CORPORATION LAW

BP Blg. 68 the present CORPORATION CODE of the

Philippines.

4.

It has only the powers, attributes, and

properties expressly authorized by law or
incident to its existence.
May exercise only such powers as are granted by the law
of its creation.
All powers which may be implied from those expressly
provided by law and those which are incidental or
essential to the corporations existence may also be
exercised.

Section 2. 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
incident to its existence.
Refers only to corporations organized under the
Corporation Code or to private corporations.
Artificial being
Doctrine of Corporate Entity
Artificial intellectual being
A corporation is a legal or judicial person with a
A collection of many individuals
personality separate and apart from its individual
A legal institution
stockholders or members and from any other legal entity
to which it may be connected or related.
Attributes of a Corporation
The law treats it as though it were a person by process of
1. It is an artificial being
fiction.
Not a natural person;
Doctrine of Piercing the Veil of Corporate Entity
Judicial person with a separated personality from its
Where the fiction of corporate entity is being used as a
stockholders/members.
cloak or cover for fraud or illegality, or to defeat public
General rule is that obligations incurred by a corporation,
convenience, justify wrong, protect fraud, or defend
acting through its authorized agents, are its sole
crime, or for ends of subversive of the policy and
liabilities.
purpose behind its creation, this fiction will be
The separate personality of a corporation is a shield
disregarded and the individuals composing it or two
against personal liability of its officers.
corporations will be considered identical.
A corporation cannot be held liable for the personal
Disregarding the fiction of corporate entity or doctrine of
indebtedness of a stockholder even if he should be its
corporate alter ego.
president.
Removes the barrier between the corporation from the
Corporate officers cannot be held personally liable for
persons comprising it to thwart the fraudulent and illegal
the consequences of their acts, for as long as they are
schemes of those who use the corporate personality as a
for and on behalf of the corporation, within the scope of
shield for undertaking proscribed activities.
their authority and in good faith.
Liability will attach personally or directly to the officers
The property of the corporation is not the property of the
and stockholders.
stockholders or members and may not be sold by the
Application of doctrine in three areas:
stockholders or members without express authorization
1. Defeat of public convenience
of its board of directors or trustees.
2. Fraud cases
Personal liability may attach when the director/trustee or
3. Alter ego cases
officer acted maliciously or in bad faith, or with gross
The absence of any of the three elements below
negligence, or agreed to hold himself personally and
prevents piercing of the corporate veil:
solidarily liable with the corporation, or made, by specific
1. Instrumentality or control test complete dominion
provision of law, personally liable for corporate action or
2. Fraud test control must have been used by the
it is proven that the officer used the fiction of separate
defendant at the time the acts complained of took place,
corporate personality to defraud a third party or for
to commit fraud or wrong.
wrongful ends.
3. Harm/causal connection test control and breach of duty
A corporation may incur obligations and bring civil and
must proximately cause the injury or just loss
criminal actions in its own name in the same manner as
complained of.
a natural person.
The court must acquire jurisdiction first over the
A corporation may have a good reputation which, if
corporation or corporations involved before it can apply
debased or besmirched resulting in social humiliation,
the doctrine.
may be a ground for recovery of moral damages and
The doctrine must be raised during a full-blown trial over
attorneys fees.
a cause of action duly commenced involving parties duly
The place of business of the suing corporation is
brought under the authority of the court.
considered its residence.
It may acquire and possess property of all kinds.
DISTINCTIONS BETWEEN PARTNERSHIP & CORPORATION
While a share of stock represents a proportionate
Partnership
Corporation
interest in the property of the corporation, it does not
Mere agreement of
Created by law or
vest the owner thereof with any legal right or title to any Manner of
Creation
the
parties
operation of law
of the properties of the corporation.
At least 5
The interest of shareholders in corporate property is Number of
Only two persons
incorporators
purely inchoate and therefore, does not entitle them to Incorporators
From the date of
intervene in a litigation involving corporate property.
From the moment
Commencement
issuance of the
2. Created by operation of law
of execution of the
certificate of
Consent is granted by the State, expressed in terms of of Juridical
contract of
Personality
incorporation by
special/general incorporation law.
partnership
the SEC
No corporation can exist without the consent or grant of
Any power
the sovereign, and that the power to create corporations
authorized by the
Only those
is one of the attributes of sovereignty.
partners, as long
expressly granted
Special incorporation law or charter: directly creates the
as it is not
by law or implied
corporation; authorizes creation of only one corporation
Powers
contrary to law,
from those
(government owned/controlled corporations)
morals, good
granted or
General corporation law: under which individuals desiring
customs, public
incident to its
to be and act as a corporation may incorporate;
order or public
existence.
authorizes creation of corporations in general; no limit;
policy.
BP 68/Act 1459.
When not agreed
3. It has the right of succession
Vested in the
upon, every
A corporation has a capacity of continuous existence Management
board of trustees
partner is an agent
irrespective of the death, withdrawal, insolvency, or
or directors.
of the partnership.
incapacity of the individual stockholders or members and
Effect
of
A
partner
as
such
The suit against a
regardless of the transfer of their interest or shares of
Mismanagement
can sue a comember of the
stock.
partner for
board who
See Section 11 for Corporate Term
mismanagement.
mismanages
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Right of
Succession

No right of
succession.

Extent of
Liability to Third
Persons

Partners may be
personally and
subsidiarily
(sometimes
solidarily) liable for
partnership debts.

Transferability
of Interest

Delectus
personarum

Term of
Existence

May be
established for any
period of time.

Firm Name

Limited
partnership bears
Ltd.

Dissolution

At any time

Laws which
Govern

Civil Code

should be in the
name of the
corporation.
A corporation has
such right.
Stockholders are
liable only to the
extent of their
investment as
represented by
the shares
subscribed by
them.
A stockholder has
the right to
transfer his shares
without prior
consent of the
others.
50 years,
extendible for
another 50 years.
May adopt any
name provided it
is not identical or
deceptively
similar to any
registered firm
name or contrary
to law.
Can only be
dissolved with the
consent of the
State.
Corporation Code

Similarities between Partnership and Corporation:

1. Separate juridical personality
2. Can act only through agents
3. Composed of an aggregate of individuals
4. Distributes its profits to those who contribute to the
capital of the business
5. Organized only when there is a law authorizing its
organization
6. Taxable
Corporation as a Partner
General Rule: Corporations cannot ordinarily enter into
partnership with other corporations or individuals.
Because the identity of the corporation is lost or
merged.
Limitation is based on public policy.
It would permit the corporate assets to be subjected to
risks and liabilities not contemplated by the
stockholders at the time of making their investment.
Exceptions:
1. Joint venture where the nature of that venture is in line
with the business authorized by their charters.
2. Where the partnership agreement provides that the
two partners will manage the partnership so that the
management of the corporate interest is not
surrendered.
3. With a foreign corporation licensed to do business in
the Philippines and a domestic corporation for the
purpose of undertaking certain phases of the
construction of an economic development project
registered as a pioneer enterprise with the Board of
Investments, provided that both parties shall be jointly
& severally liable for all the obligations of the partners
in the Philippines.
ADVANTAGES
of
a
BUSINESS CORPORATION
1. Legal capacity to act
and contract as a
distinct unit;
2. Continuity
of
existence;

DISADVANTAGES
of
a
BUSINESS CORPORATION
1. Relatively complicated
formation and management;
2. High cost of formation and
operations;

3.

