P

BUSINESS LAWS AND REGULATIONS A

NOTES R
TNERSHIP LAW ESSENTIAL ELEMENTS OF A PARTNESHIP

ART. 1767. By the contract of partnership two or 1. There must be a valid contract.
more persons bind themselves to contribute money, 2. Involves two or more parties.
property, or industry to a common fund, with the 3. Parties must have legal capacity.
intention of dividing the profits among themselves. 4. Mutual contribution of money, property, or
industry to a common fund.
Two or more persons may also form a partnership 5. Object must be lawful.
for the exercise of a profession. 6. The purpose o primary purpose is to obtain
PARTNERSHIP IS A CONTRACT profits and to divide the same among the
parties.
Article 1776 uses the term “contract of partnership”
emphasizing that the legal relationship between VALID PARTNERSHIP CONTRACT
and among the partners is contractual in nature. As  The provisions of the law on contracts shall
in any other contract, the essential elements for a subsidiarily cover the partnership contract.
contract of partnership to be valid would be as  A partnership is a voluntary relation created
follows: by agreement of the parties.
a. CONSENT: The meeting of minds of all the  The form of the contract may be oral or
partners. written, but subject to the provision of article
b. OBJECT (Subject Matter): The creation of 1771 – 1773.
a common fund to undertake a business  It is customary to embody the terms of the
venture with the intention to divide the partnership contract in a written document
profits among themselves. called the “Article of Partnership.”
c. CAUSE: The contribution of cash, property,
ART. 1771. A partnership may be constituted in any
or service to the business venture.
form, except where immovable property or real rights
LAW ON CONTRACTS VS. LAW ON are contributed thereto, in which case a public
PARTNERSHIP instrument shall be necessary.

Law on Partnership will always prevail since it is ART. 1772. Every contract of partnership having a
specific law. Rather than the law on contracts which capital of three thousand pesos or more, in money or
is a general law. property, shall appear in a public instrument, which must
be recorded in the Office of the Securities and Exchange
CHARACTERISTICS OF A CONTRACT OF Commission.
PARTNERSHIP
Failure to comply with the requirements of the preceding
1. CONSENSUAL – perfected by mere paragraph shall not affect the liability of the partnership
consent. and the members thereof to third persons.
2. NOMINATE – specific name designated by
law. ART. 1773. A contract of partnership is void, whenever
3. BILATERAL – entered into by two or more immovable property is contributed thereto, if an
parties. inventory of said property is not made, signed by the
4. ONEROUS – going something and parties, and attached to the public instrument.
expecting something in return.
SOLEMN/FORMAL REQUIREMENTS OF THE
5. COMMUTATIVE – value of what you give
CONTRACT
and what you receive.
6. PRINCIPAL – the contract can stand on its 1. A partnership with a capital of P 3,000 or
own. more, shall appear in a public instrument,
7. PREPARATORY – used to enter into other and recorded with the SEC.
contracts. 2. If real/immovable properties or real rights
are contributed,
 1. Yes
a. Must appear in a public instrument; 2. No
and 3. September 1
b. Inventory of said properties is signed
by the parties and attached to the
instrument.

3. A limited partnership contract must be INVOLVES TWO OR MORE PARTIES

signed, sworn into, and filed with SEC.  A person cannot enter into a contract of
A partnership with a capital of P 3,000 or more, partnership solely with himself; there must
shall appear in a public instrument, and be at least two competent parties.
recorded with the SEC.  The wording in Art. 1767 did not qualify the
word “persons”. Hence, it can be construed
 Failure to comply … shall not affect the to mean natural and juridical persons.
liability of the partnership and the members
thereof to third persons. (Art. 1772 par 2) DELECTUS PERSONAE
 The partnership’s validity will not be  The partnership relation is fiduciary in
affected. nature for it involves the trust and
 The purpose of the above provision is for confidence between the partners.
the convenience of the partnership. SEC will
only record the instrument and will issue a [Fiduciary means a relationsip in which an
Certificate of Recording. The certificate is a individual places complete confidence, trust, and
pre-requisite for the issuance of TIN, reliance in someone who has a fiduciary duty to act
business licenses, and other transactions. for the individual’s benefit.]

If real/immovable properties or real rights are  Because of its fiduciary nature, the concept
contributed, must appear in a public instrument; of delectus personae (choice of the person)
and an inventory of said properties is signed by applies to the contract. That is no one can
the parties and attached to the instrument. become a partner without the consent of all
the other partners.
 Article 1773 is clear that non-compliance
MUTUAL AGENCY
will render the contract VOID. Thus,
compliance is absolute and indispensable.  Every partner is an agent of the partnership
 It is public policy that dealings in real where the act of every partner binds the
property must be formal and public, which partnership.
would afford the public a reliable mean to  Mutual agency defines the prerogative of
determine the status of ownership and the every partner to participate in the
existing liens of such property. management of the partnership business.
 Partners are not only investors but exercise
the prerogatives of ownership and control
in the partnership business.
 A partnership is simply a conglomerate of
two or more sole proprietorship.

ILLUSTRATION ANSWERS:
ILLUSTRATION ANSWERS: Under the Revised Corporation Code, there is no longer
any doubt that private corporations have full power
1. All of the above
and authority to enter into partnership, joint venture
2. No
and other commercial arrangements, without need of
specific enabling power in their articles of incorporation.

PARTIES MUST HAVE LEGAL CAPACITY MUTUAL CONTRIBUTION OF MONEY,

PROPERTY, OR INDUSTRY TO A COMMON FUND
 Before there can be a valid contract of
partnership, it is essential that the  The partners must have a proprietary
contracting parties have the legal capacity interest in the business or undertaking.That
to enter into the contract. is they must contribute to the common fund.
 As a general rule, any person who is  Without the element of mutual contribution
capable of entering into a contract may be a to the common fund, there can be no
partner. partnership.
 Hence persons who cannot give consent to  The partners may contribute:
a contract cannot be a partner. 1. Money
2. Property
For natural persons, the following cannot give 3. Industry
their consent:  He who brings nothing in cannot be
a. Unemancipated minors considered a partner.
b. Insane or demented persons  The contribution to such fund need not be
c. Deaf-mutes who do not know how to read cash or fixed assets; it could be intangible
and write like credit or industry.
d. Persons suffering from civil interdiction LIM TONG LIM, VS. PHILIPPINE FISHING GEAR
e. Incompetents under guardianship G.R. NO. 136448. NOVEMBER 3, 1999
For juridical persons:  The contribution to such fund need not be
a. There is no prohibition for a partnership cash or fixed assets; it could be an
being a partner in another partnership. intangible like credit or industry.
b. A corporation cannot become a member of OBJECT MUST BE LAWFUL
a partnership in the absence of express
authorizatio by statute or charter. (Mendiola  The object is unlawful when it is contrary to
v CA) law, morals, good customs, public order, or
public policy.
J.M. TUASON & CO., INC. V. BOLNAOS, 95 PHIL
 The purpose must be lawful, otherwise the
106-113
contract is void.
 Through a corporation has no power to  The parties possess absolute freedom to
enter into a partnership, it may nevertheless choose the transaction or transactions they
enter into a joint venture with another where must engage in. The only limitation is that
the nature of that venture is in line with the the object must be lawful and for the
business authorized by its charter. common benefit of the members.
 Effects of unlawful partnership:
TITLE IV POWERS OF CORPORATIONS
1. Contract is void ab initio and the
SEC. 35. Corporate Powers and Capacity – Every partnership never existed in the eyes
corporation incorporated under this Code has the power of law.
and capacity: 2. Neither party has the right to require
the division of the profits; if any
(h) To enter into a partnership, joint venture, merger, 3. Profits shall be confiscated in favor
consolidation, or any other commercial agreement with of the government
natural and juridical persons;
 4. The instrument or tools and  There must be a joint interest in profits. It is
proceeds of the crime shall also be necessary that there be an intention to
forfeited in favor of the government. divide the profits among themselves.
5. The contributions of the parts shall  Sharing of losses is a necessary incident or
not be confiscated unless they fall consequence of obtaining profit.
under #3 and #4.  Sharig of profit or loss need not to be equal.
 Generally, a stipulation that excludes a
partner from sharing in profits or losses is
ART. 1830. Dissolution is caused: void.
(1) Without the violation of the agreement between PRIMARY PURPOSE OF A PARTNERSHIP
the partners:
a. By the termination of the definite term or The partners entered into an agreed to become
particular undertaking specified in the equity-holders in a business enterprise. The
agreement. essence of an equity-holder is to participate in
b. By the express will of any partner, who must profits of the busineess, and consequently, he
act in good faith, when no definite term or ought to be ready to absorb the losses that may be
particular undertaking is specified. sustained.
c. By the express will of all the partners who TOCAO V CA, G.R. NO. 127405, SEPTEMBER 20,
have not assigned their interests or suffered 2001
them to be charged for their separate debts,
either before or after the termination of any FACTS: Petitioners Marjorie Tocao and William T.
specified term or particular undertaking. Belo argued that there was no partnership between
d. By the expulsion of any partner from the Petitioner Belo and respondent Nenita A. Anay in
business bona fide in accordance with such a Geminesse Enterprise.
power conferred by the agreement between
ISSUE: Whether or not William Belo is a partner.
the partners.
(2) In contravention of the agreement between the RULING: Belo is not a partner. No evidence was
partners. Where the circumstances do not permit presented to show that petitioner Belo participated in the
a dissolution under any other provision of this profits of the business enterprise. Respondent herself
article, by the express will of any partner at any professed lack of knowledge that petitioner Belo
time. received any share in the net income of the partnership.
(3) By any event which makes it unlawful for the On the other hand, petitioner Tocao declared that
business of the partnership to be carried on or petitioner Belo was not entitled to any share in the
for the members to carry it on in partnership. profits of Geminesse Enterprise. With no participation in
the profits, petitioner Belo cannot be deemed a partner
OBJECT MUST BE LAWFUL
since the essence of a partnership is that the partners
 An unlawful partnership is dissolved by share in the profits and losses.
operation of law upon the happening of an SEPARATE JURIDICAL PERSONALITY
event that makes it unlawful.
 A judicial decree is not required to dissolve ART. 1768. The partnership has a juridical personality
an unlawful partnership. It is only secured separate and distinct from that of each of the partners,
for the convenience and peace of mind of even in case of failure to comply with the requirements
the parties involved. of article 1772, first paragraph.

THE PURPOSE OR PRIMARY PURPOSE IS TO ART. 44-46

OBTAIN PROFITS AND TO DIVIDE THE SAME
ART. 44. The following are juridical persons:
AMONG THE PARTIES
XXX
 The very reason for existence of a business
partnership is to obtain profit or gain. (3) Corporations, partnerships and associations for
 Realization of profits need only be principle private interest or purpose to which the law
and not exclusive. grants a juridical personality, separate and
 distinct from that of each shareholder, partner or Those who, not being members of the partnership,
member. include their names in the firm name, shall be subject to
the liability of a partner.
ART. 45. XXX. Private corporations are regulated by
laws of general application on the subject. Partnerships FIRM NAME
and associations for private interest or purpose are
 Since a partnership has a separate juridical
governed by the provisions of this Code concerning
personality, a firm name is needed to
partnerships.
distinguish the identity of the partnership
ART. 46. Juridical persons may acquire and possess from the partners.
property of all kinds, as well as incur obligations and  The partners has the freedom to choose a
bring civil or criminal actions, in conformity with the firm name as long as it is not a misleading
laws and regulations of their organization. name (i.e., similar to another entity’s name,
or contrary to existing laws)
SEPARATE JURIDICAL PERSONALITY
 If a person’s name, who is not a partner, is
 A partnership has a personality separate included in the partnership’s name, they will
and distinct from that of each of the not acquire the rights of the partner but will
partners. be liable to third persons, who are in good
 A partnership is a juridical person to which faith, as a partner by estoppel.
the law grants a juridical personality. SOME SEC GUIDELINES ON THE USE OF
 As a juridical person, they may: PARTNERSHIP NAME
1. Acquire and possess property of all
kinds.  The partnership name shall bear the word
2. Incur obligations; and “Company” or “Co.”
3. Bring civil or criminal actions  If it is a limited partnership, the word
“Limited” or “Ltd.” Shall be included.
ART. 1774 & 1775  A professional partnership name may bear
ART. 1774. Any immovable property or an interest the word “Company”, “Associates”, or
therein may be acquired in the partnership name. Title so “Partners”, or other similar descriptions.
acquired can be conveyed only in the partnership name.
DETERMINATION IF A PARTNERSHIP EXISTS
ART.1775. Associations and societies, whose articles
ART. 1769. In determining whether partnership exists,
are kept secret among the members, and wherein any
these rules shall apply:
one of the members may contract in his own name with
third persons, shall have no juridical personality, and 1) Except as provided by Article 1825, persons
shall be governed by the provisions relating to co- who are not partners as to each other are not
ownership. partners as to third persons;
2) Co-ownership or co-possession does not itself
ART. 1775
establish a partnership, whether such co-owners
 It is essential that partners are fully informed or co-possessors do or do not share any profits
not only of the agreement but of all matter made by the use of the property;
affecting the partnership. 3) The sharing of gross returns does not of itself
 If the articles are kept secret, there is no establish a partnership, whether or not the
partnership and the law on co-ownership persons sharing them have a joint or common
shall prevail. right or interest in any property from which the
 Giving publicity to the articles is important to returns are derived;
protect the members of the 4) The receipt by a person of a share of the profits
association/society, and third persons from of a business is prima facie evidence that he is a
fraud or deceit. partner in the business, but no such inference
shall be drawn if such profits were received in
ART.1815. Every partnership shall operate under a firm payment:
name, which may or may not include the name of one or (a) As a debt by installments or otherwise;
more of the partners.
 (b) As wages of an employee or rent to a The primary purpose of a partnership is to share
landlord profit, not gross returns.
(c) As an annulty to a widow or representative
Sharing of gross returns generally constitute as
of a deceased partner;
commissions, wages, rent, or interest on a loan.
(d) AS interest on a loan, though the amount of
payment vary with the profits of the Sharing of business profits is a prima facie
business; evidence of a partnership
(e) As the consideration for the sale of a
goodwill of a business or other property by But no such inference shall be drawn if such profits
installments or otherwise. were received in payment of

When the contract is not clear if there is a a. Debt

partnership or not, the following are used as a b. Wages
guide: c. Rent
d. Annunity to a widow or representative of a
1. Persons who are not partners as to each deceased partner;
other are not partners as to 3rd person e. Interest on a loan;
(exemption: partner by estopel) f. Consideration for the sale of a goodwill of a
2. Co-ownership does not equate to business or other property.
partnership, even if there is a share in profit.  It is the sharing of profit as owner that
3. Share of gross returns does not establish a makes one a partner.
partnership.
4. Sharing of business profits is a prima facie TYPES OF PARTNERSHIPS
evidence of a partnership. a. As to the extent of its subject matter/ As to
Persons who are not partners as to each other the object
are not partners as to 3rd person i. Universal – Arts. 1777, 1782
1. Universal partnership of all
The agreement of two or more persons to “bind present property – Art. 1778,
themselves” to jointly pursue a business venture 1779
constitutes the very nexus by which the contract of 2. Universal partnership of profits –
partnership arises under Article 1767. Art, 1780, 1781
No person can find himself a partner in a ii. Particular – Art. 1783
partnership unless he previously consented to be in
such contractual relationship. b. As to the liability of the partners/ As to the
Extent of Partner’s Liability
Co-ownership does not equate to partnership, i. General partnership – Art. 1816
even if there is a share in profit ii. Limited partnership – Art. 1843
There is co-ownership whenever the ownership of
c. As to its duration
an undivided thing or right belongs to different
i. Partnership at will – Art. 1785
persons. (Art. 484)
ii. Partnership with a fixed term – Art.
Co-ownership Partnership 1785
Can be created without Can be created only be
a contract contract d. As to its legality of its existence
Has no juridical Has juridical i. De jure
personality personality ii. De facto
Purpose is collective Purpose is to obtain
enjoyment of the thing profit e. As to representation to others
i. Ordinary/real partnership
Share of gross returns does not establish a ii. Ostensible or partnership by
partnership estoppel – Art. 1825

f. As to purpose
 i. Commercial/trading partnership – 3. Properties owned at formation – part of
Art. 1767 common fund, but can be excluded by
ii. Professional partnership – Art. 1767 stipulation.
4. Properties acquired after formation – part of
UNIVERSAL PARTNERSHIP
common fund only if stipulated (except if
ART. 1777, 1778, 1780 acquired through inheritance, legacy or
donation)
ART. 1777. A universal partnership may refer to all the
present property or to all the profits. ILLUSTRATION

ART. 1778. A partnership of all present property is that X and Z agreed to form a universal partnership of
in which the partners contribute all the property which all present property. Which of the following
actually belongs to them to a common fund, with the properties will form part of the common fund?
intention of dividing the same among themselves, as
I. House and lot of Z purchased before
well as all the profits which they may acquire therewith.
formation
ART. 1780. A universal partnership of profits comprises II. Car of X purchased after formation
all that the partners may acquire by their industry or III. Salary earned by Z during the duration
work during the existence of the partnership. of the partnership
IV. Properties inherited by X from their
XXX mother before formation.
UNIVERSAL PARTNERSHIP OF ALL PRESENT V. Properties donated to Z as a gift given
PROPERTY after the formation.
VI. Rentals earned from IV after the
The following will become the common property of formation
the partners:
UNIVERSAL PARTNERSHIP OF PROFITS
1. Property which belong to them at the time of
constitution of the partnership; and The following will become the common property of
2. Profits earned from property contributed. the partners:

FUTURE PROPERTY 1. Profits and income from the work or industry

of the partners; and
General Rule: Properties acquired after the time of 2. Usufruct of the property that the partners
constitution will form part of the common fund. may possess at the time of celebration of
the contract.
Exemption:
Only the profit, income, and the usufruct of the
1. It is stipulated
properties is passes on to the partnership. Not the
2. It falls under “profit” or “gains”
ownership.
Properties acquired by (a) inheritance, (b) legacy,
Fruits from properties subsequently acquired does
or (c) duration will never be part of the common
not belong to the partnership. However, the
fund. However, its fruits can be part of the common
partners may stipulate the contrary.
fund if stipulated.
ILLUSTRATION
Note: Profits from other sources (ex. Salary), will
become common property if stipulated. In a universal partnership of profit, identify if it will
be part of the common fund:
UNIVERSAL PARTNERSHIP
I. Fruits from property owned by the
1. Fruits, profits, and gains from common fund
partner at the time of partnership
– part of common fund.
formation.
2. Fruits, profits, and gains from properties not
II. Salaries and wages
part of the common fund – part of common
III. Winnings in lotto
fund only if stipulated.
IV. Rentals from a house acquired after
formation
ART. 1781. Articles of universal partnership, entered  Partnership with a fixed term
into without specification of its nature, only constitute a  Partnership for a particular undertaking
universal partnership of profits.
Both will automatically dissolve upon expiration of
Take note that even without this provision, the same the stipulated term or the achievement of the
rule will apply because of Article 1378 particular undertaking.
ART. 1782. Persons who are prohibited from giving If the partnership is continued after it has
each other any donation or advantage cannot enter into terminated without any express agreement,
universal partnership. partnership then become a partnership at will.
A partnership formed in violation of Art. 1782 is null
and void. No legal personality is acquired.
The following cannot become partners in a
universal partnership: PARTNERSHIP AT WILL

