II.

Other corporations (1) Close corporations

Close corporation is a special kind of stock corporation in which the

stock is held in a few hands, or in few families and which stock is not all or only rarely dealt in buying and selling.

(a) Characteristics of a close corporation

i.
ii.

Stockholders may act as directors without the need of election and therefore are liable as directors; Stockholders who are involved in the management of the corporation are liable in the same manner as directors are; Quorum may be greater than mere majority; Transfers of stocks to others, which would increase the number of stockholders to more than the maximum are invalid; Corporate actuations may be binding even without a formal board meeting, if the stockholder had knowledge or ratified the informal action of the others; Pre-emptive right extends to all stock issues; Deadlocks in board are settled by the SEC, on the written petition by any stockholder; and Stockholder may withdraw and avail of his right of appraisal.

iii. iv.

v.

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(b) Validity of restrictions on transfer of shares

Section 98 imposes two conditions for the validity of restrictions

on the right to transfer shares, namely: i. Such restrictions must appear in the articles of incorporation and in the certificate of stock; otherwise, they shall not be binding on any purchaser thereof in good faith; and

ii.

They shall not be more onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholders with such reasonable terms, conditions or period stated therein. Thus, a restriction fixing the purchase price very much below the fair market value of the shares may be invalid. Also invalid is a prohibition against transfer of stock without the prior consent of the board of directors or of the other stockholders.

(c) Issuance or transfer of stock in breach of qualifying conditions Sec. 99. Issuance or transfer of stock of a close corporation in breach of qualifying conditions.1. If stock of a close corporation is issued or transferred to any

person who is not entitled under any provision of the articles of incorporation to be a holder of record of stock, and if the certificate for such stock conspicuously shows the qualifications of the persons entitled to be holders of record thereof, such person is conclusively presumed to have notice of the fact of his ineligibility to be a stockholder.
2. If the articles of incorporation of a close corporation states the

number of persons, not in excess of twenty (20), who are entitled to be holders of record of its stock, and if the certificate for such stock conspicuously states such number, and if the issuance or transfer of stock to any person would cause the stock to be held by more than such number of persons, the person to whom such stock is issued or transferred is conclusively presumed to have notice of this fact.
3. If a stock certificate of any close corporation conspicuously

shows a restriction on transfer of stock of the corporation, the transferee of the stock is conclusively presumed to have notice of the fact that he has acquired stock in violation of the restriction, if such acquisition violates the restriction.
4. Whenever any person to whom stock of a close corporation has

been issued or transferred has, or is conclusively presumed under this section to have, notice either (i) that he is a person not eligible to be a holder of stock of the corporation, or (ii) that

transfer of stock to him would cause the stock of persons permitted by its articles of incorporation to hold stock of the corporation, or (iii) that she transfer of stock is in violation of a restriction on transfer of stock, the corporation may, at its option, refuse to register the transfer of the stock in the name of the transferee. 5. The provisions of subsection (4) shall not be applicable if the transfer of stock, even though otherwise contrary to subsections (1), (2) or (3), has been consented to by all the stockholders of the close corporation, or if the close corporation has amended its articles of incorporation in accordance with this Title. 6. The term transfer, as used in this section, is not limited to a transfer for value. 7. The provisions of this section do not in any way impair any right of a transferee regarding any right to rescind the transaction or to recover under any applicable warranty, express or implied.

(d) When board meeting is unnecessary or improperly held

Section 101 of the Corporation Code provides that an action of the Board of Directors of a close corporation shall be valid even if: i. ii. Before or after such action is taken, written consent thereto is signed by all directors; All of the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing; The directors are accustomed to take informal action with the express or implied acquiescence of all the stockholders; All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing.

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(e) Pre-emptive right Section 102 of the Corporation Code provides that the preemptive rights of stockholders in close corporations shall extend to all stock to be issued, including re-issuance of treasury shares, unless the articles of incorporation provide otherwise.

(f) Amendment of articles of incorporation Sec. 103. Amendment of articles of incorporation. Any amendment to the articles of incorporation which seeks to delete or remove any provision required by this Title to be contained in the articles of incorporation or to reduce a quorum or voting requirement stated in said articles of incorporation shall not be valid or effective unless approved by the affirmative vote of at least two-thirds (2/3) of the outstanding capital stock, whether with or without voting rights, or of such greater proportion of shares as may be specifically provided in the articles of incorporation for amending, deleting or removing any of the aforesaid provisions, at a meeting duly called for the purpose. The effect of the amendment is to terminate the status of the corporation as a close corporation.

