Forms of business organization
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The slides discusses the corporation as a business organization under the Philippine laws. It includes some general provisions until its dissolution

The slides discusses the corporation as a business organization under the Philippine laws. It includes some general provisions until its dissolution

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  • A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. The law governing private corporations in the Philippines is embodied in Batas PambansaBilang 68 which took effect on the date of its approval on May 1, 1980. It supplants Republic Act 1459, as amended, popularly known as the Corporation Law, which was enacted on March 1, 1906 by the Philippine Commission, the then legislative body of the Philippines during the American regime. Republic Act 1459 took effect on April 1, 1906.  Batas PambansaBilang 68 otherwise known as the Corporation Code of the Philippines seek to establish a new concept of business corporations so that they are not merely entities established for private gain but effective partners of the National Government in spreading the benefits of capitalism for the social and economic development of the nation. An analysis of the definition of corporation reveals the following characteristics or attributes of a corporation: Artificial beingCreated by the operation of lawRights of successionPowers, attributes and properties expressly authorized by law or incident to its existenceOwnership in the form of share capitalManaged by the board of directorsClasses and classifications of corporations The Corporation Code classifies private corporation into stock and non-stock corporations, according to whether their membership is represented by shares of stock or not. A stock corporation is the ordinary business corporation 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. A non-stock corporation do not issue shares of stocks and are created not for profit but for the public good and welfare. Of this character are most the religious, social, literary, scientific, civic and political organizations and societies. Artificial being A corporation is not a real or natural person, but the law assumes it as a person so that it can perform practically all business functions, which a natural person can do. Consequently, a corporation can enter into contracts, own or dispose properties, or sue and be sued in its own name. As an artificial being, it has a separate and distinct personality from its shareholders, authorized officers and employees. Hence the personal liabilities of the corporate shareholders are not obligations of the corporation.Created by the operation of law This means that corporation cannot come into existence by mere agreement of the parties as in the case of business partnerships. Corporations require special authority through the legislative department either by a special incorporation law. Being a mere creation of law, a corporation can only be allowed to exist for lawful purposes. Hence, its existence cannot be extended to any unlawful activities. Rights of succession The shares of stock evidences ownership in an corporation can be transferred from one person to another. A corporation can continue to exist despite the death, withdrawal, insolvency or incapacity of the individual members or stockholders. The existence of a corporation should not exceed 50 years from its incorporation unless extended.  Powers, attributes and properties expressly authorized by law or incident to its existence As a creation of law a corporation can only exercise powers that is expressly authorized to perform in accordance with the Corporation Code, its Articles of Incorporation, By-laws and other special laws. A corporation can exercise incidental powers as long as they are inherently necessary for its existence or for the accomplishment of its objectives. Ownership in the form of share capital The ownership interest in a corporation is represented by share of capital which are divided into several shares of stock. Any person who bought a share capital becomes a part owner of the corporation and he is called a shareholder or stockholder. A shareholder is not legally liable for the corporation’s unpaid indebtedness. They are liable only to the extent of their subscription.  Managed by the board of directors A corporation is managed by a group of shareholders called board of directors. The Corporation Code provides that the board of directors should be comprised of at least 5 natural persons but not more than 15. A shareholder cannot bind the corporation into contracts. Only the board of directors and other authorized officers can bind the corporation into contracts.
  • Components of a corporation Incorporators are the founders of a corporation. They are the original organizers of the corporation, stock or non-stock, whose names appear in the Article of Incorporation. The primary function of an incorporator is to organize the corporation. Partnerships and corporations cannot be incorporators. The law requires that incorporators must consist of at least 5 but not more than 15 natural persons of legal age, owners or subscribers of at least one share of stock and majority of them must be residents and citizens of the Philippines.  Corporators represent owners after its formation. Corporators are incorporators, stockholders or members. A corporation is not allowed to become a general partner in a partnership, but a partnership or a corporation is allowed to become a shareholder of another corporation Shareholders are owners of a corporation. Their ownership is evidenced by acquiring shares in a stock corporation either by subscription or by direct purchase or by transfer of stock from another stockholder.  Members are corporators of a corporation which has no capital stock.
