BINANGKAL FINAL EXAM NOTES (Corporation)
CORPORATION
It 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
FUNDAMENTALS AND CONCEPTS
 “Operation of law”
o There has to be a law authorizing its
creation and that law has to be put into
action for the operation to set in.
 “Right of succession”
o The death of any stockholder or director
does not dissolve the corporation
 Kinds of corporation:
o Stock corporations - One which has a
capital stock divided into shares and is
authorized to distribute to the holders of
such shares dividends or allotments of the
surplus profits (Sec. 3).
o Non-stock corporation - All other
corporations are non-stock corporations
(Sec 3)
o Corporation de jure - Organized in
accordance with the requirements of law.
o De facto corporation - A corporation with
some flaw in its incorporation.
o Corporation by estoppel - It is a status
acquired by persons who assume to act as a
corporation knowing it to be without
authority. Such persons shall be liable as
general partners for all debts, liabilities and
damages incurred or arising as a result
thereof (Sec 21)
o Public corporation - One formed or
organized for the government or a
particular state. Its purpose is for the
general good and welfare.
o Private corporation - One formed for some
private purpose, benefit, aim or end.
Corporation created under corporation
code.
o Close corporation - one whose AOI restricts
the numbers of corporator, the transfer of
shares and the listing in stock exchange
(Sec. 96).
o Educational corporation (Sec. 106) - Those
corporations which are organized for
educational purposes.
o Religious sole - A corporation sole is one
formed for the purpose of administering
and managing, as trustee, the affairs,
property and temporalities of any religious
denomination, sect, or church, by the chief
archbishop, bishop, priest, rabbi, or other
presiding elder of such religious
denomination, sect or church. (Sec 110).
o Corporation aggregate is a religious
corporation incorporated by more than one
person.
o Eleemosynary corporation - One organized
for a charitable purpose.
o Domestic corporation - A domestic
corporation is one formed, organized, or
existing under the laws of the Philippines.
o Foreign corporation - One formed,
organized or existing under any laws other
than those of the Philippines and whose law
allows Filipino citizens and corporations to
do business in its own country and state.
(Sec 123)
o Corporation created by special laws or
charter
 Doctrine of Separate Juridical Personality
o A corporation has a personality separate
and distinct from that of its stockholders
and members.
o The corporation is not affected by the
personal rights, obligations and transactions
of the latter.
 Doctrine of Piercing the Veil of Corporate Identity
o It is a rule that allows the state to disregard
for certain justifiable reasons the fiction of
juridical personality for the corporation,
separate and distinct from the persons
composing it.
o 3 classes of piercing:
 Fraud cases: when a corporation is
used as a cloak to cover fraud
 Alter ego cases: when the
corporate entity is merely a farce
since the corporation is an alter
ego, business conduit or
instrumentality of a person or
another corporation
 Equity cases: when piercing the
corporation fiction is necessary to
achieve justice or equity.
 Nationality of the corporation
o Incorporation Test: the corporation is a
national of the country under whose laws it
is organized or incorporated.
 Grandfather Rule
o It is used to determine the nationality of a
corporation by which the percentage of
Filipino equity in corporations engaged in
nationalized and/or partly nationalized
areas of activities, provided for under the
constitution and other nationalization laws,
is computed, in cases where corporate
shareholders are present in the situation, by
attributing the nationality of the second or
even subsequent tier of ownership to
determine the nationality of the corporate
stockholder.
 Stock vs Non-stock corporation
As to: Stock Corporation Non-Stock
Corporation
purpose For profit For religious,
charitable, education,
scientific, etc.
1
 BINANGKAL FINAL EXAM NOTES (Corporation)

Distribution Distributed to Profit used for  Qualifications of INCORPORATORS

of profit shareholders furtherance of the o Must be natural persons
purpose o Not less than 5 but not more than 15
Composed of: stockholders members o All of legal age
Right to vote According to the One member is equal o Majority of whom are residents of
number of shares to one vote Philippines
held  Doctrine of Substantial Compliance
Voting right It may be denied It cannot be denied o It means that once there is substantial
Who has BOD Board of Trustees compliance with the requirements of the
control? Corporation Code, then it becomes
Term 1 year 3 years ministerial on the part of SEC to approve
How are By the Board Officers are elected by the registration of the proposed
officers members corporation- because as to the proposed
appointed? corporation, it becomes now a matter of
Are rights yes no right.
transferrable?  Contents of Articles of Incorporation
o Name of the corporation
 Must not be identical, deceptive or
confusingly similar with other
INCORPORATION AND ORGANIZATION corporation.
