KORBEL FOUNDATION COLLEGE, INC.

Purok Spring 1, Brgy. Morales, Koronadal City

Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

WEEK 2 articles of incorporation, those which may be incidental

to such conferred powers, those that are implied from its
Revised Corporation Code (RA 11232) existence, and those reasonably necessary to
accomplish its purposes. In turn, a corporation exercises
Corporation said powers through its Board of Directors and/or its duly
authorized officers and agents. (Monfort Hermanos
A corporation is an artificial being created by operation Agricultural Dev. Corp. v. Monfort III, 2004).
of law, having the right of succession and the powers,
attributes, and properties expressly authorized by law or
incident to its existence.
DOCTRINE OF SEPARATE JURIDICAL
Elements of Corporation: PERSONALITY

1. It is an artificial being A corporation has a personality separate and distinct

2. Created by operation of law from that of its stockholders and members and is not
3. Having the right of succession affected by the personal rights, obligations, and
4. The powers, attributes and properties expressly transactions of the latter.
authorized by law or incident to its existence (Section 2, DOCTRINE OF PIERCING THE CORPORATE VEIL
RA 11232)
Piercing the veil of corporate entity is merely an
1. AN ARTIFICIAL BEING equitable remedy, and may be granted only in cases
when the corporate fiction is used to defeat public
A corporation exists by fiction of law. Hence, it can act convenience, justify wrong, protect fraud or defend crime
only through its directors, officers and employees. (Yutivo Sons v. CTA, 1961) or where the corporation is a
mere alter ego or business conduit of a person. (Koppel
Being only a juridical entity, the physical acts of the Phil v. Yatco)
corporation, like the signing of documents, can be
performed only by natural persons duly authorized for
the purpose by corporate by-laws or by a special act of GROUNDS FOR APPLICATION OF DOCTRINE
the Board of Directors (Shipside, Inc. v. Court of (1) If done to defraud the government of taxes due it.
Appeals, 2001). (2) If done to evade payment of civil liability.
(3) If done by a corporation which is merely a conduit or
alter ego of another corporation.
(4) If done to evade compliance with contractual
2. CREATED BY OPERATION OF LAW obligations.
(5) If done to evade financial obligation to its employees.
Mere consent of the parties to form a corporation is not
sufficient. The State must give its consent either through
a special law (in case of government corporations) or a Q: Is a corporation liable for the individual acts of its
general law (i.e., Corporation Code in case of private stockholders or members? Is there an exception to the
corporations). general rule?

3. HAS THE RIGHT OF SUCCESSION A: It is settled that a corporation has a personality

separate and distinct from its individual stockholders or
Its continued existence during its stated term cannot be members, and is not affected by the personal rights,
affected by any change in the members or stockholders obligations and transactions of the latter. The corporation
or by any transfer of shares by a stockholder to a 3rd may not be held liable for the obligations of the persons
person. composing it, and neither can its stockholders be held
liable for its obligation. Of course, this Court has
recognized instances when the corporation’s separate
personality may be disregarded. However, we have also
4. The powers, attributes and properties expressly
held that the same may only be done in cases where the
authorized by law or incident to its existence
corporate vehicle is being used to defeat public
convenience, justify wrong, protect fraud, or defend
A corporation has no power except those expressly
crime. Moreover, the wrongdoing must be clearly and
conferred on it by the Corporation Code and by its
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

convincingly established. It cannot be presumed. (Seaoil

vs Autocorp Group, 2008, Nachura) As a separate juridical personality, a corporation can be
held liable for torts committed by its officers for corporate
DOCTRINE OF LIMITED CAPACITY purpose (PNB v. CA, 1978).

Corporation may exercise only powers expressly

authorized by law or incident to its existence RECOVERY OF MORAL DAMAGES

THEORY OF CORPORATION General rule: A corporation has the power to sue in its
corporate name. (Sec. 36)
1. Theory of Concession
Exception: Moral Damages cannot be awarded in favor
It is a principle in creation of corporation, under which a of corporations because they do not have feelings and
corporation is an artificial creature without any existence mental state. They may not even claim moral damages
until it has received the imprimatur of the state acting for besmirched reputation (NAPOCOR v. Philipp
according to law, through Securities and Exchange Brothers Oceanic, 2001).
Commission. The life of the Corporation is a concession
made by the State. However, a corporation can recover moral damages
under Art 2219 (7) if it was the victim of defamation
2. Genossenschaft Theory (Pilipinas Broadcasting Network v. Ago Medical and
Educational Center, 2005).
It is the reality of group of social and legal entity,
independent of state recognition and concession. It
exists because partners want it to exist. CLASSES OF CORPORATIONS

STOCK CORPORATION

Corporations which have capital stock divided into

PRIVATE CORPORATION CAN ONLY BE CREATED shares and are authorized to distribute to the holders of
BY CORPORATION CODE (B.P 68 amended by RA such shares dividends or allotments of the surplus profits
11232) on the basis of shares held (Sec. 3)

Under Art. XII, Section 16 of 1987 Corporation which It is organized for profit.
provides as follow:
The governing body of a stock corporation is usually the
“The congress shall not, except by general law, provide Board of Directors (except in certain instances, e.g.
for the formation, organization or regulation of private close corporations).
corporations, Government Owned and Controlled
Corporations may be created or established by special There are two elements for a stock corporation to exist:
characters in the interest of the common good and
subject to the test of economic viability” (1) Capital stock divided into shares, and

Special Law can create only (2) An authority to distribute to the holders of such
shares, dividends or allotments of the surplus profits on
1. Public Corporation the basis of shares held
2. Government owned and controlled corporations
provided Even if there is a statement of capital stock, the
a. In the interest of common good corporation is still NOT a stock corporation if dividends
b. Subject to test of economic viability are NOT supposed to be declared, that is, there is no
distribution of retained earnings. (CIR v. Club Filipino de
Cebu, 1962)

Note: Under Sec. 43 of the Corporation Code, a

corporation is deemed to have the power to declare
dividends. Thus, so long as the corporation has capital
LIABILITY FOR TORTS AND CRIMES stock and there is no prohibition in its Articles of
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

Incorporation or in its by-laws for it to declare dividends, Notwithstanding the foregoing, a corporation shall not be
such corporation is a stock corporation. 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
NON-STOCK CORPORATION corporation within the meaning of this Code.

All other corporations are non-stock corporations (Sec.

