issuance of certificates for one-half of the number

of shares subscribed for; the subscriber’s right

1. Rights & Obligations of Holders of Unpaid but Non- consists only in equity entitling him to a certificate
Delinquent Stock for the total number of shares subscribed for by him
Sec. 72. Rights of Unpaid Shares. – Holders of upon payment of the remaining portion of the
Subscribed shares not fully paid which are not subscription price.
delinquent shall have all the rights of a stockholder. b. BALTAZAR v. LINGAYEN GULF ELECTRIC POWER
↑ right to vote; right to receive dividends CO., INC., et al. (1965)
Sec. 66. Interest of Unpaid Subscriptions. – ↑ If a stockholder, in a stock corporation,
Subscribers for stock shall pay to the corporation subscribes to a certain number of shares of stock,
interest on all unpaid subscriptions from the date of and he pays only partially, for which he is issued
subscription, if so required by, and at the rate of certificates of stock, is he entitled to vote the latter,
interest fixed in, the by-laws. If no rate of interest is notwithstanding the fact that he has not paid the
fixed in the by-laws, such rate shall be deemed to balance of his subscription, which has been called
be the legal rate. for payment or declared delinquent?
Sec. 63. Certificate of Stock and Transfer of Share. – ®A corporation may now, in the absence of
No shares of stock against which the corporation provisions in their by-laws to the contrary, apply
holds any unpaid claim shall be transferable in the payments made by subscribers-stockholders, either
books of the corporation. as: “(a) full payment for the corresponding number
↑ If the stockholder has not paid the full amount of of stock the par-value of each of which is covered
his subscription, the stockholder cannot have any by such payment; or (b) as payment pro-rata to
transfer of his shares registered in the corporate each and all the entire number of shares subscribed
books. for”. In the cases at bar, the defendant corporation
↑Although the transfer would be valid between the had chosen to apply payments by its stockholder to
parties, it cannot affect the corporation. However, definite shares of capital stock of the corporation
the corporation may, if it wishes, allow the
and had fully paid capital stock shares certificates
registration of the transfer and recognize the rights for said payments; its call for payment of unpaid
of the transferee, but it cannot issue a certificate of subscription and its declaration of delinquency for
stock in favor of such transferee until he has paid non-payment of said call affecting only the
the full amount of the subscription taken by his remaining number of shares certificates have
transferor. been issued, “and only there have been legally
shorn of their voting rights by said declaration of
CASES – delinquency”.
a. FUA CUN v. SUMMERS, et al. (1923) c. NAVA v. PEERS MARKETING CORPORATION
↑the interest held by Cua Soco was merely an (1976)
equity which could not be made the subject of a ↑ In this case no stock certificate was issued to Po.
chattel mortgage Without the stock certificate, which is the evidence
↑there can be no doubt that an equity in shares of of ownership of corporate stock, the assignment of
stock may be assigned and that the assignment is corporate shares is effective only between the
valid as between the parties and as to persons to parties to the transaction. The delivery of the stock
whom notice is brought home. Such an assignment certificate, which represents the shares to be
exists here, though it was made for the purpose of alienated, is essential for the protection of both the
securing a debt. The endorsement was corporation and its stockholders.
accompanied by the delivery of the receipt to Fua ↑ In the Baltazar case, it was held that where a
Cun and further strengthened by the execution of stockholder subscribed to a certain number of
the chattel mortgage, which mortgage, at least, shares with par value and made a partial payment
operated as a conditional equitable assignment. and was issued a certificate for the shares covered
↑ The court erred in holding Fua Cun as the owner by his partial payment, he is entitled to vote the
of 250 shares of stock; “Fua Cun’s rights consist in said shares, although he has not paid the balance of
an equity in 500 shares and upon payment of the his subscription and a call or demand had been
unpaid portion of the subscription price he becomes made for the payment of the par value of the
entitled to the issuance of certificate for said 500 delinquent shares.
shares in his favor.” ↑ In the Fua Cun case, the payment of one-half of
↑In the absence of special agreement to the the subscription does not entitle the subscriber to a
contrary, a subscriber for a certain number of certificate of stock for one-half of the number of
shares of stock does not, upon payment of one-half shares subscribed.
of the subscription price become entitled to the
 application of Lingayen Gulf rule. Section 64 unlike section
The Fua Cun, Lingayen Gulf and Nava case were all 37 of the Corporation Law, speaks only of subscription and
decided before the advent of the Corporation Code makes no distinction whatsoever between par and no par
– shares.

