CORPORATION CODE OF THE PHILIPPINES FINALS REVIEWER scientific, civic or similar purposes: Provided, That no  Incidental powers – these
 Incidental powers – these are powers that are deemed
Personal Reviewer by Kelvin Jaluag Culajara, CPA
TITLE IV: POWERS OF CORPORATIONS
(Sec. 36) Corporate powers and capacity
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of
time stated in the articles of incorporation and the
certificate of incorporation; Note: Under the Revised
Corporation Code (R.A. No. 11232, or the “Revised
Code” for brevity), corporations shall have perpetual
existence unless the certificate of incorporation
provides otherwise.
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance
with the provisions of the Code;
5. To adopt by-laws not contrary to law, morals, or
public policy, and to amend or repeal the same in
accordance with this Code;
6. Note:
o In case of stock corporations – to issue or
sell stocks to subscribers and to sell treasury
stocks in accordance with the provisions of
this Code;
o In case of non-stock corporation – to admit
members to the corporation.
7. To purchase, receive, take or grant, hold, convey, sell,
lease, pledge, mortgage and otherwise deal with such
real and personal property, including securities and
bonds of other corporations, as the transaction of the
lawful business of the corporation may reasonably
and necessarily require, subject to the limitations
prescribed by law and the Constitution;
8. To enter into merger or consolidation with other
corporations as provided in this Code; Note: Under the
Revised Code: “To enter into a partnership, joint
venture, merger, consolidation, or any other
commercial agreement with natural and juridical
persons”.
9. To make reasonable donations, including those for the
public welfare or for hospital, charitable, cultural,
corporation, domestic or foreign, shall give donations
in aid of any political party or candidate or for
purposes of partisan political activity; Note: Under the
Revised Code, to “Provided” clause states: “Provided,
That no foreign corporation shall give donations in aid
of any political party or candidate or for purposes of
partisan political activity.” Hence, domestic
corporations are now allowed by law to give donations
in aid of partisan political activity.
10. To establish pension, retirement, and other plans for
the benefit of its directors, trustees, officers, and
employees; and
11. To exercise such other powers as may be essential or
necessary to carry out its purpose or purposes as
stated in the articles of incorporation.
Kinds of corporate powers
 Express powers – those expressly provided by the
Corporation Code, special laws, administrative
regulations, and articles of incorporation. Note: The
powers provided for in the Corporation Code are
deemed part of the Articles of Incorporation even if
such powers are not enumerated therein.
 Implied powers - such other powers as may be
essential or necessary to carry out its purpose or
purposes as stated in the articles of incorporation.
Note: This refers to one that is directly and
immediately appropriate for the execution of specific
powers; and not one that has slight, indirect or remote
relation to the specific purposes.
o In one case, the Supreme Court held that a
seller, dealer or importer of goods does not
automatically classify one as manufacturer
because manufacturing is not fairly and
reasonably necessary or incidental to the
business of selling.
 However, a manufacturing
corporation has an implied power
to sell what it manufactures.
conferred on the corporation because they are
incidental to the existence of the corporation, such as:
o Right to succession;
o Right to have a corporate name;
o Right to make by-laws for its government;
o Right to sue and be sued; and
o Right to acquire and hold properties for the
purposes authorized by the charter.
To sue and be sued in its corporate name
 The Supreme Court now requires corporations to
attach a copy of the Board Resolution authorizing the
filing of the complaint or petition.
 If no power of attorney, secretary’s certificate, or board
resolution is attached to the petition or complaint, the
pleading is not properly verified and should be treated
as an unsigned pleading. A person, including the
counsel of the corporation, who alleges that he is duly
authorized to file an action must present a resolution
issued by the Board that specifically authorized him to
institute the action and execute the certification
against forum shopping. Only then would his actions be
binding on the corporation.
o However, the Supreme Court has since
relaxed the rule by ruling that in exceptional
cases, certain officers have implied authority
to sign the certification against non-forum
shopping to which the requirement of
submission of a Board resolution was
dispensed.
A corporation generally cannot sue for moral damages. But at the
point in which there is defamation upon goodwill of corporate
name, there can be a suit for moral damages involving the
corporation.
Power of succession
This is self-explanatory.
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However, under the Revised Corporation Code (R.A. No. 11232,
or the “Revised Code” for brevity), corporations shall have
perpetual existence unless the certificate of incorporation
provides otherwise.
Power to adopt and use corporate seal
 A seal is not indispensable for the transactions or
contracts of the corporation.
 A document may be considered valid and binding even
in the absence of a seal.
 A seal may be necessary with respect to a certificate of
stock as provided for under Section 63.
Power to amend articles of incorporation
This is self-explanatory.
Power to adopt by-laws
 It is implicit that a corporation may exist even without
the by-laws.
 By-laws are meant to regulate the manner of
conducting the internal affairs of the corporation
Powers regarding shares and membership
 Stock corporation
o To issue unsubscribed shares;
o To sell treasury stocks;
o To sell delinquent shares;
o To acquire its own shares in proper cases;
o To redeem redeemable shares;
o To increase or decrease par value of shares;
o To resort to stock split.
 Non-stock corporation
o To admit members of the corporation. Note:
The corporation may prescribe the
qualifications of members and may provide
for grounds for their disqualification.
To acquire, sell, lease or otherwise deal with real or personal
property
There are two (2) basic requirements in order that a corporation
can deal with real or personal property, which requirements are
as follows:
 It must be reasonably and necessarily required by the
transaction of the lawful business of the corporation.
 It is subject to limitations prescribed by law and the
Constitution.
Note: In the absence of any provision in the By-laws as to the
number of votes required, the vote of stockholders representing
the majority of the outstanding capital stock is sufficient to
approve the sale.
Temporary lease of properties even if a corporation is not
engaged in the business of leasing properties may be allowed
provided the following SEC requirements are followed:
 The property is not presently used by the corporation
and leasing of the property is not made on a regular
basis.
 Leasing the property will make it productive instead of
allowing them to remain idle.
 There are no express restrictions in the articles of
incorporation and by-laws.
 The leasing of property is not used to prejudice
corporate creditors or result in the infringement of the
trust fund doctrine.
To enter into merger or consolidation
 Merger occurs when two or more corporations merge
into a single corporation which shall be one of the
constituent corporations.
 Consolidation happens when two or more corporations
form a new single corporation.
Under the Revised Code, corporations now have the power to
enter into a partnership, joint venture, merger, consolidation, or
any other commercial agreement with natural and juridical
persons.
To make reasonable donations
Donations may be allowed provided the following requisites are
complied:
 The donation must be reasonable;
 The donation must be for valid purposes including
public welfare for hospital, charitable, cultural,
scientific, civic or similar purposes;
 The donation must not be in aid of any political party or
candidate or for purposes of partisan political activity.
Under the Revised Code, to “Provided” clause states: “Provided,
That no foreign corporation shall give donations in aid of any
political party or candidate or for purposes of partisan political
activity.” Hence, domestic corporations are now allowed by law
to give donations in aid of partisan political activity. Said
prohibition applies only to foreign corporations.
Other powers
 To hire employees, engage the services of contracts,
open bank accounts, and other matters necessary for
its operations.
 A corporation cannot enter into a contract of
partnership, pursuant to public policy that a
corporation will be bound by the acts of persons who
are not its duly appointed and authorized agents and
officers. Note: And also, doing so would improperly
allow corporate property to become subject to risks
not contemplated by the stockholders when they
originally invested in the corporation.
By way of exception, the SEC allows a corporation to be a partner
if the following conditions are present:
 The authority to enter into a partnership relation is
expressly conferred by the charter or articles of
incorporation of the corporation, and the nature of the
business venture to be undertaken by the partnership
is in line with the business authorized by the charter or
articles of incorporation of the corporation involved.
 The partnership must be a limited partnership and the
corporation must be a limited partner.
 If it is a foreign corporation, it must obtain a license to
transact business in the country.
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A corporation can enter into a joint venture. A joint venture is an
organization formed for some temporary purpose. It is akin to a
partnership since their elements are similar – community of
interest in the business, sharing profits and losses, and mutual
right of control.
 The power to borrow money is auxiliary to the primary
purposes of the corporation. Note: To act as surety or
guarantor, in the absence of an express power, is not a
necessary or incidental power. However it may be
allowed when reasonably necessary or proper in the
conduct of business.
o Note further: The corporation cannot
mortgage its properties to secure the
obligation of third persons. However, it may
do so to secure the obligation of a subsidiary.
Exceptionally, SEC opined that the corporation can mortgage its
properties for the obligations of another corporation which is not
its subsidiary provided the following requirements are present:
 There is no express restriction in articles of
incorporation and by laws;
 The purpose of mortgage is not illegal;
 The consent of all corporate creditors and stockholders
must be secured;
 The transaction is not used as a scheme to defraud or
prejudice corporate directors or result in the
infringement of the Trust Fund Doctrine;
 The mortgage will not hamper the continuous business
operation of the corporation; and
 The accommodated third party is financially solvent
and capable of paying its obligation.
Generally, a corporation cannot practice any profession pursuant
to a public policy that the ethics of any profession is based upon
individual responsibility, personal accountability, and
independence.
 An exception to this rule is that architects can organize
a corporation for the practice of their profession.
(Section 37, R.A. No. 9266)
(Sec. 37) Power to extend or shorten corporate term, how
exercised
 When approved by a majority vote of the board of
directors or trustees
 Ratified at a meeting by
o Stock corporation – at least 2/3 of the
outstanding capital stock
o Non-stock corporation – at least 2/3 of the
members.
 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 residence as shown on
the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or
served personally;
o Provided that in case of extension of
corporate term any dissenting stockholder
may exercise his appraisal right. Note:
Section 81 provides that an appraisal right is
available even in the shortening of the
corporate term.
 A copy of the amended articles of incorporation shall
be submitted to the SEC for its approval. Note: If there
is no express approval, the amendment is deemed
approved upon the inaction of the SEC for 6 months
after submission due not to the fault of the
corporation.
(Sec. 38) Power to increase or decrease capital stock; incur,
create or increase bonded indebtedness, how exercised
 There must be approval by a majority vote of the
board of directors;
 Favored by 2/3 of the outstanding capital stock shall
favor the increase or diminution of the capital stock,
or the incurring, creating or increasing of any bonded
indebtedness in a stockholder’s meeting duly called
for the purpose;
 Written notice of the proposed increase or diminution
of the capital stock or of the incurring, creating, or
increasing of any bonded indebtedness and of the
time and place of the stockholder’s meeting must be
addressed to each stockholder 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.
 A certificate in duplicate must be signed by a majority
of the directors of the corporation and countersigned
by the chairman and the secretary of the
stockholder’s meeting.
 Any increase or decrease in the capital stock or the
incurring, creating or increasing of any bonded
indebtedness shall require prior approval of the
Securities and Exchange Commission.
Contents of the certificate in duplicate
 That the requirements of Section 38 has been
complied with;
 The amount of the increase or diminution of the
capital stock;
 Note:
o If an increase of the capital stock
 The amount of capital stock; or
 The number of shares of no-par
stock thereof actually subscribed;
 The names, nationalities and
residences of the persons
subscribing;
 The amount of capital stock or
number of no-par stock subscribed
by each subscriber;
 The amount paid by each on his
subscription in cash or property;
 The amount of capital stock or
number of shares of no-par stock
allotted to each stockholder if such
increase is for the purpose of
making effective stock dividend
therefor authorized;
 Any bonded indebtedness to be incurred, created or
increased;
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  The actual indebtedness of the corporation on the day
of the meeting;
 The amount of stock represented at the meeting; and
 The vote authorizing the increase or diminution of the
capital stock, or the incurring, creating or increasing of
any bonded indebtedness.
Other matters
 One of the duplicate certificates shall be kept on file
in the office of the corporation and the other shall be
filed with the SEC and attached to the original articles
of incorporation.
 From and after approval by the SEC and the issuance
of its certificate of filing, the capital stock shall stand
increased or decreased and the incurring, creating or
increasing of any bonded indebtedness authorized –
o Provided that the SEC shall not accept for
filing any certificate of increase of capital
stock unless accompanied by a sworn
statement of the treasurer, showing that –
 at least 25% of the capital stock
has been subscribed; and
 that at least 25% of the amount
subscribed has been paid either in
actual cash to the corporation; or
 that there has been transferred to
the corporation property the
valuation of which is equal to 25%
of the subscription.
o Provided, further, that no decrease of the
capital stock shall be approved by the
Commission if its effect shall prejudice the
rights of corporate creditors.
 Non-stock corporations may incur or create bonded
indebtedness, or increase the same, with the approval
by a majority vote of the board of trustees and of at
least 2/3 of the members in a meeting duly called for
the purpose.
 Bonds issued by a corporation shall be registered with
the SEC, which shall have the authority to determine
the sufficiency of the terms thereof.
Increase or decrease of capital stock
The exercise of the power to increase or decrease the authorized
capital stock of the corporation results in the amendment of the
articles of incorporation. This should be distinguished from mere
increase of subscribed capital stock or paid-up capital which does
not necessarily require amendment of the articles of
incorporation.
Other matters
 Increase or decrease of capital will not necessarily
result if there is a stock split.
Requirements
 There must be approval by a majority vote of the board
of directors;
 Favored by 2/3 of the outstanding capital stock shall
favor the increase or diminution of the capital stock;
 Written notice of the proposed increase or diminution
of the capital stock must be addressed to each
stockholder 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.
 A certificate in duplicate must be signed by a majority
of the directors of the corporation and countersigned
by the chairman and the secretary of the stockholder’s
meeting; (See previous paragraph for the contents of
the certificate)
o With respect to the increase of capital stock,
the application filed with the SEC shall be
accompanied by the sworn statement of the
treasurer of the corporation showing the
compliance with the 25%-25% rule. Note: The
required 25% subscription shall be based on
the additional amount by which the capital
stock is increased and not on the total capital
stock as increased.
