I.

CORPORATION
A. DEFINITION
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. (sec 2)

B. CLASSES OF CORPORATION
Corporations formed or organized under this Code may be stock or non-stock corporations.
Corporations

which have capital stock divided into shares and are authorized to distribute

to the holders of such shares

dividends and allotments of the surplus profits on the basis of the

shares held are stock corporations are

non-stock corporations. (sec 3)

Stock Corporation- created and operated for the purpose of making a profit which may be
distributed in the form

of dividends to stockholders on the basis of their invested capital.

Non-stock Corporation- do not issue stock and distribute dividends tot heir members. Created
for the public good

and welfare. Their capital is sourced from contributions and donations. They must

have members.
Public Corporation- instrumentalities of the State and subject to governmental visitation or
control
Private Corporation- not subject of visitation and control of the State except in the exercise of
police

power

C. NATIONALITY
1. Place of Investigation
2. Citizenships of Stockholders
3. Ground for the Rule

II. CORPORATE JURIDICAL PERSONALITY

A corporation is a legal or juridical person with a personality separate and apart from
its individual stockholders or members and from any other legal entity to which it may be
connected or related.
A. CONSEQUENCES
1. Liability for acts or contracts
As a general rule is that obligations incurred by a corporation, acting through its
authorized

agents, are its sole liabilities. Similarly, a corporation may not, generally,

be made to answer

for acts or liabilities of its stockholders or those of the legal

entities to which it may be

connected and vice versa.

Corporate officers cannot be held personally liable for the consequences of

their acts, for as

long as they are for and on behalf of the corporation, within the

scope of their authority and in

good faith. In the absence of malice, bad faith or

a specific provision of law making a corporate

officer liable, such corporate officer

cannot be made personally liable for the corporate

liability.

2. Liability when exceptional circumstances warrant

Personal or solidary liability may be incurred by corporate agents acting in
behalf of the

corporation only when exceptional circumstances warrant.

(director acted maliciously or in

bad faith or with gross negligence

3. Right to bring actions

A corporation may incur obligations and bring civil and criminal actions in its
own name in the

same manner as a natural person. Although it may not perform

actions that can be done only

by natural persons.

4. Right to acquire and possess property.

It may acquire and possess property of all kinds. Property conveyed to or
acquired by the
distinct legal entity and not
vice versa.

corporation is in law the property of the corporation itself as a

that of the stockholders or members as such and

5. Acquisition by court of jurisdiction

Where the appearance in court of the president of the corporation was in the
capacity of

counsel of another corporation and not as the representative or

counsel of the first

corporation,

such

construed as a voluntary submission of such

appearance

corporation

cannot

to

jurisdiction. The personality of the president of a corporation is

the

be

courts

distinct

from

that of the corporation itself. In the absence of summons on the corporation, a

judgment against it is void for lack of jurisdiction and lack of due process.
6. Changes in individual membership
As an entity distinct from its members or stockholders, a corporation remains
unchanged and

unaffected in its identity by changes in its individual membership.

B. CLAIM FOR MORAL DAMAGES

A juridical person is not entitled to damages because, not being a natural
person, it cannot

experience physical suffering or such sentiments as wounded

feelings, serious anxiety, mental

anguish, or moral shock. Mental suffering can be

experienced only by one having a nervous

system. However, a corporation

may have a good reputation, which, if debased or besmirched

resulting

humiliation, may be a ground for recovery of moral damages and attorneys

in

social

fees.

C. PIERCING OF CORPORATE VEIL

A corporation may be allowed to exist solely for lawful purposes, but where the
fiction of

corporate entity is being used as a cloak or cover for fraud or

illegality, or to defeat public

convenience, justify wrong, protect fraud or

defend a crime, or for ends subversive of the

policy and purpose behind its

creation especially where the corporation is a closed family

corporation,

on equitable considerations, this fiction will be disregarded and the individuals

composing it or 2 corporations will be treated as identical.

III. CLASSIFICATION OF SHARES

A. RESTRICITONS ON POWER TO CLASSIFY
The shares of stock corporations may be divided into classes or series of
shares, or both, any

of which classes or series of shares may have rights,

privileges or restrictions as may be stated

in the articles of incorporation not

merely in the by-laws. Unless restricted by the law or the

provision of its articles of

incorporation, a corporation has unrestricted freedom to issue such

classes

or

series of shares as the prospects and needs of its business may require to attract
investors.
The classes and number of shares which a corporation shall issue are first
determined by the

incorporators as stated in the articles of incorporation filed

with the SEC. after the corporation

comes into existence, they may be altered by the

board of directors and the stockholders by

amending

the

articles

of

incorporation.
B. 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

fixed

existence of unrestricted retained earnings in

period,

regardless

of

the

the books of the corporation, and

upon such other terms and conditions stated in the articles

of

which terms and conditions must also be stated in the certificate

incorporation,
of

stock

representing said shares. (sec 8)

Redeemable Shares- shares usually preferred, which by their terms are
redeemable at a fixed

date or at the option of wither the issuing corporation or the

stockholder or both at a certain

redemption price. This kind of shares may be

issued only when expressly provided in the

articles of incorporation.

