Title 1
GENERAL PROVISIONS
Definitions and Classifications
Section 1
 This Code shall be known as “The Corporation
Code of the Philippines.”
 Historical Background
Batas Pambansa Bilang 68 – law governing private
corporations in the Philippines (May 1, 1980)
- Act. No. 1459, Corporation Law (enacted on
March 1, 1906, took effect on April 1, 1906)
 Scope of the Code
1) Provides for the incorporation, organization,
and regulation of private corporations, both
stock and non-stock, including educational and
religious corporations;
2) Defines their powers and provides for their
dissolution;
3) Fixes the duties and liabilities of directors or
trustees and other officers thereof;
4) Declares the rights and liabilities of
stockholders or members;
5) Prescribes the conditions under which
corporations including foreign corporations
may transact business;
6) Provides penalties for violations of the Code;
7) Repeals all laws and parts of laws in conflict and
inconsistent with the Code.
Section 2
Statutory definition of corporation
 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 of a corporation.
 It is an artificial being – a juridical person
capable of having rights and obligations with a
personality separate and distinct from its
members/stockholders;
 Created by operation of law - mere consent of
the parties to form a corporation is not
sufficient. State must give consent through (a)
special law, (b) general enabling act;
 With right of succession - existence cannot be
affected by change in members/stockholders;
and
 Has the powers, attributes, and properties as
expressly authorized by law or incident to its
existence.
Corporation as an artificial personality.
 A corporation has a personality separate and
distinct from the persons composing it.
Piercing the veil of corporate entity.
 When the veil of corporate fiction is used as a
shield to perpetuate fraud, to defeat public
convenience, justify wrong or defend crime, this
fiction shall be disregarded and the individuals
composing it will be treated identically.
 Instances where fiction (corporation as a
separate entity) disregarded
1. Where a corporation functions for the benefit of
a single person who has complete control over
the funds and the said person is the sole owner
thereof. (the corporate entity is an alter ego or
the business conduit of the owner and the
property)
2. Where the corporation is a mere instrumentality
of the individual stockholders, the latter must
individually answers for corporate obligations.
3. Where a domestic or Philippine corporation is
controlled by aliens,
4. Where a corporation is organized by an
insolvent debtor to defraud his creditors and
transfers his properties to it in furtherance of
such fraudulent purpose
5. Where a subsidiary company is created by a
parent company merely as an agency of the
latter
6. Where a corporation is formed by a person for
the purpose of evading his individual contract
7. Where a corporation is dissolved and its assets
are transferred to another corporation to avoid
financial liability of the first corporation.
Nationality of corporations
- Serves as a legal basis for subjecting the
enterprise or its activities to the laws, the
economic and fiscal powers, and various social
and financial policies of the state to which it is
supposed to belong.
 Tests:
1. Place of Incorporation
- Principal doctrine on the test of the nationality
of a corporate identity in the Philippines
- A corporation is a national of the country under
whose laws has been organized and registered
2. Control Test
- A corporation shall be considered a Filipino
corporation if the Filipino ownership of its
capital stock is at least 60%, and where the 60-
40 Filipino-Alien equity ownership is NOT in
doubt (SEC opinion dated 6 November 1989;
DOJ Opinion No. 18, s. 1989).
- Therefore, its shareholdings in another
corporation shall be considered to be Filipino
nationality when computing the percentage of
Filipino equity of the second corporation (SEC
Opinion dated 23 November 1993).
3. Grandfather Rule
- It is a method of determining the nationality of
a corporation which in turn is owned in part by
another corporation by breaking down the
equity structure of the shareholder corporation.
