PARTNERSHIP

Q: What is partnership?
A: A contract whereby two or more persons bind
themselves to contribute money, property, or
industry to a common fund, with the intention of
dividing the profits among themselves.

Q: What are the essential elements of a

partnership?
A:
-Agreement to contribute money, property or
industry to a common fund (mutual contribution to
a common stock); and

-Intention to divide the profits among the

contracting parties (joint interest in the profits).
(Evangelista v. Collector of Internal Revenue,
G.R. No. L9996, Oct. 15, 1987).

Q: What are the requisites of a partnership?

A: ICJ
Intention to create a partnership
Common fund obtained from contributions
Joint interest in dividing the profits (and losses)

Q: What are the characteristics of a

partnership?
A: BONCCPP
Bilateral it is entered into by two or more
persons and the rights and obligations arising
therefrom are reciprocal
Onerous each of the parties aspires to procure
for himself a benefit through the giving of
something
Nominate it has a special name or designation
in our law
Consensual perfected by mere consent
Commutative the undertaking of each of the
partners is considered as the equivalent of that of
the others
Principal its life does not depend on the
existence of another contract
Preparatory because it is entered into as a
means to an end, i.e. to engage in business
Fiduciary it is based on trust and confidence

Q: Jose entered into a verbal agreement with

Francisco to form a partnership for the
purchase of cascoes for a proposed boat
rental business. It was agreed that Francisco
would buy the cascoes and each partner is to
furnish such amount of money as he could,
 and that the profits will be divided
proportionately. After Francisco purchased a
casco with the money advanced by Jose, they
undertook to draft the articles of partnership
and embody the same in an authentic
document. However, they did not come to an
agreement. So, Francisco returned the money
advanced by Jose, which the latter received
with an express reservation of all his rights as
a partner.
Was there a partnership formed between Jose
and Francisco?
Yes. Both elements in a contract of partnership
exist: a) mutual contribution to a common stock,
and b) a joint interest in the profits. If the contract
contains these two elements, a partnership
relation results, and the law itself fixes the
incidents of this relation if the parties fail to do so.
In this case, there was money furnished by Jose
and received by Francisco for the purchase of the
cascoes and there was also an intention to divide
the profits proportionately between them. Thus,
there is a partnership by virtue of the verbal
agreement between Jose and Francisco.
If such partnership existed, was it terminated
by the receipt of Jose of the money he
advanced?
No. There was no clear intent on the part of Jose,
in accepting the money, to relinquish his rights as
a partner. (Fernandez v. Dela Rosa, G.R. No. 413,
Feb. 2, 1903)
Q: Chim was the owner and manager of a
lumber yard. Vicente and Ting participated in
the profits and losses. A contract of sawing
lumber was entered into by Chim, acting in his
own name, with Frank. At the time the contract
was made, they were the joint proprietors and
operators of the said lumber yard engaged in
the purchase and sale of lumber under the
name and style of Chim. In an action to
recover the balance under the contract filed by
Frank against Chim, Vicente and Ting, the
latter two alleged that they are not Chims
partners. Did Chim, Vicente and Ting form a
partnership?
A: No. A simple business was formed by Chim
exclusively in his own name and under his
personal management and he effected every
transaction in his name and in the names of other
persons interested in the profits and losses of the
business. What has been formed is an accidental
partnership of cuentas en participacion
Q: Henry and Lyons are engaged in real estate
business and are coowners of a parcel of
 land. Henry, with the consent of Lyons,
mortgaged the property to raise the funds
sufficient to buy and develop the San Juan
Estate. Lyons expressed his desire not to be
part of the development project, but Henry,
nevertheless, pursued the business alone.
When the business prospered, Lyons
demanded for a share in the business. Is
Lyons entitled to the shares in San Juan
Estate?
A: No. Lyons himself manifested his desire not to
be part of the development project. Thus, no
partnership was formed. The mortgage of the land
was immaterial to the existence of the partnership.
It is clear that Henry, in buying the San Juan
Estate, was not acting for any partnership
composed of himself and Lyons, and the law
cannot be distorted into a proposition which would
make Lyons a participant in this deal contrary to
his express determination. (Lyons v. Rosenstock,
G.R. No. 35469, Mar. 17, 1932)
Q: Catalino and Ceferino acquired a joint
tenancy over a parcel of land under a verbal
contract of partnership. It was stipulated that
each of the said purchasers should pay
onehalf of the price and that an equal division
should be made between them of the land thus
purchased. Despite Catalinos demand for an
equal division between them, Ceferino refused
to do so and even profited from the fruits of
the land. Are they partners or coowners?
A: They are coowners because it does not
appear that they entered into any contract of
partnership but only for the sole transaction of
acquiring jointly or by mutual agreement of the
land under the condition that they would pay of
the price of the land and that it be divided equally
between them. (Gallemit v. Tabiliran, G.R. No.
5837, Sept. 15, 1911)
Q: May a partnership be formed even if the
common fund is comprised entirely of
borrowed or loaned money? What would be
the liability of the partners in such a case?
A: Yes. A partnership may be deemed to exist
among parties who agree to borrow money to
pursue a business and to divide the profits or
losses that may arise therefrom, even if it is
shown that they have not contributed any capital
of their own to a "common fund." Their
contribution may be in the form of credit or
industry, not necessarily cash or fixed assets.
Being partners, they are all liable for debts
incurred by or on behalf of the partnership. (Lim
 Tong Lim v. Philippine Fishing Gear Industries,
Inc., G.R. No. 136448, Nov. 3, 1999)
Q: Mariano and Isabelo entered into a
partnership agreement wherein they are to
contribute P15,000 each for the purpose of
printing 95,000 posters. Isabelo was unable to
print enough posters pursuant to the
agreement, thus he executed in favor of
Mariano a promissory note in an amount
equivalent to the unrealized profit due to
insufficient printing. The whole amount
became due but Isabelo defaulted payment. Is
Mariano entitled to file a case for the recovery
of the unrealized profit of the partnership?
A: No. The essence of a partnership is to share in
the profits and losses, thus, Mariano should
shoulder the losses with Isabelo. (Moran Jr., v.
CA, G.R. No. L59956, Oct. 31, 1984)
Q: Jose conveyed his lots in favor of his four
sons in order for them to build their
residences. His sons sold the lots since they
found the lots impractical for residential
purposes because of high costs of
construction. They derived profits from the
sale and paid income tax. The sons were
required to pay corporate income tax and
income tax deficiency, on the theory that they
formed an unregistered partnership or joint
venture taxable as a corporation. Did the
siblings form a partnership?
A: No. The original purpose was to divide the lots
for residential purposes. If later, they found out
that it is not feasible to build their residences on
the lots, they can dissolve the coownership by
reselling said lots. The division on the profit was
merely incidental to the dissolution of the
coownership which was in the nature of things a
temporary state. (Obillos, Jr. v. CIR, G.R. No.
L68118, Oct. 29, 1985)
Q: A and B are coowners of an inherited
properties. They agreed to use the said
common properties and the income derived
therefrom as a common fund with the intention
to produce profits for them in proportion to
their respective shares in the inheritance as
determined in a project of partition. What is
the effect of such agreement on the existing
coownership?
A: The coownership is automatically converted
into a partnership. From the moment of partition, A
and B, as heirs, are entitled already to their
respective definite shares of the estate and the
income thereof, for each of them to manage and
dispose of as exclusively his own without the
 intervention of the other heirs, and, accordingly,
he becomes liable individually for all the taxes in
connection therewith.
If, after such partition, an heir allows his shares to
be held in common with his coheirs under a
single management to be used with the intent of
making profit thereby in proportion to his share,
there can be no doubt that, even if no document
or instrument were executed for the purpose, for
tax purposes, at least, an unregistered partnership
is formed. (Ona v. Commissioner of Internal
revenue, 45 SCRA 74 [1972])
Q: What are the typical incidents of
partnership?
A:
The partners share in profits and losses. (Arts.
1767,179798)
They have equal rights in the management and
conduct of the partnership business. (Art. 1803)
Every partner is an agent of partnership, and
entitled to bind the other partners by his acts, for
the purpose of its business. (Art. 1818)
All partners are personally liable for the debts of
the partnership with their separate property (Arts.
1816, 182224) except limited partners.
A fiduciary relationship exists between the
partners. (Art. 1807)
On dissolution, the partnership is not terminated,
but continues until the winding up of partnership is
completed. (Art 1828)
Q: What are the rules regarding distribution of
profits and losses?
A:
Distribution of profits
o The partners share in the profits according to their
agreement
o In the absence of such:
Capitalist partner in proportion to his contribution
. Industrial partner what is just and equitable
under the circumstances
Distribution of losses
o The partners share in the losses according to their
agreement
o In the absence of such, according to their
agreement as to profits
o In the absence of profit agreement, in proportion
to his capital contribution
Q: What is the rule regarding a stipulation
which excludes a partner in the sharing of
profits and losses?
A:
GR: Stipulation is void.
 XPN: Industrial partner is not liable for losses [Art.
1797(2), NCC]. However, he is not exempted from
liability insofar as third persons are concerned.
Q: How are partnerships formed?
A: It is created by agreement of the parties
(consensual).
Q: What are the formalities needed for the
creation of a partnership?
A:
GR: No special form is required for its validity or
existence. (Art. 1771, NCC)
XPN: If property or real rights have been
contributed to the partnership:
Personal property
o Less than P3,000 may be oral
o P 3,000 or more must be:
in a public instrument; and
. registered with SEC (Art. 1772, NCC)
Real property or real rights must be:
o in a public instrument (Art. 1771, NCC)
o with an inventory of said property
signed by the parties
. attached to the public instrument (Art. 1773,
NCC)
Note: Everything must be complied with;
otherwise, partnership is void and has no juridical
personality even as between the parties (Art.
1773, NCC)
. registered in the Registry of Property of the
province, where the real property is found to bind
third persons (Paras, p. 412)
Limited partnership must be registered as such
with SEC, otherwise, it is not valid as a limited
partnership but may still be considered a general
partnership with juridical personality (Paras, Civil
Code of the Philippines Annotated, Volume 5, p.
412, 1969 6th ed
Q: If the requirements under Art. 1773, as
regards contribution of real property to a
partnership, has not been complied with, what
is the status of the partnership?
A: It is void. Nonetheless, a void partnership
under Art. 1773, in relation to Art. 1771 NCC, may
still be considered by the courts as an ordinary
contract as regards the parties thereto from which
rights and obligations to each other may be
inferred and enforced. (Torres v. CA, G.R. No.
134559, Dec. 9 1999)
Q: What must be done in order that the
partnership may be effective as against third
persons whenever immovable property is
contributed?
A: To be effective against 3rd parties, partnership
must be registered in the Registry of Property of
 the province where the real property contributed is
located. (Art. 1771, NCC )
Q: Can there be a partnership based on a
verbal agreement, and without such
agreement being registered with SEC?
A: Yes. Article 1772 NCC requires that
partnerships with a capital of P3,000 or more must
register with SEC. However, this registration
requirement is not mandatory. Article 1768 NCC
explicitly provides that the partnership retains its
juridical personality even if it fails to register. The
failure to register the contract of partnership does
not invalidate the same as among the partners, so
long as the contract has the essential requisites,
because the main purpose of registration is to give
notice to third parties, and it can be assumed that
the members themselves knew of the contents of
their contract. Noncompliance with this directory
provision of the law will not invalidate the
partnership.
A partnership may be constituted in any form,
except where immovable property of real rights
are contributed thereto, in which case a public
instrument shall be necessary. Hence, based on
the intention of the parties, a verbal contract of
partnership may arise. (SungaChan v. Chua,
G.R. No. 143340, Aug. 15, 2001)
Q: A partnership was entered into between
Mauricio and Severino to operate a fishpond.
Neither partner contributed a fishpond or a
real right over any fish pond. Their capital
contributions were in cash in the amount of
P1,000 each. While the partnership contract
was done in a public instrument, no inventory
of the fishpond to be operated was attached in
the said instrument. Is there a valid contract of
partnership?
A: Yes. There is a valid contract of partnership
despite the lack of inventory. The purpose of the
partnership was not to engage in the fishpond
business but to operate a fishpond. Neither said
fishpond nor a real right to any fish pond was
contributed to the partnership or become part of
the capital thereof. (Agad v. Mabato, G.R. No.
L24193, June 28, 1968
Q: What is a partnership with a fixed term?
A: It is one in which the term of its existence has
been agreed upon by the partners either:
Expressly there is a definite period
Impliedly a particular enterprise or transaction is
undertaken
Q: Can the partners fix any term in the
partnership contract?
 A: Yes. The partners shall be bound to remain
under such relation for the duration of the term.
Q: What is the effect when the fixed term has
expired?
A: The expiration of the term fixed or the
accomplishment of the particular undertaking
specified will cause the automatic dissolution of
the partnership.
Q: When does a partnership commence to
exist?
A: A partnership commences from the time of
execution of the contract if there is no contrary
stipulation as to the date of effectivity of the same.
NOTE: Registration to SEC is not essential to give
it juridical personality.
There is no time limit prescribed by law for the life
of a partnership.
Q: What is a future partnership?
A: It is a kind of partnership where the partners
may stipulate some other date for the
commencement of the partnership. Persons who
enter into a future partnership do not become
partners until or unless the agreed time has
arrived or the contingency has happened.
NOTE: It is a partnership created by implied
agreement, the continued existence of which will
depend upon the mutual desire and consent of the
partners.
Q: When is a partnership at will terminate?
A: It may be lawfully terminated at any time by the
express will of all the partners or any of them.
Q: How is a partnership at will dissolved?
A: Any one of the partners may dictate a
dissolution of a partnership at will.
Q: State the classifications of partnership.
A: As to:
Object
o Universal partnership
of all present property (Art. 1778, NCC)
comprises the following:
roperty which belonged to each of the partners at
the time of the constitution of the partnership
profits which they may acquire from all property
contributed
ii. of all profits (Art. 1780, NCC) comprises all
that the partners may acquire by their industry or
work during the existence of the partnership
Particular partnership It is one which has for its
object, determinate things, their use and fruits, or
a specific undertaking or the exercise of a
profession or a vocation. (Art. 1783, NCC)
Liability of partners
o General partnership One where all partners are
general partners who are liable even with respect
to their individual properties, after the assets of
the partnership have been exhausted (Paras,p.
411)
o Limited partnership One formed by 2 or more
persons having as members one or more general
partners and one or more limited partners, the
latter not being personally liable for the obligations
of the partnership.
Duration
o Partnership at will Partnership for a particular
undertaking or venture which may be terminated
anytime by mutual agreement.
o Partnership with a fixed period The term for
which the partnership is to exist is fixed or agreed
upon or one formed for a particular undertaking.
Legality of existence
o De jure partnership
o De facto partnership
Representation to others
o Ordinary or real partnership
o Ostensible or partnership by estoppel When two
or more persons attempt to create a partnership
but fail to comply with the legal personalities
essential for juridical personality, the law
considers them as partners, and the association is
a partnership insofar as it is favorable to third
persons, by reason of the equitable principle of
estoppel (MacDonald et. al. v. Natl. City Bank of
New York, G.R. No. L7991, May 21, 1956)
Publicity
o Secret partnership Partnership that is not known
to many but only as to its partners.
o Notorious or open partnership It is known not
only to the partners, but to the public as well.
Purpose
o Commercial or trading One formed for the
transaction of business.
o Professional or nontrading One formed for the
exercise of a profession
Q: Who may be partners?
A:
GR: Any person capacitated to contract may enter
into a contract of partnership.
XPNs:
Persons who are prohibited from giving each other
any donation or advantage
cannot enter into a universal partnership. (Art.
1782, NCC)
Persons suffering from civil interdiction
Persons who cannot give consent to a contract:
o Minors
o Insane persons
o Deafmutes who do not know how to write
Q: What is the principle of delectus personae?
A: This refers to the rule that is inherent in every
partnership, that no one can become a member of
the partnership association without the consent of
all the partners.
Q: May a corporation enter into a partnership
with another corporation?
A: As a rule, it is illegal for two corporations to
enter into a partnership. Nevertheless, a
corporation may enter into a joint venture with
another if the nature of the venture is in line with
the business authorized by its charter. (Tuason v.
Bolaos, G.R. No. L4935, May 28, 1954)
Q: What are the different kinds of partners?
A:
Capitalist Contributes money or property to the
common fund
Industrial Contributes only his industry or
personal service
General One whose liability to 3rd persons
extends to his separate or personal property
Limited One whose liability to 3rd persons is
limited to his capital contribution
Managing Manages the affairs or business of
the partnership
Liquidating Takes charge of the winding up of
partnership affairs upon dissolution
