Revised Corporation Code of the Philippines PDF

**MODULE 1 -- GENERAL PROVISIONS** This module aims to teach students the general provisions, definitions and classifications of corporations found under Title One of the Revised Corporation Code of the Philippines. This module also discusses the attributes of a corporation and the principle of lim...

**MODULE 1 -- GENERAL PROVISIONS** This module aims to teach students the general provisions, definitions and classifications of corporations found under Title One of the Revised Corporation Code of the Philippines. This module also discusses the attributes of a corporation and the principle of limited liability, the doctrine of legal entity and piercing of the veil of corporate fiction. Included in the discussions are the brief overview on corporators, incorporators, stockholders and members and the classifications of shares. **Course Learning Outcomes** 1. Define a Corporation 2. Identify and explain the attributes of a corporation 3. Understand the principle of limited liability and the concept of legal entity doctrine 4. Identify the corporation's powers 5. Identify and define the classes of corporations 6. Familiarize with corporations created by special laws or charters 7. Identify the Corporators and Incorporators, Stockholders and Members of a corporation 8. Familiarize with the classification of shares **Brief Introduction** In 2018, Congress passed the new law, Republic Act No. 11232 or the Revised Corporation Code of the Philippines. This new law replaces the old Corporation Code, Batas Pambansa Blg. 68, which took effect on May 1, 1980, and was the general statute under which private corporations were organized. **Lesson 1 - General Provisions, Definitions and Classifications** A. Corporation Defined What is a corporation as defined under the new law? The code defines a corporation, thus: *"a) an artificial being; b) created by operation of law, having the c) right of succession and the d) powers, attributes, and properties expressly authorized by law or incidental to its existence."*(Sec. 2). This section provides the attributes of a corporation. 1. Attributes of a Corporation As an artificial being, it has a legal personality separate and distinct from the people comprising it. The corporate debt or credit is not the debt or credit of the stockholder. This protection from liability for shareholders is the principle of limited liability (Aquino and Cruz citing PNB vs. Hydro Resources Contractors Corporation, 693 SCRA 294). A Corporation being an artificial person has no feelings, emotions or senses and cannot experience physical suffering and hence, not entitled to moral damages (Perez citing Solid Homes, Inc. vs. CA, 275 SCRA 267). However, a corporation may claim damages for besmirched reputation (Perez citing Mambulao Lumber Co vs. PNB, 22 SCRA 359). Moreover, a corporation is entitled to immunity against unreasonable searches and seizures (Perez citing Bache & Co. vs. Ruiz, 37 SCRA 825). A corporation has no right against self-incrimination. Thus, an officer of the corporation cannot refuse to produce corporate records on the ground that it may incriminate him or the corporation (Perez citing Bataan Shipyard & Eng'g Co, Inc. vs. PCGG, 150 SCRA 181). Officers of certain corporations cannot validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the corporations since the right to object to their admission in evidence belongs exclusively to the corporations, to which the seized objects belong, and may not be invoked by the corporate officers in proceedings against them in their individual capacity (Perez citing Stonehill vs. Diokno, 20 SCRA 383). Under the **legal entity doctrine**, a corporation is a juridical person with a personality separate and distinct from that of each shareholder. It also means that the stockholders of a corporation are different from the corporation itself. While a corporation cannot generally be made liable for acts or liabilities of its stockholders or members, and vice versa because a corporation has a personality separate and distinct from its stockholders or members, however, the corporate existence is disregarded under the "piercing the veil of corporate fiction" where the corporation is formed or used for illegitimate purposes or justify wrong or evade a just and valid obligation. In such case, the corporation and the stockholders shall be considered as one and the same ~~(Perez citing National Federation of Labor Union vs. Ople, 143 SCRA 124).~~ The Corporation "owes its life to the state, its birth being purely dependent on its will" has no existence until it has received the imprimatur of the state acting according to law". (~~Aquino and Cruz citing Tayag vs. Benguet Consolidated, 26 SCRA 242).