241954747 Summary on Corporation Code of the Philippines

7/24/2019 241954747 Summary on Corporation Code of the Philippines

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INTRODUCTIONA corporation is an artificial being created by operation of law, having the right of succession and thepowers, attributes and properties expressly authorized by law or incident to its existence. (Sec.2). Itis being invested by law with a personality separate and distinct fro those of the persons coposing it,as well as fro that of any other entity to which it ay be related. It was evolved to a!e possible theaggregation and assebling of huge aounts of capital upon which big business depends. It also hasthe advantage of non"dependence on the lives of those who copose it even as it en#oys certain rightsand conducts activities of natural persons. (Reynoso v. CA, 345 SCRA 355).

A corporation, being a creature of law, $owes its life to the state, its birth being purely dependent on itswill,$ it is $a creature without any existence until it has received the ipriatur of the state actingaccording to law.$ A corporation will have no rights and privileges of a higher priority than that of itscreator and cannot legitiately refuse to yield obedience to acts of its state organs. (Tanyag v. BenguetCorporation).

presentation

Attributes of a corporation

%. It is an artificial being & a #uridical person capable of having rights and obligations with a

personality separate and distinct fro its ebers'stoc!holders

2. reated by operation of law " ere consent of the parties to for a corporation is not sufficient.

State ust give consent through (a) special law, (b) general enabling act

*. +ith right of succession " existence cannot be affected by change in ebers'stoc!holders and

. -as the powers, attributes, and properties as expressly authorized by law or incident to its

existence.

Advantages of corporate organizations

%) Separate #uridical personality " personality separate and distinct fro individual stoc!holders and

ebers

2) iited liability to investors " stoc!holders are liable only to the extent of their contribution

*) /ree transferability of units of ownership " stoc!holders hold their shares as personal property

with rights to dispose, assign or encuber the as they ay desire and

) entralized 0anageent & all corporate powers are vested in the board of directors.Disadvantages

%. -igh capital re1uireent2. a!es tie to organized*. coplexity of organization and. Shareholders control is liited.

Kinds of corporations

%. Stock corporations " 3ne which has a capital stoc! divided into shares and is authorized to

distribute to the holders of such shares dividends or allotents of the surplus profits (Sec. *).

2. Non-stock corporationAll other corporations are non"stoc! corporations (Sec *)

3. Corporation de ure" 3rganized in accordance with the re1uireents of law.

. !e "acto corporation" A corporation with soe flaw in its incorporation.

4. Corporation #y estoppe$" It is a status ac1uired by persons who assue to act as a corporation

!nowing it to be without authority. Such persons shall be liable as general partners for all debts,

liabilities and daages incurred or arising as a result thereof (Sec 2%)


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6. %u#$ic corporation" 3ne fored or organized for the governent or a particular state. Its

purpose is for the general good and welfare.

. %rivate corporation" 3ne fored for soe private purpose, benefit, ai or end. orporation

created under corporation code.

a) C$ose corporationone whose A3I restricts the nubers of corporator, the transfer of shares andthe listing in stoc! exchange (Sec. 56).

7. &ducationa$ corporation(Sec. %86) " hose corporations which are organized for educational

purposes.

5. Re$igious so$e and aggregateA corporation sole is one fored for the purpose of adinistering

and anaging, as trustee, the affairs, property and teporalities of any religious denoination,

sect, or church, by the chief archbishop, bishop, priest, rabbi, or other presiding elder of such

religious denoination, sect or church. (Sec %%8). A corporation aggregate is a religious

corporation incorporated by ore than one person.

!". &$ee'osynary corporation " 3ne organized for a charitable purpose

!!. !o'estic corporation" A doestic corporation is one fored, organized, or existing under the

laws of the 9hilippines.!#. (oreign corporation " 3ne fored, organized or existing under any laws other than those of

the 9hilippines and whose law allows /ilipino citizens and corporations to do business in its own

country and state. (Sec %2*)

%*. orporation created #y specia$ $as or c*arter(Sec. )

Doctrine of $eparate %uridica& 'ersona&it(

A corporation has a personality separate and distinct fro that of its stoc!holders and ebers and is not

affected by the personal rights, obligations, and transactions of the latter. Since corporate property is

owned by the corporation as a #uridical person, the stoc!holders have no clai on it as owners, but have

erely an expectancy or inchoate right to the sae should any of it reain upon dissolution of the

corporation after all corporate creditors have been paid. Such right is liited only to their e1uity interest.Corporation and partners)ip* Distinguis)edCorporation %artners*ip%. reated by law reated by agreeent2. 0anaged by board anaged by partners*. liited life no definite lifetie. 9owers & those expressly granted powers not contrary to law, orals,4. /ored by persons 4"%4 at least two personsStoc! orporation is one which have capital stoc! divided into shares and are authorized to distribute tothe holders of such shares dividend or allotent of surplus profits on the basis of shares held. :on"stoc! corporations are allprivate corporation other than stoc! corporations.

