CLASSIFICATION OF CORPORATIONS issued under binding subscription agreements to subscribers

or stockholders, whether or not fully or partially paid, except

Stock corporation – capital stock divided into shares; created for the treasury shares;
purpose of making profit which may be distributed in the form of - Paid up capital stock – portion of the subscribed or
dividends on the basis of their invested capital; outstanding capital stock that is paid;

Non-stock corporation – does not issue stock; created not for profit but CAPITAL
for the public good and welfare; - Entire property or assets of the corporations; includes the amount
invested by the stockholders plus undistributed earnings less
As to number of persons composing them: losses and expenses; in a strict sense, the net assets paid by SH as
- Corporation aggregate; consideration for the shares issued to them;
- Corporation sole;
CAPITAL v. CAPITAL STOCK
As to whether they are for religious purpose or not: - Concrete (actual corpo property); abstract (amount);
- Ecclesiastical corporation; - Fluctuates day to day; fixed in the AOI;
- Lay corporation; - Belongs to corpo; belongs to SH;
- May be real or personal; always personal;
As to whether they are for charitable purpose:
- Eleemosynary corporation; STOCK or SHARES OF STOCK
- Civil corporation; - Units into which the capital stock is divided;
- Represents the interest or right which the owner has
As to where they have been created: o in the management of the corporation in which he
- Domestic corporation; takes part through his right to vote;
- Foreign corporation; o in the portion of corporate earnings;
o upon dissolution and winding up, in the property
As to the legal right to corporate existence: and assets thereof;
- De jure corporation;
- De facto corporation; CERTIFICATE OF STOCK
- written acknowledgement of the corporation of the interest, right
As to whether open to public or not: and participation of a person in the management, profits, assets of
- Close corporation; a corporation;
- Open corporation; - formal written evidence of the holder’s ownership over his shares;

As to their relation to another corporation: SHARES OF STOCK v. CERTIFICATE OF STOCK

- Parent or holding corporation; - incorporeal/intangible; concrete/tangible;
- Subsidiary corporation; - represents right or intereset; written evidence of such;
- issued even if not fully paid; must be fully paid;
As to whether they are corporations in a true sense or only in a limited
sense: CLASSIFICATION OF SHARES:
- True corporation;
- Quasi corporation; 1. par value / no par value;
o Corporation by prescription; a. par value - specific money value fixed in the AOI
o Corporation by estoppel; and appearing in the certificate;
b. no par value – no stated or par value appearing on
As to whether they are for public or private purpose: the face of the certificate; does not state how much
- Public corporation; money it represents;
- Private corporation;
2. voting / non voting;
CAPITAL STOCK 3. common / preferred;
- The amount fixed in the AOI, to be subscribed and paid in by the a. preferred as to assets;
shareholders of a corporation, either in money or property, labor b. preferred as to dividends;
or services, at the organization of the corpo; i. cumulative / non cumulative;
- Represents the equity of the stockholders in the corpo assets; ii. participating / non participating;
- Limits the max amount or number of each class of shares that may
be issued by the corpo w/o formal amendment of the AOI; 4. promotion share;
- Remains the same; even if actual value of the share as determined 5. share in escrow;
by the assets of the corporation is diminished or increased; 6. convertible stock;
unaffected by profits and losses; 7. founder’s share;
8. redeemable share;
- Authorized capital stock – synonymous with capital stock 9. treasury share;
where the shares of the corporation have par value;
- Subscribed capital stock – the amount of capital stock
subscribed whether fully paid or not; connotes an original
subscription contract for the acquisition of subscriber of
unissued shares in a corporation;
- Outstanding capital stock – the portion of the capital stock
which is issued and held by persons other than the
corporation itself; Section 137 The term "outstanding capital
stock", as used in this Code, means the total shares of stock
CORPORATION LAW
Corporation defined. - A corporation is an artificial being created by
operation of law, having the right of succession and the powers,
attributes and properties expressly authorized by law or incident to its
existence.
SEPARATE PERSONALITY
- A corporation, upon coming to existence, is invested by law with
a personality separate and distinct from those of the persons
composing it.
o Ownership by a single or a small group of stockholders
of nearly all of the capital stock of the corporation is
not, without more, sufficient to disregard the fiction of
separate corporate personality.
- Thus, obligations incurred by corporate officers, acting as
corporate agents, are not theirs but direct accountabilities of the
corporation they represent.
- Solidary liability on the part of corporate officers may at times
attach, but only under exceptional circumstances, such as when
they act with malice or in bad faith.
- Also, in appropriate cases, the veil of corporate fiction shall be
disregarded when the separate juridical personality of a
corporation is abused or used to commit fraud and perpetrate a
social injustice, or used as a vehicle to evade obligations.
PIERCING THE VEIL
- Under the doctrine of piercing the veil of corporate fiction, the
court looks at the corporation as a mere collection of individuals
or an aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the corporation
unifying the group.
