CORPORATION CODE OUTLINE REVIEWER Doctrine of Piercing the Veil of Corporate Entity:
The doctrine requires the court to see through the protective shroud
Title 1 General Provisions
Section 1. Title of the Code. – This Code shall be known as "The Corporation
Code of the Philippines."
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.
Corporation Code, Define:
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.
Doctrine of Corporate Entity (CE):
A corporation is a legal and juridical person with a personality
separate and apart from its inidiual stockholders or members and from any
other legal entity to which it may be connected or related.
Corporate officers are not personally liable of their acts, if:
1. They are for and on behalf of the corporation,
2. Within the scope of their authority,
3. In good faith
When can a corporate officer be held personally liable:
1. Acted maliciously or in bad faith or with gross negligence,
2. Agreed to hold himself personally and solidarily liable with the
corporation,
3. Provided by specific provision of law,
4. Corporate personality was used to defraud a third party
As a general rule, a corporation is not entitled to moral damages but a
corporation may have a good reputation which if debased or besmirched
resulting in social humiliation may be a ground for a recovery of moral
damages and attorney’s fee.
The interest of the shareholders in the corporate property is purely inchoate.
which exempts its stockholders from liabilities that ordinarily they could be
subject to, or distinguishes one corporation from a seemingly separate one,
were it not for the existing corporate fiction.
In effect, the corporation will be treated merely as an association or
collection of persons or individual undertaking business as a group and the
stockholders or members will be considered as the corporation, that is,
liability will attach personally or directly to the officers and stockholders or
where there are 2 corporations they will be merged into one, the one being
merely regarded as the instrumentality, agency, conduit or adjunct of the
other.
Application of the doctrine in the 3 basic areas of:
1. Defeat of public convenience.
- Corporate fiction is used as a vehicle for the evasion of an existing
obligation.
2. Fraud cases
- CE is used to justify wrong, protect fraud, and defend a crime.
- However, even if fraud is established, this fact alone is not sufficient to
justify the piercing of the corporate fiction where it is sought to hold
the officer and stockholders personally liable for corporate debt.
3. Alter ego cases
- A corporation is only an alter-ego or business conduit of a person or
where the corporation is so organized and controlled and its affairs
are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation.
Three Elements in Piercing the Veil:
1. Control Test – Complete Dominion/Control.
2. Fraud Test – Breach of Duty
3. Causal Connection Test - The Control and Breach of duty must
proximately cause the injury or unjust loss.
A corporation has a capacity of continuous existence irrespective of the
death, withdrawal, insolvency, incapacity of the individual stockholders or
members and regardless of the transfer of their interest or shares of stock.
Distinction of a Corporation and a Partnership:
1. Creation
 2. Number of Incorporators 7. Stockholder’s voting right become theoretical
3. Commencement of Juridical Personality 8. Stockholders have a little voice in the conduct of the business.
4. Powers
5. Management Section 3. Classes of corporations . – Corporations formed or organized under
6. Effect of Mismanagement this Code may be stock or non-stock corporations. Corporations which have
7. Right of Succession capital stock divided into shares and are authorized to distribute to the holders
8. Extent of Liability to 3rd Person of such shares dividends or allotments of the surplus profits on the basis of the
9. Transfer of Interest shares held are stock corporations. All other corporations are non-stock
10. Term of Existence’ corporations.
11. Firm Name
12. Dissolution Other Classifications of a Corporation:
13. Laws which Govern 1. No. of persons who compose them.
a. Corporation Sole
Similarities of a Corporation and a Partnership: b. Corporation Aggregate
2. Whether it is for religious purpose
1. Juridical Personality a. Ecclesiastical Corporation
2. Acts b. Lay Corporation
3. Organization 3. Whether they are for charitable purpose
4. Distribution of Profits a. Eleemosynary Corporations
5. Creation b. Civil Corporation
6. Taxation 4. State under or by whose laws they have been created
a. Domestic Corporation
Advantages of a Business Corporation: b. Foreign Corporation
1. Legal capacity 5. As to their legal right to corporate existence
2. Continuity of Existence a. De jure Corporation
3. Strengthen of Credit b. De facto Corporation
4. Mgt. is Centralized 6. Whether they are open to the public
5. Creation, organization, management and dissolution is standardize a. Close Corporation
6. Feasible Gigantic Financial Undertaking b. Open Corporation
7. Not a General Agent 7. As to their relation with other corporation
8. Transfer of stock without consent of other stockholder. a. Parent or Holding Corporation
9. Shareholders have Limited Liability b. Subsidiary Corporation
c. Affiliated Corporation
Disadvantages of a Business Corporation: 8. Whether they are for public or private purpose
1. Credit weaken by limited liability of the stockholders A. Private Corporation
2. Lack of personal element in connection to transferability of stocks b. Public Corporation
3. Greater governmental control and supervision b.1 GOCC
4. Management and control is separated from ownership b.2 Quasi-Public Corporation
5. Relatively complicated in formation and management 9. As to whether a corporation in a true sense or only limited sense
6. High cost in formation and operation a. True Corporation
 b. Quasi Corporation
b.1 Corporation by Prescription
b.2 Corporation by Estoppel
Section 4. Corporations created by special laws or charters. – Corporations
created by special laws or charters shall be governed primarily by the provisions
of the special law or charter creating them or applicable to them, supplemented
by the provisions of this Code, insofar as they are applicable.
