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TITLE 1. GENERAL PROVISIONS DEFINITIONS AND CLASSIFICATIONSec. 1 Title of the Code “Revised Corporation Code of the Philippines”, it took effect on February 23, 2019Sec. 2 Corporation DefinedA corporation is an artificial being created by operation of law, having the right of succession and the powe...

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TITLE 1. GENERAL PROVISIONS DEFINITIONS AND CLASSIFICATION Sec. 1 Title of the Code “Revised Corporation Code of the Philippines”, it took effect on February 23, 2019 Sec. 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 incidental to its existence. It is a juridical entity vested with a legal personality separate and distinct from those acting for and its behalf and, in general, from the people comprising it. It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or members who compose it. Not every stockholder or officer can bind the corporation considering the existence of a corporate entity separate from those who compose it Characteristics of a corporation 1. 2. 3. 4.

It is an artificial-being Created by operation of law It has the right of succession It has the powers, attributes and properties expressly authorize by law or incidental to its existence

Government-owned or controlled corporation ➢ Agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least 51% of its capital stock. ➢ Requisites to be classified as stock corporation a. It has capital stock divided into shares b. It is authorized to distribute dividends and allotments of surplus and profits to its stockholders “Piercing the Veil of Corporation Fiction” or “Instrumentality” or “Alter Ego” Doctrine ➢ It is basic in corporation law that a corporation is juridical entity vested with a legal personality separate and distinct from those acting for and in its behalf, and in general, from the people comprising it. The corporate veil should not and cannot be pierced unless it is clearly established that the separate and distinct personality of the corporation was used to justify a wrong, protect fraud, or perpetrate a deception ➢ Factors for the application of the doctrine of piercing the corporate veil a. Stock ownership by one or common ownership of both corporation b. Identity of directors and officers c. The manner of keeping corporate books and records d. Methods of conducting the business ➢ Elements of piercing the veil of a corporate fiction a. Control – not a mere stock control, but complete domination – not only of finances, but of policy and business practice in respect to the transaction attacked, must have been such that the corporate entity as to this transaction had at the time no separate min, will or existence of its own b. Such control must have been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiff’s egal right c. The said control and breach of duty must have proximately caused the injury or unjust loss complained of Succession ➢ The continuation of a corporation’s legal status despite changes in ownership or management Powers of a corporation ➢ It has no power except those expressly conferred on it by the Corporation Code (or special laws) and those that are implied or incidental to its existence Right of a corporation to own property ➢ Property acquired by a corporation is the property of a corporation and not the property of stockholders or members Sec. 3. Classes of a corporation

1. Stock Corporation – corporations which have capital stock dividend into shares and are authorized to distribute to the holders of such share dividends or allotments of the surplus profits on the basis of the shares held

2. Non-stock corporations – one where no part of its income is distributable as dividends to its members, trustees, or officers. Provided, that any profit which a non-stock corporation may obtain as an incidental to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose for which the corporation was organized 3. Other classes a. As to purpose i. Public corporation – a corporation organized for the government of a portion of the Stat for the general good and welfare ii. Private Corporation – a corporation formed for some private purpose, benefit, or end iii. Government-owned or controlled corporation – corporation owned by the Government directly or through its instrumentalities wither wholly, or, where applicable as in the case of stock corporations, to the extent of at least 51% of its capital stock iv. Quasi-public corporation – a private corporation which has accepted from the State the grant of franchise or contract involving the performance of public duties, but which is organized for profit b. As to legal right to corporation existence i. De jure corporation – a corporation created in strict or substantial conformity with the mandatory statutory requirements for 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 ii. De facto corporation – 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 iii. 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 iv. Corporation by prescription – one which has exercised corporate powers for an indefinite period without interference on the part of the government c. As to laws of incorporation i. Domestic corporation – a corporation incorporated under the laws of the Philippines ii. Foreign corporation – a corporation formed, organized, or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or State d. As to whether they are open to the public or not i. Open corporation – a corporation which is open to any person who may wish to become a stockholder or member thereto ii. Close corporation – one whose articles of incorporation provide that: (1) all the corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a a specified number of persons, not exceeding 20; (2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer; and (3) the corporation shall not list in any stock exchange or make any public offering of any of its stock of any class e. As to relationship of management and control i. Parent or holding corporation – a corporation that hold stocks in another corporation for the purpose of control ii. Subsidiary corporation – a corporation more than 50% of the voting stock of which is controlled directly or indirectly by another corporation, which thereby becomes its parent corporation f. As to the number of persons who compose them i. Corporation aggregate – a corporation consisting of more than one member ii. Corporation sole – a corporation consisting of only one member for the purpose of administering and managing, as trustee, the affairs, property and temporalities of any religious denomination, sect, or church g. As to whether they are for religious purposes or not i. Ecclesiastical corporation – a corporation organized for religious purposes ii. Lay corporation – a corporation organized for purpose other than for religion h. As to whether they are for charitable purpose or not i. Eleemosynary corporation – a corporation organized for charitable purposes ii. Civil corporation – a corporation organized for business or profit Sec. 4. Corporations created by Special Laws or Charters General law vs. Special law A corporation is created by operation of law and it acquires a judicial personality either by special law or a general law. a. General law – under which a private corporation may be formed or organized is the Corporation Code, the requirement of which must be complied. b. Special law – example is government corporation, referred to as a charter. Sec. 5. Corporators and Incorporators