- Another formulation of this doctrine is that when two business
enterprises are owned, conducted and controlled by the same
parties, both law and equity will, when necessary to protect the
rights of third parties, disregard the legal fiction that two
corporations are distinct entities and treat them as identical or as
one and the same.
- Whether the separate personality of the corporation should be
pierced hinges on obtaining facts appropriately pleaded or
proved. However, any piercing of the corporate veil has to be
done with caution, albeit the Court will not hesitate to disregard
the corporate veil when it is misused or when necessary in the
interest of justice. After all, the concept of corporate entity was
not meant to promote unfair objectives.
- doctrine of piercing the corporate veil applies only in three (3)
basic areas, namely:
1. defeat of public convenience as when the corporate fiction is
used as a vehicle for the evasion of an existing obligation;
2. fraud cases or when the corporate entity is used to justify a
wrong, protect fraud, or defend a crime; or
3. alter ego cases, where a corporation is merely a farce since
it is a mere alter ego or business conduit of a person, or
where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another
corporation.[54] In the absence of malice, bad faith, or a
specific provision of law making a corporate officer liable,
such corporate officer cannot be made personally liable for
corporate liabilities.[55]
NATIONALITY
CONTROL TEST
- ‘(s)hares belonging to corporations or partnerships at least 60%
of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality.’
- Under the liberal Control Test, there is no need to further trace the
ownership of the 60% (or more) Filipino stockholdings of the
Investing Corporation since a corporation which is at least 60%
Filipino-owned is considered as Filipino.
GRANDFATHER RULE
- the Strict Rule or the Grandfather Rule Proper and pertains to the
portion in said Paragraph 7 of the 1967 SEC Rules which states,
"but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of
Philippine nationality."
- the combined totals in the Investing Corporation and the Investee
Corporation must be traced (i.e., "grandfathered") to determine
the total percentage of Filipino ownership
- the "control test" is still the prevailing mode of determining
whether or not a corporation is a Filipino corporation, within
the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled
to undertake the exploration, development and utilization of
the natural resources of the Philippines.
- When in the mind of the Court there is doubt, based on the
attendant facts and circumstances of the case, in the 60-40
Filipino-equity ownership in the corporation, then it may
apply the "grandfather rule."
DISTINCTIONS:
Corpo to partnership; to sole proprietorship to conjugal
COMPONENTS OF CORPORATION
1. Incorporators
2. Corporators
3. BOD
4. Stockholders/members
5. Promoters
6. Subscribers
7. Underwriters
POWERS OF CORPORATION
AMENDMENT OF AOI
(1) By a majority vote of the BOD or trustees
(2) And the vote or written assent of the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock, without
prejudice to the appraisal right of dissenting stockholders in
accordance with the provisions of this Code, OR 2/3 of the members if
it be a non-stock corporation.
AMENDABLE ITEMS
The following items are amendable under Sec. 16:
(1) Change of name of the Corporation
(2) Adding to or changing the purpose/s
(3) Change of principal office
(4) Change in the number of directors or trustees
(5) Increase or decrease in authorized capital stock [subject to Sec. 38]
NON-AMENDABLE ITEMS
The following items state accomplished facts, therefore, cannot be
amended:
(1) The names, nationalities and residences of the incorporators.
Otherwise, an amendment would go against the definition of
“incorporators” in Sec. 5
(2) Treasurer-in-trust
(3) First set of directors or trustees
(4) Original stock subscriptions and paid-in capital
(5) Place and date of execution
(6) Witnesses [De Leon]
Right of appraisal
BOARD OF DIRECTORS
TENURE
Directors shall hold office for 1 year until their successors are elected
and qualified [Sec. 23]
QUALIFICATIONS
(1) If STOCK, director must own at least 1 share of the capital stock,
which stock shall stand in his own name [Sec. 23] Exception: Trustee
in a voting trust may be elected director/trustee.
(2) If NON-STOCK, trustee must be a member in good standing.
Other Qualifications:
(1) Majority of the directors/trustees must be
residents of the Philippines.
(2) Natural person
(3) Of Legal Age
(4) Other qualifications as may be prescribed in
the by-laws of the corporation.
DISQUALIFICATIONS [SEC. 27]
(1) Convicted by final judgment of an offense punishable by
imprisonment for a period exceeding 6 years; or
(2) A violation of the Corporation Code, committed within 5 years
prior to the date of his election. This includes violations of rules and
regulations issued by the SEC to implement the provisions of the
Corporation Code.
ELECTIONS
CUMULATIVE VOTING FOR ONE CANDIDATE
- A stockholder is allowed to concentrate his votes and give one
candidate as many votes as the number of directors to be elected
multiplied by the number of his shares shall equal.
- ILLUSTRATION If there are 5 directors to be elected and
Pedro, as shareholder, has 100 shares, Pedro can give 500 (5
x 100 shares) votes to just one candidate.