The SEC has no jurisdiction over corporations with original charter or
created by special law. It follows that it has no power to interpret the law
creating it. However, the SEC can rule on the status of a corporation as to
whether it is a GOCC.
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.
Corporators in a stock corporation are called stockholders or shareholders.
Corporators in a non-stock corporation are called members.
Other person who play important role in the formation and organization
of a corporation:
1. Promoter
- One who bring about or cause to bring about the formation and
organization of a corporation by bringing the incorporators or persons
interested in the enterprise.
2. Subscriber
- Persons who have agreed to take and pay for original unissued shares
of a corporation formed or to be formed.
3. Underwriter
- a person who:
1. Has agreed, alone or with others, to buy at stated terms an entire
issue of securities or a substantial part thereof.
2. Has guaranteed the sale of an issue by agreement to buy from
issuing party any unsold portion at a stated price.
3. Has agreed to use his “best effort” to market all or part of an issue.
4. Has offered for sale stock he has purchased from a controlling
stockholder.
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.
Doctrine of Equality of Shares:
Except as otherwise provided by the AOI and stated in the certificate
of stock, each share shall be in all respect equal to every other share.
The Board has no authority to classify shares of stock where AOI is
silent on the matter.
If the shares of stock have no par value, the corporation has no
authorized capital stock, but it has a capital stock the amount of which is not
specified in the AOI as it cannot be determined until all shares have been
issued.
All subscribed share are outstanding stock but not all issued share are
outstanding stock as in case of Treasury Share.
Capital includes the amount of invested by stockholders plus the
undistributed earnings less losses and expenses
Capital Stock v. Capital:
1. Capital is the actual corporate property (concrete thing) while CS is
an amount, therefore, something abstract.
2. Capital fluctuates according to profit and losses while CS is fixed in
the AOI.
3. Capital is owned by the corporation while CS when issued, belongs
to the stockholder.
4. Capital may be real or personal while CS is always personal.
Stock or share of stock defined:
- It represents the interest or right which the owner has in the
management of the corporation (right to vote); portion of corporate
earnings (dividends) and upon dissolution and winding up, in the
property and assets of corporation remaining after payment of
corporate debts and liabilities to creditors.
Nature of share of stock (SoS):
1. The ownership of the share of stock confers no immediate legal
right to any of the property of the corporation.
2. Constitutes a property distinct from the capital or tangible property
of the corporation and belong to the different owners.
3. They are in nature of choses in action but are not such in a strict
sense. They do not constitute an indebtedness of the corporation to the
shareholder.
 4. It confers an aliquot part of the corporation’s property. - Advantages: Easily sold; greater protection to the creditor; unlikely to
sold in a lower price in a subsequent sale; unlikely to have a
distribution of dividend base on an ostensible/assumed profits.
- Disadvantages: Subscribers are liable to corporate creditors for their
Certificate of Stock (CoS) defined: unpaid subscription; the stated value of the share is not an accurate
- Is a written acknowledgement by the corporation of the interest, criterion of its true value.
rights and participation of a person in the management, profits and
assets of a corporation. No Par Value Share:
- One without stated value appearing on the face of CoS.
SoS vs. CoS: - No par value share always have an issued value or the consideration
1. SoS is intangible property, while CoS is a tangible property. fixed by the corporation for its issuance.
2. SoS represents the right or interest of a person in the corporation
while CoS is the evidence of that right or interest. - Restriction regarding the issuance of no par value shares:
3. SoS maybe issued, except no par shares, even if the subscription is a. Banks, trust companies, insurance companies, public utilities, and building
not fully paid, while CoS cannot be issued until subscription is fully and loan associations shall not be permitted to issue no-par value shares of
paid. stock.
