Professional Documents
Culture Documents
Course Outline
A. GENERAL PRINCIPLES
a-1. Definition 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 [Section 2]
a-2. Kinds of Businesses
1. As to Organization
1-a. Sole Proprietorship [Bar, 1949]
1-b. Partnership [Article 1767, New Civil Code]
1-c. Corporation
1-d. Joint Venture categorized as a form of limited partnership since its period [Kohler, Dictionary for Accountants,
1975, p. 243; see J.M. Tuason & Co. vs. Bolanos, L-4935, 28 May 1954; Bar, 1987; Bar 1995]
1
As to Activity
2-a. Merchandising
2-b. Manufacturing
2-c. Service-concerned
a-3. Attributes of a Corporation
1. Artificial Being
1-a. Separate entity concept [Bar, 1996]
1. Liability for Torts [PNB vs. Court of Appeals, 83 SCRA 237]
2. Liability for Damages [Bar, 1955]
3. Liability for Crimes [Sia vs. People, 121 scra 655; People vs. Conception, 44 Phil. 126; Section 144]
4. Constitutional rights a. Due process [Albert vs. University Publication Co., 13 SCRA 84]
b. Equal protection [Smith Bell & Co., vs. Natividad, 40 Phil. 136]
c. Unreasonable search and seizures [Stonehill vs. Diokno, 20 SCRA 383]
5. Theory of Concession [Tayag vs. Benguet Consolidated, Inc., 26 SCRA 242]
1-b. Piercing the Veil of Corporate Entity
1. Definition corporate fiction disregarded where the entity is formed or used for non-legitimate purposes [Bar,
1978; Bar 1985; Bar 1991]
2. Reasons: When corporation is used to
a. Defeat public convenience
b. Justify wrong
c. Protect fraud
d. Defend crime
e. As mere alter ego [Umali vs. Court of Appeals, 189 SCRA 529]
3. Cases
a. Claparols vs. CIR [65 SCRA 613]
b. Cruz vs. Dalisay [152 SCRA 482]
c. Tan Boon Bee and Co. vs. Jarencio [163 SCRA 205]
d. CIR vs. Norton & Harrison Company [11 SCRA 714]
c. Philippine Veterans Investment Development Corporation vs. Court of Appeals [181 SCRA 669]
d. Telephone Engineering and Service Co., Inc. vs. Workmens Compensation Commission [104 SCRA 354]
4. Theory of Corporate Enterprise [Rationale: there can be no association without associates, Villanueva, p. 266]
1
Created by Operation of Law
3-a. Creation under the Corporation Code
3-b. Creation under a Special Law
1. Governed primarily by Charter creating it
2. Corporation Code applies only on a suppletory manner [Section 4]
3-c. De Facto Corporation [Section 20; Bar, 1989]
1. Definition a corporation that actually exists as a corporate body, but which, because of failure to comply with some
provisions of the law, has no legal right to corporate existence as against the state. Certificate of incorporation must be
issued. This is distinguished with Corporation de Jure.
2. Only the state can question the personality of the corporation. Right usurped is that of the sovereign, then it is the
sovereign alone can question it through a Quo Warranto proceedings represented by the Solicitor General
3. Requisites
a. Law authorizing incorporation
b. Bona fide attempt to organize
c. Assumption of corporate powers
3-d. Corporation by Estoppel [Section 21]
1. Defined applies to persons assuming to act as a corporation without authority to do so with respect to third persons
who were prejudiced on the basis of their misrepresentations
2. How Action Commenced Sued under the name by which they are generally or commonly known [Section 15, Rule
3, Revised Rules of Court]
3. Liability liable as general partners
1
Coverage
a. Debts
a
Liabilities
b
Damages
1
Perpetual Succession
3-a. Concept not immortality, but continuity of corporate life
3-b. Corporate Term [Section 11]
1. Duration not exceeding 50 years
2. Renewable for another 50 years within 5 years prior to expiration [Alhambra Cigar vs. Securities and Exchange
Com-mission, 24 SCRA 269]
3-c. Extension or Shortening of Term [Section 37; Bar, 1988]
3-d. Doctrine of Relation Delay in the approval of the application for extension of corporate term attributable to
circumstances beyond the control of corporation would make the new charter related back to the day the corporation is
entitled to have the charter issued [Vitug, p. 379]
1
Powers, Attributes and Property Rights
4-a. Express Powers
1. Section 36 of the Corporation Code and
2. Purpose of corporation as stated in the Charter
4-b. Implied Powers which are necessary in order to attain or execute the express powers
4-c. Incidental Powers which can be exercised by the mere fact of its being a corporation
a-4. Classes of Corporations [Bar, 1954]
1. Statutory
1-a. Stock Corporation [Sections 3 and 63] one where the ownership of the interest or equity is represented in the
form of shares of stock
1-b. Non-Stock Corporation [Sections 87-95] one where the interest or equity is in the form of membership
1-c. Close Corporation [Sections 76-105]
1-d. Foreign Corporation [Sections 123-136]
1-e. Educational Corporation [Sections 106-107]
1-f. Religious Corporation [Sections 109, 116]
1
As to Number
2-a. Corporation Sole [Sections 110-115; Bar, 1954]
2-b. Corporation Aggregate
1
As to Purpose
3-a. Ecclesiastical
3-b. Eleemosynary [Bar, 1967]
3-c. Lay
3-d. Public
1. Defined one formed or organized for the government of a portion of a State for the purpose of promoting the
general good and welfare [Section 3, Act. No. 1456]
2. Constitutional Prohibition - The Congress shall not, except by general law, provide for the formation, organization or
regulation of private corporations. Government owned or controlled corporations may be created or established by
special charters in the interest of the common good and subject to the test of economic viability [Section 16, Article XII,
1987 Constitution]
3. Corporation Code applies on a suppletory manner [Section 4]
4. Quasi-Public corporation refers to a private corporation that is franchised or licensed by the government to render
services involving performance of public utilities
5. Public-Quasi corporation refers to a public corporation engaged in the performance of public or governmental
function but not being the State or its political corporation
1
As to Nationality
4-a. Tests of Nationality [Bar, 1957]
1. Incorporation Test
2. Control Test [see Filipinas de Seguros vs. Christern, Huenefeld & Co., Inc. G.R. L-2294, 25 May 1951]
