Core definitions and corporation types
- A corporation is an artificial being created by operation of law, with right of succession and powers authorized by law or incidental to its existence. (Section 2)
- Corporations formed under the Code may be stock or nonstock corporations. (Section 3)
- A stock corporation has capital stock divided into shares and is authorized to distribute dividends or surplus profits based on shares held. (Section 3)
- A nonstock corporation includes all other corporations. (Section 3)
- Corporations created by special laws or charters are governed primarily by the special law or charter, supplemented by the Code where applicable. (Section 4)
- Corporators are those who compose a corporation as stockholders/shareholders or members in nonstock corporations. (Section 5)
- Incorporators are the stockholders or members named in the articles of incorporation as originally forming and composing the corporation, and who are signatories. (Section 5)
Share classifications and governance rights
- Share classification, rights, privileges, restrictions, and stated par value (if any) must be indicated in the articles of incorporation. (Section 6)
- Each share must be equal in all respects except as otherwise provided in the articles of incorporation and the certificate of stock. (Section 6)
- No share may be deprived of voting rights except shares classified and issued as “preferred” or “redeemable” shares, unless otherwise provided by the Code. (Section 6)
- There must always be a class or series of shares with complete voting rights. (Section 6)
- Holders of nonvoting shares must still vote on specific fundamental matters:
- Amendment of the articles of incorporation;
- Adoption and amendment of bylaws;
- Sale, lease, exchange, mortgage, pledge, or disposition of all or substantially all corporate property;
- Incurring/creating/increasing bonded indebtedness;
- Increase/decrease of authorized capital stock;
- Merger or consolidation;
- Investment of corporate funds in another corporation or business in accordance with the Code; and
- Dissolution of the corporation. (Section 6)
- Except for the matters above, the vote required by the Code for approval of a corporate act refers only to stocks with voting rights. (Section 6)
- Shares in stock corporations may be divided into classes or series, or both. (Section 6)
- Shares may or may not have par value. (Section 6)
- Banks, trust, insurance, and preneed companies, public utilities, building and loan associations, and other public-funding corporations may not issue no-par value shares. (Section 6)
- Preferred shares may receive preferences in dividends and in liquidation distribution, but preferred shares may be issued only with stated par value. (Section 6)
- If authorized in the articles of incorporation, the board may fix terms and conditions for preferred shares or series, effective only upon filing a certificate with the Securities and Exchange Commission (“Commission”). (Section 6)
- No-par value shares are deemed fully paid and nonassessable, and holders are not liable to the corporation or creditors for the no-par shares, provided that:
- No-par shares must be issued for at least P5.00 per share consideration; and
- The entire consideration received is treated as capital and is not available for dividends. (Section 6)
- A corporation may further classify its shares to ensure compliance with constitutional or legal requirements. (Section 6)
Founders’ and redeemable shares
- The Code allows founders’ shares to grant rights/privileges not enjoyed by other stockholders. (Section 7)
- If founders’ shares grant an exclusive right to vote and be voted for directors, that exclusive right must last no more than five (5) years from the date of incorporation. (Section 7)
- The founders’ exclusive voting right cannot be allowed if it violates Commonwealth Act No. 108 (Anti-Dummy Law), Republic Act No. 7042 (Foreign Investments Act of 1991), or other pertinent laws. (Section 7)
- Redeemable shares may be issued only when expressly provided in the articles of incorporation. (Section 8)
- Redeemable shares are shares the corporation may purchase from holders upon expiration of a fixed period, regardless of the existence of unrestricted retained earnings, subject to terms in the articles and stock certificates and rules of the Commission. (Section 8)
- Treasury shares are shares that were issued and fully paid but later reacquired by the issuing corporation through purchase, redemption, donation, or other lawful means. (Section 9)
- Treasury shares may be disposed of again for a reasonable price fixed by the board. (Section 9)
Incorporators, corporate term, and capitalization
- Up to fifteen (15) incorporators may organize a corporation for any lawful purpose(s), whether singly or jointly, but incorporators must be legal age if natural persons. (Section 10)
- Natural persons licensed to practice a profession, and partnerships/associations organized to practice a profession, cannot organize as a corporation unless allowed by special laws. (Section 10)
- In a stock corporation, each incorporator must own or subscribe to at least one (1) share. (Section 10)
- A corporation with a single stockholder is considered a One Person Corporation under Title XIII, Chapter III. (Section 10)
