Law on Corporation

Lecturer: Atty. Marie Christabel Orais Puyo-Tabunag, CPA, CTT, JD

December 15, 2022
Title II: Incorporation & Organization of Private Corporations
Sec. 10. Number and Qualifications of Incorporators.
Any person, partnership, or corporation, singly or jointly with others but not
more than fifteen (15) in number, may organize a corporation for any lawful purpose
or purposes.
That natural persons who are licensed to practice a profession, and partnerships or
associations organized for the purpose of practicing a profession, shall not be
allowed to organize as a corporation unless otherwise provided under special laws.
Incorporators who are natural persons must be of legal age.
Sec. 11. Corporate Term. – A corporation shall have perpetual existence unless its
articles of incorporation provides otherwise.
SEC. 17. Corporate Name. – No corporate name shall be allowed by the Commission if
it is not distinguishable from that already reserved or registered for the use of another
corporation, or if such name is already protected by law, or when its use is contrary to
existing law, rules and regulations.
 SEC. 18. Registration, Incorporation and Commencement of Corporate
Existence. – A person or group of persons desiring to incorporate shall submit
the intended corporate name to the Commission for verification.
If the Commission finds that the name is distinguishable from a name already
reserved or registered for the use of another corporation, not protected by
law and is not contrary to law, rules and regulations, the name shall be
reserved in favor of the incorporators. The incorporators shall then submit
their articles of incorporation and bylaws to the Commission.
 If the Commission finds that the submitted documents and information are
fully compliant with the requirements of this Code, other relevant laws, rules
and regulations, the Commission shall issue the certificate of incorporation.
 A private corporation organized under this Code commences its corporate
existence and juridical personality from the date the Commission issues
the certificate of incorporation under its official seal and thereupon the
incorporators, stockholders/members and their successors shall constitute a
body corporate under the name stated in the articles of incorporation for the
period of time mentioned therein, unless said period is extended or the
corporation is sooner dissolved in accordance with law.
SEC. 19. 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. 20. 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 its lack of corporate personality as a defense. Anyone who assumes
an obligation to an ostensible corporation as such cannot resist performance
thereof on the ground that there was in fact no corporation.
SEC. 21. Effects of Non-Use of Corporate Charter and Continuous Inoperation.
– If a corporation does not formally organize and commence its business within five (5)
years from the date of its incorporation, its certificate of incorporation shall be
deemed revoked as of the day following the end of the five (5)-year period.
However, if a corporation has commenced its business but subsequently becomes
inoperative for a period of at least five (5) consecutive years, the Commission may,
after due notice and hearing, place the corporation under delinquent status.
TITLE III: BOARD OF DIRECTORS/TRUSTEES AND OFFICERS
SEC. 22. The Board of Directors or Trustees of a Corporation; Qualification and Term. – Unless
otherwise provided in this Code, the board of directors or trustees shall exercise the corporate powers,
conduct all business, and control all properties of the corporation.
Directors shall be elected for a term of one (1) year from among the holders of stocks registered in
the corporation’s books, while trustees shall be elected for a term not exceeding three (3) years from
among the members of the corporation. Each director and trustee shall hold office until the successor is
elected and qualified. A director who ceases to own at least one (1) share of stock or a trustee who
ceases to be a member of the corporation shall cease to be such.
The board of the following corporations vested with public interest shall have independent directors
constituting at least twenty percent (20%) of such board:
a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as “The Securities
Regulation Code”, namely those whose securities are registered with the Commission, corporations
listed with an exchange or with assets of at least Fifty million pesos (P50,000,000.00) and having two
hundred (200) or more holders of shares, each holding at least one hundred (100) shares of a class of its
equity shares;

b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business, pre-
need, trust and insurance companies, and other financial intermediaries; and
c) Other corporations engaged in business vested with public interest similar to
the above, as may be determined by the Commission, after taking into account
relevant factors which are germane to the objective and purpose of requiring the
election of an independent director, such as the extent of minority ownership,
type of financial products or securities issued or offered to investors, public
interest involved in the nature of business operations, and other analogous
factors.
An independent director is a person who, apart from shareholdings and fees
received from the corporation, is independent of management and free from any
business or other relationship which could, or could reasonably be perceived to
materially interfere with the exercise of independent judgment in carrying out
the responsibilities as a director.
Independent directors must be elected by the shareholders present or entitled to
vote in absentia during the election of directors. Independent directors shall
be subject to rules and regulations governing their qualifications,
disqualifications, voting requirements, duration of term and term limit,
maximum number of board memberships and other requirements that the
Commission will prescribe to strengthen their independence and align with
international best practices.
SEC. 24. Corporate Officers. – Immediately after their election, the directors of a
corporation must formally organize and elect: (a) a president, who must be a
director; (b) a treasurer, who must be a resident; (c) a secretary, who must be a
citizen and resident of the Philippines; and (d) such other officers as may be provided
in the bylaws. If the corporation is vested with public interest, the board shall also
elect a compliance officer. The same person may hold two (2) or more positions
concurrently, except that no one shall act as president and secretary or as
president and treasurer at the same time, unless otherwise allowed in this Code.
The officers shall manage the corporation and perform such duties as may be
provided in the bylaws and/or as resolved by the board of directors.