~~ It is this characteristic of a corporation, sometimes called its immortality, prolonging its existence beyond the term of natural life, and thereby enabling a longcontinued effort and concentration of means to the end which it was designed to answer that constitutes its principal utility (Aquino and Cruz citing McIntosh, History of England, p. 31). A corporation can exercise only the powers expressly conferred upon it by law and its articles of incorporation, those implied from such powers expressly granted, and those that are incident to its existence. Any act exercised outside of such powers are unauthorized. a. Express Powers -- those that are expressly granted to a corporation by its charter. By charter we mean its articles of incorporation, the Revised Corporation Code and other applicable laws for a private corporation and if the corporation is created by a special law, then it would refer to said special law that created it, the Revised Corporation Code and other laws applicable to it. b. Implied Powers -- these refer to those that are necessary to carry into effectpowers which are expressly granted, and which must therefore be presumed to have been the intention in the grant if said authority; and c. Incidental or Inherent Powers -- refers to powers that a corporation may exercise by reason of its very existence. (Aquino and Cruz: The Revised Corporation Code, Annotated) **Assessment:** Direction: Answer the following question/s: 1. What is a corporation as defined under Sec. 2 of the Revised Corporation Code? 2. What are the attributes of a corporation? Explain each one. 3. Explain the legal entity doctrine and the doctrine of piercing the veil of corporate fiction? **References:** Aquino, David Robert C., Cruz, Aristeo R. The Revised Corporation Code: Annotated. Central Books Supply, Inc., Quezon City. 2019 Perez, Hernando B. Quizzer and Reviewer on Corporation Code, The Securities Regulation Code and Related Laws. Central Books Supply, Inc., Quezon City. 2018. Republic Act No. 11232, The Revised Corporation Code of the Philippines. **Lesson 2** According to Aquino and Cruz in their book, The Revised Corporation Code, Annotated, the following are the classes of corporations. i. Stock Corporations---must have a capital stock divided intoshares and it is authorized to distribute dividends or allotments of surplus profits to its stockholders on the basis of shares held. ii. Non-stock Corporations---are Corporations that exist forpurposes other than the pursuit of profit. It cannot distribute its earnings or profits to its members but can only use it for furtherance of its purpose. 1. Domestic corporation -- refers to one which was formedand incorporated according to the laws of the Philippines; and 2. Foreign corporation -- refers to one which was formed,organized and operating by virtue of the laws of its country of origin which allows or observe reciprocal rights with the Philippines. a. Incorporation test---the nationality of a corporation is determined by the state of incorporation, regardless of the nationality of the stockholders b. Domicile test---the nationality of a corporation is determined by the state where it is domiciled (the domicile of the corporation is the place where its principal office or place of business is situated). c. Control test---the nationality of the controlling stockholders or members determine the nationality of the corporation. In the Philippines the control test is being applied. c. As to Corporators i. Corporation aggregate -- refers to a corporation that is composed of more than one corporator; and ii. Corporation sole -- refers to a corporate entity that is composed only of one person. d. As to Purpose iii. Public Corporation -- refers to a corporate entity that is organized for the government of a portion of the state like provinces, cities, municipalities and barangays; iv. Private Corporation -- refers to business enterprises formed for commercial purposes. This classification necessarily includes government-owned or controlled corporations created under special laws of those formed under the Corporation Code where the government owns a majority of its outstanding voting stock. Finally, this classification also includes quasi-public corporations organized and performing a public service under a government franchise; and v. Religious and charitable corporations -- refers to corporations formed to further religious activities or charitable endeavors. e. As to Corporate Existence vi. De jure corporations -- refers to corporations that have complied with the requirements of the law; and vii. De facto corporations -- refers to corporations that attempted to comply with the requirements for its incorporation but was defectively created. It may be attacked in a quo warranto proceeding. De facto corporations are discussed in more detail under Section 20 of the Corporation Code. f. As to Corporate Relationship viii. Parent, mother or holding corporation -- refers to corporations which owns the shares of another corporation and exercises power over the latter; and ix. Subsidiary corporation -- refers to corporations whose stocks are owned by another corporation and exercises power and control over the former. A subsidiary has an independent and separate juridical personality distinct from that of its parent company and that any suit against the latter does not bind the former and vice-versa. g. As to Nature of Shares x. Close Corporation -- refers to corporations whose shares are limited to a pre-selected number or individuals with restrictions to its transfer and sale; and xi. Open corporation -- refers to corporations whose shares are available to the public. More often than not, they are publicly listed in the stock market. h. Other classifications of corporations are as follows: i. Corporation by Prescription -- refers to a business entity that has exercised corporate powers for a long period of time without interference from the government, and has been given the status of a corporation; and i\. Corporations Created by Special Laws or Charters **Assessment:** Direction: Answer the following question/s: 1. Define and distinguish a stock from a non-stock corporation? 