3. acquire any personal or pecuniary interest in conflict with their duty, in which
case, the said DTO shall be liable as a trustee for the corporation and must account for
the profits which otherwise would have accrued to the corporation
• However, in so far as directors are concerned who acquires a business opportunity
which should belong to the corporation, the act can be ratified by a vote of the SH
representing at least 2/3 of the OCS.
Liability of BOD/BOT, officers – 2012, 2011,
2005 Bar
• Doctrine of Corporate Opportunity - if there is presented to a
corporate officer or director a business opportunity which the
corporation is financially able to undertake, is from its nature, in the
line of the corporation's business and is of practical advantage to it, is
one in which the corporation has an interest or a reasonable
expectancy, and by embracing the opportunity, the self-interest of the
officer or director will be brought into conflict with that of his
corporation, the law will not permit him to seize the opportunity for
himself.
• Schildberg Rock Products Co. v. Brooks, 140 NW 2d 132.
Liability of BOD/BOT, officers – 2012, 2011,
2005 Bar
• Elements of Doctrine of Corporate Opportunity:
1. The corporation is financially able to exploit the opportunity
2. The opportunity is within the corporation’s line of business
3. The corporation has an interest or expectancy in the opportunity
4. By taking the opportunity for his own, the corporate DTO will
consequently be placed in a position inimicable to his duties to the
corporation
TOPROS vs.Chang, G.R. Nos. 20070-71, December 7, 2021
TOPROS vs.Chang, G.R. Nos. 20070-71,
December 7, 2021
• In determining whether the opportunity is within the corporation's line of
business, the involved corporations must be shown to be in competition with
one another.
• They must be engaged in related areas of businesses, producing the same
products with overlapping markets.
TOPROS vs.Chang, G.R. Nos. 20070-71,
December 7, 2021
Chang was elected president and General Manager of TOPROS Inc., a
corporation owned by the Ty family. TOPROS is engaged in the distribution of
office equipment and supplies.
Chang later on formed Identic, Golden Exim and TOPGOLD which are all
engaged in the same line of business as that of TOPROS. The formation was
with the knowledge and tolerance of the Ty Family. However, contracts which
should pertain to TOPROS were entered into by TOPGOLD.
Considering that the Ty Family has knowledge of the establishment of the other
businesses, is Chang to be absolved of liability under the doctrine of corporate
opportunity?
TOPROS vs.Chang, G.R. Nos. 20070-71,
December 7, 2021
• NO. The knowledge, tolerance, or even acquiescence of TOPROS to his
establishment of the respondent-corporations which are in the same business
as TOPROS, do not amount to the compliance required of Section 34 to
absolve a director of disloyalty.
• The law explicitly requires that where a director, by virtue of his office,
acquires for himself a business opportunity which should belong to the
corporation, he must account to the latter for all profits by refunding them,
unless his act has been ratified by a vote of the stockholders owning or
representing at least two-thirds of the outstanding capital stock.
Liability of BOD/BOT, officers – 2012, 2011,
2005 Bar
• The Business Judgment Rule - questions of policy and management
are left to the honest decision of the officers and directors of a
corporation; and the courts are without authority to substitute their
judgment for that of the board unless said judgment had been
attended with bad faith. Courts are not in the business of business,
and the laissez faire rule or the free enterprise system dictates that it
is better for the State and its organs to leave business to the
businessmen; especially so, when courts are ill-equipped to make
business decisions.
Liability of BOD/BOT, officers – 2012, 2011,
2005 Bar
• To hold a director or officer personally liable for corporate obligations,
two requisites must concur:
1. It must be alleged in the complaint that the director or officer
assented to patently unlawful acts of the corporation or that the officer
was guilty of gross negligence or BF; and
2. There must be proof that the officer acted in BF. The BF or
wrongdoing of the director must be established clearly and convincingly.
BF is never presumed. BF does not connote bad judgment or negligence.
BF imports a dishonest purpose. BF means breach of a known duty
through some ill motive or interest. BF partakes of the nature of fraud.
Ong Yong vs. Tiu, 375 SCRA 614.
Malate Construction Development Corp. vs. Extraordinary Realty Agents & Brokers Cooperative,
G.R. No. 243765, January 5, 2022

Olivares is the President of the corporation. Both him and the corporation were
sued when the corporation failed to pay the commission due to one of its agents.
There is no proof however on bad faith on Oliveros.
Should he be held liable likewise for the claim?
Malate Construction Development Corp. vs. Extraordinary Realty Agents & Brokers Cooperative,
G.R. No. 243765, January 5, 2022

• No. Absent clear proof of bad faith and intentional wrongdoing, the general
rule that the corporation's liabilities may not be shifted on to its officers,
applies. Accordingly, Olivares may not be held personally liable for corporate
liability.
Special fact doctrine
• Corporate officer with superior knowledge gained by virtue of being
an insider owes a fiduciary duty to a shareholder in transactions
involving transfer of stocks
Dealings of BOD/BOT, officers with the
corporation – 2008 Bar
• A contract of the corporation with one or more of its DTO is voidable, at the
option of such corporation, unless all the following conditions are present:
1. The presence of such DT in the board meeting in which the contract was
approved was not necessary to constitute a quorum for such meeting;
2. The vote of such DT was not necessary for the approval of the contract;
3. The contract is fair and reasonable under the circumstances; and
4. In case of corporations vested with public interest, material contracts are
approved by at least 2/3 of the entire membership of the board with at least a
majority of the independent directors voting to approve the material contract
(NEW); and
5. In case of an officer, the contract has been previously authorized by the BOD.
Dealings of BOD/BOT, officers with the
corporation – 2008 Bar
• Where any of the first 3 conditions set forth in the preceding
paragraph is absent, in the case of a contract with a DT, such contract
may be ratified by the vote of the SH representing at least 2/3 of the
OCS or at least 2/3 of the members in a meeting called for the
purpose:
• Provided, That full disclosure of the adverse interest of the DT
involved is made at such meeting and the contract is fair and
reasonable under the circumstances.
Dealings of BOD/BOT, officers with the
corporation – 2008 Bar
• The DTO of a corporation occupy a fiduciary relation towards it, and
cannot be allowed to contract with the corporation, directly or
indirectly, or to sell property to it, or purchase property from it, where
they act both for the corporation and for themselves. One situation
where a director may gain undue advantage over his corporation is
when he enters into a contract with the latter. He then becomes a
“self-dealing director” should he contract with the corporation.
• On the other hand, a director's contract with his corporation is not in
all instances void or voidable. If the contract is fair and reasonable
under the circumstances, it may be ratified by the SH provided a full
disclosure of his adverse interest is made.
Dealings of BOD/BOT, officers with the
corporation – 2008 Bar
• In the following cases, the contracts were not found to be fair and reasonable
resulting to nullification of the contracts entered into by the corporate officer
with the corporation:
1. Agdao Landless Residents Association, Inc. (ALRAI) vs. Maramion, G.R. Nos.
188642, 189425, 188888-89, October 17, 2016, where transfers of ALRAI's
corporate properties to the directors are void for want of full disclosure;
2. Prime White Cement Corp. vs. Intermediate Appellate Court, 220 SCRA 103,
where the dealership agreement was neither fair nor reasonable as Prime White
Cement was to sell and supply to a director 20,000 bags of white cement per
month, for 5 years. The director is a businessman himself and must have known,
or at least must be presumed to know, that prices of commodities in general, and
white cement in particular, were not stable and were expected to rise.
Contracts between corporations with interlocking
directors – 2011 Bar
• Interlocking directors is a situation where seats on BOD of several different corporations are filled by
the same persons.
• Except in cases of fraud, and provided the contract is fair and reasonable under the circumstances, a
contract between 2 or more corporations having interlocking directors shall not be invalidated on that
ground alone, provided:
1. that if the interest of the interlocking director in 1 corporation is substantial (exceeding 20%
OCS) and the interest in the other corporation is merely nominal.
2. the contract shall be subject to the provisions of Section 31, meaning:
a. The presence of such DT in the board meeting in which the contract was approved was not
necessary to constitute a quorum for such meeting;
b. The vote of such DT was not necessary for the approval of the contract;
c. The contract is fair and reasonable under the circumstances; and
d. In case of corporations vested with public interest, material contracts are approved by at least
2/3 of the entire membership of the board with at least a majority of the independent directors voting to
approve the material contract; and
e. In case of an officer, the contract has been previously authorized by the BOD.
Contracts between corporations with
interlocking directors – 2011 Bar
• Where any of the first 3 conditions set forth in the preceding
paragraph is absent, in the case of a contract with a DT, such contract
may be ratified by the vote of the SHs representing at least 2/3 OCS or
at least 2/3 of the members in a meeting called for the purpose:
• Provided, That full disclosure of the adverse interest of the DT
involved is made at such meeting and the contract is fair and
reasonable under the circumstances.
POWERS OF A CORPORATION
General powers – 2012 Bar
• The powers of a corporation are categorized into three:
1. General powers;
2. Specific powers; and
3. Implied powers
General powers – 2012 Bar
a. To sue and be sued in its corporate name
b. To have perpetual existence unless the certificate of incorporation
provides otherwise; (NEW)
c. To adopt and use a corporate seal;
d. To amend its AOI in accordance with the provisions of this Code;
e. To adopt bylaws, not contrary to law, morals, or public policy, and to
amend or repeal the same in accordance with this Code;
f. In case of stock corporations, to issue or sell stocks to subscribers
and to sell treasury stocks in accordance with the provisions of this Code;
and to admit members to the corporation if it be a non-stock corporation;
General powers – 2012 Bar
g. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of other
corporations, as the transaction of the lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed by law and the Constitution;
h. To enter into a partnership, joint venture, merger, consolidation, or any other
commercial agreement with natural and juridical persons (NEW)
i. To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no foreign corporation
shall give donations in aid of any political party or candidate or for purposes of partisan political
activity;
j. To establish pension, retirement, and other plans for the benefit of its DTO and
employees; and
k. To exercise such other powers as may be essential or necessary to carry out its purpose
or purposes as stated in the AOI.
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
A. Power to Extend or Shorten Corporate Term
• Voting requirement: majority vote of the BOD/BOT, and ratified at a meeting
by the SHs or members representing at least 2/3 of the OCS or of its members.
• Appraisal right: Present
• Notification requirement: Written notice of the proposed action and of the
time and place of the meeting shall be sent to SH/members at their respective
place of residence as shown in the books of the corporation, and must be
deposited to the addressee in the post office with postage prepaid, served
personally, or when allowed in the bylaws or done with the consent of the SH,
sent electronically in accordance with the rules and regulations on the use of
electronic data messages. (NEW)
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
A. Power to Extend or Shorten Corporate Term
• Appraisal right means that a SH who dissented and voted against the
proposed corporate action, may choose to get out of the corporation
by demanding payment of the fair market value of his shares.
• Though Section 36 mentions only of extension of the term, Section 80
provides for both extension and shortening of term.
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
B. Power to Increase or Decrease Capital Stock; Incur, Create or Increase
Bonded Indebtedness
• Voting requirement: majority vote of the BOD and by 2/3 of the OCS at a SH
meeting duly called for the purpose; non-stock corporations may incur, create or
increase bonded indebtedness when approved by a majority vote of the BOT and
at least 2/3 of the members in a meeting duly called for the purpose
• Appraisal right: None
• Notification requirement: Written notice of the time and place of the SH
meeting and the purpose for said meeting must be sent to the SH at their places
of residence as shown in the books of the corporation and served on the SH
personally, or through electronic means recognized in the corporation’s bylaws
and/or the SEC rules as a valid mode for service and notices. (NEW)
Metroplex Berhad vs. Sinophil Corp., G.R. No. 208281, June 28, 2021

• What is the function of the SEC if there is compliance with the requirements for the
increase/decrease of capital stock?
• The SEC has nothing more to do other than approve the same. SEC's determination of the
legality of the decrease in authorized capital stock is confined only to the determination of
whether the corporation submitted the requisite authentic documents to support the
diminution.
• The SEC's function here is purely administrative in nature. For third persons or parties
outside the corporation like the SEC to interfere to the decrease of the capital stock
without reasonable ground is a violation of the business judgment rule - SEC and the
courts are barred from intruding into business judgments of corporations, when the same
are made in good faith.
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
C. Power to Deny Pre-emptive Right
• Pre-emptive right - right of all SH to subscribe to all issues or disposition of
shares of any class, in proportion to their respective shareholdings.
• All SH enjoy this right unless such right is denied by the AOI or an
amendment thereto, provided that such pre-emptive right shall not extend
to:
1. shares to be issued in compliance with laws requiring stock offerings or
minimum stock ownership by the public;
2. shares to be issued in good faith with the approval of the SH
representing 2/3 of the OCS, in exchange for property needed for corporate
purposes or in payment of a previously contracted debt.
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
C. Power to Deny Pre-emptive Right
• The law includes all issues or disposition of shares of any class. This
would include not only new shares issued pursuant to an increase of
capital stock, but would cover the issue of previously unissued shares
which form part of the existing ACS, as well as TS. The former would
come under all issues, the latter under disposition.
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
D. Power to Sell or Dispose Assets
• Subject to the provisions of RA No. 10667 (Philippine Competition Act) and
other related laws, a corporation may, by a majority vote of its BOD/BOT, sell,
lease, exchange, mortgage, pledge, or otherwise dispose of its property and
assets, including its goodwill, which may be money, stocks, bonds, or other
instruments for the payment of money or other property or consideration.
• Voting requirement: majority vote of the BOD and vote of the SH
representing at least 2/3 of the OCS, or at least 2/3 of the members, in a SH
or members’ meeting duly called for the purpose; in non-stock corporations
where there are no members with voting rights, the vote of at least a
majority of the trustees in office
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
D. Power to Sell or Dispose Assets
• However, no SH or member action is required if:
a. the same is necessary in the usual and regular course of business
of the corporation or
b. the proceeds of the sale or other disposition of such property
and assets shall be appropriated for the conduct of its remaining
business
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
• Appraisal right: Present
• How to determine if the sale involves all or substantially all of the
corporation’s properties and assets?
a. computed based on its net asset value, as shown in its latest
financial statements (NEW)
b. if the corporation would be rendered incapable of continuing the
business or accomplishing the purpose for which it was incorporated
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
• Y-I Leisure Philippines, Inc. vs. Yu, G.R. No. 2017161, September 8,
2015, James Yu purchased golf and country club shares from Mt.
Arayat Development Co., Inc. The golf and country club was non-
existent so Yu asked for the return of the payment.
• However, all of the assets of Mt. Arayat consisting of 120 hectares of
land were sold to Yats International Ltd., Y-I Leisure Phils., Inc. and and
Y-I Club & Resorts, Inc. These are investment companies engaged in
the development of real estates, projects, leisure, tourism, and
related businesses.
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar

• The Nell Doctrine states the general rule that the transfer of all the assets of a
corporation to another shall not render the latter liable to the liabilities of the
transferor. If any of the following exceptions are present, then the transferee
corporation shall assume the liabilities of the transferor:
1. Where the purchaser expressly or impliedly agrees to assume such debts;
2. Where the transaction amounts to a consolidation or merger of the
corporations;
3. Where the transaction is entered into fraudulently in order to escape liability
for such debts; and
4. Where the purchasing corporation is merely a continuation of the selling
corporation.
• The Edward J. Nell Company vs. Pacific Farms, Inc., 122 Phil. 825.
• In the said case, Nell won against Insular Farms but when the writ of execution was implemented,
it was discovered that the latter has no leviable property hence the writ was being implemented on
Pacific Farms, Inc., being the alter ego of Insular Farms because the former had purchased all or
substantially all of the shares of stock, as well as the real and personal properties of the latter,
including the pumping equipment sold by appellant to Insular Farms.
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
• The first exception - where the transferee corporation expressly or
impliedly agrees to assume the transferor's debts, is provided under
Article 2047 of the Civil Code. When a person binds himself solidarily
with the principal debtor, then a contract of suretyship is produced.
Necessarily, the corporation which expressly or impliedly agrees to
assume the transferor's debts shall be liable to the same.
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
• The second exception - as to the merger and consolidation of
corporations, if the transfer of assets of one corporation to another
amounts to a merger or consolidation, then the transferee
corporation must take over the liabilities of the transferor.
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
• Third exception - where the sale of all corporate assets is entered into
fraudulently to escape liability for transferor's debts, can be found
under Article 1388 of the Civil Code. It provides that whoever acquires
in bad faith the things alienated in fraud of creditors, shall indemnify
the latter for damages suffered. Thus, if there is fraud in the transfer
of all the assets of the transferor corporation, its creditors can hold
the transferee liable.
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
• The last exception – “business-enterprise transfer."In such transfer,
the transferee corporation's interest goes beyond the assets of the
transferor's assets and its desires to acquire the latter's business
enterprise, including its goodwill.
• In business-enterprise transfer, it is possible that the transferor and
the transferee may enter into a contractual stipulation stating that the
transferee shall not be liable for any debts arising from the business
which were contracted prior to the time of transfer. Such stipulations
are valid, but only as to the transferor and the transferee. These
stipulations, though, are not binding on the creditors of the business
enterprise.
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
E. Power to Acquire Own Shares
• Provided that the corporation has URE in its books to cover the shares
to be purchased or acquired, a stock corporation shall have the power
to purchase or acquire its own shares for a legitimate corporate purpose
or purposes, including the following cases:
• To eliminate fractional shares arising out of stock dividends;
• To collect or compromise an indebtedness to the corporation, arising
out of unpaid subscription, in a delinquency sale, and to purchase
delinquent shares sold during said sale; and
• To pay dissenting or withdrawing SH entitled to payment for their shares
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
• Why the requirement of unrestricted retained earnings?
• Trust Fund Doctrine.
• Under the doctrine, the capital stock, property, and other assets of a
corporation are regarded as equity in trust for the payment of
corporate creditors, who are preferred in the distribution of corporate
assets. The creditors of a corporation have the right to assume that
the BOD will not use the assets of the corporation to purchase its own
stock for as long as the corporation has outstanding debts and
liabilities. There can be no distribution of assets among the SH
without first paying corporate debts.
Specific powers – 2019, 2018, 2017, 2012, 2011,
2009, 2005 Bar
F. Power to Invest Corporate Funds in Another Corporation/Business or for Any Other
Purpose
• Voting requirement: If primary purpose, only majority of the board approval. But if for any
purpose other than the primary purpose for which it was organized, majority of the
BOD/BOT and ratified by the SH representing at least 2/3 of the OCS, or by at least 2/3 of
the members in the case of non-stock corporations, at a meeting duly called for the
purpose.
• Appraisal right: Present
• Notification requirement: Notice of the proposed investment and the time and place of the
meeting shall be addressed to each SH/member at the place of residence as shown in the
books of the corporation and deposited to the addressee in the post office with postage
prepaid served personally, or sent electronically in accordance with the rules and
regulations of the SEC on the use of electronic data message, when allowed by the bylaws
or done with the consent of the SH. (NEW)
Specific powers – 2019, 2018, 2017, 2012,
2011, 2009, 2005 Bar
G. Power to Declare Dividends
• Whether or not there should be distribution of dividends and the form of
such dividends are matters addressed to the business judgment of the board.