- It involves the computation of Filipino
ownership of a corporation in which another
 corporation of partly Filipino and partly foreign 10) Term of Any period of May not be
equity owns capital stock. The percentage of existence stipulated time formed in
shares held by the second corporation in the excess of 50 yrs
first is multiplied by the latter’s own Filipino 11) Firm name Ltd May adopt any
equity, and the product of these percentages is name provided
it is unique
determined to be the ultimate Filipino
12) Dissolution Anytime by will Only by the
ownership of the subsidiary corporation (SEC
consent of the
Opinion re: Silahis) state
Note: the application of the test is limited to the 13) Laws which Civil code Corporation
issues of investment. Only when the corporation govern Code
is less than 60% owned shall the grandfather
rule be applied. Private corporation can only be created by
Corporation VS Partnership Corporation Code
Partnership Corporation  Special authority or grant by the State is
1) Manner of by mere by law or by required.
creation agreements of operation of law  The Congress shall not, except by general law,
the parties provide for the formation, organization, or
2) Number of May be Requires at least regulation of private corporations.
incorporators organized by (5) Special law can only create:
only (2) persons incorporators 1. Public Corporation
3) from the Only from the 2. Government-owned or controlled corporations
Commencement moment of the date of the provided:
of juridical execution of issuance of the
a. In the interest of common goods
personality the contract certificate of
b. Subject to test of economic viability
incorporations
by SEC under Section 3
official seal Classification of corporations under the Code.
4) Powers May exercise Exercise only  Stock Corporation
any power the powers - One which has a capital stock divided
provided it is expressly into shares and is authorized to
not contrary to granted by law distribute to the holders of such share’s
law, morals, or implied form dividends or allotments of the surplus
good customs, those granted of profits (Sec. 3).
public order, or incident to its  Non-stock Corporation
public policy existence. - no part of their income is distributable as
5) Management When not Vested upon the
dividends to its members, trustees or
agreed upon, board of
officers subject to the provisions on
every partner is directors or
an agent trustees dissolution.
6) Effect of Partners can The suit must be Other classifications of corporations
mismanagement sue a co- in the name of  As to number of persons who compose them:

partner who the corporation  Corporation Aggregate- more than one

mismanages  Corporation Sole- only one
7) Right of No right Has such right  As to whether they are for religious purpose or
succession not:
8) Extent of Partners a liable Stockholders  Ecclesiastical corporation- religious
liability to third personally and are liable only to  Lay Corporation- other than religious
persons subsidiarily for the extent of  As to whether they are for charitable purpose or
partnership their
not:
debts to third investments as
 Eleemosynary corporation- charitable
persons represented by
the shares  Civil corporation- for business or profit
subscribed by  As to the state or country under by whose laws
them they have been created:
9)Transferability Cannot Has the right to  Domestic corporation- under Philippine law
of interest transfer, or transfer his  Foreign corporation- under foreign law
make shares without  As to their legal right to corporate existence:
transferee a prior consent  De jure corporation- in fact and in law
partner without  De facto corporation- in fact but not in law
consent  As to whether they are open for public or not:
  Close Corporation- limited to selected
persons
 Open Corporation- open to any person
 As to their relation to another corporation
 Parent or holding corporation- related to
another corporation that it has the power to
elect the majority of directors of such other
corporation.
 Subsidiary Corporation- related to another
corporation that majority of its directors are
elected by such other corporation.
 As to whether they are corporations in a true
sense or only in a limited sense:
 True corporation- exists by statutory
authority
 Quasi-corporation- exists without legislative
grant
o Corporation by prescription- exercised
corporate powers over indefinite period
without interference from sovereign
power.
o Corporation by estoppel- a corporation
only to those only who, by reason of their
acts or admissions, are precluded from
asserting that it is not a corporation.
 As to whether they are public or private
 Public Corporation- formed or organized for
the government or a portion of the state
 Private Corporation- those formed for
private purposes, benefit, or end
Test of distinction between public and private
 Public- those created, formed or organized for
political or governmental purposes with political
powers to be exercised for purposes connected
with the public good in the administration of civil
government.
 Private- those formed for some private purpose,
benefit, aim or end.
Includes:
1. Government-owned or controlled corporations
- directly created by special law
2. Quasi-public corporations
- Accepted from the State the grant of
franchise or contract involving the
rendition or performance of some public
duties or service, but which are
organized for profit.
Section 4
Incorporation of a private corporation by a special
act.
 Subject to constitutional limitation that such
corporation shall be owned or controlled by the
government or any subdivision or
instrumentality thereof.
