THE CORPORATION CODE OF THE PHILIPPINESBatas Pambansa Blng. 68Title 1General ProvisionsFun Fact: Ferdinand Marcos is the official head of the government when the code was passed. Philippines was not a Republic but a Parliament that is why it is called a Batas Pambansa and not RA.Section 1. Title of the Code- This code shall be known as The Corporation Code of the Philippines.

The law that governs private corporations in the Philippines. Took effect on May 1, 1980 Replaced the Corporation Law which was enacted on March 1, 1906 during the American Regime through the Philippine Commission. Aims corporations to become effective partners of the national government

Section 2. Corporation defined. A Corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to its existence.

I. ATTRIBUTES OF A CORPORATION1. It is an artificial being with separate and distinct personality. (Doctrine of Separate Personality)

- a juridical person capable of having rights and obligations, w/ a personality separate and distinct from its members or stockholders hence, stockholders are not personally liable for corp. obligations and cannot be held liable to third persons who have claims against the corp. beyond their agreed contribution to the corporate capital.

2. It is created by operation of law.- mere consent of the parties to form a corp.is not sufficient: the State must give its consent either through a special law (in the case of a govt corp.) or a general law (for a private corp.) the general law under w/c a private corp. may be formed or organized is the Corporation Code

3. It enjoys the right of succession.- its continued existence during the term stated in its articles of incorp. cannot be affected by any change in the members or stockholders nor is it affected by the transfer of shares by a stockholder to a 3rd person

4. It has the powers, attributes and properties expressly authorized by law or incident to its existence.

- is a mere creature of the law, it can exercise only such powers as the law may choose to grant it, either expressly or impliedly

Advantages of the Corporate Organizations1. Separate juridical personality2. Limited liability to investors

General rule: Where a corporation buys all the shares of another corporation, this will not operate to dissolve the other corporation and as the two corporations still maintain their separate corporate entities, one will not answer for the debts of the other. [Nell v Pacific Farms (15 SCRA 415), Nov. 23, 1965]

Exceptions:o If there is an express assumption of liabilities;o There is a consolidation or merger;o If the purchase was in fraud of creditors;o If the purchaser becomes a continuation of the seller;o If there are unpaid subscriptions (stockholder is liable for the unpaid balance).

From a legal point of view, amergeris a legal consolidation of two companies into one entity, whereas anacquisitionoccurs when one company takes over another and completely establishes itself as the new owner (in which case the target company still exists as an independent legal entity controlled by the acquirer). Either structure can result in the economic and financial consolidation of the two entities. In practice, a deal that is an acquisition for legal purposes may be called a "merger of equals" if both CEOs agree that joining together is in the best interest of both of their companies, while when the deal is unfriendly (that is, when the target company does not want to be purchased) it is almost always regarded as an "acquisition".3 stockholders hold their shares as personal property with rights to dispose, assign or encumber them as they may desire (63)4. all corporate powers are exercised by the board of directors (23) Partnership vs. Corporation Both have a separate juridical personality. Both are artificial persons ie. They have no bodily existence, and can only act through agents Both are composed of a group of persons with the exception of a corporate sole. A partnership, with the exception of a general professional partnership, is taxed as a corporation. PartnershipCorporation

Extent of Liabilitypartners are personally liable for the debts of the partnershipStockholders cannot be made to personally answer to corporate creditors

CreationMere agreement of the partnersCreated by the operation of law

Number of Organizermere agreement of the parties, w/c can be composed of just 2 persons,Formed by 5 or more persons but not exceeding 15

ManagementIn most cases, all theowners actively participate in management, w/ capacity to bind it by any usual contract management is centralized in the board of directors w/c has exclusive power to bind the corp

Right of SuccessionNo rightHas right

Nature of Relationshipbased on mutual trust and confidence (delectus personae) so that its existence is precarious because of the facility w/ which it can be dissolved (i.e. through the death or unilateral act of a partner);Has more stability as it enjoys the right of succession and is not affected by the deathor insolvency of a stockholder; also,dissolution before a corp.s term requires a2/3rds vote of the stock

PowersMay exercise any power provided it is authorized by partners and is not contrary to law, morals, good customs, public order or public policy. Can exercise only the powers expressly authorized by law or incident to its existence

Commencement of existenceupon the execution of the partnership contract unless a different date is set by the partners.On the date of the issuance of its certificate of incorporation

Transferability of interestA partner cannot transfer his shares to another person without partners consentCan transfer his shares to another person without the consent of other stockholders

Term of existenceMay be formed for an indefinite periodMay exist for a period not exceeding 50 years

DissolutionMay be dissolved by a partnerCannot be dissolved without the consent of the state

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

Stock corporation

One which has a capital stock divided into shares and is authorized to distribute to the holders of such shares dividends or allotments of the surplus profits (i.e., retained earnings on the basis of the shares held It is organized for profit. The governing body of a stock corporation is usually the Board of Directors (Except in certain instances for close corporations)

Non-stock corporation

All other corporations are non-stock corporations One where no part of the income is distributable as dividends to its members, trustees, or officers, subject to the provisions of the Code on dissolution. Not organized for profit. Its governing body is usually the Board of Trustees.

Other kinds of Organization that was not used as a classification in the code

1. Public corporation - One formed or organized for the government or a particular state. Its purpose is for the general good and welfare.

2. Private corporation - One formed for some private purpose, benefit, aim or end

The true test is the purpose of corporation. If corporation is created for political or public purpose connected with the administration of government, then it is a public corporation.

If not, it is a private corporations although the whole or substantially the whole interest in the corporation belongs to the state.

In the Philippines, public corporations are the Provinces, cities, municipalities, and barangays. They are also called Municipal corporations or local government.

The code eliminated the classification of corporations into public or private obviously for the reason that it applies only to private corporations.

Private corporations include: a. Government- owned or controlled corporations (GOCC) or those directly created by Special law (Sec 4) or if organized under the general corporation law (B.P. Blg. 68)

These corporations are private not public corporations because they are not established for the government of a portion of the state.

b. Quasi- public corporations or those which have accepted from the state the grant of a franchise or contract involving the rendition or performance of some public duties or service but which are organized for profit.

(1) As to number of persons who compose them:a. Corporation Aggregate- corporation consisting of more than one member or corporatorb. Corporation sole or religious corporation- consists of one member or corporator only and his successors, such as bishop

4. Educational corporation (106) Those corporations which are organized for educational purposes. This type of corporation is governed by Section 106 of the Corporation Code.

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

Corporations created by special laws shall be owned or controlled by the government. All because:1. To give everyone equal opportunity to access the special privilege granted.2. To prevent bribery and corruption of the legislature.

Sec. 5. Corporators and incorporators, stockholders and members. Corporators- those who compose a corporation, whether as stockholders or as members. Incorporators- those stockholders or members mentioned in the articles of incorporation as originally forming and composing the corporation and who are signatories of such document.

Note: Ones name may be mentioned in the articles of incorporation as a subscriber or a member, but if he is not a signatory thereto, he is a mere stockholder or a member, not incorporator.

Stockholders- the corporators of a stock corporation.

Members- the corporators of a non- stock corporation.

Promoters- persons who bring about or cause to bring about the formation and organization of a corporation by bringing together the incorporators or the persons interested in the enterprise .

They lay the groundwork for corporate existence.Subscribers- persons who have agreed to take and pay for original, unissued shares of a corporation formed or to be formed.

Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or series of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation:Provided, That no share may be deprived of voting rights except those classified and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code: Provided, further, That there shall always be a class or series of shares which have complete voting rights. Any or all of the shares or series of shares may have a par value or have no par value as may be provided for in the articles of incorporation:Provided, however, That banks, trust companies, insurance companies, public utilities, and building and loan associations shall not be permitted to issue no-par value shares of stock.Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the corporation in case of liquidation and in the distribution of dividends, or such other preferences as may be stated in the articles of incorporation which are not violative of the provisions of this Code:Provided, That preferred shares of stock may be issued only with a stated par value. The board of directors, where authorized in the articles of incorporation, may fix the terms and conditions of preferred shares of stock or any series thereof: Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof with the Securities and Exchange Commission.Shares of capital stock issued without par value shall be deemed fully paid and non assessable and the holder of such shares shall not be liable to the corporation or to its creditors in respect thereto:Provided; That shares without par value may not be issued for a consideration less than the value of five (P5.00) pesos per share: Provided, further, That the entire consideration received by the corporation for its no-par value shares shall betreated as capital and shall not be available for distribution as dividends.A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal requirements.Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respects to every other share.Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall nevertheless be entitled to vote on the following matters:1. Amendment of the articles of incorporation;2. Adoption and amendment of by-laws;3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;4. Incurring, creating or increasing bonded indebtedness;5. Increase or decrease of capital stock;6. Merger or consolidation of the corporation with another corporation with or other corporation.7. Investment of corporate funds in another corporation or business. 8. Dissolution of the corporationExcept as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights.

A share of Stock represents the intangible interest or right which an owner has in the management, profits and assets of the corporation. It is a property subject to conversion. one of units in which the capital stock of the corporation is divided. Incorporeal or intangible property Represents the right or interest of a person in a corporation May be issued even if the subscription is not fully paid except in no par shares

stock certificate- the written acknowledgement by the corporation of the stockholders interest in the corporation and its property. - Formal written evidence of ownership tangible Written evidence of that right may not be issued unless subscription is fully paid Not essential to ownership

Classification of Stocks1. Common Stock- The ordinary stock of a corporation entitles the holder to a pro rata division of the dividends- without any preference or advantage over other stockholders

2. Preferred Stock- Entitles the holder to certain preferences over the shareholders.

a. Preferred stock as to asset- entitles the holder to preference in the distribution of assets over over common stock upon the liquidation of the corporation

b. Preferred as to dividends- entitles the holder to preference in the distribution of dividends over common stock

3. Par Value Stock- The nominal value that appears on the stock certificate Capital stock that has been assigned a value per share in the corporate charter. Its primary purpose is to fix the minimum issue price of the shares

4. No- Par Value Stock-One without nominal value that appears on the stock certificate Capital stock that has not been assigned a value in the corporate charter Always has issued value A corporation may issue no par value shares only or with par value Does not represent any proportionate interest in the capital stock

Power of a corporation to classify its own shares & Limitations thereto:

1. classification of corporation may include the following:a. Voting and non voting sharesb. Common and preferred sharesc. Par Value and no par value sharesd. Classification to insure compliance with constitutional or legal requirements

2. Any of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation.3. Each share shall be equal in all respects to every other share (Except as otherwise provided in the articles of incorporation and stated in the certificate of stocks). 4. Limitations when shares are deprived of the voting right: a. Only those classified as redeemable or preferred, otherwise provided by this codeb. There shall always be a series of or class of shares that have complete voting rights (So that not all the shares may be deprived of the voting rights).c. Non- voting shares may nevertheless vote on the following matters previously mentioned from this section.5. Limitations when no- par shares are issued.a. Subscribers to no- par b. Preferred shares may be issued only with a stated par value

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

Founders Share- Those that grant to the founders certain rights and privileges not enjoyed by others shares. Provides an exception to the rule in sec 6, par 1 that no share may be deprived of voting rights except those classified and issued as preferred or redeemable shares unless otherwise provided in this code.

Rules on Founders sharesa. Must be classified as such in the articles of corporationb. Certain rights and privileges subject to the ff. limitations:- if the exclusive right to vote and be voted for the election of director is granted, it must be for a limited period not exceeding 5 years subject to approval of SEC- the five- year period begins at the said approval

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

Redeemable Shares- Those which grant the issuing corporation the power to redeem or purchase them after a certain periodRules on Redeemable sharesa. They may be issued by the corporation only if expressly provided in the articles of incorporationb. They may be deprived of their voting rightsc. They may be purchased or taken up by the corporation upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of corporation/d. The terms and conditions for their redemption must be stated in the articles of incorporation and the stock certificate representing the said shares.

Sec. 9. Treasury shares. - Treasury shares are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful means. Such shares may again be disposed of for a reasonable price fixed by the board of directors.

Treasury Shares- is a corporations own stock that it has issued and subsequently reacquired from shareholder (Principles of Accounting, Kieso). A corporation may acquire treasury stock for various reasons:

1. To reissue the shares to officers and employees under bonus and stock compensation plans.2. To signal to the stock market that management believes the stock is under priced, in the hope of enhancing its market value.3. To have additional shares available for use in the acquisition of other companies.4. To reduce the number of shares outstanding and thereby increase earnings per share.Another infrequent reason for purchasing shares is that management may want to eliminate hostile shareholders by buying them out.

Sec. 10.Number and qualifications of incorporators.- Any number of natural persons not less than five (5) but not more than fifteen (15), all of legal age and a majority of whom are residents of the Philippines, may form a private corporation for any lawful purpose or purposes. Each of the incorporators of s stock corporation must own or be a subscriber to at least one (1) share of the capital stock of the corporation.Sec. 11.Corporate term.- A corporation shall exist for a period not exceeding fifty (50) years from the date of incorporation unless sooner dissolved or unless said period is extended. The corporate term as originally stated in the articles of incorporation may be extended for periods not exceeding fifty (50) years in any single instance by an amendment of the articles of incorporation, in accordance with this Code; Provided, That no extension can be made earlier than five (5) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as may be determined by the Securities and Exchange Commission.Sec. 12.Minimum capital stock required of stock corporations.- Stock corporations incorporated under this Code shall not be required to have any minimum authorized capital stock except as otherwise specifically provided for by special law, and subject to the provisions of the following section.Sec. 13.Amount of capital stock to be subscribed and paid for the purposes of incorporation.- At least twenty-five percent (25%) of the authorized capital stock as stated in the articles of incorporation must be subscribed at the time of incorporation, and at least twenty-five (25%) per cent of the total subscription must be paid upon subscription, the balance to be payable on a date or dates fixed in the contract of subscription without need of call, or in the absence of a fixed date or dates, upon call for payment by the board of directors: Provided, however, That in no case shall the paid-up capital be less than five Thousand (P5,000.00) pesos.Sec. 14.Contents of the articles of incorporation.- All corporations organized under this code shall file with the Securities and Exchange Commission articles of incorporation in any of the official languages duly signed and acknowledged by all of the incorporators, containing substantially the following matters, except as otherwise prescribed by this Code or by special law:1. The name of the corporation; 2. The specific purpose or purposes for which the corporation is being incorporated. Where a corporation has more than one stated purpose, the articles of incorporation shall state which is the primary purpose and which is/are the secondary purpose or purposes: Provided, That a non- stock corporation may not include a purpose which would change or contradict its nature as such; 3. The place where the principal office of the corporation is to be located, which must be within the Philippines; 4. The term for which the corporation is to exist; 5. The names, nationalities and residences of the incorporators; 6. The number of directors or trustees, which shall not be less than five (5) nor more than fifteen (15); 7. The names, nationalities and residences of persons who shall act as directors or trustees until the first regular directors or trustees are duly elected and qualified in accordance with this Code; 8. If it be a stock corporation, the amount of its authorized capital stock in lawful money of the Philippines, the number of shares into which it is divided, and in case the share are par value shares, the par value of each, the names, nationalities and residences of the original subscribers, and the amount subscribed and paid by each on his subscription, and if some or all of the shares are without par value, such fact must be stated; 9. If it be a non-stock corporation, the amount of its capital, the names, nationalities and residences of the contributors and the amount contributed by each; and 10. Such other matters as are not inconsistent with law and which the incorporators may deem necessary and convenient.Sec. 15. Forms of Articles of Incorporation. - Unless otherwise prescribed by special law, articles of incorporation of all domestic corporations shall comply substantially with the following formSec. 16. Amendment of Articles of Incorporation. - Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation. The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. Such articles, as amended shall be indicated by underscoring the change or changes made, and a copy thereof duly certified under oath . by the corporate secretary and a majority of the directors or trustees stating the fact that said amendment or amendments have been duly approved by the required vote of the stockholders or members, shall be submitted to the Securities and Exchange Commission. The amendments shall take effect upon their approval by the Securities and Exchange Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporationSec. 17. Grounds when articles of incorporation or amendment may be rejected or disapproved. - The Securities and Exchange Commission may reject the articles of incorporation or disapprove any amendment thereto if the same is not in compliance with the requirements of this Code: Provided, That the Commission shall give the incorporators a reasonable time within which to correct or modify the objectionable portions of the articles or amendment. The following are grounds for such rejection or disapproval: 1. That the articles of incorporation or any amendment thereto is not substantially in accordance with the form prescribed herein; 2. That the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and regulations; 3. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or paid if false; 4. That the percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by existing laws or the Constitution. Sec. 18. Corporate name. - No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name.Sec. 19. Commencement of corporate existence. - A private corporation formed or organized under this Code commences to have corporate existence and juridical personality and is deemed incorporated from the date the Securities and Exchange Commission issues a certificate of incorporation under its official seal; and thereupon the incorporators, stockholders/members and their successors shall constitute a body politic and corporate under the name stated in the articles of incorporation for the period of time mentioned therein, unless said period is extended or the corporation is sooner dissolved in accordance with law.Sec. 20. De facto corporations. - The due incorporation of any corporation claiming in good faith to be a corporation under this Code, and its right to exercise corporate powers, shall not be inquired into collaterally in any private suit to which such corporation may be a party. Such inquiry may be made by the Solicitor General in a quo warranto proceeding.Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided, however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality. On who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporationSec. 22. Effects on non-use of corporate charter and continuous inoperation of a corporation. - If a corporation does not formally organize and commence the transaction of its business or the construction of its works within two (2) years from the date of its incorporation, its corporate powers cease and the corporation shall be deemed dissolved. However, if a corporation has commenced the transaction of its business but subsequently becomes continuously inoperative for a period of at least five (5) years, the same shall be a ground for the suspension or revocation of its corporate franchise or certificate of incorporation. This provision shall not apply if the failure to organize, commence the transaction of its businesses or the construction of its works, or to continuously operate is due to causes beyond the control of the corporation as may be determined by the Securities and Exchange Commission.

