WHEREAS, Section 179 (o) and (p) of Republic Act (RA) No. 11232, otherwise known as the “Revised Corporation Code of the Philippines” (“RCC or Code”), grants the Commission the power and authority to: (i) formulate and enforce standards, guidelines, policies, rules and regulations to carry out the provision of the RCC; and (ii) exercise such other powers provided by law or those which may be necessary or incidental to carry out the powers expressly granted to it.
WHEREAS, Section 13 therein provides that the articles of incorporation and other applications for amendments thereto may be filed in the form of an electronic documents in accordance with its rules and regulation on electronic filing as supported by Section 180 where the Commission is directed to develop and implement an electronic filing and monitoring system.
WHREAS, Section 16 of the RCC provides that no articles of incorporation or amendment to articles of incorporation of banks, banking and quasi-banking institutions, preneed, insurance and trust companies, NSSLAs, pawnshops, and other financial intermediaries shall be approved by the Commission unless accompanied by a favorable recommendation of the appropriate government agency to the effect that such bylaws or amendments are in accordance with law.
WHEREAS, Section 45 of the RCC provides that the Commission shall not accept for filing the bylaws or any amendment thereto of any bank, banking institutions, building and loan association, trust company, insurance company, public utility, educational institution, or other special corporations governed by special laws, unless accompanied by a certificate of the appropriate government agency to the effect that such bylaws or amendments are in the accordance with law.
WHEREAS, in pursuit of sustainable practices, streamlined and automated processes, the Securities and Exchange Commission allows the amendment application through the eAMEND portal.
WHEREAS, the eAMEND portal is a user-friendly online filing and submission amendment portal that facilitates the acceptance, processing, approval for payment, and issuance of the digital copy of the Certificate Amendment of Domestic Stock and Non-stock Corporation which aims to provide the following:
e – Electronic
A – Application
M – Modification of
EN – ENtity
NOW THEREOF, the Commission hereby promulgates the following requirements and guidelines for the application for amendments under Section 15 and/ or 47 of the Revised Corporation Code, among others:
SECTION 1. COVERAGE AND APPLICABILITY
This Memorandum Circular shall cover applications within the competent jurisdiction of the Corporate and Partnership Registration Division (CPRD) of the Company Registration and Monitoring Department (CRMD) and the respective Extension Offices of the Commission.
A. Application Subject to Issuance of Digital Certificate
Application for Amendment of the Articles of Incorporation and/or By-Laws filed by Domestic Stock or Non-stock corporations concerning the following provisions or any combinations thereof:
B. Application Subject to Regular Processing through the eAMEND Portal:
All other applications not included in the list above shall be filed through the Official electronic mail platforms of the Commission and/or its Extension Offices.
SECTION 2. WHO ARE ALLOWED TO FILE
Only registered and active Partnership and Corporations may apply as stated in Section 1.
SECTION 3. DOCUMENTARY REQUIREMENTS FOR APPLICATIONS SUBJECT TO ISSUANCE OF DIGITAL CERTIFICATE
The applicant shall submit the following documents:
Articles of Incorporation
By-Laws:
SECTION 4. DOCUMENTARY REQUIREMENTS FOR APPLICATIONS SUBJECT TO REGULAR PROCESSING THROUGH THE eAMEND PORTAL:
Documentary requirements provided in the SEC’s latest Citizen’s Character as posted in the SEC Websites
SECTION 5. SUBMISSION OF HARD COPIES
The filing of the hard copies shall be filed and submitted to the appropriate addresses of SEC Offices chosen by the applicant as indicated in Annex “D”.
SECTION 6. APPROVAL AND ISSUANCE OF CERTIFICATE
Section 7. GROUND FOR PURGING AND CANCELLATION OF APPLICATION
In any instance, the corporation may re-apply through the eAMEND portal.
SECTION 8. INTER-AGENCY RECOGNITION OF THE AMENDMENT FORMS
The Amendment Form shall form part of the original Articles of Incorporation and/or By-laws of the corporation and any changes made to the Articles of Incorporation and/or By-laws, as provided in the Amendment Form and duly approved by the Commission, shall be considered official and legally valid when presented to other government agencies for any purpose.
SECTION 9. TRANSITION GUIDELINES
Pursuant to the implementation of the eAMEND starting on 23 February 2024, please be guided by the following procedures:
Beginning 23 February 2024, only system generated Amendment Form shall be acceptable for applications covered under Section 1.A. Any alternation, erasure, modification, or revision in the system-generated application under Section 1.A and the uploaded application under Section 1.B shall result in the automatic cancellation of the application after non compliance of any lawful order of the Commission.
SECTION 10. ANNOTATION ON THE ARTICLES OF PARTNERSHIP, ARTICLES OF INCORPORATION, and BY-LAWS
For purposes of effecting the implementation of the eAMEND Portal provided for and adopted in this Circular, an annotation to the Articles of Partnership, Articles of
Incorporation, the By-Laws, as the case may be, filed through the eAMEND Portal undertaken by the Corporation, shall be listed therein.
SECTION 11. APPLICABILITY OF OTHER RULES
The pertinent provisions of the Rules of Procedure of the Commission and the Rules of Court of the Philippines may, in the interest of expeditious dispensation of justice and whenever practicable, be applied by analogy or in suppletory character and effect.
In compliance with the Commission’s future issuances, specifically those focused on digitalization, the eAMEND Portal shall promptly incorporate any applicable requirements into its framework, provided they are relevant to the scope outlined in this Memorandum Circular.
SECTION 12. EFFECTIVITY
This Memorandum Circular shall take effect immediately upon its publication in newspaper of general circulation.
Non-stock corporations or foundations in the Philippines may be formed for charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes, such as trade, industry, agricultural, and like chambers, or any combination thereof.
Certain accredited non-stock, non-profit corporations in the Philippines are exempt from income tax on donations, grants, and gifts provided they are:
To set up a non-stock non-profit corporation in the Philippines, you must first be registered with different government agencies. This article might be a help to your generous and big heart, having in mind the welfare of the less fortunate, or just want to start a non-stock non-profit corporation.
Incorporators
Incorporators shall be not less than five (5) in number but not more than fifteen (15) and the majority of whom are residents of the Philippines. Resident or non-resident aliens (foreigners) can be incorporators of a non-stock corporation, provided that the majority of the incorporators are residents of the Philippines.
Basic requirements for registration with the Securities and Exchange Commission (SEC)
The documentary requirements of the Securities and Exchange Commission (SEC) in the Philippines are as follows:
There is no fixed amount of contribution required but only such reasonable amount as the incorporators and trustees may deem sufficient to enable the corporation to start operation, except in the case of foundations which must have a minimum contribution of at least One Million Pesos (P1,000,000.00).
Additional requirements:
Once an application was submitted, the SEC evaluator will review the initial drafts for seven (7) working days and will email that the application is preapproved. After signing and uploading the generated forms, SEC will send another email if the application was approved and qualified for payment and you will receive a payment assessment form that should be paid within 45 days. Once paid, the digital COI will be received, and the original documents together with proof of payment will be submitted to the SEC office within 60 days from the date of incorporation in order to claim the original Certificate of Incorporation.
