BUSINESS LAW

Title IV
Powers of Corporations

 A corporation exercises its powers through its board of directors and/or its duly authorized officers
and agents, except in instances where the Corporation Code requires stockholders’ approval for
certain specific acts.

SEC. 35. CORPORATE POWERS AND CAPACITY.

 Every corporation incorporated under this code has the power and capacity, enumerated in the book
(page 303-304).
 The enumerated powers and capacity of a corporation are general powers which are exercised by the
board of directors and/or its duly authorized officers and agents.
Examples:
1. Every corporation incorporated under the Revised Corporation Code has the power and capacity to
have perpetual existence unless the certificate of incorporation provides otherwise.
2. Every corporation incorporated under the Revised Corporation Code has the power and capacity to
enter into a partnership, joint venture, merger, consolidation, or any other commercial agreement
with natural and juridical persons.
3. No foreign corporation shall give donations in aid of any political party or candidate or for purposes
of partisan political activity. There is no similar prohibition as regards domestic corporation.
Derivative Suit
 A derivative suit is an action brought by a stockholder on the half of the corporation to enforce
corporate rights against the corporation's directors, officers or other insiders.

SEC. 36. POWER TO EXTEND OR SHORTEN CORPORATE TERM.

Requirements:
1. Approval by a majority vote of the board of directors or trustees; and
2. Ratification by the stockholders representing at least 2/3 of the outstanding capital stock or by at
least 2/3 of the members in case of non-stock corporations.

 In case of extension of corporate term, any dissenting stockholder may exercise his appraisal right.

SSEC. 37. POWER TO INCREASE OR DECREASE CAPITAL STOCK; INCUR, CREATE OR

INCREASE BONDED INDEBTEDNESS.
Requirements:
1. Approval by ma majority vote of the board of directors/trustees; and
2. Approval by 2/3 of the outstanding capital stock/members.

 Shall also require prior approval of the Commission.

Trust Fund Doctrine
 Provides that subscriptions to the capital stock of a corporation constitute a fund to which the
creditors have a right to look for the satisfaction of their claims.
Bonded Indebtedness
 A long-term indebtedness secured usually by real property.
Registration of the bonds
 Bonds issued by a corporation shall be registered with the Securities and Exchange Commission,
which shall have the authority to determine the sufficiency of the terms thereof.

SEC. 38. POWER TO DENY PREEMPTIVE RIGHT.

Pre-emptive Right
 It is the preferential right of all stockholders of a stock corporation to subscribe to all issues or
disposition of shares of any class, in proportion to the respective shareholdings.
 The purpose of pre-emptive right is to enable the shareholder to retain his proportionate control in
the corporation.
 Preemptive right must be exercised within the. Stated in the articles of incorporation or the bylaws.
 To enforce preemptive rights in a corporation is not a derivative suit. Thus, a temporary restraining
order enjoining a person from representing the corporation will not bar such action, because it is
instituted on behalf and for the benefit of the shareholder, not the corporation.
Pre-emptive right is not available (Power to deny pre-emptive right)
1. Shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership
by the public; and
2. Shares to be issued in good faith with the approval of the stockholders representing 2/3 of the
outstanding capital stock, in exchange for property needed for corporate purposes or in payment of
previously contracted debt.

SEC. 39. SALE OR OTHER DISPOSITION OF ASSETS.

SEC. 40. POWER TO ACQUIRE OWN SHARES.

General Rule:
 The corporation may only acquire its own stocks in the presence of unrestricted retained earnings.
Exceptions:
1. Redeemable shares may be acquired even without surplus profit for as long as it will not result to the
insolvency of the corporation; and
2. In a close corporation.

 The requirement of unrestricted retained earnings to cover the shares is based on the trust fund
doctrine which means that the capital stock, property and other assets of a corporation are regarded
as equity in trust for the payment of corporate creditors.
 There can be no distribution of assets among the stockholders without first paying corporate
creditors.
SEC. 41. POWER TO INVEST CORPORATE FUNDS IN ANOTHER CORPORATION OR
BUSINESS OR FOR ANY OTHER PURPOSE.
Primary purpose
1. Approval by a majority vote of the board of directors or trustees.
2. Approval of stockholders or members are not required.
Purpose other than primary purpose
1. Approval by a majority vote of the board of directors or trustees.
2. Ratification by the stockholders representing at least 2/3 of the outstanding capital stock.
3. Written notice.
4. Appraisal right for dissenting stockholders.
5. Ratification must be made at the meeting.
Funds
 The term “funds” includes any corporate property to be used in furtherance of business.

SEC. 42. POWER TO DECLARE DIVIDENDS.

 The board of directors of a stock corporation may declare dividends out of the unrestricted earnings
payable in cash, property, or in stock to all stockholders on the basis of outstanding stock held by
them.
 No stock dividend shall be issued without the approval of stockholders representing at least 2/3 of
the outstanding capital stock at a regular or special meeting duly called for the purpose.
Retained earnings
 The accumulated profits realized out of normal and continuous operations of the business after
deducting therefrom distributions to stockholders and transfers to capital or other accounts.
Unrestricted retained earnings
 The retained earnings which have not been reserved or set aside by the board of directors for some
corporate purpose.
Dividends
 Corporate profits set aside, declared, in order to be paid by the directors for distribution among
stockholders at a fixed time.
General Rule:
 Stock corporations are prohibited from retaining surplus profits in excess of 100% of their paid-in
capital stock.

SEC. 43. POWER TO ENTER INTO MANAGEMENT CONTRACT.

Management Contract
 It is an agreement whereby a corporation delegates the management of its affairs to another
corporation for a certain period of time.
 No management contract shall be entered into for a period longer than 5 years for any one term.
 Any contract whereby a corporation undertakes to manage or operate all or substantially all of the
business of another corporation, whether such contracts are called service contract, operating
agreements or otherwise.
 The above section refers only to a management contract with another corporation. Hence, it does not
apply to management contracts entered into by a corporation with natural persons.
Interlocking stockholders
 Where a stockholder or stockholders representing the same interest of both the managing and the
managed corporations own or control more than 1/3 of the total outstanding capital stock entitled to
vote of the managing corporation.
Interlocking directors
 Where a majority of 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.

