CORPORATE GOVERNANCE: capital stock issued without par value shall be deemed

fully paid and nonassessable and the holder of such

DEVICES AFFECTING CONTROL shares shall not be liable to the corporation or to its
creditors in respect thereto: Provided, That no-par value
SEC. 6. Classification of Shares. – The classification shares must be issued for a consideration of at least
of shares, their corresponding rights, privileges, or Five pesos (P5.00) per share: Provided, further, That the
restrictions, and their stated par value, if any, must be entire consideration received by the corporation for its
indicated in the articles of incorporation. Each share no-par value shares shall be treated as capital and shall
shall be equal in all respects to every other share, except not be available for distribution as dividends. A
as otherwise provided in the articles of incorporation and corporation may further classify its shares for the
in the certificate of stock. The shares in stock purpose of ensuring compliance with constitutional or
corporations may be divided into classes or series of legal requirements.
shares, or both. No share may be deprived of voting
rights except those classified and issued as “preferred” SEC. 7. Founders’ Shares. – Founders’ shares may be
or “redeemable” shares, unless otherwise provided in given certain rights and privileges not enjoyed by the
this Code: Provided, That there shall always be a class owners of other stocks. Where the exclusive right to vote
or series of shares with complete voting rights. Holders and be voted for in the election of directors is granted, it
of nonvoting shares shall nevertheless be entitled to vote must be for a limited period not to exceed five (5) years
on the following matters: from the date of incorporation: Provided, That such
exclusive right shall not be allowed if its exercise will
(a) Amendment of the articles of incorporation; violate Commonwealth Act No. 108, otherwise known as
(b) Adoption and amendment of bylaws; the “Anti-Dummy Law”; Republic Act No. 7042,
(c) Sale, lease, exchange, mortgage, pledge, or otherwise known as the “Foreign Investments Act of
other disposition of all or substantially all of the 1991”; and other pertinent laws.
corporate property;
(d) Incurring, creating, or increasing bonded SEC. 57. Manner of Voting; Proxies. – Stockholders
indebtedness; and members may vote in person or by proxy in all
(e) Increase or decrease of authorized capital stock; meetings of stockholders or members. When so
(f) Merger or consolidation of the corporation with authorized in the bylaws or by a majority of the board of
another corporation or other corporations; directors, the stockholders or members of corporations
(g) Investment of corporate funds in another may also vote through remote communication or in
corporation or business in accordance with this absentia: Provided, That the votes are received before
Code; and the corporation finishes the tally of votes. A stockholder
(h) Dissolution of the corporation. Except as or member who participates through remote
provided in the immediately preceding communication or in absentia shall be deemed present
paragraph, the vote required under this Code to for purposes of quorum. The corporation shall establish
approve a particular corporate act shall be the appropriate requirements and procedures for voting
deemed to refer only to stocks with voting rights. through remote communication and in absentia , taking
into account the company’s scale, number of
The shares or series of shares may or may not have a shareholders or members, structure and other factors
par value: Provided, That banks, trust, insurance, and consistent with the basic right of corporate suffrage.
preneed companies, public utilities, building and loan Proxies shall be in writing, signed and filed, by the
associations, and other corporations authorized to obtain stockholder or member, in any form authorized in the
or access funds from the public, whether publicly listed bylaws and received by the corporate secretary within a
or not, shall not be permitted to issue nopar value shares reasonable time before the scheduled meeting. Unless
of stock. Preferred shares of stock issued by a otherwise provided in the proxy form, it shall be valid
corporation may be given preference in the distribution of only for the meeting for which it is intended. No proxy
dividends and in the distribution of corporate assets in shall be valid and effective for a period longer than five
case of liquidation, or such other preferences: Provided, (5) years at any one time.
That preferred shares of stock may be issued only with a
stated par value. The board of directors, where SEC. 58. Voting Trusts. – One or more stockholders of
authorized in the articles of incorporation, may fix the a stock corporation may create a voting trust for the
terms and conditions of preferred shares of stock or any purpose of conferring upon a trustee or trustees the right
series thereof: Provided, further, That such terms and to vote and other rights pertaining to the shares for a
conditions shall be effective upon filing of a certificate period not exceeding five (5) years at any time:
thereof with the Securities and Exchange Commission, Provided, That in the case of a voting trust specifically
hereinafter referred to as the “Commission”. Shares of required as a condition in a loan agreement, said voting
1
trust may be for a period exceeding five (5) years but 20.2. Proxies must be in writing, signed by the
shall automatically expire upon full payment of the loan. stockholder or his duly authorized representative and file
A voting trust agreement must be in writing and before the scheduled meeting with the corporate
notarized, and shall specify the terms and conditions secretary.
thereof. A certified copy of such agreement shall be filed
with the corporation and with the Commission; 20.3. Unless otherwise provided in the proxy, it shall be
otherwise, the agreement is ineffective and valid only for the meeting for which it is intended. No
unenforceable. The certificate or certificates of stock proxy shall be valid only for the meting for which it is
covered by the voting trust agreement shall be cancelled intended. No proxy shall be valid and effective for a
period longer than five (5) years at one time.
and new ones shall be issued in the name of the trustee
or trustees, stating that they are issued pursuant to said
agreement. The books of the corporation shall state that 20.4. No broker or dealer shall give any proxy, consent
or any authorization, in respect of any security carried for
the transfer in the name of the trustee or trustees is
the account of the customer, to a person other than the
made pursuant to the voting trust agreement. customer, without written authorization of such customer.
The trustee or trustees shall execute and deliver to the
transferors, voting trust certificates, which shall be 20.5. A broker or dealer who holds or acquire the proxy
transferable in the same manner and with the same for at least ten percent (10%) or such percentage as the
effect as certificates of stock. commission may prescribe of the outstanding share of
such issuer, shall submit a report identifying the
The voting trust agreement filed with the corporation beneficial owner of ten days after such acquisition, for its
shall be subject to examination by any stockholder of the own account or customer, to the issuer of security, to the
corporation in the same manner as any other corporate exchange where the security is traded and to the
book or record: Provided, That both the trustor and the Commission.
trustee or trustees may exercise the right of inspection of
all corporate books and records in accordance with the Section 21. Fees of Tender Offers and Certain Proxy
provisions of this Code. Solicitations. – At the time of filling with the Commission
of any statement required under Section 19 for any
Any other stockholder may transfer the shares to the tender offer or Section 72.2 for issuer purchases, or
same trustee or trustees upon the terms and conditions Section 20 for proxy or consent solicitation, The
stated in the voting trust agreement, and thereupon shall Commission may require that the person making such
be bound by all the provisions of said agreement. filing pay a fee of not more than one-tenth (1/10)(1%) of;

No voting trust agreement shall be entered into for 21.1. The propose aggregate purchase price in the case
purposes of circumventing the laws against anti- of a transaction under Section 20 or 72.2; or
competitive agreements, abuse of dominant position,
anti-competitive mergers and acquisitions, violation of 21.2. The proposed payment in cash, and ion value of
nationality and capital requirements, or for the any securities or property to be transferred in the
perpetuation of fraud. acquisition, merger or consolidating, or the cash and
value of any securities proposed to be received upon the
Unless expressly renewed, all rights granted in a voting sale disposition of such assets in the case of a
trust agreement shall automatically expire at the end of solicitation under Section 20. The Commission shall
the agreed period. The voting trust certificates as well prescribe by rule diminishing fees in inverse proportion
as the certificates of stock in the name of the trustee or to the value of the aggregate price of the offering.
trustees shall thereby be deemed cancelled and new
certificates of stock shall be reissued in the name of the CORPORATE GOVERNANCE;
trustors.
INFORMATION RIGHTS
The voting trustee or trustees may vote by proxy or in
any manner authorized under the bylaws unless the TITLE VIII CORPORATE BOOKS AND RECORDS
agreement provides otherwise.
SEC. 73. Books to be Kept; Stock Transfer Agent . –
Section 20. Proxy solicitations. - 20.1. Proxies must be Every corporation shall keep and carefully preserve at its
issued and proxy solicitation must be made in principal office all information relating to the corporation
accordance with rules and regulations to be issued by including, but not limited to:
the Commission;
(a) The articles of incorporation and bylaws of the
corporation and all their amendments;
2
 (b) The current ownership structure and voting competitor shall have no right to inspect or demand
rights of the corporation, including lists of reproduction of corporate records.
stockholders or members, group structures,
intra-group relations, ownership data, and Any stockholder who shall abuse the rights granted
beneficial ownership; under this section shall be penalized under Section 158
of this Code, without prejudice to the provisions of
(c) The names and addresses of all the members of Republic Act No. 8293, otherwise known as the
the board of directors or trustees and the “Intellectual Property Code of the Philippines”, as
executive officers; amended, and Republic Act No. 10173, otherwise known
as the “Data Privacy Act of 2012”.
(d) A record of all business transactions;
Any officer or agent of the corporation who shall refuse
(e) A record of the resolutions of the board of to allow the inspection and/or reproduction of records in
directors or trustees and of the stockholders or accordance with the provisions of this Code shall be
members; liable to such director, trustee, stockholder or member
for damages, and in addition, shall be guilty of an
offense which shall be punishable under Section 161 of
(f) Copies of the latest reportorial requirements
this Code: Provided, That if such refusal is made
submitted to the Commission; and
pursuant to a resolution or order of the board of directors
or trustees, the liability under this section for such action
(g) The minutes of all meetings of stockholders or shall be imposed upon the directors or trustees who
members, or of the board of directors or voted for such refusal: Provided, further, That it shall be
trustees. Such minutes shall set forth in detail, a defense to any action under this section that the
among others: the time and place of the meeting person demanding to examine and copy excerpts from
held, how it was authorized, the notice given, the corporation’s records and minutes has improperly
the agenda therefor, whether the meeting was used any information secured through any prior
regular or special, its object if special, those examination of the records or minutes of such
present and absent, and every act done or corporation or of any other corporation, or was not acting
ordered done at the meeting. Upon the demand in good faith or for a legitimate purpose in making the
of a director, trustee, stockholder or member, demand to examine or reproduce corporate records, or
the time when any director, trustee, stockholder is a competitor, director, officer, controlling stockholder
or member entered or left the meeting must be or otherwise represents the interests of a competitor.
noted in the minutes; and on a similar demand,
the yeas and nays must be taken on any motion
If the corporation denies or does not act on a demand for
or proposition, and a record thereof carefully
inspection and/or reproduction, the aggrieved party may
made. The protest of a director, trustee,
report such denial or inaction to the Commission. Within
stockholder or member on any action or
five (5) days from receipt of such report, the Commission
proposed action must be recorded in full upon
shall conduct a summary investigation and issue an
their demand.
order directing the inspection or reproduction of the
requested records.
Corporate records, regardless of the form in which they
are stored, shall be open to inspection by any director,
Stock corporations must also keep a stock and transfer
trustee, stockholder or member of the corporation in
book, which shall contain a record of all stocks in the
person or by a representative at reasonable hours on
names of the stockholders alphabetically arranged; the
business days, and a demand in writing may be made by
installments paid and unpaid on all stocks for which
such director, trustee or stockholder at their expense, for
subscription has been made, and the date of payment of
copies of such records or excerpts from said records.
any installment; a statement of every alienation, sale or
The inspecting or reproducing party shall remain bound
transfer of stock made, the date thereof, by and to whom
by confidentiality rules under prevailing laws, such as the
made; and such other entries as the bylaws may
rules on trade secrets or processes under Republic Act
prescribe. The stock and transfer book shall be kept in
No. 8293, otherwise known as the “Intellectual Property
the principal office of the corporation or in the office of its
Code of the Philippines”, as amended, Republic Act No.
stock transfer agent and shall be open for inspection by
10173, otherwise known as the “Data Privacy Act of
any director or stockholder of the corporation at
2012”, Republic Act No. 8799, otherwise known as “The
reasonable hours on business days.
Securities Regulation Code”, and the Rules of Court

A stock transfer agent or one engaged principally in the

A requesting party who is not a stockholder or member
business of registering transfers of stocks in behalf of a
of record, or is a competitor, director, officer, controlling
stock corporation shall be allowed to operate in the
stockholder or otherwise represents the interests of a
Philippines upon securing a license from the
3
Commission and the payment of a fee to be fixed by the (2) A description of the opportunity given to
Commission, which shall be renewable annually: stockholders or members to ask questions and a
Provided, That a stock corporation is not precluded from record of the questions asked and answers
performing or making transfers of its own stocks, in given;
which case all the rules and regulations imposed on (3) The matters discussed and resolutions reached;
stock transfer agents, except the payment of a license (4) A record of the voting results for each agenda
fee herein provided, shall be applicable: Provided,
item;
further, That the Commission may require stock
(5) A list of the directors or trustees, officers and
corporations which transfer and/or trade stocks in
secondary markets to have an independent transfer stockholders or members who attended the
agent. meeting; and
(6) Such other items that the Commission may
SEC. 74. Right to Financial Statements . – A require in the interest of good corporate
corporation shall furnish a stockholder or member, within governance and the protection of minority
ten (10) days from receipt of their written request, its stockholders;
most recent financial statement, in the form and
substance of the financial reporting required by the (b) A members’ list for nonstock corporations and, for
Commission. stock corporations, material information on the current
stockholders, and their voting rights;
At the regular meeting of stockholders or members, the (c) A detailed, descriptive, balanced and comprehensible
board of directors or trustees shall present to such assessment of the corporation’s performance, which
stockholders or members a financial report of the
shall include information on any material change in the
operations of the corporation for the preceding year,
corporation’s business, strategy, and other affairs;
which shall include financial statements, duly signed and
certified in accordance with this Code, and the rules the (d) A financial report for the preceding year, which shall
Commission may prescribe. include financial statements duly signed and certified in
accordance with this Code and the rules the Commission
However, if the total assets or total liabilities of the may prescribe, a statement on the adequacy of the
corporation are less than Six hundred thousand pesos corporation’s internal controls or risk management
(P600,000.00), or such other amount as may be
systems, and a statement of all external audit and non-
determined appropriate by the Department of Finance,
audit fees;
the financial statements may be certified under oath by
the treasurer and the president. (e) An explanation of the dividend policy and the fact of
payment of dividends or the reasons for nonpayment
SEC. 49. Regular and Special Meetings of thereof;
Stockholders or Members. – Regular meetings of
stockholders or members shall be held annually on a (f) Director or trustee profiles which shall include, among
date fixed in the bylaws, or if not so fixed, on any date others, their qualifications and relevant experience,
after April 15 of every year as determined by the board length of service in the corporation, trainings and
of directors or trustees: Provided, That written notice of continuing education attended, and their board
regular meetings shall be sent to all stockholders or representations in other corporations;
members of record at least twenty-one (21) days prior to
(g) A director or trustee attendance report, indicating the
the meeting, unless a different period is required in the
attendance of each director or trustee at each of the
bylaws, law, or regulation: Provided, further, That written
meetings of the board and its committees and in regular
notice of regular meetings may be sent to all
or special stockholder meetings;
stockholders or members of record through electronic
mail or such other manner as the Commission shall (h) Appraisals and performance reports for the board
allow under its guidelines. and the criteria and procedure for assessment;
At each regular meeting of stockholders or members, the (i) A director or trustee compensation report prepared in
board of directors or trustees shall endeavor to present accordance with this Code and the rules the Commission
to stockholders or members the following: may prescribe;
(a) The minutes of the most recent regular meeting (j) Director disclosures on self-dealings and related party
which shall include, among others transactions; and/or
(1) A description of the voting and vote tabulation (k) The profiles of directors nominated or seeking
procedures used in the previous meeting; election or reelection. A director, trustee, stockholder, or
4
member may propose any other matter for inclusion in protection and promotion of shareholders’ or members’
the agenda at any regular meeting of stockholders or meetings.
members.
SEC. 161. Violation of Duty to Maintain Records, to
Special meetings of stockholders or members shall be Allow their Inspection or Reproduction; Penalties. –
held at any time deemed necessary or as provided in the The unjustified failure or refusal by the corporation, or by
bylaws: Provided, however, That at least one (1) week those responsible for keeping and maintaining corporate
written notice shall be sent to all stockholders or records, to comply with Sections 45, 73, 92, 128, 177
members, unless a different period is provided in the and other pertinent rules and provisions of this Code on
bylaws, law or regulation. inspection and reproduction of records shall be punished
with a fine ranging from Ten thousand pesos
A stockholder or member may propose the holding of a (P10,000.00) to Two hundred thousand pesos
special meeting and items to be included in the agenda. (P200,000.00), at the discretion of the court, taking into
Notice of any meeting may be waived, expressly or consideration the seriousness of the violation and its
impliedly, by any stockholder or member: Provided, That implications. When the violation of this provision is
general waivers of notice in the articles of incorporation injurious or detrimental to the public, the penalty is a fine
or the bylaws shall not be allowed: Provided, further, ranging from Twenty thousand pesos (P20,000.00) to
That attendance at a meeting shall constitute a waiver of Four hundred thousand pesos (P400,000.00).
notice of such meeting, except when the person attends The penalties imposed under this section shall be
a meeting for the express purpose of objecting to the without prejudice to the Commission’s exercise of its
transaction of any business because the meeting is not contempt powers under Section 157 hereof.
lawfully called or convened.
SEC. 162. Willful Certification of Incomplete,
Whenever for any cause, there is no person authorized Inaccurate, False, or Misleading Statements or
or the person authorized unjustly refuses to call a Reports; Penalties. – Any person who willfully certifies
meeting, the Commission, upon petition of a stockholder a report required under this Code, knowing that the
or member on a showing of good cause therefor, may same contains incomplete, inaccurate, false, or
issue an order, directing the petitioning stockholder or misleading information or statements, shall be punished
member to call a meeting of the corporation by giving with a fine ranging from Twenty thousand pesos
proper notice required by this Code or the bylaws. The (P20,000.00) to Two hundred thousand pesos
petitioning stockholder or member shall preside thereat (P200,000.00). When the wrongful certification is
until at least a majority of the stockholders or members injurious or detrimental to the public, the auditor or the
present have chosen from among themselves, a responsible person may also be punished with a fine
presiding officer. ranging from Forty thousand pesos (P40,000.00) to Four
Unless the bylaws provide for a longer period, the stock hundred thousand pesos (P400,000.00).
and transfer book or membership book shall be closed at SEC. 163. Independent Audit or Collusion; Penalties.
least twenty (20) days for regular meetings and seven – An independent auditor who, in collusion with the
(7) days for special meetings before the scheduled date corporation’s directors or representatives, certifies the
of the meeting. corporation’s financial statements despite its
In case of postponement of stockholders’ or members’ incompleteness or inaccuracy, its failure to give a fair
regular meetings, written notice thereof and the reason and accurate presentation of the corporation’s condition,
therefor shall be sent to all stockholders or members of or despite containing false or misleading statements,
record at least two (2) weeks prior to the date of the shall be punished with a fine ranging from Eighty
meeting, unless a different period is required under the thousand pesos (P80,000.00) to Five hundred thousand
bylaws, law or regulation. pesos (P500,000.00). When the statement or report
certified is fraudulent, or has the effect of causing injury
The right to vote of stockholders or members may be to the general public, the auditor or responsible officer
exercised in person, through a proxy, or when so may be punished with a fine ranging from One hundred
authorized in the bylaws, through remote communication thousand pesos (P100,000.00) to Six hundred thousand
or in absentia. The Commission shall issue the rules and pesos (P600,000.00).
regulations governing participation and voting through
remote communication or in absentia, taking into SEC. 177. Reportorial Requirements of Corporations.
account the company’s scale, number of shareholders or – Except as otherwise provided in this Code or in the
members, structure, and other factors consistent with the rules issued by the Commission, every corporation,

5
domestic or foreign, doing business in the Philippines
shall submit to the Commission:
II. Amount, when used in regard to securities,
(a) Annual financial statements audited by an means the principal amount if relating to
independent certified public accountant: Provided, That evidences of indebtedness, the number of
shares if relating to shares, and the number of
if the total assets or total liabilities of the corporation are units if relating to any other kind of security.
less than Six hundred thousand pesos (P600,000.00),
the financial statements shall be certified under oath by
the corporation’s treasurer or chief financial officer; and
III. Associate, when used to indicate a relationship
(b) A general information sheet.
with any person, means (1) any corporation or
Corporations vested with public interest must also submit organization (other than the registrant or a
the following: majority-owned subsidiary of the registrant) of
which such person is an officer or partner or is,
(1) A director or trustee compensation report; directly or indirectly, the beneficial owner of 10
(2) A director or trustee appraisal or performance percent (10%) or more of any class of equity
report and the standards or criteria used to securities, (2) any trust or other estate in which
assess each director or trustee. such person has a substantial beneficial interest
or as to which such person serves as trustee or
The reportorial requirements shall be submitted annually in a similar fiduciary capacity, and (3) any
and within such period as may be prescribed by the relative or spouse of such person, or any relative
Commission. of such spouse, who has the same home as
such person or who is a director or officer of the
The Commission may place the corporation under
registrant or any of its parents or subsidiaries.
delinquent status in case of failure to submit the
reportorial requirements three (3) times, consecutively or
intermittently, within a period of five (5) years. The IV. Certified, when used in regard to financial
Commission shall give reasonable notice to and statements, means examined and reported upon
coordinate with the appropriate regulatory agency prior with an opinion expressed by an independent
to placing on delinquent status companies under their certified public accountant.
special regulatory jurisdiction.
V. Charter includes articles of incorporation,
Any person required to file a report with the Commission declarations of trust, or articles of association or
may redact confidential information from such required any similar instrument, as amended, effecting
report: Provided, That such confidential information shall (either with or without filing with any
be filed in a supplemental report prominently labelled governmental agency) the organization or
“confidential”, together with a request for confidential creation of an incorporated person.
treatment of the report and the specific grounds for the
VI. Common equity means any class of common
grant thereof.
stock or an equivalent interest, including but not
Full Disclosure SRC limited to a unit of beneficial interest in a trust.

Definition of Terms Used in Full Disclosure Forms VII. Employee does not include a director, trustee, or
officer.

VIII. Fiscal Year means the annual accounting

Unless otherwise defined therein or where the context period or, if no closing date has been adopted,
otherwise requires, the following terms, when used in the the calendar year ending on December 31.
forms of statements and reports set forth in paragraph 1
of SRC Rule 12 shall have the meaning as stated IX. Lead underwriter includes an underwriter (or
hereafter: underwriters) who, by contract or otherwise,
deals with the registrant; designs the structure of
the offering and organizes the selling effort;
I. Affiliate of, or a person affiliated with, a receives some benefit directly or indirectly in
specified person, is a person that directly, or which all other underwriters similarly situated do
indirectly through one or more intermediaries, not share in proportion to their respective
controls, or is controlled by, or is under common interests in the underwriting; or represents any
control with, the person specified. other underwriters in such matters as

6
 maintaining the records of the distribution or such as pension and profit sharing trusts that are
arranging the allotments of securities offered. managed by or under the trusteeship of the
management; principal owners of the enterprise;
X. Majority-owned Subsidiary means a subsidiary its management; members of the immediate
more than fifty percent (50%) of whose families of principal owners of the enterprise and
outstanding securities, representing the right, its management; and other parties with which the
other than as affected by events of default, to enterprise may deal if one party controls or can
vote for the election of directors, is owned by the significantly influence the management or
subsidiary's parent and/or one or more of the operating policies of the other to an extent that
parent's other majority-owned subsidiaries. one of the transacting parties might be prevented
from fully pursuing its own separate interests.
Another party also is a related party if it can
XI. A parent of a specified person is an affiliate significantly influence the management or
controlling such person directly or indirectly operating policies of the transacting parties or if it
through one or more intermediaries. has an ownership interest in one of the transacting
XII. Person means an individual, corporation, parties and can significantly influence the other to
partnership, association, joint stock company, an extent that one or more of the transacting
trust, any unincorporated organization, or a parties might be prevented from fully pursuing its
government or political subdivision thereof. own separate interests.

XVII. Reporting Company, also referred to as

XIII. Predecessor means a person, the major portion Reporting Issuer, means a company required
of the business and assets of which another to file periodic or other reports with the
person acquired in a single succession or in a Commission pursuant to Section 17.2 of the
series of related successions in each of which Code.
the acquiring person acquired the major portion
of the business and assets of the acquired
person. XVIII. Security Holders means the holders of record
and the beneficial owners of a security as such.