3) EDUCATIONAL CORPORATION

One where no part of the income is distributable as One organized for educational purposes (Sec. 106).
dividends to its members, trustees, or officers, subject to
the provisions of the Code on dissolution(Sec. 87). RELIGIOUS CORPORATIONS

Not organized for profit. Corporation sole is one formed for the purpose of
administering and managing, as trustee, the affairs,
Its governing body is usually the Board of Trustees. property and temporalities of any religious denomination,
sect, or church, by the chief archbishop, bishop, priest,
rabbi, or other presiding elder of such religious
OTHER CORPORATIONS denomination, sect or church (Sec.110)

ELEEMOSYNARY CORPORATION
PUBLIC CORPORATION
One organized for a charitable purpose
One formed or organized for the government of a portion
of the state. Its purpose is for the general good and DOMESTIC CORPORATION
welfare (Sec. 3, Act 1456).
One formed, organized, or existing under the laws of the
PRIVATE CORPORATION Philippines.

One formed for some private purpose, benefit, aim or FOREIGN CORPORATION
end (Sec. 3, Act 1456); it may be either stock or non-
stock, government-owned or controlled or quasi-public. One formed, organized or existing under any laws other
than those of the Philippines and whose law allows
The test to determine whether a corporation is Filipino citizens and corporations to do business in its
government owned or –controlled, or private in nature, is own country and state (Sec. 123).
if a corporation is created by its own charter for the
exercise of a public function, or by incorporation under CORPORATION CREATED BY SPECIAL LAWS OR
the general corporation law (Baluyot v. Holganza, 2000). CHARTER

CLOSE CORPORATION Corporations which are governed primarily by the

provisions of the special law or charter creating them.
One whose articles of incorporation provide that: Corporation Code has suppletory application. (Sec. 4)

(1) All the corporation's issued stock of all classes, SUBSIDIARY CORPORATION
exclusive of treasury shares, shall be held of record by
not more than a specified number of persons, not One in which control, usually in the form of ownership of
exceeding twenty (20); majority of its shares, is in another corporation (the
parent corporation).
2) all the issued stock of all classes shall be subject to
one or more specified restrictions on transfer permitted PARENT CORPORATION
by this Title; and
Its control lies in its power, directly or indirectly, to elect
(3) The corporation shall not list in any stock exchange the subsidiary’s directors thus controlling its
or make any public offering of any of its stock of any management policies.
class (see Sec. 96).
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

CORPORATION DE JURE

A corporation organized in accordance with the CLASSES OF SHARES OF STOCK

requirements of the law.
Shares of stock of stock corporations may be divided
DE FACTO CORPORATION into classes or series of shares or both. Each class or
series of shares may have rights, privileges or
A corporation where there exists a flaw in its restrictions, as stated in the Articles of Incorporation.
incorporation

Rule on De Facto Corporations Classification of shares:

The due incorporation of any corporation claiming in (1) Common shares

good faith to be a corporation under this Code, and its (2) Preferred shares
right to exercise corporate powers, shall not be inquired (3) Par value shares
into collaterally in any private suit to which such (4) No-par value shares
corporation may be a party. Such inquiry may be made (5) Founder’s shares
by the Solicitor General in a quo warranto proceeding (6) Redeemable shares
(Sec. 20). (7) Treasury shares
(8) Convertible shares
Grant of juridical personality is an exercise of State (9) Non-voting shares
power and not a matter of private affair. Consequently,
under the de facto corporation doctrine, the defect in the Doctrine of Equality of Shares:
juridical personality of a corporation cannot be inquired
into by private individuals, much less used as a defense Each share shall be EQUAL in ALL respects to every
to avoid claims, except in quo warranto proceedings other share, except as otherwise provided in the Articles
brought on behalf of the State where the main action is of Incorporation and stated in the certificate of stock
to question the validity or existence of such juridical (Sec. 6)
personality.
COMMON SHARES
Requisites of De Facto Corporation
The most common type of shares, which enjoy no
(1) Organized under a valid law preference but the owners thereof are entitled to
(2) Bona fide compliance with formalities of law management of the corporation and to equal pro-rata
(3) User of corporate powers division of profits after preference. It represents a
(4) SEC issuance of certificate of incorporation (Hall v. residual ownership interest in the corporation.
Piccio, 86 Phil 603 [1950])
PREFERRED SHARES

Stocks which are given preference by the issuing

CORPORATION BY ESTOPPEL corporation in dividends and the distribution of assets of
the corporation in case of liquidation or such other
Where a group of persons misrepresent themselves as a preferences as may be stated in the Articles of
corporation, they are subsequently estopped from Incorporation which do not violate the Corporation Code.
claiming lack of corporate life in order to avoid liability.

All persons who assume to act as a corporation knowing

it to be without authority to do so shall be liable as PAR VALUE SHARES
general partners for all debts, liabilities and damages
incurred or arising as a result thereof. These are shares with a stated value set out in the
Articles of Incorporation. This remains the same
One Person Corporation (Sec 116, RCCP) regardless of the profitability of the corporation. This
gives rise to financial stability and is the reason why
One Person Corporation (OCP) is a corporation with a banks, trust corporations, insurance companies and
single stockholder, who may be a natural person, a trust, building and loan associations must always be organized
or an estate. with par value shares.
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

Par value is minimum issue price of such share in the

Articles of Incorporation which must be stated in the
certificate REDEEMABLE SHARES (SEC. 8)

NO-PAR VALUE SHARES These are shares which permit the issuing corporation to
redeem or purchase its shares.
These are shares without a stated value.
Limitations:
A no par share does not purport to represent any stated
proportionate interest in the capital stock measured by 1) Redeemable shares may be issued only when
value, but only an aliquot part of the whole number of expressly provided for in the Articles of Incorporation
such shares of the issuing corporation. (Sec.8).
2) The terms and conditions affecting said shares must
Limitations: be stated both in the Articles of Incorporation and in the
certificate of stock(Sec. 8).
(1) No-par value shares cannot have an issue price of 3) Redeemable shares may be deprived of voting rights
less than P5.00 per share (Sec. 6). in the Articles of Incorporation
4) The corporation is required to maintain a sinking fund
(2) They shall be deemed fully paid and non-assessable to answer for redemption price if the corporation is
and the holders of such shares shall not be liable to the required to redeem.
corporation or to its creditors in respect thereto (Sec. 6). 5) The redeemable shares are deemed retired upon
redemption unless otherwise provided in the Articles of
(3) Entire consideration received by the corporation for Incorporation (i.e., if the Articles of Incorporation allows
its no-par value shares shall be treated as capital and for reissuance of such shares).
shall not be available for distribution as dividends (Sec. 6) Unrestricted Return Earnings is NOT necessary
6). before shares can be redeemed but there must be
sufficient assets to pay the creditors and to answer for
(4) Articles of Incorporation must state the fact that the operations (Republic Planters Banks v. Agana, 1997).
corporation issues no par shares and the number of Redemption cannot be made if such redemption will
shares. result in insolvency or inability of the corporation to meet
its obligations (SEC Opinion, 24 Aug 1987).
(5) Banks, insurance companies, trust companies,
building and loan associations, and public utilities cannot TREASURY SHARES (SEC. 9)
issue no-par value shares (Sec. 6).
These are shares which have been issued and fully paid
(6) The issued price may be fixed in the Articles of for, but subsequently re-acquired by the issuing
Incorporation, or by the Board of Directors pursuant to corporation by purchase, redemption, donation or
authority conferred upon it by the ) Articles of through some other lawful means. Such shares may
Incorporation, or, in the absence thereof, by majority again be disposed of for a reasonable price fixed by the
vote of the outstanding shares in a meeting called for the Board of Directors
purpose (Sec. 62).
NON-VOTING SHARES (SEC. 6)
FOUNDER’S SHARES (SEC. 7)
General rule: Non-Voting Shares are not entitled to vote.
These are shares, classified as such in the Articles of
Incorporation, which are given certain rights and Exceptions:
privileges not enjoyed by the owners of other stocks.
Where exclusive right to vote and be voted for in the (1) Amendment of the Articles of Incorporation
election of directors is granted, such right must be for a (2) Adoption and amendment of by-laws
limited period not to exceed 5 years subject to approval (3) Sale, lease, exchange, other disposition of all or
by Securities and Exchange Commission. substantially all of the corporate property
(4) Incurring, creating or increasing bonded
The 5 year period shall exclusive rights starts from date indebtedness
of Incorporation (5) Increase or decrease of capital stock
(6) Merger and consolidation
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