SEC. 44. ULTRA VIRES ACTS OF CORPORATIONS.

 No corporation shall possess or exercise corporate powers other than those conferred by this Code or
by its articles of incorporation and except as necessary or incidental to the exercise of the powers
conferred.
Ultra vires
 Refers to an act outside or beyond corporate powers, including those that may ostensibly be within
such powers but are, by general or special laws, prohibited or declared illegal.
 BUSINESS LAW
Title V
Bylaws

BY-LAWS.
 Rules and regulations or private laws.
 To regulate, govern, and control.
 Adopted by the stockholders, directors, and officers.

PURPOSE OF A BY-LAW.
 To regulate the conduct and define the duties of the members.
 Self-imposed.
 Bylaws has no status as public law.

SEC. 45. ADOPTION OF BYLAWS.

 Voted and signed by the stockholders who holds at least a majority of the outstanding capital stock
(for stock corporation), or at least a majority of the members (for non-stock corporation).
 Bylaws shall be kept in the principal office.
 A duly certified copy must be created and signed by a majority of the directors or trustees.
 The duly certified copy must also be signed by the secretary and shall be filed with the SEC.

IS ADOPTION AND FILING OF BY-LAWS NECESSARY?

 Adoption and filing of by-laws are not a pre-requisite to acquire corporate existence.
 But it is required by the law.
 Bylaws are subordinate and/or supplementary to articles of incorporation.

DIFFERENCE BETWEEN ARTICLES OF INCORPORATION AND THE BY-LAWS.

Articles of Incorporation By-laws
Condition precedent. Condition subsequent.
It is the charter or fundamental law. It is the rules and regulations.
Executed before incorporation. Executed before or after the incorporation.
Amended by a majority of BOD representing 2/3 Amended by a majority vote of the BOD and
of the outstanding capital stock. stockholders who holds at least majority of the
outstanding capital stock or member.
The power to amend or repeal cannot be delegated. The power to amend or repeal may be delegated by the
2/3 of the outstanding capital stock or members.

ADOPTION OF BY-LAWS BEFORE INCORPORATION.

 The by-laws must be signed and approved by all the incorporators and filed with the SEC together
with the articles of incorporation.
ADOPTION OF BY-LAWS AFTER INCORPORATION.
 The affirmative vote of the stockholders who holds at least a majority of the outstanding capital stock
(for stock corporation), or at least a majority of the members (for non-stock corporation).
 The by-laws shall be signed by the stockholders or members voting for them.

PRESIDENTIAL DECREE NO. 902-A.

 Under Section 6 of PD No. 902-A, failure to file by-laws within the required period is a ground for
suspension or revocation of franchise and certificate of registration of a corporation.
  Non-filing of by-laws will not result to outright demise of a corporate existence.
 Incorporators must be given the chance to explain their neglect or omission and remedy the same.

BY-LAWS ARE INDISPENSABLE TO CORPORATIONS.

 By-laws are required by law for an orderly governance and management of corporations.

WHEN DO BYLAWS BECOME EFFECTIVE?

 The bylaws shall be effective when it is approved by the SEC, and upon the issuance of a
certification that the bylaws are in accordance with the law.

SEC. 46. CONTENTS OF BYLAWS.

 A private corporation may provide the following in its by-laws.

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 mode by which a stockholder, member, director, or trustee 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
representation 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 office of all officers other than directors or
trustees;
i. The penalties for violation of the bylaws;
j. In the case of stock corporation, 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.

SEC. 47. AMENDMENT TO BYLAWS.

WHO HAS THE POWER TO AMEND OR REPEAL THE BY-LAWS OR ADOPT A NEW BY-
LAWS?
 Stockholders who hold at least a majority of the outstanding capital stock, or at least a majority of
the members.

DELEGATION.
 The power to amend or repeal the by-laws or adopt a new by-laws may be delegated to the Board of
Directors/Trustees.

HOW TO DELEGATE?
 To delegate such power to the Board of Directors/Trustees, you will need the approval of at least 2/3
of the outstanding capital stock or at least 2/3 of the members.
REVOCATION OF THE POWER DELEGATED.
 The delegated power to amend or repeal the by-laws or adopt a new by-laws may be revoked by the
vote of the stockholders who hold at least a majority of the outstanding capital stock, or at least a
majority of the members.

BINDING EFFECT OF THE BYLAWS:

AS TO DIRECTORS OR TRUSTEES, OFFICERS, AND STOCKHOLDERS OR MEMBERS.
a. They are bound and must comply because they are presumed to know the provisions of the
bylaws.
AS TO THIRD PERSONS.
b. Third persons are not bound by by-laws, unless they have knowledge of the provisions either
actually or constructively.
 BUSINESS LAW
Title VI
Meetings

Definition of Terms
a. Remote Communication
 It means the transfer of data between two or more devices not located at the same site.
b. Teleconferencing
 It is the holding of a conference among people remote from one another by means of
telecommunication devices such as telephone or computer terminal.
 It refers to an interactive group communication (three or more people in two or more locations)
through an electronic medium.
 In general terms, teleconferencing can bring people together under one roof even though they are
separated by hundred miles.
c. Videoconferencing
 It is the holding of a conference among people in remote location by means of transmitted audio and
video signals.
d. Computer Conferencing
 It is teleconferencing supported by one or more computers.
e. Audio Conferencing
 It is a conference in which people at different location speak to each other via telephone or internet
connections.

SEC. 48. KINDS OF MEETINGS.

 Meetings of directors, trustees, stockholders, or members may be regular or special.

