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CHAPTER 13: APPRAISAL RIGHT
A. DEFINITION
Appraisal Right is the method of paying a
shareholder for the taking of his property.
- It is a statutory means whereby a
stockholder can avoid the conversion of this
property into another property not of his
own choosing and is given to a shareholder
as compensation for the abrogation of the
common law rule that a single stockholder
could block a certain corporate act such as
merger.
PURPOSE: is to protect the property rights of
dissenting stockholders from actions by the
majority shareholders which alters the nature
and character of their investment.
- In effect, it is a right granted to dissenting
stockholders on certain corporate or business
decisions to demand payment of the fair
market value of their shares.
Sec. 81: Instances of appraisal right. - Any
stockholder of a corporation shall have the right
to dissent and demand payment of the fair value
of his shares in the following instances:
1. In case any amendment to the articles of
incorporation has the effect of changing
or restricting the rights of any
stockholder or class of shares, or of
authorizing preferences in any respect
superior to those of outstanding shares of
any class, or of extending or shortening
the term of corporate existence;
2. In case of sale, lease, exchange, transfer,
mortgage, pledge or other disposition of
all or substantially all of the corporate
property and assets as provided in the
Code; and
3. In case of merger or consolidation.
ENUMERATION NOT EXCLUSIVE: it may
also cover: 1. Investment of funds in another corporation
or business or for any other purpose other than its primary
purpose as provided in Sec. 42; 2. Likewise, in a close
corporation, a stockholder has the unbridled right to
compel the corporation ―for any reason‖ to purchase his
shares at their fair value which shall not be less than the
par or issued value, when the corporation has sufficient
assets to cover its debts and liabilities, exclusive of capital
stock (Sec. 105).
N O T A L L A M E N D M E N T S : the right
may only be exercised in cases of amendment
which ―has the effect of changing or restricting
the rights of any stockholder or class of shares,
or of authorizing preferences in any respect
superior to those of outstanding shares of any
class, or of extending or shortening the term of
corporate existence‖.
Accordingly, if the amendment is to increase or
decrease the number of directors, or change the
corporate name, or change of principal office,
the appraisal right is not available.
STOCKHOLDER WITH UNPAID
SUBSCRIPTION: He MAY exercise the
appraisal right, since the subscriber is entitled to
all the rights of a stockholder under Sec. 72 and
although Sec. 82 provides for the submission of
certificate of stock, Sec. 86 provides that the
notation to such certificate of stock is
OPTIONAL at the instance of the corporation
SEC.82: REQUIREMENTS AND
PROCEDURE FOR THE VALID
EXERCISE OF THIS RIGHT ARE:
1. The stockholder must have voted against
the proposed corporate action in any of
the instances allowed by law for the
exercise of the right of appraisal;
2. The written demand for payment must
be made by the dissenting stockholder
within 30 days after the date on which
the vote was taken. Failure to make the
demand within the said period shall be
deemed a waiver on the part of the
stockholder concerned to exercise his
appraisal right;
3. Surrender of the certificate of stock by
the dissenting stockholder for notation in
the corporate books and the payment of
the corporation of the fair market value
of the said shares as of the day prior to
the date on which the vote was taken. If
the stockholder and the corporation
cannot agree on the fair market value
thereof, the same shall be determined in
accordance with the provisions of par.2
of Sec. 82;
4. 4. The fair value of the shares of the
dissenting stockholder must be paid by
the corporation only if it has
―unrestricted retained earnings‖ in its
books to cover such payment. If the
corporation has no unrestricted retained
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earnings, the dissenting stockholder may
not, therefore, be able to effectively
exercise his appraisal right, EXCEPT in
the case of a close corporation under
Sec. 105;
5. Upon payment of the shares by the
corporation, the dissenting stockholder
shall transfer his shares to the
corporation.
Sec. 83: SUSPENSION OF
STOCKHOLDER RIGHTS:
- Upon completion of the steps provided in
Sec. 82, the stockholder concerned is
regarded as having made an election to
withdraw from the corporate enterprise and
take the value of his stock. Such a procedure
suspends (for a maximum period of 30 days)
certain ownership rights associated with
stockholder status, such as the right to
receive dividends or distribution and the
right to vote which cannot be restored
without compliance with the governing
statutory conditions.
DIRECTOR EXERCISING APPRAISIAL
RIGHT: may still continue to function as such,
prior to payment, unless there is a contrary
provision in the by-laws.
Sec.84. WHEN RIGHT TO PAYMENT
CEASES
 When he withdraws his demand for
payment and the corporation consents
thereto;
 When the proposed action is abandoned
or rescinded by the corporation;
 When the proposed action is disapproved
by the SEC where such approval is
necessary;
 When the SEC determines that he is not
entitled to exercise his appraisal right;
 When he fails to submit the stock
certificate within ten (10) days from
demand to the corporation for notation
that such shares are dissenting shares;
and
 If the shares are transferred and the
certificate subsequently cancelled
SEC.85: THE CORPORATION BEARS
THE COST IF:
 The price offered by the corporation is
lower than the fair value of the shares of
the dissenting stockholder as determined
by the appraisers;
 Where an action is filed by the
dissenting stockholder to recover such
fair value and the refusal of the
stockholder to receive payment is found
by the court to be justified.
DISSENTING STOCKHOLDER WILL BE
LIABLE FOR THE COST AND EXPENSES
OF APPRAISAL WHEN:
 When the price offered by the
corporation is approximately the same as
the fair value ascertained by the
appraisers;
 Where the action filed by the dissenting
stockholder and his refusal to accept
payment is found by the court to be
unjustified.