1. Husband and wife A partnership where no time is specified and is not

2. Persons living together as husband and wife formed for a particular undertaking or venture and
without a valid marriage which may be terminated at any time by mutual
3. Between persons who were guilty of agreement of the partners, or by the will of any
adultery and concubinage at the time of partner alone; or one for a fixed term of particular
donation. (Conviction is not required) undertaking which is continued by the partners after
4. Between persons who were found guilty of the termination of such term or particular
the same criminal offense undertaking without express agreement.
5. Those made to a public officer or his wife, TYPES OF PARTNERS
descendants, and ascendants, by reason of
his office. I. Kind of partners
a. Industrial – Arts. 1789; 1797
ART. 1783. A particular partnership has for its object b. Capitalist – Arts. 1789; 1790, 1797,
determinate things, their use or fruits, or specific 1808
undertaking, or the exercise of a profession or vocation. c. Mixed
PRESUMPTION d. General Partner
e. Limited Partner
Unless the parties so stipulate in their articles of f. Managing – Arts.1792, 1800, 1801,
partnership that they are entering into a universal 1802
partnership, it would be presumed that they have g. By estoppel – Art. 1825
existing between them merely a particular h. Silent Partner
partnership. i. Dormant Partner
j. Secret Partner
PARTNERSHIP AS TO DURATION
SECTION 1: OBLIGATIONS OF THE PARTNERS
ART. 1785. When a partnership for a fixed term or
AMONG THEMSELVES
particular undertaking is continued after the termination
of such term or particular undertaking without any ART. 1784. A partnership begins from the moment of
express agreement, the rights and duties of the partners the execution of the contract, unless it is otherwise
remain the same as they were at such termination, so far stipulated.
as is consistent with a partnership at will.
When a partnership begins
A continuation of the business by the partners or such of
them as habitually acted therein during the term, without GENERAL RULE: From the moment of the execution
any settlement or liquidation of the partnership affairs, is of the contract.
prima facie evidence of a continuation of the partnership. EXCEPTION: When there is contrary stipulation
Art. 1785 describes three types of partnerships, WHEN A PARTNERSHIP BEGINS
namely:
Rule if Contributions Have Not Yet Been The failure to deliver the property on time has the
Actually Made effect of depriving the partnership with an
opportunity to obtain profit. Thus the injury to the
Generally, even if contributions have not yet been
partnership is constant.
made, the firm already exists, for partnership is
consensual contract (of course all the requisite ART. 1787. When the capital or a part thereof which a
formalities for such consent must be present). partner is bound to contribute consists of goods, their
appraisal must be made in the manner prescribed in the
ART. 1790. Unless there is a stipulation to the contrary,
contract of partnership, and in the absence of stipulation,
the partners shall contribute equal shares to the capital of
it shall be made by experts chosen by the partners, and
the partnership.
according to current prices, the subsequent changes
General Rule: Partners shall contribute equal shares to thereof being for account of the partnership.
the capital of the partnership.
Exemption: Unless there is stipulation.
CONTRIBUTION OF PROPERTIES
APPRAISAL OF CONTRIBUTED PROPERTY
ART. 1786. Every partner is a debtor of the partnership
The requirement in Art. 1787 is to ensure that the
for whatever he may have promised to contribute
capital account of the partner is properly credited
thereto.
with the correct value of the property contributed.
He shall also be bound for warranty inn case of eviction
Appraisal is made through the following:
with regard to specific and determinate things which he
may have contributed to the partnership, in the same 1. Manner prescribed in the contract of
cases and in the same manner as the vendor is bound partnership; or
with respect to the vendee. He shall also be liable for the 2. In the absence of stipulation, it shall be
fruits thereof from the time they should have been made by experts chosen by the partners,
delivered, without the need of any demand. and according to current prices.
Article 1786 speaks of three things: After goods have been contributed, the partnership
bears the risks of subsequent changes in their
a. The duty to contribute what had been
value.
promised;
b. The duty to deliver the fruits of what should ART. 1795. The risk of specific and determinate things,
have been delivered; and which are not fungible, contributed to the partnership so
c. The duty to warrant that only their use and fruits may be for the common
benefit, shall be borne by the partner who owns them.
Note: Art. 1786 mainly tackles contributions in the
form of properties. Contributions made in cash is If the things contribute are fungible, or cannot be kept
governed by Art. 1788. without deteriorating, or if they were contributed to be
sold, the risk shall be borne by the partnership. In the
Failure to deliver what was promised
absence of stipulation, the risk of the things brought and
The other partners or the partnership can bring an appraised in the inventory, shall also be borne by the
action for specific performance with damages and partnership, and in such case the claim shall be limited to
interest from the time he should have complied with the value at which they were appraised.
his obligation.
The article speaks of 5 scenarios on who will bear
Recission or annulment is proper if there is fraud or the risk of loss
misrepresentation committed by one of the parties.
Duty to deliver fruits of the property
In case of delay, the partner in default shall also
deliver to the common fund the fruits of property
from the date they should have been contributed up
to the time of actual delivery.
 SCENARIO WHO WILL
SHOULDER THE
If the thing to be contributed is not yet delivered, RISK OF LOSS
the partner shall bear the risk of loss. Non-fungible things Partner who
where the usufruct is contributes it.
CONTRIBUTION OF MONEY
contributed.
ART. 1788. A partner who has undertaken to contribute Things transferred to Partnership
a sum of money and fails to do so becomes a debtor for the partnership.
the interest and damages from the time he should have Fungible things or Partnership
complied with his obligation. things that deteriorates.
Things contributed to Partnership
The same rule applies to any amount he may have taken be sold.
from the partnership coffers, and his liability shall begin Things brought and Partnership
from the time he converted the amount to his own use. appraised in the
inventory.
There are two cases that is contemplated in this RESPONSIBILITY OF THE PARTNERSHIP
article:
Every partner is an agent of the partnership for the
a. When money promised is not given on time: purpose of its business. Hence, the partnership has
b. When partnership money is used for the the obligation to:
partner’s personal use
1. Refund the amounts disbursed by the
In both cases the guilty partner will be liable for partner in behalf of the partnership plus
damages and interest (at the rate stipulated or the interest from the time the expenses are
legal interest) made;
 In situation (a) – liable from the time he 2. To answer for the obligations the partner
should have complied with his obligation. may have contracted in good faith in the
interest of the partnership business; and
 In situation (b) – from the time he
converted the amount to his own use. Partner Rule Consequence Exemptio
n
ILLUSTRATION Capitalis Cannot Bring to the Stipulation
t Partner engage in common funds
1. Jihyo, Mina, and Momo entered into a a business any profits
partnership were each will contribute 10,000 as the accruing to him
upon formation. However, Mina only same kind from his
contributed 4,000 and the remaining 6,000 as the transactions, and
was given after 10 days. No demand was partnership shall personally
made. Is Mina liable for damages and . bear all the
interest? losses.
2. Partner Momo is entrusted with 23,000 to Industria Cannot Capitalist partners Stipulation
buy needed supplies for the business. The l Partner engage in may either
supplies cost 20,500. Momo then used the business 1. Exclude
for himself. him from
remaining money to buy groceries for her
the firm or
family. Is Momo liable for damages and 2. Avail
interest? themselve
ART. 1796. The partnership shall be responsible to s of the
benefits
every partner for the amounts he may have disbursed on
which he
behalf of the partnership and for the corresponding
may have
interest, from the time the expense are made; it shall also obtained
answer to each partner for the obligations he may have in violation
contracted in good faith in the interest of the partnership of this
business, and for risks in consequence of its provision.
management. 3. With a
right to
damages
in either
case.
 3. Answer for risks in consequence of 2. Is the industrial partner covered by the
management. provision?
OTHER OBLIGATION OF THE PARTNERS ART. 1792. If a partner authorized to manage collects a
demandable sum which was owed to him in his own
ART. 1789. An industrial partner cannot engage in
name, from a person who owed the partnership another
business for himself, unless the partnership expressly
sum also demandable, the sum thus collected shall be
permits him to do so; and if he should do so, the
applied to the two credits in proportion to their amounts,
capitalist partners may either exclude him from the firm
even though he may have given a receipt for his own
or avail themselves of the benefits which he may have
credit only, the amount shall be fully applied to the
obtained in violation of this provision, with a right to
latter.
damages in either case.
The provisions of this article are understood to be
ART. 1808. The capitalist partners cannot engage for
without prejudice to the right granted to the other debtor
their own account in any operation which is of the kind
by article 1252, but only if the personal credit of the
of business in which the partnership is engaged, unless
partner should be more onerous to him.
there is stipulation to the contrary.
ART. 1793. A partner who has received, in whole or in
Any capitalist partner violating this prohibition shall
part, his share of a partnership credit, when the other
bring to the common funds any profits accruing to him
partners have not collected theirs, shall be obliged, if the
from his transactions, and shall personally bear all the
debtor should thereafter become insolvent, to bring to
losses.
the partnership capital what he received even though he
may have given receipt for his share only.

ART. 1791. If there is no agreement to the contrary, in

case of an imminent loss of the business of the
REQUISITES FOR APPLICATION
partnership, any partner who refuses to contribute an
additional share to the capital, except an industrial 1. The debtor has two debts, one to the
partner, to save the venture, shall be obliged to sell his partnership, and the other to the partner.
interest to the other partners. 2. The partner creditor is authorized to
manage and actually manages the
IMMINENT LOSS
partnership.
In case of imminent loss, a capitalist partner is 3. Both debts are demandable.
bound to contribute, unless otherwise stipulated.
If all requisites are present, the following rules shall
If the capitalist partner refuses, they shall be apply:
obliged to sell his interest to the other partners.
 Issues receipt under the name of the
Requisites partner – pro rata
 Issues receipt under the partnership name –
1. There is an imminent loss of the business of the apply to all partnership
partnership.
2. Majority of the capitalist partners are of the ILLUSTRATTION
opinion that an additional contribution to the
A, B, and C are partners in X Co. A is the managing
common fund would save the business.
partner.
3. Capitalist partners refuses deliberately (not due
to financial inability), to contribute an additional Z is indebted to X Co. for P 3,000. Z is also
share of capital. indebted to A and B for 2,000 and 5,000
4. There is no agreement to the contrary. respectively.
ILLUSTRATTION How much is to be given to the partnership under
the following:
1. Can a capitalist partner be compelled to
contribute in case of imminent loss?
 i. Z paid A and the latter issues a personal i. If only the share of profit is agreed upon,
receipt for P4,000. the share of losses shall be in the same
ii. Z paid B and the latter issues a personal proportion.
receipt for 2,500 ii. In cases of industrial partners:
iii. Z paid A and the latter issues a receipt a) They shall not be liable for losses;
under the partnership name for 2,000 b) If he contributed capital, he shall
also receive a share in the profits in
ART. 1794. Every partner is responsible to the
proportion to his capital
partnership for damages suffered by it through his fault,
and he cannot compensate them with the profits and ART. 1799. A stipulation which excludes one or more
benefits which he may have earned for the partnership partners from any share in the profits or losses is void.
by his industry. However, the courts may equitably
ART. 1798. If the partners have agreed to entrust to a
lessen this responsibility if through the partner’s
third person the designation of the share of each one in
extraordinary efforts in other activities of the
the profits and losses, such designation may be
partnership, unusual profits have been realized.
impugned only when it is manifestly inequitable. In no
IF THE PARTNER CAUSED DAMAGES TO THE case may a partner who has begun to execute the
PARTNERSHIP decision of the third person, or who has not impugned
the same within a period of three months from the time
General Rule: The guilty partner is liable.
he had knowledge thereof, complain of such decision.
Damages cannot be set off or offset.
The designation of losses and profits cannot be entrusted
Exemption: If the partner realized unusual profit
to one of the partners.
through the extraordinary effort of the partner at
fault, the courts may lessen the damages. 3RD PERSON DECIDES THE SHARING OF P/L
PROFITS AND LOSSES Rules if a 3rd person designates the share of
profits and losses
ART. 1797. The losses and profits shall be distributed in
conformity with the agreement. If only the share of each 1. The consent of all partners is needed to
partner in the profits has been agreed upon, the share of delegate a 3rd person
each in the losses shall be in the same proportion. 2. The decision of the 3rd person is binding
In the absence of stipulation, the share of each partner in When is the decision not binding?
the profits and losses shall be in proportion to what he
a. When it is impugned by a partner
may have contributed, but the industrial partner shall not
be liable for the losses. As for the profits, the industrial  A partner who executes the decision
partner shall receive such share as may be just and cannot impugned
equitable under the circumstances. If besides his services  The action must be bought 3 months from
he has contributed capital, he shall also receive a share in the time he had knowledge.
the profits in proportion to his capital. b. It is inequitable.

DISTRIBUTION OF PROFITS AND LOSSES ILLUSTRATION

General Rule: Profits and losses shall be shared Identify if the stipulation is void or valid
according to their agreement. i. In case of profit, the partners will share
If there is no agreement: on a ratio of 5:4:1, however in case of
losses, the share will be 1:2:1
1. The capitalist partner shall share in ii. A stipulation that excludes the industrial
proportion to their capital contribution. partner from sharing in the losses.
2. The industrial partner shall as may be just iii. One of the partners is entrusted with the
and equitable under the circumstances. designation of profits and losses. The
partner designate a 2:2:3 share. All
Notes:
other partners did not refuse.
WHEN THE RIGHTS TO PROFITS ACCRUE
SISON v MCQUAID partnership, the court’s intervention may be
sought.
FACTS: Sison and McQuaid are the partners in a
lumber business. They share 50:50. ART. 1818. Every partner is an agent of the partnership
for the purpose of its business, and the act of every
 The partnership sold to the United States Army partner, including the execution in the partnership name
230,000 board feet of lumber for 13,800. Later of any instrument, for apparently carrying on in the usual
the full amount is paid. way the business of the partnership of which he is a
 Sison repeatedly demanded McQuaid to deliver member binds the partnership, unless the partner so
one-half of it, or 6,900 to him. acting has in fact no authority to act for the partnership
 However, McQuaid has persistently refused to in the particular matter, and the person with whom he is
deliver. dealing has knowledge of the fact that he has no such
ISSUES: Whether or not Sison is entitled to the share of authority.
6,900. An act of a partner which is not apparently for the
RULING: No, because the complaint states no cause of carrying on of business of the partnership in the usual
action. Plaintiff seeks to recover from defendant one-half way does not bind the partnership unless authorized by
of the purchase price of lumber sold by the partnership. the other partners.
But his complaint does not show why he should be HOW IS THE PARTNERSHIP MANAGED?
entitled to the sum he claims. It does not alleged that
there has been a liquidation of the partnership business PRINCIPLE OF MUTUAL AGENCY
and the said sum has been found to be due him as his A mutual agency is legally binding relationship
share of the profits. The proceeds from the sale of a entered into by business partners, which gives
certain amount of lumber cannot be considered profits each partner authority on behalf of the business.
until costs and expenses have been deducted. Moreover, Each partner may act as individuals in their
the profits of the business cannot be determined by everyday responsibilities, but ultimately, the
taking into account the result of one particular partners are each responsible for the actions taken
transaction instead of all the transactions had. Hence, the by the other.
need for a general liquidation before a member of a
partnership may claim a specific sum as his share of the Whatever any one of them may do alone shall bind
profits. the partnership.
In view of the foregoing, the order of dismissal is If there is no stipulation
affirmed, but not on the ground that the complaint states
no cause of action and without prejudice to the filing of
an action for accounting or liquidation should that be
what plaintiff really wants.
General Rule:
MANAGEMENT OF THE PARTNERSHIP
 Every partner is an agent of the partnership.
ART. 1803. When the manner of management has not They have equal rights in the management
been agreed upon, the following rules shall be observed: and conduct of the partnership business.
(1) All the partners shall be considered agents and  All of their acts done alone shall bind the
whatever any one of them may do alone shall partnership (Art. 1803) as long as it is
bind the partnership, without prejudice to the apparent for the carrying on of the business
provisions of Article 1801. of the partnership in the usual way. (Art.
(2) None of the partners may, without the consent of 1818)
the other, make any important alteration in the Exemption:
immovable property of the partnership, even if it
may be useful to the partnership. But if the  Acts that is NOT for the usual carrying on of
refusal of consent by the other partners is business.
manifestly prejudicial to the interest of the
  The partner needs authorization from all the partners, unless he should act in bad faith; and his power
other partners or unless they have is irrevocable without just or lawful cause. The vote of
abandoned the business. the partners representing the controlling interest shall be
necessary for such revocation of power.
Acts that is NOT for the usual carrying on of
business. A power granted after the partnership has been
constituted may be revoked at any time.
Except when authorized by the other partners or
unless they have abandoned the business, one or WHO IS THE MANAGING PARTNER?
more but less than all the partners have no
Managing Partner
authority to:
The partners may appoint a manager or allocate
1. Assign the partnership property in trust for
functions to one or more partners.
creditors or on the assignee’s promise to
pay the debts of the partnership. The managing partner can execute acts of
2. Dispose of the good-will of the business administration without need of consent of the other
3. Do any other act which would make it partners.
impossible to carry on the ordinary business
of a partnership APPOINTMENT OF A MANAGING PARTNER
4. Confess a judgment Appointment in the Articles of Partnership (Art.
5. Enter into a compromise concerning a 1800)
partnership claim or liability
6. Submit a partnership claim or liability Extent of Power:
arbitration
a. If he acts in good faith, he may perform all
7. Renounce a claim of the partnership.
acts of administration, despite opposition of
Acts in the ordinary course of business: Any partner the other partners;
can bind the partnership b. If in bad faith, he cannot

Acts of ownership: Needs to be authorized by all other Revocation of Power:

partners.
a. General Rule: Power is irrevocable
Immovables b. When power can be revoke:
 There must be a just or lawful cause + vote
General Rule: In the absent of any stipulation to of partners having controlling interest; or
the contrary, any partner can make decisions  If there is no just or lawful cause, the
regarding the partnership immovables.
unanimous consent of all partners (including
Exemption: In case of important alteration in the the managing partner) is needed.
immovable property of the partnership, the consent
of all partners are needed.
Appointment AFTER the Constitution of the
But if some partners refuses to the important
Partnership
alteration and it is prejudicial to the interest of the
partnership, the courts intervention may be sought. Extent of Power:
ILLUSTRATION a. He may perform all acts of administration;
b. If other opposes, he can be removed.
Identify if the following acts needs the consent of all
the partners or not for it to be binding
1. Answering customer’s queries
2. Payment of loan owed to creditors
3. Admission of a new partner
ART. 1800. The partner who has been appointed
manager in the articles of partnership may execute all
acts of administration despite the opposition of his
Revocation of Power  Some say that only the vote of the
managing partners is counted.
He maybe revoked at any time for any cause
whatsoever + vote of the partners owning the ILLUSTRATION
controlling interest.
W, X, Y, and Z are partners with each having a
ILLUSTRATION capital interest of 15%, 20%, 30%, and 35%
respectively. W and Y are the managing partners.
A, B, C, and D are partners having capital interest
of 10%, 20%, 30%, and 40% respectively. B is the The partnership is choosing who will be their
managing partner. supplier, either A Corp. or B Corp.
Sarah is applying to be the partnership’s store Who will be the supplier under each of the following
cashier. scenarios:
In each of the following scenario, decide if Sarah is Voting for A Corp. Voting for B
employed or not. Corp.
1.  W and Y X and Z
Employee Sarah Deny Sarah
2. W and X  Y and Z
1.  A, B, C D
3. W and Z  Y and X
2.  B A,C,D
3. A,C  B,D
ART. 1802. In case it should have been stipulated that
none of the managing partners shall act without the
ART. 1801. If two or more partners have been entrusted consent of the others, the concurrence of all shall be
with the management of the partnership without necessary for the validity of the acts, and the absence or
specification of their respective duties, or without a disability of any one of them cannot be alleged, unless
stipulation that one of them shall not act without the there is imminent danger of grave or irreparable injury to
consent of all the others, each one may separately the partnership.
execute all acts of administration, but if any of them
should oppose the acts of the others, the decision of the Situation: The partnership can stipulate that
majority shall prevail. In case of a tie, the matter shall be consent of all managing partners is necessary for
decided by the partners owning the controlling interest. the validity of their acts. (Joint Management)
The absence or disability of any one of them is not
an excuse.
Exemption: Managing partner/s can act alone or
INCASE OF MULTIPLE MANAGING PARTNERS
without the consent of the others if there is an
A. There is specification as to their imminent danger of grave or irreparable injury to
authority the partnership.