CUMULATIVE VOTING BY DISTRIBUTION
- A stockholder may cumulate his shares by multiplying the
number of his shares by the number of directors to be elected and
distribute the same among as many candidates as he shall see fit.
- ILLUSTRATION In the illustration above, Pedro instead
may choose to give 100 votes to candidate 1, 100 votes to
candidate 2, 100 votes to candidate 3, 150 votes to candidate
4, and 50 votes to candidate 5.
STRAIGHT VOTING
- Every stockholder may vote such number of shares for as many
persons as there are directors to be elected.
REMOVAL
- GR: Any Director or Trustee of a corporation may be removed
from office, with or without cause. [Sec. 28]
- EX: Directors who have been elected by minority stockholders
exercising cumulative voting can only be removed for cause.
Removal without cause may not be used to deprive minority
stockholders or members of the right of representation to which
they may be entitled under Sec. 24. Other requisites: (1) by a vote
of the stockholders holding or representing 2/3 of the outstanding
capital stock, or if the corporation be a non-stock corporation, by
a vote of 2/3 of the members entitled to vote (2) At a regular or
special meeting after proper notice is given
FILLING OF VACANCIES
VACANCY:
(1) BY REMOVAL; OR
(2) BY EXPIRATION OF TERM; OR
(3) WHEN THE REMAINING DIRECTORS DO NOT
CONSTITUTE A QUORUM
- Vacancy/ies must be filled by the stockholders in a regular
or special meeting called for that purpose. A director or
trustee elected to fill a vacancy shall be elected only for the
unexpired term of his predecessor in office.
VACANCY BY REASON OF INCREASE IN THE NUMBER OF
THE DIRECTORS/TRUSTEES
- Vacancy/ies must be filled by the stockholders: (1) in a
regular or special meeting called for that purpose; or (2) in
the same meeting authorizing the increase of directors or
trustees if so stated in the notice of the meeting.
VACANCY BY OTHER CAUSES
- Vacancy/ies may be filled by the vote of at least a majority
of the remaining directors or trustees, if still constituting a
quorum.
CONTRACTS
BY SELF-DEALING DIRECTORS WITH THE
CORPORATION
GR: A contract of the corporation with one or more of its directors or
trustees is VOIDABLE, at the option of such corporation. [Sec. 32]
EX: Such contract is VALID if all of the following conditions are
present:
(a) That the presence of such director or trustee in the board meeting
in which the contract was approved was not necessary to constitute a
quorum for such meeting;
(b) That the vote of such director or trustee was not necessary for the
approval of the contract;
(c) That the contract is fair and reasonable under the circumstances;
and
(d) That in case of an officer, the contract has been previously
authorized by the BOD.
Ratification
In case of absence of the first two conditions above, contract may be
ratified if:
(a) Stockholders representing at least 2/3 of the outstanding capital
stock or at least 2/3 of the members in a meeting called for the purpose
voted to ratify the contract.
(b) Full disclosure of the adverse interest of the directors or trustees
involved is made at such meeting.
(c) Contract is fair and reasonable under the circumstances
BETWEEN CORPORATIONS WITH INTERLOCKING
DIRECTORS
If the interests of the interlocking director in the corporations are both
substantial (stockholdings exceed 20% of outstanding capital stock).
- GR: A contract between two or more corporations having
interlocking directors shall not be invalidated on that ground
alone. [Sec. 32]
 - EX: If contract is fraudulent or not fair and reasonable under
the circumstances
If the interest of the interlocking director in one of the corporations is
nominal (stockholdings 20% or less) while substantial in the other, the
contract shall be VALID, if the following conditions are met:
a) The presence of such director or trustee in the board meeting in
which the contract was approved was NOT necessary to
constitute a quorum for such meeting
b) That the vote of such director or trustee was not necessary for the
approval of the contract
c) That the contract is fair and reasonable under the circumstances.
- Where (a) and (b) are absent, the contract can be ratified by
the vote of the stockholders representing at least 2/3 of the
outstanding capital stock or at least 2/3 of the members in a
meeting called for the purpose voted to ratify the contract,
provided that: (a) Full disclosure of the adverse interest of
the directors/trustees involved is made on such meeting; (b)
The contract is fair and reasonable under the circumstances.
SOLIDARY LIABILITY FOR DAMAGES
(1) Willfully and knowingly voting for and assenting to patently
unlawful acts of the corporation; [Sec. 31]
(2) Gross negligence or bad faith in directing the affairs of the
corporation; [Sec. 31]
(3) Acquiring any personal or pecuniary interest in conflict of duty;
[Sec. 31]
(4) Consenting to the issuance of watered stocks, or, having knowledge
thereof, failing to file objections with secretary; [Sec. 65]
Watered Stocks – stocks issued for a consideration less than its par or
issued value or for a consideration in any form other than cash, valued
in excess of its fair value.