SEC.86: NOTATION ON CERTIFICATES;
RIGHTS OF TRANSFEREE. - Within ten
(10) days after demanding payment for his
shares, a dissenting stockholder shall submit the
certificates of stock representing his shares to
the corporation for notation thereon that such
shares are dissenting shares. His failure to do so
shall, at the option of the corporation, terminate
his rights under this Title. If shares represented
by the certificates bearing such notation are
transferred, and the certificates consequently
cancelled, the rights of the transferor as a
dissenting stockholder under this Title shall
cease and the transferee shall have all the rights
of a regular stockholder; and all dividend
distributions which would have accrued on such
shares shall be paid to the transferee.
SALE: The law does not prohibit the dissenting
stockholder to sell, transfer or assign his shares.
If such be the case, the right of the dissenting
stockholder to be paid the fair value of his
shares shall cease and the transferee will acquire
all the rights of a regular stockholder inclusive
of all dividends which would have accrued on
such shares
CHAPTER 14: NON-STOCK
CORPORATIONS (TITLE XI)
 a non-stock corporation is one where no part
of its income is distributable as dividends to
its members, trustees, or officers, subject to
the provisions of this Code on dissolution:
Provided, That any profit which a non-stock
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corporation may obtain as an incident to its
operations shall, whenever necessary or
proper, be used for the furtherance of the
purpose or purposes for which the
corporation was organized, subject to the
provisions of this Title.
PROFITS: A non-stock corporation is generally
not allowed to engage in any business
undertaking or activity for profit as it would run
counter to its very nature as a non-profit entity.
However, as may be allowed and specified in its
AOI or incidental to the objects and purposes
indicated therein, it may engage in certain
money-making ventures or economic activities
provided that any profits derived there from
shall be used for the furtherance of the purposes
for which the corporation was organized or to
defray the operating expenses of the entity.
SEC.88: Non-stock corporations may be
organized or formed for any purpose or
purposes allowed or indicated in the above
provision. The enumeration, however, is not
exclusive as the law itself recognizes similar or
allied purpose or purposes for which non-stock
corporations may be organized. Recreational,
sports club, athletic or allied activities of similar
import, for instance, may likewise be lawful
purpose of a non-stock corporation.
SEC.89: MEMBERSHIP AND VOTING
RIGHTS
CUMULATIVE VOTING: GENERAL
RULE: Cumulative voting is not allowed,
accordingly, even if the members may cast as
many votes are there are trustees to be elected,
he may not cast more than one vote for one
candidate, UNLESS: allowed in the AOI or the
by-laws.
CLASSIFICATION: The by-laws or the AOI
may provide for classification as to members
with voting or non-voting rights, since it is
provided that ―the right of the members of any
class or classes to vote may be limited,
broadened or denied.
PROXY VOTING: Generally, allowed unless
disallowed by the AOI or the bylaws.
VOTING OTHER THAN IN PERSON: may
also be allowed by the AOI or by-laws. Contrary
to a stock corporation, a stockholder has to vote
in the meeting called for the purpose except in
case of a general amendment where ―written
assent‖ is allowed.
SEC.90: Non - transferability of membership.
 Membership in a nonstock corporation and
all rights arising therefrom are personal and
nontransferable, unless the articles of
incorporation or the by-laws otherwise
provide.
SEC.91: Termination of membership. –
 Membership shall be terminated in the
manner and for the causes provided in the
articles of incorporation or the by-laws.
Termination of membership shall have the
effect of extinguishing all rights of a
member in the corporation or in its property,
unless otherwise provided in the articles of
incorporation or the by-laws.
In the absence of any provision in the AOI or
by-laws relative to the manner and causes of
termination or expulsion of member, the decided
weight of authority is to the effect that the
power is inherent and may be exercised in
certain situations, namely:
 When an offense is committed which,
although it has no immediate relation to
a member’s duty as such, it is so
infamous as to render him unfit for
society of honest men, and which is
indictable at common law
 When the offense is a violation of his
duty as member of the corporation; and
3. When the offense is of a mixed nature,
being both against his duty as a member
of the corporation, and also indictable at
common law.
TRUSTEES AND OFFICERS
SEC.92: Election and term of trustees. -
Unless otherwise provided in the articles of
incorporation or the by-laws, the board of
trustees of nonstock corporations, which may be
more than fifteen (15) in number as may be
fixed in their articles of incorporation or by-
laws, shall, as soon as organized, so classify
themselves that the term of office of one-third
(1/3) of their number shall expire every year;
and subsequent elections of trustees comprising
one-third (1/3) of the board of trustees shall be
held annually and trustees so elected shall have
a term of three (3) years. Trustees thereafter
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elected to fill vacancies occurring before the
expiration of a particular term shall hold office
only for the unexpired period.
QUALIFICATIONS OF TRUSTEES:
 He is a member of the association;
 Majority thereof must be residents of the
Philippines; and
 Other qualifications as may be provided
for in the by-laws.
NUMBER OF TRUSTEES: may exceed 15 as
may be fixed in the AOI or bylaws, contrary to a
stock corporation whose BOD must not exceed
15 members.
TERM: Sec. 92 allows the AOI or by-laws to
provide a desired term of office and may vary
depending on the needs of a specific
corporation. By analogy of the provisions of
Sec. 7, however, a term in excess of 5 years is
not allowed as it would unduly deprive other
members to take active part in corporate
management.
STAGGERED TERM: The term of office may
also be staggered unless the AOI or by-laws
otherwise provide. If such be the case, the board
shall classify themselves in order that 1/3 of
their number shall expire every year and
subsequent elections of trustees comprising 1/3
shall be held annually. The trustees so elected to
fill up any vacancy occurring before the
expiration of a particular term shall hold office
only for the unexpired portion of his
predecessor.