SEC. 49. REGULAR AND SPECIAL MEETINGS OF STOCKHOLDERS OR MEMBERS.

Regular Meetings
 Regular meetings of stockholders or members shall be held annually on a date fixed in the bylaws, or
if not so fixed, on any date after April 15 of every year as determined by the board of directors or
trustees.
 The written notice of regular meetings shall be sent to all stockholders or members of record at least
21 days prior to the meeting, unless a different period is required in the bylaws, law or regulation.
 The written notice of regular meetings may be sent to all stockholders or members of record through
electronic mail or such other manner as the Commission shall allow under its guidelines.
 Unless the bylaws provide for a longer period, the stock and transfer book or membership book shall
be closed at least 20 days for regular meetings and 7 days for special meetings before the scheduled
date of the meeting.
 The right to vote of stockholders or members may be exercised in person, through a proxy or when
so authorized in the bylaws, through remote communication or in absentia.

SEC. 50. PLACE AND TIME OF MEETINGS OF STOCKHOLDERS OR MEMBERS.

REGULAR MEETINGS
When:
 Annually on a date fixed in the bylaws, or if not so fixed, on any date after April 15 of every year as
determined by the board of directors or trustees.
Where:
 In the principal office of the corporation.
 In the city or municipality where the principal office of the corporation is located.
 Any city or municipality in Metro Manila, Metro Cebu, Metro Davao and other Metropolitan areas.
Notice:
 Written notice must be sent to stockholders 21 days prior to the meeting.

SPECIAL MEETINGS
When:
 At any time deemed necessary or as provided in the bylaws.
Where:
 In the principal office of the corporation.
 In the city or municipality where the principal office of the corporation is located.
 Any city or municipality in Metro Manila, Metro Cebu, Metro Davao and other Metropolitan areas.
Notice:
 A written notice must be sent to stockholders one week prior to the meeting.

SEC. 51. QUORUM IN MEETINGS.

 Unless otherwise provided in this Code or in the bylaws, a quorum shall consist of the stockholders
representing a majority of the outstanding capital stock or a majority of the members in the case of
non-stock corporations.

SEC. 52. REGULAR AND SPECIAL MEETINGS OF DIRECTORS OR TRUSTEES; QUORUM.

Quorum
 Majority of the number of directors or trustees as stated in the articles of incorporation.
Valid Corporate Act
 Every decision reached by at least a majority of the directors or trustees constituting a quorum shall
be valid as a corporate act.

 Quorum means majority. Majority means 50% + 1.

Meetings of Directors or Trustees

REGULAR MEETING
When:
 Monthly, unless the bylaws provide otherwise.
Where:
 Anywhere in or outside the Philippines, unless the bylaws provide otherwise.
Notice:
 Notice stating the date, time and place of the meeting must be given to the directors or justice at least
two days prior to the scheduled meeting.

SPECIAL MEETINGS
When:
 Anytime upon the call of the president or as provided in the bylaws.
Where:
 Anywhere in or outside the Philippines, unless the bylaws provide otherwise.
Notice:
 Notice stating the date, time and place of the meeting must be given to the directors or justice at least
two days prior to the scheduled meeting.

SEC. 53 WHO SHALL PRESIDE AT MEETINGS.

 The chairman or, in his absence, the presidential preside at all meetings of the directors or trustees as
well as of the stockholders or members.

SEC. 56. VOTING RIGHT FOR TRESURY SHARES.

 Treasury shares shall have no voting right as long as such shares remain in Treasury.

SEC. 57. MANNER OF VOTING; PROXIES.

 Stockholders and members may vote in person or by proxy in all meetings of stockholders or
members.
 They may also vote through remote communication or in absentia.
 A stockholder or member who participates through remote communication or in absentia shall be
deemed present for purposes of quorum.

Purposes of Proxies
1. For convenience
2. It assures the presence of a quorum
3. It enables those who do not wish to attend the meeting to protect their interest.
4. It secures voting control.
Revocation of Proxies
May be made through:
1. Formal notice;
2. Verbal communication; or
3. Conduct
 BUSINESS LAW
Title VII
Stocks and Stockholders

 In stock corporations, shareholders may generally transfer their shares.

 On the other hand, membership in and all rights arising from a non-stock corporation or personal and
non-transferable.
Derivative suit
 Is an action brought by minority shareholders in the name of the corporation, for which the directors
refuse to sue.
 Where the acts complained of constitute a wrong to the corporation itself, the cause of action belongs
to the corporation and not to the individual stockholder or member.
Individual suit
 Where a stockholder or member is denied the right of inspection, his suit would be individual
because the wrong is done to him personally and not to the other stockholders or the corporation
Class/Representative suit
 Where the wrong is done to a group of a stockholders, as where preferred stockholders rights are
violated, a class or representative suit will be proper for the protection of all stockholders belonging
to the same group.

SEC. 58. SUBSCRIPTION CONTRACT.

 Any contract for the acquisition of an issued stock in an existing corporation or a corporation still to
be formed shall be deemed a subscription notwithstanding the fact that the parties refer to it as a
purchase or some other contract.

SEC. 60. PRE-INCORPORATION SUBSCRIPTION.

 A subscription of shares in a corporation still to be formed shall be irrevocable for a period of at least
6 months from the date of subscription.
Kinds of Subscription
PRE-INCORPORATION SUBSCRIPTION
 A subscription for shares of stock of a corporation still to be formed.
 Irrevocable for a period of at least 6 months from the date of subscription.
 No pre-incorporation subscription may be revoked after the submission of the articles of
incorporation to the SEC.
POST-INCORPORATION SUBSCRIPTION
 A subscription entered into after the incorporation for the acquisition of an issued stock.

SEC. 61. CONSIDERATION FOR STOCKS.

