Law Summary
Classes and Types of Corporations
- Corporations under this Code are either stock or non-stock.
- Stock corporations have capital stock divided into shares with dividends distributed to shareholders.
- Non-stock corporations do not distribute dividends.
- Corporations created by special laws are governed primarily by their own laws, supplemented by this Code.
Corporators and Capital Stock
- Corporators are the members composing the corporation.
- Incorporators are the original members or stockholders who sign the articles of incorporation.
- Shares of stock may be divided into classes or series with specific rights or restrictions.
- Voting rights may be limited to certain classes, but at least one class must have full voting rights.
- Preferred shares may have preference in dividends and liquidation but must have par value.
- No-par value shares are deemed fully paid and non-assessable with conditions.
- Founders' shares may have special rights for a limited period (max five years) with SEC approval.
- Redeemable shares can be bought back by the corporation under terms stated in articles of incorporation.
- Treasury shares are reacquired shares held by the corporation and may be disposed of at reasonable price.
Incorporation and Corporate Term
- Minimum 5 to 15 natural persons, majority residents of the Philippines, can form a private corporation.
- Incorporators of stock corporations must subscribe to at least one share.
- Corporate term is up to 50 years and can be extended by amendment.
Capital Stock Requirements
- No minimum authorized capital stock, unless special law provides otherwise.
- At least 25% of authorized capital stock must be subscribed and 25% of subscribed capital must be paid upon incorporation (minimum paid-up capital of P5,000).
Articles of Incorporation
- Must include name, purpose(s), principal office location, term, incorporators, initial directors, capital stock details (for stock corps), and other lawful matters.
- Must be signed and acknowledged by all incorporators and submitted with Treasurer’s Affidavit proving compliance with subscription and payment requirements.
Amendment and Rejection of Articles
- Articles or amendments may be amended by majority vote of board and two-thirds vote of stockholders/members with SEC approval.
- SEC may reject articles or amendments if not compliant, illegal, false in affidavit, or ownership requirements not met.
- Corporate name must be unique and not deceptively similar to existing names.
- Corporate existence begins upon SEC issuance of certificate of incorporation.
De Facto Corporations and Estoppel
- Corporations duly incorporated are protected from collateral inquiries except by Solicitor General.
- Persons acting as corporation without authority may be liable as partners.
Corporate Powers and Management
- Corporate powers exercised by board of directors or trustees for one-year term unless otherwise provided.
- Directors must own at least one share; trustees must be members in non-stock corporations.
- Board conducts elections, meetings, and management including officer appointments.
- Removal of directors requires two-thirds vote of stockholders with prior notice; vacancies may be filled by board or stockholders.
- Directors' compensation regulated; liability imposed for unlawful acts, conflicts of interest, or bad faith.
- Related party contracts voidable unless specific conditions met.
- Executive committees permissible with certain limitations.
Corporate Powers
- Corporations have legal capacity to sue, hold property, issue stock, amend articles, merge, make donations, establish benefit plans, and perform necessary acts per articles.
- Corporate term may be extended or shortened by vote.
- Capital stock may be changed or bonded indebtedness incurred with approval.
- Preemptive rights of stockholders apply unless waived.
- Sale of substantially all assets requires stockholder approval.
- Corporations may acquire own shares under defined conditions.
- Investments in other corporations require approval except if necessary to primary purpose.
- Dividends declared from unrestricted retained earnings; limitations on surplus retention apply.
- Management contracts require board and stockholder approvals.
- Ultra vires acts prohibited.
By-Laws and Meetings
- By-laws must be adopted within one month after SEC certificate issuance.
- Contents include meeting procedures, quorum, officer qualifications, penalties, stock issuance, etc.
- Amendments to by-laws subject to board and stockholder approval, with SEC certification.
- Meetings of stockholders and directors may be regular or special with prescribed notice and quorum rules.
- Voting rights and procedures regulated; proxies permitted.
- Special provisions for voting trusts and joint ownership.
Stocks and Stockholders
- Subscription contracts for stock are irrevocable for six months or as specified.
- Stocks issued for consideration not less than par or issue price; valuation for property or services controlled.
- Certificates of stock required; transfer must be recorded.
- Directors liable for issuing watered stock.
- Interest on unpaid subscriptions may be required.
- Delinquent stock subject to sale, suspension of voting rights.
- Procedures for lost or destroyed stock certificates established.
Corporate Books and Records
- Corporations must keep minutes and records accessible to directors and stockholders.
- Stock and transfer books maintained and accessible.
- Financial statements must be furnished upon request.
Merger and Consolidation
- Board-approved plan required; stockholders or members must vote with two-thirds majority approval.
- Articles of merger or consolidation filed with SEC.
- Effects include vesting of rights and liabilities in surviving or consolidated corporation.
Appraisal Right
- Stockholders may dissent and demand payment at fair value in certain corporate actions.
- Procedures for exercising right and resolving disputes by appraisers.
- Rights suspended pending settlement.
Non-Stock Corporations
- Defined by non-distribution of income.
- Organized for charitable, educational, religious, cultural, social or similar purposes.
- Membership rights and termination governed by articles and by-laws.
- Trustees elected; meetings location flexible within the Philippines.
- Distribution of assets upon dissolution regulated.
Close Corporations
- Defined by limited stockholders (max 20) and transfer restrictions.
- Articles may provide for management by stockholders instead of board.
- Restrictions on transfer must be disclosed.
- Deadlocks resolved by SEC intervention.
- Stockholder withdrawal and dissolution under specified conditions.
Special Corporations: Educational and Religious
- Educational corporations governed by special laws and require Dept. of Education recommendation.
- Religious corporations may be corporations sole or religious societies.
- Corporation sole managed by church officials with powers over temporalities.
- Procedures established for incorporation and property management.
- Dissolution provisions defined.
Dissolution and Liquidation
- Voluntary dissolution may be done by board and two-thirds stockholder vote with notice.
- Petitions with creditor protection required when creditors affected.
- Involuntary dissolution by SEC upon complaint and hearing.
- Corporate existence extends for 3 years post-dissolution for winding up.
- Distribution of assets regulated.
Foreign Corporations
- Defined as corporations formed under laws other than Philippines, allowed if reciprocal rights granted.
- Application, licensing, resident agent, and compliance requirements detailed.
- Revocation for failure to comply with laws or regulations.
- Withdrawal procedures established.
Miscellaneous Provisions
- Outstanding capital stock excludes treasury shares.
- Governing boards in non-stock corporations may have different names.
- SEC authorized to collect fees and promulgate rules.
- Restrictions on stock ownership in public interest corporations.
- Annual reports and confidentiality rules enforced.
- Penalties for violations include fines, imprisonment, and possible dissolution.
- Provisions of Code not affected by repeal or amendment except as stated.
- Invalid provisions severable from valid ones.
- Existing corporations given compliance period.
- Code effective upon approval.