 Reasons for restriction:
 To prevent the granting of special
privileges to one body of men without
giving all others the right to obtain the
in the same conditions; and
 To prevent bribery and corruption of the
legislature.
Governing law
 Corporation created by a special law or charter
is primarily governed by such law and
suppletorily, by the provisions of the Code
“insofar as they are applicable.”
 Under the constitution, officers and employees
of government-owned or controlled
corporations with original charter are placed
under the Civil Service and thus, subject to Civil
Service Law.
 A government-owned or controlled corporation
may be organized under the provisions of the
Corporation Code and not by special law.
Section 5
Components of a corporation
 Corporators
- are those who compose a corporation,
whether as stockholders or as members.
 Incorporators
- are those stockholders or members
mentioned in the articles of
incorporation as originally forming and
composing the corporation and who are
signatories thereof.
 Stockholders
- Owners of shares of stock in a stock
corporation, also called shareholders.
 Members
- Corporators of a corporation which has
no capital stock.
Three other classes.
 Promoters
- Persons who bring about the formation
and organization of a corporation by
bringing in together the incorporators.
 Subscribers
- Persons who have agreed to take and
pay for original, unissued shares of a
corporation formed or to be formed.
 Underwriter
- A person, usually an investment banker,
who has agreed, alone or with others, to
buy at stated terms an entire issue of
securities or a substantial part thereof.
Section 6
Capital Stock and Capital
 Capital stock
- The amount fixed in the articles of
incorporation, to be subscribed and paid
in by the shareholders of a corporation,
either in money or property, labor or
services, at the organization of the
 corporation or afterwards and upon Fixed in the Articles of Changes only when
which it is to conduct its operation. Incorporation and is outstanding shares
a) Authorized capital stock unaffected by profits increase or decrease
- Synonymous with capital stock where and losses. in number or amount.
the shares of the corporation have par Limits the maximum Sets the minimum
amount or number of amount of the
value.
shares that may be corporate assets
b) Subscribed capital stock
issued (without which for the
- Amount of capital stock subscribed amendment of the AOI) protection of
whether fully paid or not. corporate creditors
c) Outstanding capital stock
- The total shares of stock issued to Stock or share of stock
subscribers or stockholders, whether - One of the units into which the capital
fully or partially paid except treasury stock is divided.
shares.
d) Paid-up capital stock Certificate of stock
- Portion of the subscribed or outstanding - Written acknowledgement by the
capital stock that is paid. corporation of the interest, right, and
e) Unissued capital stock participation of a person in the
- Portion of the capital stock that is not management, profits, and assets of a
issued or subscribed. corporation.
 Capital Classes of shares
- The entire property or assets of the 1. Par value shares
corporation. - One with specific money value fixed in
1. Legal capital the articles of incorporation and
- The amount equal to the aggregate par appearing in the certificate of stock for
value and/or issued value of the each share of stock of the same issue.
outstanding capital stock. 2. No par value shares
- One without any stated or par value
Capital VS Capital Stock appearing on the face of the certificate
Capital Capital stock of stock.
Actual corporate Merely an amount; Limitation:
property abstract
A. Cannot be issued by the following
Fluctuates or varies Fixed in the Articles of
corporations: (BPI-TB)
from day to day Incorporation and is
1. Bank
accordingly as there unaffected by profits
are profits or losses or and losses. 2. Public Utilities
changes in corporate 3. Insurance Company
assets’ values. 4. Trust Company
5. Building and Loan association
Belongs to the If issued, belongs to B. Preferred shares are not allowed
corporation; real or stockholders; always C. Cannot be issued for a consideration less
personal personal than five peso (P5)
D. Deemed fully paid and non-assessable
Capital VS Legal Capital E. Entire consideration received shall be
Capital Legal Capital treated as capital and not available for
Actual corporate Merely an amount dividend distribution.
property 3. Voting shares
Fluctuates or varies Changes only when - That there shall always be a class or
from day to day outstanding shares series of shares which have complete
accordingly as there are increase or decrease voting rights
profits or losses or in number or amount. - That no share may be deprived of voting
changes in corporate
rights except those classified and issued
assets’ values.
as “preferred” or “redeemable” shares.