 Any increase or decrease in the capital stock shall
require prior approval of the Securities and Exchange
Commission.
Other matters
 The exercise of the power to decrease capital stock is
management prerogative, as long as the rights of the
creditors are not affected. Note: Consent of creditors
must be secured if the authorized capital is decreased.
 The financial statements are additional documentary
requirements because the SEC will allow decrease in
capital stock only if the capital of the corporation will
not be impaired.
 Approval by the SEC is essential. There is no increase in
the authorized capital stock even if the stockholders
already paid the additional subscription without SEC
approval. Any payment by the shareholder of the
subscription shall be considered as deposits only on
future subscriptions.
Bonded indebtedness
 Section 38 does not cover all kinds of indebtedness
because a corporation has an implied power to borrow
money when necessary to carry out the purposes of its
organization.
 In the exercise of such implied power, a corporation
may execute notes or other customary evidences of
indebtedness.
Bonded indebtedness refers to secured indebtedness or those
secured by real or personal property. The following are the
requirements:
 There must be approval by a majority vote of the board
of directors;
 Favored by 2/3 of the outstanding capital stock shall
favor the incurring, creating or increasing of any
bonded indebtedness in a stockholder’s meeting duly
called for the purpose;
 Written notice of the proposed incurring, creating, or
increasing of any bonded indebtedness and of the time
and place of the stockholder’s meeting must be
addressed to each stockholder at his place of residence
as shown on the books of the corporation and
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 deposited to the addressee in the post office with
postage prepaid, or served personally.
 A certificate in duplicate must be signed by a majority
of the directors of the corporation and countersigned
by the chairman and the secretary of the stockholder’s
meeting.
 Any increase or decrease in the capital stock or the
incurring, creating or increasing of any bonded
indebtedness shall require prior approval of the
Securities and Exchange Commission.
(Sec. 39) Power to deny pre-emptive right
 In a stock corporation, all stockholders shall enjoy pre-
emptive right to subscribe to all issues or disposition
of shares of any class, in proportion to their respective
shareholdings, unless such right is denied by the
articles of incorporation or an amendment thereto;
o Provided that such pre-emptive right shall
not extend to shares to be issued in
compliance with laws requiring stock
offerings or minimum stock ownership by
the public; or
o Shares to be issued in good faith with the
approval of 2/3 of the outstanding capital
stock, in exchange for property needed for
corporate purposes or in payment of a
previously contracted debt.
Pre-emptive right is the right of shareholders to subscribe to all
issues or disposition of shares of any class in proportion to their
shareholdings.
The foundation or underlying basis of this right is to maintain the
relative and proportionate voting strength and control of existing
shareholders.
Instances when pre-emptive right may be exercised
 Technically, all issues and disposition of shares
(including treasury shares).
 Issues and disposition of unsubscribed shares which are
part of the original capital stock and the increase of
capital stock.
Other matters
 The SEC has ruled that if the shares corresponding to
one stockholder are not subscribed or purchased by
him, it does not follow that said shares should be
offered on a pro-rata basis to stockholders who took
advantage of their pre-emptive rights. Thus, the shares
may be offered to non-stockholders of record on a
first-come first-serve basis.
 Pre-emptive right is not available when shares are
issued in exchange for shares in another corporation if
the same is the result of a merger to which the
corporations are parties.
 Pre-emptive right may be waived. Waiver is a personal
right.
 Pre-emptive right may be exercised within the time
prescribed by the Board, or in accordance with the
articles of incorporation or the by-laws.
Instances when pre-emptive right is not available
 When the right is denied in the Articles of
Incorporation;
 When shares are issued in compliance with laws
requiring stock offerings or minimum stock ownership
by the public; and
 When shares are issued in good faith with the approval
of stockholders representing 2/3 of the outstanding
capital stock, in exchange for property needed for
corporate purposes or in payment of a previously
contracted debt.
If the pre-emptive right is denied, the remedy of the offended
stockholder is to avail of his appraisal right.
Note that appraisal right normally applies in amendments of
articles of incorporation. If the denial of pre-emptive right is in
the articles of incorporation in itself, the stockholder may no
longer avail of appraisal rights.
(Sec. 40) Sale or other disposition of assets, how made
 There must be a majority vote of the board of
directors or trustees to sell, lease, exchange,
mortgage, pledge or dispose of all or substantially all
of its property and assets including its goodwill;
 The disposition must be for consideration which may
be money, stocks, bonds or other instruments for the
payment of money or other property or
consideration;
 In a meeting duly called for the purpose, such
disposition has to be authorized by –
o Stock corporation – 2/3 of the outstanding
capital stock;
o Non-stock corporation – 2/3 of the
members. Note: Where there are no
members with voting rights, the vote of at
least a majority of the trustees will suffice as
authorization for the corporation to enter
into any transaction authorized by this
section.
 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;
o Provided that any dissenting stockholder
may exercise his appraisal right.
Other matters
 A sale or other disposition shall be deemed to cover
substantially all the corporate property and assets if
the corporation would be rendered incapable of
continuing the business or accomplishing the purpose
for which it was incorporated. Note: If the transaction
does not cover all or substantially all of the assets, the
decision of the board is sufficient and it is not
necessary to get the approval of the stockholders.
 After such authorization or approval by the
stockholders or members, the board of directors or
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 trustees may nevertheless abandon such disposition
subject to the rights of third parties under any
contract relating thereto, without further action or
approval by the stockholders or members.
 Nothing in this section is intended to restrict the
power of any corporation, without the authorization
by the stockholders or members to dispose of any of
its property and assets if the same is necessary in the
usual and regular course of business of said
corporation or if the proceeds of the sale or other
disposition be appropriated for the conduct of its
remaining business.
Effect on creditors
 The transferee-corporation of all or substantially all of
the assets (or even shares) of the transferor-
corporation will not be liable for the debts of said
transferor-corporation, except:
o If there is an express or implied assumption
of liabilities;
o There is a consolidation or merger or a de
facto merger;
o If the purchase was in fraud of creditors; and
o If the purchaser becomes a continuation of
the seller.
 If the creditors did not consent to the transfer, the only
way the transfer can proceed without prejudice to the
creditors is to hold the assignee liable for the
obligations of the assignor.
Badges of fraud
1. The fact that the consideration of the conveyance is
fictitious or inadequate;
2. A transfer made by a debtor after suit has been begun
and while it is pending against him;
3. A sale upon credit by an insolvent debtor;
4. Evidence of large indebtedness or complete insolvency;
5. The transfer of all or nearly all of his property by a
debtor, especially when he is insolvent or greatly
embarrassed financially;
6. The fact that the transfer is made between father and
son, when there are present other of the above
circumstances;
7. The failure of the vendee to take exclusive possession
of all property.
The Bulk Sales Law
When there is a sale in bulk – when there is sale, transfer,
mortgage or assignment of:
 Stock of goods, wares, merchandise, provisions or
materials otherwise in the ordinary course of trade and
the regular prosecution of business of the vendor,
mortgagor, transferor or assignor;
 The trade or business conducted by the vendor,
mortgagor, transferor or assignor; and
 All or substantially all of the fixtures and equipment
used in and about the business of the vendor,
mortgagor, transferor or assignor.
It shall be the duty of every seller, mortgagor, transferor, or
assignor, before receiving from the vendee, mortgagee or his
agent or representative any part of the purchase price, or any
promissory note, memorandum or other evidence therefor, to
deliver such vendee, mortgagee or agent (or to the president,
vice-president, treasurer, secretary or manager if such vendee,
mortgagee or agent is a corporation; or to a member, if such
vendee, mortgagee or agent is a partnership) –
 The names and addresses of all creditors to whom
vendor or mortgagor may be indebted;
 The amount of indebtedness due or owing;
 Such statement shall be verified by an oath.
Any sale in violation of the Bulk Sales Law is considered
fraudulent and void.
Case A:
B Corporation is engaged in selling canned goods on wholesale
basis. It is merely renting a bodega and 95% of its assets consist
of stocks of goods. On a given day, Mr. X, a regular customer,
purchased all the stocks of B Corporation. Is the transaction a
sale of substantially all of the assets of the corporation requiring
concurrence of stockholders representing 2/3 of the outstanding
capital stock?
Suggested answer: No. The sale is pursuant to regular course of
business because B Corporation is engaged in wholesale
business. Section 40 of the Code provides that nothing in the law
is intended to restrict the power of any corporation, without
authorization by the stockholders or members, to sell or dispose
any of its property and assets if the same is necessary in the
usual and regular course of business or if the proceeds of the sale
or other disposition of such property and assets be appropriated
for the conduct of its remaining business.
Case B
X Corporation is engaged in the business of milling of rice.
Around 60% of its assets consists of cash in the bank, 30% rice
milling machine, and 10% are office equipment and supplies. X
Corporation sold its machine. Can it be considered sale of
substantially all of the assets of the corporation?
Suggested answer: Yes. It cannot continue its business without
the machine. There is sale of all or substantially all of the assets if
it would be rendered incapable in continuing its printing
business. The fact that it is only 30% of the total assets of the
corporation is immaterial.
(Sec. 41.) Power to acquire own shares for legitimate corporate
purpose(s) including but not limited to the following:
1. To eliminate fractional shares arising out of stock
dividends;
2. To collect or compromise an indebtedness to the
corporation, arising out of unpaid subscription, in a
delinquency sale, and to purchase delinquent shares
sold during said sale; and
3. To pay dissenting or withdrawing stockholders
entitled to payment for their shares under the
provisions of this Code.
The corporation must have unrestricted retained earnings in its
books to cover the shares to be purchased or acquired.
Requirements for acquisitions
 It is for a legitimate and proper corporate purpose;
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  There shall be an unrestricted retained earnings to
purchase the same and its capital is not thereby
impaired;
 The corporation acts in good faith and without
prejudice to the rights of creditors and stockholders;
and
 The conditions of corporate affairs warrant it.
Rationale
 In the absence of statutory authority, the corporation
cannot acquire its own shares. This rationale is based
on the following reasons:
o The corporation cannot increase or diminish
its capital without the sanction of the
legislature;
o The transaction is a fraud upon creditors; and
o It is foreign to the purposes for which the
corporation is created.
o The purchase of shares can be considered a
violation of the Trust Fund doctrine because
portion of the capital is taken to the prejudice
of creditors.
 Note: The power to acquire its own shares is now an
express power.
(Sec. 42) Power to invest corporate funds in another
corporation or business or for any other purpose, provided the
following conditions are met:
 Approval by the majority of the board of directors and
trustees;
 Ratification in a meeting duly called for the purpose
by –
o If stock corporation – 2/3 of stockholders
representing the outstanding capital stock;
o If non-stock corporation – 2/3 of the
members.
 Written notice of the proposed investment and 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;
o Provided that any dissenting stockholder
shall have appraisal right as provided in the
Code;
 Provided further that where the
investment by the corporation is
reasonably necessary to
accomplish its primary purpose as
stated in the articles of
incorporation, the approval of the
stockholders or members shall not
be necessary.
Other matters
 Investment of a corporation in a business which is in
line with its primary purpose requires only the approval
of the board.
 The requirement in Section 42 would only apply if the
corporation will pursue its secondary purpose.
 Investment of funds includes not only investment of
money but also investment of property of the
corporation.
If the business of a corporation is such as to render it necessary
for it to own a certain kind of property, and at times such
property is not necessary to its business, it may employ the
property in a business or for a purpose which is not strictly within
the primary purpose in order to prevent the same from
remaining idle and unprofitable. (SEC Opinion, dated November
9, 1994)
The SEC imposes the following requirements (SEC Opinion, ibid.)
 The property is not presently used by the corporation
and leasing of the property is not made on a regular
basis.
 Leasing the property will make it productive instead of
allowing them to remain idle.
 There are no express restrictions in the articles of
incorporation or by-laws.
 The leasing of property is not used to prejudice
corporate creditors or result in the infringement of the
trust fund doctrine.
 There must be compliance with the requisites of Sec.
42.
Other matters
 Passive investment in shares is not covered by Section
42.
 A corporation can invest its idle funds in corporation
notes, pursuant to Section 36 of the Corporation Code
which empowers corporations to deal with real and
personal properties including securities and bonds of
other corporations as the transaction of lawful business
of the corporation may reasonably and necessarily
require. Note: The requirements under Section 42 shall
be complied with if the investment is not pursuant to
the primary purpose of the corporation.
(Sec. 43) Power to declare cash, property, or stock dividends
out of the unrestricted retained earnings and on the basis of
outstanding stock held by stockholders, provided –
 That any cash dividends due on delinquent stock shall
first be applied to the unpaid balance on the
subscription plus costs and expenses; Note: The
decision of the Board alone is necessary to declare
cash or property dividends.
 While stock dividends shall be withheld from the
delinquent stockholder until his unpaid subscription is
fully paid;
o Provided further that no stock dividend shall
be issued without the approval of
stockholders representing not less than 2/3
of the outstanding capital stock at a regular
or special meeting called for the purpose.
Note: The decision of the Board is subject to
approval by the stockhlders.
Stock corporations are prohibited from retaining surplus profits
in excess of 100% of their paid-in capital stock, except:
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 1. When justified by definite corporate expansion
projects or programs approved by the board of
directors; or
2. When the corporation is prohibited under any loan
agreement with any financial institution or creditor,
whether local or foreign, from declaring dividends
without its/his consent, and such consent has not yet
been secured; or
3. When it can be clearly shown that such retention is
necessary under special circumstances obtaining in
the corporation, such as when there is need for
special reserve for probable contingencies.
Property dividends
 These are dividends that are paid in property instead of
cash where the surplus is in that form and it is
practicable to so distribute them among the
shareholders.