(7) Investment of corporate funds in another corporation Stock Corporation shall not be required to have minimum
or business authorized capital stock except as otherwise specifically
(8) Dissolution of the corporation. provided for by special laws.

INCORPORATION AND ORGANIZATION Filipino percentage ownership requirement

regarding corporate capital.

NUMBER AND QUALIFICATIONS OF By specific constitutional and legal provisions, Filipino

INCORPORATORS ownership of a certain percentage of the capital stock or
capital is required in certain cases, such as:
(1) Juridical or Natural Persons
(2) Any number from 1-15 (1) Corporations for exploration, development, and
(3) In case of Natural person: Must be in Legal Age utilization of natural resources. — at least 60% of the
(4) Each incorporator must own or be a subscriber to at capital of which is owned by citizens of the Philippines.
least 1 share of the capital stock of the corporation (Constitution of the Philippines, Art. XII, Sec. 2.) The
(5) Natural Persons may organize a Corporation for the word "capital" in the above constitutional provision
Practice of Profession when Authorized by Special Law. should be understood to mean "outstanding capital
(Sec. 10) stock" in case of stock corporation;

CORPORATE TERM (2) Public service corporations. — at least 60% of the

capital of which is owned by citizens of the Philippines.
Perpetual Corporate Term as the Default Rule: The participation of foreign investors in the governing
body of any public utility enterprise shall be limited to
Under Section 11, the default rule for all existing their proportionate share in its capital, and all the
corporations and those to be formed under revised executive and managing officers of such corporation
corporation code is that they have perpetual term. must be Filipino citizens.

(3) Educational corporations. — Other than those

Pre-Revised Corporation Code Corporations established by religious orders and mission boards, at
least 60% of the capital of which is owned by citizens of
Those corporations exist before the promulgation of the Philippines. The control and administration of
Revised Corporation Code may choose to revert to a educational institutions shall be vested in Filipino citizens
specific term only upon vote of its stockholders
representing majority of its outstanding capital stock (4) Corporations engaged in mass media and advertising
industry - The first must be wholly (i.e., 100%) owned
Revival of an Expired Corporation and managed by Filipino citizens, while at least 70% of
the capital stock of the second must be owned by
A corporation whose term has expired may apply for a citizens of the Philippines. The participation of foreign
revival of its corporate existence, together with all the investors in the governing body of a corporation engaged
rights and privileges under its certificate of incorporation in the advertising industry shall be limited to their
and subjects of all its duties, debts, and liabilities existing proportionate share in the capital thereof, and all the
prior to its revival. Upon approval by the Commission, executive and managing officer of such corporation must
the corporation shall be deemed revived and the be Filipino citizens.
certificate of revival of corporate existence shall be
issued, giving it perpetual existence, unless its (5) Banking corporations. — at least 60% of the capital
application for revival provides otherwise. stock of any bank or banking institution which may be
established after the approval of the General Banking
Act (July 24, 1948) shall be owned by citizens of the
Philippines
(6) Corporations engaged in retail trade. — the capital of
which must be wholly owned by citizens of the
Minimum Capital Stock Required in Stock Philippines (R.A. No. 1180, Sec. 1.);
Corporation (Sec 12)
(7) Rural banks. — the capital stock of which must be
fully owned and held directly or indirectly by Filipino
citizens or corporations, associations, or cooperatives
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

qualified under Philippine laws to own or hold such Filipino equity in a corporation engaged in nationalized
capital stock (R.A. No. 7353, Sec. 4.); and/or partly nationalized areas of activities, is computed
by attributing the nationality of second or even
(8) Corporations engaged in coastwise shipping. — at subsequent tier ownership to determine the nationality of
least 60% of the capital stock of which or of any interest the corporate shareholder.
in said capital is totally owned by citizens of the
Philippines (Pres. Decree No. 1464 [Tariff and Customs There are two rules for determining the corporate
Code], Sec. 806.); nationality of a corporation: Under the "incorporation
test," the nationality of a corporation is that of the state of
(9) Financing companies. — at least 60% of the capital incorporation regardless of the nationality of its
stock shall be owned by citizens of the Philippines (R.A. stockholders. Under the "control test," it depends on the
No. 5980, as amended, Sec. 16.); nationality of the controlling stockholders. The
application of either test depends on the particular
(10) Corporations engaged in the pawnshop business. situation.
— at least 70% of the voting capital stock shall be
owned by citizens of the Philippines (Pres. Decree No. ARTICLES OF INCORPORATION NATURE AND
114, Sec. 8.); FUNCTION OF ARTICLES

(11) Corporations engaged in the recruitment and (1) Constitutes the charter of the corporation and sets
placement of workers, locally or overseas. — at least forth the rules and conditions upon which the association
75% of the authorized and voting capital stock is owned or corporation is founded.
and controlled by Filipino citizens (Pres. Decree No. 442 (2) Defines the contractual relationships between the
[Labor Code], as amended, Sec. 27.); State and the corporation, the stockholders and the
State, and the corporation and the stockholders.
(12) Corporations engaged in the operation of a private
detective, watchman or security guard agencies. — Must The Articles must be filed with the SEC for the issuance
be 100% Filipino owned (R.A. No. 5487, Sec. 4.); of the Certificate of Incorporation

