Corporation Law of the Philippine Islands

Corporate formation and organization

Section 2 defines a corporation as an artificial being created by operation of law, with right of succession and powers, attributes, and properties expressly authorized by law or incident to its existence.
Section 3 classifies corporations as public or private; private corporations are divided into stock corporations and nonstock corporations.
Section 4 defines corporators as those who compose the corporation (stockholders, members, or both), and incorporators as those originally named in the articles of incorporation.
Section 5 defines stockholders/shareholders for capital-stock corporations and members for corporations without capital stock.
Section 6 requires five or more persons but not exceeding fifteen, with a majority resident in the Philippine Islands, to form a private corporation for any lawful purpose by filing duly executed and acknowledged articles of incorporation with the Division of Archives, Patents, Copyrights, and Trade-Marks of the Executive Bureau.
Section 6 requires the articles to state: (a) corporate name, (b) purpose, (c) principal office location within the Philippine Islands, (d) corporate term not exceeding fifty years (subject to later provisions), (e) names and residences of incorporators, and (f) director number and initial directors (subject to statutory director limits).
Section 6 allows changes in the number of directors during corporate life: increases/diminutions by assent of a majority of members (nonstock) or majority of stockholders representing/holding a majority of the stock (stock), subject to statutory caps and floors.
Section 6 imposes special content for articles of railroad, tramway, wagon road, and telegraph and telephone companies, including route/line details and engineering/construction particulars.
Section 7 requires that stock corporation articles substantially comply with a prescribed form with numbered clauses (FIRST through FOURTEENTH) covering corporate name, purposes, principal office, term, incorporators, directors, capital stock and shares, subscriptions and payments, election of a treasurer, and specialized railroad/telegraph clauses where applicable.

Filing fees and prima facie evidence

Section 8 allows the Chief of the Division of Archives, Patents, Copyrights, and Trade-Marks to collect PHP 25 as a filing fee for articles of incorporation.
Section 9 bars filing of stock corporation articles unless accompanied by a sworn statement of a treasurer elected by the subscribers showing: at least 20% of the entire capital stock subscribed and at least 25% of the subscription paid to the treasurer for the corporation’s benefit and credit.
Section 10 provides that a certified copy of filed articles, certified by the Chief, is prima facie evidence in courts and elsewhere of the facts stated.
Section 11 requires the Chief, upon filing, to issue a certificate under seal confirming duty filing; upon issuance, the corporation exists for its term under the corporate name.

Property use and franchise requirement

Section 12 prohibits any corporation from occupying or using private property without the owners’ consent or prior condemnation proceedings with just compensation.
Section 12 prohibits corporations from occupying or using public lands, places, roads, highways, streets, avenues, lanes, alleys, sidewalks, bridges, or any other public property without first securing a franchise from the Government of the Philippine Islands.
Section 12 allows street railways, tramways, electric light, power, or telephone corporations to secure a franchise in the manner prescribed in Act Numbered 667 for necessary public property use.
Section 12 allows certain corporations to form and organize as corporations under this Act for doing business: street railway, tramway, telephone, telegraph, electric power or light corporations for business in the city of Manila, and railroad corporations for business in the Philippine Islands.

