TITLE I: CORPORATION DOCTRINE OF LIMITED LIABILITY

Republic act 11232

(Revised Corporation Code) the liabilities of the corporation are
generally its own and cannot extend to the
A Corporation is an artificial being created stockholders in their personal capacities.
by operation of law, having the right of
succession and the power, attributes and PIERCING THE VEIL OF CORPORATE
properties expressly authorized by law or ENTITY
incidental to its existence.
the doctrine is used whenever a court finds
ATTRIBUTES that the corporate fiction is being used to
defeat public convenience, justify wrong,
1. ARTIFICIAL BEING protect fraud, or defend crime or w/ confuse
it has a juridical personality, separate and legitimate issues or that corporation is the
distinct from the persons composing it. mere alter ego or business conduit of a
person or where the corporation is so
- The corporation cannot be held organized and controlled and its affairs are
criminally liable particularly penalty conducted as to make an instrumentality,
of imprisonment. agency, conduit or adjunct of another
- maybe held for fines for corporate corporation.
crimes.
- Corporation is not entitled to moral 2. CREATED BY OPERATION OF
damages because it is an artificial LAW
being not a natural being. a corporation legal existence and possession
- Corporation is not entitled to of separate and juridical personality must be
constitutional rights against self- acquired through the formalities required by
incrimination. law. Private are created under authority of
the state through corporation code, while
CORPORATE ENTITY certain corporations are created by special
THEORY/DOCTRINE OF SEPARATE laws enacted by Congress.
ENTITY
CONCESSION THEORY
The corporation has a juridical personality means that a corporation owes its existence
separate and distinct from the stockholders to the law and the state and the extent of its
or members. existence, powers and liberties is fixed by its
charter.
it can sue and be sued in its own name, it
can possess properties belonging it to the it only possesses properties, attributes, rights
exclusion of the stockholders and personal and powers provided by law or incident to
creditors. its existence.
COMMENCEMENT OF CORPORATE c. Incidental powers – those that are
EXISTENSE incidental to the existence of the
corporation.
is at the time of issuance of Certificate of Express powers of corporation
incorporation or Registration. a. to sue and be sued in its corporate
name
EXCEPT: b. of succession by its corporate name
1. CORPORATION BY ESTOPPEL for the period of time stated in the
2. THE CREATED BY SPECIAL LAW articles of incorporation and the
3. SOLE CORPOATION – reckoned certificate of incorporation
from the filing of verified articles. c. to adopt and use corporate seal
d. to amend its articles of incorporation
in accordance with the provisions of
3. RIGHT OF SUCCESSION the code.
unlike in partnership, the death insolvency, e. to adopt by laws not contrary to law,
incapacity or civil interdiction of one or morals, or public policy and to
more or even all of its stockholder does not amend or repeal the same in
result in its dissolution; this is otherwise accordance with this code
referred to as a “STRONG” juridical f. to issue or sell stocks to subscribers
personality. and to sell treasury stocks
g. to purchase, receive, take or grant,
4. CORPORATE POWERS hold, convey, sell, lease, pledge,
Power, Attribute and properties expressly mortgage and otherwise deal with
authorized by law in a way the acts of such real and personal property.
corporation are limited only to those which h. to enter into merger or consolidation
are authorized by law or implied there from with other corporation as provided in
or incidental to its existence. anything done this code.
outside such powers will be considered as i. to donate
ULTRA VIRES ACTS. j. establish pension, retirement and
other plans for the benefits of its
Powers of a corporation: directors, trustees, officers and
a. express powers – those expressly employees.
authorized by the corporation code Implied powers:
and other laws and its Articles of are those inferred from reasonably necessary
incorporation. for the exercise of the provided powers of
b. implied powers – those that can be the corporation. they flow from the nature of
inferred from or necessary for the underlying business enterprise.
exercise of EXPRESS POWERS.
 1. to issue check, promissory note or Voidable – Ultra vires being outside the
bill exchange or mercantile primary and secondary purposes of the
documents. corporation.
2. to establish a local post office in case
of mining company STATUS acts by the corporate officers on
3. to operate power plant, in case of a behalf of corporation
cement factory company
4. to sell supply or manage advertising Null and void – illegal Ultra Vires
materials in case of an advertising unenforceable – acts that are unauthorized or
company. officers exceed their authority.
Incidental or inherent powers: enforceable – express or implied ratification
are powers that attached to a corporation at by the corporation, doctrine of estoppel,
the moment of its creation without regard to doctrine of apparent authority of the
its expressed powers of particular primary corporation.
purpose and may be said to necessarily arise
from its being a juridical person engaged in ADVANTAGES AND DISADVANTAGES
business. OF FORMING A CORPORATION

