Partnership and Corporation

(b) As wages of an employee or rent to a

Title IX.- PARTNERSHIP

landlord;

CHAPTER 1 GENERAL PROVISIONS

(c)

persons bind themselves to contribute money, property,

widow

or

(e) As the consideration for the sale of a

exercise of a profession. (1665a)

goodwill of a business or other property by installments or otherwise. (n)

Art. 1768. The partnership has a judicial personality

these rules shall apply:

a

of the business;

Two or more persons may also form a partnership for the

Art. 1769. In determining whether a partnership exists,

to

amount of payment vary with the profits

dividing the profits among themselves.

of Article 1772, first paragraph. (n)

annuity

(d) As interest on a loan, though the

or industry to a common fund, with the intention of

even in case of failure to comply with the requirements

an

representative of a deceased partner;

Art. 1767. By the contract of partnership two or more

separate and distinct from that of each of the partners,

As

Art. 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the

(1) Except as provided by Article 1825, persons State, without prejudice to the provisions of the Penal who are not partners as to each other are not Code governing the confiscation of the instruments and partners as to third persons;

effects of a crime. (1666a)

(2) Co-ownership or co-possession does not of Art. 1771. A partnership may be constituted in any form, itself establish a partnership, whether such-co- except where immovable property or real rights are owners or co-possessors do or do not share any contributed thereto, in which case a public instrument shall be necessary. (1667a) profits made by the use of the property; (3) The sharing of gross returns does not of itself Art. 1772. Every contract of partnership having a capital establish a partnership, whether or not the of three thousand pesos or more, in money or property, persons sharing them have a joint or common shall appear in a public instrument, which must be right or interest in any property from which the recorded in the Office of the Securities and Exchange returns are derived;

Commission.

(4) The receipt by a person of a share of the Failure to comply with the requirements of the preceding profits of a business is prima facie evidence that paragraph shall not affect the liability of the partnership he is a partner in the business, but no such and the members thereof to third persons. (n) inference shall be drawn if such profits were received in payment:

Art. 1773. A contract of partnership is void, whenever immovable

property

is

contributed

thereto,

if

an

(a) As a debt by installments or otherwise; inventory of said property is not made, signed by the parties, and attached to the public instrument. (1668a)

Art. 1774. Any immovable property or an interest therein Movable or immovable property which each of the may be acquired in the partnership name. Title so partners may possess at the time of the celebration of acquired can be conveyed only in the partnership name. the contract shall continue to pertain exclusively to each, (n)

only the usufruct passing to the partnership. (1675)

Art. 1775. Associations and societies, whose articles are Art. 1781. Articles of universal partnership, entered into kept secret among the members, and wherein any one of without specification of its nature, only constitute a the members may contract in his own name with third universal partnership of profits. (1676) persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership. Art. 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into (1669) universal partnership. (1677) Art. 1776. As to its object, a partnership is either universal or particular.As regards the liability of the Art. 1783. A particular partnership has for its object partners, a partnership may be general or limited. (1671a) determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation. Art. 1777. A universal partnership may refer to all the (1678) present property or to all the profits. (1672) Art. 1778. A partnership of all present property is that in

CHAPTER 2

which the partners contribute all the property which

OBLIGATIONS OF THE PARTNERS

actually belongs to them to a common fund, with the

SECTION 1. - Obligations of the Partners

intention of dividing the same among themselves, as well

AmongThemselves

as all the profits which they may acquire therewith. (1673) Art. 1784. A partnership begins from the moment of the Art. 1779. In a universal partnership of all present execution of the contract, unless it is otherwise stipulated. property, the property which belongs to each of the (1679) partners

at

the

time

of

the

constitution

of

the

partnership, becomes the common property of all the Art. 1785. When a partnership for a fixed term or partners, as well as all the profits which they may acquire particular undertaking is continued after the termination therewith.

of such term or particular undertaking without any

express agreement, the rights and duties of the partners A stipulation for the common enjoyment of any other remain the same as they were at such termination, so far profits may also be made; but the property which the as is consistent with a partnership at will. partners may acquire subsequently by inheritance, legacy, or donation cannot be included in such stipulation, A continuation of the business by the partners or such of except the fruits thereof. (1674a)

them as habitually acted therein during the term, without

any settlement or liquidation of the partnership affairs, is Art. 1780. A universal partnership of profits comprises all prima facie evidence of a continuation of the partnership. that the partners may acquire by their industry or work (n) during the existence of the partnership.

Art. 1786. Every partner is a debtor of the partnership for Art. 1791. If there is no agreement to the contrary, in whatever he may have promised to contribute thereto.

case of an imminent loss of the business of the partnership, any partner who refuses to contribute an

He shall also be bound for warranty in case of eviction additional share to the capital, except an industrial with regard to specific and determinatethings which he partner, to save the venture, shall he obliged to sell his may have contributed to the partnership, in the same interest to the other partners. (n) cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the Art. 1792. If a partner authorized to manage collects a fruits thereof from the time they should have been demandable sum which was owed to him in his own delivered, without the need of any demand. (1681a)

name,

from

a

person

who

owed

the

partnership

anothersum also demandable, the sum thus collected Art. 1787. When the capital or a part thereof which a shall be applied to the two credits in proportion to their partner is bound to contribute consists of goods, their amounts, even though he may have given a receipt for appraisal must be made in the manner prescribed in the his own credit only; but should he have given it for the contract of partnership, and in the absence of stipulation, account of the partnership credit, the amount shall be it shall be made by experts chosen by the partners, and fully applied to the latter. according to current prices, the subsequent changes thereof being for account of the partnership. (n)

The provisions of this article are understood to be

without prejudice to the right granted to the other Art. 1788. A partner who has undertaken to contribute a debtor by Article 1252, but only if the personal credit of sum of money and fails to do so becomes a debtor for the partner should be more onerous to him. (1684) the interest and damages from the time he should have complied with his obligation.

Art. 1793. A partner who has received, in whole or in

part, his share of a partnership credit, when the other The same rule applies to any amount he may have taken partners have not collected theirs, shall be obliged, if the from the partnership coffers, and his liability shall begin debtor should thereafter become insolvent, to bring to from the time he converted the amount to his own use. the partnership capital what he received even though he (1682) may have given receipt for his share only. (1685a) Art. 1789. An industrial partner cannot engage in Art. 1794. Every partner is responsible to the partnership business for himself, unless the partnership expressly for damages suffered by it through his fault, and he permits him to do so; and if he should do so, the cannot compensate them with the profits and benefits capitalist partners may either exclude him from the firm which he may have earned for the partnership by his or avail themselves of the benefits which he may have industry. However, the courts may equitably lessen this obtained in violation of this provision, with a right to responsibility if through the partner's extraordinary efforts damages in either case. (n) in other activities of the partnership, unusual profits have Art. 1790. Unless there is a stipulation to the contrary,

been realized. (1686a)

the partners shall contribute equal shares to the capital Art. 1795. The risk of specific and determinate things, of the partnership. (n) which are not fungible, contributed to the partnership so that only their use and fruits may be for the common benefit, shall be borne by the partner who owns them.

If the things contribute are fungible, or cannot be kept Art. 1799. A stipulation which excludes one or more without deteriorating, or if they were contributed to be partners from any share in the profits or losses is void. sold, the risk shall be borne by the partnership. In the (1691) absence of stipulation, the risk of the things brought and appraised in the inventory, shall also be borne by the Art. 1800. The partner who has been appointed manager partnership, and in such case the claim shall be limited to in the articles of partnership may execute all acts of administration despite the opposition of his partners,

the value at which they were appraised. (1687)

unless he should act in bad faith; and his power is Art. 1796. The partnership shall be responsible to every irrevocable without just or lawful cause. The vote of the partner for the amounts he may have disbursed on partners representing the controlling interest shall be behalf of the partnership and for the corresponding necessary for such revocation of power. interest, from the time the expense are made; it shall also answer to each partner for the obligations he may have A power granted after the partnership has contracted in good faith in the interest of the partnership constituted may be revoked at any time. (1692a) business,

and

for

risks

in

consequence

of

its

management. (1688a)

been

Art. 1801. If two or more partners have been intrusted with

the

management

of

the

partnership

without

Art. 1797. The losses and profits shall be distributed in specification of their respective duties, or without a conformity with the agreement. If only the share of each stipulation that one of them shall not act without the partner in the profits has been agreed upon, the share of consent of all the others, each one may separately execute all acts of administration, but if any of them each in the losses shall be in the same proportion. should oppose the acts of the others, the decision of the In the absence of stipulation, the share of each partner in majority shall prevail. In case of a tie, the matter shall be the profits and losses shall be in proportion to what he decided by the partners owning the controlling interest. may have contributed, but the industrial partner shall not (1693a) be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and Art. 1802. In case it should have been stipulated that equitable under the circumstances. If besides his services none of the managing partners shall act without the he has contributed capital, he shall also receive a share in consent of the others, the concurrence of all shall be necessary for the validity of the acts, and the absence or the profits in proportion to his capital. (1689a) disability of any one of them cannot be alleged, unless Art. 1798. If the partners have agreed to intrust to a there is imminent danger of grave or irreparable injury to third person the designation of the share of each one in the partnership. (1694) the

profits

and

losses,

such

designation

may

be

impugned only when it is manifestly inequitable. In no Art. 1803. When the manner of management has not case may a partner who has begun to execute the been agreed upon, the following rules shall be observed: decision of the third person, or who has not impugned the same within a period of three months from the time he had knowledge thereof, complain of such decision. The designation of losses and profits cannot be intrusted to one of the partners. (1690)

(1) All the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership, without prejudice to the provisions of Article 1801.

(2) None of the partners may, without the Art. 1809. Anypartner shall have the right to a formal consent of the others, make any important account as to partnership affairs: alteration in the immovable property of the partnership, even if it may be useful to the

(1)

partnership. But if the refusal of consent by the

partnership business or possession of its property

other partners is manifestly prejudicial to the

by his co-partners;

interest

of

the

partnership,

the

court's

intervention may be sought. (1695a) Art. 1804. Every partner may associate another person with him in his share, but the associate shall not be admitted into the partnership without the consent of all the other partners, even if the partner having an associate should be a manager. (1696) Art. 1805. The partnership books shall be kept, subject to any agreement between the partners, at the principal place of business of the partnership, and every partner shall at any reasonable hour have access to and may

If

he

is

wrongfully

excluded

from

the

(2) If the right exists under the terms of any agreement; (3) As provided by article 1807; (4) Whenever other circumstances render it just and reasonable. (n) SECTION 2. - Property Rights of a Partner Art. 1810. The property rights of a partner are: (1) His rights in specific partnership property;

inspect and copy any of them. (n)

(2) His interest in the partnership; and

Art. 1806. Partners shall render on demand true and full

(3) His right to participate in the management. (n)

information of all things affecting the partnership to any partner or the legal representative of any deceased Art. 1811. A partner is co-owner with his partners of partner or of any partner under legal disability. (n)

specific partnership property.

Art. 1807. Every partner must account to the partnership The incidents of this co-ownership are such that: for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners

(1) A partner, subject to the provisions of this

from any transaction connected with the formation,

Title and to any agreement between the partners,

conduct, or liquidation of the partnership or from any use

has an equal right with his partners to possess

by him of its property. (n)

specific

partnership

property

for

partnership

purposes; but he has no right to possess such Art. 1808. The capitalist partners cannot engage for their

property for any other purpose without the

own account in any operation which is of the kind of

consent of his partners;

business in which the partnership is engaged, unless there is a stipulation to the contrary.

(2) A partner's right in specific partnership property is not assignable except in connection

Any capitalist partner violating this prohibition shall bring

with the assignment of rights of all the partners

to the common funds any profits accruing to him from

in the same property;

his transactions, and shall personally bear all the losses. (n)

(3) A partner's right in specific partnership amount of such judgment debt with interest thereon; and property

is

execution,

not

subject

except

partnership.

on

When

to

a

attachment

claim

partnership

against property

or may then or later appoint a receiver of his share of the the profits, and of any other money due or to fall due to him is in respect of the partnership, and make all other orders,

attached for a partnership debt the partners, or directions, accounts and inquiries which the debtor any of them, or the representatives of a deceased partner might have made, or which the circumstances of partner,

cannot

claim

any

right

under

the the case may require.

homestead or exemption laws; The interest charged may be redeemed at any time (4) A partner's right in specific partnership before foreclosure, or in case of a sale being directed by property is not subject to legal support under the court, may be purchased without thereby causing a Article 291. (n)

dissolution:

Art. 1812. A partner's interest in the partnership is his

(1) With separate property, by any one or more

share of the profits and surplus. (n)

of the partners; or

Art. 1813. A conveyance by a partner of his whole

(2) With partnership property, by any one or

interest in the partnership does not of itself dissolve the

more of the partners with the consent of all the

partnership, or, as against the other partners in the

partners whose interests are not so charged or

absence of agreement, entitle the assignee, during the

sold.

continuance of the partnership, to interfere in the partnership Nothing in this Title shall be held to deprive a partner of business or affairs, or to require any information or his right, if any, under the exemption laws, as regards his account of partnership transactions, or to inspect the interest in the partnership. (n) SECTION 3. - Obligations of the Partners partnership books; but it merely entitles the assignee to management

or

administration

of

the

receive in accordance with his contract the profits to

WithRegard to Third Persons

which the assigning partner would otherwise be entitled. However, in case of fraud in the management of the Art. 1815. Every partnership shall operate under a firm partnership, the assignee may avail himself of the usual name, which may or may not include the name of one or remedies.

more of the partners.

In case of a dissolution of the partnership, the assignee is Those who, not being members of the partnership, entitled to receive his assignor's interest and may require include their names in the firm name, shall be subject to an account from the date only of the last account agreed the liability of a partner. (n) to by all the partners. (n)

Art. 1816. All partners, including industrial ones, shall be

Art. 1814. Without prejudice to the preferred rights of liable pro rata with all their property and after all the partnership creditors under Article 1827, on due partnership assets have been exhausted, for the contracts application to a competent court by any judgment which may be entered into in the name and for the creditor of a partner, the court which entered the account of the partnership, under its signature and by a judgment, or any other court, may charge the interest of person authorized to act for the partnership. However, the debtor partner with payment of the unsatisfied

any partner may enter into a separate obligation to

(6) Submit a partnership claim or liability to

perform a partnership contract. (n)

arbitration;

Art. 1817. Any stipulation against the liability laid down

(7) Renounce a claim of the partnership.

in the preceding article shall be void, except as among No act of a partner in contravention of a restriction on

the partners. (n)

authority shall bind the partnership to persons having Art. 1818. Every partner is an agent of the partnership knowledge of the restriction. (n) for the purpose of its business, and the act of every partner, including the execution in the partnership name Art. 1819. Where title to real property is in the of any instrument, for apparently carrying on in the usual partnership name, any partner may convey title to such way the business of the partnership of which he is a property by a conveyance executed in the partnership member binds the partnership, unless the partner so name; but the partnership may recover such property acting has in fact no authority to act for the partnership unless the partner's act binds the partnership under the in the particular matter, and the person with whom he is provisions of the first paragraph of article 1818, or unless dealing has knowledge of the fact that he has no such such property has been conveyed by the grantee or a person claiming through such grantee to a holder for authority. value without knowledge that the partner, in making the An act of a partner which is not apparently for the conveyance, has exceeded his authority. carrying on of business of the partnership in the usual way does not bind the partnership unless authorized by Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his the other partners. own

name,

passes

the

equitable

interest

of

the

Except when authorized by the other partners or unless partnership, provided the act is one within the authority they have abandoned the business, one or more but less of the partner under the provisions of the first paragraph than all the partners have no authority to:

of Article 1818.

(1) Assign the partnership property in trust for Where title to real property is in the name of one or creditors or on the assignee'spromise to pay the more but not all the partners, and the record does not debts of the partnership;

disclose the right of the partnership, the partners in whose name the title stands may convey title to such

(2) Dispose of the good-will of the business;

property, but the partnership may recover such property

(3) Do any other act which would make it impossible to carry on the ordinary business of a partnership;

Enter

the provisions of the first paragraph of Article 1818, unless the purchaser or his assignee, is a holder for value, without knowledge.

(4) Confess a judgment; (5)

if the partners' act does not bind the partnership under

into

a

compromise

partnership claim or liability;

Where the title to real property is in the name of one or concerning

a

more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the partnership name, or in his own name, passes the equitable interest of the partnership, provided the act is

one within the authority of the partner under the Art. 1824. All partners are liable solidarily with the provisions of the first paragraph of Article 1818.

partnership for everything chargeable to the partnership under Articles 1822 and 1823. (n)

Where the title to real property is in the name of all the partners a conveyance executed by all the partners Art. 1825. When a person, by words spoken or written or passes all their rights in such property. (n)

by conduct, represents himself, or consents to another

representing him to anyone, as a partner in an existing Art. 1820. An admission or representation made by any partnership or with one or more persons not actual partner concerning partnership affairs within the scope of partners, he is liable to any such persons to whom such his authority in accordance with this Title is evidence representation has been made, who has, on the faith of against the partnership. (n)

such representation, given credit to the actual or

Art. 1821. Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of

apparent

partnership,

and

if

he

has

made

such

representation or consented to its being made in a public manner he is liable to such person, whether the representation

has

or

has

not

been

made

or

communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made:

fraud on the partnership, committed by or with the

(1) When a partnership liability results, he is liable

consent of that partner. (n)

as though he were an actual member of the

Art. 1822. Where, by any wrongful act or omission of any

partnership;

partner acting in the ordinary course of the business of

(2) When no partnership liability results, he is

the partnership or with the authority of co-partners, loss

liable pro rata with the other persons, if any, so

or injury is caused to any person, not being a partner in

consenting to the contract or representation as to

the

incur liability, otherwise separately.

partnership,

or

any

penalty

is

incurred,

the

partnership is liable therefor to the same extent as the partner so acting or omitting to act. (n)

When a person has been thus represented to be a

partner in an existing partnership, or with one or more Art. 1823. The partnership is bound to make good the persons not actual partners, he is an agent of the loss: persons consenting to such representation to bind them (1) Where one partner acting within the scope of his

apparent

authority

receives

money

or

property of a third person and misapplies it; and (2) Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. (n)

to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. When all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation. (n) Art. 1826. A person admitted as a partner into an existing partnership is liable for all the obligations of the

partnership arising before his admission as though he

termination of any specified term or

had been a partner when such obligations were incurred,

particular undertaking;

except that this liability shall be satisfied only out of partnership property, unless there is a stipulation to the

(d) By the expulsion of any partner from

contrary. (n)

the business bona fide in accordance with such a power conferred by the agreement between the partners;

Art. 1827. The creditors of the partnership shall be preferred to those of each partner as regards the partnership property. Without prejudice to this right, the

(2) In contravention of the agreement between

private creditors of each partner may ask the attachment

the partners, where the circumstances do not

and public sale of the share of the latter in the

permit a dissolution under any other provision of

partnership assets. (n)

this article, by the express will of any partner at any time; CHAPTER 3 (3) By any event which makes it unlawful for the

DISSOLUTION AND WINDING UP

business of the partnership to be carried on or Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing

to

be

associated

in

the

carrying

on

as

distinguished from the winding up of the business. (n) Art.

1829.

