Corporation Code(Philippines)

Corporations have ceased to be merely legal
devices through which the private business
transactions of individuals may be carried on.
The corporation become both a method of
property tenure and a means of organizing
economic life.

TITLE 1
GENERAL
PROVISIONS
(Definition and
Classification)

Section 1. Title of the code. – This Code
shall be known as “The Corporation Code
of the Philippines.”
Sec. 2. Corporation defined. – A
corporation is an artificial being created by
operation of law, having the right to
succession and the powers, attributes and
properties expressly authorized by law or
incident to its existence.

 Corporation as artificial being. The
Corporation Code has embodied the accepted
concept of a corporation as an “artificial” being.
A Corporation is given by law with rights,
powers and liabilities usually accorded a natural
person.
 Other attributes of corporation. Aside
from a corporation being considered as an
artificial being it has other attributes like it is
created by operation of law.

 Created by operation of law. A
corporation comes into being by authorities of
the state.
A primary franchise is distinguished from a
secondary franchise which is given to the
corporation such as the right to expropriate
private property for use as railroad, public
highways, gas, electric services, etc.

 Right of succession. A private corporation
may continue regardless of the death, insolvency,
incapacity of any of its directors, officers or
employees, and regardless of transfer of shares
from one stockholder to another.
 Power, attributes and properties. A
corporation, being a mere creature of law, has
such powers only as are expressly, or impliedly
conferred upon it by the Charter or act of
incorporation.

 Corporate nationality. It is a recognized
doctrine of corporate law that a private
corporation is a national, citizen, resident, or
inhabitant of the country or state, by or under
the laws of which it was created or organized.
• Incorporation rule
• Control test

3 Identical features of partnership and
corporation.
1. Partnerships and corporations are
organizations composed of an aggregate of
individuals;
2. Partnerships and corporations have juridical
personalities distinct from that of their
respective component members;
3. Partnerships and corporations can act only
through their respective agents.

8 Distinctions between Partnership
and a Corporation:
1. A partnership is crated by agreement among
the partners, but corporation cannot be
created without the consent of the state;
2. A partnership may be organized by only two
persons while a corporation requires at least
five incorporators;
3. In the absence of stipulation to the contrary, a
partner is considered an agent of the
partnership while in a corporation, the power
to bind the corporation, unless delegated, rest
in the board of directors;

4. In a partnership, general partners are liable to
third person even with their separate
property; in corporation, the shareholders are
liable only to the extent of the shares
subscribed by them;
5. A partnership does not have the power of
succession, so that the death of the general
partner causes dissolution of the partnership
while the death of a stockholders does not
affect the existence of a corporation;

6. A partner’s interest in the partnership cannot
be transferred to another without the consent
of the partner because of the personal
character of the relationship (delectus
personae); but in a corporation, a stockholder
may transfer his share even without the
consent of the stockholders because the
characteristic of delectus personae is foreign
in a corporation;

7. A partnership may be formed for an indefinite
period of time; a corporation’s life is limited
by law to 50 years, extendible to not more
than 50 years for each extension;
8. A partnership is governed by Civil Code while
corporation is governed by Corporation Code.

Advantages of a corporate form of business
organization:
1. The capacity to hold property, to contract, to sue
and be sued as a legal unit or distinct entity;
2. Exemption of shareholders from individual liability;
3. Continuity of existence in spite of death or change of
members;
4. Transferability of shares;
5. Centralized management under a board of directors;
6. Standardized method of organization, management
and finance for the protection of shareholders and
creditors under statutory regulations.

Disadvantages of a corporate form of
business organization:
1. The limited liability of the stockholders serves to
limit the credit available to the corporation;
2. The transferability of shares permits the uniting
incompatible and conflicting interest in one
enterprise;
3. The minority stockholders are usually subservient
to the wishes of majority;
4. In big corporations, the stockholders voting right
have become largely theoretical because of
widespread ownership, lukewarmness and
disinterest in management, inertia, and inaccessible
meeting places;

5. In large corporations, management control has
been separated from ownership;
6. By and large corporations are subject to
governmental restrictions, controls, and report
requirements not imposed on other forms of
business organization;
7. Corporate sphere of activity is limited in the
transaction of its business to the state of
organization;
8. The corporate form involves “double taxation” on
corporation income.

Sec. 3. Classes of corporations. –
Corporations formed or organized under
this Code may be stock or non-stock
corporations. Corporations which have
capital stock divided into shares and are
authorized to distribute to the holders of
such shares dividends or allotments of the
surplus profits on the basic of shares held
are stock corporation. All other
corporations are non-stock corporation.

