Partnership

1. Characteristics of a partnership:
a. Consensual
b. Onerous - contribution of money, property, or industry into a
common fund
c. Nominate - Designated Name
d. Preparatory - Its organization is followed by other contracts to
carry out its purpose
e. Principal - It can stand alone
f. Bilateral or multilateral - or more persons
g. Agency - each partner is an agent to partnership and to each other
. !rofessional partnership has no legal personality. Legal personality
means that a partnership can sue and be sued, enter into contracts, ac"uire
property in its own name, can incur obligations.
#. $ partnership can be a partner in another partnership or a stoc%holder in a
corporation because it has a &uridical personality to enter into contracts
'. ()en if a partner transfers all interests to another, the transferee does not
become a partner unless all other partners consent. *his is based on the
principle of delectus personarum +principle of mutual trust and
con,dence-.
.. /imited partner would be liable as a general partner if he include his
surname in the partnership name and ta%es part in the control of business
0. General-limited - liable up to personal assets but sub&ect to
reimbursement
1. In a general partnership, insanity of a general partner does not result in
the automatic dissolution of the partnership but only ser)es as a ground for
the application for &udicial dissolution
2. Death, retirement, insanity or ci)il interdiction +D3ICI- of a general partner
in a limited partnership, automatically dissol)es the partnership. 4ut ci)il
interdiction of a limited partner does not so.
5. $cts of a partner who is insol)ent, does not ha)e a right to wind up the
a6airs of the partnership and the business is unlawful doesn7t bound the
partnership.
18. If the partner who acts after dissolution and at fault, he alone ultimately
liable to the creditors. *he partners can see% reimbursement from the
partner who is guilty.
11. New creditor is deemed to ha)e %nowledge of the dissolution. 9e is not
therefore, protected by law. !artnership is not bound
1. $ partnership begins from the moment of e:ecution of the contract but
there can be stipulation otherwise.
1#. Contract of co-ownership - no intention of using the asset for business
purposes
1'. $ partnership cannot be formed for a charitable purpose
1.. Corporation;s legal personality commences from the time it is issued a
certi,cate of incorporation by the <(C
10. Corporation;s nationality is determined by the nation;s whole laws for
which it was created.
11. Death of the president or chairman does not dissol)e the ,rm
12. !artnership is go)erned by the Civil Code of the Philippines while
corporation is under Corporation Code of the Philippines
15. Corporation can only be dissol)ed by the consent of the state
8. $ contract of partnership may be made in any form or manner e:cept if a
speci,c form is re"uired by law for its )alidity or enforceability
1. It may be made orally or in pri)ate instrument if the total contribution of
money or other personal property is less than #,888. If it is more than #,888
or more, it shall be recorded in the <(C. Noncompliance of which does not
ma%e the contract )oid. 9owe)er, if immo)able property or real rights are
contributed, it must be made in public instrument.
. $ limited partnership must be registered with the <(C, otherwise, it is
deemed to be a general partnership
#. niversal partnership of all pro!ts - any property belonging to them
at the time of the e:ecution of the contract belongs to them but the usufruct
+use and en&oyment- of such property belongs to the partnership. =nly the
fruits of the property as well as whate)er property ac"uired by the partners
through industry during the e:istence of the contract, are contributed to the
common fund.
'. Partnership de facto - a partnership in fact but not in law. It is still )alid
partnership although it lac%s certain re"uirements for its legality
.. $ husband and wife cannot enter into a contract of uni)ersal partnership
because this has the e6ect of donation and there are prohibited from gi)ing
donation to each other. *hey can enter into a particular partnership but not
to go)ern their property relations.
0. *he liability of an industrial partner is always that of a general partner
1. $ person may be a general partner and a limited partner in the same
partnership at the same time, pro)ided this fact is stated in the certi,cate of
a limited partnership
2. $ limited partner cannot contribute ser)ices hence it is always a
capitalist and a silent partner
5. $ capitalist partner will be obliged to sell his interest to the other
partners when in case of imminent loss of the business of the partnership he
refuses to gi)e additional contribution.
#8. Capitalist partner cannot engage in the same or similar business of the
,rm unless permitted by all others
#1. Capitalist partner cannot engage in any %ind of business unless
permitted to do so. $ll his industry is supposed to be contributed to the ,rm
#. "ndustrial partner is e:empted as to losses between partners but is
liable to strangers but with right to be reimbursed from the capitalists.
##. $n agreement that e)en the industrial partner shall be liable for losses is
permissible.
#'. If a partner gi)es a receipt for the ,rm, it is the ,rm;s credit that has
been collected. If it his own receipt, payment of the debtor will be pro-rated
between the ,rm and the partner recei)ing the payment.
#.. $ partner has the right to be reimbursed by the partnership for the
amount disbursed on behalf of the partnership and the right to as% for
dissolution of the ,rm at the proper time.
#0. $ partner has the right in a speci,ed partnership property to use it for
business purposes only.
#1. *he right to inspect and copy boo%s is not a)ailable to the partnership
pending dissolution nor in one already dissol)ed
#2. $s a rule, no formal account is demandable until after dissolution. *his is
because partners ha)e access to the boo%s. 4ut if a partner is wrongfully
e:cluded from the business, he can demand it at any reasonable time
#5. #oint management arises when two or more partners are appointed
managers with an agreement that one cannot act without the consent of the
others. *he appro)al of all the managers is necessary for the )alidity of one;s
act.
'8. $olidary management ta%es place when or more appointed
managers may separately e:ecute all acts of administration. 4ut if one of
them should oppose the acts of the others, the decision of the ma&ority shall
pre)ail. In case of a tie, the matter shall be decided by the controlling
partners.