a. right of succession ADVANTAGES:

b. right to have corporate name 1. Continuity of existence
c. right to make by-law for its governance 2. limited liability on part of investors
d. right to sue and be used 3. strong juridical personality
e. right to acquire and hold properties for the 4. legal capacity to act as a distinct unit
purpose of authorized by charter 5. centralized management
6. ease of transferability of share and
ULTRA VIRES ACTS or CONTRACTS stocks in case of stock corporation
are committed outside the object for which a 7. ease in raising funds
corporation is created as defined by the law
of its organization and therefore beyond the DISADVANTAGES:
express, implied, and incidental powers of 1. High cost of formation
incorporation. 2. little voice of stockholders in
management
it is not necessarily illegal. 3. weakened credit rating because of
limited liability feature
STATUS act by the corporation 4. being subject to greater degree of
Null and void – illegal ultra vires governmental regulation
Null and void – failure to comply voting 5. more taxes particularly indirect
formality but maybe barred by estoppel double taxation.
CLASSES OF CORPORATIONS PRIVATE CORPORATION
those formed for some private purpose,
STOCK CORPORATION benefit aim or end, created under the
corporation which have capital stock divided provisions of a general enabling law. i.e., the
into shares and are authorized to distribute to corporation code
the holders of such share dividends or
allotment of surplus profits on basis of PUBLIC CORPORATIONS
shares held are stock corporation are those created by special law for public
purpose, which may either be
NON-STOCK CORPORATION
Corporation which are not authorized to a. Municipal corporation – Is a public
distribute surplus profits. corporation created by special law
for governance of a particular local
DOMESTIC CORPORATION territory.
are those organized or created under by b. Government owned and controlled
virtue of the Philippine laws, either corporation (GOCC) – is a public
legislative act or under provision of general corporation created by special law
corporation law. for public purpose but performing
propriety or commercial functions.
FOREIGN CORPORATION
are those formed, organized or existing RELIGIOUS OR ECCLESIASTICAL
under any laws other than those of the CORPORATION
Philippines. are those which formed for religious or
spiritual purposes which may be classified
CLOSE CORPORATION religious society or corporation sole.
are those whose shares of stock are held by a
number of person not exceeding 20 and are Corporation Sole – is that which of only of
usually formed by closely related individuals one individual formed for purpose of
such as family members. They cannot list in administering and managing as trustee the
a stock exchange and certain restrictions are affairs, property and temporalties of any
placed in the transfer of the shares. religious denomination, sect or church.

OPEN CORPORATION LAY CORPORATION

are those which can accept outsiders as are those organized for purposes other than
stockholders and are authorized to list in a religion.
stock exchange and the transfer of shares are
not required to have restrictions. In case it a. Eleemosynary: formed or created for
does list in a stock exchange is shall be charitable purposes.
known as PUBLICLY LISTED
CORPORATIONS.
 b. civil: formed or created for the it is not separate and distinct personality
benefit the persons composing it and from stockholders which means
not for charitable purposes. stockholders are liable as general partners.

DE JURE they can be questioning the personality of

full compliance with requirements for valid the corporation. both direct and collateral
corporation. attack.

it is separate and distinct personality from

stockholders. KINDS OF CORPORATION AS TO
CONTROL or OWNERSHIP:
cannot be question the personality direct and
collateral attack. 1. holding or parent corporation – is a
corporation that controls another
DE FACTO corporation.
Not fully complied with the requirements for 2. subsidiary corporation – is a
valid corporation corporation being controlled by
another corporation.
pre-requisite: 3. affiliate – a corporation which a
there exists a valid law under which it may member of a group of companies.
be incorporated. 4. Associate – a corporation being
significantly influenced by investors.
an attempt in good faith to incorporate
(colorable compliance) TITLE II: ORGANIZATION AND
INCORPORATION
use of corporate powers
FORMATION OF PRIVATE STOCK
it is a separate and distinct personality from CORPORATION OR INCORPORATION
stockholders.
refers to performance of conditions acts,
it can be questioning the personality of the deeds and writings by incorporators and the
corporation via direct attack using quo official acts, certification or records which
warranto but not collateral attack. give the corporation its existence.