XIX. Share means a share of stock in a corporation.

XIV. Previously Filed or Reported means
previously filed with, or reported in, a report XX. Significant Subsidiary means a subsidiary,
under Section 17 of the SRC and SRC Rule 17, including its subsidiaries, which meets any of the
a definitive proxy statement under Section 20 of following conditions.
the SRC and SRC Rule 20, an information
statement under SEC 17 of the SRC and SRC
A. The registrant's and its other
Rule 17.1 (b), or a registration previously filed
subsidiaries' investments in and
under Sections 8 and 12 of the SRC and SRC
advances to the subsidiary exceed ten
Rule 8. The terms shall also apply to reports,
percent (10%) of the total assets of the
proxy or information statements, and registration
registrant and its subsidiaries
statements filed under Sections 11, 34 and 8 of
consolidated as of the end of the most
the Revised Securities Act, respectively.
recently completed fiscal year (for a
Provided, that information contained in any such
proposed business combination to be
document shall be deemed to have been
accounted for as a pooling of interests,
previously filed with, or reported to, an Exchange
this condition is also met when the
only if such document is filed with it.
number of common shares exchanged
or to be exchanged by the registrant
XV. Registrant means an issuer of securities with exceeds ten percent (10%) of its total
respect to which a securities registration common shares outstanding at the date
statement or required issuer report has been or the combination is initiated); or
is to be filed.
B. The registrant's and its other
XVI. Related Parties means affiliates of the subsidiaries' proportionate share of the
enterprise, entities for which investments are total assets (after intercompany
accounted for by the equity method by the eliminations) of the subsidiary exceeds
enterprise; trusts for the benefit of employees, ten percent (10%) of the total assets of

7
 the registrant and its subsidiaries The terms "succeed" and "successor" have
consolidated as of the end of the most meanings correlative to the foregoing.
recently completed fiscal year; or

XXIII. Voting Securities means securities the holders

of which are presently entitled to vote for the
C. The registrant's and its other election of directors.
subsidiaries' equity in the income from
continuing operations before income XXIV. Wholly-owned Subsidiary means a subsidiary
taxes, extraordinary items and substantially all of whose outstanding voting
cumulative effect of a change in securities are owned by its parent and/or the
accounting principle of the subsidiary parent's other wholly-owned subsidiaries.
exceeds ten percent (10%) of such
income of the registrant and its
subsidiaries consolidated for the most Interim Rules in Intra-Corporate Disputes
recently completed fiscal year. RULE 6
ELECTION CONTESTS
Computational note: For purposes of
making the prescribed income test the
following guidance should be applied: SECTION 1. Cases covered. – The provisions of this
rule shall apply to election contests in stock and non-
stock corporations.
1. When a loss has been incurred
by either the parent and its
subsidiaries consolidated or the SEC. 2. Definition. – An election contest refers to any
tested subsidiary, but not both, controversy or dispute involving title or claim to any
the equity in the income or loss elective office in a stock or non-stock corporation, the
validation of proxies, the manner and validity of
of the tested subsidiary should
elections, and the qualifications of candidates, including
be excluded from the income of
the proclamation of winners, to the office of director,
the registrant and its
trustee or other officer directly elected by the
subsidiaries consolidated for stockholders in a close corporation or by members of a
purposes of the computation non-stock corporation where the articles of incorporation
or by-laws so provide.
2. If income of the registrant and
its subsidiaries consolidated for
SEC. 3. Complaint. – In addition to the requirements in
the most recent fiscal year is at section 4, Rule 2 of these Rules, the complaint in an
least ten percent (10%) lower election contest must state the following:
than the average of the income
for the last five (5) fiscal years,
1. The case was filed within fifteen (15)
such average income should be
days from the date of the election if the
substituted for purposes of the by-laws of the corporation do not
computation. Any loss years provide for a procedure for resolution of
should be omitted for purposes the controversy, or within fifteen (15)
of computing average income. days from the resolution of the
controversy by the corporation as
XXI. Subsidiary of a specified person is an affiliate
provided in its by-laws; and
controlled by such person directly, or indirectly
2. The plaintiff has exhausted all intra-
through one or more intermediaries. (See also
corporate remedies in election cases as
definitions of "majority-owned subsidiary", provided for in the by-laws of the
"significant subsidiary” and “wholly-owned corporation.
subsidiary).
SEC. 4. Duty of the court upon the filing of the
XXII. Succession means the direct acquisition of the
complaint. – Within two (2) days from the filing of the
assets comprising a going business, whether by complaint, the court, upon a consideration of the
merger, consolidation, purchase, or other direct allegations thereof, may dismiss the complaint outright if
transfer. The term does not include the it is not sufficient in form and substance, or, if it is
acquisition of control of a business unless sufficient, order the issuance of summons which shall be
followed by the direct acquisition of its assets. served, together with a copy of the complaint, on the
defendant within two (2) days from its issuance.
8
SEC. 5. Answer. – The defendant shall file his answer The shares or series of shares may or may not have a
to the complaint, serving a copy thereof on the plaintiff, par value: Provided, That banks, trust, insurance, and
within ten (10) days from service of summons and the preneed companies, public utilities, building and loan
complaint. The answer shall contain the matters required associations, and other corporations authorized to obtain
in section 6, Rule 2 of these Rules. or access funds from the public, whether publicly listed
or not, shall not be permitted to issue nopar value shares
SEC. 6. Affidavits, documentary and other of stock. Preferred shares of stock issued by a
evidence. – The parties shall attach to the complaint corporation may be given preference in the distribution of
and answer the affidavits of witnesses, documentary and dividends and in the distribution of corporate assets in
other evidence in support thereof, if any.
case of liquidation, or such other preferences: Provided,
That preferred shares of stock may be issued only with a
Derivative Suits stated par value. The board of directors, where
authorized in the articles of incorporation, may fix the
terms and conditions of preferred shares of stock or any
CORPORATE FINANCE: series thereof: Provided, further, That such terms and
OVERVIEW conditions shall be effective upon filing of a certificate
thereof with the Securities and Exchange Commission,
CORPORATE FINANCE: SHARES hereinafter referred to as the “Commission”. Shares of
capital stock issued without par value shall be deemed
OF STOCK, SUBSCRIPTIONS, fully paid and nonassessable and the holder of such
TRANSFERS shares shall not be liable to the corporation or to its
creditors in respect thereto: Provided, That no-par value
SEC. 6. Classification of Shares. – The classification shares must be issued for a consideration of at least
of shares, their corresponding rights, privileges, or Five pesos (P5.00) per share: Provided, further, That the
restrictions, and their stated par value, if any, must be entire consideration received by the corporation for its
indicated in the articles of incorporation. Each share no-par value shares shall be treated as capital and shall
shall be equal in all respects to every other share, except not be available for distribution as dividends. A
as otherwise provided in the articles of incorporation and corporation may further classify its shares for the
in the certificate of stock. The shares in stock purpose of ensuring compliance with constitutional or
corporations may be divided into classes or series of legal requirements.
shares, or both. No share may be deprived of voting
rights except those classified and issued as “preferred” SEC. 7. Founders’ Shares. – Founders’ shares may be
or “redeemable” shares, unless otherwise provided in given certain rights and privileges not enjoyed by the
this Code: Provided, That there shall always be a class owners of other stocks. Where the exclusive right to vote
or series of shares with complete voting rights. Holders and be voted for in the election of directors is granted, it
of nonvoting shares shall nevertheless be entitled to vote must be for a limited period not to exceed five (5) years
on the following matters: from the date of incorporation: Provided, That such
exclusive right shall not be allowed if its exercise will
(a) Amendment of the articles of incorporation; violate Commonwealth Act No. 108, otherwise known as
(b) Adoption and amendment of bylaws; the “Anti-Dummy Law”; Republic Act No. 7042,
(c) Sale, lease, exchange, mortgage, pledge, or otherwise known as the “Foreign Investments Act of
other disposition of all or substantially all of the 1991”; and other pertinent laws.
corporate property;
(d) Incurring, creating, or increasing bonded SEC. 8. Redeemable Shares. – Redeemable shares
indebtedness; may be issued by the corporation when expressly
(e) Increase or decrease of authorized capital stock; provided in the articles of incorporation. They are shares
(f) Merger or consolidation of the corporation with which may be purchased by the corporation from the
another corporation or other corporations; holders of such shares upon the expiration of a fixed
(g) Investment of corporate funds in another period, regardless of the existence of unrestricted
corporation or business in accordance with this retained earnings in the books of the corporation, and
Code; and upon such other terms and conditions stated in the
(h) Dissolution of the corporation. Except as articles of incorporation and the certificate of stock
provided in the immediately preceding representing the shares, subject to rules and regulations
paragraph, the vote required under this Code to issued by the Commission.
approve a particular corporate act shall be SEC. 9. Treasury Shares. – Treasury shares are shares
deemed to refer only to stocks with voting rights. of stock which have been issued and fully paid for, but
9
subsequently reacquired by the issuing corporation board of directors and stockholders, which period may
through purchase, redemption, donation, or some other be extended for justifiable reasons.
lawful means. Such shares may again be disposed of
for a reasonable price fixed by the board of directors. Copies of the certificate shall be kept on file in the office
of the corporation and filed with the Commission and
SEC. 37. Power to Increase or Decrease Capital attached to the original articles of incorporation. After
Stock; Incur, Create or Increase Bonded approval by the Commission and the issuance by the
Indebtedness. – No corporation shall increase or Commission of its certificate of filing, the capital stock
decrease its capital stock or incur, create or increase any shall be deemed increased or decreased and the
bonded indebtedness unless approved by a majority incurring, creating or increasing of any bonded
vote of the board of directors and by two-thirds (2/3) of indebtedness authorized, as the certificate of filing may
the outstanding capital stock at a stockholders’ meeting declare: Provided, That the Commission shall not accept
duly called for the purpose. Written notice of the time for filing any certificate of increase of capital stock unless
and place of the stockholders’ meeting and the purpose accompanied by a sworn statement of the treasurer of
for said meeting must be sent to the stockholders at their the corporation lawfully holding office at the time of the
places of residence as shown in the books of the filing of the certificate, showing that at least twenty-five
corporation and served on the stockholders personally, percent (25%) of the increase in capital stock has been
or through electronic means recognized in the subscribed and that at least twenty-five percent (25%) of
corporation’s bylaws and/or the Commission’s rules as a the amount subscribed has been paid in actual cash to
valid mode for service of notices. the corporation or that property, the valuation of which is
equal to twenty-five percent (25%) of the subscription,
A certificate must be signed by a majority of the directors has been transferred to the corporation: Provided,
of the corporation and countersigned by the chairperson further, That no decrease in capital stock shall be
and secretary of the stockholders’ meeting, setting forth: approved by the Commission if its effect shall prejudice
(a) That the requirements of this section have been the rights of corporate creditors.
complied with; Nonstock corporations may incur, create or increase
(b) The amount of the increase or decrease of the bonded indebtedness when approved by a majority of
capital stock; the board of trustees and of at least two-thirds (2/3) of
(c) In case of an increase of the capital stock, the the members in a meeting duly called for the purpose.
amount of capital stock or number of shares of
no-par stock thereof actually subscribed, the Bonds issued by a corporation shall be registered with
names, nationalities and addresses of the the Commission, which shall have the authority to
persons subscribing, the amount of capital stock determine the sufficiency of the terms thereof.
or number of no-par stock subscribed by each,
and the amount paid by each on the subscription SEC. 38. Power to Deny Preemptive Right. – All
in cash or property, or the amount of capital stockholders of a stock corporation shall enjoy
stock or number of shares of no-par stock preemptive right to subscribe to all issues or disposition
allotted to each stockholder if such increase is of shares of any class, in proportion to their respective
for the purpose of making effective stock shareholdings, unless such right is denied by the articles
dividend therefor authorized; of incorporation or an amendment thereto: Provided,
(d) Any bonded indebtedness to be incurred, That such preemptive right shall not extend to shares
created or increased; issued in compliance with laws requiring stock offerings
(e) The amount of stock represented at the meeting; or minimum stock ownership by the public; or to shares
and issued in good faith with the approval of the stockholders
(f) The vote authorizing the increase or decrease of representing two-thirds (2/3) of the outstanding capital
the capital stock, or the incurring, creating or stock, in exchange for property needed for corporate
increasing of any bonded indebtedness. purposes or in payment of a previously contracted debt.

Any increase or decrease in the capital stock or the TITLE VII

incurring, creating or increasing of any bonded STOCKS AND STOCKHOLDERS
indebtedness shall require prior approval of the
Commission, and where appropriate, of the Philippine SEC. 59. Subscription Contract. – Any contract for the
Competition Commission. acquisition of unissued stock in an existing corporation
or a corporation still to be formed shall be deemed a
The application with the Commission shall be made subscription within the meaning of this Title,
within six (6) months from the date of approval of the

10
notwithstanding the fact that the parties refer to it as a SEC. 62. Certificate of Stock and Transfer of Shares.
purchase or some other contract. – The capital stock of corporations shall be divided into
shares for which certificates signed by the president or
SEC. 60. Pre - incorporation Subscription. – A vice president, countersigned by the secretary or
subscription of shares in a corporation still to be formed assistant secretary, and sealed with the seal of the
shall be irrevocable for a period of at least six (6) months corporation shall be issued in accordance with the
from the date of subscription, unless all of the other bylaws. Shares of stock so issued are personal property
subscribers consent to the revocation, or the corporation and may be transferred by delivery of the certificate or
fails to incorporate within the same period or within a certificates indorsed by the owner, his attorney-in-fact, or
longer period stipulated in the contract of subscription. any other person legally authorized to make the transfer.
No pre-incorporation subscription may be revoked after No transfer, however, shall be valid, except as between
the articles of incorporation is submitted to the the parties, until the transfer is recorded in the books of
Commission. the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the
SEC. 61. Consideration for Stocks. – Stocks shall not certificate or certificates, and the number of shares
be issued for a consideration less than the par or issued transferred. The Commission may require corporations
price thereof. Consideration for the issuance of stock whose securities are traded in trading markets and which
may be: can reasonably demonstrate their capability to do so to
issue their securities or shares of stocks in uncertificated
(a) Actual cash paid to the corporation; or scripless form in accordance with the rules of the
(b) Property, tangible or intangible, actually received Commission.
by the corporation and necessary or convenient
for its use and lawful purposes at a fair valuation No shares of stock against which the corporation holds
equal to the par or issued value of the stock any unpaid claim shall be transferable in the books of the
issued; corporation.
(c) Labor performed for or services actually
rendered to the corporation; SEC. 63. Issuance of Stock Certificates. – No
(d) Previously incurred indebtedness of the certificate of stock shall be issued to a subscriber until
corporation; the full amount of the subscription together with interest
(e) Amounts transferred from unrestricted retained and expenses (in case of delinquent shares), if any is
earnings to stated capital; due, has been paid.
(f) Outstanding shares exchanged for stocks in the
event of reclassification or conversion;
(g) Shares of stock in another corporation; and/or SEC. 64. Liability of Directors for Watered Stocks. –
(h) Other generally accepted form of consideration. A director or officer of a corporation who: (a) consents to
the issuance of stocks for a consideration less than its
Where the consideration is other than actual cash, or par or issued value; (b) consents to the issuance of
consists of intangible property such as patents or stocks for a consideration other than cash, valued in
copyrights, the valuation thereof shall initially be excess of its fair value; or (c) having knowledge of the
determined by the stockholders or the board of directors, insufficient consideration, does not file a written objection
subject to the approval of the Commission. with the corporate secretary, shall be liable to the
corporation or its creditors, solidarily with the stockholder
Shares of stock shall not be issued in exchange for concerned for the difference between the value received
promissory notes or future service. The same at the time of issuance of the stock and the par or issued
considerations provided in this section, insofar as value of the same.
applicable, may be used for the issuance of bonds by the SEC. 65. Interest on Unpaid Subscriptions. –
corporation. Subscribers to stocks shall be liable to the corporation
for interest on all unpaid subscriptions from the date of
The issued price of no-par value shares may be fixed in subscription, if so required by and at the rate of interest
the articles of incorporation or by the board of directors fixed in the subscription contract. If no rate of interest is
pursuant to authority conferred by the articles of fixed in the subscription contract, the prevailing legal rate
incorporation or the bylaws, or if not so fixed, by the shall apply.
stockholders representing at least a majority of the
outstanding capital stock at a meeting duly called for the SEC. 66. Payment of Balance of Subscription. –
purpose. Subject to the provisions of the subscription contract, the
board of directors may, at any time, declare due and
11
payable to the corporation unpaid subscriptions and may subscription together with accrued interest, costs of
collect the same or such percentage thereof, in either advertisement, and expenses of sale, for the smallest
case, with accrued interest, if any, as it may deem number of shares or fraction of a share, the corporation
necessary. may, subject to the provisions of this Code, bid for the
same, and the total amount due shall be credited as fully
Payment of unpaid subscription or any percentage paid in the books of the corporation. Title to all the
thereof, together with any interest accrued, shall be shares of stock covered by the subscription shall be
made on the date specified in the subscription contract vested in the corporation as treasury shares and may be
or on the date stated in the call made by the board. disposed of by said corporation in accordance with the
Failure to pay on such date shall render the entire provisions of this Code.
balance due and payable and shall make the stockholder
liable for interest at the legal rate on such balance, SEC. 68. When Sale maybe Questioned. – No action
unless a different interest rate is provided in the to recover delinquent stock sold can be sustained upon
subscription contract. The interest shall be computed the ground of irregularity or defect in the notice of sale,
from the date specified, until full payment of the or in the sale itself of the delinquent stock, unless the
subscription. If no payment is made within thirty (30) party seeking to maintain such action first pays or
days from the said date, all stocks covered by the tenders to the party holding the stock the sum for which
subscription shall thereupon become delinquent and the same was sold, with interest from the date of sale at
shall be subject to sale as hereinafter provided, unless the legal rate. No such action shall be maintained
the board of directors orders otherwise. unless a complaint is filed within six (6) months from the
date of sale.
SEC. 67. Delinquency Sale. – The board of directors
may, by resolution, order the sale of delinquent stock SEC. 69. Court Action to Recover Unpaid
and shall specifically state the amount due on each Subscription. – Nothing in this Code shall prevent the
subscription plus all accrued interest, and the date, time corporation from collecting through court action, the
and place of the sale which shall not be less than thirty amount due on any unpaid subscription, with accrued
(30) days nor more than sixty (60) days from the date the interest, costs and expenses.
stocks become delinquent.
SEC. 70. Effect of Delinquency. – No delinquent stock
Notice of the sale, with a copy of the resolution, shall be shall be voted for, be entitled to vote, or be represented
sent to every delinquent stockholder either personally, by at any stockholder’s meeting, nor shall the holder thereof
registered mail, or through other means provided in the be entitled to any of the rights of a stockholder except
bylaws. The same shall be published once a week for the right to dividends in accordance with the provisions
two (2) consecutive weeks in a newspaper of general of this Code, until and unless payment is made by the
circulation in the province or city where the principal holder of such delinquent stock for the amount due on
office of the corporation is located. the subscription with accrued interest, and the costs and
expenses of advertisement, if any.
Unless the delinquent stockholder pays to the
corporation, on or before the date specified for the sale SEC. 71. Rights of Unpaid Shares, Non-delinquent. –
of the delinquent stock, the balance due on the former’s Holders of subscribed shares not fully paid which are not
subscription, plus accrued interest, costs of delinquent shall have all the rights of a stockholder.
advertisement and expenses of sale, or unless the board
of directors otherwise orders, said delinquent stock shall SEC. 72. Lost or Destroyed Certificates. – The
be sold at a public auction to such bidder who shall offer following procedure shall be followed by a corporation in
to pay the full amount of the balance on the subscription issuing new certificates of stock in lieu of those which
together with accrued interest, costs of advertisement have been lost, stolen or destroyed:
and expenses of sale, for the smallest number of shares (a) The registered owner of a certificate of stock in a
or fraction of a share. The stock so purchased shall be corporation or such person’s legal representative shall
transferred to such purchaser in the books of the file with the corporation an affidavit in triplicate setting
corporation and a certificate for such stock shall be forth, if possible, the circumstances as to how the
issued in the purchaser’s favor. The remaining shares, if certificate was lost, stolen or destroyed, the number of
any, shall be credited in favor of the delinquent shares represented by such certificate, the serial number
stockholder who shall likewise be entitled to the issuance of the certificate and the name of the corporation which
of a certificate of stock covering such shares. issued the same. The owner of such certificate of stock
Should there be no bidder at the public auction who shall also submit such other information and evidence as
offers to pay the full amount of the balance on the may be deemed necessary;

12
(b) After verifying the affidavit and other information and e. Certificates of assignments, certificates of
evidence with the books of the corporation, the participation, trust certificates, voting trust
corporation shall publish a notice in a newspaper of certificates or similar instruments
general circulation in the place where the corporation f. Proprietary or nonproprietary membership
has its principal office, once a week for three (3) certificates in corporations; and
consecutive weeks at the expense of the registered g. Other instruments as may in the future be
owner of the certificate of stock which has been lost, determined by the Commission
stolen or destroyed. The notice shall state the name of
the corporation, the name of the registered owner, the b. Registration
serial number of the certificate, the number of shares CHAPTER III REGISTRATION OF SECURITIES
represented by such certificate, and shall state that after
the expiration of one (1) year from the date of the last Section 8. Requirement of Registration of Securities.–
publication, if no contest has been presented to the 8.1. Securities shall not be sold or offered for sale or
corporation regarding the certificate of stock, the right to distribution within the Philippines, without a registration
make such contest shall be barred and the corporation statement duly filed with and approved by the
shall cancel the lost, destroyed or stolen certificate of Commission. Prior to such sale, information on the
stock in its books. In lieu thereof, the corporation shall securities, in such form and with such substance as the
issue a new certificate of stock, unless the registered Commission may prescribe, shall be made available to
owner files a bond or other security as may be required, each prospective purchaser.
effective for a period of one (1) year, for such amount
8.2. The Commission may conditionally approve the
and in such form and with such sureties as may be
registration statement under such terms as it may deem
satisfactory to the board of directors, in which case a
necessary.
new certificate may be issued even before the expiration
of the one (1) year period provided herein. If a contest 8.3. The Commission may specify the terms and
has been presented to the corporation or if an action is conditions under which any written communication,
pending in court regarding the ownership of the including any summary prospectus, shall be deemed not
certificate of stock which has been lost, stolen or to constitute an offer for sale under this Section.
destroyed, the issuance of the new certificate of stock in
lieu thereof shall be suspended until the court renders a 8.4. A record of the registration of securities shall be kept
final decision regarding the ownership of the certificate of in Register Securities in which shall be recorded orders
stock which has been lost, stolen or destroyed. entered by the Commission with respect such securities.
Such register and all documents or information with the
Except in case of fraud, bad faith, or negligence on the respect to the securities registered therein shall be open
part of the corporation and its officers, no action may be to public inspection at reasonable hours on business
brought against any corporation which shall have issued days.
certificate of stock in lieu of those lost, stolen or
destroyed pursuant to the procedure above-described. 8.5. The Commission may audit the financial statements,
assets and other information of firm applying for
SECURITIES LAW registration of its securities whenever it deems the same
necessary to insure full disclosure or to protect the
a. Definition of Securities interest of the investors and the public in general.
Section 3. Definition of Terms. - 3.1. "Securities" are Section 12. Procedure of Registration Securities. -
shares, participation or interests in a corporation or in a 12.1. All securities required to be registered under
commercial enterprise or profit-making venture and Subsection 8. I shall be registered through the filing by
evidenced by a certificate, contract, instruments, whether the issuer in the main office of the Commission, of a
written or electronic in character. It includes: sworn registration statement with the respect to such
securities, in such form and containing such information
a. Shares of stocks, bonds, debentures, notes
and document as the Commission prescribe. The
evidences of indebtedness, asset-backed
registration statement shall include any prospectus
securities;
required or permitted to be delivered under Subsections
b. Investment contracts, certificates of interest or
8.2, 8.3, and 8.4.
participation in a profit sharing agreement,
certifies of deposit for a future subscription; 12.2. In promulgating rules governing the content of any
c. Fractional undivided interests in oil, gas or other registration statement (including any prospectus made a
mineral rights; part thereof or annex thereto), the Commission may
d. Derivatives like option and warrants; require the registration statement to contain such
13
information or documents as it may, by rule, prescribe. It registration statement together with all the other papers
may dispense with any such requirements, or may and documents attached thereto, is on its face complete
require additional information or documents, including and that the requirements have been complied with.
written information from an expert, depending on the
necessity thereof or their applicability to the class of The Commission may impose such terms and conditions
securities sought to be registered. as may be necessary or appropriate for the protection of
the investors.
12.3. The information required for the registration of any
kind, and all securities, shall include, among others, the 12.7. Upon affectivity of the registration statement, the
effect of the securities issue on ownership, on the mix of issuer shall state under oath in every prospectus that all
ownership, especially foreign and local ownership. registration requirements have been met and that all
information are true and correct as represented by the
12.4. The registration statement shall be signed by the issuer or the one making the statement. Any untrue
issuer’s executive officer, its principal operating officer, statement of fact or omission to state a material fact
its principal financial officer, its comptroller, its principal required to be stated herein or necessary to make the
accounting officer, its corporate secretary, or persons statement therein not misleading shall constitute fraud.
performing similar functions accompanied by a duly
verified resolution of the board of directors of the issuer i. Exempt Securities
corporation. The written consent of the expert named as Section 9. Exempt Securities. – 9.1. The requirement
having certified any part of the registration statement or of registration under Subsection 8.1 shall not as a
any document used in connection therewith shall also be general rule apply to any of the following classes of
filed. Where the registration statement shares to be sold securities:
by selling shareholders, a written certification by such
selling shareholders as to the accuracy of any part of the (a) Any security issued or guaranteed by the
registration statement contributed to by such selling Government of the Philippines, or by any political
shareholders shall be filed. subdivision or agency thereof, or by any person
controlled or supervised by, and acting as an
12.5. (a) Upon filing of the registration statement, the instrumentality of said Government.
issuer shall pay to the Commission a fee of not more
than one-tenth (1/10) of one per centum (1%) of the (b) Any security issued or guaranteed by the government
maximum aggregate price at which such securities are of any country with which the Philippines maintains
proposed to be offered. The Commission shall prescribe diplomatic relations, or by any state, province or political
by the rule diminishing fees in inverse proportion the subdivision thereof on the basis of reciprocity: Provided,
value of the aggregate price of the offering. That the Commission may require compliance with the
form and content for disclosures the Commission may
(b) Notice of the filing of the registration statement shall prescribe.
be immediately published by the issuer, at its own
expense, in two (2) newspapers of general circulation in (c) Certificates issued by a receiver or by a trustee in
the Philippines, once a week for two (2) consecutive bankruptcy duly approved by the proper adjudicatory
weeks, or in such other manner as the Commission by body.
the rule shall prescribe, reciting that a registration
(d) Any security or its derivatives the sale or transfer of
statement for the sale of such securities has been filed,
which, by law, is under the supervision and regulation of
and that aforesaid registration statement, as well as the
the Office of the Insurance Commission, Housing and
papers attached thereto are open to inspection at the
Land Use Rule Regulatory Board, or the Bureau of
Commission during business hours, and copies thereof,
Internal Revenue.
photostatic or otherwise, shall be furnished to interested
parties at such reasonable charge as the Commission (e) Any security issued by a bank except its own shares
may prescribe. of stock.
12.6. Within forty-five (45) days after the date of filing of 9.2. The Commission may, by rule or regulation after
the registration statement, or by such later date to which public hearing, add to the foregoing any class of
the issuer has consented, the Commission shall declare securities if it finds that the enforcement of this
the registration statement effective or rejected, unless
the applicant is allowed to amend the registration Code with respect to such securities is not necessary in
statement as provided in Section 14 hereof. The the public interest and for the protection of investors.
Commission shall enter an order declaring the
ii. Exempt Transactions
registration statement to be effective if it finds that the