Capital Stock VS Legal Capital 4. Non-voting share
Capital stock Legal Capital - Shares without right to vote
Merely an amount; Merely an amount Non-voting shares classified as such may still
abstract vote under the following circumstances:
a. Amendment of the articles of
incorporation;
 b. Adoption and amendment of by-laws;
c. Sale, lease, exchange, mortgage, pledge
or other disposition of all or substantially
all of the corporate property;
d. Incurring, creating or increasing bonded
indebtedness;
e. Increase or decrease capital stock;
f. Merger or consolidation;
g. Investment of corporate funds in
another corporation or business except
where the investment by the
corporations reasonably necessary to
accomplish its primary purpose as stated
in the articles of incorporation.
h. Dissolution of the corporation
5. Common stock
- Stock which entitles the holder thereof
to pro rata division of the profits, if there
are any, without any preference or
advantage in that respect over other
stockholders or class of stockholders.
6. Preferred stock
- Stock which entitles the holder thereof
to certain preferences over the holders
of common stock.
7. Promotion stock
- Share of stock as issued to promoters, or
those in some way interested in the
company, for incorporating the
company, or for services rendered in
launching or promoting the welfare of
the company
8. Share in Escrow
- Share subject to an agreement by virtue
of which the share is deposited by the
grantor or his agent with a third person
to be kept by the depository until the
performance of a certain condition or
the happening of a certain event
contained in the agreement.
9. Convertible Stock
- Stock which is changeable by the
stockholder from one class to another
class
10. Founder’s share (Section 7)
- Shares issued to the organizers and
promoters of a corporation in
consideration for some supposed right
or property.
11. Redeemable share (Section 8)
- Redeemable at a fixed date or at the
option of either the issuing corporation
or the stockholder or both at a certain
redemption price.
a. Must be expressly so provided in the
articles of incorporation.
b. Purchased or taken up by the
corporation upon the expiration of a
fixed period, regardless of the existence
of unrestricted retained earnings.
c. Terms and conditions must be stated in
the articles of incorporation and
certificate of stock.
12. Treasury stock (Section 9)
- Shares of stock which has been lawfully
issued by the corporation and fully paid
for and later reacquired by it either by
purchase, redemption, donation,
forfeiture or other lawful means.
Title II
INCORPORATION AND ORGANIZATION OF
PRIVATE CORPORATIONS
Section 10
 Stages in the life of a corporation:
1. Creation
2. Reorganization or quasi-reorganization
3. Dissolution and winding up
 Steps in creation:
1. Promotional stage
2. Process of incorporation
3. Organization and commencement of
business
 Process of incorporation:
1. Drafting the articles of incorporation
2. Preparation and submission of additional
and supporting documents
3. Filing with the SEC
4. Subsequent issuance of certificate of
incorporation
 Incorporators: number and qualifications
- Incorporators are stockholders or
members mentioned in the articles
originally forming and composing the
corporation and who are signatories
thereof.
Qualifications:
a) Natural persons
b) Of legal age
c) Must own or subscribe at least one share
of stock of the corporation (Genuine
interest)
d) 5 to 15 incorporators who must sign the
articles of incorporation (AOI)
e) Majority of the incorporators must be
residents of the Philippines
Section 11
 Corporate Term
- Not more than 50 years from date of
incorporation subject to extension for
periods not exceeding 50 years per
extension unless:
a. Sooner dissolved, or
b. Extended
Extensions:
 o Not earlier than 5 years prior to expiry
 Unless earlier extension is for
justifiable reasons as determined by
SEC.
o How to extend: amend the AOI during the life of
the corporation before the expiry of its term.
Note: Any dissenting stockholder may exercise
his appraisal right (Sec. 37).
Section 12
 Minimum capital stock required
- Stock corporations incorporated under
this Code shall not be required to have
any minimum authorized capital stock
except as otherwise specifically provided
for by special law, and subject to the
provisions of the following section.