C. TREASURY SHARES
Treasury shares are shares of stock which have been issued and fully paid
for but

subsequently

reacquired

by

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.

IV. INCORPORTION
A. NUMBER AND QUALIFICATION 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 s stock corporation must own

or be a

subscriber to at least one (1) share of the capital stock of the corporation.
- If the number of incorporators are more than 15, the excess will not be
considered as

incorporators unless expressly provided in the articles of

incorporation. A corporation cannot

impose other qualifications.

-Incorporators are the first directors of a corporation.

- Requirement regarding minimum number if incorporators are mandatory in de
jure

corporation. Except in corporation sole.

1. NATURAL PERSONS
-Power to create is different from ()power of a corporation to own stock.
2. CAPACITY TO ENTER INTO A NEW CONTRACT
- The articles of incorporation must be acknowledged by the incorporators

before the

notary public.
- The purpose of requiring the acknowledgement is to secure the State

and all
subscribed to the articles
signatures.

concerned against the possibility of any fictitious name being

and to furnish proof of genuineness of the

- Must be of legal age. Therefore, minors are not qualified to be an

incorporator.
3. RESIDENTS OF THE PHILIPPINES
- Majority of the incorporators must be resident of the Philippines.
- Domiciled residents
- Majority of the directors or trustees of all corporations must be residents
of the

Philippines.
4. CITIZENSHIP
- foreign shareholders may be debarred from certain nationalized

activities which are

exclusively reserved for Filipino citizens.

5. SUBSCRIBER
- Each of the incorporators of s stock corporation must own or be a
subscriber to at

least one (1) share of the capital stock of the

corporation.
- The presumption is that where an incorporator has a pecuniary interest
in the

corporation, he will be concerned with the management of its

affairs.
B. 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.

GR: the corporation shall exist for a term not exceeding 50 years.
XPN: 1. sooner legally dissolved
2. registration is revoked upon any of the grounds provided by sec. 37
- the corporate life may be reduced or extended by amendment of the articles
of incorporation

by complying with the procedural requirements laid down in sec.

37.
- amendment must be done before the expiration of the corporate term.

- extension cannot be made earlier than 5 years prior to the expiration date
unless there are

justifiable reasons as may be determined by SEC.

- corporate term does not apply to religious corporations.

EFFECT OF EXTENSION/ EXPIRATION OF TERM
- extension made before the expiration of the original term constitutes a
continuation of the

old and not the creation of new.

- upon expiration of the term and non compliance with the requisite of for the
extension of the

period, the corporation ceases to exist and deemed dissolved ipso

facto.
- a corporation whose corporate life has expired may be re-incorporated by
complying with

the registration requirements under the Corporation Code.

AUTOMATIC EXTENSION OF TERM

- by amendment of the articles of incorporation within the 5 year period before
the expiration

date of the existing term.

- there is no limit as to the number of extensions that may be made.

C. SUBSCRIPTIONS
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.

-25% of the amount of the authorized capital stocks has been subscribed and
25% of such
be less than 5,000. Required
stock.

subscription must be paid. In no case shall the paid-up capital

also in case of increase in the authorized capital

- this requirement is mandatory and non compliance, the corporation cannot be

lawfully

incorporated.
- the requirement is designed to give assurance to the investing public dealing

with the

corporation that it is financially and actually able to operate and

undertake to do business and

meet its obligation as they arise from the start of

the operations.
D. 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- a document prepared by the persons establishing a
corporation and

filed with the SEC containing the matters required by the Code.

- on that defines the charter of the corporation and the contractual relationship
between the

State and the corporation and between the stockholders and the

corporation.
- literal filing of the paper is necessary.
-power of the SEC is controlled by the statute.
- SEC not required to make an inquiry outside the articles of incorporation. It
may exercise
arbitrary power. Its duty is

judgment but such is not clothed with judicial discretion or

ministerial

- if theres an error in its judgment, it will be subject to review and correction by

the court.
E. AMENDMENTS OF THE 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.