THE REVISED CORPORATION CODE

R.A. 11232
WHEN THE CORPORATION CODE APPLIES

General Rule: The Corporation Code is the primary law that should be
applied in regulating corporations.
Exceptions: (Corporation Code applies suppletorily)
a. General Banking Law (banks)
b. Insurance Code (insurance companies)
c. Corporations with special charter (GOCCS)
SECTION 2

SEC. 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.

Please memorize!!!!
ATTRIBUTES OF A CORPORATION

a. It is an artificial being;
b. It is created by operation of law;
c. It has the right of succession; and
d. It has the powers, and attributes expressly authorized by law or
incident to its existence.
THE CORPORATION AS AN ARTIFICIAL BEING

It is the fiction of law that creates the “person” of the corporation,

with the same attributes of an individual having full capacity to enter
into contractual relations. It has been well-expressed in our
jurisprudence that a corporation is an artificial being created by the
operation of law, and upon coming into existence, it is vested by law
with a personality separate and distinct from those persons
comprising it, as well as from any other legal entity to which it may be
related.
DOCTRINE OF SEPARATE PERSONALITY/ SEPARATE LEGAL
ENTITY - VVIP

Under the doctrine of separate legal entity, a corporation is

considered to have a legal personality distinct and separate
from its directors, individual stockholders or members (Bustos
v. Millians Shoe, Inc., G.R. No. 185024, April 24, 2017).
GR: The assets and liabilities of the corporation are not owned
by the stockholders even if they own the capital stock of the
corporation and vice-versa. Hence, in cases of satisfaction of
debt, a creditor of the corporation cannot claim the assets of its
stockholders, and a creditor of a stockholder cannot claim the
assets of the corporation.
SAMPLE QUESTION
Philippe, the President of Josh Corporation, was authorized by the Board of Directors
of Josh Corporation to obtain a loan from Joey Bank and sign documents on behalf of
the corporation. Philip personally negotiated and got the loan. Upon maturity of the
loan. Josh corporation was unable to pay. Which statement is most accurate?
a. Philippe as president cannot be personally held liable for the corporation’s
obligation even though he signed all the loan documents.
b. Because Philippe was personally acting on behalf of the corporation, he can be
held personally liable.
c. If Josh corporation cannot pay Philippe can be held subsidiarily liable.
d. Joey Bank can choose who it wants to hold liable for the loan.
EXCEPTION
As a matter of exception, the doctrine of Piercing the
Corporate Veil allows a stockholder or member of a corporation to
be held liable for the obligations of the corporation. This doctrine allows
the State to disregard for certain justifiable reasons the notion or fiction
that the the corporation has a legal personality separate and distinct
from the corporators composing it. The said doctrine is applicable when
the separate personality of the corporation is used as a means to
perpetuate fraud or an illegal act, or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to confuse
legitimate issues (Lanuza, Jr. v. BF Corp., G.R. No. 174938, October 1,
2014).
DOCTRINE OF PIERCING THE VEIL

 The doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely:
1) defeat of public convenience as when the corporate fiction is used as a vehicle
for the evasion of an existing obligation;
2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud,
or defend a crime; or
3) 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 adjunct of another corporation.
CREATURE OF THE LAW

The juridical existence of a corporation is dependent on the consent or

grant of the State. From a strict legal point of view, a corporation
cannot come into being by mere consent of the parties; there must be
a law granting it, and once granted, forms the primary franchise of the
corporation.
A corporation must be registered in the SEC and its life commences
upon issuance of the Certificate of Incorporation.
RIGHT OF SUCCESSION

 A corporation has the capacity for continuous existence

despite the death or replacement of its shareholders
CREATURE OF LIMITED POWERS

 It can only exercise powers expressly authorized by law or incident

to its existence.
SEC. 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.
SEC. 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
CLASSIFICATION OF CORPORATIONS

A. As to the number of components:

i. Aggregate Corporation – a corporation consisting of more than one member.
ii. One Person Corporation – A corporation consisting of only one person
CLASSIFICATION OF CORPORATIONS