• The BOD may declare dividends out of the URE which shall be payable in cash,
property, or in stock to all SH on the basis of outstanding stock held by them.
Any cash dividends due on delinquent stock shall first be applied to the
unpaid balance on the subscription plus costs and expenses, while stock
dividends shall be withheld from the delinquent stockholders until their
unpaid subscription is fully paid. Thus, absent the availability of URE, the BOD
had no power to issue dividends. CIR vs. Goodyear Philippines, Inc., G.R. No.
216130, August 3, 2016.
Specific powers – 2019, 2018, 2017, 2012,
2011, 2009, 2005 Bar
G. Power to Declare Dividends
• Voting Requirement: Cash dividend – majority vote of the board
• Stock dividend - majority vote of the board plus approval of SH
representing at least 2/3 of the OCS at a regular or special meeting
duly called for the purpose.
Specific powers – 2019, 2018, 2017, 2012,
2011, 2009, 2005 Bar
• Stock corporations are prohibited from retaining surplus profits in excess
of 100% of their PIC stock, except:
a. when justified by definite corporate expansion projects or programs
approved by the BOD; or
b. when the corporation is prohibited under any loan agreement with
financial institutions or creditors, whether local or foreign, from declaring
dividends without their consent, and such consent has not yet been
secured; or
c. when it can be clearly shown that such retention is necessary under
special circumstances obtaining in the corporation, such as when there is
need for special reserve for probable contingencies.
Specific powers – 2019, 2018, 2017, 2012,
2011, 2009, 2005 Bar
• Dividends are not the same as profits. Profits are a result of operations of the
corporation. Hence, it belongs to the corporation. There can be no dividends unless
there are profits, as it is the source of dividends. Dividends belong to the SH. Therefore,
it is possible that there are profits but no dividends but there can never be dividends
unless there are profits.
• A stock dividend is a distribution to the SH of the company’s own stocks. This means
that the corporate profits or earnings are transferred to capital stock and shares of stock
representing the increase in capitalization are distributed to the SH in proportion to their
interests. Unless there are available unissued shares of the corporation, stock dividends
cannot be declared without first increasing the capital stock.
• Although the number of their shares increased, the SH investment and proportionate
interest remain the same. They have received nothing out of the company’s assets;
unless they sell the stock dividends, they receive no income. This is the rationale why SH
action is required for stock dividends.
Specific powers – 2019, 2018, 2017, 2012,
2011, 2009, 2005 Bar
• RE include earnings from sale of goods or services of a corporation in
the ordinary course of business as well as earnings from sale of
corporate property other than the stock in trade, at a price higher
than its cost.
• They do not include premium on par stock, i.e. the difference
between the par value and the higher price for which the stock is sold
by the corporation, since this is regarded as PIC. Nevertheless, the
SEC has allowed the declaration of stock dividends out of such
premium, as stock dividend does not involve distribution of corporate
assets to the SH but merely gives tangible evidence of the increase in
their equity.
Specific powers – 2019, 2018, 2017, 2012,
2011, 2009, 2005 Bar
H. Power to Enter into Management Contracts
• Voting Requirement: majority of the BOD and by the SH owning at least the majority of
the OCS, or by at least a majority of the members in the case of a non-stock corporation,
of both the managing and the managed corporation, at a meeting duly called for the
purpose.
• Special ratification rule of 2/3 of the total OCS entitled to vote, or by at least 2/3 of the
members in the case of a non-stock corporation of the managed corporation if:
a. SH representing the same interest of both the managing and the managed
corporations own or control more than 1/3 of the total OCS entitled to vote of the
managing corporation; or
b. majority of the members of the BOD of the managing corporation also constitute a
majority of the members of the BOD of the managed corporation
• Contract duration: no longer than 5 years for any 1 term
Ultra vires act – 2009 Bar
• A corporation shall possess or exercise only those corporate powers
conferred by this Code or by its AOI and those necessary or incidental
to the exercise of the powers conferred. Corporate acts which are
outside those mentioned are ultra vires.
• Illegal vs. ultra vires. The former contemplates the doing of an act
which are contrary to law, morals or public policy or public duty and
are void. They cannot serve as basis of a court action nor acquire
validity by performance, ratification or estoppel. Mere ultra vires acts,
on the other hand, or those which are not illegal or void ab initio, but
are not merely within the scope of the AOI are merely voidable and
may become binding and enforceable when ratified by the SH.
Ultra vires act – 2009 Bar
• Montelibano, et al. vs. Bacolod-Murcia Milling Co., Inc. 115 Phil. 18
stated the test to determine if a corporate act is in accordance with its
purposes: If that act is one which is lawful in itself, and not otherwise
prohibited, is done for the purpose of serving corporate ends, and is
reasonably tributary to the promotion of those ends, in a substantial,
and not in a remote and fanciful, sense, it may fairly be considered
within charter powers. The test to be applied is whether the act in
question is in direct and immediate furtherance of the corporation's
business, fairly incident to the express powers and reasonably
necessary to their exercise. If so, the corporation has the power to do
it; otherwise, not.
Ultra vires act – 2009 Bar
• Illustrations:
1. University of Mindanao does not have the power to mortgage its properties in order to secure
loans of other persons. As an educational institution, it is limited to developing human capital
through formal instruction. It is not a corporation engaged in the business of securing loans of
others. University of Mindanao vs. BSP, 778 SCRA 458
2. The donation given by the corporation to the children of a deceased person who contributed
to the growth of the corporation is valid. This donation was within the broad scope of powers and
purposes of the corporation to aid in any other manner any person in which any interest is held by
this corporation or in the affairs or prosperity of which this corporation has a lawful interest.
Pirovano, et al. vs. De la Rama Steamship Co., 96 Phil. 335
3. The rule by Twin Towers Condo denying delinquent members the right to use condo facilities
is valid. The condo’s power to promulgate rules on the use of facilities and to enforce provisions of
the Master Deed was clear in the Condominium Act, Master Deed, and By-laws of the condo.
Moreover, the promulgation of such rule was "reasonably necessary" to attain the purposes of the
condo project. Twin Towers Condominium Corporation vs. CA, 398 SCRA 203
Ultra vires act – 2009 Bar
• Illustrations:
4. Suspension of the rights of the members of Magallanes Watercraft
Association for failure to pay membership dues is valid. The fact alone that
neither the AOI nor the by-laws granted its Board the authority to discipline
members does not make the suspension of the rights and privileges of the
respondents ultra vires. An act might be considered within corporate powers, even
if it was not among the express powers, if the same served the corporate ends.
Magallanes Watercraft Association, Inc. vs. Auguis, G.R. No. 211485, May 30, 2016
5. The establishment of a local post office in a mining camp which is far
removed from the postal facilities or means of communication accorded to people
living in a city or municipality is valid. RP vs. Acoje Mining Company, Inc., 7 SCRA
361
BY-LAWS
Adoption of bylaws
• By-laws - regulations, ordinances, rules or laws adopted by an association
or corporation or the like for its internal governance, including rules for
routine matters such as calling meetings and the like.
• By-laws may be necessary for the government of the corporation but
these are subordinate to the AOI. In the absence of charter or statutory
provisions to the contrary, by-laws are not necessary either to the
existence of a corporation or to the valid exercise of the powers conferred
upon it, certainly in all cases where the charter sufficiently provides for
the government of the body. Since by-laws operate merely as internal
rules among the SH, they cannot affect or prejudice third persons who
deal with the corporation, unless they have knowledge of the same.
Adoption of bylaws
• Voting Requirement: affirmative vote of the SH representing at least a
majority of the OCS, or of at least a majority of the members in case of non-
stock corporations
• Effectivity: upon the issuance by the SEC of a certification that the bylaws
are in accordance with this Code
• Bylaws may be adopted and filed prior to incorporation; in such case, such
bylaws shall be approved and signed by all the incorporators and submitted
to the SEC, together with the AOI.
• The provision in the old law “within 1 month after receipt of official notice of
the issuance of its certificate of incorporation by the SEC” for corporations to
adopt bylaws was deleted. Bylaws may be adopted and filed any time.
Contents of bylaws
• A private corporation may provide the following in its bylaws:
a. The time, place and manner of calling and conducting regular or special meetings of
the DT;
b. The time and manner of calling and conducting regular/special meetings and mode
of notifying the SH/members thereof;
c. The required quorum in meetings of SH/members and the manner of voting therein;
d. The modes by which a SH/member, DT may attend meetings and cast their votes;
e. The form for proxies of SH/members and the manner of voting them;
f. The DT qualifications, duties and responsibilities, the guidelines for setting the
compensation of DTO, and the maximum number of other board representations that an
independent director or trustee may have which shall, in no case, be more than the
number prescribed by the SEC;
Contents of bylaws
• A private corporation may provide the following in its bylaws:
g. The time for holding the annual election of DT and the mode or manner of giving
notice thereof;
h. The manner of election or appointment and the term of office of all officers other
than DT;
i. The penalties for violation of the bylaws;
j. In the case of stock corporations, the manner of issuing stock certificates;
k. Such other matters as may be necessary for the proper or convenient transaction
of its corporate affairs for the promotion of good governance and anti-graft and
corruption measures.
• An arbitration agreement may be provided in the bylaws pursuant to Section 181 of
this Code.
Amendment of bylaws
• Voting Requirement: majority of the BOD/BOT, and the owners of at
least a majority of the OCS, or at least a majority of the members of a
non- stock corporation, at a regular or special meeting duly called for
the purpose OR majority of the BOD/BOT pursuant to a delegation by
owners of 2/3 of the OCS or 2/3 of the members in a non- stock
corporation, but power to delegate shall be considered as revoked
whenever SH owning or representing a majority of the OCS or
majority of the members shall so vote at a regular or special meeting
• Effectivity: Upon the issuance by the SEC of a certification that the
same is in accordance with this Code and other relevant laws
By laws vs. articles – 2011 Bar
• Considering that bylaws are subordinate only to the AOI, the following bylaws
provisions are invalid:
1. Automatic inclusion of Grace Christian High School as a permanent member
of the BOD of the Association without the benefit of election; Grace Christian High
School vs. Court of Appeals, 281 SCRA 133
2. Authorized the giving of continuous compensation to particular directors
after their employment has terminated for past services rendered gratuitously by
them to the corporation; Vda. De Barretto vs. La Previsora Filipina, 59 Phil 212
3. Provision restricting the transfer of ownership where the owner of a share of
stock could not sell it to another person except to the defendant corporation,
when the same does not even appear in the AOI. Fleischer vs. Botica Nolasco Co.,
Inc., 47 Phil. 583.
MEETINGS
Kinds of meetings and requirements
• Meetings of directors, trustees, SH, or members may be regular or
special.
• The chairman or, in his absence, the president shall preside at all
meetings of the directors or trustees as well as of the SH or members,
unless the bylaws provide otherwise. The Chairman is a new item.
Kinds of meetings and requirements
• Requirements for regular meetings:
1. Time:
a. For SH/members - Annually on a date fixed in the bylaws, or if not so fixed,
on any date after April 15 (NEW) of every year as determined by the BOD/BOT;
b. For BOD/BOT - Monthly, unless the bylaws provide otherwise.
2. Written notice of regular meetings shall be sent to all SH or members of
record at least 21 days (NEW) prior to the meeting, unless a different period is
required in the bylaws, law, or regulation;
3. Written notice of regular meetings may be sent to all SH or members of
record through electronic mail or such other manner as the SEC shall allow under
its guidelines (NEW)
Kinds of meetings and requirements
• Requirements for regular meetings:
4. The BOD/BOT shall endeavor to present to SH or members certain information:
a. The minutes of the most recent regular meeting which shall include, among others: (NEW)
1. A description of the voting and vote tabulation procedures used in the previous meeting;
2. A description of the opportunity given to stockholders/members to ask questions and a
record of the questions asked and answers given;
3 The matters discussed and resolutions reached;
4. A record of the voting results for each agenda item:
5. A list of the DTO and SH or members who attended the meeting; and
6. Such other items that the SEC may require in the interest of good corporate governance
and the protection of minority stockholders.
Kinds of meetings and requirements
b. A members’ list for non-stock corporations and, for stock corporations, material information on
the current stockholders, and their voting rights;
c. A detailed, descriptive, balanced and comprehensible assessment of the corporation’s
performance, which shall include information on any material change in the corporation’s business,
strategy, and other affairs;
d. A financial report for the preceeding year, which shall include FS duly signed and certified, a
statement on the adequacy of the corporation’s internal controls or risk management systems, and a
statement of all external audit and non-audit fees;
e. An explanation of the dividend policy and the fact of payment of dividends of the reasons for
nonpayment thereof;
f. DT profiles which shall include, among others, their qualifications and relevant experience, length
of service in the corporation, trainings and continuing education attended, and their board
representations in other corporations;
g. A DT attendance report, indicating the attendance of each DT at each of the meetings of the
board and its committees and in regular or special stockholder meetings;
Kinds of meetings and requirements
h. Appraisals and performance reports for the board and the
criteria and procedure for assessment;
i. A DT compensation report prepared in accordance with this Code
and the rules the SEC may prescribe;
j. Director disclosures on self-dealings and related party
transactions’ and/or
k. The profiles of directors nominated or seeking election or
reelection.
5. A DT, SH, or member may propose any other matter for inclusion
in the agenda at any regular meeting of SH or members. (NEW)
Kinds of meetings and requirements
• Requirements for special meetings:
1. Time:
a. For SH/members - Any time deemed necessary or as provided in the bylaws
b. For the BOD/BOT - Any time upon the call of the president or as provided in the
bylaws.
2. At least 1 week written notice shall be sent to all stockholders or members, unless
a different period is provided in the bylaws, law or regulation.
3. A SH or member may propose the holding of a special meeting and items to be
included in the agenda. (NEW)
• Unless the bylaws provide for a longer period, the stock and transfer book or
membership book shall be closed at least 20 days for regular meetings and 7 days for
special meetings before the scheduled date of the meeting. (NEW)
Waiver of notice of meeting (NEW)
• Notice of any meeting may be waived, expressly or impliedly, by any
SH or member, provided:
1. General waivers of notice in the AOI or the bylaws shall not be
allowed;
2. Attendance at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the
express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
Absence or refusal to conduct meeting
• Whenever for any cause, there is no person authorized or the person
authorized unjustly refuses to call a meeting, the SEC, upon petition
of a SH or member on a showing of good cause therefor, may issue an
order, directing the petitioning SH or member to call a meeting of the
corporation by giving proper notice required by this Code or the
bylaws. The petitioning SH or member shall preside thereat until at
least a majority of the SH or members present have chosen from
among themselves, a presiding officer.
Meeting postponements
• In case of postponement of SH’ or members’ regular meetings,
written notice thereof and the reason therefor shall be sent to all SH
or members of record at least 2 weeks prior to the date of the
meeting, unless a different period is required under the bylaws, law or
regulation.
Manner of votation for stockholders and members
• The right to vote of SH or members may be exercised:
1. In person
2. Through a proxy
3. When so authorized in the bylaws, through remote communication or in absentia,
provided, that the votes are received before the corporation finishes the tally of votes.
• Proxy - a form of agency created in instances when a person is unable to personally
cast his or her vote; hence, the act of voting is delegated to another person.
• Proxies shall be in writing, signed and filed, by the SH or member, in any form
authorized in the bylaws and received by the corporate secretary within a reasonable
time before the scheduled meeting. Unless otherwise provided in the proxy form, it
shall be valid only for the meeting for which it is intended. No proxy shall be valid and
effective for a period longer than 5 years at any one time.
Place of meetings
1. For stockholders’ or members’, whether regular or special - held
in the principal office of the corporation as set forth in the AOI, or, if
not practicable, in the city or municipality where the principal office of
the corporation is located: Provided, That any city or municipality in
Metro Manila, Metro Cebu, Metro Davao, and other Metropolitan
areas shall, for purposes of this section, be considered a city or
municipality.
2. For DT - held anywhere in or outside of the Philippines, unless
the bylaws provide otherwise.
• The insertion of places other than Metro Manila are new.
Notice of meetings of stockholders and members
• Notice of meetings shall be sent through the means of communication provided in
the bylaws, which notice shall state the time, place and purpose of the meetings.
• Each notice of meeting shall further be accompanied by the following: (NEW)
a. The agenda for the meeting;
b. A proxy form which shall be submitted to the corporate secretary within a
reasonable time prior to the meeting;
c. When attendance, participation, and voting are allowed by remote
communication or in absentia, the requirements and procedures to be followed
when a stockholder or member elects either option; and
d. When the meeting is for the election of DT, the requirements and procedure
for nomination and election.
Notice of meetings of directors and trustees
• All proceedings and any business transacted at a meeting of the
stockholders or members, if within the powers or authority of the
corporation, shall be valid even if the meeting is improperly held or called:
Provided, That all the stockholders or members of the corporation are
present or duly represented at the meeting and not one of them expressly
states at the beginning of the meeting that the purpose of their attendance
is to object to the transaction of any business because the meeting is not
lawfully called or convened. (NEW)
• Notice of regular or special meetings stating the date, time and place of
the meeting must be sent to every DT at least 2 days (NEW) prior to the
scheduled meeting, unless a longer time is provided in the bylaws. A DT
may waive this requirement, either expressly or impliedly.
Notice of meetings of directors and trustees
• DT who cannot physically attend or vote at board meetings can participate and vote through remote
communication such as video conferencing, teleconferencing, or other alternative modes of
communication that allow them reasonable opportunities to participate. DT cannot attend or vote by
proxy at board meetings.
• A DT who has a potential interest in any related party transaction must refuse from voting on the
approval of the related party transaction without prejudice to compliance with the requirements of
Section 31:
a. The presence of such DT in the board meeting in which the contract was approved was not
necessary to constitute a quorum for such meeting;
b. The vote of such DT was not necessary for the approval of the contract;
c. The contract is fair and reasonable under the circumstances; and
d. In case of corporations vested with public interest, material contracts are approved by at least 2/3
of the entire membership of the board with at least a majority of the independent directors voting to
approve the material contract; and
e. In case of an officer, the contract has been previously authorized by the BOD.
Notice of meetings of directors and trustees
• Where any of the first 3 conditions set forth in the preceding
paragraph is absent, in the case of a contract with a DT, such contract
may be ratified by the vote of the stockholders representing at least
2/3 of the OCS or at least 2/3 of the members in a meeting called for
the purpose: Provided, That full disclosure of the adverse interest of
the DT involved is made at such meeting and the contract is fair and
reasonable under the circumstances.
Quorum of meetings – 2014, 2009 Bar
• Quorum - that number of members of a body which, when legally assembled in
their proper places, will enable the body to transact its proper business.
