Title 1 Discussion
Title 1 Discussion
Title 1 Discussion
11232
TITLE I
GENERAL PROVISIONS
Section 1. Title of the Code. - This Code shall be known as the "Revised Corporation
Code of the Philipines".
Corporation Defined
-The definition of corporation under RA 11232 is the same as that provided under 1980
corporation code.
Answer: A legal personality endows the subject with certain legal rights and obligations
such as but not limited to the capacity to enter into contracts, own properties, incur
obligations and the right to sue and be sued.
That is why in a contract where one of the parties is a corporation, it is not the president
or the CEO who is the contracting party but the corporation itself. The president or CEO
merely signs in a representative capacity because obviously a corporation on its own
cannot sign on its own.
Another example is the right to sue and be sued. Without legal personality, a person or
entity has no right to sue and be sued. In the absence of legal personality, the person or
entity runs the risk of having his complaint filed in court dismissed. If you already have
the subject civil procedure, you will learn that one of the grounds for the dismissal of a
complaint under Rule 16 of the Rules of Court is that the plaintiff has no legal personality
to sue. Again, in cases involving corporations, the real party in interest is the corporation
itself and not its president or CEO, that is why the case will be docketed as XXX
Corporation vs. Juan Tamad. The CEO or president merely acts as its representative. So
if ever a case involving a corporation is brought in the name of the president or CEO and
1
not the corporation itself, the case is dismissible not because the CEO or president has
no legal capacity but because the president or CEO has no cause of action.
Rights of Succession
-Do not confuse a corporation’s right of succession to successional rights under the New
Civil Code. As a matter of fact, the two legal terminologies do not have the same meaning
and legal import. Successional rights under the New Civil as you may have already known
is one of the modes of acquiring ownership. In broad term, successional rights refer to
the right of a decedent to transfer ownership of property upon death to his/her heirs (both
legitimate and illegitimate.
-A corporation’s right of succession simply means that the corporate existence is not
affected by the sale/disposition/transfer of shares from one stockholder to another. The
the death of all the incorporators or one or more stockholders will not result to the death
or dissolution of a corporation. In fact, under the Revised Corporation Code (RCC), a
corporation shall have perpetual existence unless its articles of incorporation provides
otherwise.
Classes of Corporation
-Under the RCC, there are only two classes of corporations. Stock and non-stock
corporations. Forget about profit and non-profit corporations provided under the
constitution and the tax code. For purposes of the RCC we will only deal with stock or
non-stock corporations
- Basically, the difference between stock corporations and non-stock corporations is that
a stock corporation have capital stock divided into shares and are authorized to distribute
to the holder’s dividends. Stock corporations these are corporations who are engaged in
businesses. Many of these corporations are traded in the Philippine Stock Exchange,
such that people like you and me, if you have a broker can buy and sell these stocks. On
the other hand, non-stock corporations are corporations which do not have capital stocks
divided into shares and do not issue dividends. Non-stock corporations are mostly
established for religious, social, charitable, educational, literary, scientific, and civic
organizations.
2
-Section 4 talks about a situation where a corporation is created not pursuant to the
provisions of the RCC but by a special law. In other words, another law is passed in order
to create a particular corporation.
Question: Based on Section 4 of the RCC, can congress pass a law creating DITO
Telecom, which is a private corporation?
Answer: Although Section 4 does not make a distinction between a private corporation
and a public corporation, but the answer is absolutely no. That is because SECTION 16,
article 12 of the 1987 Constitution states that Congress shall not, except by general law,
provide for the formation, organization, or regulation of private corporations. Government-
owned or controlled corporations (GOCCs) may be created or established by special
charters in the interest of the common good and subject to the test of economic viability.
In other words, only GOCCs may be created or established by a special law. All private
corporations must be formed, organized, and regulated under a general law, which is of
course the Revised Corporation Code.
For GOCCs, the primary law which shall govern is of course the law creating them, the
Revised Corporation Code shall only have suppletory application.
