Corporation Law Midterms Richard Allan A.

Lim
Acts Directors or Stockholders or
Act Directors or Stockholders or
Trustees Members
Trustees Members
Power to invest Majority vote of Ratified by 2/3 of
Amendment of Majority vote 2/3 outstanding
corporate funds in the board and the outstanding
Articles of of board and capital stock or
another capital stock or
Incorporation members
corporation or for members
Removal of 2/3 outstanding any other purpose
director or trustee capital stock or
(Sec. 42)
members
Stock dividend Approved by 2/3 of the
Special meeting Majority
(Sec. 43) board of directors outstanding capital
for removal of outstanding capital
stock
director or trustee stock or members
Enter into Approved by Majority of
Filling of May be filed
management board of directors outstanding capital
vacancies other by a vote of at
contract (both he and stock or members
than by the least a
managed and
removal by the majority of
managing) (Sec.
stockholders or the remaining
43)
members or by directors or
If stockholders Same rule 2/3 of the
expiration of the trustees if still
have at least 1/3 outstanding capital
term. constituting a
capital stock stock or members.
quorum
entitled to vote in
Granting of Majority of
both or majority of
compensation outstanding capital
the directors in
other than per stock or members
both are the same
diems
(Sec. 43)
Only last 2 2/3 of the
Adoption of by- Affirmative vote
conditions in Sec. outstanding capital
laws (Sec. 46) of majority of
32 are present, stock or members
outstanding capital
ratification
stock or members
Ratification of 2/3 of the
Amendment of by- Majority of board And Majority of
disloyalty of outstanding capital
laws (Sec. 48) outstanding capital
director (Sec. 34) stock or members
stock or members
Extend or shorten Majority of ratified by 2/3 of
corporate term board and the outstanding They may delegate Delegation is
(Sec. 37) capital stock or the authority to the revoked by vote of
members board upon 2/3 of majority of
Increase or Majority of 2/3 of the all outstanding outstanding capital
decrease capital board outstanding capital capital stock or stock or members
stock; incur stock or members members.
create or increase Fix issued price in Majority of
bonded absence of outstanding capital
indebtedness provision or stock
(Sec. 38) authority in
Shares to be 2/3 of outstanding articles of
issued in good capital stock incorporation or
faith in exchange bylaws
for property
needed for (Please read codal provisions as well)
corporate
Sec 2. Attributes of a corporation
purposes or in
1. An artificial being
payment of
2. Created by operation of law
previously
3. Having the right of succession
contracted debt
4. And the powers, attributes, and properties authorized
(Sec. 39)
by law or incident to its existence
Sale and other Majority of 2/3 of outstanding a. Express- written in the by laws
disposition of board and capital stock or b. Incidental
assets (Sec. 40) members c. Inherent- due to its existence as a
corporation

For personal use only. Unauthorized distribution prohibited 1

 Corporation Law Midterms Richard Allan A. Lim
Doctrine of Corporate Fiction- a corporation has a juridical a. Ecclesiastical- for religious purposes
personality separate and distinct from its b. Lay- may be charitable or not
stockholders/members. i. Eleemosynary- for charitable
1. Right to enter into acts and contracts- Officers not ii. Civil- for profit and business
liable except 3. Under which state
a. Acted in bad faith, malice, gross negligence a. Domestic
b. Agreed to be personally liable b. Foreign
c. When liable under provision of law 4. Corporate Existence
d. Used to defraud third parties a. De jure- in fact and in law
2. Right to sue and be sued b. De facto- in fact but not in law, requisites (in
a. Cannot sue for moral damages except when relation to Sec. 20) are:
the corporations good reputation has been i. Valid law under which corporate
besmirched powers may be exercised
b. Venue is the principal office where the ii. Bonafide attempt to organize a
corporation resides corporation under such law
3. Right to acquire property iii. Exercise in good faith of corporate
Doctrine of piercing the veil of corporate fiction- the veil of a powers conferred upon it by law
corporation is an entity separate and distinct from its 5. Open to public or not
stockholders is disregarded when used to commit fraud or a. Close- limited to several persons or family
wrongdoing. b. Open
Requisites: 6. Relation to other corporation
1. Control, not mere majority or complete stock control, but a. Subsidiary
complete domination, not only of finances but of policy and b. Parent
business practice in respect to the transaction attacked so that c. Affiliated
the corporate entity as to this transaction had at the time no 7. Public or private
separate mind, will or existence of its own; a. Public- government of a portion of State for
2. Such control must have been used by the defendant to general good and welfare
commit fraud or wrong, to perpetuate the violation of a b. Private- for profit and business
statutory or other positive legal duty, or dishonest and unjust
act in contravention of the plaintiffs legal rights; and Sec. 4 Corporations by special law or charter
3. The aforesaid control and breach of duty must proximately - primarily governed by said law or charter
cause the injury or unjust loss complained of. - Provisions of Corporation Code suppletory
Applied in these cases only:
1) defeat of public convenience as when the corporate fiction Sec. 5 Corporators, stockholders, members, incorporators
is used as a vehicle for the evasion of an existing obligation; Corporators- those who compose the corporation
2) fraud cases or when the corporate entity is used to justify a 1. Stockholders- stock corporation
wrong, protect fraud, or defend a crime; or 2. Members- non-stock corporation
3) alter ego cases, where a corporation is merely a farce since Incorporators- those mentioned in the articles of
it is a mere alter ego or business conduit of a person, or where incorporation as originally forming the corporation and
the corporation is so organized and controlled and its affairs who are signatories.