'1. !articipation in the selection of the managing partner is held by law as
ta%ing part in the control of the business
'. >eneral or limited partner partners may e:ercise some rights not
a)ailable in the general partnership, if the same are gi)en and indicated in
the certi,cate such as the remaining general partners may continue the
business e)en upon death, retirement, ci)il interdiction of a general partner
or the limited partner to demand and recei)e property other than cash in
return for his contribution
'#. If the ,rm upon dissolution is not sol)ent, a limited partner does not
en&oy the same preference as an outside creditor.
''. $ limited partner who is held liable as a general partner does not
howe)er get the rights of the latter
'.. Insanity, incapability, pre&udicial conduct of a partner, unfair competition,
the business can only be carried at a loss are only grounds for the petition of
a partner in the court to dissol)e the ,rm
'0. Civil "nterdiction is an accessory penalty imposed on a con)ict when
the crime committed is punishable from 1 years and 1 day to #8 years that
depri)es the con)ict of his rights of parental authority, guardianship, marital
authority, the right to manage his property and of the right to dispose of his
property.
Corporation
1. $ copy of the articles ,led which is returned with the certi,cate of
incorporation issued by the commission under its o?cial seal becomes its
corporate charter.
2. $ corporation created by special law has no articles of incorporation
3. $ corporation has the power of succession by its corporate name.
Character of a corporation is not necessarily determined by its name.
4. *he purposes should be stated de,nitely. *he main purpose and
secondary purposes shall be distinguished from each other. @ain purpose
must be speci,ed.
$ non-stoc% corporation may not include a purpose which would change or
contradict its nature
6. *he purposes, where there is more than one, must be capable of being
lawfully combined. *hus, ban%s which are go)erned by the general ban%ing
law of 888 are prohibited from directly engaging in non-ban%ing acti)ities
such as insurance. <imilarly, Insurance companies are not allowed to engage
in ban%ing operations.
7. *he main reason for stating the purpose of the corporation is to
determine whether the acts performed by the corporation are authorized or
beyond its powers. In the latter case, they will be %nown as ultra )ires acts.
8. *he principal place must be within the !hilippines +city or town-.
9. *he place of principal o?ce does not necessarily mean the place where
the business of the corporation is transacted but the place where its books
and records are ordinarily kept and its ofcers usually meet for the purpose
of managing the afairs and transacting the business of the corporation.
10. If the new address is located within the same city or municipality, no
corporate document is re"uired to be ,led with the <(C e:cept a notice
regarding the change of address.
11. *he incorporating directors or trustees shall hold o?ce until their
successors are duly elected and "uali,ed. *hey are intended to hold o?ce
for one year when the corporation is organized
12. ()ery director must ha)e at least one share of capital stoc% of the
corporation of which he is director.
13. If some or all of the shares are without par )alue, such fact shall be
stated in the articles
14. If the shares ha)e par )alue, the amount of the authorized capital
stoc% in pesos is speci,ed in the articles, but if they ha)e no par )alue, no
amount of capital stoc% is speci,ed in the articles which need only state the
number of shares into which said capital stoc% is di)ided. *he reason is that
the price of no-par )alue shares may )ary from time to time and therefore
the total amount of the capital stoc% cannot be %nown until all the shares are
issued.
15. Corporations which will engage in any business or acti)ity reser)ed for
Ailipino citizens shall pro)ide in their articles of incorporation the restriction
against the transfer of stoc% or interest which will reduce the ownership of
Ailipino citizens to less than the re"uired percentage of the capital stoc% as
pro)ided by e:isting laws.
16. *he general amendment may also be e6ected by the Bwritten assentC
of the stoc%holders representing D# of the outstanding capital stoc% or D# of
its members, meaning that such action need not be ta%en at a meeting and
upon a )ote.
17. If the amendment consists in e:tending or shortening the corporate
term, a meeting of the stoc%holders or members is necessary.
18. *he amendments shall ta%e e6ect only upon their appro)al of the <(C
19. In ban%ing institutions co)ered by special law, the amendments must
be accompanied by a favorable recommendation of the appropriate
government agency with respect to it that it is in accordance with law.
20. Corporations must formally organize their a6airs within years,
otherwise, deemed dissol)ed. If becomes continuously inoperati)e for .
years after its organization, temporarily suspended or re)o%ed.
21. Ehen a change of name is appro)ed, it is re"uired that the commission
must issue an amended certi,cate of incorporation under the amended
name.
22. In the case of religious corporations, the code does not re"uire the <(C
to issue a certi,cate of incorporation. Arom and after the ,ling of articles, the
chief archbishop shall become a corporation sole.
23. %e facto is the one that has not complied with all the re"uirements
necessary to be a de &ure corporation but has complied su?ciently to be
accorded corporate status as against third parties although not against the
state
24. $ corporation &y estoppel has no real e:istence in law. It is neither
de &ure nor a de facto corporation, but does a mere ,ction e:ist for the
particular case. It e:ists only between the persons who misrepresented their
status and the parties who relied on the misrepresentation.
25. @andatory pro)isions prescribe formalities for incorporation which are
designed to protect the public.
26. <toc%holders ha)e indirect control of the corporation through their
)otes.
27. $cts of stoc%holders are not binding on the corporation. $ corporation
can act only through the 4=D.
28. 4=D cannot perform constituent acts in)ol)ing fundamental or ma&or
changes in the corporation such as amendment of the articles of
incorporation
29. 4=D holds a ,duciary relation +trust and con,dence- to the corporation
and the stoc%holders or members they represent. *hey are re"uired to
discharge their duties in good faith and with diligence, care and s%ill. *hey
are liable if they breach their ,duciary duty.
30. Aor 4=D to e:ercise their powers, they must meet as directors or
trustees and act at a meeting at which there is a quorum
31. Directors are not agents of the corporation and thus ha)e no power
acting indi)idually to bind the corporation
32. "n a close corporation' any action &y the directors without a
meeting or at a meeting improperly held is deemed valid or rati!ed.