Partner by estoppel Is not really a partner but is
liable as a partner for the protection of innocent
3rd persons
Continuing partner Continues the business of a
partnership after it has been dissolved by reason
of the admission of a new partner, retirement,
death or expulsion of one of the partners
Surviving partner Remains after a partnership
has been dissolved by death of any partner
Subpartner Is not a member of the partnership;
contracts with a partner with reference to the
latter's share in the partnership
Ostensible Takes active part and known to the
public as partner in the business
Secret Takes active part in the business but is
not known to be a partner by outside parties
Silent Does not take any active part in the
business although he may be known to be a
partner
Dormant Does not take active part in the
business and is not known or held out as a partner
Q: If the Articles of Universal Partnership fail
to specify whether it is one of all present
property or of profits, what shall be the nature
of such?
 A: Articles of Universal Partnership entered into
without specification of its nature only constitutes
a universal partnership of profits (Art. 1781, NCC),
because it imposes lesser obligations on the
partners, since they preserve the ownership of
their separate property.
Q: What is particular partnership?
A: It is one which has for its object, determinate
things, their use and fruits, or a specific
undertaking or the exercise of a profession or a
vocation. (Art. 1783, NCC)
Q: J, P and B formed a limited partnership
called Suter Co., with P as the general partner
and J and B as limited partners. J and B
contributed P18,000 and P20,000 respectively.
Later, J and B got married and P sold his
share of the partnership to the spouses which
was recorded in the SEC. Has the limited
partnership been dissolved by reason of the
marriage between the limited partners?
A: No. The partnership is not a universal but a
particular one. As provided by law, a universal
partnership requires either that the object of the
association must be all present property of the
partners as contributed by them to a common
fund, or all else that the partners may acquire by
their industry or work. Here, the contributions were
fixed sums of money and neither one of them
were industrial partners. Thus, the firm is not a
partnership which the spouses are forbidden to
enter into. The subsequent marriage cannot
operate to dissolve it because it is not one of the
causes provided by law. The capital contributions
were owned separately by them before their
marriage and shall remain to be separate under
the Spanish Civil Code. Their individual interest
did not become common property after their
marriage. (Commissioner of Internal Revenue v.
Suter, G.R. No. L25532, Feb. 28, 1969)
Q: When does a partner bind the partnership?
A:
When he is expressly or impliedly authorized
When he acts in behalf and in the name of the
partnership
GENERAL PARTNERSHIP
Q: What is general partnership?
A: One where all partners are general partners
who are liable even with respect to their individual
properties, after the assets of the partnership have
been exhausted (Paras, Civil Code of the
Philippines Annotated, Volume 5, p. 411, 1969 6th
ed)
Q: Who is a general partner?
 A: One whose liability to third persons extends to
his separate property; he may be either a
capitalist or an industrial partner. (De Leon,
Comments and Cases on Partnership, Agency,
and Trust, p. 77, 2005 ed)
Q: What are the obligations of a partner?
A:
Obligations among themselves
Obligations to third persons
Q: What is the basis for such obligations?
A: These obligations are based on trust and
confidence of the partners since partnership is
grounded on the fiduciary relationship of the
partners and as well to third persons.
Q: Who is a partner by estoppel?
A: One who, by words or conduct does any of the
following:
Directly represents himself to anyone as a partner
in an existing partnership or in a nonexisting
partnership
Indirectly represents himself by consenting to
another representing him as a partner in an
existing partnership or in a nonexisting
partnership
Q: What are the elements before a partner can
be held liable on the ground of estoppel?
A:
Defendant represented himself as partner or is
represented by others as such, and did not
deny/refute such representation.
Plaintiff relied on such representation.
Statement of defendant is not refuted.
LIABILITIES IN CASE OF ESTOPPEL
WHEN PARTNERSHIP LIABLE
If all actual partners consented to the
representation, then the liability of the person who
represented himself to be a partner or who
consented to such representation and the actual
partner is considered a partnership liability
WHEN LIABILITY IS PRO-RATA
When there is no existing partnership and all
those represented as partners consented to the
representation, then the liability of the person who
represented himself to be a partner and all who
made and consented to such representation, is
joint or prorata
WHEN LIABILITY IS SEPARATE
When there is no existing partnership and not all
but only some of those represented as partners
consented to the representation, or none of the
partnership in an existing partnership consented
to such representation, then the liability will be
separate
 Q: What is a professional partnership?
A: It is a partnership formed by persons for the
sole purpose of exercising their common
profession, no part of the income of which is
derived from engaging in any trade or business.
Q: In a professional partnership, who is
deemed engaged in the practice of
profession?
A: It is the individual partners and not the
partnership. Thus, they are responsible for their
own acts.
Q: What is prohibited in the formation of a
professional partnership?
A: Partnership between lawyers and members of
other profession or nonprofessional persons
should not be formed or permitted where any part
of the partnerships employment consists of the
practice of law. (Canons of Professional Ethics)
Q: What are the characteristics of a
partnership for the practice of law?
A:
A duty of public service, of which the emolument
is a byproduct
A relation as an officer of court to the
administration of justice
A relation to clients in the highest fiduciary degree
A relationship to colleagues at the bar
characterized by candor, fairness, and
unwillingness to resort to current business
methods of advertising and encroachment on their
practice, or dealing with their clients. (In the Matter
of Petition for Authority to Continue Use of Firm
Name Sycip, Salazar, etc. / Ozeata Romulo,
etc., 92 SCRA 1 [1979], citing H.S. Drinker, Legal
Ethics [1953], pp45.)
Q: What is prohibited in the firm name of a
partnership for the practice of law?
A: In the selection and use of firm name, no false,
misleading, assumed, or trade names should be
used. (Canons of Professional Ethics)
Q: What is the rule when the manner of
management has not been agreed upon?
A:
All partners shall be considered managers and
agents
Unanimous consent is required for alteration of
immovable property
Q: What are the remedies available to the
creditors of a partner?
A:
Separate or individual creditors should first secure
a judgment on their credit; and
 Apply to the proper court for a charging order
subjecting the interest of the debtorpartner in the
partnership for the payment of the unsatisfied
amount of the judgment debt with interest thereon.
Q: What are the responsibilities of a
partnership to partners?
Refund the amounts disbursed by partner in
behalf of the partnership plus corresponding
interest from the time the expenses are made
(e.g. loans and advances made by a partner to the
partnership aside from capital contribution)
Answer for obligations a partner may have
contracted in good faith in the interest of the
partnership business
Answer for risks in consequence of its
management (Art. 1796)
Q: What are the obligations of partners among
themselves?
A:
Contribution of property (Art. 1786)
Contribution of money and money converted to
personal use (Art. 1788)
Prohibition in engaging in business for himself
(Art. 1789)
Contribute additional capital (Art. 1791)
Managing partner who collects debt (Art. 1792)
Partner who receives share of partnership credit
(Art. 1793)
Damages to partnership (Art. 1794)
Render information (Art. 1806)
Accountable as fiduciary (Art. 1807)
Q: What are the obligations of partners with
respect to contribution of property?
A: To CAFPI
Contribute at the beginning of the partnership, or
at the stipulated time, the money, property or
industry which he may have promised to
contribute
Answer for eviction in case the partnership is
deprived of the determinate property contributed
Answer to the partnership for the Fruits of the
property the contribution of which he delayed,
from the date they
should have been contributed up to the time of
actual delivery
Preserve said property with the diligence of a
good father of a family, pending delivery to the
partnership
Indemnify the partnership for any damage caused
to it by the retention of the same or by the delay in
its contribution
Q: What are the obligations of partners with
respect to contribution of property?
 A: To CAFPI
Contribute at the beginning of the partnership, or
at the stipulated time, the money, property or
industry which he may have promised to
contribute
Answer for eviction in case the partnership is
deprived of the determinate property contributed
Answer to the partnership for the Fruits of the
property the contribution of which he delayed,
from the date they
should have been contributed up to the time of
actual delivery
Preserve said property with the diligence of a
good father of a family, pending delivery to the
partnership
Indemnify the partnership for any damage caused
to it by the retention of the same or by the delay in
its contribution
Q: What is the effect if a partner fails to
contribute the property which he promised to
deliver to the partnership?
A:
Partners become ipso jure a debtor of the
partnership even in the absence of any demand
(Art. 1786, NCC)
Remedy of the other partner is not rescission but
specific performance with damages from
defaulting partner
Q: What are the rules regarding contribution of
money to the partnership?
A: CRIP
To Contribute on the date fixed the amount the
partner has undertaken to contribute to the
partnership
To Reimburse any amount the partner may have
taken from the partnership coffers and converted
to his own use
To Indemnify the partnership for the damages
caused to it by delay in the contribution or
conversion of any sum for the partners personal
benefits
To Pay for the agreed or legal interest, if the
partner fails to pay his contribution on time or in
case he takes any amount from the common fund
and converts it to his own use
Q: What are the rules regarding obligations to
contribute to partnership capital?
A:
Partners must contribute equal shares to the
capital of the partnership unless there is
stipulation to contrary
Capitalist partners must contribute additional
capital in case of imminent loss to the business of
the partnership when there is no stipulation to the
 contrary; Refusal to do so shall create an
obligation on the refusing partner to sell his
interest to the other partners
Q: What are the requisites before capitalist
partners are compelled to contribute
additional capital?
A:
Imminent loss of the business of the partnership
Majority of the capitalist partners are of the
opinion that an additional contribution to the
common fund would save the business
Capitalist partner refuses deliberately to contribute
(not due to financial inability)
There is no agreement to the contrary
Q: What are the obligations of managing
partners who collect his personal receivable
from a person who also owes the partnership?
A:
Apply sum collected to 2 credits in proportion to
their amounts
If he received it for the account of partnership, the
whole sum shall be applied to partnership credit
Partner who collects is authorized to manage and
actually manages the partnership
Q: What is the obligation of a partner who
receives share of partnership credit?
A: To bring to the partnership capital what he has
received even though he may have given receipt
for his share only.
Q: May a person who has not directly
transacted in behalf of an unincorporated
association be held liable for a contract
entered into by such association?
A: Yes. The liability for a contract entered into on
behalf of an unincorporated association or
ostensible corporation may lie in a person who
may not have directly transacted on its behalf, but
reaped benefits from that contract. (Lim Tong Lim
v. Philippine Fishing Gear Industries Inc., G.R. No.
136448, Nov. 3, 1999)
Q: What are the rules regarding the prohibition
to engage in another business?
Q: Joe and Rudy formed a partnership to
operate a car repair shop in Quezon City. Joe
provided the capital while Rudy contributed
his labor and industry. On one side of their
shop, Joe opened and operated a coffee shop,
while on the other side, Rudy put up a car
accessories store. May they engage in such
separate businesses? Why?
A: Joe, the capitalist partner, may engage in the
restaurant business because it is not the same
kind of business the partnership is engaged in. On
the other hand, Rudy may not engage in any other
 business unless their partnership expressly
permits him to do so because as an industrial
partner he has to devote his full time to the
business of the partnership (Art. 1789, NCC).
(2001 Bar Question)
Q: What is the rule with regard to the
obligation of a partner as to damages suffered
by the partnership through his fault?
A:
GR: Every partner is responsible to the
partnership for damages suffered by it through his
own fault. These damages cannot be offset by the
profits or benefits which he may have earned for
the partnership by his industry.
XPN: If unusual profits are realized through
extraordinary efforts of the guilty partner, the
courts may equitably mitigate or lessen his liability
for damages. (Art. 1794, NCC)
Q: What is the duty of the partners with
respect to information affecting the
partnership?
A: They shall render on demand true and full
information of all things affecting the partnership
to:
the partner; or
legal representative of any deceased or legally
disabled partner. (Art. 1806, NCC)
ACCOUNTABLE AS FIDUCIARY
Q: How are partners accountable to each other
as fiduciary?
A: Every partner must account to the
partnership for any benefit, and hold as
trustee for it any profits derived by him
without the consent of the other partners from
any transaction connected with the formation,
conduct, or liquidation of the partnership or from
any use by him of its property. (Art. 1807, NCC)
RIGHTS OF GENERAL PARTNERS
Q: What are the property rights of a partner?
A: SIM
Right in Specific partnership property
Interest in the partnership (share in the profits
and surplus)
Right to participate in the Management
Q: What is the nature of a partner's right in
specific partnership property?
A:
Equal right to possession for partnership purposes
Right is not assignable, except in connection with
assignment of rights of all partners in the same
property
Right is limited to his share of what remains after
partnership debts have been paid
 Right is not subject to attachment or execution
except on a claim against the partnership
Right is not subject to legal support
Q: What are the effects of assignment of
partners whole interest in the partnership?
A:
o Rights withheld from the assignee:
Such assignment does not grant the assignee the
right to:
o To interfere in the management
o To require any information or account
o To inspect partnership books
o Rights of assignee on partners interest:
o To receive in accordance with his contract the
profits accruing to the assigning partner
o To avail himself of the usual remedies provided by
law in the event of fraud in the management
o To receive the assignors interest in case of
dissolution
o To require an account of partnership affairs, but
only in case the partnership is dissolved, and such
account shall cover the period from the date only
of the last account agreed to by all the partners
Q: What are the effects of conveyance of a
partner of his interest in the partnership?
A:
o Conveyance of his whole interest partnership
may either remain or be dissolved
o Assignee does not necessarily become a partner;
he cannot:
interfere in the management or administration; or
demand information, accounting and inspection of
the partnership books.
CRIMINAL LIABILITY FOR
MISAPPROPRIATION: ESTAFA
Q: Rosa received from Jois money, with the
express obligation to act as Jois agent in
purchasing local cigarettes, to resell them to
several stores, and to give Jois the
commission corresponding to the profits
received. However, Rosa misappropriated and
converted the said amount due to Jois to her
personal use and benefit. Jois filed a case of
estafa against Rosa. Can Rosa deny liability
on the ground that a partnership was formed
between her and Rosa?
A: No. Even assuming that a contract of
partnership was indeed entered into by and
between the parties, when a partner receives
any money or property for a specific purpose
(such as that obtaining in the instant case) and
he later misappropriates the same, is guilty of
estafa. (Liwanag v. CA, G.R. No. 114398, Oct.
24, 1997)
 Q: What are the obligations of partners with
regard to 3rd persons?
A:
o Every partnership shall operate under a firm
name. Persons who include their names in the
partnership name even if they are not members
shall be liable as a partner
o All partners shall be liable for contractual
obligations of the partnership with their property,
after all partnership assets have been exhausted:
Pro rata
Subsidiary
o Admission or representation made by any partner
concerning partnership affairs within the scope of
his authority is evidence against the partnership
o Notice to partner of any matter relating to
partnership affairs operates as notice to
partnership except in case of fraud:
Knowledge of partner acting in the particular
matter acquired while a partner
Knowledge of the partner acting in the particular
matter then present to his mind
Knowledge of any other partner who reasonably
could and should have communicated it to the
acting partner
o Partners and the partnership are solidarily liable to
3rd persons for the partner's tort or breach of trust
o Liability of incoming partner is limited to:
His share in the partnership property for existing
obligations
His separate property for subsequent obligations
o Creditors of partnership are preferred in
partnership property & may attach partner's share
in partnership assets
Q: What are the causes of dissolution?
A:
o Without violating the agreement:
Termination of the definite term or specific
undertaking
Express will of any partner in good faith, when
there is no definite term and no specified
undertaking
Express will of all partners (except those who
have assigned their interests or suffered them to
be charged for their separate debts) either before
or after the termination of any specified term or
particular undertaking
Expulsion of any partner in good faith of a
member
o Violating the agreement
o Unlawfulness of the business
o Loss
Specific thing promised as contribution is lost or
perished before delivery
 Loss of a specific thing contributed before or after
delivery, if only the use of such is contributed
Note: The partnership shall not be dissolved
by the loss of the thing when it occurs after
the partnership has acquired the ownership
thereof.
o Death of any of the partners
o Insolvency of any partner or of the partnership
o Civil interdiction of any partner
By decree of court under Art. 1831, NCC
a partner has been declared insane or of unsound
mind
a partner becomes in any other way incapable of
performing his part of the partnership contract

