A corporation is a business entity that is owned by its shareholder(s), who elect a board of

directors to oversee the organization’s activities. The corporation is liable for the actions and
finances of the business – the shareholders are not. Corporations can be for-profit, as
businesses are, or not-for-profit, as charitable organizations typically are.

Section 2. 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. (2

TITLE IV - POWERS OF CORPORATIONS

Section 36. Corporate powers and capacity. - Every corporation incorporated under this Code
has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the
same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to 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;
7. 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;
8. To enter into merger or consolidation with other corporations as provided in this Code;
9. To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic
or foreign, shall give donations in aid of any political party or candidate or for purposes of
partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its directors, trustees,
officers and employees; and
11. To exercise such other powers as may be essential or necessary to carry out its purpose or
purposes as stated in the articles of incorporation. (13a)

A stockholder (also known as a shareholder) is the owner of one or more shares of a

corporation's capital stock. A stockholder is considered to be separate from the corporation and
as a result will have limited liability as far the corporation's obligations.
The owner of a corporation's common stock is referred to as a common stockholder. The
common stockholders elect the corporation's board of directors and will vote on very significant
transactions such as merging the corporation with another corporation. Generally it is the
common stockholders who become wealthy when a corporation becomes increasingly more
successful.
In addition to common stock, some corporations also issue preferred stock. An owner of these
shares is known as a preferred stockholder (or preferred shareholder). A preferred stockholder
usually accepts a fixed cash dividend that will be paid by the corporation before the common
stockholders are paid a dividend. In exchange for this preferential treatment of dividends, the
preferred stockholder will forego the potential financial gains that may occur for the common
stockholder.
The amounts paid by the original stockholders are reported as paid-in (or contributed) capital
within the stockholders' equity section of the corporation's balance sheet.

TITLE III - BOARD OF DIRECTORS/TRUSTEES AND OFFICERS

Section 23. The board of directors or trustees. - Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or where there is no stock, from
among the members of the corporation, who shall hold office for one (1) year until their
successors are elected and qualified. (28a)

Every director must own at least one (1) share of the capital stock of the corporation of which
he is a director, which share shall stand in his name on the books of the corporation. Any
director who ceases to be the owner of at least one (1) share of the capital stock of the
corporation of which he is a director shall thereby cease to be a director. Trustees of non-stock
corporations must be members thereof. A majority of the directors or trustees of all
corporations organized under this Code must be residents of the Philippines.

Section 3. Classes of corporations. - Corporations formed or organized under this Code may be
stock or non-stock corporations. Corporations which have 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 are stock corporations. All other corporations are non-
stock corporations. (3a)

There are four major classifications of corporations: (1) nonprofit, (2) municipal, (3)
professional, and (4) business. Business corporations are divided into two types, publicly held
and closely held corporations.

Nonprofit Corporations
One of the four major classifications of corporations is the nonprofit corporation (also called
not-for-profit corporation). It is defined in the American Bar Association’s Model Non-Profit
Corporation Act as “a corporation no part of the income of which is distributable to its
members, directors or officers.” Nonprofit corporations may be formed under this law for
charitable, educational, civil, religious, social, and cultural purposes, among others.

Public Corporations
The true public corporation is a governmental entity. It is often called a municipal corporation,
to distinguish it from the publicly held corporation, which is sometimes also referred to as a
“public” corporation, although it is in fact private (i.e., it is not governmental). Major cities and
counties, and many towns, villages, and special governmental units, such as sewer,
transportation, and public utility authorities, are incorporated. These corporations are not
organized for profit, do not have shareholders, and operate under different statutes than do
business corporations.

Professional Corporations
Until the 1960s, lawyers, doctors, accountants, and other professionals could not practice their
professions in corporate form. This inability, based on a fear of professionals’ being subject to
the direction of the corporate owners, was financially disadvantageous. Under the federal
income tax laws then in effect, corporations could establish far better pension plans than could
the self-employed. During the 1960s, the states began to let professionals incorporate, but the
IRS balked, denying them many tax benefits. In 1969, the IRS finally conceded that it would tax a
professional corporation just as it would any other corporation, so that professionals could,
from that time on, place a much higher proportion of tax-deductible income into a tax-deferred
pension. That decision led to a burgeoning number of professional corporations.

Business Corporations
The Two Types
It is the business corporation proper that we focus on in this unit. There are two broad types of
business corporations: publicly held (or public) and closely held (or close or private)
corporations. Again, both types are private in the sense that they are not governmental.