33. $ corporation is e:pressly allowed to enter into a management
contract under which it delegates the management of its a6airs to another
corporation for a certain period of time. 4=D can also delegate its power,
impliedly or e:pressly to other o?cers and agents
34. =ne disad)antage of corporation is that stoc%holders ha)e little )oice
in the conduct of the business.
35. Fnder the doctrine of piercing the )eil of corporate entity, the
corporation and the persons composing it will be treated as one and identical
person +instances such as fraud, ta: e)asion, and a)oiding obligation-.
36. In a non-stoc% corporation, minimum members are . and may be more
than 1.. Number of members must be multiple of .. No part of income shall
be distributed as di)idends to members.
37. Civil Corporation is one organized for pro,t. (leemosynary is for
charitable
38. In close corporation, stoc%holders shall not e:ceed )* persons.
39. A partnership can &e a corporator in a corporation &ut a
corporation cannot &e a partner in a partnership
40. $ corporation can subscribe after another corporation7s incorporation
but not if made before.
41. A corporation can &e a corporator &ut never an incorporator in
another corporation e+cept in rural &an, law
42. $ married woman can be an incorporator with the consent of the
husband if it in)ol)es conjugal or absolute community property. If it in)ol)es
her e:clusi)e property, consent is not re"uired
43. @a&ority must be residents of the !hilippines to form a pri)ate
corporation.
44. 4y-laws need not be notarized but re"uired to be signed by the
incorporators and stoc%holders and ,led with <(C. It is mandatory. It shall be
e6ecti)e upon issuance of the <(C of certi,cate certifying that the by-laws
are not inconsistent with the code.
45. $rticles of Incorporation are adopted by the incorporators as C9$3*(3
of the corporation while by-laws are for their internal go)ernment
46. -egular meetings - it shall be held annually on a date ,:ed in the by-
laws or if not so ,:ed, on any date in $pril of e)ery year
47. <pecial meetings shall be held at any time necessary or as pro)ided in
the by-laws, pro)ided howe)er that at least one wee% written notice shall be
sent to all stoc%holders
48. !lace of meetings must be held in the principal place of the
corporation. $ny pro)ision changing such place is illegal
49. *he "uorum of board meetings shall be ma&ority of all members of the
4=D or board of trustee.
50. ()ery corporation must ha)e at least a 4=D, !resident, *reasurer,
<ecretary
51. $ president must be a director
52. $ secretary must be a resident and a citizen of the !hilippines
53. $ny or more positions may be held concurrently by the same person
e:cept a president and secretary or treasurer at the same time
54. <traight )oting - a stoc%holder may )ote his number of shares for as
many persons as there are directors to be elected.
55. Cumulati)e )oting for one candidateGa stoc%holder
cumulatesDconcentrates all his shares and gi)es one candidate as many
)otes as the number of directors to be elected multiplied by the number of
his shares
56. Cumulati)e )oting by distributionGdistributes shares among as many
candidates he sees ,t.
57. =ne stoc% is e"ual to 1 )ote
58. =nly the stoc%holders can remo)e a director. D# of the outstanding
capital stoc% or members is re"uired
59. Hacancy in the 4=D is ,lled up by the remaining directors constituting
a "uorum +ma&ority shall remain- if the cause of )acancy is other than
remo)al, e:piration of term or increase in the number of directors or
trustees. If not, such )acancy will be ,lled up by the stoc%holders.
60. 3egular meetings of the board shall be held monthly
61. <pecial meetings may be held at any time upon the call of the
president
62. !lace of meetings may be anywhere
63. Directors or trustees are not allowed to )ote or attend by pro:y and
they do not recei)e compensation in the absence of any pro)ision in the by-
laws ,:ing their salary
64. <hould the stoc%holders representing the ma&ority grant them
compensationI such total yearly compensation shall not e:ceed ten percent
of income before ta: of the corporation during the preceding year.
65. Jou cannot be a director in or more corporations. =ne cannot ser)e
masters at the same time
66. # corporate powers: +1-e:press +-implied +#- incidental
67. @ost of the decision by ma&ority of the directors re"uire appro)al or
rati,cation by at least D# outstanding capital stoc%. *his is true in case of
any amendment to articles of incorporation
68. $ corporation engaged in transportation cannot engage in any other
business alien to transportation
69. Corporations engaged in agriculture are prohibited from ha)ing any
other interest in any other corporation engaging in agriculture
70. !ri)ate corporations engaged in retail trade and rural ban%ing must be
188 percent Ailipino-owned. Aor !ublic Ftility de)elopment and e:ploitation of
natural resource must be at least 08K Ailipino owned. Aor pawnshop, at least
18K
71. Fltra )ires act may be rati,ed by appro)al. If fully or partially e:ecuted
can bind the parties. $n illegal act can ne)er be binding to the corporation.
72. <tated )alue of no-par )alue shares shall not be less than .
73. $t least . percent of the authorized must be subscribed. !aid-up
capital upon incorporation shall not be less than . percent of the subscribed
capital..-. rule
74. Aounder7s shareGright to )ote and be )oted in the election of directors
must be for a limited period not to e:ceed . years.
75. Non-)oting shares: +1- preferred +- redeemable +#- treasury. *hey
ne)ertheless ha)e two rights: $mendment of articles of incorporation and
adoption and amendment of by-laws.
76. !referred share is always a par-)alue share
77. <hares of stoc% are deemed issued from the moment subscription is
accepted whether fully paid or not+incorporation-
78. <ubscribers become stoc%holders upon subscription whether fully paid
or not +incorporation-.
