CHARTER AMENDMENTS meeting.

Whenever the bylaws are amended or

new bylaws are adopted, the corporation shall file
Campos, Chapter 14 with the Commission such amended or new bylaws
and, if applicable, the stockholders’ or members’
RCC Sections 15, 47, 11, 36, 37, and 80
resolution authorizing the delegation of the power
to amend and/or adopt new bylaws, duly certified
AMENDMENT OF THE CORPORATE CHARTER
under oath by the corporate secretary and a
SEC. 15. Amendment of Articles of majority of the directors or trustees. The amended
Incorporation. – Unless otherwise prescribed by or new bylaws shall only be effective upon the
this Code or by special law, and for legitimate issuance by the Commission of a certification that
purposes, any provision or matter stated in the the same is in accordance with this Code and other
articles of incorporation may be amended by a relevant laws.
majority vote of the board of directors or trustees
SEC. 11. Corporate Term. – A corporation shall
and the vote or written assent of the stockholders
have perpetual existence unless its articles of
representing at least two-thirds (2/3) of the
incorporation provides otherwise. Corporations with
outstanding capital stock, without prejudice to the
certificates of incorporation issued prior to the
appraisal right of dissenting stockholders in
effectivity of this Code, and which continue to exist,
accordance with the provisions of this Code. The
shall have perpetual existence, unless the
articles of incorporation of a nonstock corporation
corporation, upon a vote of its stockholders
may be amended by the vote or written assent of
representing a majority of its outstanding capital
majority of the trustees and at least two-thirds
stock, notifies the Commission that it elects to
(2/3) of the members. The original and amended
retain its specific corporate term pursuant to its
articles together shall contain all provisions required
articles of incorporation: Provided, That any change
by law to be set out in the articles of incorporation.
in the corporate term under this section is without
Amendments to the articles shall be indicated by
prejudice to the appraisal right of dissenting
underscoring the change or changes made, and a
stockholders in accordance with the provisions of
copy thereof duly certified under oath by the
this Code. A corporate term for a specific period
corporate secretary and a majority of the directors
may be extended or shortened by amending the
or trustees, with a statement that the amendments
articles of incorporation: Provided, That no
have been duly approved by the required vote of
extension may be made earlier than three (3) years
the stockholders or members, shall be submitted to
prior to the original or subsequent expiry date(s)
the Commission. The amendments shall take effect
unless there are justifiable reasons for an earlier
upon their approval by the Commission or from the
extension as may be determined by the
date of filing with the said Commission if not acted
Commission: Provided, further, That such extension
upon within six (6) months from the date of filing
of the corporate term shall take effect only on the
for a cause not attributable to the corporation.
day following the original or subsequent expiry
SEC. 47. Amendment to Bylaws. – A majority of date(s). A corporation whose term has expired may
the board of directors or trustees, and the owners apply for a revival of its corporate existence,
of at least a majority of the outstanding capital together with all the rights and privileges under its
stock, or at least a majority of the members of a certificate of incorporation and subject to all of its
nonstock corporation, at a regular or special duties, debts and liabilities existing prior to its
meeting duly called for the purpose, may amend or revival. Upon approval by the Commission, the
repeal the bylaws or adopt new bylaws. The owners corporation shall be deemed revived and a
of two-thirds (2/3) of the outstanding capital stock certificate of revival of corporate existence shall be
or two-thirds (2/3) of the members in a nonstock issued, giving it perpetual existence, unless its
corporation may delegate to the board of directors application for revival provides otherwise. No
or trustees the power to amend or repeal the application for revival of certificate of incorporation
bylaws or adopt new bylaws: Provided, That any of banks, banking and quasibanking institutions,
power delegated to the board of directors or preneed, insurance and trust companies, non-stock
trustees to amend or repeal the bylaws or adopt savings and loan associations (NSSLAs),
new bylaws shall be considered as revoked pawnshops, corporations engaged in money service
whenever stockholders owning or representing a business, and other financial intermediaries shall be
majority of the outstanding capital stock or majority approved by the Commission unless accompanied
of the members shall so vote at a regular or special by a favorable recommendation of the appropriate
government agency.
SPECIAL AMENDMENTS subscribing, the amount of capital stock or number
of no-par stock subscribed by each, and the amount
SEC. 36. Power to Extend or Shorten paid by each on the subscription in cash or
Corporate Term. – A private corporation may property, or the amount of capital stock or number
extend or shorten its term as stated in the articles of shares of no-par stock allotted to each
of incorporation when approved by a majority vote stockholder if such increase is for the purpose of
