Define a closes corporation.

A close corporation has been defined as a

corporation in which the stock is held in
a few hands, or in few families, and
which stock is not only rarely dealt in
buying or selling.
 Within the meaning of the Code, it is one whose
articles of incorporation provide the following:
(Features of Close Corporation)
 All its issued stock, exclusive of treasury shares,
shall be held of record by not more than a specific
number of persons, not exceeding 20; ( Number of
stockholders)
 All its issued stock shall be subject to one or more
restrictions on transfer permitted by the Code; and (
Restricted transfer)
 Any of its stock shall not be listed in any stock
exchange or offered it to the public. (Not listed)
 Where, however, 2/3 of the working
stock or voting rights of a corporation as
defined above is owned or controlled by
another corporation which does not fall
within the definition of a close
corporation, the former shall be deemed
not a closed corporation. (sec. 96 par. 1)
What matters are allowed by the Corporation
Code to be provided in the articles of
corporation of a close corporation?
The article of incorporation may provide:
 for a classification of shares or rights and the
qualification for owning or holding the same and
restrictions on their transfers as may be stated
therein;
 for a classification of directors into one or more
classes, each of which be voted for and elected
solely by a particulars class of stock, and
 for a greater quorum or voting requirements in
meeting of stockholders or directors than those
provided in the Code.
 
 It may provide that the business of the corporation shall
be managed by the stockholders of the corporation
rather than by a board of directors, So long this
provision continues in effect:

 No meeting of stockholders need be called to

elect directors;
 Unless the context clearly requires otherwise,
the stockholders of the corporation shall be
deemed to be directors for purposes of applying
provisions of the Code; and
 The stockholders of the corporation shall be
subject to all liabilities of directors.

 It may likewise provide that all or certain specified

officers or employees shall be elected or appointed
directly by the stockholders, instead of the board
of directors, (sec. 97, last par.) IN the ordinary
stock corporation, corporate officers are elected by
a majority of all the members of the board of
directors. (sec. 25)
State the two (2) conditions imposed by
the Code for the validity of restriction
on the right to transfer share in a close
corporation:
 They are:
 Such restriction must appear in the articles of
incorporation and in by laws, as well as in the
certificate of stock, otherwise they shall not be binding
on any purchaser thereof in good faith; and
 They shall not be more onerous than
granting the existing stockholder or the
corporation the option to purchase the
shares of the transferring stockholders
with such reasonable terms, conditions or
periods stated therein. (sec. 98)
 The transfer therefor, shall only be made
to the close corporation or to the
stockholders of the close corporation.
If the close corporation or the stockholders
of the same corporation failed to exercise
the option to purchase within the period
stated, the transferring stockholder may
sell his share to any third person. (Sec.
99)
 Under Section 99, when shares are held or
acquired in violation of the qualifying conditions
provided in the articles of incorporation, in the
by laws and in the certificate of stock, the
secretary of the corporation may refuse to
register the transfer of stock unless:
a. Such transfer has been consented to by all the
stockholders; or
b. The close corporation has amended its articles
of incorporation.
Section 100, agreements between or among
stockholders, before or after incorporation are
considered binding as long as they are not
inconsistent with the articles of incorporation. They
may agree as to how their shares should bee voted.
They may also agree that the stockholders may
consider themselves as partners among themselves.
Liability to corporate torts,
Stockholders who are actively engaged in the
management of a close corporation are personally
liable for corporate torts unless the close corporation
has obtained reasonably adequate liability insurance.
Under Section 101, in a close corporation, the
BOD may decide on matters within their
managerial competence even without actual
meeting or even when the meetings are
improperly held as long as there is express
or implied consent on the part of those who
may have the right to complain in the four
cases specified in this section, the action by
the directors without a meeting is valid.
 1. Before or after such action is taken, written
consent thereto is signed by all the directors; or
 2. All the stockholders have actual or implied
knowledge of the action and make no prompt
objection thereto in writing; or
 3. The directors are accustomed to take
informal action with the express or implied
acquiescence of all the stockholders; or
 4. All the directors have express or implied
knowledge of the action in question and none of
them makes prompt objection thereto in writing.
What should an absent director do?
A director who did not attend the meeting
should, after acquiring knowledge of the
meeting, promptly file a written objection
with the secretary of the corporation:
otherwise, he shall be deemed to have
ratified the action taken by the board, if
such action is within the powers of the
corporation.
State the preemptive right of a stockholder in a close
corporation.
The pre-emptive right of stockholders extends to all stock
to be issued, whether common or preferred, voting or
non-voting etc., newly authorized shares or newly issued
balance of originally authorized shares including treasury
shares, whether the consideration for the issuance of the
stock is cash or otherwise. (see Sec. 102). In other
words, the right of pre-emption is a matter of absolute
right on the part of the stockholders, except only when
limited or curtailed by the articles of incorporation.
The amendment of the articles of incorporation of
a close corporation must be approved by the
affirmative vote of at least 2/3 of the OCS
( voting and non-voting). Mere assent of the
stockholders which is allowed in Section 16 is
not sufficient as meeting is required by law. Be
it noted also that a greater (not lesser) vote
provided for the Articles in Incorporation is
allowed when the stockholders may provide tat
such amendment shall bee approved by ¾ vote
of all OCS regardless of voting rights. (Sec. 103)
Deadlocks (Section 104)
Should there be any misunderstanding
among the stockholders or directors in a
close corporation and such conflict
becomes irreconcilable making the
management of the corporation at a
standstill, this provision is intended to
provide for remedy.
Procedure:
1. SEC upon a stockholder’s written petition is
allowed to intervene in order to arbitrate a
dispute or deadlock in a corporation.
2. There is a dispute or deadlock as described by
this provision when the directors or stockholders
are so divided respecting the management of
the corporation that the required votes for any
corporate action cannot be obtained, with the
consequence that its business can no longer be
conducted to the advantage of the stockholders
generally.
3. The SEC in exercising arbitration powers
may:
a. Cancel or alter any provision in the articles,
by laws or stockholder’s agreement;
b. Cancel, alter or enjoin any resolution or
other act of the corporation or its directors,
officers or stockholders;
c. Direct or prohibit any act of the corporation,
directors, officers, stockholders and even
third persons who are parties to the
corporation action.
d. Require purchase of shares of any
stockholders either by corporation
regardless whether availability of
unrestricted retained earnings, or by any
other stockholders.
e. Appoint a provisional director
f. Dissolve the corporation
g. Grant other reliefs as the circumstances
may warrant.
QUALIFICATIONS OF A PROVISIONAL
DIRECTOR
a. He should be an impartial person