On

dissolution

the

partnership

is

for the members to carry it on in partnership; (4) When a specific thing which a partner had promised

to

contribute

to

the

partnership,

perishes before the delivery; in any case by the not

loss

of

the

thing,

when

the

partner

who

terminated, but continues until the winding up of

contributed it having reserved the ownership

partnership affairs is completed. (n)

thereof, has only transferred to the partnership the use or enjoyment of the same; but the

Art. 1830. Dissolution is caused:

partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has

(1) Without violation of the agreement between

acquired the ownership thereof;

the partners: (a) By the termination of the definite term

(5) By the death of any partner;

or particular undertaking specified in the agreement;

(6) By the insolvency of any partner or of the partnership;

(b) By the express will of any partner, who must act in good faith, when no definite term or particular is specified; (c) By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the

(7) By the civil interdiction of any partner; (8) By decree of court under the following article. (1700a and 1701a) Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:

(1) A partner has been declared insane in any

(b) When the dissolution is by such act,

judicial proceeding or is shown to be of unsound

insolvency or death of a partner, in cases

mind;

where article 1833 so requires;

(2) A partner becomes in any other way incapable

(2) With respect to persons not partners, as

of performing his part of the partnership contract;

declared in article 1834. (n)

Art. 1833. Where the dissolution is caused by the act, (3) A partner has been guilty of such conduct as death or insolvency of a partner, each partner is liable to tends to affect prejudicially the carrying on of the his co-partners for his share of any liability created by business;

any

(4) A partner wilfully or persistently commits a breach

of

the

partnership

agreement,

or

otherwise so conducts himself in matters relating to

the partnership

business

that

it

is

not

partner

acting

for

the

partnership

as

if

the

partnership had not been dissolved unless: (1) The dissolution being by act of any partner, the partner acting for the partnership had knowledge of the dissolution; or

reasonably practicable to carry on the business in

(2) The dissolution being by the death or

partnership with him;

insolvency of a partner, the partner acting for the

(5) The businessof the partnership can only be carried on at a loss; (6) Other circumstances render a dissolution equitable. On the application of the purchaser of a partner's interest under Article 1813 or 1814: (1) After the termination of the specified term or particular undertaking; (2) At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued. (n) Art. 1832. Except so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then finished, dissolution terminates all authority of any partner to act for the partnership: (1) With respect to the partners: (a) When the dissolution is not by the act, insolvency or death of a partner; or

partnership had knowledge or notice of the death or insolvency. Art. 1834. After dissolution, a partner can bind the partnership, except as provided in the third paragraph of this article: (1) By any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution; (2) By any transaction which would bind the partnership if dissolution had not taken place, provided the other party to the transaction: (a)

Had

extended

credit

to

the

partnership prior to dissolution and had no

knowledge

or

notice

of

the

dissolution; or (b) Though he had not so extended credit, had nevertheless known of the partnership

prior

having

knowledge

no

to

dissolution, or

notice

and, of

dissolution, the fact of dissolution had not been advertised in a newspaper of

general circulation in the place (or in each Nothing in this article shall affect the liability under place if more than one) at which the Article 1825 of any person who, after dissolution, partnership business was regularly carried represents himself or consents to another representing on.

him as a partner in a partnership engaged in carrying business. (n)

The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership assets alone when Art. 1835. The dissolution of the partnership does not of itself discharge the existing liability of any partner.

such partner had been prior to dissolution: (1) Unknown as a partner to the person with

A partner is discharged from any existing liability upon

whom the contract is made; and

dissolution of the partnership by an agreement to that (2) So far unknown and inactive in partnership effect between himself, the partnership creditor and the affairs

that

the

business

reputation

of

the person or partnership continuing the business; and such

partnership could not be said to have been in agreement may be inferred from the course of dealing any degree due to his connection with it.

between the creditor having knowledge of the dissolution and the person or partnership continuing the business.

The partnership is in no case bound by any act of a partner after dissolution:

The individual property of a deceased partner shall be

(1) Where the partnership is dissolved because it liable for all obligations of the partnership incurred while is unlawful to carry on the business, unless the he was a partner, but subject to the prior payment of his act is appropriate for winding up partnership separate debts. (n) affairs; or Art. 1836. Unless otherwise agreed, the partners who (2) Where the partner has become insolvent; or

have not wrongfully dissolved the partnership or the legal representative of the last surviving partner, not

(3) Where the partner has no authority to wind insolvent, has the right to wind up the partnership affairs, up partnership affairs; except by a transaction provided, however, that any partner, his legal with one who: representative or his assignee, upon cause shown, may (a)

Had

extended

credit

to

the

obtain winding up by the court. (n)

partnership prior to dissolution and had Art. 1837. When dissolution is caused in any way, except no knowledge or notice of his want of in contravention of the partnership agreement, each authority; or partner, as against his co-partners and all persons (b) Had not extended credit to the partnership

prior

to

dissolution,

and,

having no knowledge or notice of his want of authority, the fact of his want of authority has not been advertised in the manner provided for advertising the fact of dissolution in the first paragraph, No. 2 (b).

claiming through them in respect of their interests in the partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners. But if dissolution is caused by expulsion of a partner, bona fide under the partnership agreement and if the expelled partner is discharged from all partnership liabilities, either by payment or agreement under the second paragraph of

Article 1835, he shall receive in cash only the net amount

(b) If the business is continued under the

due him from the partnership.

second paragraph, No. 2, of this article, the right as against his co-partners and

When dissolution is caused in contravention of the

all claiming through them in respect of

partnership agreement the rights of the partners shall be

their interests in the partnership, to have

as follows:

the his

wrongfully shall have:

property, provided they secure the payment by bond approved by the court, or pay any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable under the second paragraph, No. 1 (b) of this article, and in like manner indemnify him against all present or future partnership liabilities. (3) A partner who has caused the dissolution wrongfully shall have: (a) If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of a partner under the first paragraph, subject to liability for damages in the second paragraph, No. 1 (b), of this article.

co-partners

by

the

dissolution,

in ascertaining the value of the partner's interest the value of the good-will of the

damages breach of the agreement.

for that purpose may possess the partnership

the

existing liabilities of the partnership; but

has caused the dissolution wrongfully, to

during the agreed term for the partnership and

in

by the court, and to be released from all

(b) The right, as against each partner who

themselves or jointly with others, may do so,

interest

the payment secured by a bond approved

paragraph of this article, and

continue the business in the same name either by

his

ascertained and paid to him in cash, or

(a) All the rights specified in the first

dissolution wrongfully, if they all desire to

of

partnership, less any damage caused to

(1) Each partner who has not caused dissolution

(2) The partners who have not caused the

value

business shall not be considered. (n) Art. 1838. Where a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled: (1) To a lien on, or right of retention of, the surplus

of

satisfying

the

the

partnership

partnership

property

liabilities

to

after third

persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advances contributed by him; (2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for any payments made by him in respect of the partnership liabilities; and (3) To be indemnified by the person guilty of the fraud or making the representation against all debts and liabilities of the partnership. (n) Art. 1839. In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any agreement to the contrary: (1) The assets of the partnership are: (a) The partnership property,

(b) The contributions of the partners

court for distribution, partnership creditors shall

necessary for the payment of all the

have

liabilities specified in No. 2.

separate creditors on individual property, saving

priority

on

partnership

property

and

the rights of lien or secured creditors. (2) The liabilities of the partnership shall rank in order of payment, as follows:

(9) Where a partner has become insolvent or his

(a) Those owing to creditors other than

estate is insolvent, the claims against his separate

partners,

property shall rank in the following order:

(b) Those owing to partners other than

(a) Those owing to separate creditors;

for capital and profits, (b) Those owing to partnership creditors; (c) Those owing to partners in respect of (c) Those owing to partners by way of

capital,

contribution. (n) (d) Those owing to partners in respect of profits.

Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or

(3) The assets shall be applied in the order of partnership continuing the business: their declaration in No. 1 of this article to the

(1) When any new partner is admitted into an

satisfaction of the liabilities.

existing partnership, or when any partner retires and

assigns

(or

the

representative

of

the

rights

in

(4) The partners shall contribute, as provided by

deceased

article 1797, the amount necessary to satisfy the

partnership property to two or more of the

liabilities.

partners, or to one or more of the partners and

(5) An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in the preceding number. (6) Any partner or his legal representative shall have the right to enforce the contributions specified in No. 4, to the extent of the amount which he has paid in excess of his share of the liability. (7) The individual property of a deceased partner shall be liable for the contributions specified in No. 4. (8) When partnership property and the individual properties of the partners are in possession of a

partner

assigns)

his

one or more third persons, if the business is continued without liquidation of the partnership affairs; (2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their

rights

in

partnership

property

to

the

remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others; (3) When any partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and 2 of this article, with the consent of the retired partners or the representative of the deceased partner, but

without any assignment of his right in partnership Nothing in this article shall be held to modify any right property;

of creditors to set aside any assignment on the ground of fraud.

(4) When all the partners or their representatives assign their rights in partnership property to one The use by the person or partnership continuing the or more third persons who promise to pay the business of the partnership name, or the name of a debts and who continue the business of the deceased partner as part thereof, shall not of itself make dissolved partnership;

the individual property of the deceased partner liable for any debts contracted by such person or partnership. (n)

(5)

When

any

partner

wrongfully

causes

a

dissolution and the remaining partners continue Art. 1841. When any partner retires or dies, and the the business under the provisions of article 1837, business is continued under any of the conditions set second paragraph, No. 2, either alone or with forth in the preceding article, or in Article 1837, second others, and without liquidation of the partnership paragraph, No. 2, without any settlement of accounts as affairs;

between him or his estate and the person or partnership

continuing the business, unless otherwise agreed, he or (6) When a partner is expelled and the remaining his legal representative as against such person or partners continue the business either alone or partnership may have the value of his interest at the date with others without liquidation of the partnership of dissolution ascertained, and shall receive as an affairs. ordinary creditor an amount equal to the value of his The liability of a third person becoming a partner in the partnership continuing the business, under this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary.

continued under any conditions set forth in this article the creditors of the dissolved partnership, as against the separate creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business, on account of the retired or deceased partner's interest in dissolved

partnership

or

on

account

of

any

consideration promised for such interest or for his right in partnership property.

his option or at the option of his legal representative, in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership; provided that the creditors of the dissolved partnership as against the separate creditors, or the representative of

When the business of a partnership after dissolution is

the

interest in the dissolved partnership with interest, or, at

the retired or deceased partner, shall have priority on any claim arising under this article, as provided Article 1840, third paragraph. (n) Art. 1842. The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence of any agreement to the contrary. (n) CHAPTER 4 LIMITED PARTNERSHIP (n) Art. 1843. A limited partnership is one formed by two or more persons under the provisions of the following

article, having as members one or more general partners

(j) The right, if given, of a limited partner

and one or more limited partners. The limited partners as

to substitute an assignee as contributor in

such shall not be bound by the obligations of the

his place, and the terms and conditions of

partnership.

the substitution;

Art. 1844. Two or more persons desiring to form a

(k) The right, if given, of the partners to

limited partnership shall:

admit additional limited partners;

(1) Sign and swear to a certificate, which shall

(l) The right, if given, of one or more of

state -

the limited partners to priority over other (a) The name of the partnership, adding

limited partners, as to contributions or as

thereto the word "Limited";

to compensation by way of income, and the nature of such priority;

(b) The character of the business; (m) The right, if given, of the remaining (c) The location of the principal place of

general partner or partners to continue

business;

the business on the death, retirement, civil interdiction, insanity or insolvency of

(d) The name and place of residence of each

member,

general

and

a general partner; and

limited

partners being respectively designated;

(n) The right, if given, of a limited partner to demand and receive property other

(e) The term for which the partnership is

than cash in return for his contribution.

to exist; (f) The amount of cash and a description of and the agreed value of the other property contributed by

each limited

partner;

the Securities and Exchange Commission. A limited partnership is formed if there has been substantial compliance in good faith with the foregoing requirements.

(g) The additional contributions, if any, to be made by each limited partner and the times

(2) File for record the certificate in the Office of

at

which

or

events

on

the

happening of which they shall be made; (h) The time, if agreed upon, when the contribution of each limited partner is to

Art. 1845. The contributions of a limited partner may be cash or property, but not services. Art. 1846. The surname of a limited partner shall not appear in the partnership name unless: (1) It is also the surname of a general partner, or

be returned; (2) Prior to the time when the limited partner (i) The share of the profits or the other

became such, the business has been carried on

compensation by way of income which

under a name in which his surname appeared.

each limited partner shall receive by reason of his contribution;

A

limited

partner

whose

surname

appears

in

a

(4) Possess partnership property, or assign their

partnership name contrary to the provisions of the first

rights in specific partnership property, for other

paragraph is liable as a general partner to partnership

than a partnership purpose;

creditors who extend credit to the partnership without actual knowledge that he is not a general partner.

(5) Admit a person as a general partner;

Art. 1847. If the certificate contains a false statement,

(6) Admit a person as a limited partner, unless

one who suffers loss by reliance on such statement may

the right so to do is given in the certificate;

hold liable any party to the certificate who knew the statement to be false: (1) At the time he signed the certificate, or

(7)

Continue

the

business

with

partnership

property on the death, retirement, insanity, civil interdiction or insolvency of a general partner, unless the right so to do is given in the

(2) Subsequently, but within a sufficient time

certificate.

before the statement was relied upon to enable him to cancel or amend the certificate, or to file a Art. 1851. A limited partner shall have the same rights as petition for its cancellation or amendment as a general partner to: provided in Article 1865.

(1) Have the partnership books kept at the principal place of business of the partnership, and

Art. 1848. A limited partner shall not become liable as a

at a reasonable hour to inspect and copy any of

general partner unless, in addition to the exercise of his

them;

rights and powers as a limited partner, he takes part in the control of the business.

(2) Have on demand true and full information of all things affecting the partnership, and a formal

Art. 1849. After the formation of a lifted partnership,

account

additional limited partners may be admitted upon filing

circumstances render it just and reasonable; and

of

partnership

affairs

whenever

an amendment to the original certificate in accordance with the requirements of Article 1865.

(3) Have dissolution and winding up by decree of court.

Art. 1850. A general partner shall have all the rights and powers and be subject to all the restrictions and liabilities A limited partner shall have the right to receive a share of a partner in a partnership without limited partners. of the profits or other compensation by way of income, However, without the written consent or ratification of and to the return of his contribution as provided in the specific act by all the limited partners, a general Articles 1856 and 1857. partner or all of the general partners have no authority to:

Art. 1852. Without prejudice to the provisions of Article 1848, a person who has contributed to the capital of a

(1) Do any act in contravention of the certificate;

business

conducted

by

a

person

or

partnership

erroneously believing that he has become a limited (2) Do any act which would make it impossible to partner in a limited partnership, is not, by reason of his carry on the ordinary business of the partnership;

exercise of the rights of a limited partner, a general partner with the person or in the partnership carrying on

(3) Confess a judgment against the partnership;

the business, or bound by the obligations of such person

or partnership, provided that on ascertaining the mistake matter. If such an agreement is made it shall be stated in he promptly renounces his interest in the profits of the the certificate, and in the absence of such a statement all business, or other compensation by way of income.

the limited partners shall stand upon equal footing.

Art. 1853. A person may be a general partner and a Art. 1856. A limited partner may receive from the limited partner in the same partnership at the same time, partnership the share of the profits or the compensation provided that this fact shall be stated in the certificate by way of income stipulated for in the certificate; provided for in Article 1844.

provided that after such payment is made, whether from property of the partnership or that of a general partner,

A person who is a general, and also at the same time a the partnership assets are in excess of all liabilities of the limited partner, shall have all the rights and powers and partnership except liabilities to limited partners on be subject to all the restrictions of a general partner; account of their contributions and to general partners. except that, in respect to his contribution, he shall have the rights against the other members which he would Art. 1857. A limited partner shall not receive from a have had if he were not also a general partner.

general partner or out of partnership property any part of his contributions until:

Art. 1854. A limited partner also may loan money to and transact other business with the partnership, and, unless

(1)

All

liabilities

of

the

partnership,

except

he is also a general partner, receive on account of

liabilities to general partners and to limited

resulting claims against the partnership, with general

partners on account of their contributions, have

creditors, a pro rata share of the assets. No limited

been paid or there remains property of the

partner shall in respect to any such claim:

partnership sufficient to pay them;

(1) Receive or hold as collateral security and

(2) The consent of all members is had, unless the

partnership property, or

return of the contribution may be rightfully demanded under the provisions of the second

(2) Receive from a general partner or the

paragraph; and

partnership any payment, conveyance, or release from liability if at the time the assets of the

(3) The certificate is cancelled or so amended as

partnership

to set forth the withdrawal or reduction.

are

not

sufficient

to

discharge

partnership liabilities to persons not claiming as Subject to the provisions of the first paragraph, a limited

general or limited partners.

partner The

receiving

of

collateral

security,

or

may

rightfully

demand

the

return

of

his

payment, contribution:

conveyance, or release in violation of the foregoing

(1) On the dissolution of a partnership; or

provisions is a fraud on the creditors of the partnership. (2) When the date specified in the certificate for Art. 1855. Where there are several limited partners the

its return has arrived, or

members may agree that one or more of the limited partners shall have a priority over other limited partners

(3) After he has six months' notice in writing to

as to the return of their contributions, as to their

all other members, if no time is specified in the

compensation by way of income, or as to any other

certificate,

either

for

the

return

of

the

contribution

or

for

the

dissolution

of

the shall not affect the right of a creditor of a partnership

partnership.

who extended credit or whose claim arose after the filing and

before

a

cancellation

or

amendment

of

the

In the absence of any statement in the certificate to the certificate, to enforce such liabilities. contrary or the consent of all members, a limited partner, irrespective of the nature of his contribution, has only the When a contributor has rightfully received the return in right to demand and receive cash in return for his whole or in part of the capital of his contribution, he is contribution.

nevertheless liable to the partnership for any sum, not in excess of such return with interest, necessary to discharge

A limited partner may have the partnership dissolved and its liabilities to all creditors who extended credit or whose its affairs wound up when: claims arose before such return. (1) He rightfully but unsuccessfully demands the Art. 1859. A limited partner's interest is assignable. return of his contribution, or A substituted limited partner is a person admitted to all (2) The other liabilities of the partnership have the rights of a limited partner who has died or has not been paid, or the partnership property is assigned his interest in a partnership. insufficient for their payment as required by the first paragraph, No. 1, and the limited partner An assignee, who does not become a substituted limited would otherwise be entitled to the return of his partner, has no right to require any information or contribution.

account of the partnership transactions or to inspect the partnership books; he is only entitled to receive the share

Art. 1858. A limited partner is liable to the partnership:

of the profits or other compensation by way of income, (1) For the difference between his contribution as or the return of his contribution, to which his assignor actually made and that stated in the certificate as would otherwise be entitled. having been made; and An assignee shall have the right to become a substituted (2) For any unpaid contribution which he agreed limited partner if all the members consent thereto or if in the certificate to make in the future at the time the assignor, being thereunto empowered by the and on the conditions stated in the certificate. certificate, gives the assignee that right.

A limited partner holds as trustee for the partnership:

An assignee becomes a substituted limited partner when (1) Specific property stated in the certificate as the certificate is appropriately amended in accordance contributed by him, but which was not with Article 1865. contributed

or

which

has

been

wrongfully

returned, and

The substituted limited partner has all the rights and

powers, and is subject to all the restrictions and liabilities (2) Money or other property wrongfully paid or of his assignor, except those liabilities of which he was conveyed to him on account of his contribution. ignorant at the time he became a limited partner and The liabilities of a limited partner as set forth in this article can be waived or compromised only by the consent of all members; but a waiver or compromise

which could not be ascertained from the certificate.

