2.

Provide definitions and notes to your corresponding page

Business Organization 2 assignments. Please use the Book of Villanueva and De
Leon and the Villanueva Commercial Law Reviewer as
(Corporation Law) reference
MEMBERS: 3. For the transcription of Atty. Derije’s discussions, let us
1. Alano, Dave Abby use blue as the font color.
2. Ambrocio, Eunice
3. Baucan, Kareen
4. Boligor, Terry
5. Cagampang, Vina
-----------------------------------------------------------------------
6. Canedo, Gretchen
SYLLABUS
7. Laurente, Kaye

REMINDERS:

1. Grading System:
a. 3 exams--- 20% each
i. First Exam: Corpo Code
ii. Second Exam: Securities Regulation
Code
iii. Third Exam: Special Laws
b. Attendance--- 5%
c. Quizzes, Projects ---15%
i. Quiz at least once a week
ii. At most 5 questions, questions will be
taken from previous bar questions to
prepare for the bar
iii. Use yellow paper
d. Recitation 20%

General Instruction:
1. Kindly encode the syllabus according to the following
division:
Page 1 and 2- Eunice- DONE
Page 3 and 4- Vina- DONE
Page 5 and 6- Dave
Page 7 and 8- Kareen B.
Page 9 and 10- Kaye L.
Page 11 and 12- Terry
Page 13 and 14- Gretchen

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I. THE CORPORATION CODE
A. Corporation
1. Definition (Sec. 2)
A corporation is an artificial being created
by operation of law, invested by law upon
coming into existence with a personality
separate and distinct from the persons
composing it, and from any other legal entity to
which it may be related. [PNB v. Andrada
Electric & Engineering Co., 381 SCRA 244
(2002).]
2. Attributes of a Corporation
i. An Artificial Being - “It has juridical capacity
to contract and enter into legal relationships.”
ii. Created by Operation of Law - “It is created
by operation of law and not by mere
agreement.”
iii. With Right of Succession [ with strong
juridical personality]
iv. Having only such Powers, Attributes and
Properties expressly authorized by law or
incident to its existence - “It has only such
powers, attributes and properties as are
expressly authorized by law or incident to its
existence.”
Additional notes:
A corporation has no powers except for those
which are expressly conferred on it by the
Corporation Code, and those found in its
charter, and are implied by or are incidental to
its existence. It exercises its powers through its
Board of Directors and/or its duly authorized
officers and agents. [Pascual and Santos, Inc.
v. The Members of the Tramo Wakas
Business Organization II by Atty. John Frederick E. Derije
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Neighborhood Assn. Inc., 442 SCRA 438
(2004).] The Concession or fiat theory states that a corporation is
conceived as an artificial person owing existence through creation
“TRI-LEVEL EXISTENCE” OF THE CORPORATION: by a foreign power. Further, a corporation has without any
(a) “ASSETS-ONLY” Level: “The corporation is an aggregation existence until it has received the imprimatur of the State acting
of Assets and resources” according to law, through the SEC. (Tayag v. Benguet
(b) “BUSINESS ENTERPRISE” Level: “The corporation’s Consolidated, Inc., GR No. L-23145, November 29, 1968)
primary purpose is to pursue business.”
(c) “JURIDICAL ENTITY” Level: “The corporation is a medium - Limited by the grant of the law or the constitution. Since creating
of pursuing a business enterprise.” a corporation is a privilege, it may not go beyond etc….
- You cannot make your bylaws that go against the enabling law
(the Corporation Code).
“TRI-LEVEL RELATIONSHIPS” IN THE CORPORATE
SETTING:
A [corporation’s] claim of a juridical personality of its own and
(a) “JURIDICAL ENTITY LEVEL,” which treats of the aspects of
transact business as such, is not a matter of absolute right, but a
the State-corporation relationship.
privilege which may be enjoyed only under such terms as the
(b) “INTRA-CORPORATE LEVEL,” which considers that the
State may deem necessary to impose. of. [Ang Pue & Co. v. Sec.
corporate setting is a contractual relationship
of Commerce & Industry, 5 SCRA 645 (1962)].
on four (4) levels:
● Between the corporation and its agents/representatives
“It is a basic postulate that before a corporation may acquire
to act in the real world, i.e., directors and officers, which
juridical personality, the State must give its consent either in the
is governed also by the Law on Agency
form of a special law or a general enabling act,” and the
● Between the corporation and its shareholders or
procedure and conditions provided under the law for the
members
acquisition of such juridical personality must be complied with.
● Between the shareholders and the corporate directors,
trustees and officers
Although the statutory grant to an association of the powers to
● Between and among the shareholders in a common
purchase, sell, lease and encumber property can only be
venture
construed the grant of a juridical personality to such an
(c) “EXTRA-CORPORATE LEVEL,” which views the relationship
association nevertheless, the failure to comply with the statutory
between the corporation and third parties or “outsiders”,
procedure and conditions does not warrant a finding that such
essentially governed by Contract Law and Labor Law.
association acquired a juridical personality, even when it adopts
● Between the corporation and its employees, governed by
constitution and bylaws. [Int’l Express Travel & Tour Services, Inc.
Labor Laws
v. CA, 343 SCRA 674 (2000).]
● Between the corporation and those it contracts with,
governed by Contract Laws
All corporations, big or small, must abide by the provisions of the
● Between the corporation and the public it affects with its
Corporation Code; even a simple family corporation cannot claim
enterprise, governed essentially by Torts or Quasi-Delict
an exemption nor can it have rules and practices other than those
Laws
established by law. [Torres v. Court of Appeals, 278 SCRA 793
(1997).]
3. Theories of Corporate Existence and Power or
Theories of Formation of Corporation
a. Theory of Concession
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 b. Theory of Business Enterprise or
Enterprise Entity [BERLE, 47
COLUMBIA LAW REV. 343 (1947)]
A corporation is but an association of individuals, allowed to
transact under an assumed corporate name, and with a distinct
legal personality. In organizing itself as a collective body, it waives
no constitutional immunities and perquisites appropriate to such a
body. PSE v. Court of Appeals, 281 SCRA 232 (1997).
Corporations are composed of natural persons and their separate
corporate personality is not a shield for the commission of
injustice and inequity, such as to avoid the execution of the
property of a sister company. [Tan Boon Bee & Co. v. Jarencio,
163 SCRA 205 (1988).]
- The corporation is not merely an artificial being, but
more of an aggregation of persons doing business, or
an underlying business unit
- The state must respect the transactions entered into
by Corporations.
- This theory is somewhat an exception to the
Concession theory.
- A corporation cannot exist without the persons
composing it. It may be composed by both natural
and juridical persons.
4. Private Corporations cannot be Created by
Specific Legislative Act [Power to Create a
Corporation Is Legislative in Character (Sec. 16,
Article XII, 1987 Constitution]
Congress cannot enact a law creating a
private corporation with a special charter,
and it follows that Congress can create
corporations with special charters only if such
are government-owned-or-controlled
corporations (GOCCs). Feliciano v.
Commission on Audit, 419 SCRA 363 (2004);
Veterans Federation of the Philippines v.
Reyes, 483 SCRA 526 (2006).
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P.D. 1717 creating New Agrix, Inc. violated the
constitutional prohibition on the formation of a
private corporation by special legislative act
which is not a GOCC, since NDC was merely
required to extend a loan to the new
corporation, and the new stocks of the
corporation were to be issued to the old
investors and stockholders of the insolvent
Agrix upon proof of their claims against the
abolished corporation. NDC v. Philippine
Veterans Bank, 192 SCRA 257 (1990).
PNRC which was constituted under a special
law, is not a GOCC because it is not by its
charter owned by the Government, although it is
intended to do public functions, it is owned by
the private sector.
Consequently, the PNRC Charter, insofar as it
creates the PNRC as a private corporation and
grants it corporate powers, is void for being
unconstitutional. The other provisions of the
PNRC Charter remain valid as they can be
considered as a recognition by the State that
the unincorporated PNRC is the local National
Society of the International Red Cross and Red
Crescent Movement, and thus entitled to the
benefits, exemptions and privileges set forth in
the PNRC Charter. Liban v. Gordon, 593 SCRA
68 (2009).
5. Four Basic Advantages of Corporate
Organizations
a. Strong Juridical Personality (Sec. 2; Arts.
44(3), 45, 46, and 1775, Civil Code)
“While not in fact and in reality a person, the law
treats the corporation as though it were a
person by process of fiction or by regarding it as
an artificial person distinct and separate from its
individual stockholders.” Remo, Jr. v. IAC, 172
SCRA 405 (1989).
Transfer of corporate assets to the stockholders
is an act of conveyance and not in the nature of
a partition among co-owners. Stockholders are
not co-owners of corporate assets and
properties. Stockholders of F. Guanzon and
Sons, Inc. v. Register of Deeds of Manila, 6
SCRA 373 (1962).
Execution pending appeal may be allowed
when “the prevailing party is already of
advanced age and in danger of extinction,” but
not in this case a corporation. “[A] juridical
entity’s existence cannot be likened to a natural
person—its precarious financial condition is not
by itself a compelling circumstance warranting
immediate execution and does not outweigh the
long standing general policy of enforcing only
final and executory judgment.” Manacop v.
Equitable PCIBank, 468 SCRA 256 (2005).
b. Limited Liability to
Stockholders/Investors and Non-Liability to
Officers
One of the advantages of the corporation is the
limitation of an investor’s liability to the amount
of investment, which flows from the legal theory
that a corporate entity is separate and distinct
from its stockholders. San Juan Structural and
Steel Fabricators, Inc. v. CA, 296 SCRA 631
(1998).
It is hornbook law that corporate personality is a
shield against personal liability of its officers—a
corporate officer and his spouse cannot be
made personally liable under a trust receipt
where he entered into and signed the contract
clearly in his official capacity. Consolidated
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 Bank and Trust Corp. v. Court of Appeals, 356
SCRA 671 (2001).
Obligations incurred by the corporation acting
through its directors and officers, are its sole
liabilities. Malayang Samahan ng mga
Manggagawa sa M. Greenfield v. Ramos, 357
SCRA 77 (2001).
Where the creditor of the corporation sues not
only the company but also all stockholders to
reach their unpaid subscription which appear to
be the only visible assets of the company, then
the controlling doctrine is that “a stockholder is
personally liable for the financial obligations of
the corporation to the extent of his unpaid
subscription.” Halley v. Printwell, Inc. 649 SCRA
116 (2011).
c. Centralized Management
It
As can be gleaned from Sec. 23 of Corporation
Code “It is the board of directors or trustees
which exercises almost all the corporate powers
in a corporation.” Firme v. Bukal Enterprises
and Dev. Corp. , 414 SCRA 190 (2003).
The exercise of corporate powers rest in the
Board of Directors, save in those instances
where the Corporation Code requires
stockholders’ approval for certain specific acts.
Great Asian Sales Center Corp. v. Court of
Appeals, 381 SCRA 557 (2002).
d. Free Transferability of Units of Ownership
It is the inherent right of the stockholder to
dispose of his shares of stock (which he owns
as any other property of his) anytime he so
desires. Remo, Jr. v. IAC, 172 SCRA 405
(1989); PNB v. Ritratto Group, Inc., 362 SCRA
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216 (2001).
allotments of the surplus profits on the basis of the
shares held are stock corporations. All other
Authority granted to regulate the transfer of its corporations are non-stock corporations.
stock does not empower the corporation to
restrict the right of a stockholder to transfer his
Other classifications:
shares, but merely authorizes the adoption of
regulations as to the formalities and procedure
As to Legal Status
to be followed in effecting transfer. Thomson v.
CA, 298 SCRA 280 (1998). a) Corporation De Jure
b) De Facto Corporation (SEC. 20)
Additional Notes:
A de facto corporation is one which actually exists for all
Disadvantages of the Corporate Medium: practical purposes as a corporation but which has no
legal right to corporate existence as against the State. (8
(1) Abuse of corporate management; breach of trust
Fletcher, pp. 62-63)
(2) Abuse of limited liability feature
(3) High cost of maintenance of the corporate medium
Requisites of a de facto corporation (LAP)
(4) Double taxation
1. Organized under a valid Law.
● Dividends received by individuals from domestic
2. Attempt in good faith to form a corporation
corporations are subject to final 10% tax for income
according to the requirements of the law (Colorable
earned on or after 01 January 1998. Sec. 24(B)(2), 1997
Compliance).
NIRC.
● Inter-corporate dividends between domestic
NOTE: Issuance of Certificate of Incorporation by SEC is
corporations, however, are not subject to any income
a minimum requirement for the formation of the
tax,
corporation in good faith.(Sundiang Sr. & Aquino, 2009)
Sec. 27(D)(4), 1997 NIRC.
● There is re-imposition of the 10% “improperly
3. Use of corporate Powers - The corporation
accumulated earnings tax” for holding companies. Sec.
must have performed the acts which are peculiar to a
29, 1997 NIRC.
corporation like entering into a subscription agreement,
adopting by-laws, and electing directors (Actual User).
B. Classes of Corporations
- Only the State my question such defect. It may not be
As to Existence of Shares (Sec. 3)
collaterally attacked.
1. Stock Corporation - It is only the state, through a quo warranto
2. Non-Stock Corporation proceeding, that a de facto corporation may be
attacked.
Section 3. Classes of corporations. – Corporations
formed or organized under this Code may be stock or c) Corporation by Estoppel (SEC. 21)
non-stock corporations. Corporations which have
capital stock divided into shares and are authorized to - No requirement whatsoever.
distribute to the holders of such shares dividends or
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 - Important element: There is an act or omission being
attributed to the corporation by virtue of the ostensible corporations to do business in its own country or state. It shall
a. DOJ-SEC Control Test
representation. have the right to transact business in the Philippines after it
shall have obtained a license to transact business in this
country in accordance with this Code and a certificate of The control test as the primary test
Section 20. De facto corporations. – The due authority from the appropriate government agency.
incorporation of any corporation claiming in good faith As a rule, the control test applies. The primacy of the
to be a corporation under this Code, and its right to control test over the grandfather rule can be traced to
Additional Notes:
exercise corporate powers, shall not be inquired into DOJ Opinion No. 19, s. 1989 (the “1989 DOJ Ruling”),
collaterally in any private suit to which such As to the Purpose of Incorporation
(a) Municipal Corporation which states:
corporation may be a party. Such inquiry may be
made by the Solicitor General in a quo warranto (b) Religious Corporation (Secs. 109 and 116)
proceeding. (n) . . . the “Grandfather Rule”, which was evolved and
Since in matters purely ecclesiastical the decisions of the proper applied by the SEC in several cases, will not apply in
Section 21. Corporation by estoppel. – All persons cases where the 60-40 Filipino-alien equity ownership in
church tribunals are conclusive upon the civil tribunals, then a
who assume to act as a corporation knowing it to be a particular natural resource corporation is not in doubt.
church member who is expelled from the membership by the
without authority to do so shall be liable as general (underscoring supplied)
partners for all debts, liabilities and damages incurred church authorities, or a priest or minister who is by them deprived
or arising as a result thereof: Provided, however, That of his sacred office, is without remedy in the civil courts. Long v.
when any such ostensible corporation is sued on any Basa, 366 SCRA 113 (2001). In other words, according to the Department of Justice,
transaction entered by it as a corporation or on any the control test generally applies, with the grandfather
tort committed by it as such, it shall not be allowed to (c) Educational Corporations (Secs. 106, 107 and 108; Sec. 25, rule applicable only when the 60-40 Filipino-alien equity
use as a defense its lack of corporate personality. ownership is in doubt.
B.P. Blg. 232)
(d) Charitable, Scientific or Vocational Corporations
In Relation to the State (e) Business Corporation On the basis of the 1989 DOJ Ruling, the SEC issued
d) Public Corporation (SEC. 3, ACT. No. 1459) several opinions doing away with the grandfather rule.
e) Private Corporation (SEC. 3, ACT. 1459) For example, in a May 30, 1990 opinion, the SEC stated:
*addtl: Quasi-Public Corporations
. . . the Commission En Banc, on the basis of
C. Nationality of Corporations the Opinion of the Department of Justice No. 18., S.
1989 dated January 19, 9189 voted and decided to do
As to Number of Members 1. Primary "Place of Incorporation Test" (SEC. 123) The away with the strict application/computation of the so
f) Corporation Sole (SECS. 110-115) corporation is a national of the country under whose laws called “grandfather rule”. . . and instead applied the so-
Addtl: Aggregate Corporation - it is organized or incorporated. called “control test” method for determining corporate
nationality. (underscoring supplied)(see also SEC
As to Place of Incorporation 2. Ancillary Control Test Opinion dated August 6, 1991; SEC Opinion dated
g) Domestic Corporation In cases involving properties, business or industries October 14, 1991)
h) Foreign Corporation (SEC. 123) reserved for Filipinos, in addition to the place of
incorporation test, the nationality of a corporation is b. Foreign Investment Act Test of Philippine National
determined by the nationality of the “controlling” Sec. 3(a) & (b) of FIA (R.A. 7042), considers for purpose
Section 123. Definition and rights of foreign corporations. of investment a “Philippine national” as a corporation
– For the purposes of this Code, a foreign corporation is one stockholders.
organized under the laws of the Philippines of which at
formed, organized or existing under any laws other than those
Sub-Sets of the Control Test least 60% of the capital stock outstanding and entitled to
of the Philippines and whose laws allow Filipino citizens and
vote is owned and held by citizens of the Philippines, or

