This is a glossary for the Revised Corporation Code (Republic Act No. 11232), including definitions provided in related jurisprudence and issuances of the Securities and Exchange Commission (SEC). The relevant summaries/discussions are linked in each glossary item. This is a work in progress.
Additional paid-in capital
Those reasonable and necessary expenses: 1) incurred in connection with the filing of a petition under these Rules, including filing and professional fees in preparing the petition; 2) arising from, or in connection with the proceedings under these Rules; 3) incurred in the ordinary course of business of the debtor after the commencement date; 4) incurred for the fees of the liquidator/commissioner and/or of the professionals he may engage; and 5) those otherwise authorized or mandated under the FRIA or such other expenses authorized under the FLSP Rules (FLSP Rules, Sec. 5). It also includes reasonable and necessary expenses for the payment of new obligations obtained after the commencement date to finance the rehabilitation of the debtor (FRIA, Sec. 4; FR Rules, Sec. 5).
In general, an agent is a person who binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. [Civil Code, Art. 1868]
An agreement incorporated in the articles of incorporation or bylaws of an unlisted corporation, providing that disputes between the corporation, its stockholders or members, which arise from the implementation of the articles of incorporation or bylaws, or from intra-corporate relations, shall be referred to arbitration. [See Arbitration for Corporations]
The tribunal created pursuant to an arbitration agreement in the articles of incorporation to resolve disputes between the corporation, its stockholders or members, which arise from the implementation of the articles of incorporation or bylaws, or from intra-corporate relations. The arbitrators must be accredited or must belong to organizations accredited for the purpose of arbitration. [See: Arbitration for Corporations]
Articles of Incorporation
An authenticated document signed by incorporators and filed with the Securities and Exchange Commission, containing the prescribed matters for the creation of corporations. [See Contents of Articles of Incorporation]
Anything of value, which may be either tangible or intangible. Tangible assets can be current assets or fixed assets. Current assets may include cash on hand, money in banks or inventory, while fixed assets may include plant, building, property and equipment. Intangible assets may include intellectual property (such as copyrights, patents, and trademarks) and financial assets (such as accounts receivables, subscriptions receivables, and bonds and stocks). The value of these assets must appear in the latest audited financial statements immediately preceding the filing of the petition. In case the debtor is less than three (3) years in operation, it is sufficient that the book value is based on the audited financial statement/s for the two (2) years or year immediately preceding the filing of the petition, as the case may be. [FLSP Rules, Sec. 5]
Audio conferencing is a conference in which people at different locations speak to each other via telephone or Internet connections. [See Guidelines on Teleconferencing, Video Conferencing and Other Electronic Means of Communications]
A “beneficial owner” refers to any natural person who: (a) ultimately owns or controls the corporation; or (b) has ultimate effective control over the corporation. [See Layers of ownership must be disclosed]
Board of Directors
A board consisting of elected stockholders in stock corporations, which exercises the corporate powers, conduct all business, and control all properties of the corporation, unless otherwise provided in the Revised Corporation Code. [See Board of Directors/Trustees]
Board of Trustees
A board consisting of elected members in nonstock corporations, which exercises the corporate powers, conduct all business, and control all properties of the corporation, unless otherwise provided in the Revised Corporation Code. [See Board of Directors/Trustees]
Call for payment
Demand made by the Board of Directors for the payment of unpaid subscription or any percentage thereof, together with any interest accrued, on a specified date. [RCC, S66; See Delinquent stocks; Delinquency sale; Delinquent Stocks and Delinquency Sale]
Certificate of liquidation
The certificate of liquidation is issued by, and contains the approval of ,the Securities and Exchange Commission (SEC) in voluntary and involuntary liquidation of corporations. The dissolution takes effect only upon the issuance of the certificate of dissolution. [See Corporate Dissolution and Liquidation in the Philippines]
Certificate of Stock
A certificate of stock represents the shares in a stock corporation. It is signed by the president/vice-president, countersigned by the secretary/assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the bylaws. Shares of stock so issued are personal property. It is also referred to as “stock certificate”.