are so conducted as to make it merely an instrumentality, Other classes:
agency, conduit or adjunct of another corporation. 1. Promoters- those who bring about or cause the formation
and organization of the corporation
Sec 3. Classes of corporations 2. Subscribers- those who have agreed to take and pay for
1. Stock- those which are for profit and: original, unissued shares of a corporation formed or to be
a. Have authorized capital stock formed
b. Divided into shares 3. Underwriter- one who:
c. Authorized to distribute to holders of shares a) Agreed to buy at stated terms, an entire issue of
dividends or allotments of surplus profits securities or substantial part
based on these shares b) Guaranteed the sale of an issue by agreement to buy
2. Non-stock from any issuing party any unsold portion at a stated price
a. Usually not for profit c) Agreed to use best efforts to market all or part of the
b. For public good and welfare issue
Other Classifications: d) Offered for sale stock which he has purchased from
1. Number of persons composing controlling stockholder.
a. Corporation aggregate- >1 incorporator
b. Corporation sole- 1 incorporator, associated Sec. 6. Classification of shares
with religious Capital Capital Stock
2. Religious or not 1. Actual corporate property Amount or abstract
For personal use only. Unauthorized distribution prohibited 2
 Corporation Law Midterms
2. Fluctuates from day to day Fixed by the articles of
incorporation
3. Belongs to the corporation Belongs to stockholders
Shares of stock- units into which the capital stock is divided,
acknowledged in writing by the corporation in a Certificate of
stock
Classes
1. Par value (specific money value fixed in the articles of
incorporation or no par value (one without stated value
appearing on the face of the certificate of stock, cannot be
issued for <P5.00). Limitations on no par value shares
are:
a. Banks, trust companies, building and loan
associations, insurance companies cannot isse no
par value shares
b. Deemed fully paid and non-assessable
c. Entire consideration treated as capital
d. Preferred shares may only be issued with a stated
par value
2. Voting (right to vote) or non-voting
a. The general rule is that the right to vote is given
to common shares but withdrawn from preferred
3. Common (entitles holder to pro-rata division of profits,
without preference over other stockholders except to
preferred shareholders) or preferred (stated par value
which entitles holder to certain privileges). Preferred may
be
a. Voting, convertible or redeemable
b. Preferred as to assets, or as to dividends
i. Cumulative (dividends in arrears) or
non-cumulative
ii. Participating (also allows holder to
participate with the common shares in
the remaining profits) or non-
participating
4. Promotion Shares- issued to promoters
5. Shares in Escrow- subject to an agreement whereby the
share is deposited by the grantor or his agent with a
depositary until the performance of a certain condition or
happening of a certain event
6. Convertible shares- can be changed from one class o
another a certain price and within a certain period.
a. Preferred cannot be converted to common unless
stated in articles of incorporation
b. No par to par- allowed provided there is no
change in the stock percentage in the total assets
of the corporation
Sec. 7. Founders shares
- shares issued to the organizers and promoters of a
corporation in consideration of supposed right or
property
- limitation in Sec. 7 refers to the exclusive right to
vote and be voted upon in the election of board of
directors, for a period not exceeding 5 years subject
to SEC approval and is non-extendible
- Some of the rights that may be enjoyed by founders
shares include the preference to payment of dividends
or distribution of assets upon liquidation, conversion
For personal use only. Unauthorized distribution prohibited
Richard Allan A. Lim
of shares, and right to cumulative dividends in order
to encourage large investments in the corporation
Sec. 8. Redeemable shares
- Shares that are by their terms are redeemable at a
fixed date or at the option of the issuing corporation
or the shareholder or both at a certain redemption
price
- These shares may only be issued when so provided in
the articles of incorporation. And upon the expiration
of the period fixed, they may be taken up regardless
of the existence of unrestricted retained earnings in
the books of the corporation.
- Upon redemption, they become treasury shares and
can be reissued if so provided in the articles of
incorporation
Sec. 9. Treasury shares
- Treasury shares are shares of stock that have been
lawfully issued and fully paid but later reacquired by
the company either by purchase, donation, redempion
donation, forfeiture or other lawful means.
- Only surplus earnings may be used to purchase these
shares. They revert back to unissued shares but are
regarded as property acquired by the corporation
which may be reissued or resold. They do not have
the status of outstanding capital stock and hence have
no voting rights.
Sec. 10. Number and qualifications of incorporators
- Stages in the creation of a corporation
o Promotion
Discovery
Investigation
Assembly
o Incorporation
o Formal organization and commencement of
business operations
- Steps in incorporation
o Drafting of articles of incorporation and
other required documents required by
incorporators
There must also be an affidavit of
compliance with Sec. 14
(subscription and paid-up capital
stock requirements)
o Filing with the SEC of these documents
Articles of incorporation
Treasurers affidavit as required in
Sec. 15 as to minimum subscribed
and paid-up capital stock
If governed by special, a favorable
recommendation from the
appropriate government agency
o Payment of filing and publication fees (139)
o Issuance of Certificate of Incorporation if all
the papers filed after verification and
examination are found to be in order (19)
- Incorporators must be
3
 Corporation Law Midterms
o Not less than five but not more than 15
natural persons
Exceptions to rule on natural
persons are Rural banks under R.A.
7353 where duly authorize
cooperatives and corporations may
set-up rural banks and are
authorized to subscribed to shares
of stock
o All of legal age
Must have the capacity to enter into
contracts
A married woman may be an
incorporator without the need of
the consent of her husband
o Majority are residents of the Philippines
However, citizenship may be a
requirement under certain kinds of
corporations as provided for in the
constitution
o Each must own or be a subscriber of at least
one share of capital stock in the corporation
Sec. 11. Corporate term
- Shall exist for a period not exceeding 50 years unless:
o Sooner dissolved
o Extended for periods not exceeding 50 years
in any single instance
Through amendment of articles of
incorporation
No extension can be made earlier
than 5 years prior to the prior or
subsequent expiry date.
Exception: when there is a
justifiable reason for
earlier extension as may
be determined by the SEC.
- The extension of the corporate term prior to the
expiration of the original term constitutes a
continuation of the old corporation
- The expiration of the period fixed in the articles of
incorporation, in the absence of legal compliance for
extension of period, the corporation ceases to exist
and is dissolved ipso facto. But the expiration of the
term for which the corporation was created does not
produce the immediate dissolution for all purposes
(Sec. 122)
- A corporation whose corporate life has expired may
be reincorporated only be complying with the
registration requirements under the Corporation Code
Sec. 12. Minimum Capital Stock required of stock
corporations
- No minimum authorized capital stock except as may
be specifically provided for under special law subject
to the provisions of Sec. 13 which the paid-up capital
must not be less than P5,000.