Each managing partner shall perform only the ART. 1804. Every partner may associate another person
duties specified in their appointment. with him in his share, but the associate shall not be
admitted into the partnership without the consent of all
B. There is NO specification as to their the other partners, even if the partner having an associate
authority should be a manager.
Each managing partner may separately execute CONTRACT OF SUBPARTNERSHIP
all acts of administration.
A partner may associate another person with him in
In case of opposition of the other managers: his share without the consent of the other partners.
1. Decision of the majority of the managing It can be entered by any partner and it does not
partner shall prevail. affect the partnership contract.
2. In case of a tie, the vote of the partners
owning the controlling interest shall prevail. The subpartner will not have any right to intervene
in the partnership affairs.
PARTNERSHIP BOOKS AND ACCOUNTS (1) If he is wrongfully excluded from the
partnership business or possession of its
ART. 1805. The partnership books shall be kept, subject
property by his co-partners;
to any agreement between the partners, at the principal
(2) If the right exists under the terms of any
place of business of the partnership, and every partner
agreement;
shall at any reasonable hour have access to and may
(3) As provided by artilee 1807;
inspect and copy any of them.
(4) Whenever other circumstances render it just and
RIGHT TO ACCESS reasonable.

 Each partner has the right to free access to RIGHT TO FORMAL ACCOUNT
the partnership books and to inspect or General Rule:
copy them as he sees fit.
 The partnership books shall be kept at the
principal place of business, unless there is
stipulation to the contrary.
 The partners may only inspect the books at
any reasonable hour. Reasonable hour
means hours on business days.
 This right is granted to enable the partners
to have true and full information of all things
affecting the partnership. During the existence of the partnership, a partner is
not entitled to a formal accounting of partnership’s
PARDO V HERCULES LUMBER CO., G.R. NO. L- affairs.
22442, AUGUST 1, 1924

Exceptions:
ART. 1806. Partners shall render on demand true and
full information of all things affecting the partnership to 1. Upon dissolution
any partner or the legal representative of any deceased 2. If he is wrongfully excluded from the
partner or of any partner under legal disability. partnership business or possession of its
property by his co-partners;
 Under the principle of mutual trust and 3. If the right exists under the terms of any
confidence among partners, there must be agreement; (stipulation)
no concealment between them in matters 4. As provided by article 1807
affecting the partnership. 5. Whenever other circumstances render it just
 Upon demand, partners shall render true and reasonable.
and full information of all things that affect
the partnership to the other partner who
demands or request it. OBLIGATIONS AND LIABILITY OF THE
PARTNERSHIP FOR ACTS OF THE PARTNERS
ART. 1809. Any partner shall have the right to a formal
account as to partnership affairs: ART. 1818. Every partner is an agent of the partnership
for the purpose of its business, and the act of every
partner, including the execution in the partnership name misapplied by any partner while it is in the
of any instrument, for apparently carrying on in the usual custody of the partnership. (n)
way the business of the partnership of which he is a
ART. 1824. All partners are liable solidarily with the
member binds the partnership, unless the partner so
partnership for everything chargeable to the partnership
acting has in fact no authority to act for the partnership
under articles 1822 and 1823. (n)
in the particular matter, and the person with whom he is
dealing has knowledge of the fact that he has no such WRONGFUL ACTS OF THE PARTNERS
authority.
The partnership is solidarily liable with all of the
An act of a partner which is not apparently for the partners for the following acts:
carrying on of business of the partnership in the usual
way does not bind the partnership unless authorized by 1. Wrongful act or omission of any partner
the other partners. acting in the ordinary course of the business
of the partnership or with the authority of his
WHEN PARTNERSHIP IS BOUND co-partners, loss or injury is caused to any
person, not being a partner in the
The partnership shall be liable to 3 rd persons for
partnership, or any penalty is incurred.
the following acts of the partners:
2. Where one partner acting within the scope
a. When partner is authorized to act for the of his apparent authority receives money or
partnership. property of a third person and misapplies it.
b. If partner is NOT authorized to act: 3. Where the partnership in the course of its
i. Act is for the carrying on the usual business receives money or property of a
way of business; and third person and the money or property so
ii. 3rd person has no knowledge of the received is misapplied by any partner while
partner’s lack of authority. it is in the custody of the partnership.
The partnership is NOT liable to 3 rd persons for Note: the injured party may run after the
the following acts of the partners: partnership, or ANY of the partners individually to
satisfy his claim.
a. When 3rd person has knowledge of partner’s
lack of authority; or ILLUSTRATION
b. If the act is not apparent to the carrying on
Partner Z is tasked to deliver goods to a customer
the usual way the business of the
using the partnership van.
partnership. (Knowledge is immaterial)
i. On the way to the customer, Z run over
ART. 1822. Where, by any wrongful act or omission of
a pedestrian.
any partner acting in the ordinary course of the business
ii. Before delivering the goods, Z made a
of the partnership or with the authority of his co-
side trip to visit his friend, however on
partners, loss or injury is caused to any person, not being
the way, he run over a pedestrian.
a partner in the partnership, or any penalty is incurred,
the partnership is liable therefor to the same extent as the Harold hired a law firm to represent him in a labor
partner so acting or omitting to act. (n) dispute. Harold gave one of the partners, Jenny,
money to invest in the stock market. However,
Jenny misappropriates the money.
ART. 1823. The partnership is bound to make good the
Is the law firm liable for the misappropriation?
loss:
ART. 1816. All partners, including industrial ones, shall
(1) Where one partner acting within the scope of his
be liable pro rata with all their property and after all the
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
partnership assets have been exhausted, for the contracts
which may be entered into in the name and for the
PARTNERS BY ESTOPPEL
account of the partnership, under its signature and by a
person authorized to act for the partnership. However, ART. 1825. When a person, by words spoken or written
any partner may enter into a separate obligation to or by conduct, represents himself, or consents to another
perform a partnership contract. representing him to anyone, as a partner in an existing
partnership or with one or more persons not actual
ILLUSTRATION
partners, he is liable to any such persons to whom such
A and B are partners contributing 20,000 each. A representation has been made, who has, on the faith of
loan was contracted for 50,000. such representation, given credit to the actual or apparent
partnership, and if he has made such representation or
Partnershi A B consented to its being made in a public manner he is
p
liable to such person, whether the representation has or
Share of 40,000 5,000 5,000
has not been made or communicated to such person so
liability
giving credit by or with the knowledge of the partner
making the representation or consenting to its being
ART. 1826. A person admitted as a partner into an made:
existing partnership is liable for all the obligations of the
(1) When a partnership liability results, he is liable as
partnership arising before his admission as though he
though he were an actual member of the partnership;
had been a partner when such obligations were incurred,
except that this liability shall be satisfied only out of (2) When no partnership liability results, he is liable pro
partnership property, unless there is a stipulation to the rata with the other persons, if any, so consenting to the
contrary. contract or representation as to incur liability, otherwise
separately.
LIABILITY OF A NEW PARTNER
When a person has been thus represented to be a partner
General Rule: New partner is liable for all
in an existing partnership, or with one or more persons
obligation existing at the time of his admission.
not actual partners, he is an agent of the persons
However, their liability is limited to his share in the
consenting to such representation to bind them to the
partnership property.
same extent and in the same manner as though he were a
Exception: Stipulation. partner in fact, with respect to persons who rely upon the
representation. When all the members of the existing
ILLUSTRATION
partnership consent to the representation, a partnership
A and B are partners contributing 20,000 each. act or obligation results; but in all other cases it is the
Later, they admitted C as a new partner where she joint act or obligation of the person acting and the
contributed 30,000. Assume the following persons consenting to the representation.
independent scenarios:
General Rule: Persons who are not partners as to
each other are not partners as to 3rd persons.
Exception: Partner by estopel. One may become
liable as a partner even though he is not a partner
i. A loan contracted before C’s admission in fact.
in the amount of 80,000.
Requisites:
Partnership A B C
Share of 70,000 5,000 5,000 1. The person represents himself, or consents
liability to another representing him to anyone, as a
partner in an existing partnership or with
one or more persons not actual partners.
ii. A loan contracted after C’s admission in 2. The 3rd person, to whom such
the amount of 100,000. representation has been made, who has, on
Partnership A B C the faith of such representation, given credit
Share of 70,000 8.57k 8.57k 12.86k to the actual or apparent partnership.
liability
Estopel may arise through the following 1. To receive profits
2. To avail himself the usual remedies
1. Person represents himself as partner in a
provided by law in the event of fraud in the
partnership.
management.
3. To receive assignor’s interest in case of
a. All partners consented to the
dissolution
misrepresentation.
4. To require an account of partnership affairs
Partnership will be liable. If partnership
(only when partnership is dissolved)
asset’s insufficient, the partners and the
partner by estoppel shall be liable for their The assignee DOES NOT have the right:
separate properties.
b. Not all partners consented 1. To interfere in the management
Partnership will NOT be liable. The 2. To require any information or account
consented partners and the partner by 3. To inspect any of the partnership books
estoppel shall be personally liable jointly or
pro rata. DISSOLUTION AND WINDING UP
2. Person represents himself in a non-existing
ART. 1828. The dissolution of a partnership is the
partnership.
change in the relation of the partners caused by any
All persons will be liable jointly or pro rata.
partner ceasing to be associated in the carrying on as
ILLUSTRATION distinguished from the winding up of the business.
A and B are partners in Z Co. Later, C represented ART. 1829. On dissolution of the partnership is not
himself as a partner of Z to a Bank. On faith of this, terminated but continues until the winding up of
the bank extended a loan to Z Co. for P 15,000. partnership affairs is completed.
Who is liable DISSOLUTION (CHANGE IN THE PARTNERS)

Partnership A B C  The novation of the vinculum juris.