Registration with the BIR
The non-stock non-profit corporation must be registered with the BIR within 30 days from the date of Incorporation and obtain a Tax Identification Number (TIN), registration of book of accounts, and official receipts or invoices. Certain registration fees and taxes will be paid.
If you wish to be tax-exempt, non-stock non-profit corporations in the Philippines are required to secure a BIR Tax Exemption Ruling.
Business Permits and Licenses
Non-stock non-profit corporations must also be registered in the Local Government unit (LGU) where the principal office address of the company is located and secure the business permit, barangay clearance, sanitary permit, fire safety inspection certificate, and other clearances in order to go operational. Certain registration fees will be paid.
Employer Registration
Employers for non-stock non-profits are required to be registered with Social Security System, Philippine Health Insurance Corporation, and Home Development Mutual Fund for the benefit of their employees.
One indicator that a business is in good financial standing is it has excessive retained earnings or accumulated profits. With this, users of the financial statements, for example, investors can decide whether to put up additional funds to expand business operations or banks may approve loan applications. The question is, when do you consider retained earnings excessive and what is the regulatory compliance associated with it?
Retained Earnings; definition and classification
Retained earnings in simplest words, is the excess profit accumulated and generated from business operations net of dividend payment to shareholders. It represents a portion of your business equity that may be used for investment in Research and Development, equipment, or business expansion for example. Retained Earnings may be classified further into two: Unrestricted and Restricted. Restricted retained earnings are those that a business may not distribute as dividends such as appropriation of retained earnings for a loan (as required by loan covenant) while unrestricted retained earnings are those that are available for dividend distribution.
When Retained Earnings Is Excessive and Its Exemption?
Retained Earnings are considered excessive if unrestricted retained earnings are more than the 100% paid-up capital of your company.
If your Philippine Company has excess retained earnings, the financial statements must include the following information in accordance with Section 42 of the Revised Corporation Code (RA 11232):
“Stock corporations are prohibited from retaining surplus profits in excess of one hundred (100%) percent of their paid-in capital stock, except:
(a) when justified by definite corporate expansion projects or programs approved by the Board of Directors; or
(b) when the corporation is prohibited under any loan agreement with financial institutions or creditors, whether local or foreign, from declaring dividends without their consent, and such consent has not yet been secured; or
(c) when it can be clearly shown that such retention is necessary under special circumstances obtained in the corporation, such as when there is a need for special reserve for probable contingencies.”
Regulatory Compliance Requirement So, unless covered by the limitations listed above, the Securities and Exchange Commission (SEC) in the Philippines requires that the Audited Financial Statements include a Statement of Reconciliation of Retained Earnings Available for Dividend Declaration. The template for such a statement provided by SEC MC No.11-2008 is attached to this article for reference.
It is a key takeaway that the amount of retained earnings of the Company for the reconciliation statement should be based on Retained Earnings of “stand-alone” or Separate Financial Statements. So, if your Company is a Philippines Subsidiary of a Parent Corporation, the amount of retained earnings for such reconciliation is of the PH Subsidiary Company. This is because retained earnings based on consolidated financial statements include a surplus of subsidiaries, which are not yet actual earnings of the parent unless distributed in the form of dividends by the subsidiaries. However, in accordance with Revised SRC Rule 68, the Parent company’s retained earnings reconciliation must be submitted along with the consolidated financial statements.
In reference with PAS 1, the notes to financial statements of Corporations shall disclose information that is relevant to an understanding of the financial statements which includes any provisions indicating retention for expansion projects must be definite and approved by the Board of Directors. The following disclosures are relevant pursuant to PAS 1 to provide an understanding on the impact of the retention of earnings on the financial statements:
(i) Details of the expansion (e.g., description of the project, timeline) to render the project definite;
(ii) The date of the approval of the project by the Board of Directors
Noncompliance of such regulatory requirements will be subjected to appropriate sanction of the SEC upon review of the audited financial statements as per SEC MC 6-2005: “Failure to Comply with any of the requirements of SRC Rule 68 or Incomplete Disclosures in the Financial Statements”
Tax Implications Prior to CREATE LAW, improper accumulated earnings tax (IAET) is at 10%. IAET was imposed on the excessive accumulated taxable income of a corporation founded for the intention of avoiding income tax on its shareholders by allowing the corporation’s revenues and profits to accrue rather than distributing them to the shareholders as dividends. Its implementation was intended to discourage or penalize firms for improperly accumulated earnings in order to avoid paying dividend taxes that would have been required had the earnings been distributed as dividends to shareholders.
The 10% IAET has been REPEALED with the implementation of CREATE LAW, and there is no retroactivity clause for 10% IAET. According to RR No. 5-2021, the repeal of IAET applies to the entire tax year for all fiscal years/taxable years ending after the effective date of CREATE LAW. Because CREATE LAW went into effect on April 11, 2021, your financial statements of prior to 2021 that contain improperly accumulated earnings over the “reasonable needs” of the business may still be subject to IAET evaluation during tax audit.
At the end of the day, knowing that your firm is in conformity with local regulations in the Philippines can help you save money on penalties and avoid having to deal with future tax or regulatory evaluations. So, if you’re an accountant, you should check your retained earnings before year-end reporting to see if there’s any reporting or disclosure required.
By: Garry S. Pagaspas, CPA
1. Natural person only incorporators, majority Ph residents
Under the old rules (Batas Pambansa Blg. 68 or BP 68), incorporators must be natural persons only and majority of such incorporators must be residents of the Philippines. This has been changed under the Revised Corporation Code or Republic Act No. 11232 (RA No. 11232) as incorporators of local corporation could now be natural personals and/or juridical persons – local or foreign. Philippine residency requirement is no longer required. This however, is subject to foreign investment rules for foreign ownership. Please refer to SEC MC No. 19 series of 2019 for incorporator guidelines.
2. At least five (5) natural person incorporators
It takes at least five (5) to fifteen (15) natural person incorporators, majority of which are Philippine residents, to register a local domestic corporation in the past. Under the Revised Corporation Code, at least two (2) to fifteen (15) incorporators could register and majority residence requirements is no longer required. While this works to the advantage of foreign investors in registering their business entity in the Philippines, the rules on extent of foreign ownership under foreign investment rules still applies. Notably, under the Revised Corporation Code Philippines as implemented by SEC MC No. 7 series of 2019, a single natural person can register a One Person Corporation (OPC) that could engage in any lawful business in the Philippines other than practice of profession.
3. 25%-25% Pre-incorporation subscription
To register a local domestic corporation, you are required to have an authorized capital stock of certain amount that once approved, such amount of capitalization represents the maximum that the corporation may raise through issuance of such shares. Previously, it is required that at least 25% of such authorized capitalization in Philippines shall be subscribed and of which, 25% must be paid-up, cumulatively, otherwise, the application for registration of domestic corporation will not be approved. This requirement has been changed and you can now register a local domestic corporation without regard to the 25%-25% pre-incorporation subscription.