2. What are the tests to determine the nationality of a corporation? Explain each one. **References:** Aquino, David Robert C., Cruz, Aristeo R. The Revised Corporation Code: Annotated. Central Books Supply, Inc., Quezon City. 2019 Perez, Hernando B. Quizzer and Reviewer on Corporation Code, The Securities Regulation Code and Related Laws. Central Books Supply, Inc., Quezon City. 2018. Republic Act No. 11232, The Revised Corporation Code of the Philippines. **Lesson 3** a. Amendment of the articles of incorporation; b. Adoption and amendment of by laws; c. Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the corporate property; d. Incurring, creating, or increasing bonded indebtedness; e. Increase or decrease of authorized capital stock; f. Merger or consolidation of the corporation with another corporation o rother corporations; g. Investment of corporate funds in another corporation or business in accordance with this Code; and (h) Dissolution of the corporation. 1. Shares with complete voting rights and privileges -- refers to classes of shares that allow the owners or holders thereof complete voting rights and privileges as provided for under the articles of incorporation of the corporation. 2. Shares with partial voting rights and privileges -- refers to classes ofshares that allow its owners or holders some voting rights and privileges, subject to certain restrictions as provided for under the articles of incorporation of the corporation. 3. Shares with no voting rights -- these are usually known as "preferred" or "redeemable" shares. A preferred share is usually given certain guarantees and privileges not given to holders or owners of common shares but are restricted or not granted voting rights in exchange. Redeemable shares are those which the corporation may buy back at a certain rate at a fixed date. Redeemable shares are dealt with in detail under Section 8 of the Revised Corporation Code. Treasury shares of the corporation also do not grant any voting rights or privileges; and 4. Shares issued in compliance with the law -- the Revised Corporation Code further provides that a corporation may, classify its shares for the purpose of insuring compliance with constitutional or legal requirements.(Aquino and Cruz: The Revised Corporation Code, Annotated) - Amendment and Adaption - Disposition of property - Indebtedness - Capital Stock - Corporate Restructuring - Investment - Dissolution E. Founders' Shares. -- Founders' shares may be given certain rights and privileges not enjoyed by the owners of other stocks. Where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not to exceed five (5) years from the date of incorporation: Provided, That such exclusive right shall not be allowed if its exercise will violate Commonwealth Act No. 108, otherwise known as the "Anti-Dummy Law"; Republic Act No. 7042, otherwise known as the "Foreign Investments Act of 1991"; and other pertinent laws (Sec. 7). F. Redeemable Shares. -- Redeemable shares may be issued by the corporation when expressly provided in the articles of incorporation. They are shares which may be purchased by the corporation from the holders of such shares upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of the corporation, and upon such other terms and conditions stated in the articles of incorporation and the certificate of stock representing the shares, subject to rules and regulations issued by the Commission (Sec. 8). G. Treasury shares. -- Treasury shares are shares of stock which have beenissued and fully paid for, but subsequently reacquired by the issuing corporation through purchase, redemption, donation, or some other lawful means. Such shares may again be disposed of for a reasonable price fixed by the board of directors (Sec. 9). **Assessment:** Direction: Answer the following question/s: 1. Define and distinguish a corporator from an incorporator of a corporation? 2. Explain Founders' shares, Redeemable shares and Treasury shares? **References:** Aquino, David Robert C., Cruz, Aristeo R. The Revised Corporation Code: Annotated. Central Books Supply, Inc., Quezon City. 2019 Perez, Hernando B. Quizzer and Reviewer on Corporation Code, The Securities Regulation Code and Related Laws. Central Books Supply, Inc., Quezon City. 2018. Republic Act No. 11232, The Revised Corporation Code of the Philippines.