CORPORATION LECTURE NOTES

SEC 5 Corporators and incorporations Stated in the face With issued price
Advantages Advantages
Components of corporation - Easily sold - Price is flexible
1. Corporators – originally forming - Corporate creditors - Fully paid
2. Incorporators – compose the corporations are protected Disadvantages
3. Stockholders – owners of shares of stock Disadvantage - Promotes watered
4. Members – corporators of a corporation which as - Liable to corporate stock – void
creditors - Conceals the true
no capital stock
amount of the sahre
5. Subscribers – paid for the original unissued shares
6. Promoters – convinces the incorporators to form
Statutory/Legal restriction on no par shares
the corporation
1. OLD Banks, insurance, trust, building and loan
7. Underwriter – buys shares at stated terms
associations, public utilities cannot issue NEW pre-
need, and other corporation
Incorporators Corporators
2. Preferred shares always have stated value
Originally forming the Generic
3. Always fully paid, nonassessable, not liable for
corporation
corporate creditors
OLD: 5-15 No limit
NEW: 1- 15 4. Minimum amount – P5.00
Permanent in character Cease to be such 5. Entire consideration shall be treated as capital and
OLD: Legal capacity is a cannot be distributed as dividends
requisite
Voting Non-voting
SEC 6 Classifications of shares May elect BOD Instances when nonvoting
shares can vote: A2SI2MID
Amendment of AOI
Doctrine of equality of shares Adoption of bylaws
- All shares are presumed to be common and Sale of corporate assets
equal Investment of corporate
funds
Incurring of corporate
OLD: indebtedness
 Capital stock – total number of shares Inc/Dec of capital stock
 Authorized capital stock – total number of shares Merger
approved by the SEC Dissolution
 Subscribed capital stock – 25% of the authorized
capital stock Common Preferred
 Paid up capital stock – 25% of the subscribed Presumption; doctrine of Preference as to assets,
capital stock equality of shares dividends
 Unissued capital stock – portion not yet sold to the
public Limitations on issuance of preferred shares
 Outstanding capital stock – Total number of shares 1. Nonvoting (preferred, redeemable, treasury)
issued, whether fully paid or not except treasury 2. BOD determines preference
shares (Sec 137) 3. All preferred shares have stated par value

Why is it important to distinguish between authorized Promotion Founder’s

and outstanding stock? For promoters For incorporators
 To determine De facto – use authorized stock
(REPEALED by RA 11232) Share in escrow Convertible
 For voting purposes – outstanding capital stock Holding certificate of Common/preferred; can
trust until fully paid be changed from one
class to another
Capital Capital stock
Actual property of the Abstract; personal
Watered Overissued/spurious
corporation property
Law1 – simulated Issued stocks exceed
Value fluctuates Fixed
contract authorized capital stock
When issued, belongs to When issued, belongs to
Nego – personal defense – not allowed
corporation stockholders
Absence/Insufficient
consideration
Shares of stock – represents MPA
1. Management – elect/remove BOD SEC 7 Founders Share – to incorporators
2. Profits - dividend Rights (2)
3. Assets – surplus at the time of dissolution 1. To vote
2. Be voted for
Stock Certificate of stock How long? Max of 5 years NEW: from the date of
Intangible Tangible issuance of COI
Represents interest in Written evidence of
the corporation ownership
Redeemable Treasury
May be issued even not OLD: Will not be issued
SEC 8 SEC 9
fully paid unless fully paid
Stipulation to Yes No
Doctrine of individuality
issue necessary
of subscription
Unrestricted RE No – only share Yes
that can be
Classes of shares
issued w/o URE
Par No par
 CORPORATION LECTURE NOTES

SEC 9 Treasury Shares  Concession theory – corporation cannot be a

- No voting rights juridical person without the issuance of COI
- Not part of outstanding capital stock
- Not part of unissued shares SEC 10 Number and qualifications of incorporators
- XPN to watered stock – TS may be issued at a
lower price OLD NEW
- Not entitled to dividends Natural person (5-15) Natural/partnership/corp
- Not distributable as dividends XPN: property Why? Will sign AOI oration/association
dividends XPN: Cooperative and Min: 1(OPC) Max: 15
Rural Bank
[Drill] Legal capacity - Applies to natural
1. Doctrine of corporate fiction – corporation has a persons only
separate and distinct personality Majority are residents of
the Philippines
2. Corporation continues to exist not withstanding the
Why? Req. of the Law
death of the stockholders – right of succession same
Citizens of the
3. Nationality of corporation – place where it was
Philippines
created At least 1 share owned
4. Shares with no/insufficient consideration – watered
stock SEC 11 Corporate term
5. Major disadvantage of no-par shares – conceal
true value & promote watered stock
Max Life 50 years Perpetual with
6. Presumption – doctrine of equality of shares option to retain
7. TS – outstanding? Part of unissued capital shares? Extended Life 50 years 50 years*
No VR: M of OCS
8. Founder’s share right to be vote/be voted? 5 years 5 years prior to Not earlier than
Period to renew
9. Instances where nonvoting shares can vote – expiration 3 years**
ASIMID *All current corporations are now perpetual unless
10. Total number of shares issued whether fully paid or they retain
not except TS – outstanding **applies only to those who opted to retain

CHAPTER 2 – Incorporation and organization of private Who will decide?