1. For Stockholders and Members - unless otherwise provided in this Code or
in the bylaws, a quorum shall consist of the stockholders representing a majority
of the OCS or a majority of the members in the case of non-stock corporations.
• A stockholder or member who participates through remote communication or
in absentia shall be deemed present for purposes of quorum.
• Thus, for stock corporations, the quorum is based on the number of
outstanding voting stocks while for non-stock corporations, only those who are
actual, living members with voting rights shall be counted in determining the
existence of a quorum.
Quorum of meetings – 2014, 2009 Bar
• The basis in determining the presence of quorum in non-stock corporations is the
numerical equivalent of all members who are entitled to vote, unless some other
basis is provided by the By-Laws. The qualification "with voting rights" simply
recognizes the power of a non-stock corporation to limit or deny the right to vote
of any of its members. To include these members without voting rights in the
total number of members for purposes of quorum would be superfluous for
although they may attend a particular meeting, they cannot cast their vote on any
matter discussed therein.
• Now, if there is a clash between the OCS as indicated in the AOI vs. that contained
in the company's stock and transfer book, the former should prevail. One who is
actually a stockholder cannot be denied his right to vote by the corporation
merely because the corporate officers failed to keep its records accurately.
Quorum of meetings – 2014, 2009 Bar
2. For Directors and Trustees - unless the AOI or the bylaws
provides for a greater majority, a majority of the DT as stated in the AOI
shall constitute a quorum to transact corporate business, and every
decision reached by at least a majority of the DT constituting a quorum,
except for the election of officers which shall require the vote of a
majority of all the members of the board, shall be valid as a corporate
act. (NEW)
Quorum of meetings – 2014, 2009 Bar
Stockholder/Member Board
Time of regular meeting Annually on a date fixed in the bylaws, or Monthly, unless the bylaws provide
if not so fixed, on any date after April 15 otherwise
of every year as determined by the board
Notice of regular meeting Written notice of regular meetings shall At least 2 days prior to the
be sent to all stockholders or members of scheduled meeting, unless a longer
record at least 21 days prior to the time is provided in the bylaws
meeting
Time of special meeting Any time deemed necessary or as Any time upon the call of the
provided in the bylaws president or as provided in the
bylaws
Notice of special meeting At least 1 week written notice shall be At least 2 days prior to the
sent to all stockholders or members, scheduled meeting, unless a longer
unless a different period is provided in the time is provided in the bylaws
bylaws, law or regulation
Quorum of meetings – 2014, 2009 Bar
Stockholder/Member Board
Manner of votation In person, proxy or when so In person or through remote communication
authorized in the bylaws, through such as VC, teleconferencing, or other
remote communication or in absentia alternative modes of communication; vote by
proxy not allowed
Place of meetings Principal office of the corporation as Anywhere in or outside of the Philippines,
set forth in the AOI, or, if not unless the bylaws provide otherwise
practicable, in the city or municipality
where the principal office of the
corporation is located
Quorum Consist of the stockholders Unless the AOI or the bylaws provides for a
representing a majority of the OCS or greater majority, a majority of the DT as
a majority of the members in the case stated in the AOI shall constitute a quorum,
of non-stock corporations and every decision reached by at least a
majority of the DT constituting a quorum,
except for the election of officers which shall
require the vote of a majority of all the
members of the board
Right to vote of secured creditors and
administrators
• In case a stockholder grants security interest in his or her shares in
stock corporations, the stockholder-grantor shall have the right to
attend and vote at meetings of stockholders, unless the secured
creditor is expressly given by the stockholder-grantor such right in
writing which is recorded in the appropriate corporate books.
• Executors, administrators, receivers, and other legal representatives
duly appointed by the court may attend and vote in behalf of the
stockholders or members without need of any written proxy.
Voting in case of joint ownership of stocks
• The consent of all the co-owners shall be necessary in voting shares of
stock owned jointly by 2 or more persons, unless there is a written
proxy, signed by all the co-owners, authorizing 1 or some of them or
any other person to vote such share or shares: Provided, That when
the shares are owned in an “and/or” capacity by the holders thereof,
any one of the joint owners can vote said shares or appoint a proxy
therefor.
Voting right for treasury shares
• Treasury shares shall have no voting right as long as such shares
remain in the Treasury.
Voting trusts
• A voting trust agreement (VTA) is an agreement in writing whereby
one or more stockholders of a corporation consent to transfer his or
their shares to a trustee in order to vest in the latter voting or other
rights pertaining to said shares for a period not exceeding 5 years
upon the fulfillment of statutory conditions and such other terms and
conditions specified in the agreement. The 5 year-period may be
extended in cases where the VT is executed pursuant to a loan
agreement whereby the period is made contingent upon full payment
of the loan.
Voting trusts
• VTA results in the separation of the voting rights of a stockholder from his other rights such as
the right to receive dividends, the right to inspect the books of the corporation, the right to sell
certain interests in the assets of the corporation and other rights to which a stockholder may be
entitled until the liquidation of the corporation. However, in order to distinguish a VTA from
proxies and other voting pools and agreements, it must pass three criteria or tests, namely:
a. that the voting rights of the stock are separated from the other attributes of
ownership;
b. that the voting rights granted are intended to be irrevocable for a definite period of
time; and
c. that the principal purpose of the grant of voting rights is to acquire voting control of
the corporation.
• The most immediate effect of a VTA on the status of a stockholder who is a party to its execution
— from legal title-holder or owner of the shares subject of the VTA, he becomes the equitable
or beneficial owner.
STOCKS AND STOCKHOLDERS
Subscription Contract – 2019, 2005, 2007 Bar
• A subscription contract is any contract for the acquisition of unissued stock in
an existing corporation or a corporation still to be formed, notwithstanding
the fact that the parties refer to it as a purchase or some other contract. A
stock subscription is a contract by which the subscriber agrees to take a
certain number of shares of the capital stock of a corporation, paying for the
same or expressly or impliedly promising to pay for the same.
• Pursuant to the Trust Fund Doctrine, a corporation has no legal capacity to
release an original subscriber to its capital stock from the obligation of paying
for his shares, in whole or in part, without a valuable consideration, or
fraudulently, to the prejudice of creditors. The creditor is allowed to maintain
an action upon any unpaid subscriptions and thereby steps into the shoes of
the corporation for the satisfaction of its debt.
Pre-incorporation subscription
• A subscription of shares in a corporation still to be formed shall be
irrevocable for a period of at least 6 months from the date of
subscription, unless:
a. all of the other subscribers consent to the revocation, or
b. the corporation fails to incorporate within the same period or
within a longer period stipulated in the contract of subscription.
• No pre-incorporation subscription may be revoked after the AOI are
submitted to the SEC.
• The shares of San Juan in Aramaywan Corporation were reduced from 55% to 15% and converted into
treasury shares due to unpaid subscriptions. The corporation had just been existing for a few months and
has no unrestricted retained earnings yet. Can this be done by the corporation?
•
• No. If it were true that San Juan had unpaid subscriptions, the law has provided a procedure for the
demand of such payment and the holding of a delinquency sale in case of continued non-payment. Thus,
even assuming it was true that San Juan had unpaid subscriptions, simply agreeing in a meeting for their
reduction, thereby releasing the stockholder from his obligation to pay the unpaid subscriptions, cannot be the
mode by which said unpaid subscriptions are settled. To allow corporations to do such an act would violate
the trust fund doctrine. The creditors of a corporation have the right to assume that the board of directors will
not use the assets of the corporation to purchase its own stock for as long as the corporation has outstanding
debts and liabilities. There can be no distribution of assets among the stockholders without first paying
corporate debts. Salido, Jr. vs. Aramaywan Metals Development Corp., G.R. No. 233857, March 18, 2021.
Consideration for stocks – 2005 Bar
• Stocks shall not be issued for a consideration less than the par or issued price thereof.
Consideration for the issuance of stock may be:
• Actual cash paid to the corporation;
• Property, tangible or intangible, actually received by the corporation and necessary or convenient
for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock
issued;
• Labor performed for or services actually rendered to the corporation;
• Previously incurred indebtedness of the corporation;
• Amounts transferred from URE to stated capital; and
• Outstanding shares exchanged for stocks in the event of reclassification or conversion.
• Shares of stock in another corporation (NEW); and/or
• Other generally accepted form of consideration (NEW)
• The basis of the prohibition is the Trust Fund Doctrine again.
Consideration for stocks – 2005 Bar
• Where the consideration is other than actual cash, or consists of intangible
property such as patents or copyrights, the valuation thereof shall initially be
determined by the stockholders or the BOD, subject to SEC approval.
• Shares of stock shall not be issued in exchange for promissory notes or future
service. The same considerations provided in this section, insofar as applicable,
may be used for the issuance of bonds by the corporation.
• The issued price of no-par value shares may be fixed:
a. in the AOI or
b. by the BOD pursuant to authority conferred by the AoI or the bylaws or if not
so fixed,
c. by the stockholders representing at least a majority of the OCS at a meeting
duly called for the purpose.
Certificate of stock and transfer of shares – 2018,
2016, 2013 Bar
• Certificate of stock - a written instrument signed by the proper officer of a
corporation stating or acknowledging that the person named in the document
is the owner of a designated number of shares of its stock.
• It is prima facie evidence that the holder is a shareholder of a corporation. A
certificate, however, is merely a tangible evidence of ownership of shares of
stock. It is not a stock in the corporation and merely expresses the contract
between the corporation and the stockholder. The shares of stock evidenced
by said certificates, meanwhile, are regarded as property and the owner of
such shares may, as a general rule, dispose of them as he sees fit, unless the
corporation has been dissolved, or unless the right to do so is properly
restricted, or the owner's privilege of disposing of his shares has been
hampered by his own action.
Certificate of stock and transfer of shares –
2018, 2016, 2013 Bar
• Rules on issuance of stock certificates, viz:
1. The capital stock of corporations shall be divided into shares for which
certificates signed by the president or vice president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the corporation shall
be issued in accordance with the bylaws
2. Shares of stock so issued are personal property and may be transferred by
delivery of the certificate/s indorsed by the owner, his attorney-in-fact, or any
other person legally authorized to make the transfer. No transfer, however, shall
be valid, except as between the parties, until the transfer is recorded in the books
of the corporation showing the names of the parties to the transaction, the date
of the transfer, the number of the certificate or certificates, and the number of
shares transferred.
Certificate of stock and transfer of shares –
2018, 2016, 2013 Bar
• Rules on issuance of stock certificates, viz:
3. The SEC may require corporations whose securities are traded in
trading markets and which can reasonably demonstrate their capability
to do so to issue their securities or shares of stocks in uncertificated or
scripless form in accordance with the rules of the SEC.
4. No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the corporation
Certificate of stock and transfer of shares –
2018, 2016, 2013 Bar
• The provision on the transfer of shares of stocks contemplates no restriction as to whom
they may be transferred or sold. As owner of personal property, a shareholder is at liberty to
dispose of them in favor of whomsoever he pleases, without any other limitation in this
respect, than the general provisions of law.
• Under the provision, certain minimum requisites must be complied with for there to be a
valid transfer of stocks, to wit:
1. there must be delivery of the stock certificate;
2. the certificate must be endorsed by the owner or his attorney-in-fact or other persons
legally authorized to make the transfer; and
3. to be valid against third parties, the transfer must be recorded in the books of the
corporation.
• “Transfer” means only absolute transfers. Attachments and chattel mortgage over shares of
stock need not be registered. See Ferro Chemicals, Inc. vs. Garcia, 804 SCRA 528.
Certificate of stock and transfer of shares –
2018, 2016, 2013 Bar
• It is the delivery of the certificate, coupled with the endorsement by the owner or his
duly authorized representative that is the operative act of transfer of shares from the
original owner to the transferee. The delivery contemplated, however, pertains to the
delivery of the certificate of shares by the transferor to the transferee, that is, from the
original stockholder named in the certificate to the person or entity the stockholder was
transferring the shares to, whether by sale or some other valid form of absolute
conveyance of ownership. In Teng vs. Securities and Exchange Commission, G.R. No.
184332, February 17, 2016, the corporate secretary refused to enter into the stock and
transfer book the acquisition of Ting Ping of Chiu and Maluto’s shares in TCL Sales unless
Ting Ping surrenders Chiu's and Maluto's respective certificates of stock. The SC held
that such is not a requisite before the conveyance may be recorded in its books. To
compel Ting Ping to deliver to the corporation the certificates as a condition for the
registration of the transfer would amount to a restriction on the right of Ting Ping to
have the stocks transferred to his name, which is not sanctioned by law.
Certificate of stock and transfer of shares –
2018, 2016, 2013 Bar
• In Rural Bank of Salinas, Inc. vs. CA, 210 SCRA 510, the SC ruled that the right of a
transferee/assignee to have stocks transferred to his name is an inherent right
flowing from his ownership of the stocks. In said case, Guerrero presented to the
bank the deeds of assignment for registration, transfer of the shares assigned in the
bank's books, cancellation of the stock certificates, and issuance of new stock
certificates, which the bank refused. It was stressed that a corporation, either by its
board, its by-laws, or the act of its officers, cannot create restrictions in stock
transfers. In transferring stock, the secretary of a corporation acts in purely
ministerial capacity, and does not try to decide the question of ownership. If a
corporation refuses to make such transfer without good cause, it may, in fact, even
be compelled to do so by mandamus.
• Nevertheless, to be valid against third parties and the corporation, the transfer must
be recorded or registered in the books of corporation.
Certificate of stock and transfer of shares –
2018, 2016, 2013 Bar
• There are several reasons why registration of the transfer is
necessary: One, to enable the transferee to exercise all the rights of a
stockholder; Two, to inform the corporation of any change in share
ownership so that it can ascertain the persons entitled to the rights
and subject to the liabilities of a stockholder; and Three, to avoid
fictitious or fraudulent transfers, among others. The only safe way to
accomplish the hypothecation of share of stock is for the transferee to
insist on the assignment and delivery of the certificate and to obtain
the transfer of the legal title to him on the books of the corporation
by the cancellation of the certificate and the issuance of a new one to
him.
Certificate of stock and transfer of shares –
2018, 2016, 2013 Bar
• A transfer of shares of stock not recorded in the stock and transfer
book of the corporation is non-existent as far as the corporation is
concerned. The corporation looks only to its books for the purpose of
determining who its shareholders are. It is only when the transfer has
been recorded in the stock and transfer book that a corporation may
rightfully regard the transferee as one of its stockholders. Until the
transfer is registered, the transferee is not a stockholder but an
outsider. Interport Resources Corporation vs. Securities Specialist, Inc.,
792 SCRA 155.
Certificate of stock and transfer of shares –
2018, 2016, 2013 Bar
• Inheritance of the shares of stock does not ipso facto afford the heir the
rights of a stockholder. The transfer of title by means of succession, though
effective and valid between the parties involved (i.e., between the
decedent's estate and her heirs), does not bind the corporation and third
parties. The transfer must be registered in the books of the corporation to
make the transferee-heir a stockholder entitled to recognition as such both
by the corporation and by third parties.
• The rationale behind is that no succession shall be declared unless and until
a liquidation of the assets and debts left by the decedent shall have been
made and all his creditors are fully paid. Until a final liquidation is made and
all the debts are paid, the right of the heirs to inherit remains inchoate.
Certificate of stock and transfer of shares –
2018, 2016, 2013 Bar
• The exception to this rule on inheritance is when the transferees held
definite and uncontested titles to a specific number of shares of the
corporation; after the transferee had established prima facie
ownership over the shares of stocks in question, registration became
a mere formality in confirming their status as stockholders. Abejo vs.
Dela Cruz, 149 SCRA 654 and TCL Sales Corporation vs. Court of
Appeals, 349 SCRA 35.
Indivisibility of subscription – 2012, 2008 Bar
• No certificate of stock shall be issued to a subscriber until the full
amount of the subscription together with interest and expenses, if
any is due, has been paid.
• This clearly implies the indivisibility of subscription, giving rise to the
Principle of Indivisibility of Subscription. Being such, partial payment
does not entitle the stockholder to the issuance of certificate for the
number of shares to which the amount paid may correspond. The
payment is in effect prorated among all the shares which are the
subject of the subscription, so that no one share is fully paid.
Liability of directors for watered stocks – 2015
Bar
• Watered stocks - stocks issued for a consideration less than its par or issued value
or for a consideration other than cash, valued in excess of its fair value.
• Any director or officer who consents to the issuance of watered stocks or having
knowledge of the insufficient consideration, does not file a written objection with
the corporate secretary, shall be liable to the corporation or its creditors, solidarily
with the stockholder concerned for the difference between the value received at
the time of issuance of the stock and the par or issued value of the same.
• Evils of stock watering - It injures the corporation because it is deprived of needed
capital and of the opportunity to sell its securities at more advantageous prices. It
prejudices the other stockholders because it dilutes their proportionate interest in
the corporation. It also injures creditors because it reduces the value of the
corporate assets which stand as substitute for the stockholders’ personal liability
to them.
Interest on unpaid subscription
• Subscribers to stocks shall be liable to the corporation for interest on
all unpaid subscriptions from the date of subscription, if so required
by and at the rate of interest fixed in the subscription contract. If no
rate of interest is fixed in the subscription contract, the prevailing
legal rate shall apply.
Payment of balance of subscription
• The balance of the subscription is payable on:
a. the date specified in the subscription contract, or if there is none,
b. date stated in the call made by the board
• Failure to pay on such date shall render the entire balance due and payable and
shall make the stockholder liable for interest at the legal rate on such balance,
unless a different interest rate is provided in the subscription contract. The
interest shall be computed from the date specified, until full payment of the
subscription.
• If no payment is made within 30 days from the said date (meaning, the date
specified in the subscription contract or, if there is none, date stated in the call),
all stocks covered by the subscription shall thereupon become delinquent and
shall be subject to sale as hereinafter provided, unless the BOD orders otherwise.
Delinquency sale
• Procedure:
1. The BOD may, by resolution, order the sale of delinquent stock and shall specifically state the amount due
on each subscription plus all accrued interest, and the date, time and place of the sale which shall not be less than
30 days nor more than 60 days from the date the stocks become delinquent.
2. Notice of the sale, with a copy of the resolution, shall be sent to every delinquent stockholder either
personally, by registered mail, or through other means provided in the bylaws. The same shall be published once a
week for 2 consecutive weeks in a newspaper of general circulation in the province or city where the principal
office of the corporation is located.
3. Unless the delinquent stockholder pays to the corporation, on or before the date specified for the sale of
the delinquent stock, the balance due on the former’s subscription, plus accrued interest, costs of advertisement
and expenses of sale, or unless the BOD otherwise orders, said delinquent stock shall be sold at a public auction to
such bidder who shall offer to pay the full amount of the balance on the subscription together with accrued
interest, costs of advertisement and expenses of sale, for the smallest number of shares or fraction of a share.
4. The stock so purchased shall be transferred to such purchaser in the books of the corporation and a
certificate for such stock shall be issued in the purchaser’s favor. The remaining shares, if any, shall be credited in
favor of the delinquent stockholder who shall likewise be entitled to the issuance of a certificate of stock covering
such shares.