b. He is neither a stockholder or creditor of

the corporation, or its subsidiary or
affiliate.
c. Those qualifications as may be
determined by SEC.
Powers of the provisional director:
a. All powers of a duly elected director until he
is removed by the SEC or by all of the
stockholders.
b. He does not have the powers of a custodian
or receiver of the corporation.
c. His compensation is determined by
agreement by between him and the
corporation subject to approval of SEC; or
by SEC in the absence of agreement or in
case of disagreement between him and the
corporation.
Under Section 105, any stockholder in a close
corporation may, for any reason, withdraw
from the said corporation by compelling it to
purchase his shares at their fair value
( which shall not be less than their par or
issued value) when it has sufficient assets
over liabilities exclusive of capital stock.
Any stockholder of a close corporation may, by
written petition to SEC, compel the
dissolution of said corporation.
The grounds for dissolution are:
a) Whenever any of the acts of the
directors, officers or those in control of
the corporation is illegal, fraudulent,
dishonest, oppressive or unfairly
prejudicial to the corporation or any of
the stockholder; or
b) Whenever the corporate assets are being
misapplied or wasted.
 SPECIAL
CORPORATIONS
Define an education corporation.
 An educational corporation is a stock or non-
stock corporation organized to provide facilities
for teaching or instruction. Such corporation
normally maintain a regular faculty and
curriculum and normally have a regular
organized body of pupils or students, or
attendance at the place where the educational
activities are regularly carried on.
Concept:
It is organized to provide educational
FACILITIES for teaching or instruction.
Kinds
a. Stock educational corporations

b. Non-stock educational corporations

Incorporation of educational corporations:
The filing of Articles of Incorporation must be
accompanied by a favorable recommendation by
the Secretary of DEPED/CHED. Such articles of
incorporation may also be amended and such must
likewise be certified to as in accordance with the
law by the Secretary of DEPED/CHED.
Under Section 25, Batas Pambansa Blg.
232 (Educational Act of 1982), any
private school must incorporate as a non-
stock educational corporation in
accordance with the provisions of the
Corporation Code of the Philippines.
The following provisions in Section 4,
Article XIV of the 1987 Constitution are
pertinent:

 The State recognizes the complementary

roles of public and private institutions in the
educational system and shall exercise
reasonable supervision and regulation of all
educational institutions.
 Educational institutions, other than those established
by religious groups and mission boards, shall be
owned solely by citizens of the Philippines or
corporations or associations at least sixty per centum
of the capital of which is owned by such citizens. The
Congress may, however, require increased Filipino
equity participation in all educational institutions. The
control and administration of educational institutions
shall be vested in citizens of the Philippines.
 No educational institution shall be established
exclusively for aliens and no group of aliens shall
comprise more than one-third of the enrollment
in any school. The provisions of this sub section
shall not apply to schools established for foreign
diplomatic personnel and their dependents and,
unless otherwise provided by law, for other
foreign temporary residents.
Republic Act No. 6055 provides for the
conversion of educational institutions
from stock corporations to non-profit
foundations, directing the GSIS, SSS and
Development Bank of the Philippines to
assist in such conversion.
Under Sec. 107, before SEC approves articles
or its amendment, including by laws of an
educational corporation, a favorable
recommendation by the Secretary is required
stating that it complies the requirements,
guidelines, rules and regulations on special
laws governing establishment of schools,
colleges, universities.
 What are the rules provided by the
Corporation Code regarding the board
of trustee of an educational
corporation?
 For non-stock educational corporations
 The number of trustee shall not be less than
five (5) nor more than fifteen (15);
 It shall be in multiples of five (5) i.e. their
number shall be five (5) , ten (10), or
fifteen 915);
 Unless otherwise provide in the articles of
incorporation or the by-laws, the terms of office
of the trustee shall be staggered with one (1)
year interval.
 Trustee subsequently elected shall have a term
of five (5) years;
 Elected to fill vacancies occurring before the
expiration of a particular term, shall hold office
only for the unexpired period;
 A majority of the trustee shall constitute
a quorum for the transaction of business;
and
 The powers and authority of trustees
shall be defined in the by-laws.
  For stock educational corporations- The
number and term of directors shall be
governed by the provisions on stock
corporations.
 Educational corporations may, through
their articles of incorporations or their by
laws, designated their governing boards
by any name than as board of trustees.
 
