martin, m.d.

, public servant
State the historical background of the Revised Corporation Code (RCC).
▪ RA 11232, otherwise known as the Revised Corporation Code (hereafter referred to
as RCC), was approved by Congress on February 20, 2019.
▪ It was signed into law by President Rodrigo R. Duterte on February 21, 2019 and took
effect on February 23, 2019, upon completion of its publication in Manila Bulletin and
Business Mirror, two newspapers of general circulation.
▪ It repealed the 38-year old Batas Pambansa Blg. 68, otherwise known as the
Corporation Code of the Philippines, (hereafter referred to as OCC).
What are the changes introduced by the amendments?
▪ The law promotes ease of doing business, hence, the provisions, among others, on one-
person corporation; the option of the corporation to have perpetual existence; and
the elimination of the minimum subscription requirement upon incorporation.
▪ It also adopted best practices on good corporate governance. For instance, the RCC
requires certain items to be contained in the by-laws, minutes, and agenda of regular
stockholders’ meetings, all aimed at fostering transparency.
▪ The RCC also afforded greater protection to minority stockholders. Thus, it
expanded the list of books and records required to be kept by the corporation which
should be made available to stockholders for examination, and widened the remedies
available in case of violation of stockholders’ right of inspection.
▪ It also codified internationally-accepted practices and norms on conducting
businesses; allowing the right to vote through electronic communication and sending
notices of meeting electronically and provisions for an arbitration mechanism to
resolve disputes within the corporation are good examples.
What are the changes introduced by the amendments? – Cont.
▪ Finally, it strengthened the powers of the Securities and Exchange Commission
(hereafter referred to as the SEC) to be able to fully exercise its regulatory
authority over corporations. Specifically, it enumerated enforcement provisions and
authorized the SEC to administer, investigate, and prosecute violations of the RCC
provisions.
What is a corporation?
▪ A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributed and properties expressly authorized by law or
incidental to its existence. (S2, RCC)
What are the attributes of a corporation?
▪ The attributes of a corporation are drawn from its statutory definition.
▪ It is an artificial being.
▪ It is created by operation of law.
▪ It has the right of succession.
▪ It has the powers, attributes, and properties expressly authorized by law or incidental to its
existence.
Explain the attribute that the corporation is an artificial being.
▪ By this, it means that the law regards a corporation as a juridical person, with a legal
personality separate and distinct from the persons composing it.
▪ As a juridical person, it may own properties, exercise rights, and incur obligations
independently of the persons composing it.
▪ Can the corporation invoke the right against unreasonable search and seizure? How
about the right against self-incrimination?
▪ May a corporation sue for moral damages?
▪ May a corporation be criminally prosecuted?
Explain the attribute that a corporation is created by operation of law.
▪ A corporation is not created by mere agreement of the incorporators nor by their
execution of the articles of incorporation. There ought to be a law from which the
corporation derives its legal existence.
▪ This may be a general law governing the formation of private corporations, which is
the RCC, or a special law passed by Congress to create a GOCC.
▪ Since February 8, 1935, the legislature has not passed a single law creating a private
corporation. This is because the Constitution itself precludes the passage of such
statute, particularly, Sec. 16, Article XII of the 1987 Constitution which states that
“The Congress shall not, except by general law, provide for the Formation,
Organization or Regulation of private corporations.”
▪ Thus, a law enacted by the legislature to create a private corporation is
unconstitutional.
Explain the attribute that it has the right of succession.
▪ The right of succession of a corporation does not connote that a corporation is
immortal.
▪ It simply means that it has the power to exist continuously, either by opting to have
perpetual existence or to extend its corporate life if a fixed term is specified in its
AOI.
▪ Its capacity for continued existence is not affected by any changes in the
composition of corporators.
Explain the attribute that it has the powers, attirbutes and properties expressly authorized by law or
incidental to its existence.
▪ This means that a corporation can only exercise powers conferred upon it by law, its
AOI, those implied from the conferred powers, or incidental to its existence.
▪ Any act of the corporation contrary to or outside these powers is ultra vires.
▪ The test is whether the corporate act or transaction is related to or in furtherance
of the purposes of the corporation.
Other concerns.
▪ Distinguish a corporation from other forms of bus. organizations.
▪ Advantages of a corporation from other forms of bus. organizations.
▪ Disadvantages of a corporation from other forms of bus. organizations.
What is the doctrine of separate legal entity?
▪ This doctrine, which emanates from the attribute of a corporation as an artificial
being, means that the corporation has a legal personality separate and distinct from
the stockholders, directors, and officers composing it.
What is the doctrine of piercing the veil of corporate fiction?
▪ It is the doctrine that allows the State to disregard, for certain justifiable reasons,
the notion or fiction that the corporation has a separate legal personality from those
composing it.
▪ The doctrine of separate legal entity is only a fiction to promote public convenience.
If this fiction is misused or abused, then the State shall pierce the corporate veil
and treat the corporation and the persons composing it as one and the same entity.
In what areas does the doctrine apply?
▪ The doctrine of piercing the corporate veil applies in three (3) basic areas, namely:
▪ defeat of public convenience, as when the corporate fiction is used as a vehicle for the
evasion of an existing obligation;
▪ fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or
▪ alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs
are so conducted as to make it merely an instrumentality, agency, conduit or adjucnct of
another corporation. (Case law)
In what areas does the doctrine apply? – Cont.
▪ The doctrine likewise applies in the following cases:
▪ Under a variation of the doctrine of piercing the veil of corporate fiction, when two business
enterprises are owned, conducted and controlled by the same parties, both law and equity
will, when necessary to protect the rights of third parties, disregard the legal fiction that
two corporations are distinct entities and treat them as identical or one and the same. (Case
law)
▪ When the complaint alleges that the directors and/ or officers committed bad faith or
gross negligence in conducting the affairs of the corporation.
What are the elements of the alter ego test?
▪ Case law lays down a three-pronged test to determine the application of the alter ego
theory, which is also known as the instrumentality theory, namely:
▪ instrumentality or control test – control, not mere majority or complete stock control, but
complete domination, not only of finances but of policy and business practice in respect to
the transaction attacked so that the corporate entity as to this transaction had at the time
no separate mind, will or existence of its own;
▪ fraud test – such control must have been used by the defendant to commit fraud or wrong,
to perpetuate the violation of a statutory or other positive legal duty, or dishonest and
unjust act in contravention of plaintiff’s legal right; and,
▪ harm test – the aforesaid control and breach of duty must have proximately caused the
injury or unjust loss complained of.
Is the doctrine of piercing the corporate veil applicable to a non-stock non-profit corporation and natural
persons?
▪ Yes, the fact that the corporation involved is a non-stock non –profit corporation
does not by itself preclude the court from applying the equitable remedy of piercing
the corporate veil.
▪ The equitable character of the remedy permits a court to look to the substance of
the organization and its decision is not controlled by the statutory framework under
which the corporation was formed and operated.
▪ While it may appear to be impossible for a person to exercise ownership control over
a non-stock non-profit corporation, a person can be held personally liable under the
alter ego theory if the evidence shows that the person controlling the corporation did
in fact exercise control even though there was no stock ownership.
What is the doctrine of REVERSE piercing of the corporate veil?
▪ In a traditional veil-piercing action, the court disregards the existence of the
corporate entity so a claimant can reach the assets of a corporate insider (meaning,
the directors, stockholders, and officers).
▪ In reverse piercing action, however, the plaintiff seeks to reach the assets of the
corporation to satisfy claims against corporate insider.
▪ Reverse piercing flows in the opposite direction (of traditional corporate veil-
piercing) and makes the corporation liable for the debt of the shareholders or
members.
▪ Jurisprudence: International Academy of Management and Economics (I/AME) Litton
and Company, Inc. v. Litton and Company, Inc. (Dec. 13, 2017)
What are the effects of piercing the corporate veil? Does it result in the dissolution of the corporation?
▪ The piercing of the corporate veil does not dissolve the corporation. It simply means
that the stockholder and/ or director and/ or officer, whose action/ s became the
basis for the application of the doctrine, and the corporation shall be treated as one
and the same entity.
▪ In traditional piercing the corporate veil, the concerned stockholders, directors/
trustees, and officers become liable for the obligation of the corporation. In reverse
piercing of the corporate veil, the corporation becomes liable for the debts of the
concerned stockholder/ members, directors/ trustees, and officers of the
corporation.
▪ In case the corporation is just an alter ego of another corporation, both corporations
become one and the same entity.
What is a stock corporation?
▪ Has a capital stock divided into shares and is authorized to distribute to the holders
of such shares dividends or allotments of the surplus profits based on the shares
held. (Sec. 3, RCC)
▪ What is the status of the AOI if it only specifies the amount of authorized capital
stock without stating the number of shares by which it is divided?
▪ Not valid