 Corporators o Purpose/s
o Those who compose the corporation,  Must not be patently
whether as stockholders or members unconstitutional, illegal, immoral
 Incorporators or contrary to law
o Stockholders or members mentioned in the o Principal office
AOI as originally forming and composing the  Must be within the Philippines.
corporation and who are signatories o Term of existence
thereof.  Not to exceed 50 years
 Stockholders  But may be extended for period
o Are corporators in a stock corporation not exceeding 50 years by AOI
 Members amendment
o Are corporators in a non-stock corporation  The extension must only be made
 Capital Stock w/in 5 years prior to the end of its
o Authorized stock life or expiry.
o Total number of shares of stock that a o Incorporators
corporation may issue under its charter or o Directors or trustees
AOI including common stock and preferred  Not be less than 5 but not more
stock than 15
 Capital o Acting directors or trustees
o The aggregate of the sum subscribed and o Stock requirements
paid in including profits, less losses.  For stock corporations:
 Subscribed Capital Stock i. Amount of ACS
o The part of the capital stock subscribed by ii. The # of shares into which
the subscribers whether paid or unpaid it was divided
 Paid-Up Capital Stock iii. The par value of each (for
o That part of the subscribed capital stock par value shares
which has been paid to the corporation iv. Original subscribers with
 Outstanding Capital Stock their names, nationalities
o Section 137 and residences
o The total shares of stock issued to v. The subscribed and paid
subscribers or stockholders wheter or not up amount
fully or partially paid, as long as there is a  For non-stock corporations
binding subscription agreement, except i. The amount of capital
treasury shares ii. Contributors with their
 25-25 Rule names, nationalities and
o There is no required minimum authorized residences
capital stock iii. Amount contributed by
o But at least 25% of the authorized capital each
stock must be subscribed at the time of o Other matters
incorporation= subscribed capital stock (By-Laws, with the AOI is also a requirement)
o And 25% of the total subscription must be
paid= paid up capital
o But paid up capital must not be less than CAPITAL AFFAIRS
₱5,000.00.  Preferred Shares of Stock
2
 BINANGKAL FINAL EXAM NOTES (Corporation)
o Are issued by the corporation which are
given preference in the distribution of
assets during liquidation, or in the
distribution of dividends or such other
preferences as stated in AOI.
o It must have a stated par value
 Shares of capital stock issued w/o par value
o It shall be deemed fully paid and non-
assessable.
 Doctrine of Equality of Shares
o Each share shall be equal in all respects to
every other share – except as otherwise
provided in the AOI and stated in the stock
certificate.
 Voting power of non-voting shares
o The holders of such shares may still be
entitled to vote on the following matters:
 AOI amendment
 ByLaws adoption and amendment
 Sale, Lease, exchange, mortgage,
pledge or other disposition of all or
substantially all of the corporate
assets
 Incurring, creating or increasing
bonded indebtedness
 Increase or decrease of capital
stock
 Merger or consolidation
 Investment of corporate funds in
other business or corporation
 Dissolution of the corporation
 Shares that may be deprived of voting rights
o Preferred shares
o Redeemable shares
o Treasury shares
o Common shares when declared delinquent
o After the exercise of appraisal right
CORPORATE POWERS
 General Powers
1. To sue and be sued in its corporate name;
2. Succession;
3. To adopt and use a corporate seal;
4. To amend its AOI;
5. To adopt by-laws;
6. to issue or sell stocks and admit members;
7. To acquire and encumber properties;
8. To enter into merger or consolidation;
9. To make reasonable donations except in political
parties;
10. To establish pensions and benefits for the
employees and officers; and
11. Essential and necessary powers to promote its
purpose.