 Stocks shall not be issued for a consideration less than the par or issued price thereof.
SEC. 62. CERTIFICATE OF STOCKS AND TRANSFER OF SHARES.
Unpaid claim
 The term unpaid claim refers to any unpaid claim arising from unpaid subscription, and not to any
indebtedness which a subscriber or stockholder may owe the corporation arising from any other
transaction

SEC. 63. ISSUANCE OF STOCK CERTIFICATES.

 No certificate of stock shall be issued to a subscriber and until the full amount of the subscription
together with interest and expenses, if any, has been paid.

SEC. 67. DELINQUENCY SALE.

Highest bidder
 Bidder who shall offers to pay the full amount of the balance on the subscription together with
accrued interest, cost of advertisement and expenses of sale, for the smallest number of shares of
fraction of a share.
Payment of Unpaid Subscription
VOLUNTARY PAYMENT
 Payment shall be made on the date specified in the contract of subscription or on the date stated in
the call made by the board.
INVOLUNTARY PAYMENT
1. Extra-Judicial
a. Delinquency sale
o The board of directors may, by resolution, order the sale of delinquent stock.
b. Application of dividends
o The cash dividends due on delinquent stock shall first be applied to the unpaid balance on
the subscription plus costs and expenses, while stock dividends shall be withheld from the
delinquent stockholder until his unpaid subscription is fully paid.
2. Judicial Action
 The corporation can collect by action in a court of proper jurisdiction the amount due on any
unpaid subscription, with the crude interest, costs and expenses.

SEC. 70. EFFECT OF DELINQUENCY.

 The holder of a delinquent stock is not included in the determination of quorum because he is not
entitled to vote; however, he is entitled to his right to dividends.

SEC. 71. RIGHTS OF UNPAID SHARES, NON-DELINQUENT.

 Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a
stockholder.
 BUSINESS LAW
Title VIII
Corporate Books and Records

SEC. 73. BOOKS TO BE KEPT; STOCK TRANSFER AGENT.

 The proper custodian of the books, minutes and official records of a corporation is usually the
corporate secretary.
 The signature of the corporate secretary gives the minutes of the mythic probative value and
credibility.
Basis of stockholders’ right of inspection
 The stockholder’s right of inspection of the corporations books and records is based upon their
ownership of the assets and property of the corporation.
General Rule:
 Every corporation shall keep and carefully preserve at its principal office all information relating to
the corporation.
Exceptions:
 The stock and transfer book may be kept in the principal office of the corporation or in the office of
its stock and transfer agent, if any.

 Corporate records regardless of the form in which they are stored, shall be open to inspection by any
director, trustee, stockholder or member of the corporation in person or by a representative at
reasonable hours on business days, and a demand in writing may be made by such director, trustee or
stockholder at their expense, for copies of such records or excerpts from said records.
 A requesting party who is not a stockholder or member of record, or is a competitor, director, officer,
controlling stockholder or otherwise represents the interests of a competitor shall have no right to
inspect or demand reproduction of corporate records.
 Any officer or agent of the corporation who shall refuse to allow the inspection and or reproduction
of records in accordance with the provisions of this Code shall be liable to such director, trustee,
stockholder or member for damages, and in addition, shall be guilty of an offense.
Stock transfer agent
 A stock transfer agent or one engaged principally in the business of registering transfers of stocks in
behalf of a stock corporation shall be allowed to operate in the Philippines upon securing a license
from the Commission and the payment of a fee to be fixed by the Commission, which shall be
renewable annually.
 A stock corporation is not precluded from performing or making transfers of its own stocks, in which
case all the rules and regulations imposed on stock transfer agents except the payment of a license
fee, shall be applicable.
 The SEC may require stock corporations which transfer and/or trade stocks in secondary markets to
have an independent transfer agent.
 BUSINESS LAW
Title IX
Merger and Consolidation

As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling
corporation, except when any of the following circumstances is present:
1. Where the purchaser expressly or impliedly agrees to assume the debts;
2. Where the transaction amounts to a consolidation or merger of the corporations; and
3. Where the purchasing corporation is merely a continuation of the selling corporation.

SEC. 75. PLAN OF MERGER OR CONSOLIDATION.

 Two or more corporations may merge into a single corporation which shall be one of the constituent
corporations or may consolidate into a new single corporation which shall be the consolidated
corporation.
 A merger is a union whereby one or more existing corporations are absorbed by another corporation
that survives and continues the combined business.
 Ordinarily, in the merger of two or more existing corporations, one of the corporations survives and
continues the combined business while the rest are dissolved and other rights, properties, and
liabilities are acquired by the surviving corporation.
 The merger, however, does not become effective upon the mere agreement of the constituent
corporations.
 A consolidation is the union of two or more existing entities to form a new entity called the
consolidated corporation.

SEC. 76. STOCKHOLDERS’ OR MEMBERS’ APPROVAL.

 Upon approval by majority vote of each of the board of directors or trustees of the constituent
corporations of the plan of merger or consolidation, the same shall be submitted for approval by the
stockholders or members of each of such corporations at separate corporate meetings duly called for
the purpose.
 The affirmative vote of stockholders representing at least 2/3 of the outstanding capital stock of each
corporation in the case of stock corporations or at least 2/3 of the members in the case of non-stock
corporations shall be necessary for the approval of such plan.
 The amendment to the plan of merger or consolidation must be approved by a majority vote of the
respective boards of directors or trustees of all the constituent corporations and ratified by the
affirmative vote of stockholders representing at least 2/3 of the outstanding capital stock or of 2/3 of
the members of each of the constituent corporations.

SEC. 77. ARTICLES OF MERGER OR CONSOLIDATION.

SEC. 78. EFFECTIVITY OF MERGER OR CONSOLIDATION.

 Clearly, the merger shall only be effective upon the issuance of a certificate of merger by the SEC
subject to its prior determination that the merger is not inconsistent with the Corporation Code or
existing laws.
  Where a party to the merger is a special corporation governed by its own charter, the Code
particularly mandates that a favorable recommendation of the appropriate government agency should
first be obtained.