 Filipino Percentage ownership requirement
regarding corporate capital
1. Corporations for exploration,
development and utilization of natural
resources – at least 60% of the capital by
citizens of the Philippines
2. Public service corporations – at least 60%
of the capital by citizens of the
Philippines
3. Educational corporations – at least 60%
of the capital by citizens of the
Philippines
4. Banking corporations – at least 60% of
the voting stocks by citizens of the
Philippines
5. Corporations engaged in retail trade –
exclusively for Filipino citizens and
corporations wholly-owned by Filipino
citizens
6. Rural banks – at least 40% of voting
stocks or at least 60% of capital
7. Corporations engaged in coastwise
shipping – at least 60% of capital
8. Corporations engaged in the pawnshop
business – at least 70% of voting stocks
9. Under the Flag Law – at least 75% of the
capital
Section 13
 At the time of incorporation:
o At least 25% of authorized capital stock as
stated in the AOI must be subscribed
o At least 25% of the total subscription must
be paid upon subscription, the balance to be
payable on a date or dates fixed in the
contract of subscription without need of call,
or in the absence of a fixed date or dates,
upon call for payment by the BOD.
- Call – term used when the Board formally
asks for payment of the balance of the
subscription or a part thereof.
 Minimum paid-up capital is not less than P5,000.
Section 14
 Nature and Function of Articles
- The Articles Of Incorporation is a basic
contract document in Corporation Law that
defines the charter of the corporation.
Section 14 of the Corporation Code provides
that the AOI do not become binding as the
charter of the corporation unless they have
been filed with the SEC.
 Contents
I. Name of corporation;
II. Purpose/s, indicating the primary and
secondary purposes;
III. Place of principal office;
IV. Term which shall not be more than 50 years;
V. Names, citizenship and residences of
incorporators;
VI. Number, names, citizenships and residences
of directors;
VII. If stock corporation, amount of authorized
capital stock, number of shares;
VIII. In par value stock corporations, the par value
of each share;
IX. Number of shares and amounts of
subscription of subscribers which shall not
be less than 25% of authorized capital stock;
X. Amount paid by each subscriber on their
subscription, which shall not be less than
25% of subscribed capital and shall not be
less than P5,000.00;
XI. Name of treasurer elected by subscribers;
and
XII. If the corporation engages in a nationalized
industry, a statement that no transfer of
stock will be allowed if it will reduce the
stock ownership of Filipinos to a percentage
below the required legal minimum.
Section 15
 Forms of Articles of Incorporation
- Unless otherwise prescribed by special law,
articles of incorporation of all domestic
corporations shall comply substantially with
the form.
Articles of incorporation – document prepared by
the persons establishing a corporation and filed with
SEC containing the matters required by the Code.
(corporate charter)
 Name of corporation
1) Importance – identifies and distinguishes it
from other corporations.
2) Nature – right to use its corporate and trade
name is a property right, a right in rem.
3) Part of name – “corporation” or “Incorporated”
or an abbreviation
 Purpose
1) Must be lawful
2) Must not be indefinitely stated
3) Must be stated
4) Must be capable of being lawfully combined
 Reasons for statement of purpose
1) Investors must know where and what kind of
business or activity his money will be invested.
2) Know within what scope of business they are
authorized to act
3) Third person may know whether the
transaction or dealing he has is within authority
of the corporation or not.
4) If actions or transactions are authorized or
beyond its powers
Section 16
Amendment of Articles of Incorporation
 Non-amendable Items
i. Names of incorporators
ii. Names of incorporating
directors/trustees
iii. Names of original subscribers to capital
stock and subscribed and paid- up capital
iv. Treasurer-in-trust elected by original
subscribers
v. Members who contributed to the initial
capital of non-stock corporation
vi. Place and date of execution
vii. Witnesses and acknowledgments (De
Leon, 2010)
 Limitations on power of corporation to amend
1) Not allowed when it will be contrary to any
provision or requirement prescribed by
the code or by special law
2) Must be for legitimate purposes
3) Must be approved by required vote of BOD
and stockholders
4) Shall contain all provisions required by law
to be set out in the articles of
incorporation
5) Shall be indicated by underscoring the
change/s made; copy of duly certified oath
by corporate secretary and a majority of
BOD or trustees stating that the
amendment has been duly approved by
required vote shall be submitted to SEC
6) Shall take effect only upon their approval
by SEC (6 months from said date)
7) If governed by special law, amendments
must be accompanied by a favorable
recommendation of appropriate
government agency.