Credit is strengthened;

4.

Centralized
management;
Standardized creation,
organization,
management
and
dissolution;
Makes
feasible
gigantic
financial
undertakings;

5.

6.

7.

Shareholders
limited liability

8.

They are not general

agents
of
the
business;
Shares of stocks can
be transferred without
the consent of the
other stockholders.

9.

have

3. Credit is weakened by the

limited
liability
of
stockholders;
4. Lack of personal element;
5.
Greater
governmental
supervision;

degree
of
control and

6. Management and control

are
separated
from
ownership
in
large
corporations.
7.
Stockholders
voting
rights
have
become
theoretical;
8. Stockholders have little
voice in the conduct of the
business.

Section 3. Classes of Corporations

Stock Corporations corporations 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.
Non-Stock Corporations one where no part of its income is
distributable as dividends to its members, trustees, or officers.
Section 87
Other classifications:
1. As to number of persons who compose them:
a. Corporation aggregate
b. Corporation sole
2. As to whether they are for religious purposes or not:
a. Ecclesiastical Corporation
b. Lay Corporation
3. As to whether they are for charitable purposes or not:
a. Eleemosynary corporation
b. Civil corporation
4. As to State under or by whose laws they have been
created:
a. Domestic
b. Foreign
5. As to their legal right to corporate existence:
a. De jure
b. De Facto
6. As to whether they are open to the public or not:
a. Close
b. Open
7. As to their relation to another corporation:
a. Parent or Holding
b. Subsidiary
c. Affiliated
8. As to whether they are for public or private purpose:
a. Public provinces, cities, municipalities,
barangays
b. Private includes GOCCs, quasi-public
corporations
9. As to whether they are corporations in a true sense or
in a limited sense:
a. True corporation
b. Quasi-corporation Defective corporations
such as corporation by prescription and by
estoppel
Important distinctions between public and private
corporations:
1. Governmental control

Public subject to governmental visitation and control

Private not subject to visitation, control or change by the

State except in the exercise of police power.

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2.
3.

Public corporation may be created without consent of the

locality to be affected, which consent of the incorporators
is necessary to the creation of a private corporation.
Taxation, liability for torts or negligence of officers and
agents and to various other questions.

Section 4. Corporations created by special laws or charters:

Governed primarily by the provisions of the special law or
charter creating them or applicable to them, supplemented
by this Code, insofar as they are applicable.
This section authorizes the creation of private corporations
by special laws or charters.
Section 5. Corporators and incorporators, stockholders and
members.
Corporators those who compose a corporation, whether as
stockholders or as members.
Incorporators stockholders or members mentioned in the
articles of incorporation as originally forming and composing
the corporation and who are signatories thereof.
Stockholders or shareholders Corporators in a stock
corporation.
Members Corporators in a non-stock corporation.
Three other classes:
1. Promoters persons who bring about or cause to bring
about the formation and organization of a corporation
by bringing together the incorporators or persons
interested in the enterprise, procuring subscriptions or
capital, and setting in motion the machinery which
leads to the incorporation of the corporation itself.
2. Subscribers persons who agreed to take and pay
for original, unissued shares of a corporation formed or
to be formed.
3. Underwriter a person, usually an investment banker,
who has agreed to buy at stated terms an entire issue
of securities or a substantial part thereof/ guaranteed
the sale of an issue/ has agreed to use his best efforts
to market all or part of an issue/ has offered for sale
stock he purchased from a controlling stockholder.

a.

Authorized Capital Stock amount of capital stock as

specified in the articles of incorporation.
b. Subscribed Capital Stock amount of the capital stock
subscribed, whether fully paid or not.
a) Subscription contract any contract for the
acquisition of unissued stock in an existing
corporation or a corporation still to be
formed.
c. Outstanding Capital Stock portion of the capital stock
which is issued and held by persons other than the
corporation itself; the total shares of stock issued to
subscribers or stockholder whether or not fully or
partially paid, except treasury shares.
d. Paid-up Capital Stock portion of the subscribed or
outstanding capital stock that is actually paid.
e. Unissued Capital Stock portion of the capital stock
that is not issued or subscribed.
f.
Legal Capital amount equal to the aggregate par
value and/or issued value of the outstanding capital
stock.
Capital used broadly to indicate the entire property or assets
of the corporation. It includes the amount invested by the
stockholders plus the undistributed earnings less losses and
expenses.
Stock Dividends amount that the corporation transfers from
its surplus profit account to the capital account.
CAPITAL
Actual corporate property;
concrete thing.
Fluctuates or varies from day
to day according as there are
profits
or
losses
or
appreciation or depreciation
of assets.
Belongs to the corporation.
May either be
personal property.

real

or

CAPITAL STOCK
An amount; abstract.
Amount fixed in the articles
of corporation, unaffected by
profits and losses.
When issued, belongs to the
stockholders.
Always personal.

Agreement or contract with a corporation:

Stock or Share of stock one of the units into which the
There shall be an agreement between the corporators capital stock is divided. It represents the interest or right which
and the corporation creating a contractual relation the owner has:
between them.
1. To participate in the management of the corporation
Sec 23;
Section 6. Classification of Shares
2. Share in the surplus earnings/assets/profits or
Xxx
unrestricted earnings Sec 43;
No share may be deprived of voting rights except those
3. Share in the remaining properties after dissolution, if
classified and issued as preferred or redeemable shares,
any Sec 122.
unless otherwise provided in this Code.
Certificate of Stock written acknowledgment by the
There shall always be a class or series of shares which have corporation of the interest, right and participation of a person in
complete voting rights.
the management, profits and assets of a corporation.
Xxx
Formal written evidence of the holders ownership of
Shares of capital stock issued without par value shall be
one or more shares and is a convenient instrument for
deemed fully paid and non-assessable and the holder of such
the transfer of title.
shares shall not be liable to the corporation or to its creditors in SHARE OF STOCK
CERTIFICATE OF STOCK
respect thereto: Provided, that shares without par value may
Incorporeal
or
intangible
Tangible property;
not be issued for a consideration less than the value of five
property;
pesos per share..
Represents the right/interest
Written evidence of that
Xxx
of a person in a corporation;
right/interest;
May be issued even if
May not be issued unless the
When Classification of Shares may be made:
subscription is fully paid;
First determined by the incorporators as stated in the subscription is not fully
paid, except in no par
articles of incorporation filed with the SEC.
After the corporation comes into existence, they may shares;
May have a situs at the place
be altered by the board of directors and stockholders Situs is deemed to be the
State where the corporation
where it is located or at the
by amending the articles of incorporation.
has its domicile.
domicile of the owner, even
Doctrine of Equality of Shares
though the corporation is
Except as otherwise provided by the articles and
domiciled elsewhere.
stated in the certificate of stock, each share shall be in
all respects equal to every other share.
Classes of Shares in General:
Capital Stock and Capital Explained
1. Par Value/ No Par Value
Capital Stock the amount fixed in the articles of
a. Par Value one with specific money value fixed in the
incorporation, to be subscribed and pain in or agreed to be pain
articles of incorporation and appearing in the certificate
in by the stockholders of a corporation, in money, property,
of stock.
services, or other means at the organization of the corporation
- May be issued without payment, as long as there is a
or afterwards and upon which it is to conduct its business, such
valid subscription and date of payment is indicated at
contribution being made either directly through stock
the subscription.
subscription or indirectly through the declaration of dividends.
- Face Value
- Assessable
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- Represents the amount of money or property contributed

by the shareholder to the capital stock of the
corporation.
b. No Par Value one without any stated value appearing
on the face of the certificate of stock. It is a stock which
does not state how much money it represents.
- No face value
- Deemed fully paid
- Non-assessable
- It always has an issued value the consideration fixed by
the corporation for its issuance.
- Issued value may be fixed by the articles of incorporation
or by the board of directors or by stockholders
representing majority of OCS and shall not be less than
P5/share.
- Conversion of the no par value to par value is allowed by
SEC provided there would be no change in the
stockholders percentage interest in the total assets of
the corporation.
2. Voting or Non-Voting
a. Voting Share share with right to vote.
- Each common share shall be equal in all respects to
every other common share.
- Only shares classified and issued as preferred or
redeemable may be deprived of voting rights.
- One share, one vote because representation in a
corporation is commensurate to extent of ownership.
b. Non-Voting Share share without right to vote.
- Where the articles of incorporation provide for non-voting
shares in the cases allowed by this Code, the holders of
such shares shall nevertheless be entitled to vote on the
following matters:
a) Amendment of the articles of inc.;
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/s;
g) Investment of corporate funds in another corporation or
business in accordance with this Code; and
h) Dissolution of the corporation.
3. Common or Preferred:
a. Common Share one which entitles the holder thereof
to a pro rata division of the profits, if there are any, and
in its assets upon dissolution, without any preference or
advantage in that respect over other stockholders or
class of stockholders but equally with all other
stockholders except preferred stockholders.
- It is the basic class of stock which private corporations
generally issue or because its holders stand upon an
equal footing, without extraordinary rights or privileges.
- Have complete voting rights.
- Residual owners of the corporation.
- Has preference in the matter of management.
b. Preferred Share one with a stated par value which
entitles the holder thereof to certain preferences over
the holders of common stock.
- Designed to induce persons to subscribe for shares of a
corporation.
- Unless otherwise provided, preferred stocks are
presumed to be voting although they are rarely given
voting privileges.
- Cannot be converted into common and cannot be
changed without the consent of the stockholders.
- Kinds of Preferred Shares:
a) Preferred share as to assets gives the holder thereof
preference in the distribution of the assets of the
corporation in case of liquidation;
b) Preferred share as to dividends share the holder of
which is entitled to receive dividends o said share to the
extent agreed upon before any dividends at all are paid
to the holders of common stock.
b) Limitations regarding issuance of preferred shares:
a) Preferred shares deprived of voting rights in the articles
of inc., shall be entitled to vote on matters enumerated
in Section 6, although they shall not be entitled to vote
on other matters;
b) Must not be violative of the provisions of the Code;
c) May be issued only with a stated par value;

d)

Board of directors may fix the terms and conditions of

preferred shares or any series thereof only when so
authorized by the articles and shall be effective upon
filing of a certificate with the SEC.
c) Kinds of Preferred Shares as to Dividends:
1) Cumulative preferred share entitles the holder not only
to the payment of current dividends but also to dividends
in arrears.
2) Non-cumulative preferred share entitles the holder to
the payment of current dividends only in preference to
common stockholders.
3) Participating preferred share gives the holder not only
the right to receive the stipulated dividends at the
preferred rate but also to participate with the holders of
common shares in the remaining profits pro rata after
the common shares have been paid.
4) Non-participating preferred share entitles the holder
thereof to receive the stipulated preferred dividends and
no more.
5) Cumulative participating preferred share combination
of the cumulative share and the participating share.
4. Promotion Share issued to promoters, or those in
some way interested in the company, for incorporating
the company, or for services rendered in launching or
promoting the welfare of the company.
5. Share in Escrow subject to an agreement by virtue
of which the share is deposited by the grantor or his
agent with a third person to be kept by the depository
until the performance of a certain condition or the
happening of a certain event contained in the
agreement.
6. Convertible Share convertible or changeable by
the stockholder from one class to another class at a
certain price and within a certain period.
7. Founders share
8. Redeemable share
9. Treasury share
Limitations or Restrictions imposed by law regarding the
issuance of No Par Value shares:
1. Banks, trust companies, insurance companies, and
building and loan associations shall not be permitted
to issue no par value shares of stock;
2. Preferred shares of stock of any corporation may be
issued only with a stated par value;
3. Shall be deemed fully paid and non-assessable and the
holder of such shares shall not be liable to the
corporation or to its creditors in respect thereto.
Holder shall not be liable beyond the issued price,
notwithstanding a change in their value;
4. May not be issued for a consideration less than 5
pesos per share;
5. Shall be treated as capital, and therefore, shall not be
available for distribution as dividends.
ADVANTAGES OF PAR
VALUE SHARES
Easily sold as the public is
more attracted to buy this
kind of shares;
Greater protection to
creditors;

DISADVANTAGES OF PAR
VALUE SHARES
Subscribers are liable to
corporate creditors for their
unpaid subscription;
Stated face value of the share
is not an accurate criterion of
its true value.

Unlikelihood of sale of
subsequently issued shares
at a lower price;
Unlikelihood of distribution of
dividends that are only
ostensible profits.