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 a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a
Philippine national and at least 60% of the fund will
accrue to the benefit of Philippine nationals.
Under Sec. 3 of the FIA ’91, a corporation organized
under the laws of the Philippines of which at least 60% of
the capital stock outstanding and entitled to vote is
owned and held by citizens of the Philippines, is
considered a Philippine National. Unchuan v. Lozada,
585 SCRA 421 (2009).
c. “New” SEC Control Test
As a result of the Gamboa rulings, SEC Memorandum
Circular No. 8, s. 2013, was issued and provides that:
Clarification Case: Roy v. Herboza G.R. 207246 (2017)
all covered corporations shall, at all times, observe the
constitutional or statutory ownership requirement in that
“the required percentage of Filipino ownership shall be
applied to BOTH
(a) the total number of outstanding
shares of stock entitled to vote in the election of
directors; AND
(b) the total number of outstanding
shares of stock, whether or not entitled to vote
in the election of directors.”
The 1987 Constitution “provides for the Filipinization of
public utilities by requiring that any from of authorization
for the operation of public utilities should be granted only
to ‘citizens of the Philippines or to corporation or
associations organized under the laws of the Philippines
at least sixty per centum of whose capital is owned by
such citizens.’ The provision is [an express] recognition
of the sensitive and vital position of public utilities both in
the national economy and for national security.” The
evident purpose of the citizenship requirement is to
prevent aliens from assuming control of public utilities,
which may be inimical to the national interest. This
specific provision explicitly reserves to Filipino citizens
control of public utilities, pursuant to an overriding
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economic goal of the 1987 Constitution: to “conserve and
develop our patrimony” and to ensure a “a self-reliant
and independent national economy effectively controlled
by Filipinos.”
We rule that the term “capital” in Sec. 11, Art. XII of the
Constitution should cover both; (a) the control test that
covers only shares of stock entitled to vote in the election
of directors; and the beneficial interest test, that the 60%-
40% equity in favor of Filipinos shall apply to each and
every class of shares, to common shares, to preferred
non-voting shares, to preferred voting shares, and other
classes of shares. Gamboa v. Teves, 652 SCRA 690
(2011), affirmed in 682 SCRA 397 (2012).
d. Rule Against "Unlawful Corporate Layering”
The grandfather rule can only extend to such limited as
to those who have actual control of the affairs of the
corporation. Palting v. San Jose Petroleum Inc., 18
SCRA 924 (1966).
Lately, the SEC overturned the use of the formula “60%-
or-more-equals-100%-Filipino-ownership.”
Accordingly, we opine that we must look into the
citizenship of the individual stockholders, i.e., natural
persons, of that investor-corporation in order to
determine if the Constitutional and statutory restrictions
are complied with. If the shares of stock of the immediate
investor corporation is in turn held and controlled by
another corporation, then we must look into the
citizenship of the individual stockholders of the latter
corporation. In other words, if there are layers of
intervening corporations investing in a mining joint
venture, we must delve into the citizenship of the
individual stockholders of each corporation. This is the
strict application of the grandfather rule, which the
Commission has been consistently applying prior to the
1990s. (SEC-OGC Opinion No. 10-31, dated 09
December 2010, addressed to Mr. Leonardo A. Civil,
Chairman of the Board of Co-O Small Scale Miners
Association, Inc., penned by General Counsel Vernette
G. Umali-Paco)
Although the “control test” is still the prevailing mode of
determining whether or not a corporation is a Filipino
corporation, within the ambit of Sec. 2, Art. II of 1987
Constitution are entitled to undertake the exploration,
development and utilization of the natural resources of
the Philippines; however, when there is doubt in the
minds of the court, based on the attendant facts and
circumstances of the case, in the 60-40 Filipino-equity
ownership in the corporation, then it may apply the
“grandfather rule.” Narra Nickel Mining v. Redmont
Consolidated Mines, G.R. No. 195580, 21 April 2014.
Application of Control Tests:
i. Exploitation of Natural Resources
(Sec. 140; Sec. 2, Art. XII, 1987 Constitution)
SECTION 2. All lands of the public domain, waters,
minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources
are owned by the State. With the exception of
agricultural lands, all other natural resources shall not
be alienated. The exploration, development, and
utilization of natural resources shall be under the full
control and supervision of the State. The State may
directly undertake such activities, or it may enter into
co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose
capital is owned by such citizens. Such agreements
may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and
under such terms and conditions as may be provided
by law. In cases of water rights for irrigation, water
supply, fisheries, or industrial uses other than the
development of water power, beneficial use may be
the measure and limit of the grant. X x x
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 ii. Ownership of Land (Sec. 7, Art. XII, 1987
Constitution)
SECTION 7. Save in cases of hereditary succession,
no private lands shall be transferred or conveyed
except to individuals, corporations, or associations
qualified to acquire or hold lands of the public domain.
The registration of the donation of land to an
unincorporated religious organization, whose trustees
are foreigners, would violate constitutional prohibition
and the refusal would not be in violation of the freedom
of religion clause. The fact that the religious association
“has no capital stock does not suffice to escape the
constitutional inhibition, since it is admitted that its
members are of foreign nationality. . . and the spirit of the
Constitution demands that in the absence of capital
stock, the controlling membership should be composed
of Filipino citizens.” Register of Deeds of Rizal v. Ung
Sui Si Temple, 97 Phil. 58 (1955)
BUT: A corporation sole being a creature prior to the
constitution, has no nationality. If a nationality is
sought to be determined, the same depends of the
nationality of the majority of the lay members and not on
the nationality of the sole corporator. Roman Catholic
Apostolic Administrator of Davao, Inc. v. LRC and the
Register of Deeds of Davao, 102 Phil. 596 (1957).
iii. Public Utilities (Sec. 11, Art. XII, Constitution)
SECTION 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least
sixty per centum of whose capital is owned by such citizens, nor
shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall
any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires.
The State shall encourage equity participation in public utilities
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by the general public. The participation of foreign investors in
the governing body of any public utility enterprise shall be To demonstrate these signs of doubt, the Court referred
limited to their proportionate share in its capital, and all the to the indicators of a dummy status as identified in a
executive and managing officers of such corporation or
Department of Justice Opinion on the Anti-Dummy Law.
association must be citizens of the Philippines.
These would be where the foreign investors provide
practically all the funds and technological support for a
The nationality test for public utilities applies not at the
joint venture undertaken with their Filipino partners, and
time of the grant of the primary franchise that makes a
where such foreign investors get to manage the
corporation a juridical person, but at the grant of the
company even while being minority stockholders.
secondary franchise that authorizes the corporation to
engage in a nationalized industry. People v. Quasha, 93
3. Grandfather Rule
Phil. 333 (1953).
The Grandfather Rule determines the actual Filipino
ownership and control in a corporation by tracing both
The primary franchise, that is, the right to exist as such,
the direct and indirect shareholdings in the corporation.
is vested in the individuals who compose the corporation
and not in the corporation itself and cannot be conveyed
According to the January 2015 Resolution of the
in the absence of a legislative authority to do so. The
Supreme Court in the case of Narra Nickel Mining and
secondary franchises are vested in the corporation and
Development Corp. vs. Redmont Consolidated Mines
may ordinarily be conveyed or mortgaged under a
Corp. (G.R. No. 195580), “the Grandfather test was
general power granted to a corporation to dispose of its
originally intended to look into the citizenship of the
property, except such special or secondary franchises as
individuals who ultimately own and control the shares of
are charged with a public use. J.R.S. Business Corp. v.
stock of a corporation for purposes of determining
Imperial Insurance, 11 SCRA 634 (1964).
compliance with the constitutional requirement of Filipino
ownership”.
iv. War-Time Test
In war time, domestic corporations which are under the
What do we mean when we say “Doubt”? -
control of nationals of the enemy country are deemed
(See the above case - enumeration of circumstances)
foreign enemy corporations. Haw Pia v. China Banking
1)
Corp., 80 Phil. 604 (1948).
2) Similar corporate structure
3) When a major Filipino shareholder in a
v. Anti-Dummy Law
corporate layer did not pay subscription fee
Special Criminal Case (Hence requires guilt beyond
4) Dubious act of a foreign investor to convey
reasonable doubt)
its interest in the orporation in question or other
corporate layers to other FIlipino _______
In its Resolution, the high court clarified that “doubt” does
(there is a sort of dummy)
not automatically mean the mere failure of the Filipino
ownership to meet the 60% threshold of the corporation’s
The shareholdings should ideally be traced (i.e.
equity. “Doubt” refers to various indicia that the
grandfathered) to the point where natural persons hold
“beneficial ownership” and “control” of the corporation do
the shares. However, this may be impractical and a limit
not in fact reside in Filipino shareholders but in foreign
must be set when tracing through the corporate layers to
stakeholders.
attribute nationality. Citing a memorandum from the
Page 7
 Securities and Exchange Commission (SEC), the
Supreme Court noted the suggestion of the SEC to apply
the Grandfather Rule on two levels of corporate relations
for publicly-held corporations or where shares are traded
in the stock exchange, and to three levels for closely
held ones or those which are not traded in any stock
exchange. Clearly, the limits should not go beyond the
level of what is reasonable.
D. Corporate Juridical Personality
1. Doctrine of Separate Juridical Personality
A corporation, upon coming into existence, is invested by
law with a personality separate and distinct from those
persons composing it as well as from any other legal
entity to which it may be related, with the following
consequences:
a. Liability for Torts and Crimes
The corporation may not be made to answer for acts and
liabilities of its stockholders or those of legal entities to
which it may be connected or vice versa. General Credit
Corp. v. Alsons Dev. and Investment Corp., 513 SCRA
225 (2007).
Torts:
Corporation only liable for torts arising out of the acts of
officers taking
Crimes:
GR: Corporation not liable.
XPTN: Special laws.
b. Recovery of Moral Damages