4. Situs of the share is the state to which the corporation has its b. That preferred shares of stock may be issued only with a stated par value.
domiciled, while CoS situs is the place where it is located or the c. Shares of capital stock issued without par value shall be deemed fully paid
domicile of its owner. and non-assessable and the holder of such shares shall not be liable to the
corporation or to its creditors in respect thereto:
Classes of Shares: d. That shares without par value may not be issued for a consideration less
- Par value or no par value than the value of five (P5.00) pesos per share:
- Voting or non-voting e. That the entire consideration received by the corporation for its no-par
- Common or preferred (voting, convertible or redeemable) value shares shall be treated as capital and shall not be available for
Preferred as to assets in case of liquidation or preferred as to distribution as dividends.
dividend and the latter may be either: - Advantages: Issued fully paid and non-assessable; price is flexible;
Cumulative or Non-cumulative lower priced enjoy wider distribution; tell no untruth concerning their
Participating or Non-Participating value; stock dividend are easier issued.
- Promotion share - Disadvantages: Legalize issues of stock for property; they may conceal
- Share in Escrow the money or property represented by the share; promote issuance of
- Convertible share watered stock; lesser protection to creditors.
- Founder’s share
- Redeemable share Voting Share
- Treasury share - Corporations are prohibited from issuing multiple voting and non-
voting common shares for each common share shall be equal in all
Par Value Share: respect to every other common share. They cannot limit the maximum
- Is one with specific money value fixed in the AOI and appearing in the number of votes per stockholder irrespective of the number of shares
CoS. he holds.
- Shares issued less than par value are referred as watered stock. - Only preferred or redeemable share may be deprived of a voting right.
- Rule: One Share One Vote.

Non-Voting Share:
- See Sec. 6 par 6 (1-8)
Common Share:
- Is one which entitles the holder thereof to a pro rata division of the
profits and assets upon dissolution, without any preference over other
stockholders.
- Has a complete voting rights
- Residual owners of the corporation
Preferred Share:
- One which must have a stated par value and entitles a stockholder
certain preference over stockholder of common stock.
- Designed to induce persons to subscribe for shares of corporation. The
debt to equity ratio for preferred share are considered equity.
- Interest bearing stock on which the corporation agrees to absolutely to
pay interest before dividends are paid to common stockholder is legal
only when construed as requiring payments of interest as dividends from
net earnings or surplus only.
- Kinds: Preferred share as to assets & Preferred as to dividends
- Preferred stock standing alone creates a preference only to dividends
and not to assets.
- 4 legal Limitations:
a. Preferred share deprived of voting rights may still vote on acts
enumerated in Sec. 6
b. Preference of preferred share must not be violative of the provision
of the Corporation code
c. Preferred share may only be issued with a par value.
d. The BOD may fix the terms and conditions of preferred shares if
authorized by AOI and such terms and condition is effective upon filing
of the certificate thereof at the SEC.
- Kinds of preferred shares as to dividends:
a. Cumulative Preferred Share- entitles the holder not only to the
payment of the current dividends but also to dividends in arrears.
b. Non-Cumulative Preferred Share- shareholder is entitled only to the
current dividends.
c. Participating Preferred Share- entitles the holder not only the right
to receive the stipulated dividends at the preferred rate but also to
participate with the holders of common shares in the remaining profit pro
rata after the common shares have been paid in the amount of the
stipulated dividend at the same preferred rate.
d. Non-Participating Preferred Share- only entitles the holder thereof to
receive the stipulated preferred dividends and no more.
e. Cumulative-Participating Preferred Share- combination of the two kinds
Promotion Share:
- Issued to promoters or those in some way interested in the company,
for incorporating the company or for services rendered.
Share in Escrow:
- Is a share subject to an agreement by virtue of which the share is
deposited by the grantor with a third person to be kept by the
depository until performance of a certain condition.
- The issuance of the share is subject to a suspensive condition.
Convertible Share:
- Is a share convertible by the shareholder from one class to another at a
certain price and within a certain period.
- The conversion ratio is the price at which the common is to be valued
as against the preferred.
- The conversion of no par value to par value is allowed provided there
will be no change in the stockholders percentage interest in the total
asset of the corporation.
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.
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.
Redeemable or callable shares, which are preferred shares, which by
their terms are redeemable at a fixed date or at the option of either the
issuing corporation or the stockholder or both at a certain redemption price.
In case of redeemable shares, the shareholder is conferred the right of a
creditor to attract corporate financing.