ADVANTAGES OF NO PAR
VALUE SHARES
Issued as fully paid and nonassessable;
Flexible price;

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DISADVANTAGES OF NO
PAR VALUE SHARES
Legalize large issues of stock
property;
Conceal the money or
property represented by the

Low-priced stocks enjoy

wider distribution;
They tell no untruth
concerning the value of the
stockholders contributions;
Stock dividends are more
easily issued.

shares;
Promote issuance of watered
stock;
Lesser protection to creditors.

Section 7. Founders shares classified as such in the

articles, 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 5 years subject to the approval of the SEC. 5-year
period commences upon such approval by the SEC.
- Shares issued to the organizers and promoters of a
corporation in consideration of some supposed right or
property.
Section 8. Redeemable shares may be issued by the
corporation when expressly so provided in the articles. They
may be purchased or taken up by the corporation upon the
expiration of a fixed period, regardless of the existence of
unrestricted retained earnings in the books of the corporation,
and upon such terms and conditions stated in the articles of
incorporation, which terms and conditions must also be stated
in the certificate of stock representing said shares.
Section 9. Treasury shares shares of stock issued and fully
paid for but subsequently reacquired by the issuing corporation,
by purchase, redemption, donation, or through some other
lawful means. Such shares may again be disposed of for a
reasonable price fixed by the board of directors.
Section 10. Number and Qualifications of Incorporators
- Any number of natural persons not less than five but not
more than fifteen, all of legal age and a majority of whom
are residents of the Philippines, may form a private
corporation for any lawful purpose or purposes. Each of the
incorporators of a stock corporation must own or be a
subscriber to at least one share of the capital stock of the
corporation.
PRIMARY
(CORPORATE)
FRANCHISE
Right or privilege granted to
individuals by the State to be
and act as a corporation after
its incorporation.

SECONDARY
(SPECIAL)
FRANCHISE
Franchise to exercise powers
and privileges granted to
such corporation to the
business for which it was
created,
including
those
conferred for purposes of
public benefit such as the
power of eminent domain
and
other
powers
and
privileges enjoyed by public
utilities.
Conferred
upon
the
corporation
after
its
incorporation and not upon
the individuals who compose
the corporation.

a) Discovery represent a new product or service, or the

promoter may simply organize another company in an
existing line of business;
b) Investigation analysis of needs
c) Assembly bringing together the property, money and
personnel into an organization.
2) Incorporation
Steps in Incorporation:
a) Drafting and execution of the articles of incorporation;
b) Filing with the SEC of the articles of incorporation;
c) Payment of the filing and publication fees;
d) Issuance by the SEC of the certificate of incorporation.
3) Formal organization and commencement of
business operations
Section 11. Corporate Term A corporation shall exist for a
period not exceeding fifty years from the date of incorporation
unless sooner dissolved or unless said period is extended. That
corporate term as originally stated in the articles of
incorporation may be extended for periods not exceeding fifty
years in any single instance by an amendment of the articles of
incorporation, in accordance with this Code: Provided, that no
extension can be made earlier than five years prior to the
original or subsequent expiry date(s) unless there are justifiable
reasons for an earlier extension as may be determined by the
SEC.
Section 12. Minimum capital stock required of stock
corporations stock corporations incorporated under this Code
shall not be required to have any minimum authorized capital
stock except as otherwise provided for by special law, and
subject to the provisions of the following section.
Section 13. Amount of capital stock to be subscribed and paid
for purposes of incorporation At least 25% of the authorized
capital stock as stated in the articles of incorporation must be
subscribed at the time of incorporation, and at least 25% of the
total subscription must be paid upon subscription, the balance
to be payable on the date/s fixed in the contract of subscription,
without any need of call, or in the absence of fixed date/s, upon
call for payment by the board of directors: Provided, however,
that in no case shall the paid-up capital be less than 5,000
pesos.
Corporation with ACS of only 5,000 may
be organized: it has to be fully subscribed
then fully/entirely paid up.

Section 14. Contents of Articles of Incorporation

1) Name of the corporation (Section 18)
Should not be identical or deceptively or confusingly
similar to that of any existing corporation or to any other
name already protected by law or is patently deceptive,
confusing, or contrary to existing laws.
2) Specific purpose/s for which the corporation is being
incorporated
Granted to the incorporators;
Must be lawful
enables them to act for
Must be stated with sufficient clarity
certain designated purposes
Primary purpose must be stated
as a single individual and
Purposes must be capable of being lawfully combined
exempts
them,
unless
3) Place where the principal office of the corporation is to
otherwise
provided,
from
be located, which must be within the Philippines
individual
liability
for
Place of the principal office place where its books and
corporate debts.
records are ordinarily kept and its officers usually meet
for the purpose of managing the affairs and transacting
Inalienable; it is part of the
May ordinarily be conveyed
the business of the corporation.
corporation and cannot be
or
mortgaged
under
a
4) Term for which the corporation is to exist
sold or assigned. It may be
general power granted to a
5) Names,
nationalities
and
residences
of
the
conveyed provided there is
corporation to dispose of its
incorporators
express legislative authority
property,
except
such
6) Number of directors/trustees, which shall not be less
to do so.
franchises as are charged
than 5 nor more than 15
with a public use.
7) Names, nationalities and residences of the persons
who shall act as directors/trustees until the first
Steps in the Creation of a Corporation:
regular directors/trustees are duly elected and
1) Promotion
qualified (Incorporating Directors)
A number of business operations peculiar to the
8) If it be a stock corporation, the amount of its
commercial world by which a company is generally
authorized capital stock in lawful money of the
brought to existence.
Philippines, the number of shares into which it is
Make known to the general public that they are forming
divided, and in case the shares are par value shares,
a corporation; invite prospective incorporators.
the par value of each, the names, nationalities and
Stages in Corporate Promotion
residences of the original subscribers, and the amount
subscribed and paid by each on his subscription, and if
Page 5 of 10

some or all of the shares are without par value, such

fact must be stated
9) If it be a non-stock corporation, the amount of its
capital, names, nationalities and residences of the
contributors and the amount contributed by each
10) Such other matters as are not inconsistent with law
and which the incorporators may deem necessary and
convenient.
Sworn statement of the Treasurer elected by the
subscribers showing at least 25% of the ACS has been
subscribed, and at least 25% of the total subscription
has been fully paid, such paid up capital being not less
than 5,000.

deemed incorporated from the date the SEC issues a certificate

of incorporation xxx
Section 20. De Facto Corporations the due incorporation of
any corporation claiming in good faith to be a corporation under
this Code, and its right to exercise corporate powers, shall not
be inquired into collaterally in any private suit to which such
corporation may be a party. Such inquiry may be made by the
Solicitor General in a quo warranto proceeding.