3. Residence Test
a. Generally fixed by law creating them
b. Place where legal representation is established or where principal functions are exercised
4-b. Classes
1. Domestic Corporation those organized in accordance with B.P. 68
2. Foreign Corporation those organized under a foreign law that allows Filipino citizens and corporations to do
business in their state or country [Section 123]
4-c. Grandfather Rule [SEC Opinion, 4 May 1987]
1
As to Existence
5-a. De Jure
5-b. De Facto [Section 20; Bar, 1955; Bar, 1959]
5-c. Corporation by Estoppel [Section 21; Bar, 1955; Bar, 1973]
1
As to Membership
6-a. Open Corporation
6-b. Close Corporation one whose Charter provides
1. All corporate stocks issued must be held of record by not more than 20 persons
2. All corporate stocks issued are subject to certain restrictions on transfer
3. Stocks are not listed in any stock exchange [Section 96]
1
As to Relation with Other Corporations
7-a. Parent
7-b. Subsidiary
5-g. Manner of election or appointment and the term of office of all officers other than directors or trustees
5-h. Penalties for violation of by-laws
5-i. Manner of issuing stock certificates
5-j. Other matters necessary for the proper or convenient transaction of corporate business and affairs
6. Amendments [Section 48]
6-a. Who can exercise
1. Majority of the board of directors or trustees and majority of the corporators
2. May be delegated to the board of directors or trustees by 2/3 votes of the corporators. Power delegated may be
revoked by majority votes of the corporators
6-b. Procedures
1. Attach amended By-Laws to original and Articles of Incorporation
2. Copy of amended By-Laws certified under oath by corporate secretary and majority of board of directors or trustees
filed with the Securities and Exchange Commission
b-6. Effects of
1. Non-Organization [Section 22]
1-a. Coverage failure to organize within two (2) years counted from the issuance of the Certificate of Incorporation for
causes within its control
1-b. Effect corporate powers ipso facto cease to exist [Bar, 1979]
1
Continuous Inoperation [Section 22]
2-a. Coverage continuous inoperation for five (5) years for causes within its control
2-b. Effect ground for the suspension or revocation of its corporate franchise
C. CORPORATE MANAGEMENT
c-1. Levels of Control in Corporate Heirarchy [Citibank NA vs. Chua, G.R. No. 102300, 17 March 1993]
1. Board of Directors/Trustees
2. Corporate Officers
3. Stockholders
c-2. Board of Directors/Trustees [Section 23; Bar, 1975]
1. Definition repository of corporate powers [Ramirez vs. Orientalist Company, 38 Phil. 634; Bar, 1975]
2. Number [Section 14]
3. Qualifications [Section 23; Bar, 1946; Bar, 1965]
3-a. Natural persons
3-b. Legal age
3-c. Not disqualified by law
3-d. Owner of at least one share of stock [Bar, 1984; Bar, 1987]
3-e. Majority are residents
1
Disqualifications [Section 27]
4-a. Convicted by final judgment of an offense punishable by an imprisonment for a period exceeding six (6) years
4-b. Convicted by final judgment of an offense for violation of the Corporation Code committed within five (5) years prior
to his election or appointment
1
Elections [Section 24]
5-a. Manner
1. Viva voce
2. By ballot when requested by any voting shareholder
3. In person or by proxy
5-b. Requirements
1. Proper notice
2. Attended by majority of stockholders
5-c. Voting
1. Cumulative [Bar, 1951]
a. Purpose to secure representation of minority stockholders in the Board of Directors/Trustees
b. How Made Number of votes is to be determined by multiplying the number of directors to be voted
upon and the number of shares
2. Individual
1
Removal [Section 28]
6-a. Instances
1. For cause
2. Without cause
6-b. Requirements
1. Vote of stockholders representing 2/3 of the outstanding capital stock or 2/3 votes of the members entitled to vote
2. Removal without cause should not deprive minority stockholders or members of the right of representation [Bar,
1983; Bar, 1991]
1
Vacancies
7-a. Causes
1. Removal [Section 28]
2. Expiration of term
3. Increase in number
4. Other causes such as death, resignation, retirement
7-b. How Filled Up [Section 29]
1. By Board if still constituting quorum in vacancies resulting from causes other than removal, expiration of term or
increase in number
2. By stockholders in an election called for such purpose if vacancy is due to:
a. Removal
b. Expiration of term
c. Increase in number
a. Remaining members of the Board no longer constitute quorum
1
Meetings
8-a. Requisites of Valid Board Meetings
1. Proper Notice [Bar, 1990]
2. Meeting of Board duly assembled
3. Existence of a quorum
4. Decision of the majority of the quorum
8-b. Quorum [Bar, 1970]
1. By Laws provision
2. Majority of the number of directors or trustees as fixed by the Articles of Incorporation
8-c. Particulars [Section 53]
1. General Rules By-Laws provision
2. Regular Meetings
a. Frequency monthly
b. Place in or outside the Philippines [Bar, 1987]
c. Notice at least one day prior to the schedule
3. Special Meetings
a. Frequency as the need arises
b. Place in or outside the Philippines
c. Notice at least one day prior to the schedule
8-d. Cases
1. Calica vs. Labatique, 55 OG 647
2. Ingersoll vs. Malabon Sugar Company, 53 Phil. 745
1
Compensation [Section 30; Bar, 1987]
9-a. General Rule : Only reasonable per diems
9-b. Exception
1. By-Laws
2. Vote of stockholders representing at least a majority of the outstanding capital stock or a majority of the members
9-c. Limitation not to exceed ten percent (10%) of the net income before income tax of the corporation during the
preceding year [Bar, 1991]
c-3. Corporate Officers [Bar, 1995]
1. Types
1-a. Statutory
1. President [Bar, 1948; Bar, 1950; Bar, 1960; Bar, 1971; Bar, 1993]
a. Must be a director
b. Not a secretary nor treasurer at the same time
2. Secretary
a. Must be a citizen
b. Must be a resident of the Philippines
3. Treasurer
1-b. Non-Statutory
1. Rule other officers may be provided in the By-Laws
2. Cases
a. General Manager function is only to supervise and conduct the ordinary business of the corporation [see Liboro vs.