(5) Agreeing or stipulating in a contract to hold himself liable with the
corporation; or
(6) By virtue of a specific provision of law
BY-LAWS
ADOPTION OF BY-LAWS
By-laws – has traditionally been defined as regulations, ordinances,
rules or laws adopted by an association or corporation for its internal
governance, including rules for routine matters such as calling
meetings [SMC v. Mandaue (2005)].
BY LAWS v. AOI
- Indeed, the articles of incorporation of Forest Hills defined its
charter as a corporation and the contractual relationships between
Forest Hills and the State, between its stockholders and the State,
and between Forest Hills and its stockholder; hence, there could
be no gainsaying that the contents of the articles of incorporation
were binding not only on Forest Hills but also on its shareholders.
- On the other hand, the by-laws were the self-imposed rules
resulting from the agreement between Forest Hills and its
members to conduct the corporate business in a particular way. In
that sense, the by-laws were the private “statutes” by which Forest
Hills was regulated, and would function. The charter and the by-
laws were thus the fundamental documents governing the conduct
of Forest Hills’ corporate affairs; they established norms of
procedure for exercising rights, and reflected the purposes and
intentions of the incorporators. Until repealed, the by-laws were
a continuing rule for the government of Forest Hills and its
officers, the proper function being to regulate the transaction of
the incidental business of Forest Hills. The by-laws constituted a
binding contract as between Forest Hills and its members, and as
between the members themselves. (Forest Hills v. Gardpro)
ADOPTION OF BY-LAWS [Sec. 46]
May be done either:
(1) Prior to incorporation - approved and signed by all the
incorporators and submitted to SEC together with Articles of
Incorporation; or
(2) After incorporation - within 1 month after receipt of official notice
of the issuance of its certificate of incorporation by the SEC.
REQUISITES OF VALID BY-LAWS
- Approval requirement: Must be approved by the affirmative
vote of the stockholders representing MAJORITY of the
outstanding capital stock or majority of members
- If filed pre-incorporation: must be approved and signed by
all incorporators
Record-Keeping: Must be kept in the principal office of the
corporation, subject to inspection of stockholders or members during
office hours [Sec. 74]
BINDING EFFECTS
When Binding: ONLY from date of issuance of SEC of certification
that by-laws are not inconsistent with the Code Pending approval, they
cannot bind stockholders or corporation.
Effect to 3rd parties: Mere internal rules among stockholders and
cannot affect or prejudice 3rd persons who deal with the corporation
unless they have knowledge of the same.
AMENDMENT OR REVISION
Effected by: majority vote of the members of the board and majority
vote of owners of the Outstanding Capital Stock or members, in a
meeting duly called for the purpose
DELEGATION TO THE BOD OF POWER TO AMEND OR
REPEAL BY-LAWS:
By vote of stockholders representing 2/3 of the Outstanding Capital
Stock or 2/3 of the members
- HOW DELEGATION REVOKED: Any power delegated to
the BOD or trustees to amend or repeal any by-laws or adopt
new bylaws 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.
MEETINGS
MEETINGS OF BOD/TRUSTEES
REGULAR OR SPECIAL
Who May Attend?
The members of the Board themselves; directors in Board meetings
cannot be represented or voted by proxies.
When? [Sec.53]
(1) Regular meetings of directors or trustees shall be held monthly,
unless the by-laws provide otherwise.
(2) Special meetings of the BOD or trustees may be held at any time
upon the call of the president or as provided in the by-laws.
Where? [Sec. 53] Meetings of directors or trustees of corporations may
be held anywhere in or outside of the Philippines, unless the by-laws
provide otherwise.
NOTICE
Notice of regular or special meetings stating the date, time and place
of the 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. A director or trustee may waive this requirement, either expressly
or impliedly
WHO PRESIDES
The president presides, unless the by-laws provide otherwise. [Sec. 54]

QUORUM
GR: Majority of the number of directors or trustees as fixed in the
articles of incorporation. [Sec. 25]
EX: (1) Unless the articles of incorporation or the by-laws provide for
a GREATER majority, or (2) In case of election of officers where a
vote of a majority of all the members of the board is needed.
MEETING OF SH/MEMBERS
GR: Stockholders’ or members’ approval is expressed in a meeting
duly called and held for the purpose. EX: In case of amendment of
Articles of Incorporation, approval may be expressed by referendum
or written assent of the stockholders or members (Sec. 16)
Who May Attend and Vote?
 Stockholders, either in person or by proxy
 Pledgors or mortgagors (Sec. 55)
 Pledgee or mortgagee, IF expressly given such right by the pledgor
or mortgagor in writing which is recorded on the corporate books(Sec.
55)
 Executors, administrators, receivers, and other legal representatives
duly appointed by the court, without need of any written proxy(Sec.