▪ Does the the silence in the AOI and/ or by-laws on the authority of the corporation
to declare dividends make it a non-stock corporation?
▪ No. The provision of the RCC on the power of the corporation to declare dividends SHOULD
BE DEEMED READ INTO THE AOI.
What are the elements of a GOCC?
▪ GOCCs are stock or non-stock corporations vested with functions relating to public
needs, whether governmental or proprietary in nature, that are owned and controlled
by the government directly or through instrumentalities.
▪ Three attributes:
▪ its ORGANIZATION – as stock or non-stock corporation
▪ FUNCTION – public in character
▪ OWNERSHIP – by the government
What are the various tests to determine the nationality of a corporation?
▪ Incorporation
▪ Domiciliary
▪ Control
▪ Grandfather rule
What are the various tests to determine the nationality of a corporation?
▪ Incorporation test – the nationality of the corporation is determined by the state of
incorporation, regardless of the nationality of the stockholders.
▪ Domiciliary test – nationality of the corporation is determined by the principal place
of business of the corporation.
▪ Control test – nationality of the corporation is determined by the controlling
stockholders or members.
▪ Grandfather rule – nationality is attributed to the percentage of equity in the
corporation used in nationalized or partly nationalized area.
▪ A method of determining the nationality of a corporation which in turn is owned in
part by another corporation by breaking down the equity structure of the
shareholder corporation.
▪ It involves the computation of Filipino ownership of a corporation in which another
corporation of partly Filipino and partly foreign equity owns capital stock.
▪ The percentage of shares held by the second corporation in the first is multiplied by
the latter’s own Filipino equity, and the product of these percentages is determined
to be the ultimate Filipino ownership of the subsidiary corporation. (SEC Opinion)
Illustration:

MV Corporation and AC Corporation have equal interest in XYZ Corporation. MV Corporation is 60% owned
by Filipinos while AC Corporation is 50% owned by Filipinos. Is XYZ Corporation a Filipino corp.?

By the grandfather rule, MV Corporation would have a 30% Filipino interest in XYZ Company (60% of
50%), while AC Corporation would have a 25% Filipino interest in XYZ Company (50% of 50%). Hence, the
total Filipino interest is only 55%.

Note: The application of the test is limited to the issues of investment. Only when the corporation is
less than 60% owned by Filipinos shall the grandfather rule be applied.
Illustration:

public utility
ABC 100,000 shares
Outstanding Capital Stock

XYZ Foreigners
60,000 40,000

Filipino Foreigners
60% 40%
In this illustration, ABC is a public utility corporation. Under the Philippine Constitution, at least 60% of
its capital must be owned by Filipinos. The outstanding capital stock is P10M divided into 100,000 shares
with par value of 100/share. Of the 100,000 outstanding shares, 60% is owned by XYZ while 40% is held
by foreigners. XYZ, as investing corporation in ABC, in turn, is 60% owned by Filipinos and 40% owned by
the same foreigners who directly own 40% of ABC Corporation.
Is ABC a Philippine national? Is it compliant with the Constitution insofar as 60% Filipino capital
requirement is concerned?
▪ ABC is a Philippine national and compliant with the Constitution.
Illustration 2:

public utility
ABC 100,000 shares
Outstanding Capital Stock

XYZ Foreigners
90,000 10,000

Filipino Foreigners
50% 50%
In this illustration, XYZ owns 90,000 shares of ABC while 10,000 are held by foreigners. XYZ, in turn, is
50% owned by Filipinos and 50% by foreigners. Is ABC a Philippine national?
▪ It is not.
Who composes a corporation?
▪ Corporators – are those who compose a corporation, whether as stockholders or
shareholders in a stock corporation, or as members in a non-stock corporation.
▪ Incorporators – are those stockholders or members MENTIONED in the AOI as
originally forming and composing the corporation and who are SIGNATORIES
thereof.
▪ BOD – generally elected by the stockholders to conduct the business, control the
property, and exercise corporate powers. They are called Board of Trustees in a non-
stock corporation.
▪ Officers – are those appointed to assist the Board to manage the affairs of the
corporation.
Who is a promoter?
▪ Is a person who brings about or causes to bring about the formation and organization
of a corporation by bringing together the incorporators or the persons interested in
the enterprise, procuring subscriptions or capital to the corporation and setting in
motion the machinery which leads to the incorporation of the corporation itself. (De
Leon; Corporation Code, Annotated)
▪ The promoter is NOT any sense the agent of the corporation before it comes to
existence.
▪ How would you now treat the contracts entered into by the promoters of the
corporation in its own behalf?
What is the tri-level hierarchy of authority in the corporation?
▪ The BOD, which is responsible for corporate policies and the general management of
the business affairs of the corporation;
▪ the OFFICERS, who in theory execute the policies laid down by the board, but in
practice often have wide latitude in determining the course of business operations;
and
▪ the STOCKHOLDERS who have the residual power over fundamental corporate
changes, like amendments of the AOI.
What are the distinctions between corporators and incorporators?
▪ Incorporators are mentioned in the AOI x x x, whereas corporators are those who
compose a corporation whether stockholders or members.
▪ Incorporators are corporators while corporators are not necessarily incorporators.
▪ Incorporators in a stock corporation should not exceed 15 whereas the number of
corporators may exceed 15 taking into account the number of authorized shares of
the corporation.

