Revised Corporation Code of the Philippines Republic ACT 11232 PDF

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Revised  Corporation  Code  of   the  Philippines   Republic  ACT  11232 Highlights • 17  Titles • 188  sections • Major  provisions  introduced  to  harmonize  with  other  commercial   laws • Major  reforms  introduced • Signed  on  February  20  and  Published  on  February  21,  2019 Definition ...

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Revised Corporation Code of the Philippines Republic ACT 11232 Aeriel Cloie Panlaqui

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Revised  Corporation  Code  of   the  Philippines   Republic  ACT  11232

Highlights • 17  Titles • 188  sections • Major  provisions  introduced  to  harmonize  with  other  commercial   laws • Major  reforms  introduced • Signed  on  February  20  and  Published  on  February  21,  2019

Definition  of  Corporation • Section  2.  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. • By  operation  of  law  – note  section  4  (Corporations  created  by  Special   Laws  or  Charters) • Powers  – refer  to  Title  IV  sections  35  – 44.  Note  section  44  on  ultra   vires  acts

Classes  of  Corporations • Stock  and  Non-­‐Stock  (section  3) • In  relation  to  Non-­‐Stock  Corporation,  refer  to  Title  XI  (sections  86-­‐94) • Refer  as  well  to  section  19  (De  Facto  Corporation),  section  20   (Corporation  by  Estoppel),  and  Title  XII  (Close  Corporation),  Title  XIII   (Special  Corporations  – Educational/Religious/  One  Person   Corporation)

Test  to  determine  whether  a    corporation  is  public  or  private The  true  criterion,  therefore,  to determine whether a corporation is public or private is found in the totality of the relation of the corporation to the State. If the corporation is created by the State as the latter's own agency or instrumentality to help it in carrying out its governmental functions, then that corporation is considered public; otherwise, it is private. Applying the above test, provinces, chartered cities, and barangays can best exemplify public corporations. They are created by the State as its own device and agency for the accomplishment of parts of its own public works.

Corporators,  Incorporators,  Stockholders  and   Members • Note  section  5  -­‐ Definition  and  distinction  between  Corporators,   Incorporators,  Members • Relate  to  Title  III  (Board  of  Directors);  Title  VII  (Stocks  and   stockholders) • Articles  of  Incorporation  – defined  in  section  13

Classification  of  Shares • Covered  by  section  6  -­‐ Classification,  corresponding  rights,  privilges,   restrictions  and  stated  par  value  must  be  stated  in  the  Articles • Each  share  shall  be  equal  in  all  respects  to  every  other  share,  except  as   otherwise  provided  in  the  Articles  and  in  the  Certificate  of  Stock. • NO  share  may  be  deprived  of  voting  rights  except  those  classified  and   issued  as   preferred  or  redeemable  shares. • Provided  that  there  shall  always  be  a   class  or  series  of  shares  with   complete  voting  rights.

Exceptions:  Where  non-­‐voting  shares  may  still   vote  on   • 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;  

Exceptions:  Where  non-­‐voting  shares  may  still   vote  on   • 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.

• Share  or  series  of  shares  may  or  may  not  have    a  par  value • The  following  are  NOT  allowed  to  issue  no  par  value  shares: 1. Banks 2. Trust 3. Insurance 4. Pre  need  companies 5. Public  Utilities 6. Building  and  Loan  Associations 7. Other  corporations  authorized  to  obtain  or  access  funds  from  the  public,   whether  publicly  listed  or  not

Preferred  Shares • Shares  of  stock  issued  by  a  corporation  may  be  given  preference  in: 1. Distribution  of  Dividends 2. Distribution  of  Corporate  Assets  in  case  of  liquidation,  or 3. Such  other  preferences

Rules  on  Preferred  Shares • May  be  issued  only  with  stated  par  value • Board  may  fix  the  terms  and  conditions  in  the  preferred  shares • Such  terms  and  conditions  shall  take  effect  upon  filing  of  a  certificate   thereof  with  SEC

Rules  on  No  Par • It  shall  be  deemed  fully  paid  and  nonassessable and  the  holder  of   such  shares  shall  not  be  liable  to  the  corporation  or  to  its  creditors  in   respect  thereto • No  Par  Value  shares  must  be  issued  for  a  consideration  of  at  least   P5.00  per  share • 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.