All claims or demands of whatever nature or character against the debtor or its property, whether for money or otherwise, liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed. [FRIA, Sec. 4; See Involuntary insolvency for individuals or juridical persons]
A close corporation is one whose articles of incorporation provide that: (a) all the corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding 20; (b) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer allowed under Title XII of the Revised Corporation Code; and (c) the corporation shall not list in any stock exchange or make any public offering of its stocks of any class. [See Close Corporations in the Philippines]
The date on which the court issues a commencement order in a rehabilitation case (FLSP Rules, Sec. 5). It retroacts to the date of filing of the petition for voluntary or involuntary proceedings (FRIA, Sec. 4; FR Rules, Sec. 5). [See Commencement order in rehabilitation proceedings]
Computer conferencing is teleconferencing supported by one or more computers. [See Guidelines on teleconferencing, video conferencing and other electronic means of communications]
The power of a parent corporation to direct or govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries or affiliates, more than 1/2 of the voting power of an enterprise unless, in exceptional circumstances, it can clearly be demonstrated that such ownership does not constitute control. Control also exists even when the parent owns 1/2 or less of the voting power of an enterprise when there is power: (1) over more than 1/2 of the voting rights by virtue of an agreement with investors; (2) to direct or govern the financial and operating policies of the enterprise under a statute or an agreement; (3) to appoint or remove the majority of the members of the board of directors or equivalent governing body; or (4) to cast the majority votes at meetings of the board of directors or equivalent governing body. [FRIA, Sec. 4]
A cooperative is an autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve their social, economic, and cultural needs and aspirations by making equitable contributions to the capital required, patronizing their products and services and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles. [See Introduction to Cooperative Code]
The period of legal existence of corporations. A corporation shall have perpetual existence unless its articles of incorporation provides otherwise. [See Corporate term under the Revised Corporation Code]
A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incidental to its existence. Corporations formed or organized under the Revised Corporation Code may be stock or nonstock corporations.
A religious corporation created by one person for the purpose of administering and managing the affairs, property and temporalities of any religious denomination, sect or church. When a religious corporation is organized by more than one person, it is called a “religious society”. [See also One Person Corporation]
Date of liquidation
A corporation is placed under delinquent status by the Securities and Exchange Commission (SEC) in case of failure to submit the reportorial requirements 3 times (consecutively or intermittently) within a period of 5 years. [See Reportorial requirements of corporations]
A condition of law and fact which ends the capacity of the body corporate to act as such, and necessitates a liquidation and extinguishment of all legal relations existing in respect of the corporate enterprise. [SEC-OGC Opinion No. 09-24 dated 28 July 2009; See Corporate dissolution and liquidation]
An expired corporation is a corporation whose corporate term or term of existence has expired. [See Guidelines on the revival of expired corporations]
A foreign corporation is one formed, organized or existing under laws other than those of the Philippines’ and whose laws allow Filipino citizens and corporations to do business in its own country or State. It shall have the right to transact business in the Philippines after obtaining a license for that purpose in accordance with the Revised Corporation Code and a certificate of authority from the appropriate government agency. [See Introduction to foreign corporations; Domestic corporations]
A judicial or other authority competent to control or supervise a foreign proceeding. [FR Rules, Sec.5]
A collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency, in which proceeding, the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of rehabilitation, re-organization, or liquidation. [FR Rules, Sec.5]
Foreign main proceeding
Foreign non-main proceeding
A foreign proceeding, other than a foreign main proceeding, taking place in a State where the debtor has an establishment, or any place of operations where the debtor carries out a non-transitory economic activity with human means and goods or services. [FR Rules, Sec.5]
A person or entity, including one appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or rehabilitation of the debtor or to act as a representative of the foreign proceeding. [FR Rules, Sec.5]
Founders’ shares may be given certain rights and privileges not enjoyed by the owners of other stocks. Where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not to exceed five (5) years from the date of incorporation; provided, that such exclusive right shall not be allowed if its exercise will violate Commonwealth Act No. 108, otherwise known as the “Anti-Dummy Law”; Republic Act No. 7042, otherwise known as the “Foreign Investments Act of 1991”; and other pertinent laws.