Title III: Board of Directors/Trustees/OfficersSec. 23 The Board of Directors or Trustees The corporate powers of all corporations formed under this code shall be exercised, all business conducted and all property of such corporations Shall hold office for 1 year and until their successors are elected and qualified (Hold-over Principle) Must own at least one share of the capital stock of the corporation which he is a director which share shall stand in his name on the books of the corporation Any director who ceases to be owner of at least 1 share shall cease to be director Majority of the directors/trustees must be residents of the Philippines He must not have been convicted of an offense punishable by imprisonment for a period exceeding 6 yearsBoard of Directors is the governing body in a stock corporation while Board of Trustees is the governing body in a non-stock corporation. They cannot bind the corporation separately as directors/ trustees. (Must act as a body) The corporation can act only through its Board of Directors. The number of directors must not be less than 5 and not more than 15. In a corporation sole there is no BOD since it consists of 1 corporator only.The stockholders may have all the profits but shall turn over to directors the exclusive authority to manage and control the transaction of its business and the use of its assets. The power to bind corporation by contracts can be delegated. The discretionary powers (election of corporate officers) cannot be delegated to subordinate officers.Principal functions: (a) To exercise corporate powers (b) To conduct all corporate business(c) To control and hold corporate propertySec 24 Election of Directors or Trustees There must be present owners of the majority of the outstanding capital stock, or if there is no capital stock, a majority of the members entitled to vote Must be by ballot There must be present in person or by authorized representative the owners of the majority of the capital stock or a majority of the members No delinquent stock shall be voted If a quorum is present, the candidates receiving the highest number of votes shall declared elected The meeting may be adjourned Requisite notice must be givenMethods of Voting: In a stock corporation: Straight voting Total votes will be distributed among candidates. (100 shares x 11 directors to be elected) 100 votes per candidateCumulative voting for 1 candidate Total votes shall be cast in favor of one candidate. (100 shares x 11 directors to be elected) 1100 votes for 1 candidate ONLYCumulative voting by distribution The stockholder may distribute partitions of the votes to as many candidates as he wishes. (100 shares x 11 directors) 600 votes for A, 100 votes for B, 150 votes for C, and 250 votes for DIf there are 20,000 outstanding shares, and 11 directors are to be elected. The minority stockholders wish to elect 3 directors. D= [A x B] / [C+1] + 1 = [20,000 x 3]/[11+1] +1= 5001 shares5001 x 11 directors = 55,011 votes can be distributed equally to 3 candidatesSec 25 Corporation officers, quorumPresident: A director of the corporation. The only officer required by law to be a member of the BOD. The President is given general supervision and control of the business as Chief Executive Officer. He shall preside at all meetings of the directors or trusteesVice-President: Inherent power is to act in the absence of or vacancy of the president. No authority to enter into contracts in behalf of the corporation by virtue of his office alone. Secretary: Need not be a director unless required by the by-laws. The duty of the secretary is to make and keep its records and to make proper entries of the votes, resolutions and proceedings of the shareholders and directors in the management of the corporationTreasurer: Has the authority to receive and keep the money of the corporation and to disburse them as he may be authorized. May not hold at the same time the position of presidentGeneral Manager: Entrusted to the management of a general manager or managing officer who has power to bind the corporation by acts within the scope of his apparent authorityThere must be a quorum to have a board meeting. Quorum: Is such number of the membership of a collective body as is competent to transact its business or do any other corporate act. Majority of directors are present. Proxy is not allowed. Example: The by-laws provide that there shall be 11 directors for X Corp. 9 directors were elected. 5 directors were present in the meeting (no quorum). Quorum is the majority of the entire board.