 The notice of the declaration and/or issuance of the
property dividends shall show, in scheduled form, the
nature of property declared as dividends, their
individual book values and market values, if any, and
the manner in which such property are distributed to
the stockholders.
 SEC rules provide that the property to be distributed as
dividends shall consist only of property which is no
longer intended to be used in the operation of the
business of the corporation and which are practicable
to be distributed as dividends.
 The issuance of the property dividends shall not result
in an equitable distribution of property to the
stockholders in terms of the book values and market
values, if any, of the property distributed.
Stock dividends
 The earnings distributed to stockholders are in the
form of shares of stock. It involves the conversion of
surplus or undivided profits into capital.
Definition of terms (pursuant to SEC Memorandum Circular No.
11 Series of 2009, dated December 5, 2008)
 Retained earnings – the accumulated profits realized
out of normal and continuous operations of the
business after deducting therefrom distributions to
stockholders and transfers to capital stock or other
accounts.
 Unrestricted retained earnings – the amount of
accumulated profits and gains realized out of the
normal and continuous operations of the company and
which is:
o Not appropriated by the Board of Directors
for corporate expansion projects or
programs;
o Not covered by a restriction for dividend
declaration under a loan agreement; and
o Not required to be retained under special
circumstances obtaining in the corporation
such as when there is a need for a special
reserve for probable contingencies.
Other matters
 Dividends cannot be declared out of capital. The
exception is with respect to “wasting assets
corporations” which are corporations solely or
principally engaged in the exploitation of wasting
assets (i.e. mines, oil wells, patents and leaseholds,
etc.)
 Generally, revaluation surpluses cannot be declared as
dividends because they are not earnings of the
corporation, except:
o The company has sufficient income from the
operations from which the depreciation on
the appraisal increase is charged;
o The company has no deficit at the time the
depreciation on the reappraisal increase was
charged to operations; and
o Such depreciation on the appraisal increase
previously charged to operations is not
erased or impaired by subsequent losses,
otherwise, only that portion not impaired by
subsequent losses is available for dividend.
 Share premiums or paid-in surpluses cannot also be
declared as dividends because they are part of capital,
and not retained earnings.
 Gain from sale of real properties are available for
dividend declaration because they are part of retained
earnings.
 Treasury shares cannot be declared as stock dividends
or cash dividends because they are not considered part
of earned or surplus profits.
Interim profits
With respect to interim income, the presence of unrestricted
retained earnings can be determined only at the end of the fiscal
year. The corporation will not be able to know if there are
earnings until the end of the year. Thus, there can be no dividend
declaration for profits in a fiscal year that has not yet expired.
By way of exception, as long as the following conditions are
present:
 The amount of dividends involved would not be
impaired by losses during the remaining period of the
year;
 The projected income for the remaining period shall be
submitted to the SEC; and
 Should the company sustain losses during the
remaining period, the dividends should be refunded.
Who are entitled to dividends
 Stockholders of record at the time of declaration.
 Even unpaid subscribers are entitled to dividends. Even
if the shares are delinquent, the delinquent
shareholders are also entitled to dividends. However,
any cash dividends shall first be applied to the unpaid
balance on the subscription plus cost and expenses
while stock dividends shall be withheld from the
delinquent shareholder until his unpaid subscription is
fully paid.
Vesting
 The right of the stockholders to be paid dividends
accrues as soon as the declaration is made. From that
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 time, the stockholder can already demand payment
thereof.
 However, in the case of stock dividends, all formalities
necessary to a valid increase of stock must be complied
with before the stockholders are entitled to anything,
and the mere declaration of the dividend does not,
therefore, give them vested right.
 The right to dividend accrues even if there is no SEC
approval. However, the Rules Governing the
Distribution of Excess Profits of Corporations provides
that a declaration of dividend whether cash or stock
shall be reported to the SEC within 15 days from the
date of declaration.
(Sec. 44) Power to enter into management contract,
requirements
 In a meeting duly called for the purpose, such contract
shall have been approved by the board of directors
and by stockholders owning at least the majority of
the outstanding capital stock;
o Or by a least a majority of the members in
the case of a non-stock corporation.
 Provided, that –
o Where a stockholder/s representing the
same interest of both the managing and the
managed corporation own or control more
than 1/3 of the total outstanding capital
stock entitled to vote of the managing
corporation; or
o Where a majority of the members of the
board of directors of the managing
corporation also constitute a majority of the
members of the board of directors of the
managed corporation
The management contract must be approved by
the stockholders of the managed corporation
owning at least –
o Stock corporation – 2/3 of total outstanding
capital stock entitled to vote; or
o Non-stock corporation – 2/3 of the
members.
 No management contract shall be entered into for a
period longer than 5 years for any one term.
 The aforementioned requirements applies to any
contract whereby a corporation undertakes to
manage or operate all or substantially all of the
business of another corporation, whether such
contracts are called service contracts, operating
agreements, or otherwise
o Provided, however, that such service
contracts or operating agreements which
relate to the exploration, development,
exploitation or utilization of natural
resources may be entered into for such
periods as may be provided by the pertinent
laws.
Other matters
 Management contracts are agreements whereby one
undertakes to manage or operate all or substantially all
of the business of another, whether such contracts are
called service contracts, operating agreements or
otherwise.
 Any management contract between a natural person or
a partnership and a corporation are not covered by the
requirements of Section 44.
 The maximum term of 5 years may be renewed.
(Sec. 45) Ultra vires acts of corporations – No corporation under
this Code shall possess or exercise any corporate powers except
those conferred by this Code or by its articles of incorporation
and except such as are necessary or incidental to the exercise of
the powers so conferred.
Ultra vires distinguished from other acts
 Corporate transactions which are illegal because
prohibited by statute or against public policy are
ordinarily void and unenforceable regardless of
performance, ratification, or estoppel. Hence, said acts
are not susceptible to ratification.
 A transaction within corporate powers but executed in
an irregular or unauthorized manner is voidable only,
and may become unenforceable by reason of
ratification or express or implied assent by the
stockholders or by reason of estoppel of the
corporation or other party to the transaction to raise
the objection, particularly where the benefits are
retained.
Effects of ultra vires acts
 If the act is ultra vires not because it is illegal but
because it is not an express, implied, or incidental
power, the same may be enforced.
 A corporation that is engaged in ultra vires business is
liable for torts committed by its agents within their
authority in the course of that business.
 If a corporation acted outside its authority in taking or
holding title to property, the validity of the Torrens
Certificate of Title cannot be questioned on the ground
that the corporation was without authority or
exceeded its authority in taking or holding the
property.
 When the contract is fully executed on both sides, the
contract is effective and will stand as a foundation of
rights acquired under it.
 When the contract is executory on one side and has
been fully performed on the other, the party who has
received benefits from the performance is estopped in
claiming that the contract is ultra vires.
 When both contracts are wholly executory on both
sides, neither party can maintain an action.
 However, estoppel cannot be invoked against the
State. Hence, the certificate of incorporation may be
revoked by the SEC if the concerned corporation
performs ultra vires acts. Performance of ultra vires
acts is a violation of the contract between the State
and the corporation.
TITLE V: BY-LAWS
(Sec. 46) Adoption of by-laws
 Every corporation formed under this Code must,
within 1 month after receipt of official notice of the
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 issuance of its certificate of incorporation by the SEC,
adopt a code of by-laws for its government not
inconsistent with this Code.
 For the adoption of by-laws by the corporation, the
following affirmative vote vote must be obtained –
o Stock corporation – at least a majority of the
outstanding capital stock;
o Non-stock corporation – at least a majority
of the members.
 The by-laws shall be signed by the stockholders or
members voting for them.
 The by-laws shall be kept in the 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 countersigned by the secretary of
the corporation, shall be filed with the SEC which shall
be attached to the original articles of incorporation.
 By-laws may also adopted and filed prior to
incorporation, in such case such by-laws shall be
approved and signed by all the incorporators and
submitted to the SEC together with the articles of
incorporation.
 In all cases, by-laws shall be effective only upon the
issuance by SEC of a certification that the by-laws are
not inconsistent with this Code.
 The SEC shall not accept for filing the by-laws or any
amendment thereto of any
o Bank
o Banking institution
o Building and loan association
o Trust company
o Insurance company
o Public utility
o Educational institution
o Other special corporation
Unless accompanied by a certificate of the
appropriate government agency to the effect that
such by-laws or amendments are in accordance with
law.
(Sec. 47) Contents of by-laws
1. The time, place and manner of calling and conducting
regular or special meetings of the directors or
trustees;
2. The time and manner of calling and conducting
regular or special meetings of the stockholders or
members;
3. The required quorum in meetings of stockholders or
members and the manner of voting therein;
4. The form of proxies of stockholders and members and
the manner of voting them;
5. The qualifications, duties and compensation of
directors or trustees, officers and employees;
6. The time for holding the annual election of directors
or trustees and the mode or manner of giving notice
thereof;
7. The manner of election or appointment and the term
of office of all officers other than directors or trustees;
8. The penalties for violation of the by-laws;
9. In the case of stock corporations, the manner of
issuing stock certificates; and
10. Such other matters as may be necessary for the
proper or convenient transaction of its corporate
business and affairs.
The by-laws of a corporation are the rules and regulations or
private laws enacted by the corporation to regulate, govern and
control its own actions, affairs and concerns and of its
stockholders or members and directors and officers in relation
thereto and among themselves in their relation to the
corporation.
Where the resolution of the directors is inconsistent with the by-
laws, the by-laws will prevail.
Effect of non-adoption of by-laws
 The corporation is not automatically dissolved if no by-
laws are adopted within such period.
 By-laws are not necessary either to the existence of a
corporation or to the valid exercise of the powers
conferred upon it.
 However, non-adoption of by-laws only gives the SEC
the power to suspend or revoke, after proper notice
and hearing, the franchise or certificate of registration
of corporations. (Sec. 6, P.D. 902-A)
o At the very least, a corporation that failed to
submit the by-laws may be considered a de
facto corporation whose right to exercise
corporate powers may not be inquired into
collaterally in any private suit to which such
corporation may be a party.
Requisites for the validity of by-laws
 It must be consistent with Corporation Code, other
pertinent laws and regulations;
 It must be consistent with the Articles of Incorporation;
 It must not be contrary to morals or public policy;
 It must not disturb vested rights, impair contract or
property rights of stockholders or members or create
obligations not sanctioned by law.
Other matters
 Any action to have a provision of the by-laws declared
null and void for being contrary to law is
imprescriptible. Amendment of by-laws is an available
remedy to correct void provisions of the by-laws.
 By-laws cannot specify powers that are not expressly
provided for or implied from the articles of
incorporation.
 The by-laws bind the corporation, its stockholders or
members, and those having direction, management
and control of its affairs. Note: The provisions of the
by-laws are not binding on subordinate employees
who have no actual knowledge of the provisions
thereof.
 Third persons are also not bound to the provisions of
by-laws unless there is actual knowledge.
(Sec. 48) Amendments to by-laws, how made
 The board of directors or trustees, by a majority vote
thereof; and
 The owners of at least –
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 o Stock corporation – at least a majority of the
outstanding capital stock;
o Non-stock corporation – at least a majority
of the members.
In a regular or special meeting called for the purpose.
 The following may delegate to the board of directors
or trustees the power to amend or repeal any by-laws
or adopt new by-laws:
o Stock corporation – 2/3 of the outstanding
capital stock;
o Non-stock corporation – 2/3 of the members
Provided, that any power delegated to the board of
directors or trustees to amend or repeal any by-laws
or adopt new by-laws shall be considered as revoked
whenever stockholders owning or representing a
majority of the outstanding capital stock or a majority
of the members in non-stock corporations, shall so
vote at a regular or special meeting.
 Whenever any amendment or new by-laws are
adopted, such amendment or new by-laws shall be
attached to the original by-laws in the office of the
corporation, and a copy thereof, duly certified under
oath by the corporate secretary and a majority of
directors or trustees, shall be filed with the Securities
and Exchange Commission the same to be attached to
the original articles of incorporation and original by-
laws.
 The amended or new by-laws shall only be effective
upon the issuance by the Securities and Exchange
Commission of a certification that the same are not
inconsistent with this Code.
Two ways to amend the by-laws
1. Amendment by the stockholders together with the
Board;
2. Amendment only by the Board after due delegation by
the stockholders.
Note: In requiring the filing with SEC, this is in keeping with the
policy of making the by-laws along with the articles of
incorporation, a matter of public record so that any person can,
at all responsible times, inspect the records of the Commission
relating to corporations. The public is rightly entitled to a fair
and full disclosure of corporate matters affecting, or likely to
affect, its interest.
The by-laws may provide for disqualification of any stockholder
who is also a stockholder and director of a competitor from being
elected to its Board of Directors. This prohibition is valid. This
doctrine is based on the principle that a director cannot serve
two masters so to speak because there is a danger that the
director will give preference to one corporation. The
disqualification is only a measure of self-protection against
directors who may betray the corporation by giving preference to
the other. (Gokongwei Jr. v. SEC)
However, amendments to the by-laws cannot impair the
obligation of existing contract of any vested right. Hence, an
employee who is a regular employee and who is entitled to
security of tenure, may only be terminated for causes provided
by law. Such security of tenure cannot be adversely affected by
any amendment in the by-laws by making his position co-
terminous. (Salafranca v. Philamlife Village Homeowners
Association, Inc.)
TITLE VI: MEETINGS
(Sec. 49) Kinds of meetings of directors, trustees, stockholders,
or members
 Regular; or
 Special
(Sec. 50) Regular meetings of stockholders
 Shall be held annually on a date fixed in the by-laws
o If date is not fixed, on any date in April of
every year as determined by the board of
directors or trustees; Note: Under the
Revised Code, if not so fixed by the by-laws,
on any date after April 15 of every year as
determined by the board of directors or
trustees.
o Provided that written notice of regular
meeting shall be sent to all stockholders or
members of record at least 2 weeks prior to
the meeting, unless a different period is
required by the by-laws. Note: Under the
Revised Code, written notice shall be sent to
all stockholders or members of record at
least 21 days prior to the meeting, unless a
different period is required in the by-laws,
law or regulation.