CORPORATION BY ESTOPPEL 1. PROMOTIONAL STAGE:

No compliance at all. The persons who undertaken by promoters or organizers who
compose it only set themselves out as a look for investors and bring them together to
corporation. form the corporation.
 2. PROCESS OF INCORPORATION:
includes the preparation and filing of the 3. Place of Principal Office
articles of incorporation and relevant
supporting documents with the SEC, and the - to fix the residence of the
issuance of the Certificate of Incorporation. corporation in a definite
place.
CONTENTS OF ARTICLE OF - to determine the venue of
INCORPORATION court cases involving
corporation
1. Name of corporation - for purposes of stockholders
or members meeting
- must not be identical or - to determine where the books
deceptively confusing similar of records of the corporation
to that any of existing are ordinarily kept.
corporations.
- any other name already 4. Term of existence
protected by law - PERPETUAL EXISTENCE
- name that is patently UNLESS ITS AOI
defective, confusing or PROVIDES OTHERWISE
contrary to existing laws, - Extension for corporation
morals or public policy. with a corporate term for
- must include specific period
corporation/corp. or o NOT earlier then 3
Incorporated/ Inc. years prior to expiry.
o unless earlier
Changing of corporate name extension is for
- requires amendments of AOI justifiable reasons
- majority vote of the board determined by SEC.
and vote or written assent of - HOW TO EXTEND
stockholders holding 2/3 of amend the AOI during the life
the outstanding capital of corporation before the
stocks. expiry of its term. Any
2. purpose indicating primary and dissenting stockholders may
secondary purposes. exercise his appraisal rights.
- this confers the power which
a corporation may exercise. 5. Name of nationalities and residences
Any act beyond its power is of incorporators.
known as ULTRA VIRES.
- Primary
- Secondary
CORPORATORS d. Educational Institution – 60%
are those who compose the Reserved to Filipinos.
corporation at any given time. e. Exploration, evaluation, and
they are the stockholders of the development of natural resources
corporation. – 60% reserved to Filipinos
f. Ownership of land – 60% of
INCORPORATORS stockholders of the Corporation
are the founder of the corporation or must be Filipinos.
the original stockholders whose
names are indicated in the Articles 6. number of directors, trustees which
and signatories thereof. shall not be less than 5 nor more than
15. except for corporation sole.
NOTE: an incorporator may be
considered as corporators as long as DIRECTORS
he continues to be a stockholder or a compose of board which is the
member, but not all corporators are governing body of the stock
incorporators. corporation