GOVERNING BOARDS: While the Code
speaks of the BOT as the governing board or
body in a non-stock corporation the same law
allows a non-stock corporation or any other
special corporation to designate their governing
board by any other name other than BOD/T. The
Rotary Club for instance, designates it as Board
of Governors while the Evangelica
Independence Metodista En Las Islas Filipinas
calls it as the Consistory of Elders.
ELECTION BY MEMBERS OF
OFFICERS: One of the significant features of a
non-stock corporation is that it allows the AOI
or by-laws to provide that the officers thereof
shall be directly elected by the members. Unlike
in a stock corporation where corporate officers
are elected by the BOD.
SEC. 138: Designation of governing boards. -
The provisions of specific provisions of this
Code to the contrary notwithstanding, non-stock
or special corporations may, through their
articles of incorporation or their by-laws,
designate their governing boards by any name
other than as board of trustees.
The general rule of non - interference in the
internal affairs of associations is, however,
subject to exceptions, but the power of review
is extremely limited. Accordingly, the courts
have and will exercise power to interfere in
the internal affairs of an association where
 law and justice so require, and
 the proceedings of the association are
subject to judicial review where there is
fraud, oppression, or bad faith, or
 where the action complained of is
capricious, arbitrary, or unjustly
discriminatory. Also, the courts will
usually entertain jurisdiction to grant
relief
 in case property or civil rights are
invaded, although it has also been held
that the involvement of property rights
does not necessarily authorize judicial
intervention, in the absence of
arbitrariness, fraud or collusion.
Moreover, the courts will intervene
 where the proceedings in question are
violative of the laws of the society, or
the law of the land, as by depriving a
person of due process of law. Similarly,
judicial intervention is warranted
 Where there is a lack of jurisdiction on
the part of the tribunal conducting the
proceedings, where the organization
exceeds its powers, or where the
proceedings are otherwise illegal.
SEC.93: PLACE OF MEETING: another
distinctive feature of a non-stock corporation is
that membership meeting may be held anywhere
in the Philippines whereas in a stock
corporation, the stockholders’ meeting is
mandated to be held or conducted within the
city or municipality where the principal office is
located, and as far as practicable, within the
principal office of the corporation.
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Sec. 94. Rules of distribution of assets:
 All liabilities and obligations of the
corporation shall be paid, satisfied and
discharged, or adequate provision shall
be made therefore;
 Assets held by the corporation upon a
condition requiring return, transfer or
conveyance, and which condition occurs
by reason of the dissolution, shall be
returned, transferred or conveyed in
accordance with such requirements;
 Assets received and held by the
corporation subject to limitations
permitting their use only for charitable,
religious, benevolent, educational or
similar purposes, but not held upon a
condition requiring return, transfer or
conveyance by reason of the dissolution,
shall be transferred or conveyed to one
or more corporations, societies or
organizations engaged in activities in the
Philippines substantially similar to those
of the dissolving corporation according
to a plan of distribution adopted
 Assets other than those mentioned in the
preceding paragraphs, if any, shall be
distributed in accordance with the
provisions of the articles of
incorporation or the by-laws, to the
extent that the articles of incorporation
or the by-laws, determine the distributive
rights of members, or any class or
classes of members, or provide for
distribution; and
 in any other case, assets may be
distributed to such persons, societies,
organizations or corporations, whether or
not organized for profit, as may be
specified in a plan of distribution
adopted pursuant to this Chapter.
Sec. 95. PLAN OF DISTRIBUTION OF
ASSETS:
 A plan providing for the distribution of
assets, not inconsistent with the
provisions of this Title, may be adopted
by a non-stock corporation in the process
of dissolution in the following manner:
The board of trustees shall, by majority
vote, adopt a resolution recommending a plan of
distribution and directing the submission thereof
to a vote at a regular or special meeting of
members having voting rights. Written notice
setting forth the proposed plan of distribution or
a summary thereof and the date, time and place
of such meeting shall be given to each member
entitled to vote, within the time and in the
manner provided in this Code for the giving of
notice of meetings to members. Such plan of
distribution shall be adopted upon approval of at
least two-thirds (2/3) of the members having
voting rights present or represented by proxy at
such meeting.
CHAPTER 15: CLOSE CORPORATION
Sec. 96: A close corporation, within the
meaning of this Code, is one whose articles of
incorporation provide that:
 All the corporation's issued stock of all
classes, exclusive of treasury shares,
shall be held of record by not more than
a specified number of persons, not
exceeding twenty (20);
 all the issued stock of all classes shall be
subject to one or more specified
restrictions on transfer permitted by this
Title; and
 The corporation shall not list in any
stock exchange or make any public
offering of any of its stock of any class.
Notwithstanding the foregoing, a
corporation shall not be deemed a close
corporation when at least two-thirds
(2/3) of its voting stock or voting rights
is owned or controlled by another
corporation which is not a close
corporation within the meaning of this
Code.
Any corporation may be incorporated as
a close corporation, except mining or oil
companies, stock exchanges, banks,
insurance companies, public utilities,
educational institutions and corporations
declared to be vested with public interest in
accordance with the provisions of this Code.
The provisions of this Title shall
primarily govern close corporations: Provided,
That the provisions of other Titles of this Code
shall apply suppletorily except insofar as this
Title otherwise provides.
The ultimate effect of the special
provisions of the law on close corporations is to
furnish another form of business organization –
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a ―de facto corporation with a corporate shell‖.
It is referred to sometimes as a hybrid of both
the corporate and partnership forms, an
―incorporated partnership‖ or ―corporation de
jure but a de facto partnership‖.
This is because a close corporation may
partake the nature of a partnership in that the
stockholders thereof take an active role in the
management of the corporate affairs either as
directors, officers or even perhaps as partners in
management which is akin to the partnership
form of business. This, in fact, is the main
distinction between a close corporation and the
ordinary stock corporation where, in the latter,
the stockholders have hardly a voice in
management except perhaps to elect the
directors.
