TITLE I

GENERAL PROVISIONS

REPUBLIC ACT No. 11232

An Act Providing for the Revised Corporation Code of the Philippines

DEFINITIONS AND CLASSIFICATIONS

Section 1. Title of the Code. - This Code shall be known as the "Revised Corporation Code of
the Philippines".

- 20 February 2019

- It replaces the old Corporation Code – Batas Pambansa Blg. 68, May 1, 1980

Section 2. Corporation Defined. - A corporation is an artificial being created by operation of

law, having the right of succession and the powers, attributes, and properties expressly authorized
by law or incidental to its existence.

- Artificial being – A corporation is not a natural person; it is a juridical or legal person with a
distinct personality separate from its stockholders or members. It exists only in the eyes of
the law and does not have physical existence like a human being.

- Created by operation of law – A corporation can only come into existence through
compliance with legal requirements or the formalities of the law. It owes its life to the state,
its birth being purely dependent on its will and has no existence until it has received the
imprimatur of the state acting according to law.

- Right of succession – The corporation continues to exist even if the original incorporators,
directors, or stockholders change or die. Its existence is unaffected by the changes in
membership, ensuring continuity.

- Powers, attributes and properties - These refer to the capabilities granted to a corporation
by law, including owning property, entering into contracts, suing and being sued, and
performing acts necessary to achieve its purpose.

3 kinds of powers:

1. Express powers – These are powers explicitly stated in the law (Revised Corporation
Code), the corporation’s articles of incorporation, or other official documents.

Example: The power to enter into contracts.

2. Implied powers – Powers that are not expressly stated but are necessary to carry out
the corporation’s express powers.

Example: Hiring employees to run its business.

3. Incidental or inherent powers – Powers that naturally belong to a corporation as a

legal entity, such as the power to sue or be sued, or to adopt a corporate seal.
PIERCING THE VEIL OF CORPORATE FICTION –

Senator De Lima said during the plenary session in the Cornell Law Review - "The number of
shareholders makes a difference in the propensity of courts to pierce the veil of corporations". It
refers to the idea that courts are more likely to pierce the corporate veil when a corporation has
fewer shareholders, especially in close or one-person corporations.”

Meaning - In short, fewer shareholders = higher scrutiny, because the risk of abuse of corporate
privilege increases when fewer people control everything behind the scenes.

Piercing the Veil of Corporate Fiction

- This is a legal doctrine wherein the separate personality of the corporation is disregarded
and the shareholders, directors, or officers may be held personally liable for corporate acts.
- It is an equitable remedy for third persons or other party or privilege that is granted only for
legitimate purposes.

When is it applied?
- It should be pierced based on questions of facts. Mere allegation that the corporation
is an alter ego is insufficient. The burden of proving otherwise is on the party seeking
to have the court pierce the veil of corporate entity.
- To prevent fraud, unjust enrichment, or circumvention of the law.

Common cases include using the corporation as a mere alter ego, commingling of funds, or
gross undercapitalization.

📌 Purpose: To ensure that individuals do not abuse the corporate form to commit wrongful or
fraudulent acts without accountability.

When it is allowed by the Supreme Court? 3 BASIC AREAS

1. When it will defeat public convenience;
2. When it will justify wrong, protect fraud or defend crime; and,
3. When used as an alter ego.

1. When it will defeat public convenience;

This happens when the separate legal personality of the corporation is used as a tool to:
Evade obligations,
Circumvent the law, or
Escape liability that would otherwise be contrary to the public interest.

🧾 Example:
When a corporation is formed merely to avoid complying with labor laws or environmental
regulations, the Court may disregard the fiction to protect public policy.

📖 Case Reference:
McLeod v. NLRC, G.R. No. 106296, January 30, 1996
"The veil of corporate fiction may be pierced when used to defeat public convenience or promote
injustice."

2. When it is used to justify wrong, protect fraud, or defend a crime

The corporate entity will be disregarded when it is used as a shield for fraudulent or criminal
conduct, or when it is employed to perpetrate deceit, mislead creditors, or hide wrongdoing.

🧾 Example:
If a person uses multiple corporations to defraud creditors or to hide assets in bad faith, the Court
may look through the corporate entity.

📖 Case Reference:
Philippine National Bank v. Andrada Electric & Engineering Co., G.R. No. 142936, July 11, 2002

"Where the fiction is used to perpetrate fraud, the law will regard the corporation as an association of
persons or, in case of two corporations, merge them into one."

