1.

Nationality of Corporation

a. Control Test- is applied in determining whether a corporation is domestic or foreign. If it is

incorporated in another state, it is a foreign corporation, while if it is registered under Philippine
laws, it is deemed a Filipino or domestic corporation irrespective of the nationality of its
stockholders.
b. Grandfather rule –a method of determining the nationality of a corporation which in turn is
owned by another corporation by breaking down the entity structure of the shareholders of the
corporation. The true Filipino ownership is traced all the way to the individual stockholders of
the corporation (A) owning shares in another corporation (B), by multiplying the Filipino
ownership of the first corporation (A) to the corresponding ownership of the other corporation
(B).

2. Subscription Requirement: subscription contract; Doctrine of Individuality Subscription

Subscription Requirement;

Ways to become a Stockholder of a Corporation

1. Subscription contract with the corporation

2. Purchase or acquisition of shares from existing stockholders.

3. Purchase of treasury shares from the corporation. *All of them involve shareholdings. *Subscription
is unique because it involves unissued shares.

Subscription contract -Subscription Contract is, under Sec.59 of the Corporation Code, “any contract for
the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be
deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties refer to
it as a purchase or some other contract.” *This is strictly regulated by the Corporation Code.

Subscriptions may be made upon a condition precedent or upon special terms (condition subsequent). A
conditional subscription,or one made upon a condition precedent, does not make the subscriber a
stockholder, or render him to pay the amount of his subscription, until performance of the condition. A
subscription upon special terms, on the other hand, is an absolute subscription, making the subscriber a
stockholder, and rendering him liable as such, as soon as the subscription is accepted, the special term
being an independent stipulation.

In case of doubt in the intention of the parties, a subscription should be considered as an absolute
subscription upon special terms, rather than conditional. The policy of giving protection to creditors and
other subscribers has led to the adoption of this rule ofconstruction favoring the immediate liability of
the subscriber.

Doctrine of Individuality of Subscription-A subscription is one entire and indivisible whole contract. It
cannot be divided into portions.
3.Pre-incorporation subscription requirement-

Pre- incorporation subscription requirement-one entered into before incorporation.

Sec. 60 of the Corporation Code provides that: “A subscription for shares of stock of a corporation still to
be formed shall be irrevocable for a period of at least 6 months from the date of subscription, unless all
of the other subscribers consent to the revocation, or unless the incorporation of said corporation fails
to materialize within said period or within a longer period as may be stipulated in the contract of
subscription: Provided, That no preincorporation subscription may be revoked after the submission of
the articles of incorporation to the SEC.”

*Contracts between the subscribers.

2 Fold Characteristics:

a. It is a contract between subscribers.

b. May be regarded as continuing offer on the part of the subscriber concerned which the corporation
may accept upon acquisition of juridical personality.

Reason: The corporation is not yet in existence.

4.Liability of Promoter-

Liability of Promoter-  He has joint personal liability for a corporation that was never formed. When the
corporation has been formed, upon ratification by the board of his contracts, he becomes an agent of
the corporation. Liability then is borne by the corporation in its capacity as principal.

(Promoter definition-person who invites investors and subscribers before the formation and
organization of a corporation. Contracts entered into by a promoter are called pre-incorporation
subscriptions.)

5.Liability of corporation to promoter

6. Consideration of Stocks

Section 61. Consideration for Stocks. - Stocks shall not be issued for a consideration less than the par or
issued price thereof. Consideration for the issuance of stock may be:

(a) Actual cash paid to the corporation;

(b) Property, tangible or intangible, actually received by the corporation and necessary or convenient for
its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued;

(c) Labor performed for or services actually rendered to the corporation;

(d) Previously incurred indebtedness of the corporation;

(e) Amounts transferred from unrestricted retained earnings to stated capital;

(f) Outstanding shares exchanged for stocks in the event of reclassification or conversion;

(g) Shares of stock in another corporation; and/or

(h) Other generally accepted form of consideration.

Where the consideration is other than actual cash, or consists of intangible property such as patents or
copyrights, the valuation thereof shall initially be determined by the stockholders or the board of
directors, subject to the approval of the Commission.

Shares of stock shall not be issued in exchange for promissory notes or future service. The same
considerations provided in this section, insofar as applicable, may be used for the issuance or bonds by
the corporation.

The issued price of no-par value shares may be fixed in the articles of incorporation or by the board of
directors pursuant to authority conferred by the articles of incorporation or the bylaws, or if not so
fixed, by the stockholders representing at least a majority of the outstanding capital stock at a meeting
duly called for the purpose.