1. A and B      Change in the relation of the partners by
consented admission of new a partner or retirement of
2. Only A   an old partner.
Consented
3. D acted  WINDING UP (LIQUIDATION PROCESS)
alone
 The actual process of liquidation or settling
without
consent of business affairs after dissolution.
A and B. TERMINATION (SIGNIFIES THE END OF THE
4. Z Co.    PARTNERSHIP)
does not
exist  Point in time when:
1. All matters relating o the business
enterprise have been completed; and
2. When all the partnership affairs have
ASSIGNMENT OF PARTNER’S INTEREST IN THE been wound up.
PARTNERSHIP
CAUSES OF DISSOLUTION
 A partner’s specific partnership property is
EXTRAJUDICIAL DISSOLUTION
not assignable.
 A partner may assign his interest in the 1. ACT NOT IN VIOLATION OF
partnership to any of his co-partners or to a AGREEMENT
3rd person without the consent of the other a. Termination of the term or specific
partners, if there is no stipulation as to the undertaking.
contrary. b. By express will of the partner (good
faith)
Rights of the assignee c. Mutual withdrawal by all partners
 d. Expulsion of a partner. IF PARTNERSHIP IS DISSOLVED BY THE ACT,
DEATH, OR INSOLVENCY OF A PARTNER
2. ACT IN VIOLATION OF AGREEMENT
General Rule: Each partner is liable to his co-
a. Withdrawal before the term has expired
partners for his share of any liability created by any
or the specific undertaking has not yet
partner acting for the partnership as if the
been accomplished.
partnership had not been dissolved.
b. By express will of the partner (bad faith)
New contracts entered into after dissolution will still
3. OUTSIDE THE WILL OF THE PARTNERS bind the partnership.
a. Business becomes unlawful.
b. Loss of specific thing promised to Exception: If the partner acting for the partnership
contribute. had knowledge or notice of the dissolution,
c. Death, insolvency or civil interdiction of insolvency, or death.
the partner. The partnership is generally bound by new contract
d. Insolvency of the partnership. although authority of acting partner is already
JUDICIAL DISSOLUTION (BY COURT DECREE) deemed terminated but the innocent partners can
recover from the guilty partner.
On application by or for a partner the court shall decree a
dissolution whenever; The partnership is bound to 3rd persons after
dissolution for the following:
1. A partner has been declared insane in any
judicial proceeding or is shown to be of 1. Acts appropriate for winding up partnership
unsound mind. affairs.
2. A partner becomes in any other way 2. Acts completing unfinished transactions.
incapable of performing his part of the 3. Any transaction which would bind the
partnership contract. partnership if dissolution has not taken
3. A partner has been guilty of such conduct place provided the parties are in good faith,
as tends to affect prejudicially the carrying meaning the other party is:
on of the business. a. A previous creditor and he had no
4. A partner willfully or persistently commits a knowledge or notice of the dissolution;
breach of the partnership agreement, or or
otherwise so conducts himself in matter b. Not a previous creditor and the fact of
relating to the partnership business that it is dissolution had not been published in
not reasonably practicable to carry on the news paper of general circulation.
business in partnership with him. The partnership is NOT bound to 3rd persons after
5. The business of the partnership can only be dissolution for the following:
carried on at loss.
6. Other circumstances render a dissolution 1. Any transaction which would bind the
equitable. partnership if dissolution has not taken
place with 3rd persons in bad faith.
2. Partnership is dissolved because it is
EFFECTS OF DISSOLUTION unlawful to carry on the business, except
when the act is for winding up.
EFFECT ON PARTNER’S AUTHORITY 3. Where the acting partner is insolvent.
4. Where the partner is unauthorized to wind
General Rule: Dissolution terminates ALL Authority
up, except if the transaction is with 3rd
of any partner to act for the partnership.
person in good faith.
Exception: 5. Where act is inappropriate for winding up or
for completing unfinished transactions.
1. Acts necessary to wind up partnership
affairs; and
2. Acts necessary to complete transactions
begun not yet finished.
ILLUSTRATION (3) To be indemnified by the person guilty of
the fraud or making the representation
against all debts and liabilities of the
partnership. (damages)
PAYMENT OF LIABILITIES
The liabilities of the partnership shall rank in order
of payment as follows:
a. Those owing to creditors other than partners
1. Yes b. Those owing to partners other than for
2. No capital and profits
3. No c. Those owing to partners in respect of capital
d. Those owing to partners in respect of profits
ART. 1838. When a partnership contract is annulled on
the ground of fraud or misrepresentation of one of the If the partnership assets are not enough to cover
parties thereto, the party entitled to rescind is, without the liabilities, the partners shall contribute the
prejudice to any other right entitled: amount necessary to satisfy the liabilities.
(1) To a lien on, or right of retention of, the surplus RIGHTS OF A DECEASED PARTNER
of the partnership property after satisfying the
partnership liabilities to third persons for any ART. 1841. When any partner retires or dies, and the
sum of money paid by him for the purchase of business is continued under any of the conditions set
an interest in the partnership and for any capital forth in the preceding article, or in article 1837, second
or advances contributed by him. paragraph, No. 2, without any settlement of accounts as
(2) To stand, after all liabilities to third persons have between him or his estate and the person or partnership
been satisfied, in the place of the creditors of the continuing the business, unless otherwise agreed, he or
partnership for any payments made by him in his legal representative as against such person or
respect of the partnership liabilities. partnership may have the value of his interest at the date
(3) To be indemnified by the person guilty of the of dissolution ascertained, and shall receive as an
fraud or making the representation against all ordinary creditor an amount equal to the value of his
debts and liabilities of the partnership. interest in the dissolved partnership with interest, or, at
his option or at the option of his legal representative, in
RESCISSION OF THE PARTNERSHIP CONTRACT lieu of interest, the profits attributable to the use of his
right in the property of the dissolved partnership;
A partner may annul the partnership contract if they
provided that the creditors of the dissolved partnership
become a partner by reason of fraud or
as against the separate creditors, or the representative of
misrepresentation.
the retired or deceased partner, shall have priority on any
THE INJURED PARTY IS ENTITLED TO THE claim arising under this article, as provided by article
FOLLOWING: 1840, third paragraph. (n)
(1) To a lien on, or right of retention of, the When any partner retires or dies, and the business
surplus of the partnership property after is continued, the retired partner or his legal
satisfying the partnership liabilities to third representative shall have the right:
persons for any sum of money paid by him
1. To have the value of the retiring/deceased
for the purchase of an interest in the
partner interest at the date of dissolution
partnership and for any capital or advances
ascertained; and
contributed by him. (amount)
2. To receive as an ordinary creditor an
(2) To stand, after all liabilities to third persons
amount equal to the value of his interest in
have been satisfied, in the place of the
the dissolved partnership with interest, or, at
creditors of the partnership for any
his option or at the option of his legal
payments made by him in respect of the
representative, in lieu of interest, the profits
partnership liabilities. (priority)
attributable to the use of his right in the
property of the dissolved partnership.
ART. 1840 f. The amount of cash and a description of
and the agreed value of the other property
The remaining partners may continue the use the
contributed by each limited partner.
business of the partnership and may also use the
g. The additional contributions, if any, to be
same partnership name, or the name of a
made by each limited partner and the times
deceased partner as part thereof.
at which or events on the happening of
However, the inclusion of a deceased partner’s which they shall be made.
name in the partnership’s name shall not of itself
ART.1845. The contributions of a limited partner may
make the individual property of deceased partner
be cash or property, but not services.
liable for any debts contracted by such person or
partnership. CONTRIBUTIONS OF A LIMITED PARTNER
For law firms, the continued use of a name of a A limited partner can only contribute cash, and
deceased partner is permissible provided that the properties. Otherwise, they shall be liable as an
firm indicate in all its communication that said industrial and a general partner, in which they shall
partner is deceased. become personally liable.
LIMITED PARTNERSHIP An industrial partner can become a general partner
in a limited partnership, for the article speaks only
ART. 1843. A limited partnership is one formed by two
of a “limited partner”
or more persons under the provisions of the following
article, having as members one or more general partners ART. 1846. The surname of a limited partner shall not
and one or more limited partners. The limited partners as appear in the partnership name unless:
such shall not be bound by the obligations of the
(1) It is also the surname of a general partner, or
partnership.
(2) Prior to the time when the limited partner became
The following must be present to form a valid
such, the business had been carried on under a name in
limited partnership:
which his surname appeared.
1. There should be at least one (1) or more
A limited partner whose surname appears in a
general partners.
partnership name contrary to the provisions of the first
2. There should be at least one (1) or more
paragraph is liable as a general partner to partnership
limited partners.
creditors who extend credit to the partnership without
3. They should sign an swear to a certificate.
actual knowledge that he is not a general partner.
4. The certificate must be recorded with SEC
TYPES OF PARTNERS
If the proposed limited partnership has not
conformed substantially with the requirements of General Rule: A limited partner’s name shall not
this article, as when the name of not one of the appear in the partnership name.
general partners appear in the firm name, it is not
considered of a limited partnership but a general Effect: The limited partner is liable as a general
partnership. partner to partnership creditors who extend credit to
the partnership without actual knowledge that he is
The certificate shall contain the following: not a general partner.
a. The name of the partnership, adding thereto Exception:
the word “Limited”
b. The character of the business 1. It is also the surname of a general partner.
c. The location of the principal place of 2. The limited partner was previously a general
business partner and the name was previously used.
d. The name and place of residence of each ART.1848. A limited partner shall not become liable as
member, general and limited partners being a general partner unless, in addition to the exercise of his
respectively designated rights and powers as a limited partner, he takes part in
e. The term for which the partnership is to the control of the business.
exist
LIMITED PARTNER’S PARTICIPATION IN GENERAL PARTNER
BUSINESS
A general partner may bind the partnership by any
A limited partner is precluded from the act of administration.
management of the partnership business.
They are vested with the entire control of the firm’s
Participation in the control of the business makes business.
the limited partner liable as a general partner
They are also liable up to the extent of their
without getting the latter’s rights.
personal property.
A limited partner may only give advice, make
The following acts need the written consent or
suggestions, or express opinions.
ratification of all the limited partners:
ART.1849. After the formation of a limited partnership,
1. Do any act in contravention of the
additional limited partners may be admitted upon filing
certificate.
an amendment to the original certificate in accordance
2. Do any act which would make it impossible
with the requirements of article 1865.
to carry on the ordinary business of the
ADDITIONAL LIMITED PARTNERS partnership
3. Confess a judgment against the partnership
When Additional Limited Partners May Be
4. Possess partnership property, or assign
Admitted
their rights in specific partnership property,
Note that even after a limited partnership has for other than a partnership purpose
already been formed, the firm may still admit new 5. Admit a person as a general partner
limited partners, provided there is a proper 6. Admit a person as a limited partner, unless
amendment to the certificate. the right so to do is given in the certificate
7. Continue the business with partnership
Effect of Failure to Amend property on the death, retirement, insanity,
If additional limited partners are taken in, without civil interdiction or insolvency of a general
proper amendment of certificate with the SEC, this partner, unless the right so to do is given in
does not necessarily mean the dissolution of the the certificate.
limited partnership. ART. 1851. A limited partner shall have the same rights
ART.1850. A general partner shall have all the rights as a general partner to:
and powers and be subject to all the restrictions and (1) Have the partnership books kept at the principal
liabilities of a partner in a partnership without limited place of business of the partnership, and at a reasonable
partners. However, without the written consent or hour to inspect and copy any of them;
ratification of the specific act by all the limited partners, (2) Have on demand true and full information of all
a general partner or all of the general partners have no things affecting the partnership, and a formal account of
authority to: partnership affairs whenever circumstances render it just
(1) Do any act in contravention of the certificate and reasonable; and
(2) Do any act which would make it impossible to carry (3) Have dissolution and winding up by decree of court.
on the ordinary business of the partnership;
(3) Confess a judgment against the partnership; A limited partner shall have the right to receive a share
(4) Possess partnership property, or assign their rights of the profits or other compensation by way of income,
in specific partnership property, for other than a and to the return of his contribution as provided in
partnership purpose; articles 1856 and 1857.
(5) Admit a person as a general partner; ART.1852. Without prejudice to the provisions of article
(6) Admit a person as a limited partner, unless the right 1848, a person who has contributed to the capital of a
so to do is given in the certificate; business conducted by a person or partnership
(7) Continue the business with partnership property on erroneously believing that he has become a limited
the death, retirement, insanity, civil interdiction or partner in a limited partnership, is not, by reason of his
insolvency of a general partner, unless the right so exercise of the rights of a limited partner, a general
to do is given in the certificate. partner with the person or in the partnership carrying on
the business, or bound by the obligations of such person (2) Receive from a general partner or the partnership any
or partnership; provided that on ascertaining the mistake payment, conveyance, or release from liability, if at the
he promptly renounces his interest in the profits of the time the assets of the partnership are not sufficient to
business, or other compensation by way of income. discharge partnership liabilities to persons not claiming
as general or limited partners. The receiving of collateral
NOT AN ACTUAL LIMITED PARTNER security, or payment, conveyance, or release in violation
A person who contributed capital to a partnership of the foregoing provisions is a fraud on the creditors of
erroneously believing that he has become a limited the partnership.
partner, but he is designated as a general partner TRANSACTION WITH A LIMITED PARTNER
in the certificate, is not personally liable as a
general partner provided. A limited partner may enter into the following
transactions:
1. On ascertaining the mistake, he promptly
renounces his interest in the profits of the 1. Granting loans to a partnership
business or other compensation by way of 2. Transacting other business with it; and
income. 3. Receiving a pro rata share of the
2. His surname does not appear in the partnership assets with general creditors if
partnership name; and he is not also a general partner.
3. He does not participate in the management
However, the limited partner is prohibited from:
of the business.
1. Receiving or holding as collateral security
ART.1853. A person may be a general partner and a
any partnership property; or
limited partner in the same partnership at the same time,
2. Receiving any payment, conveyance, or
provided that this fact shall be stated in the certificate
release from liability if it will prejudice the
provided for in article 1844. A person who is a general,
right of 3rd persons.
and also at the same time a limited partner, shall have all
the rights and powers and be subject to all the ART. 1855. Where there are several limited partners the
restrictions of a general partner; except that, in respect to members may agree that one or more of the limited
his contribution, he shall have the rights against the other partners shall have a priority over other limited partners
members which he would have had if he were not also a as to the return of their contributions, as to their
general partner. compensation by way of income, or as to any other
matter. If such an agreement is made it shall be stated in
GENERAL-LIMITED PARTNER
the certificate, and in the absence of such a statement all
A person may become a general and a limited the limited partners shall stand upon equal footing.
partner at the same time as long as it is stated in
PREFERRED LIMITED PARTNER
the certificate.
Preference can be given to some limited partners
Generally, his rights are those of a general partner
over the other limited partners. However, the
(hence, third parties can go against his individual
preference must be stated in the certificate. This
properties).
preference may involve:
EXCEPTION: Regarding his contribution (like the
a. The return of contributions
right to have it returned on the proper occasions)
b. Compensation
he would be considered a limited partner, with the
c. Other matters
rights of a limited partner, insofar as the other
partners are concerned. ART.1857. A limited partner shall not receive from a
general partner or out of partnership property any part of
ART. 1854. A limited partner also may loan money to
his contributions until:
and transact other business with the partnership, and,
unless he is also a general partner, receive on account of (1) All liabilities of the partnership, except liabilities to
resulting claims against the partnership, with general general partners and to limited partners on account of
creditors, a pro rata share of the assets. No limited their contributions, have been paid or there remains
partner shall in respect to any such claim: (1) Receive or property of the partnership sufficient to pay them;
hold as collateral security any partnership property, or
(2) The consent of all members is had, unless the return A limited partner, even if property is contributed,
of the contribution may be rightfully demanded under has only the right to demand and receive cash in
the provisions of the second paragraph; and return for his contribution, unless:
(3) The certificate is cancelled or so amended as to set
1. There is a stipulation to the contrary in the
forth the withdrawal or reduction.
certificate; or
2. All partners consent the return other than in
RETURN OF A LIMITED PARTNER’S
the form of cash.
CONTRIBUTION
A limited partner may have the partnership
The 1st paragraph deals with the conditions that
dissolved and its affairs wound up by judicial
must exist before contributions (or part thereof) by
decree when:
a limited partner can be returned to him.
(1) He rightfully demands the return of his
The second paragraph deals with the time when
contribution but was denied; or
such contributions can be returned, provided that
(2) The other liabilities of the partnership have
the conditions are complied with.
not been paid, or the partnership property is
As a rule, even if a limited partner has contributed insufficient for their payment as required by
property, he has the right to demand and receive the first paragraph, No. 1, and the limited
cash in return. partner would otherwise be entitle to the
return of his contribution.
Under the 1st paragraph, the following conditions
must exist before the contribution of a limited ART. 1858. A limited partner is liable to the partnership:
partner can be returned to him:
(1) For the difference between his contribution as
(1) All liabilities of the partnership, except actually made and that stated in the certificate as having
liabilities to general partners and to limited been made, and
partners on account of their contributions, (2) For any unpaid contribution which he agreed in the
have been paid or there remains property of certificate to make in the future at the time and on the
the partnership sufficient to pay them. conditions stated in the certificate.
(2) The consent of all members is had, unless
the return of the contribution may be A limited partner holds as trustee for the partnership:
rightfully demanded under the provisions of
(1) Specific property stated in the certificate as
the second paragraph; and
contributed by him, but which was not contributed or
(3) The certificate is cancelled or so amended
which has been wrongfully returned, and
as to set forth the withdrawal or reduction.
(2) Money or other property wrongfully paid or
A limited partner may rightfully demand the return conveyed to him on account of his contribution.
of his contribution:
The liabilities of a limited partner as set forth in this
(1) On the dissolution of a partnership; or
article can be waived or compromised only by the
(2) When the date specified in the certificate for
consent of all members; but a waiver or compromise
its returned has arrived, or
shall not affect the right of a creditor of a partnership
(3) After he has six months’ notice in writing all
who extended credit or whose claim arose after the filing
other members, if no time is specified in the
and before a cancellation or amendment of the
certificate, either for the return of the
certificate, to enforce such liabilities.
contribution or for the dissolution of the
partnership. When a contributor has rightfully received the return in
whole or in part of the capital of his contribution, he is
nevertheless liable to the partnership for any sum, not in
excess of such return with interest, necessary to
discharge its liabilities to all creditors who extended
credit or whose claims arose before such return.
RETURN OF CONTRIBUTION IN CASH
LIABILITIES OF A LIMITED PARTNER
A limited partner is liable to the partnership: ASSIGNEE OF A LIMITED PARTNER
(1) For the difference between his contribution An assignee of a limited partner is subject to the
as actually made and that stated in the following rules:
certificate as having been made; and
1. Has no right to require any information or
(2) For any unpaid contribution which he
account of the partnership transactions or to
agreed in the certificate to make in the
inspect the partnership books;
future at the time and on the conditions
2. He is only entitled to receive the share of
stated in the certificate.
the profits or other compensation by way of
May the liabilities in the preceding problem be income, or the return of his contribution, to
waived or compromised? which his assignor would otherwise be
entitled.
Yes, but two conditions must be followed:
3. He shall have the right to become a
(a) All the other partners must agree; and substituted limited partner if all the members
(b) Innocent third party creditors must not be consent thereto or if the assignor, being
prejudiced. thereunto empowered by the certificate,
gives the assignee that right.
However, the limited partner is liable for the return
of his contribution plus interest, if partnership The substituted limited partner has all the rights
assets is insufficient to discharge its liabilities to all and powers, and is subject to all the restrictions
creditors who extended credit or whose claims and liabilities of his assignor, except those liabilities
arose before such return. of which he was ignorant at the time he became a
limited partner and which could not be ascertained
ART. 1859. A limited partner’s interest is assignable. from the certificate.
A substituted limited partner is a person admitted to all An assignee can become a substitute limited
the rights of a limited partner who has died or has partner if:
assigned his interest in a partnership.
1. All members consented or the limited
An assignee, who does not become a substituted limited partner is given the right to make the
partner, has no right to require any information or assignee into a substitute partner
account of the partnership transactions or to inspect the 2. The certificate is amended
partnership books; he is only entitled to receive the share 3. The amended certificate is registered with
of the profits or other compensation by way of income, the SEC.
or the return of his contribution, to which his assignor
would otherwise be entitled. An assignee shall have the ART. 1860. The retirement, death, insolvency, insanity
right to become a substituted limited partner if all the or civil interdiction of a general partner dissolves the
members consent thereto or if the assignor, being partnership, unless the business is continued by the
thereunto empowered by the certificate, gives the remaining general partners:
assignee that right.
(1) Under a right so to do stated in the certificate, or
An assignee becomes a substituted limited partner when (2) With the consent of all members.
the certificate is appropriately amended in accordance
with article 1865. The substituted limited partner has all ART. 1861. On the death of a limited partner his
the rights and powers, and is subject to all the executor or administrator shall have all the rights of a
restrictions and liabilities of his assignor, except those limited partner for the purpose of settling his estate, and
liabilities of which he was ignorant at the time he such power as the deceased had to constitute his assignee
became a limited partner and which could not be a substituted limited partner. The estate of a deceased
ascertained from the certificate. The substitution of the limited partner shall be liable for all his liabilities as a
assignee as a limited partner does not release the limited partner.
assignor from liability to the partnership under articles
1847 and 1858.
 compensation by way of income on their contribution
respectively, in proportion to the respective amounts of
such claims.
GENERAL PARTNER
General Rule: Retirement, death, insolvency,
When the partnership is dissolved, or when all the
insanity, or civil interdiction of a general partner
limited partners cease to be limited partners, the
dissolves the partnership.
certificate shall be cancelled, not merely amended,
Exception: The partnership is not dissolved if the This is obvious for if there be no more limited
business is continued by the remaining general partners, the limited partnership cannot exist as
partners. The business may be continued only if: such. The writing to cancel a certificate shall be
signed by all members.
(1) Under a right so to do stated in the
certificate, or ART.1864. The certificate shall be cancelled when the
(2) With the consent of all members partnership is dissolved or all limited partners cease to
be such. A certificate shall be amended when:
The partnership is not dissolve but an amendment
to the certificate is necessary. (1) There is a change in the name of the partnership or in
the amount or character of the contribution of any
DEATH OF A LIMITED PARTNER limited partner;
On the death of a limited partner, the following rules (2) A person is substituted as a limited partner;
shall apply: (3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
1. His executor or administrator shall have all (5) A general partner retires, dies, becomes insolvent or
the rights of a limited partner for the insane, or is sentenced to civil interdiction and the
purpose of setting his estate business is continued under article 1860;
2. His executor or administrator has the right (6) There is a change in the character of the business of
to constitute his assignee a substituted the partnership;
limited partner (7) There is a false or erroneous statement in the
3. The estate of a deceased limited partner certificate;
shall be liable for all his liabilities as a (8) There is a change in the time as stated in the
limited partner. certificate for the dissolution of the partnership or for the
return of a contribution;
ART.1863. In settling accounts after dissolution the
(9) A time is fixed for the dissolution of the partnership,
liabilities of the partnership shall be entitled to payment
or the return of a contribution, no time having been
in the following order:
specified in the certificate, or
(1) Those to creditors, in the order of priority as (10) The members desire to make a change in any other
provided by law, except those to limited partners on statement in the certificate in order that it shall
account of their contributions, and to general partners; accurately represent the agreement among them.
(2) Those to limited partners in respect to their share of
the profits and other compensation by way of income on
CORPORATION LAW
their contributions;
(3) Those to limited partners in respect to the capital of REVISED CORPORATION CODE
their contributions;
(4) Those to general partners other than for capital and  Before RA 11232, the former law is Batas
profits; Pambansa Blg. 68, otherwise known as the
(5) Those to general partners in respect to profits; “The Corporation Code of the Philippines”
(6) Those to general partners in respect to capital.  The new law took effect on February 23,
2019.
Subject to any statement in the certificate or to  The RCCP applies to all corporation already
subsequent agreement, limited partners share in the in existence at the time of its effectivity
partnership assets in respect to their claims for capital,  The New Civil Code supplements the
and in respect to their claims for profits or for missing details of the Corporate Law.
  The SEC is the government body primarily A franchise is a right or privilege granted by the
responsible in implementing the provisions government. A corporation may be grant 2 types of
of the RCCP. franchise:
1. Corporate/General/primary Franchise –
right to exist as a corporation. (RCCP)
SECTION 2 2. Special/Secondary Franchise – certain
CORPORATION DEFINED – A corporation is an rights and privileges conferred upon existing
artificial being created by operation of law, having corporations. (Government Agency or
the right of succession and the powers, attributes, Law)
and properties expressly authorized by law or A corporation is therefore created by operation of
incidental to its existence. law when it is granted a franchise through a special
DEFINITION law or if it is organized under a general law.

The definition penned by US Supreme Court Chief If the Gov has the power to grant a franchise,
Justice Marshall in a 1819 case is given wide do they also have the power to revoke it? Yes!
acceptance in the legal profession. He defines a But they must respect the contract theory.
corporation as CONTRACT THEORY
“An artificial being, indivisible, intangible, and The creation of a corporation (incorporation)
existing, only in contemplation of law” involves a contract between the state and the
This definition is echoed to Sec. 2 of the persons creating a corporation. The contract is
corporation governed and evidenced by the Articles of
Incorporation.
ATTRIBUTES OF A CORPORATION
Thus, because of the contract, the corporation is
1. It is an artificial being. entitled to the rights against impairment of
2. It is created by operation of law contracts. Hence, the State cannot likewise take
3. It has the right of succession the life of the corporation without due process.
4. It has the powers, attributes, and properties
expressly authorized by law or incidental to PERPETUAL SUCCESSION
its existence. A corporation has the capacity for continuous
CONCESSION THEORY existence.