The publicly held corporation is one in which stock is widely held or available for wide public
distribution through such means as trading on a national or regional stock exchange. Its
managers, if they are also owners of stock, usually constitute a small percentage of the total
number of shareholders and hold a small amount of stock relative to the total shares
outstanding. Few, if any, shareholders of public corporations know their fellow shareholders.

By contrast, the shareholders of the closely held corporation are fewer in number. Shares in a
closely held corporation could be held by one person, and usually by no more than thirty.
Shareholders of the closely held corporation often share family ties or have some other
association that permits each to know the others.

Though most closely held corporations are small, no economic or legal reason prevents them
from being large. Some are huge, having annual sales of several billion dollars each. Roughly 90
percent of US corporations are closely held.

The giant publicly held companies with more than $1 billion in assets and sales, with initials
such as IBM and GE, constitute an exclusive group. Publicly held corporations outside this elite
class fall into two broad (nonlegal) categories: those that are quoted on stock exchanges and
those whose stock is too widely dispersed to be called closely held but is not traded on
exchanges.
Section 108. Board of trustees. - Trustees of educational institutions organized as non-stock
corporations shall not be less than five (5) nor more than fifteen (15): Provided, however, That
the number of trustees shall be in multiples of five (5).

Unless otherwise provided in the articles of incorporation on the by-laws, the board of trustees
of incorporated schools, colleges, or other institutions of learning shall, as soon as organized, so
classify themselves that the term of office of one-fifth (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 five (5) years. A majority of the trustees shall
constitute a quorum for the transaction of business. The powers and authority of trustees shall
be defined in the by-laws.

For institutions organized as stock corporations, the number and term of directors shall be
governed by the provisions on stock corporations. (169a)
What is a Board of Trustees
A board of trustees is an appointed or elected group of individuals that has overall responsibility
for the management of an organization. The board of trustees is typically the governing body of
an organization and seeks to ensure the best interest of stakeholders in all types of
management decisions.
Trustee is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust
and so can refer to any person who holds property, authority, or a position of trust or
responsibility for the benefit of another.

Corporators in a non-stock corporation are called members. (4a)

a member is generally defined as (1) the subscriber to a firm's memorandum of association (or
articles of incorporation) who is deemed to have agreed to become a member of the firm, and
whose name is entered in the firm's register of members when the firm is registered (or
incorporated), and (2) every other person who agrees to become a member of the firm and
whose name is entered in the firm's register of members. Shareholders who join a firm at its
inception are called founder members.
Section 5. Corporators and incorporators, stockholders and members. - 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.

An incorporator is a person in charge of setting up a corporation. The incorporator signs and

files the Articles of Incorporation with the state in which the corporation is registering, and filing
any other corporate documents needed until the corporation is formally registered and
recognized by the state.

Other duties of the incorporator might include:

Selecting members for the board of directors

Organizing an initial meeting of the board
Adopting the corporation's by-laws

An incorporator, also called a promoter, is the individual, corporation or association responsible

for the process; the business will not be fully incorporated until the incorporator signs and files
the articles of incorporation. Incorporators play a minor role in the overall business, and their
involvement typically ceases after the corporation is established.

What is a Stock Certificate

A stock certificate is the physical piece of paper representing ownership in a company. Stock
certificates will include information such as the number of shares owned, the date, an
identification number, usually a corporate seal and signatures. They are a bit bigger than a
normal piece of paper, and most of them have intricate designs to discourage fraudulent
replication.

Definition: A stock certificate, also known as a share certificate, represents a legal interest and
ownership in a company’s common stock and its related stockholder rights.

TITLE XI - NON-STOCK CORPORATIONS

Section 87. Definition. - For the purposes of this Code, a non-stock corporation is one where no
part of its income is distributable as dividends to its members, trustees, or officers, subject to
the provisions of this Code on dissolution: Provided, That any profit which a non-stock
corporation may obtain as an incident to its operations shall, whenever necessary or proper, be
used for the furtherance of the purpose or purposes for which the corporation was organized,
subject to the provisions of this Title.
The provisions governing stock corporation, when pertinent, shall be applicable to non-stock
corporations, except as may be covered by specific provisions of this Title. (n)

Section 143. Rule-making power of the Securities and Exchange Commission. - The Securities
and Exchange Commission shall have the power and authority to implement the provisions of
this Code, and to promulgate rules and regulations reasonably necessary to enable it to perform
its duties hereunder, particularly in the prevention of fraud and abuses on the part of the
controlling stockholders, members, directors, trustees or officers. (n)

Powers and Functions

The Commission shall have the powers and functions provided by the Securities Regulation
Code, Presidential Decree No. 902-A, as amended, the Corporation Code, the Investment
Houses Law, the Financing Company Act, and other existing laws.