▪ Under the OCC, the majority of the incorporators should be residents of the
Philippines while no such requirement is imposed on corporators under the RCC.
Similarly, except for corporation sole, the number of incorporators should not be less
than 5. These distinctions no longer hold under the RCC because the requirement of
RESIDENCY for incorporators was removed and a ONE-PERSON CORPORATION is
now allowed.
P2
Revisions:
▪ Preneed companies and other corporations authorized to obtain or access funds from
the public, whether publicly listed or not, were included in the enumeration of
corporations that are not permitted to issue no-par value shares of stock.
▪ The word “authorized” was prefixed before the term “capital stock”.
What are shares of stock?
▪ Shares of stock are forms of securities representing equity ownership in a
corporation, divided up into units.
▪ They are the measure of the stockholder’s proportionate interest in the corporation
in terms of the right to vote and to receive dividends, as well as the right to share in
the assets of the corporation when distributed in accordance with law and equity.
What are shares of stock?
▪ Shares of stock are forms of securities representing equity ownership in a
corporation, divided up into units.
▪ They are the measure of the stockholder’s proportionate interest in the corporation
in terms of the right to vote and to receive dividends, as well as the right to share in
the assets of the corporation when distributed in accordance with law and equity.
What is the doctrine of equality of shares?
▪ It means that all stocks issued by the corporation are presumed equal, with the same
privileges and liabilities, provided that the AOI is silent on such differences. (Case
law)
▪ Stated otherwise, each share shall be equal in all respects to every other share,
except as otherwise provided in the AOI and the COS. (S6, RCC)
▪ Any restriction on shares should be stated in the AOI, otherwise, it is not valid.
(Case law)
What are the classes of shares?
▪ The shares in stock corporations may be divided into classes or series of shares, or
both. These are as follows:
C ▪ Common shares
P ▪ Preferred shares
P ▪ Par value shares
N ▪ No par value shares
V ▪ Voting shares
N ▪ Non-voting shares
C ▪ Classification to comply with Constitutional or legal requirements
F ▪ Founder’s shares
T ▪ Treasury shares
R ▪ Redeemable shares
W ▪ Watered shares
O ▪ Other classification as may be provided in the AOI, provided it is not contrary to law.
What are common shares of stock?
▪ These are the basic class of stock ordinarily and usually issued without privileges or
advantages except that they cannot be denied the right to vote.
▪ Owners of these shares are entitled to a pro-rata share in the profits of the
corporation and in its assets upon dissolution and liquidation and, in the management
of its affairs.
What are preferred shares of stock?
▪ These are shares of stock that are given certain preferences as may be provided in
the AOI but may be denied the right to vote.
What preferences may be given to preferred shares?
▪ A preferred share of stock’s most common forms may be classified into two:
▪ preferred shares as to assets; and
▪ preferred shares as to dividends
Distinguish preference as to assets from preference as to dividends?
▪ The former is a share which gives the holder thereof the preference in the
distribution of the assets of the corporation in case of liquidation while –
▪ the latter is a share which makes the holder entitled to receive dividends to the
extent agreed upon before any dividends at all are paid to the holders of common
stock. (Case law)

▪ The holders of preference shares of stock may also be given other preferences as
may be provided in the AOI. (S6, RCC)

▪ The BOD, where authorized in the AOI, may also fix the terms and conditions of
preferred shares of stock or any series thereof:
▪ Provided, further, that such terms and conditions shall be effective upon the filing of
a certificate thereof with the SEC. (S6, RCC)
Are holders of preferred shares creditors of the corporation?
▪ The preferences granted to the holders of the preferred stockholders do not give
them a lien upon the property of the corporation nor make them creditors of the
corporation, the right of the former being always subordinate to the latter. (Case
law)
Are holders of preferred shares compel the payment of dividends in all cases?
▪ No.
What are the kinds of preferred shares as to dividends?
▪ Cumulative preferred shares – this means that the stipulated dividend on this type of
preferred shares, if not paid on any given year, shall be added to the dividends which
shall be due the following year/s, and
▪ holders of said preferred shares shall be paid the accumulated dividends during the
accumulated period before the dividends are paid to the holders of common shares.
(In other words, dividends in arrears)

▪ Non-cumulative preferred shares – this means that if dividends are not declared for
a particular year within the covered period, the right to receive dividend for such
year is extinguished.
What are the kinds of preferred shares as to dividends?
▪ Participating preferred shares – this means that after payment of the dividends due
to the shares (preferred), the holder thereof is entitled to participate in the
remaining dividends with the holders of the common shares based on the amount
specified in the agreement, otherwise, in proportion to the common shares.

▪ Non-participating preferred shares – this means that after receiving the dividend
due on the shares (preferred), the remaining dividends are distributed
proportionately to holders of the common shares.
What are par value shares?
▪ Par value shares are those with a fixed arbitrary amount specified in the AOI and in
the stock certificate.
▪ Par value represents the minimum amount of consideration for the issuance of shares.
▪ Shares issued below par value are considered watered stocks. (S64, RCC)
Is par value the actual value of shares? Define the terms book value and fair value.
▪ Par value is neither the book value nor the fair market value of the shares.
▪ Par value is an arbitrary amount that the corporation, through the incorporators or
the BOD, has fixed.

▪ Book value is a market value ratio that wiehgs shtockholders’ equity against
outstanding shares.
▪ It is based on the formula: Company’s assets minus liabilities divided by the number
of shares outstanding. It is sometimes referred to as stockholder’s equity.