Define a religious corporation.
A religious has been defined as a
corporation composed entirely or spiritual
persons and which is erected for the
furtherance of a religion or for perpetuating
the rights of the church or of the
administration of church or religious work or
property.
Concept – It is a corporation created to secure
the public, workshop of God.
Kinds:
a) Corporation sole – One which is composed
of a single member and his successor in
office.
b) Religious society – one which is composed of
several persons.
What are the classes of religious
corporations?
 They may be classified into:
Corporation sole- It is incorporated by one person and
consist of one member or corporator only and his
successors, such as a bishop, It may be formed by the
chief archbishop, bishop, priest, minister, rabbi or
other presiding elder religious denomination, sect or
church for the purpose of administering and
managing, as trustee, the affairs property and
temporalities of such religious denomination, sect or
church (sec. 110)
 Corporation aggregate- It is incorporate by an
aggregate of persons. (sec. 109, par. 1) Under the
code, any religious society or religious order, or any
diocese, synod, or district organization of any religious
denomination, sect or church, unless for bidden by the
rules of the letter or by complement authority, may
upon consent and / or by an affirmation vote at a
meeting called for the purpose of 2/3 of its
membership, incorporate for the administration or
management of its temporalities, affairs and property
by filing with the Securities and Exchange Commission,
a verified articles of incorporation setting forth the
matter mentioned in Sec. 116 of the Code.
Purpose of corporation sole:
A corporation sole is formed
for the purpose of
administering and managing as
trustee, the affairs, property
and temporalities of the
church.
Section 111 requires submission
of the articles of incorporation
of the corporation sole with the
SEC and said article must set
forth under Section 111.
What are set forth in Section 111:

That he is the chief archbishop, bishop, priest,

minister, rabbi or presiding elder of his religious
denomination, sect or church and that he
desires to become a corporation sole;
 2. That the rules, regulations and discipline of
his religious denomination, sect or church are
not inconsistent with his becoming a corporation
sole and do not forbid it;
 3. That as such chief archbishop, bishop, priest,
minister, rabbi or presiding elder, he is charged
with the administration of the temporalities and
the management of the affairs, estate and
properties of his religious denomination, sect or
church within his territorial jurisdiction,
describing such territorial jurisdiction;
 4. The manner in which any vacancy occurring
in the office of chief archbishop, bishop, priest,
minister, rabbi of presiding elder is required to
be filled, according to the rules, regulations or
discipline of the religious denomination, sect or
church to which he belongs; and
 5. The place where the principal office of the
corporation sole is to be established and
located, which place must be within the
Philippines.
Under Section 112, the verified articles of
incorporation must be accompanied by a sworn
copy of the commission, certificate of election or
letter of appointment of such chief archbishop,
etc.

From and after the filing with the SEC of said

verified articles and the other sworn documents,
such chief archbishop, etc., shall become
corporate sole.
Section 113 provides for the powers of the
corporation sole:
a) Purchase and hold real estate and personal
property for its church, charitable, benevolent or
educational purposes;
b) To receive bequests or gifts for such purposes;

c) To mortgage or sell real properly held by it upon

obtaining an order for that purpose to the
Regional Trial Court of the province where the
property is situated under the following
conditions:
a) The application must be made by verified
petition by the corporation sole;
b) The application may be opposed by any
member of the religious denomination, sect or
church;
c) There must be proof of notice of publication of
the application to sell or mortgage
d) There must be proof that the sale or mortgage
is to the interest of the corporation. (Sec. 113)
In cases where the rules and regulations of the
religious denomination, sect, church, religious
society or order concerned represented by such
corporation sole regulate the method of
acquiring, holding, selling and mortgaging its
property, such rules and regulation shall control
and the intervention of the courts shall not be
necessary.
Filling of vacancies:
In case of vacancy in the office of the chief
archbishop, bishop or priest, his successor in office
shall become the corporation sole on the filing with
the SEC of a copy of his commission, certificate of
election or letter of appointment duly certified by a
notary public.
In the meantime, before the vacancy is filled, the
person or persons authorized by the rules of the
church to administer the temporalities and properties
of the church during such vacancy shall exercise the
powers and authority of the corporation sole during
such vacancy. (Sec. 116)
DISSOLUTION OF CORPORATION SOLEl:
The dissolution of a corporation sole may
be done voluntarily by submitting a
verified declaration of dissolution with the
SEC.
Upon SEC approval of such declaration, the
corporation shall cease to carry its
operations, except to wind up its affairs.
Religious Societies:

There is no law requiring religious

societies or churches to register or
incorporate as corporation but they may
do so in order to acquire legal personality
for the administration of their
temporalities or properties (SEC opinion,
April 6, 1968).
However, any religious society or religious
order may, upon written consent and/or by
an affirmative vote at a meeting called for
that purpose of 2/3 of the memberships,
incorporate by filing an articles of
incorporation with SEC. It is only upon
incorporation that such religious society or
church can have juridical personality and
allowed to acquire properties in its name
(SEC. Opinion, Feb. 28, 1974)
Incidentally, the Roman Catholic Church is
not registered with SEC like other
religious societies or churches in the
Philippines, because it has been
recognized as a juridical person since
time immemorial. – it is a corporation by
prescription ( Barlin s. Ramirez, 7 Phil.
41)
DISSOLUTION
Define dissolution as applied to a
corporation.

Dissolution signifies the extinguishments

of its franchise to be corporation and the
termination of its corporate existence.
Give the two legal steps involved in
dissolution.
 The termination of the corporate existence at
least as far as the right distribution to go on
doing ordinary business is connected; and
 The winding up of its affairs, the payment of its
debts, and the distribution of its assets among
the stockholders or members and other persons
in interest.
 