De Jure Corporation one created in strict or substantial

conformity with the mandatory statutory requirements for
incorporation and the right of which to exist as a corporation
cannot be successfully attacked or questioned by any party
Section 15. Forms of Articles of Incorporation
even in a direct proceeding for that purpose by the State.
De Facto Corporation exists for all practical purposes as a
Articles of Incorporation document prepared by the corporation but which has no legal right to corporate existence
persons establishing a corporation and filed with the SEC as against the State; did not substantially comply with
containing the matters required by the Code.
requirements of law (colourable compliance).
Defines the charter of the corporation and the
contractual relationships between the State and the Requisites of a de facto corporation:
corporation, the stockholders and the State, and
1) Valid law under which a corporation with powers
between the corporation and stockholders.
assumed might be incorporated;
2) Bona fide attempt to organize a corporation under
Section 16. Amendment of Articles of Incorporation
such law;
Any provision or matter stated in the articles of
3) Actual user or exercise in good faith of corporate
incorporation may be amended by a majority vote of the
powers conferred upon it by law.
board of directors/trustees and the vote or written assent Defects precluding creation of corporation:
of the stockholders representing at least 2/3 of the
1) Absence of articles of incorporation
outstanding capital stock, without prejudice to the
2) Failure to file articles of incorporation with the SEC
appraisal right of dissenting stockholders in accordance
3) Lack of certificate of incorporation from the SEC
with the provisions of this Code, or the vote or written Defects resulting in creation of de facto corporation:
assent of 2/3 of the members if it be a non-stock
1) Articles of incorporation fails to state all the matters
corporation.
required by the Code, or state some of them
The original and amended articles together shall contain all
incorrectly;
provisions required by law to be set out in the articles of
2) Name of the corporation closely resembles that of a
incorporation. Such articles, as amended, shall be
pre-existing corporation
indicated by underscoring the change/s made, and a copy
3) Incorporators or a certain number of them are not
thereof duly certified under oath by the corporate secretary
residents of the Philippines
and a majority of the directors or trustees stating the fact
4) Acknowledgment of the articles of incorporation or
that said amendment/s have been duly approved by the
certificate of incorporation is insufficient or defective
required vote of the stockholders or members, shall be
in form, or it was acknowledged before the wrong
submitted to the SEC.
officer;
Amendments shall take effect upon approval by the SEC or
5) Percentage of Filipino ownership of the capital stock is
from the date of filing with the said commission if not acted
less than that prescribed by law;
upon within 6 months from the date of filing for a cause not
6) Minimum paid-up capital stock has not been paid to
attributable to the corporation.
and received by the corporate treasurer contrary to his
affidavit
Section 17. Grounds when articles of incorporation or
7) Failure to submit its by-laws on time
amendment may be rejected or disapproved.
1) Articles of incorporation or any amendment thereto is Questioning validity of corporate existence
not substantially in accordance with the form De facto corporation cannot be collaterally attacked either
prescribed therein;
by the State or by private individuals.
2) Purpose/s
of
the
corporation
are
patently The State must bring a direct proceeding (quo warranto)
unconstitutional, illegal, immoral, or contrary to
against the corporation to oust it from the exercise of
government rules and regulations;
corporate powers usurped by it and to have it dissolved.
3) Treasurers affidavit concerning the amount of capital Direct attack the State, in a proceeding for that purpose,
stock subscribed and/or paid is false;
attacks the existence of an association claiming to be a
4) Percentage of ownership of the capital stock to be corporation.
owned by citizens of the Philippines has not been Collateral attack one whereby corporate existence is
complied with as required by existing laws or the questioned in some incidental proceedings not provided by law
Constitution.
for the express purpose of attacking the corporate existence.
Grounds for suspension or revocation of certificate of
Rationale: public policy
registration of corporations:
1) Fraud in procuring its certificate of incorporation;
It is the regular courts, not the SEC, that have
2) Serious misinterpretation as to what the corporation
jurisdiction over disputes or controversies among
can do or is doing to the great prejudice of, or damage
them.
to, the general public;
Proof of Corporate Existence:
3) Refusal to comply with or defiance of a lawful order of
1) De Jure existence valid law creating or authorizing
the commission restraining the commission of acts
such a corporation; valid organization under it; and
which would amount to a grave violation of its
substantial compliance with all conditions precedent.
franchise;
2) De Facto existence law under which the alleged
4) Continuous inoperation for a period of at least five
corporation might have been formed; a colourable
years;
bona fide compliance with that law; assumption or
5) Failure to file by-laws within the required period;
user of corporate powers.
6) Failure to file required reports in appropriate forms as
determined by the commission within the prescribed Section 21. Corporation by estoppel all persons who assume
period.
to act as a corporation knowing it to be without authority to do
so shall be liable as general partners for all debts, liabilities and
Section 19. Commencement of corporate existence a private damages incurred or arising as a result thereof: Provided,
corporation formed or organized under this Code commences to however, that when any such ostensible corporation is sued on
have corporate existence and juridical personality and is any transaction entered by it as a corporation or on any tort
Page 6 of 10

committed by it as such, it shall not be allowed to use as a

defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as
such, cannot resist performance thereof on the ground that
there was in fact no corporation.
Two aspects of a corporation by estoppel:
1) Stockholders/members of a pretended or ostensible
corporation who participated in holding out as a
corporation are generally estopped to deny its existence
against creditors for the purpose of escaping liability for
corporate debts or for unpaid part of a subscription to
stock.
2) Third persons who deal with such a corporation
recognizing it as such and the pretended corporation
itself, estopped from denying its existence and raising
the defense of its lack of corporate personality for the
purpose of defeating a liability growing out of the
contractual relation between them and such entity, or
later taking advantage of their non-compliance with the
law, chiefly in cases where such persons have received
the benefits of the contract.

Exception: Extraordinary situations or conditions to justify the

act of stockholders or corporate officers as to make a board
action as nothing more than a mere formality.
Term of office of directors or trustees one year and until their
successors are elected and qualified.
Hold-over the office has a fixed term which has expired, and
the incumbent is holding the succeeding term. A hold-over
board has the power to declare the position of the President
vacant and elect another.
Qualifications of directors or trustees:
1) Stock corporations
a. Must own at least one share of the capital
stock
b. Share of stock held by the director must be
registered in his name on the books of
corporation
c. Must continuously own at least a share of
stock during his term; otherwise he shall
automatically cease to be a director
d. Majority of directors must be residents of the
Philippines
2) Non-stock corporations
a. Members in good standing thereof
b. Majority must be residents of the Philippines
Only natural persons can be elected as directors or
trustees and they must be elected from among the
stockholders or members.
No citizenship requirement demanded of the members
of the board of directors under this Code.
Additional qualifications of directors or trustees may
be prescribed by the by-laws but their qualifications
may not be modified if such modification would be in
conflict with the requirements prescribed by the
corporation law.