55)
 ALL joint owners of stocks, or any one of them with the consent of
ALL the co-owners, unless there is a written proxy, signed by all the
co-owners(Sec. 56)
 Any one of the joint owners of shares owned in an "and/or" capacity
or a proxy thereof(Sec. 56)
REGULAR OR SPECIAL
When and Where When? (Sec. 50)
Regular meetings of stockholders or members shall be held annually
on a date fixed in the by-laws, or if not so fixed, on any date in April
of every year as determined by the BOD or trustees.
Special meetings of stockholders or members shall be held at any time
deemed necessary or as provided in the by-laws: Provided, however,
That at least one (1) week written notice shall be sent to all
stockholders or members, unless otherwise provided in the by-laws.
Where?
 Stock: City or municipality where the principal office of the
corporation is located, or, if practicable, in the principal office of the
corporation: Provided, Metro Manila shall be considered a city or
municipality. (Sec. 51)
 Non-stock: Any place even outside the place where the principal
office is located, within the Philippines (Sec. 93)
Notice (Sec. 50)
 Regular Meeting—written notice sent to all shareholders or members
at least 2 weeks prior to the meeting, unless a different period is
required by the by-laws
 Special Meeting—written notice sent at least 1 week prior to the
meeting, unless otherwise provided in the by-laws.
 Subject to waiver, expressly or impliedly (i.e., attendance despite no
notice)
Effect of Failure to Give Notice: Failure to give notice would render a
meeting VOIDABLE at the instance of an absent stockholder, who was
not notified of the meeting (Board v. Tan, 1959).
WHO CALLS THE MEETINGS
Any petitioning stockholder or member upon order of the SEC when
there is no person authorized to call a meeting. (Sec. 50)
WHO PRESIDES AT THE MEETINGS
The president, unless the by-laws provide otherwise.(Sec. 54) The
petitioning stockholder or member (when there is no person authorized
to call a meeting) shall preside thereat until at least a majority of the
stockholders or members present have chosen one of them as presiding
officer.(Sec. 50)
QUORUM
GR: Stockholders representing majority of the Outstanding Capital
Stock or majority of the members
EX: The Code or the by-laws provide otherwise where quorum is
present at the start of a lawful meeting, stockholders present cannot
without justifiable cause break the quorum by walking out from said
meeting so as to defeat the validity of any act proposed and approved
by the majority. (However, stockholders can break the quorum for
justifiable causes.) (Johnston vs. Johnston, 1965 CA decision)
PROXY
Stockholders and members may vote in person or by proxy in all
meetings of stockholders or members (Sec. 58).
Requisites for a Valid and Enforceable Proxy:
(1) It must be in writing;
(2) Signed by the stockholder or member of record; and
(3) Filed with the corporation before the scheduled meeting with
the Corporate Secretary
VOTING TRUST
An arrangement created by one or more stockholders 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
(Sec. 59).
Under a voting trust arrangement, a stockholder of a stock corporation
parts with the naked or legal title, including the power to vote, of the
shares and only retains the beneficial ownership of the stock. A voting
trustee is a share owner vested with colorable and naked title of the
shares covered for the primary purpose of voting upon stocks that he
does not own.
A voting trust agreement shall be ineffective and unreasonable unless:
(1) It is in writing and notarized;
(2) Specify the terms and conditions thereof; and
(3) A certified copy of such agreement shall be filed with the
corporation and with the SEC.
PROXY v. TRUSTEE
1. Principal–agent -- Trustee-beneficiary
2. Proxy cannot exceed delegated authority. -- The only limit to
authority is that the act must be for the benefit of trustee.
(fiduciary obligation)
3. Must be in writing -- Must be in writing and notarized
4. Copy must be filed with the corporation. -- Copy must be filed
with SEC and the corporation.
5. No transfer. -- Transfer of legal title to trustee.
6. Proxy exercises voting rights only for a specific meeting (unless
otherwise provided) -- Trustee exercises absolute voting rights
continuously, subject only to fiduciary duty.
7. Proxy cannot be director -- Trustee can be director because he
holds legal title over the shares
8. Revocable at will in any manner, EXCEPT if coupled with an
interest. -- Irrevocable, as long as no misconduct or fraud.
9. Max of 5 yrs at a time -- Max of 5 yrs at a time (unless the voting
trust is specifically required as a condition in a loan agreement)
STOCKS AND STOCKHOLDERS
SUBSCRIPTION AGREEMENT
Any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed shall be deemed a
subscription contract (Sec. 60)
PRE-INCORPORATION SUBSCRIPTION (SEC. 61)
- It is a subscription for shares of stock of a corporation still to be
formed.
- When pre-incorporation subscription is IRREVOCABLE: (1) For
a period of at least 6 months from the date of subscription,
UNLESS (a) all of the other subscribers consent to the revocation,
or (b) the incorporation fails to materialize within 6 months or
within a longer period as may be stipulated in the contract of
subscription; or
(2) After the submission of the Articles of Incorporation to the
SEC.