 Enumerate the methods or cause of
corporate dissolution.
 Every private corporation organized under
the law may be dissolved either
voluntarily or involuntarily. (sec. 117)
These two method of dissolving
corporations may be outlined as follows:
 Voluntary, which may be effected:
 By the vote of the board of directors/
trustee and the stockholders/ members,
where no creditors are affected (sec.
118);
 By judgment of the Securities and Exchange
Commission after hearing of petition for
voluntary dissolution, where creditors are
affected (sec. 119) or
 By amending the articles of incorporation to
shorten the corporate term (sec. 120); and
 In the case of a corporation sole, by
submitting to the Securities and Exchange
Commission a verified declaration of
dissolution for approval. (sec. 115)
 Involuntary, which may be
affected:
 by expiration of term provided for
in the original articles of
incorporation (sec. 11)
 by legislative enactment (infra)
 by failure to formally organize and
commerce the transaction of its
business within two (2) years from the
date of incorporation (sec. 22; see
Title II, question No. 11)
 By judicial; decree of forfeiture on
grounds provided by law such as misuse
or non-user of its franchise, violation of
law or corporation code, etc., (see Rules
of Court, Rule 66, Sec. 22)- By quo
warranto proceedings to be filed by the
Solicitor General or
 By order of the Securities and Exchange
Commission (sec. 121)
 State the limitation on the power of the
legislative to dissolve a private
corporation.
 Under the Constitution, the amendment,
alteration or repeal of the corporate franchise of a
public utility shall be made only “when the
common good so requires”. (art. XII, Sec. 11,
thereof); and
Under section 145 of the Code, it is provided that:
 “ No right or remedy in favor or accrued any
corporation, its stockholders, members,
directors, trustee, or officer nor any liability
incurred by any such corporation, its
stockholders, members, director, trustee or
officers, shall be removed or impaired either by
the subsequent amendment or repeal of this
code or any part or portion thereof”.
 The statutory authority of Congress to dissolve a
corporation is also subject to the prohibition of
the Constitution (art. III, Sec. 10 thereof)
against laws impairing the obligation or contract.
However, with respect to the franchise of a public
utility the only limitation is that the power only
“when the common goods so requires”.
Generally speaking a corporation has a right to
surrender its franchise, although this right is subject
to various limitations and interpretation. The
consent, either express or implied of the STATE is
necessary before a surrender of corporate charter will
be effective as a dissolution. Furthermore, the
corporation must comply with all statutory conditions
precedents before it may be dissolved.
 On What grounds may the securities and
Exchange Commission order the
dissolution of a corporation? (Sec 121)
 On grounds provided by existing laws,
rules and regulation upon filing of a
verified (i.e. under oath) complaint and
after proper notice and hearing.
 Under Section 114 which provided a general
penalty for violation of the Code not specifically
penalized therein, if the violation is committed by
a corporation, the same may, after notice and
hearing, be dissolved in appropriate proceedings
before the securities and Exchange Commission.
 In case of deadlocks in a close corporation
respecting the management of its affairs, the
Securities and Exchange Commission, upon
written petition of any stockholder, shall have
authority to make such order as it may deem
appropriate including an order dissolving the
corporation (sec. 104, par. 1)
 Any stockholder of a close corporation may, by
written petition to the Securities and Exchange
Commission, compel the dissolution of such
corporation whenever any of the acts of the
directors, officers, or those in control of the
corporation is legal, or fraudulent, dishonest, or
oppressive or unfair prejudicial to the corporation
or any stockholder, or whenever corporate assets
are being misapplied or wasted. (sec. 105.)
 Under Presidential Decree No. 902- A which reorganized
the Securities and Exchange Commission with additional
powers, the Commission may suspend or revoke, after
proper notice and hearing, the franchise or certificates of
registration of corporations, partnerships or associations,
up on any of the grounds provided by law, including the
following:
 Fraud in procuring its certificate of registration;
 Serious misrepresentation as to what the
corporation can do or is doing to the great
prejudice of , or damage to, the general public;
 Refusal to comply or defiance of any lawful order
of the Commission retaining commission of acts
which would amount to a grave violation of its
franchise;
 Continuous in operation for a period of at least
five (5) years;
 Failure to file by-laws within the required period;
and
 Failure to file required reports in appropriate
forms as determined by the Commission within
the prescribed period. (sec. 6 [1] thereof)
Give the effects of dissolution:
 The corporation ceases as a body corporate to
continue the business for which it was established
(sec. 122).
 The corporation continues as a body corporate for
three (3) years for purposes of winding up or
liquidation (Ibid); and
 Upon the expiration of the winding up period of three
(3 ) years, the corporation ceases to exist for all
purposes and as a general rule, it can no longer sue
and be sued such.
What are the methods of liquidation of a
dissolved corporation?
 Liquidation by the corporation it self – The board
of directors or trustee is given by law three (3)
years within which to wind up corporate affairs
(sec. 122);
  Liquidation by a duly appointed receiver – The
court may appoint a receiver to take charge of
its assets and dispose of them as justice may
require (Ibid); and
 Liquidation by trustees- Here, the board of
directors or trustee conveys the corporate assets
to a trustee or assignee who shall have charge
of the liquidation (Ibid).
 