Section 22. Effects of non-use of corporate charter and

continuous inoperation of a corporation if a corporation does
not formally organize and commence the transaction of its
business or the construction of its works within 2 years from the
date of its incorporation, its corporate powers cease and the
corporation shall be deemed dissolved. However, if a
corporation has commenced the transaction of its business but
subsequently becomes continuously inoperative for a period of
at least 5 years, the same shall be a ground for the suspension
or revocation of its corporate franchise or certificate of
incorporation.
This provision shall not apply if the failure to organize,
commence the transaction of its business or the construction of
its works, or to continuously operate is due to causes beyond
the control of the corporation as may be determined by the
SEC.
Section

Section 23. The board of directors or trustees. the corporate

powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or

where there is no stock, from among the members of the

corporation, who shall hold office for one year until their

successors are elected and qualified.

Every director must own at least one share of the capital stock
of the corporation of which he is a director, which share shall
stand in his name on the books of the corporation. Any director
who ceases to be the owner of at least one share of the capital
stock of the corporation of which he is a director shall thereby

cease to be a director. Trustees of non-stock corporations must

be members thereof. A majority of the directors or trustees of
all corporations organized under this Code must be residents of

the Philippines.
Powers
1)
2)
3)

of the Board:
Exercise all corporate powers (Sections 36-44)
Conduct the business of the corporation
Hold and control all properties of the corporation

Governing body of the corporation board of directors or

trustees
In the absence of authority or valid delegation from the board
of directors or trustees, no person, not even its officers, can
validly bind a corporation.

Limitations on powers of board of directors or trustees:

1) Limitations or restrictions imposed by the Constitution,
statutes, articles of incorporation, or by-laws of the
corporation;
2) Cannot perform constituent acts, that is, acts involving
fundamental or major changes in the corporation,
which require the approval or ratification of the
stockholders or members;
3) Cannot exercise powers not possessed by the
corporation.
General rule: directors or trustees must act as a body and
personally to bind the corporation.
Page 7 of 10

24. Election of directors or trustees.

There must be present, either in person or by
representative authorized to act by written proxy, the
owners of a majority of the outstanding capital stock,
or if there be no capital stock, a majority of the
members entitled to vote.
By ballot, if requested by any voting stockholder or
member.
Stock corporations every stockholder entitled to vote
shall have the right to vote in person or by proxy the
number of shares of stock standing, at the time fixed
in the by-laws, in his own name on the stock books of
the corporation, or where the by-laws are silent, at the
time of the election.
Voting is on the bases of the number of shares and not
on the number of stockholders present in the
stockholders meeting.
Voting by viva voce or roll call is valid except when
there is a request that the election be by ballot in
which case such voting is mandatory.
Mere designation by the stockholders or by a
corporate officer empowered by the stockholders
without election of directors in the manner provided in
the by-laws or the Code will not be sufficient.
Methods of Voting:
1) Straight Voting every stockholder may vote
such number of shares for as many persons
as there are directors to be elected.
2) Cumulative voting for one candidate
stockholder is allowed to concentrate his
votes and give one candidate as many votes
as the number of directors to be elected
multiplied by the number of his shares shall
equal.

For the purpose of giving minority

stockholders representation in the
board of directors.
3) Cumulative
voting
by
distribution

stockholder may cumulate his shares by

multiplying also the number of his shares by
the number of directors to be elected and
distribute the same among as many
candidates as he sees fit.

Voting in a non-stock corporation voting members

may cast as many votes as there are trustees to be
elected but may not case more than one vote for one
candidate.

Removal may be with or without cause, provided that

removal without cause may not be used to deprive
minority stockholders or members of the right of
representation.

Section 25. Corporate officers, quorum.

Requisites for removal of directors/trustees:
1. Take place either at a regular/special meeting;

Immediately after their election, the directors of a

2. Previous notice to stockholders/members of the
corporation must formally organize by the election of a
intention to propose such removal;
:
3. Vote of the stockholders holding 2/3 of the
o
president, who shall be a director,
outstanding capital stock or 2/3 of the members
o
a treasurer who may or may not be a
entitled to vote.
director,
o
a secretary who shall be a resident and Resignation of directors or trustees

May resign at any time;

citizen of the Philippines, and

A corporation continues to exist despite the

o
Such other officers as may be provided for in
resignation of the directors/trustees.
the by-laws.

A director cannot resign as part of fraudulent scheme

Any two or more positions may be held concurrently

to prejudice the corporation or its stockholders and
by the same person, except that no one shall act as
make profit to his own advantage or at an
president and secretary or as president and treasurer
unreasonable time if the immediate consequence
at the same time.
would be to leave the interest of the corporation

The directors or trustees and officers to be elected

without proper care and protection.
shall perform the duties enjoined on them by law and

Resignation need not be in any particular form.

the by-laws of the corporation. Unless the articles or

Resignation has to be reported to the SEC immediately.

by-laws provide for a greater majority, a majority of
the number of directors/trustees as fixed in the articles

Unless otherwise provided, resignation becomes

shall constitute a quorum for the transaction of
complete and his office becomes vacant the moment
corporate business, and every decision of at least a
the resignation is made to the proper office or body.
majority of the directors/ trustees present at a meeting

It is not necessary that the resignation be accepted or

at which there is a quorum shall be valid as a
that someone be elected to take his place.
corporate act, except for the election of officers which Abandonment of office and failure to attend meetings
shall require the vote of a majority of all the members

Acceptance of incompatible office

of the board.

Absence for an unreasonable length of time

Directors/trustees cannot attend or vote by proxy at

Mere absence or continued failure to attend meetings

board meetings.
where there has been no resignation, does not have

Quorum such number of the membership of a

the effect of vacating his seat or terminating his term
collective body as is competent to transact business or
of office, unless there is some express provision to
do any other corporate act.
such effect.
Section 26. Report of election of directors, trustees, and Section 29. Vacancies in the office of director/trustee.
officers.

Any vacancy occurring in the board other than by

Within 30 days after the election, the secretary or any

removal by the stockholders or members or expiration
other officer of the corporation, shall submit to the
of term, may be filled by the vote of at least a majority
SEC, the names, nationalities, and residences of the
of the remaining directors/trustees, if still constituting
directors, trustees, and officers elected.
a quorum.

Should a director, trustee or officer die, resign or in

Otherwise, said vacancies must be filled by the

any manner cease to hold office, his heirs in case of
stockholders in a regular/special meeting for that
his death, the secretary, or any other officer of the
purpose.
corporation or the director, trustee, or officer himself

A director/trustee so elected to fill a vacancy shall be

shall immediately report such fact to the SEC.
elected only for the unexpired term of his predecessor
in office.
Section 27. Disqualification of directors, trustees or officers.