'iercing t)e Corporate +ei&It is a rule that allows the state to disregard for certain #ustifiable reasons the fiction of #uridical personalityfor the corporation, separate and distinct fro the persons coposing it.

hree classes of 9iercing;%. /raud ases & when a corporation is used as a cloa! to cover fraud, or to do wrong2. Alter


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Instru,enta&it( Ru&e+here one corporation is so organized and controlled and its affairs are conducted so that it is in fact, aere instruentality or ad#unct of the other, the fiction of the corporate entity of the =instruentality> aybe disregarded. he control necessary to invo!e the rule is not ere a#ority or even coplete stoc!control but such doination of finances, policies, practices that the controlled corporation has, so tospea!, no separate ind, will or existence of its own, and is, but a conduit for its principal.

Nationa&it( of t)e corporation

he corporation is a national of the country under whose laws it is organized or incorporated; the p$ace o"

incorporation test.

%. ?oestic corporations & organized and governed by the 9hilippine law.

2. /oreign corporations & organized under laws other than those of the 9hilippines

-randfat)er Ru&e

@sed to deterine the nationality of a corporation by which the percentage of /ilipino e1uity in

corporations engaged in nationalized and'or partly nationalized areas of activities, provided for under the

constitution and other nationalization laws, is coputed, in cases where corporate shareholders are

present in the situation, by attributing the nationality of the second or even subse1uent tier of ownership

to deterine the nationality of the corporate stoc!holder.$toc and Non/stoc Corporation* distinguis)edStock non-stock%. /or profit "for eligious, charitable, education, scientific etc.2.9rofit distributed to shareholders " profit is used for furtherance of the purpose*. stoc!holders " ebers. right to vote according to no. of shares, each eber entitle to only one vote4. voting right ay be denied " voting right cannot be denied6. voting by proxy ay be denied " voting by proxy cannot be deniedB. voting by ail possible " not possible

7. Coard of directors & control " ebers of the corporation5. Coard of directors " board of trustees%8. er & % year " three years%%. 3fficers appointed by board " officers elected by ebers%.ights transferable " rights not transferable

0OR1ATIONANDOR-ANI2ATIONO0COR'ORATION$

Definition of Ter,s

%. Incorporators& hose stoc!holders or ebers entioned in the A3I as originally foring andcoposing the corporation who are signatories thereof.

2.

Corporator& hose who copose the corporation, whether as stoc!holders or ebers.*. $toc)o&ders& orporator in a stoc! corporation they are also !nown as shareholders.. 1e,bers& orporators in a non"stoc! corporation.4. 'ro,oters& 9erson who bring about the foration and organization of a corporation by

bringing in together the incorporators.6. $ubscriber& 9ersons who have agreed to ta!e and pay for original unissued shares of

a corporation fored or to be fored.B. Underriter& 9erson usually an investent ban!ers, who has agreed to buy or to sell the

securities or stoc! of the corporation.


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7. Capita& $toc& It is the oney value assigned to a corporationDs issued shares, constitutinggenerally the legal capital of the corporation.

5. Aut)orized $toc& efers to the aount of capital stoc! as specified in the A3I, synonyousto capital stoc! in a stoc! corporation that have par value. If shares of stoc! are non par value,corporation has no authorized stoc!.

%8. $ubscribed $toc& aount of capital stoc! originally ac1uired by a subscriber of an unissuedshares in a corporation.

%%. Outstanding Capita& $toc& portion of the capital stoc! which is issued and held by personsother than the corporation itself.

%2. 'aid Up Capita& $toc " portion of the subscribed or outstanding capital stoc! that is actuallypaid.

%*. Unissued Capita& $toc& that portion of the capital stoc! that is not issued or subscribed.%. Capita&& the entire property or assets of the corporation.%4. $)ares Of $toc&unit into which the capital stoc! is divided. It represents the interest or right

which the owner has in the corporation. It erely represents a distinct undivided share or interestin the coon property of the corporation.