(13) Under the Flag Law. — In the purchase of articles Contents of Articles of Incorporation
for the Government, preference shall be given to
materials and supplies produced, made, or (1) Corporate Name
manufactured in the Philippines, and to domestic (2) Purpose Clause
entities. The term "domestic entities" means any citizen
of the Philippines or any corporate body or commercial (a) Must indicate the PRIMARY and SECONDARY
company at least 75% of the capital of which is owned purposes if there is more than one purpose, which
by citizens of the Philippines. (C.A. No. 138, Sec. 1.) should not contradict or change the nature of the
corporation (Sec. 14(2)
Business activities wherein foreigner’s ownership could
be more than 40% up to 100% (b) Must not be patently unconstitutional, illegal, immoral,
and contrary to government rules and regulations
1. Export Enterprise
2. Domestic market enterprises with paid-in equity (3) Principal Office
capital of atleast the equivalent of US 200,00.00 dollars.
3. Domestic market enterprises, which involved (a) Must be within the Philippines
advanced technology or employ atleast fifty direct (b) AOI must specify both province or city or town where
employees with paid-in equity capital of at least the it is located
equivalent of US 100,000 dollars.
(4) Corporate Term
(5) The number of directors, which shall not be more
than fifteen (15) or the number of trustees which may be
more than fifteen (15);
GRANDFATHER RULE
(6) The names, nationalities, and residence addresses of
Method used to determine the nationality of a persons who shall act as directors or trustees until the
corporation, in cases where corporate shareholders are first regular directors or trustees are duly elected and
present in the situation, by which the percentage of qualified in accordance with this Code;
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

(7) If it be a stock corporation, the amount of its using such name and require corporation to register a
authorized capital stock, number of shares into which it new one.
is divided, the par value of each, names, nationalities,
and subscribers, amount subscribed and paid by each REGISTRATION, INCORPORATION AND
on the subscription, and a statement that some or all of COMMENCEMENT OF CORPORATE EXISTENCE
the shares are without par value, if applicable; (SEC 18)
(8) If it be a non-stock corporation, the amount of its
COMMENCEMENT OF CORPORATE TERM
capital, the names, nationalities, and residence
addresses of the contributors, and amount contributed
Corporation existence and juridical personality shall
by each; and
commence from the date the SEC issues the certificate
(9) Such other matters consistent with law and which the of incorporation under its official seal
incorporators may deem necessary and convenient.
DE FACTO CORPORATION (SEC 19)
An arbitration agreement may be provided in the articles
of incorporation pursuant to section 181 of RA 11232. The due incorporation of any corporation claiming in
The articles of incorporation and applications for good faith to be a corporation under this Code, and its
amendments thereto may be field with the Commission right to exercise corporate powers, shall not be inquired
in the form of an electronic document, in accordance into collaterally in any private suit to which such
with the Commissioner’s rules and regulation on corporation may be a party. Such inquiry may be made
electronic filing (Sec 13) by the Solicitor General in a quo warranto proceeding.

Requisites of De Facto Corporation

AMENDMENT OF ARTICLES OF INCORPORATION (1) Organized under a valid law

(Sec 15)
In order that there can be a de facto corporation, there
Amendment of the Articles of Incorporation Any must be a law authorizing it to be a corporation de jure
provision or matter stated in the articles of incorporation for there cannot be a corporation de facto when there
may be amended cannot be one de jure, even though there may have
(1) By a majority vote of the board of directors or been an assumption of corporate powers.
trustees
(2) And the vote or written assent of:
a) 2/3 of the outstanding capital stock, without prejudice (2) Bona fide compliance with formalities of law
to the appraisal right of dissenting stockholders in
accordance with the provisions of this Code, When there has been no attempt in good faith to create
(b) 2/3 of the members if it be a non-stock corporation. a corporation de jure, there can be no de facto
corporation. Any other rule might well open the door to
fraud upon the public. Mere intent is not sufficient. In
addition, there must be a bona fide attempt to comply
CORPORATE NAME (SEC. 17) with the requirements of the law. To constitute a
corporation de facto, there must be, it is true, a colorable
LIMITATIONS ON USE CORPORATE NAME compliance with the statute, but there need not be a
substantial compliance. A substantial compliance makes
(1) Must not distinguishable from that already reserved the body a corporation de jure.
or registered for the use of another corporation.
(2) If such name is already protected by law
(3) When it is use is contrary to existing law, rules and (3) Actual user or exercise in good faith of corporate
regulation. powers conferred upon it by law.

SEC Power off Summary Order to Cease and Desist To create a corporation de facto, it is not sufficient to
show the existence of a law under which a corporation
SEC has determined any of the 3 grounds for might be formed and an honest attempt to comply with
disallowing a corporate name, it may summarily order the requirements thereof, but it is also necessary to
the corporation to immediately cease and desist from show an actual user or exercise of corporate powers or
franchise.
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

The board of directors and corporate officers are

CORPORATION BY ESTOPPEL (SEC 20) frequently referred to as management. In its strict sense,
the term refers to the corporate officers given the
Where a group of persons misrepresent themselves as a authority to implement the policies determined by the
corporation, they are subsequently estopped from board of directors as the governing body of the
claiming lack of corporate life in order to avoid liability All corporation.
persons who assume to act as a corporation knowing it
to be without authority to do so shall be liable as general Corporate powers exercised by board of directors or
partners for all debts, liabilities and damages incurred or trustees.
arising as a result thereof.
All corporations being invisible, existing only in
Effects of non-use of corporate charter and contemplation of law, can only act and contract through
continuous inoperation of the corporation (Sec 21) the aid and by means of individuals. Such individuals
may be those holding corporate offices or agents
If a corporation does not formally organize and properly appointed by such officers. The same general
commence its business within five (5) year from the date principles of law which govern the relation of agency for
of its incorporation, its certificate of incorporation shall be a natural person govern the officer or agent of a
deemed revoked as of the day following the end of the corporation in respect to his power or authority to act for
five (5)-year period. the corporation.

A delinquent corporation shall have a period of 2 years Number and Qualification of Directors (Sec 22)
to resume operations and comply with all requirements
that the Commission shall prescribe. Upon compliance 1. Not more than 15 directors and may be more than
by the corporation, the Commission shall issue an order 15 trustees (Sec 13)
lifting the delinquent status. Failure to comply with the 2. Owner of atleast one share
requirements and resume operation within the period 3. The owner (Legal not beneficial ownership such as
given by the Commission shall cause the revocation of mortgagor) must be stand in the name of the director In
the boo of the corporation.
the corporation’s certificate of incorporation.
4. Possess all the qualification and none of the
disqualification (Sec 26 and 23)
5. If the corporation is vested with public interest, the
board shall also elect a compliance officer
BOARD OF DIRECTORS/TRUSTEES/ OFFICERS
Directors shall be elected for a term of one

Tri-level structure 10 years from among the holders of stocks registered in

the corporation's book
— The standard operating procedure for corporations,
frequently referred to as a corporate norm, might be 3 years for trustees from among the members of the
described as pyramidal in form. corporation.