CORPORATION LAW
Q: What is a corporation?
A: An artificial being created by operation of law
having the right of succession, and the powers,
attributes and properties expressly authorized by
law and incident to its existence. (Sec. 2)
Q: What are the attributes of a corporation?
A:
It is an artificial being
It is created by operation of law
It enjoys the right of succession
It has the powers, attributes and properties
expressly authorized by law or incident to its
existence
GSIS
SSS
MAYNILAD
SMC
ASIA BREWERY
NESTLE
TANDUAY DISTILLERS
WYETH SUACO
SUMIDEN
CITY GOVT OF CABUYAO
Q: What are the classifications of corporation?
A:
1. As to Corporation Code:
a. STOCK CORPORATION one which have
capital stock divided into shares and are
authorized to distribute to the holders of such
shares dividends or allotments or the surplus
profits on the basis of the shares held. ( Sec 3 )
b. NON STOCK CORPORATION is one which
do not issue shares and are created not for profit
but for public good and welfare and where no part
of its income is distributable as dividends to its
members, trustees, or officers. (Sec 87)
 2. As to the number of persons who compose
them:
a. Corporation aggregate corporation consisting
of more than one member or corporator;
b. Corporation Sole religious corporation which
consists of one member or corporator only and his
successor.
3. As to whether they are for religious purpose or
not:
a. Ecclesiastical corporation one organized for
religious purpose
b. Lay corporation one organized for a purpose
other than for religion.
4. As to whether they are for charitable purpose or
not:
a. Eleemosynary one established for religious
purposes
b. Civil one established for business or profit
5. As to state or country under or by whose laws
they have been created:
a. Domestic one incorporated under the laws of
the Philippines
b. Foreign one formed, organized, or existing
under any laws other than those of the Philippines
and whose laws allow Filipino citizens and
corporations to do business in its own country or
state. (Sec 123)
6. As to their legal right to corporate existence:
a. De jure one existing both in fact and in law
b. De facto one existing in fact but not in law
7. As to whether they are open to the public or
not:
a. Close one which is limited to selected persons
or members of the family. (Sec 96 105)
b. Open one which is open to any person who
may which to become a stockholder or member
thereto
8. As to their relation to another corporation
a. Parent or Holding one which is related to
another corporation that it has the power either,
directly or indirectly to, elect the majority of the
director of such other corporation
b. Subsidiary one which is so related to another
corporation that the majority of its directors can be
elected either, directly or indirectly, by such other
corporation
9. As to whether they are corporations in a true
sense or only in a limited sense:
a. True one which exists by statutory authority
b. Quasi one which exist without formal legislative
grant.
o i. Corporation by prescription one which has
exercised corporate powers for an indefinite
 period without interference on the part of the
sovereign power and which by fiction of law, is
given the status of a corporation;
o ii. Corporation by estoppel one which in reality is
not a corporation, either de jure or de facto,
because it is so defectively formed, but is
considered a corporations in relation to those only
who, by reason of theirs acts or admissions, are
precluded from asserting that it is not a
corporation.
10. As to whether they are for public (government)
or private purpose:
a. Public one formed or organized for the
government or a portion of the State
b. one formed for some provate purpose, benefit
or end
Corporations Created by Special Laws /
Charters

Corporations may be also formed by virtue of

special laws or charters, and shall be governed
primarily by the provisions applicable to them.
Examples: Social Security System (SSS), a
government-owned and controlled corporation is
formed by virtue by Republic Act 1161 (Social
Security Law), and as amended by Republic Act
8282 (Social Security Act of 1997), and is not
covered by the Corporation Code of the
Philippines
Components of a Corporation

Corporators. Those who comprise thecorporation,

including stockholders, members, incorporators, et
cetera.
Incorporators. Those stockholders or members
mentioned in the articles of incorporation as
originally forming and composing the corporation
and who are signatories thereof.
Stockholders. Corporators of a stock corporation.
Members. Corporators of a non-stock corporation.
Promoters. A person (juridical or natural) who
usually discovers a prospective business and
brings persons interested to invest in it through
formation of a corporation
Q: X is a Filipino immigrant residing in
Sacramento, California. Y is a Filipino residing
in Quezon City, Philippines. Z is a resident
alien residing in Makati City. GGG Corporation
is a domestic corporation - 40% owned by
foreigners and 60% owned by Filipinos, with T
as authorized representative. CCC Corporation
is a foreign corporation registered with the
Philippine Securities and Exchange
Commission. KKK Corporation is a domestic
 corporation (100%) Filipino owned. S is a
Filipino, 16 years of age, arid the daughter of
Y.
1. Who can be incorporators? Who can be
subscribers?
2. What are the differences between an
incorporator and a subscriber, if there are
any?
3. Who are qualified to become members of
the board of directors of the corporation?
4. Who are qualified to act as Treasurer of the
company?
5. Who can be appointed Corporate Secretary?
(2012)
1. X, Y, Z, and T can be incorporators. The
corporations and S cannot be incorporators since
the former are not natural persons and the latter is
not of legal age. (Sec. 10, Corporation Code). All
of the foregoing can become subscribers except S
since she is not yet of legal age.
2. The difference between the two is as follows: a)
an incorporator is a signatory of the AOI while a
subscriber is not; b) there is a limit for the number
of incorporators while there is no limit in the
number of subscribers; c) an incorporator must be
a natural person while a subscriber can be either
natural or juridical person and d) incorporators has
a residence requirement while there is no such
requirement in case of subscribers.
3. A natural person, of legal age, and who owns at
least one share of stock registered in his name in
the books of the corporation and must have all the
qualifications and none of the disqualifications
provided for by the law and AOI or the by-laws of
the corporation. (Sec. 23, Corporation Code)
4. A natural person, of legal age, whether or not a
Filipino citizen but under the SEC rules he must
be a resident of the Philippines and provided that
he is not the president of the same corporation at
the same time. (SEC Opinion No. 10-24)
5. A natural person, of legal age, and a Filipino
resident citizen may become a secretary of the
corporation provided that he is not the president of
the same corporation at the same time.
Q: What are the requisites of a de facto
corporation?
A:
Organized under a valid law.
Attempt in good faith to form a corporation
according to the requirements of the law.
o Note: The Supreme Court requires that Articles of
Incorporation have already been filed with the
SEC and the corresponding certificate of
incorporation is obtained.
 Use of corporate powers.
o Note: The corporation must have performed the
acts which are peculiar to a corporation like
entering into a subscription agreement, adopting
bylaws, and electing directors.
Q: What are the tests in determining the
nationality of corporations?
A:
Incorporation test Determined by the state of
incorporation, regardless of the nationality of the
stockholders.
Domiciliary test Determined by the principal
place of business of the corporation.
Control test Determined by the nationality of the
controlling stockholders or members. This test is
applied in times of war.
Grandfather rule Nationality is attributed to the
percentage of equity in the corporation used in
nationalized or partly nationalized area.
Q: What is the nationality of a corporation
organized and incorporated under the laws of
a foreign country, but owned 100% by
Filipinos?
A: Under the control test of corporate nationality,
this foreign corporation is of Filipino nationality.
Where there are grounds for piercing the veil of
corporate entity, that is, disregarding the fiction,
the corporation will follow the nationality of the
controlling members or stockholders, since the
corporation will then be considered as one and the
same. (1998 Bar Question)
Q: What is the doctrine of separate (legal)
personality?
A: It is a wellsettled doctrine that a corporation
has a personality distinct and separate from its
individual stockholders or members (Cruz vs.
Dalisay, A.M. No. R181P, July 31, 1987
Q: What are the significances of the doctrine
of separate personality?
A:
Liability for acts or contracts the acts of the
stockholders do not bind the corporation unless
they are properly authorized. The obligations
incurred by a corporation, acting through its
authorized agents are its sole liabilities. The
obligations of the corporation are not the
obligations of its shareholders and members and
viceversa. (Cease v. CA,G.R. No. L33172, Oct.
18, 1979)
Right to bring actions may bring civil and
criminal actions in its own name in the same
manner as natural persons. (Art. 46, Civil Code)
Right to acquire and possess property property
conveyed to or acquired by the corporation is in
 law the property of the corporation itself as a
distinct legal entity and not that of the
stockholders or members. (Art. 44[3], Civil Code)
Acquisition of court of jurisdiction service of
summons may be made on the president, general
manager, corporate secretary, treasurer or
inhouse counsel. (Sec. 11, Rule 14, Rules of
Court).
Changes in individual membership corporation
remains unchanged and unaffected in its identity
by changes in its individual membership.
Q: Is a corporation liable for torts?