3. When the corporation is merely an alter ego or instrumentality of a person or another

corporation
If the corporation is just a façade or mere instrumentality of a person or another entity—where
control and operations are so unified—it loses its independent personality. This is sometimes called
the "instrumentality rule/theory" or "alter ego doctrine/theory."

🧾 Example:
If a sole stockholder treats corporate assets as personal property, uses corporate funds for personal
use, or has complete domination and control over corporate actions, the courts may hold him
personally liable.

📖 Case Reference:
Concept Builders, Inc. v. NLRC, G.R. No. 108734, May 29, 1996

"When the corporation is a mere alter ego or business conduit of a person, the corporate fiction may
be disregarded."

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

1. Stock Corporations - is organized for profit and has authorized capital stock divided into
shares, which are held by shareholders (stockholders) who can receive dividends from the
profits.
Have capital stock divided into shares.
Authorized to distribute dividends.
Formed for profit.

2. Non-Stock Corporations – it exists for purposes other than the pursuit of profit. It is
organized primarily for public benefit or a non-profit purpose (e.g., religious, charitable,
educational, civic). It does not issue shares of stock and does not distribute profits to
members.
No capital stock.
No dividends.
Formed for purposes other than profit (e.g., religious, charitable, civic, or educational)
Other classifications:

Nationality
Domestic – Formed under Philippine laws.
Foreign – Formed under foreign laws but doing business in the Philippines with a license.

Corporators
1. Corporation Aggregate
A corporation composed of two or more persons.
This is the usual form of a corporation (most business corporations).
Governed by the Revised Corporation Code.
🧾 Example: Jollibee Foods Corporation, a corporation formed by multiple shareholders.

2. Corporation Sole
A corporation composed of only one person, usually a religious leader.
Created to manage the affairs, properties, and temporalities of a religious denomination.
Governed by the Civil Code, not the Revised Corporation Code.

🧾 Example: The Roman Catholic Archbishop of Manila as a corporation sole.

Purpose
1. Public Corporation
Formed for governmental or political purposes.
Created by a special law.
Exercises public functions.
🧾 Example: Municipalities, provinces, cities.

2. Private Corporation
Formed for private benefit, whether for profit or not.
Created under the Revised Corporation Code.
🧾 Example: Jollibee Foods Corp. (stock), Philippine Red Cross (non-stock).

3. Religious or Charitable Corporation

A type of non-stock private corporation.
Formed for religious, charitable, educational, or humanitarian purposes.
🧾 Example: Iglesia ni Cristo, Gawad Kalinga Foundation.

Corporate Existence
1. De Jure Corporation
A corporation that fully complies with all the legal requirements for incorporation under the Revised
Corporation Code.
Has a legal and valid existence from the start.
🧾 Example: A corporation registered with the SEC with complete documents and lawful purpose.

2. De Facto Corporation
A corporation that operates as if it were legally incorporated, but has not fully complied with some
legal requirements.

Exists in fact and is recognized in certain situations, especially when there is:
A valid law under which it could be formed,
A bona fide attempt to incorporate, and
Actual use of corporate powers.
🧾 Example: A group acting as a corporation without SEC registration but with good faith effort and
public operation.

Corporate Relationship
1. Parent/Mother/Holding – It owns the shares of another corporation and exercise power over
the latter; Controls another corporation.
2. Subsidiary – whose stocks are owned by another corporation and exercises power and
control over the former; Controlled by a parent company. A subsidiary has an independent
and separate juridical personality distinct from that of its parent company and that any suit
against the latter does not bind the former and vice-versa.

Nature of Shares
1. Close Corporation
A stock corporation whose shares are held by a few individuals (not more than 20).
Shares are not offered to the public.
Has restrictions on the transfer of shares.
May be managed directly by the stockholders (no need for a board).
📌 Governed by Sections 95–104 of the Revised Corporation Code.

🧾 Example: A family-owned business corporation.

2. Open Corporation
Also called a publicly-held corporation.
Shares are offered to the public and traded on the stock exchange.
Has many shareholders.
Subject to public reporting and regulation by the SEC and PSE.

🧾 Example: PLDT, Ayala Corporation, Jollibee Foods Corp.

OTHERS
1. Corporation by Prescription – business entity that has exercised the corporate powers for a long
period of time without interference from the government, and has been given the status of a
corporation.