Rogers, L-11046, 30 October 1959]
b. Board of Liquidators vs. Kalaw, 20 SCRA 989]
1
How Elected majority of all the members of the Board of Directors or Trustees
2
Compensation
3-a. Directors [Section 30]
3-b. Officer-Director
c-4. Executive Committee [Section 35]
1. Creation by virtue of By-Laws provision
2. Composition not less than 3 members of the Board of Directors/Trustees
3. Delegable Acts all acts or matters within the competence of the Board of Directors/Trustees except when explicitly
prohibited by the Corporation Code or the By-Laws
1
Non-delegable Acts
4-a. Approval of any action requiring stockholders approval
4-b. Filling-up of vacancies in the Board of Directors or Trustees
4-c. Amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable
4-c. Distribution of cash dividends to stockholders
c-5. Management Contracts [Section 44]
1. Creation
1-a. Resolution signed by majority of the Board
1-b. Majority vote of stockholders or members
1
Requirements
2-a. Votes representing 2/3 of the outstanding capital stock or 2/3 of the members
2-b. In case of
1. Interlocking stockholders owns 1/3 interest of the managing corporation
2. Interlocking directors 1
Limitations
c-6. Ultra Vires Corporate Acts [Section 45]
1. Definition
2. Kinds of Ultra Vires Acts
3. Effects
c-7. Corporate Reports
D. CORPORATE POWERS
d-1. Classification
1. Express 2. Implied
3. Incidental
d-2. Voting Requirements
1. 2/3 of Stockholders and Majority of Board of Directors
1-a. Extension or shortening of corporate term [Section 37; Bar, 1953]
1-b. Increase or decrease of capital stock [Section 38; Bar, 1947; Bar, 1982; Bar, 1987]
1-c. Increase, incur or create bonded indebtedness [Section 38; Bar, 1956]
1-d. Sale, barter, exchange or other disposition of all or substantially all corporate assets [Section 40]
1-e. Investment of corporate funds to another corporation [Section 42;Bar, 1947]
1-f. Investment of corporate funds to other ventures [Section 42; Bar, 1982; Bar, 1996]
1-g. Declaration of stock dividends [Section 43; Bar, 1982; Bar, 1990]
1-h. Enter into management contracts [Section 44; Bar, 1974]
1-i. Ratification of contracts with self-dealing directors [Section 32]
1-j. Ratification of contracts with inter-locking directors [Section 33]
1-k. Merger or consolidation [Section 77]
1-l. Voluntary dissolution of corporations [Section 118]
1
Majority of the Stockholders
2-a. Fixing value of no-par shares [Section 62]
2-b. Adoption, amendment and repeal of by-laws [Section 46]
2-c. Fixing compensation of the board of directors [Section 30; Bar, 1987; Bar, 1991]
d-3. Instances where Non-Voting Shares can Vote
1. Amendment of Articles [Section 16]
2. Adoption and amendment of By-Laws [Bar, 1981]
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all corporate assets
[Section 40; Bar, 1980; Bar, 1988]
4. Incurring, creating or increasing bonded indebtedness [Section 38]
5. Increase or decrease of capital stock [Section 38]
6. Merger or consolidation [Sections 76-80]
7. Investment of corporate funds [Section 42]
d-4. Appraisal Right
1. Definition
2. When Exercisable
3. Manner of Exercise
E. CORPORATE LIABILITY
e-1. Kinds of Liability
1. Corporate liability
2. Officers liability [Bar, 1989; Bar, 1995]
3. Directors liability
e-2. Corporate Liability
1. Usual and normal transactions
2. Torts
3. Crimes
e-3. Liability of Director/Trustee
1. Personal Liability [Section 21; Bar, 1996]
1-a. Business opportunity theory [Section 34; Bar, 1985; Bar, 1991]
1. When Applicable a director or trustee acquires for himself a business opportunity belonging to the corporation
whereby he obtained profits to the prejudice of the corporation
2. Effects
a. Account for the profits to the corporation
b. Personally bear the losses
3. Exception: Act is ratified by 2/3 of the stockholders or members
1-b. Inter-locking Directors [Section 33]
1. Where applicable contracts entered into between two corporations having the same director/s or trustee/s
2.
