Definitions and classifications in corporation law
Revised Corporation Code
Republic Act No. 11232 | Sections 1-9
Sec 2. What is a Corporation?
A corporation is an artificial being created by operation of law. It possesses four main attributes:
Sec 3. Stock vs. Nonstock
1. Capital stock divided into shares.
2. Authorized to distribute dividends/allotments of surplus profits to shareholders.
1. No capital stock divided into shares.
2. No distribution of dividends to members.
3. Created for charitable, religious, educational, etc. purposes.
Sec 5. The People
"All Incorporators are Corporators, but not all Corporators are Incorporators."
(Stockholders or Members)
(Signatories of AOI)
Sec 6. Classification of Shares
The classification, rights, privileges, and restrictions must be stated in the Articles of Incorporation (AOI) and the Certificate of Stock.
The following cannot issue no-par value shares because they access public funds:
• Banks & Trust Companies
• Insurance & Pre-need Companies
• Public Utilities
• Building and Loan Associations
🗳️ Rights of Non-Voting Shares
General Rule: Non-voting shares cannot vote.
Exception: They can still vote on these fundamental matters:
- Amendment of Articles of Incorporation
- Adoption/Amendment of Bylaws
- Sale/Disposition of all/substantially all property
- Incurring/Increasing bonded indebtedness
- Increase/Decrease of authorized capital stock
- Merger or Consolidation
- Investment of funds in other purpose
- Dissolution of the corporation
Special Classifications
Sec 7. Founders' Shares
These shares may be given rights not enjoyed by others.
Exclusive Right to Vote/Be Voted as Director: Limited to five (5) years from date of incorporation. Subject to Anti-Dummy Law and Foreign Investments Act.
Sec 8. Redeemable Shares
Shares which may be purchased by the corporation from holders upon expiration of a fixed period.
Key Doctrine: May be redeemed regardless of the existence of unrestricted retained earnings (Exception to the Trust Fund Doctrine).
Sec 9. Treasury Shares
Shares that were:
1. Issued and fully paid for; and
2. Reacquired by the corporation (purchase, redemption, donation).
They have no voting rights and do not earn dividends while in the treasury.
Source: Republic Act No. 11232 (Revised Corporation Code of the Philippines)