Under Section 5 of the Securities Regulation Code, Rep. Act. 8799, the Commission shall have,
among others, the following powers and functions:

(a) Have jurisdiction and supervision over all corporations, partnerships or associations who are
the grantees of primary franchises and/or a license or permit issued by the Government;

(b) Formulate policies and recommendations on issues concerning the securities market, advise
Congress and other government agencies on all aspects of the securities market and propose
legislation and amendments thereto;

(c) Approve, reject, suspend, revoke or require amendments to registration statements, and
registration and licensing applications;
(d) Regulate, investigate or supervise the activities of persons to ensure compliance;

(e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and
other SROs;

(f) Impose sanctions for the violation of laws and the rules, regulations and orders issued
pursuant thereto;

(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and
provide guidance on and supervise compliance with such rules, regulations and orders;

(h) Enlist the aid and support of and/or deputize any and all enforcement agencies of the
Government, civil or military as well as any private institution, corporation, firm, association or
person in the implementation of its powers and functions under this Code;

(i) Issue cease and desist orders to prevent fraud or injury to the investing public;

(j) Punish for contempt of the Commission, both direct and indirect, in accordance with the
pertinent provisions of and penalties prescribed by the Rules of Court;

(k) Compel the officers of any registered corporation or association to call meetings of
stockholders or members thereof under its supervision;

(l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the
Commission and in appropriate cases, order the examination, search and seizure of all
documents, papers, files and records, tax returns, and books of accounts of any entity or person
under investigation as may be necessary for the proper disposition of the cases before it,
subject to the provisions of existing laws;
(m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of
registration of corporations, partnerships or associations, upon any of the grounds provided by
law; and

(n) Exercise such other powers as may be provided by law as well as those which may be
implied from, or which are necessary or incidental to the carrying out of, the express powers
granted the Commission to achieve the objectives and purposes of these laws.

Under Section 5.2 of the Securities Regulation Code, the Commission’s jurisdiction over all cases
enumerated under Section 5 of PD 902-A has been transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court. The Commission shall retain jurisdiction
over pending cases involving intra-corporate disputes submitted for final resolution which
should be resolved within one (1) year from the enactment of the Code. The Commission shall
retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June
2000 until finally disposed.

Considering that only Sections 2, 4, and 8 of PD 902-A, as amended, have been expressly
repealed by the Securities Regulation Code, the Commission retains the powers enumerated in
Section 6 of said Decree, unless these are inconsistent with any provision of the Code.

TITLE XV - FOREIGN CORPORATIONS

Section 123. Definition and rights of foreign corporations. - For the purposes of this Code, a
foreign corporation is one formed, organized or existing under any 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 it shall have
obtained a license to transact business in this country in accordance with this Code and a
certificate of authority from the appropriate government agency. (n)

Section 124. Application to existing foreign corporations. - Every foreign corporation which on
the date of the effectivity of this Code is authorized to do business in the Philippines under a
license therefore issued to it, shall continue to have such authority under the terms and
condition of its license, subject to the provisions of this Code and other special laws. (n)
Foreign nationals or investor companies thinking of opening a business in the Philippines are
well advised to know whether the planned business activity would constitute “doing
business” in the Philippines as defined under Philippine law.

Under the Foreign Investments Act (FIA) of 1991 the term “doing business” includes:

 soliciting orders, service contracts, opening offices, whether called liaison offices or
branches
 appointing representatives or distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods totaling one hundred eighty (180)
days or more
 participating in the management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines
 any other acts 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
The Philippine Supreme Court has explained that the test of “doing business” is not the number
or quantity of transactions, but rather the intention of the entity to continue its business in the
country. 1
Thus, a foreign corporation is not “doing business” if it engages in an isolated transaction, or, a
transaction or series of transactions different from or unrelated to the common business of the
foreign enterprise in the sense that there is no intention to engage in the progressive pursuit of
the purpose and object of the business organization. 2 Finally the Supreme Court cautioned that
since there is no hard-and-fast rule as to what constitutes “doing business”, each case is to be
judged according to its peculiar circumstances. 3