Founder’s  Shares  (sec.7) • Different  from  other  shares • Not  necessarily  Incorporators • Granted  certain  rights  and  privileges  not  enjoyed  by  the  owners  of   other  stocks • May  be  granted  exclusive  right  to  vote  and  be  voted  for  as  Director,   provided  that  it  must  be  for  a  period  not  to  exceed  5  years  from  the   date  of  incorporation • Such  exclusive  right  shall  not  be  allowed  if  it  will  violate  the  Anti-­‐ Dummy  Law  and  the  Foreign  Investments  Law,  and  other  pertinent   laws

Redeemable  Shares  (Sec.8) • Shares  which  may  be  purchased  by  the  corporation  from  the  holders   of  such  shares  upon  the  expiration  of  a  fixed  period,  regardless  of  the   existence  of  unrestricted  retained  earnings  in  the  books  of  the   corporations; • Subject  to  other  terms  and  conditions  to  be  stated  in  the  articles  and   the  certificate  of  stock

Treasury  Shares  (sec.  9) • Classes  of  shares  which  have  been  issued  and  fully  paid • But  subsequently  reacquired  by  the  issuing  corporation  through   purchase,  redemption,  donation  or  some  other  lawful  means • Such  shares  may  be  disposed  of  at  a  reasonable  price  to  be  fixed  by   the  Board

Difference  between  Treasury  and   Redeemable  Shares Redeemable  Shares

Treasury  Shares

Shares which may be purchased by the corporation from the holders of such shares upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of the corporations; Subject to other terms and conditions to be stated in the articles and the certificate of stock.

Classes  of  shares  which  have  been  issued  and  fully   paid But  subsequently   reacquired  by  the  issuing   corporation   through   purchase,   redemption,   donation   or  some  other  lawful  means Such  shares  may  be  disposed   of  at  a  reasonable  price   to  be  fixed  by  the  Board

Nationality  of  Corporations INCORPORATION  TEST The  sovereignty  by  which  a  corporation  was  created,  under   whose  laws  it  was  organised,  determines  its  national  character,   and  the  fact  that  some  of  its  incorporators  were  residents  and   citizens  of  a  foreign  country  does  not  change  this  rule. Note  section  140,  Definition  of  a  Foreign  Corporation Section  176  – Stock  Ownership  in  corporations

Rule  in  this  jurisdiction Control  Test  under  section  3  of  RA  7042  as  amended  by  RA  8179  otherwise   known  as  the  Foreign  Investment  Act  of  1991 Also  referred  to  as  the  “aggregate  test” Shares  belonging  to  60%  of  the  capital  of  which  is  owned  is  Filipino  citizens   shall  be  considered  as  of  Philippine  nationality,  but  if  the  percentage  of   Filipino  ownership  is  less  than  60%,  only    the  number  of  shares   corresponding  to  such  percentage  shall  be  counted  as  of  Philippine   nationality.  

Application  of  control  test What  is  the  nationality  of  a  corporation  organized  and   incorporated  under  the  laws  of  a  foreign  country  but  owned   100%  by  Filipinos? FILIPINO  Corporation,  but  not  a  domestic  corporation.

What  shares  are  considered  in  computation Common  shareholdings,not  preferred  or   redeemable  shares.   Section  6  of  the  Corporation  Code  of  the   Philippines  explicitly  provides  that  “no  share   may  be  deprived  of  voting  rights  except  those   classified  as  ‘preferred’  or  ‘redeemable’   shares.”  

Grandfather  rule Exception  to  the  Control  Test,  but  can  be  applied  cumulatively  as   well. Note  the  case  of  Narra  Nickel  Mining  Corporation  (2015)   Resort  to  the  Grandfather  Rule  is  necessary  if  doubt  exists  as  to   the  locus  of  the  “beneficial  ownership”  and  “control,”  particularly   n  cases  of  corporate  web  layering.

Application  of  the    rules “Doubt”  refers  to  various  indicia  that  the  “beneficial  ownership”  and  “control”  of  the   corporation  do  not  in  fact  reside  in  Filipino  shareholders  but  in  foreign  stakeholders.     When  is  there  doubt: 1.  That  the  foreign  investors  provide  practically  all  the  funds  for  the  joint  investment   undertaken  by  these  Filipino  businessmen  and  their  foreign  partner;   2.    That  the  foreign  investors  undertake  to  provide  practically  all  the  technological   support  for  the  joint  venture;   3.      That  the  foreign  investors,  while  being  minority  stockholders,  manage  the  company   and  prepare  all  economic  viability  studies.