- Other limitations on ownership (percentage Filipino)
EDU of natural resources 60%
Richard Allan A. Lim
Public Service corporations 60%
Education corporations 60%
Mass Media (100%) Advertising (70%)
Banking corporations 60%
Retail trade 100%
Rural banks 100%
Coastwise shipping 60%
Financing companies 60%
Pawnshop business 70%
Worker recruitment and placement, local or 75%
overseas
Private detective, watchman or Security guard 100%
agencies
Flag law 75%
Sec. 13. Amount of capital stock to be subscribed and paid
for purposes of incorporation
- At pre-incorporation
o 25% of authorized capital stock must be
subscribed
o 25% of the subscribed capital stock must be
paid
o But in no case shall the paid-up capital be
less than P 5,000
- Foreigners who subscribe to stock must provide full
payment unless they provide sufficient security
- Special laws may require higher paid-up capital
Insurance companies P 5,000,000
Pawnshop P 100,000
Financial intermediary applying P 50,000,000
for authority to perform quasi-
banking functions
- Also applies to post incorporation such as when there
is an increase in the authorized capital stock
Sec. 14. Contents of Articles of Incorporation
- Must be duly signed and acknowledged by all the
incorporators
- Written in any of the official languages
- Shall contain the following
o Name of the corporation
o Specific purpose or purposes for which
corporation was incorporated
If more than one purpose, must
state which is the primary purpose
and which are secondary purposes
Non-stock corporations may not
include a purpose which would
change or contradict its nature
o Place of principal office which must be in
the Philippines
o Corporate term (see Sec. 11)
o Names, nationalities and residences of the
incorporators
o Number of directors or trustees (Sec. 23)
o Names, nationalities and residences of those
who act as directors or trustees until first
regular directors have been qualified

For personal use only. Unauthorized distribution prohibited 4

 Corporation Law Midterms
o For stock corporation
Amount of authorized capital stock
in valid money
Number of shares which it is
divided in
Par value of shares for par value
shares
If some or all are non-par, it must
be stated
Names, nationalities and residences
of original subscribers
o For non-stock corporation, the amount of
capital, the names, nationalities and
residences of the contributors and amounts
made by each
o All others not inconsistent and deemed
necessary and convenient
- The SEC shall no accept the Articles of Incorporation
unless accompanied by a sworn statement by the
Treasurer elected by subscribers showing that 25% of
authorize capital stock has been subscribed and 25%
of the same has been paid, and the paid-up capital
shall not be less than P 5,000
Sec. 15. Form of Articles of Incorporation
- Articles of incorporation is the document prepared by
the persons establishing the corporation and filed
with the Securities and Exchange Commission
containing matters required by the Corporation Code
- A corporation created by special law has no articles
of incorporation
- Corporations may enter into a joint venture provided
and the same need not be registered provided it will
not result in the formation of a new corporation
- Corporations cannot be formed for the practice of a
profession
- Corporations which will engage in activity or
business reserved for Filipinos shall state in their
articles of incorporation the restriction against the
transfer of stock or interest which will reduce the
ownership of Filipino citizens to less than the
required percentage of capital stock provided in
existing laws. The control test (60/40) rule shall be
used to determine the nationality of corporations with
foreign equity
- To be a corporation de jure, must be acknowledged,
signed by the incorporators
Sec. 16. Amendment of Articles of Incorporation
- Amendment shall take place upon majority vote of
the board of directors or trustees and the 2/3 vote of
outstanding capital stock or members.
- Articles amended will be indicated by underscoring
and shall be set together
- Amendment shall take effect upon approval of the
SEC or date of filing if the SEC does not act upon it
within 6 months from the date of filing for cause not
attributable to the corporation
- A copy of the amended articles must be certified
under oath by the corporate secretary and the
For personal use only. Unauthorized distribution prohibited
Richard Allan A. Lim
majority of the board indicating that they have been
duly approved.
- Charter is the instrument or authority from the
sovereign power bestowing the right or privilege to
be and to act as a corporation
- Components of the corporate charter are
o For those formed under the General
Incorporation Code
The law under which it is organized
(B.P. 68)
Articles of Incorporation
By laws
All the applicable constitutional
provisions and general laws of the
State
o Created by special laws
The special which creates the
corporation
Executive orders of the President
All applicable rules and regulations
All laws applicable including the
Corporation Code
- The portion stating the names of the incorporators
and first directors cannot be amended
- There must be a meeting if increasing or decreasing
the capital stock, shortening or extending corporate
term. Written assent is allowed from 2/3 of the
stockholders in order to effect the amendment
Sec. 17. Grounds when articles of incorporation or
amendments may be rejected or disapproved
- Grounds for rejection or disapproval
o Non-substantial compliance with the form
required
o Purposes are illegal, unconstitutional,
immoral or contrary to law
o Treasurers affidavit is false
o Failure to comply with percentage
ownership required by laws.
- The SEC will give the incorporators reasonable time
within which they canR correct or modify the
objectionable portions
- For 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 law, there must be a
favorable recommendation from the appropriate
government agency.
- The SEC may suspend or revoke the certificate of
registration of the corporation based on the following
grounds. Revocation immediately effective
o Fraud in procuring certificate of
incorporation
o Serious misrepresentation as to what the
corporation is doing to the great prejudice or
damage of general public
5
 Corporation Law Midterms
o Refusal to comply or defiance with a lawful
order of Sec which would amount to grave
violation of its franchise
o Continuous inoperation for a period of five
years
o Failure to file bylaws within the period of 5
years
o Failure to file reports in prescribed forms by
SEC within prescribed periods
Sec. 18. Corporate name
- Names that are not allowed
o Cannot be identical, deceptively or
confusingly similar to that of any existing
corporation
o Or any name protected by law
o Patently deceptive, confusing or contrary to
existing laws
- When a change of name is allowed by the SEC, the
same shall issue an amended certificate of
incorporation under the amended name
- The test of infringement would be whether such
similarity can mislead a person using ordinary care
and discrimination and the court must look to the
record as well as the names themselves.
