## Philippine Corporation Law: Key Provisions (Sections 4-22) These notes summarize key sections of the Philippine Corporation Code, focusing on corporate formation, share classification, and the board of directors. ### Section 4: Corporations Created by Special Laws Corporations established under special laws are primarily governed by those laws. The provisions of this Code apply only supplementarily. This means that if a special law contradicts the general Corporation Code, the special law prevails. ### Section 5: Corporators and Incorporators * **Corporators:** Compose the corporation, whether as stockholders (stock corporation) or members (non-stock corporation). * **Incorporators:** The original stockholders or members named in the articles of incorporation. They are the signatories. Imagine starting a bakery as a corporation. The people who invest and own shares are the corporators. The individuals who sign the initial paperwork to legally establish the bakery are the incorporators. ### Section 6: Classification of Shares Shares can be classified with varying rights, privileges, and restrictions, including par value (a stated value per share). All shares are equal unless the articles of incorporation or certificate of stock specify otherwise. * **Classes and Series:** Shares can be divided into classes (e.g., common, preferred) and series within a class (e.g., Series A, Series B preferred shares). * **Voting Rights:** No shares can be deprived of voting rights except preferred or redeemable shares, unless otherwise stated in the Code. At least one class must have full voting rights. * **Non-Voting Shareholder Rights:** Holders of non-voting shares still vote on major corporate actions: * Amendment of articles of incorporation * Adoption and amendment of bylaws * Sale/lease/disposition of substantially all corporate property * Incurring/increasing bonded indebtedness * Increasing/decreasing authorized capital stock * Mergers/consolidations * Certain investments * Dissolution This ensures that even non-voting shareholders have a say in significant decisions affecting the corporation. * **Par Value:** Shares may or may not have a par value. However, banks, insurance companies, and similar entities accessing public funds cannot issue no-par value shares. * **Preferred Shares:** Can have preference in dividend distribution and asset distribution upon liquidation. Must have a stated par value. Terms and conditions are set by the board of directors (if authorized in the articles of incorporation) and become effective upon filing with the Securities and Exchange Commission (SEC). * **No-Par Value Shares:** Deemed fully paid and non-assessable. Must be issued for at least ₱5.00 per share. The entire consideration received is treated as capital, not available for dividends. Confusing par value with market value. Par value is a nominal value assigned to a share, while market value is its actual trading price. ### Section 7: Founders’ Shares Founders' shares can have special rights and privileges not available to other shareholders. Exclusive voting rights for electing directors are limited to a maximum of five years from incorporation, subject to compliance with laws like the Anti-Dummy Law and the Foreign Investments Act. ### Section 8: Redeemable Shares These shares can be repurchased by the corporation from shareholders after a fixed period, regardless of retained earnings, under terms stated in the articles of incorporation and certificate of stock, subject to SEC rules. ### Section 9: Treasury Shares These are shares previously issued and fully paid but reacquired by the corporation. They can be re-issued at a reasonable price set by the board of directors. ### Section 10: Number and Qualifications of Incorporators A corporation can be formed by 1 to 15 persons (singly or jointly). Natural persons must be of legal age. Each incorporator of a stock corporation must own or subscribe to at least one share. A single-stockholder corporation is a One Person Corporation (OPC). Professionals and professional partnerships cannot incorporate unless specifically allowed by law. ### Section 11: Corporate Term Corporations have perpetual existence unless their articles of incorporation specify otherwise. Existing corporations can choose to retain a specific term. The corporate term can be extended or shortened by amending the articles of incorporation, but extensions generally cannot be made more than three years before the expiry date unless justified to the SEC. Expired corporations can apply for revival. ### Section 12: Minimum Capital Stock No minimum capital stock is required for stock corporations, except as specified by special laws. ### Section 13: Contents of the Articles of Incorporation Articles of incorporation must be filed with the SEC and include: * Corporate name * Purpose(s) (primary and secondary) * Principal office location (within the Philippines) * Corporate term (if not perpetual) * Names, nationalities, and addresses of incorporators * Number of directors/trustees * Names, nationalities, and addresses of initial directors/trustees * (Stock corporations) Authorized capital stock, number of shares, par value, names, nationalities, and addresses of original subscribers, amount subscribed and paid * (Non-stock corporations) Amount of capital, names, nationalities, and addresses of contributors, and amounts contributed * Other relevant matters Ensure all information is accurate and complete to avoid delays in incorporation. ### Section 14: Form of Articles of Incorporation Provides a standard form for articles of incorporation, detailing the information required for both stock and non-stock corporations. ### Section 15: Amendment of Articles of Incorporation Amendments require a majority vote of the board and at least a two-thirds vote of the stockholders (stock corporations) or two-thirds of the members (non-stock corporations). Dissenting stockholders have appraisal rights. Amendments must be submitted to the SEC. ### Section 16: Grounds for Disapproval of Articles of Incorporation or Amendments The SEC can disapprove articles or amendments if they don't comply with the Code. Grounds include: * Non-compliance with prescribed form * Unconstitutional, illegal, immoral, or contrary-to-regulation purposes * False certification of subscribed/paid capital * Non-compliance with Filipino ownership requirements Banks and other financial institutions require additional agency approvals. ### Section 17: Corporate Name The corporate name must be distinguishable from existing names, not protected by law, and not contrary to law. The SEC can order a corporation to change its name if it violates these rules. ### Section 18: Registration, Incorporation, and Commencement of Corporate Existence The intended name is verified by the SEC. Upon approval of the articles of incorporation and bylaws, the SEC issues a certificate of incorporation, marking the commencement of corporate existence. ### Section 19: De Facto Corporations The validity of a corporation's incorporation cannot be challenged collaterally in private suits; only the Solicitor General can do so through a quo warranto proceeding. ### Section 20: Corporation by Estoppel Those acting as a corporation without authority are liable as general partners. An ostensible corporation cannot use lack of corporate personality as a defense in lawsuits. ### Section 21: Effects of Non-Use of Corporate Charter and Continuous Inoperation If a corporation doesn't organize and commence business within five years, its certificate is revoked. Continuous inoperation for five years can lead to delinquent status, with a two-year grace period to resume operations. Failure to comply results in revocation. ### Section 22: Board of Directors/Trustees; Qualification and Term The board exercises corporate powers, conducts business, and controls property. Directors (stock corporations) serve one-year terms, while trustees (non-stock corporations) serve up to three-year terms. A director/trustee ceasing to meet the ownership/membership requirement loses their position. Corporations with public interest must have independent directors (at least 20% of the board). An independent director is free from management influence and certain relationships with the corporation.