Meaning of Liquidation:
Concept: It is the winding up of the affairs of
the corporation by reducing its assets in
money, settling with creditors and debtors
and apportioning the amount of profit and
loss:
Method:
By receivership
By the corporation itseld under Sec. 122
through its directors, officers and creditors;
and
By trusteeship under Section 122
Under Republic Act No. 8799
 Section 5. Powers and Functions of the Commission.–
5.1. The commission shall act with transparency and shall
have the powers and functions provided by this code,
Presidential Decree No. 902-A, the Corporation Code, the
Investment Houses law, the Financing Company Act and
other existing laws. Pursuant thereto the Commission
shall have, among others, the following powers and
functions:
 (a) Have jurisdiction and supervision over all
corporations, partnership or associations who are the
grantees of primary franchises and/or a license or a
permit issued by the Government;
 (b) Formulate policies and recommendations on
issues concerning the securities market, advise
Congress and other government agencies on all
aspect of the securities market and propose
legislation and amendments thereto;
 (c) Approve, reject, suspend, revoke or require
amendments to registration statements, and
registration and licensing applications;
 (d) Regulate, investigate or supervise the activities
of persons to ensure compliance;
 (e) Supervise, monitor, suspend or take over the
activities of exchanges, clearing agencies and other
SROs;
 (f) Impose sanctions for the violation of laws and
rules, regulations and orders, and issued pursuant
thereto;
 (g) Prepare, approve, amend or repeal rules,
regulations and orders, and issue opinions and
provide guidance on and supervise compliance with
such rules, regulation and orders;
 (h) Enlist the aid and support of and/or
deputized any and all enforcement agencies of
the Government, civil or military as well as any
private institution, corporation, firm, association
or person in the implementation of its powers
and function under its Code;
 (i) Issue cease and desist orders to prevent
fraud or injury to the investing public;
 (j) Punish for the contempt of the Commission,
both direct and indirect, in accordance with the
pertinent provisions of and penalties prescribed
by the Rules of Court;
 (k) Compel the officers of any registered
corporation or association to call meetings of
stockholders or members thereof under its
supervision;
 (l) Issue subpoena duces tecum and summon
witnesses to appear in any proceedings of the
Commission and in appropriate cases, order the
examination, search and seizure of all documents,
papers, files and records, tax returns and books of
accounts of any entity or person under investigation
as may be necessary for the proper disposition of the
cases before it, subject to the provisions of existing
laws;
 (m) Suspend, or revoke, after proper notice and
hearing the franchise or certificate of registration of
corporations, partnership or associations, upon any
of the grounds provided by law; and
 (n) Exercise such other powers as may be provided
by law as well as those which may be implied from,
or which are necessary or incidental to the carrying
out of, the express powers granted the Commission
to achieve the objectives and purposes of these
laws.
 5.2. The Commission’s jurisdiction over all cases
enumerated under section 5 of Presidential Decree No.
902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court:
Provided, That the Supreme Court in the exercise of its
authority may designate the Regional Trial Court
branches that shall exercise jurisdiction over the cases.
The Commission shall retain jurisdiction over pending
cases involving intra-corporate disputes submitted for
final resolution which should be resolved within one (1)
year from the enactment of this Code. The Commission
shall retain jurisdiction over pending suspension of
payment/rehabilitation cases filed as of 30 June 2000
until finally disposed.
What are those matters transferred from
SEC to the RTC?
 Sec. 5., it shall have original and

exclusive jurisdiction to hear and

decide cases involving the following:
 (a) Devices or schemes employed by or
any acts, of the board of directors,
business associates, its officers or
partnership, amounting to fraud and
misrepresentation which may be
detrimental to the interest of the public
and/or of the stockholder, partners,
members of associations or
organizations registered with the
Commission;
 (b) Controversies arising out of intra-corporate
or partnership relations, between and among
stockholders, members, or associates; between
any or all of them and the corporation,
partnership or association of which they are
stockholders, members or associates,
respectively; and between such corporation,
partnership or association and the state insofar
as it concerns their individual franchise or right
to exist as such entity; and
 (c) Controversies in the election or
appointments of directors, trustees,
officers or managers of such
corporations, partnerships or
associations.
Define a foreign corporation.
A foreign corporation is one formed,
organized or existing under any laws
other than those of the Philippines and
whose laws allow Filipino citizens and
corporations to do business in its country
or state. (sec. 123). 
What is the requirement before a foreign
corporation may transact or do business in the
Philippines?
 It shall have the right to transact business in the
Philippines after its shall have obtained a license to
transact business in this country in accordance with
the Code and a certificate of authority from the
appropriate government agency (Ibid). e.g. from the
Central Bank, in the case of banking institution.
 