  • Classes of shares Par value share is one with a specific money value fixed in the articles of incorporation and appearing in the certificate of stock. The primary purpose of par value is to fix the minimum issue price of the shares thus assuring creditors that the corporation would receive a minimum amount for its stock. Advantages of par value shares: Par value shares are easily sold as the public is more attracted to buy this kind of shares. There is greater protection to creditorsThere is unlikelihood of sale of subsequently issued shares at a lower priceThere is unlikelihood of the distribution of dividends that are only ostensible profits  Disadvantages of par value shares: The subscribers are liable to corporate creditors for their unpaid subscriptionsThe stated face value of the share is not an accurate criterion of true value No par value share is one without any stated or par value appearing on the face of the certificate of stock. It is a stock which does not show how much money it represents but it always has an issue value which is fixed by the corporation. The following are the limitations imposed by law regarding the issuance of no par value shares: Banks, trust companies, insurance companies and building and loan associations shall not be permitted to issue no par value sharesPreferred shares of stocks may be issued only with a stated par valueShares 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. This means that the holder shall not be liable beyond the issue price.Shares without par value may not be issued for a consideration less than the value of P5.00 per share. The entire consideration received by the corporation for its no par value shares shall be treated as capital and shall not be available for distribution as dividends.  Since the value of corporate stocks fluctuates and in most cases does not represent par value, corporations are authorized to issue no par value shares provided that: A no par value share has no par value but it has always an issued value based on the consideration for which it is issued which is not less than P5.00 per share.While all the par value stocks must be issued at a uniform value or price, no par value stocks may be issued from time to time at different prices or values although the holders of all these shares are entitled to share equally in the distribution of the profits and assets of the corporation.  Advantages of no par value shares: No par value shares are issued as fully paid and non-assessable Their price is flexibleLow-priced stocks (most no par value shares are low-priced) enjor wider distribution They tell no untruth concerning the value of the stockholder’s contribution Stock dividends are more easily issued thereby simplifying accounting procedures Disadvantages of no par value shares They legalize large issues of stock for propertyThey conceal the money or property represented by the sharesThey promote issuance of watered stocksThere is lesser protection to creditors Voting share is a share with a right to vote. It is generally customary to give the right to vote to the common stock and withhold it from preferred. Non-voting share is share without the right to vote. If the stock is originally issued as voting stock, it cannot thereafter be deprived of the rights without consent of the shareholder unless it is a preferred and redeemable share. Common share of stock is stock which entitles the holder thereof to an equal pro rata division of the profits, if there are any, without any preference or disadvantage in that respect over other stockholder or class of stockholders. It is also called common because it is the stock which private corporations generally issue.  Preferred share of stock is stock which entitles the holder thereof certain preferences over the holders of common stock. The preference may consist of payment in dividends, distribution of assets in case of a dissolution and others as stated in the articles of incorporation which are not violative of the provisions of the Corporation Code. Preferred share as to asset is share which gives the holder thereof preference in the distribution of the assets of the corporation in case of liquidation.  Preferred share as to dividends is share the holder of which is entitled to receive dividends on said share to the extent of agreed upon before any dividends at all are paid to the holders of common stock.  Kinds of preferred share as to dividends Cumulative preferred share is share which entitles the holder not only to the payment of current dividends but also to dividends in arrears.  Non-cumulative preferred share is share which entitles the holder to the payment of current dividends only. Participating preferred share is share which gives the holder not only the right to receive stipulated dividends at the preferred rate but also to participate with the holders of common shares in the remaining profits pro-rata after the common shares have been paid the amount of the stipulated dividends at the same preferred rate.  Non-participating preferred share is share which entitles the holder to receive the stipulated dividends and no more.  Cumulative participating preferred share is share which is a combination of the cumulative share and participating share.  There are four legal limitations regarding preferred shares: Preferred shares deprived of voting rights in the articles of incorporation shall still be entitled to vote on certain matters although they shall not be entitled to vote on other matters.Preferred shares of stock issued by a corporation may be given preference in the distribution of the corporate assets or dividends or such other preferences as may be stated in the articles of incorporation but they must not be violative of the provisions of the code.Preferred shares may be issued only with a stated par valueThe board of directors may fix the terms and conditions of preferred shares of stock or any series thereof only when so authorized by the articles of incorporation and such terms and conditions shall be effective upon filing a certificate thereof with SEC.
  • Founder’s shares are shares issued to the organizers and promoters of a corporation in consideration of some supposed right or property. Such shares usually share in profits only after a certain percentage has been paid upon the common stock, but are often given special privileges over other stocks as to voting and as to division of profits in excess of a minimum dividend on the common stock.  Redeemable shares or callable shares is usually preferred which by its terms is redeemable at a fixed date or at an option of either the issuing corporation or the stockholders or both at a certain redemption price. The following are the characteristics of a redeemable shares: Redeemable shares may be issued only when expressly so provided in the articles of incorporation. In the absence, they are considered irredeemable and common shares are never redeemed.Upon the expiration of the period fixed, they may be taken up or purchased by the corporation, regardless of the existence of unrestricted retained earnings in the books of the corporation. Redeemable shares may be deprived of voting rights unless otherwise provided in the code. Treasury share is a share which have been lawfully issued by the corporation and fully paid for and later reacquired by it either by purchase, redemption, donation, forfeiture or other lawful means.