- A corporation generally has perpetual existence unless its articles of incorporation provide otherwise. (Section 11)
- Corporations with certificates of incorporation issued before the Code’s effectivity that continue to exist retain perpetual existence unless they notify the Commission by a vote of stockholders representing a majority of outstanding capital stock that they elect to retain their specific corporate term under their articles. (Section 11)
- A change in corporate term under this mechanism does not prejudice the appraisal right of dissenting stockholders under the Code. (Section 11)
- A fixed corporate term may be extended or shortened by amending the articles, approved by the required vote under the amendment provisions and subject to:
- No extension earlier than three (3) years prior to original or subsequent expiry date(s) unless there are justifiable reasons determined by the Commission; and
- The extension takes effect only on the day following the original or subsequent expiry date(s). (Section 11)
- A corporation whose term has expired may apply for revival of corporate existence; upon Commission approval, it is deemed revived and issued a certificate of revival, giving it perpetual existence unless the application states otherwise, and revival is subject to prior duties, debts, and liabilities. (Section 11)
- The Commission does not approve revival applications for banks and quasi-banking institutions, preneed companies, insurance and trust companies, NSSLAs, pawnshops, corporations engaged in money service business, and other financial intermediaries unless accompanied by a favorable recommendation from the appropriate government agency. (Section 11)
- Stock corporations are not required to have minimum capital stock, except as specifically provided by special law. (Section 12)
Articles of incorporation: contents and filing
- All corporations must file with the Commission articles of incorporation in any official language, duly signed and acknowledged/authenticated, in the form and manner allowed by the Commission, and containing the required matters under the Code. (Section 13)
- The required contents include the name, purpose(s) (with primary and secondary purposes if more than one), principal office location within the Philippines, and the term if not perpetual. (Section 13)
- The required contents include incorporators’ names, nationalities, and residence addresses, and the number of directors (not more than 15) or trustees (may be more than 15). (Section 13)
- The required contents include the persons who will act as directors/trustees until first elected and qualified, with their names, nationalities, and residence addresses. (Section 13)
- If a stock corporation, the articles must include: authorized capital stock amount, number of shares, par value per share (if any), original subscribers’ names/nationalities/residence addresses, amounts subscribed and paid, and a statement on without par value shares if applicable. (Section 13)
- If a nonstock corporation, the articles must include: capital amount and contributors’ names/nationalities/residence addresses and contributions. (Section 13)
- The articles must include other matters consistent with law that incorporators deem necessary and convenient. (Section 13)
- An arbitration agreement may be provided in the articles pursuant to Section 181 of the Code. (Section 13)
- Articles of incorporation and applications for amendments may be filed as electronic documents consistent with the Commission’s rules on electronic filing. (Section 13)
- Domestic corporations must comply with the required form of articles of incorporation unless special law prescribes otherwise. (Section 14)
- The prescribed form requires clauses stating corporate name, lawful purposes, principal office within the Philippines, perpetual existence or term, incorporators’ details, number of directors/trustees and first directors/trustees, authorized capital stock terms, subscription and payment details, treasurer election and certification of received subscriptions, undertakings on corporate name compliance, and (for businesses reserved to Filipino citizens) a restriction on transfers reducing Filipino ownership below required percentages, indicated in stock certificates. (Section 14)
Amendments, disapproval, and corporate name rules
- Amendments to the articles may be adopted for legitimate purposes unless otherwise prescribed by the Code or special law, approved by:
- Board majority, and
- Stockholders representing at least two-thirds (2/3) of outstanding capital stock (for nonstock, majority of trustees and two-thirds (2/3) of members). (Section 15)
- Amendments must include all provisions required by law; changes must be indicated by underscoring, and a certified copy under oath by the corporate secretary and a majority of directors/trustees, with a statement that amendments were approved by the required vote, must be submitted to the Commission. (Section 15)
- Amendments take effect upon Commission approval, or from filing if not acted upon within six (6) months for a cause not attributable to the corporation. (Section 15)
- The Commission may disapprove articles or any amendment if not compliant with the Code’s requirements, after giving incorporators/directors/trustees/officers a reasonable time to modify objectionable portions. (Section 16)