1-c. Self-Dealing Director [Section 32; Bar, 1995]
1. Coverage
2. When Contract is Valid
a. Presence of director or trustee not necessary to constitute quorum
b. Vote of the director or trustee not necessary to approve the contract
c. Contract is fair and reasonable
d. If he is an officer at the same time, the contract has been previously authorized by the Board of Directors or Trustees
3. Effects on Contracts
a. As a rule, voidable at the option of the corporation
b. If presence of director or trustee helped in constituting quorum or his vote helped in the approval of the contract, the
same is voidable subject to ratification by 2/3 of stockholders or members
1
Solidary Liability
2-a. Coverage [Section 31]
1. Patently unlawful acts of the corporation
2. Gross negligence or bad faith in directing affairs of the corporation [Bar, 1968]
3. Acquisition of personal or pecuniary interest in conflict with duty as director
4. Watered stocks [Section 65]
2-b. To Whom Liable
1. Corporation
2. Stockholders or members
3. Other persons
2-c. Persons Liable Directors/Trustees
1. Who willfully and knowingly voted or assented
2. Who committed gross negligence
3. Who were guilty of bad faith
1
Inter-locking Directors [Section 33; Bar, 1950]
3-a. Definition directors of one corporation who are at the same time directors of another corporation
3-b. Coverage
3-c. Effect on Contracts
3-d. When Contract Valid [Bar, 1995]
1. Corporation where Inter-locking Director has Substantial Interest
a. No fraud involved
b. Fair and reasonable
c. Quorum and required votes; otherwise there is a need for ratification
2. Corporation where Inter-locking Director has Nominal Interest
a. Presence in BOD meeting is not necessary to constitute quorum
b. Vote unnecessary for approval of the corporate act
c. Fair and reasonable
1
Doctrines
4-a. Doctrine of Limited Liability shields the corporators from corporate liability beyond their agreed contribution to the
capital or shareholding
4-b. Doctrine of Immunity protects a person acting for and in behalf of the corporation from being personally liable for
his authorized acts [Bar, 1988], This is otherwise known as the business judgment rule [Bar, 1986].
F. RIGHTS OF STOCKHOLDERS
f-1. Classification of Rights [Bar, 1995]
1. Managerial rights
2. Proprietary rights
3. Remedial rights
4. Appraisal rights
f-2. Managerial Rights
1. Definition
2. Stockholders Meeting [Section 50]
2-a. Kinds of Meeting [Section 49]
2-b. Time of Meeting [Section 51]
2-c. Place of Meeting [Sections 51, 93]
2-d. Notice of Meeting
2-e. Quorum [Sections 25, 52]
1
Kinds of Voting
2-a. Personal
2-b. Representative or Proxy Voting [Section 58]
1. Definition voting through an agent
2. Revocable at will of the grantor [see Alejandrino vs. De Leon, L-49043, 29 December 1943]
2-c. Special Rules
1. Voting Trust Agreement [Section 59; Bar, 1976; Bar, 1985; Bar, 1992]
a. Definition an arrangement whereby the stockholders transfer their shares to a trustee who acquires the right to vote
said shares
b. Limitations
1. Not exceeding 5 years
2. If created by virtue of a loan agreement, not exceeding 5 years but ipso facto terminated upon full payment of the
loan
3. Must be in writing, notarized and filed with the SEC
2. Joint Ownership [Section 56]
a. Co-ownership
b. Consent of all co-owners or joint owners are necessary
3. Pledgors, Mortgagors [Section 55]
4. Executors, Administrators, Receivers and other Legal Representations [Section 55]
a. If appointed by the court, they can vote the shares
b. Without need of any written proxy
I. NON-STOCK CORPORATION
i-1. Definition one where no part of its income is distributable as dividends to its members, trustees or officers, subject
to the provisions of the Corporation Code on dissolution.
i-2. Particulars
a. Purposes
a-1. Charitable
a-2. Educational
a-3. Religious
a-4. Professional
a-5. Cultural
a-6. Recreational
a-7. Fraternal
a-8. Literary
a-9. Scientific
a-10. Social
a-11. Civic service
b. Right to Vote
b-1. Right may be limited, broadened or denied to the extent specified in the Articles of Incorporation or by the By-Laws
b-2. Unless otherwise specified, each member regardless of class shall be entitled to one vote
b-3. Voting by mail or other similar means by members of non-stock corporations may be authorized by its By-Laws
i-3. Non-Transferability of Membership
a. Membership and all rights arising therefrom are personal and non-transferable
b. Except when authorized by the Articles of Incorporation or by the By-Laws
i-4. Election and Term of Trustees
a. May be more than 15 in number
b. Classified in such manner that the term of office of 1/3 of their number shall expire every year
c. Subsequent elections of trustees shall be held annually and trustees so elected shall have a term of 3 years
i-5. Place of Meetings
a. May be held in a place outside the place where the principal place of the corporation is located
a
Must be within the Philippines [Section 93]
J. CLOSE CORPORATIONS
j-1. Definition j-2. Particulars
a. Requirements
a-1. Number of stockholders not to exceed 20
a-2. Restriction: pre-emption in favor of the stockholders or corporation
a-3. Stocks cannot be listed in the stock exchange or be publicly offered
b. Prohibitions
b-1. Mining companies
b-2. Oil companies
b-3. Stock exchanges
b-4. Banks
b-5. Insurance companies
b-6. Public utility
b-7. Educational institution
b-8. Other corporations declared to be vested with public interest
j-3. Restrictions on Transfer
a. Must appear
a-1. In the Articles of Incorporation
a-2. In the By-Laws
a-3. On the Stock Certificate
a
Pre-emptive right extends not only to unissued shares but also to treasury stocks [Section 102]
PREPARED BY:
CORPORATION LAW
Course Outline
A. GENERAL PRINCIPLES
a-1. Definition 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 [Section 2]