The substitution of the assignee as a limited partner does Art. 1863. In setting accounts after dissolution the not release the assignor from liability to the partnership liabilities of the partnership shall be entitled to payment under Articles 1847 and 1848.

in the following order:

Art. 1860. The retirement, death, insolvency, insanity or

(1) Those to creditors, in the order of priority as

civil interdiction of a general partner dissolves the

provided by law, except those to limited partners

partnership, unless the business is continued by the

on account of their contributions, and to general

remaining general partners:

partners;

(1) Under a right so to do stated in the certificate,

(2) Those to limited partners in respect to their

or

share of the profits and other compensation by way of income on their contributions;

(2) With the consent of all members. (3) Those to limited partners in respect to the Art. 1861. On the death of a limited partner his executor

capital of their contributions;

or administrator shall have all the rights of a limited partner for the purpose of setting his estate, and such

(4) Those to general partners other than for

power as the deceased had to constitute his assignee a

capital and profits;

substituted limited partner. (5) Those to general partners in respect to profits; The estate of a deceased limited partner shall be liable (6) Those to general partners in respect to capital.

for all his liabilities as a limited partner.

Art. 1862. On due application to a court of competent Subject to any statement in the certificate or to jurisdiction by any creditor of a limited partner, the court subsequent agreement, limited partners share in the may charge the interest of the indebted limited partner partnership assets in respect to their claims for capital, with payment of the unsatisfied amount of such claim, and in respect to their claims for profits or for and may appoint a receiver, and make all other orders, compensation by way of income on their contribution directions and inquiries which the circumstances of the respectively, in proportion to the respective amounts of case may require.

such claims.

The interest may be redeemed with the separate property Art. 1864. The certificate shall be cancelled when the of any general partner, but may not be redeemed with partnership is dissolved or all limited partners cease to be partnership property.

such.

The remedies conferred by the first paragraph shall not A certificate shall be amended when: be deemed exclusive of others which may exist.

(1) There is a change in the name of the

Nothing in this Chapter shall be held to deprive a limited

partnership or in the amount or character of the

partner of his statutory exemption.

contribution of any limited partner; (2) A person is substituted as a limited partner;

(3) An additional limited partner is admitted;

A person desiring the cancellation or amendment of a certificate, if any person designated in the first and

(4) A person is admitted as a general partner; (5) A general partner retires, dies, becomes insolvent or insane, or is sentenced to civil

second paragraphs as a person who must execute the writing refuses to do so, may petition the court to order a cancellation or amendment thereof.

interdiction and the business is continued under If the court finds that the petitioner has a right to have Article 1860; the writing executed by a person who refuses to do so, it (6) There is a change in the character of the business of the partnership; (7) There is a false or erroneous statement in the certificate; (8) There is a change in the time as stated in the certificate for the dissolution of the partnership or for the return of a contribution;

shall order the Office of the Securities and Exchange Commission where the certificate is recorded, to record the cancellation or amendment of the certificate; and when the certificate is to be amended, the court shall also cause to be filed for record in said office a certified copy of its decree setting forth the amendment. A certificate is amended or cancelled when there is filed for record in the Office of the Securities and Exchange Commission, where the certificate is recorded:

(9) A time is fixed for the dissolution of the

(1) A writing in accordance with the provisions of

partnership, or the return of a contribution, no

the first or second paragraph, or

time having been specified in the certificate, or

(2) A certified copy of the order of the court in

(10) The members desire to make a change in

accordance with the provisions of the fourth

any other statement in the certificate in order

paragraph;

that it shall accurately represent the agreement among them.

(3) After the certificate is duly amended in accordance

Art. 1865. The writing to amend a certificate shall:

an amendment substituting a limited partner or adding a limited or general partner shall be signed also by the member to be substituted or added, and when a limited partner is to be substituted, the amendment shall also be signed by the assigning limited partner. The writing to cancel a certificate shall be signed by all members.

article,

the

amended

certificate provided for in this Chapter.

as far as necessary to set forth clearly the change

(2) Be signed and sworn to by all members, and

this

certified shall thereafter be for all purposes the

(1) Conform to the requirements of Article 1844 in the certificate which it is desired to make; and

with

Art. 1866. A contributor, unless he is a general partner, is not a proper party to proceedings by or against a partnership, except where the object is to enforce a limited

partner's

right

against

or

liability

to

the

partnership. Art. 1867. A limited partnership formed under the law prior to the effectivity of this Code, may become a limited partnership under this Chapter by complying with the provisions of Article 1844, provided the certificate sets forth:

(1) The amount of the original contribution of each limited partner, and the time when the

Section 1. Title of the Code. - This Code shall be

contribution was made; and

known

"The

as

Corporation

Code

of

the

Philippines". (2) That the property of the partnership exceeds the amount sufficient to discharge its liabilities to

Sec. 2. Corporation defined. - A corporation is an

persons not claiming as general or limited

artificial being created by operation of law, having

partners by an amount greater than the sum of

the right of succession and the powers, attributes

the contributions of its limited partners.

and properties expressly authorized by law or incident to its existence.

A limited partnership formed under the law prior to the effectivity of this Code, until or unless it becomes a

Sec. 3. Classes of corporations. - Corporations

limited partnership under this Chapter, shall continue to

formed or organized under this Code may be stock

be governed by the provisions of the old law.

or non-stock corporations. Corporations which have capital stock divided into shares and are authorized to

distribute

to

the

holders

of

such

shares

dividends or allotments of the surplus profits on the basis of the shares held are stock corporations. All other corporations are non-stock corporations. Sec. 4. Corporations created by special laws or

charters. - Corporations created by special laws or charters

shall

be

governed

primarily

by

the

provisions of the special law or charter creating them or applicable to them, supplemented by the provisions of this Code, insofar as they are applicable. Sec.

5.

Corporators

and

incorporators,

stockholders and members. - Corporators are those who compose a corporation, whether as stockholders or as members. Incorporators are those stockholders or members mentioned in the THE CORPORATION CODE OF THE PHILIPPINES [Batas Pambansa Blg. 68] TITLE I

articles of incorporation as originally forming and composing the corporation and who are signatories thereof. Corporators in a stock corporation are called stockholders or shareholders. Corporators in a nonstock corporation are called members.

GENERAL PROVISIONS Definitions and Classifications

Sec. 6. Classification of shares. - The shares of

stock of stock corporations may be divided into

the

entire

consideration

received

by

the

classes or series of shares, or both, any of which

corporation for its no-par value shares shall be

classes or series of shares may have such rights,

treated as capital and shall not be available for

privileges or restrictions as may be stated in the

distribution as dividends.

articles of incorporation: Provided, That no share may be deprived of voting rights except those

A corporation may, furthermore, classify its shares

classified and issued as "preferred" or "redeemable"

for the purpose of insuring compliance with

shares, unless otherwise provided in this Code:

constitutional or legal requirements.

Provided, further, That there shall always be a class or series of shares which have complete voting rights. Any or all of the shares or series of shares may have a par value or have no par value as may be provided for in the articles of incorporation: Provided, however, That banks, trust companies, insurance companies, public utilities, and building and loan associations shall not be permitted to issue no-par value shares of stock.

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respects to every other share. Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall nevertheless be entitled to vote on the following matters:

Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the corporation in case of liquidation and in the distribution of dividends, or such other

1.

Amendment

of

the

articles

of

incorporation; 2. Adoption and amendment of by-laws;

preferences as may be stated in the articles of incorporation

which

are

not

violative

of

the

3. Sale, lease, exchange, mortgage, pledge

provisions of this Code: Provided, That preferred

or other disposition of all or substantially all

shares of stock may be issued only with a stated

of the corporate property;

par value. The board of directors, where authorized in the articles of incorporation, may fix the terms

4. Incurring, creating or increasing bonded

and conditions of preferred shares of stock or any

indebtedness;

series thereof: Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof with the Securities and Exchange Commission. Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shares without par value may not be issued for a consideration less than the value of five (P5.00) pesos per share: Provided, further, That

5. Increase or decrease of capital stock; 6.

Merger

or

consolidation

of

the

corporation with another corporation or other corporations; 7. Investment of corporate funds in another corporation or business in accordance with this Code; and 8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph,

the

vote

necessary

to

approve

a

Sec.

Number

10.

and

qualifications

of

particular corporate act as provided in this Code

incorporators. - Any number of natural persons

shall be deemed to refer only to stocks with voting

not less than five (5) but not more than fifteen (15),

rights.

all of legal age and a majority of whom are residents of the Philippines, may form a private

Sec. 7. Founders' shares. - Founders' shares

corporation for any lawful purpose or purposes.

classified as such in the articles of incorporation

Each of the incorporators of s stock corporation

may be given certain rights and privileges not

must own or be a subscriber to at least one (1)

enjoyed by the owners of other stocks, provided

share of the capital stock of the corporation.

that where the exclusive right to vote and be voted for in the election of directors is granted, it must

Sec. 11. Corporate term. - A corporation shall exist

be for a limited period not to exceed five (5) years

for a period not exceeding fifty (50) years from the

subject to the approval of the Securities and

date of incorporation unless sooner dissolved or

Exchange Commission. The five-year period shall

unless said period is extended. The corporate term

commence from the date of the aforesaid approval

as originally stated in the articles of incorporation

by the Securities and Exchange Commission.

may be extended for periods not exceeding fifty (50) years in any single instance by an amendment

Sec. 8. Redeemable shares. - Redeemable shares

of the articles of incorporation, in accordance with

may be issued by the corporation when expressly

this Code; Provided, That no extension can be

so provided in the articles of incorporation. They

made earlier than five (5) years prior to the original

may be purchased or taken up by the corporation

or subsequent expiry date(s) unless there are

upon the expiration of a fixed period, regardless of

justifiable reasons for an earlier extension as may

the existence of unrestricted retained earnings in

be determined by the Securities and Exchange

the books of the corporation, and upon such other

Commission.

terms and conditions as may be stated in the and

Sec. 12. Minimum capital stock required of stock

conditions must also be stated in the certificate of

corporations. - Stock corporations incorporated

stock representing said shares.

under this Code shall not be required to have any

articles

of

incorporation,

which

terms

minimum

authorized

capital

stock

except

as

Sec. 9. Treasury shares. - Treasury shares are

otherwise specifically provided for by special law,

shares of stock which have been issued and fully

and subject to the provisions of the following

paid for, but subsequently reacquired by the

section.

issuing

corporation

by

purchase,

redemption, 13.

Amount

of

capital

stock

to

be

purposes

of

donation or through some other lawful means.

Sec.

Such shares may again be disposed of for a

subscribed

reasonable price fixed by the board of directors.

incorporation. - At least twenty-five percent (25%)

and

paid

for

the

of the authorized capital stock as stated in the TITLE II

articles of incorporation must be subscribed at the

INCORPORATION AND ORGANIZATION

time of incorporation, and at least twenty-five

OF PRIVATE CORPORATIONS

(25%) per cent of the total subscription must be paid upon subscription, the balance to be payable

on a date or dates fixed in the contract of

more than fifteen (15);

subscription without need of call, or in the absence of a fixed date or dates, upon call for payment by

7. The names, nationalities and residences

the board of directors: Provided, however, That in

of persons who shall act as directors or

no case shall the paid-up capital be less than five

trustees until the first regular directors or

Thousand (P5,000.00) pesos.

trustees are duly elected and qualified in accordance with this Code;

Sec. 14. Contents of the articles of incorporation. - All corporations organized under this code shall

8. If it be a stock corporation, the amount

file with the Securities and Exchange Commission

of its authorized capital stock in lawful

articles of incorporation in any of the official

money of the Philippines, the number of

languages duly signed and acknowledged by all of

shares into which it is divided, and in case

the

the

the share are par value shares, the par

following matters, except as otherwise prescribed

value of each, the names, nationalities and

by this Code or by special law:

residences of the original subscribers, and

incorporators,

containing

substantially

the amount subscribed and paid by each 1. The name of the corporation;

on his subscription, and if some or all of the shares are without par value, such fact

2. The specific purpose or purposes for which

the

corporation

is

must be stated;

being

incorporated. Where a corporation has

9. If it be a non-stock corporation, the

more than one stated purpose, the articles

amount

of incorporation shall state which is the

nationalities

primary

contributors and the amount contributed

purpose

and

which

is/are

he

secondary purpose or purposes: Provided,

of

its and

capital,

the

residences

names, of

the

by each; and

That a non-stock corporation may not include a purpose which would change or

10.

Such

contradict its nature as such;

inconsistent

other with

matters law

as

and

are

not

which

the

incorporators may deem necessary and 3. The place where the principal office of

convenient.

the corporation is to be located, which must be within the Philippines;

The Securities and Exchange Commission shall not accept the articles of incorporation of any stock

4. The term for which the corporation is to

corporation

exist;

statement

unless of

the

accompanied Treasurer

by

elected

a

sworn by

the

subscribers showing that at least twenty-five (25%) 5. The names, nationalities and residences

percent of the authorized capital stock of the

of the incorporators;

corporation has been subscribed, and at least

6. The number of directors or trustees, which shall not be less than five (5) nor

twenty-five (25%) of the total subscription has been fully paid to him in actual cash and/or in property the fair valuation of which is equal to at least twenty-five (25%) percent of the said subscription,

such paid-up capital being not less than five

from and after the date of issuance of the

thousand (P5,000.00) pesos.

certificate of incorporation;

Sec. 15. Forms of Articles of Incorporation. -

FIFTH: That the names, nationalities and

Unless otherwise prescribed by special law, articles

residences of the incorporators of the

of incorporation of all domestic corporations shall

corporation are as follows:

comply substantially with the following form: NAME NATIONALITY RESIDENCE ARTICLES OF INCORPORATION OF

.....................................

__________________________

.....................................

(Name of Corporation)

.....................................

KNOW ALL MEN BY THESE PRESENTS:

.....................................

The undersigned incorporators, all of legal

.....................................

age and a majority of whom are residents

.....................................

of the Philippines, have this day voluntarily agreed

to form

a (stock)

.....................................

(non-stock)

corporation under the laws of the Republic of the Philippines;

.....................................

.....................................

.....................................

.....................................

..................................... .....................................

.....................................

.....................................

AND WE HEREBY CERTIFY: FIRST: That the name of said corporation shall be

SIXTH: That the number of directors or trustees

of

the

corporation

be

.............; and the names, nationalities and

"..............................................,

INC.

or

residences of the first directors or trustees

CORPORATION";

of the corporation are as follows:

SECOND: That the purpose or purposes for

NAME NATIONALITY RESIDENCE

which such corporation is incorporated are: (If there is more than one purpose, indicate primary and secondary purposes); THIRD: That the principal office of the corporation

shall

is

located

in

City/Municipality .............................................,

the of

Province

of

.................................................., Philippines; FOURTH: That the term for which said corporation is to exist is ................ years

.....................................

.....................................

..................................... .....................................

.....................................

..................................... .....................................

.....................................

..................................... .....................................

.....................................

.....................................

..................................

....................

........................ ....................... .....................................

.....................................

.....................................

..................................

....................

........................ ....................... SEVENTH: stock

That of

the

authorized

the

capital

corporation

is

................................................. (P......................)

..................................

....................

........................ .......................

PESOS in lawful money of the Philippines, divided into ............... shares with the par

NINTH: That the above-named subscribers

value

have

of

...................................

paid

percent

(P.......................) Pesos per share.

of

at

least

the

twenty-five

total

(25%)

subscription

as

follows: (In case all the share are without par Name of Subscriber Amount Subscribed

value):

Total Paid-In That the capital stock of the corporation is ........................... shares without par value.

...................................

(In case some shares have par value and

...............................

some are without par value): That the capital stock of said corporation consists of

........................

shares

of

which

....................... shares are of the par value of .............................. each,

and

of

(P.....................) which

PESOS

................................

shares are without par value.

...................................

...................................

......................................

............................... ...................................

above

...............................

has been subscribed as

......................................

...............................

per cent of the authorized capital stock stated

......................................

...............................

...................................

EIGHTH: That at least twenty five (25%)

......................................

......................................

follows: (Modify Nos. 8 and 9 if shares are with no Name of Subscriber Nationality No of

par value. In case the corporation is non-

Shares Amount

stock, Nos. 7, 8 and 9 of the above articles may be modified accordingly, and it is

Subscribed Subscribed ..................................

sufficient if the articles state the amount ....................

........................ ....................... .................................. ........................ .......................

of

capital

or

money

contributed

or

donated by specified persons, stating the names, nationalities and residences of the

....................

contributors or donors and the respective amount given by each.)

TENTH: been

That

.......................................

elected

by

the

subscribers

has

................................................

as

Treasurer of the Corporation to act as such

(Names

until his successor is duly elected and

incorporators)

qualified in accordance with the by-laws, and that as such Treasurer, he has been authorized to receive for and in the name and for the benefit of the corporation, all subscription (or fees) or contributions or donations paid or given by the subscribers

and

signatures

of

the

SIGNED IN THE PRESENCE OF: ............................................ ............................................. (Notarial

Acknowledgment)

or members. ELEVENTH:

(Corporations

which

will

TREASURER'S AFFIDAVIT

engage in any business or activity reserved for

Filipino

citizens

shall

provide

the

REPUBLIC OF THE PHILIPPINES )

following): CITY/MUNICIPALITY OF ) S.S. "No transfer of stock or interest which shall reduce the ownership of Filipino citizens

to

percentage

less of

than

the

the

capital

required stock

as

provided by existing laws shall be allowed or permitted to recorded in the proper books

of

the

corporation

and

this

restriction shall be indicated in all stock certificates issued by the corporation."

signed these Articles of Incorporation, this ................... day of .............................., 19 in

the

City/Municipality

........................................,

Province

of of

................................................., Republic of the Philippines. ............................................

I, ...................................., being duly sworn, depose and say: That

I

have

been

by

the

subscribers of the corporation as Treasurer thereof, to act as such until my successor accordance

with

the

by-laws

of

the

corporation, and that as such Treasurer, I hereby certify under oath that at least 25% of the authorized capital stock of the corporation has been subscribed and at least 25% of the total subscription has been paid, and received by me, in cash or property, in the amount of not less than P5,000.00,

in

accordance

.............................................

Corporation Code.

............................................

.......................................

.............................................

elected

has been duly elected and qualified in

IN WITNESS WHEREOF, we have hereunto

...........

PROVINCE OF )

(Signature of Treasurer)

with

the

SUBSCRIBED AND SWORN to before me, a

a majority of the directors or trustees stating the

Notary

the

fact that said amendment or amendments have

..................................

been duly approved by the required vote of the

Province of .........................................., this

stockholders or members, shall be submitted to the

............. day of ........................., 19 ........; by

Securities and Exchange Commission.

Public,

City/Municipality

for of

and

in

............................................ with Res. Cert. No. .....................

issued

at

.................

on

......................, 19 ..........

The amendments shall take effect upon their approval

by

the

Securities

and

Exchange

Commission or from the date of filing with the said NOTARY PUBLIC

Commission if not acted upon within six (6) months from the date of filing for a cause not attributable

My commission expires on ...........................,

to the corporation.