4. Minimum paid-up capitalization of P5K, in general
Registering a corporation is not really cash heavy because the old rules only require at least PhP5,000.00 minimum paid-up capitalization for stock corporations following the application of the 25%-25% pre-incorporation subscription, unless a specific amount of paid-up capitalization is required by special law, rules and regulations (e.g. lending investor requiring PhP1M minimum paid-up capitalization). This requirement has also been changed and the new rules no longer require any minimum paid-up capitalization, unless a specific amount of paid-up capitalization is required by special law, rules and regulations. For practical considerations however, a reasonable amount of capitalization is highly recommended.
5. 5-15 natural person member of the Board, majority Ph residents
The Board of Directors is the governing body of the corporation through which corporate powers are exercised. As a rule, five (5) to fifteen (15) qualified members of the board of directors are required and majority of the members must be residents. Under the Revised Corporation Code in Philippines, at least two (2) to fifteen (15) qualified members of the Board of Directors could be opted and majority of such members does not necessarily be required to be residents of the Philippines.
6. Disallowed Teleconference/ Videoconference on stockholders meeting
The Old Corporation Code was enacted in the past where technology is not much a factor but later, SEC passed a circular allowing teleconference and/or videoconferencing for the conduct of meeting of the board of directors, instead of the traditional face to face. However, such rules were not made applicable to stockholders meeting, in turn, requiring a face-to-face attendance, unless a proxy is allowed by the bylaws. Now, under the Revised Corporation Code, remote communication, teleconference/ videoconference or in absentia is allowed for stockholder’s meeting, completely embracing the modern technological means of business gatherings. Please refer to SEC MC No. 6 series 2020 for related guidelines.
7. 50-year corporate term
Previously, corporate term or corporate life shall not exceed 50 years and subject to extension of not more than 50 years, in any one instance. Under the Revised Corporation Code Philippines, corporate term is perpetual and unlimited, unless a shorter term is opted. On transition, existing domestic corporations upon effectivity of Revised Corporation Code are automatically converted to perpetual existence unless it prefers a shorter term. At any rate, a fixed corporate term is still allowed either upon registration or as an amendment.
8. 3-year inoperation revocation, now 5 years
Once registered, the local domestic corporation in Philippines is expected to operate based on the purpose or purposes it was registered. If for a reason or another, the corporation stopped operation and failed to resume within a period of three (3) years, then, the old rules provide that the certificate of incorporation is automatically cancelled. Under the Revised Corporation Code Philippines, the three – year period now became five (5) years to give the corporation ample time to get back on its feet.
Summary
The above enumeration of basic corporate rules no longer applicable under the Revised Corporation Code or Republic Act No. 11232 in Philippines is not all inclusive and there could be more rules that has been replaced with new ones or changed by the Revised Corporation Code. Further reading of the Revised Corporation Code in Philippines and related literatures is highly recommended to develop a better understanding of new corporate rules. Alternatively, let us know how we can further assist for the purpose.
About the author:
Garry is a Certified Public Accountant (CPA) and a law degree holder in tax practice for two (2) decades helping further taxpayers on securing BIR Rulings, appeal of BIR Ruling denials, company registrations in Philippines, tax compliance, tax savings, tax assessments, tax refunds, and other related professional tax services. He has likewise been helping out local and foreign investors/clients determine the most appropriate legal entity to register in the Philippines based on intended operations, the eventual registration of such legal business entity and other related professional services such as securing Ph Visa, payroll, and business consultancy. He was formerly with the academe and is presently a frequent speaker of Tax and Accounting Center, Inc. and other seminar entities.
Disclaimer: This is for purposes of academic discussions only as personally summarized by the author, not of Tax and Accounting Center, Inc. and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.ph, or you may post a question at Tax and Accounting Center Forum and participate therein.
TITLE XVII – MISCELLANEOUS PROVISIONS
Section 173. Outstanding Capital Stock Defined. – The term “outstanding capital stock”, as used in this Code, shall mean the total shares of stock issued under binding subscription contracts to subscribers or stockholder, whether fully or partially paid, except as treasury shares.
Section 174. Designation of Governing Boards. – The provisions of specific provisions of this Code to the contrary notwithstanding, nonstock or special corporation may, through their articles of incorporation or their bylaws, designate their governing boards by any name other than as board of directors.
Section 175. Collection and Use of Registration, Incorporation and other Fees. – For a more effective implementation of this Code, the Commission is hereby authorized to collect, retain, and use fees, fines, and other charges pursuant to this Code, and its rules and regulations. The amount collected shall be deposited and maintained in a separate account which shall form a fund for its modernization and to augment its operational expenses such as, but not limited to, capital outlay, increase in compensation and benefits comparable with prevailing rates in the private sector, reasonable employee allowance, employee health care services, and other insurance, employee career advancement and professionalization, legal assistance, seminars, and other professional fees.
Section 176. Stock Ownership in Corporations. – Pursuant to the duties specified by Article XIV of the Constitution, the National Economic and Development Authority (NEDA) shall, from time to time, determine if the corporate vehicle has been used, by any corporation, business, or industry to frustrate the provisions of this Code or applicable laws, and shall submit to Congress, whenever deemed necessary, a report of its findings, including recommendations for the prevention and correction.
The Congress of the Philippines may set maximum limits for stock ownership of individuals or groups of individuals related to each other by consanguinity, affinity, or by close business interests, in corporations declared to be vested with public interest pursuant to the provisions of this section, or whenever necessary to prevent anti-competitive practices as provided in Republic Act No. 10667, otherwise known as the “Philippine Competition Act”, or to implement national economic policies designed to promote general welfare and economic development, as declared in laws, rules and regulations.
In recommending to the Congress which corporations, businesses and industries will be declared as vested with public interest, and in formulating proposals for limitations on stock ownership, the NEDA shall consider the type and nature of the industry, size of the enterprise, economies of scale, geographic location, extent of Filipino ownership, labor intensity of the activity, export potential, as well as other factors which are germane to the realization and promotion of business and industry.
Section 177. Reportorial Requirements of Corporations. – Except as otherwise provided in this Code or in the rules issued by the Commission, every corporation, domestic or foreign, doing business in the Philippines shall submit to the Commission:
Corporations vested with public interest must also submit the following:
The reportorial requirements shall be submitted annually and within such period as may be prescribed by the Commission.
The Commission may place the corporation under delinquent status in case of failure to submit reportorial requirements three 93) times, consecutively or intermittently, with a period of five (5) years. The Commission shall five responsible notice to and coordinate with appropriate regulatory agency prior to placing on delinquent status companies under their special regulatory jurisdiction.
Any person required to file a report with the Commission may redact confidential information from such required report: Provided, That such confidential information shall be filed in a supplemental report prominently labelled as “confidential”, together with a request for confidential treatment of the report and the specific grounds for the grant thereof.
Section 178. Visitorial Power and Confidential Nature of Examination Results. – The Commission shall exercise visitorial powers over all corporations, which powers shall include the examination and inspection of records, regulation and supervision of activities, enforcement of compliance, and imposition of sanctions in accordance with this Code.
Should the corporation, without justifiable cause, refuse or obstruct the Commission’s’ exercise of its visitorial powers, the Commission may revoke its certificate of incorporation, without prejudice to the imposition of penalties and other sanctions under this Code.