At the base are the shareholders (or members) whose Each director and trustee shall hold office until the
vote is required to elect the board of directors (or successor is elected and qualified.
trustees) and to pass on other major corporate actions.
A director who ceases to own at least one (1) share of
The next level is represented by directors who constitute stock or a trustee who ceases to be a member of the
the policy-making body of the corporation and select the corporation shall cease to be such.
officers annually, as a rule. The keystone of corporate
procedure is the provision common to most corporate Independent Director
laws that the business of a corporation shall be
managed by its board of directors. An independent director is a person who apart from
shareholdings and fees received from the corporation, is
Finally, at the top of the pyramid are the officers who independent of management and free from any business
have some discretion but in general deemed to execute or other relationship which could or could reasonably be
policies formulated by the board. perceived to materially interfere with the exercise of
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

independent judgment in carrying out the responsibilities as many votes as the number of directors to be elected
as a director. multiplied by the number of his shares shall equal.

Independent directors must be elected by the Illustration: If there are 5 directors to be elected and
shareholders present or entitled to vote in absentia Pedro, as shareholder, has 100 shares, Pedro can give
during the election of directors. Independent directors 500 (5 x 100 shares) votes to just one candidate.
shall be subject to the rules and regulation governing
their qualifications, disqualifications, voting CUMULATIVE VOTING BY DISTRIBUTION
requirements, duration of term and term limit, maximum
number of board membership and other requirements A stockholder may cumulate his shares by multiplying
that the Commission will prescribe to strengthen their the number of his shares by the number of directors to
independence and align with international best practices. be elected and distribute the same among as many
candidates as he shall see fit.

Illustration: In the illustration above, Pedro instead may

choose to give 100 votes to candidate 1, 100 votes to
Requirements of Independent director for candidate 2, 100 votes to candidate 3, 150 votes to
corporation vested with public interest candidate 4, and 50 votes to candidate 5.

The board of the following corporations vested with STRAIGHT VOTING

public interest shall gave independent directors
constituting atleast 20% of such board: Every stockholder may vote such number of shares for
as many persons as there are directors to be elected.
1. Corporation covered the Securities Regulation Code
(R.A 8799), namely; General Rule:

a) Whose securities are registered with the Commission Each stockholder or member shall have the right to
b) Corporation listed with an exchange or nominate any director or trustee who possesses all of
c) With assets of atleast 50,000,000.00 and having 200 the qualifications and none of the disqualifications and
or more holders of share, each holding atleast 100 none of the disqualifications set forth in this Code.
shares of a class of its equality shares.
Exception:
2. Banks and quasi-banks, NSSLA’s, pawnshops,
corporation engaged in money service business, Except when the exclusive right is reserved for holders
preneed, trust and insurance companies and other of founders' shares under Section 7 of this Code
financial intermediaries and The owners of majority of the outstanding capital stock,
or if there be no capital stock, a majority of the members
3. Other corporations engaged “in business vested with entitled to vote must all be present either in person or
pubic interest similar to the above, as may be through a representative authorized to act by written
determined by the Commission, after taking into account proxy in the elections of directors or trustee.
relevant factors which are germane to the objective and
purpose of requiring the election of an independent When so authorized in the bylaws or by a majority of the
director, such as extent of minority ownership, types of board of directors, the stockholders or members may
financial products or securities, issued or offered to also vote through remote communication or in
investors, public interest involved in the nature of absentia: Provided, that the right to vote through such
business operations, and other analogous factors. modes may be exercised in corporations vested with
public interest, notwithstanding the absence of a
provision in the bylaws of such corporations.
Election of Directors or Trustees (Sec. 23)
The election must be by ballot if requested by any voting
stockholder or member.
CUMULATIVE VOTING
Qualification of Corporate Officer (Sec 24)
Cumulative voting for one candidate A stockholder is
allowed to concentrate his votes and give one candidate 1. President – Must be a director
2. Secretary – Resident and Citizen of the Philippines
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

3. Treasurer- Must be resident primary regulatory agency, or Philippine Competition

4. Other officers as may be provided in by the by laws Commission may impose in its promotion of good
corporate governance or as a sanction in its
Apply to all: administrative proceedings.

Possess all qualifications and none of the

disqualifications.
Removal of Director or Trustees (Sec. 27)

Concurrent positions of corporate officer Any Director or Trustee of a corporation may be

removed from office, with or without cause.
1. President + Secretary = Not allowed
2. President + Treasurer = Not allowed Removal without cause may not be used to deprive
3. Secretary + Treasurer = Allowed minority stockholders or members of the right of
representation to which they may be entitled under
By laws may provide for the qualifications of the director Section 23.
such as:
Other requisites:
a. At least 25 years old
b. Have some experiences in business, finance or law (1) By a vote of the stockholders holding or representing
c. Disqualify anyone who is competing with a corporation 2/3 of the outstanding capital stock, or if the corporation
be a non-stock corporation, by a vote of 2/3 of the
As long as the qualifications imposed are reasonable members entitled to vote
and not meant to unjustly or unfairly deprive the minority
of the rightful representation in the Board of Directors, it 2) At a regular or special meeting after proper notice is
is valid. given

Disqualification of Directors, Trustees or Officers The Securities and Exchange Commission shall, motu
(Sec 26) propio or upon verified complaint, and after due notice
and hearing, order the removal of a director or trustee
A person shall be disqualified from being a director, elected despite the disqualification, or whose
trustee or officer of any corporation if, within five (5) disqualification arose or is discovered subsequent to an
years prior to the election or appointment as such, the election. The removal of a disqualified director shall be
person was: without prejudice to other sanctions that the Commission
may impose on the board of directors or trustees who,
with knowledge of the disqualification, failed to remove
(a) Convicted by final judgment: such director or trustee.

(1) Of an offense punishable by imprisonment

for a period exceeding six (6) years; Vacancies in the office of director (Sec . 28)