Fua Cun Lingayen Gulf Nava

A contract of It was the It reinforced
subscription is practice of the the ruling in 2. Amendment by Legislature
indivisible, in corporation to the Fua Cun Sec. 145. Amendment or Repeal. – No right or
the absence of issue case, making remedy in favor of or against any corporation, its
any agreement certificates of it clear that stockholders, members, directors, trustees, or
to the contrary. stocks for what the decision
officers, nor any liability incurred by any such
Being such, it considered as in the
corporation, stockholders, members, directors,
partial payment fully paid Lingayen Gulf
thereof does not shares, case should trustees, or officers shall be removed or impaired
entitle the although the be applicable either by the subsequent dissolution of said
stockholder to full subscription only to the corporation or by any subsequent amendment or
the issuance of a had not been special repeal of this Code or any part thereof.
certificate for paid circumstances ↑Subject to the limitation that no accrued rights or
the number of appearing
liabilities be impaired, the legislature has the power
shares to which therein.
the amount paid to make changes in existing corporations through
may an amendment to the Corporation Code.
correspond. The
payment is in 3. Amendment by Stockholder
effect prorated ↑ a grant of power to owners of two-thirds of the
among all the stocks to change the basic agreement between the
shares which
corporation and its stockholders, making such
are subject of
the change binding on all the stockholders, including
subscription, so those who voted against it, subject only to the right
that no one of appraisal, if proper. All persons who subscribe to
share is fully or purchase stocks of any corporation are deemed
paid. to have accepted this power to amend as part of
These two cases were interpreted their contract with the corporation, and no
as to mean that a corporation had
stockholders can later claim that an amendment
two alternatives in applying
payments for subscriptions. It approved by the required vote impairs his contract
could either apply the amount paid with the corporation.
as full payment for the Sec. 36. Corporate Powers and capacity. – Every
corresponding number of shares, corporation incorporated under this Code has the
the par value of which was covered power and capacity:
by the payment, or as payment pro x x x x
rata on each of the entire number
4. To amend its articles of incorporation in
of shares subscribed for. If it chose
the first, a certificate of stock could accordance with the provisions of this Code.
be issued for the corresponding
number of shares. If it chose the
second, then no certificate of stock Sec. 16. Amendment of Articles of Incorporation. –
could be issued until the entire Unless otherwise prescribed by this Code or by
subscription was fully paid. And special law, and for legitimate purposes, any
once it had adopted one provision or matter stated in the articles of
alternative, it could not shift to the incorporation may be amended by a majority vote
other without the consent of all the of the board of directors or trustees and the vote or
stockholders who might be written assent of the stockholders representing at
affected thereby. least two-thirds (2/3) of the outstanding capital
stock, without prejudice to the appraisal right of
dissenting stockholders in accordance with the
••Section 64 of the Code clearly supports the Fua Cun case provisions of this Code, or the vote or written
and its prohibitory language seems to rule out an assent of at least two-thirds (2/3) of the members if
it be a non-stock corporation. The original and
agreement contrary to its provisions. At present therefore,
amended articles together shall contain all
no corporation can issue a certificate of stock until the provisions required by law to be set out in the
subscriber has paid his subscription in full. The rule applies articles of incorporation. Such articles, as amended
to both par and no par shares, leaving no room for the shall be indicated by underscoring the change or
changes made, and a copy thereof duly certified the articles of incorporation or disapprove any
under oath by the corporate secretary and a amendment thereto if the same is not in
majority of the directors or trustees stating the fact compliance with the requirements of this Code:
that said amendment or amendments have been Provided, That the Commission shall give the
duly approved by the required vote of the incorporators a reasonable time within which to
stockholders or members, shall be submitted to the correct or modify the objectionable portions of the
Securities and Exchange Commission. The articles or amendment. The following are grounds
amendments shall take effect upon their approval for such rejection or disapproval:
by the Securities and Exchange Commission or from 1. That the articles of incorporation or any
the date of filing with the said Commission if not amendment thereto is not substantially in
acted upon within six (6) months from the date of accordance with the form prescribed herein;
filing for a cause not attributable to the corporation. 2. That the purpose or purposes of the corporation
are patently unconstitutional, illegal, immoral, or
↑ It implies that a stockholders’ meeting is not contrary to government rules and regulations;
necessary to effect an amendment of the articles of 3. That the Treasurer's Affidavit concerning the
incorporation, and a mere referendum would be amount of capital stock subscribed and/or paid if
sufficient. In all other cases where a corporate false;
matter is to be finally decided not by the board but 4. That the percentage of ownership of the capital
by the stockholders, a stockholders’ meeting is stock to be owned by citizens of the Philippines has
required by the Code. not been complied with as required by existing laws
↑ The 2/3 vote is based on the outstanding capital or the Constitution.