All interrogatories propounded by the Commission and the answers thereto, as well as the results of any examination made by the Commission or by any other official authorized to make an examination of the operations, books, an records of any corporation, shall be kept strictly confidential, except when the law requires the same to be made public, when necessary for the Commission to take action to protect the public or to issue orders in the exercise of its powers under this Code, or where such interrogatories, answers or results are necessary to be presented as evidence before any court.
Section 179. Powers, Functions, and Jurisdiction of the Commission. – The Commission shall have the power and authority to:
In imposing penalties and additional monitoring and supervision requirements, the Commission shall take into consideration the size, nature of the business, and capacity of the corporation.
No court below the Court of Appeals shall have jurisdiction to issue a restraining order, preliminary injunction, or preliminary mandatory injunction in any case, dispute, or controversy that directly or indirectly interferes with the exercise of the powers, duties and responsibilities of the Commission that falls exclusively within its jurisdiction.
Section 180. Development and Implementation of Electronic Filing and Monitoring System. – The Commission shall develop and implement and electronic filing and monitoring system. The Commission shall promulgate rules to facilitate and expedite, among others, corporate name reservation and registration, incorporation, submission of reports, notices, and documents required under this Code, and sharing of pertinent information with other government agencies.
Section 181. Arbitration for Corporations. – An arbitration agreement may be provided in the articles of incorporation or bylaws of a corporation. When such an agreement is in place, disputes between the corporation, its stockholders or members, which arise from the implementation of the articles of incorporation or bylaws, or from intra-corporate relations, shall be referred to arbitration. A dispute shall be nonarbitrable when it involves criminal offenses and interests of third parties.
The arbitration agreement shall be binding on the corporation, its directors, trustees, officers, and executives or managers.
To be enforceable, the arbitration agreement should indicate the number of arbitrators and the procedure for their appointment. The power to appoint the arbitrators forming the arbitral tribunal shall be granted to a designated independent third party. Should the third party fail to appoint the arbitrators in the manner and within the period specified in the arbitration agreement, the parties may request the Commission to appoint the arbitrators. In any case, arbitrators must be accredited or must belong to organizations accredited for the purpose of arbitration.
The arbitral tribunal shall have the power to rule on its own jurisdiction and on questions relating to the validity of the arbitration agreement. When an intra-corporate dispute is filed with a Regional Trial Court, the court shall dismiss the case before the termination of the pretrial conference, if it determines that an arbitration agreement is written in the corporation’s articles of incorporation, bylaws, or a separate agreement.
The arbitral tribunal shall have the power to grant interim measures necessary to ensure enforcement of the award, prevent a miscarriage of justice, or otherwise protect the rights of the parties.
A final arbitral award under this section shall be executory after the lapse of fifteen (15) days from receipt thereof by the parties and shall be stayed only for the filing of a bond or the issuance by the appellate court of an injunctive writ.
The Commission shall formulate the rules and regulations, which shall govern arbitration under this section, subject to existing laws on arbitration.
Section 182. Jurisdiction Over Party-List Organization. – The powers, authorities, and responsibilities of the Commission involving party-list organizations are transferred to the Commission on Elections (COMELEC).
Within six (6) months after the effectivity of this Act, the monitoring, supervision, and regulation of such corporations shall be deemed automatically transferred to the COMELEC.
For this purpose, the COMELEC, in coordination with the Commission, shall promulgate the corresponding implementing rules for the transfer of jurisdiction over the abovementioned corporations.
Section 183. Applicability of the Code. – Nothing in this Act shall be construes as emending existing provisions of special laws governing registration, regulation, monitoring and supervision of special corporation such as banks, nonbank financial institutions and insurance companies.
Notwithstanding any provision to the contrary, regulators such as the Bangko Sentral ng Pilipinas and Insurance Commission shall exercise primary authority over special corporation such as banks, nonbank financial institutions, and insurance companies under their supervision and regulation.
Section 184. Effect of Amendment or Repeal of This Code, or the Dissolution of Corporation. – No right or remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees or officers shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or any part thereof.
Section 185. Applicability to Existing Corporations. – A corporation lawfully existing and doing business in the Philippines affected by the new requirements of this Code shall be given a period of not more than two (2) years from the effectivity of this Act within which to comply.
Section 186. Separability Clause. – If any provision of this Act is declared invalid or unconstitutional, the other provisions hereof which are not affected thereby shall continue to be in full force and effect.
Section 187. Repealing Clause. – Batas Pambansa Blg. 68, otherwise known as “The Corporation Code of the Philippines”, is hereby repealed. Any law, presidential decree or issuance, executive order, letter of instruction, administrative order, rule or regulation contrary to or inconsistent with any provision of this Act is hereby repealed or modified accordingly.
Section 188. Effectivity. – This Act shall take effect upon completion of its publication in the Official Gazette or in at least two (2) newspapers of general circulation.
Approved,
GLORIA MACAPAGAL-ARROYO VICENTE C. SOTTO III
Speaker,House of Representatives President of the Senate
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TITLE XVI – INVESTIGATIONS, OFFENSES, AND PENALTIES
Section 154. Investigation and Prosecution of Offenses. – The Commission may investigate an alleged violation of this Code, or of a rule, regulation, or order of the Commission.
The Commission may publish its findings, orders, opinion, advisories, or information concerning any such violation, as may be relevant to the general public or to the parties concerned, subject to the provisions of Republic Act No. 10173, otherwise known as the “Data Privacy Act of 2012”, and other pertinent laws.
The Commission shall give reasonable notice to and coordinate with the appropriate regulatory agency prior to any such publication involving companies under their regulatory jurisdiction.
Section 155. Administering Oaths, Subpoena of Witnesses and Documents. – The Commission, through its designated officer, may administer oaths and affirmations, issue subpoena and sub poena duces tecum, take testimony in any inquiry or investigation, and may perform other act as necessary to the proceedings or to the investigation.
Section 156. Cease and Desist Order. – Whenever the Commission has reasonable basis to believe that a person has violated, or is about to violate this Code, a rule, regulation, or order of the Commission, it may direct such person to desist from committing the act constitution the violation.
The Commission may issue a cease and desist order ex parte to enjoin an act or practice which is fraudulent or can be reasonably expected to cause significant, imminent, and irreparable danger or injury to public safety or welfare. The ex parte order shall be valid for a maximum period of twenty (20) days, without prejudice to the order being made permanent after due notice and hearing.
Thereafter, the Commission may proceed administratively against such person in accordance with Section 158 of this Code, and/ or transmit evidence to the Department of Justice for preliminary investigation or criminal prosecution and/ or initiate criminal prosecution for any violation of this Code, rule, or regulation.
Section 157. Contempt. – A person who, without justifiable cause, fails or refuses to comply with any lawful order, decision, or subpoena issued by the Commission shall, after due notice and hearinig, be held in contempt and fined in an amount not exceeding Thirty thousand pesos (P30,000.00). When the refusal amounts to clear and open defiance of the Commission’s order, decision, or subpoena, the Commission may impose a daily fine of One thousand pesos (P1,000.00) until the order, decision, or subpoena is complied with.