%6. Certificate Of $toc& is a written ac!nowledgent by the corporation of the interest, right andparticipation of a person in the anageent, profits, and assets of a corporation.

%B. 'ar +a&ue $)are& one with specific oney value fixed in the A3I and appearing in thecertificate of stoc!. It does not change regardless the ar!et value of the stoc!.

%7. 4atered $toc& shares issued less than the par value of the stoc!. (see section 64)

hefirst step in the foration of corporation is filing to S


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A,end,ent of AOI

9rocedure

1. 0a#ority vote of the C3? concerning the aendent of A3I(Sec. %6)

2. :otice to the stoc!holder together with the proposed aendent (Sec. 48)

3. Affirative votes of the stoc!holders representing 2'* of the outstanding shares4. /iling of the original and aended A3I, under oath (corporate secretary and a#ority of the

C3?), to S


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incorporation (Sec. 22). In the forer, there is autoatic dissolution of corporation while in the latter,

proper notice and hearing is re1uired.

oenceent of business ay ta!e the for of contracting for lease or sale of properties to be used as

business site of the corporation and other preparatory acts geared towards fulfillent of the purpose for

which the corporation was established

-owever, when the causes, non"use or non"operation of the corporation was due to causes beyond the

control of the corporation as deterined by S


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7. eport to the S


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:uoru,

0a#ority of the nuber of director'trustees shall constitute the 1uoru for the transaction of the business

unless the A3I or by"provide otherwise. 0a#ority of the directors'trustees constituting the 1uoru shall be

valid as corporate act except the election of officer which re1uires a#ority of all the ebers of the

board (Sec. 2*).

Co,pensation of Directors

%. easonable per die

2. 9rovision in the by"laws fixing their copensation and

*. opensation granted by a#ority of the stoc!holders.

In no case shall the total yearly copensation of directors, as such directors, exceed %8 of the net

incoe before incoe tax of the corporation during the preceding year (Sec. *8). he said copensation

is applicable only to directors thus, when the director is an officer as well, the C3?' ay grant

copensation to the because the prohibition in Sec. *8 does not apply J+estern Institute of echnology

v SalasK.

.

C3?' has authority to odify the proposed ters of the contracts of the corporation for the purpose of

a!ing the ters ore acceptable to the other contracting parties. he test to be applied is whether the

act in 1uestion is the direct and iediate furtherance of the corporationEs business, fairly incidental to

the express powers and reasonably necessary to their exercise. If so, the corporation has the power to

do it otherwise it is not J9usiness%udg,ent Ru&eK J0ontelibano v. Cacolod 0urcia 0illing o.K.

$e&f/Dea&ing Directors

?irectors'rustees and officer ay enter into contract with the corporation in which he is adirectors. -owever, this agreeent is being frown upon by law because there can be no real bargainingwhere the sae is acting on both sides of the trade. In fact, all contracts entered into by directors'trusteesand officer is considered voida#$e unless the following re1uisites are present;

%. he presence of the director'trustee in the board eeting approving the contract was notnecessary for constituting a 1uoru for such eeting

2. he vote of such director'trustee in the board eeting approving the contract was not necessaryfor the approval of the contract


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*. he contract is fair and reasonable under the circustances and. In the case of an officer, there was previous authorization by the board of directors (Sec. *2).

Although the following re1uisite was not followed, such contract ay be ratified by 2'* affirative vote ofthe outstanding capital stoc!'ebers, provided that there is full disclosure of the adverse interest of thedirector' trustee involved is ade at such eeting, and that the contract is fair and reasonable (ibid)

Inter&ocing Directors

Interloc!ing directors are those who sit in the boards of two or ore

corporations that contract with one other, whether on isolated or regular basis. ontracts between two or

ore corporations having interloc!ing directors cannot be invalidated on that ground alone, except cases

of J%K fraud and J2K the contract is fair and reasonable(Sec. **). If the interest of the interloc!ing director in

one corporation is erely noinal, the condition set in self"dealing directors will be iposed, thus, the

contract voidable.

Stoc!holdings exceeding 28 percent of the outstanding capital stoc! shall be considered substantial for

purposes of interloc!ing directors (ibid). -ence, noinal interest eans stoc!holdings of not exceeding

28 percent of the outstanding capital stoc!.