a-2. Kinds of Businesses
1. As to Organization
1-a. Sole Proprietorship [Bar, 1949]
1-b. Partnership [Article 1767, New Civil Code]
1-c. Corporation
1-d. Joint Venture categorized as a form of limited partnership since its period [Kohler, Dictionary for Accountants,
1975, p. 243; see J.M. Tuason & Co. vs. Bolanos, L-4935, 28 May 1954; Bar, 1987; Bar 1995]
1
As to Activity
2-a. Merchandising
2-b. Manufacturing
2-c. Service-concerned
a-3. Attributes of a Corporation
1. Artificial Being
1-a. Separate entity concept [Bar, 1996]
1. Liability for Torts [PNB vs. Court of Appeals, 83 SCRA 237]
2. Liability for Damages [Bar, 1955]
3. Liability for Crimes [Sia vs. People, 121 scra 655; People vs. Conception, 44 Phil. 126; Section 144]
4. Constitutional rights a. Due process [Albert vs. University Publication Co., 13 SCRA 84]
b. Equal protection [Smith Bell & Co., vs. Natividad, 40 Phil. 136]
c. Unreasonable search and seizures [Stonehill vs. Diokno, 20 SCRA 383]
5. Theory of Concession [Tayag vs. Benguet Consolidated, Inc., 26 SCRA 242]
1-b. Piercing the Veil of Corporate Entity
1. Definition corporate fiction disregarded where the entity is formed or used for non-legitimate purposes [Bar,
1978; Bar 1985; Bar 1991]
2. Reasons: When corporation is used to
a. Defeat public convenience
b. Justify wrong
c. Protect fraud
d. Defend crime
e. As mere alter ego [Umali vs. Court of Appeals, 189 SCRA 529]
3. Cases
a. Claparols vs. CIR [65 SCRA 613]
b. Cruz vs. Dalisay [152 SCRA 482]
c. Tan Boon Bee and Co. vs. Jarencio [163 SCRA 205]
d. CIR vs. Norton & Harrison Company [11 SCRA 714]
c. Philippine Veterans Investment Development Corporation vs. Court of Appeals [181 SCRA 669]
d. Telephone Engineering and Service Co., Inc. vs. Workmens Compensation Commission [104 SCRA 354]
4. Theory of Corporate Enterprise [Rationale: there can be no association without associates, Villanueva, p. 266]
1
Created by Operation of Law
3-a. Creation under the Corporation Code
3-b. Creation under a Special Law
1. Governed primarily by Charter creating it
2. Corporation Code applies only on a suppletory manner [Section 4]
3-c. De Facto Corporation [Section 20; Bar, 1989]
1. Definition a corporation that actually exists as a corporate body, but which, because of failure to comply with some
provisions of the law, has no legal right to corporate existence as against the state. Certificate of incorporation must be
issued. This is distinguished with Corporation de Jure.
2. Only the state can question the personality of the corporation. Right usurped is that of the sovereign, then it is the
sovereign alone can question it through a Quo Warranto proceedings represented by the Solicitor General
3. Requisites
a. Law authorizing incorporation
b. Bona fide attempt to organize
c. Assumption of corporate powers
3-d. Corporation by Estoppel [Section 21]
1. Defined applies to persons assuming to act as a corporation without authority to do so with respect to third persons
who were prejudiced on the basis of their misrepresentations
2. How Action Commenced Sued under the name by which they are generally or commonly known [Section 15, Rule
3, Revised Rules of Court]
3. Liability liable as general partners
1
Coverage
a. Debts
a
Liabilities
b
Damages
1
Perpetual Succession
3-a. Concept not immortality, but continuity of corporate life
3-b. Corporate Term [Section 11]
1. Duration not exceeding 50 years
2. Renewable for another 50 years within 5 years prior to expiration [Alhambra Cigar vs. Securities and Exchange
Com-mission, 24 SCRA 269]
3-c. Extension or Shortening of Term [Section 37; Bar, 1988]
3-d. Doctrine of Relation Delay in the approval of the application for extension of corporate term attributable to
circumstances beyond the control of corporation would make the new charter related back to the day the corporation is
entitled to have the charter issued [Vitug, p. 379]
1
Powers, Attributes and Property Rights
4-a. Express Powers
3-o. Watered shares shares issued for no or less than their par or stated value [Bar, 1993]
4. Issuance of Stock Certificates [Section 64]
4-a. Ways of issuance
1. Subscription refers to any contract for the acquisition of unissued stock in an existing corporation or corporation still
to be formed [Section 60]
a. Pre-Incorporation subscription of stocks in a corporation still to be formed irrevocable for a period of 6 months from
date of subscription [Section 61; Bar, 1979]
b. Post-Incorporation subscription of stocks in a corporation after its formation
2. Exchange or other onerous transfers
3. No promissory notes, no future services
1
Issued only upon full payment [Bar, 1976; Bar, 1975; Bar 1979;Bar, 1988]
2
Cannot be set-off against unpaid salary [Apodaco vs. NLRC, 172 SCRA 442; Article 102, Labor Code of the
Philippines; Bar, 1988]
4-b. Consideration for Issuance [Section 62]
1. Cash
2. Property, whether tangible or intangible
3. Labor performed or services actually rendered [Bar, 1952]
1
Previously incurred indebtedness
2
Amounts transferred from unrestricted retained earnings to stated capital
3
Reclassification or conversion
4-c. Collecting Subscriptions
1. Determination of Due Date [Section 67]
a. Subscription contract
b. In the absence, at any time from the date specified in the call by the Board of Directors
2. Effect of Non-Payment on Due Date
a. Entire balance becomes due and payable
b. After the lapse of 30 days from due date, stocks become delinquent. As such, holder lose all rights due as a
stockholder except the right to dividends [Section 71]
3. Modes of Collection [Bar, 1988]
a. Judicial remedy ordinary suit for collection of sum of money [Section 70]
b. Extrajudicial remedy - Delinquency sale [Section 68; Bar, 1969; Bar, 1997]
1. Resolution
2. Notice of Delinquency Sale
3. Publication
4. Public Auction
5. Sale to highest bidder or treasury shares