A: Yes whenever a tortuous act is committed by

an officer or agent under the express direction or
authority of the stockholders or members acting
as a body, or, generally, from the directors as the
governing body. (PNB v. CA, G.R. No. L27155,
May 18, 1978)
Q: Is a corporation liable for crimes?
A:
GR: No. Since a corporation is a mere legal
fiction, it cannot be held liable for a crime
committed by its officers, since it does not have
the essential element of malice; in such case the
responsible officers would be criminally liable.
(People v. Tan Boon Kong, G.R. No. L 32066.
Mar. 15, 1930)
Q: Is a corporation entitled to moral damages?
A:
GR: A corporation is not entitled to moral
damages because it has no feelings, no emotions,
no senses. (ABSCBN Broadcasting Corporation
v. CA, G.R. No. 128690 Jan 21, 1999 and Phillip
Brothers Oceanic, Inc, G.R. No. 126204, Nov. 20,
2001)
XPN:
The corporation may recover moral damages
under item 7 of Article 2219 of the New Civil Code
because said provision expressly authorizes the
recovery of moral damages in cases of libel,
slander, or any other form of defamation. Article
2219(7) does not qualify whether the injured party
is a natural or juridical person. Therefore, a
corporation, as a juridical person, can validly
complain for libel or any other form of defamation
and claim for moral damages (Filipinas
Broadcasting Network, Inc. v. AMECBCCM, G.R.
No. 141994, Jan 17, 2005.
When the corporation has a reputation that is
debased, resulting in its humiliation in the
business realm (Manila Electric Company v.
T.E.A.M. Electronics Corporation, et. al., G.R. No.
131723, Dec. 13, 2007.
 Q: What is the doctrine of piercing the veil of
corporate fiction?
A: It is the doctrine that allows the State to
disregard the notion of separate personality of a
corporation for justifiable reason/s.
Q: What are the effects of piercing the veil?
A: Courts will look at the corporation as an
aggregation of persons undertaking the business
as a group.
Q: Plaintiffs filed a collection action against X
Corporation. Upon execution of the court's
decision, X Corporation was found to be
without assets. Thereafter, plaintiffs filed an
action against its present and past
stockholder Y Corporation which owned
substantially all of the stocks of X corporation.
The two corporations have the same board of
directors and Y Corporation financed the
operations of X corporation. May Y
Corporation be held liable for the debts of X
Corporation? Why?
A: Yes, Y Corporation may be held liable for the
debts of X Corporation. The doctrine of piercing
the veil of corporation fiction applies to this case.
The two corporations have the same board of
directors and Y Corporation owned substantially
all of the stocks of X Corporation, which facts
justify the conclusion that the latter is merely an
extension of the personality of the former, and that
the former controls the policies of the latter. Added
to this is the fact that Y Corporation controls the
finances of X Corporation which is merely an
adjunct, business conduit or alter ego of Y
Corporation. (CIR v. Norton & Harrison Company,
G.R. No. L17618, Aug. 31, 1964) (2001 Bar
Question)
Q. What are the components of a corporation?
A:
Corporators Those who compose a corporation,
whether as stockholders or members
Incorporators They are those mentioned in the
Articles of Incorporation as originally forming and
composing the corporation and who are
signatories thereof.
Directors and trustees The Board of Directors is
the governing body in a stock corporation while
the Board of Trustees is the governing body in a
nonstock corporation.
Corporate officers they are the officers who are
identified as such in the Corporation Code, the
Articles of Incorporation, or the Bylaws of the
corporation.
Stockholders Owners of shares of stock in a
stock corporation.
 Members Corporators of a corporation which
has no capital stock. They are not owners of
shares of stocks, and their membership depends
on terms provided in the articles of incorporation
or bylaws (Sec. 91).
Promoter A person who, acting alone or with
others, takes initiative in founding and organizing
the business or enterprise of the issuer and
receives consideration therefor. (Sec. 3.10, R.A.
No. 8799, SRC)
Subscriber persons who have agreed to take
and pay for original, unissued shares of a
corporation formed or to be formed.
Underwriter a person who guarantees on a firm
commitment and/or declared best effort basis the
distribution and sale of securities of any kind by
another.
Q: What are the required number and the
qualifications of incorporators in a stock
corporation?
A:
Natural person
GR: Not less than 5 but not more than 15
o XPN: Corporation sole
Of legal age
Majority must be residents of the Philippines
Each must own or subscribe to at least one share.
(Sec.10)
Q: Who can be incorporators?
A:
GR: Only natural persons can be incorporators.
XPN: When otherwise allowed by law, Rural
Banks Act of 1992, where incorporated
cooperatives are allowed to be incorporators of
rural banks.
A. Corporation 1
1. X Filipino residing in Canada
2. Y Filipino residing in Phils.
3. A British citizen residing in Phils
4. B American citizen residing in Phils
5. C Canadian citizen residing in Canada
The AOI may be approved.
1. natural person not less than 5 but not more
than 15
2. legal age
3. majority resident s of RP
Must at least own share of stock
Corporation No. 2
1. A Filipino citizen residing in RP
2. B Filipino citizen residing in RP
3. C Filipino citizen residing in USA
4. Filipino citizen residing in France
5. X Inc, a domestic corp
 The AOI shall not be approved. X is not a natural
person though it can subscribe to shares of Corp.
No. 2
Q: What are the capital stock requirements?
A:
GR: There is no minimum authorized capital stock
as long as the paidup capital is not less than
P5,000.00
XPN: As provided by special law (e.g. Banks).
Q: Is it required that each subscriber pay 25%
of each subscribed share?
A: No. It is only required that at least 25% of the
subscribed capital must be paid.
Q: What is the term of corporate existence?
A:
GR: It depends on the period stated in the Articles
of Incorporation.
XPN: Unless sooner dissolved or unless said
period is extended.
Note: Extension may be made for periods not
exceeding (50) years in any single instance by an
amendment of the articles of incorporation.
However, extension must be made within 5 years
before the expiry date of the corporate term.
Extention must also comply with procedural
requirements for amendment of AOI.
25-25 RULE
AUTHORIZED CAPITAL STOCK P 1 MILLION
SUBSCRIBED CAPITAL STOCK P 250,000.00
PAID-UP CAPITAL STOCK P 62,500
ACS P 20,000.00
SCS P 5,000
PUCS P 1,250
25% - 25% RULE
SCS PUCS
Q: What are the kinds or classifications of
share?
A:
Par value shares
No par value shares
Common shares
Preferred shares
Redeemable shares
Treasury shares
Founders share
Voting shares
Nonvoting shares
Convertible shares
Watered stock
Fractional share
Shares in escrow
Overissued stock
Street certificate
 Promotion share
Q: What are par value shares?
A: Shares with a value fixed in the articles of
incorporation and the certificates of stock. The par
value fixes the minimum issue price of the shares.
Note: A corporation cannot sell less than the par
value but a shareholder may sell the same less
than the par value because it is his.
Shares sold below its par value is called watered
stocks.
Q: What are no par value shares?
A: These are shares having no stated value in the
article of incorporation.
Q: What are common shares?
A: These are ordinarily and usually issued stocks
without extraordinary rights and privileges, and
entitle the shareholder to a pro rata division of
profits. It represents the residual ownership
interest in the corporation. The holders of this kind
of share have complete voting rights and they
cannot be deprived of the said rights except as
provided by law.
Q: What are preferred shares?
A: These entitle the shareholder to some priority
on distribution of dividends and assets over those
holders of common shares.
Q: What are redeemable shares?
A: These are shares of stocks issued by a
corporation which said corporation can purchase
or take up from their holders upon expiry of the
period stated in certificates of stock representing
said shares (Sec. 8).
Q: What are treasury shares?
A: Shares that have been earlier issued as fully
paid and have thereafter been acquired by the
corporation by purchase, donation, and
redemption or through some lawful means. (Sec.
9)
To put simply, these are shares reacquired by the
corporation. They are called treasury shares
because they remain in the corporate treasury
until reissued. More importantly, they have no:
Voting Rights
Right to dividends
Q: What are founders' shares?
A: Shares classified as such in the articles of
incorporation which may be given special
preference in voting rights and dividend payments.
But if an exclusive right to vote and be voted for
as director is granted, this privilege is subject to
approval by the SEC, and cannot exceed 5 years
from the date of approval. (Sec. 7)
Q: What are voting shares?
 A: Shares with a right to vote. If the stock is
originally issued as voting stock, it may not
thereafter be deprived of the right to vote without
the consent of the holder.
Q: What are nonvoting shares?
A: Shares without right to vote.
The law only authorizes the denial of voting rights
in the case of redeemable shares and preferred
shares, provided that there shall always be a class
or series of shares which have complete voting
rights.
Q: What are convertible shares?
A: A share that is changeable by the stockholder
from one class to another at a certain price and
within a certain period.
GR: Stockholder may demand conversion at his
pleasure.
XPN: Otherwise restricted by the articles of
incorporation.
Q: What is a fractional share?
A: A share with a value of less than one full share.
Q: What are shares in escrow?
A: Subject to an agreement by virtue of which the
share is deposited by the grantor or his agent with
a third person to be kept by the depositary until
the performance of certain condition or the
happening of a certain event contained in the
agreement.
Q: What is promotional share?
A: This is a share issued by promoters or those in
some way interested in the company, for
incorporating the company, or for services
rendered in launching or promoting the welfare of
the company.
Q: What are unrestricted retained earnings
(URE)?
A: These are surplus profits not subject to
encumbrance.
Q: What is incorporation?
A: It is the performance of conditions, acts, deeds,
and writings by incorporators, and the official acts,
certification or records, which give the corporation
its existence.
Q: What are the steps in the creation of a
corporation?
A:
Promotion
Incorporation (Sec10)
Formal organization and commencement of
business operations ( Sec22)
Q: Define articles of incorporation.
A: Articles of Incorporation (AOI) is one that
defines the charter of the corporation and the
 contractual relationships between the State and
the corporation, the stockholders and the State,
and between the corporation and its stockholders.
Q: What are the contents of AOI?
A: NaP PlaTINumASONO
Name of corporation
Purpose/s, indicating the primary and secondary
purposes
Place of principal office
o Note: To determine proper venue in filing of an
action
Term of existence
Names, nationalities and residences of
Incorporators
Number of directors or trustees, which shall not
be less than 5 nor more than 15, except for
corporation sole
Names, nationalities, and residences of the
persons who shall Act as directors or trustees until
the first regular ones are elected and qualified
If a Stock corporation, the amount of its authorized
capital stock, number of shares and in case the
shares are par value shares, the par value of each
share;
Names, nationalities, number of shares, and the
amounts subscribed and paid by each of the
Original subscribers which shall not be less than
25% of authorized capital stock;
If Nonstock, the amount of capital, the names,
residences, and amount paid by each contributor,
which shall not be less than 25% of total
subscription; name of treasurer elected by
subscribers; and
Other matters as are not inconsistent with law and
which the incorporators may deem necessary and
convenient. (Sec. 14)
Q: What are the limitations in the amendment
of AOI?
A:
The amendment must be for legitimate purposes
and must not be contrary to other provisions of the
Corporation Code and Special laws;
Approved by majority of BOD/BOT;
Vote or written assent of stockholders
representing 2/3 of the outstanding capital stock
or 2/3 of members;
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/s made;
5. Certification under oath by corporate secretary
and a majority of the BOD/BOT stating the fact
that said amendment/s have been duly approved
 by the required vote of the stockholders or
members, shall be submitted to the SEC;
6. Must be approved by SEC. (Sec. 16);
7. Must be accompanied by a favorable
recommendation of the appropriate government
agency in cases of:
a. Banks
b. Banking and quasibanking institutions
c. Building and loan associations
d. Trust companies and other financial
intermediaries
e. Insurance companies
f. Public utilities
g. Educational institutions
h. Other corporations governed by special laws.
(Sec. 17 [2])
Q: When does amendment of AOI take effect?
A: Upon approval by the SEC. That is upon
issuance of amended certificate of incorporation.
Q: Is it necessary that the approval of SEC be
express?
A: No, implied approval of SEC is also allowed.
Thus amendment may also take effect from the
date of filing with SEC if not acted upon within 6
months from the date of filing for a cause not
attributable to the corporation.
Q: What are the provisions of AOI that cannot
be amended?
A: Those matters referring to accomplished facts,
except to correct mistakes.
E.g.
Names of incorporators
Names of original subscribers to the capital stock
of the corporation and their subscribed and paid
up capital
Names of the original directors
Treasurer elected by the original subscribers
Members who contributed to the initial capital of
the nonstock corporation
Witnesses to and acknowledgement with AOI
Q: What are the grounds for the rejection or
disapproval of AOI or amendment thereto by
the SEC?
A:
If such is not substantially in accordance with the
form prescribed
The purpose/s of the corporation are patently
unconstitutional, illegal, immoral, or contrary to
government rules and regulations
The treasurers affidavit concerning the amount of
capital stock subscribed and/or paid is false
 The required percentage of ownership of the
capital stock to be owned by Filipino citizens has
not been complied with. (Sec. 17)
Q: Is there an automatic rejection of the AOI or
any amendment thereto?
A: No, the SEC shall give the incorporators a
reasonable time within which to correct or modify
the objectionable portions of the AOI or
amendment.(Sec. 17[1])
Q: What is the effect of nonuse of corporate
charter and continuous inoperation of a
corporation?
A:
Failure to organize and commence business
within 2 years from incorporation its corporate
powers ceases and the corporation shall be
deemed dissolve.
Continuous inoperation for at least 5 years
ground for the suspension or
revocation of corporate franchise or certificate of
incorporation (Sec. 22).
Q: What are the limitations in adopting
corporate name?
A:
The proposed name is identical or deceptively or
confusingly similar to that of any existing
corporation
Any other name protected by law; or
Patently deceptive, confusing or contrary to
existing laws. (Sec. 18)
The corporate name shall contain the word
Corporation or its abbreviation Corp. or
Incorporated, or Inc.
The partnership name shall contain the word
Company or Co.
For limited partnership, the word Limited or Ltd.
Shall be included
If the name or surname of a person is used as
part of a corporate or partnership name, the
consent of said person or his heirs must be
submitted except if that person is a stockholder,
member, partner or a declared national hero.
The name of a dissolved firm shall not be allowed
to be used by other firms within 3 years after the
approval of the dissolution of the corporation by
SEC, unless allowed by the last stockholders
representing at least majority of the outstanding
capital stock of the dissolved firm (SEC
Memorandum Circular 14).
CORPORATE NAMES
House of Investments engaged in investments vs
House of Insurance Inc. Engaged in insurance
no similarity. House is generic
 Lyceum of the Philippines Lyceum is a generic
name that means school and can be used by
other educational institutions
Philips Export B.V. Vs Philips Industrial
Development Inc. Philips is a dominant word
and may cause confusion
Universal Textile Mills Inc. vs Universal Mills
Corporation similar since the latter also
manufactures, dyes and sell fabrics
General Electric vs Pangkalahatang Elekstrisidad
similar as the other is the Tagalog version
Armco Steel Corporation of Ohio USA vs Armco
Steel Corporation which is a Philippine corporation
the former can have the name of the latter
changed even if the latters name has been
approved by the SEC
Q: If a corporation changes its corporate
name, is it considered a new corporation?
A: No, it is the same corporation with a different
name, and its character is in no respect changed.
(Republic Planters Bank v. CA, G.R. No. 93073,
Dec 21, 1992)
Q: What are the basic requirements for a stock
corporation?
A:
Name verification slip
AOI and bylaws
Treasurers affidavit
Registration data sheet
Proof of payment of subscription like Bank
Certificate of Deposit if the paidup capital is in
cash
Favorable endorsement from proper government
agency in case of special corporations.
Q: What is the content of a treasurers
affidavit?
A: That at least 25% of the authorized capital
stock of the corporation has been subscribed, and
at least 25% of the total subscription has been
fully paid in actual cash and/or property; such
paidup capital being not less than P5,000.