 Note further: That written notice of
regular meetings may be sent to all
stockholders or members of record
through electronic mail or such
other manner as the SEC shall allow
under its guidelines.
At each regular meeting of stockholders or members, the board
of directors or trustees shall endeavor to present to stockholders
or members the following:
 The minutes of the most recent regular meeting which
shall include, among others:
o A description of the voting and vote
tabulation procedures used in the previous
meeting;
o A description of the opportunity given to
stockholders or members to ask questions
and a record of the questions asked and
answers given;
o The matters discussed and resolutions
reached;
o A record of the voting results for each agenda
item;
o A list of the directors or trustees, officers and
stockholders or members who attended the
meeting; and
o Such other items that the Commission may
require in the interest of good corporate
governance and the protection of minority
stockholders.
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  A members’ list for nonstick corporations and, for stock
corporations, material information on the current
stockholders and their voting rights;
 A detailed, descriptive, balanced and comprehensible
assessment of the corporation’s performance, which
shall include information on any material change in the
corporation’s business, strategy, and other affairs;
 A financial report for the preceding year, which shall
include financial statements duly signed and certified in
accordance with this Code and the rules the
Commission may prescribe, a statement on the
adequacy of the corporation’s internal controls or risk
management systems, and a statement of all external
audit and non-audit fees;
 An explanation of the dividend policy and the fact of
payment of dividends or the reasons for nonpayment
thereof;
 Director or trustee profiles which shall include, among
others, their qualifications and their relevant
experience, length of service in the corporation,
trainings and continuing education attended, and their
board representations in other corporations;
 A director or trustee attendance report, indicating the
attendance of each director or trustee at each of the
meetings of the board and its committees and in
regular or special stockholder meetings;
 Appraisals and performance reports for the board and
the criteria and procedure for assessment;
 A director or trustee compensation report prepared in
accordance with this Code and the rules the
Commission may prescribe;
 Director disclosures on self-dealings and related party
transactions; and/or
 The profiles of directors nominated or seeking election
or reelection.
A director, trustee, stockholder, or member may propose any
other matter for inclusion in the agenda at any regular meeting
of stockholders or members.
Special meetings of stockholders
 Shall be held any time deemed necessary or as
provided in the by-laws;
 Provided that at least 1 week written notice shall be
sent to all stockholders or members, unless otherwise
provided in the by-laws. Note: Under the Revised
Code, unless otherwise provided in the by-laws, law, or
regulation.
Other matters under Sec. 50
 Notice of any meeting may be waived, expressly or
impliedly, by any stockholder or member. Note:
Provided, that general waivers of notice in the articles
of incorporation or by-laws shall not be allowed.
o Provided further, that attendance at a
meeting shall constitute a waiver of notice of
such meeting, except when the person
attends a meeting for the express purpose of
objecting to the transaction of any business
because the meeting is not lawfully called or
convened.
 Whenever for any cause there is no person authorized
to call a meeting, the SEC, upon petition of a
stockholder or member on a showing of good cause
therefor, may issue an order directing the petitioning
stockholder to call a meeting of the corporation by
giving proper notice required by this Code or by the
by-laws.
o The petitioning stockholder or member shall
preside thereat until at least a majority of
the stockholders or members present have
been chose one of their members as
presiding officer.
o Note: The Revised Code adds – “Unless the
by-laws provide for a longer period, the stock
and transfer book or membership book shall
be closed at least 20 days for regular
meetings and 7 days for special meetings
before the scheduled date of the meeting.
o In case of postponement of stockholders’ or
members’ regular meetings, written notice
thereowf and the reason therefor shall be
sent to all stockholders or members of record
at least 2 weks prior to the date of the
meeting, unless a different period is required
under the by-laws, law or regulation.
o The right to vote of stockholders or members
may be exercised in person, through a proxy,
or when so authorized in the by-laws,
through remote communication or in
absentia. The SEC shall issue the rules and
regulations governing the participation and
voting through remote communication or in
absentia, taking into account the company’s
scale, number of shareholders or members,
structure, and other factors consistent with
the protection and promotion of the
shareholders’ or members’ meetings.
(Sec. 51) Place and time of meetings of stockholders or
members
 Shall be held in the city or municipality where the
principal office of the corporation is located, and if
practicable in the principal office of the corporation;
Note: The Revised Code provides that regular or special
meetings shall be held in the principal office of the
corporation (as set forth in the articles of
incorporation), or if not practicable in the city or
municipality where the principal office of the
corporation is located.
o Provided, that Metro Manila shall be
considered a city or municipality for
purposes of this section. Note: The Revised
Code provides that any city or municipality in
Metro Manila, Metro Cebu, Metro Davao and
other Metropolitan areas shall, for purposes
of this section, be considered a city or
municipality.
 Notice of meetings shall be in writing (Note: Under the
Revised Code, notices shall be sent through the means
of communication provided in the by-laws) and the
time and place thereof stated therein.
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  Under the Revised Code, each notice shall further be
accompanied by the following:
o Agenda for the meeting;
o A proxy form which shall be submitted to the
corporate secretary within a reasonable time
prior to the meeting;
o When attendance, participation, and voting
are allowed by remote communication or in
absentia, the requirements and procedures
to be followed when a stockholder or
member elects either option; and
o When the meeting is for the election of
directors or trustees, the requirements and
procedure for nomination and election.
 All proceedings had and any business transacted at
any meeting of the stockholders or members, if within
the powers or authority of the corporation, shall be
valid even if the meeting be improperly held or called,
provided all the stockholders or members of the
corporation are present or duly represented at the
meeting (Note: Under the Revised Code, and also that
none of them expressly states at the beginning of the
meeting that the purpose of their attendance is to
object to the transaction of any business because the
meeting is not lawfully called or convened.)
Requisites for a valid stockholder’s meeting
 It must be held on the proper date which is the date
fixed in the by-laws, or in the absence of a provision
therein, on any date in April of every year as
determined by the board of directors or trustees; Note:
The Revised Code provides that regular or special
meetings shall be held in the principal office of the
corporation (as set forth in the articles of
incorporation), or if not practicable in the city or
municipality where the principal office of the
corporation is located.
o Note: Under the Revised Code, for purposes
of regular meetings, if not so fixed by the by-
laws, on any date after April 15 of every year
as determined by the board of directors or
trustees.
 There must be previous notice; Note: Published notice
is insufficient because the law requires written notice
to each stockholder.
o Note: Under the Revised Code, notices shall
be sent through the means of communication
provided in the by-laws.
 It must be called by the proper person;
 It must be held in the proper place; and
 There must be a quorum.
Other matters
 All the stockholders and members have the right to
attend the special and regular meetings. With respect
to stockholders, the best evidence in determining who
the stockholders can attend the meeting is the Stock
and Transfer Book. Mere inclusion of a person in the
General Information Sheet (GIS) submitted to the SEC is
insufficient proof the same person is a shareholder. As
between the GIS and the stock and transfer book, the
latter is controlling.
 A delinquent stockholder within the purview of Section
68 of the Corporation Code cannot attend the
stockholder’s meeting. Similarly, a member who is
suspended or who is otherwise validly declared
delinquent or not in good standing cannot likewise
attend the meeting of the members. However, the
Articles of Incorporation or By-Laws of the non-stock
corporation must provide that delinquent members are
not entitled to attend and vote.
 Hosting of joint meetings of different corporations is
permissible.
(Sec. 52) Quorum in meetings – Unless otherwise provided for
in this Code or in the by-laws, a quorum shall consist of the
stockholders representing a majority of the outstanding capital
stock or a majority of the members in the case of non-stock
corporations.
Other matters
 The meeting is void if there is no quorum.
 Imposition of registration fees as precondition for the
exercise of the right to attend the meeting unduly
restricts such right.
 Consistently delinquent shareholders or members
should not be included in determining the existence of
the required quorum.
 Non-voting shares shall not be included in the
determination of a quorum.
(Sec. 53) Regular meetings of directors or trustees
 Note: Under the Revised Code, unless the by-laws
provides for a greater majority, a majority of the
directors or trustees shall constitute a quorum to
transact corporate business, and every decision
reached by at least a majority of the said quorum
(except for the election of officers which shall require
the vote of a majority of all the members of the board)
shall be valid as a corporate act.
 Shall be held monthly, unless the by-laws provide
otherwise.
 Meetings may be held anywhere in or outside the
Philippines, unless the by-laws provide otherwise.
 Notice of regular meeting stating the date, time and
place of meeting must be sent to every director or
trustee at least 1 day prior to the scheduled meeting,
unless otherwise provided by the by-laws. Note:
Under the Revised Code, notices shall be given at least
2 days prior to the scheduled meeting, unless a longer
time is provided in the by-laws.
 A director or trustee may waive this requirement
expressly or impliedly.
 Note: Under the Revised Code, a director or trustee
who cannot physically attend or vote at board
meetings can participate and vote through remote
communication such as videoconferencing,
teleconferencing, or other alternative modes of
communication that allow them reasonable
opportunities to participate. Directors or trustees
cannot attend or vote by proxy at board meetings.
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Special meetings of directors or trustees
 May be held any time upon the call of the president or
as provided in the by-laws.
 Meetings may be held anywhere in or outside the
Philippines, unless the by-laws provide otherwise.
 Notice of special meeting stating the date, time and
place of meeting must be sent to every director or
trustee at least 1 day prior to the scheduled meeting,
unless otherwise provided by the by-laws. Note:
Under the Revised Code, notices shall be given at least
2 days prior to the scheduled meeting, unless a longer
time is provided in the by-laws.
 A director or trustee may waive this requirement
expressly or impliedly.
 Note: Under the Revised Code, a director or trustee
who cannot physically attend or vote at board
meetings can participate and vote through remote
communication such as videoconferencing,
teleconferencing, or other alternative modes of
communication that allow them reasonable
opportunities to participate. Directors or trustees
cannot attend or vote by proxy at board meetings.
Other matters
 A director cannot participate in a meeting by proxy or
any representative or alternate.
 Unless an extraordinary measure shall be passed during
the regular meeting, the notice need not indicate the
agenda. However, the agenda should be included in the
notice of special meeting.
 Teleconferencing is permitted. However, the electronic
meeting allowed under the present rules contemplates
a meeting where the directors still participate or is
capable of participating in the deliberations. Hence,
voting by e-mail is not allowed.
(Sec. 54) Who shall preside at meetings – The president shall
preside at all meetings of the directors or trustees as well as the
stockholders or members, unless the by-laws provide
otherwise. Note: Under the Revised Code, it is the chairman, or
in his absence, the president who shall preside at all meetings of
the directors or trustees as well as of the stockholders or
members, unless the by-laws provide otherwise.
The president is also a member of the board. Hence, it cannot be
provided in the by-laws or a board resolution that he can only
vote in case of a tie in the board meeting.
(Sec. 55) Right to vote of pledgers, mortgagors, and
administrators – In case of pledged or mortgaged shares in
stock corporations
 The pledger or mortgagor shall have the right to
attend and vote at meetings of stockholders;
o Unless the pledgee or mortgagee is
expressly given by the pledger or mortgagor
such right in writing which is recorded on
the appropriate corporate books.
 Executors, administrators, receivers, and other legal
representatives duly appointed by the court may
attend and vote in behalf of the stockholders or
members without need of any written proxy.
Note: Under the Revised Code, it recognizes the right to vote of
secured creditors and administrators. In case a stockholder
grants security interest in his or her shares in stock corporations,
the stockholder-grantor shall have the right to attend and vote at
meetings of stockholders, unless the secured creditor is expressly
given by the stockholder-grantor such right in writing which is
recorded in the appropriate corporate books. (Section 54 of the
Revised Code)
(Sec. 56) Voting in case of joint ownership of stock
 The consent of all the co-owners shall be necessary,
unless there is a written proxy, signed by all the co-
owners, authorizing one or some of them or any other
person to vote such share or shares;
o Provided that when the shares are owned in
an “and/or” capacity by the holders thereof,
any one of the joint owners can vote said
shares or appoint a proxy therefor.
(Sec. 57) Treasury shares shall have no voting right as long as
such shares remain in the Treasury.
(Sec. 58) Proxies –
 Stockholders and members may vote in person or by
proxy in all meetings of stockholders or members.
 Note: The Revised Code also adds that when so
authorized in the by-laws or by a majority of the board
of directors, the stockholders or members of
corporations may also vote through remote
communication or in absentia, provided that the votes
are received before the corporation finishes the tally of
the votes.
 A stockholder or member who participates through
remote communication or in absentia shall be deemed
present for purposes of quorum.
 The corporation shall establish the appropriate
requirements and procedures for voting through
remote communication and in absentia, taking into
account the company’s scale, number of shareholders
or members, structure and other factors consistent
with the basic right of corporate suffrage.
 Proxies shall be in writing, signed by the stockholder
or member and filed before the scheduled meeting
with the corporate secretary.
 Unless otherwise provided in the proxy, it shall be
valid only for the meeting for which it is intended.
 No proxy shall be valid and effective for a period
longer than 5 years at any one time.
A proxy is a written authorization given by one person to another
so that the second person can act for the first such as that given
by the shareholder to someone else to represent him and vote
his shares at a shareholders’ meeting.
Requisites for proxies
 Proxies shall be in writing;
 It shall be signed by the stockholder or member;
 The proxy shall be filed within a reasonable time before
the schedule meeting with the corporate secretary;
 Unless otherwise provided in the proxy, it shall be valid
only for the meeting for which it is intended; and
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  No proxy shall be valid and effective for a period longer
than 5 years at any one time.