Delinquency sale
• Procedure:
5. Should there be no bidder at the public auction who offers to pay the full amount of the
balance on the subscription together with accrued interest, costs of advertisement, and expenses
of sale, for the smallest number of shares or fraction of a share, the corporation may, subject to
the provisions of this Code, bid for the same, and the total amount due shall be credited as fully
paid in the books of the corporation. Title to all the shares of stock covered by the subscription
shall be vested in the corporation as treasury shares and may be disposed of by said corporation.
6. The sale cannot be questioned upon the ground of irregularity or defect in the notice of
sale, or in the sale itself of the delinquent stock, unless the party seeking to maintain such action
first pays or tenders to the party holding the stock the sum for which the same was sold, with
interest from the date of sale at the legal rate. No such action shall be maintained unless a
complaint is filed within 6 months from the date of sale.
7. The corporation has the right to collect likewise through court action, the amount due on
any unpaid subscription, with accrued interest, costs and expenses.
Effect of delinquency – 2013, 2008 Bar
• A delinquent stock cannot:
a. be voted for
b. be entitled to vote
c. be represented at any stockholder’s meeting
d. be counted for purposes of quorum
e. be entitled to any of the rights of a stockholder except the right to dividends,
wherein under Section 42, cash dividends shall first be applied to the unpaid balance
on the subscription plus costs and expenses while stock dividends shall be withheld
from the delinquent stockholders until their unpaid subscription is fully paid.
• On the contrary, under Section 71, holders of subscribed shares not fully paid
which are not delinquent shall have all the rights of a stockholder.
Procedure in issuing new certificates of stock in
lieu of lost ones
1. The registered owner of a certificate of stock or such person’s legal representatives shall file
with the corporation an affidavit in triplicate setting forth, if possible, the circumstances as to how
the certificate was lost, stolen or destroyed, the number of shares represented by such certificate,
the serial number of the certificate and the name of the corporation which issued the same. The
owner of such certificate of stock shall also submit such other information and evidence as may be
deemed necessary;
2. After verifying the affidavit and other information and evidence with the books of the
corporation, the corporation shall publish a notice in a newspaper of general circulation in the
place where the corporation has its principal office, once a week for 3 consecutive weeks at the
expense of the registered owner of the certificate of stock which has been lost, stolen or destroyed.
The notice shall state the name of the corporation, the name of the registered owner, the serial
number of the certificate, the number of shares represented by such certificate, and shall state that
after the expiration of 1 year from the date of the last publication, if no contest has been presented
to the corporation regarding the certificate of stock, the right to make such contest shall be barred
and the corporation shall cancel the lost, destroyed or stolen certificate of stock in its books.
Procedure in issuing new certificates of stock in
lieu of lost ones
3. In lieu thereof, the corporation shall issue a new certificate of stock, unless the
registered owner files a bond or other security as may be required, effective for a period
of 1 year, for such amount and in such form and with such sureties as may be satisfactory
to the BOD, in which case a new certificate may be issued even before the expiration of
the 1 year period provided herein.
4. If a contest has been presented to the corporation or if an action is pending in court
regarding the ownership of the certificate of stock which has been lost, stolen or
destroyed, the issuance of the new certificate of stock in lieu thereof shall be suspended
until the court renders a final decision regarding the ownership of the certificate of stock
which has been lost, stolen or destroyed.
5. Except in case of fraud, bad faith, or negligence on the part of the corporation and
its officers, no action may be brought against any corporation which shall have issued
certificate of stock in lieu of those lost, stolen or destroyed pursuant to the procedure
above-described.
CORPORATE BOOKS AND RECORDS
Books to be kept – 2009 Bar
• Every corporation shall keep and carefully preserve at its principal office all
information relating to the corporation including, but not limited to:
a. The AoI and bylaws of the corporation and all their amendments; (NEW)
b. The current ownership structure and voting rights of the corporation, including
lists of stockholders or members, group structures, intra-group relations,
ownership data, and beneficial ownership; (NEW)
c. The names and addresses of all the members of the BOD/BOT and the executive
officers; (NEW)
d. A record of all business transactions;
e. A record of the resolutions of the BOD/BOT and stockholders or members;
f. Copies of the latest reportorial requirements submitted to the SEC; (NEW) and
Books to be kept – 2009 Bar
g. The minutes of all meetings of stockholders or members, or of the BOD/BOT. Such minutes shall
set forth in detail, among others:
• 1. the time and place of the meeting held
• 2. how it was authorized
• 3. the notice given
• 4. the agenda therefor
• 5. whether the meeting was regular or special, its object if special
• 6. those present and absent and
• 7. every act done or ordered done at the meeting.
• Upon the demand of a DT, stockholder or member, the time when any DT, stockholder or member
entered or left the meeting must be noted in the minutes; and on a similar demand, the yeas and
nays must be taken on any motion or proposition, and a record therefor carefully made. The protest
of a DT, stockholder or member on any action or proposed action must be recorded in full upon their
demand.
Books to be kept – 2009 Bar
h. Stock corporations must also keep a stock and transfer book, which shall
contain:
• 1. a record of all stocks in the names of the stockholders alphabetically
arranged;
• 2. the installments paid and unpaid on all stocks for which subscription has
been made, and the date of payment of any installment;
• 3. a statement of every alienation, sale or transfer of stock made, the date
thereof, by and to whom made; and
• 4. such other entries as the bylaws may prescribe.
• The stock and transfer book shall be kept in the principal office of the corporation
or in the office of its stock transfer agent and shall be open for inspection by any
director or stockholder of the corporation at reasonable hours on business days.
Books to be kept – 2009 Bar
• A person who desires to be recognized as stockholder for the purpose of exercising
stockholders' right must secure standing by having his ownership of share recorded
on the stock and transfer book. Thus, only those whose ownership of shares are
duly registered in the stock and transfer book are considered stockholders of record
and are entitled to all rights of a stockholder. Guy vs. Guy, G.R. No. 184068, April 19,
2016.
• However, an STB, like other corporate books and records, is not a public record, and
is not exclusive evidence of the matters and things which ordinarily are or should be
written therein. The records and minutes of a corporation are not conclusive even
against the corporation but are prima facie evidence only, and may be impeached or
even contradicted by other competent evidence. Thus, parol evidence may be
admitted to supply omissions in the records or explain ambiguities, or to contradict
such records. Lanuza vs. Court of Appeals, 454 SCRA 54.
Right to inspection
• Corporate records shall be open to inspection by any DT, stockholder or member of the
corporation in person or by a representative at reasonable hours on business days, and a
demand in writing may be made by such DT or stockholder at their expense, for copies of
such records or excerpts from said records. The inspecting or reproducing party shall
remain bound by confidentiality rules under prevailing laws, such as the rules on trade
secrets or processes under Republic Act No. 8293, Republic Act No. 10173 (Data
Privacy),Republic Act No. 8799 (SRC), and the Rules of Court. (NEW)
• A requesting party who is not a stockholder or member of record, or is a competitor,
director, officer, controlling stockholder or otherwise represents the interests of a
competitor shall have no right to inspect or demand reproduction of corporate records.
(NEW)
• Any stockholder who shall abuse the rights granted under this section shall be penalized
under Section 158 of this Code, without prejudice to the provisions of Republic Act No.
8293, and Republic Act No. 10173.
Right to inspection
• An action for injunction / writ of preliminary injunction filed by a corporation
is unavailable to prevent stockholders from exercising their right to
inspection. Philippine Associated Smelting and Refining Corporation (PASAR)
vs. Lim, G.R. No. 172948, October 5, 2016.
• An heir of the deceased stockholder has no right to inspect the books. Upon
the death of a shareholder, the heirs do not automatically become
stockholders of the corporation and acquire the rights and privileges of the
deceased as shareholder of the corporation. The stocks must be distributed
first to the heirs in estate proceedings, and the transfer of the stocks must
be recorded in the books of the corporation. It is the administrator or
executor who is entitled to exercise the rights of the deceased as
stockholder. Puno vs. Puno Enterprises, 599 SCRA 585.
Refusal on the part of the corporation on the
request for inspection – 2017 Bar
• Any officer or agent of the corporation who shall refuse to allow the
inspection and/or reproduction of records shall be liable to such DT,
stockholder or member for damages, and in addition, shall be guilty
of an offense which shall be punishable under Section 161 of this
Code.
• If such refusal is made pursuant to a resolution or order of the
BOD/BOT, the liability under this section for such action shall be
imposed upon the DT who voted for such refusal.
Refusal on the part of the corporation on the
request for inspection – 2017 Bar
• It shall be a defense to any action under this section that the person demanding to
examine and copy excerpts from the corporation’s records and minutes:
a. has improperly used any information secured through any prior examination of the
records or minutes of such corporation or of any other corporation, or
b. was not acting in good faith or for a legitimate purpose in making the demand to
examine or reproduce corporate records, or
c. is a competitor, director, officer, controlling stockholder or otherwise represents
the interest of a competitor.
• If the corporation denies or does not act on a demand for inspection and/or
reproduction, the aggrieved party may report such denial or inaction to the SEC. Within
5 days from receipt of such report, the SEC shall conduct a summary investigation and
issue an order directing the inspection or reproduction of the requested records.
Refusal on the part of the corporation on the
request for inspection – 2017 Bar
• In Terelay Investment and Development Corp. vs. Yulo, 765 SCRA 1,
Cecilia Yulo, owner of 5 shares of stock or .001% in Terelay, sought for
the examination of the books but was denied as she has insignificant
holding in the corporation, prompting her to file for mandamus.
• The Supreme Court made the pronouncement that the Corporation
Code has granted to ALL stockholders the right to inspect the
corporate books and records, and in so doing has not required any
specific amount of interest for the exercise of the right to inspect.
Refusal on the part of the corporation on the
request for inspection – 2017 Bar
• Neither could the corporation arbitrarily deny the right to inspect the corporate books and
records on the basis that her inspection would be used for a doubtful or dubious reason. The
only time when the demand to examine and copy the corporation's records and minutes could
be refused is when the corporation puts up as a defense to any action that "the person
demanding" had "improperly used any information secured through any prior examination of
the records or minutes of such corporation or of any other corporation, or was not acting in
good faith or for a legitimate purpose in making his demand."
• The right of the shareholder to inspect the books and records should not be made subject to
the condition of a showing of any particular dispute or of proving any mismanagement or other
occasion rendering an examination proper, but if the right is to be denied, the burden of proof
is upon the corporation to show that the purpose of the shareholder is improper, by way of
defense.
• The same ruling was set forth in Gokongwei, Jr. vs. Securities and Exchange Commission, 178
Phil 266 - the impropriety of purpose such as will defeat enforcement must be set up by the
corporation defensively if the Court is to take cognizance of it as a qualification.
Refusal on the part of the corporation on the
request for inspection – 2017 Bar
• Among the purposes held to justify a demand for inspection are the
following:
1. To ascertain the financial condition of the company or the
propriety of dividends;
2. the value of the shares of stock for sale or investment;
3. whether there has been mismanagement;
4. in anticipation of shareholders' meetings to obtain a mailing list of
shareholders to solicit proxies or influence voting;
5. to obtain information in aid of litigation with the corporation or its
officers as to corporate transactions.
Refusal on the part of the corporation on the
request for inspection – 2017 Bar
• In contrast, the improper purposes which may justify denial of the
right of inspection are:
1. Obtaining of information as to business secrets or to aid a
competitor;
2. to secure business "prospects" or investment or advertising lists;
3. to find technical defects in corporate transactions in order to
bring "strike suits" for purposes of blackmail or extortion.
Stock transfer agent
• A stock transfer agent is one engaged principally in the business of
registering transfers of stocks in behalf of a stock corporation; allowed
to operate upon securing a license from the SEC and the payment of
fee, provided that:
• 1. A stock corporation is not precluded from performing or making
transfers of its own stocks, in which case all the rules and regulations
imposed on stock transfer agents, except the payment of a license fee
herein provided, shall be applicable;
• 2. The SEC may require stock corporations which transfer and/or
trade stocks in secondary markets to have an independent transfer
agent. (NEW)
Right to financial statements
• A corporation shall furnish a stockholder or member, within 10 days
from receipt of their written request, its most recent FS.
• At the regular meeting of stockholders or members, the BOD/BOT
shall present to such stockholders or members a financial report of
the operations of the corporation for the preceding year, which shall
include FS.
• However, if the total assets or total liabilities of the corporation are
less than P600,000 or such other amount as may be determined
appropriate by the Department of Finance, the FS may be certified
under oath by the treasurer and the president.
MERGER AND CONSOLIDATION
Merger vs consolidation – 2011 Bar
• Merger is a union whereby one corporation absorbs one or more
existing corporations, and the absorbing corporation survives and
continues the combined business.
• Consolidation is the union of two or more existing corporations to
form a new corporation called the consolidated corporation. It is a
combination by agreement between two or more corporations by
which their rights, franchises, and property are united and become
those of a single, new corporation, composed generally, although not
necessarily, of the stockholders of the original corporations.
Merger vs consolidation – 2011 Bar
• The parties to a merger or consolidation are called constituent
corporations. In consolidation, all the constituents are dissolved and
absorbed by the new consolidated enterprise. In merger, all
constituents, except the surviving corporation, are dissolved. In both
cases, however, there is no liquidation of the assets of the dissolved
corporations, and the surviving or consolidated corporation acquires
all their properties, rights and franchises and their stockholders
usually become its stockholders.
• The surviving or consolidated corporation assumes automatically the
liabilities of the dissolved corporations, regardless of whether the
creditors have consented or not to such merger or consolidation.
Steps in merger or consolidation – 2017, 2012 Bar
1. The BOD/BOT of each corporation shall approve, by majority vote
of each, a plan of merger or consolidation setting forth the following:
• a. The names of the corporations proposing to merge or
consolidate, referred to as the constituent corporations;
• b. The terms of the merger or consolidation and the mode of
carrying the same into effect;
• c. A statement of the changes, if any, in the AoI of the surviving
corporation in case of merger; and, in case of consolidation, all the
statements required to be set forth in the AoI; and
• d. Such other provisions as are deemed necessary or desirable.
Steps in merger or consolidation – 2017,
2012 Bar
2. Submission of plan to SH or members of each corporation for approval. Notice of such
meetings shall be given to all SH or members of the respective corporations in the same manner
as giving notice of regular or special meetings under Section 49 of this Code. (NEW) The notice
shall state the purpose of the meeting and include a copy or a summary of the plan of merger or
consolidation.
• Voting requirement: affirmative vote of SH representing at least 2/3 of the OCS of each
corporation in the case of stock corporations or at least 2/3 of the members in the case of
non-stock corporations
• Voting requirement for amendment to the plan of merger or consolidation: majority vote of
the respective BOD/BOT of all the constituent corporations and ratified by the affirmative vote
of SH representing at least 2/3 of the OCS or 2/3 of the members of each of the constituent
corporations.
• The right of appraisal of dissenting SH available, but if after the approval by the SH of such
plan, the BOD decides to abandon the plan, the right of appraisal shall be extinguished.
Steps in merger or consolidation – 2017,
2012 Bar
3. Execution of the formal agreement, referred to as the articles of merger or consolidation, by the
corporate officers of each constituent corporation. These take the place of the AoI of the consolidated
corporation, or amend the AoI of the surviving corporation.
• The articles of merger or consolidation is signed by the president or vice president and certified by the
secretary or assistant secretary of each corporation setting forth:
• a. The plan of the merger or the plan of consolidation;
• b. As to stock corporations, the number of shares outstanding, or in the case of non-stock corporations,
the number of members;
• c. As to each corporation, the number of shares or members voting for or against such plan,
respectively;
• d. The carrying amounts and fair values of the assets and liabilities of the respective companies as of the
agreed cut-off date; (NEW)
• e. The method to be used in the merger or consolidation of accounts of the companies; (NEW)
• f. The provisional or pro- forma values, as merged or consolidated, using the accounting method; (NEW)
• g. Such other information as may be prescribed by the SEC. (NEW)
Steps in merger or consolidation – 2017,
2012 Bar
4. Submission of said articles of merger or consolidation to the SEC for
approval.
• In the case of merger or consolidation of banks or banking institutions,
loan associations, trust companies, insurance companies, public utilities,
educational institutions, and other special corporations governed by special
laws, the favorable recommendation of the appropriate government agency
shall first be obtained.
5. If, upon investigation, the SEC has reason to believe that the proposed
merger or consolidation is contrary to or inconsistent with the provisions of the
law, it shall set a hearing to give the corporations concerned the opportunity to
be heard. Written notice of the date, time, and place of hearing shall be given to
each constituent corporation at least 2 weeks before said hearing.
Steps in merger or consolidation – 2017,
2012 Bar
6. Issuance by SEC of a certificate approving the articles and plan of merger or of consolidation, at
which time the merger or consolidation shall be effective.
• A merger does not become effective upon the mere agreement of the constituent corporations. All the
requirements specified in the law must be complied with in order for merger to take effect.
• The issuance of the certificate of merger is crucial because not only does it bear out SEC's approval but
it also marks the moment when the consequences of a merger take place. By operation of law, upon
the effectivity of the merger, the absorbed corporation ceases to exist but its rights and properties, as
well as liabilities, shall be taken and deemed transferred to and vested in the surviving corporation.
• The same rule applies to consolidation which becomes effective not upon mere agreement of the
members but only upon issuance of the certificate of consolidation by the SEC. When the SEC, upon
processing and examining the articles of consolidation, is satisfied that the consolidation of the
corporations is not inconsistent with the provisions of the Corporation Code and existing laws, it issues
a certificate of consolidation which makes the reorganization official. The new consolidated
corporation comes into existence and the constituent corporations are dissolved and cease to exist.
De facto merger – 2016 Bar
• A de facto merger can be pursued by one corporation acquiring all or substantially all of the properties
of another corporation in exchange of shares of stock of the acquiring corporation. The acquiring
corporation would end up with the business enterprise of the target corporation; whereas, the target
corporation would end up with basically its only remaining assets being the shares of stock of the
acquiring corporation.
• In Bank of Commerce vs. Radio Philippine Network, Inc., 722 SCRA 520, Bank of Commerce agreed to
assume those liabilities of Traders Royal Bank(TRB) that are specified in their Purchase and
Assumption(P & A) Agreement. That agreement specifically excluded TRB's contingent liabilities that
the latter might have arising from pending litigations in court, including the claims of Radio Philippine
Network, Inc. (RPN). It was held that no de facto merger took place because the TRB owners did not
get in exchange for the bank's assets and liabilities an equivalent value in Bank of Commerce shares of
stock. Bank of Commerce and TRB agreed with BSP approval to exclude from the sale the TRB's
contingent judicial liabilities, including those owing to RPN. The transaction between the two banks
was neither a merger nor a de facto merger but a mere sale of assets with assumption of liabilities. No
merger or consolidation took place as the records do not show any plan or articles of merger or
consolidation. More importantly, the SEC did not issue any certificate of merger or consolidation.