Dis&o(a&t( of Directors

+here a director, by virtue of his office, ac1uires for hiself a business opportunity which should belong

to the corporation, thereby obtaining profits to the pre#udice of such corporation, he ust account to the

latter for all such profits by refunding the sae (Sec. *). -owever, the sae act ay be ratified by a vote

of the stoc!holders owning or representing at least two"thirds (2'*) of the outstanding capital stoc!. he

sae is true notwithstanding the fact that the director ris!ed his own funds in the venture (ibid).

Doctrine of Corporate Opportunit(

+hen a director, trustee or officer attepts to ac1uire or ac1uires, in violation of his duty, any interest

adverse to the corporation in respect of any atter which has been reposed in hi in confidence, as towhich e1uity iposes a liability upon hi to deal in his own behalf, he shall be liable as a trustee for the

corporation and ust account for the profits which otherwise would have accrued to the corporation (Sec.

*% and *).

$pecia& 0acts Doctrine

Lranting the absence of a fiduciary relationship with the stoc!holders, when special circustances or

facts are present which a!e it ine1uitable for the director to withhold inforation fro the stoc!holder,

the duty to disclose arises and concealent is fraud.

Re,ova& of 9OD8T

9rocedure%. all for eeting for the purpose of reoving the C3?, by C3? or a#ority of stoc!holders

2. :otice, by publication or registered ail, to the stoc!holder by the officer or by a#ority of the

outstanding stoc!

*.


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eoval of C3? ay be with cause or without cause, however, reoval without cause ay not be used

to deprive inority stoc!holder of the right of representation (sec. 27.) he board cannot reove a

director or trustee as eber of the board.

+acanc(

Any vacancy occurring in the C3? or C3 ters ay be filled by the vote of at least a#ority of thereaining directors or trustees, if still constituting 1uoru.

If 1uoru cannot be obtained, vacancies ust be filled by the stoc!holders'ebers in a regular or

special eeting for that purpose. Sae rule applies if the vacancy is due to reoval by the stoc!holder or

by expiration of the directorEs ter, or there is increase of nuber of directors in a corporation. A director

or trustee filling the vacancy shall serve only for the unexpired ter of his predecessor (Sec. 25).

'O47R$O0COR'ORATION$

-enera&'oers

%. o sue and be sued in its corporate nae

2. Succession*. o adopt and use a corporate seal

. o aend its A3I

4. o adopt by"laws

6. to issue or sell stoc!s and adit ebers

B. o ac1uire and encuber properties

7. o enter into erger or consolidation

5. o a!e reasonable donations except in political parties

%8. o establish pensions and benefits for the eployees and officers and

%%.


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*. Affirative vote of (2'*) of the outstanding capital stoc! favoring the increase of decrease of

capital stoc!

. ertificate in duplicate ust be signed by a#ority C3? and countersigned by the chairan and

secretary of the stoc!holders eeting

4. /iling of the certificate with the original A3I to the S


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In non"stoc! corporations where there are no ebers with voting rights, the vote of at least a a#ority of

the trustees in office is sufficient for the corporation to proceed in the disposition (ibid).

?issenting stoc!holder ay exercise his appraisal right in relation to section 7%.

he C3? has authority to abandon the said disposition after the approval of the stoc!holders (ibid).

To !c"uire #$n Shares

A stoc! corporation shall have the power to purchase or ac1uire its own shares for a legitiate corporate

purposes provided it has unrestricted retained earnings to cover the shares to be ac1uired (Sec. %). his

includes but not liited to the following;

%. o eliinate fractional shares

2. o collect or coproise an indebtedness to the corporation; and

*. o pay dissenting or withdrawing stoc!holders exercising appraisal rights (ibid).

he subscribed capital stoc! of the corporation is a trust fund for the payent of debts of the corporation

which the creditors have the right to loo! up to satisfy their credits. orporation ay not dissipate this andthe creditors ay sue stoc!holders directly for the unpaid subscription=Trust 0und doctrine>..

Invest corporate unds in another corporation or business

A private corporation ay invest its funds in any other corporation or business or for any purpose other

than the priary purpose for which it was organized (Sec. 2). +hen the investent is reasonably

necessary to accoplish the priary purpose of the corporation, stoc!holderEs voting re1uireent is not

re1uired and only the a#ority approval of the C3? is necessary. Any dissenting stoc!holder ay

exercise his appraisal rights (ibid).

9rocedure

%. Approval of a#ority of C3?'2. +ritten notice of the proposed investent to the stoc!holder and

*. Affirative votes of two"thirds (2'*) of the outstanding capital stoc!'ebers.