The power of proxies is merely to vote. They do not have legal
title over the shares. Hence, proxies cannot be elected as
directors.
Duration of proxy
 Specific proxy – where the authority granted is merely
for a particular meeting on a specific date.
 Continuing proxy – that which continues for a certain
period not more than 5 years at one time.
Other matters
 Voting by mail is now allowed, pursuant to SEC
Memorandum Circular No. 4, Series of 2004 issued on
March 17, 2004.
(Sec. 59) Voting trusts – One or more stockholders of a
corporation may create a voting trust for the purpose of
conferring upon a trustee or trustees the right to vote and other
rights pertaining to the shares for a period not exceeding 5
years at any time;
 Provided that in case of a voting trust specifically
required as a condition in a loan agreement, said
voting trust may be for a period exceeding 5 years but
shall automatically expire upon full payment of the
loan.
 A voting trust must be in writing and notarized, and
shall specify the terms and conditions thereof.
 A certified copy of such agreement shall be filed with
the corporation and with the Securities and Exchange
Commission; otherwise, said agreement is ineffective
and unenforceable.
 The certificate/s of stock covered by the voting trust
agreement shall be cancelled and new ones shall be
issued in the name of the trustee/s stating that they
are issued pursuant to said agreement. Note: In the
books of the corporation, it shall be noted that the
transfer in the name of the trustee or trustees is made
pursuant to said voting trust agreement.
 The trustee or trustees shall execute and deliver to
the transferors voting trust certificates, which shall be
transferable in the same manner and with the same
effect as certificates of stock.
 The voting trust agreement filed with the corporation
shall be subject to examination by any stockholder of
the corporation in the same manner as any other
corporate book or record:
o Provided that both the transferor (Note:
Under the Revised Code, it was termed as
‘trustor’) and the trustee/s may exercise the
right of inspection of all corporate books
and records in accordance with the
provisions of this Code.
 Any other stockholder may transfer his shares to the
same trustee or trustees upon the terms and
conditions stated in the voting trust agreement, and
thereupon shall be bound by all the provisions of the
said agreement.
 No voting trust agreement shall be entered in to for
the purpose of circumventing the law against
monopolies and illegal combinations in restraint of
trade or used for purposes of fraud. Note: Under the
Revised Code, it was stated that no voting trust
agreement shall be entered in to for the purposes of
circumventing the laws against anti-competitive
agreements, abuse of dominant position, anti-
competitive mergers and acquisitions, violation of
nationality and capital requirements, or for the
perpetration of fraud.
 Unless expressly renewed, all rights granted in a
voting trust agreement shall automatically expire at
the end of the agreed period, and the voting trust
certificates as well as the certificates of stock in the
name of the trustee/s shall thereby be deemed
canceled and new certificates of stock shall be
reissued in the name of the transferors.
 The voting trustee/s may vote by proxy unless the
agreement provides otherwise.
A voting trust is an agreement whereby a stockholder of a
stock corporation confers upon a trustee(s) the right to vote
and other rights pertaining to the shares for a period not
exceeding 5 years at any time.
Procedural requirements
 It must not exceed the period of 5 years at any time;
 In the case of a voting trust specifically required as a
condition in a loan agreement, said voting trust may be
for a period exceeding 5 years but shall automatically
expire upon full payment of the loan;
 It must be in writing and notarized;
 It shall specify the terms and conditions thereof;
 Execution and notarization of the voting trust
agreement stating the terms and conditions thereof;
 A certified copy of the such agreement shall be filed
with the corporation and with SEC; otherwise, said
agreement is ineffective and unenforceable;
 The certificate of stock covered by the voting trust
agreement shall be canceled ;
 A new certificate shall be issued in the name of the
trustee(s) stating that they are issued pursuant to the
voting trust agreement;
 The transfer shall be noted in the books of the
corporation, that it is made pursuant to said voting
trust agreement; and
 The trustee or trustees shall execute and deliver to the
transferor voting trust certificates, which shall be
transferable in the same manner and with the same
effect as certificates of stock.
Rights of trustee
 The right to vote and other rights pertaining to the
shares;
 The right of inspection of all corporate books and
records;
 May vote by proxy unless the agreement provides
otherwise;
 He has legal title, hence he can be elected as director.
The trustor (stockholder) does not have such right
during the life of the voting trust agreement
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Voting trust agreements and proxy, distinguished under a deed of absolute assignment or sale must fully  Pursuant to the Trust Fund Doctrine, the corporation
VOTING TRUST PROXY pay the purchase price at the time the shares are may not dissipate this and the creditors may sue
AGREEMENT transferred. stockholders directly for the unpaid subscription. Note:
Irrevocable. Generally revocable.  The subscriber cannot be released from his obligation money received for subscription of increase of
Legal title is transferred to No transfer of title. to pay the subscription price while a stockholder who authorized capital is not covered by the Trust Fund
the trustee. sells his shares can condone the obligation to pay. Doctrine prior to the approval of such increase by the
The share certificate shall No cancellation of the  The Statute of Frauds does not apply to subscription SEC.
be cancelled and certificate shall be made. contracts while the same apply to purchase if the price o Pursuant to the Doctrine, a stockholder has
transferred to the trustee. is not less than P500. no right to demand for the return of his
It must be notarized. It need not be notarized. investment. His investment is “locked-in”
The trustor-shareholder The shareholder retains his Other matters until the liquidation of the corporation, or
cannot vote. right to vote.  Stock options and warrants are different from unless consented by stockholders.
It cannot be for a specific It can be for a specific subscription contracts.  Note further that even when
meeting. meeting. o A stock option is a privilege granted to a party consented by all stockholders, but
The trustee can vote by The proxy cannot further to subscribe to a certain portion of the the demand may be disallowed if
proxy. delegate his authority to unissued capital stock of a corporation within there is prejudice to creditors.
vote and must therefore a specified period and under the terms and  Treasury shares are not subject to subscription
vote in person. conditions of the grant, exercisable by the contracts because Section 60 of the Corporation Code
The trustees vote in his The proxy is the agent of grantee at any time within the period covers only acquisition of unissued shares. However,
own right as holder of legal the shareholder. granted. when treasury shares are re-issued, the shareholders
title. o A warrant is a type of security which entitles are entitled to exercise their pre-emptive right.
The trustee can be elected The proxy, as such, cannot the holder to the right to subscribe to the  The issuance of unsubscribed shares of the authorized
as a director. be elected as a director. unissued capital stock of a corporation or to capital stock does not need stockholder’s approval, but
purchase issued shares in the future, only a board resolution approving the same.
TITLE VII: STOCKS AND STOCKHOLDERS evidenced by a warrant certificate, whether
detachable or not, which may be sold or Ways of violating the Trust Fund Doctrine
This Title applies only to stock corporations. offered for sale to the public but does not 1. When the corporation condones payment of the
apply to a right granted under an option plan unpaid subscription and the stockholder has no right to
(Sec. 60) Subscription contract – Any contract for the acquisition duly approved by the SEC for the benefit of demand the refund of his investment.
of unissued check in an existing corporation or a corporation the employees, officers and/or directors of 2. When there is payment of dividends without
still to be formed shall be deemed a subscription within the the issuing corporation. The period to unrestricted retained earnings.
meaning of this Title, notwithstanding the fact that the parties subscribe is not less than 1 year but not more 3. When properties are transferred in fraud of creditors.
refer to it as a purchase or some other contract. than 5 years. 4. When properties are disposed of or undue preference
 The parties in a subscription contract are the subscriber is given to some creditors even if the corporation is
Subscription and purchase, distinguished and the corporation itself. insolvent.
 Subscription can be entered into before or after  There is no law or rule requiring a form of subscription 5. When the capital stock is decreased which has the
to capital stock as a requisite for its validity; hence, the effect of relieving the stockholders of the obligation to
incorporation; purchase is made only after
same need not be in writing. pay their respective subscription.
incorporation.
 If there is no agreement as to the time of payment, the  Kinds of subscription contract – either pre-
incorporation subscription contract or a post- Creditors
subscriber in a subscription agreement need not pay
unless there is a call while in purchase, the purchaser incorporation subscription contract.

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  Commercial creditors – these are normally short-term
creditors, including banks and other institutional
lenders, who extend revolving lines of short-term
credit.
 Investment creditors – these are those who acquire
bonds or debentures issued by the corporation.
(Sec. 61) Pre-incorporation subscription –
 A subscription for shares of stock of a corporation still
to be formed shall be irrevocable for a period of at
least 6 months from the date of subscription
o Unless all of the other subscribers consent
to the revocation; or
o Unless the incorporation of said corporation
fails to materialize within said period or
within a longer period as may be stipulated
in the contract of subscription.
 No pre-incorporation subscription may be revoked
after the submission of the articles of incorporation to
the SEC.
Despite the non-existence of the corporation, the subscription
contract before incorporation is valid and binding for a period of
6 months.
In addition, even if the 6-month period had already expired, the
pre-incorporation subscription contract is also irrevocable after
the filing of the articles of incorporation with the SEC, or when
the Certificate of Incorporation had already been issued by the
SEC. Subscription agreements are already covered by the Trust
Fund Doctrine after incorporation.
Manners of valid revocation of pre-incorporation subscription
agreement
 If all the other subscribers consent to the revocation
before the expiration of the 6-month period; and
 Upon the expiration of the 6-month period (but before
the filing of the articles with the SEC) even without the
consent of the other subscribers or within a longer
period as may be stipulated in the subscription
agreement.
(Sec. 62) Consideration for stocks – Stocks shall not be issued
for a consideration less than the par or issued price thereof.
Consideration may be:
1. Actual cash paid to the corporation
2. Property, tangible or intangible, actually received by
the corporation and necessary or convenient for its
use and lawful purposes at a fair valuation equal to
the par or issued value of the stock issued.
3. Labor performed for or services actually rendered to
the corporation
4. Previously incurred indebtedness of the corporation
5. Amounts transferred from unrestricted retained
earnings to stated capital
6. Outstanding shares exchanged for stocks in the event
of reclassification or conversion.
Note: The Revised Code added
7. Shares of stock in another corporation; and/or
8. Other generally accepted form of consideration.
Other matters
 Where the consideration is other than actual cash, or
consists of intangible property such as patents or
copyrights, the valuation thereof shall initially be
determined by the incorporators or the board of
directors, subject to the approval by the SEC.
 Shares of stock shall not be issued in exchange for
promissory notes or future service. The same
considerations provided in this section, insofar as
applicable, may be used for the issuance of bonds by
the corporation.
 The issued price of no-par value shares may be fixed
in the articles of incorporation or by the board of
directors pursuant to authority conferred upon it by
the articles of incorporation or the by-laws, or in the
absence thereof, by the stockholders representing at
least a majority of the outstanding capital stock at a
meeting duly called for the purpose.
Cash
With respect to pre-incorporation subscription involving cash
payments, the SEC requires the submission of a Bank Certificate
of deposit of paid up capital notarized in the place where
executed. Proof of inward remittance is required but only with
respect to those corporations with foreign subscribers who want
to register their investments with the Bangko Sentral ng Pilipinas.
Tangible or intangible property
The following are the requirements:
 The property is actually received by the corporation.
 The property is necessary or convenient for its use and
lawful purposes.
 It must be subject to a fair valuation equal to the par or
issued value of the stock issued.
 The valuation thereof shall initially be determined by
the incorporators or the board of directors.
 The valuation is subject to approval by the SEC.
The incorporators or the board of directors shall initially approve
the valuation of the property that is used as a consideration for
the shares. The valuation is subject to the approval by the SEC.
The approval of the SEC is necessary in order to prevent the
watering of stocks.
If intellectual property will sere as consideration (i.e. copyrights
or patents), the corporation must submit to the SEC a copy of the
Certificate of Registration of the intellectual property right
together with an appraisal report by an accredited appraisal
company which is not more than 6 months old and a Deed of
Assignment in favor of the corporation.
Undivided interest in real property
This is also an acceptable consideration for the subscription of
shares. The following conditions must concur:
 The property must be something which the corporation
may acquire and hold in carrying out its purpose or
reasonably necessary or convenient in the pursuit of
business;
 The interest in the co-ownership must have a pecuniary
value capable of ascertainment (at fair valuation equal
to the par or issued value of the stock issued);
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  The right over the property must actually be
transferred to the corporation and no creditors of the
property held in common shall be prejudiced by the
transfer; and
 The transfer must be subject to a waiver of rights
signed by all co-owners stating that they waive their
right of redemption or pre-emption in relation transfer.
Labor and services performed
Labor performed for or services actually rendered to the
corporation are acceptable forms of consideration. Note: Future
services are not acceptable.
Previously incurred indebtedness
Previously incurred indebtedness of the corporation may also be
used as a consideration. However, even indebtedness is subject
to the confirmation of the SEC.
Other matters
 Amounts transferred from unrestricted retained
earnings to stated capital are also acceptable
consideration. This happens when there is a
declaration of stock dividends.
 Conversion includes conversion of a single
proprietorship or partnership into a corporation or a
spin-off of one or more division of the company. The
consideration in these cases is actually the net assets of
those enterprises or units.
 Watered stocks are stocks that are issued for a
consideration less than the par or issued price thereof.
 Issued price is necessary to be fixed for no-par shares.
Said price may be fixed in either of the following:
o In the articles of incorporation; or
o In a resolution issued by the board of
directors pursuant to authority conferred
upon it by the Articles of Incorporation or the
by-laws.
 In the absence of provisions in the
Articles or if the power is not
delegated to the board, the
stockholders representing at least a
majority of the outstanding capital
stock at a meeting duly called for
the purpose will fix the issued
value.
 The person making the deposit on subscription does
not have the standing of a stockholder and he is not
entitled to dividends, voting rights or other
prerogatives and attributes of a stockholder.