Stockholders
Incorporators
-Incorporators refers to stockholders (in the case of stock corporation) and members (in
the case of non-stock corporation) who originally formed and composed the corporation
at its inception. Basically, these are the persons whose name are written in the articles of
incorporation as the founders of the corporation. There is a pro-forma articles of
incorporation provided in Section 16 of the Revised Corporation Code. The names that
will be written in the fifth paragraph of the afore-mentioned pro-forma articles of
incorporation are the incorporators.
Corporators
-Corporators on the other hand is the collective term which refers to all the stockholders
(in the case of stock corporation) and members (in the case of non-stock corporation),
including the incorporators.
3
articles of incorporations. Each share shall be equal in all respects to every other share,
except as otherwise provided in the articles of incorporation.
The share stock corporations may be divided into classes or series of shares, or both. 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, That there
shall be a class or series of shares with complete voting rights.
Except as provided in the immediately preceding paragraph, the vote required under this
Code to approve a particular corporate act shall be deemed to refer only to stocks with
voting rights.
The shares or series of shares may or may not have a par value: Provided, That banks,
trust, insurance, and preneed companies, public utilities, building and loan associations,
and other corporations authorized to obtain or access funds from the public whether
publicly listed or not, shall not be permitted to issue no-par value shares of stock.
Shares of capital stock issued without par value shall be deemed fully paid and
nonassessable and the holder of such shares shall not be liable to the corporation or to
its creditors in respect thereto: Provided, That no-par value shares must be issued for a
consideration of at least Five pesos (₱5.00) per share: Provided, further, That the entire
consideration received by the corporation for its no-par value shares shall be treated as
capital and shall not be available for distribution as dividends.
A corporation may further classify its shares for the purpose of ensuring compliance with
constitutional or legal requirements.
4
What are Stocks?
-Stocks are shares of ownership in a company. When you buy stocks of a publicly listed
company, you become part owner of that company. As a part owner, you participate in
the company’s growth and future profits. Conversely, you may also lose if the company
suffers a loss or performs below market expectations.
(https://www.pseacademy.com.ph/LS/staticpages/id-1309854652920/FAQs.html)
Classifications of Stocks
When we talk about stocks there are two general classifications of stocks. These are
common stocks and preferred stocks. While common stocks are literally the most
common, widely available, and traded stocks, you will never find in the Revised
Corporation Code or the old corporation code the term common stock. This is because
under Section 6 of the RCC all stocks are equal in all respects to every other share unless
provided in the articles of incorporation. It is the indicated preferences, priorities and other
privileges which distinguishes a preferred stock from a common stock.
On the other hand, preferred shares literally mean that this class of share of stock may
be given preferences and priority. For example, in the distribution of dividends, if the
company only has a limited distributable income it could happen that preferred shares
holders will be given dividends but not the common stockholders. When the corporation’s
business is failing and eventually goes bankrupt and after all the debts are paid, preferred
shareholders are given first preference in the distribution of assets in case of liquidation
before common stockholders. Preferred shares holders may also give such other
privileges.
While the word preferred sounds appealing but in reality however, especially for retail
investors or small time stock traders, common stocks are more appealing for the simple
reason that common stocks are widely available and overwhelming dominates the overall
transactions and stock trading in the open market (Philippine Stock Exchange).
Note that preferred shares are required to be issued with a stated par value. The board
of directors (BODs) may fix the terms and conditions of preferred stock provided that they
are authorized to do so under the Articles of Incorporation. The terms and conditions will
only be effective upon filing of a certificate with the Securities and Exchange Commission.
The first paragraph of Section 6 of the RCC states that the classification of shares, their
corresponding rights, privileges, restrictions, and their stated par value, if any, must be
indicated in the articles of incorporations. Each share shall be equal in all respects to
every other share, except as otherwise provided in the articles of incorporation. In the old
law, the first paragraph of Section 1 is quite confusing, now, it has become clearer. What
paragraph 1 simply means is that in the Articles of Incorporation it must be written therein
the classes of shares and their corresponding privileges, restriction and stated par value,
if any. And that each class of shares must be equal in all respects to others within that
class, except as otherwise provided in the Articles of Incorporation.