  • Incorporators, numbers and qualifications Section 10 provides the following: Natural persons meaning that a partnership or corporation cannot be an incorporator of a corporation but can be corporators. However, duly established cooperatives may organize rural banks and / or subscribe to shares of a stock of any rural bank.Capacity to contract meaning the incorporators must have the capacity to enter into a valid contract, the act of performing a corporation as between the parties being contractual. This is to guard against the possibility of any fictitious name being subscribed to the articles and to assure that the signatures appearing therein are genuine.Residents of the Philippines enemy aliens cannot become incorporators for subjects of one country cannot lawfully contract with the subjects of the country with which it is at war.Citizens of the Philippines due to specific constitutional and legal provision, citizenship is a necessary qualification for incorporators in corporations in which a certain percentage of the capital stock is required to be owned by Filipino citizens as follows:Corporations for exploration, development and utilization of natural resources; public service; educational corporations; banking corporations, rural banks; corporations engaged in coastwise shipping – 60%-40%Corporations engaged in the pawnshop business – 70%-30%Under the Flag Law as in the case of the purchase of articles for the Government, preference shall be given to materials and supplies, produced, made, or manufactured in the Philippines and domestic entities – 75%-25%. Corporation engaged in retail trade – 100% Owners of or subscribers to at least one share of stock Term of corporate existence The corporation shall exist for the term specified in the articles of incorporation not exceeding 50 years unless sooner legally dissolved or unless its registration is revoked upon any grounds provided by law. The corporate life may be reduced or extended by amending the articles of incorporation. The extension of the corporate term is subject to the following limitations: The term shall not exceed 50 years in any one instanceThe amendment is effected before the expiration of the corporate term of existence for after dissolution by expiration of the term there is no more corporate life to extendThe extension cannot be made earlier than 5 years prior to the expiration date unless there are justifiable reasons as determined by the SEC. 
  • Contents of the articles of incorporation All corporations organized shall file with the Securities and Exchange Commission articles of incorporation in any of the official languages duly signed and acknowledged by all of the incorporators, containing substantially the following matters, except as otherwise prescribed by this Code or by special law: The name of the corporation;The specific purpose or purposes for which the corporation is being incorporated. Where a corporation has more than one stated purpose, the articles of incorporation shall state which is the primary purpose and which is/are he secondary purpose or purposes: Provided, That a nonstock corporation may not include a purpose which would change or contradict its nature as such;The place where the principal office of the corporation is to be located, which must be within the Philippines;The term for which the corporation is to exist;The names, nationalities and residences of the incorporators;The number of directors or trustees, which shall not be less than five (5) nor more than fifteen (15);The names, nationalities and residences of persons who shall act as directors or trustees until the first regular directors or trustees are duly elected and qualified in accordance with this Code;If it be a stock corporation, the amount of its authorized capital stock in lawful money of the Philippines, the number of shares into which it is divided, and in case the share are par value shares, the par value of each, the names, nationalities and residences of the original subscribers, and the amount subscribed and paid by each on his subscription, and if some or all of the shares are without par value, such fact must be stated;If it be a non-stock corporation, the amount of its capital, the names, nationalities and residences of the contributors and the amount contributed by each; andSuch other matters as are not inconsistent with law and which the incorporators may deem necessary and convenient. Articles of incorporation The articles of incorporation is the document prepared by the persons establishing a corporation and filed with the SEC containing the matters as required by the Corporation Code. The contents of the articles of incorporation includes: Name of the corporationPurpose of the corporationPrincipal office of the corporationIncorporating directors or trusteesCapital stock / capital / subscribers / contributors Name of the corporation The corporation acquires juridical personality under the name stated in the articles of incorporation. A corporation has the power of succession by its corporate name. It is the name that identifies and distinguishes it from other corporation and by that name it is authorized to transact business and is therefore essential to its existence. It is customary to use a part of the name the word corporation or incorporated or an abbreviation of either of them to distinguish it from a partnership or other form of business organization. Purpose or purposes of the corporation The purpose must be lawfulThe purpose must not be indefinitely statedThe primary purpose must be statedThe purposes must be capable of being lawfully complied The law requires that the statement of the purpose for which a corporation is formed in order that: A person who intends to invest in the business will know where and what kind of business activity his money will be investedThe directors and officers will know within what scope of business they are authorized to actA third person who has dealings with the corporation may know by perusal of the articles whether the transaction or dealing he has with is within the authority of the corporation or not  
  • Amending the articles of incorporation The authority of the stockholders or members to amend the articles of incorporation would require an approval by a majority vote of the of the board of directors or trustees and the vote or written assent of the stockholders representing 2/3 of the outstanding capital stock. The limitations on the power of a corporation to amend its articles of incorporation includes the following: The amendment of any provision or matters stated in the articles of incorporation is not allowed when it will be contrary to any provision or requirement by the Corporation Code or by a special lawIt must be for a legitimate purposeIt must be approved by the required vote of the board and the stockholders or membersThe original articles and amended articles together shall contain all provisions required by law to be set out in the articles of incorporationSuch articles as amended shall be indicated by underscoring the change o  Extending or shortening the corporate termIncrease or decrease capital stockOther matters