Section 158. Administrative sanctions. – If, after due notice and hearing, the Commission finds that any provision of this Code, rules or regulations, or any of the Commission’s orders has been violated, the Commission may impose any or all of the following sanctions, taking into consideration the extent of participation, nature, effects, frequency and seriousness of the violation:
Section 159. Unauthorized Use of Corporate Name; Penalties. – The unauthorized use of a corporate name shall be punished with a fine ranging from Ten thousand pesos (P10,000.00) to Two hundred thousand pesos (P200,000.00).
Section 160. Violation of Disqualification Provision; Penalties. – When, despite the knowledge of the existence of ground for disqualification as provided in Section 26 of this Code, a director, trustee or officer willfully holds office, or willfully conceals such disqualification, such director, trustee or officer shall be punished with a find ranging from Ten thousand pesos (P10,000.00) to Two hundred thousand pesos (P200,000.00) at the discretion of the Court, and shall be permanently disqualified from being a director, trustee or officer of any corporation. When the violation of this provision is injurious or detrimental to the public, the penalty shall be fine ranging from Twenty thousand pesos (P20,000.00) to Four hundred thousand pesos (P400,00.00).
Section 161. Violation of Duty to Maintain Records, Allow their Inspection or Reproduction; Penalties. – The unjustified failure or refusal by the corporation, or by those responsible for keeping and maintaining corporate records, to comply with Sections 45, 73, 92, 128, 177 and other pertinent rules and provisions of this Code on inspection and reproduction of records shall be punished with a fine ranging from Ten thousand pesos (P10,000.00) to Two hundred thousand pesos (P200,000.00), at the discretion of the court, taking into consideration the seriousness of the violation and its implications. When the violation of this provision is injurious or detrimental to the public, the penalty is a fine ranging from Twenty thousand pesos (P20,000.00) to Four hundred thousand pesos (P400,000.00).
The penalties imposed under this section shall be without prejudice to the Commission’s exercise of its contempt powers under Section 157 hereof.
Section 162. Willful Certification of Incomplete, Inaccurate, False, or Misleading Statements or Reports; Penalties. – Any person who willfully certifies a report required under this Code, knowing that the same contains incomplete, inaccurate, false, or misleading information or statements, shall be punished with a fine ranging from Twenty thousand pesos (P20,000.00) to Two hundred thousand pesos (P200,000.00). When the wrongful certification is injurious or detrimental to the public, the auditor or responsible person may also be punished with a fine ranging from Forty thousand pesos (P40,000.00) to Four hundred thousand pesos (P400,00.00).
Section 163. Independent Auditor Collusion; Penalties. – An independent auditor, who in collusion with the corporation’s directors or representatives, certifies the corporations financial statement despite its incompleteness or inaccuracy, its failure to give a fair and accurate presentation of the corporation’s condition, or despite containing false or misleading statements shall be punished with a fine ranging from Eighty thousand pesos (P80,000.00) to Five hundred thousand pesos (P500,000.00). When the statement or report certified is fraudulent, or has the effect of causing injury to the general public, the auditor or responsible officer may be punished with a fine ranging from One hundred thousand pesos (P100,000.00) to Six hundred thousand pesos (P600,000.00).
Section 164. Obtaining Corporate Registration Through Fraud; Penalties. – Those responsible for the formation of a corporation through fraud, or who assisted directly or indirectly therein, shall be punished with a fine ranging from Two hundred thousand pesos (P200,000.00) to Two million pesos (P2,000,000.00). When the violation of this provision is injurious or detrimental to the public, the penalty is a fine ranging from Four hundred thousand pesos (P400,000.00) to Five million pesos (P5,000,000.00).
Section 165. Fraudulent Conduct of Business; Penalties. – A corporation that conducts its business through fraud shall be punished with a fine ranging from Two hundred thousand pesos (P200,000.00) to Two million pesos (P2,000,000.00). When the violation of this provision is injurious or detrimental to the public, the penalty is a fine ranging from Four hundred thousand pesos (P400,000.00) to Five million pesos (P5,000,000.00).
Section 166. Acting as Intermediaries for Graft and Corrupt Practices; Penalties. – A corporation used for fraud, or for committing or concealing graft and corrupt practices as defined under pertinent statutes, shall be liable for a fine ranging from One hundred thousand pesos (P100,000.00) to Five million pesos (P5,000,000.00).
When there is a finding that any of its directors, officers, employees, agents, or representatives are engaged in graft and corrupt practices, the corporation’s failure to install: (a) safeguards for the transparent and lawful delivery of services; and (b) policies, code of ethics, and procedures against graft and corruption shall be prima facie evidence of corporate liability under this section.
Section 167. Engaging Intermediaries for Graft and Corrupt Practices; Penalties. – A corporation that appoints an intermediary who engages in graft and corrupt practices for the corporation’s benefit or interest shall be punished with a fine ranging from One hundred thousand to One million pesos (P1,000,000.00).
Section 168. Tolerating Graft and Corrupt Practices; Penalties. – A director, trustee, or officer who knowingly fails to sanction, report, or file the appropriate action with proper agencies, allows or tolerates the graft and corrupt practices or fraudulent acts committed by a corporation’s directors, trustees, officers, or employees shall be punished with a fine ranging from Five hundred thousand pesos (P500,00.00) to One million pesos (P1,000,000.00).
Section 169. Retaliation Against Whistleblowers. – A whistleblower refers to any person who provides truthful information relating to the commission or possible commission of any offense or violation under this Code. Any person who, knowingly and with intent to retaliate, commits acts detrimental to a whistleblower such as interfering with the lawful employment or livelihood of the whistleblower, shall, at the discretion of the court, be punished with a fine ranging from One hundred thousand pesos (P100,000.00) to One million pesos (P1,000,000.00).
Section 170. Other Violations of the Code; Separate Liability. – Violations of any of the provisions of this Code or its amendments not otherwise specifically penalized therein shall be punished by a fine of not less than Ten thousand pesos (P10,000.00) but not more than One million pesos (P1,000,000.00). If the violation is committed by a corporation, the same may, after notice and hearing, be dissolved in appropriate proceedings before the Commission: Provided, That such dissolution shall not preclude the institution of appropriate action against the director, trustee, or officer of the corporation responsible for said violation: Provided, further, That nothing in this section shall be construed to repeal other causes for dissolution of a corporation provided in this Code.
Section 171. Liability of Directors, Trustees, Officers, or Other Employees. – If the offender is a corporation, the penalty may, at the discretion of the court, be imposed upon such corporation and/ or upon its directors, trustees, stockholders, members, officers, or employees responsible for the violation or indispensable to its commission.
Section 172. Liability of Aiders and Abettors or Other Secondary Liability. – Anyone who shall aid, abet, counsel, command, induce, or cause any violation of this Code, or any rule, regulation, or order of the Commission shall be punished with a fine not exceeding that imposed on the principal offenders, at the discretion of the court, after taking into account their participation in the offense.
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TITLE XIV – DISSOLUTION
Section 133. Methods of Dissolution. – A corporation formed or organized under the provisions of this Code may be dissolved voluntarily or involuntarily.
Section 134. Voluntary Dissolution Where No Creditors are Affected. – If dissolution of a corporation does not prejudice the rights of any creditor having a claim against it, the dissolution may be affected by majority vote of the board of directors or trustees, and by a resolution adopted by the affirmative vote of the stockholders owning at least majority of the outstanding capital stock or majority of the members of a meeting to be held upon the call of the directors or trustees.