QUALIFICATIONS TRUSTEES
1. Must be natural person pertain to non-stock corporations.
2. must be legal age
3. must own or subscribe to at least 7. names, nationalities, and residences
1 share. of persons who shall Act as directors
4. majority must be resident of the or trustees until the first regular ones
Philippines are elected and qualified.
NOTE: Law requires residency not
citizenship.
8. if a stock corporation the amount of
ACTIVITIES OR INDUSTRIES its authorized capital stock, number
THAT THE LAW REQUIRES of shares and in case of the shares
CERTAIN MINUMUM OR FULL are par value shares the par value of
FILIPINO OWNERSHIP each share;
REQUIREMENTS
a. mass media - 100% reserved to STOCK CORPORATIONS WITH
Filipinos. PAR VALUE SHARES:
b. Advertising – 70% reserved to required to indicate its authorized
Filipinos capital stock, number of shares into
c. Public Utility – 60% reserved to which is divided and the par value of
Filipinos each.
NO PAR VALUE SHARES: purposes at a fair valuation equal
the stated value or issue price need to the par or issued value of stock
not be indicated in the articles, as it issued.
may fixed by board of directors are 3. labor performed for or services
incorporation. actually rendered to the
corporation
MINUMUM SUBSCRIPTION AND 4. previously incurred indebtedness
PAID UP CAPITAL HAS BEEN of the corporation
REMOVED UNLESS IT IS STILL 5. amount transferred from
APPLIES IN CASE OF INCREASE unrestricted R/E to stated capital
OF AUTHORIZED CAPITAL 6. Outstanding shares exchanged
STOCK. for stock in the event or
reclassification or conversion
AUTHORIZED CAPITAL STOCK 7. shares of stock in other
signifies the MAXIMUM amount corporation
fixed in the articles to subscribed and 8. other generally accepted
paid-in or secured to be paid by considerations.
subscribers. It may also refer to the
maximum number of shares that a NOTE:
corporation can issue. - stocks cannot be issued for
consideration less than the
SUBSCRIBED CAPITAL STOCK par or issue price thereof.
are those which are covered by - Promissory notes or future
subscription contracts for their service cannot be considered
acquisition. it represents the portion valid consideration for
of the capital stock that is already stocks.
promised to be paid for.
OUTSTANDING CAPITAL
PAID UP CAPITAL STOCK STOCKS
also known as PAID IN CAPITAL, is a total number of shares issued
the amount of shares that are already including those which are
issued and paid for. subscribed and not yet fully paid,
but excluding treasury shares.
Considerations for stocks:
1. Actual cash paid to the 9. nationalities, number of shares, and
corporation the amount subscribed and paid each
2. property, tangible or intangible, of the original subscribers.
actually received by the
corporation and necessary or
convenient for its use lawful
 stockholders in accordance
10. if non stock, the amount of capital, with the provisions of the
the names, residences and amount corporation code
paid by each contributor name of - by a vote or written assent of
treasurer elected by subscribers; and at least 2/3 of members if it
be a non-stock corporation.
RESTRICTIONS AND
PREFERENCES: NON AMEDABLE:
if there are any restrictions and/or - names of incorporators
preference on shares of stock, in - names of BOD
order to be binding the same must be - names of original subscribers
indicated: - Treasurer in trust elected by
original subscribers.
- ORDINARY STOCK - members who contributed to
CORPORATION the initial capital of non-stock
o AOI corporation
o STOCK - place and date of execution
CERTIFICATE - witness and
- CLOSE CORPORATION acknowledgement.
o AOI
o STOCK TITLE: III BOARD OF DIRECTORS
CERTIFICATE is the governing body of the corporation and
o BY-LAWS directs its affairs. however there are certain
acts that would still need the
ratification/approval of the stockholders
11. other matters as are not inconsistent such as amendments to the articles.
with law and which the incorporators
may deem necessary and convenient. DOCTRINE OF CENTRALIZED
MANAGEMENT
AMENDMENT REQUIREMENTS unless otherwise provided in this code, the
- a legitimate purpose for the board of directors or trustees shall exercise
amendment the corporate powers, conduct all business
- by majority vote of the BOD and control all properties of the corporation
and trustees
- by vote or written assent of Tenure
the stock holders representing Directors shall be elected for a term of 1
at least 2/3 of the outstanding year from among the holders of the stock
capital stock without registered in corporation’s book.
prejudice to the appraisal
right of dissenting
Trustees shall be elected for a term of no ELECTIONS
exceeding three years from among the - Presence of a majority of the
members of the corporation. capital stock of members,
Each director and trustee shall hold office either personally or written
until the successor is elected and qualified. proxy is required.
- when authorized by law
A director who ceases to own at least one members may also vote
share of stock or a trustee ceases to be a through remote
member of the corporation shall cease to be communication or in
such. absentia.
- SH or member who
HOLD-OVER participated through remote
Upon Failure of a quorum at any meeting of communication shall be
the stockholders or members called for an deemed present for purpose
election, the directorate naturally holds over of quorum.
and continue to function until another - Elections must be held by
directorate is chosen qualified. secret ballot if requested by
voting stockholders or
QUALIFICATIONS: members otherwise it may be
held in any form.
STOCK CORPORATIONS:
a. own at least 1 share METHODS OF VOTING
b. share of stock must be registered by
his name 1. straight voting – every stockholder
c. must continually own such share may vote such number of shares for
during his term; otherwise he as many as there are directors to be
automatically ceases to be a director elected.
d. The requirement that majority must a stockholders vote is determined by
be resident of the Philippines no the number of shares he owns. If a
longer applies under the Revised stockholders has 1000 shares, he gets
Corporation Code. 1,000 votes.