c. Minimum Amount Due
1. Balance on subscription
2. Accrued interest, if any
3. Advertisement costs
4. Expenses of sale
d. Application of Dividends [Section 71]
1
Interests on Unpaid Subscriptions [Section 66]
a. General Rule: No interest payable
b. Exception
1. By-Laws provision
2. At the rate prescribed in the By-Laws
3. In the absence of the rate prescribed therein, legal rate
4-d. Right of Pre-Emption [Bar, 1982; Bar, 1983; Bar 1984]
1. Definition right of the stockholder to subscribe additional shares of stocks before the same can be offered to the
public in proportion to their respective shareholdings
2. When Right Deniable [Section 39]
a. Denial by the Charter
b. Shares issued to comply with legal Filipino ownership requirements
c. Shares issued in exchange for property needed or in payment of previously contracted indebtedness in accordance
with the approval of 2/3 of stockholders or members
3. Coverage
a. Only shares originally offered for sale to the public
b. Does not include
1. Shares previously offered but not sold
2. Treasury shares
4-e. Issuance of New Certificates [Section 73]
1. Coverage
a. Lost
b. Destroyed
c. Stolen
1
Procedures [Bar, 1969]
a. Affidavit of loss of stockholder
b. Verification by the corporation
c. Publication of Notice of Loss
1. If no bond filed by stockholder, wait until lapse of one year from last publication
2. If bond is filed by stockholder, new certificates may be issued even prior to the one year period
a
If Contested
1. Case is filed without, wait for final decision
2. If no case filed, file an action for Interpleader
5. Transfer of Shares of Stocks [Bar, 1981; Bar, 1994; Bar, 1995]
5-a. Synopsis
1. Open corporation
2. Close corporation
5-b. Manner of Transfer
5-c. Assignment
5-d. Pledge
1. Pledgor entitled to the rights
2. If registered in corporate books without any reservation in writing, pledgee entitled to the rights [Section 55]
5-e. Mortgage
1. Mortgagor entitled to the rights
2. If registered in corporate books without any reservation in writing, mortgagor entitled to the
rights [Ibid]
B. INCORPORATION AND ORGANIZATION
b-1. Definition
1. Incorporation covers all steps and processes from the time of the application for incorporation until the issuance of
the Certificate of Incorporation
2. Organization
2-a. Definition refers to the acts of starting the operations of the corporation as a going concern and the establishment
of machineries to run its operations
2-b. Steps
1. Adoption of By-Laws
a. Pre-incorporation
b. Post-incorporation one month from issuance of Certificate [Section 46]
2. Election of corporate Directors
3. Election of corporate Officers
b-2. Terminologies
1. Promotion the initial and pre-incorporation steps until the actual formation of the corporation [Bar, 1949]
2. Primary franchise
2-a. Definition - refers to the right to exist as a corporation
2-b. Characteristics
1. Vested in the individuals who compose the corporation and not in the corporation itself
2. Incapable of being transferred
1
Secondary franchise
3-a. Definition - refers to the right to conduct the business of the corporation
3-b. Characteristics
1. Vested in the corporation itself
2. Capable of being transferred
1
Concession theory Registration and issuance of the Certificate of Incorporation signals the birth of the
corporations personality [Vitug, p. 391]
2
Articles of Incorporation basic document for the registration of a corporation
3
Corporation By-Laws set of rules or guidelines for the internal operation of the corporation
4
Certificate of Incorporation
b-3. Steps in Incorporation
1. Promotion
1-a. Definition - the conduct of a project or feasibility study that interests prospective investors to set-up a corporation
business.
1-b. Who Undertakes - This is undertaken by a person called the promoter for a fee or consideration
1-c. Effect binding only between the promoter and the parties and prospective investors who signed and executed the
promotion contract. This is binding only upon the corporation if, after its creation, the promotion contract was adopted by
the corporation by virtue of a Board Resolution
2. Drafting and Execution in compliance with the compliance with the requirements [Sections 13, 14, 15, 61, 139-141]
3. Issuance of Certificate of Incorporation [Section 19]
b-4. Articles of Incorporation [Bar, 1990]
1. Definition charter of the corporation
1
Contents [Sections 14, 15]
2-a. Name of corporation [Section 18; Republic Planters Bank vs. Court of Appeals, 216 SCRA 738; Bar, 1976]
2-b. Purpose/purposes [Bar, 1976; Bar, 1977]
2-c. Principal place of business
2-d. Term of existence [Section 11]
2-e. Incorporators [Section 10]
2-f. Number of Directors/Trustees
2-g. Acting or Temporary Directors/Trustees
2-h. Stock Corporation data [Bar, 1984]
2-i. Non-stock corporation data
2-j. Other matters
3. Attachments
D. CORPORATE POWERS
d-1. Classification
1. Express 2. Implied
3. Incidental
d-2. Voting Requirements
1. 2/3 of Stockholders and Majority of Board of Directors
E. CORPORATE LIABILITY
e-1. Kinds of Liability
1. Corporate liability
2. Officers liability [Bar, 1989; Bar, 1995]
3. Directors liability
e-2. Corporate Liability
1. Usual and normal transactions
2. Torts
3. Crimes
e-3. Liability of Director/Trustee
1. Personal Liability [Section 21; Bar, 1996]
1-a. Business opportunity theory [Section 34; Bar, 1985; Bar, 1991]
1. When Applicable a director or trustee acquires for himself a business opportunity belonging to the corporation
whereby he obtained profits to the prejudice of the corporation
2. Effects
a. Account for the profits to the corporation
b. Personally bear the losses
3. Exception: Act is ratified by 2/3 of the stockholders or members
1-b. Inter-locking Directors [Section 33]
1. Where applicable contracts entered into between two corporations having the same director/s or trustee/s
2.