At least twenty (20) days prior to the meeting, notice shall be given to each shareholder or member of record personally, by registered mail, or by any means authorized under its bylaws, whether or not entitled to vote at the meeting, in the manner provided in Section 50 of this Code and shall state that the purpose of the meeting is to vote on the dissolution of the corporation. Notice of the time, place and object of the meeting shall be published once prior to the date of the meeting in a newspaper published in the place where the principal office of said corporation is located, or if no newspaper is published in such place, in a newspaper of general circulation in the Philippines.
A verified request for dissolution shall be filed with the Commission stating: (a) the reason for the dissolution; (b) form, manner, and time when the notices were given; (c) names of the stockholders and directors or members and time of the meeting in which the vote was made, and (e) details of publication.
The corporation shall submit to the Commission: (1) a copy of the resolution authorizing the dissolution, certified by a majority of the board of directors or trustees and countersigned by the secretary of the corporation; (2) proof of publication; (3) favorable recommendation from the appropriate regulatory agency, when necessary.
Within fifteen (15) days from receipt of the verified request for dissolution, and in the absence of any withdrawal within said period, the Commission shall approve the request and issue the certificate of dissolution. The dissolution shall take effect only upon the issuance by the Commission of a certificate of dissolution.
No application for dissolution of banks, banking and quasi-banking institutions, preneed, insurance and trust companies, NSSLAs, pawnshops, and other financial intermediaries shall be approved by the Commission unless accompanied by a favorable recommendation of the appropriate government agency.
Section 135. Voluntary Dissolution Where Creditors are Affected; Procedure and Contents of Petition. – Where the dissolution of a corporation may prejudice the rights of any creditor, a verified petition for dissolution shall be filed with the Commission. The petition shall be signed by a majority of the corporation’s board of directors or trustees, verified by its president or secretary or one of its directors or trustees and shall set forth all claims and demands against it, and that its dissolution was resolved upon by the affirmative vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or at least two-thirds (2/3) of the members at a meeting of its stockholders or members called for that purpose. The petition shall likewise state: (a) the reason for the dissolution; (b) the form, manner, and time when the notices were given; and (c) the date, place and time of the meeting in which the vote was made. The corporation shall submit to the Commission the following: (1) copy of the resolution authorizing the dissolution, certified by a majority of board of directors or trustees and countersigned by the secretary of the corporation; and (2) a list of all its creditors.
If the petition is sufficient in form and substance, the Commission shall, by an order reciting the purpose of the petition, fix a deadline for filing objections to the petition which date shall not be less than thirty (30) days or more than sixty (60) days after the entry of the order. Before such date, a copy of the order shall be published at least once a week for three (3) consecutive weeks in a newspaper of general circulation published in a municipality or city where the principal office of the corporation is situated, or if there be no such newspaper, then, in a newspaper of general circulation in the Philippines, and a similar copy shall be posted for three (3) public places in such municipality or city.
Upon five (5) days’ notice, given after the date on which the right to file objections as fixed in the order has expired, the Commission shall proceed to hear the petition and try any issue raised in the objections filed; and if no such objection is sufficient, and the material allegations of the petition are true, it shall render judgment dissolving the corporation and directing disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation.
The dissolution shall take effect only upon the issuance by the Commission of a certificate of dissolution.
Section 136. Dissolution by Shortening Corporate Term. – A voluntary dissolution may be effected by amending the articles of incorporation to shorten the corporate term pursuant to the provisions of this Code. A copy of the amended articles of incorporation shall be submitted to the Commission in accordance with this Code.
Upon the expiration of the shortened term, as stated in the approved amended articles of incorporation, the corporation shall be deemed dissolved without any further proceedings, subject to the provisions of this Code on liquidation.
In the case of expiration of corporate term, dissolution shall automatically take effect on the day following the last day of the corporate term stated in the articles of incorporation, without the need for issuance by the Commission of a certificate of dissolution.
Section 137. Withdrawal of Request and Petition for Dissolution. – A withdrawal of the request for dissolution shall be made in writing, duly verified by any incorporator, director, trustee, shareholder, or member and signed by the same number of incorporators, directors, trustees, shareholders, or members necessary to request for dissolution as set forth in the foregoing sections. The withdrawal shall be submitted no later than fifteen (15) days from receipt by the Commission of the request for dissolution. Upon the request of a withdrawal of request for dissolution, the Commission shall withhold action on the request for dissolution and shall, after investigation: (a) make a pronouncement that the request for dissolution is deemed withdrawn; (b) direct a joint meeting of the board of directors or trustees and the stockholders or members for the purpose of ascertaining whether to proceed with dissolution; or (c) issue such other orders as it may deem appropriate.
A withdrawal of the petition for dissolution shall be in the form of a motion and similar substance to a withdrawal of request for dissolution but shall be verified and filed prior to publication of the order setting the deadline for filing objections to the petition.
Section 138. Involuntary Dissolution. – A corporation may be dissolved by the Commission motu proprio or upon filing of a verified complaint by any interested party. The following may be grounds for dissolution of the corporation:
If the corporation is ordered dissolved by final judgment pursuant to the grounds set forth in subparagraph € hereof, its assets, after payment of its liabilities, shall upon petition of the Commission with the appropriate court, be forfeited in favor of the national government. Such forfeiture shall be without prejudice to the rights of innocent stockholders and employees for services rendered, and to the application or other penalty or sanction under this Code or other laws.
The Commission shall give reasonable notice to, and coordinate with, the appropriate regulatory agency prior to the involuntary dissolution of companies under their special regulatory jurisdiction.
Section 139. Corporate Liquidation. – Except for banks, which shall be covered by the applicable provisions of Republic Act No. 7653, otherwise known as “The New Central Bank Act”, as amended, and Republic Act No. 3591, otherwise known as the Philippine Deposit Insurance Corporation Charter, as amended, every corporation whose charter expires pursuant to its articles of incorporation, is annulled by forfeiture, or whose corporate existence is terminated in any other manner, shall nevertheless remain as a body corporate for three (3) years after the effective date of dissolution, for the purpose of prosecuting and defending suits by or against it enabling it to settle and close its affairs, dispose of and convey its property, and distribute its assets, but not for the purpose of continuing the business for which it was established.
At any time during said three (3) years, the corporation is authorized and empowered to convey all of its property to trustee for the benefit of stockholders, members, creditors and other persons in interest. After any such conveyance by the corporation of its property in trust for the benefit of its stockholders, members, creditors and others in interest, all interest which the corporation had in the property terminates, the legal interest vests in the trustee, and the beneficial interest in the stockholders, members, creditors or other persons-in-interest.
Except as otherwise provided in Section 93 and 94 of this Code, upon the winding up of corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated in favor of the national government. Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities.
TITLE XIII – SPECIAL CORPORATIONS
CHAPTER II – RELIGIOUS CORPORATIONS
Section 107. Classes of Religious Corporations. – Religious corporations may be incorporated by one (1) or more persons. Such corporations may be classified into corporations sole and religious societies.