(Sec. 63) Certificate of stock and transfer of shares –
 The capital stock of stock corporations shall be
divided into shares for which certificates signed by the
president or vice president;
o Countersigned by the secretary or assistant
secretary; and
o Sealed with he seal of the corporation shall
be issued in accordance with the by-laws.
 Shares of stock so issued are personal property and
may be transferred by delivery of the certificates
endorsed by the owner or his attorney-in-fact or other
person legally authorized to make the transfer.
 No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in
the books of the corporation showing –
o The names of the parties to the transaction;
o The date of the transfer;
o The number of the certificates; and
o The number of shares transferred.
 No shares of stock against which the corporation
holds any unpaid claim shall be transferrable in the
books of the corporation.
 Note: The Revised Code adds: “The Commission may
require corporations whose securities are traded in
trading markets and which can reasonably demonstrate
their capability to do so to issue their securities or
shares of stocks in certificated or scripless form in
accordance with the rules of the Commission.”
How to transfer is made
 There must be delivery of the certificate;
 The share must be indorsed by the owner or his agent;
and
 To be valid to the corporation and third parties, the
transfer must be recorded in the books of the
corporation. Note: The transfer of shares of stock not
recorded in the Stock and Transfer Book of the
corporation is non-existent as far as the corporation is
concerned.
Other matters
 If there is no indorsement in favor of the transferee,
the transferee may file an action to compel the
transferor to make such indorsement. However, the
same cannot be considered as an intra-corporate
controversy because the transferee is not yet a
shareholder.
 Third persons will not be affected by an unregistered
transfer. For instance, an attachment lien prevails over
a prior unregistered stock transfer.
Rationale of registration in transfer books
 To enable the corporation to know at all times who its
actual stockholders are, because mutual rights and
obligations exists between the corporation and its
stockholders.
 To afford to the corporation an opportunity to object
or refuse its consent to the transfer in case it has any
claim against the stock sought to be transferred or for
any other valid reasons.
 To avoid fictitious or fraudulent transfers.
Matters of succession
 Upon the death of a shareholder, the heirs do not
automatically become stockholders of the corporation
and acquire the rights and privileges of the deceased as
shareholders of the corporation. The stocks must be
distributed first to the heirs in estate proceedings, and
the transfer of the stocks must be recorded in the
books of the corporation.
o During the interim period from the time of
the stockholder’s death, the heirs stand as
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 the equitable owners of the stocks and the
executors or administrators is vested with
legal title to the stocks. For the time being,
the executors or administrators are entitled
to exercise the rights of the deceased
stockholder. Note: Said executor or
administrator need not obtain written proxy
to attend stockholders’ meeting and vote.
o Consequently, an heir of the deceased
stockholder has no right to inspect the books
of the corporation until the transfer to the
heirs is recorded in the books of the
corporation.
 An heir is also not entitled for file
for a derivative action.
Regulation of transfer
 The corporation may regulate the transfer of its stocks
by providing certain formalities and procedure in the
by-laws. However, the authority granted to a
corporation to regulate the transfer of its stock does
not empower it to restrict the right of a stockholder to
transfer his shares.
 For instance, the corporation may not put a stamp on
the certificates that the same are non-transferable
since it constitutes unreasonable limitation on the right
of ownership and is in restraint of trade.
Other matters
 If the transfer in the books is not duly made upon
request, he has the remedy to compel it to be made.
 Mandamus will lie against the corporate officers who
unduly bar the registration of the transfer.
 The Articles of Incorporation may provide a right of first
refusal to stockholders as a limitation on transfer. For
example, said articles may provide that any stockholder
who intends to sell his share must first offer the same
to the other stockholders who are given a period of
fifteen (15) days to purchase the share.
(Sec. 64) Issuance of stock certificates – No certificate of stock
shall be issued to a subscriber until the full amount of his
subscription together with interest and expenses (in case of
delinquent shares), if any is due, has been paid.
Requisites for issuance of certificates
 The certificate must be signed by the president or vice-
president, countersigned by the secretary or assistant
secretary;
 The certificate must be sealed with the seal of the
corporation;
 The certificate must be delivered;
 The par value as to par value shares or full subscription
as to no par value shares, must first be fully paid; and
 The original certificate must be surrendered where the
person requesting the issuance of a certificate is a
transferee from a stockholder.
If the stockholder has not paid the full amount of his
subscription, he cannot transfer part of it in view of the
indivisible nature of subscription contract. It is only upon full
payment of the whole subscription that a stockholder can
transfer the same to several transferees.
Remedies of a shareholder for non-issuance
 Action for specific performance;
 Action for damages if specific performance is not
available’
 Petition for mandamus for the issuance of the
certificate; and
 Rescind the subscription agreement with he
consequent mutual restitution.
Note: A forged certificate is a void certificate. If the certificate is
not signed by the officers (i.e. president or vice president,
secretary or assistant secretary) or if the signatures of the same
officers are forged, the certificate is not valid even if the present
holder is a holder in good faith and for value.
(Sec. 65) Liability of directors for watered stocks
 Any director or officer of a corporation consenting to
–
o The issuance of stocks for a consideration
less than its par or issued value; or
o For a consideration in any other form other
than cash, valued in excess of its fair value;
or
o Who, having knowledge of insufficient
consideration, does not forthwith express
his objection in writing and file the same
with the corporate secretary,
Shall be solidarily liable with the stockholder
concerned to the corporation and its creditors for the
difference between the fair value received at the time
of issuance of the stock and the par or issued value of
the same.
(Sec. 66) Interest on unpaid subscriptions
 Subscribers shall pay to the corporation interest on all
unpaid subscriptions from the date of subscription
o If so required by, and at the rate of interest
fixed in the by-laws.
 If no rate is fixed in the by-laws, such rate shall be
deemed to be the legal rate.
(Sec. 67) Payment of balance of subscription
 Subject to the provisions of the contract of
subscription –
o The board of directors of any stock
corporation may at any time declare due
and payable to the corporation unpaid
subscriptions to the capital stock; and
o May collect the same or such percentage
thereof;
o In either case with accrued interest, if any,
as it may deem necessary.
 Payment of any unpaid subscription or any
percentage thereof, together with the interest
accrued, if any, shall be made on the date specified in
the contract of subscription or on the date stated in
the call made by the board.
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  Failure to pay on such date shall render the entire
balance due and payable and shall make the
stockholder liable for interest at the legal rate on such
balance,
o Unless a different rate of interest is provided
in the by-laws, computed from such date
until full payment. Note: The Revised Code
provides that “unless a different rate is
provided in the subscription contract”. The
interest shall be computed from the date
specified until full payment of the
subscription/
o If within thirty (30) days from the said date
no payment is made, all stocks covered by
said subscription shall thereupon become
delinquent and shall be subject to sale as
hereinafter provided, unless the board of
directors orders otherwise.
Preliminary matters
 A stock subscription is a subsisting liability from the
time the subscription is made. The subscriber is as
much bound to pay his subscription as he would be to
pay any other debt. The right of the corporation to
demand payment is no less incontestable.
 A “call” is the resolution or formal declaration of the
board that the unpaid subscriptions are due and
payable. Note: The unpaid subscription is not due and
payable without the call.
o A corporation cannot file an action to recover
the unpaid price if the action is not preceded
by a call. Until a call is made, no cause of
action accrues.
 No set-off. A corporation cannot deduct from any
amount due to an employee, the latter’s unpaid
subscription of shares.
o The prohibition applies regardless a call is
made or not. Hence, a corporation cannot
withhold its employees salaries to apply with
the latter’s unpaid subscriptions whether the
corporation made a call or not. This is a
violation of the prevailing labor laws.
(Apocada v. NLRC)
Instances when a call is unnecessary
 When the date of payment is specified in the
subscription agreement; and
 When the corporation becomes insolvent. Note: When
the court assumes jurisdiction to wind up an insolvent
corporation, all unpaid stock subscriptions become
payable on demand and are at once recoverable in
action instituted by the assignee or receiver appointed
by the court.
(Sec. 68) Delinquency sale –
 The board of directors may, by resolution, order the
sale of delinquent stock and shall specifically state the
amount due on each subscription plus all accrued
interest, and the date, time and place of the sale
which shall not be less than thirty (30) days nor more
than sixty (60) days from the date the stocks become
delinquent.
 Notice of said sale, with a copy of the resolution, shall
be sent to every delinquent stockholder either
personally or by registered mail Note: The Revised
Code adds: “or through any means provided in the by-
laws”. The same shall furthermore be published once
a week for two (2) consecutive weeks in a newspaper
of general circulation in the province or city where the
principal office of the corporation is located.
 Unless the delinquent stockholder pays to the
corporation, on or before the date specified for the
sale of the delinquent stock, the balance due on his
subscription, plus accrued interest, costs of
advertisement and expenses of sale, or unless the
board of directors otherwise orders, said delinquent
stock shall be sold at public auction to such bidder
who shall offer to pay the full amount of the balance
on the subscription together with accrued interest,
costs of advertisement and expenses of sale, for the
smallest number of shares or fraction of a share.
o The stock so purchased shall be transferred
to such purchaser in the books of the
corporation and a certificate for such stock
shall be issued in his favor.
o The remaining shares, if any, shall be
credited in favor of the delinquent
stockholder who shall likewise be entitled to
the issuance of a certificate of stock covering
such shares.
Procedure if there is no bidder for the full amount
 The corporation may, subject to the provisions of this
Code, bid for the same, and the total amount due
shall be credited as paid in full in the books of the
corporation.
 Title to all the shares of stock covered by the
subscription shall be vested in the corporation as
treasury shares and may be disposed of by said
corporation in accordance with the provisions of this
Code.
(Sec. 69) When sale may be questioned –
 No action to recover delinquent stock sold can be
sustained upon the ground of irregularity or defect in
the notice of sale, or in the sale itself of the
delinquent stock,
o Unless the party seeking to maintain such
action first pays or tenders to the party
holding the stock the sum for which the
same was sold, with interest from the date
of sale at the legal rate;
o And no such action shall be maintained
unless it is commenced by the filing of a
complaint within six (6) months from the
date of sale.
(Sec. 70) Court action to recover unpaid subscription –
 Nothing in this Code shall prevent the corporation
from collecting by action in a court of proper
jurisdiction the amount due on any unpaid
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 subscription, with accrued interest, costs and
expenses.
Steps to be taken in a delinquency sale
 Resolution – the board of directors shall issue a
resolution ordering the sale of delinquent stock.
 Notice – notice of said sale, with a copy of the
resolution, shall be sent to every delinquent
stockholder either personally or by registered mail.
 Publication – notice shall furthermore be published
once a week for 2 consecutive weeks in a newspaper of
general circulation in the province or city where the
principal office of the corporation is located.
 Sale – the delinquent stock shall be sold at public
auction to be held not less than 30 days nor more than
60 days from the date the stocks become delinquent.
 Transfer – the stock so purchased shall be transferred
to such purchaser in the books of the corporation and a
certificate for such stock shall be issued in his favor.
 Credit of remainder – the remaining shares, if any, shall
be credited in favor of the delinquent stockholder who
shall likewise be entitled to the issuance of a certificate
of stock covering the same.
Contents of resolution
 The amount due on each subscription;
 All accrued interest; and
 The date, time and place of sale.
Winning bidder
 The one who offers to pay the full amount of the
balance on the subscription together with the accrued
interest, costs of advertisement and expenses of sale;
 For the smallest number of shares or fraction of a
share.
Other matters
 Payment made by the delinquent shareholder on or
before the date specified for the sale automatically
stops the sale
 After the delinquent sale, the delinquent shareholder
may file an action to recover the delinquent stocks
which were sold if the following requirements are
complied with:
o The action is filed on the ground of
irregularity or defect in the notice of sale, or
in the sale itself of the delinquent stock;
o The party seeking to maintain such action
first pays or tenders to the party holding the
stock the sum for which the same was sold,
with interest from the date of sale at the
legal rate; and
o The complaint is filed within 6 months from
the date of sale.
Sec. 71. Effect of delinquency –
 No delinquent stock shall be voted for be entitled to
vote; or
 To representation at any stockholder's meeting;
 Nor shall the holder thereof be entitled to any of the
rights of a stockholder except –
o The right to dividends in accordance with
the provisions of this Code, until and unless
he pays the amount due on his subscription
with accrued interest, and the costs and
expenses of advertisement, if any.
Other matters
 If cash dividends are declared, the dividends shall be
applied to the subscription price that is due to the
corporation.
 Delinquent stockholders shall not be included in
determining existence of a quorum.
(Sec. 72) Rights of unpaid shares, nondelinquent – Holders of
subscribed shares not fully paid which are not delinquent shall
have all the rights of a stockholder.
One right which is not available if the shares are not fully paid, is
the right to secure a stock certificate or to have any subsequent
transfer registered in the books of the corporation. The transfer
is effective only between parties.
Rights of shareholders
 Voting rights
 Right to remove directors
 Appraisal rights
 Right to issuance of stock certificate for fully paid
shares. Note: This right is unavailable for unpaid shares.
 Proportionate participation in the distribution of assets
in liquidation.
 Right to transfer of stocks in corporate books. Note:
This right is unavailable for unpaid shares.
 Pre-emptive right.
 Right to inspect books and records.
 Right to be furnished of the most recent financial
statement/financial report.
 Right to recover stocks unlawfully sold for delinquent
payment of subscription.
 Right to file individual suit, representative suit, and
derivative suit.
Obligations of shareholders
 Liability to the corporation for unpaid subscription;
 Liability to the corporation for interest on unpaid
subscription if so required by the by-laws;
 Liability to the creditor of the corporation for unpaid
subscription;
 Liability for watered stocks
 Liability for dividends unlawfully paid.