A corporation, being an artificial person and having
existence only in legal contemplation, has no feelings,
emotions nor senses; therefore, it cannot experience
physical suffering and mental anguish. Mental suffering
can be experienced only by one having a nervous
system and it flows from real ills, sorrows, and griefs of
life—all of which cannot be suffered by an artificial
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person. Prime White Cement Corp. v. IAC, 220 SCRA
103 (1993).
2. Doctrine of Piercing the Corporate Veil
The doctrine that a corporation is a legal entity or a
person in law, distinct from the persons composing it or
any other corporation to which it may be related, is
merely a legal fiction for purposes of convenience and to
subserve the ends of justice. This fiction, therefore,
cannot be extended to a point beyond its reason and
policy.
a. Grounds for Application of Doctrine
The doctrine applies in three basic areas namely:
(1) Defeat of public convenience as when the
corporate fiction is used as a vehicle for the
evasion of an existing obligation;
(2) Fraud cases or when the corporate entity is
used to justify a wrong, protect fraud, or defend
a crime; or
(3) Alter ego cases where a corporation is merely a
farce since it is a mere alter ego or business
conduit of a person or where the corporation is
so organized and controlled and its affairs are
so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of
another corporation.
In the absence of malice, bad faith, or a specific
provision of law making a corporate officer
liable, such corporate officer cannot be made
personally liable for corporate liabilities.
(Pantianco Employees Assoc. vs. National
Labor Relations Commission, 581 SCRA 598
[2009].)
b. Test in Determining Applicability
1. Control, not mere majority or complete stock
control, but complete domination, not only of
finances but of policy and business practice in
respect to the transaction attacked so that
the corporate entity as to this transaction had at
the time no separate mind, will or existence of
its own;
2. Such control must have been used by the
defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust
act in contravention of plaintiff's legal rights; and
3. The aforesaid control and breach of duty
must proximately cause the injury or unjust loss
complained of. (Instrumentality Rule, Concept
Builders, Inc. vs. NLRC)
3. Matters Pertaining to Corporation as a "Person"
GR: A corporation, being a juridical entity, can
only act as such through its officers and agents.
a. Liability for Torts or Negligence
A corporation is civilly liable for torts in the same manner
as natural persons, because the rules governing the
liability of a principal for a tort committed by an agent are
the same whether the principal be a natural person or a
corporation, and whether the agent be a natural or
artificial person. PNB v. Court of Appeals, 83 SCRA 237
(1978).
“Corporate tort” consists in the violation of a right given
or the omission of a duty imposed by law; a breach of a
legal duty. The failure of the corporate employer to
comply with the duty under the Labor Code to grant
separation pay to employees in case of cessation of
operations constitutes tort and its stockholder who was
actively engaged in the management or operation of the
business should be held personally liable. Sergio F.
Naguiat v. NLRC, 269 SCRA 564 (1997).
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b. Liability for Crimes (Arts. 102 and 103, Revised
Penal Code)
a. No Criminal Suit Can Lie Against a Corporation:
Corporations cannot be held criminally liable within
Philippine jurisdiction since there is no law relating to the
practice and procedure in criminal actions whereby a
corporation may be brought to court to be proceeded
against criminally. West Coast Life Ins. Co. v. Hurd, 27
Phil. 401 (1914).
A corporation lacks the element for malice to be held
liable for a criminal act. Times, Inc. v. Reyes, 39
SCRA 303 (1971).
But, a corporation can be a real-party-in-interest for the
purpose of bringing a civil action for malicious
prosecution for the damages incurred by the corporation
for the criminal proceedings brought against its officer.
Cometa v. Court of Appeals, 301 SCRA 459 (1999).
b. Stockholders As Such Cannot Be Held Liable for a
Corporate Criminal Act
The “owners” of a corporate organization are its
stockholders and they are to be distinguished from its
directors and officers. Stockholders, being basically
investors in the corporation, and with the management of
its business generally vested in the Board of Directors,
cannot be held liable for the criminal offense committed
on behalf of the corporation, unless they personally took
part in the same. Espiritu v. Petron Corp., 605 SCRA 245
(2009).
c. It Is the Acting Officers Who Shall Be Criminally
Liable for the Corporate Act
When a criminal statute forbids the corporation itself from
doing an act, the prohibition extends to the Board of
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Directors, and to each director separately and
individually. People v. Concepcion, 44 Phil. 129
(1922).
Apart from its sweeping allegation that respondents
misappropriated or converted its money placements,
petitioner failed to establish the particular role or actual
participation of each respondent in the criminal act;
neither was it shown that they assented to its
commission. It is basic that only corporate officers shown
to have participated in the alleged anomalous acts may
be held criminally liable. Cruzvale, Inc. v. Eduque, 589
SCRA 534 (2009).
The existence of the corporate entity does not shield
from prosecution the corporate agent who knowingly and
intentionally causes the corporation to commit the crime.
The corporation obviously acts, and can act, only by and
through its human agents, and it is their conduct which
the law must deter. The employee or agent of a
corporation engaged in unlawful business naturally aids
and abets in the carrying on of such business and will be
prosecuted as principal if, with knowledge of the
business, its purpose and effect, he consciously
contributes his efforts to its conduct and promotion
[illegal recruitment; tax evasion], however slight his
contribution may be. The Executive Secretary v. Court
of Appeals, 429 SCRA 81 (2004); People v. Tan Boon
Kong, 54 Phil. 607 (1930).
c. Constitutional Rights
i. Due Process
ii. Equal Protection
Corporation as a Person is entitled to Due Process and
Equal Protection
The due process clause is universal in its application to
all persons, and covers private corporations within the
scope of the guaranty insofar as their properties are
concerned. Smith Bell & Co. v. Natividad, 40 Phil. 136
(1920)
iii. Protection Against Unreasonable
Searches and Seizures
A corporation is protected by the constitutional guarantee
against unreasonable searches and seizures, but its
officers have no cause of action to assail the legality of
the seizures, regardless of the amount of shares of stock
of each in said corporation because the corporation has
a personality distinct and separate from those of said
officers. Stonehill v. Diokno, 20 SCRA 383 (1967).
A corporation is but an association of individuals under
an assumed name and with a distinct legal entity. In
organizing itself as a collective body it waives no
constitutional immunities appropriate for such body. Its
property cannot be taken without compensation; can only
be proceeded against by due process of law; and is
protected against unlawful discrimination. Bache & Co.
(Phil.), Inc. v. Ruiz, 37 SCRA 823 (1971).
d. Non-Entitlement to Moral Damages
“It is elementary that the right against self-incrimination
has no application to juridical persons.”
Bataan Shipyard & Engineering v. PCGG, 150 SCRA
181 (1987).
While an individual may lawfully refuse to answer
incriminating questions unless protected by an immunity
statute, it does not follow that a corporation, vested with
special privileges and franchises by the State, may
refuse to show its hand when charged with an abuse of
such privilege. Hale v. Henkel, 201 U.S. 43 (1906).
e. Corporation cannot practice a Profession
Corporations cannot engage in the practice of a
profession since they lack the moral and technical
Page 9
 competence required by the PRC. ULEP v. The Legal ● Any excess will not be to shares of stock of any rural
Clinic, 223 SCRA 378 (1993). considered as incorporators bank.
● if the corporation is a
A corporation engaged in the selling of eyeglasses and ■ All must be of legal age cooperative, it may
which hires optometrists is not engaged in the practice of ■ A majority of them must be residents become an
optometry. Samahan ng Optometrists v. Acebedo of the Philippines incorporator of a
International Corp., 270 SCRA 298 (1997); Alfafara v. ■ Each of them must own or be a rural banking
Acebedo Optical Company, 381 SCRA 293 (2002). subscriber to at least 1 share of the corporation
capital stock of the corporation
E. Incorporators and Organization 2. MUST HAVE THE CAPACITY TO ENTER
NOTE: Unless otherwise expressly provided in the INTO VALID CONTRACTS
1. Incorporators and Corporators articles of incorporation, a corporation cannot impose
2. Promoter other qualifications. The same rule applies as to ● The Articles of Incorporation must be
a. Liability of Promoter stockholders. acknowledged by the incorporators
b. Liability of Corporation for Promoter’s Contracts before a notary public
3. Number and Qualifications of Incorporators NOTE: The general practice is for the incorporators to ○ Why? In order to secure the
serve as the first directors of the corporation State and the all concerned
against the possibility of any
Sec. 10. Number and qualifications of incorporators. — Any
QUALIFICATIONS OF INCORPORATORS: fictitious name being
number of natural persons not less than five (5) but not more
than fifteen (15), all of legal age and a majority of whom are subscribed to the articles and
residents of the Philippines, may form a private corporation for 1. MUST BE NATURAL PERSONS (GENERAL to furnish proof of the
any lawful purpose or purposes. Each of the incorporators of a RULE) genuineness of the
stock corporation must own or be a subscriber to at least one ● A corporation cannot be an signatures
(1) share of the capital stock of the corporation. (6a) incorporator of another corporation. ● A married woman may be an
● Artificial persons, without brain or incorporator without the need of
● Incorporation of a private corporation is a mere body, existing only on paper through obtaining the consent of her husband
privilege legislative command and incapable of ○ BASIS: Either spouse may
○ In our jurisdiction, the right to be and act as a thought or action except through exercise any legitimate
corporation does not belong to any person as a natural persons, cannot create other profession, occupation,
natural and civil right, but as a special privilege artificial persons, and those others still, business or activity without
conferred upon a group of persons by the until the line is so extended and the the consent of the other"
sovereign power of the State. Until there is a capital stock so duplicated and subject to the right of the
grant of such right, therefore, whether by reduplicated as to result in confusion husband to "object only on
special act of the legislature or under general and fraud valid, serious and moral
law, there can be no corporation. grounds." (Art. 73, FC.)
● EXCEPTION: ● A minor who is emancipated either by
● Incorporators: Number and Qualifications: i. duly established cooperatives marriage or by voluntary concession of
○ As provided in Section 10: and corporations primarily the parents is not qualified to be an
■ Not less than 5, but not more than 15 organized to hold equities in incorporator
rural banks may organize
rural banks and/or subscribe