79. Certi,cate of <toc% is a personal property and may be mortgaged or
pledged or transferred
80. $ subscriber is entitled to all the rights of a fully paid stoc%holder for as
long as he has not been declared delin"uent
81. *ransferror has the right to )ote
82. $fter incorporation, full payment is re"uired for purchasers to become
stoc%holders.
83. !ersons con)icted by ,nal &udgment of an o6ense punishable by
imprisonment for a period e:ceeding si: years and guilty of )iolation the
Code within . years prior to the date of election or appointment shall be
dis"uali,ed to be a director, trustee or o?cer
84. 3emo)al of directors or trustees may be with or without cause.
3emo)al without cause may not be used to depri)e minority stoc%holders of
the right of representation inn the board of directors. =therwise, the basic
purpose of cumulati)e )oting which is to allow minority stoc%holders to unite
and elect their representati)e in the board will be rendered useless.
85. $ director elected to ,ll a )acancy shall ser)e only for the une:pired
portion of the term of his predecessor in o?ce
86. It is on the presumption that directors and trustees render ser)ice
gratuitously and that the return upon their shares ade"uately furnishes the
moti)es for ser)ice, without compensation.
87. *hey are entitled only to compensation if it is ,:ed in the by-laws or
when the gi)ing of compensation is appro)ed by the stoc%holders
representing at least a ma&ority of the outstanding capital stoc%. 4oard
appro)al is su?cient
88. Directors are liable to the corporation, stoc%holder or members or
other persons who su6er damages. Nature of liability is solidary.
89. $ special meeting of the stoc%holders for the purpose of remo)al of
directors or trustees must be called by the secretary on order of the
president or on the written demand of the stoc%holders +only the ma&ority is
re"uired-. In remo)al of directors, D# is re"uired.
90. <toc%holders or members who ha)e remo)ed a director or trustee are
also gi)en the power to choose his replacement at the same meeting.
91. $ director can "uit any time but by reason of ,duciary nature of the
position they occupy, he cannot resign as part of a fraudulent scheme to
pre&udice the corporation. 9e should repair and ma%e good such loss in case
of loss of pro,ts.
92. Ehere a director accepts a position in which his duties are
incompatible with those as such director, it is presumed that he has
abandoned his o?ce as director
93. <toc%holders may be ,lled by stoc%holders if the cause is remo)al,
increase in the number of directors or the e:piration of term. $lso if other
than remo)al or e:piration if the remaining directors do not constitute a
"uorum
94. =nly the ma&ority is re"uired to authorize compensation of directors.
95. $ director is entitled to be reimbursed for legitimate e:penses incurred
in behalf of the corporation.
96. $ pri)ate corporation is authorized to pro)ide in its by-laws for the
compensation of directors or trustees.
97. *he per diems granted to the directors should not be included in their
total yearly compensation for purposes of the 18 percent limitation
98. *he agents of the corporation are the directors.
99. $ contract of the corporation with one or more of its directorsDtrustees
or o?cers is )oidable at the option of such corporation unless all the
condition enumerated in sec # are all present. In the case of a contract with
a director or trustee, only that the contract is fair and reasonable, if the
contract is rati,ed the D#
188. It is a )alid contract between or more corporation which ha)e
interloc%ing directors as long as there is no fraud and the contract is fair and
reasonable under circumstances.
181. *he guilty director will only be e:empted from liability to the corporation
if his disloyal act is rati,ed by D#
18. *he e:ecuti)e committee must be pro)ided for in the by-laws and
composed of not less than # members of the board. *he committee may act
on speci,c matters within the competence of the board, as may be
delegated to it by the board or in the by-laws e:cept those to which only the
board duly called and assembled as such can act upon.
18#. *he restrictions on the power of the e:ecuti)e committee may be
enlarged by the board to co)er other matters. *he e:ecuti)e committee may
amend or repeal any resolution of the board.
18'. Committee cannot delegate its authority e)en to one of its members
since it can only bind the corporation through ma&ority of )otes
18.. $ll members of an e:ecuti)e committee must be directors of the
corporation. 9owe)er if all acts of the committee will be merely
recommendatory in nature and shall not be carried out without the formal of
the 4=D, some members may not be directors.
180. Doctrine of limited capacityGonly those that are e:press, implied or
incidental
181. Intra )iresGacted within the powers
182. $ corporation may not engage in a business di6erent from that for
which it was created as a regular and a permanent part of its business. *his
is especially true in ban%ing and insurance companies organized under
special laws.
185. *he use of corporate seal in certi,cates of stoc% must be deemed
directory rather than mandatory. $ corporation may e:ist e)en without a
seal. $ny seal adopted and used by the corporation may be altered by it at
its pleasure.
118. !ower to ac"uire and con)ey property has always been regarded as an
incident to e)ery corporation
111. $ stoc%holder has absolute right to use, en&oy and dispose of his
properties, to perform all acts and to ma%e all contracts without any
restriction e:cept when they are prohibited by law.
11. $ corporation cannot do acts not e:pressly or impliedly gi)en by law
11#. Implied powers are those powers which are reasonably necessary to
e:ercise the e:press powers and to accomplish or carry out the purposes for
which the corporation was formed.
11'.$ corporation which has been dissol)ed after the e:piration of the #-year
winding up period ceases to be de &ure de facto and therefore it cannot sue
or be sued
11.. $ corporation must be ,rst duly registered in accordance with law to
ha)e the power to sue
110. $ seal is a de)ice used to identify or replace the signature of an
indi)idual or organization and to authenticate written matter
111. !urchasing or holding real and personal property, to adopt and use a
corporate seal, to contract and ma%e by-laws are incidental powers
112. $ corporation may not hold alienable lands of a public domain e:cept by
lease for a period not e:ceeding . years, renewable for not more than .
years and not to e:ceed 1,888 hectares in area.