▪ Fair market value is the price for which a seller could sell his shares to a willing buyer
when neither of them has to sell or buy and both of them know the relevant facts.
Is par value the actual value of shares? Define the terms book value and fair value.
▪ Thus, the par value may be fixed at P10 per share, the book value can be higher than
par (based on the formula already given) and yet, the share may be sold (fair value)
higher or lower than par or book value depending on the determination by the seller
and buyer of the actual worth of the shares – for which are they willing to enter into
a sale and purchase contract.
What is a no-par value stock?
▪ It is a stock without par value on the face of the stock certificate.
▪ No-par value shares can be issued for varying amounts provided that the value or
price for every issuance is not less than P5 per share.
Who determines the issued price of no-par value shares?
▪ The issued price of no-par value shares may be fixed in the AOI or
▪ by the BOD pursuant to authority
▪ conferred by the AOI or the bylaws, or if not so fixed, by the stockholder
representing at least a majority of the OCS at a meeting duly called for the purpose.
(S61, RCC)
Comment as to when the issued price is fixed in the AOI as compared when it is fixed by the BOD.
What are the limitations on the issuance of no-par value shares?
▪ The limitations on the issuance of no-par value shares are as follows:
▪ Banks, trust, insurance, and preneed companies, public utilities, building and loan associations,
and other corporations authorized to obtain or access funds from the public, whether publicly
listed or not, shall not be permitted to issue no-par value shares of stock. (MAKE A MNEM)
▪ Preferred shares of stock may be issued only with a stated par value.
▪ Shares of capital stock issued without par value shall be deemed fully paid and non-assessable
and the holder of such shares shall not be liable to the corporation or its creditors in respect
thereto.
▪ No par value shares must be issued for a consideration of at least five pesos (P5) per share.
▪ The entire consideration received by the corporation for its no par value shares shall be
treated as capital and shall not be available for distribution as dividends.
What are voting shares?
▪ Shares which can vote on all corporate acts requiring stockholders’ approval.
▪ The corporation should always have voting shares.
What are non-voting shares?
▪ Shares that are denied the right to vote in the AOI.
▪ Provided, however, that there shall always be a class or series of shares which have
complete voting rights.
What classes of shares may be denied the right to vote?
▪ No share may be deprived of voting rights except those classified and issued as
preferred or redeemable shares. (S6, RCC)
▪ How about treasury shares? Is there a need to deny them such right to vote in the
AOI? How about delinquent shares? (S70, RCC)
In what instances does the law vest the right to vote for non-voting shares?
▪ Holders of non-voting shares shall be entitled to vote on the following matters:
▪ Amendment of the AOI;
▪ Adoption and amendment of the bylaws;
▪ Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the
corporate property; (SLEMPO)
▪ Incurring, creating, or increasing bonded indebtedness;
▪ Increase or decrease of authorized capital stock;
▪ Merger or consolidation of the corporation with another corporation or other corporations;
▪ Investment of corporate funds in another corporation or business in accordance with the
RCC; and
▪ Dissolution of the corporation. (MAKE A MNEM)

▪ Except as provided in the immediately preceding paragraph, the vote required to

approve a particular corporate act under the RCC shall be deemed to refer only to
stocks with voting rights.
Revisions:
▪ The RCC made it clear that the exclusive right of the holders of the founders’ shares
to vote and be voted as directors shall not be allowed if its exercise will violate CA
No. 108, otherwise knows as the “Anti-Dummy Law; RA No. 7042, otherwise known as
the “Foreign Investments Act of 1991; and other pertinent laws.
▪ The five-year limitation is counted from the date of incorporation and not from SEC’s
approval.
What are founders’ shares?
▪ These are shares classified as such in the AOI which may be given certain rights and
privileges not enjoyed by the owners of other stocks.
▪ Where the exclusive right to vote and be voted for in the election of directors is
granted, it must be for a limited period not to exceed five (5) years from the date of
incorporation: Provided, that such exclusive right shall not be allowed if its exercise
will violate CA No. 108; RA No. 7042; and other pertinent laws. (S7, RCC)
▪ Note that only the exclusive right to vote and be voted for in the election of
directors is subject to a limited period of five years from the date of incorporation.
What are redeemable shares?
▪ These are shares classified as such in the AOI which may be given certain rights and
privileges not enjoyed by the owners of other stocks.
▪ Where the exclusive right to vote and be voted for in the election of directors is
granted, it must be for a limited period not to exceed five (5) years from the date of
incorporation: Provided, that such exclusive right shall not be allowed if its exercise
will violate CA No. 108; RA No. 7042; and other pertinent laws. (S7, RCC)
▪ Note that only the exclusive right to vote and be voted for in the election of
directors is subject to a limited period of five years from the date of incorporation.
What are the kinds of redeemable shares?
▪ The kinds of redeemable shares are as follows:
▪ Mandatory: For this type, the issuing corporation must redeem the shares after the
expiration of a stated period or when demanded by the holder; provided
▪ that the corporation has sufficient assets to pay for the shares or
▪ the redemption will not bring about the insolvency of the corporation.