of the board of directors or trustees, and ratified at making effective stock dividend therefor authorized;
a meeting by the stockholders or members
representing at least two-thirds (2/3) of the (d) Any bonded indebtedness to be incurred,
outstanding capital stock or of its members. Written created or increased;
notice of the proposed action and the time and
place of the meeting shall be sent to stockholders (e) The amount of stock represented at the
or members at their respective place of residence meeting; and
as shown in the books of the corporation, and must
(f) The vote authorizing the increase or decrease of
either be deposited to the addressee in the post
the capital stock, or the incurring, creating or
office with postage prepaid, served personally, or
increasing of any bonded indebtedness.
when allowed in the bylaws or done with the
consent of the stockholder, sent electronically in
Any increase or decrease in the capital stock or the
accordance with the rules and regulations of the
incurring, creating or increasing of any bonded
Commission on the use of electronic data
indebtedness shall require prior approval of the
messages. In case of extension of corporate term, a
Commission, and where appropriate, of the
dissenting stockholder may exercise the right of
Philippine Competition Commission. The application
appraisal under the conditions provided in this
with the Commission shall be made within six (6)
Code.
months from the date of approval of the board of
directors and stockholders, which period may be
SEC. 37. Power to Increase or Decrease
extended for justifiable reasons. Copies of the
Capital Stock; Incur, Create or Increase Bonded
certificate shall be kept on file in the office of the
Indebtedness. – No corporation shall increase or
corporation and filed with the Commission and
decrease its capital stock or incur, create or
attached to the original articles of incorporation.
increase any bonded indebtedness unless approved
After approval by the Commission and the issuance
by a majority vote of the board of directors and by
by the Commission of its certificate of filing, the
two-thirds (2/3) of the outstanding capital stock at
capital stock shall be deemed increased or
a stockholders’ meeting duly called for the purpose.
decreased and the incurring, creating or increasing
Written notice of the time and place of the
of any bonded indebtedness authorized, as the
stockholders’ meeting and the purpose for said
certificate of filing may declare: Provided, That the
meeting must be sent to the stockholders at their
Commission shall not accept for filing any certificate
places of residence as shown in the books of the
of increase of capital stock unless accompanied by
corporation and served on the stockholders
a sworn statement of the treasurer of the
personally, or through electronic means recognized
corporation lawfully holding office at the time of the
in the corporation’s bylaws and/or the Commission’s
filing of the certificate, showing that at least
rules as a valid mode for service of notices. A
twenty-five percent (25%) of the increase in capital
certificate must be signed by a majority of the
stock has been subscribed and that at least twenty-
directors of the corporation and countersigned by
five percent (25%) of the amount subscribed has
the chairperson and secretary of the stockholders’
been paid in actual cash to the corporation or that
meeting, setting forth:
property, the valuation of which is equal to twenty-
(a) That the requirements of this section have been five percent (25%) of the subscription, has been
complied with; transferred to the corporation: Provided, further,
That no decrease in capital stock shall be approved
(b) The amount of the increase or decrease of the by the Commission if its effect shall prejudice the
capital stock; rights of corporate creditors. Nonstock corporations
may incur, create or increase bonded indebtedness
(c) In case of an increase of the capital stock, the when approved by a majority of the board of
amount of capital stock or number of shares of no- trustees and of at least two-thirds (2/3) of the
par stock thereof actually subscribed, the names, members in a meeting duly called for the purpose.
nationalities and addresses of the persons Bonds issued by a corporation shall be registered
with the Commission, which shall have the authority Notes:
to determine the sufficiency of the terms thereof.
SEC. 35 (former Sec. 36) Corporate Powers
APPRAISAL RIGHT and Capacity. – Every corporation incorporated
under this Code has the power and capacity:
SEC. 80. When the Right of Appraisal May Be
Exercised. – Any stockholder of a corporation shall (d) To amend its articles of incorporation in
have the right to dissent and demand payment of accordance with the provisions of this Code;
the fair value of the shares in the following
instances: SEC. 36&37 vs. SEC. 15:
1. In the former a meeting of the stockholders
(a) In case an amendment to the articles of would be REQUIRED, unlike in Sec. 15, where the
―written assent‖ would suffice.
incorporation has the effect of changing or
2. Former requires the approval of the SEC.
restricting the rights of any stockholder or class of
shares, or of authorizing preferences in any respect NOTE: When the amendment of the corporate
superior to those of outstanding shares of any charter involves shortening the life of the
class, or of extending or shortening the term of corporation with the effect of dissolution, Sec. 136
corporate existence; would apply, requiring approval by the SEC.