1-c. Self-Dealing Director [Section 32; Bar, 1995]
1. Coverage
2. When Contract is Valid
a. Presence of director or trustee not necessary to constitute quorum
b. Vote of the director or trustee not necessary to approve the contract
c. Contract is fair and reasonable
d. If he is an officer at the same time, the contract has been previously authorized by the Board of Directors or Trustees
3. Effects on Contracts
a. As a rule, voidable at the option of the corporation
b. If presence of director or trustee helped in constituting quorum or his vote helped in the approval of the contract, the
same is voidable subject to ratification by 2/3 of stockholders or members
1
Solidary Liability
2-a. Coverage [Section 31]
1. Patently unlawful acts of the corporation
2. Gross negligence or bad faith in directing affairs of the corporation [Bar, 1968]
3. Acquisition of personal or pecuniary interest in conflict with duty as director
4. Watered stocks [Section 65]
2-b. To Whom Liable
1. Corporation
2. Stockholders or members
3. Other persons
F. RIGHTS OF STOCKHOLDERS
f-1. Classification of Rights [Bar, 1995]
1. Managerial rights
2. Proprietary rights
3. Remedial rights
4. Appraisal rights
f-2. Managerial Rights
1. Definition
2. Stockholders Meeting [Section 50]
2-a. Kinds of Meeting [Section 49]
2-b. Time of Meeting [Section 51]
2-c. Place of Meeting [Sections 51, 93]
2-d. Notice of Meeting
2-e. Quorum [Sections 25, 52]
1
Kinds of Voting
2-a. Personal
2-b. Representative or Proxy Voting [Section 58]
1. Definition voting through an agent
2. Revocable at will of the grantor [see Alejandrino vs. De Leon, L-49043, 29 December 1943]
2-c. Special Rules
1. Voting Trust Agreement [Section 59; Bar, 1976; Bar, 1985; Bar, 1992]
a. Definition an arrangement whereby the stockholders transfer their shares to a trustee who acquires the right to vote
said shares
b. Limitations
1. Not exceeding 5 years
2. If created by virtue of a loan agreement, not exceeding 5 years but ipso facto terminated upon full payment of the
loan
3. Must be in writing, notarized and filed with the SEC
2. Joint Ownership [Section 56]
a. Co-ownership
b. Consent of all co-owners or joint owners are necessary
3. Pledgors, Mortgagors [Section 55]
4. Executors, Administrators, Receivers and other Legal Representations [Section 55]
a. If appointed by the court, they can vote the shares
b. Without need of any written proxy
f-3. Proprietary Rights
1. Definition right as owner of the corporation [Bar, 1995]
2. Coverage
2-a. Right to dividend
2-b. Right to liquidation
2-c. Right of pre-emption [Section 39]
1. Definition preferential right to subscribe additional shares of stocks proportionate to stockholding
2. When Denied
a. To comply with Filipino ownership requirements
b. To acquire property needed for corporate purposes
c. To pay previously contracted debt
1
Dividends [Section 43; Bar, 1987]
3-a. Definition distribution of the earnings of the corporation to the stockholders
3-b. Kinds
1-b. Judgment by the SEC after hearing on the Petition for Voluntary Dissolution where creditors are affected [Section
119]
1-c. Amendment of Articles of Incorporation shortening corporate term [Section 120]
1
Involuntary [Section 121]
2-a. Expiration of corporate term [Section 11]
2-b. Legislative enactment [Section 145]
2-c. Failure to organize and commence business operations within 2 years from incorporation [Section 22]
2-d. Judicial decree of Forfeiture [Sections 20, 134; Rule 66, Revised Rules of Court]
2-e. Order of SEC [Section 121]
H. FOREIGN CORPORATION
h-1. Definitions
1. Foreign corporation organized in a foreign country, provided that said foreign country allows Filipinos and domestic
corporations to do business therein [Section 123]
2. Doing business covers:
2-a. Soliciting orders
2-b. Service contracts
2-c. Opening offices, whether called liaison offices or branches
2-d. Appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the
country for a period totaling 180 days or more
2-e. Participating in the management, supervision or control of any domestic business, firm, entity or corporation in the
Philippines
2-f. Any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent
performance normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of
the business organization [Section 3(d), R.A. 7042, Foreign Investment Act of 1991], PROVIDED, that the following
shall not be deemed doing business:
1. 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;
2. Having a nominee director or officer to represent its interest in such corporation;
3. Appointing a representative or distributor domiciled in the Philippines which transact business in its own name and for
its own account
h-2. Suability of Foreign Corporations
1. Doing Business in the Philippines
1-a. With license may sue and be sued in the Philippines
1-b. Without license cannot sue but may be sued in the Philippines [Section 133]
2. Not Doing Business in the Philippines only on isolated transactions
2-a. May sue
2-b. May be sued [Facilities vs. de la Osa, 89SCRA 131]
h-3. License
1. Requirements
1-a. Appointment of Resident Agent, either a Filipino or domestic corporation; and power of attorney to SEC to receive
processes
1-b. Must prove that the foreign corporations country grants reciprocal rights to Filipinos and Philippine corporation;
1-c. Establish an office in the Philippines;
1-d. Bring in its assets;
2. In the event of insolvency, an undertaking the Filipino creditors will be preferred;
1
Notice of six months should it desire to terminate operations;
2
Franchise and patents must remain in the Philippines if possible;
3
Must file a bond of P100,000.00, that within 6 months after each fiscal year, the SEC shall require the deposit
of additional securities equivalent to 2% of the amount in excess of P5million of the gross income
h-4. Grounds for Revocation of License
1. Failure to file annual reports required by the Code
2. Failure to appoint or maintain a resident agent
3. Failure to inform SEC of change of resident agent or the latters change of address
4. Failure to submit copy of amended articles or by-laws or articles of merger or consolidation
5. Failure to pay taxes, impost or assessments
6. Engaged in business not authorized by SEC
7. Acting as dummy of a foreign corporation not licensed to do business in the Philippines
I. NON-STOCK CORPORATION
i-1. Definition one where no part of its income is distributable as dividends to its members, trustees or officers, subject
to the provisions of the Corporation Code on dissolution.