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 ● BASIS: Incorporators must be "all of
legal age." (Section 10, Corporation
Code
3. A MAJORITY OF THE INCORPORATORS
MUST BE RESIDENTS OF THE PHILIPPINES
● A corporation composed entirely of
aliens may be incorporated as long as
the majority of the incorporators are
residents of the Philippines EXCEPT in
the case of nationalized corporations
● "Residents"
○ Construed to mean domiciled
residents
○ As used in corporate statutes
requiring one or certain
number of directors to be
residents of the State, is
equivalent to domicile,
■ ELEMENTS:
1. physical presence
in the State and
2. intention to remain
therein.
● The domicile of natural
persons is the place of their
habitual residence (Art. 50,
Civil Code.);
● It is the place where one has
his true, fixed, permanent
home and to which he,
whenever he is absent, has
the intention of returning.
● It is not required that majority of the
members must also be residents
● BUT, a majority of the directors/
trustees of all corporations must be
residents of the Philippines
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4. CERTAIN PERCENTAGE OF THE CAPITAL
STOCK IS REQUIRED TO BE OWNED BY
FILIPINO CITIZENS
● Foreign shareholders may be debarred
from certain nationalized activities
which are exclusively reserved for
Filipino citizens.
5. EACH INCORPORATORS OF A STOCK
CORPORATION MUST OWN OR BE A
SUBSCRIBER OF AT LEAST ONE (1) SHARE
OF THE CAPITAL STOCK OF THE
CORPORATION
● Presumption: If an incorporator has a
pecuniary interest in the corporation,
he will be concerned with the
management of its affairs
REQUIREMENT REGARDING MINIMUM NUMBER OF
INCORPORATORS MANDATORY
● The requirement of the law regarding the minimum
number of incorporators is mandatory
● A de jure corporation cannot be legally formed by less
than the prescribed number except in the case of a
corporation sole
● In case of educational corporations, their incorporation
"shall be governed by special laws and by the general
provisions of [the] Code."
1. Reduction of stockholders or members to less than
minimum.
● The number of stockholders (or members) after
the corporation is organized may become less
than the minimum number required for
incorporation without affecting corporate
existence unless valid grounds exist for piercing
or lifting the corporate veil
2. Beneficial ownership in one individual. — The
requirement of minimum number of incorporators is one
of those provisions, however, which are formal rather
than substantial and which are regularly evaded in
practice. Since the law permits a scheme by which all the
shares are owned by a single individual, the latter may
incorporate provided he associates with him, at least
nominally, the number of persons required by the law.
● The validity of the incorporation is not affected
by the fact that it is formed in the interest of a
single individual, and that the other persons
under his control, without any substantial
interest, or without individual responsibility who
may only be called "qualifying stockholders," or
who are popularly known as dummies or "men
of straw."
● Beneficial ownership is not necessary, and a
person who holds the legal title to stock is
qualified to become an incorporator
3. Subsequent accumulation of shares in one
individual. — Nor is the existence of the corporation
originally formed by the required number of incorporators
affected by the subsequent accumulation of all the
shares in the hands of one individual unless, as
previously said, circumstances exist to justify the piercing
of the veil of corporate entity
4. Corporate Name; Guidelines/Limitations on Use of
Corporate Name
● The incorporators "constitute a body politic and corporate
under the name stated in the certificate."
● A corporation has the power "of succession by its
corporate name.
● The name of a corporation is therefore essential to its
existence; it cannot change its name except in the
manner provided by the statute; by that name alone is it
authorized to transact business;and it is by that name
that a corporation can sue and be sued, and perform all
other legal acts.
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 ● Corporate name is the main practical means of
confusingly similar to one already registered by is consent from the registered firm or this firm is one
identifying corporation from its members or stockholders,
another corporation or partnership with the of the stockholders or partners of the entity to be
and other entities, thus the Corporation Code does not
Commission or a sole proprietorship registered with registered.
allow a corporation to adopt a name identical or
the Department of Trade and Industry (DTI). 11. The name of an internationally known foreign
deceptively or confusingly similar or to any other name
corporation or one similar to it may not be used by a
already protected by law or which is patently deceptive,
If the proposed name is similar to the name of a domestic corporation without the consent of the
confusing or contrary to existing laws.
registered firm, the proposed name must contain at former.
● A corporation may use another name as a business or
least one distinctive word different from the name of 12. The term “Philippines” when used as part of the
brand name, but a corporation cannot use another
the company already registered. name of a subsidiary corporation of a foreign
corporation's name because it will only confuse the
corporation shall be in parenthesis: i.e.
public (Red Line Trans. Vs. Rural Transit)
4. Business or tradename of any firm which is different “(Philippines)” or “(Phil.)”.
● a corporation has no right to intervene in a suit using a
from its corporate or partnership name shall be 13. The foIlowing words shall not be used as part of a
name other than its registered name, and if the
indicated in the. Articles of Incorporation or corporate or partnership names:
corporation legally and truly wanted to intervene, it
partnership of said firm.
should have used its corporate name as the law requires
5. Tradename or trademark duly registered with the a. As provided by special laws:
and not another name which it had not registered
Intellectual Property Office (IPO) can not be used i. “Finance”, “Financing” or
(Laureano Investment and Development Corp vs. CA)
as part of a corporate or partnership name without “Finance and Investment” by
the consent of the owner of such tradename or corporations or partnerships not
Guidelines on Corporate Names
trademark. engaged in the financing
6. lf the name or surname of a person is used as part business (R.A. 5980, as
The SEC Revised Guidelines provides for the following of a corporate or partnership name, the consent of amended)
policies on the use of corporate names aimed at said person or his heirs must be submitted except if ii. “Engineer”, “Engineering” or
safeguarding public interest and avoiding future conflicts, that person is a stockholder, member, partner or a “Architects” as part of the
thus: declared national hero. If such person can not be corporate name (R.A. 546 and
1. The corporate name shall contain the word identified or non-existent, an explanation for the use R.A; 1582)
“Corporation” or its abbreviation “Corp.” or of such name shall be required. iii. “Bank”, “Banking”, “Banker”,
“Incorporated”, or “Inc.”. 7. The meaning of initials in the name shall be “Building and Loan Association”,
The partnership name shall contain the word disclosed in writing by the registrant. “Savings and Loan Association”,
“Company” or “Co.”. For limited partnership, the 8. Name containing a term descriptive of a business “Trust Corporation”, “Trust
word “Limited” or “Ltd.” shall be included. In case of different from the business of a registered company Company” or words of similar
professional partnership, the word “Company” need whose name also bears similar term(s) used by the import by corporations or
not be used. former may be allowed. associations not engaged in
9. The name should not be patently deceptive, banking business,. (R.A. 337, as
2. Terms descriptive of a business in the name shall confusing or contrary to existing laws. amended)
he indicative of the primary purpose. If there are 10. The name which contains a word identical to a word iv. “United Nations” in full or
two (2) descriptive terms, the first shall refer to the in a registered name shall not be allowed if such abbreviated form can not be part
primary purpose and the second shall refer to one word is coined or already appropriated by a of a corporate or partnership
of the secondary purposes. registered firm, regardless of the number of the name (R.A. 266)
3. The name shall not be identical, misleading or different words in the proposed name, unless there v. “Bonded” for corporations or