Capital Stock Terms

Capital stock. Amount specified in the articles of
incorporation paid in for carrying on of the
business of the corporation.
o Authorized capital stock. Total amount of shares
which a corporation is allowed to issue if shares
have a par value.
o Subscribed capital stock. Part of capital stock
which is subscribed, whether paid or unpaid
o Outstanding capital stock. Total shares of stock
issued to subscribers/stockholders, whether or not
fully or partially paid, except treasury shares.
o Paid up capital stock. Part of subscribed stock
paid to the corporation.
o Unissued capital stock. Part of capital stock which
is not issued nor subscribed.
Legal capital. Total par value of all issued par
value shares or total cash/consideration received
for all issued no par value shares.
Example Problem:
The articles of incorporation of Pol Corporation
provide for an authorized capital stock of PHP
10,000,000 divided into 10,000 shares each. At
the time of incorporation, 25% of the authorized
capital stock was subscribed of which 25% was
paid.
Find for:
Authorized capital stock PHP 10,000,000
Subscribed capital stock PHP 2,500,000 (10M x
25%)
Outstanding capital stock PHP 2,500,000
Unissued capital stock PHP 7,500,000 (10M
2.5M)
Paid up capital stock PHP 625,000 (10M x 25%
x 25%)
Legal capital PHP 2,500,000

Shares of Stock.One of the units into which the

capital stock of the corporation is divided.
Stock Certificate.Written acknowledgement by the
corporation of the stockholders interest in the
corporation.
Par Value Stock. Nominal value of which appears
to the stock certificate.
No Par Value Stock. One without any nominal or
par value appearing of stock certificates

Q: What is the doctrine of corporate entity?

A:
GR: A corporation comes into existence upon the
issuance of the certificate of incorporation. Then
and only then will it acquire a juridical personality.
XPN: Sec. 112 clearly states that from and after
the filing with the SEC of the articles of
incorporation, the chief archbishop shall become
corporation sole
Q: Who are the corporate officers?
A:
President Must be a director at the time the
assumes office, not at the time of appointment;
Treasurer May or may not be a director; as a
matter of sound corporate practice, must be a
resident
 Secretary Need not be a director unless
required by the bylaws; must be a resident and
citizen of the Philippines; (Sec. 25); and
Such other officers as may be provided in the
bylaws.
Incorporation and Organization of Private
Corporations

Steps in Incorporation
Verification with SEC of the name to be used. No
corporate name shall be allowed if the proposed
name is:
o Identical or deceptively similar to any existing
corporation or any other name protected by law
o Patently deceptive, confusing or contrary to
existing laws.
Drafting and execution of articles of incorporation
signed by the incorporators.
Q: Briefly discuss the doctrine of corporate
opportunity (2005)
A: It is where a director, by virtue of his office,
acquires for himself a business opportunity
which should belong to the corporation,
thereby obtaining profits to the prejudice of
such corporation In such a case, a director
shall refund to the corporation all the profits
he realizes on a business opportunity which:
1. The corporation is financially able to
undertake; 2. From its nature, is in line with
corporations business and is of practical
advantage to it; and 3. The corporation has an
interest or a reasonable expectancy, unless
the act has been ratified by a vote of the
stockholders owning or representing at least
two-thirds of the outstanding capital stock.
This shall apply notwithstanding the fact that
the director risked his own funds in the
venture (Sec 34, CCP).
Q: What are bylaws?
A: Rules and regulations or private laws enacted
by the corporation to regulate, govern and control
its own actions, affairs and concerns and of its
stockholders or members and directors and
officers in relation thereto and among themselves
in their relation to it.
Q: What are the requisites for the validity of
bylaws?
A:
Must be consistent with the Corporation Code,
other pertinent laws and regulations
Must not be contrary to morals and public policy
Must not impair obligations and contracts or
property rights of stockholders
 Must be consistent with the charter or articles of
incorporation
Must be reasonable
Must be of general application and not directed
against a particular individual
Q: What are the contents of bylaws?
A:
Time, place and manner of calling and conducting
regular or special meetings of directors or trustees
Time and manner of calling and conducting
regular or special meetings of the stockholder or
members
The required quorum in meeting of stockholders
or members and the manner of voting therein
The form for proxies of stockholders and members
and the manner of voting them
The qualification, duties and compensation of
directors or trustees, officers and employees
Time for holding the annual election of directors or
trustees and the mode or manner of giving notice
thereof
Manner of election or appointment and the term of
office of all officers other than directors or trustees
Penalties for violation of the bylaws
In case of stock corporations, the manner of
issuing certificates
Such other matters as may be necessary for the
proper or convenient transaction of its corporate
business and affairs. (Sec. 47)
Q: What are the kinds of powers of
corporation?
A:
Express powers Granted by law, Corporation
Code, and its Articles of Incorporation or Charter,
and administrative regulations
Inherent/incidental powers Not expressly stated
but are deemed to be within the capacity of
corporate entities.
Implied/necessary powers Exists as a necessary
consequence of the exercise of the express
powers of the corporation or the pursuit of its
purposes as provided for in the Charter
Q: What are the general powers of a
corporation?
A: SuSuCoABSPMEDPO
To SUe and be sued
Of SUccession
To adopt and use of Corporate seal
To amend its Articles of Incorporation
To adopt its Bylaws
For Stock corporations: issue and sell stocks
to subscribers and treasury stocks; for
nonstock corporations: admit members
 To Purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and deal
with real and personal property, securities and
bonds;
8. To Enter into merger or consolidation
9. To Make reasonable Donations for public
welfare, hospital, charitable, cultural,
scientific, civic or similar purposes, provided
that no donation is given to any
a. Political party,
b. Candidate and
c. Partisan political activity.
10. To establish Pension, retirement, and other
plans for the benefit of its directors, trustees,
officers and employees basis of which is the
labor code
11. To exercise Other powers essential or
necessary to carry out its purposes.
Q: What are the specific powers of a
corporation?
A:
Power to extend or shorten corporate term. (Sec.
37)
Increase or decrease corporate stock. (Sec. 38)
Incur, create, or increase bonded indebtedness.
(Sec. 38)
Deny preemptive right. (Sec. 39)
Sell, dispose, lease, encumber all or substantially
all of corporate assets. (Sec. 40)
Purchase or acquire shares. (Sec. 41)
Invest corporate funds in another corporation or
business for other purpose other than primary
purpose .(Sec. 42)
Declare dividends out of unrestricted retained
earnings. (Sec. 43
Enter into management contract with another
corporation (not with an individual or a partnership
within general powers) whereby one corporation
undertakes to manage all or substantially all of the
business of the other corporation for a period not
longer than five (5) years for any one term. (Sec.
44)
Amend Articles of Incorporation. (Sec. 16)
Q: What are the procedural requirements in
extending/shortening corporate term?
A:
Majority vote of the BOD or BOT;
Ratification by 2/3 of the SH representing
outstanding capital stock or by at least 2/3 of the
members in case of nonstock corporation;
Written notice of the proposed action and of the
time and place of the meeting shall be addressed
to each stockholder or member at his place of
 residence as shown on the books of the
corporation and deposited to the addressee in the
post office with postage prepaid, or served
personally;
Copy of the amended AOI shall be submitted to
the SEC for its approval; and
In case of special corporation, a favorable
recommendation of appropriate government
agency. (Sec. 37)
Q: What are the procedural requirements in
increasing or decreasing capital stock?
A:
o Majority vote of the BOD;
o Ratification by stockholders representing 2/3 of
the outstanding capital stock;
o Written notice of the proposed increase or
diminution of the capital stock and of the time and
place of the stockholders meeting at which the
proposed increase or diminution of the capital
stock must be addressed to each stockholder at
his place of residence as shown on the books of
the corporation and deposited to the addressee in
the post office with postage prepaid, or served
personally
4. A certificate in duplicate must be signed by a
majority vote of the directors of the corporation
and countersigned by the chairman and the
secretary of the stockholders meeting, setting
forth:
a. That the foregoing requirements have been
complied with;
b. The amount of increase or diminution of the
capital stock;
c. If an increase of the capital stock, the amount of
capital stock or number of shares of no par stock
actually subscribed, the names, nationalities and
residences of the persons subscribing, the amount
of capital stock or number of no par stock
subscribed by each, and the amount paid by each
on his subscription in cash or property, or the
amount of capital stock or number of shares of no
par stock allotted to each stockholder if such
increase is for the purpose of making effective
stock dividend authorized;
d. The amount of stock represented at the
meeting; and
e. The vote authorizing the increase or diminution
of the capital stock
Q: What is preemptive right?
A: It is the preferential right of shareholders to
subscribe to all issues or disposition of shares
of any class in proportion to their present
shareholdings. (Sec. 39)
Q: What is the purpose of preemptive right?
 A: To enable the shareholder to retain his
proportionate control in the corporation and to
retain his equity in the surplus.
POWER TO SLEMPO
Q: What are the procedural requirements?
A:
Majority vote of the BOD or BOT
Ratification by stockholders representing at least
2/3 of the outstanding capital stock or by at least
2/3 of the members in case of nonstock
corporation
Written notice of the proposed action and of the
time and place of the meeting addressed to each
stockholder or member at his place of residence
as shown on the books of the corporation and
deposited to the addressee in the post office with
postage prepaid, or served personally. (Sec. 40)
POWER TO ACQUIRE OWN SHAREXS
Q: Can a corporation acquire its own shares?
A:
GR: In the absence of statutory authority, the
corporation cannot acquire its own shares
XPN: SEC Opinion, Oct. 12, 1992, imposed the
following conditions on its exercise:
o The capital of the corporation must not be
impaired;
o Legitimate and proper corporate objective is
advanced;
o Condition of the corporate affairs warrants it;
o Transaction is designed and carried out in good
faith
o Interest of creditors not impaired, that is, not
violative of the trust fund doctrine.
INVEST IN BUSINESS OTHER THAN THE
PRIMARY PURPOSE
Q: What are the requirements?
A:
Approval by the majority vote of the BOD or BOT
Ratification by stockholders representing at least
2/3 of the outstanding capital stock or by at least
2/3 of the members in case of nonstock
corporation
Ratification must be made at a meeting duly called
for the purposes, and
Prior written notice of the proposed investment
and the time and place of the meeting shall be
made addressed to each stockholder or member
by mail or by personal service.
Q: What are the requirements?
A:
Existence of unrestricted retained earnings
Resolution of the board
 In case of stock dividend, resolution of the board
with the concurrence of votes representing 2/3 of
outstanding capital.
ENTER IN A MANAGEMENT CONTRACT
Q: What are the requirements?
A:
1. Contract must be approved by the majority of
the BOD or BOT of both managing and managed
corporation;
2. Ratified by the stockholders owning at least the
majority of the outstanding capital stock, or
members in case of a nonstock corporation, of
both the managing and the managed corporation,
at a meeting duly called for the purpose
3. Contract must be approved by the stockholders
of the managed corporation owning at least 2/3 of
the outstanding capital stock entitled to vote, 2/3
members when:
a. Stockholders representing the same interest in
both of the managing and the managed
corporation own or control more than 1/3 of the
total outstanding capital stock entitled to vote of
the managing corporation;
b. Majority of the members of the BOD of the
managing corporation also constitute a majority of
the BOD of the managed corporation.
Q: What is the Doctrine of Individuality of
Subscription?
A: A subscription is one entire and indivisible
whole contract. It cannot be divided into
portions. (Sec. 64)
Q: What is the doctrine of equality of shares?
A: Where the articles of incorporation do not
provide for any distinction of the shares of
stock, all shares issued by the corporation are
presumed to be equal and enjoy the same
rights and privileges and are also subject to
the same liabilities. (Sec. 6)
Q: What is the trust fund doctrine?
A: The subscribed capital stock of the
corporation is a trust fund for the payment of
debts of the corporation which the creditors
have the right to look up to satisfy their
credits, and which the corporation may not
dissipate. The creditors may sue the
stockholders directly for the latters unpaid
subscription.
Q: How does one become a shareholder in a
corporation?
A: A person becomes a shareholder the
moment he:
Enters into a subscription contract with an existing
corporation (he is a stockholder upon acceptance
 of the corporation of his offer to subscribe whether
the consideration is fully paid or not),
Purchase treasury shares from the corporation, or
Acquires shares from existing shareholders by
sale or any other contract.
Q: What are the rights of stockholders?
A:
1. Management Right
a. To attend and vote in person or by proxy at a
stockholders meetings. (Secs. 50, 58)
b. To elect and remove directors. (Secs. 24, 18)
c. To approve certain corporate acts. (Sec. 58)
d. To compel the calling of the meetings. (Sec. 50)
e. To have the corporation voluntarily dissolved.
(Sec. 118, 119)
f. To enter into a voting trust agreement. (Sec. 59)
g. To adopt/amend/repeal the bylaws or adopt
new bylaws. (Secs. 46, 48)
2. Proprietary rights
a. To transfer stock in the corporate book. (Sec.
63)
b. To receive dividends when declared .(Sec. 43)
c. To the issuance of certificate of stock or other
evidence of stock ownership. (Sec. 63)
d. To participate in the distribution of corporate
assets upon dissolution. (Sec. 118, 119)
e. To preemption in the issue of shares. (Sec. 39)
3. Remedial rights
a. To inspect corporate books. (Sec. 74)
b. To recover stock unlawfully sold for
delinquency. (Sec. 69)
c. To demand payment in the exercise of
appraisal right. (Secs. 41, 81)
d. To be furnished recent financial statements or
reports of the corporations operation (Sec. 75);
e. To bring suits (derivative suit, individual suit,
and representative suit).
Q: Who is entitled to receive dividends?
A:
GR: Those stockholders at the time of
declaration. Dividends belong to the person
who owns the stock when the dividend is
declared.
XPN:
In case a record date is provided for. A record
date is the future date specified in the resolution
declaring dividend that the dividend shall be
payable to those who are stockholders of record
on such specified future date or as of the date of
the meeting declaring such dividends.
Unpaid Subscribers. Section 72 provides that
holders of shares not fully paid which are not
delinquent shall have all the rights of a stock holde
 Q: What is Preemptive right?
A: It is the preferential right of shareholders to
subscribe to all issues or disposition of shares
of any class in proportion to their present
shareholdings. (Sec. 39)
Q: What are the obligations of stockholders?
A: The stockholders have the following
obligations:
Obligation to pay the corporation for the unpaid
subscription including interest therein;
Obligation to pay the creditors of the corporation
to the extent of their subscription if the corporate
assets are not sufficient
MEETINGS
REGULAR MEETING
Annually on date fixed in the bylaws; or
2. If there is no date in the bylaws any date in
April as determined by the board.
Venue: In the city or municipality where the
principal office is located
NOTICE
Within the period provided in the bylaws
In the absence of provision in the bylaws 2
weeks prior to the meeting.