▪ Corporations that have issued redeemable shares with mandatory redemption features are
required to set up and maintain a sinking fund. (SEC Rules)

▪ Optional: For this type, the issuing corporation may or may not redeem the shares after a
stated period.

▪ If the terms of the preferred shares are silent, the redemption is at the option of the
corporation.
Can the corporation be compelled to redeem redeemable shares if it has no available surplus profit?
▪ Yes, if the redeemable shares are mandatory in nature, the issuing corporation may
be compelled to redeem the shares, regardless of the existence of unrestricted
retained earnings. (S8, RCC)
▪ It should be noted, however, that redemption may not be made where the corporation
is insolvent or if such redemption will cause insolvency or inability of the corporation
to meet its debts as they mature.
Can the reacquired redeemable shares be re-issued?
▪ No, for they are considered retired and may no longer be reissued UNLESS
▪ otherwise stated in the AOI. (SEC Opinion)

▪ The retirement of treasury shares of this nature has the effect of decreasing the
capital stock of the corporation. (SEC-OGC Opinion)
What are treasury shares?
▪ These are shares of stock that have been issued and fully paid for, but subsequently
reacquired by the issuing corporation through purchase, redemption, donation, or
some other lawful means. Such shares may again be disposed of for a reasonable price
fixed by the BOD. (S9, RCC)
▪ Treasury shares shall have no voting right as long as such shares remain in the
Treasury. (S56, RCC)
▪ A stock corporation shall have the power to purchase or acquire its own shares
provided that it has unrestricted retained earnings in its books to cover the shares
to be purchased or acquired.
What are treasury shares?
▪ The following are the legitimate purpose or purposes where a corporation is allowed
to acquire its own shares:
▪ To eliminate fractional shares arising out of stock dividends;
▪ To collect or compromise an indebtedness to the corporation, arising out of the unpaid
subscription, in a delinquency sale, and to purchase delinquent shares sold during the said
sale; and
▪ To pay dissenting or withdrawing stockholders entitled to payment for their share under
the provisions of the RCC. (S40, RCC)
May a Company treat the treasury shares as part of its issued shares?
▪ Yes. A company may treat the treasury shares as part of the issued shares as long as
they are not cancelled or retired.
▪ They are still part of the issued capital stock although no longer outstanding. (SEC-
OGC Opinion)
What are the revisions under the RCC on the number and qualification of incorporators?
▪ Unlike the OCC, which required incorporators to be natural persons numbering not les
than five, the RCC allows partnership, association, or corporation (CPA) to organize a
corporation without any minimum number of incorporators.
▪ In fact, there can be a corporation with only one stockholder, other than a corporation sole,
in the form of a one-person corporation under Title XIII of the RCC.

▪ The RCC likewise eliminated the residency requirement for incorporators, and
retained the ownership of at least one share of stock of the corporation or
membership for a non-stock corporation.

▪ Natural persons who are licensed to practice a profession and partnerships or

associations organized for the purpose of practicing a profession may organize a
corporation ONLY IF they are allowed under a special law.
What are the revisions under the RCC on the number and qualification of incorporators?
▪ Unlike the OCC, which required incorporators to be natural persons numbering not les
than five, the RCC allows partnership, association, or corporation (CPA) to organize a
corporation without any minimum number of incorporators.
▪ In fact, there can be a corporation with only one stockholder, other than a corporation sole,
in the form of a one-person corporation under Title XIII of the RCC.

▪ The RCC likewise eliminated the residency requirement for incorporators, and
retained the ownership of at least one share of stock of the corporation or
membership for a non-stock corporation.