General corporate powers and restrictions

Section 13 grants every corporation corporate powers including succession, sue and be sued, transacting its lawful business through acts reasonably necessary, using a common seal and altering it, and dealing with property necessary for the corporate purposes and lawful business.
Section 13 limits real estate holding: a corporation is restricted to real estate reasonably necessary to carry out its purposes, and agricultural corporations are restricted to ownership/control of not to exceed 1,024 hectares; it is unlawful for members of a corporation engaged in agriculture or mining, and for any corporation organized for any purpose except irrigation, to be interested in any other corporation engaged in agriculture or mining.
Section 13 allows corporations to loan funds upon real-estate security and purchase real estate when necessary for collection of loans, but requires disposal of real estate acquired within 5 years after receiving title.
Section 13 authorizes appointment/dismissal of subordinate officers/agents and payment of suitable compensation.
Section 13 authorizes by-laws on corporate officers/directors within legal limits, stock transfer administration, management, and property care/disposition, provided by-laws are not inconsistent with existing law.
Section 13 authorizes admission of members; permits stock corporations to issue stock to stockholders and sell stock/shares of stockholders for payment of stockholder indebtedness to the corporation.
Section 13 authorizes entering obligations/contracts essential for proper administration and for accomplishment of the corporate purpose.
Section 14 prohibits a corporation from possessing or exercising corporate powers except those conferred by the Act and those necessary to exercise conferred powers.
Section 15 prohibits corporations doing business in the Philippines, or receiving a grant/franchise/concession, from using/employing/contracting for labor of persons claimed or alleged to be held in involuntary servitude; violations cause forfeiture of all charters, grants, franchises, and concessions and impose a fine of PHP 20,000.
Section 16 prohibits corporations from creating or issuing bills/notes or other evidence of debt for circulation as money.
Section 16 prohibits issuing stock or bonds except for actual cash paid or for property actually received at a fair valuation equal to the par value of the stock/bonds issued.
Section 16 prohibits stock or bond dividends and any dividends except from surplus profits arising from business, and prohibits dividing/distributing capital stock or property other than actual profits until after payment of corporate debts and termination of existence by limitation or lawful dissolution.
Section 16 allows banking, savings and loan, and trust corporations to receive deposits and issue ordinary banking instruments like certificates of deposit, checks, drafts, bills of exchange, and similar instruments in ordinary banking operations.
Section 17 prohibits increasing/diminishing capital stock or incurring/increasing bonded indebtedness unless voting requirements are met at a properly called stockholders meeting: two-thirds of entire subscribed corporate capital stock favoring the increase/diminution, or majority of subscribed capital stock favoring bonded indebtedness incurrence/creation/increase.
Section 17 requires notice addressed to each stockholder at residence as shown by corporate books and registered and deposited with postage prepaid, detailing the proposed action and meeting time/place.
Section 17 requires a duplicate certificate signed by a majority of directors and counter-signed by the chair and secretary of the stockholders meeting, stating compliance, amounts, actual indebtedness on the meeting date, stock represented, and the vote authorizing the action.
Section 17 mandates that one duplicate certificate be kept on file in the corporation and the other filed with the Chief of the Division and attached to the original articles; from filing the duplicate certificate with the Chief, the capital stock or bonded indebtedness changes take effect.
Section 17 authorizes the Chief to collect PHP 20 for filing the duplicate certificate.
Section 18 allows amendments to articles of incorporation through specified corporate approvals (board/directors/trustees majority vote plus two-thirds assent of members or stockholders, depending on whether the corporation is nonstock or stock), and requires filing certified copies with the Chief of the Division attached to original articles.
Section 18 prevents extension of corporate life beyond the time fixed in the original articles by amendment.
Section 18 provides that amendments cannot be construed to authorize changes affecting rights or actions accrued to others between original filing and amended filing.
Section 20 provides that if a corporation does not formally organize and commence business or construction of works within 2 years from incorporation, corporate powers cease.
Section 20 limits collateral inquiry by private suits: good-faith incorporation and right to exercise corporate powers is not inquired into collaterally in private suits where the corporation is a party; inquiry is available at the suit of the Insular Government upon information of the Attorney-General.