A corporation is an artificial being created by A shift in the composition of the corporation’s

operation of law. It owes its life to the state and its shareholders will not effect the corporation’s
birth is purely dependent on the state’s will. The existence and continuity. Death of a shareholder or
consent or grant of the State via a legislative transfer of his shares will not effect the continued
measure is required for the creation of a existence of the corporation.
corporation. Perpetual succession does not always imply
The corporation is a creation of a statute that corporate immortality but rather a continuity of
defines its powers and prescribes rules and existence irrespective of that of its components.
regulations of its internal as well as its business JURIDICAL PERSONALITY
affairs.
A corporation has a separate and distinct
The juridical existence of a corporation is personality from the persons who compose it.
dependent on the consent or grant of the State. A
corporation cannot come into existence by mere Because of this, the following concepts arises
consent of the parties forming it, there must be a
1. Separate properties
law granting it. At the same vein, it is also the state
2. Separate obligations
that can effect its final dissolution.
3. Limited Liability
FRANCHISE
As oppose to a partnership, a corporation has a  The legal fiction of a separate corporate
stronger judicial personality. personality is set aside for reasons of public
policy and in the interest of justice.
SEPARATE PROPERTIES
 By piercing the veil, the stockholder may
 The properties of the corporation are not become liable for the debts of the
the properties of its shareholders, members corporation (traditional veil piercing) or the
or officers, and vice versa. corporation can be held liable for the debt of
 A stockholder cannot sell, transfer, the shareholder. (reverse piercing).
mortgage, or encumber the properties of the
corporation without proper authority.
 The stockholders are not co-owners of a WHEN CAN THE VEIL BE PIERCED?
corporation’s assets.
The doctrine of piercing the corporate veil applies
ILLUSTRATION only in three (3) basic areas, namely:

FIRE Corp. owns a beach resort with several 1. Defeat of public convenience as when the
cottages. Ed, the corporate president, occupied one corporate fiction is used as a vehicle for the
of the cottages for residential purposes. evasion of an existing obligation.
2. Fraud cases or when the corporate entity is
After Ed’s term expired, FIRE wanted to recover used to justify a wrong, protect fraud, or
possession of the cottage. defend a crime; or
Ed refused saying that as a stockholder and former 3. Alter ego cases, where a corporation is
president, he has the right to possess and enjoy the merely a farce since it is a mere alter ego or
properties of the corporations. business conduit of a person, or where the
corporation is so organized and controlled
Is Ed correct? NO and its affairs are so conducted or adjunct
of another corporation.
SEPARATE OBLIGATION
ALTER EGO DOCTRINE
 The obligations of the corporation are not
the obligations of its shareholders, members Case law lays down a three-pronged test to
or officers, and vice versa. determine the application of the alter ego theory,
 A stockholder cannot be held liable for the which is also known as the instrumentality theory,
obligations of the corporation. namely:
 The stockholders are not co-owners of a
(1) INSTRUMENTALITY OR CONTROL TEST
corporation’s assets.
– not mere majority or complete stock
LIMITED LIABILITY RULE control, but complete domination, not only of
finances but of policy and business practice
General Rule: The stockholders are NOT
in respect to the transaction attacked so that
personally liable for the obligations of the the corporate entity as to this transaction
corporation.
had at the time no separate mind, will or
Exception: A stockholder is personally liable for existence of its own.
the financial obligations of the corporation to the (2) FRAUD TEST – such control must have
extent of his unpaid subscription. been used to commit fraud or wrong, to
perpetuate the violation of a statutory or
JURIDICAL PERSONALITY other positive legal duty, or dishonest and
DOCTRINE OF PIERCING THE VEIL OF unjust act in contravention of plaintiffs legal
CORPORATE FICTION right; and
(3) HARM TEST – the aforesaid control and
 The corporation’s separate juridical breach of duty must have proximately
personality may be disregarded when there caused the injury or unjust loss complained
is an abuse of the corporate form. of.
MORAL DAMAGES b) Corporation created by a general law –
corporation created under the Corporation
Are corporations entitled to moral damages? Code.
General Rule: No. c) Corporation created by prescription – if a
corporation has exercised its powers for an
Exception: Defamation or Libel cases. indefinite period of time (usually since time
immemorial) without the State stepping in or
TYPES OF CORPORATIONS
interfering along the day, it is considered
SECTION 3. CLASSES OF CORPORATIONS. given the status of a corporation.
Corporations formed or organized under this Code may
1987 CONSTITUTION ART. XII.
be stock or nonstock corporations. Stock corporations
are those which have capital stock divided into shares SECTION 16. The Congress shall not, except by
and are authorized to distribute to the holders of such general law, provide for the formation, organization, or
shares, dividends, or allotments of the surplus profits on regulation of private corporations. Government-owned
the basis of the shares held. All other corporations are or controlled corporations may be created or established
nonstock corporations. by special charters in the interest of the common good
and subject to the test of economic viability.
SECTION 4. CORPORATIONS CREATE BY
SPECIAL LAWS OR CHARTERS. Corporations LIMITION ON CORPORATION CREATED BY
created by special laws or charter creating them or GOVERNMENT
applicable to them, supplemented by the provisions of
this Code, insofar as they are applicable.  Congress cannot create a corporation by
special law.
AS TO THE NUMBER OF PERSONS  Congress can only create government
COMPOSING IT owned or controlled corporations (GOCCs)
through special laws.
a) Corporate Aggregate – a corporation
 The fundamental provision authorizes
consisting of more than one member or
Congress to create GOCCs through special
stockholder.
charters on two conditions:
b) Corporate Sole – a religious corporation
which consist of one member or corporator
1. The GOCC must be established for the
only and his successors, such as bishop,
common good; and
priest, rabbi, etc.
2. The GOCC must meet the test of
c) One Person Corporation (OPC) – a
economic viability.
corporation with a single stockholder.

AS TO FUNCTION TYPES OF GOCCs

1. Chartered GOCC (w/ original charter) –
a) Public Corporation – a corporation
created and vested with functions by a
organized for the government of a portion of
special law.
a State for the purpose of serving general
2. Non-chartered GOCCs (w/o original
good and welfare. (e.g. cities, municipalities,
charter) – created or established through
barangays, LGUs)
the Corporation Code.
b) Private Corporation – a corporation
formed for some private purpose, benefit, Note: GOCCs are regarded as PRIVATE
aim, or end. Corporations.
c) Quasi-public Corporations – corporations
engaged in private business affected with AS TO LEGAL STATUS
public interest.
a) De jure corporation – corporation created
AS TO MANNER OR CREATION by Congress through a special law.
b) De facto corporation – a corporation that
a) Corporation created by special law – is formed where there exist a flaw in its
corporation created by Congress through a incorporation but there is colorable
special law. compliance with the requirements of law.
 c) Corporation by estoppel – a group of Incorporators are those stockholders or members
persons who represented to have mentioned in the articles of incorporation as
corporation, but is in existing, to enter into a originally forming and composing the corporation
contract with a 3rd person. and who are signatories thereof.

AS TO STOCKS SECTION 6. Classification of Shares

a) Stock Corporation - a corporation whose SECTION 7. Founders’ Shares.

capital stock is divided into shares and is
SECTION 8. Redeemable Shares.
authorized to distribute dividends.
b) Non-stock Corporation – a corporation SECTION 99. Treasury Shares.
with no capital stock, do no issue shares,
and does not distribute dividends to its
members.

OTHER TYPES OF CORPORATIONS

a) Ecclesiastical Corporation – formed for
SHARES
religious or spiritual purposes which may be
classified as a religious society or a Stocks or share of stock is a unit into which capital
corporate sole. is divided. It represents the intangible interest or
b) Lay Corporation – organized for purposes right which the stockholder has over the
other than religion. corporation.
c) Eleesmosynary/Charitable Corporation –
organized for charitable purposes. STOCK CERTIFICATE
d) Civil Corporation – created for the benefit Also called a certificate of stock, is a written
of the person composing it. acknowledgement by the corporation of the
e) Close Corporation – a corporation are held interest, right, and participation of a person in the
whose stock are held by not more than 20 management, profits, and assets of a corporation.
persons and not list in any stock exchange
or make any public offering of its stocks. It is a formal written evidence of the holder’s
f) Special Corporation – corporations under ownership of one or more shares and is a
title XIII of the RCC. It includes educational convenient instrument for the transfer of title.
corporations, religious corporations, and
KINDS OF SHARES
one person corporations.
1. Common or preferred shares
SECTION 5. Corporators and Incorporators,
2. Voting or non-voting shares.
Stockholders and Members. Corporators are those
3. Par value and no par value shares
whose compose a corporation, whether as stockholders
4. Treasury shares
or shareholders in a stock corporation or as a member in
5. Redeemable shares
a nonstock corporations, Incorporators are those
6. Founder shares
stockholders or members mentioned in the articles of
incorporation as originally forming and composing the COMMON AND PREFERRED SHARES
corporation and who are signatories thereof.
a) Common Shares – it represents the
COMPONENTS OF A CORPORATION residual ownership interest in the
corporations. It is a basic class of stock
The components of the corporation include:
ordinarily and usually issued without
Stock Non-Stock extraordinary rights or privileges and entitles
Stockholders Members the shareholder to a pro rata division of
Directors Trustees profits.
1. Incorporators b) Preferred Corporation - it entitles the
stockholder to some priority on dividends
and/or asset distribution in case of
 liquidation. The rights, privileges, or 2. Must be issued for a consideration of
restrictions of preferred shares must be ate least P5.00/share
indicated in the articles of incorporation and 3. The entire consideration received by
in the certificate of stock. But it may be the corporation for its no-par value
issued only with a par value. Normally they shares shall be treated as capital
are not entitled to vote. and shall not be available for
distribution as dividends.
VOTING OR NON-VOTING SHARES
The following shares CANNOT be No-par Value
a) Voting Shares – generally, all shares, Shares:
regardless of classification (other than
preferred and redeemable shares) are i. Preferred Shares
entitled to vote. ii. Shares in banks
b) Non-voting Corporation – cannot vote or iii. Shares in trust companies
has no voice in the affairs of the iv. Shares in insurance companies
corporation. v. Shares in preneed companies
vi. Shares in public utilities
vii. Shares in building and loan associations
viii. Shares in other corporations authorized to
obtain or access funds from the public.
The issuance of non-voting shares is subject to
the following conditions: TREASURY SHARES

1. Only preferred or redeemable shares may Treasury shares are shares of stock which:
be deprived of voting rights
1. Have been issued and fully paid for,
2. There must always be shares with full voting
2. Subsequently, reacquired by the issuing
rights; and
corporation through purchase, redemption,
3. The non-voting shares may still vote in the
donation, or some other lawful means.
following matters:
Such shares may again be disposed of for a
a) Amendment of the articles of reasonable price fixed by the board of directors.
incorporation
Treasury shares are not entitled to dividends and
b) Adoption and amendment of bylaws.
cannot vote.
c) Sale, lease, exchange, mortgage,
pledge, or other disposition of all or Retained earning should be restricted in the
substantially all of the corporate property amount equal to the cost of the treasury. It may
d) Incurring, creating, or increasing bonded only become unrestricted when the treasury shares
indebtedness are re-issued.
e) Increase or decrease of authorized
capital stock FOUNDERS’ SHARES
f) Merger or consolidation
Founders’ Shares may be given certain rights and
g) Investment of corporate funds in another
privileges not enjoyed by the owners of the other
corporation or business
stock.
h) Dissolution of the corporation