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partnerships with unlicensed
warehouse (RA 245)
(b) As a matter of policy:
(i) “Investment(s)” by corporations or
partnerships not organized as investment
house, investment company or a holding
company.
(ii) “National” by all stock corporations arid
partnership.
(iii)“Asean”, “Calabarzon” and “Philippines
2000”.
14. The name of a dissolved firm shall not be allowed to
be used by other firms within three (3) years after
the approval of the dissolution of the corporation by
the Commission, unless allowed by the last
stockholders representing at least majority of the
outstanding capital stock of the dissolved firm.
15. Registrant corporations or partnership shall submit
a letter undertaking to change their corporate or
partnership name in case another person or firm
has acquired a prior right to the use of the said firm
name or the same is deceptively or confusingly
similar to one already registered unless this
undertaking is already included as one of the
provisions of the articles of incorporation or
partnership of the registrant.
Change of Corporate Name
● Although a corporation has the power to change its
name by following the procedure laid down by law, the
change of name of a corporation does not result in its
dissolution.
● Changing of the name of a corporation is no more than
creation of a corporation than the changing of the name
of a natural person is the begetting of a natural person.
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The act, in both cases, would seem to be what the
language which we use to designate it imports—a
change of name and not a change of being ( Philippine
First Insurance Co. v. Hartigan,)
● The amendment of the corporate name in the articles of
incorporation and its approval by the SEC no longer
requires another amendment to the old corporate names
appearing in the by-laws of the corporation.
5. Corporate Term
Sec. 11. Corporate term. — A corporation shall exist for a
period not exceeding fifty (50) years from the date of
incorporation unless sooner dissolved or unless said period is
extended. That corporate term as originally stated in the articles
of incorporation may be extended for periods not exceeding fifty
(50) years in any single instance by an amendment of the
articles of incorporation, in accordance with this Code:
Provided, That no extension can be made earlier than five (5)
years prior to the original or subsequent expiry date(s) unless
there are justifiable reasons for an earlier extension as may be
determined by the Securities and Exchange Commission. (6a)
● The corporation shall exist for the term specified in the
articles of incorporation' not exceeding fifty years, unless
sooner legally dissolved or unless its registration is
revoked upon any of the grounds provided by law.
● The corporate life may be reduced or extended by
amendment of the articles of incorporation by complying
● with the procedural requirements laid down in Section
37.
Section 37. Power to extend or shorten
corporate term. — A private corporation may
extend or shorten its term as stated in the articles
of incorporation when approved by a majority
vote of the board of directors or trustees and
ratified at a meeting by the stockholders
representing at least two-thirds (2/3) of the
outstanding capital stock or by at least two-thirds
(2/3) of the members in case of nonstock
corporations. 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: Provided, That in
case of extension of corporate term, any
dissenting stockholder may exercise his
appraisal right under the conditions provided in
this Code.
EXTENSION OF CORPORATE TERM
1. Limitations:
a. The term shall not exceed fifty years in any one
instance
b. The amendment is effected" before the
expiration of the corporate term of existence, for
after dissolution by expiration of the corporate
term there is no more corporate life to extend.
● The extension cannot be done during
the three-year period of liquidation
c. The extension cannot be made earlier than five
(5) years prior to the expiration date unless
there are justifiable reasons therefor as may be
determined by the SEC.
2. Effect of extension/expiration of term. — The mere
extension of the corporate term of existence made
before the expiration of the original term constitutes a
continuation of the old, and not the creation of a new,
corporation.
Upon the expiration of the period fixed in the articles of
incorporation, in the absence of compliance with the
legal requisites for the extension of the period, the
corporation ceases to exist and is dissolved ipso facto.
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 The expiration of the term for which the corporation was
created does not, however, produce its immediate
dissolution for all purposes. (Sec. 122.)
3. Automatic extension of term. — Section 11 allows the
automatic extension of the corporate existence by
amendment of the articles of incorporation within the five
(5)-year period before the expiration date of the existing
term, during which the Securities and Exchange
Commission may look, if necessary, into the financial
structure of the corporation and its past operations or
actuations. (SEC Opinion, Dec. 18,1963.)
The Code places no limit to the number of extensions
that may be made.
6. Minimum Capital Stock and Subscription
Requirements
Sec. 12. Minimum capital stock required of stock corporations.
— Stock corporations incorporated under this Code shall not be
required to have any minimum authorized capital stock except
as otherwise specifically provided for by special law, and
subject to the provisions of the following section
● Capital Stock-
○ is the amount fixed in the articles of
incorporation, to be subscribed and paid in
or agreed to be paid in by the stockholders
of a corporation, in money, property,
services, or other means at the organization
of the corporation or afterwards and upon
which it is to conduct its business such
contribution being made either directly
through stock subscription or indirectly
through the declaration of stock dividends.
(De Leon)
● Authorized capital stock
○ Refers to the amount of capital stock as
specified in the articles of incorporation. It is
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synonymous with capital stock where the
shares of the corporation have par value.
○ If the shares of stock have no par value, the
corporation has no authorized capital stock,
but it has capital stock the amount of which
is not specified in the articles of
incorporation as it cannot be determined
until all the shares have been issued. In this
case, the two terms are not synonymous.
● Subscribed capital stock
○ is the amount of the capital stock
subscribed, whether fully paid or not. It
connotes an original subscription contract
for the acquisition by a subscriber of
unissued shares in a corporation and
would, therefore, preclude the acquisition of
shares by reason of subsequent transfer
from a stockholder or resale of treasury
shares.
● Outstanding capital stock
○ is the portion of the capital stock which is
issued and held by persons other than the
corporation itself.
○ Defined as "the total shares of stock issued
to subscribers or stockholders, whether or
not fully or partially paid (as long as there is
a binding subscription agreement), except
treasury shares."
○ Broader than "subscribed capital stock."
● Paid-up capital stock
○ is that portion of the subscribed or
outstanding capital stock that is actually
paid.
● Unissued capital stock
○ is that portion of the capital stock that is not
issued or subscribed. It does not vote and
draws no dividends.
● Legal capital
○ is the amount equal to the aggregate par
value and/or issued value of the
outstanding capital stock.
○ When par value shares are issued above
par, the premium or excess is not to be
considered as part of the legal capital.
○ In the case of no par value shares, the
entire consideration received forms part of
legal capital and shall not be available for
distribution as dividends,
7. Articles of Incorporation
● Is the document prepared by the persons establishing a
corporation and filed with the SEC containing the matters
required by the Code.
● 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 the stockholders.
● A corporation created by special law (see Sec. 4.) has no
articles of incorporation.
a. Nature and Function of Articles
b. Contents
i. Purpose Clauses
● it confers, as well as limits, the powers
which a corporation may exercise.
● must specify which is the corporation's
primary purpose and which are the
secondary purpose.
● The secondary purpose or purposes
need not be related to the main
purpose.
● Some of the other reasons for
indicating purpose in the charter of the
corporation are so that:
○ Prospective investors shall
know the kind of business the
corporation deals with;
○ Management shall know the
limits of its actions;
○ A third-party can know
whether his dealing with the
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 corporation are with corporate
functions and powers.
● The indication of the primary
purpose of the corporation is
necessary for the administrative
supervision and monitoring of the
State, as it can determine which
particular agency shall have
jurisdiction over the operations of the
corporation.
● The purpose of a corporation must be
lawful. If patently illegal, the articles of
incorporation shall be rejected by the
SEC.
● If purpose stated in the articles of
incorporation is lawful, SEC cannot
ask for other purpose other than those
stated, hence mandamus will lie to
compel SEC to issue certificate of
incorporation, unless under declared
policies, the SEC may need to regulate
certain lawful purposes or activities in
consonance with declared national
economic policies
ii. Principal Place of
Business/Residence of the
Corporation
● Must be indicated in its articles of
incorporation.
● Although the corporation may hold
office in a place other the place
indicated in the articles of
incorporation, for jurisdictional
purpose, the place indicated in the
articles of incorporation is binding.
1. Residence of Corporation:
a. When the law creating or recognizing them, or
any other provision does not fix the domicile of
juridical persons, the same shall be understood
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to be the place where their legal representation application, within six months from the date of filing for a
is established or where they exercise their cause not attributable to the corporation
principal functions. (Article 51, NCC)
b. The residence of a corporation is the place i. When Other Agency Certification
where its principal office is established; it can Requirement
be sued in that place, not in the place where its 1. Insurance Companies-
branch office is located. (Clavecilla Radio Insurance Commission
System v. Antillon) 2. Banks, Building and Loan
c. the residence of the President for purposes of Association, Finance
venue and service of summons is not the Companies- Bangko Sentral
residence of the corporation because a ng Pilipinas
corporation has a personality separate and 3. Educational Institutions-
distinct from that of its officers and stockholders DepEd or CHED
(Sy v. Tyson Enterprises, Inc.,) 4. Public Utilities- LTFRB, CAB,
NTC, etc.
2. Service of Process Upon a Corporation
● if the defendant in a suit is a corporation organized under ii. Grounds of Rejection/Disapproval of
the laws of the Philippines, service may be made on the Articles of Incorporation or
President, general manager, secretary, treasurer, or in- Amendment thereof
house counsel( Sec. 11, Rule 14, 1997 Rules of Civil
Procedure) ● Under Section 17 of the Corporation Code, the SEC may
reject the articles of incorporation or disapprove any
amendment thereto if the same is not in compliance with
the requirements of the Code, provided that the SEC
c. Amendment shall give the incorporators reasonable time within which
to correct or modify the objectionable portions of the
● Unless otherwise prescribed by the Code or by special articles or amendment.
laws, and for legitimate purposes, any provision or
matter stated in the articles of incorporation may be ● The following are grounds for such rejection or
amended by a majority vote of the board of directors or disapproval by the SEC of the articles of incorporation:
trustees and the vote or written sent of the stockholders a. The articles of incorporation or any amendment thereto