2/3 OWNED BY ANOTHER
CORPORATION: Even if another corporation
owns or controls 2/3 of the ―voting‖ stocks of a
close corporation, the latter may still be
considered as such close corporation if the
corporation owning or controlling the shares is
also a close corporation.
BUSINESS WITH PUBLIC INTEREST:
may not be formed as close corporation under
the second paragraph of Sec. 95. Sec. 140 of the
Code lays down a similar policy authorizing
NEDA to recommend to the legislature the
setting of maximum limits to family or group
ownership of stock in corporations vested with
public interest, and the determination of whether
or not it should be vested with public interest
within its domain.
SEC. 97: Articles of incorporation. - The
articles of incorporation of a close corporation
may provide:
 For a classification of shares or rights and
the qualifications for owning or holding the
same and restrictions on their transfers as
may be stated therein, subject to the
provisions of the following section;
 For a classification of directors into one or
more classes, each of whom may be voted
for and elected solely by a particular class of
stock; and
 For a greater quorum or voting requirements
in meetings of stockholders or directors than
those provided in this Code.
The articles of incorporation of a close
corporation may provide that the business of the
corporation shall be managed by the
stockholders of the corporation rather than by a
board of directors. So long as this provision
continues in effect:
 No meeting of stockholders need be
called to elect directors;
 Unless the context clearly requires
otherwise, the stockholders of the
corporation shall be deemed to be
directors for the purpose of applying the
provisions of this Code; and
 The stockholders of the corporation
shall be subject to all liabilities of
directors.
The articles of incorporation may likewise
provide that all officers or employees or
that specified officers or employees shall be
elected or appointed by the stockholders,
instead of by the board of directors.
QUORUM AND VOTING
REQUIREMENT: a close corporation may
provide for a greater quorum or voting
requirement under no. 3 above. Although the
AOI or by-laws of other stock corporations may
provide for greater quorum and voting
requirements in directors’ meeting as provided
in Sec. 25 of the Code, those for stockholder’
meeting, unlike in a close corporation, may not
be altered or increased. This provision in effect,
increases the veto power of the minority
stockholders.
DIRECT MANAGEMENT BY
STOCKHOLDERS: the AOI of the close
corporation may provide that the corporation
shall be managed by the stockholders rather than
by the BOD. If such be the case, the
stockholders are deemed directors and are
subject to all the rights and liabilities of a
director. However, their liability would be more
extensive in that they are personally liable for
torts unless, again, the corporation has obtained
reasonably adequate liability insurance.
EFFECT OF BREACH OF QUALIFYING
CONDITIONS
Sec. 98. Validity of restrictions on transfer of
shares. - Restrictions on the right to transfer
shares must appear in the articles of
incorporation and in the by-laws as well as in
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the certificate of stock; otherwise, the same shall
not be binding on any purchaser thereof in good
faith. Said restrictions shall not be more onerous
than granting the existing stockholders or the
corporation the option to purchase the shares of
the transferring stockholder with such
reasonable terms, conditions or period stated
therein. If upon the expiration of said period, the
existing stockholders or the corporation fails to
exercise the option to purchase, the transferring
stockholder may sell his shares to any third
person.
Sec. 99. EFFECTS OF ISSUANCE OR
TRANSFER OF STOCK IN BREACH OF
QUALIFYING CONDITIONS:
 If stock of a close corporation is issued or
transferred to any person who is not entitled
under any provision of the articles of
incorporation to be a holder of record of its
stocks, and if the certificate of such stock
conspicuously shows the qualification of the
person entitles to be holders of records
thereof, such person is conclusively
presumed to have notice of the fact of his
ineligibility to be a stockholder.
 If the articles of incorporation of a close
corporation states the number of persons, not
exceeding twenty (20), who are entitled to
be holders of record of its stock , and if the
certificate for such stock conspicuously
states such
number , and
 if the issuance or transfer of stock to any
person would cause the stock to be held by
more than such number of persons, the
person to whom such stock is issued or
transferred is conclusively presumed to have
notice of this fact.
 If a stock certificate of any close corporation
conspicuously shows a restriction on transfer
of stock of the corporation , the transferee of
the stock is conclusively presumed to have
notice of the fact that he has acquired stock
in violation of the restriction, if such
acquisition violates the restriction.
 Whenever any person to whom stock of a
close corporation has been issued or
transferred has, or is conclusively presumed
under this section to have, notice either (a)
that he is a person not eligible to be a holder
of stock of the corporation, or (b) that
transfer of stock to him would cause the
stock of the corporation to be held by more
than the number of persons permitted by its
articles of incorporation to hold stock of the
corporation, or (c) that the transfer of stock
is in violation of a restriction on transfer of
stock, the corporation may, at its option,
refuse to register the transfer of stock in the
name of the transferee.
 The provisions of subsection (4) shall not
applicable if the transfer of stock, though
contrary to subsections (1), (2) of (3), has
been consented to by all the stockholders of
the close corporation, or if the close
corporation has amended its articles of
incorporation in accordance with this Title.
 The term "transfer", as used in this section,
is not limited to a transfer for value .
 The provisions of this section shall not
impair any right which the transferee may
have to rescind the transfer or to recover
under any applicable warranty, express or
implied.
Sec. 100. Agreements by stockholders. –
 Agreements by and among stockholders
executed before the formation and
organization of a close corporation, signed
by all stockholders, shall survive the
incorporation of such corporation and shall
continue to be valid and binding between
and among such stockholders, if such be
their intent, to the extent that such
agreements are not inconsistent with the
articles of incorporation, irrespective of
where the provisions of such agreements are
contained, except those required by this Title
to be embodied in said articles of
incorporation.