Other kinds of corporations:
1. Quasi-corporation – Some entities are not
absolutely corporations but are considered as if
they were.
2. Quasi-public corporations – is one engaged in
rendering basic services of such public importance
as to entitle them t certain privileges like eminent
domain or use of public property.
3. Government-owned or controlled
corporations – are those organized by the
government or corporations of which the
government is a majority stockholder.

4. Domestic and foreign corporations –
 Domestic corporation is one incorporated
under Philippine laws.
 Foreign corporation is one formed, organized,
or existing under any laws other than those of the
Philippines.
5. Corporation aggregate and corporation sole
 Corporation aggregate is one composed of more
than one member or corporator.
 Corporation sole consists of one member or
corporator and his successors.

6. Religious corporations, sole or aggregate
– religious corporations are organized either as
a corporation sole or a corporation aggregate.
7. Ecclesiastical and lay corporations –
 Ecclesiastical corporation is one organized
for religious purposes.
 Lay corporation is one organized for a
purpose other than religious.

8. Eleemosynary and civil corporations
 Eleemosynary corporation is one organized for
charitable purposes.
 Civil corporations are those than ecclesiastical
and eleemosynary, whether public or private.
9. Close and open corporations
 Close corporation is one wherein all the
outstanding stock is owned by the persons who are
active in management and conduct on the business.
 Open corporation is one in which all the members
or corporations have a vote in the election of the
directors and other officers.

10. Multi-national corporation – is one having
been created or organized in one state conduct its
business or activities across national boundaries
and but subject to the legal sanctions of the
countries in which they operate.
11. Non-profit corporations – are those organized
without contemplation of gains, profits, or
dividends to their members on invested capital.
12. De Jure corporation – is one created in strict or
substantial conformity with the statutory
requirements for incorporation.

Sec. 4. Corporation created by special laws
or charter – Corporations created by
special laws or charters shall be
governed primarily by the provisions of
the special law or charter creating them
or applicable to them, supplemented by
the provisions of this Code, insofar as
they are applicable.

Sec. 5. Corporation and incorporations,
stockholders, and members. – Corporators
are those who compose a creation,
whether as stockholders or members.
Incorporators are those stockholders or
members mentioned in articles of
incorporation as originally forming and
composing the corporation and who are
signatories thereof.

Components of a Corporation:
1. Corporators – are those who composed a
corporation, whether as stockholders of members.
2. Incorporators – are those stockholders or
member mentioned in articles of incorporation as
originally forming and composing the corporation
and who are signatories thereof.
3. Stockholders or shareholders – are those
corporators in a stock corporation.
4. Members – are those corporators in a non-stock
corporation.

5. Incorporator and corporator distinguished.
 Incorporators refers to those natural person
whose names appear in the articles of
incorporation as originally forming and composing
the corporation and who are signatories thereof.
 Corporators refers to all persons whose compose
the corporation at any given time and need not be
signatories to the article of the corporation.
6. Capacity of incorporators – Incorporators of a
corporation is in legal effect a contract between the
organizers and the state.

7. Promotion - is the act of procuring the finances
and the making of all preparations necessary to
launch a corporation.
8. Activities of promoter – the promoter in the
fullest sense, performs various services in launching
an enterprise and may employ experts, lawyers,
bankers, solicitors and other persons to aid him.
9. Promoter’s contracts – A corporation is, thereof,
not bound by any agreement made by a promoter on
its behalf, unless until the corporation approves the
agreement.

Sec 6. Classification of Shares
 Stock or Share of Stock – A stock or share of
stock is one unit into which the capital stock has been
divided. It represents the interest or right that the
holder of the stock or stockholder has in the
corporation.
 Stock Certificate – A stock certificate certifies
that one is holder or owner of a certain number of
shares of stock in the corporation.

Shares of stock may be divided into
Classes or series
 The shares of stock of stock corporations may be
divided into classes or series of shares , or both , any
of which classes or series may have such rights ,
privilege or restrictions as may be stated in the
articles of incorporation.