Effects of merger or consolidation – 2012 Bar
a. The constituent corporations shall become a single corporation
which, in case of merger, shall be the surviving corporation designated
in the plan of merger; and, in case of consolidation, shall be the
consolidated corporation designated in the plan of consolidation;
b. The separate existence of the constituent corporations shall
cease, except that of the surviving or the consolidated corporation;
c. The surviving or the consolidated corporation shall possess all
the rights, privileges, immunities, and powers and shall be subject to all
the duties and liabilities of a corporation organized under this Code;
Effects of merger or consolidation – 2012 Bar
d. The surviving or the consolidated corporation shall possess all the rights,
privileges, immunities and franchises of each constituent corporation; and all real or
personal property, all receivables due on whatever account, including subscriptions to
shares and other choses in action, and every other interest of, belonging to, or due to
each constituent corporation, shall be deemed transferred to and vested in such
surviving or consolidated corporation without further act or deed; and
e. The surviving or consolidated corporation shall be responsible for all the
liabilities and obligations of each constituent corporation as though such surviving or
consolidated corporation had itself incurred such liabilities or obligations; and any
pending claim, action or proceeding brought by or against any constituent corporation
may be prosecuted by or against the surviving or consolidated corporation. The rights
of creditors or liens upon the property of such constituent corporations shall not be
impaired by the merger or consolidation.
Effects of merger or consolidation – 2012
Bar
• In the merger of two existing corporations, one of the corporations survives and continues the
business, while the other is dissolved and all its rights, properties and liabilities are acquired by the
surviving corporation. Although there is a dissolution of the absorbed or merged corporations, there is
no winding up of their affairs or liquidation of their assets because the surviving corporation
automatically acquires all their rights, privileges, and powers, as well as their liabilities. Global Business
Holdings, Inc. vs. Surecomp Software, B.V., 633 SCRA 95.
• So what happens now to the employees of the constituent corporations? In Philippine Geothermal
Inc. Employees Labor Union vs. Unocal Philippines, Inc., G.R. No. 190187, September 28, 2016, the
Union wrote Unocal Philippines asking for the separation benefits provided for under the CBA.
According to the Union, the Merger Agreement of Unocal Corporation, Blue Merger, and Chevron
resulted in the closure and cessation of operations of Unocal Philippines and the implied dismissal of
its employees. The acquisition of all assets, interests, and liabilities of the absorbed corporation
necessarily includes the rights and obligations of the absorbed corporation under its employment
contracts. Consequently, the surviving corporation becomes bound by the employment contracts
entered into by the absorbed corporation. These employment contracts are not terminated. They
subsist unless their termination is allowed by law.
APPRAISAL RIGHT
Basis for appraisal right – 2011 Bar
• Appraisal right - a stockholder who dissented and voted against the proposed corporate
action, may choose to get out of the corporation by demanding payment of the fair
market value of his shares. When a person invests in the stocks of a corporation, he
subjects his investment to all the risks of the business and cannot just pull out such
investment should the business not come out as he expected. He will have to wait until
the corporation is finally dissolved before he can get back his investment, and even
then, only if sufficient assets are left after paying all corporate creditors. His only way
out before dissolution is to sell his shares should he find a willing buyer. If there is no
buyer, then he has no recourse but to stay with the corporation.
• However, in certain specified instances, the Code grants the stockholder the right to get
out of the corporation even before its dissolution because there has been a major
change in his contract of investment with which he does not agree and which the law
presumes he did not foresee when he bought his shares.
When right can be exercised – 2018, 2007 Bar
a. In case an amendment to the AOI has the effect of changing or
restricting the rights of any stockholder or class of shares, or of
authorizing preferences in any respect superior to those of outstanding
shares of any class, or of extending or shortening the term of corporate
existence;
b. In case of sale, lease, exchange, transfer, mortgage, pledge (SLEMP)
or other disposition of all or substantially all of the corporate property and
assets as provided in this Code;
c. In case of merger or consolidation; and
d. In case of investment of corporate funds for any purpose other than
the primary purpose of the corporation.
How right is exercised and implications – 2011,
2007 Bar
1. The dissenting stockholder who votes against a proposed corporate action may exercise the right
of appraisal by making a written demand on the corporation for the payment of the fair value of shares
held within 30 days from the date on which the vote was taken. Failure to make the demand within such
period = waiver of the appraisal right.
2. If the withdrawing stockholder and the corporation cannot agree on the fair value of the shares
within 60 days from the approval of the corporate action by the stockholders, the fair value of the
shares, shall be determined and appraised by 3 disinterested persons, one of whom shall be named by
the stockholder, another by the corporation, and the third by the 2 thus chosen. The findings of the
majority of the appraisers shall be final, and their award shall be paid by the corporation within 30 days
after such award is made. No payment shall be made to any dissenting stockholder unless the
corporation has URE. Upon payment by the corporation of the agreed or awarded price, the stockholder
shall forthwith transfer the shares to the corporation.
3. All rights accruing to the withdrawing stockholder's shares, including voting and dividend rights,
shall be suspended from the time of demand for the payment of the fair value of the shares until either
the abandonment of the corporate action involved or the purchase of the shares by the corporation,
except the right of such stockholder to receive payment of the fair value of the shares.
How right is exercised and implications – 2011,
2007 Bar
4. Within 10 days after demanding payment for shares held, a dissenting stockholder
shall submit the certificates of stock representing the shares to the corporation for notation
that such shares are dissenting shares. Failure to do so shall, at the option of the
corporation, terminate the rights. If shares represented by the certificates bearing such
notation are transferred, and the certificates consequently cancelled, the rights of the
transferor as a dissenting stockholder shall cease and the transferee shall have all the rights
of a regular stockholder; and all dividend distributions which would have accrued on such
shares shall be paid to the transferee.
5. If the proposed corporate action is implemented, the corporation shall pay the
stockholder, upon surrender of the certificate/s of stock representing the stockholder’s
shares, the fair value thereof as of the day before the vote was taken, excluding any
appreciation or depreciation in anticipation of such corporate action.
6. If the dissenting stockholder is not paid the value of the said shares within 30 days
after the award, the voting and dividend rights shall immediately be restored.
How right is exercised and implications –
2011, 2007 Bar
• The Trust Fund Doctrine backstops the requirement of URE to fund the
payment of the shares of stocks of the withdrawing stockholders. Under
the doctrine, the capital stock, property, and other assets of a
corporation are regarded as equity in trust for the payment of corporate
creditors, who are preferred in the distribution of corporate assets. The
creditors of a corporation have the right to assume that the BOD will not
use the assets of the corporation to purchase its own stock for as long as
the corporation has outstanding debts and liabilities. There can be no
distribution of assets among the stockholders without first paying
corporate debts. Thus, any disposition of corporate funds and assets to
the prejudice of creditors is null and void.
When right to payment ceases
• No demand for payment may be withdrawn unless the corporation consents
thereto. If, however, such demand for payment is:
a. withdrawn with the consent of the corporation, or
b. if the proposed corporate action is abandoned or rescinded by the
corporation or disapproved by the SEC where such approval is necessary, or
c. if the SEC determines that such stockholder is not entitled to the
appraisal right
• then the right of the stockholder to be paid the fair value of the shares shall
cease, the status as the stockholder shall be restored, and all dividend
distributions which would have accrued on the shares shall be paid to the
stockholder.
Who bears cost of appraisal
• It shall be borne by the corporation, unless the fair value ascertained
by the appraisers is approximately the same as the price which the
corporation may have offered to pay the stockholder, in which case
they shall be borne by the latter. In the case of an action to recover
such fair value, all costs and expenses shall be assessed against the
corporation, unless the refusal of the stockholder to receive payment
was unjustified.
NON-STOCK CORPORATIONS
Nature and purposes of non-stock corporation
• A non-stock corporation is one where no part of its income is
distributable as dividends to its members, trustees, or officers. Any
profit which a non-stock corporation may obtain incidental to its
operations shall, whenever necessary or proper, be used for the
furtherance of the purpose/s for which the corporation was
organized.
• Non-stock corporations may be formed or organized for charitable,
religious, educational, professional, cultural, fraternal, literary,
scientific, social, civic service, or similar purposes, like trade, industry,
agricultural and like chambers, or any combination thereof.
Nature and purposes of non-stock corporation
• Membership in a non-stock corporation and all rights arising
therefrom are personal and nontransferable, unless the AOI or the
bylaws otherwise provide.
• Does it mean that a non-stock corporation cannot have any income or
profit? No. It only means that the income or profit generated must
be ploughed back for the furtherance of the purpose/s for which the
corporation was organized.
Membership; right to vote – 2011 Bar
• The right of the members of any class or classes to vote may be
limited, broadened, or denied to the extent specified in the AOI or the
bylaws.
• How many votes allowed? Unless so limited, broadened, or denied,
each member, regardless of class, shall be entitled to 1 vote.
• Manner of voting:
1. In person
2. Unless otherwise provided in the AoI or the bylaws, by proxy
3. Remote communication and/or in absentia. (NEW)
Termination of membership
• Membership shall be terminated in the manner and for the causes
provided in the AOI or the bylaws. Termination of membership shall
extinguish all rights of a member in the corporation or in its property,
unless otherwise provided in the AOI or the bylaws.
Election and term of trustees
• The number of trustees shall be fixed in the AoI or bylaws which may
or may not be more than 15. They shall hold office for not more than
3 years until their successors are elected and qualified. Trustees
elected to fill vacancies occurring before the expiration of a particular
term shall hold office only for the unexpired period.
• Except with respect to independent trustees (NEW) of non-stock
corporations vested with public interest, only a member of the
corporation shall be elected as trustee.
• Unless otherwise provided in the AOI or the bylaws, the members
may directly elect officers of a non-stock corporation.
List and members of proxies, place of meetings
• The corporation shall, at all times, keep a list of its members and their
proxies (NEW). The list shall be updated to reflect the members and
proxies of record 20 days prior to any scheduled election.
• The bylaws may provide that the members of a non-stock corporation
may hold their regular or special meetings at any place even outside
the place where the principal office of the corporation is located,
provided:
1. Proper notice is sent to all members indicating the date, time and
place of the meeting
2. The place of meeting shall be within Philippine territory.
Rules on distribution of assets
• The assets of a non-stock corporation undergoing the process of dissolution for reasons
other than those set forth in Section 139 shall be applied and distributed as follows:
a. All liabilities and obligations of the corporation shall be paid, satisfied and
discharged, or adequate provision shall be made therefor;
b. Assets held by the corporation upon a condition requiring return, transfer or
conveyance, and which condition occurs by reason of the dissolution, shall be returned,
transferred or conveyed in accordance with such requirements;
c. Assets received and held by the corporation subject to limitations permitting their
use only for charitable, religious, benevolent, educational or similar purposes, but not held
upon a condition requiring return, transfer or conveyance by reason of the dissolution,
shall be transferred or conveyed to 1 or more corporations, societies or organizations
engaged in activities in the Philippines substantially similar to those of the dissolving
corporation according to a plan of distribution adopted pursuant to this Chapter;
Rules on distribution of assets
• The assets of a non-stock corporation undergoing the process of dissolution for
reasons other than those set forth in Section 139 shall be applied and distributed as
follows:
d. Assets other than those mentioned in the preceding paragraphs, if any, shall be
distributed in accordance with the provisions of the AOI or the bylaws, to the extent
that the AoI or the bylaws determine the distributive rights of members, or any class or
classes of members, or provide for distribution; and
e. In any other case, assets may be distributed to such persons, societies,
organizations or corporations, whether or not organized for profit, as may be specified
in a plan of distribution adopted.
• Section 139 refers to corporations whose charter expires pursuant to its AoI, is
annulled by forfeiture, or whose corporate existence is terminated in any other
manner. Reference to this is NEW.
Plan of distribution of assets
a. The BOT shall, by majority vote, adopt a resolution recommending
a plan of distribution and directing the submission thereof to a vote at a
regular or special meeting of members having voting rights;
b. Each member entitled to vote shall be given a written notice
setting forth the proposed plan of distribution or a summary thereof and
the date, time and place of such meeting within the time and in the
manner provided in this Code for the giving of notice of meetings; and
c. Such plan of distribution shall be adopted upon approval of at
least 2/3 of the members having voting rights present or represented by
proxy at such meeting.
CLOSE CORPORATIONS
Definition and nature
• A close corporation, is one whose AOI provides that:
a. all the corporation’s issued stock of all classes, exclusive of TS, shall
be held of record by not more than a specified number of persons, not
exceeding 20;
b. all the issued stock of all classes shall be subject to 1 or more
specified restrictions on transfer; and
c. the corporation shall not list in any stock exchange or make any
public offering of its stocks of any class.
• A corporation shall not be deemed a close corporation when at least
2/3 of its voting stock or voting rights is owned or controlled by another.
Definition and nature
• Any corporation may be incorporated as a close corporation, except:
MOSBIPEP
a. mining or oil companies
b. stock exchanges
c. banks
d. insurance companies
e. public utilities
f. educational institutions and
g. corporations declared to be vested with public interest
Definition and nature
• In San Juan Structural and Steel Fabricators, Inc. vs. Court of Appeals,
296 SCRA 631 it was held that a narrow distribution of ownership
does not, by itself, make a close corporation. Courts must look into
the AOI to find provisions expressly stating that:
1. the number of stockholders shall not exceed 20; or
2. a preemption of shares is restricted in favor of any stockholder or
of the corporation; or
3. the listing of the corporate stocks in any stock exchange or
making a public offering of those stocks is prohibited.
Articles of incorporation
• The AOI of a close corporation may provide for:
• A classification of shares or rights, the qualifications for owning or holding the same, and
restrictions on their transfers;
• A classification of directors into 1 or more classes, each of whom may be voted for and elected
solely by a particular class of stock;
• Greater quorum or voting requirements in meetings of stockholders or directors than those
provided in this Code;
d. That the business of the corporation shall be managed by the SH of the corporation rather
than by a BOD. So long as this provision continues in effect, no meeting of stockholders need be
called to elect directors, provided that the SH of the corporation shall be deemed to be directors
for the purpose of applying the provisions of this Code, unless the context clearly requires
otherwise and that the SH of the corporation shall be subject to all liabilities of directors;
e. all officers or employees or that specified officers or employees shall be elected or
appointed by the SH, instead of by the BOD.
Restrictions on transfer of shares
• To be valid and binding on any purchaser in good faith, restrictions on
the right to transfer shares must appear in the AOI, in the bylaws, as
well as in the certificate of stock. Said restrictions shall not be more
onerous than granting the existing SH or the corporation the option to
purchase the shares of the transferring SH with such reasonable
terms, conditions or period stated. If, upon the expiration of said
period, the existing SH or the corporation fails to exercise the option
to purchase, the transferring SH may sell their shares to any third
person.
Effects of issuance or transfer in breach of
conditions
a. If a stock of a close corporation is issued or transferred to any person who is not eligible
to be a holder thereof under any provision of the AoI, and if the certificate for such stock
conspicuously shows the qualifications of the persons entitled to be holders of record
thereof, such person is conclusively presumed to have notice of the fact of the ineligibility
to be a SH.
b. If the AoI of a close corporation states the number of persons, not exceeding 20, who are
entitled to be SH of record, and if the certificate for such stock conspicuously states such
number, and the issuance or transfer of stock to any person would cause the stock to be
held by more than such number of persons, the person to whom such stock is issued or
transferred is conclusively presumed to have notice of this fact.
c. If a stock certificate of a close corporation conspicuously shows a restriction on transfer of
the corporation’s stock and the transferee acquires the stock in violation of such
restriction, the transferee is conclusively presumed to have notice of the fact that the stock
was acquired in violation of the restriction.
Effects of issuance or transfer in breach of
conditions
d. Whenever a person to whom stock of a close corporation has been issued or transferred has or is
conclusively presumed under this section to have notice of:
• 1. the person’s ineligibility to be a stockholder of the corporation; or
• 2. that the transfer of stock would cause the stock of the corporation to be held by more than
the number of persons permitted under its articles of incorporation; or
• 3. that the transfer violates a restriction on transfer of stock,
the corporation may, at its option, refuse to register the transfer in the name of the transferee.
e. The provisions of subsection (d) shall not be applicable if the transfer of stock, though contrary to
subsections (a), (b) or (c), has been consented to by all the SH of the close corporation, or if the
close corporation has amended its AOI.
• Nonetheless, the transferee’s right to either rescind the transfer or recover the stock under any
express or implied warranty may not be impaired. In Florete, Sr. vs. Florete, Jr., G.R. No. 223321,
April 2, 2018, it was held that respondents’ inaction for 17 years despite knowledge of the sale
constituted waiver.
Agreements by stockholders
• a. Agreements duly signed and executed by and among all SH before the
formation and organization of a close corporation shall survive the
incorporation and shall continue to be valid and binding between such SH, if
such be their intent, to the extent that such agreements are consistent with the
AoI, irrespective of where the provisions of such agreements are contained,
except those required by this Title to be embodied in said AoI.
• b. A written agreement signed by 2 or more SH may provide that in
exercising any voting right, the shares held by them shall be voted as provided
or as agreed, or in accordance with a procedure agreed upon by them.
• c. No provision in a written agreement signed by the SH, relating to any
phase of corporate affairs, shall be invalidated between the parties on the
ground that its effect is to make them partners among themselves.
Agreements by stockholders
• d. A written agreement among some or all of the SH in a close
corporation shall not be invalidated on the ground that it relates to the
conduct of the business and affairs of the corporation as to restrict or
interfere with the discretion or powers of the BOD: Provided, That such
agreement shall impose on the SH who are parties thereto the liabilities
for managerial acts imposed on directors by this Code.
• e. SH actively engaged in the management or operation of the
business and affairs of a close corporation shall be held to strict
fiduciary duties to each other and among themselves. The SH shall be
personally liable for corporate torts unless the corporation has
obtained reasonably adequate liability insurance.
When a board meeting is improperly held
• Unless the bylaws provide otherwise, any action taken by the directors of a
close corporation without a meeting called properly and with due notice
shall nevertheless be deemed valid if:
a. Before or after such action is taken, a written consent thereto is signed
by all the directors; or
b. All the SH have actual or implied knowledge of the action and make no
prompt objection in writing; or
c. The directors are accustomed to take informal action with the express
or implied acquiescence of all the SH; or
d. All the directors have express or implied knowledge of the action in
question and none of them makes a prompt objection in writing.
When a board meeting is improperly held
• An action within the corporate powers taken at a meeting held
without proper call or notice is deemed ratified by a director who
failed to attend, unless after having knowledge thereof, the director
promptly files his written objection with the secretary of the
corporation.
• In Manuel R. Dulay Enterprises, Inc. vs. Court of Appeals, 225 SCRA
678, Virgilio Dulay failed to file his written objection. The same
resulted to ratification of the action taken by the board.