14
Section 10. Exempt Transactions. – 10.1. The (h) Broker’s transaction, executed upon customer’s
requirement of registration under Subsection 8.1 shall orders, on any registered Exchange or other trading
not apply to the sale of any security in any of the market.
following transactions:
(i) Subscriptions for shares of the capitals stocks of a
(a) At any judicial sale, or sale by an executor, corporation prior to the incorporation thereof or in
administrator, guardian or receiver or trustee in pursuance of an increase in its authorized capital stocks
insolvency or bankruptcy. under the Corporation Code, when no expense is
incurred, or no commission, compensation or
(b) By or for the account of a pledge holder, or remuneration is paid or given in connection with the sale
mortgagee or any of a pledge lien holder selling of or disposition of such securities, and only when the
offering for sale or delivery in the ordinary course of purpose for soliciting, giving or taking of such
business and not for the purpose of avoiding the subscription is to comply with the requirements of such
provision of this Code, to liquidate a bonafide debt, a law as to the percentage of the capital stock of a
security pledged in good faith as security for such debt. corporation which should be subscribed before it can be
(c) An isolated transaction in which any security is sold, registered and duly incorporated, or its authorized,
offered for sale, subscription or delivery by the owner capital increase.
therefore, or by his representative for the owner’s (j) The exchange of securities by the issuer with the
account, such sale or offer for sale or offer for sale, existing security holders exclusively, where no
subscription or delivery not being made in the course of commission or other remuneration is paid or given
repeated and successive transaction of a like character directly or indirectly for soliciting such exchange.
by such owner, or on his account by such representative
and such owner or representative not being the (k) The sale of securities by an issuer to fewer than
underwriter of such security. twenty (20) persons in the Philippines during any twelve-
month period.
(d) The distribution by a corporation actively engaged in
the business authorized by its articles of incorporation, of (l) The sale of securities to any number of the following
securities to its stockholders or other security holders as qualified buyers:
a stock dividend or other distribution out of surplus.
(i) Bank;
(e) The sale of capital stock of a corporation to its own
stockholders exclusively, where no commission or other (ii) Registered investment house;
remuneration is paid or given directly or indirectly in (iii) Insurance company;
connection with the sale of such capital stock.
(iv) Pension fund or retirement plan maintained by the
(f) The issuance of bonds or notes secured by mortgage Government of the Philippines or any political
upon real estate or tangible personal property, when the subdivision thereof or manage by a bank or other
entire mortgage together with all the bonds or notes persons authorized by the Bangko Sentral to engage in
secured thereby are sold to a single purchaser at a trust functions;
single sale.
(v) Investment company or;
(g) The issue and delivery of any security in exchange
for any other security of the same issuer pursuant to a (vi) Such other person as the Commission may rule by
right of conversion entitling the holder of the security determine as qualified buyers, on the basis of such
surrendered in exchange to make such conversion: factors as financial sophistication, net worth, knowledge,
Provided, That the security so surrendered has been and experience in financial and business matters, or
amount of assets under management.
registered under this Code or was, when sold, exempt
from the provision of this Code, and that the security 10.2. The Commission may exempt other transactions, if
issued and delivered in exchange, if sold at the it finds that the requirements of registration under this
conversion price, would at the time of such conversion Code is not necessary in the public interest or for the
fall within the class of securities entitled to registration protection of the investors such as by the reason of the
under this Code. Upon such conversion the par value of small amount involved or the limited character of the
the security surrendered in such exchange shall be public offering.
deemed the price at which the securities issued and
10.3. Any person applying for an exemption under this
delivered in such exchange are sold.
Section, shall file with the Commission a notice
identifying the exemption relied upon on such form and
15
at such time as the Commission by the rule may ten (10) days after notice of increase in the consideration
prescribe and with such notice shall pay to the offered to security holders, as described in paragraph (e)
Commission fee equivalent to one-tenth (1/10) of one of this subsection, is first published or sent or given to
percent (1%) of the maximum value aggregate price or security holders.
issued value of the securities.
(d) Where any person varies the terms of a tender offer
c. Investor Protection or request or invitation for tenders before the expiration
thereof by increasing the consideration offered to holders
i. Tender Offer of such securities, such person shall pay the increased
CHAPTER VI PROTECTION OF SHAREHOLDERS consideration to each security holder whose securities
INTERESTS are taken up and paid for whether or not such securities
have been taken up by such person before the variation
Section 19. Tender Offers. – Any person or group of of the tender offer or request or invitation.
persons acting in concert who intends to acquire at least
15% of any class of any equity security of a listed 19.2. It shall be lawful for any person to make any untrue
corporation of any class of any equity security of a statement of a material fact or omit to state any material
corporation with assets of at least fifty million pesos fact necessary in order to make the statements made in
(50,000,000.00) and having two hundred(200) or more the light of the circumstances under which they are
stockholders at least one hundred shares each or who made, not mis-leading, or to engaged to any fraudulent,
intends to acquire at least thirty percent(30%) of such deceptive or manipulative acts or practices, in
equity over a period of twelve months(12) shall make a connection with any tender offer or request or invitation
tender offer to stockholders by filling with the for tenders, or any solicitation for any security holders in
Commission a declaration to that effect; and furnish the opposition to or in favor of any such favor of any such
issuer, a statement containing such of the information offer, request, or invitation. The Commission shall, for
required in Section 17 of this Code as the Commission the purposes of this subsection, define and prescribe
may prescribe. Such person or group of persons shall means reasonably designed to prevent, such acts and
publish all request or invitations or tender offer or practices as are fraudulent, deceptive and manipulative.
requesting such tender offers subsequent to the initial ii. Disclosure Rules
solicitation or request shall contain such information as
the Commission may prescribe, and shall be filed with CHAPTER V REPORTORIAL REQUIREMENTS
the Commission and sent to the issuer not alter than the
time copies of such materials are first published or sent Section 17. Periodic and Other Reports of Issuer. 17.1.
or given to security holders. Every issuer satisfying the requirements in Subsection
17.2 hereof shall file with the Commission:
(a) Any solicitation or recommendation to the holders of
such a security to accept or reject a tender offer or (a) Within one hundred thirty-five (135) days, after the
request or invitation for tenders shall be made in end of the issuer’s fiscal year, or such other time as the
accordance with such rules and regulations as may be Commission may prescribe, an annual report which shall
prescribe. include, among others, a balance sheet, profit and loss
statement and statement of cash flows,
(b) Securities deposited pursuant to a tender offer or
request or invitation for tenders may be withdrawn by or for such last fiscal year, certified public accountant, an a
on behalf of the depositor at any time throughout the management discussion and analysis of results of
period that tender offer remains open and if the operation; and
securities deposited have not been previously accepted (b) Such other periodical reports for interim fiscal periods
for payment, and at any time after sixty (60) days from and current reports on significant developments of the
the date of the original tender offer to request or issuer as the Commission may prescribe as necessary
invitation, except as the Commission may otherwise to keep current information on the operation of the
prescribe. business and financial condition of the issuer.
(c) Where the securities offered exceed that which 17.2. The reportorial requirements of Subsection 17.1
person or group of persons is bound or willing to take up shall apply to the following:
and pay for, the securities that are subject of the tender
offers shall be taken up us nearly as may be pro data, (a) An issuer which has sold a class of its securities
disregarding fractions, according to the number of pursuant to a registration under section 12 hereof:
securities deposited to each depositor. The provision of Provided however, That the obligation of such issuer to
this subject shall also apply to securities deposited within file reports shall be suspended for any fiscal year after
16
the year such registration became effective if such order information as the Commission may require in the
issuer, as of the first day of any such fiscal year, has less public interest or for the protection of investors.
than one hundred (100) holder of such class securities or
such other number as the Commission shall prescribe (a) The personal background, identity, residence, and
and it notifies the Commission of such; citizenship of, and the nature of such beneficial
ownership by, such person and all other person by
(b) An issuer with a class of securities listed for trading whom or on whose behalf the purchases are effected; in
on an Exchange; and the event the beneficial owner is a juridical person, the of
business of the beneficial owner shall also be reported;
(c) An issuer with assets of at least Fifty million pesos
(50,000,000.00) or such other amount as the (b) If the purpose of the purchases or prospective
Commission shall prescribe, and having two hundred purchases is to acquire control of the business of the
(200) or more holder each holding at least one hundred issuer of the securities, any plans or proposals which
(100) share of a class of its equity securities: Provided, such persons may have that will effect a major change in
however, That the obligation of such issuer to file report its business or corporate structure;
shall be terminate ninety (90) days after notification to
the Commission by the issuer that the number of its (c) The number of shares of such security which are
holders holding at least one hundred (100) share beneficially owned, and the number of shares
reduced to less than one hundred (100). concerning which there is a right to acquire, directly or
indirectly, by; (i) such person, and (ii) each associate of
17.3. Every issuer of a security listed for trading on an such person, giving the background, identity, residence,
Exchange a copy of any report filed with the Commission and citizenship of each such associate; and
under Subsection 17.1. hereof.
(d) Information as to any contracts, arrangements, or
17.4. All reports (including financial statements) required understanding with any person with respect to any
to be filed with the Commission pursuant to Subsection securities of the issuer including but not limited to
17.1 hereof shall be in such form, contain such transfer, joint ventures, loan or option arrangements,
information and be filed at such times as the puts
Commission shall prescribe, and shall be in lieu of any
periodical or current reports or financial statements or call guarantees or division of losses or profits, or
otherwise required to be filed under the Commission proxies naming the persons with whom such contracts,
shall prescribe. arrangements, or understanding have been entered into,
and giving the details thereof.
17.5. Every issuer which has a class of equity securities
satisfying any of the requirements in Subsection 17.2 18.2. If any change occurs in the facts set forth in the
shall furnish to each holder of such equity security an statements, an amendment shall be transmitted to the
annual report in such form and containing such issuer, the Exchange and the Commission.
information as the Commission shall prescribe. 18.3. The Commission, may permit any person to file in
17.6. Within such period as the Commission may lieu of the statement required by subsection 17.1 hereof,
prescribe preceding the annual meeting of the holders of a notice stating the name of such person, the shares of
any equity security of a class entitled to vote at such any equity securities subject to Subsection 17.1 which
meeting , the issuer shall transmit to such holders an are owned by him, the date of their acquisition and such
annual report in conformity with subsection 17.5. other information as the commission may specify, if it
appears to the commission that such securities were
Section 18. Reports by five per centum (5%) Holders of acquired by such person in the ordinary course of his
Equity Securities. – 18.1. In every case in which an business and were not acquired for the purpose of and
issuer satisfies the requirements of Subsection 17.2 do not have the effect of changing or influencing the
hereof any person who acquires directly or indirectly the control of the issuer nor in connection with any
beneficial ownership of more than five of per centum transaction having such purpose or effect.
(5%) of such class or in excess of such lesser per
centum as the Commission by rule may prescribe, shall, Section 23. Transactions of Directors officers and
within ten (10) days after such acquisition or such Principal Stockholders. – 23.1. Every person who is
reasonable time as fixed by the Commission, submit to directly or indirectly the beneficial owner of more than
the issuer of the securities, to the Exchange where the ten per centum (10%) of any class of any equity security
security is traded, and to the Commission a sworn which satisfies the requirements of subsection 17.2, or
statement containing the following information and such who is a director or an officer of the issuer of such
security, shall file, at the time either such requirement is

17
first satisfied or after ten days after he becomes such a course of his business and incident to the establishment
beneficial owner, director, or officer, a statement form or maintenance by him of a primary or secondary
the Commission and, if such security is listed for trading market, otherwise than on an Exchange, for such
on an exchange, also with the exchange of the amount security. The Commission may, by such rules and
of all the equity security of such issuer of which he is the regulations as it deems necessary or appropriate in the
beneficial owner, and within ten days after the close of public interest, define and prescribe terms and
each calendar month thereafter, if there has been a conditions with respect to securities held in an
change in such ownership at the close of the calendar investment account and transactions made in the
month and such changes in his ownership as have ordinary course of business and incident to the
occurred during such calendar month. establishment or maintenance of a primary or secondary
market.
23.2. For the purpose of preventing the unfair use of
information which may have been obtained by such iii. Independent Directors
beneficial owner, director or officer by reason of his
relationship to the issuer, any profit realized by him from Section 38. Independent Directors. – Any corporation
any purchase or sale, or any sale or purchase, of any with a class of equity securities listed for trading on an
equity security of such issuer within any period of less Exchange or with assets in excess of Fifty million pesos
than (6) months unless such security was acquired in (P50,000,000.00) and having two hundred (200) or more
good faith in connection with a debt previously holders, at least of two hundred (200) of which are
contracted, shall inure to and be recoverable by the holding at least one hundred (100) shares of a class of
issuer, irrespective of any intention of holding the its equity securities or which has sold a class of equity
security purchased or of not repurchasing the security securities to the public pursuant to an effective
sold for a period exceeding six (6) months. Suit to registration statement in compliance with Section 12
recover such profit may be instituted before the Regional hereof shall have at least two (2) independent directors
Trial Court by the issuer, or by the owner of any security or such independent directors shall constitute at least
of the issuer in the name and in behalf of the issuer if the twenty percent (20%) of the members of such board
issuer shall fail or refuse to bring such suit within sixty whichever is the lesser. For this purpose, an
(60) days after request or shall fail diligently to prosecute "independent director" shall mean a person other than
the same thereafter, but not such shall be brought more an officer or employee of the corporation, its parent or
than two years after the date such profit was realized. subsidiaries, or any other individual having a relationship
This Subsection shall not be construed to cover any with the corporation, which would interfere with the
transaction were such beneficial owner was not such exercise of independent judgement in carrying out the
both time of the owner or the sale, or the sale of responsibilities of a director.
purchase, of the security involved, or any transaction or
transactions which the Commission by rules and
regulations may exempt as not comprehended within the
purpose of this subsection.
iv. Trading Rules
23.3. It shall be unlawful for any such beneficial owner,
CHAPTER VII PROHIBITIONS AND FRAUD,
director or officer, directly or indirectly, to sell any equity
MANIPULATION AND INSIDER TRADING
security of such issuer if the person selling the principal:
(a) Does not own the security sold: or (b) If owning the Section 24. Manipulation of Security Prices; Devices and
Practices. – 24.1 It shall be unlawful for any person
security, does not deliver not deliver it against such sale
acting for himself or through a dealer or broker, directly
within 20 days thereafter, or does not within five days
or indirectly:
after such sale deposit in the mails or the unusual
channels of transportation; but no person shall be (a) To create a false or misleading appearance of active
deemed to have violated this subsection if he proves not trading in any listed security traded in an Exchange of
withstanding the exercise of good faith he was unable to any other trading market (hereafter referred to purposes
make such delivery in such time, or that to do so would of this Chapter as "Exchange"):
cause undue inconvenience or expense.
(i) By effecting any transaction in such security which
23.4. The provisions of subsection 23.2 shall not apply to involves no change in the beneficial ownership thereof;
any purchase and sale, or sale and purchase, and the
provisions of Subsection 23.3 shall not apply to any sale, (ii) By entering an order or orders for the purchase or
of an equity security not then or thereafter held by him sale of such security with the knowledge that a
and an investment account, by a dealer in the ordinary simultaneous order or orders of substantially the same
18
size, time and price, for the sale or purchase of any such SEC. 40. Power to Acquire Own Shares. – Provided
security, has or will be entered by or for the same or that the corporation has unrestricted retained earnings in
different parties; or its books to cover the shares to be purchased or
acquired, a stock corporation shall have the power to
(iii) By performing similar act where there is no change in purchase or acquire its own shares for a legitimate
beneficial ownership. corporate purpose or purposes, including the following
(b) To affect, alone or with others, a securities or cases:
transactions in securities that: (I) Raises their price to (a) To eliminate fractional shares arising out of
induce the purchase of a security, whether of the same stock dividends;
or a different class of the same issuer or of controlling, (b) To collect or compromise an indebtedness to the
controlled, or commonly controlled company by others; corporation, arising out of unpaid subscription, in
or (iii) Creates active trading to induce such a purchase a delinquency sale, and to purchase delinquent
or sale through manipulative devices such as marking shares sold during said sale; and
the close, painting the tape, squeezing the float, hype (c) To pay dissenting or withdrawing stockholders
and dump, boiler room operations and such other similar entitled to payment for their shares under the
devices. provisions of this Code.
(c) To circulate or disseminate information that the price SEC. 42. Power to Declare Dividends. – The board of
of any security listed in an Exchange will or is likely to directors of a stock corporation may declare dividends
rise or fall because of manipulative market operations of out of the unrestricted retained earnings which shall be
any one or more persons conducted for the purpose of payable in cash, property, or in stock to all stockholders
raising or depressing the price of the security for the on the basis of outstanding stock held by them:
purpose of inducing the purpose of sale of such security. Provided, That any cash dividends due on delinquent
(d) To make false or misleading statement with respect stock shall first be applied to the unpaid balance on the
to any material fact, which he knew or had reasonable subscription plus costs and expenses, while stock
ground to believe was so false or misleading, for the dividends shall be withheld from the delinquent
purpose of inducing the purchase or sale of any security stockholders until their unpaid subscription is fully paid:
listed or traded in an Exchange. Provided, further, That no stock dividend shall be issued
without the approval of stockholders representing at
(e) To effect, either alone or others, any series of least two-thirds (2/3) of the outstanding capital stock at a
transactions for the purchase and/or sale of any security regular or special meeting duly called for the purpose.
traded in an Exchange for the purpose of pegging, fixing
or stabilizing the price of such security; unless otherwise Stock corporations are prohibited from retaining surplus
allowed by this Code or by rules of the Commission. profits in excess of one hundred percent (100%) of their
paid-in capital stock, except: (a) when justified by definite
24.2. No person shall use or employ, in connection with corporate expansion projects or programs approved by
the purchase or sale of any security any manipulative or the board of directors; or (b) when the corporation is
deceptive device or contrivance. Neither shall any short prohibited under any loan agreement with financial
sale be effected nor any stop-loss order be executed in institutions or creditors, whether local or foreign, from
connection with the purchase or sale of any security declaring dividends without their consent, and such
except in accordance with such rules and regulations as consent has not yet been secured; or (c) when it can be
the Commission may prescribe as necessary or clearly shown that such retention is necessary under
appropriate in the public interest for the protection of special circumstances obtaining in the corporation, such
investors. as when there is need for special reserve for probable
contingencies.
24.3. The foregoing provisions notwithstanding, the
Commission, having due regard to the public interest
and the protection of investors, may, by rules and
CORPORATE FINANCE: MERGER
regulations, allow certain acts or transactions that may AND CONSOLIDATION
otherwise be prohibited under this Section.
TITLE IX MERGER AND CONSOLIDATION
CORPORATE FINANCE: SEC. 75. Plan of Merger or Consolidation. – Two (2)
DIVIDENDS AND SHARE BUY- or more corporations may merge into a single
corporation which shall be one of the constituent
BACK corporations or may consolidate into a new single
corporation which shall be the consolidated corporation.
19
The board of directors or trustees of each corporation, required by the preceding section, articles of merger or
party to the merger or consolidation, shall approve a plan articles of consolidation shall be executed by each of the
of merger or consolidation setting forth the following: constituent corporations, to be signed by the president or
vice president and certified by the secretary or assistant
(a) The names of the corporations proposing to secretary of each corporation setting forth:
merge or consolidate, hereinafter referred to as
the constituent corporations; (a) The plan of the merger or the plan of
(b) The terms of the merger or consolidation and the consolidation;
mode of carrying the same into effect; (b) As to stock corporations, the number of shares
(c) A statement of the changes, if any, in the articles outstanding, or in the case of nonstock
of incorporation of the surviving corporation in corporations, the number of members;
case of merger; and, in case of consolidation, all (c) As to each corporation, the number of shares or
the statements required to be set forth in the members voting for or against such plan,
articles of incorporation for corporations respectively;
organized under this Code; and (d) The carrying amounts and fair values of the
(d) Such other provisions with respect to the assets and liabilities of the respective companies
proposed merger or consolidation as are as of the agreed cut-off date;
deemed necessary or desirable. (e) The method to be used in the merger or
consolidation of accounts of the companies;
SEC. 76. Stockholders’ or Members’ Approval. – (f) The provisional or pro-forma values, as merged
Upon approval by a majority vote of each of the board of or consolidated, using the accounting method;
directors or trustees of the constituent corporations of and
the plan of merger or consolidation, the same shall be (g) Such other information as may be prescribed by
submitted for approval by the stockholders or members the Commission.
of each of such corporations at separate corporate
meetings duly called for the purpose. Notice of such SEC. 78. Effectivity of Merger or Consolidation. – The
meetings shall be given to all stockholders or members articles of merger or of consolidation, signed and
of the respective corporations in the same manner as certified as required by this Code, shall be submitted to
giving notice of regular or special meetings under the Commission for its approval: Provided, That in the
Section 49 of this Code. The notice shall state the case of merger or consolidation of banks or banking
purpose of the meeting and include a copy or a summary institutions, loan associations, trust companies,
of the plan of merger or consolidation. insurance companies, public utilities, educational
institutions, and other special corporations governed by
The affirmative vote of stockholders representing at least special laws, the favorable recommendation of the
two-thirds (2/3) of the outstanding capital stock of each appropriate government agency shall first be obtained. If
corporation in the case of stock corporations or at least the Commission is satisfied that the merger or
two-thirds (2/3) of the members in the case of nonstock consolidation of the corporations concerned is consistent
corporations shall be necessary for the approval of such with the provisions of this Code and existing laws, it shall
plan. Any dissenting stockholder may exercise the right issue a certificate approving the articles and plan of
of appraisal in accordance with this Code: Provided, merger or of consolidation, at which time the merger or
That if after the approval by the stockholders of such consolidation shall be effective.
plan, the board of directors decides to abandon the plan,
the right of appraisal shall be extinguished. If, upon investigation, the Commission has reason to
believe that the proposed merger or consolidation is
Any amendment to the plan of merger or consolidation contrary to or inconsistent with the provisions of this
may be made: Provided, That such amendment is Code or existing laws, it shall set a hearing to give the
approved by a majority vote of the respective boards of corporations concerned the opportunity to be heard.
directors or trustees of all the constituent corporations Written notice of the date, time, and place of hearing
and ratified by the affirmative vote of stockholders shall be given to each constituent corporation at least
representing at least two-thirds (2/3) of the outstanding two (2) weeks before said hearing. The Commission
capital stock or of two-thirds (2/3) of the members of shall thereafter proceed as provided in this Code.
each of the constituent corporations. Such plan, together
with any amendment, shall be considered as the SEC. 79. Effects of Merger or Consolidation. – The
agreement of merger or consolidation. merger or consolidation shall have the following effects:

SEC. 77. Articles of Merger or Consolidation. – After (a) The constituent corporations shall become a
the approval by the stockholders or members as single corporation which, in case of merger, shall

20
 be the surviving corporation designated in the In nonstock corporations where there are no members
plan of merger; and, in case of consolidation, with voting rights, the vote of at least a majority of the
shall be the consolidated corporation designated trustees in office will be sufficient authorization for the
in the plan of consolidation; corporation to enter into any transaction authorized by
(b) The separate existence of the constituent this section.
corporations shall cease, except that of the
surviving or the consolidated corporation; The determination of whether or not the sale involves all
(c) The surviving or the consolidated corporation or substantially all of the corporation’s properties and
shall possess all the rights, privileges, assets must be computed based on its net asset value,
immunities, and powers and shall be subject to as shown in its latest financial statements. A sale or
all the duties and liabilities of a corporation other disposition shall be deemed to cover substantially
organized under this Code; all the corporate property and assets if thereby the
(d) The surviving or the consolidated corporation corporation would be rendered incapable of continuing
shall possess all the rights, privileges, the business or accomplishing the purpose for which it
immunities and franchises of each constituent was incorporated.
corporation; and all real or personal property, all Written notice of the proposed action and of the time and
receivables due on whatever account, including place for the meeting shall be addressed to stockholders
subscriptions to shares and other choses in or members at their places of residence as shown in the
action, and every other interest of, belonging to, books of the corporation and deposited to the addressee
or due to each constituent corporation, shall be in the post office with postage prepaid, served
deemed transferred to and vested in such personally, or when allowed by the bylaws or done with
surviving or consolidated corporation without the consent of the stockholder, sent electronically:
further act or deed; and Provided, That any dissenting stockholder may exercise
(e) The surviving or consolidated corporation shall the right of appraisal under the conditions provided in
be responsible for all the liabilities and this Code.
obligations of each constituent corporation as
though such surviving or consolidated After such authorization or approval by the stockholders
corporation had itself incurred such liabilities or or members, the board of directors or trustees may,
obligations; and any pending claim, action or nevertheless, in its discretion, abandon such sale, lease,
proceeding brought by or against any constituent exchange, mortgage, pledge, or other disposition of
corporation may be prosecuted by or against the property and assets, subject to the rights of third parties
surviving or consolidated corporation. The rights under any contract relating thereto, without further action
of creditors or liens upon the property of such or approval by the stockholders or members.
constituent corporations shall not be impaired by
Nothing in this section is intended to restrict the power of
the merger or consolidation.
any corporation, without the authorization by the
SEC. 39. Sale or Other Disposition of Assets. – stockholders or members, to sell, lease, exchange,
Subject to the provisions of Republic Act No. 10667, mortgage, pledge, or otherwise dispose of any of its
otherwise known as the “Philippine Competition Act”, property and assets if the same is necessary in the usual
and other related laws, a corporation may, by a majority and regular course of business of the corporation or if
vote of its board of directors or trustees, sell, lease, the proceeds of the sale or other disposition of such
exchange, mortgage, pledge, or otherwise dispose of its property and assets shall be appropriated for the
property and assets, upon such terms and conditions conduct of its remaining business
and for such consideration, which may be money,
SEC. 41. Power to Invest Corporate Funds in
stocks, bonds, or other instruments for the payment of
Another Corporation or Business or for Any Other
money or other property or consideration, as its board of
Purpose. – Subject to the provisions of this Code, a
directors or trustees may deem expedient.
private corporation may invest its funds in any other
A sale of all or substantially all of the corporation’s corporation, business, or for any purpose other than the
properties and assets, including its goodwill, must be primary purpose for which it was organized, when
authorized by the vote of the stockholders representing approved by a majority of the board of directors or
at least two-thirds (2/3) of the outstanding capital stock, trustees and ratified by the stockholders representing at
or at least two-thirds (2/3) of the members, in a least two-thirds (2/3) of the outstanding capital stock, or
stockholders’ or members’ meeting duly called for the by at least two-thirds (2/3) of the members in the case of
purpose. nonstock corporations, at a meeting duly called for the
purpose. Notice of the proposed investment and the time

21
and place of the meeting shall be addressed to each If, within sixty (60) days from the approval of the
stockholder or member at the place of residence as corporate action by the stockholders, the withdrawing
shown in the books of the corporation and deposited to stockholder and the corporation cannot agree on the fair
the addressee in the post office with postage prepaid, value of the shares, it shall be determined and appraised
served personally, or sent electronically in accordance by three (3) disinterested persons, one of whom shall be
with the rules and regulations of the Commission on the named by the stockholder, another by the corporation,
use of electronic data message, when allowed by the and the third by the two (2) thus chosen. The findings of
bylaws or done with the consent of the stockholders: the majority of the appraisers shall be final, and their
Provided, That any dissenting stockholder shall have award shall be paid by the corporation within thirty (30)
appraisal right as provided in this Code: days after such award is made: Provided, That no
Provided,however, That where the investment by the payment shall be made to any dissenting stockholder
corporation is reasonably necessary to accomplish its unless the corporation has unrestricted retained earnings
primary purpose as stated in the articles of incorporation, in its books to cover such payment: Provided, further,
the approval of the stockholders or members shall not be That upon payment by the corporation of the agreed or
necessary. awarded price, the stockholder shall forthwith transfer
the shares to the corporation.
APPRAISAL AND OTHER
SEC. 82. Effect of Demand and Termination of Right.
MINORITY RIGHTS – From the time of demand for payment of the fair value
of a stockholder’s shares until either the abandonment of
TITLE X APPRAISAL RIGHT the corporate action involved or the purchase of the said
SEC. 80. When the Right of Appraisal May Be shares by the corporation, all rights accruing to such
Exercised. – Any stockholder of a corporation shall have shares, including voting and dividend rights, shall be
the right to dissent and demand payment of the fair value suspended in accordance with the provisions of this
of the shares in the following instances: Code, except the right of such stockholder to receive
payment of the fair value thereof: Provided, That if the
(a) In case an amendment to the articles of dissenting stockholder is not paid the value of the said
incorporation has the effect of changing or shares within thirty (30) days after the award, the voting
restricting the rights of any stockholder or class and dividend rights shall immediately be restored.
of shares, or of authorizing preferences in any
respect superior to those of outstanding shares SEC. 83. When Right to Payment Ceases. – No
of any class, or of extending or shortening the demand for payment under this Title may be withdrawn
term of corporate existence; unless the corporation consents thereto. If, however,
(b) In case of sale, lease, exchange, transfer, such demand for payment is withdrawn with the consent
mortgage, pledge or other disposition of all or of the corporation, or if the proposed corporate action is
substantially all of the corporate property and abandoned or rescinded by the corporation or
assets as provided in this Code; disapproved by the Commission where such approval is
(c) In case of merger or consolidation; and necessary, or if the Commission determines that such
(d) In case of investment of corporate funds for any stockholder is not entitled to the appraisal right, then the
purpose other than the primary purpose of the right of the stockholder to be paid the fair value of the
corporation. shares shall cease, the status as the stockholder shall
be restored, and all dividend distributions which would
SEC. 81. How Right is Exercised. – The dissenting have accrued on the shares shall be paid to the
stockholder who votes against a proposed corporate stockholder.
action may exercise the right of appraisal by making a
written demand on the corporation for the payment of the SEC. 84. Who Bears Costs of Appraisal. – The costs
fair value of shares held within thirty (30) days from the and expenses of appraisal shall be borne by the
date on which the vote was taken: Provided, corporation, unless the fair value ascertained by the
appraisers is approximately the same as the price which
That failure to make the demand within such period shall the corporation may have offered to pay the stockholder,
be deemed a waiver of the appraisal right. If the in which case they shall be borne by the latter. In the
proposed corporate action is implemented, the case of an action to recover such fair value, all costs and
corporation shall pay the stockholder, upon surrender of expenses shall be assessed against the corporation,
the certificate or certificates of stock representing the unless the refusal of the stockholder to receive payment
stockholder’s shares, the fair value thereof as of the day was unjustified.
before the vote was taken, excluding any appreciation or
depreciation in anticipation of such corporate action.
22
SEC. 85. Notation on Certificates; Rights of may likewise authorize voting through remote
Transferee. – Within ten (10) days after demanding communication and/or in absentia.
payment for shares held, a dissenting stockholder shall
submit the certificates of stock representing the shares SEC. 89. Non transfer ability of Membership. –
to the corporation for notation that such shares are Membership in a nonstock corporation and all rights
dissenting shares. Failure to do so shall, at the option of arising therefrom are personal and nontransferable,
the corporation, terminate the rights under this Title. If unless the articles of incorporation or the bylaws
shares represented by the certificates bearing such otherwise provide.
notation are transferred, and the certificates SEC. 90. Termination of Membership. – Membership
consequently cancelled, the rights of the transferor as a shall be terminated in the manner and for the causes
dissenting stockholder under this Title shall cease and provided in the articles of incorporation or the bylaws.
the transferee shall have all the rights of a regular Termination of membership shall extinguish all rights of a
stockholder; and all dividend distributions which would member in the corporation or in its property, unless
have accrued on such shares shall be paid to the otherwise provided in the articles of incorporation or the
transferee. bylaws.