7. Non-amendable items in the Articles of Incorporation-

Non-amendable items in the Articles of Incorporation-

The following items cannot be amended: (a) Names of incorporators; (b) Names of original subscribers
to the capital stock of the corporation and their subscribed and paid up capital; (c) Names of the original
directors; (d) Treasurer elected by the original subscribers; (e) Members who contributed to the initial
capital of the non-stock corporation; and (e) Witnesses to and acknowledgement of the articles.

8.Registration, Incorporation and Commencement of Corporate Name

Section 18. Registration, Incorporation and Commencement of Corporation Existence. - A person or

group of persons desiring to incorporate shall submit the intended corporate name to the Commission
for verification. If the Commission finds that the name is distinguishable from a name already reserved
or registered for the use of another corporation, not protected by law and is not contrary to law, rules
and regulation, the name shall be reserved in favor of the incorporators. The incorporators shall then
submit their articles of incorporation and bylaws to the Commission.
If the Commission finds that the submitted document s and information are fully compliant with the
requirements of this Code, other relevant laws, rules and regulations, the Commission shall issue the
certificate of incorporation.

A private corporation organized under this Code commences its corporate existence and juridical
personality from the date the Commission issues the certificate of incorporation under its official seal
thereupon the incorporators, stockholders/members and their successors shall constitute a body
corporate under the name stated in the articles of incorporation for the period of time mentioned
therein, unless said period is extended or the corporation is sooner dissolved in accordance with law

9. Election of Directors and Trustees

Election of Directors and Trustees- Section 23. Election of Directors or Trustees. - Except when the
exclusive right is reserved for holders of founders' shares under Section 7 of this Code, each stockholder
or member shall have the right to nominate any director or trustee who posseses all of the qualifications
and none of the disqualifications and none of the disqualifications set forth in this Code.

At all elections of directors or trustees, there must be present, either in person or through a
representative authorized to act by written proxy, the owners of majority of the outstanding capital
stock, or if there be no capital stock, a majority of the members entitled to vote. When so authorized in
the bylaws or by a majority of the board of directors, the stockholders or members may also vote
through remote communication or in absentia: Provided, That the right to vote through such modes
may be exercised in corporations vested with public interest, notwithstanding the absence of a provision
in the bylaws of such corporations.

A stockholder or member who participates through remote communication or in absentia, shall be

deemed present for purposes of quorum.

The election must be by ballot if requested by any voting stockholder or member.

In stock corporations, stockholders entitled to vote shall have the right to vote the number of shares of
stock standing in their own names in the stock books of the corporation at the time fixed in the bylaws
or where the bylaws are silent at the time of the election. The said stockholder may: (a) vote such
number of shares for as many persons as there are directors to be elected; (b) cumulate said shares and
give one (1) candidate as many votes as the number of directors to be elected multiplied by the number
of shares owned; or (c) distribute them on the same principle among as many candidates as may be
seen fit: Provided, That the total number of votes cast shall not exceed the number of shares owned by
the stockholders as shown in the books of the corporation multiplied by the whole number of directors
to be elected: Provided, however, That no delinquent stock shall be voted. Unless otherwise provided in
the articles of incorporation or in the bylaws, members of nonstock corporations may cast as many
votes as there are trustees to be elected by may not cast more than one (1) vote for one (1) candidate.
Nominees for directors or trustees receiving the highest number of votes shall be declared elected.

If no election is held, or the owners of majority of the outstanding capital stock or majority of the
members entitled to vote are not present in person, by proxy, or through remote communication or not
voting in absentia at the meeting, such meeting may be adjourned and the corporation shall proceed in
accordance with Section 25 of this Code.

The directors or trustees elected shall perform their duties as prescribed by law, rules of good corporate
governance, and bylaws of the corporation.

10.Adoption of by-laws; Content of by ly laws, binding effects and amendments

Adoption of by-laws; Content of by- laws, binding effects and amendments

Section 45. Adoption of Bylaws. - For the adoption of bylaws by the corporation, the affirmative vote of
the stockholders representing at least a majority of the outstanding capital stock, or of at least a
majority of the members in case on nonstock corporations, shall be necessary. The bylaws shall be
signed by the stockholders or members voting for them and shall be kept in the principal office of the
corporation, subject to the inspection of the stockholders or members during office hours. A copy
thereof, duly certified by a majority of the directors or trustees and countersigned by the secretary of
the corporation, shall be filed with the Commission and attached to the original articles of incorporation.