Nationality  Requirement  provisions  under   new  law Names  and  Nationalities  of  Incorporators  must  be  stated  in  Articles  of   Incorporation  (section  13  ),  Section  14  paragraph  11  (No  transfer  of  stock   or  interest  shall  reduce  ownership  of  Filipino  citizens…) When  required  percentage  of  Filipino  ownership  of  the  capital  stock   under  existing  laws  or  the  Constitution  has  not  been  complied  with,  the   Articles  of  Incorporation  or  Amendment  may  be  disapproved  (section  16   [d.] Section  176.  Stock  ownership  in  corporations.  NEDA  to  submit  report  to   congress  for  the  prevention  or  correction  of  errors  on  stock  ownership   requirements  if  the  corporate  vehicle  has  been  used  to  frustrate  the  law.

Power  of  Congress Section  176.  Congress  may  set  maximum  limits  for  stock  ownership    to   prevent  anti-­‐competitive  practices  as  provided  in  RA  10667  otherwise   known  as  the  “Philippine  Competition  Law”

Separate juridical personality As  a  general  rule,  a  corporation  will  be  deemed  a  separate  legal  entity  until   sufficient  reason  to  the  contrary  appears.  But  the  rule  is  not  absolute.  A   corporation's  separate  and  distinct  legal  personality  may  be  disregarded   and  the  veil  of  corporate  fiction  pierced  when  the  notion  of  legal  entity  is   used  to  defeat  public  convenience,  justify  wrong,  protect  fraud,  or  defend   crime.   Siain Enterprises vs. Cupertino Realty Corp., et al., G.R. No. 170782, June 22, 2009

Separate  personality

It  is  elementary  that  a  corporation  has  a   personality  distinct  and  separate  from  its   individual  stockholders  or  members.   Being  an  officer  or  stockholder  of  a   corporation  does  not  make  one's  property  the   property  also  of  the  corporation,  for  they  are   separate  entities.

[G.R. No. 180036.

July 25, 2012.],SITUS DEVELOPMENT CORPORATION, DAILY SUPERMARKET, INC. and COLOR LITHOGRAPHIC PRESS, INC., petitioners, vs. ASIATRUST BANK, ALLIED BANKING CORPORATION, METROPOLITAN BANK AND TRUST COMPANY, and CAMERON GRANVILLE II ASSET MANAGEMENT, INC. (CAMERON), respondents.

Hence,  the  rule  is  that  assets  of  stockholders  may   not  be  considered  as  assets  of  the  corporation,   and  vice-­‐versa.  The  mere  fact  that  one  is  a   majority  stockholder  of  a  corporation  does  not   make  one's  property  that  of  the  corporation,   since  the  stockholder  and  the  corporation  are   separate  entities.

While  a  share  of  stock  represents  a  proportionate  or  aliquot  interest  in  the   property  of  the  corporation,  it  does  not  vest  the  owner  thereof  with  any   legal  right  or  title  to  any  of  the  property,  his  interest  in  the  corporate   property  being  equitable  or  beneficial  in  nature.  Shareholders  are  in  no   legal  sense  the  owners  of  corporate  property,  which  is  owned  by  the   corporation  as  a  distinct  legal  person. Concepcion  Magsaysay-­‐Labrador  vs.  Court  of  Appeals,  G.R.  No.  58168,   December  19,  1989;Good  Earth  Emporium,  Inc.  vs.  Court  of  Appeals,  G.R.   No.  82797,  February  27,  1991

Civil  Code  Provisions

Article  45  – private  corporations  are   regulated  by  laws  of  general  application   Article  46  – juridical  persons  may  acquire   and  possess  property  of  all  kinds  as  well  as   incur  obligations  and  bring  civil  or  criminal   actions

Piercing  the  veil The doctrine of piercing the veil of corporate entity applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime or where a corporation is the mere alter ego or business conduit of a person (Indophil Textile Mill Workers Union-PTGWO vs. Teodorico  P.  Calica,   G.R.  No.  96490,  February  3,  1992).   To disregard the separate juridical personality of a corporation, the wrong-doing must be clearly and convincingly established. It cannot be presumed Del  Rosario   vs.  NLRC,  G.R.  No.  85416,  July   24,  1990;  James  Yu  vs.  National   Labor    Relations  Commission,  G.R.  Nos.  111810-­‐11,  June  16,  1995

Nature Piercing  the  veil  of  corporate  entity  is  an   equitable remedy, and may be awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud of defend crime or where a corporation is a mere alter ego or business conduit of a person.