NON-STOCK, CLOSE AND CHAPTER II TRUSTEES AND OFFICERS

SPECIAL CORPORATIONS SEC. 91. Election and Term of Trustees. – The
number of trustees shall be fixed in the articles of
TITLE XI NONSTOCK CORPORATION incorporation or bylaws which may or may not be more
SEC. 86. Definition. – For purposes of this Code and than fifteen (15). They shall hold office for not more than
subject to its provisions on dissolution, a nonstock three (3) years until their successors are elected and
corporation is one where no part of its income is qualified. Trustees elected to fill vacancies occurring
distributable as dividends to its members, trustees, or before the expiration of a particular term shall hold office
officers: Provided, That any profit which a nonstock only for the unexpired period.
corporation may obtain incidental to its operations shall, Except with respect to independent trustees of nonstock
whenever necessary or proper, be used for the corporations vested with public interest, only a member
furtherance of the purpose or purposes for which the of the corporation shall be elected as trustee.
corporation was organized, subject to the provisions of
this Title. Unless otherwise provided in the articles of incorporation
or the bylaws, the members may directly elect officers of
The provisions governing stock corporations, when a nonstock corporation.
pertinent, shall be applicable to nonstock corporations,
except as may be covered by specific provisions of this SEC. 92. List of Members and Proxies, Place of
Title. Meetings. – The corporation shall, at all times, keep a
list of its members and their proxies in the form the
SEC. 87. Purposes. – Nonstock corporations may be Commission may require. The list shall be updated to
formed or organized for charitable, religious, educational, reflect the members and proxies of record twenty (20)
professional, cultural, fraternal, literary, scientific, social, days prior to any scheduled election. The bylaws may
civic service, or similar purposes, like trade, industry, provide that the members of a nonstock corporation may
agricultural and like chambers, or any combination hold their regular or special meetings at any place even
thereof, subject to the special provisions of this Title outside the place where the principal office of the
governing particular classes of non-stock corporations. corporation is located: Provided, That proper notice is
CHAPTER I MEMBERS sent to all members indicating the date, time and place
of the meeting: Provided, further, That the place of
SEC. 88. Right to Vote. – The right of the members of meeting shall be within Philippine territory.
any class or classes to vote may be limited, broadened,
or denied to the extent specified in the articles of CHAPTER III DISTRIBUTION OF ASSETS IN
incorporation or the bylaws. Unless so limited, NONSTOCK CORPORATIONS
broadened, or denied, each member, regardless of SEC. 93. Rules of Distribution. – The assets of a
class, shall be entitled to one (1) vote. nonstock corporation undergoing the process of
Unless otherwise provided in the articles of incorporation dissolution for reasons other than those set forth in
or the bylaws, a member may vote by proxy, in Section 139 of this Code shall be applied and distributed
accordance with the provisions of this Code. The bylaws as follows:

23
 (a) All liabilities and obligations of the corporation SEC. 95. Definition and Applicability of Title. – A
shall be paid, satisfied and discharged, or close corporation, within the meaning of this Code, is
adequate provision shall be made therefor; one whose articles of incorporation provides that: (a) all
(b) Assets held by the corporation upon a condition the corporation’s issued stock of all classes, exclusive of
requiring return, transfer or conveyance, and treasury shares, shall be held of record by not more than
which condition occurs by reason of the a specified number of persons, not exceeding twenty
dissolution, shall be returned, transferred or (20); (b) all the issued stock of all classes shall be
conveyed in accordance with such requirements; subject to one (1) or more specified restrictions on
(c) Assets received and held by the corporation transfer permitted by this Title; and (c) the corporation
subject to limitations permitting their use only for shall not list in any stock exchange or make any public
charitable, religious, benevolent, educational or offering of its stocks of any class. Notwithstanding the
similar purposes, but not held upon a condition foregoing, a corporation shall not be deemed a close
requiring return, transfer or conveyance by corporation when at least two-thirds (2/3) of its voting
reason of the dissolution, shall be transferred or stock or voting rights is owned or controlled by another
conveyed to one (1) or more corporations, corporation which is not a close corporation within the
societies or organizations engaged in activities meaning of this Code.
in the Philippines substantially similar to those of
the dissolving corporation according to a plan of Any corporation may be incorporated as a close
distribution adopted pursuant to this Chapter; corporation, except mining or oil companies, stock
(d) Assets other than those mentioned in the exchanges, banks, insurance companies, public utilities,
preceding paragraphs, if any, shall be distributed educational institutions and corporations declared to be
in accordance with the provisions of the articles vested with public interest in accordance with the
of incorporation or the bylaws, to the extent that provisions of this Code.
the articles of incorporation or the bylaws The provisions of this Title shall primarily govern close
determine the distributive rights of members, or corporations: Provided, That other Titles in this Code
any class or classes of members, or provide for shall apply suppletorily, except as otherwise provided
distribution; and under this Title.
(e) In any other case, assets may be distributed to
such persons, societies, organizations or SEC. 96. Articles of Incorporation. – The articles of
corporations, whether or not organized for profit, incorporation of a close corporation may provide for:
as may be specified in a plan of distribution
a) A classification of shares or rights, the qualifications
adopted pursuant to this Chapter.
for owning or holding the same, and restrictions on their
SEC. 94. Plan of Distribution of Assets. – A plan transfers, subject to the provisions of the following
providing for the distribution of assets, consistent with section;
the provisions of this Title, may be adopted by a
(b) A classification of directors into one (1) or more
nonstock corporation in the process of dissolution in the
classes, each of whom may be voted for and elected
following manner:
solely by a particular class of stock; and
(a) The board of trustees shall, by majority vote,
(c) Greater quorum or voting requirements in meetings of
adopt a resolution recommending a plan of
stockholders or directors than those provided in this
distribution and directing the submission thereof
Code.
to a vote at a regular or special meeting of
members having voting rights; The articles of incorporation of a close corporation may
(b) Each member entitled to vote shall be given a provide that the business of the corporation shall be
written notice setting forth the proposed plan of managed by the stockholders of the corporation rather
distribution or a summary thereof and the date, than by a board of directors. So long as this provision
time and place of such meeting within the time continues in effect, no meeting of stockholders need be
and in the manner provided in this Code for the called to elect directors: Provided, That the stockholders
giving of notice of meetings; and of the corporation shall be deemed to be directors for the
(c) Such plan of distribution shall be adopted upon purpose of applying the provisions of this Code, unless
approval of at least two-thirds (2/3) of the the context clearly requires otherwise: Provided, further,
members having voting rights present or That the stockholders of the corporation shall be subject
represented by proxy at such meeting. to all liabilities of directors.
TITLE XII CLOSE CORPORATIONS

24
The articles of incorporation may likewise provide that all incorporation; or (3) that the transfer violates a
officers or employees or that specified officers or restriction on transfer of stock, the corporation
employees shall be elected or appointed by the may, at its option, refuse to register the transfer
stockholders, instead of by the board of directors. in the name of the transferee.
(e) The provisions of subsection (d) shall not be
SEC. 97. Validity of Restrictions on Transfer of applicable if the transfer of stock, though
Shares. – Restrictions on the right to transfer shares contrary to subsections (a), (b) or (c), has been
must appear in the articles of incorporation, in the consented to by all the stockholders of the close
bylaws, as well as in the certificate of stock; otherwise, corporation, or if the close corporation has
the same shall not be binding on any purchaser in good amended its articles of incorporation in
faith. Said restrictions shall not be more onerous than accordance with this Title.
granting the existing stockholders or the corporation the (f) The term “transfer”, as used in this section, is
option to purchase the shares of the transferring not limited to a transfer for value.
stockholder with such reasonable terms, conditions or (g) The provisions of this section shall not impair
period stated. If, upon the expiration of said period, the any right which the transferee may have to either
existing stockholders or the corporation fails to exercise rescind the transfer or recover the stock under
the option to purchase, the transferring stockholder may any express or implied warranty.
sell their shares to any third person.
SEC. 99. Agreements by Stockholders. –
SEC. 98. Effects of Issuance or Transfer of Stock in
Breach of Qualifying Conditions. – (a) Agreements duly signed and executed by and
among all stockholders before the formation and
(a) If a stock of a close corporation is issued or organization of a close corporation shall survive
transferred to any person who is not eligible to the incorporation and shall continue to be valid
be a holder thereof under any provision of the and binding between such stockholders, if such
articles of incorporation, and if the certificate for be their intent, to the extent that such
such stock conspicuously shows the agreements are consistent with the articles of
qualifications of the persons entitled to be incorporation, irrespective of where the
holders of record thereof, such person is provisions of such agreements are contained,
conclusively presumed to have notice of the fact except those required by this Title to be
of the ineligibility to be a stockholder. embodied in said articles of incorporation.
(b) If the articles of incorporation of a close (b) A written agreement signed by two (2) or more
corporation states the number of persons, not stockholders may provide that in exercising any
exceeding twenty (20), who are entitled to be voting right, the shares held by them shall be
stockholders of record, and if the certificate for voted as provided or as agreed, or in
such stock conspicuously states such number, accordance with a procedure agreed upon by
and the issuance or transfer of stock to any them.
person would cause the stock to be held by (c) No provision in a written agreement signed by
more than such number of persons, the person the stockholders, relating to any phase of
to whom such stock is issued or transferred is corporate affairs, shall be invalidated between
conclusively presumed to have notice of this the parties on the ground that its effect is to
fact. make them partners among themselves.
(c) If a stock certificate of a close corporation (d) A written agreement among some or all of the
conspicuously shows a restriction on transfer of stockholders in a close corporation shall not be
the corporation’s stock and the transferee invalidated on the ground that it relates to the
acquires the stock in violation of such restriction, conduct of the business and affairs of the
the transferee is conclusively presumed to have corporation as to restrict or interfere with the
notice of the fact that the stock was acquired in discretion or powers of the board of directors:
violation of the restriction. Provided, That such agreement shall impose on
(d) Whenever a person to whom stock of a close the stockholders who are parties thereto the
corporation has been issued or transferred has liabilities for managerial acts imposed on
or is conclusively presumed under this section to directors by this Code.
have notice of: (1) the person’s ineligibility to be (e) Stockholders actively engaged in the
a stockholder of the corporation; or (2) that the management or operation of the business and
transfer of stock would cause the stock of the affairs of a close corporation shall be held to
corporation to be held by more than the number strict fiduciary duties to each other and among
of persons permitted under its articles of
25
 themselves. The stockholders shall be Commission, upon written petition by any stockholder,
personally liable for corporate torts unless the shall have the power to arbitrate the dispute. In the
corporation has obtained reasonably adequate exercise of such power, the Commission shall have
liability insurance. authority to make appropriate orders, such as: (a)
cancelling or altering any provision contained in the
SEC. 100. When a Board Meeting is Unnecessary or articles of incorporation, bylaws, or any stockholders’
Improperly Held. – Unless the bylaws provide otherwise, agreement; (b) cancelling, altering or enjoining a
any action taken by the directors of a close corporation resolution or act of the corporation or its board of
without a meeting called properly and with due notice directors, stockholders, or officers; (c) directing or
shall nevertheless be deemed valid if: prohibiting any act of the corporation or its board of
(a) Before or after such action is taken, a written directors, stockholders, officers, or other persons party to
consent thereto is signed by all the directors; or the action; (d) requiring the purchase at their fair value of
(b) All the stockholders have actual or implied shares of any stockholder, either by the corporation
knowledge of the action and make no prompt regardless of the availability of unrestricted retained
objection in writing; or earnings in its books, or by the other stockholders; (e)
(c) The directors are accustomed to take informal appointing a provisional director; (f) dissolving the
action with the express or implied acquiescence corporation; or (g) granting such other relief as the
of all the stockholders; or circumstances may warrant.
(d) All the directors have express or implied A provisional director shall be an impartial person who is
knowledge of the action in question and none of neither a stockholder nor a creditor of the corporation or
them makes a prompt objection in writing. any of its subsidiaries or affiliates, and whose further
An action within the corporate powers taken at a meeting qualifications, if any, may be determined by the
held without proper call or notice is deemed ratified by a Commission. A provisional director is not a receiver of
director who failed to attend, unless after having the corporation and does not have the title and powers of
knowledge thereof, the director promptly files his written a custodian or receiver. A provisional director shall have
objection with the secretary of the corporation. all the rights and powers of a duly elected director,
including the right to be notified of and to vote at
SEC. 101. Preemptive Right in Close Corporations. – meetings of directors until removed by order of the
The preemptive right of stockholders in close Commission or by all the stockholders. The
corporations shall extend to all stock to be issued, compensation of the provisional director shall be
including reissuance of treasury shares, whether for determined by agreement between such director and the
money, property or personal services, or in payment of corporation, subject to approval of the Commission,
corporate debts, unless the articles of incorporation which may fix the compensation absent an agreement or
provide otherwise. in the event of disagreement between the provisional
director and the corporation.
SEC. 102. Amendment of Articles of Incorporation. –
Any amendment to the articles of incorporation which SEC. 104. Withdrawal of Stockholder or Dissolution
seeks to delete or remove any provision required by this of Corporation. – In addition and without prejudice to
Title or to reduce a quorum or voting requirement stated other rights and remedies available under this Title, any
in said articles of incorporation shall require the stockholder of a close corporation may, for any reason,
affirmative vote of at least two-thirds (2/3) of the compel the corporation to purchase shares held at fair
outstanding capital stock, whether with or without voting value, which shall not be less than the par or issued
rights, or of such greater proportion of shares as may be value, when the corporation has sufficient assets in its
specifically provided in the articles of incorporation for books to cover its debts and liabilities exclusive of capital
amending, deleting or removing any of the aforesaid stock: Provided, That any stockholder of a close
provisions, at a meeting duly called for the purpose. corporation may, by written petition to the Commission,
compel the dissolution of such corporation whenever any
SEC. 103. Deadlocks. – Notwithstanding any contrary
acts of the directors, officers, or those in control of the
provision in the close corporation’s articles of
corporation are illegal, fraudulent, dishonest, oppressive
incorporation, bylaws, or stockholders’ agreement, if the
or unfairly prejudicial to the corporation or any
directors or stockholders are so divided on the
stockholder, or whenever corporate assets are being
management of the corporation’s business and affairs
misapplied or wasted.
that the votes required for a corporate action cannot be
obtained, with the consequence that the business and TITLE XIII SPECIAL CORPORATIONS
affairs of the corporation can no longer be conducted to
the advantage of the stockholders generally, the CHAPTER I EDUCATIONAL CORPORATIONS
26
SEC. 105. Incorporation. – Educational corporations church which desires to become a corporation
shall be governed by special laws and by the general sole;
provisions of this Code. (b) That the rules, regulations and discipline of the
religious denomination, sect or church are
SEC. 106. Board of Trustees. – Trustees of educational consistent with becoming a corporation sole and
institutions organized as nonstock corporations shall not do not forbid it;
be less than five (5) nor more than fifteen (15): Provided, (c) That such chief archbishop, bishop, priest,
That the number of trustees shall be in multiples of five minister, rabbi, or presiding elder is charged with
(5). the administration of the temporalities and the
Unless otherwise provided in the articles of incorporation management of the affairs, estate and properties
or bylaws, the board of trustees of incorporated schools, of the religious denomination, sect, or church
colleges, or other institutions of learning shall, as soon within the territorial jurisdiction, so described
as organized, so classify themselves that the term of succinctly in the articles of incorporation;
office of one-fifth (1/5) of their number shall expire every (d) The manner by which any vacancy occurring in
year. Trustees thereafter elected to fill vacancies, the office of chief archbishop, bishop, priest,
occurring before the expiration of a particular term, shall minister, rabbi, or presiding elder is required to
hold office only for the unexpired period. Trustees be filled, according to the rules, regulations or
elected thereafter to fill vacancies caused by expiration discipline of the religious denomination, sect or
of term shall hold office for five (5) years. A majority of church; and
the trustees shall constitute a quorum for the transaction (e) The place where the principal office of the
of business. The powers and authority of trustees shall corporation sole is to be established and
be defined in the bylaws. located, which place must be within the territory
of the Philippines.
For institutions organized as stock corporations, the
number and term of directors shall be governed by the The articles of incorporation may include any other
provisions on stock corporations. provision not contrary to law for the regulation of the
affairs of the corporation.
CHAPTER II
SEC. 110. Submission of the Articles of
RELIGIOUS CORPORATIONS Incorporation. – The articles of incorporation must be
verified, by affidavit or affirmation of the chief
SEC. 107. Classes of Religious Corporations. –
archbishop, bishop, priest, minister, rabbi, or presiding
Religious corporations may be incorporated by one (1) or
elder, as the case may be, and accompanied by a copy
more persons. Such corporations may be classified into
of the commission, certificate of election or letter of
corporations sole and religious societies.
appointment of such chief archbishop, bishop, priest,
Religious corporations shall be governed by this Chapter minister, rabbi, or presiding elder, duly certified to be
and by the general provisions on nonstock corporations correct by any notary public.
insofar as applicable.
From and after filing with the Commission of the said
SEC. 108. Corporation Sole. – For the purpose of articles of incorporation, verified by affidavit or
administering and managing, as trustee, the affairs, affirmation, and accompanied by the documents
property and temporalities of any religious denomination, mentioned in the preceding paragraph, such chief
sect or church, a corporation sole may be formed by the archbishop, bishop, priest, minister, rabbi, or presiding
chief archbishop, bishop, priest, minister, rabbi, or other elder shall become a corporation sole and all
presiding elder of such religious denomination, sect or temporalities, estate and properties of the religious
church. denomination, sect or church theretofore administered or
managed as such chief archbishop, bishop, priest,
SEC. 109. Articles of Incorporation. – In order to minister, rabbi, or presiding elder shall be personally
become a corporation sole, the chief archbishop, bishop, held in trust as a corporation sole, for the use, purpose,
priest, minister, rabbi, or presiding elder of any religious exclusive benefit and on behalf of the religious
denomination, sect or church must file with the denomination, sect or church, including hospitals,
Commission articles of incorporation setting forth the schools, colleges, orphan asylums, parsonages, and
following: cemeteries thereof.
(a) That the applicant chief archbishop, bishop, SEC. 111. Acquisition and Alienation of Property. – A
priest, minister, rabbi, or presiding elder corporation sole may purchase and hold real estate and
represents the religious denomination, sect or personal property for its church, charitable, benevolent,
27
or educational purposes, and may receive bequests or Upon approval of such declaration of dissolution by the
gifts for such purposes. Such corporation may sell or Commission, the corporation shall cease to carry on its
mortgage real property held by it by obtaining an order operations except for the purpose of winding up its
for that purpose from the Regional Trial Court of the affairs.
province where the property is situated upon proof that
the notice of the application for leave to sell or mortgage SEC. 114. Religious Societies. – Unless forbidden by
has been made through publication or as directed by the competent authority, the Constitution, pertinent rules,
Court, and that it is in the interest of the corporation that regulations, or discipline of the religious denomination,
leave to sell or mortgage be granted. The application for sect or church of which it is a part, any religious society,
leave to sell or mortgage must be made by petition, duly religious order, diocese, or synod, or district organization
verified, by the chief archbishop, bishop, priest, minister, of any religious denomination, sect or church, may, upon
rabbi, or presiding elder acting as corporation sole, and written consent and/or by an affirmative vote at a
may be opposed by any member of the religious meeting called for the purpose of at least two-thirds (2/3)
denomination, sect, or church represented by the of its membership, incorporate for the administration of
corporation sole: Provided, That in cases where the its temporalities or for the management of its affairs,
rules, regulations, and discipline of the religious properties, and estate by filing with the Commission,
denomination, sect or church, religious society, or order articles of incorporation verified by the affidavit of the
concerned represented by such corporation sole presiding elder, secretary, or clerk or other member of
regulate the method of acquiring, holding, selling, and such religious society or religious order, or diocese,
mortgaging real estate and personal property, such synod, or district organization of the religious
rules, regulations and discipline shall govern, and the denomination, sect, or church, setting forth the following:
intervention of the courts shall not be necessary. (a) That the religious society or religious order, or
SEC. 112. Filling of Vacancies. – The successors in diocese, synod, or district organization is a
office of any chief archbishop, bishop, priest, minister, religious organization of a religious
rabbi, or presiding elder in a corporation sole shall denomination, sect or church;
become the corporation sole on their accession to office (b) That at least two-thirds (2/3) of its membership
and shall be permitted to transact business as such upon has given written consent or has voted to
filing a copy of their commission, certificate of election, incorporate, at a duly convened meeting of the
or letters of appointment, duly certified by any notary body;
public with the Commission. (c) That the incorporation of the religious society or
religious order, or diocese, synod, or district
During any vacancy in the office of chief archbishop, organization is not forbidden by competent
bishop, priest, minister, rabbi, or presiding elder of any authority or by the Constitution, rules,
religious denomination, sect or church incorporated as a regulations or discipline of the religious
corporation sole, the person or persons authorized by denomination, sect or church of which it forms
the rules, regulations or discipline of the religious part;
denomination, sect, or church represented by the (d) That the religious society or religious order, or
corporation sole to administer the temporalities and diocese, synod, or district organization desires to
manage the affairs, estate, and properties of the incorporate for the administration of its affairs,
corporation sole shall exercise all the powers and properties and estate;
authority of the corporation sole during such vacancy. (e) The place within the Philippines where the
principal office of the corporation is to be
SEC. 113. Dissolution. – A corporation sole may be established and located; and
dissolved and its affairs settled voluntarily by submitting (f) The names, nationalities, and residence
to the Commission a verified declaration of dissolution, addresses of the trustees, not less than five (5)
setting forth: nor more than fifteen (15), elected by the
(a) The name of the corporation; religious society or religious order, or the
(b) The reason for dissolution and winding up; diocese, synod, or district organization to serve
(c) The authorization for the dissolution of the for the first year or such other period as may be
corporation by the particular religious prescribed by the laws of the religious society or
denomination, sect or church; and religious order, or of the diocese, synod, or
(d) The names and addresses of the persons who district organization.
are to supervise the winding up of the affairs of CHAPTER III
the corporation.
ONE PERSON CORPORATIONS
28
SEC. 115. Applicability of Provisions to One Person secretary, and other officers as it may deem necessary,
Corporations. – The provisions of this Title shall and notify the Commission thereof within five (5) days
primarily apply to One Person Corporations. Other from appointment.
provisions of this Code apply suppletorily, except as
otherwise provided in this Title. The single stockholder may not be appointed as the
corporate secretary.
SEC. 116. One Person Corporation. – A One Person
Corporation is a corporation with a single stockholder: A single stockholder who is likewise the self-appointed
Provided, That only a natural person, trust, or an estate treasurer of the corporation shall give a bond to the
may form a One Person Corporation. Commission in such a sum as may be required:
Provided, That, the said stockholder/treasurer shall
Banks and quasi-banks, preneed, trust, insurance, public undertake in writing to faithfully administer the One
and publicly-listed companies, and non-chartered Person Corporation’s funds to be received as treasurer,
government-owned and -controlled corporations may not and to disburse and invest the same according to the
incorporate as One Person Corporations: Provided, articles of incorporation as approved by the Commission.
further, That a natural person who is licensed to exercise The bond shall be renewed every two (2) years or as
a profession may not organize as a One Person often as may be required.
Corporation for the purpose of exercising such
profession except as otherwise provided under special SEC. 123. Special Functions of the Corporate
laws. Secretary. – In addition to the functions designated by
the One Person Corporation, the corporate secretary
SEC. 117. Minimum Capital Stock Not Required for shall:
One Person Corporation. – A One Person Corporation
shall not be required to have a minimum authorized (a) Be responsible for maintaining the minutes book
capital stock except as otherwise provided by special and/or records of the corporation;
law. (b) Notify the nominee or alternate nominee of the
death or incapacity of the single stockholder,
SEC. 118. Articles of Incorporation. – A One Person which notice shall be given no later than five (5)
Corporation shall file articles of incorporation in days from such occurrence;
accordance with the requirements under Section 14 of (c) Notify the Commission of the death of the single
this Code. It shall likewise substantially contain the stockholder within five (5) days from such
following: occurrence and stating in such notice the
names, residence addresses, and contact
(a) If the single stockholder is a trust or an estate, details of all known legal heirs; and
the name, nationality, and residence of the (d) Call the nominee or alternate nominee and the
trustee, administrator, executor, guardian, known legal heirs to a meeting and advise the
conservator, custodian, or other person legal heirs with regard to, among others, the
exercising fiduciary duties together with the election of a new director, amendment of the
proof of such authority to act on behalf of the articles of incorporation, and other ancillary
trust or estate; and and/or consequential matters.
(b) Name, nationality, residence of the nominee and
alternate nominee, and the extent, coverage and SEC. 124. Nominee and Alternate Nominee. – The
limitation of the authority. single stockholder shall designate a nominee and an
alternate nominee who shall, in the event of the single
SEC. 119. Bylaws. – The One Person Corporation is not stockholder’s death or incapacity, take the place of the
required to submit and file corporate bylaws. single stockholder as director and shall manage the
SEC. 120. Display of Corporate Name. – A One corporation’s affairs.
Person Corporation shall indicate the letters “OPC” The articles of incorporation shall state the names,
either below or at the end of its corporate name. residence addresses and contact details of the nominee
SEC. 121. Single Stockholder as Director, President. and alternate nominee, as well as the extent and
– The single stockholder shall be the sole director and limitations of their authority in managing the affairs of the
president of the One Person Corporation. One Person Corporation.