Preemptive right
• The preemptive right of SH in close corporations shall extend to all
stock to be issued, including reissuance of TS, whether for money,
property or personal services, or in payment of corporate debts,
unless the AOI provide otherwise.
Amendment of articles
• Any amendment to the AOI which seeks to delete or remove any
provision required by this Title or to reduce a quorum or voting
requirement stated in said AoI shall require the affirmative vote of at
least 2/3 of the OCS, whether with or without voting rights, or of such
greater proportion of shares as may be specifically provided in the
AOI for amending, deleting or removing any of the aforesaid
provisions, at a meeting duly called for the purpose.
Deadlocks
• If the directors or SH are so divided on the management of the corporation’s business and affairs that
the votes required for a corporate action cannot be obtained, with the consequence that the business
and affairs of the corporation can no longer be conducted to the advantage of the SH generally, the
SEC, upon written petition by any SH, shall have the power to arbitrate the dispute. The SEC shall have
authority to make appropriate orders, such as:
• a. cancelling or altering any provision contained in the AOI, bylaws, or any SH’ agreement;
• b. cancelling, altering or enjoining a resolution or act of the corporation or its BOD, SH, or officers;
• c. directing or prohibiting any act of the corporation or its BOD, SH, officers, or other persons party
to the action;
• d. requiring the purchase at their fair value of shares of any SH, either by the corporation
regardless of the availability of URE its books, or by the other SH;
• e. appointing a provisional director;
• f. dissolving the corporation; or
• g. granting such other relief as the circumstances may warrant.
Deadlocks
• A provisional director - an impartial person who is neither a SH nor a
creditor of the corporation or any of its subsidiaries or affiliates. He is
not a receiver of the corporation and does not have the title and
powers of a custodian or receiver. A provisional director shall have all
the rights and powers of a duly elected director, including the right to
be notified of and to vote at meetings of directors until removed by
order of the SEC or by all the SH.
• Take note that as a general rule, a SH can only exercise appraisal right
if there are URE in the corporate books. The exception to that rule is
in case of deadlocks in close corporations.
Withdrawal of stockholder or dissolution of
corporation
• Any SH of a close corporation may, for any reason, compel the
corporation to purchase shares held at fair value, which shall not be
less than the par or issued value, when the corporation has sufficient
assets in its books to cover its debts and liabilities exclusive of capital
stock. Any SH of a close corporation may, by written petition to the
SEC, compel the dissolution of such corporation whenever:
a. any acts of the directors, officers, or those in control of the
corporation are illegal, fraudulent, dishonest, oppressive or unfairly
prejudicial to the corporation or any SH, or
b. corporate assets are being misapplied or wasted.
EDUCATIONAL CORPORATIONS
• Incorporation

• Educational corporations shall be governed by special laws and by the

general provisions of this Code.
• Board of Trustees
• Trustees of educational institutions organized as non-stock corporations shall not be
less than 5 nor more than 15: Provided, That the number of trustees shall be in
multiples of 5.
• Unless otherwise provided in the AOI or bylaws, the BOT of incorporated schools,
colleges, or other institutions of learning shall, as soon as organized, so classify
themselves that the term of office of 1/5 of their number shall expire every year.
Trustees thereafter elected to fill vacancies, occurring before the expiration of a
particular term, shall hold office only for the unexpired period. Trustees elected
thereafter to fill vacancies caused by expiration of term shall hold office for 5 years. A
majority of the trustees shall constitute a quorum for the transaction of business.
• For institutions organized as stock corporations, the number and term of directors
shall be governed by the provisions on stock corporations.
RELIGIOUS CORPORATIONS
• Classes of Religious Corporations
• Religious corporations may be incorporated by 1 or more persons. Such corporations may be
classified into corporations sole and religious societies.
• A corporation sole is formed by the chief archbishop, bishop, priest, minister, rabbi, or other
presiding elder of such religious denomination, sect or church for the purpose of
administering and managing, as trustee, the affairs, property and temporalities of any
religious denomination, sect or church.
• In contrast to a corporation sole, religious societies are formed by more than one person.
Under Section 114, unless forbidden by competent authority, the Constitution, pertinent
rules, regulations, or discipline of the religious denomination, sect or church of which it is a
part, any religious society, religious order, diocese, or synod, or district organization of any
religious denomination, sect or church, may, upon written consent and/or by an affirmative
vote at a meeting called for the purpose of at least 2/3 of its membership, incorporate for the
administration of its temporalities or for the management of its affairs, properties, and estate.
• Articles of Incorporation of Corporation Sole
• In order to become a corporation sole, the chief archbishop etc of any religious denomination, sect
or church must file with the SEC AOI setting forth the following:
a. That the applicant chief archbishop etc represents the religious denomination, sect or church
which desires to become a corporation sole;
b. That the rules, regulations and discipline of the religious denomination, sect or church are
consistent with becoming a corporation sole and do not forbid it;
c. That such chief archbishop etc is charged with the administration of the temporalities and the
management of the affairs, estate and properties of the religious denomination, sect, or church within
the territorial jurisdiction, so described succinctly in the articles of incorporation;
d. The manner by which any vacancy occurring in the office of chief archbishop etc is required to be
filled, according to the rules, regulations or discipline of the religious denomination, sector church; and
e. The place where the principal office of the corporation sole is to be established and located,
which place must be within the territory of the Philippines.
• Articles of Incorporation of Corporation Sole
• Under Section 110, the AOI must be verified, by affidavit or affirmation of the chief
archbishop etc and accompanied by a copy of the commission, certificate of election
or letter of appointment of such chief archbishop etc, duly certified to be correct by
any notary public.
• From and after filing with the SEC of the said AOI, verified by affidavit or affirmation,
and accompanied by the documents mentioned in the preceding paragraph, such
chief archbishop etc shall become a corporation sole and all temporalities, estate and
properties of the religious denomination, sect or church theretofore administered or
managed as such chief archbishop etc shall be personally held in trust as a
corporation sole, for the use, purpose, exclusive benefit and on behalf of the religious
denomination, sect or church, including hospitals, schools, colleges, orphan asylums,
parsonages, and cemeteries thereof.
• Acquisition and Alienation of Property
• A corporation sole may purchase and hold real estate and personal property for its church,
charitable, benevolent, or educational purposes, and may receive bequests or gifts for such
purposes.
• Such corporation may sell or mortgage real property held by it by obtaining an order for that
purpose from the RTC of the province where the property is situated upon proof that the notice of
the application for leave to sell or mortgage has been made through publication or as directed by
the Court, and that it is in the interest of the corporation that leave to sell or mortgage be granted.
The application for leave to sell or mortgage must be made by petition, duly verified, by the chief
archbishop etc acting as corporation sole, and may be opposed by any member of the religious
denomination, sect, or church represented by the corporation sole. In cases where the rules,
regulations, and discipline of the religious denomination, sect or church, religious society, or order
concerned represented by such corporation sole regulate the method of acquiring, holding, selling,
and mortgaging real estate and personal property, such rules, regulations and discipline shall
govern, and the intervention of the courts shall not be necessary.
• In Roman Catholic Administrator of Davao, Inc., 102 Phil 596, the acquisition of the church of a
parcel of land was questioned as Msgr. Clovis Thibault, a Canadian citizen hence an alien,is the
actual incumbent. It was held that bishops or archbishopsare merely administrators of the church
properties that come to their possession, and which they hold in trust for the church. Moreover,
the members of the Roman Catholic Apostolic faith within the territory of Davao are
predominantly Filipino citizens hence, there would be no constitutional violation.
• This is different from Register of Deeds of Rizal vs. Ung Sui Si Temple, G. R. No. L-6776, May 21,
1955 where Ung Siu Si Temple was not a corporation sole but a corporation aggregate, i.e., an
unregistered organization operating through 3 trustees, all of Chinese nationality, hence it was
disallowed from acquiring realty.
• Now, when under the canon of the concerned church requires, for the sale of real property,
requires not just the consent of the Supreme Bishop but also the concurrence of the laymen's
committee, the parish priest, and the Diocesan Bishop, as sanctioned by the Supreme Council and
the same was not complied with, the sale is void. Iglesia Filipina Independiente vs. Heirs of Taeza,
G.R. No. 179597, February 3, 2014
• Filling of Vacancies
• The successors in office of any chief archbishop etc in a corporation sole shall
become the corporation sole on their accession to office and shall be permitted to
transact business as such upon filing a copy of their commission, certificate of
election, or letters of appointment, duly certified by any notary public with the SEC.
• During any vacancy in the office of chief archbishop etc of any religious
denomination, sect or church incorporated as a corporation sole, the person or
persons authorized by the rules, regulations or discipline of the religious
denomination, sect, or church represented by the corporation sole to administer
the temporalities and manage the affairs, estate, and properties of the corporation
sole shall exercise all the powers and authority of the corporation sole during such
vacancy.
• Dissolution
A corporation sole may be dissolved and its affairs settled voluntarily by
submitting to the SEC a verified declaration of dissolution, setting forth:
• The name of the corporation;
• The reason for dissolution and winding up;
• The authorization for the dissolution of the corporation by the
particular religious denomination, sect or church; and
• The names and addresses of the persons who are to supervise the
winding up of the affairs of the corporation.
• Dissolution
• Upon approval of such declaration of dissolution by the SEC, the corporation shall cease to
carry on its operations except for the purpose of winding up its affairs.
• Can a corporation sole be converted into a corporation aggregate by mere amendment of
its AOI? Yes, it is feasible. There is no point to dissolving the corporation sole of one
member to enable the corporation aggregate to emerge from it. Whether it is a non-stock
corporation or a corporation sole, the corporate being remains distinct from its members,
whatever be their number. The increase in the number of its corporate membership does
not change the complexion of its corporate responsibility to third parties. The one
member, with the concurrence of 2/3 of the membership of the organization for whom he
acts as trustee, can self-will the amendment. He can, with membership concurrence,
increase the technical number of the members of the corporation from "sole" or one to
the greater number authorized by its amended articles.
• Articles of Incorporation of Religious Societies
• Under Section 114, this is filed with the SEC, verified by the affidavit of the presiding
elder, secretary, or clerk or other member of such religious society or religious order,
or diocese, synod, or district organization of the religious denomination, sect, or
church, setting forth the following:
a. That the religious society or religious order, or diocese, synod, or district
organization is a religious organization of a religious denomination, sect or church;
b. That at least 2/3 of its membership has given written consent or has voted to
incorporate, at a duly convened meeting of the body;
c. That the incorporation of the religious society or religious order, or diocese,
synod, or district organization is not forbidden by competent authority or by the
Constitution, rules, regulations or discipline of the religious denomination, sect or
church of which it forms part;
• Articles of Incorporation of Religious Societies
d. That the religious society or religious order, or diocese, synod, or
district organization desires to incorporate for the administration of its
affairs, properties and estate;
e. The place within the Philippines where the principal office of the
corporation is to be established and located; and
f. The names, nationalities, and residence addresses of the trustees, not
less than 5 nor more than 15, elected by the religious society or religious
order, or the diocese, synod, or district organization to serve for the first year
or such other period as may be prescribed by the laws of the religious society
or religious order, or of the diocese, synod, or district organization.
ONE PERSON CORPORATION
• The provisions regarding One Person Corporations (OPC) are new.

• Why the creation of an OPC? During the legislative hearing of the

then proposed bill at the Senate, the Chairperson of the SEC said that
“the real reason for allowing one person is to give him control,
especially when his business is still in the early stages. The OPC is a
good starting point to start a business.”
• Nature of a One Person Corporation
• An OPC is a corporation with a single SH. Only a natural person, trust, or an
estate may form an OPC.
• Under SEC Memorandum Circular No. 7, series of 2019, the term of
existence of the OPC shall be perpetual. However, in the case of the trust or
estate, its term of existence shall be co-terminous with the existence of the trust
or estate.
• Also, under the said Circular, a foreign national may put up an OPC, subject
to the applicable capital requirement and constitutional and statutory restrictions
on foreign participation in certain investment areas or activities.
• An OPC shall not be required to have a minimum authorized capital stock except
as otherwise provided by special law.
• Who Are Not Allowed to Form OPCs
• Banks and quasi-banks, preneed, trust, insurance, public and publicly-
listed companies, and non-chartered government-owned controlled
corporations may not incorporate as OPC. Neither may a natural
person who is licensed to exercise a profession organize as an OPC for
the purpose of exercising such profession except as otherwise
provided under special laws.
• Documentation
• An OPC shall file AOI in accordance with the requirements under Section
14 of this Code. It shall likewise substantially contain the following:
• a. If the single SH is a trust or an estate, the name, nationality, and
residence of the trustee, administrator, executor, guardian, conservator,
custodian, or other person exercising fiduciary duties together with the
proof of such authority to act on behalf of the trust or estate; and
• b. Name, nationality, residence of the nominee and alternate
nominee, and the extent, coverage and limitation of the authority.
• The OPC is not required to submit and file corporate bylaws.
• Display of Corporate Name
• An OPC shall indicate the letters “OPC” either below or at the end of
its corporate name.
• Directors and Officers
• The single stockholder shall be the sole director and president of the OPC.
• Within 15 days from the issuance of its certificate of incorporation, the OPC shall appoint a
treasurer, corporate secretary, and other officers as it may deem necessary, and notify the SEC
thereof within 5 days from appointment.
• The single stockholder may not be appointed as the corporate secretary, but may assume the
role of a Treasurer. The stockholder/treasurer shall give a bond to the SEC in such a sum as
may be required. The said stockholder/treasurer shall undertake in writing to faithfully
administer the OPC’s funds to be received as treasurer, and to disburse and invest the same
according to the AOI as approved by the SEC. The bond shall be renewed every 2 years or as
often as may be required.
• Under SEC Memorandum Circular No. 7, series of 2019, the bond is a continuing requirement
for so long as the single stockholder is the self-appointed treasurer of the OPC. The bond may
be cancelled upon proof of appointment of another person as Treasurer.
• Special Functions of the Corporate Secretary
• In addition to the functions designated by the OPC, the corporate secretary shall:
a. Be responsible for maintaining the minutes book and/or records of the corporation;
b. Notify the nominee or alternate nominee of the death or incapacity of the single
stockholder, which notice shall be given no later than 5 days from such occurrence;
c. Notify the SEC of the death of the single stockholder within 5 days from such
occurrence and stating in such notice the names, residence addresses, and contact details
of all known legal heirs; and
d. Call the nominee or alternate nominee and the known legal heirs to a meeting and
advise the legal heirs with regard to, among others, the election of a new director,
amendment of the articles of incorporation, and other ancillary and/or consequential
matters.
• Nominee and Alternate Nominee
• The single SH shall designate a nominee and an alternate nominee. The nominee shall, in the
event of the single SH’s death or incapacity, take the place of the single SH as director and shall
manage the corporation’s affairs.
• The alternate nominee shall sit as director and manage the OPC in case of the nominee’s inability,
incapacity, death, or refusal to discharge the functions as director and manager of the corporation.
• The AOI shall state the names, residence addresses and contact details of the nominee and
alternate nominee, as well as the extent and limitations of their authority in managing the affairs
of the OPC.
• The written consent of the nominee and alternate nominee shall be attached to the application for
incorporation. Such consent may be withdrawn in writing any time before the death or incapacity
of the single SH. On the other hand, the single SH may, at any time, change its nominee and
alternate nominee by submitting to the SEC the names of the new nominees and their
corresponding written consent. For this purpose, the AOI need not be amended.
• Term of Nominee and Alternate Nominee
• When the incapacity of the single SH is temporary, the nominee shall
sit as director and manage the affairs of the OPC until the SH, by self-
determination, regains the capacity to assume such duties.
• In case of death or permanent incapacity of the single SH, the
nominee shall sit as director and manage the affairs of the OPC until
the legal heirs of the single SH have been lawfully determined, and
the heirs have designated one of them or have agreed that the estate
shall be the single SH of the OPC.
• Recording System
• An OPC shall maintain a minutes book which shall contain all actions,
decisions, and resolutions taken by the OPC.
• When action is needed on any matter, it shall be sufficient to prepare
a written resolution, signed and dated by the single SH, and recorded
in the minutes book of the OPC. The date of recording in the minutes
book shall be deemed to be the date of the meeting for all purposes
under this Code.
• Reportorial Requirements
• The OPC shall submit the following within such period as the SEC may prescribe:
a. Annual FS audited by an independent CPA. If the total assets or total liabilities of the
corporation are less than P600K, the FS shall be certified under oath by the corporation’s treasurer
and president;
b. A report containing explanations or comments by the president on every qualification,
reservation, or adverse remark or disclaimer made by the auditor in the latter’s report;
c. A disclosure of all self-dealings and related party transactions entered into between the OPC
and the single SH; and
d. Other reports as the SEC may require.
• The fiscal year of an OPC shall be that set forth in its AOI or, in the absence thereof, the calendar
year.
• The SEC may place the corporation under delinquent status should the corporation fail to submit
the reportorial requirements 3 times, consecutively or intermittently, within a period of 5 years.
• Liability of Single Shareholder
• A sole SH claiming limited liability has the burden of affirmatively
showing that the corporation was adequately financed.
• Where the single SH cannot prove that the property of the OPC is
independent of the SH’s personal property, the SH shall be jointly and
severally liable for the debts and other liabilities of the OPC.
• The principles of piercing the corporate veil applies with equal force
to OPCs as with other corporations.
• Conversion from an Ordinary Corporation to an OPC
• When a single SH acquires all the stocks of an ordinary stock
corporation, the latter may apply for conversion into an OPC. If the
application for conversion is approved, the SEC shall issue a certificate
of filing of amended AOI reflecting the conversion. The OPC converted
from an ordinary stock corporation shall succeed the latter and be
legally responsible for all the latter’s outstanding liabilities as of the
date of conversion.
• Conversion from an OPC to an Ordinary Stock Corporation
• An OPC may be converted into an ordinary stock corporation after due notice to the SEC of such
fact and of the circumstances leading to the conversion, and after compliance with all other
requirements for stock corporations. Such notice shall be filed with the SEC within 60 days from
the occurrence of the circumstances leading to the conversion into an ordinary stock corporation.
If all requirements have been complied with, the SEC shall issue a certificate of filing of amended
AOI reflecting the conversion.
• In case of death of the single SH, the nominee or alternate nominee shall transfer the shares to
the duly designated legal heir or estate within 7 days from receipt of either an affidavit of heirship
or self-adjudication executed by a sole heir, or any other legal document declaring the legal heirs
of the single stockholder and notify the SEC of the transfer. Within 60 days from the transfer of the
shares, the legal heirs shall notify the SEC of their decision to either wind up and dissolve the OPC
or convert it into an ordinary stock corporation.
• The ordinary stock corporation converted from an OPC shall succeed the latter and be legally
responsible for all the latter’s outstanding liabilities as of the date of conversion.
 Ordinary Corporation OPC
As to number of stockholders At least 2 but not more than 15 Only one
As to formation Maybe natural or juridical or Only natural person, trust or estate
combination of both is allowed
As to name Must bear “Corporation”, Must bear “OPC”
“Incorporated”, “Corp.” or “Inc.”