POST-INCORPORATION SUBSCRIPTION
- It is entered into after incorporation.
UNPAID SUBSCRIPTIONS
PAYMENT OF BALANCE OF SUBSCRIPTION
(SEC. 66 AND 67)
- The BOD of any stock corporation may at any time declare due
and payable to the corporation unpaid subscriptions to the capital
stock and may collect the same or such percentage thereof, in
either case with accrued interest, if any, as it may deem necessary.
- Payment shall be made on the date specified in the contract of
subscription or on the date stated in the call. 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, unless a different rate of interest is provided for in the
by-laws. If within 30 days from said date no payment is made, all
stocks covered by said subscription shall become delinquent and
subject to sale under Sec. 68 unless the BOD orders otherwise.
- There are 2 instances when call is not necessary to make the
subscriber liable for payment of the unpaid subscription:
(1) When, under the terms of the subscription contract, subscription is
payable, not upon call, but immediately, or on a specified day, or when
it is payable in installments at specified times; and
(2) If the corporation becomes insolvent, which makes the liability on
the unpaid subscription due and demandable, regardless of any
stipulation to the contrary in the subscription agreement.
SALE OF DELINQUENT SHARES(SEC. 68)
Delinquent Shares - These are shares for which the corresponding
subscription or balance remains unpaid after a grace period of 30 days
from the date specified in the contract of subscription or from the date
stated in the call made by the BOD. (Sec. 67)
EFFECT OF DELINQUENCY(SEC. 71)
- No delinquent stock shall be voted for or be entitled to vote or to
representation at any stockholders’ meeting.
- The holder thereof shall NOT be entitled to any of the rights of a
stockholder except the right to dividends. But the dividends it will
receive will be subject to Sec. 43, that is, cash dividends shall first
be applied to the unpaid balance on the subscription plus costs
and expenses, and stock dividends shall be withheld until the
unpaid subscription is fully paid. Such shares shall be subject to
delinquency sale.
CALL BY RESOLUTION OF THE BOD (SEC. 68)
- The BOD 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 30 days nor more than 60 days from
the date the stocks became delinquent, which is 30 days after the
date specified in the contract of subscription or on the date stated
in the call.
Procedure for delinquency sale (Sec. 68)
 Call for payment made by the BOD.
 Notice of call served on each stockholder.
 Notice of delinquency issued by the BOD upon failure of the
stockholder to pay within 30 days from date specified.
 Service of notice of delinquency on the non-paying subscriber, PLUS
publication in a newspaper of general circulation in the province or
city where the principal office of the corporation is located, once a
week for 2 consecutive weeks.
NOTE Requirements on notice and publication are mandatory.
Lacking such requirements, the stockholder may question the sale as
provided under Sec. 69.
- The delinquent stockholder may stop the auction by paying to the
corporation on or before the date specified for the sale the balance
due on his subscription, plus accrued interest, costs of
advertisement and expenses of the sale.
- Otherwise, the public auction shall proceed and the delinquent
shares shall be sold to the bidder that will pay the full amount of
the balance of subscription with accrued interest, costs and
expenses of the sale, for the smallest number of shares or fraction
of a share. The stock so purchased shall be transferred to such
purchases in the books of the corporation and a certificate of such
stock shall be issued in his favor. 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.
Irregularities in the delinquency sale (Sec. 69)
 Action to recover delinquent stock must be on the ground of
irregularity or defect in the notice of sale.
 Party seeking to recover must first pay or tender 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.
 The action must be commenced within 6 months from the date of
sale.
LOST OR DESTROYED CERTIFICATES
Section 73. Lost or destroyed certificates. - The following procedure
shall be followed for the issuance by a corporation of new certificates
of stock in lieu of those which have been lost, stolen or destroyed:
1. The registered owner of a certificate of stock in a corporation
or his legal representative shall file with the corporation an
affidavit in triplicate setting forth, if possible, the
circumstances as to how the certificate was lost, stolen or
destroyed, the number of shares represented by such
certificate, the serial number of the certificate and the name
of the corporation which issued the same. He shall also
submit such other information and evidence which he may
deem necessary;
2. After verifying the affidavit and other information and
evidence with the books of the corporation, said 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 three (3) consecutive weeks at the
expense of the registered owner of the certificate of stock
which has been lost, stolen or destroyed.
- The notice shall state the name of said corporation, the
name of the registered owner and the serial number of
said certificate, and the number of shares represented
by such certificate, and
- that after the expiration of one (1) year from the date of
the last publication, if no contest has been presented to
said corporation regarding said certificate of stock, the
right to make such contest shall be barred and said
corporation shall cancel in its books the certificate of
stock which has been lost, stolen or destroyed and issue
in lieu thereof new certificate of stock,
o unless the registered owner files a bond or
other security in lieu thereof as may be
required, effective for a period of one (1)
 year, for such amount and in such form and
with such sureties as may be satisfactory to
the board of directors, in which case a new
certificate may be issued even before the
expiration of the one (1) year period provided
herein:
- Provided, That 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
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.