 An agreement between two or more
stockholders, if in writing and signed by the
parties thereto, may provide that in
exercising any voting rights, the shares held
by them shall be voted as therein provided,
or as they may agree, or as determined in
accordance with a procedure agreed upon by
them.
 No provision in any written agreement
signed by the stockholders, relating to any
phase of the corporate affairs, shall be
invalidated as between the parties on the
ground that its effect is t o m a k e t h e m p
a r t n e r s a m o n g themselves .
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 If a director's meeting is held without proper call
 A written agreement among some or all of the
stockholders in a close corporation shall not be
invalidated on the ground that it so relates to the
c o n d u c t o f t h e b u sin e s s a n d a ff air s o
f t h e c o r p o r a tio n as to restrict or interfere
with the discretion or powers of the board of
directors: Provided, That such agreement shall
impose on the stockholders who are parties
thereto the liabilities for managerial acts
imposed by this Code on directors.
 To the extent that the stockholders are actively
engaged in the management or operation of the
business and affairs of a close corporation, the
stockholders shall be held to strict fiduciary
duties to each o t h e r a n d a m o n g t h e m s
elv e s . Said stockholders shall be personally
liable for corporate torts unless the corporation
has obtained reasonably adequate liability
insurance.
WHEN BOARD MEETINGS NOT
NECESSARY:
As a rule, directors in ordinary stock
corporations must act as a body at a duly
constituted meeting to have a valid corporate
transaction. In a close corporation, directors
may validly act even without a meeting subject
only to the conditions laid down in the Code
under Sec. 101:
Sec. 101. When board meeting is unnecessary
or improperly held. - Unless the by-laws
provide otherwise, any action by the directors of
a close corporation without a meeting shall
nevertheless be deemed valid if:
 Before or after such action is taken, written
consent thereto is signed by all the directors; or
 All the stockholders have actual or implied
knowledge of the action and make no prompt
objection thereto in writing; or
 The directors are accustomed to take informal
action with the express or implied acquiescence
of all the stockholders; or
 All the directors have express or implied
knowledge of the action in question and none of
them makes prompt objection thereto in writing.
or notice, an action taken therein within the
corporate powers is deemed ratified by a
director who failed to attend, unless he promptly
files his written objection with the secretary of
the corporation after having knowledge thereof.
PRE-EMPTIVE RIGHTS
SEC. 102: The pre-emptive right of stockholders
in close corporations shall extend to all stock to
be issued, including reissuance of treasury
shares, whether for money, property or personal
services, or in payment of corporate debts,
unless the articles of incorporation provide
otherwise.
Sec. 103. Amendment of articles of
incorporation. - Any amendment to the articles
of incorporation which seeks to delete or
remove any provision required by this Title to
be contained in the articles of incorporation or
to reduce a quorum or voting requirement stated
in said articles of incorporation shall not be
valid or effective unless approved by the
affirmative vote of at least two-thirds (2/3) of
the outstanding capital stock, whether with or
without voting rights, or of such greater
proportion of shares as may be specifically
provided in the articles of incorporation for
amending, deleting or removing any of the
aforesaid provisions, at a meeting duly called
for the purpose
DEADLOCK: The provision above-quoted
gives the SEC a very wide discretion in respect
to management of a close corporation in the
event of a deadlock. It may:
 Cancel or alter any provision in the AOI,
by-laws or any stockholders’ agreement;
 Cancel, alter or enjoin any resolution or
other act of the corporation or its BOD,
stockholders or officers;
 Prohibit any act of the corporation or its
BOD, stockholders or officers or other
persons party to the action;
 Requiring the purchase of the par value
of the shares of any stockholders, either
by the corporation regardless of
availability of unrestricted retained
earnings, or by the other shareholders;
 Appointment of a provisional director; -
the second paragraph of Sec. 104 will
9
govern. The provisional director may
break the deadlock by casting the
deciding vote.
 Dissolving the corporation;
 Other relief as the circumstances may
warrant.
WITHDRAWAL OF
STOCKHOLDERS/DISSOLUTION
If a stockholder wishes to withdraw
therefrom, he may do so ―for any
reason‖ and compel the corporation to
purchase his shares at their fair value
provided only that the corporation has
sufficient assets in its books to cover its
debts and liabilities exclusive of capital
stock. This can be done by a stockholder
in ordinary stock corporation only upon
the exercise of his appraisal right in
those instances allowed under Sec. 81 of
the Code.
Likewise a corporation may be dissolved
on petitioner of only one stockholder on
the grounds indicated in Sec. 105 which
include even mere dishonesty. It
provides:
SEC.105: Withdrawal of stockholder or
dissolution of corporation. - In addition and
without prejudice to other rights and remedies
available to a stockholder under this Title, any
stockholder of a close corporation may, for any
reason, compel the said corporation to purchase
his shares at their fair value, which shall not be
less than their par or issued value, when the
corporation has sufficient assets in its books to
cover its debts and liabilities exclusive of capital
stock: Provided, That any stockholder of a close
corporation may, by written petition to the
Securities and Exchange Commission, compel
the dissolution of such corporation whenever
any of acts of the directors, officers or those in
control of the corporation is illegal, or
fraudulent, or dishonest, or oppressive or
unfairly prejudicial to the corporation or any
stockholder, or whenever corporate assets are
being misapplied or wasted.
CHAPTER 16: SPECIAL CORPORATIONS
(TITLE XIII)
A. CHAPTER I – EDUCATIONAL
INSTITUTIONS
SEC. 106: Incorporation. - Educational
corporations shall be governed by special laws
and by the general provisions of this Code.
EDUCATIONAL INSTITUTIONS: are those
that provide facilities for teaching or instruction.
It includes both public and private schools or
colleges and universities and are subject to the
provisions of special laws and by the general
provisions of the Code.