- Disapproval grounds include: failure to substantially follow the prescribed form; patently unconstitutional/illegal/immoral purposes or purposes contrary to government rules and regulations; false certification on subscription and/or capital paid; or failure to comply with required Filipino ownership percentage. (Section 16)
- Articles/amendments of banks/banking and quasi-banking institutions, preneed, insurance and trust companies, NSSLAs, pawnshops, and other financial intermediaries require a favorable recommendation from the appropriate government agency before Commission approval. (Section 16)
- The Commission must not allow a corporate name that is not distinguishable from a reserved/registered name, is protected by law, or violates existing law/rules/regulations. (Section 17)
- A name is not distinguishable even if it includes corporation-related words/abbreviations and does not become distinguishable through minor differences such as punctuation, articles, conjunctions, contractions, prepositions, abbreviations, different tenses, spacing, or number of the same words/phrases. (Section 17)
- If the Commission determines the corporate name is not distinguishable, protected by law, or contrary to law/rules/regulations, it may order immediate cease and desist, require registration of a new name, and require removal of all signages/marks/advertisements/labels/prints bearing the name. Upon approval of the new name, the Commission issues a certificate of incorporation under the amended name. (Section 17)
- Noncompliance with the cease-and-desist order allows the Commission to hold the corporation and responsible directors/officers in contempt and/or impose administrative, civil, and/or criminal liability under the Code and other applicable laws, and/or revoke registration. (Section 17)
Registration and corporate existence
- Persons desiring incorporation must submit the intended corporate name to the Commission for verification, and the Commission reserves a distinguishable name in favor of incorporators. (Section 18)
- Incorporators must submit articles of incorporation and bylaws after name verification. (Section 18)
- If the Commission finds documents and information fully compliant with the Code and other relevant laws/rules/regulations, it issues a certificate of incorporation. (Section 18)
- A private corporation commences corporate existence and juridical personality on the date the Commission issues the certificate of incorporation under its official seal. (Section 18)
- Incorporators, stockholders/members, and successors constitute a body corporate under the name stated in the articles for the period stated in the articles unless extended or dissolved earlier under law. (Section 18)
De facto corporations; estoppel liability
- The due incorporation of a corporation claiming in good faith to be a corporation under the Code, and its right to exercise corporate powers, cannot be inquired into collaterally in private suits to which the corporation is a party. Such inquiry may be made by the Solicitor General in a quo warranto proceeding. (Section 19)
- Persons who assume to act as a corporation knowing they lack authority are liable as general partners for all debts, liabilities, and damages incurred or arising from those acts. (Section 20)
- In suits against an ostensible corporation on transactions it entered as a corporation or tort committed as such, it cannot use lack of corporate personality as a defense, and anyone who assumed an obligation to an ostensible corporation cannot resist performance on the ground that no corporation existed. (Section 20)
Non-use, inoperation, delinquency, and revocation
- If a corporation does not formally organize and commence its business within five (5) years from incorporation, its certificate of incorporation is deemed revoked as of the day following the end of the five-year period. (Section 21)
- If a corporation commences business but becomes inoperative for at least five (5) consecutive years, the Commission may, after due notice and hearing, place it under delinquent status. (Section 21)
- A delinquent corporation has two (2) years to resume operations and comply with requirements the Commission prescribes. (Section 21)
- Upon compliance, the Commission issues an order lifting delinquent status. (Section 21)
- Failure to comply and resume operations within the Commission-given period causes revocation of the certificate of incorporation. (Section 21)
- Before suspending or revoking certificates of corporations under special regulatory jurisdiction, the Commission gives reasonable notice and coordinates with the appropriate regulatory agency. (Section 21)
Board of directors/trustees and independent directors
- The board of directors/trustees exercises corporate powers, conducts business, and controls corporate property unless otherwise provided. (Section 22)
- Directors are elected for a term of one (1) year from holders of stocks registered in the corporation’s books; trustees are elected for a term not exceeding three (3) years from members of the corporation. (Section 22)
- Directors and trustees hold office until successors are elected and qualified, and a director/trustee ceases to be such upon ceasing to own at least one (1) share or ceasing to be a member, respectively. (Section 22)