5
Let’s take as an example the actual classes and series of shares of San Miguel
Corporation (SMC). SMC both have common and preferred shares of stocks.
SMC and SMCP1 are what you call classes of stocks. SMC2 is also a class of stock but
divided into a series of preferred stocks. That is San Miguel Corporation Series 2-A Pref.
(PSE:SMC2A), San Miguel Corporation Series 2-B Pref. (PSE:SMC2B) and San Miguel
Corporation Series 2-C Pref. (PSE:SMC2C). All these stocks, whether common or
preferred shall be equal in all respects to every other share, except as otherwise provided
in the articles of incorporation. For example, if SMCP1 has no voting rights, such fact
must be written in the Articles of Incorporation otherwise it shall be deemed equal to the
rest.
Note that while SMCP1 and SMC2A preferred shares may have different rights and
restrictions but all stocks belonging to SMCP1 shall have the same rights and restrictions.
In the same vein, all stocks belonging to SMC2A have the same rights and restrictions.
Par value
Par value, also known as nominal value, is the stock value stated in the Articles of
Incorporation. It is the incorporators who fix the amount of par value. The RCC does not
require a certain amount to be stated as par value in the Articles of Incorporation. In fact,
a corporation is not even required to provide for a par value in its articles of incorporation.
This is especially true in the case of non-stock corporation.
Even stock corporations, its shares or series of shares may or may not have a par value.
However, by express provision of the RCC, banks, trust, insurance, and preneed
companies, public utilities, building and loan associations, and other corporations
authorized to obtain or access funds from the public whether publicly listed or not, shall
not be permitted to issue no-par value shares of stock are not permitted to issue no-par
value shares of stock. The reason for this mandatory requirement is for financial
transparency purposes. This is because the afore-mentioned companies are imbued with
public interest. They belong to an industry where the general public’s trust and confidence
in the system is of paramount importance. This is especially true with regards to
corporations who seek funding or investment from the public either through private
placements or in the open market (PSE).
Note that only preferred, redeemable, and Treasury (see Section 56 of the RCC) shares
may be deprived of voting rights. Under Section 56, Treasury shares shall have no voting
right as long as such shares remain in the Treasury.
For preferred shares, the fact that the said share is without voting rights must be stated
in the articles of incorporation. Redeemable and Treasury shares are similar in the sense
6
that these are shares of stock which have been issued to a stockholder but subsequently
re-acquired by the corporation. Once redeemable and treasury are re-acquired by the
corporation either through purchase or any other mode of acquiring ownership, the said
stocks lose their voting rights. It makes sense because once a previously issued stock is
reacquired by the corporation, the ownership over the said stock is transferred to the
corporation and not to a particular stockholder. Only the stockholders of the corporation
have voting rights and not the corporation itself who issued the said stock.
Note that although preferred, redeemable and treasury shares may be deprived of voting
rights, but such voting rights refer only to those which are required in the ordinary and
regular transactions of the corporation. These refers to corporate acts that are in the usual
agenda of the annual or special stockholders meeting such as but not limited to the
election of the Board of Directors and approval of the declaration of stock dividends.
Section 7. Founders' Shares. - Founders' shares may be given certain rights and
privileges not enjoyed by the owners of other stock. 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 from the date of incorporation: Provided, That such exclusive right
shall not be allowed if its exercise will violate Commonwealth Act No. 108, otherwise
known as the "Anti-Dummy Law"; Republic Act No. 7042, otherwise known as the
"Foreign Investments Act of 1991"; and otherwise known as "Foreign Investments Act of
1991"; and other pertinent laws.
Founders’ Shares
Prior to the enactment of the RCC, founder’s shares need to be classified as such in the
Articles of Incorporation. However, with the enactment of the RCC it no longer states that
it must be classified as such. Nevertheless such a provision is no longer required since
section 6 already provides therein that the classification of shares, their corresponding
rights and privileges if any, must be indicated in the articles of incorporations.