19 ........ Sec. 17. Grounds when articles of incorporation Doc. No. ...............; Page No. ...............; Book No. ..............; Series of 19..... (7a)

or amendment may be rejected or disapproved. The Securities and Exchange Commission may reject the articles of incorporation or disapprove any amendment thereto if the same is not in compliance with the requirements of this Code: Provided, That the Commission shall give the incorporators a reasonable time within which to

Sec. 16. Amendment of Articles of Incorporation.

correct or modify the objectionable portions of the

- Unless otherwise prescribed by this Code or by

articles or amendment. The following are grounds

special law, and for legitimate purposes, any

for such rejection or disapproval:

provision or matter stated in the articles of incorporation may be amended by a majority vote

1. That the articles of incorporation or any

of the board of directors or trustees and the vote

amendment thereto is not substantially in

or written assent of the stockholders representing

accordance with the form prescribed herein;

at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation. The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. Such articles, as amended shall be indicated by underscoring the change or changes made, and a copy thereof duly certified under oath by the corporate secretary and

2. That the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and regulations; 3. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or paid if false; 4. That the percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required

by

existing

laws

or

the

Constitution.

faith to be a corporation under this Code, and its right to exercise corporate powers, shall not be

No articles of incorporation or amendment to

inquired into collaterally in any private suit to which

articles of incorporation of banks, banking and

such corporation may be a party. Such inquiry may

quasi-banking

be made by the Solicitor General in a quo warranto

institutions,

building

and

loan

associations, trust companies and other financial

proceeding.

intermediaries, insurance companies, public utilities, educational institutions, and other corporations

Sec. 21. Corporation by estoppel. - All persons

governed by special laws shall be accepted or

who assume to act as a corporation knowing it to

approved by the Commission unless accompanied

be without authority to do so shall be liable as

by a favorable recommendation of the appropriate

general

government agency to the effect that such articles

damages incurred or arising as a result thereof:

or amendment is in accordance with law.

Provided, however, That when any such ostensible

partners

for

all

debts,

liabilities

and

corporation is sued on any transaction entered by it Sec. 18. Corporate name. - No corporate name

as a corporation or on any tort committed by it as

may be allowed by the Securities and Exchange

such, it shall not be allowed to use as a defense its

Commission if the proposed name is identical or

lack of corporate personality.

deceptively or confusingly similar to that of any existing corporation or to any other name already

On who assumes an obligation to an ostensible

protected by law or is patently deceptive, confusing

corporation as such, cannot resist performance

or contrary to existing laws. When a change in the

thereof on the ground that there was in fact no

corporate name is approved, the Commission shall

corporation.

issue an amended certificate of incorporation under Sec. 22. Effects on non-use of corporate charter

the amended name.

and continuous inoperation of a corporation. - If Sec. 19. Commencement of corporate existence.

a corporation does not formally organize and

- A private corporation formed or organized under

commence the transaction of its business or the

this Code commences to have corporate existence

construction of its works within two (2) years from

and

the date of its incorporation, its corporate powers

juridical

personality

and

is

deemed

incorporated from the date the Securities and

cease

Exchange

dissolved.

Commission

issues

a

certificate

of

and

the

corporation

However,

if

a

shall

be

deemed

corporation

has

incorporation under its official seal; and thereupon

commenced the transaction of its business but

the incorporators, stockholders/members and their

subsequently becomes continuously inoperative for

successors shall constitute a body politic and

a period of at least five (5) years, the same shall be

corporate under the name stated in the articles of

a ground for the suspension or revocation of its

incorporation for the period of time mentioned

corporate franchise or certificate of incorporation.

therein, unless said period is extended or the corporation is sooner dissolved in accordance with

This provision shall not apply if the failure to

law.

organize,

commence

the

transaction

of

its

businesses or the construction of its works, or to Sec. 20. De facto corporations. - The due

continuously operate is due to causes beyond the

incorporation of any corporation claiming in good

control of the corporation as may be determined

by the Securities and Exchange Commission.

said stockholder may vote such number of shares for as many persons as there are directors to be

TITLE III

elected or he may cumulate said shares and give

BOARD OF DIRECTORS/TRUSTEES/OFFICERS

one candidate as many votes as the number of

Sec. 23. The board of directors or trustees. Unless

otherwise

provided

in

this

Code,

the

corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year until their successors are elected and qualified. Every director must own at least one (1) share of the capital stock of the corporation of which he is a director, which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be a director. Trustees

of

non-stock

corporations

must

be

members thereof. a majority of the directors or trustees of all corporations organized under this Code must be residents of the Philippines. Sec. 24. Election of directors or trustees. - At all elections of directors or trustees, there must be present, either in person or by representative authorized to act by written proxy, the owners of a majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote. The election must be by ballot if requested by any voting stockholder or member. In stock corporations, every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares of stock standing, at the time fixed in the by-laws, in his own name on the stock books of the corporation, or where the by-laws are silent, at the time of the election; and

directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit: Provided, That the total number of votes cast by him shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected: Provided, however, That no delinquent stock shall be voted. Unless otherwise provided in the articles of incorporation or in the by-laws, members of corporations which have no capital stock may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate. Candidates receiving the highest number of votes shall be declared elected. Any meeting of the stockholders or members called for an election may adjourn from day to day or from time to time but not sine die or indefinitely if, for any reason, no election is held, or if there not present or represented by proxy, at the meeting,

the

owners

of

a

majority

of

the

outstanding capital stock, or if there be no capital stock, a majority of the member entitled to vote. Sec.

25.

Corporate

officers,

quorum.

-

Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as president and secretary or as president and treasurer at the same time. The directors or trustees and officers to be elected

shall perform the duties enjoined on them by law

holding or representing at least two-thirds (2/3) of

and the by-laws of the corporation. Unless the

the outstanding capital stock, or if the corporation

articles of incorporation or the by-laws provide for

be a non-stock corporation, by a vote of at least

a greater majority, a majority of the number of

two-thirds (2/3) of the members entitled to vote:

directors or trustees as fixed in the articles of

Provided, That such removal shall take place either

incorporation shall constitute a quorum for the

at a regular meeting of the corporation or at a

transaction

every

special meeting called for the purpose, and in

decision of at least a majority of the directors or

either case, after previous notice to stockholders or

trustees present at a meeting at which there is a

members of the corporation of the intention to

quorum shall be valid as a corporate act, except for

propose such removal at the meeting. A special

the election of officers which shall require the vote

meeting of the stockholders or members of a

of a majority of all the members of the board.

corporation for the purpose of removal of directors

of

corporate

business,

and

or trustees, or any of them, must be called by the Directors or trustees cannot attend or vote by

secretary on order of the president or on the

proxy at board meetings.

written demand of the stockholders representing or

Sec. 26. Report of election of directors, trustees

and officers. - Within thirty (30) days after the election of the directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation, shall submit to the Securities and Exchange Commission, the names, nationalities and residences of the directors, trustees, and officers elected. Should a director, trustee or officer die, resign or in any manner cease to hold office, his heirs in case of his death, the secretary, or any other officer of the corporation, or the director, trustee or officer himself, shall immediately report such

fact

to

the

Securities

and

Exchange

Commission. Sec. 27. Disqualification of directors, trustees or

officers. - No person convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of this Code committed within five (5) years prior to the date of his election or appointment, shall qualify as a director, trustee or officer of any corporation. Sec. 28. Removal of directors or trustees. - Any director or trustee of a corporation may be removed from office by a vote of the stockholders

holding at least a majority of the outstanding capital stock, or, if it be a non-stock corporation, on the written demand of a majority of the members entitled to vote. Should the secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give the notice, or if there is no secretary, the call for the meeting may be addressed directly to the stockholders or members by any stockholder or member of the corporation signing the demand. Notice of the time and place of such meeting, as well as of the intention to propose such removal, must be given by publication or by written notice prescribed in this Code. Removal may be with or without cause: Provided, That removal without cause may not be used to deprive minority stockholders or members of the right of representation to which they may be entitled under Section 24 of this Code. Sec. 29. Vacancies in the office of director or

trustee. - Any vacancy occurring in the board of directors or trustees other than by removal by the stockholders or members or by expiration of term, may be filled by the vote of at least a majority of the

remaining

directors

or

trustees,

if

still

constituting a quorum; otherwise, said vacancies

must be filled by the stockholders in a regular or

acquire or acquires, in violation of his duty, any

special meeting called for that purpose. A director

interest adverse to the corporation in respect of

or trustee so elected to fill a vacancy shall be

any matter which has been reposed in him in

elected

confidence, as to which equity imposes a disability

only

or

the

unexpired

term

of

his

predecessor in office.

upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must

A directorship or trusteeship to be filled by reason

account for the profits which otherwise would have

of an increase in the number of directors or

accrued to the corporation.

trustees shall be filled only by an election at a regular or at a special meeting of stockholders or

Sec. 32. Dealings of directors, trustees or officers

members duly called for the purpose, or in the

with the corporation.

same meeting authorizing the increase of directors

corporation with one or more of its directors or

or trustees if so stated in the notice of the meeting.

trustees or officers is voidable, at the option of

-

A

contract

of

the

such corporation, unless all the following conditions Sec. 30. Compensation of directors. - In the

are present:

absence of any provision in the by-laws fixing their compensation, the directors shall not receive any

1. That the presence of such director or

compensation,

for

trustee in the board meeting in which the

reasonable pre diems: Provided, however, That any

contract was approved was not necessary

such compensation other than per diems may be

to constitute a quorum for such meeting;

as

such

directors,

except

granted to directors by the vote of the stockholders representing at least a majority of the outstanding

2. That the vote of such director or trustee

capital stock at a regular or special stockholders'

was nor necessary for the approval of the

meeting.

contract;

In

compensation

no of

case

shall

directors,

the as

total

such

yearly

directors,

3. That the contract is fair and reasonable

exceed ten (10%) percent of the net income before

under the circumstances; and

income tax of the corporation during the preceding year.

4. That in case of an officer, the contract has been previously authorized by the

Sec. 31. Liability of directors, trustees or officers.

board of directors.

- Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages

resulting

therefrom

suffered

by

the

corporation, its stockholders or members and other persons. When a director, trustee or officer attempts to

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a director or trustee, such contract may be ratified by the vote of the stockholders representing

at

least

two-thirds

(2/3)

of

the

outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That full disclosure of the adverse

interest

of

the

directors

or

trustees

involved is made at such meeting: Provided,

however, That the contract is fair and reasonable

for which shareholders' approval is also required;

under the circumstances.

(2) the filing of vacancies in the board; (3) the amendment or repeal of by-laws or the adoption of

Sec. 33. Contracts between corporations with

new by-laws; (4) the amendment or repeal of any

interlocking directors. - Except in cases of fraud,

resolution of the board which by its express terms

and provided the contract is fair and reasonable

is not so amendable or repealable; and (5) a

under the circumstances, a contract between two or

distribution of cash dividends to the shareholders.

more corporations having interlocking directors shall not be invalidated on that ground alone:

TITLE IV

Provided, That if the interest of the interlocking

POWERS OF CORPORATIONS

director in one corporation is substantial and his interest in the other corporation or corporations is

Sec. 36. Corporate powers and capacity. - Every

merely

corporation incorporated under this Code has the

nominal,

he

shall

be

subject

to

the

provisions of the preceding section insofar as the

power and capacity:

latter corporation or corporations are concerned. 1. To sue and be sued in its corporate Stockholdings exceeding twenty (20%) percent of

name;

the outstanding capital stock shall be considered substantial for purposes of interlocking directors.

2. Of succession by its corporate name for the period of time stated in the articles of

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

incorporation

director, by virtue of his office, acquires for himself

incorporation;

and

the

certificate

of

a business opportunity which should belong to the corporation,

thereby

obtaining

profits

to

the

prejudice of such corporation, he must account to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of the stockholders owning or representing at least twothirds (2/3) of the outstanding capital stock. This provision shall be applicable, notwithstanding the fact that the director risked his own funds in the venture. Sec. 35. Executive committee. - The by-laws of a corporation may create an executive committee, composed of not less than three members of the board, to be appointed by the board. Said committee may act, by majority vote of all its members, on such specific matters within the competence of the board, as may be delegated to it in the by-laws or on a majority vote of the board, except with respect to: (1) approval of any action

3. To adopt and use a corporate seal; 4. To amend its articles of incorporation in accordance with the provisions of this Code; 5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in accordance with this Code; 6. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to admit members to the corporation if it be a non-stock corporation; 7. To purchase, receive, take or grant, hold,

convey, sell, lease, pledge, mortgage and

books of the corporation and deposited to the

otherwise deal with such real and personal

addressee in the post office with postage prepaid,

property, including securities and bonds of

or served personally: Provided, That in case of

other corporations, as the transaction of the

extension

lawful business of the corporation may

stockholder may exercise his appraisal right under

reasonably and necessarily require, subject

the conditions provided in this code. (n)

of

corporate

term,

any

dissenting

to the limitations prescribed by law and the Constitution;

Sec. 38. Power to increase or decrease capital

stock;

incur,

create

or

increase

bonded

8. To enter into merger or consolidation

indebtedness. - No corporation shall increase or

with other corporations as provided in this

decrease its capital stock or incur, create or

Code;

increase any bonded indebtedness unless approved by a majority vote of the board of directors and, at

9. To make reasonable donations, including

a stockholder's meeting duly called for the purpose,

those for the public welfare or for hospital,

two-thirds (2/3) of the outstanding capital stock

charitable, cultural, scientific, civic, or similar

shall favor the increase or diminution of the capital

purposes: Provided, That no corporation,

stock, or the incurring, creating or increasing of any

domestic or foreign, shall give donations in

bonded

aid of any political party or candidate or for

proposed increase or diminution of the capital

purposes of partisan political activity;

stock or of the incurring, creating, or increasing of

10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees; and 11. To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation. Sec. 37. Power to extend or shorten corporate

term. - A private corporation may extend or shorten its term as stated in the articles of incorporation when approved by a majority vote of the board of directors or trustees and ratified at a meeting by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members in case of non-stock corporations. Written notice of the

indebtedness.

Written

notice

the

any bonded indebtedness and of the time and place of the stockholder's meeting at which the proposed increase or diminution of the capital stock or the incurring or increasing of any bonded indebtedness

is

to

be

considered,

must

be

addressed to each stockholder at his place of residence

as

shown

on

the

books

of

the

corporation and deposited to the addressee in the post

office

with

postage

prepaid,

or

served

personally. A certificate in duplicate must be signed by a majority of the directors of the corporation and countersigned by the chairman and the secretary of the stockholders' meeting, setting forth: (1) That the requirements of this section have been complied with;

proposed action and of the time and place of the

(2)

meeting shall be addressed to each stockholder or

diminution of the capital stock;

member at his place of residence as shown on the

of

The

amount

of

the

increase

or

(3) If an increase of the capital stock, the

of any bonded indebtedness authorized, as the

amount of capital stock or number of

certificate of filing may declare: Provided, That the

shares of no-par stock thereof actually

Securities and Exchange Commission shall not

subscribed, the names, nationalities and

accept for filing any certificate of increase of capital

residences of the persons subscribing, the

stock unless accompanied by the sworn statement

amount of capital stock or number of no-

of the treasurer of the corporation lawfully holding

par stock subscribed by each, and the

office at the time of the filing of the certificate,

amount paid by each on his subscription in

showing that at least twenty-five (25%) percent of

cash or property, or the amount of capital

such increased capital stock has been subscribed

stock or number of shares of no-par stock

and that at least twenty-five (25%) percent of the

allotted

such

amount subscribed has been paid either in actual

increase is for the purpose of making

cash to the corporation or that there has been

effective stock dividend therefor authorized;

transferred

to

each

stock-holder

if

to

the

corporation

property

the

valuation of which is equal to twenty-five (25%) (4)

Any

bonded

indebtedness

to

be

incurred, created or increased; (5)

The

actual

indebtedness

percent of the subscription: Provided, further, That no decrease of the capital stock shall be approved

of

the

corporation on the day of the meeting; (6) The amount of stock represented at the meeting; and (7) The vote authorizing the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness. Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded indebtedness shall require prior approval of the Securities and Exchange Commission. One of the duplicate certificates shall be kept on file in the office of the corporation and the other shall be filed with the Securities and Exchange Commission and attached to the original articles of incorporation. From and after approval by the Securities and Exchange Commission and the issuance by the Commission of its certificate of filing, the capital stock shall stand increased or decreased and the incurring, creating or increasing

by the Commission if its effect shall prejudice the rights of corporate creditors. Non-stock

corporations

may

incur

or

create

bonded indebtedness, or increase the same, with the approval by a majority vote of the board of trustees and of at least two-thirds (2/3) of the members in a meeting duly called for the purpose. Bonds issued by a corporation shall be registered with the Securities and Exchange Commission, which shall have the authority to determine the sufficiency of the terms thereof. (17a) Sec. 39. Power to deny pre-emptive right. - All stockholders of a stock corporation shall enjoy preemptive

right

to

subscribe

to

all

issues

or

disposition of shares of any class, in proportion to their respective shareholdings, unless such right is denied by the articles of incorporation or an amendment thereto: Provided, That such preemptive right shall not extend to shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public; or to shares to be issued in good faith with

the approval of the stockholders representing two-

After

thirds (2/3) of the outstanding capital stock, in

stockholders or members, the board of directors or

exchange

trustees

for

property

needed

for

corporate

such

authorization

may,

or

nevertheless,

approval in

its

by

the

discretion,

purposes or in payment of a previously contracted

abandon such sale, lease, exchange, mortgage,

debt.

pledge or other disposition of property and assets, subject to the rights of third parties under any

Sec. 40. Sale or other disposition of assets. -

contract relating thereto, without further action or

Subject to the provisions of existing laws on illegal

approval by the stockholders or members.

combinations and monopolies, a corporation may, by a majority vote of its board of directors or

Nothing in this section is intended to restrict the

trustees, sell, lease, exchange, mortgage, pledge or

power of any corporation, without the authorization

otherwise dispose of all or substantially all of its

by the stockholders or members, to sell, lease,

property and assets, including its goodwill, upon

exchange, mortgage, pledge or otherwise dispose

such

such

of any of its property and assets if the same is

consideration, which may be money, stocks, bonds

necessary in the usual and regular course of

or other instruments for the payment of money or

business of said corporation or if the proceeds of

other property or consideration, as its board of

the sale or other disposition of such property and

directors or trustees may deem expedient, when

assets be appropriated for the conduct of its

authorized

remaining business.

terms

and

by

representing

conditions

the

at

vote

least

of

and

the

two-thirds

for

stockholders (2/3)

of

the

outstanding capital stock, or in case of non-stock

In non-stock corporations where there are no

corporation, by the vote of at least to two-thirds

members with voting rights, the vote of at least a

(2/3) of the members, in a stockholder's or

majority of the trustees in office will be sufficient

member's meeting duly called for the purpose.

authorization for the corporation to enter into any

Written notice of the proposed action and of the

transaction authorized by this section. (28 1/2a)

time and place of the meeting shall be addressed to each stockholder or member at his place of residence

as

shown

on

the

books

of

the

corporation and deposited to the addressee in the post

office

personally:

with

postage

Provided,

prepaid,

That

any

or

served

dissenting

stockholder may exercise his appraisal right under the conditions provided in this Code. A sale or other disposition shall be deemed to cover substantially all the corporate property and assets

if

thereby

the

corporation

would

be

rendered incapable of continuing the business or accomplishing incorporated.

the

purpose

for

which

it

was

Sec. 41. Power to acquire own shares. - A stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose or purposes, including but not limited to the following cases: Provided, That the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired: 1. To eliminate fractional shares arising out of stock dividends; 2.

To

collect

or

compromise

an

indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares

sold during said sale; and

be

applied

to

the

unpaid

balance

on

the

subscription plus costs and expenses, while stock 3.