SEC. 29. Compensation of Directors or Trustees. – In the absence of any provision in

the bylaws fixing their compensation, the directors or trustees shall not receive any
compensation in their capacity as such, except for reasonable per diems: Provided
however, That the stockholders representing at least a majority of the outstanding
capital stock or majority of the members may grant directors or trustees with
compensation and approve the amount thereof at a regular or special meeting.
In no case shall the total yearly compensation of directors exceed ten (10%) percent
of the net income before income tax of the corporation during the preceding year.
Directors or trustees shall not participate in the determination of their own per diems
or compensation.
Corporations vested with public interest shall submit to their shareholders and the
Commission, an annual report of the total compensation of each of their directors or
trustees.
SEC. 30. Liability of Directors, Trustees or Officers. – Directors or trustees who
willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or pecuniary interest in conflict
with their duty as such directors or trustees shall be liable jointly and severally
for all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons.
SEC. 32. 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 (2) or more corporations having interlocking
directors shall not be invalidated on that ground alone: Provided, That if the interest
of the interlocking director in one (1) corporation is substantial and the interest in
the other corporation or corporations is merely nominal, the contract shall be
subject to the provisions of the preceding section insofar as the latter corporation
or corporations are concerned.
Stockholdings exceeding twenty percent (20%) of the outstanding capital stock
shall be considered substantial for purposes of interlocking directors.
TITLE IV: POWERS OF CORPORATIONS
SEC. 35. Corporate Powers and Capacity. – Every corporation incorporated under this Code has
the power and capacity:
(a) To sue and be sued in its corporate name;

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

(c) To adopt and use a corporate seal;

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

(e) To adopt bylaws, not contrary to law, morals or public policy, and to amend or repeal the
same in accordance with this Code;
(f) In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and to admit members to the corporation if it be a
nonstock corporation;
(g) To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and
otherwise deal with such real and personal property, including securities and bonds of other
corporations, as the transaction of the lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed by law and the Constitution;
(h) To enter into a partnership, joint venture, merger, consolidation, or any other
commercial agreement with natural and juridical persons;
(i) To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar purposes: Provided,
That no foreign corporation shall give donations in aid of any political party or
candidate or for purposes of partisan political activity;
(j) To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers, and employees; and
(k) To exercise such other powers as may be essential or necessary to carry out
its purpose or purposes as stated in the articles of incorporation.

SEC. 44. Ultra Vires Acts of Corporations. – No corporation shall possess or

exercise corporate powers other than those conferred by this Code or by its
articles of incorporation and except as necessary or incidental to the exercise of
the powers conferred.
TITLE V: BYLAWS
SEC. 45. Adoption of Bylaws. – For the adoption of bylaws by the corporation, the affirmative
vote of the stockholders representing at least a majority of the outstanding capital stock, or of at
least a majority of the members in case of nonstock corporations, shall be necessary.
The bylaws shall be signed by the stockholders or members voting for them and shall be kept in
the principal office of the corporation, subject to the inspection of the stockholders or members
during office hours. A copy thereof, duly certified by a majority of the directors or trustees and
countersigned by the secretary of the corporation, shall be filed with the Commission and
attached to the original articles of incorporation.
Notwithstanding the provisions of the preceding paragraph, bylaws may be adopted and filed
prior to incorporation; in such case, such bylaws shall be approved and signed by all the
incorporators and submitted to the Commission, together with the articles of incorporation.
In all cases, bylaws shall be effective only upon the issuance by the Commission of a certification
that the bylaws are in accordance with this Code.
The Commission shall not accept for filing the bylaws or any amendment thereto of any bank,
banking institution, building and loan association, trust company, insurance company, public
utility, educational institution, or other special corporations governed by special laws, unless
accompanied by a certificate of the appropriate government agency to the effect that such
bylaws or amendments are in accordance with law.
What is a voting trust agreement (VTA)?
A: It is an agreement whereby one or more stockholders transfer their shares of
stocks to a trustee, who thereby acquires for a period of time the voting rights
(and/or any other specific rights) over such shares; and in return, trust
certificates are given to the stockholder/s, which are transferable like stock
certificates, subject, to the trust agreement.