representing at least two-thirds (2/3) of the outstanding is not substantially in accordance with the form
capital stock, without prejudice to the appraisal right of prescribed by law;
dissenting stockholders in accordance with the b. The purpose or purposes of the corporation are patently
provisions of this Code, or the vote or written assent of at unconstitutional, illegal, immoral, or contrary to
least two-thirds (2/3) of the members if it be a non-stock government rules and regulations;
corporation (Section 16 of the Corporation Code) c. The Treasurer's Affidavit concerning the amount of
capital stock subscribed and/or paid is false;
● The amendments shall take effect upon their approval by d. The percentage of ownership of the capital stock to be
the SEC, or in case the SEC fails to act on the owned by citizens of the Philippines has not been
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 complied with as required by existing laws or the
Constitution.
d. Non-Amendable Items
8. Registration and Issuance of Certificate of Incorporation
9. Adoption of By-Laws
a. Nature and Functions of By-Laws
“It is recognized by all authorities that every corporation has the
inherent power to adopt by-laws "for its internal government, and
to regulate the conduct and prescribe the rights and duties of its
members towards itself and among themselves in reference to the
management of its affairs." At common law, the rule was "that the
power to make and adopt by-laws was inherent in every
corporation as one of its necessary and inseparable legal
incidents.” And it is settled throughout the United States that in the
absence of positive legislative provisions limiting it, every private
corporation has this inherent power as one of its necessary and
inseparable legal incidents, independent of any specific enabling
provision in its charter or in general law, such power of self-
government being essential to enable the corporation to
accomplish the purpose of its creation” (Gokongwei, Jr. v.
Securities and Exchange Commission)
b. Period of Adoption of By-Laws
● Every corporation must, within one month after receipt of
official notice of the issuance of its certificate of
incorporation by the SEC, adopt a code of by laws for its
government not inconsistent with the Code (Section 46
of the Corporation Code)
c. How Adopted
● the affirmative vote of stockholders representing at least
a majority of the outstanding capital stock, or at least a
majority of the members in the case of non-stock
corporations, shall be necessary
● The by-laws shall be signed by the stockholders or
members voting for them and shall be kept in the
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principal office of the corporation, subject to the
inspection of the stockholders or members during office
hours.
● A copy thereof, duly certified to by a majority of the
directors or trustees and countersigned by the secretary
of the corporation, shall be filed with the SEC which shall
be attached to the original articles of incorporation.
● The SEC shall not accept for filing the by-laws or any
amendment thereto of any bank, banking institution,
building and loan association, trust company, insurance
company, public utility, educational institution, or other
special corporations governed by special laws, unless
accompanied by a certificate of the appropriate
government agency to the effect that such by-laws or
amendments are in accordance with law.
● The failure to adopt and file the by-laws do not
automatically operate to dissolve a corporation, but is
considered a ground by which the SEC may seek the
corporation's dissolution.Under Section 6(l)(5) of Pres.
Decree 902-A, the SEC may suspend or revoke, after
proper notice and hearing, the franchise or certificate of
registration of a corporation for its failure to file by-laws
within the period required by law
d. Effectivity of By-Laws
● In all cases, by-laws shall be effective only upon the
issuance of the SEC of a certification that the by-laws
are not inconsistent with the Corporation Code.
e. Contents of By-Laws
1. Matters Usually Found in By Laws:
a. Time, place and manner of calling and conducting
regular and special meetings of directors or trustees;
places for meetings of directors or trustees may be
outside the Philippines if it so provided in the by-laws.
b. Time and manner of calling and conducting regular and
special meetings of the stockholders or members;
c. Required quorum in meetings of stockholders and the
manner of voting;
d. Form for proxies of stockholders and members and
manner of voting;
e. Qualifications, duties and compensation of
directors/trustees, officers, and employees;
f. Time for holding annual election of directors or trustees,
mode and manner of giving notice thereto;
g. Manner of election or appointment and the term of office
of all officers except directors or trustees;
h. Penalties for violation of by-laws;
i. Manner of issuing stock certificate; and
j. Such other matters necessary for the proper means of
corporate business and affairs.
2. Other Matters that May Be Included in By-Laws
a. Designation of time when voting rights may be exercised
by stockholders of record;
b. Providing for additional officers for the corporation;
c. Provisions for the compensation of the directors;
d. Creation of an executive committee;
e. Date of the annual meeting or provisions of special
meetings of the stockholders or members of the
corporation;
f. Quorum on meetings of stockholders or members of the
g. Corporation
h. Providing for the presiding officer at meetings of the
directors or trustees, as well as of the stockholders or
members;
i. Procedure for issuance of certificates of shares of stock;
j. Providing for interest on unpaid subscriptions
k. Entries to be made in the stock and transfer book; and
l. Providing for meetings of the members in a non-stock
corporation outside of the principal office of the
corporation.
3. Matters That May Be Found in Articles of Incorporation and
By-Laws
a. Providing for cumulative voting in non-stock
corporations;
b. Providing for a higher quorum requirement for a valid
board meeting;
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 c. Limiting, broadening or denial of the right to vote,
including voting by proxy, for members in non-stock
corporations;
d. Transferability of membership in a non-stock
corporations;
e. Termination of membership in non-stock corporations;
f. Manner of election and term of office of trustees and
officers in non-stock corporations
g. Manner of distribution of assets in non-stock
corporations
h. upon dissolution; and
i. Providing for staggered board in educational institutions
4. Matters That Cannot Be Provided for in By-Laws
a. Classification of shares of stock and preferences granted
to preferred shares;
b. Provisions on founder's shares;
c. Providing for redeemable shares;
d. Provisions on the purposes of the corporation;
e. Providing for the corporate term of existence;
f. Capitalization of stock corporations;
g. Corporate name; and
h. Denial of pre-emptive rights
f. Requisites of Valid By-Laws
1. By-Law Provisions Cannot Contravene Law
2. By-Law Provisions Cannot Contravene the Charter
3. By-Laws Must Be Reasonable and Cannot Discriminate
g. Binding Effect
h. Amendment of Revision
● Under Section 48 of the Corporation Code, the board of
directors or trustees, by a majority vote thereof, and the
owners of at least a majority of the outstanding capital
stock, or at least a majority of the members of a non-
stock corporation, at a regular or special meeting duly
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called for the purpose, may amend or repeal any by-laws
or adopt new by-laws. b. Power to Increase or Decrease Capital Stock
● The owner of two-thirds (2/3) of the outstanding capital or Incur, Create, Increase Bonded
stock, or two-thirds (2/3) of the members in a non-stock Indebtedness
corporation, may delegate to the board of directors of
trustees the power to amend or repeal any by-laws or ● Under Section 38 of the Corporation Code, no
adopt new bylaws; provided, that any power delegated to corporation shall increase or decrease its capital stock
the board of directors or trustees to amend or repeal any unless approved by a majority vote of the board of
by-laws or adopt new by-laws shall be considered directors, and at a stockholders' meeting duly called for
revoked when ever stockholders owning or representing the purpose, approved by stockholders owning or
a majority of the outstanding capital stock or a majority of representing at least two-thirds (2/3) of the outstanding
the members in non-stock corporation, shall so vote at a capital stock.
regular or special meeting.
● Whenever any amendment or new by-laws are adopted,
such amendment or new by-laws shall be attached to the c. Power to Deny Pre-emptive Rights
original by-laws in the office of the corporation, and a d. Power to Sell or Dispose of Corporate Assets
copy thereof, duly certified under oath by the corporate e. Power to Acquire Own Shares
secretary and a majority of directors and trustees, shall i. Instances when Corporation may Buy
be filed with the SEC the same to be attached to the its Own Stocks
original articles of incorporation and original by-laws. f. Power to Invest Corporate Funds in Another
● The amended or new by-laws shall only be effective Corporation or Business for Non-Primary
upon the issuance by the SEC of a certification that the Purpose
same are not inconsistent with this Code. g. Power to Declare Dividends
h. Power to Enter Into Management Contracts
F. Corporate Powers
1. General Powers; Theory of General Capacity Others:
2. Specific Powers; Theory of Specific Capacity; Express I. Power to sue and be sued
Powers of Corporations II. Power to Sell Land
III. Power to Obtain Bank Loans
a. Power to Extend or Shorten Corporate Term IV. Power to Hire Employees and appoint
agents
● Under Section 37 of the Corporation Code, a private Under Art. 36:
corporation may extend or shorten its term of existence
when approved by a majority vote of the board of
Ten (10) powers which corporations may exercise, namely:
directors or trustees, and ratified at a meeting by the 1. To sue and be sued in its corporate name;
stockholders representing at least two-thirds (2/3) of the 2. Power of succession by its corporate name for the
outstanding capital stock or by at least two-thirds (2/3) of period of time stated in the articles of incorporation
the members in the case of non-stock corporations. and the certificate of incorporation;
3. To adopt and use a corporate seal;
i. Power to Temporary Cease Corporate 4. To amend its articles of incorporation;
Operations
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 ● The test uses the rather stringent terms "direct and
5. To adopt by-laws, not contrary to law, morals, or
public policy, and to amend or repeal the same; immediate" only with reference to the business of the
6. In case of stock corporations, to issue or sell stocks to corporation; whereas, it uses the rather liberal terms of
subscribers and to sell treasury stocks; and to admit "fairly incident" and "reasonably necessary" with
members to the corporation if it be a non-stock reference to powers of the corporation.
corporation; ● the attitude of courts towards corporate acts and
7. To purchase, receive, take or grant, hold, convey, sell, contracts which are not per se illegal or prohibited, is
lease, pledge, mortgage and otherwise deal with such
quite liberal. That is because of two public policies, one
real and personal property, including securities and
bonds of other corporations, as the transaction of the in the realm of Contract Law, the other in the realm of
lawful business of the corporation may reasonably and Corporate Law.
necessarily require;
8. To enter into merger or consolidation with other ii. Consequences of Ultra Vires
corporations; iii. Court Attitude towards the Ultra Vires
9. To make reasonable donations, including those for the Doctrine
public welfare or for hospital, charitable, cultural,
iv. Types of Ultra Vires Acts
scientific, civic, or similar purposes; provided that no
corporation, domestic or foreign, shall give donations 1. First Type
in aid of any political party or candidate or for 2. Second Type
purposes of partisan political activity; and 3. Third Type
10. To establish pension, retirement, and other plans for v. Doctrine of Ratification
the benefit of its directors, trustees, officers and
employees.