stock, including non-voting stocks (one of the No articles of incorporation or amendment to
instances under Section 6 when voting rights are articles of incorporation of banks, banking and
granted to non-voting stocks). quasi-banking institutions, building and loan
associations, trust companies and other financial
(a) Limitations on power intermediaries, insurance companies, public
1. It must be for a legitimate purpose; utilities, educational institutions, and other
2. Must be with the vote or written assent corporations governed by special laws shall be
of two-thirds of the members in non-stock accepted or approved by the Commission unless
corporations, or two-thirds of the outstanding accompanied by a favorable recommendation of
capital stock, in stock corporations. No meeting is the appropriate government agency to the effect
required. that such articles or amendment is in accordance
3. The appraisal right must be recognized in with law.
case the amendment has the effect of changing or
restricting the rights of any stockholder or class of (c) Amendment changing the stockholders’ right
shares, or of authorizing preferences in any respect Sec. 81. Instances of appraisal right. – Any
superior to those of outstanding shares of any class stockholder of a corporation shall have the right to
or extending or shortening the term of corporate dissent and demand payment of the fair value of his
existence; shares in the following instances:
4. The extension of the corporation’s term 1. In case any amendment to the articles of
cannot exceed 50 years in any one instance; incorporation has the effect of changing or
5. A copy of the articles as amended, duly restricting the rights of any stockholder or class of
certified, should be filed with the SEC; in case of shares, or of authorizing preferences in any respect
banks, quasi-banks, building and loan associations, superior to those of outstanding shares of any class,
trust companies and other financial intermediaries, or of extending or shortening the term of corporate
public utilities, educational corporations and other existence;
corporations governed by special law, a certificate x x x x
from the appropriate governmental agency that the ↑The power of self-amendment however, must be
amendment is in accordance with law is required exercised in good faith and not merely to defraud
before the same may be filed with the SEC;
or prejudice the minority (“freezing out”).
6. The original and amended articles
together should contain all the matters required by ↑An amendment by the two-thirds majority which
law to be set out in said articles;
effect a change in the rights of stockholders has
7. An amendment to increase or decrease
capital stock as well as to extend or shorten the been attacked as an impairment of vested rights,
corporate term cannot be made under section 16 but it has been justified by the principle that one
but under section 38 and section 37 of the Code, who becomes a stockholder in a corporation is
respectively, both of which require a meeting; and presumed to have accepted his contract with the
8. The amendment must be in the form corporation subject to the existing power of self-
prescribed by the Code. amendment granted by Section 36.
(b) Grounds for rejection of Amendment ↑The only remedy of the dissenting stockholder
↑Sec. 17. Grounds when articles of incorporation
when his rights are restricted by the amendment, is
or amendment may be rejected or disapproved. -
to exercise his appraisal right. If there was bad faith
The Securities and Exchange Commission may reject
or fraud on the part of the majority, however, the (3) If an increase of the capital stock, the amount of
injured stockholder may file an opposition to the capital stock or number of shares of no-par stock
registration of the amendment with the SEC, which thereof actually subscribed, the names, nationalities
and residences of the persons subscribing, the
may if it deem proper, disapprove the amendment.