Classes or series of shares of stock subject
to restrictions
1. Shares shall not be deprived of voting rights except
preferred or redeemable shares but non-voting
shares must still be entitled to vote on matters .
2. Where non- voting shares are provided for there
must always be a class or series of shares with
complete voting rights.
3. Banks, trust companies, insurance companies,
public utilities, and building and loan associations
shall not be permitted to issue non-par value
shares of stock;

4. Preferred shares of stock may be given preference
in the distribution of assets in case of liquidation and
distribution of dividends or other preferences may be
issued only with stated par value;
5. The terms and conditions of preferred shares or
series thereof may be fixed by the board of directors
only when authorized by the articles of
incorporation by the effectivity thereof shall be
reckoned from the filing of a certificate with the
Securities and Exchange Commission.
6. Shares w/o par value may not be issued for a
consideration less than the value of P5.00 per share.

7. Unless otherwise provided by law the rights, privileges
or restrictions on classes or series of shares must be
stated in the articles of incorporation and in the stock
certificates.
Presumed equality of Shares- “ Each share shall be
equal in all respects to every other share”.

Classes or Series of Shares
1. Voting and Non- Voting
Shares;
2. Par Value and No- Par
Value Shares;
3 Common and Preferred
Shares.
3.1 Preferred as to asset
3.2 Preferred as to
dividends
3.2) a. Cumulative
or Non Cumulative
3.2) b. Participating
or Non Participating
4. Promotion Shares;
5. Shares of Escrow;
6. Founder’s Shares;
7. Redeemable “ Callable”
Shares;
8. Treasury Shares;
9. Other shares classified to
comply with constitutional
or legal requirements.

Voting and Non-Voting Shares
In the absence, however, of a contrary provision in the
articles of incorporation, all shares shall be considered
voting shares. The general rule is that every member of a
non- stock corporation and every legal owner of shares in
a stock corporation, has a right to be present and vote at
all corporate meetings.
Par Value and No- Par Value
A share of stock that is given a fixed or definite value
in the articles of incorporation is known as a par value
share. Then a share of stock that has no fixed value is
called no- par value shares.

Preferred Stock as to Dividends
 One that entitles the holder to preference in the
distribution of dividends over common stock.
Kinds of Preferred Stock as to Dividends
A. Cumulative Preferred Stock- those w/c entitle
the holder to payment not only of current dividends
but also those in arrears, when dividends are
declared, to the extent stipulated, before holders of
common shares are paid.

B. Non-Cumulative Preferred Stock
 Those that entitle the holder to payment of current
dividends but not those in arrears, before holders of
common shares are paid.
C. Participating Preferred Stock
 Those that entitle the holder to participate with the
holder to participate with the holders of common
shares in the surplus profits after the amount
stipulated has been paid to the holder of preferred
shares.

D. Non- Participating Preferred Stock
 Those that entitle the holders only to the stipulated
preferred dividend.
Promotion Stock – issued to those who may
originally own the mining ground or valuable rights
connected therewith, for incorporating the company
or for services rendered in launching or promoting
the welfare of the company, such as advancing the
fees for incorporation, attorney’s fees, surveying,
advertising, etc.

Instances when Non-voting shares may vote
 The holders of such shares shall nevertheless be
entitled to vote on the ff. matters.
1.) Amendment of the articles of incorporation;
2.) Adoption and amendment of by-laws;
3.) Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate
property;
4.) Incurring, creating or increasing bonded
indebtedness;

5.) Increase or decrease of capital stock;
6.) Merger or consolidation of the corporation with
another corporation or other corporations;
7.) Investment of corporate funds in another
corporation of business in accordance with the
Corporation Code;
8.) Dissolution of the corporation.

Reason for allowing non-voting shares to vote
 They refer to basic or fundamental changes in the
corporation.
 A vote of stockholders represents 2/3 of the
outstanding capital stock or 2/3 of the members is
required to approve any of the changes mentioned
above.
Par Value and No- Par Value
 It indicates the amount which the original
subscribers are supposed to contribute to capital as
basis privileges of profit sharing w/ limited liability.

No- Par Value Shares deemed fully paid
 Shares of capital stock issued w/o par value shall be
deemed fully paid.
Shares w/o par value may not be issued for a
consideration less than the value of five (P5.00).
 Banks, trust companies, insurance companies,
public utilities, and building and loan associations
shall not be permitted to issue no-par value shares of
stock.

Common and Preferred Shares
 A common share of stock entitles the owner of it to
an equal pro rata division of profits, if there are any,
with no stockholder or class of stockholders having
preference or advantage in that respect over any
other stockholder or class of stockholder.
Shares in Escrow
 Subject to an escrow agreement,
 It is in effect the issuance of shares subject to
suspensive condition.