As to officers The president cannot be the Allowed to hold both offices
treasurer at the same time
As to nominees No such requirement Presence of a nominee and
alternate nominee in the event of
single stockholder’s death or
incapacity
As to death of stockholder No effect on the corporation as it is Affects the OPC as the nominee
being run by the board then will manage the OPC in the
meantime
Records to be kept Ang dami. Minutes book
Meetings Mandatorily held regularly None. Only written resolution
required.
DISSOLUTION
Methods of dissolution
• Dissolution means that the corporation ceases to be a juridical person and
consequently can no longer continue transacting its business. However, for
the purpose only of winding up its affairs and liquidating its assets, its
corporate existence continues for a period of three years from such
dissolution.
• Methods of Dissolution
1. Voluntary
a. Voluntary Dissolution Where No Creditors are Affected
b. Voluntary Dissolution Where Creditors are Affected
c. Dissolution by Shortening Corporate Term
2. Involuntary
Voluntary dissolution where no creditors are
affected – 2012 Bar
• Voting Requirement: majority vote of the BOD/BOT, and by a resolution adopted by the
affirmative vote of the SH owning at least majority of the OCS or majority of the
members of a meeting to be held upon the call of the directors or trustees.
• Steps:
1. At least 20 days prior to the meeting, notice shall be given to each SH or member of
record personally, by registered mail, or by any means authorized under its bylaws,
whether or not entitled to vote at the meeting, in the manner provided in Section 50 and
shall state that the purpose of the meeting is to vote on the dissolution of the corporation
(NEW).
2. Notice of the time, place, and object of the meeting shall be published once (OLD
three) prior to the date of the meeting in a newspaper published in the place where the
principal office of said corporation is located, or if no newspaper is published in such place,
in a newspaper of general circulation in the Philippines. The old law provides 2/3 vote.
Voluntary dissolution where no creditors are
affected – 2012 Bar
3. A verified request for dissolution shall be filed with the SEC stating:
• a. the reason for the dissolution;
• b. the form, manner, and time when the notices were given;
• c. names of the SH and directors or members and trustees who approved the dissolution;
• d. the date, place, and time of the meeting in which the vote was made; and
• e. details of publication. (NEW)
4. The corporation shall submit the following to the SEC:
• a. a copy of the resolution authorizing the dissolution, certified by a majority of the
BOD/BOT and countersigned by the secretary of the corporation;
• b. proof of publication; and
• c. favorable recommendation from the appropriate regulatory agency, when necessary.
(NEW)
Voluntary dissolution where no creditors are
affected – 2012 Bar
5. Within 15 days (NEW) from receipt of the verified request for
dissolution, and in the absence of any withdrawal within said period,
the SEC shall approve the request and issue the certificate of
dissolution. The dissolution shall take effect only upon the issuance by
the SEC of a certificate of dissolution.
6. Favorable recommendation of the appropriate government
agency for dissolution of banks, banking and quasi-banking institutions,
preneed, insurance and trust companies, non-stock savings and loan
associations, pawnshops, and other financial intermediaries. (NEW)
Voluntary dissolution where creditors are affected
– 2012 Bar
• Voting requirement: signed by a majority of the corporation’s BOD/BOT plus affirmative
vote of the SH representing at least 2/3 of the OCS or at least 2/3 of the members at a
meeting of its SH or members called or that purpose
• Steps:
1. A verified petition for dissolution shall be filed with the SEC which states:
• a. the reason for the dissolution;
• b. the form, manner, and time when the notices were given; and
• c. the date, place, and time of the meeting in which the vote was made.
The corporation shall submit to the SEC:
• a. a copy of the resolution authorizing the dissolution, certified by a majority of the
BOD/BOT and countersigned by the secretary of the corporation; and
• b. a list of all its creditors. (NEW)
Voluntary dissolution where creditors are affected
– 2012 Bar
2. If the petition is sufficient in form and substance, the SEC shall, by an order reciting the purpose
of the petition, fix a deadline for filing objections to the petition which date shall not be less than 30
days nor more than 60 days after the entry of the order. Before such date, a copy of the order shall be
published at least once a week for 3 consecutive weeks in a newspaper of general circulation
published in the municipality or city where the principal office of the corporation is situated, or if
there be no such newspaper, then in a newspaper of general circulation in the Philippines, and a
similar copy shall be posted for 3 consecutive weeks in 3 public places in such municipality or city.
3. Upon 5 days’ notice, given after the date on which the right to file objections as fixed in the
order has expired, the SEC shall proceed to hear the petition and try any issue raised in the objections
filed; and if no such objection is sufficient, and the material allegations of the petition are true, it shall
render judgment dissolving the corporation and directing such disposition of its assets as justice
requires, and may appoint a receiver to collect such assets and pay the debts of the corporation.
4. The dissolution shall take effect only upon the issuance by the SEC of a certificate of dissolution.
(NEW)
Dissolution by shortening the corporate term –
2012 Bar
• A voluntary dissolution may be effected by amending the AOI to
shorten the corporate term. A copy of the amended AOI shall be
submitted to the SEC.
• Upon the expiration of the shortened term, as stated in the approved
amended AOI, the corporation shall be deemed dissolved without any
further proceedings, subject to the provisions of this Code on
liquidation.
• In the case of expiration of corporate term, dissolution shall
automatically take effect on the day following the last day of the
corporate term stated in the AOI without the need for the issuance by
the SEC of a certificate of dissolution. (NEW)
Withdrawal of request and petition for dissolution
(NEW)
• Steps:
1. A withdrawal of the request for dissolution shall be made in writing, duly verified by any
incorporator, DT, SH, or member and signed by the same number of incorporators, DT, SH, or
members necessary to request for dissolution.
2. The withdrawal shall be submitted no later than 15 days from receipt by the SEC of the
request for dissolution. Upon receipt of a withdrawal of request for dissolution, the SEC shall
withhold action on the request for dissolution and shall, after investigation:
• a. make a pronouncement that the request for dissolution is deemed withdrawn;
• b. direct a joint meeting of the BOD/BOT and the SH or members for the purpose of
ascertaining whether to proceed with dissolution; or
• c. issue such other orders as it may deem appropriate.
3. A withdrawal of the petition for dissolution shall be in the form of a motion and similar in
substance to a withdrawal of request for dissolution but shall be verified and filed prior to
publication of the order setting the deadline for filing objections to the petition.
Involuntary dissolution
• A corporation may be dissolved by the SEC motu proprio or upon filing of a verified complaint by any
interested party.
• The following may be grounds for dissolution of the corporation (ALL NEW)
a. Non-use of corporate charter under Section 21;
b. Continuous inoperation of a corporation under Section 21;
c. Upon receipt of a lawful court order dissolving the corporation;
d. Upon finding by final judgment that the corporation procured its incorporation through fraud;
e. Upon finding by final judgment that the corporation:
1. Was created for the purpose of committing, concealing or aiding the commission of securities
violations, smuggling, tax evasion, money laundering, or graft and corrupt practices;
2. Committed or aided in the commission of securities violations, smuggling, tax evasion, money
laundering, or graft and corrupt practices, and its stockholders knew of the same; and
3. Repeatedly and knowingly tolerated the commission of graft and corrupt practices or other
fraudulent or illegal acts by its directors, trustees, officers, or employees
Involuntary dissolution
• If the corporation is ordered dissolved by final judgment pursuant to the grounds set forth in
subparagraph (e) hereof, its assets, after payment of its liabilities, shall, upon petition of the SEC with
the appropriate court, be forfeited in favor of the national government. Such forfeiture shall be without
prejudice to the rights of innocent SH and employees for services rendered, and to the application of
other penalty or sanction under this Code or other laws.
• The SEC shall give reasonable notice to, and coordinate with, the appropriate regulatory agency prior to
the involuntary dissolution of companies under their special regulatory jurisdiction.
• Under Sec. 21, If a corporation does not formally organize and commence its business within 5 years
from the date of its incorporation, its certificate of incorporation shall be deemed revoked as of the day
following the end of the 5 year period.
• Under Sec. 21, If a corporation has commenced its business but subsequently becomes inoperative for a
period of at least 5 consecutive years, the SEC may, after due notice and hearing, place the corporation
under delinquent status. A delinquent corporation shall have a period of 2 years to resume operations
and comply with all requirements that the SEC shall prescribe. Failure to comply with the requirements
and resume operations within the period shall cause the revocation of the corporation’s certificate of
incorporation.
Involuntary dissolution
• What is the effect then of dissolution on any pending intra-corporate
disputes? None. The dissolution of the corporation simply prohibits it from
continuing its business. However, despite such dissolution, the parties
involved in the litigation are still corporate actors. The dissolution does not
automatically convert the parties into total strangers or change their intra-
corporate relationships. Neither does it change or terminate existing causes
of action, which arose because of the corporate ties between the parties.
Similarly, a SH's right to inspect corporate records subsists during the
period of liquidation. The rights and remedies against, or liabilities of, the
officers shall not be removed or impaired by reason of the dissolution of
the corporation. Aguirre vs. FQB+7, INC, 688 SCRA 242, Chua vs. People,
G.R. No. 216146, August 24, 2016.
Liquidation
• Liquidation is a necessary consequence of the dissolution of a
corporation. Following the voluntary or involuntary dissolution of a
corporation, liquidation is the process of settling the affairs of said
corporation, which consists of adjusting the debts and claims, that is,
of collecting all that is due the corporation, the settlement and
adjustment of claims against it and the payment of its just debts. Yu
vs. Yukayguan, 589 SCRA 588.
Liquidation
• Except for banks, every corporation whose charter expires pursuant to its
AoI, is annulled by forfeiture, or whose corporate existence is terminated in
any other manner, shall nevertheless remain as a body corporate for 3
years after the effective date of dissolution, for the purpose of prosecuting
and defending suits by or against it and enabling it to settle and close its
affairs, dispose of and convey its property, and distribute its assets, but not
for the purpose of continuing the business for which it was established.
• The provision on banks is new. Banks are covered by the applicable
provisions of Republic Act No. 7653 (New Central Bank Act), as amended,
and Republic Act No. 3591, (Philippine Deposit Insurance Corporation
Charter) as amended. The period in banking law is shorter, i.e. six (6)
months only.
Liquidation
• The manner of liquidation or winding up may be provided for in the
corporate by-laws and this would prevail unless it is inconsistent with
law. Winding up may be undertaken by the corporation itself, through
its BOD/BOT to whom all corporate assets are conveyed for
liquidation; or by a receiver appointed by the SEC upon its decree
dissolving the corporation. Still in the absence of a BOD/BOT, those
having any pecuniary interest in the assets, including not only the SH
but likewise the creditors of the corporation, acting for and in its
behalf; might make proper representations with the SEC, which has
primary and sufficiently broad jurisdiction in matters of this nature,
for working out a final settlement of the corporate concerns.
Liquidation
• This continuance of its legal existence for the purpose of enabling it to close up its business is
necessary to enable the corporation to collect the demands due it as well as to allow its
creditors to assert the demands against it. If this were not so, then a corporation that became
involved in liabilities might escape the payment of its just obligations by merely surrendering
its charter, and thus defeat its creditors or greatly hinder and delay them in the collection of
their demand. The person who has a valid claim against a corporation, whether it arises in
contract or tort should not be deprived of the right to prosecute an action for the enforcement
of his demands by the action of the SH of the corporation in agreeing to its dissolution. The
dissolution of a corporation does not extinguish obligations or liabilities due by or to it.
• This extended authority necessarily excludes the purpose of continuing the business for which
it was established. The reason for this is simple: the dissolution of the corporation carries with
it the termination of the corporation's juridical personality. Any new business in which the
dissolved corporation would engage in, other than those for the purpose of liquidation, will be
a void transaction because of the non-existence of the corporate party.
Liquidation
• Now, at any time during said 3 years, the corporation is authorized and empowered to convey
all of its property to trustees for the benefit of SH, members, creditors, and other persons in
interest. After any such conveyance by the corporation of its property in trust for the benefit of
its SH, members, creditors and others in interest, all interest which the corporation had in the
property terminates, the legal interest vests in the trustees, and the beneficial interest in the
SH, members, creditors or other persons- in-interest.
• Note that the time during which the corporation, through its own officers, may conduct the
liquidation of its assets and sue and be sued as a corporation is limited to three years from the
time the period of dissolution commences. However, there is no time limit within which the
trustees must complete a liquidation placed in their hands. What is provided in Section 122 of
the Corporation Code is that the conveyance to the trustees must be made within the three-
year period. But it may be found impossible to complete the work of liquidation within the
three-year period or to reduce disputed claims to judgment. The trustees to whom the
corporate assets have been conveyed pursuant to the authority of Section 122 may sue and be
sued as such in all matters connected with the liquidation.
Liquidation
1. A real estate mortgage agreement and any redemption exercised by Maasin Traders Lending
Corporation entered into after dissolution is void. A real estate mortgage is not part of the liquidation
powers that could have been extended; It is, in fact, a new business in which Maasin Traders Lending
Corporation no longer has any business pursuing. Rich vs. Paloma III, G.R. No. 210538, March 7, 2018.
2. A complaint filed by Alabang Development Corporation not only after its corporate existence
was terminated but also beyond the three-year period allowed is dismissible. At the time of the filing
of the subject complaint, it lacks the capacity to sue as a corporation. Alabang Development
Corporation vs. Alabang Hills Village Association, 724 SCRA 321.
3. The executed releases, waivers and quitclaims are valid and binding notwithstanding the
revocation of Metropolitan Building Services, Inc.'s Certificate of Incorporation. The revocation does
not result in the termination of its liabilities.Even if said documents were executed six (6) years after
Metropolitan Building Services, Inc.'s dissolution, the same are still valid and binding upon the parties
and the dissolution will not terminate the liabilities incurred by the dissolved corporation. A
corporation is allowed to settle and close its affairs even after the winding up period of three (3)
years. Vigilla vs. Philippine College of Criminology, Inc., 698 SCRA 247.
Liquidation
• After payment of all corporate debts and liabilities, the remaining assets, if any, must be distributed
to the SH in proportion to their interests in the corporation. This share of each SH in the assets
upon liquidation is called liquidating dividend.
• Except as otherwise provided for in Sections 93 and 94 of this Code, upon the winding up of
corporate affairs, any asset distributable to any creditor or SH or member who is unknown or
cannot be found shall be escheated in favor of the national government.
• The reference to these sections (distribution of assets in non-stock corporations) is new.
• A corporation cannot distribute any of its assets or property except upon lawful dissolution and
after payment of all its debts and liabilities. This means that the SH cannot get back any of his
invested capital until dissolution and liquidation. There are two exceptions however:
a. decrease of capital stock – due to reduction of capital stock, surplus results. This surplus can
be distributed to SH provided no creditors are prejudiced.
b. as otherwise allowed by the Code – refers to exercise of appraisal right, deadlock in close
corporations, repurchase of shares for legitimate purpose and dividend distribution.
FOREIGN CORPORATION
Definition and rights of foreign corporations
• A foreign corporation is one formed, organized or existing under laws
other than those of the Philippines’ and whose laws allow Filipino
citizens and corporations to do business in its own country or State. It
shall have the right to transact business in the Philippines after
obtaining a license for that purpose in accordance with this Code and
a certificate of authority from the appropriate government agency.
Doing business – 2015, 2008 Bar
• A foreign corporation is required to procure a license only if it is doing
business. “Doing business” implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of the functions
normally incident to or in progressive prosecution of the purpose and
subject of its organization. Agilent Technologies Singapore (PTE) Ltd.
vs. Integrated Silicon Technology Philippines, April 14, 2004, 427 SCRA
593.
Doing business – 2015, 2008 Bar
• “Doing business”, under R.A. No. 7042 or the Foreign Investments Act of 1991 provides:
• Doing business shall include:
a. soliciting orders, service contracts, opening offices, whether called "liaison" offices
or branches;
b. appointing representatives or distributors domiciled in the Philippines or who in
any calendar year stay in the country for a period or periods totalling 180 days or more;
c. participating in the management, supervision or control of any domestic business,
firm, entity or corporation in the Philippines; and
d. any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization.
Doing business – 2015, 2008 Bar
• However, "doing business” shall not be deemed to include:
a. mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of
rights as such investor;
b. nor having a nominee director or officer to represent its interests
in such corporation;
c. nor appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its own
account.
Doing business – 2015, 2008 Bar
• The Implementing Rules and Regulations of R.A. No. 7042 provide under Section 1(f), Rule I, that "doing
business" does not include the following acts:
a. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor;
b. Having a nominee director or officer to represent its interests in such corporation;
c. Appointing a representative or distributor domiciled in the Philippines which transacts business in the
representative's or distributor's own name and account;
d. The publication of a general advertisement through any print or broadcast media;
e. Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by
another entity in the Philippines;
f. Consignment by a foreign entity of equipment with a local company to be used in the processing of products
for export;
g. Collecting information in the Philippines; and
h. Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such
as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same,
training domestic workers to operate it, and similar incidental services.
Doing business – 2015, 2008 Bar
• Agilent Technologies Singapore (PTE) Ltd. vs. Integrated Silicon Technology
Philippines, April 14, 2004, 427 SCRA 593 discussed the two general tests to
determine whether or not a foreign corporation can be considered as "doing
business" in the Philippines.
• The first of these is the substance test - the true test for doing business, however,
seems to be whether the foreign corporation is continuing the body of the business
or enterprise for which it was organized or whether it has substantially retired from
it and turned it over to another.
• The second test is the continuity test - the term doing business implies a continuity
of commercial dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of the functions normally
incident to, and in the progressive prosecution of, the purpose and object of its
organization.
• Can a non-resident foreign corporation which collects dividends from the Philippines sue here to claim tax
refund?
•
• Yes. Mere investment as a shareholder by a foreign corporation in a duly registered
domestic corporation shall not be deemed "doing business" in the Philippines. It is clear then that the IGC's
act of subscribing shares of stocks from McCann, a duly registered domestic corporation, maintaining
investments therein, and deriving dividend income therefrom, does not qualify as "doing business". Hence,
the IGC is not required to secure a license before it can file a claim for tax refund. CIR vs. Interpublic Group
of Companies, Inc., G.R. No. 207039, August 14, 2019.
Doing business – 2015, 2008 Bar
• Illustrations of doing business:
1. Foreign corporation transacted with its Philippine counterpart for seven years, engaging in futures
contracts; Merrill Lynch Futures, Inc. vs. Court of Appeals and Spouses Lara, July 24, 1992, 211 SCRA 824.
2. JAL was doing business in the Philippines, i.e., its commercial dealings in the country were
continuous — despite the fact that no JAL aircraft landed in the country — as it sold tickets in the
Philippines through a general sales agent, and opened a promotions office here as well; Commissioner of
Internal Revenue vs. Japan Airlines, October 4, 1991, 202 SCRA 450.