PAR VALUE AND NO-PAR VALUE SHARES

a) Par Value Shares – shares with fixed value
stated in the articles of incorporation and
the share certificate.
b) No-par Value Shares - shares without a
fixed value. However, it is subject to the
following:
1. It shall always be deemed fully paid.
Where the exclusive right to vote and be voted for The basic qualifications of incorporators are
in the election of directors is granted, it must be for enumerated as follows:
a limited period not to exceed five (5) years from
a) Incorporator must be a natural or juridical
the date or incorporation. After the expiration of the
entity.
5-year period, the founders’ shares shall have
b) There must not be more than 15
equal rights as a common share.
incorporators.
REDEEMABLE SHARES c) If the incorporator is a natural person, they
must be of legal age.
 Redeemable shares may be issued by the d) Each incorporator must own or must be a
corporation if expressly provided in the subscriber to at least one (1) share of
articles of incorporation. capital stock.
 They are shares which may be purchased
by the corporation from the shareholders
upon the expiration of a fixed period and
upon such other terms and conditions
stated in the articles of incorporation and
the certificate of stock.
PRACTICE OF PROFESSION
 It may be redeemed regardless of the
existence of unrestricted retained earnings Incorporating a corporation for the practice of a
in the books of the corporation. profession shall not be allowed to organize as a
corporation unless allowed by a special law.
INCORPORATION
CAPACITY TO ACT
It is the legal process used to form a corporate
entity which gives the corporation its existence. An incorporator must have the capacity to act in
order for the incorporation to have any legal effect.
To form a corporation, one must substantially Accordingly, incapacitated persons cannot be
comply with the conditions prescribed in law. incorporators, such as:
SEC. 10. Number and Qualifications of 1. Minors (below 18 years old)
Incorporators. – Any person, partnership, association or 2. Insanity or imbecility
corporation, singly or jointly with others but not more 3. State of being deaf-mute
than fifteen (15) in number, may organize a corporation
for any lawful purpose or purposes: Provided, That PHILIPPINE RESIDENCY AND CITIZENSHIP
natural persons who are licensed to practice a profession,
Non-residents and foreigners may be incorporators.
and partnerships or associations organized for the
However, there is a restriction on foreign ownership
purpose of practicing a profession, shall not be allowed
on certain corporations.
to organize as a corporation unless otherwise provided
under special laws. Incorporators who are natural CORPORATE TERM
persons must be of legal age.
GENERAL RULE: The corporate term is perpetual.
Each incorporator of a stock corporation must own or be
a subscriber to at least one (1) share of the capital stock. EXEMPTION: If the articles of incorporation
specified a fixed term.
A corporation with a single stockholder is considered a
One Person Corporation as described in Title XIII, NOTE: Under the old law, a corporation can only
Chapter III of this Code. have a maximum term of 50 years which can be
extended.
INCORPORATORS
Corporations with certificates of incorporation
are those stockholders or members mentioned in issued prior to the effectivity of the RCCP and
the Articles of Incorporation as originally forming which continue to exist shall have perpetual
and composing the corporation and who are existence, unless stockholders representing a
signatories thereof. majority of its articles of incorporation voted
otherwise with a notice to the SEC.
SEC. 11. Corporate Term. – A corporation shall have If the corporation has a fixed term, the extension
perpetual existence unless its articles of incorporation must be made within the time and in the manner
provides otherwise. prescribed by the RCCP. Otherwise, the term will
expire and the corporation’s personality will cease.
Corporations with certificates of incorporation issued
prior to the effectivity of this Code, and which continue REQUISITES OF THE EXTENSION:
to exist, shall have perpetual existence, unless the
1. Extension cannot be sought after the term
corporation, upon a vote of its stockholders representing
has expired.
a majority of its outstanding capital stock, notifies the
2. No extension can be made earlier than (3)
Commission that it elects to retain its specific corporate
years prior to the original or subsequent
term pursuant to its articles of incorporation: Provided,
expiry date(s) unless there are justifiable
That any change in the corporate term under this section
reasons for an earlier extension.
is without prejudice to the appraisal right of dissenting
3. Vote of majority of the board of
stockholders in accordance with the provisions of this
directors/trustees.
Code.
4. Vote of stockholders representing at least
A corporate term for a specific period may be extended 2/3 of the outstanding capital stock or by at
or shortened by amending the articles of incorporation: least 2/3 of the members.
Provided, That no extension may be made earlier than 5. Submitted and to the SEC with their
three (3) years prior to the original or subsequent expiry approval. However, it is deemed approved
date(s) unless there are justifiable reasons for an earlier upon inaction by the SEC for 6 months after
extension as may be determined by the Commission: submission due not the fault of the
Provided, further, That such extension of the corporate corporation or upon its approval.
term shall take effect only on the day following the
NOTE: The effectivity of the amendment relates
original or subsequent expiry date(s).
back to the date of filing with the SEC.
A corporation whose term has expired may apply for a
REVIVAL OF CORPORATE EXISTENCE
revival of its corporate existence, together with all the
rights and privileges under its certificate of incorporation A corporation whose term has expired may apply
and subject to all of its duties, debts and liabilities for revival of its corporate existence. Upon approval
existing prior to its revival. Upon approval by the by the Commission, the corporation shall be
Commission, the corporation shall be deemed revived deemed revived and a certificate of revival of
and a certificate of revival of corporate existence shall be corporate existence shall be issued, giving it
issued, giving it perpetual existence, unless its perpetual existence, unless its application for
application for revival provides otherwise. revival provides otherwise.
No application for revival of certificate of incorporation No application for revival of certificate of
of banks, banking and quasibanking institutions, incorporation of banks, banking, and quasi-banking
preneed, insurance and trust companies, non-stock institutions, preneed, insurance and trust
savings and loan associations (NSSLAs), pawnshops, companies, non-stock savings and loan,
corporations engaged in money service business, and associations, (NSSLAs), pawnshops, corporations
other financial intermediaries shall be approved by the engaged in money service, business, and other
Commission unless accompanied by a favorable financial intermediaries shall be approved by the
recommendation of the appropriate government agency. Commission unless accompanied by a favorable
recommendation of the appropriate government
OPTION TO HAVE A FIXED TERM
agency.
New corporations may opt to have a fixed term by
SEC. 12. Minimum Capital Stock Not Required of
indicating such term in their Articles of
Stock Corporations. – Stock corporations shall not be
Incorporation. Such fixed term may be
required to have a minimum capital stock, except as
subsequently extended or shortened by amending
otherwise specifically provided by special law.
the Articles.
SEC. 13. Contents of the Articles of Incorporation. –
EXTENSION OF TERM
All corporations shall file with the Commission articles
of incorporation in any of the official languages, duly
signed and acknowledged or authenticated, in such form into which it is divided, the par value of
and manner as may be allowed by the Commission, each, names, nationalities, and residence
containing substantially the following matters, except as addresses of the original subscribers,
otherwise prescribed by this Code or by special law: amount subscribed and paid by each on the
subscription, and a statement that some or
ARTICLES OF INCORPORATION all of the shares are without par value, if
The articles of incorporation represent the highest applicable;
form of contractual arrangement in Corporate Law, (i) If it be a nonstock corporation, the amount
defining as it does the charter of the corporation of its capital, the names, nationalities, and
and its juridical capacity to contract and enter into residence addresses of the contributors,
various commercial relations. It is the constitution of and amount contributed by each; and
a corporation. (j) Such other matters consistent with law and
which the incorporators may deem
As a contract, it requires the consent of (1) the necessary and convenient.
State acting through the SEC; (2) the corporation;
and (3) the group of shareholders.
The articles is essentially a contract between:
a. The State and the corporation THE CORPORATE CHARTER
b. The shareholders and the State The articles of incorporation, once duly approved
c. The corporations and its shareholders by the SEC, constitutes a duly registered
CONTENTS OF THE ARTICLES corporation’s charter, and the basis by which to
adjust whether it exist for legal purposes, as well as
(a) The name of the corporation; the extent of its powers and capacities.
(b) The specific purpose or purposes for which
the corporation is being formed. Where a Articles of Incorporation do not become binding as
corporation has more than one stated the charter unless they have been filed and
purpose, the articles of incorporation shall registered with, and certified, by the SEC. If the
indicate the primary purpose and the SEC finds that the submitted documents and
secondary purpose or purposes: Provided, information are fully, the SEC shall issue a
That a nonstock corporation may not certificate of incorporation.
include a purpose which would change or CORPORATE NAME
contradict its nature as such;
(c) The place where the principal office of the A corporation’s right to use its corporate and trade
corporation is to be located, which must be name is a property right, meaning that it may assert
within the Philippines; and protect against the world.
(d) The term for which the corporation is to
The name of the corporation need not reflect the
exist, if the corporation has not elected
purpose of the corporation. The purpose of the
perpetual existence;
name is to give identification and not to give
(e) The names, nationalities, and residence
indication as to its purpose.
addresses of the incorporators;
(f) The number of directors, which shall not a) The corporate name shall contain the word
be more than fifteen (15) or the number of “Corporation” or “Incorporated”, or the
trustees which may be more than fifteen abbreviations “Corp.” or “Inc.” respectively.
(15); b) In the case of a One Person Corporation,
(g) The names, nationalities, and residence the corporate name shall contain the word
addresses of persons who shall act as OPC, either below or at the end of its
directors or trustees until the first regular corporate name.
directors or trustees are duly elected and c) The corporate name of a foundation shall
qualified in accordance with this Code; use the word “Foundation”
(h) If it be a stock corporation, the amount of its d) The corporate name of all non-stock, non-
authorized capital stock, number of shares profit corporations, including non-
 governmental organizations and The purpose clause is important in order to assure
foundations, engaging in microfinance that the person who invest in corporate entities
activities shall use the word “Microfinance” would be aware of the business the corporation is
or “Microfinancing”; provided that said designed to engage in.
corporations shall state in the purpose
The purpose of the corporation may be grouped
clause of their Articles of Incorporation that
into:
they shall conduct microfinance operations
pursuant to Republic Act. No. 8425 or the  Primary Purpose – only 1
Social Reform and Poverty Alleviation Act.  Secondary Purpose – may be several.
e) Business of trade name which is different
from the corporate or partnership name PRINCIPAL OFFICE
shall be indicated in the Articles of
The Articles must state the principal office of the
Incorporation or partnership. A company
corporation. It must be within the Philippines.
may have more than one business or trade
name. The specific address of the principal office shall be
f) A trade name or trademark registered with indicated. Non-compliance will result to the articles
the Intellectual Property Office may be used as being “not filed”
as part of the corporate or partnership name
of a party other than its owner if the latter If the corporation wishes to transfer its principal
gives its consent to such use. address the following is required:
g) The name of an internationally known If the corporation wishes to transfer its principal
foreign corporation, or something similar to address the following is required:
it, cannot be used by a domestic corporation
unless it is its subsidiary and the parent a. In the event that a corporation whose
corporation has consented to such use. principal office address as indicated in its
Articles is already specific and complete,
However, a name written in a foreign has moved or moves to another location
language, even if registered in another within the same city or municipality, the
country, shall not be registered if the name corporation is not required to file an
violates good morals, public order or public Amended Articles of Incorporation.
policy, or has an offensive or indecorous However, it is encouraged to declare its new
meaning in any of the country’s official or current specific address in its GIS “Metro
languages or major dialects. Manila” shall not be considered a city or
municipality for this purpose.
h) The name of a local geographical unit, site b. In all other cases, the corporation must file
or location cannot be used as corporate or an Amended Articles of Incorporation to
partnership name unless it is accompanied indicate its new location in another city or
by a descriptive word or phrase, e.g., Pasay municipality within fifteen (15) days from
Food Store, Inc. transfer to said location.
i) The name of a corporation or partnership
SEC. 15. Amendment of Articles of Incorporation. –
that has been dissolved or whose
Unless otherwise prescribed by this Code or by special
registration has been revoked shall not be
law, and for legitimate purposes, any provision or matter
used by another corporation or partnership
stated in the articles of incorporation may be amended
within five (5) years from the approval of
by a majority vote of the board of directors or trustees
dissolution or revocation by the
and the vote or written assent of the stockholders
stockholders, members, or partners who
representing at least two-thirds (2/3) of the outstanding
represent a majority of the outstanding
capital stock, without prejudice to the appraisal right of
capital stock or membership of the
dissenting stockholders in accordance with the
dissolved corporation or partnership, as the
provisions of this Code. The articles of incorporation of
case may be.
a nonstock corporation may be amended by the vote or
PURPOSE CLAUSE written assent of majority of the trustees and at least
two-thirds (2/3) of the members.
The original and amended articles together shall contain (a)The articles of incorporation or any amendment
all provisions required by law to be set out in the articles thereto is not substantially in accordance with the form
of incorporation. Amendments to the articles shall be prescribed herein;
indicated by underscoring the change or changes made, (b)The purpose or purposes of the corporation are
and a copy thereof duly certified under oath by the patently unconstitutional, illegal, immoral or contrary to
corporate secretary and a majority of the directors or government rules and regulations;
trustees, with a statement that the amendments have been (c)The certification concerning the amount of capital
duly approved by the required vote of the stockholders stock subscribed and/or paid is false; and
or members, shall be submitted to the Commission. (d)The required percentage of Filipino ownership of the
capital stock under existing laws or the Constitution has
The amendments shall take effect upon their approval by
not been complied with.
the Commission or from the date of filing with the said
Commission if not acted upon within six (6) months
No articles of incorporation or amendment to articles of
from the date of filing for a cause not attributable to the
incorporation of banks, banking and quasi-banking
corporation.
institutions, preneed, insurance and trust companies,
Requisites for Amendments: NSSLAS, pawnshops, and other financial intermediaries
shall be approved by the Commission unless
1. Majority vote of the board of accompanied by a favorable recommendation of the
directors/trustees. appropriate government agency to the effect that such
2. Vote or written assent of the stockholders articles or amendment is in accordance with law.
representing at least two-thirds (2/3) of the
outstanding capital stock/members.
3. The original and amended articles together
REJECTION OF THE ARTICLES
shall contain all provisions required by law
to be set out in the articles of incorporation.  The SEC has the power to reject or propose
Amendments to the articles shall be any amendment to the articles if the
indicated by underscoring the change or provision of the RCCP is violated.
changes made.  The SEC shall give reasonable time from
4. A copy of the amended articles duly certified receipt of the disapproval within which to
under oath by the corporate secretary and a modify the objectionable portions of the
majority of the directors or trustees, with a articles or amendment.
statement that the amendments have been  Other than the SEC, specific business
duly approved by the required vote of the requires a favorable recommendation of the
stockholders or members, shall be appropriate government agency before filing
submitted to the SEC. the articles with the SEC.
5. Approval by the SEC or from the date of
filing with the said SEC if not acted upon GROUND FOR DISAPPROVAL
within six (6) months from the date of filing The following are the grounds for disapproval of the
for a cause not attributable to the articles of incorporation or its amendment:
corporation.
(a) The articles of incorporation or any
SEC. 16. Grounds When Articles of Incorporation or amendment thereto is not substantially in
Amendment May be Disapproved. – The Commission accordance with the form prescribed
may disapprove the articles of incorporation or any herein.
amendment thereto if the same is not compliant with the (b) The purpose or purposes of the corporation
requirements of this Code: Provided, That the are patently unconstitutional, illegal,
Commission shall give the incorporators, directors, immoral or contrary to government rules
trustees, or officers a reasonable time from receipt of the and regulations;
disapproval within which to modify the objectionable (c) The certification concerning the amount of
portions of the articles or amendment. The following are capital stock subscribed and/or paid is
grounds for such disapproval: false.
(d) The required percentage of Filipino
ownership of the capital stock under
 existing laws or the Constitution has not The “control test” is the prevailing mode of
been complied with. determining whether or not a corporation is a
Filipino corporation. When in the mind of the Court,
NATIONALIZATION REQUIREMENT
there is doubt, then it may apply the “grandfather
The Articles or its amendment may be rejected if rule”.
the percentage of ownership to be owned by
SEC. 18. Registration, Incorporation and
citizens of the Philippines has not been complied
Commencement of Corporate Existence. – A person
with.
or group of persons desiring to incorporate shall submit
Some examples the intended corporate name to the Commission for
verification. If the Commission finds that the name is
LIMIT BUSINESS FIELD distinguishable from a name already reserved or
0% Foreign Mass Media registered for the use of another corporation, not
Ownership Cooperatives protected by law and is not contrary to law, rules and
Manufacture, repair, regulations, the name shall be reserved in favor of the
stockpiling, and/or
incorporators. The incorporators shall then submit their
distribution of nuclear
weapons. articles of incorporation and bylaws to the Commission.
Up to 25% Foreign Contracts for the If the Commission finds that the submitted documents
Ownership construction of and information are fully compliant with the
defense-related requirements of this Code, other relevant laws, rules and
structures.
regulations, the Commission shall issue the certificate of
Private recruitment
incorporation.
both for local or
overseas employment. A private corporation organized under this Code
Up to 30% Foreign Advertising commences its corporate existence and juridical
Ownership personality from the date the Commission issues the
Up to 40% Foreign Educational institutions certificate of incorporation under its official seal and
Ownership Operation of public
thereupon the incorporators, stockholders/members and
utilities
Ownership of private their successors shall constitute a body corporate under
lands the name stated in the articles of incorporation for the
Exploration, period of time mentioned therein, unless said period is
development, and extended or the corporation is sooner dissolved in
utilization of natural accordance with law.
resources.
Private radio REGISTRATION AND INCORPORATION
communications A corporation commences its corporate existence
network.
and juridical personality from the date the SEC
issues the certificate of incorporation.
DETERMINING FOREIGN OWNERSHIP Submit intended corporate name – SEC verifies the
If the stockholder is a corporation, there are two name – Submit Articles and bylaws – SEC issues
test in determining the nationality of the corporate certificate of incorporation
stockholder, namely: NON-USE OF CORPORATE CHARTER
1. Control Test – if at least 60% of the shares
STATUS EFFECT
is owned by Filipino citizen, the corporation
Failure to formally Certificate of
will be considered as having Filipino organize and incorporation shall be
nationality. commence its deemed revoked.
2. Grandfather Rule – nationality is business within five
determined by breaking down the equity (5) year from the date
structure of the corporation. of its incorporation.
Subsequently SEC, after due notice
becomes inoperative and hearing, may place
 for at least five (5) the corporation under The number of directors, which shall not be more
consecutive years. delinquent status. than fifteen (15) while the number of trustees may
be more than fifteen (15).
Organize – means to elect officers, subscription TERM OF DIRECTOR/TRUSTEE
and payment of capital stock, adaption of by-laws,
and other similar steps. Related to arrangement of  Director = 1 year
the internal and managerial affairs.  Trustee = 3 years

For delinquent corporations, they are given two (2) Each director and trustee shall hold office until the
years to resume operations and comply with all successor is elected and qualified.
requirements of the SEC. Upon the compliance, the A director who ceases to own at least one (1) share
SEC shall issue an order lifting the delinquent of stock or a trustee who ceases to be a member of
status. Failure to comply with the requirements and the corporation shall cease to be such.
resume operations shall cause the revocation of the
corporation’s certificate of incorporation. QUALIFICATIONS TO BE A
DIRECTOR/TRUSTEE:
SEC. 19. De facto Corporations. – The due
incorporation of any corporation claiming in good faith 1. He must own at least one (1) share of
to be a corporation under this Code, and its right to capital stock or a member in case of a non-
exercise corporate powers, shall not be inquired into stock.
collaterally in any private suit to which such corporation 2. Natural Person
may be a party. Such inquiry may be made by the 3. Must not be disqualified by the RCCP or
Solicitor General in a quo warranto proceeding. any special law or rules
4. Must be of legal age
5. Must possess other qualifications
prescribed by special laws, regulation, or in
the by-laws of the corporation.
DE FACTO CORPORATION
HOLD-OVER
A de facto corporation is one that is defectively
formed but there are colorable compliance with the Even after the expiration of the director’s term, they
law. shall hold office until the successor is elected and
qualified. This period is called the hold-over period.
Requisites:
The powers of the directors continue until even if
1. A valid law under which the corporation is the directors is in a hold over capacity. It only
organized. diminished when the new board is elected.
2. An attempt in good faith to incorporate;
(certificate of incorporation issued by SEC) INDEPENDENT DIRECTOR
3. An assumption of corporate power. An independent director is a person who apart from
A de facto corporation enjoys the attributed of a shareholdings and fees received from any business
corporation until the State questions its existence. or other relationship which could or could
Only the State can question, inquire, and forfeit the reasonable be received to materially interfere with
corporate existence of a de facto corporation. the exercise of independent judgement in carrying
out the responsibilities as a director.
BOARD OF DIRECTORS/TRUSTEES
Independent directors must be elected by the
The board of directors or trustees shall exercise the shareholders present or entitle to vote in absentia
corporate powers, conduct all business, and control during the election of directors. Independent
all properties of the corporation. directors shall be subject to rules and regulations
governing their qualifications, disqualifications,
The BOD is the directing and controlling body of the
voting requirements, duration of term and term limit,
corporation. It is a creation of the stockholders and
maximum number of board membership and other
derives its powers from them.
requirements that the Commission will prescribed
to strengthen their independence and align with bylaws are silent, at the time of the election. The said
international best practices. stockholder may: (a) vote such number of shares for as
many persons as there are directors to be elected; (b)
The board of the following corporations vested with
cumulate said shares and give one (1) candidate as many
public interest shall have independent directors
votes as the number of directors to be elected multiplied
constituting at least twenty percent (20%) of such
by the number of the shares owned; or (c) distribute
board. Such corporations include:
them on the same principle among as many candidates as
1. Corporation’s securities are registered with may be seen fit: Provided, That the total number of votes
the SEC, corporations listed with an cast shall not exceed the number of shares owned by the
exchange or with assets of at least Fifty stockholders as shown in the books of the corporation
million pesos (50,000,000.00) and having multiplied by the whole number of directors to be
two hundred (200) or more holder of shares, elected: Provided, however, That no delinquent stock
each holding at least one hundred (100) shall be voted. Unless otherwise provided in the articles
shares of a class of its equity shares. of incorporation or in the bylaws, members of nonstock
2. Banks and quasi-banks; NSSLAs, corporations may cast as many votes as there are trustees
pawnshops, corporations, engaged in to be elected but may not cast more than one (1) vote for
money service business, preneed, trust and one (1) candidate. Nominees for directors or trustees
insurance companies and other financial receiving the highest number of votes shall be declared
intermediaries; and elected.
3. Other corporations engaged in business
If no election is held, or the owners of majority of the
vested with public interest.
outstanding capital stock or majority of the members
SEC. 23. Election of Directors or Trustees. – Except entitled to vote are not present in person, by proxy, or
when the exclusive right is reserved for holders of through remote communication or not voting in absentia
founders’ shares under Section 7 of this Code, each at the meeting, such meeting may be adjourned and the
stockholder or member shall have the right to nominate corporation shall proceed in accordance with Section 25
any director or trustee who possesses all of the of this Code.
qualifications and none of the disqualifications set forth
The directors or trustees elected shall perform their
in this Code.
duties as prescribed by law, rules of good corporate
At all elections of directors or trustees, there must be governance, and bylaws of the corporation.
present, either in person or through a representative
ELECTION OF THE DIRECTORS
authorized to act by written proxy, the owners of
majority of the outstanding capital stock, or if there be 1. NOMINATION
no capital stock, a majority of the members entitled to
vote. When so authorized in the bylaws or by a majority Each stockholder or member shall have the
of the board of directors, the stockholders or members right to nominate any director or trustee who
may also vote through remote communication or in possesses all of the qualifications and none
absentia: Provided, That the right to vote through such of the qualifications and none of the
modes may be exercised in corporations vested with disqualifications.
public interest, notwithstanding the absence of a
provision in the bylaws of such corporations. No delinquent stock shall be voted.
A stockholder or member who participates through
2. VOTING
remote communication or in absentia, shall be deemed
present for purposes of quorum.
A meeting is called for the election.
The election must be by ballot if requested by any voting Majority of the outstanding capital
stockholder or member. stock/trustees must be present.
To be considered as present, the
In stock corporations, stockholders entitled to vote shall stockholder/trustee can be:
have the right to vote the number of shares of stock
standing in their own names in the stock books of the a) In person
corporation at the time fixed in the bylaws or where the b) By written proxy
 c) By remote communication or in The non-holding of elections and the reasons therefor
absentia. shall be reported to the Commission within thirty (30)
days from the date of the scheduled election. The report
The nominee-director can be elected even if
shall specify a new date for the election, which shall not
they are not present in the meeting.
be later than sixty (60) days from the scheduled date.
Each stockholder is entitled to a number of
If no new date has been designated, or if the rescheduled
votes equal to the number of shares owned
election is likewise not held, the Commission may, upon
by the stockholders multiplied by the whole
the application of a stockholder, member, director or
number of directors to be elected.
trustee, and after verification of the unjustified non-
TYPES OF VOTING holding of the election, summarily order that an election
be held. The Commission shall have the power to issue
a) Straight Vote – number persons voted such orders as may be appropriate, including orders
is equal to the number of directors to be directing the issuance of a notice stating the time and
elected. place of the election, designated presiding officer, and
b) Cumulative voting – all votes are cast the record date or dates for the determination of
in favor of one person. stockholders or members entitled to vote.
c) Cumulative voting by distribution –
distribute them on the same principle Notwithstanding any provision of the articles of
among as many candidates as may be incorporation or bylaws to the contrary, the shares of
seen fit. stock or membership represented at such meeting and
entitled to vote shall constitute a quorum for purposes of
RULES ON VOTING FOR NON-STOCK conducting an election under this section.
CORPORATION
Should a director, trustee or officer die, resign or in any
General Rule: Members of nonstock manner cease to hold office, the secretary, or the
corporations may cast as many votes as director, trustee or officer of the corporation, shall,
there are trustees to be elected by may not within seven (7) days from knowledge thereof, report in
cast more than one (1) vote for one (1) writing such fact to the Commission.
candidate.
REPORT AFTER ELECTION
EXCEPTION: Unless otherwise provided in
the articles of incorporation or in the bylaws. Within thirty (30) days after the election the
secretary, or any other officer of the corporation,
MANNER OF VOTING shall submit to the SEC, the names, nationalities,
Election must be by ballot if requested by shareholdings, and residence addresses of the
any voting stockholder or member. directors, trustees, and officers elected.