Status: A corporation can have no legal
existence beyond of the state or
sovereignty which created it and although
it may act in another state or country it
cannot do so as legal or constitutional
right but only by comity and consent of
such state or country.
Subject to constitutioal limitations, a state may
prohibit foreign corporations from doing business
therein or may take the right to do business
depend on terms and conditions as it may in its
discretion se fit to impose. However, by virtue o
comity, a corporation created by the laws of one
state is usually allowed to transact business in
other states and to sue in the courts of the
forum.
Only foreign corporations organized or existing in a
foreign country whose laws allow Filipino citizens
and corporations to do business in its own
country country or state.
No foreign corporation shall be permitted to
transact business in the Philippines until it shall
have obtained a license from SEC and a
certificate of authority from appropriate
government agency.
The object of the on Law Philippines
Corporation is to subject foreign
corporations doing business in the
Philippines to the jurisdiction.
The Foreign Investment Act (R.A. 7042, 1991,
amended by R.A. 8179, 1996) liberalized the
entry of foreign investment into the Philippines.
Under the Act, foreign investors are generally
treated like their domestic counterparts and
must register with the 
Securities and Exchange Commission (SEC)
(in the case of a corporation or partnership) or
with the Department of Trade and Industry’s
Bureau of Trade Regulation and Consumer
Protection (in the case of a sole
proprietorship).
n of its courts.
Registration of a foreign corporation in the appropriate
departments and government entities vest legal title
or personality to foreign corporation to engage
business inside the Philippine jurisdiction.
A duly licensed or registered foreign corporation has
the power to sue and can be sued in Philippine
courts. Absence of licensed or registration will not
entitle the foreign corporation to sue but can be sued
instead. However, a foreign corporation is authorized
to sue even if not licensed or registered when it only
engages in isolated transactions and when the law
specifically provides.
Under the Philippine law, a court can obtain jurisdiction
over foreign corporation by the proper service of
summons. Service of summons to foreign corporation
which has transacted business in the Philippines
whether licensed/ registered or in an isolated
transaction maybe made on its resident agent
designated by law for that purpose, or in case there
is no agent, the government official designated by
law, such as the Insurance Commissioner (in cases of
foreign insurance corporation), the Superintendent of
Banks (in cases of Foreign banks) and the Security
and Exchange Commission (for other foreign
corporation registered or licensed to do business in
the Philippines).
Whenever service of Summons is so made to
the government official, the government
official shall be obliged to transmit the same
by mail or other legal process to the
corporation concerned.
Foreign Corporation registered in PEZA and
BOI can carry on substantial internal trade.
The foreign corporation can also direct and
develop operations and enterprises of
domestic corporations. Furthermore, it can
invest a considerable amount of capital to
certain enterprises.
Moreover, the corporation can also purchase shares
of stocks in a legitimate stock market for a
minimum share authorized by law. Thus,
registration in PEZA and BOI authorizes the
foreign corporation to freely engage in business
ventures with in the Philippine jurisdiction.
Under the law, the President of the Philippines
may allow entry of foreign corporation when
warranted by public interest, such as oil drilling
companies, Board of Investments, registered
enterprises and Philippine Economic Zone
Authority registered enterprises.
Principle of Reciprocity
The principle of reciprocity speaks of mutuality
among the party states. Benefits given by a state to
citizens of another state who are found within the
country of the granting state shall also be granted to
the citizens found within the partner state. Usually,
the Principle of Reciprocity is in a form of a treaty,
signed by different representatives of party states. In
this jurisdiction, the legislative departments can
enact laws that can be favorable to a registered
foreign corporation, provided such is also granted to
the Filipino citizens who are within the jurisdiction of
the grantee state.
 The President of the Philippines can issue Executive
Orders, and Presidential Decrees that are favorable to the
conduct of foreign corporation. Some of these favor
personnel of offshore banking units which is provided
under Presidential Decree 1034 and Required Area
headquarters of Multinational Companies under Executive
Order 226, wherein they are entitled for Multiple Entry
Special Visa to the Philippines. Also, their respective
spouses and minor dependents below 21 years old are
benefited. The multiple entry special visas are valid for 1
year and can be extended based on legal or meritorious
grounds. Holders of this visa type are exempted from
immigration fees and registration apart from all clearances
from any form of government agency before final
departure.
 A foreign investor is offered a lot of incentives
when investing in the Philippines. Incentives
include tax holidays, tax reduction for labor
expenses, and duty-free importation of capital
equipment, and are available for companies
investing in preferred areas and registered with
the Board of Investments (BOI). The
sustainability of these incentives has been
questioned from time to time. According to some
opinions, these incentives create a burden too
heavy to carry for the Philippine national
economy and therefore should be removed.
 To develop the commitment of foreign
investors the land lease times were
prolonged in January 1995. The lease
contract can be made for 50 years and be
renewed once for another 25 years.
 Restrictions on foreign participation are mentioned in
three negative lists. These lists are administered by
the National Economic and Development Authority
(NEDA). The division into domestic and export
enterprises is relevant when talking about investment
incentives. The basic idea is not to offer incentives to
companies that would use the benefit to compete in
the Philippine market with local companies. A
domestic market enterprise produces goods or
services solely for the domestic market. Domestic
market enterprises with more than 40% foreign
participation should have a paid-up capital of at least
USD 500 000, if advanced technology is not used.
 An export enterprise is a manufacturing,
processing or service enterprise exporting at
least 60% of its output. Also, a trader buying
domestically manufactured products and
exporting at least 60% of the purchase is
regarded as an export enterprise. If the
production is not included on A or B negative
lists, there are no restrictions concerning
foreign ownership.
 If the investment is made in a Special Economic Zone
(earlier Export Processing Zone), there are no
restrictions on foreign participation. However, these
companies are required to export the whole
production, unless the company has received specific
approval from the Philippine Economic Zone Authority
(PEZA). This approval is always made in a specific
situation and may not be issued beforehand. Once
the approval is gained, the domestic sales cannot
exceed 30% of the production.
 There are plans to continue the economic
liberalization program, e.g. list B might be removed
entirely and retail trade is already proposed to be
opened to foreigners, too.
 Investment Negative Lists
 List A includes limitations made by
constitution or special law.
 No foreign participation is allowed in
 mass media
 most licensed professional services (e.g.
accountants, lawyers, engineers)
 retail trade
 cooperatives
 private security agencies
 small-scale mining
 fisheries
 rice and corn farming
 25% foreign equity is allowed in
 recruitment agencies
 locally funded public works projects
 30% foreign equity is allowed in
 advertizing
 40% foreign equity is allowed in
 resources development and utilization