amount of capital stock or number of no-par stock
(d) Effectivity of Amendment subscribed by each, and the amount paid by each
on his subscription in cash or property, or the
↑Only after the approval thereof by the SEC. amount of capital stock or number of shares of no-
However, any approval or rejection by the SEC must par stock allotted to each stockholder if such
increase is for the purpose of making effective stock
be made within 6 months of the filing of the
dividend therefor authorized;
amendment, otherwise it shall take effect even (4) Any bonded indebtedness to be incurred,
without approval, unless the delay is due to a cause created or increased;
attributable to the corporation. In the absence of (5) The actual indebtedness of the corporation on
approval or rejection within said period, the the day of the meeting;
amendment takes effect as of the date of filing. (6) The amount of stock represented at the
meeting; and
(e) Special Amendment (7) The vote authorizing the increase or diminution
of the capital stock, or the incurring, creating or
↑In all these cases, a meeting of the stockholders increasing of any bonded indebtedness.
or members, as the case may be, is required, Any increase or decrease in the capital
unlike in Section 16 where there written assent, stock or the incurring, creating or increasing of any
bonded indebtedness shall require prior approval of
even without a meeting, would be sufficient.
the Securities and Exchange Commission.
i. Increase of Capital Stock One of the duplicate certificates shall be
kept on file in the office of the corporation and the
↑ The corporation cannot issue shares of
other shall be filed with the Securities and Exchange
stock beyond the authorized limit, since this Commission and attached to the original articles of
will constitute an overissuance rendering incorporation. From and after approval by the
such shares void, without prejudice Securities and Exchange Commission and the
however to the right of bona fide issuance by the Commission of its certificate of
purchasers to recover damages for filing, the capital stock shall stand increased or
decreased and the incurring, creating or increasing
misrepresentation.
of any bonded indebtedness authorized, as the
Sec. 38. Power to increase or decrease capital certificate of filing may declare: Provided, That the
stock; incur, create or increase bonded Securities and Exchange Commission shall not
indebtedness. - No corporation shall increase or accept for filing any certificate of increase of capital
decrease its capital stock or incur, create or stock unless accompanied by the sworn statement
increase any bonded indebtedness unless approved of the treasurer of the corporation lawfully holding
by a majority vote of the board of directors and, at office at the time of the filing of the certificate,
a stockholder's meeting duly called for the purpose, showing that at least twenty-five (25%) percent of
two-thirds (2/3) of the outstanding capital stock such increased capital stock has been subscribed
shall favor the increase or diminution of the capital and that at least twenty-five (25%) percent of the
stock, or the incurring, creating or increasing of any amount subscribed has been paid either in actual
bonded indebtedness. Written notice of the cash to the corporation or that there has been
proposed increase or diminution of the capital stock transferred to the corporation property the
or of the incurring, creating, or increasing of any valuation of which is equal to twenty-five (25%)
bonded indebtedness and of the time and place of percent of the subscription: Provided, further, That
the stockholder's meeting at which the proposed no decrease of the capital stock shall be approved
increase or diminution of the capital stock or the by the Commission if its effect shall prejudice the
incurring or increasing of any bonded indebtedness rights of corporate creditors.
is to be considered, must be addressed to each Non-stock corporations may incur or create
stockholder at his place of residence as shown on bonded indebtedness, or increase the same, with
the books of the corporation and deposited to the the approval by a majority vote of the board of
addressee in the post office with postage prepaid, trustees and of at least two-thirds (2/3) of the
or served personally. members in a meeting duly called for the purpose.
A certificate in duplicate must be signed by a Bonds issued by a corporation shall be registered
majority of the directors of the corporation and with the Securities and Exchange Commission,
countersigned by the chairman and the secretary of which shall have the authority to determine the
the stockholders' meeting, setting forth: sufficiency of the terms thereof. (17a)
(1) That the requirements of this section have been
complied with; ↑There can be no increase of capital stock in
(2) The amount of the increase or diminution of the pursuance of a mere revaluation of corporate assets
capital stock; because there is no transfer of property to the
corporation.
↑ An increase in capital stock may be accomplished member at his place of residence as shown
by 3 ways: on the books of the corporation and
1. the par value of the each share may be deposited to the addressee in the post
increased without increasing the number of office with postage prepaid, or served
shares, or personally: Provided, That in case of
2. the number of the shares may be extension of corporate term, any dissenting
increased without an increase in their par stockholder may exercise his appraisal right
value; and under the conditions provided in this code.