corporations - Power of corporation – BOD (governing body)
- Ratifies – Stockholders
3 steps in incorporation
1. Promotion Voting requirements
Promoter finances the corporation Old Addtn’l voting req for new
Votes of BOD
Is the corporation liable for the expenses incurred M of BOD Unanimous
by the promoter? No but can later on be adopted M of Q of BOD 2/3 of the BOD
by the BOD as a suggestion of goodwill
Votes of Stockholders (BOD first then SH)
2. Incorporation M of OCS M + 2/3
2/3 of OCS M+M
Doc to submit SEC will issue M + M M+ M
M+2/3 M+2/3
Partnership Articles of co- Certificate of
partnership compliance
Cooperative Articles of Certificate of [NEW]
incorporation incorporation Certificate of revival of corporate existence
Corporation Articles of (CDA)Certificate Once revived, corporate existence is perpetual
Cooperation of Registration
No application for Certificate of revival of corporate
3. Formal organization and commencement of existence for banks and quasi-banking, preneed,
business operation insurances, trust companies, NSSLAs, pawnshop,
a. Election of bod corporation engaged in money and other financial
b. Election of officers intermediaries shall be approved by the SEC unless
c. Filing of bylaws accompanied by a favorable recommendation

 Upon issuance of COI – primary franchise – right
to exist
 Formal org and commencement of business
operation - secondary franchise – right to operate
Bank – BSP
Insurance – Insurance commission
Land transport – LTFRB
Water transport – MARINA
 Theory of general capacity – corporation can
do anything except those prohibited
 Theory of special capacity – corporation cannot
do anything except those allowed
 In the Ph – we follow doctrine of limited
capacity – it can only exercise the express,
implied and inherent powers
Appraisal right – right to withdraw
2 kinds of stockholder that votes
1. Concurring “Yes”
2. Dissenting “No” exercise appraisal right – will
receive fair value of the shares
SEC 12 Minimum capital stock required of stock
corporation
 Minimum Capital stock – none (REPEALED by RA
11232)
 Minimum paid up – P5,000.00 (P15,000.00 for
coop) (REPEALED by RA 11232)
 XPN: Percentage of PH citizenship
 CORPORATION LECTURE NOTES

@ least 60% @ least 60%

Wholly owned
capital Capital stock
Public Utilities Mass Media
Illustration
Wasting asset Retail trade  ABC will file to SEC in 2 copies 1. Original 2.
Educational Security/watchman Amended AOI (with appraisal right)
Coastwise shipping
institution detective agency
Financing company Rice and corn
Civil Aeronautics  SEC will issue amended COI
Atomic energy industry  Nonamenable facts
corporation Rural banks
o Incorporators
@ least 70% @ least 60% @ least 70%
capital voting stock voting o Details of incorporation
Pawnshop Banking Savings and loan  Effectivity
association
o Apply March 1 2019
@least 75% of
capital o GR: Approved on March 15 2019
Cottage Amendment effective on date of
approval
SEC 13 Amount of capital stock to be subscribed and o XPN – if 6 months w/o approval from
paid for purposes of incorporation (REPEALED by RA SEC – approved from date of filing
11232)
- 25% of authorized capital must be subscribed SEC 17 Grounds when articles of incorporation of
- 25% of subscribed must be paid amendment may be rejected or disapproved
- In no case shall the paid up be lower than 1. Not in prescribed form (violate 14&15)
P5,000.00 2. Illegal purpose (violate 14)
Basis of 25% 3. TA is false (violate 13) (REPEALED by RA 11232)
- Par value shares – the peso equivalent of shares 4. Percentage requirement not complied (violate 12)
- No par value – number of shares 5. No favorable government recommendation (violate
- If there are both par and no-par – separate 12&16) NEW: preneed, NSSLA, pawnshop
*Violations of previous sections
SEC 14 Contents of Articles of Incorporation
SEC 15 Forms of Articles of Incorporation PD 902-A Law creating the SEC FraSeReCoFaFa
1. Name of the corporation (NEW:must undergo  Fraud in procuring the COI
name verification)  Serious misrepresentation as to what the
2. Principal office – hold meetings of BOD, keep corporation can do
books of the corporation  Refusal to comply with a lawful order
3. Purposes – primary & secondary  Continuous inoperation of at least 5 years
 Importance – powers  Failure to file bylaws
 Intra-vires – within the power – BOD decides  Failure to file reports
 Ultra-vires – outside the power – 2/3 of the *penalty here is suspension/revocation COI - dissolve
OCS vote to ratify
4. Term for which the corporation is to exist SEC 18 Corporate name
5. Names, nationalities, and residences of the VR: M + 2/3
incorporators Prohibition
6. The number of directors or trustees, which shall  Similar
not be less than 5 nor more than 15  Generic
7. Nmaes, nationalities and residences of the persons  Word “national” “rural”
who shall act as directors or trustees until the first  NEW – not distinguishable,
regular directors or trustees are duly elected reserved/registered, already protected by law,
8. If it be a stock corporation, the amount of its contrary to existing laws and regulations – SEC
authorized capital stock in lawful money of the will cease and desist, removal of visible signs,
Philippines, the number of shares into which it is contempt (pay damages)
divided etc Effect of change of name
9. If it be a non-stock corporation- the amount of its  Same corporation under a different name
capital, the names nationalities, and residences of  Liabilities are not extinguished
the contributors and the amount contributed by it
10. Such matters as are no consistent with the law
which the incorporators may deem necessary and
convenient

*if Sec 14 is not complied with – corporation will be de

facto
*incorporators are automatically the incorporating
directors (temporary only)

[NEW] See matrix

SEC 16 Amendments to AOI

VR: M + 2/3
 OPC – M + 2/3
 Closed – 2/3 of OCS
 By laws – M+M
 Plan of merger – M+2/3 M+2/3
 Foreign corporation – 60 days no vote
 Cooperatives – 2/3 of the members