Tests 1. Control,  not  mere  majority  or  complete  control,  but   complete  domination,  not  only  of  finances   but  of  policy  and  business  practice  in  respect  to  the  transaction  attacked  so  that  the  corporate  entity  as   to  this  transaction  had  at  the  time  no  separate  mind,  will  or  existence  of  its  own.

2. Such  control  must  have  been  used  by  the  defendant  to  commit   fraud   or  wrong,   to  perpetuate  the  violation  of  a  statutory  or   other  positive  legal   duty,  or   dishonest  and,unjust  act  in   contravention  of  plaintiffs   legal  rights;   and, 3. The  aforesaid  control  and  breach  of  duty  must  proximately  cause   the   injury  or  unjust  loss  complained  of.

The  doctrine  of  piercing  the  corporate  veil  applies  only   in  three  (3)  basic  areas,  namely:  1)  defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2)  fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where  a  corporation  is  merely  a   farce  since  it  is  a  mere  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  variants  to  the  doctrine Identity  Doctrine  -­‐ Unity  of  Interest  and  Ownership  that  independence  of   corporation  has  ceased  to  exist,  adherence  to  doctrine  will  defeat  justice   and  equity Instrumentality  Rule  (Control  Test) Alter  Ego  Doctrine    -­‐ Corporation  is  a  mere  dummy,  unreal  or  a  sham,   serves  no  other  business  purpose

Totality  of  circumstances  test Consider  all  circumstances  and  each  case  must  be  decided  on  its   own  set  of  facts.

Does  the  group  of  companies  have  a  personality  separate  and  distinct  from  its   component  corporations?

Group  of  Companies  refer  to  those  that  are  financially  related  to  one   another  as  parent  corporation,  subsidiaries  and  affiliates. NO  separate  personality  distinct  from  each  of  the  aggregate  corporations,   except  in  cases  of  rehabilitation. Note  RA  10142  “FRIA  Law”

Will the fact that a person acting as President, Chairman and Treasurer of the corporation justify already the piercing of the veil of corporate fiction based on the alter-ego theory?

May the doctrine of piercing the veil of corporate fiction apply to a corporation not impleaded in the suit?

Liability  FOR  TORT

A  corporation  is  liable  whenever  a  tortious   act  is  committed  by  an  officer  or  agent   under  express  direction  or  authority  from   the  stockholders  or  members  acting  as  a   body,  or,  generally,  from  the  directors   as  the   governing  body.

Piercing  the  veil  of  Corporate  Fiction  under   the  New  Code • Section  17  – SEC  may  hold  the  corporation  and  its  responsible  directors  or   officers  in  contempt  and/or  hold  them  administratively  liable,  civilly  and/or   criminally  liable  for  failure  to  comply  with  the  Commission’s  order  to  cease   and  desist  from  using  a  corporate  name  that  has  been  determined  as  not   distinguishable.  Note  section  159  – Penalty  for  the  unauthorized  use  of  a   corporate  name • Section  30  – Liability  of  Directors,  Trustees  or  Officers  shall  be  jointly  and   severally  for  all  damages  resulting  therefrom  suffered  by  the  corporation,   its  stockholders  or  members  and  other  persons • Section  32  -­‐ Contracts  between  Corporations  with  interlocking  directors   where  there  is  fraud   may  be  invalidated

Piercing  the  veil  of  Corporate  Fiction  under   the  New  Code • Section  33  – Disloyalty  of  a  Director  where  the  latter  acquires  a   business  opportunity  which  should  belong  to  the  corporation,   Director  must  account  and  refund  to  the  latter  all  such  profits,  unless   ratified  by  2/3  vote  of  the  outstanding  capital  stock. • Section  130  – Liability  of  a  single  shareholder  shall  be  jointly  and   severally  for  the  debts  and  other  liabilities  of  the  OPC  should  the  said   stockholder  cannot  prove  that  the  property  of  the  OPC    is   independent  of  the  stockholder’s  property

Piercing  the  veil  of  Corporate  Fiction  under   the  New  Code • Section  166  – Liability  of  Directors,  Officers,  Employees,  agents  or   representatives  are  engaged  in  graft  and  corrupt  practices. • Section  168  – Tolerating  graft  and  corrupt  practices  act • Section  170  – Separate  liability  of  Director,  Trustee  and  Oficer • Section  171  – Liability  of  Directors,  Trustee,  Officers  or  other   Employees

Incorporating  and  Organizing  a ...