Sec. 7 Founder’s Share
 Founder’s shares classified as such in the
articles of incorporation may be given certain
rights and privileges not enjoyed by the
owners of other stock , provided that where
the exclusive right to vote and be voted for in
the election of directors is granted, it must be
for a limited period not to exceed 5 years
subject to approval of the Securities and
Exchange and Commission. The 5 year period
shall commence from the date of the
aforesaid approval by the Securities and
Exchange and Commission.

Founder’s Share
 Generally common stock, given to the founders or
promoters of a corporation in payment of money
expended or services rendered in the promotion of it.
Issue of Founder’s Share requires SEC
approval
 “ Where the exclusive right to vote and to be voted
for in the election of directors is granted. It must be
for limited period for 5 years and may no be
extended for to do so may result in the permanent
disqualification of the other stockholder.

Sec. 8. Redeemable Shares
 Redeemable shares may be issued by the
corporation when expressly so provided in the
articles of incorporation. They may be
purchased or taken up by the corporation upon
the expiration of a fixed period, regardless of the
existence of unrestricted , retained earnings in
the books of the corporations as may be stated in
the articles of incorporation, which terms and
conditions must also be stated in the certificate
of stock representing said shares.

Redeemable Shares
  Redeemable ( Callable) shares of stock which are
usually preferred are frequently issued subject to
redemption at the option of either the corporation, the
stockholder, or both, at a definite price representing
premium above the amount originally paid.
Redemption of Shares is Virtually a
Repurchase of Shares
 A redemption by the corporation of its stock is, in a
sense, a repurchase of its cancellation. The present Code
allows redemption of shares even if there are no
unrestricted retained earnings on the books of the
corporation.

Retired or redeemed shares, cannot be
reclassified
 Retired or redeemed preferred shares cannot be
reclassified into common shares considering that
upon redemption, they lose their status as
outstanding or unissued authorized capital stock.
Sinking Fund
 Sinking Fund refers to a fund set-up by the
corporation where cash is gradually set aside in
order to accumulate the amount necessary to meet
the redemption price of redeemable shares of
specified dates in the future.

Sec. 9. Treasury Shares
 Treasury shares are shares of stock which
have been issued and fully paid for, but
subsequently reacquired by the issuing
corporation by purchase, redemption,
donation or through some other lawful
means. Such share may again be disposed of
for a reasonable price fixed by the board of
directors.
 Treasury shares carry no voting rights or right as
to dividends or distributions.

Treasury Shares are not outstanding
shares
 Treasury shares are issued shares, but being in the
treasury they do not have the status of outstanding
shares.
Treasury Shares do not revert to
unissued shares
 Treasury shares do not revert to the unissued
shares of the corporation but are regarded as
property acquired by the corporation w/c may be
reissued or sold by the corporation at a price to be
fixed by the Board of Directors.

Incorporation and organization
of private corporations
CORPORATION CODE

INCORPORATION
 T H E A C T O F C R E A T I N G A C O R P O R A T I O N .

Issuance of certificate
IT IS THE CERTIFICATE OF
INCORPORATION THAT GIVES
JURIDICAL PERSONALITY TO A
CORPORATION AND PLACES IT
WITHIN THE JURISDICTION OF
THE SEC.

SECTION.10
NUMBER AND QUALIFICATIONS OF
INCORPORATORS
COMPOSE OF 5-15 NATURAL PERSONS
LEGAL AGE
MAJORITY OF WHOM ARE RESIDENTS OF
THE PHILIPPINES
MUST OWN OR BE A SUBSCRIBER TO AT
LEAST ONE SHARE OF THE CAPITAL STOCK

SECTION.11
A CORPORATION SHALL EXIST FOR
A PERIOD NOT EXCEEDING FIFTY
(50) YEARS.
UNLESS: SOONER DISSOLVED
SAID PERIOD IS EXTENDED

SECTION.12
MINIMUM CAPITAL STOCK REQUIRED
OF STOCK CORPORATIONS
 SHALL NOT BE REQUIRED TO HAVE ANY
MINIMUM AUTHORIZED CAPITAL STOCK

SECTION.13
AMOUNT OF CAPITAL STOCK TO BE
SUBSCRIBED AND PAID FOR PURPOSE OF
INCORPORATION
25% AUTHORIZED CAPITAL STOCK MUST
BE SUBSCRIBED
25% OF 25% AUTHORIZED STOCK MUST BE
PAID UPON SUBSCRIPTION

SECTION.13
EXAMPLE:
1000 SHARES
P100 PAR VALUE
100,000CAPITAL STOCK
X 25%OF AUTHORIZED CAPITAL STOCK
25000
X 25%
6250 MUST BE PAID

SECTION 15
 FORM OF ARTICLES OF
INCORPORATION
UNLESS OTHERWISE PRESCRIBED BY
SPECIAL LAW, ARTICLES OF
INCORPORATION OF ALL DOMESTIC
CORPORATIONS SHALL COMPLY
SUBSTANTIALLY WITH THE PRESCRIBED
FORM.