SEC. 122. Treasurer , Corporate Secretary , and The written consent of the nominee and alternate
Other Officers. – Within fifteen (15) days from the nominee shall be attached to the application for
issuance of its certificate of incorporation, the One incorporation. Such consent may be withdrawn in writing
Person Corporation shall appoint a treasurer, corporate
29
any time before the death or incapacity of the single reservation, or adverse remark or disclaimer
stockholder. made by the auditor in the latter’s report;
(c) A disclosure of all self-dealings and related party
SEC. 125. Term of Nominee and Alternate Nominee. transactions entered into between the One
– When the incapacity of the single stockholder is Person Corporation and the single stockholder;
temporary, the nominee shall sit as director and manage and
the affairs of the One Person Corporation until the (d) Other reports as the Commission may require.
stockholder, by self determination, regains the capacity
to assume such duties. For purposes of this provision, the fiscal year of a One
Person Corporation shall be that set forth in its articles of
In case of death or permanent incapacity of the single incorporation or, in the absence thereof, the calendar
stockholder, the nominee shall sit as director and year.
manage the affairs of the One Person Corporation until
the legal heirs of the single stockholder have been The Commission may place the corporation under
lawfully determined, and the heirs have designated one delinquent status should the corporation fail to submit
of them or have agreed that the estate shall be the single the reportorial requirements three (3) times,
stockholder of the One Person Corporation. consecutively or intermittently, within a period of five (5)
years.
The alternate nominee shall sit as director and manage
the One Person Corporation in case of the nominee’s SEC. 130. Liability of Single Shareholder. – A sole
inability, incapacity, death, or refusal to discharge the shareholder claiming limited liability has the burden of
functions as director and manager of the corporation, affirmatively showing that the corporation was
and only for the same term and under the same adequately financed.
conditions applicable to the nominee.
Where the single stockholder cannot prove that the
SEC. 126. Change of Nominee or Alternate Nominee. property of the One Person Corporation is independent
– The single stockholder may, at any time, change its of the stockholder’s personal property, the stockholder
nominee and alternate nominee by submitting to the shall be jointly and severally liable for the debts and
Commission the names of the new nominees and their other liabilities of the One Person Corporation.
corresponding written consent. For this purpose, the
articles of incorporation need not be amended. The principles of piercing the corporate veil applies with
equal force to One Person Corporations as with other
SEC. 127. Minutes Book. – A One Person Corporation corporations.
shall maintain a minutes book which shall contain all
actions, decisions, and resolutions taken by the One SEC. 131. Conversion from an Ordinary Corporation
Person Corporation. to a One Person Corporation. – When a single
stockholder acquires all the stocks of an ordinary stock
SEC. 128. Records in Lieu of Meetings . – When corporation, the latter may apply for conversion into a
action is needed on any matter, it shall be sufficient to One Person Corporation, subject to the submission of
prepare a written resolution, signed and dated by the such documents as the Commission may require. If the
single stockholder, and recorded in the minutes book of application for conversion is approved, the Commission
the One Person Corporation. The date of recording in shall issue a certificate of filing of amended articles of
the minutes book shall be deemed to be the date of the incorporation reflecting the conversion. The One Person
meeting for all purposes under this Code. Corporation converted from an ordinary stock
corporation shall succeed the latter and be legally
SEC. 129. Reportorial Requirements. – The One responsible for all the latter’s outstanding liabilities as of
Person Corporation shall submit the following within the date of conversion.
such period as the Commission may prescribe:
SEC. 132. Conversion from a One Person
(a) Annual financial statements audited by an Corporation to an Ordinary Stock Corporation. – A
independent certified public accountant: One Person Corporation may be converted into an
Provided, That if the total assets or total ordinary stock corporation after due notice to the
liabilities of the corporation are less than Six Commission of such fact and of the circumstances
Hundred Thousand Pesos (P600,000.00), the leading to the conversion, and after compliance with all
financial statements shall be certified under oath other requirements for stock corporations under this
by the corporation’s treasurer and president; Code and applicable rules. Such notice shall be filed
(b) A report containing explanations or comments with the Commission within sixty (60) days from the
by the president on every qualification, occurrence of the circumstances leading to the
30
conversion into an ordinary stock corporation. If all A verified request for dissolution shall be filed with the
requirements have been complied with, the Commission Commission stating: (a) the reason for the dissolution;
shall issue a certificate of filing of amended articles of (b) the form, manner, and time when the notices were
incorporation reflecting the conversion. given; (c) names of the stockholders and directors or
members and trustees who approved the dissolution; (d)
In case of death of the single stockholder, the nominee the date, place, and time of the meeting in which the
or alternate nominee shall transfer the shares to the duly vote was made; and (e) details of publication.
designated legal heir or estate within seven (7) days
from receipt of either an affidavit of heirship or self- The corporation shall submit the following to the
adjudication executed by a sole heir, or any other legal Commission: (1) a copy of the resolution authorizing the
document declaring the legal heirs of the single dissolution, certified by a majority of the board of
stockholder and notify the Commission of the transfer. directors or trustees and countersigned by the secretary
Within sixty (60) days from the transfer of the shares, the of the corporation; (2) proof of publication; and (3)
legal heirs shall notify the Commission of their decision favorable recommendation from the appropriate
to either wind up and dissolve the One Person regulatory agency, when necessary.
Corporation or convert it into an ordinary stock
corporation. Within fifteen (15) days from receipt of the verified
request for dissolution, and in the absence of any
The ordinary stock corporation converted from a One withdrawal within said period, the Commission shall
Person Corporation shall succeed the latter and be approve the request and issue the certificate of
legally responsible for all the latter’s outstanding dissolution. The dissolution shall take effect only upon
liabilities as of the date of conversion. the issuance by the Commission of a certificate of
dissolution.
Dissolution
No application for dissolution of banks, banking and
TITLE XIV quasi-banking institutions, preneed, insurance and trust
companies, nonstock savings and loan associations,
DISSOLUTION pawnshops, and other financial intermediaries shall be
approved by the Commission unless accompanied by a
SEC. 133. Methods of Dissolution. – A corporation
favorable recommendation of the appropriate
formed or organized under the provisions of this Code
government agency.
may be dissolved voluntarily or involuntarily.
SEC. 135. Voluntary Dissolution Where Creditors are
SEC. 134. Voluntary Dissolution Where No Creditors
Affected; Procedure and Contents of Petition. –
are Affected. – If dissolution of a corporation does not
Where the dissolution of a corporation may prejudice the
prejudice the rights of any creditor having a claim against
rights of any creditor, a verified petition for dissolution
it, the dissolution may be effected by majority vote of the
shall be filed with the Commission. The petition shall be
board of directors or trustees, and by a resolution
signed by a majority of the corporation’s board of
adopted by the affirmative vote of the stockholders
directors or trustees, verified by its president or secretary
owning at least majority of the outstanding capital stock
or one of its directors or trustees, and shall set forth all
or majority of the members of a meeting to be held upon
claims and demands against it, and that its dissolution
the call of the directors or trustees.
was resolved upon by the affirmative vote of the
At least twenty (20) days prior to the meeting, notice stockholders representing at least two-thirds (2/3) of the
shall be given to each shareholder or member of record outstanding capital stock or at least two-thirds (2/3) of
personally, by registered mail, or by any means the members at a meeting of its stockholders or
authorized under its bylaws, whether or not entitled to members called for that purpose. The petition shall
vote at the meeting, in the manner provided in Section likewise state: (a) the reason for the dissolution; (b) the
50 of this Code and shall state that the purpose of the form, manner, and time when the notices were given;
meeting is to vote on the dissolution of the corporation. and (c) the date, place, and time of the meeting in which
Notice of the time, place, and object of the meeting shall the vote was made. The corporation shall submit to the
be published once prior to the date of the meeting in a Commission the following: (1) a copy of the resolution
newspaper published in the place where the principal authorizing the dissolution, certified by a majority of the
office of said corporation is located, or if no newspaper is board of directors or trustees and countersigned by the
published in such place, in a newspaper of general secretary of the corporation; and (2) a list of all its
circulation in the Philippines. creditors.

31
If the petition is sufficient in form and substance, the request for dissolution. Upon receipt of a withdrawal of
Commission shall, by an order reciting the purpose of request for dissolution, the Commission shall withhold
the petition, fix a deadline for filing objections to the action on the request for dissolution and shall, after
petition which date shall not be less than thirty (30) days investigation: (a) make a pronouncement that the
nor more than sixty (60) days after the entry of the order. request for dissolution is deemed withdrawn; (b) direct a
Before such date, a copy of the order shall be published joint meeting of the board of directors or trustees and the
at least once a week for three (3) consecutive weeks in a stockholders or members for the purpose of ascertaining
newspaper of general circulation published in the whether to proceed with dissolution; or (c) issue such
municipality or city where the principal office of the other orders as it may deem appropriate.
corporation is situated, or if there be no such newspaper,
then in a newspaper of general circulation in the A withdrawal of the petition for dissolution shall be in the
Philippines, and a similar copy shall be posted for three form of a motion and similar in substance to a withdrawal
(3) consecutive weeks in three (3) public places in such of request for dissolution but shall be verified and filed
municipality or city. prior to publication of the order setting the deadline for
filing objections to the petition.
Upon five (5) days’ notice, given after the date on which
the right to file objections as fixed in the order has SEC. 138. Involuntary Dissolution. – A corporation
expired, the Commission shall proceed to hear the may be dissolved by the Commission motu proprio or
petition and try any issue raised in the objections filed; upon filing of a verified complaint by any interested party.
and if no such objection is sufficient, and the material The following may be grounds for dissolution of the
allegations of the petition are true, it shall render corporation:
judgment dissolving the corporation and directing such (a) Non-use of corporate charter as provided under
disposition of its assets as justice requires, and may Section 21 of this Code;
appoint a receiver to collect such assets and pay the
debts of the corporation. (b) Continuous inoperation of a corporation as provided
under Section 21 of this Code;
The dissolution shall take effect only upon the issuance
by the Commission of a certificate of dissolution. (c) Upon receipt of a lawful court order dissolving the
corporation;
SEC. 136. Dissolution by Shortening Corporate
Term. – A voluntary dissolution may be effected by (d) Upon finding by final judgment that the corporation
amending the articles of incorporation to shorten the procured its incorporation through fraud;
corporate term pursuant to the provisions of this Code. A
(e) Upon finding by final judgment that the corporation:
copy of the amended articles of incorporation shall be
submitted to the Commission in accordance with this (1) Was created for the purpose of committing,
Code. concealing or aiding the commission of
securities violations, smuggling, tax evasion,
Upon the expiration of the shortened term, as stated in
money laundering, or graft and corrupt
the approved amended articles of incorporation, the
practices;
corporation shall be deemed dissolved without any
(2) Committed or aided in the commission of
further proceedings, subject to the provisions of this
securities violations, smuggling, tax evasion,
Code on liquidation.
money laundering, or graft and corrupt
In the case of expiration of corporate term, dissolution practices, and its stockholders knew of the
shall automatically take effect on the day following the same; and
last day of the corporate term stated in the articles of (3) Repeatedly and knowingly tolerated the
incorporation, without the need for the issuance by the commission of graft and corrupt practices or
Commission of a certificate of dissolution. other fraudulent or illegal acts by its directors,
trustees, officers, or employees.
SEC. 137. Withdrawal of Request and Petition for
Dissolution. – A withdrawal of the request for If the corporation is ordered dissolved by final judgment
dissolution shall be made in writing, duly verified by any pursuant to the grounds set forth in subparagraph (e)
incorporator, director, trustee, shareholder, or member hereof, its assets, after payment of its liabilities, shall,
and signed by the same number of incorporators, upon petition of the Commission with the appropriate
directors, trustees, shareholders, or members necessary court, be forfeited in favor of the national government.
to request for dissolution as set forth in the foregoing Such forfeiture shall be without prejudice to the rights of
sections. The withdrawal shall be submitted no later than innocent stockholders and employees for services
fifteen (15) days from receipt by the Commission of the
32
rendered, and to the application of other penalty or after due notice and hearing, place the corporation under
sanction under this Code or other laws. delinquent status.

The Commission shall give reasonable notice to, and A delinquent corporation shall have a period of two (2)
coordinate with, the appropriate regulatory agency prior years to resume operations and comply with all
to the involuntary dissolution of companies under their requirements that the Commission shall prescribe. Upon
special regulatory jurisdiction. compliance by the corporation, the Commission shall
issue an order lifting the delinquent status. Failure to
SEC. 139. Corporate Liquidation. – Except for banks, comply with the requirements and resume operations
which shall be covered by the applicable provisions of within the period given by the Commission shall cause
Republic Act No. 7653, otherwise known as the “New the revocation of the corporation’s certificate of
Central Bank Act”, as amended, and Republic Act No. incorporation.
3591, otherwise known as the “Philippine Deposit
Insurance Corporation Charter”, as amended, every The Commission shall give reasonable notice to, and
corporation whose charter expires pursuant to its articles coordinate with the appropriate regulatory agency prior
of incorporation, is annulled by forfeiture, or whose to the suspension or revocation of the certificate of
corporate existence is terminated in any other manner, incorporation of companies under their special regulatory
shall nevertheless remain as a body corporate for three jurisdiction.
(3) years after the effective date of dissolution, for the
purpose of prosecuting and defending suits by or against Sec. 184. Effect of Amendment or Repeal of This
it and enabling it to settle and close its affairs, dispose of Code, or the Dissolution of a Corporation. – No right
and convey its property, and distribute its assets, but not or remedy in favor of or against any corporation, its
for the purpose of continuing the business for which it stockholders, members, directors, trustees, or officers,
was established. nor any liability incurred by any such corporation,
stockholders, members, directors, trustees, or officers,
At any time during said three (3) years, the corporation is shall be removed or impaired either by the subsequent
authorized and empowered to convey all of its property dissolution of said corporation or by any subsequent
to trustees for the benefit of stockholders, members, amendment or repeal of this Code or of any part thereof.
creditors and other persons in interest. After any such
conveyance by the corporation of its property in trust for ACT 10142 FRIA
the benefit of its stockholders, members, creditors and
others in interest, all interest which the corporation had Section 90. Voluntary Liquidation. - An insolvent debtor
in the property terminates, the legal interest vests in the may apply for liquidation by filing a petition for liquidation
trustees, and the beneficial interest in the stockholders, with the court. The petition shall be verified, shall
establish the insolvency of the debtor and shall contain,
members, creditors or other persons-in-interest.
whether as an attachment or as part of the body of the
Except as otherwise provided for in Sections 93 and 94 petition;
of this Code, upon the winding up of corporate affairs,
any asset distributable to any creditor or stockholder or (a) a schedule of the debtor's debts and
member who is unknown or cannot be found shall be liabilities including a list of creditors with their
escheated in favor of the national government. addresses, amounts of claims and collaterals, or
securities, if any;
Except by decrease of capital stock and as otherwise
allowed by this Code, no corporation shall distribute any (b) an inventory of all its assets including
of its assets or property except upon lawful dissolution receivables and claims against third parties; and
and after payment of all its debts and liabilities.
(c) the names of at least three (3) nominees to
SEC. 21. Effects of Non - Use of Corporate Charter the position of liquidator.
and Continuous Inoperation. – If a corporation does
not formally organize and commence its business within At any time during the pendency of court-supervised or
five (5) years from the date of its incorporation, its pre-negotiated rehabilitation proceedings, the debtor
certificate of incorporation shall be deemed revoked as may also initiate liquidation proceedings by filing a
of the day following the end of the five (5)-year period. motion in the same court where the rehabilitation
proceedings are pending to convert the rehabilitation
However, if a corporation has commenced its business proceedings into liquidation proceedings. The motion
but subsequently becomes inoperative for a period of at shall be verified, shall contain or set forth the same
least five (5) consecutive years, the Commission may, matters required in the preceding paragraph, and state

33
that the debtor is seeking immediate dissolution and Section 92. Conversion by the Court into Liquidation
termination of its corporate existence. Proceedings. - During the pendency of court-supervised
or pre-negotiated rehabilitation proceedings, the court
If the petition or the motion, as the case may be, is may order the conversion of rehabilitation proceedings to
sufficient in form and substance, the court shall issue a liquidation proceedings pursuant to (a) Section 25(c) of
Liquidation Order mentioned in Section 112 hereof. this Act; or (b) Section 72 of this Act; or (c) Section 75 of
this Act; or (d) Section 90 of this Act; or at any other time
upon the recommendation of the rehabilitation receiver
Section 91. Involuntary Liquidation. - Three (3) or more
that the rehabilitation of the debtor is not feasible.
creditors the aggregate of whose claims is at least either
Thereupon, the court shall issue the Liquidation Order
One million pesos (Php1,000,000,00) or at least twenty-
mentioned in Section 112 hereof.
five percent (25%0 of the subscribed capital stock or
partner's contributions of the debtor, whichever is higher,
may apply for and seek the liquidation of an insolvent Section 93. Powers of the Securities and Exchange
debtor by filing a petition for liquidation of the debtor with Commission (SEC). - The provisions of this chapter shall
the court. The petition shall show that: not affect the regulatory powers of the SEC under
Section 6 of Presidential Decree No. 902-A, as
amended, with respect to any dissolution and liquidation
(a) there is no genuine issue of fact or law on the
proceeding initiated and heard before it.
claims/s of the petitioner/s, and that the due and
demandable payments thereon have not been
made for at least one hundred eighty (180) days Section 101. Effects of Approval of Proposed
or that the debtor has failed generally to meet its Agreement. - If the decision of the majority of the
liabilities as they fall due; and creditors to approve the proposed agreement or any
amendment thereof made during the creditors'
(b) there is no substantial likelihood that the meeting is uphold by the court, or when no opposition
debtor may be rehabilitated. or objection to said decision has been presented, the
court shall order that the agreement be carried out
At any time during the pendency of or after a and all parties bound thereby to comply with its terms.
rehabilitation court-supervised or pre-negotiated
rehabilitation proceedings, three (3) or more creditors The court may also issue all orders which may be
whose claims is at least either One million pesos necessary or proper to enforce the agreement on
(Php1,000,000.00) or at least twenty-five percent (25%) motion of any affected party. The Order confirming the
of the subscribed capital or partner's contributions of the approval of the proposed agreement or any
debtor, whichever is higher, may also initiate liquidation amendment thereof made during the creditors'
proceedings by filing a motion in the same court where meeting shall be binding upon all creditors whose
the rehabilitation proceedings are pending to convert the claims are included in the schedule of debts and
rehabilitation proceedings into liquidation proceedings. liabilities submitted by the individual debtor and who
The motion shall be verified, shall contain or set forth the
were properly summoned, but not upon: (a) those
same matters required in the preceding paragraph, and
creditors having claims for personal labor,
state that the movants are seeking the immediate
liquidation of the debtor.
maintenance, expenses of last illness and funeral of
the wife or children of the debtor incurred in the sixty
(60) days immediately prior to the filing of the petition;
If the petition or motion is sufficient in form and
and (b) secured creditors who failed to attend the
substance, the court shall issue an Order:
meeting or refrained from voting therein.
(1) directing the publication of the petition or
motion in a newspaper of general circulation Section 102. Failure of Individual Debtor to Perform
once a week for two (2) consecutive weeks; and Agreement. - If the individual debtor fails, wholly or in
part, to perform the agreement decided upon at the
meeting of the creditors, all the rights which the
(2) directing the debtor and all creditors who are
not the petitioners to file their comment on the creditors had against the individual debtor before the
petition or motion within fifteen (15) days from agreement shall revest in them. In such case the
the date of last publication. individual debtor may be made subject to the
insolvency proceedings in the manner established by
If, after considering the comments filed, the court this Act.
determines that the petition or motion is meritorious, it
shall issue the Liquidation Order mentioned in Section (B) Voluntary Liquidation.
112 hereof.

34
Section 103. Application. - An individual debtor for the purpose of hindering or delaying the
whose properties are not sufficient to cover his liquidation or of defrauding any creditors or
liabilities, and owing debts exceeding Five hundred claimant;
thousand pesos (Php500,000.00), may apply to be
discharged from his debts and liabilities by filing a (g) That he has willfully suffered judgment to
verified petition with the court of the province or city in be taken against him by default for the
which he has resided for six (6) months prior to the purpose of hindering or delaying the
filing of such petition. He shall attach to his petition a liquidation or of defrauding his creditors;
schedule of debts and liabilities and an inventory of
assets. The filing of such petition shall be an act of (h) That he has suffered or procured his
insolvency. property to be taken on legal process with
intent to give a preference to one or more of
Section 104. Liquidation Order. - If the court finds the his creditors and thereby hinder or delay the
petition sufficient in form and substance it shall, within liquidation or defraud any one of his creditors;
five (5) working days issue the Liquidation Order
mentioned in Section 112 hereof. (i) That he has made any assignment, gift,
sale, conveyance or transfer of his estate,
(C) In voluntary Liquidation. property, rights or credits with intent to hinder
or delay the liquidation or defraud his
Section 105. Petition; Acts of Insolvency. - Any creditors;
creditor or group of creditors with a claim of, or with
claims aggregating at least Five hundred thousand (j) That he has, in contemplation of
pesos (Php500, 000.00) may file a verified petition for insolvency, made any payment, gift, grant,
liquidation with the court of the province or city in sale, conveyance or transfer of his estate,
which the individual debtor resides. property, rights or credits;

The following shall be considered acts of insolvency, (k) That being a merchant or tradesman, he
and the petition for liquidation shall set forth or allege has generally defaulted in the payment of his
at least one of such acts: current obligations for a period of thirty (30)
days;
(a) That such person is about to depart or has
departed from the Republic of the Philippines, (l) That for a period of thirty (30) days, he has
with intent to defraud his creditors; failed, after demand, to pay any moneys
deposited with him or received by him in a
(b) That being absent from the Republic of the fiduciary; and
Philippines, with intent to defraud his
creditors, he remains absent; (m) That an execution having been issued
against him on final judgment for money, he
(c) That he conceals himself to avoid the shall have been found to be without sufficient
service of legal process for the purpose of property subject to execution to satisfy the
hindering or delaying the liquidation or of judgment.
defrauding his creditors;
The petitioning creditor/s shall post a bond in such as
(d) That he conceals, or is removing, any of the court shall direct, conditioned that if the petition for
his property to avoid its being attached or liquidation is dismissed by the court, or withdrawn by
taken on legal process; the petitioner, or if the debtor shall not be declared an
insolvent the petitioners will pay to the debtor all
(e) That he has suffered his property to costs, expenses, damages occasioned by the
remain under attachment or legal process for proceedings and attorney's fees.
three (3) days for the purpose of hindering or
delaying the liquidation or of defrauding his Section 106. Order to Individual Debtor to Show
creditors; Cause. - Upon the filing of such creditors' petition, the
court shall issue an Order requiring the individual
(f) That he has confessed or offered to allow debtor to show cause, at a time and place to be fixed
judgment in favor of any creditor or claimant by the said court, why he should not be adjudged an

35
insolvent. Upon good cause shown, the court may shall be entitled to similar orders and to like action, by
issue an Order forbidding the individual debtor from the sheriff; until all claims be provided for, if there be
making payments of any of his debts, and transferring sufficient property or effects. All property taken into
any property belonging to him. However, nothing custody by the sheriff by virtue of the giving of any
contained herein shall affect or impair the rights of a such bonds shall be held by him for the benefit of all
secured creditor to enforce his lien in accordance with creditors of the individual debtor whose claims shall
its terms. be duly proved as provided in this Act. The bonds
provided for in this section and the preceding section
Section 107. Default. - If the individual debtor shall to procure the order for custody of the property and
default or if, after trial, the issues are found in favor of effects of the individual debtor shall be conditioned
the petitioning creditors the court shall issue the that if, upon final hearing of the petition in insolvency,
Liquidation Order mentioned in Section 112 hereof. the court shall find in favor of the petitioners, such
bonds and all of them shall be void; if the decision be
Section 108. Absent Individual Debtor. - In all cases in favor of the individual debtor, the proceedings shall
where the individual debtor resides out of the be dismissed, and the individual debtor, his heirs,
Republic of the Philippines; or has departed administrators, executors or assigns shall be entitled
therefrom; or cannot, after due diligence, be found to recover such sum of money as shall be sufficient to
therein; or conceals himself to avoid service of the cover the damages sustained by him, not to exceed
Order to show cause, or any other preliminary the amount of the respective bonds. Such damages
process or orders in the matter, then the petitioning shall be fixed and allowed by the court. If either the
creditors, upon submitting the affidavits requisite to petitioners or the debtor shall appeal from the
procedure an Order of publication, and presenting a decision of the court, upon final hearing of the petition,
bond in double the amount of the aggregate sum of the appellant shall be required to give bond to the
their claims against the individual debtor, shall be successful party in a sum double the amount of the
entitled to an Order of the court directing the sheriff of value of the property in controversy, and for the costs
the province or city in which the matter is pending to of the proceedings.
take into his custody a sufficient amount of property of
the individual debtor to satisfy the demands of the Any person interested in the estate may take
petitioning creditors and the costs of the proceedings. exception to the sufficiency of the sureties on such
Upon receiving such Order of the court to take into bond or bonds. When excepted to the petitioner's
custody of the property of the individual debtor, it shall sureties, upon notice to the person excepting of not
be the duty of the sheriff to take possession of the less than two (2) nor more than five (5) days, must
property and effects of the individual debtor, not justify as to their sufficiency; and upon failure to
exempt from execution, to an extent sufficient to cover justify, or of others in their place fail to justify at the
the amount provided for and to prepare within three time and place appointed the judge shall issue an
(3) days from the time of taking such possession, a Order vacating the order to take the property of the
complete inventory of all the property so taken, and to individual debtor into the custody of the sheriff, or
return it to the court as soon as completed. The time denying the appeal, as the case may be.
for taking the inventory and making return thereof may
be extended for good cause shown to the court. The Section 110. Sale Under Execution. - If, in any case,
sheriff shall also prepare a schedule of the names and proper affidavits and bonds are presented to the court
residences of the creditors, and the amount due each, or a judge thereof, asking for and obtaining an Order
from the books of the debtor, or from such other of publication and an Order for the custody of the
papers or data of the individual debtor available as property of the individual debtor and thereafter the
may come to his possession, and shall file such petitioners shall make it appear satisfactorily to the
schedule or list of creditors and inventory with the court or a judge thereof that the interest of the parties
clerk of court. to the proceedings will be subserved by a sale
thereof, the court may order such property to be sold
Section 109. All Property Taken to be Held for All in the same manner as property is sold under
Creditors; Appeal Bonds; Exemptions to Sureties. - In execution, the proceeds to de deposited in the court
all cases where property is taken into custody by the to abide by the result of the proceedings.
sheriff, if it does not embrace all the property and
effects of the debtor not exempt from execution, any CHAPTER VII
other creditor or creditors of the individual debtor, PROVISIONS COMMON TO LIQUIDATION IN
upon giving bond to be approved by the court in INSOLVENCY OF INDIVIDUAL AND JURIDICAL
double the amount of their claims, singly or jointly, DEBTORS

36
Section 111. Use of Term Debtor. - For purposes of (b) legal title to and control of all the assets of
this chapter, the term debtor shall include both the debtor, except those that may be exempt
individual debtor as defined in Section 4(o) and debtor from execution, shall be deemed vested in the
as defined in Section 4(k) of this Act. liquidator or, pending his election or
appointment, with the court;
(A) The Liquidation Order.
(c) all contracts of the debtor shall be deemed
Section 112. Liquidation Order. - The Liquidation terminated and/or breached, unless the
Order shall: liquidator, within ninety (90) days from the
date of his assumption of office, declares
(a) declare the debtor insolvent; otherwise and the contracting party agrees;

(b) order the liquidation of the debtor and, in (d) no separate action for the collection of an
the case of a juridical debtor, declare it as unsecured claim shall be allowed. Such
dissolved; actions already pending will be transferred to
the Liquidator for him to accept and settle or
contest. If the liquidator contests or disputes
(c) order the sheriff to take possession and
the claim, the court shall allow, hear and
control of all the property of the debtor, except
resolve such contest except when the case is
those that may be exempt from execution;
already on appeal. In such a case, the suit
may proceed to judgment, and any final and
(d) order the publication of the petition or executor judgment therein for a claim against
motion in a newspaper of general circulation the debtor shall be filed and allowed in court;
once a week for two (2) consecutive weeks; and

(e) direct payments of any claims and (e) no foreclosure proceeding shall be allowed
conveyance of any property due the debtor to for a period of one hundred eighty (180) days.
the liquidator;
Section 114. Rights of Secured Creditors. - The
(f) prohibit payments by the debtor and the Liquidation Order shall not affect the right of a
transfer of any property by the debtor; secured creditor to enforce his lien in accordance with
the applicable contract or law. A secured creditor
(g) direct all creditors to file their claims with may:
the liquidator within the period set by the rules
of procedure; (a) waive his right under the security or lien,
prove his claim in the liquidation proceedings
(h) authorize the payment of administrative and share in the distribution of the assets of
expenses as they become due; the debtor; or

(i) state that the debtor and creditors who are (b) maintain his rights under the security or
not petitioner/s may submit the names of other lien:
nominees to the position of liquidator; and
If the secured creditor maintains his rights under the
(j) set the case for hearing for the election and security or lien:
appointment of the liquidator, which date shall
not be less than thirty (30) days nor more than (1) the value of the property may be fixed in a
forty-five (45) days from the date of the last manner agreed upon by the creditor and the
publication. liquidator. When the value of the property is
less than the claim it secures, the liquidator
Section 113. Effects of the Liquidation Order. - Upon may convey the property to the secured
the issuance of the Liquidation Order: creditor and the latter will be admitted in the
liquidation proceedings as a creditor for the
(a) the juridical debtor shall be deemed balance. If its value exceeds the claim
dissolved and its corporate or juridical secured, the liquidator may convey the
existence terminated; property to the creditor and waive the debtor's

37
 right of redemption upon receiving the excess file a bond, In such amount to be fixed by the court,
from the creditor; conditioned upon the proper and faithful discharge of
his powers, duties and responsibilities.
(2) the liquidator may sell the property and
satisfy the secured creditor's entire claim from Section 118. Qualifications of the Liquidator. - The
the proceeds of the sale; or liquidator shall have the qualifications enumerated in
Section 29 hereof. He may be removed at any time by
(3) the secure creditor may enforce the lien or the court for cause, either motu propio or upon motion
foreclose on the property pursuant to of any creditor entitled to vote for the election of the
applicable laws. liquidator.