▪ Natural persons who are licensed to practice a profession and partnerships or

associations organized for the purpose of practicing a profession may organize a
corporation ONLY IF they are allowed under a special law.
What are the number and qualifications of incorporators?
▪ Any person, C P A, singly or jointly with others but not more than 15 in number, may
organize a corporation for any lawful purpose or purposes.
▪ Natural persons who are licensed x x x (same as above).
▪ Incorporators who are natural persons must be of legal age.
▪ Each incorporator of a stock corporation must own or be a subscriber to at least one
(1) share of the capital stock or be a member in a non-stock corporation.
▪ A corporation with a single stockholder is considered a One Person Corporation. (S10,
RCC)
Other than a one-person corporation, can a corporation have less than 5 incorporators?
▪ Yes. Thus, a corporation can have three incorporators for instance unless otherwise
provided by a special law.
▪ Banks, for example are required to have at least 5 and a maximum of 15 directors.
(S15, RA 8791, otherwise known as the General Banking Law)
Are the incorporators of a corporation required to comply with the residency requirement under the RCC?
▪ No. (SEC-OGC Opinion)
May foreigners be incorporators of a private domestic corporation?
▪ Yes.
▪ However, if the corporation will engage in economic activities which are reserved for
Filipinos, foreigners can be incorporators and/ or directors BUT only in proportion to
their foreign ownership equity in the corporation, as allowed by law.
▪ Foreigners cannot be incorporators of corporations engaged in wholly nationalized
activities.
Is share ownership or membership in the corporation a continuing qualification for an incorporator?
▪ No.
▪ However, if the incorporator will also serve as director or trustee, he shall cease to
be a director or trustee if he is no longer a stockholder or member of the
corporation. (S22, RCC)
May the SEC reject the application of the incorporators to organize a private corporation?
▪ No. Congress, pursuant to the Philippine Constitution, has enacted the general law
governing the incorporation of private corporations.
▪ Thus, the SEC has no authority to reject the application for incorporation as long as
▪ the purposes of the proposed corporation are lawful and
▪ the application conforms to the requirements prescribed by law.
What are the revisions under the RCC on corporate term?
▪ A corporation shall have perpetual existence unless its AOI provides otherwise.
▪ Corporations with COI issued prior to the effectivity of the RCC, and which continues
to exist, shall have perpetual existence, UNLESS
▪ the corporation, upon a vote of its stockholders representing a MAJORITY of its
outstanding capital stock (OCS),
▪ NOTIFIES the SEC that it elects to retain its specific corporate term pursuant to its AOI:
Provided,
▪ That any change in the corporate term under this section is without prejudice to the
appraisal right of dissenting stockholders.