115. Natural resources belong to the state and cannot be alienated to
corporations. *heir e:ploration and de)elopment and utilization shall be
under the full control and super)ision of the <tate
18. If a corporation ac"uires shares or securities of other corporation and it
is done in pursuance of its purpose for which it was created, the appro)al of
the stoc%holders is not needed unless it is done solely for in)estment.
11. $ppraisal right applies only to a stoc%holder of a stoc% corporation
1. (:cess stoc% issued is )oid e)en in the hands of a bona-,de purchaser
for )alue
1#. $ny incurring, creating, or increasing by the corporation of any bonded
indebtedness is sub&ect to prior appro)al of the <ecurities and (:change
Commission +<(C-. *he bonds issued by the corporation ha)e to be
registered with the corporation
1'. !reempti)e right is not absolute
1.. <hareholders cannot be compelled to subscribe to a class di6erent. $
stoc%holder whose pre-empti)e right is )iolated may maintain an action to
compel the corporation to gi)e him that right. If the denial is by an
amendment to the articles of incorporation, he may e:ercise his appraisal
right
10. *he )ote of the ma&ority of the trustees in o?ce will be su?cient
authorization for the corporation to enter into any transaction because there
are no members with )oting rights.
11. $ny disposition which does not in)ol)e all or substantially all of the
corporate assets made in the ordinary course of business does not re"uire
the appro)al of the stoc%holders and would not entitle any dissenting
stoc%holders to e:ercise his appraisal right. It can only e:ercise the same if it
is on the sale of all or substantially all of the corporate assets as such which
would render the corporation incapable of continuing the business or
accomplishing the purpose for which it was incorporated.
12. *he ac"uisition of shares shall be for legitimate purposes, its capital is
not impaired, in good faith without pre&udice to the rights of the stoc%holders
and creditors and that there is an unrestricted retained earnings to co)er the
shares ac"uired.
15. <ection '1 does not authorize a corporation to arbitrarily purchase the
shares it issued to any of its stoc%holders indebted to it for the purpose of
applying the proceeds for the satisfaction of its claim against them.
1#8. 3edeemable shares may be purchased by the corporation regardless of
the e:istence of the unrestricted retained earnings in the boo%s of the
corporation
1#1. In )iew of trust fund doctrine, buybac% of shares or distribution of assets
among stoc%holders is a fraud against creditors and therefore )oid.
1#. $ corporation may in)est its funds in another business which is incident
or au:iliary to its primary purpose as stated in the articles of incorporation
without the appro)al of the stoc%holders. In such case, dissenting
stoc%holders shall ha)e no appraisal right.
1##. <toc% di)idend shall not be issued without the appro)al of D#. *he
board may declare di)idends other than stoc% without need of stoc%holder7s
appro)al.
1#'. $ corporation cannot ma%e a )alid contract to pay di)idends other than
from retained earnings or pro,ts and an agreement to pay such di)idends
out of capital is unlawful and )oid.
1#.. <toc%holders should only recei)e di)idends from their in)estment and
not from their in)estment itself.
1#0. $s a rule, di)idends cannot be declared out of borrowed money for
borrowed money is not pro,tsI but money may be borrowed temporarily for
the purpose of paying di)idends if the corporation has used its surplus assets
to ma%e impro)ements for which it might ha)e borrowed money.
1#1. Di)idends may not be declared so long as de,cit e:ists
1#2. *he directors are the &udges on how and when to spend corporate
funds.
1#5. *he corporation may be compelled by the <(C to declare di)idends to
its stoc%holders if it retains surplus pro,ts in e:cess of 188percent of their
paid-in capital stoc%
1'8. !ayment of subscription from di)idends +stoc%, cash, Bto be declaredC-
is illegal for it obligates the subscriber to pay nothing for the shares e:cept
as di)idends may accrue upon the stoc%.
1'1. *he stoc%holder is still entitled to recei)e cash di)idends due on
delin"uent stoc% but the di)idends shall ,rst be applied to the unpaid
balance on the subscription plus costs and e:penses while stoc, dividends
shall &e withheld from the delin.uent stoc,holder until his unpaid
su&scription is fully paid.
1'. <ome courts ta%e the )iew that unlawful di)idends recei)ed in good
faith by the stoc%holders may not be reco)ered if the corporation is sol)ent.
1'#. In the absence of a record date, the di)idend belongs to the person who
is the owner of the shares of stoc% at the time of declaration.
1''. Declaration of stoc% di)idends may be rescinded at any time before the
actual issuance.
1'.. *he participation of each stoc%holder in the earnings of the corporation
is based on his total subscription. *he reason is that Bstoc%holder7sC entire
subscription represents his holdings in the company for which he pays
interest on any unpaid portion.
1'0. =nly in cases where a stoc%holder is delin"uent in the payment of his
unpaid subscription that he loses his pri)ilege in a corporation where he has
holdings, e:cept his right to recei)e cash di)idends, which howe)er shall ,rst
be applied to his unpaid balance on the subscription plus cost and e:penses.
1'1. *he contract must be appro)ed by a ma&ority of the "uorum of 4=D and
prescribed )ote of the stoc%holders of both the managing and the managed
corporation. *he period of the contract must not be longer than . years for
any one term.
1'2. Fpon the issuance of the certi,cate of incorporation, the corporation
comes into e:istence but not yet otganized.
1'5. 4y-laws shall be adopted within one month after receipt of o?cial notice
of the issuance of its certi,cate of incorporation by the <(C. Ne)ertheless,
by-laws may be adopted and ,led prior to incorporation with the articles of
incorporation. Aailure to ,le a code of by-laws within one month from the
date of incorporation with the <(C shall render the corporation liable to the
re)ocation of its registration
1.8. 4y-laws must be general and uniform in their operation and not directed
against particular indi)iduals, and must not be discriminatory.