(B) The Liquidator. Section 119. Powers, Duties and Responsibilities of

the Liquidator. - The liquidator shall be deemed an
Section 115. Election of Liquidator. - Only creditors officer of the court with the principal duly of preserving
who have filed their claims within the period set by the and maximizing the value and recovering the assets
court, and whose claims are not barred by the statute of the debtor, with the end of liquidating them and
of limitations, will be allowed to vote in the election of discharging to the extent possible all the claims
the liquidator. A secured creditor will not be allowed to against the debtor. The powers, duties and
vote, unless: (a) he waives his security or lien; or (b) responsibilities of the liquidator shall include, but not
has the value of the property subject of his security or limited to:
lien fixed by agreement with the liquidator, and is
admitted for the balance of his claim. (a) to sue and recover all the assets, debts
and claims, belonging or due to the debtor;
The creditors entitled to vote will elect the liquidator in
open court. The nominee receiving the highest (b) to take possession of all the property of the
number of votes cast in terms of amount of claims, ad debtor except property exempt by law from
who is qualified pursuant to Section 118 hereof, shall execution;
be appointed as the liquidator.
(c) to sell, with the approval of the court, any
Section 116. Court-Appointed Liquidator. - The court property of the debtor which has come into his
may appoint the liquidator if: possession or control;

(a) on the date set for the election of the (d) to redeem all mortgages and pledges, and
liquidator, the creditors do not attend; so satisfy any judgement which may be an
encumbrance on any property sold by him;
(b) the creditors who attend, fail or refuse to
elect a liquidator; (e) to settle all accounts between the debtor
and his creditors, subject to the approval of
(c) after being elected, the liquidator fails to the court;
qualify; or
(f) to recover any property or its value,
(d) a vacancy occurs for any reason fraudulently conveyed by the debtor;
whatsoever, In any of the cases provided
herein, the court may instead set another (g) to recommend to the court the creation of
hearing of the election of the liquidator. a creditors' committee which will assist him in
the discharge of the functions and which shall
Provided further, That nothing in this section shall be have powers as the court deems just,
construed to prevent a rehabilitation receiver, who reasonable and necessary; and
was administering the debtor prior to the
commencement of the liquidation, from being (h) upon approval of the court, to engage such
appointed as a liquidator. professional as may be necessary and
reasonable to assist him in the discharge of
Section 117. Oath and Bond of the Liquidator. -Prior his duties.
to entering upon his powers, duties and
responsibilities, the liquidator shall take an oath and
38
In addition to the rights and duties of a rehabilitation owner/s of the sole proprietorship-debtor, the partners
receiver, the liquidator, shall have the right and duty to of the partnership-debtor and shareholders or
take all reasonable steps to manage and dispose of members of the corporation-debtor, on where and
the debtor's assets with a view towards maximizing when they may inspect it. All claims must be duly
the proceedings therefrom, to pay creditors and proven before being paid.
stockholders, and to terminate the debtor's legal
existence. Other duties of the liquidator in accordance Section 124. Right of Set-off. - If the debtor and
with this section may be established by procedural creditor are mutually debtor and creditor of each other
rules. one debt shall be set off against the other, and only
the balance, if any shall be allowed in the liquidation
A liquidator shall be subject to removal pursuant to proceedings.
procedures for removing a rehabilitation receiver.
Section 125. - Opposition or Challenge to Claims. -
Section 120. Compensation of the Liquidator. - The Within thirty (30 ) days from the expiration of the
liquidator and the persons and entities engaged or period for filing of applications for recognition of
employed by him to assist in the discharge of his claims, creditors, individual debtors, owner/s of the
powers and duties shall be entitled to such sole proprietorship-debtor, partners of the partnership-
reasonable compensation as may determined by the debtor and shareholders or members of the
liquidation court, which shall not exceed the maximum corporation -debtor and other interested parties may
amount as may be prescribed by the Supreme Court. submit a challenge to claim or claims to the court,
serving a certified copy on the liquidator and the
Section 121. Reporting Requiremen5ts. - The creditor holding the challenged claim. Upon the
liquidator shall make and keep a record of all moneys expiration of the (30) day period, the rehabilitation
received and all disbursements mad by him or under receiver shall submit to the court the registry of claims
his authority as liquidator. He shall render a quarterly containing the undisputed claims that have not been
report thereof to the court , which report shall be subject to challenge. Such claims shall become final
made available to all interested parties. The liquidator upon the filling of the register and may be
shall also submit such reports as may be required by subsequently set aside only on grounds or fraud,
the court from time to time as well as a final report at accident, mistake or inexcusable neglect.
the end of the liquidation proceedings.
Section 126. Submission of Disputed to the Court. -
Section 122. Discharge of Liquidator. - In preparation The liquidator shall resolve disputed claims and
for the final settlement of all the claims against the submit his findings thereon to the court for final
debtor , the liquidator will notify all the creditors, either approval. The liquidator may disallow claims.
by publication in a newspaper of general circulation or
such other mode as the court may direct or allow, that (D) Avoidance Proceedings.
will apply with the court for the settlement of his
account and his discharge from liability as liquidator. Section 127. Rescission or Nullity of Certain
The liquidator will file a final accounting with the court, Transactions. - Any transaction occurring prior to the
with proof of notice to all creditors. The accounting will issuance of the Liquidation Order or, in case of the
be set for hearing. If the court finds the same in order, conversion of the rehabilitation proceedings prior to
the court will discharge the liquidator. the commencement date, entered into by the debtor
or involving its assets, may be rescinded or declared
(C) Determination of Claims null and void on the ground that the same was
executed with intent to defraud a creditor or creditors
Section 123. Registry of Claims. - Within twenty (20) or which constitute undue preference of creditors. The
days from his assumption into office the liquidator presumptions set forth in Section 58 hereof shall
shall prepare a preliminary registry of claims of apply.
secured and unsecured creditors. Secured creditors
who have waived their security or lien, or have fixed Section 128. Actions for Rescission or Nullity. - (a)
the value of the property subject of their security or The liquidator or, with his conformity, a creditor may
lien by agreement with the liquidator and is admitted initiate and prosecute any action to rescind, or declare
as a creditor for the balance , shall be considered as null and void any transaction described in the
unsecured creditors. The liquidator shall make the immediately preceding paragraph. If the liquidator
registry available for public inspection and provide does not consent to the filling or prosecution of such
publication notice to creditors, individual debtors
39
action, any creditor may seek leave of the court to Section 131. Sale of Assets in Liquidation. - The
commence said action. liquidator may sell the unencumbered assets of the
debtor and convert the same into money. The sale
(b) if leave of court is granted under shall be made at public auction. However, a private
subsection (a) hereof, the liquidator shall sale may be allowed with the approval of the court if;
assign and transfer to the creditor all rights, (a) the goods to be sold are of a perishable nature, or
title and interest in the chose in action or are liable to quickly deteriorate in value, or are
subject matter of the proceeding, including disproportionately expensive to keep or maintain; or
any document in support thereof. (b) the private sale is for the best interest of the debtor
and his creditors.
(c) Any benefit derived from a proceeding
taken pursuant to subsection (a) hereof, to the With the approval of the court, unencumbered
extent of his claim and the costs, belongs property of the debtor may also be conveyed to a
exclusively to the creditor instituting the creditor in satisfaction of his claim or part thereof.
proceeding, and the surplus, if any, belongs to
the estate. Section 132. manner of Implementing the Liquidation
Plan. - The Liquidator shall implement the Liquidation
(d) Where, before an orders is made under Plan as approved by the court. Payments shall be
subsection (a) hereof, the liquidator signifies made to the creditors only in accordance with the
to the court his readiness to the institute the provisions of the Plan.
proceeding for the benefit of the creditors, the
order shall fix the time within which he shall do Section 133. Concurrence and Preference of
so and, in that case the benefit derived from Credits. - The Liquidation Plan and its Implementation
the proceedings, if instituted within the time shall ensure that the concurrence and preference of
limits so fixed, belongs to the estate. credits as enumerated in the Civil Code of the
Philippines and other relevant laws shall be observed,
(E) The Liquidation Plan. unless a preferred creditor voluntarily waives his
preferred right. For purposes of this chapter, credits
Section 129. The Liquidation Plan. - Within three (3) for services rendered by employees or laborers to the
months from his assumption into office, the Liquidator debtor shall enjoy first preference under Article 2244
shall submit a Liquidation Plan to the court. The of the Civil Code, unless the claims constitute legal
Liquidation Plan shall, as a minimum enumerate all liens under Article 2241 and 2242 thereof.
the assets of the debtor and a schedule of liquidation
of the assets and payment of the claims. Section 134. Order Removing the Debtor from the
List of Registered Entitles at the Securities and
Section 130. Exempt Property to be Set Apart. - It Exchange Commission. - Upon determining that the
shall be the duty of the court, upon petition and after liquidation has been completed according to this Act
hearing, to exempt and set apart, for the use and and applicable law, the court shall issue an Order
benefit of the said insolvent, such real and personal approving the report and ordering the SEC to remove
property as is by law exempt from execution, and also the debtor from the registry of legal entities.
a homestead; but no such petition shall be heard as
aforesaid until it is first proved that notice of the Section 135. Termination of Proceedings. - Upon
hearing of the application therefor has been duly receipt of evidence showing that the debtor has been
given by the clerk, by causing such notice to be removed from the registry of legal entities at the SEC.
posted it at least three (3) public places in the The court shall issue an Order terminating the
province or city at least ten (10) days prior to the time proceedings.
of such hearing, which notice shall set forth the name
of the said insolvent debtor, and the time and place (F) Liquidation of a Securities Market Participant.
appointed for the hearing of such application, and
shall briefly indicate the homestead sought to be Section 136. Liquidation of a Securities Market
exempted or the property sought to be set aside; and Participant. - The foregoing provisions of this chapter
the decree must show that such proof was made to shall be without prejudice to the power of a regulatory
the satisfaction of the court, and shall be conclusive agency or self- regulatory organization to liquidate
evidence of that fact. trade-related claims of clients or customers of a
securities market participant which, for purposes of
investor protection, are hereby deemed to have
40
absolute priority over other claims of whatever nature (e) The specific purpose or purposes which the
or kind insofar as trade-related assets are concerned. corporation intends to pursue in the transaction
of its business in the Philippines: Provided, That
For purposes of this section, trade -related assets said purpose or purposes are those specifically
include cash, securities, trading right and other owned stated in the certificate of authority issued by the
appropriate government agency;
and used by the securities market participant in the
ordinary course of this business.
(f) The names and addresses of the present
directors and officers of the corporation;
Foreign Corporation
(g) A statement of its authorized capital stock and
TITLE XV the aggregate number of shares which the
FOREIGN CORPORATIONS corporation has authority to issue, itemized by
class, par value of shares, shares without par
value, and series, if any;
SEC. 140. Definition and Rights of Foreign
Corporations . – For purposes of this Code, a foreign (h) A statement of its outstanding capital stock and
corporation is one formed, organized or existing under the aggregate number of shares which the
laws other than those of the Philippines’ and whose laws corporation has issued, itemized by class, par
allow Filipino citizens and corporations to do business in value of shares, shares without par value, and
its own country or State. It shall have the right to series, if any;
transact business in the Philippines after obtaining a
license for that purpose in accordance with this Code (i) A statement of the amount actually paid in; and
and a certificate of authority from the appropriate
government agency. (j) Such additional information as may be
necessary or appropriate in order to enable the
SEC. 141. Application to Existing Foreign Commission to determine whether such
Corporations. – Every foreign corporation which, on the corporation is entitled to a license to transact
date of the effectivity of this Code, is authorized to do business in the Philippines, and to determine
business in the Philippines under a license issued to it and assess the fees payable.
shall continue to have such authority under the terms
and conditions of its license, subject to the provisions of Attached to the application for license shall be a
this Code and other special laws. certificate under oath duly executed by the authorized
official or officials of the jurisdiction of its incorporation,
SEC. 142. Application for a License. – A foreign attesting to the fact that the laws of the country or State
corporation applying for a license to transact business in of the applicant allow Filipino citizens and corporations to
the Philippines shall submit to the Commission a copy of do business therein, and that the applicant is an existing
its articles of incorporation and bylaws, certified in corporation in good standing. If the certificate is in a
accordance with law, and their translation to an official foreign language, a translation thereof in English under
language of the Philippines, if necessary. The application oath of the translator shall be attached to the application.
shall be under oath and, unless already stated in its
articles of incorporation, shall specifically set forth the The application for a license to transact business in the
following: Philippines shall likewise be accompanied by a
statement under oath of the president or any other
(a) The date and term of incorporation; person authorized by the corporation, showing to the
satisfaction of the Commission and when appropriate,
(b) The address, including the street number, of the other governmental agencies that the applicant is solvent
principal office of the corporation in the country and in sound financial condition, setting forth the assets
or state of incorporation; and liabilities of the corporation as of the date not
exceeding one (1) year immediately prior to the filing of
(c) The name and address of its resident agent the application.
authorized to accept summons and process in
all legal proceedings and all notices affecting the Foreign banking, financial, and insurance corporations
corporation, pending the establishment of a local shall, in addition to the above requirements, comply with
office; the provisions of existing laws applicable to them. In the
case of all other foreign corporations, no application for
(d) The place in the Philippines where the license to transact business in the Philippines shall be
corporation intends to operate; accepted by the Commission without previous authority
41
from the appropriate government agency, whenever licensee has no liability to Philippine residents, including
required by law. the Government of the Republic of the Philippines. For
purposes of computing the securities deposit, the
SEC. 143. Issuance of a License . – If the Commission composition of gross income and allowable deductions
is satisfied that the applicant has complied with all the therefrom shall be in accordance with the rules of the
requirements of this Code and other special laws, rules Commission.
and regulations, the Commission shall issue a license to
transact business in the Philippines to the applicant for SEC. 144. Who May be a Resident Agent. – A resident
the purpose or purposes specified in such license. Upon agent may be either an individual residing in the
issuance of the license, such foreign corporation may Philippines or a domestic corporation lawfully transacting
commence to transact business in the Philippines and business in the Philippines: Provided, That an individual
continue to do so for as long as it retains its authority to resident agent must be of good moral character and of
act as a corporation under the laws of the country or sound financial standing: Provided, further, That in case
State of its incorporation, unless such license is sooner of a domestic corporation who will act as a resident
surrendered, revoked, suspended, or annulled in agent, it must likewise be of sound financial standing and
accordance with this Code or other special laws. Within must show proof that it is in good standing as certified by
sixty (60) days after the issuance of the license to the Commission.
transact business in the Philippines, the licensee, except
foreign banking or insurance corporations, shall deposit SEC. 145. Resident Agent; Service of Process. – As a
with the Commission for the benefit of present and future condition to the issuance of the license for a foreign
creditors of the licensee in the Philippines, securities corporation to transact business in the Philippines, such
satisfactory to the Commission, consisting of bonds or corporation shall file with the Commission a written
other evidence of indebtedness of the Government of the power of attorney designating a person who must be a
Philippines, its political subdivisions and resident of the Philippines, on whom summons and other
instrumentalities, or of government-owned or -controlled legal processes may be served in all actions or other
corporations and entities, shares of stock or debt legal proceedings against such corporation, and
securities that are registered under Republic Act No. consenting that service upon such resident agent shall
8799, otherwise known as “The Securities Regulation be admitted and held as valid as if served upon the duly
Code”, shares of stock in domestic corporations listed in authorized officers of the foreign corporation at its home
the stock exchange, shares of stock in domestic office. Such foreign corporation shall likewise execute
insurance companies and banks, any financial and file with the Commission an agreement or
instrument determined suitable by the Commission, or stipulation, executed by the proper authorities of said
any combination thereof with an actual market value of corporation, in form and substance as follows:
at least Five hundred thousand pesos (P500,000.00) or
such other amount that may be set by the Commission: “The (name of foreign corporation) hereby stipulates and
P r o vid e d , h o w e v e r , That within six (6) months agrees, in consideration of being granted a license to
after each fiscal year of the licensee, the Commission transact business in the Philippines, that if the
shall require the licensee to deposit additional securities corporation shall cease to transact business in the
or financial instruments equivalent in actual market value Philippines, or shall be without any resident agent in the
to two percent (2%) of the amount by which the Philippines on whom any summons or other legal
licensee’s gross income for that fiscal year exceeds Ten processes may be served, then service of any summons
million pesos (P10,000,000.00). The Commission shall or other legal process may be made upon the
also require the deposit of additional securities or Commission in any action or proceeding arising out of
financial instruments if the actual market value of the any business or transaction which occurred in the
deposited securities or financial instruments has Philippines and such service shall have the same force
decreased by at least ten percent (10%) of their actual and effect as if made upon the duly authorized officers of
market value at the time they were deposited. The the corporation at its home office.”
Commission may, at its discretion, release part of the
additional deposit if the gross income of the licensee has
decreased, or if the actual market value of the total Whenever such service of summons or other process is
deposit has increased, by more than ten percent (10%) made upon the Commission, the Commission shall,
of their actual market value at the time they were within ten (10) days thereafter, transmit by mail a copy of
deposited. The Commission may, from time to time, such summons or other legal process to the corporation
allow the licensee to make substitute deposits for those at its home or principal office. The sending of such copy
already on deposit as long as the licensee is solvent. by the Commission shall be a necessary part of and
Such licensee shall be entitled to collect the interest or shall complete such service. All expenses incurred by
dividends on such deposits. In the event the licensee the Commission for such service shall be paid in
ceases to do business in the Philippines, its deposits advance by the party at whose instance the service is
shall be returned, upon the licensee’s application and made.
upon proof to the satisfaction of the Commission that the
42
It shall be the duty of the resident agent to immediately merger or consolidation was effected: Provided,
notify the Commission in writing of any change in the however, That if the absorbed corporation is the foreign
resident agent’s address. corporation doing business in the Philippines, the latter
shall at the same time file a petition for withdrawal of its
SEC. 146. Law Applicable. – A foreign corporation license in accordance with this Title.
lawfully doing business in the Philippines shall be bound
by all laws, rules and regulations applicable to domestic SEC. 150. Doing Business Without a License. – No
corporations of the same class, except those which foreign corporation transacting business in the
provide for the creation, formation, organization or Philippines without a license, or its successors or
dissolution of corporations or those which fix the assigns, shall be permitted to maintain or intervene in
relations, liabilities, responsibilities, or duties of any action, suit or proceeding in any court or
stockholders, members, or officers of corporations to administrative agency of the Philippines; but such
each other or to the corporation. corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid
SEC. 147. Amendments to Articles of Incorporation cause of action recognized under Philippine laws.
or Bylaws of Foreign Corporations. – Whenever the
articles of incorporation or bylaws of a foreign SEC. 151. Revocation of License. – Without prejudice
corporation authorized to transact business in the to other grounds provided under special laws, the license
Philippines are amended, such foreign corporation shall, of a foreign corporation to transact business in the
within sixty (60) days after the amendment becomes Philippines may be revoked or suspended by the
effective, file with the Commission, and in proper cases, Commission upon any of the following grounds:
with the appropriate government agency, a duly
authenticated copy of the amended articles of (a) Failure to file its annual report or pay any fees as
incorporation or bylaws, indicating clearly in capital required by this Code;
letters or underscoring the change or changes made,
duly certified by the authorized official or officials of the (b) Failure to appoint and maintain a resident agent
country or state of incorporation. Such filing shall not in in the Philippines as required by this Title;
itself enlarge or alter the purpose or purposes for which
such corporation is authorized to transact business in the
Philippines. (c) Failure, after change of its resident agent or
address, to submit to the Commission a
statement of such change as required by this
SEC. 148. Amended License. – A foreign corporation Title;
authorized to transact business in the Philippines shall
obtain an amended license in the event it changes its
corporate name, or desires to pursue other or additional (d) Failure to submit to the Commission an
purposes in the Philippines, by submitting an application authenticated copy of any amendment to its
with the Commission, favorably endorsed by the articles of incorporation or bylaws or of any
appropriate government agency in the proper cases. articles of merger or consolidation within the
time prescribed by this Title;
SEC. 149. Merger or Consolidation Involving a
Foreign Corporation Licensed in the Philippines. – (e) A misrepresentation of any material matter in
One or more foreign corporations authorized to transact any application, report, affidavit or other
business in the Philippines may merge or consolidate document submitted by such corporation
with any domestic corporation or corporations if pursuant to this Title;
permitted under Philippine laws and by the law of its
incorporation: Provided, That the requirements on (f) Failure to pay any and all taxes, imposts,
merger or consolidation as provided in this Code are assessments or penalties, if any, lawfully due to
followed. the Philippine Government or any of its agencies
or political subdivisions;
Whenever a foreign corporation authorized to transact
business in the Philippines shall be a party to a merger (g) Transacting business in the Philippines outside
or consolidation in its home country or state as permitted of the purpose or purposes for which such
by the law authorizing its incorporation, such foreign corporation is authorized under its license;
corporation shall, within sixty (60) days after the
effectivity of such merger or consolidation, file with the (h) Transacting business in the Philippines as agent
Commission, and in proper cases, with the appropriate of or acting on behalf of any foreign corporation
government agency, a copy of the articles of merger or or entity not duly licensed to do business in the
consolidation duly authenticated by the proper official or Philippines; or
officials of the country or state under whose laws the
43
 (i) Any other ground as would render it unfit to national industrialization and socio-economic
transact business in the Philippines. development to the extent that foreign investment is
allowed in such activity by the Constitution and relevant
SEC. 152. Issuance of Certificate of Revocation. – laws. Foreign investments shall be encouraged in
Upon the revocation of the license to transact business enterprises that significantly expand livelihood and
in the Philippines, the Commission shall issue a employment opportunities for Filipinos; enhance
corresponding certificate of revocation, furnishing a copy economic value of farm products; promote the welfare of
thereof to the appropriate government agency in the Filipino consumers; expand the scope, quality and
proper cases. volume of exports and their access to foreign markets;
and/or transfer relevant technologies in agriculture,
industry and support services. Foreign investments shall
The Commission shall also mail the notice and copy of
be welcome as a supplement to Filipino capital and
the certificate of revocation to the corporation, at its
technology in those enterprises serving mainly the
registered office in the Philippines.
domestic market.
SEC. 153. Withdrawal of Foreign Corporations. –
As a general rule, there are no restrictions on extent of
Subject to existing laws and regulations, a foreign
foreign ownership of export enterprises. In domestic
corporation licensed to transact business in the
market enterprises, foreigners can invest as much as
Philippines may be allowed to withdraw from the
one hundred percent (100%) equity except in areas
Philippines by filing a petition for withdrawal of license.
included in the negative list. Foreign owned firms
No certificate of withdrawal shall be issued by the
catering mainly to the domestic market shall be
Commission unless all the following requirements are
encouraged to undertake measures that will gradually
met:
increase Filipino participation in their businesses by
taking in Filipino partners, electing Filipinos to the board
(a) All claims which have accrued in the Philippines of directors, implementing transfer of technology to
have been paid, compromised or settled; Filipinos, generating more employment for the economy
and enhancing skills of Filipino workers.
(b) All taxes, imposts, assessments, and penalties,
if any, lawfully due to the Philippine Government SEC. 3. Definitions. – As used in this Act:
or any of its agencies or political subdivisions,
have been paid; and
a) the term “Philippine National”  shall mean a citizen of
the Philippines or a domestic partnership or association
(c) The petition for withdrawal of license has been wholly owned by citizens of the Philippines; or a
published once a week for three (3) consecutive corporation organized under the laws of the Philippines
weeks in a newspaper of general circulation in of which at least sixty percent (60%) of the capital stock
the Philippines. outstanding and entitled to vote is owned and held by
citizens of the Philippines or a corporation organized
REPUBLIC ACT NO. 7042 abroad and registered as doing business in the
Philippine under the Corporation Code of which one
(As amended by RA 8179) hundred percent (100%) of the capital stock outstanding
and entitled to vote is wholly owned by Filipinos or a
AN ACT TO PROMOTE FOREIGN INVESTMENTS, trustee of funds for pension or other employee retirement
PRESCRIBE THE PROCEDURES FOR REGISTERING or separation benefits, where the trustee is a Philippine
ENTERPRISES DOING BUSINESS IN THE national and at least sixty percent (60%) of the fund will
PHILIPPINES, AND FOR OTHER PURPOSES accrue to the benefit of Philippine
nationals: Provided, That where a corporation and its
non-Filipino stockholders own stocks in a Securities and
(D) BE IT ENACTED BY THE SENATE AND
Exchange Commission (SEC) registered enterprise, at
HOUSE OF REPRESENTATIVES OF THE
least sixty percent (60%) of the capital stock outstanding
PHILIPPINES IN CONGRESS ASSEMBLED:
and entitled to vote of each of both corporations must be
owned and held by citizens of the Philippines and at
SECTION 1. Title. – This Act shall be known as the least sixty percent (60%) of the members of the Board of
“Foreign Investments Act of 1991”. Directors of each of both corporations must be citizens of
the Philippines, in order that the corporation shall be
SEC. 2. Declaration of Policy. –  It is the policy of the considered a Philippine national; (as amended by R.A.
State to attract, promote and welcome productive 8179).
investments from foreign individuals, partnerships,
corporations, and governments, including their political
subdivisions, in activities which significantly contribute to