(R.A. 201a)
INDIVIDUAL SUIT
- A suit brought by the shareholder in his own name against the
corporation when a wrong is directly inflicted against him.
REPRESENTATIVE SUIT
- A suit brought by the stockholder in behalf of himself and all
other stockholders similarly situated when a wrong is committed
against a group of stockholders.
DERIVATIVE SUIT
- A suit is brought by a stockholder for wrongful acts committed
by directors/trustees of the corporation, when the stockholder
finds that he has no redress because the directors/trustees are the
ones vested by law to decide whether or not to sue.
RIGHT TO INSPECT
- As the beneficial owners of the business, the stockholders have
the right to know the financial condition and management of
corporate affairs. A stockholder’s right of inspection is based on
his ownership of the assets and property of the corporation.
Therefore, it is an incident of ownership of the corporate property,
whether this ownership or interest is termed an equitable
ownership, a beneficial ownership, or quasi-ownership. Such
right is predicated upon the necessity of self-protection.
[Gokongwei Jr. v. SEC (1979)]
Records/Books to be Kept (Sec. 74)
- (1) Books that record all business transactions of the corporation
which shall include contract, memoranda, journals, ledgers, etc;
- (2) Minute book for meetings of the stockholders/members;
- (3) Minute book for meetings of the board/trustees;
- (4) Stock and transfer book
Financial Statements (Sec. 75)
- Within 10 days from written request, the corporation shall furnish
its most recent financial statement (balance sheet and profit or
loss statement as of last taxable year) At a regular meeting, the
Board shall present a financial report of the operations of the
corporation for the preceding year, which shall include financial
statements duly signed and certified by an independent CPA.
Requirements for the exercise of the right of inspection (Sec. 74)
(1) It must be exercised at reasonable hours on business days and in
the place where the corporation keeps all its records (i.e., principal
office).
(2) The stockholder has not improperly used any information he
secured through any previous examination.
(3) Demand is made in good faith or for a legitimate purpose. If the
corporation or its officers contest such purpose or contend that there is
evil motive behind the inspection, the burden of proof is with the
corporation or such officer to show the same.
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:
o 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,
o or was not acting in good faith or for a legitimate
purpose in making his demand.
RIGHT OF APPRAISAL
- Right to withdraw from the corporation and demand payment of
the fair value of the shares after dissenting from certain corporate
acts involving fundamental changes in corporate structure (Sec.
81).
- The amount paid to the stockholder is the fair value of his shares
as of the day prior to the date on which the vote was taken,
excluding any appreciation or depreciation in anticipation of the
corporate action (Sec. 82)
Instances of appraisal right
(1) Extension or reduction or corporate term (Sec. 81)
(2) Amendment to Articles of Incorporation which involves change in
the rights of stockholders, authorize preferences superior to those
stockholders, or restrict the right of any stockholder (Sec. 81)
(3) Investment of corporate funds in another business or purpose (Sec.
42)
(4) Sale or disposal of all or substantially all assets of the corporation
(Sec. 81)
(5) Merger or consolidation (Sec. 81)
Requirements for exercise of appraisal right (Secs. 82, 86)
1. Stockholder must have voted against the corporate act.
2. Stockholder must make a written demand on the corporation
within 30 days after the vote was taken for payment of the fair
value of his shares (failure to make demand within such period
shall be deemed waiver of the appraisal right).
3. Stockholder must submit his certificates of stock to the
corporation for notation within 10 days after demand for payment.
Otherwise, right to appraisal may be terminated at the option of
corporation.
DISSOLUTION
Dissolution of a corporation is the extinguishment of its franchise and
the termination of its corporate existence or business purpose.
However, for the purpose only of winding up its affairs and liquidating
its assets, its corporate existence continues for a period of 3 years from
such dissolution [Sec. 122].
Upon dissolution, the corporation ceases to be a juridical person and
consequently can no longer continue transacting its business
[Campos]. Note: If no dissolution papers are filed with the SEC by a
corporation claiming dissolution voluntarily, such corporation is still
deemed legally existing, notwithstanding the fact that it has ceased to
operate. [De Leon]
MODES OF DISSOLUTION
- Based on jurisprudence, the methods of effecting dissolution as
prescribed by law are exclusive, and a corporation cannot be
dissolved except in the manner prescribed by law. [De Leon]
VOLUNTARY
- WHERE NO CREDITORS ARE AFFECTED [SEC. 118]
-  Notice of the meeting should be given to the stockholders or
members by personal delivery or registered mail at least 30 days
prior to the meeting.
-  The notice of meeting should also be published for 3
consecutive weeks in a newspaper published in the place where
the principal office of said corporation is located. If no newspaper
is published in such place, then in a newspaper of general
circulation in the Philippines.
