INTRODUCTION TO CORPORATION CODE

B. P. Blg. 68
BRIEF HISTORY OF THE CODE
Passed by the Batasan Pambansa and approved by
the president on May 1, 1980, the date of its
effectivity
It supplanted the old corporation law (Act 1459) which
was enacted by the Philippine Commission on
March 1, 1906 and took effect on April 1, 1906
PRIOR TO 1906
Spanish Code of Commerce of 1885
Entities were referred to as sociedades
Act No. 1459 of 1906
Aimed at replacing sociedades with the concept of
corporations
Sociedades were given the option to continue as
such or reform or reorganize under the provisions
of the new law
SIGNIFICANT CHANGES INTRODUCED BY THE CODE
Eliminated the classification of corporations into public
and private
Expressly provides for the creation of corporations
through special laws or charters
New classes of shares are provided
It required that where a corporation has more than
one purpose, the AoI must state which is the
primary purpose and which are secondary
purposes
CORPORATION DEFINED
Corporation is defined as one of the forms of

association having the rights and relations, and

the characteristic attributes of a legal entity
distinct from that of the persons who compose it
or act for it in exercising its functions. (SEC
opinion dated July 8, 1992)
ATTRIBUTES OF A CORPORATION
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
(Doctrine of Special or Limited Capacity)
IT IS AN ARTIFICIAL BEING
A corporation registered under the Code is considered
a juridical person with a personality separate and
distinct from that of each stockholder
A corporation may not be made to answer for acts or
liabilities of its stockholders or those of legal
entities to which it may be connected or vice
versa (Palay Inc. vs Clave, et al, 124 SCRA 638)

PRACTICAL APPLICATIONS
SH are not personally liable for debts of the
corporation either at law or equity, unless
fiction of corporate entity is disregarded
SH are not owners of corporate properties or assets
SH cannot maintain action/s in their own name in
connection with corporate affairs, business
or property
Corp is a taxable entity separate and distinct from
its SH who are separately taxed on their
dividends

 WHEN IS CORPORATE FICTION DISREGARDED?

DOCTRINE OF PIERCING THE CORPORATE
VEIL
For purposes of applying this doctrine, a
corporation is perceived not as a legal or
artificial entity separate and distinct from
the persons composing it, but is seen as a
mere collection of individuals and
considered as an association of persons.
WHEN APPLIED
The corporate fiction of the notion of legal entity
may be disregarded when it is used to
defeat public convenience, justify wrong,
protect fraud, or defend crime, in which
instances the law will regard the
corporation as an association of persons,
or in case of two corporations, will merge
them into one. (Remo vs. IAC, 172 SCRA
406)
PROBATIVE FACTORS OF IDENTITY THAT WILL
JUSTIFY APPLICATION OF THE DOCTRINE:
Stock ownership by one or common ownership of
both corporations
Identity of directors and officers
The manner of keeping corporate books and
records
Methods of conducting the business
APPLICABLE CASES:
Corp is used as a shield to further an end
subversive of justice (Cagayan Valley
Enterprises Inc. vs. CA, 179 SCRA 230)

 Corp is used to perpetuate fraud or confuse

legitimate issues (Indino vs. NLRC, 178
SCRA 176; Telephone Engineering &
Service Co. Inc. vs Workmens
Compensation Commission, 104 SCRA
354 )
Corp is used as an alter ego or business conduit for
the sole benefit of the stockholders
(Collector vs. Univ. of Visayas, 12 SCRA
193)
One corporation is a mere subsidiary,
instrumentality or department of another
corporation (Claparols vs. CIR, 65 SCRA
613)
Notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud
or defend crime;
When SH created the corporation to evade taxes,
violate laws, commit fraud, evade just
obligations;
When the corp is owned by the SH and his
dummies, and/or immediate family
members (Control Test)
IT IS A CREATION OF LAW
The consent of the State to its creation is a condition
precedent before a corporation acquires juridical
personality
The power to create corporations is one of the
attributes of sovereignty
Takes the form of a special law or a general enabling
act under which persons wishing to act as a
corporation may incorporate

IT HAS THE RIGHT OF SUCCESSION

Denotes that a corporation continues to exist during
the term stated (1) in its articles of incorporation;
(2) in the law authorizing the incorporation itself
Its existence continues despite the death, withdrawal,
insolvency or incapacity of its individual
stockholders or members and irrespective of the
transfer of shares by a stockholder to third
persons
IT HAS POWERS, ATTRIBUTES AND PROPERTIES
EXPRESSLY GRANTED BY LAW
Express powers are enumerated under Sec. 36 of the
Code
Implied powers those which are reasonably
necessary to exercise the express powers and to
carry out the purpose/s for which the corp was
formed
Incidental powers which a corp may exercise by the
mere fact of its being a corporation.
ADVANTAGES OF THE CORPORATE FORM
Enjoys perpetual succession
Independent juridical personality (own property,
contract obligations, sue and be sued in its name
as an individual)
SH shall have no personal liability beyond the value of
their shares
Entitled to immunity against unreasonable search and
seizures
Transfer of interest is easier and will not dissolve the
corporation
CLASSES OF CORPORATION