3. A foreign insurance corporation was held to be doing business in the Philippines, as it appointed a
settling agent here, and issued 12 marine insurance policies; General Corp. of the Phils. vs. Union
Insurance Society of Canton and Fireman'sFund Insurance, September 14, 1950, 87 Phil. 313.
4. A foreign corporation sold its products to a Filipino buyer who ordered the goods 16 times within
an eight-month period; Eriks PTE Ltd. vs. Court of Appeals and Enriquez, February 6, 1997, 335 SCRA 229.
5. An airline company operating as an offline international air carrier selling passage tickets thru a
general sales agent in the Philippines Air Canada vs. CIR, January 11, 2016, G.R. No. 169507.
Application for license
A foreign corporation applying for a license to transact business in the Philippines shall submit to
the SEC a copy of its AOI and bylaws, certified in accordance with law, and their translation to an
official language of the Philippines, if necessary. The application shall be under oath and, unless
already stated in its AoI, shall specifically set forth the following:
• The date and term of incorporation;
• The address, including the street number, of the principal office of the corporation in the
country or state of incorporation;
• The name and address of its resident agent authorized to accept summons and process in all
legal proceedings and all notices affecting the corporation, pending the establishment of a local
office;
• The place in the Philippines where the corporation intends to operate;
• The specific purpose or purposes which the corporation intends to pursue in the transaction of
its business in the Philippines: Provided, That said purpose or purposes are those specifically
stated in the certificate of authority issued by the appropriate government agency
Application for license
• The names and addresses of the present directors and officers of the corporation;
• A statement of its ACS and the aggregate number of shares which the corporation
has authority to issue, itemized by class, par value of shares, shares without par
value, and series, if any;
• A statement of its OCS and the aggregate number of shares which the corporation
has issued, itemized by class, par value of shares, shares without par value, and
series, if any;
• A statement of the amount actually paid in; and
• Such additional information as may be necessary or appropriate in order to
enable the SEC to determine whether such corporation is entitled to a license to
transact business in the Philippines, and to determine and assess the fees
payable.
Application for license
• Attached to the application for license shall be a certificate under oath duly executed by the authorized
official or officials of the jurisdiction of its incorporation, attesting to the fact that the laws of the
country or State of the applicant allow Filipino citizens and corporations to do business therein, and
that the applicant is an existing corporation in good standing. If the certificate is in a foreign language,
a translation thereof in English under oath of the translator shall be attached to the application.
• The application for a license to transact business in the Philippines shall likewise be accompanied by a
statement under oath of the president or any other person authorized by the corporation, showing to
the satisfaction of the SEC and when appropriate, other governmental agencies that the applicant is
solvent and in sound financial condition, setting forth the assets and liabilities of the corporation as of
the date not exceeding 1 year immediately prior to the filing of the application.
• Foreign banking, financial, and insurance corporations shall, in addition to the above requirements,
comply with the provisions of existing laws applicable to them. In the case of all other foreign
corporations, no application for license to transact business in the Philippines shall be accepted by the
SEC without previous authority from the appropriate government agency, whenever required by law.
Issuance of license
• If the SEC is satisfied that the applicant has complied with all the
requirements of the law, the SEC shall issue a license to transact
business in the Philippines to the applicant for the purpose or
purposes specified in such license. Upon issuance of the license, such
foreign corporation may commence to transact business in the
Philippines and continue to do so for as long as it retains its authority
to act as a corporation under the laws of the country or State of its
incorporation, unless such license is sooner surrendered, revoked,
suspended, or annulled in accordance with this Code or other special
laws.
Resident agent – 2013 Bar
• A resident agent may be either an individual residing in the
Philippines or a domestic corporation lawfully transacting business in
the Philippines.
• Qualifications:
• 1. An individual resident agent must be of good moral character
and of sound financial standing.
• 2. A domestic corporation who will act as a resident agent must
likewise be of sound financial standing and must show proof that it is
in good standing as certified by the SEC
Doing business without a license – 2015, 2012
Bar
• No foreign corporation transacting business in the Philippines without
a license, or its successors or assigns, shall be permitted to maintain
or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may be
sued or proceeded against before Philippine courts or administrative
tribunals on any valid cause of action recognized under Philippine
laws.
Doing business without a license – 2015,
2012 Bar
• In Cargill vs. Intra Strata Assurance Corp.,March 15, 2010, G.R. No.
168266, it was ruled that activities within Philippine jurisdiction that
do not create earnings or profits to the foreign corporation do not
constitute doing business in the Philippines. The contract between
the Philippine company and the foreign company involved the
importation by the former from the latter. The domestic corporation
derived income from the transaction and not foreign corporation. To
constitute "doing business," the activity undertaken in the Philippines
should involve profit-making.
Doing business without a license – 2015,
2012 Bar
• An exporter in one country may export its products to many foreign importing countries
without performing in the importing countries specific commercial acts that would constitute
doing business in the importing countries. The mere act of exporting from one's own country,
without doing any specific commercial act within the territory of the importing country,
cannot be deemed as doing business in the importing country. The importing country does not
acquire jurisdiction over the foreign exporter who has not performed any specific commercial
act within the territory of the importing country. Without jurisdiction over the foreign
exporter, the importing country cannot compel the foreign exporter to secure a license to do
business in the importing country. Otherwise, Philippine exporters, by the mere act alone of
exporting their products, could be considered by the importing countries to be doing business
in those countries. This will require Philippine exporters to secure a business license in every
foreign country where they usually export their products, even if they do not perform any
specific commercial act within the territory of such importing countries. Such a legal concept
will have deleterious effect not only on Philippine exports, but also on global trade. SeeB.
Van Zuiden Bros., Ltd. v. GTVL Marketing Industries, Inc., May 28, 2007, 523 SCRA 233
Magna Ready Mix Concrete Corp. vs. Andersen Bjornstad Kane Jacobs, Inc., G.R. No. 196158, January 20,
2021, J.Hernando

• MAGNA, a Philippine corporation, ordered from ANDERSEN, a US corporation, the form design and drawing development for its project
on the development of a precast plant and P/C double tee design. However, even after delivery of the same, MAGNA refused to pay the
balance. ANDERSEN filed a case but it was argued that it has no license to conduct business. ANDERSEN insisted that the contract was
an isolated one, falling under the exceptions. Is ANDERSEN doing business hence does it possess legal capacity to sue in the Philippines?
•
• ANDERSEN's act of entering into a contract with MAGNA does not fall into the category of isolated transactions. The contract
clearly shows that ANDERSEN was to render professional services to MAGNA for a fee. These professional services included the
following: (1) providing master plant site layout and plant design; (2) providing plant operation procedures and organization matrix; (3)
providing plant management and production staff training; (4) providing plant construction and operation start-up services; and (5)
providing consultation services for developing a precast plant program. It is clear then that ANDERSEN, in entering into that contract
with MAGNA, was performing acts that were in progressive pursuit of its business purpose, which involved consultation and design
services.
•
• Though it was a single transaction, ANDERSEN's act of entering into a contract with MAGNA constitutes doing business in the
Philippines. It cannot be considered as an isolated transaction because the act is related to ANDERSEN's specific business purpose. Thus,
in doing business without a license, ANDERSEN had no legal capacity to sue in the Philippines.
•
• ANDERSEN has no legal capacity to sue for doing business in the Philippines without procuring the necessary license. However, MAGNA is
already estopped from challenging ANDERSEN's legal capacity when it entered into a contract with it.
Magna Ready Mix Concrete Corp. vs. Andersen Bjornstad Kane Jacobs, Inc., G.R. No. 196158, January 20,
2021, J. Hernando

• Can a foreign corporation which entered into a single contract be categorized still as doing business?
•
• Yes. The number of the transactions entered into is not determinative whether a foreign corporation is doing
business in the Philippines; the intention to continue the body of its business prevails. The number or
quantity is merely an evidence of such intention. A single act or transaction may then be considered as doing
business when a corporation performs acts for which it was created or exercises some of the functions for
which it was organized. Contrarily, it may be considered as an isolated transaction if it is different from or
not related to the common business of the foreign corporation in the sense that there is no objective to
increasingly pursue its purpose or object.
Revocation of license – 2012 Bar
• Without prejudice to other grounds provided under special laws, the license of a foreign
corporation to transact business in the Philippines may be revoked or suspended by the
SEC upon any of the following grounds:
a. Failure to file its annual report or pay any fees as required by this Code;
b. Failure to appoint and maintain a resident agent in the Philippines as required by this
Title;
c. Failure, after change of its resident agent or address, to submit to the SEC a statement
of such change as required by this Title;
d. Failure to submit to the SEC an authenticated copy of any amendment to its AOI or
bylaws or of any articles of merger or consolidation within the time prescribed by this Title;
e. A misrepresentation of any material matter in any application, report, affidavit or
other document submitted by such corporation pursuant to this Title;
Revocation of license – 2012 Bar
• Without prejudice to other grounds provided under special laws, the license of a
foreign corporation to transact business in the Philippines may be revoked or
suspended by the SEC upon any of the following grounds:
f. Failure to pay any and all taxes, imposts, assessments or penalties, if any,
lawfully due to the Philippine Government or any of its agencies or political
subdivisions;
g. Transacting business in the Philippines outside of the purpose or purposes for
which such corporation is authorized under its license;
h. Transacting business in the Philippines as agent of or acting on behalf of any
foreign corporation or entity not duly licensed to do business in the Philippines; or
i. Any other ground as would render it unfit to transact business in the
Philippines.
DERIVATIVE SUIT
Basis
• A SHsuing on account of wrongful or fraudulent corporate actions
(undertaken through directors, associates, officers, or other persons) may
sue in any of three (3) capacities: as an individual; as part of a group or
specific class of SH; or as a representative of the corporation.
• Individual suits are filed when the cause of action belongs to the individual
SH personally, and not to the SH as a group or to the corporation, e.g., denial
of right to inspection and denial of dividends to a SH. If the cause of action
belongs to a group of SH, such as when the rights violated belong to
preferred SH, a class or representative suit may be filed to protect the SH in
the group. A derivative suit is an action filed by SH to enforce a corporate
action. It is an exception to the general rule that the corporation's power to
sue is exercised only by the BOD/BOT.
Basis
• The SH's right to file a derivative suit is not based on any express provision of
The Corporation Code, but is impliedly recognized when the law makes
corporate directors or officers liable for damages suffered by the corporation
and its SH for violation of their fiduciary duties. Hence, a stockholder may
sue for mismanagement, waste or dissipation of corporate assets because of
a special injury to him for which he is otherwise without redress.
• In derivative suits, the real party in interest is the corporation, and the suing
SH is a mere nominal party. In effect, the suit is an action for specific
performance of an obligation, owed by the corporation to the SH, to assist
its rights of action when the corporation has been put in default by the
wrongful refusal of the directors or management to adopt suitable measures
for its protection.
Requisites for filing – 2019, 2017, 2014, 2013,
2012, 2009, 2005 Bar
• Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies
(Interim Rules) provides the 5 requisites for filing derivative suits:
1. He was a SH or member at the time the acts or transactions subject of the action
occurred and at the time the action was filed;
2. He exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the AoI, by-laws, laws or rules governing
the corporation or partnership to obtain the relief he desires;
3. No appraisal rights are available for the act or acts complained of; and
4. The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall forthwith dismiss the case.
• The fifth requisite is implied in the first paragraph of Rule 8, Section 1 of the Interim Rules:
The action brought by the SH or member must be "in the name of the corporation or
association."
Requisites for filing – 2019, 2017, 2014, 2013,
2012, 2009, 2005 Bar
• A demand made on the BOD for the appropriate relief is considered
compliance with the requirement of exhaustion of corporate
remedies. See Lopez Realty vs. Spouses Tanjangco, G.R. No. 154291,
12 November 2014.
Requisites for filing – 2019, 2017, 2014, 2013,
2012, 2009, 2005 Bar
• In Western Institute of Technology, Inc., et al. vs. Salas, et al., 278
SCRA 216, the Supreme Court said that "among the basic
requirements for a derivative suit to prosper is that the minority SH
who is suing for and on behalf of the corporation must allege in his
complaint before the proper forum that he is suing on a derivative
cause of action on behalf of the corporation and all other SH similarly
situated who wish to join him."Moreover, it is important that the
corporation be made a party to the case.
Requisites for filing – 2019, 2017, 2014, 2013,
2012, 2009, 2005 Bar
• Asset Privatization Trust vs. Court of Appeals, 300 SCRA 579 explains
why it is a condition sine qua non that the corporation be impleaded
as party in derivative suits. Not only is the corporation an
indispensible party, but it is also the present rule that it must be
served with process. The reason given is that the judgment must be
made binding upon the corporation in order that the corporation may
get the benefit of the suit and may not bring a subsequent suit against
the same defendants for the same cause of action. In other words,
the corporation must be joined as party because it is its cause of
action that is being litigated and because judgment must be a res
judicata against it.
Requisites for filing – 2019, 2017, 2014, 2013,
2012, 2009, 2005 Bar
• Reasons for disallowing a direct individual suit:
1. The universally recognized doctrine that a SH in a corporation has no title legal or equitable
to the corporate property; that both of these are in the corporation itself for the benefit of the SH.
In other words, to allow SH to sue separately would conflict with the separate corporate entity
principle;
2. The prior rights of the creditors may be prejudiced. The SH may not directly claim those
damages for themselves for that would result in the appropriation by, and the distribution among
them of part of the corporate assets before the dissolution of the corporation and the liquidation
of its debts and liabilities;
3. The filing of such suits would conflict with the duty of the management to sue for the
protection of all concerned;
4. It would produce wasteful multiplicity of suits; and
5. It would involve confusion in ascertaining the effect of partial recovery by an individual on
the damages recoverable by the corporation for the same act.
Requisites for filing – 2019, 2017, 2014, 2013,
2012, 2009, 2005 Bar
• The avenues for relief are, thus, mutually exclusive. The
determination of the appropriate remedy hinges on the object of the
wrong done. When the object is a specific SH or a definite class of
stockholders, an individual suit or class/representative suit must be
resorted to. When the object of the wrong done is the corporation
itself or "the whole body of its stock and property without any
severance or distribution among individual holders," it is a derivative
suit that a SH must resort to.
Requisites for filing – 2019, 2017, 2014, 2013,
2012, 2009, 2005 Bar
• The derivative suit did not prosper in the following cases:
1. Suit for the personal loan taken by the President and Corporate Secretary of the
corporation, when the corporation was never made a party to the agreement; Ang vs.
Spouses Ang, G.R. No. 201675, June 19, 2013.
2. The SH’s allegation that he tried for a number of times to talk to the corporate
director to settle their differences, but the latter would not listen and that taking further
remedies within the corporation would have been idle ceremony, considering that it was
a family corporation and it was impossible to expect the directors to take action against
themselves who were the ones accused of wrongdoing; Yu vs. Yukayguan, 589 SCRA
588.
3. Although the Complaint alleged that demand letters were sent to the BOD and
that these were unheeded, these allegations will not suffice. Forest Hills Golf and
Country Club, Inc. vs. Fil-Estate Properties, Inc., G.R. No. 206649, July 20, 2016.
Requisites for filing – 2019, 2017, 2014, 2013,
2012, 2009, 2005 Bar
4. The person instituting the suit is only an employee of JAKA and
not a bona fide SH of Mr. & Ms. Publishing Co., Inc. at the time of the
transaction complained of. Bitong vs. Court of Appeals, 292 SCRA 503.
5. The suit clearly is not for the benefit of the corporation for a
judgment in favor of the complainant would mean recovery of his
personal property. There is no actual or threatened injury alleged to
have been done to the corporation due to the foreclosure of the
properties belonging to third-party mortgagors. BSP vs. Campa, Jr., G.R.
No. 185979, March 16, 2016.
Requisites for filing – 2019, 2017, 2014, 2013,
2012, 2009, 2005 Bar
6. The complaint for nullification of the election is a direct action by
petitioners, who were the members of the BOD of the corporation before the
election, against respondents, who are the newly-elected BOD. Petitioners are
the injured party, whose rights to vote and to be voted upon were directly
affected by the election of the new set of BODs. Legaspi Towers 300, Inc., vs.
Muer, G.R. No. 170783, June 18, 2012.
7. The allegation of SH Balmores that the acts of Pasig Printing
Corporation's (PPC) directors, specifically the waiver of rights in favor of
Villamor's law firm and their failure to take back the MC Home Depot checks
from Villamor, were detrimental to his individual interest as a SH. In filing an
action, therefore, his intention was to vindicate his individual interest and not
PPC's or a group of SH. Villamor, Jr. vs. Umale, 736 SCRA 325.
Ago Realty & Development Corporation vs. Ago, G.R. No. 210906 & 211203, October 16, 2019.

• Emmanuel alleged that they exerted all reasonable efforts to exhaust all remedies available to
them. They point to the fact that they invited Angelita to a meeting to amicably settle the
dispute. However, their attempt to resolve the dispute turned sour when Angelita walked out
before the meeting even started. Thus, they instituted the derivative suit. Will it prosper?
• No. This hardly constitutes "all reasonable efforts to exhaust all remedies available." They did not
refer to or mention at all any other remedy under the articles of incorporation or by-laws available
for dispute resolution among stockholders, which Emmanuel et.al. unsuccessfully availed
themselves of.
Requisites for filing – 2019, 2017, 2014,
2013, 2012, 2009, 2005 Bar
• Can the majority board institute a derivative suit?
• Due to their control over the BOD, the majority should not ordinarily
be allowed to resort to derivative suits. Where a corporation under
the effective control of the majority is wronged, board-sanctioned
litigation should take precedence over derivative actions. After all, the
law expressly vests the power to sue in the BOD, and a remedy based
on equity, such as the derivative suit, can prevail only in the absence
of one provided by statute. Ago Realty & Development Corporation
vs. Ago, G.R. No. 210906 & 211203, October 16, 2019.
Metropolitan Bank & Trust Co. vs. Salazar Realty Corp., G.R. No. 218738, March 9, 2022

• A derivative suit was instituted for the nullification of the mortgage contract.
The complaint however failed to allege that there are no appraisal rights
available. There was also no categorical statement that the case is a nuisance
suit. Will the case prosper?
Metropolitan Bank & Trust Co. vs. Salazar Realty Corp., G.R. No. 218738, March 9, 2022

No. A derivative suit must particularly allege that there are no appraisal rights available
against the assailed corporate action. Conversely, if appraisal rights are available, such fact
must be alleged and the non-availment thereof must be properly explained, more so since a
derivative suit must particularly allege that the stockholder exerted all reasonable efforts to
exhaust all remedies available under the laws and regulations governing the corporation.
•
• Furthermore, the petition lacks a categorical statement that it is not a nuisance or harassment suit.
In order to provide legal justification for what is essentially an unauthorized suit filed on behalf
of the corporation, stockholders who resort to the equitable remedy of a derivative suit must
categorically declare under oath that the remedy is being sought for just and legitimate purposes
and not as a form of nuisance or harassment.
The End