- Certain corporations vested with public interest must have independent directors constituting at least twenty percent (20%) of the board:
- Corporations under Section 17.2 of Republic Act No. 8799 (Securities Regulation Code), including those whose securities are registered with the Commission, listed corporations, and those with assets of at least P50,000,000.00 and two hundred (200) or more holders where each holds at least one hundred (100) shares of a class of equity shares;
- Banks and quasi-banks, NSSLAs, pawnshops, money service business corporations, preneed, trust and insurance companies, and other financial intermediaries; and
- Other corporations in similar public-interest businesses as determined by the Commission using germane factors, including minority ownership extent, type of financial products or securities issued/offered, public interest in operations, and analogous factors. (Section 22)
- An independent director is independent of management aside from shareholdings and fees and is free from business/other relationships that could reasonably interfere with independent judgment. (Section 22)
- Independent directors must be elected by shareholders present or entitled to vote in absentia during the election of directors. (Section 22)
- Independent directors are subject to Commission rules on qualifications, disqualifications, voting requirements, term limits, maximum board memberships, and other requirements to strengthen independence and align with international best practices. (Section 22)
Director/trustee election rules and voting
- Except for founders’ shares exclusive voting rights under Section 7, each stockholder/member may nominate any director/trustee who has all qualifications and none of the disqualifications under the Code. (Section 23)
- Director/trustee elections require presence of owners of majority of outstanding capital stock (or majority of members entitled to vote if no capital stock) in person or through a representative authorized by written proxy. (Section 23)
- Voting through remote communication or in absentia may be used if allowed in bylaws or by majority of the board; this right of vote applies to corporations vested with public interest even if bylaws lack a provision. (Section 23)
- A stockholder/member who votes through remote communication or in absentia is deemed present for quorum purposes. (Section 23)
- Elections must be by ballot if any voting stockholder/member requests it. (Section 23)
- In stock corporations, stockholders entitled to vote vote the number of shares in their names in stock books at the bylaw-fixed time, or at the election time if bylaws are silent, and may:
- vote shares for as many persons as there are directors to be elected;
- cumulatively vote (cumulative voting) giving one candidate votes equal to directors-to-be-elected multiplied by shares owned; or
- distribute votes among candidates using the same principle. (Section 23)
- Total votes cast cannot exceed shares owned multiplied by the whole number of directors to be elected. (Section 23)
- No delinquent stock shall be voted. (Section 23)
- In nonstock corporations, members may cast as many votes as there are trustees to be elected but may not cast more than one (1) vote for one (1) candidate. (Section 23)
- Nominees receiving the highest number of votes are elected. (Section 23)
- If no election is held or the majority required for election quorum is not present/not voting through allowed modes, the meeting may be adjourned and the corporation proceeds under Section 25. (Section 23)
- Elected directors/trustees perform duties under law, rules of good corporate governance, and the bylaws. (Section 23)
Officers and required composition
- Immediately after election, directors must formally organize and elect a president (must be a director), a treasurer (must be a resident), a secretary (must be a citizen and resident of the Philippines), and other officers provided in bylaws. (Section 24)
- If the corporation is vested with public interest, the board also elects a compliance officer. (Section 24)
- One person may hold two or more positions concurrently, except no one shall act as president and secretary or president and treasurer at the same time unless allowed by the Code. (Section 24)
- Officers manage the corporation and perform duties as provided in bylaws and/or resolved by the board. (Section 24)
Mandatory reporting, election failures, and updates
- Within thirty (30) days after election of directors/trustees/officers, the secretary or other officer must submit to the Commission the names, nationalities, shareholdings, and residence addresses of the elected persons. (Section 25)
- Failure to hold elections and reasons must be reported to the Commission within thirty (30) days from the scheduled election date, including a new election date not later than sixty (60) days from the scheduled date. (Section 25)
- If no new date is designated or if rescheduled election is not held, the Commission may, upon application of a stockholder/member/director/trustee and after verifying unjustified non-holding, summarily order an election be held and issue appropriate orders including notices stating time/place, presiding officer, and record date(s) for voting entitlement determination. (Section 25)