PUBLIC SCHOOLS or those created by the
government are, however, subject to the law of
their creation. UP for instance has its own
special charter and would thus be governed by
the special law creating it. Insofar as they may
be applicable however, the provisions of any
special law or the Corporation Code supplement
the law of their creation.
PRIVATE SCHOOL OR COLLEGES
include any private institutions for teaching,
managed by private individuals or corporations
which offer courses of kindergarten, primary,
intermediary or secondary instructions or
superior courses in vocational, technical,
professional or special schools by which
diploma or certificates are to be granted or titles
and degrees conferred (Sec. 2, Act No. 2076, as
amended by CA 180).
SEC.107 PRE-REQUISITES OF
INCORPORATION - Except upon favorable
recommendation of the Ministry of Education
and Culture, the Securities and Exchange
Commission shall not accept or approve the
articles of incorporation and by-laws of any
educational institution
BOARD OF DIRECTORS/T RUSTEES: or
the governing board by any name of an
educational institution is similar in number as to
any other corporation except that in case it is
non-stock, the number must be in multiples of
five (5). As compared to stock corporation, their
number may be within the vicinity of five (5) to
fifteen (15).
10
TERM OF OFFICE: Members of the Board
may hold office for five years but they shall be
staggered so that 1/5 of their number shall
expire every year. Sec. 108 provides:
SEC.108: BOAR OF TRUSTEES. - Trustees
of educational institutions organized as non-
stock corporations shall not be less than five (5)
nor more than fifteen (15): Provided, however,
That the number of trustees shall be in multiples
of five (5).
Unless otherwise provided in the articles of
incorporation or the by-laws, the board of
trustees of incorporated schools, colleges, or
other institutions of learning shall, as soon as
organized, so classify themselves that the term
of office of one-fifth (1/5) of their number shall
expire every year. Trustees thereafter elected to
fill vacancies, occurring before the expiration of
a particular term, shall hold office only for the
unexpired period. Trustees elected thereafter to
fill vacancies caused by expiration of term shall
hold office for five (5) years. A majority of the
trustees shall constitute a quorum for the
transaction of business. The powers and
authority of trustees shall be defined in the by-
laws.
For institutions organized as stock corporations,
the number and term of directors shall be
governed by the provisions on stock
corporations.
REGLIGIOUS CORPORATIONS are those
composed entirely of spiritual persons, which
are created for the furtherance of religion or
perpetuating the rights of the church or for the
administration of church or religious work or
property.
CLASSES OF RELIGIOUS
CORPORATIONS:
Sec. 109. Classes of religious corporations. -
Religious corporations may be incorporated by
one or more persons. Such corporations may be
classified into corporations sole and religious
societies.
Religious corporations shall be governed by this
Chapter and by the general provisions on non-
stock corporations insofar as they may be
applicable.
CORPORATION SOLE: consists of one
person only and his successor in some particular
station, who are incorporated by law in order to
give them some legal capacities and advantages,
particularly that of perpetuity, which in their
natural persons they could not have had.
PURPOSE OF INCORPORATION AND
PERSONS WHO MAY INCORPORATE:
SEC.110: CORPORATION SOLE . - For the
purpose of administering and managing, as
trustee, the affairs, property and temporalities of
any religious denomination, sect or church, a
corporation sole may be formed by the chief
archbishop, bishop, priest, minister, rabbi or
other presiding elder of such religious
denomination, sect or church.
CONTENTS OF THE ARTICLES OF
INCORPORATION:
SEC.111 Articles of incorporation. - In order
to become a corporation sole, the chief
archbishop, bishop, priest, minister, rabbi or
presiding elder of any religious denomination,
sect or church must file with the Securities and
Exchange Commission articles of incorporation
setting forth the following:
 That he is the chief archbishop, bishop,
priest, minister, rabbi or presiding elder
of his religious denomination, sect or
church and that he desires to become a
corporation sole;
 That the rules, regulations and discipline
of his religious denomination, sect or
church are not inconsistent with his
becoming a corporation sole and do not
forbid it;
 That as such chief archbishop, bishop,
priest, minister, rabbi or presiding elder,
he is charged with the administration of
the temporalities and the management of
the affairs, estate and properties of his
religious denomination, sect or church
within his territorial jurisdiction,
describing such territorial jurisdiction;
 The manner in which any vacancy
occurring in the office of chief
archbishop, bishop, priest, minister,
rabbi of presiding elder is required to be
filled, according to the rules, regulations
or discipline of the religious
denomination, sect or church to which he
belongs; and
11
 The place where the principal office of
the corporation sole is to be established
and located, which place must be within
the Philippines.
The articles of incorporation may include any
other provision not contrary to law for the
regulation of the affairs of the corporation.
PROCEDURE FOR THE
ORGANIZATION:
Sec. 112. Submission of the articles of
incorporation. - The articles of incorporation
must be verified, before filing, by affidavit or
affirmation of the chief archbishop, bishop,
priest, minister, rabbi or presiding elder, as the
case may be, and accompanied by a copy of the
commission, certificate of election or letter of
appointment of such chief archbishop, bishop,
priest, minister, rabbi or presiding elder, duly
certified to be correct by any notary public.
From and after the filing with the Securities and
Exchange Commission of the said articles of
incorporation, verified by affidavit or
affirmation, and accompanied by the documents
mentioned in the preceding paragraph, such
chief archbishop, bishop, priest, minister, rabbi
or presiding elder shall become a corporation
sole and all temporalities, estate and properties
of the religious denomination, sect or church
theretofore administered or managed by him as
such chief archbishop, bishop, priest, minister,
rabbi or presiding elder shall be held in trust by
him as a corporation sole, for the use, purpose,
behalf and sole benefit of his religious
denomination, sect or church, including
hospitals, schools, colleges, orphan asylums,
parsonages and cemeteries thereof.