Derivative suits
These are suits brought by one or more stockholders/members in
the name and on behalf of the corporation to redress wrongs
committed against it, or to protect or vindicate corporate rights
whenever the officials of the corporation refuse to sue, or the
ones to be sued, or has control of the corporation. The suing
stockholder is regarded as the “nominal party” while the
corporation as the “real party in interest”. If a corporation has a
defense to an action against it and is not asserting it, a
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stockholder may intervene and defend on behalf of the o The name of the corporation which issued
corporation. the same.
o He shall also submit such other information
Requisites for derivative suits (R.A. No. 8799) and evidence which he may deem necessary;
 That the one suing is a stockholder/member at the  The corporation shall publish a notice in a newspaper
time the acts or transactions subject of the action of general circulation published in the place where the
occurred and the time the action was filed; corporation has its principal office, once a week for
 He exerted all reasonable efforts, and alleges the same three (3) consecutive weeks at the expense of the
with particularity in the complaint, to exhaust all registered owner of the certificate of stock which has
remedies available under the Articles of Incorporation, been lost, stolen or destroyed.
by-laws, laws or rules governing the corporation or o The notice shall state the name of said
partnership to obtain the relief he desires; Note: The corporation;
allegation of exhaustion of intra-corporate remedies o The name of the registered owner; and
must be alleged with particularity. A general allegation o The serial number of said certificate; and
in the complaint is not sufficient. (Reyes v. RTC) o The number of shares represented by such
 No appraisal rights are available for the acts certificate; and
complained of; and o That after the expiration of one (1) year
 The suit is not a nuisance or harassment suit. from the date of the last publication, if no
contest has been presented to said
Individual suits corporation regarding said certificate of
These are actions brought by the shareholder in his own name stock, the right to make such contest shall
against the corporation when a wrong is directly inflicted against be barred and said corporation shall cancel
him. The cause of action pertains to him and the action is meant in its books the certificate of stock which has
directly to protect his interest. been lost, stolen or destroyed and issue in
lieu thereof new certificate of stock –
Representative suits  Unless the registered owner files a
These are actions brought by the stockholder in behalf of himself bond or other security in lieu
and all other stockholders similarly situated when a wrong is thereof as may be required, in
committed against a group of stockholders. which case a new certificate may
be issued even before the
(Sec. 73) Procedure for lost or destroyed certificates – expiration of the one (1) year
 The registered owner of a certificate of stock in a period provided herein:
corporation or his legal representative shall file with  Provided, That if a
the corporation an affidavit in triplicate setting forth, contest has been
if possible – presented to said
o The circumstances as to how the certificate corporation; or
was lost, stolen or destroyed;  If an action is pending in
o The number of shares represented by such court regarding the
certificate; ownership of said
o The serial number of the certificate; and certificate of stock which
has been lost, stolen or
destroyed, the issuance
of the new certificate of
stock in lieu thereof shall
be suspended until the
final decision by the
court regarding the
ownership of said
certificate of stock which
has been lost, stolen or
destroyed.
 Except in case of fraud, bad faith, or negligence on the
part of the corporation and its officers, no action may
be brought against any corporation which shall have
issued certificate of stock in lieu of those lost, stolen
or destroyed pursuant to the procedure above-
described.
This section does not apply where the certificates are just worn
out, or when the certificate was never issued to the shareholder
because it was not delivered by the corporation.
Outlines of procedure
 Affidavit – The registered owner shall execute and file
an affidavit regarding share and the circumstances
regarding its loss;
 Verification – The corporation shall verify the affidavit
and other information and evidence with the books of
the corporation;
 Publication – The corporation shall publish a notice in a
newspaper of general circulation published in the place
where the corporation has its principal office, once a
week for 3 consecutive weeks at the expense of the
registered owner of the certificate of stock which has
been lost, stolen or destroyed.
 One-Year waiting period – There shall be a period of 1
year from the date of the last publication during which
a contest can be interposed.
 Contest – If a contest has been presented to said
corporation or if an action is pending in court regarding
the ownership of said certificate of stock which has
been lost, stolen or destroyed, the issuance of the new
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 certificate of stock in lieu thereof shall be suspended
until the final decision by the court regarding the
ownership of said certificate of stock which has been
lost, stolen, or destroyed; and
 Replacement – If there is no contest within the one-
year period, the corporation shall then replace the
certificate.
o The replacement can only be made before
the expiration of the one-year period if a
bond is posted.
Note: The requirements under Section 73 are mandatory in
nature. However, substantial compliance is acceptable.
TITLE VIII: CORPORATE BOOKS AND RECORDS
(Sec. 74) Books to be kept; stock transfer agent – Every
corporation shall keep and carefully preserve at its principal
office –
 A record of all business transactions and minutes of all
meetings of stockholders or members, or of the board
of directors or trustees,
o In which shall be set forth in detail the time
and place of holding the meeting, how
authorized, the notice given, whether the
meeting was regular or special,
 If special its object, those present
and absent, and every act done or
ordered done at the meeting.
 Upon the demand of any director,
trustee, stockholder or member,
the time when any director,
trustee, stockholder or member
entered or left the meeting must
be noted in the minutes;
 And on a similar demand, the yeas
and nays must be taken on any
motion or proposition, and a
record thereof carefully made.
 The protest of any director,
trustee, stockholder or member on
any action or proposed action
must be recorded in full on his
demand.
o The records of all business transactions of
the corporation and the minutes of any
meetings shall be open to inspection by any
director, trustee, stockholder or member of
the corporation at reasonable hours on
business days and he may demand, in
writing, for a copy of excerpts from said
records or minutes, at his expense.
o Any officer or agent of the corporation who
shall refuse to allow any director, trustees,
stockholder or member of the corporation
to examine and copy excerpts from its
records or minutes, in accordance with the
provisions of this Code, shall be liable to
such director, trustee, stockholder or
member for damages, and in addition, shall
be guilty of an offense which shall be
punishable under Section 144 of this Code:
 Provided, That if such refusal is
made pursuant to a resolution or
order of the board of directors or
trustees, the liability under this
section for such action shall be
imposed upon the directors or
trustees who voted for such
refusal: and
 Provided, further, That it shall be a
defense to any action under this
section that the person demanding
to examine and copy excerpts from
the corporation’s records and
minutes has improperly used any
information secured through any
prior examination of the records or
minutes of such corporation or of
any other corporation, or was not
acting in good faith or for a
legitimate purpose in making his
demand.
 Stock corporations must also keep a book to be
known as the "stock and transfer book", in which
must be kept –
o A record of all stocks in the names of the
stockholders alphabetically arranged;
o The installments paid and unpaid on all
stock for which subscription has been made,
and the date of payment of any installment;
o A statement of every alienation, sale or
transfer of stock made, the date thereof,
and by and to whom made; and
o Such other entries as the by-laws may
prescribe.
The stock and transfer book shall be kept in the
principal office of the corporation or in the office
of its stock transfer agent and shall be open for
inspection by any director or stockholder of the
corporation at reasonable hours on business
days.
 No stock transfer agent or one engaged principally in
the business of registering transfers of stocks in behalf
of a stock corporation shall be allowed to operate in
the Philippines unless he secures a license from the
Securities and Exchange Commission and pays a fee as
may be fixed by the Commission, which shall be
renewable annually:
o Provided, That a stock corporation is not
precluded from performing or making
transfer of its own stocks, in which case all
the rules and regulations imposed on stock
transfer agents, except the payment of a
license fee herein provided, shall be
applicable.
Note: (Kelvin’s comment: I included the entire provision under
the Revised Code since the departure/change with the old
provision is substantial and significant.)
The Revised Code provides that every corporation shall keep and
carefully preserve at its principal office all information relating to
the corporation including, but not limited to:
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  The articles of incorporation and by-laws of the
corporation and all their amendments;
 The current ownership structure and voting rights of
the corporation, including lists of stockholders or
members, group structures, intra-group relations,
ownership data, and beneficial ownership;
 The names and addresses of all the members of the
board of directors or trustees and the executive
officers;
 A record of all business transactions;
 A record of the resolutions of board of directors or
trustees and of the stockholders or members;
 Copies of the latest reportorial requirements submitted
to the SEC; and
 The minutes of all meetings of stockholders or
members, or of the board of directors or trustees,
o In which shall be set forth in detail the time
and place of holding the meeting, how
authorized, the notice given, the agenda
therefor, whether the meeting was regular or
special, those present or absent, and every
act done or ordered done at the meeting.
 Upon the demand of any director,
trustee, stockholder or member,
the time when any director,
trustee, stockholder or member
entered or left the meeting must be
noted in the minutes;
 And on a similar demand, the yeas
and nays must be taken on any
motion or proposition, and a record
thereof carefully made.
 The protest of any director, trustee,
stockholder or member on any
action or proposed action must be
recorded in full on his demand.
Note: The Revised Code further provides that the inspecting or
reproducing party shall remain bound by confidentiality rules
under prevailing laws, such as
 The rules on trade secrets or processes under
Intellectual Property Code (R.A. No. 8293, as amended)
 The Data Privacy Act of 2012 (R.A. No. 10173);
 The Securities Regulation Code (R.A. No. 8799)
A requesting party who is not a stockholder or member of
record, or is a competitor, director, officer, controlling
stockholder or otherwise represents the interests of a competitor
shall have no right to inspect or demand reproduction of
corporate records.
Any stockholder who shall abuse the rights granted under this
section shall be penalized under –
 Section 158 of this Code; without prejudice to
 Intellectual Property Code (R.A. No. 8293);
 Data Privacy Act of 212 (R.A. No. 10173)
Any officer or agent of the corporation who shall refuse to allow
any director, trustees, stockholder or member of the corporation
to examine and copy excerpts from its records or minutes, in
accordance with the provisions of this Code, shall be liable to
such director, trustee, stockholder or member for damages, and
in addition, shall be guilty of an offense which shall be punishable
under Section 161 of this Code:
 Provided, That if such refusal is made pursuant to a
resolution or order of the board of directors or
trustees, the liability under this section for such action
shall be imposed upon the directors or trustees who
voted for such refusal: and
 Provided, further, That it shall be a defense to any
action under this section that the person demanding to
examine and copy excerpts from the corporation’s
records and minutes has improperly used any
information secured through any prior examination of
the records or minutes of such corporation or of any
other corporation, or was not acting in good faith or for
a legitimate purpose in making his demand, or is a
competitor, director, officer, controlling stockholder or
otherwise represents the interests of a competitor.
If the corporation denies or does not act on a demand for
inspection and/or reproduction, the aggrieved party may report
such denial or inaction to the SEC.
 Within 5 days from receipt of such report, the SEC shall
conduct a summary investigation and issue an order
directing the inspection or reproduction of the
requested records.
Stock corporations must also keep a book to be known as the
"stock and transfer book", in which must be kept –
 A record of all stocks in the names of the stockholders
alphabetically arranged;
 The installments paid and unpaid on all stock for which
subscription has been made, and the date of payment
of any installment;
 A statement of every alienation, sale or transfer of
stock made, the date thereof, and by and to whom
made; and
 Such other entries as the by-laws may prescribe.
The stock and transfer book shall be kept in the principal office of
the corporation or in the office of its stock transfer agent and
shall be open for inspection by any director or stockholder of the
corporation at reasonable hours on business days.
A stock transfer agent or one engaged principally in the business
of registering transfers of stocks in behalf of a stock corporation
shall be allowed to operate in the Philippines upon securing a
license from the SEC and the payment of a fee to be fixed by the
SEC, which shall be renewable annually:
 Provided, that a stock corporation is not precluded
from performing or making transfers of its own stocks,
in which case all the rules and regulations imposed on
stock transfer agents, except the payment of a license
fee herein provided, shall be applicable.
 Provided, further, that the SEC may require stock
corporations which transfer and/or trade stocks in
secondary markets to have an independent transfer
agent.
Contents of book of minutes
 The date and time of meeting;
 The place of holding the meeting;
 How the meeting was authorized;
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  The fact that notice was given; o A balance sheet as of the end of the last
 Whether the meeting was regular or special; taxable year; and
 If the meeting is special, its object must be stated; o A profit or loss statement for said taxable
 Those present and absent; and year, showing in reasonable detail its assets
 Every act done or ordered done at the meeting. and liabilities and the result of its
operations.
Contents of the stock and transfer book  At the regular meeting of stockholders or members,
 All stocks in the name of the stockholders the board of directors or trustees shall present to such
alphabetically arranged; stockholders or members a financial report of the
 Amount paid and unpaid on all stocks and the date of operations of the corporation for the preceding year,
payment of any installment; which shall include financial statements, duly signed
 Alienation, sale or transfer of stocks; and and certified by an independent certified public
 Other entries as the by-laws may prescribe. accountant. Note: The Revised Code provides that the
financial statements be duly signed and certified in
Only the corporate secretary is duly authorized to make entries accordance with the Code, and the rules that the SEC
on the stock and transfer book. may prescribe.
 However, if the paid-up capital of the corporation is
Requisites for exercise of right of inspection less than P50,000.00, the financial statements may be
 It must be exercised at reasonable hours on business certified under oath by the treasurer or any
days; responsible officer of the corporation. Note: The
 The stockholder has not improperly used any Revised Code provides that if the total assets or total
information he secured through any previous liabilities of the corporation are less than P600,000, or
examination; and such other amount as may be determined appropriate
by the Department of Finance, the financial statements
 Demand is made in good faith or for a legitimate
may be certified under oath by the treasurer and the
purpose.
president.
There are matters that are not covered by the right to inspect.
For instance, a corporation engaged in manufacturing goods can
A stockholder’s right to inspect does not cover inspection of bank
accounts. The Secrecy of Bank Deposits Law makes all bank
keep secret the formula or process which is not generally well
deposits of whatever nature absolutely confidential in nature and
known.
the same may not be inquired into by any person except under
specified circumstances. The shareholder has a personality
Remedy of a stockholder improperly deprived of right to inspect
separate and distinct from the corporation hence, only the
 To file a complaint under Rule 7 of the Interim Rule for
corporation can give the consent to inquire on its deposits.