Any directorship/trusteeship to be filled by reason of

No person convicted by final judgment of an offense

an increase in the number of directors or trustees shall
punishable by imprisonment for a period exceeding six
be filled only by an election at a regular/special
years, or a violation of this Code, committed within
meeting called for the purpose, or in the same
five years prior to the date of his election or
meeting authorizing the increase, if so stated in the
appointment, shall qualify as a director, trustee or
notice of the meeting.
officer of any corporation.

Grounds for replacement during term:

o
Resignation/removal
Section 28. Removal of directors or trustees
o
When his position is otherwise lawfully

Stock corporation - By a vote of the stockholders

vacated
holding or representing 2/3 of the outstanding capital

Filling of vacancies in any of the following cases:

stock
o By stockholders/members:

Non-stock Corporation - 2/3 of the members entitled to

Vacancy
results
from
the
removal
by
the
vote.
stockholders/members
or
the
expiration
of
term;

Such removal shall take place either at a regular

Vacancy occurs other than by removal or by expiration of
meeting of the corporation or at a special meeting
term,
e.g.
death,
resignation,
abandonment,
called for the purpose, after previous notice to
disqualification;
stockholders/members of the intention to propose

Vacancy may be filled by remaining directors/trustees, but

such removal at the meeting.
the board refers the matter to the stockholders or

Special meeting must be called by the secretary on

members;
order of the president or on the written demand of the
Vacancy is created by reason of an increase in the number
stockholders representing or holding at least a
of directors or trustees.
majority of the outstanding capital stock or on the

written demand of a majority of the members entitled

o
to vote.
Should the secretary fail or refuse to give notice, or if
there is no secretary, the call for the meeting may be
addressed directly to the stockholders or members by
any stockholder or member signing the demand.

By members of the board:

Allowing the remaining directors/trustees to fill up
vacancies avoid the expenses and inconveniences
attending the calling of stockholders or members
meeting;

Page 8 of 10

The power of the board is not suspended by vacancies in

the board unless the number is reduced below the quorum.
Board has no power to fill any directorship/trusteeship by
reason of an increase in the number of directors/trustees.
Where vacancy caused by resignation of a holdover
director
Stockholders, and not the remaining members of the
board, have the power to elect a director to fill the vacancy.
Holdover period that time from the lapse of one year
after a members election to the board and until his
successors election and qualification, is not a part of the
directors original term, nor is it a new term.

Section 30. Compensation of directors

In the absence of any provision in the by-laws fixing

their compensation, the directors shall not receive any
compensation, as such directors, except for reasonable
per diems.

Any such compensation other than per diems may be

granted to directors by vote of the stockholders
representing at least a majority of the outstanding
capital stock at a regular/special stockholders
meeting.

In no case shall the total yearly compensation of

directors, as such, exceed 10% of the net income
before income tax of the corporation during the
preceding year.

of its affairs, the directors/trustees and other officers of a

corporation occupy a fiduciary relation toward it, and cannot be
allowed to contract with the corporation, directly or indirectly,
or to sell or purchase property to or from it, where they act both
for the corporation and for themselves.
But, this does not require that the corporation suffers injury or
damage as a result of the contract.
Exceptions Contract shall be valid and cannot be set aside in
any of the ff. instances:
1. all the conditions enumerated in this section are present;
2. not all the conditions set forth are present but the
corporation (board) elects not to question the validity of the
contract without prejudice to the liability of the consenting
directors or trustees for damages under sec. 31 a
dissenting stockholder may file a derivative suit in behalf of
the corporation (sec. 64); or
3. contract is ratified by the required vote of stockholders or
members in a meeting called for the purpose, provided that
full disclosure of the adverse interest of the directors or
trustees involved is made at such meeting

Sec.
33.
Contracts
between
corporations
with
interlocking directors. - Except in cases of fraud, and
provided the contract is fair and reasonable under the
circumstances, a contract between two or more corporations
having interlocking directors shall not be invalidated on that
ground alone: Provided, That if the interest of the interlocking
Section 31. Liability of directors, trustees, or officers.
director in one corporation is substantial and his interest in the
Cases when directors/trustees/officers are liable for other corporation or corporations is merely nominal, he shall be
damages:
subject to the provisions of the preceding section insofar as the
1. Wilfully and knowingly votes or assents to patently latter corporation or corporations are concerned.
unlawful acts of the corporation;
Stockholdings exceeding twenty (20%) percent of the
2. Guilty of gross negligence or bad faith in directing outstanding capital stock shall be considered substantial for
affairs of the corporation;
purposes of interlocking directors.
3. Acquires any personal or pecuniary interest in conflict
with his duty as such director or trustee.
Contracts
between
corporation
with
interlocking
4. Consents to the issuance of watered stocks or who, directors.
having knowledge thereof, does not forthwith file with- Contract is valid between two or more corporations which have
the corporate secretary his written objection thereto;
interlocking directors (sec. 44). However, if the interest of the
5. When he is made, by a specific provision of law, to
interlocking director in one corporation is substantial, the
personally answer for his corporate action;
rules of sec. 32 on self-dealing directors shall apply insofar as
6. When he agrees to hold himself personally and
the latter corporation is concerned.
solidarily liable with the corporation.
- This section pertains to transaction between corporations with
Three-fold duty of directors: OBEDIENCE, LOYALTY, DILIGENCE
Sec. 32. Dealings of directors, trustees or officers with
the corporation. - A contract of the corporation with one or
more of its directors or trustees or officers is voidable, at the
option of such corporation, unless all the following conditions
are present:
1. That the presence of such director or
trustee in the board meeting in which the
contract was approved was not necessary to
constitute a quorum for such meeting; 2. That
the vote of such director or trustee was nor
necessary for the approval of the contract; 3.
That the contract is fair and reasonable under
the circumstances; and 4. That in case of an
officer, the contract has been previously
authorized by the board of directors.
Where any of the first two conditions set forth in the preceding
paragraph is absent, in the case of a contract with a director or
trustee, such contract may be ratified by the vote of the
stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or of at least two-thirds (2/3) of the
members in a meeting called for the purpose: Provided, That
full disclosure of the adverse interest of the directors or
trustees involved is made at such meeting: Provided, however,
That the contract is fair and reasonable under the
circumstances.

interlocking directors resulting in the prejudice to one of the

corporations. This does not apply where the corporation
allegedly prejudiced a third party, not one of the corporations
with interlocking directors. (DBP v. CA 2001)
Evils of interlocking directorates.
1. Validity of by-laws prohibiting interlocking directorates.Bylaws which prohibit a director of a corporation form serving
at the same time as director of a competing corporation,
have been upheld as valid and reasonable. (Gokongwei v.
SEC 1979)Reason: The interlock permits the coordination of
policies between nominally independent firms to an extent
that competition between them may be completely
eliminated. Indeed, if a director, for example, is to be
faithful to both corporations, some accommodation may
result.
2. No absolute prohibition of interlocking directorates.
Contracts between corporations having directors in common
are not rendered void or voidable on that ground alone. An
individual may be a stockholder in different corporation and
it is not unusual to find a director or corporate officer
occupying the same position in another corporation not only
because he has investments therein but also because his
services may have been proven to be valuable. However,
while such situation is allowable, dealings of interlocking
directors are subject to section 31, 33, and 34.