44
b) the term “investment” shall mean equity participation SEC. 5. Registration of Investments of Non-Philippine
in any enterprise organized or existing under the laws of Nationals. –  Without need of prior approval, a non-
the Philippines; Philippine national, as that term is defined in Section 3
a), and not otherwise disqualified by law may, upon
c) the term “foreign investment” shall mean an equity registration with the Securities and Exchange
investment made by a non-Philippine national in the form Commission (SEC), or with the Bureau of Trade
of foreign exchange and/or other assets actually Regulation and Consumer Protection (BTRCP) of the
transferred to the Philippines and duly registered with the Department of Trade and Industry in the case of single
Central Bank which shall assess and appraise the value proprietorships, do business as defined in Section 3 d) of
of such assets other than foreign exchange; this Act or invest in a domestic enterprise up to one
hundred percent (100%) of its capital, unless
participation of non-Philippine nationals in the enterprise
d) the phrase “doing business” shall include soliciting
is prohibited or limited to a smaller percentage by
orders, service contracts, opening offices, whether called
existing law and/or under the provisions of this Act. The
“liaison” offices or branches; appointing representatives
SEC or BTRCP, as the case may be, shall not impose
or distributors domiciled in the Philippines or who in any
any limitations on the extent of foreign ownership in an
calendar year stay in the country for a period or periods
enterprise additional to those provided in this
totaling one hundred eighty (180) days or more;
Act: Provided, however,  That any enterprise seeking to
participating in the management, supervision or control
avail of incentives under the Omnibus Investment Code
of any domestic business, firm, entity or corporation in
of 1987 must apply for registration with the Board of
the Philippines; and any other act or acts that imply a
Investments (BOI), which shall process such application
continuity of commercial dealings or arrangements, and
for registration in accordance with the criteria for
contemplate to that extent the performance of acts or
evaluation prescribed in said Code: Provided,
works, or the exercise of some of the functions normally
finally, That a non-Philippine national intending to
incident to, and in progressive prosecution of,
engage in the same line of business as an existing joint
commercial gain or of the purpose and object of the
venture, in which he or his majority shareholder is a
business organization: Provided, however,  That the
substantial partner, must disclose the fact and the
phrase “doing business” shall not be deemed to include
names and addresses of the partners in the existing joint
mere investment as a shareholder by a foreign entity in
venture in his application for registration with SEC.
domestic corporations duly registered to do business,
During the transitory period as provided in Section 15
and/or the exercise of rights as such investor; nor having
hereof, SEC shall disallow registration of the applying
a nominee director or officer to represent its interests in
non-Philippine national if the existing joint venture
such corporation; nor appointing a representative or
enterprise, particularly the Filipino partners therein, can
distributor domiciled in the Philippines which transacts
reasonably prove they are capable to make the
business in its own name and for its own account;
investment needed for the domestic market activities to
be undertaken by the competing applicant. Upon
e) the term “export enterprise” shall mean an enterprise effectivity of this Act, SEC shall effect registration of any
wherein a manufacturer, processor or service (including enterprise applying under this Act within fifteen (15) days
tourism) enterprise exports sixty percent (60%) or more upon submission of completed requirements.
of its output, or wherein a trader purchases products
domestically and exports sixty percent (60%) or more of
SEC. 6. Foreign Investment in Export Enterprises.
such purchases;
– Foreign investment in export enterprises whose
products and services do not fall within Lists A and B of
f) the term “domestic market enterprise” shall mean an the Foreign Investment Negative List provided under
enterprise which products goods for sale, or renders Section 8 hereof is allowed up to one hundred percent
services to the domestic market entirely or if exporting a (100%) ownership.
portion of its output fails to consistency export at least
sixty percent (60%) thereof; and
Export enterprises which are non-Philippine
nationals shall register with BOI and submit the
g) the term “Foreign Investments Negative List” or reports that may be required to ensure continuing
“Negative List” shall mean a list of areas of economic compliance of the export enterprise with its export
activity whose foreign ownership is limited to a maximum requirement. BOI shall advise SEC or BTRCP, as
of forty percent (40%) of the equity capital of the the case may be, of any export enterprise that fails
enterprises engaged therein. to meet the export ratio requirement. The SEC or
BTRCP shall thereupon order the non-complying
SEC. 4. Scope. –  This Act shall not apply to banking and export enterprise to reduce its sales to the domestic
other financial institutions which are governed and market to not more than forty percent (40%) of its
regulated by the General Banking Act and other laws total production; failure to comply with such SEC or
under the supervision of the Central Bank. BTRCP order, without justifiable reason, shall

45
 subject the enterprise to cancellation of SEC or “Transitory Foreign Investment Negative List”
BTRCP registration, and/or the penalties provided in established in Sec. 15 hereof shall be replaced at the
Section 14 hereof. end of the transitory period by the first Regular Negative
List to be formulated and recommended by NEDA,
SEC. 7. Foreign Investment in Domestic Market following the process and criteria provided in Sections 8
Enterprises. Non-Philippine nationals may own up to of this Act. The first Regular Negative List shall be
one hundred percent (100%) of domestic market published not later than sixty (60) days before the end of
enterprises unless foreign ownership therein is the transitory period provided in said section, and shall
prohibited or limited by the Constitution existing law become immediately effective at the end of the transitory
or the Foreign Investment Negative List under period. Subsequent Foreign Investment Negative Lists
Section 8 hereof. (As amended by R.A. 8179) shall become effective fifteen (15) days after publication
in a newspaper of general circulation in the Philippines:
Provided, however, That each Foreign Investment
SEC. 8. List of Investment Areas Reserved to Philippine
Negative List shall be prospective in operation and shall
Nationals (Foreign Investment Negative List). – The
in no way affect foreign investment existing on the date
Foreign Investment Negative List shall have two (2)
of its publication.
components lists; A, and B.

“Amendments to List B after promulgation and

a) List A shall enumerate the areas of activities
publication of the first Regular Foreign Investment
reserved to Philippine nationals by mandate of the
Negative List at the end of the transitory period shall not
Constitution and specific laws.
be made more often than once every two (2) years”. (As
amended by R.A. 8179)
b) List B shall contain the areas of activities and
enterprises regulated pursuant to law:
SEC. 9. Investment Rights of Former Natural-born
Filipinos. – For the purpose of this Act, former natural
1) which are defense-related activities, requiring prior born citizens of the Philippines shall have the same
clearance and authorization from Department of National investment rights of a Philippine citizen in Cooperatives
Defense (DND) to engage in such activity, such as the under Republic Act No. 6938, Rural Banks under
manufacture, repair, storage and/or distribution of Republic ActNo. 7353, Thrift Banks and Private
firearms, ammunition, lethal weapons, military ordinance, Development Banks under Republic Act No. 7906, and
explosives, pyrotechnics and similar materials; unless Financing Companies under Republic Act No. 5980.
such manufacturing or repair activity is specifically These rights shall not extend to activities reserved by the
authorized, with a substantial export component, to a Constitution, including (1) the exercise of profession; (2)
non-Philippine national by the Secretary of National in defense related activities under Section 8 (b) hereof.
Defense; or Unless specifically authorized by the Secretary of
National Defense; and, (3) activities covered by Republic
2) which have implications on public health and morals, Act No. 1180 (Retail Trade Act). Republic Act No. 5187
such as the manufacture and distribution of dangerous (Security Agency Act), Republic Act No. 7076 (Small
drugs; all forms of gambling; nightclubs, bars, Scale Mining Act), Republic Act No. 3018. As amended
beerhouses, dance halls; sauna and steam bathhouses (Rice and Corn Industry Act). And P.D. 449 (Cockpits
and massage clinics. Operation and Management)”. (As amended by R.A.
8179)
“Small and medium-sized domestic market enterprises,
with paid-in equity capital less than the equivalent two SEC. 10. Other Rights of Natural Born Citizen Pursuant
hundred thousand US dollars (US$200,000) are to the Provisions of Article XII, Section 8 of the
reserved to Philippine nationals, Provided that if: (1) they Constitution. – Any natural born citizen who has lost his
involve advanced technology as determined by the Philippine citizenship and who has the legal capacity to
Department of Science and Technology or (2) they enter into a contract under Philippine laws may be a
employ at least fifty (50) direct employees, then a transferee of a private land up to a maximum area of five
minimum paid-in capital of one hundred thousand US thousand (5,000) square meters in the case of urban
dollars (US$100,000.00) shall be allowed to non- land or three (3) hectares in the case of rural land to be
Philippine nationals. used by him for business or other purposes. In the case
of married couples, one of them may avail of the
Amendments to List B may be made upon privilege herein granted: Provided, That if both shall avail
recommendation of the Secretary of National Defense, of the same, the total area acquired shall not exceed the
or the Secretary of Health, or the Secretary of Education, maximum herein fixed.
Culture and Sports, endorsed by the NEDA, approved by
the President, and promulgated by a Presidential In the case the transferee already owns urban or rural
Proclamation. land for business or other purposes, he shall still be
46
entitled to be a transferee of additional urban or rural SEC. 15. Transitory Provisions. –  Prior to effectivity of
land for business or other purposes which when added the implementing rules and regulations of this Act, the
to those already owned by him shall not exceed the provisions of Book II of Executive Order 226 and its
maximum areas herein authorized. implementing rules and regulations shall remain in force.

A transferee under this Act may acquire not more than During the initial transitory period of thirty-six (36)
two (2) lots which should be situated in different months after issuance of the Rules and Regulations to
municipalities or cities anywhere in the Philippines: implement this Act, the Transitory Foreign Investment
Provided, That the total land area thereof shall not Negative List shall consist of the following:
exceed five thousand (5,000) square meters in the case
of urban land or three (3) hectares in the case of rural A. List A:
land for use by him for business or other purposes. A
transferee who has already acquired urban land shall be 1. All areas of investment in which foreign ownership is
disqualified from acquiring rural land and vice versa”. (As limited by mandate of Constitution and specific laws.
amended by R.A. 8179)
B. List B:
SEC. 11. Compliance with Environmental Standards.
– All industrial enterprises regardless of nationality of
ownership shall comply with existing rules and 1. Manufacture, repair, storage and/or distribution of
regulations to protect and conserve the environment and firearms, ammunition, lethal weapons, military
meet applicable environmental standards.
ordnance, explosives, pyrotechnics and similar materials
SEC. 12. Consistent Government Action. –  No agency, required by law to be licensed by and under the
instrumentality or political subdivision of the continuing regulation of the Department of National
Governmentshall take any action in conflict with or which Defense; unless such manufacturing or repair activity is
will nullify the provisions of this Act, or any certificate or specifically authorized, with substantial export
authority granted hereunder. component, to a non-Philippine national by the Secretary
of National Defense;
SEC. 13. Implementing Rules and Regulations. – NEDA,
in consultation with BOI, SEC and other government 2. Manufacture and distribution of dangerous drugs; all
agencies concerned, shall issue the rules and forms of gambling; nightclubs, bars, beerhouses, dance
regulations to implement this Act within one hundred and halls; sauna and steam bathhouses, massage clinics
twenty (120) days after its effectivity. A copy of such and other like activities regulated by law because of risks
rules and regulations shall be furnished the Congress of they may pose to public health and morals;
the Republic of the Philippines.
3. “Small and medium-sized domestic market enterprises
SEC. 14. Administrative Sanctions. –  A person who with paid-in equity capital less than the equivalent of
violates any provision of this Act or of the terms and Two-hundred thousand US dollars (US$200,000.00),
conditions of registration or of the rules and regulations reserved to Philippine nationals: Provided, That if: (1)
issued pursuant thereto, or aids or abets in any manner they involve advanced technology as determined by the
any violation shall be subject to a fine not exceeding one Department of Science and Technology or (2) they
hundred thousand pesos (P100,000). employ at least fifty (50) direct employee, then a
minimum paid-in capital of One hundred thousand US
dollars (US$100,000.00) shall be allowed to non-
If the offense is committed by a juridical entity, it shall be Philippine nationals.
subject to a fine in an amount not exceeding ½ of 1% of
total paid-in capital but not more than five million pesos
(P5,000,000). The president and/or officials responsible SEC. 16. Repealing Clause. – Articles forty-four (44) to
therefor shall also be subject to a fine not exceeding two fifty-six (56) of Book II of Executive Order No. 226 are
hundred thousand pesos (P200,000.00) hereby repealed.

In addition to the foregoing, any person, firm or juridical All other laws or parts of laws inconsistent with the
entity involved shall be subject to forfeiture of all benefits provisions of this Act are hereby repealed or modified
granted under this Act. accordingly.

SEC shall have the power to impose administrative SEC. 17. Separability Clause. –  If any part or section of
sanctions as provided herein for any violation of this Act this Act is declared unconstitutional for any reason
or its implementing rules and regulations. whatsoever, such declaration shall not in any way affect
the other parts or sections of this Act.

47
SEC. 18. Effectivity. –  This Act take effect from fifteen Compliance with the required Filipino ownership of a
(15) days after approval and publication in two (2)
newspapers of general circulation in the Philippines. corporation shall be determined on the basis of
outstanding capital stock whether fully paid or not,
IMPLEMENTING RULES & REGULATIONS but only such stocks which are generally entitled to
OF vote are considered.cralaw
THE FOREIGN INVESTMENTS ACT OF 1991
[Republic Act No. 7042] For stocks to be deemed owned and held by
AN ACT TO PROMOTE FOREIGN INVESTMENTS, Philippine citizens or Philippine nationals, mere legal
PRESCRIBE THE PROCEDURES FOR REGISTERING title is not enough to meet the required Filipino
ENTERPRISES DOING BUSINESS IN THE
equity. Full beneficial ownership of the stocks,
PHILIPPINES AND FOR OTHER PURPOSES
coupled with appropriate voting rights is essential.
Thus, stocks, the voting rights of which have been
assigned or transferred to aliens cannot be
RULE I
considered held by Philippine citizens or Philippine
DEFINITIONS
nationals.cralaw
SECTION 1. Definition of Terms.  - For the purpose of
Individuals or juridical entities not meeting the
these Rules and Regulations:
aforementioned qualifications are considered as
a.  "Act" shall refer to Republic Act 7042 entitled "An
non-Philippine nationals.cralaw
Act to Promote Foreign Investments, Prescribe the
c.  "Foreign corporation" shall mean one which is
Procedures for Registering Enterprises Doing
formed, organized or existing under laws other than
Business in the Philippines, and for Other
those of the Philippines.cralaw
Purposes", also known as the Foreign Investments
Branch office of a foreign company carries out the
Act of 1991, as amended.cralaw
business activities of the head office and derives
b.   "Philippine national" shall mean a citizen of the
income from the host country.cralaw
Philippines or a domestic partnership or association
Representative or liaison office deals directly, with
wholly owned by the citizens of the Philippines; or a
the clients of the parent company but does not
corporation organized under the laws of the
derive income from the host country and is fully
Philippines of which at least sixty percent [60%] of
subsidized by its head office. It undertakes activities
the capital stock outstanding and entitled to vote is
such as but not limited to information dissemination
owned and held by citizens of the Philippines; or a
and promotion of the company's products as well as
trustee of funds for pension or other employee
quality control of products.cralaw
retirement or separation benefits, where the trustee
d.  Investment shall mean equity participation in any
is a Philippine national and at least sixty percent
enterprise organized or existing under the laws of
[60%] of the fund will accrue to the benefit of the
the Philippines. It includes both original and
Philippine nationals; Provided, that where a
additional investments, whether made directly as in
corporation its non-Filipino stockholders own stocks
stock subscription, or indirectly through the transfer
in a Securities and Exchange Commission [SEC]
of equity from one investor to another as in stock
registered enterprise, at least sixty percent [60%] of
purchase. Ownership of bonds [including income
the capital stock outstanding and entitled to vote of
bonds], debentures, notes or other evidences of
both corporations must be owned and held by
indebtedness does not qualify as
citizens of the Philippines and at least sixty percent
investments.cralaw
[60%] of the members of the Board of Directors of
The purchase of stock options or stock warrants is
each of both corporation must be citizens of the
not an investment until the holder thereof exercises
Philippines, in order that the corporation shall be
his option and actually acquires stock from the
considered a Philippine national. The control test
corporation.cralaw
shall be applied for this purpose.cralaw
e.  "Foreign investment" shall mean an equity
investment made by a non-Philippine
48
national; Provided, however, That for purposes of 4.  The publication of a general advertisement
determining foreign ownership, peso investments through any print or broadcast media;
made by non-Philippine nationals shall be 5.  Maintaining a stock of goods in the Philippines
considered; Provided, further, That only foreign solely for the purpose of having the same processed
investments in the form of foreign exchange and/or by another entity in the Philippines;
other assets actually transferred to the Philippines 6.  Consignment by a foreign entity of equipment
and duly registered with the Central Bank (CB) and with a local company to be used in the processing of
profits derived therefrom can be repatriated; products for export;
and Provided, finally, That, for purposes of Section 8 7.  Collecting information in the Philippines; and
of the Act, and Rule VIII, Section 6 of these Rules 8.  Performing services auxiliary to an existing
and Regulations, "Existing Foreign isolated contract of sale which are not on a
Investments" shall mean an equity investments continuing basis, such as installing in the
made by a non-Philippine national duly registered Philippines machinery it has manufactured or
with the SEC or the Bureau of Trade Regulation and exported to the Philippines, servicing the same,
Consumer Protection (BTRCP) in the form of foreign training domestic workers to operate it, and similar
exchange and/or other assets transferred to the incidental services.
Philippines.cralaw g.  "Export enterprise" shall mean an enterprise
f.  "Doing business" shall include soliciting orders, wherein a manufacturer, processor or service
service contracts, opening offices, whether liaison [including tourism] enterprise exports sixty percent
offices or branches; appointing representatives or [60%] or more of its output, or wherein a trader
distributors, operating under full control of the purchases products domestically and exports sixty
foreign corporation, domiciled in the Philippines or percent [60%] or more of such purchases.
who in any calendar year stay in the country for a h.  "Exports" shall mean the volume of the Philippine
period totaling one hundred eighty [180] days or port F. O. B. peso value, determined from invoices,
more; participating in the management, supervision bills of lading, inward letters of credit, loading
or control of any domestic business, firm, entity or certificates, and other commercial documents, of
corporation in the Philippines; and any other act or products exported directly by an export enterprise or
acts that imply a continuity of commercial dealings the value of services including tourism sold by
or arrangements, and contemplate to that extent the service-oriented enterprises to non-resident
performance of acts or works, or the exercise of foreigners or the net selling price of export products
some of the functions normally incident to and in sold by an export enterprise to another export
progressive prosecution of commercial gain or of enterprise that subsequently exports the
the purpose and object of the business same; Provided, That sales of export products to
organization.cralaw another export enterprise shall only be deemed
The following acts shall not be deemed "doing exports when actually exported by the latter, as
business" in the Philippines: evidenced by loading certificates or similar
1.  Mere investment as a shareholder by a foreign commercial documents; and Provided, finally, That
entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such without actual exportation, the following shall be
investor; considered constructively exported for purposes of
2.  Having a nominee director or officer to represent the Act: [1] sales of products to bonded
its interest in such corporation; manufacturing warehouses of export enterprises; [2]
3.  Appointing a representative or distributor sales of products to export processing zone
domiciled in the Philippines which transacts enterprises; [3] sales of products to export
business in the representative's or distributor's own enterprises operating bonded trading warehouses
name and account; supplying raw materials used in the manufacture of
export products; and [4] sales of products to foreign
49
military bases, diplomatic missions and other k.  "Domestic market enterprise" shall mean an
agencies and/or instrumentalities granted tax enterprise which produces goods for sale, or
immunities of locally manufactured, assembled or renders service or otherwise engages in any
repacked products whether paid for in foreign business in the Philippines.
currency or pesos funded from inwardly remitted l. "Joint venture" shall mean two or more entities,
foreign currency.cralaw whether natural or juridical, one of which must be a
Sales of locally manufactured or assembled goods Philippine national, combining their property,
for household and personal use to Filipinos abroad money, efforts, skills or knowledge to carry out a
and other non-residents of the Philippines as well as single business enterprise for profit, which is duly
returning overseas Filipinos under the Internal registered with the SEC as a corporation or
Export Program of the Government and paid for in partnership.cralaw
convertible foreign currency inwardly remitted m.  "Substantial partner" shall mean an individual or
through the Philippine banking system shall also be a firm who owns enough shares to be entitled to at
considered exports.cralaw least one [1] seat on the Board of Directors of a
i.  "Output" shall refer to the export enterprise's total corporation, or in the case of a partnership, any
sales in a taxable year. The term sales shall refer to partner.cralaw
the value in case of heterogeneous products and n.  "Dangerous drug" as defined under Republic Act
volume in case of homogeneous products.cralaw 6425 or the Dangerous Drugs Act, as amended,
Heterogeneous products shall refer to products of refers to either:
different kinds and characteristics as well as to 1. "Prohibited drug" which includes opium and its
active components and derivatives, such as heroin
those of the same kind but with various categories and morphine; coca leaf and its derivatives,
using different units of measurement.cralaw principally cocaine; alpha and bet eucaine;
Homogeneous products shall refer to products of hallucinogenic drugs, such as mescaline, lysergic
and dicthlylamide [LSD] and other substances
the same kind or category using a common unit of
producing similar effects; Indian hemp and its
measurement.cralaw derivatives; all preparations made from any of the
j.  "Export ratio" shall refer to: foregoing; and other drugs and chemical
1.  the percentage share of the volume or peso value preparations whether natural or synthetic, with the
of goods exported to the total volume or value of physiological effects of a narcotic or hallucinogenic
goods sold in any taxable year if the export drug; or
enterprise is engaged in manufacturing or 2.  "Regulated drug" which includes, unless
processing;
authorized by the Department of Health [DOH] and in
2.  the percentage share of the peso value of
accordance with the Dangerous Drugs Board, self-
services sold to foreigners to total earnings or
inducing sedatives, such as secobarbital,
receipts from the sale of its services from all
phenobarbital, pentobarbital, barbital, amobarbital or
sources in any taxable year if the export enterprise
any other drug which contains a salt or a derivative
is service-oriented; Value of services sold shall refer
of salt of barbituric acid; any salt, isomer, or salt of
to the peso value of all services rendered by an
an isomer, of amphetamine such as benzedrine or
export enterprise to foreigners that are paid for in
dexedrine, or any drug which produces a
foreign currency and/or pesos funded from inwardly
physiological action similar to amphetamine; and
remitted foreign currency as properly documented
hypnotic drugs, such as methaqualone, nitrazepam
by the export enterprise; or
or any other compound producing similar
3.  the percentage share of the volume or peso value
physiological effects.
of goods exported to the total volume or value of
o.  "Advanced technology" refers to a higher degree
goods purchased domestically in any taxable year if
or form of technology than what is domestically
the export enterprise is engaged in merchandise
available and needed for the development of certain
trading.
industries as subject to guidelines of the Department
of Science and Technology [DOST].  Its introduction
50
into the country through foreign investments under Philippine citizenship upon reaching the age of
the terms and conditions of the Act must be linked majority, if born before January 17, 1973, of Filipino
to its appropriateness and adaptability to local mothers.cralaw
conditions with a view towards eventual transfer and y.  "Transferee of private land" shall mean a person
applicability including the upgrading of the to whom the ownership rights of private land is
indigenous technology available. transferred through either voluntary or involuntary
p.  "Paid-in equity capital" shall mean the total sale, devise or donation or involuntary executions of
investment in a business that has been paid-in in a judgment.cralaw
corporation or partnership or invested in a single z.  "Direct employees" shall mean Filipino personnel
proprietorship, which may be in cash or in property. hired and engaged under the control and
It shall also refer to inward remittance or assigned supervision of the applicant investor/employer in the
capital in the case of foreign corporations.cralaw production of goods or performance of services.
q. "Foreign Investment Negative List Excluded from this definition are personnel hired as
[FINL]" or "Negative List" shall mean a list of areas casual, seasonal, learner, apprentice or any
of economic activity whose foreign ownership is employee of subcontractor or those under fixed term
limited to a maximum of forty percent [40%] of the employment.cralaw
outstanding capital stock in the case of a aa.  "Start of commercial operation" shall mean the
corporation, or capital in the case of a date when a particular enterprise actually begins
partnership.cralaw production of the product for commercial purposes
r.  "NEDA Board" shall refer to the body constituted or commercial harvest in the case of agricultural
as such under Executive Order No. 230 entitled activities. In the case of export traders and service
"Reorganizing the National Economic and exporters, the date when the initial export shipment
Development Authority" and in which reside the in commercial quantity has been made or initial
powers and functions of the Authority.cralaw performance of service as borne out by the
s.  "NEDA" shall refer to the NEDA Secretariat, which appropriate supporting documents.
is the body constituted as such under Executive
Order No. 230 and which serves as the research and RULE II
technical support arm and the Secretariat of the SCOPE
NEDA Board.cralaw SECTION 1. Coverage. - The Act covers all
t.  "SEC" shall refer to the Securities and Exchange investment areas or areas of economic activity
Commission.cralaw except banking and other financial institutions which
u.  "BTRCP" shall refer to the Bureau of Trade are governed and regulated by the General Banking
Regulation and Consumer Protection as represented Act and other laws under the supervision of the CB.
by the provincial offices of the Department of Trade
RULE III
and Industry [DTI].cralaw
BASIC GUIDELINES
v.  "BOI" shall refer to the Board of
SECTION 1. The Act covers restrictions pertaining to
Investments.cralaw
foreign equity participation only. All other
w.  "Technology Transfer Board" shall refer to the
regulations governing foreign investments remain in
Bureau of Patents, Trademarks and Technology
force.cralaw
Transfer (BPTTT).cralaw
SECTION 2. Monitoring of compliance with equity
x.  "Former natural born Filipino" shall mean those
participation requirements. - The SEC or BTRCP, as
who have lost Philippine citizenship but were
applicable, shall monitor the compliance with the
previously citizens of the Philippines falling in either
equity requirements of the Act.
of the following categories: [a] from birth without
having to perform any act to acquire or perfect their RULE IV
Philippine citizenship; or [b] by having elected
51
 REGISTRATION OF INVESTMENTS OF NON- a.  Filing of Application.   Applications for
PHILIPPINE NATIONALS registration shall be filed with the SEC in the case of
SECTION 1. Qualifications. - foreign corporations and domestic corporations or
a.  Any non-Philippine national may do business or partnerships which are non-Philippine nationals. In
invest in a domestic enterprise up to one hundred the case of single proprietorships, applications for
percent [100%] of its capital provided: Metro Manila shall be filed with the BTRCP or the
1.  it is investing in a domestic market enterprise in DTI-National Capital Region. In the provinces,
areas outside the FINL; or 
2.  it is investing in an export enterprise whose applications may be filed with the extension offices
products and services do not fall within Lists A and of the SEC for corporations/partnerships and the
B [except for defense-related activities, which may provincial offices of the DTI for sole
be approved pursuant to Section 8(b)(1) of the Act]
proprietorships.cralaw
of the FINL.
b.  Pre-Processing of Documents. Pre-processing of
Provided,  further,  That, as required by existing
documents shall be undertaken to assist the
laws, the country or state of the applicant must also
investor in determining the completeness of his
allow Filipino citizens and corporations to do
documents. All applications are considered officially
business therein. 
accepted only upon submission of complete
 
documents to either the SEC or BTRCP. Applications
b.  Non-Philippine nationals qualified to do business
for clearances from the Department of National
per paragraph [a] above, but who will engage in
Defense [DND] or Philippine National Police [PNP]
more than one investment area, one or more of
for defense-related activities, or the DOST for
which is in the FINL, may be registered under the
investments involving advanced technology shall be
Act. However, said non-Philippine national will not
decided upon by said agencies within fifteen [15]
be allowed to engage in the investment areas which
working days.cralaw
are in the FINL.
c.  Approval. Within fifteen [15] working days from
c.  Existing enterprises which are non-Philippine
official acceptance of an application, the SEC or
nationals at the time of effectivity of the Act and
BTRCP shall act on the same. Otherwise, the
which intend to increase the percentage of foreign
application shall be considered as automatically
equity participation under the Act, beyond that
approved if it is not acted upon within said period for
previously authorized by SEC, shall be governed by
a cause not attributable to the applicant.cralaw
the qualifications in item [a] above. Thus, existing
SECTION 3. Registration with the SEC. -
enterprises shall be allowed to increase the
a.  Existing Requirements.  As required by existing
percentage share of foreign equity participation
laws and regulations, an application form together
beyond current equity holdings only if their existing
with the following documents shall be submitted to
investment area is not in the FINL. Similarly, existing
the SEC:
enterprises engaged in more than one [1] investment
1.  In the case of new domestic corporation or a
area shall be allowed to increase percentage of partnership: 
foreign equity participation if none of the investment  
areas they are engaged in is in the FINL.cralaw i.    Articles of Incorporation/Partnership
Existing foreign corporations shall be allowed to ii.   Name Verification Slip
increase capital even if their existing investment iii.  Bank Certificate of Deposit
area is in the FINL.cralaw iv. ACR/ICR, SIRV [Special Investors Resident
Transfer of ownership from one foreign company to Visa], Visa No. 13 of the alien subscribers
another shall be allowed even if the enterprise is v.  Proof of Inward Remittance [for non-resident
engaged in an area in the FINL as long as there is aliens] 
the percentage share of foreign equity.cralaw  
2.  In the case of a foreign corporation: 
SECTION 2. Application for registration. -   