Sec 26 Report of Election of Directors, Trustees and OfficersWithin thirty days after the election of the directors, trustees and officers of the corporation, the secretary or any officer of the corporation, shall submit to the SEC, the names, nationalities and residences of the directors, trustees or officer die, resign or in any manner cease to hold office, his heirs in case of his death, the secretary or any other officer of the corporation or the director, trustee or officer himself, shall immediately report to the SECSec 27 Disqualification of Directors, Trustees or OfficersPersons disqualified: Persons convicted by final judgment of an offense punishable by imprisonment for a period of 6 years and persons guilty of violating the Corporation Code.Time of commission of the offense: The offense must have committed within 5 years prior to the date of election of appointment.Sec 28 Removal of Directors or Trustees Removal must take place in a regular meeting of the corporation or in a special meeting called for the purpose Previous notice of the intention to propose such removal must have been given to the stockholders or members The removal may be with or without cause. Based on the rationale that the stockholders should have the power to judge the fitness of directors at any time Removal without cause may not be used to deprive minority stockholders or members of the right of representation in the board of directors or trustees Causes of Vacancies: Removal, Expiration of Term, Increase in the Number of Directors, Resignation, Death, Abandonment, DisqualificationResignation: A director cannot resign as part of a fraudulent scheme. If a director quits which occasioned a loss of profits to the corporation, he has the right to repair such lossAbandonment: Absented himself from all meetings for nearly a year and announced his refusal to act as an officer and stockholder The following must be obtained:Stock corporation representing at least 2/3 of the outstanding capital stockNon-stock corporation 2/3 of members entitled to voteSec 29 Vacancies in the Office of Director or TrusteeAny vacancy occurring in the board of directors or trustees other than by removal by the stockholders or members or by expiration of term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still constituting a quorum.Example: If 4 of 9 directors died, the remaining 5 still constitute a quorum. The 5 may fill the 4 vacancies. BUT if 5 died, the remaining is 4 directors. The stockholders will fill the vacancy during a regular or special meeting.Sec 30 Compensation of DirectorsDirectors are not entitled to compensation as such directorsDirectors are entitled to compensation in the ff.: When fixed by the by-laws When the giving of compensation is approved by the stockholders representing at least the majority When the compensation refers to reasonable per diems The total yearly compensation shall not exceed 10% of the net income before income tax of the corporation during the preceding year.Sec 31 Liability of Directors, Trustees or OfficersGrounds for liability: By willing and knowingly voting for or assenting to patently unlawful acts of the corporation By being guilty of gross negligence or bad faith in directing the affairs of the corporation By acquiring any personal or pecuniary interest in conflict with their dutyNature of liability: Joint and severalTo whom liable: To the corporation, its stockholders or members or other persons who suffer damages resulting from the acts aformentioned Sec 32 Dealings of Directors, Trustees, or officers with the CorporationA contract of the corporation with one or more of its directors or trustees or officers is voidable unless all the following conditions are present:1. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting;2. That the vote of such director or trustee was not necessary for the approval of the contract;3. That the contract is fair and reasonable under the circumstances; and4. That in case of an officer, the contract has been previously authorized by the board of directors. Where any of the first two conditions set forth in the preceding paragraph is absent such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting called for the purposeSec 33 Contracts Between Corporations with Interlocking Directors Except in cases of fraud, and provided the contract is fair and reasonable under the circumstances, a contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone Contract between 2 corporations with interlocking directors is VALID as long as there is no fraud and the contract is fair and reasonable Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for purposes of interlocking directors. Sec 34 Disloyalty of a Director Where a director acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, he must account to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock. Sec 35 Executive Committee For immediate action on important matters (Emergencies) Is a small group within a corporation composed of not less than 3 members of the board the creation of which is provided in the by-lawsThe following functions may not be delegated: Approval of any action for which shareholders approval is required The filling of vacancies in the board The amendment or repeal of by-laws or the adoption of new by-laws The amendment or repeal of any resolution of the board which by its express terms is not amendable The distribution of cash dividends to shareholdersSection 36: Corporate Powers and CapacityPowers of Corporation- right or capacity of a corporation to perform all acts or things, except only those forbidden by law and its articles of incorporation in furtherance of its purpose.Every corporation incorporated under this Code has the power and capacity to have:1. Express Powers- expressly granted to a corporation by its charter Power to extend or shorten corporate terms Power to increase or decrease capital stock Power to incur, create, or increase bonded indebtness Power to deny pre-emptive right Power to sell, lease, exchange, mortgage, pledge, or otherwise dispose all or substantially all of its property Power to acquire its own shares Power to invest corporate funds in another corporation or business for any other purpose Power to declare dividends Power to enter into management contract2. Incidental or inherent Powers- powers that a corporation may exercise by reason of its very existence as a corporation.- Power of succession- Power to have a corporate name- Power to adopt a corporate seal- Power to acquire, hold or dispose property as its business may reasonably require- Power to adopt and amend its by-laws3. Implied Powers- necessary to carry into effect powers which are expressly granted, and which must therefore be presumed to have been the intention in the grant of the franchise.

Acts in the usual course of business Acts to protect debts due to the corporation Acts which involve embarking on a different line of business Acts designed to protect aid employees Acts to increase the business of the corporation

Sec. 37. Power to extend or shorten corporate term1. A corporation extending of shortening its corporation term must comply with the following requisites:a. vote required- the act must be approved by a:1. Majority vote of the board of directors or trustees, and2. 2/3 of the outstanding capital stock; or 2/3 of the members in a meeting called for the purpose.b. The articles of incorporation are amended to effect such extension or shortening of corporate term.2. Exercise appraisal of right Any stockholder who dissents from the act to extend or shorten the corporate term may exercise his appraisal right of the fair value of his shares when he dissents from certain corporate acts.

Sec. 38. Power to increase or decrease capital stock; incur, create or increase bonded indebtednessRequisites:1. vote required- majority vote of the board of directors and 2/3 of the outstanding capital stock in a meeting called for the purpose. 2. The increase or decrease of capital stock must be certified to in a certificate duly signed by a majority of the directors and counter signed by the chairman and the secretary of stockholders meeting and setting forth among other information, the increase or decrease in capital stock, and in case of increase, the names of the subscribers, nationalities, residences, etc. The vote obtained. 3. Subscription and paid-in capital requirements in case of increase, the treasurer must execute a sworn statement attesting to the fact that at least 25% of the increase in the capital stock has been subscribed and that atleast 25% of such subscription has been paid.

Sec. 39. Power to deny pre-emptive right-this refers to the right of existing stockholders to purchase or subscribe to all issuances or disposition of shares of any class, in proportion to their respective stockholdings, before such shares are offered to the public. This will enable the stockholders to maintain their proportionate control of the corporation.Shares covered by the exercise of the pre-emptive righta. shares issued as a result of increase in capital stockb. shares issued out of the unsubscribed portion of the authorized capital stockc. Other shares that may be disposed by the corporation including treasury shares

Sec. 40. Power to sell, lease, exchange mortgage, pledge, or otherwise dispose of all substantially all of corporate property including goodwill.Abandonment of the action- the board of directors or trustees may abandon such sale or other disposition of all or substantially all of the corporate property without further action or approval from the stockholders or members, subject to the rights of third persons under any contract relating thereto. the sale or other disposition shall be deemed to cover substantially all of the corporate property if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated.

Sec. 41. Requisites for the exercise of power

The acquisition must be for a legitimate purpose such as but not limited to:1. to eliminate fractional shares arising out of stock dividens2. to collect or compromise an indebtness to the corporation arising out of unpaid subscription3. to pay stockholders who are entitled to the appraisal right when they dissent from certain corporate acts.4. to purchase or take up redeemable shares5. when the SEC orders a close corporation to purchase the shares of stockholders incase of deadlock in the management.

Sec. 42. Power to invest corporate funds in another corporation or business or for any other purpose.

-Approval of the stockholders or members shall not be necessary if the investment by the corporation is reasonably necessary to accomplish its primary purpose.

-Any stockholder who dissents from the act may exercise his appraisal act.

Sec. 43. Power to declare dividends

Dividend- is a portion of the accumulated profits of a corporation which is set aside by the directors for distribution to stockholders.

Requisites for the exercise of the power to declare dividends1. Stock dividendsa. Mojority vote of the directors present provided there is a quorumb. 2/3 of the outstanding capital stock entitled to vote in a meeting called ofr the purpose2. Cash Dividends- the declaration thereof requires only the majority votes of the Directors present provided there is a quorumProhibition on retention of surplus profitsStock corporations are prohibited from retaining surplus profits in excess of 100% of the Paid-in capital stock, except in the following cases:a. when justified by definite corporate expansion projects or programs approved by the board of directors.b. when the corporation is prohibited under any loan agreement with any financial institution or creditor, from declaring dividends without its consent and such consent has not been secured.c. when it can be clearly shown that such retention is necessary under special crcumstances obtaining in the corporation, such as when there is a need for special reserve for probable contingencies.Sec. 44. Power to enter into a Management ContractManagement contract- is a contract whereby a corporation delegates the management or operation of its business to another corporation. It is also called service contract or operating agreement.Voting Requirement: the management contract must be approved by a:a. majority vote of the board of directors or trsutees present provided there is a quorumb. majority of the outstanding capital stock or majority of the members entitled to vote in a meeting called for the purposeGeneral Rule: the period of the management contract shall not exceed 5 years for any one term.Exceptions: service contracts or operating agreements which relate to exploration, development, exploitation or utilization of natural resources may be entered into for such periods as may be provided by pertinent rules and regulations.