A partnership wherein all partners shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership. [Civil Code, Art. 1816]
General professional partnership
A partnership formed by two or more persons for the exercise of profession, e.g., law and accounting. [Civil Code, Art. 1767]
An independent director is a person who, apart from shareholdings and fees received from the corporation, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to materially interfere with the exercise of independent judgment in carrying out the responsibilities as a director. [See Independent Directors under the Revised Corporation Code; Board of Directors/Trustees]
A natural persons who is a resident and citizen of the Philippines that has become insolvent. [FRIA, Sec. 4; See Liquidation of individual debtors; Suspension of payments] A married individual debtor shall sue or be sued jointly with his or her spouse, except as provided by law. [FLSP Rules, Sec. 6]
The financial incapacity of the debtors to pay their liabilities as they fall due in the ordinary course of business or whenever their liabilities are greater than their assets. [FLSP Rules, Sec. 5; See Liquidation of juridical debtors; Insolvency of individual debtors]
An intra-corporate dispute/controversy arises when the controversy is not only rooted in the existence of an intra-corporate relationship, but also in the enforcement of the parties’ correlative rights and obligations under the Revised Corporation Code and the internal and intra-corporate regulatory rules of the corporation. This is in accordance with the “nature of controversy test”. [See Intra-Corporate Disputes in Corporation Laws]
Issued price refers to the actual price of the subscription. It may be higher than the par value.
Refers to (a) a sole proprietorship duly registered with the Department of Trade and Industry; (b) a partnership duly registered with the Securities and Exchange Commission; or (c) a corporation duly organized and existing under Philippine laws. [FRIA, Sec. 4; Juridical debtors under the FRIA; Corporate rehabilitation, and Insolvency proceedings]
A statutory or contractual claim or judicial charge on real or personal property that legally entitles a creditor to resort to said property for payment of the claim or debt secured by such lien. [FRIA, Sec. 4]
A limited partnership is one formed by two or more persons, having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligations of the partnership. [Civil Code, Art. 1843; See Partnership]
The proceedings under Chapters V, VI (B) and (C), and VII of the Financial Rehabilitation and Insolvency Act (FRIA) of 2010 (Republic Act No. 10142). [See Liquidation of juridical debtors; Insolvency of individual debtors]
The natural person or juridical entity appointed as such by the court pursuant to these Rules and entrusted with such powers and duties as set forth herein; Provided, that if the liquidator is a juridical entity, it must designate a natural person who possesses all the qualifications and none of the disqualifications as its representative, it being understood that the juridical entity and the representative are solidarily liable for all obligations and responsibilities of the liquidator. [FLSP Rules, Sec. 5; See Liquidator in insolvency proceedings]
It is composed of persons, natural or juridical, appointed by the court. It shall take the place of the management and governing body of the debtor, and assume their powers, rights and responsibilities under the law. [FR Rules, Sec.5; See Rehabilitation receiver and management committee]
These are subscribed shares not fully paid but are not yet delinquent. The holders of these stocks shall have all the rights of a stockholder. [RCC, Secs. 62, 71; See Delinquent Stocks and Delinquency Sale]
Shares in stock corporations classified as “preferred shares” or “redeemable shares” without the right to vote, except in legally-mandated instances. [See Non-Voting Shares under the Revised Corporation Code]
Ordinary course of business
Outstanding capital stock
The total shares of stock issued under binding subscription contracts to subscribers or stockholders, whether fully or partially paid, except treasury shares. It is also referred to as “outstanding shares”.
The minimum price per share fixed in the articles of incorporation of stock corporations. The shares or series of shares may or may not have a par value. Stocks shall not be issued for a consideration less than the par or issued price thereof. [See No-par value; Issued value; Classification of Shares]
A parent or parent corporation is a corporation which has control over another corporation either directly or indirectly through one or more intermediaries. [FRIA, Sec. 4; See also Subsidiary; Beneficial owner]
A partnership exists when two or more persons bind themselves to contribute money or industry to a common fund, with the intention of dividing the profit among themselves (Civil Code, Article 1767). The partnership has a juridical personality separate and distinct from that of each of the partners (Art. 1768). The Securities and Exchange Commission (SEC) recognizes the following partnerships for registration: General partnership, Limited partnership, Partnership at will, and General professional partnership.