  • Grounds when articles of incorporation or amendment may be rejected ordisapproved. - The Securities and Exchange Commission may reject the articles ofincorporation or disapprove any amendment thereto if the same is not in compliance withthe requirements of this Code: Provided, That the Commission shall give theincorporators a reasonable time within which to correct or modify the objectionableportions of the articles or amendment. The following are grounds for such rejection ordisapproval:1. That the articles of incorporation or any amendment thereto is notsubstantially in accordance with the form prescribed herein;2. That the purpose or purposes of the corporation are patentlyunconstitutional, illegal, immoral, or contrary to government rules andregulations;3. That the Treasurer's Affidavit concerning the amount of capital stocksubscribed and/or paid if false;4. That the percentage of ownership of the capital stock to be owned bycitizens of the Philippines has not been complied with as required byexisting laws or the Constitution.No articles of incorporation or amendment to articles of incorporation of banks, bankingand quasi-banking institutions, building and loan associations, trust companies and otherfinancial intermediaries, insurance companies, public utilities, educational institutions,and other corporations governed by special laws shall be accepted or approved by theCommission unless accompanied by a favorable recommendation of the appropriategovernment agency to the effect that such articles or amendment is in accordance withlaw.
  • Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, thecorporate powers of all corporations formed under this Code shall be exercised, allbusiness conducted and all property of such corporations controlled and held by the boardof directors or trustees to be elected from among the holders of stocks, or where there isno 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 ofwhich he is a director, which share shall stand in his name on the books of thecorporation. Any director who ceases to be the owner of at least one (1) share of thecapital stock of the corporation of which he is a director shall thereby cease to be adirector. Trustees of non-stock corporations must be members thereof. a majority of thedirectors or trustees of all corporations organized under this Code must be residents of thePhilippines.
  • Sec. 24. Election of directors or trustees. - At all elections of directors or trustees, theremust 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, amajority of the members entitled to vote. The election must be by ballot if requested byany voting stockholder or member. In stock corporations, every stockholder entitled tovote shall have the right to vote in person or by proxy the number of shares of stockstanding, at the time fixed in the by-laws, in his own name on the stock books of thecorporation, or where the by-laws are silent, at the time of the election; and saidstockholder may vote such number of shares for as many persons as there are directors tobe elected or he may cumulate said shares and give one candidate as many votes as thenumber of directors to be elected multiplied by the number of his shares shall equal, or hemay 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 ofshares owned by him as shown in the books of the corporation multiplied by the wholenumber of directors to be elected: Provided, however, That no delinquent stock shall bevoted. 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 aretrustees to be elected but may not cast more than one vote for one candidate. Candidatesreceiving the highest number of votes shall be declared elected. Any meeting of thestockholders or members called for an election may adjourn from day to day or from timeto time but not sine die or indefinitely if, for any reason, no election is held, or if there notpresent or represented by proxy, at the meeting, the owners of a majority of theoutstanding capital stock, or if there be no capital stock, a majority of the memberentitled to vote.
  • Sec. 27. Disqualification of directors, trustees or officers. - No person convicted by finaljudgment 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 electionor 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 maybe removed from office by a vote of the stockholders holding or representing at least twothirds(2/3) of the outstanding capital stock, or if the corporation be a non-stockcorporation, by a vote of at least two-thirds (2/3) of the members entitled to vote:Provided, That such removal shall take place either at a regular meeting of thecorporation or at a special meeting called for the purpose, and in either case, afterprevious notice to stockholders or members of the corporation of the intention to proposesuch removal at the meeting. A special meeting of the stockholders or members of acorporation for the purpose of removal of directors or trustees, or any of them, must becalled by the secretary on order of the president or on the written demand of thestockholders representing or 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 membersentitled to vote. Should the secretary fail or refuse to call the special meeting upon suchdemand or fail or refuse to give the notice, or if there is no secretary, the call for themeeting may be addressed directly to the stockholders or members by any stockholder ormember of the corporation signing the demand. Notice of the time and place of suchmeeting, as well as of the intention to propose such removal, must be given bypublication or by written notice prescribed in this Code. Removal may be with or withoutcause: Provided, That removal without cause may not be used to deprive minoritystockholders or members of the right of representation to which they may be entitledunder Section 24 of this Code.Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in theboard of directors or trustees other than by removal by the stockholders or members or byexpiration of term, may be filled by the vote of at least a majority of the remainingdirectors or trustees, if still constituting a quorum; otherwise, said vacancies must befilled by the stockholders in a regular or special meeting called for that purpose. Adirector or trustee so elected to fill a vacancy shall be elected only or the unexpired termof his predecessor in office.A directorship or trusteeship to be filled by reason of an increase in the number ofdirectors or trustees shall be filled only by an election at a regular or at a special meetingof stockholders or members duly called for the purpose, or in the same meetingauthorizing the increase of directors or trustees if so stated in the notice of the meeting.