Sec.45. Ultra-vires acts An ultra-vires act is an act or contract which is beyond the powers that a corporation can lawfully exercise. In other words, it is an act performed outside the express, implied, and incidental powers of a corporation.Requisites for ratification of ultra-vires act which is not illegal:a. the act must be consummatedb. the creditors are not prejudiced or all of them have given their consent thereto.c. the rights of the public or of the state are not inlvolvedd. All stockholders must give their consent.Title VIMEETINGSSection.49. Kinds of meetings- Meetings of directors, trustees, stockholders, or members may be regular or special.Section.50. Regular and special meetings of stockholders or members.-Kinds of meetings1) Meetings of stockholders or members.- It may be:a.) REGULAR or those held annually on a date fixed in the by-laws, or if not fixed, on any date in April of every year as determined by the board of directors or trustees; orb.) SPECIAL or those held at any time deemed necessary or as provided in the by-laws.2) Meetings of directors or trustees- It may be:a.) REGULAR or those held by the board monthly, unless the by-laws provide otherwise;orb.) SPECIAL or those held by the board at any time upon the call of the president or as provided in the by-laws.Necessity of meetings. The corporate powers are vested in the board of directors or trustees and/ or the stockholders or members as a body and NOT as individuals. Requisites for a valid meeting of stockholders or members.1.) It must be held at the proper place.2.) It must be held at the stated date and at the appointed time or at a reasonable time thereafter.3.) It must be called by the proper person.4.) There must be a previous notice.5.) There must be a quorum. Section 51. Place and time of meetings of stockholders or members- Stockholders or members meetings, whether regular or special, shall be held in the CITY or MUNICIPALITY where the principal office of the corporation is located.

Proper person to call meeting.The words call and notice need to be distinguished. THE CALL FOR A MEETING is exercised by the person who has the power to call the meeting. NOTICE- is the WRITING informing the stockholders or members of the meeting.Requisites of notice of meetings.1) It must be issued by one who has authority to issue it;2) It must be in writing.3) It must state the date, time, and place of the meeting, unless otherwise provided in the by-laws4) It must be sent at a certain time before the scheduled meeting as fixed by law, unless a different period is required by the by-laws.5) It must state the business to be transacted thereat.6) Further, the notice must comply with any other requirements prescribed by the law or by-laws of the cooperation.Section 52. Quorum in meetings.- Unless otherwise provided for in this Code or in the by-laws, 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.Section 53. Regular and special meetings of directors or trustees.Place and time of meetings of directors or trustees.1) Regular or special meetings of directors or trustees may be held anywhere in or outside the Philppines, unless the by-laws provide otherwise.2) Regular meetings shall be held monthly, unless the by-laws provide otherwise, while special meetings may be held at any time upon the call of the president or as provided in the by-laws. Section 54. Who shall preside at meetings.1) President/Chairman/Vice-Chairman2) Stockholder or member in a temporary capacity3) Stockholder or member chosen.Section 55. Right to vote of pledgers, mortgagors, and administrators.-In case of pledged or mortgaged shares in stock corporations, the pledgor or mortgagor shall have the right to attend and vote at meetings of stockholders, unless the pledgee or mortgagee is expressly given by the pledgor or mortgagor such right in writing which is recorded on the appropriate corporate books.

Executors, administrators, receivers, and other legal representatives duly appointed by the court may attend and vote in behalf of the stockholders or members without need of any written proxy.

Manner of voting.A stockholder or member may vote:1.) Directly or2.) Indirectly, through a representativea.) By means of a proxyb.) By a trustee under a voting trust agreementc.) By executors, administrators, receivers or other legal representatives appointed by the court. Voting may be either straight or cumulative.d.) Section 56.Voting in case of joint ownership of stock.- In case of shares of stock owned jointly by two or more persons, in order to vote the same, the consent of all the co-owners shall be necessary, unless there is a written proxy, signed by all the co-owners, authorizing one or some of them or any other person to vote such share or shares: Provided, That when the shares are owned in an "and/or" capacity by the holders thereof, any one of the joint owners can vote said shares or appoint a proxy therefor.

Section 57.Voting right for treasury shares.- Treasury shares shall have no voting right as long as such shares remain in the Treasury.Section 57 expressly denies any voting rights to treasury shares as long as such shares remain in the treasury. Section 58. Proxies.Meaning of proxy.1) A proxy, as the term is used, designates the formal written authority given by the owner or holder of the stock, who has the right to vote it, or by a member, as principal, to another person, as agent, to exercise the voting rights of the former.2) It is also used to apply to the holder of the authority or the person authorized by an absent stockholder or member to vote for him at a stockholders or members meeting.3) The term is also applied to refer to the instrument which evidences the authority of the agent. Section 59. Voting trusts.Voting under a voting trust agreement.Sometimes it is desired to place the control of all or part of the stick in the hands of one person or of a few persons. This may be done through a voting trust agreement. It may be defined as an agreement in writing whereby one or more stockholders of a stock corporation transfer his or their shares to any person or persons or to a corporation having authority to act as a trustee for the purpose of vesting in such person/s or corporation as trustee or trustees voting or other rights pertaining to the shares for a certain period not exceeding that fixed by the Code and upon the terms and conditions stated in the agreement. Proxy and voting trust distinguished.1) The proxy has no legal title to the shares of the stockholder giving the agency, while the trustee acquires legal title to the shares of the transferring stockholder;2) A proxy, unless coupled with interest, is revocable at any time, while a voting trust agreement, if validly executed, is irrevocable.3) A proxy can only act at the specified stockholders or members meeting while a trustee is not limited to any particular meeting.4) A proxy votes only in the absence of the owner of the stock, while a trustee can vote and exercise all the rights of the transferring stockholder even when the latter is present; 5) A proxy is usually of shorter duration than a voting trust agreement, although under the law the maximum duration of both cannot exceed five years at any one time.6) A proxy need not be notarized nor a copy file with the Securities and Exchange Commission, while a voting trust must be notarized and a certified copy files with the Commission.7) A proxy does not have right of inspection of corporate books, while a trustee has such a right.

TITLE VII: STOCKS AND STOCKHOLDERS

Sec. 60. Subscription contract. One can join in a stock corporation through:1. A subscription contract for the acquisition of unissued stocks1. By purchase of the corporations treasury shares1. Transfer of outstanding shares by previous shareholdersIn non-stock corporations, one can join through a contract with the corporation, depending on its charter and by-laws

Sec. 61. Pre-incorporation subscription. Pre-incorporation subscriptions are mandatory since the SEC will not accept the articles of incorporation unless atleast 25% of the authorized stock has been subscribed and atleast 25% of the subscription has been fully paid. After the submission of the articles of incorporation, no pre-incorporation subscription may be revoked even the period of six (6) months already elapsed. Both the subscribers and incorporators become shareholders upon incorporation.