Components of a corporation

1. Corporators – those who compose a corporation, whether as stockholders or as members 2. Incorporators – the stockholders or members mentioned in the articles of incorporation as originally forming and composing the corporation and who are signatories thereof. 3. Stockholders – owners of shares of stock in a stock corporation 4. Members – corporators of a non-stock corporation 5. Board of Directors or Board of Trustees – the board of directors is the governing body in a stock corporation, while the Board of Trustees is the governing body in a non-stock corporation 6. Corporate officers – 7. Subscribers – persons who have agreed to take and pay for original, unissued shares of a corporation formed or to be formed 8. Underwriter – a person who guarantees on a firm commitment and/or declared best effort basis the distribution and sale of securities of any kind by another company 9. Promoter – a person who brings about or cause to bring about the formation and organization of a corporation by: a. Bringing together the incorporators or the persons interested in the enterprise b. Procuring subscriptions or capital for the corporation c. Setting in motion the machinery which leads to the incorporation of the corporation itself Sec. 6. Classification of Shares Doctrine of equality of shares – each share shall be equal in all respects to every other share except as otherwise provided in the articles of incorporation and stated in the certificated of stock Who may classify shares? 1. Incorporators – by stating it in their articles of incorporation 2. Board of directors and stockholders – they can amend the articles of incorporation by a majority vote of the board of directors or written assent of stockholder representing at least 2/3 of the outstanding capital stock Voting shares -

shares with a right to vote

The right to vote in Stock Corporation -

it is inherent in and incidental to the ownership of corporate stocks. It is settled that unissued stocks may not be voted or considered in determining whether a quorum is present in a stockholders’ meeting only stock actually issued and outstanding may be voted

The right to vote in a Non-stock Corporation -

the voting rights attach to membership. Members vote as persons, in accordance with the law and the by-laws of the corporation

Non-voting shares -

shares without a right to vote; the law provides that share classified and issued as preferred or redeemable shares may be deprived of voting right - Instances when holders of non-voting shares are allowed to vote: a. Amendment of the articles of incorporation b. Adoption and amendment of by-laws c. Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the corporate property d. Incurring, creating, or increasing bonded indebtedness e. Increase or decrease of authorized capital stock f. Merger or consolidation of the corporation with another corporation or other corporation g. Investment of corporate funds in another corporation or business in accordance with this Code h. Dissolution of the corporation Common stock – a class of stock entitling the holder to vote on corporate matters, to receive dividends after other claims and dividends have been paid, and to share in assets upon liquidation; often called as a capital stock if it is the corporation’s only class of stocks outstanding; also termed ordinary shares. Preferred stock – one which entitles the holder thereof to certain preferences over the holders of common stock; designed to induce persons to subscribe for shares of a corporation; most common forms are: 1. Preferred shares as to assets – gives the holder thereof preference in the distribution of the assets of the corporation in case of liquidation

2. Preferred shares as to dividends – the holder of which is entitled to receive dividends on said share to the extent agreed upon before any dividends at all are paid to the holders of common stock

Redeemable shares – may be issued by the corporation when expressly so provided in the articles of incorporation; 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. Par value shares – shares with a value fixed in the articles of incorporation and the certificate of stock No par value shares – shares with no par value o

Limitations on no par value shares a. It cannot have an issued rice of less than P5.00 b. It is deemed fully paid and non-assemble c. The entire consideration for its issuance constitutes capital so that no part of it should be distributed as dividend d. It cannot be issued as preferred shares e. It cannot be issued by banks, trust, insurance\ , and preneed companies, public utilities, building and loan associations, and other corporations authorized to obtain or access funds from the public whether publicly listed or not f. The articles of incorporation must state the fact that it is issued no par value shares as well as the number of said shares