 land ownership
 public utilities
 educational institutions
 financing companies
 construction
 List B restricts foreign investment for reasons of
security, defense, health, morals and protection of
small and medium-sized enterprises.
 40% foreign participation is allowed in
 explosives
 munitions
 armaments
 dangerous drugs
 massage clinics
 gambling
 domestic market enterprises with capital less than USD
500 000, provided enterprises don't use advanced
technology
 small-scale export enterprises with capital less than USD
500 000 depleting natural resources
 List C which limited foreign equity by the capacity of
existing enterprises was removed in October 1994.
 Sec. 125. Application for a license. - A foreign
corporation applying for a license to transact business in
the Philippines shall submit to the Securities and Exchange
Commission a copy of its articles of incorporation and by-
laws, certified in accordance with law, and their translation
to an official language of the Philippines, if necessary. The
application shall be under oath and, unless already stated
in its articles of incorporation, shall specifically set forth
the following:
 1. The date and term of incorporation;
 2. The address, including the street number, of the
principal office of the corporation in the country or state of
incorporation;
 3. The name and address of its resident agent
authorized to accept summons and process in all
legal proceedings and, pending the establishment of
a local office, all notices affecting the corporation;
 4. The place in the Philippines where the corporation
intends to operate;
 5. The specific purpose or purposes which the
corporation intends to pursue in the transaction of its
business in the Philippines: Provided, That said
purpose or purposes are those specifically stated in
the certificate of authority issued by the appropriate
government agency;
 6. The names and addresses of the present directors
and officers of the corporation;
 7. A statement of its authorized capital stock and the
aggregate number of shares which the corporation has
authority to issue, itemized by classes, par value of
shares, shares without par value, and series, if any;
 8. A statement of its outstanding capital stock and the
aggregate number of shares which the corporation has
issued, itemized by classes, par value of shares, shares
without par value, and series, if any;
 9. A statement of the amount actually paid in; and
 10. Such additional information as may be necessary or
appropriate in order to enable the Securities and Exchange
Commission to determine whether such corporation is
entitled to a license to transact business in the Philippines,
and to determine and assess the fees payable.
 Attached to the application for license shall be a duly
executed certificate under oath by the authorized
official or officials of the jurisdiction of its
incorporation, attesting to the fact that the laws of
the country or state of the applicant allow Filipino
citizens and corporations to do business therein, and
that the applicant is an existing corporation in good
standing. If such certificate is in a foreign language,
a translation thereof in English under oath of the
translator shall be attached thereto.
 The application for a license to transact business in
the Philippines shall likewise be accompanied by a
statement under oath of the president or any other
person authorized by the corporation, showing to the
satisfaction of the Securities and Exchange
Commission and other governmental agency in the
proper cases that the applicant is solvent and in
sound financial condition, and setting forth the assets
and liabilities of the corporation as of the date not
exceeding one (1) year immediately prior to the filing
of the application.
 Foreign banking, financial and insurance corporations
shall, in addition to the above requirements, comply
with the provisions of existing laws applicable to
them. In the case of all other foreign corporations, no
application for license to transact business in the
Philippines shall be accepted by the Securities and
Exchange Commission without previous authority
from the appropriate government agency, whenever
required by law. (68a)
 Sec. 126. Issuance of a license. - If the Securities and
Exchange Commission is satisfied that the applicant has
complied with all the requirements of this Code and other
special laws, rules and regulations, the Commission shall
issue a license to the applicant to transact business in the
Philippines for the purpose or purposes specified in such
license. Upon issuance of the license, such foreign
corporation may commence to transact business in the
Philippines and continue to do so for as long as it retains
its authority to act as a corporation under the laws of the
country or state of its incorporation, unless such license is
sooner surrendered, revoked, suspended or annulled in
accordance with this Code or other special laws.
 Within sixty (60) days after the issuance of the license to
transact business in the Philippines, the license, except foreign
banking or insurance corporation, shall deposit with the
Securities and Exchange Commission for the benefit of present
and future creditors of the licensee in the Philippines, securities
satisfactory to the Securities and Exchange Commission,
consisting of bonds or other evidence of indebtedness of the
Government of the Philippines, its political subdivisions and
instrumentalities, or of government-owned or controlled
corporations and entities, shares of stock in "registered
enterprises" as this term is defined in Republic Act No. 5186,
shares of stock in domestic corporations registered in the stock
exchange, or shares of stock in domestic insurance companies
and banks, or any combination of these kinds of securities, with
an actual market value of at least one hundred thousand
(P100,000.) pesos; Provided, however,
 That within six (6) months after each fiscal
year of the licensee, the Securities and
Exchange Commission shall require the
licensee to deposit additional securities
equivalent in actual market value to two
(2%) percent of the amount by which the
licensee's gross income for that fiscal year
exceeds five million (P5,000,000.00) pesos.
 The Securities and Exchange Commission
shall also require deposit of additional
securities if the actual market value of
the securities on deposit has decreased
by at least ten (10%) percent of their
actual market value at the time they were
deposited.
The Securities and Exchange Commission may at its
discretion release part of the additional securities
deposited with it if the gross income of the licensee
has decreased, or if the actual market value of the
total securities on deposit has increased, by more
than ten (10%) percent of the actual market value of
the securities at the time they were deposited. The
Securities and Exchange Commission may, from time
to time, allow the licensee to substitute other
securities for those already on deposit as long as the
licensee is solvent.
 Such licensee shall be entitled to collect the interest
or dividends on the securities deposited. In the event
the licensee ceases to do business in the Philippines,
the securities deposited as aforesaid shall be
returned, upon the licensee's application therefor and
upon proof to the satisfaction of the Securities and
Exchange Commission that the licensee has no
liability to Philippine residents, including the
Government of the Republic of the Philippines.
Sec. 129. Law applicable. - Any foreign
corporation lawfully doing business in the
Philippines shall be bound by all laws, rules and
regulations applicable to domestic corporations
of the same class, except such only as provide
for the creation, formation, organization or
dissolution of corporations or those which fix the
relations, liabilities, responsibilities, or duties of
stockholders, members, or officers of
corporations to each other or to the corporation.
(73a)
 Who may be a resident agent. - A
resident agent may be either an individual
residing in the Philippines or a domestic
corporation lawfully transacting business in
the Philippines: Provided, That in the case of
an individual, he must be of good moral
character and of sound financial standing.