(2) For violating this Code; and 1. Other than removal by the stockholders or members
or expiration of term – Majority of the remaining directors
(3) For violating Republic Act No. 8799, or trustees if still constituting quorum.
otherwise known as "The Securities Regulation Code";
2. Removal by stockholder or members or expiration of
term or increase in number of director other than
(b) Found administratively liable for any offense involving
(removal, expiration or increase) but was referred to the
fraudulent acts; and
BOD to the stockholders- Stockholders or members in
the regular or special meeting called for that purpose.
(c) By a foreign court or equivalent foreign regulatory
authority for acts, violations or misconduct similar to
When the vacancy is due to term expiration, the election
those enumerated in paragraphs (a) and (b) above.
shall be held no later that the day of such expiration at a
meeting called for that purpose. When the vacancy
The foregoing is without prejudice to qualifications or arises as a result of removal by the stockholders or
other disqualifications, which the Commission, the
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

members, the election may be held on the same day of Directors or trustees shall not participate in the
the meeting authorizing the removal and this fact must determination of their own per diems or compensation.
be so stated in the agenda and notice of said meeting. In Liability of Corporate Officers (Sec 30)
all other cases, the election must be held no later than
forty-five (45) days from the time the vacancy arose. A
director or trustee elected to fill vacancy shall be referred Liability: Jointly and severally for all damages suffered by
to as replacement director or trustee elected to fill a the corporation, stockholders or members and other
vacancy shall be referred to as replacement director or person when such director is trustee
trustee and shall serve only for the unexpired term of the
predecessor in office. 1. Knowingly vote for or assent to patently unlawful acts
of the corporation (Duty of obedience)
However, when the vacancy prevents the remaining 2. Guilty of gross negligence or bad faith in directing the
directors from constituting a quorum and emergency affairs of the corporation (Duty of Diligence)
action is required to prevent grave, substantial, and 3. Acquire any personal or pecuniary interest in conflict
irreparable loss or damage to the corporation, the with their duty as director or trustee (Duty of loyalty)
vacancy may be temporarily filled from among the
officers of the corporation by unanimous vote of the Dealings of directors, trustees or officers with the
remaining directors or trustees. The action by the corporation (Sec 31)
designated director or trustee shall be limited to the
emergency action necessary, and the term shall cease General rule: A contract of the corporation with one or
within a reasonable time form the termination of the more of its directors or trustees is VOIDABLE, at the
emergency or upon election of the replacement director option of such corporation.
or trustee, whichever comes earlier. The corporation
must notify the Commission within three (3) days from Exception: Such contract is VALID if all of the following
the creation of the emergency board, stating therein the conditions are present:
reason for its creation.
(1) That the presence of such director or trustee in the
board meeting in which the contract was approved was
Compensation of Directors (Sec 29)
not necessary to constitute a quorum for such meeting;
(2) That the vote of such director or trustee was not
General Rule:
necessary for the approval of the contract
(3) That the contract is fair and reasonable under the
No compensation except for reasonable per diems
circumstances;
(4) In case of corporations vested with public interest,
Exception:
material contracts are approved by atleast (2/3) of the
entire membership of the board, with atleast a majority of
Provided for in by laws
the independent directors voting to approve the material
contract; and
1. Vote of the stockholders representing at least a
(5) In case of an officer, the contract has been previously
majority of the outstanding capital stock at regular or
authorized by the board of directors.
special meeting.
2. Total yearly compensation shall not exceed 10% of
Ratification:
the net income before income tax of the preceding year.
In case of absence of the first 3 conditions above,
The position of being chairman and Vice-Chairman, like
contract may be ratified if:
that of treasurer and secretary, are not considered
directorship positions but officership positions that would
(1) Stockholders representing at least 2/3 of the
entitle the occupants to compensation. Likewise, the
outstanding capital stock or at least 2/3 of the members
limitation placed under Sec. 29 of the Revised
in a meeting called for the purpose voted to ratify the
Corporation Code that directors cannot receive
contract.
compensation exceeding 10% of the net income of the
(2) Full disclosure of the adverse interest of the directors
corporation would not apply to the compensation given
or trustees involved is made at such meeting.
to such positions since it is being given in their capacity
(3) Contract is fair and reasonable under the
as officers of the corporation and not as board members.
circumstances
(Western Institute of Technology v. Salas, 1997)
Interlocking Directors (Section 32)
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

X Corporation sold a parcel of land worth P500,000.00 to

Section 32 recognizes as valid a contract between two Y Corporation for only P300,000.00. Z is a board
or more corporations which have interlocking directors member of both corporations.
(i.e., one, some, or all of the directors in one corporation
is / are also director / directors in another corporation) as Evidently, the contract is not fair and reasonable and is,
long as there is no fraud and the contract is fair and therefore, voidable on that ground. But if the contract is
reasonable under the circumstances. However, if the fair and reasonable under the circumstances and Z's
interest of the interlocking director in one corporation is interest in X Corporation is merely nominal and in Y
substantial, i.e., his stockholdings exceed 20% of the Corporation substantial, the conditions in Section 31
outstanding capital stock and in the other merely must be present insofar as X Corporation is concerned,
nominal, i.e., his stockholdings do not exceed 20%, the on the theory that the contract of X Corporation is with Z.
rules of Section 31 on self-dealing directors shall apply
insofar as the latter corporation is concerned. However, if Z's interest in both corporations is nominal or
is substantial, the provisions of Section 31 do not apply
but the contract shall be valid only if there is no fraud
and the contract is fair and reasonable under the
circumstances. The corporation which seeks to uphold
If the interests of the interlocking director in the the contract has the burden to show that it is fair and
corporations are both substantial (stockholdings reasonable.
exceed 20% of outstanding capital stock).
Disloyalty of a director (Section 33)
General rule: A contract between two or more
corporations having interlocking directors shall not be Where a director, by virtue of his office, acquires for
invalidated on that ground alone. himself a business opportunity which should belong to
the corporation thereby obtaining profits to the prejudice
Exception: If contract is fraudulent or not fair and of such corporation, he must account to the latter for all
reasonable under the circumstance. such profits by refunding the same, unless his acts has
been ratified by a vote of the stockholders owning or
If the interest of the interlocking director in one of the representing atleast 2/3 of the outstanding capital stock.
corporations is nominal (stockholdings 20% or less) This provision shall be applicable notwithstanding the
while substantial in the other, the contract shall be facts that the director risked his own funds in the
VALID, if the following conditions are met: venture.

(1) The presence of such director or trustee in the board

meeting in which the contract was approved was NOT Executive, Management and other Special
necessary to constitute a quorum for such meeting Committees (Section 34)
(2) That the vote of such director or trustee was not
necessary for the approval of the contract 1. Executive Committee
(3) That the contract is fair and reasonable under the
circumstances a. The by-laws of a corporation may create and
Where (1) and (2) are absent, the contract can be ratified executive committee, composed of not less than 3
by the vote of the stockholders representing at least 2/3 members of the board, to be appointed by the board.
of the outstanding capital stock or at least 2/3 of the b. Said committee may act, by majority vote of all its
members in a meeting called for the purpose voted to members, on such specific matters within the
ratify the contract, provided that: competence of the board, as maybe delegated to it in the
by-laws or on a majority vote of the board.
(a) Full disclosure of the adverse interest of the Executive committees have no power to:
directors/trustees involved is made on such meeting;
(b) The contract is fair and reasonable under the a) Approval of any action for which shareholders'
circumstances approval is also required;
(b) Filing of vacancies in the board;
(c) Amendment or repeal of bylaws or the adoption of
ILLUSTRATION: new bylaws;
(d) Amendment or term is not amendable or repealable;
and
(e) Distribution of cash divendends to the shareholders.
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

(j) To establish pension, retirement, and other

2. The board of directors may create special committees plans for the benefit of its directors, trustees,
of temporary or permanent nature and determine the officers, and employees; and
members, term, composition, compensation, powers and
responsibilities. (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
CORPORATE POWERS AND CAPACITY incorporation.