i. Ultra Vires Acts

i. Applicability of Ultra Vires Doctrine

“It is a question, therefore, in each case of the logical relation of

the act to the corporate purpose expressed in the charter. If that
act is one which is lawful in itself, and not otherwise prohibited, is
done for the purpose of serving corporate ends, and is reasonably
tributary to the promotion of those ends, in a substantial, and not
in a remote and fanciful sense, it may fairly be considered within
charter powers. The test to be applied is whether the act in
question is in direct and immediate furtherance of the
corporation's business, fairly incident to the express powers and
reasonably necessary to their exercise. If so, the corporation has
the power to do it; otherwise, not.” ( Montelibano vs. Bacolod-
Murcia Milling Co., Inc.)

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 Page 5 and 6 - Dave Abby Mangampo Alano
Doctrine of Estoppel
Also called the Doctrine of Ratification
The principle of estoppel precludes a corporation and its
Board of Directors from denying the validity of the transaction
entered into by its officer with a third party who in good faith,
relied on the authority of the former as manager to act on behalf
of the corporation. !Lipat v. Pacific Banking Corp., 402 SCRA 339
(2003).
In order to ratify the unauthorized act of an agent and
make it binding on the corporation, it must be shown that the
governing body or officer authorized to ratify had full and complete
knowledge of all the material facts connected with the transaction
to which it relates. Ratification can never be made on the part of
the corporation by the same person who wrongfully assume the
power to make the contract, but the ratification must be by the
officer or governing body having authority to make such contract.
Vicente v. Geraldez, 52 SCRA 210 (1973).
The admission by counsel on behalf of the corporation of
the latter’s culpability for personal loans obtained by its corporate
officers cannot be given legal effect when the admission was
“without any enabling act or attendant ratification of corporate
act,” as would authorize or even ratify such admission. In the
absence of such ratification or authority, such admission does not
bind the corporation. Aguenza v. Metropolitan Bank and Trust
Co., 271 SCRA 1 (1997).
Doctrine of Apparent Authority
Basis: Art. 1883 of the Civil Code; Various Jurisprudence
Article 1883. If an agent acts in his own name, the
principal has no right of action against the persons with whom
the agent has contracted; neither have such persons against the
principal.
In such case the agent is the one directly bound in favor of the
person with whom he has contracted, as if the transaction were
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his own, except when the contract involves things belonging to from the statute, charter, the by-laws or in a delegation of
the principal. authority to such officer, from the acts of the board of directors
formally expressed or implied from a habit or custom of doing
The provisions of this article shall be understood to be without
business. Vicente v. Geraldez, 52 SCRA 210 (1973); Boyer-
prejudice to the actions between the principal and agent.
Roxas v. Court of Appeals, 211 SCRA 470 (1992)
If a corporation knowingly permits one of its officers to
Re: President
act within the scope of an apparent authority, it holds him out to
It is the Board of Directors, not the President, that
the public as possessing the power to do those acts, the
exercises corporate powers. It must be emphasized that the basis
corporation will, as against anyone who has in good faith dealt
for agency is representation and a person dealing with an agent is
with it through such agent, be estopped from denying the agent’s
put upon inquiry and must discover upon his peril the authority of
authority. Soler v. Court of Appeals, 358 SCRA 57 (2001).
the agent. Safic Alcan & Cie v. Imperial Vegetable Oil Co., Inc.,
355 SCRA 559 (2001).
The authority of a corporate officer dealing with third
persons may be actual or apparent . . . the principal is liable for
A corporation may not distance itself from the acts of a
the obligations contracted by the agent. The agent’ apparent
senior officer: "the dual roles of Romulo F. Sugay should not be
representation yields to the principal's true representation and the
allowed to confuse the facts." R.F. Sugay v. Reyes, 12 SCRA 700
contract is considered as entered into between the principal and
(1961).
the third person. First Philipine International Bank v. Court of
Appeals, 252 SCRA 259 (1996).
The President is considered as the corporation’s agent,
and as such, his knowledge of the repeal of a resolution in
Persons who deal with corporate agents within
another juridical person in which his corporation has an interest, is
circumstances showing that the agents are acting in excess of
ascribed to his principal under the theory of imputed knowledge.
corporate authority, may not hold the corporation liable. Traders
Rovels Enterprises, Inc. v. Ocampo, 392 SCRA 176 (2002).
Royal Bank v. Court of Appeals, 269 SCRA 601 (1997).
The President of the corporation which becomes liable
Apparent authority may be ascertained through
for the accident caused by its truck driver cannot be held solidarily
(1) the general manner in which the corporation holds
liable for the judgment obligation arising from quasi-delict, since
out an officer or agent as having the power to act, or, in other
the fact alone of being President is not sufficient to hold him
words the apparent authority to act in general with which is
solidarily liable for the liabilities adjudged against the corporation
clothes them; or
and its employee. Secosa v. Heirs of Erwin Suarez Fancisco, 433
(2) the acquiescence in his acts of a particular nature,
SCRA 273 (2004).
with actual or constructive knowledge thereof, within or beyond
the scope of his ordinary powers. Inter-Asia Investment Industries
v. Court of Appeals, 403 SCRA 452 (2003).
Bank bound by its Manager and Officer
How the Corporation is Bound and Not Bound by Its
President
Doctrine of Laches or “Stale Demands”
General Rule Re: Officer’s Power to Bind Corporation:
Doctrine of Laches or “Stale Demands”: The principle of
An officer’s power as an agent of the corporation must be sought
laches or “stale demands” provides that the failure or neglect, for
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an unreasonable and unexplained length of time, to do that which
by exercising due diligence could or should have been done
earlier, or the negligence or omission to assert a right within a
reasonable time, warrants a presumption that the party entitled to
assert it either has abandoned it or declined to assert it. Rovels
Enterprises, Inc. v. Ocampo, 391 SCRA 176 (2002)
How are Corporate Powers Exercised
Three levels of control in the corporate hierarchy
1. The board of directors, which is responsible for corporate
policies and the general management of the business
affairs of the corporation;
2. The officers of the corporation, who in theory execute the
policies laid down by the board, but in practice often
have wide latitude in determining the course of business
operations;
3. The stockholders who have the residual power over
fundamental corporate changes, like amendments of the
articles of incorporation. (City Bank NA vs. Chua, G.R.
No. 102300, March 17, 1993)
By the Shareholders
By the Board of Directors
By the [Corporate] Officers
Trust Fund Doctrine
(a) Commercial/Common Law Premise: Equity versus Debts
(Art. 2236, Civil Code)
Article 2236. The debtor is liable with all his property, present and future,
for the fulfillment of his obligations, subject to the exemptions provided by
law. (1911a)
(b) Nature of Doctrine: Under the trust fund doctrine, the capital
stock, property and other assets of the corporation are regarded
as equity in trust for the payment of the corporate creditors.
Comm. of Internal Revenue v. Court of Appeals, 301 SCRA 152
(1999).
The “trust fund” doctrine considers the subscribed capital stock as
a trust fund for the payment of the debts of the corporation, to
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which the creditors may look for satisfaction. Until the liquidation whims and caprices of the stockholders, officers or directors of the
of the corporation, no part of the subscribed capital stock may be corporation, or even, for that matter, on the earnest desire of the
turned over or released to the stockholder (except in the court a quo ‘to prevent further squabbles and future litigations’
redemption of the redeemable shares) without violating this unless the indispensable conditions and procedures for the
principle. Thus dividends must never impair the subscribed capital protection of the corporate creditors are followed. Otherwise, the
stock; subscription commitments cannot be condoned or remitted; ‘corporate peace’ laudably hoped for by the court will remain
nor can the corporation buy its own shares using the subscribed nothing but a dream because this time, it will be the creditors’ turn
capital as the consideration therefore. NTC v. Court of Appeals, to engage in ‘squabbles and litigations’ should the court order an
311 SCRA 508 (1999). unlawful distribution in blatant disregard of the Trust Fund
Doctrine.” !Ong Yong v. Tiu, 401 SCRA 1 (2003).
The requirement of unrestricted retained earnings to cover the
shares is based on the trust fund doctrine which means that the
capital stock, property and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors.
The reason is that creditors of a corporation are preferred over the
stockholders in the distribution of corporate assets. There can be
no distribution of assets among the stockholders without first
paying corporate creditors. Hence, any disposition of corporate
funds to the prejudice of creditors is null and void. Boman
Environmental Dev. Corp. v. CA, 167 SCRA 540 (1988).
(c) To Purchase Own Shares (Secs. 8, 41, 43 and 122, last
paragraph; Phil. Trust Co. v. Rivera, 44 Phil. 469 [1923];
Steinberg v. Velasco, 52 Phil. 953 [1929])
(d) Rescission of Subscription Agreement Based on Breach.
The violation of terms embodied in a subscription agreement, with
are personal commitments, do not constitute legal ground to
rescind the subscription agreement since such would violate the
Trust Fund Doctrine and the procedures for the valid distribution
of assets and property under the Corporation Code. “In the instant
case, the rescission of the Pre-Subscription Agreement will
effectively result in the unauthorized distribution of the capital
assets and property of the corporation, thereby violating the Trust
Fund Doctrine and the Corporation Code, since the rescission of a
subscription agreement is not one of the instances when
distribution of capital assets and property of the corporation is
allowed.” !Ong Yong v. Tiu, 401 SCRA 1 (2003).
(e) Distribution of Corporate Assets “The distribution of
corporate assets and property cannot be made to depend on the
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 G. BOARD OF DIRECTORS and TRUSTEES