Intra-Corporate Controversies.
Independent of the foregoing, the purpose of the inspection is
likewise not acceptable because it is alien to all other rights of
(Sec. 75) Right to financial statements –
the shareholder. (1983 Bar Exam)
 Within ten (10) days from receipt of a written request
of any stockholder or member, the corporation shall
The right of a stockholder to inspect the books and records of a
furnish to him its most recent financial statement,
corporation extends to a subsidiary wholly owned by that
which shall include
corporation. It is in consonance with equity, good faith and fair
dealing if the right of the shareholder will be so extended. (1988
Bar Exam)
TITLE IX: MERGER AND CONSOLIDATION
(Sec. 76) Plan of merger or consolidation –
The board of directors or trustees of each corporation, party to
the merger or consolidation, shall approve a plan of merger or
consolidation setting forth the following:
 The names of the corporations proposing to merge or
consolidate, hereinafter referred to as the constituent
corporations;
 The terms of the merger or consolidation and the
mode of carrying the same into effect;
 A statement of the changes, if any, in the articles of
incorporation of the surviving corporation in case of
merger; and
o With respect to the consolidated
corporation in case of consolidation, all the
statements required to be set forth in the
articles of incorporation for corporations
organized under this Code; and
 Such other provisions with respect to the proposed
merger or consolidation as are deemed necessary or
desirable.
(Sec. 77) Stockholder’s or member’s approval –
 Upon approval by majority vote of each of the board
of directors or trustees of the constituent
corporations;
 Approval by the stockholders or members of each of
such corporations at separate corporate meetings
duly called for the purpose.
o If stock corporation – the affirmative vote of
2/3 of the outstanding capital stock of each
corporation.
o If non-stock corporation – the affirmative
vote of 2/3 of the members of each
corporation.
o
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  Notice of such meetings shall be given to all
stockholders or members of the respective
corporations, at least two (2) weeks prior to the date
of the meeting, either personally or by registered
mail. Note: The Revised Code allows sending through
electronic mail or such other manner as the SEC shall
allow under its guidelines.
o Said notice shall state the purpose of the
meeting and shall include a copy or a
summary of the plan of merger or
consolidation.
 Any dissenting stockholder in stock corporations may
exercise his appraisal right in accordance with the
Code:
o Provided, That if after the approval by the
stockholders of such plan, the board of
directors decides to abandon the plan, the
appraisal right shall be extinguished.
 Any amendment to the plan of merger or
consolidation may be made, provided such
amendment is approved by majority vote of the
respective boards of directors or trustees of all the
constituent corporations and ratified by the
affirmative vote of stockholders representing at least
two-thirds (2/3) of the outstanding capital stock or of
two-thirds (2/3) of the members of each of the
constituent corporations.
o Such plan, together with any amendment,
shall be considered as the agreement of
merger or consolidation.
(Sec. 78) Articles of merger or consolidation –
 After the approval by the stockholders or members as
required by the preceding section, articles of merger
or articles of consolidation shall be –
o Executed by each of the constituent
corporations;
o To be signed by the president or vice-
president; and
o Certified by the secretary or assistant
secretary of each corporation setting forth:
 The plan of the merger or the plan
of consolidation;
 As to stock corporations, the
number of shares outstanding, or
in the case of non-stock
corporations, the number of
members; and
 As to each corporation, the
number of shares or members
voting for and against such plan,
respectively;
 Note: The Revised Code adds: The
carrying amounts and fair values of
the assets and liabilities of the
respective companies as of the
agreed cut-off date;
 The method to be used in the
merger or consolidation of
accounts of the companies;
 The provisional or pro-forma
values, as merged or consolidated,
using the accounting method; and
 Such other information as may be
prescribed by the SEC.
(Sec. 79) Effectivity of merger or consolidation – The articles of
merger or of consolidation, signed and certified as herein above
required, shall be submitted to the Securities and Exchange
Commission in quadruplicate for its approval:
 Provided, That in the case of merger or consolidation
of banks or banking institutions, building and loan
associations, trust companies, insurance companies,
public utilities, educational institutions and other
special corporations governed by special laws, the
favorable recommendation of the appropriate
government agency shall first be obtained.
o If the Commission is satisfied that the
merger or consolidation of the corporations
concerned is not inconsistent with the
provisions of this Code and existing laws, it
shall issue a certificate of merger or of
consolidation, at which time the merger or
consolidation shall be effective.
 If, upon investigation, the Securities and Exchange
Commission has reason to believe that the proposed
merger or consolidation is contrary to or inconsistent
with the provisions of this Code or existing laws, it
shall set a hearing to give the corporations concerned
the opportunity to be heard.
o Written notice of the date, time and place of
hearing shall be given to each constituent
corporation at least two (2) weeks before
said hearing.
o The Commission shall thereafter proceed as
provided in this Code.
(Sec. 80) Effects of merger or consolidation – The merger or
consolidation shall have the following effects:
 The constituent corporations shall become a single
corporation which,
o In case of merger, shall be the surviving
corporation designated in the plan of
merger; and
o In case of consolidation, shall be the
consolidated corporation designated in the
plan of consolidation.
 The separate existence of the constituent
corporations shall cease, except that of the surviving
or the consolidated corporation;
 The surviving or the consolidated corporation shall
possess all the rights, privileges, immunities and
powers and shall be subject to all the duties and
liabilities of a corporation organized under this Code;
 The surviving or the consolidated corporation shall
thereupon and thereafter possess all the rights,
privileges, immunities and franchises of each of the
constituent corporations; and
o All property, real or personal, and all
receivables due on whatever account,
including subscriptions to shares and other
choses in action, and all and every other
interest of, or belonging to, or due to each
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 constituent corporation, shall be deemed
transferred to and vested in such surviving
or consolidated corporation without further
act or deed; and
 The surviving or consolidated corporation shall be
responsible and liable for all the liabilities and
obligations of each of the constituent corporations in
the same manner as if such surviving or consolidated
corporation had itself incurred such liabilities or
obligations; and any pending claim, action or
proceeding brought by or against any of such
constituent corporations may be prosecuted by or
against the surviving or consolidated corporation. The
rights of creditors or liens upon the property of any of
such constituent corporations shall not be impaired by
such merger or consolidation.
Merger is one where two or more corporations merge into a
single corporation which shall be one of the constituent
corporations. In short, a corporation absorbs another
corporation and the former remains in existence while the other
is dissolved.
Consolidation is one where into a new single corporation which
shall be the consolidated corporation is created, extinguishing
the constituent corporations.
Other matters
 A “triangular merger” is a type of merger where the
purchasing corporation creates a subsidiary
corporation and transfers to the subsidiary shares in
the parent company which will be used for the share
exchange that will be provided for in the merger plan.
o The “subsidiary” is sometimes referred to as
‘phantom’ corporation because it may exist
only long enough to consummate the merger.
o The actual merger is not between the
acquiring corporation and the target
corporation, but rather between the newly
formed subsidiary and target corporation.
 Acquisition of assets of another corporation is neither
merger nor consolidation.
 A “combination” is used to designate an alliance or
confederation or sale or other transaction between
two or more corporations, by virtue of which will not
necessarily result in the loss of the separate existence
of the corporations. Although combinations include
merger and consolidation.
 The employees of the dissolved corporation shall be
assumed by the surviving or consolidated corporation.
Hence, any retirement benefit should be computed on
the basis of their employment starting from their
employment with the dissolved or constituent
corporations as the case may be. (Filipinas Port
Services, Inc. v. NLRC, 1991 case)
o In Bank of the Philippine Islands v. BPI (2010
case) Employees Union, the Supreme Court
observed that there is nothing in the
Corporation Law and the merger agreement
mandating automatic employment as regular
employees by the surviving corporation in the
merger. The employees are not assets and
liabilities that are considered absorbed. If
terminations, for instance due to redundancy
or labor-saving devices or to prevent losses,
are done in good faith, they would be valid.
Note: However, authors believe that this
ruling is not consistent with law. The
framework in the dissenting opinions of
Justice Brion and Justice Carpio, and their
consideration of the social justice provision, is
deemed more in conformity with Corporate
Law.
 A religious corporation may be merged with another
religious corporation. howe
TITLE X: APPRAISAL RIGHT
(Sec. 81) Instances of appraisal right – Any stockholder of a
corporation shall have the right to dissent and demand
payment of the fair value of his shares in the following
instances:
 In case any amendment to the articles of
incorporation has the effect of changing or restricting
the rights of any stockholder or class of shares, or of
authorizing preferences in any respect superior to
those of outstanding shares of any class, or of
extending or shortening the term of corporate
existence;
 In case of sale, lease, exchange, transfer, mortgage,
pledge or other disposition of all or substantially all of
the corporate property and assets as provided in the
Code; and
 In case of merger or consolidation.
 Note: The Revised Code adds that appraisal right may
also be exercised in case of investment of corporate
funds for any purpose other than the primary purpose
of the corporation.
An appraisal right is the right of a shareholder to dissent and
demand payment of the fair value of his shares in the instances
provided for under the Corporation Code. The Code only allows
the exercise of the appraisal right for any reason provided only
that the corporation has sufficient assets to cover its debts and
liabilities, exclusive of capital.
Instances when appraisal right may be exercised
 In case any amendment to the articles of incorporation
has the effect of changing or restricting the rights of
any stockholder or class of shares;
 In case of any amendment to the articles of
incorporation authorizing preferences in any respect
superior to those of outstanding shares of any class;
 In case of amendment to the articles of incorporation
extending the corporate term;
 In case of amendment to the articles of incorporation
shortening the corporate existence;
 In case of sale, lease, exchange, transfer, mortgage,
pledge or other disposition of all or substantially all of
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 the corporate property and assets as provided in the
Code;
 In case of merger or consolidation;
 If the corporation will invest its funds in another
corporation or for any purpose other than its primary
purpose;
 In a close corporation under Section 105 of the
Corporation Code.
(Sec. 82) How right is exercised –
 The appraisal right may be exercised by any
stockholder who shall have voted against the
proposed corporate action, by making a written
demand on the corporation within thirty (30) days
after the date on which the vote was taken for
payment of the fair value of his shares:
o Provided, That failure to make the demand
within such period shall be deemed a waiver
of the appraisal right.
 If the proposed corporate action is implemented or
affected, the corporation shall pay to such
stockholder, upon surrender of the certificate or
certificates of stock representing his shares, the fair
value thereof as of the day prior to the date on which
the vote was taken, excluding any appreciation or
depreciation in anticipation of such corporate action.
 If within a period of sixty (60) days from the date the
corporate action was approved by the stockholders,
the withdrawing stockholder and the corporation
cannot agree on the fair value of the shares, it shall be
determined and appraised by three (3) disinterested
persons, one of whom shall be named by the
stockholder, another by the corporation, and the third
by the two thus chosen.
 The findings of the majority of the appraisers shall be
final, and their award shall be paid by the corporation
within thirty (30) days after such award is made:
o Provided, That no payment shall be made to
any dissenting stockholder unless the
corporation has unrestricted retained
earnings in its books to cover such payment:
and
o Provided, further, That upon payment by the
corporation of the agreed or awarded price,
the stockholder shall forthwith transfer his
shares to the corporation.
(Sec. 83) Effect of demand and termination of right
 From the time of demand for payment of the fair
value of a stockholder’s shares until either the
abandonment of the corporate action involved or the
purchase of the said shares by the corporation, all
rights accruing to such shares, including voting and
dividend rights, shall be suspended in accordance with
the provisions of this Code, except the right of such
stockholder to receive payment of the fair value
thereof:
o Provided, That if the dissenting stockholder
is not paid the value of his shares within 30
days after the award, his voting and
dividend rights shall immediately be
restored.
(Sec. 84) When right to payment ceases
 No demand for payment under this Title may be
withdrawn unless the corporation consents thereto.
 If, however,
o Such demand for payment is withdrawn
with the consent of the corporation, or
o If the proposed corporate action is
abandoned or rescinded by the corporation
or disapproved by the Securities and
Exchange Commission where such approval
is necessary, or
o If the Securities and Exchange Commission
determines that such stockholder is not
entitled to the appraisal right,
Then the right of said stockholder to be paid the fair
value of his shares shall cease, his status as a
stockholder shall thereupon be restored, and all
dividend distributions which would have accrued on
his shares shall be paid to him.
(Sec. 85) Who bears costs of appraisal
 The costs and expenses of appraisal shall be borne by
the corporation, unless the fair value ascertained by
the appraisers is approximately the same as the price
which the corporation may have offered to pay the
stockholder, in which case they shall be borne by the
latter.
 In the case of an action to recover such fair value, all
costs and expenses shall be assessed against the
corporation, unless the refusal of the stockholder to
receive payment was unjustified.
(Sec, 86) Notation on certificates; rights of transferee
 Within ten (10) days after demanding payment for his
shares, a dissenting stockholder shall submit the
certificates of stock representing his shares to the
corporation for notation thereon that such shares are
dissenting shares.
 His failure to do so shall, at the option of the
corporation, terminate his rights under this Title.
 If shares represented by the certificates bearing such
notation are transferred, and the certificates
consequently cancelled, the rights of the transferor as
a dissenting stockholder under this Title shall cease
and the transferee shall have all the rights of a regular
stockholder; and
o All dividend distributions which would have
accrued on such shares shall be paid to the
transferee.
If the corporation unjustifiably refuses to pay the dissenting
stockholder despite the full compliance with all the requirements
for the valid exercise of appraisal right and despite the fact that
the corporation has sufficient unrestricted retained earnings, the
aggrieved stockholder may file the appropriate action before the
Regional Trial Court to compel the corporation to allow him to
exercise his appraisal right.
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