- The corporation name shall contain the words
o Corporation
o Incorporated
o Inc or Corp.
o Foundation in case of a foundation
- Other prohibitions
o Use of name, emblem or official seal of the
UN
o Use of the word bonded when not
authorized to operate as a bonded warehouse
- Remedies for use of a name that has been adopted by
another
o Injunction
o Deregistration
Sec. 19. Commencement of Corporate Existence
- Acquires juridical personality and commences to
have corporate existence, and is deemed incorporated
from the date the SEC issues a certificate of
incorporation under its official seal
- But it does not come into being until the corporation
is organized (Sec. 22)
Sec. 20. De facto corporations
- De facto corporations are those which exists for all
practical purposes as a corporation but has no legal
right of corporate existence against the state
- Requisites of de facto corporations
o Valid law under which a corporation with
powers assumed might be incorporated
o Bona fide attempt to organize a corporation
under such law
o Actual exercise or in good faith of coporate
powers conferred upon it by law
For personal use only. Unauthorized distribution prohibited
Richard Allan A. Lim
- Existence cannot be collaterally acted, must be
subject of direct action
- It has the same liabilities and powers as a de jure
corporation
Sec. 21. Corporation by estoppel
- An unincorporated corporation presenting itself to be
a corporation will be estopped from denying its
corporation against a third person who relied in good
faith on such representation.
- Such persons shall be liable as general partners for all
the debts liabilities and damages incurred or arising
as result thereof.
Sec. 22. Effects of non-use of corporate charter and
continuous inoperation of a corporation
- Failure to organize and commence transaction within
2 years from date of incorporation, would lead to its
corporate powers ceasing and the corporation
deemed dissolved
- If a corporation commenced operations but becomes
continuously inoperative for a period of at least 5
years, it will be a ground for suspension or
revocation of the corporate franchise or certificate of
incorporation
- Does not apply if due to causes beyond the control of
the corporation as may be determined by the SEC.
Sec. 23. The board of directors or trustees
- All the corporate powers, business conducted or all
property of corporations formed under the
Corporation Code shall be exercised by the Board of
Directors/Trustees, unless otherwise provided for by
the Code
- Qualifications
o They shall hold office for a period of one
year and until their successors have been
qualified and elected (hold-over)
o Must own at least one share of stock which
shall stand in his name on the books of the
corporation
o For non-stock, the trustees must be a
member
o Majority of the directors/trustees must be
residents of the Philippines
- To exercise their powers, the directors/trustees must
act as body in a lawful meeting
- Number of directors
o For stock corporation it is not less than 5 but
more than 15
o For ordinary non-stock, unless otherwise
provided for in the articles of incorporation
or in the by-laws, may be more than 15 with
the term of office of 1/3 expiring every year.
o Non-stock educational corporation, it is the
same as stock but provided they shall be in
multiples of 5 and 1/5 of their number
expiring every year.
6
 Corporation Law Midterms
- Failure to elect the required number of
directors/trustees does not invalidate the said
election, it does merely gives rise to the situation
where there are vacancies which may be filled-up in a
subsequent special meeting called for that purpose.
- Only natural persons may be directors but
corporations may designate a representative to sit as a
director via a board resolution
- The bylaws may require additional qualifications
Sec. 24. Election of directors or trustees
- There must be presence of owners of majority of the
capital stock, whether in person or in written proxy,
or majority of members
- Election must be by ballot if requested (the
exception) as the general rule is by voice voting
- Said stockholder may vote such number of shares
(delinquent stock cannot vote)
o Straight voting (for as many persons as there
are directors to be elected)
o Cumulative in favor of one person (he may
cumulate said shares and give one candidate
as many votes as the number of directors
multiplied by the number of his shares shall
equal
Accorded for the purpose of giving
minority shareholders a
representation in the board of
directors.
Cumulative voting is a statutory
right and cannot be deprived
o Cumulative voting by distribution (or he
may distribute them on the same principle
among as many candidates as he shall see
fit)
- For non-stock, each member shall be entitled to one
vote for one candidate
- Any meeting called for an election may adjourn from
day to day or from time to time but not indefinitely
Sec. 25. Corporate Officers, quorum
- Immediately after the election, there must be an
election of:
o A president from the board of directors
o A secretary who is a resident and a citizen of
the Philippines
o A treasurer who may or may not be a
director
o Or other officers are required by the bylaws
- Any two or more positions may be concurrently held
except President and Secretary or President and
Treasurer.
- Quorum shall constitute a majority of the number of
directors/trustess as stated in the articles of
incorporation or bylaws, unless a higher number is
stated in the same.
- Every decision made by a majority of
directors/trustees constituting a quorum shall be avlid
For personal use only. Unauthorized distribution prohibited
Richard Allan A. Lim
o Except for the election of officers which
requires majority vote of all
directors/trustees
- Board of directors cannot attend or vote by proxy at
board meetings
- All other officers who are not given that character by
the Code or the charter or by laws are deemed as
merely employees or subordinate officials
.
Sec. 26. Report of election of board of directors, trustees
and officers
- Must be made within 30 days after the election of the
same
- It is the secretary or any other officers whos hall
make the report to the SEC containing the names,
nationalities and residences of the same.
- In case of death, the heirs shall report the same to the
SEC. For resignation, or an manner cease to hold
office, the secretary shall report the same to the SEC
immediately
Sec. 27. Disqualification of directors, trustees or officers
- Convicted by final judgment of an offense punishable
by imprisonment of >6 years
- Violation of this Code, committed within 5 years
from the date of the election
Sec. 28. Removal of directors or trustees
- By a vote of stockholders representing 2/3 of the
outstanding capital stock or 2/3 of members
- Must be done in a regular meeting or a meeting
called for that purpose
- Special meeting must be
o Called by the secretary on the order of the
president
If no secretary, may be addressed
directly by any stockholder or
member signing demand
o Or on written demand of stockholders
representing majority of outstanding capital
stock or members
- Vacancy shall be filled at the same meeting without
further notice
- Removal may be with or without just cause
o But cannot be used to deprive minority
holders of right of representation under Sec.