  • Sec. 30. Compensation of directors. - In the absence of any provision in the by-lawsfixing their compensation, the directors shall not receive any compensation, as suchdirectors, except for reasonable pre diems: Provided, however, That any suchcompensation other than per diems may be granted to directors by the vote of thestockholders representing at least a majority of the outstanding capital stock at a regularor special stockholders' meeting. In no case shall the total yearly compensation ofdirectors, as such directors, exceed ten (10%) percent of the net income before incometax of the corporation during the preceding year.
  • Sec. 36. Corporate powers and capacity. - Every corporation incorporated under thisCode has the power and capacity:1. To sue and be sued in its corporate name;2. Of succession by its corporate name for the period of time stated in thearticles of incorporation and the certificate of incorporation;3. To adopt and use a corporate seal;4. To amend its articles of incorporation in accordance with the provisionsof this Code;
  • 5. To adopt by-laws, not contrary to law, morals, or public policy, and toamend or repeal the same in accordance with this Code;6. In case of stock corporations, to issue or sell stocks to subscribers and tosell stocks to subscribers and to sell treasury stocks in accordance with theprovisions of this Code; and to admit members to the corporation if it be anon-stock corporation;7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge,mortgage and otherwise deal with such real and personal property,including securities and bonds of other corporations, as the transaction ofthe lawful business of the corporation may reasonably and necessarilyrequire, subject to the limitations prescribed by law and the Constitution;8. To enter into merger or consolidation with other corporations asprovided in this Code;
  • 9. To make reasonable donations, including those for the public welfare orfor hospital, charitable, cultural, scientific, civic, or similar purposes:Provided, That no corporation, domestic or foreign, shall give donations inaid of any political party or candidate or for purposes of partisan politicalactivity;10. To establish pension, retirement, and other plans for the benefit of itsdirectors, trustees, officers and employees; and11. To exercise such other powers as may be essential or necessary tocarry out its purpose or purposes as stated in the articles of incorporation.
  • Sec. 39. Power to deny pre-emptive right. - All stockholders of a stock corporation shallenjoy pre-emptive right to subscribe to all issues or disposition of shares of any class, inproportion to their respective shareholdings, unless such right is denied by the articles ofincorporation or an amendment thereto: Provided, That such pre-emptive right shall notextend to shares to be issued in compliance with laws requiring stock offerings orminimum stock ownership by the public; or to shares to be issued in good faith with theapproval of the stockholders representing two-thirds (2/3) of the outstanding capitalstock, in exchange for property needed for corporate purposes or in payment of apreviously contracted debt.
  • Sec. 46. Adoption of by-laws. - Every corporation formed under this Code must, withinone (1) month after receipt of official notice of the issuance of its certificate ofincorporation by the Securities and Exchange Commission, adopt a code of by-laws forits government not inconsistent with this Code. For the adoption of by-laws by thecorporation the affirmative vote of the stockholders representing at least a majority of theoutstanding capital stock, or of at least a majority of the members in case of non-stockcorporations, shall be necessary. The by-laws shall be signed by the stockholders ormembers voting for them and shall be kept in the principal office of the corporation,subject to the inspection of the stockholders or members during office hours. A copythereof, duly certified to by a majority of the directors or trustees countersigned by thesecretary of the corporation, shall be filed with the Securities and Exchange Commissionwhich shall be attached to the original articles of incorporation.Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted andfiled prior to incorporation; in such case, such by-laws shall be approved and signed byall the incorporators and submitted to the Securities and Exchange Commission, togetherwith the articles of incorporation.In all cases, by-laws shall be effective only upon the issuance by the Securities andExchange Commission of a certification that the by-laws are not inconsistent with thisCode.The Securities and Exchange Commission shall not accept for filing the by-laws or anyamendment thereto of any bank, banking institution, building and loan association, trustcompany, insurance company, public utility, educational institution or other specialcorporations governed by special laws, unless accompanied by a certificate of theappropriate government agency to the effect that such by-laws or amendments are inaccordance with law. (20a)
  • Contents of by-laws. - Subject to the provisions of the Constitution, this Code,other special laws, and the articles of incorporation, a private corporation may provide inits by-laws for:1. The time, place and manner of calling and conducting regular or specialmeetings of the directors or trustees;2. The time and manner of calling and conducting regular or specialmeetings of the stockholders or members;3. The required quorum in meetings of stockholders or members and themanner of voting therein;4. The form for proxies of stockholders and members and the manner ofvoting them;5. The qualifications, duties and compensation of directors or trustees,officers and employees;6. The time for holding the annual election of directors of trustees and themode or manner of giving notice thereof;7. The manner of election or appointment and the term of office of allofficers other than directors or trustees;8. The penalties for violation of the by-laws;9. In the case of stock corporations, the manner of issuing stockcertificates; and10. Such other matters as may be necessary for the proper or convenienttransaction of its corporate business and affairs. (21a)