SPECIAL MEETING
Any time deemed necessary; or
As provided in the bylaws
Venue: Principal office
NOTICE
Within the period provided in the bylaws
If no provision in the bylaws 1 week prior to the
meeting

Q: What is the required quorum in a stock

corporation?
A:
GR: Shall consist of the stockholders
representing majority of the outstanding
capital stock or a majority of the actual and
living members with voting rights, in the case
of nonstock corporation. (Tan v. Sycip, G.R.
No. 153468, Aug. 17, 2006)
Q: Who shall exercise corporate powers?
A:
GR: The Board of Directors or the Board of
Trustees (Sec. 23).
XPN:
o In case of delegation to the Executive Committee
duly authorized in the bylaws;
o Authorization pursuant to a contracted manager
which may be an individual, a partnership, or
another corporation.
 Note: In case the contracted manager is
another corporation, the special rule in Sec. 44
applies.
o In case of close corporations, the stockholders
may manage the business of the corporation
instead by a board of directors, if the articles of
incorporation so provide.
Q: What is the term of office of BOD/BOT?
A:
GR: The regular director shall hold office for 1
year.
XPN: If no election is held, the directors and
officers shall hold position under a holdover
capacity until their successors are elected and
qualified. This is applicable to a going concern
where there is no break in the exercise of the
duties of the officers and directors. (SEC
Opinion, Dec. 15, 1989).
Q: What are the qualifications of a director?
A:
Must own at least 1 share of the capital stock;
o Note: Ownership of stock shall stand in his
name on the books of the corporation.
o A person who does not own a stock at the time of
his election or appointment does not disqualify
him as director if he becomes a shareholder
before assuming the duties of his office. (SEC
Opinions, Nov. 9, 1987 & Apr. 5, 1990)
Must be a natural person;
o Note: What is material is the legal title, not
beneficial ownership of the stock as appearing
on the books of the corporation.
Q: What are the additional qualifications
provided by the Revised Code of Corporate
Governance?
A: A director should have the following:
College education or equivalent academic degree
Practical understanding of the business of the
corporation
Membership in good standing in relevant industry,
business or professional organizations
Previous business experience (Art 3. [D], RCCG)
Q: What is doctrine of corporate opportunity?
A: Where a director, by virtue of his office,
acquires for himself a business opportunity
which should belong to the corporation,
thereby obtaining profits to the prejudice of
such corporation:
A director shall refund to the corporation all the
profits he realizes on a business opportunity (Sec.
34) which:
The corporation is financially able to undertake;
From its nature, is in line with corporations
business and is of practical advantage to it; and
 The corporation has an interest or a reasonable
expectancy.
Q: Malyn, Schiera and Jaz are the directors of
Patio Investments, a close corporation formed
to run the Patio Cafe, an al fresco coffee shop
in Makati City. In 2000, Patio Cafe began
experiencing financial reverses, consequently,
some of the checks it issued to its beverage
distributors and employees bounced.
In October 2003, Schiera informed Malyn that
she found a location for a second cafe in
Taguig City. Malyn objected because of the
dire financial condition of the corporation.
Sometime in April 2004, Malyn learned about
Fort Patio Cafe located in Taguig City and that
its development was undertaken by a new
corporation known as Fort Patio, Inc., where
both Schiera and Jaz are directors. Malyn also
found that Schiera and Jaz, on behalf of Patio
Investments, had obtained a loan of P500,
000.00, from PBCom Bank, for the purpose of
opening Fort Patio Cafe. This loan was
secured by the assets of Patio Investments
and personally guaranteed by Schiera and Jaz.
Malyn then filed a corporate derivative action
before the Regional Trial Court of Makati City
against Schiera and Jaz, alleging that the two
directors had breached their fiduciary duties
by misappropriating money and assets of
Patio Investments in the operation of Fort
Patio Cafe.
Did Schiera and Jaz violate the principle of
corporate opportunity? Explain.
A: Shciera and Jaz violated the principle of
corporate opportunity, because they used
Patio Investments to obtain a loan, mortgaged
its assets and used the proceeds of the loan to
acquire a coffee shop through a corporation
they formed. (Sec. 34) (2005 Bar Question)
Q: What is a certificate of stock?
A: It is a paper representation or tangible
evidence of the stock itself and of various interests
therein (Tan v. SEC, G.R. No. 95696, Mar. 3,
1992)
Q: What are the requisites for the issuance of
the Certificate of Stock?
A:
The certificate must be signed by the president or
vicepresident, countersigned by the secretary or
assistant secretary
The certificate must be sealed with the seal of the
corporation
The certificate must be delivered
 The par value as to par value shares, or full
subscription as to no par value shares must be
fully paid, the basis of which is the doctrine of
indivisibility of subscription
The original certificate must be surrendered where
the person requesting the issuance of a certificate
is a transferee from the stockholder (Bitong v.
CA., G.R. No. 123553, July 13, 1998).
Q: What is the nature of a certificate of stock?
A: A certificate of stock is a prima facie proof that
the stock described therein is valid and genuine in
the absence of an evidence to the contrary
Q: What is an uncertificated share?
A: An uncertificated share is a subscription duly
recorded in the corporate books but has no
corresponding certificate of stock yet issued.
Q: May a stockholder alienate his shares even
if there is no certificate of stock issued by the
corporation?
A: Yes. The absence of a certificate of stock does
not preclude the stock holder from alienating or
transferring his shares of stock.
Q: A is the registered owner of Stock
Certificate No. 000011. He entrusted the
possession of said certificate to his best friend
B who borrowed the said endorsed certificate
to support B's application for passport (or for
a purpose other than transfer). But Bsold the
certificate to X, a bona fide purchaser who
relied on the endorsed certificates and
believed him to be the owner thereof.
Can A claim the shares of stocks from X?
Explain
A: No. Since the shares were already transferred
to "B", "A" cannot claim the shares of stock from
"X". The certificate of stock covering said shares
have been duly endorsed by "A" and entrusted by
him to "B". By his said acts, "A" is now estopped
from claiming said shares from "X", a bona fide
purchaser who relied on the endorsement by A
of the certificate of stock. (2001 Bar Question)
Q: What are the requirements for a valid
transfer of stock?
A:
The certificate of stock must be duly endorsed by
the transferor or his legal representative.
There must be delivery of the stock certificate.
To be valid against third parties, the transfer must
be recorded in the books of the corporation. (G.R.
No. 124535, September 28, 2001)
Q: A is the registered owner of Stock
Certificate No. 000011. He entrusted the
possession of said certificate to his best friend
B who borrowed the said endorsed certificate
 to support B's application for passport (or for
a purpose other than transfer). But Bsold the
certificate to X, a bona fide purchaser who
relied on the endorsed certificates and
believed him to be the owner thereof.
Can A claim the shares of stocks from X?
Explain.
A: No. Since the shares were already transferred
to "B", "A" cannot claim the shares of stock from
"X". The certificate of stock covering said shares
have been duly endorsed by "A" and entrusted by
him to "B". By his said acts, "A" is now estopped
from claiming said shares from "X", a bona fide
purchaser who relied on the endorsement by A
of the certificate of stock. (2001 Bar Question
Q: Who may make proper entries in stock and
transfer books?
A: The obligation and duty falls on the corporate
secretary. If the corporate secretary refuses to
comply, the stockholder may rightfully bring suit to
compel performance. The stockholder cannot take
the law on to his hands; otherwise such entry shall
be void. (Torres, Jr. v. CA, G.R. No. 120138, Sept.
5, 1997)
Q: What is the probative value of the stock and
transfer book?
A: The entries are considered prima facie
evidence of the matters stated therein and may be
subject to proof to the contrary (Bitong v. CA, G.R.
No. 123553, July 13, 1999).
Q: What is the procedure for the issuance of a
new stock certificate in lieu of those which have
been lost, stolen or destroyed?
A:
The registered owner of a certificate of stock in a
corporation or his legal representative shall file
with the corporation an affidavit in triplicate setting
forth, if possible, the circumstances as to how the
certificate was lost, stolen or destroyed, the
number of shares represented by such certificate,
the serial number of the certificate and the name
of the corporation which issued the same.
After verifying the affidavit and other information
and evidence with the books of the corporation,
said corporation shall publish a notice in a
newspaper of general circulation published in the
place where the corporation has its principal
office, once a week for three (3) consecutive
weeks at the expense of the registered owner of
the certificate of stock which has been lost, stolen
or destroyed.
After the expiration of one (1) year from the date
of the last publication, if no contest has been
presented to said corporation regarding said
 certificate of stock, the right to make such contest
shall be barred and said corporation shall cancel
in its books the certificate of stock which has been
lost, stolen or destroyed and issue in lieu thereof
new certificate of stock.
If the registered owner files a bond or other
security effective for a period of one (1) year, a
new certificate may be issued even before the
expiration of the one (1) year period.
Q: May the corporation be sued for the
issuance of new certificates of stock in case of
lost or destroyed certificate?
A: No, the corporation cannot be sued unless
there is bad faith, fraud or negligence present.
Q: A stockholder claimed that his stock
certificate was lost. After going through with
the procedure for the issuance of lost
certificate, and no contest was presented
within 1 year from the last publication, the
corporation issued a new certificate of stock in
lieu of the supposed lost certificate. The
stockholder immediately sold his shares and
endorsed the replacement certificate to a
buyer. It turned out that the original certificate
was not lost, but sold and endorsed to another
person. (1) May the corporation be made liable
by the aggrieved party? (2) Who will have a
better right over the shares, the endorsee of
the original certificate or the endorsee of the
replacement certificate?
A:
No, the corporation cannot be made liable. Except
in cases of fraud, bad faith, or negligence on the
part of the corporation and its officers, no action
may be brought against any corporation which
have issued certificates of stock in lieu of those
lost, stolen, or destroyed pursuant to the
procedure prescribed by law.
The endorsee of the replacement certificate has a
better right to the shares. After expiration of 1 year
from the date of the last publication, and no
contest has been presented to said corporation
regarding said certificate, the right to make such
contest has been barred and said corporation
already cancelled in its books the certificate which
have been lost, stolen, or destroyed and issued in
lieu thereof new certificate.
Q: When may a corporation issue a
replacement certificate of subscription without
waiting for the expiration of one year?
A: The registered owner shall file a bond or other
security effective for a period of one (1) year in
which case a new certificate may be issued even
before the expiration of the one (1) year period.
 Provided, That if a contest has been presented to
said corporation or if an action is pending in court
regarding the ownership of said certificate of stock
which has been lost, stolen or destroyed, the
issuance of the new certificate of stock in lieu
thereof shall be suspended until the final decision
by the court regarding the ownership of said
certificate of stock which has been lost, stolen or
destroyed. (Sec. 73)
Q: What is a watered stock?
A: A stock issued in exchange for cash, property,
share, stock dividends, or services lesser than its
par value.
Watered Stocks include stocks:
Issued without consideration (bonus share)
Issued for a consideration other than cash, the fair
valuation of which is less than its par or issued
value (discount share)
Issued as stock dividend when there are no
sufficient retained earnings to justify it
Issued as fully paid when the corporation has
received a lesser sum of money than its par or
issued value
Q: What is the trust fund doctrine?
A: The subscribed capital stock of the corporation
is a trust fund for the payment of debts of the
corporation which the creditors have the right to
look up to satisfy their credits, and which the
corporation may not dissipate.
Q: What are the modes of dissolution of
corporation?
A: Voluntary and Involuntary dissolution.
Q: What are the voluntary modes of
dissolution of a corporation?
A:
1. Where no creditors are affected
o Procedure:
a. Majority vote of the board of directors or
trustees; and
b. Resolution duly adopted by the affirmative vote
of the stockholders owning at least 2/3 of the
outstanding capital stock or at least 2/3 of the
members at a meeting duly called for that
purpose.
c. A copy of the resolution authorizing the
dissolution shall be certified by a majority of the
board of directors or trustees and countersigned
by the secretary of the corporation.
d. Such copy shall be filed with SEC. (Sec. 118)
2. Where creditors are affected
Procedure:
a. Filing a petition for dissolution with the SEC
b. Such petition must be signed by majority of the
board of directors or trustees
 c. Must also be verified by the president or
secretary or one of its directors
d. The dissolution was resolved upon by the
affirmative vote of the stockholders representing
at least 2/3 of the outstanding capital stock or at
least 2/3 of the members at a meeting duly called
for that purpose.
e. If there is no sufficient objection, and the
material allegations of the petition are true, a
judgment shall be rendered dissolving the
corporation and directing such disposition of its
assets as justice requires, and may appoint a
receiver to collect such assets and pay the debts
of the corporation. (Sec. 119)
By shortening the corporate term A voluntary