The corporation may not redeem the said shares if it is insolvent or if
the redemption will cause the insolvency (Trust Fund Doctrine).
For the protection of the stockholder, all corporations which issued
redeemable shares with mandatory redemption features are required by the
SEC to set-up and maintained a sinking fund where cash is gradually set
aside in order to accumulate the amount necessary to meet the redemption
price of redeemable shares at specified dates in the future.
the corporation which may be reissued or resold by the corporation at a
price to be fixed by the BOD.
Retirement of treasury shares can be effected by decresing the capital
stock of the corporation in accordance with Sec. 38 for the purpose of
eliminating the treasury shares.
While held in the company as treasury, the stock earns no dividends
and has no vote in company’s affair.
Treasury shares being unrealized income, are not considered as part
of earned or surplus profits, and therefore, not distributable as dividends
either as cash or stock. But if there are retained earnings arising from the
business of the corporation, treasury shares, being property of the
corporation, may properly be distributed as property dividend.
They may be resold, as an ordinary asset, at any price subject to BOD
discretion. Once reissued it become again a part of the outstanding stock
and regain whatever dividends and voting rights they originally held.

In case of redeemable shares reacquired by the corporation, the same

shall be considered retired and no longer issuable unless otherwise
provided in its article of incorporation. They are to be considered as
treasury share after redemption if by provision of the AOI they can be
reissued.

Where the reissuance of redeemed shares is prohibited the number

of authorized shares of the capital stock of the corporation is reduced
accordingly and the AOI must be amended to reflect such reduction.

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.

Treasury shares are not retired shares. They do not revert to the
unissued shares of the corporation but are regarded as property acquired by
 TITLE II
INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS
Section 10. Number and qualifications of incorporators. – Any number of
natural persons not less than five (5) but not more than fifteen (15), all of
legal age and a majority of whom are residents of the Philippines, may form a
private corporation for any lawful purpose or purposes. Each of the
incorporators of stock corporation must own or be a subscriber to at least one
(1) share of the capital stock of the corporation.
Concept of Franchise:
Franchise includes any special privilege or right affected with
public interest, conferred by the State on corporations or persons and which
does not belong to the citizens of the country, generally as a matter of
common right.
The right to exist as a corporation is a primary franchise (General
Franchise). It is granted to and vests in the individuals who compose the
corporation and not the corporation itself. The primary franchise is
inalienable, otherwise, a corporation would be created without the consent
of the legislature.
Secondary franchise (Special Franchise) is the franchise to exercise
powers and privileges granted to a corporation. It is conferred upon the
corporation after its incorporation and not upon the individuals who
compose the corporation. It can ordinarily be mortgaged or conveyed under
a general power granted bto a corporation to dispose its property, except
such franchise are charged with a public use.
Steps in the Creation of a Corporation:
1. Promotion
2. Incorporation
3. Formal organization and commencement of business
operations.
Promotion:
A number of business operations peculiar to the commercial world
by which a company is generally brought into existence.
Promoter is one who organize a corporation, procure the
necessary legislation, procure necessary subscribers to the articles of
incorporation, see that necessary documents are presented to the proper
office to be recorded and the certificate of incorporation issued and
generally to float the company. They are agents of the incorporators.
Liability of Corporation for Promotion Fees:
General Rule:
- In the absence of charter or statutory provisions, a corporation is not
liable to its promoters in respect for any payments in services
rendered or expenses incurred before its incorporation in promoting
it.
Exception:
- Unless, after its incorporation it expressly agrees to make such payment
or from the other facts the court can infer a new contract to reimburse.
Underwriting Agreements:
- Are resorted to float stock issues of large corporation.
1. Firm Commitment
- The members severally but not jointly agree to purchase the whole
issue outright at a particular price for resale at a price differential to the
public or to the dealers who sell at another differential to the public.
2. All-or-Nothing Commitment
- The members agree to accept liability for the purchase of an issue at
a given price only if the entire issue is not sold.
3. Standby Commitment
- The syndicate will purchase and distribute at predetermined prices
to the public any amount of the issue not taken by stockholders in exercising
their pre-emptive rights.
4. Best Effort Commitment
- This merely means that the syndicate will use its best efforts to
distribute the issue to the public. Under such commitment the syndicate does
not agree to purchase the issue at predetermined prices.
Incorporation:
- Refers to the performance of conditions, acts, deeds and writings by
incorporators and the official acts, certification or records, which give
the corporation its existence.
Steps in Incorporation:
1. Drafting and execution of the articles of incorporation and other
documents required for registration e.g. Treasure Affidavit.