 Sec. 128. Resident agent; service of process. - The
Securities and Exchange Commission shall require as a condition
precedent to the issuance of the license to transact business in
the Philippines by any foreign corporation that such corporation
file with the Securities and Exchange Commission a written
power of attorney designating some person who must be a
resident of the Philippines, on whom any summons and other
legal processes may be served in all actions or other legal
proceedings against such corporation, and consenting that
service upon such resident agent shall be admitted and held as
valid as if served upon the duly authorized officers of the foreign
corporation at its home office.
Sec. 130. Amendments to articles of incorporation or by-
laws of foreign corporations. - Whenever the articles of
incorporation or by-laws of a foreign corporation authorized
to transact business in the Philippines are amended, such
foreign corporation shall, within sixty (60) days after the
amendment becomes effective, file with the Securities and
Exchange Commission, and in the proper cases with the
appropriate government agency, a duly authenticated copy of
the articles of incorporation or by-laws, as amended,
indicating clearly in capital letters or by underscoring the
change or changes made, duly certified by the authorized
official or officials of the country or state of incorporation.
The filing thereof shall not of itself enlarge or alter the
purpose or purposes for which such corporation is authorized
to transact business in the Philippines. (n)
Sec. 131. Amended license. - A foreign
corporation authorized to transact business in the
Philippines shall obtain an amended license in the
event it changes its corporate name, or desires
to pursue in the Philippines other or additional
purposes, by submitting an application therefor
to the Securities and Exchange Commission,
favorably endorsed by the appropriate
government agency in the proper cases. (n)
Sec. 132. Merger or consolidation involving a foreign
corporation licensed in the Philippines. - One or
more foreign corporations authorized to transact
business in the Philippines may merge or consolidate
with any domestic corporation or corporations if such is
permitted under Philippine laws and by the law of its
incorporation: Provided, That the requirements on
merger or consolidation as provided in this Code are
followed.
 Whenever a foreign corporation authorized to transact
business in the Philippines shall be a party to a merger or
consolidation in its home country or state as permitted by the
law of its incorporation, such foreign corporation shall, within
sixty (60) days after such merger or consolidation becomes
effective, file with the Securities and Exchange Commission,
and in proper cases with the appropriate government agency,
a copy of the articles of merger or consolidation duly
authenticated by the proper official or officials of the country
or state under the laws of which merger or consolidation was
effected:
 Provided, however, That if the absorbed
corporation is the foreign corporation
doing business in the Philippines, the
latter shall at the same time file a petition
for withdrawal of it license in accordance
with this Title. (n)
 Sec. 133. Doing business without a license. - No
foreign corporation transacting business in the
Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene
in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such
corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any
valid cause of action recognized under Philippine
laws. (69a)
Under Republic Act No. 7042, the Foreign Investment Act of 1991,
doing business means:
The phrase "doing business" shall include soliciting orders,
service contracts, opening offices, whether called "liaison"
offices or branches; appointing representatives or
distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods
totaling one hundred eighty [180] days or more;
participating in the management, supervision or control of
any domestic business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements and
contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of commercial
gain or of the purpose and object of the business
organization:
Provided, however, That the phrase "doing business"
shall not be deemed to include mere investment as a
shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or
the exercise of rights as such investor; nor having a
nominee director or officer to represent its interests
in such corporation; nor appointing a representative
or distributor domiciled in the Philippines which
transacts business in its own name and for its own
account;
Criterion:
Doing or transacting business
constitutes continuity of commercial
dealings or arrangement.
Effects of doing business without license:
1. Foreign corporation doing business with license can
sue and be sued in the Phil. Courts
2. Foreign corporation doing business without license
can be sued in Phil. Courts but it cannot sue.
Exception where foreign corporations without license
to engage business in the Philippines can sue:
a. When the action is for purpose of protecting its
reputation, corporate name and good will
b. For any other valid purpose or cause
recognized under Phil. Laws in the
following rulings laid down by the
Supreme Court
- Obtaining by a foreign corporation of an
isolated purchase on certain goods from
the Phils is an isolated transaction.
- Incurring by a foreign corporation of damages to its
goods erroneously discharged and lost in the port of
Manila is not even an isolated transaction.
- Incurring by a foreign corporation of damages
caused by a shipping corporation’s failure to deliver
its goods to their proper destination is an isolated
transaction.
- A single agreement wherein a foreign corporation
purchases crude oil from the Phils in an isolated
transaction.
 . Revocation of license. - Without prejudice to
other grounds provided by special laws, the
license of a foreign corporation to transact
business in the Philippines may be revoked or
suspended by the Securities and Exchange
Commission upon any of the following grounds:
 1. Failure to file its annual report or pay any fees
as required by this Code;
 2. Failure to appoint and maintain a resident agent in the
Philippines as required by this Title;
 3. Failure, after change of its resident agent or of his
address, to submit to the Securities and Exchange
Commission a statement of such change as required by
this Title;
 4. Failure to submit to the Securities and Exchange
Commission an authenticated copy of any amendment to
its articles of incorporation or by-laws or of any articles of
merger or consolidation within the time prescribed by this
Title;
 5. A misrepresentation of any material matter in any application, report,
affidavit or other document submitted by such corporation pursuant to this
Title;
 6. Failure to pay any and all taxes, imposts, assessments or penalties, if any,
lawfully due to the Philippine Government or any of its agencies or political
subdivisions;
 7. Transacting business in the Philippines outside of the purpose or purposes
for which such corporation is authorized under its license;
 8. Transacting business in the Philippines as agent of or acting for and in
behalf of any foreign corporation or entity not duly licensed to do business in
the Philippines; or
 9. Any other ground as would render it unfit to transact business in the
Philippines.
 Sec. 136. Withdrawal of foreign corporations. -
Subject to existing laws and regulations, a foreign
corporation licensed to transact business in the Philippines
may be allowed to withdraw from the Philippines by filing
a petition for withdrawal of license. No certificate of
withdrawal shall be issued by the Securities and Exchange
Commission unless all the following requirements are met;
 1. All claims which have accrued in the Philippines have
been paid, compromised or settled;
 2. All taxes, imposts, assessments, and
penalties, if any, lawfully due to the Philippine
Government or any of its agencies or political
subdivisions have been paid; and
 3. The petition for withdrawal of license has
been published once a week for three (3)
consecutive weeks in a newspaper of general
circulation in the Philippines.