52
 i.   Name verification slip enterprise has issued an undertaking to employ at
ii.  Certified Copy of the Board Resolution least 50 direct employees shall be submitted.
authorizing the establishment of an office in the  
Philippines; designating the resident agent to The Dole through its Regional Offices, shall validate
and monitor compliance by the investor to the
whom summons and other legal processes may undertaking that it will hire at least 50 direct
be served in behalf of the foreign corporation; and employees within six [6] months from the start of
stipulating that in the absence of such agent or commercial operations. Non-satisfaction of the
undertaking shall be reported to the DOLE Regional
upon cessation of its business in the Philippines,
Offices and to the SEC, which shall cause the
the SEC shall receive any summons or legal investor to satisfy the appropriate higher investment
processes as if the same is made upon the requirement, with penalty for failure to satisfy the
undertaking.
corporation at its home office.
3.  For former natural-born Filipinos wishing to
iii.  Financial statements for the immediately
engage in investment areas allowed to them under
preceding year at the time of filing of the
this Act, the following documents are required: 
application, certified by an independent Certified
 
Public Accountant of the home country.
I.  Copy of birth certificate
iv.  Certified copies of the Articles of a.  Certified by the local civil registrar or the
Incorporation/Partnership with an English National Statistics Office [NSO]; or
translation thereof,  if in a foreign language. b.  For those born abroad, certificate of birth from
v.  Proof of inward remittance such as bank the appropriate government agency of the country
certificate of inward remittance or credit advices.  where the birth is recorded showing the father or
For representative offices, the amount remitted mother to be a Filipino at the time of birth or if the
initially should be at least US$30,000. citizenship of the parents is not indicated,
If the paid-in equity/capital is in kind, additional additional proof that the parent is a Filipino at the
requirements shall be submitted to the SEC time of the applicant investor's birth. 
pursuant to its existing rules and regulations.  
All documents executed abroad should be II.  Those born before 17 January 1973 of Filipino
mother must additionally submit all of the
authenticated by the Philippine Embassy or following: certified true copies of his/her sworn
Consular Office.  statement of election of Filipino citizenship, oath
  of allegiance from the civil registrar where the
3.  In the case of an existing corporation intending to documents were filed and/or forwarded, and
increase foreign equity participation, all documents identification certificate issued by the Bureau of
required of the proposed transaction under Immigration.
applicable laws, rules and regulations shall be  
submitted. III.  In case of loss and/or destruction of the record
of birth or non-registration of birth.
b.  Additional Requirements. As required by the Act,
 Certificate of non-
the following shall be submitted to the SEC: availability of birth certificate on account of loss
1.  For enterprises wishing to engage in defense- and/or destruction of birth record from the local
related activities, clearance from the Department of civil registrar and/or appropriate government
National Defense [DND] or Philippine National Police agency if birth was registered abroad;
[PNP].  Copy of birth
2.  For small and medium-sized domestic market certificate of mother or father certified by the local
enterprises with paid-in equity capital less than the civil registrar or the NSO; and
equivalent of US$200,000 but not less than the  Affidavit of two [2]
disinterested persons attesting to their personal
equivalent of US$100,000, a certificate from the knowledge that at the time of the applicant's birth,
Department of Science and Technology [DOST] that the child was born of a Filipino mother or father.
the investment involves advance technology, or a Any document executed or issued abroad must be
certificate from the appropriate Department of Labor authenticated by the Philippine embassy or
and Employment [DOLE] Regional Office that the

53
 consulate having jurisdiction over the place of majority of the Filipino equity in the existing joint
execution or issuance of the document. venture certify under oath that they are not capable
c.  Application Fee. A reasonable application fee to and willing to make the investment needed for the
be determined by the SEC shall be collected from domestic market activities, which is being proposed
each applicant. to be undertaken by the applicant.cralaw
d.  SEC Action. Upon fulfillment of all SEC b.  If the Filipino partners are willing and able to
requirements and favorable evaluation by the SEC, make the needed investment, the SEC shall not
the Certificate of Registration under the Act for register the applicant, in which case, both joint
domestic corporations and partnerships, or license venture partners may agree to undertake the
to do business in the case of a foreign corporation, expansion. Both partners are then required to place
shall be issued by the SEC. In case of disapproval, the balance of their agreed upon investment shares
the SEC shall also inform the applicant in writing of within six [6] months from the date of the agreement.
the reasons for the disapproval of the The Filipino partner[s] shall not be compelled to
registration.cralaw make additional investment for the proposed
SECTION 4. Registration with the BTRCP- expansion of domestic market activities, if such will
Department of Trade and Industry. - result in a higher Filipino equity share. If the Filipino
a.  Existing Requirements. As required by existing partner[s] fails to infuse said capital within said
laws and regulations, BTRCP Form No. 17 and period, per the report of the non-Philippine national
accompanying documents shall be submitted to applicant to the SEC, the SEC or BTRCP shall then
BTRCP.cralaw allow the registration of said non-Philippine national
All documents executed abroad should be applicant as a separate enterprise under the Act. 
authenticated by the Philippine Embassy or
Consular Office.cralaw  
b.  Additional Requirements. The additional RULE V
requirements for corporations and partnerships REGISTRATION WITH THE CENTRAL BANK
provided under Sec. 3[b] hereof shall be complied SECTION 1. CB Requirements. -  Enterprises
with.cralaw seeking to remit foreign exchange abroad for
c.  Application Fee. A reasonable application fee to purposes of remittance of profits and dividends and
be determined by BTRCP shall be collected from capital repatriation in connection with the foreign
each applicant.cralaw investment made pursuant to the Act shall be
d.  BTRCP-DTI Action. Upon fulfillment of all BTRCP- deemed registered with the CB after SEC or BTRCP
DTI requirements and favorable evaluation by DTI, registration. For this purpose, CB rules and
the Certificate of Registration for Sole Proprietorship regulations covering procedures for registration of
shall be issued by DTI. In case of disapproval, DTI foreign investments shall be observed.
shall also inform the applicant in writing of the
reasons for the disapproval of the RULE VI
registration.cralaw FOREIGN INVESTMENTS IN EXPORT ENTERPRISES
SECTION 5. Registration of non-Philippine nationals SECTION 1. Allowable foreign equity participation. - 
intending to engage in the same line of business as Foreign equity participation in export enterprises
their existing joint venture. - shall be allowed up to one hundred percent [100%]
a.  During the transitory period, any applicant who provided that the products and services of such
has an investment in an existing joint venture, in enterprises do not fall within Lists A and B of the
which he or his majority shareholder in the existing FINL.cralaw
joint venture is a substantial partner, shall be SECTION 2. Registration of export enterprises.  -
registered with the SEC or BTRCP in the same line of Export enterprises shall be deemed registered with
business if the Filipino partners representing the
54
the BOI pursuant to Section 6 of the Act upon percent [100%] unless such participation is
registration with the SEC or BTRCP.cralaw prohibited or limited by existing laws or the
Enterprises registered under the Act seeking to avail FINL.cralaw
of incentives under E. O. 226 must apply for SECTION 2. Change of status from domestic market
registration with the BOI.  Rules and regulations on enterprise to export enterprise.  -  At its option, a
E. O. 226 shall be observed for this purpose.cralaw domestic market enterprise may change its status to
Within then [10] working days from the issuance of an export enterprise if, over the last three [3] years, it
the certificate of registration, the SEC or BTRCP consistently exported in each year thereof sixty
shall transmit to BOI copies of the Certificate of percent [60%] or more of its output.cralaw
Registration together with the application form duly Section 2 of Rule VI shall apply for any change of
accomplished by the export enterprises.cralaw status from domestic to export enterprise. Such
SECTION 3. Submission of reports.   - All duly- application shall be supported by the relevant
registered export enterprises under this Rule shall reports cited in Rule VI, Section 3 hereof, as
submit to the Board of Investment a duly evidence that the applicant enterprise has
accomplished form within six [6] months after the consistently exported sixty percent [60%] or more of
end of each taxable year.cralaw its output.cralaw
Failure of export enterprises to submit the required The new export enterprise shall be subject to the
reports within the prescribed period of time or the reportorial requirements and shall be monitored or
submission of fraudulent reports shall be a ground its compliance with the export requirement under
for the SEC or BTRCP to impose appropriate Sections 3 and 4, respectively, of Rule VI of these
sanctions as provided for under Rule XVII, Section 1, Rules and Regulations.cralaw
of these Rules and Regulations.cralaw
SECTION 4. Monitoring of compliance with the RULE VIII
export requirement.  -  Upon receipt of the report THE REGULAR FOREIGN INVESTMENT NEGATIVE
submitted by the export enterprise, the BOI shall LIST
determine compliance of the enterprise with the SECTION 1. Description. -  The Regular FINL shall
export requirement. If the enterprise fails to comply have three [3] component list: A, B, and C which
with the export requirement, the BOI shall advise the shall contain areas of economic activities reserved
SEC or BTRCP of said failure. The SEC or BTRCP to the Philippine nationals. The description and
shall require the firm to immediately increase its guidelines governing Lists A, B and C are provided
export to at least sixty percent [60%] of total sales. If for in Rules IX, X and XI hereof, respectively.cralaw
the firm fails to comply with the order of the SEC or SECTION 2. Formulation.  - The NEDA shall be
BTRCP without any justifiable reason, it shall be responsible for the formulation of the Regular FINL,
penalized in accordance with the provisions of Rule following the process and criteria provided in
XVIII, Section 1 of these Implementing Rules and Section 8 of the Act and in Rules IX, X and XI
Regulations. The BOI, in consultation with the SEC hereof.cralaw
and BTRCP, shall issue guidelines for this SECTION 3. Approval.   -  The NEDA shall submit the
purpose.cralaw proposed Regular FINLs to the President for
approval and promulgation. The NEDA shall submit
the first Regular FINL to the President at least forty
RULE VII five [45] days before the scheduled date of
FOREIGN INVESTMENTS IN DOMESTIC MARKET publication.cralaw
ENTERPRISES SECTION 4. Publication. - The NEDA shall publish
SECTION 1. Allowable foreign equity participation. - the first Regular Negative List not later than sixty
Foreign equity participation in domestic market [60] days before the end of the transitory
enterprises shall be allowed up to one hundred period.cralaw
55
SECTION 5. Effectivity.  - The first Regular Negative However, the manufacture and repair of said items
List shall become immediately effective at the end of may be specifically authorized by the Secretary of
the transitory period. Subsequent Regular FINLs National Defense or Chief of the PNP to non-
shall become effective fifteen [15] days after Philippine nationals, provided a substantial
publication in two [2] newspapers of general percentage of output as determined by said
circulation in the Philippines.  Except for List A, each agencies is exported.cralaw
Regular FINL shall remain in force for two [2] years Compliance with the export requirement shall be
from the date of its effectivity.cralaw monitored by the DND or PNP, as the case may
SECTION 6. Coverage of operation. -  Each Regular be.cralaw
FINL shall apply only to new foreign investments b.  Activities which have negative implications on
and shall not affect existing foreign investments at public health and morals, such as the manufacture
the time of its publication. and distribution of dangerous drugs; all forms of
gambling; sauna and steam bathhouses and
RULE IX massage clinics.cralaw
GUIDELINES FOR LIST A OF THE REGULAR c.  Small and medium-sized domestic market
FOREIGN INVESTMENT NEGATIVE LIST enterprises with paid-in capital of less than
SECTION 1. Coverage.  - List A of the FINL shall US$500,000 or its equivalent unless they involve
consist of the areas of activities reserved to advanced technology as determined by DOST.cralaw
Philippine nationals where foreign equity d.  Export enterprises utilizing raw materials from
participation in any domestic or export enterprise depleting natural resources, with paid-in equity
engaged in any activity listed therein shall be limited capital of less than US$500,000 or its
to a maximum of forty percent [40%] as prescribed equivalent.cralaw
by the Constitution and other specific laws.cralaw SECTION 2. Process for determination of List B.  - 
The NEDA shall make an enumeration of said a.  Activities [a] and [b] above shall be determined
activities reserved to Philippine nationals by the upon recommendation of the Secretary of National
Constitution and other specific laws.cralaw Defense, Chief of the PNP, Secretaries of Health or
SECTION 2. Amendments.   - Amendments to List A Education, Culture and Sports and endorsed by the
may be made by the NEDA anytime to reflect NEDA or upon recommendation motu proprio of
changes made by law regarding the extent of foreign NEDA, approved and promulgated by the President.
equity participation in any specific area of economic List B shall be submitted for Presidential action
activity.cralaw together with List A. The NEDA shall inform said
agencies of the deadline for the submission of their
RULE X recommendations.cralaw
GUIDELINES FOR LIST B b.  Enterprises which are covered by Section 1 [c]
OF THE REGULAR FOREIGN INVESTMENT above are automatically reserved to Philippine
NEGATIVE LIST nationals.cralaw
SECTION 1. Coverage.  - List B shall consist of the SECTION 3. Amendments.   - Amendments to List B
following: shall be made only after two years, upon the
a.  Activities regulated pursuant to law which are recommendation of the Secretary of National
defense or law enforcement-related, requiring prior Defense, Chief of the PNP, Secretaries of Health and
clearance and authorization from the DND or PNP, to Education, Culture and Sports, endorsed by the
engage in such activity as the manufacture, repair, NEDA, or upon recommendation motu proprio of
storage and/or distribution of firearms, ammunition, NEDA, approved and promulgated by the President.
armored vests and other bullet proof attires, lethal List B shall be submitted for Presidential action
weapons, military ordinance, explosives, together with List A.cralaw
pyrotechnics and similar materials.cralaw

56
 RULE XI that the same shall be used for business or other
INVESTMENT RIGHTS OF FORMER NATURAL BORN purposes.cralaw
FILIPINOS SECTION 5. Land acquired under this Act shall be
SECTION 1. Former natural-born citizens of the primarily, directly and actually used by the
Philippines shall have the same investment rights of transferee in the performance or conduct of his
a Philippine citizen in cooperatives under R. A. 6938, business or commercial activities in the broad areas
rural banks under R. A.  7353, thrift banks and of agriculture, industry, and services, including the
private development banks under R. A. 7906, lease of land, but excluding the buying and selling
financing companies under R. A. 5980, and activities thereof.  A transferee shall use his land to engage in
listed under List B including defense-related activities that are not included in the Negative List or
activities, if specifically authorized by the Secretary in those areas wherein investment rights have been
of National Defense.cralaw granted to him under this Act.cralaw
RULE XII SECTION 6. Registration of land. - The Register of
RIGHTS OF FORMER NATURAL-BORN FILIPINOS Deeds in the province or city where the land is
TO OWN PRIVATE LAND located shall register the land in the name of the
SECTION 1.  Any natural-born citizen who has lost transferee that it will be used for any of the purposes
his Philippine citizenship and who has the legal mentioned in Section 5 above, i.e., certification of
capacity to enter into a contract under Philippine business registration issued by the
laws may be a transferee of a private land up to a BTRCP/Department of Trade and Industry and
maximum area of 5,000 square meters in the case of affidavit that the land shall be used for business
urban or three [3] hectares in the case of rural land purposes.cralaw
to be used by him for business or other The provision of B. P. 185 [An Act to Implement
purposes.cralaw Section 15 of Article XIV of the Constitution and for
SECTION 2. In case where both spouses are Other Purposes Pertaining to the Ownership of
qualified under the law, one of them may avail of the Private Lands for Residential Purposes by Former
said privilege. However, if both shall avail of the Natural Born Filipinos] and its implementing Rules
privilege, the total area acquired shall not exceed the and Regulations shall be adopted, where applicable,
maximum allowed.cralaw in the implementation of this Act through a Circular
SECTION 3. In case the transferee already owns to be issued by the Land Registration
urban or rural land for business or other purposes, Authority.cralaw
he shall still be entitled to be a transferee of The Register of Deeds shall also ensure that the
additional urban or rural land for business or other limits prescribed by law are observed.cralaw
purposes, which when added to those already
owned by him shall not exceed the maximum areas
allowed.cralaw RULE XIII
SECTION 4. A transferee may acquire not more than TRANSITORY PROVISIONS
two [2] lots which should be situated in different SECTION 1.  Prior to effectivity of these
municipalities or cities anywhere in the Philippines. Implementing Rules and Regulations, the provisions
The total land area acquired shall not exceed 5,000 of Book II of E. O. 226 and its implementing rules
square meters in the case of urban land or three [3] and regulations shall govern the registration of
hectares in the case of rural land for use by him for foreign investments without incentives.cralaw
business or other purposes. A transferee who has SECTION 2. There shall be a transitory period of
already acquired urban land shall be disqualified thirty-six [36] months after issuance of these
from acquiring rural land and vice versa. However, if Implementing Rules and Regulations to implement
the transferee has disposed of his urban land, he the Act.cralaw
may still acquire rural land and vice versa, provided
57
SECTION 3. During the transitory period, the a.  NEDA, in consultation with relevant agencies,
Transitory FINL described in Rule XIV, Section 1 shall enumerate, as appropriate, the areas of
hereof shall take effect.cralaw investment covered in this Transitory FINL.cralaw
b.  The Transitory FINL shall be published in full at
the same time as, or prior to, the publication of these
RULE XIV Implementing Rules and Regulations to implement
TRANSITORY FOREIGN INVESTMENT NEGATIVE the Act.cralaw
LIST
SECTION 1. Description.  - The Transitory FINL shall
consist of the following: RULE XV
a.  List A OPTIONS FOR EXISTING BOI-REGISTERED
All investment areas in which foreign ownership is ENTERPRISES
limited by mandate of the Constitution and specific
laws. SECTION 1.  Existing enterprises which have been
b.  List B issued Certificates of Authority to do Business or to
1.  Manufacture, repair, storage and/or distribution of Accept Permissible Investments under Book II of E.
firearms, ammunition, armored vests and other O. 226, Book II of PD 1789 and R. A. 5455, whose
bullet proof attires, lethal weapons, military
activities are included in the Transitory FINL or in
ordnance, explosives, pyrotechnics and similar
materials required by law to be licensed by and subsequent Negative List, are allowed to continue to
under the continuing regulation of the DND or the undertake the same activities which they have been
PNP, as the case may be. authorized to do subject to the same terms and
 
However, the manufacture or repair of these items conditions stipulated in their certificates of
may be specifically authorized by the Secretary of registration.cralaw
National Defense or the Chief of the PNP to non- Those whose activities have been previously
Philippine nationals, provided a substantial
percentage of output, as determined by the said authorized under Book II of E. O. 226, Book II of PD
agencies, is exported. 1789 and R. A. 5455, and whose activities are not in
  the Transitory FINL or in subsequent Negative Lists
The extent of foreign equity ownership allowed shall
may opt to be governed by the provisions of the
be specified in the said authority/clearance.
  Act.  Said enterprises shall be considered
Compliance with the export requirement shall be automatically registered with the SEC upon
monitored by the DND or PNP, as the case may be.
surrender of their certificates of authority to the BOI.
2.  Manufacture and distribution of dangerous drugs;
The SEC shall issue a new certificate of authority
all forms of gambling, sauna and steam bath houses,
upon advise of the BOI.cralaw
massage clinics and other like activities regulated by
SECTION 2.  Existing enterprises with more than
law because of risks they may pose to public health
forty percent [40%] foreign equity which have
and morals.
availed of incentives under any of the investment
 
3.  Small and medium-sized domestic market incentives laws implemented by the BOI may opt to
enterprises with paid-in equity capital less than the be governed by the Act.  In such cases, said
equivalent of Two hundred thousand US dollars enterprises shall be required to surrender their
[US$200,000.00], are reserved to Philippine
nationals: Provided, That if: [1] they involve certificates of registration, which shall be deemed as
advanced technology as determined by the an express waiver of their privilege to apply for and
Department of Science and Technology, or [2] they avail of incentives under the incentives law under
employ at least fifty [50] direct employees, then a
minimum paid-in capital of One hundred thousand which they were previously registered. Subject to
US dollars [US$100,000.00] shall be allowed to non- BOI rules and regulations, said enterprises may be
Philippine nationals. required to refund all capital equipment incentives
SECTION 2. Formulation of the transitory foreign availed of.
investment negative list.  -
58
 violatio 50,000.00
n
2nd P150,000.00 P
RULE XVI violatio 70,000.00
CONSISTENT GOVERNMENT ACTION n
SECTION 1.  No agency, instrumentality or political 3rd Fine in an amount P100,000.0
subdivision of the Government shall take any action violatio not exceeding 1/2 0
in conflict with or which will nullify the provisions of n of 1% of total paid-
the Act, or any certificate or authority granted in capital but not
hereunder.cralaw more than Five
Million Pesos
Subse Cancellation of
  quent registration granted
RULE XVII violatio under the Act
COMPLIANCE WITH ENVIRONMENTAL STANDARDS n
SECTION 1.  All industrial enterprises, regardless of  
nationality or ownership, shall comply with existing The President and/or official/personnel of the
partnership/corporation responsible for the submission of
rules and regulations, and applicable environmental
fraudulent reports shall be subject to the following
standards set by the Department of Environment and sanctions:
Natural Resources [DENR] to protect and conserve 1st violation - a
the environment.cralaw fine of
The DENR shall provide the SEC with a list of P50,000.00
environmentally critical activities/projects and areas. 2nd violation - a
Necessary clearances may be secured after fine of
registration with the SEC.cralaw P100,000.00
3rd violation - a
fine of
RULE XVIII P200,000.00
ADMINISTRATIVE SANCTIONS c.  For non-submission of the required reports within
SECTION 1. Foreign investments in export twelve [12] months after the taxable year, cancellation of
the certificate of registration granted under the Act.
enterprises.   - Non-compliance by any duly-
d.  For failure of any duly-registered export
registered export enterprise with Rule VI, Sections 3
enterprise to comply, without justifiable reason, with
and 4 above shall be subject to the following
the SEC or BTRCP order to increase its export to at
sanctions:
least sixty percent [60%] of total sales: 
a.  For late submission of the required annual report
 
-
1st violation - written warning  FI PARTNERS SOLE
2nd violation - basic fine of P1,000.00 and a daily fine NE HIP/CORPO PROPR
of P50.00  RATION IETOR
3rd violation - basic fine of P2,000.00 and a daily fine
SHIP
of P100.00 
Subsequent violation - basic fine of P5,000.00  1st P100,000.00 P
  viol 50,000.
b.  For the submission of fraudulent reports - ati 00
FINE PARTNERSHIP/C SOLE on
ORPORATION PROPRIET 2n P150,000.00 P
ORSHIP d 70,000.
1st P 100,000.00 P viol 00
59
 ati a.  Failure of non-Philippine national intending to
on engage in the same line of business as an existing
3rd Fine in an P100,0 joint venture, in which he or his majority shareholder
viol amount not 00.00 is a substantial partner, to disclose such fact and the
ati exceeding names and addresses of the partners in the existing
on 1/2 of 1% of joint venture in his application for registration with
total paid-in the SEC; or
capital but b.  Commission of any other fraudulent act.cralaw
not more SECTION 5. Other violations. - Any other violations
than Five of the Act and these Implementing Rules and
Million Pesos Regulations shall be penalized in accordance with
4th Cancellation Section 14 of the Act.cralaw
viol of registration
ati granted
on under the Act RULE XIX
EFFECTIVITY
The President and/or official of the SECTION 1.  These Implementing Rules and
partnership/corporation responsible in the failure to Regulations shall take effect fifteen [15] days after
comply with the said SEC or BTRCP order shall be
subject to the following sanctions:  publication in a newspaper of general circulation in
the Philippines.
1st violation - a fine
Approved by the NEDA Board:   9 July 1996
of P50,000.00
2nd violation - a fine
of P100,000.00 
3rd violation - a fine
of P200,000.00

SECTION 2. Compliance with environmental

standards. -  Any industrial enterprise, regardless of
nationality of ownership which fails to comply with
existing rules and regulations to protect and
conserve the environment and meet applicable
environmental standards shall be subject to the
sanctions as may be provided for in the rules and
regulations of the DENR.

SECTION 3. Hearing of violations of the Act.  -  The

SEC or BTRCP shall adopt their respective rules and
regulations for the purpose of conducting hearings
and investigations involving violations of the
provisions of the Act and these Implementing Rules
and Regulations.cralaw

SECTION 4. Other grounds for cancellation -  The

following are other grounds for the cancellation of
the certificate of registration granted under the Act:

60