By-laws and meeting governance

Section 20 (By-laws) requires every corporation to adopt a code of by-laws within 1 month after filing the articles of incorporation with the Division.
Section 20 (By-laws) requires by-laws to govern the corporation’s government and must be not inconsistent with this Act or any Act of Congress having force and effect in the Philippine Islands.
Section 20 (By-laws) requires approval of by-laws by an affirmative vote of stockholders representing a majority of all subscribed capital stock (paid or unpaid) or a majority of members if there is no capital stock.
Section 20 (By-laws) requires by-laws to be signed by the voting stockholders/members, kept at the principal office for inspection during office hours, and a certified and countersigned copy to be filed with the Chief of the Division.
Section 20 (By-laws) authorizes the Chief to collect a filing fee of PHP 2 for by-law filing, and requires attaching the by-laws to the original articles.
Section 21 allows a corporation, unless otherwise prescribed, to include in by-laws rules on meeting timing/place/manner; director and stockholder/member quorum; voting conditions for nonstock members; proxy voting; directors/officers/employee qualifications, duties, and compensation; annual director election time/mode and notice; officers’ elections/terms; by-law violation penalties up to PHP 200; and stock certificate issuance (for stock corporations), plus other matters necessary for business transaction.
Section 22 allows amendment or repeal of by-laws by owners of a majority of subscribed capital stock or a majority of members in a properly called regular/special meeting, and allows delegation of by-law amendment/repeal power to the board by vote of owners of two-thirds of subscribed capital stock or two-thirds of members.
Section 22 provides that any delegated board power is revoked whenever a majority of stockholders or members votes to revoke it in a regular/special meeting.
Section 23 requires that adopted amendments/new by-laws be kept attached to original by-laws in the corporate office and filed with the Chief with a certified and countersigned copy; the Chief attaches them to original by-laws and original articles and collects PHP 2 for filing/service.

Meetings: location, validity, and court orders

Section 24 requires member/stockholder meetings to be held at the place of the corporation’s principal office, and permits director meetings at the place fixed in the by-laws.
Section 25 validates proceedings of meetings even if improperly held or called, provided the stockholders or members are present and the meeting actions are within corporate powers.
Section 25 authorizes such meetings to elect officers, fill vacancies, and transact other business lawful for regular meetings.
Section 26 allows a Court of First Instance judge to order a stockholder/member to call a meeting on showing of good cause when no person is authorized or the officer refuses/fails/neglects to call.
Section 26 empowers the same judge to direct who presides if no person is legally authorized to preside, until a majority of members/stockholders representing a majority stock present and permitted to be voted have chosen a presiding officer.
Section 27 allows executors, administrators, guardians, or other persons in a position of trust and legally authorized to vote as stockholders in their representative capacity.

Board of directors: composition, election, duties

Section 28 mandates that corporate powers be exercised and corporate affairs be managed by a board of not less than 5 nor more than 11 directors elected from among stockholders, or among members where there is no stock.
Section 29 provides that directors are elected at the meeting for adoption of original by-laws (or later meeting as determined) to hold office for 1 year and until successors are elected and qualified.
Section 29 requires annual director election thereafter by stockholders (stock corporation) or members (nonstock corporation); if by-laws do not provide, election is held on the first Tuesday after the first Monday in January.
Section 29 requires notice of director election by publication in a newspaper of general circulation devoted to general news at the principal office place and by written notice deposited in the post-office postage prepaid addressed to each stockholder/member at last known residence, subject to statutory notice rules.
Section 29 permits substitution of posting for publication where no newspaper is published in the principal office place: notice must be posted for 3 weeks immediately preceding election in at least 3 public places.
Section 30 requires stock directors to own at least 1 share in their own right, with the share standing in their name on the corporate books; loss of ownership of at least one share ends directorship.
Section 30 requires at least 2 directors of all corporations organized under the Act to be residents of the Philippine Islands; nonstock corporations’ directors must be members.
Section 31 requires that, for elections of directors, persons present either in person or by authorized written proxy include the owners of a majority of subscribed capital stock entitled to vote (or a majority of members entitled to vote where there is no capital stock).
Section 31 requires director elections by ballot and allows cumulative voting/casting votes for multiple candidates based on the number of shares and directors to be elected, subject to a cap that total votes cast by a voter must not exceed shares owned multiplied by number of directors.
Section 31 prohibits voting by stock declared delinquent by the board of directors for unpaid subscriptions.
Section 31 permits nonstock members to cast votes as many votes for one director as directors to be elected or distribute votes among candidates.
Section 31 states that directors receiving the highest number of votes are declared elected.
Section 31 allows adjournment of elections from day to day or time to time if no election occurs or if the required owners/members are not present or represented by proxy.
Section 32 permits calling a meeting for director election when no meeting is held on the day fixed by law or by-laws, and provides the election has the same effect as if held on the fixed day.
Section 33 requires directors to organize immediately after election by electing a president (from among directors), a secretary or clerk who must be a resident of the Philippine Islands and a citizen of the Philippine Islands or of the United States, plus other officers under by-laws.
Section 33 sets a quorum: a majority of directors constitutes quorum, and decisions of a majority of the quorum duly assembled are valid as corporate acts.
Section 34 allows removal of directors by vote of two-thirds of members entitled to vote, or for stock corporations by vote of stockholders holding or representing two-thirds of subscribed capital stock entitled to vote.
Section 34 requires removal at a regular meeting or special meeting called for the purpose, after previous notice to stockholders/members of the intention to propose removal.
Section 34 requires the special meeting be called by the secretary or clerk on the president’s order or on written demand of a majority of members entitled to vote, or (stock corporation) written demand of stockholders representing/holding at least one-half of the shares entitled to be voted; if the secretary/clerk fails or there is no secretary/clerk, call may be made directly by any member/stockholder signing the demand.
Section 34 requires notice of time/place and intention to propose removal by publication or written notice following election notice rules in Section 29.
Section 34 provides that vacancies created by removal may be filled at the same meeting (without further notice) or at another meeting called for the purpose after notice as prescribed.