 Specific Powers
1. To Extend or Shorten Corporate Term
Procedure
1. Majority vote of BOD/T;
2. Notice of the proposed action to the
stockholders/members;
3. Affirmative vote of at least 2/3 of the
outstanding capital stock/members(Sec.
37);
4. Amended and original AOI copy,
certified under oath by the corporate
secretary and majority of BOD/T shall be
filed to SEC (Sec. 16); and
5. Shall take effect upon approval of SEC or
upon 6 months of inaction (ibid).
In case of extension of corporate term,
any dissenting stockholder may exercise
his appraisal right. Appraisal right is also
available in case of shortening the
corporate term under Section 81.
2. To Increase or Decrease Capital Stock
Procedure
1. Majority vote of BOD;
2. Written notice to the stockholder;
3. Affirmative vote of (2/3) of the
outstanding capital stock favoring the
increase of decrease of capital stock;
4. Certificate in duplicate must be signed
by majority BOD and countersigned by the
chairman and secretary of the
stockholders meeting;
5. Filing of the certificate with the original
AOI to the SEC and Treasurer‟s affidavit
indicating that at least 25% of the
increased capital stock has been
subscribed and at least 25% of such
subscribed stock has been actually paid;
6. Keeping of copy in the office of the
corporation;
7. Approval of the SEC (Sec. 38).
Any increase or decrease in the capital
stock bonded indebtedness shall require
prior approval of the Securities and
Exchange Commission. From and after
approval SEC and the issuance of
certificate, the capital stock shall stand
increased or decreased. Decrease of
capital stock shall not be approved if it will
prejudice the creditors of the corporation
(ibid).
3. To Incur, Create or Increase Bonded Indebtedness
Procedure
1. Follow step 1,2,3,4, 5 (certificate only)
and 6 of procedure to increase/decrease
capital stock;
2. Bonds issued by a corporation shall be
registered with the SEC, which shall have
the authority to determine the sufficiency
of the terms thereof.
Non-stock corporations may incur or
create bonded indebtedness, or increase
the same, with the approval by a majority
vote of the board of trustees and of at
least two-thirds (2/3) of the members in a
meeting duly called for the purpose. Any
incurring, creating or increasing of any
bonded indebtedness shall require prior
approval of the Securities and Exchange
Commission (supra).
4. To deny pre-emptive rights
Pre-emptive right is the right to subscribe
to all issues or disposition of shares of any
class, in proportion to their respective
shareholdings, including subsequently
issued shares, treasury shares or unissued
stocks before it can be disposed of in favor
of the others. The purpose of which is to
enable the shareholder to retain his
proportionate control in the corporation
and retain equity to the surplus profit.
3
 BINANGKAL FINAL EXAM NOTES (Corporation)
This right may be denied by the AOI or by
its amendment shall not extend to shares
to be issued in compliance with laws
requiring stock offerings or minimum
stock ownership by the public; or to
shares to be issued in good faith,with the
approval of the stockholders representing
two-thirds (2/3) of the outstanding capital
stock, in exchange for property needed for
corporate purpose (Sec. 39).
5. To sell or dispose of corporate assets
Sale by the corporation is considered a
sale of all or substantially all of the
corporate assets if thereby the
corporation would be rendered incapable
of continuing the business or
accomplishing its purpose (Sec. 40); such
sale may be made by a majority vote of
the BOD, sending notice to the
stockholder and obtaining 2/3 affirmative
votes of the stockholders/members (ibid).
Take note that stockholder‟s vote is not
necessary when the disposition is
necessary in the usual and regular
business of the corporation or the
proceeds of such sales was appropriated
for its regular business (ibid)
In non-stock corporations where there are
no members with voting rights, the vote of
at least a majority of the trustees in office
is sufficient for the corporation to proceed
in the disposition (ibid).
Dissenting stockholder may exercise his
appraisal right in relation to section 81.
The BOD has authority to abandon the
said disposition after the approval of the
stockholders (ibid).
6. To Acquire Own Shares
A stock corporation shall have the power
to purchase or acquire its own shares for a
legitimate corporate purposes provided it
has unrestricted retained earnings to
cover the shares to be acquired (Sec. 41).