Partnership at will
A partnership that does not fix its term is a partnership at will. [Ortega vs. CA, G.R. No. 109248, 3 July 1995]
Preemptive right, also called the right of first refusal, is the right of all stockholders in a stock corporation to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings, unless such right is denied by the articles of incorporation. [See Preemptive Rights in the Philippines]
Shares issued by a stock corporation, given preference in the distribution of dividends and in the distribution of corporate assets in case of liquidation, or such other preferences. [See Classification of Shares]
Property of others
Redeemable shares may be issued by the corporation when expressly provided in the articles of incorporation. They are shares which may be purchased by the corporation from the holders of such shares upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of the corporation, and upon such other terms and conditions stated in the articles of incorporation and the certificate of stock representing the shares, subject to rules and regulations issued by the Securities and Exchange Commission.
The restoration of the debtor to a condition of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is immediately liquidated. [FRIA, Sec. 4; See Rehabilitation proceedings]
The person or persons, natural or juridical, appointed as such by the court pursuant to the FRIA and which shall be entrusted with such powers, duties, and responsibilities as set forth herein. Where the rehabilitation receiver is a juridical entity, the term includes the juridical entity’s designated representative. [FR Rules, Sec.5; See Rehabilitation receiver]
Remote Communication means the transfer of data between two or more devices not located at the same site. [See Guidelines on Teleconferencing, Video Conferencing and Other Electronic Means of Communications]
Securities market participant
Units of ownership in the capital stock of stock corporations, for which certificates duly signed and countersigned by the proper officers, and sealed with the seal of the corporation shall be issued in accordance with the bylaws. Shares so issued are personal property. It it is also called “shares of stocks”. [See also Stock Certificate; Classification of Shares]
Also referred to as “certificate of shares”. The term is interchangeable with Certificate of Stock. The Revised Corporation Code uses the term “certificate of stock”.
It is an unorganized business owned by one person. It has no juridical personality separate and distinct from the personality of the owner of the enterprise. The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single individual and requires its proprietor or owner to secure licenses and permits, register its business name, and pay taxes to the national government. The sole proprietor is personally liable for all the debts and obligations of the business. A sole proprietorship is the oldest, simplest, and most prevalent form of business enterprise. [Excellent Quality Apparel, Inc. vs. Win Multirich Builder, Inc., G.R. No. 175048, 10 February 2009]
The period agreed upon by the debtor and its creditors to enable them to negotiate and enter into an out-of-court or informal restructuring/workout agreement or rehabilitation plan. The standstill agreement may include provisions identical with or similar to the legal effects of a commencement order. [FR Rules, Sec.5; See Informal restructuring]
Stay or Suspension Order
An order issued in conjunction with the commencement order that shall suspend all actions or proceedings, in court or otherwise, for the enforcement of claims against the debtor; suspend all actions to enforce any judgment, attachment or other provisional remedies against the debtor; prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of business; and prohibit the debtor from making any payment of its liabilities outstanding as of the commencement date except as may be provided. [FR Rules, Sec.5; See Stay or suspension order in rehabilitation]
These are corporations which have capital stock divided into shares and are authorized to distribute to the holders of such shares, dividends, or allotments of the surplus profits on the basis of the shares held.
A corporation more than fifty percent (50%) of the voting stock of which is owned or controlled directly or indirectly through one or more intermediaries by another corporation, which thereby becomes its parent corporation. [FRIA, Sec. 4]
Suspension of Payments Order
Teleconferencing is the holding of a conference among people remote from one another by means of telecommunication devices such as telephone or computer terminals. It refers to an interactive group communication (three or more people in two or more locations) through an electronic medium. In general terms, teleconferencing can bring people together under one roof even though they are separated by hundred miles. [See Guidelines on Teleconferencing, Video Conferencing and Other Electronic Means of Communications]
Treasury shares are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation through purchase, redemption, donation, or some other lawful means. Such shares may again be disposed of for a reasonable price fixed by the board of directors.
Trust Fund Doctrine
Ultimate effective control
This refers to any situation in which ownership/control is exercised through actual or a chain of ownership or by means other than direct control. [See Layers of ownership must be disclosed]
Videoconferencing is the holding of a conference among people in remote locations by means of transmitted audio and video signals. [See Guidelines on Teleconferencing, Video Conferencing and Other Electronic Means of Communications]