  • Sec. 87. Definition. - For the purposes of this Code, a non-stock corporation is one whereno part of its income is distributable as dividends to its members, trustees, or officers,subject to the provisions of this Code on dissolution: Provided, That any profit which anon-stock corporation may obtain as an incident to its operations shall, whenevernecessary or proper, be used for the furtherance of the purpose or purposes for which thecorporation was organized, subject to the provisions of this Title.The provisions governing stock corporation, when pertinent, shall be applicable to nonstockcorporations, except as may be covered by specific provisions of this Title. (n)Sec. 88. Purposes. - Non-stock corporations may be formed or organized for charitable,religious, educational, professional, cultural, fraternal, literary, scientific, social, civicservice, or similar purposes, like trade, industry, agricultural and like chambers, or anycombination thereof, subject to the special provisions of this Title governing particularclasses of non-stock corporations. (n)
  • Sec. 96. Definition and applicability of Title. - A close corporation, within the meaningof this Code, is one whose articles of incorporation provide that: (1) All the corporation'sissued stock of all classes, exclusive of treasury shares, shall be held of record by notmore than a specified number of persons, not exceeding twenty (20); (2) all the issuedstock of all classes shall be subject to one or more specified restrictions on transferpermitted by this Title; and (3) The corporation shall not list in any stock exchange ormake any public offering of any of its stock of any class. Notwithstanding the foregoing,a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of itsvoting stock or voting rights is owned or controlled by another corporation which is not aclose corporation within the meaning of this Code.Any corporation may be incorporated as a close corporation, except mining or oilcompanies, stock exchanges, banks, insurance companies, public utilities, educationalinstitutions and corporations declared to be vested with public interest in accordance withthe provisions of this Code.The provisions of this Title shall primarily govern close corporations: Provided, That theprovisions of other Titles of this Code shall apply suppletorily except insofar as this Titleotherwise provides.
  • Sec. 107. Pre-requisites to incorporation. - Except upon favorable recommendation ofthe Ministry of Education and Culture, the Securities and Exchange Commission shallnot accept or approve the articles of incorporation and by-laws of any educationalinstitution.
  • Sec. 109. Classes of religious corporations. - Religious corporations may beincorporated by one or more persons. Such corporations may be classified intocorporations sole and religious societies.Religious corporations shall be governed by this Chapter and by the general provisionson non-stock corporations insofar as they may be applicable.
  • Sec. 110. Corporation sole. - For the purpose of administering and managing, as trustee,the affairs, property and temporalities of any religious denomination, sect or church, acorporation sole may be formed by the chief archbishop, bishop, priest, minister, rabbi orother presiding elder of such religious denomination, sect or church. (154a)Corporation sole is incorporated by one person and consist of one member or corporator only and his successors such as the bishopIt may be formed by theChief arcbishopBishopPriestMinisterRabbiOr other presiding elder of a religious denomination, sect or church for the purpose of administering and managing as trustee, affairs, property and temporalities of such religious denomination, sect or church Sec. 116. Religious societies. - Any religious society or religious order, or any diocese,synod, or district organization of any religious denomination, sect or church, unlessforbidden by the constitution, rules, regulations, or discipline of the religiousdenomination, sect or church of which it is a part, or by competent authority, may, uponwritten consent and/or by an affirmative vote at a meeting called for the purpose of atleast two-thirds (2/3) of its membership, incorporate for the administration of itstemporalities or for the management of its affairs, properties and estate by filing with theSecurities and Exchange Commission, articles of incorporation verified by the affidavitof the presiding elder, secretary, or clerk or other member of such religious society orreligious order, or diocese, synod, or district organization of the religious denomination,sect or church, setting forth the following:1. That the religious society or religious order, or diocese, synod, ordistrict organization is a religious organization of a religiousdenomination, sect or church;2. That at least two-thirds (2/3) of its membership have given their writtenconsent or have voted to incorporate, at a duly convened meeting of thebody;3. That the incorporation of the religious society or religious order, ordiocese, synod, or district organization desiring to incorporate is notforbidden by competent authority or by the constitution, rules, regulationsor discipline of the religious denomination, sect, or church of which itforms a part;4. That the religious society or religious order, or diocese, synod, ordistrict organization desires to incorporate for the administration of itsaffairs, properties and estate;5. The place where the principal office of the corporation is to beestablished and located, which place must be within the Philippines; and6. The names, nationalities, and residences of the trustees elected by thereligious society or religious order, or the diocese, synod, or districtorganization to serve for the first year or such other period as may beprescribed by the laws of the religious society or religious order, or of thediocese, synod, or district organization, the board of trustees to be not lessthan five (5) nor more than fifteenReligious society is incorporated by an aggregate of persons.
