CORPORATION CODE

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ACTS CONSTITUTING FORMAL ORGANIZATION (process of

structuring the corporation so that it can carry out the purposes for
which it has been incorporated):
1. Adoption of by-laws
2. Filing of the same with the SEC
3. Election of the BOD or BOT and the officers of the board
pursuant to the by-laws
4. Establishment of the principal office

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CONDITIONS PRECEDENT WHICH WILL PREVENT THE LEGAL
EXISTENCE OF A CORPORATION IF NOT COMPLIED WITH:
1. Filing of articles of incorporation with the SEC
2. Issuance of the certificate of incorporation by the SEC.
3. Minimum number of 5 incorporators
4. Legal requirement that 25% of the authorized capital stock
must be subscribed and 25% thereof paid
CONDITIONS SUBSEQUENT WHICH MUST BE COMPLIED WITH
IN ORDER THAT CORPORATION MAY LEGALLY CONTINUE (Art.
22):
Par. 1: Corporation upon acquiring corporate existence must
organize and commence its business operations within 2 years from
the date of its incorporation.

Failure to comply will result in the automatic cessation

of corporate powers and the dissolution of the
corporation (subject to due notice and hearing by the
SEC)
Substantial compliance with the condition subsequent
is sufficient

5. Providing for the subscription and payment of the capital

stock
6. Taking of such other steps as are necessary to enable the
corporation to transact the legitimate business or accomplish
the purpose for which it was created
ACTS CONSTITUTING COMMENCEMENT OF BUSINESS (performed
preparatory acts geared toward the fulfillment of the purposes for
which it was established) :
1. Entering into contracts or negotiation for lease or sale of
properties to be used as business or factory site
2. Making plans for and the construction of the factory
3. Taking steps to expedite the construction of the workers
equipment
Par. 2: Where the corporation has commenced the transaction of its
business but subsequently becomes continuously inoperative for a
period of at least 5 years, the continuous inoperation shall be a
ground for the suspension and revocation of its corporate franchise
or certificate of incorporation (subject to notice and hearing).

Corporation continues to exist until the revocation or

cancellation of its certificate of registration has been lawfully
declared by SEC or it is dissolved in accordance with law

Xpn to the GR:

If non-use of the corporate charter or continuous inoperation of a

corporation is due to causes beyond its control as found by the SEC,
the effects mentioned shall not take place

3. Directly conferred by the statute

LIMITATIONS ON POWERS OF THE BOD/BOT:

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1. Limitations or restrictions imposed by the constitution,

statutes, AOI or its by-laws

GR: Corporate powers of all corporations shall be exercised, all

business conducted and all property of such corporation controlled
and held by the BOD or BOT chosen by the stockholders or members
or by a corporate officer duly authorized by the board.

2. Constituent acts involving fundamental changes in the

corporation which require the approval or ratification of the
stockholders or members

In the absence of authority or valid delegation from the BOD

or BOT, no person, not even its officers, can validly bind a
corporation.

Stockholders action cannot bind the corporation

BOD or BOT have the sole authority to determine policy, enter

into contracts, and conduct the ordinary business of the
corporation within the scope of its charter, its AOI, by-laws
and relevant provisions of law

As long as BOT or BOD act honestly and their acts or

contracts do not disregard the rights of the minority, the
courts will not interfere

BUSINESS JUDGEMENT RULE states that court cannot

undertake to control the discretion of the BOD or BOT about
administrative matters as to which they have the legitimate power of
action, and contracts intra vires entered into by them are binding
upon the corporation and courts will not interfere unless such
contracts are unconscionable and oppressive as to amount to a
wanton destruction of the rights of the minority
NATURE OF POWERS OF BOD/BOT:
1. Original and undelegated received from the state in the act
of incorporation
2. Can bind the corporation provided acts are within the scope
of authority

3. Powers not possessed by the corporation

GR: To exercise their powers as BOD/BOT, they must meet as
directors or trustees and act at a meeting at which there is quorum
Xpns (acts will be binding upon the corporation without a meeting
and a quorum):
1. Where the directors happen to be the sole stockholders
2. Where the person acting in behalf of the corporation is
authorized by the BOD/BOT either expressly or impliedly to
bind it by contract
3. Action is ratified expressly or impliedly in a subsequent board
meeting
4. When directors of agents held out by the corporation to the
public as possessing power to do certain acts
5. Board being inactive
6. Stockholders waive the necessity for the meeting of the
BOD/BOT
7. Agreement by stockholders where no creditors, minority
stockholders, or other persons of the public are affected
8. Made by an executive committee created thru the by-laws of
the corporation

9. When the corporation enters into a management contract

delegating the management of its affairs to another
corporation for a certain period of time
10. Made by close corporations
GR: Directors or trustees has the power to delegate its authority
expressly or impliedly
Xpns ( powers which cannot be delegated) :
1. Discretionary powers of the board or trustee
2. Entire supervision and control of the corporation
3. Special powers especially conferred upon it by a resolution of
the stockholders or members of the corporation

d. Trustees of non-stock educational corp. not less than 5 nor

more than 15, provided that number shall be in multiples of 5
with the term of office of 1/5 of their number expiring every
year
e. Corp. Sole no BOD/Trustee because it consists of one
member or corporator only
f.

ELECTION OF LESS THAN THE REQUIRED NUMBER OF

DIRECTORS OF TRUSTEES does not invalidate the title of those
elected as long as they constitute a quorum.
QUALIFICATIONS OF DIRECTORS OR TRUSTEES:
1. Stock corp.

TERM OF OFFICE OF DIRECTORS/TRUSTEES: 1 year and until

their successors are elected and qualified

a. Must own at least one share of capital stock

b. Share of stock held by the director must be registered in
his name

Upon failure of a quorum at any meeting of the stockholders

or members called for the election, the director shall hold over
and continues to function until another director is chosen and
qualified
Term of office, being fixed by law, cannot be shortened or
extended by the parties or by those interested in the position
unless for justifiable reason

c. Must continuously own at least a share of stock during his

term; otherwise, he shall automatically cease to be a
director
d. Majority must be residents of the Phils.
2. Non-stock Corp.
a. Must be members in good standing

NUMBER OF DIRECTORS/TRUSTEES TO BE ELECTED:

a. Stock Corp. - Not less than 5 nor more than 15
b. Ordinary non-stock corp. may be more than 15 with the
term of office of 1/3 of their number expiring every year but
not less than 5
c. Close corp. in its AOI may provide that the business of the
corp shall be managed by its stockholders

Religious societies not less than 5 no more than 15

b. Majority must be residents of the Phils.

Corporations by-laws may provide for additional qualifications

as long as consistent with those of the corporation code.

Votes cast for a person who is not eligible cannot elect him but
his actions shall be binding upon the corporation in the
interest of 3rd persons

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NUCCIO SAVERIO and NS INTERNATIONAL INC.

vs.
ALFONSO G. PUYAT
FACTS:
Petitioner Nuccio contracted a loan from respondent Puyat for NSI.