Corporation Code LOVE NOTES Part 1.

4.2.2 Incorporation and organization

Incorporators’ number and qualifications
Previously:
- 5 to 15
- Majority are residents
- All are natural person
- Own at least 1 stock/share
- Capacity to contract
-
Now:
- 1 to 15
- Own at least 1 stock/share
- Capacity to contract
- Any person, partnership, association or corporation

A. Corporate term
- Perpetual unless the AoI provides otherwise
- Corporate terms with specific period can be
shortened/extended; within 3 years from expiration of
the original date
- Subject to revival. Except financial intermediaries
(banks, banking and quasi-banking institutions,
preneed, insurance and trust companies, non-stock
savings and loans assoc., pawnshops, corp. engaged in
money service business.)

B. Minimum Cap. Stock

- Not required
- Capitalization for subscribed and paid shares not
required, previously 25%:25% rule
C. Contents of AoI
- Arbitration agreement may be provided in the AoI
- Filing of AoI and amendments thereto may be made in
the form of electronic document.
D. Form of Articles Sec. 14
- Addresses of Incorporators
- No Treasurer’s affidavit
- Change of name if there is a prior user

E. Amendment of Aoi
- Majority vote of Directors AND 2/3 vote of OCS
- Majority vote of Trustees AND 2/3 vote of members
- Amendments shall take effect upon approval by SEC or
by inaction of SEC for 6 months from filing.

F. Grounds for Disapproval of Aoi – FPCP

- Form not substantially complied with
- Purpose is patently UIIC
- Certification as to subscription is false
- Percentage of Filipino ownership is not complied with.
- AoI of Financial Intermediaries shall not be approved
without favorable recommendation of the appropriate
government agency. Educational Institutions/other corp.
governed by special laws do not need favorable
recommendations anymore.

H. Corporate name
- Must be distinguishable
- No prior user
- Not contrary to law, rules and regulations
I. Registration, Incorporation, and Commencement of
Corporate Existence.
- Submit name first to SEC for verification – reserve the
name
- Corporate existence commences from the issuance of
the Certificate of Incorporation.

J. Non-use of charter – does not start business operations

- 5 years from incorporation – Certificate of Incorporation
(CoI) deemed revoked as of the day following the 5-year
period.
- Inoperative for 5 consecutive years after
commencement of operation (delinquent status after due
notice and hearing)
- If delinquent, the corp. has 2 years to resume
operations; otherwise, revocation of CoI ensues.

4.2.3 Powers of Corporation

Doctrine of limited capacity – a corporation has only such
powers as are expressly granted and those that are necessarily
implied from those expressly granted or those which are
incident to its existence.
A. Express
- Those Expressly granted or authorized by law (indicated
in the articles of incorporation)
- Under the revised Corporation code
a. General powers (sec. 35 RCC)
b. Extend shorten corporate term (sec. 36)
c. Increase/ decrease capital stock (Sec. 37)
- Requires 25:25% rule on paid and subscribed
shares for Increasing capital stocks.
d. Deny pre-emptive right (sec. 38)
e. Sell or dispose assets (sec. 39)
f. Acquire own shares (Sec. 40)
 - Corp. must have unrestricted retained
earnings
- Purchase must be for a legitimate corporate
purpose
g. Invest Corp. funds in another corp. or business or
for any other purpose (sec. 41)
h. Declare dividends (sec. 42)
- Corp. must have unrestricted retained
earnings.
i. Enter into management contract (sec. 43)
- Not more than 5 years for any one term

B. Implied
– Those necessary for the exercise of the express powers
C. Incidental
– Essential to the corporation’s existence (inherent).

4.2.4BOARD OF DIRECTORS
A. Qualifications:
1. Own at least one stock/must be a member
2. 20% independent directors if Corp. is vested with
public interest:
a. Listed or with asset of at least 50 million and 200
or more shareholders, with at least 100 equity
shares.
b. Financial intermediaries
c. Other corp. vested with PI
- Independent director – free from bias – no relationship from
the corp. except. Shareholdings and fees received as a director.

B. Disqualifications – If within 5 years prior to

appointment/election:
1. Convicted by final judgment:
 a. Offense punishable by imprisonment exceeding 6
years.
b. For violating the Revised Corp. Code (RCC)
c. For violating the Securities and Regulation Code
(SRC)
2. Found administratively liable of any offense involving
fraud acts.
3. By a foreign court/authority for violations similar to 1
and 2.

C. Election
– Terms Board of Directors – not exceeding 1 year
– Terms Board of Trustees – not exceeding 3 years
- Owners of the majority Outstanding Capital Stocks (OCS) or
majority of the members must be present during the election
(quorum).
- Any form except if requested by ballot
- Nominees must be present or represented by proxy.
- Voting through remote communication is now allowed if
provided in articles or by-laws. Unless public interest corp. –
voting through remote communication is not allowed.
- There must be quorum otherwise – meeting is adjourned
- Inform SEC of the non-holding of the election and the
reason thereof within 30 days from of scheduled election
and specify new date of election within 60 days from
schedule.
- If not done without justification or there was no quorum
on the rescheduled election, SEC will schedule the
election will conduct it even without quorum.