As to functions:
i. Public Corporation – a corporation organized for the government of a
portion of a State for the purpose of serving general good and
welfare.
ii. Private Corporation – a corporation formed for some private
purpose, benefit, aim or end. They may be stock or non-stock corp.
iii. Quasi-public - a company in the private sector that is supported by
the government with a public mandate to provide a given service.
iv. Eleemosynary – organized for charitable purposes
CLASSIFICATION OF CORPORATIONS
As to the manner of creation:
i. By special law – a corporation directly created by Congress
through a special law; must be a GOCC.
ii. By under a General law/Corporation Code
iii. Corporations by Prescription – was not formally organized
as such but has been duly recognized by immemorial
usage as a corp, with rights and duties enforceable under
the law.
CLASSIFICATION OF CORPORATIONS

A. As to Legal Status:
i. De Jure Corporation – a corporation organized in
accordance with requirements of law.

ii. De Facto Corporation – a corporation that is formed where

there exists a flaw in its incorporation but there is
colorable compliance with the requirements of law.
CLASSIFICATION OF CORPORATIONS

A. As to Legal Status:
iii. Corporation by Estoppel – a group of persons which
holds itself out as a corporation and enters into a contract
with a third person on the strength of such appearance
cannot be permitted to deny its existence in an action under
said contract.
CLASSIFICATION OF CORPORATIONS

A. As to existence of stocks:
i. Stock Corporation – a corporation with capital stock is
divided into shares and is authorized to distribute to
holders thereof of such shares or dividends or allotments
of the surplus profits on the basis of the shares held.
ii. Non-stock Corporation – a corporation that does not issue
stocks and does not distribute dividends to their members.
CLASSIFICATION OF CORPORATIONS

A. As to relationship:

i. Subsidiary – a corporation more than 50% of the voting stock of which is owned or
controlled directly or indirectly through one or more intermediaries by another
corporation, which thereby becomes a parent company.
ii. Affiliate– a corporation that directly or indirectly, through one or more
intermediaries, is controlled by, or is under the control of another corporation, which
thereby becomes its parent company.
iii. Parent Corporation – a corporation that has control over another corporation
directly or indirectly through one or more intermediaries.
CLASSIFICATION OF CORPORATIONS

A. As laws of incorporation (Place of Incorporation test)

i. Domestic Corporation – formed, organized or existing
under Philippine Laws.
ii. Foreign Corporation – Formed, Organized ,Existing under
any laws other than those of the Philippines and whose
laws allow Filipino citizens and corporations to do business
in its own country or state.
CONCEPT OF SHARES
A share of corporate stock has been defined as the unit into which the proprietary
interests in a corporation are divided.
The stock represents:
1. It represents the interest or right of the stockholder in the management of the
corporation through the exercise of the voting right;
2. It represents the interest of right of the stockholder in the earnings of the
corporation in the form of the dividends to be distributed; and
3. It represents the interest or right of the stockholder in the residual assets of
the corporation upon dissolution.

So the share of stock represents your share in the corporation

TYPES OF CAPITAL STOCK

 AUTHORIZED CAPITAL STOCK – refers to the maximum number of shares a

company is legally allowed to issue or offer based on its Articles of
Incorporation.
 SUBSCRIBED CAPITAL - represents a portion of the authorized capital that
potential shareholders have agreed to purchase from the corporation.
 OUTSTANDING CAPITAL STOCK - The Code defines the terms as “the total
shares of stock issued to subscribers or stockholders, whether or not fully or
partially paid (as long as there is a binding subscription agreement), except
treasury shares.” the portion of the capital stock which is issued and
held by persons other than the corporation itself.
TYPES OF CAPITAL STOCK