Notwithstanding the provisions of the preceding paragraph, bylaws maybe adopted and filed prior to
incorporation; in such case, such bylaws shall be approved and signed by all incorporators and
submitted to the Commission, together with the articles of incorporation.

In all cases, bylaws shall be effective only upon the issuance by the Commission of a certification that
the bylaws are in accordance with this Code.

The Commission shall not accept for filing the bylaws or any amendment thereto of any bank, banking
institution, building and loan association, trust company, insurance company, public utility, educational
institution, or any other corporations governed by special laws, unless accompanied by a certificate of
the appropriate government agency to the effect that such by laws or amendments are in accordance
with law.

Section 46. Contents of Bylaws. - A private corporation may provide the following in its bylaws;
(a) The time, place and manner of calling and conducting regular or special meetings of the directors or
trustees;

(b) The time and manner of calling and conducting regular or special meetings and mode of notifying the
stockholders or members thereof;

(c) The required quorum in meetings of stockholders or members and the manner of voting therein;

(d) The modes by which a stockholder, member, director or trustees may attend meetings and cast their
votes;

(e) The form for proxies of stockholders and members and the manner of voting them;

(f) The directors' or trustees' qualifications, duties and responsibilities, the guidelines for setting the
compensation of directors or trustees and officers, and the maximum number of other board
representations that an independent director or trustee may have which shall, in no case, be more than
the number prescribed by the Commission;

(g) The time for holding the annual election of directors or trustees and the mode or manner of giving
notice thereof;

(h)The manner of election or appointment and the term of officers other than directors or trustees;

(i) The penalties for violation of the bylaws;

(j) In the case of stock corporations, the manner of issuing stock certificates; and

(k) Such other matters as may be necessary for the proper or convenient transaction of its corporate
affairs for the promotion of good governance and anti-graft and corruption measures.

An arbitration agreement maybe provided in the bylaws pursuant to Section 181 of this Cod

Section 47. Amendment to Bylaws. - A majority of the board of directors or trustees, and the owners of
at least a majority of the outstanding capital stock, or at least a majority of the members of a nonstock
corporation, at a regular or special meeting duly called for the purpose, may amend or repeal the bylaws
or adopt new bylaws. The owner of two-thirds (2/3) of the outstanding capital stock or two-third (2/3) of
the members in a nonstock corporation mat delegate to the board of directors or trustees the power to
amend or repeal the bylaws or adopt new bylaws: Provided, That any power delegated to the board of
directors or trustee to amend or repeal the bylaws or adopt new bylaws shall be considered as revoke
whenever stockholders owning or representing a majority of the outstanding capital stock or majority of
the members shall so vote at a regular or special meeting.

Whenever the bylaws are amended or new bylaws are adopted, the corporation shall file with the
Commission such amended or new bylaws and, if applicable, the stockholders' or members' resolution
authorizing the delegation of the power to amend and/or adopt new bylaws, duly certified under oath
by the corporate secretary and majority of the directors or trustees.

The amended or new bylaws shall only be effective upon the issuance by the Commission of certification
that the same is in accordance with this Code and other relevant laws.

11.Effects of Non-use of Corporate Charter; Effects of Continuous Inoperation

Effects of Non-use of Corporate Charter; Effects of Continuous Inoperation

Section 21. Effects of Non-Use of Corporate Charter and Continous Inoperation. - If a corporation does
not formally organize and commence its business within five (5) year from the date of its incorporation,
its certificate of incorporation shall be deemed revoked as of the day following the end of the five (5)-
year period.

However, if a corporation has commence its business but subsequently becomes inoperative for a
period of at least five (5) consecutive years, the Commission may, after due notice and hearing, place
the corporation under delinquent status.

A delinquent corporation shall have a period of two (2) years to resume operations and comply with all
requirements that the Commission shall prescribed. Upon the compliance by the corporation, the
Commission shall issue an order lifting the delinquent status. Failure to comply with the requirements
and resume operations within the period given by the Commission shall cause the revocation of the
corporation's certificate of incorporation.