To

pay

dissenting

or

withdrawing

dividends shall be withheld from the delinquent

stockholders entitled to payment for their

stockholder until his unpaid subscription is fully

shares under the provisions of this Code.

paid: Provided, further, That no stock dividend shall

(n)

be issued without the approval of stockholders

Sec. 42. Power to invest corporate funds in

another corporation or business or for any other purpose. - Subject to the provisions of this Code, a

representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. (16a)

private corporation may invest its funds in any

Stock corporations are prohibited from retaining

other corporation or business or for any purpose

surplus profits in excess of one hundred (100%)

other than the primary purpose for which it was

percent of their paid-in capital stock, except: (1)

organized when approved by a majority of the

when justified by definite corporate expansion

board of directors or trustees and ratified by the

projects or programs approved by the board of

stockholders representing at least two-thirds (2/3)

directors; or (2) when the corporation is prohibited

of the outstanding capital stock, or by at least two

under any loan agreement with any financial

thirds (2/3) of the members in the case of non-

institution or creditor, whether local or foreign,

stock corporations, at a stockholder's or member's

from declaring dividends without its/his consent,

meeting duly called for the purpose. Written notice

and such consent has not yet been secured; or (3)

of the proposed investment and the time and place

when it can be clearly shown that such retention is

of the meeting shall be addressed to

each

necessary under special circumstances obtaining in

stockholder or member at his place of residence as

the corporation, such as when there is need for

shown on the books of the corporation and

special reserve for probable contingencies. (n)

deposited to the addressee in the post office with 44.

Power to enter into management

postage prepaid, or served personally: Provided,

Sec.

That any dissenting stockholder shall have appraisal

contract. - No corporation shall conclude a

right as provided in this Code: Provided, however,

management contract with another corporation

That where the investment by the corporation is

unless such contract shall have been approved by

reasonably necessary to accomplish its primary

the board of directors and by stockholders owning

purpose as stated in the articles of incorporation,

at least the majority of the outstanding capital

the approval of the stockholders or members shall

stock, or by at least a majority of the members in

not be necessary. (17 1/2a)

the case of a non-stock corporation, of both the managing and the managed corporation, at a

Sec. 43. Power to declare dividends. - The board

meeting duly called for the purpose: Provided, That

of directors of a stock corporation may declare

(1)

dividends out of the unrestricted retained earnings

representing

which shall be payable in cash, in property, or in

managing and the managed corporations own or

stock

of

control more than one-third (1/3) of the total

outstanding stock held by them: Provided, That any

outstanding capital stock entitled to vote of the

cash dividends due on delinquent stock shall first

managing corporation; or (2) where a majority of

to

all

stockholders

on

the

basis

where

a the

stockholder same

or

interest

stockholders of

both

the

the members of the board of directors of the

its government not inconsistent with this Code. For

managing corporation also constitute a majority of

the adoption of by-laws by the corporation the

the members of the board of directors of the

affirmative vote of the stockholders representing at

managed

management

least a majority of the outstanding capital stock, or

contract must be approved by the stockholders of

of at least a majority of the members in case of

the managed corporation owning at least two-

non-stock corporations, shall be necessary. The by-

thirds (2/3) of the total outstanding capital stock

laws shall be signed by the stockholders or

entitled to vote, or by at least two-thirds (2/3) of

members voting for them and shall be kept in the

the

non-stock

principal office of the corporation, subject to the

corporation. No management contract shall be

inspection of the stockholders or members during

entered into for a period longer than five years for

office hours. A copy thereof, duly certified to by a

any one term.

majority of the directors or trustees countersigned

corporation,

members

in

then

the

case

the

of

a

by the secretary of the corporation, shall be filed The provisions of the next preceding paragraph

with the Securities and Exchange Commission

shall apply to any contract whereby a corporation

which shall be attached to the original articles of

undertakes

incorporation.

substantially

to all

manage

or

of

business

the

operate of

all

or

another

corporation, whether such contracts are called

Notwithstanding the provisions of the preceding

service

or

paragraph, by-laws may be adopted and filed prior

otherwise: Provided, however, That such service

to incorporation; in such case, such by-laws shall be

contracts or operating agreements which relate to

approved and signed by all the incorporators and

the

submitted

contracts,

exploration,

operating

agreements

development,

exploitation

or

to

utilization of natural resources may be entered into

Commission,

for such periods as may be provided by the

incorporation.

the

Securities

together

with

and the

Exchange articles

of

pertinent laws or regulations. (n) In all cases, by-laws shall be effective only upon the Sec. 45. Ultra vires acts of corporations. - No

issuance

corporation under this Code shall possess or

Commission of a certification that the by-laws are

exercise

not inconsistent with this Code.

any

corporate

powers

except

those

by

the

Securities

and

Exchange

conferred by this Code or by its articles of incorporation and except such as are necessary or

The Securities and Exchange Commission shall not

incidental to the exercise of the powers so

accept for filing the by-laws or any amendment

conferred. (n)

thereto of any bank, banking institution, building and loan association, trust company, insurance TITLE V

company, public utility, educational institution or

BY LAWS

other special corporations governed by special

Sec. 46. Adoption of by-laws. - Every corporation formed under this Code must, within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission, adopt a code of by-laws for

laws, unless accompanied by a certificate of the appropriate government agency to the effect that such by-laws or amendments are in accordance with law. (20a) Sec. 47. Contents of by-laws. - Subject to the

provisions of the Constitution, this Code, other

outstanding capital stock, or at least a majority of

special laws, and the articles of incorporation, a

the members of a non-stock corporation, at a

private corporation may provide in its by-laws for:

regular or special meeting duly called for the purpose, may amend or repeal any by-laws or

1. The time, place and manner of calling

adopt new by-laws. The owners of two-thirds (2/3)

and conducting regular or special meetings

of the outstanding capital stock or two-thirds (2/3)

of the directors or trustees;

of the members in a non-stock corporation may

2. The time and manner of calling and conducting regular or special meetings of the stockholders or members;

delegate to the board of directors or trustees the power to amend or repeal any by-laws or adopt new by-laws: Provided, That any power delegated to the board of directors or trustees to amend or

3. The required quorum in meetings of stockholders or members and the manner of voting therein;

repeal any by-laws or adopt new by-laws shall be considered owning

as

or

revoked

whenever

representing

a

stockholders

majority

of

the

outstanding capital stock or a majority of the

4. The form for proxies of stockholders and

members in non-stock corporations, shall so vote at

members and the manner of voting them;

a regular or special meeting.

5.

and

Whenever any amendment or new by-laws are

trustees,

adopted, such amendment or new by-laws shall be

The

qualifications,

compensation

of

directors

duties or

officers and employees;

attached to the original by-laws in the office of the corporation, and a copy thereof, duly certified

6. The time for holding the annual election

under oath by the corporate secretary and a

of directors of trustees and the mode or

majority of the directors or trustees, shall be filed

manner of giving notice thereof;

with the Securities and Exchange Commission the same to be attached to the original articles of

7. The manner of election or appointment

incorporation and original by-laws.

and the term of office of all officers other than directors or trustees;

The amended or new by-laws shall only be effective upon the issuance by the Securities and Exchange

8. The penalties for violation of the by-laws; 9. In the case of stock corporations, the

Commission of a certification that the same are not inconsistent with this Code. (22a and 23a)

manner of issuing stock certificates; and

TITLE VI MEETINGS

10. Such other matters as may be necessary for the proper or convenient transaction of

Sec. 49. Kinds of meetings. - Meetings of

its corporate business and affairs. (21a)

directors, trustees, stockholders, or members may be regular or special. (n)

Sec. 48. Amendments to by-laws. - The board of

Regular

and

special

meetings

of

directors or trustees, by a majority vote thereof,

Sec.

and the owners of at least a majority of the

stockholders or members. - Regular meetings of

50.

stockholders or members shall be held annually on

Notice of meetings shall be in writing, and the time

a date fixed in the by-laws, or if not so fixed, on

and place thereof stated therein.

any date in April of every year as determined by the board of directors or trustees: Provided, That

All proceedings had and any business transacted at

written notice of regular meetings shall be sent to

any meeting of the stockholders or members, if

all stockholders or members of record at least two

within the powers or authority of the corporation,

(2) weeks prior to the meeting, unless a different

shall be valid even if the meeting be improperly

period is required by the by-laws.

held or called, provided all the stockholders or members of the corporation are present or duly

Special meetings of stockholders or members shall

represented at the meeting. (24 and 25)

be held at any time deemed necessary or as provided in the by-laws: Provided, however, That at

Sec. 52. Quorum in meetings. - Unless otherwise

least one (1) week written notice shall be sent to all

provided for in this Code or in the by-laws, a

stockholders

quorum

or

members,

unless

otherwise

shall

consist

of

the

stockholders

representing a majority of the outstanding capital

provided in the by-laws.

stock or a majority of the members in the case of Notice of any meeting may be waived, expressly or

non-stock corporations. (n)

impliedly, by any stockholder or member. Sec.

53.

Regular

and

special

meetings

of

Whenever, for any cause, there is no person

directors or trustees. - Regular meetings of the

authorized to call a meeting, the Secretaries and

board of directors or trustees of every corporation

Exchange

shall be held monthly, unless the by-laws provide

Commission,

upon

petition

of

a

stockholder or member on a showing of good cause

therefor,

may

issue

an

order

to

otherwise.

the

petitioning stockholder or member directing him to

Special meetings of the board of directors or

call a meeting of the corporation by giving proper

trustees may be held at any time upon the call of

notice required by this Code or by the by-laws. The

the president or as provided in the by-laws.

petitioning stockholder or member shall preside thereat until at least a majority of the stockholders or members present have been chosen one of their number as presiding officer. (24, 26)

Meetings of directors or trustees of corporations may be held anywhere in or outside of the Philippines, unless the by-laws provide otherwise. Notice of regular or special meetings stating the

of

date, time and place of the meeting must be sent

stockholders or members. - Stockholders' or

to every director or trustee at least one (1) day

members' meetings, whether regular or special,

prior to the scheduled meeting, unless otherwise

shall be held in the city or municipality where the

provided by the by-laws. A director or trustee may

principal office of the corporation is located, and if

waive

practicable

impliedly. (n)

Sec.

51.

Place

in

and

the

time

principal

of

meetings

office

of

the

corporation: Provided, That Metro Manila shall, for purposes of this section, be considered a city or municipality.

this

requirement,

either

expressly

or

Sec. 54. Who shall preside at meetings. - The president shall preside at all meetings of the directors or trustee as well as of the stockholders

or members, unless the by-laws provide otherwise.

(n)

(n) Sec. 59. Voting trusts. - One or more stockholders Sec. 55. Right to vote of pledgors, mortgagors,

of a stock corporation may create a voting trust for

and administrators. - In case of pledged or

the purpose of conferring upon a trustee or

mortgaged

trustees

shares

in

stock

corporations,

the

the

right

to

vote

and

other

rights

pledgor or mortgagor shall have the right to attend

pertaining to the shares for a period not exceeding

and vote at meetings of stockholders, unless the

five (5) years at any time: Provided, That in the case

pledgee or mortgagee is expressly given by the

of a voting trust specifically required as a condition

pledgor or mortgagor such right in writing which is

in a loan agreement, said voting trust may be for a

recorded on the appropriate corporate books. (n)

period

exceeding

five

(5)

years

but

shall

automatically expire upon full payment of the loan. Executors, administrators, receivers, and other legal

A voting trust agreement must be in writing and

representatives duly appointed by the court may

notarized,

and

attend and vote in behalf of the stockholders or

conditions

thereof.

members without need of any written proxy. (27a)

agreement shall be filed with the corporation and

Sec. 56. Voting in case of joint ownership of

stock. - In case of shares of stock owned jointly by two or more persons, in order to vote the same, the consent of all the co-owners shall be necessary, unless there is a written proxy, signed by all the coowners, authorizing one or some of them or any other person to vote such share or shares: Provided, That when the shares are owned in an "and/or" capacity by the holders thereof, any one of the joint owners can vote said shares or appoint a proxy therefor. (n) Sec. 57. Voting right for treasury shares. Treasury shares shall have no voting right as long as such shares remain in the Treasury. (n) Sec. 58. Proxies. - Stockholders and members may vote in person or by proxy in all meetings of stockholders or members. Proxies shall in writing, signed by the stockholder or member and filed before the scheduled meeting with the corporate secretary. Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is intended. No proxy shall be valid and effective for a period longer than five (5) years at any one time.

shall A

specify

the

certified

terms

copy

of

and such

with the Securities and Exchange Commission; otherwise,

said

agreement

is

ineffective

and

unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be canceled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement. The trustee or trustees shall execute and deliver to the transferors voting trust certificates, which shall be transferable in the same manner and with the same effect as certificates of stock. The

voting

trust

agreement

filed

with

the

corporation shall be subject to examination by any stockholder of the corporation in the same manner as any other corporate book or record: Provided, That both the transferor and the trustee or trustees may exercise the right of inspection of all corporate books

and

records

in

accordance

with

the

provisions of this Code. Any other stockholder may transfer his shares to

the same trustee or trustees upon the terms and

of incorporation to the Securities and Exchange

conditions stated in the voting trust agreement,

Commission. (n)

and thereupon shall be bound by all the provisions Sec. 62. Considering for stocks. - Stocks shall not

of said agreement.

be issued for a consideration less than the par or No voting trust agreement shall be entered into for

issued price thereof. Consideration for the issuance

the purpose of circumventing the law against

of stock may be any or a combination of any two

monopolies and illegal combinations in restraint of

or more of the following:

trade or used for purposes of fraud. 1. Actual cash paid to the corporation; Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at

2. Property, tangible or intangible, actually

the end of the agreed period, and the voting trust

received by the corporation and necessary

certificates as well as the certificates of stock in the

or

name of the trustee or trustees shall thereby be

purposes at a fair valuation equal to the

deemed canceled and new certificates of stock shall

par or issued value of the stock issued;

be reissued in the name of the transferors.

unless the agreement provides otherwise. (36a)

the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties refer to it as a purchase or some other contract. (n)

Pre-incorporation subscription. - A

subscription for shares of stock of a corporation still to be formed shall be irrevocable for a period of at least six (6) months from the date of subscription, unless all of the other subscribers the

revocation,

and

lawful

rendered to the corporation;

5. Amounts transferred from unrestricted

Sec. 60. Subscription contract. - Any contract for

to

use

corporation;

STOCKS AND STOCKHOLDERS

consent

its

4. Previously incurred indebtedness of the

TITLE VII

61.

for

3. Labor performed for or services actually

The voting trustee or trustees may vote by proxy

Sec.

convenient

or

unless

the

incorporation of said corporation fails to materialize within said period or within a longer period as may be stipulated in the contract of subscription: Provided, That no pre-incorporation subscription may be revoked after the submission of the articles

retained earnings to stated capital; and 6. Outstanding shares exchanged for stocks in

the

event

of

reclassification

or

conversion. Where the consideration is other than actual cash, or consists of intangible property such as patents of copyrights, the valuation thereof shall initially be determined by the incorporators or the board of directors, subject to approval by the Securities and Exchange Commission. Shares of stock shall not be issued in exchange for promissory notes or future service. The same considerations provided for in this section, insofar as they may be applicable, may be

used for the issuance of bonds by the corporation.

consenting

to

the

issuance

of

stocks

for

a

consideration less than its par or issued value or for The issued price of no-par value shares may be

a consideration in any form other than cash, valued

fixed in the articles of incorporation or by the

in

board of directors pursuant to authority conferred

knowledge thereof, does not forthwith express his

upon it by the articles of incorporation or the by-

objection in writing and file the same with the

laws, or in the absence thereof, by the stockholders

corporate secretary, shall be solidarily, liable with

representing at least a majority of the outstanding

the stockholder concerned to the corporation and

capital stock at a meeting duly called for the

its creditors for the difference between the fair

purpose. (5 and 16)

value received at the time of issuance of the stock

Sec. 63. Certificate of stock and transfer of

excess

of

its

fair

value,

or

who,

having

and the par or issued value of the same. (n)

shares. - The capital stock of stock corporations

Sec. 66. Interest on unpaid subscriptions. -

shall be divided into shares for which certificates

Subscribers for stock shall pay to the corporation

signed

president,

interest on all unpaid subscriptions from the date

assistant

of subscription, if so required by, and at the rate of

by

the

countersigned secretary,

president

by

and

the

sealed

or

vice

secretary with

or

the

seal

of

the

interest fixed in the by-laws. If no rate of interest is

corporation shall be issued in accordance with the

fixed in the by-laws, such rate shall be deemed to

by-laws. Shares of stock so issued are personal

be the legal rate. (37)

property and may be transferred by delivery of the certificate or certificates endorsed by the owner or

Sec. 67. Payment of balance of subscription. -

his

legally

Subject to the provisions of the contract of

authorized to make the transfer. No transfer,

subscription, the board of directors of any stock

however, shall be valid, except as between the

corporation may at any time declare due and

parties, until the transfer is recorded in the books

payable to the corporation unpaid subscriptions to

of the corporation showing the names of the

the capital stock and may collect the same or such

parties to the transaction, the date of the transfer,

percentage thereof, in either case with accrued

the number of the certificate or certificates and the

interest, if any, as it may deem necessary.

attorney-in-fact

or

other

person

number of shares transferred. Payment

of

any

unpaid

subscription

or

any

No shares of stock against which the corporation

percentage thereof, together with the interest

holds any unpaid claim shall be transferable in the

accrued, if any, shall be made on the date specified

books of the corporation. (35)

in the contract of subscription or on the date stated in the call made by the board. Failure to pay

Sec. 64. Issuance of stock certificates. - No

on such date shall render the entire balance due

certificate of stock shall be issued to a subscriber

and payable and shall make the stockholder liable

until the full amount of his subscription together

for interest at the legal rate on such balance, unless

with interest and expenses (in case of delinquent

a different rate of interest is provided in the by-

shares), if any is due, has been paid. (37)

laws, computed from such date until full payment.

Sec. 65. Liability of directors for watered stocks. -

Any

director

or

officer

of

a

corporation

If within thirty (30) days from the said date no payment is made, all stocks covered by said

subscription shall thereupon become delinquent

on the subscription together with accrued interest,

and shall be subject to sale as hereinafter provided,

costs of advertisement and expenses of sale, for the

unless the board of directors orders otherwise. (38)

smallest number of shares or fraction of a share, the corporation may, subject to the provisions of

Sec. 68. Delinquency sale. - The board of directors

this Code, bid for the same, and the total amount

may, by resolution, order the sale of delinquent

due shall be credited as paid in full in the books of

stock and shall specifically state the amount due on

the corporation. Title to all the shares of stock

each subscription plus all accrued interest, and the

covered by the subscription shall be vested in the

date, time and place of the sale which shall not be

corporation

less than thirty (30) days nor more than sixty (60)

disposed of by said corporation in accordance with

days from the date the stocks become delinquent.

the provisions of this Code.

Notice of said sale, with a copy of the resolution,

Sec. 69. When sale may be questioned. - No

shall be sent to every delinquent stockholder either

action to recover delinquent stock sold can be

personally or by registered mail. The same shall

sustained upon the ground of irregularity or defect

furthermore be published once a week for two (2)

in the notice of sale, or in the sale itself of the

consecutive weeks in a newspaper of general

delinquent stock, unless the party seeking to

circulation in the province or city where the

maintain such action first pays or tenders to the

principal office of the corporation is located.

party holding the stock the sum for which the same

Unless the delinquent stockholder pays to the corporation, on or before the date specified for the sale of the delinquent stock, the balance due on his subscription,

plus

accrued

interest,

costs

of

as

treasury

shares

and

may

be

was sold, with interest from the date of sale at the legal rate; and no such action shall be maintained unless it is commenced by the filing of a complaint within six (6) months from the date of sale. (47a)

advertisement and expenses of sale, or unless the

Sec.

board of directors otherwise orders, said delinquent

subscription. - Nothing in this Code shall prevent

stock shall be sold at public auction to such bidder

the corporation from collecting by action in a court

who shall offer to pay the full amount of the

of proper jurisdiction the amount due on any

balance on the subscription together with accrued

unpaid subscription, with accrued interest, costs

interest, costs of advertisement and expenses of

and expenses. (49a)

70.