-A corporation that exists without formal legislative or SEC creation, but has:
-Existed continuously for a long time, and
-Exercised corporate powers openly,
-Without objection from the state.
-Recognized by long and continued use, similar to the concept of acquiring rights through
prescription.

Example: The Roman Catholic Church in the Philippines is often cited as a corporation by
prescription, existing long before current corporation laws.

2. Corporation by Estoppel – corporations which have not been incorporated but has been deemed
as such through the acts and admissions of the people comprising it.
📌 Section 21, Revised Corporation Code

-Occurs when a group of persons assumes to act as a corporation without authority, and:
-Enters into transactions as if they were a legitimate corporation,
-They cannot later deny their corporate status to escape liability.
-Also applies to a third party who treats a group as a corporation and cannot later claim they aren’t, if
it would result in injustice.

🧾 Example: A group signs a contract as a corporation (without being registered) — they may be held
liable as a corporation by estoppel.

Section 4. Corporations Created by Special Laws or Charters. - Corporations created by special

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

A special charter is a law passed by Congress that creates a specific corporation and defines its
powers, structure, and functions.

A special charter is:

A specific law that creates a corporation.
It serves as the corporation’s governing law.
The Revised Corporation Code only applies if the charter is silent on a matter and the Code is
applicable.

Some corporations are not formed under the general Corporation Code. Instead, they are created
through special laws passed by Congress (e.g., GSIS, SSS, PhilHealth, Land Bank).

These corporations follow their own special rules or charter.

If something is not covered by their charter, they may refer to the Revised Corporation Code — but
only if it fits or applies.

Example:
GSIS (Government Service Insurance System) is a government-owned corporation created by
Republic Act No. 8291.

It is governed primarily by RA 8291.

If RA 8291 does not specify a rule about meetings or elections, the Revised Corporation Code may
be used as a guide, if appropriate.

Section 5. Corporators and Incorporators, Stockholders and Members. - Corporators are those
who compose a corporation, whether as stockholders or shareholders in a stock corporation or as a
members in a nonstock corporations. Incorporators are those stockholders or members mentioned in
the articles of incorporation as originally forming and composing the corporation and who are
signatories thereof.

1. Corporators
o These are the people who compose a corporation.
o In a stock corporation ➜ they are called stockholders or shareholders.
o In a nonstock corporation ➜ they are called members.
2. Incorporators
o These are the original corporators who:
 Are named in the Articles of Incorporation, and
 Signed it to form the corporation.
 o They can be either stockholders (for stock corporations) or members (for nonstock
corporations).

Section 6. Classification of Shares. - The classification of shares, their corresponding rights,

privileges, restrictions, and their stated par value, if any, must be indicated in the articles of
incorporations. Each share shall be equal in all respects to every other share, except as otherwise
provided in the articles of incorporation. Each share shall be equal in all respects to every other
share, except as otherwise provided in the articles of incorporation and in the certificate of stock.

The articles of incorporation must clearly state:

 The types (classes) of shares the corporation will issue.
 The rights, privileges, and limits for each type of share.
 The par value of each share, if there is one.
By default:
 All shares are equal in rights and value.
 Unless the articles of incorporation or stock certificate says otherwise.

The share stock corporations may be divided into classes or series of shares, or both. No share may
be deprived of voting rights except those classified and issued as "preferred" or "redeemable"
shares, unless otherwise provided in this Code: Provided, that there shall be a class or series of
shares with complete voting rights.

 A stock corporation can issue different types (classes or series) of shares.

 All shares normally have the right to vote.
 But shares that are labeled as "preferred" or "redeemable" can be issued without voting rights.
 Still, the law requires that there must be at least one class or series of shares that has full voting rights.

Holders of nonvoting shares shall nevertheless be entitled to vote on the following matters;

Even if a stockholder owns nonvoting shares (shares that normally do not allow them to vote),
they are still allowed to vote on certain important or major corporate decisions.

(a) Amendment of the articles of incorporation;

(b) Adoption and amendment of bylaws;

(c) Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of
the corporate property;

(d) Incurring, creating, or increasing bonded indebtedness;

(e) Increase or decrease of authorized capital stock;

(f) Merger or consolidation of the corporation with another corporation or other corporations;

(g) Investment of corporate funds in another corporation or business in accordance with this
Code; and

(h) Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote required under this Code to
approve a particular corporate act shall be deemed to refer only to stocks with voting rights.