Voting through remote communication or in REPORT IN CASE OF VACANCY

absentia is allowed if Should a director, trustee, or officer dies, resign or
i. Authorized by the by-laws in any manner case to hold office, the secretary or
ii. Authorized by majority of the board the director, trustee, or officer of the corporation,
of directors shall within seven (7) days form knowledge
iii. For corporations vested with public thereof, report in writing such fact to the SEC.
interest. REPORT ON NON-HOLDING OF ELECTION
SEC. 25. Report of Election of Directors, Trustees The non-holding of elections shall be reported to
and Officers, Non-holding of Election and Cessation the Commission within thirty (30) days from the
from Office. – Within thirty (30) days after the election date of the scheduled election.
of the directors, trustees and officers of the corporation,
the secretary, or any other officer of the corporation, The report shall contain the following:
shall submit to the Commission, the names, nationalities,
1. The fact of non-holding of the election.
shareholdings, and residence addresses of the directors,
2. Reason for the non-holding
trustees, and officers elected.
 3. New date for the election, which shall not be 1. Of an offense punishable by imprisonment
later than sixty (60) days from the for a period exceeding six (6) years
scheduled date. 2. For violating this Code
3. For violating Republic Act No. 8799,
REMEDY IF NO ELECTION IS SET
otherwise known as "The Securities
If no new date has been designated, or if the Regulation Code”
rescheduled election is likewise not held, the
Found administratively liable for any offense
remedy of the stockholder, member, director or
involving fraudulent acts.
trustee is to file an application with the SEC.
By a foreign court or equivalent foreign regulatory
Upon filing, the SEC shall (1) verify the non-holding
authority for acts, violations or misconduct similar to
of the election; and (2) summarily order that an
those enumerated in paragraphs (a) and (b) above.
election be held.
The list for disqualification is not exclusive.
The SEC has the power to issue a notice stating
Additional grounds may be provided.
the time and place of the election, designated
presiding officer, and the record date or dates for The by-laws and the articles may provide additional
the determination of stockholders or members grounds.
entitled to vote.
REMOVAL OF DIRECTORS AND TRUSTEES
SEC. 26. Disqualification of Directors, Trustees or
Officers. – A person shall be disqualified from being a A director or trustee can be removed by the
director, trustee or officer of any corporation if, within following requisites:
five (5) years prior to the election or appointment as 1. 2/3 vote of the stockholders/trustees.
such, the person was: 2. Removal shall take place either at a regular
(a) Convicted by final judgment: meeting of the corporation or at a special
(1) Of an offense punishable by imprisonment for a meeting called for the purpose.
period exceeding six (6) years;
(2) For violating this Code; and a) In case of a special, it must be called by
(3) For violating Republic Act No. 8799, otherwise the secretary (i) on order of the
known as “The Securities Regulation Code”; president, or (ii) upon written demand of
(b) Found administratively liable for any offense stockholders representing or holding at
involving fraudulent acts; and least a majority of the outstanding
(c) By a foreign court or equivalent foreign regulatory capital stock, or a majority of the entitled
authority for acts, violations or misconduct similar to to vote.
those enumerated in paragraphs (a) and (b) above. 3. There was a previous notice to stockholders
or members of the corporation of the
The foregoing is without prejudice to qualifications or intention to propose such removal at the
other disqualifications, which the Commission, the meeting.
primary regulatory agency, or the Philippine 4. Notice of the time and place of such
Competition Commission may impose in its promotion meeting, as well as of the intention to
of good corporate governance or as a sanction in its propose such removal, must be given by
administrative proceedings. publication or by written notice.
5. Removal may be with or without cause:
DISQUALIFICATION Provided, that removal without cause may
not be used to deprive minority stockholders
A person shall be disqualified from being a director,
or members of the right representation.
trustee or officer of any corporation if, within five (5)
years prior to the election or appointed as such, the SEC. 28. Vacancies in the Office of Director or
person was: Trustee; Emergency Board. – Any vacancy occurring
in the board of directors or trustees other than by
Convicted by final judgment:
removal 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 or members
in a regular or special meeting called for that purpose. 2. Remaining directors or trustees
a. All other scenarios as long as they
When the vacancy is due to term expiration, the election
constitute a quorum.
shall be held no later than the day of such expiration at a
meeting called for that purpose. When the vacancy arises CAUSE OF VACANCY WHEN THE
as a result of removal by the stockholders or members, ELECTION
the election may be held on the same day of the meeting REPLACEMENT
authorizing the removal and this fact must be so stated in SHOULD BE MADE
the agenda and notice of said meeting. In all other cases, Term Expiration Election shall be held
the election must be held no later than forty-five (45) no later that the day of
days from the time the vacancy arose. A director or such expiration at a
meeting called for that
trustee elected to fill a vacancy shall be referred to as
purpose.
replacement director or trustee and shall serve only for
Removal by the The election may be
the unexpired term of the predecessor in office. stockholders or held on the same day
However, when the vacancy prevents the remaining members of the meeting
directors from constituting a quorum and emergency authorizing the removal
and this fact must be
action is required to prevent grave, substantial, and
so stated in the agenda
irreparable loss or damage to the corporation, the
and notice of said
vacancy may be temporarily filled from among the meeting.
officers of the corporation by unanimous vote of the Increase in number of An election at a regular
remaining directors or trustees. The action by the directors or at a special meeting
designated director or trustee shall be limited to the of stockholders or
emergency action necessary, and the term shall cease members duly called
within a reasonable time from the termination of the for the purpose, or in
emergency or upon election of the replacement director the same meeting
or trustee, whichever comes earlier. The corporation authorizing the
must notify the Commission within three (3) days from increase of directors or
the creation of the emergency board, stating therein the trustees if so stated in
reason for its creation. the notice of the
meeting.
Any directorship or trusteeship to be filled by reason of All other cases Election must be held
an increase in the number of directors or trustees shall be no later than forty-five
filled only by an election at a regular or at a special (45) days from the time
meeting of stockholders or members duly called for the the vacancy arose.
purpose, or in the same meeting authorizing the increase
of directors or trustees if so stated in the notice of the TERM OF REPLACEMENT DIRECTO OR
meeting. TRUSTEE
In all elections to fill vacancies under this section, the A director or trustee elected to fill vacancy shall be
procedure set forth in Sections 23 and 25 of this Code referred to as replacement director or trustee
shall apply. elected to fill a vacancy shall be referred to as
VACANCY IN THE BOARD replacement director or trustee and shall serve only
for the unexpired term of the predecessor in office.
WHO WILL VOTE TO FILL UP THE
VACANCIES? POWERS OF THE BOARD DURING THE
VACANCY
1. Stockholders or members
a. Removal of director The board may continue to function even if there is
b. Expiration of the term a vacancy if there is still a quorum.
c. Increase in the number of directors EMERGENCY BOARD
d. If the remaining board members does
not constitute a quorum.
However, when the vacancy prevents the secretary of the corporation, shall be filed with the
remaining directors from constituting a quorum and Commission and attached to the original articles of
emergency action is required to prevent grave, incorporation.
substantial, and irreparable loss or damage to the
Notwithstanding the provisions of the preceding
corporation, the vacancy may be temporarily filled
paragraph, bylaws may be adopted and filed prior to
from among the officers of the corporation by
incorporation; in such case, such bylaws shall be
unanimous vote of the remaining directors or
approved and signed by all the incorporators and
trustees.
submitted to the Commission, together with the articles
The action by the designated director or trustee of incorporation.
shall be limited to the emergency action necessary,
In all cases, bylaws shall be effective only upon the
and the term shall cease within a reasonable time
issuance by the Commission of a certification that the
from the termination of the emergency or upon
bylaws are in accordance with this Code.
election of the replacement director or trustee
whichever comes earlier. The corporation must The Commission shall not accept for filing the bylaws or
notify the SEC within three (3) days from the any amendment thereto of any bank, banking institution,
creation of the emergency board, stating therein the building and loan association, trust company, insurance
reason for its creation. company, public utility, educational institution, or other
special corporations governed by special laws, unless
BY-LAWS
accompanied by a certificate of the appropriate
Every corporation has the inherent power to adopt government agency to the effect that such bylaws or
by-laws for its internal government and to regulate amendments are in accordance with law.
the conduct and prescribe the rights and duties of
ADOPTION OF BY-LAWS
its members towards itself and among themselves
in reference to the management of its affairs. The by-laws may be adopted before or after
incorporation. The bylaws shall be effective only
It is an intramural document and a binding
upon the issuance by the SEC of a certification that
contractual agreement between and among the
the bylaws are in accordance with the RCCP.
corporation, the board of directors, the corporate
officers, as well as the stockholders. The SEC shall not accept for filing the bylaws or
any amendment thereto of any bank, banking
institution, building and loan association, trust
EFFECTS OF BY-LAWS ON 3RD PERSONS company, insurance company, public utility,
educational institution, or any other corporations
It does not bind the state and the public. It is not governed by special laws, unless accompanied by
meant to bind parties outside the corporate family. a certificate of the appropriate government agency
The general rule really is that third persons are not to the effect that such by laws or amendments are
bound by the by-laws of a corporation since they in accordance with the law.
are not privy thereto. The exception to this is when REQUISITES FOR A VALID ADOPTION OF BY
third persons have actual or constructive LAWS
knowledge of the same.
BEFORE AFTER
SEC. 45. Adoption of Bylaws. – For the adoption of INCORPORATION INCORPORATIONS
bylaws by the corporation, the affirmative vote of the  Approved and  Majority vote of
stockholders representing at least a majority of the signed by all the stockholders
outstanding capital stock, or of at least a majority of the incorporators. representing the
members in case of nonstock corporations, shall be  Submitted to outstanding
necessary. The bylaws shall be signed by the the SEC, capital stock, or
stockholders or members voting for them and shall be together with majority of the
kept in the principal office of the corporation, subject to the articles of member in case
the inspection of the stockholders or members during incorporation. on nonstock
office hours. A copy thereof, duly certified by a majority corporations.
of the directors or trustees and countersigned by the  Signed by the
 stockholders or compensation of directors or trustees and officers, and
members voting the maximum number of other board representations that
for them an independent director or trustee may have which shall,
 Shall be kept in in no case, be more than the number prescribed by the
the principal Commission;
office of the (g) The time for holding the annual election of directors
corporation or trustees and the mode or manner of giving notice
 A copy, duly thereof;
certified by a
(h) The manner of election or appointment and the term
majority of the
of office of all officers other than directors or trustees;
directors/trustees
and (i) The penalties for violation of the bylaws;
countersigned by (j) In the case of stock corporations, the manner of
the secretary, issuing stock certificates; and
shall be filed with (k) Such other matters as may be necessary for the
the SEC and proper or convenient transaction of its corporate affairs
attached to the for the promotion of good governance and anti-graft and
original articles corruption measures.
of incorporation. An arbitration agreement may be provided in the bylaws
pursuant to Section 181 of this Code.
EFFECT OF NON-ADOPTION OF BY-LAWS MATTERS OUTSIDE THE BY-LAWS
By-laws is not necessary for the creation of the The following matters must be provided in the
corporate existence or to the valid exercise of its articles of incorporation, and consequently cannot
powers. be governed by the bylaws:
The non-adoption can only be a ground by the a) Classification of shares
SEC, after due notice and hearing, to suspend or b) Preferences granted to preferred shares
revoke the franchise or the certificate of c) Provision for founder’s shares,
registration. d) Provision for redeemable shares
It is not an automatic ground for dissolution. The e) The purpose of the corporation
incorporators must be given the chance to explain f) The term of existence
their neglect or omission and remedy the same. g) Capitalization of stock corporations
h) Corporate name
i) Denial of pre-emptive rights
SEC. 46. Contents of Bylaws. – A private corporation
may provide the following in its bylaws:
(a) The time, place and manner of calling and
conducting regular or special meetings of the directors or LIMITATIONS ON THE BY-LAWS
trustees; The following limitations must be observed for the
(b) The time and manner of calling and conducting by-laws to be valid:
regular or special meetings and mode of notifying the
stockholders or members thereof; i. Must not be contrary to law
(c) The required quorum in meetings of stockholders or ii. Must not be contrary to the articles of
members and the manner of voting therein; incorporation
(d) The modes by which a stockholder, member, iii. Must not be contrary to morals and public
director, or trustee may attend meetings and cast their policy
votes;
In case of conflict between the articles and the by-
(e) The form for proxies of stockholders and members
laws, the articles will prevail.
and the manner of voting them;
(f) The directors’ or trustees’ qualifications, duties and SEC. 47. Amendment to Bylaws. – A majority of the
responsibilities, the guidelines for setting the board of directors or trustees, and the owners of at least a
majority of the outstanding capital stock, or at least a  File with
majority of the members of a nonstock corporation, at a the SEC
regular or special meeting duly called for the purpose, the
may amend or repeal the bylaws or adopt new bylaws. amended
The owners of two-thirds (2/3) of the outstanding capital or new
stock or two-thirds (2/3) of the members in a nonstock bylaws.
corporation may delegate to the board of directors or
trustees the power to amend or repeal the bylaws or Delegated power can be revoked by a majority vote
adopt new bylaws: Provided, That any power delegated of the stockholders/members at a regular or special
to the board of directors or trustees to amend or repeal meeting
the bylaws or adopt new bylaws shall be considered as
revoked whenever stockholders owning or representing a Required number of votes may be increased but
majority of the outstanding capital stock or majority of not decreased by the by-laws.
the members shall so vote at a regular or special
The amended or new bylaws shall only be effective
meeting.
upon the issuance by the SEC of S certificate.
Whenever the bylaws are amended or new bylaws are
adopted, the corporation shall file with the Commission COMPENSATION OF DIRECTORS/TRUSTEES
such amended or new bylaws and, if applicable, the GENERAL RULE: Directors/ trustees shall not
stockholders’ or members’ resolution authorizing the receive any compensation.
delegation of the power to amend and/or adopt new
bylaws, duly certified under oath by the corporate EXCEPTIONS:
secretary and a majority of the directors or trustees. 1. Reasonable per diems.
The amended or new bylaws shall only be effective upon 2. If provided in the by-laws
the issuance by the Commission of a certification that 3. If the majority of the outstanding capital
the same is in accordance with this Code and other stock/ members may grant director/trustees
relevant laws. with compensation and approve the amount
thereof at a regular or special meeting.
REQUISITES FOR THE AMENDMENT,
REPEAL OR ADOPT NEW BY LAWS LIMITATIONS
1. The total yearly compensation of directors
NO DELEGATION DELEGATION TO
THE BOARD shall not exceed 10% of the net income
before income tax of the corporation during
 Majority of the  2/3 vote of
stockholders/membe the the preceding year.
rs. stockholder 2. Directors or trustees shall not participate in
 Majority vote of the s/ the determination of their own per diems or
Board of Directors members compensation.
 Vote is made at a in 3. Corporations vested with public interest
regular or special delegating shall submit to their shareholders and the
meeting the power Commission, an annual report of the total
 File with the SEC to the compensation of each of their directors or
the amended or new board. trustees.
bylaws.  Vote to
delegate SEC. 52. Regular and Special Meetings of Directors
must be or Trustees; Quorum. – Unless the articles of
made in a incorporation or the bylaws provides for a greater
regular or majority, a majority of the directors or trustees as stated
special in the articles of incorporation shall constitute a quorum
meeting to transact corporate business, and every decision
 Majority reached by at least a majority of the directors or trustees
vote of the constituting a quorum, except for the election of officers
Board of
which shall require the vote of a majority of all the
Directors
members of the board, shall be valid as a corporate act.
Regular meetings of the board of directors or trustees of NOTICE OF REGULAR OR SPECIAL MEETINGS
every corporation shall be held monthly, unless the
It is stating the date, time, and place of the meeting
bylaws provide otherwise.
must be sent to every director or trustee at least
Special meetings of the board of directors or trustees two (2) days prior to the scheduled meeting,
may be held at any time upon the call of the president or unless a longer time is provided in the bylaws.
as provided in the bylaws.
A director or trustee may waive this requirement,
Meetings of directors or trustees of corporations may be either expressly or impliedly.
held anywhere in or outside of the Philippines, unless the
VIDEOCONFERENCE
bylaws provide otherwise. Notice of regular or special
meetings stating the date, time and place of the meeting Directors or trustees can participate and vote
must be sent to every director or trustee at least two (2) through remote communication that allow them
days prior to the scheduled meeting, unless a longer time reasonable opportunities to participate.
is provided in the bylaws. A director or trustee may
waive this requirement, either expressly or impliedly. Directors or trustees cannot attend or vote by proxy
at board meetings.
Directors or trustees who cannot physically attend or
vote at board meetings can participate and vote through RELATED PARTY TRANSACTION
remote communication such as videoconferencing, A director or trustee who has potential interest in
teleconferencing, or other alternative modes of any related party transaction must recuse from
communication that allow them reasonable opportunities voting on the approval of the related party subject
to participate. to the requirements of Section 31 of this Code.
Directors or trustees cannot attend or vote by proxy at
MEETING OF STOCKHOLDERS/MEMBERS
board meetings. A director or trustee who has a potential
interest in any related party transaction must recuse from TYPES OF MEETINGS
voting on the approval of the related party transaction
without prejudice to compliance with the requirements 1. Regular Meetings
of Section 31 of this Code. 2. Special Meetings
REQUISITES FOR A VALID MEETING
MEETING OF DIRECTORS
1. Held on the proper date
For the board to transact corporate business, and
2. There must be a previous notice
to make every decision a valid corporate act:
3. Must be called by the proper person
 It should be approved by at least majority 4. Must be held in the proper place
of the directors or trustees constituting a 5. There must be a quorum
quorum.
 For the election of officers, the vote a
majority of all the members of the board.
MEETINGS
 Regular Meetings of the board shall be
held monthly unless the bylaws provide
otherwise.
 Special Meetings of the board may be held
at any time upon the call of the president or
as provided in the bylaws.
LOCATION OF BOARD MEETINGS
Meetings of directors or trustees of corporations NOTICE FOR A MEETING
may be held anywhere in or outside the Philippines, Written notice of meetings may be sent to all
unless the bylaws provide otherwise. stockholders or members of record through
electronic mail or other manner allowed by the Stockholders’ or members’ meetings, whether
SEC. regular or special, shall be held:
Notice of any meeting may be waived, expressly or 1. In the principal office of the corporation as
impliedly by any stockholder or member set forth in the articles of incorporation.
2. If not practicable, in the city or municipality,
where the principal office of the corporation
is located (Metro Manila, Metro, Cebu,
Metro Davao, and Other Metropolitan areas
shall for purposes of this be considered a
city or municipality).
WHAT IS THE REQUIRED QUORUM FOR
STOCKHODLERS/MEMBERES MEETINGS?
Unless otherwise provided in the bylaws, a quorum
shall consist of the stockholders representing a
majority of the outstanding capital stock or a
EACH NOTICE OF MEETING SHALL BE
majority of the members in the case of nonstock
ACCOMPANIED BY THE FOLLOWING:
corporations.
a) The agenda for the meeting
WHAT IF THE CORPORATION DID NOT
b) A proxy which shall be submitted to the
COMPLY WITH ANY OF THE REQUIREMENTS?
corporate secretary within a reasonable
time prior to the meeting. All proceedings and any business transacted at a
c) When attendance, participation, and voting meeting of the stockholders or members, if:
are allowed by remote communication or in
1. The business transacted is within the
absentia the requirements and procedures
powers or authority of the corporation.
to be followed when a stockholder or
2. That all the stockholders or members of the
member elects either option.
corporation are present or duly represented
d) When the meeting is for the election of
at the meeting; and
directors or trustees, the requirements and
3. No stockholder/member expressly states at
procedure for nomination and election.
the beginning of the meeting that the
WHAT IF THE STOCKHOLDER/MEMBER DID purpose of their attendance is to object to
NOT RECEIVE A NOTICE? the transaction of any business because the
meeting is not lawfully called or convened.
GENERAL RULE: Attendance at a meeting shall
constitute a waiver of notice of such meeting.
EXCEPTION: When the person attends a meeting
for the express purpose of objecting to the
WHAT SHALL PRESIDE AT MEETINGS?
transaction of any business because the meeting is
not lawfully called or convened. 1. The chairman of the board
2. In his absence, the president
WHEN ARE REGULAR MEETING HELD?
Shall preside at all meetings of the directors or
It shall be held annually on:
trustees as well as of the stockholders or members,
1. The date fixed in the bylaws unless the bylaws provide otherwise.
2. If not so fixed inn the bylaws or if not so
fixed, on any date After April 15 of every SPECIAL FORMS OF VOTING
year as determined by the board of directors VOTING BY PROXY
or trustees.
Stockholders and members may vote in person or
proxy in all meetings of stockholders or members.
WHERE SHOULD THE MEETING TAKE PLACE?
WHEN IS VOTING BY PROXY ALLOWED? trustees is made pursuant to the voting trust
agreement.
When (1) authorizes in the bylaws (2) by a majority
6. The trustee or trustees shall execute and
of the board of directors. Provided that the votes
deliver to the transferors, voting trust
are received before the corporation finishes the
certificates, which shall be transferable in
tally of votes.
the same manner and with the same effect
REQUISITES FOR A VALID PROXY as certificates of stock.