24, unless there is just cause
Sec. 29. Vacancies in the office of director or trustee
- Other than by the removal by the stockholders or
members or by expiration of the term.
o May be filed by a vote of at least a majority
of the remaining directors or trustees if still
constituting a quorum
o If no more directors or trustees quorum, then
it must be filed up by the stockholders or
members at a special or regular meeting
called for that purpose, or if referred to them
by the directors/trustees
7
 Corporation Law Midterms
- Directors elected shall only serve the unexpired
portion of the predecessor
- Increase in number of directors can only be elected
upon a regular or special meeting of stockholders
called for that purpose. It may also be done in the
meeting authorizing the increase if so stated in the
notice
Sec. 30. Compensation of directors
- If provided for in the articles of incorporation
- Or granted by vote of members/stockholders
representing majority of outstanding capital stock or
members at a regular or special meeting called for
that purpose.
- Otherwise, only reasonable per diems
- In no case shall the compensation exceed 10% of the
net income before income tax of the corporation
- Non-directors or corporate officers who are directors
are entitled to compensation proper but must not be
excessive
Sec. 31. Liability of directors, trustees or officers
- Liable jointly and severally for all the damages
suffered by the resulting to the corporation
o Those who willingly and knowingly vote
for assent to patently unlawful acts
o Those who are guilty of gross negligence or
bad faith in directing the affairs of the
corporation
o Acquires any personal or pecuniary interest
in conflict with their duty
- Liable as trustee for the corporation and mus account
for the profits which should have accrued to the
corporation
o Acquires or attempts to acquire in violation
of their duty any interest adverse to the
corporation in respect of any matter which
has been reposed in him in confidence, as to
which equity imposes a disability upon him
to deal in his own behalf
Sec. 32. Dealings with directors, trustees or officers with
the corporation
- A contract of a corporation with one of its directors
is voidable, unless the following requisites concur:
o Presence of director/trustee in the meeting
for the approval of the contract was not
necessary to constitute a quorum
o Vote of the same not necessary for its
approval
o Contract is fair and reasonable
o In case of officer, contract was previously
approved by the board
- If the first two are absent, it may be ratified by a vote
of 2/3 of the outstanding capital stock or members in
a meeting called for that purpose
Sec. 33. Contracts between corporations with interlocking
directors
For personal use only. Unauthorized distribution prohibited
Richard Allan A. Lim
- Cannot be invalidated if
o Fair and reasonable
o If there is no fraud
- If the interest of a director in one corporation or
corporations is merely nominal, he shall be subject to
the provisions of Sec. 32
- >20% outstanding capital stock shall be deemed
substantial
Sec. 34. Disloyalty of a director
- When a director by virtue of his office, acquires for
himself a business opportunity which should belong
to the corporation, causing him to obtain profits to
the prejudice of the corporation, he must refund the
same to the corporation regardless of whether he
risked his own funds in the venture. (Doctrine of
corporate opportunity)
- However, it may ratified by 2/3 of outstanding capital
stock or members.
Sec. 35. Executive Committee
- An executive committee may be created when
provided by the bylaws
- Composed of not less than 3 members of the board to
be appointed by the same board, and may act by
majority vote of all its members on matters as may be
delegated by the board except:
o Approval of acts which requires stockholder
approval (see table)
o Filing of vacancies in the board
o Amendment, repeal or adoption of bylaws
o Amendment or repeal of any board
resolution which by its express terms is not
so amendable or repealable
o Distribution of cash dividends to the
shareholders.
Sec. 36. Powers of the corporation
- Powers under Sec. 36 refer to the right to do certain
things
- Classification of powers
o Expressly granted or authorized by law (2)
o Implied or those necessary for the exercise
of express or incidental powers (236 (11),
and 45)
o Incident to its existence (2, 45)
- Sources of power of a corporation to act
o The special charter or the articles of
incorporation to see if within the express,
implied or incidental powers of the
corporation
o Examine statutes relating to corporations to
see if act is prohibited
o Consult statues to see if act is illegal even
for natural persons
Sec. 37. Power to extend or shorten corporate term
8
 Corporation Law Midterms
- Must be approved by majority of board of
directors/trustees and ratified by 2/3 of the
outstanding capital stock or members in a meeting
- Written notice of the proposed action and time and
place of the same must be given to each
stockholder/member in the place of their residence as
shown in the books of the corporation
- In case of extension as well as shortening (see Sec.
81) of corporate term, any dissenting stockholder
may exercise his appraisal right under the conditions
provided in the Code
o Right to demand the payment of the fair
value of his shares
Sec. 38. Power to increase or decrease capital stock; incur
create or increase bonded indebtedness
- Requires majority vote of the board and at a meeting
where 2/3 of the outstanding capital stock or
members.
- Certificate in duplicate must be signed by the a
majority of the directors and countersigned by the
chairman and secretary of the stockholders meeting
setting forth the requirements under Sec. 38. One
copy kept in file and the other submitted to the SEC
and attached to the original articles of incorporation.
After approval, the capital stock shall stand increased
or decreased after incurring, creating or increasing
bonded indebtedness.
- There must be filing of the sworn statement of the
treasurer that 25% of the capital stock is subscribed
and 25% paid
- A corporation cannot duly decrease its capital stock if
such will have the effect of relieving existing
subscribers from the obligation of paying their unpaid
subscriptions without a valuable consideration for
such.
- Capital stock may be increased
o Increase of corporate assets
By creation of new shares
By increase of par value of shares
authorized to be issued
o Stock dividends
- Unauthorized capital stock increase shall be void.