3. the increase may be both in the number (n)
of shares and in the par value thereof Sec. 11. Corporate term. - A corporation shall exist
for a period not exceeding fifty (50)years from the
↑In any of these cases, there is no appraisal right date of incorporation unless sooner dissolved or
granted by law, but the existing stockholders unless said period is extended. The corporate term
would have a preemptive right to the new shares as originally stated in the articles of incorporation
issued, if any, in order to protect them against any may be extended for periods not exceeding fifty
dilution of their interest. However, where the (50) years in any single instance by an amendment
increase in capital stock results in the creation of of the articles of incorporation, in accordance with
shares with preferences superior to those existing this Code; Provided, That no extension can be made
ones, a stockholder who voted against such creation earlier than five (5) years prior to the original or
would have appraisal right. subsequent expiry date(s) unless there are
justifiable reasons for an earlier extension as may
ii. Reduction of Capital Stock be determined by the Securities and Exchange
↑ No reduction of capital stock will be Commission.
approved by the SEC if it will prejudice the
rights of corporate creditors. Thus, there (f) Amendments in close corporation
can be no reduction of capital stock which Sec. 103. Amendment of articles of incorporation. -
will in effect release the stockholders from Any amendment to the articles of incorporation
the payment of the balance of their which seeks to delete or remove any provision
subscription if it will adversely affect the required by this Title to be contained in the articles
right of creditors in collecting their claims. of incorporation or to reduce a quorum or voting
(See Phil Trust Company v. Rivera – 1923) requirement stated in said articles of incorporation
↑ When the capital stock is reduce and shall not be valid or effective unless approved by
there is a reduction surplus, the amount the affirmative vote of at least two-thirds (2/3) of
cannot be distributed as dividends because the outstanding capital stock, whether with or
a distribution of corporate assets, other without voting rights, or of such greater proportion
than actual profits, was absolutely of shares as may be specifically provided in the
prohibited until after the dissolution of the articles of incorporation for amending, deleting or
corporation and the payment of its debt. removing any of the aforesaid provisions, at a
Except – meeting duly called for the purpose.
Section 122. Corporate Liquidation. – x x x ↑ In case of deadlocks in close corporations when
Except by the decrease of capita; stock and the directors or stockholders are so divided that the
as otherwise allowed by this Code, no required vote for any corporate action cannot be
corporation shall distribute any of its assets, obtained, with the consequence that the business
or property except upon lawful dissolution and affairs of the corporation can no longer be
and after payment of all its debts and conducted to the advantage of the stockholders
liabilities. generally, the SEC may, in the exercise of its powers
↑This presupposes that the decrease has to arbitrate the dispute and if it deems it
been approved by the SEC as one which appropriate, order the cancellation or alteration of
does not in effect prejudice the rights of any provision in the certificate of incorporation or
corporate creditors. by-laws.

iii. Change in corporate term – 4. Causes of Dissolution

Sec. 37. Power to extend or shorten ↑ Dissolution means that the corporation ceases to
corporate term. - A private corporation may be a juridical person and consequently can no
extend or shorten its term as stated in the longer continue transacting its business. However,
articles of incorporation when approved by for the purpose only of winding up its affairs and
a majority vote of the board of directors or liquidating its assets, its corporate existence
trustees and ratified at a meeting by the continue for a period of three years from such
stockholders representing at least two- dissolution.
thirds (2/3) of the outstanding capital stock i. Expiration of Original, extended or
or by at least two-thirds (2/3) of the shortened term
members in case of non-stock corporations. Sec. 120. Dissolution by shortening
Written notice of the proposed action and corporate term. - A voluntary dissolution
of the time and place of the meeting shall may be effected by amending the articles of
be addressed to each stockholder or incorporation to shorten the corporate
 term pursuant to the provisions of this two-thirds (2/3) of the outstanding capital
Code. A copy of the amended articles of stock or by at least two-thirds (2/3) of the
incorporation shall be submitted to the members at a meeting of its stockholders or
Securities and Exchange Commission in members called for that purpose.