 PAID-UP CAPITAL STOCK - It is that portion of the subscribed or outstanding

capital stock that is actually paid.
 UNISSUED CAPITAL STOCK - That portion of the capital stock that is not
issued or subscribed. It does not vote and draws no dividends.
 LEGAL CAPITAL - It is the amount equal to the aggregate par value and/or
issued value of the outstanding capital stock
 TREASURY SHARES - Shares which have been issued by the corporation, but
are no longer outstanding because they have been acquired by the
corporation.
Illustration:
A newly established corporation with authorized capital stock(ACS) of 10 million divided
into 1 million shares at P10 per share. Out of the 10 million ACS, 5 million is subscribed.
The remaining 5 million is the unissued shares. Meaning, there are no buyers yet. If it is
subscribed, there must be an existing subscription agreement over these shares. Meaning, these
shares have been purchased. Out of the 5 million subscribed, 4 million is paid, this is the
paid up capital stock.
Supposing the corporation repurchased/reacquired 1 million shares from the
shareholders, the 1 million are the treasury shares. These treasury shares remain
subscribed and issued because somebody already paid for it. Even the corporation that
reacquired it, paid for it. But they are no longer outstanding capital stock. Therefore, the
outstanding capital stock is 4 million. ACS remains at 10M. Unissued shares remain at 5M.
 There’s no difference in the right of stockholders who have
paid or have not yet paid their subscription. They’re all
entitled to the same right, even the right to the dividends.
Only when your shares are declared as delinquent will be
the time that you stop enjoying stockholder rights. So as
long as you’re not declared as delinquent, even unpaid,
you are considered as a stockholder.
CLASSES OF SHARES

Common Shares - Common shares or stocks represent the

residual ownership interest in the corporation. It is a basic class
of stock ordinarily and usually issued without extraordinary rights
or privileges and entitles the shareholder to a pro rata division of
profits. Common shares entitles the holder the right to vote
Preferred Shares - are those that entitle the shareholder to some
priority on dividends and asset distribution. Preferred shareholders are
often excluded from any control that is, deprived of the right to vote in
the election of directors and on matters, on the theory that the preferred
shareholders are merely investors in the corporation for income in the
same manner as shareholders. (Heirs of Gamboa vs. Teves)
CLASSES OF PREFERRED SHARES
a. Preferred share as to assets
Share which the holder thereof preference in the distribution of the assets of the
corporation in case of liquidation. It has been held that preferred stock, standing
alone, creates a preference only to dividends and not to assets in case of
liquidation.
b. Preferred share as to dividends
Share the holder of which is entitled to receive dividends on said share to the
extent agreed upon before any dividends at all are paid to the holders of
common stock.
 COMMON SHARES PREFERRED SHARES

With Voting Rights No voting rights

Gives no priority in the corporation’s Gives the holder priority in the

income distribution of dividends

May be par or no-par value shares Must be issued with par value
1. PAR VALUE SHARE
Par value share is one with a specific money value fixed in the articles of
incorporation and appearing in the certificate of stock.
The primary purpose thereof is to fix the minimum issue price of
the shares thus, assuring creditors that the corporation would receive a
minimum amount for its stock.
Requirement as to its issuance:
 A par value share cannot be issued below par but can be issued more
than par and the excess thereof shall form part of the paid-in capital
but it is accounted for as a premium or as an additional paid-in capital.
2. NO PAR VALUE SHARE
 It is one without any stated value appearing on the face of the
certificate of stock. It is a stock which does not state show much
money it represents. The shares without par value may not be issued
for a consideration less than the value of Five pesos (P5.00) per share.
 This is the minimum consideration for a non par value share
3. VOTING SHARE
 Voting share is share with right to vote.

4. NON-VOTING STOCK
 Non-voting share is share without right to vote.
NON-VOTING SHARES

1) Only preferred or redeemable shares may be made non-

voting shares.
2) There must remain other shares with full voting rights.
- There can be no valid agreement where a corporation has
all non-voting shares. Any agreeement that will take away
the right to vote of all the shares in a corporation is not valid.
NON-VOTING SHARES
Holders of non-voting shares shall nevertheless be entitled to vote on the ff matters:
a. Amendment of the articles of incorporation
b. Adoption and amendment of by-laws
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 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.
DOCTRINE OF EQUALITY OF SHARES

• Absent any stipulation to the contrary in the Articles of

Incorporation, all shares are treated equal with the same rights and
privileges.
• Therefore, if the articles of incorporation provide only of common
and preferred shares but does not provide for anything else the two
shares are treated equally.
Section 7. Founders' shares.
Founders' shares classified as such in the articles of incorporation may
be given certain rights and privileges not enjoyed by the owners of other
stocks, provided that 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 subject to the approval of the
Securities and Exchange Commission. The five-year period shall
commence from the date of the aforesaid approval by the Securities and
Exchange Commission.
Rationale
 Founders’ shares are shares that are given to those who
helped organize the corporation. This may be a form of reward to
the “founders”.