Sec. 39. Power to deny pre-emptive right
- Pre-emptive right is where new issues of stock must
first be offered to existing shareholders who are such
at the time the increase was made in proportion to
their existing holdings and on equal terms with other
holders of the original stocks before subscriptions are
received from the general public
- All stockholders enjoy preemptive right unless
o Denied by the articles of incorporation or
amendment
o Shall not extend to shares to be issued in
compliance with laws requiring stock
offerings or minimum stock ownership by
the public
For personal use only. Unauthorized distribution prohibited
Richard Allan A. Lim
o Shares to be issued in good faith in
exchange for property needed for corporate
purposes or in payment of previously
contracted debt require approval of 2/3 of
outstanding capital stock.
Sec. 40. Sale or other disposition of assets
- By majority vote of the board and 2/3 of the
outstanding capital stock or members in a meeting
called for that purpose with proper notice
- Substantially all property means that the corporation
would be rendered incapable of continuing business
or accomplishing purpose it was incorporated
- If no members with voting rights, majority vote of
trustees will suffice
Sec. 41. Power to acquire own shares
- Must have unrestricted retained earnings (see Sec.
43) and for legitimate purposes such as
o Eliminate fractional shares due to stock
dividends
o Collect or compromise an indebtedness to
the corporation due to unpaid subscription in
a delinquency sale, and to purchase
delinquent shares sold during the said sale
o Pay dissenting stockholders entitled to
payment under provisions of the code
o Treasury shares
- Some limitations
o Capital is not impaired
o Corporation acts in good faith
o Conditions of corporate affairs warrant it
- Trust fund doctrine - The assets of the corporation as
represented by capital stock are trust funds that are to
be maintained unimpaired and to be used to pay
corporate creditors in the sense that there can be no
distribution of such assets among the stockholders
without provision being made first to payment of
corporate debts and that any such disposition of it is a
fraud on the creditors who extend credit upon the
corporation on the faith of the outstanding capital
stock
Sec. 42. Power to invest corporate funds in another
corporation or for any other purpose
- Any other purpose - other than the primary purpose
of the corporation
- Vote by majority of the board and ratified by 2/3 of
the outstanding capital stock or members in a
meeting for that purpose with proper notice
- Dissenting stockholders have appraisal right\
- If reasonably necessary to accomplish its primary
purpose as stated in the articles of incorporation,
stockholders or members approval is not necessary
Sec. 43. Power to declare dividends
- Kinds of dividends
o Cash
9
 Corporation Law Midterms
Those due on delinquent stock
shall be applied to the unpaid
balance
Only majority vote of board
needed
o Property
o Stock
Withheld for delinquent stock until
subscription fully paid.
Must be approved by 2/3
outstanding capital stock in a
regular meeting or special meeting
called for that purpose
- Stock corporations prohibited from retaining surplus
profits in excess of 100% paid up capital stock
unless
o Definite corporate expansion project or
programs approved by the board of
directors
o Prohibited under any loan agreement with
any financial institution
o Special reserve for probable contingencies
- Retained earnings is the difference between the total
present value of its assets after deducting losses and
liabilities and the amount of its capital stock
- Unrestricted is when they have not been set aside for
some corporate purpose or some other purpose in
accordance with legal, managerial or contractual
agreements.
Sec. 44. Power to enter into a management contract
- Approval by both managing and managed
o Approved by board
o And majority of the outstanding capital
stock or members at meeting for that
purpose
- If there are stockholders who have interest in both
companies and is at least 1/3 of the voting stock, or
majority of directors are the same in both, then it is
2/3 of the outstanding capital stock
- No management contract shall last for more than 5
years
- Must also comply with pertinent laws in case of EDU
Sec. 45. Ultra vires acts of corporations
- Ultra vires acts are those not within the express,
implied or incidental powers of the corporation
conferred by the articles of incorporation or the
Corporation Code
- They are voidable and may be enforced by
ratification, performance or estoppel, unless they are
illegal per se which means the are void
- If only ultra vires in part, then the same may be
enforced up to the aspect that is not ultra vires
Sec. 46. Adoption of by-laws
- Within one month after receipt of official notice of
the issuance of its certificate of incorporation, must
adopt by-laws.
For personal use only. Unauthorized distribution prohibited
Richard Allan A. Lim
- Adoption requires majority affirmative vote of
outstanding capital stock or members.
- Shall be kept in the principal place of office
- The by-laws shall take effect only upon the issuance
of the SEC of a certificate that the same are not
inconsistent with the code
- By-laws are the rules of action adopted by the
corporation for its internal government and for the
government of its stockholders and members and
those having the direction, management and control
of its affairs in their relation to the corporation and
among themselves
- Even holders of non-voting shares are entitled to vote
in the adoption of by-laws
- They are construed according to the general manner
of contracts, and penal when it comes to
disenfranchisement of members
- They must not be inconsistent with the Corporation
code or the articles of incorporation
Sec. 47. Contents of the by-laws
- May contain the following:
o Time, place and manner of calling the
regular and special meetings of directors or
trustees
o Time, place and manner of calling the
regular and special meetings of stockholders
or members
o Required quorum in meetings of
stockholders or members and the manner of
voting
o Form of proxies for stockholders or
members and manner of voting
o Qualifications, duties and compensation of
the directors or trustees, officers and
employees
o Time for holding of annual election of
directors/trustees and the manner of notice
o Manner of election or appointment and the
term of office of all officers other than
directors or trustees
o Penalties for violation of by laws
o Manner of issuing stock certificates
o Other matters necessary or convenient for
the transaction of its business
- Must not contravene the minimum requirement set by
the law
Sec. 48. Amendment of by-laws
- Amendment, repeal or adoption of new by-laws
o Majority vote of directors/trustees and
majority of outstanding capital stock or
members
o Power to amend may be delegated to board
upon 2/3 vote of outstanding capital stock or
members. But may be revoked when voted
by majority of outstanding capital stock or
members.