NON-STOCK CORPORATION 2. Cumulative voting – the

a. he must be a member in good stockholder’s vote is determined by
standing thereof; the number of shares he owns and
b. The requirement that majority must the number of directors to be elected.
be resident of the Philippines no He may either concentrate all such
longer applies under the Revised votes into one candidate or he may
Corporation Code. distribute them among the candidates
as he may see fit.
REMOVAL AND FILLING-UP OF EXPIRATION OF TERM
VACANCIES - Filled by the stockholders
the grounds for the removal of a director - No later than the day of such
may be provided for in the by-laws. expiration at meeting called
for that purpose.
1. Directors representing the minority
interest may not be remove except OTHER CAUSES (Death, Resignation,
for those causes. Abandonment)
2. A director NOT representing the - FILLED by BOD it they still
minority may be removed even constitute quorum
without a cause. - FILLED by the Stockholders
if the directors no longer
REQUIREMENTS FOR A VALID constitute QUORUM
REMOVAL - No later than 45 days from
1. the removal should take place at a the time of vacancy arose.
general or specific meeting duly call
for that purpose INCREASE IN THE NUMBER OF BOD
2. the removal must be by the vote of - Filled by Stockholders
the stockholders holding or - in General or special meeting
representing 2/3 of outstanding called for the purpose or in
capital stock of the members entitled the same meeting authorizing
to vote in case of non-stock the increase in the number of
corporations. directors.
3. there must be previous notice to the
stockholders or members of the DIRECTORS DUTY OF LOYALTY
intention to propose such removal at
the meeting either by publication or CORPORATE OF OPPORTUNITY
on written notice to the stockholders DOCTRINE:
or members. a director cannot appropriate himself
opportunity which in fairness should belong
VACANCY: to corporation.
If he does he shall be liable to account for
REMOVAL the profits except if the acquisition of
- filled by the STOCK business opportunity is ratified by the
HOLDERS stockholders owing or representing at least
- election will be held the same 2/3 of the outstanding capital stock.
day of the meeting
authorizing removal
ACQUIRING ADVERSE INTEREST ON A b. at least majority
MATTER REPOSED IN HIM IN of the independent
CONFIDENCE directors
A director is liable for profits if he attempts
to acquire or acquires any interest adverse to SELF DEALING OFFICERS
the corporation in respect to any matter generally voidable as well as except
reposed in him in confidence as to which if number 1 above supplies, or the
equity imposes a disability upon him to deal contract has been previously
in his own behalf. authorized by the board of directors
This is not subject to RATIFACATION

SELF DEALING DIRECTORS INTERLOCKING DIRECTORS

is one who deals or transact business with is a director of two corporations who
his own corporation. have transaction with each other
which may result in director favoring
VOIDABLE one corporation to another.
Except
1. All of the ff present General Rule:
a. the presence of such the contract between corporations
director or trustee in the with interlocking directors is valid
board meeting in which provided that it is reasonable under
the contract was approved circumstances.
was not necessary to
constitute a quorum for Exceptions:
such meeting 1. if there is fraud
b. the vote of such director 2. if the interest of interlocking
or trustee was not director in one corporation
necessary for the approval exceeds 20% (substantial) and in
of the contract. the other merely nominal, the
c. that the contract is fair contract becomes voidable at the
and reasonable under latter corporation option. in effect
circumstances director would be treated as
d. incase of corporation SELF DEALING DIRECTOR.
vested with public
interest require: DIRECTORS DUTY OF OBEDIENCE
a. at least 2/3 of the the BOD must follow the corporation code
entire membership and all implementing rules and regulations
of the board. issued by SEC
DIRECTORS DUTY OF DILIGENCE delegated to it in the by-laws or on a
the BOD must observe ordinary diligence or majority vote of the board except:
diligence in good father of a family in
making business judgement for corporations. 1. approval for action for which
shareholders approval is also
REMEDIES AGAINST ERRING required.
OFFICERS/DIRECTORS 2. the filing for vacancies of board
3. the amendment or repeal of by-laws
1. INDIVIDUAL OR PERSONAL or the adoption of new by-laws.
ACTION 4. the amendment or to repeal of any
Individual Suit is an action brought resolution of the board which by its
by stockholder against corporation express terms is not so amendable or
for direct violation of his repeal able
constitutional rights. 5. a distribution of cash dividends to
the shareholders.
2. REPRESENTATIVE SUIT
refers to an action brought by a COMPENSATION OF DIRECTORS
person in his own behalf or on behalf Directors are not entitled to receive any
of all similarly situated. compensation.

3. DERIVATIVE SUIT EXCEPT

refers to suit brought by one or more 1. reasonable per diem
stockholders or members in the name 2. As provided in by-laws
and on behalf of the corporation to 3. upon a majority vote of the
redress wrongs committed against it stockholders
or to protect or vindicate corporate 4. if they are performing functions
rights, whenever the officials of the other than that of directors
corporation refuse to sue or are the
ones to be sued of hold control of the LIMITATIONS
corporation. 1. In no case shall total yearly
compensation of the directors,
COMMITTEES exceed 10% of the net income
before tax of the corporation
EXECUTIVE COMMITTEES during the preceding year.
composed of not less than three members of
the board, to be appointed by the board may
be created to act by majority vote of all its
members on such specific matters within the
competence of the board as may be