VOTING
a. Straight – Number of shares X Director to be elected but can
only give straight votes to each
b. Cumulative for one – No. of shares X D to be elected but all
the vote shall belong to one candidate
c. Cumulative by distribution – No. of shares X D to be elected
and the votes can be split or distributed to any nominee.
* Memorize the Formula (see De Leon)

D. Removal
- By 2/3 vote of OCS or members
- With or without cause unless if removal will deprive the
minority stockholders of representation in the board,
there must be cause.
- SEC may mutu proprio (on its own will) or upon verified
complaint remove a director or trustee (subject to notice
and hearing)

E. Powers
1. Governing body of the corp. – Corp. can act only
through its board
2. Doctrine of judicial review – acts of the board are not
subject to review by the court since the board has the
exclusive authority to manage and control the corp.
except if such act is dishonest or violative of the rights of
the minority.
3. Fiduciary duty – based on trust - directors or trustees
are required to discharge their duties in good faith and
with diligence, care, and skill. Otherwise, they will be held
liable.
4. Purely ministerial duties can be delegated but
discretionary powers shall be exclusive to the board.

Corporate Officers
- Required Officers
o President – must be a director, must not be a
secretary or treasurer at the same time
 o Corporate Secretary – must be a citizen and
resident of the Philippines, must not be the
president.
o Treasurer – must be a resident, must not be the
president.
o Compliance Officer – require only if Corp. is
vested with P.I.
- Other corporate officers may be provided in the by-laws.

4.2.5 Classes of stocks

a. Concepts
- Stock or shares of stock is one of the units into which the
capital stock is divided. It represents the interest of the owner
in the management, earning, and dissolution.
- Classes of shares in general
1. Par value – one with a specific money value fixed
in the AoI and appearing in the certificate of stock.
2. No par value – one without any stated or par value
appearing on the certificate of stock.
3. Voting share - a share with a right to vote.
4. Non-voting share – no right to vote except
AASIIMID (see section 6 enumeration).
5. Common share – stock which entitles the holder
thereof to pro rata division of profits without any preference
or advantage.
6. Preferred share – stock which entitles the holder
thereof to certain preferences over the holders of common
stock.
7. Promotion share – is issued to promoters for
incorporating the company or for services rendered for such
purpose.
8. Share in escrow – is a share subject to an
agreement by virtue of which the share is deposited by the
grantor with a third person to be kept by the depositary until
the performance of the condition or happening of an event.
9. Convertible stock – is convertible from one class
to another.
10. Redeemable shares – are shares issued on terms
that the company will, or may buy them back at some future
date.
11. Treasury shares – shares which are bought back
by the issuing company, reducing the number of shares
outstanding.

b. Subscription – is a contract requiring an investor to

purchase a set number of unissued shares from the
corporation at a future date for a specific price.

- 25:25% rule on incorporation/subscription is already

abandoned by the Revised Corporation Code

4.2.6 Powers, Duties, and rights and obligations of stockholders

- Votes necessary for the exercise of corporate powers
1. Extend shorten corporate term (sec. 36) – 2/3
2. Increase/ decrease capital stock/bonded
indebtedness (Sec. 37) – 2/3
d. Deny pre-emptive right (sec. 38) – 2/3
e. Sell or dispose assets (sec. 39) – 2/3
f. Acquire own shares (Sec. 40) – not required
g. Invest Corp. funds in another corp. or business or
for any other purpose (sec. 41) – 2/3
h. Declare dividends (sec. 42) – 2/3
i. Enter into management contract (sec. 43) –
Majority only
j. Adoption of By-laws (sec. 45) – Majority.
4.2.7 Majority and minority control
a. Majority control – control/own at least 51% of the
outstanding capital stock.
b. Minority control – control/own less than 50% of the
OCS.

4.2.8 By-Laws
- Any rules of action adopted by the corporation for its
internal regulations and for the government of its officers and
of its stockholders or members.

a. Contents (see Sec. 46.)

- The modes by which a stockholder, member,
director, or trustee may attend meetings and cast
their votes is added
- Option to provide an arbitration agreement is also
added.
b. Amendment of By-laws
- Majority vote by Directors/Trustees AND Majority
vote of stockholders/members.
- May be delegated to Directors/Trustees by 2/3
votes of stockholders/members. Delegation is
revoked by majority vote.

4.2.9. Meetings
-Special or Regular, Of Stockholders/Members or
Directors/Trustees
a. Regular meetings of Stockholders/Members
- Held annually on a fixed date, if not fixed – on any date
after April 15 of every year.
- Notice must be sent to stockholder/members of record
at least 21 days prior to the meeting unless a different
date is provided in the By-laws, law or regulation.
- Written notice may be sent through electronic means.
 - What needs to be presented during the regular meeting
(pls see sec. 49)
- Place of meeting weather regular or special.
1. Principal Office (PO) set forth in the AoI
2. If PO is not practicable, in the City or Municipality
where PO is located.
- Time, place, and purpose must be stated in the notice.

b. Regular and Special meetings of Directors/Trustees

- Quorum = majority of the Directors/Trustees stated in
the AoI unless the by-laws provides for a greater
majority.
- Regular meetings shall be held monthly unless the by-
laws provides otherwise.
- Special meetings may be held at anytime upon the call of
the president or as provided in the by-laws.
- May be held in or out of the Philippines unless the by-
laws provides otherwise.
- Notice as to the date, time, and place of the meeting
must be sent at least 2 days prior to the scheduled
meeting unless the by-laws provide for a longer period.
-Presence via remote communication is now allowed.
c. Chairman, or in his absence, the president shall preside at
the meetings.
d. Joint Owners of Stock
- Consent of all is necessary unless a written proxy is
signed by all co-owners authorizing one co-owner to vote on
their behalf.