i-2. Particulars
a. Purposes
a-1. Charitable
a-2. Educational
a-3. Religious
a-4. Professional
a-5. Cultural
a-6. Recreational
a-7. Fraternal
a-8. Literary
a-9. Scientific
a-10. Social
a-11. Civic service
b. Right to Vote
b-1. Right may be limited, broadened or denied to the extent specified in the Articles of Incorporation or by the By-Laws
b-2. Unless otherwise specified, each member regardless of class shall be entitled to one vote
b-3. Voting by mail or other similar means by members of non-stock corporations may be authorized by its By-Laws
i-3. Non-Transferability of Membership
a. Membership and all rights arising therefrom are personal and non-transferable
b. Except when authorized by the Articles of Incorporation or by the By-Laws
i-4. Election and Term of Trustees
a. May be more than 15 in number
b. Classified in such manner that the term of office of 1/3 of their number shall expire every year
c. Subsequent elections of trustees shall be held annually and trustees so elected shall have a term of 3 years
i-5. Place of Meetings
a. May be held in a place outside the place where the principal place of the corporation is located
a
Must be within the Philippines [Section 93]
J. CLOSE CORPORATIONS
j-1. Definition j-2. Particulars
a. Requirements
a-1. Number of stockholders not to exceed 20
a-2. Restriction: pre-emption in favor of the stockholders or corporation
a-3. Stocks cannot be listed in the stock exchange or be publicly offered
b. Prohibitions
b-1. Mining companies
b-2. Oil companies
b-3. Stock exchanges
b-4. Banks
b-5. Insurance companies
b-6. Public utility
b-7. Educational institution
b-8. Other corporations declared to be vested with public interest
j-3. Restrictions on Transfer
a. Must appear
a-1. In the Articles of Incorporation
a-2. In the By-Laws
a-3. On the Stock Certificate
a
Pre-emptive right extends not only to unissued shares but also to treasury stocks [Section 102]
PREPARED BY:
a. Matling Industrial and Commercial Coorp. V. Coros, G.R. No. 157802, October 13, 2010
D. Report of election (Sec. 26)
E. Disqualification of directors, trustees or officers (Sec. 27)
F. Removal of directors or trustees (Sec. 28)
G. Vacancies in the office of director or trustee (Sec. 29)
Case:
a. Valle Verde Country Club, Inc. v. Africa, G.R. No. 151969, September 4, 2009
b. Tan v. Sycip, G.R. No. 153468, August 17, 2006
H. Compensation of directors (Sec. 30)
I. Liability of directors, trustees or officers (Sec. 31)
1. Corporate opportunity doctrine
J. Dealings of directors, trustees or officers with the corporation (Sec. 32)
K. Contracts between corporations with interlocking directors (Sec. 33)
L. Disloyalty of a director (Sec. 34)
M. Executive committee (Sec. 35)
O. Business Judgment Rule
Case:
Saber v. Court of Appeals, G.R. No. 132981, August 31, 2004
Part IV Powers of Corporations
A. Classification of powers
1. Express powers
2. Implied powers
3. Incidental or inherent powers
Case:
a. Cebu Bionic Builders Supply, Inc. v. DBP, GR No. 154366, November 17, 2010
b. Shipside Incorporated v. CA, GR No. 143377, February 20, 2001
B. Corporate powers and capacity (Sec. 36)
1. General powers, theory of general capacity
2. Specific powers, theory of specific capacity
a) Power to extend or shorten corporate term (Sec. 37)
a.1) Appraisal right of dissenting stockholders
b) Power to increase or decrease capital stock or incur, create, increase bonded
indebtedness (Sec. 38)
b.1) Limitation
b.2) Necessity
c) Power to deny pre-emptive rights (Sec. 39)
a. Expertravel & Tours, Inc. v. Court of Appeals, G.R. No. 152392, May 26, 2005
C. Quorum (Sec. 52)
1. Requisites for a valid meeting of stockholders
2. Specific number of votes required by law