1. It shall be in writing PERIOD FOR VTA

2. Signed and filed, by the stockholder or
 The VTA shall have a period not exceeding
member
five (5) years at any time.
3. It shall be in any form authorized in the
 In the case of a voting trust specially
bylaws
required as a condition in a loan agreement
4. It is received by the corporate secretary
said voting trust may be for a period
within a reasonable time before the
exceeding five (5) years but shall
scheduled meeting.
automatically expire upon full payment of
PERIOD OF VALIDITY the load.

GENERAL RULE: Shall be valid only for the OTHER RIGHTS IN A VTA
meeting for which it is intended.
 The voting trustee or trustees may vote by
EXCEPTION: Unless otherwise provided in the proxy or in any manner authorized under
proxy form. Note that no proxy shall be valid and the bylaws unless the agreement provides
effective for a period longer than five (5) years at otherwise.
any one time.  Upon expiration, the voting trust certificates
and the certificate of stock in the trustees’
VOTING TRUST
name shall thereby be deemed cancelled
It is when one or more stockholders of stock and new certificates of stock shall be
corporation conder upon a trustee or trustees the reissued in the name of the trustors.
right to vote and other rights pertaining to the  Both the trustor and the trustee or trustees
shares. may exercise the right of inspection of all
corporate books and records.
RULES ON ITS VALIDITY
GENERAL RULE: It shall be valid only for the
meeting for which it is intended.
EXCEPTION: Unless otherwise stipulated. But no
proxy shall be valid and effective for a period longer
than five (5) years at any one time.
REQUISITES FOR A VALID VOTTING TRUST
AGREEMNENT (VTA)
1. A voting trust agreement must be in writing
and notarized.
2. It shall specify the terms and conditions.
3. A certified copy of such agreement shall be
filed with the corporation and with the SEC
4. The certificate or certificates of stock
covered by the voting trust agreement shall
be cancelled and new ones shall be issued.
5. The books of the corporation shall state that
the transfer in the name of the trustee or
 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.
A director, trustee, or officer shall not attempt to acquire,
or acquire any interest adverse to the corporation in
respect of any matter which has been reposed in them in
confidence, and upon which, equity imposes a disability
upon themselves to deal in their own behalf; otherwise
CORPORATE OFFICERS the said director, trustee, or officer shall be liable as a
Corporate officers are officers who are designated trustee for the corporation and must account for the
or specified as such or given that character in law, profits which otherwise would have accrued to the
the articles, or in the by-laws of the corporation. corporation.

The following officers should be elected: SECRETARY

General Rule: Corporate officers and agents are
not liable for the directors or trustees shall be
jointly and severally for all damages suffered by
the corporation, its stockholders or members and
other persons for the following acts:
A) Willfully and knowingly vote for or assent to
patently unlawful acts
B) Guilty of gross negligence or bad faith in
directing the affairs of the corporation
C) Acquire any personal or pecuniary interest
in conflict with their duty as such.
President cannot be the secretary and/or the SEC. 31. Dealings of Directors, Trustees or Officers
treasurer at the same time. with the Corporation. – A contract of the corporation
All other person may hold two (2) or more positions with (1) one or more of its directors, trustees, officers or
concurrently. their spouses and relatives within the fourth civil degree
of consanguinity or affinity is voidable, at the option of
REPORT TO THE SEC such corporation, unless all the following conditions are
present:
Within thirty (3) days after the election of the
officers of the corporation, the secretary, or any (a) The presence of such director or trustee in the board
other officer of the corporation, the secretary, or meeting in which the contract was approved was not
any other officer of the corporation, shall submit to necessary to constitute a quorum for such meeting;
the SEC, the names, nationalities, shareholdings, (b) The vote of such director or trustee was not
and residence addresses of the officers elected. necessary for the approval of the contract;
(c) The contract is fair and reasonable under the
Should an officer die, resign, or in any manner case
circumstances;
to hold office, the secretary or the officer of the
(d) In case of corporations vested with public interest,
corporation, shall, within seven (7) day from
material contracts are approved by at least two-thirds
knowledge thereof, report in writing such fact to the
(2/3) of the entire membership of the board, with at least
SEC.
a majority of the independent directors voting to approve
SEC. 30. Liability of Directors, Trustees or Officers. the material contract; and
– Directors or trustees who willfully and knowingly vote (e) In case of an officer, the contract has been previously
for or assent to patently unlawful acts of the corporation authorized by the board of directors.
or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any
Where any of the first three (3) conditions set forth in the preceding section insofar as the latter corporation or
preceding paragraph is absent, in the case of a contract corporations are concerned.
with a director or trustee, such contract may be ratified
Stockholdings exceeding twenty percent (20%) of the
by the vote of the stockholders representing at least two-
outstanding capital stock shall be considered substantial
thirds (2/3) of the outstanding capital stock or of at least
for purposes of interlocking directors.
two-thirds (2/3) of the members in a meeting called for
the purpose: Provided, That full disclosure of the adverse INTERLOCKING DIRECTORS
interest of the directors or trustees involved is made at
such meeting and the contract is fair and reasonable Interlocking director is a director of one corporation
under the circumstances. and also a director of another.
An interlocking director with a stockholding
exceeding twenty percent (20%) of the outstanding
VOIDABLE CONTRACTS
Contracts with the following persons is voidable, at
the option of the corporation:
1. Directors/trustees
2. Officers
capital stock shall be considered holding
3. Their spouses
substantial interest.
4. Their relatives within the fourth civil degree
of consanguinity or affinity. The contract must always be without fraud and the
contract is fair and reasonable under the
REMEDY circumstances.
For the contract to be valid: SEC. 34. Executive, Management, and Other Special
a) The presence of such director or trustee in Committees. – If the bylaws so provide, the board may
the board meeting in which the contract was create an executive committee composed of at least three
approved was not necessary to constitute (3) directors. Said committee may act, by majority vote
a quorum for such meeting of all its members, on such specific matters within the
b) The vote of such director or trustee was not competence of the board, as may be delegated to it in the
necessary for the approval of the contract bylaws or by majority vote of the board, except with
c) The contract is fair and reasonable under respect to the: (a) approval of any action for which
the circumstances shareholders’ approval is also required; (b) filling of
d) In case of corporations vested with public vacancies in the board; (c) amendment or repeal of
interest, material contracts are approved by bylaws or the adoption of new bylaws; (d) amendment or
at least a majority of the independent repeal of any resolution of the board which by its
directors voting to approved the material express terms is not amendable or repealable; and (e)
contract distribution of cash dividends to the shareholders.
e) In case of an officer, the contract has been The board of directors may create special committees of
previously authorized by the board of temporary or permanent nature and determine the
directors. members’ term, composition, compensation, powers, and
SEC. 32. Contracts Between Corporations with responsibilities.
Interlocking Directors. – Except in cases of fraud, and
EXECUTIVE COMMITTEES
provided the contract is fair and reasonable under the
circumstances, a contract between two (2) or more Purpose: To easily facilitate the conduct of
corporations having interlocking directors shall not be business by a corporation.
invalidated on that ground alone: Provided, That if the
interest of the interlocking director in one (1) The executive committee may manage the day-to-
corporation is substantial and the interest in the other day operations of the business, and other affairs of
corporation or corporations is merely nominal, the the corporation.
contract shall be subject to the provisions of the Requisites:
 1. The by-laws gave the board the power to 1. Inspection is made at reasonable hours on
create an executive committee business days.
2. The committee must have at least three (3) 2. Demand is made in good faith or for a
members who are directors. legitimate purpose.
3. The committee can only act by a majority 3. The inspecting or reproducing party is
vote of all of its members. bound by confidentiality rules under the law.
4. A requesting party who is not a stockholder
EXECUTIVE MANAGEMENT AND OTHER or member of record, or is a competitor,
SPECIAL COMMITTEES director, officer, controlling stockholder, or
The committee cannot be delegated with the otherwise represents the interests of a
following: competitor shall have no right to inspect or
demand reproduction of corporate records.
a) Approval of any action for which
shareholders’ approval is also required The following are valid grounds for refusal of
b) Filing of vacancies in the board the right to inspect:
c) Amendment or repeal of bylaws or the 1. The person has previously improperly used
adoption of new bylaws. any information secured through any prior
d) Amendment or repeal of any resolution of examination of the records or minutes.
the board which by its express terms is not 2. The person was not acting in good faith.
amendable or repealable 3. Inspection was not for a legitimate purpose.
e) Distribution of cash dividends to the 4. Is a competitor
shareholders. 5. Is a director, officer, controlling stockholder
or otherwise represents the interests of a
CORPORATE BOOKS AND RECORDS
competitor.
Every corporation shall keep and carefully preserve
EFFECT OF REFUSAL TO INSPECT
at its principal office all information relating to the
corporation including, but not limited to: Any officer or agent of the corporation who shall
refuse to allow the inspection and/or reproduction
a) The articles of incorporation and bylaws and
of records shall be liable to such director, trustee,
all their amendments
stockholder, or member for damages.
b) Current ownership structure and voting
rights of the corporation. Provided, that if such refusal is made pursuant to a
c) Names and addresses of all the members of resolution or order of the board of directors or
the board of directors or trustees and the trustees, the liability shall be imposed upon the
executive officers directors or trustees who voted for such refusal.
d) A record of all business transactions
e) A record of the resolutions of the board of If the corporation denier or does not act on a
directors of trustees and of the stockholders demand for inspection and/or reproduction, the
or members aggrieved part may report such to the SEC. Within
f) Copies of the latest reportorial requirements five (5) days from receipt of such report, the SEC
submitted to the SEC shall conduct a summary investigation and issue an
g) The minutes of all meetings of stockholders order directing the inspection or reproduction of the
or members or the board of directors or requested records.
trustees. MINUTES OF THE MEETING
RIGHT TO INSPECTION The minutes contain the following details:
Corporate records, regardless of the form in which 1. The time and the place of the meeting held.
they are stored, shall be open to inspection by any 2. How it was authorized
director, trustee, stockholder or member of the 3. Notice given
corporation in person or by a representative. 4. The agenda
Such right shall comply with the following 5. Whether the meeting was regular or special
conditions: and its object if special
 6. Those present and absent stockholder shall submit the certificates of
7. Every act done or ordered done at the stock to the corporation for notation that the
meeting shares are dissenting share.
5. The price of the shares shall be based on
the fair value as of the day prior to the date
when the vote was taken.
6. Payment of shares shall only be made when
The following will only be recorded in the minutes the corporation has unrestricted retained
only upon demand: earnings
1. The time when any director, trustee, 7. Upon payment, the shareholder shall
stockholder or member entered or left the surrender the certificate.
meeting. PREEMPTIVE RIGHTS
2. The years and nays must be taken on any
motion or proposition, and a record thereof It is a right granted to stockholders to have the first
carefully made option to subscribe any issuance or disposition of
3. The protest of a director, trustee, shares from the capital stock in proportion to the
stockholder or member on any action or stockholder’s stockholding.
proposed action.
It is available when:
APPRAISAL RIGHTS 1. Issuance of unsubscribe shares
Any stockholder shall have the right to dissent and 2. Increase of capital stock
demand payment of the fair value of the shares in 3. Disposition of treasury shares
the following instances: 4. All other issuance and disposition of shares.

(a) In case an amendment to the articles of General Rule: All stockholders of a stock
incorporation has the effect of: corporation shall enjoy preemptive right to
 Changing or restricting the rights of any subscribe to all issues or disposition of shares of
stockholder or class of shares; or any class, in proportion to their respective
 Authorizing preferences that is superior to shareholdings.
the outstanding shares of any class; or
Exception:
 Extending or shortening the term of
corporate existence. 1. When the right is denied by the articles of
(b) In case of sale, lease, exchange, transfer, incorporation or an amendment thereto
mortgage, pledge or other disposition of all or 2. When shares are issued in compliance with
substantially all of the corporate property and the laws of requiring stock offerings or
assets. minimum stock ownership by the public.
(c) In case of merger or consolidation 3. When shares are issued (a) in good faith (b)
(d) In case of investment of corporate funds for any with the approval of the stockholders
purpose other than the primary purpose of the representing two-thirds (2/3) of the
corporation. outstanding capital stock (c) in exchange for
property needed for corporate purposes or
Requisites for a valid exercise of the right:
in payment of previously contracted debt.
1. Any of the instances set forth are present
DIVIDENDS
2. Making a written for the payment of the fair
value of shares held. Requisites:
3. Demand is made within thirty (30) days from
the date on which the vote was taken. 1. Unrestricted retained earnings
(Failure to make the demand within the 2. Resolution of the board
period is deemed as waiver of the appraisal 3. In case of stock dividends, 2/3 vote of the
right) outstanding capital stock.
4. Within ten (10) days after demanding Trust Fund Doctrine
payment for shares held, a dissenting
  Dividends cannot be declared out of capital. Membership in a nonstock corporation and all rights
Except for liquidating dividends. arising therefrom are personal and non-
 The TFD states that the capital of a transferable, unless the articles of incorporation or
corporation is for the payment of debts of the bylaws otherwise provide.
the corporation to which the creditors may
Termination of Membership
look for satisfaction.
Membership shall be terminated in the manner and
for the causes provided in the articles of
SUMMARY OF VOTING REQUIREMENTS incorporation or the bylaws. Termination of
membership shall extinguish all rights of a member
in the corporation or in its property, unless
otherwise provided in the articles of incorporation or
the bylaws.

TRUSTEES
 The number of trustees shall be fixed in the
articles of incorporation or bylaws which
may or may not be more than fifteen (15).
 They shall hold office for not more than
three (3) years until their successors are
elected and qualified.
 Trustees elected to fill vacancies occurring
before the expiration of a particular term
shall hold office only for the unexpired
period.
 Except with respect to independent trustees
of nonstock corporations vested with public
interest, only a member of the corporation
shall be elected as trustee.
NON-STOCK CORPORATIONS  Unless otherwise provided in the articles of
incorporation or the bylaws, the members
Requisites: may directly elect officers of a nonstock
corporation.
1. It does not have a capital stock divided into
shares PLACE OF MEETING
2. No part of its income is distributable as
dividend to its members The members of a nonstock corporation may hold
3. It must be formed for charitable, religious, their regular or special meetings at any place even
educational, professional, cultural, fraternal, outside the place where the principal office of the
literary, scientific, social, civic, service, or corporation is located, if the following is satisfied:
similar purposes, like trade, industry, 1. The bylaws allows it
agricultural and like chambers, or any 2. Proper notice is sent to all members
combination thereof. 3. The notice indicates the date, time, place of
NOTE: That any profit obtain incidental to its the meeting
operations shall, whenever necessary, or proper be 4. The place of meeting shall be within
used for the furtherance of the purpose or purposes Philippine territory.
for which the corporation was organized. ONE-PERSON CORPORATION
MEMBERS A one person corporation (OPC) is a corporation
Non transferability of Membership with a single stockholder.
Who can be an incorporator of and OPC?
 1. Natural Person director and shall manage the corporation’s
2. Trust affairs.
3. Estate  The articles of incorporation shall state the
names, residence address and contact
The incorporator of an OPC must be of legal age.
details of the nominee and alternate
A foreign natural person may put up an OPC nominee, and the extent and limitations of
their authority
 The written consent of the nominee and
alternate nominee shall be attached to the
application for incorporation.
 Consent may be withdrawn in writing any
Corporation that cannot be an OPC time before the death or incapacity of the
single stockholder.
 Banks and quasi-banks, pre-need, trust,
insurance, public and publicly listed Term of Nominee and Alternate Nominee
companies, and non-chartered government-
owned and controlled corporations
 A natural person who is licensed to exercise
a profession may not organize as an OPC.
Term Of Existence
General Rule: Perpetual
Exception: In case of a trust or estate, its term
shall be co-terminous with the existence of the trust
or estate
Corporate Name
The suffix “OPC” should be indicated by the one
person corporation either below or at the end of its
corporate name.
Articles of Incorporation
The OPC shall file its Articles of Incorporation
The AI must set forth its primary purpose, principal
office address, term of existence, names and
details of the single stockholder, the nominee and
alternate nominee and the authorized, subscribed
and paid-up capital and such other matters
consistent with law and which may be deemed
necessary and convenient.
Bylaws
The OPC is not required to submit and file its
Bylaws.
Nominee and Alternate Nominee

 The single stockholder shall designate a

nominee and an alternate nominee.
 In case of the single stockholder’s death or
incapacity, they will take the place as
  The alternate nominee shall sit as director the articles of incorporation, and other
and manage the One Person Corporation in matters.
case of the nominees.
Minutes Book
a) Inability A One Person Corporation shall maintain a minutes
b) Incapacity book which shall contain all actions, decisions, and
c) Death, or resolutions of the OPC.
d) Refusal to discharge the functions
as director and manager of the Records in Lieu of Meetings
corporation. When action is needed on any matter, it shall be
Director and Officer

 The single stockholder shall be the sole

director and president of the OPC.
 Within fifteen (15) days from the issuance of
its Certificate of Incorporation the OPC shall
appoint a Treasurer, Corporate Secretary,
and other officers.
 Notify the SEC within five (5) days from sufficient to prepare a written resolution, signed and
appointment dated by the single stockhoolder, and recorded in
 The single stockholder shall not be the minutes book of the One Person Corporation.
appointed as Corporate Secretary but may
assume the role of a Treasurer. The date of recording in the minutes book shall be
 Subject to renewal every two (2) years or as deemed to be the date of the meeting for all
may be required, upon review of the annual purposes under this Code.
submission of the AFS. EDUCATIONAL CORPORATION
 The bond is a continuing requirement for so
long as the single stockholder is the self-  Educational Corporation – One organized
appointed Treasurer of the OPC. for educational purposes.
 The board may be cancelled upon proof of
If organized as a non-stock corporation
appointment of another person as the
Treasurer and Filing of Amended Form for  Trustees of educational institutions
Appointment of Officers. organized as non-stock corporations shall
not be less than 5 nor more than fifteen.
Special Functions of the Corporate Secretary
 The number of trustees shall be in multiples
A. Responsible for maintaining the minutes of five (5). They shall classify themselves in
book and/or records of the corporation such a way that the term of 1/5 of them
B. Notify the nominee or alternate nominee of expires every year.
the death or incapacity of the single
stockholder, within five (5) days from such If organized as a stock corporation
occurrence  For institutions organized as stock
C. Notify the Commission of the death of the corporations, the number and term of
single stockholder within five (5) days and directors shall be governed by the
stating in such notice the names, residence provisions on stock corporations.
address, and contact details of all known
legal heirs. FOREIGN CORPORATION
D. Call the nominee or alternate nominee and
the known legal heirs to a meeting  It is formed, organized or existing under
E. Advise the legal heirs with regard to the laws other than those of the Philippines and
election of a new director, amendment of 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 after obtaining a license and
a certificate of authority from the appropriate
government agency.
LICENSE
Before a foreign corporation transact business
(doing business) in the Philippines, it must secure
proper authorization.
If the foreign corporation does not have a license, it
shall have the following effect:
1. It is open to court actions against it.
2. It shall not be allowed to maintain or
intervene in an action, suit or proceeding for
its own account in any court, tribunal, or
agency in the Philippines.