If an act of investing corporate fund is done pursuance of the corporate purpose, it does not need the

approval of the stoc!holders but when the purchase of shares of another corporation is done solely for

investent and not to accoplish the purpose of its incorporation, the vote of approval of the

stoc!holders is necessary. +hen the purposes are stated in its A3I, the approval of the stoc!holders is

not necessary (?e la aa vs 0a"ao 2B SA 2B)

To declare dividends

?ividends are unrestricted retained earnings set apart fro the general ass of funds of the corporationand distributed aong the stoc!holders, in proportion to their shares or interest in the corporation, in thefor of cash, property or stoc!s.

he C3? of a stoc! corporation ay declare dividends out of the unrestricted retained earnings which

shall be payable in cash, in property, or in stoc! to all stoc!holders on the basis of outstanding stoc! held

by stoc!holder (Sec. *). If the stoc!holder is a delin1uent stoc!holder, his cash dividend shall be

applied to the unpaid balance on the subscription plus costs and expenses. If it be a stoc! dividend, it

shall be withheld fro the until his unpaid subscription is fully paid (ibid). a!e note that the approval of


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the stoc!holders is not necessary in the approval of cas* dividendbut such affirative vote is necessary

for declaring stock dividend (ibid).

Stoc! corporations are prohibited fro retaining surplus profits in excess of %88 percent of their paid"in

capital stoc!, except;

%. +hen #ustified by definite corporate expansion progras or2. +hen the corporation is prohibited under any loan agreeent with any creditors fro declaring

dividends without its consent or

*. +hen the retention is necessary under special circustances.

To enter into management contract

0anageent contract is one where a corporation underta!es to anage or operate all or substantially all

of the business of another corporation, whether such contracts are called service contracts, operating

agreeents or otherwise (Sec. ). :o anageent contract shall be entered into longer than five years

for any one ter (ibid).

9rocedure%. 0eeting duly called for the purpose

2. Approval of the a#ority of the C3? and stoc!holders'ebers of both the anaging and the

anaged corporation

*. If the interest of the stoc!holder of one of the corporation is ore than %'* of the total

outstanding stoc!, or a#ority of the C3? of the anaged corporation is also the ebers of the

a#ority of the anaging corporation, then 2'* affirative votes of the outstanding stoc!holders

of t*e 'anagedcorporation is re1uired.

U&tra +ires Acts

+$tra viresliterally eans =beyond granted powers.> hese are acts which a corporation is not

epowered to do or perfor because they are not based on the powers conferred by its A3I or by the

orporation ode on corporations in general, or because they are not necessary or incidental to the

exercise of the powers so conferred.

U&tra vires act and I&&ega& Act* Distinguis)ed

An ultra vires act is voidable which ay be enforced by perforance, ratification, or estoppel, while

the illegal act is void and cannot be validated. (Atriu v. A) @ltra vires act is not necessarily illegal but

an illegal act is necessarily ultra vires.

4asting Asset DoctrineIt perits corporations solely or principally engaged in the exploitation of =wasting assets> to distribute thenet proceeds derived fro exploitation of their holdings such as ines, oil wells, patents and leaseholds,without allowance or deduction for depletion. he #ustification of such rule is that as the business of+asting Asset orporation is to exploit and exhaust its assets, no one can expect that its capital would be


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!ept intact. -ence, that dividend cannot be paid out of the capital but only fro the profits ust not beapplied as a rule.Eects o %ltra &ires%.


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stoc!holders owning or representing a a#ority of the outstanding capital stoc! or a a#ority of the

ebers in non"stoc! corporations, shall so vote at a regular or special eeting

177TIN-$

0eetings of directors'trustees or stoc!holders'ebers ay be regular or special (Sec. 5). egular

eetings of stoc!holders'ebers are those held annually on the date fixed in the by laws or on any dateof April on the absence of which (Sec. 48.) egular eeting of C3? is conducted onthly (Sec. 4*)

unless provided by the by"laws otherwise. Special eetings of stoc!holders'ebers are those called for

good cause, as ordered by S capacity,

anyone can vote or appoint a proxy (ibid).

reasury shares have no voting right (Sec. 4B). In a C3?'C3 eeting, no proxy is allowed to vote for the

director or trustee.