Sec. 62. Consideration for stocks. Sources of corporate capital:1. Funds furnished by shareholders- the capital of the corporation is derived principally from the consideration for the issuance of stocks1. Borrowings-through the issuance of corporate bonds, a written promise by a corporation to pay definite sum of money at a future date, at fixed interest rate. The debt of a corporation represented by a bond issued is called funded debt which could either be secured or unsecured1. Profits and stock dividends- a corporation could also get its capital from profits or earnings which are reinvested in the business. Sometimes, the corporation issues stock dividends by which it retains part of the corporate earnings. This is done by converting surplus assets to permanent account forming part of the corporations capital stock

Different Modes by Which Shares may be Issued:1. By subscription before or after incorporation, to original, unissued stock1. By sale of treasury stock after incorporation for money, property, or service1. By subscription to new stocks, when all the original stocks have been issued and the amount of the capital stock increased; and1. By making a stock dividend

Limitations of the Consideration for Issue of Stocks:1. Shares of stock shall not be issued for a consideration less than the par or issued price thereof, except treasury shares so long as the price is reasonable. The corporation may receive more than par or issued value;1. They shall not be issued in exchange for promissory notes or future services;1. When it is a property, tangible or intangible, the value thereof shall be initially determined by the incorporators or the board of directors, subject to approval by the SEC; and1. The issued price of no par value shares must be fixed (last par. Sec. 62)Negotiable instruments other than promissory notes such as checks may be issued in payment of stocks but they shall produce the effect of payment only when they have been converted to cash, or through the fault of the creditor that they have been impaired. (art. 1249, Civil Code)In the case of no par stocks, if the price is not fixed by the articles of incorporation, the board of directors can fix the price only when they are authorized by the articles of incorporation or its by-laws to do so. In the absence thereof, the stockholders will determine the price of the no par value stocks. Thus, the price of these stocks may vary from time to time and usually fixed on the basis of their book value. But, they may not be issued for a consideration less than Php. 5.00 per share.

Sec. 63. Certificate of stock and transfer of shares.

Nature of Certificate of Stock:

1. A certificate of stock is a written instrument signed by the proper officer of a corporation stating or acknowledging that the person named therein is the owner of a designated number of shares of its stocks.1. It indicates the name of the holder, the number, kind and class of shares represented, and the date of issuance.1. The certificate is not stock in the corporation but is merely evidence of the holders interest in the corporation, his ownership of the share represented thereby.1. It is not essential to make one a stockholder in a corporation.Every stockholder has a right to have a proper certificate issued to him as soon as he has complied with the conditions which enable him to one as by payment for his shares or the like.A corporation cannot issue stocks more than the authorized number of stocks in its articles of incorporation. An over issued stock is absolutely void. The possessor of the certificate regardless of his good faith does not become a stockholder.

Restrictions on Transfer of Stock:

1. A by-law that prohibits a transfer of stock without the consent or approval of all the stockholders or the president or the board of directors is illegal and constituting undue limitation on the right of ownership and in restraint of trade.1. A provision in the certificate that it is transferable only to some person first approved by the board of directors unreasonably restricts the right of the stockholder to dispose of his shares1. The condition saying non-transferable that appears on the certificates of stock is null and void.1. Corporations which will engage in any business or activity that is reserved for Filipino citizens are required to indicate in the articles of incorporation and in all the certificates the restriction against the transfer of stocks that would reduce the ownership of Filipino to less than the required percentage of capital stocks.

Effects of an Unregistered Transfer of Shares:1. It is valid and binding as between the transferor and transferee1. It is invalid in so far as the corporation is concerned except when notice is given to the corporation for purposes of registration1. A transferor has the right to vote and be voted for, and has the right to participate in any meeting1. The transferor has the right to dividends as against the corporation but the transferor, as the nominal owner of the share, is the trustee for the benefit of the real owner

1. It is invalid as against corporate creditors, and the transferor is still liable to the corporation. The transfer of stock by a shareholder does not relieve him from liability to creditors of the corporation for unpaid subscription until the transfer is consummated by being registered in the books of the corporation; and1. It is invalid as against the creditors of the transferor without notice of the transfer.

Sec. 64. Issuance of stock certificates. This section prohibits the issuance of certificate of stocks to subscriber who have not yet paid in full amount (with interest and expenses for those who have delinquent shares)

CASE: Assume that A subscribes to 1000 shares at par value of Php.20 each share of San Miguel Corporation or a total subscription of Php.20,000. A made an initial payment of Php. 500.With this case, the board of directors of San Miguel Corporation, at its option, may either apply the Php.500 as full payment f0r 25 shares and issue a stock certificate for the 25 shares, or as pro-rate payment for the entire 1000 shares so that each share is paid 50centavos in which case no certificate of stock shall be issued until the balance of Php. 19,500 is fully paid. Basically, the first option cannot be adopted if it is prohibited by the corporations by-laws. In the case of stocks without par value, the stockholder would not be entitled to the issuance of the certificate until the full amount of his subscription has been paid by him to the corporation. Even holders of shares not fully paid, provided they are not delinquent, shall have all the rights of a stockholder, including the right to vote and to receive dividends.

Liabilities of stockholder:1. Liability to the corporation for unpaid subscription;1. Liability to the corporation for interest on unpaid subscription;1. Liability to creditors of the corporation on unpaid subscription;1. Liability for watered stocks;1. Liability for dividends unlawfully paid; and1. Liability for failure to create corporation.

Sec. 65. Liability of directors for watered stocks. Where the par value or par value shares or the issued value of no par value shares is Php. 100 and only Php. 80 is paid to the corporation but the share is issued as fully paid, the share is considered watered or fictitiously paid up to the extent of Php. 20 which is the difference between the consideration paid and the par value or issued value of the shares taken. In this case, the subscriber is liable for the difference of Php. 20. The issue itself is not void, but the agreement that the share shall be paid for less than its par or issued value is void and illegal and cannot be enforced.

Sec. 66. Interest on unpaid subscriptions. The rate of interest for unpaid or delinquent subscription shall be fixed by the by-laws of the corporation. If no rate of interest is fixed in the by-laws, then the legal rate shall be applied, which, by virtue of Central Bank Circular No. 416 issued on July 29, 1974, is equal to 12% per annum.

Sec. 67. Payment of balance of subscription. Remedies to enforce payment of stock subscription:1. Extra-judicial sale at public auction- permitting the corporation to put up unpaid stock for sale and dispose of it for the account of the delinquent subscribers. In this case, the provisions of Section 67 to 69 are applicable and should be followed.1. Judicial Action- a remedy by court action under section 70; and1. Collection from cash dividends and withholding of stock dividends- Authorized by Sec. 43, paragraph 1.

Sec. 68. Delinquency sale. CASE: Suppose L subscribed for 10 shares of stock with a par value of Php. 10 each, paying Php. 50 as initial payment. The balance of Php. 50 was called in and L failed to pay and his stock was declared delinquent. The interest expenses and the cost of sale amounted to Php. 10, thereby making a total of Php. 60. X and Y are the bidders.X offers to pay Php.60 for 5 shares and Y, Php.60 for 6 shares. In this case, X is the highest bidder; L retains 5 shares and X will own 5 shares. All the 10 shares will be deemed fully paid. X is entitled to issuance of the certificate of stock for his 5 shares after payment of his bid and L for the remaining 5 shares.But if the bid is as follows: X, Php. 50 for 4 shares and Y, Php. 60 for 8 shares, then Y is the highest bidder. L retains his 2 shares. Y is still the highest bidder if his bid is Php. 60 for 10 shares because he is the only one who offers to pay in full amount due. In this case, all payments made by L on his subscription are deemed forfeited.

Sec. 69. When sale may be questioned. Grounds for the recovery of stock unlawfully sold for delinquency:1. Irregularity or defect in the notice of sale; and1. Irregularity or defect in the sale itself of the delinquent stock.

Sec. 70. Court action to recover unpaid subscription. As a general rule, a corporation may not maintain a suit for the enforcement of unpaid subscription without first making a call as provided by law. (sec. 67)The judicial remedy is limited to the amount due on any unpaid subscription with accrued interest, costs and expenses; therefore, the corporation cannot recover any other claim against the subscriber.

Sec. 71. Effect of delinquency. Stock delinquency does not deprive the holder of all his rights as a shareholder except the right to be voted for or be entitled to representation at any stockholders meeting and as provided above and in Sec. 24. He shall still be entitled to receive dividends subject to the provisions of Sec. 43. But delinquent stocks shall be subject to delinquency sale as provided by Sec. 68

Sec. 72. Rights of unpaid shares. Before unpaid shares become delinquent, the holder is not considered to have violated any contract with the corporation and, therefore, has all the rights of a stockholder which rights include the right to vote.