The Court noted that most of these activities do not bring any direct receipts or profits to the
foreign corporation, consistent with its earlier ruling that “activities within Philippine jurisdiction
that do not create earnings or profits to the foreign corporation do not constitute doing
business in the Philippines. 4
But why the need to draw the line between “doing business” and not doing business? Under
Philippine corporate law, a foreign corporation doing business in the Philippine without
securing the proper license from the Securities and Exchange Commission(SEC) “ shall (not) 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.” 5 In other words, a foreign corporation doing business in the
Philippines without a license cannot sue, although it may be sued. By implication, a foreign
corporation engaged in an isolated transaction does not need an SEC-issued license to do
business in order to file legal action to assert or protect its rights arising from the isolated
transaction.
1. Soliciting orders, service contracts, and opening offices
2. Appointing representatives, distributors domiciled in the Philippines or who stay for a period
or periods totaling 180 days or more
3. Participating in the management, supervision or control of any domestic business, firm,
entity, or corporation in the Philippines.
Any act or acts that imply a continuity of commercial dealings or arrangements, and
contemplate to some extent the performance of acts or works or the exercise of some functions
normally incident to and in progressive prosecution of, the purpose and object of its
organization (Sec 3 (c), R.A. 7042).

TITLE VI - MEETINGS

Section 49. Kinds of meetings. - Meetings of directors, trustees, stockholders, or members may
be regular or special. (n)

Section 50. Regular and special meetings of stockholders or members. - Regular meetings of
stockholders or members shall be held annually on a date fixed in the by-laws, or if not so fixed,
on any date in April of every year as determined by the board of directors or trustees: Provided,
That written notice of regular meetings shall be sent to all stockholders or members of record at
least two (2) weeks prior to the meeting, unless a different period is required by the by-laws.
Special meetings of stockholders or members shall be held at any time deemed necessary or as
provided in the by-laws: Provided, however, That at least one (1) week written notice shall be
sent to all stockholders or members, unless otherwise provided in the by-laws.
Notice of any meeting may be waived, expressly or impliedly, by any stockholder or member.
Whenever, for any cause, there is no person authorized to call a meeting, the Securities and
Exchange Commission, upon petition of a stockholder or member on a showing of good cause
therefor, may issue an order to the petitioning stockholder or member directing him to call a
meeting of the corporation by giving proper notice required by this Code or by the by-laws. The
petitioning stockholder or member shall preside thereat until at least a majority of the
stockholders or members present have chosen one of their number as presiding officer. (24, 26)

Section 6. Classification of shares. - The shares of stock of stock corporations may be divided
into classes or series of shares, or both, any of which classes or series of shares may have such
rights, privileges or restrictions as may be stated in the articles of incorporation: Provided, That
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, further, That there shall
always be a class or series of shares which have complete voting rights. Any or all of the shares
or series of shares may have a par value or have no par value as may be provided for in the
articles of incorporation: Provided, however, That banks, trust companies, insurance companies,
public utilities, and building and loan associations shall not be permitted to issue no-par value
shares of stock.

Preferred shares of stock issued by any corporation may be given preference in the distribution
of the assets of the corporation in case of liquidation and in the distribution of dividends, or
such other preferences as may be stated in the articles of incorporation which are not violative
of the provisions of this Code: Provided, That preferred shares of stock may be issued only with
a stated par value. The board of directors, where authorized in the articles of incorporation,
may fix the terms and conditions of preferred shares of stock or any series thereof: Provided,
That such terms and conditions shall be effective upon the filing of a certificate thereof with the
Securities and Exchange Commission.

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 shares without par value may not be issued for a consideration less than
the value of five (P5.00) pesos per share: Provided, further, That 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.

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with
constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate of
stock, each share shall be equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by this
Code, the holders of such shares shall nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the
corporate property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or other corporations;

7. Investment of corporate funds in another corporation or business in accordance with this

Code; and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a
particular corporate act as provided in this Code shall be deemed to refer only to stocks with
voting rights. (5a)

Section 7. Founders' shares. - Founders' shares classified as such in the articles of incorporation
may be given certain rights and privileges not enjoyed by the owners of other stocks, provided
that 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 five (5) years subject to the approval of the Securities
and Exchange Commission. The five-year period shall commence from the date of the aforesaid
approval by the Securities and Exchange Commission. (n)

Section 8. Redeemable shares. - Redeemable shares may be issued by the corporation when
expressly so provided in the articles of incorporation. They may be purchased or taken up by the
corporation 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 as
may be stated in the articles of incorporation, which terms and conditions must also be stated in
the certificate of stock representing said shares. (n)

Section 9. Treasury shares. - Treasury shares are shares of stock which have been issued and
fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption,
donation or through some other lawful means. Such shares may again be disposed of for a
reasonable price fixed by the board of directors. (n)