-  The resolution to dissolve must be approved by the majority of
the BOD/BOT and approved by the stockholders representing at
least 2/3 of the Outstanding Capital Stock or 2/3 of members. o
Non-voting shares are entitled to vote in this matter [Sec. 6. Par
6(8)]
-  A copy of the resolution shall be certified by the majority of the
BOD/BOT and countersigned by the secretary.
-  The signed and countersigned copy will be filed with the SEC
and the latter will issue the certificate of dissolution.
- WHERE CREDITORS ARE AFFECTED [SEC. 119]
-  A petition shall be filed with the SEC containing the following:
o signature by a majority of its BOD or BOT or other
officers having management of its affairs;
o verified by its president, or secretary or one of its
director or trustees;
o all claims and demands against the corporation; and o
resolved upon by affirmative vote of the stockholders
representing at least 2/3 of the Outstanding Capital
Stock or 2/3 of members;
-  If the petition is sufficient in form and substance, the SEC shall
issue an order fixing the date on or before which objections to the
petition may be filed. Such date shall not be less than 30 days nor
more than 60 days after the entry of the order.
-  A copy of the order shall be published at least once a week for
3 consecutive weeks in a newspaper of general circulation, or if
there is no newspaper in the city or municipality of the principal
office, posting for 3 consecutive weeks in 3 public places is
sufficient.
-  A hearing shall be conducted 5 days after the lapse of the
expiration of the time to file objections.
-  If the objections are insufficient or the material facts in the
petition are true, judgment shall be rendered dissolving the
corporation and directing the disposition of assets. The judgment
may include appointment of a receiver.
o As long as 2/3 vote is obtained, no member/ stockholder
can prevent such dissolution unless the majority
stockholders acted in bad faith. The latter may be held
liable for damages [Campos].
o Even where there are creditors of the corporation who
may be prejudiced by the dissolution, it is still possible
for the corporation to terminate its existence prior to the
expiration of its term, provided said creditors are given
the opportunity to present their claims and objections
so that their interests may be protected [Campos].
- BY SHORTENING OF CORPORATE TERM
- A voluntary dissolution may be effected by amending the Articles
of Incorporation to shorten the corporate term; and upon approval
of the expired shortened term, the corporation shall be deemed
dissolved without any further proceedings.
- A publication of notice of dissolution is required and cannot be
dispensed with by alleging that it was not required in Sec. 120 and
that no creditors will be prejudiced by its dissolution.
INVOLUNTARY
- BY EXPIRATION OF CORPORATE TERM
- Once the period expires, the corporation is automatically
dissolved without any other proceeding and it cannot thereafter
be considered a de facto corporation.
- FAILURE TO ORGANIZE AND COMMENCE BUSINESS
WITHIN 2 YEARS FROM INCORPORATION
- Failure to formally organize and commence the transaction of its
business or construction of its works within 2 years - its corporate
powers shall cease and the corporation shall be deemed dissolved
[Sec. 22]
- LEGISLATIVE DISSOLUTION
- The inherent power of Congress to make laws carries with it the
power to amend or repeal them. Involuntary corporate dissolution
may be effected through the amendment or repeal of the
Corporation Code. [implied from Sec. 145, De Leon]
- DISSOLUTION BY THE SEC ON GROUNDS UNDER
EXISTING LAWS
- A corporation may be dissolved by the SEC, upon a verified
complaint and after proper notice and hearing, on the following
grounds [Sec. 6, par. i, PD 902-A]: (1) Fraud in procuring its
certificate of registration (2) Serious misrepresentation as to what
the corporation can or is doing to the great prejudice of or damage
to the general public (3) Refusal to comply or defiance of any
lawful order of the Commission restraining commission of acts
which would amount to a grave violation of its franchise (4)
Continuous inoperation for a period of at least five years (5)
Failure to file by-laws within the required period (6) Failure to
file required reports in appropriate forms as determined by the
Commission within the prescribed period (7) Other grounds Other
grounds: (a) Violation by the corporation of any provision of the
Corporation Code [Sec. 144 BP 68] (b) In case of a deadlock in a
close corporation, and the SEC deems it proper to order the
dissolution of the corporation as the only practical solution to the
dispute (Sec. 104 BP 68)
LIQUIDATION
- Liquidation is the process by which all the assets of the
corporation are converted into liquid assets (cash) in order to
facilitate the payment of obligations to creditors, and the
remaining balance if any is to be distributed to the stockholders.
It is a proceeding in rem.
- BY THE CORPORATION ITSELF
- Under Sec. 122 of the Corporation Code, a corporation whose
corporate existence is terminated in any manner continues to be a
body corporate for 3 years after its dissolution for purposes of
prosecuting and defending suits by and against it and to enable it
to settle and close its affairs, culminating in the disposition and
distribution of its remaining assets. It may, during the 3-year term,
appoint a trustee or a receiver who may act beyond that period.