▪ The period to extend the corporate term has been reduced from five to three years
prior to the original or subsequent expiry date(s).
What are the revisions under the RCC on corporate term? (Cont.)
▪ Extension of the corporate term shall take effect only on the day following the
original or subsequent expiry date(s).
▪ A corporation whose term has expired IS NOT IPSO FACTO DISSOLVED
▪ but may apply for a revival of its corporate existence.
▪ Upon APPROVAL by the SEC, the corporation shall be deemed revived and a certificate of
revival of corporate existence shall be issued, giving it perpetual existence, unless
▪ its application for revival provides otherwise.
What is the meaning of corporate term?
▪ It means the time or period the corporation is allowed to exercise its corporate
powers to attain the purpose of its incorporation.
What is the term of a corporation under the RCC?
▪ A corporation shall have perpetual existence unless its AOI provides otherwise. (S11,
RCC)
▪ In other words, the corporation continues to exist until the corporation decides to
end it, OR
▪ It may have a fixed term if specified in the AOI.
With the enactment of the RCC, is the corporate term of a corporation now deemed perpetual, without the
need of amending its AOI with the requisite 2/3 affirmative vote of its outstanding shares?
▪ Yes. It is clear from the provision that the corporate term of a corporation existing
prior to, and which continues to exist upon the effectivity of the RCC, shall be
automatically deemed perpetual without any further action on the part of the
corporation.
▪ Further, since the automatic conversion of the corporate term to perpetual existence
does not require an amendment of the AOI, the 2/3 affirmative vote of the OS to
amend the AOI would not be required. (SEC-OGC Opinion)
What is the remedy of the stockholder in view of the automatic conversion of the corporate term to
perpetual existence of the corporation organized prior to the effectivity of the RCC?
▪ The stockholder may exercise his appraisal right. (S11, RCC)
▪ Meaning, he can demand the payment of the fair value of his shares.
What is the remedy of a corporation whose term has expired?
▪ A corporation whose term has expired may apply for a revival of its corporate
existence, together with all the rights and privileges under its COI and subject to all
of its duties, debts, and liabilities EXISTING PRIOR to its revival.
▪ Upon approval by the SEC, the corporation shall be deemed revived and a certificate
of revival of corporate existence shall be issued, giving it perpetual existence, unless
its application for revival provides otherwise.
▪ No application for revival of certificate of incorporation of banks, banking and quasi-
banking institutions, preneed, insurance and trust companies, non-stock savings and
loan associations (NSSLAs), pawnshops, corporations engaged in money service
business, and other financial intermediaries shall be approved by the SEC unless
▪ accompanied by a FAVORABLE RECOMMENDATION of the appropriate government agency.
(S11, RCC)
What are the requisites for extension or shortening of the corporate term?
▪ The requisites for extension or shortening og the corporate term are as follows:
▪ A corporate term FOR A SPECIFIC PERIOD may be extended or shortened by amending
the AOI. (S11, RCC)
▪ The extension of the corporate term must be approved by AT LEAST THE MAJORITY of
the BOD AND the stockholders representing AT LEAST 2/3s of the OCS (thus, majority +
2/3). (S36, RCC)
▪ No extension may be made earlier than three (3) years prior to the original or subsequent
expiry date(s) unless there are justifiable reasons for an earlier extension as may be
determined by the SEC. (S11, RCC)
▪ Such an extension of the corporate term shall take effect only on the day following the
original or subsequent expiry date(s).
▪ The extension or shortening of the term is EFFECTIVE upon APPROVAL of the SEC.
Can the extension of the corporate term be done during the three-year liquidation period?
▪ No.
Does the expiration of corporate term ipso facto dissolve the corporation?
▪ No.
What are the revisions under the RCC on subscription and paid-up capital requirements UPON
INCORPORATION?
▪ The RCC dispensed with the minimum subscription and paid-up capital requirement
EXCEPT as otherwise provided by a special law.
▪ AFTER INCORPORATION, however, in case of INCREASE OF CAPITAL STOCK, at
least 25% of the increase in capital stock must be subscribed and at least 25% of the
amount subscribed should be paid in cash or property the valuation of which is
equivalent to at least 25% of the subscription (or the double 25% requirement).
Are stock corporations required to have a minimum capital stock?
▪ No, except as otherwise specifically provided by special law. (S12, RCC)
Define authorized capital stock, subscribed capital stock, and paid-up capital stock.
▪ Authorized capital stock means the amount fixed in the AOI to be subscribed and
paid by the stockholders of the corporation. It is the maximum number of shares
that the corporation is legally allowed to issue without amending the AOI.
▪ Subscribed capitol stock is the portion of the authorized capital stock which is
covered by subscription agreements whether fully paid or not.
▪ Outstanding capital stock means the total shares of stock issued under binding
subscription contracts to subscribers or stockholders, whether fully or partially paid,
except treasury shares. (S173, RCC)
▪ Paid-up capital stock is the portion of the authorized capital stock which has been
subscribed and paid by the stockholders of the corporation.
Are all subscribed shares outstanding? In the reverse, are all issued shares outstanding?
How much of the authorized capital stock should be subscribed and paid-up upon incorporation?
▪ Unlike the OCC which required that at least 25% of the authorized capital stock must
be subscribed and at least 25% of total subscriptions must be paid upon
incorporation, the RCC dispensed with the minimum subscription and paid-up capital
requirement except as otherwise provided by a special law.
▪ After incorporation, however, in case of increase of capitol stock, at least 25% of
the increase in capital stock must be subscribed and at least 25% of the amount
subscribed should be paid in cash or property the valuation of which is equivalent to
at least 25% of the subscription.
Is partial payment allowed for stock subscription?
▪ Yes.
What are the revisions under the RCC on the provision on the AOI?
▪ An arbitration agreement may be provided in the AOI.
▪ Filing of the AOI or any amendments thereto may be in the form of an electronic
document in accordance with the rules on electronic filing of the SEC.
▪ The AOI SHOULD include an undertaking to change the corporate name
IMMEDIATELY upon receipt of notice from the SEC that another corporation,
partnership or person has acquired a prior right to the use of such name, that the
name has been declared not distinguishable from a name already registered or
reserved for the use of another corporation, or that it is contrary to law, public
morals, good customs or public policy.
▪ It provides that the corporation shall have perpetual existence or a fixed term as
may be indicated in the AOI.
▪ There is no need to state that at least 25% of the authorized capital stock above
stated has been subscribed and that at least 25% of the total subscription have been
paid as this double 25% requirement under the OCC has been deleted.
What are the revisions under the RCC on the provision on the AOI? (Cont.)
▪ There is a requirement of certification of receipt of the paid-up portion of
subscription by the Corporate treasurer.
▪ Since the requirement of Treasurer’s affidavit has already been deleted under the
RCC, the format for the said affidavit is omitted as well.
What are the formal requirements for the AOI?
▪ All corporations shall file with the SEC AOI in any of the official languages, duly
signed and acknowledged or authenticated, in such form and manner as may be
allowed by the SEC.
▪ The AOI and applications for amendments thereto may be filed with the SEC in the
form of an electronic document, in accordance with the SECs rules and regulations on
electronic filing.
May the AOI provide for more than one purpose?
▪ Yes.
▪ It is important to distinguish the primary from the secondary purposes in the AOI
because the stockholders have the right to expect that the funds and assets of the
corporation should be primarily devoted to attain its primary purpose. Such
disbursement and use only require board approval.
▪ Investment of funds and assets in the secondary purpose/s require the approval of at
least a majority of the entire board and stockholders representing at least 2/3s of
the OCS. (S41, RCC)
Does the SEC have the authority to inquire whether the corporation has purposes other than those stated
in the AOI?
▪ It depends.
▪ If the corporation’s purpose, as stated in the AOI is lawful, then the SEC has no
authority to inquire whether the corporation has purposes other than those stated.
(Case law)
▪ However, if it turns out that the corporation committed misrepresentation as to its
actual purpose, the SEC may REVOKE the corporate franchise and DISSOLVE the
corporation. (S138 d, RCC) The corporation may also be criminally liable for obtaining
corporate registration through fraud. (S164, RCC)
What is the importance of indicating in the AOI the principal place of business of the corporation?
▪ The principal place of business of a corporation, as stated in the AOI, determines its
residence or domicile.
▪ The principal office of the corporation is that which is stated in the AOI, and NOT
THE PLACE of its actual operations.