Section 17
Grounds for rejection of articles of incorporation or
amendment thereto
1) Non-compliance with the requirements
2) If governed by special laws, amendment shall
not be accepted by SEC unless accompanied by
a favorable recommendation of appropriate
government agency that such amendment is in
accordance to law
3) Unless accompanied by sworn statement of the
treasurer elected
Suspension or revocation of the certificate of
registration of corporations
1) Fraud in procuring its certificate of
incorporation
2) Serious misrepresentation as to what the
corporation can do or is doing to the great
prejudice of, or damage to, the general public;
3) Refusal to comply with
4) Continuous inoperation for a period of at least
five (5) years
5) Failure to file by-laws within required time
period
6) Failure to file required reports in appropriate
forms
Section 18
Corporate name
 A corporation cannot use a name which is:
o identical or deceptively or confusingly
similar to that of any existing corporation or
to any other name protected by law; or
o patently deceptive, confusing or contrary to
law.
 Change of Corporate Name
- Requires amendment of the Articles Of
Incorporation: majority vote of the board
and the vote or written assent of
stockholders holding 2/3 of the outstanding
capital stock (Sec 16).
Section 19
Commencement of corporate existence
- upon issuance of certificate of incorporation
under SEC’s official seal.
Acquisition of juridical personality
1) Issuance of certificate of incorporation – under
its official seal.
- Final determination of the corporation’s
right to do business
- Certificate becomes charter or corporate
franchise
- Issuance calls the corporation into being but
is not ready to do business until organized.
2) Filing of articles of incorporation –
3) Registration cooperative – requires juridical
personality upon registration with the
Cooperatives Development Authority and SEC
Section 20
De jure corporation
- created in strict or substantial conformity with
the mandatory statutory requirements for
 incorporation and whose right to exist as a - Organization – the election of officers, providing
corporation cannot be successfully questioned for the subscription and payment of capital stock,
by any party even in a direct proceeding for the adoption of by-laws, and such other steps as
that purpose by the State. are necessary to endow the legal entity with the
De facto corporation capacity to transact the legitimate business for
- actually exists for all practical purposes as a which it was created.
corporation but which has no legal right to - Failure of the corporation to organize within the
corporate existence as against the State. prescribed period (2 years) would result in its
Requisites of a de facto corporation automatic dissolution, unless its failure to do so is
1) Valid law under which a corporation with due to causes beyond its control.
powers assumed might be incorporated - Substantial compliance is sufficient.
2) A bona fide attempt to organize a corporation - Subsequent inoperation (5 years) is merely a
under such law ground for suspension or revocation of corporate
3) Actual user or exercise in good faith of franchise. Dissolution is not automatic.
corporate powers conferred upon it by law.
Rules on collateral and direct attack against Title III
corporate existence: BOARD OF DIRECTORS/
1. The corporate existence of a de jure TRUSTEES/ OFFICERS
corporation cannot be directly attacked either Section 23
directly or collaterally, even by the State. Corporate powers exercised by BOD or trustees
2. The corporate existence of a de facto 1) Governing body of the corporation
corporation can be directly attacked on a quo 2) Binding effect of stockholders’ action –
warranto proceeding. directors have sole authority to determine
3. The corporate existence of a de facto policy and conduct the ordinary business of the
corporation is not subject to collateral attack corporation
by any party. 3) Extent of juridical review
 The authority of the board of directors does not
Section 21 extend to the fundamental changes in the corporate
Corporation by Estoppel charter.
 All persons who assume to act as a corporation  The board may delegate the exercise of
knowing it to be without authority to do so shall corporate powers.
be liable as general partners for all debts,  A corporation is bound by the acts of its
liabilities and damages incurred or arising as a corporate officers if they act within the scope of
result thereof. the 5 classifications of powers of corporate
 Where a group of persons misrepresent agents:
themselves as a corporation (ostensible
1. Those expressly conferred or those granted by
corporation), they are subsequently estopped
the articles of incorporation, the corporate by-
from claiming lack of corporate life in order to
laws or by the official act of the board of
avoid liability.
directors.