Stock certificates, transfer, and subscription interest

Section 35 requires stock corporations’ capital stock to be divided into shares with certificates signed by the president or vice-president, countersigned by secretary or clerk, and sealed with the corporate seal, issued according to by-laws.
Section 35 treats issued shares as personal property and allows transfer by delivery of the certificate indorsed by the owner or authorized person.
Section 35 makes transfer invalid except between the parties until the transfer is entered and noted on corporate books showing parties, transfer date, certificate number, and number of shares transferred.
Section 35 prohibits transfer on the corporate books of any share against which the corporation holds any unpaid claim.
Section 36 requires stock subscribers to pay to the corporation quarterly on unpaid subscriptions interest from subscription date at 6% per annum unless by-laws provide otherwise.
Section 36 prohibits issuing certificates as fully paid up until full par value is paid.
Section 36 allows subscribed shares not fully paid up to be voted provided no subscription call or interest due is unpaid and delinquent.

Calls, delinquency, notice, and sale procedures

Section 37 authorizes the board of directors or trustees of a stock corporation to declare due and payable unpaid subscriptions and collect them with accrued interest or such percentage as the board deems necessary.
Section 38 requires the board’s order to state: the percentage due and payable, when/where/to whom payable, delinquency date (after full publication term), and delinquency timing not less than 30 days nor more than 60 days from the order date; and a delinquent-stock sale date not less than 15 days nor more than 60 days from delinquency date.
Section 38 prescribes the form and content of the board’s notice, including the meeting of the board, payment schedule, delinquency date, and public auction sale date to cover subscription, interest, and costs.
Section 39 requires that if any unpaid subscription remains unpaid on the delinquency date, the secretary or clerk must give notice of delinquency and sale in a prescribed format naming delinquent shares and amounts, stating where/when/at what hour the sale occurs.
Section 40 requires call notices for unpaid subscriptions to be personally served or sent by post office postage prepaid to each stockholder’s residence if known, and if not known to the principal office location; it also requires weekly publication for four successive weeks in a general news newspaper at the principal office place and posting in a prominent place at corporation works if any; where no newspaper is published locally, publication may be in a general news newspaper in the Islands.
Section 41 requires delinquency and sale notices to be published in the same newspapers; daily newspaper publication must be ten successive issues before sale, while weekly publication must be two weeks before sale, with the first publication 15 days prior to sale.
Section 42 provides that after publication of delinquency and sale notices the corporation acquires jurisdiction to sell and convey the stock described, but must sell no more stock than necessary to pay subscription due, interest accrued, and advertising/sale costs.
Section 43 requires the secretary or clerk to sell or cause sale at public auction to the highest bidder for cash the necessary shares, unless the board orders otherwise.
Section 44 defines the highest bidder as the person offering to pay the unpaid subscription (with accrued interest, advertising expenses, and costs of sale) for the smallest number of shares or fraction; the purchaser must have transfers made on corporate stock books upon payment of the amount due plus expenses.
Section 44 authorizes if no bidder pays the amounts with required expenses, the corporation may bid in through specified officers/stockholders, credit the amount due as paid in full on its books, and enter transfer to the corporation.