  • 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 thanthose of the Philippines and whose laws allow Filipino citizens and corporations to dobusiness in its own country or state. It shall have the right to transact business in thePhilippines after it shall have obtained a license to transact business in this country inaccordance with this Code and a certificate of authority from the appropriate governmentagency
  • Sec. 118. Voluntary dissolution where no creditors are affected. - If dissolution of acorporation does not prejudice the rights of any creditor having a claim against it, thedissolution may be effected by majority vote of the board of directors or trustees, and bya resolution duly adopted by the affirmative vote of the stockholders owning at least twothirds(2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the membersof a meeting to be held upon call of the directors or trustees after publication of the noticeof time, place and object of the meeting for three (3) consecutive weeks in a newspaperpublished in the place where the principal office of said corporation is located; and if nonewspaper is published in such place, then in a newspaper of general circulation in thePhilippines, after sending such notice to each stockholder or member either by registeredmail or by personal delivery at least thirty (30) days prior to said meeting. A copy of theresolution authorizing the dissolution shall be certified by a majority of the board ofdirectors or trustees and countersigned by the secretary of the corporation. The Securitiesand Exchange Commission shall thereupon issue the certificate of dissolution. (62a)Sec. 119. Voluntary dissolution where creditors are affected. - Where the dissolution ofa corporation may prejudice the rights of any creditor, the petition for dissolution shall befiled with the Securities and Exchange Commission. The petition shall be signed by amajority of its board of directors or trustees or other officers having the management ofits affairs, verified by its president or secretary or one of its directors or trustees, and shallset forth all claims and demands against it, and that its dissolution was resolved upon bythe affirmative vote of the stockholders representing at least two-thirds (2/3) of theoutstanding capital stock or by at least two-thirds (2/3) of the members at a meeting of itsstockholders or members called for that purpose.If the petition is sufficient in form and substance, the Commission shall, by an orderreciting the purpose of the petition, fix a date on or before which objections thereto maybe filed by any person, which date shall not be less than thirty (30) days nor more thansixty (60) days after the entry of the order. Before such date, a copy of the order shall bepublished at least once a week for three (3) consecutive weeks in a newspaper of generalcirculation published in the municipality or city where the principal office of thecorporation is situated, or if there be no such newspaper, then in a newspaper of generalcirculation in the Philippines, and a similar copy shall be posted for three (3) consecutiveweeks in three (3) public places in such municipality or city.Upon five (5) day's notice, given after the date on which the right to file objections asfixed in the order has expired, the Commission shall proceed to hear the petition and tryany issue made by the objections filed; and if no such objection is sufficient, and thematerial allegations of the petition are true, it shall render judgment dissolving thecorporation and directing such disposition of its assets as justice requires, and mayappoint a receiver to collect such assets and pay the debts of the corporation. (Rule 104,RCa)Sec. 120. Dissolution by shortening corporate term. - A voluntary dissolution may beeffected by amending the articles of incorporation to shorten the corporate term pursuantto the provisions of this Code. A copy of the amended articles of incorporation shall besubmitted to the Securities and Exchange Commission in accordance with this Code.Upon approval of the amended articles of incorporation of the expiration of the shortenedterm, as the case may be, the corporation shall be deemed dissolved without any furtherproceedings, subject to the provisions of this Code on liquidation. (n)Sec. 121. Involuntary dissolution. - A corporation may be dissolved by the Securitiesand Exchange Commission upon filing of a verified complaint and after proper noticeand hearing on the grounds provided by existing laws, rules and regulations. (n)

Transcript

  • 1. Forms of business Organization Corporation Presented by: Ferdinand C. Importado November 11, 2012 Legal Aspects of Business Atty. Celso D. Benologa Ph.D., CPA
  • 2. Outline  General provisions  Incorporation and organization  Board of directors / trustees / officers  Powers of the corporation  Other corporations  Dissolution
  • 3. GENERAL PROVISIONS Section 1
  • 4. What is a corporation? A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence Stock corporations Non-stock corporation
  • 5. Components of corporation Incorporators Corporators Stockholders Members
  • 6. Classification of shares Rights / privileges Common Preferred Value Par value No par value
  • 7. Other types of shares Founders’ shares Redeemable shares Treasury shares
  • 8. INCORPORATION AND ORGANIZATION Section 2