TERM OF EXISTENCE: As can be gleaned
from the law, the AOI of a corporation sole does
not require a provision for its term of existence.
For obvious reasons, since a corporation sole is
supposed to exist in perpetuity. It may, however,
be dissolved in accordance with Sec. 115 of the
Code.
BEGINNING OF CORPORATE
EXISTENCE: is upon filing of the verified
AOI with the SEC and the documents required
under Sec. 112. This serves as an exception to
the rule that a corporation acquires juridical
personality only upon the issuance of a
certificate of incorporation by the said
government agency.
POWER TO ALIENATE PROPERTIES,
LIMITATION: The extent of the its power to
mortgage or sell real properties is, however,
subject to certain restriction, that is, a proper
court order must first be secured for that
purpose, which is not otherwise imposed in any
other corporation. Intervention of the court may
dispensed with only if the rules, regulations and
discipline of the religious denomination, sect or
church concerned provide or regulate the
manner or method of holding or alienating
properties. Sec. 113 provides:
Sec. 113. Acquisition and alienation of
property. - Any corporation sole may purchase
and hold real estate and personal property for its
church, charitable, benevolent or educational
purposes, and may receive bequests or gifts for
such purposes. Such corporation may sell or
mortgage real property held by it by obtaining
an order for that purpose from the Court of First
Instance of the province where the property is
situated upon proof made to the satisfaction of
the court that notice of the application for leave
to sell or mortgage has been given by
publication or otherwise in such manner and for
such time as said court may have directed, and
that it is to the interest of the corporation that
leave to sell or mortgage should be granted. The
application for leave to sell or mortgage must be
made by petition, duly verified, by the chief
archbishop, bishop, priest, minister, rabbi or
presiding elder acting as corporation sole, and
may be opposed by any member of the religious
denomination, sect or church represented by the
corporation sole: Provided, That in cases where
the rules, regulations and discipline of the
religious denomination, sect or church, religious
society or order concerned represented by such
corporation sole regulate the method of
acquiring, holding, selling and mortgaging real
estate and personal property, such rules,
regulations and discipline shall control, and the
intervention of the courts shall not be necessary.
O W N E R S H I P O F P R O P E R T Y : does
not vest unto the head upon registration of real
property in the name of the corporation sole,
such devolving upon the church or congregation
acquiring it.
12
CONSITUTIONAL LIMITATION, RE:
60% FILIPINO OWNED : does not apply to
corporation sole with regards ownership of real
property in its own name. It has thus been held
that the Roman Catholic Church of the
Philippines, a corporation sole, has no
nationality and that the framers of the
Constitution did not have in mind the religious
corporation sole when they provided that 60%
of the capital of the corporation acquiring it
must be owned by Filipino citizens.
CHARACTER OF THE LAND: at the time of
institution of registration proceedings must first
be determined before a corporation sole, or any
private corporation for that matter, can acquire
the land must first be determined.
VACANCY: in the office of the ―head‖ of the
corporation, the person authorized by the rules,
regulations or discipline of the denomination
shall exercise all the powers and authority of the
corporation sole during such vacancy and until
such vacancy has been filled-up. The manner in
which the vacancy is to be filled in clearly
spelled out in Sec. 114 of the Code:
Sec. 114. FILLING OF VACANCIES- The
successors in office of any chief archbishop,
bishop, priest, minister, rabbi or presiding elder
in a corporation sole shall become the
corporation sole on their accession to office and
shall be permitted to transact business as such
on the filing with the Securities and Exchange
Commission of a copy of their commission,
certificate of election, or letters of appointment,
duly certified by any notary public.
During any vacancy in the office of chief
archbishop, bishop, priest, minister, rabbi or
presiding elder of any religious denomination,
sect or church incorporated as a corporation
sole, the person or persons authorized and
empowered by the rules, regulations or
discipline of the religious denomination, sect or
church represented by the corporation sole to
administer the temporalities and manage the
affairs, estate and properties of the corporation
sole during the vacancy shall exercise all the
powers and authority of the corporation sole
during such vacancy.
Sec. 115. Dissolution. - A corporation sole may
be dissolved and its affairs settled voluntarily by
submitting to the Securities and Exchange
Commission a verified declaration of
dissolution.
The declaration of dissolution shall set forth:
(NRAN)
 The name of the corporation;
 The reason for dissolution and
winding up;
 The authorization for the dissolution
of the corporation by the particular
religious denomination, sect or
church;
 The names and addresses of the
persons who are to supervise the
winding up of the affairs of the
corporation.
Upon approval of such declaration of
dissolution by the Securities and Exchange
Commission, the corporation shall cease to carry
on its operations except for the purpose of
winding up its affairs.
DISSOLUTION BY JUDICIAL DECREE: is
generally not allowed because of the doctrine of
separation of the Church and the State.
However, the State may exercise its police
power if the corporation is being carried out and
is being used for illegal purposes.
D. RELIGIOUS SOCIETIES
Under common law, a religious society is a
body of persons associated together for the
purpose of maintaining religious worship. The
religious society and the church are distinct
bodies, independent of each other, though they
may exist with each other.