(b) In case of sale, lease, exchange, transfer, SEC. 136. Dissolution by Shortening
mortgage, pledge or other disposition of all or Corporate Term. – A voluntary dissolution may be
substantially all of the corporate property and effected by amending the articles of incorporation
assets as provided in this Code; to shorten the corporate term pursuant to the
provisions of this Code. A copy of the amended
(c) In case of merger or consolidation; and articles of incorporation shall be submitted to the
Commission in accordance with this Code.
(d) In case of investment of corporate funds for any
SPECIAL AMENDMENT: Shortening of the
purpose other than the primary purpose of the
corporate term with the effect of dissolution is a
corporation.
special type of amendment covered and governed
by the special provisions of Sec. 36 of the Code.
Thus, while the general provision on amendment
under Sec. 15 allows ―written assent‖ in
determining the voting requirement for ordinary
amendments, sec. 36 mandates that the vote must
be cast at a duly constituted meeting.

Likewise, sec. 15 provides that amendment of the

AOI is deemed approved if not acted upon by the
SEC within 6 months from the date of filing for a
cause not attributable to the corporation. This is not
applicable in case of shortening the corporate term
which will have the effect of dissolution in Sec. 136,
which requires the approval of the SEC

CHAPTER 5: THE CORPORATE CHARTER AND

ITS AMENDMENTS

A. CORPORATE CHARTER

CORPORATE CHARTER signifies an instrument or

authority from the sovereign power, bestowing
rights or power, and is often used convertibly with
the term ―act of incorporation, where the
corporation was formed under a special act of the
legislature, and with the ―articles of incorporation,
when the corporation was formed under a general
law.
THREE-FOLD CONTRACT: 2. Vote OR WRITTEN ASSENT of the
stockholders representing at least 2/3 of
1. Between the corporation and the state the outstanding capital stocks or members
insofar as it concerns its primary franchise in case of a non-stock corporation. (Note:
to be and act as a corporation’ non-voting shares are considered in
determining the voting and quorum
2. Between the corporation and the requirement in case of amendments of the
stockholders or members insofar as it articles of incorporation as provided in Sec.
governs their respective rights and 6);
obligations;
3. Submission and filing of the
3. Between and among the stockholders amendments with the SEC as follows:
or members themselves as far as their
relationship with one another is concerned.
a. The original and amended articles
FRANCHISE: appropriately applies to the right or together shall contain all the
privilege itself to be and act as a corporation or to provision required by law to be
do a certain act while charter applies to the set out in the articles of
instrument by which the state vests such right or incorporation. Such articles, as
privilege. Franchise may either be: amended, shall be indicated by
underscoring the change or
(1) Primary – nothing more than the right changes made;
or privilege of being a corporation; or
b. A copy thereof, duly certified
(2) Secondary – the powers and under oath by the corporate
privileges vested in, and to be exercised by the secretary and a majority of the
corporate body as such. directors or trustees stating the
Example: Employment Agencies, primary fact that such amendments have
franchise is the certificate of incorporation been approved by the required
from the SEC, the secondary franchise is vote of the stockholders or
the license issued by the POEA. members;