Sec. 73. Lost or destroyed certificates. Sec. 73 prescribes the procedure to be followed for the issuance by a corporation of new certificate(s) in lieu of those which have been stolen, lost or destroyed. The corporation is not liable to any person prejudiced by the issuance of new certificate(s) of stock pursuant to the procedure described except in the case of fraud, bad faith, or negligence on the part of the corporation and its officers.

Appraisal Right(Sections 81-86)Sec. 81. Instances of appraisal right. Appraisal right of a stockholder - refers to his right to demand payment of the fair value of his shares, after dissenting from a proposed corporate action, in cases provided by law.The appraisal right can also be exercised by a dissenting stockholder in case the corporation decides to invest its funds in another corporation or business or for any purpose other than its primary purpose.Sec. 82. How right is exercised.This section provides a procedure on how the dissenting stockholder can exercise his or her appraisal right. A written demand on the corporation should be written by the dissenting stockholder within 30 days after the date on which the vote was taken for payment of the fair value of his shares. If the proposed corporate action is realized, the corporation shall pay the stockholder the fair value of his shares given that the corresponding certificate(s) of stock is surrendered within 10 days after the stockholder demands payment of his shares. The stockholder shall transfer his shares to the corporation upon payment of the agreed awarded price.Failure to make a demand within the 30-day period shall be deemed a waiver of the stockholders appraisal right.Determination of fair value of shares. If the fair value of the shares is not agreed by the withdrawing stockholder and the corporation, it shall be determined by arbitration. Fair value of shares of the dissenting stockholder determined as of the day before the date the vote was taken Payment made only if the corporation has unrestricted retained earnings in its books to cover itSec. 83. Effect of demand and termination of right.Effects of exercise of right.Once the dissenting stockholder demands payment of the fair value of his shares All his rights accruing to such shares including voting and dividend rights shall be suspended; and The stockholder shall be entitled to receive payment of the fair value of his shares.Payment of shares. The stockholders voting and dividend rights shall restored if he is not paid the amount equivalent to his shares within 30 days after reward. His rights as a stockholder will be terminated if he receives the payment. If the proposed corporate action is abandoned, his rights and status as a stockholder shall thereupon be permanently restored.Sec. 84. When right to payment ceases.The stockholder shall not be paid the value of his shares, his status as a stockholder shall be restored, and all dividend distributions which would have accrued on his shares shall be paid to him if any of the following cases arises: The stockholder withdraws his demand for payment and the corporation consents it The corporation abandoned or rescinded the proposed corporate action The Securities and Exchange Commission disapproved the proposed corporate action (in cases where its approval is necessary) The Commission determines that such stockholder is not entitled to appraisal rightSec. 85. Who bears cost of appraisal.They shall be borne as follows:1. By the corporation Provided that the price offered by the corporation to pay the stockholder is lower than the fair value determined by the appraisers; or the action is filed by the dissenting stockholder to recover the fair value of his shares and his refusal to receive payment is found justified by the court

2. By the dissenting stockholder.Provided that the price offered by the corporation is just about the same as the fair value determined by the appraisers; or the same action is filed by the dissenting stockholder and his refusal to accept payment is found unjustified by the courtSec. 86. Notation on certificate(s); right of transferee.Notation on certificate(s) of dissenting shares. The dissenting stockholder is required to submit the corresponding certificate(s) of stock to the corporation within ten (10) days after demanding payment for his shares. this is to note that such shares are dissenting shares. All the rights of the dissenting stockholder, including voting and dividend rights, shall be suspended except as provided in Sections 83 and 84.Transfer of dissenting shares.The dissenting stockholder can transfer or sell the shares represented by the certificate(s) bearing such notation. In such case: The transferee shall become a regular stockholder. He shall have the right to receive all dividend distributions which would have accrued to such shares. By transferring his shares, the transferor ceases to be a stock. This means that his right as a dissenting stockholder to be paid the fair value of the shares cease.

Title XIIClose Corporations

Sec. 96. Definition and Applicability of Title

Requisites of a close corporation:

(1)All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons not exceeding 20 (2)All the issued stock of all classes shall be subject to one or more specified restrictions ontransfers (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.

A Corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its voting stock is owned or controlled by another corporation which is not a close corporation Corporations that cannot be incorporated as a close corporation: Mining, oil companies, stock exchanges, banks, insurance companies, public utilities, educational institutions, and corporations declared to be vested with public interest.

Sec 97. Articles of Incorporation

Articles of incorporation may provide:

(1) Classification of shares or rights and the qualifications of owning or holding the same and restrictions on transferring (2) classification of directors into one or more classes, each of whom may be voted for and elected solely by a particular class of stock (3) a greater quorum or voting requirements in meetings of stockholders and directors. May provide that the business be managed by stockholders rather than a board of directors.

Sec 98.Validity of restrictions on transfer of shares

Section 98 imposes two conditions for the validity of restrictions on the right to transfer shares, namely: (1) Such restrictions must appear in the articles of incorporation and in the by-laws, as well as the certificate of stock, otherwise, they shall not be binding on any purchaser thereof in good faith; and (2) They shall not be onerous than granting the existing stockholders or the corporation the right of first refusal or option to purchase the shares of the transferring stockholders with reasonable terms, conditions or period stated herein.

Sec 99. Effects of issuance or transfer of stock of a close corporation in breach of qualifying conditions

Whenever any person to whom stock of a close corporation has been issued or transferred has, or is conclusively presumed under this section to have, notice either (a) that he is a person not eligible to be a holder of stock of the corporation, or (b) that transfer of stock to him would cause the stock of the corporation to be held by more than the number of persons permitted by its articles of incorporation to hold stock of the corporation, or (c) that the transfer of stock is in violation of a restriction on transfer of stock, the corporation may, at its option, refuse to register the transfer of stock in the name of the transferee.

This shall not be applicable if the transfer of stock has been consented by all the stockholders of the close corporation, or if the close corporation has amended its articles of incorporation.

Sec. 100. Agreements by stockholders. -

1. Agreements by and among stockholders executed before the formation and organization of a close corporation, signed by all stockholders, shall survive the incorporation of such corporation and shall continue to be valid and binding between and among such stockholders, if such be their intent, to the extent that such agreements are not inconsistent with the articles of incorporation, irrespective of where the provisions of such agreements are contained.

2. An agreement between two or more stockholders may provide that in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure agreed upon by them.

3. No provision in any written agreement signed by the stockholders, relating to any phase of the corporate affairs, shall be invalidated as between the parties on the ground that its effect is to make them partners among themselves.

4. A written agreement among some or all of the stockholders in a close corporation shall not be invalidated on the ground that it so relates to the conduct of the business and affairs of the corporation as to restrict or interfere with the discretion or powers of the board of directors.

5. To the extent that the stockholders are actively engaged in the management or operation of the business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each other and among themselves. Said stockholders shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance.

Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide otherwise, any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if:

1. Before or after such action is taken, written consent thereto is signed by all the directors

2. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing

3. The directors are accustomed to take informal action with the express or implied acquiescence of all the stockholders

4. All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing.

Ratification cannot take place where the action taken at the meeting held without proper call or notice beyond the corporate powers of the corporation

Sec. 102. Pre-emptive right in close corporations.

The pre-emptive right of stockholders in close corporations shall extend to all stock to be issued, including reissuance of treasury shares, whether for money, property or personal services, or in payment of corporate debts, unless the articles of incorporation provide otherwise.

Sec. 103. Amendment of articles of incorporation. Any amendment to the articles of incorporation which seeks to delete or remove any provision shall not be valid or effective unless approved by the affirmative vote of at least two-thirds (2/3) of the outstanding capital stock, whether with or without voting rights, or of such greater proportion of shares as may be specifically provided in the articles of incorporation for amending, deleting or removing any of the aforesaid provisions, at a meeting duly called for the purpose.