Stock Corporations
Non-stock corporations
Close corporations (Sec. 96)
Educational corporations (Sec. 106)
Religious corporations (Sec. 109)
Foreign corporations (Sec. 123)

STOCK CORPORATIONS
Must have capital stock divided into shares
Must be authorized to distribute to its stockholders
dividends out of its surplus profits on the basis of
the shares held
BUSINESSES REQUIRED TO ORGANIZE AS STOCK
CORPORATIONS:
Banks (R.A. 720)
Finance companies (R. A. 5980, as amended)
Investment houses (P.D. 129)
Investment companies (R.A. 2629)
Condominium corporations (R.A. 4726)
CONVERSION POLICIES
Non-stock to stock:
Dissolution under Title XIV of the code
Incorporation into a stock corporation
Stock to non-stock:
Amendment of its Articles of Incorporation

OTHER CORPORATIONS
Corporation sole
Religious or ecclesiastical corporation
Lay, charitable or eleemosynary corporation
Public and private corporations
Domestic and foreign corporations

 De jure and de facto corporations

Close corporations
CORPORATIONS CREATED BY SPECIAL LAW OR
CHARTER
Owned and controlled by the government in the
interest of the common good and subject to the
test of economic viability
Need not register with the SEC to acquire legal
personality
Does not divest these GOCCs with immunity from suit
SEC. 5
CORPORATORS are those who compose a
corporation whether as stockholders in case of a
stock corporation or as members in case of nonstock corporation
Must have the legal capacity to contract
INCORPORATORS those originally forming and
composing the corporation, having signed the
articles and acknowledged the same before a
notary public
The name of an incorporator may not be changed,
deleted or amended for the reason that the
same is an accomplished fact at the time
of incorporation
Must be a natural person
STOCKHOLDERS OR SHAREHOLDERS
Are owners of shares in a stock corporation.
May be natural or juridical persons
MEMBERS are corporators of a non-stock
corporation

CLASSIFICATION OF SHARES
Applicable only to stock corporations
Initially determined by the incorporators when they
execute the articles of incorporation and file the
same with the SEC
Rights, privileges, preferences and restrictions must
be stated in the AoI to be legally effective
Authority to classify shares, not absolute:
No share may be deprived of voting rights except
1). those considered delinquent; 2). for
founders shares that are accorded
complete voting rights; 3). Preferred or
redeemable shares unless otherwise
provided in the code.
Equality of shares
Preferred shares with stated par value
Authority of the Board to fix terms and conditions of
preferred stocks
Effective upon the filing with the SEC of a Sec.
Cert. under oath relative to the resolution
of the board fixing the terms of the
preferred shares
Must be stated in the AoI (amend if needed)
No par value shares consideration must not be less
than P5.00
Banks, trust companies, insurance companies,
public utilities and building and loan
associations are not permitted by the code
to issue no-par value shares
Shares without par value deemed fully paid
CAPITAL:
Refers to the money, property or means contributed
by the stockholders as the form or basis for the

business
Used synonymously with capital stock, as meaning
the amount subscribed and paid-in and upon
which the corporation is to conduct its operations
CAPITAL STOCK:
Authorized capital stock
Subscribed capital stock
Outstanding capital stock
Paid-up capital stock
Unissued capital stock
CLASSES OF SHARES:
Common shares
Preferred shares
Par value shares
No-par value shares
Redeemable shares
Treasury shares
Founders shares
DISTINCTION BETWEEN SHARES OF STOCK AND
CERTIFICATE OF STOCK
Incorporeal or intangible
Concrete and tangible
property
property
Represents the interest or Written evidence of that
right of a person in the
interest or right
corporation
May be issued even if
May be issued only of
subscription not fully paid
subscription is fully paid
(Sec. 137)
(Sec. 64)
SEC. 7 FOUNDERS SHARE

 Shares issued to those who founded the corporation

Sometimes called management shares
Absolute right to be voted as members of the board is
limited to 5 years from date of approval by the
SEC
Other privileges granted not subject to the 5 year
limitation
SEC. 8 REDEEMABLE SHARES
Device use to create more capital
2 classes of redeemable shares:
Compulsory or obligatory
Directory or optional
Restriction: must not render the corporation insolvent
upon redemption (Trust Fund Doctrine)
Effect: shares considered as retired no longer
issuable, unless otherwise provided
SEC. 9 TREASURY SHARES
Shares which have been earlier issued as fully paid
and have thereafter been acquired by the
corporation, by purchase, donation, redemption
or through some other lawful means
Corporation must have surplus profits to reacquire
them
Not entitled to dividends
Cannot be reverted back to the status of authorized
but unissued shares, but are regarded as
property acquired by the corporation which may
be reissued and sold by it at a price to be fixed by
the board
Being unrealized income, not considered as part of
earned or surplus profits and therefore not
distributable as dividends either in cash or stock

 While in the corporationss treasury, it has no voting

rights
Being property, they may be resold for a reasonable
price or best price obtainable