In general, when the Corporation Code requires a vote to approve a corporate decision, it refers only to voting
shares.

The shares or series of shares may or may not have a par value: Provided, that **banks, trust,
insurance, and preneed companies, public utilities, building and loan associations, and other
corporations authorized to obtain or access funds from the public whether publicly listed or not, shall
not be permitted to issue no-par value shares of stock.

A corporation may issue shares with or without par value.

 Par value = the minimum price per share stated in the articles of incorporation.
 Most corporations = Can issue par or no-par shares.
 Corporations that deal with public money = Must only issue par value shares (for protection and
transparency). **

Preferred shares of stock issued by a corporation may be given preference in the distribution of
dividends and in the distribution of corporate assets in case of liquidation, or such other
preferences: Provided, that preferred shares of stock may be issued only with a stated par value.
The board of directors, where authorized in the articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any series thereof: Provided, further, that such terms and
conditions shall be effective upon filing of a certificate thereof with the Securities and Exchange
Commission, hereinafter referred to as the "Commission".

Preferred Shares - Shares that have special rights and privileges, usually stated in the Articles.
- Usually no voting rights, unless allowed or in special cases.
- Priority in receiving fixed or agreed dividends.
Common Shares - Ordinary shares with basic ownership and voting rights.
- Usually have full voting rights (e.g., electing directors).
- Get dividends after preferred shareholders, and amount varies.

Key Points:

1. Preferred shares may have priority in:

o Receiving dividends (before common shareholders), and
o Getting paid first if the corporation is liquidated (closed down and assets distributed).
2. Preferred shares can also have other special privileges, as allowed by the company.
3. Preferred shares must have a stated par value
(i.e., you cannot issue no-par value preferred shares).
4. The Board of Directors can decide the specific terms (e.g., rate of dividends, convertibility, redemption
terms), but only if the articles of incorporation allow it.
5. These terms become effective only after the company files a certificate with the Securities and Exchange
Commission (SEC).

Shares of capital stock issued without par value shall be deemed fully paid and nonassessable and
the holder of such shares shall not be liable to the corporation or to its creditors in respect
thereto: Provided, That no-par value shares must be issued for a consideration of at least Five pesos
(₱5.00) per share: Provided, further, That the entire consideration received by the corporation for its
no-par value shares shall be treated as capital and shall not be available for distribution as
dividends.

This rule talks about no-par value shares — shares that don’t have a fixed minimum value written on them.
Key Points (Simplified):
1. No-par value shares are fully paid and non-assessable
➤ This means:
o Once you buy them, you fully own them
o You can’t be asked to pay anything more later
o You are not liable to the corporation or its creditors for anything beyond your payment
2. Minimum price for no-par value shares:
➤ They must be issued for at least ₱5.00 per share.
3. All money paid for these shares becomes part of the company’s capital
➤ It cannot be distributed as dividends.
➤ It is locked in to protect creditors and support the corporation’s financial base.

In short:
 No-par shares = No fixed value, but must be sold at ₱5.00 or more.
 Once paid, shareholder owes nothing more.
 Money paid = Permanent capital (can’t be declared as dividends).

A corporation may further classify its shares for the purpose of ensuring compliance with
constitutional or legal requirements.

Section 7. Founders' Shares. - Founders' shares may be given certain rights and privileges not
enjoyed by the owners of other stock. Where the exclusive right to vote and be voted for in the
election of directors is granted, it must be for a limited period not to exceed five (5) years from the
date of incorporation: Provided, That such exclusive right shall not be allowed if its exercise will
violate Commonwealth Act No. 108, otherwise known as the "Anti-Dummy Law"; Republic Act No.
7042, otherwise known as the "Foreign Investments Act of 1991"; and otherwise known as "Foreign
Investments Act of 1991"; and other pertinent laws.

Section 8. Redeemable Shares. - Redeemable shares may be issued by the corporation when
expressly provided in the articles of incorporation. They are shares which may be purchased by the
corporation. They are shares which may be purchased by the corporation from the holders of such
shares upon the expiration of a fixed period, regardless of the existence of unrestricted retained
earnings in the books of the corporation, and upon such other terms and conditions stated in the
articles of incorporation and the certificate of stock representing the shares, subject to rules and
regulations issued by the Commission.

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