Q: What is the effect of a voting trust agreement with respect to the rights of
the trustor and the trustee?
A: A voting trust agreement results in the separation of the voting rights of a
stockholder from his other rights such as the right to receive dividends and other
rights to which a stockholder may be entitled until the liquidation of the
corporation. It is the trustee of the shares who acquires legal title to the shares
under the voting trust agreement and thus entitled to the right to vote and the
right to be elected as board of directors while the trustor-stockholder has the
beneficial title which includes the right to receive dividends (Lee vs. CA 205
SCRA 752)
SEC. 58. Voting Trusts. – One or more stockholders of a stock corporation
may create a voting trust for the purpose of conferring upon a trustee or
trustees the right to vote and other rights pertaining to the shares for a
period not exceeding five (5) years at any time: Provided, That in the case
of a voting trust specifically required as a condition in a loan agreement,
said voting trust may be for a period exceeding five (5) years but shall
automatically expire upon full payment of the loan. A voting trust
agreement must be in writing and notarized, and shall specify the terms
and conditions thereof. A certified copy of such agreement shall be filed
with the corporation and with the Commission; otherwise, the agreement
is ineffective and unenforceable. The certificate or certificates of stock
covered by the voting trust agreement shall be cancelled and new ones shall
be issued in the name of the trustee or trustees, stating that they are issued
pursuant to said agreement. The books of the corporation shall state that
the transfer in the name of the trustee or trustees is made pursuant to
the voting trust agreement.
The trustee or trustees shall execute and deliver to the transferors,
voting trust certificates, which shall be transferable in the same manner
and with the same effect as certificates of stock.
The voting trust agreement filed with the corporation shall be subject to
examination by any stockholder of the corporation in the same manner as
any other corporate book or record: Provided, That both the trustor and the
trustee or trustees may exercise the right of inspection of all corporate
books and records in accordance with the provisions of this Code.
TITLE VIII: CORPORATE BOOKS AND RECORDS
SEC. 73. Books to be Kept; Stock Transfer Agent. – Every corporation shall keep and carefully preserve at its principal
office all information relating to the corporation including, but not limited to:

(a) The articles of incorporation and bylaws of the corporation and all their amendments;

(b) The current ownership structure and voting rights of the corporation, including lists of stockholders or members,
group structures, intra-group relations, ownership data, and beneficial ownership;

(c) The names and addresses of all the members of the board of directors or trustees and the executive officers;

(d) A record of all business transactions;

(e) A record of the resolutions of the board of directors or trustees and of the stockholders or members;

(f) Copies of the latest reportorial requirements submitted to the Commission; and

(g) The minutes of all meetings of stockholders or members, or of the board of directors or trustees. Such minutes shall
set forth in detail, among others: the time and place of the meeting held, how it was authorized, the notice given, the
agenda therefor, whether the meeting was regular or special, its object if special, those present and absent, and every act
done or ordered done at the meeting. Upon the demand of a director, trustee, stockholder or member, the time when any
director, trustee, stockholder or member entered or left the meeting must be noted in the minutes; and on a similar
demand, the yeas and nays must be taken on any motion or proposition, and a record thereof carefully made. The protest
of a director, trustee, stockholder or member on any action or proposed action must be recorded in full upon their
demand.