Sec. 34. Disloyalty of a director. - Where a director, by

virtue of his office, acquires for himself a business opportunity
Self-dealing directors/trustees or officers.
which should belong to the corporation, thereby obtaining
profits to the prejudice of such corporation, he must account to
General Rule: Contract is void voidable at the option of the the latter for all such profits by refunding the same, unless his
corporation a contract of such corporation with one or more of act has been ratified by a vote of the stockholders owning or
its directors/trustees or officers
representing at least two-thirds (2/3) of the outstanding capital
stock. This provision shall be applicable, notwithstanding the
Reason: Being its agents and entrusted with the management fact that the director risked his own funds in the venture.
Page 9 of 10

provided for in the by-laws and composed of not less than

three (3) members of the board. The same may be vested
by a board resolution. The board cannot create or appoint
an ExeCom in the absence of authority in the by-laws. In
such case, the principle of de facto officers may be applied
insofar as third persons are concerned. However, insofar as
the corporation is concerned, the unauthorized act of
appointment of an exec may be subject to sec. 144, which
provides for penalties in case of any violation of this Code.
Note: This section applies only to directors. If the disloyalty is
3. Committee contemplated. The ExeCom should be
committed by an officer, he is liable under the 2nd paragraph of
distinguished from any other committees which are within
sec. 31.
the competence of the board to create at any time and
whose actions require confirmation by the board itself.
When doctrine not applicable.
4. Matters excepted from delegation by board. Matters
1. Enterprise engaged in, distinct from corporation business.
enumerated with respect to which only the board duly
The doctrine does not preclude a director from engaging
called and assembled as such can act upon. Thus, the
in a distinct enterprise of the same general class of
ExeCom can function as the board itself in all matter
business as that which his corporation is engaged in, so
delegated to it other than the excepted matters. However,
long as he acts in good faith.
the board cannot validly delegate to the ExeCom blanket or
2. Opportunity not in conflict with corporations business.
general authority to act for the board if the delegation
The doctrine is not applicable where the director or officer
constitutes in effect an abdication of the corporate powers
does not exploit opportunity by employment of companys
and duties vested in it by law. The board cannot delegate
resources, or where the director or officer embracing
entire supervision and control of the corporation to an
opportunity personally is not brought into direct competition
ExeCom for this will be violative of sec. 23.
with the corporation. Note: The profits must have been
5. Enlargement by board of restrictions. The restrictions on
obtained by the director to the prejudice of the corporation.
the power of the ExeCom as provided in this section may be
3. Opportunity ceases to be a corporate opportunity.
enlarged by the board to cover other matters.Note: Under
When does corporate opportunity cease to be such? It is
no.4 The ExeCom may amend or repeal any resolution of
when this corporate opportunity transforms into a personal
the board unless by its express terms it is not so amendable
opportunity where the corporation is definitely no longer
or repealable.
able to avail itself of the opportunity, which may arise from 6. Authority to function as the board itself. As a matter of
financial insolvency, or form legal restrictions, or from any
business practice, the use of an ExeCom in many
other factor which prevents it from acting upon the
companies may reduce the directors to little more than a
opportunity for its own advantage
supervising and ratifying committee.
7. Membership. Non-members of the board may be
Ratification by stockholders of disloyal act.
appointed as members of the ExeCom provided that there
The guilty director will only be exempt from liability to the
are at least three members of the board who are members
corporation to account for the profits he realized if his disloyal
of the committee.An Executive Committee is a governing
act is ratified by the vote of the stockholders owning or
body which functions as the board itself. Thus, membership
representing at least 2/3 of the OCS. (This does not apply in
therein shall be governed by the same law / rules applicable
sec.31)
to the board of directors as provided in Sec. 35.
8. Ultimate control by the board, Where the committee is
made up of, or includes persons who are not directors, such
Sec. 35. Executive committee. - The by-laws of a
committee shall be subject to norm restrictions and
corporation may create an executive committee, composed of
requirements relating to undue abdication of authority by
not less than three members of the board, to be appointed by
the board. Thus, while the ExeCom may manage the day to
the board. Said committee may act, by majority vote of all its
day operation of the business of the corporation, the
members, on such specific matters within the competence of
business affairs thereof shall be controlled and all corporate
the board, as may be delegated to it in the by-laws or on a
powers shall be exercised under the ultimate discretion of
majority vote of the board, except with respect to: (1) approval
the board as provided in sec. 23.
of any action for which shareholders' approval is also required; 9. Quorum and voting. The general rule for quorum
(2) the filing of vacancies in the board; (3) the amendment or
requirements is the same as that for board of directors. A
repeal of by-laws or the adoption of new by-laws; (4) the
majority of the committee constitute a quorum. To bind the
amendment or repeal of any resolution of the board which by
corporation, it is essential that the executive committee
its express terms is not so amendable or repealable; and (5) a
acts by a majority vote of all its members.
distribution of cash dividends to the shareholders
10. Membership of a foreigner. While foreigners are
disqualified from being elected/appointed as corporate
Executive committee.
officers in wholly or partially nationalized business
1. Need for an executive committee. The Board delegates to
activities, they are allowed representation in the board of
an executive committee composed of some members of the
directors or governing body of said entities in proportion to
board corporate powers to assure prompt and speedy action
their shareholdings.Reason for exception: The board of
and solution to important matters without the need for a
directors performs specific duties as a body. Unlike
board meeting, especially where such meetings cannot
corporate officers, each member if the board of
readily be held. ExeCom directly manages the operations of
directors/governing body has no individual power of
the corporation between meetings of the board, thereby
authority to perform management functions.
reducing the workload of the latter.
2. Express provision in the by-law. ExeCom must be
Doctrine of Corporate Opportunity
A director who, by virtue of his office, acquires for himself a
business opportunity which should belong to the corporation,
thereby obtaining profits to the prejudice of such corporation, is
guilty of disloyalty and should, therefore, account to the latter
for all such profits by refunding the same, notwithstanding that
he risked his funds in the venture.

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