 A third party who assumes an obligation to an
ostensible corporation cannot resist 2. Those that are incidental or those acts as are
performance by alleging the ostensible naturally and ordinarily done which are
corporation’s lack of personality. reasonable and necessary to carry out the
corporate purpose or purposes.
De facto By estoppel 3. Those that are inherent or acts that go with
Existence in Yes None the office.
Law
Dealings Not required Required 4. Those that are apparent or those acts which
among parties although not actually granted, the principal
on a corporate knowingly allows or permits it to be done.
basis 5. Powers arising out of customs, usage or
Effect of lack Could be a Not a emergency.
of requisites corporation corporation Limitations on powers of BOD
by estoppel in any shape 1) It must be observed that limitations or
or restrictions imposed by the Constitution,
statutes, rules and regulations having the force
Section 22 of law on the corporation including its articles
of incorporation and by-laws
 2) Cannot perform constituent acts, that is, acts
involving fundamental or major changes in the
corporation
3) Cannot exercise powers not possessed by the
corporation
BOD or trustees must not be less than 5 nor
more than 15, except provided by special law
Tenure, Qualifications and Disqualifications of
Directors or Trustees
 Tenure: Under section 23, the board of directors
and trustees shall hold office for one (1) year and
until their successors are elected and qualified.
As a general rule, the directors or trustees of a
corporation shall serve for a term as fixed in the
by-laws.
 Hold-over: Upon failure of a quorum at any
meeting of the stockholders or members called
for an election, the directorate naturally holds
over and continues to function until another
directorate is chosen and qualified.
 Qualifications:
Stock Corporations:
a. Own at least one (1) share;
b. Share of stock must be registered in his name;
c. Must continually own such share during his
term; otherwise he automatically ceases to be a
director;
d. Majority must be residents of the Philippines;
Non-stock Corporation:
a. He must be a member in good standing
thereof;
b. a majority of them must be residents of the
Philippines;
- Only a natural person may be elected as
directors or trustees. However, a corporation
which owns shares of stocks or is a member in
another corporation can designate by board
resolution its officer or representative to sit in
the latter’s board and thus qualifying him to be
elected as director or trustee. (De Leon, 2010)
- A trustee in a voting trust may be elected as
director/trustee. (Villanueva, 2009)
Section 24
Election
1) There must be present in person or by
representative authorized to act by written
proxy, a majority of the members entitled to
vote
2) Must be by ballot if requested. Hence, viva
voces or roll call is valid
3) A stockholder may be deprived of his statutory
right to use any methods of voting
4) No delinquent stock shall be voted
5) If quorum is present, candidates receiving the
highest number of votes shall be elected.
6) Failure to hold election, meeting may be
adjourned from day to day from time to but
cannot be adjourned sine die or indefinitely
7) Requisite notice must be given
Methods
1) Straight voting – every stockholder may vote
such number of shares for as many persons as
there are directors
2) Cumulative voting for one candidate – a
stockholder is allowed to concentrate his votes
3) Cumulative voting by distribution – may
cumulate his shares and distribute
Section 25
Officers to be elected
1. President, who shall be a director
2. Treasurer, who may or may not be a director
3. Secretary, who shall be a resident and citizen of
the Philippines
4. Such other officers as may be provided for in the
by-laws.
- Any two (2) or more positions may be held
concurrently by the same person, except that no
one shall act as president and secretary or as
president and treasurer at the same time.
- The directors or officers shall hold office for one
(1) year until their successors are elected and
qualified.
1) President – only officer required by law to be
a member of the BOD
2) Vice-President – to act in the absence of, or in
case of vacancy in the office of the president.
3) Secretary – must be resident and citizen.
Need not be a director unless required by the
by-laws
4) Treasurer – proper officer entrusted with the
authority to receive and keep the money of
the corporation and to disburse them as he
may be authorized.
5) General manager – has the power to bind
the corporation by acts within the scope of his
apparent authority.
Validity and binding effect of actions of corporate
officers
- General rule: the quorum requirement for a
valid board meeting is the majority of the
number of the directors or trustees as fixed in
the articles of incorporation.