SEC. 79. EFFECTS OF MERGER OR CONSOLIDATION.

 Ordinarily, in the merger of two or more existing corporations, one of the combining corporations
survives and continues the combined business, while the rest are dissolved and older rights,
properties and liabilities are acquired by the surviving corporation.
 Although there is a dissolution of the absorbed corporations, there is no winding up of their affairs or
liquidation of their assets, because the surviving corporation automatically acquires all the rights,
privileges and powers, as well as their liabilities.
 By operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but
its right and properties, as well as liabilities, shall be taken and deemed transferred to and vested in
the surviving corporation.
 The merger and consolidation shall only be effective upon the issuance of a certificate of merger or
certificate of consolidation by the SEC.
 When the sec is satisfied that the consolidation of the corporations is not inconsistent with the
provisions of the corporation code and existing laws, it issues a certificate of consolidation which
makes the reorganization official.
 BUSINESS LAW
Title X
Appraisal Right

APPRAISAL RIGHT.
 A stockholder who dissented and voted against the proposed corporate action, may choose to get out
of the corporation by demanding payment of the fair market value of his shares.
 The Code grants the stockholder the right to get out of the corporation even before its dissolution
because there has been a major change in his contract of investment with which he does not agree
and which the law presumes he did not foresee when he bought his shares.

SEC. 80. WHEN THE RIGHT OF APPRAISAL MAY BE EXERCISED.

Four Instances of Appraisal Right
1. In case any amendment to the articles of incorporation has the effect of:
a. Changing or restricting the rights of any stockholders or class of shares, or
b. Authorizing preferences in any respect superior to those of outstanding shares of any class, or
c. Extending or shortening the term of corporate existence.
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially
all of the corporate property and assets as provided in this Code;
3. In case of merger or consolidation; and
4. In case of investment of corporate funds for any purpose other than the primary purpose of the
corporation.

SEC. 81. HOW RIGHT IS EXERCISED.

 The dissenting stockholder who votes against a proposed corporate action may exercise the right of
appraisal by making a written demand on the corporation for the payment of the fair value of shares
held within 30 days from the date on which the vote was taken. Provided, that failure to make the
demand within such period shall be deemed a waiver of the appraisal right.
 If within 60 days from the approval of the corporate action by the stockholders, the withdrawing
stockholder and the corporation cannot agree on the fair value of the shares, it shall be determined
and appraised by the three disinterested persons.
 Disinterested persons include, one of whom shall be named by the stockholder, another by the
corporation, and the third by the two thus chosen.
 No payment shall be made to any dissenting stockholder unless the corporation has unrestricted
retained earnings in its books to cover such payment.
Valuation Date
 The fair value of the shares of the dissenting stockholder is determined as of the day prior to the date
on which the vote was taken excluding any appreciation or depreciation in value of the shares in
anticipation of such corporate action.

SEC. 82. EFFECT OF DEMAND AND TERMINATION OF RIGHT.

Effect of Demand and Termination of Right
1. From the time of demand for payment of the fair value of a stockholder’s shares until either the
abandonment of the corporate action involved or the purchase of the said shares by the corporation,
all rights accruing to such shares, including voting and dividend rights, shall be suspended.
2. The dissenting stockholder shall be entitled to receive payment of the fair value of his shares as
agreed upon between him and the corporation or as determined by the appraisers chosen by them.
3. If the dissenting stockholder is not paid the value of his shares within 30 days after the award, his
voting and dividend rights shall immediately be restored.
4. Upon such payment, all his rights are terminated, not merely suspended. But if before he is paid, the
proposed corporate action is abandoned, his rights and status as a stockholder shall thereupon be
permanently restored.
5. Payment may be made only if the corporation has unrestricted retained earnings in its books to cover
the same.

SEC. 83. WHEN RIGHT TO PAYMENT CEASES.

General Rule:
 A dissenting stockholder who demands payment of his shares is no longer allowed to withdraw from
his decision.
Exceptions:
1. The corporation consents to the withdrawal;
2. The proposed corporate action is disapproved by the SEC where its approval is necessary;
3. The proposed for protection is abandoned or rescinded by the corporation; and
4. The SEC determines that such stockholder is not entitled to appraisal right.

SEC. 84. WHO BEARS COSTS OF APRAISAL.

General Rule:
 The corporation shall bear the costs of appraisal.
Exception:
 The fair value ascertained by the appraisers is approximately the same as the price which the
corporation may have offered to pay the stockholder, in which case they shall be borne by the
stockholder.

SEC. 85. NOTATION ON CERTIFICATES; RIGHTS OF TRANSFEREE.

 Within 10 days after demanding payment for shares held, a dissenting stockholder shall submit the
certificates of stock representing the shares to the corporation for notation that such shares are
dissenting shares.
Effects of Transfer of Dissenting Shares
1. The rights of transferor as a dissenting stockholder shall cease and the transferee shall have all the
rights of a regular stockholder.
2. All dividend distributions which would have accrued on such shares shall be paid to the transferee.
 BUSINESS LAW
Title XI
Nonstock Corporation

SEC. 86. DEFINITION.

 A non-stock corporation is one where no part of its income is distributable as dividends to its
members, trustees, or officers.
 Any profit which a non-stock corporation may obtain as an incident to its operations shall, whenever
necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation
was organized.

SEC. 87. PURPOSES.

Characteristics of a nonstock corporation:
1. No capital stock dividends.
2. No income may be distributed to members, trustees, or officers.
3. Not prohibited to generate income, but prohibited to distribute that income.
4. Membership is non-transferrable.
5. Right to vote is limited.
6. May designate their governing boards by any name other than board of trustees.
7. Meetings may be held outside the principal office but not outside the country.
8. Not allowed to distribute ay of its assets or incidental income.
9. Can not be converted into stock corporation.
 Chapter 1: Members
SEC. 88. RIGHT TO VOTE.
 The right to vote may be limited, broadened or denied, if not, shall be entitled to one vote.
 Members may vote by proxy or through remote communication and/or in absentia.
 In stock corporations, shareholders may generally transfer their shares.
 Membership in and all rights arising from a non-stock corporation or personal and non-transferable.