1.1. 4y-laws are not binding to a party who doesn7t ha)e %nowledge of its
pro)ision.
1.. $t least directors must be residents of the !hilippines.
1.#. Corporation cannot pro)ide in the by-laws for the manner of election
and the term of o?ce of directors or trustees which are already regulated by
law.
1.'. *he power to ma%e and repeal by-laws can only be e:ercised at a
regular or special meeting duly called for the purpose. It can be delegated
+D#- to directors. 4ut the power to amend the articles of incorporation lies
with the stoc%holders members and cannot be delegated to directors.
1... *o re)o%e the delegated power, the law merely re"uires the )ote of
ma&ority of the outstanding capital stoc%.
1.0. 3e)ocation is )alid notwithstanding that no pre)ious notice was gi)en to
stoc%holders or members of the intention to propose such re)ocation.
1.1. $rticles of incorporation constitutes the charter or fundamental law of
the corporation. *he ,ling of articles of incorporation is a condition precedent
to corporate e:istence, while the ,ling of by-laws is a condition subse"uent.
1.2. *he president shall preside at all meetings of directors or trustees and
of the stoc%holders or members, e)en where the chairman of the board is
present, unless otherwise pro)ided in the by-laws.
1.5. *he directors or trustees are not a corporate bodyI they are, when
acting as a board, agents of the corporation.
108. In the absence of pro)ision in the by-laws, the meeting may be called
by a director or trustee or by an o?cer entrusted with the management of
the corporation.
118. $ stoc%holder may ma%e the call on order of the <(C whene)er for any
cause, there is no person authorized to call a meeting.
111. *he special meeting for the remo)al of directors may be called by the
secretary of the corporation or by a stoc%holder.
11. Ehether regular or special, notice must be gi)en when re"uired by the
law or by the by-laws of the corporation.
11#. Eritten notice of e)en regular meetings must be sent to stoc%holders or
members at least wee%s before the meeting pr at least 1 wee% for special
meetings. 9owe)er, notice of any meetings may be wai)ed e:pressly or
impliedly, by a stoc%holder or member. In meetings ordered by the <(C, It is
e)ident that notice is necessary.
11'. $ny business transacted at any meeting of stoc%holders shall be )alid
e)en if the meeting be improperly held or called pro)ided that acts are not
ultra )ires and that all the stoc%holders are present or represented at the
meeting
11.. Fnless otherwise pro)ided in the by-laws or in the code, a "uorum shall
consist of the stoc%holders representing a ma&ority of the outstanding capital
stoc% or a ma&ority of the members in the case of nonstoc% corporation. $
ma&ority )ote, in the absence of e:press pro)ision in the by-laws and unless
the )ote of a greater number is re"uired by law, is su?cient to decide any
"uestion properly presented.
110. *o amend the articlesGma&ority )ote of 4=D and )ote or written assent
of D#
111. *o elect directorsGma&ority
112. *o remo)e directorsGD# of the outstanding stoc% or of members
entitled to )ote
115. *o ratify a contract of director or o?cerGD#
128. *o e:tend or shorten corporate termGma&ority of 4=D and D#
121. *o increase or decrease the capital stoc%Gma&ority of 4=D and D#
12. *o incur, create, or increase bonded indebtednessGa ma&ority of 4=D
and D#
12#. *o sell, lease, e:change, mortgage or otherwise dispose all or
substantially all of the
corporate assetsGma&ority of 4=D and D#
12'. *o in)est corporate funds in another corporation or business or for any
purpose other than the primary purposeGma&ority )ote of 4=D and D#
12.. *o issue stoc% di)idendsGma&ority of the "uorum of 4=D and D#. *he
appro)al of stoc%holders is not re"uired with respect to other di)idends such
as cash and bond di)idends.
120. *o enter into management contractGma&ority of the "uorum of 4=D and
a ma&ority of the outstanding capital stoc% of both managing and managed
corporations and in some cases, D# of the total outstanding capital stoc%
entitled to )ote or of the members, with respect to the managed corporation.
121. *o adopt by-lawsGa ma&ority of the outstanding capital stoc% or of the
members.
122. *o ,: the issued price of no par )alue sharesGa ma&ority of the "uorum
of 4=D if authorized by the articles of incorporation or in the absence of such
authority, by a ma&ority of the outstanding capital stoc%.
125. *o e6ect or amend a plan of merger or consolidationGa ma&ority of )ote
of 4=D and D# of the outstanding capital stoc% or of the members of the
constituent corporation
158. *o dissol)e the corporationGa ma&ority )ote of 4=D and D# of the
outstanding capital stoc% or of the members
151. *o adopt a plan of distribution of assets of a nonstoc% corporationGa
ma&ority )ote of trustees and D# of the members ha)ing )oting rights.
15. $ corporation may prescribe a greater )oting re"uirement for the
appro)al of any of the abo)e corporate acts in its articles of incorporation
andDor by-laws in order to protect the rights of minority stoc%holders
15#. Notice of a regular meeting need not be gi)en if the articles of
incorporation or by-laws specify the time of the meeting +e:cept when it is to
be held at another place-. $ director trustee may wai)e the re"uirement of
notice of any meeting, e:pressly or impliedly
15'. If the presiding o?cer is not present at the time for a meeting to
con)ene, a stoc%holder who ta%es the Loor may temporarily preside at the
meeting of stoc%holders pending the selection of the presiding o?cer. Fnless
the contrary is pro)ided by the by-laws, the presiding o?cer may be selected
by the )ote of the stoc%holders present.
15.. =ne cannot )ote if he does not appear to be a stoc%holder in the boo%s
of the corporation
150. (ach member, regardless of class, shall be entitled to one )ote
151. !ledgees or mortgagees of shares in stoc% corporation ha)e the right to
attend and )ote at meetings of stoc%holders only when e:pressly gi)en such
right in writing by the pledgor or the mortgagor as the latter remains the
owner of the stoc% pledged or mortgaged. *he authorization is re"uired by
the code to be recorded on the appropriate corporate boo%s by such pledgor
or mortgagor.