'ro;( and +oting trust* Distinguis)ed

4. he proxy votes as agent; the trustee votes as owner6. he proxy ust vote in person; the trustee ay vote by person or by proxy

B. 9rincipal does not cease to becoe stoc!holder; the ownership is transferred to the trustee

7. Agreeent need not notarized; notarized

5. Agreeent revocable; irrevocable and

%8. iited to a particular eeting; includes rights and all eetings within 4 years (Secs. 47 G45).

$TOCK$AND$TOCK@O


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Subscription is an offer to ac1uire a specified nuber of unissued shares of an existing corporation or onestill to be fored. It is an entire and indivisible whole contract it cannot be divided into portions (Doctrineo Indivisibility o Subscription Contract). Any contract for the ac1uisition of the unissuedstoc! isconsidered subscription notwithstanding the fact that the parties considered it as a purchase or any othercontract (Sec. 68). -owever, sale of treasury stoc! by the corporation is a contract of sale because the

stoc! referred was already issuedand was reac1uired by the corporation.Subscription of shares of stoc! of a corporation still to be fored shall be irrevocable at least six onthsfro date of subscription, unless all of the other subscribers consent to the revocation or theincorporation of said corporation fails to aterialize within six onths or within a longer period asstipulated in the contract. If A3I was subitted to S in the stoc! refers to the

difference between the fair ar!et value at the tie of the issuance of the stoc! and the par value of the

said stoc!. he existence of such =water> is deterined at the tie of the issuance of stoc!. Section 64

held the consenting director or officer for the =+ater> in the stoc! with the stoc!holder who inade1uately

paid the stoc!.

'a(,ent of de&inuent stoc

9ayent of stoc! becoes due and payable in the following anner;

%. he ter prescribed in the subscription contract and

2. In the absence of the provision contract, at any tie specified by C3?.


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/ailure to pay on such period shall render the entire balance due and payable and renders the

stoc!holder liable to interest. If no payent was ade within *8 days after such period, the stoc! shall be

considered delin"uent stock(see article *),which is sub#ect to delin1uency sale.

a!e note that unpaid subscriber (Sec. B2) is different fro delin1uent stoc!holder. he forer has all the

rights of a stoc!holder while delin1uent stoc!holder is sub#ect to section * and B%.

De&inuenc( $a&e

9rocedure

%. C3?Es resolution indicating the tie and place of sale which shall be not less than *8 days nor

ore than 68 days fro the date of the stoc! becae delin1uent

2. :otice of sale and resolution shall be sent to the delin1uent stoc!holder

*. 9ublication for two consecutive wee!s in newspaper generally circulating in the province where

the principal office of the corporation. Is located

. 9ublic auction on the specified date

4. ransfer of stoc! to the purchaser and issuance of certificate of stoc! to the highest bidder and

6. eaining shall be credited in favor of the delin1uent stoc!holder.

If the delin1uent stoc!holder pays the balance before the public auction, said sale shall not coence

and the certificate of stoc! shall be issued to hi. In case there is no bidder at the public auction who

pays the full aount of the balance, the total aount shall be credited as paid and its title to all the shares

of stoc! shall be vested in the corporation as treasury shares which ay be disposed by the corporation

(Sec. 67).

Actions 1uestioning the delin1uency sale should be coenced within six onths fro the date of sale,

otherwise, it shall be barred forever. Also, the coplainant should pay or tender to buyer of the stoc! thesu for which the stoc! was sold. Lround for irregularity or defect in the notice of sale or the sale itself is

also unavailing for the coplainant (Sec. 65).

?elin1uency sale does not bar the corporation to file a #udicial action for the collection of the unpaid

subscription (sec. B8).

7ffects O0 De&inuenc(%. Stoc!holder have no right to vote or be voted upon and2. :ot entitled to any right except dividends (see section *)


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4. If a contest was filed or there is pending suit regarding such stoc!s, the issuance of new

certificate shall be suspended until the final decision of the court.

After the said procedure was followed, no action ay be brought against the

corporation who issued the certificates of stoc! in lieu of those lost, stolen or destroyed unless there

is fraud, bad faith, or negligence on the part of the corporation and its officers (Sec. B*),

9OOK$ANDR7CORD$

9oos and Records to be ept

%. ecord of all business transactions

2. 0inutes of all eetings of stoc!holders or ebers

*. 0inutes of all eetings of C3? and

. Stoc! and transfer boo! (Sec. B)

his right of inspection or exaination cannot be denied on the ere pretext that the shareholder is at

loggerheads with the officers of the corporation (Feraguth vs. Isabela Sugars, 42 9hil 266). A wrongful

denial of the right to inspect corporate boo!s and records ay be enforced by andaus.

he stoc! and transfer boo! shall be !ept in the principal office of the corporation or in the office of its

stoc! transfer agent and shall be open for inspection by any director or stoc!holder of the corporation at

reasonable hours on business days.