SEC. 89. NONTRANSFERRABILITY OF MEMBERSHIP.

 Membership in a nonstock corporation and all rights arising therefrom are personal and non-transferable,
unless the articles of incorporation or the bylaws otherwise provide.

SEC. 90. TERMINATION OF MEMBERSHIP.

 Termination of membership shall extinguish all rights of a member in the corporation or in its property,
unless otherwise provided in the articles of incorporation or the bylaws.
Requirements for termination of membership:
1. Notice to the member; and
2. Opportunity to be heard.

Chapter 2: Trustees and Officers

SEC. 91. ELECTION AND TERM OF TRUSTEES.
 The number of trustees shall be fixed in the articles of incorporation or bylaws which may exceed 15 in
number.
 They shall hold office for not more than 3 years until their successors are elected and qualified.
 Trustees elected to fill vacancies occurring before the expiration of a particular term shall hold office only
for the unexpired period.
 Except with respect to independent trusties of non-stock corporations vested with public interest, only a
member of the corporation shall be elected as trustee.

SEC. 92. LIST OF MEMBERS AND PROXIES, PLACE OF MEETINGS.

 The corporation shall, at all times, keep a list of its members and their proxies in the form the SEC may
require.
 The bylaws may provide that the members of a nonstock corporation may hold their regular or special
meetings at any place even outside the place where the principal office of the corporation is located;
however, it shall be within Philippine territory.

Chapter 3: Distribution of Assets in Nonstock Corporations

SEC. 93. RULES OF DISTRIBUTION.
SEC. 94. PLAN OF DISTRIBUTION OF ASSETS.
 The plan of distribution of assets may be adopted by a majority vote of the board of trustees and approval
of 2/3 of the members having voting rights present or represented by proxy at the meeting during which
said plan is adopted.
 BUSINESS LAW
Title XIII
Special Corporations

Chapter 1: Educational Corporations

SEC. 105. INCORPORATION.
 Educational corporations shall be governed by special laws and by the general provisions of this code.

SEC. 106. BOARD OF TRUSTEES.

 Trustees of educational institutions organized as non-stock corporations shall not be less than 5 nor more
than 15.
 The number of trustees shall be in multiples of 5.
 The board of trustees shall, as soon as organized, so classify themselves that the term of office of 1/5 of
their number shall expire every year.
 Trustees elected thereafter in educational corporation to fill vacancies caused by expiration of term shall
hold office for 5 years.
 Trustees elected to fill vacancies occurring before the expiration of a particular term, shall hold office only
for the unexpired period.
 A majority of the trustees shall constitute a quorum for the transaction of business.

Chapter 2: Religious Corporations

SEC. 107. CLASSES OF RELIGIOUS CORPORATIONS.
 Religious corporations may be incorporated by one or more persons.
 Such corporations may be classified into corporation sole and religious societies.

SEC. 108. CORPORATION SOLE.

 For the purpose of administering and managing, as trustee, the affairs, property and temporalities of any
religious denomination, sect or church, a corporation sole maybe formed by the chief archbishop, bishop,
priest, minister, rabbi, or other presiding elder of such religious denomination, sect or church.

SEC. 109. ARTICLES OF INCORPORATION.

SEC. 110. SUBMISSION OF THE ARTICLES OF INCORPORATION.

 From and after the filing with the Commission of the said articles of incorporation, verified by affidavit or
affirmation, and accompanied by the required documents, such chief archbishop, bishop, priest, minister,
rabbi or presiding elder shall become corporation sole.

SEC. 111. ACQUISITION AND ALIENATION OF PROPERTY.

 A corporation sole may purchase and hold real estate and personal property for its church, charitable,
benevolent or educational purposes and may receive requests or gifts for such purposes.
 Such corporation sole may sell or mortgage real property held by it by obtaining an order for that purpose
from the Regional Trial Court.
 In cases where the rules, regulations and discipline of the religious denomination, sect or religious society
or order concerned represented by such corporation sole regulate the method of acquiring, selling and
 mortgaging real estate and personal property, such, regulations and discipline shall govern, and the
intervention of the courts shall not be necessary.

SEC. 112. FILING OF VACANCIES.

SEC. 113. DISSOLUTION.

 A corporation sole maybe dissolved and its affairs settled voluntarily by submitting to the commission a
verified declaration of dissolution.
 Upon approval of such declaration of dissolution by the SEC, the corporation shall cease to carry on its
operations except for the purpose of winding up its affairs.

SEC. 114. RELIGIOUS SOCIETIES.

Chapter 3: One Person Corporation

SEC. 115. APPLICABILITY OF PROVISIONS TO ONE PERSON CORPORATION.

SEC. 116. ONE PERSON CORPORATION.

 One Person Corporation is a corporation with a single stockholder.
 Only a natural person, trust, or an estate may form a One Person Corporation.
 A natural person who is licensed to exercise a profession may not organize as a One Person Corporation for
the purpose of exercising such profession.

SEC. 117. MINIMUM CAPITAL STOCK NOT REQUIRED FOR ONE PERSON COPRORATION.
 A One Person Corporation shall not be required to have a minimum authorized capital stock.

SEC. 118. ARTICLE OF INCORPORATION.

SEC. 119. BYLAWS.

 The One Person Corporation is not required to submit and file corporate bylaws.

SEC. 120. DISPLAY OF CORPORATE NAME.

 A One Person Corporation shall indicate the letters “OPC” either below or at the end of its corporate name.

SEC. 121. SINGLE STOCKHOLDER.

 A single stockholder shall be the sole director and president of the One Person Corporation.

SEC. 122. TREASURER, CORPORATE SECRETARY, AND OTHER OFFICERS.