152. $ pro:y may refer to a person or a formal written authority
155. *he right to )ote by pro:y is a special form of agency. No pro:y shall be
)alid and e6ecti)e for a period longer than . years.
88. Directors cannot attend or )ote by pro:y at board meetings
81. !ro:ies are irre)ocable at any time unless made irre)ocable by the
gi)er. It becomes irre)ocable when the holder of pro:y has gi)en or promised
a stoc%holder a consideration or interest +loan of money in return for
irre)ocable pro:y.
8. In )oting trust agreement+must be in writing, notarized and ,led with
<(C-, a stoc%holder of a corporation parts with the )oting power only but
retains the bene,cial ownership of stoc%. $ )oting trustee is only a share
owner )ested with legal title for the sole purpose of )oting upon stoc% that
he does not own. New certi,cate is issued to the trustee.
8#. *rustee is the legal title holder or owner of the shares so transferred
under the agreement. 9ence, he is "uali,ed to be a director.
8'. *he ultimate control of the corporation depends upon the )otes of the
stoc%holders
8.. Hoting trust agreement, if )alidly e:ecuted is irre)ocable while a pro:y
must be coupled with interest before it becomes irre)ocable.
80M. *he stoc%holders ha)e the power to ,ll )acancy in the 4=D if the cause
is any of the 6: +1-remo)al +- (:piration of term +#- Increase in the number
of directors
81M. 4=D can ,ll the )acancy if the cause of )acancy is other than remo)al,
e:piration of term or increase in the number of director and the remaining
directors still constitute a "uorum
82M. Directors are entitled to compensation if the gi)ing of compensation is
,:ed in the by-laws, appro)ed by the stoc%holders representing at least a
ma&ority of the outstanding capital stoc% or when the compensation refers to
reasonable per diem
85. $ contract of the corporation with one or more its directors or trustees is
)oidable unless all the 6 conditions are present: +1- that the presence of such
director is not necessary to constitute a "uorum +- that the )ote of such
director was not necessary for the appro)al of the contract +#- that the
contract is fair and reasonable under the circumstances.. Ehen any of the
,rst two conditions is absent, such contract may be rati,ed by the )ote of
D#. Aull disclosure of the ad)erse interest of the director in)ol)ed must be
made at such meeting.
18. *here is interloc%ing directorate when a director holds seats in the
board of directors of or more corporations. *here is no prohibition in the
corporation code regarding this. 9owe)er, law pro)ides for re"uisites when
corporations with interloc%ing directors contract with each other. *he
re"uisites are +if the interest of the director is substantial, 8percent and
nominal in the other-: +1- there is no fraud +- the contract is fair and
reasonable +#- the presence is not re"uired for a "uorum and appro)al, )ote.
If the interest is both nominal or substantial, re"uirement +#- is no longer
re"uired.
11. *he doctrine of corporate opportunity prohibits directors from ac"uiring
business opportunities for his personal gain at the e:pense of the
corporation +breaches his ,duciary duty-. 9e must ,rst disclose to the
corporation the opportunity and if the latter refuses to ta%e it, he can ta%e it.
If breached, he must account to the corporation the pro,ts by refunding the
same.
1. (:ecuti)e committee is composed of not less than # directors and
whose creation is pro)ided in the by-laws. It acts on routine matters or on
those which do not re"uire board meeting because it is di?cult to con)ene
due to "uorum re"uirement. *hus small number is appointed among them. It
cannot repeal or adopt by-laws and cannot ,ll )acancies in the board.
1#. $ donation must be for a public welfare and not for political purpose
1'. <peci,c e:press powers are to shorten or e:tend corporate life, increase
or decrease capital stoc%, power to incur create or increase bonded
indebtedness and power to deny preempti)e right.
1.. $ll stoc%holders must gi)e their consent for the rati,cation of an ultra
)ires act.
10. $ corporator in a stoc% corporation must be a stoc%holder. 9onorary
membership in a business corporation is not allowed by law
11. !ri)ate corporation may be organized by pri)ate or by the state or both
for pri)ate ends, aims, bene,ts or purpose
12. In political law, public corporations are commonly referred as to
municipal corporation
15. >o)ernment created pri)ate corporation to augment its income. *he
corporation is then sub&ect to the rules of the law go)erning pri)ate
corporation. (:amples are: ><I<, !N3, /3*, !N4, N$E$<$, N$!=C=3
8. /uasi-pu&lic corporations - are in reality organized as a pri)ate
corporation but perform public functions. (:amples: !/D*, @(3$/C=, !$/,
E> and $
1. !re-incorporation subscription shall be irre)ocable within 0 months from
subscription
. *he 4=D may ,: the issued price of no-par )alue shares if authorized by
the articles of incorporation. In absence of it, by the stoc%holders.
#. *he issued price of no par shares may )ary from time to time as it is
usually ,:ed on the basis of their boo% )alues.
'. ()ery certi,cate of stoc% must be signed by the president or )ice
president, countersigned by the corporate secretary and sealed with the seal
of the corporation.
.. Fnregistered transfer shall not be )alid e:cept as between the parties. It
is the con)eyance not the act of registration which gi)es title to the
transferee.
0. *here can be no )alid transfer if deli)ery is not made.
1. =nly absolute transfers need to be registered. !ledges and mortgages
need not be registered or noted on the boo% for their )alidity since they do
not in)ol)e absolute alienation of ownership of stoc%.
2. *o a6ect #rd persons, date and description of shares pledged appear in
a public instrument is enough.
5. *he shares which may be alienated are those co)ered by certi,cates of
stoc%.