  • 9. Dimensions of incorporation Incorporators Term Capitalization  Not less than 5 but not more than 15  Legal age  Filipino citizen  Owner / subscriber of 1 share  Not to exceed 50 years  May be extended not to exceed 50 years  Extension not earlier than 5 years  Subscribed to 25% of the authorized capital  Paid 25% of the subscribed capital  Payment not less than P5000
  • 10. Articles of incorporation The articles of incorporation is the document prepared by the persons establishing a corporation and filed with the SEC containing the matters as required by the Corporation Code. Contents of the articles of incorporation • Corporate name • Purpose • Principal office • Incorporating directors or trustees • Capital stock / capital / subscribers / contributors
  • 11. Amending the articles Approval Provisions Effectivity Majority of the BOD 2/3 of the capital stock SEC approval 6 months of inaction Underscore changes Oath of the C/S
  • 12. Grounds for rejection or disapproval of the Articles of Incorporation Not in accordance with the prescribed form Unconstitutional, illegal, immoral, or contrary to government rules and regulations Treasurer's Affidavit regarding capital stock subscribed and/or paid if false Percentage of ownership has not been complied with
  • 13. BOARD OF DIRECTORS / TRUSTEES / OFFICERS Section 3
  • 14. The board of directors or trustees Elected from among the holders of stocks or members Own at least one (1) share of the capital stock majority of the directors or trustees must be residents of the Philippines
  • 15. Election of directors / trustees • Person or by representative by written proxy • Election must be by ballot • Schedules at the time fixed in the by-laws • The number of votes shall not exceed the number of shares owned • Candidates receiving the highest number of votes shall be declared elected
  • 16. Disqualification / removal / vacancies Disqualification • Convicted by final judgment for a period exceeding six (6) years • Violation of the Corporate Code committed within five (5) years Removal • Vote of the 2/3 of the outstanding capital stock or members • Removal shall take place either at a regular meeting of the corporation or at a special meeting called for the purpose • Removal may be with or without cause Vacancies • Vote of at least a majority of the remaining directors or trustees • Regular or special meeting called for that purpose
  • 17. Compensation of directors Reasonable per diems Additional compensation is allowed Not more than 10% of the preceding net income before tax
  • 18. POWERS OF THE CORPORATION Section 4
  • 19. Corporate powers and capacity Sue and be sued Succession by corporate name Corporate seal Amend articles of incorporation
  • 20. Corporate powers and capacity Adopt by- laws Issue or sell stocks Deal with real and personal property Merger or consolidation
  • 21. Corporate powers and capacity Make reasonable donations Establish plans for directors and employees Exercise powers to carry out its purpose
  • 22. Other powers of a corporation  Extend or shorten corporate term  Increase or decrease capital stock; incur, create or increase bonded indebtedness  Deny pre-emptive right  Sale or other disposition of assets  Acquire own shares  Invest corporate funds in another corporation or business or for any other purpose  Declare dividends  Enter into management contract
  • 23. By-laws defined Rules of action adopted by the corporation for its internal government and the government of its officers, stockholders or members
  • 24. Contents of by-laws Conduct of meeting Required quorum and manner of voting Form for proxies The qualifications, duties and compensation of directors or trustees, officers and employees Election of directors or trustees Penalties for violation of the by-laws Manner of issuing stock certificates
  • 25. OTHER TYPES OF CORPORATION Section 5
  • 26. Non-stock corporation Where no part of its income is distributable as dividends to its members, trustees, or officers, subject to the provisions of this Code on dissolution. Any may be obtained as an incident to its operations shall be used for the furtherance of the purpose
  • 27. Close corporation Attributes of a close corporation • All the corporation's issued stock of all classes shall be held by not more than twenty (20) • All the issued stock of all classes shall be subject to one or more specified restrictions on transfer • The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class
  • 28. Educational corporation  Is a stock or non- stock corporation organized to provide facilities for teaching or instruction.  Regular faculty and curriculum  Organized body of pupils or students
  • 29. Religious corporations Refers to a corporation composed entirely of spiritual persons and which is established for the furtherance of a religion or for perpetrating the rights of the church or for the administration of the church or religious work
  • 30. Classes of religious corporation Corporation sole Religious societies
  • 31. Foreign corporation One formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. It shall have the right to transact business in the Philippines
  • 32. DISSOLUTION Section 6
  • 33. Methods of dissolution Voluntary dissolution where no creditors are affected Voluntary dissolution where creditors are affected Dissolution by shortening corporate term Involuntary dissolution