2. Filing with the SEC of the AOI together with the treasurer affidavit
and if applicable favourable recommendation of the appropriate government
agency.
3. Payment of the filing and publication fees.
4. Issuance by the SEC of the Certificate of incorporation.
It is a general principle that substantial compliance with the
requirements of the statute authorizing the formation of corporation is all that
is necessary to legal incorporation and to the existence of a corporation.
Beneficial ownership of a stock is not necessary and a person who
holds the legal title to stock is qualified to become an incorporator.
Section 11. Corporate term. – A corporation shall exist for a period not
exceeding fifty (50) years from the date of incorporation unless sooner dissolved
or unless said period is extended. The corporate term as originally stated in the
articles of incorporation may be extended for periods not exceeding fifty (50)
years in any single instance by an amendment of the articles of incorporation, in
accordance with this Code; Provided, That no extension can be made earlier
than five (5) years prior to the original or subsequent expiry date(s) unless there
are justifiable reasons for an earlier extension as may be determined by the
Securities and Exchange Commission.
Doctrine of Relation:
- Where the delay in effecting the amendment is due to the neglect of
the officer with whom the application is required to be files or to a
wrongful refusal on his part to receive it, the same will be treated as
having been filed before the expiry date. This doctrine does not apply
if the delay is attributable to the corporation.
- The occurrence of force majeure or Fortuitous event is considered
meritorious reason by the SEC to justify the doctrine.
A corporation whose corporate life has expired may be reincorporated
only by complying with the registration requirements under the Corporation
code, viz., filing of new AOI and by-laws.
Section 12. Minimum capital stock required of stock corporations. – 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.
Section 13. Amount of capital stock to be subscribed and paid for the
purposes of incorporation. – At least twenty-five percent (25%) of the
authorized capital stock as stated in the articles of incorporation must be
subscribed at the time of incorporation, and at least twenty-five (25%) per cent
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
board of directors: Provided, however, That in no case shall the paid-up capital
be less than five Thousand (P5,000.00) pesos.
Paid-up Capital is merely seed money to start a corporation or a
business entity. Paid up capitalization of Php 5,000.00 is not and should not be
taken as a reflection of the firm’s capacity to meet its obligation. The best test
of the viability of business concern is its working capital which consist of the
liquid assets of a given business.
The call by the BOD for the payment of the balance of subscriptions is
required only when there is no fixed date for payment in the contract of
subscription.
It is not required that each subscriber shall pay 25% of his
subscription. The paid-up requirement is met as long as 25% of the total
subscription is paid.
It would seem that the minimum 25% paid-up requirement applies
only to par value shares because a subscriber to a no par value share must pay
in full his subscription. However, where the capital stock consist only of no par
value shares, the 25% requirement shall be computed on the basis of the
entire number of authorized shares.
Section 14. Contents of the articles of incorporation. – All corporations
organized under this code shall file with the Securities and Exchange
Commission articles of incorporation in any of the official languages duly
signed and acknowledged by all of the incorporators, containing substantially
the following matters, except as otherwise prescribed by this Code or by
special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the corporation is being
incorporated. Where a corporation has more than one stated purpose, the
articles of incorporation shall state which is the primary purpose and which
is/are the secondary purpose or purposes: Provided, That a non-stock
corporation may not include a purpose which would change or contradict its
nature as such;
3. The place where the principal office of the corporation is to be located,
which must be within the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the incorporators;
6. The number of directors or trustees, which shall not be less than five (5) nor
more than fifteen (15);
7. The names, nationalities and residences of persons who shall act as
directors or trustees until the first regular directors or trustees are duly
elected and qualified in accordance with this Code;
8. If it be a stock corporation, the amount of its authorized capital stock in
lawful money of the Philippines, the number of shares into which it is divided,
and in case the share are par value shares, the par value of each, the names,
nationalities and residences of the original subscribers, and the amount
subscribed and paid by each on his subscription, and if some or all of the
shares are without par value, such fact must be stated;
9. If it be a non-stock corporation, the amount of its capital, the names,
nationalities and residences of the contributors and the amount contributed
by each; and
10. Such other matters as are not inconsistent with law and which the
incorporators may deem necessary and convenient.
The Securities and Exchange Commission shall not accept the articles of
incorporation of any stock corporation unless accompanied by a sworn
statement of the Treasurer elected by the subscribers showing that at least
twenty-five (25%) percent of the authorized capital stock of the corporation
has been subscribed, and at least twenty-five (25%) of the total subscription
has been fully paid to him in actual cash and/or in property the fair valuation
of which is equal to at least twenty-five (25%) percent of the said subscription,
such paid-up capital being not less than five thousand (P5,000.00) pesos.