Corporate records, regardless of the form in which they are stored, shall be open to inspection by any director, trustee,
stockholder or member of the corporation in person or by a representative at reasonable hours on business days, and a
demand in writing may be made by such director, trustee or stockholder at their expense, for copies of such records or
excerpts from said records. The inspecting or reproducing party shall remain bound by confidentiality rules under
prevailing laws, such as the rules on trade secrets or processes under Republic Act No. 8293, otherwise known as the
“Intellectual Property Code of the Philippines”, as amended, Republic Act No. 10173, otherwise known as the “Data
Privacy Act of 2012”, Republic Act No. 8799, otherwise known as “The Securities Regulation Code”, and the Rules of
Court.
SEC. 74. Right to Financial Statements. – A corporation shall furnish a
stockholder or member, within ten (10) days from receipt of their written
request, its most recent financial statement, in the form and substance of the
financial reporting required by the Commission.
At the regular meeting of stockholders or members, the board of directors or
trustees shall present to such stockholders or members a financial report of the
operations of the corporation for the preceding year, which shall include
financial statements, duly signed and certified in accordance with this Code,
and the rules the Commission may prescribe.
However, if the total assets or total liabilities of the corporation is less than Six
hundred thousand pesos (P600,000.00), or such other amount as may be
determined appropriate by the Department of Finance, the financial statements
may be certified under oath by the treasurer and the president.
TITLE XII: CLOSE CORPORATIONS
SEC. 95. Definition and Applicability of Title. – A close corporation, within the
meaning of this Code, is one whose articles of incorporation provides that:
(a) 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
twenty (20);
(b) all the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and
(c) the corporation shall not list in any stock exchange or make any public offering of
its stocks of any class. Notwithstanding the foregoing, a corporation shall not be
deemed a close corporation when at least two-thirds (2/3) of its voting stock or voting
rights is owned or controlled by another corporation which is not a close corporation
within the meaning of this Code.
Any corporation may be incorporated as a close corporation, except mining or oil
companies, stock exchanges, banks, insurance companies, public utilities, educational
institutions and corporations declared to be vested with public interest in accordance
with the provisions of this Code.
The provisions of this Title shall primarily govern close corporations: Provided, That
other Titles in this Code shall apply suppletorily, except as otherwise provided under
this Title.
RELIGIOUS CORPORATIONS

SEC. 107. Classes of Religious Corporations. – Religious corporations may be

incorporated by one or more persons. Such corporations may be classified into
corporations sole and religious societies.
Religious corporations shall be governed by this Chapter and by the general
provisions on nonstock corporations insofar as applicable.
SEC. 108. Corporation sole. – For the purpose of administering and managing,
as trustee, the affairs, property and temporalities of any religious denomination,
sect or church, a corporation sole may be formed by the chief archbishop,
bishop, priest, minister, rabbi, or other presiding elder of such religious
denomination, sect, or church.
ONE PERSON CORPORATIONS
SEC. 116. One Person Corporation. – A One Person Corporation is a corporation
with a single stockholder: Provided, That only a natural person, trust, or an
estate may form a One Person Corporation.
Banks and quasi-banks, pre-need, trust, insurance, public and publicly-listed
companies, and non-chartered government-owned and -controlled corporations
may not incorporate as One Person Corporations: Provided, further, That a
natural person who is licensed to exercise a profession may not organize as a
One Person Corporation for the purpose of exercising such profession except
as otherwise provided under special laws.
FOREIGN CORPORATIONS
SEC. 140. Definition and Rights of Foreign Corporations. – For purposes of this
Code, a foreign corporation is one formed, organized or existing under laws
other than those of the Philippines’ and whose laws allow Filipino citizens and
corporations to do business in its own country or State. It shall have the right
to transact business in the Philippines after obtaining a license for that purpose
in accordance with this Code and a certificate of authority from the appropriate
government agency.

SEC. 150. Doing Business Without a License. – No foreign corporation

transacting business in the Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine
laws.
SEC. 177. Reportorial Requirements of Corporations. – Except as otherwise provided in this
Code or in the rules issued by the Commission, every corporation, domestic or foreign, doing
business in the Philippines shall submit to the Commission:
(a) Annual financial statements audited by an independent certified public accountant:
Provided, That if the total assets or total liabilities of the corporation are less than Six hundred
thousand pesos (P600,000.00), the financial statements shall be certified under oath by the
corporation’s treasurer or chief financial officer; and
(b) A general information sheet.
Corporations vested with public interest must also submit the following:
(1) A director or trustee compensation report; and
(2) A director or trustee appraisal or performance report and the standards or criteria used to
assess each director or trustee.
The reportorial requirements shall be submitted annually and within such period as may be
prescribed by the Commission.
The Commission may place the corporation under delinquent status in case of failure to submit
the reportorial requirements three (3) times, consecutively or intermittently, within a period
of five (5) years. The Commission shall give reasonable notice to and coordinate with the
appropriate regulatory agency prior to placing under delinquent status companies under their
special regulatory jurisdiction.
Any person required to file a report with the Commission may redact confidential information
from such required report: Provided, That such confidential information shall be filed in a
supplemental report prominently labelled “confidential”, together with a request for confidential
treatment of the report and the specific grounds for the grant thereof.