Promotional share – a share issued to promoters or those in some way interested in the company, for incorporating the company, or for services rendered in launching or promoting the welfare of the company Share in escrow – a share subject to an agreement by virtue of which the share is deposited by the grantor or his agent with a third person to be kept by the depository until the performance of certain condition or the happening of a certain event contained in the agreement Fraction share – a share that is less than one full share Over-issued stock – a stock issued in excess of the authorized capital stock, however, such issuance is null and void Convertible share – a share that is convertible by the stockholder from one class to another class at a certain price with a certain period Sec. 7. Founders’ shares Founders’ share -

shares classified as such in the articles of incorporation which may be given certain rights and privileges not enjoyed by the owners of other stocks limitation on founders’ share o the exclusive right to vote and be voted for in the election of directors, if granted, it must be for a limited period not to exceed 5 year from the date of incorporation

Sec. 8. Redeemable shares Redeemable shares ➢ shares usually preferred, which by their terms are redeemable at a fixed date, or at the option of either issuing corporation, or the stockholder, or both at a certain redemption price ; once redeemed is retires unless reissuance is expressly allowed in the articles of incorporation ➢ The present Code allows redemption of shares even if there are no unrestricted retained earnings on the books of the corporation ➢ May not be made where the corporation is insolvent or if such redemption will cause insolvency or inability of the corporation to meet its debts as they mature ➢ Limitations on redeemable shares a. It must be expressly provided in the articles of incorporation b. The terms and conditions affecting said shares must be stated both in the articles of incorporation and in the certificate of stock c. It may be deprived of voting rights in the articles of incorporation d. Redemption cannot be made if it will cause insolvency of the corporation ➢ Kinds of redeemable shares a. Compulsory – corporation is required to redeem the shares b. Optional – corporation is not required to redeem the shares Retained earnings -

a corporation’s accumulated income after dividends have been distributed; also termed as earned surplus or undistributed profit

Trust fund doctrine

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provides that subscriptions to the capital stock of a corporation constitute a fund to which the creditors have a right to look for the satisfaction of their claims the underlying principle I the procedure for the distribution of capital assets, embodied in the Corporation Code, which allows the distribution of corporate capital only in three instances: 1. amendment of the Articles of Incorporation to reduce the authorized capital stock 2. purchase of redeemable shares by the corporation, regardless of the existence of unrestricted retained earnings 3. dissolution and eventual liquidation of the corporation

Sec. 9. Treasury Shares Treasury Shares – 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 Rights that are denied to the treasury shares 1. Voting rights 2. Right to dividends Watered Stocks – stocks issued for a consideration less than the par or issued price thereof or in any other form other than cash valued in excess of its fair value

TITLE II. INCORPORATION AND ORGANIZATION OF PRIVATE COMPANIES Sec. 10. Number and Qualifications of Incorporators -

Any person, partnership, association, or corporation, singly or jointly with others but not more than 15 in number, may organize a corporation for any lawful purpose/s; who must be of legal age

One person corporation – a corporation with a single stockholder; only a natural person, trust, or an estate may form Incorporator Those stockholders or members mentioned in the articles of incorporation as originally forming and composing the corporation and who are signatories thereof. A signatory of the articles of incorporation Does not cease to be an incorporator upon sale of his shares

Not more than 15 persons

Corporator Those who compose a corporation, whether as stockholders or as members May or may not be a signatory of the articles of incorporation Ceases to be a corporator by sale of his shares in case of a stock corporation. Incase of a non-stock corporation, when the corporator ceases to be a member There is no restriction as to number except for a close corporation

Steps in the creation of a corporation 1. Promotion – includes activities done by promoter for the founding and organizing of the business or enterprise of the issuer 2. Incorporation a. Execution of the articles of incorporation by the incorporators and other documents required for registration of the corporation b. Filing of the articles of incorporation with the SEC together with the treasurer’s affidavit 3. Formal Organization and commencement of business transactions Section 11. Corporate Term General Rule: A corporation shall have perpetual existence Exception: if the articles of incorporation provides otherwise or if it provides for a specific period EXTENDING OR SHORTENING THE SPECIFIC PERIOD No extension must be made earlier than three years prior to the original or subsequent expiry dates unless there are justifiable reasons for an earlier extension as may be determined by the Commission Extension of the corporate term shall take effect only on the day following the original or subsequent expiry dates

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Revival of corporate existence General rule: Upon approval by the Commission, the corporation shall be deemed revived and a certificate of revival of corporate existence shall be issued, giving it perpetual existence Exception: If its application for revival provides otherwise or provides for a specific period Corporations may be required the favorable recommendation of the appropriate government agency before the SEC will approve the application for revival of certificate of incorporation 1. 2. 3. 4. 5. 6. 7. 8.

Banks Banking and quasi-banking institutions Preneed Insurance and trust companies Nonstock savings and loan associations Pawnshops Corporation engaged in money service business Other financial intermediaries<...