Articles of Incorporation:
- Defines the charter of the corporation and the contractual
relationships between the state and the corporation, the stockholders
and the state and between the corporation and the stockholders.
- The SEC ruled that two or more corporations may enter into a joint
venture through a contract if the nature of the venture is in line with
business authorized by their charters. The contract need not be
registered provided that the joint venture will not result in the
formation of a new partnership or corporation.
- Matters Not Subject to Amendment:
1. Names of the Incorporators and the first set of
directors/trustees. (Accomplished Facts)
2. Names of the original subscribers, the treasurer of the
corporation elected by the subscribers and the witnesses cannot be
amended except to correct mistakes. (Note: read limitation on power of
corporations to amend p.169)
Purpose:
- The corporation’s purposes must be specified in the AOI with
sufficient clarity to define with certainty the scope of its business.
- The purpose must be capable of being combined. The secondary
purposes need not be allied to each other or to the primary purpose
provided they are not contrary to law.
- Reason for the Statement of Purpose:
1. A person who intends to invest his money in the business
corporation will know where and in what kind of business or activity
his money will be invested;
2. The Directors and the officers of the corporation will know
within what scope of business they are authorized to act;
3. A third person who has dealings with the corporation may
know by perusal of the AOI whether the transaction or dealing he has
with the corporation is within the authority of the corporation or not.
- Effect where Primary or Secondary Purposes Unauthorized:
If the primary purpose of the corporation as stated in the
articles of incorporation is an unauthorized one, the corporation has
no legal existence even though other secondary lawful purposes are
included. However, if the secondary purpose is unauthorized it will
only be treated as surplusage and the corporation regarded as entitled
to exercise the lawful powers only.
Principal Office of Corporation Located:
- The place to be designated as principal office is the city or
municipality where the principal office is to be located.
- The place of the principal office does not necessarily mean the place
where the business of the corporation is transacted but the place
where its book and records are ordinarily kept and its officers usually
meet for the purpose of managing the affairs and transacting the
business of corporation.
Section 16. Amendment of Articles of Incorporation. – Unless otherwise
prescribed by this Code or by special law, and for legitimate purposes, any
provision or matter stated in the articles of incorporation may be amended by a
majority vote of the board of directors or trustees and the vote or written assent
of the stockholders representing at least two-thirds (2/3) of the outstanding
capital stock, without prejudice to the appraisal right of dissenting stockholders
in accordance with the provisions of this Code, or the vote or written assent of at
least two-thirds (2/3) of the members if it be a non-stock corporation.
The original and amended articles together shall contain all provisions required
by law to be set out in the articles of incorporation. Such articles, as amended
shall be indicated by underscoring the change or changes made, and a copy
thereof duly certified under oath by the corporate secretary and a majority of
the directors or trustees stating the fact that said amendment or amendments
have been duly approved by the required vote of the stockholders or members,
shall be submitted to the Securities and Exchange Commission.
The amendments shall take effect upon their approval by the Securities and
Exchange Commission or from the date of filing with the said Commission if not
acted upon within six (6) months from the date of filing for a cause not
attributable to the corporation.
Meaning of Corporate Chapters:
- Is an instrument or authority for the sovereign power bestowing the
right or privilege to be and act as a corporation.
- Distinguish from Franchise: Corporate franchise or primary franchise
is the right and privilege of being a corporation while corporate
charter applies to the instrument bestowing to the corporation such
right and privilege.
- Nature of Corporate Charter: It is described as a contract of three-fold
nature, that is, a contract between the state and the corporation, a
contract between the corporation and its stockholders (members) and
a contract between stockholder inter se.
- Components:
A. As to corporation formed under the general incorporation
law:
1. B.P. Blg. 68
2. AOI
3. By-laws
4. All applicable provisions of the Constitution and the general
laws of the State.
B. As to corporations created by special law:
1. The special law creating it
2. Executive Orders of the President
3. Rules and regulations applicable to such corporation
4. All laws applicable thereto, including the corporation Code
the provisions of which apply suppletorily.