B. CORPORATE ENTITY THEORY c. Favorable recommendation of the

appropriate government agency
As a legal entity, the corporation is possessed with concerned in the case where the
a juridical personality separate and distinct from the corporation is under its
individual stockholders or members and is not supervision such as banking and
affected by the personal rights, obligations or insurance companies, etc.
transactions of the latter. The properties it
possesses belongs to it exclusively as a separate When to take effect?
juridical entity such that the personal creditors of its
stockholders or members cannot attach corporate (1) Upon approval by the SEC; or
properties to satisfy their claims.
(2) From the date of filing if not acted upon within
On the other hand, the corporation is not likewise 6 months for a cause not attributed to the
liable for the debts, obligations or liabilities of its corporation (does not apply to increasing or
stockholders. Neither may it properties be made decreasing the capital stock or shortening the
answerable to satisfy the claim of creditors against corporate term, which shall require the approval of
its stockholders or member even if the stockholder the SEC [Sec. 38 and 120])
concerned is its president.
POWER TO AMEND ITS ARTICLES OF
INCORPORATION
RCC Section 15 - Amendment of Articles of
Incorporation (formerly Sec. 16) The procedures for the exercise of this right are
provided under Sec. 16, Sec. 37 and 38 as
The steps to be followed for an effective discussed earlier under CHAPTER 5: CORPORATE
amendment of the articles of incorporation would CHARTER AND ITS AMENDMENTS.
thus be:
1. Resolution by at least a majority of the As far as corporations created by special law are
board of directors or trustees; concerned, amendment may NOT be considered as
a matter of right. The law creating it may or may
not authorize or empower the corporation to make
any changes in its AOI or charter. However, there are justifiable reasons for an earlier
whether empowered or not, Congress may amend extension;
or repeal a corporate charter by virtue of its 6. In case of extension, the same must be
inherent authority to amend or repeal laws under made during the lifetime of the
corporation;
the Consitution.
7. Any dissenting stockholder may exercise
his appraisal right;
RCC Section 47 (former Sec. 46) - Amendment
8. Submission of the amended articles with
to Bylaws the SEC; and
9. Approval thereof by the SEC (as required
The Corporation Code actually REQUIRES a under Sec. 37 for extension, and Sec. 120
corporation to adopt by-laws, not contrary to law, for shortening the term with the effect of
morals, or public policy, within 1 month from dissolution)
receipt of official notice of the issuance of the
certificate of incorporation or registration (Sec. 47).
RCC Section 37 - Power to Increase or
Amendment of the by-laws are allowed subject to Decrease Capital Stock; Incur, Create or
the procedure and requirement provided under Sec. Increase Bonded Indebtedness.
47.
The following requirements or procedure should be
TWO MODES OF AMENDMENT: complied with:
1. Approval by the majority vote of the
1. By a majority vote of the directors or BOD/T;
2. Ratification by the stockholders
trustees and the majority vote of the
representing at least 2/3 of the
outstanding capital stock or members, at a outstanding capital stock (including non-
regular or special meeting called for that voting shares) or 2/3 of the members in
purpose; or case of non-stock corporations at a
2. By the board of directors alone when meeting duly called for that purpose;
delegated by stockholders owning 2/3 of 3. Prior written notice of the proposal to
extend or shorten the corporate term must
the outstanding capital stock or 2/3 of the
be made stating the time and place of
members. This power, however, is
meeting addressed to each stockholder or
considered revoked, when so voted by a member at his place of residence, either
majority of the outstanding capital stock or by mail or personal service;
members in a regular or special meeting. 4. A certificaate in duplicate must be signed
by a majority of the directors of the
RCC Section 11 - Corporate Term corporation, countersigned by the
chairman and the secretary of the
RCC Section 36 (Formerly Section 37) - Power to stockholders meeting, setting forth the
Extend or Shorten Corporate Term matters contained in subsection 1 to 7 of
Sec. 38;
From the above-provision and jurisprudence, the 5. In case of increase in capital stock, 25% of
requirements and procedure for extending or such increased capital must be subscribed
shortening the corporate term are as follows: and that at least 25% of the amount
1. Approval by the majority vote of the subscribed must be paid either in cash or
BOD/T; property;
2. Ratification by the stockholders 6. In case of decrease of capital stock, the
representing at least 2/3 of the same must not prejudice the right of the
outstanding capital stock (including non- creditors;
voting shares) or 2/3 of the members in 7. Filing of the certificate of increase and
case of non-stock corporations; amended AOI with the SEC; and
3. The ratification must be made at a 8. Approval thereof by the SEC.
meeting duly called for that purpose;
4. Prior written notice of the proposal to
extend or shorten the corporate term must METHODS OF INCREASING CAPITAL STOCK:
be made stating the time and place of
meeting addressed to each stockholder or 1. Increase the par value of the existing
member at his place of residence, either number of shares without increasing the
by mail or personal service; number of shares;
5. In case of extension, the same cannot be 2. Increase the number of existing shares
made earlier than 5 years prior to the without increasing the par value thereof;
original or subsequent expiry date unless
 3. Increasing the number of shares and at capital stock created an apparent need for
the same time increasing the par value of retrenchment, it was, by all indications, just a mask
the shares for the purge of union members, who, by then, had
agitated for wage increases. In the face of the
petitioner company’s piling profits, the unionists
REASONS/PURPOSE FOR THE INCREASE: had the right to demand for such salary
1. Expansion; adjustments.