dissolution may be effected by amending the AOI
to shorten its corporate term pursuant to the
provisions of the Code. A copy of the amended
AOI shall be submitted to the SEC. Upon approval
of the amended AOI of the expiration of the
shortened term, the corporation shall be deemed
dissolved without any further proceedings, subject
to the provisions of the Code on liquidation.
As an additional requirement, the SEC requires to
submit the final audited financial statement not
older than 60 days before the application for
shortening the corporate term.
In case of a corporation sole, by submitting to the
SEC for approval, a verified declaration of
dissolution (Sec.115). This merely needs the
affidavit of the presiding elder. No need for a
board resolution.
By merger or consolidation, whereby the
constituent corporations automatically cease upon
issuance by the SEC of the certificate of merger or
consolidation, except the surviving or consolidated
corporation which shall continue to exist. (Secs.
79 and 80)
Expiration of the corporate term (Sec. 11).
Q: What are the involuntary modes of
dissolution of a corporation?
A:
By expiration of corporate term
Failure to organize and commence transaction of
its business within 2 years from date of
incorporation (Sec. 22).
Continuous inoperation for a period of at least 5
years.
Legislative dissolution. In this case, a corporation
created by special law is dissolved also by a
special law.
Dissolution of SEC on grounds under existing
laws.
Q: What are the modes of liquidation?
 A:
By the corporation itself or its board of directors or
trustees; (Sec. 122, par. 1)
By a trustee to whom the assets of the corporation
had been conveyed. (Sec. 122, par. 2); (Board of
Liquidators v. Kalaw, G.R. No. L18805, Aug. 14,
1967)
By a management committee or rehabilitation
receiver appointed by SEC; (Sec. 119, last par.)
Q: X Corporation shortened its corporate life
by amending its articles of incorporation. It
has no debts but owns a prime property
located in Quezon City. How would the said
property be liquidated among the five
stockholders of said corporation? Discuss two
methods of liquidation.
A: The prime property of X Corporation can be
liquidated among the five stockholders after the
property has been conveyed by the corporation to
the five stockholders, by dividing or partitioning it
among themselves in any two of the following
ways:
By physical division or partition based on the
proportion of the values of their stockholdings; or
By selling the property to a third person and
dividing the proceeds among the five stockholders
in proportion to their stockholdings; or
After the determination of the value of the
property, by assigning or transferring the property
to one stockholder with the obligation on the part
of said stockholder to pay the other four
stockholders the amount/s in proportion to the
value of the stockholding of each. (2001 Bar
Question
Q: What is a close corporation?
A:
1. Whose articles of incorporation provide that:
a. All the corporations issued stock of all classes,
exclusive of treasury shares, shall be held of
record by not more than a specified number or
persons not exceeding twenty (20);
b. All the issued stock of all classes shall be
subject to one or more specified restrictions on
transfer;
c. The corporation shall not list in any stock
exchange or make any public offering of any of its
stock of any class.
2. Whose stocks, at least 2/3 of the voting stocks
or voting rights of which are owned or controlled
by another corporation which is a close
corporation.
Q: What are the characteristics of a close
corporation?
A:
 Stockholders may act as directors without need of
election and therefore are liable as directors
Stockholders who are involved in the
management of the corporation are liable in the
same manner as directors are
Quorum may be greater than mere majority
Transfer of stocks to others, which would increase
the number of stockholders to more than the
maximum are invalid
Corporate actuations may be binding even without
a formal board meeting, if the stockholder had
knowledge or ratified the informal action of the
others
Preemptive right extends to all stock issues
Deadlock in board are settled by the SEC, on the
written petition by any stockholder
Stockholder may withdraw and avail of his right of
appraisal
Q: What cannot be a close corporation?
A: MOSBI PEP
Mining companies
Oil companies
Stock exchanges
Banks
Insurance companies
Public utility
Educational institutions
Other corporation declared to be vested with
Public interest. (Sec. 96)
Q: What is the concept of a nonstock
corporation?
A: It is one where no part of its income is
distributable as dividends to its members.
Even if there is a statement of capital stock, for as
long as there is no distribution of unrestricted
retained earnings to its members, the corporation
is nonstock.
Any profit which it may obtain as an incident to its
operations shall whenever necessary or proper,
be used in furtherance of the purpose or purposes
for which it was organized.
Q: For what purposes may a nonstock
corporation be organized?
A: Nonstock corporation may be formed or
organized for charitable, religious, educational,
professional, cultural, fraternal, literary, scientific,
social, civic service, or similar purposes, like
trade, industry, agriculture and like chambers, or
any combination thereof
Q: What is a religious corporation?
A: A corporation composed entirely of spiritual
persons and which is organized for the
furtherance of a religion or for perpetuating the
 rights of the church or for the administration of
church or religious work or property. It is different
from an ordinary nonstock corporation organized
for religious purposes. (Secs. 109 116)
Q: What are the kinds of Religious
Corporation?
A:
Corporation sole a special form of corporation,
usually associated with the clergy, consisting of
one person only and his successors, who is
incorporated by law to give some legal capacities
and advantages (Sec. 110);
Religious societies or corporate aggregate a
nonstock corporation governed by a board but
with religious purposes. It is incorporated by an
aggregate of persons, religious order, diocese,
synod, sect, etc. (Sec. 116)
Q: How is a corporation sole organized?
A: By the mere filing of a verified articles of
incorporation with the SEC without the need of an
issuance of a certificate of incorporation. (Sec.
111
Q: What is the nationality of a corporation
sole?
A: A corporation sole does not have any
nationality but for purposes of applying
nationalization laws, nationality is determined not
by the nationality of its presiding elder but by the
nationality of its members, constituting the sect in
the Philippines. Thus, the Roman Catholic Church
can acquire lands in the Philippines even if it is
headed by the Pope. (Roman Catholic Apostolic
Church v. Land Registration Commission, G.R.
No. L8451, Dec. 20, 1957)
Q: May a corporation sole acquire property?
A: Yes, a corporation sole may acquire property
even without court intervention by purchase,
donation and other lawful means.
Q: How may a corporation sole alienate
property?
A:
By obtaining an order from the RTC of the
province where the property is situated after
notice of the application for leave to sell or
mortgage has been given by publication or
otherwise
In cases where the rules, regulations and
discipline of the religious denomination, sect or
church, religious society or order concerned
represented by such corporation sole regulate the
method of acquiring, holding, selling and
mortgaging real estate and personal property,
such rules, regulations and discipline shall control,
 and the intervention of the courts shall not be
necessary. (Sec. 113)
Q: What are religious societies?
A: Religious societies are groups within a religious
denomination such as religious order, diocese,
synod or district organization.
Q: Can religious societies incorporate
themselves for the administration and
management of its affairs, properties and
estate?
A: Yes, provided that such incorporation is not
forbidden by the constitution, rules, regulations or
discipline of the religious denomination which it is
part. (Sec. 116)
Q: What is a foreign corporation?
A: It is a corporation formed, organized or existing
under any law other than those of the Philippines,
and whose laws allow Filipino citizens and
corporation to do business in its own country or
state. (Sec. 123)
Q: What are the considered as doing or
transacting business in the Philippines for
foreign corporations?
A:
Soliciting orders, service contracts, and opening
offices
Appointing representatives, distributors domiciled
in the Philippines or who stay for a period or
periods totaling 180 days or more
Participating in the management, supervision or
control of any domestic business, firm, entity, or
corporation in the Philippines
Any act or acts that imply a continuity of
commercial dealings or arrangements, and
contemplate to some extent the performance of
acts or works or the exercise of some functions
normally incident to and in progressive
prosecution of, the purpose and object of its
organization.
Q: Why is there a necessity to require a
foreign corporation to acquire a license before
engaging in business in the Philippines?
A: The purpose of the law in requiring that a
foreign corporation doing business in the
Philippines be licensed to do so is to subject such
corporation to the jurisdiction of the courts. The
object is not to prevent foreign corporation from
performing single acts but to prevent it from
acquiring a domicile for the purpose of business
without taking steps necessary to render it
amenable to suits in local courts.
Q: What is merger?
 A: One where a corporation absorbs the other and
remains in existence while others are dissolved.
(Sec. 76)
Q: What is consolidation?
A: One where a new corporation is created and
consolidating corporations are extinguished. (Sec.
76)
WHAT ARE THE TECHNIQUES TO ACHIEVE A
CORPORATE COMBINATION?

(1) Merger (A + B = A)

(2) Consolidation (A + B = C)

(3) Sale of substantially all corporate assets and

purchase thereof by another corporation;

(4) Acquisition of all / substantially all of the stock

of one corporation from its SHs in exchange for
the stock of the acquiring corporation

Q: What is the difference between a

constituent and consolidated corporation?
A: A constituent corporation is created when two
or more corporations merge into a single
corporation which is one of those merging
corporations. A consolidated corporation, on the
other hand, is created when two or more
corporations merge into an entirely new
corporation.
Q: What is a plan of merger or consolidation?
A: The plan of merger or consolidation is a plan
created by the representatives of the constituent
corporations, providing for the details of such
merger.
Q: What should the plan of merger or
consolidation contain?
A: The plan of merger or consolidation shall set
forth the following:
Names of corporations involved (constituent
corporations)
Terms and mode of carrying it out
Statement of changes, if any, in the present
articles of surviving corporation; or the articles of
the new corporation to be formed in case of
consolidation.
Q: What is an article of merger or
consolidation?
A: An article of merger or consolidation is a
document to be signed by the president or
vicepresident of the each corporation and signed
by their secretary or assistant secretary setting
forth:
 The plan of the merger or the plan of consolidation
As to stock corporations, the number of shares
outstanding, or in the case of nonstock
corporations, the number of members
As to each corporation, the number of shares or
members voting for and against such plan,
respectively
Q: What is the procedure for merger or
consolidation?
A:
1. Board of each corporation shall draw up a plan
of merger or consolidation, setting forth:
a. Names of corporations involved (constituent
corporations)
b. Terms and mode of carrying it out
c. Statement of changes, if any, in the present
articles of surviving corporation; or the articles of
the new corporation to be formed in case of
consolidation.
2. Plan for merger or consolidation shall be
approved by majority vote of each board of the
concerned corporations at separate meetings.
3. The same shall be submitted for approval by
the stockholders or members of each such
corporation at separate corporate meetings duly
called for the purpose. Notice should be given to
all stockholders or members at least two (2)
weeks prior to date of meeting, either personally
or by registered mail.
Affirmative vote of 2/3 of the outstanding capital
stock in case of stock corporations, or 2/3 of the
members of a nonstock corporation shall be
required.
Dissenting stockholders may exercise the right of
appraisal. But if Board abandons the plan to
merge or consolidate, such right is extinguished.
The plan may still be amended before the same is
filled with the SEC; however, any amendment to
the plan must be approved by the same votes of
the board members of trustees and stockholders
or members required for the original plan.
7. After such approval, Articles of Merger or
Articles of Consolidation shall be executed by
each of the constituent corporations, signed by
president or VP and certified by secretary or
assistant secretary, setting forth:
a. Plan of merger or consolidation
b. In stock corporation, the number of shares
outstanding; in nonstock, the number of members
c. As to each corporation, number of shares or
members voting for and against such plan,
respectively
Four copies of the Articles of Merger or
Consolidation shall be submitted to the SEC for
 approval. Special corporations like banks,
insurance companies, building and loan
associations, etc.,
need the prior approval of the respective
government agency concerned.
9. If SEC is satisfied that the merger or
consolidation is legal, it shall issue the Certificate
of Merger or the Certificate of Incorporation, as
the case may be.
If the SEC is not satisfied, it shall set a hearing,
giving due notice to all the corporations
concerned. (Secs. 7679)
Q: When shall the merger or consolidation
become effective?
A: Upon issuance by the SEC of the certificate
of merger and consolidation.
In the case of merger or consolidation of banks or
banking institutions, building and loan
associations, trust companies, insurance
companies, public utilities, educational institutions
and other special corporations governed by
special laws, the favorable recommendation of the
appropriate government agency shall first be
obtained.
WHAT ARE THE EFFECTS OF MERGER OR
CONSOLIDATION? (Sec. 80)

(1) The constituent corporation shall become a

single corporation:

If merger: the surviving corporation

designated in the plan of
merger

If consolidation: the consolidated corporation

designated in the plan of
Consolidation.