Any officer or agent of the corporation who shall refuse to allow any director, trustees, stoc!holder or

eber of the corporation to exaine and copy excerpts fro its records or inutes, shall be liable to

such director, trustee, stoc!holder or eber for daages and shall be guilty of an offense which shall be

punishable under Sec. %. If such refusal is ade pursuant to a resolution or order of the board of

directors or trustees, the liability for such action shall be iposed upon the directors or trustees who voted

for such refusal.

Rig)t to 0inancia& $tate,ents

+ithin ten (%8) days fro receipt of a written re1uest of any stoc!holder or eber, the corporation shall

furnish to hi its ost recent financial stateent, which shall include a balance sheet as of the end of the

last taxable year and a profit or loss stateent for said taxable year, showing in reasonable detail its

assets and liabilities and the result of its operations

At the regular eeting of stoc!holders or ebers, the board of directors or trustees shall present to

such stoc!holders or ebers a financial report of the operations of the corporation for the preceding

year, which shall include financial stateents, duly signed and certified by an independent certified public

accountant. -owever, if the paid"up capital of the corporation is less than 948,888.88, the financial

stateents ay be certified under oath by the treasurer or any responsible officer of the corporation.

17R-7R$ANDCON$O


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In erger, one of the constituent corporations reains as an existing #uridical person, the surviving

corporation, whereas the other corporations shall be absorbed by the forer. he

constituent corporation will ac1uire all assets, rights of action, and assue all the liabilities

of dissolved corporation. Although there is dissolution of the latter corporation, there is no winding up

because the constituent corporation autoatically ac1uires all their assets, privileges, powers as well astheir liabilities. he erger is deeed instituted fro the tie the S


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A''RAI$A


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%. All rights accruing to such shares, including voting and dividend rights, shall be suspended

2. he stoc!holder is entitled to payent of his shares

*. If the dissenting stoc!holder is not paid within *8 days, his voting and dividend will be

restored. (Sec. 7*) and

. ?eand for payent ay not be withdrawn unless with consent of the corporation (Sec. 7).

Ter,ination of Rig)t of Appraisa&

%. If deand for payent is withdrawn with the consent of the corporation

2. If the proposed corporate action is abandoned or rescinded by the corporation

*. If the proposed corporate action disapproved by the S


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'urpose

/or charitable, religious, educational, fraternal, social, civic service etc (Sec. 77).

Incidenta& 'rofitsA non"stoc! corporation is not epowered to engage in business with the ob#ect of a!ing incoe,nonetheless, they are not prohibited to a!e incoe as an incident to its operation. -owever, theseprofits should be used in furtherance of its purpose. In this sense, a non"stoc! corporation is considered anon"profit corporation.:on"stoc! corporations ay not lawfully engage in any business for profit unless it is necessary to carryout the purpose for which it was organized.

Conversion fro, Non/$toc to $toc CorporationA non"stoc! corporation cannot be converted into a stoc! corporation by ere aendent of the articlesof incorporation (S


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A close corporation is one whose A3I provide;a. hat its shares shall not be held by a group of ore that 28 personsb. All the issued stoc! of all classes is sub#ect to one or ore specified restrictions

on transfer andc. hat the corporation shall not list in any stoc! exchange or a!e any public offering of

any of its stoc!.If at least 2'* of the voting stoc! of the said corporation is owned or controlled by another corporationwhich is not a close corporation, then the corporation will not be deeed close corporation.

he ere ownership by a single stoc!holder or by another corporation of all or nearly all of the capital

stoc! of a corporation is not of itself sufficient ground for disregarding their separate personalities. A

narrow distribution of ownership does not, by itself, a!e a close corporation. (San 2uan Structura$ and

Stee$ (a#ricators vs. CA 1 SCRA 3/)Corporation t)at cannot be considered c&ose corporations

%. 0ining or oil copanies2. Stoc! exchanges*. Insurance copanies. Can!s4. 9ublic utilities6.