Court

action

to

recover

unpaid

sale, for the smallest number of shares or fraction of a share. The stock so purchased shall be

Sec. 71. Effect of delinquency. - No delinquent

transferred to such purchaser in the books of the

stock shall be voted for be entitled to vote or to

corporation and a certificate for such stock shall be

representation at any stockholder's meeting, nor

issued in his favor. The remaining shares, if any,

shall the holder thereof be entitled to any of the

shall be credited in favor of the delinquent

rights

stockholder who shall likewise be entitled to the

dividends in accordance with the provisions of this

issuance of a certificate of stock covering such

Code, until and unless he pays the amount due on

shares.

his subscription with accrued interest, and the costs

of

a

stockholder

except

the

right

to

and expenses of advertisement, if any. (50a) Should there be no bidder at the public auction who offers to pay the full amount of the balance

Sec. 72. Rights of unpaid shares. - Holders of

subscribed shares not fully paid which are not

stock, the right to make such contest shall

delinquent shall have all the rights of a stockholder.

be barred and said corporation shall cancel

(n)

in its books the certificate of stock which has been lost, stolen or destroyed and issue

Sec. 73. Lost or destroyed certificates. - The

in lieu thereof new certificate of stock,

following procedure shall be followed for the

unless the registered owner files a bond or

issuance by a corporation of new certificates of

other security in lieu thereof as may be

stock in lieu of those which have been lost, stolen

required, effective for a period of one (1)

or destroyed:

year, for such amount and in such form and

1. The registered owner of a certificate of stock

in

a

corporation

or

his

legal

representative shall file with the corporation an affidavit in triplicate setting forth, if possible, the circumstances as to how the certificate was lost, stolen or destroyed, the number of shares represented by such certificate,

the

serial

number

of

the

certificate and the name of the corporation which issued the same. He shall also submit such other information and evidence which he may deem necessary;

information and evidence with the books of corporation,

said

the board of directors, in which case a new certificate may be issued even before the expiration of the one (1) year period provided herein: Provided, That if a contest has been presented to said corporation or if an action is pending in court regarding the ownership of said certificate of stock which has been lost, stolen or destroyed, the issuance of the new certificate of stock in lieu thereof shall be suspended until the final decision by the court regarding the ownership of said certificate of stock which

2. After verifying the affidavit and other the

with such sureties as may be satisfactory to

corporation

shall

publish a notice in a newspaper of general circulation published in the place where the corporation has its principal office, once a week for three (3) consecutive weeks at the expense of the registered owner of the

has been lost, stolen or destroyed. Except in case of fraud, bad faith, or negligence on the part of the corporation and its officers, no action may be brought against any corporation which shall have issued certificate of stock in lieu of those lost, stolen or destroyed pursuant to the procedure above-described. (R. A. 201a)

certificate of stock which has been lost,

TITLE VIII

stolen or destroyed. The notice shall state

CORPORATE BOOKS AND RECORDS

the name of said corporation, the name of the registered owner and the serial number

Sec. 74. Books to be kept; stock transfer agent. -

of said certificate, and the number of

Every corporation shall keep and carefully preserve

shares represented by such certificate, and

at its principal office a record of all business

that after the expiration of one (1) year

transactions

from the date of the last publication, if no

stockholders or members, or of the board of

contest

said

directors or trustees, in which shall be set forth in

corporation regarding said certificate of

detail the time and place of holding the meeting,

has

been

presented

to

and

minutes

of

all

meetings

of

how authorized, the notice given, whether the

corporation or of any other corporation, or was not

meeting was regular or special, if special its object,

acting in good faith or for a legitimate purpose in

those present and absent, and every act done or

making his demand.

ordered done at the meeting. Upon the demand of any director, trustee, stockholder or member, the

Stock corporations must also keep a book to be

time when any director, trustee, stockholder or

known as the "stock and transfer book", in which

member entered or left the meeting must be noted

must be kept a record of all stocks in the names of

in the minutes; and on a similar demand, the yeas

the

and nays must be taken on any motion or

installments paid and unpaid on all stock for which

proposition, and a record thereof carefully made.

subscription has been made, and the date of

The protest of any director, trustee, stockholder or

payment of any installment; a statement of every

member on any action or proposed action must be

alienation, sale or transfer of stock made, the date

recorded in full on his demand.

thereof, and by and to whom made; and such other

stockholders

alphabetically

arranged;

the

entries as the by-laws may prescribe. The stock and The records of all business transactions of the

transfer book shall be kept in the principal office of

corporation and the minutes of any meetings shall

the corporation or in the office of its stock transfer

be open to inspection by any director, trustee,

agent and shall be open for inspection by any

stockholder or member of the corporation at

director or stockholder of the corporation at

reasonable hours on business days and he may

reasonable hours on business days.

demand, writing, for a copy of excerpts from said records or minutes, at his expense.

No stock transfer agent or one engaged principally in the business of registering transfers of stocks in

Any officer or agent of the corporation who shall

behalf of a stock corporation shall be allowed to

refuse to allow any director, trustees, stockholder or

operate in the Philippines unless he secures a

member of the corporation to examine and copy

license

excerpts from its records or minutes, in accordance

Commission and pays a fee as may be fixed by the

with the provisions of this Code, shall be liable to

Commission, which shall be renewable annually:

such director, trustee, stockholder or member for

Provided, That a stock corporation is not precluded

damages, and in addition, shall be guilty of an

from performing or making transfer of its own

offense which shall be punishable under Section

stocks, in which case all the rules and regulations

144 of this Code: Provided, That if such refusal is

imposed on stock transfer agents, except the

made pursuant to a resolution or order of the

payment of a license fee herein provided, shall be

board of directors or trustees, the liability under

applicable. (51a and 32a; B. P. No. 268.)

from

the

Securities

and

Exchange

this section for such action shall be imposed upon the directors or trustees who voted for such refusal:

Sec. 75. Right to financial statements. - Within

and Provided, further, That it shall be a defense to

ten (10) days from receipt of a written request of

any action under this section that the person

any stockholder or member, the corporation shall

demanding to examine and copy excerpts from the

furnish to him its most recent financial statement,

corporation's records and minutes has improperly

which shall include a balance sheet as of the end of

used any information secured through any prior

the last taxable year and a profit or loss statement

examination of the records or minutes of such

for said taxable year, showing in reasonable detail

its assets and liabilities and the result of its

respect to the consolidated corporation in

operations.

case of consolidation, all the statements required to be set forth in the articles of

At

the

regular

meeting

of

stockholders

or

incorporation

members, the board of directors or trustees shall present

to

such

stockholders

or

members

for

corporations

organized

under this Code; and

a

financial report of the operations of the corporation

4. Such other provisions with respect to the

for the preceding year, which shall include financial

proposed merger or consolidation as are

statements,

deemed necessary or desirable. (n)

duly

signed

and

certified

by

an

independent certified public accountant. Sec. 77. Stockholder's or member's approval. However, if the paid-up capital of the corporation

Upon approval by majority vote of each of the

is less than P50,000.00, the financial statements

board of directors or trustees of the constituent

may be certified under oath by the treasurer or any

corporations

responsible officer of the corporation. (n)

consolidation, the same shall be submitted for of

MERGER AND CONSOLIDATION

may

merge

into

a

single

corporation which shall be one of the constituent corporations or may consolidate into a new single corporation

which

shall

be

the

consolidated

corporation. The

board

directors

or

of

merger

or

trustees

such

corporations

at

separate

corporate

such meetings shall be given to all stockholders or members of the respective corporations, at least two (2) weeks prior to the date of the meeting, either personally or by registered mail. Said notice shall state the purpose of the meeting and shall include a copy or a summary of the plan of merger or

of

plan

meetings duly called for the purpose. Notice of

Sec. 76. Plan or merger of consolidation. - Two or corporations

the

approval by the stockholders or members of each

TITLE IX

more

of

of

each

corporation, party to the merger or consolidation, shall approve a plan of merger or consolidation setting forth the following:

consolidation.

The

affirmative

vote

of

stockholders representing at least two-thirds (2/3) of

the

outstanding

capital

stock

of

each

corporation in the case of stock corporations or at least two-thirds (2/3) of the members in the case of non-stock corporations shall be necessary for the

1. The names of the corporations proposing

approval of such plan. Any dissenting stockholder

to merge or consolidate, hereinafter referred

in stock corporations may exercise his appraisal

to as the constituent corporations;

right in accordance with the Code: Provided, That if after the approval by the stockholders of such plan,

2. The terms of the merger or consolidation

the board of directors decides to abandon the plan,

and the mode of carrying the same into

the appraisal right shall be extinguished.

effect; Any

amendment

to

the

plan

of

merger

or

3. A statement of the changes, if any, in the

consolidation

articles of incorporation of the surviving

amendment is approved by majority vote of the

corporation in case of merger; and, with

respective boards of directors or trustees of all the

may

be

made,

provided

such

constituent

corporations

and

ratified

by

the

satisfied that the merger or consolidation of the

affirmative vote of stockholders representing at

corporations concerned is not inconsistent with the

least two-thirds (2/3) of the outstanding capital

provisions of this Code and existing laws, it shall

stock or of two-thirds (2/3) of the members of each

issue a certificate of merger or of consolidation, at

of the constituent corporations. Such plan, together

which time the merger or consolidation shall be

with any amendment, shall be considered as the

effective.

agreement of merger or consolidation. (n) If, upon investigation, the Securities and Exchange Sec. 78. Articles of merger or consolidation. -

Commission

After the approval by the stockholders or members

proposed merger or consolidation is contrary to or

as required by the preceding section, articles of

inconsistent with the provisions of this Code or

merger

be

existing laws, it shall set a hearing to give the

executed by each of the constituent corporations,

corporations concerned the opportunity to be

to be signed by the president or vice-president and

heard. Written notice of the date, time and place of

certified by the secretary or assistant secretary of

hearing

each corporation setting forth:

corporation at least two (2) weeks before said

or

articles

of

consolidation

shall

has

shall

reason

be

given

to

to

believe

each

that

the

constituent

hearing. The Commission shall thereafter proceed 1. The plan of the merger or the plan of

as provided in this Code. (n)

consolidation; Sec. 80. Effects or merger or consolidation. - The 2. As to stock corporations, the number of

merger or consolidation shall have the following

shares outstanding, or in the case of non-

effects:

stock corporations, the number of members; 1. The constituent corporations shall become a

and

single corporation which, in case of merger, shall 3. As to each corporation, the number of

be the surviving corporation designated in the plan

shares or members voting for and against

of merger; and, in case of consolidation, shall be

such plan, respectively. (n)

the consolidated corporation designated in the

Sec. 79. Effectivity of merger or consolidation. -

plan of consolidation;

The articles of merger or of consolidation, signed

2. The separate existence of the constituent

and certified as herein above required, shall be

corporations shall cease, except that of the

submitted

surviving or the consolidated corporation;

to

the

Securities

and

Exchange

Commission in quadruplicate for its approval: Provided,

That

in

the

case

of

merger

or

3.

The

surviving

or

the

consolidated

consolidation of banks or banking institutions,

corporation shall possess all the rights,

building and loan associations, trust companies,

privileges, immunities and powers and shall

insurance companies, public utilities, educational

be subject to all the duties and liabilities of a

institutions

corporation organized under this Code;

governed

and by

other special

special laws,

corporations the

favorable

recommendation of the appropriate government agency shall first be obtained. If the Commission is

4.

The

surviving

or

the

consolidated

corporation shall thereupon and thereafter

possess all the rights, privileges, immunities and franchises of each of the constituent

2. In case of sale, lease, exchange, transfer,

corporations;

or

mortgage, pledge or other disposition of all

on

or

personal,

and

and

all

all

property,

receivables

real due

of

the

corporate

property and assets as provided in the

shares and other choses in action, and all

Code; and 3. In case of merger or consolidation. (n)

or due to each constituent corporation, shall be deemed transferred to and vested in such surviving

or

consolidated

corporation

without further act or deed; and

be responsible and liable for all the liabilities and obligations of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligations; and any pending claim, action or proceeding brought by or against any of such constituent corporations may be prosecuted or

against

the

surviving

or

consolidated

corporation. The rights of creditors or liens upon property

of

any

of

Sec. 82. How right is exercised. - The appraisal right may be exercised by any stockholder who shall have voted against the proposed corporate

5. The surviving or consolidated corporation shall

the

all

whatever account, including subscriptions to and every other interest of, or belonging to,

by

substantially

such

constituent

corporations shall not be impaired by such merger or consolidation. (n)

action, by making a written demand on the corporation within thirty (30) days after the date on which the vote was taken for payment of the fair value of his shares: Provided, That failure to make the demand within such period shall be deemed a waiver of the appraisal right. If the proposed corporate action is implemented or affected, the corporation shall pay to such stockholder, upon surrender of the certificate or certificates of stock representing his shares, the fair value thereof as of the day prior to the date on which the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate action. If within a period of sixty (60) days from the date

TITLE X

the

APPRAISAL RIGHT

corporate

action

was

approved

by

the

stockholders, the withdrawing stockholder and the

Sec. 81. Instances of appraisal right. - Any

corporation cannot agree on the fair value of the

stockholder of a corporation shall have the right to

shares, it shall be determined and appraised by

dissent and demand payment of the fair value of

three (3) disinterested persons, one of whom shall

his shares in the following instances:

be named by the stockholder, another by the corporation, and the third by the two thus chosen.

1. In case any amendment to the articles of

The findings of the majority of the appraisers shall

incorporation has the effect of changing or

be final, and their award shall be paid by the

restricting the rights of any stockholder or

corporation within thirty (30) days after such award

class

is made: Provided, That no payment shall be made

of

shares,

or

of

authorizing

preferences in any respect superior to those

to

of outstanding shares of any class, or of

corporation has unrestricted retained earnings in its

extending

books to cover such payment: and Provided,

or

shortening

corporate existence;

the

term

of

any

dissenting

stockholder

unless

the

further, That upon payment by the corporation of

the agreed or awarded price, the stockholder shall

the latter. In the case of an action to recover such

forthwith transfer his shares to the corporation. (n)

fair value, all costs and expenses shall be assessed against the corporation, unless the refusal of the

Sec. 83. Effect of demand and termination of

stockholder to receive payment was unjustified. (n)

right. - From the time of demand for payment of Notation on certificates; rights of

the fair value of a stockholder's shares until either

Sec. 86.

the abandonment of the corporate action involved

transferee. - Within ten (10) days after demanding

or the purchase of the said shares by the

payment for his shares, a dissenting stockholder

corporation, all rights accruing to such shares,

shall submit the certificates of stock representing

including voting and dividend rights, shall be

his shares to the corporation for notation thereon

suspended in accordance with the provisions of this

that such shares are dissenting shares. His failure to

Code, except the right of such stockholder to

do so shall, at the option of the corporation,

receive payment of the fair value thereof: Provided,

terminate his rights under this Title. If shares

That if the dissenting stockholder is not paid the

represented

value of his shares within 30 days after the award,

notation

his voting and dividend rights shall immediately be

consequently canceled, the rights of the transferor

restored. (n)

as a dissenting stockholder under this Title shall

by

are

the

certificates

transferred,

and

bearing the

such

certificates

cease and the transferee shall have all the rights of Sec. 84. When right to payment ceases. - No

a regular stockholder; and all dividend distributions

demand for payment under this Title may be

which would have accrued on such shares shall be

withdrawn unless the corporation consents thereto.

paid to the transferee. (n)

If, however, such demand for payment is withdrawn with the consent of the corporation, or if the proposed

corporate

action

is

abandoned

TITLE XI

or

NON-STOCK CORPORATIONS

rescinded by the corporation or disapproved by the Securities and Exchange Commission where such

Sec. 87. Definition. - For the purposes of this

approval is necessary, or if the Securities and

Code, a non-stock corporation is one where no

Exchange

such

part of its income is distributable as dividends to its

stockholder is not entitled to the appraisal right,

members, trustees, or officers, subject to the

then the right of said stockholder to be paid the

provisions of this Code on dissolution: Provided,

fair value of his shares shall cease, his status as a

That any profit which a non-stock corporation may

stockholder shall thereupon be restored, and all

obtain as an incident to its operations shall,

dividend distributions which would have accrued on

whenever necessary or proper, be used for the

his shares shall be paid to him. (n)

furtherance of the purpose or purposes for which

Commission

determines

that

the corporation was organized, subject to the Sec. 85. Who bears costs of appraisal. - The costs

provisions of this Title.

and expenses of appraisal shall be borne by the corporation, unless the fair value ascertained by the

The provisions governing stock corporation, when

appraisers is approximately the same as the price

pertinent,

which the corporation may have offered to pay the

corporations, except as may be covered by specific

stockholder, in which case they shall be borne by

provisions of this Title. (n)

shall

be

applicable

to

non-stock

Sec. 88. Purposes. - Non-stock corporations may

property, unless otherwise provided in the articles

be formed or organized for charitable, religious,

of incorporation or the by-laws. (n)

educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes, like trade, industry, agricultural and like chambers, or any combination thereof, subject to the special provisions of this Title governing particular classes of non-stock corporations. (n)

Chapter II - 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 non-stock corporations, which may be more than fifteen (15) in number as may be fixed in their articles of

Chapter I - MEMBERS

incorporation

or

by-laws,

shall,

as

soon

as

Sec. 89. Right to vote. - The right of the members

organized, so classify themselves that the term of

of any class or classes to vote may be limited,

office of one-third (1/3) of their number shall expire

broadened or denied to the extent specified in the

every year; and subsequent elections of trustees

articles of incorporation or the by-laws. Unless so

comprising one-third (1/3) of the board of trustees

limited,

shall be held annually and trustees so elected shall

broadened

or

denied,

each

member,

regardless of class, shall be entitled to one vote.

have a term of three (3) years. Trustees thereafter elected to fill vacancies occurring before the

Unless

otherwise

provided

in

the

articles

of

incorporation or the by-laws, a member may vote

expiration of a particular term shall hold office only for the unexpired period.

by proxy in accordance with the provisions of this Code. (n)

No person shall be elected as trustee unless he is a member of the corporation.

Voting by mail or other similar means by members of non-stock corporations may be authorized by

Unless

otherwise

provided

in

the

articles

of

the by-laws of non-stock corporations with the

incorporation or the by-laws, officers of a non-

approval of, and under such conditions which may

stock corporation may be directly elected by the

be prescribed by, the Securities and Exchange

members. (n)

Commission. Sec. 93. Place of meetings. - The by-laws may Sec. 90. Non-transferability of membership. -

provide

Membership in a non-stock corporation and all

corporation may hold their regular or special

rights arising therefrom are personal and non-

meetings at any place even outside the place

transferable, unless the articles of incorporation or

where the principal office of the corporation is

the by-laws otherwise provide. (n)

located: Provided, That proper notice is sent to all

that

the

members

of

a

non-stock

members indicating the date, time and place of the Sec.

Termination

91.

of

membership.

-

Membership shall be terminated in the manner and for

the

causes

incorporation

or

provided the

in

by-laws.

the

articles

of

Termination

of

membership shall have the effect of extinguishing all rights of a member in the corporation or in its

meeting: and Provided, further, That the place of meeting shall be within the Philippines. (n) Chapter III - DISTRIBUTION OF ASSETS IN NON-STOCK CORPORATIONS

distribution; and Sec. 94. Rules of distribution. - In case dissolution of a non-stock corporation in accordance with the

5. In any other case, assets may be

provisions of this Code, its assets shall be applied

distributed

and distributed as follows:

organizations or corporations, whether or not

to

organized

such for

persons, profit,

as

societies, may

be

1. All liabilities and obligations of the

specified in a plan of distribution adopted

corporation shall be paid, satisfied and

pursuant to this Chapter. (n)

discharged, or adequate provision shall be Sec. 95. Plan of distribution of assets. - A plan

made therefore;

providing

for

the

distribution

of

assets,

not

2. Assets held by the corporation upon a

inconsistent with the provisions of this Title, may be

condition

adopted by a non-stock corporation in the process

requiring

return,

transfer

or

conveyance, and which condition occurs by

of dissolution in the following manner:

reason of the dissolution, shall be returned,

The board of trustees shall, by majority vote, adopt

transferred or conveyed in accordance with

a resolution recommending a plan of distribution

such requirements;

and directing the submission thereof to a vote at a

3.