accordance with this Code. Upon approval If the petition is sufficient in form
of the amended articles of incorporation of and substance, the Commission shall, by an
the expiration of the shortened term, as the order reciting the purpose of the petition,
case may be, the corporation shall be fix a date on or before which objections
deemed dissolved without any further thereto may be filed by any person, which
proceedings, subject to the provisions of date shall not be less than thirty (30) days
this Code on liquidation. (n) nor more than sixty (60) days after the
ii. Voluntary Dissolution where no creditors entry of the order. Before such date, a copy
are affected of the order shall be published at least once
Sec. 118. Voluntary dissolution where no a week for three (3) consecutive weeks in a
creditors are affected. - If dissolution of a newspaper of general circulation published
corporation does not prejudice the rights of in the municipality or city where the
any creditor having a claim against it, the principal office of the corporation is
dissolution may be effected by majority situated, or if there be no such newspaper,
vote of the board of directors or trustees, then in a newspaper of general circulation
and by a resolution duly adopted by the in the Philippines, and a similar copy shall
affirmative vote of the stockholders owning be posted for three (3) consecutive weeks
at least two-thirds (2/3) of the outstanding in three (3) public places in such
capital stock or of at least two-thirds (2/3) municipality or city.
of the members of a meeting to be held Upon five (5) day's notice, given
upon call of the directors or trustees after after the date on which the right to file
publication of the notice of time, place and objections as fixed in the order has expired,
object of the meeting for three (3) the Commission shall proceed to hear the
consecutive weeks in a newspaper petition and try any issue made by the
published in the place where the principal objections filed; and if no such objection is
office of said corporation is located; and if sufficient, and the material allegations of
no newspaper is published in such place, the petition are true, it shall render
then in a newspaper of general circulation judgment dissolving the corporation and
in the directing such disposition of its assets as
Philippines, after sending such notice to justice requires, and may appoint a receiver
each stockholder or member either by to collect such assets and pay the debts of
registered mail or by personal delivery at the corporation. (Rule 104, RCa)
least thirty (30) days prior to said meeting. ↑There would be no legal dissolution if the
A copy of the resolution authorizing the stockholders unanimously decide to dissolve
dissolution shall be certified by a majority of without filing any papers with the SEC. (see Section
the board of directors or trustees and 122 above)
countersigned by the secretary of the ↑ Whether the corporation has creditors or not,
corporation. The Securities and Exchange the vote of two-thirds of the members or of the
Commission shall thereupon issue the stockholders representing at least two-thirds of the
certificate of dissolution. (62a) outstanding capital stock will be sufficient to signify
↑The certificate of dissolution issued by the corporation’s intention to dissolve. As long as a
the SEC is the act of the State which will such vote is obtained, no member or stockholder,
legally effect the dissolution. The mere as a rule, may prevent such dissolution. However,
resolution of stockholders, without such if the majority stockholders have acted in bad faith
certificate, will not be sufficient. in dissolving the corporation for the purpose only of
iii. Voluntary dissolution where creditors “freezing out” the minority, they can be held liable
affected for the damages which the minority may have
Sec. 119. Voluntary dissolution where suffered as a result of the wrongful dissolution. (See
creditors are affected. - Where the case of Lebold et al. v. Inland Steel Corporation)
dissolution of a corporation may prejudice
the rights of any creditor, the petition for iv. Dissolution by minority in close corporation
dissolution shall be filed with the Securities i. Deadlocks (discussed above)
and Exchange Commission. The petition ii. Sec. 105. Withdrawal of
shall be signed by a majority of its board of stockholder or dissolution of
directors or trustees or other officers having corporation. - In addition and
the management of its affairs, verified by its without prejudice to other rights
president or secretary or one of its directors and remedies available to a
or trustees, and shall set forth all claims and stockholder under this Title, any
demands against it, and that its dissolution stockholder of a close corporation
was resolved upon by the affirmative vote may, for any reason, compel the
of the stockholders representing at least said corporation to purchase his
 shares at their fair value, which otherwise, the corporation’s certificate may
shall not be less than their par or be suspended or revoked.
issued value, when the corporation ↑ “Transacting business” implies a
has sufficient assets in its books to continuity of acts or dealings in the
cover its debts and liabilities accomplishment of the purpose for which
exclusive of capital stock: Provided, the corporation was formed.