Sec. 104. Deadlocks. - If the directors or stockholders are so divided respecting the management of the corporation's business and affairs that the votes required for any corporate action cannot be obtained, with the consequence that the business and affairs of the corporation can no longer be conducted to the advantage of the stockholders generally, the Securities and Exchange Commission, upon written petition by any stockholder, shall have the power to arbitrate the dispute.

In the exercise of such power, the Commission shall have authority to make such order as it deems appropriate, including an order: (1) canceling or altering any provision contained in the articles of incorporation, by-laws, or any stockholder's agreement; (2) canceling, altering or enjoining any resolution or act of the corporation or its board of directors, stockholders, or officers; (3) directing or prohibiting any act of the corporation or its board of directors, stockholders, officers, or other persons party to the action; (4) requiring the purchase at their fair value of shares of any stockholder, either by the corporation regardless of the availability of unrestricted retained earnings in its books, or by the other stockholders; (5) appointing a provisional director; (6) dissolving the corporation; or (7) granting such other relief as the circumstances may warrant.

A provisional director shall be an impartial person who is neither a stockholder nor a creditor of the corporation or of any subsidiary or affiliate of the corporation, and whose further qualifications, if any, may be determined by the Commission. A provisional director is not a receiver of the corporation and does not have the title and powers of a custodian or receiver. A provisional director shall have all the rights and powers of a duly elected director of the corporation, including the right to notice of and to vote at meetings of directors, until such time as he shall be removed by order of the Commission or by all the stockholders.

Sec. 105. Withdrawal of stockholder or dissolution of corporation.

Any stockholder of a close corporation may, for any reason, compel the said corporation to purchase his shares at their fair value, which shall not be less than their par or issued value, when the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital stock.

Provided, That any stockholder of a close corporation may, by written petition to the Securities and Exchange Commission, compel the dissolution of such corporation whenever any of acts of the directors, officers or those in control of the corporation is illegal, or fraudulent, or dishonest, or oppressive or unfairly prejudicial to the corporation or any stockholder, or whenever corporate assets are being misapplied or wasted. DISTINGUISH CLOSE CORPORATIONS FROM REGULAR CORPORATIONS. Close Corporation"Regular" Corporation

No. of stockholdersNot more than 20 (Sec. 96)No limit

ManagementCan be managed by the stockholders (Sec. 97)Managed by Board of Directors

MeetingsMay be dispensed with (Sec. 101)Actual meetings are required.

Quorum and VotingGreater quorum and voting requirements allowed. (Sec. 97)

Pre-emptive rightExtends to all stock, including treasury shares (Sec. 102)Does not extend to treasury shares.

Buy-back of sharesMust be > par value (Sec. 105)May be < par value

Resolution of deadlocksSEC has the power to arbitrate disputes in case of deadlocks, upon written petition by any stockholder. (Sec. 104) This includes the power to appoint a provisional director, as well as to dissolve the corporation.

DissolutionMay be petitioned by any stockholder whenever any of the acts of the directors or officers or those in control of the corporation is illegal, fraudulent, dishonest, oppressive or unfairly prejudicial to the corporation or any stockholder, or whenever corporate assets are being misapplied or wasted. (Sec. 105)Generally requires a 2/3 vote of the stockholders and a majority vote of the BOD. (Note however that in case of involuntary dissolution under Sec. 121, a corporation may be dissolved by the SEC upon filing of a verified complaint and after proper notice and hearing.)

Title XIIISpecial CorporationsChapter I. Educational Corporations

Sec. 106. Incorporation.Educational corporations shall be governed by special laws and by the general provisions of this code.

Educational Corporation A stock or non-stock corporation organized to provide facilities for teaching or instruction. Normally maintain (1) a regular faculty and curriculum and (2) a regular organized body of pupils or students, or attendance at the place where the educational activities are carried on. Law ApplicationEducation Corporations Special corporations governed by special laws, and by the general provisions of the Corporation Code. Organized as stock corporations governed by the provisions on Stock Corporation as to number and term of directors.

Sec. 107. Pre-requisites to Incorporation.Except upon favourable recommendation of the Ministry of Education and Culture (Department of Education, Culture and Sports), the securities and Exchange Commission shall not accept or approve the articles of incorporation and by-laws of any educational institution.

Incorporation Shall be governed by the provisions of the Code.

Sec. 108. Board of Trustees. Trustees of educational institutions organized as non-stock corporations. Rules:1. For non-stock educational corporations. Number of trustees shall not be less than five (5) nor more than fifteen (15); It shall be in multiples of five (5); Unless otherwise provided by-laws, the term of office of the trustees shall be staggered with one (1) year interval; Trustees subsequently elected shall have a term of five (5) years; Trustees elected to fill vacancies occurring before expiration of term shall hold office only for the unexpired period; Majority of the trustees shall constitute a quorum for the transaction of business; and Powers and authority of trustees shall be defined by-laws.

1. For institutions organized as Stock Corporations, the number and term of directions shall be governed by the provisions on Stock Corporation. Educational corporations may, through articles of incorporation or by-law, designate their governing boards by any name than as board of trustees. Chapter II. Religious Corporations

Sec. 9. Classes of Religious Corporation. Religious corporations may be incorporated by one or more persons. Such corporations may be classified into corporations sole and religious society. Religious corporations shall be governed by this Chapter and by the general provisions on non-stock corporations insofar as they may be applicable.

Sec. 10. Corporation Sole.For the purpose of administering and managing, as trustees, the affairs, property and temporalities of any religious denomination, sect or church, a corporation sole may be formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of such religious denomination, sect or church.

Sec. 11. Articles of Incorporation. In order to become a corporation sole, the chief archbishop, bishop, priest, minister, rabbi or presiding elder of any religious denomination, sect or church must file with the Securities and Exchange Commission articles of incorporation setting forth the following:1. That he is the chief archbishop, bishop, priest, minister or rabbi or presiding elder of his religious denomination, sect or church and that he desires to become a corporation sole;1. That the rules, regulations and disciplines are not inconsistent with his becoming a corporation sole and do not forbid it;1. That he is charged with the administration of the temporalities and the management of the affairs, estate and properties; 1. The manner in which any vacancy occurring in the office is required to filled, according to the rules, regulations or discipline to which he belongs; and1. The place where the principal office of the corporation sole is to be established and located, which place must be within the Philippines.

Articles of Incorporation may include any other provision not contrary to law for the regulation of the affairs of the corporation.

Sec. 112. Submission of the articles of incorporation. Must be verified, before filing, by affidavit or affirmation of the chief archbishop, bishop, priest, minister, rabbi or presiding elder and accompanied by a copy of the commission, certificate of election or letter of appointment of such chief archbishop, bishop, priest, minister, rabbi or presiding elder, duly certified to be corrected by any notary public.

From and after the filing with the Securities and Exchange Commission of the said articles of incorporation, such chief archbishop, bishop, priest, minister, rabbi or presiding elder shall become a corporation sole, and all temporalities, estate and properties of the religious denomination, sect or church theretofore administered or managed by him as such shall be held in trust by him as a corporation sole, for the use, purpose, behalf and sole benefit of his religious denomination, sect or church (including hospitals, schools, colleges, orphan asylums, parsonages and cemeteries thereto).

Sec. 113. Acquisition and alienation of property.

Any corporation sole: May purchase and hold real estate and personal property for its church, charitable, benevolent or educational purposes, and may receive bequests or gifts for such purposes.

May mortgage or sell real property held by it upon obtaining an order for the purpose from the Court of First Instance (Regional Trial Court) of the province where the property is situated.

Application for leave to mortgage or sell must be made by petition, duly verified, by the archbishop, bishop, priest,