Assets

received

corporation

and

subject

held to

by

the

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 pursuant to this Chapter; 4. 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

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. (n) TITLE XII CLOSE CORPORATIONS Sec. 96. Definition and applicability of Title. - A close corporation, within the meaning of this Code, is one whose articles of incorporation provide that: (1) 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); (2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this

Title; and (3) The corporation shall not list in any

shall be managed by the stockholders of the

stock exchange or make any public offering of any

corporation rather than by a board of directors. So

of its stock of any class. Notwithstanding the

long as this provision continues in effect:

foregoing, a corporation shall not be deemed a

1. No meeting of stockholders need be

close corporation when at least two-thirds (2/3) of

called to elect directors;

its voting stock or voting rights is owned or controlled by another corporation which is not a

2.

Unless

close corporation within the meaning of this Code.

otherwise, corporation

the

context

the

clearly

stockholders

shall

be

requires of

deemed

to

the be

Any corporation may be incorporated as a close

directors for the purpose of applying the

corporation, except mining or oil companies, stock

provisions of this Code; and

exchanges, banks, insurance companies, public utilities, educational institutions and corporations

3. The stockholders of the corporation shall

declared to be vested with public interest in

be subject to all liabilities of directors.

accordance with the provisions of this Code.

The articles of incorporation may likewise provide

The provisions of this Title shall primarily govern

that all officers or employees or that specified

close corporations: Provided, That the provisions of

officers or employees shall be elected or appointed

other Titles of this Code shall apply suppletorily

by the stockholders, instead of by the board of

except insofar as this Title otherwise provides.

directors.

Sec. 97. Articles of incorporation. - The articles of

Sec. 98. Validity of restrictions on transfer of

incorporation of a close corporation may provide:

shares. - Restrictions on the right to transfer shares must appear in the articles of incorporation and in

1. For a classification of shares or rights and

the by-laws as well as in the certificate of stock;

the qualifications for owning or holding the

otherwise, the same shall not be binding on any

same and restrictions on their transfers as

purchaser thereof in good faith. Said restrictions

may be stated therein, subject to the

shall not be more onerous than granting the

provisions of the following section;

existing stockholders or the corporation the option to

purchase

the

shares

of

the

transferring

2. For a classification of directors into one

stockholder with such reasonable terms, conditions

or more classes, each of whom may be

or period stated therein. If upon the expiration of

voted for and elected solely by a particular

said period, the existing stockholders or the

class of stock; and

corporation fails to exercise the option to purchase,

3.

For

a

greater

quorum

or

voting

requirements in meetings of stockholders

the transferring stockholder may sell his shares to any third person.

or directors than those provided in this

Sec. 99. Effects of issuance or transfer of stock in

Code.

breach of qualifying conditions. -

The articles of incorporation of a close corporation

1. If stock of a close corporation is issued

may provide that the business of the corporation

or transferred to any person who is not

entitled under any provision of the articles

hold stock of the corporation, or (c) that

of incorporation to be a holder of record of

the transfer of stock is in violation of a

its stock, and if the certificate for such stock

restriction

conspicuously shows the qualifications of

corporation may, at its option, refuse to

the persons entitled to be holders of record

register the transfer of stock in the name of

thereof,

the transferee.

such

person

is

conclusively

on

transfer

of

stock,

the

presumed to have notice of the fact of his 5. The provisions of subsection (4) shall not

ineligibility to be a stockholder.

applicable if the transfer of stock, though 2. If the articles of incorporation of a close

contrary to subsections (1), (2) of (3), has

corporation states the number of persons,

been consented to by all the stockholders

not exceeding twenty (20), who are entitled

of the close corporation, or if the close

to be holders of record of its stock, and if

corporation has amended its articles of

the certificate for such stock conspicuously

incorporation in accordance with this Title.

states such number, and if the issuance or transfer of stock to any person would cause

6. The term "transfer", as used in this

the stock to be held by more than such

section, is not limited to a transfer for

number of persons, the person to whom

value.

such stock is issued or transferred is conclusively presumed to have notice of this fact.

7. The provisions of this section shall not impair any right which the transferee may have to rescind the transfer or to recover

3. If a stock certificate of any close

under any applicable warranty, express or

corporation

implied.

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.

Sec. 100. Agreements by stockholders. 1. 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

4. Whenever any person to whom stock of

continue to be valid and binding between

a close corporation has been issued or

and among such stockholders, if such be

transferred has, or is conclusively presumed

their

under this section to have, notice either (a)

agreements are not inconsistent with the

that he is a person not eligible to be a

articles of incorporation, irrespective of

holder of stock of the corporation, or (b)

where the provisions of such agreements

that transfer of stock to him would cause

are contained, except those required by this

the stock of the corporation to be held by

Title to be embodied in said articles of

more

incorporation.

than

the

number

of

persons

permitted by its articles of incorporation to

intent,

to

the

extent

that

such

2. An agreement between two or more

stockholders, if in writing and signed by the

1. Before or after such action is taken,

parties

written consent thereto is signed by all the

thereto,

may

provide

that

in

exercising any voting rights, the shares held

directors; or

by them shall be voted as therein provided, or as they may agree, or as determined in

2. All the stockholders have actual or

accordance with a procedure agreed upon

implied knowledge of the action and make

by them.

no prompt objection thereto in writing; or

3. No provision in any written agreement

3. The directors are accustomed to take

signed by the stockholders, relating to any

informal action with the express or implied

phase of the corporate affairs, shall be

acquiescence of all the stockholders; or

invalidated as between the parties on the

4. All the directors have express or implied

ground that its effect is to make them

knowledge of the action in question and

partners among themselves.

none of them makes prompt objection thereto in writing.

4. 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 conduct of the business and affairs of the corporation 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.

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 other and among themselves. Said stockholders shall be personally liable for corporate torts the

corporation

has

obtained

reasonably adequate liability insurance. 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:

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. Sec. 102. Pre-emptive right in close corporations. - The pre-emptive right of stockholders in close corporations shall extend to all stock to be issued,

5. To the extent that the stockholders are

unless

If a director's meeting is held without proper call or

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 twothirds (2/3) of the outstanding capital stock, whether with or without voting rights, or of such

greater proportion of shares as may be specifically

corporation, and whose further qualifications, if any,

provided

for

may

the

provisional director is not a receiver of the

aforesaid provisions, at a meeting duly called for

corporation and does not have the title and powers

the purpose.

of a custodian or receiver. A provisional director

in

amending,

the

articles

deleting

or

of

incorporation

removing

any

of

be

determined

by

the

Commission.

A

shall have all the rights and powers of a duly Sec.

104.

Deadlocks.

any

elected director of the corporation, including the

contrary provision in the articles of incorporation or

right to notice of and to vote at meetings of

by-laws or agreement of stockholders of a close

directors, until such time as he shall be removed by

corporation, if the directors or stockholders are so

order of the Commission or by all the stockholders.

divided

His

respecting

the

-

Notwithstanding

management

of

the

compensation

shall

be

determined

by

corporation's business and affairs that the votes

agreement

required for any corporate action cannot be

subject to approval of the Commission, which may

obtained, with the consequence that the business

fix his compensation in the absence of agreement

and affairs of the corporation can no longer be

or in the event of disagreement between the

conducted to the advantage of the stockholders

provisional director and the corporation.

between him and the corporation

generally, the Securities and Exchange Commission,

of

stockholder

or

Sec.

the power to arbitrate the dispute. In the exercise

dissolution of corporation. - In addition and

of such power, the Commission shall have authority

without prejudice to other rights and remedies

to make such order as it deems appropriate,

available to a stockholder under this Title, any

including an order: (1) canceling or altering any

stockholder of a close corporation may, for any

provision contained in the articles of incorporation,

reason, compel the said corporation to purchase his

by-laws,

shares at their fair value, which shall not be less

or

any

stockholder's

agreement;

(2)

105.

Withdrawal

upon written petition by any stockholder, shall have

canceling, altering or enjoining any resolution or

than

act of the corporation or its board of directors,

corporation has sufficient assets in its books to

stockholders, or officers; (3) directing or prohibiting

cover its debts and liabilities exclusive of capital

any act of the corporation or its board of directors,

stock: Provided, That any stockholder of a close

stockholders, officers, or other persons party to the

corporation

action; (4) requiring the purchase at their fair value

Securities and Exchange Commission, compel the

of shares of any stockholder, either by

the

dissolution of such corporation whenever any of

of

acts of the directors, officers or those in control of

corporation

regardless

of

the

availability

their

par

may,

by

is

issued

value,

written

illegal,

when

petition

or

to

the

the

unrestricted retained earnings in its books, or by

the

the other stockholders; (5) appointing a provisional

dishonest, or oppressive or unfairly prejudicial to

director; (6) dissolving the corporation; or (7)

the corporation or any stockholder, or whenever

granting such other relief as the circumstances may

corporate assets are being misapplied or wasted.

warrant.

corporation

or

fraudulent,

TITLE XIII

A provisional director shall be an impartial person

SPECIAL CORPORATIONS

who is neither a stockholder nor a creditor of the

Chapter I - Educational Corporations

corporation or of any subsidiary or affiliate of the

or

or more persons. Such corporations may be Sec. 106. Incorporation. - Educational corporations

classified into

shall be governed by special laws and by the

societies.

corporations

sole and

religious

general provisions of this Code. (n) Religious corporations shall be governed by this Sec. 107. Pre-requisites to incorporation. - Except

Chapter and by the general provisions on non-

upon favorable recommendation of the Ministry of

stock

Education and Culture, the Securities and Exchange

applicable. (n)

corporations

insofar

as

they

may

be

Commission shall not accept or approve the articles of incorporation and by-laws of any educational

Sec. 110. Corporation sole. - For the purpose of

institution. (168a)

administering and managing, as trustee, the affairs, property

and

temporalities

of

any

religious

Board of trustees. - Trustees of

denomination, sect or church, a corporation sole

educational institutions organized as non-stock

may be formed by the chief archbishop, bishop,

corporations shall not be less than five (5) nor

priest, minister, rabbi or other presiding elder of

more than fifteen (15): Provided, however, That the

such religious denomination, sect or church. (154a)

Sec.

108.

number of trustees shall be in multiples of five (5). Sec. 111. Articles of incorporation. - In order to Unless

otherwise

of

become a corporation sole, the chief archbishop,

incorporation on the by-laws, the board of trustees

bishop, priest, minister, rabbi or presiding elder of

of

other

any religious denomination, sect or church must file

institutions of learning shall, as soon as organized,

with the Securities and Exchange Commission

so classify themselves that the term of office of

articles of incorporation setting forth the following:

incorporated

provided schools,

in

the

colleges,

articles or

one-fifth (1/5) of their number shall expire every year. Trustees thereafter elected to fill vacancies,

1. That he is the chief archbishop, bishop,

occurring before the expiration of a particular term,

priest, minister, rabbi or presiding elder of

shall hold office only for the unexpired period.

his religious denomination, sect or church

Trustees elected thereafter to fill vacancies caused

and

by expiration of term shall hold office for five (5)

corporation sole;

that

he

desires

to

become

a

years. A majority of the trustees shall constitute a quorum for the transaction of business. The powers

2. That the rules, regulations and discipline

and authority of trustees shall be defined in the by-

of his

religious

laws.

church

are

not

denomination, sect inconsistent

with

or his

becoming a corporation sole and do not For institutions organized as stock corporations, the

forbid it;

number and term of directors shall be governed by the provisions on stock corporations. (169a)

3. That as such chief archbishop, bishop, priest, minister, rabbi or presiding elder, he

Chapter II - RELIGIOUS CORPORATIONS Sec. 109. Classes of religious corporations. Religious corporations may be incorporated by one

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;

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

4. The manner in which any vacancy

church,

including

hospitals,

schools,

occurring in the office of chief archbishop,

orphan

asylums,

parsonages

and

bishop, priest, minister, rabbi of presiding

thereof. (n)

colleges, cemeteries

elder is required to be filled, according to the rules, regulations or discipline of the

Sec. 113. Acquisition and alienation of property.

religious denomination, sect or church to

- Any corporation sole may purchase and hold real

which he belongs; and

estate

and

personal

property

for

its

church,

charitable, benevolent or educational purposes, and 5. The place where the principal office of

may receive bequests or gifts for such purposes.

the corporation sole is to be established

Such

and located, which place must be within

property held by it by obtaining an order for that

the Philippines.

purpose from the Court of First Instance of the

The articles of incorporation may include any other provision not contrary to law for the regulation of the affairs of the corporation. (n) Sec.

112.

Submission

of

the

articles

of

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 by

a

copy

of

may

sell or mortgage

real

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

incorporation. - The articles of incorporation must

accompanied

corporation

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.

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

From and after the filing with the Securities and

religious denomination, sect or church, religious

Exchange Commission of the said articles of

society or order concerned represented by such

incorporation, verified by affidavit or affirmation,

corporation sole regulate the method of acquiring,

and accompanied by the documents mentioned in

holding, selling and mortgaging real estate and

the preceding paragraph, such chief archbishop,

personal property, such rules, regulations and

bishop, priest, minister, rabbi or presiding elder

discipline shall control, and the intervention of the

shall

courts shall not be necessary. (159a)

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

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

corporation shall cease to carry on its operations

accession to office and shall be permitted to

except for the purpose of winding up its affairs. (n)

transact business as such on the filing with the Securities and Exchange Commission of a copy of

Sec. 116. Religious societies. - Any religious

their commission, certificate of election, or letters

society or religious order, or any diocese, synod, or

of appointment, duly certified by any notary public.

district organization of any religious denomination, sect or church, unless forbidden by the constitution,

During

any

archbishop,

vacancy bishop,

in priest,

the

office

minister,

of

chief

rabbi

rules, regulations, or discipline of the religious

or

denomination, sect or church of which it is a part,

presiding elder of any religious denomination, sect

or by competent authority, may, upon written

or church incorporated as a corporation sole, the

consent and/or by an affirmative vote at a meeting

person or persons authorized and empowered by

called for the purpose of at least two-thirds (2/3) of

the rules, regulations or discipline of the religious

its membership, incorporate for the administration

denomination, sect or church represented by the

of its temporalities or for the management of its

corporation sole to administer the temporalities

affairs, properties and estate by filing with the

and manage the affairs, estate and properties of

Securities and Exchange Commission, articles of

the corporation sole during the vacancy shall

incorporation verified by the affidavit of the

exercise all the powers and authority of the

presiding elder, secretary, or clerk or other member

corporation sole during such vacancy. (158a)

of such religious society or religious order, or diocese, synod, or district organization of the

Sec. 115. Dissolution. - A corporation sole may be

religious denomination, sect or church, setting forth

dissolved and its affairs settled voluntarily by

the following:

submitting

to

the

Securities

and

Exchange

Commission a verified declaration of dissolution.

1. That the religious society or religious order, or diocese, synod, or district organization is a religious

The declaration of dissolution shall set forth: 1. The name of the corporation; 2. The reason for dissolution and winding up; 3. The authorization for the dissolution of the corporation by the particular religious denomination, sect or church; 4. The names and addresses of the persons who are to supervise the winding up of the affairs of the corporation.

organization of a religious denomination, sect or church; 2. 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; 3. 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

Upon approval of such declaration of dissolution by

denomination, sect, or church of which it

the Securities and Exchange Commission, the

forms a part;

4. That the religious society or religious

the place where the principal office of said

order,

district

corporation is located; and if no newspaper is

organization desires to incorporate for the

published in such place, then in a newspaper of

administration of its affairs, properties and

general circulation in the Philippines, after sending

estate;

such notice to each stockholder or member either

or

diocese,

synod,

or

by registered mail or by personal delivery at least 5. The place where the principal office of the

thirty (30) days prior to said meeting. A copy of the

corporation is to be established and located,

resolution authorizing the dissolution shall be

which place must be within the Philippines;

certified by a majority of the board of directors or

and

trustees and countersigned by the secretary of the

6. The names, nationalities, and residences of the trustees elected by the religious society or religious order, or the diocese, synod, or district organization

corporation.

The

Securities

and

Exchange

Commission shall thereupon issue the certificate of dissolution. (62a)

to serve for the first year or such other period as

Sec. 119. Voluntary dissolution where creditors

may be prescribed by the laws of the religious

are affected. - Where the dissolution of a

society or religious order, or of the diocese, synod,

corporation

or district organization, the board of trustees to be

creditor, the petition for dissolution shall be filed

not less than five (5) nor more than fifteen (15).

with the Securities and Exchange Commission. The

(160a)

petition shall be signed by a majority of its board

rights of any

of directors or trustees or other officers having the

TITLE XIV

management of its affairs, verified by its president

DISSOLUTION

or secretary or one of its directors or trustees, and

Sec. 117. Methods of dissolution. - A corporation formed or organized under the provisions of this Code may be dissolved voluntarily or involuntarily. (n) Sec.

may prejudice the

shall set forth all claims and demands against it, and that its dissolution was resolved upon by the affirmative vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the

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

members at a meeting of its stockholders or members called for that purpose. If the petition is sufficient in form and substance, the Commission shall, by an order reciting the purpose of the petition, fix a date on or before which objections thereto may be filed by any person, which date shall not be less than thirty (30) days nor more than sixty (60) days after the entry of the order. Before such date, a copy of the order shall be published at least once a week for three (3) consecutive weeks in a newspaper of general circulation published in the municipality or city

where the principal office of the corporation is

or whose corporate existence for other purposes is

situated, or if there be no such newspaper, then in

terminated in any other manner, shall nevertheless

a

the

be continued as a body corporate for three (3)

Philippines, and a similar copy shall be posted for

years after the time when it would have been so

three (3) consecutive weeks in three (3) public

dissolved, for the purpose of prosecuting and

places in such municipality or city.

defending suits by or against it and enabling it to

newspaper

of

general

circulation

in

settle and close its affairs, to dispose of and convey Upon five (5) day's notice, given after the date on

its property and to distribute its assets, but not for

which the right to file objections as fixed in the

the purpose of continuing the business for which it

order has expired, the Commission shall proceed to

was established.

hear the petition and try any issue made by the objections filed; and if no such objection is

At any time during said three (3) years, the

sufficient, and the material allegations of the

corporation

petition are true, it shall render judgment dissolving

convey all of its property to trustees for the benefit

the corporation and directing such disposition of its

of stockholders, members, creditors, and other

assets as justice requires, and may appoint a

persons in interest. From and after any such

receiver to collect such assets and pay the debts of

conveyance by the corporation of its property in

the corporation. (Rule 104, RCa)

trust for the benefit of its stockholders, members,

is

authorized

and

empowered

to

creditors and others in interest, all interest which Sec. 120. Dissolution by shortening corporate

the corporation had in the property terminates, the

term. - A voluntary dissolution may be effected by

legal interest vests in the trustees, and the

amending the articles of incorporation to shorten

beneficial interest in the stockholders, members,

the corporate term pursuant to the provisions of

creditors or other persons in interest.

this Code. A copy of the amended articles of incorporation shall be submitted to the Securities

Upon the winding up of the corporate affairs, any

and Exchange Commission in accordance with this

asset distributable to any creditor or stockholder or

Code. Upon approval of the amended articles of

member who is unknown or cannot be found shall

incorporation of the expiration of the shortened

be escheated to the city or municipality where such

term, as the case may be, the corporation shall be

assets are located.

deemed dissolved without any further proceedings, subject

to

the

provisions

of

this

Code

on

Except

by

decrease of

capital stock and as

otherwise allowed by this Code, no corporation

liquidation. (n)

shall distribute any of its assets or property except Sec. 121. Involuntary dissolution. - A corporation

upon lawful dissolution and after payment of all its

may be dissolved by the Securities and Exchange

debts and liabilities. (77a, 89a, 16a)

Commission upon filing of a verified complaint and

TITLE XV

after proper notice and hearing on the grounds

FOREIGN CORPORATIONS

provided by existing laws, rules and regulations. (n) Sec.