2. Payment of Debt Obligations; That the petitioner made quite handsome profits is
3. To acquire additional assets such as clear from the records.
providing cars to employees to distribute
the goods; This court is convinced that the petitioner’s capital
*Nothing in law prohibits increase of capital stock reduction efforts were, to begin with, a subterfuge,
a deception as it were, to camouflage the fact that
REASONS FOR DECREASE: it had been making profits, and consequently, to
1. To reduce or wipe out existing deficit
justify the mass layoff in it employee ranks,
where no creditors would thereby by
affected; especially the union members. They were nothing
but a premature and plain distribution of corporate
2. When the capital is more than what is assets to obviate a just sharing to labor of the vast
necessary to procreate the business or profits obtained by its joint efforts with capital
reduction of capital surplus; through the years. Surely, we can neither
3. To write down the value of its fixed assets countenance nor condone this. It is an unfair labor
to reflect their present actual value in case
practice.
where there is a decline in the value of the
fixed assets of the corporation.
RCC Section 80 (formerly Section 81)- When the
TRUST FUND DOCTRINE: The subscriptions to Right of Appraisal May Be Exercised
capital stock of the corporation constitute a fund
ENUMERATION NOT EXCLUSIVE: it may also
which the creditors have a right to look up for the
cover:
satisfaction of their claims. Accordingly, if the 1. Investment of funds in another corporation
decrease would affect the rights of creditors, the or business or for any other purpose other
same would not be approved by the SEC. than its primary purpose as provided in
Sec. 41;
MADRIGAL & COMPANY VS. ZAMORA (151
SCRA 355; June 30, 1987) – SEC. 41. Power to Invest Corporate
Funds in Another Corporation or
FACTS: The Madrigal Central Office Employees Business or for Any Other Purpose. –
Union sought for the renewal of its CBA, proposing Subject to the provisions of this Code, a
a P200 wage increase and an allowance of P100 a private corporation may invest its funds in
month. Petitioner company requested for the any other corporation, business, or for any
deferment of its negotiation. purpose other than the primary purpose
Meanwhile, the company effected two reductions of for which it was organized, when approved
its capital stock by issuing marketable securities by a majority of the board of directors or
owned by petitioner in exchange for shareholders’ trustees and ratified by the stockholders
shares. representing at least two-thirds (2/3) of
After the petitioner’s failure to sit down with the the outstanding capital stock, or by at
respondent union, the latter commenced a case least two thirds (2/3) of the members in
with the NLRC for unfair labor practice. In due time, the case of nonstock corporations, at a
petitioner filed its position paper, alleging operating meeting duly called for the purpose. Notice
losses. of the proposed investment and the time
The Labor Arbiter rendered a decision in favor of and place of the meeting shall be
respondent Union. addressed to each stockholder or member
at the place of residence as shown in the
ISSUE: WON the decrease in capital stock is valid books of the corporation and deposited to
and binding? the addressee in the post office with
postage prepaid, served personally, or
HELD: No. What clearly emerges from the recorded sent electronically in accordance with the
facts is that the petitioner, awash with profits from rules and regulations of the Commission
its business operations but confronted with the on the use of electronic data message,
demand of the union for wage increase, decided to when allowed by the bylaws or done with
evade its responsibility towards the employees by a the consent of the stockholders: Provided,
devised capital reduction. While the reduction in That any dissenting stockholder shall have
 appraisal right as provided in this Code:
Provided, however, That where the
investment by the corporation is
reasonably necessary to accomplish its
primary purpose as stated in the articles of
incorporation, the approval of the
stockholders or members shall not be
necessary.

2. Likewise, in a close corporation, a

stockholder has the unbridled right to
compel the corporation ―for any
reason‖ to purchase his shares at their fair
value which shall not be less than the par
or issued value, when the corporation has
sufficient assets to cover its debts and
liabilities, exclusive of capital stock (Sec.
104).

SEC. 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 issued value, when the corporation
has sufficient assets in its 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 the dissolution
of such corporation whenever any of acts
of the directors, officers, or those in
control of the corporation is illegal,
fraudulent, dishonest, oppressive or
unfairly prejudicial to the corporation or
any stockholder, or whenever corporate
assets are being misapplied or wasted.

NOT ALL AMENDMENTS: the right may only be

exercised in cases of amendment which ―has the
effect of changing or restricting the rights of any
stockholder or class of shares, or of authorizing
preferences in any respect superior to those of
outstanding shares of any class, or of extending or
shortening the term of corporate existence‖.
Accordingly, if the amendment is to increase or
decrease the number of directors, or change the
corporate name, or change of principal office, the
appraisal right is not available.

STOCKHOLDER WITH UNPAID

SUBSCRIPTION: He MAY exercise the appraisal
right, since the subscriber is entitled to all the rights
of a stockholder under Sec. 72 and although Sec.
82 provides for the submission of certificate of
stock, Sec. 86 provides that the notation to such
certificate of stock is OPTIONAL at the instance of
the corporation.