Section 17. Grounds when articles of incorporation or amendment may be
rejected or disapproved. – The Securities and Exchange Commission may
reject the articles of incorporation or disapprove any amendment thereto if the
same is not in compliance with the requirements of this Code: Provided, That the
Commission shall give the incorporators a reasonable time within which to
correct or modify the objectionable portions of the articles or amendment. The
following are grounds for such rejection or disapproval:
1. That the articles of incorporation or any amendment thereto is not
substantially in accordance with the form prescribed herein;
2. That the purpose or purposes of the corporation are patently
unconstitutional, illegal, immoral, or contrary to government rules and
regulations;
3. That the Treasurer’s Affidavit concerning the amount of capital stock
subscribed and/or paid is false;
4. That the percentage of ownership of the capital stock to be owned by citizens
of the Philippines has not been complied with as required by existing laws or the
Constitution.
No articles of incorporation or amendment to articles of incorporation of banks,
banking and quasi-banking institutions, building and loan associations, trust
companies and other financial intermediaries, insurance companies, public
utilities, educational institutions, and other corporations governed by special
laws shall be accepted or approved by the Commission unless accompanied by a
favorable recommendation of the appropriate government agency to the effect
that such articles or amendment is in accordance with law.
Suspension or Revocation of Certificate of Registration of Corporations
(Under PD No. 902-A)
1. Fraud in procuring its Certificate of Incorporation
2. Serious misrepresentation as to what the corporation can do or is doing
3. Refusal to comply with or defiance of a lawful order of SEC
4. Continuous inoperation for a period of at least 5 years
5. Failure to file by-laws within the required period
6. Failure to file required reports in appropriate forms as determined by SEC
A SEC order of revocation is immediately effective. However, the
corporation may still sell its assets pursuant to Sec 122 but it may only
purchase property if such purchase will be consistent with liquidation. It can
still also sue for purposes of recovering its property.
The lifting restores the corporation to its original status as if there was
no revocation order issued against it, with the capacity to exercise all the
powers of a corporation.
Section 18. Corporate name. – No corporate name may be allowed by the
Securities and Exchange Commission if the proposed name is identical or
deceptively or confusingly similar to that of any existing corporation or to any
other name already protected by law or is patently deceptive, confusing or
contrary to existing laws. When a change in the corporate name is approved, the
Commission shall issue an amended certificate of incorporation under the
amended name.
The incorporators may choose any name they may see fit,
provided it is one not identical with or prejudicially similar to a name which
was previously adopted and which is being used by another existing
corporation or unincorporated association or a natural person as trade name.
The right to exclusive use of a corporate name with freedom
from the infringement is determined by priority of adoption. In determining
the existence of confusing similarity in corporate names, the test is whether
the similarity is such as to mislead a person using ordinary care and
discrimination and the court must look to the record as well as the names
themselves.
It is settled, however, the proof of actual confusion need not be
shown. It suffice that the confusion is probably or likely to occur.
The general rule is that a corporation cannot acquire the right
to use such generic names, words or terms as to have their use by others
enjoined unless such words have acquired a secondary meaning or have
become distinctive so as to distinguish not only the product of a particular
service and its quality but also the name of the producer of the service.
The name of a corporation cannot be appropriated or used by
any other person for 3 years from approval of the dissolution or 6 years from
the date of revocation unless allowed by majority stockholders or members
upon such dissolution or revocation, to avoid confusion, not to mention
infringement of goodwill, where said name has continued to be associated
with the corporation. In case of merger or consolidation, the corporate name
of the dissolved corporation cannot be used by others without the consent of
the surviving corporation. But if the abandonment of the corporate name is
due to expiration of its corporate term then it can be used by another
corporation.
Section 19. Commencement of corporate existence. – A private corporation
formed or organized under this Code commences to have corporate existence
: and juridical personality and is deemed incorporated from the date the
Securities and Exchange Commission issues a certificate of incorporation under
its official seal; and thereupon the incorporators, stockholders/members and
their successors shall constitute a body politic and corporate under the name
stated in the articles of incorporation for the period of time mentioned therein,
unless said period is extended or the corporation is sooner dissolved in
accordance with law.
Its certificate of incorporation does not only gives juridical personality
to a corporation but places it under the jurisdiction of SEC.
Section 20. De facto corporations. – The due incorporation of any corporation
claiming in good faith to be a corporation under this Code, and its right to
exercise corporate powers, shall not be inquired into collaterally in any private
suit to which such corporation may be a party. Such inquiry may be made by the
Solicitor General in a quo warranto proceeding.
De Jure Corporation:
- Is one created in strict or substantial conformity with the mandatory
statutory requirements for the incorporation and the right of which to
exist as a corporation cannot be successfully attacked or questioned by
any party even in a direct proceeding for that purpose by the state.