SECTION 15
The Articles of Incorporation of all corporations
organized in accordance with the Corporation Code
written in any of the official languages (English or
Filipino) signed and acknowledged by not less than
five nor more than fifteen natural persons before a
notary public.

Contents of Articles of Incorporation
1. The name of the corporation
2. Specific purpose or purposes
3. Principal office of the corporation
4. Term of existence of corporation
5. Names, nationalities, and residences of incorporators
6. Number of directors or trustees
7. Names, nationalities and residences of directors or trustees
8. Amount of authorized capital stock
9. Non-stock corporation
10. Inclusions of other matters (Sworn statement of treasurer,
Property as subscription payment; SEC policy, Papers to
accompany articles with SEC)

Papers to accompany articles with SEC
1. A VERIFICATION SLIP
2. WRITTEN UNDERTAKING TO CHANGE
CORPORATE NAME
3. SWORN STATEMENT OF ASSETS AND
LIABILITIES
4. BANK CERTIFICATE OF DEPOSIT
5. WRITTEN AUTHORITY TO VERIFY BANK
DEPOSIT
6. TAXPAYER ACCOUNT NUMBER OF THE
INCORPORATORS
7. REGISTRATION DATA SHEET

SECTION 16
 amendment of articles of incorporation
change of corporate name
extension of term of the corporation
change in classes or series of shares
change in rights, privileges or restictions in share
ownership
increase or decrease in the number of directors
change in purpose or purposes and other necessary
changes

SECTION 17
 GROUNDS WHEN ARTICLES OF
INCORPORATION OR
AMENDMENT MAY BE
REJECTED OR DISAPPROVED

SECTION 17
 AOI or any amendment is not substantially in
accordance with the form prescribed
 Purposes of the corporation are patently
unconstitutional, illegal, immoral or contrary to
the government rules and regulations
 Treasurer’s Affidavit concerning the amount of
capital stock subscribed and/or paid is false
 Required % of ownership of the capital stock to
be owned by citizens of the Philippines has not
been complied with as required by existing laws
or the Constitution

SECTION 18
 Corporate name
No corporate name may be allowed by the
SEC if the proposed name is identical or
deceptively or confusingly similar to that of any
existing corporation or to any other name
already protected by law or its patently
deceptive, confusing or contrary to existing
laws. When a change in the corporate name is
approved, the Commission shall issue an
amended certificate of incorporation under the
amended name.

SECTION 19
 Commencement of corporate existence
A private corporation formed or organized
under this Code commences to have corporate
existence and juridical personality and is deemed
incorporated from the date the SEC issues a
certificate of incorporation under its official seal;

SECTION 20
 De Facto corporations
The due incorporation of any corporation
claiming in good faith to be a corporation under
this Code, and its right to exercise corporate
powers, shall not be inquired into collaterally in
any private suit to which such corporation may be
a party. Such inquiry may be made by the Solicitor
General in a quo warranto proceeding.

SECTION 21
 Corporation by estoppel
All persons who assume to act as a corporation
knowing it to be without authority to do so shall be
liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof:
Provided, however, That when any such ostensible
corporation or on any tort committed by it as such, it
shall not be allowed to use as a defense its lack of
corporate personality.
One who assumes an obligation to an ostensible
corporation as such, cannot resist performance
thereof on the ground that there was in fact no
corporation.

SECTION 22
 Effects of non-use of corporate charter and
continuous inoperation of a corporation
If a corporation does not formally organize and
commence the transaction of its business or the
construction of its works within 2 years from the date
of its incorporation, its corporate powers cease and the
corporation shall be deemed dissolved. However, if a
corporation has commenced the transaction of its
business but subsequently becomes continuously
inoperative for a period of 5 years, the same shall be
ground for suspension or revocation of its corporate
franchise or certificate of incorporation.

Corporation Code(Philippines)

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