#8. <hares of stoc% which is not fully paid shall not be transferable on the
boo%s of the corporation.
#1. Fnless prohibited by by-laws, certi,cate of stoc%s may be issued for less
than the number of shares subscribed for, pro)ided the par )alue of each
share is fully paid for.
#. Fnpaid subscription is an asset to which corporate creditors may loo%
for payment. 9ence a stoc% corporation has no power to release an original
subscriber from paying for his shares without )aluable consideration for such
release or without unanimous consent of the stoc%holders.
##. <toc%holder is not a co-owner of the corporate property nor is he
entitled to the possession of any de,nite portion if its property or assets.
#'. In a deri)ati)e suit, the wrong is inLicted directly on the corporation and
indirectly upon the stoc%holders.
#.. Indi)idual suit is wrong committed on a stoc%holder+right to )ote-
#0. Creditors, corporations and stoc%holders can set up the inade"uacy of
the consideration for the issuance of the stoc%.
#1. *he liability of the consenting directorDo?cer for the NwaterN in the
stoc% is solidary with the stoc%holder concerned.
#2. $ call cannot be of such character as to permit the directors to practice
fa)oritism or act oppressi)ely.
#5. $ call without notice is practically no call at all.
'8. 3easonable hours must not be understood to mean reasonable hours on
business days throughout the year and not merely during some arbitrary
period of a few days chosen by the directors +18days prior to the annual
meeting-
'1. *he main purpose of right of inspection of corporate boo%s is to protect
stoc%holders interest.
'. Jou must act in good faith to be allowed to inspect the boo%s.
'#. 3ight of inspection not absolute, factors: +a- purpose of inspection
+b-boo%s of foreign corp +c-trade secrets +d-reasonable hours.
''. $ stoc%holder cannot, without order of the court be permitted to ta%e
boo%s from the o?ce of the corporation.
#.. In general, right of the stoc%holder e:tends to all boo%s, papers,
contracts, minute boo%s or other instruments from which he can deri)e any
information that will enable him to better protect his interest.
#0. >enerally, where one corporation sells or otherwise transfers all its
assets to another corporation, the latter is not liable for the debts of the
transferror unless the transferee assumed the liabilities of the former. <ale of
the assets to another corporation for stoc%, if followed by dissolution, has the
e6ect of a merger.
#1. @erger or consolidation in)ol)e a transfer of the assets of the
constituent corporation in e:change for securities in the new or sur)i)ing
corporation but neither in)ol)es winding up of the a6airs of the constituent
corporation in the sense that the assets are distributed to the stoc%holders.,
there is then the automatic assumption of liability of the absorbed
corporation or constituent corporation.
#2. $ny stoc%holder of a close corporation may, for any reason, compel said
corporation and purchase his share at fair )alue which shall not be less than
their par )alue or issued )alue, when the corporation has su?cient assets in
its boo%s to co)er its debts and liabilities e:clusi)e of capital stoc%.
#5. *he dissenting stoc%holder shall ma%e a written demand on the
corporation within #8 days after the date on which the )ote was ta%en for
payment of the fair )alue of his share. *he corporation shall pay to such
stoc%holder upon surrender of the corresponding certi,cate of stoc% within
18 days after demanding the fair )alue of his shares.
'8. Aailure of the stoc%holder to ma%e demand within #8-day period shall be
deemed a wai)e of his appraisal right.
'1. !ayment of appraisal right shall be made only if the corporation has
unrestricted retained earnings.
'. =nce the dissenting stoc%holder demands payment of the fair )alue if
his shares, all right shall be suspended. If he is not paid within #8 days, his
)oting and di)idends rights shall be restored.
'#. If there are nine trustees to be elected, a member shall be entitled to 5
)otes, e:cept that he cannot cast more than 1 )ote in fa)or of 1 candidate.
''. @embership and all rights are personal and non-transferable, unless the
articles or by-laws otherwise pro)ide.
'.. *ermination e:tinguishes all rights of a member in the corporation or in
its property, unless otherwise pro)ided in the articles of incorporation.
'0. *he term of o?ce of trustees shall be # years +non-stoc%-
'1. If ,rst elected, 1D# of the 4=* members shall e:pire e)ery year and
subse"uent trustees shall ha)e # years. *rustees elected to ,ll )acancies
occurring before the e:piration of a particular term shall hold o?ce only for
the une:pired period
'2. Non-stoc% may in)est its accumulated funds for pro,t purposes but
such power must be included in its articles in order that in)estment may not
be considered ultra )ires.
'5. *he right to )ote of members may be limited, broadened or were denied
in the articles of incorporation or the by-laws.
.8. (ach member shall be entitled only to 1 )ote in the election of trustees
unless cumulati)e )oting is authorized.
.1. Hoting by mail or other similar means may be authorized.
.. =?cers may be directly elected by the members unless otherwise
pro)ided.
.#. Non-stoc% may designate their go)erning boards by any name other
than 4=*. *rustees ha)e duties similar to those of stoc% corporation.
.'. $ corporation e:hibiting the characteristics of close corporation:
+1- persons shall not e:ceed 8.
+- Issued shares are sub&ect to restrictions or transfer
+#- *he corporation shall not list in any stoc% e:change or ma%e a stoc%
o6ering to public.
It is deemed not a close corporation if at least D# of its )oting
stoc%Drights is owned by another which is not a close corporation.
... *hose corporation )ested with public interest cannot be a close
corporation mining or oil companies, ban%s, insurance, educational and stoc%
e:change.
.0. Close corporation has been described as a corporation de &ure and
partnership de facto and has been often referred to as an Nincorporated
partnershipN because of its intimate business associates acting li%e partners
among themsel)es.
.1. @anagement of a stoc% corporation may be by the stoc%holder if
pro)ided in the articles.