De Facto Corporation:
- On which actually exist for all practical purpose as a corporation but
which has no legal right to corporate existence as against the state but
has complied sufficiently to be accorded corporate status as against
third parties although not against the state.
- Requisite:
1. A valid law under which a corporation with powers assumed
might be incorporated.
2. A bona fide (colourable compliance) attempt to organize a
corporation under such law
3. Actual user or exercise in good faith of corporate powers
conferred upon it by law.
- Defects precluding creation of Corporation (de facto or de jure):
1. Absence of AOI
2. Failure to file AOI in the SEC
3. Lack of AOI from the SEC
(See p. 191: Defects resulting to the creation of de facto corporation)
- The basis of the recognition of de facto corporation is the necessity in
promoting the security of business transactions and to eliminate
quibbling over irregularities.
- The well settled rule is that the existence of de facto corporation
cannot be collaterally attacked either by the state or by private
individual. A quo warranto proceeding must be initiated by the State.
- Individual rights are not invaded; it is the State’s right and authority
which are invaded and usurped.
- If failure to comply with conditions precedent prevents the coming
into existence of any corporation either de jure or de facto, the
question may be raised either collaterally or directly, even by private
individual, unless there is something to operate as an estoppel.
- Powers and Liabilities of a De Facto Corporation:
- Such a corporation is practically as good as a de jure
corporation. It is deemed to have a substantial legal existence and
ordinarily, in its relation with all persons except the state, has the
same powers and is subject to liabilities, duties, and responsibilities,
as a corporation de jure, and is bound by all, such acts it might
rightfully perform of it where a de jure corporation. It is also protected
under same law and governed by same legal principles, as long as the
State acquiesces.
- The members of a de facto corporation cannot be held as a partner by
a third persons who deal with them in their supposed corporate
capacity, merely on the account of technical defect in the formation of
the corporation. This is especially true if the stockholders had no
knowledge of the defect and had no intention to become a partners
and the ostensible corporation is apparent to the third person.
- On the other hand, where an attempt to organize a corporation fails
by omission of some substantial step or proceeding required by law,
its members or stockholders are liable as partners.
Section 21. Corporation by estoppel. – All persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as
general partners for all debts, liabilities and damages incurred or arising as a
result thereof: Provided, however, That when any such ostensible corporation is
sued on any transaction entered by it as a corporation or on any tort committed
by it as such, it shall not be allowed to use as a defense its lack of corporate
personality.
On who assumes an obligation to an ostensible corporation as such, cannot
resist performance thereof on the ground that there was in fact no corporation.
- An unincorporated association which represents itself to be a
corporation will be estopped from denying its corporate capacity in a
suit against it by a third person who relied in good faith on such
representation. It is not a corporation per se but incidents of a
corporate existence may exist between the parties by virtue of
estoppel.
- Founded on equity to prevent injustices and unfairness.
- A third party dealing with such corporation knowing the status of such
entity is also estopped in denying its corporate existence.
Section 22. Effects on non-use of corporate charter and continuous
inoperation of a corporation. – If a corporation does not formally organize
and commence the transaction of its business or the construction of its works
within two (2) years from the date of its incorporation, its corporate powers
cease and the corporation shall be deemed dissolved. However, if a corporation
has commenced the transaction of its business but subsequently becomes
continuously inoperative for a period of at least five (5) years, the same shall be
a ground for the suspension or revocation of its corporate franchise or
certificate of incorporation. (19a)
This provision shall not apply if the failure to organize, commence the
transaction of its businesses or the construction of its works, or to continuously
operate is due to causes beyond the control of the corporation as may be
determined by the Securities and Exchange Commission.

- The rule is that as to provisions of the statute which are mandatory,

non-compliance with its terms will prevent the creation of a de jure
corporation but those provisions which are merely directory, a
departure will not have this consequence. Strict compliance of the
terms of the statute is not required.
- Mandatory provisions prescribes formalities for incorporation which
are designed to protect the public. It can either be a Condition
Precedent or Condition Subsequent.
- Condition Precedent are those conditions non-compliance with which
will prevent the legal existence of a corporation. Examples:
1. Filing of AOI in the SEC
2. Issuance of the COI by the SEC
3. Minimum number of incorporators
4. Non-compliance of the requirements that 25% of the
authorized capital must be subscribed and that 25% of the
subscribed stock shall be paid.
- Condition Subsequent are those which will be complied with after
acquiring corporate existence in order that a corporation may legally
continue as such. Non-compliance will not affect its corporate
existence but can be ground for forfeiture of the corporate charter.
(e.g. sec22).