Another change introduced in the RCC is the period of validity of the exclusive right to
vote and be voted in the election of directors. Under the old corporation code, the period
is still not exceeding five years, but it is reckoned from the date it is approved by the
Securities and Exchange Commission (SEC). Under the RCC, the approval of the SEC
is no longer required but the 5-year reckoning period automatically starts from the date of
incorporation.
Yet another change introduced by the RCC is that unlike the old corporation code, the
exclusive right to vote and be voted for a period not exceeding 5 years will not allowed if
it will violate the anti-dummy law and the Foreign Investments Act. Just a quick summary,
both of these mentioned laws has something to do with businesses or industries that are
exclusively reserved for Filipinos under the Constitution and related laws as well as
businesses and industries wherein the foreign ownership is limited to a certain
percentage.
7
purchased by the corporation. They are shares which may be purchased by the
corporation from the holders of such shares 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 stated in the articles of
incorporation and the certificate of stock representing the shares, subject to rules and
regulations issued by the Commission.
Redeemable Shares
-Basically, what distinguishes redeemable shares from treasury shares are the following:
Even if the corporation has no unrestricted retained earnings, the corporation may still
purchase its redeemable shares upon expiration of the fixed period and the terms and
conditions for the purchase have been met.
Section 9. Treasury Shares. - Treasury shares are shares of stock which have been
issued and fully paid for, but subsequently reacquired by the issuing corporation through
purchase, redemption, donation, or some other lawful means. Such shares may again be
disposed of for a reasonable price fixed by the board of directors.
Treasury Shares
Unlike redeemable shares, treasury shares do not require to be expressly provided in the
articles of incorporation. This is because treasury shares are just shares of stock that
8
were already issued and fully paid but subsequently reacquired by the corporation
through purchase or any other lawful means of transferring ownership. After reacquisition,
treasury shares may again be sold or disposed for a reasonable price fixed by the BOD.
Occasionally, corporations undertake what is called a buyback program wherein they buy
back shares that were previously issued and fully paid by investors/stockholders. This is
especially true with regards to corporations whose shares of stocks are publicly traded in
the PSE. The reason why these corporations undertake buyback programs is one they
believe that the market value of their publicly traded shares are grossly undervalued. In
other words, they are buying back their shares because they think that it is being sold in
the open market at a bargain or cheap price. Another reason is to stabilize the market
value of their shares and prevent it from sliding down further.
There are two ways of earning money from the stock market. One is through dividends
and the other is through capital appreciation. Most often than not, stock traders are after
capital appreciation than dividends. Why? Because companies do not always declare
dividends and when they do it is either once or twice a year at say 5% of the value of the
share at the time of purchase.
To illustrate just recently, GMA 7 declared cash dividend of PhP 1.35 per share. Hours
before the announcement, the market value of GMA 7 shares was Php 7.48. So, if you
bought GMA shares at Php 7.48 on March 26, 2021 the dividend of Php 1.35 would be
equivalent to approximately 18% of the market value at the time you purchased GMA
shares. The dividends are to be paid by GMA 7 on May 18, 2021
A day after news of the declaration of dividends by GMA 7 broke out, the market value of
GMA 7 shares rose up to Php 8.85 at end of trading day. So, from the previous day’s
market value of Php 7.48 to the following day’s market value of Php 8.85, that is roughly
19.65%! Many smart and risk averse stock traders or investors sold their GMA shares the
following day rather than waiting for the payment of dividends on May 18, 2021. Just
imagine earning 19.65% in just one day. So, this is an example to earning in the stock
market through capital appreciation.
Going back to the reasons why corporations buy back their own shares, one is capital
appreciation. If the corporation believes that the value of their stock will rise eventually in
the coming months or years they will buy shares of their own stock at current prices and
perhaps sell it in the future at a higher price.
9
10