  Within 15 days from the issuance of its certificate of incorporation, the One Person Corporation shall
appoint a treasurer, corporate secretary, and other officers as it made them necessary, and notify the
Commission thereof within 5 days from appointment.
 The single stockholder may not be appointed as the corporate secretary but may assume the role of a
treasurer.

SEC. 123. SPECIAL FUNCTIONS OF THE CORPORATE SECRETARY.

SEC. 124. NOMINEE AND ALTERNATE NOMINEE.

 The single stockholder shall designate a nominee and an alternate nominee who shall, in the event of the
single stockholder’s death or incapacity, take the place of the single stockholder as director and shall
manage the corporation’s affairs.
 The articles of incorporation shall state the names, residence addresses and contact details of the nominee
and alternate nominee as well as the extent and limitations of their authority in managing the affairs of the
One Person Corporation.

SEC. 125. TERM OF NOMINEE AND ALTERNATE NOMINEE.

 When the incapacity of the single stockholder is temporary, the nomination seat as director and manage the
affairs of the One Person Corporation until the stockholder, by self-determination, regains the capacity to
assume such duties.
 In case of death or permanent incapacity of the single stockholder, the nominee shall sit as director and
manage the affairs of the One Person Corporation until the legal heirs of the single stockholder have been
lawfully determined, and the heirs have designated one of them or have agreed that the estate shall be the
single stockholder of the One Person Corporation.
 The alternate nominee shall sit as director and manage the One Person Corporation in case of the nominee’s
inability, incapacity, death or refusal to discharge the functions as director and manager of the corporation,
and only for the same term and under the same conditions applicable to the nominee.

SEC. 126. CHANGE OF NOMINEE OR ALTERNATE NOMINEE.

 The single stockholder may, at any time, change its nominee and alternate nominee by submitting to the
Commission the names of the new nominees and their corresponding written consent. For this purpose, the
articles of incorporation need not be amended.

SEC. 127. MINUTES BOOK.

 One Person Corporation shall maintain a minutes book which shall contain all actions, decisions, and
resolutions taken by the One Person Corporation.

SEC. 128. RECORDS IN LIEU OF MEETINGS

SEC. 129. REPORTORIAL REQUIREMENTS.

 The Commission may place the corporation under delinquent status should the corporation fail to submit
the reportorial requirements 3 times, consecutively or intermittently, within a period of 5 years.
SEC. 130. LIABILITY OF SINGLE STOCK HOLDER.
  A sole shareholder claiming limited liability has the burden of affirmatively showing that the corporation
was adequately financed.
 Where the single stockholder cannot prove that the property of the One Person Corporation is independent
of the stockholder’s personal property, the stockholder shall be jointly and severally liable for the debts and
other liabilities of the One Person Corporation.
 The principles of piercing the corporate veil applies with equal force to One Person Corporations as with
other corporations.

SEC. 131. CONVERSION FROM AN ORDINARY CORPORATION TO A ONE PERSON

CORPORATION.
 When a single stockholder acquires all the stocks of an ordinary stock corporation, the latter may apply for
conversion into a One Person Corporation.

SEC. 132. CONVERSION FROM ONE PERSON CORPORATION TO ORDINARY STOCK

CORPORATION.
 A One Person Corporation may be converted into an ordinary stock corporation after due notice to the SEC
of such fact and of the circumstances leading to the conversion, and after compliance with all other
requirements for stock corporation.
 BUSINESS LAW
Title XIV
Dissolution

SEC. 133. METHODS OF DISSOLUTION.

 A corporation formed or organized under the provisions of this code may be dissolved voluntarily or
involuntarily.
Modes of Dissolution
1. Voluntary Dissolution
a. By the vote of the board of directors or trustees and the resolution adopted by the stockholders or
members where no creditors are affected;
b. By the judgement of the SEC after hearing of petition for voluntary dissolution where creditors are
affected;
c. By amending the articles of incorporation to shorten the corporate term;
d. In case of a corporation sole, by submitting to the sec a verified declaration of the dissolution for
approval; and
e. In case of merger or consolidation.

2. Involuntary Dissolution
a. By expiration of corporate term provided for in the articles of incorporation;
b. By legislative enactment;
c. Upon receipt of a lawful court order dissolving the corporation;
d. If a corporation has amended its business but subsequently becomes in operative for a period of at least
five consecutive years, the SEC may, after due notice and hearing, place the corporation under
delinquent status. A delinquent corporation shall have a period of 2 years to resume operations and
comply with all requirements that the SEC shall prescribed; and
e. By order of the SEC on grounds under existing laws.

SEC. 134. VOLUNTARY DISSOLUTION WHERE NO CREDITORS ARE AFFECTED.

 If dissolution of a corporation does not prejudice the rights of any creditor having a claim against it, the
dissolution may be effected by majority vote of the board of directors or trustees, and by a resolution
adopted by the affirmative vote of the stockholders owning at least majority of the outstanding capital stock
or majority of the members of a meeting to be held upon the call of the directors or trustees.
 No application for dissolution of banks, banking and quasi banking institutions, preneed, insurance and
trust companies, nonstock savings and loan associations, pawnshops, and other financial intermediaries
shall be approved by the SEC unless accompanied by a favorable recommendation of the appropriate
government agency.

SEC. 135. VOLUNTARY DISSOLUTION WHERE CREDITORS ARE AFFECTED; PROCEDURE AND
CONTENTS OF PETITION.
 Where the dissolution of a corporation may prejudice the rights of any creditor, a verified petition for
dissolution shall be filed with the Commission.
 The petition shall be signed by a majority of its board of directors or trustees and that its dissolution was
resolved upon by the affirmative vote of the stockholders representing at least 2/3 of the outstanding capital
stock or by at least 2/3 of the members.
Contents of the Petition
1. The reason for the dissolution;
2. The form, manner, and time when the notices were given; and
3. The date, place, and time of the meeting in which the vote was made.
  In the case of dissolution where creditors are affected, the SEC may appoint a receiver to take charge of the
liquidation of the corporation.