- Shares/membership represented at the ordered meeting constitute quorum for election purposes. (Section 25)
- If a director/trustee/officer dies, resigns, or ceases to hold office, the secretary or the concerned director/trustee/officer must report in writing to the Commission within seven (7) days from knowledge. (Section 25)
Disqualifications and removal of directors/trustees
- A person is disqualified as director/trustee/officer if, within five (5) years prior to election/appointment, the person:
- was convicted by final judgment of an offense punishable by imprisonment exceeding six (6) years, violated this Code, or violated Republic Act No. 8799;
- was found administratively liable for offenses involving fraudulent acts; or
- was disqualified by a foreign court/equivalent foreign regulatory authority for acts similar to the above. (Section 26)
- These disqualifications do not limit additional qualifications/disqualifications the Commission, primary regulatory agency, or Philippine Competition Commission may impose for good corporate governance or as administrative sanctions. (Section 26)
- Directors/trustees may be removed by stockholders holding or representing at least two-thirds (2/3) of outstanding capital stock (or two-thirds (2/3) of members entitled to vote in a nonstock corporation), at a regular or special meeting called for removal after previous notice of intent to propose removal. (Section 27)
- A special meeting for removal must be called by the secretary on order of the president, or upon written demand by stockholders representing/holding at least a majority of outstanding capital stock, or by majority of members entitled to vote. If the secretary fails or refuses, the demand signatory may call the meeting directly. (Section 27)
- Notice of time/place and intention to propose removal must be given by publication or written notice prescribed in the Code. (Section 27)
- Removal may be with or without cause, but removal without cause cannot deprive minority stockholders/members of their right to representation under Section 23. (Section 27)
- The Commission must order removal of a director/trustee elected despite disqualification, or whose disqualification arose/discovered after election, upon Commission action motu proprio or on verified complaint after due notice and hearing. (Section 27)
- Removal of a disqualified director/trustee does not prejudice other sanctions the Commission may impose on boards who, with knowledge of disqualification, failed to remove the disqualified person. (Section 27)
Vacancies and emergency board formation
- Vacancies not caused by removal or expiration may be filled by vote of at least a majority of remaining directors/trustees if they still constitute a quorum; otherwise, vacancies must be filled by stockholders/members in a regular or special meeting. (Section 28)
- For vacancies due to term expiration, the election must be held no later than the day of expiration in a meeting called for that purpose. (Section 28)
- For vacancies due to removal by stockholders/members, election may be held on the same day of the meeting authorizing removal, and this must be stated in the agenda and notice. (Section 28)
- For other cases, election to fill the vacancy must be held no later than forty-five (45) days from when the vacancy arose. (Section 28)
- The replacement director/trustee serves only for the unexpired term of the predecessor. (Section 28)
- When a vacancy prevents the remaining directors from constituting a quorum and emergency action is required to prevent grave, substantial, and irreparable loss or damage, the vacancy may be temporarily filled from among officers by unanimous vote of the remaining directors/trustees. (Section 28)
- The emergency appointee’s authority is limited to necessary emergency action and ends within a reasonable time from termination of emergency or upon election of replacement director/trustee, whichever occurs earlier. (Section 28)
- The corporation must notify the Commission within three (3) days from creation of the emergency board, stating the reason for its creation. (Section 28)
- Any directorship/trusteeship created due to an increase in number of directors/trustees must be filled by election at a regular or special stockholders’/members’ meeting duly called, or in the same meeting authorizing the increase if stated in the notice. (Section 28)
- In elections to fill vacancies, the procedures in Sections 23 and 25 apply. (Section 28)
Director/trustee compensation limits
- If bylaws do not fix compensation, directors/trustees receive no compensation for their capacity as such except reasonable per diems. (Section 29)
- Stockholders representing at least a majority of outstanding capital stock or members may grant directors/trustees compensation and approve amount at a regular or special meeting. (Section 29)
- Total yearly compensation of directors/trustees cannot exceed ten percent (10%) of net income before income tax of the corporation during the preceding year. (Section 29)
- Directors/trustees cannot participate in determining their own per diems or compensation. (Section 29)
- Corporations vested with public interest must submit to shareholders and the Commission an annual report of the total compensation of each director/trustee. (Section 29)