1. Repository of Corporate Powers

2. Doctrine of Central Management
a. The Board is the Seat of Corporate Powers
i. Theory of Directly Vested Powers;
Board as Trustee of Stockholders-
Beneficiaries
ii. Countervailing Theory: Delegate
Powers to the Board
b. Requirement that the Board must act as a body
c. Principle that the Board Power may be
Delegated
3. Business Judgement Rule; Exceptions
a. Consequences of “Bogus Board”
b. Remedies in case of Mismanagement
4.

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 Page 7 and 8- Kareen B.
5.) The Vice-President/ Assistant Vice-President
Vice-President. — The vice-president has always
considered as an officer next-in-rank to the president.
members) and directors (or trustees) in the management of the
corporation and all other matters required to be entered on the
records. (Ballantine, p. 142.) As custodian of corporate records,
corollarily, he keeps the stock and transfer book and makes
been proper and necessary entries therein . (Torres , Jr . vs. Court of
Appeals, 278 SCRA 793 [1997].)
members of the Board must have the highest confidence to
ensure that their honest sentiments are always fully expressed.
7.) Corporate Treasurer/Comptroller
8.) Manager or General Manager

(a) He is commonly referred to as a "fifth wheel," i.e., a conditional
officer who acts as president in case of death, absence, or
inability of the president to act . "Prima facie, it would seem that
the only function of the vice-president, as his title indicates , is to
replace the president in case of the latter's death, incapacity, etc."
(SEC Opinion, May 20, 1975, citing 2 Fletcher, p. 774.) He has no
authority by virtue of his office alone to enter into contracts in
behalf of the corporation. However, it is frequently the case that
the vice-president of a corporation is given certain executive
duties by the board of directors or by-laws of the corporation.
(American Exh. Nat. Bk. vs. Ward, III, F, 782, 55 L.R.A. 356.)
(b) Where the by-laws provide that it shall be the duty of the vice-
president to take the place of the president during the absence of
the latter , the vice-president should likewise be a director. (SEC
Opinion, Feb. 5, 1962.) If the vice-president is also a secretary or
a treasurer, he cannot act as president at the same time. (Sec.
25.) There may be more than one (1) vice-president, including an
executive vice-president.
6.) Corporate Secretary
Secretary. — The secretary must be a resident and a citizen of
the Philippines.
The assumption is that the secretary, being the custodian of
corporate records, should at all times be available in the regular
conduct and operations of the corporation. He is not allowed to
act as president and secretary at the same time. (Sec. 25.) He
need not be a director unless required by the by-laws.
(a) It is generally the duty of the secretary of a corporation to
make and keep its records and to make proper entries of the
votes, resolutions and proceedings of the shareholders (or
(b) He issues notices of meetings and has custody of the 9.) Duties of Directors, Trustees, or Officers
corporate seal which he uses when attesting the signatures of the a. Duty of Obedience
officers to important documents . The secretary may perform b. Duty of Diligence
other functions. c. Duty of Loyalty
Where the corporate by-laws state, among others, that the 10.) Rules on Liability of Directors, Trustees, or Officers
secretary shall also "send notices of all regular and special a. Corporate Officer’s Liability for Labor Claims
meetings of the member s and of the board of directors," this
connotes that the principal signatory to such notices is the i. Majority School of thought: Directors and Senior
corporate secretary. The term "to send" may be deemed Officers
synonymous with "issuance" of the notices , in accordance with ii. Minority School of thought: The Highest Officer of the
sound corporate practices, supported by jurisprudence. (SEC Company becomes personally liable for Labor Claims
Opinion, Oct. 1,1981.)
I. Stockholders and Members
(c) A secretary is not obligated to include everything that is said in
the minutes as long as he accurately transcribes what has taken 1. Definition
place. The minutes, however, should clearly record the a. Stockholders/Shareholders
proceedings as they actually occurred and should positively show b. Members
what action was taken by the corporation. (5 Fletcher, Sec. 2190.)
2. Fundamental Rights of Stockholders and Members
(d) A corporate secretary's certification, when regular on its face, a. Doctrine of Equality of Shares
is sufficient for a third party to rely on . It need not investigate the
truth of the facts contained in such certification. Otherwise, 3. Participation in Management
business transactions of corporations would become tortuously a. Proxy
slow and unnecessarily hampered. (Esguerra vs. Court of b. Voting Trust
Appeals, 267 SCRA 380 [1997].) c. Cases when Stockholders’ Action is Required
i. By a Majority Vote
(e) The secretary is a ministerial officer who cannot bind the ii. By a Two-Thirds Vote
corporation unless he is especially authorized to do so. iii. By Cumulative Voting
(Ballantine, p. 142.) There may be an assistant secretary. 4. Proprietary Rights
a. Right to Dividends
When it comes to government-owned-and-controlled corporations i. Cash Dividends
(GOCCs), it has been ruled that the office of the Corporate ii. Property Dividends
Secretary is a “primarily confidential position” and in which the iii. Stock Dividends

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 b. Who calls the Meetings
b. Right of Appraisal
i. When Right may be Exercised c. Place and Time of Meetings
ii. When Right to Appraisal is lost
Iii.Who bears cost of Appraisal d. Quorum

c. Right to Copy and Inspect Corporate Records e. Minutes of the Meetings

i. Liability for Refusal to Allow Inspection
ii. Right to Financial Statements
J. Capital Structure
d. Pre-emptive Right
i. Stock Transactions Covered by Right 1. Subscription Agreements/Subscription Contract
ii. When not Available a. Not governed by Ordinary Sales Contract Doctrine
b. Contractual Nature of a Subscription Agreement
e. Right to Vote c. Pre-incorporation Subscription Agreements
i. Nature of the Right to Vote
ii. Limitations that may be placed on Right to Vote
iii. Right to Vote of Pledgors, Mortgagors, and 2. Capital Stock and Paid-Up Capital Stock
Administrators
iv. Voting in case of Joint Ownership of Stock
v. Voting Right for Treasury Shares
vi. Voting Trusts

f. Right of First Refusal

g. Right to Receive Proportionately the Net Assets of the

Corporation After Dissolution
i. Stockholders and Stock Corporations
ii. Members and Foundations

5. Remedial Rights
a. Individual Suit
b. Representative Suit
c. Derivative suit
6. Obligations of a Stockholder

7. Meetings
a. Regular or Special
i. When and Where
ii. Notice

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 Page 9 and 10- Kaye L.

Page 11 and 12- Terry

Page 13 and 14- Gretchen

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