(g) Deadlocks A deadlock situation is defined in Section 104 of the Corporation Code when the following circumstances are present: i. If the directors or stockholders are so divided respecting the management of the corporations business and affairs that the votes required for any corporate action cannot be obtained; and

ii.

With the consequence that the business and affairs of the corporation can no longer be conducted to the advantage of the stockholders generally.

(2) Non-stock corporations

(a) Definition
Anon-stock corporation is where no part of its income is

distributable as dividends to its members, trustees, or officers. Even if there is a statement of capital stock, for as long as there is no distribution of retained earnings to its members, the corporation is non-stock.

(b) Purposes
Sec 88. Purposes. - Non-Stock corporations may be formed or

organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civic service, or similar purposes, like trade, industry, agriculture and like chambers, or any combination thereof, subject to the special provisions of this Title governing particular classes of non-stock corporations.

(c) Treatment of profits

Any profit derived by it from any authorized activity cannot be

distributed as dividends to its members. Any profit which it may obtain as an incident to its operations shall, whenever necessary or proper, be used in furtherance of the purpose or purposes for which it was organized.

(d) Distribution of assets upon dissolution

 Under Section 94 of the Corporation Code, in case of dissolution of a non-stock corporation, its assets shall be applied and distributed as follows: i. All liabilities and obligations of the corporation shall be paid, satisfied and discharged, or adequate provisions shall be made therefore; Assets held by the corporation upon a condition requiring return, transfer, or conveyance, and which condition occurs by reason of the dissolution, shall be returned, transferred or conveyed in accordance with such requirements; Assets received and held by the corporation subject to limitations permitting their use only for charitable, religious, benevolent, education or similar purposes, but not held upon A condition requiring return, transfer or conveyance by reason of the dissolution, shall be transferred or conveyed to one or more corporations, societies or organization engaged in activities in the Philippines substantially similar to those of the dissolving corporation pursuant to an adopted plan of distribution. Assets other than those mentioned in the preceding paragraphs, if any, shall be distributed in accordance with the provisions of the articles of incorporation or the by-laws, to the extent that the articles of incorporation or the by-laws determine the distributive rights of members, or any class of classes of members, or provide for distribution; and In any other case, assets may be distributed to such persons, societies, organizations or corporations whether or not organized for profit, as may be specified in any adopted plan of distribution.

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(3) Religious corporations

 A religious corporation has been defined as a corporation composed entirely of spiritual persons and which is organized for the furtherance of a religion or for perpetuating the rights of the church or for the administration of church or religious work or property.

(a) Corporation sole A special form of corporation usually associated with the clergy.
It consists of one person only, and his successors (who will

always be one at a time), in some particular station, who are incorporated by law in order to give them some legal capacities and advantages, particularly that of perpetuity, which in their natural persons they could not have had. In this sense, the king is a sole corporation; so is a bishop, or deans, distinct from their several chapters. (Roman Catholic Apostolic Adm. of Davao, Inc. v. LRC, 102 Phil 596)

i.

Nationality
In Roman Catholic Apostolic Administration of Davao, the

Court ruled that for purpose of the nationalization laws of the Philippines, a corporation sole, at least that constituted on behalf of the Roman Catholic Church, is deemed to have no nationality.
The no nationality ruling on corporation sole has been

applied by the Court to similar juridical persons set-up for other religious faith in Republic vs. Villanueva and Republic vs. Iglesia Ni Cristo, the corporation sole constituted on behalf of the INC were also deemed to have no nationality. Corporations sole cannot be considered as aliens because they have no nationality at all.

ii.

Religious societies

 Incorporated by an aggregate of persons. Under Section 116, any religious society or religious order, or any diocese, synod, or district organization of any religious denomination, sect, or church, unless forbidden by the rules of the latter or by competent authority may, upon consent and/ or by an affirmative vote at a meeting called for the purpose, of 2/3 of its membership, incorporate for the administration or management of its temporalities, affairs and property.