10
 Corporation Law Midterms
- Amendment or new by-laws shall be attached to the
original by-laws and duly certified copy by secretary
and majority of directors/trustees shall submitted to
the SEC
- Only effective upon the issuance of the SEC of
certification that they are not inconsistent with the
Corporation Code
Sec. 49. Kinds of meetings
- Regular or special
Sec. 50. Regular and special meetings of the board
- Regular meetings
o Held annually on a date fixed in the bylaws
o In the absence of date, held in April
o Written notice sent 2 weeks prior to meeting
unless different in bylaws
- Special meeting
o Any time as deemed necessary in the bylaws
o Notice at least one week before meeting
unless otherwise provided for in bylaws
- Notice to meeting may be waived
- When there is no person authorized to call meeting,
can be done by petition of stockholder or member to
the SEC, which the former shall preside the meeting
until majority have selected a presiding officer
Sec. 51. Place and time of meeting of stockholders or
members
- Held in the city or municipality where the principal
place of office of the corporation is located
- Metro Manila shall be considered as a city or
municipality
- All proceedings and transactions done as long as
within the power of the corporation shall be valid
even if irregularly held provided all the stockholders
or members are present or duly represented
Sec. 52. Quorum in meetings
- Shall comprise majority of all members or
stockholders representing majority of outstanding
capital stock, unless otherwise provided for in the
Corporation code or the bylaws.
Sec. 53. Regular and special meetings of board of directors
or trustees
- Regular meetings shall be held monthly unless
otherwise provided for by bylaws
- Special meetings shall be held upon call of the
President or as provided in the by laws
- Meetings may be held anywhere, in or out of the
Philippines unless bylaws provide otherwise. Notice
of time and place of meeting shall be sent 1 day
before unless otherwise provided for in bylaws
Sec. 54. Who shall preside at meetings
- The president for both meeting of directors/trustees
and stockholder/members unless the bylaws provide
otherwise
For personal use only. Unauthorized distribution prohibited
Richard Allan A. Lim
Sec. 55. Right to vote of pledgors, mortagors, and
administrators
- Pledgors and mortgagors of pledged or mortgaged
shares shall have the right to vote unless that right is
expressly given to the pledgee or mortgagee which is
recorded in the appropriate corporate books by the
pledgor or mortgagor
- Administrators, receivers, executors, and other legal
representatives duly appointed by the court may vote
without the need of any written proxy
- Non-voting shares such as preferred have the right to
vote unless otherwise provided for in the articles of
incorporation or bylaws
Sec. 56. Voting in case of joint ownership of stock.
- Consent of all co-owners is necessary, unless there is
a written proxy signed by all co-owners, authorizing
one or some of them or any other person to vote for
them
- Owner in an and/or capacity, any one of the joint
co-owners can vote said shares or appoint a proxy
Sec. 57. Voting rights of treasury shares
- No voting rights
Sec. 58. Proxies
- Stockholders may vote in person or by proxy
- Requirements for proxy
o In writing
o Signed by stockholder or member
o Filed before the scheduled meeting with the
corporate secretary
o Effective for meeting intended unless
otherwise provided for
o No proxy shall be valid and effective for a
period longer than 5 years at any one time
Sec. 59. Voting trusts
- For the purpose of conferring upon a trustee or
trustees the right to vote and other rights pertaining to
the shares for a period not exceeding 5 years
o Unless covered by a loan agreement where it
can exceed 5 years
- It must be in writing and notarized, and must state the
terms and conditions.
- A certified copy must be filed with the SEC,
otherwise it is unenforceable and ineffective.
- The certificates of stock covered by the voting trusts
shall be cancelled and new ones issued for trustee(s),
it shall also be noted in the books of the corporation
- Subject to examination by stockholders
- Cannot be used to circumvent the law against
monopolies and illegal trade
- Unless expressly renewed, the trust will expire
automatically and the certificates cancelled and new
certificates issued in the name of the transferor
Proxy Voting trust
No legal title Has legal title
Unless coupled with interest, Irrevocable for a definite and
11
 Corporation Law Midterms Richard Allan A. Lim
is revocable at any time limited period of time Sec. 63. Certificate of stock and transfer of shares
Can act only at a specified Not limited to particular - Capital stock of corporations shall be divided into
meeting meeting shares for which certificates shall be issued
Votes only in absence of Can vote and exercise all - Certificates (acknowledgment that a person is the
owner powers even in presence of owner of certain number of shares) shall be signed by
transferor the president or vice-president, countersigned by the
Shorter in time but cannot Cannot exceed 5 years secretary or assistant secretary, and sealed with the
exceed 5 years seal of the corporation
Need no be notarized nor Must be notarized and filed - They shall be issued in accordance with the bylaws
filed with SEC with SEC - Personal property which may be transferred by
No right of inspection of Has such right delivery of the certificate or certificates indorsed by
corporate books the owner or attorney-in-fact
- No transfer is valid until recorded in the books of the
Sec. 60. Subscription contract corporation
- Any contract for the acquisition of unissued stock in
an existing corporation or a corporation still to be Sec. 64. Issuance of stock certificates
formed - Cannot be issued until the full amount of the
- Kinds subscription together with the interest and expenses
o Pre-incorporation- still to be formed have been paid
corporation
o Post-incorporation- already existing Sec. 65. Liability of directors for watered stock
- Watered stock are those issued not for the equivalent
Sec. 61. Pre-incorporation subscription cash, property, share, dividends or services
- Shall be irrevocable for a period of at least 6 months - Directors or officers who consent to the issuance of
from the date of subscription, unless the same or knows but did not object in writing to the
o All other subscriber consent to the issuance and filed the same with the corporate
revocation secretary shall be liable solidarily with the
o Corporation fails to materialize within the stockholder concerned to the corporation and its
said period or within a longer period as may creditors for the difference in amount
be stipulated in the contract
- No pre-incorporation subscription may be revoked Sec. 66. Interest on unpaid subscriptions
after submission of the articles of incorporation with - Subscribers liable for interest on unpaid subscription
the SEC if required in the bylaws.
- Interest rate shall be the rate in the bylaws or in
Sec. 62. Consideration for stocks absence, the legal interest rate.