The Commission shall give reasonable notice to, and coordinate with the appropriate regulatory agency
prior to the suspension or revocation of the certificate of incorporation of companies under their special
regulatory jurisdiction

12. Corporate Powers ; General Rules; Theory of General Capacity; Specific Powers; Theory of Specific
Capacity

Corporate Powers ; General Rules; Theory of General Capacity; Specific Powers; Theory of Specific
Capacity

Classification of corporate authority:

1. Those expressly granted or authorized by law inclusive of the corporate charter or articles

of incorporation

2. Those impliedly granted as are essential or reasonably necessary to the carrying out of
the express powers

3. Those that are incidental to its existence.

Section 35. Corporate Powers and Capacity. - Every corporation incorporated under this Code has the
power and capacity:

(a) To sue and be sued in its corporate name;

(b) To have perpetual existence unless the certificate of incorporation provides otherwise;

(c) To adopt and use a corporate seal;

(d) To amend its articles of incorporation in accordance with the provisions of this Code;

(e) To adopt bylaws, not contrary to law, morals or public policy, and to amend or repeal the same in
accordance with this Code;

(f) In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and to admit members to the corporation if it be a
nonstock corporation;

(g) To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal
with such real and personal property, including securities and bonds of other corporations, as the
transaction of the lawful business of the corporation may reasonably and necessarily require, subject to
the limitations prescribed by law and the constitution;

(h) To enter into a partnership, joint venture, merger, consolidation, or any other commercial
agreement with natural and juridical persons;

(i) To make reasonable donations, including those for the public welfare or for hospital, charitable,
cultural, scientific, civic, or similar purposes: Provided, That no foreign corporation shall give donations
in aid of any political party or candidate or for purpose s of partisan political activity;

(j) To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers,
and employees; and

(k) To exercise such other powers as may be essential or necessary to carry out its purpose or purposes
as stated in the articles of incorporation.
 ( General Rule)Sec. 44- Ultra vires acts of corporations. - No corporation under this Code shall possess
or exercise any corporate powers except those conferred by this Code or by its articles of incorporation
and except such as are necessary or incidental to the exercise of the powers so conferred.

Theory of General Capacity – a corporation is said to hold such powers as are not prohibited/withheld
from it by general law.

Theory of Special Capacity – the corporation cannot exercise powers except those expressly/impliedly
given.

13. Extension and Shortening of Corporate Term

Extension and Shortening of Corporate Term-

Section 36. Power to Extend or Shorten Corporate Term. - A private corporation may extend or shorten
its term as stated in the articles of incorporation when approved by a majority vote of the board of
directors or trustees, and ratified at a meeting by the stockholders or members representing at least
two-thirds (2/3) of the outstanding capital stock or of its membrs. Written notice of the proposed action
and the time and place of the meeting shall be sent to the stockholders or members at their respective
place of residence as shown in the books of the corporation, and must be deposited to the addressee in
the post office with postage prepaid, served personally, or when allowed in the bylaws or done with the
consent of the stockholder, sent electronically in accordance with the rules and regulations of the
Commission on the use of electronic data messages. In case of extension of corporate term, a dissenting
stockholder may exercise the right of appraisal under the conditions provided in this Code.

14. Power to Deny Preemptive Rights-

Section 38. Power to Deny Preemptive Right. - All stockholders of a stock corporation shall enjoy
preemptive right to subscribe to all issues or disposition of shares of any class, in proportion to their
respective shareholdings, unless such right is denied by the articles of incorporation or an amendment
thereto: Provided, That such preemptive right shall not extend to shares issued in compliance with laws
requiring stock offerings or minimum stock ownership by the public; or to shares issued in good faith
with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock in
exchange for property needed for corporate purposes or in payment of previously contracted debt.

15. Power to Enter into Management Contract

-Section 43. Power to Enter into Management Contract. - No corporation shall conclude a management
contract with another corporation unless such contract is approved by the board of directors and by the
stockholders owning at least the majority of the outstanding capital stock, or by at least a majority of
the members in the case of a nonstock corporation, or both the managing and the managed
corporation, at a meeting duly called for the purpose: Provided, That (a) where a stockholder or
stockholders representing the same interest of both the managing and the managed corporations own
or control more than one-third (1/3) of the total outstanding capital stock entitled to vote of the
managing corporation; or (b) where a majority if the members of the board of directors of the managing
corporation also constitute a majority of the members of the board of directors of the managed
corporation, then the management contract must be approved by the stockholders of the managed
corporation owning at least two-thirds (2/3) of the total outstanding capital stock entitled to vote, or by
at least two-thirds (2/3) of the members in the case of a nonstock corporation.

These shall apply to any contract whereby a corporation undertakes to manage or operate all or
substantially all of the called services contracts, operating agreements or otherwise: Provided, however,
That such service contracts or operating agreements which relate to the exploration, development
exploitation or utilization of natural resources may entered into such periods as may be provided by the
pertinent laws or regulations.

No management contracts shall be entered into for period longer that five (5) years for any one term.