- Exception: The articles of incorporation or the
by-laws may provide for a greater majority.
- General rule: To have a valid corporate act, the
decision of at least a majority of the directors or
trustees present at a meeting at which there is a
quorum is required.
- Exception: The election of corporate officers
requires the vote of a majority of all the
members.
- General rule: Individual directors cannot bind
the corporation by their individual acts.
- Exceptions:
1. By delegation of authority;
2. Where expressly conferred; or
3. Where the officer or agent is clothed with
actual or apparent authority.
Requisites for board meeting
1) Duly assembled as a board, as a body in a lawful
meeting
2) Presence of a quorum
3) A majority of the entire board
4) Meeting at the place, time and in the manner
provided in the by-laws
Quorum – such number of the membership of a
collective body as is competent to transact its
business or do any other corporate act.
- Directors or trustees cannot validly act by proxy
because they are required to exercise his
personal judgment and cannot delegate his
duties or assign powers to another.
Section 26
 Report of election of directors, trustees and
officers.
- Within thirty (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 Securities
and Exchange Commission, the names,
nationalities and residences of the directors,
trustees, and officers elected. Should a director,
trustee or officer die, resign or in any manner
cease to hold office, his heirs in case of his death,
the secretary, or any other officer of the
corporation, or the director, trustee or officer
himself, shall immediately report such fact to
the Securities and Exchange Commission.
Section 27
 Disqualifications of directors, trustees, or
officers:
- No stockholder or member can be elected as
director or trustee if he has been convicted by
final judgment of an offense carrying an
imprisonment exceeding 6 years, or an offense
constituting a violation of the Code, 5 years prior
to his election or appointment.
Section 28
 Any director or trustee of a corporation may be
removed from office:
a. By a vote of the stockholders representing 2/3
of the outstanding capital stock, or 2/3 vote of
the members.
b. At a regular meeting of the corporation or at a
special meeting called for such purpose,
c. Previous notice to stockholders or members
d. May be without just cause, except when it
operates to deprive minority stockholders or
members the right of representation (requires
just cause).
- The board of directors has no power to remove
one of its members as director or trustee.
Requisites for removal of BOD
- General rule: Directors or trustees may be
removed with or without just cause.
- Exception: Removal without just cause may not
be used to deprive minority stockholders or
members of the right of representation to which
they may be entitled under Sec. 24.
1) The removal must take place either at a regular
meeting of the corporation or at a special
meeting called for the purpose
2) There must be previous notice to the
stockholders or members of the corporation of
the intention to propose such removal at the
meeting
3) The removal must be by a vote of the
stockholders holding or representing (2/3) of the
outstanding capital stock
Section 29
Generally, if still constituting a quorum, at least a
majority of the members are empowered to fill any
vacancy occurring in the board other than by
removal by the stockholders or members or by
expiration of term.
 Stockholders or members may fill the vacancy in
the following cases:
a. Vacancy results from removal by the
stockholders or members, or the expiration
of term;
b. Vacancy occurs other than by removal or
expiration of term, such as death,
resignation, abandonment, or
disqualification; provided that the
remaining directors do not constitute a
quorum;
c. When the board refers the matter to the
stockholders;
d. Increase in the number of the board;
- A director or trustee so elected to fill a vacancy
shall only be for the unexpired term of his
predecessor in office.
Section 30
COMPENSATION OF DIRECTORS
General rule: Directors shall not receive any
compensation, as such directors, except for
reasonable per diems.
Exceptions:
1. When there is a provision in the by-laws
fixing their compensation;
2. When the stockholders, by a majority vote
the outstanding capital stock grant the same;
and
3. If the director renders extra-ordinary or
unusual service.
- In no case shall the total yearly compensation of
directors, as such directors, exceed 10% of the
net income before income tax of the
corporation during the preceding year.
- If there is wastage of corporate assets, the
courts may be justified to look into the
reasonableness and fairness of the
compensation despite the fact that the grant
thereof is authorized pursuant to the by-laws
and by the vote of the majority of the holders
of the outstanding capital stock of the
corporation.