The Corporation has implied powers which are deemed

Every corporation incorporated under this Code has the to exist because of the following provisions:
power and capacity: (Sec 36)
(1) “Except such as are necessary or incidental to the
(a) To sue and be sued in its corporate name; exercise of the powers so conferred”
(2) “Such powers as are essential or necessary to carry
(b) To have perpetual existence unless the out its purpose or purposes as stated in the AOI” –
certificate of incorporation provides otherwise; catch-all phrase

(c) To adopt and use a corporate seal;

Power to Extend or Shorten Corporate Term (Sec 37)
(d) To amend its articles of incorporation in Under this code, a corporation has perpetual existence.
accordance with the provisions of this Code; This rule applies to an existing corporation, whose article
of incorporation shall be deemed to reflect its perpetual
(e) To adopt bylaws, not contrary to law, morals term, unless the corporation (by majority vote of
or public policy, and to amend or repeal the shareholders or member) elects to retain its limited term.
same in accordance with this Code;
With regards with corporation limited term, such term
(f) In case of stock corporations, to issue or sell may be extended or shortened through amendments of
stocks to subscribers and to sell treasury stocks its article of incorporation when approved by a majority
in accordance with the provisions of this Code; vote of the board of directors or trustees, and ratified at a
and to admit members to the corporation if it be meeting by the stockholders or members representing at
a nonstock corporation; least two-thirds (2/3) of the outstanding capital stock or
of its members. Generally, an extension may be made
(g) To purchase, receive, take or grant, hold, no earlier than 3 years prior to the end of its term.
convey, sell, lease, pledge, mortgage, and
otherwise deal with such real and personal Power to increase or Decrease Capital Stock; Incur,
property, including securities and bonds of other Create or Increase Bonded Indebtedness (Sec 37)
corporations, as the transaction of the lawful
business of the corporation may reasonably and Approved by a majority vote of the board of directors and
necessarily require, subject to the limitations by two-thirds (2/3) of the outstanding capital stock at a
prescribed by law and the constitution; stockholders' meeting duly called for the purpose. 

Written notice of the time and place of the stockholders'

(h) To enter into a partnership, joint venture,
meeting and the purpose for said meeting must be sent
merger, consolidation, or any other commercial
to the stockholders at their places of residence as shown
agreement with natural and juridical persons;
in the books of the corporation served on the
stockholders personally, or through electronic means
(i) To make reasonable donations, including recognized in the corporation's bylaws and/or the
those for the public welfare or for hospital, Commission's rules as a valid mode for service of
charitable, cultural, scientific, civic, or similar notices
purposes: Provided, That no foreign corporation
shall give donations in aid of any political party
or candidate or for purpose s of partisan political
activity;
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

Certificate must be signed by a majority of the directors Decrease in capital stock generally results in the return
of the corporation and countersigned by the chairperson of capital. Such return of capital must not prejudice the
and secretary of the stockholders' meeting, setting forth: rights of creditors.

(a) That the requirements of this section have There is no prejudice to creditors if they have been
been complied with; informed of such possible or planned returned of capital
at the time they extend credit to the corporation.
(b) The amount of the increase or decrease of
the capital stock;
Nonstock corporations
(c) In case of an increase of the capital stock, They may incur, create or increase bonded indebtedness
the amount of capital stock or number of shares when approved by a majority of the board of trustees
of no-par stock thereof actually subscribed, the and of at least two-thirds (2/3) of the members in a
names nationalities and addresses of the meeting duly called for the purpose.
persons subscribing, the amount of capital stock
or number of no-par stock subscribed, the Bonds issued by a corporation shall be registered with
names, nationalities and addresses of the the Commission, which shall have the authority to
persons subscribing, the amount of capital stock determine the sufficiency of the terms thereof.
or number of no-par stock subscribed by each,
and the amount paid by each on the subscription
in cash or property, or the amount of capital Power to Deny Pre-emptive Right (Sec 38)
stock or number of shares of no-par stock
allotted to each stockholder if such increase is A share subscription gives the subscriber certain
for the purpose of making effective stock proportionate economic and political rights. Economic
dividend therefor authorized; right refers to the right to receive dividends and capital in
case of liquidation, while Political rights refer to the right
(d) Any bonded indebtedness to be incurred, to be nominated to the board and to approve certain
created ot increased; corporate actions.

(e) The amount of stock represented at the To maintain such rights, the law permits a shareholder to
meeting; and proportionately subscribe to new issuance or re-issuance
of the corporation shares. This is called “Pre-emptive
(f) The vote authorizing the increase or decrease rights”
of capital stock, or incurring, creating or
increasing of bonded indebtedness. All Shareholders of a Stock Corporation have pre-
emptive right to subscribe to all issues or disposition of
shares of any class, in proportion to their respective
Any increase or decrease in the capital stock or the
shareholdings
incurring, creating or increasing of any bonded
indebtedness shall require prior approval of the
Commission and where appropriate, of the Philippine
Except:
Competition Commission. The application with the
1. If such right is denied by the AOI or an amendment
Commission shall be made within six (6) months from
thereto
the date of approval of the board of directors and
2. Shares to be issued in compliance with laws requiring
stockholders, which period may be extended for
stock offerings or minimum stock ownership by the
justifiable reasons.
public
3. Shares to be issued in good faith with the approval of
Increase in Capital Stock
2/3 of the stockholders representing outstanding capital
stock, in exchange for property needed for corporate
In case of increase in capital stock, 25% of the increase
purposes or in payment of a previously contracted debt.
must be subscribed and 25% of such subscription and
25% of such subscription must be paid.
Sale or other disposition of assets (Sec 39)
Decrease in Capital Stock
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

1. Sell, lease, exchange, mortgage, pledge, or otherwise 2. If the proceeds of the sale or other disposition of such
dispose of its property and assets (not all or substantially property and assets be appropriated for the conduct of
all) its remaining business.
* Majority vote of its board of directors or trustees
Power to acquire shares (Sec 40)
2. A sale of all or substantially all of the corporation’s
properties and assets, including its goodwill. The power to purchase or acquire its own shares for a
A sale or other disposition shall be deemed to cover legitimate corporate purpose or purposes, including the
substantially all of the corporate property and assets if following cases:
thereby the corporation would be rendered incapable of
continuing the business or accomplishing the purpose (a) To eliminate fractional shares arising out of
for which it was incorporated. stock dividends;
The determination of whether or not the sale involves all
or substantially all of the corporation’s properties and (b) To collect or compromise an indebtedness to
assets must be computed based on its net asset value, the corporation, arising out of unpaid
as shown in its latest financial statements. subscription, in a delinquency sale, and to
purchase delinquent shares sold during said
1. Subject to the provisions of RA 10667 or Philippine sale; and
Competition Act and other related laws
(c) To pay dissenting or withdrawing
2. Majority vote of its board of directors or trustee and stockholders entitled to payment for their shares
authorized by the vote of the stockholders representing under the provisions of this Code.
at least (2/3) of the outstanding capital stock or at least
2/3 of the members in a stockholders or members 2. Corporation has unrestricted retained earnings in the
meeting duly called for the purpose. books to cover the shares to be purchased or acquired.