SEC. 136. DISSOLUTION BY SHORTENING CORPORATE TERM.

 Upon the expiration of the shortened term, as stated in the approved amended articles of incorporation, the
corporation shall be deemed dissolved without any further proceedings, subject to the provisions of this
code on liquidation.
 In the case of expiration of corporate term, resolution shall automatically take effect on the day following
the last day of the corporate term stated in the articles of incorporation, without the need for the issuance by
the Commission of a certificate of dissolution.

SEC. 137. WITHDRAWAL OF REQUEST AND PETITION FOR DISSOLUTION.

 A withdrawal of the request for dissolution shall be made in writing, duly verified by any incorporator,
director, trustee, shareholder, or member and signed by the same number of incorporators, directors,
trustee, shareholders, or members necessary to request for dissolution.
 Upon receipt of a withdrawal of request for dissolution, the SEC shall withhold action on the request for
dissolution.

SEC. 138. INVOLUNTARY DISSOLUTION.

The following may be grounds for dissolution of a corporation:
1. Non-use of corporate charter;
2. Continuous inoperation of a corporation;
3. Upon receipt of a lawful court order dissolving the corporation;
4. Upon finding by final judgment that the corporation procured its incorporation through fraud; and
5. (refer to book, pp. 488)

SEC. 139. CORPORATE LIQUIDATION.

 Every corporation whose charter expires pursuant to its articles of incorporation, is annulled by forfeiture,
or whose corporate existence is terminated in any other manner, shall nevertheless remain as a body
corporate for 3 years after the effective date of dissolution.
 Upon the winding up of corporate affairs, any asset distributable to any creditor or stockholder or member
who is unknown or cannot be found shall be escheated in favor of the national government.
 BUSINESS LAW
Title XVII
Miscellaneous Provisions

SEC. 173. OUTSTANDING CAPITAL STOCK, DEFINED.

 It means the total shares of stock issued under binding subscription agreements to subscribers or
stockholders, whether or not fully or partially paid, except treasury shares.

SEC. 174. DESIGNATION OF GOVERNING BOARDS.

 The provisions of specific provisions of this code to the contrary notwithstanding, non-stock or special
corporations may, through their articles of incorporation or their bylaws, designate their governing boards
by any name other than as board of trustees.

SEC. 175. COLLECTION AND USE OF REGISTRATION, INCORPORATION AND OTHER FEES.
 The Commission is hereby authorized to collect, retain, and use fees, fines, and other charges.
 The amount collected shall be deposited and maintained in a separate amount which shall form a fund for
its modernization and to augment its operational expenses such as, but not limited to, capital outlay,
increase in compensation and benefits comparable in prevailing rates in the private sector, reasonable
employee allowance, employee health care services, and other insurance, employee career advancement
and professionalization, legal assistance seminars and other professional fees.

SEC. 176. STOCK OWNERSHIP IN CORPORATIONS.

 The Congress of the Philippines may set maximum limits for stock ownership of individuals or groups of
individuals related to each other by consanguinity, affinity, or by close business interests, in corporations
declared to be invested with public interest.

SEC. 177. REPORTIORIAL REQUIREMENTS OF CORPORATIONS.

 Every corporation, domestic or foreign, doing business in the Philippines shall submit to the Commission:
a. Annual financial statements audited by an independent certified public accountant. Provided, that if
the total assets or total liabilities of the corporation are less than 600,000 pesos, the financial
statements shall be certified under oath by the corporation's treasurer or chief financial officer; and
b. A general information sheet.
 The reportorial requirements shall be submitted annually and within such period as may be prescribed by
the Commission.
 The Commission may place the corporation under delinquent status in case of failure to submit the
reportorial requirements 3 times, consecutively or intermittently, within a period of 5 years.

SEC. 178. VISITORIAL POWER AND CONFIDENTIAL NATURE OF EXAMINATION RESULTS.

 The Commission shall exercise visitorial powers over all corporations, which powers shall include the
examination and inspection of records, regulation and supervision of activities, enforcement of compliance,
and imposition of sanctions in accordance with this Code.
 Should the corporation, without justifiable cause, refuse or obstruct the SEC’s exercise of its visitorial
powers, the Commission may revoke its certificate of incorporation.

SEC. 179. POWERS, FUNCTIONS, AND JURISDICATION OF THE COMMISSION.

  In imposing penalties and additional monitoring and supervision requirements, the Commission shall take
into consideration the size, nature of the business, and capacity of the corporation.

SEC. 180. DEVELOPMENT AND IMPLEMENTATION OF ELECTRONIC FILING AND

MONITORING SYSTEM.
 The SEC shall develop and implement an electronic filing and monitoring system.

SEC. 181. ARBITRATION FOR CORPORATIONS.

SEC. 182. JURISDICTION OVER PARTY-LIST ORGANIZATIONS.

 The powers, authorities, and responsibilities of the commission involving party-list organizations are
transferred to the Commission on Elections.

SEC. 183. APPLICABILITY OF THE CODE.

 Regulator such as the Bangko Sentral ng Pilipinas and the Insurance Commission shall exercise primary
authority over special corporations such as banks, non-bank financial institutions, and insurance companies
under their supervision and regulation.

SEC. 184. EFFECT OR REPEAL OF THIS CODE OR THE DISSOLUTION OF THE CORPORATION.
 No right or remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or
officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or
officers, shall be removed or impaired either by the subsequent dissolution of said corporation or by any
subsequent amendment or repeal of this Code or of any part thereof.

SEC. 185. APPLICABILITY TO EXISTING CORPORATIONS.

 A corporation lawfully existing and doing business in the Philippines affected by the new requirements of
this Code shall be given a period of not more than 2 years from the effectivity of this Act within which to
comply.