- Shall not be issued for less than par or issued value
- Consideration Sec. 67. Payment of balance of subscription
o Actual cash paid - Before subscribed stock becomes delinquent
o Property actually received by the o Subject to the provisions of the contract of
corporation necessary for its use and subscription, the board of directors of a
convenient and lawful purposes (fair stock corporation may at any time declare
valuation equal to the par or issued value of unpaid subscriptions due and payable and
the stock issued) may collect the same or such percentage.
o Labor or services actually rendered o Payment shall be made on the date stated in
o Previously incurred indebtedness of the the contract of subscription or date of call of
corporation the directors
o Amounts transferred from unrestricted o Failure to pay on said date renders the
retained earnings to stated capital subscriber liable for interest (legal interest ,
o Outstanding shares exchanged for stocks in unless fixed in the bylaws) computed from
the event of reclassification or conversion said date until full payment was made and
- Valuation of property shall be determined by the makes the entire balance due and payable
incorporators or the board, subject to the approval of o Failure to pay after 30 days from date
the SEC renders the subscribed stock delinquent and
- Cannot be issued for promissory notes or future subject to sale unless board of directors
services orders otherwise
- Issued price shall be fixed by articles of incorporation - Call is the declaration where there is a requirement of
or by board pursuant to authority conferred to it by all or a prescribed portion of the unpaid subscriptions
the articles of incorporation or bylaws, or in absence o Made in a manner prescribed by law
by majority of outstanding capital stock o By board of directors

For personal use only. Unauthorized distribution prohibited 12

 Corporation Law Midterms
o Operating uniformly upon all shareholders
Sec. 68. Delinquency sale
- Procedure
o Resolutions declaring unpaid subscriptions
payable
o Notice to delinquent stockholders of
resolution (must pay within 30 days from
date specified in subscription or call)
o Resolution ordering sale of delinquent
stocks
o Notice and publication (once a week for 2
consecutive weeks in a newspaper of general
circulation) of delinquent sale
- Unless the subscriber pays the
corporation of his balance along
with the costs, or unless the board
otherwise orders, the shares shall
be sold at public auction
o Sale at public auction
- Shall be sold to the bidder who
shall offer to pay to the full amount
on the balance of the subscription
together with accrued interest costs
and expenses for the smallest
number of shares or fraction of a
share
o Stock so purchased shall be transferred to
purchaser in the books of the corporation
and a certificate shall be issued.
o Any remaining shares shall be credited to
the delinquent stockholder who sjall be
likewise entitled to issuance of a certificate
o If there was no bidder who offers to pay the
full amount on the subscription together
with the costs for the smallest amount, the
corporation may bid for the same and it will
be credited in the books of the corporation,
which shall be vested as treasury shares
Sec. 69. When sale may be questioned
- Action to recover delinquent stock sold upon ground
of irregularity or defect in the notice of sale or sale
will not be sustained, unless the party seeking action
first pays or tenders to the party holding the stock the
sum for which the same was sold, plus interest from
date of sale
- Cannot be maintained unless commences within six
months from date of sale
Sec. 70. Court action to recover unpaid subscription
- Judicial remedy to recover prior subscription requires
that there be call as provided for by law (Sec. 67)
- Prescriptive period shall be within 10 years from the
time the right of action accrues for written
subscription and 6 years for oral
- Judicial remedy is limited to unpaid subscription
along with costs, interests and expenses, as with
public auction
For personal use only. Unauthorized distribution prohibited
Richard Allan A. Lim
- Action to collect unpaid subscription is an intra-
corporate controversy subject to jurisdiction of the
SEC
Sec. 71. Effects of delinquency
- Shall not be entitled to vote or be voted or to
representation in stockholders meetings
- Not entitled to the rights of stockholder except for
dividends in accordance to the provisions of law.
Until and unless there is payment of he amount due
on subscription with accrued interest and costs and
expenses
Sec. 72. Rights of unpaid shares
- Subscribers of shares not fully paid and are not
delinquent are entitled to the rights of a shareholder
Sec. 73. Lost and destroyed certificates
- Procedure
o Filing in triplicate of affidavit stating
circumstances of loss or destruction, the
number of shares represented by the
certificates, the serial numbers of the
certificates, the company that issued them,
and all other evidence deemed necessary
o After verification, publishing of notice for 3
consecutive weeks in a newspaper of general
circulation at the expense of the registered
owner of the certificates of stock. Such
notice contains the name of the corporation
issuing them, the number of shares
represented by the certificates, the serial
numbers of the certificates.
o After the expiration of one year from last
subscription, and no contest was made, the
same shall be barred and the lost certificates
will be cancelled and new ones issued as
recorded.
o It can be earlier if owner files a bond
running for a period of one year in an
amount deemed sufficient by the board,
o If contest was made or pending action over
said certificates, issuance of new certificates
shall be suspended until resolution of the
same
o No action may be brought against
corporation or officer who issued certificate
of stock in lieu of lost, stolen or destroyed
unless they acted in fraud, bad faith or
negligence
Sec. 74. Books to be kept; stock transfer agent
- Books and records to be kept
o All records of business transactions
o Minutes of all meetings of stockholders or
members
o Minutes of all meetings of directors or
trustees
o Stock transfer book for stock corporation
13
 Corporation Law Midterms Richard Allan A. Lim
- Requirements to operate as stock transfer agent
o License from the SEC
o Payment of annual fee fixed by the SEC
o Provided that
- A stock corporation is not
precluded from performing or
making transfers of its own stocks.
In such case the rules and
regulations imposed on stock
transfer agents except for payment
of license fee, shall be applicable

Sec. 75. Right to financial statements

- Corporation shall furnish for stockholder within 10
days from request its most recent financial statement
o Balance sheet as of end of taxable year
o Profit and loss statement as of end of taxable
year
- At regular meeting stockholders or members shall be
presented by the board a financial report of the
operations of the corporation for the preceding year,
which shall include financial statements duly signed
and certified by an independent CPA
- If paid-up capital is less than P50,000, the financial
statements may be certified under oath by the
treasurer or any responsible officer of the corporation

For personal use only. Unauthorized distribution prohibited 14