That any stockholder of a close vi. Involuntary Dissolution
corporation may, by written a. Revocation of certificate of
petition to the Securities and registration by SEC
Exchange Commission, compel the Sec. 121. Involuntary dissolution. -
dissolution of such corporation A corporation may be dissolved by
whenever any of acts of the the Securities and Exchange
directors, officers or those in Commission upon filing of a verified
control of the corporation is illegal, complaint and after proper notice
or fraudulent, or dishonest, or and hearing on the grounds
oppressive or unfairly prejudicial to provided by existing laws, rules and
the corporation or any stockholder, regulations. (n)
or whenever corporate assets are PD 902-A, Sec 6. In order to
being misapplied or wasted. effectively exercise such
↑ Can the above provision qualify jurisdiction, the Commission shall
in a non-close corporation? Yes possess the following powers;
Case of Financing Corporation of X x x x
the Phil v. Teodoro et al. e. To suspend, or revoke, after
↑ “True it is that the general rule is proper notice and hearing, the
that the minority stockholders of a franchise or certificate or
corporation cannot sue and registration of corporations,
demand its dissolution. However, partnerships or associations, upon
there are cases that hold that even any of the grounds provided by law,
minority stockholders may ask for including the following:
dissolution, this, under the theory 1. Fraud in procuring its certificate
that such minority members, if of registration;
unable to obtain redress and 2. Serious misrepresentation as to
protection of their rights within the what the corporation can do or is
corporation, must not and should doing to the great prejudice of or
not be left without redress and damage to the general public;
remedy. 3. Refusal to comply or defiance of
v. Failure to organize and commence business; any lawful order of the Commission
cessation of business for 5 years. restraining commission of acts
Sec. 22. Effects on non-use of corporate which would amount to a grave
charter and continuous inoperation of a violation of its franchise;
corporation. - If a corporation does not 4. Continuous inoperation for a
formally organize and commence the period of at least five (5) years;
transaction of its business or the 5. Failure to file by-laws within the
construction of its works within two (2) required period;
years from the date of its incorporation, its 6. Failure to file required reports in
corporate powers cease and the appropriate forms as determined by
corporation shall be deemed dissolved. the Commission within the
However, if a corporation has commenced prescribed period;
the transaction of its business but x x x x
subsequently becomes continuously ↑In all cases or revocation, the law
inoperative for a period of at least five (5) requires notice and hearing.
years, the same shall be a ground for the b. Quo Warranto Proceeding
suspension or revocation of its corporate
franchise or certificate of incorporation.
This provision shall not apply if the 5. Loss of Juridical Personality (effects of dissolution;
failure to organize, commence the winding up and liquidation)
transaction of its businesses or the Sec. 122. Corporate liquidation. - Every corporation
construction of its works, or to continuously whose charter expires by its own limitation or is
operate is due to causes beyond the control annulled by forfeiture or otherwise, or whose
of the corporation as may be determined by corporate existence for other purposes is
the Securities and Exchange Commission. terminated in any other manner, shall nevertheless
↑ The by-laws, as we have seen, should be be continued as a body corporate for three (3) years
adopted much earlier – within one month after the time when it would have been so
of receipt of official notice of the issuance dissolved, for the purpose of prosecuting and
of the certificate of incorporation, defending suits by or against it and enabling it to
settle and close its affairs, to dispose of and convey
its property and to distribute its assets, but not for
the purpose of continuing the business for which it
was established.
At any time during said three (3) years, the
corporation is authorized and empowered to
convey all of its property to trustees for the benefit
of stockholders, members, creditors, and other
persons in interest. From and after any such
conveyance by the corporation of its property in
trust for the benefit of its stockholders, members,
creditors and others in interest, all interest which
the corporation had in the property terminates, the
legal interest vests in the trustees, and the
beneficial interest in the stockholders, members,
creditors or other persons in interest.
Upon the winding up of the corporate
affairs, any asset distributable to any creditor or
stockholder or member who is unknown or cannot
be found shall be escheated to the city or
municipality where such assets are located.
Except by decrease of capital stock and as
otherwise allowed by this Code, no corporation
shall distribute any of its assets or property except
upon lawful dissolution and after payment of all its
debts and liabilities. (77a, 89a, 16a)
↑ Upon dissolution, a corporation loses its juridical
personality and can no longer lawfully continue its
business, except merely for the purpose of winding
up its affairs. It cannot even be a de facto
corporation, and its existence may thus be subject
to collateral attack. During the three-year period
allowed, it must collect all debts owing to it, and
pay all creditors. For this purpose, it may sue or be
sued, although upon the expiration of three-years,
all pending actions by or against the dissolved
corporation abate.
(See cases of Buenaflor v. Camarines Sur Industry
Corporation & National Abaca and other Fibers Corp
v. Pore)