3. Written notice of the proposed action and of the time Unrestricted retained earnings means the amount of
and place for the meeting shall be addressed to accumulated profits and gains realized out of the normal
stockholders or members at their places of residence as and continuous operation of the company after deducting
shown in the books of the corporation and deposited to therefrom distributions to stockholders and transfers to
the addressee in the post office with postage prepaid or capital stock or other accounts and which is (1) not
served personally. appropriated by its Board of Directors for corporate
expansion projects or programs; (2) not covered by a
4. Exercise Appraisal right restriction for dividend declaration under a loan
agreement and (3) not required to be retained under
Right of appraisal is the right to withdraw from the special circumstances obtaining in the corporation such
corporation and demand payment of the fair value of the as when there is a need for a special reserve for
shares after dissenting from certain corporate acts probable contingencies.
involving fundamental changes in corporate structure.
Investment of Fund in another Corporation (Not
5. After such authorization or approval by the primary purpose) (Sec 41)
stockholders or members, the board of directors or
trustees may abandon such sale, lease, exchange, 1. Majority of the board of directors or trustees and
mortgage, pledge, or other disposition of property and ratified by the stockholders representing at least two-
assets, subject to the rights of third parties without thirds (2/3) of the outstanding capital stock, or by at least
further approval by the stockholder or member two-thirds (2/3) of the outstanding capital stock, or by at
least two-thirds (2/3) of the members in the case of
nonstock corporations at a meeting duly called for the
purpose.
No vote of stockholder is required
2. Notice of the proposed investment and the time place
1. Sale of asset which is necessary in the usual and of residence as shown in the books of the corporation
regular course of business or and deposited to the addressee in the post office with
the postage prepaid. Served personally, or sent
electronically in accordance with the rules and
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

regulations of the Commission on the use of electronic Power to enter into management contract (Sec 43)
data message, when allowed by the bylaws or done with
the consent of the stockholders. No corporation shall conclude a management contract
with another corporation (Also apply to any contract
3. Any dissenting stockholder shall have appraisal right where by a corporation undertakes to manage or operate
provided that the investment by the corporation is all or substantially all of the business of another
reasonably necessary to accomplish its primary purpose corporation, whether such contracts are called service
as stated in the articles of incorporation, the approval of contract, operating agreements or otherwise) unless
the stockholders or members shall not be necessary. such contract shall have been approved by the Board of
Directors and by Stockholders owning at least majority of
Power to declare Dividend (Sec 42) the outstanding capital stock or by at least majority of the
member in case of non-stock corporation of both the
Cash/Property Stock Dividend managing and the managed corporation at a meeting
Dividend dully called for the purpose.

Delinquent 1st applied to Withheld until his

unpaid balance unpaid
on the subscription is fully Exception:
subscription plus paid
cost and The management contract must be approved by the
expense stockholders of the managed corporation owning at least
two-thirds (2/3) of the total outstanding capital stock
Approval of Without approval Approval of the entitled to vote, or by at least two-thirds (2/3) of the
the of stockholders outstanding capital members in the case of a nonstock corporation, in the
stockholder stock following instances:
(Regular/special
meeting called for (a) where a stockholder or stockholders representing the
the purpose) same interest of both the managing and the managed
corporations own or control more than one-third (1/3) of
the total outstanding capital stock entitled to vote of the
managing corporation; or
Prohibited from retaining surplus profit
(b) where a majority if the members of the board of
Corporation prohibited to retain surplus profit directors of the managing corporation also constitute a
(unaapropriated retained earnings) in exceed of 100% of majority of the members of the board of directors of the
their paid in capital managed corporation

Exception: These shall apply to any contract whereby a corporation

undertakes to manage or operate all or substantially all
(a) when justified by the definite corporate expansion of the called services contracts, operating agreements or
projects or programs approved by the board of directors; otherwise, that such service contracts or operating
or agreements which relate to the exploration, development
exploitation or utilization of natural resources may
(b) when the corporation is prohibited under any loan entered into such periods as may be provided by the
agreement with financial institutions or creditors, whether pertinent laws or regulations.
local or foreign, from declaring dividends without their
consent, and such consent has not yet been secured; or Term of Management Contract

(c) when it can be clearly shown that such retention is No management contracts shall be entered into for
necessary under special circumstances obtaining in the period longer that five (5) years for any one term.
corporation, such as when there is need for special
reserve for probable contingencies. Exception:

(d) Additional provided by law That such service contracts or operating agreements
which relate to the exploration, development exploitation
or utilization of natural resources may entered into such
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

periods as may be provided by the pertinent laws or (1) Where the contract or act is illegal per se, it is wholly
regulations. void or inexistent. It cannot be ratified or validated
(2) Where the contract or act is not illegal per se but
Ultra Vires acts of Corporation (Sec 44) merely beyond the power of a corporation, the same is
merely voidable and may be enforced by performance,
No corporation shall possess or exercise corporate ratification, or estoppel, or on equitable grounds.
powers other than those conferred by this Code or by its
articles of incorporation and except as necessary or
incidental to the exercise of the powers conferred.

ULTRA VIRES AND INTRA VIRES

According to the strict construction of the term, an ultra

vires act is one not within the express, implied, and
incidental powers of the corporation conferred by the
Corporation Code or articles of incorporation. It is an act
which is not positively forbidden, but impliedly forbidden
because not expressly or impliedly authorized or
necessary or incidental in the exercise of the powers so
conferred.

Acts or transactions within the legitimate powers of a

corporation or are related to its purposes are said to be
intra vires.

Illustration:

(1) A corporation was organized for the purpose of

engaging in the buying and selling of home appliances.
The act of buying and selling motor vehicles would be
ultra vires although it is itself lawful because it is outside
the object for which the corporation is created and,
therefore, beyond its powers.

The buying and selling of refrigerators would be intra

vires.

(2) A corporation was organized to engage in the

business of manufacturing a particular product.
Marketing and selling the product may be logically
necessary to the business of manufacturing, considering
that there must be an end-user for the goods
manufactured or produced.

A seller, trader, dealer or importer of goods is not

necessarily or indispensably the manufacturer of the
goods. Therefore, manufacturing cannot be treated as
reasonably necessary to the business of the selling thus
it is Ultra Vires.

Ratification of ultra vires acts