Religious corporations shall be governed by this Chapter and by the general provisions on nonstock corporations insofar as applicable.
Section 108. Corporation Sole. – For the purpose of administering and managing, as trustee, the affairs, property and temporalities of any religious denomination, sect or church, a corporation sole may be formed by the chief archbishop, bishop, priest, minister, rabbi, or other presiding elder of such religious denomination, sect or church.
Section 109. Articles of Incorporation. – In order to become a corporation sole, the chief archbishop, bishop, priest, minister, rabbi, or presiding elder of any religious denomination, sect or church must file with the Commission articles of incorporation setting forth the following:
The articles of incorporation may include any provision not contrary to law for the regulation of the affairs of the corporation.
Section 110. Submission of the Articles of Incorporation. – The articles of incorporation must be verified, by affidavit or affirmation of the chief archbishop, bishop, priest, minister, rabbi, or presiding elder, as the case may be, and accompanied by a copy of the commission, certificate of election or letter of appointment of such chief archbishop, bishop, priest, minister, rabbi, or presiding elder, duly certified to be correct by any notary public,
From and after filing with the Commission of the said articles of incorporation, verified by affidavit or affirmation, and accompanied by the documents mentioned in the preceding paragraph, such chief archbishop, bishop, priest, minister, rabbi, or presiding elder shall become a corporation sole and all temporalities, estate and properties of the religious denomination, sect or church theretofore administered or managed as such chief archbishop, bishop, priest, minister, rabbi, or presiding elder shall be personally held in trust as a corporation sole, for the use, purpose, exclusive benefit and on behalf of the religious denomination, sect or church, including hospitals, schools, college, orphan asylums, parsonages, and cemeteries thereof.
Section 111. Acquisition and Alienation of Property. – A corporation sole may purchase and hold real estate and personal property for its church, charitable, benevolent, or educational purposes, and may receive bequests or gifts for such purposes. Such corporation may sell or mortgage real property held by it by obtaining an order for that purpose from the Regional Trial Court of the province where the property is situated upon proof that the notice of the application for leave to sell or mortgage has been made through publication or as directed by the Court, and that it is in the interest of the corporation that leave to sell or mortgage be granted. The application for leave to sell or mortgage must be made by the petition, duly verified, by the chief archbishop, bishop, priest, minister, rabbi, or presiding elder acting as a corporation sole, and may be opposed by any member if the religious denomination, sect or church represented by the corporation sole: Provided, That in cases where the rules, regulations, and discipline of the religious denomination, sect or church, religious society, or order concerned represented by such corporation sole regulate the method of acquiring, holding, selling, and mortgaging real estate and personal property, such rules, regulations and discipline shall govern, and the intervention of the courts shall not be necessary.
Section 112. Filing of Vacancies. – The successors in office of any chief archbishop, bishop, priest, minister, rabbi, or presiding elder in a corporation sole shall become the corporation sole on their accession to office and shall be permitted to transact business as such upon filing a copy of their commission, certificate of election, or letters of appointment, duly certified by any notary public with the Commission.
During any vacancy in the officer of the chief archbishop, bishop, priest, minister, rabbi, or presiding elder of any religious denomination, sect or church incorporated as a corporation sole, the person or persons authorized by the rules, regulations or discipline of the religious denomination, sect or church represented by the corporation sole to administer the temporalities and manage the affairs, estate, and properties of the corporation sole shall exercise all the powers and authority of the corporation sole during such vacancy.
Section 113. Dissolution. – A corporation sole may be dissolved and its affairs settled voluntarily by submitting to the Commission a verified declaration of dissolution, setting forth:
Upon approval of such declaration of dissolution by the Commission, the corporation shall cease to carry on its operations except for the purpose of winging up its affairs.
Section 114. Religious Societies. – Unless forbidden by competent authority, the Constitution, pertinent rules, regulations, or discipline od the religious denomination, sect or church of which it is a part, any religious society, religious order, diocese, or synod, or district organization of any religious denomination, sect, church may upon written consent and/ or by an affirmative vote at a meeting called for the purpose of at least two-thirds (2/3) of its membership, incorporation for the administration of its temporalities or for the management of its affairs, properties, and estate by filing with the Commission, articles of incorporation verified by the affidavit of the presiding elder, secretary, or clerk or other member of such religious society or religious order, or diocese, synod, or district organization of the religious denomination, sect or church, setting forth the following:
CHAPTER 1 – EDUCATIONAL CORPORATIONS
Section 105. Incorporation. – Educational corporations shall be governed by special laws and by the general provisions of this Code.
Section 106. Board of Trustees. – Trustees of educational institutions organized as non-stock corporation shall not be less than five (5) nor more than fifteen (15): Provided, That the number of trustees shall be in multiples of five (5).
Unless otherwise provided in the articles of incorporation or bylaws, the board of trustees of incorporated schools, college or other institutions of learning shall, as soon as organized, so classify themselves that the term of office of one-fifth I1/5) of their number shall expire every year. Trustees thereafter shall be elected to fill vacancies, occurring before the expiration of a particular term, shall hold office only for the unexpired period. Trustees elected thereafter to fill vacancies caused by the expiration of term shall hold office for five (5) years. A majority of the trustees shall constitute a quorum for the transaction of business. The powers and authority of trustees shall be defined in the bylaws.
For institutions organized as stock corporations, the number and term of directors shall be governed by the provisions of stock corporation.
TITLE XII – CLOSE CORPORATIONS
Section 95. Definition and Applicability of Title. – A close corporation, within the meaning of this Code, is one whose articles of incorporation provides that: (a) all corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20); (b) all issued stock of all classes shall be subject to one (1) or more specified restrictions on transfer permitted under this Title; and (c) the corporation shall not list in any stock exchange or make any public offering of its stocks of any class. Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not close corporation within the meaning of this Code.
Any corporation may be incorporated as a close corporation except mining or oil companies, stock exchanges, banks, insurance companies, public utilities, educational institutions and corporations declared to be vested with public interest in accordance with the provisions of this Code.
The provisions of this Title shall primarily govern close corporations: Provided, That other Titles in this Code shall apply suppletority, except as otherwise provided under this Title.
Section 96. Articles of Incorporation. – The articles of incorporation of a close corporation may provide for:
(a) A classification of shares or rights, the qualifications for owning or holding the same, and restrictions on their transfers, subject to the provisions of the following section;
(b) Classification of directors into one (1) or more classes, each of whom may be voted for and elected solely by a particular class of stock; and,
(c) Greater quorum or voting requirements in meetings of stockholders or directors than those provided in this Code.
The articles of incorporation of a close corporation may provide that the business of the corporation shall be managed by the stockholders of the corporation rather than by the board of directors. So long as the provision continues in effect, no meeting of stockholders need to be called to elect directors: Provided, That the stockholders of the corporation shall be deemed to be directors for the purpose of applying the provisions of this Code, unless the context clearly requires otherwise: Provided, further, That the stockholders of the corporation shall be subject to all liabilities of directors.
The articles of incorporation may likewise provide that all officers or employees or that specified officers or employees shall be elected or appointed by the stockholders, instead of by the board of directors.