Under Philippine Law, a religious society, order,
diocese, synod or district organization of any
religious denomination, sect or church may
incorporate for the administration of its
temporalities or for the management of its
affairs, properties and estate in accordance with
the Code:
Sec. 116. Religious societies. - Any religious
society or religious order, or any diocese, synod,
or district organization of any religious
denomination, sect or church, unless forbidden
by the constitution, rules, regulations, or
discipline of the religious denomination, sect or
church of which it is a part, or by competent
authority, may, upon written consent and/or by
an affirmative vote at a meeting called for the
13
purpose of at least two-thirds (2/3) of its
membership, incorporate for the administration
of its temporalities or for the management of its
affairs, properties and estate by filing with the
Securities and Exchange Commission, articles
of incorporation verified by the affidavit of the
presiding elder, secretary, or clerk or other
member of such religious society or religious
order, or diocese, synod, or district organization
of the religious denomination, sect or church,
setting forth the following:
 That the religious society or religious
order, or diocese, synod, or district
organization is a religious organization
of a religious denomination, sect or
church;
 That at least two-thirds (2/3) of its
membership have given their written
consent or have voted to incorporate, at a
duly convened meeting of the body;
 That the incorporation of the religious
society or religious order, or diocese,
synod, or district organization desiring to
incorporate is not forbidden by
competent authority or by the
constitution, rules, regulations or
discipline of the religious denomination,
sect, or church of which it forms a part;
 That the religious society or religious
order, or diocese, synod, or district
organization desires to incorporate for
the administration of its affairs,
properties and estate;
 The place where the principal office of
the corporation is to be established and
located, which place must be within the
Philippines; and
 The names, nationalities, and residences
of the trustees elected by the religious
society or religious order, or the diocese,
synod, or district organization to serve
for the first year or such other period as
may be prescribed by the laws of the
religious society or religious order, or of
the diocese, synod, or district
organization, the board of trustees to be
not less than five (5) nor more than
fifteen (15).
TERM OF EXISTENCE : Like the
corporation sole, the AOI of a religious
society need not contain a term of its
existence as it is supposed to exist in
perpetuity.
BEGINNING OF CORPORAYE
EXISTENCE: is upon issuance of the
certificate of registration by the SEC. Absent
any specific provision of the law, it must be
deemed to fall within the general rule under
Sec. 19.
CHAPTER XVII: DISSOLUTION (TITLE
XIV)
A. DISSOLUTION is the extinguishment of
the corporate franchise and the termination
of corporate existence.
When a corporation is dissolved, it ceases to
be a juridical entity and can no longer
pursue the business for which it was
incorporated. It will nevertheless continue as
a body corporate for another period of three
years from the time it is dissolved but only
for the purpose of winding up its affairs and
the liquidation of its assets.
B. METHODS OF DISSOLUTION
THREE W AYS OF DISSOLUTION:
 Expiration of its corporate term;
 Voluntary surrender of its primary
franchise (voluntary dissolution);
and
 The revocation of its corporate
franchise (involuntary dissolution)
SEC.117 Methods of dissolution. - A
corporation formed or organized under the
provisions of this Code may be dissolved
voluntarily or involuntarily.
This is rightfully so, because the expiration of
corporate term can be considered voluntary
dissolution t being the intention of the
stockholders that it shall exist only for such
period.
14
C. EXPIRATION OF CORPORATE
TERM
A corporation registered under the
Corporation Code, with the exception of
religious ones, is required to indicate its
term of existence in the AOI. It ceases to
exist and is deemed automatically dissolved
upon the expiration of the term indicated
thereat without the need of any formal
proceedings.
EXTENSION: It is to be observed,
however, that the original term of existence
indicated in the AOI is subject to extension
in accordance with the provisions of Sec. 11
and 37 of the Code. If such be the case, the
corporation continues to be possessed with
juridical personality and may carry out its
business for the period of time granted by
virtue of such extension.
The extension should nonetheless be made
before the expiration of the original term,
but not earlier than 5 years prior to such
expiration, otherwise the corporation is
dissolved, ipso facto.
D. SURRENDER OF FRANCHISE
(VOLUNTARY DISSOLUTION)
MODES OF VOLUNTARY
DISSOUTION:
1. Voluntary Dissolution where no creditors
are affected (Sec. 118); 2. Voluntary
Dissolution where creditors are affected
(Sec. 119); 3. Shortening of corporate term
(Sec. 120).
VOLUNTARY DISSOUTION WHERE NO
CREDITORS ARE AFFECTED:
SEC.118: Voluntary dissolution where no
creditors are affected. - If dissolution of a
corporation does not prejudice the rights of any
creditor having a claim against it, the dissolution
may be effected by majority vote of the board of
directors or trustees, and by a resolution duly
adopted by the affirmative vote of the
stockholders owning at least two-thirds (2/3) of
the outstanding capital stock or of at least two-
thirds (2/3) of the members of a meeting to be
held upon call of the directors or trustees after
publication of the notice of time, place and
object of the meeting for three (3) consecutive
weeks in a newspaper published in the place
where the principal office of said corporation is
located; and if no newspaper is published in
such place, then in a newspaper of general
circulation in the Philippines, after sending such
notice to each stockholder or member either by
registered mail or by personal delivery at least
thirty (30) days prior to said meeting. A copy of
the resolution authorizing the dissolution shall
be certified by a majority of the board of
directors or trustees and countersigned by the
secretary of the corporation. The Securities and
Exchange Commission shall thereupon issue the
certificate of dissolution.
FORMAL AND PROCEDURAL
REQUIREMENTS:
 Majority vote of the board of directors or
trustees;
 Sending of notice of each stockholders or
member either by registered mail or personal
delivery at least thirty (30) days prior to the
meeting (scheduled by the board for the
purpose of submitting the board action to
dissolve the corporation for approval of the
stockholder or members.);
 Publication of the notice of time, place and
subject of the meeting for three (3)
consecutive weeks in a newspaper published
in the place where the principal office of
said corporation is located or in a newspaper
of general circulation in the Philippines; 4.
Resolution adopted by the affirmative vote
of the stockholders owning at least 2/3 of the
outstanding capital stock or 2/3 of the
members at the meeting duly called for the
purpose;
A copy of the resolution authorizing the
dissolution must be certified by a majority of
the board of directors or trustees and
countersigned by the corporate secretary
 Issuance of a certificate of dissolution by
the SEC.