122.

Corporate

liquidation.

-

Every

corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise,

Sec.

123.

Definition and rights

of

foreign

corporations. - For the purposes of this Code, a foreign corporation is one formed, organized or

existing under any laws other than those of the

4. The place in the Philippines where the

Philippines and whose laws allow Filipino citizens

corporation intends to operate;

and corporations to do business in its own country or state. It shall have the right to transact business

5. The specific purpose or purposes which

in the Philippines after it shall have obtained a

the corporation intends to pursue in the

license to transact business in this country in

transaction

accordance with this Code and a certificate of

Philippines: Provided, That said purpose or

authority from the appropriate government agency.

purposes are those specifically stated in the

(n)

certificate

of

of

its

business

authority

issued

in

by

the

the

appropriate government agency; Sec.

124.

Application

to

existing

foreign

corporations. - Every foreign corporation which on

6. The names and addresses of the present

the date of the effectivity of this Code is authorized

directors and officers of the corporation;

to do business in the Philippines under a license

7. A statement of its authorized capital

therefore issued to it, shall continue to have such

stock and the aggregate number of shares

authority under the terms and condition of its

which the corporation has authority to

license, subject to the provisions of this Code and

issue, itemized by classes, par value of

other special laws. (n)

shares, shares without par value, and series, if any;

Sec. 125. Application for a license. - A foreign corporation applying for a license to transact

8. A statement of its outstanding capital

business in the Philippines shall submit to the

stock and the aggregate number of shares

Securities and Exchange Commission a copy of its

which the corporation has issued, itemized

articles of incorporation and by-laws, certified in

by classes, par value of shares, shares

accordance with law, and their translation to an

without par value, and series, if any;

official language of the Philippines, if necessary. The application shall be under oath and, unless

9. A statement of the amount actually paid

already stated in its articles of incorporation, shall

in; and

specifically set forth the following:

10. Such additional information as may be

1. The date and term of incorporation;

necessary or appropriate in order to enable the Securities and Exchange Commission to

2. The address, including the street number,

determine whether such corporation is

of the principal office of the corporation in

entitled to a license to transact business in

the country or state of incorporation;

the Philippines, and to determine and assess the fees payable.

3. The name and address of its resident agent authorized to accept summons and process

in

all

legal

proceedings

and,

pending the establishment of a local office, all notices affecting the corporation;

Attached to the application for license shall be a duly

executed

certificate

under

oath

by

the

authorized official or officials of the jurisdiction of its incorporation, attesting to the fact that the laws

of the country or state of the applicant allow

as it retains its authority to act as a corporation

Filipino citizens and corporations to do business

under the laws of the country or state of its

therein, and that the applicant is an existing

incorporation,

corporation in good standing. If such certificate is

surrendered, revoked, suspended or annulled in

in a foreign language, a translation thereof in

accordance with this Code or other special laws.

unless

such

license

is

sooner

English under oath of the translator shall be Within sixty (60) days after the issuance of the

attached thereto.

license to transact business in the Philippines, the The application for a license to transact business in

license,

the Philippines shall likewise be accompanied by a

corporation, shall deposit with the Securities and

statement under oath of the president or any other

Exchange Commission for the benefit of present

person authorized by the corporation, showing to

and

the satisfaction of the Securities and Exchange

Philippines, securities satisfactory to the Securities

Commission and other governmental agency in the

and Exchange Commission, consisting of bonds or

proper cases that the applicant is solvent and in

other evidence of indebtedness of the Government

sound financial condition, and setting forth the

of the Philippines, its political subdivisions and

assets and liabilities of the corporation as of the

instrumentalities,

date not exceeding one (1) year immediately prior

controlled corporations and entities, shares of stock

to the filing of the application.

in "registered enterprises" as this term is defined in

except

future

foreign

creditors

or

of

of

banking

the

or

insurance

licensee

in

the

government-owned

or

Republic Act No. 5186, shares of stock in domestic Foreign

banking,

corporations requirements,

shall,

financial in

comply

and

addition with

the

to

insurance the

above

provisions

corporations registered in the stock exchange, or shares of stock in domestic insurance companies

of

and banks, or any combination of these kinds of

existing laws applicable to them. In the case of all

securities, with an actual market value of at least

other foreign corporations, no application for

one hundred thousand (P100,000.) pesos; Provided,

license to transact business in the Philippines shall

however, That within six (6) months after each fiscal

be accepted by the Securities and Exchange

year of the licensee, the Securities and Exchange

Commission without previous authority from the

Commission shall require the licensee to deposit

appropriate government agency, whenever required

additional securities equivalent in actual market

by law. (68a)

value to two (2%) percent of the amount by which

Sec. 126. Issuance of a license. - If the Securities and Exchange Commission is satisfied that the applicant has complied with all the requirements of this Code and other special laws, rules and regulations, the Commission shall issue a license to the applicant to transact business in the Philippines for the purpose or purposes specified in such license. Upon issuance of the license, such foreign corporation may commence to transact business in the Philippines and continue to do so for as long

the licensee's gross income for that fiscal year exceeds five million (P5,000,000.00) pesos. The Securities and Exchange Commission shall also require deposit of additional securities if the actual market value of the securities on deposit has decreased by at least ten (10%) percent of their actual

market

deposited.

value

The

at

the

Securities

time and

they

were

Exchange

Commission may at its discretion release part of the additional securities deposited with it if the gross income of the licensee has decreased, or if

the actual market value of the total securities on

likewise execute and file with the Securities and

deposit has increased, by more than ten (10%)

Exchange Commission an agreement or stipulation,

percent of the actual market value of the securities

executed

at the time they were deposited. The Securities and

corporation, in form and substance as follows:

by

the

proper

authorities

of

said

Exchange Commission may, from time to time, allow the licensee to substitute other securities for

"The (name of foreign corporation) does hereby

those already on deposit as long as the licensee is

stipulate and agree, in consideration of its being

solvent. Such licensee shall be entitled to collect

granted

the

securities

Commission a license to transact business in the

deposited. In the event the licensee ceases to do

Philippines, that if at any time said corporation shall

business in the Philippines, the securities deposited

cease to transact business in the Philippines, or

as aforesaid shall be returned, upon the licensee's

shall

application

therefor

the

Philippines on whom any summons or other legal

satisfaction

of

Exchange

processes may be served, then in any action or

interest

or

dividends

the

and

on

upon

Securities

the

proof and

to

by

be

the

without

Securities

any

resident

transaction which occurred in the Philippines,

the Republic of the Philippines. (n)

service of any summons or other legal process may the

any

Securities

business

the

Philippine residents, including the Government of

upon

of

in

proceeding

made

out

agent

Exchange

Commission that the licensee has no liability to

be

arising

and

and

or

Exchange

Sec. 127. Who may be a resident agent. - A

Commission and that such service shall have the

resident agent may be either an individual residing

same force and effect as if made upon the duly-

in the Philippines or a domestic corporation

authorized officers of the corporation at its home

lawfully transacting business in the Philippines:

office."

Provided, That in the case of an individual, he must be of good moral character and of sound financial

Whenever such service of summons or other

standing. (n)

process shall be made upon the Securities and Exchange Commission, the Commission shall, within

Sec. 128. Resident agent; service of process. -

ten (10) days thereafter, transmit by mail a copy of

The Securities and Exchange Commission shall

such summons or other legal process to the

require as a condition precedent to the issuance of

corporation at its home or principal office. The

the license to transact business in the Philippines

sending of such copy by the Commission shall be

by any foreign corporation that such corporation

necessary part of and shall complete such service.

file with the Securities and Exchange Commission a

All expenses incurred by the Commission for such

written power of attorney designating some person

service shall be paid in advance by the party at

who must be a resident of the Philippines, on

whose instance the service is made.

whom any summons and other legal processes may be served in all actions or other legal proceedings

In case of a change of address of the resident

against such corporation, and consenting that

agent, it shall be his or its duty to immediately

service upon such resident agent shall be admitted

notify in writing the Securities and Exchange

and held as valid as if served upon the duly

Commission of the new address. (72a; and n)

authorized officers of the foreign corporation at its home office. Any such foreign corporation shall

Sec.

129.

corporation

Law

applicable.

lawfully

doing

-

Any

business

foreign in

the

Philippines shall be bound by all laws, rules and

transact business in the Philippines may merge or

regulations applicable to domestic corporations of

consolidate with any domestic corporation or

the same class, except such only as provide for the

corporations if such is permitted under Philippine

creation, formation, organization or dissolution of

laws and by the law of its incorporation: Provided,

corporations or those which fix the relations,

That the requirements on merger or consolidation

liabilities, responsibilities, or duties of stockholders,

as provided in this Code are followed.

members, or officers of corporations to each other Whenever a foreign corporation authorized to

or to the corporation. (73a)

transact business in the Philippines shall be a party

of

to a merger or consolidation in its home country or

incorporation or by-laws of foreign corporations.

state as permitted by the law of its incorporation,

- Whenever the articles of incorporation or by-laws

such foreign corporation shall, within sixty (60) days

of a foreign corporation authorized to transact

after

business in the Philippines are amended, such

effective, file with the Securities and Exchange

foreign corporation shall, within sixty (60) days after

Commission,

the amendment becomes effective, file with the

appropriate government agency, a copy of the

Securities and Exchange Commission, and in the

articles

proper cases with the appropriate government

authenticated by the proper official or officials of

agency, a duly authenticated copy of the articles of

the country or state under the laws of which

incorporation or by-laws, as amended, indicating

merger or consolidation was effected: Provided,

clearly in capital letters or by underscoring the

however, That if the absorbed corporation is the

change or changes made, duly certified by the

foreign

authorized official or officials of the country or

Philippines, the latter shall at the same time file a

state of incorporation. The filing thereof shall not of

petition for withdrawal of it license in accordance

itself enlarge or alter the purpose or purposes for

with this Title. (n)

Sec.

130.

Amendments

to

articles

such

of

merger and

or in

merger

corporation

consolidation proper or

doing

becomes

cases

with

consolidation

business

in

the duly

the

which such corporation is authorized to transact Sec. 133. Doing business without a license. - No

business in the Philippines. (n)

foreign corporation transacting business in the Sec.

131.

Amended

license.

-

A

foreign

Philippines without a license, or its successors or

corporation authorized to transact business in the

assigns, shall be permitted to maintain or intervene

Philippines shall obtain an amended license in the

in any action, suit or proceeding in any court or

event it changes its corporate name, or desires to

administrative agency of the Philippines; but such

pursue in the Philippines other or additional

corporation may be sued or proceeded against

purposes, by submitting an application therefor to

before Philippine courts or administrative tribunals

the Securities and Exchange Commission, favorably

on any valid cause of action recognized under

endorsed by the appropriate government agency in

Philippine laws. (69a)

the proper cases. (n) Sec.

134.

Revocation of license.

-

Without

Sec. 132. Merger or consolidation involving a

prejudice to other grounds provided by special

foreign corporation licensed in the Philippines. -

laws, the license of a foreign corporation to

One or more foreign corporations authorized to

transact business in the Philippines may be revoked

or

or suspended by the Securities and Exchange Commission upon any of the following grounds:

9. Any other ground as would render it 1. Failure to file its annual report or pay any

unfit to transact business in the Philippines.

fees as required by this Code;

(n)

2. Failure to appoint resident

agent

in

and maintain a

the

Philippines

as

required by this Title;

Sec. 135. Issuance of certificate of revocation. Upon the revocation of any such license to transact business in the Philippines, the Securities and Exchange Commission shall issue a corresponding

3. Failure, after change of its resident agent

certificate of revocation, furnishing a copy thereof

or of his

to the appropriate government agency in the

Securities

address, to

submit

to

the

and Exchange Commission a

proper cases.

statement of such change as required by this Title;

The Securities and Exchange Commission shall also mail to the corporation at its registered office in

4. Failure to submit to the Securities and

the

Exchange

accompanied by a copy of the certificate of

Commission

an

authenticated

copy of any amendment to its articles of

Philippines

a

notice

of

such

revocation

revocation. (n)

incorporation or by-laws or of any articles of merger or consolidation within the time

Sec. 136. Withdrawal of foreign corporations. -

prescribed by this Title;

Subject to existing laws and regulations, a foreign corporation licensed to transact business in the

5. A misrepresentation of any material

Philippines may be allowed to withdraw from the

matter in any application, report, affidavit

Philippines by filing a petition for withdrawal of

or other document submitted by such

license. No certificate of withdrawal shall be issued

corporation pursuant to this Title;

by the Securities and Exchange Commission unless

6. Failure to pay any and all taxes, imposts,

all the following requirements are met;

assessments or penalties, if any, lawfully

1. All claims which have accrued in the Philippines

due to the Philippine Government or any of

have been paid, compromised or settled;

its agencies or political subdivisions; 2. All taxes, imposts, assessments, and penalties, if 7. Transacting business in the Philippines

any, lawfully due to the Philippine Government or

outside of the purpose or purposes for

any of its agencies or political subdivisions have

which such corporation is authorized under

been paid; and

its license; 3. The petition for withdrawal of license has been 8. Transacting business in the Philippines as

published once a week for three (3) consecutive

agent of or acting for and in behalf of any

weeks in a newspaper of general circulation in the

foreign corporation or entity not duly

Philippines.

licensed to do business in the Philippines;

TITLE XVI

related to each other by consanguinity or affinity or

MISCELLANEOUS PROVISIONS

by close business interests, or whenever it is necessary to achieve national objectives, prevent

Sec. 137. Outstanding capital stock defined. - The

illegal monopolies or combinations in restraint or

term "outstanding capital stock", as used in this

trade, or to implement national economic policies

Code, means the total shares of stock issued under

declared in laws, rules and regulations designed to

binding subscription agreements to subscribers or

promote the general welfare and foster economic

stockholders, whether or not fully or partially paid,

development.

except treasury shares. (n) In recommending

to

the

Batasang

Pambansa

Sec. 138. Designation of governing boards. - The

corporations, business or industries to be declared

provisions of specific provisions of this Code to the

vested with a public interest and in formulating

contrary

proposals for limitations on stock ownership, the

notwithstanding,

corporations

may,

non-stock

through

or

their

special

articles

of

National Economic and Development Authority

incorporation or their by-laws, designate their

shall consider the type and nature of the industry,

governing boards by any name other than as board

the size of the enterprise, the economies of scale,

of trustees. (n)

the geographic location, the extent of Filipino

Sec. 139. Incorporation and other fees. - The Securities and Exchange Commission is hereby authorized to collect and receive fees as authorized by law or by rules and regulations promulgated by the Commission. (n) Sec.

ownership

in

certain

corporations. - Pursuant to the duties specified by Article

XIV

of

the

Constitution,

the

National

Economic and Development Authority shall, from time to time, make a determination of whether the corporate vehicle has been used by any corporation or

by

business

or

industry

to

frustrate

the

provisions thereof or of applicable laws, and shall submit

to

deemed

the

Batasang

necessary,

a

Pambansa,

report

of

its

whenever findings,

including recommendations for their prevention or correction. Maximum limits may be set by the Batasang Pambansa

for

stockholdings

in

corporations

declared by it to be vested with a public interest pursuant

to

the

export potential, as well as other factors which are germane to the realization and promotion of business and industry. Sec. 141. Annual report or corporations. - Every

Stock

140.

ownership, the labor intensity of the activity, the

provisions

of

this

section,

belonging to individuals or groups of individuals

corporation, domestic or foreign, lawfully doing business in the Philippines shall submit to the Securities and Exchange Commission an annual report of its operations, together with a financial statement of its assets and liabilities, certified by any independent certified public accountant in appropriate cases, covering the preceding fiscal year and such other requirements as the Securities and Exchange Commission may require. Such report shall be submitted within such period as may be prescribed by the Securities and Exchange Commission. (n) Sec. 142. Confidential nature of examination

results. - All interrogatories propounded by the Securities and Exchange Commission and the answers thereto, as well as the results of any examination made by the Commission or by any

other official authorized by law to make an

stockholders,

examination of the operations, books and records

officers, nor any liability incurred by any such

of

corporation,

any

corporation,

shall

be

kept

strictly

members,

directors,

stockholders,

trustees,

members,

or

directors,

confidential, except insofar as the law may require

trustees, or officers, shall be removed or impaired

the same to be made public or where such

either by the subsequent dissolution of said

interrogatories, answers or results are necessary to

corporation or by any subsequent amendment or

be presented as evidence before any court. (n)

repeal of this Code or of any part thereof. (n)

Sec. 143. Rule-making power of the Securities

Sec. 146. Repealing clause. - Except as expressly

and Exchange Commission. - The Securities and

provided by this Code, all laws or parts thereof

Exchange Commission shall have the power and

inconsistent with any provision of this Code shall

authority to implement the provisions of this Code,

be deemed repealed. (n)

and to promulgate rules and regulations reasonably necessary to enable it to perform its duties

Sec. 147. Separability of provisions. - Should any

hereunder, particularly in the prevention of fraud

provision of this Code or any part thereof be

and

declared invalid or unconstitutional, the other

abuses

stockholders,

on

the

part

members,

of

the

directors,

controlling trustees

or

provisions, so far as they are separable, shall

officers. (n)

remain in force. (n)

Sec. 144. Violations of the Code. - Violations of

Sec. 148. Applicability to existing corporations. -

any

All

of

the

provisions

of

this

Code

or

its

corporations

lawfully

existing

and

doing

amendments not otherwise specifically penalized

business in the Philippines on the date of the

therein shall be punished by a fine of not less than

effectivity of this Code and heretofore authorized,

one thousand (P1,000.00) pesos but not more than

licensed

ten

by

Exchange Commission, shall be deemed to have

imprisonment for not less than thirty (30) days but

been authorized, licensed or registered under the

not more than five (5) years, or both, in the

provisions of this Code, subject to the terms and

discretion of the court. If the violation is committed

conditions of its license, and shall be governed by

by a corporation, the same may, after notice and

the provisions hereof: Provided, That if any such

hearing, be dissolved in appropriate proceedings

corporation is affected by the new requirements of

before the Securities and Exchange Commission:

this Code, said corporation shall, unless otherwise

Provided, That such dissolution shall not preclude

herein provided, be given a period of not more

the institution of appropriate action against the

than two (2) years from the effectivity of this Code

director, trustee or officer of the corporation

within which to comply with the same. (n)

thousand

(P10,000.00)

pesos

or

responsible for said violation: Provided, further, That nothing in this section shall be construed to repeal the other causes for dissolution of a corporation provided in this Code. (190 1/2 a) Sec. 145. Amendment or repeal. - No right or remedy in favor of or against any corporation, its

or

registered

by

the

Securities

and

Sec. 149. Effectivity. - This Code shall take effect immediately upon its approval.