Section 97. Validity of Restrictions on Transfer of Shares. – Restrictions on the right to transfer shares must appear in the articles of incorporation, in the bylaws, as well as in the certificate of stock; otherwise, the same shall not be binding on any purchaser in good faith. Said restrictions shall not be more onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholder with such reasonable terms, conditions or period stated. If, upon the expiration of said period, the existing stockholders or the corporation fails to exercise the option to purchase, the transferring stockholder may sell their shares to third person.
Section 98. Effects of Issuance or Transfer of Stock in Breach of Qualifying Conditions –
(a) If a stock of a close corporation is issued or transferred to any person who is not eligible to be a holder thereof under any provision of the articles of incorporation, and if the certificate for such stock conspicuously shows the qualifications of the persons entitled to be holders of record thereof, such person is conclusively presumed to have notice of the fact of the ineligibility to be a stockholder.
(b) If the articles of incorporation of a close corporation states the number of persons, not exceeding twenty (20), who are entitled to be stockholders of record, and if the certificate for such stock conspicuously states such number, and the issuance or transfer of stock to any person would cause the stock to be held by more than such number of persons, the person to whom such stock is issued or transferred is conclusively presumed to have notice of such fact.
(c) If a stock certificate of a close corporation of a close corporation conspicuously shows restriction on transfer of corporation’s stock and the transferee acquires the stock in violation of such restriction, the transferee is conclusively presumed to have notice of the fact that the stock was acquired in violation of the restriction.
(d) Whenever a person to whom stock of close corporation has been issued or transferred has or is conclusively presumed under this section to have notice of: (1) the person’s ineligibility to be a stockholder of the corporation; (2) that the transfer of stock would cause the stock of the corporation to be held by more than the number of persons permitted under its articles of incorporation; or, (3) that the transfer violates a restriction on transfer of stock, the corporation may, at its option, refuse to register the transfer in the name of the transferee.
(e) The provisions of subsection (d) shall not be applicable if the transfer of stock, though contrary to subsection (a), (b), or (c), has been consented by all the stockholders of the close corporation, or if the close corporation has amended its articles of incorporation in accordance with this Title.
(f) The term “transfer”, as used in this section is not limited to a transfer for value.
(g)The provisions of this section shall not impair any right which the transferee may have to either rescind the transfer or recover the stock under any express or implied warranty.
Section 99. Agreements by Stockholders. –
(a) Agreements duly signed and executed by and among all stockholders before the formation and organization of a close corporation shall survive the incorporation and shall continue to be valid and binding between such stockholders, if such be their intent, to the extent that such arrangements are consistent with the articles of incorporation, irrespective of where the provisions of such agreements are contained, except those required by this Title to be embodied in said articles of incorporation.
(b) A written agreement signed by two (2) or more stockholders may provide that in exercising any voting right, the shares held by them shall be voted as provided or as agreed, or in accordance with a procedure agreed upon by them.
(c) No provision in a written agreement signed by the stockholders, relating to any phase of corporate affairs, shall be invalidated between the parties on the ground that its effect is to make them partners among themselves.
(d) A written agreement among some or all of the stockholders in a close corporation shall not be invalidated on the ground that it relates to the conduct of the business and affairs of the corporation as to restrict or interfere with the discretion of powers of the board of directors. Provided, That such agreement shall impose on the stockholders who are parties thereto the liabilities for managerial acts imposed on directors by this Code.
(e) Stockholders actively engaged in the management or operation of the business and affairs of the close corporation shall be held to strict fiduciary duties to each other and among themselves. The stockholders shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance.
Section 100. When a Board Meeting is Unnecessary or Improperly Held. – Unless the bylaws provide otherwise, any action taken by the directors of a close corporation without a meeting called properly and with due notice shall nevertheless be deemed valid if:
(a) Before or after such action is taken, a written consent thereto is signed by all the directors; or,
(b) All the stockholders have actual or implied knowledge of the action and make no prompt objection in writing; or,
(c) The directors are accustomed to take informal action with the express or implied acquiescence of all stockholders; or
(d) All the directors have express or implied knowledge of the action in question and none of them makes a prompt objection in writing.
An action within the corporate powers taken at a meeting held without proper call or notice is deemed ratified by a director who failed to attend, unless after having knowledge thereof, the director promptly files his written objection with the secretary of the corporation.
Section 101. Preemptive Right in Close Corporation. – The preemptive right of stockholders in close corporations shall extend to all stock to be issued, including reissuance of treasury shares, whether for money, property or personal services, or in payment of corporate debts, unless the articles of incorporation provide otherwise.
Section 102. Amendment of Articles of Incorporation. – Any amendment to the articles of incorporation which seeks to delete or remove any provision required by this Title or to reduce quorum or voting requirement stated in said articles of incorporation shall require the affirmative vote of at least two-thirds (2/3) of the outstanding capital stock, whether with or without voting rights, or of such greater proportion of shares as may be specifically provided in the articles of incorporation for amending, deleting or removing any of the aforesaid provisions, at a meeting duly called for the purpose.
Article 103. Deadlocks. – Notwithstanding any contrary provision in the close corporation’s articles of incorporation, bylaws, or stockholder’s agreement, if the directors or stockholders are so divided on the management of the corporation’s business and affairs that the votes required for a corporate action cannot be obtained, with the consequence that the business and affairs of the corporation can no longer be conducted to the advantage of the stockholders generally, the Commission shall have the authority to make appropriate orders, such as: (a) cancelling or altering any provision contained in the articles of incorporation, bylaws, or any stockholder’s agreement; (b) cancelling, altering or enjoining a resolution or act of the corporation or its board of directors, stockholders, or officers; (c) directing or prohibiting any act of the corporation or its board of directors, stockholders, officers, or other persons party to the action; (d) requiring the purchase at their fair value of shares of any stockholder, either by the corporation regardless of the availability of retained earnings in its books; (e) appointing provisional director; (f) dissolving the corporation; or (g) granting such other relief as the circumstances may warrant.
A provisional director shall be an impartial person who is neither a stockholder nor a creditor of the corporation or any of its subsidiaries or affiliates, and whose further qualifications, if any, may be determined by the Commission. A provisional director is not a receiver of the corporation and does not have the title and powers of a custodian or receiver. A provisional director shall have all the rights and powers of a duly elected director, including the right to be notified of and to vote at meetings of directors until removed by order of the Commission or by all the stockholders. The compensation of the provisional director shall be determined by agreement between such director and the corporation, subject to approval of the Commission, which may fix the compensation absent and agreement or in the event of disagreement between the provisional director and the corporation.
Section 104. Withdrawal of Stockholder or Dissolution of Corporation. – In addition and without prejudice to other rights and remedies available under this Title, any stockholder of a close corporation may, for any reason, compel the corporation to purchase shares held at fair value, which shall not be less than the par or stated value, when the corporation has sufficient assets in the books to cover its debts and liabilities exclusive of capital stock. Provided, That any stockholder of a close corporation may, by written petition to the Commission, compel dissolution of such corporation whenever any acts of the directors, officers, or those in control of the corporation are illegal, fraudulent, dishonest, oppressive or unfairly prejudicial to the corporation or any stockholder, or whenever corporate assets are being misapplied or wasted.
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