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stoc!, the certificate for such stoc! conspicuously states such nuber, and the issuance or

transfer of stoc! would cause the stoc! to be held by ore than such nuber of persons

*. he transferee of the stoc! is conclusively presued to have notice that he has ac1uired stoc!

in violation of the restriction if a stoc! certificate of any close corporation conspicuously shows a

restriction on transfer of stoc! of the corporation

. In case of %,2, and * the corporation ay refuse to register the transfer of stoc! in the nae ofthe transferee

4. If the all the stoc!holders consent in the transfer despite the violation, right to refuse to register

of the corporation ceases and

6. he right of the transferee to rescind the transfer or to recover under any applicable warranty is

not ipaired.'re/e,ptive Rig)t of $toc)o&der

he pre"eptive right shall extend to all stoc!s to be issued, including re"issuance of treasury share,

whether for oney or property or personal services, or in payent or corporate debts, unless the articles

of incorporation provide otherwise (Sec. %82)

A,end,ent of artic&es of incorporation

Any aendent to the A3I which see!s to delete or reove any provision re1uired by this itle to be

contained in the A3I or to reduce a 1uoru or voting re1uireent stated in said A3I shall not #e va$idor

effective unless approved by the affirative vote of at least two"thirds (2'*) of the outstanding capital

stoc!, whether with or without voting rights, at a eeting duly called for the purpose (Sec. %8*).

Dead&ocs

A situation in which the directors or stoc!holders of a close corporation are so divided with regard to

the anageent of corporate affairs and the votes re1uired for any corporate action cannot be

obtained with the conse1uence that the business affairs of the corporation can no longer be conducted to

the advantage of the stoc!holders (Sec. %8).

$7Cs 'oers in Case of Dead&ocs

@pon written petition of a stoc!holder, the S


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An ipartial person appointed by the S


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A voluntary dissolution ay be done by aending the A3I to shorten the life, and subitting copy to the

S


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*. here should be lawful dissolution and

. 9ayent of liability and debts(ibid)


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Distribution of assets of a Non/$toc Corporation

%. All debts and obligation of the corporation should be paid

2. All assets to be returned upon dissolution of the corporation

*. All assets held sub#ect to specific use only ust be transferred to other corporations, societies,

or organizations having the sae purpose as the corporation dissolved

. 3ther assets not included I the above, according to distributive rights provided in the A3I and4. Any other reaining assets, according to plan of distribution of asset entioned in article

54. (Sec. 5)

'&an of distribution of assets; 'rocedure

A provision in the A3I ay include the plan providing for the distribution of assets ay be adopted by a

non"stoc! corporation in case of dissolution;

%. Adoption of a resolution by the a#ority vote recoending a plan of distribution

2. +ritten notice setting forth the proposed plan to the ebers and

*. At the date, tie and place given, affirative vote of at least 2'* of the ebers having voting

power.

0OR7I-NCOR'ORATION

0oreign Corporation is acorporation fored, organized or existing under any law other than those ofthe 9hilippines, and whose laws allow /ilipino citizens and corporations to do business in its own countryor state (Sec. %2*).3nce issued the certification, foreign laws is governed by the doestic law except tothe foration organization and dissolution of corporation, and relation, duties and responsibilities ofstoc!holders'ebers and C3? to each other or to corporation (Sec. %25).

Doing 9usinessIplies a counity of coercial dealings and arrangeents, and conteplates to soe extent theperforance of acts or wor!s or the exercise of soe functions norally incident to and in progressiveprosecution of, the purpose and ob#ect of its organization. (ontinuity est)

Doctrine of Iso&ated Transaction/oreign corporations can sue or be sued on a transaction or series of transaction set apart fro thecoon business of a foreign enterprise in the sense that there is no intention to engage in a progressivepursuit of the purpose and ob#ect of business transaction.

$uabi&it( of 0oreign Corporations%. /oreign corporations doing business in the 9hilippines

a. +ith license; ay sue and be sued in the 9hilippines b. +ithout license; cannot sue but ay be sued in the 9hilippines. (Sec. %**)

2. /oreign corporation not doing business in the 9hilippines; on isolated transaction, it ay sue and besued.

App&ication for


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2. Attach certificate that the laws of their incorporation allows /ilipino citizens and corporation to

business in their country and that the corporation is in good standing

*. ertification that the corporation is solvent and in sound financial condition and

. 3ther re1uireents as provided for by laws and authority fro appropriate authority (Sec. %24).

C. Appointent of esident Agent;

%. S


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Revocation of &icense

+ithout pre#udice to other grounds provided by special laws, the license of a foreign corporation to

transact business in the 9hilippines ay be revo!ed or suspended by the S

241954747 Summary on Corporation Code of the Philippines

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