Section 45 vests legal title to all stock purchased by the corporation at delinquent sales in the corporation, and permits disposition by stockholders pursuant to law and by-laws by majority vote of remaining shares.
Section 46 allows extension of dates fixed in calls/notices for up to 30 days by board order entered on corporate records, but such extensions must be appended to the relevant notice and republished.
Section 47 restricts legal actions to recover stock sold for delinquent subscriptions: no action may be sustained on grounds of irregularity or defect in calls, notices, or sale unless the plaintiff first pays or tenders the sale price plus all subsequent calls paid with interest at 7% per annum from date of payment; actions must be commenced by filing a complaint and issuance of summons within 6 months from the sale date.
Section 48 provides evidentiary rules: posting/publication and sale particulars may be proved by prima facie affidavits from corporate officers and newspaper officers/auctioneer/secretary or clerk/treasurer; affidavits must be filed in the corporate office and certified copies may be received by courts as prima facie evidence.
Section 49 allows directors to collect unpaid subscriptions by court action for amounts due with accrued interest and costs/expenses incurred.
Section 50 prohibits delinquent stock from being voted or entitled to representation at any stockholders’ or directors’ meeting or for any corporate purpose.

Corporate books, inspection, and public-utility reporting

Section 51 requires business corporations to keep and carefully preserve records of business transactions and detailed minutes of directors’, members’, or stockholders’ meetings, including authorization basis, notice given, regular/special status and special-object, those present/absent, and all acts done or ordered.
Section 51 grants directors, members, or stockholders rights: entries on minutes when someone enters/leaves upon demand; recorded yeas and nays upon motion/proposition demand; recording of any protest in full on demand.
Section 51 requires records and minutes to be open to inspection by any director, member, or stockholder at reasonable hours.
Section 52 requires business corporations to keep a “Stock and transfer book” recording stockholders’ names alphabetically, installment paid/unpaid and dates of payment, statements of all stock alienations/sales/transfers with dates and parties, and other by-law entries; it must be open to inspection at reasonable hours by directors, stockholders, or members.
Section 53 requires every public-utility or public-service corporation, domestic or foreign, doing business for profit in the Philippines to file with the Insular Auditor on or before March 31 of each year an operations report for the preceding year ending December 31.
Section 53 requires verification of the report by oath of the president or manager and the secretary or clerk or treasurer, and requires disclosure of capital stock (full amount and paid-in as of December 31), available assets (including cash, property, and credits) and encumbrances, total indebtedness, total receipts and expenditures, profit or loss, and dividends paid during the year.
Section 53 prohibits public disclosure of the report contents without the express authorization of the Governor-General.
Section 53 provides an alternative filing rule where a corporation’s fiscal year does not end on December 31: compliance is sufficient if the report states required details down to the close of its fiscal year, and it must be filed within 3 months after the fiscal year close.

Government examination power

Section 54 empowers the Governor-General, at any time, to order the Attorney-General, Insular Auditor, Insular Treasurer, or other designated government officer to examine the business affairs, administration, and condition of any corporation transacting business in the Philippines.
Section 54 imposes a duty on the Attorney-General, Insular Auditor, Insular Treasurer, or designated officer to conduct the examination as ordered.