(2) The separate existence of the constituent

corporations shall cease, except that of the
surviving or consolidated corporation.

(3) The surviving or consolidated corporation

shall possess all rights, privileges, immunities and
powers and shall be subject to all the duties and
liabilities of a corporation organized under the
Corporation Code.
(4) The surviving or consolidated corporation
shall thereupon and thereafter possess all the
rights, privileges, immunities and franchises of
each of the constituent corporations;

(5) All property (real or personal) and all

receivables due on whatever account (including
 subscriptions to shares and other choses in
action), and all and every other interest of, or
belong to, or due to each constituent corporation,
shall be deemed transferred and vested in such
surviving or consolidated corporation without
further act or deed.

(6) The surviving or consolidated corporation

shall be responsible and liable for all the liabilities
and obligations of each of the constituent
corporations in the same manner as if such
surviving or consolidated corporation had itself
incurred such liabilities or obligations; and any
pending claim, action or proceeding brought by or
against any of such constituent corporations may
be prosecuted by or against the surviving or
consolidated corporation. (Note: The merger or
consolidation does not impair the rights of
creditors or liens upon the property of any such
constituent corporations.)

WHAT ARE THE RULES GOVERNING

MERGER OR CONSOLIDATION INVOLVING A
FOREIGN CORPORATION LICENSED IN THE
PHILIPPINES? (Sec. 132)
A foreign corporation authorized to transact
business in the Philippines may merge or
consolidate with any domestic corporation if such
is permitted under Philippine law and by the law of
its incorporation.

The requirements on merger or

consolidation as provided in the Corporation Code
must be complied with.

Whenever a foreign corporation authorized to

transact business in the Philippines is a party to a
merger or consolidation in its home country or
state, such foreign corporation shall file a copy of
the articles or merger or consolidation with the
SEC and the appropriate government agencies
within 60 days after such merger or consolidation
becomes effective. Such copy of the articles must
be duly authenticated by the proper officials of the
country or state under the laws of which merger or
consolidation was effected.

If the absorbed corporation in such a merger /

consolidation happens to be the foreign
corporation doing business in the Philippines, it
shall file a petition for withdrawal of its license in
accordance with Sec. 136.

 WHEN IS A SALE OR OTHER DISPOSITION

DEEMED TO COVER SUBSTANTIALLY ALL
THE CORPORATE PROPERTY AND ASSETS?

If by the sale the corporation would be

rendered incapable of continuing the business or
accomplishing the purpose for which it was
incorporated. (Sec. 40)

WHAT ARE THE REQUIREMENTS? (Sec. 40)

1) Majority vote of BOD + 2/3 vote of OCS or
members at a meeting duly called for the purpose;

(2) Compliance with the laws on illegal

combinations and monopolies

Note, however, that after such approval by

the SHs, the BOD may nevertheless, in its
discretion, abandon such sale or other disposition
without further action or approval by the SHs.
This, of course, is subject to the rights of third
parties under any contract relating thereto.

WHEN IS SH APPROVAL NOT NECESSARY

FOR THE ABOVE DISPOSITION?

(1) If the disposition is necessary in the usual and

regular course of business; or

(2) If the proceeds of the disposition be

appropriated for the conduct of its remaining
business (Sec. 40)

IS THE APPRAISAL RIGHT AVAILABLE TO

DISSENTING STOCKHOLDERS?
Yes. However, it must be stressed that this right
is generally available only to dissenting
stockholders of the selling corporation, not the
purchasing corporation. (It can be argued,
though, that in instances wherein the purchase
constitutes an investment in a purpose other than
its primary purpose, stockholders' approval of
such investment is necessary, and anyone who
objects thereto will have the appraisal right under
Sec. 42.)

Exchange of stocks
In this method, all or substantially all the
stockholders of the "acquired" corporation are
made stockholders of the acquiring corporation.
With the exchange, the acquired corporation
becomes a subsidiary of the acquiring
 corporation. Although this method does not
combine the 2 businesses under a single
corporation as in merger and sale of assets, from
the point of view of the acquiring (parent)
corporation, there is hardly any difference
between owing the acquired corporation's
business directly and operating it through a
controlled subsidiary. In fact, the parent
corporation would have the power to buy all the
subsidiary's assets and dissolve it, achieving the
same result as in the other methods of
combination. (Campos & Campos)

Q: What is the Governance Commissions

reason for proposing the merger of Landbank
and DBP?
A: The consolidation of DBP and LBP is
necessary as the functions or purposes of both
banks duplicate and/or unnecessarily overlap with
one another, which is one of the standards for
implementing a merger under Republic Act No.
10149.
Also, the consolidated entity will be more effective,
efficient and sustainable in carrying out the
mandates of both banks, particularly in
anticipation of the wave of foreign banks that may
enter the Philippine market upon the occurrence
of ASEAN integration in 2015.
Q: What is the mergers effect on the banks
financial base?
A: The consolidated entity will create the
2nd largest universal bank in the country in terms
of total assets at P 1.6 trillion. The surviving bank
will also be 2nd in terms of deposits at P 1.2 trillion.
In terms of loans and capitalization, it will be 4 th at
P 582 billion and P 114 billion, respectively. Thus,
it shall provide a more stable and stronger base
for developmental financing.
Q: What is the significance of the surviving
bank having greater lending capacity?
A: The merger will result in a combined single
borrowers limit (SBL) of P26 billion compared with
DBPs SBL at P 9 billion and Landbanks at P 17
billion. A higher SBL enables the surviving bank to
fund big-ticket infrastructure projects.
Universal Robina Corp, founded by tycoon John
Gokongwei, said Tuesday it was selling the
rights to manufacture and distribute Hunts
products to Century Pacific Foods Corp, the
maker of Century Tuna and Argentina Corned
Beef.
The transaction, URC, said, would enable it to
focus on its core snack food and beverage
 business. Universal Robinas brands include Jack
n Jill and C2 iced tea.
LDT Inc. and Globe Telecom, said in May last
year that it would buy rival San Miguel Corps
telecommunications assets for P70 billion,
effectively stopping the entry of a third player in
the industry hounded by complaints of bad
service.
Access to San Miguels 700 Mhz frequency will
increase internet speeds, PLDT and Globe said.
The countrys anti-competition watchdog is
investigating the deal for alleged violation of
competition laws.
Filipino companies have also set their sights
abroad for growth, with various acquisitions over
the past 2 years:
State-run Land Bank of the Philippines announced
in November that it would acquire
Philippine Postal Savings Bank and spin it off into
a lender for overseas Filipino workers.
Finance Secretary Carlos Dominguez said
PostBank was in the best position to serve
overseas workers, given its ties to the postal
service.
The Ayala Group said in February that it was
acquiring nearly half of online retailer Zalora, as
it expands into e-commerce.
The fusion of physical and virtual spaces will
create an omni-channel retail
experience,according to Zalora, which plans to
bring its pop-up stores to Ayala Malls.
SM Investments Corp (SMIC). in March said it
was acquiring a 34.5-percent stake in 2GO, for
its first foray into the fast-growing logistics
business.
The conglomerate, founded by the countrys
richest man, Henry Sy, wants to adapt to the
changing retail landscape. Some people will like
to order from the comfort of their living room,
some go to the mall to socialize and interact with
other shoppers. We are going to cater to different
ways, SMIC vice chairman Tersita Sy-Coson
said.

The merger of global giant cement makers

Lafarge and Holcim cascading locally will enable
them to control market share of 70 percent.
Worldwide, the two companies are considering the
sale of $6.81 billion to ensure that they keep
within the anti-trust regulations of different
countries.

The sale in assets including those in the

Philippines would help persuade competition
 regulators to back the proposed merger which
was unveiled in April and would create the worlds
biggest cement maker with $44 billion in annual
sales.
2017
Dumaguete City Development Bank, Inc. has
merged with Rural Bank of Sibulan (Negros
Oriental), Inc., with DCDB as the surviving bank.
Approved by the SEC on April 4, 2017.

2016
BPI Direct Savings Bank Inc. has merged
with BPI Globe BanKO Inc., A Savings Bank to
form BPI Direct BanKO Inc., A Savings Bank.
Effective date of merger was December 29, 2016.

The proposed merger between state-owned

banks Landbank and Development Bank of the
Philippines (DBP) was approved by President
Aquino on February 4, 2016 through Executive
Order No. 198.
The merger is subject to approval by the BSP,
according to BSP Deputy Governor Nestor
Espenilla Jr.
2015
Producers Savings Bank Corp. has
acquired Rural Bank of Cainta Inc. Approved by
the SEC on December 29, 2015. Producers
Savings Bank started operating as a merged bank
on December 29, 2015.

China Savings Bank has acquired Planters

Development Bankon December 17, 2015.
Approved by the SEC on December 17, 2015.
Announced in a circular by the BSP on February
10, 2016.

Philippine Business Bank, one of the country's

biggest savings banks, has acquired Insular
Savers Bank Inc., the rural bank that arose from
the merger of Insular Rural Bank Inc. and Filipino
Savers Bank Inc. (A Rural Bank). Acquisition
completed on June 30, 2015. With Insular's 8
branches, the acquisition increased PBB's total
number of branches to 134.

Insular Rural Bank Inc. and Filipino Savers

Bank Inc. (A Rural Bank) have merged to
become a consolidated rural bank named Insular
Savers Bank Inc. (A Rural Bank). Insular Savers
started operating as a rural bank on June 1, 2015.
Rural Bank of Tanza (Cavite), Inc., also known
as Bangko Mabuhay, and the Rural Bank of
Teresa (Rizal), Inc. merged to form a new rural
 bank named Bangko Mabuhay (A Rural Bank),
Inc. Merger was approved by the BSP on March
23, 2015.
Bangko Mabuhay started operating as a
consolidated rural bank on April 1, 2015.
2014
BDO Unibank has signed an agreement to
acquire One Network Bank Inc., the largest rural
bank in Mindanao, subject to closing conditions
and regulatory approvals. (December 2014)

China Banking Corp. is set to complete its

acquisition of Planters Development Bank in
August 2014. Acquisition plan approved by the
BSP in December 2013.
Network Consolidated Cooperative Bank was
formed from the consolidation of these 6
cooperative banks on September 8, 2014:
Cooperative Bank of Agusan del Sur, Capiz
Settlers Cooperative Rural Bank, Inc.,
Cooperative Bank of Camarines Norte,
Cooperative Bank of Leyte, Sorsogon Provincial
Cooperative, and Southern Leyte Cooperative
Bank. (Source: Status Report on the Philippine
Financial System, Dec 2014)

BDO Unibank signed a deal to acquire The Real

Bank (A Thrift Bank) in June 2014.
Acquisition completed in August 2014 (Status
Report, Dec 2014).
Bridge Philippines Investments has acquired a
34-percent equity in 1st Valley Bank, a rural bank
headquartered in Lanao del Norte that became a
thrift bank in August 2013. Bridge Philippines is
incorporated in Singapore.

Philippine Bank of Communications

(PBCOM) has signed an agreement in March
2014 to buy a controlling stake in Banco
Dipolog, which has 13 branches in Northern
Zamboanga.

Philippine Bank of Communications

(PBCOM) has acquired Rural Bank of
Nagcarlan in March 2014. The rural bank has 6
branches, which are in Nagcarlan, Binan,
Cabuyao, Calamba, Los Banos and San Pablo.
Acquisition has been approved by the BSP.

BDO Unibank acquired Citibank Savings

Bank in March 2014.
Acquired Citibank Savings Bank will be
renamed Banco de Oro Savings Bank.

East West Banking Corp. acquired Green Bank
A Rural Bank.
Merger approved by the SEC on June 5, 2014;
effective July 31, 2014

China Bank Savings Inc. acquired Unity Bank,

A Rural Bank Inc.
Merger approved by the SEC on January 20,
2014; announced by the BSP on February 12,
2014.

Bank of Florida Inc., A Rural Bank and Bank of

Lubao Inc., A Rural Bank, merged to operate
under the name BOF Inc., A Rural Bank.
(Effective January 2, 2014, BSP)
Malaysian firm Duclos SDN BHD invested
in Palawan Bank (Palawan DB), Inc. (24.6
common shares and 100 preferred shares)
(Status Report, Dec 2014)
American investors Eleazar B. Sagun and Rizal C.
Suelen invested in Malasiqui Progressive
SLB (27.7 common shares)
Singapore-incorporated Bridge Philippines
Investments invested in Sugbuanon Rural Bank,
Inc. (40.0 common shares)
Jollibee Foods Corp. (JFC), the Filipino-owned
food giant, now owns 100 percent of Mang Inasal
Philippines Inc. after acquiring the remaining 30
percent stake held by the Sia family for P2 billion.
The move is in line with the shareholders
agreement entered into between JFC and the Sia
family. JFC said in a disclosure to the Philippine
Stock Exchange (PSE) yesterday.
With the 100 percent acquisition, JFC
representatives will now completely comprise the
board of directors of Mang Inasal.
JFC acquired the 70 percent stake of barbecue
fast-food chain operator Mang Inasal in 2010 as
part of continuing efforts to beef up its business
portfolio.