This includes but not limited to the
following:
1. To eliminate fractional shares;
2. To collect or compromise an
indebtedness to the corporation:; and
3. To pay dissenting or withdrawing
stockholders exercising appraisal rights
(ibid).
The subscribed capital stock of the
corporation is a trust fund for the
payment of debts of the corporation
which the creditors have the right to look
up to satisfy their credits. Corporation may
not dissipate this and the creditors may
sue stockholders directly for the unpaid
subscription (Trust Fund doctrine).
7. Invest corporate funds in another corporation or
business
A private corporation may invest its funds
in any other corporation or business or for
any purpose other than the primary
purpose for which it was organized (Sec.
42). When the investment is reasonably
necessary to accomplish the primary
purpose of the corporation, stockholder‟s
voting requirement is not required and
only the majority approval of the BOD is
necessary. Any dissenting stockholder may
exercise his appraisal rights (ibid).
Procedure
1. Approval of majority of BOD/T;
2. Written notice of the proposed
investment to the stockholder; and
3. Affirmative votes of two-thirds (2/3) of
the outstanding capital stock/members.
If an act of investing corporate fund is
done pursuance of the corporate purpose,
it does not need the approval of the
stockholders but when the purchase of
shares of another corporation is done
solely for investment and not to
accomplish the purpose of its
incorporation, the vote of approval of the
stockholders is necessary. When the
purposes are stated in its AOI, the
approval of the stockholders is not
necessary (De la Rama vs Ma-ao 27 SCRA
247)
8. To declare dividends
Dividends are unrestricted retained
earnings set apart from the general mass
of funds of the corporation and
distributed among the stockholders, in
proportion to their shares or interest in
the corporation, in the form of cash,
property or stocks.
The BOD of a stock corporation may
declare dividends out of the unrestricted
retained earnings which shall be payable
in cash, in property, or in stock to all
stockholders on the basis of outstanding
stock held by stockholder (Sec. 43). If the
stockholder is a delinquent stockholder,
his cash dividend shall be applied to the
unpaid balance on the subscription plus
costs and expenses. If it be a stock
dividend, it shall be withheld from them
until his unpaid subscription is fully paid
(ibid). Take note that the approval of
the stockholders is not necessary in the
approval of cash dividend but such
affirmative vote is necessary for declaring
stock dividend (ibid).
Stock corporations are prohibited from
retaining surplus profits in excess of 100
percent of their paid-in capital stock,
except:
1. When justified by definite corporate
expansion programs;; or
2. When the corporation is prohibited
under any loan agreement with any
creditors from declaring dividends without
its consent; or
3. When the retention is necessary under
special circumstances.
9. To enter into management contract
Management contract is one where a
corporation undertakes to manage or
operate all or substantially all of the
business of another corporation, whether
such contracts are called service contracts,
operating agreements or otherwise (Sec.
44). No management contract shall be
entered into longer than five years for any
one term (ibid).
Procedure
1. Meeting duly called for the purpose;
2. Approval of the majority of the BOD
and stockholders/members of both the
managing and the managed corporation;
4
 BINANGKAL FINAL EXAM NOTES (Corporation)

3. If the interest of the stockholder of one

of the corporation is more than 1/3 of the
total outstanding stock, or majority of the
BOD of the managed corporation is also
the members of the majority of the
managing corporation, then 2/3
affirmative votes of the outstanding
stockholders of the managed corporation
is required.

BOD OR TRUSTEES
 Powers
o Corporate powers of all corporations
formed under the Code
o All business conducted
o All property controlled by such corporation
 Qualifications of directors, trustees or officers
o Every director must own at least one share
of capital stock
o Once he ceases to be the owner, he ceases
to be a director
o Trustees must be members of such
corporation
o Majority of trustees or directors must be
residents of the Philippines
o Must be natural persons
o 5-15 persons
o Of legal age
 Disqualification of director, trustees or officers
o Convicted by final judgment of an offense
punishable by imprisonment for a period
exceeding 6 yrs
o Violation of the Code within 5 years prior to
the date of his appointment /election
o Loses share ownership
 Voting power of non-voting shares
o The holders of such shares may still be
entitled to vote on the following matters: